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Annual Reports and Financial Statements 2008
Information solutions
for professionals
www.reedelsevier.com
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8
Annual Reports and Financial Statements 2008
Information solutions
for professionals
www.reedelsevier.com
Our business
Our strengths
Our strategy
Reed Elsevier is a world leading provider of professional information and
online workflow solutions in the Science, Medical, Legal, Risk Information
and Analytics, and Business sectors.
Based in over 200 locations worldwide, we create authoritative content
delivered through market leading brands, enabling our customers to find
the essential data, analysis and commentary to support their decisions.
Our content and solutions are increasingly embedded in the workflows
of our customers making them more effective and Reed Elsevier a more
valued partner.
> www.elsevier.com
> For a detailed operating review turn to page 14
> For a detailed description of the business turn to page 33
Elsevier is a leading provider of scientific, technical and medical information and solutions. The Science &
Technology division is the world’s largest global academic journal publisher, producing over 200,000 new research
articles in some 1,100 journals every year, with ScienceDirect, its flagship electronic product, accessed by over
11 million users. The Health Sciences division publishes over 700 journals and 2,000 books and clinical reference
works annually and offers an extensive portfolio of online tools in education, practitioner reference and point of care.
> www.lexisnexis.com
> For a detailed operating review turn to page 16
> For a detailed description of the business turn to page 35
LexisNexis is a leading provider of legal, tax, regulatory, risk information and analytics, and business information
solutions to professional, corporate and government customers worldwide. LexisNexis provides authoritative
content through trusted market leading brands which, enabled by technology, offers online information solutions
increasingly integrated within the customer workflow. In risk information and analytics, LexisNexis assists
customers in managing risk through identity verification, insurance risk evaluation, employment screening
and fraud prevention.
> www.reedexpo.com
> For a detailed operating review turn to page 18
> For a detailed description of the business turn to page 37
Reed Exhibitions is the world’s leading organiser of trade exhibitions. Through strongly branded, highly targeted
events, Reed Exhibitions provides the forum for exhibitors and attendees to do business, develop contacts and gain
industry insights. Every year there are over 470 events in 37 countries, bringing together over seven million active
event participants worldwide. With over 2,700 employees in 38 offices around the globe, Reed Exhibitions serves
44 industries worldwide.
We hold leadership positions
in large global markets sustained
by the increasing demand for
professional information
We deliver authoritative content
of the highest quality through
market leading brands, enabling
our professional customers to find
the essential data, analysis and
commentary to support their
decisions
Our content and solutions are
increasingly embedded in our
customers’ workflows making
them more effective and Reed
Elsevier a more valued partner
We generate a large part of our
revenues from subscription and
other recurring revenue streams
Our focus on operational efficiency
allows us to deliver good operating
margin while funding investment in
new products
The quality of our profits is
underpinned by strong cash flow
generation
> www.reedbusinessinformation.com
> For a detailed operating review turn to page 20
> For a detailed description of the business turn to page 39
Reed Business Information is a leading global provider of information and marketing solutions to decision makers
and professionals. Its portfolio of market leading brands makes it the preferred communication partner across
a range of markets from agriculture to technology. Reed Business Information publishes over 400 business-to-
business magazines, directories and newsletters; it provides access to over 200 online communities and produces
an increasing number of job sites, lead generation, data and other online services.
We recruit and cultivate the best
talent to serve our customers and
manage our business with enterprise,
professionalism and exceptional
commitment
Deliver authoritative content through
leading brands
Deliver high quality, essential content
to our professional customers.
We invest in new sources of
content to widen and differentiate
our product offering, expanding into
new segments and geographic regions
Drive online solutions
Leverage our leadership brands
and authoritative proprietary content
to deliver innovative, solutions-
oriented products that become
embedded in customer workflows
and enable Reed Elsevier to become
an increasingly valued partner
Improve cost efficiency
Leverage the scale, skill sets,
technology, resources and collective
experience of our businesses to
improve cost efficiency
Reshape and strengthen portfolio
Allocate capital and resources
through a combination of internal
investment and selective acquisitions
to pursue opportunities that
accelerate our strategic and
business progress
197
Reed Elsevier
Annual Reports and
Financial Statements
2008
Credits
Designed and produced by
35 Communications
Board photography by
Julian Calder
Printed by
St Ives Westerham Press Ltd,
ISO14001, FSC certified and CarbonNeutral®
This report has been printed on revive 50:50
Silk paper. This paper is made from pre and
post consumer waste and virgin wood fibre,
independently certified in accordance with
the FSC (Forest Stewardship Council).
It is manufactured at a mill that is certified
to ISO14001 environmental management
standards. The pulp is bleached using
an elemental chlorine free (ECF) process.
The inks used are all vegetable oil based.
The CO2 emissions produced from
the production and distribution of the
Annual Reports and Financial Statements 2008
have been neutralised through forestry and
energy friendly projects around the world.
Our business
Our strengths
Our strategy
Reed Elsevier is a world leading provider of professional information and
online workflow solutions in the Science, Medical, Legal, Risk Information
and Analytics, and Business sectors.
Based in over 200 locations worldwide, we create authoritative content
delivered through market leading brands, enabling our customers to find
the essential data, analysis and commentary to support their decisions.
Our content and solutions are increasingly embedded in the workflows
of our customers making them more effective and Reed Elsevier a more
valued partner.
> www.elsevier.com
> For a detailed operating review turn to page 14
> For a detailed description of the business turn to page 33
Elsevier is a leading provider of scientific, technical and medical information and solutions. The Science &
Technology division is the world’s largest global academic journal publisher, producing over 200,000 new research
articles in some 1,100 journals every year, with ScienceDirect, its flagship electronic product, accessed by over
11 million users. The Health Sciences division publishes over 700 journals and 2,000 books and clinical reference
works annually and offers an extensive portfolio of online tools in education, practitioner reference and point of care.
> www.lexisnexis.com
> For a detailed operating review turn to page 16
> For a detailed description of the business turn to page 35
LexisNexis is a leading provider of legal, tax, regulatory, risk information and analytics, and business information
solutions to professional, corporate and government customers worldwide. LexisNexis provides authoritative
content through trusted market leading brands which, enabled by technology, offers online information solutions
increasingly integrated within the customer workflow. In risk information and analytics, LexisNexis assists
customers in managing risk through identity verification, insurance risk evaluation, employment screening
and fraud prevention.
> www.reedexpo.com
> For a detailed operating review turn to page 18
> For a detailed description of the business turn to page 37
Reed Exhibitions is the world’s leading organiser of trade exhibitions. Through strongly branded, highly targeted
events, Reed Exhibitions provides the forum for exhibitors and attendees to do business, develop contacts and gain
industry insights. Every year there are over 470 events in 37 countries, bringing together over seven million active
event participants worldwide. With over 2,700 employees in 38 offices around the globe, Reed Exhibitions serves
44 industries worldwide.
We hold leadership positions
in large global markets sustained
by the increasing demand for
professional information
We deliver authoritative content
of the highest quality through
market leading brands, enabling
our professional customers to find
the essential data, analysis and
commentary to support their
decisions
Our content and solutions are
increasingly embedded in our
customers’ workflows making
them more effective and Reed
Elsevier a more valued partner
We generate a large part of our
revenues from subscription and
other recurring revenue streams
Our focus on operational efficiency
allows us to deliver good operating
margin while funding investment in
new products
The quality of our profits is
underpinned by strong cash flow
generation
> www.reedbusinessinformation.com
> For a detailed operating review turn to page 20
> For a detailed description of the business turn to page 39
Reed Business Information is a leading global provider of information and marketing solutions to decision makers
and professionals. Its portfolio of market leading brands makes it the preferred communication partner across
a range of markets from agriculture to technology. Reed Business Information publishes over 400 business-to-
business magazines, directories and newsletters; it provides access to over 200 online communities and produces
an increasing number of job sites, lead generation, data and other online services.
We recruit and cultivate the best
talent to serve our customers and
manage our business with enterprise,
professionalism and exceptional
commitment
Deliver authoritative content through
leading brands
Deliver high quality, essential content
to our professional customers.
We invest in new sources of
content to widen and differentiate
our product offering, expanding into
new segments and geographic regions
Drive online solutions
Leverage our leadership brands
and authoritative proprietary content
to deliver innovative, solutions-
oriented products that become
embedded in customer workflows
and enable Reed Elsevier to become
an increasingly valued partner
Improve cost efficiency
Leverage the scale, skill sets,
technology, resources and collective
experience of our businesses to
improve cost efficiency
Reshape and strengthen portfolio
Allocate capital and resources
through a combination of internal
investment and selective acquisitions
to pursue opportunities that
accelerate our strategic and
business progress
197
Reed Elsevier
Annual Reports and
Financial Statements
2008
Credits
Designed and produced by
35 Communications
Board photography by
Julian Calder
Printed by
St Ives Westerham Press Ltd,
ISO14001, FSC certified and CarbonNeutral®
This report has been printed on revive 50:50
Silk paper. This paper is made from pre and
post consumer waste and virgin wood fibre,
independently certified in accordance with
the FSC (Forest Stewardship Council).
It is manufactured at a mill that is certified
to ISO14001 environmental management
standards. The pulp is bleached using
an elemental chlorine free (ECF) process.
The inks used are all vegetable oil based.
The CO2 emissions produced from
the production and distribution of the
Annual Reports and Financial Statements 2008
have been neutralised through forestry and
energy friendly projects around the world.
Overview >
p02
02 Financial highlights
04 Chairman’s statement
06 Chief Executive Officer’s report
10 Our strategy
1
Reed Elsevier
Annual Reports and
Financial Statements
2008
Contents
Operating and
financial review >
p12
13 Divisional summary
14 Elsevier
16 LexisNexis
18 Reed Exhibitions
20 Reed Business Information
22 Chief Financial Officer’s report
22 Combined businesses
30 Parent companies
Our business >
p31
32 Description of business
41 Resources and investments
43 Principal risks
45 Key performance measures
Governance >
p47
48 Directors
50 Corporate responsibility
54 Structure and corporate governance
60 Directors’ remuneration report
81 Report of the Audit Committees
Financial statements
and other information >
p83
184 Combined financial statements
127 Summary combined financial
information in euros
142 Reed Elsevier PLC annual report
and financial statements
162 Reed Elsevier NV annual report
and financial statements
185 Additional information for US investors
190 Shareholder information
195 Principal operating locations
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2
Reed Elsevier
Annual Reports and
Financial Statements
2008
Financial
highlights
Reed Elsevier combined businesses – continuing operations
For the year ended 31 December
Reported figures
Revenue
Operating profit
Profit before tax
Net borrowings
For the year ended 31 December
Adjusted figures
Operating profit
Profit before tax
Operating cash flow
Operating margin
Operating cash flow conversion
2008
£m
2007
£m
%
change
%
change at
constant
currencies
5,334
901
617
5,726
4,584
888
812
492
+16%
+1%
-24%
+7%
-6%
-30%
2008
£m
2007
£m
%
change
%
change at
constant
currencies
1,379
1,205
1,407
25.9%
102%
1,137
998
1,108
24.8%
97%
+21%
+21%
+27%
+12%
+11%
+17%
The results of the Harcourt Education division, sold in separate transactions in 2007 and January 2008, are presented as discontinued operations
and are excluded from revenue, operating profit, profit before tax, operating margin and operating cash flow. The results of Reed Business
Information (RBI) are included within continuing operations. The Reed Elsevier combined financial statements are presented in pounds
sterling on pages 84 to 126. The primary combined financial statements and selected notes are presented in euros on pages 127 to 141.
The Reed Elsevier combined financial statements presented in euros are available on the Reed Elsevier website, www.reedelsevier.com.
Parent companies – total operations
Reed Elsevier PLC
Reported earnings per share
Adjusted earnings per share
Ordinary dividend per share
Reed Elsevier NV
Reported earnings per share
Adjusted earnings per share
Ordinary dividend per share
2008
2007
22.1p
44.6p
20.3p
49.7p
35.9p
18.1p
2008
2007
30.44
30.87
30.404
u1.10
u0.80
u0.425
%
change at
constant
currencies
+15%
%
change at
constant
currencies
+15%
%
change
-56%
+24%
+12%
%
change
-60%
+9%
-5%
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.
Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible assets and
goodwill impairment, exceptional restructuring and acquisition related costs, and, in respect of earnings, reflect a tax rate that excludes the effect
of movements in deferred taxation assets and liabilities that are not expected to crystallise in the near term. Profit and loss from disposals and
other non operating items are excluded from the adjusted figures. Reconciliations between the reported and adjusted figures are provided in
the notes to the combined financial statements. Adjustments made to reported operating profit from continuing operations are amortisation
of acquired intangible assets and goodwill impairment of £290m (2007: £221m), exceptional restructuring and acquisition related costs of
£179m (2007: £20m) and reclassifications of tax in joint ventures of £9m (2007: £8m).
The percentage change at constant currencies refers to the movements at constant exchange rates, using 2007 full year average and
hedge rates.
3
Reed Elsevier
Annual Reports and
Financial Statements
2008
Financial
highlights
continued
> Revenue up 7% and adjusted operating profit up 12%,
at constant currencies
> Underlying revenue growth of 4% (6% excluding
Reed Business Information), driven by growing
demand for online information and workflow solutions
> Online information and workflow solutions now account
for over 50% of revenue
> Adjusted operating margin up 1.1% from good revenue
growth, ongoing cost initiatives and restructuring programme
> Adjusted earnings per share up 15% at constant currencies;
at reported rates up 24% for Reed Elsevier PLC and up 9%
for Reed Elsevier NV; reported growth impacted by strength
of US dollar and euro
> 102% of adjusted operating profit converted into cash
> Return on capital increased to 12.1%, fifth consecutive
year of improvement
Revenue (£m)
with growth at constant currencies (%)
Adjusted operating profit (£m)
with growth at constant currencies (%)
5,334
+7%
4,509 4,584
+7% +6%
4,265
+8%
3,944
+4%
1,379
+12%
1,081 1,137
+14% +11%
981
+10%
909
+5%
04
05
06
07
08
04
05
06
07
08
Adjusted EPS: Reed Elsevier PLC (pence)
with growth at constant currencies (%)
Adjusted EPS: Reed Elsevier NV (g)
with growth at constant currencies (%)
44.6
+15%
33.6
+11%
31.5
+11%
35.9
+12%
28.7
+8%
0.87
+15%
0.80
+12%
0.76
+11%
0.70
+11%
0.64
+8%
04
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07
08
04
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06
07
08
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4
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chairman’s
statement
Jan Hommen
Chairman
2008 has been a successful
year for Reed Elsevier with
significant strategic and
financial progress.
Strategic and financial progress
On strategy, our focus has been on the
reshaping and strengthening of the
portfolio, on streamlining the cost base
and on product innovation. With the sale
of Harcourt Education completed early in
the year and the acquisition of ChoicePoint
in September, Reed Elsevier has become
a sharper, more cohesive and synergistic
business. We were clearly disappointed not
to be able to sell Reed Business Information
due to the difficult credit market and
economic conditions, and our priority now
is to manage RBI through the economic
downturn whilst developing its online
franchises further to be better positioned
for a more favourable market environment.
The major restructuring programme we
announced at the start of 2008 is progressing
on plan, and is delivering cost savings and
support for margin development. Across
the portfolio, we have continued to invest in
new and enhanced online product offerings
to make our customers more productive
and Reed Elsevier a more valued partner.
In financial performance, our focus has
been on margin development and capital
discipline. Good revenue growth, tight cost
control and our restructuring programmes
have delivered meaningful underlying
margin improvement; our cash generation
was strong; and our return on capital at
record levels. Adjusted earnings per share
growth of 15% at constant currencies
was the highest rate of growth in the last
ten years.
Following the return to shareholders of
the net proceeds of the Harcourt Education
sale and the acquisition of ChoicePoint,
we increased our debt beyond more usual
levels for Reed Elsevier. However, with the
refinancing programme well advanced and
our substantial free cash flow, we are in a
strong financial position.
5
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chairman’s
statement
continued
Outlook
Going into 2009, the economic environment
is more challenging than it has been for
a long time. Although the professional
markets we serve are more resilient than
most, they are not immune and business-
to-business markets are more significantly
affected. Our strategy, however, is clear and
the business well positioned, with investment
continuing in our online product and
restructuring plans already demonstrating
results. We should therefore see positive
earnings growth at constant currencies in
2009, even if not at the growth levels seen in
recent years. The longer term prospects for
Reed Elsevier continue to be promising and
we are well placed as markets recover.
Board changes
Crispin Davis will hand over the reins
to Ian Smith towards the end of March.
Crispin has been CEO for the last nine years
which have seen significant change in the
publishing industry and the transformation
of Reed Elsevier. Today Reed Elsevier is
one of the leading digital, professional
information companies in the world, and
is a market leader in most of its markets,
with a strong online presence and well
defined strategy going forward. Crispin
leaves an impressive record on which to
build, and I would like to thank him for
his exceptional contribution.
Ian Smith joined Reed Elsevier as CEO-
designate in January. Ian is spending his
time getting to know Reed Elsevier’s
businesses, employees and customers
before he takes over from Crispin in March.
So far the handover has been smooth and
well planned. We have every reason to
believe that Ian will provide strong
leadership to the business.
I will step down as Chairman and from
the Boards following the Annual General
Meetings in April 2009. It will not be possible
for me to combine the Chairmanship with
the CEO position of ING Group which I take
up in April.
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Looking back
During my tenure as Chairman, next to my
normal duties, I have especially focused on
helping management with a number of
important areas: management
development, capital management,
innovation management, portfolio
management and making processes and
systems more common and standardised.
I must compliment the management and
the people of Reed Elsevier with the
progress they have made in these areas.
I would like to thank my Board colleagues
and all those I have worked with over the
last four years; it has been a privilege to
work with such dedicated and talented
people. Although the economic environment
is currently the most challenging many of
us have ever encountered, it will pass and
Reed Elsevier is firmly positioned for long
term success for its customers, its
employees and its shareholders.
Jan Hommen
Chairman
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6
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Executive
Officer’s
report
Sir Crispin Davis
Chief Executive Officer
I am pleased to report
on a very successful year
for Reed Elsevier with major
progress in developing the
business, and the strongest
constant currency adjusted
earnings per share growth
in a decade. Good revenue
growth was seen across
most of the business driven
by the growing demand
for online information
and workflow solutions.
I am pleased to report on a very successful
year for Reed Elsevier with major progress
in developing the business, and the
strongest constant currency adjusted
earnings per share growth in a decade.
Good revenue growth was seen across
most of the business driven by the growing
demand for online information and
workflow solutions. This, together with
a strong focus on restructuring and cost
management delivered meaningful margin
improvement. Operating cash generation
was excellent. Whilst the economic
environment has become progressively
more challenging, our business is more
resilient than most and we are in a
strong financial position.
Underpinning Reed Elsevier’s progress in
recent years has been a consistent focus
on three strategic priorities: driving online
workflow solutions with our professional
customer base; reshaping the portfolio into
a faster growing, more cohesive whole; and
improving cost efficiency and stronger
margin growth.
Driving workflow solutions
As our customers increasingly conduct
their business online, this gives Reed
Elsevier significant opportunities to
leverage technology to provide information
driven solutions and embed our online
products into their workflows. This
enhances customer productivity and
effectiveness. In 2008, over 50% of Reed
Elsevier’s revenues (ie £2.7 billion/u3.4
billion) were online and these revenues
grew at +14% at constant currencies.
The year saw further demonstrable
progress across the business from
continued investment in online product
development, both from the launch of a
wide range of new, innovative products,
and from customers responding positively
to the benefits of these products.
Online revenue ($bn)
5.0
4.3
3.6
3.3
2.8
04
05
06
07
08
7
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Executive
Officer’s
report
continued
In Elsevier, subscription renewals reached
record levels whilst other online solutions
for the scientific and healthcare
communities grew rapidly. Online legal
information solutions have continued to
expand, and there is growing demand for
information analytics in the risk market.
In legal research we see significant
opportunities for more intuitive and
interoperable offerings to enhance
customer productivity and are stepping
up our investment to reflect this.
Reed Business Information’s successful
organic development over the past few
years of innovative products and significant
online franchises is now delivering over
£330 million/u420 million of revenues.
Reshaping the portfolio
The year has also seen a major reshaping
of our business with completion of the
sale of the remaining Harcourt Education
businesses and the acquisition of
ChoicePoint. ChoicePoint transforms our
position in the risk information and analytics
sector and the strategic and financial
benefits are very attractive. The business
has performed well with the insurance data
and services business, which accounts for
the substantial majority of ChoicePoint’s
operating profits, delivering 10% year-on-year
organic revenue growth. The integration with
our existing risk business is progressing
well and we are confident of achieving our
savings targets.
We were disappointed not to be able to sell
Reed Business Information, but the macro-
economic environment and poor credit
market conditions made it too difficult to
structure a transaction on acceptable terms.
Whilst the short term outlook for RBI is very
challenging, RBI is a high quality business,
with a strong management team. It remains
our intention to divest RBI in the medium
term when conditions are more favourable.
Improving cost efficiency
The $290 million restructuring programme
announced in February 2008 is progressing
well and is expected to deliver a 2½ year cash
payback, with the targeted 2008 cost savings
of $30 million delivered and the targeted
$200 million annual savings by 2011 on track.
The scope of the programme has now been
expanded both to include the RBI business
and to add further restructuring and
consolidation opportunities which have been
identified, reflecting the good progress made
and the more challenging economic
environment. The additional savings identified
represent a 2½ year payback on a further
$220 million of restructuring costs, and give
additional targeted annual savings of $150
million by 2011; the bulk of this represents
the inclusion of RBI in the programme.
Financial performance
2008 saw a strong financial performance.
Revenues from continuing operations
were up 7%, adjusted operating profits
up 12% and adjusted earnings per share
up 15%, all at constant currencies, with
good performances seen across almost
all the businesses.
Elsevier had a successful year driven by
new publishing and continued expansion
of our online information and workflow
solutions as well as increasing cost
efficiency. The year saw good underlying
revenue growth, significant underlying
margin improvement, and further major
progress in the development of the business.
LexisNexis had a good year despite more
challenging markets with continued growth
in online information solutions in the US
large law firm market and internationally,
and good growth in risk information and
analytics markets. Good revenue growth
and the cost actions taken to improve
efficiency delivered significant underlying
margin improvement.
Adjusted operating margin (%)
Return on capital employed (%)
25.9
24.8
24.0
23.0
23.0
12.1
11.8
11.0
10.2
9.4
04
05
06
07
08
04
05
06
07
08
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8
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Executive
Officer’s
report
continued
The Boards are recommending an increase
in the equalised final dividends for Reed
Elsevier PLC of 10% and a decrease for
Reed Elsevier NV of 7%, to give total
dividends for the year up 12% and down 5%
for Reed Elsevier PLC and Reed Elsevier NV
respectively. The difference in growth rates
in the equalised dividends reflects the
significant strengthening of the euro against
sterling since the prior year.
Additionally, in January 2008, we returned to
shareholders an aggregate £2.0 billion/u2.7
billion from the net proceeds of the Harcourt
Education sale via a special distribution of
82.0p per share for Reed Elsevier PLC and
u1.767 for Reed Elsevier NV.
Strong financial position
Following the return to shareholders of
£2.0 billion/u2.7 billion of net proceeds
from the Harcourt Education sale and the
£2.1 billion/u2.7 billion acquisition of
ChoicePoint, Reed Elsevier remains in
a strong financial position with excellent
cash generation. In January 2009 we issued
$1.6 billion of term debt as part of our
planned refinancing of the ChoicePoint
acquisition facility and Reed Elsevier’s term
debt maturities are well spaced over the
next few years. In February we extended
our revolving credit facilities beyond the
2010 maturity. Over the next 12-18 months
our focus is on repayment of debt and to
restore Reed Elsevier’s credit ratios to
more usual levels.
Reed Exhibitions had an exceptional year
with successful major shows and the net
cycling in of biennial exhibitions, and
demonstrated that, in an increasingly online
world, “face to face” exhibitions continue to
deliver significant value for exhibitors and
visitors alike.
Reed Business Information held up well
despite difficult economic conditions
throughout most of the year. This was,
however, not enough to counter the recent
impact on advertising markets of the
downturn in global economic conditions.
The quality of the operating profits is
underpinned by strong cash flow, with 102%
of adjusted operating profits converting into
cash. Free cash flow before restructuring,
acquisition spend and dividends was
£999 million/u1,259 million. The return on
average capital employed for the continuing
businesses increased further to 12.1% post
tax, the fifth successive year of rising returns.
Earnings per share and dividends
At reported exchange rates, adjusted
earnings per share were up 24% for Reed
Elsevier PLC to 44.6p and 9% for Reed
Elsevier NV to u0.87. The higher growth in
sterling than the 15% at constant currencies
reflects sterling weakness against the prior
year and the lower growth in euros reflects
the strengthening of the euro.
Reported earnings per share were down
56% to 22.1p and 60% to u0.44 for Reed
Elsevier PLC and Reed Elsevier NV
respectively, principally reflecting that 2007
reported earnings included the gain on sale
of Harcourt Education businesses and prior
year tax credits.
150
years
Gray’s Anatomy >
In September 2008, Elsevier celebrated the
150th anniversary of the original publication
of Gray’s Anatomy: The Anatomical Basis of
Clinical Practice, publishing the 40th edition
of this world-renowned anatomical reference.
With more than 2,000 images in full colour,
users of Gray’s Anatomy have unparalleled
views of every anatomical detail of the
human body.
9
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Executive
Officer’s
report
continued
In March, Ian Smith will succeed me as
Chief Executive Officer. Ian joined us at the
beginning of the year and has spent most
of his time with our businesses and meeting
customers. He will make a meaningful
impact in the development and success
of Reed Elsevier and I wish him well for
the future.
It has been a privilege to lead Reed Elsevier
for the last nine and a half years. It is a
great business, what we do is important to
the communities we serve and to society,
and our people are remarkably committed
and talented. They do an outstanding job,
caring greatly about what they do and the
customers we serve, and I want to take this
opportunity to thank them all.
Sir Crispin Davis
Chief Executive Officer
Outlook
In the short term, 2009 is clearly going
to be a more difficult year with most of the
world’s largest economies currently in
recession. The key professional markets
served by Elsevier and LexisNexis (which
account for about 80% of Reed Elsevier’s
adjusted operating profits), while not
immune to the impact of the economic
downturn, are more resilient than
most and these businesses benefit from
a strong subscription base and the growing
demand for online solutions. In our
business-to-business markets (accounting
for about 20% of Reed Elsevier’s adjusted
operating profits) the demand for advertising
and marketing services has been much
more affected by the tougher economic
environment. We therefore expect to
show a profit decline this year in these
businesses, including the effect on our
Exhibitions business of the net cycling
out of biennial shows.
Overall, with the cost actions we are taking,
while continuing to invest in new and
upgraded products, Reed Elsevier should
see positive adjusted earnings per share
growth at constant currencies in 2009.
In the longer term, I believe Reed Elsevier
is well placed to develop and grow strongly.
We have leadership positions in large,
global growth markets, strong and well
established brand franchises, are seeing
increasing success from the focus on online
products, and financially Reed Elsevier is
in a strong position. These are fundamental
strengths that, together with the actions
we are taking outlined above, will stand
Reed Elsevier in good stead for the future.
Full reports online >
The Reed Elsevier Annual Reports and Financial
Statements 2008 are now available to view online.
www.reedelsevier.com/annualreport08
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10
Reed Elsevier
Annual Reports and
Financial Statements
2008
Our strategy
Our strategy is directed at the delivery of authoritative content
and innovative solutions that are increasingly embedded in
our customers’ workflows, making them more effective and
Reed Elsevier a more valued partner
Deliver authoritative content through leading brands
We deliver high quality essential content to our professional customers
We deliver authoritative content of the highest quality through market leading brands. In
our publications and services our professional customers find the essential data, analysis
and commentary to support their decisions. Editorial investment and selective acquisitions
are generating new sources of content to widen and differentiate the product offering to
customers, and to allow expansion into new segments and geographic regions. As online
information sources increase, our trusted leadership brands play an ever more vital role.
Drive online solutions
We are leveraging our leadership brands and authoritative proprietary content to
deliver innovative solutions that become embedded in customers’ workflows and
enable Reed Elsevier to become an increasingly valued partner
Over the last 10 years our digital revenues have built to £2.7 billion/u3.4 billion, more than
50% of total revenue. Authoritative information delivered through highly functional online
services and associated workflow solutions is making our customers more effective
professionally and making Reed Elsevier a more valued partner. As our customers in our
core science, medical, legal, risk and business-to-business markets rapidly migrate online,
there are opportunities to leverage our leadership brands and proprietary content. Digital
technology enables us to move up the value chain with our customers by providing a range
of innovative solution products that become embedded in their workflows. Further online
development is playing a major part in our strategy going forward.
Improve cost efficiency
We are leveraging the scale, skill sets, technology, resources and collective experience
of our businesses to improve cost efficiency
Digital growth and an increasingly synergistic portfolio provide opportunities to further
leverage scale and commonalities across the business, sharing skill sets, resources and
collective experience. Opportunities identified across our businesses in organisational
consolidation, the supply chain, technology and infrastructure are on track to deliver
$200 million of annual cost savings by 2011 through the restructuring programme
announced in February 2008. This programme has since been expanded and, together
with the addition of a major restructuring programme in Reed Business Information,
we are targeting a further $150 million of annual savings by 2011. Our focus on operational
efficiency is aimed at delivering good operating margins while funding ongoing investment
in new products and markets.
11
Reed Elsevier
Annual Reports and
Financial Statements
2008
Our strategy
continued
Reshape and strengthen portfolio
We allocate capital and resources through a combination of internal investment
and selective acquisitions to pursue opportunities that accelerate our strategic
and business progress
We have been implementing an important reshaping of the business, with the strategic
goal of moving more assets away from slower growth, cyclical advertising/print based
sectors, and more towards faster growth, less cyclical online based sectors. In addition
to significant internal development, we have spent £3.6 billion/u4.8 billion on acquisitions
and completed disposals with a value of £2.4 billion/u3.4 billion over the past five years to
meet this strategic goal. We have developed and acquired strong brands and proprietary
content, customer workflow solutions and leading technologies, and expanded into
attractive adjacent markets, most notably in risk management, legal solutions, health,
e-business, and exhibitions in emerging markets.
In 2007 and early 2008 we completed the sale of the Harcourt Education business and
in September 2008 we completed the acquisition of ChoicePoint which transforms our
position in the attractive risk information and analytics sector. The planned divestment
of Reed Business Information announced in February 2008 was put on hold given the
poor credit markets and macroeconomic environment; it however remains the intention
to divest RBI in the medium term when market conditions are more favourable.
Financial strategy
Our business and financial strategy is directed at building revenue momentum,
good margin improvement, high cash generation, adjusted earnings per share
growth and growing returns on capital
We are well positioned in markets with attractive long term growth prospects sustained by
the continuing demand for professional information. We have a clear investment led growth
strategy focused on building revenue momentum across all our businesses. This, together
with improvements in cost efficiency and organisational effectiveness, will flow through to
operating profitability and cash flow.
We manage the capital structure to support our objective of maximising long term
shareholder value through ready access to the debt and capital markets, cost effective
borrowing and flexibility to fund business and acquisition opportunities whilst maintaining
appropriate leverage to optimise the cost of capital. Over the longer term we target credit
metrics consistent with a solid investment grade credit rating, including net debt to
adjusted EBITDA in the range of 2x to 3x.
Our use of cash over the longer term reflects these objectives through a progressive
dividend policy, selective acquisitions and from time to time, to maintain an appropriate
capital structure, share repurchases. Our current focus is on the repayment of debt out
of cash flow to restore Reed Elsevier’s credit ratios to more usual levels following the
ChoicePoint acquisition.
Our incentive programmes are designed in support of these strategies and in creating
shareholder value.
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12
Reed Elsevier
Annual Reports and
Financial Statements
2008
Operating
and financial
review
13 Divisional summary
14 Elsevier
16 LexisNexis
18 Reed Exhibitions
20 Reed Business Information
22 Chief Financial Officer’s report
22 Combined businesses
30 Parent companies
13
Reed Elsevier
Annual Reports and
Financial Statements
2008
Operating
and financial
review
Revenue by division
1
4
3
Divisional summary
Continuing operations
Revenue
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Total
Adjusted operating profit
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Unallocated items
Total
2008
£m
2007
£m
%
change
O
v
e
r
v
i
e
w
%
change at
constant
currencies
1,700
1,940
707
987
5,334
568
513
183
126
(11)
1,507
1,594
577
906
4,584
477
406
139
121
(6)
+13%
+22%
+23%
+9%
+16%
+19%
+26%
+32%
+4%
+4%
+13%
+9%
+1%
+7%
+11%
+18%
+14%
-4%
1,379
1,137
+21%
+12%
Discontinued operations
Revenue
Adjusted operating profit
2
12
–
752
121
Adjusted figures and constant currency growth rates are used by Reed Elsevier as additional
performance measures. Adjusted operating profit is stated before amortisation of acquired
intangible assets and goodwill impairment, exceptional restructuring and acquisition related
costs, and is grossed up to exclude the equity share of taxes in joint ventures. Exceptional
restructuring costs principally relate to the major restructuring programme announced
in February 2008 and to Reed Business Information (RBI). Constant currency growth rates are
based on 2007 full year average and hedge exchange rates.
Unless otherwise indicated, all percentage movements in the following commentary
refer to performance at constant exchange rates. Underlying growth rates are calculated
at constant currencies, excluding acquisitions and disposals. The reported operating profit
figures are set out in note 1 to the combined financial statements and reconciled to the adjusted
figures in note 11.
Discontinued operations relate to the Harcourt Education division, sold in separate
transactions in 2007 and January 2008.
1 Elsevier 32%
2 LexisNexis 36%
3 Reed Exhibitions 13%
4 Reed Business
Information 19%
Adjusted operating
profit by division
4
1
3
2
1 Elsevier 41%
2 LexisNexis 37%
3 Reed Exhibitions 13%
4 Reed Business
Information 9%
Forward looking statements > The Reed Elsevier Annual Reports and Financial Statements
2008 contain forward looking statements within the meaning of Section 27A of the US
Securities Act 1933, as amended, and Section 21E of the US Securities Exchange Act 1934,
as amended. These statements are subject to a number of risks and uncertainties and actual
results, and events could differ materially from those currently being anticipated as reflected
in such forward looking statements. The terms ‘expect’, ‘should be’, ‘will be’ and similar
expressions identify forward looking statements. Factors which may cause future outcomes
to differ from those foreseen in forward looking statements include, but are not limited
to: general economic and business conditions in Reed Elsevier’s markets; exchange rate
fluctuations; demand for our products and services; competitive factors in the industries
in which we operate; legislative, fiscal and regulatory developments; changes in law and
legal interpretations affecting Reed Elsevier’s intellectual property rights and internet
communications; the impact of technological change; and other risks referenced from time to
time in the filings of Reed Elsevier PLC and Reed Elsevier NV including with the US Securities
and Exchange Commission.
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Operating and financial review continued
During the year Elsevier continued to invest in developing
the solutions product pipeline focusing on content
integration and interoperability to deliver contextualised
answers instead of documents. A good example of this
continuous innovation is Illumin8, an online workflow
solution designed to help corporate researchers answer
complex research and development questions with
greater speed and efficiency. In Health, Mosby’s Nursing
Skills had a successful rollout; CPMRC, the provider of
nursing care plans acquired in December 2007, was
integrated within the clinical decision support business;
and MEDai acquired in January 2008 was combined with
the payer solutions business to provide data and analytics
on healthcare outcomes.
Significant progress was made during the year in
improving cost efficiency through restructuring of
operations and leveraging shared service functions.
Journal and book production operations have increasingly
been outsourced in recent years and 2008 saw a step up
in production activities in Elsevier’s offshore facilities in
India. The year also saw significant outsourcing of
software engineering and financial transaction
processing. These ongoing programmes together with
the increasing consolidation across Reed Elsevier of
technology operations, procurement and real estate
management are keeping costs under tight control.
For 2009, subscription renewals are mostly completed
and are encouraging. We expect continued growth in
scientific research and in demand for our online solutions
that make researchers more productive, although
increasing pressure on academic budgets is likely to
affect discretionary purchases. The health professions
continue to grow and our products are integral to their
training, continuing education and practice. We expect
however to see continued weakness in pharma promotion
markets and lower growth in Asian markets particularly
in imported US medical books given the strengthening of
the US dollar. Whilst 2009 may not be quite as buoyant as
2008, we expect satisfactory revenue development and
further underlying margin improvement driven by our
cost efficiency programme.
8 www.elsevier.com
14
Reed Elsevier
Annual Reports and
Financial Statements
2008
2008
£m
2007
£m
%
change at
constant
change currencies
%
Revenue
Science & Technology
Health Sciences
Total
848
852
774 +10%
733 +16%
1,700
1,507 +13%
+2%
+6%
+4%
Adjusted operating profit
477 +19% +11%
Adjusted operating margin 33.4% 31.7% +1.7pts +2.2pts
568
Elsevier has had a successful year driven by new
publishing and continued expansion of our online
information and workflow solutions as well as increasing
cost efficiency. The year saw good underlying revenue
growth, significant margin improvement, and further
major progress in the development of the business.
Revenues were up 5% at constant currencies and
adjusted operating profits up 10% before acquisitions and
disposals. Underlying margin improvement was 160 basis
points, driven by the good revenue growth and tight cost
management.
Including the effect of acquisitions and disposals, most
notably the sale in 2007 of the MDL software business,
revenues were 4% higher at constant currencies and
adjusted operating profits up 11%. The overall adjusted
operating margin was up 170 basis points at reported
exchange rates to 33.4%.
The Science & Technology business saw underlying
revenue growth of 6%. ScienceDirect and journal
subscription renewals were at a record 98%.
ScienceDirect saw a continued widening of distribution
in small academic and emerging markets, and usage
again increased by over 20% measured by article
downloads. Good growth in online databases, including
the Scopus scientific abstract and indexing database,
and electronic book sales also contributed to the strong
revenue growth. Taking the MDL disposal into account,
revenues were up 2% at constant currencies.
The Health Sciences business saw underlying revenue
growth of 4%, held back by the continued weakness
in pharma promotion markets. The Clinical Solutions
business performed well with new publishing and strong
demand for online workflow solutions that combine
content with predictive analytical algorithms. The Nursing
and Health Professionals segment also saw strong growth
with its successful publishing programme and online
resources. In the pharma market, advertising and other
promotional revenues declined 5% reflecting fewer drug
launches and a contraction of marketing budgets. Excluding
pharma, Health Sciences’ underlying revenues were up 6%.
American hospitals lacked 100,000 nurses in 2007; by 2016 a 500,000 shortfall
is predicted. Yet nursing schools still turn down 40,000 qualified applicants
every year. Why? One reason is the lack of clinical training facilities. Elsevier’s
Simulation Learning System is addressing this by integrating simulation
technology solutions into nursing curricula.
Assess
virtual patient
symptoms
Combine
with Elsevier
course
materials
Incorporate
simulation
scenarios
into nursing
curricula
Grade and
remediate
students
individually
Enhance clinical
training and
decision-making
16
Reed Elsevier
Annual Reports and
Financial Statements
2008
Revenue
United States
International
Total
2008
£m
2007
£m
%
change at
constant
change currencies
%
1,395
545
1,113 +25% +16%
+6%
481 +13%
1,940
1,594 +22% +13%
406 +26% +18%
Adjusted operating profit
Adjusted operating margin 26.4% 25.5% +0.9pts +1.1pts
513
LexisNexis has had a good year despite more challenging
markets, with continued growth in online information
solutions in the US large law firm market and
internationally, and good growth in risk information
and analytics markets. Good revenue growth and the
cost actions taken to improve efficiency delivered
significant margin improvement.
Revenues were up 5% at constant currencies and
adjusted operating profits up 10% before acquisitions
and disposals. Underlying margin improvement was
130 basis points, driven by the good revenue growth
and tight cost management.
Including the ChoicePoint business acquired in
September 2008 and after other acquisitions and
disposals, revenues were 13% higher at constant
currencies and adjusted operating profits up 18%.
The overall adjusted operating margin was up
95 basis points at reported exchange rates to 26.4%.
LexisNexis US saw underlying revenue growth of 4%.
In US legal markets, good growth in online information
solutions in the large law firm market was tempered
by slower growth in smaller law firms and marginal
declines in corporate and government markets reflecting
an increasingly challenging economic environment. The
risk information and analytics group saw 8% underlying
growth, ie before taking into account the ChoicePoint
business, driven by the collections sector, government
and growing demand from the insurance, healthcare
and energy sectors, whilst revenues from the financial
services sector were flat. Including acquisitions and
disposals, revenues were up 16% at constant currencies.
ChoicePoint, acquired in September 2008, saw strong
proforma 2008 underlying revenue growth of 10% in
the insurance business, which contributes over 85% of
ChoicePoint’s adjusted operating profits. The insurance
business, which helps insurance carriers evaluate
underwriting risk, was driven by increased transaction
activity, reflecting insurance policy churn in the auto
and property insurance markets, and by the increasing
adoption by carriers of more powerful analytics in
the underwriting process. The remaining ChoicePoint
businesses saw revenues 6% lower reflecting the effect
Operating and financial review continued
of the weaker economic environment on demand for
pre-employment screening and for identity verification
products from the mortgage and financial services sector.
The integration of ChoicePoint and the LexisNexis risk
information and analytics group is progressing well,
led by one management team drawn from both businesses
headquartered in Atlanta, and is firmly on track to deliver
the targeted annual cost savings of $150 million by
the third year of ownership. Overall, the ChoicePoint
acquisition is on track to hit our returns targets.
The LexisNexis International business saw good
underlying revenue growth of 5%, driven by new
publishing and the growing penetration of online
information services across its markets. Good growth
was seen in UK legal markets, France and elsewhere
in Europe, and in South Africa, although the growth rate
was behind the previous year’s reflecting the tougher
economic environment. Electronic products now account
for 46% of International revenues and the business
has continued to expand its workflow solutions through
organic development and selective acquisition. In April,
the Latin American business was sold as it did not offer
sufficiently attractive strategic and financial returns.
Taking acquisitions and disposals into account, revenues
were up 6% at constant currencies.
During the year, LexisNexis has continued to invest
significantly in developing and enhancing its workflow
solutions, adding content and functionality and
improving usability. A particular focus has been in
practice management, litigation services and in client
development which has seen the acceleration of
Martindale-Hubbell’s evolution from a legal directory
business to a web marketing services provider for law
firms and online legal market place for consumers.
A new investment programme now underway is aimed
at transforming the productivity of US legal research with
modernised technology and advanced algorithms and
functionality to provide much more powerful contextual
solutions for customers and at greater speed. Combined
with this is a major upgrade in back office infrastructure
and customer service and support platforms to provide
an integrated and superior customer experience
across our US legal research, client development
and solutions products.
LexisNexis saw significant further improvement in
adjusted operating margin through organisational
consolidation and restructuring. The US Legal business
and the Corporate and Public Markets business other
than Risk were combined into one organisation early
in the year and the US operations consolidated with
significant streamlining of management and operational
activities. In addition to cost savings, this realignment
positions the organisation better to support the
development and marketing of Total Solutions.
Outsourcing of non-core activities has also accelerated
with the outsourcing of systems engineering and
C.L.U.E., a service developed by ChoicePoint and acquired by LexisNexis
in September 2008, has changed the dynamics of the US property and
casualty insurance industry over the past two decades. The nation’s most
comprehensive personal loss history database is a vital tool for pricing
insurance policies. Automobile and property insurers use C.L.U.E. to assess
risk and to mitigate fraud.
Search
200 million
auto and
40 million
property
loss records
Refine risk
assessment
using
analytical
tools
Generate
loss history
report of the
consumer
Integrate with
insurance
carrier
in-house
systems
Insurer
assesses risk
and quotes
price to
consumer
18
Reed Elsevier
Annual Reports and
Financial Statements
2008
maintenance, data fabrication, software development
engineering and other activities. These ongoing
programmes together with consolidation within
Reed Elsevier of technology operations, procurement
and real estate management, are keeping costs under
firm control and releasing funds for investment.
Looking ahead to 2009, legal and risk markets are more
resilient than most but by no means immune from the
deterioration in economic conditions. Law firm activity
and corporate and government budgets are increasingly
under pressure and this will reduce underlying revenue
growth. LexisNexis has however a strong subscriber
base, continuous releases of new publishing and
workflow solutions to enhance customer productivity,
a growing Risk business, and the benefit of a full year’s
contribution of ChoicePoint growth and synergies.
The Risk business should see continued strong growth
in the insurance business and collections sector and
increasing demand from government. The gearing
effects of lower underlying revenue growth and increased
investment on adjusted operating margin should be offset
by the benefits of the restructuring and other actions
to improve cost efficiency and the growing profitability
of the ChoicePoint business.
8 www.lexisnexis.com
Revenue
%
change at
constant
change currencies
%
2007
£m
577 +23%
+9%
2008
£m
707
Adjusted operating profit
139 +32% +14%
Adjusted operating margin 25.9% 24.1% +1.8pts +1.1pts
183
Reed Exhibitions had an exceptional year with successful
major shows and the net cycling in of biennial exhibitions,
demonstrating that, in an increasingly online world,
“face to face” exhibitions continue to deliver significant
value for exhibitors and visitors alike.
Revenues were up 11% at constant currencies and
adjusted operating profits up 20% before acquisitions
and disposals. The strong growth was driven by good
performances by annual shows and new events, together
with the cycling in of non-annual shows. Excluding
cycling effects, underlying revenue growth was 5%.
The adjusted operating margin showed underlying
improvement of 180 basis points reflecting the good
revenue growth, tight cost control and the effect of the
significant net cycling in at the show contribution level.
Operating and financial review continued
Reported revenues and adjusted operating profits were
up 9% and 14% respectively at constant rates including
acquisitions and disposals, most notably the sale of the
defence sector shows. Overall adjusted operating margin
was up 180 basis points at 25.9%.
Good growth was seen across most of the show portfolio
with particular successes at the ISC West security
show and National Hardware in the US; the Interclima
Interconfort heating/cooling systems show and the
Equip’Hotel catering show in Paris, and the Pollutec Lyon
environment event; the Aluminium show in Germany;
the Mipim international property show and Mipcom in
Cannes; and the London International Book Fair and
World Travel Market in London. The severe downturn
in the Spanish residential property sector did however
significantly reduce the size of the SIMA residential
property show in Madrid. In Japan, M-Tech and other
shows performed strongly. The biennial shows cycling
in contributed 6% to underlying revenue growth; the most
significant show cycling in was the Mostra Convegno
Expocomfort show in Milan and cycling out was the
Batimat construction show in Paris.
During the year Reed Exhibitions launched 24 new
shows including the very successful Photovoltaic Power
Generation event in Tokyo, and acquired nine others,
expanding its footprint in the Middle East, Russia, India
and China. The sale of the defence shows was completed
in May 2008. This will further exaggerate the year-on-year
impact of show cycling in 2009 and beyond with no ‘odd’
year DSEi show to help balance the ‘even’ year benefit
of Mostra Convegno and other biennial shows.
Reed Exhibitions’ strong performance in 2008 is in part
reflective of the more resilient and late cycle nature of the
exhibitions business, in comparison to other marketing
channels. Exhibitors book hall space well in advance and
in a downturn demand tends to concentrate on leading
events. The second half saw continued good growth
overall in annual shows and in cycling events, although
some shows were cancelled and the outlook has become
progressively tougher across geographies and most
industries. Taking into account the budget pressures
on exhibitors and visiting delegates, as well as the net
cycling out of biennial shows and the sale of the defence
shows, the 2009 outlook is for revenue decline and lower
adjusted operating margin against an exceptional year in
2008. Whilst it is too early to judge the economic outlook
and demand beyond, 2010 will see the cycling back in of
major biennial shows with a positive boost to revenues
and margin.
8 www.reedexpo.com
When Reed Exhibitions launched the Pollutec exhibition in Lyon in 1986,
its main focus was on pollution control products. Two decades on and the
show’s profile is much broader. Today, Pollutec is one of the world’s leading
sustainable technology trade shows, covering every aspect of sustainability as
well as waste management and pollution prevention. An extensive conference
programme and high quality online resources support the core offering.
Market show
to industry
leaders
Meet key
decision
makers
Showcase
sustainable
technologies
Share and
exchange the
latest market
developments
Grow
exhibitor
sales
20
Reed Elsevier
Annual Reports and
Financial Statements
2008
Revenue
RBI UK
RBI US
RBI NL
RBI International
Total
2008
£m
2007
£m
%
change at
constant
change currencies
%
306
288
202
191
987
+4%
294
278
+4%
181 +12%
153 +25%
906
+9%
+3%
-5%
-4%
+9%
+1%
Adjusted operating profit
-4%
Adjusted operating margin 12.8% 13.4% -0.6pts -0.6pts
+4%
121
126
On 21 February 2008 Reed Elsevier announced a plan to divest Reed Business Information
(RBI) which was accordingly then classified as a discontinued operation in the 2008 interim
results. On 10 December 2008 Reed Elsevier announced the termination of discussions
to sell RBI as it was judged not possible to structure a transaction on acceptable terms at
that time and RBI has therefore been presented as a continuing operation in the combined
financial statements.
Reed Business Information held up well despite the
difficult economic conditions throughout most of the
year due to the successful development over the last few
years of significant online franchises. This was, however,
not enough to counter the recent impact on advertising
markets of the downturn in global economic conditions,
which was particularly felt in the last quarter.
Revenues and adjusted operating profits were 1% and
5% lower respectively at constant currencies before
acquisitions and disposals, or 1% higher and 4% lower
after portfolio effects. Adjusted operating margin was
60 basis points lower at 12.8% reflecting the underlying
revenue decline partly mitigated by tight cost management.
In the UK, underlying revenues were up 1% reflecting strong
growth in online sales, up 12%. For most of the year, overall
revenue momentum was encouraging although weakness
was seen in sectors such as property and technology.
However, towards the end of the year, the deteriorating
economic environment took its toll most particularly on
recruitment advertising across most sectors, with overall
underlying revenues year-on-year down 7% in the fourth
quarter, compared with 3% growth in the third quarter.
Online revenues continued to grow in the fourth quarter
despite the weakness in advertising markets, with robust
performances from online data products, such as XpertHR
serving the HR community, Bankersalmanac.com providing
information that facilitates interbank payments across the
world, and ICIS pricing serving the petrochemicals industry.
In addition to organic development of its online franchises,
RBI UK made a number of small acquisitions to further
develop its online services to the energy, aerospace and
personnel verticals as well as horizontal lead generation
services matching vendors and buyers. Online revenues now
represent over 50% of RBI UK revenues.
In the US, RBI underlying revenues were 5% lower, with
online revenue growth of 9% more than offset by the 9%
Operating and financial review continued
decline in print revenues despite market share gains.
The slowdown has affected most sectors, including
electronics, manufacturing, residential construction,
furniture and home furnishings, jewellery and
entertainment with Variety also impacted by the film and
TV screenwriters’ strike earlier in the year. Year-on-year
revenues were down 11% in the fourth quarter, compared
to a 3% decline in the third quarter. Reed Construction Data
bucked the trend with good growth in data services to the
commercial construction industry following successful
investment in online product development, research and
sales. Online services were further expanded with the
acquisition in February 2008 of Tectonic, a provider of
building information modelling for the architectural,
engineering and construction industries. Online revenues
now represent nearly 30% of RBI US revenues.
In the Netherlands, underlying revenues were 1% lower,
with online revenues up 11% against only a 3% decline in
the print business which benefits from a higher proportion
of subscription and circulation revenues than in other
RBI geographies. Good growth was seen in the agriculture,
construction and healthcare sectors and in tuition, although
most other sectors saw revenue declines from weaker
advertising markets. Fourth quarter revenues were down
6% against the prior year, with the third quarter down 1%.
Online revenues now represent 17% of RBI NL revenues.
The International business (rest of Europe and Asia
Pacific) saw underlying revenue growth of 2% with online
revenues up 26%, including strong growth from the
Hotfrog online directory search business, more than
offsetting a 4% decline in print. In Europe, France saw
growth from a recovery in training sales, whilst Spain and
Italy saw revenues decline with weaker advertising markets
particularly in the construction and automotive sectors
respectively. Two small acquisitions were made in France
and Spain earlier in the year to build scale and expand
online tendering services. Asia Pacific saw 9% underlying
revenue growth with strong Hotfrog sales and good growth
in healthcare and construction in Australia. Fourth quarter
revenues were flat against the prior year. Online revenues
now represent 25% of RBI International revenues.
The outlook for 2009 for Reed Business Information
is challenging. Advertising markets are significantly
impacted by the global economic downturn, with slowing
online revenue growth and accelerating print decline.
Adjusted operating margins will be adversely impacted
by the revenue decline, which can be mitigated only in
part by the significant cost savings from restructuring
and other cost actions. In this difficult environment,
the focus in RBI is on right sizing the cost base to
match reduced revenue expectations whilst maintaining
investments, particularly against our online franchises,
to be strongly competitively positioned as markets recover.
8 www.reedbusinessinformation.com
Top-rated for its breadth of content and usability, XpertHR is a leading online
resource for HR professionals, giving subscribers access to legal resources,
public documents and Reed Elsevier content. Compliance, best practice and
benchmarking – everything for the HR professional in one place.
Stay abreast
of UK and EU
employment
law
Increase
awareness
of HR issues
Create model
policies and
documents
Reduce
legal
costs
Promote
best
practice
22
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
Mark Armour
Chief Financial Officer
Reed Elsevier combined businesses
Reported figures
Revenue
Operating profit
Profit before tax
Net borrowings
Adjusted figures
Operating profit
Profit before tax
Operating cash flow
Operating margin
Operating cash flow conversion
2008
£m
5,334
901
617
5,726
2007
£m
4,584
888
812
492
1,379
1,205
1,407
25.9%
102%
1,137
998
1,108
24.8%
97%
%
change at
constant
currencies
+7%
-6%
-30%
%
change
+16%
+1%
-24%
+21%
+21%
+27%
+12%
+11%
+17%
Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible assets and
goodwill impairment, exceptional restructuring and acquisition related costs, disposals and other non operating items, related tax effects
and movements on deferred tax balances not expected to crystallise in the near term. Reconciliations between the reported and adjusted
figures are provided in note 11 to the combined financial statements.
Revenue (£m)
5,334
4,584
07
08
+16%
at reported
currencies
+7%
at constant
currencies
Revenue by
geographical
market
1
5
4
3
2
1 North America 49%
2 UK 11%
3 Netherlands 5%
4 Rest of Europe 21%
5 Rest of world 14%
Currency
The average exchange rates in the year saw
sterling weaken against both the US dollar
and the euro. This gives a favourable effect
on translation of reported growth rates
expressed in sterling.
Income statement
Revenue from continuing operations (ie
excluding Harcourt Education) was £5,334m,
up 16%. At constant exchange rates, revenue
was 7% higher, or 4% higher underlying,
ie before acquisitions and disposals.
Reported figures
Continuing operations
Reported operating profit from continuing
operations, after amortisation of acquired
intangible assets and goodwill impairment,
exceptional restructuring and acquisition
related costs, was £901m, up 1%. The
movement reflects the strong underlying
operating performance and part year
contribution from ChoicePoint, offset by
the costs of the restructuring programme
and currency translation effects.
The amortisation charge in respect of acquired
intangible assets, including the share of
amortisation in joint ventures, amounted
to £281m, up £60m as a result of ChoicePoint
and other recent acquisitions and currency
translation effects. Goodwill impairment
charges of £9m relate to minor exhibitions
businesses.
Exceptional restructuring costs incurred
to date in the restructuring programme
announced in February 2008 and in RBI
amounted to £152m (2007: nil) principally in
respect of severance, outsourcing migration
costs and associated property costs.
Acquisition related costs amounted
to £27m (2007: £20m).
Disposals and other non operating items
of £92m comprise gains on disposals of
businesses and investments of £15m, costs
of the RBI divestment process terminated
in December 2008 of £31m, a £70m write
down to £14m in the carrying value of the
investment in Education Media and Publishing
Group that arose on the sale of the Harcourt
US K-12 Schools business in 2007, and fair
value decreases in the portfolio of venture
capital investments of £6m.
23
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Adjusted operating
profit (£m)
1,379
1,137
+21%
at reported
currencies
+12%
at constant
currencies
07
08
Adjusted operating
profit before tax
(£m)
1,205
998
07
08
+21%
at reported
currencies
+11%
at constant
currencies
Net finance costs were higher at £192m
(2007: £139m) principally reflecting funding
of ChoicePoint and other recent acquisitions
and currency translation effects, and include
£18m of acquisition related costs with
respect to fees incurred in connection
with ChoicePoint acquisition financing.
Continuing operations
Adjusted operating profit for the continuing
operations, including a part year contribution
from ChoicePoint, was £1,379m, up 21%. At
constant exchange rates, adjusted operating
profits were up 12%, or 9% underlying,
ie before acquisitions and disposals.
The reported profit before tax, including
amortisation of acquired intangible assets
and goodwill impairment, exceptional
restructuring and acquisition related
costs, and non operating items, was £617m,
down 24%.
The reported tax charge of £155m compares
with a credit of £82m in the prior year,
which included the £223m credit in respect
of previously unrecognised deferred tax assets
and capital losses, arising in continuing
operations, that were realisable as a result
of the disposal of Harcourt Education.
Discontinued operations
The gain on the disposal of discontinued
operations was £67m relating to the disposal
of Harcourt Assessment (2007: £611m on
disposals of the Harcourt International and
US K-12 Schools businesses), after £27m
of recycled cumulative currency translation
losses since adoption of IFRS previously
taken to reserves. Taxes on the disposals were
£49m (2007: £380m excluding the tax credits
included in continuing operations described
above). Net profit from discontinued operations
in 2007 also included the post-tax results of
Harcourt Education of £78m.
Total operations
The reported attributable profit of £476m
compares with £1,200m in 2007, which
included the tax credits, the results of
Harcourt Education and the gain on sale
of businesses.
Adjusted figures
Adjusted figures are used by Reed Elsevier as
additional performance measures and are
stated before amortisation of acquired
intangible assets and goodwill impairment,
exceptional restructuring and acquisition
related costs, and, in respect of earnings, reflect
a tax rate that excludes the effect of movements
in deferred taxation assets and liabilities that
are not expected to crystallise in the near term.
Exceptional restructuring costs relate to the
major restructuring programme announced in
February 2008 and in RBI. Acquisition related
costs relate to acquisition integration and fees
incurred in connection with acquisition
financing. Profit and loss on disposals and other
non operating items are also excluded from the
adjusted figures. Comparison at constant
exchange rates uses 2007 full year average and
hedge exchange rates.
The net pension expense (excluding the
unallocated net pension financing credit) was
£75m (2007: £78m) reflecting higher discount
rates and lower pension curtailment credits.
The net pension financing credit was
£39m (2007: £39m). The charge for share
based payments was £46m (2007: £38m).
Restructuring costs, other than in respect
of the exceptional restructuring programmes
and acquisition integration, were £13m
(2007: £16m).
Overall adjusted operating margin for the
continuing businesses was up 1.1 percentage
points at 25.9% reflecting the good revenue
growth and cost efficiency.
Net interest expense, before acquisition
related financing fees, was higher at £174m
(2007: £139m) principally reflecting funding
of ChoicePoint and other recent acquisitions
and currency translation effects, less the
benefit of disposals and free cash flow.
Adjusted profit before tax from continuing
operations was £1,205m, up 21%. At constant
exchange rates, adjusted profit before tax
grew by 11%.
The effective tax rate on adjusted profit before
tax for the continuing businesses, at 23.4%,
was similar to the rate in 2007. The effective
tax rate on adjusted profit before tax excludes
movements in deferred taxation assets and
liabilities that are not expected to crystallise
in the near term, and more closely aligns with
cash tax costs. Adjusted operating profits and
taxation are also grossed up for the equity
share of taxes in joint ventures.
The adjusted profit from continuing operations
attributable to shareholders of £919m was
up 20%. At constant exchange rates, adjusted
profit attributable to shareholders was
up 11% for continuing operations.
Discontinued operations
Adjusted operating profit from discontinued
operations was nil (2007: £121m) following
the sale of the Harcourt Education division.
Total operations
The adjusted profit attributable to shareholders,
including discontinued operations, was £919m,
up 8%. At constant exchange rates, adjusted
profit attributable to shareholders from total
operations was down 1%, reflecting the sale of
the Harcourt Education division.
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24
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Adjusted operating
cash flow
conversion (%)
102
97
07
08
+5% pts
Free cash flow (£m)
999
717
07
08
+39%
at reported
currencies
+28%
at constant
currencies
The effective tax rate on the profit from
total operations, at 23.4%, was similar
to the 23.6% effective rate for 2007.
The adjusted profit before tax for total
operations, if stated including the adjusted
operating profits of discontinued operations,
would have been £1,205m, compared to
£1,119m in 2007.
Cash flows
Adjusted operating cash flow from continuing
operations was £1,407m, up 27%, or up 17%
at constant currencies. The rate of conversion
of adjusted operating profits into cash flow for
continuing businesses was 102% (2007: 97%)
reflecting the continuous focus on management
of working capital.
Capital expenditure included within adjusted
operating cash flow from continuing operations
was £172m (2007: £145m), including £115m
in respect of capitalised development costs
included within intangible assets.
Free cash flow from continuing operations –
after interest and taxation – was significantly
higher at £999m (2007: £717m) before
exceptional restructuring and acquisition
related spend, principally reflecting the
stronger adjusted operating cash flow
performance and currency translation effects.
Ordinary dividends paid to shareholders
in the year, relating to the 2007 final and
2008 interim dividends, amounted to £418m
(2007: £416m). The special distribution paid
to shareholders in January 2008 from the net
proceeds of the Harcourt Education disposal
amounted to £2,013m (including £27m paid
to the employee benefit trust).
Share repurchases by the parent companies
amounted to £40m (2007: £199m). Shares
of the parent companies purchased by
the employee benefit trust to meet future
obligations in respect of share based
remuneration amounted to £54m (2007:
£74m). Net proceeds from the exercise
of share options were £54m (2007: £177m).
Spend on acquisitions, after taking account
of £51m net cash acquired and excluding
borrowings assumed, was £2,161m, including
£1,931m in respect of ChoicePoint. Including
deferred consideration payable, an amount
of £1,579m was capitalised as acquired
intangible assets and £1,279m as goodwill.
Payments made in respect of acquisition
integration amounted to £27m and acquisition
related financing fees £18m.
Proceeds from disposals of businesses, other
than discontinued operations, and of other
assets, less the cash costs of the terminated
RBI divestment process, amounted to £8m.
Payments made in respect of the exceptional
restructuring costs totalled £72m.
Net proceeds from the sale of discontinued
operations in the year were £270m and taxes
paid on completed disposals were £320m.
Debt
Net borrowings at 31 December 2008 were
£5,726m, an increase of £5,234m since
31 December 2007. The increase principally
reflects the payment of the special distribution
to shareholders, the acquisition of ChoicePoint
and currency translation effects, together with
ordinary dividends paid, share repurchases
and acquisition and restructuring spend, partly
offset by the free cash flow from continuing
operations, and proceeds from the exercise
of share options and disposals. Currency
translation differences increased net borrowings
by £1,281m, reflecting the impact of the
strengthening of the US dollar against sterling
on the largely US dollar denominated net debt.
Gross borrowings after fair value adjustments
at 31 December 2008 amounted to £6,142m.
The fair value of related derivative assets
was £41m. Cash balances totalled £375m.
Net pension obligations, ie pension obligations
less pension assets, at 31 December 2008
were £369m which compares with a net
surplus as at 31 December 2007 of £50m.
The movement principally reflects a decline
in asset values in the year.
As at 31 December 2008, after taking into
account interest rate and currency derivatives,
a total of 52% of Reed Elsevier’s gross
borrowings (equivalent to 56% of net borrowings)
were at fixed rates and had a weighted average
remaining life of 6.1 years and interest rate of
5.3%. After taking additional account of $1.6bn
of term debt issued in January 2009, a total of
69% of gross borrowings (equivalent to 74% of
net borrowings) were at fixed rates and had a
weighted average remaining life of 6.6 years
and interest rate of 6.0%.
Liquidity
At 31 December 2008, Reed Elsevier had
access to $3.0bn of committed bank facilities
maturing in May 2010, providing back up for
short term debt, of which $38m was drawn.
In February 2009, this facility was reduced to
$2.5bn and, at the same time, a new $2.0bn
committed bank facility, forward starting in
May 2010 and maturing in May 2012, was put
in place. Together these two back up facilities
provide security of funding for $2.5bn of short
term debt to May 2010 and for $2.0bn from
May 2010 to May 2012.
25
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Return on capital
employed (%)
11.8 12.1
07
08
+0.3% pts
After taking account of these committed bank
facilities, available cash resources and the
$1.6bn of term debt issued in January 2009,
no borrowings mature within the next two
years, £1,253m of borrowings mature in the
third year and £4,528m beyond the third year.
The strong free cash flow of the business
(£999m before exceptional restructuring and
acquisition related spend and dividends in
2008), the available resources and back up
facilities, and Reed Elsevier’s ability to access
debt capital markets are expected to provide
sufficient liquidity to refinance the loans
outstanding on the ChoicePoint acquisition
facility, due in 2010 and 2011, and term debt
as they mature.
The business is strongly cash generative with
conversion of adjusted operating profit into
cash at 102% in 2008. The ratio of net debt to
adjusted ebitda (earnings before interest, tax,
depreciation and amortisation) is 3.7x (3.5x
on a pro forma basis including ChoicePoint;
2.8x using the same exchange rates for both
net debt and ebitda). Reed Elsevier’s target
remains a ratio of net debt to ebitda of
2.0-3.0x over the longer term, consistent
with a solid investment grade credit rating.
Capital employed and returns
The capital employed in the continuing
businesses at 31 December 2008 was
£13,125m (2007: £7,825m), after adding
back accumulated amortisation of acquired
intangible assets and goodwill. The increase
of £5,300m principally reflects the impact of
acquisitions and currency translation effects
partially offset by disposals and increases in
pension deficits.
The return on average capital employed for the
continuing businesses in the year was 12.1%
(2007: 11.8%). This return is based on adjusted
operating profits, less tax at the effective rate,
and the average capital employed, adjusted for
acquisition timing and to exclude the gross up
to goodwill in respect of deferred tax liabilities
on acquisitions, retranslated at average
exchange rates. The 0.3% increase reflects
a 1.0% improvement from underlying profit
growth and low capital requirements, partly
offset by the dilutive effect of the ChoicePoint
acquisition with its low initial returns.
Acquisitions typically dilute the overall return
initially, but build quickly to deliver longer term
returns well over Reed Elsevier’s average for
the business. The recent acquisitions made in
the years 2006-2008 are delivering post tax
returns in 2008 of 11%, 8% and proforma
4% respectively.
Accounting policies
Introduction
The accounting policies of the Reed Elsevier
combined businesses are described in the
combined financial statements. The Reed
Elsevier combined financial statements and
the consolidated financial statements of
Reed Elsevier PLC and Reed Elsevier NV are
presented in accordance with International
Financial Reporting Standards (IFRS).
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
of goodwill and intangible assets, share based
remuneration, pensions and taxation.
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. Where sales consist
of two or more components that operate
independently, revenue is recognised as each
component is completed by performance,
based on attribution of relative value.
Pre-publication costs incurred in the creation
of content prior to production and publication
are deferred and expensed over their
estimated useful lives based on sales profiles.
Such costs typically comprise direct internal
labour costs and externally commissioned
editorial and other fees. Estimated useful
lives generally do not exceed five years.
Annual reviews are carried out to assess
the recoverability of carrying amounts.
Development spend embraces investment
in new product and other initiatives, ranging
from the building of new online delivery
platforms, to launch costs of new services,
to building new infrastructure applications.
Launch costs and other operating expenses
of new products and services are expensed
as incurred. The costs of building product
applications and infrastructure are capitalised
as intangible assets and amortised over their
estimated useful lives. Impairment reviews
are carried out annually.
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26
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Goodwill and intangible assets
Reed Elsevier’s accounting policy is that, on
acquisition of a subsidiary 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
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 intangible assets are
capitalised and amortised systematically over
their estimated useful lives, subject to annual
impairment review. Appropriate amortisation
periods are selected based on assessments
of the longevity of the brands and imprints,
the strength and stability of customer
relationships, the market positions of the
acquired assets and the technological and
competitive risks that they face. Certain
intangible assets in relation to acquired
science and medical publishing businesses
have been determined to have indefinite lives.
The longevity of these assets is evidenced
by their long established and well regarded
brands and imprints, and their characteristically
stable market positions.
The carrying amounts of goodwill and indefinite
lived intangible assets in each business are
regularly reviewed for impairment at least
annually. The carrying amounts of all other
intangible assets are reviewed where there
are indications of possible impairment. An
impairment review involves a comparison of
the carrying value of the asset 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 growth in cash flows over a five year
forecast period, the long term growth rate
assumed thereafter and the discount rate
applied to the forecast cash flows. Sensitivity
analyses are performed based on changes
in these key assumptions considered to be
possible by management. Where such a
possible change in key assumption would
result in impairment, disclosure is made in
the combined financial statements.
Share based remuneration
Share based remuneration is accounted for in
accordance with IFRS 2 – Share Based Payment
and is determined based on the fair value of an
award at the date of grant, and is spread over
the vesting period on a straight line basis,
taking into account the number of shares that
are expected to vest. The fair value of awards is
determined at the date of grant by use of a
binomial or Monte Carlo simulation model as
appropriate, which requires judgements to be
made regarding share price volatility, dividend
yield, risk free rates of return and expected
option lives. The number of awards that are
expected to vest requires judgements to be
made regarding forfeiture rates and the extent
to which performance conditions will be met.
These assumptions are determined in
conjunction with independent actuaries
based on historical data and trends.
Pensions
Pension costs are accounted for in accordance
with IAS19 – Employee Benefits.
Accounting for defined benefit 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 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.
For defined contribution schemes, the net cost
represents contributions payable.
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. A number of acquisitions
and disposals have been made in recent years
giving rise to complex tax issues requiring
management to use its judgement to make
various tax determinations. Although Reed
Elsevier is confident that tax returns have
been appropriately compiled, the application
and interpretation of tax legislation is subject
to uncertainty and there are risks that further
tax may be payable on certain transactions
or that the deductibility of certain expenditure
for tax purposes may be disallowed. Reed
Elsevier’s policy is to make provision for tax
uncertainties where it is considered probable
that tax payments may arise.
Reed Elsevier’s policy in respect of deferred
taxation is to provide in full for all taxable
temporary differences using the balance
sheet liability method. Deferred tax assets
are only recognised to the extent that they
are considered recoverable based on forecasts
of available taxable profits against which
they can be utilised over the near term.
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.
27
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
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, foreign currency
risk and credit 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.
Liquidity
Reed Elsevier 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. A mixture of short term and long term
debt is utilised and Reed Elsevier maintains a
maturity profile to facilitate refinancing. Policy
was amended in 2008 to provide more flexibility
to respond to investor demand and fund at
attractive rates and requires that no more
than $1.5bn (formerly $1.0bn) of term debt
issues should mature in any 12-month period.
In addition, minimum levels of borrowings
with maturities over three and five years are
specified, depending on the level of net debt.
From time to time, Reed Elsevier may
repurchase outstanding debt in the open
market depending on market conditions.
No such purchases were made in 2008.
In March 2008, Reed Elsevier signed a new
$4,350m committed loan facility with a
syndicate of banks to finance its acquisition
of ChoicePoint, Inc., subsequently cancelled
down to $4,207m in July 2008, comprising
$2,032m maturing in March 2010 (Tranche A)
and $2,175m maturing in March 2011
(Tranche B). The full $4,207m was drawn
down on completion of the acquisition in
September 2008. Following the successful
issue of $1,500m of term debt in the
US market and a u50m term debt issue
in January 2009, Reed Elsevier used the
proceeds to reduce Tranche A to $470m.
During October 2008, following the turbulence
in the banking and credit markets, there was
uncertainty in demand for commercial paper.
Whilst Reed Elsevier continued to access the
US commercial paper market throughout the
period, the uncertainty in demand for euro
commercial paper was mitigated by drawing
down under existing bank back up facilities
for one month in an amount of $461m in
aggregate. These back up facility borrowings
were repaid in November as investor demand
for euro commercial paper returned.
At 31 December 2008 gross borrowings after
fair value adjustments amounted to £6,142m
and the fair value of related derivative assets
was £41m. Cash and cash equivalents totalled
£375m, of which £345m was held on deposit
with banks rated A+ or higher by Standard and
Poor’s, Moody’s, or Fitch.
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At 31 December 2008, in addition to the fully
drawn ChoicePoint facility, Reed Elsevier had
access to $3.0bn (2007: $3.0bn) of committed
bank facilities, of which $38m was drawn.
These facilities principally provide back up for
short term debt as well as security of funding
for future acquisition spend. These committed
facilities expire in May 2010.
During February 2009, Reed Elsevier
cancelled this $3.0bn facility down to $2.5bn
and, at the same time, a new $2.0bn committed
bank facility, forward starting in May 2010
and maturing in May 2012, was put in place.
Together these two back up facilities provide
security of funding for $2.5bn of debt to
May 2010 and $2.0bn of debt from May 2010
to May 2012.
After taking account of the maturity of
committed bank facilities that back short term
borrowing and after utilising available cash
resources at 31 December 2008, no borrowings
mature in the next twelve months, 31% of
borrowings mature in the second year, 33%
of borrowings mature in the third year, 12%
in the fourth and fifth years, 16% in the sixth
to tenth years, and 8% beyond the tenth year.
Allowing for the $1.6bn term debt issued in
January and the $2.0bn forward start facility,
no borrowings mature in the next two years,
21% of borrowings mature in the third year,
36% in the fourth and fifth years, 23% in the sixth
to tenth years, and 20% beyond the tenth year.
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.
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28
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Currency profile
revenue
4
1
3
2
1 US Dollar 47%
2 Euro 27%
3 Sterling 17%
4 Other 9%
Currency profile
adjusted profit
before tax
4
1
3
2
1 US Dollar 39%
2 Euro 36%
3 Sterling 17%
4 Other 8%
At 31 December 2008, after taking account
of interest rate and currency derivatives,
US$7.0bn of Reed Elsevier’s net debt was
denominated in US dollars and net interest
expense was fixed or capped on approximately
US$4.2bn of forecast US dollar net debt for
the next 12 months. In January 2009 a further
US$1.5bn of fixed rate US dollar debt was
issued, replacing floating rate US dollar debt,
and increasing the amount of US dollar debt
on which net interest expense is fixed or
capped to approximately US$5.7bn. This fixed
or capped net debt reduces to approximately
US$3.8bn by the end of 2011 and reduces
further thereafter with all but US$0.7bn of fixed
rate term debt (not swapped back to floating
rate) having matured by the end of 2019.
At 31 December 2008, fixed rate US dollar
term debt (not swapped back to floating rate)
amounted to US$2.2bn (2007: US$1.2bn)
and had a weighted average life remaining
of 9.5 years (2007: 8.1 years) and a weighted
average interest rate of 5.4% (2007: 5.9%).
After the issuance of a further US$1.5bn of
US dollar term debt in January 2009, fixed rate
US dollar term debt (not swapped back to
floating rate) amounted to US$3.7bn and had
a weighted average life remaining of 9.0 years
and a weighted average interest rate of
6.6%. Interest rate derivatives in place at
31 December 2008, which fix or cap the
interest cost on an additional US$1.6bn
(2007: US$1.1bn) of variable rate US dollar
debt, have a weighted average maturity of
1.8 years (2007: 1.1 years) and a weighted
average interest rate of 4.6% (2007: 4.8%).
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 investment exposures may be hedged,
within defined limits, in advance of becoming
contractual. The precise policy differs
according to the specific circumstances 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.
As at 31 December 2008, the amount of
outstanding foreign exchange cover designated
against future transactions was US$1.6bn
(2007: US$1.4bn).
Credit risk
Reed Elsevier seeks to limit interest rate and
foreign exchange risks described above by the
use of financial instruments and as a result
has a credit risk from the potential non
performance by the counterparties to these
financial instruments, which are unsecured.
The amount of this credit risk is normally
restricted to the amounts of any hedge gain
and not the principal amount being hedged.
Reed Elsevier also has a credit exposure to
counterparties for the full principal amount
of cash and cash equivalents. Credit risks
are controlled by monitoring the credit quality
of these counterparties, principally licensed
commercial banks and investment banks
with strong long term credit ratings, and the
amounts outstanding with each of them.
Reed Elsevier has treasury policies in place
which do not allow concentrations of risk
with individual counterparties and do not
allow significant treasury exposures with
counterparties which are rated lower than A
by Standard and Poor’s, Moody’s or Fitch.
Capital management
The capital structure is managed to support
Reed Elsevier’s objective of maximising
long-term shareholder value through ready
access to debt and capital markets, cost
effective borrowing and flexibility to fund
business and acquisition opportunities whilst
maintaining appropriate leverage to optimise
the cost of capital.
Over the long term Reed Elsevier targets cash
flow conversion (the proportion of adjusted
operating profits converted into cash) and credit
metrics to reflect this aim and that are
consistent with a solid investment grade credit
rating. Levels of net debt should not exceed
those consistent with such a rating other than
for relatively short periods of time, for instance
following an acquisition. The principal metrics
utilised are free cash flow (after interest, tax and
dividends) to net debt, net debt to ebitda
(earnings before interest, taxation, depreciation
and amortisation) and ebitda to net interest.
Cash flow conversion of 90% or higher and a
net debt to ebitda target, over the long term, in
the range of 2x to 3x are consistent with the
rating target.
29
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Reed Elsevier’s use of cash over the longer
term reflects these objectives through
a progressive dividend policy, selective
acquisitions and, from time to time when
conditions suggest, share repurchases whilst
retaining the balance sheet strength to maintain
access to the most cost effective sources
of borrowing and to support Reed Elsevier’s
strategic ambition in evolving publishing
and information markets. Over the next
12-18 months the focus is on the repayment
of debt out of cash flow and to restore Reed
Elsevier’s credit ratios to more usual levels.
The balance of long term debt, short term debt
and committed bank facilities is managed to
provide security of funding, taking into account
the cash generation of the business and the
uncertain size and timing of acquisition spend.
Whilst the short term emphasis is on reducing
leverage, there were no changes to Reed
Elsevier’s long term approach to capital
management during the year.
Elsevier Reed Finance BV
Structure
Elsevier Reed Finance BV, the Dutch 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, intellectual
property 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 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, Latin America,
the Pacific Rim, India, China 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, investments and debt programmes
on their behalf.
EPSA is a centre of expertise within Reed
Elsevier in terms of trademarks and other
intangibles. It has continued the acquisition of
titles, including the trademark Reed Elsevier
in 2008.
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ERSA is responsible for insurance activities
relating to risk retention.
Major developments
In 2008, EFSA issued a CHF150m bond in the
Swiss public market and negotiated several
term financing agreements. It was involved in
the financing of the acquisition of ChoicePoint,
Inc. and treasury aspects related to the halted
divestment of Reed Business Information.
EFSA negotiated and advised on a number of
banking and cash management arrangements
in Continental Europe, Asia and Latin America.
EFSA continued to advise Reed Elsevier
Group plc companies on treasury matters,
including interest and foreign currency
exposures.
The average balance of cash under
management by EFSA in 2008, on behalf
of Reed Elsevier Group plc and its parent
companies, was approximately $0.5bn
(2007: $0.9bn).
Liabilities and assets
At the end of 2008, 91% (2007: 89%) of ERF’s
gross assets were held in US dollars and
8% (2007: 10%) in euros, including $10.6bn
(2007: $8.5bn) and u0.6bn (2007: u0.7bn) in
loans to Reed Elsevier Group plc subsidiaries.
Loans made to Reed Elsevier Group plc
businesses are funded from equity, long term
debt of $1.5bn, medium term debt of $1.4bn
and short term debt of $0.5bn backed by
medium term committed bank facilities.
Medium and long term debt is derived from
syndicated bank facilities, Swiss domestic
public bond issues, bilateral term loans
and private placements. Short term debt
is primarily derived from euro and
US commercial paper programmes.
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30
Reed Elsevier
Annual Reports and
Financial Statements
2008
Chief
Financial
Officer’s
report
continued
Reed Elsevier PLC
Adjusted EPS (p)
44.6
35.9
07
08
+24%
at reported
currencies
+15%
at constant
currencies
Reed Elsevier PLC
Ordinary dividends
(p)
20.3
18.1
07
08
+12%
Reed Elsevier NV
Adjusted EPS (J)
0.80
0.87 +9%
at reported
currencies
Parent companies
Reed Elsevier PLC
Reported profit attributable
Adjusted profit attributable
Reported earnings per share
Adjusted earnings per share
Ordinary dividend per share
Reed Elsevier NV
Reported profit attributable
Adjusted profit attributable
Reported earnings per share
Adjusted earnings per share
Ordinary dividend per share
For the parent companies, Reed Elsevier PLC
and Reed Elsevier NV, adjusted earnings per
share for total operations were respectively up
24% at 44.6p (2007: 35.9p) and up 9% at u0.87
(2007: u0.80). At constant rates of exchange,
the adjusted earnings per share of both
companies increased by 15%.
The reported earnings per share for Reed
Elsevier PLC shareholders was 22.1p (2007:
49.7p) and for Reed Elsevier NV shareholders
was u0.44 (2007: u1.10). The decline principally
reflects that 2007 included the gain on disposal
of Harcourt Education businesses and prior
year tax credits.
The equalised final dividends proposed are
15.0p per share for Reed Elsevier PLC and
u0.290 per share for Reed Elsevier NV, 10%
higher and 7% lower respectively compared
with the prior year. This gives total dividends
for the year of 20.3p and u0.404, up 12% and
down 5% on 2007 respectively. The difference
in growth rates in the equalised dividends
reflects the significant strengthening of the
euro against sterling between dividend
announcement dates.
2008
£m
241
486
22.1p
44.6p
20.3p
2008
gm
294
580
J0.44
J0.87
J0.404
2007
£m
624
451
49.7p
35.9p
18.1p
2007
um
855
622
u1.10
u0.80
u0.425
%
change at
constant
currencies
-1%
+15%
%
change at
constant
currencies
-1%
+15%
%
change
-61%
+8%
-56%
+24%
+12%
%
change
-66%
-7%
-60%
+9%
-5%
67 existing ordinary shares. This represented
a 13.4% consolidation of ordinary share capital,
being the aggregate special distribution
expressed as a percentage of the combined
market capitalisation of Reed Elsevier PLC
and Reed Elsevier NV (excluding the 5.8%
indirect equity interest in Reed Elsevier NV
held by Reed Elsevier PLC), as at the date of
the announcement of the special distribution.
For the purposes of calculating earnings
per share, the effective date of the share
consolidation is deemed to be 18 January
2008, being the date on which the special
distribution was paid.
Shares repurchased in the year totalled
3.2 million ordinary shares of Reed Elsevier
PLC and 2.1 million ordinary shares of
Reed Elsevier NV.
Mark Armour
Chief Financial Officer
07
08
+15%
at constant
currencies
Dividend cover, based on adjusted earnings
per share and the total interim and proposed
final dividends for the year, was 2.2 times for
both Reed Elsevier PLC and Reed Elsevier NV.
Reed Elsevier NV
Ordinary dividends
(J)
0.425 0.404
07
08
-5%
On 18 January 2008, a special distribution was
paid to shareholders in the equalisation ratio
from the net proceeds of the sale of the
Harcourt Education division. The distribution
was 82.0p per share for Reed Elsevier PLC
and u1.767 per share for Reed Elsevier NV and
amounted to £2,013m/u2,690m in aggregate.
The special distribution was accompanied by
a consolidation of the ordinary share capitals
of Reed Elsevier PLC and Reed Elsevier NV on
the basis of 58 new ordinary shares for every
31
Reed Elsevier
Annual Reports and
Financial Statements
2008
Our business
32 Description of business
41 Resources and investments
43 Principal risks
45 Key performance measures
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32
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
Revenue by source
5
1
4
3
2
1 Subscription 45%
2 Circulation 21%
3 Advertising 14%
4 Exhibitions 13%
5 Other 7%
Revenue by media
1
3
2
1 Online 50%
2 Print 37%
3 Exhibitions 13%
Reed Elsevier is a world leading provider of professional
information and online workflow solutions in the science,
medical, legal, risk information and analytics, and business
sectors. Total revenue for the year ended 31 December 2008
was £5,334m.
Based in over 200 locations worldwide, Reed Elsevier creates
authoritative content delivered through market leading brands,
enabling our customers to find the essential data, analysis and
commentary to support their decisions. Our content and
solutions are increasingly embedded in the workflows of our
customers making them more effective and Reed Elsevier a
more valued partner.
Reed Elsevier is well positioned in markets with attractive
long term growth prospects and has a clear investment led
growth strategy focused on building revenue momentum
across all businesses.
In 2008, 47% of revenue was derived from subscription fees and
other annuity type revenue streams. An increasing proportion
of revenue was also generated from online products. In 2008,
over 50% of revenue was derived from online sources.
Long term growth in our markets is expected to be sustained
by the continuing demand for professional information.
In addition, professionals are looking for significant
improvements in productivity through access to highly
functional online services and workflow solutions.
Reed Elsevier has been implementing an important reshaping
of the business, with the strategic goal of moving more assets
away from slower growth, cyclical advertising/print based
sectors, and more towards faster growth, less cyclical online
based sectors. In 2007 and early 2008 we completed the sale
of the Harcourt Education business and in September 2008
we completed the acquisition of ChoicePoint which transforms
our position in the attractive risk information and analytics
sector. The planned divestment of Reed Business Information
announced in February 2008 was put on hold given the poor
credit markets and macroeconomic environment; it however
remains the intention to divest RBI in the medium term when
market conditions are more favourable.
33
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
Elsevier portfolio
(2008 revenue split)
1
5
2
4
3
1 S&T print books
and journals 15%
2 S&T electronic
journals 26%
3 S&T databases and
solutions 9%
4 Health Sciences
North America 29%
5 Health Sciences
International 21%
ScienceDirect
online usage
500
500
400
400
300
300
200
200
100
100
0
0
04
05
06
07
08
Full text article
downloads (millions)
Elsevier > provides its customers with scientific, technical
and medical content and tools that improve productivity
in research, healthcare and health education
Elsevier
Elsevier provides its customers with scientific,
technical and medical content and tools that
improve productivity in research, healthcare
and health education. Total revenues for the
year ended 31 December 2008 were £1,700m.
Elsevier is a global business with principal
operations located in Amsterdam, London,
Oxford, New York, Philadelphia, St Louis,
San Diego, Boston, Paris, Munich, Madrid,
Singapore, Tokyo, Delhi and Chennai.
Elsevier serves a global network of 7,000
editors, 70,000 editorial board members,
300,000 reviewers, and more than 600,000
authors. Its products reach more than
12 million researchers in 4,500 institutions,
5 million students, and 15 million doctors,
nurses and health professionals.
Growth in the scientific information market
is driven by increases in research output,
R&D spend, the number of researchers
worldwide, and the need for improved
research efficiency. In healthcare, growth is
driven by advances in medical science and the
shift from activity-based to outcomes-based
models of patient care and associated
demands for increased productivity.
The Science & Technology division of Elsevier
is the world’s leading global academic journal
publisher. Its customers are the world’s
libraries, scientists, professionals, and
corporations, who rely on Elsevier to provide
high quality content; to review, publish,
disseminate, and preserve research findings;
and to create innovative workflow tools
to improve their efficiency in using that
information. Each year Science & Technology
publishes over 200,000 new research articles
in some 1,100 journals and over 1,000 new
book titles, as well as secondary material
in the form of supporting bibliographic
data, indexes and abstracts, and tertiary
information in the form of review and
reference works.
Science & Technology has two flagship
electronic solutions: ScienceDirect and
Scopus. ScienceDirect is the world’s largest
database of scientific, technical and medical
journal articles and is accessed by over
11 million users each year. ScienceDirect
holds over nine million scientific articles
and an expanding portfolio of books online.
Currently ScienceDirect has just over
10,000 books titles, which includes 75 major
reference works, over 70 book series,
seven handbooks totalling over 190 volumes
and more than 4,700 e-books, with some
500 e-books being added to ScienceDirect
each year. Scopus is the largest abstract and
citation database of research literature from
over 4,000 different publishers. Scopus has
more than 37 million records of scientific
research articles from over 15,000 peer
reviewed journals, more than 23 million
patents, and references to over 434 million
web pages.
“There is much more focus on the continuous
assessment and development of people at
Elsevier than in any other company I have
worked at before. My own assessment
involved a really strong analysis of my skills
and capabilities and I really appreciated the
time and detail it went into.”
Claudia Pickholz Managing Director / Elsevier Iberoamérica
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
ScienceDirect
ScienceDirect from
Elsevier contains
over 25% of the
world’s science,
technological and
medical information.
Along with over
10,000 online books,
ScienceDirect offers
a rich journal
collection of over
2,500 titles and the
ability to search a
historical archive of
over nine million
articles.
Elsevier continued >
Science & Technology’s growing online
offering also includes Illumin8, an online
workflow solution for corporate scientists,
engineers and R&D professionals.
In 2009 Science & Technology will launch
specific workflow solutions for researchers
and research administrators. The initial
offering will include a funding intelligence
tool and a research performance tool.
The Health Sciences division of Elsevier
serves medical researchers, practising
health professionals, payers, educators,
students and pharma professionals globally.
It publishes over 700 journals, including a
number of journals for learned societies, and
over 2,000 book titles and clinical reference
works annually. Growth in electronic health
information is accelerating and the business
continues to expand its portfolio of online
health information tools for education,
practitioner reference, and point of care
decision making. Elsevier’s clinical reference
and decision support products include
MDConsult, which now has over nine million
page views per month and more than 1,700
institutional customers. Health Sciences
provides online and multimedia products for
use by both medical faculties and students
to support core textbooks, including Evolve,
which now has 1.4 million registered users
and, through Health Education Systems Inc,
testing tools for nursing and allied health
markets. Internationally, Elsevier leverages
its print and online content into new markets
through foreign language versions.
Elsevier aims to make valued contributions
to the science and health communities
by combining world class content with
productivity enhancing solutions for scientific
researchers and health professionals
worldwide. Its key strategic areas of focus
are: quality of content; customer service
and customer relations; development of
productivity enhancing online solutions;
expanded penetration of high growth
markets; and organisational efficiency.
Elsevier’s print science journals are generally
sold to libraries on a paid subscription basis,
with subscription agents facilitating the
administrative process. Medical and
healthcare print journals are mostly sold to
individuals through direct mail and learned
societies. Electronic products are generally
sold directly to institutional libraries,
hospitals, corporations and end users. Books
are sold through book stores, both traditional
and online, wholesalers and, particularly in
medical and healthcare markets, directly to
end users. Competition within the science
and technology and medical publishing fields
is generally on a title by title and product by
product basis. Competing journals, books and
databases are typically published by learned
societies and other professional publishers.
35
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
LexisNexis portfolio
(2008 revenue split)
1
3
2
1 US Legal Markets 52%
2 Risk Information and
Analytics Group 19%
3 International 29%
LexisNexis
online revenue
(% of total LexisNexis
revenue)
72
74
64
66
61
04
05
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08
LexisNexis > provides legal, tax, regulatory, risk
management, information analytics and business information
solutions aligned to the workflow of legal, professional,
business and government customers globally
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LexisNexis
LexisNexis provides legal, tax, regulatory,
risk management, information analytics and
business information solutions aligned to
the workflow of legal, professional, business
and government customers globally. Total
revenues for the year ended 31 December 2008
were £1,940m.
LexisNexis in the United States offers legal
information products in electronic and
print formats to law firms and practitioners,
law schools, corporate and tax counsel
and federal, state and local governments.
Headquartered in New York, the principal
operations are located in Ohio, Georgia, New
York, Colorado, New Jersey and Florida.
Legal and regulatory markets worldwide
are driven by the increasing level of legislation
and litigation, as well as the number of lawyers.
Opportunities are also developing through
the delivery of value added solutions to meet
demands for greater efficiency and productivity.
Increasingly, legal information and services
are being delivered online, with considerable
potential to deliver such products and
solutions in markets outside the United States
where online migration is at lower levels than
in the US legal market. In recent years,
LexisNexis has, with its comprehensive US
public records databases, expanded in the
market for risk management and information
analytics. This is growing rapidly due to
increasing consumer credit losses and
fraud and the demand for identity verification.
US Legal Markets’ Total Solutions help
legal professionals achieve excellence
in the business and practice of law with
products and solutions in Client Development,
Research, Practice Management and
Litigation Services. Client Development
solutions include the Martindale-Hubbell
electronic network that showcases the
qualifications and credentials of over one
million lawyers and law firms worldwide,
a suite of business intelligence tools that help
lawyers find and target clients, and customer
relationship management workflow tools.
In Research, the division provides statutes
and case law for all 50 US states as well
as research, analysis and citation services
from Matthew Bender, Michie and Shepard’s.
Practice Management solutions include time
and billing, case management, cost recovery
and document management. Litigation
Services include a range of workflow solutions
for litigators including electronic discovery,
evidence management, case analysis, court
docket tracking, e-filing, expert identification
and legal document preparation.
“It is not unusual to find employees with
10, 20, and even 30 years of LexisNexis
experience. There is a reason for this:
we have great people, great markets
and great customers to whom we
provide great solutions.”
Tom Ogburn Vice President, Government & Corporate Sales /
LexisNexis
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
LexisNexis
CaseMap
LexisNexis
CaseMap software
enables litigators
to efficiently assess
and analyse facts
and information in
any case. Integrated
with other
LexisNexis litigation
solutions, CaseMap
is also the
foundation of the
company’s Total
Litigator workflow
solution that
offers seamless
management of
information at each
step of the litigation
lifecycle.
LexisNexis continued >
In addition to law firms, these LexisNexis
products and services are offered to
corporations, federal government agencies
and academic institutions together with news,
business, financial and public records content.
Risk Information and Analytics Group offers
applications that are designed to assist
customers in managing risk through fraud
detection and prevention, risk evaluation,
identity verification, pre-employment screening
and due diligence. On 19 September 2008,
Reed Elsevier acquired ChoicePoint, Inc.
ChoicePoint has merged with the LexisNexis
Risk Information and Analytics Group,
creating a risk management business with
approximately $1.4bn revenues. ChoicePoint’s
principal operating groups are Insurance
Services, Screening, Business Services
and Government Services.
The Insurance Services group, ChoicePoint’s
largest core business, provides data, analytics,
software and business information services
to property and casualty (“P&C”) personal
and commercial insurance carriers in the
US. Information solutions help insurers
effectively assess risks in the underwriting
process to ensure that their customers
receive appropriate policy pricing. The Insurity
business unit provides software, data and
analytics to P&C commercial and personal
lines carriers to improve risk acceptance
and loss mitigation.
The Screening group focuses on employment
screening, tenant screening, and customer
enrollment businesses.
The Business Services and Government
Services groups provide public information
solutions primarily to financial and professional
services, and government customers. These
services help companies and government
agencies with risk management, enhanced
due diligence, verification and business
credentialing, and allow companies and
government agencies to better mitigate
financial and reputational risk and improve
their processes and productivity.
Outside the United States, LexisNexis
International serves markets in Europe,
Canada, Africa and Asia Pacific with a range
of local and international legal, tax, regulatory
and business information in electronic and
print formats. The most significant businesses
are in the UK and France.
LexisNexis Butterworths in the UK is a
professional publisher, providing legal, tax and
business information and solutions via online,
print and CD media. Publications include
Halsbury’s Laws of England, Simon’s Taxes
and Butterworths Company Law Service.
LexisNexis in France is a provider of
information to lawyers, notaries and courts
with JurisClasseur and La Semaine Juridique
being the principal publications.
LexisNexis aims to be the leading provider
of productivity enhancing information and
information-based workflow solutions in
its markets. The key strategic areas of focus
are: to expand the business from research
into Total Solutions; to continue to offer the
best-in-class research tools for lawyers
and professionals; to grow a significant
business in risk management and information
analytics; to expand internationally through
innovative online products and solutions; and
to continuously improve cost effectiveness.
LexisNexis’s principal competitors in US legal
markets are West (Thomson Reuters) and
Factiva (Dow Jones). Major international
competitors include Thomson
Reuters, Wolters Kluwer and Factiva.
37
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
Revenue by market
1
3
2
1 North America 19%
2 Europe 58%
3 Asia/emerging
markets 23%
Reed Exhibitions > is the world’s leading events organiser,
with over 470 events in 37 countries
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Reed Exhibitions
Reed Exhibitions is the world’s leading
events organiser, with over 470 events in
37 countries. Total revenues for the year
ended 31 December 2008 were £707m.
In 2008 Reed Exhibitions brought together
over seven million event participants from
around the world, generating billions of
dollars in business. As some events are
held other than annually, revenue in any
one single year is affected by the cycle of
non-annual exhibitions.
Reed Exhibitions creates brand-leading
events, highly targeted and where participants
from around the world come together to do
business, network and learn. Its vision is
“to deliver contacts, content and communities
with the power to transform your business”.
Reed Exhibitions’ events are organised
in the Americas, Europe, the Middle East
and Asia Pacific by staff in 24 offices.
The portfolio of exhibitions and conferences
serves 44 industry sectors, including:
aerospace & aviation, automobiles,
broadcasting, building & construction,
electronics, energy, oil & gas, engineering,
manufacturing, environment, food service &
hospitality, gifts, healthcare, interior design,
IT & telecoms, jewellery, life sciences &
pharmaceuticals, machinery, medical
education, printing & graphics, property &
real estate, security & safety, sports &
recreation and travel.
Many of Reed Exhibitions’ events are market
leaders in their field. Working closely with
professional bodies, trade associations and
government departments Reed Exhibitions
ensures that each and every event is targeted
and relevant to industry needs. The business
is developing powerful online tools to facilitate
networking, and enhance the effectiveness
and efficiency of its shows, as well as
broadening its event model to include
continuing education and professional
development.
Growth of the exhibition industry is supported
by new industries and new markets,
particularly as the emerging markets of
Brazil, China, India, Russia and the Middle
East open up and develop. Exhibitions are a
key means for companies to enter these new
markets, enabling them to reach and target
new customers quickly and cost-effectively.
Reed Exhibitions’ growth has been achieved
through acquisitions and launches in key
growth industries, and by developing strategic
partnerships and replicating its brand-leading
events in the emerging markets. Such
partnerships will become an increasing
feature of Reed Exhibitions’ presence in these
markets, with the building of local businesses
operating close to local markets, supported
by Reed Exhibitions’ global networks and
organisational expertise.
“My job is different every day.
I have the opportunity to be
creative and innovative, meet
new people and continually
stretch myself. It is a constant
learning curve, so work
is always exciting and
challenging.”
Frédérique Barret Marketing Manager /
Reed Exhibitions, UK
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Reed Exhibitions continued >
Reed Exhibitions is expanding the scope
of its business model beyond the physical
event to create online communities such as
ISC365, PSI-online and INTERPHEX365. These
communities provide tools allowing customers
additional opportunities to interact with others
in their industry, share knowledge and do
business 365 days a year, and they are opening
up new revenue streams for Reed Exhibitions.
Reed Exhibitions is particularly prominent in
a number of sectors, notably Travel, for which
it organises some of the world’s leading
events, including World Travel Market held
annually in London, and Arabian Travel Market
held in Dubai. World Travel Market attracted
an unprecedented 49,963 participants in 2008.
Reed Exhibitions is also deeply involved in the
Environment sector. Leading events include
Pollutec, the international environment
show held alternately in Lyon and Paris;
the World Future Energy Summit in Abu Dhabi;
and Offshore Europe, Aberdeen, which brings
together the global oil and gas market to
debate key issues and create common agendas
for the future of the upstream industry.
The majority of Reed Exhibitions’ revenue
is derived from exhibitor participation fees,
with the balance coming from advertising in
exhibition guides, sponsorship fees and paid
participation at conferences and exhibitions.
Whilst the exhibitions business is more
resilient to economic effects than many
marketing channels, demand for exhibition
space and attendance is affected by pressures
on the marketing budgets of customers.
The exhibition industry has historically
been very fragmented. Reed Exhibitions
is the leader holding no more than 7% of
the market. Other international exhibition
organisers with which it competes include
United Business Media, DMG World Media,
Nielsen Business Media, Informa IIR and
Messe Frankfurt. Competition also comes
from industry focused trade associations and
convention centre and exhibition hall owners.
38
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
MIDEM
Every year
in Cannes,
the MIDEM event
brings together
some 9,000 music
professionals from
over 80 countries
and covering
every musical
genre for four
days of intensive
deal-making,
networking,
conferences,
round-tables
and concerts,
and to discover
new musical
styles and talent.
39
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
RBI revenue
by source
1
2
1 User 45%
2 Advertiser 55%
RBI online revenue
(% of total RBI revenue)
34
30
24
19
15
04
05
06
07
08
Reed Business Information > Business-to-business magazines,
online lead generation services, community websites and online
data tools provide information to users and an effective marketing
channel through which advertisers reach their target audiences
and industry professionals can access valued information
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in the Netherlands. Online services
accounted for 34% of Reed Business
Information 2008 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; Elsevier.nl,
a news and lifestyle service in the
Netherlands; BuyerZone.com, an online
lead generation service in the US; and
Hotfrog, a global online business directory.
Reed Business Information aims to be the
first choice of business professionals for
information and decision support in its
individual markets and for marketing
services. Its key strategic areas of focus
are: to continue to develop existing and
new online products and services in key
markets; to develop print franchises
through brand extensions and redesign; to
upgrade the portfolio through investment,
acquisition and divestment; to expand
geographically in fast growing markets;
and to improve organisational effectiveness
through investment in people, further
development of online competencies,
and cost reduction programmes.
Reed Business Information
Reed Business Information provides
information and marketing solutions to
business professionals in the United States,
the United Kingdom, continental Europe,
Australia and Asia. Total revenues for the
year ended 31 December 2008 were £987m.
Business-to-business magazines, online lead
generation services and community websites
provide an effective marketing channel
through which advertisers reach their target
audiences and industry professionals can
access valued information. The business has
a number of leading brands in a range of
sectors and online data services which enable
users to enhance 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 growth in GDP and
business investment. Demand for online
data services tends to be more resilient to
fluctuations in GDP growth.
Reed Business Information publishes over
400 trade magazines, directories, newsletters,
and over 200 online communities, jobsites,
lead generation, data and other online
services. Important magazine titles include
Variety and Interior Design in the United
States; Flight International, Computer Weekly,
Estates Gazette, and New Scientist in the
United Kingdom; and Elsevier and Boerderij
“Working for Reed Business Information for
the past 14 years has given me the opportunity
to work with the best people in online
publishing in Europe, Asia and the US. If you
like publishing in a global environment, then
Reed Business Information is the place to be.”
Jeroen Kuerble Director, Business Leads / Reed Business Information
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Reed Business Information continued >
In the US, business-to-business magazines
are primarily distributed on a controlled
circulation basis, whereby the product is
delivered without charge to qualified buyers
within a targeted industry group based upon
circulation lists developed and maintained by
the publisher. Magazines distributed on this
basis only are wholly dependent on advertising
for their revenues. In the United Kingdom,
business magazines are distributed both
on a controlled circulation basis and a
paid circulation basis. In the Netherlands,
a higher proportion of publications are sold by
paid circulation. Distribution of magazines
is conducted primarily through national postal
services, supplemented by news-stand sales
through unaffiliated wholesalers.
Online products and services are generally
sold through dedicated sales forces and
intermediaries, including revenue sharing
arrangements with other online service
providers, and by direct promotion.
Reed Business Information’s titles compete
with a number of publishers on a title by title
basis in individual market sectors, the largest
competitors being: Advanstar, CMP Media
(United Business Media), Hanley Wood,
McGraw Hill, Penton and Nielsen in the
United States; Eden (formerly EMAP),
VNU and CMP Media in the United Kingdom;
and Wolters Kluwer and Nielsen in the
Netherlands. Reed Business Information
competes for online advertising with other
business-to-business websites as well as
Google and other search engines.
40
Reed Elsevier
Annual Reports and
Financial Statements
2008
Description
of business
continued
ICIS
Part of Reed
Business
Information, ICIS is
one of the world’s
largest information
providers for the
chemical and
energy industry.
With a team of over
200 people based in
London, Houston,
Singapore, New
York, Washington,
Shanghai and
Mumbai, ICIS
provides price
assessments,
indices and market
news that support
transactions worth
billions of dollars,
plus events,
business leads and
brand positioning.
Full reports online >
The Reed Elsevier Annual Reports and
Financial Statements 2008 are now available
to view online.
The website contains up-to-date information and
functionality for shareholders including:
> financial results;
> business overview and strategy;
> charting tools to compare key
financial information; and
> PDF area to build your own report.
Please visit www.reedelsevier.com/annualreport08
The Reed Elsevier website at www.reedelsevier.com
also provides news and details of activities with links
to its business sites.
41
Reed Elsevier
Annual Reports and
Financial Statements
2008
Resources
and
investments
Reed Elsevier’s most important resources are its
intangible publishing assets and its workforce of some
35,000 employees
Market leading brands
Reed Elsevier’s businesses own numerous
market leading brands, imprints, titles and
technology platforms.
Within Elsevier, ScienceDirect is the world’s
largest database of scientific, technical and
medical journal articles and delivers almost
half a billion full text article downloads
annually. Many of Elsevier’s journals are
the foremost publications in their field and a
primary point of reference for new research.
The workflow tool Reaxys is the world’s
largest online compilation of chemical
reactions. Users of MDConsult, Elsevier’s
online clinical reference tool, conduct on
average nearly 1.5 million searches per
month and view more than nine million
pages of clinical content. The Lancet has
been publishing medical research, news
and analysis since 1823. Similarly, Elsevier’s
booklist contains numerous pre-eminent
and long standing titles.
Within LexisNexis, lexis.com is recognised as
one of the foremost online research tools for
practising lawyers, providing subscribers with
access to seven billion searchable documents.
The Shepard’s Citations Service is a well
known and highly reputed reference resource
(“Shepardizing” is a common process for
lawyers checking the authority of cases
or statutory references).
Many of the Reed Exhibitions shows, which
include World Travel Market, Mipim, MIDEM,
Batimat and the JCK Jewellery shows, are
acknowledged as the premier marketing
events in their field.
Reed Business Information’s well known
magazine titles such as Variety, Estates
Gazette and Elsevier are widely read for
their authoritative content and up to date
industry intelligence.
Investment
Reed Elsevier maintains and enhances
the value of its intangible assets through
continuous investment in the brands and
imprints, new publishing, innovative product
and market development, and in the
technology platforms and publishing
infrastructure on which they are based.
Increasingly, investment is being made
in developing digital workflow solutions.
Elsevier has made substantial investments
in health information segments, including
a wide range of electronic solutions that
improve clinical outcomes and reduce costs
for payers, physicians and hospitals; deliver
enriched learning experiences for nursing
trainees and practitioners; and increase the
effectiveness of business development and
promotional activities for pharmaceutical
companies. Other significant investments in
recent years have been in the ScienceDirect
platform, digitisation of the archive of almost
nine million research articles, e-books,
the Scopus database, online editorial and
production systems, and industry-specific
solutions for corporate R&D markets.
In LexisNexis, substantial investment has
been made in Total Solutions offerings
such as Total Litigator and Total Practice
Advantage. Alongside this, major investments
have been made in technology, in particular
in online research functionalities and in the
development of the global online delivery
platform. These investments are critical to
providing integrated workflow solutions to
our customers. Significant investment has
also been made in new content development
and in expanded sales and marketing
activities. Investment in recent years in a
major second data centre has expanded
operational capabilities and is providing
greater flexibility in continuous delivery.
“Reed Elsevier is a business with a rich
and complex variety of activities across many
different market segments and geographies.
Its friendly and collegiate atmosphere gives
graduates a good opportunity for personal
growth and development.”
Max Khan Associate, Corporate Strategy / Reed Elsevier
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Resources
and
investments
continued
Workforce
1
4
3
2
1 Editorial 25%
2 Sales, marketing
and customer
services 34%
3 IT 10%
4 Admin and other 31%
A new investment programme now underway
is aimed at transforming the productivity of
US legal research with modernised technology
and advanced algorithms and functionality
to provide much more powerful contextual
solutions for customers and at greater speed.
Combined with this is a major upgrade in back
office infrastructure and customer service and
support platforms to provide an integrated and
superior customer experience across our US
legal research, client development and
solutions products.
Reed Exhibitions has continued to grow
its portfolio through launching events and
through geographical expansion, with 24
show launches in 2008, primarily in the BRIC
countries and the Middle East. The business
continues to develop new online products,
including online communities which
compliment and widen the footprint of existing
events and brands. The latest such community
is INTERPHEX365.com, which aims to become
the Life Sciences industry’s most in-depth and
comprehensive online resource for gaining
insights on the news, companies and
technologies shaping the life science
industries.
Reed Business Information has continued
to develop and expand its online advertising
and paid data services. Investment supports
a strong mix of online products including
lead generation services, recruitment sites,
webzines and paid data tools and services.
Recent online developments include the
investment in BIM technology to enhance the
US construction data business, strengthening
the core and specialist job boards of Totaljobs
Group, continued growth in online lead
generation and business directory services
eMedia and Hotfrog, and ongoing enhancement
of the online community webzines.
Workforce
Reed Elsevier’s workforce is highly skilled and
a large proportion are graduates. It includes
some 3,000 IT specialists and developers,
8,000 editorial staff, and some 11,000 specialist
marketing, sales and customer service staff.
Reed Elsevier aims to be an employer
of choice, known for its best practices
in recruiting and developing employees.
We seek to employ a workforce which
reflects the diversity of our customers and
communities. Our labour and employment
practices are consistent with the principles of
the United Nations Global Compact regarding
fair and non-discriminatory labour practices.
Every two years or so we conduct a global
employee opinion survey to identify areas
for improvement. Every employee in the
company takes part in the annual Personal
Development Programme, which reviews
skills and performance and identifies
opportunities for recognition and advancement.
The Personal Development Programme
is also the primary tool for assessing and
planning employee training.
Reed Elsevier’s remuneration policies are
designed to attract, retain and motivate
employees of the highest calibre and
experience needed to shape and execute
strategy. The remuneration packages of the
directors and senior executives comprise a
balance between fixed remuneration and
variable performance related incentives,
including a variable annual cash bonus based
on achievement of financial performance
measures and individual key performance
objectives, and longer term incentive
schemes. Pension scheme membership is
offered to all employees in the United Kingdom,
the Netherlands, the United States and a
number of other countries.
These investments are largely embedded
within the cost base of the businesses as new
product development and market initiatives
are a continuous activity.
43
Reed Elsevier
Annual Reports and
Financial Statements
2008
Principal
risks
The key risks facing Reed Elsevier include the highly
competitive and rapidly changing nature of our markets
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, legal and regulatory uncertainties,
and economic conditions in our markets.
Certain businesses could also be affected
by the impact on publicly funded and other
customers of changes in funding and by
cyclical pressures on advertising and
promotional spending or through information
becoming publicly available for free.
>
>
Reed Elsevier has established risk
management practices that are embedded
into the operations of the businesses based
on the framework in internal control issued
by the Committee of Sponsoring Organisations
of the Treadway Commission (COSO), and are
reviewed by the Audit Committees and Boards.
Important specific risks that have been
identified and are being addressed include:
>
Demand for our products and services
may be impacted by factors beyond our
control such as the economic downturn
currently being experienced in the United
States and other major economies.
Macroeconomic, political and market
conditions may adversely affect the
availability of short and long term funding,
volatility of interest rates, currency
exchange rates and inflation.
>
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 which will effect
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 and changes in
regulation. There is no assurance that
this investment will produce satisfactory
long term returns.
Reed Elsevier’s businesses are
increasingly dependent on electronic
platforms and networks, primarily the
internet, for delivery of 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 and
networks 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.
New organisational and operational
structures are being developed with
increased focus on outsourcing and
offshoring functions. The failure of third
parties to whom we have outsourced
activities could adversely affect our
reputation and financial condition.
We operate a number of pension schemes
around the world, the largest schemes
being of the defined benefit type in the UK,
the US and the Netherlands. The assets
and obligations associated with defined
benefit pension schemes are particularly
sensitive to changes in the market
values of assets and the market related
assumptions used to value scheme
liabilities.
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44
Reed Elsevier
Annual Reports and
Financial Statements
2008
Principal
risks
continued
>
Our businesses operate in over 200
locations worldwide and our earnings
are subject to taxation in many differing
jurisdictions and at differing rates.
We seek to organise 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.
>
We often acquire and dispose of
businesses to reshape and strengthen
our portfolio and engage in restructuring
activities. If we are unable to generate
the anticipated benefits such as revenue
growth, synergies and/or cost savings
associated with these aquisitions and
restructuring activities this could
adversely affect our reputation
and financial condition.
The Reed Elsevier combined financial
statements are expressed in pounds sterling
and are, therefore, subject to movements
in exchange rates on the translation of the
financial information of businesses whose
operational currencies are other than sterling.
The United States is our most important
market and, accordingly, significant fluctuations
in the US dollar exchange rate could
significantly affect our reported results.
We recognise that Reed Elsevier and its
businesses have a direct impact on the
environment, principally through the use
of energy and water and waste generation
and in our supply chain through paper use
and print and production technologies.
We are committed to reducing these impacts,
whenever possible, by limiting resource
use and by efficiently employing sustainable
materials and technologies. We require
our suppliers and contractors to meet the
same objectives. We seek to ensure that
Reed Elsevier’s businesses are compliant
with all relevant environmental legislation
and, accordingly, whilst environmental issues
are important, we do not consider that they
constitute a significant risk for Reed Elsevier.
In addition to the risks described above,
further information on risks and how they
are addressed is provided elsewhere in the
Annual Reports and Financial Statements:
>
the Operating and Financial Review
and Description of Business contains
discussion of strategic, competitive,
economic, legal and regulatory,
technological and customer risks.
>
the Corporate Responsibility report
contains discussion of risks relating to
people, the environment and customers.
>
note 6 to the combined financial
statements contains further information
on risks associated with defined benefit
pension schemes.
>
the Chief Financial Officer’s report
contains a discussion of treasury, liquidity,
interest rate, foreign currency and
credit risks.
>
the report on Structure and Corporate
Governance contains a discussion on
risks relating to financial reporting.
45
Reed Elsevier
Annual Reports and
Financial Statements
2008
Key
performance
measures
The key financial performance measures
used by Reed Elsevier and the bases of
their calculation are as follows:
>
>
>
Revenue
statements.
– as reported in the financial
– reported
Adjusted operating profit
operating profit before amortisation of
acquired intangible assets and goodwill
impairment, exceptional restructuring
and acquisition related costs, and share
of taxation of joint ventures.
>
Adjusted operating margin
operating profit expressed as a percentage
of revenue.
– adjusted
>
>
>
Adjusted profit before tax
– reported profit
before tax before amortisation of acquired
intangible assets and goodwill impairment,
exceptional restructuring and acquisition
related costs, share of taxation of joint
ventures, disposals and other
non operating items.
Effective tax rate on adjusted profit
before tax – reflects the tax rate excluding
movements on deferred tax balances not
expected to crystallise in the near term,
more closely aligning with cash taxes
payable, and includes the benefit of
deductible tax amortisation on acquired
goodwill and intangible assets.
Adjusted profit after tax
– reported profit
after tax before amortisation of acquired
intangible assets and goodwill impairment,
exceptional restructuring and acquisition
related costs, disposals and other
non operating items, related tax effects
and movements on deferred tax balances
not expected to crystallise in the near term.
Adjusted profit attributable to
shareholders – reported profit attributable
to shareholders before amortisation
of acquired intangible assets and goodwill
impairment, exceptional restructuring
and acquisition related costs, disposals
and other non operating items, related tax
effects and movements on deferred tax
balances not expected to crystallise in the
near term.
>
>
– adjusted
Adjusted earnings per share
profit attributable to shareholders of each
parent company divided by the respective
average number of ordinary shares in
issue in the period.
– cash
Adjusted operating cash flow
generated from operations plus dividends
from joint ventures less net capital
expenditure on property, plant and
equipment and internally developed
intangible assets, and excluding payments
in relation to exceptional restructuring
and acquisition related costs.
>
Free cash flow
– adjusted operating cash
flow less net interest and taxes paid and
excluding cash tax benefits of exceptional
restructuring and acquisition related costs.
>
Constant currency growth
calculated using the prior year average
and hedge exchange rates.
– growth rates
>
Underlying growth
– constant currency
growth rates excluding acquisitions and
disposals.
>
– the
Total shareholder return (TSR)
aggregate of share price growth over a
specified period of time and the value of
dividends paid during that time, assuming
that such dividends are reinvested in
the shares.
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Performance in respect of the principal key
performance measures for Reed Elsevier
is described in the Chief Executive Officer’s
Report and the Operating and Financial
Review above.
The derivations of adjusted operating profit,
adjusted profit before tax, adjusted profit
attributable, and adjusted operating cash flow
are disclosed in the notes to the combined
financial statements. The derivation of the
adjusted earnings per share of the parent
companies is shown in the notes to the
respective Reed Elsevier PLC and Reed
Elsevier NV consolidated financial statements.
46
Reed Elsevier
Annual Reports and
Financial Statements
2008
Key
performance
measures
continued
>
– adjusted
Return on capital employed
operating profit less taxation (at the
effective rate for the year) expressed as
a percentage of average capital employed,
being the aggregate of gross goodwill
(adjusted to exclude the gross up to
goodwill in respect of deferred tax
liabilities on acquisitions) and acquired
intangible assets, property, plant and
equipment, internally developed intangible
assets, working capital, net pension
assets, less provisions.
The source data for calculating the key
performance measures is obtained from
the Reed Elsevier financial reporting system.
The adjusted figures are adopted as key
performance measures since they measure
performance without reference to non
cash amortisation of intangible assets and
impairment of goodwill, mostly acquired
in prior periods, which has no operational
relevance to current performance. Exceptional
restructuring costs are excluded as they
are typically one-off in nature and directed
at improving the ongoing operational
performance measured through the adjusted
figures. Acquisition related expenses are
excluded since they are a direct function
of the relevant acquisition activity and not a
reflection of ongoing operational performance.
Underlying growth, excluding acquisitions
and disposals, is measured to provide an
assessment of year-on-year organic growth
without distortion for part year contributions.
Constant currency growth is measured to give
a better reflection of year-on-year
performance before translation and other
currency effects in arriving at the reported
figures in the reporting currencies of the
parent companies.
47
Reed Elsevier
Annual Reports and
Financial Statements
2008
Governance
48 Directors
50 Corporate responsibility
54 Structure and corporate governance
60 Directors’ remuneration report
81 Report of the Audit Committees
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Executive Directors
1 Sir Crispin Davis (59) n
(British) Chief Executive Officer since 1999. Will
retire in March 2009. Knighted in 2004 for services
to the information industry. Non-executive director
of GlaxoSmithKline plc and a member of the
International Advisory Board, Citigroup. Prior to
joining Reed Elsevier was Chief Executive Officer
of Aegis Group plc. From 1990 to 1993 was a member
of the main board at Guinness plc and Group
Managing Director of United Distillers. Spent
over 20 years at Procter and Gamble where he
held senior positions in the UK and Germany, before
heading up the North American Food Business.
2 Ian Smith (55)
(British) Chief Executive Officer designate from
1 January 2009, and becomes Chief Executive
Officer in March 2009 when Sir Crispin retires.
Non-executive director of Galiform plc. Was Chief
Executive Officer of Taylor Woodrow plc from January
2007 until July 2007 when it merged with Wimpey plc.
Prior to that was Chief Executive Officer of the
General Healthcare Group since 2004, having
previously been CEO Europe for Exel, Group
Commercial Director of Ocean Group plc and prior
to that, Managing Director of Monitor Company
Europe, a strategy consulting firm. Began his
career with Royal Dutch/Shell Group of companies.
3 Mark Armour (54)
(British) Chief Financial Officer since 1996. Prior
to joining Reed Elsevier as Deputy Chief Financial
Officer in 1995, was a partner in Price Waterhouse.
4 Erik Engstrom (45)
(Swedish) Chief Executive Officer of the Elsevier
division since 2004. Prior to joining Reed Elsevier
was a partner at General Atlantic Partners. Before
that was president and chief operating officer of
Random House. Began his career as a consultant
with McKinsey. Served as a non-executive director
of Eniro AB.
5 Andrew Prozes (63)
(Canadian) Chief Executive Officer of the LexisNexis
division since 2000. Non-executive director of Cott
Corporation. Prior to joining Reed Elsevier was
an Executive Vice President with the West Group,
part of Thomson Reuters and prior to that was
Group President of Southam Inc.
48
Reed Elsevier
Annual Reports and
Financial Statements
2008
Executive
Directors
1
2
3
4
5
Board Committee Membership
s Audit Committee:
Reed Elsevier Group plc,
Reed Elsevier PLC and Reed
Elsevier NV
n Nominations Committee:
joint Reed Elsevier PLC
and Reed Elsevier NV
l Remuneration Committee:
Reed Elsevier Group plc
u Corporate Governance
Committee: joint
Reed Elsevier PLC and
Reed Elsevier NV
All of the executive directors
are directors of Reed Elsevier
Group plc and Reed Elsevier
PLC and, with the exception
of Ian Smith, are members
of the Executive Board of
Reed Elsevier NV. Mr Smith
will be proposed for election
to the Executive Board of
Reed Elsevier NV at the
company’s Annual General
Meeting in April 2009.
Mrs Dien de Boer-Kruyt is
a member of the Supervisory
Board of Reed Elsevier NV.
All of the other non-executive
directors are directors of
Reed Elsevier Group plc
and Reed Elsevier PLC and
members of the Supervisory
Board of Reed Elsevier NV.
49
Reed Elsevier
Annual Reports and
Financial Statements
2008
Non-
Executive
Directors
6
7
8
9
10
11
12
Non-Executive Directors
6 Jan Hommen (65) n l u
(Dutch) Chairman since 2005. Will retire in April 2009.
Chairman of the supervisory board (CEO-designate) of
ING Group NV, Academisch Ziekenhuis Maastricht
and TiasNimbas Business School of Tilburg
University. A member of the supervisory board of
TNT NV (until April 2009) and of Royal Friesland
Campina NV. Was vice-chairman of the board of
management and chief financial officer of Royal
Philips Electronics NV until his retirement in 2005.
Previously a member of the supervisory board of
Koninklijke Ahold NV.
7 Dien de Boer-Kruyt (64) u
(Dutch) Appointed 2000. Member of the supervisory
boards of Koninklijke Douwe Egberts (a subsidiary
of Sara Lee Corporation), Imtech NV and Allianz
Nederland Group NV. Member of the supervisory
board of the National Registry of non-executive
directors and director of the leadership programmes
Call and Ravel, for leaders in business, government
and universities.
8 Mark Elliott (59) n l u
(American) Appointed 2003. Chairman of the
Remuneration Committee. Non-executive director
of G4S plc. Serves on the Dean’s Advisory Council
and the Technology Advisory Council at Indiana
University. Until his retirement in April 2008, was
General Manager IBM Global Solutions, having
held a number of positions with IBM, including
Managing Director of IBM Europe, Middle East
and Africa. Served on the board of IBAX, a hospital
software company jointly owned by IBM and
Baxter Healthcare.
9 Lisa Hook (51) s u
(American) Appointed 2006. President and
Chief Operating Officer of NeuStar Inc. A director
of The Ocean Foundation. Was President and
Chief Executive Officer at Sun Rocket Inc. Before
that was President of AOL Broadband, Premium
and Developer Services. Prior to joining AOL,
was a founding partner at Brera Capital Partners LLC.
Previously was Chief Operating Officer of Time Warner
Telecom. Has served as Senior Advisor to the
Federal Communications Commission Chairman
and a Senior Counsel to Viacom Cable.
10 Robert Polet (53) l u
(Dutch) Appointed 2007. President and Chief
Executive Officer of Gucci Group. Before that spent
26 years at Unilever working in a variety of marketing
and senior executive positions throughout the world
including President of Unilever’s Worldwide Ice
Cream and Frozen Foods division.
11 David Reid (62) s n l u
(British) Appointed 2003. Senior independent
non-executive director. Non-executive chairman of
Tesco PLC, having previously been executive deputy
chairman until December 2003, and finance director
from 1985 to 1997. Chairman of Kwik-Fit and
previously a non-executive director of De Vere PLC,
Legal and General PLC and Westbury PLC.
12 Lord Sharman of Redlynch OBE (66) s n u
(British) Appointed 2002. Chairman of the Audit
Committee. Non-executive chairman of Aviva PLC
and a non-executive director of BG Group plc.
Member of the House of Lords since 1999. Was
chairman of KPMG Worldwide until 1999, having
joined KPMG in 1966. Previous directorships include:
chairman of Aegis Group plc; deputy chairman
of G4S plc; member of the supervisory board of
ABN AMRO Holding NV; non-executive director
of Young & Co’s Brewery plc; and non-executive
director of AEA Technology plc.
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50
Reed Elsevier
Annual Reports and
Financial Statements
2008
Corporate
responsibility
Corporate responsibility strengthens our business
It means performing to the highest commercial and
ethical standards
Constant engagement with stakeholders,
including shareholders, employees, communities,
governments, and members of civil society, helps us
determine material corporate responsibility issues.
Our Corporate Responsibility Forum, chaired by
the CEO, sets corresponding objectives – covering
governance, people, health and safety, customers,
supply chain, environment and community –
and measures performance against them.
LexisNexis launched the Rule of Law Resource
Center, the largest collection of Rule of Law
resources on the internet, providing global visitors
with up-to-date laws, news, and expert analysis.
LexisNexis also supports the Southern African
Litigation Centre, providing access to its entire
South African law content, along with legislation
and law reports for other African countries including
Ghana, Kenya, Malawi, and Nigeria.
Governance
2008 Objective
>
Train 80% of staff on RE Code of Ethics and
Business Conduct
The Reed Elsevier Code of Ethics and Business
Conduct (Code), disseminated to every employee,
is a guide to our corporate and individual behaviour.
Encompassing topics like human rights, anti-bribery,
and fair competition, it encourages open and
principled behaviour.
70% of current employees have received online
training on the Code. Our goal to launch the course
in the Netherlands, where we have the third highest
concentration of employees, was delayed until
January 2009, as approval from the Dutch Data
Protection Authority was not forthcoming until
late in the year. In 2008, Code training was rolled
out to employees in the UK, Australia, Canada,
New Zealand, India, Singapore, Hong Kong, and
Thailand, in addition to ongoing implementation
for new US employees. Staff also received training
on anti-harassment, data privacy and security,
competition law, and doing business
with government.
Furthering the rule of law is a priority for Reed
Elsevier. In 2008, we actively promoted the United
Nations Global Compact to which we are a signatory,
developing a presentation to help fellow signatories
communicate about the Compact, and served on
the steering group for the United Kingdom.
2009 Objective
>
80% trained in Code of Ethics, with 70%
of US employees completing second round
online training
People
2008 Objectives
>
Launch ‘Great Place to Work’ website
>
Accelerate internal transfers and promotions
Our 35,000 people are our strength. To help them
reach their potential and ensure Reed Elsevier
remains an in-demand place to work, we launched
Tools for a Great Workplace as part of a new intranet.
This online toolkit looks at how great leaders create
motivated, successful teams; allows employees
to assess how well they lead; and provides advice
on developing skills to enhance local workplaces.
We accelerated internal transfers and promotions
through a new global jobs board which allows
employees to search for new positions by location,
function, and division. And an enhanced people and
careers section at the new www.reedelsevier.com
gives potential employees insight into what it is like
to work for the company in the words of our staff.
It outlines our focus on leadership and our values –
customer focus, valuing our people, passion for
winning, innovation and boundarylessness.
With input from colleagues throughout the business,
in 2008 we developed a Reed Elsevier Diversity and
Inclusion statement. It articulates our commitment
to a diverse workforce and a work environment
that respects individuals and their contributions,
regardless of background.
< Rewrite the Future
Employees helped raise over $62,000 for Save the
Children’s Rewrite the Future campaign providing
education for children in conflict-affected countries.
51
Reed Elsevier
Annual Reports and
Financial Statements
2008
Corporate
responsibility
2009 Objectives
>
Reach all Reed Elsevier employees with 2009
Employee Opinion Survey (EOS), with action plans
based on responses
>
Communicate to all staff on new Diversity and
Inclusion Statement; advance Diversity and
Inclusion Working Group
Health and Safety
2008 Objective
>
5% decrease in workers’ compensation claims
Our employees have the right to a healthy and safe
workplace as outlined in the Reed Elsevier Health
and Safety Policy. As a measure of improving
conditions, we achieved a 24% drop in workers’
compensation claims in the United States
(117 in 2008 versus 153 in 2007), home to the
majority of our employees. We expanded training for
Health and Safety Champions to improve reporting,
and received assurance on health and safety data
from Ernst & Young.
In 2008, we held our first Health and Safety Month
focused on lifting and handling of materials,
a primary cause of lost time incidents the previous
year. We also reviewed our US total rewards
programme and are exploring new work/life
resources that positively impact wellness and
productivity and ensure we remain competitive.
2009 Objectives
>
Develop targeted and effective global wellness
campaign
>
10% reduction in severity rate by 2010 (from
2008 baseline)
Customers
2008 Objectives
>
Increase in online revenue over 2006/2007
>
Increase in Net Promoter Scores across the
divisions
We moved from 37% of revenue from online in
2006 to over 50% in 2008. Innovative online products
and services improve our customers’ workflows,
allowing them to utilise information on a scale never
before possible. For example, Elsevier’s Procedures
Consult, uses online video, text and animation
to help physicians and students learn and perform
more than 150 medical procedures; in 2008,
modules were added in orthopedics, anesthesia
and emergency medicine. And Reed Exhibitions’
MIPIM site, for the world’s largest annual real
estate show, expanded video content, including
news reports from Reed Business Information’s
Estates Gazette TV.
Through the Net Promoter Scores programme we
surveyed nearly 30,000 customers to determine their
willingness to recommend us. Results are reviewed
by the CEO and senior managers and communicated
to staff, to illuminate where we are doing well and
where we must do better. We saw increases, for
example, among health science journal editors,
large law clients, and reached more show exhibitors.
We noted areas for improvement, for example,
with certain small law clients and have instituted
a customer journey mapping pilot to understand
how we can improve all aspects of our engagement
with them.
We are committed to information philanthropy
ensuring those in the developing world who can
benefit from our products gain access. We are a
founding member of Health InterNetwork Access
to Research Initiative. In collaboration with the
United Nations, and other publishers, we make
available over 1000 of our journals; in 2008 there
were 1.5 million full text article downloads.
In 2009 we aim to:
>
Improve customer satisfaction measured by Net
Promoter Scores and dashboard programmes
>
Increase access for underserved users, expanding
developing world programmes
>
Improve website accessibility across
Reed Elsevier sites
Promoting Health & Safety
Easy Guide to Health and Safety was published
by Elsevier in 2008 to provide step-by-step guidance
on health and safety issues for small businesses.
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52
Reed Elsevier
Annual Reports and
Financial Statements
2008
Corporate
responsibility
continued
Supply Chain
2008 Objectives
Environment
2008 Objectives
>
Expand Socially Responsible Supplier (SRS)
database to 325 entries
>
85% of SRS suppliers sign Reed Elsevier
Supplier Code of Conduct
>
25 external audits of high risk suppliers
We require our suppliers to meet the same high
standards we set for ourselves. Our Supplier Code
of Conduct stipulates adherence to all laws and
best practice in areas like human rights, labour,
and environment. In 2008, we expanded our SRS
database to 368 suppliers, 90 of which we deem to
be high risk according to guidelines from the OECD
and the US State Department. 74% of all suppliers
were signatories to the Supplier Code, and
specialists ITS conducted 19 external audits of high
risk suppliers by year end. Going forward, we are
engaging more people within the business to reach
a higher Supplier Code return rate; the smaller
number of external audits correlates to suppliers
who deferred their 2008 audit to first quarter 2009,
and a number with whom we ceased to do business.
We provide tools for employees to undertake internal
audits when visiting high risk suppliers; nine were
completed in 2008. We also provided supplier training
to increase reporting on the Reed Elsevier portion
of their CO2 emissions and water usage. In addition,
our internal audit team reviewed the SRS programme;
we will be working to implement their suggestions.
2009 Objectives
>
550 suppliers in SRS master database
>
85% of suppliers sign Reed Elsevier
Supplier Code of Conduct
>
40 external audits of high risk suppliers
>
Reduction in travel emissions over 2006/2007 levels
>
Pursuit of environmental targets
2008 Total Environmental Impact*
Energy:
Water:
Waste:
C02 Emissions (GHG Protocol):
Scope 1
Scope 2
Scope 3
Production Paper
293MWh
465m3
13t (50% recycled)
22t/C02
165t/C02
131t/C02
78t
*Initial results, ’000s
We saw a 16% decrease in travel, resulting from
our focus on travel alternatives including video
conferencing and webinars, and the introduction
of a global travel portal.
Initial results for 2008 indicate that our energy usage
stayed reasonably constant, with a reduction in water
and paper consumption and carbon emissions.
But it will be a challenge to meet absolute targets.
Increased data searches and hosting for our clients,
for example, have contributed to energy increases
in the five years to 2008, which we are addressing
through our data centre working group focused
on optimisation/rationalisation.
The importance of CO2 reduction was the theme
of our annual World Environment Day campaign,
launched with a message from the CEO. In 2009,
we are introducing an environmental standards
programme to help offices achieve best practice
and go green.
< Energy Locate
Energy Locate brings together all Elsevier’s energy
products and services into a one-stop community
website for energy scientists and professionals.
53
Reed Elsevier
Annual Reports and
Financial Statements
2008
Corporate
responsibility
continued
We provide ongoing training to Reed Elsevier
Environmental Champions and support to employee
Green Teams. We encourage environmental
volunteering, running programmes with Earthwatch
in the US and Europe in 2008; we promoted good
environmental performance through our leading
edge environmental science products and shows,
like Renewable Energy Focus and the Journal of
Cleaner Production.
2009 Objectives
>
Launch new environmental targets
(KPIs) Key
Performance
Indicators
C02 Emissions
Total Energy
Water
Travel Emissions
Waste Recycled
Target
–10%
–5%
–10%
–5%
70%
Baseline
2006
2008
2008
2008
N/A
Target
date
2015
2015
2015
2015
2015
Reed Elsevier Cares Champions engage colleagues
in annual events including the RE Cares Challenge to
reward business sponsored community engagement,
and Reed Elsevier Cares Month, with hundreds of
activities around the world. During the Month, we
held our first-ever global fundraising drive, raising
$62,000 for Save the Children’s Rewrite the Future,
which furthers education for children living in conflict
affected countries; and our second global book drive
yielded 18,208 books from employees for local and
developing world readers.
2009 Objective
>
Additional 10% increase in group-wide volunteering
Good internal performance is recognised externally.
2008 recognition:
> Received Platinum rating in Business in the
Community’s Corporate Responsibility Index
>
Introduce environmental standards programme
across the group
> Admitted to Dow Jones Sustainability Index and
SAM Sustainability Yearbook, scoring in top 15%
of companies
Community
2008 Objectives
> Member FTSE4Good
> Finalist for VBDO Supply Chain Award
>
10% increase in group-wide volunteering
> Global 100 Most Sustainable Corporations in
the World
Through our Reed Elsevier Cares programme we
concentrate on education – a common thread across
the group – for disadvantaged young people. We saw
a 66% rise in volunteering and donated £2.1 million in
cash donations (including matching gift programmes)
and the equivalent of £3.8 million in gifts of products,
services and staff time in 2008. Our Two Days
programme allows all employees up to two days off
per year for their own community work.
> AAA rating from Innovest Strategic Value Advisors
> A ‘best reporting company’ in the Carbon
Disclosure Project’s Climate Leaders Index
Full report online >
Our 2008 CR report, with detailed data and
objectives for the year ahead, will be available
from April 2009 at www.reedelsevier.com/
corporateresponsibilityreport08
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54
Reed Elsevier
Annual Reports and
Financial Statements
2008
Structure and corporate governance
Structure and corporate governance
Corporate structure
Reed Elsevier came into existence in January 1993, when Reed
Elsevier PLC and Reed Elsevier NV contributed their business
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.
Reed Elsevier PLC and Reed Elsevier NV entered into a Governing
Agreement to regulate their relationship following the merger
of their respective businesses. The agreement regulates the
economic interests of the parties and the composition of their
boards and those of Reed Elsevier Group plc and of Elsevier
Reed Finance BV as further referred to below.
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 a
5.8% 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.
support the principles and provisions of corporate governance
contained in the Combined Code on Corporate Governance issued
by the Financial Reporting Council in June 2006 (the UK Code),
including the Turnbull Guidance on internal control published
in October 2005. The boards also support the principles and best
practice provisions set out in the Dutch Corporate Governance
Code issued in December 2003 (the Dutch Code), with due regard
for the recommendations of the Monitoring Committee in its
annual reports. Reed Elsevier PLC, which has its primary listing
on the London Stock Exchange, and Reed Elsevier NV, which
has its primary listing on Euronext Amsterdam, have complied
throughout the year with the UK Code and the Dutch Code,
except as and to the extent explained below, and as described
in the corporate governance assessment documents available
on the company’s website, www.reedelsevier.com.
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 towards the end of the financial year through
Interim Management Statements. 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
auditors are available to answer questions from shareholders.
The interim and annual results announcements and presentations,
together with the Interim Management Statements and other
important announcements and corporate governance documents
concerning Reed Elsevier, are published on the Reed Elsevier
website, www.reedelsevier.com. Reed Elsevier NV is a
participant in the Dutch Shareholder Communication Channel
(www.communicatiekanaal.nl) which facilitates proxy voting.
The boards of both Reed Elsevier PLC and Reed Elsevier NV
have agreed, other than in special 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. The
exchange rate used for each dividend calculation is the spot euro/
sterling exchange rate, averaged over a period of five consecutive
business days commencing with the tenth business day before
the announcement of the proposed dividend.
The boards
The board of Reed Elsevier PLC, the Combined Board of
Reed Elsevier NV and the board of Reed Elsevier Group plc are
harmonised. All of the directors of Reed Elsevier Group plc are
also members of the board of directors of Reed Elsevier PLC and,
subject to the appointment of Ian Smith to the Executive Board
of Reed Elsevier NV at the 2009 Annual General Meeting, will be
a member of either the Executive Board or the Supervisory Board
of Reed Elsevier NV. Reed Elsevier NV may appoint two directors
who are not appointed to the boards of either Reed Elsevier PLC
or Reed Elsevier Group plc, and has appointed one such director.
The names, nationality and biographical details of each director
appear on pages 48 and 49.
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 and the United States.
The effect of this is that a standard applying to one will, where
practicable and not in conflict, also be observed by the other.
The boards of Reed Elsevier PLC and Reed Elsevier NV (Executive
Board and Supervisory Board, together the Combined Board)
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
judgement. A profile, which identifies the skills and experience
of the non-executive directors/Supervisory Board members,
is available on the Reed Elsevier website, www.reedelsevier.com.
55
Reed Elsevier
Annual Reports and
Financial Statements
2008
Structure and corporate governance
Structure and corporate governance continued
Reed Elsevier PLC and Reed Elsevier NV shareholders maintain
their rights to appoint individuals to the respective boards in
accordance with the provisions of the Articles of Association
of these companies. Subject to this, no individual may be
appointed to the boards of Reed Elsevier PLC, Reed Elsevier NV
(either members of the Executive Board or the Supervisory Board)
or Reed Elsevier Group plc unless recommended by the joint
Nominations Committee. Members of the Committee abstain
when their own re-appointment is being considered.
In order to safeguard the agreed board harmonisation,
the Articles of Association of Reed Elsevier NV provide that
appointments of board members other than in accordance with
nominations by the Combined Board, shall require a two-thirds
majority if less than 50% of the share capital is in attendance.
Given the still generally low attendance rate at shareholders
meetings in the Netherlands, the boards believe that this
qualified majority requirement is appropriate for this purpose.
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. However, 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 an additional three-year term.
The Articles of Association of Reed Elsevier NV provide that
the number of Executive Board members must be less than the
number of members of the Supervisory Board. The Supervisory
Board members and the Executive Board members together
comprise the Combined Board. Members of the Executive and
Supervisory Boards can be suspended, dismissed or re-instated
at any time by a simple majority of the shareholders in a General
Meeting. In accordance with Article 44 of the Articles of
Association, the provisions in the Articles of Association,
governing appointments and dismissals of members of the
Executive and Supervisory Boards can be amended by a simple
majority of shareholders in a General Meeting upon a proposal of
the Combined Board.
Board changes
During the year Patrick Tierney and Gerard van de Aast ceased
to be executive directors of Reed Elsevier Group plc and of
Reed Elsevier PLC and members of the Executive Board of
Reed Elsevier NV. Rolf Stomberg retired as a non-executive
director of Reed Elsevier Group plc and of Reed Elsevier PLC
and as a member of the Supervisory Board of Reed Elsevier NV.
Ian Smith was appointed Chief Executive Officer designate of
Reed Elsevier and an executive director of Reed Elsevier PLC
and Reed Elsevier Group plc on 1 January 2009. The Nominations
Committee recommended Mr Smith’s appointment after
engaging external consultants to produce a short list of
candidates who met the requirements of the recruitment
brief developed by the boards.
At the Reed Elsevier PLC and Reed Elsevier NV Annual General
Meetings, to be held on 21 and 22 April 2009 respectively,
Mark Elliott, David Reid and Lord Sharman will retire from
each respective board by rotation and, being eligible, will offer
themselves for re-election. Having been appointed to the Board
of Reed Elsevier PLC since the date of the last Annual General
Meeting, Ian Smith will retire in accordance with the company’s
Articles of Association and, being eligible, will offer himself for
re-election. A resolution will also be proposed at the 2009 Annual
General Meeting of Reed Elsevier NV to appoint Ian Smith as a
member of the Executive Board.
As previously announced, Jan Hommen will step down as
Chairman and as a member of the boards at the forthcoming
Annual General Meetings of Reed Elsevier PLC and Reed Elsevier
NV in April 2009.
Dien de Boer-Kruyt will also retire by rotation as a member
of the Reed Elsevier NV Supervisory Board. The Nominations
Committee has requested Mrs de Boer-Kruyt to continue as a
member of the Supervisory Board for a period of 12 months,
pending the recruitment of a successor to the Chairman of that
Board. Mrs de Boer-Kruyt has served three terms of three years
each, and her proposed re-appointment is within the maximum
period of twelve years permitted under the Dutch Code.
Board attendance
Members
Gerard van de Aast
Mark Armour
Dien de Boer-Kruyt
Sir Crispin Davis
Mark Elliott
Erik Engstrom
Jan Hommen
Lisa Hook
Robert Polet
Andrew Prozes
David Reid
Lord Sharman
Rolf Stomberg
Patrick Tierney
Date of
cessation
during the year
December 2008
April 2008
January 2008
Reed Elsevier PLC
Reed Elsevier NV
Reed Elsevier Group plc
Number of
meetings
held whilst
a director
Number
of meetings
attended
Number of
meetings
held whilst
a director
Number
of meetings
attended
Number of
meetings
held whilst
a director
Number of
meetings
attended
6
6
n/a
6
6
6
6
6
6
6
6
6
2
0
6
6
n/a
6
5
6
6
6
5
6
5
5
2
0
6
6
6
6
6
6
6
6
6
6
6
6
2
0
6
6
2
6
5
6
6
6
5
6
5
5
2
0
9
9
n/a
9
9
9
9
9
9
9
9
9
3
1
9
9
n/a
9
8
9
9
9
8
9
7
6
3
0
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56
Reed Elsevier
Annual Reports and
Financial Statements
2008
Structure and corporate governance
Structure and corporate governance continued
Taking into account the assessment by the Corporate Governance
Committee of the qualifications and performance of each
individual director, the Nominations Committee has recommended
to the boards the re-appointment of each director and in the
case of Mr Smith, also his proposed appointment to the Executive
Board of Reed Elsevier NV.
Board induction and information
On appointment and as required, 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 relevant information to
assist them in performing their duties. Non-executive directors
are encouraged to visit the Reed Elsevier businesses to meet
management and senior staff.
All directors have full and timely access to the information
required to discharge their responsibilities fully and efficiently.
They have access to the services of the respective company
secretaries, other members of Reed Elsevier’s management
and staff, and external advisors. Directors may take independent
professional advice in the furtherance of their duties, at the
relevant company’s expense.
In addition to scheduled board and board committee meetings
held during the year, directors attend many other meetings
and site visits. Where a director is unable to attend a board or
board committee meeting he or she is provided with all relevant
papers and information relating to that meeting and is able
to discuss issues arising with the respective Chairman and
other Board members.
Elsevier Reed Finance BV has a two-tier board structure
comprising a Supervisory Board and a Management Board.
The Supervisory Board consists of Rudolf van den Brink
(Chairman), Mark Armour and Dien de Boer-Kruyt, with the
Management Board consisting of Jacques Billy and Gerben
de Jong. Appointment to the Supervisory and Management
Boards are made by Elsevier Reed Finance BV’s shareholders,
in accordance with the company’s Articles of Association.
Members
Mark Armour
Jacques Billy
Dien de Boer-Kruyt
Rudolf van den Brink
Gerben de Jong
Number of
meetings
held whilst
a director
Number of
meetings
attended
3
3
3
3
3
3
3
3
3
3
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.
Membership of each committee is set out on pages 48 and 49.
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, and are chaired by Lord Sharman.
A report of the Audit Committees, setting out the role of the
Committees and their main activities during the year, appears
on pages 81 and 82.
Members
Lisa Hook
David Reid
Lord Sharman
Number of
meetings
held whilst a
Committee member
Number of
meetings
attended
5
5
5
5
5
5
The functions of an audit committee in respect of the financing
activities are carried out by the Supervisory Board of Elsevier
Reed Finance BV.
Remuneration Committee: Reed Elsevier Group plc has
established a Remuneration Committee, which is responsible
for recommending to the boards the remuneration for the
executive directors of Reed Elsevier Group plc, Reed Elsevier PLC
and Reed Elsevier NV. The Committee, which comprises only
independent non-executive directors, is chaired by Mark Elliott.
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 60 to 80. This report also
serves as disclosure of the directors’ remuneration policy, and the
remuneration and interests of the directors in the shares of the
two parent companies, Reed Elsevier PLC and Reed Elsevier NV.
Members
Mark Elliott
Jan Hommen
Robert Polet
Rolf Stomberg
Date of
cessation
during the year
April 2008
Number of
meetings
held whilst a
Committee
member
5
5
5
1
Number of
meetings
attended
5
5
4
0
Following the retirement of Rolf Stomberg in April 2008, the
Committee has comprised three independent non-executive
directors, including the Chairman of Reed Elsevier. David Reid
was appointed an additional member of the Committee in
February 2009.
Nominations Committee: Reed Elsevier PLC and Reed Elsevier
NV have established a joint Nominations Committee, which
provides a formal and transparent procedure for the selection
and appointment of new directors to the boards. The Committee
comprises a majority of independent non-executive directors.
Although he is not independent, the boards believe that it has
been appropriate for Sir Crispin Davis, as Chief Executive Officer,
to have been a member of the Committee, since he has provided
a perspective which assisted the Committee in nominating
candidates to the boards who will be able to work as a team with
both the executive and non-executive directors. Sir Crispin did
not participate in the Committee’s deliberations concerning the
selection and appointment of his successor.
Jan Hommen relinquished chairmanship of the Committee
in January 2009, following the announcement that he would
be stepping down as Chairman and as a member of the boards
in April 2009. David Reid has chaired Committee meetings since
January 2009.
57
Reed Elsevier
Annual Reports and
Financial Statements
2008
Structure and corporate governance
Structure and corporate governance continued
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 re-appointment 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. In recommending appointments to the
Reed Elsevier NV Supervisory Board, the Committee considers
the knowledge, experience and background of individual directors
and the Supervisory Board as a whole, having regard to the
profile adopted for the constitution of the Supervisory Board
(see www.reedelsevier.com).
Members
Sir Crispin Davis
Mark Elliott
Jan Hommen
David Reid
Lord Sharman
Rolf Stomberg
Date of
cessation
during the year
April 2008
Number of
meetings
held whilst a
Committee
member
9
9
9
9
9
4
Number of
meetings
attended
3
9
9
9
9
2
Corporate Governance Committee: Reed Elsevier PLC and
Reed Elsevier NV have established a joint Corporate Governance
Committee, which is responsible for 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. The
Committee comprises only non-executive directors, all of whom
are independent, and is chaired by Jan Hommen.
During the period the Committee concluded that no significant
changes were required as regards Reed Elsevier’s current
policies and best practices. The Committee assessed the
performance of individual directors and, led by the senior
independent director, also assessed the performance of the
Chairman. Using questionnaires completed by all directors,
the Committee reviewed the functioning and constitution of the
boards and their committees. Based on these assessments and
on the board effectiveness review, 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.
Members
Dien de Boer-Kuyt
Mark Elliott
Jan Hommen
Lisa Hook
Robert Polet
David Reid
Lord Sharman
Rolf Stomberg
Date of
cessation
during the
year
April 2008
Number of
meetings
held whilst a
Committee
member
1
1
1
1
1
1
1
0
Number of
meetings
attended
0
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Dutch Corporate Governance Code
During the Annual General Meeting of the shareholders of
Reed Elsevier NV held in April 2005, the company’s corporate
governance was explained, discussed with and approved by
shareholders. The corporate governance principles and best
practices are set out in Reed Elsevier’s corporate governance
manual. Reed Elsevier is currently assessing the implications
of the new Dutch Corporate Governance Code published
in December 2008 and effective for accounting periods
commencing on or after 1 January 2009. In accordance with the
recommendations of the Dutch Corporate Governance Monitoring
Committee, Reed Elsevier NV will present a chapter on the broad
outline of its corporate governance structure and compliance with
the amended Code for discussion as a separate agenda item at
the Annual General Meeting in 2010.
The Combined Board of Reed Elsevier NV has adopted rules
governing the functioning of the boards and the relationship
with shareholders, reflecting the requirements of the
Dutch Code, which are published on the Reed Elsevier website,
www.reedelsevier.com.
As Reed Elsevier PLC and Reed Elsevier NV are subject to
various corporate governance principles and best practice codes,
Reed Elsevier’s corporate governance may not apply fully the
verbatim language of all principles and best practice provisions
of the Dutch Code. The following recommendations are not fully
applied for reasons set out above or explained below:
> Best practice provision II.2.3: Executive directors are required
to build up a minimum shareholding and Reed Elsevier uses
long term incentive arrangements in the form of awards
of shares which may vest after three years. The intent of
this shareholding policy is to align the interests of senior
executives and shareholders. This intent is in compliance
with the Code. Shares received on joining the company in
compensation for vested benefits under incentive schemes
from a previous employer are not to be considered as free
shares in this context.
> Best practice provisions II.2.6 and III.7.3: In view also of the
foreign residency and nationality of the majority of members
of the Combined Board, it has been deemed sufficient that
notifications of holdings in Dutch listed companies other than
Reed Elsevier NV shall be done annually rather than quarterly
as required by this Code provision.
> Best practice provision III.2.7: Executive directors have an
employment agreement under English law that provides for a
notice period not exceeding one year. None of the employment
agreements contain severance pay arrangements beyond
the notice period. Although the principle that severance pay
should not exceed one year’s salary is supported, there may
be exceptional circumstances that could justify additional
compensation on termination for loss of variable
remuneration components.
> Best practice provisions II.2.10 and II.2.11: In view of
their detailed specificity and complexity and because of
the confidential or potentially commercially sensitive nature
of the information concerned, individual performance
targets and achievements relevant for variable executive
remuneration will only be disclosed in general terms.
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Reed Elsevier
Annual Reports and
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2008
Structure and corporate governance
Structure and corporate governance continued
> Best practice provision III.3.4: The criterion for determining
the maximum number of directorships is the assurance of
proper performance instead of a fixed number.
> Principle III.5: The Chairman of the Executive Board is
a member of the Nominations Committee (see page 56).
> Best practice provision II.3.4 and III.6.3: The disclosure of
transactions where directors have a conflict of interest, as
required by these provisions, shall be qualified to the extent
required under applicable rules and laws pertaining to the
disclosure of price sensitive information, confidentiality
and justified aspects of competition.
> Principle III.7: The remuneration of Supervisory Board
members is determined by the Combined Board in the
context of the board harmonisation with Reed Elsevier PLC
and Reed Elsevier Group plc, having regard for the maximum
approved by the general meeting of shareholders.
> Best practice provision IV.1.1: Appointments, suspensions
or removal procedures of members of the Executive Board
or Supervisory Board are set out on pages 54 and 55.
> Best practice provision IV.3.1: It is considered impractical
and unnecessary to provide access for shareholders to all
meetings with analysts and all presentations to investors
real time. Price sensitive and other information relevant to
shareholders is disclosed as appropriate and made available
on the website.
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 Committee
meet on a regular basis to review the systems of internal control
and risk management 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 boards of Reed Elsevier Group plc and Elsevier Reed
Finance BV have implemented an ongoing process for identifying,
evaluating, monitoring and managing the more significant risks
faced by their respective businesses. This process has been in
place throughout the year ended 31 December 2008 and up to
the date of the approvals of the Annual Reports and Financial
Statements 2008.
Reed Elsevier Group plc
Reed Elsevier Group plc has an established framework of
procedures and internal controls, 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.
Reed Elsevier Group plc has a Code of Ethics and Business
Conduct that provides a guide for achieving its business goals
and requires officers and employees to behave in an open, honest,
ethical and principled manner. The Code also outlines confidential
procedures enabling employees to report any concerns about
compliance, or about Reed Elsevier’s financial reporting
practice. The Code is published on the Reed Elsevier website,
www.reedelsevier.com.
Each division has identified and evaluated its major risks, the
controls in place to manage those risks and the levels of residual
risk accepted. Risk management and control procedures are
embedded into the operations of the 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.
Further detail on the principal risks facing Reed Elsevier is
set out on pages 43 and 44.
The major strategic risks facing the Reed Elsevier Group plc
businesses are considered by the Board. During 2008, Reed
Elsevier appointed a Chief Risk Officer whose responsibilities
include providing regular reports to the Board and Audit
Committee. Working closely with divisional and business
management and with the central functions, the role of the
Chief Risk Officer is to ensure that Reed Elsevier is managing
its business risks effectively and in a coordinated manner across
the business with clarity on the respective responsibilities and
interdependencies. Litigation and other legal 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 identification and management of material risks
and reviews these reports. The Audit Committee also receives
regular reports from both internal and external auditors on
internal control and risk management matters. In addition,
each division is required, at the end of the financial year, to review
the effectiveness of internal controls and risk management 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 boards on any significant internal
control matters arising.
59
Reed Elsevier
Annual Reports and
Financial Statements
2008
Structure and corporate governance
Structure and corporate governance continued
Elsevier Reed Finance BV
Elsevier Reed Finance BV has established policy guidelines, which
are applied to 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 the external auditors.
Annual review
As part of the year end procedures, the audit committees and
boards of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier
Group plc and Elsevier Reed Finance BV review the effectiveness
of the systems of internal control and risk management during
the last financial year. 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 have confirmed, subject to the above, that the
respective risk management and control systems provide
reasonable assurance against material inaccuracies or
loss and have functioned properly during the 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 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 International Financial Reporting Standards.
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
2008 financial statements.
In reaching this conclusion, the directors of Reed Elsevier PLC
and Reed Elsevier NV have had due regard to the following.
After taking account of available cash resources, committed
bank facilities that back up short term borrowings and term debt
issued in January 2009, no borrowings fall due within the next
two years that require refinancing from resources not already
available to Reed Elsevier. The strong free cash flow of the
business (which for the three years ended 31 December 2008
was £999m, £717m and £756m respectively before exceptional
restructuring and acquisition related costs), resources and
committed back up facilities in place, and Reed Elsevier’s ability
to access debt capital markets, taken together, provide confidence
that Reed Elsevier will be able to meet its obligations as they fall
due. Further information on liquidity can be found on pages 24, 25
and 27 in the Chief Financial Officer’s Report and in note 19 of the
combined financial statements.
US certificates
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 2008 on Form 20-F to be 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’s internal controls; and
> presented in the Reed Elsevier Annual Report 2008 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
Section 302 certifications.
Section 404 of the US Sarbanes-Oxley Act 2002 requires the Chief
Executive Officer and Chief Financial Officer of Reed Elsevier PLC
and of Reed Elsevier NV to certify in the respective Annual Reports
2008 on Form 20-F that they are responsible for maintaining
adequate internal control structures and procedures for financial
reporting and to conduct an assessment of their effectiveness.
The conclusions of the assessment of internal control structures
and financial reporting procedures, which are unqualified, are
presented in the Reed Elsevier Annual Report 2008 on Form 20-F.
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Directors’ remuneration report
Introduction from Remuneration
Committee Chairman
The economic environment in which Reed Elsevier does business
changed substantially during the course of 2008 and, inevitably,
the Committee’s agenda during the year evolved to reflect the
changing climate. In the first half of 2008 we reviewed a number
of longer term strategic issues: primarily the performance
measures used in our long term incentives, and the role and
effectiveness of our share option programme. We increased the
performance targets to be applied to long term incentive awards
made in 2008 and reconfirmed our continued use of share options.
The Committee continues to keep all aspects of executive
remuneration under review, given the developing business and
governance environment.
Remuneration arrangements play an important role in
the successful execution of Reed Elsevier’s talent strategy.
We successfully recruited Ian Smith as CEO to succeed
Sir Crispin Davis upon his retirement in March 2009. Gerard van
de Aast left Reed Elsevier when his role ceased to exist following
a restructuring of Reed Business. His severance arrangements
reflect the application of mitigation and the standard rules of
our incentive plans.
Notwithstanding Reed Elsevier’s strong performance during 2008
and positive outlook for 2009, in view of the wider economic
climate, the Committee decided not to increase the salaries
for executive directors with effect from 1 January 2009.
As in previous years, our approach to preparing this report has
been to meet the highest standards of disclosure, whilst aiming
to produce a clear and understandable report. Following the
publication in December 2008 of the amended Dutch Corporate
Governance Code, the Committee reviewed the current level
of disclosure and believes that it already complies with the
substance of the requirements. During 2009, the Committee will
continue to monitor its approach to disclosure, as more detailed
guidance and clarification on the amended Code provisions
becomes available.
Mark Elliott
Chairman, Remuneration Committee
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Remuneration Committee
61 Constitution and terms of reference
Executive directors
61 Remuneration philosophy and policy
63 The total remuneration package
68 Retirement benefits
69 Service contracts
Non-executive directors
71 Policy on non-executive directors’ fees
Total Shareholder Return graphs
72 Total Shareholder Return graphs
Remuneration and share tables
73 Directors’ emoluments and fees
74 Directors’ shareholdings in Reed Elsevier
75 Share-based awards in Reed Elsevier
This report describes how Reed Elsevier applies the principles
of good governance relating to directors’ remuneration. It has
been prepared by the Remuneration Committee (the Committee)
of Reed Elsevier Group plc in accordance with Schedule 7A of the
Companies Act 1985 and the Dutch Corporate Governance Code.
The Directors’ Remuneration Report was approved by the boards
of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier
NV and will be submitted to shareholders for an advisory vote at
the Annual General Meeting of Reed Elsevier PLC. It contains
the disclosures required for financial year 2008 under the
Dutch Corporate Governance Code and Dutch legislation.
The audited parts of the Directors’ Remuneration Report
In compliance with the UK Directors’ Remuneration Report
Regulations 2002, and under Title 9, Book 2 of the Civil Code
in the Netherlands the following elements of this report have
been audited: the table entitled ‘Transfer value of accrued
pension benefits’ on page 69; the tables showing ‘Aggregate
emoluments’ and ‘Individual fees of non-executive directors’
on page 73; the tables on ‘Individual emoluments of executive
directors’ and ‘Directors’ shareholdings in Reed Elsevier PLC
and Reed Elsevier NV’ on page 74; and the section ‘Share-
based awards in Reed Elsevier PLC and Reed Elsevier NV’
on pages 75-80.
61
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Remuneration Committee
Constitution
Throughout 2008, the Committee consisted of independent
non-executive directors, as defined by the Combined Code of
the FSA Listing Rules and the Dutch Corporate Governance Code,
and the Chairman of Reed Elsevier. Details of Committee members
and meeting attendance are contained in the section on ‘Structure
and corporate governance’. The Company Secretary, Stephen
Cowden, also attends the meetings in his capacity as secretary
to the Committee. At the invitation of the Committee Chairman,
the Reed Elsevier CEO attends appropriate parts of the meetings.
Ian Fraser (Group HR Director) and Philip Wills (Director,
Compensation and Benefits) provided material advice to the
Committee during the year.
Advisors
Towers Perrin acted as external advisers to the Committee
throughout 2008 and also provided market data and data analysis.
Towers Perrin also provide actuarial and other human resources
consultancy services directly to some Reed Elsevier companies.
Terms of reference
The Committee is responsible for:
> Setting the remuneration in all its forms, and the terms
of the service contracts and all other terms and conditions
of employment of directors of Reed Elsevier Group plc
appointed to any executive office of employment.
> Advising the Chief Executive Officer on the remuneration
of members of the Management Committee (other than
executive directors) of Reed Elsevier Group plc and of the
Company Secretary.
> Providing advice to the Chief Executive Officer, as required,
on major policy issues affecting the remuneration of
executives at a senior level below the Board.
> Establishing and amending the rules of all share-based
incentive plans for approval by shareholders.
A copy of the terms of reference of the Committee can be
found on the Reed Elsevier website, www.reedelsevier.com.
Executive directors
Remuneration philosophy and policy
The context for Reed Elsevier’s remuneration policy and practices
is set by the needs of a group of global business divisions, each of
which operates internationally by line of business. Furthermore,
Reed Elsevier’s market listings in London and Amsterdam
combined with the majority of its employees being based in
the US provides a particular set of challenges in the design
and operation of remuneration policy.
Our remuneration philosophy
Reed Elsevier’s guiding remuneration philosophy for senior
executives is based on the following precepts:
> Performance-related compensation; this is underpinned
by Reed Elsevier’s demanding performance standards.
> Creation of shareholder value; this is at the heart of our
corporate strategy and is vital to meeting our investors’ goals.
> Competitive remuneration opportunity; this helps Reed
Elsevier attract and retain the best executive talent from
anywhere in the world.
> A balanced mix of remuneration between fixed and variable
elements, and short and long term performance.
> Aligning the interests of executive directors with shareholders.
Our remuneration policy
In line with this guiding philosophy our remuneration policy is
described below.
> Reed Elsevier aims to provide a total remuneration package
that is able to attract and retain the best executive talent
from anywhere in the world, at an appropriate level of cost.
> In reaching decisions on executive remuneration,
the Committee takes into account the remuneration
arrangements and levels of increase applicable to senior
management and Reed Elsevier employees generally.
> The Committee considers the social, governance, and
environmental implications of its decisions, particularly when
setting and measuring performance objectives and targets,
and seeks to ensure that incentives are consistent with the
appropriate management of risk.
> Total remuneration of senior executives will be competitive
with that of executives in similar positions in comparable
companies, which includes global sector peers and
companies of similar scale and international complexity.
> Competitiveness is assessed in terms of total remuneration
(ie salary, short and long term incentives and benefits).
> The intention is to provide total remuneration that reflects
sustained individual and business performance; ie median
performance will be rewarded by total remuneration that
is positioned around the median of relevant market data
and upper quartile performance by upper quartile total
remuneration.
> The Committee will consider all available discretion to claw
back any payouts made on the basis of materially misstated
data. With effect from 2009, the rules of all incentive plans
have been amended to provide for specific provisions in
this regard.
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Annual Reports and
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2008
Directors’ remuneration report
Directors’ remuneration report continued
How the performance measures in the incentives link to our
business strategy
The Committee believes that the main driver of long term
shareholder value is sustained growth in profitability. The
primary measure of profitability that is used throughout the
business is growth in adjusted earnings per share at constant
currencies (Adjusted EPS). This performance measure has
therefore been adopted as the key driver of performance in
our longer term incentives.
Our Annual Incentive Plan is focused on operational excellence
as measured by the critical financial measures of revenue, profit
and cash generation. In addition, a significant portion of the
annual bonus is dependent on performance against
a set of key performance objectives (KPOs), including returns
metrics appropriate for each business. These are focused on
the delivery of strategic priorities which create the essential
platform for sustainable growth. These priorities align with
the strategic imperatives described elsewhere in this report.
In our Long Term Incentive Plan we also use Total Shareholder
Return (TSR) relative to a focused industry peer group. Significant
shareholding requirements are a condition of participation in the
LTIP programme and of vesting the awards. This increases
alignment of interest between our senior executives and our
shareholders.
The balance between fixed and performance related pay
Around 70% of each executive director’s total remuneration
package is linked to performance. The elements of the total
remuneration package are described on page 63. The following
diagram shows the balance between the fixed and variable
elements of the remuneration package assuming that target
performance will be achieved in 2009.
1
4
Fixed pay elements 30%
1 Salary 20%
2 Pension & other benefits 10%
2
3
Variable pay elements 70%
3 Annual incentives 20%
4 Long-term incentives 50%
Our approach to market positioning and benchmarking
The market competitiveness of total remuneration (ie salary,
short and long term incentives and benefits) is assessed against
a range of relevant comparator groups as follows:
> Global peers in the media sector which includes those
companies in our TSR comparator group set out
on page 66.
> UK listed companies of similar size and international scope
(excluding those in the financial services sector).
> US listed companies of similar size and international scope
(excluding those in the financial services sector).
> Netherlands listed companies of similar size and international
scope.
The competitiveness of our remuneration packages is assessed
by the Committee as part of the annual review cycle for pay and
performance, in line with the process set out below.
> First, the overall competitiveness of the total remuneration
packages is assessed. The appropriate positioning of
an individual’s total remuneration against the market is
determined based on the Committee’s judgement of individual
performance and potential.
> The Committee then considers market data and benchmarks
for the different elements of the package including salary,
total annual cash and total remuneration.
> If it is determined that a total remuneration competitive gap
exists, the Committee believes that this should be addressed
via a review of performance linked compensation elements
in the first instance.
> Benefits, including medical and retirement benefits,
are positioned to reflect local country practice.
To illustrate how our levels of compensation are driven by
business performance we have produced the chart below
(scale in percent of base salary). This illustrates the way
in which remuneration payable to an executive director for 2009
would vary from base salary at minimum up to a theoretical
maximum under different performance scenarios. For the
purposes of this illustration a number of assumptions have
been made in relation to share price growth and vesting/payout
levels at the different levels of performance.
700
600
500
400
300
200
100
0
Minimum
Threshold
Target
Maximum
LTIP
BIP
ESOS
AIP
Salary
63
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
The total remuneration package
Each element of the remuneration package is designed to achieve specific objectives, as described in the table below. The combination
of elements creates a unified and balanced reward mix. The value of the reward package is only maximised through the integrated
delivery of short and longer term performance. Reward for the delivery of business results is connected with reward for value flowing
to shareholders. The incentive arrangements are structured in such a way that reward cannot be maximised through inappropriate
short term risk-taking.
The key elements of the reward package for executive directors are summarised below:
Summary of remuneration elements for executive directors
Purpose
Performance period
Performance measure
Element
Salary
Positions the role and individual
appropriately within the relevant
market for executive talent
Not applicable
Annual Incentive Plan
(AIP)
Provides focus on the delivery of
annual financial targets/budgets
One year
Bonus Investment Plan
(BIP)
Motivates the achievement of
annual strategic milestones that
create a platform for future
performance
Encourages personal investment
in and ongoing holding of
Reed Elsevier shares promoting
greater alignment with
shareholders
Supports retention of key talent
Three years
Executive Share Option
Scheme (ESOS)
Provides focus on longer term
share price growth
Three years
Rewards sustained delivery
and quality of earnings growth
Long Term Incentive Plan
(LTIP)
Drives value creation via the
delivery of sustained earnings
growth and superior returns
for shareholders
Three years
Retirement benefits
Positioned to ensure broad
competiveness with local
country practice
Not applicable
Reflects the sustained value of an
executive’s skills, experience and
contribution compared with the
relevant talent market
Annual targets for: revenue, profit,
cash flow conversion rate and
key performance objectives
Vesting subject to achievement of
Adjusted EPS hurdle and continued
employment
There is no retesting of the
performance condition
On grant – Adjusted EPS growth over
the three-year performance period prior
to grant and individual performance
On vesting – Adjusted EPS growth
over the three-year performance
period post-grant
There is no retesting of the
performance condition
Vesting subject to Adjusted EPS growth
and Total Shareholder Return measured
relative to industry peers
There is no retesting of the
performance condition
Terms and vesting are specific to
individual with reference to relevant
country practice
Each of these remuneration elements is described in greater detail in the remainder of this section.
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64
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Salary
Salary reflects the role and the sustained value of the
incumbent in terms of skills, experience and contribution
in the context of the relevant market.
The target bonus opportunity for the financial measures is
payable for the achievement of highly stretching financial targets,
set in line with the annual budget for the relevant business.
The four elements are measured separately, such that there
could be a payout on one element and not on others.
Salaries are reviewed annually in the context of the competitiveness
of total remuneration. Any increases typically take effect on
1 January.
Notwithstanding Reed Elsevier’s strong performance during
2008 and positive outlook for 2009, in view of the wider economic
climate, the Committee decided not to increase the salaries for
executive directors with effect from 1 January 2009.
The KPOs are individual to each executive director. Each director
is set up to six KPOs to reflect critical business priorities for which
they are accountable. For 2009, the KPOs for executive directors
will include returns metrics, reinforcing the importance placed by
the Board on investment returns. Against each objective, a
number of measurable ‘milestone targets’ are set for the year. All
financial targets and KPOs are approved by the Committee at the
beginning of the year.
For 2009, payment against each financial performance
measure will only commence if a threshold of 97.5% of the
target is achieved (unchanged from 2008). A maximum bonus
of 150% of salary can be earned (unchanged from 2008) for
substantial out-performance against the demanding annual
budget targets and for the achievement of agreed KPOs to an
exceptional standard.
AIP Payments for 2008
In assessing the level of bonus payments for 2008, the Committee
noted the following underlying performances:
Underlying percentage change over 2007
at constant exchange rates
Adjusted
operating
profit
10%
10%
8%
9%
Revenue
5%
5%
4%
4%
Elsevier
LexisNexis
Reed Business*
Reed Elsevier
* Includes Reed Business Information and Reed Exhibitions.
The 2008 financial results were strong. At constant exchange
rates, revenue growth in continuing operations was +7%
(or 4% higher underlying, ie before acquisitions and disposals);
underlying margins improved by 110 basis points; and adjusted
operating profits were up 12% (or 9% underlying). Return on
capital, increasing for the fifth successive year to 12.1% post tax,
and conversion of adjusted operating profit into cash at 102%
underpinned the quality of the earnings growth achieved.
At divisional level, Elsevier, LexisNexis and Reed Exhibitions
all showed good underlying revenue growth and strong double-
digit growth in adjusted operating profit (at constant currencies).
Reed Business Information held up well for most of the year,
but was impacted by deteriorating advertising markets in the
final quarter.
Mark Armour
Sir Crispin Davis
Erik Engstrom
Andrew Prozes
Ian Smith*
Salary from
£613,440
Salary from
1 January 2009 1 January 2008
£613,440
£1,181,100 £1,181,100
$1,192,464
£627,612
$1,215,180 $1,215,180
£900,000 –
*Joined the Board as CEO-designate on 1 January 2009 and will take on the
role of Reed Elsevier CEO on retirement of Sir Crispin Davis in March 2009.
During 2008 Erik Engstrom’s remuneration package was returned
to a US dollar base. His previous US dollar-denominated
annualised base salary as at 1 January 2007 of $1,146,600 was
increased by 4% reflecting the salary increase that took effect
on 1 January 2008 whilst his salary was denominated in sterling.
Reed Elsevier uses the same factors to determine the levels of
increase across all employee populations globally: ie relevant
pay market, skills, experience and contribution. Reed Elsevier
operates across many diverse countries in terms of their
remuneration structures and practices. Any increases awarded
to different employee groups in different geographies reflect
this diversity and range of practices. No salary increases are
being awarded across the senior management population for
2009, except for promotions or where significant market
adjustments are required.
Annual Incentive Plan (AIP)
The AIP provides focus on the delivery of financial targets set
out in the annual budget. It further motivates the achievement
of strategic annual goals and milestones that create a platform
for future performance.
How the AIP works
For 2009, directors have a target bonus opportunity of 100% of
salary (unchanged from 2008) that is weighted as follows across
four elements:
Measure
Revenue
Profit*
Cash Flow Conversion Rate
Key Performance Objectives (KPOs)
Weighting
30%
30%
10%
30%
*The Profit measure for the CEO and CFO is Adjusted Profit After Tax for the
Reed Elsevier combined businesses. The profit measure for Divisional CEOs
is the Adjusted Operating Profit for their respective divisions.
65
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Directors’ remuneration report
The strong financial performance was accompanied by very
solid performances by individual directors against their key
performance objectives. The only significant shortfall was in
respect of the failure to divest Reed Business Information, which
was largely due to the poor credit markets and the deteriorating
economic environment. Achievements included the successful
acquisition and well-advanced integration of ChoicePoint and
good progress in refinancing the acquisition facility; innovation
in new products and services to match the growing demand for
online information and workflow solutions; the successful delivery
of major restructuring programmes across the businesses and
corporate functions, which are on track to deliver their annual
savings targets; and the further development of business sectors
targeted for strategic growth.
Overall, this resulted in the following bonuses for directors which,
in the context of the highly challenging financial targets set for
2008, were generally below the on-target level.
Gerard van de Aast
Mark Armour
Sir Crispin Davis
Erik Engstrom
Andrew Prozes
2008
annual bonus
(to be paid in March 2009)
£344,273
£558,230
£1,074,801
$1,235,139
$950,878
% of
salary
58.7
91.0
91.0
105.1
78.2
Bonus Investment Plan (BIP)
The BIP encourages personal investment and ongoing
shareholding in Reed Elsevier shares to develop greater
alignment with shareholders.
How the BIP works
Executive directors and other designated key senior executives
may invest up to half of their cash bonus received under the AIP
in Reed Elsevier PLC or Reed Elsevier NV securities. Subject to
continued employment and their retaining these investment
shares during a three-year performance period, participants
will be awarded an equivalent number of matching shares.
The vesting of the matching shares is subject to the achievement
of a performance condition. For the 2008 and 2009 matching
awards this has been increased to at least 8% (from 6% in 2007
and 2006) per annum compound growth in Adjusted EPS
over the three-year performance period. In the event of a change
of control, the vesting of the matching shares is subject to the
discretion of the Committee.
Contingent awards of matching shares made under the BIP
to executive directors during 2008 and matching awards vested
under the 2005-2007 BIP cycle are disclosed in the share tables
on pages 75-80. Adjusted EPS performance over the three years
ended 31 December 2007 was 11.4% p.a. and exceeded the
performance condition to vest the 2005 matching awards.
At the date of this report, the Committee determined that the
performance condition in respect of the 2006-2008 cycle of the
BIP had been met. Therefore, subject to continued employment
through the vesting date, the 2006 matching awards will vest on
3 April 2009.
Executive Share Option Scheme (ESOS)
The Executive Share Option Scheme is designed to provide
focus on longer term share price growth and reward the
sustained delivery and quality of earnings growth.
How the ESOS works
Annual grants of options are made over shares in Reed Elsevier
PLC and Reed Elsevier NV at the market price on the date of
grant. The size of the total grant pool available for all participants
is determined by the compound annual growth in Adjusted EPS
over the three years prior to grant. The maximum target grant
pool for all participants is defined with reference to share usage
during the base year as follows:
Adjusted EPS
growth per annum
2008 & 2009 ESOS grants
Less than 8%
8% or more
10% or more
12% or more
14% or more
2007 & 2006 grants
Less than 6%
6% or more
8% or more
10% or more
12% or more
Target Grant Pool
50%
75%
100%
125%
150%
ESOS awards to executive directors are subject to an annual
individual maximum of three times salary. The awards to individual
directors are subject to the following three performance criteria:
Test 1
On grant
The size of the Target Grant Pool
determined as above.
Test 2
On grant
Individual performance prior to grant.
Test 3
On vesting
Compound Adjusted EPS growth during
the three years following grant of at
least 8% per annum (6% p.a. for 2006
and 2007 ESOS awards). There is no
retesting of the performance condition.
ESOS awards made in 2008 to the executive directors are
disclosed in the share tables on pages 75-80. Adjusted EPS
performance over the three years ended 31 December 2007
was 11.4% p.a. and exceeded the performance condition to
vest the 2005 ESOS awards.
At the date of this report, the Committee determined that the
performance condition in respect of the 2006-2008 cycle of the
ESOS had been met. Therefore, subject to continued employment
through the vesting date, the 2006 ESOS awards will vest on
13 March 2009.
Options are exercisable between three and ten years from the
date of grant (except for defined categories of approved leavers).
In the event of a change of control, the Committee would make
an assessment of progress against targets at the time the change
of control occurs.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Long Term Incentive Plan (LTIP)
The LTIP rewards value creation via the delivery of sustained earnings growth and superior returns for shareholders.
How the LTIP works
Performance is measured over a three-year performance period
Award of a target
number of shares
>
Vesting depends on
compound growth
in Adjusted EPS
>
Relative TSR
performance can
increase or decrease
the target award
>
Number of shares
vesting plus accrued
notional dividends
determined by
performance achieved
Executive directors are eligible to receive an annual award of
performance shares with a target value of up to 135% of salary.
The vesting of the award is subject to performance against two
measures: Adjusted EPS growth and relative TSR performance
over the same three-year performance period. The awards are
subject to meeting shareholding requirements and to the
executive agreeing to be bound by strict non-compete provisions.
EPS measure
No payout is made under the LTIP unless Reed Elsevier
achieves compound Adjusted EPS growth of at least 10% per
annum. This is irrespective of the associated TSR performance.
Maximum vesting (under the EPS component) is achieved for
compound growth of 14% per annum or higher.
TSR measure
The award earned under the EPS component may be increased
or decreased by TSR performance measured against a group
of industry peers over three years:
• If TSR performance is below median, this will reduce the
target award.
• The maximum uplift to the target award will be applied if
TSR performance places Reed Elsevier at or above the upper
quartile of the comparator group.
The combined effect of the two performance measures is shown
in the following table, which sets out the potential vesting as a
percentage of the initial target award:
LTIP vesting schedule
Adjusted EPS growth p.a.
TSR ranking
Below
2008 &
2009 awards
Below 10%
0%
0%
10%
28%
35%
12%
80% 100%
14% and above 12% and above 108% 135%
2007 &
2006 awards
Below 8%
8%
10%
median Median percentile and above
0%
0%
42%
49%
120% 140%
162% 189%
62.5th
Upper
quartile
The TSR comparator group is made up of global industry peers.
The comparators applicable to the outstanding LTIP awards and
the 2009 award are set out below.
TSR comparators*
2009
Award
ChoicePoint
DMGT
Dow Jones
Dun & Bradstreet
Emap
Experian
Fair Issac
Informa
John Wiley & Sons
Lagardere Groupe
McGraw-Hill
Pearson
Reuters Group
Taylor Nelson Sofres
The Thomson Corp
Thomson Reuters
United Business Media
VNU
Wolters Kluwer
WPP Group
4
4
4
4
4
4
4
4
4
4
4
4
4
2008
Award
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
2007
Award
3
3
3
3
3
2006
Award
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
*Reflects the composition of the comparator group as at the date of grant.
The Committee considers the above performance conditions to
be tougher than normal UK practice because the TSR element
can enhance the reward to participants if, but only if, the Adjusted
EPS test has first been achieved, as explained above.
The Committee has full discretion to reduce or cancel awards
granted to participants based on its assessment as to whether
the Adjusted EPS and TSR performance fairly reflects the
progress of the business having regard to underlying revenue
growth, cash generation, return on capital employed and
any significant changes in currency and inflation, as well
as individual performance.
To the extent that the underlying shares vest, notional dividends
are paid out as a cash bonus at the end of the three-year
performance period.
67
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Operation of the LTIP
Numerous mergers and acquisitions have impacted the
comparator group companies during the performance cycle.
The Committee applies a fair and consistent basis to determine
the relative TSR performance of each company for these
purposes. Companies which are taken over within six months
after the start of a performance period are excluded from the
comparator group. For those that are subject to a transaction
more than six months into a performance period, any transaction-
related share price premium is eliminated and the TSR prior to
the transaction is indexed forward using the daily average share
price movement for the remaining companies in the peer group.
The averaging period applied for TSR measurement purposes is
six months prior to the start of the financial year in which the
award is made and the final six months of the third financial year
of the performance period.
The TSR of each comparator company is calculated in the
currency of its primary listing.
Reed Elsevier’s TSR is taken as a simple average of the TSR of
Reed Elsevier PLC and Reed Elsevier NV.
TSR performance over the same three-year period was assessed
by the Committee’s external advisor, Towers Perrin, in accordance
with a pre-defined methodology, which included specific rules
governing companies which de-listed as a result of industry
consolidation. The Committee confirmed that the operation of
these rules was appropriate and in line with the Committee’s
intentions. The report from Towers Perrin showed Reed Elsevier
to have attained a 76.4th percentile ranking against the peer
group of global competitors.
Based on performance against the combined Adjusted EPS and
TSR measures, the target awards under the 2006-08 cycle of the
LTIP will therefore be subject to the maximum performance uplift
of 189% in accordance with the vesting schedule. The Committee
believes that this overall level of vesting is fully justified by the
exceptionally strong earnings growth and comparative returns
to shareholders achieved over the performance period.
The table below sets out the number of shares in Reed Elsevier
PLC (PLC) and Reed Elsevier NV (NV) that will vest in respect
of each director (and former directors) together with the notional
dividends accrued during the performance period on the shares
due to vest.
In the event of a change of control, the performance test applied
under the LTIP will be based on an assessment by the Committee
of progress against the Adjusted EPS and TSR targets at the time
the change of control occurs (subject to any rollover that may apply).
Details of LTIP target awards made during 2008 are set out in the
share tables on pages 75-80. No LTIP awards vested during 2008.
Vesting of 2006 LTIP awards
The 2006 LTIP award will formally vest on 27 February 2009,
based on the Committee’s assessment of Adjusted EPS and
TSR performance. At the date of this report, the Committee
agreed the following performance in relation to each measure.
Compound Adjusted EPS growth over the three-year performance
period was an exceptionally strong 12.5% p.a. This figure
represents the simple average of the compound growth in the
Adjusted EPS of Reed Elsevier PLC and Reed Elsevier NV
disclosed in the financial highlights sections of the 2006, 2007 and
2008 annual reports. The performance for 2008 was the strongest
Adjusted EPS growth in a decade. The Committee has
determined, with assistance from the Audit Committee, that the
compound Adjusted EPS performance of 12.5% p.a. is a fair
reflection of the quality of earnings and the progress of the
business having regard to underlying revenue growth, cash
generation, and return on capital. In reaching this determination,
the Committee had due regard to the impact of the strategic
initiatives during the period designed to enhance long term
shareholder returns, including the divestment of Harcourt
Education, the acquisition of ChoicePoint, the share repurchase
programme and the significant organisational restructuring.
Type of
security
Mark Armour
Sir Crispin Davis
Gerard van de Aast PLC ord
NV ord
PLC ord
NV ord
PLC ord
NV ord
PLC ord
NV ord
PLC ord
NV ord
PLC ord
NV ord
Patrick Tierney
Andrew Prozes
Erik Engstrom
No. of
shares
subject
to target
award
70,364
46,332
75,075
49,434
144,550
95,181
82,092
54,055
83,656
55,085
53,685
35,350
No. of
shares
vesting
Accrued
notional
dividends
132,987
£66,493
87,567 g106,131
141,891
£70,945
93,430 g113,237
273,199 £136,599
179,892 g218,029
155,153
£77,576
102,163 g123,821
158,109
£79,054
104,110 g126,181
£50,732
101,464
g80,974
66,811
The aggregate notional dividends per Reed Elsevier PLC
and Reed Elsevier NV ordinary share are £0.500 and u1.212
respectively. These reflect the dividends paid in 2006, 2007 and
2008 and exclude the special distribution made in January 2008
following the sale of Harcourt Education.
The vested awards will be disclosed in the share tables of the
2009 remuneration report.
Andrew Prozes had previously waived his right to participate in the
2009 and 2010 cycles of the LTIP. The Committee has determined
that his increased scope of responsibility following the acquisition
of ChoicePoint during 2008 justifies an award under future cycles
of this plan.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Directors’ remuneration report
LTIP shareholding requirement
The shareholding requirement for the Reed Elsevier Chief
Executive Officer is three times salary and for other executive
directors two times salary. Executive directors have five years to
build up their shareholding to the required level. The shareholding
requirement must be met in order to vest the designated LTIP
awards and once met, is a condition of ongoing participation
in the LTIP.
Details of directors’ shareholdings, as at 31 December 2008,
are set out on page 74. As at 31 December 2008, those directors
who were granted an LTIP award in 2006, and who are subject
to ongoing shareholding requirements, well exceeded their
requirement in order to vest this award in February 2009.
Treatment of the special distribution for share-based incentives
In January 2008 a special distribution was paid on ordinary
shares in Reed Elsevier PLC and Reed Elsevier NV.
The special distribution was not attributed to any unvested
share-based awards nor to any vested share options that had
been granted under the incentive plans. None of these awards
was therefore adjusted as a result of the consolidation of share
capital in January 2008.
Other employee share plans
UK-based executive directors are eligible to participate in
the HMRC approved all-employee UK Savings-Related Share
Option Scheme (SAYE). US-based directors are eligible to
participate in the all-employee US-based Employee Stock
Investment Plan (EMSIP). Under the EMSIP, employees are able
to purchase Reed Elsevier PLC and Reed Elsevier NV securities
at the prevailing market price, with commissions and charges
being met by Reed Elsevier.
Dilution
The estimated dilution over a ten-year period from outstanding
awards over Reed Elsevier PLC shares under all share-based
plans was 7.4% of the Reed Elsevier PLC share capital at
31 December 2008. The estimated dilution over the same
period in respect of outstanding awards over Reed Elsevier NV
shares was 7.6% of the Reed Elsevier NV share capital at
31 December 2008.
Retirement benefits
Retirement benefit provisions are set in the context of the total
remuneration for each executive director, taking account of age
and service and against the background of evolving legislation
and practice in Reed Elsevier’s major countries of operation.
Base salary is the only pensionable element of remuneration.
Sir Crispin Davis is provided with a UK defined benefit pension
arrangement targeting a pension of 45% of salary at his
retirement age of 60. Mark Armour and Erik Engstrom are
provided with UK defined benefit pension arrangements under
which they accrue a pension of 1/30th of salary for every year
of service (up to a maximum of two thirds of salary). The pension
is provided through a combination of:
> the main UK Reed Elsevier Pension Scheme for salary
restricted to a cap, determined annually on the same basis
as the pre-April 2006 Inland Revenue earnings cap, and
> Reed Elsevier’s unfunded unapproved pension arrangement
for salary above the cap.
Prior to 1 November 2007, Erik Engstrom was not a member
of any company pension scheme and Reed Elsevier made annual
contributions of 19.5% of his salary to his personal pension plan.
From 1 November 2007 contributions to his designated retirement
account ceased and he became a member of the UK defined
benefit pension arrangement.
In respect of Ian Smith, Reed Elsevier will pay him a cash
allowance in lieu of pension equal to 30% of base salary
per annum.
Gerard van de Aast was a member of the UK defined benefit
pension arrangement until the termination of his employment
on 31 December 2008. On the termination date his period
of pensionable service was increased by eight months,
reflecting his mitigated notice period.
Andrew Prozes, a US-based director, is provided with a mixed
arrangement of defined benefit and defined contribution. In
accordance with US legislation, he has no defined retirement
age. On 17 July 2007, he became vested in an annual pension
of US$300,000. His basic pension continues to accrue at a rate
of $42,857 per annum for each completed year of service between
17 July 2007 and 1 February 2011. In addition, Andrew Prozes
will be entitled to receive an enhancement to his annual
pension unless he resigns or if his employment is terminated
by Reed Elsevier for cause prior to 1 February 2011. Any such
enhancement will be equal to $3,720.93 times the number of
completed calendar months between 1 July 2007 and the date
of termination or, if earlier, 1 February 2011. For these purposes,
his termination date shall be deemed to be 12 months after he
ceases employment.
Patrick Tierney retired on 30 January 2008 and became fully
vested in his pension in November 2007. The pension is reduced
by the value of any other retirement benefits payable by Reed
Elsevier or any former employer (other than those attributable
to employee contributions).
The pension arrangements for all directors (UK and non-UK)
include life assurance cover whilst in employment, an entitlement
to a pension in the event of ill health or disability and a spouse’s
and/or dependants’ pension on death.
The increase in the transfer value of the directors’ pensions, after
deduction of contributions, is shown in the table below. Transfer
values for the UK directors have been calculated in accordance
with the guidance note GN11 published by the UK Institute
of Actuaries and Faculty of Actuaries. The transfer values at
31 December 2008 have been calculated using the transfer value
basis adopted by the trustees from 1 October 2008.
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.
69
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Transfer values of accrued pension benefits
Directors’ remuneration report
Age
31 December
2008
Director’s
contributions
£
Gerard van de Aast*
Mark Armour
Sir Crispin Davis
Erik Engstrom**
Andrew Prozes
Patrick Tierney
51
54
59
45
62
63
5,820
5,820
5,820
5,820
–
–
Transfer
value
of accrued
pension
31 December
2007
£
1,379,993
3,466,035
9,416,905
28,306
2,498,231
3,095,761
Transfer
value
of accrued
pension
31 December
Increase in
transfer
value during
the year
(net of
director’s
2008 contributions)***
£
£
Accrued
annual
pension
31 December
2008
£
2,352,882
4,358,939
9,609,144
271,227
3,059,120
3,020,215
967,069
887,084
186,419
237,101
560,889
(75,546)
170,943
284,535
519,601
24,415
231,184
237,838
Transfer
value at
31 December
2008 of
increase
in accrued
pension
during the
year (net
of inflation
(net of and director’s
inflation) contributions)
£
Increase in
accrued
annual
pension
during
the year
£
478,166
35,163
20,470
307,772
55,670 1,023,707
226,568
20,919
625,913
47,302
–
–
Increase in
accrued
annual
pension
during
the year
£
40,385
30,613
73,514
21,054
47,302
–
*On 1 January 2009 he started to draw his pension of £137,894 p.a.
**Based on a sterling salary which at 1 January 2008 was £627,612.
***For UK directors, includes changes in the calculation basis of transfer values adopted by the scheme trustees from 1 October 2008.
Service contracts
Executive directors are employed under service contracts
that provide for a maximum of one year’s notice. The contracts
neither specify a predetermined level of severance payment
nor contain specific provisions in respect of change in control.
The Committee believes that, as a general rule, notice periods
should be 12 months and that the directors should, subject
to practice within their base country, be required to mitigate
their damages in the event of termination. The Committee will,
however, note local market conditions so as to ensure that
the terms offered are appropriate to attract and retain top
executives operating in global businesses.
The service contracts for executive directors (and for
approximately 100 other senior executives) contain the
following three provisions:
> non-compete provisions which prevent them from working
with specified competitors, from recruiting Reed Elsevier
employees and from soliciting Reed Elsevier customers
for a period of 12 months after leaving employment;
> in the event of their resigning, they will immediately lose
all rights to any outstanding awards under the LTIP, ESOS
and BIP granted from 2004 onwards including any vested
but unexercised options; and
> in the event that they were to join a specified competitor
within 12 months of termination, any gains made in the
six months prior to termination on the vesting or exercise
of an LTIP, ESOS and BIP award made from 2004 onwards
shall be repayable.
Each of the executive directors has a service contract, as
summarised in the table below.
Gerard van de Aast(i)
Mark Armour(i)
Sir Crispin Davis(i)
Erik Engstrom(i)
Andrew Prozes(ii)
Contract Date
15 November 2000
7 October 1996
19 July 1999
25 June 2004
5 July 2000
Expiry date
(subject to notice period)
Ended
31 December 2008
29 July 2014
19 March 2009
14 June 2025
Indefinite
Ian Smith(i)
Patrick Tierney(ii)
3 November 2008
19 November 2002
22 January 2019
Retired 30 January 2008
(i) Employed by Reed Elsevier Group plc
(ii) Employed by Reed Elsevier Inc.
Notice period
Subject to:
–
English law
12 months
12 months
12 months
12 months’ salary
payable for termination
without cause
12 months
–
English law
English law
English law
New York law
English law
New York law
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Gerard van de Aast’s severance arrangements
Gerard van de Aast’s position as CEO of Reed Business ceased
to exist with effect from 15 December 2008 and his employment
ended on 31 December 2008. He received the following
compensation on termination:
> a gross cash sum of £391,000, equal to eight months’ annual
base salary, representing a mitigated payment in respect
of his notice period (this payment was made in January 2009
and will be reported in the audited section of the 2009
remuneration report); and
> an augmentation of his accrued benefit under the UK
defined benefit pension arrangement by an amount
that reflects the crediting of his pensionable service
by eight months (also reflecting mitigation).
His share-based awards were treated in accordance with
the rules of the respective plans and his LTIP shareholding
requirement ceased on termination.
Sir Crispin Davis’ retirement arrangements
The Committee determined that the following terms shall apply
in respect of Sir Crispin Davis’ retirement in March 2009:
> he will continue to be eligible for a pro rata 2009 annual bonus
under the AIP. Any bonus due will be paid in the first quarter
of 2010 and will be subject to performance in the same way
as the bonuses payable to the other executive directors;
> as is standard practice for retirements early in the year,
he will not receive 2009 grants under ESOS and LTIP and will
not participate in the 2009 BIP;
> no termination payments are due since he will be retiring;
> all unvested share-based awards will be treated in accordance
with the rules of the plans, and outstanding options will be
exercisable for three-and-a-half years from retirement; and
> his LTIP shareholding requirement will cease on retirement.
Ian Smith’s remuneration arrangements
Ian Smith’s base salary on his recruitment on 1 January 2009
was £900,000. He has an on target annual bonus opportunity
under AIP of 100% of base salary for 2009 and will be eligible
to participate in BIP in 2010 up to a maximum of 50% of his
earned annual bonus for 2009.
Ian Smith will be eligible to participate in ESOS and will receive
a grant of an option over shares with a market value on the date
of grant of 100% of his base salary in February 2009. In addition,
he is eligible for a target grant under the 2009-11 cycle of the LTIP
with a market value on the date of grant of 135% of base salary.
Ian Smith is subject to a shareholding requirement of three times
salary to be built up over five years.
The Company will pay a cash allowance in lieu of pension equal
to 30% of his base salary. His other benefits are a company car,
private medical insurance, disability and life assurance.
Under the terms of his contract, Ian Smith is eligible for an award
of performance shares with a market value equal to 90% of his
base salary. The grant will be made on 19 February 2009, on
terms equivalent to the 2008 LTIP awards made to other executive
directors (described on page 66), including the same vesting date,
vesting schedule, performance conditions (subject to such
adjustments as the Committee considers appropriate) and
entitlement to notional dividends.
Any shares to which Ian Smith becomes entitled when the award
vests, subject to performance, in 2011 will be satisfied out of
existing ordinary shares only. The award will not be pensionable.
The Committee considered the grant of this performance share
award to have been essential to secure Ian Smith’s services, and
was satisfied that the award was appropriate and would align
his interests with those of shareholders. As this was a special
arrangement to facilitate, in unusual circumstances, Ian Smith’s
recruitment, shareholder approval was not required by virtue of
9.4.2(2)R of the UK Listing Rules.
71
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Directors’ remuneration report
Fee levels
Non-executive directors receive an annual fee in respect of their
memberships of the boards of Reed Elsevier PLC, Reed Elsevier NV
and Reed Elsevier Group plc. The fee paid to Dien de Boer-Kruyt,
who serves only on the Supervisory Board of Reed Elsevier NV,
reflects her time commitment to that company and to other
companies within the Reed Elsevier combined businesses.
Non-executive directors are reimbursed for expenses incurred
in attending meetings. They do not receive any performance
related bonuses, pension provision, share options or other forms
of benefit. Fees may be reviewed annually, although in practice
they have changed on a less frequent basis.
Following a review in 2007, new fee levels for the non-executive
directors took effect from 1 January 2008. Annual fee rates
applicable to non-executive directors and the Chairman are
set out in the following table:
Annual fee 2009
J350,000
Chairman
Non-executive directors £55,000/J75,000
Chairman of:
– Audit Committee
– Remuneration
Committee
£15,000/J20,000
£15,000/J20,000
Annual fee 2008
u350,000
£55,000/u75,000
£15,000/u20,000
£15,000/u20,000
The total annual fee payable to Dien de Boer-Kruyt is u48,000.
The Reed Elsevier Chairman chairs the Nominations Committee
and does not receive a separate fee for his role as chairman of
that committee.
The non-executive directors’ donation matching programme was
discontinued on 31 December 2007.
Policy on external appointments
The Committee believes that the experience gained by allowing
executive directors to serve as non-executive directors on the
boards of other organisations is of benefit to Reed Elsevier.
Accordingly, 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) and they may retain remuneration arising from such
appointments.
> Gerard van de Aast is a non-executive director of OCE NV
and received a fee of u44,723 (£35,494) during 2008 (u37,216
(£25,490) during 2007).
> Sir Crispin Davis is a non-executive director of
GlaxoSmithKline plc and received a fee of £86,250
during 2008 (£70,000 during 2007).
> Andrew Prozes is a non-executive director of the Cott
Corporation and received a fee of $153,790 (£83,130)
during 2008 ($62,270 (£31,135) during 2007).
Non-executive directors
Policy on non-executive directors’ fees
Reed Elsevier seeks to recruit non-executive directors with
the experience to contribute to the boards of a dual-listed global
business and with a balance of personal skills that will make a
major contribution to the boards and their committee structures.
With the exception of Dien de Boer-Kruyt, who serves only on the
Supervisory Board of Reed Elsevier NV, non-executive directors,
including the Chairman, are appointed to the boards of Reed
Elsevier Group plc, Reed Elsevier PLC and the Supervisory Board
of Reed Elsevier NV. Non-executive directors’ fees represent
the directors’ membership of the three boards.
The primary source for comparative market data is the practice
of FTSE 50 companies, although reference is also made to
AEX and US listed companies.
Non-executive directors, including the Chairman, serve
under letters of appointment and are not entitled to notice
of, or payments following, retirement from the boards.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Total Shareholder Return graphs
Directors’ remuneration report
As required by Schedule 7A of the Companies Act 1985, the graphs in this section show the Reed Elsevier PLC and Reed Elsevier NV
total shareholder return performance, assuming dividends were reinvested. They compare the Reed Elsevier PLC performance with
that achieved by the FTSE 100, and the Reed Elsevier NV performance with the performance achieved by the Euronext Amsterdam
(AEX) Index, over the five-year period from 31 December 2003 to 31 December 2008.
For the five-year period from 31 December 2003, the TSR for Reed Elsevier PLC was 23%, against a FTSE 100 return of 15%. For Reed
Elsevier NV during the same period, TSR was 4% against an AEX Index return of minus 12%. As Reed Elsevier PLC and Reed Elsevier
NV are members of the FTSE 100 and AEX Index respectively, these indices are relevant.
Reed Elsevier PLC v FTSE 100 – 5 years
Reed Elsevier NV v AEX – 5 years
• Reed Elsevier PLC
• FTSE 100
180
160
140
120
100
80
60
40
• Reed Elsevier NV
• AEX Index
180
160
140
120
100
80
60
40
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
For the nine-year period since 31 December 1999, being the period since Reed Elsevier set out its investment led growth strategy, the
TSR for Reed Elsevier PLC was 50%, significantly outperforming the FTSE 100 which showed a return of minus 16%. For Reed Elsevier
NV in the same nine-year period, TSR was 6%, also significantly outperforming the AEX index which showed a return of minus 48%.
Reed Elsevier PLC v FTSE 100 – 9 years
Reed Elsevier NV v AEX – 9 years
• Reed Elsevier PLC
• FTSE 100
180
160
140
120
100
80
60
40
• Reed Elsevier NV
• AEX Index
180
160
140
120
100
80
60
40
Dec 99
Dec 00
Dec 01
Dec 02
Dec 03
Dec 04 Dec 05 Dec 06 Dec 07 Dec 08
Dec 99
Dec 00
Dec 01
Dec 02
Dec 03
Dec 04 Dec 05 Dec 06 Dec 07 Dec 08
For the purposes of the charts, the total shareholder return 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 (this includes the special distribution made in
January 2008).
Directors’ remuneration report
73
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Remuneration and share tables
The information set out in this section forms part of the audited disclosures in this report.
Directors’ emoluments and fees
Aggregate emoluments
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:
Salaries and fees
Benefits
Annual performance-related bonuses
Pension contributions
Pension in respect of former directors
Total
Individual fees of non-executive directors
Dien de Boer-Kruyt
Mark Elliott
Jan Hommen
Lisa Hook
Robert Polet (from17 Apr 2007)
David Reid
Lord Sharman
Rolf Stomberg (until 23 Apr 2008)
Cees van Lede (until 18 Apr 2007)
Strauss Zelnick (until 7 December 2007)
Total
£
2008
£’000
4,360
115
5,547
51
429
10,502
2008
£
38,095
70,000
277,778
55,000
55,000
55,000
70,000
19,841
640,714
2007
£’000
4,566
117
4,073
131
203
9,090
2007
23,151
48,500
239,726
45,000
31,785
45,000
52,000
48,630
11,130
45,000
589,922
–
–
Other required disclosures
Patrick Tierney retired on 30 January 2008 and did not receive any compensation payments for loss of office. Gerard van de Aast’s
employment ended on 31 December 2008 under the arrangements described on page 70.
No loans, advances or guarantees have been provided on behalf of any director.
Details of long-term share-based incentives which vested and were exercised by the directors over shares in Reed Elsevier PLC
and Reed Elsevier NV during the year are shown on pages 75-80. The aggregate notional pre-tax gain made by the directors from
such incentives during the year was £1,857,517 (2007: £15,031,942). In relation to Patrick Tierney and Gerard van de Aast this reflects
the vesting of shares during 2008 up to their respective termination dates.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Individual emoluments of executive directors
Directors’ remuneration report
Salary
Benefits
Bonus
Total 2008
Total 2007
Gerard van de Aast
Mark Armour
Sir Crispin Davis
Erik Engstrom
Andrew Prozes
Patrick Tierney (until 30 January 2008)
Total
£
£
585,996
613,440
1,181,100
629,026*
656,854
52,706
3,719,122
£
£
£
17,792
344,273
948,061
558,230 1,193,051
21,381
29,246 1,074,801 2,285,147
667,643 1,319,618
22,949
513,988 1,189,120
18,278
5,372 2,387,649** 2,445,727
115,018 5,546,584 9,380,724
1,164,923
1,275,903
2,431,236
1,188,691
1,133,202
972,643
8,166,598
*This reflects the pro-rating of his sterling salary to the end of November 2008 and one month of his US dollar denominated salary for December 2008.
** As disclosed in the 2007 Remuneration Report, in connection with Patrick Tierney’s agreement to defer his planned retirement in early 2007 in order to manage and oversee
the sale of Harcourt Education and the successful completion of the Harcourt Education sale in January 2008, the Committee awarded Patrick Tierney a sale bonus of
$2,917,150 calculated by reference to the excess of the sale proceeds over a predetermined target figure and a payment of $1,500,000 under the terms of his retention
bonus in recognition of his outstanding management contribution to the Harcourt Education performance in meeting financial targets during the extended sale period.
Benefits principally comprise the provision of a company car or car allowance, health and disability insurance.
Patrick Tierney was the highest paid director in 2008. In respect of 2008, up to the date of his retirement, he had made no notional
pre-tax gains on the vesting of share-based incentives and did not exercise any options (2007: £3,085,160).
Directors’ shareholdings in Reed Elsevier PLC and Reed Elsevier NV
The interests of those individuals who were directors of Reed Elsevier PLC and Reed Elsevier NV as at 31 December 2008 in the issued
share capital of the respective companies at the beginning and end of the year are shown below.
Mark Armour
Dien de Boer-Kruyt
Sir Crispin Davis
Mark Elliott
Erik Engstrom
Jan Hommen
Lisa Hook
Robert Polet
Andrew Prozes
David Reid
Lord Sharman
Reed Elsevier PLC
ordinary shares
Reed Elsevier NV
ordinary shares
1 January
2008
31 December
2008(i)
1 January 31 December
2008(i)
2008
112,378
–
787,577
–
79,379
–
–
–
230,981
–
–
131,572
–
800,639
–
77,856
–
–
–
231,709
–
–
47,461
–
445,197
–
219,867
–
–
–
169,334
–
–
62,384
–
386,940
–
211,760
–
–
–
168,676
–
–
(i) On 7 January 2008 the Reed Elsevier PLC and Reed Elsevier NV ordinary shares in issue were consolidated on the basis of 58 new ordinary shares for every 67 existing ordinary
shares held, resulting in the number of ordinary shares held by the directors being reduced in accordance with the consolidation ratio.
Ian Smith was appointed a director of Reed Elsevier PLC on 1 January 2009. He did not hold an interest in Reed Elsevier PLC or
Reed Elsevier NV ordinary shares at the date of his appointment.
There have been no changes in the interests of the directors in the Reed Elsevier PLC or Reed Elsevier NV ordinary shares at the
date of this report.
Employee Benefit Trust
Any ordinary shares required to satisfy entitlements under nil cost restricted share awards 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 2008, amounted to 20,078,899
Reed Elsevier PLC ordinary shares (1.76% of issued share capital) and 11,177,422 Reed Elsevier NV ordinary shares (1.60% of issued
share capital).
On 7 January 2008 the Reed Elsevier PLC and Reed Elsevier NV ordinary shares in issue were consolidated on the basis of 58 new
ordinary shares for every 67 existing ordinary shares held. The deemed interests of the directors in the shares held by the EBT,
together with their personal interests as shown above, were adjusted on 7 January 2008 in accordance with the consolidation ratio.
75
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report
Directors’ remuneration report continued
Share-based awards in Reed Elsevier PLC and Reed Elsevier NV
Details of vested (in blue) and unvested options and unvested restricted shares and restricted shares vested during the year
(in blue) held by directors in Reed Elsevier PLC (PLC) and Reed Elsevier NV (NV) during 2008 are shown in the tables in this section.
For disclosure purposes, any PLC and NV ADRs awarded to directors under the BIP have been converted into ordinary share
equivalents. At the date of this report there have been no changes in the options or restricted shares held by directors in office
at 31 December 2008. The market price on award for BIP and LTIP, gains on the exercise of options and any notional gains on vesting
are based on the middle market price of the respective security.
Gerard van de Aast
Gerard van de Aast ceased to be a director on 15 December 2008. The tables below reflect the position as at 31 December 2008
when his employment ended.
No. of
options
held on
1 Jan
2008
No. of
options
granted
during
2008
Year of
grant
Option
over:
No. of
options Market
exercised price per
share at
2008 exercise
during
Option
price
Gross
gains
made on
exercise
£/J
No. of
options
held on
31 Dec
2008
Unvested
options
vesting on:
Options
exercisable
until:
2000 PLC ord 50,940
NV ord 35,866
2001 PLC ord 49,317
NV ord 35,148
2002 PLC ord 58,000
NV ord 40,699
2004 PLC ord 124,956
NV ord 85,805
2005 PLC ord 120,900
NV ord 82,478
2006 PLC ord 127,662
NV ord 85,775
2007* PLC ord 122,536
NV ord 80,928
2008* PLC ord
NV ord
2004 PLC ord 233,955
NV ord 160,651
£6.380
u14.87
£6.590
u14.75
£6.000
u13.94
£4.872
u10.57
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
134,000 £6.275
89,000 u12.21
£4.872
u10.57
888,266 134,000
607,350 89,000
50,940
35,866
49,317
35,148
58,000
40,699
124,956
85,805
120,900
82,478
127,662
85,775
81,690
53,952
44,666
29,666
233,955
160,651
892,086
610,040
Market
price per
share at
award
No. of
shares Market
vested price per
during
share at
2008
vesting
gross
gains at
vesting
£/J
u11.35 26,347 u12.05 J317,481
£5.470 17,068 £5.055 £86,279
u8.42 J94,952
u11.74 11,277
u8.42 J144,647
u13.49 17,179
u8.42 J63,588
7,552
No. of
unvested
shares
held on
1 Jan
2008
Type of
security
Year of
grant
No. of
shares
awarded
during
2008
2005 NV ord 26,347
2006 PLC ord 18,633
NV ord 12,311
2007* NV ord 29,483
2008* NV ord
2006 PLC ord 70,364
NV ord 46,332
2007* PLC ord 57,898
NV ord 38,238
2008* PLC ord
NV ord
30,856 u12.44
£5.350
u11.76
£6.445
u14.51
64,000 £6.275
42,000 u12.21
No. of
Notional unvested
shares
held on
31 Dec
2008
–
–
–
–
–
70,364
46,332
38,598
25,492
21,333
14,000
£86,279 130,295
J620,668 85,824
1 Dec 2010
1 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
31 Dec 2010
Date of
vesting
14 Apr 2008
31 Dec 2008
31 Dec 2008
31 Dec 2008
31 Dec 2008
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
21 Feb 2011
21 Feb 2011
Total PLC ords
Total NV ords
146,895 64,000
152,711 72,856
17,068
62,355
*All awards granted in 2007 and 2008 under ESOS, BIP and LTIP have been prorated for service.
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Mark Armour
Options
ESOS
LTIP
SAYE
Total PLC ords
Total NV ords
Shares
BIP
LTIP
Directors’ remuneration report
No. of
options
held on
31 Dec
2008
Unvested
options
vesting on:
Options
exercisable
until:
17 Aug 2008
–
19 Apr 2009
33,600
19 Apr 2009
20,244
23 Feb 2011
62,974
23 Feb 2011
44,882
22 Feb 2012
74,000
22 Feb 2012
51,926
17 Feb 2015
150,422
102,618
17 Feb 2015
158,836 13 Mar 2009 13 Mar 2016
106,720 13 Mar 2009 13 Mar 2016
130,740 15 Feb 2010 15 Feb 2017
86,347 15 Feb 2010 15 Feb 2017
144,000 21 Feb 2011 21 Feb 2018
94,000 21 Feb 2011 21 Feb 2018
19 Feb 2014
19 Feb 2014
4,329 1 Aug 2009 31 Jan 2010
290,481
199,467
Date of
vesting
14 Apr 2008
14 Apr 2008
4 Apr 2009
4 Apr 2009
4 Apr 2010
4 Apr 2010
8 Apr 2011
8 Apr 2011
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
21 Feb 2011
21 Feb 2011
No. of
options
held on
1 Jan
2008
Year of
grant
Option
over:
1998 PLC ord 66,900
1999 PLC ord 33,600
NV ord 20,244
2001 PLC ord 62,974
NV ord 44,882
2002 PLC ord 74,000
NV ord 51,926
2005 PLC ord 150,422
NV ord 102,618
2006 PLC ord 158,836
NV ord 106,720
2007 PLC ord 130,740
NV ord 86,347
2008 PLC ord
NV ord
2004 PLC ord 290,481
NV ord 199,467
4,329
2006 PLC ord
No. of
during
Option
price
options Market
No. of
options
granted
during
2008
Gross
gains
exercised price per made on
exercise
share at
£/J
2008 exercise
£5.230 66,900 £5.810 £38,802
£5.375
u13.55
£6.590
u14.75
£6.000
u13.94
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
144,000 £6.275
94,000 u12.21
£4.872
u10.57
£3.776
972,282 144,000
612,204 94,000
66,900
£38,802 1,049,382
706,204
No. of
unvested
shares
held on
1 Jan
2008
Year of
grant
Type of
security
2005 PLC ord 21,861
NV ord 15,098
2006 PLC ord 21,653
NV ord 14,306
2007 PLC ord 19,859
NV ord 13,371
2008 PLC ord
NV ord
2006 PLC ord 75,075
NV ord 49,434
2007 PLC ord 61,775
NV ord 40,799
2008 PLC ord
NV ord
No. of
shares
awarded
during
2008
No. of
Notional unvested
shares
held on
31 Dec
2008
No. of
shares Market
vested price per
during
share at
2008
vesting
Market
price per
share at
award
gross
gains at
vesting
£/J
£5.365 21,861 £6.435 £140,676
u11.35 15,098 u12.05 J181,931
£5.470
u11.74
£6.155
u13.49
25,291 £6.600
16,993 u12.44
£5.350
u11.76
£6.445
u14.51
67,000 £6.275
44,000 u12.21
–
–
21,653
14,306
19,859
13,371
25,291
16,993
75,075
49,434
61,775
40,799
67,000
44,000
£140,676 270,653
J181,931 178,903
Total PLC ords
Total NV ords
200,223 92,291
133,008 60,993
21,861
15,098
77
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Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Directors’ remuneration report
Sir Crispin Davis*
Options
ESOS
LTIP
SAYE
Total PLC ords
Total NV ords
Shares
BIP
LTIP
No. of
options
held on
1 Jan
2008
No. of
options
granted
during
2008
Year of
grant
Option
over:
No. of
options Market
exercised price per
share at
2008 exercise
during
Option
price
1999 PLC ord 321,199
NV ord 191,550
2000 PLC ord 171,821
NV ord 120,245
2001 PLC ord 122,914
NV ord 87,601
2002 PLC ord 148,500
NV ord 104,204
2003 PLC ord 209,192
NV ord 148,946
2004 PLC ord 305,303
NV ord 209,645
2005 PLC ord 292,409
NV ord 199,481
2006 PLC ord 305,824
NV ord 205,480
2007 PLC ord 251,730
NV ord 166,254
2008 PLC ord
NV ord
2004 PLC ord 571,616
NV ord 392,516
3,793
2008 PLC ord
£4.67
u12.00
£4.365
u10.73
£6.590
u14.75
£6.000
u13.94
£4.515
u9.34
£4.872
u10.57
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
276,000 £6.275
182,000 u12.21
£4.872
u10.57
£4.244
2,704,301 276,000
1,825,922 182,000
Gross
gains
made on
exercise
£/J
No. of
options
held on
31 Dec
2008
Unvested
options
vesting on:
Options
exercisable
until:
1 Sept 2009
321,199
1 Sept 2009
191,550
2 May 2010
171,821
2 May 2010
120,245
23 Feb 2011
122,914
23 Feb 2011
87,601
22 Feb 2012
148,500
22 Feb 2012
104,204
21 Feb 2013
209,192
21 Feb 2013
148,946
19 Feb 2014
305,303
19 Feb 2014
209,645
17 Feb 2015
292,409
199,481
17 Feb 2015
305,824 13 Mar 2009 13 Mar 2016
205,480 13 Mar 2009 13 Mar 2016
251,730 15 Feb 2010 15 Feb 2017
166,254 15 Feb 2010 15 Feb 2017
276,000 21 Feb 2011 21 Feb 2018
182,000 21 Feb 2011 21 Feb 2018
19 Feb 2014
571,616
392,516
19 Feb 2014
3,793
1 Aug 2011 31 Jan 2010
2,980,301
2,007,922
No. of
unvested
shares
held on
1 Jan
2008
Year of
grant
Type of
security
2005 PLC ord 86,042
2006 PLC ord 42,092
NV ord 27,810
2007 PLC ord 74,708
2008 PLC ord
2006 PLC ord 144,550
NV ord 95,181
2007 PLC ord 118,942
NV ord 78,555
2008 PLC ord
NV ord
No. of
Notional unvested
shares
held on
31 Dec
2008
No. of
shares
awarded
during
2008
No. of
shares Market
vested price per
during
share at
2008
vesting
Market
price per
share at
award
gross
gains at
vesting
£/J
£5.365 86,042 £6.435 £553,680
£5.470
u11.74
£6.155
96,227 £6.600
£5.350
u11.76
£6.445
u14.51
129,000 £6.275
85,000 u12.21
–
42,092
27,810
74,708
96,227
144,550
95,181
118,942
78,555
129,000
85,000
£553,680 605,519
286,546
Total PLC ords
Total NV ords
466,334 225,227
201,546 85,000
86,042
*Subsequent to Sir Crispin Davis’ retirement, the 2007 and 2008 awards will be treated in accordance with the rules of the respective plans.
Date of
vesting
14 Apr 2008
4 Apr 2009
4 Apr 2009
4 Apr 2010
8 Apr 2011
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
21 Feb 2011
21 Feb 2011
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Annual Reports and
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2008
Directors’ remuneration report continued
Directors’ remuneration report
Erik Engstrom
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
No. of
options
held on
1 Jan
2008
No. of
options
granted
during
2008
Year of
grant
Option
over:
No. of
options Market
exercised price per
share at
2008 exercise
during
Option
price
2004 PLC ord 63,460
NV ord 43,866
2005 PLC ord 154,517
NV ord 105,412
2006 PLC ord 178,895
NV ord 120,198
2007 PLC ord 130,060
NV ord 85,897
2008 PLC ord
NV ord
2004 PLC ord 325,163
NV ord 224,766
£4.780
u10.30
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
143,000 £6.275
94,000 u12.21
£4.78
u10.30
852,095 143,000
580,139 94,000
Gross
gains
made on
exercise
£/J
No. of
options
held on
31 Dec
2008
Unvested
options
vesting on:
Options
exercisable
until:
23 Aug 2014
63,460
23 Aug 2014
43,866
17 Feb 2015
154,517
105,412
17 Feb 2015
178,895 13 Mar 2009 13 Mar 2016
120,198 13 Mar 2009 13 Mar 2016
130,060 15 Feb 2010 15 Feb 2017
85,897 15 Feb 2010 15 Feb 2017
143,000 21 Feb 2011 21 Feb 2018
94,000 21 Feb 2011 21 Feb 2018
23 Aug 2014
325,163
23 Aug 2014
224,766
995,095
674,139
No. of
unvested
shares
held on
1 Jan
2008
Year of
grant
Type of
security
2005 PLC ord 14,020
2006 NV ord 29,442
2007 NV ord 27,572
2008 NV ord
2006 PLC ord 82,092
NV ord 54,055
2007 PLC ord 61,453
NV ord 40,586
2008 PLC ord
NV ord
No. of
Notional unvested
shares
held on
31 Dec
2008
No. of
shares
awarded
during
2008
No. of
shares Market
vested price per
during
share at
2008
vesting
Market
price per
share at
award
gross
gains at
vesting
£/J
£5.365 14,020 £6.435 £90,219
u11.74
u13.49
30,318 u12.44
£5.350
u11.76
£6.445
u14.51
68,500 £6.275
45,000 u12.21
–
29,442
27,572
30,318
82,092
54,055
61,453
40,586
68,500
45,000
£90,219 212,045
226,973
Total PLC ords
Total NV ords
157,565 68,500
151,655 75,318
14,020
Date of
vesting
14 Apr 2008
4 Apr 2009
4 Apr 2010
8 Apr 2011
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
21 Feb 2011
21 Feb 2011
79
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Annual Reports and
Financial Statements
2008
Directors’ remuneration report continued
Directors’ remuneration report
Andrew Prozes
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
No. of
options
held on
1 Jan
2008
No. of
options
granted
during
2008
Year of
grant
Option
over:
No. of
options Market
exercised price per
share at
2008 exercise
during
Option
price
2000 PLC ord 188,281
NV ord 131,062
2001 PLC ord 83,785
NV ord 59,714
2002 PLC ord 103,722
NV ord 72,783
2003 PLC ord 132,142
NV ord 94,086
2004 PLC ord 162,666
NV ord 111,699
2005 PLC ord 154,517
NV ord 105,412
2006 PLC ord 182,303
NV ord 122,487
2007 PLC ord 132,537
NV ord 87,533
2008 PLC ord
NV ord
2004 PLC ord 304,558
NV ord 209,133
£5.660
u13.60
£6.590
u14.75
£6.000
u13.94
£4.515
u9.34
£4.872
u10.57
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
145,000 £6.275
96,000 u12.21
£4.872
u10.57
1,444,511 145,000
993,909 96,000
Gross
gains
made on
exercise
£/J
No. of
options
held on
31 Dec
2008
Unvested
options
vesting on:
Options
exercisable
until
188,281
9 Aug 2010
131,062
9 Aug 2010
83,785
23 Feb 2011
59,714
23 Feb 2011
103,722
22 Feb 2012
72,783
22 Feb 2012
132,142
21 Feb 2013
94,086
21 Feb 2013
162,666
19 Feb 2014
111,699
19 Feb 2014
154,517
17 Feb 2015
17 Feb 2015
105,412
182,303 13 Mar 2009 13 Mar 2016
122,487 13 Mar 2009 13 Mar 2016
132,537 15 Feb 2010 15 Feb 2017
87,533 15 Feb 2010 15 Feb 2017
145,000 21 Feb 2011 21 Feb 2018
96,000 21 Feb 2011 21 Feb 2018
19 Feb 2014
304,558
19 Feb 2014
209,133
1,589,511
1,089,909
No. of
unvested
shares
held on
1 Jan
2008
Year of
grant
Type of
security
2005 PLC ord 23,756
NV ord 16,522
2006 PLC ord 26,400
NV ord 17,636
2007 PLC ord 21,548
NV ord 14,574
2008 PLC ord
NV ord
2006 PLC ord 83,656
NV ord 55,085
2007 PLC ord 62,623
NV ord 41,359
2008 PLC ord
NV ord
–
No. of
shares
awarded
during
2008
No. of
Notional unvested
shares
held on
31 Dec
2008
No. of
shares Market
vested price per
during
share at
2008
vesting
Market
price per
share at
award
gross
gains at
vesting
£/J
£5.365 23,756 £6.435 £152,870
u11.35 16,522 u12.05 J199,090 –
£5.470
u11.74
£6.155
u13.49
20,030 £6.600
13,505 u12.44
£5.350
u11.76
£6.445
u14.51
68,000 £6.275
44,500 u12.21
26,400
17,636
21,548
14,574
20,030
13,505
83,656
55,085
62,623
41,359
68,000
44,500
£152,870 282,257
J199,090 186,659
Total PLC ords
Total NV ords
217,983 88,030
145,176 58,005
23,756
16,522
Date of
vesting
14 Apr 2008
14 Apr 2008
4 Apr 2009
4 Apr 2009
4 Apr 2010
4 Apr 2010
8 Apr 2011
8 Apr 2011
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
21 Feb 2011
21 Feb 2011
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2008
Directors’ remuneration report
Directors’ remuneration report continued
Patrick Tierney
The tables below reflect the outstanding options and shares held by Patrick Tierney as at the date of his retirement on 30 January 2008,
after application of the rules of the respective plans.
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
Total PLC ords
Total NV ords
No. of
options
held on
1 Jan
2008
No. of
options
granted
during
2008
Year of
grant
Option
over:
No. of
options
exercised Market
at 30 Jan price per
share at
inclusive exercise
2008
Option
price
2004 PLC ord 162,666
NV ord 111,699
2005 PLC ord 154,517
NV ord 105,412
2006* PLC ord 175,488
NV ord 117,908
2007* PLC ord 121,628
NV ord 80,329
2004 PLC ord 107,962
NV ord 75,936
722,261
491,284
£4.872
u10.57
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
£4.872
u10.57
Gross
gains
made on
exercise
at 30 Jan
2008
£/J
No. of
options
held at
30 Jan
2008
162,666
111,699
154,517
105,412
116,992
78,605
40,542
26,776
107,962
75,936
582,679
398,428
Unvested
options
vesting on:
Options
exercisable
until:
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
30 Jan 2010
No. of
unvested
shares
held on
1 Jan
2008
Type of
security
No. of
shares
awarded
during
2008
Year of
grant
No. of
shares
vested
Market
price per
share at
award
at Market
30 Jan price per
share at
vesting
2008
inclusive
Notional
gross
No. of
gains at unvested
vesting
shares
at 30 Jan
held at
2008
30 Jan
£/J
2008
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2005 PLC ord 24,156
NV ord 16,800
8,124
5,426
8,012
5,420
2006* PLC ord 80,528
NV ord 53,025
2007* PLC ord 57,412
NV ord 37,917
178,232
118,588
£5.365
u11.35
£5.470
u11.74
£6,155
u12.44
£5.350
u11.76
£6.445
u14.51
24,156
16,800
8,124
5,426
8,012
5,420
53,685
35,350
19,137
12,639
113,114
75,635
Date of
vesting
14 Apr 2008
14 Apr 2008
4 Apr 2009
4 Apr 2009
4 Apr 2010
4 Apr 2010
27 Feb 2009
27 Feb 2009
15 Feb 2010
15 Feb 2010
*Proration for service was applied in respect of these awards.
Options granted under ESOS vest on the third anniversary and expire on the tenth anniversary of the date of grant. The proportion of the
target award that may vest in relation to 2006, 2007 and 2008 LTIP grant is subject to the annual growth in Adjusted EPS and relative TSR
measured against a group of competitor companies during the performance period. The number of shares subject to the target award
are reflected in the above tables which are determined by reference to an assumed achievement of 12% for the 2008 award (10% for the
2006 and 2007 LTIP grants) per annum compound growth in Adjusted EPS and median TSR, which would result in 100% of the award
vesting. Depending on actual Adjusted EPS growth and TSR, the proportion of the award that may vest could be lower or higher.
Options under the SAYE scheme, in which all eligible UK employees are invited to participate, are granted at a maximum discount
of 20% to the market price at time of grant. They are normally exercisable after the expiry of three or five years from the date of grant.
No performance targets are attached to these option grants as it is an all-employee scheme.
Approved by the Board of Reed Elsevier Group plc
on 18 February 2009
Mark Elliott
Chairman of the Remuneration Committee
Approved by the Board of Reed Elsevier PLC
on 18 February 2009
Mark Elliott
Non-Executive Director
Approved by the Combined Board of Reed Elsevier NV
on 18 February 2009
Mark Elliott
Member of the Supervisory Board
81
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Annual Reports and
Financial Statements
2008
Report of the Audit Committees
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
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A copy of the terms of reference of each Audit Committee is
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The Committees each comprise at least three independent
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the Committees), Lisa Hook and David Reid. Lord Sharman and
David Reid, both chartered accountants, are considered to have
significant, recent and relevant financial experience. Biographies
of the members of each of the Committees are set out on
page 49.
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Committee activities
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> 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 and
risk management activities.
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Annual Reports and
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2008
Report of the Audit Committees continued
Report of the Audit Committees
Lord Sharman, Lisa Hook and David Reid attended all
five meetings of the Committees in 2008.
The external auditors have attended all meetings of the
Committees. They have provided written reports at the June,
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policy on auditor independence. This policy sets out inter alia
the requirements for rotation of the lead, review and other
senior audit 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.
At their meeting in June 2008, the Committees conducted
a formal review of the performance of the external auditors
and the effectiveness of the external audit process. Based
on this review, and on their subsequent observations on the
planning and execution of the external audit for the year ended
31 December 2008, the Committees have recommended to
the respective boards that resolutions for the reappointment
of the external auditors be proposed at the forthcoming
Annual General Meetings.
The effectiveness of the operation of the Audit Committees
was reviewed in January 2009.
Lord Sharman of Redlynch
Chairman of the Audit Committees
18 February 2009
The Audit Committee meetings are typically attended by
the chief financial officer, group financial controller, chief risk
officer and 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 July 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 chief risk officer.
In discharging their principal responsibilities in respect of the
2008 financial year, the Committees have:
(i) received and discussed reports from the Reed Elsevier Group
plc group financial controller 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 intangible assets, accounting for pensions and related
assumptions, accounting for share based remuneration
and related assumptions, review of the carrying value of
investments, accounting treatment for acquisitions and
disposals, application of revenue recognition and cost
capitalisation policies, accounting for derivatives, review of
tax reserves and provisions for lease obligations. Areas of
focus in 2008 were the accounting and judgements in respect
of the carrying value of investments, goodwill and intangible
assets, the presentation in the financial statements of
Reed Business Information and the use of the going concern
basis in the preparation of the financial statements.
(ii) reviewed the critical accounting policies and compliance
with applicable accounting standards and other disclosure
requirements and received regular update reports on
accounting and regulatory developments.
(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 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 chief risk
officer and 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. Areas of focus in 2008 included the
continued compliance with the requirements of Section 404
of the US Sarbanes-Oxley Act relating to the documentation
and testing of internal controls over financial reporting,
the management of restructuring activities and review
of information security.
(v) reviewed and approved the internal audit plan for 2008
and monitored execution. Reviewed the resources,
budget and effectiveness of the internal audit function.
(vi) received presentations from the CFO of Elsevier on
outsourcing activities, from the chief security officer
on Information Security management, and from the
group treasurer on financing activities and the group
insurance programme.
(vii) received regular updates from the CFO of Reed Elsevier
on developments within the finance function.
83
Reed Elsevier
Annual Reports and
Financial Statements
2008
Financial
statements
84
Combined financial statements
88 Accounting policies
93 Notes to the combined financial statements
126 Independent auditors’ report
127 Summary combined financial information in euros
142 Reed Elsevier PLC annual report and financial statements
162 Reed Elsevier NV annual report and financial statements
185 Additional information for US investors
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined income statement
For the year ended 31 December
Revenue – continuing operations
Cost of sales
Gross profit
Selling and distribution costs
Administration and other expenses
Operating profit before joint ventures
Share of results of joint ventures
Operating profit – continuing operations
Finance income
Finance costs
Net finance costs
Disposals and other non operating items
Profit before tax – continuing operations
Taxation
Net profit from continuing operations
Net profit from discontinued operations
Net profit for the year
Attributable to:
Parent companies’ shareholders
Minority interests
Net profit for the year
Combined financial statements
2008
Note
1
3
8
8
9
617
10
462
2
480
480
£m
5,334
(1,916)
3,418
(1,053)
(1,482)
883
18
901
33
(225)
(192)
(92)
(155)
18
476
4 3
2007
£m
4,584
(1,624)
2,960
(938)
(1,150)
872
16
888
43
(182)
(139)
63
812
82
894
309
1,203
1,200
1,203
85
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined cash flow statement
For the year ended 31 December
Cash flows from operating activities – continuing operations
Cash generated from operations
Interest paid
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities – continuing operations
Acquisitions
Purchases of property, plant and equipment
Expenditure on internally developed intangible assets
Purchase of investments
Proceeds from disposals of property, plant and equipment
Proceeds from other disposals
Dividends received from joint ventures
Net cash used in investing activities
Cash flows from financing activities – continuing operations
Dividends paid to shareholders of the parent companies
(Decrease)/increase in short term bank loans, overdrafts and commercial paper
Issuance of other loans
Repayment of other loans
Repayment of finance leases
Redemption of debt related derivative financial instrument
Proceeds on issue of ordinary shares
Purchase of treasury shares
Net cash used in financing activities
Combined financial statements
2008
Note
12
1,058
12
(2,301)
(883)
£m
1,452
(222)
43
(215)
(2,161)
(57)
(115)
(4)
5 4
8
23
(2,404)
(407)
2,373
(411)
(56)
62 –
54
(94)
2007
£m
1,218
(174)
26
(239)
831
(327)
(65)
(80)
(4)
82
12
(378)
(416)
111
276
(311)
(12)
177
(273)
(448)
Net cash (used in)/from discontinued operations
2
(48)
1,912
(Decrease)/increase in cash and cash equivalents
12
(2,174)
1,917
Movement in cash and cash equivalents
At start of year
(Decrease)/increase in cash and cash equivalents
Exchange translation differences
At end of year
2,467
(2,174)
82
519
1,917
31
2,467
375
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined balance sheet
As at 31 December
Non-current assets
Goodwill
Intangible assets
Investments in joint ventures
Other investments
Property, plant and equipment
Net pension assets
Deferred tax assets
Current assets
Inventories and pre-publication costs
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Taxation
Provisions
Non-current liabilities
Borrowings
Deferred tax liabilities
Net pension obligations
Provisions
Liabilities associated with assets held for sale
Total liabilities
Net assets
Capital and reserves
Combined share capitals
Combined share premiums
Combined shares held in treasury
Translation reserve
Other combined reserves
Combined shareholders’ equity
Minority interests
Total equity
Combined financial statements
2008
Note
15
16
17
17
18
6
20
21
22
12
23
12,866
24
25
27
25
20
6
27
23
11,885
981
29
30
31
32
33
953
981
2007
£m
2,462
2,089
116
111
239
183
141
5,341
271
1,148
210
2,467
4,096
341
9,778
1,966
22
1,127
752
£m
4,901
4,404
145
49
329
152
353
10,333
348
1,685
76
375
2,484
49
2,769
258
448
554
79 –
4,108
3,867
5,694
1,525
521
35
7,775
2
209
2,529
(783)
(14)
(988)
28
2,002
695
133
21
2,851
84
6,802
2,976
197
2,143
(619)
(145)
1,389
2,965
11
2,976
87
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Combined statement of recognised income and expense
For the year ended 31 December
Net profit for the year
Exchange differences on translation of foreign operations
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
Net (expense)/income recognised directly in equity
Cumulative exchange differences on disposal of foreign operations
Cumulative fair value movements on disposal of available for sale investments
Transfer to net profit from hedge reserve (net of tax)
Total recognised income and expense for the year
Attributable to:
Parent companies’ shareholders
Minority interests
Total recognised income and expense for the year
Combined reconciliation of shareholders’ equity
For the year ended 31 December
Total recognised net income attributable to the parent companies’ shareholders
Dividends declared
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Increase in share based remuneration reserve
Net (decrease)/increase in combined shareholders’ equity
Combined shareholders’ equity at start of year
Combined shareholders’ equity at end of year
2008
Note
6
10
19
2008
Note
14
31
£m
480
340
(347)
(9) –
(243) 3
156
(103)
27
–
(14)
390
386
4 3
390
£m
386
(2,404)
54
(94)
46
(2,012)
2,965
953
2007
£m
1,203
(33)
224
(50)
144
148
(7)
(20)
1,468
1,465
1,468
2007
£m
1,465
(416)
177
(273)
46
999
1,966
2,965
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Accounting policies
Combined financial statements
The Reed Elsevier combined financial statements are prepared
in accordance with International Financial Reporting Standards
(IFRS) as endorsed by the European Union and as issued by the
International Accounting Standards Board (IASB). The combined
financial statements are prepared on a going concern basis, as
explained on page 59.
The Reed Elsevier accounting policies under IFRS are set
out below.
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 two parent companies, Reed Elsevier PLC and Reed
Elsevier NV (“the combined businesses”).
In preparing the combined financial statements, subsidiaries
of Reed Elsevier Group plc and Elsevier Reed Finance BV are
accounted for under the purchase method and investments in
associates and joint ventures are accounted for under the equity
method. All transactions and balances between the combined
businesses are eliminated.
On acquisition of a subsidiary, or interest in an associate
or joint venture, fair values, reflecting conditions at the date
of acquisition, are attributed to the net assets, including
identifiable intangible assets, acquired. This includes those
adjustments made to bring accounting policies into line with
those of the combined businesses. The results of subsidiaries
sold or acquired are included in the combined financial
statements up to or from the date that control passes from
or to the combined businesses.
Minority interests in the net assets of the combined businesses
are identified separately from combined shareholders equity.
Minority interests consist of the amount of those interests at
the date of the original acquisition and the minority share of
changes in equity since the date of acquisition.
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 the Dutch Civil Code. Additional
information is given in the Annual Reports and Financial
Statements of the parent companies set out on pages 142 to 184.
A list of principal businesses is set out on page 195.
dividends from joint ventures and net capital expenditure, but
before payments in relation to exceptional restructuring and
acquisition related costs. Reconciliations between reported
and adjusted figures are provided in note 11.
Foreign exchange translation
The combined financial statements are presented in
pounds sterling. Additional information providing a translation
into euros of the primary Reed Elsevier combined financial
statements and selected notes is presented on pages 127 to 141.
Transactions in foreign currencies are recorded at the rate
of exchange prevailing on the date of the transaction. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rate
prevailing on the balance sheet date. Exchange differences
arising are recorded in the income statement other than
where hedge accounting applies as set out below.
Assets and liabilities of foreign operations are translated at
exchange rates prevailing on the balance sheet date. Income
and expense items and cash flows of foreign operations are
translated at the average exchange rate for the period.
Significant individual items of income and expense and cash
flows in foreign operations are translated at the rate prevailing
on the date of transaction. Exchange differences arising are
classified as equity and transferred to the translation reserve.
When foreign operations are disposed of, the related cumulative
translation differences are recognised within the income
statement in the period.
Reed Elsevier uses derivative financial instruments, primarily
forward contracts, to hedge its exposure to certain foreign
exchange risks. Details of Reed Elsevier’s accounting policies
in respect of derivative financial instruments are set out below.
Revenue
Revenue represents the invoiced value of sales less anticipated
returns on transactions completed by performance, excluding
customer sales taxes and sales between the combined
businesses.
Revenues are recognised for the various categories of turnover
as follows: subscriptions – on periodic despatch of subscribed
product or rateably over the period of the subscription where
performance is not measurable by despatch; circulation – on
despatch; advertising – on publication or over the period of
online display; and exhibitions – on occurrence of the exhibition.
Where sales consist of two or more independent components
whose value can be reliably measured, revenue is recognised
on each component as it is completed by performance, based
on attribution of relative value.
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 figures are shown before amortisation
of acquired intangible assets and goodwill impairment,
exceptional restructuring and acquisition related costs,
disposals and other non operating items, related tax effects and
movements in deferred taxation assets and liabilities that are
not expected to crystallise in the near term. Adjusted operating
profits are also grossed up to exclude the equity share of taxes
in joint ventures. Adjusted operating cash flow is measured after
Employee benefits
The expense of defined benefit pension schemes and other
post-retirement employee benefits is determined using
the projected unit credit method and charged in the income
statement as an operating expense, based on actuarial
assumptions reflecting market conditions at the beginning of the
financial year. Actuarial gains and losses are recognised in full in
the statement of recognised income and expense in the period in
which they occur. Past service costs are recognised immediately
to the extent that benefits have vested, or, if not vested, on a
straight line basis over the period until the benefits vest.
89
Reed Elsevier
Annual Reports and
Financial Statements
2008
Accounting policies continued
Combined financial statements
Net pension obligations in respect of defined benefit schemes
are included in the balance sheet at the present value of scheme
liabilities, less the fair value of scheme assets. Where schemes
are in surplus, ie assets exceed liabilities, the net pension assets
are separately included in the balance sheet. Any net pension
asset is limited to the extent that the asset is recoverable
through reductions in future contributions.
Movements in deferred tax are charged or credited in the
income statement, except when they relate to items charged or
credited directly to equity, in which case the deferred tax is also
recognised in equity. Deferred tax credits in respect of share
based remuneration are recognised in equity to the extent
that expected tax deductions exceed the related expense.
The expense of defined contribution pension schemes and
other employee benefits is charged in the income statement
as incurred.
Share based remuneration
The fair value of share based remuneration is determined at
the date of grant and recognised as an expense in the income
statement on a straight line basis over the vesting period, taking
account of the estimated number of shares that are expected
to vest. Market based performance criteria are taken into
account when determining the fair value at the date of grant.
Non-market based performance criteria are taken into account
when estimating the number of shares expected to vest. The
fair value of share based remuneration is determined by use
of a binomial or Monte Carlo simulation model as appropriate.
All Reed Elsevier’s share based remuneration is equity settled.
Borrowing costs
All interest on borrowings is expensed as incurred. The cost
of issuing borrowings is generally expensed over the life of the
borrowings so as to produce a constant periodic rate of charge.
Taxation
The tax expense represents the sum of the tax payable on the
current year taxable profits, adjustments in respect of prior
year taxable profits, and the movements on deferred tax that
are recognised in the income statement.
The tax payable on current year taxable profits is calculated
using the applicable tax rates that have been enacted,
or substantively enacted, by the balance sheet date.
Deferred tax is the tax arising on differences between the
carrying amounts of assets and liabilities in the financial
statements and their corresponding tax bases used in the
computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that,
based on current forecasts, it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Deferred tax is not recognised on temporary
differences arising in respect of goodwill that is not deductible
for tax purposes.
Deferred tax is calculated using tax rates that are expected to
apply in the period when the liability is expected to be settled
or the asset realised. Full provision is made for deferred tax
which would become payable on the distribution of retained
profits from foreign subsidiaries, associates or joint ventures.
Goodwill
On the acquisition of a subsidiary or business, the purchase
consideration is allocated between the net tangible and
intangible assets on a fair value basis, with any excess
purchase consideration representing goodwill. Goodwill
arising on acquisitions also includes amounts corresponding
to deferred tax liabilities recognised in respect of acquired
intangible assets.
Goodwill is recognised as an asset and reviewed for impairment
at least annually. Any impairment is recognised immediately
in the income statement and not subsequently reversed.
On disposal of a subsidiary or business, the attributable amount
of goodwill is included in the determination of the profit or loss
on disposal.
Intangible assets
Intangible assets acquired as part of a business combination
are stated in the balance sheet at their fair value as at the
date of acquisition, less accumulated amortisation. Internally
generated intangible assets are stated in the balance sheet
at the directly attributable cost of creation of the asset,
less accumulated amortisation.
Intangible assets acquired as part of business combinations
comprise: market related assets (eg trade marks, imprints,
brands); customer related assets (eg subscription bases,
customer lists, customer relationships); editorial content;
software and systems (eg application infrastructure, product
delivery platforms, in-process research and development);
contract based assets (eg publishing rights, exhibition rights,
supply contracts); and other intangible assets. Internally
generated intangible assets typically comprise software and
systems development where an identifiable asset is created
that is probable to generate future economic benefits.
Intangible assets, other than brands and imprints determined
to have indefinite lives, are amortised systematically over their
estimated useful lives. The estimated useful lives of intangible
assets with finite lives are as follows: market and customer
related assets – 3 to 40 years; content, software and other
acquired intangible assets – 3 to 20 years; and internally
developed intangible assets – 3 to 10 years. Brands and imprints
determined to have indefinite lives are not amortised and are
subject to impairment review at least annually.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Accounting policies continued
Property, plant and equipment
Property, plant and equipment 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. Depreciation is provided on other assets on a straight
line basis over their estimated useful lives as follows: leasehold
improvements – shorter of life of lease and 10 years; plant –
3 to 20 years; office furniture, fixtures and fittings – 5 to 10 years;
computer systems, communication networks and equipment –
3 to 7 years.
Investments
Investments, other than investments in joint ventures and
associates, are stated in the balance sheet at fair value.
Investments held as part of the venture capital portfolio
are classified as held for trading, with changes in fair
value reported through the income statement. All other
investments are classified as available for sale with changes
in fair value recognised directly in equity until the investment
is disposed of or is determined to be impaired, at which time
the cumulative gain or loss previously recognised in equity
is brought into the net profit or loss for the period. All items
recognised in the income statement relating to investments,
other than investments in joint ventures and associates, are
reported as non operating items.
Available for sale investments and venture capital investments
held for trading represent investments in listed and unlisted
securities. The fair value of listed securities is determined
based on quoted market prices, and of unlisted securities
on management’s estimate of fair value based on standard
valuation techniques, including market comparisons and
discounts of future cash flows, having regard to maximising
the use of observable inputs and adjusting for risk. Independent
valuation experts are used as appropriate.
Investments in joint ventures and associates are accounted for
under the equity method and stated in the balance sheet at cost
as adjusted for post-acquisition changes in Reed Elsevier’s share
of net assets, less any impairment in value.
Impairment
At each balance sheet date, reviews are carried out of the
carrying amounts of tangible and intangible assets and goodwill
to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists,
the recoverable amount, which is the higher of value in use and
fair value less costs to sell, of the asset is estimated in order to
determine the extent, if any, of the impairment loss. Where the
asset does not generate cash flows that are independent from
other assets, value in use estimates are made based on the
cash flows of the cash generating unit to which the asset
belongs. Intangible assets with an indefinite useful life are
tested for impairment at least annually and whenever there
is any indication that the asset may be impaired.
If the recoverable amount of an asset or cash generating unit
is estimated to be less than its net carrying amount, the net
carrying amount of the asset or cash generating unit is reduced
to its recoverable amount. Impairment losses are recognised
immediately in the income statement in administration and
other expenses.
Combined financial statements
Inventories and pre-publication costs
Inventories and pre-publication costs are stated at the lower of
cost, including appropriate attributable overhead, and estimated
net realisable value. Pre-publication costs, representing costs
incurred in the origination of content prior to publication, are
expensed systematically reflecting the expected sales profile
over the estimated economic lives of the related products,
generally up to five years.
Leases
Assets held under leases which confer rights and obligations
similar to those attaching to owned assets are classified
as assets held under finance leases and capitalised within
property, plant and equipment and the corresponding liability
to pay rentals is shown net of interest in the balance sheet as
obligations under finance leases. The capitalised value of the
assets is depreciated 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 lease rentals are charged to the income statement on
a straight line basis over the period of the leases. Rental income
from operating leases is recognised on a straight line basis over
the term of the relevant lease.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call
deposits and other short term highly liquid investments and
are held in the balance sheet at fair value.
Assets held for sale
Assets of businesses that are available for immediate sale in
their current condition and for which a sales process has been
initiated are classified as assets held for sale, and are carried
at the lower of amortised cost and fair value less costs to sell.
Non-current assets are not amortised or depreciated following
their classification as held for sale. Liabilities of businesses
held for sale are also separately classified on the balance sheet.
Discontinued operations
A discontinued operation is a component of the combined
businesses that represents a separate major line of business
or geographical area of operations that has been disposed
of or is held for sale. When an operation is classified as
discontinued, the comparative income and cash flow statements
are re-presented as if the operation had been discontinued from
the start of the comparative period.
Financial instruments
Financial instruments comprise investments (other than
investments in joint ventures or associates), trade receivables,
cash and cash equivalents, payables and accruals, provisions,
borrowings and derivative financial instruments.
Investments (other than investments in joint ventures and
associates) are classified as either held for trading or available
for sale, as described above.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Accounting policies continued
Combined financial statements
Trade receivables are carried in the balance sheet at invoiced
value less allowance for estimated irrecoverable amounts.
Irrecoverable amounts are estimated based on the ageing
of trade receivables, experience and circumstance.
Borrowings (other than fixed rate borrowings in designated
hedging relationships and for which the carrying value is
adjusted to reflect changes in the fair value of the hedged risk),
payables, accruals and provisions are recorded initially at fair
value and subsequently at amortised cost.
Derivative financial instruments are used to hedge interest
rate and foreign exchange risks. Changes in the fair value
of derivative financial instruments that are designated and
effective as hedges of future cash flows are recognised
(net of tax) directly in equity in the hedge reserve. If a hedged
firm commitment or forecasted transaction results in the
recognition of a non financial asset or liability, then, at the time
that the asset or liability is recognised, the associated gains or
losses on the derivative that had previously been recognised
in equity are included in the initial measurement of the asset
or liability. For hedges that do not result in the recognition of
an asset or a liability, amounts deferred in equity are recognised
in the income statement in the same period in which the
hedged item affects net profit or loss. Any ineffective portion
of hedges is recognised immediately in the income statement.
On adoption of IAS39 – Financial Instruments, adjustments were
made either to the carrying value of hedged items or to equity,
as appropriate, to reflect the differences between the previous
UK GAAP carrying values of financial instruments and their
carrying values required to be reported under IAS39. Any
transition gains or losses on financial instruments that qualified
for hedge accounting were reflected in equity and remain in
equity until either the forecasted transaction occurs or is no
longer expected to occur.
Provisions
Provisions are recognised when a present obligation exists as
a result of a past event, and it is probable that settlement of the
obligation will be required. Provisions are measured at the best
estimate of the expenditure required to settle the obligation at
the balance sheet date.
Shares held in treasury
Shares of Reed Elsevier PLC and Reed Elsevier NV that are
repurchased by the respective parent companies and not
cancelled are classified as shares held in treasury. The
consideration paid, including directly attributable costs,
is recognised as a deduction from equity. Shares of the parent
companies that are purchased by the Reed Elsevier Group plc
Employee Benefit Trust are also classified as shares held in
treasury, with the cost recognised as a deduction from equity.
Derivative financial instruments that are not designated as
hedging instruments are classified as held for trading and
recorded in the balance sheet at fair value, with changes in
fair value recognised in the income statement.
Where an effective hedge is in place against changes in the
fair value of fixed rate borrowings, the hedged borrowings are
adjusted for changes in fair value attributable to the risk being
hedged with a corresponding income or expense included
in the income statement within finance costs. The offsetting
gains or losses from remeasuring the fair value of the related
derivatives are also recognised in the income statement within
finance costs. When the related derivative expires, is sold
or terminated, or no longer qualifies for hedge accounting,
the cumulative change in fair value of the hedged borrowing
is amortised in the income statement over the period to maturity
of the borrowing using the effective interest method.
The fair values of interest rate swaps, interest rate options,
forward rate agreements and forward foreign exchange
contracts represent the replacement costs calculated using
market rates of interest and exchange. The fair value of long
term borrowings is calculated by discounting expected future
cash flows at market rates.
Critical judgements and key sources of estimation uncertainty
The most significant accounting policies in determining the
financial condition and results of the Reed Elsevier combined
businesses, and those requiring the most subjective or complex
judgement, relate to the valuation of goodwill and intangible
assets, share based remuneration, pensions, taxation and
property provisioning. The carrying amounts of goodwill and
intangible assets are reviewed at least annually, the key areas
of judgement being in relation to the forecast long term growth
rates and the appropriate discount rates to be applied to
forecast cash flows. The charge for share based remuneration
is determined based on the fair value of awards at the date of
grant by use of binomial or Monte Carlo simulation models as
appropriate, which require judgements to be made regarding
share price volatility, dividend yield, risk free rates of return and
expected option lives. Key estimates in accounting for defined
benefit pension schemes are determined in conjunction with
independent actuaries and include the life expectancy of
members, expected salary and pension increases, inflation, the
return on scheme assets and the rate at which future pension
payments are discounted. Reed Elsevier’s policy is to make
provision for tax uncertainties where it is considered probable
that tax payments may arise. Property provisions are determined
based on management’s estimates of future sublease income.
Cash flow hedge accounting is discontinued when a hedging
instrument expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting. At that time, any
cumulative gain or loss on the hedging instrument recognised
in equity is either retained in equity until the firm commitment or
forecasted transaction occurs, or, where a hedged transaction is
no longer expected to occur, is immediately credited or expensed
in the income statement.
Standards and amendments effective for the year
IFRIC14 – The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction, clarifies how
to assess the limit in IAS19 Employee Benefits on the amount
of a defined benefit pension surplus that can be recognised
as an asset. Adoption of this interpretation has not significantly
impacted the measurement, presentation or disclosure of
employee benefits in the combined financial statements.
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Annual Reports and
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2008
Accounting policies continued
Standards, amendments and interpretations
not yet effective
New accounting standards and amendments and their expected
impact on the future accounting policies and reporting of
Reed Elsevier are set out below.
IFRS8 – Operating Segments (effective for the 2009 financial
year). IFRS8 sets out requirements for disclosure of information
about an entity’s operating segments, its products and services,
the geographical areas in which it operates, and its major
customers. IFRS8 replaces IAS14 – Segment Reporting.
Adoption of this standard is not expected to change significantly
the disclosure of information in respect of Reed Elsevier’s
operating segments.
Amendment to IAS23 – Borrowing Costs (effective for the
2009 financial year). The amendment removes the option to
immediately recognise as an expense borrowing costs relating
to assets requiring a substantial period of time to get ready
for use or sale and requires such costs to be capitalised.
Adoption of this standard will change our accounting policy
on borrowing costs but is not expected to significantly impact
the measurement, presentation or disclosure of borrowing
costs in the combined financial statements.
Amendment to IAS1 – Presentation of Financial Statements
(effective for the 2009 financial year). The amendment introduces
changes to the way in which movements in equity must be
disclosed and requires an entity to disclose separately each
component of other comprehensive income not recognised
in profit or loss. The amendment also requires disclosure
of the amount of income tax relating to each component of
other comprehensive income as well as several other minor
disclosure amendments. Other than as described above,
this amendment is not expected to significantly change
the presentation of the combined financial statements.
Combined financial statements
Amendment to IFRS2 – Share Based Payment (effective for the
2009 financial year). The amendment clarifies that cancellations
of share options, whether by the entity or holder, should be
accounted for as an acceleration of the vesting period. The
amendment also restricts the definition of a vesting condition
to a condition that includes an explicit or implicit requirement
to provide services. Any other conditions are non-vesting
conditions, which have to be taken into account to determine
the fair value of the equity instruments granted. The amendment
is not expected to significantly impact the measurement,
presentation or disclosure of share based remuneration in
the combined financial statements.
Amendments to IFRS3 – Business Combinations (effective
for the 2010 financial year). The amendments introduce
changes that will require future transaction related costs
(including professional fees) to be expensed and adjustments
to contingent consideration to be recognised in income and
will allow non-controlling interests to be measured either at
fair value or the proportionate share of net identifiable assets.
Amendments to IAS 27 – Consolidated and Separate Financial
Statements (effective for the 2010 financial year). The
amendments introduce changes to the accounting for partial
disposals of subsidiaries, associates and joint ventures. Adoption
of these amendments is not expected to significantly impact the
measurement, presentation or disclosure of future disposals.
Amendment to IAS39 – Financial Instruments: Recognition
and Measurement (effective for the 2010 financial year).
The amendment clarifies the eligibility of hedge accounting for
inflation and hedging with options. Adoption of this amendment
is not expected to have a significant impact on the measurement,
presentation or disclosure of financial instruments in the
combined financial statements.
Additionally, a number of interpretations have been issued
which are not expected to have any significant impact on
Reed Elsevier’s accounting policies and reporting.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
1 Segment analysis
Reed Elsevier is a publisher and information provider organised as four business segments: Elsevier, comprising scientific,
technical and medical publishing; LexisNexis, providing legal, tax, regulatory, risk, information and analytics, and business
information solutions to professional, business and government customers; Reed Exhibitions, organising trade exhibitions and
conferences; and Reed Business Information (RBI), providing information and marketing solutions to business professionals.
Internal reporting is consistent with this organisational structure. On 21 February 2008 Reed Elsevier announced the intention
to divest RBI which was accordingly then classified as a discontinued operation in the 2008 interim results. On 10 December 2008
Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on
acceptable terms at that time. RBI has therefore now been presented as a continuing operation. RBI and Reed Exhibitions,
previously presented together as the Reed Business segment, are now managed as separate divisions and are presented
as separate business segments. Comparatives have been restated accordingly.
Adjusted operating profit figures are presented as additional performance measures. They are stated before amortisation of
acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, and are grossed
up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs relate to the major restructuring
programme announced in February 2008 and in RBI, which was to be divested and not part of the original programme. Exceptional
restructuring costs principally comprise severance, outsourcing migration and associated property costs. Adjusted operating
profit is reconciled to operating profit in note 11.
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Corporate costs
Unallocated net pension credit
Total
Geographical origin
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Revenue
Operating profit
Adjusted operating profit
2008
£m
1,700
1,940
707
987
5,334
– –
– –
5,334
2,544
905
594
893
398
5,334
2007
£m
1,507
1,594
577
906
4,584
4,584
2,147
896
505
708
328
4,584
2008
£m
443
291
123
55
912
(50)
39
901
334
183
179
151
54
901
2007
£m
410
287
106
91
894
(45)
39
888
353
180
179
118
58
888
2008
£m
568
513
183
126
1,390
(50)
39
1,379
618
239
206
237
79
1,379
2007
£m
477
406
139
121
1,143
(45)
39
1,137
505
211
181
174
66
1,137
Revenue is analysed before the £104m (2007: £103m) share of joint ventures’ revenue, of which £23m (2007: £21m) relates to
LexisNexis, principally to Giuffrè, £80m (2007: £82m) relates to Reed Exhibitions, principally to exhibition joint ventures, and £1m
(2007: nil) relates to Reed Business Information.
Share of post-tax results of joint ventures of £18m (2007: £16m) included in operating profit comprises £4m (2007: £3m) relating
to LexisNexis and £14m (2007: £13m) relating to Reed Exhibitions. The unallocated net pension credit of £39m (2007: £39m)
comprises the expected return on pension scheme assets of £219m (2007: £196m) less interest on pension scheme liabilities
of £180m (2007: £157m).
Analysis of revenue by geographical market
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
2008
£m
2,624
580
234
1,136
760
5,334
2007
£m
2,233
603
206
897
645
4,584
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
1 Segment analysis continued
Expenditure on
acquired goodwill and
intangible assets
Capital
expenditure
additions
Amortisation of
acquired intangible
assets and goodwill
impairment
Depreciation and
other amortisation
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Corporate
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
2008
£m
31
2,705
58
64
2,858
–
2,858
2,701
54
4 –
34
65
2,858
2007
£m
193
42
61
67
363
–
363
152
26
163
22
363
2008
£m
54
74
11 8
26
165
7 1
172
90
36
26
11
9 6
172
2007
£m
50
76
21
155
156
86
31
22
11
156
2008
£m
76
137
46
31
290
–
290
2007
£m
62
105
27
27
221
–
221
2008
£m
51
68
6 4
25
150
17
167
2007
£m
47
72
23
146
2
148
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. The net
book amount of property, plant and equipment added through acquisitions totalled £48m (2007: nil). Amortisation of acquired
intangible assets includes the share of amortisation in joint ventures of £3m (2007: £2m) in Reed Exhibitions. Other than the
depreciation and amortisation above, non cash items of £46m (2007: £38m) relate to the recognition of share based remuneration
and comprise £7m (2007: £8m) in Elsevier, £8m (2007: £10m) in LexisNexis, £3m (2007: £3m) in Reed Exhibitions, £6m (2007: £8m)
in Reed Business Information and £22m (2007: £9m) in Corporate.
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Taxation
Cash/borrowings
Net pension assets/obligations
Assets and liabilities held for sale
Other assets and liabilities
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Total assets
Total liabilities
Net assets/(liabilities)
2008
£m
3,264
6,758
862
864
11,748
353
375
152
49
189
12,866
9,123
967
742
1,630
404
12,866
2007
£m
2,515
2,531
658
682
6,386
141
2,467
183
341
260
9,778
4,549
2,119
1,541
1,300
269
9,778
2008
£m
1,240
774
379
418
2,811
2,079
6,142
521
2
330
11,885
6,565
1,298
724
3,030
268
11,885
2007
£m
736
415
285
321
1,757
1,447
3,129
133
84
252
6,802
3,452
1,164
312
1,691
183
6,802
2008
£m
2007
£m
2,024
5,984
483
446
8,937
(1,726)
(5,767)
(369)
47
(141)
981
2,558
(331)
18
(1,400)
136
981
1,779
2,116
373
361
4,629
(1,306)
(662)
50
257
8
2,976
1,097
955
1,229
(391)
86
2,976
Investments in joint ventures of £145m (2007: £116m) included in segment assets above comprise £42m (2007: £30m) relating
to LexisNexis, nil (2007: £1m) relating to Elsevier, £99m (2007: £83m) relating to Reed Exhibitions and £4m (2007: £2m) relating
to Reed Business Information.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
2 Discontinued operations
Discontinued operations comprise the results of the Harcourt Education division. The disposal of the Harcourt Education
International businesses completed in May and August 2007; the disposal of the Harcourt US K-12 Schools Education business
completed in December 2007; and the disposal of the Harcourt Assessment business completed in January 2008.
Net profit from discontinued operations
Revenue
Operating costs
Operating profit and profit before tax
Taxation
Profit after taxation
Gain on disposals
Tax on disposals
Net profit from discontinued operations
12
(12)
–
–
–
67
(49)
2008
£m
18
2007
£m
752
(640)
112
(34)
78
611
(380)
309
The gain on disposals of discontinued operations in 2008 relates to the sale of Harcourt Assessment (2007: Harcourt US K-12 Schools
Education business and the Harcourt Education International businesses). Net assets disposed comprise £92m (2007: £318m)
of goodwill, £74m (2007: £383m) of intangible assets, £9m (2007: £39m) of property, plant and equipment, £53m (2007: £377m)
of inventory and £16m of other net assets (2007: £40m).
Tax on disposals in 2007 is stated before taking account of tax credits of £223m in respect of previously unrecognised deferred
tax assets and capital losses. These were realised as a result of the disposal of discontinued operations, but were reported within
continuing operations whence they first arose.
Cash flows from discontinued operations
Net cash flow from operating activities
Net cash flow (used in)/from investing activities
Net cash flow from financing activities
Net movement in cash and cash equivalents
2008
£m
2
(48)
2007
£m
33
1,879
–
1,912
(50)
–
Net cash flow from investing activities includes cash proceeds, net of expenses, on the completed disposals of £270m
(2007: £1,912m) and taxes paid on completed disposals of £320m (2007: nil). Cash and cash equivalents disposed of was
nil (2007: £7m).
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
3 Operating profit
Operating profit from continuing operations is stated after charging/(crediting) the following:
Staff costs
Wages and salaries
Social security costs
Pensions
Share based remuneration
Total staff costs
Depreciation and amortisation
Amortisation of acquired intangible assets
Share of joint ventures’ amortisation of acquired intangible assets
Goodwill impairment
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Total depreciation and amortisation
Other expenses and income
Pre-publication costs, inventory expenses and other cost of sales
Operating lease rentals expense
Operating lease rentals income
Note
6
7
1,653
16
15
16
18
457
2008
£m
1,384
164
59
46
278
3 2
9 –
88
79
2007
£m
1,192
144
49
38
1,423
219
72
76
369
1,916
116
(13)
1,624
105
(15)
Depreciation, amortisation and impairment charges are included within administration and other expenses.
Staff costs for discontinued operations for the year ended 31 December 2008 were £5m (2007: £162m) for wages and salaries;
nil (2007: £10m) for social security costs; nil (2007: £11m) for pensions and nil (2007: £8m) for share based remuneration.
4 Auditors’ remuneration
Auditors’ remuneration
For audit services
For non audit services
Total auditors’ remuneration
2008
£m
4.8
2.1
6.9
2007
£m
3.9
1.5
5.4
Auditors’ remuneration, in respect of continuing and discontinued operations, for audit services comprises £0.4m (2007: £0.4m)
payable to the auditors of the parent companies and £4.4m (2007: £3.5m) payable to the auditors of the parent companies and
their associates for the audit of the financial statements of the operating and financing businesses, including the review and testing
of internal controls over financial reporting in accordance with the US Sarbanes-Oxley Act. Auditors’ remuneration for non audit
services comprises: £0.6m (2007: £0.6m) for taxation services, £1.3m (2007: £0.7m) for due diligence and other transaction related
services and £0.2m (2007: £0.2m) for other non audit services.
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Annual Reports and
Financial Statements
2008
5 Personnel
Number of people employed – continuing operations
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Corporate/shared functions
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Combined financial statements
At 31 December
Average during the year
2008
2007
2008
2007
7,200
15,900
2,700
8,200
34,000
800
34,800
18,800
5,300
2,300
4,700
3,700
34,800
7,100
13,300
2,700
8,100
31,200
300
31,500
15,500
5,300
2,400
4,600
3,700
31,500
7,200
13,800
2,700
8,300
32,000
800
32,800
16,600
5,400
2,400
4,700
3,700
32,800
7,200
13,400
2,600
8,100
31,300
300
31,600
15,600
5,400
2,400
4,600
3,600
31,600
The number of people employed by discontinued operations at 31 December 2008 was nil (2007: 1,300). The average number of
people employed by discontinued operations during the year was 100 (2007: 4,300).
6 Pension schemes
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 largest schemes, which cover the majority of employees, are in the UK,
the US and the Netherlands. Under these plans, employees are entitled to retirement benefits dependent on the number of years
service provided.
The principal assumptions for the purpose of valuation under IAS19 – Employee Benefits, are determined for each scheme
in conjunction with the respective schemes’ independent actuaries and are presented below as the weighted average of the
various defined benefit pension schemes. The defined benefit pension expense for each year is based on the assumptions and
scheme valuations set at 31 December of the prior year.
Discount rate
Expected rate of return on scheme assets
Expected rate of salary increases
Inflation
Future pension increases
As at 31 December
2008
6.2%
7.1%
3.7%
2.7%
2.8%
2007
5.9%
7.1%
4.4%
3.1%
3.2%
2006
5.3%
7.0%
4.2%
2.9%
2.9%
The expected rates of return on individual categories of scheme assets are determined by reference to relevant market indices
and market expectations of real rates of return. The overall expected rate of return on scheme assets is based on the weighted
average of each asset category.
Mortality assumptions used in assessing defined benefit obligations make allowance for future improvements in longevity and
have been determined by reference to applicable mortality statistics and the actuaries’ expectations for each scheme. The average
life expectancies assumed in the valuation of the defined benefit obligations are set out below.
Average life expectancy (at 31 December)
Member currently aged 60
Member currently aged 45
2008
Male
(years)
86
86
Female
(years)
87
87
2007
Male
(years)
86
86
Female
(years)
87
87
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98
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
6 Pension schemes continued
The defined benefit pension expense recognised within the income statement comprises:
Service cost (including curtailment credits of nil (2007: £19m))
Interest on pension scheme liabilities
Expected return on scheme assets
Net defined benefit pension expense
2008
36
£m
75
180
(219)
2007
£m
78
157
(196)
39
The service cost includes nil (2007: £8m) in respect of discontinued operations. A total of £23m (2007: £21m) was recognised as
an expense in relation to defined contribution pension schemes, including nil (2007: £3m) in respect of discontinued operations.
Included in gains on disposals of discontinued operations are £3m (2007: £11m) of pension curtailment credits.
The amount recognised in the balance sheet in respect of defined benefit pension schemes at the start and end of the year and
the movements during the year were as follows:
At start of year
Service cost
Interest on pension scheme liabilities
Expected return on scheme assets
Actuarial gain/(loss)
Contributions by employer
Contributions by employees
Benefits paid
Acquisitions
Curtailment on disposal of operations
Exchange translation differences
At end of year
Defined
benefit
obligations
£m
2008
Fair value
of scheme
assets
£m
(2,968)
(75)
(180)
–
418
–
(13)
119
(9)
3
(346)
(3,051)
3,018
–
–
219
(765)
79
13
(119)
–
–
237
2,682
Net
pension
obligations
£m
50
(75)
(180)
219
(347)
79
–
–
(9)
3
(109)
(369)
Defined
benefit
obligations
£m
2007
Fair value
of scheme
assets
£m
Net
pension
obligations
£m
(3,008)
(78)
(157)
–
190
–
(13)
114
–
11
(27)
(2,968)
2,772
–
–
196
34
83
13
(110)
–
–
30
3,018
(236)
(78)
(157)
196
224
83
–
4
–
11
3
50
The net pension obligation of £369m at 31 December 2008 comprises schemes in deficit with net pension obligations of £521m
(2007: £133m) and schemes in surplus with net pension assets of £152m (2007: £183m).
As at 31 December 2008 the defined benefit obligations comprise £2,923m (2007: £2,877m) in relation to funded schemes
and £128m (2007: £91m) in relation to unfunded schemes. The weighted average duration of defined benefit scheme liabilities
is 19 years (2007: 19 years). Deferred tax liabilities of £44m (2007: £51m) and deferred tax assets of £190m (2007: £52m) are
recognised in respect of the pension scheme surpluses and deficits respectively.
The fair value of scheme assets held as equities, bonds and other assets, and their expected rates of return as at 31 December,
is shown below:
Equities
Bonds
Other
Total
Expected rate
of return on
scheme
assets
8.9%
4.3%
5.5%
7.1%
2008
Fair value
of scheme
assets
£m
1,408
1,167
107
2,682
Proportion Expected rate
of return on
scheme
assets
of total
scheme
assets
52%
44%
4%
100%
8.3%
4.6%
5.3%
7.1%
2007
Fair value
of scheme
assets
£m
1,904
970
144
3,018
Proportion
of total
scheme
assets
63%
32%
5%
100%
The actual return on scheme assets for the year ended 31 December 2008 was a £546m loss (2007: £230m gain).
99
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
6 Pension schemes continued
A summary of pension balances for the five years ended 31 December 2008 is set out below.
Fair value of scheme assets
Defined benefit obligations
Net pension (obligations)/surplus
2008
£m
2,682
(3,051)
(369)
2007
£m
3,018
(2,968)
50
2006
£m
2,772
(3,008)
(236)
2005
£m
2,575
(2,980)
(405)
2004
£m
2,204
(2,525)
(321)
Gains and losses arising on the revaluation of pension scheme assets and liabilities that have been recognised in the statement
of recognised income and expense are set out below:
Gains and losses arising during the year:
Experience losses on scheme liabilities
Experience (losses)/gains on scheme assets
Actuarial gains/(losses) arising on the present value of scheme
liabilities due to changes in:
– discount rates
– inflation
– life expectancy and other actuarial assumptions
Net cumulative gains/(losses) at start of year
Net cumulative (losses)/gains at end of year
2008
£m
(9)
(765)
202
198
27
(347)
252
(95)
2007
£m
(28)
34
367
(152)
3
224
28
252
2006
£m
(30)
99
198
(77)
(51)
139
(111)
28
2005
£m
(25)
230
(217)
–
(25)
(37)
(74)
(111)
2004
£m
(18)
66
(113)
–
(9)
(74)
–
(74)
Regular contributions to defined benefit pension schemes in 2009 are expected to be approximately £91m.
Sensitivity analysis
Valuation of Reed Elsevier’s pension scheme liabilities involves judgements about uncertain events, including the life expectancy
of the members, salary and pension increases, inflation and the rate at which the future pension payments are discounted.
Estimates are used for each of these factors, determined in conjunction with independent actuaries. Differences arising from
actual experience or future changes in assumptions may materially affect future pension charges. In particular, changes in
assumptions for discount rates, inflation and life expectancies would have the following approximate effects on the annual net
pension expense and the defined benefit pension obligations:
Increase/decrease of 0.25% in discount rate:
Decrease/increase in annual net pension expense
Decrease/increase in defined benefit pension obligations
Increase/decrease of one year in assumed life expectancy:
Increase/decrease in annual net pension expense
Increase/decrease in defined benefit pension obligations
Increase/decrease of 0.25% in the expected inflation rate:
Increase/decrease in annual net pension expense
Increase/decrease in defined benefit pension obligations
£m
6
132
6
90
5
121
Additionally, the annual net pension expense includes an expected return on scheme assets. A 5% increase/decrease in the
market value of equity investments held by the defined benefit pension schemes would, absent any change in their expected long
term rate of return, increase/decrease the amount of the expected return on scheme assets by £6m and would increase/decrease
the amount of the net pension surplus by £70m.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
7 Share based remuneration
Reed Elsevier provides a number of share based remuneration schemes to directors and employees. The principal share based
remuneration schemes are the Executive Share Option Schemes (ESOS), the Long Term Incentive Plan (LTIP), the Retention Share
Plan (RSP) and the Bonus Investment Plan (BIP). Share options granted under ESOS and LTIP are exercisable after three years
and up to ten years from the date of grant at a price equivalent to the market value of the respective shares at the date of grant.
Conditional shares granted under ESOS, LTIP, RSP and BIP are exercisable after three years for nil consideration if conditions
are met. Other awards principally relate to all employee share saving schemes in the UK and the Netherlands.
Share based remuneration awards are, other than in exceptional circumstances, subject to the condition that the employee
remains in employment at the time of exercise. Share options and conditional shares granted under LTIP, RSP and BIP are
subject to the achievement of growth targets of Reed Elsevier PLC and Reed Elsevier NV adjusted earnings per share measured
at constant exchange rates. LTIP grants made in 2006, 2007 and 2008 are also variable subject to the achievement of an additional
total shareholder return performance target. The numbers of share options and conditional shares included in the tables below
are calculated on the basis that 100% of the awards will vest. Further details of performance conditions are given in the Directors’
Remuneration Report on pages 60 to 80.
The estimated fair value of grants made in the two years ended 31 December 2008 are set out below. The fair values of grants
are recognised in the income statement over the vesting period, typically three years.
2008 grants
Share options
– ESOS
– Other
Total share options
Conditional shares
– ESOS
– LTIP
– RSP
– BIP
Total conditional shares
Total
2007 grants
Share options
– ESOS
– Other
Total share options
Conditional shares
– ESOS
– LTIP
– RSP
– BIP
Total conditional shares
Total
In respect of
Reed Elsevier PLC ordinary shares
In respect of
Reed Elsevier NV ordinary shares
Total fair
value
Weighted
average fair
value
per award
£
Number of
shares
’000
Fair value
£m
Number of
shares
’000
Weighted
average fair
value
per award
£
Fair value
£m
4,397
656
5,053
717
1,524
19
720
2,980
1.14
1.73
1.22
5.79
6.98
5.79
6.17
6.49
2,891
694
3,585
469
1,006
13
319
1,807
1.57
0.97
1.45
8.85
10.85
8.89
9.10
10.01
5
1
6
4
11
–
4
19
25
4
1
5
4
11
–
3
18
23
£m
9
2
11
8
22
–
7
37
48
In respect of
Reed Elsevier PLC ordinary shares
In respect of
Reed Elsevier NV ordinary shares
Total fair
value
Weighted
average fair
value
per award
£
Number of
shares
’000
Fair value
£m
Number of
shares
’000
Weighted
average fair
value
per award
£
Fair value
£m
4,246
1,058
5,304
775
1,584
78
662
3,099
1.30
1.78
1.40
5.94
7.14
5.50
5.67
6.48
2,802
423
3,225
510
1,047
53
308
1,918
1.66
0.99
1.57
8.96
10.92
7.78
8.20
9.88
5
2
7
5
11
–
4
20
27
5
–
5
5
11
–
3
19
24
£m
10
2
12
10
22
–
7
39
51
101
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
7 Share based remuneration continued
The main assumptions used to determine the fair values, which have been established with advice from and data provided
by independent actuaries, are set out below.
Assumptions for grants made during the year
Weighted average share price at date of grant
– ESOS
– LTIP
– RSP
– BIP
– Other
Expected share price volatility
Expected option life
Expected dividend yield
Risk free interest rate
Expected lapse rate
In respect of
Reed Elsevier PLC
ordinary shares
In respect of
Reed Elsevier NV
ordinary shares
2008
2007
2008
2007
£6.26
£6.27
£6.28
£6.68
£6.30
22%
4 years
2.7%
4.4%
3-5%
£6.42
£6.43
£6.39
£6.15
£6.01
22%
4 years
2.7%
5.6%
3-5%
J12.16
J12.19
J12.21
J12.51
J11.55
22%
4 years
3.2%
3.6%
3-4%
a14.41
a14.45
a14.31
a13.37
a13.44
22%
4 years
3.2%
4.2%
3-5%
Expected share price volatility has been estimated based on relevant historic data in respect of the Reed Elsevier PLC and
Reed Elsevier NV ordinary share prices. Expected share option life has been estimated based on historical exercise patterns
in respect of Reed Elsevier PLC and Reed Elsevier NV share options.
The share based remuneration awards outstanding as at 31 December 2008, in respect of both Reed Elsevier PLC and
Reed Elsevier NV ordinary shares, are set out below.
ESOS
LTIP
Other
Total
Share options:
Reed Elsevier PLC
Outstanding at 1 January 2007
Granted
Exercised
Forfeited
Expired
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Expired
Outstanding at 31 December 2008
Number of
shares
’000
48,192
4,246
(16,724)
(1,105)
(542)
34,067
4,397
(6,134)
(846)
(1,312)
30,172
Exercisable at 31 December 2007
Exercisable at 31 December 2008
19,704
19,692
Weighted
average
exercise
price
(pence)
Number of
shares
’000
Weighted
average
exercise
price
(pence)
Number of
shares
’000
Weighted
average
exercise
price
(pence)
523
642
497
564
571
547
626
517
607
570
562
536
540
5,017
–
(2,145)
–
–
2,872
–
(547)
–
–
2,325
2,872
2,325
488
–
487
–
–
489
–
487
–
–
489
489
489
3,373
1,058
(771)
(476)
(74)
3,110
656
(659)
(441)
(35)
2,631
50
69
414
480
411
431
415
434
504
411
459
407
454
425
420
Weighted
average
exercise
price
(pence)
513
610
493
524
552
534
610
505
556
561
549
530
534
Number of
shares
’000
56,582
5,304
(19,640)
(1,581)
(616)
40,049
5,053
(7,340)
(1,287)
(1,347)
35,128
22,626
22,086
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
7 Share based remuneration continued
ESOS
LTIP
Other
Total
Share options:
Reed Elsevier NV
Outstanding at 1 January 2007
Granted
Exercised
Forfeited
Expired
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Expired
Outstanding at 31 December 2008
Number of
shares
’000
32,956
2,802
(10,737)
(738)
(390)
23,893
2,891
(2,579)
(560)
(1,834)
21,811
Exercisable at 31 December 2007
Exercisable at 31 December 2008
14,266
14,875
Weighted
average
exercise
price
(g)
Number of
shares
’000
Weighted
average
exercise
price
(g)
Number of
shares
’000
Weighted
average
exercise
price
(g)
11.55
14.41
10.73
12.29
13.28
12.16
12.16
10.78
13.04
13.43
12.23
12.16
12.04
3,445
–
(1,527)
–
–
1,918
–
(109)
–
–
1,809
1,918
1,809
10.58
–
10.57
–
–
10.60
–
10.57
–
–
10.60
10.60
10.60
1,846
423
(202)
(23)
–
2,044
694
(5)
(376)
–
2,357
2,044
2,357
12.21
13.44
11.50
13.89
–
12.54
11.55
10.85
12.94
–
12.19
12.54
12.19
Number of
shares
’000
38,247
3,225
(12,466)
(761)
(390)
27,855
3,585
(2,693)
(936)
(1,834)
25,977
18,228
19,041
Conditional shares: Reed Elsevier PLC
Outstanding at 1 January 2007
Granted
Exercised
Forfeited
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Outstanding at 31 December 2008
Conditional shares: Reed Elsevier NV
Outstanding at 1 January 2007
Granted
Exercised
Forfeited
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Outstanding at 31 December 2008
ESOS
1,149
775
(112)
(156)
1,656
717
(85)
(237)
2,051
ESOS
770
510
(71)
(151)
1,058
469
(57)
(112)
1,358
Number of shares ’000
LTIP
4,244
1,584
(2,226)
(170)
3,432
1,524
–
(440)
4,516
RSP
1,832
78
(1,698)
(67)
145
19
(101)
(28)
35
Number of shares ’000
LTIP
2,858
1,047
(1,523)
(151)
2,231
1,006
–
(259)
2,978
RSP
1,278
53
(1,165)
(68)
98
13
(63)
(24)
24
BIP
1,733
662
(457)
(95)
1,843
720
(561)
(101)
1,901
BIP
649
308
(199)
(34)
724
319
(176)
(29)
838
Weighted
average
exercise
price
(g)
11.50
14.28
10.73
12.34
13.28
12.08
12.04
10.77
13.00
13.43
12.11
12.04
11.92
Total
8,958
3,099
(4,493)
(488)
7,076
2,980
(747)
(806)
8,503
Total
5,555
1,918
(2,958)
(404)
4,111
1,807
(296)
(424)
5,198
The weighted average share price at the date of exercise of share options and conditional shares during 2008 was 632p (2007: 621p)
for Reed Elsevier PLC ordinary shares and u12.22 (2007: u13.76) for Reed Elsevier NV ordinary shares.
103
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
7 Share based remuneration continued
Range of exercise prices for outstanding share options
Reed Elsevier PLC ordinary shares (pence)
351-400
401-450
451-500
501-550
551-600
601-650
651-700
Total
Reed Elsevier NV ordinary shares (euro)
9.01-10.00
10.01-11.00
11.01-12.00
12.01-13.00
13.01-14.00
14.01-15.00
15.01-16.00
Total
2008
2007
Number
of shares
under
option
’000
Weighted
average
remaining
period until
expiry
(years)
Number
of shares
under
option
’000
Weighted
average
remaining
period until
expiry
(years)
252
1,927
9,111
9,834
3,856
7,452
2,696
35,128
1,617
5,771
6,866
3,362
3,777
4,382
202
25,977
1.2
1.5
4.6
6.1
3.4
8.5
2.2
5.3
4.3
4.8
6.2
8.7
3.0
4.9
2.4
5.4
668
2,652
12,356
12,716
4,331
4,280
3,046
40,049
1,954
6,791
8,912
402
4,269
5,041
486
27,855
1.6
2.4
4.8
7.1
4.3
8.8
3.2
4.8
5.1
5.8
7.2
5.3
4.6
6.5
2.3
6.0
Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares but may also be met
from shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT) (see note 31). Conditional shares will be met
from shares held by the EBT.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
8 Net finance costs
2008
Interest on short term bank loans, overdrafts and commercial paper
Interest on other loans
Interest on obligations under finance leases
Total borrowing costs
Acquisition related finance costs
Fair value losses on designated fair value hedge relationships
Losses on derivatives not designated as hedges
Fair value losses on interest rate derivatives formerly designated as cash flow hedges transferred from equity
Finance costs
Interest on bank deposits
Gains on loans and derivatives not designated as hedges
Finance income
Net finance costs
33
(192)
(225)
£m
(62)
(137)
–
(199)
(18) –
–
(8)
–
31
2 9
2007
£m
(45)
(130)
(1)
(176)
(2)
(2)
(2)
(182)
34
43
(139)
Finance costs include £6m (2007: £1m) transferred from the hedge reserve. A net loss of £60m (2007: loss of £11m) on interest rate
derivatives designated as cash flow hedges was recognised directly in equity in the hedge reserve.
Acquisition related finance costs comprise underwriting and arrangement fees relating to the ChoicePoint acquisition incurred
prior to completion.
9 Disposals and other non operating items
Revaluation of held for trading investments
(Loss)/gain on disposal and write down of businesses and other assets
Net (loss)/gain on disposals and other non operating items
2008
(92)
£m
(6)
(86)
2007
£m
(2)
65
63
The loss on disposal and write down of businesses and other assets in 2008 comprises gains on disposals of businesses and
investments of £15m less costs of the RBI divestment process terminated in December 2008 of £31m and a £70m write down
in the carrying value of the investment in Education Media and Publishing Group that arose on the sale of the Harcourt US K-12
Schools business in 2007. Net proceeds received in respect of disposals of businesses and other assets were £8m (2007: £82m).
10 Taxation
Current tax
United Kingdom
The Netherlands
Rest of world
Total current tax charge/(credit)
Deferred tax
Origination and reversal of temporary differences
Total taxation charge/(credit) on profit from continuing operations
2008
£m
40
49
36
125
30
155
2007
£m
59
40
(111)
(12)
(70)
(82)
The current tax credit in 2007 includes credits of £223m in respect of previously unrecognised deferred tax assets and capital losses
that were realised as a result of the disposal of discontinued operations.
105
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
10 Taxation continued
A reconciliation of the notional tax charge based on average applicable rates of tax (weighted in proportion to accounting profits)
to the actual total tax expense is set out below.
Profit before tax from continuing operations
Tax at average applicable rates
Tax on share of results of joint ventures
Deferred tax on unrealised exchange differences on long term inter affiliate lending
Offset of tax reliefs against capital gains and tax base differences on disposals
Non deductible amounts and other items
Tax expense/(credit)
Tax expense/(credit) as a percentage of profit before tax
The following tax has been recognised directly in equity during the year.
Tax on actuarial movements on defined benefit pension schemes
Tax on fair value movements on cash flow hedges
Deferred tax (charge)/credits on share based remuneration
Net tax credit/(charge) recognised directly in equity
2008
155
25%
2008
156
£m
617
127
(5)
–
–
33 –
£m
116
59
(19)
2007
£m
812
195
(5)
(21)
(251)
(82)
(10%)
2007
£m
(65)
(2)
17
(50)
During 2008, a tax charge of £5m was transferred to net profit from the hedge reserve (2007: £9m).
11 Adjusted figures
Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation
of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, disposals and
other non operating items, related tax effects and movements in deferred taxation assets and liabilities that are not expected
to crystallise in the near term. Adjusted operating profit is also grossed up to exclude the equity share of taxes in joint ventures.
Exceptional restructuring costs relate to the major restructuring programme announced in February 2008 and in RBI (not included
in the February 2008 announcement as the business was to be divested). Acquisition related costs relate to acquisition integration
and fees incurred in connection with acquisition financing.
Adjusted operating cash flow is measured after net capital expenditure and dividends from joint ventures but before payments
in relation to exceptional restructuring and acquisition related costs. Adjusted figures are derived as follows:
Continuing operations
Operating profit – continuing operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Adjusted operating profit from continuing operations
Profit before tax – continuing operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
Adjusted profit before tax from continuing operations
2008
1,379
1,205
£m
901
290
152 –
27
9 8
617
290
152 –
45
9 8
92
2007
£m
888
221
20
1,137
812
221
20
(63)
998
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
11 Adjusted figures continued
Continuing operations
Profit attributable to parent companies’ shareholders
Net profit from discontinued operations
Profit attributable to parent companies’ shareholders – continuing operations
Adjustments (post tax):
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax not expected to crystallise in the near term:
Unrealised exchange differences on long term inter affiliate lending
Acquired intangible assets
Other
Adjusted profit attributable to parent companies’ shareholders from continuing operations
Cash generated from operations
Dividends received from joint ventures
Purchases of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Expenditure on internally developed intangible assets
Payments in relation to exceptional restructuring costs
Payments in relation to acquisition related costs
Adjusted operating cash flow from continuing operations
Total operations
Operating profit – continuing operations
Operating profit – discontinued operations
Operating profit – total operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Adjusted operating profit from total operations
Profit before tax – continuing operations
Profit before tax – discontinued operations
Profit before tax – total operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
Adjusted profit before tax from total operations
Profit attributable to parent companies’ shareholders – total operations
Adjustments (post tax):
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax not expected to crystallise in the near term:
Unrealised exchange differences on long term inter affiliate lending
Acquired intangible assets
Other
Adjusted profit attributable to parent companies’ shareholders from total operations
2008
1,407
2008
901
–
901
1,379
617
–
617
1,205
£m
476
(18)
458
327
111 –
31
61
–
(69)
–
919
1,452
23
(57)
5 4
(115)
72 –
27
£m
290
152 –
27
9 8
290
152 –
45
9 8
92
476
327
111 –
31
43
–
(69)
–
919
2007
£m
1,200
(309)
891
247
13
(290)
(21)
(60)
(15)
765
1,218
12
(65)
(80)
19
1,108
2007
£m
888
112
1,000
230
20
1,258
812
112
924
230
20
(63)
1,119
1,200
259
13
(521)
(21)
(63)
(15)
852
107
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
12 Cash flow statement
Reconciliation of operating profit before joint ventures to cash
generated from operations – continuing operations
Operating profit before joint ventures
Amortisation of acquired intangible assets and goodwill impairment
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Share based remuneration
Total non cash items
Decrease/(increase) in inventories and pre-publication costs
Increase in receivables
Increase/(decrease) in payables
Decrease/(increase) in working capital
Cash generated from operations
Cash flow on acquisitions – continuing operations
Purchase of businesses
Payment of ChoicePoint change of control and other non operating payables assumed
Investments in joint ventures
Deferred payments relating to prior year acquisitions
Total
Note
13
2008
£m
883
287
88
79
46
500
4
(106)
171
69
1,452
2008
£m
(2,112)
(19) –
–
(30)
(2,161)
2007
£m
872
219
72
76
38
405
(11)
(35)
(13)
(59)
1,218
2007
£m
(293)
(24)
(10)
(327)
Reconciliation of net borrowings
At start of year
(Decrease)/increase in cash and cash equivalents
Net movement in short term bank loans, overdrafts and
commercial paper
Issuance of other loans
Repayment of other loans
Repayment of finance leases
Redemption of debt related derivative financial instrument
Change in net borrowings resulting from cash flows
Borrowings in acquired businesses
Inception of finance leases
Fair value adjustments to borrowings and related derivatives
Exchange translation differences
At end of year
Cash & cash
equivalents
£m
Borrowings
£m
Related
derivative
financial
instruments
£m
2,467
(3,129)
170
2008
£m
(492)
2007
£m
(2,314)
(2,174)
–
–
–
–
–
(2,174)
–
–
–
82
375
–
–
(2,174)
1,917
407
(2,373)
411
56
–
(1,499)
(219)
(1)
92
(1,386)
(6,142)
–
–
–
–
(62)
(62)
–
–
(90)
23
41
407
(2,373)
411
56
(62) –
(3,735)
(219) –
(1)
2
(1,281)
(5,726)
(111)
(276)
311
12
1,853
(11)
(2)
(18)
(492)
Net borrowings comprise cash and cash equivalents, loan capital, finance leases, promissory notes, bank and other loans,
and those derivative financial instruments that are used to hedge the fair value of fixed rate borrowings.
Cash and cash equivalents includes £55m (2007: nil) held in trust to satisfy liabilities in respect of change of control obligations
related to the acquisition of ChoicePoint.
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108
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
13 Acquisitions
On 19 September 2008 Reed Elsevier acquired the entire share capital of ChoicePoint, Inc. for a total consideration of £1,931m,
after taking account of net cash acquired of £46m. A number of other acquisitions, none of which were individually significant,
were made for a total consideration of £200m, after taking account of net cash acquired of £5m. The net assets of the businesses
acquired are incorporated at their fair value to the combined businesses. Provisional fair values of the consideration given and the
assets and liabilities acquired are summarised below.
ChoicePoint
Other
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Current liabilities
Borrowings
Current tax
Deferred tax
Net assets acquired
Consideration (after taking account of
£51m net cash acquired)
Less: consideration deferred to future years
Net cash flow
Notes
(i)
(ii)
Book value
on acquisition
£m
Fair
Book value
value on acquisition
£m
£m
–
15
46
117
(221)
(219)
19
6
(237)
1,162
1,471
46
117
(221)
(219)
19
(444)
1,931
–
–
2
11
(16)
–
3
–
–
(iii)
Total
Fair
value
£m
117
108
2
11
(16)
–
3
(25)
200
2,112
fair value
2008
£m
1,279
1,579
48 –
128 7
(237)
(219) –
22 –
(469)
2,131
2,131
(19)
Total
fair value
2007
£m
101
262
(14)
(37)
319
319
(26)
293
(i)
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits
which do not qualify for recognition as intangible assets, including the ability of a business to generate higher returns than
individual assets, skilled workforces, acquisition synergies that are specific to Reed Elsevier, and high barriers to market entry.
In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation
does not qualify for tax deductions.
(ii) The provisional fair value of intangible assets acquired with ChoicePoint have been established with advice from independent
qualified valuers.
(iii) Consideration for ChoicePoint comprises £1,955m to acquire the entire share capital and £22m of professional fees and other
costs relating to the acquisition.
The fair values of the assets and liabilities acquired are provisional pending the completion of the valuation exercises. Final fair
values will be incorporated in the 2009 combined financial statements.
The businesses acquired in 2008 contributed £180m to revenue, £41m to adjusted operating profit, increased adjusted profit
attributable by £21m, decreased profit attributable by £10m and contributed £42m to net cash inflow from operating activities for
the part year under Reed Elsevier ownership and before taking account of acquisition financing costs. Had the businesses been
acquired at the beginning of the year, on a proforma basis the Reed Elsevier revenues, adjusted operating profit, adjusted profit
attributable and profit attributable for the year would have been £5,718m, £1,462m, £974m and £477m respectively before taking
account of acquisition financing costs.
109
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
14 Equity dividends
On 18 January 2008, Reed Elsevier PLC and Reed Elsevier NV paid special distributions of 82.0p and u1.767 per ordinary share
respectively, from the net proceeds of the disposal of Harcourt Education. The aggregate distribution of £2,013m (including £27m
paid to the employee benefit trust) was recognised when paid.
The special distributions were accompanied by consolidations of the ordinary share capitals of Reed Elsevier PLC and Reed
Elsevier NV on the basis of 58 new ordinary shares for every 67 existing ordinary shares, reflecting the ratio of the aggregate
special distribution to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect
equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at 12 December 2007, the date of the announcement of the
special distribution.
Ordinary dividends declared in the year
Reed Elsevier PLC
Reed Elsevier NV
Total
2008
£m
204
214
418
2007
£m
206
210
416
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2007 final dividend of 13.6p and a 2008 interim
dividend of 5.3p giving a total of 18.9p (2007: 16.3p) for Reed Elsevier PLC; and a 2007 final dividend of u0.311 and a 2008 interim
dividend of u0.114 giving a total of u0.425 (2007: u0.418) for Reed Elsevier NV.
The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2007: 13.6p). The directors of Reed Elsevier NV have
proposed a final dividend of u0.290 (2007: u0.311). The total cost of funding the proposed final dividends is expected to be £322m,
for which no liability has been recognised at the balance sheet date.
Ordinary dividends paid and proposed relating to the financial year
Reed Elsevier PLC
Reed Elsevier NV
Total
2008
£m
220
217
437
2007
£m
204
205
409
Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at
the gross level inclusive of the UK tax credit of 10% received by certain Reed Elsevier PLC shareholders. The cost of funding the
Reed Elsevier PLC dividends is therefore similar to that of Reed Elsevier NV.
15 Goodwill
At start of year
Acquisitions
Disposals
Impairment
Reclassified as held for sale
Exchange translation differences
At end of year
2008
4,901
£m
2,462
1,279
(4)
(9) –
–
1,173
2007
£m
2,802
101
(323)
(117)
(1)
2,462
The carrying amount of goodwill is after cumulative amortisation of £1,715m (2007: £1,313m) which was charged prior to the
adoption of IFRS.
Impairment charges principally relate to the Spanish residential property shows business within Reed Exhibitions Continental
Europe which has seen a significant contraction of revenues since acquisition.
Impairment review
Impairment testing of goodwill and indefinite lived intangible assets is performed at least annually based on cash generating units
(CGUs). A CGU is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash
inflows from other groups of assets. CGUs which are not individually significant have been aggregated for presentation purposes.
Typically, when an acquisition is made the acquired business is fully integrated into the relevant business unit and CGU, and the
goodwill arising is allocated to the CGUs, or groups of CGUs, that are expected to benefit from the synergies of the acquisition.
LexisNexis Risk has been separated out from LexisNexis US as a separate CGU in 2008 following the acquisition of ChoicePoint
and its integration into the existing Risk business, with comparative information restated.
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110
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
15 Goodwill continued
The carrying value of goodwill recorded in the major groups of cash generating units is set out below.
Goodwill
Elsevier
LexisNexis US Legal
LexisNexis Risk
LexisNexis International
LexisNexis
Reed Exhibitions Continental Europe
Reed Exhibitions other
Reed Exhibitions
Reed Business Information US
Reed Business Information UK
Reed Business Information NL
Reed Business Information International
Reed Business Information
Total
2008
£m
1,074
1,104
1,846
137
3,087
336
71
407
162
71
33
67
333
4,901
2007
£m
767
787
271
118
1,176
264
38
302
113
41
23
40
217
2,462
The carrying value of each CGU is compared with its estimated value in use, which is determined to be its recoverable amount.
Value in use is calculated based on estimated future cash flows, discounted to their present value. Estimated future cash flows
are determined by reference to latest budgets and forecasts for the next five years approved by management, after which a
long-term perpetuity growth rate is applied. The estimates of future cash flows are consistent with past experience adjusted
for management’s estimates of future performance. The key assumptions used in the value in use calculations are discount rates
and perpetuity growth rates. The discount rates used are based on the Reed Elsevier weighted average cost of capital, adjusted to
reflect a risk premium specific to each CGU. The Reed Elsevier weighted average cost of capital reflects an assumed equity return,
based on the risk free rate for government bonds adjusted for an equity risk premium, and the Reed Elsevier post tax cost of debt.
The pre-tax discount rates applied are 9.5% for Elsevier, 10.0-10.5% for LexisNexis, 10.5-11.0% for Reed Exhibitions and 10.5-11.0%
for Reed Business Information. Cash flows subsequent to the forecast period of five years are assumed to grow at a nominal
perpetuity growth rate. The rates assumed are based on the long-term historic growth rates of the territories where the CGUs
operate and the growth prospects for the sectors in which the CGUs operate. A nominal perpetuity growth rate of 3% is used for
all CGUs.
The value in use calculations and impairment reviews are sensitive to changes in key assumptions, particularly relating to discount
rates and cash flow growth. A sensitivity analysis has been performed based on changes in key assumptions considered to be
possible by management: an increase in discount rate of 0.5%; a decrease in the compound annual growth rate (CAGR) for adjusted
operating cash flow in the five year forecast period of between 2.0% and 5.0%, depending on the CGU; and a decrease in perpetuity
growth rates of 0.5%. The sensitivity analysis shows that no impairments would result under each of the sensitivity scenarios other
than in the case of a 5.0% decline in adjusted operating cash flow CAGR over the five year forecast period which, if applied across
all CGUs, would result in an impairment of £24m, or £35m if perpetuity growth rates were coincidentally reduced by 0.5%.
111
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
16 Intangible assets
Cost
At 1 January 2007
Acquisitions
Additions
Disposals
Reclassified as held for sale
Exchange translation differences
At 1 January 2008
Acquisitions
Additions
Disposals
Exchange translation differences
At 31 December 2008
Amortisation
At 1 January 2007
Charge for the year
Disposals
Reclassified as held for sale
Exchange translation differences
At 1 January 2008
Charge for the year
Disposals
Exchange translation differences
At 31 December 2008
Net book amount
At 31 December 2007
At 31 December 2008
Market
and
customer
related
£m
Content,
software
and other
£m
Total
acquired
intangible
assets
£m
Internally
developed
intangible
assets
£m
1,355
63
–
(544)
(29)
(27)
818
1,349
–
–
652
2,819
276
52
(166)
(2)
(8)
152
84
–
74
310
2,871
199
–
(118)
(116)
33
2,869
230
–
(15)
851
3,935
1,720
176
(111)
(77)
13
1,721
194
(15)
515
2,415
4,226
262
–
(662)
(145)
6
3,687
1,579
–
(15)
1,503
6,754
1,996
228
(277)
(79)
5
1,873
278
(15)
589
2,725
666
2,509
1,148
1,520
1,814
4,029
633
–
80
(60)
(32)
16
637
–
115
(19)
207
940
339
73
(52)
(9)
11
362
88
(8)
123
565
275
375
Total
£m
4,859
262
80
(722)
(177)
22
4,324
1,579
115
(34)
1,710
7,694
2,335
301
(329)
(88)
16
2,235
366
(23)
712
3,290
2,089
4,404
Intangible assets acquired as part of business combinations comprise: market related assets (eg trade marks, imprints, brands);
customer related assets (eg subscription bases, customer lists, customer relationships); and content, software and other
intangible assets (eg editorial content, software and product delivery systems, other publishing rights, exhibition rights and
supply contracts). Included in content, software and other acquired intangible assets are assets with a net book value of
£902m (2007: £817m) that arose on acquisitions completed prior to the adoption of IFRS that have not been allocated to specific
categories of intangible assets. Internally developed intangible assets typically comprise software and systems development
where an identifiable asset is created that is probable to generate future economic benefits.
Included in market and customer related intangible assets are £397m (2007: £288m) of brands and imprints relating to Elsevier
determined to have indefinite lives based on an assessment of their historical longevity and stable market positions. Indefinite lived
intangibles are tested for impairment at least annually using the same value in use assumptions as set out in note 15.
The amortisation charge includes nil (2007: £10m) in respect of discontinued operations.
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112
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
17 Investments
Investments in joint ventures
Available for sale investments
Venture capital investments held for trading
Total
2008
£m
145
24
25
194
2007
£m
116
90
21
227
The reduction in value of available for sale investments principally relates to the write down of the investment in Education Media
and Publishing Group described in note 9.
An analysis of changes in the carrying value of investments in joint ventures is set out below.
At start of year
Share of results of joint ventures
Dividends received from joint ventures
Additions
Exchange translation differences
At end of year
2008
145
£m
116
18
(23)
4
30 8
The principal joint ventures at 31 December 2008 are exhibition joint ventures within Reed Exhibitions and Giuffrè (an Italian
legal publisher in which Reed Elsevier has a 40% shareholding).
Summarised aggregate information in respect of joint ventures and Reed Elsevier’s share is set out below.
Revenue
Net profit for the year
Total assets
Total liabilities
Net assets
Goodwill
Total
Total joint ventures
Reed Elsevier share
2008
£m
209
37
325
(163)
162
2007
£m
214
36
302
(165)
137
2008
£m
104
18
152
(75)
77
68
145
2007
£m
73
16
(12)
31
116
2007
£m
103
16
143
(76)
67
49
116
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
18 Property, plant and equipment
Cost
At start of year
Acquisitions
Capital expenditure
Disposals
Reclassified as held for sale
Exchange translation differences
At end of year
Accumulated depreciation
At start of year
Acquisitions
Disposals
Reclassified as held for sale
Charge for the year
Exchange translation differences
At end of year
Land and
buildings
£m
2008
Fixtures and
equipment
£m
157
30
13
(1)
–
60
259
71
–
(1)
–
10
26
106
510
18
44
(66)
–
138
644
357
–
(56)
–
69
98
468
Net book amount
153
176
Total
£m
667
48
57
(67)
–
198
903
428
–
(57)
–
79
124
574
329
2007
Land and
buildings
£m
Fixtures and
equipment
£m
667
1
70
(183)
(45)
–
510
465
1
(148)
(30)
69
–
357
179
–
6
(26)
(2)
–
157
83
–
(19)
(1)
8
–
71
86
Total
£m
846
1
76
(209)
(47)
–
667
548
1
(167)
(31)
77
–
428
153
239
No depreciation is provided on freehold land of £51m (2007: £37m). The net book amount of property, plant and equipment at
31 December 2008 includes £6m (2007: £17m) in respect of assets held under finance leases relating to fixtures and equipment.
The depreciation charge includes nil (2007: £1m) in respect of discontinued operations.
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114
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
19 Financial instruments
Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments are set out on
pages 26 to 29 of the Operating and Financial Review. The main financial risks faced by Reed Elsevier are liquidity risk, market
risk – comprising interest rate risk and foreign exchange risk – and credit risk. Financial instruments are used to finance the
Reed Elsevier businesses and to hedge interest rate and foreign exchange risks. Reed Elsevier’s businesses do not enter into
speculative derivative transactions. Details of financial instruments subject to liquidity, market and credit risks are described below.
Liquidity risk
Reed Elsevier maintains a range of borrowing facilities and debt programmes to fund its requirements, at short notice and at
competitive rates. The remaining contractual maturities for borrowings and derivative financial instruments are shown in the table
below. The table shows undiscounted principal and interest cash flows and includes contractual gross cash flows to be exchanged
as part of cross currency interest rate swaps and forward foreign exchange contracts where there is a legal right of set-off.
At 31 December 2008
Borrowings
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities
Interest rate derivatives
Cross currency interest
rate swaps
Forward foreign exchange
contracts
Derivative financial assets
Interest rate derivatives
Cross currency interest
rate swaps
Forward foreign exchange
contracts
Total
At 31 December 2007
Borrowings
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities
Interest rate derivatives
Cross currency interest
rate swaps
Forward foreign exchange
contracts
Derivative financial assets
Interest rate derivatives
Cross currency interest
rate swaps
Forward foreign exchange
contracts
Total
Contractual cash flow
Carrying
amount
£m
Within
1 year
£m
1-2
years
£m
2-3
years
£m
(2,265)
(3,877)
(124)
(536)
(123)
(1,740)
(504)
(1,516)
(89)
–
(27)
(13)
(37)
(8)
(20)
(13)
(169)
(909)
(358)
(177)
1
51
1
15
–
13
–
15
3-4
years
£m
(447)
(225)
(7)
(14)
(45)
–
15
4-5
years
£m
More than
5 years
£m
Total
£m
(177)
(1)
(1,967)
(5)
(3,342)
(4,023)
(3)
–
(94)
(199)
(204)
(451)
–
–
–
–
211
237
(1,489)
1
506
24
(6,324)
837
(756)
307
(1,946)
157
(2,058)
42
(681)
–
(169)
–
(1,939)
1,343
(7,549)
Contractual cash flow
Carrying
amount
£m
(1,993)
(1,136)
(9)
–
Within
1 year
£m
(486)
(770)
(5)
(241)
1-2
years
£m
(95)
(14)
(5)
(6)
2-3
years
£m
(95)
(232)
(2)
(7)
(13)
(654)
(265)
(118)
16
155
4
395
39
(2,941)
680
(1,077)
7
5
276
(97)
5
5
3-4
years
£m
(368)
(7)
–
(7)
–
3
5
4-5
years
£m
More than
5 years
£m
Total
£m
(327)
(169)
(1,602)
(3)
(2,973)
(1,195)
–
(8)
–
2
5
(6)
(18)
(158)
(427)
–
4
166
(1,037)
25
581
120
(324)
–
(374)
–
(497)
–
(1,599)
1,076
(3,968)
In January 2009, fixed rate term debt of $1,500m (£1,037m) and floating rate term debt of u50m (£49m) due in more than five years
from 31 December 2008 were issued and used to repay floating rate borrowings maturing in one to two years.
115
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
19 Financial instruments continued
The carrying amount of derivative financial liabilities comprises £240m (2007: £18m) in relation to cash flow hedges and £18m
(2007: £4m) held for trading. The carrying amount of derivative financial assets comprises £41m (2007: £170m) in relation to fair value
hedges, £8m (2007: £28m) in relation to cash flow hedges and £27m (2007: £12m) held for trading. Derivative financial assets and
liabilities held for trading comprise interest rate derivatives and forward foreign exchange contracts that were not designated
as hedging instruments.
At 31 December 2008, Reed Elsevier had access to £2,074m (2007: £1,502m) of committed bank facilities that expire in one to
two years (2007: two to three years), of which £26m (2007: £42m) was drawn. These facilities principally provide back up for
short term borrowings. In February 2009, these facilities were reduced to £1,728m and, at the same time, new £1,382m committed
bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.
At 31 December 2008, Reed Elsevier had fully drawn down a £2,908m (2007: nil) committed loan facility established to finance
the acquisition of ChoicePoint, Inc.
After taking account of the maturity of committed bank facilities that back short term borrowings at 31 December 2008, and
after utilising available cash resources, no borrowings mature in the next twelve months (2007: nil), 31% of borrowings mature
in the second year (2007: nil), 33% of borrowings mature in the third year (2007: 27%), 12% in the fourth and fifth years (2007: 29%),
16% in the sixth to tenth years (2007: 31%), and 8% beyond the tenth year (2007: 13%). Allowing for the £1,086m of term debt issued
in January 2009 and the $2,000m (£1,382m) forward start facility, no borrowings mature in the next two years, 21% of borrowings
mature in the third year, 36% in the fourth and fifth years, 23% in the sixth to tenth years, and 20% beyond the tenth year.
Market risk
Reed Elsevier’s primary market risks are to interest rate fluctuations and exchange rate movements. Derivatives are used
to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist.
Derivatives used by Reed Elsevier for hedging a particular risk are not specialised and are generally available from numerous
sources. The impact of market risks on net post employment benefit obligations and taxation is excluded from the following
market risk sensitivity analysis.
Interest rate risk
Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses
to changes in interest rates.
At 31 December 2008, 56% of net borrowings are either fixed rate or have been fixed through the use of interest rate swaps,
forward rate agreements and options. A 100 basis point reduction in interest rates would result in an estimated decrease
in net finance costs of £25m (2007: £7m), based on the composition of financial instruments including cash, cash equivalents,
bank loans and commercial paper borrowings at 31 December 2008. A 100 basis point rise in interest rates would result in
an estimated increase in net finance costs of £25m (2007: £7m).
After taking additional account of $1.6bn of term debt issued in January 2009, 74% of net borrowings are either fixed rate or have
been fixed through the use of interest rate swaps, forward rate agreements and options, and a 100 basis point reduction in interest
rates would result in an estimated decrease in net finance costs of £15m. A 100 basis point rise in interest rates would result in an
estimated increase in net finance costs of £15m.
The impact on net equity of a theoretical change in interest rates as at 31 December 2008 is restricted to the change in carrying
value of floating rate to fixed rate interest rate derivatives in a designated cash flow hedge relationship and undesignated interest
rate derivatives. A 100 basis point reduction in interest rates would result in an estimated reduction in net equity of £39m (2007:
£10m) and a 100 basis point increase in interest rates would increase net equity by an estimated £38m (2007: £10m). The impact
of a change in interest rates on the carrying value of fixed rate borrowings in a designated fair value hedge relationship would
be offset by the change in carrying value of the related interest rate derivative. Fixed rate borrowings not in a designated hedging
relationship are carried at amortised cost.
Foreign exchange rate risk
Translation exposures arise on the earnings and net assets of business operations in countries with currencies other than sterling,
most particularly in respect of the US businesses. 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 (see note 25).
A theoretical weakening of all currencies by 10% against sterling at 31 December 2008 would decrease the carrying value of net
assets, excluding net borrowings, by £551m (2007: £262m). This would be offset to a large degree by a decrease in net borrowings
of £495m (2007: £123m). A strengthening of all currencies by 10% against sterling at 31 December 2008 would increase the carrying
value of net assets, excluding net borrowings, by £685m (2007: £328m) and increase net borrowings by £605m (2007: £150m).
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
19 Financial instruments continued
A retranslation of the combined businesses’ net profit for the year assuming a 10% weakening of all foreign currencies against
sterling but excluding transactional exposures would reduce net profit by £38m (2007: £106m). A 10% strengthening of all foreign
currencies against sterling on this basis would increase net profit for the year by £46m (2007: £130m).
Credit risk
Reed Elsevier seeks to limit interest rate and foreign exchange risks described above by the use of financial instruments
and as a result has a credit risk from the potential non performance by the counterparties to these financial instruments, which
are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount
being hedged. Reed Elsevier also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents.
Credit risks are controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and
investment banks with strong long term credit ratings, and the amounts outstanding with each of them.
Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not
allow significant treasury exposures with counterparties which are rated lower than A by Standard and Poor’s, Moody’s or Fitch.
Reed Elsevier also has credit risk with respect to trade receivables due from its customers that include national and state
governments, academic institutions and large and small enterprises including law firms, book stores and wholesalers.
The concentration of credit risk from trade receivables is limited due to the large and broad customer base. Trade receivable
exposures are managed locally in the business units where they arise. Where appropriate, business units seek to minimise this
exposure by taking payment in advance and through management of credit terms. Allowance is made for bad and doubtful debts
based on management’s assessment of the risk taking into account the ageing profile, experience and circumstance. The maximum
exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments,
recorded in the balance sheet.
Included within trade receivables are the following amounts which are past due but for which no allowance has been made.
Past due up to one month £284m (2007: £234m); past due two to three months £123m (2007: £78m); past due four to six months
£35m (2007: £26m); and past due greater than six months £11m (2007: £21m). Examples of trade receivables which are past due
but for which no allowance has been made include those receivables where there is no concern over the credit worthiness of
the customer and where the history of dealings with the customer indicate the amount will be settled.
Hedge accounting
The hedging relationships that are designated under IAS39 – Financial Instruments are described below:
Fair value hedges
Reed Elsevier has entered into interest rate swaps and cross currency interest rate swaps to hedge the exposure to changes in the
fair value of fixed rate borrowings due to interest rate and foreign currency movements which could affect the income statement.
Interest rate derivatives (including cross currency interest rate swaps) with a principal amount of £300m were in place at
31 December 2008 swapping fixed rate term debt issues denominated in Swiss francs (CHF) to floating rate USD debt for the
whole of their term (2007: £820m) swapping fixed rate term debt issues denominated in US dollars (USD), euros and Swiss francs
to floating rate USD debt for the whole or part of their term).
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
19 Financial instruments continued
The gains and losses on the borrowings and related derivatives designated as fair value hedges, which are included in the income
statement, for the two years ended 31 December 2008 were as follows:
Gains/(losses) on borrowings
and related derivatives
USD debt
Related interest rate swaps
Euro debt
Related Euro to USD cross
currency interest rate swaps
CHF debt
Related CHF to USD cross
currency interest rate swaps
Total USD, Euro and CHF debt
Total related interest
rate derivatives
Net gain
1 January
2007
£m
Fair value
movement
gain/(loss)
£m
1
(1)
–
(116)
117
1
(56)
57
1
(171)
173
2
(16)
16
–
(35)
34
(1)
49
(50)
(1)
(2)
–
(2)
Exchange
gain/(loss)
£m
–
–
–
2
(2)
–
1
(1)
–
3
(3)
–
1 January
2008
£m
Fair value
movement
gain/(loss) De-designated
£m
£m
Exchange 31 December
2008
gain/(loss)
£m
£m
(15)
15
–
(149)
149
–
(6)
6
–
(170)
170
–
(46)
46
–
161
(161)
–
(25)
25
–
90
(90)
–
62
(62)
–
–
–
–
–
–
–
62
(62)
–
(1)
1
–
(12)
12
–
(10)
10
–
(23)
23
–
–
–
–
–
–
–
(41)
41
–
(41)
41
–
All fair value hedges were highly effective throughout the two years ended 31 December 2008. A fair value loss of nil (2007: £2m)
has been included within finance costs.
Gross borrowings as at 31 December 2008 included £78m (2007: nil) in relation to fair value adjustments to borrowings previously
designated in a fair value hedge relationship which were de-designated during the year. The related derivatives were closed out
on de-designation with a cash inflow of £62m (£80m translated at 31 December 2008 exchange rates). During 2008, £2m (2007: nil)
of these fair value adjustments were amortised as a reduction to finance costs.
Cash flow hedges
Reed Elsevier enters into two types of cash flow hedge:
(1) Interest rate derivatives which fix the interest expense on a portion of forecast floating rate denominated debt (including
commercial paper, short term bank loans and floating rate term debt).
(2) Foreign exchange derivatives which fix the exchange rate on a portion of future foreign currency subscription revenues
forecast by the Elsevier science and medical businesses for up to 50 months.
Movements in the hedge reserve (pre-tax) in 2008 and 2007, including gains and losses on cash flow hedging instruments,
were as follows:
Hedge reserve at 1 January 2007: (losses)/gains deferred
(Losses)/gains arising in 2007
Amounts recognised in income statement
Exchange translation differences
Hedge reserve at 1 January 2008: (losses)/gains deferred
Losses arising in 2008
Amounts recognised in income statement
Exchange translation differences
Hedge reserve at 31 December 2008: losses deferred
Transition
loss
£m
Interest rate
hedges
£m
Foreign
exchange
hedges
£m
Total hedge
reserve
pre-tax
£m
(2)
–
2
–
–
–
–
–
–
4
(11)
(1)
–
(8)
(60)
6
(18)
(80)
50
14
(30)
2
36
(183)
(25)
(4)
(176)
52
3
(29)
2
28
(243)
(19)
(22)
(256)
All cash flow hedges were highly effective throughout the two years ended 31 December 2008.
A tax credit of £61m (2007: £8m charge) in respect of the above gains and losses at 31 December 2008 was also deferred in the
hedge reserve.
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118
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
19 Financial instruments continued
Of the amounts recognised in the income statement in the year, gains of £25m (2007: £30m) were recognised in revenue, and losses
of £6m (2007: £1m) were recognised in finance costs. A tax charge of £5m (2007: £9m) was recognised in relation to these items.
The transition loss relates to interest rate derivatives which were not designated as hedging instruments on adoption of IAS39 –
Financial Instruments.
The deferred losses on cash flow hedges at 31 December 2008 are currently expected to be recognised in the income statement in
future years as follows:
2009
2010
2011
2012
2013
Losses deferred in hedge reserve at end of year
Interest rate
hedges
£m
Foreign
exchange
hedges
£m
(23)
(29)
(16)
(9)
(3)
(80)
(63)
(66)
(38)
(9)
–
(176)
Total
hedge
reserve
pre-tax
£m
(86)
(95)
(54)
(18)
(3)
(256)
The cash flows for these hedges are expected to occur in line with the recognition of the losses in the income statement, other
than in respect of certain forward foreign exchange hedges on subscriptions, where cash flows may be expected to occur in
advance of the subscription year.
20 Deferred tax
Deferred tax assets
Deferred tax liabilities
Total
2008
£m
353
(1,525)
(1,172)
Movements in deferred tax liabilities and assets are summarised as follows:
Deferred tax liabilities
Deferred tax assets
Excess of tax
allowances
over
amortisation
£m
Acquired
intangible
assets
£m
Other
temporary
Pensions differences –
liabilities
£m
assets
£m
Tax losses
carried
forward
£m
Other
temporary
Pensions differences –
assets
liabilities
£m
£m
Deferred tax (liability)/asset
at 1 January 2007
(Charge)/credit to profit
(Charge)/credit to equity
Acquisitions
Disposals
Reclassified as held for sale
Exchange translation differences
Deferred tax (liability)/asset
at 1 January 2008
(Charge)/credit to profit
Credit to equity
Acquisitions
Disposals
Exchange translation differences
Deferred tax (liability)/asset
at 31 December 2008
(133)
(29)
–
–
34
1
2
(125)
(37)
–
–
–
(57)
(642)
63
–
(38)
95
24
–
(498)
69
–
(536)
7
(281)
(219)
(1,239)
(6)
–
(44)
–
(1)
–
–
(51)
(6)
13
–
–
–
(44)
(69)
35
(2)
–
–
15
–
(21)
(5)
7
–
–
(4)
(23)
7
(3)
–
1
–
–
–
5
–
–
–
–
1
6
92
(15)
(21)
–
(3)
–
(1)
52
(10)
103
4
–
41
71
19
17
–
(25)
–
2
84
(41)
33
63
–
18
2007
£m
141
(695)
(554)
Total
£m
(680)
70
(50)
(37)
100
40
3
(554)
(30)
156
(469)
7
(282)
190
157
(1,172)
119
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
21 Inventories and pre-publication costs
Raw materials
Pre-publication costs
Finished goods
Total
22 Trade and other receivables
Trade receivables
Allowance for doubtful debts
Prepayments and accrued income
Total
2008
£m
11 9
233
104
348
2008
£m
1,578
(77)
1,501
184
1,685
2007
£m
154
108
271
2007
£m
1,054
(48)
1,006
142
1,148
Trade receivables are predominantly non-interest bearing and their carrying amounts approximate to their fair value.
Trade receivables are stated net of allowances for bad and doubtful debts. The movements in the provision during the year were
as follows:
At start of year
Charge for the year
Trade receivables written off
Acquisitions
Reclassified as held for sale
Exchange translation differences
At end of year
23 Assets and liabilities held for sale
The major classes of assets and liabilities of operations classified as held for sale are as follows:
Goodwill
Intangible assets
Property, plant and equipment
Inventories and pre-publication costs
Trade and other receivables
Total assets held for sale
Trade and other payables
Deferred tax liabilities
Total liabilities associated with assets held for sale
2008
£m
48
29
(20)
4 –
–
16 1
77
2008
£m
24
3
7
–
15
49
2
–
2
2007
£m
50
19
(17)
(5)
48
2007
£m
117
89
16
54
65
341
44
40
84
Assets held for sale as at 31 December 2008 relate to minor businesses within LexisNexis (2007: principally relate to Harcourt
Assessment which was sold in January 2008, see note 2).
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
24 Trade and other payables
Payables and accruals
Deferred income
Total
25 Borrowings
Falling due
within
1 year
£m
2008
Falling due
in more
than 1 year
£m
Financial liabilities measured at amortised cost:
Short term bank loans, overdrafts and commercial paper 446
2
Finance leases
–
–
–
448
Other loans
Other loans in fair value hedging relationships
Other loans previously in fair value hedging relationships
Total
–
1
4,652
341
700
5,694
2008
£m
1,394
1,375
2,769
2007
£m
1,000
966
1,966
Falling due
within
1 year
£m
2007
Falling due
in more
than 1 year
£m
753
5
–
369
–
1,127
–
6
1,378
618
–
2,002
Total
£m
446
3
4,652
341
700
6,142
Total
£m
753
11
1,378
987
–
3,129
The total fair value of financial liabilities measured at amortised cost is £5,201m (2007: £2,206m). The total fair value of other loans
in fair value hedging relationships is £325m (2007: £1,054m). The total fair value of other loans previously in fair value hedging
relationships is £773m (2007: nil).
Analysis by year of repayment
2008
2007
Short term
bank loans,
overdrafts and
commercial
paper
£m
446
–
–
–
–
–
–
446
Other
loans
£m
–
1,706
1,885
578
104
1,420
5,693
5,693
Finance
leases
£m
2
1
–
–
–
–
1
3
Within 1 year
Within 1 to 2 years
Within 2 to 3 years
Within 3 to 4 years
Within 4 to 5 years
After 5 years
Total
Short term
bank loans,
overdrafts and
commercial
paper
£m
Total
£m
448
1,707
1,885
578
104
1,420
5,694
6,142
Other
loans
£m
369
–
220
276
423
1,077
1,996
2,365
Finance
leases
£m
5
3
3
–
–
–
6
11
Total
£m
1,127
3
223
276
423
1,077
2,002
3,129
753
–
–
–
–
–
–
753
In January 2009, fixed rate term debt of $1,500m (£1,037m) and floating rate term debt of u50m (£49m) due in more than five years
from 31 December 2008 were issued and used to repay other loans maturing within one to two years. Short term bank loans,
overdrafts and commercial paper are backed up at 31 December 2008 by $3,000m (£2,074m) of committed bank facilities maturing
in May 2010 of which $38m (£26m) was drawn. In February 2009 these facilities were reduced to $2,500m (£1,728m) and additional
$2,000m (£1,382m) committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.
121
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
25 Borrowings continued
Analysis by currency
2008
2007
Short term
bank loans,
overdrafts and
commercial
paper
£m
10
–
375
61
446
Other
loans
£m
5,128
400
165
–
5,693
Finance
leases
£m
3
–
–
–
3
US Dollars
£ Sterling
Euro
Other currencies
Total
Short term
bank loans,
overdrafts and
commercial
paper
£m
108
7
572
66
753
Total
£m
5,141
400
540
61
6,142
Other
loans
£m
1,841
400
124
–
2,365
Finance
leases
£m
11
–
–
–
11
Total
£m
1,960
407
696
66
3,129
Included in the US dollar amounts for other loans above is £341m (2007: £521m) of debt denominated in euros (nil; 2007: u500m)
and Swiss francs (CHF 500m; 2007: CHF 350m) that was swapped into US dollars on issuance and against which there are related
derivative financial instruments, which, as at 31 December 2008, had a fair value of £41m (2007: £155m).
26 Lease arrangements
Finance leases
At 31 December 2008 future finance lease obligations fall due as follows:
Within one year
In the second to fifth years inclusive
Less future finance charges
Total
Present value of future finance lease obligations payable:
Within one year
In the second to fifth years inclusive
Total
2008
£m
2007
£m
2 5
1 7
3
–
3
2 5
1 6
3
12
(1)
11
11
The fair value of the lease obligations approximates to their carrying amount.
Operating leases
Reed Elsevier leases various properties, principally offices and warehouses, which have varying terms and renewal rights that
are typical to the territory in which they are located.
At 31 December 2008 outstanding commitments under non-cancellable operating leases fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
Total
Of the above outstanding commitments, £805m (2007: £680m) relate to land and buildings.
2008
£m
144
426
293
863
2007
£m
104
319
275
698
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
26 Lease arrangements continued
Reed Elsevier has a number of properties that are sub-leased. The future lease receivables contracted with sub-tenants fall
as follows:
Within one year
In the second to fifth years inclusive
After five years
Total
27 Provisions
At start of year
Charged
Utilised
Exchange translation differences
Total
2008
£m
21
52
14
87
2008
Property Restructuring
£m
£m
21
22
(9)
11
45
–
57
–
12
69
Total
£m
21
79
(9)
23
114
2007
Property Restructuring
£m
£m
28
–
(6)
(1)
21
–
–
–
–
–
Property provisions relate to estimated sub-lease shortfalls and guarantees given in respect of certain property leases
for various periods up to 2021. Restructuring provisions relate to costs incurred in connection with the major restructuring
programme announced in February 2008 and in RBI, principally in respect of severance and outsourcing migration costs.
Provisions have been analysed between current and non-current as set out below:
Current liabilities
Non-current liabilities
Total
28 Contingent liabilities and capital commitments
There are contingent liabilities amounting to £26m (2007: £28m) in respect of property lease guarantees.
29 Combined share capitals
At start of year
Issue of ordinary shares
Exchange translation differences
At end of year
2008
£m
79
35
114
2008
£m
197
1 3
11 3
209
2007
£m
14
42
11
67
Total
£m
28
–
(6)
(1)
21
2007
£m
–
21
21
2007
£m
191
197
Combined share capitals exclude the shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
Disclosures in respect of share capital are given in note 12 to the Reed Elsevier PLC consolidated financial statements and note 13
to the Reed Elsevier NV consolidated financial statements.
123
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
30 Combined share premiums
At start of year
Issue of ordinary shares, net of expenses
Exchange translation differences
At end of year
2008
£m
2,143
53
333
2,529
2007
£m
1,879
174
90
2,143
Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of
Reed Elsevier PLC.
31 Combined shares held in treasury
At 1 January 2007
Purchase of shares
Settlement of share awards
Exchange translation differences
At 1 January 2008
Purchase of shares
Settlement of share awards
Exchange translation differences
At 31 December 2008
Shares
held
by EBT
£m
Shares held
by parent
companies
£m
161
74
(49)
–
186
54
(8)
–
232
216
199
–
18
433
40
–
78
551
Total
£m
377
273
(49)
18
619
94
(8)
78
783
At 31 December 2008, shares held in treasury related to 20,078,899 (2007: 18,723,830) Reed Elsevier PLC ordinary shares and
11,177,422 (2007: 10,100,765) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT);
and 34,196,298 (2007: 35,846,500) Reed Elsevier PLC ordinary shares and 23,952,791 (2007: 25,301,500) Reed Elsevier NV ordinary
shares held by the respective parent companies.
The number of shares held by the EBT and parent companies were reduced by the share consolidations of the parent companies
which accompanied the payment of the special distribution from the net proceeds of the disposal of Harcourt Education. The
ordinary share capitals of the parent companies were consolidated on the basis of 58 new ordinary shares for every 67 existing
ordinary shares, reflecting the ratio of the aggregate special distribution to the combined market capitalisation of Reed Elsevier
PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at
12 December 2007, the date of the announcement of the special distribution.
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 and to meet commitments under conditional share awards.
32 Translation reserve
At start of year
Exchange differences on translation of foreign operations
Cumulative exchange differences on disposal of foreign operations
Exchange translation differences on capital and reserves
At end of year
2008
£m
(145)
340
27
(236)
(14)
2007
£m
(136)
(33)
148
(124)
(145)
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
33 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
Dividends declared
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Cumulative fair value movements on disposals of available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
Increase in share based remuneration reserve
Settlement of share awards
Transfer from hedge reserve to net profit (net of tax)
Exchange translation differences
At end of year
Hedge
reserve
2008
£m
Other
reserves
2008
£m
20
–
–
–
–
–
(243)
59
–
–
(14)
(17)
(195)
1,369
476
(2,404)
(347)
(9)
–
–
97
46
(8)
–
(13)
(793)
Total
2008
£m
1,389
476
(2,404)
(347)
(9) –
–
(243) 3
156
46
(8)
(14)
(30)
(988)
Total
2007
£m
409
1,200
(416)
224
(7)
(50)
46
(49)
(20)
49
1,389
Other reserves principally comprise retained earnings, the share based remuneration reserve and available for sale
investment reserve.
34 Related party transactions
Transactions between the Reed Elsevier combined businesses have been eliminated within the combined financial statements.
Transactions with joint ventures were made on normal market terms of trading and comprise sales of goods and services of
£4m (2007: £6m). As at 31 December 2008, amounts owed by joint ventures were £3m (2007: £7m). Key management personnel
are also related parties and comprise the executive directors of Reed Elsevier PLC and Reed Elsevier NV. Transactions with
key management personnel are set out below.
Salaries and other short term employee benefits
Post employment benefits
Share based remuneration
Total
2008
£m
7 8
1 1
10 9
18
2007
£m
18
Post employment benefits represent the service cost under IAS19 – Employee Benefits in relation to defined benefit schemes,
together with any contributions made to defined contribution schemes. Share based remuneration is the amount charged in
respect of executive directors under IFRS2 – Share Based Payment.
35 Exchange rates
The following exchange rates have been applied in preparing the combined financial statements:
Euro to sterling
US dollars to sterling
Income statement
2007
1.46
2.00
2008
1.26
1.85
Balance sheet
2008
1.03
1.45
2007
1.36
2.00
125
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Notes to the combined financial statements For the year ended 31 December 2008
36 Post balance sheet events
In January 2009, term debt of $1,500m (£1,037m) and u50m (£49m) due in more than five years from 31 December 2008 were issued
and used to repay loans maturing within one to two years.
As at 31 December 2008 short term bank loans, overdrafts and commercial paper were backed up by $3,000m of committed bank
facilities maturing in May 2010, of which $38m (£26m) was drawn. On 17 February 2009 these facilities were reduced to $2,500m
(£1,728m) and new $2,000m (£1,382m) committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put
in place.
37 Approval of financial statements
The combined financial statements were approved and authorised for issue by the boards of directors of Reed Elsevier PLC
and Reed Elsevier NV on 18 February 2009.
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126
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined financial statements
Independent auditors’ report to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV
We also read other information contained in the Reed Elsevier
Annual Reports and Financial Statements 2008, as described
in the contents section, including the summary of the combined
financial statements presented in euros, and consider the
implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the combined
financial statements.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the combined
financial statements. The procedures selected depend on our
judgement, including the assessment of the risks of material
misstatement of the combined financial statements, whether
due to fraud or error. In making those risk assessments, we
consider internal control relevant to the combined businesses’
preparation and fair presentation of the combined financial
statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the combined
businesses’ internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the combined
financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements give a true and
fair view of the financial position of the combined businesses
as at 31 December 2008, and of their profits and cash flows for
the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union.
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 LLP
Chartered Accountants
and Registered Auditors
London
United Kingdom
18 February 2009
Deloitte Accountants B.V.
J P M Hopmans
Amsterdam
The Netherlands
18 February 2009
Report on the combined financial statements
We have audited the combined financial statements 2008 of
Reed Elsevier PLC (registered in England and Wales), Reed
Elsevier NV (registered in Amsterdam), Reed Elsevier Group plc
(registered in England and Wales), Elsevier Reed Finance BV
(registered in Amsterdam) and their respective subsidiaries,
associates and joint ventures (together “the combined
businesses”), for the year ended 31 December 2008
(“the combined financial statements”), which comprise the
combined income statement, the combined cash flow statement,
the combined balance sheet, the combined statement of
recognised income and expense, the combined reconciliation
of shareholders’ equity, the accounting policies and the related
notes 1 to 37.
We have also audited the information in the parts of the
Directors’ Remuneration Report presented in the Reed Elsevier
Annual Reports and Financial Statements (“the Remuneration
Report”) that are described as having been audited. The separate
audit reports on the consolidated financial statements of
Reed Elsevier PLC and Reed Elsevier NV which have been
audited under locally adopted standards appear on pages
157 and 178.
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 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 as a body and the
shareholders of Reed Elsevier NV as a body, for our audit work,
for this report, or for the opinions we have formed.
Directors’ responsibility
The directors are responsible for the preparation and fair
presentation of the combined financial statements in accordance
with International Financial Reporting Standards as adopted by
the European Union and for the preparation of the Remuneration
Report. This responsibility includes: designing, implementing
and maintaining internal control relevant to the preparation and
fair presentation of the combined financial statements that are
free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the given
circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on the combined
financial statements, and the parts of the Remuneration Report
that are described as being audited, based on our audit.
We conducted our audit in accordance with relevant legal
and regulatory requirements, International Standards on
Auditing (UK and Ireland) issued by the United Kingdom Auditing
Practices Board, International Standards on Auditing as applied
in the Netherlands and Dutch Law. This requires that we comply
with our respective professions’ ethical requirements and plan
and perform the audit to obtain reasonable assurance whether
the combined financial statements are free from material
misstatement.
127
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary
combined
financial
information
in euros
128 Combined income statement
129 Combined cash flow statement
130 Combined balance sheet
131 Combined statement of recognised income and expense
131 Combined reconciliation of shareholders’ equity
132 Notes to the summary combined financial information in euros
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Introduction
Summary combined financial information in euros
The Reed Elsevier combined financial statements are presented in pounds sterling. This summary financial information presents
the primary combined financial statements and selected notes in euros using the exchange rates provided in note 35 to the
combined financial statements, except for significant transactions which are translated at the relevant spot rate. The full Reed
Elsevier combined financial statements presented in euros are available on the Reed Elsevier website, www.reedelsevier.com.
Combined income statement
For the year ended 31 December
Revenue – continuing operations
Cost of sales
Gross profit
Selling and distribution costs
Administration and other expenses
Operating profit before joint ventures
Share of results of joint ventures
Operating profit – continuing operations
Finance income
Finance costs
Net finance costs
Disposals and other non operating items
Profit before tax – continuing operations
Taxation
Net profit from continuing operations
Net profit from discontinued operations
Net profit for the year
Attributable to:
Parent companies’ shareholders
Minority interests
Net profit for the year
2008
Note
1
1,135
777
582
2
592
592
Jm
6,721
(2,414)
4,307
(1,327)
(1,868)
1,112
23
42
(284)
(242)
(116)
(195)
10
587
5 4
2007
um
6,693
(2,371)
4,322
(1,370)
(1,679)
1,273
23
1,296
63
(266)
(203)
92
1,185
120
1,305
408
1,713
1,709
1,713
129
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined cash flow statement
For the year ended 31 December
Cash flows from operating activities – continuing operations
Cash generated from operations
Interest paid
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities – continuing operations
Acquisitions
Purchases of property, plant and equipment
Expenditure on internally developed intangible assets
Purchase of investments
Proceeds from disposals of property, plant and equipment
Proceeds from other disposals
Dividends received from joint ventures
Net cash used in investing activities
Cash flows from financing activities – continuing operations
Dividends paid to shareholders of the parent companies
(Decrease)/increase in short term bank loans, overdrafts and commercial paper
Issuance of other loans
Repayment of other loans
Repayment of finance leases
Redemption of debt related derivative financial instrument
Proceeds on issue of ordinary shares
Purchase of treasury shares
Net cash used in financing activities
Net cash (used in)/from discontinued operations
(Decrease)/increase in cash and cash equivalents
Movement in cash and cash equivalents
At start of year
(Decrease)/increase in cash and cash equivalents
Exchange translation differences
At end of year
Summary combined financial information in euros
2008
Note
4
1,333
4
(2,924)
(1,242)
2
4
Jm
1,830
(280)
54
(271)
(2,747)
(72)
(145)
(5)
6 6
10
29
(3,183)
(513)
3,017
(520)
(71)
78 –
68
(118)
2007
um
1,778
(254)
38
(349)
1,213
(478)
(95)
(117)
(6)
120
18
(552)
(607)
163
403
(454)
(18)
258
(399)
(654)
(33)
2,674
(2,866)
2,681
3,355
(2,866)
(103)
774
2,681
(100)
3,355
386
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130
Reed Elsevier
Annual Reports and
Financial Statements
2008
Combined balance sheet
As at 31 December
Non-current assets
Goodwill
Intangible assets
Investments in joint ventures
Other investments
Property, plant and equipment
Net pension assets
Deferred tax assets
Current assets
Inventories and pre-publication costs
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Taxation
Provisions
Non-current liabilities
Borrowings
Deferred tax liabilities
Net pension obligations
Provisions
Liabilities associated with assets held for sale
Total liabilities
Net assets
Capital and reserves
Combined share capitals
Combined share premiums
Combined shares held in treasury
Translation reserve
Other combined reserves
Combined shareholders’ equity
Minority interests
Total equity
Summary combined financial information in euros
2008
Note
10,643
4
2,558
50
13,251
6
4,231
6
8,008
2
12,241
1,010
7
8
9
10
981
1,010
Jm
5,048
4,536
149
51
339
157
363
358
1,736
78
386
2,852
266
461
571
81 –
5,865
1,570
537
36
215
2,605
(806)
174
(1,207)
29
2007
um
3,348
2,841
158
151
325
249
192
7,264
368
1,561
286
3,355
5,570
464
13,298
2,674
30
1,533
1,023
5,260
2,723
945
181
28
3,877
114
9,251
4,047
268
2,914
(842)
(170)
1,862
4,032
15
4,047
131
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Combined statement of recognised income and expense
For the year ended 31 December
Net profit for the year
Exchange differences on translation of foreign operations
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
Net expense recognised directly in equity
Cumulative exchange differences on disposal of foreign operations
Cumulative fair value movements on disposal of available for sale investments
Transfer to net profit from hedge reserve (net of tax)
Total recognised income and expense for the year
Attributable to:
Parent companies’ shareholders
Minority interests
Total recognised income and expense for the year
Combined reconciliation of shareholders’ equity
For the year ended 31 December
Total recognised net income attributable to the parent companies’ shareholders
Dividends declared
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Increase in share based remuneration reserve
Net (decrease)/increase in combined shareholders’ equity
Combined shareholders’ equity at start of year
Combined shareholders’ equity at end of year
2008
592
(499)
129
129
Jm
59
(437)
(11) –
(306) 4
196
54
–
(18)
124
5 4
2008
Note
9
(3,051)
981
Jm
124
(3,183)
68
(118)
58
4,032
2007
um
1,713
(350)
327
(73)
(92)
206
(10)
(29)
1,788
1,784
1,788
2007
um
1,784
(607)
258
(399)
67
1,103
2,929
4,032
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
1 Segment analysis
On 21 February 2008 Reed Elsevier announced a plan to divest RBI which was then classified as a discontinued operation in the
2008 interim results. On 10 December 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged
not possible to structure a transaction on acceptable terms at that time. RBI has therefore now been presented as a continuing
operation. RBI and Reed Exhibitions, previously presented together as the Reed Business segment, are now managed as separate
divisions and are presented as separate business segments. Comparatives have been restated accordingly.
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Corporate costs
Unallocated net pension credit
Total
Geographical origin
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Revenue
Operating profit
Adjusted operating profit
2008
Jm
2,142
2,444
891
1,244
6,721
– –
–
6,721
3,206
1,140
748
1,125
502
6,721
2007
um
2,200
2,328
842
1,323
6,693
–
6,693
3,135
1,308
737
1,034
479
6,693
2008
Jm
2007
um
2008
Jm
558
367
155
69
1,149
(63)
49
1,135
421
231
226
189
68
1,135
598
419
155
133
1,305
(66)
57
1,296
515
263
261
172
85
1,296
716
646
230
159
1,751
(63)
49
1,737
779
301
259
299
99
1,737
2007
um
696
593
203
177
1,669
(66)
57
1,660
737
308
264
254
97
1,660
Revenue is analysed before the u131m (2007: u150m) share of joint ventures’ revenue, of which u29m (2007: u30m) relates
to LexisNexis, principally to Giuffrè, u101m (2007: u120m) relates to Reed Exhibitions, principally to exhibition joint ventures,
and u1m (2007: nil) relates to Reed Business Information.
Share of post-tax results of joint ventures of u23m (2007: u23m) included in operating profit comprises u5m (2007: u4m) relating
to LexisNexis and u18m (2007: u19m) relating to Reed Exhibitions. The unallocated net pension credit of u49m (2007: u57m)
comprises the expected return on pension scheme assets of u276m (2007: u286m) less interest on pension scheme liabilities
of u227m (2007: u229m).
Analysis of revenue by geographical market
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
2008
6,721
Jm
3,306
731
295
1,431
958
2007
um
3,260
880
301
1,310
942
6,693
133
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
1 Segment analysis continued
Expenditure on
acquired goodwill and
intangible assets
Capital
expenditure
additions
Amortisation of
acquired intangible
assets and goodwill
impairment
Depreciation and
other amortisation
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Corporate
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
2008
Jm
39
3,440
73
81
3,633
– –
3,633
3,435
68
5 –
43
82
3,633
2007
um
282
61
89
98
530
530
222
38
238
32
530
2008
Jm
68
93
14
33
208
9 2
217
114
45
33
14
11 9
217
2007
um
73
111
12
30
226
228
126
45
32
16
228
2008
Jm
96
172
58
39
365
– –
365
2007
um
91
153
39
40
323
323
2008
Jm
64
86
8 6
32
190
21 3
211
2007
um
69
105
33
213
216
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. The net book
amount of property, plant and equipment added through acquisitions totalled u60m (2007: nil). Amortisation of acquired intangible
assets includes the share of amortisation in joint ventures of u4m (2007: u3m) in Reed Exhibitions. Other than the depreciation
and amortisation above, non cash items of u58m (2007: u55m) relate to the recognition of share based remuneration and comprise
u9m (2007: u12m) in Elsevier, u10m (2007: u14m) in LexisNexis, u4m (2007: u4m) in Reed Exhibitions, u7m (2007: u12m) in Reed
Business Information and u28m (2007: u13m) in Corporate.
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Taxation
Cash/borrowings
Net pension assets/obligations
Assets and liabilities held for sale
Other assets and liabilities
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Total assets
Total liabilities
Net assets/(liabilities)
2008
Jm
2007
um
2008
Jm
3,362
6,960
888
890
12,100
363
386
157
50
195
13,251
9,396
996
764
1,679
416
13,251
3,420
3,442
895
928
8,685
192
3,355
249
464
353
13,298
6,186
2,882
2,096
1,768
366
13,298
1,277
797
390
431
2,895
2,141
6,326
537
2
340
12,241
6,761
1,337
746
3,121
276
12,241
2007
um
1,001
564
388
436
2,389
1,968
4,256
181
114
343
9,251
4,695
1,583
424
2,300
249
9,251
2008
Jm
2007
um
2,085
6,163
498
459
9,205
(1,778)
(5,940)
(380)
48
(145)
1,010
2,635
(341)
18
(1,442)
140
1,010
2,419
2,878
507
492
6,296
(1,776)
(901)
68
350
10
4,047
1,491
1,299
1,672
(532)
117
4,047
Investments in joint ventures of u149m (2007: u158m) included in segment assets above comprise u43m (2007: u41m) relating to
LexisNexis, unil (2007: u1m) relating to Elsevier, u102m (2007: u113m) relating to Reed Exhibitions and u4m (2007: u3m) relating
to Reed Business Information.
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134
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
2 Discontinued operations
Discontinued operations comprise the results of the Harcourt Education division. The disposal of Harcourt Education
International businesses completed in May and August 2007; the disposal of the Harcourt US K-12 Schools Education business
completed in December 2007; and the disposal of the Harcourt Assessment business completed in January 2008.
Net profit from discontinued operations
Revenue
Operating costs
Operating profit and profit before tax
Taxation
Profit after taxation
Gain on disposals
Tax on disposals
Net profit from discontinued operations
2008
10
Jm
15
(15)
–
–
–
72
(62)
2007
um
1,098
(934)
164
(50)
114
849
(555)
408
The gain on disposals of discontinued operations in 2008 relates to sale of Harcourt Assessment (2007: Harcourt US K-12 Schools
Education business and the Harcourt Education International businesses). Net assets disposed comprise u116m (2007: u445m)
of goodwill, u93m (2007: u537m) of intangible assets, u11m (2007: u55m) of property, plant and equipment, u67m (2007: u527m)
of inventory and u42m (2007: u56m) of other net assets.
Tax on disposals in 2007 is stated before taking account of tax credits of u326m in respect of previously unrecognised deferred
tax assets and capital losses. These were realised as a result of the disposal of discontinued operations but were reported within
continuing operations whence they first arose.
Cash flows from discontinued operations
Net cash flow from operating activities
Net cash flow (used in)/from investing activities
Net cash flow from financing activities
Net movement in cash and cash equivalents
2008
(33)
Jm
3
(36)
– –
2007
um
48
2,626
2,674
Net cash flow from investing activities includes cash proceeds, net of expenses, on the completed disposals of u367m
(2007: u2,674m) and taxes paid on completed disposals of u403m (2007: nil). Cash and cash equivalents disposed of was
nil (2007: u10m).
135
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
3 Adjusted figures
Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation of
acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, disposals and other
non operating items, acquisition related finance costs, related tax effects and movements in deferred taxation assets and liabilities
that are not expected to crystallise in the near term. Adjusted operating profit is also grossed up to exclude the equity share of
taxes in joint ventures. Exceptional restructuring costs relate to the major restructuring programme announced in February 2008
and in RBI (not included in the February 2008 announcement as the business was to be divested). Acquisition related costs
relate to acquisition integration and fees incurred in acquisition financing.
Adjusted operating cash flow is measured after net capital expenditure and dividends from joint ventures but before payments
in relation to exceptional restructuring and acquisition related costs.
Continuing operations
Operating profit – continuing operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Adjusted operating profit from continuing operations
Profit before tax – continuing operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
Adjusted profit before tax from continuing operations
Profit attributable to parent companies’ shareholders
Net profit from discontinued operations
Profit attributable to parent companies’ shareholders – continuing operations
Adjustments (post tax):
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax not expected to crystallise in the near term:
Unrealised exchange differences on long term inter affiliate lending
Acquired intangible assets
Other
Adjusted profit attributable to parent companies’ shareholders from continuing operations
Cash generated from operations
Dividends received from joint ventures
Purchases of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Expenditure on internally developed intangible assets
Payments in relation to exceptional restructuring costs
Payments in relation to acquisition related costs
Adjusted operating cash flow from continuing operations
2008
1,737
1,518
1,773
Jm
1,135
365
192 –
34
11
2007
um
1,296
323
29
12
1,660
777
1,185
365
192 –
57
11
116
587
(10)
577
412
140 –
39
77
–
(86)
–
1,159
1,830
29
(72)
6 6
(145)
91 –
34
323
29
12
(92)
1,457
1,709
(408)
1,301
361
19
(423)
(31)
(88)
(22)
1,117
1,778
18
(95)
(117)
28
1,618
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
3 Adjusted figures continued
Total operations
Operating profit – continuing
Operating profit – discontinued operations
Operating profit – total operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Adjusted operating profit from total operations
Profit before tax – continuing
Profit before tax – discontinued operations
Profit before tax – total operations
Adjustments:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
Adjusted profit before tax from total operations
Profit attributable to parent companies’ shareholders – total operations
Adjustments (post tax):
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax not expected to crystallise in the near term:
Unrealised exchange differences on long term inter affiliate lending
Acquired intangible assets
Other
Adjusted profit attributable to parent companies’ shareholders from total operations
2008
1,737
1,518
Jm
1,135
–
1,135
365
192 –
34
11
777
–
777
365
192 –
57
11
116
2007
um
1,296
164
1,460
336
29
12
1,837
1,185
164
1,349
336
29
12
(92)
1,634
587
1,709
412
140 –
39
67
–
(86)
–
1,159
378
19
(717)
(31)
(92)
(22)
1,244
137
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
4 Cash flow statement
Reconciliation of operating profit before joint ventures to cash generated from operations –
continuing operations
Operating profit before joint ventures
Amortisation of acquired intangible assets and goodwill impairment
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Share based remuneration
Total non cash items
Decrease/(increase) in inventories and pre-publication costs
Increase in receivables
Increase/(decrease) in payables
Decrease/(increase) in working capital
Cash generated from operations
Cash flow on acquisitions – continuing operations
Purchase of businesses
Payment of ChoicePoint change of control and other non operating payables assumed
Investments in joint ventures
Deferred payments relating to prior year acquisitions
Total
2008
Jm
1,112
361
111
100
58
5
(133)
216
Jm
(2,685)
(24) –
–
(38)
2007
um
1,273
320
105
111
55
591
(16)
(51)
(19)
(86)
1,778
2007
um
(428)
(35)
(15)
(478)
2008
Jm
(669)
2007
um
(3,448)
630
88
1,830
2008
(2,747)
Related
derivative
financial
instruments
Jm
Reconciliation of net borrowings
At start of year
(Decrease)/increase in cash and cash equivalents
Net movement in short term bank loans, overdrafts
and commercial paper
Issuance of other loans
Repayment of other loans
Repayment of finance leases
Redemption of debt related derivative financial instrument
Change in net borrowings resulting from cash flows
Borrowings in acquired businesses
Inception of finance leases
Fair value adjustments to borrowings and related derivatives
Exchange translation differences
At end of year
Cash & cash
equivalents
Jm
Borrowings
Jm
3,355
(4,256)
232
(2,866)
–
–
–
–
–
(2,866)
–
–
–
(103)
386
–
–
(2,866)
2,681
513
(3,017)
520
71
–
(1,913)
(279)
(1)
116
7
(6,326)
–
–
–
–
(78)
(78)
–
–
(113)
1
42
513
(3,017)
520
71
(78) –
(4,857)
(279) –
(1)
3
(95)
(5,898)
(163)
(403)
454
18
2,587
(16)
(3)
211
(669)
Net borrowings comprise cash and cash equivalents, loan capital, finance leases, promissory notes, bank and other loans,
and those derivative financial instruments that are used to hedge the fair value of fixed rate borrowings.
Cash and cash equivalents includes u57m (2007: nil) held in trust to satisfy liabilities in respect of change of control obligations
related to the acquisition of ChoicePoint.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
5 Acquisitions
On 19 September 2008 Reed Elsevier acquired the entire share capital of ChoicePoint, Inc. for a total consideration of
u2,457m, after taking account of net cash acquired of u58m. A number of other acquisitions, none of which were individually
significant, were made for a total consideration of u252m, after taking account of net cash acquired of u6m. The net assets of the
businesses acquired are incorporated at their fair value to the combined businesses. Provisional fair values of the consideration
given and the assets and liabilities acquired are summarised below.
ChoicePoint
Other
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Current liabilities
Borrowings
Current tax
Deferred tax
Net assets acquired
Consideration (after taking account of
J64m net cash acquired)
Less: consideration deferred to future years
Net cash flow
Notes
(i)
(ii)
(iii)
Book value
on acquisition
Jm
Fair
Book value
value on acquisition
Jm
Jm
–
19
58
149
(280)
(279)
24
8
(301)
1,479
1,871
58
149
(280)
(279)
24
(565)
2,457
–
–
2
14
(20)
–
4
–
–
Total
Fair
value
Jm
147
136
2
14
(20)
–
4
(31)
252
2,685
fair value
2008
Jm
1,626
2,007
60 –
163
(300)
(279) –
28 –
(596)
2,709
2,709
(24)
Total
fair value
2007
um
147
383
10
(20)
(54)
466
466
(38)
428
(i)
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits
which do not qualify for recognition as intangible assets, including the ability of a business to generate higher returns than
individual assets, skilled workforces, acquisition synergies that are specific to Reed Elsevier, and high barriers to market entry.
In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation
does not qualify for tax deductions.
(ii) The provisional fair value of intangible assets acquired with ChoicePoint have been established with advice from independent
qualified valuers.
(iii) Consideration for ChoicePoint comprises u2,487m to acquire the entire share capital and u28m of professional fees and other
costs relating to the acquisition.
The fair values of the assets and liabilities acquired are provisional pending the completion of the valuation exercise. Final fair
values will be incorporated in the 2009 combined financial statements.
The businesses acquired in 2008 contributed u227m to revenue, u52m to adjusted operating profit, increased adjusted profit
attributable by u26m, decreased profit attributable by u13m and contributed u53m to net cash inflow from operating activities for
the part year under Reed Elsevier ownership and before taking account of acquisition financing costs. Had the businesses been
acquired at the beginning of the year, on a proforma basis the Reed Elsevier revenues, adjusted operating profit, adjusted profit
attributable and profit attributable for the year would have been u7,205m, u1,842m, u1,228m, and u588m respectively before taking
account of acquisition financing costs.
139
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
6 Borrowings
2008
Falling due
within
1 year
Jm
Falling due
in more
than 1 year
Jm
Financial liabilities measured at amortised cost:
Short term bank loans, overdrafts and commercial paper 459
2
Finance leases
–
–
–
461
Other loans
Other loans in fair value hedging relationships
Other loans previously in fair value hedging relationships
Total
–
1
4,792
351
721
5,865
Falling due
within
1 year
um
1,024
7
–
502
–
1,533
Total
Jm
459
3
4,792
351
721
6,326
2007
Falling due
in more
than 1 year
um
–
8
1,875
840
–
2,723
Total
um
1,024
15
1,875
1,342
–
4,256
The total fair value of financial liabilities measured at amortised cost is u5,357m (2007: u3,000m). The total fair value of other loans
in fair value hedging relationships is u335m (2007: u1,433m). The total fair value of other loans previously in fair value hedging
relationships is u796m (2007: nil).
Analysis by year of repayment
2008
2007
Short term
bank loans,
overdrafts and
commercial
paper
Jm
459
–
–
–
–
–
–
459
Other
loans
Jm
–
1,757
1,942
595
107
1,463
5,864
5,864
Finance
leases
Jm
2
1
–
–
–
–
1
3
Within 1 year
Within 1 to 2 years
Within 2 to 3 years
Within 3 to 4 years
Within 4 to 5 years
After 5 years
Total
Short term
bank loans,
overdrafts and
commercial
paper
um
1,024
–
–
–
–
–
–
1,024
Total
Jm
461
1,758
1,942
595
107
1,463
5,865
6,326
Other
loans
um
502
–
299
376
575
1,465
2,715
3,217
Finance
leases
um
7
4
4
–
–
–
8
15
Total
um
1,533
4
303
376
575
1,465
2,723
4,256
In January 2009, fixed rate term debt of $1,500m (u1,068m) and floating rate term debt of u50m due in more than five years from
31 December 2008 were issued and used to repay other loans maturing within one to two years. Short term bank loans, overdrafts
and commercial paper are backed up at 31 December 2008 by $3,000m (u2,136m) of committed bank facilities maturing in
May 2010 of which $38m (u27m) was drawn. In February 2009 these facilities were reduced to $2,500m (u1,780m) and additional
$2,000m (u1,424m) committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.
Analysis by currency
2008
2007
Short term
bank loans,
overdrafts and
commercial
paper
Jm
10
–
386
63
459
Other
loans
Jm
5,282
412
170
–
5,864
Finance
leases
Jm
3
–
–
–
3
US Dollars
£ Sterling
Euro
Other currencies
Total
Short term
bank loans,
overdrafts and
commercial
paper
um
147
10
778
89
1,024
Total
Jm
5,295
412
556
63
6,326
Other
loans
um
2,504
544
169
–
3,217
Finance
leases
um
15
–
–
–
15
Total
um
2,666
554
947
89
4,256
Included in the US dollar amounts for other loans above is u351m (2007: u708m) of debt denominated in euros (nil; 2007: u500m)
and Swiss francs (CHF 500m; 2007: CHF 350m) that was swapped into US dollars on issuance and against which there are related
derivative financial instruments which, as at 31 December 2008, had a fair value of u42m (2007: u211m).
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140
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
7 Combined share capitals
At start of year
Issue of ordinary shares
Exchange translation differences
At end of year
2008
215
Jm
268
1 4
(54)
Combined share capitals exclude the shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
8 Combined share premiums
At start of year
Issue of ordinary shares, net of expenses
Exchange translation differences
At end of year
2008
2,605
Jm
2,914
67
(376)
Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary
of Reed Elsevier PLC.
9 Combined shares held in treasury
At 1 January 2007
Purchase of shares
Settlement of share awards
Exchange translation differences
At 1 January 2008
Purchase of shares
Settlement of share awards
Exchange translation differences
At 31 December 2008
Shares
held
by EBT
Jm
Shares held
by parent
companies
Jm
240
108
(72)
(23)
253
68
(10)
(72)
567
322
291
–
(24)
589
50
–
(72)
806
239
2007
um
285
(21)
268
2007
um
2,800
254
(140)
2,914
Total
Jm
562
399
(72)
(47)
842
118
(10)
(144)
141
Reed Elsevier
Annual Reports and
Financial Statements
2008
Summary combined financial information in euros
Notes to the summary combined financial information in euros
10 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
Dividends declared
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Cumulative fair value movements on disposal of available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
Increase in share based remuneration reserve
Settlement of share awards
Transfer from hedge reserve to net profit (net of tax)
Exchange translation differences
At end of year
11 Exchange rates
Sterling to euro
US dollars to euro
Hedge
reserve
2008
Jm
Other
reserves
2008
Jm
27
–
–
–
–
–
(306)
74
–
–
(18)
22
(201)
1,835
587
(3,183)
(437)
(11)
–
–
122
58
(10)
–
33
(1,006)
Total
2008
Jm
1,862
587
(3,183)
(437)
(11) –
–
(306) 4
196
58
(10)
(18)
55
(1,207)
Total
2007
um
607
1,709
(607)
327
(10)
(73)
67
(72)
(29)
(61)
1,862
Income statement
Balance sheet
2008
0.80
1.47
2007
0.68
1.37
2008
0.97
1.41
2007
0.73
1.47
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142
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed
Elsevier
PLC annual
report and
financial
statements
143 Directors’ report
146 Consolidated financial statements
149 Group accounting policies
150 Notes to the consolidated financial statements
157 Independent auditors’ report on the consolidated
financial statements
158 Parent company financial statements
159 Parent company accounting policies
159 Notes to the parent company financial statements
160 Independent auditors’ report on the parent company
financial statements
161 5 year summary
Company number: 77536
143
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ report
Reed Elsevier PLC
The directors present their report, together with the
financial statements of the group and company, for the
year ended 31 December 2008.
costs, disposals and other non operating items, related tax
effects and movements in deferred taxation assets and liabilities
not expected to crystallise in the near term.
As a consequence of the merger of the company’s businesses
with those of Reed Elsevier NV in 1993, described on page 54,
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 group and company should
be read in conjunction with the combined financial statements
and other reports set out on pages 4 to 126. A review of the
performance of the Reed Elsevier combined businesses is
set out on pages 13 to 30, a description of the Reed Elsevier
combined businesses is set out on pages 32 to 42, the Reed
Elsevier statement on Corporate Responsibility is set out
on pages 50 to 53, and a summary of the principal risks
facing Reed Elsevier is set out on pages 43 to 44.
Principal activities
The company is a holding company and its principal investments
are its direct 50% shareholding in Reed Elsevier Group plc
and 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 an equity basis.
Under the terms of the merger agreement, dividends paid
to Reed Elsevier PLC and Reed Elsevier NV shareholders are,
other than in special circumstances, 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 proportionately less cash to fund its net
dividend than Reed Elsevier NV does to fund its gross dividend.
An adjustment is therefore required in the consolidated income
statement 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 consolidated attributable earnings by £11m
(2007: £11m), being 47.1% of the total amount of the tax credit.
In addition to the reported figures, adjusted profit figures
are presented as additional performance measures.
These exclude the tax credit equalisation adjustment and,
in relation to the results of joint ventures, the company’s share
of amortisation of acquired intangible assets and goodwill
impairment, exceptional restructuring and acquisition related
Consolidated income statement
Reed Elsevier PLC’s shareholders’ 52.9% share of the adjusted
profit before tax of the continuing operations of the Reed Elsevier
combined businesses was £637m, up from £528m in 2007.
Reported profit before tax, including the Reed Elsevier PLC
shareholders’ share of the gain on disposal of Harcourt
Assessment and significant restructuring costs, was £247m
(2007: £643m, including the share of the gain on disposal
of the Harcourt Education US K-12 Schools and International
businesses). In scientific and medical markets, Elsevier had
a successful year with good underlying growth driven by new
publishing and continued expansion of online information and
workflow solutions as well as increasing cost efficiency. In legal
markets, LexisNexis had a good year despite more challenging
markets with continued growth in online information solutions in
the US large law firm market and internationally and good growth
in risk information and analytics markets. Reed Exhibitions
had an exceptional year with successful major shows and the
net cycling in of biennial exhibitions. In business to business
markets, Reed Business Information held up well despite the
difficult economic conditions throughout most of the year due to
the successful development over the last few years of significant
online franchises.
Reed Elsevier PLC’s shareholders’ share of the adjusted profit
attributable of the total operations of the combined businesses
was £486m, up from £451m in 2007. The company’s share of the
post tax charge for amortisation of acquired intangible assets
and goodwill impairment was £173m, up £36m from 2007,
principally as a result of the acquisition of ChoicePoint
and currency translation effects. The company’s share of the
post tax charge for exceptional restructuring costs was £59m
(2007: nil). The reported net profit for the year was £241m down
from £624m in 2007, which included the Reed Elsevier PLC
shareholders’ share of the gain on disposal of the Harcourt
Education US K-12 Schools and International businesses.
Adjusted earnings per share increased 24% to 44.6p (2007: 35.9p).
At constant rates of exchange, the increase was 15%. Including
the effect of the tax credit equalisation as well as amortisation of
acquired intangible assets and goodwill impairment, exceptional
restructuring and acquisition related costs, non operating items,
the disposal of Harcourt Education and tax adjustments, the
basic earnings per share was 22.1p (2007: 49.7p).
Consolidated balance sheet
The consolidated balance sheet of Reed Elsevier PLC reflects
its 52.9% economic interest in the net assets of Reed Elsevier,
which at 31 December 2008 amounted to £504m (2007: £1,568m).
The £1,064m decrease in net assets reflects the payment of the
special distribution, dividends and share repurchases, partially
offset by the company’s share in the attributable profits of
Reed Elsevier and currency translation effects.
Dividends
The boards of the company and Reed Elsevier NV have adopted
progressive dividend policies in recent years in respect of their
equalised dividends that, subject to currency considerations,
more closely align dividend growth with growth in adjusted
earnings, consistent with the dividend normally being covered
over the longer term at least two times by adjusted earnings.
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144
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ report continued
Reed Elsevier PLC
Taking account of both the strong financial performance for
the year and the more challenging economic outlook, and the
dividend equalisation arrangements, the Board is recommending
a final dividend of 15.0p per ordinary share to be paid on 22 May
2009 to shareholders on the Register on 24 April 2009.
Lloyds Banking Group plc 5.37%
Fidelity International Limited 4.96%
Baillie Gifford & Co 4.75%
Legal & General Group plc 4.10%
The total dividend paid on the ordinary shares in the financial
year was £1,245m (2007: £206m), including the special
distribution described below of £1,041m (2007: nil) and other
dividends of £204m (2007: £206m).
Special distribution and share consolidation
On 18 January 2008 the company paid a special distribution of
82.0p per ordinary share from the net proceeds of the disposal of
Harcourt Education. The distribution of £1,041m was recognised
when paid. On the same day, Reed Elsevier NV paid a £972m
equalised special distribution of u1.767 per ordinary share.
The special distribution was accompanied by a consolidation of
ordinary share capital on the basis of 58 new ordinary shares of
1451⁄116p for every 67 existing ordinary shares of 12.5p, reflecting
the ratio of the special distribution (including that paid by Reed
Elsevier NV) to the combined market capitalisation of Reed
Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect
equity interest in Reed Elsevier NV held by Reed Elsevier PLC)
as at the date of the announcement of the special distribution.
Share repurchase programme
The Board of Reed Elsevier PLC, together with the boards of
Reed Elsevier NV, approved the introduction of an annual share
repurchase programme in 2006 to further improve capital
efficiency. During 2008 a total of 3.2m of the company’s ordinary
shares were repurchased under the programme at a cost of
£20m and are held in treasury.
Parent company financial statements
The individual parent company financial statements of Reed
Elsevier PLC are presented on pages 158 and 159, and continue
to be prepared under UK generally accepted accounting
principles (UK GAAP). Parent company shareholders’ funds
as at 31 December 2008 were £2,229m (2007: £2,945m).
Share capital
During 2008, 6,451,449 ordinary shares in the company were
issued in connection with share option schemes as follows:
659,725 under a UK SAYE share option scheme at prices
between 377.6p and 543.2p per share.
5,791,724 under executive share option schemes at prices
between 424.0p and 659.0p per share.
At the 2008 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 2008,
34,196,298 shares, representing 3.1% of issued ordinary shares,
had been purchased and are held in treasury. A resolution to
further extend the authority is to be put to the 2009 Annual
General Meeting.
Substantial shareholdings
At 18 February 2009, the company had received notification,
in accordance with the Disclosure and Transparency Rules,
of the following interests in the voting rights of the issued
share capital of the company:
Significant agreements – change of control
The governing agreement between Reed Elsevier PLC and
Reed Elsevier NV states that upon a change of control of
Reed Elsevier PLC (for these purposes, the acquisition by a third
party of 50% or more of the issued share capital having voting
rights), should there not be a comparable offer from the offeror
for Reed Elsevier NV, Reed Elsevier NV may serve notice upon
Reed Elsevier PLC varying certain provisions of the governing
agreement, including the governance and the standstill provisions.
There are a number of borrowing agreements including
credit facilities that in the event of a change of control of both
Reed Elsevier PLC and Reed Elsevier NV and, in some cases,
a consequential credit rating downgrade to sub-investment
grade may, at the option of the lenders, require repayment
and/or cancellation as appropriate.
Directors
The following served as directors during the year:
J Hommen (Chairman)
Sir Crispin Davis (Chief Executive Officer)
M H Armour (Chief Financial Officer)
G J A van de Aast (resigned 15 December 2008)
M W Elliott
E Engstrom
L Hook
R B Polet
A Prozes
D E Reid (senior independent non-executive director)
Lord Sharman of Redlynch OBE
R W H Stomberg (retired 23 April 2008)
P Tierney (retired 30 January 2008)
Subsequent to the year end, Mr I R Smith was appointed a
director and CEO-designate on 1 January 2009.
Biographical details of the directors at the date of this report
are given on pages 48 and 49.
M W Elliott, D E Reid and Lord Sharman will retire by rotation
at the forthcoming Annual General Meeting and, being eligible,
they will offer themselves for re-election. Having been appointed
a director since the last Annual General Meeting, I R Smith will
retire at the forthcoming Annual General Meeting in accordance
with the Articles of Association and, being eligible, offers himself
for re-election. The notice period applicable to the service
contract of I R Smith is 12 months. M W Elliott, D E Reid and
Lord Sharman do not have service contracts.
As previously announced, Sir Crispin Davis will retire in March
2009 and J Hommen will step down as Chairman and as a
member of the Board at the forthcoming Annual General Meeting.
Details of directors’ remuneration and their interests in the
share capital of the company are provided in the Directors’
Remuneration Report on pages 60 to 80.
Directors’ indemnity
In accordance with the company’s Articles of Association,
the company has granted directors an indemnity, to the extent
145
Reed Elsevier
Annual Reports and
Financial Statements
2008
Directors’ report continued
Reed Elsevier PLC
permitted by law, in respect of liabilities incurred as a result
of their office. The company also purchased and maintained
throughout the year Directors’ and Officers’ liability insurance
in respect of itself and its directors.
Conflict of interest
As approved by shareholders at the 2008 Annual General
Meeting, the company’s Articles of Association were amended
with effect from 1 October 2008 to permit the Board to approve
situations where a director has an interest that conflicts, or may
possibly conflict, with the interests of the company. A formal
system is in place for the Nominations Committee to consider
and decide whether to authorise any such conflict or potential
conflict, and whether to impose limits or conditions when
giving authorisation. In reaching its decision, the Committee
is required to act in a way it considers would be most likely
to promote the success of the company.
Disclosure of information to auditors
As part of the process of approving the Reed Elsevier PLC 2008
financial statements, the directors have taken steps pursuant
to section 234ZA of the Companies Act 1985 to ensure that they
are aware of any relevant audit information and to establish that
the company’s auditors are aware of that information. In that
context, so far as the directors are aware, there is no relevant
audit information of which the company’s auditors are unaware.
Corporate governance
The company has complied throughout the period under
review with the provisions of the Combined Code on Corporate
Governance issued in June 2006 (the “UK Code”).
Details of how the principles of the UK Code have been applied
and the directors’ statement on internal control are set out in the
Structure and Corporate Governance report on pages 54 to 59.
Charitable and political donations
Reed Elsevier companies made donations during the year
for charitable purposes amounting to £2.1m (2007: £2.6m) of
which £0.5m (2007: £0.7m) was in the United Kingdom. In the
United States, Reed Elsevier companies contributed £39,000
(2007: £60,000) to political parties. There were no donations
made in the European Union for political purposes.
Financial statements and accounting records
The directors are required by English company law to prepare
a directors’ report and 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 judgements and estimates, have been
used, and applicable 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 applicable law.
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.
Directors’ responsibility statement
The board confirms that to the best of its knowledge:
> the consolidated financial statements, prepared in accordance
with International Financial Reporting Standards as issued by
the International Accounting Standards Board and as adopted
by the European Union, give a true and fair view of the financial
position and profit or loss of the group; and
> the Directors’ Report includes a fair review of the
development and performance of the business and
the position of the group, together with a description
of the principal risks and uncertainties that it faces.
Neither the company nor the directors accept any liability to
any person in relation to the Annual Report except to the extent
that such liability could arise under English law. Accordingly,
any liability to a person who has demonstrated reliance on any
untrue or misleading statement or omission shall be determined
in accordance with Section 90A of the Financial Services and
Markets Act 2000.
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 81 to 82.
Going concern
The directors, 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 2008 financial statements.
In reaching this conclusion, the directors have had due regard
to the following. After taking account of available cash resources,
committed bank facilities that back up short term borrowings
and term debt issued in January 2009, none of Reed Elsevier’s
borrowings fall due within the next two years that require
refinancing from resources not already available. The strong
free cash flow of the Reed Elsevier combined businesses (which
for the three years ended 31 December 2008 was £999m, £717m
and £756m respectively before exceptional restructuring and
acquisition related costs), resources and committed back up
facilities in place, and Reed Elsevier’s ability to access debt capital
markets, taken together, provide confidence that Reed Elsevier
will be able to meet its obligations as they become due. Further
information on liquidity of the combined businesses can be
found on pages 24, 25 and 27 of the Chief Financial Officer’s
report and in note 19 of the combined 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 (2007: between 30 and 45 days).
Auditors
Resolutions for the reappointment of Deloitte 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
Registered Office
Stephen J Cowden
Secretary
18 February 2009
1-3 Strand
London
WC2N 5JR
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146
Reed Elsevier
Annual Reports and
Financial Statements
2008
Consolidated income statement
For the year ended 31 December
Administrative expenses
Effect of tax credit equalisation on distributed earnings
Share of results of joint ventures
Operating profit
Finance income/(charges)
Profit before tax
Taxation
Profit attributable to ordinary shareholders
Earnings per ordinary share
For the year ended 31 December
Basic earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
Diluted earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
Consolidated cash flow statement
For the year ended 31 December
Cash flows from operating activities
Cash used by operations
Interest paid
Tax paid
Net cash used in operating activities
Cash flows from investing activities
Dividends received from joint ventures
Cash flows from financing activities
Equity dividends paid
Proceeds on issue of ordinary shares
Purchase of treasury shares
Repayment of loan from joint ventures
Decrease/(increase) in net funding balances due from joint ventures
Net cash used in financing activities
Reed Elsevier PLC
Note
1
2
11
5 1
6
Note
8
8
8
8
8
8
Note
10
–
2008
£m
(1)
(11)
258
246
247
(6)
241
2008
pence
21.2p
0.9p
22.1p
21.0p
0.9p
21.9p
2008
£m
(1)
(10)
(11)
2007
£m
(1)
(11)
658
646
(3)
643
(19)
624
2007
pence
36.6p
13.1p
49.7p
36.2p
12.9p
49.1p
2007
£m
(2)
(3)
(16)
(21)
500
850
7
10 –
10
(1,245)
32
(20)
744
(489)
(206)
92
(92)
(36)
(587)
(829)
Movement in cash and cash equivalents
–
–
147
Reed Elsevier
Annual Reports and
Financial Statements
2008
Consolidated balance sheet
As at 31 December
Non-current assets
Investments in joint ventures
Total assets
Current liabilities
Taxation
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Shares held in treasury (including in joint ventures)
Capital redemption reserve
Translation reserve
Other reserves
Total equity
The consolidated financial statements were approved by the Board of directors, 18 February 2009.
J Hommen
Chairman
M H Armour
Chief Financial Officer
Reed Elsevier PLC
Note
11
2008
£m
515
515
11
11
504
12
13
14
15 4
16
17
164
1,154
(347)
4
157
(628)
504
2007
£m
1,584
1,584
16
16
1,568
163
1,123
(302)
(37)
617
1,568
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148
Reed Elsevier
Annual Reports and
Financial Statements
2008
Consolidated statement of recognised income and expense
For the year ended 31 December
Profit attributable to ordinary shareholders
Share of joint ventures’ net (expense)/income recognised directly in equity
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations
Share of joint ventures’ cumulative fair value movements on disposal of available for sale investments
Share of joint ventures’ transfer to net profit from hedge reserve
Total recognised income and expense for the year
Consolidated reconciliation of shareholders’ equity
For the year ended 31 December
Total recognised net income
Equity dividends declared
Issue of ordinary shares, net of expenses
Increase in shares held in treasury (including in joint ventures)
Increase in share based remuneration reserve
Equalisation adjustments
Net (decrease)/increase in shareholders’ equity
Shareholders’ equity at start of year
Shareholders’ equity at end of year
Note
7
14
Reed Elsevier PLC
2008
£m
241
(54)
14
–
(8)
193
2008
£m
193
(1,245)
32
(49)
24
(19)
(1,064)
1,568
504
2007
£m
624
77
78
(4)
(11)
764
2007
£m
764
(206)
92
(130)
24
(16)
528
1,040
1,568
Reed Elsevier PLC
Taxation
The tax expense represents the sum of the tax payable on the
current year taxable profits, adjustments in respect of prior
year taxable profits and the movements on deferred tax that
are recognised in the income statement. Tax arising in joint
ventures is included in the share of results of joint ventures.
The tax payable on current year taxable profits is calculated
using the applicable tax rate that has been enacted,
or substantively enacted, by the balance sheet date.
Deferred tax is the tax arising on differences between the
carrying amounts of assets and liabilities in the financial
statements and their corresponding tax bases used in the
computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that,
based on current forecasts, it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Deferred tax is calculated using tax rates that are expected
to apply in the period when the liability is settled or the asset
is realised. Full provision is made for deferred tax which would
become payable on the distribution of retained profits from
foreign subsidiaries, associates or joint ventures.
Movements in deferred tax are charged and credited in the
income statement, except when they relate to items charged
or credited directly to equity, in which case the deferred tax
is also recognised in equity.
Critical judgements and key sources of estimation uncertainty
Critical judgements in the preparation of the combined financial
statements are set out on page 91.
Standards, amendments and interpretations not yet effective
Recently issued standards, amendments and interpretations
and their impact on future accounting policies and reporting
have been considered on page 92 of the combined financial
statements and are not expected to have a significant impact
on the consolidated financial statements.
149
Reed Elsevier
Annual Reports and
Financial Statements
2008
Group accounting policies
Basis of preparation
These consolidated financial statements have been prepared
under the historical cost convention in accordance with
applicable accounting standards. They report the consolidated
statements of income, cash flow and financial position of
Reed Elsevier PLC, and have been prepared in accordance
with International Financial Reporting Standards (IFRS)
as endorsed by the European Union and as issued by the
International Accounting Standards Board (IASB).
The consolidated financial statements are prepared on a going
concern basis, as explained on page 145.
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 54.
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 subsidiaries. Dividends
paid to Reed Elsevier PLC and Reed Elsevier NV shareholders
are, other than in special circumstances, equalised at the
gross level inclusive of the UK tax credit received by certain
Reed Elsevier PLC shareholders. In Reed Elsevier PLC’s
consolidated 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
consolidated attributable earnings 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 88 to 92.
Investments
Reed Elsevier PLC’s 52.9% economic interest in the net assets
of the combined businesses has been shown on the balance
sheet as investments in joint ventures, net of the assets
and liabilities reported as part of Reed Elsevier PLC and its
subsidiaries. Investments in joint ventures are accounted
for using the equity method.
Foreign exchange translation
Transactions in foreign currencies are recorded at the
rate of exchange prevailing on the date of the transaction.
At each balance sheet date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated
at the rate prevailing on the balance sheet date. Exchange
differences arising are recorded in the income statement.
The exchange 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 classified as equity
and transferred to the translation reserve.
When foreign operations are disposed of, the related
cumulative translation differences are recognised within
the income statement in the period.
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150
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
1 Administrative expenses
Administrative expenses include £604,000 (2007: £526,000) paid in the year to Reed Elsevier Group plc under a contract for the
services of directors and administrative support. Reed Elsevier PLC has no employees (2007: nil).
2 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 consolidated profit attributable to ordinary shareholders by 47.1% of the total amount of the tax credit, as set out in the
accounting policies on page 149.
3 Auditors’ remuneration
Audit fees payable by Reed Elsevier PLC were £26,000 (2007: £25,000). Further information on the audit and non-audit fees
paid by the Reed Elsevier combined businesses to Deloitte LLP and its associates is set out in note 4 to the combined financial
statements.
4 Related party transactions
All transactions with joint ventures, which are related parties of Reed Elsevier PLC, are reflected in these financial statements.
Key management personnel are also related parties and comprise the executive directors of Reed Elsevier PLC. The remuneration
of executive directors of Reed Elsevier PLC is disclosed in note 34 to the combined financial statements.
5 Finance income/(charges)
Finance income/(charges) from joint ventures
6 Taxation
UK corporation tax
2008
£m
2008
£m
1
6
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below.
Profit before tax
Tax at applicable rate 28% (2007: 30%)
Tax on share of results of joint ventures
Other
Tax expense
2008
£m
247
69
(72)
9
6
2007
£m
(3)
2007
£m
19
2007
£m
643
193
(194)
20
19
151
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
7 Equity dividends
On 18 January 2008, the company paid a special distribution of 82.0p per ordinary share from the net proceeds of the disposal
of Harcourt Education. The distribution of £1,041m was recognised when paid.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares
of 1451⁄116p for every 67 existing ordinary shares of 12.5p, reflecting the ratio of the aggregate special distribution (including that
paid by Reed Elsevier NV) to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8%
indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at 12 December 2007, the date of the announcement of
the special distribution.
Ordinary dividends declared in the year
Ordinary shares
Final for prior financial year
Interim for financial year
Total
2008
pence
13.6p
5.3p
18.9p
2007
pence
11.8p
4.5p
16.3p
2008
£m
146
58
204
2007
£m
149
57
206
The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2007: 13.6p). The cost of funding the proposed final
dividend is expected to be £162m. No liability has been recognised at the balance sheet date.
Ordinary dividends paid and proposed relating to the financial year
Ordinary shares
Interim (paid)
Final (proposed)
Total
8 Earnings per ordinary share (“EPS”)
2008
pence
5.3p
15.0p
20.3p
2007
pence
4.5p
13.6p
18.1p
2008
2007
Weighted
average
number of
shares
(millions)
Basic earnings per share
From continuing operations of the combined businesses
1,089.5
From discontinued operations of the combined businesses 1,089.5
1,089.5
From total operations of the combined businesses
Based on 52.9% interest in total operations
Earnings
£m
231
10
241
EPS
pence
21.2p
0.9p
22.1p
Weighted
average
number of
shares
(millions)
1,256.5
1,256.5
1,256.5
of the combined businesses
1,089.5
252
23.1p
1,256.5
Diluted earnings per share
1,101.3
From continuing operations of the combined businesses
From discontinued operations of the combined businesses 1,101.3
1,101.3
From total operations of the combined businesses
231
10
241
21.0p
0.9p
21.9p
1,271.3
1,271.3
1,271.3
Earnings
£m
EPS
pence
460
164
624
635
460
164
624
36.6p
13.1p
49.7p
50.5p
36.2p
12.9p
49.1p
The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share
options and conditional shares.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
8 Earnings per ordinary share continued
The weighted average number of shares is after deducting shares held in treasury. Movements in the number of shares in issue
net of treasury shares for the year ended 31 December 2008 are shown below.
Number of ordinary shares
At start of year
Share consolidation
Issue of ordinary shares
Share repurchases
Net purchase of shares by employee benefit trust
At end of year
Weighted average number of equivalent ordinary shares during the year
9 Adjusted figures
Year ended 31 December
Shares in
issue
(millions)
1,305.9
(175.4)
6.4
–
–
1,136.9
Treasury
shares
(millions)
(54.6)
7.3
–
(3.2)
(3.8)
(54.3)
2008
Shares in
issue net of
treasury
shares
(millions)
1,251.3
(168.1) –
6.4
(3.2)
(3.8)
1,082.6
1,089.5
2007
Shares in
issue net of
treasury
shares
(millions)
1,249.6
18.5
(15.2)
(1.6)
1,251.3
1,256.5
Adjusted profit and earnings per share figures are used as additional performance measures. The adjusted figures are derived
as follows:
Earnings per share from the total operations of the combined businesses
Reported figures
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
Share of adjustments in joint ventures:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax adjustments
Adjusted figures
Profit attributable to
ordinary shareholders
Basic earnings
per share
2008
£m
241
11
252
173
59
16
23
(37)
486
2007
£m
624
11
635
137
–
7
(276)
(52)
451
2008
pence
22.1p
1.0p
23.1p
15.9p
5.4p –
1.5p
2.1p
(3.4)p
44.6p
2007
pence
49.7p
0.8p
50.5p
10.9p
0.6p
(22.0)p
(4.1)p
35.9p
153
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
10 Cash flow statement
Reconciliation of administrative expenses to cash used by operations
Administrative expenses
Net movement in payables
Cash used by operations
Reconciliation of net funding balances due from joint ventures
At start of year
Cash flow
At end of year
11 Investments in joint ventures
Share of results of joint ventures
Share of joint ventures’:
Net (expense)/income recognised directly in equity
Cumulative exchange differences on disposal of foreign operations
Cumulative fair value movements on disposal of available for sale investments
Transfer to net profit from hedge reserve
Purchases of treasury shares by employee benefit trust
Increase in share based remuneration reserve
Equalisation adjustments
Dividends received from joint ventures
(Decrease)/increase in net funding balances due from joint ventures
Net movement in the year
At start of year
At end of year
–
2008
£m
(1)
(1)
2008
£m
1,521
(744)
777
2008
£m
258
(54)
14
–
(8)
(29)
24
(30)
(500)
(744)
(1,069)
1,584
515
2007
£m
(1)
(1)
(2)
2007
£m
898
623
1,521
2007
£m
658
77
78
(4)
(11)
(38)
24
(27)
(850)
587
494
1,090
1,584
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier PLC shareholders’ 52.9% share is
set out below.
Revenue
Net profit for the year
Total joint ventures
Reed Elsevier PLC
shareholders’ share
2008
£m
5,334
480
2007
£m
4,584
1,203
2008
£m
2,822
258
2007
£m
2,425
658
Reed Elsevier PLC’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net loss
that arose directly in Reed Elsevier PLC of £6m (2007: £23m).
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
11 Investments in joint ventures continued
Total assets
Total liabilities
Net assets/(liabilities)
Attributable to:
Joint ventures
Minority interests
Funding balances due from joint ventures
Total
Total joint ventures
Reed Elsevier PLC
shareholders’ share
2008
£m
12,866
(11,885)
981
953
28
981
2007
£m
9,778
(6,802)
2,976
2,965
11
2,976
2008
£m
6,806
(7,068)
(262)
(262)
– –
(262)
777
515
2007
£m
5,173
(5,110)
63
63
63
1,521
1,584
The above amounts exclude assets and liabilities held directly by Reed Elsevier PLC and include the counterparty balances
of amounts owed to and by other Reed Elsevier businesses. Included within Reed Elsevier PLC’s share of assets and liabilities
are cash and cash equivalents of £198m (2007: £1,305m) and borrowings of £3,249m (2007: £1,655m) respectively.
12 Share capital
Authorised
Ordinary shares of 1451⁄116p each
Unclassified shares of 1451⁄116p each
Total
No. of shares
1,136,924,693
136,870,379
On 7 January 2008 the existing ordinary shares of 12.5p each were consolidated into new ordinary shares of 1451⁄116p each on
the basis of 58 new ordinary shares for every 67 existing ordinary shares. The unclassified shares of 12.5p each not in issue
were similarly consolidated into new unclassified shares of 1451⁄116p each.
All of the ordinary shares rank equally with respect to voting rights and rights to receive dividends. There are no restrictions
on the rights to transfer shares.
Called up share capital – issued and fully paid
At start of year
Share consolidation
Issue of ordinary shares
At end of year
No. of shares
1,305,891,497
(175,418,253)
6,451,449
1,136,924,693
2008
£m
No. of shares
163 1,287,364,048
–
18,527,449
164 1,305,891,497
–
1
£m
164
20
184
2007
£m
161
–
2
163
The issue of ordinary shares relates to the exercise of share options. Details of share option and conditional share schemes are
set out in note 7 to the Reed Elsevier combined financial statements.
Details of issued shares held in treasury are provided in note 14.
13 Share premium
At start of year
Issue of ordinary shares, net of expenses
At end of year
2008
£m
1,123
31
1,154
2007
£m
1,033
90
1,123
155
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
14 Shares held in treasury
At start of year
Share repurchases
Share of joint ventures’ employee benefit trust purchases
Share of joint ventures’ settlement of share awards by employee benefit trust
At end of year
Details of shares held in treasury are provided in note 31 to the Reed Elsevier combined financial statements.
15 Capital redemption reserve
At start and end of year
16 Translation reserve
At start of year
Share of joint ventures’ exchange differences on translation of foreign operations
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations
At end of year
17 Other reserves
At start of year
Profit attributable to ordinary shareholders
Share of joint ventures’:
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Cumulative fair value movements on disposal of available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
Increase in share based remuneration reserve
Settlement of share awards by employee benefit trust
Transfer to net profit from hedge reserve
Equalisation adjustments
Equity dividends declared
At end of year
18 Contingent liabilities
2008
£m
302
20
29
(4)
347
2008
£m
4
2008
£m
(37)
180
14
157
2008
£m
617
241
(184)
(5) –
–
(129) 2
84
24
(4)
(8)
(19)
(1,245)
(628)
2007
£m
200
92
38
(28)
302
2007
£m
4
2007
£m
(98)
(17)
78
(37)
2007
£m
140
624
118
(4)
(26)
24
(28)
(11)
(16)
(206)
617
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier PLC as follows:
Guaranteed jointly and severally with Reed Elsevier NV
2008
£m
5,765
2007
£m
2,759
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 19 to the
Reed Elsevier combined financial statements.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Notes to the consolidated financial statements For the year ended 31 December 2008
19 Post balance sheet events
In January 2009, term debt of $1,500m (£1,037m) and u50m (£49m) due in more than five years from 31 December 2008 were
issued by the Reed Elsevier combined businesses and used to repay loans maturing within one to two years.
As at 31 December 2008 short term bank loans, overdrafts and commercial paper in the combined businesses were backed up
by $3,000m of committed bank facilities maturing in May 2010, of which $38m (£26m) was drawn. On 17 February 2009 these
facilities were reduced to $2,500m (£1,728m) and new $2,000m (£1,382m) committed bank facilities, forward starting in May 2010
and maturing in May 2012, were put in place.
20 Principal joint ventures
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 and business publishing
and organisation of trade exhibitions
Elsevier Reed Finance BV
Incorporated in the Netherlands
Radarweg 29
1043 NX Amsterdam, the Netherlands
Holding company for financing businesses
100%
£10,000 ordinary R shares
£10,000 ordinary E shares
–
£100,000 7.5% cumulative preference non voting shares 100%
% holding
Equivalent to a 50% equity interest
133 ordinary R shares
205 ordinary E shares
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.
21 Principal subsidiary
Reed Holding BV
Incorporated in the Netherlands
Radarweg 29
1043 NX Amsterdam, the Netherlands
41 ordinary shares
At 31 December 2008 Reed Holding BV owned 3,915,541 shares of a separate class in Reed Elsevier NV. The equalisation
arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV at the time of the merger give Reed Elsevier PLC
a 5.8% economic interest in Reed Elsevier NV.
100%
–
% holding
100%
157
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Independent auditors’ report on the consolidated financial statements
to the members of Reed Elsevier PLC
We have audited the consolidated financial statements of
Reed Elsevier PLC for the year ended 31 December 2008
(“the consolidated financial statements”), which comprise the
consolidated income statement, the consolidated cash flow
statement, the consolidated balance sheet, the consolidated
statement of recognised income and expense, the consolidated
reconciliation of shareholders’ equity, the group accounting
policies and the related notes 1 to 21. These consolidated
financial statements have been prepared under the accounting
policies set out therein.
We have reported separately on the individual parent company
financial statements of Reed Elsevier PLC for the year ended
31 December 2008 and on the information in the parts
of the Directors’ Remuneration Report presented in the
Reed Elsevier Annual Reports and Financial Statements 2008
(“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
The directors’ responsibilities for preparing the Annual Report
and the consolidated financial statements in accordance with
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union are set out in the
statement of directors’ responsibilities.
Our responsibility is to audit the consolidated financial
statements in accordance with relevant United Kingdom legal
and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the consolidated
financial statements give a true and fair view and whether the
consolidated financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation. We also report to you whether in our opinion
the information given in the directors’ report is consistent with
the consolidated financial statements. The information given
in the directors’ report includes the Business Review that
is cross referred from pages 12 to 46 and 50 to 53 of the
Reed Elsevier Annual Reports and Financial Statements.
In addition we report to you if, in our opinion, 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 nine provisions
of the 2006 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 statement on internal control covers 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 other information contained in the Reed Elsevier
Annual Reports and Financial Statements 2008, as described
in the contents section, and consider whether it is consistent
with the audited consolidated financial statements. We consider
the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
consolidated financial statements. Our responsibilities do not
extend to any further information outside the Reed Elsevier
Annual Reports and Financial Statements 2008.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) 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. It also includes an assessment of the
significant estimates and judgements made by the directors
in the preparation of the consolidated financial statements,
and of whether the accounting policies are appropriate to
the company’s 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 consolidated financial statements 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
consolidated financial statements.
Opinion
In our opinion:
> the consolidated financial statements give a true and fair
view in accordance with IFRS, as adopted for use in the
European Union, of the state of the group’s affairs as at
31 December 2008 and of its profit for the year then ended;
> the consolidated financial statements have been properly
prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation; and
> the information given in the Directors’ Report is consistent
with the consolidated financial statements.
Deloitte LLP
Chartered Accountants and Registered Auditors
London
United Kingdom
18 February 2009
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158
Reed Elsevier
Annual Reports and
Financial Statements
2008
Parent company balance sheet
As at 31 December
Fixed assets
Investments in subsidiary undertakings
Investments in joint ventures
Current assets
Debtors: amounts due from joint ventures
Creditors: amounts falling due within one year
Taxation
Amounts owed to subsidiary undertakings
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium account
Shares held in treasury
Capital redemption reserve
Other reserves
Profit and loss reserve
Shareholders’ funds
Note
1
1
4
The parent company financial statements were approved by the Board of directors, 18 February 2009.
J Hommen
Chairman
M H Armour
Chief Financial Officer
Parent company reconciliation of shareholders’ funds
Share capital
£m
At 1 January 2007 as previously stated
Change in accounting policy on adoption
of UITF 44
At 1 January 2007 as restated
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of ordinary shares, net of expenses
Equity granted to employees of
combined businesses
At 1 January 2008 as restated
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of ordinary shares, net of expenses
Equity granted to employees of
combined businesses
At 31 December 2008
161
–
161
–
–
–
2
–
163
–
–
–
1
–
164
Share
premium
account
£m
1,033
–
1,033
–
–
–
90
–
1,123
–
–
–
31
–
1,154
Shares
held in
treasury
£m
Capital
redemption
reserve
£m
Other
reserves
£m
(112)
–
(112)
–
–
(92)
–
–
(204)
–
–
(20)
–
–
(224)
4
–
4
–
–
–
–
–
4
–
–
–
–
–
4
–
81
81
–
–
–
–
25
106
–
–
–
–
23
129
Reed Elsevier PLC
2008
£m
As restated
2007
£m
303
1,237
1,540
777
777
(11)
(77)
(88)
689
2,229
164
1,154
(224)
129
1,002
2,229
Profit
and loss
reserve
£m
1,132
–
1,132
827
(206)
–
–
–
1,753
494
(1,245)
–
–
–
1,002
303
1,214
1,517
1,521
1,521
(16)
(77)
(93)
1,428
2,945
163
1,123
(204)
4
106
1,753
2,945
Total
£m
2,218
81
2,299
827
(206)
(92)
92
25
2,945
494
(1,245)
(20)
32
23
2,229
159
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Parent company accounting policies
Basis of preparation
The parent company financial statements have been prepared
under the historical cost convention in accordance with
UK Generally Accepted Accounting Principles (UK GAAP).
Unless otherwise indicated, all amounts in the financial
statements are in millions of pounds.
The parent company financial statements are prepared on
a going concern basis, as explained on page 145.
As permitted by Section 230 of the Companies Act 1985, the
company has not presented its own profit and loss account.
The Reed Elsevier PLC accounting policies under UK GAAP
are set out below.
Change in accounting policy
The company has adopted UITF 44 – Group and Treasury Share
Transactions issued by the UK Accounting Standards Board,
effective for the 2008 financial statements. UITF 44 requires the
fair value of the award of share options and conditional shares
over Reed Elsevier PLC ordinary shares to employees of the
Reed Elsevier combined businesses to be treated as a capital
contribution, with retrospective effect.
Accordingly, the investments in joint ventures have been
restated to include as at 1 January 2007 the aggregate amount
of £81m for the fair values of the awards of share options and
conditional shares over Reed Elsevier PLC ordinary shares since
7 November 2002, being the transition date permitted by
UITF 44, and £25m in respect of awards made in the year
ended 31 December 2007.
Investments
Fixed asset investments in the Reed Elsevier combined
businesses are stated at cost, less provision, if appropriate,
for any impairment in value.
Principal joint ventures and subsidiaries are set out in
notes 20 and 21 of the Reed Elsevier PLC consolidated
financial statements.
Shares held in treasury
The consideration paid, including directly attributable costs,
for shares repurchased is recognised as shares held in treasury
and presented as a deduction from total equity. Details of share
capital and shares held in treasury are set out in notes 12 and 14
of the Reed Elsevier PLC consolidated financial statements.
Foreign exchange translation
Transactions entered into in foreign currencies are recorded
at the exchange rates applicable at the time of the transaction.
Taxation
Deferred taxation is provided 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. Deferred taxation balances are not discounted.
Notes to the parent company financial statements
1 Investments
At 1 January 2007 as previously stated
Change in accounting policy on adoption of UITF 44
At 1 January 2007 as restated
Equity granted to Reed Elsevier employees
At 1 January 2008 as restated
Equity granted to Reed Elsevier employees
At 31 December 2008
Subsidiary
undertaking
£m
Joint
ventures
£m
303
–
303
–
303
–
303
1,108
81
1,189
25
1,214
23
1,237
Total
£m
1,411
81
1,492
25
1,517
23
1,540
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160
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Independent auditors’ report on the parent company financial statements
to the members of Reed Elsevier PLC
We have audited the parent company financial statements
of Reed Elsevier PLC for the year ended 31 December 2008
(“the company financial statements”) which comprise the parent
company balance sheet, the parent company reconciliation of
shareholders’ funds, the parent company accounting policies,
and the related note on page 159. These parent company
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 Reed Elsevier
Annual Reports and Financial Statements 2008 (“the
Remuneration Report”) that are described as having been
audited. We have reported separately on the consolidated
financial statements of Reed Elsevier PLC for the year ended
31 December 2008
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
The directors’ responsibilities for preparing the Annual Report
and the company financial statements in accordance with
applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are
set out in the statement of directors’ responsibilities. They are
also responsible for the preparation of the other information
contained in the Reed Elsevier Annual Reports and Financial
Statements 2008 including, together with the directors of
Reed Elsevier NV, the Remuneration Report.
Our responsibility is to audit the company financial statements
and the parts of the Remuneration Report described as having
been audited in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK
and Ireland).
We report to you our opinion as to whether the company financial
statements give a true and fair view and whether company
financial statements and parts of the Remuneration Report
to be audited have been properly prepared in accordance with
the Companies Act 1985. We also report to you whether in our
opinion, the directors’ report is consistent with the company
financial statements. The information given in the directors’
report includes the Business Review that is cross referred
from pages 12 to 46 and 50 to 53 of the Reed Elsevier Annual
Reports and Financial Statements 2008.
In addition we report to you if, in our opinion, 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 is not disclosed.
We read the other information contained in the Reed Elsevier
Annual Reports and Financial Statements 2008, as described
in the contents section including the unaudited parts of the
Remuneration Report, and consider whether it is consistent
with the audited company financial statements. We consider the
implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the company
financial statements. Our responsibilities do not extend to any
further information outside the Reed Elsevier Annual Reports
and Financial Statements 2008.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
company 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 company financial
statements, and of whether the accounting policies are
appropriate to the company’s 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 company 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 company financial statements and the parts of the
Remuneration Report described as having been audited.
Opinion
In our opinion:
> The company financial statements give a true and fair view,
in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the company’s affairs
as at 31 December 2008;
> the company 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; and
> the information given in the directors’ report is consistent
with the company financial statements.
Deloitte LLP
Chartered Accountants and Registered Auditors
London
United Kingdom
18 February 2009
161
Reed Elsevier
Annual Reports and
Financial Statements
2008
5 year summary
Reed Elsevier PLC
Combined financial information (IFRS)
Revenue – continuing operations
Reported operating profit – continuing operations
Adjusted operating profit – continuing operations
Reported profit attributable to shareholders – total operations
Adjusted profit attributable to shareholders – total operations
Reed Elsevier PLC consolidated financial information (IFRS)
Reported profit attributable to shareholders
Adjusted profit attributable to shareholders
Reported earnings per ordinary share (pence)
Adjusted earnings per ordinary share (pence)
Dividend per share (pence)
Note
2
2
2
3
4
3
4
5
2008
£m
5,334
901
1,379
476
919
241
486
22.1p
44.6p
20.3p
2007
£m
4,584
888
1,137
1,200
852
624
451
49.7p
35.9p
18.1p
2006
£m
4,509
837
1,081
623
796
320
421
25.6p
33.6p
15.9p
2005
£m
4,265
752
981
462
754
235
399
18.6p
31.5p
14.4p
2004
£m
3,944
699
909
459
687
235
363
18.6p
28.7p
13.0p
(1) Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible
assets and goodwill impairment, exceptional restructuring and acquisition related costs, and in respect of attributable profit,
reflect a tax rate that excludes the effect of movements in deferred taxation assets and liabilities that are not expected to
crystallise in the near term. Acquisition related finance costs and profit and loss from disposals and other non operating
items are excluded from the adjusted figures.
(2) Revenue, reported operating profit and adjusted operating profit are presented for continuing operations. Net profit from
discontinued operations is included in profit attributable to shareholders.
(3) Reported profit attributable to shareholders and reported earnings per share are based on the 52.9% share of the Reed Elsevier
combined profit attributable to shareholders, adjusted to equalise the benefit of the UK dividend tax credit with Reed Elsevier NV
shareholders as a reduction in reported profits.
(4) Adjusted profit attributable to shareholders and adjusted earnings per share are based on the 52.9% share of the Reed Elsevier
combined profit attributable to Reed Elsevier PLC shareholders.
(5) Dividend per share is based on the interim dividend and proposed final dividend for the relevant year, and does not include the
82.0p special distribution in 2008.
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162
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed
Elsevier
NV annual
report and
financial
statements
163 Report of the Supervisory Board and the Executive Board
166 Consolidated financial statements
168 Group accounting policies
170 Notes to the consolidated financial statements
178 Independent auditors’ report on the consolidated
financial statements
179 Parent company financial statements
180 Parent company accounting policies
181 Notes to the parent company financial statements
182 Independent auditors’ report on the parent company
financial statements
183 Additional information
184 5 year summary
163
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Report of the Supervisory Board and the Executive Board
The Supervisory Board and the Executive Board (which jointly
make up “the Combined Board”) present their report, together
with the financial statements of the group and of the company,
for the year ended 31 December 2008. As a consequence of the
merger of the company’s businesses with those of Reed Elsevier
PLC in 1993, described on page 54, the shareholders of Reed
Elsevier NV and Reed Elsevier PLC 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 NV and Reed Elsevier PLC (“the
combined businesses” or “Reed Elsevier”). This report of the
Supervisory Board and the Executive Board and the consolidated
and parent company financial statements should be read in
conjunction with the Reed Elsevier combined financial statements
and other reports set out on pages 4 to 141, which are incorporated
by reference herein. Summary combined financial information
in euros is set out on pages 127 to 141. The combined financial
statements on pages 84 to 126 are to be considered as part of
the notes to the statutory financial statements. The annual report
of Reed Elsevier NV within the meaning of article 2:391 of the
Dutch Civil Code consists of pages 163 to 165, and incorporated
by reference, pages 4 to 141.
Principal activities
The company is a holding company and its principal investments
are its direct 50% shareholding in Reed Elsevier Group plc
and its direct 61% 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 PLC.
Reed Elsevier NV and Reed Elsevier PLC have retained their
separate legal identities and are publicly held companies. Reed
Elsevier NV’s securities are listed in Amsterdam and New York and
Reed Elsevier PLC’s securities are listed in London and New York.
Financial statement presentation
The consolidated financial statements of Reed Elsevier NV include
the 50% economic interest that its shareholders (including Reed
Elsevier PLC, which has an indirect 5.8% interest in the company)
have under the equalisation arrangements in the Reed Elsevier
combined businesses, accounted for on an equity basis.
Under the terms of the merger agreement, dividends paid
to Reed Elsevier NV and Reed Elsevier PLC shareholders
are, other than in special circumstances, equalised at the
gross level inclusive of the UK tax credit received by certain
Reed Elsevier PLC shareholders.
Reported profit before tax, including the Reed Elsevier NV
shareholders’ 50% share of the gain on disposal of Harcourt
Assessment and significant restructuring costs, was u313m
(2007: u873m, including the share of the gain on disposal of
The Harcourt Education US K-12 Schools and International
businesses).
In scientific and medical markets, Elsevier had a successful
year with good underlying growth driven by new publishing
and continued expansion of online information and workflow
solutions as well as increasing cost efficiency. In legal markets,
LexisNexis had a good year despite more challenging markets
with continued growth in online information solutions in the US
large law firm market and internationally and good growth in
risk information and analytics markets. Reed Exhibitions had an
exceptional year with successful major shows and the net
cycling in of biennial exhibitions. In business to business
markets, Reed Business Information held up well despite the
difficult economic conditions throughout most of the year due to
the successful development over the last few years of significant
online franchises.
Reed Elsevier NV’s shareholders’ share of the adjusted profit
attributable of the combined businesses was u580m, down from
u622m in 2007, principally due to currency translation effects.
The company’s share of the post tax charge for amortisation of
acquired intangible assets and goodwill impairment was u206m,
up u17m from 2007, principally as a result of the acquisition of
ChoicePoint less currency translation effects. The company’s
share of the post tax charge for exceptional restructuring costs
was u70m (2007: nil). The reported net profit for the year was
u294m down from u855m in 2007, which included the Reed Elsevier
NV shareholders’ share of the gain on disposal of the Harcourt
Education US K-12 Schools and International businesses.
Adjusted earnings per share increased 9% to u0.87 (2007: u0.80).
At constant rates of exchange, the increase was 15%. Including
the effect of amortisation of acquired intangible assets and
goodwill impairment, exceptional restructuring and acquisition
related costs, non operating items, the disposal of Harcourt
Education and tax adjustments, the basic earnings per share
was u0.44 (2007: u1.10).
Consolidated balance sheet
The consolidated balance sheet of Reed Elsevier NV reflects its
50% economic interest in the net assets of Reed Elsevier, which
at 31 December 2008 amounted to u491m (2007: u2,016m). The
u1,525m decrease in net assets reflects the payment of the
special distribution, dividends and share repurchases, partially
offset by the company’s share in the attributable profits of
Reed Elsevier.
In addition to the reported figures, adjusted profit figures are
presented as additional performance measures. These exclude,
in relation to the results of joint ventures, the company’s share
of amortisation of acquired intangible assets and goodwill
impairment, exceptional restructuring and acquisition related
costs, disposals and other non operating items, related tax
effects and movements in deferred taxation assets and liabilities
not expected to crystallise in the near term.
Consolidated income statement
Reed Elsevier NV’s shareholders’ 50% share of the adjusted
profit before tax of the continuing operations of the Reed Elsevier
combined businesses was u759m, up from u729m in 2007.
Parent company financial statements
In accordance with article 2:362(1) of the Dutch Civil Code,
the individual parent company financial statements of
Reed Elsevier NV (presented on pages 179 to 181) are prepared
under UK generally accepted accounting principles (UK GAAP).
The profit attributable to the shareholders of Reed Elsevier NV
was u1,255m (2007: u1,462m) and net assets as at 31 December
2008, principally representing the investments in Reed Elsevier
Group plc and Elsevier Reed Finance BV under the historical
cost method and loans to their subsidiaries, were u3,823m
(2007: u4,105m). Free reserves as at 31 December 2008 were
u3,605m (2007: u2,232m), comprising reserves less shares held
in treasury and including, at 31 December 2008, paid-in surplus.
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164
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Report of the Supervisory Board and the Executive Board continued
Dividends
The boards of the company and Reed Elsevier PLC have adopted
progressive dividend policies in recent years in respect of their
equalised dividends that, subject to currency considerations,
more closely align dividend growth with growth in adjusted
earnings, consistent with the dividend normally being covered
over the longer term at least two times by adjusted earnings.
Taking account of both the strong financial performance for
the year and the more challenging economic outlook, and the
dividend equalisation arrangements, the Combined Board is
recommending a final dividend of u0.290 per ordinary share to
be paid on 22 May 2009. The level of equalised dividend includes
the effect of the significant appreciation of the euro against
sterling since the prior year dividend proposal date.
The total dividend paid on the ordinary shares in the financial
year was u1,569m (2007: u310m), including the special
distribution described below of u1,299m (2007: nil) and other
dividends of u270m (2007: u310m).
Special distribution and share consolidation
On 18 January 2008, the company paid a special distribution of
u1.767 per ordinary share from the net proceeds of the disposal of
Harcourt Education. The distribution of u1,299m was recognised
when paid. On the same day, Reed Elsevier PLC paid a u1,391m
equalised special distribution of 82.0p per ordinary share.
The special distribution was accompanied by a consolidation of
ordinary share capital on the basis of 58 new ordinary shares of
u0.07 for every 67 existing ordinary shares of u0.06, reflecting
the ratio of the special distribution (including that paid by Reed
Elsevier PLC) to the combined market capitalisation of Reed
Elsevier NV (excluding the 5.8% indirect equity interest in Reed
Elsevier NV held by Reed Elsevier PLC) and Reed Elsevier PLC
as at the date of the announcement of the special distribution.
Share repurchase programme
The Combined Board, together with the board of Reed Elsevier
PLC, approved the introduction of an annual share repurchase
programme in 2006 to further improve capital efficiency.
During 2008 a total of 2.1m of the company’s ordinary shares
were repurchased under the programme at a cost of u25m
and are held in treasury.
In accordance with article 9 of the Articles of Association, at the
2008 Annual General Meeting a resolution was passed to extend
the authority given to the Executive Board to purchase up to 10%
of shares by market purchase. At 31 December 2008, 23,952,791
shares, representing 3.6% of issued ordinary shares, had been
purchased and are held in treasury. A resolution to further extend
the authority is to be put to the 2009 Annual General Meeting.
Issuance of shares
In accordance with article 6 and 7 of the Articles of Association,
at the 2008 Annual General Meeting the Combined Board was
authorised, until 30 September 2009, to issue shares and grant
rights to acquire shares representing up to 10% of the issued
and outstanding capital of the company, (other than to meet
obligations resulting from the rights to acquire shares under
share option schemes) and to restrict or cancel pre-emptive
rights of existing shareholders in respect of such issuance.
A resolution to renew such authority will be put to the 2009
Annual General Meeting.
Share capital
During 2008, 2,502,244 ordinary shares in the company were
issued in connection with share option schemes as follows:
2,497,344 under executive share option schemes at prices
between u9.34 and u11.65 per share.
4,900 under convertible debentures at prices between
u10.35 and u12.21 per share.
Information regarding shares outstanding at 31 December 2008
is given on page 175.
35,130,213 of the ordinary shares were held in treasury including
11,177,422 held by the Reed Elsevier Group plc employee benefit
trust. Additionally 135,179 R shares of u0.70 were held in treasury.
Based on the public database of and on notification received
from The Netherlands Authority for the Financial Markets, the
company is aware of interests in the capital and voting rights
of the issued share capital of the company of at least 5% by
Reed Elsevier PLC and Mondrian Investment Partners Limited.
Significant agreements – change of control
The governing agreement between Reed Elsevier NV and Reed
Elsevier PLC states that upon a change of control of Reed Elsevier
NV (for these purposes, the acquisition by a third party of 50% or
more of the issued share capital having voting rights), should
there not be a comparable offer from the offeror for Reed Elsevier
PLC, Reed Elsevier PLC may serve notice upon Reed Elsevier NV
varying certain provisions of the governing agreement, including
the governance and the standstill provisions.
There are a number of borrowing agreements including
credit facilities that in the event of a change of control of both
Reed Elsevier NV and Reed Elsevier PLC and, in some cases,
a consequential credit rating downgrade to sub-investment
grade may, at the option of the lenders, require repayment
and/or cancellation as appropriate.
Directors
The following individuals served as members of the Supervisory
Board and the Executive Board during the year:
The Supervisory Board
J Hommen (Chairman)
G J de Boer-Kruyt
M W Elliott
L Hook
R Polet
D E Reid
Lord Sharman of Redlynch
OBE
R W H Stomberg
(retired 24 April 2008)
The Executive Board
Sir Crispin Davis
(Chairman and Chief
Executive Officer)
M H Armour (Chief
Financial Officer)
G J A van de Aast (resigned
15 December 2008)
E Engstrom
A Prozes
P Tierney (retired
30 January 2008)
Biographical details of the directors at the date of this report
are given on pages 48 and 49. Details of the remuneration of the
members of the Executive Board and of the Supervisory Board
and their interests in the share capital of the company are provided
in the Directors’ Remuneration Report on pages 60 to 80.
M W Elliott, D E Reid, G J de Boer-Kruyt and Lord Sharman
will retire by rotation as members of the Supervisory Board
at the forthcoming Annual General Meeting and, being eligible,
they will offer themselves for reappointment.
As previously announced Sir Crispin Davis will retire in March
2009 and J Hommen will step down as Chairman and as a
member of the Supervisory Board at the forthcoming Annual
General Meeting. A resolution will be submitted to the
165
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Report of the Supervisory Board and the Executive Board continued
forthcoming Annual General Meeting to appoint I R Smith as a
member of the Executive Board and to succeed Sir Crispin Davis.
In accordance with the company’s Articles of Association,
directors are granted an indemnity from the company to
the extent permitted by law in respect of liabilities incurred
as a result of their office.
Financial statements and accounting records
The financial statements provide a true and fair view of the state
of affairs of the company and the group as of 31 December 2008,
and of the profit or loss in 2008. In preparing the financial
statements, the Supervisory Board and the Executive Board
ensure that suitable accounting policies, consistently applied
and supported by reasonable judgements and estimates,
have been used and applicable accounting standards have
been followed. The boards 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. The boards have general responsibility for taking
reasonable steps to safeguard the assets of the group and
to prevent and detect fraud and other irregularities.
Internal control
As required under section II.1.4. of the Dutch Corporate
Governance Code, the Audit Committee and the Combined
Board have reviewed the effectiveness of the systems of internal
control and risk management during the last financial year.
The outcome of this review has been discussed with the external
auditors. The Combined Board confirmed that the risk
management and control systems provide reasonable
assurance against material inaccuracies or loss and have
functioned properly during the financial year.
Directors’ responsibility statement
The Combined Board confirms, to the best of its knowledge:
> the consolidated financial statements, prepared in
accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board
and as adopted by the European Union, give a true and fair view
of the financial position and profit or loss of the group; and
> the Report of the Supervisory Board and the Executive Board
includes a fair review of the development and performance
of the business during the financial year and the position
of the group at 31 December 2008, and that the Report of
the Supervisory Board and the Executive Board provides a
description of the principal risks and uncertainties that it faces.
Neither the company nor the directors accept any liability to
any person in relation to the Annual Report except to the extent
that such liability could arise under Dutch law.
Disclosure of information to auditors
As part of the process of approving the Reed Elsevier NV 2008
financial statements, the Supervisory and the Executive Boards
and its members have taken steps to ensure that all relevant
information was provided to the company’s auditors and
so far as the boards are aware, there is no relevant audit
information of which the company’s auditors are unaware.
Corporate governance
Save as noted in this annual report (particularly on pages 57
and 58), the company has complied throughout the period
under review with the provisions of The Dutch Corporate
Governance Code issued in December 2003 (the “Dutch Code”),
having regard for the recommendations of the Monitoring
Committee’s annual reports. Details of Reed Elsevier’s
corporate governance policies and practices and the statement
on internal control are set out in the Structure and Corporate
Governance report on pages 54 to 59. Details of the role
and responsibilities, membership and activities of the audit
committees are set out in the Report of the Audit Committees
on pages 81 to 82. During 2008 no significant changes were
made to the company’s or Reed Elsevier’s corporate governance.
Going concern
The Combined Board, having made appropriate enquiries,
considers 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 2008
financial statements.
In reaching this conclusion, the Combined Board has had due
regard to the following. After taking account of available cash
resources, committed bank facilities that back up short term
borrowings and term debt issued in January 2009, none of
Reed Elsevier’s borrowings fall due within the next two years that
require refinancing from resources not already available. The
strong free cash flow of the Reed Elsevier combined businesses
(which for the three years ended 31 December 2008 was u1,259m,
u1,047m and u1,113m respectively before exceptional restructuring
and acquisition related costs), resources and committed back up
facilities in place, and Reed Elsevier’s ability to access debt
capital markets, taken together, provide confidence that Reed
Elsevier will be able to meet its obligations as they become due.
Further information on liquidity of the combined businesses can
be found on pages 24, 25 and 27 of the Chief Financial Officer’s
report and in note 19 of the combined financial statements.
Auditors
Resolutions for the re-appointment of Deloitte Accountants BV
as auditors of the company and authorising the Supervisory
Board to fix their remuneration will be submitted to the
forthcoming Annual General Meeting.
Signed by:
The Supervisory Board
J Hommen (Chairman)
G J de Boer-Kruyt
M W Elliott
L Hook
R Polet
D E Reid
Lord Sharman of Redlynch OBE A Prozes
The Executive Board
Sir Crispin Davis
(Chairman and
Chief Executive Officer)
MH Armour
(Chief Financial Officer)
E Engstrom
Registered office
Radarweg 29
1043 NX The Netherlands
Chamber of Commerce Amsterdam
Register file No: 33155037
18 February 2009
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166
Reed Elsevier
Annual Reports and
Financial Statements
2008
Consolidated income statement
For the year ended 31 December
Administrative expenses
Share of results of joint ventures
Operating profit
Finance income
Profit before tax
Taxation
Profit attributable to ordinary shareholders
Earnings per ordinary share
For the year ended 31 December
Basic earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
Diluted earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
Consolidated cash flow statement
For the year ended 31 December
Cash flows from operating activities
Cash used by operations
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Dividends received from joint ventures
Cash flows from financing activities
Equity dividends paid
Proceeds on issue of ordinary shares
Purchase of treasury shares
Decrease/(increase) in net funding balances due from joint ventures
Net cash used in financing activities
Movement in cash and cash equivalents
3
Reed Elsevier NV
2008
Jm
(3)
239
236
77
313
(19)
294
2008
J
J0.43
J0.01
J0.44
J0.43
J0.01
J0.44
2008
Jm
(2)
78
(17)
59
2007
um
(3)
803
800
73
873
(18)
855
2007
u
u0.84
u0.26
u1.10
u0.83
u0.26
u1.09
2007
um
(2)
71
(18)
51
Note
2
11
5
6
Note
8
8
8
8
8
8
Note
10
1,200
1,410
7
10
(1,569)
27
(25)
311
(1,256)
(310)
124
(176)
(1,238)
(1,600)
(139)
167
Reed Elsevier
Annual Reports and
Financial Statements
2008
Consolidated balance sheet
As at 31 December
Non-current assets
Investments in joint ventures
Current assets
Amounts due from joint ventures
Cash and cash equivalents
Total assets
Current liabilities
Payables
Taxation
Total liabilities
Net assets
Capital and reserves
Share capital issued
Paid-in surplus
Shares held in treasury (including in joint ventures)
Translation reserve
Other reserves
Total equity
Consolidated statement of recognised income and expense
For the year ended 31 December
Profit attributable to ordinary shareholders
Share of joint ventures’ net expense recognised directly in equity
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations
Share of joint ventures’ cumulative fair value movements on disposal of available for sale investments
Share of joint ventures’ transfer to net profit from hedge reserve
Total recognised income and expense for the year
Consolidated reconciliation of shareholders’ equity
For the year ended 31 December
Total recognised net income
Equity dividends declared
Issue of ordinary shares, net of expenses
Increase in shares held in treasury (including in joint ventures)
Increase in share based remuneration reserve
Equalisation adjustments
Net (decrease)/increase in shareholders’ equity
Shareholders’ equity at start of year
Shareholders’ equity at end of year
Note
11
4
12
13
14
15
16
17
Note
7
15
Reed Elsevier NV
2008
Jm
2007
um
551
2,075
5
12 9
16
567
10 9
66
76
491
49
1,712
(477)
(138)
(655)
491
2008
Jm
294
(250)
27
–
(9)
62
2008
Jm
62
(1,569)
27
(59)
29
(15)
(1,525)
2,016
491
14
2,089
64
73
2,016
49
1,685
(459)
(159)
900
2,016
2007
um
855
(45)
103
(5)
(15)
893
2007
um
893
(310)
124
(230)
34
40
551
1,465
2,016
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168
Reed Elsevier
Annual Reports and
Financial Statements
2008
Group accounting policies
These consolidated financial statements, which have been
prepared under the historic cost convention, report the
statements of income, cash flow and financial position of
Reed Elsevier NV. Unless otherwise indicated, all amounts
shown in the financial statements are in millions of euros.
As required by a regulation adopted by the European Parliament,
the consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as endorsed by the European Union and as issued
by the International Accounting Standards Board (IASB).
The consolidated financial statements are prepared on a
going concern basis, as explained on page 165.
The Reed Elsevier combined financial statements presented
in pounds sterling on pages 84 to 126 form an integral part of
the notes to Reed Elsevier NV’s statutory financial statements.
The primary combined financial statements and selected notes
are presented in euros on pages 127 to 141.
As a consequence of the merger of the company’s businesses
with those of Reed Elsevier PLC, described on page 54, 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.
The Reed Elsevier NV consolidated financial statements are
presented incorporating Reed Elsevier NV’s investments in
the Reed Elsevier combined businesses accounted for using
the 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.
Further detail is provided in note 1.
Because the dividend paid to shareholders by Reed Elsevier NV
is equivalent to the Reed Elsevier PLC dividend plus, other than
in special circumstances, 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 consolidated reserves under
equalisation. Reed Elsevier NV can pay a nominal dividend on its
R shares held by a subsidiary of Reed Elsevier PLC that is lower
than the dividend on the ordinary shares. Equally, Reed Elsevier
NV has the possibility to receive dividends directly from Dutch
affiliates. Reed Elsevier PLC is compensated by direct dividend
payments by Reed Elsevier Group plc. The settlements flowing
from these arrangements are also taken directly to consolidated
reserves under equalisation.
Reed Elsevier NV
Parent company financial statements
In accordance with 2:402 of the Dutch Civil Code, the parent
company financial statements only contain an abridged profit
and loss account.
Combined financial statements
The accounting policies adopted in the preparation of the
combined financial statements are set out on pages 88 to 92.
These include policies in relation to 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.
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 consolidated
balance sheet as investments in joint ventures, net of the
assets and liabilities reported as part of Reed Elsevier NV.
Joint ventures are accounted for using the equity method.
Cash and cash equivalents are stated at fair value. Other
assets and liabilities are stated at historical cost, less provision,
if appropriate, for any impairment in value.
Foreign exchange translation
Transactions in foreign currencies are recorded at the rate
of exchange prevailing on the date of the transaction. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the
rate prevailing on the balance sheet date. Exchange differences
arising are recorded in the income statement. The gains
or losses relating to the retranslation of Reed Elsevier NV’s
50% interest in the net assets of the combined businesses are
classified as equity and transferred to the translation reserve.
When foreign operations are disposed of, the related cumulative
translation differences are recognised within the income
statement in the period.
Taxation
The tax expense represents the sum of the tax payable on the
current year taxable profits, adjustments in respect of prior
year taxable profits and the movements on deferred tax that
are recognised in the income statement. Tax arising in joint
ventures is included in the share of results of joint ventures.
The tax payable on current year taxable profits is calculated
using the applicable tax rate that has been enacted, or
substantively enacted, by the balance sheet date.
169
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Group accounting policies continued
Deferred tax is the tax arising on differences between the
carrying amounts of assets and liabilities in the financial
statements and their corresponding tax bases used in the
computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that,
based on current forecasts, it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Deferred tax is calculated using tax rates that are expected
to apply in the period when the liability is settled or the asset
is realised. Full provision is made for deferred tax which
would become payable on the distribution of retained profits
from foreign subsidiaries, associates or joint ventures.
Movements in deferred tax are charged and credited in the
income statement, except when they relate to items charged
or credited directly to equity, in which case the deferred tax
is also recognised in equity.
Critical judgements and key sources of estimation uncertainty
Critical judgements in the preparation of the combined financial
statements are set out on page 91.
Standards, amendments and interpretations not yet effective
Recently issued standards, amendments and interpretations
and their impact on future accounting policies and reporting
have been considered on page 92 of the combined financial
statements and are not expected to have a significant impact
on the consolidated financial statements.
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170
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
1 Basis of preparation
The consolidated financial statements of Reed Elsevier NV reflect the 50% economic interest that its shareholders have under
the equalisation arrangements in the Reed Elsevier combined businesses, accounted for on an equity basis.
The Reed Elsevier combined financial statements are presented in pounds sterling, which is the functional currency of
Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses of Reed Elsevier.
The following analysis presents how the consolidated financial statements of Reed Elsevier NV, presented in euros, are derived
from the Reed Elsevier combined financial statements.
Reed Elsevier NV consolidated profit attributable to ordinary shareholders
Reed Elsevier combined businesses net profit attributable to parent company shareholders
in pounds sterling
Reed Elsevier combined businesses net profit attributable to parent company shareholders
in pounds sterling translated into euros at average exchange rates
Impact of exchange translation differences
Reed Elsevier combined businesses net profit attributable to parent company shareholders
in euros
Reed Elsevier NV’s 50% share of combined net profit attributable to ordinary shareholders
Note
2008
2007
£476m
£1,200m
g600m
g13)m (
u1,752m
u43)m
(i) (
g587m
g294m
u1,709m
u855m
(i) The combined financial statements include gains on disposal of discontinued operations which, due to their individual
significance, are translated using exchange rates prevailing on the date of the transaction rather than the average exchange
rates for the year. The gains on disposal also include cumulative currency translation losses since adoption of IFRS previously
taken to reserves. Consequently, the gains expressed in euros, are u13m (2007: u43m) lower than the amounts derived by
translating the gains expressed in sterling at average euro:sterling exchange rates.
Reed Elsevier NV consolidated total equity
Reed Elsevier combined shareholders’ equity in pounds sterling
Reed Elsevier combined shareholders’ equity in pounds sterling translated into euros
at year end exchange rates
Reed Elsevier NV’s 50% share of combined equity
2008
£953m
2007
£2,965m
g982m
g491m
u4,032m
u2,016m
2 Administrative expenses
Administrative expenses are 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 u0.2m (2007: u0.2m) are included in gross remuneration. Insofar as gross remuneration is related to services
rendered to Reed Elsevier Group plc group and Elsevier Reed Finance BV group, it is borne by these groups. Reed Elsevier NV
has no employees (2007: nil).
3 Auditors’ remuneration
Audit fees payable by Reed Elsevier NV were u48,000 (2007: u47,000). Further information on the audit and non-audit fees paid
by the Reed Elsevier combined businesses to Deloitte Accountants B.V. and its associates is set out in note 4 to the combined
financial statements.
171
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
4 Related party transactions
All transactions with joint ventures, which are related parties of Reed Elsevier NV, are reflected in these financial statements.
Key management personnel are also related parties and comprise the members of the Executive Board of Reed Elsevier NV. The
remuneration of members of the Executive Board of Reed Elsevier NV is disclosed in note 34 to the combined financial statements.
5 Finance income
Finance income from joint ventures
6 Taxation
2008
Jm
77
2007
um
73
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below.
Profit before tax
Tax at applicable rate: 25.5% (2007: 25.5%)
Tax on share of results of joint ventures
Tax expense
2008
Jm
313
80
(61)
19
2007
um
873
223
(205)
18
7 Equity dividends
On 18 January 2008, the company paid a special distribution of u1.767 per ordinary share from the net proceeds of the disposal
of Harcourt Education. The distribution of u1,299m was recognised when paid.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares
of u0.07 for every 67 existing ordinary shares of u0.06, reflecting the ratio of the aggregate special distribution (including that
paid by Reed Elsevier PLC) to the combined market capitalisation of Reed Elsevier NV and Reed Elsevier PLC (excluding the 5.8%
indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at 12 December 2007, the date of the announcement
of the special distribution. The existing R shares of u0.60 were consolidated on a similar basis into new R shares of u0.70.
Ordinary dividends declared in the year
Ordinary shares
Final for prior financial year
Interim for financial year
Total
R shares
2008
J
2007
u
g0.311
g0.114
g0.425
–
u0.304
u0.114
u0.418
–
–
2008
Jm
198
72
270
–
2007
um
225
85
310
The directors of Reed Elsevier NV have proposed a final dividend of u0.290 (2007: u0.311). The cost of funding the proposed final
dividend is expected to be u181m. No liability has been recognised at the balance sheet date.
Ordinary dividends paid and proposed relating to the financial year
Ordinary shares
Interim (paid)
Final (proposed)
Total
R shares
2008
J
2007
u
g0.114
g0.290
g0.404
–
–
u0.114
u0.311
u0.425
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
8 Earnings per ordinary share (“EPS”)
2008
2007
Weighted
average
number of
shares
(millions)
Earnings
Jm
Basic earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
Diluted earnings per share
From continuing operations of the combined businesses
From discontinued operations of the combined businesses
From total operations of the combined businesses
669.0
669.0
669.0
674.9
674.9
674.9
289
5
294
289
5
294
Weighted
average
number of
shares
(millions)
774.9
774.9
774.9
784.1
784.1
784.1
EPS
J
J0.43
J0.01
J0.44
J0.43
J0.01
J0.44
Earnings
um
651
204
855
651
204
855
EPS
u
a0.84
a0.26
a1.10
a0.83
a0.26
a1.09
The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share
options and conditional shares.
The weighted average number of shares takes into account the R shares and is after deducting shares held in treasury.
Movements in the number of shares in issue net of treasury shares for the year ended 31 December 2008 are shown below.
Number of ordinary shares
At start of year
Share consolidation
Issue of ordinary shares
Share repurchases
Net purchase of shares by employee benefit trust
At end of year
Weighted average number of equivalent ordinary shares during the year
Year ended 31 December
Shares in
issue
(millions)
Treasury
shares
(millions)
760.3
(102.1)
2.4
–
–
660.6
(35.4)
4.7
–
(2.1)
(2.4)
(35.2)
2008
Shares in
issue net of
treasury
shares
(millions)
724.9
(97.4) –
2.4
(2.1)
(2.4)
625.4
669.0
2007
Shares in
issue net of
treasury
shares
(millions)
726.0
11.7
(11.9)
(0.9)
724.9
774.9
The average number of equivalent ordinary shares takes into account the R shares in the company held by a subsidiary of
Reed Elsevier PLC, which represents a 5.8% interest in the company’s share capital.
173
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
9 Adjusted figures
Adjusted profit and earnings per share figures are used as additional performance measures. The adjusted figures are derived
as follows:
Profit attributable to
ordinary shareholders
Basic earnings
per share
Earnings per share from the total operations of the combined businesses
Reported figures
Share of adjustments in joint ventures:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax adjustments
Adjusted figures
2008
Jm
294
206
70 –
19
34
(43)
580
10 Cash flow statement
Reconciliation of administrative expenses to cash used by operations
Administrative expenses
Net movement in payables
Cash used by operations
Reconciliation of net funding balances due from joint ventures
At start of year
Cash flow
At end of year
2007
um
855
189
10
(359)
(73)
622
1
2008
J
J0.44
J0.31
J0.10 –
J0.03
J0.05
J(0.06)
J0.87
2008
Jm
(3)
1
(2)
2008
Jm
1,864
(311)
1,553
2007
u
u1.10
u0.24
u0.01
u(0.46)
u(0.09)
u0.80
2007
um
(3)
(2)
2007
um
626
1,238
1,864
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
11 Investments in joint ventures
Share of results of joint ventures
Share of joint ventures’:
Net expense recognised directly in equity
Cumulative exchange differences on disposal of foreign operations
Cumulative fair value movements on disposal of available for sale investments
Transfer to net profit from hedge reserve
Purchases of treasury shares by employee benefit trust
Increase in share based remuneration reserve
Equalisation adjustments
Dividends received from joint ventures
(Increase)/decrease in net funding balances due from joint ventures
Net movement in the year
At start of year
At end of year
2008
Jm
239
(250)
27
–
(9)
(34)
29
(15)
(1,200)
(311)
(1,524)
2,075
551
2007
um
803
(45)
103
(5)
(15)
(54)
34
40
(1,410)
1,238
689
1,386
2,075
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier NV shareholders’ 50% share is set
out below:
Revenue
Net profit for the year
Total joint ventures
Reed Elsevier NV
shareholders’ share
2008
Jm
6,721
592
2007
um
6,693
1,713
2008
Jm
3,361
239
2007
um
3,347
803
Reed Elsevier NV’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net
profit that arose directly in Reed Elsevier NV of u55m (2007: u52m).
Total assets
Total liabilities
Net assets/(liabilities)
Attributable to:
Joint ventures
Minority interests
Net funding balances due from joint ventures
Total
Total joint ventures
Reed Elsevier NV
shareholders’ share
2008
Jm
13,251
(12,241)
1,010
981
29
1,010
2007
um
13,298
(9,251)
4,047
4,032
15 –
4,047
2008
Jm
6,610
(7,612)
(1,002)
(1,002)
–
(1,002)
1,553
551
2007
um
6,635
(6,424)
211
211
211
1,864
2,075
The above amounts exclude assets and liabilities held directly by Reed Elsevier NV and include the counterparty balances of
amounts owed to and by other Reed Elsevier businesses. Included within Reed Elsevier NV’s share of assets and liabilities are
cash and cash equivalents of u181m (2007: u1,669m) and borrowings of u3,336m (2007: u2,242m) respectively.
12 Payables
Included within payables are employee convertible debenture loans of u10m (2007: u8m) with a weighted average interest rate
of 5.28% (2007: 4.99%). Depending on the conversion terms, the surrender of u227 or u200 par value debenture loans qualifies for
the acquisition of 50 Reed Elsevier NV ordinary shares.
175
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
13 Share capital
Authorised
Ordinary shares of u0.07 each
R shares of u0.70 each
Total
No. of shares
1,800,000,000
26,000,000
On 7 January 2008 the existing ordinary shares of u0.06 each were consolidated into new ordinary shares of u0.07 each on the
basis of 58 new ordinary shares for every 67 existing ordinary shares. The existing R shares of u0.60 were consolidated on a
similar basis into new R shares of u0.70.
Issued and fully paid
At 1 January 2007
Issue of ordinary shares
At 1 January 2008
Share consolidation
Issue of ordinary shares
At 31 December 2008
R shares
Number
4,679,249
–
4,679,249
(628,529)
–
4,050,720
Ordinary
shares
Number
R shares
Jm
Ordinary
shares
Jm
748,597,124
11,653,240
760,250,364
(102,123,146)
2,502,244
660,629,462
3
–
3
–
–
3
45
1
46
–
–
46
Jm
126
18
144
Total
Jm
48
1
49
–
–
49
The issue of ordinary shares relates to the exercise of share options. Details of share option and conditional share schemes are
set out in note 7 to the Reed Elsevier combined financial statements.
Details of issued shares held in treasury are provided in note 15.
At 31 December 2008 3,915,541 R shares were held by a subsidiary of Reed Elsevier PLC. The R shares are convertible at the
election of the holders 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.
14 Paid-in surplus
At start of year
Issue of ordinary shares
At end of year
Within paid-in surplus, an amount of u1,535m (2007: u1,508m) is free of tax.
15 Shares held in treasury
At start of year
Share repurchases
Share of joint ventures’ employee benefit trust purchases
Share of joint ventures’ settlement of share awards by employee benefit trust
Exchange translation differences
At end of year
2008
Jm
1,685
27
1,712
2007
um
1,562
123
1,685
2008
Jm
459
25
34
(5)
(36)
477
2007
um
282
176
54
(36)
(17)
459
Share repurchases in 2007 include u21m in respect of the repurchase of R shares from a subsidiary of Reed Elsevier PLC.
Details of shares held in treasury are provided in note 31 to the Reed Elsevier combined financial statements.
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
16 Translation reserve
At start of year
Share of joint ventures’ exchange differences on translation of foreign operations
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations
At end of year
17 Other reserves
At start of year
Profit attributable to ordinary shareholders
Share of joint ventures:
Actuarial (losses)/gains on defined benefit pension schemes
Fair value movements on available for sale investments
Cumulative fair value movements on disposal of available for sale investments
–
Fair value movements on cash flow hedges
Tax recognised directly in equity
Increase in share based remuneration reserve
Settlement of share awards by employee benefit trust
Transfer to net profit from hedge reserve
Equalisation adjustments
Equity dividends declared
At end of year
18 Contingent liabilities
2008
Jm
(159)
(6)
27
(138)
2008
Jm
900
294
(219)
(6) –
(153) 2
98
29
(5)
(9)
(15)
(1,569)
(655)
2007
um
(70)
(192)
103
(159)
2007
um
207
855
165
(5)
(37)
34
(36)
(15)
40
(310)
900
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier NV as follows:
Guaranteed jointly and severally with Reed Elsevier PLC
2008
Jm
5,917
2007
um
3,745
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 19 to the
Reed Elsevier combined financial statements.
177
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the consolidated financial statements For the year ended 31 December 2008
19 Principal joint ventures
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 and
business publishing and organisation of trade exhibitions
Elsevier Reed Finance BV
Incorporated in the Netherlands
Radarweg 29
1043 NX Amsterdam, the Netherlands
Holding company for financing businesses
£10,000 ordinary R shares
£10,000 ordinary E shares
£100,000 7.5% cumulative preference non-voting shares
–
100%
–
% holding
Equivalent to a 50% equity interest
133 ordinary R shares
205 ordinary E shares
Equivalent to a 61% equity interest
–
100%
The R shares in Reed Elsevier Group plc and Elsevier Reed Finance BV and the non-voting preference shares in Reed Elsevier
Group plc are owned by Reed Elsevier PLC.
In addition, Reed Elsevier NV holds shares with special dividend rights in Reed Elsevier Overseas BV, a subsidiary of
Reed Elsevier Group plc with registered offices in Amsterdam. These shares are included in the amount shown under
investments in joint ventures and enable Reed Elsevier NV to receive dividends from companies within the same tax jurisdiction.
A list of companies within Reed Elsevier is filed with the Amsterdam Chamber of Commerce in the Netherlands.
20 Approval of financial statements
The consolidated financial statements were signed and authorised for issue by the Combined Board of directors on
18 February 2009.
J Hommen
Chairman
M H Armour
Chief Financial Officer
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178
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Independent auditors’ report on the consolidated financial statements
to the shareholders of Reed Elsevier NV
Opinion
In our opinion, the consolidated financial statements give a true
and fair view of the financial position of Reed Elsevier NV as at
31 December 2008, and of its result and its cash flows for the
year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union and
with Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part f
of the Netherlands Civil Code, we report, to the extent of our
competence, that the report of the Supervisory Board and the
Executive Board are consistent with the consolidated financial
statements as required by 2:391 sub 4 of the Netherlands
Civil Code.
Deloitte Accountants B.V.
J P M Hopmans
Amsterdam
The Netherlands
18 February 2009
Report on the consolidated financial statements
We have audited the accompanying consolidated financial
statements 2008 which are part of the financial statements
of Reed Elsevier NV, Amsterdam, which comprise the
consolidated balance sheet as at 31 December 2008, the
consolidated income statement, the consolidated cash flow
statement, the consolidated statement of recognised income
and expense and the consolidated reconciliation of shareholders’
equity for the year then ended and a summary of significant
accounting policies and other explanatory notes, as set out in
pages 166 to 177.
Management’s responsibility
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards
as adopted by the European Union and with Part 9 of Book 2
of the Netherlands Civil Code, and for the preparation of the
report of the Supervisory Board and the Executive Board in
accordance with Part 9 of Book 2 of the Netherlands Civil Code.
This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair
presentation of the consolidated financial statements that are
free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on the consolidated
financial statements based on our audit. We conducted our audit
in accordance with Dutch law. This law requires that we comply
with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the
risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to
the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
179
Reed Elsevier
Annual Reports and
Financial Statements
2008
Parent company profit and loss account
For the year ended 31 December
Administrative expenses
Dividends received from joint ventures
Finance income from joint ventures
Taxation
Profit attributable to ordinary shareholders
Parent company balance sheet
As at 31 December
Fixed assets
Investments in joint ventures
Current assets
Amounts due from joint ventures – funding
Amounts due from joint ventures – other
Cash
Creditors: amounts falling due within one year
Taxation
Other creditors
Net current assets
Net assets
Capital and reserves
Share capital issued
Paid-in surplus
Shares held in treasury
Other reserves
Reserves
Shareholders’ funds
Reed Elsevier NV
2008
Jm
(3)
1,200
77
(19)
1,255
2007
um
(3)
1,410
73
(18)
1,462
2008
Jm
As restated
2007
um
Note
1
2,330
1,553
4 5
1,557
12 9
1,569
(66)
(10)
(76)
1,493
3,823
49
1,712
(357)
169
2,250
3,823
2,300
1,864
1,869
1,878
(64)
(9)
(73)
1,805
4,105
49
1,685
(332)
139
2,564
4,105
The parent company financial statements were signed and authorised for issue by the Combined Board of directors on
18 February 2009.
J Hommen
Chairman
M H Armour
Chief Financial Officer
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180
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Parent company reconciliation of shareholders’ funds
At 1 January 2007 as previously stated
Change in accounting policy on adoption of UITF 44(iii)
At 1 January 2007 as restated
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of shares, net of expenses
Equity granted to employees of combined businesses
At 1 January 2008 as restated
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of shares, net of expenses
Equity granted to employees of combined businesses
At 31 December 2008
Share capital
issued
Jm
Paid-in
surplus(i)
Jm
Shares held
in treasury
Jm
48
–
48
–
–
–
1
–
49
–
–
–
–
–
49
1,562
–
1,562
–
–
–
123
–
1,685
–
–
–
27
–
1,712
(156)
–
(156)
–
–
(176)
–
–
(332)
–
–
(25)
–
–
(357)
Other
reserves(iv)
Jm
–
109
109
–
–
–
–
30
139
–
–
–
–
30
169
Reserves
Jm
1,412
–
1,412
1,462
(310)
–
–
–
2,564
1,255
(1,569)
–
–
–
2,250
Total
Jm
2,866
109
2,975
1,462
(310)
(176)
124
30
4,105
1,255
(1,569)
(25)
27
30
3,823
(i) Within paid-in surplus, an amount of u1,535m (2007: u1,508m) is free of tax.
(ii) Free reserves of the company at 31 December 2008 were u3,605m (2007: u2,232m), comprising reserves less shares held
in treasury and including, at 31 December 2008, paid-in surplus.
(iii) For further detail see accounting policies.
(iv) Other reserves relate to equity granted to employees of the combined businesses under share based remuneration
arrangements. Other reserves do not form part of free reserves.
Parent company accounting policies
Basis of preparation
The parent company financial statements have been prepared
under the historical cost convention. As permitted by 2:362
subsection 1 of the Dutch Civil Code for companies with
international operations, the parent company financial
statements have been prepared in accordance with UK Generally
Accepted Accounting Principles (GAAP) ensuring consistency.
The financial information relating to the company is recognised
in the consolidated financial statements. In accordance with
2:402 of The Netherlands Civil Code, the parent company
financial statements only contain an abridged profit and
loss account.
The parent company financial statements are prepared on
a going concern basis, as explained on page 165.
The Reed Elsevier NV accounting policies under UK GAAP
are set out below.
Change in accounting policy
The company has adopted UITF 44 – Group and Treasury Share
Transactions issued by the UK Accounting Standards Board,
effective for the 2008 financial statements. UITF 44 requires
the fair value of the award of share options and conditional
shares over Reed Elsevier NV ordinary shares to employees of
the Reed Elsevier combined businesses to be treated as a capital
contribution, with retrospective effect.
Accordingly, the investments in joint ventures have been restated
to include as at 1 January 2007 the aggregate amount of u109m
for the fair values of the awards of share options and conditional
shares over Reed Elsevier NV ordinary shares since 7 November
2002, being the transition date permitted by UITF 44, and u30m
in respect of awards made in the year ended 31 December 2007.
Investments
Fixed asset investments in the combined businesses
are stated at cost, less provision, if appropriate, for any
impairment in value.
Principal joint ventures are set out in note 19 of the
Reed Elsevier NV consolidated financial statements.
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.
Shares held in treasury
The amount of consideration paid, including directly attributable
costs for shares repurchased, is recognised as shares held
in treasury and presented as a deduction from total equity.
Foreign exchange translation
Transactions entered into in foreign currencies are recorded
at the exchange rates applicable at the time of the transaction.
Taxation
Deferred taxation is provided 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. Deferred taxation balances are not discounted.
181
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Notes to the parent company financial statements
1 Other creditors
Other creditors include u10m (2007: u8m) of employee convertible debenture loans with a weighted average interest rate of 5.28%
(2007: 4.99%). Depending on the conversion terms, the surrender of u227 or u200 par value debenture loans qualifies for the
acquisition of 50 Reed Elsevier NV ordinary shares.
2 Reconciliations to consolidated financial statements
A reconciliation of the parent company profit attributable to ordinary shareholders prepared under UK GAAP and the consolidated
profit attributable to ordinary shareholders prepared under IFRS and presented under the equity method is provided below:
Year ended 31 December
Parent company profit attributable to ordinary shareholders
Share of results of joint ventures
Dividends received from joint ventures
Consolidated profit attributable to ordinary shareholders using the equity method
2008
Jm
1,255
239
(1,200)
294
2007
um
1,462
803
(1,410)
855
A reconciliation between the parent company shareholders’ funds prepared under UK GAAP and the consolidated shareholders’
funds prepared under IFRS and presented under the equity method is provided below:
As at 31 December
Parent company shareholders’ funds
Cumulative share of results of joint ventures less cumulative dividends received from joint ventures
Cumulative currency translation adjustments
Cumulative equalisation and other adjustments
Share of treasury shares held by joint ventures’ employee benefit trust
Share of IFRS adjustments in joint ventures
Equity granted to employees of combined businesses
Consolidated shareholders’ funds using the equity method
2008
Jm
3,823
(2,218)
(358)
135
(120)
(602)
(169)
491
As restated
2007
um
4,105
(1,257)
(379)
415
(127)
(602)
(139)
2,016
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182
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Independent auditors’ report on the parent company financial statements
to the shareholders of Reed Elsevier NV
Report on the company financial statements
We have audited the accompanying company financial
statements 2008 which are part of the financial statements
of Reed Elsevier NV, Amsterdam, which comprise the balance
sheet as at 31 December 2008 the profit and loss account
for the year then ended, the parent company reconciliation of
shareholders’ funds and the notes, as set out in pages 179 to 181.
Opinion
In our opinion, the company financial statements give a true
and fair view of the financial position of Reed Elsevier NV as
at 31 December 2008 and of its result for the year then ended
in accordance with accounting principles generally accepted in
the United Kingdom and with Part 9 of Book 2 of the Netherlands
Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part f
of the Netherlands Civil Code, we report, to the extent of our
competence, that the report of the Supervisory Board and the
Executive Board are consistent with the company financial
statements as required by 2:391 sub 4 of the Netherlands
Civil Code.
Deloitte Accountants B.V.
J P M Hopmans
Amsterdam
The Netherlands
18 February 2009
Management’s responsibility
Management is responsible for the preparation and fair
presentation of the company financial statements in accordance
with accounting principles generally accepted in the United
Kingdom and with Part 9 of Book 2 of the Netherlands Civil
Code, and for the preparation of the Report of the Supervisory
Board and the Executive Board in accordance with Part 9 of
Book 2 of the Netherlands Civil Code. This responsibility
includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of the
company financial statements that are free from material
misstatement, whether due to fraud or error; selecting and
applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on the company
financial statements based on our audit. We conducted our audit
in accordance with Dutch law. This law requires that we comply
with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the company financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the company
financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of
material misstatement of the company financial statements,
whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the company financial
statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the
overall presentation of the company financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
183
Reed Elsevier
Annual Reports and
Financial Statements
2008
Additional information
Reed Elsevier NV
R shares
Under the Articles of Association an R share is convertible at the election of the holders into ten ordinary shares each. Otherwise
an R share has the same rights as an ordinary share, except that Reed Elsevier NV may pay a lower dividend on it, but not less than
1% of the nominal value of the R share.
Profit allocation
The Articles of Association provide that distributions of dividend may only be made insofar as the company’s equity exceeds
the amount of the paid in capital, increased by the reserves which must be kept by virtue of the law and may be made in cash or
in shares, at the proposal of the Combined Board. Distribution of dividends on ordinary shares and the class R shares shall be
made in proportion to the nominal value of each share. The Combined Board may resolve that the dividend to be paid on each class
R share shall be lower than the dividend to be paid on each ordinary share, resolving at the same time what amount of dividend
shall be paid on each ordinary share and each class R share, respectively.
Proposal for allocation of profit
Final dividend on ordinary shares for prior financial year
Interim dividend on ordinary shares for financial year
Special distribution
Dividend on R shares
Retained (loss)/profit
2008
Jm
198
72
1,299 –
–
(314)
1,255
2007
um
225
85
1,152
1,462
–
Post balance sheet events
In January 2009, term debt of $1,500m (u1,068m) and u50m due in more than five years from 31 December 2008 were issued
by the Reed Elsevier combined businesses and used to repay loans maturing within one to two years.
As at 31 December 2008 short term bank loans, overdrafts and commercial paper in the combined businesses were backed up
by $3,000m of committed bank facilities maturing in May 2010, of which $38m (u27m) was drawn. On 17 February 2009 these
facilities were reduced to $2,500m (u1,780m) and new $2,000m (u1,424m) committed bank facilities, forward starting in May 2010
and maturing in May 2012, were put in place.
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184
Reed Elsevier
Annual Reports and
Financial Statements
2008
5 year summary
Reed Elsevier NV
Combined financial information (IFRS)
Revenue – continuing operations
Reported operating profit – continuing operations
Adjusted operating profit – continuing operations
Reported profit attributable to shareholders – total operations
Adjusted profit attributable to shareholders – total operations
Reed Elsevier NV consolidated financial information (IFRS)
Reported profit attributable to shareholders
Adjusted profit attributable to shareholders
Reported earnings per ordinary share (u)
Adjusted earnings per ordinary share (u)
Dividend per share (u)
Note
2
2
2
3
2008
Jm
6,721
1,135
1,737
587
1,159
294
580
J0.44
J0.87
J0.404
2007
um
6,693
1,296
1,660
1,709
1,244
855
622
u1.10
u0.80
u0.425
2006
um
6,628
1,231
1,589
916
1,170
458
585
u0.59
u0.76
u0.406
2005
um
6,227
1,098
1,432
675
1,101
338
551
u0.43
u0.70
u0.359
2004
um
5,798
1,027
1,336
675
1,010
338
505
u0.43
u0.64
u0.330
(1) Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible
assets and goodwill impairment, exceptional restructuring and acquisition related costs, and in respect of attributable profit,
reflect a tax rate that excludes the effect of movements in deferred taxation assets and liabilities that are not expected to
crystallise in the near term. Acquisition related costs and profit and loss from disposals and other non operating items are
excluded from the adjusted figures.
(2) Revenue, reported operating profit and adjusted operating profit are presented for continuing operations. Net profit from
discontinued operations is included in profit attributable to shareholders.
(3) Dividend per share is based on the interim dividend and proposed final dividend for the relevant year, and does not include
the u1.767 special distribution in 2008.
185
Reed Elsevier
Annual Reports and
Financial Statements
2008
Other
information
Additional information for US Investors
186 Reed Elsevier combined businesses
188 Reed Elsevier PLC
189 Reed Elsevier NV
Shareholder information
190 Shareholder information
193 Contacts
194 Financial calendar
Principal operating locations
195 Principal operating locations
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186
Reed Elsevier
Annual Reports and
Financial Statements
2008
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 IFRS 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
US dollars to sterling
Combined income statement
For the year ended 31 December
Revenue – continuing operations
Operating profit – continuing operations
Profit before tax – continuing operations
Net profit from discontinued operations
Profit attributable to parent companies’ shareholders – total operations
Adjusted operating profit – continuing operations
Adjusted profit before tax – continuing operations
Adjusted profit attributable to parent companies’ shareholders – total operations
Income statement
Balance sheet
2008
1.85
2007
2.00
2008
1.45
2007
2.00
2008
US$m
9,868
1,667
1,141
33
881
2,551
2,229
1,700
2007
US$m
9,168
1,776
1,624
618
2,400
2,274
1,996
1,704
187
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier combined businesses
Combined cash flow statement
For the year ended 31 December
Net cash from operating activities – continuing operations
Net cash used in investing activities – continuing operations
Net cash used in financing activities – continuing operations
Net cash (used in)/from discontinued operations
(Decrease)/increase in cash and cash equivalents
Movement in cash and cash equivalents
At start of year
Increase in cash and cash equivalents
Exchange translation differences
At end of year
Adjusted operating cash flow – continuing operations
Combined balance sheet
As at 31 December
Non-current assets
Current assets
Assets held for sale
Total assets
Current liabilities
Non-current liabilities
Liabilities associated with assets held for sale
Total liabilities
Net assets
Additional information for US Investors
2008
US$m
1,957
(4,257)
(1,633)
(89)
(4,022)
4,934
(4,022)
(368)
544
2,603
2008
US$m
14,983
3,601
71
18,655
5,957
11,273
17,233
1,422
2007
US$m
1,662
(756)
(896)
3,824
3,834
1,017
3,834
83
4,934
2,216
2007
US$m
10,682
8,192
682
19,556
7,734
5,702
168
13,604
5,952
3
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188
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier PLC
Additional information for US Investors
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of Reed Elsevier PLC’s consolidated financial statements into US dollars
at the stated rates of exchange. The financial information provided below is prepared under IFRS as used in the preparation of
the Reed Elsevier PLC consolidated financial statements. It does not represent a restatement under US GAAP which would be
different in some significant respects.
Exchange rates for translation of sterling ($:£1)
Income statement
Balance sheet
Consolidated income statement
For the year ended 31 December
Profit attributable to ordinary shareholders
Adjusted profit attributable to 52.9% interest in Reed Elsevier combined businesses
Share of joint ventures’:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax adjustments
Profit attributable to 52.9% interest in Reed Elsevier combined businesses
Data per American Depositary Share (ADS)
Earnings per ADS based on 52.9% interest in Reed Elsevier combined businesses
Adjusted
Basic
Net dividend per ADS declared in the year
Net dividend per ADS paid and proposed in relation to the financial year
Consolidated balance sheet
As at 31 December
Shareholders’ equity
2008
US$:£
1.85
1.45
2007
US$:£
2.00
2.00
2008
US$m
446
899
(320)
(109) –
(30)
(42)
68
466
2008
US$
$3.30
$1.64
$7.47
$1.50
2007
US$m
1,248
902
(274)
(14)
552
104
1,270
2007
US$
$2.87
$3.98
$1.30
$1.45
2008
US$m
731
2007
US$m
3,136
Adjusted earnings per American Depositary Share is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted profit
attributable of the Reed Elsevier combined businesses, which excludes amortisation of acquired intangible assets and goodwill
impairment, exceptional restructuring and acquisition related costs, disposals and other non operating items, related tax effects
and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term. Adjusted figures are
described in note 9 to the Reed Elsevier PLC consolidated financial statements.
Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary
Shares (ADSs), evidenced by American Depositary Receipts (ADRs), representing four Reed Elsevier PLC ordinary shares.
(CUSIP No. 758205207; trading symbol, RUK; Bank of New York is the ADS Depositary.)
189
Reed Elsevier
Annual Reports and
Financial Statements
2008
Reed Elsevier NV
Additional information for US Investors
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier NV consolidated financial statements into US
dollars at the stated rates of exchange. The financial information provided below is prepared under IFRS as used in the preparation
of the Reed Elsevier NV consolidated financial statements. It does not represent a restatement under US GAAP which would be
different in some significant respects.
Exchange rates for translation of euros ($:J)
Income statement
Balance sheet
Consolidated income statement
For the year ended 31 December
Adjusted profit attributable to ordinary shareholders
Share of joint ventures’:
Amortisation of acquired intangible assets and goodwill impairment
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax adjustments
Profit attributable to ordinary shareholders
Data per American Depositary Share (ADS)
Earnings per ADS based on 50% interest in Reed Elsevier combined businesses
Adjusted
Basic
Net dividend per ADS declared in the year
Net dividend per ADS paid and proposed in relation to the financial year
Consolidated balance sheet
As at 31 December
Shareholders’ equity
2008
US$:J
1.47
1.41
2007
US$:u
1.37
1.47
2008
US$m
853
(303)
(103) –
(28)
(50)
63
432
2008
US$
$2.56
$1.29
$6.44
$1.19
2007
US$m
852
(256)
(14)
492
97
1,171
2007
US$
$2.19
$3.01
$1.15
$1.16
2008
US$m
692
2007
US$m
2,965
Adjusted earnings per American Depositary Share is based on Reed Elsevier NV shareholders’ 50% share of the adjusted profit
attributable of the Reed Elsevier combined businesses, which excludes amortisation of acquired intangible assets and goodwill
impairment, exceptional restructuring and acquisition related costs, disposals and other non operating items, related tax effects
and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term. Adjusted figures are
described in note 9 to the Reed Elsevier NV consolidated 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.
(CUSIP No. 758204200; trading symbol, ENL; Bank of New York is the ADS Depositary.)
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190
Reed Elsevier
Annual Reports and
Financial Statements
2008
Shareholder information
Annual Reports and Financial Statements
The Annual Reports and Financial Statements for the
Reed Elsevier combined businesses, Reed Elsevier PLC and
Reed Elsevier NV for the year ended 31 December 2008 are
available on the Reed Elsevier website, or from the registered
offices of the respective parent companies shown on page 193.
Additional financial information is also available on the
Reed Elsevier website, including the Reed Elsevier combined
financial statements in euros, Interim and Preliminary Results
announcements and presentations.
Interim results
Reed Elsevier PLC and Reed Elsevier NV do not intend to
publish future interim results in hard copy. The interim
results will be available on the Reed Elsevier website.
Share price information
Reed Elsevier PLC’s ordinary shares are quoted on the
London Stock Exchange.
Reed Elsevier NV’s ordinary shares are quoted on the Euronext
Stock Exchange in Amsterdam.
The Reed Elsevier PLC and Reed Elsevier NV ordinary shares
are quoted on the New York Stock Exchange in the form of
American Depositary Shares (ADSs), evidenced by American
Depositary Receipts (ADRs). Each Reed Elsevier PLC ADR
represents four Reed Elsevier PLC ordinary shares. Each
Reed Elsevier NV ADR represents two Reed Elsevier NV
ordinary shares.
The Reed Elsevier PLC and Reed Elsevier NV ordinary share
prices and the ADR prices may be obtained from the Reed
Elsevier website, other online sources and the financial pages
of many newspapers.
8 For further information visit
www.reedelsevier.com
Shareholder information
Information for Reed Elsevier PLC ordinary shareholders
Shareholder services
The Reed Elsevier PLC ordinary share register is administered
by Equiniti Limited. Enquiries concerning ordinary
shareholdings in Reed Elsevier PLC and notification of change
of personal details should be referred to Equiniti Limited at the
address shown on page 193.
Electronic communications
Shareholders who have not registered for electronic
communications can do so online at www.shareview.co.uk,
quoting their shareholder account number, which appears
on their dividend tax voucher. The website also enables
shareholders to view details of their own shareholding or
electronically appoint a proxy to vote on their behalf on any poll
that may be held at the forthcoming Annual General Meeting.
Shareholders who hold their Reed Elsevier PLC shares
through CREST may appoint proxies through the CREST
electronic proxy appointment service for the forthcoming
Annual General Meeting by using the procedures described
in the CREST manual.
Dividends
Dividends on Reed Elsevier PLC ordinary shares are declared
and paid in sterling. Shareholders can arrange to have their
dividends paid directly into a bank or building society account.
This method of payment reduces the risk of delay or loss of
dividend cheques in the post and ensures the account is
credited on the dividend payment date.
Dividend Reinvestment Plan
Shareholders can choose to reinvest dividends by purchasing
further shares through the Dividend Reinvestment Plan
(“DRIP”). A DRIP application form can be obtained from the
Reed Elsevier PLC Registrar at www.shareview.co.uk/
dividends, or by contacting Equiniti at the address shown on
page 193.
ShareGift
The Orr Mackintosh Foundation operates a charity share
donation scheme for shareholders with small parcels of
shares whose value makes it uneconomic to sell them.
Details of the scheme can be obtained from the ShareGift
website at www.sharegift.org, or by telephoning ShareGift
on 020 7930 3737.
Share dealing service
A telephone and internet dealing service is available through
Reed Elsevier PLC’s Registrar, which provides a simple way
for UK-resident shareholders to buy or sell Reed Elsevier PLC
shares. For telephone dealing call 08456 037 037 between
8.00am and 4.30pm, Monday to Friday, and for internet dealing
log on to www.shareview.co.uk/dealing. You will need
your shareholder account number shown on your dividend
tax voucher.
Individual savings accounts (ISA)
A single company ISA for Reed Elsevier PLC shares is available
through the company’s Registrar. Details may be obtained
by writing to Equiniti at the address shown on page 193,
or by calling their ISA helpline on 0845 300 0430.
191
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Annual Reports and
Financial Statements
2008
Shareholder information
Shareholder information continued
Sub-division of ordinary shares and share consolidation
On 28 July 1986 each Reed Elsevier PLC ordinary share of £1
nominal value was sub-divided into four ordinary shares of 25p
each. Subsequently, on 2 May 1997, the 25p ordinary shares
were sub-divided into two ordinary shares of 12.5p each.
> Report the matter to the FSA by telephoning 0845 606 1234
or online at www.moneymadeclear.fsa.gov.uk.
If you deal with an unauthorised firm, you would not be
eligible to receive payment under the Financial Services
Compensation Scheme.
On 7 January 2008 the existing ordinary shares of 12.5p each
were consolidated into new ordinary shares of 1451⁄116p nominal
value, on the basis of 58 new ordinary shares for every
67 existing ordinary shares held.
> Inform Reed Elsevier PLC’s Registrar at the address shown
on page 193. They are not able to investigate such incidents
themselves but will record the details and pass them on to
Reed Elsevier PLC and liaise with the FSA.
Capital gains tax
The mid-market price of Reed Elsevier PLC’s £1 ordinary
shares on 31 March 1982 was 282p, which should be adjusted
for subsequent events, in particular the four for one sub-
division in 1986 and the two for one sub-division in 1997. This
gives an equivalent amount of 35.25p for each 12.5p share.
The above value of 35.25p should also be adjusted for the
January 2008 share consolidation, when 58 new ordinary
shares were issued for every 67 existing ordinary shares
held, to give an equivalent amount of 40.72p for each new
ordinary share of 1451⁄116p nominal value.
Unsolicited mail
Reed Elsevier PLC, along with other publicly owned companies,
is legally obliged to make its share register available to anyone
who requests a copy.
Shareholders may receive unsolicited mail from organisations
offering their services. To limit the receipt of such unsolicited
mail, shareholders should contact the Mailing Preference
Service (MPS) on 0845 703 4599, or online at www.mpsonline.
org.uk, or by writing to MPS for a registration form at:
Mailing Preference Service, FREEPOST 29 LON20771,
London W1E 0ZT.
Shareholders may still, however, receive unsolicited mail from
organisations that do not subscribe to the MPS service.
Warning about unsolicited investment contacts
Shareholders may receive unsolicited phone calls or
correspondence concerning investment matters. These are
typically from overseas based ‘brokers’ who target UK
shareholders offering to sell them what often turn out to
be worthless or high risk shares in US or UK investments.
Shareholders are advised to be very wary of any unsolicited
advice, offers to buy shares at a discount or offers of free
company reports.
If you receive any unsolicited investment advice:
> Make sure you get the correct name of the person and
organisation.
> Check that they are properly authorised by the Financial
Services Authority before getting involved. You can check
at www.fsa.gov.uk/pages/register.
Information for Reed Elsevier NV ordinary shareholders
Shareholder enquiries
Enquiries from holders of Reed Elsevier NV registered ordinary
shares in relation to share transfers, dividends, change of
address and bank accounts should be directed to the Company
Secretary of Reed Elsevier NV, at the registered office address
shown on page 193.
Dividends
Dividends on Reed Elsevier NV ordinary shares are declared
and paid in euros. Registered shareholders in Reed Elsevier NV
will receive dividends from the company by transmission to the
bank account which they have notified to the company.
Dividends on shares in bearer form are paid through the
intermediary of a bank or broker.
Dividend Reinvestment Plan
Shareholders can choose to reinvest dividends by purchasing
additional shares through the Dividend Reinvestment Plan
provided by ABN AMRO Bank NV.
Sub-division of ordinary shares and share consolidation
On 24 April 1984 each Reed Elsevier NV Dfl 20 ordinary share
was sub-divided into five ordinary shares of Dfl 4 each, and on
24 April 1987 each Dfl 4 ordinary share was sub-divided into
four ordinary shares of Dfl 1 each. Subsequently, on 4 October
1994 each Dfl 1 ordinary share was sub-divided into 10 ordinary
shares of Dfl 0.10 each. On 15 April 1999 the ordinary shares of
Dfl 0.10 were redenominated as ordinary shares of u0.06.
On 7 January 2008 the existing ordinary shares of u0.06 each
were consolidated into new ordinary shares of u0.07 each on
the basis of 58 new ordinary shares for every 67 existing
ordinary shares held.
Shareholder Communications Channel for Reed Elsevier NV
shareholders
Reed Elsevier NV has entered into arrangements with
Stichting Communicatiekanaal Aandeelhouders (Shareholder
Communication Channel Trustee) in the Netherlands,
facilitating the communication with and between shareholders,
particularly in connection with general meetings of
shareholders. Under these arrangements, holders of
Reed Elsevier NV bearer shares whose shares are held
in the custody of a Dutch bank, and who have notified the
intermediary authority appointed for these purposes of their
interest, will receive written information from the company
with a proxy form for their representation at general
shareholders’ meetings.
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Annual Reports and
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2008
Shareholder information continued
Information for Reed Elsevier PLC
and Reed Elsevier NV ADR holders
The Reed Elsevier PLC and Reed Elsevier NV ADR Depositary
is The Bank of New York Mellon. Reed Elsevier PLC’s CUSIP
number is 758205207 and its trading symbol is RUK. Each
Reed Elsevier PLC ADR represents four Reed Elsevier PLC
ordinary shares. Reed Elsevier NV’s CUSIP number is
758204200 and its trading symbol is ENL. Each Reed Elsevier
NV ADR represents two Reed Elsevier NV ordinary shares.
ADR shareholder services
Enquiries concerning Reed Elsevier PLC or Reed Elsevier NV
ADRs should be addressed to the ADR Depositary at the
address shown on page 193.
Dividends
Dividend payments on Reed Elsevier PLC and Reed Elsevier NV
ADRs are made in US dollars by the ADR Depositary.
Annual Report on Form 20-F
The Annual Report on Form 20-F for the Reed Elsevier
combined businesses, Reed Elsevier PLC and Reed Elsevier NV
is filed electronically with the United States Securities and
Exchange Commission. A copy of Form 20-F is available on
the Reed Elsevier website, or from the ADR Depositary at the
address shown on page 193.
193
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Annual Reports and
Financial Statements
2008
Contacts
Reed Elsevier PLC
1-3 Strand
London WC2N 5JR
United Kingdom
Tel: +44 (0) 20 7930 7077
Fax: +44 (0) 20 7166 5799
Reed Elsevier PLC Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
Tel: 0871 384 2960
(calls charged at 8p per minute from a BT landline,
other telephony providers’ costs may vary)
Tel: +44 121 415 7047 (non-UK callers)
www.shareview.co.uk
Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BT
United Kingdom
Stockbrokers
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP
United Kingdom
Shareholder information
Reed Elsevier NV
Radarweg 29
1043 NX Amsterdam
The Netherlands
Tel: +31 (0) 20 485 2222
Fax: +31 (0) 20 618 0325
Reed Elsevier PLC and Reed Elsevier NV ADR Depositary
The Bank of New York Mellon
PO Box 358516
Pittsburgh
PA 15252-8516
USA
Tel: +1 888 269 2377
+1 201 680 6825 (outside the US)
email: shareowners@bankofny.com
www.adrbny.com
Deloitte Accountants B.V.
Orlyplein 50
1043 DP Amsterdam
The Netherlands
ABN AMRO Bank NV
Gustav Mahlerlaan 10
1082 PP Amsterdam
The Netherlands
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2008
2009 financial calendar
Shareholder information
1 June
19 February
21 April
21 April
22 April
22 April
24 April
24 April
28 April
22 May
PLC
NV
PLC
PLC
NV
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
12 November PLC
NV
4 September
28 August
7 August
5 August
30 July
Announcement of Preliminary Results for the year ended 31 December 2008
Annual General Meeting – Reed Elsevier PLC, Millennium Hotel, Grosvenor Square, London W1K 2HP
Interim Management Statement issued in relation to the 2009 financial year
Annual General Meeting – Reed Elsevier NV, Hotel Okura, Ferdinand Bolstraat 333, 1072 LH Amsterdam
Ex-dividend date – 2008 final dividend, Reed Elsevier PLC ordinary shares and ADRs
Ex-dividend date – 2008 final dividend, Reed Elsevier NV ordinary shares and ADRs
Record date – 2008 final dividend, Reed Elsevier PLC ordinary shares and ADRs
Record date – 2008 final dividend, Reed Elsevier NV ordinary shares and ADRs
Payment date – 2008 final dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
Payment date – 2008 final dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs
Announcement of Interim Results for the six months to 30 June 2009
Ex-dividend date – 2009 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
and ADRs
Record date – 2009 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
and ADRs
Payment date – 2009 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
Payment date – 2009 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs
Interim Management Statement issued in relation to the 2009 financial year
The following tables set out dividends and distributions paid (or proposed) in relation to the three financial years 2006-2008.
Final dividend for 2008*
Interim dividend for 2008
Final dividend for 2007
Special distribution
Interim dividend for 2007
Final dividend for 2006
Interim dividend for 2006
per PLC ordinary share
15.0p
5.3p
13.6p
82.0p
4.5p
11.8p
4.1p
per NV ordinary share
u0.290
u0.114
u0.311
u1.767
u0.114
u0.304
u0.102
Payment date
22 May 2009
29 August 2008
16 May 2008
18 January 2008
24 August 2007
11 May 2007
25 August 2006
*Proposed dividend, to be submitted for approval at the respective Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2009.
Final dividend for 2008
Interim dividend for 2008
Final dividend for 2007
Special distribution
Interim dividend for 2007
Final dividend for 2006
Interim dividend for 2006
per PLC ADR
**
$0.38743
$1.05818
$6.40896
$0.35978
$0.93340
$0.30897
per NV ADR
**
$0.28473
$0.82080
$4.38020
$0.26426
$0.69590
$0.22122
Payment date
01 June 2009
05 September 2008
23 May 2008
28 January 2008
31 August 2007
18 May 2007
01 September 2006
**Payment will be determined using the appropriate £/US$ and u/US$ exchange rate on 22 May 2009.
195
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Annual Reports and
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2008
Principal operating locations
Reed Elsevier
1-3 Strand
London WC2N 5JR, UK
Tel: +44 (0)20 7930 7077
Fax: +44 (0)20 7166 5799
Radarweg 29
1043 NX Amsterdam
The Netherlands
Tel: +31 (0)20 485 2222
Fax: +31 (0)20 618 0325
125 Park Avenue, 23rd Floor
New York, NY 10017, USA
Tel: +1 212 309 8100
Fax: +1 212 309 8187
Elsevier Reed Finance BV
Radarweg 29
1043 NX Amsterdam
The Netherlands
Tel: +31 (0)20 485 2222
Fax: +31 (0)20 618 0325
For further information or contact details, please consult
our website: www.reedelsevier.com
Elsevier
Radarweg 29
1043 NX Amsterdam
The Netherlands
www.elsevier.com
The Boulevard, Langford Lane
Kidlington, Oxford OX5 1GB, UK
360 Park Avenue South
New York
NY 10010, USA
1600 John F. Kennedy Blvd
Suite 1800, Philadelphia
PA 19103-2899, USA
www.us.elsevierhealth.com
11830 Westline Industrial Drive
St. Louis, MO 63146, USA
Principal operating locations
LexisNexis
LexisNexis US
125 Park Avenue, 23rd Floor
New York, NY 10017, USA
www.lexisnexis.com
9443 Springboro Pike
Miamisburg, OH 45342, USA
121 Chanlon Road
New Providence, NJ 07974, USA
www.martindale.com
1200 Bluegrass Parkway
Alpharetta, GA 30004, USA
LexisNexis UK
Halsbury House, 35 Chancery Lane
London WC2A 1EL, UK
www.lexisnexis.co.uk
LexisNexis France
141 rue de Javel,
75747 Paris Cedex 15
France
www.lexisnexis.fr
Reed Exhibitions
Gateway House, 28 The Quadrant
Richmond, Surrey TW9 1DN, UK
www.reedexpo.com
Reed Business Information
Reed Business Information US
360 Park Avenue South
New York
NY 10010, USA
www.reedbusiness.com
Reed Business Information UK
Quadrant House, The Quadrant
Sutton, Surrey SM2 5AS, UK
www.reedbusiness.co.uk
Reed Business Information NL
Radarweg 29
1043 NX Amsterdam
The Netherlands
www.reedbusiness.nl
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Reed Elsevier
Annual Reports and
Financial Statements
2008
Notes
Our business
Our strengths
Our strategy
Reed Elsevier is a world leading provider of professional information and
online workflow solutions in the Science, Medical, Legal, Risk Information
and Analytics, and Business sectors.
Based in over 200 locations worldwide, we create authoritative content
delivered through market leading brands, enabling our customers to find
the essential data, analysis and commentary to support their decisions.
Our content and solutions are increasingly embedded in the workflows
of our customers making them more effective and Reed Elsevier a more
valued partner.
> www.elsevier.com
> For a detailed operating review turn to page 14
> For a detailed description of the business turn to page 33
Elsevier is a leading provider of scientific, technical and medical information and solutions. The Science &
Technology division is the world’s largest global academic journal publisher, producing over 200,000 new research
articles in some 1,100 journals every year, with ScienceDirect, its flagship electronic product, accessed by over
11 million users. The Health Sciences division publishes over 700 journals and 2,000 books and clinical reference
works annually and offers an extensive portfolio of online tools in education, practitioner reference and point of care.
> www.lexisnexis.com
> For a detailed operating review turn to page 16
> For a detailed description of the business turn to page 35
LexisNexis is a leading provider of legal, tax, regulatory, risk information and analytics, and business information
solutions to professional, corporate and government customers worldwide. LexisNexis provides authoritative
content through trusted market leading brands which, enabled by technology, offers online information solutions
increasingly integrated within the customer workflow. In risk information and analytics, LexisNexis assists
customers in managing risk through identity verification, insurance risk evaluation, employment screening
and fraud prevention.
> www.reedexpo.com
> For a detailed operating review turn to page 18
> For a detailed description of the business turn to page 37
Reed Exhibitions is the world’s leading organiser of trade exhibitions. Through strongly branded, highly targeted
events, Reed Exhibitions provides the forum for exhibitors and attendees to do business, develop contacts and gain
industry insights. Every year there are over 470 events in 37 countries, bringing together over seven million active
event participants worldwide. With over 2,700 employees in 38 offices around the globe, Reed Exhibitions serves
44 industries worldwide.
We hold leadership positions
in large global markets sustained
by the increasing demand for
professional information
We deliver authoritative content
of the highest quality through
market leading brands, enabling
our professional customers to find
the essential data, analysis and
commentary to support their
decisions
Our content and solutions are
increasingly embedded in our
customers’ workflows making
them more effective and Reed
Elsevier a more valued partner
We generate a large part of our
revenues from subscription and
other recurring revenue streams
Our focus on operational efficiency
allows us to deliver good operating
margin while funding investment in
new products
The quality of our profits is
underpinned by strong cash flow
generation
> www.reedbusinessinformation.com
> For a detailed operating review turn to page 20
> For a detailed description of the business turn to page 39
Reed Business Information is a leading global provider of information and marketing solutions to decision makers
and professionals. Its portfolio of market leading brands makes it the preferred communication partner across
a range of markets from agriculture to technology. Reed Business Information publishes over 400 business-to-
business magazines, directories and newsletters; it provides access to over 200 online communities and produces
an increasing number of job sites, lead generation, data and other online services.
We recruit and cultivate the best
talent to serve our customers and
manage our business with enterprise,
professionalism and exceptional
commitment
Deliver authoritative content through
leading brands
Deliver high quality, essential content
to our professional customers.
We invest in new sources of
content to widen and differentiate
our product offering, expanding into
new segments and geographic regions
Drive online solutions
Leverage our leadership brands
and authoritative proprietary content
to deliver innovative, solutions-
oriented products that become
embedded in customer workflows
and enable Reed Elsevier to become
an increasingly valued partner
Improve cost efficiency
Leverage the scale, skill sets,
technology, resources and collective
experience of our businesses to
improve cost efficiency
Reshape and strengthen portfolio
Allocate capital and resources
through a combination of internal
investment and selective acquisitions
to pursue opportunities that
accelerate our strategic and
business progress
197
Reed Elsevier
Annual Reports and
Financial Statements
2008
Credits
Designed and produced by
35 Communications
Board photography by
Julian Calder
Printed by
St Ives Westerham Press Ltd,
ISO14001, FSC certified and CarbonNeutral®
This report has been printed on revive 50:50
Silk paper. This paper is made from pre and
post consumer waste and virgin wood fibre,
independently certified in accordance with
the FSC (Forest Stewardship Council).
It is manufactured at a mill that is certified
to ISO14001 environmental management
standards. The pulp is bleached using
an elemental chlorine free (ECF) process.
The inks used are all vegetable oil based.
The CO2 emissions produced from
the production and distribution of the
Annual Reports and Financial Statements 2008
have been neutralised through forestry and
energy friendly projects around the world.
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Annual Reports and Financial Statements 2008
Information solutions
for professionals
www.reedelsevier.com