Annual Reports and
Financial Statements 2009
Reed Elsevier is a world leading provider of professional information
solutions in the Science, Medical, Legal, Risk and Business sectors.
Our customers are using our products every day to advance science,
improve medical outcomes, enable better legal decisions, evaluate risk,
forge business relationships and gain business insight.
Revenue
£6,071m
33%
42%
Adjusted operating profit
£1,570m
44%
42%
Elsevier £1,985m
LexisNexis £2,557m
14%
Reed Exhibitions £638m
Reed Business Information £891m
11%
Elsevier £693m
LexisNexis £665m
Reed Exhibitions £152m
Reed Business Information £89m
6%
10%
World’s leading provider
of scientific and medical
information
Provider of world class
content and information
solutions for legal and
risk markets
World’s largest organiser
of trade exhibitions
Provider of business
information, online data
and marketing solutions
Contents
Overview >
p02
02 Financial highlights
04 Chairman’s statement
06 Chief Executive Officer’s report
Our business >
p10
10 Reed Elsevier
12 Elsevier
20 LexisNexis
28 Reed Exhibitions
32 Reed Business Information
Financial review >
p36
36 Chief Financial Officer’s report
36 Combined businesses
40 Parent companies
45 Key performance measures
47 Principal risks
Governance >
p49
50 Board Directors
52 Corporate responsibility
56 Structure and corporate governance
62 Directors’ remuneration report
79 Report of the Audit Committees
Financial statements
and other information >
82 Combined financial statements
123 Summary combined financial
p81
information in euros
138 Reed Elsevier PLC annual report
and financial statements
161 Reed Elsevier NV annual report
and financial statements
185 Additional information for US investors
190 Shareholder information
194 Principal operating locations
Annual Reports and Financial Statements 2009 Reed Elsevier 01
Financial highlights
Reed Elsevier combined businesses
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
Parent companies
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
2009
£m
6,071
787
435
3,931
2009
£m
1,570
1,279
1,558
25.9%
99%
2009
17.2p
45.9p
20.4p
2009
€0.32
€0.79
€0.400
2008
£m
5,334
901
617
5,726
2008
£m
1,379
1,205
1,407
25.9%
102%
2008
22.1p
44.6p
20.3p
2008
€0.44
€0.87
€0.404
%
change at
constant
currencies
0%
-22%
-36%
%
change at
constant
currencies
+1%
-6%
-2%
%
change at
constant
currencies
-9%
%
change at
constant
currencies
-9%
%
change
+14%
-13%
-29%
%
change
+14%
+6%
+11%
%
change
-22%
+3%
0%
%
change
-27%
-8%
-1%
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 additional performance measures used by management and are reconciled to the reported figures in note 11 to the combined
financial statements and note 9 to the respective parent company financial statements.
The percentage change at constant currencies refers to the movements at constant exchange rates, using 2008 full year average and hedge rates.
02 Reed Elsevier Annual Reports and Financial Statements 2009
Robust financial performance in unprecedented global recession
>
Core professional information businesses held up relatively well
>
Advertising and promotion markets significantly impacted
>
Costs reduced substantially
>
Excellent first year profit growth from ChoicePoint acquisition
>
Strong cash generation and improved financial position
Business trends continue in 2010; longer term prospects encouraging
Revenue
£m
Adjusted operating profit
£m
4,265
4,509
4,584
6,071
5,334
1,570
1,379
1,081
1,137
981
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
continuing operations
continuing operations
Adjusted EPS: Reed Elsevier PLC
pence
Adjusted EPS: Reed Elsevier NV
€
31.5
33.6
35.9
44.6
45.9
0.76
0.80
0.70
0.87
0.79
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Annual Reports and Financial Statements 2009 Reed Elsevier 03
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I am pleased to make this first report as Chairman of
Reed Elsevier. The downturn in the economies in all our
major geographies in 2009 was deep and unprecedented
and it is a testament to the robustness of the business
that Reed Elsevier delivered an increase in revenues
and adjusted operating profits of 14% to £6,071m
and £1,570m respectively expressed in sterling, and an
increase of 1% to €6,800m and €1,758m respectively
expressed in euros. (The higher sterling growth reflects
the impact on currency translation of the weakness
of sterling against the US dollar and euro.)
At constant currencies, revenues were flat and adjusted
operating profits up 1%. (Adjusted operating profits
are stated before amortisation and impairment of
acquired goodwill and intangible assets and exceptional
restructuring costs.) The ChoicePoint business,
acquired in September 2008, delivered a strong first
year contribution with proforma adjusted operating profit
growth of 44%. Its insurance sector business performed
well and the integration of ChoicePoint with LexisNexis’
Risk Solutions business has been well managed.
Underlying revenue, i.e. excluding ChoicePoint, was 6%
lower. Reed Elsevier’s core professional information
businesses held up well, but advertising and promotion
markets were significantly impacted by the economic
downturn. Firm action on costs, including execution of
the exceptional restructuring programmes first announced
two years ago and now mostly complete, has meant
that underlying adjusted operating margins were only
0.8 percentage points lower than in 2008 and, including
ChoicePoint, the adjusted operating margin was flat
at 25.9%. This is a highly creditable achievement.
Adjusted profit before tax was up 6% to £1,279m/6%
lower to €1,432m after higher net interest expense.
Including intangible asset amortisation, impairment
charges and other exceptional items, reported operating
profits were 22% lower at constant currencies mostly
due to impairment charges. Reported earnings per share
for Reed Elsevier PLC were 22% lower at 17.2p and for
Reed Elsevier NV 27% lower at €0.32.
Adjusted earnings per share were up 3% for Reed Elsevier
PLC at 45.9p and 8% lower for Reed Elsevier NV at
€0.79. This takes into account 4% dilution from the
July equity placing.
Chairman’s statement
Anthony Habgood
Chairman
Our 2009 results were relatively
robust given the depth of the
global recession. During the
second half we substantially
strengthened our balance sheet
through both an equity placing
and good cash generation.
In November, Erik Engstrom took
over as CEO and, as expected,
hit the ground running. The late
cycle nature of some of our
markets makes for a tough
environment in 2010 but the
fundamentals of our businesses
are strong, our balance sheet
is in good shape and new
management is in place with
the background, experience
and ambition to drive the
business forward.
04 Reed Elsevier Annual Reports and Financial Statements 2009
As was reported in last year’s Annual Report, Crispin Davis
retired after nine years as CEO in March 2009 and
Jan Hommen stepped down in April after four years
as Chairman. Ian Smith who had been appointed to the
Board as CEO designate in January resigned in November
by mutual agreement. I would like to thank Ian for his
contribution over a period of unprecedented economic
turbulence. I would also like to add my personal thanks
with those of my fellow Board members to Crispin and
Jan for their stewardship of Reed Elsevier over many years.
They have left behind a strong business which is well
placed in its international markets.
Going forward
The late cycle nature of some of our markets is making for
a tough environment in 2010 but the fundamentals of our
businesses are strong, our balance sheet is in good shape
and new management is in place with the background,
experience and ambition to drive the business forward.
Anthony Habgood
Anthony Habgood
Chairman
Dividends
The Boards are recommending equalised final dividends
of 15.0p for Reed Elsevier PLC and €0.293 for Reed
Elsevier NV, flat and up 1% respectively against the prior
year. This brings the total dividend for the year to 20.4p
for Reed Elsevier PLC and €0.40 for Reed Elsevier NV,
respectively a slight increase of 0.5% and a decrease of
1%. The differing dividend growth rates reflect movements
in the sterling-euro exchange rate between dividend
announcement dates.
Balance sheet
During the year significant steps were taken to strengthen
the balance sheet following the $4.1 billion acquisition of
ChoicePoint and the onset of global recession. Term debt
totalling $2.8 billion was issued in the first quarter of 2009
and in July we raised $1.3 billion from the equity placings
albeit at the expense of earnings dilution. These together
with excellent cash generation and capital discipline have
ensured that we have the balance sheet to support our
business strategies in uncertain economic times.
Boards
We have entered 2010 with a new Chief Executive Officer,
a relatively recently appointed Chairman and strong
independent Boards. Erik Engstrom’s appointment as
CEO in November is already providing us with positive
leadership based on both a fresh approach and the
combination of international media sector experience
and depth of knowledge of Reed Elsevier built up over
five highly successful years as CEO of Elsevier and an
executive member of the Boards. The strong independent
non-executive component of the Boards was further
enhanced by the appointment of Ben van der Veer in
September. Ben’s wide experience and knowledge of
international business and finance is of great value to
us. The Reed Elsevier NV Supervisory Board was also
enhanced with the appointment of Marike van Lier Lels
in January 2010. Marike’s appointment is in anticipation
of the retirement of Dien de Boer-Kruyt after ten very
constructive years as a member of that Board.
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Annual Reports and Financial Statements 2009 Reed Elsevier 05
Chief Executive Officer’s report
Erik Engstrom
Chief Executive Officer
In 2009, our professional information revenues held up
relatively well in what was a difficult year for most of
our customers. However businesses dependent on
our customers’ marketing budgets were hit hard.
In the near term, some of our customer markets remain
under pressure but longer term our prospects are
encouraging. We have high quality assets in attractive
global growth markets and we are focusing each business
on its own top priorities. Across Reed Elsevier we are
committed to delivering world class information and
tools that enable our customers to make critical decisions,
enhance productivity and improve outcomes and this is
combined with a relentless pursuit of process innovation
and cost efficiency. I am convinced that these goals will
deliver increased value for our shareholders.
Financial results
Total revenues were up 14% to £6,071m/up 1% to
€6,800m; at constant currencies, revenues were flat.
Underlying revenues, i.e. before ChoicePoint and other
acquisitions and disposals, were 6% lower. This decline
reflects the impact of the global recession, most particularly
the significant downturn in advertising and promotion
markets in Reed Exhibitions and Reed Business Information.
Adjusted operating profit was up 14% to £1,570m/up 1%
to €1,758m, and up 1% at constant currencies. Underlying
adjusted operating profits were 9% lower, with reductions
of 5% in the underlying cost base mitigating the impact of
the underlying revenue decline. This together with the
increasing profitability of ChoicePoint as we integrate
the business delivered a flat adjusted operating margin
at 25.9%. Adjusted operating cash flow was strong at
£1,558m/€1,745m, with an excellent 99% conversion
of adjusted operating profits into cash.
The post-tax return on capital employed was 1.7
percentage points lower at 10.4% reflecting the initially
dilutive addition of ChoicePoint and the lower underlying
adjusted operating profits. The ChoicePoint business
delivered an encouraging 6% post-tax return on the
$4.1 billion investment in our first full year of ownership
and returns are set to continue to grow well.
06 Reed Elsevier Annual Reports and Financial Statements 2009
Adjusted pre-tax profits were up 6% to £1,279m/6%
lower at €1,432m, and 6% lower at constant currencies,
reflecting the higher interest expense on a full year of
ChoicePoint financing.
Adjusted earnings per share were up 3% to 45.9p for
Reed Elsevier PLC/8% lower at €0.79 for Reed Elsevier
NV, and 9% lower at constant currencies. This included
a 4% dilutive effect of the July 2009 equity placing.
We use adjusted figures as key performance measures,
and these are stated before amortisation and impairment
charges on acquired goodwill and intangible assets,
exceptional restructuring charges and acquisition related
costs, disposal gains and losses, and deferred tax effects
that are not expected to crystallise in the near term.
Including these items, the reported operating profit
and pre-tax profit were 22% and 36% lower respectively
at constant currencies principally reflecting impairment
charges in Reed Business Information. Reported earnings
per share were 22% lower at 17.2p for Reed Elsevier PLC
and 27% lower at €0.32 for Reed Elsevier NV.
Business progress and priorities
The Elsevier science and medical business (44% of
adjusted operating profits) had a relatively robust year.
In a challenging academic budget environment, the
journals business entered 2009 with good subscription
renewals from 2008. In Health Sciences, growing online
sales in medical reference, clinical decision support and
nursing and health professional education were partly
held back by weak promotion markets. In the near term,
academic budgets will remain under pressure and we are
working with our academic customers to ensure that their
growing information needs and goals for greater research
efficiency are met within the confines of their tighter
funding environment. The longer term growth drivers
are expected to remain strong with growth in scientific
discovery and research output and in the global demand
for healthcare as well as increasing demand for specialist
information and tools that can further enhance scientific
and medical outcomes.
The LexisNexis legal and risk solutions business (42%
of adjusted operating profit) had a challenging year. The
core law firm business was flat in the US and marginally
lower internationally reflecting the downturn in the legal
industry whilst US directory listings were well behind the
prior year as firms cut back on directory spend. Corporate,
government and academic markets were lower.
ChoicePoint made an excellent contribution in its first year,
growing its profits strongly and boosting overall revenues
and profits. Whilst in the near term LexisNexis will see
continuing late cycle pressures in legal markets, the
fundamentals of the business are sound with good longer
term growth in the legal industry, from growing legislation,
regulatory complexity and litigation, and increasing
demand for better integrated solutions to improve
customer productivity and legal outcomes. To capture
these opportunities, two years ago we initiated a multi-year
development effort to create the next generation legal
product platform and advanced back office infrastructure.
Delivery of these is a priority and we are making good
progress. There will be progressive introductions of new
products over the next few years which will provide an
integrated customer experience across research, litigation
tools, practice solutions and client development. This effort
will result in a higher level of capital expenditure going
forward and lower margin through continuing development
spend but over the longer term will drive growth and
operational efficiencies.
In LexisNexis risk solutions, the insurance business
continues to see good growth from the high transactional
activity in the auto and property insurance markets and the
increasing penetration of more powerful data and analytics
products. In the near term we are focused on completing
the integration of the ChoicePoint acquisition and
delivering successfully the expected growth, cost savings
and financial returns. In addition, we are seeking to capture
high growth opportunities in adjacent risk market
segments. Over the last few years, the risk solutions
business has been very successfully incubated and grown
within LexisNexis to become an industry leader in its own
right. As a result, during the course of 2010, we intend to
separate LexisNexis Legal and LexisNexis Risk Solutions
to create two market facing business units reporting
directly to me, whilst retaining the benefit of their shared
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Annual Reports and Financial Statements 2009 Reed Elsevier 07
Chief Executive Officer’s report continued
services. This will ensure that they have the greatest
possible market and management focus as they
pursue their respective strategies going forward.
Reed Exhibitions (10% of adjusted operating profits)
had a difficult year with customers cutting back on
promotional expenditure and the net cycling out of biennial
exhibitions. Bookings going into 2010 remain cautious
but the rate of revenue decline in annual shows is
expected to moderate and the year will benefit from the
net cycling in of biennial shows. The fundamentals of the
business remain sound with face to face events an important
part of customers’ marketing mix with good growth
over economic cycles, high growth in emerging markets,
and good returns on new launches and acquisitions.
Reed Business Information (6% of adjusted operating
profits) had a very tough year with advertising markets
severely impacted by the economic recession. Print
subscription revenues declined less. Data services saw
good growth delivering high quality industry specific data.
The traditional advertising based magazine business
model is challenged and significant actions are being
taken to restructure the business and realign the cost
base with the reduced revenue expectations. We are
also focused on further developing and growing the
data services businesses.
In delivering against the priorities in each of our
businesses, we will adopt a pragmatic approach to
driving business unit performance and creating value for
our shareholders: differentiating between our businesses;
prioritising high growth markets and good returns;
focusing on customer value and improved outcomes;
and relentlessly pursuing process innovation, customer
service quality and cost efficiency.
The business and financial reviews set out in pages
10 to 35 describe in more detail our markets, our
businesses, our performance and the outlook by business.
Outlook
Business trends seen in the second half of 2009 are
continuing in 2010, particularly with regard to late cycle
effects in our relatively resilient professional markets.
Advertising and promotion and certain other markets,
such as employee screening, remain difficult while the
rate of decline is expected to slow as comparatives get
easier. A modest reduction in adjusted operating margin
is expected due to the weak revenue environment and
increased investment in legal markets. While late cycle
effects will continue in 2010 and be particularly severe
in the first half, Reed Elsevier has high quality assets in
attractive global growth markets and we are confident
that our longer term prospects are encouraging.
This is my first report as Chief Executive Officer and I would
like to take this opportunity to recognise the commitment
and contribution of all our employees across the company.
I know from my first hand experience in Elsevier what it
takes to make progress in the current business environment
and to continue to innovate whilst simultaneously improving
operating efficiency. Our employees are passionate about
what they do and have an exceptional commitment to our
customers, to each other and to the communities we serve.
We could not ask for more and I thank them all.
Erik Engstrom
Erik Engstrom
Chief Executive Officer
Full report online >
The Reed Elsevier Annual Reports
and Financial Statements 2009
are now available to view online.
www.reedelsevier.com/ar09
08 Reed Elsevier Annual Reports and Financial Statements 2009
Our businesses
10 Reed Elsevier
12 Elsevier
20 LexisNexis
28 Reed Exhibitions
32 Reed Business Information
Financial review
36 Chief Financial Officer’s report
36 Combined businesses
40 Parent companies
45 Key performance measures
47 Principal risks
Forward looking statements
The Reed Elsevier Annual Reports and Financial Statements 2009 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; demand for our products
and services; competitive factors in the industries in which we operate; exchange rate fluctuations; legislative, fiscal and regulatory
developments; political risks; terrorism, acts of war and pandemics; 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 with the US Securities and Exchange Commission.
Annual Reports and Financial Statements 2009 Reed Elsevier 09
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Reed Elsevier
Reed Elsevier has high quality assets in attractive global growth
markets. We are committed to delivering world class information
and tools that enable our customers to make critical decisions,
enhance productivity and improve outcomes. This is combined
with a relentless pursuit of process innovation and cost efficiency.
Elsevier is the world’s leading provider of scientific
and medical information and serves scientists,
health professionals and students worldwide.
LexisNexis is a world leading provider of content and
information solutions for the legal and risk markets.
LexisNexis serves customers in more than 100 countries.
The Science & Technology business is the world’s leading
science journal publisher, producing over 200,000 new
research articles in some 1,100 journals every year, with
ScienceDirect, its flagship electronic solution, accessed
by over 11 million users.
The US Legal and International businesses provide legal
and business content and information solutions to law
firms, corporations and governments throughout the
world to enable them to make more effective decisions
more quickly, improving productivity and outcomes.
The Health Sciences business is a world leading provider
of health information, publishing both in print and
electronically over 700 journals and 1,700 books and
clinical reference works annually and offering an extensive
portfolio of online tools.
The Risk Solutions business assists insurance carriers,
corporations, professionals and government in
managing risk through identity verification, risk evaluation,
fraud detection and prevention, debt collection and
background screening.
Reed Exhibitions is the world’s leading organiser
of trade exhibitions. Through strongly branded,
highly targeted events, Reed Exhibitions, with
over 450 events in 36 countries bringing together
over six million participants worldwide, provides
the forum for exhibitors and attendees to do business,
develop contacts and gain industry insights.
Reed Business Information is a leading provider
of business information, online data and marketing
solutions. Through industry critical data services, lead
generation tools, over 200 community and job sites
and more than 200 premier business magazines, Reed
Business Information provides valued information to
professionals and an effective channel for advertisers.
10 Reed Elsevier Annual Reports and Financial Statements 2009
Our businesses
Revenue
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Adjusted operating profit
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Unallocated items
2009
£m
1,985
2,557
638
891
6,071
693
665
152
89
(29)
2008
£m
1,700
1,940
707
987
5,334
568
513
183
126
(11)
%
change
+17%
+32%
-10%
-10%
+14%
+22%
+30%
-17%
-29%
%
change at
constant
currencies
+4%
+14%
-21%
-18%
0%
+9%
+13%
-28%
-35%
1,570
1,379
+14%
+1%
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%
change
underlying
+4%
-4%
-22%
-18%
-6%
+9%
-15%
-31%
-34%
-9%
Adjusted operating profit is presented as an additional performance measure used by management and is stated before amortisation and impairment of
acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and is grossed up to exclude the equity share of taxes
in joint ventures. Reconciliations between the reported and adjusted figures are provided in note 11 to the combined financial statements.
The percentage change at constant currencies refers to the movements at constant exchange rates, using 2008 full year average and hedge rates.
Underlying growth rates are calculated at constant currencies, excluding acquisitions and disposals.
Revenue
£6,071m
Adjusted operating profit
£1,570m
Elsevier 33%
LexisNexis 42%
Reed Exhibitions 11%
Reed Business Information 14%
Elsevier 44%
LexisNexis 42%
Reed Exhibitions 10%
Reed Business Information 6%
Online revenue
£bn
Revenue by geographic market
£6,071m
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3.6
2.7
1.8
1.9
2.1
2005
2006
2007
2008
2009
North America 55%
UK 8%
Netherlands 4%
Rest of Europe 19%
Rest of world 14%
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Annual Reports and Financial Statements 2009 Reed Elsevier 11
advancing
science
12 Reed Elsevier Annual Reports and Financial Statements 2009
ElsEviEr’s world lEading
databasE of journal articlEs
is accEssEd by ovEr 11 million
sciEntists Each yEar
Elsevier’s flagship electronic research solution, ScienceDirect, contains
10 million scientific and medical research articles and is accessed by
scientists who download over half a billion full text articles each year.
advancing
science
Annual Reports and Financial Statements 2009 Reed Elsevier 13
improving
medical
outcomes
14 Reed Elsevier Annual Reports and Financial Statements 2009
ElsEviEr’s world lEading
hEalth information is usEd
by hEalth profEssionals
worldwidE
Elsevier publishes over 700 medical journals and, in 2009, over 1,700 new
books and reference works, together with innovative information solutions,
to assist our customers in improving medical outcomes.
improving
medical
outcomes
Annual Reports and Financial Statements 2009 Reed Elsevier 15
Elsevier provides its customers with scientific and medical information
and tools that improve outcomes in science and health
Elsevier is the world’s leading provider of scientific
and medical information and serves scientists,
health professionals and students worldwide.
Elsevier provides world class information and
innovative workflow tools that enable customers
to make critical decisions, enhance productivity
and improve outcomes.
Total revenues for the year ended 31 December 2009 were £1,985m.
Elsevier is a global business headquartered in Amsterdam with
principal operations in Amsterdam, Beijing, Boston, Chennai, Delhi,
London, Madrid, Munich, Oxford, New York, Paris, Philadelphia,
Rio de Janeiro, St. Louis, San Diego, Singapore and Tokyo. Elsevier
has 6,800 employees.
Elsevier has two market facing businesses: Science & Technology
serving the scientific community and Health Sciences serving the
health community, both of which are supported by a global shared
services organisation which provides integrated editorial systems
and production services, product platforms and distribution,
and other back office functions.
Science & Technology is the world’s leading global scientific
information provider. It delivers a wide array of information and workflow
tools that generate valuable insights for researchers in the advancement
of scientific discovery and improve the productivity of research.
Its customers are scientists and professionals, academic libraries,
corporations and governments, who rely on Elsevier: to provide high
quality content; to promote, review, publish, disseminate, and preserve
research findings; and to create innovative workflow tools to improve
the efficiency of their endeavour.
Science & Technology publishes over 200,000 new research articles
each year through some 1,100 journals, many of which are the
foremost publications in their field and a primary point of reference
for new research. The vast majority of customers receive these
journals through the flagship electronic research solution ScienceDirect.
It is the world’s largest database of scientific and medical research,
with 10 million scientific journal articles, accessed by over 11 million
researchers each year.
Science & Technology also publishes over 900 new book titles
annually, as well as secondary material in the form of supporting
bibliographic data, indexes and abstracts, and tertiary information
through review and reference works. 10,000 e-book titles are in
ScienceDirect, with over 400 e-books added each year.
Science & Technology’s other flagship electronic solutions include
Scopus and the recently launched Reaxys and SciVal Spotlight
services. Scopus is the largest abstract and citation database of
research literature in the world, with the abstracts and bibliographic
information of more than 40 million scientific research articles from
17,000 peer reviewed journals and over 5,000 publishers. Scopus also
has data on more than 23 million patents. Reaxys is a new solution for
synthetic chemists, based on Elsevier’s prestigious CrossFire Database
suite, which integrates chemical reaction and compound data searching
with synthesis planning. The SciVal suite of research tools enables
individual researchers and institutional leadership to determine and
evaluate their research strategies more effectively.
Health Sciences is the world’s leading medical publisher. It serves
health professionals, including medical researchers, doctors, nurses,
allied health professionals and students, as well as hospitals, research
institutions, managed healthcare organisations, pharmaceutical
companies and insurers. Through its medical journals, books,
major reference works, databases and online information solutions,
Health Sciences provides critical information and analysis on which its
customers rely to base their decisions, to improve medical outcomes
and enhance the efficiency of healthcare.
Health Sciences publishes over 700 journals, including on behalf
of learned societies, and, in 2009, over 1,700 new book titles and
clinical reference works both in print and through ScienceDirect and
other electronic platforms such as MDConsult, which is a leading
online clinical information service with more than 2,200 institutional
customers and over 12 million page views per month. Flagship titles
include market leading medical journals such as The Lancet, and
major medical reference works such as Gray’s Anatomy, Nelson’s
Pediatrics and Netter’s Atlas of Human Anatomy. In addition to
its local language publishing in countries across the world, Health
Sciences leverages its strong brands and international content
and solutions into new markets through local language versioning.
The business also provides marketing services to the pharmaceutical
industry through advertising and sponsored communications to the
specialist communities it serves.
16 Reed Elsevier Annual Reports and Financial Statements 2009
In Science & Technology, the priorities are to continue to enhance
the quality of journal and book content and expand data sets whilst
adding greater functionality and utility to ScienceDirect and other
database services. New workflow tools are being introduced to assist
researcher productivity together with new performance and planning
tools to improve research efficiency and economic outcomes.
In Health Sciences, priorities are similar, particularly with regard to
medical research. Additionally, Elsevier is building out clinical decision
support services to meet the demand for tools to help deliver better
medical outcomes and lower costs for payers, physicians and
hospitals. Elsevier is also focused on increasing its penetration
in emerging markets through expansion of local publishing and
versioning of content and digital services.
Distribution Channels and Competition
Elsevier’s science journals are generally sold to libraries on a paid
subscription basis. Medical and healthcare journals are generally
sold to libraries on a paid subscription basis or sold to individual
practitioners and medical society members. Electronic products,
such as ScienceDirect, are generally sold directly to institutional
libraries, hospitals, corporations and end users through a dedicated
sales force that has offices around the world. Subscription agents
facilitate the administrative process for print journals. Books are
sold through traditional and online book stores, wholesalers and,
particularly in medical and healthcare markets, directly to end users.
Competition within the science 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.
Heath Sciences is a leader in medical education and training resources,
particularly in the nursing and allied health professions. From core
textbooks to virtual clinical patient care, Heath Sciences supports
students, teaching faculties and healthcare organisations in education
and practice. A strong focus is on the further development of innovative
electronic resources: the Evolve portal provides a rich resource to
support faculty and students and now has 1.8 million registered users;
Health Education Systems Inc provides online review and testing tools
for nursing and allied health staff; the recently launched Pageburst digital
content delivery platform delivers book content online with powerful
search, multimedia, and collaboration functions.
A fast growing area of the business is clinical decision support,
providing online information and analytics to deliver patient-specific
solutions at the point of care to improve patient outcomes. Gold
Standard provides critical information on drug interactions to assist
effective treatment; CPM Resource Center provides a data driven
framework to support nurses in undertaking procedures; Nursing
Consult provides nursing care guidelines in trauma and disease
management; MEDai uses patient data and analytics to help identify
areas for improvement in clinical practice within hospitals and lower
costs for the payers of healthcare through preventative interventions.
Market Opportunities
Growth in the scientific information market is driven by increases in
R&D spend reflected in the growing number of researchers worldwide
and research output, and the demand for improved research
efficiency.
In healthcare, market growth is supported by favourable demographic
trends, with ageing populations requiring more healthcare and rising
prosperity in developing economies increasing expectations of
better healthcare provision. The healthcare professions are growing
and information intensity is increasing as payers and providers of
healthcare look to improve medical outcomes and cost efficiency.
Strategic Priorities
Elsevier’s strategic goal is to make valued contributions to the
communities it serves by providing actionable data through
information and tools that advance scientific discovery and improve
medical outcomes. To achieve this, Elsevier is focused on: building
world class content; developing workflow tools that link, analyse and
illuminate content and data to help customers to make and execute
critical decisions and improve their productivity; enhancing customer
service and engagement to better fulfil the needs of the scientific and
health communities; expanding penetration of high growth markets;
and improving organisational efficiency.
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Annual Reports and Financial Statements 2009 Reed Elsevier 17
InfluentialIn 2009 Elsevier was honoured by the US Special Libraries Association as ‘The most influential publisher of the last 100 years in BioMedicine and the Life Sciences’.
currencies. The growth in medical research reflects growing online
subscriptions to medical content. In nursing and health professional
education, strong growth was achieved through the increasing
demand for healthcare professionals, new publishing, and the further
development and increasing penetration of online resources. Double-
digit growth was seen in clinical decision support with growing demand
for online workflow solutions that combine content with predictive
analytics. In clinical reference, strong growth in MDConsult and other
online reference products was offset by lower print book sales.
Elsevier has continued its long standing commitment to innovation and
new product development. In scientific and medical research, the focus
is on building out new content and data sets and increasing the
functionality of cross-discipline and discipline-specific research and
discovery tools. Institutional planning and performance tools are also
being developed to help improve economic outcomes for researchers
and academic leaders. Additionally in Health Sciences there is particular
focus on increasing the range and sophistication of our clinical decision
support solutions to make healthcare more efficient and to improve
medical outcomes.
For 2010, good momentum is expected in health sciences from the
continued growth in the health professions and the increasing adoption
of online resources, although pharma promotion and other advertising
revenues remain weak. Academic budget pressures are expected to
continue. Overall revenue growth is expected to be lower for the year.
2009 financial performance
Elsevier had a relatively robust year. In a challenging
academic budget environment, the journals business
entered 2009 with good subscription renewals from
2008. In Health Sciences, growing online sales in
medical reference, clinical decision support and
nursing and health professional education were
partly held back by weak pharma promotion markets.
Adjusted operating margins improved through
significant restructuring and cost actions.
Revenues and adjusted operating profits increased by 4% and 9%
respectively at constant currencies, both before and after minor
acquisitions. Cost growth was limited to 1% through significant
cost savings, including: the streamlining of business processes
in shared services; the continued ramp up of journal and book
production operations in our Chennai facility; the further outsourcing
of IT development and back office activities, including application
management and financial transaction processing; the consolidation
of activities, including technology operations and real estate; and more
effective leveraging of global procurement.
The reported operating margin, after amortisation of acquired
intangible assets and exceptional restructuring costs, was 28.4%,
up 2.3 percentage points.
Science & Technology saw revenue growth of 5% at constant
currencies. This was driven by good ScienceDirect subscription
renewals entering the year. Online usage of ScienceDirect continued to
grow close to 20%. The Scopus abstract and indexing database saw
strong growth in subscriptions and was expanded through the addition
of new content in the humanities. Good growth in e-books and other
online transactional sales were offset by lower print book sales reflecting
tighter customer budgets and channel destocking.
In Health Sciences, revenues were up 3% at constant currencies.
Strong performances in medical research, nursing and health
professional education, and in clinical decision support were in part
tempered by continuing weakness in pharma promotion markets.
Pharma promotion and other advertising revenues, which accounted
for approximately 20% of Health Sciences’ revenues, were down 7%,
reflecting fewer blockbuster drug launches and a reduction in the
marketing budgets of pharmaceutical companies. Excluding pharma
promotion and other advertising, revenues were 5% ahead at constant
18 Reed Elsevier Annual Reports and Financial Statements 2009
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2009
£m
985
1,000
1,985
693
34.9%
2008
£m
848
852
1,700
568
33.4%
%
change
+16%
+17%
+17%
+22%
+1.5pts
%
change
at constant
currencies
+5%
+3%
+4%
+9%
%
change
underlying
+5%
+3%
+4%
+9%
Major brands
World’s largest database
of scientific and medical
research articles
World’s largest scientific abstract
and citation database
Premier life sciences journal
with the highest impact factor
in cell biology
Leading web-based chemical
reaction workflow solutions
for industrial chemists
Funding intelligence and
research performance tools
for academic institutions
One of the world’s leading
medical journals since 1823
Online clinical information service,
including reference works,
journals and drug information
Online evidence-based content
to inform nursing clinical
decisions at the point of care
Integrated, online resources that
complement Elsevier’s nursing
textbook content
Clinical decision support tool
to identify areas for improvement
in medical practice
Annual Reports and Financial Statements 2009 Reed Elsevier 19
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Revenue
Science & Technology
Health Sciences
Adjusted operating profit
Adjusted operating margin
Revenue
% of Reed Elsevier
Elsevier 33%
Adjusted operating profit
% of Reed Elsevier
Elsevier 44%
Revenue
£m
1,985
1,700
1,436 1,521 1,507
Adjusted operating profit
£m
2005 2006 2007 2008 2009
693
568
449
465
477
2005 2006 2007 2008 2009
enabling better
legal de
20 Reed Elsevier Annual Reports and Financial Statements 2009
lExisnExis providEs lEgal
information and solutions in
morE than 100 countriEs worldwidE
LexisNexis delivers critical content and innovative tools to enable customers
to make more effective decisions quickly, improving productivity and outcomes.
cisions
Annual Reports and Financial Statements 2009 Reed Elsevier 21
evaluating
risk22 Reed Elsevier Annual Reports and Financial Statements 2009
lExisnExis risk solutions sErvEs
ovEr 600 us insurancE companiEs
The LexisNexis C.L.U.E. database is the most comprehensive US insurance claims
database with over 200 million auto and 40 million property loss records, and is used
by over 600 US insurance carriers to assess risk in the underwriting process and
to mitigate fraud.
evaluating
risk
Annual Reports and Financial Statements 2009 Reed Elsevier 23
LexisNexis provides authoritative content and analytical tools
that enable legal and risk customers to make more effective and
efficient decisions
LexisNexis is a world leading provider of authoritative
content and information solutions for the legal and risk
markets. Serving customers in more than 100 countries,
LexisNexis provides resources and services that inform
decisions and increase productivity of professionals
in the legal, risk management, corporate, government,
law enforcement, accounting and academic markets.
Total revenues for the year ended 31 December 2009 were £2,557m.
LexisNexis is a global business headquartered in New York with its
principal operations in Georgia, Ohio, New Jersey and New York in
the US, and in the UK, France, Canada, South Africa and Asia Pacific.
LexisNexis has 15,200 employees worldwide.
LexisNexis has three market facing businesses: US Legal, serving the
US legal, government, corporate and academic markets; LexisNexis
Europe, Middle East and Africa and LexisNexis Asia (together
reported as LexisNexis International), serving the legal and business
communities elsewhere in the world; and Risk Solutions, serving the
US risk management market, helping businesses and professionals
to verify identity, assess risk and prevent fraud, and supporting law
enforcement and homeland security. These are supported by shared
services organisations providing platform development and
distribution services and back office functions.
The US Legal business of LexisNexis is a leading provider of legal
and business information and analysis to law firms, corporations
and government throughout the US. Principally delivered through
electronic services and innovative workflow tools developed through
close collaboration with customers, solutions from LexisNexis help
US legal and business professionals make better informed decisions
in the practice of law and in managing their businesses.
The LexisNexis flagship product for legal research is Lexis.com,
which provides federal and state statutes and case law, together with
analysis and expert commentaries from sources such as Matthew
Bender and Michie and the leading citation service Shepard’s, which
advises on the continuing relevance of case law precedents. Through
its suite of litigation services, LexisNexis additionally provides lawyers
with tools for electronic discovery, evidence management, case
analysis, court docket tracking, e-filing, expert witness identification
and legal document preparation. LexisNexis US Legal also partners
with law schools to provide free services to law school students
as part of their training. In the business of law, LexisNexis provides
law firms with practice management solutions, including time and
billing systems, case management, cost recovery and document
management services. LexisNexis assists law firms in their client
development through Martindale-Hubbell at Martindale.com,
showcasing the qualifications and credentials of more than
one million lawyers and law firms in the US and internationally,
and the Martindale-Hubbell Connected professional network,
the largest online community specifically for legal professionals.
Additionally LexisNexis provides law firms with website development,
search engine optimisation and other web marketing services,
including lead generation through Lawyers.com, business intelligence
and customer relationship management tools.
LexisNexis also provides its legal and information services to
US government, corporate and academic customers, including news
and business information and public records. In addition to research
and litigation services, capabilities for these customers include
specialist products for corporate counsel focused on regulatory
compliance, intellectual property management, and management
of external counsel.
Lexis.com provides customers with access to 20 billion searchable
documents from more than 45,000 legal, news and business sources.
Outside the United States, LexisNexis International serves legal,
corporate, government and academic markets in Europe, Canada,
Africa and Asia Pacific with local and international legal, tax, regulatory
and business information. The most significant businesses are in the
UK and France. LexisNexis UK’s extensive portfolio of publications
includes Halsbury’s Laws of England, Simon’s Taxes and Butterworths
Company Law Service delivered through lexisnexis.co.uk and in print.
Its other flagship electronic products include Lexis Legal Intelligence,
an authoritative resource on legal practice for lawyers, and media
monitoring and reputation management tools for the corporate market
such as the NexisDirect research tool and LexisNexis Bridger Insight
for effective risk monitoring and compliance. LexisNexis in France
is a provider of information to lawyers, notaries and courts with
JurisClasseur and La Semaine Juridique being the principal
publications delivered through lexisnexis.fr and in print. Penetration
of online information services is growing rapidly, now accounting
for over 50% of LexisNexis International revenues, and workflow
tools are being developed and introduced behind this.
24 Reed Elsevier Annual Reports and Financial Statements 2009
LexisNexis Risk Solutions assists customers in managing risk
through identity verification, risk evaluation, fraud detection and
prevention, debt collection and employment-related screening.
The Insurance Solutions group provides data, analytics, software
and business information services to property and casualty (P&C)
personal and commercial insurance carriers in the US to improve
critical aspects of the insurance carrier’s business, from customer
acquisition and underwriting to policy servicing, claims handling
and performance management. Information solutions, including the
US’s most comprehensive personal loss history database C.L.U.E.,
help insurers assess risks in the underwriting process to ensure that
their customers receive appropriate policy pricing. In October 2009,
LexisNexis launched an insurance exchange directed at improving
the efficiency and transparency of the independent agent-based
distribution system with enhanced access to key market information
and analytics.
The Screening Solutions group focuses on employment-related,
resident and volunteer screening; and Receivables Management
Solutions help more than 100,000 debt recovery professionals
in the management and collection of consumer and business debt.
The Financial Services group helps financial institutions with risk
management, identity verification, business credentialling, and
regulatory compliance. LexisNexis Advanced Government Solutions
(AGS) provides identity, authentication and location solutions to help
solve cases and locate people, assets and businesses. In addition,
AGS solutions help mitigate risks through identify fraud, waste and
abuse in government programmes. LexisNexis Accurint is the flagship
public records product, powered by the High Performance Cluster
Computing (HPCC) technology.
Market Opportunities
Longer term growth in legal and regulatory markets worldwide
is driven by an increasing level of legislation, regulation, regulatory
complexity and litigation, and an increasing number of lawyers.
Additional market opportunities are presented by the increasing
demand for online information solutions and tools that improve
the productivity of research and business performance. In risk
management markets, growth is driven by systemic growth
in insurance transactions, healthcare and insurance fraud,
regulatory compliance requirements surrounding customer
enrolment, and security considerations.
Strategic Priorities
LexisNexis’ strategic goal is to be the leading provider of productivity
enhancing information and information-based workflow solutions in
its markets. To achieve this, LexisNexis is focused on: building world
class content; developing next generation product platforms, tools
and infrastructure to deliver best-in-class research outcomes for
legal and business professionals with greater speed and efficiency;
building client development and practice management tools enabling
customers to be more successful in their markets; expanding the
range of risk management products, leveraging the powerful HPCC
technology in delivering better outcomes; international expansion of
online products and solutions and increasing LexisNexis’ presence
in emerging markets; and improving organisational efficiency.
In US Legal focus is on the continuing development of the next
generation of legal research and practice solutions and a major
upgrade in back office infrastructure and customer service and
support platforms to provide an integrated and superior customer
experience across US legal research, litigation services, practice
management and client development products. Progressive product
introductions over the next few years will combine advanced
technology with enriched content and sophisticated analytics and
applications to enable LexisNexis’ customers to make better legal
decisions and drive better outcomes for their organisations and
clients. A further priority is to complete the transformation of the
client development business from a legal directory business into
a web marketing services company.
In LexisNexis International the focus is on increasing the penetration
of online services and developing further high quality actionable
content and workflow tools.
In Risk Solutions the priority is the further integration of the
ChoicePoint businesses acquired in September 2008, continued
development of the insurance product pipeline and in technology
and content, and growth in market expansion including internationally.
Distribution Channels and Competition
LexisNexis US Legal and International products are generally sold
directly to law firms and to corporate, government and academic
customers on a paid subscription basis. Risk Solutions products
are predominantly sold on a transactional basis directly to insurance
carriers, and other corporations and to government.
Principal competitors for LexisNexis in US legal markets are West
(Thomson Reuters) and Bloomberg and Factiva (News Corporation)
in news and business information. Major international competitors
include Thomson Reuters, Wolters Kluwer and Factiva. Risk Solutions
competitors include Verisk in the insurance market and Acxiom in
public records.
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Annual Reports and Financial Statements 2009 Reed Elsevier 25
Award winningLexisNexis won 12 awards at the 2009 Law Technology News Awards which recognise the best technology used in the legal profession.
2009 financial performance
LexisNexis had a challenging year. The core law firm
business was flat in the US and marginally lower
internationally reflecting the downturn in the legal
industry whilst US directory listings were well behind
the prior year as firms cut back on directory spend.
Corporate, government and academic markets were
lower. ChoicePoint made an excellent contribution in
its first year, growing its profits strongly and boosting
overall revenues and profits. Adjusted operating
margins were slightly lower due to the underlying
revenue decline largely mitigated by further
restructuring and cost actions and the strong
growth in ChoicePoint profitability.
Revenues and adjusted operating profits increased by 14% and 13%
respectively at constant currencies including a first full year contribution
from the ChoicePoint business acquired in September 2008. Excluding
ChoicePoint and minor acquisitions and disposals, underlying revenues
and adjusted operating profits were down 4% and 15% respectively.
The overall adjusted operating margin was 0.4 percentage points
lower at 26.0% reflecting the underlying revenue decline and increases
in spending on new product development, sales and marketing and
operational support, largely mitigated by the further restructuring
and cost actions, and the increasing profitability of ChoicePoint.
Cost savings include: the full year benefit of the consolidation in 2008
of the Corporate and Public Markets business with US Legal as well as
the consolidation of US operations; continued outsourcing of systems
engineering and maintenance, software development engineering,
data fabrication, and other production activities; the further consolidation
and streamlining of technology operations and real estate; more effective
leveraging of global procurement; streamlining of the screening business
in Risk; and consolidation of activities on the integration of ChoicePoint.
The reported operating margin, after amortisation of acquired
intangible assets and exceptional restructuring and acquisition
integration costs, was 13.2%, down 1.8 percentage points, reflecting
intangible asset amortisation of the ChoicePoint acquisition and
acquisition integration costs.
The US Legal business saw revenues decline 6% at constant
currencies, or 4% before changes in revenue recognition in Martindale-
Hubbell, largely driven by weakness in corporate, government and
academic markets and cutbacks by law firms on directory spend.
The core law firm business held up well, with revenues flat, despite the
significant impact of the economic downturn on the legal industry. This
reflects the continuing demand for legal research information services
and growth in workflow solutions particularly in litigation services.
The Martindale-Hubbell lawyer directory listings business saw revenues
down 17% on a like for like basis as law firms cut back on directory
marketing. In recognition of Martindale-Hubbell’s transformation into
a web marketing services company, all listing revenues in 2009 have
been attributed to the online listings and recognised rateably over
the listing period; print directories are no longer provided except as
separately ordered by customers. The change in timing of revenue
recognition has a one time adverse effect in 2009.
26 Reed Elsevier Annual Reports and Financial Statements 2009
Good progress is being made in developing the next generation of
legal research products, and the advanced back office infrastructure
to support them, to deliver an integrated and superior customer
experience across legal research, workflow tools, practice solutions
and client development. Progressive product introductions over
the next few years will combine advanced technology with enriched
content and sophisticated analytics and applications. LexisNexis’
goal is to deliver not just better search results, but better outcomes
for customers. In addition, sales coverage is being expanded and
more intuitive user interfaces and expanded litigation workflow tools
are being added to the current offering. This will result in a higher
ongoing level of capital expenditure and lower margin through
continuing development spend and will over the longer term drive
growth and operational efficiencies.
Government, corporate and academic markets were 6% lower with
customer budgets under pressure and reduced transactional activity,
impacting in particular the news and business information databases.
The LexisNexis International business, i.e. the non US businesses,
saw revenues decline 3% at constant currencies, or 1% underlying
before taking account of the sale in the prior year of the Latin American
business. The pressures on the legal services industry internationally
mirror those seen in the US, particularly in the UK with the impact
mostly on print product sales as customers increasingly rely on the
online service. With less penetration of online services in international
markets than in the US, online revenues have continued to grow
strongly at 9% as firms seek to increase their effectiveness. This has
largely been offset by the decline in print sales.
The Risk Solutions business saw revenues almost double at constant
currencies including a full year contribution of the ChoicePoint business
acquired in September 2008. Underlying revenues, before ChoicePoint,
were 2% lower reflecting the slowdown in transactional activity in the
US economy, largely offset by strong growth in government markets.
The ChoicePoint business saw revenues up 1% on a proforma basis
with adjusted operating profits up 44%, delivering a first year post tax
return of 6.0% on the $4.1 billion purchase. Strong revenue growth
in the insurance segment, up 10%, was driven by high transactional
activity in auto and property insurance markets and by increasing sales
of more powerful data and analytics products. This strong growth in
insurance and cost savings from the integration of ChoicePoint and
LexisNexis drive the increased profitability. The 1% proforma revenue
growth is after a 13% decline in the non-insurance businesses,
principally in pre-employment screening, reflecting the economic
downturn. Significant cost actions in the screening business limited
the profit impact of this decline.
The business trends seen in US legal and international markets are
expected to continue into 2010 reflecting the continuing pressures on
the legal industry and the subscription nature of much of the revenue.
Good growth momentum is expected in the insurance segment in
Risk Solutions and screening markets should stabilise as the US
economy recovers. The overall adjusted operating margin is expected
to be lower, reflecting the effects of a weak revenue environment and
increases in spend on product development, infrastructure, and sales
and marketing in the Legal business, partly mitigated by continuing
cost actions and the growing profitability of the ChoicePoint business.
2009
£m
1,126
566
865
2,557
665
26.0%
2008
£m
1,017
545
378
1,940
513
26.4%
%
change
+11%
+4%
+129%
+32%
+30%
-0.4pts
%
change
at constant
currencies
-6%
-3%
+95%
+14%
+13%
%
change
underlying
-6%
-1%
-2%
-4%
-15%
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s
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Revenue
US Legal
International Legal
Risk Solutions
Adjusted operating profit
Adjusted operating margin
Revenue
% of Reed Elsevier
LexisNexis 42%
Adjusted operating profit
% of Reed Elsevier
LexisNexis 42%
Revenue
£m
Major brands
lexis.com®
Unparalleled legal, news and
public records content for
legal professionals
LexisNexis®
Matthew Bender®
Critical legal analysis, checklists,
forms, and practice guides
authored by industry experts
covering over 50 major
practice areas
Leading website for consumers
seeking legal information
and counsel
LexisNexis
Martindale-Hubbell
Largest resource of information
about and community for the
legal profession
CaseMap®
LexisNexis
Juris Classeur
Software allowing litigators
to assess and analyse
case information
Largest, most authoritative
online legal resource in France
LexisNexis
Legal Intelligence
Authoritative products and
services enabling UK lawyers
to find legal guidance,
information and training
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2,557
1,940
1,466 1,570 1,594
2005 2006 2007 2008 2009
Adjusted operating profit
£m
665
513
C.L.U.E.®
Most comprehensive
US personal insurance
claims database
380
406
338
2005 2006 2007 2008 2009
Accurint®
Suite of online tools, built on
HPCC technology, accessing
billions of public records to identify
assets and locate individuals
Annual Reports and Financial Statements 2009 Reed Elsevier 27
forging business
relatio
28 Reed Elsevier Annual Reports and Financial Statements 2009
rEEd Exhibitions’ 2009 EvEnts
attractEd ovEr six million attEndEEs
Reed Exhibitions is the world’s leading events business serving 44 industries
worldwide with more than 450 exhibitions, conferences, congresses and meetings
in 36 countries.
nships
Annual Reports and Financial Statements 2009 Reed Elsevier 29
Reed Exhibitions is the world’s leading events business,
with over 450 events in 36 countries
Distribution Channels and Competition
The substantial majority of Reed Exhibitions revenues are from sales
of exhibition space. These, together with ancillary services, sponsorship
fees and paid delegate participation are sold directly or through local
agents where applicable.
Reed Exhibitions is the market leader in a fragmented industry, holding
less than a 10% global market share. Other international exhibition
organisers include UBM, DMG World Media (DMGT), Nielsen Business
Media, Informa IIR and Messe Frankfurt. Competition also comes
from industry trade associations and convention centre and exhibition
hall owners.
2009 financial performance
Reed Exhibitions had a difficult year with customers
cutting back on promotional expenditure and the net
cycling out of biennial exhibitions. The revenue decline,
mitigated in part by substantial cost savings, has
reduced adjusted operating margins.
Revenues and adjusted operating profits were down 21% and 28%
respectively at constant currencies, or 22% and 31% before minor
portfolio changes. Adjusted for biennial show cycling, underlying
revenues and adjusted operating profits were 13% and 18% lower
respectively. Significant cost savings were made through management
streamlining, operational efficiencies and headcount reductions across
the business. The operating margin, after amortisation of acquired
intangible assets and exceptional restructuring costs, was 17.9%,
down 0.8 percentage points, before goodwill impairment charges
on certain minor shows.
Sales of exhibition space and ancillary services were lower across all
major geographies. There was also a decline in paying delegates at the
small number of shows which charge significant fees for participation.
Across the regions, annual show revenues were 14% lower in the US,
13% in Japan, and 17% in Europe. The shows overall have however
been successful with attendances remaining resilient and strong
satisfaction expressed by exhibitors and visitors.
Whilst 2010 will see the benefit of the net cycling in of biennial shows,
bookings going into the year remain cautious with exhibitors committing
later than usual and revenues from annual shows are expected to
be lower.
Reed Exhibitions is the world’s leading events
business, with over 450 events in 36 countries in the
Americas, Europe, the Middle East and Asia Pacific.
The portfolio of exhibitions and conferences serves
44 industry sectors. In 2009 Reed Exhibitions brought
together over six million event participants from
around the world, generating billions of dollars in
business for its customers.
Total revenues for the year ended 31 December 2009 were £638m.
Reed Exhibitions is a global business headquartered in London, with
principal offices in London, Paris, Norwalk Connecticut, Abu Dhabi,
Beijing, Tokyo, Sydney and São Paolo. Reed Exhibitions has 2,500
employees worldwide.
Reed Exhibitions organises market-leading events that are relevant
to industry needs, where participants from around the world
come together to do business, network and learn. Its exhibitions
and conferences encompass a wide range of sectors, including:
broadcasting, TV, music & entertainment; building & construction;
electronics & electrical engineering; energy, oil & gas; engineering,
manufacturing & processing; gifts; interior design; IT & telecoms;
jewellery; life sciences & pharmaceuticals; marketing; property &
real estate; sports & recreation; travel.
Well represented in the developed world, increasingly Reed Exhibitions
is investing in the developing economies of China, Brazil, the United
Arab Emirates and Russia.
Market Opportunities
Growth in the exhibitions market is correlated to business to business
marketing spend, historically driven by levels of corporate profitability,
which itself has followed overall growth in GDP, and business
investment. Emerging markets and growth industries provide additional
opportunities. As some events are held other than annually, growth
in any one year is affected by the cycle of non-annual exhibitions.
Strategic Priorities
Reed Exhibitions’ strategic goal is to provide market leading events
in growth sectors that enable businesses to target and reach new
customers quickly and cost effectively and to provide a platform
for industry participants to do business, network and learn.
In the shorter term the priority is maintaining high quality events whilst
aggressively managing the cost base during the economic downturn.
For the longer term, Reed Exhibitions’ priorities are focused on:
developing the portfolio through a combination of new launches,
strategic partnerships and acquisitions in emerging markets and high
growth sectors; and developing websites and online tools to enhance
the exhibition experience and add to customer return on investment
in event participation.
30 Reed Elsevier Annual Reports and Financial Statements 2009
Revenue
Adjusted operating profit
Adjusted operating margin
2009
£m
638
152
23.8%
2008
£m
707
183
25.9%
%
change
-10%
-17%
-2.1pts
%
change
at constant
currencies
-21%
-28%
%
change
underlying
-22%
-31%
Revenue
% of Reed Elsevier
Reed Exhibitions 11%
Adjusted operating profit
% of Reed Elsevier
Reed Exhibitions 10%
Revenue
£m
Adjusted operating profit
£m
707
638
577
522
471
2005 2006 2007 2008 2009
183
152
129
139
110
2005 2006 2007 2008 2009
Major brands
The world’s entertainment
market
Premier global event for the
travel market
International offshore
oil & gas trade show
A world leading construction
exhibition
The North American jewellery
industry’s premier trade event
World’s platform for sustainable
future energy solutions
One of the largest and
longest standing SMT trade
events in China
Leading international exhibition
for personal care ingredients
International network of the
promotional product industry
International exhibition of
environmental equipment
technology and services
Annual Reports and Financial Statements 2009 Reed Elsevier 31
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gaining business
insights
32 Reed Elsevier Annual Reports and Financial Statements 2009
rEEd businEss information sErvEs
industry profEssionals with data
sErvicEs and markEting solutions
Reed Business Information produces industry specific data services and lead
generation tools and over 200 online community and job sites. It publishes over
200 premier business magazines.
gaining business
insights
Annual Reports and Financial Statements 2009 Reed Elsevier 33
Reed Business Information is a provider of business information,
online data and marketing solutions in multiple formats
Reed Business Information (RBI) provides data services,
information and marketing solutions to business
professionals in the US, the UK, Continental Europe
and Australia. It produces industry critical data
services and lead generation tools and over 200 online
community and job sites. It publishes over 200 premier
business magazines with market leading positions in
many sectors.
Total revenues for the year ended 31 December 2009 were £891m.
RBI is a global business headquartered in London, with principal
operations in London and Sutton in the UK, Amsterdam and
Doetinchem in the Netherlands, New York, Los Angeles and
Norcross, Georgia in the US as well as Paris, Milan, Bilbao and
Sydney. RBI has 6,900 employees worldwide.
Online, RBI’s market-leading products include ICIS, a global
information and pricing service for the petrochemicals sector; Bankers
Almanac, a leading provider of reference data on the banking industry;
Reed Construction Data, a provider of online construction data to the
North American construction industry; totaljobs.com, a major UK
online recruitment site; and Hotfrog, a global online business directory.
Premier publishing brands include Variety in the US, New Scientist in
the UK and Elsevier in the Netherlands.
Business-to-business magazines, online lead generation services
and community websites provide an effective marketing channel for
advertisers to reach target audiences and industry professionals to
access valued information. RBI’s leading online data services enable
users to enhance productivity through quicker and easier access to
insightful and comprehensive industry information.
Market Opportunities
Business-to-business marketing spend has historically been driven
by levels of corporate profitability, which itself has followed GDP
growth, and business investment. Additionally, growing need for
authoritative industry data and information is driving demand for
online subscription data services and providing new opportunities.
Strategic Priorities
RBI’s strategic goal is to be the first choice of business professionals
for information and decision support in its individual markets, and for
business marketing services. Its areas of strategic focus are: developing
the data services businesses; restructuring the business magazines
and advertising driven portfolio, to develop online services in key
markets and support print franchises through brand extensions and
redesign; and to realign the cost base to reduced revenue expectations
and drive further organisational effectiveness. An immediate priority
is to complete the divestiture of the US controlled circulation titles.
Distribution Channels and Competition
In 2009, 47% of RBI’s revenue came from print and online advertising
and lead generation, 17% from data services and 36% from other
subscription and user services. Data services are typically sold directly
on a subscription or transactional basis. Business magazines are
distributed on a paid or controlled circulation basis. Advertising and
lead generation revenues are sold directly or through agents.
RBI’s titles compete with a number of publishers on a title by title
basis, including: UBM, McGraw Hill and Penton in the US; Eden and
UBM in the UK; and Wolters Kluwer in the Netherlands. RBI competes
for online advertising with other business-to-business websites as well
as Monster, Google and other search engines.
2009 financial performance
Reed Business Information had a very tough year with
advertising markets severely impacted by the economic
recession. Print subscription revenues declined less
and data services saw good growth. Adjusted operating
margins were lower due to the revenue decline partly
mitigated by substantial cost savings.
Revenues and adjusted operating profits were 18% and 35% lower
respectively at constant currencies, or 18% and 34% before acquisitions
and disposals. Total underlying costs were 15% lower driven by
substantial cost savings. The operating margin, after amortisation of
acquired intangible assets and restructuring costs, was negative 2.4%
before impairment charges, down 8.0 percentage points reflecting the
revenue decline and significantly higher exceptional restructuring costs.
Overall advertising revenues (47% of RBI revenues) were down 29%,
with online advertising revenues down 14% and print advertising
revenues down substantially more at 37%. Print subscription and
other revenues declined 10%. In contrast, data services revenues
(17% of RBI revenues) grew 10%.
The controlled circulation magazines and certain other print titles in the
US, accounting for 47% of US revenues, are being sold, restructured
in anticipation of sale or closed. Variety and the entertainment group,
RCD (Reed Construction Data), and the BuyerZone lead generation
business are being retained. These businesses saw revenues
decline 16%.
The imperative is to continue restructuring the magazines business
and the advertising driven portfolio; to align the cost base with reduced
revenue expectations; and to further grow the data services business.
Advertising markets remain difficult and late cycle effects continue to
put pressure on subscriptions. Data services continue to grow well.
2010 will be another difficult year for RBI with further revenue declines.
34 Reed Elsevier Annual Reports and Financial Statements 2009
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£m
263
246
198
184
891
89
10.0%
2008
£m
306
288
202
191
987
126
12.8%
%
change
% change at
constant currencies
% change
underlying
-14%
-15%
-2%
-4%
-10%
-29%
-2.8pts
-15%
-27%
-13%
-14%
-18%
-35%
-16%
-27%
-13%
-13%
-18%
-34%
Major brands
Global provider of news and
pricing data to the chemical
and oil industries
Leading provider of reference
data on the banking industry
UK’s leading HR legal
compliance and good practice
toolkit
Construction data, building
product information, cost data,
market analysis and advertising
channels to construction
industry professionals
UK’s most visited commercial
recruitment website
Premier source of entertainment
business news and analysis
since 1905
Leading news and opinion
magazine in the Netherlands
World’s leading scientific and
technical current affairs weekly
Leading online user generated
business directory with versions
in 32 countries
Annual Reports and Financial Statements 2009 Reed Elsevier 35
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Revenue
RBI UK
RBI US
RBI NL
RBI International
Adjusted operating profit
Adjusted operating margin
Revenue
% of Reed Elsevier
Reed Business Information 14%
Adjusted operating profit
% of Reed Elsevier
Reed Business Information 6%
Revenue
£m
892
896
906
987
891
2005 2006 2007 2008 2009
Adjusted operating profit
£m
121
126
112
104
89
2005 2006 2007 2008 2009
Chief Financial Officer’s report
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
2009
£m
6,071
787
435
3,931
1,570
1,279
1,558
25.9%
99%
2008
£m
5,334
901
617
5,726
1,379
1,205
1,407
25.9%
102%
%
change
+14%
-13%
-29%
+14%
+6%
+11%
% change at
constant currencies
0%
-22%
-36%
+1%
-6%
-2%
Adjusted figures are presented as additional performance measures used by management and are stated before amortisation and impairment of acquired
intangible assets and goodwill, 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.
Currency
The average exchange rates in the year saw the US dollar stronger
against both sterling and the euro, whilst the euro was stronger
against sterling. This gives a favourable effect on translation of
reported results expressed in sterling.
Reported figures
(The reported figures include amortisation and impairment of acquired
intangible assets and goodwill, 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
that exclude these items are used by Reed Elsevier as additional
performance measures and are discussed later below.)
Revenue was £6,071m (2008: £5,334m), up 14%, including a full year
contribution from the ChoicePoint business acquired in September
2008. At constant exchange rates, revenue was flat compared
with the prior year. Underlying revenues, i.e. before acquisitions
and disposals, were 6% lower principally reflecting the impact of
the global recession on our markets, most particularly the significant
downturn in advertising and promotion markets in Reed Exhibitions
and Reed Business Information (RBI).
Reported operating profit, after amortisation and impairment of
acquired intangible assets and goodwill and exceptional restructuring
and acquisition related costs, was £787m (2008: £901m), down 13%.
The decrease principally reflects intangible asset and goodwill impairment
charges relating to RBI and increased restructuring and acquisition
integration spend, partly offset by currency translation effects.
Mark Armour
Chief Financial Officer
36 Reed Elsevier Annual Reports and Financial Statements 2009
The amortisation charge in respect of acquired intangible assets,
including the share of amortisation in joint ventures, amounted to
£368m (2008: £281m), up £87m as a result of ChoicePoint and
other 2008 acquisitions and currency translation effects. Charges
for impairment of acquired intangible assets and goodwill were
£177m (2008: £9m) principally relating to RBI and certain minor
exhibitions businesses.
Exceptional restructuring costs incurred amounted to £182m
(2008: £152m) relating to the major restructuring programmes
announced in February 2008 and 2009 and included severance,
outsourcing migration and related vacant property costs. Acquisition
related costs amounted to £48m (2008: £27m) principally in respect
of the integration of the ChoicePoint business into LexisNexis.
Disposals and other non operating losses of £61m (2008: £92m)
comprise restructuring costs in relation to assets held for sale and
related closures, in particular RBI US controlled circulation titles,
less net gains on disposals of minor titles and investments and
fair value increases in the portfolio of venture capital investments.
Net finance costs were higher at £291m (2008: £192m, including
£18m of acquisition related fees incurred in connection with
ChoicePoint acquisition financing) principally reflecting a full year’s
financing of the ChoicePoint acquisition and currency translation
effects, less the benefit of the July 2009 share placing and free
cash flow.
The reported profit before tax, including amortisation and impairment
of acquired intangible assets and goodwill, exceptional restructuring
and acquisition related costs, and non operating items, was £435m
(2008: £617m).
The reported tax charge was lower at £40m (2008: £155m) reflecting
the reduced reported profit before tax, geographic mix effects, tax
credits on prior period disposals of £34m and the full year deferred
tax credit on amortisation of the deferred tax liability established
on acquisition of ChoicePoint in relation to its intangible assets.
Discontinued operations
Net profit from discontinued operations of £18m in the prior year
comprised the gain on disposal of the remaining Education Division
businesses of £67m less taxes of £49m.
Total operations
The reported attributable profit of £391m compares with £476m in
2008, reflecting the lower reported profit before tax partly mitigated
by lower tax costs and currency translation effects.
Adjusted figures
Adjusted figures are used by Reed Elsevier as additional performance
measures and are stated before the amortisation and impairment of
acquired intangible assets and goodwill, 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
programmes announced in February 2008 and 2009. 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.
Reconciliations between the reported and adjusted figures are set
out in note 11 to the combined financial statements. Comparison
at constant exchange rates uses 2008 full year average and hedge
exchange rates.
Adjusted operating profit was £1,570m (2008: £1,379m), up 14%,
including a full year contribution from the ChoicePoint business
acquired in September 2008. At constant exchange rates, adjusted
operating profits were up 1%. Underlying adjusted operating profits,
ie before acquisitions and disposals, were 9% lower reflecting the
operational gearing on underlying revenue declines of 6%. Underlying
costs were £227m lower than in 2008 or 5.4%, at constant currencies,
through significant cost actions across the business including the
exceptional restructuring programmes.
The overall adjusted operating margin was unchanged at 25.9%
(2008: 25.9%). An underlying margin decline of 0.8 percentage points
was largely offset by the strong growth in profitability and adjusted
operating margin at ChoicePoint.
The net pension expense was £18m (2008: £36m). Excluding the
unallocated net pension financing credit, the net pension expense
was lower at £24m (2008: £75m), reflecting the higher discount
rates and lower inflation assumptions at the beginning of the year
compared with the prior year and pension curtailment credits of £43m
arising from changes to pension plan benefits and staff reductions,
partially offset by currency translation effects. The net pension financing
credit was £6m (2008: £39m) reflecting the lower market value of
scheme assets at the beginning of the year compared with a year
before. The charge for share based payments was £17m (2008: £46m)
reflecting reduced vesting assumptions for long term incentive schemes.
Restructuring costs, other than in respect of the exceptional
restructuring programme and acquisition integration, were £20m
(2008: £13m).
Revenue
£m
6,071
5,334
Adjusted operating profit
£m
1,570
1,379
2008 2009
2008
2009
Annual Reports and Financial Statements 2009 Reed Elsevier 37
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Chief Financial Officer’s report continued
Net interest expense was £291m (2008: £174m before acquisition
related financing fees) principally reflecting a full year’s financing
of the ChoicePoint acquisition and currency translation effects,
less the benefit of the July 2009 share placing and free cash flow.
Adjusted profit before tax was £1,279m (2008: £1,205m), up 6%.
At constant exchange rates, adjusted profit before tax was 6% lower
reflecting the flat adjusted operating profit performance and higher
net interest expense.
The effective tax rate on adjusted profit before tax at 22.9% was
marginally lower than the rate in 2008 reflecting financing efficiencies
and geographic mix effects. 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 grossed up for the equity share of taxes
in joint ventures.
The adjusted profit attributable to shareholders of £982m (2008:
£919m) was up 7%. At constant exchange rates, adjusted profit
attributable to shareholders was down 5%.
Cash flows
Adjusted operating cash flow was £1,558m (2008: £1,407m),
up 11%, or down 2% at constant currencies.
The rate of conversion of adjusted operating profits into cash flow
was very high at 99% (2008: 102%). The small decline in adjusted
operating cash flow at constant currencies reflects the 1% increase
in adjusted operating profits at constant currencies and the slightly
lower cash flow conversion rate than the prior year’s record level.
Capital expenditure included within adjusted operating cash flow was
£242m (2008: £172m), including £164m (2008: £115m) in respect
of capitalised development costs included within internally generated
intangible assets. The increase reflects a full year of ChoicePoint
capital expenditures and increased investment in product platforms
and related infrastructure, and currency translation effects.
Free cash flow – after interest and taxation – was £1,051m
(2008: £999m) before exceptional restructuring and acquisition
related spend. The increase reflects the currency translation benefit
included in adjusted operating cash flow, partially offset by higher
interest payments.
Exceptional restructuring spend was £124m (2008: £72m) principally
relating to severance, outsourcing migration and vacant property
costs. Payments made in respect of acquisition integration amounted
to £45m (2008: £27m) principally in respect of the ChoicePoint
acquisition. Tax paid in the year was reduced by £36m (2008: £32m)
in relation to the restructuring and acquisition related spend.
Ordinary dividends paid to shareholders in the year, being the 2008
final and 2009 interim dividends, amounted to £457m (2008: £418m).
In 2008, the special distribution paid to shareholders in January 2008
from the net proceeds of the Education Division disposal amounted
to £2,013m (including £27m paid to the employee benefit trust).
Free cash flow – after dividends and exceptional restructuring and
acquisition integration spend – was £461m (2008: £496m). Spend
on acquisitions was £94m, including £56m of payments in respect
of ChoicePoint change of control and other non operating liabilities
assumed on acquisition and £29m in respect of deferred consideration
on prior year acquisitions. Including deferred consideration payable,
an amount of £17m was capitalised in the year as acquired intangible
assets and £6m as goodwill. The total consideration in respect of
acquisitions made in the year was £9m. Tax paid in the year was
reduced by £53m in relation to settlement of outstanding ChoicePoint
share options on acquisition and other liabilities.
Proceeds, net of expenses, from share placings by the parent
companies in July 2009 were £829m. No share repurchases were
made by the parent companies in the year (2008: £40m) and no
shares of the parent companies were purchased by the employee
benefit trust (2008: £54m). Net proceeds from the exercise of share
options were £5m (2008: £54m).
Debt
Net borrowings at 31 December 2009 were £3,931m (2008:
£5,726m), a decrease of £1,795m since 31 December 2008.
The decrease principally reflects the July 2009 share placings,
which raised £829m net of expenses, free cash flow and currency
translation effects. Currency translation effects decreased net
borrowings by £559m, reflecting the impact of the weakening
of the US dollar, from $1.45:£1 at the beginning of the year to
$1.62:£1 at the end, on the largely US dollar denominated net debt.
Gross borrowings after fair value adjustments at 31 December 2009
amounted to £4,706m (2008: £6,142m). The fair value of related
derivative assets was £41m (2008: £41m). Cash balances totalled
£734m (2008: £375m).
Adjusted profit before tax
£m
Adjusted operating cash flow
£m
1,279
1,205
1,558
1,407
Free cash flow
£m
999
1,051
2008
2009
2008
2009
2008
2009
38 Reed Elsevier Annual Reports and Financial Statements 2009
As at 31 December 2009, after taking into account interest rate and
currency derivatives, a total of 75% of Reed Elsevier’s gross borrowings
(equivalent to 90% of net borrowings) were at fixed rates with a weighted
average remaining life of 5.7 years and interest rate of 6.0%.
Net pension obligations, ie pension obligations less pension assets,
at 31 December 2009 were £235m (2008: £369m). The decrease
reflects the impact of higher plan asset values, pension benefit
curtailments and currency translation partially offset by the effects
of lower discount rates and an increased inflation assumption in
the UK scheme.
The ratio of net debt to adjusted ebitda (earnings before interest,
tax, depreciation and amortisation) at 31 December 2009 was 2.2x
(2008: 2.7x, proforma for ChoicePoint), and 2.9x (LTM June 2009:
3.6x; 2008: 3.3x, proforma for ChoicePoint) on a pensions and lease
adjusted basis. Reed Elsevier’s target is a ratio of net debt to adjusted
ebitda of 2.0-3.0x (on a pensions and lease adjusted basis) over the
longer term, consistent with a solid investment grade credit rating.
Liquidity
Fixed rate term debt of $1,500m, €600m and £300m and floating
rate term debt of €50m, totalling £1,836m, were issued in the year
in maturities ranging from 4 to 10 years, with a weighted average
coupon of 7.5% (before taking into account fixed to floating interest
rate swaps), and the proceeds used to repay the majority of the
ChoicePoint acquisition facility, being bank loans maturing in 2010
and 2011. The net proceeds of the July 2009 equity placings were
used to repay the outstanding ChoicePoint acquisition facility and
reduce short term commercial paper borrowings.
At 31 December 2009, Reed Elsevier had in place a $2.5 billion
committed bank facility maturing in May 2010, providing back up
for commercial paper borrowings and other short term debt, none
of which was drawn, and a $2.0 billion committed bank facility,
forward starting in May 2010 and maturing in May 2012. In January
2010 the $2.5 billion committed facility maturing in May 2010 was
cancelled and the start date of the $2.0 billion committed facility
brought forward to start immediately. This back up facility provides
security of funding for $2.0 billion of short term debt to May 2012.
After taking account of these committed bank facilities and available
cash resources, no borrowings mature in 2010 and 2011, £730m of
borrowings mature in 2012 and £3,201m mature in 2013 and beyond.
The strong free cash flow of the business, the available resources
and back up facilities, and Reed Elsevier’s ability to access debt
capital markets are expected to provide sufficient liquidity to repay
or refinance borrowings as they mature.
Capital employed and returns
The capital employed at 31 December 2009 was £11,918m
(2008: £13,125m) after adding back accumulated amortisation and
impairment of acquired intangible assets and goodwill. The decrease
of £1,207m principally reflects the impact of currency translation at
year end rates.
The return on average capital employed in the year was 10.4%
(2008:12.1%). This is based on adjusted operating profits for the
year, less tax at the effective rate, and the average of the capital
employed at the beginning and end of the year, retranslated at the
average exchange rates, adjusted for major acquisition timing and
to exclude the gross up to goodwill in respect of deferred tax liabilities
established on acquisitions in relation to intangible assets. The
reduction in the return reflects the initially dilutive effect on returns
of the ChoicePoint acquisition and the lower adjusted operating
profits in the business excluding ChoicePoint.
Acquisitions typically dilute the overall return initially, but build to
deliver longer term returns well over Reed Elsevier’s average for the
business. The recent acquisitions made in the years 2007 and 2008
are delivering post tax returns in 2009 of 10% and 6% respectively.
The post tax return on ChoicePoint was 6% in the year, which
compares with 4% in the prior year on a proforma basis.
Term debt maturities
$m
1,184
1,007
1,511
694
550
250
2010
2011
2012
2013
2014
646
520
186
2015
2016
2017
2018+
Annual Reports and Financial Statements 2009 Reed Elsevier 39
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Chief Financial Officer’s report continued
%
change at
constant
change currencies
%
and €0.400 (2008: €0.404), up 0.5% and down 1% on 2008
respectively. The difference in growth rates in the equalised
dividends reflects changes in the euro:sterling exchange rate
since prior year dividend announcement dates.
Dividend cover, based on adjusted earnings per share and the
total interim and proposed final dividends for the year, is 2.3 times
for Reed Elsevier PLC and 2.0 times for Reed Elsevier NV. The
dividend policy of the parent companies is, subject to currency
considerations, to grow dividends broadly in line with adjusted
earnings per share whilst maintaining dividend cover (being the
number of times the annual dividend is covered by the adjusted
earnings per share) of at least two times over the longer term.
In July 2009, Reed Elsevier PLC placed 109.2m ordinary shares
at 405p per share for proceeds, net of issue costs, of £435m and
Reed Elsevier NV placed 63.0m ordinary shares at €7.08 per share
for net proceeds of £394m. The numbers of ordinary shares issued
represented 9.9% of the issued ordinary share capital of the
respective parent companies prior to the placings.
On 18 January 2008, a special distribution was paid to
shareholders in the equalisation ratio representing the net
proceeds of the sale of the Education division. The distribution was
82.0p per share for Reed Elsevier PLC and €1.767 per share for
Reed Elsevier NV and amounted to £2,013m in aggregate. The
special distribution was accompanied by a consolidation of the
ordinary share capitals of Reed Elsevier PLC and Reed Elsevier NV
on the basis of 58 new ordinary shares for every 67 existing
ordinary shares, representing a 13.4% consolidation of ordinary
share capital of both companies.
No shares were repurchased in the year. Shares repurchased in
the prior year totalled 3.2m ordinary shares of Reed Elsevier PLC
and 2.1m ordinary shares of Reed Elsevier NV.
Parent companies
Reed Elsevier PLC
Reported profit attributable
Adjusted profit attributable
2009
£m
195
519
2008
£m
241
486
Reported earnings per share 17.2p
Adjusted earnings per share 45.9p
Ordinary dividend per share 20.4p
22.1p
44.6p
20.3p
Reed Elsevier NV
€m
€m
Reported profit attributable
Adjusted profit attributable
219
550
294
580
€0.44
Reported earnings per share €0.32
Adjusted earnings per share €0.79
€0.87
Ordinary dividend per share €0.400 €0.404
-19%
+7%
-22%
+3%
0%
-26%
-5%
-27%
-8%
-1%
-5%
-9%
-5%
-9%
For the parent companies, Reed Elsevier PLC and Reed Elsevier
NV, adjusted earnings per share were respectively up 3% at 45.9p
(2008: 44.6p) and down 8% at €0.79 (2008: €0.87). At constant
rates of exchange, the adjusted earnings per share of both
companies decreased by 9%.
The July 2009 equity placings had a dilutive effect on adjusted
earnings per share of approximately 4% in 2009, taking into
account the interest expense saved on the borrowings repaid
from the proceeds of the equity placings and the increase in the
average number of parent company shares in issue. The further
dilutive effect on adjusted earnings per share in 2010 is expected
to be approximately 4% (8% in the first half).
The reported earnings per share for Reed Elsevier PLC
shareholders was 17.2p (2008: 22.1p) and for Reed Elsevier NV
shareholders was €0.32 (2008: €0.44). The decline principally
reflects the intangible asset and goodwill impairment charges in
RBI, higher exceptional restructuring and acquisition integration
costs, and the dilutive effect of the equity placing.
The equalised final dividends proposed are 15.0p per share for
Reed Elsevier PLC and €0.293 per share for Reed Elsevier NV,
unchanged and up 1% respectively compared with the prior year.
This gives total dividends for the year of 20.4p (2008: 20.3p)
Reed Elsevier PLC
Adjusted EPS
pence
Reed Elsevier PLC
Ordinary dividends
pence
Reed Elsevier NV
Adjusted EPS
€
Reed Elsevier NV
Ordinary dividends
€
44.6
45.9
20.3
20.4
0.87
0.79
0.404
0.400
2008
2009
2008
2009
2008
2009
2008
2009
40 Reed Elsevier Annual Reports and Financial Statements 2009
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, taxation and property provisioning.
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 at least annually.
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 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 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.
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.
The assumptions are determined in conjunction with independent
actuaries based on historical data and trends.
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Annual Reports and Financial Statements 2009 Reed Elsevier 41
Chief Financial Officer’s report continued
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 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.
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 from a variety of sources 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 requires that no more than $1.5 billion
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 and, during 2009,
$44m of US term debt maturing in 2097 was bought back
opportunistically following reverse enquiry by investors.
After taking account of committed bank facilities and available cash
resources at 31 December 2009, no borrowings mature in the next
two years, 19% of borrowings mature in the third year, 35% in the
fourth and fifth years, 36% in the sixth to tenth years, and 10%
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 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.
After taking into account interest rate and currency derivatives, at
31 December 2009 interest expense was fixed on an average of
£3.4 billion of forecast debt for the next 12 months. This fixed rate
debt reduces to £2.2 billion by the end of 2012 and reduces further
thereafter with all but £0.4 billion of fixed rate term debt (not swapped
to floating rate) having matured by the end of 2019.
Currency profile revenue
Currency profile adjusted profit before tax
US dollar 52%
Euro 25%
Sterling 14%
Other 9%
US dollar 42%
Euro 33%
Sterling 17%
Other 8%
42 Reed Elsevier Annual Reports and Financial Statements 2009
At 31 December 2009, fixed rate term debt (not swapped to floating
rate) amounted to £2.7 billion (2008: £1.9 billion) and had a weighted
average life remaining of 6.9 years (2008: 9.1 years) and a weighted
average interest rate of 6.4% (2008: 5.4%). Interest rate derivatives
in place at 31 December 2009, which fix the interest cost on
an additional £0.8 billion (2008: £1.1 billion) of variable rate debt,
have a weighted average maturity of 1.7 years (2008: 1.8 years)
and a weighted average interest rate of 4.2% (2008: 4.6%).
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, in advance of becoming contractual. The precise
policy differs according to the specific circumstances of the individual
businesses. Highly predictable future cash flows may be covered
for transactions expected to occur during the next 12 months
(50 months for Elsevier science and medical subscription businesses)
within limits defined according to the period before the transaction
is expected to become contractual. Cover takes the form of foreign
exchange forward contracts.
As at 31 December 2009, the amount of outstanding foreign exchange
cover against future transactions was £1.0 billion (2008: £1.2 billion).
Credit risk
Reed Elsevier has a credit exposure for the full principal amount
of cash and cash equivalents held with individual counterparties.
In addition, it has a credit risk from the potential non performance by
counterparties to financial instruments; this credit risk normally being
restricted to the amounts of any hedge gain and not the full principal
amount being hedged. Credit risks are controlled by monitoring the
credit quality of 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 single A. At 31 December 2009, cash and cash
equivalents totalled £734m, of which 96% was held with banks
rated A+ or better 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 adjusted ebitda target,
over the long term, in the range of 2x to 3x are consistent with the
rating target. The cash flow conversion in 2009 was 99% and at
31 December 2009 net debt to adjusted EBITDA was 2.9x on a
pensions and lease adjusted basis.
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. Reed Elsevier’s balance sheet was strengthened by the
equity placing in July 2009 and over the next 12 months the focus
will continue to be on the repayment of debt out of cash flow to bring
Reed Elsevier’s credit metrics further within the target range.
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.
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 reinsurance 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.
Annual Reports and Financial Statements 2009 Reed Elsevier 43
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Activities
EFSA is the principal treasury centre for the Reed Elsevier 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, product development and other
general requirements and manages cash pools, investments and
debt programmes on their behalf.
Liabilities and assets
At 31 December 2009, 92% (2008: 91%) of ERF’s gross assets were
held in US dollars and 7% (2008: 8%) in euros, including $10.0 billion
(2008: $10.6 billion) and €0.6 billion (2008: €0.6 billion) in loans to
Reed Elsevier Group plc subsidiaries. Loans made to Reed Elsevier
Group plc businesses are funded from equity, long term debt of
$2.2 billion and short term debt of $0.7 billion backed by committed
bank facilities. Sources of long term debt include Swiss domestic
public bonds, bilateral term loans, private placements and syndicated
bank facilities. Short term debt is primarily derived from euro and
US commercial paper programmes.
Mark Armour
Chief Financial Officer
EPSA actively manages intellectual property assets including
trademarks such as The Lancet and databases such as Reaxys.
In 2009 it continued to acquire further assets such as the rights
to PharmaPendium and the Patent Chemistry database. EPSA
professionals constitute a centre of excellence in the management
and development of intellectual property assets.
ERSA is responsible for reinsurance activities for Reed Elsevier.
Major developments
In 2009, EFSA issued €650m of term debt and the proceeds
were used to refinance ChoicePoint acquisition facility loans.
In addition, EFSA advised Reed Elsevier (Investments) plc on its
£300m Sterling bond issue and renegotiated several term financing
agreements. EFSA negotiated and advised Reed Elsevier Group plc
companies on a number of banking and cash management
arrangements in Continental Europe and Asia and continued to advise
on treasury matters, including interest and foreign currency exposures.
The average balance of cash under management by EFSA in 2009,
on behalf of Reed Elsevier Group plc and its parent companies,
was approximately $0.4 billion (2008: $0.5 billion).
Full report online >
The Reed Elsevier Annual Reports
and Financial Statements 2009
are now available to view online.
www.reedelsevier.com/ar09
44 Reed Elsevier Annual Reports and Financial Statements 2009
Key performance measures
Reed Elsevier uses a range of performance indicators to help measure its
development against strategy and financial objectives. These indicators
include the following:
Key performance measure
Review of 2009 performance
Performance table
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Underlying revenue growth
Growth in revenue excluding acquisitions
and disposals at constant currency(a)
Underlying revenue declined 6%, reflecting the
impact of the global recession on our markets,
particularly in advertising and promotion activities
Online revenue
Online revenue(b) expressed as a percentage
of total revenue
Good growth in online services and a full year
contribution of the ChoicePoint business
+4%
2008
-6%
2009
59%
50%
2008
2009
In addition to the Reed Elsevier key performance measures reported above, the measures below illustrate performance within individual businesses
ScienceDirect usage
Growth in full text article downloads
Full text article downloads increased close to 20%
c . + 2 0 %
Health Sciences online revenue
Health Sciences online revenue expressed as
a percentage of total Health Sciences revenue
Strong growth in online services
LexisNexis International online revenue
LexisNexis International online revenue
expressed as a percentage of total
LexisNexis International revenue
Good growth in online services and their
increasing adoption in international markets
2008 2009
32%
27%
2008
2009
52%
46%
2008
2009
Annual Reports and Financial Statements 2009 Reed Elsevier 45
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Key performance measures continued
Key performance measure
Review of 2009 performance
Performance table
Underlying adjusted operating profit growth
Growth in adjusted operating profit(c) excluding
acquisitions and disposals at constant currency
Underlying adjusted operating profit declined
9%, reflecting the operational gearing of lower
underlying revenue, mitigated by cost actions
Adjusted operating margin
Adjusted operating profit expressed
as a percentage of revenue
Adjusted operating margin was unchanged.
An underlying margin decline of 0.8 percentage
points was offset by the strong growth in
adjusted operating margin in the acquired
ChoicePoint business
Adjusted EPS growth at constant rates
Growth in adjusted earnings per share(d)
expressed at constant currency
Adjusted EPS growth declined 9% at constant
currency, reflecting the reduction in underlying
adjusted operating profit and EPS dilution from
the July 2009 equity placings
Return on invested capital
Post tax(e) adjusted operating profit expressed
as a percentage of average capital employed(f)
ROIC has decreased by 1.7 percentage points
reflecting the initially dilutive impact of the
ChoicePoint acquisition and lower adjusted
profits excluding ChoicePoint
Cash flow conversion rate
Adjusted operating cash flow(g) expressed
as a percentage of adjusted operating profits
Cash flow conversion remained very high
reflecting tight working capital management
+9%
2008
-9%
2009
25.9%
25.9%
2008
2009
+15%
2008
-9%
2009
12.1%
10.4%
2008
2009
102%
99%
2008
2009
Notes:
(a) constant currency growth is calculated using the prior year average and hedge exchange rates.
(b) online revenue represents revenue attributable to electronic products and services.
(c) adjusted operating profit is defined as reported operating profit before amortisation and impairment of acquired intangible assets and goodwill, exceptional
restructuring and acquisition related costs and share of taxation of joint ventures.
(d) adjusted earnings per share is defined as reported earnings per share before the parent company’s share of amortisation and impairment of acquired intangible
assets and goodwill, 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.
(e) the effective tax rate on adjusted operating profit 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.
(f) invested capital is the average capital employed in the year expressed at the average exchange rates for the year. Capital employed represents the net assets of
the business before borrowings and derivative financial instruments and current and deferred taxes, after adding back the cumulative amortisation and impairment
of acquired intangible assets and goodwill and deducting from goodwill the gross up in respect of deferred tax liabilities recognised on acquisition of intangible assets.
(g) adjusted operating cash flow is defined as the cash 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.
46 Reed Elsevier Annual Reports and Financial Statements 2009
Principal risks
The principal 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, legislative, fiscal and regulatory
developments, 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 the
availability of alternative free sources of information.
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
environment 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 value placed on them. We cannot predict whether
there will be changes in the future which will affect the
acceptability of our products, services and prices to
our customers.
Our businesses operate in highly competitive markets.
These markets continue to change in response to
technological innovations, changing legislation, regulatory
changes, the entrance of new competitors and other factors.
We cannot predict with certainty the changes that may occur
and the effect of those changes on the competitiveness of
our businesses. We continue to invest significant resources
to further adapt to the changing market and competitive
environment. 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.
A number of our businesses rely extensively upon content
and data from external sources to maintain our databases.
Data is obtained from public records, governmental
authorities, customers and other information companies,
including competitors. The disruption or loss of data sources
in the future, because of changes in the law or because data
suppliers decide not to supply them, could adversely affect
our business if we were unable to arrange for substitute
sources in a timely manner or at all.
The scientific, technical and medical (STM) primary
publications of Elsevier, like those of most of our competitors,
are published on a paid subscription basis. There has been
debate in the government, academic and library communities,
which are the principal customers for our STM publications,
regarding whether such publications should be funded instead
through fees charged to authors and from governmental
and other subsidies or made freely available after a period
following publication. If these methods of STM publishing
are widely adopted or mandated, it could adversely affect
our revenue from paid subscription publications.
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
business performance, 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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Annual Reports and Financial Statements 2009 Reed Elsevier 47
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 acquisitions and restructuring activities this could
adversely affect our reputation and financial condition.
If the ratings of our long term debt are downgraded in
the future, our borrowing costs and access to capital may
be adversely affected. A rating is based upon information
furnished by us or obtained by the relevant rating agency
from its own sources and is subject to revision, suspension or
withdrawal by the rating agency at any time. Rating agencies
may review the assigned ratings due to developments that
are beyond our control.
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 Business and Financial Review contains a description of
the business and a discussion of factors affecting performance.
>
the Corporate Responsibility report contains discussion
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 risk management and internal control,
including in relation to financial reporting.
48 Reed Elsevier Annual Reports and Financial Statements 2009
Governance
50 Board Directors
52 Corporate responsibility
56 Structure and corporate governance
62 Directors’ remuneration report
79 Report of the Audit Committees
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Annual Reports and Financial Statements 2009 Reed Elsevier 49
Board Directors
1
4
7
2
5
8
3
6
9
10
11
12
50 Reed Elsevier Annual Reports and Financial Statements 2009
Executive Directors
1 Erik Engstrom (46)
(Swedish) Chief Executive Officer since November 2009. Joined
Reed Elsevier as Chief Executive Officer of Elsevier in 2004. Prior to
joining Reed Elsevier was a partner at General Atlantic Partners. Before
that was president and chief operating officer of Random House Inc
and, before its merger with Random House, president and chief
executive officer of Bantam Doubleday Dell, North America. Began
his career as a consultant with McKinsey. Served as a non-executive
director of Eniro AB and Svenska Cellulosa Aktiebolaget SCA.
2 Mark Armour (55)
(British) Chief Financial Officer since 1996. Prior to joining Reed
Elsevier as Deputy Chief Financial Officer in 1995, was a partner
in Price Waterhouse.
3 Andrew Prozes (64)
(Canadian) Chief Executive Officer of LexisNexis 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.
Non-Executive Directors
4 Anthony Habgood (63)
(British) Chairman since June 2009. Chairman of Whitbread plc.
Previous directorships include: Chairman of Bunzl plc and of
Mölnlycke Healthcare Limited; a director of SVG Capital plc; Marks
and Spencer plc; Powergen plc, National Westminster Bank plc; and
Geest plc. Served as chief executive of Bunzl plc, chief executive of
Tootal Group plc and a director of The Boston Consulting Group lnc.
5 Dien de Boer-Kruyt (65)
(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
leadership adviser to business, government and educational bodies.
6 Mark Elliott (60)
(American) Appointed 2003. Chairman of the Remuneration
Committee. Non-executive director of QinetiQ Group plc (of which he
will be appointed Chairman from 1 March 2010) and G4S plc. Serves
on the Dean’s Advisory Council and the Technology Advisory Council
at Indiana University. Until his retirement in 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.
7 Lisa Hook (51)
(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 Telecommunications. Has
served as Senior Advisor to the Federal Communications Commission
Chairman and a Senior Counsel to Viacom Cable.
8 Robert Polet (54)
(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.
9 David Reid (63)
(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.
10 Lord Sharman of Redlynch OBE (66)
(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.
11 Ben van der Veer (58)
(Dutch) Appointed September 2009. Member of the supervisory
boards of AEGON NV, TomTom NV, Siemens Nederland NV and
Koninklijke FrieslandCampina NV. Was chairman of the executive
board of KPMG in the Netherlands and a member of the management
committee of the KPMG International board until his retirement
in 2008.
12 Marike van Lier Lels (50)
(Dutch) Appointed January 2010. Member of the supervisory
boards of KPN NV, USG People NV, TKH Group NV and Maersk BV.
A member of the Audit Committee of the Algemene Rekenkamer
and of various Dutch governmental advisory boards. Was Executive
Vice President and Chief Operating Officer of the Schiphol Group
for five years until 2005. Previously a member of the executive
board of Deutsche Post Euro Express for six years until 2000 and
held various senior positions in the Netherlands, Singapore and
Hong Kong for Nedlloyd.
Board Committee Membership
Audit Committee: Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV
Remuneration Committee: Reed Elsevier Group plc
Nominations Committee: joint Reed Elsevier PLC and Reed Elsevier NV
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 members of the Executive Board of Reed Elsevier NV.
Mrs Dien de Boer-Kruyt, who will retire at the conclusion of the 2010 Annual General Meeting,
and Mrs Marike van Lier Lels are members 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.
Annual Reports and Financial Statements 2009 Reed Elsevier 51
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Corporate Responsibility Benefits our Business
Corporate responsibility
(CR) ensures good management
of non-financial risk and
opportunities, helps us attract
and retain the best people,
and strengthens our corporate
reputation. It means performing
to the highest commercial and
ethical standards and channelling
our knowledge and strengths,
as global leaders in our industries,
to make a difference to society.
Constant engagement with stakeholders, including
shareholders, employees, communities, governments,
and members of civil society, help us determine
material corporate responsibility issues. Our CR Forum,
chaired by the CEO, sets corresponding objectives –
encompassing governance, people, health and safety,
customers, supply chain, environment and community
– and measures performance against them.
The complete 2009 Reed Elsevier Corporate Responsibility Report
will be available online in April 2010 at www.reedelsevier.com/cr09
Focus on Society
We focus on areas where we can make an important contribution
to society through our knowledge, resources and skills: universal,
sustainable access to information, advance of science and health,
promotion of the rule of law and justice, and anti-crime.
Elsevier has an important role to play in advancing human welfare
and economic progress in the developing world, where information
resources are often scarce. Through ‘information philanthropy’
Elsevier, as the world’s largest scientific publisher, ensures leading
research is available to the countries that need it most. Among key
programmes is Research4Life, in partnership with United Nations
agencies and other publishers, which encompasses the Health
InterNetwork Access to Research Initiative (HINARI). HINARI provides
health workers and researchers in over 100 developing countries
access to both core and cutting-edge health sciences information.
In 2009, there were 2 million articles from nearly 1,600 Elsevier
journals downloaded through HINARI, a 30% increase over 2008.
Also in 2009, the Elsevier Foundation made grants including to the
Third World Organization for Women in Science (TWOWS) to support
twelve $5,000 awards to young women scientists working in the fields
of biological, physical, chemical and mathematical science across
the developing world. The awards will help further the organisation’s
mission to advance the participation, recognition and contributions
of women scientists in less developed countries.
LexisNexis has a strong focus on the rule of law. Its Rule of Law
Resource Center is one of the largest free online sources of rule of
law and human rights information. In 2009, the Center’s resources
were expanded to include a comprehensive report on health and
human rights compiled by the World Justice Project, supported by
LexisNexis. As a founder of the UK’s International Law Book Facility,
in 2009 LexisNexis provided 2,000 legal texts to assist legal professional
bodies, advice centres, pro bono groups, law schools, and other
institutions involved in access to justice across common law
jurisdictions in Africa, Asia and the Caribbean. In addition, through its
Risk Solutions business, LexisNexis supports organisations serving
children like Boys & Girls Clubs of America and Court Appointed
Special Advocates for youth. Since 2002, LexisNexis Volunteer
Screening has completed more that 4 million volunteer background
checks for these organisations, identifying over 200,000 individuals
with criminal convictions, including more than 3,000 registered
sex offenders.
Reed Exhibitions provides platforms at its trade shows to
organisations supporting our corporate responsibility focus areas.
Over the last five years, Reed Exhibitions has given free space at the
London Book Fair to BookAid International, which annually provides
500,000 books – including those donated from across Reed Elsevier
– to readers in the developing world, enabling the charity to engage
with a wide range of potential book and financial donors. At 2009
World Travel Market, the global event for the travel industry organised
by Reed Exhibitions, World Responsible Tourism Day was marked
by the Responsible Tourism Awards, which recognised sector
initiatives in areas like poverty reduction, low carbon transport
and technology, and conservation.
52 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Business Information (RBI) uses the power of its brands to aid
communities. Variety, the leading entertainment industry news source,
published by RBI, has established Power of Youth to spur young
entertainers to support philanthropic and humanitarian causes,
and to encourage their fans to do so as well. Since its inception
in 2007, Power of Youth has raised more than $1.25 million to aid
children. In 2009, RBI held a major event and auction which yielded
$250,000 to benefit Starlight Children’s Foundation, which helps
seriously ill children and their families through entertainment and
education, and LA’s BEST, which provides after-school activities
and education for more than 28,000 economically disadvantaged
young people.
Governance
2009 Objectives
>
>
80% trained in Code of Ethics
50% of US employees completing second round online Code
of Ethics training
The Reed Elsevier Code of Ethics and Business Conduct (Code),
updated in 2009 to improve the clarity of its provisions and to ensure
it reflects best practice, is disseminated to every employee as a guide
to our corporate and individual conduct. Encompassing topics such
as fair competition, anti-bribery and human rights, it encourages
open and principled behaviour. 80% of current employees completed
online Code training by year end 2009, with 63% of all US employees
completing second round Code training in the year.
In addition, we offered advanced ethics courses to relevant staff,
including on anti-harassment completed by 2,400 employees,
fair competition completed by 4,500 employees, and data privacy
and security completed by nearly 12,000 US employees.
In 2009, we actively promoted the United Nations Global Compact,
to which we are a signatory – an initiative for businesses willing to
align their operations and strategies with ten principles in the areas
of human rights, labour, environment and anti-corruption – providing
webinars to help fellow signatories communicate about the Compact,
and serving on the steering group for the United Kingdom.
2010 Objectives
>
Code of Ethics and Business Conduct course completion
by 90% of all employees
Data Privacy and Security course completion by 60% of
all employees
Anti-Bribery training for 80% of relevant employees in higher
risk roles and geographies
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People
2009 Objectives
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Reach all employees with 2009 Employee Opinion Survey
Communicate to all staff on new Diversity and Inclusion
Statement; advance Diversity and Inclusion Working Group
Our 32,000 people are our strength. In 2009, we disseminated a
global Employee Opinion Survey (EOS) to employees, with 72% of staff
taking part. Overall, employees rate Reed Elsevier as a good place to
work with improved scores since the last survey in 2006 in valuing our
people, being receptive to their ideas, and encouraging teamwork and
collaboration. We are prioritising areas identified in the EOS for attention,
including additional ways to support work/life balance.
The Reed Elsevier Diversity and Inclusion statement articulates our
commitment to a diverse workforce and a work environment that
respects individuals and their contributions, regardless of their gender,
race or other characteristic. To better communicate on the issues
we created a diversity and inclusion intranet site. Our cross-divisional
Diversity and Inclusion Working Group, which draws on internal and
external expertise, promoted best practice in areas ranging from
training to recruitment. Growing numbers of affinity groups, like
women’s forums, focused on support, mentoring and community
involvement, allow diversity to be expressed in meaningful ways
across Reed Elsevier.
2010 Objectives
>
>
Advance divisional EOS action plans
Develop a diversity and inclusion strategy for key locations
Health and Safety
2009 Objectives
>
>
Develop targeted and effective global wellness campaign
10% reduction in severity rate by 2010 (from 2008 baseline)
Our employees have the right to a healthy and safe workplace
as outlined in the Reed Elsevier Health and Safety Policy.
To reduce our severity rate (lost days per 200,000 hours worked)
we are conducting risk assessments, and working with a third party
resource in the US to assign a nurse case manager to each complex
or severe claim. We focused on wellness in the workplace during
our 2009 annual Health & Safety Month with activities ranging from
stress awareness training and flu vaccinations to fitness classes
and biometric screening. In 2010, we will introduce weight loss and
smoking cessation support to further promote employee wellness
and help reduce absenteeism and workplace-related illnesses.
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LexisNexis Risk Solutions supports ADAM, a tool which
provides geographically targeted automated alerts on missing
children. It has helped in the recovery of more than 100 children.
Annual Reports and Financial Statements 2009 Reed Elsevier 53
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Corporate responsibility continued
In the year, we launched RE:Fit2Win, a global competition which
recognised employees for walking, cycling, and running, with winners
receiving $1,000 for the charity of their choice. Over 117 locations
participated logging 878,890 miles/1.4 million kilometres.
2010 Objectives
>
>
10% reduction in severity rate by 2010 (from 2008 baseline)
Advance collection of absenteeism data
Customers
2009 Objectives
>
Improve customer satisfaction as measured by Net Promoter
Scores and dashboard programmes
Increase access for underserved users, expanding developing
world programmes
Improve website accessibility across Reed Elsevier
>
>
Through the Net Promoter Score (NPS) programme we surveyed
100,000 customers to determine their willingness to recommend us.
NPS tracks overall customer loyalty, deepening customer understanding
and driving forward a customer centric culture. Results, reviewed by the
CEO and senior managers and communicated to staff, illuminate where
we are doing well and where we must do better.
We are committed to improving access to our products and services
for all users, regardless of physical ability. In the year, Elsevier helped
launch AccessText.org which streamlines electronic book file requests
from university disability services, processing over 2,500 requests.
Upgrades to core LexisNexis products launching in 2010 will
incorporate WCAG 2.0, the most recent web accessibility guidelines.
Our Accessibility Working Group held four educational webinars for
colleagues in the year, including one hosted by the blind website
editor of one of our leading journals.
2010 Objectives
>
Improve customer loyalty as measured by Net Promoter
Scores; advance dashboard programmes
Continue to improve website accessibility
>
environment. In 2009, we expanded our Socially Responsible Supplier
(SRS) database to 589 suppliers, encompassing critical, preferred,
and strategic suppliers, and those we deem high risk according to
criteria from the Corporate Executive Board’s Global Country Analysis
Support Tool and human trafficking data from the US State Department.
We overestimated our target for signatories to the Supplier Code due to
the fragmented nature of the supplier base and the introduction of new
data gathering tools late in 2009. However, 50% of all suppliers were
signatories by year end. Of the 40 external audits of high risk suppliers
by specialists ITS planned for 2009, 39 were completed and one was
postponed until 2010. Any incidence of Supplier Code non-compliance
identified in the audit process triggers a corrective action plan with
tracked supplier remediation of all issues. In the future, we expect to
see an increase in our SRS database and will be engaging more people
within the business to reach a higher Supplier Code return rate; over the
last two years, all new suppliers are required to sign our Supplier Code
as a condition of doing business with us.
We provide tools for employees to undertake internal audits when
visiting high risk suppliers; 12 were completed in 2009. We also
provided supplier training to increase reporting on the Reed Elsevier
portion of their CO2 emissions.
2010 Objectives
>
>
>
60% of suppliers as Supplier Code of Conduct signatories
40 external audits of high risk suppliers
Ask key suppliers to become UN Global Compact signatories
Environment
2009 Objectives
>
Launch new environmental targets
Key Performance Indicators Target
CO2 emissions
Total energy
-10%
-5%
Travel emissions
Water
Waste recycled
-5%
-10%
70%
Baseline Target date
2006
2008
2008
2008
n/a
2015
2015
2015
2015
2015
Supply Chain
2009 Objectives
>
>
>
Expand Socially Responsible Supplier database to 550 entries
85% of suppliers as Supplier Code of Conduct signatories
40 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 such as human rights, labour and the
>
Introduce environmental standards programme across
Reed Elsevier
To achieve our 2015 targets, we are working with our Environmental
Champions network, employee-led Green Teams, and engineering,
design and construction specialists. We have also introduced an
environmental standards programme. Standard levels are those
needed to achieve our targets, based on our environmental
performance as well as internal and external good practice.
Advancing environmental science
Current Opinion in Environmental Sustainability, launched in 2009,
keeps specialists up to date on current environmental research.
54 Reed Elsevier Annual Reports and Financial Statements 2009
Locations that achieve five of eight environmental standards in any
year gain green status. The standards set usage levels per person
(e.g. energy consumption of 5,400 kWh per person and carbon
emissions of 2 t/CO2 per person) to engage employees and inspire
green competition among offices. In 2009, ten locations across
our four divisions turned green.
Full details of our environmental performance will be available
in the 2009 Corporate Responsibility Report from April 2010 at
www.reedelsevier.com/cr09
We promote good environmental performance through our leading
environmental science print and online publications and trade
shows, such as Current Opinion in Environmental Sustainability,
the Journal of Cleaner Production, the Environmental Law and
Climate Change Center, and Pollutec, the world’s largest
environmental engineering show.
2010 Objectives
>
20 key sites to achieve five Reed Elsevier Environmental
Standards
Management plans to achieve environmental targets
Map Reed Elsevier and supplier water stress locations
>
>
Community
2009 Objectives
>
10% increase in group-wide volunteering over 2008
Through our Reed Elsevier Cares programme we promote education
for disadvantaged young people. We saw an 11% rise in volunteering
and donated £2.5 million in cash donations (including matching gift
programmes) and the equivalent of £4.4 million in gifts of products,
services and staff time in 2009. Our Two Days programme allows
all staff up to two days off per year for their own community work.
Reed Elsevier Cares Champions engage colleagues in activities
throughout the year such as the RE Cares Challenge, which rewards
business sponsored community engagement, and Reed Elsevier
Cares Month, with hundreds of events around the globe. During the
Month we held a £37,000 fundraising drive for Save the Children’s
REwrite the Future programme in Afghanistan, supporting access
to education for children affected by conflict. Our annual global book
drive yielded some 14,000 employee books for local and developing
world readers.
2010 Objectives
>
Closer alignment of RE Cares donations with corporate
responsibility focus areas
Increase in-kind contributions
>
Our internal focus on corporate
responsibility is recognised
externally. In 2009 we achieved
the following recognition:
>
Global 100 Most Sustainable Corporations in the World
>
>
Platinum, Business in the Community’s Corporate
Responsibility Index
Dow Jones Sustainability Index and SAM Sustainability
Yearbook, scoring in top 15% of companies
>
Member FTSE4Good
>
Finalist for VBDO Supply Chain Award
>
CR Finalist, UK National Business Awards
>
AAA rating from Innovest Strategic Value Advisors
>
>
>
4th place in sector group, Carbon Disclosure Project’s Global 500
Climate Leaders Index; 2nd place in sector group FTSE 350
Goldman Sachs Sustain Fund as a “best managed”
sustainable company
One of 50 companies in Global Challenges Index for
substantial contributions to surmounting global challenges
Full data will be available in our 2009 Corporate Responsibility Report
in April 2010 at www.reedelsevier.com/cr09
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Working with key charity partner Book Aid International, we support
development of community libraries in Cameroon; overall in 2009,
we donated 34,750 books to Book Aids programmes across
Sub-Saharan Africa.
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Annual Reports and Financial Statements 2009 Reed Elsevier 55
Structure and corporate governance
Corporate structure
Reed Elsevier was created 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.
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.
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
not in conflict, also be observed by the other.
56 Reed Elsevier Annual Reports and Financial Statements 2009
The boards of Reed Elsevier PLC and Reed Elsevier NV (Executive
Board and Supervisory Board, together the Combined Board)
support the principles and provisions of corporate governance
contained in the Combined Code on Corporate Governance issued
by the Financial Reporting Council in June 2008 (the UK Code) and
those contained in the Dutch Corporate Governance Code issued
in December 2008 (the Dutch Code). Reed Elsevier PLC, which
has its primary listing on the London Stock Exchange, has complied
throughout the year with the UK Code. Reed Elsevier NV, which
has its primary listing on the Euronext Amsterdam Stock Exchange,
has complied throughout the year with the UK Code, and subject
to limited exceptions as explained in the Reed Elsevier NV Report
of the Supervisory Board and the Executive Board on pages
162 to 165, has applied the best practice provisions of the Dutch
Code. For further information on the application of the Dutch Code,
see the Corporate Governance Statement of Reed Elsevier NV
published on the Reed Elsevier 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. Both
Reed Elsevier PLC and Reed Elsevier NV offer e-voting facilities
in relation to proxy voting at shareholder meetings. 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.
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 are a
member of either the Executive Board or the Supervisory Board of
Reed Elsevier NV. Reed Elsevier NV may nominate for appointment
two directors who are not appointed to the boards of either Reed
Elsevier PLC or Reed Elsevier Group plc. Following the appointment
of Marike van Lier Lels to the Reed Elsevier NV Supervisory Board
in January 2010, there are currently two such directors serving on
the Reed Elsevier NV Supervisory Board. Dien de Boer-Kruyt will
retire as a member of the Reed Elsevier NV Supervisory Board at
the conclusion of the 2010 Annual General Meeting. The names,
nationality and biographical details of each director appear on
pages 50 and 51.
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
Structure and corporate governance
Structure and corporate governance continued
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.
The Boards of Reed Elsevier PLC and of Reed Elsevier NV have
appointed one non-executive director/Supervisory Board member
to act as senior independent director, who is available to meet
with institutional shareholders and assist in resolving concerns
in cases where alternative channels are inappropriate. The senior
independent director also leads the annual assessment of the
functioning and performance of the Chairman of Reed Elsevier PLC/
Chairman of the Supervisory Board of Reed Elsevier NV. A profile,
which identifies the skills and experience of the non-executive
directors of Reed Elsevier PLC and the members of the Supervisory
Board of Reed Elsevier NV, is available on the Reed Elsevier website,
www.reedelsevier.com.
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.
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.
Board changes
Changes during the year in the composition of the Boards of
Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc
are noted in the table below.
As previously announced, Mr Hommen stepped down as Chairman
and as a member of the Boards at the conclusion of the Annual
General Meetings in April 2009. Following an external candidate
search, undertaken by the Nominations Committee with the
assistance of external consultants, the Nominations Committee
recommended to the Boards the appointment of Anthony Habgood
as Chairman of the Boards. Mr Habgood has a proven track record
of leadership and a wealth of boardroom and international
experience across different business sectors.
During the year the Nominations Committee engaged external
consultants to assist in the recruitment of additional suitably
experienced non-executive directors. In September 2009 the
Nominations Committee recommended the appointment of
Ben van der Veer to the Boards. Mr Van der Veer has extensive
business and financial experience. In January 2010 Marike van
Lier Lels was appointed as a member of the Reed Elsevier NV
Supervisory Board. Mrs Van Lier Lels has extensive business
and international experience, along with specific knowledge
of employee related matters in the Netherlands.
Erik Engstrom, who was appointed an executive director and
Chief Executive Officer of the Elsevier division in 2004, was
appointed Chief Executive Officer of Reed Elsevier in November
2009. Mr Engstrom has extensive management experience in the
media sector in the US and Europe, including five highly successful
years developing Reed Elsevier’s worldwide scientific, technical and
medical information and solutions business.
Ian Smith ceased to be a director and Chief Executive Officer of
Reed Elsevier in November 2009.
At the Reed Elsevier NV and Reed Elsevier PLC Annual General
Meetings, to be held on 20 and 21 April 2010 respectively,
Anthony Habgood, Ben van der Veer, Erik Engstrom, Mark Armour
and Robert Polet will retire from the boards and, being eligible,
will seek re-election. As mentioned above, Dien de Boer-Kruyt will
retire from the Reed Elsevier NV Supervisory Board on 20 April 2010,
and is not seeking re-appointment.
Board attendance
Members
Mark Armour
Dien de Boer-Kruyt
Sir Crispin Davis
Mark Elliott
Erik Engstrom
Anthony Habgood
Jan Hommen
Lisa Hook
Robert Polet
Andrew Prozes
David Reid
Lord Sharman
Ian Smith
Ben van der Veer
Reed Elsevier PLC
Reed Elsevier NV
Reed Elsevier Group plc
Date of
appointment
(cessation)
during the year
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
(March 2009)
June 2009
(April 2009)
January 2009
(November 2009)
September 2009
8
n/a
1
8
8
3
5
8
8
8
8
8
7
2
8
n/a
1
8
7
3
3
8
8
8
7
8
6
2
8
8
1
8
8
3
5
8
8
8
8
8
7
2
8
7
1
8
7
3
3
8
8
8
7
8
6
2
10
n/a
1
10
10
5
5
10
10
10
10
10
9
3
10
n/a
1
10
9
5
3
10
10
10
9
10
8
3
Annual Reports and Financial Statements 2009 Reed Elsevier 57
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Structure and corporate governance continued
Taking into account the assessment by the Corporate Governance
Committee of the qualifications and performance of each individual
director seeking re-election at the 2010 Annual General Meetings,
the Nominations Committee has recommended to the boards the
re-appointment of each director.
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, Gerben de Jong and Jans van der Woude. 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. Dien de Boer-Kruyt will retire from the
Supervisory Board of Elsevier Reed Finance BV in April 2010.
It was resolved that Ben van der Veer and Marike van Lier Lels
will be appointed to this board in the first half of 2010.
Members
Mark Armour
Jacques Billy
Dien de Boer-Kruyt
Rudolf van den Brink
Gerben de Jong
Jans van der Woude
Date of
appointment
during the year
Number of
meetings
held whilst
a director
Number of
meetings
attended
3
3
3
3
3
2
2
3
3
3
3
2
February 2009
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 50 and 51.
The terms of reference of the 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 79 and 80.
Date of
appointment
during the year
Number of
meetings
held whilst a
Committee
member
September 2009
5
5
5
1
Number of
meetings
attended
5
5
5
1
Members
Lisa Hook
David Reid
Lord Sharman
Ben van der Veer
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 during the year comprised only
independent non-executive directors, is chaired by Mark Elliott.
Anthony Habgood was appointed a member of the Committee in
January 2010. 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 62 to 78. 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.
Date of
appointment
(cessation)
during the year
(April 2009)
February 2009
Number of
meetings
held whilst a
Committee
member
4
1
4
3
Number of
meetings
attended
4
0
4
3
Members
Mark Elliott
Jan Hommen
Robert Polet
David Reid
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. Following the retirement of Sir Crispin
Davis in March 2009, the Committee now comprises only independent
non-executive directors.
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
58 Reed Elsevier Annual Reports and Financial Statements 2009
Structure and corporate governance
Structure and corporate governance continued
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
Anthony Habgood
Jan Hommen
David Reid
Lord Sharman
Date of
appointment
(cessation)
during the year
(March 2009)
June 2009
(April 2009)
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
4
9
3
5
9
9
4
7
3
2
9
8
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, and is chaired by Anthony Habgood. Marike van Lier Lels
was appointed a member of the Committee in January 2010.
During the year 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.
Date of
appointment
(cessation)
during the
year
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
June 2009
(April 2009)
September 2009
2
2
2
0
2
2
2
2
1
1
2
2
0
2
2
2
2
1
Members
Dien de Boer-Kuyt
Mark Elliott
Anthony Habgood
Jan Hommen
Lisa Hook
Robert Polet
David Reid
Lord Sharman
Ben van der Veer
Internal control
Parent companies
The boards of Reed Elsevier PLC and Reed Elsevier NV exercise
independent supervisory roles over the activities and systems
of internal control of Reed Elsevier Group plc and Elsevier Reed
Finance BV. The boards of Reed Elsevier PLC and Reed Elsevier NV
have each adopted a schedule of matters which are required to be
brought to them for decision. In relation to Reed Elsevier Group plc
and Elsevier Reed Finance BV, the boards of Reed Elsevier PLC and
Reed Elsevier NV approve the strategy and the annual budgets, and
receive regular reports on the operations, including the treasury and
risk management activities of the two companies. Major transactions
proposed by the boards of Reed Elsevier Group plc or Elsevier Reed
Finance BV require the approval of the boards of both Reed Elsevier
PLC and Reed Elsevier NV.
The Reed Elsevier PLC and Reed Elsevier NV Audit Committees
meet on a regular basis to review the systems of internal control
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 systems 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 2009 and up to the date of the
approvals of the Annual Reports and Financial Statements 2009.
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.
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Annual Reports and Financial Statements 2009 Reed Elsevier 59
Structure and corporate governance continued
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 47 and 48.
The major strategic risks facing the Reed Elsevier Group plc
businesses are considered by the Board. Reed Elsevier’s Chief Risk
Officer has the responsibility to provide 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 board on
any significant internal control matters arising.
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 as regards
financial reporting risks, 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,
in accordance with applicable law and regulations, 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.
60 Reed Elsevier Annual Reports and Financial Statements 2009
Structure and corporate governance continued
Structure and corporate governance
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
2009 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 2009 on Form 20-F.
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 2009 financial statements.
In reaching this conclusion, the directors of Reed Elsevier PLC and
Reed Elsevier NV have had due regard to the combined businesses’
financial position as at 31 December 2009, the strong free cash flow
of the combined businesses, Reed Elsevier’s ability to access capital
markets and the principal risks facing Reed Elsevier.
A commentary on the Reed Elsevier combined businesses’
cash flows, financial position and liquidity for the year ended
31 December 2009 is set out in the Chief Financial Officer’s Report
on pages 36 to 39. This shows that after taking account of available
cash resources and committed bank facilities that back up
short term borrowings, none of Reed Elsevier’s borrowings fall
due within the next two years. Reed Elsevier’s policies on liquidity,
capital management and management of risks relating to interest
rate, foreign exchange and credit exposures are set out on pages
42 and 43. Further information on liquidity of the combined
businesses can be found in note 19 of the combined financial
statements. The principal risks facing Reed Elsevier are set out
on pages 47 and 48.
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 2009 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:
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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
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presented in the Reed Elsevier Annual Report 2009 on Form
20-F their conclusions about the effectiveness of the disclosure
controls and procedures.
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Annual Reports and Financial Statements 2009 Reed Elsevier 61
Directors’ remuneration report
Remuneration Committee
63 Constitution and terms of reference
Executive directors
63 Remuneration philosophy and policy
65 The total remuneration package
69 Retirement benefits
70 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
72 Directors’ emoluments and fees
73 Directors’ shareholdings in Reed Elsevier
73 Share-based awards in Reed Elsevier
This report describes how Reed Elsevier applies the principles of
good governance relating to directors’ remuneration. In respect of
the disclosures contained in this report, we have sought to comply
with the substance and spirit of prevailing legislation and corporate
governance guidelines in the UK and the Netherlands. The Remuneration
Committee (the Committee) has sought to balance in a thoughtful and
responsible manner the UK legislative requirements with best practice
guidelines on disclosure in the Netherlands. This report has been
prepared by the Remuneration Committee of Reed Elsevier Group plc
in accordance with regulations made under the Companies Act 2006
and the Dutch Corporate Governance Code (the Dutch 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. Separate resolutions will be
submitted to the Annual General Meetings, of Reed Elsevier PLC and
Reed Elsevier NV in respect of the long-term incentive arrangements
proposed for 2010. In addition, a resolution relating to policy changes
on annual incentives will be submitted to the Annual General Meeting
of Reed Elsevier NV.
The audited parts of the Directors’ Remuneration Report
In compliance with the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008, 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 70; the tables showing
‘Aggregate emoluments’ and ‘Individual fees of non-executive
directors’ on page 72; the tables on ‘Individual emoluments of
executive directors’ and ‘Directors’ shareholdings in Reed Elsevier PLC
and Reed Elsevier NV’ on page 73; and the section ‘Share-based
awards in Reed Elsevier PLC and Reed Elsevier NV’ on pages 73-78.
62 Reed Elsevier Annual Reports and Financial Statements 2009
Introduction from Remuneration
Committee Chairman
Given the backdrop of the challenging year and volatile business
environment described by the Chairman and the CEO, the
Remuneration Committee has been actively engaged in the review
and management of all of our executive compensation programmes.
First we decided for a second year in a row that there will be no
increases in base salaries, except for Erik Engstrom who received
a promotional increase on his appointment as CEO of Reed Elsevier.
The continuing volatile economic environment makes the setting
of targets and management of performance within a narrow range
significantly more difficult. Therefore, our second action was a
decision to flatten the payout slope in the annual incentive plan
for 2010. This means that a smaller bonus would start to accrue
for achieving 94% of target and the level of outperformance required
to earn a bonus in excess of target has been substantially increased.
In addition, the Committee has determined that for 2010, executive
directors will only be able to earn the target bonus if 2010 profit
performance exceeds 2009. The target and maximum bonus
opportunities remain unchanged.
Finally, during the year the Committee reviewed the long-term
incentive arrangements in the context of the significant changes
in the senior leadership team, a challenging business environment
with the late cycle impact on our professional markets and Reed
Elsevier’s strategy.
The review resulted in the formulation of a set of proposals for new
long-term incentive (LTI) arrangements on which we consulted with
some 30 major shareholders and shareholder representative bodies
in the UK, the Netherlands and the US in early 2010. The input and
feedback received during the consultation process shaped the LTI
arrangements for which we will be seeking shareholder approval
at the Annual General Meetings in April. The new arrangements
are designed to drive sustainable performance in the longer term
by focusing on a balance of returns and earnings metrics that hold
the executives accountable for the delivery of the strategy. A detailed
description of the new arrangements is set out in the notes to the
notices of the Annual General Meetings of shareholders.
In developing the LTI proposals, the Committee was sensitive to
and mindful of the need to ensure that the level of the overall incentive
opportunity available under the new proposals remains within
the parameters of the incentive framework previously approved
by shareholders.
In other matters, standard terms and conditions were applied to
the retirement of Sir Crispin Davis and the departure of Ian Smith.
Sir Crispin’s terms were reported in last year’s remuneration report.
The payment for loss of office provided to Ian Smith, who resigned
by mutual agreement, was limited to base salary and benefits. In
accordance with policy, part of the payment for loss of office is subject
to mitigation. All of his share-based incentives lapsed on termination.
As in previous years, our approach to preparing this report has
been to meet the highest standards of disclosure, balancing relevant
requirements in the UK and the Netherlands, whilst aiming to produce
a clear and understandable report.
Mark Elliott
Chairman, Remuneration Committee
Directors’ remuneration report
Directors’ remuneration report continued
Remuneration Committee
Executive directors
Constitution
Throughout 2009, the Committee consisted of independent
non-executive directors, as defined by the Combined Code of
the FSA Listing Rules and the Dutch Code. Jan Hommen was also
a member of the Committee until 21 April 2009 when he stepped
down from the Reed Elsevier boards. Although not a formal member
of the Committee, Anthony Habgood attended meetings of the
Committee since his appointment as Chairman of Reed Elsevier
Group plc in June 2009. He was appointed a member of the
Committee with effect from 1 January 2010. Details of Committee
members and meeting attendance are contained in the section
on ‘Structure and corporate governance’. The Company Secretary
of Reed Elsevier Group plc, Stephen Cowden, also attends the
meetings in his capacity as secretary to the Committee. At the
invitation of the Committee Chairman, the CEO of Reed Elsevier
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 2009 and also provided market data and data analysis.
Towers Perrin also provided actuarial and other human resources
consultancy services directly to some Reed Elsevier companies.
The individual consultants involved in advising the Committee do
not provide advice to the executive directors or act on their behalf.
Remuneration philosophy and policy
The context for Reed Elsevier’s remuneration policy and practices
is set by the needs of a group of global businesses, each of
which operates internationally by line of business. Furthermore,
Reed Elsevier PLC and Reed Elsevier NV’s respective stock 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:
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Performance-related compensation with demanding
performance standards.
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Creation of shareholder value.
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Competitive remuneration opportunity to attract and retain
the best executive talent from anywhere in the world.
A balanced mix of remuneration between fixed and variable
elements, and annual and long term performance.
Aligning the interests of executive directors with shareholders
and other stakeholders.
Our remuneration policy
In line with this guiding philosophy our remuneration policy is
described below.
Terms of reference
The Committee is responsible for:
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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.
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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.
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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 assessing performance objectives and targets,
and seeks to ensure that incentives are consistent with the
appropriate management of risk.
Total targeted 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, annual 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
were amended to provide for specific provisions in this regard.
Annual Reports and Financial Statements 2009 Reed Elsevier 63
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Directors’ remuneration report continued
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The Committee considers it important to encourage personal
investment and ongoing holding of Reed Elsevier PLC and Reed
Elsevier NV securities amongst the senior executive population.
Executive directors and other senior executives are subject to
minimum shareholding requirements.
How the performance measures in the incentives link to our
business strategy
Our annual incentive plan is focused on operational excellence
as measured by the financial measures of revenue, profit and cash
generation. In addition, a significant portion of the annual bonus
is dependent upon the achievement of annual key performance
objectives (KPOs) that create a platform for sustainable future
performance. These KPOs align with Reed Elsevier’s strategic
imperatives described elsewhere in this report and range from
the delivery of specific projects and the achievement of efficiency
targets to corporate and social responsibility objectives.
The Committee believes that one of the main drivers of long-term
shareholder value is sustained growth in profitability, underpinned
by appropriate capital discipline. The new LTI arrangements
and bonus investment plan proposed for 2010 are aimed at
driving sustainable performance in the longer term by focusing
on earnings and returns over three and five year periods. The
metrics are cascaded down to the businesses and adjusted
to reflect expectations for each business. As the Committee
assesses performance against these metrics, it will ensure that
the scores fairly represent the underlying business performance.
The balance between fixed and performance related pay
The majority of each executive director’s total remuneration package
is linked to performance. We aim to provide each executive director
with an annual total remuneration package comprising fixed and
variable pay. On an ongoing basis, the annual total remuneration
package includes an incentive opportunity of around 70% for target
performance (as a percentage of the total package comprising both
annual and long term incentives). The core components of the total
remuneration package are described on page 65. The following
diagram shows the balance between the fixed and variable elements
of the remuneration package assuming target performance.
Fixed pay elements – 30%
20% salary
10% pensions and other benefits
Variable pay elements – 70%
20% annual incentive
50% long term incentive
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 under the prior plans would vary
from base salary at minimum up to a theoretical maximum under
different performance scenarios. The new LTI arrangements and
bonus investment opportunity for 2010 will deliver equal or less
reward for similar levels of performance as the prior plans. For the
purposes of this illustration assumptions have been made in relation
to vesting/payout levels at the different levels of performance.
64 Reed Elsevier Annual Reports and Financial Statements 2009
LTIP
BIP
ESOS
AIP
Salary
700%
600%
500%
400%
300%
200%
100%
0%
Minimum
Threshold
Target
Maximum
Our approach to market positioning and benchmarking
The market competitiveness of total remuneration (ie salary,
annual and long-term incentives and benefits) is assessed
against a range of relevant comparator groups as follows:
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Global peers operating in businesses similar to those of
Reed Elsevier (including Thomson Reuters, WPP, Pearson,
John Wiley; Wolters Kluwer, Dun & Bradstreet, Experian,
McGraw-Hill, UBM, DMGT, Informa, Lagardère and FICO.
Companies listed on the London Stock Exchange (cross-industry
but excluding those in the financial services sector) of a similar
size (measured by aggregate market capitalisation) and
international scope.
Companies listed on the New York Stock exchange (cross-industry
but excluding those in the financial services sector) of a similar
size (measured by aggregate market capitalisation) and
international scope.
Companies listed on the Amsterdam Stock Exchange,
cross-industry and of a similar size (measured by aggregate
market capitalisation) and international scope.
The composition of the respective comparator groups is subject
to minor changes year on year reflecting changes in the size,
international scope and listing status of specific companies
during the year.
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.
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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.
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Benefits, including medical and retirement benefits,
are positioned to reflect local country practice.
Directors’ remuneration report
Directors’ remuneration report continued
The total remuneration package
Each element of the remuneration package for executive directors is designed to achieve specific objectives, as described in the table
below. In aggregate, they create a unified and balanced reward mix and competitive employment proposition. The value of the reward
package is only maximised through the integrated delivery of annual 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 table below provides an overview of the component parts of the total remuneration package for executive directors.
Summary of remuneration elements for executive directors
Element
Purpose
Performance period
Performance measure
Salary
Positions the role and individual appropriately within the relevant
market for executive talent
Not applicable
Annual
Incentive
Provides focus on the delivery of stretching annual financial
targets and the achievement of annual objectives and milestones
that create a platform for sustainable future performance
One year
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
Long Term
Incentive
> Provides focus on the delivery of the medium to longer term
strategy and holds the executive directors accountable for
the delivery of that strategy
> Drives value creation via the delivery of sustained financial
performance and returns for shareholders
Bonus
Investment
> Encourages personal investment in, and ongoing holding
of, Reed Elsevier shares promoting greater alignment with
shareholders
> Supports the retention of key talent
Please refer to the notes of the notices of the
Annual General Meetings of Reed Elsevier PLC
and Reed Elsevier NV for detail of the proposed
LTI arrangements and bonus investment plan
applicable to 2010.
Retirement
benefits
Positioned to ensure broad competiveness with local
country practice
Not applicable
Terms and vesting are specific
to the individual with reference
to the relevant country practice
Each of these remuneration elements is described in greater detail in the remainder of this section.
Salary
Salary reflects the role and the sustained value of the executive
in terms of skills, experience and contribution in the context of
the relevant market.
Salaries for executive directors are reviewed annually in the
context of the competitiveness of total remuneration. Any increases
typically take effect on 1 January. Base salaries have been frozen
for executive directors since 1 January 2008, including with effect
from 1 January 2010. Erik Engstrom’s base salary was increased
to £1,000,000 per annum from 11 November 2009 following his
appointment as CEO of Reed Elsevier Group plc.
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. An increase of approximately 2% on average will
be awarded across the senior management population globally for
2010. No increases were provided to senior management in 2009,
except for promotions or where significant market adjustments were
required. This level of increase is in line with increases provided to
the wider employee population.
Current directors
Mark Armour
Erik Engstrom
Andrew Prozes
Annual salary from
1 January 2010
Annual salary from
1 January 2009
£613,440
£1,000,000
$1,215,180
£613,440
$1,192,464*
$1,215,180
Former directors
Sir Crispin Davis (retired 31 March 2009)
Ian Smith (resigned 10 November 2009)
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£1,181,100
£900,000
*£1,000,000 p.a. from 11 November 2009 following his promotion to CEO of
Reed Elsevier.
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Annual Incentive Plan (AIP)
The AIP provides focus on the delivery of stretching annual
financial targets. It further motivates the achievement of annual
objectives and milestones that create a platform for sustainable
future performance.
AIP payments for 2009
In assessing the level of bonus payments for 2009, the Committee
noted the following performances.
% change over 2008 at constant exchange rates
The AIP for 2010
For 2010, executive directors have a target bonus opportunity of
100% of salary (unchanged from 2009) that is weighted as follows
across four elements:
Reed Elsevier
Elsevier
LexisNexis
Adjusted
operating
profit
+1%
+9%
+13%
Revenue
0%
+4%
+14%
Measure
Weighting
Revenue
Profit*
Cash Flow Conversion Rate
Key Performance Objectives (KPOs)
30%
30%
10%
30%
* The Profit measure for the CEO and CFO of Reed Elsevier is Adjusted Profit After
Tax for the Reed Elsevier combined businesses. The profit measure for the CEO
of LexisNexis is Adjusted Operating Profit of LexisNexis.
The target bonus opportunity for the financial measures is payable
for the achievement of highly stretching financial targets. The four
elements are measured separately, such that there could be a
payout on one element and not on others.
The continuing volatile economic environment has made the setting
of targets and management of performance within a narrow range
significantly more difficult. In view of this, the Committee has decided
to widen the payout range under the AIP for 2010 and to make the
incentive slope flatter. This means that a smaller bonus would start
to accrue for achieving 94% of target (versus the 97.5% entry point
for 2009) against each individual financial performance measure.
However, the level of out-performance required to achieve the
maximum bonus (150% of target and unchanged from 2009) has
been substantially increased for 2010. In addition, the Committee has
determined that for 2010, executive directors will only be able to earn
a bonus of 100% of salary if 2010 profit performance exceeds 2009.
The KPOs are individual to each executive director. Each executive
director is set up to six KPOs to reflect critical business priorities
for which they are accountable. Against each objective, measurable
milestone targets are set for the year. All financial targets and
KPOs are approved by the Committee and are subject to formal
assessment at the end of each year. The Chairman of Reed Elsevier
presents his assessment of performance against KPOs for the
CEO of Reed Elsevier Group plc to the Committee whilst the
CEO of Reed Elsevier Group plc presents his assessment of KPO
performance for the other executive directors. The Committee then
discusses and agrees the final KPO score for each executive director.
AIP payout history
Since 2003, only 41% of the bonuses paid to executive directors
have been equal to or greater than the target bonus. The highest
bonus paid to any director since 2003 was 112.9% of salary, falling
well short of the maximum bonus opportunity.
The 2009 financial results were relatively robust given the depth
of the global recession. At constant exchange rates, revenue
growth was flat (or 6% lower underlying, ie before acquisitions and
disposals); costs were substantially reduced, limiting the decline
in underlying margins to 80 basis points; and adjusted operating
profits were up 1% (or 9% lower underlying).
Reed Elsevier delivered a relatively robust performance given
the depth of the unprecedented global recession. Elsevier saw
continued growth in a challenging market environment. LexisNexis
delivered an excellent first year contribution from the ChoicePoint
acquisition, with a 44% increase in ChoicePoint’s pro forma adjusted
operating profits, and otherwise saw a modest underlying revenue
decline against the backdrop of a significant downturn in the
legal industry. Reed Exhibitions and Reed Business Information,
accounting for 15% of adjusted operating profits, were particularly
hard hit by the downturn in advertising and promotion markets.
The impact of underlying revenue declines was mitigated by
significant restructuring and cost actions across the business.
Post-tax return on capital employed was 10.4%. The reduction from
12.1% reported in 2008 reflects the initially dilutive effect on returns
of the ChoicePoint acquisition and the lower adjusted operating
profits in the underlying business. Acquisitions typically dilute the
overall return initially, but build to deliver longer term returns over
Reed Elsevier’s average for the business.
Conversion of 99% of adjusted operating profit into cash was
very high and confirmed the quality of the earnings reported.
Individual directors achieved solid performance against their key
performance objectives. In the context of the highly challenging
financial targets set for 2009 however, annual bonuses for directors
were substantially below the target level.
The following bonuses will be paid to executive directors and former
directors in March 2010:
Current directors
Mark Armour
Erik Engstrom
Andrew Prozes
Former directors
Sir Crispin Davis
Ian Smith
2009
annual bonus
(to be paid in March 2010)
% of
2009 salary
earned
£420,206
$1,325,305
$738,526
£131,397
£427,500
68.5
106.6
60.8
44.5
47.5
66 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ remuneration report
Directors’ remuneration report continued
Erik Engstrom’s 2009 bonus was determined on the basis of
Elsevier financials and his original KPOs set at the beginning of 2009.
Terms applicable to outstanding awards granted under the
prior LTI plans
In accordance with standard practice for retirement, Sir Crispin Davis
was eligible for a pro rata bonus for 2009 subject to performance
against KPOs in the period up to retirement and Reed Elsevier
financial performance for 2009. Ian Smith was also eligible for a
bonus in accordance with the terms agreed in respect of his loss
of office during 2009 subject to Reed Elsevier financial performance
determined in the same way as bonuses payable to other executive
directors and performance against KPOs.
Long Term Incentive (LTI)
Provides focus on the delivery of the medium to longer term strategy
and holds the executive directors accountable for the delivery of that
strategy. Drives value creation via the delivery of sustained financial
performance and returns to shareholders.
Long Term Incentive arrangements for 2010
Currently, LTI awards are provided through a mix of performance
shares (via the Long Term Incentive Plan) and share options
(via the Executive Share Option Scheme). Having reviewed the
LTI arrangements over the last few months within the context
of the challenging business environment, the changes in senior
management during 2009, and Reed Elsevier’s strategy, the
Committee has concluded that the current LTIs are no longer best
positioned to meet shareholder interests. Therefore, no grants will
be made to executive directors under the Executive Share Option
Scheme and the Long Term Incentive Plan in 2010.
Instead, the Committee has developed new LTI proposals for
2010 on which it has been consulting with Reed Elsevier’s major
shareholders and key shareholder representative bodies in the UK,
the Netherlands and the United States. The Committee believes that
the proposed LTI arrangements provides a more appropriate basis
for supporting the strategy of Reed Elsevier over the medium to
longer term by focusing on a balanced set of performance metrics.
Extensive modelling and scenario analysis was undertaken in order
to assess the impact of the proposals using different assumptions.
We specifically tested whether the proposed structure encouraged
any inappropriate behaviours and excessive risk taking and whether
the level of reward that could be earned at different levels of performance
was fair and appropriate in the context of value delivered at a given
level of performance to shareholders. The Committee concluded
from this review that the structure of the proposals combined with
the Reed Elsevier governance and risk management processes and
clawback provisions provide the necessary checks and balances to
prevent excessive risk taking. In addition, a cap will apply to payouts
under the new LTI arrangements to ensure that payout levels under
the proposals remain within existing parameters.
It is the Committee’s intent to submit a proposal for the 2010 LTI
framework for shareholder approval at the 2010 AGMs. A detailed
description of the proposal is provided in the notes of the notices of
the Annual General Meetings of shareholders of Reed Elsevier PLC
and Reed Elsevier NV.
Executive Share Option Scheme (ESOS)
ESOS awards to executive directors were subject to an annual
individual maximum (in terms of the market value of the shares
under option) of three times salary. The grants of options were
over shares in Reed Elsevier PLC and Reed Elsevier NV at the
market price on the date of grant.
A pre-grant performance condition of compound annual growth in
adjusted earnings per share at constant currencies (Adjusted EPS)
over the three years prior to grant determined the size of the total
grant pool available for all participants. The ESOS awards to executive
directors are then subject to a further performance test on vesting
measured over a three-year period starting on 1 January of the year
of grant. The awards granted in 2007 were subject to a performance
hurdle of Adjusted EPS of 6%. For awards granted in 2008 and
2009, the Committee increased the hurdle to 8% Adjusted EPS.
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.
The ESOS awards that vested on 13 March 2009 (i.e. the 2006
ESOS grant) following an Adjusted EPS performance of 12.5% p.a.
and the ESOS awards granted in 2009 to the executive directors
are disclosed in the share tables on pages 74-78.
In respect of ESOS awards granted in 2007, the options awarded
to executive directors and former directors lapsed on the date of the
report. The performance test was not met.
Long Term Incentive Plan (LTIP)
Since 2003, the LTIP has vested only twice.
Under the LTIP, executive directors were eligible to receive an annual
award of performance shares with a target value of up to 135%
of salary. The awards were over shares in Reed Elsevier PLC
and Reed Elsevier NV. The vesting of the awards is subject to
performance against two measures: Adjusted EPS and relative
TSR performance over the same three-year performance period.
In addition, the vesting of awards is subject to meeting shareholding
requirements and, once met, maintaining an ongoing holding at the
required level. Participation in the LTIP is subject to the executive
agreeing to be bound by strict non-compete provisions. Both of these
features will be retained in the proposed new LTI arrangements.
No payout is made under the LTIP unless Reed Elsevier achieves
a minimum threshold of Adjusted EPS over a three-year performance
period. This is irrespective of the associated TSR performance.
The award earned under the EPS condition may be increased
or decreased by TSR performance measured against a group of
industry peers over three years. The combined effect of the two
performance measures is shown in the table below, which sets
out the potential vesting as a percentage of the initial target award.
There is no retesting of the performance condition.
Annual Reports and Financial Statements 2009 Reed Elsevier 67
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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. Reed Elsevier’s TSR is taken as a simple
average of the TSR of Reed Elsevier PLC and Reed Elsevier NV.
The TSR of each comparator company is calculated in the currency
of its primary listing.
In the event of a change of control, the performance test applied
under the LTIP would 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).
As previously set out in the 2008 Remuneration Report (page 67),
the 2006 LTIP award vested at maximum (at 189% of target) on
27 February 2009. This level of vesting was based on Adjusted
EPS performance of 12.5% p.a. and Reed Elsevier’s TSR ranking
at the 76.4th percentile against the peer group of global competitors
over the three year performance period ended 31 December 2008.
In addition, participants received notional dividends on their vested
shares. The aggregate notional dividends per vested Reed Elsevier
PLC and Reed Elsevier NV ordinary share were £0.500 and €1.212
respectively. These reflect the dividends paid in 2006, 2007 and
2008 and exclude the special distribution made in January 2008
following the sale of the Education division.
The vested awards are disclosed in the share tables on pages 74-78
and the notional dividends paid are disclosed in the table showing
the individual emoluments of executive directors on page 73.
In respect of the LTIP awards granted in 2007 to executive directors
and former directors, Adjusted EPS performance over the three
years ended 31 December 2009 did not reach the minimum level
required for vesting. As a result, the 2007-09 LTIP cycle did not vest
for these executives.
Bonus Investment
Encourages personal investment in, and ongoing holding of,
Reed Elsevier shares to promote greater alignment with
shareholders.
Bonus Investment for 2010
The Committee considers it important to encourage personal
investment and ongoing shareholding in Reed Elsevier PLC
and Reed Elsevier NV securities amongst the senior executive
population to develop greater alignment with shareholders.
Reed Elsevier operates a Bonus Investment Plan (BIP) which is
open to approximately 150 senior executives worldwide. As part
of the LTI review, the Committee also reviewed the BIP and is
proposing to amend the plan for 2010 and going forward. Therefore,
no grants will be made in 2010 to executive directors under the prior
BIP. A detailed description of the new bonus investment plan is
provided in the notes of the notices of the Annual General Meetings
of shareholders of Reed Elsevier PLC and Reed Elsevier NV.
LTIP potential vesting schedule
Adjusted EPS
2008 &
2009 awards
2007 awards
TSR ranking
Upper
quartile
median Median percentile and above
Below
62.5th
0%
0%
Below 10%
28% 35%
49%
10%
12%
80% 100% 120% 140%
14% and above 12% and above 108% 135% 162% 189%
Below 8%
8%
10%
0%
42%
0%
The Committee has full discretion to alter 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
(i.e. dividend equivalents) are paid on the vested shares in cash
at the end of the three-year performance period.
The TSR comparator group for awards made from 2007 to 2009
is made up of global industry peers. The comparators applicable
to the outstanding LTIP awards are set out below.
TSR comparators*
ChoicePoint
DMGT
Dow Jones
Dun & Bradstreet
Emap
Experian
FICO
Informa
John Wiley
Lagardere Groupe
McGraw-Hill
Pearson
Reuters Group
Taylor Nelson Sofres
The Thomson Corp
Thomson Reuters
UBM
Wolters Kluwer
WPP Group
2009
Award
2008
Award
2007
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
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.
Numerous mergers and acquisitions have impacted the comparator
group companies during the performance cycles. 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.
68 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ remuneration report
Directors’ remuneration report continued
Terms applicable to outstanding awards granted under the prior
Bonus Investment Plan
Since the implementation of the BIP in 2003, four of the completed
three-year performance cycles have vested.
The vesting of the matching shares is subject to the achievement
of an Adjusted EPS hurdle over the three-year performance period.
A hurdle rate of 6% per annum applied to the 2007 matching awards
which was increased to 8% per annum Adjusted EPS for the 2008 and
2009 matching awards. Awards of matching shares made under the
2009-11 BIP cycle to executive directors during the year and matching
awards vested under the 2006-2008 BIP cycle are disclosed in the
share tables on pages 74-78. Adjusted EPS performance over the
three years ended 31 December 2008 was 12.5% p.a. and exceeded
the performance condition to vest the 2006-08 matching awards.
At the date of this report, the Committee determined that the
performance condition in respect of the 2007-09 BIP cycle for
executive directors and former directors was not met. Consequently,
no matching shares vested in respect of this cycle for these executives.
In the event of a change of control, the vesting of the matching
shares is subject to the discretion of the Committee.
Shareholding requirement
The shareholding requirement for the CEO of Reed Elsevier Group
plc 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. Shareholding requirements are
also in place for a selected group of senior executives below the
board. Meeting the shareholding requirement is a condition of
vesting the designated LTIP awards and once met, is a condition
of ongoing participation in the LTIP. 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.
Details of directors’ shareholdings, as at 31 December 2009,
are set out on page 73. As at 31 December 2009, Erik Engstrom
already exceeded his new shareholding requirement of three times
salary (increased from previously two times following his appointment
as CEO of Reed Elsevier Group plc in November 2009) based on
his new annual salary.
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 if vested over Reed Elsevier PLC shares under all share-
based plans was 5.7% of the Reed Elsevier PLC share capital at
31 December 2009. The estimated dilution over the same period
in respect of outstanding awards if vested over Reed Elsevier NV
shares was 6.2% of the Reed Elsevier NV share capital at
31 December 2009.
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.
Erik Engstrom and Mark Armour 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.
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 $3,721 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.
Sir Crispin Davis ceased to be a director on 19 March 2009 and
retired on 31 March 2009 at which point he became entitled to
a pension of £533,319 p.a. Ian Smith received a monthly cash
allowance in lieu of pension equal to 30% of his monthly gross salary
until his resignation by mutual agreement on 10 November 2009.
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 overleaf. 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 2009
have been calculated using the transfer value basis adopted by the
trustees of the pension scheme from 1 October 2008.
Annual Reports and Financial Statements 2009 Reed Elsevier 69
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The transfer value in respect of individual directors represents a liability in respect of directors’ pension entitlement, and is not an amount paid
or payable to the director.
Transfer values of accrued pension benefits
Transfer
value
of accrued
pension
31 December
2008
Transfer
value
of accrued
pension
31 December
2009
Increase in
transfer
value during
the year
(net of
director’s
contributions)*
Age
31 December
Director’s
2009 contributions
Mark Armour
Erik Engstrom
Andrew Prozes
Sir Crispin Davis*
55
46
63
60
£6,105 £4,358,939 £5,170,768
£624,769
£271,227
£6,105
£805,724
£347,437
– $5,659,371 $6,719,734 $1,060,363
£555,341
£1,470 £9,609,144 £10,165,955
Accrued
annual
pension
31 December
2009
£304,976
£49,127
$515,199
£533,319
Increase in
accrued
annual
pension
during
the year
£20,441
£24,712
$87,508
£13,718
Increase in
accrued
annual
pension
Transfer value at
31 December
2009 of
increase
in accrued
pension
during during the year
(net of inflation
and director’s
contributions)
the year
(net of
inflation)
£297,109
£17,884
£24,492
£305,371
$87,508 $1,141,369
£260,010
£13,718
*Became entitled to a total annual pension of £533,319 upon retirement on 31 March 2009.
**Ian Smith was not a pension scheme member. The cash allowance paid to him in lieu of pension is disclosed on page 73.
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 any legal constraints 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 leaving employment, any gains made in the six
months prior to leaving employment 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/had a service contract, as summarised in the table below.
Mark Armour(i)
Erik Engstrom(i)
Andrew Prozes(ii)
Contract Date
7 October 1996
25 June 2004
5 July 2000
Expiry date
(subject to notice period)
Notice period
Subject to:
29 July 2014
14 June 2025
Indefinite
12 months
12 months
12 months’ salary payable
English law
English law
New York law
Sir Crispin Davis(i)
19 July 1999
Ian Smith(i)
3 November 2008
Ceased to be a director
on 19 March 2009 and
retired 31 March 2009
Resigned
10 November 2009
for termination without cause
–
English law
12 months
English law
(i) Employed by Reed Elsevier Group plc
(ii) Employed by Reed Elsevier Inc.
Sir Crispin Davis’ retirement arrangements
As previously disclosed in the 2008 Remuneration Report (page 70),
Sir Crispin Davis’ retirement in March 2009 was subject to the
following terms:
>
he would 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 against
KPOs in the period to his retirement and Reed Elsevier financial
performance for 2009 in the same way as the bonuses payable
to the other executive directors;
>
as is standard practice for retirements early in the year, he did
not receive 2009 grants under ESOS and LTIP and did not
participate in the 2009 BIP;
>
no termination payments were due since he retired;
>
all unvested share-based awards were treated in accordance
with the rules of the plans, and outstanding options remain
exercisable for three-and-a-half years from retirement; and
>
his LTIP shareholding requirement ceased on retirement.
70 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ remuneration report continued
Directors’ remuneration report
Ian Smith’s termination arrangements
Ian Smith’s service contract terminated on 10 November 2009
following his resignation by mutual agreement. The following terms
applied in respect of his loss of office:
>
payment of a cash sum on termination, equivalent to an
unmitigated payment of seven months base salary and benefits.
In addition, up to a further five monthly instalments equivalent
to 1/12th of his annual salary and benefits will be payable
commencing on 10 June 2010, with each instalment reduced
by the gross amount of any alternative employment, consulting
or advisory income received;
> payment of fees for legal and other advice;
>
>
he would continue to be eligible for a 2009 annual bonus under
the AIP. The bonus was determined in accordance with the terms
of the AIP based on performance against KPOs and Reed Elsevier
financial performance for 2009 and the bonus due will be paid
in March 2010;
all unvested awards granted under the LTI plans, comprising
options granted under ESOS and performance shares granted
under the 2008-10 and 2009-11 LTIP cycles lapsed in full
on termination.
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.
>
>
>
Sir Crispin Davis is a non-executive director of GlaxoSmithKline plc
and received a fee of £26,250 up to the date of his retirement
on 31 March 2009 (£86,250 during 2008 which related to the
full calendar year).
Andrew Prozes is a non-executive director of the Cott
Corporation and received a fee of $127,285 (£81,073)
during 2009 ($153,790 (£83,130) during 2008).
Ian Smith is a non-executive director of Galiform plc and
received a fee of £25,961 up to the date of his resignation
on 10 November 2009.
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 and Marike van Lier Lels
since her appointment in January 2010, who serve 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.
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 fees paid to Dien de Boer-Kruyt and
Marike van Lier Lels, who serve only on the Supervisory Board of
Reed Elsevier NV, reflects their 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.
Non-executive directors’ fees were last reviewed during 2007 and the
annual fee rates applicable to non-executive directors below have been
in effect since 1 January 2008. During 2009, the Board reviewed
the Chairman’s fee in the context of prevailing fee levels provided by
UK companies of a similar size and complexity to Reed Elsevier and
the increased time commitment required by the Chairman going
forward. The Board approved a Chairman’s fee of £500,000 per annum
effective from 1 June 2009 following the appointment of Anthony
Habgood as Chairman of Reed Elsevier Group plc.
Chairman
Non-executive directors
Chairman of:
– Audit Committee
– Remuneration
Committee
Annual fee 2010
£500,000 from 1 June 2009
J350,000 until 21 April 2009*
Annual fee 2009
u350,000
£55,000/J75,000 £55,000/u75,000
£15,000/J20,000 £15,000/u20,000
£15,000/J20,000 £15,000/u20,000
* Annual fee paid pro rata during 2009 to Jan Hommen who stepped down from the
Reed Elsevier boards on 21 April 2009.
The total annual fee payable to Dien de Boer-Kruyt is €48,000 and to
Marike van Lier Lels from appointment in January 2010 is €48,000.
The Chairman of Reed Elsevier chairs the Nominations Committee
and does not receive a separate fee for his role as chairman of
that committee.
Annual Reports and Financial Statements 2009 Reed Elsevier 71
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Directors’ remuneration report continued
Total Shareholder Return graphs
Directors’ emoluments and fees
As required by the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008, 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 2004 to 31 December 2009.
For the five-year period from 31 December 2004, the TSR for Reed
Elsevier PLC was 16%, against a FTSE 100 return of 35%. For Reed
Elsevier NV during the same period, TSR was minus 4% against an
AEX Index return of 13%. As Reed Elsevier PLC and Reed Elsevier NV
are members of the FTSE 100 and AEX Index respectively, these
indices are relevant.
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
Payments for loss of office
Annual performance-related bonuses
Pension contributions
Payments to former directors*
Pension in respect of former directors
Total
2009
£’000
4,016
360
1,124 –
2,294
32
284 –
1,034
9,144
2008
£’000
4,360
115
5,547
51
429
10,502
Reed Elsevier PLC v FTSE 100 – 5 years
* This reflects notional dividend payments made to Patrick Tierney and Gerard van de Aast
on the vesting of the 2006-08 cycle of LTIP of £123,030 and £161,253 respectively.
• Reed Elsevier PLC
• FTSE 100
200
180
160
140
120
100
80
60
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Reed Elsevier NV v AEX – 5 years
Ian Smith’s employment ended on 10 November 2009 under the
arrangements described on page 71. The payments made to him
on termination are included above under ‘Payments for loss of office’.
As described in the 2008 Remuneration Report (page 70), Gerard van
de Aast’s employment terminated on 31 December 2008. He received
a mitigated payment in lieu of notice of £391,000 equivalent to eight
months’ service on termination which was paid in January 2009
and which is also included above under ‘Payments for loss of office’.
The 2009 increase in ‘Pension in respect of former directors’
compared to 2008 reflects pension payments made during the year
by Reed Elsevier under the unfunded section of the Reed Elsevier
pension scheme to Sir Crispin Davis (from 1 April 2009) and
Gerard van de Aast (from 1 January 2009).
• Reed Elsevier NV
• AEX Index
Individual fees of non-executive directors
200
180
160
140
120
100
80
60
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
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.
Remuneration and share tables
The information set out in this section forms part of the audited
disclosures in this report. For the purposes of the disclosures
in this section, the average exchange rates for the relevant year
have been used.
72 Reed Elsevier Annual Reports and Financial Statements 2009
Dien de Boer-Kruyt
Mark Elliott
Anthony Habgood (from 1 June 2009)
Lisa Hook
Robert Polet
David Reid
Lord Sharman
Ben van der Veer (from 3 September 2009)
Jan Hommen (until 21 April 2009)
Rolf Stomberg (until 23 Apr 2008)
Total
2009
£ £
42,857
70,000
291,667 –
55,000
55,000
55,000
70,000
22,321 –
104,167
–
766,012
2008
38,095
70,000
55,000
55,000
55,000
70,000
277,778
19,841
640,714
Other required disclosures
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 74-78. The
aggregate notional pre-tax gain (excluding notional dividends) made
by the directors from such incentives during the year was £8,303,637
(2008: £1,857,517). The year on year change reflects in most part
the vesting of the 2006-08 LTIP cycle during the year following
no LTIP vesting in 2008.
Directors’ remuneration report
Directors’ remuneration report continued
Individual emoluments of executive directors
Salary
£
Benefits
£
Bonus
£
Mark Armour
Erik Engstrom
Andrew Prozes
Sir Crispin Davis (until 31 March 2009)
Ian Smith (1 January until 10 November 2009)
613,440
793,131*
774,000
295,275
775,000
21,855
25,970
16,583
7,301
420,206
844,143
470,399
131,397
288,261** 427,500
Notional
dividends
on vested
2006-08
LTIP cycle
£
172,049
188,130
191,716
331,268
–
Payment
for loss
of office
£
Total 2009
Total 2008
£ £
– 1,227,550
1,851,374
–
– 1,452,698
765,241
–
733,250*** 2,224,011 –
1,193,051
1,319,618
1,189,120
2,285,147
Total
3,250,846
359,970 2,293,645
883,163
733,250 7,520,874 5,986,936
* This reflects the pro rating of his US dollar salary of $1,192,464 p.a. until 10 November 2009 and his new sterling denominated salary of £1,000,000 p.a. for the remainder of 2009.
** Includes a cash allowance of £232,500 paid in lieu of pension (equivalent to 30% of salary earned) and a payment of £41,538 in respect of accrued but untaken holiday at the
date of termination.
*** As disclosed on page 71, up to a further five instalments equivalent to 1/12th of his annual salary and benefits may be payable. This is, however, subject to mitigation. As
termination of the service contract occurred during the first term in office, the terms agreed for loss of office are in accordance with best practice provision II.2.8 of the Dutch Code.
Benefits principally comprise the provision of a company car or car allowance, health and disability insurance. The IFRS2 fair value of grants
made under ESOS, BIP and LTIP during 2009, based on the number of awards as disclosed in the tables on pages 74-78, to executive
directors in office on 31 December 2009 is £5,320,633. The number of awards that ultimately vest will depend upon performance against
the conditions described in the front section of the remuneration report.
With the inclusion of the payment for loss of office, Ian Smith was the highest paid director in 2009. All of the share-based awards granted
to him during 2009 lapsed in full on termination and he made no notional pre-tax gains on the vesting of any share-based incentives.
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 2009 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
Mark Elliott
Erik Engstrom
Anthony Habgood
Lisa Hook
Robert Polet
Andrew Prozes
David Reid
Lord Sharman
Ben van der Veer
Reed Elsevier PLC
ordinary shares
Reed Elsevier NV
ordinary shares
1 January
2009*
31 December
2009
1 January
2009*
31 December
2009
131,572
–
–
77,856
–
–
–
231,709
–
–
–
248,742
–
–
107,040
50,000
–
–
148,142
–
–
–
62,384
–
–
211,760
–
–
–
168,676
–
–
1,298
136,889
–
–
365,580
–
–
–
112,004
–
–
1,298
*On date of appointment if subsequent to 1 January 2009.
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.
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 2009 are shown in the tables
overleaf. The vesting of outstanding unvested awards is subject
to performance conditions in accordance with the provisions of the
respective plan rules. 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 2009 other than those
relating to the 2007-09 cycles of ESOS, BIP and LTIP as disclosed
on pages 67-69. 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.
Annual Reports and Financial Statements 2009 Reed Elsevier 73
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Mark Armour
Options
ESOS
LTIP
SAYE
Total PLC ords
Total NV ords
No. of
options
held on
1 Jan
2009
No. of
options
granted
during
2009
No. of
options Market
exercised price per
share at
exercise
during
2009
Option
price
Year of
grant
Option
over:
1999 PLC ord
NV ord
2001 PLC ord
NV ord
2002 PLC ord
NV ord
2005 PLC ord
NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
2004 PLC ord
NV ord
2004 PLC ord
*33,600
*20,244
62,974
44,882
74,000
51,926
150,422
102,618
158,836
106,720
130,740
86,347
144,000
94,000
290,481
199,467
4,329
£5.375
u13.55
£6.590
u14.75
£6.000
u13.94
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
£6.275
u12.21
147,692 £5.420
95,899 u9.415
£4.872
u10.57
£3.776
1,049,382 147,692
706,204 95,899
£4.75
4,329
4,329
Gross
gains
made on
exercise
£/u
No. of
options
held on
31 Dec
2009
Unvested
options
vesting on:
Options
exercisable
until:
–
–
–
–
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
17 Feb 2015
102,618
13 Mar 2016
158,836
106,720
13 Mar 2016
130,740 17 Feb 2010 17 Feb 2017
86,347 17 Feb 2010 17 Feb 2017
144,000 21 Feb 2011 21 Feb 2018
94,000 21 Feb 2011 21 Feb 2018
147,692 19 Feb 2012 19 Feb 2019
95,899 19 Feb 2012 19 Feb 2019
19 Feb 2014
19 Feb 2014
–
290,481
199,467
£4,216
–
£4,216 1,159,145
781,859
*Options lapsed unexercised during the year.
Shares
BIP
LTIP
Year of
grant
Type of
security
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
No. of
unvested
shares
held on
1 Jan
2009
No. of
shares Market
awarded price per
share at
award
during
2009
No. of
shares Market
vested price per
share at
during
vesting
2009
Notional
gross
gains at
vesting
£/u
No. of
unvested
shares
held on
31 Dec
2009
21,653
14,306
19,859
13,371
25,291
16,993
75,075
49,434
61,775
40,799
67,000
44,000
£5.470 21,653 £4.940 £106,966
u11.74 14,306 u8.140 J116,451
£6.155
u13.49
£6.600
u12.44
27,886 £4.985
18,568 u8.201
£5.350 141,891 £5.245 £744,218
u11.76 93,430 u8.864 J828,163
£6.445
u14.51
£6.275
u12.21
76,397 £5.420
49,605 u9.415
–
–
19,859
13,371
25,291
16,993
27,886
18,568
–
–
61,775
40,799
67,000
44,000
76,397
49,605
£851,184 278,208
J944,614 183,336
Date of
vesting
3 Apr 2009
3 Apr 2009
4 Apr 2010
4 Apr 2010
8 Apr 2011
8 Apr 2011
8 Apr 2012
8 Apr 2012
27 Feb 2009
27 Feb 2009
17 Feb 2010
17 Feb 2010
21 Feb 2011
21 Feb 2011
19 Feb 2012
19 Feb 2012
Total PLC ords
Total NV ords
270,653 104,283
178,903 68,173
163,544
107,736
74 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ remuneration report continued
No. of
options
held on
1 Jan
2009
No. of
options
granted
during
2009
No. of
options Market
exercised price per
share at
exercise
during
2009
Option
price
63,460
43,866
154,517
105,412
178,895
120,198
130,060
85,897
143,000
94,000
325,163
224,766
£4.780
u10.30
£5.335
u11.31
£5.305
u11.47
£6.445
u14.51
£6.275
u12.21
146,923 £5.420
95,399 u9.415
£4.78
u10.30
Year of
grant
Option
over:
2004 PLC ord
NV ord
2005 PLC ord
NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
2004 PLC ord
NV ord
995,095 146,923
674,139 95,399
Erik Engstrom
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
Year of
grant
Type of
security
2006 NV ord
2007 NV ord
2008 NV ord
2009 NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
No. of
unvested
shares
held on
1 Jan
2009
29,442
27,572
30,318
82,092
54,055
61,453
40,586
68,500
45,000
No. of
unvested
shares
held on
31 Dec
2009
during
2009
No. of
shares Market
awarded price per
share at
award
No. of
Notional
shares Market
gross
vested price per
gains at
share at
during
vesting
£/u
vesting
2009
u11.74 29,442
u8.14 J239,658
u13.49
u12.44
57,216 u8.201
£5.350 155,153 £5.245 £813,777
u11.76 102,163 u8.864 J905,573
£6.445
u14.51
£6.275
u12.21
103,902 £5.420
67,465 u9.415
–
27,572
30,318
57,216
–
–
61,453
40,586
68,500
45,000
103,902
67,465
£813,777 233,855
J1,145,231 268,157
Total PLC ords
Total NV ords
212,045 103,902
226,973 124,681
155,153
131,605
Directors’ remuneration report
Gross
gains
made on
exercise
£/u
No. of
options
held on
31 Dec
2009
Unvested
options
vesting on:
Options
exercisable
until:
23 Aug 2014
63,460
23 Aug 2014
43,866
17 Feb 2015
154,517
17 Feb 2015
105,412
13 Mar 2016
178,895
120,198
13 Mar 2016
130,060 17 Feb 2010 17 Feb 2017
85,897 17 Feb 2010 17 Feb 2017
143,000 21 Feb 2011 21 Feb 2018
94,000 21 Feb 2011 21 Feb 2018
146,923 19 Feb 2012 19 Feb 2019
95,399 19 Feb 2012 19 Feb 2019
23 Aug 2014
23 Aug 2014
325,163
224,766
1,142,018
769,538
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4 Apr 2010
8 Apr 2011
8 Apr 2012
27 Feb 2009
27 Feb 2009
17 Feb 2010
17 Feb 2010
21 Feb 2011
21 Feb 2011
19 Feb 2012
19 Feb 2012
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Annual Reports and Financial Statements 2009 Reed Elsevier 75
Directors’ remuneration report continued
Andrew Prozes
Options
ESOS
LTIP
Total PLC ords
Total NV ords
Shares
BIP
LTIP
No. of
options
held on
1 Jan
2009
No. of
options
granted
during
2009
No. of
options Market
exercised price per
share at
exercise
during
2009
Option
price
Year of
grant
Option
over:
2000 PLC ord
NV ord
2001 PLC ord
NV ord
2002 PLC ord
NV ord
2003 PLC ord
NV ord
2004 PLC ord
NV ord
2005 PLC ord
NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
188,281
131,062
83,785
59,714
103,722
72,783
132,142
94,086
162,666
111,699
154,517
105,412
182,303
122,487
132,537
87,533
145,000
96,000
£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
£6.275
u12.21
149,722 £5.420
97,216 u9.415
£4.872
u10.57
2004 PLC ord 304,558
209,133
NV ord
1,589,511 149,722
1,089,909 97,216
Gross
gains
made on
exercise
£/u
No. of
options
held on
31 Dec
2009
Unvested
options
vesting on:
Options
exercisable
until:
9 Aug 2010
188,281
9 Aug 2010
131,062
23 Feb 2011
83,785
23 Feb 2011
59,714
22 Feb 2012
103,722
22 Feb 2012
72,783
21 Feb 2013
132,142
21 Feb 2013
94,086
19 Feb 2014
162,666
19 Feb 2014
111,699
17 Feb 2015
154,517
17 Feb 2015
105,412
13 Mar 2016
182,303
122,487
13 Mar 2016
132,537 17 Feb 2010 17 Feb 2017
87,533 17 Feb 2010 17 Feb 2017
145,000 21 Feb 2011 21 Feb 2018
96,000 21 Feb 2011 21 Feb 2018
149,722 19 Feb 2012 19 Feb 2019
97,216 19 Feb 2012 19 Feb 2019
19 Feb 2014
19 Feb 2014
304,558
209,133
1,739,233
1,187,125
Year of
grant
Type of
security
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
2006 PLC ord
NV ord
2007 PLC ord
NV ord
2008 PLC ord
NV ord
2009 PLC ord
NV ord
No. of
unvested
shares
held on
1 Jan
2009
No. of
shares Market
awarded price per
share at
award
during
2009
No. of
shares Market
vested price per
share at
during
vesting
2009
Notional
gross
gains at
vesting
£/u
No. of
unvested
shares
held on
31 Dec
2009
26,400
17,636
21,548
14,574
20,030
13,505
£5.470 26,400
u11.74 17,636
£6.155
u13.49
£6.600
u12.44
32,335 £4.985
21,626 u8.201
83,656
55,085
62,623
41,359
68,000
44,500
£5.350 158,109 £5.245 £829,282
u11.76 104,110 u8.864 J922,831
£6.445
u14.51
£6.275
u12.21
105,881 £5.420
68,750 u9.415
£4.94 £130,416
u8.14 J143,557
–
–
21,548
14,574
20,030
13,505
32,335
21,626
–
–
62,623
41,359
68,000
44,500
105,881
68,750
£959,698 310,417
J1,066,388 204,314
Date of
vesting
3 Apr 2009
3 Apr 2009
4 Apr 2010
4 Apr 2010
8 Apr 2011
8 Apr 2011
8 Apr 2012
8 Apr 2012
27 Feb 2009
27 Feb 2009
17 Feb 2010
17 Feb 2010
21 Feb 2011
21 Feb 2011
19 Feb 2012
19 Feb 2012
Total PLC ords
Total NV ords
282,257 138,216
186,659 90,376
184,509
121,746
76 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ remuneration report
Directors’ remuneration report continued
Sir Crispin Davis
Sir Crispin Davis ceased to be a director on 19 March 2009 and formally retired on 31 March 2009. The tables below reflect the position
as at 31 March 2009.
Year of
grant
Option
over:
No. of
options
held on
1 Jan
2009
No. of
options
granted
during
2009
No. of
options Market
exercised price per
share at
exercise
during
2009
Option
price
Gross
gains
made on
exercise
£/u
No. of
options
held on
31 Mar
2009
Unvested
options
vesting on:
Options
exercisable
until:
Options
ESOS
LTIP
SAYE
Total PLC ords
Total NV ords
1999 PLC ord
NV ord
2000 PLC ord
NV ord
2001 PLC ord
NV ord
2002 PLC ord
NV ord
2003 PLC ord
NV ord
321,199
191,550
171,821
120,245
122,914
87,601
148,500
104,204
209,192
148,946
2004 PLC ord 305,303
209,645
292,409
199,481
305,824
205,480
251,730
166,254
276,000
182,000
571,616
392,516
3,793
2,980,301
2,007,922
NV ord
2005 PLC ord
NV ord
2006 PLC ord
NV ord
2007 **PLC ord
**NV ord
2008 **PLC ord
**NV ord
2004 PLC ord
NV ord
2006 PLC ord
*The options lapsed unexercised on 1 September 2009.
Shares
BIP
LTIP
Total PLC ords
Total NV ords
Year of
grant
Type of
security
2006 PLC ord
NV ord
2007 PLC ord
2008 PLC ord
2006 PLC ord
NV ord
2007 **PLC ord
**NV ord
2008 **PLC ord
**NV ord
No. of
unvested
shares
held on
1 Jan
2009
42,092
27,810
74,708
96,227
144,550
95,181
118,942
78,555
129,000
85,000
605,519
286,546
150
£5.01
£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
£6.275
u12.21
£4.872
u10.57
£4.244
–
–
150
£51 321,049*
191,550*
171,821
120,245
122,914
87,601
148,500
104,204
209,192
148,946
305,303
209,645
292,409
199,481
305,824
205,480
188,797
124,690
115,000
75,833
571,616
392,516
3,793
£51 2,756,218
1,860,191
No. of
shares Market
awarded price per
share at
award
during
2009
No. of
shares Market
vested price per
share at
during
vesting
2009
No. of
Notional unvested
shares
held on
31 Mar
2009
gross
gains at
vesting
£/u
£5.470
u11.74
£6.155
£6.600
£5.350 273,199 £5.245 £1,432,929
u11.76 179,892 u8.864 J1,594,563
£6.445
u14.51
£6.275
u12.21
–
–
42,092
27,810
74,708
96,227
–
–
89,206
58,916
53,750
35,416
£1,432,929 355,983
J1,594,563 122,142
273,199
179,892
1 Sept 2009
1 Sept 2009
2 May 2010
2 May 2010
23 Feb 2011
23 Feb 2011
22 Feb 2012
22 Feb 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2012
30 Sep 2009
Date of
vesting
4 Apr 2009
4 Apr 2009
4 Apr 2010
8 Apr 2011
27 Feb 2009
27 Feb 2009
17 Feb 2010
17 Feb 2010
21 Feb 2011
21 Feb 2011
**All awards granted in 2007 and 2008 under ESOS and LTIP have been prorated for service.
Annual Reports and Financial Statements 2009 Reed Elsevier 77
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Directors’ remuneration report continued
Ian Smith
Ian Smith ceased to be a director on 10 November 2009. The tables below reflect the position as at 10 November 2009.
Options
ESOS
SAYE
Total PLC ords
Total NV ords
Shares
LTIP
Total PLC ords
Total NV ords
Year of
grant
Option
over:
2009 PLC ord
NV ord
2009 PLC ord
–
Year of
grant
Type of
security
2009* PLC ord
NV ord
2009 PLC ord
NV ord
–
No. of
options
held on
1 Jan
2009
No. of
options
granted
during
2009
No. of
options Market
exercised price per
share at
exercise
during
2009
Option
price
Gross
gains
made on
exercise
£/u
No. of
options
held on
10 Nov
2009
83,025 £5.420
53,910 u9.415
3,896 £4.016
–
– 86,921
53,910
No. of
unvested
shares
held on
1 Jan
2009
No. of
shares Market
awarded price per
share at
award
during
2009
No. of
shares Market
vested price per
share at
during
vesting
2009
Notional
gross
gains at
vesting
£/u
64,541 £6.275
43,956 u12.21
112,084 £5.420
72,778 u9.415
– 176,625
116,734
–
–
–
–
–
No. of
unvested
shares
held on
10 Nov
2009
–
–
–
–
–
–
Options
exercisable
until:
Unvested
options
vesting on:
Lapsed
Lapsed
Lapsed
Date of
vesting
Lapsed
Lapsed
Lapsed
Lapsed
*Pro-rated target grant under the 2008-10 LTIP cycle equivalent to 90% of salary.
Employee Benefit Trust
Any ordinary shares required to satisfy entitlements under nil
cost restricted share or performance 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 2009, amounted to 15,350,605 Reed Elsevier
PLC ordinary shares (1.23% of issued share capital) and 8,219,196
Reed Elsevier NV ordinary shares (1.13% of issued share capital).
Other required disclosures in respect of share-based 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 the
2007, 2008 and 2009 LTIP grants is subject to growth in Adjusted
EPS and relative TSR measured against a group of comparator
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 growth in Adjusted EPS of 12% for the 2008 award (10% for the
2007 LTIP grants) 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. The maximum that can potentially vest in respect
of LTIP is 189% of the number of shares comprised in the target
awards shown in the tables above. In respect of ESOS and BIP,
the maximum that can vest corresponds to the number of shares
disclosed in the table.
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.
The middle market prices of a Reed Elsevier PLC ordinary share
on the date of the 2009 award under BIP and LTIP were £4.985
and £5.42 respectively. The middle market prices of a Reed
Elsevier NV ordinary share on the date of the 2009 award
under BIP and LTIP were €8.201 and €9.415 respectively.
The middle market price of a Reed Elsevier PLC ordinary share
during the year was in the range of £4.20 to £5.595 and at
31 December 2009 was £5.115. The middle market price of
a Reed Elsevier NV ordinary share during the year was in the
range of €7.19 to €9.415 and at 31 December 2009 was €8.601.
Approved by the Board of Reed Elsevier Group plc
on 17 February 2010
Mark Elliott
Chairman of the Remuneration Committee
Approved by the Board of Reed Elsevier PLC
on 17 February 2010
Mark Elliott
Non-Executive Director
Approved by the Combined Board of Reed Elsevier NV
on 17 February 2010
Options under the SAYE scheme, in which all eligible UK
employees are invited to participate, are granted at a maximum
Mark Elliott
Member of the Supervisory Board
78 Reed Elsevier Annual Reports and Financial Statements 2009
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 on
Corporate Governance, issued by the UK Financial Reporting Council,
and the requirements of Dutch law.
Audit Committees
The main role and responsibilities of the Committees in relation to
the respective companies are set out in written terms of reference
and include:
A copy of the terms of reference of each Audit Committee is
published on the Reed Elsevier website, www.reedelsevier.com.
Committee membership
The Committees each comprise at least three independent
non-executive directors. The members of each of the Committees
that served during the year are: Lord Sharman (Chairman of
the Committees), Lisa Hook, David Reid and Ben van der Veer
(from 3 September 2009). Lord Sharman and David Reid, both
UK chartered accountants, and Ben van der Veer, a registered
accountant in the Netherlands, are considered to have significant,
recent and relevant financial experience. Biographies of the
members of each of the Committees are set out on page 51.
(i)
to monitor the integrity of the financial statements of the
company, and any formal announcements relating to the
company’s financial performance, reviewing significant
financial reporting judgements contained in them;
(ii) to review the company’s internal financial controls and the
company’s internal control and risk management systems;
(iii) to monitor and review the effectiveness of the company’s
internal audit function;
(iv) to make recommendations to the board, for it to put to the
shareholders for their approval in general meetings, in relation
to the appointment, reappointment and removal of the external
auditor and to approve the remuneration and terms of
engagement of the external auditor;
(v) to review and monitor the external auditors’ independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant professional and regulatory requirements;
and
(vi) to develop and recommend policy on the engagement of the
external auditor to supply non audit services, taking into account
relevant ethical guidance regarding the provision of non audit
services by the external audit firm, and to monitor compliance.
The Committees report to the respective boards on their activities
identifying any matters in respect of which they consider that action
or improvement is needed and making recommendations as to the
steps to be taken.
The Reed Elsevier Group plc Audit Committee fulfils this role in
respect of the publishing and information operating business. The
functions of an audit committee in respect of the financing activities
are carried out by the Supervisory Board of Elsevier Reed Finance
BV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees
fulfil their roles from the perspective of the parent companies and
both Committees have access to the reports to and the work of
the Reed Elsevier Group plc Audit Committee and the Elsevier
Reed Finance BV Supervisory Board in this respect.
The Committees have explicit authority to investigate any matters
within their terms of reference and have access to all resources and
information that they may require for this purpose. The Committees
are entitled to obtain legal and other independent professional advice
and have the authority to approve all fees payable to such advisers.
Appointments to the Committees are made on the recommendation
of the Nominations Committee and are for periods of up to three
years, extendable by no more than two additional three-year
periods, so long as the member continues to be independent.
Details of the remuneration policy in respect of members of the
Committees and the remuneration paid to members for the year
ended 31 December 2009 are set out in the Directors’
Remuneration Report on pages 62 to 78.
Committee activities
The Committees typically hold meetings five times a year: in
January, February, June, July and December, and report on these
meetings to the respective boards at the next board meetings.
The principal business of these meetings includes:
–
–
–
–
–
January: review of critical accounting policies and practices,
and significant financial reporting issues and judgements arising
in connection with the annual financial statements; review of risk
management and internal control effectiveness; reviewing and
approving the internal audit plan; review of internal audit findings;
February: review and approval of annual financial statements,
results announcement and related formal statements; review
of external audit findings;
June: monitoring and assessing the qualification, performance,
expertise, resources, objectivity and independence of the
external auditors and the effectiveness of the external and
internal audit process; agreeing the external audit plan; reviewing
significant financial reporting issues and judgements arising
in connection with the interim financial statements; review
of significant external financial reporting and regulatory
developments; review of risk management activities; review
of report from external auditors on control matters; review
of internal audit findings;
July: review and approval of the interim financial statements,
results announcement and related formal statements; review
of external audit findings; review of internal audit findings;
December: review of year end financial reporting and
accounting issues; review of significant external financial
reporting and regulatory developments; review of external
audit findings to date; review of internal audit findings and
risk management activities.
Annual Reports and Financial Statements 2009 Reed Elsevier 79
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Report of the Audit Committees continued
The Audit Committee meetings are typically attended by the
Chief Financial Officer, the Reed Elsevier Group plc group financial
controller, chief risk officer and director of internal audit, and audit
partners 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.
In discharging their principal responsibilities in respect of the 2009
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 and business restructuring,
application of revenue recognition and cost capitalisation
policies, accounting for derivatives, review of tax reserves
and provisions for lease obligations, and the use of the going
concern basis in the preparation of the financial statements.
Areas of focus in 2009 were the accounting and judgements
in respect of the carrying value of goodwill and intangible assets,
segmental reporting, revenue recognition and cost capitalisation
as business models evolve from print publications to online
services, assets held for sale and recognition of liabilities arising
from the restructuring programmes.
(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 Reed Elsevier
Group plc 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 2009
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, project management of development spend,
restructuring and acquisition integration activities, regulatory
compliance and review of information security.
(v) reviewed and approved the internal audit plan for 2009 and
monitored execution. Reviewed the resources, budget and
effectiveness of the internal audit function.
(vi) received presentations from the Reed Elsevier Group plc
treasurer on the group insurance programme and on group
pension schemes and from general counsel on product
liability risk.
(vii) received regular updates from the CFO of Reed Elsevier
on developments within the finance function.
Lord Sharman, Lisa Hook and David Reid attended all five meetings
of the Committees in 2009 and Ben van der Veer attended the one
meeting of the Committees since his appointment.
The external auditors have attended all meetings of the Committees.
They have provided written reports at the February, June, July
and December meetings summarising the most significant findings
from their audit work. These reports have been discussed by the
Committees and actions agreed where necessary.
The external auditors have confirmed their independence from
management and compliance with the Reed Elsevier policy on
auditor independence. This policy sets out inter 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 external auditors are required to rotate the audit partners
responsible for the engagement every five years and the current
lead partner is new to the engagement in the year. Any decision
to open the audit to tender is taken only on the recommendation
of the Committees. 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 2009, the Committees conducted a
formal review of the performance of the external auditors and the
effectiveness of the external audit process, which included a review
of the report on the external auditors by the Audit Inspection Unit
of the UK Financial Reporting Council. Based on this review, and
on their subsequent observations on the planning and execution
of the external audit for the year ended 31 December 2009,
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. Deloitte LLP
and Deloitte Accountants BV or their predecessor Deloitte firms
were first appointed respectively auditors of Reed Elsevier PLC and
Reed Elsevier NV for the financial year ended 31 December 1994.
In addition to the annual review of the performance of the external
auditors and the effectiveness of the audit process, at least every
four years the Committees consider whether the objectives of the
audit would be better served through a formal tender process for
the auditor appointment.
The effectiveness of the operation of the Audit Committees
was reviewed in January 2009 and again as part of the effectiveness
review of the Boards in December 2009.
Lord Sharman of Redlynch
Chairman of the Audit Committees
17 February 2010
80 Reed Elsevier Annual Reports and Financial Statements 2009
Financial Statements
82
Combined financial statements
86 Accounting policies
91 Notes to the combined financial statements
122 Independent auditors’ report
123 Summary combined financial information in euros
138 Reed Elsevier PLC annual report and financial statements
161 Reed Elsevier NV annual report and financial statements
185 Additional information for US investors
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Annual Reports and Financial Statements 2009 Reed Elsevier 81
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
Non-controlling interests
Net profit for the year
Combined statement of comprehensive income
For the year ended 31 December
Net profit for the year
Exchange differences on translation of foreign operations
Cumulative exchange differences on disposal of foreign operations
Actuarial gains/(losses) 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
Transfer to net profit from hedge reserve (net of tax)
Tax recognised directly in equity
Other comprehensive expense for the year
Total comprehensive income for the year
Attributable to:
Parent companies’ shareholders
Non-controlling interests
Total comprehensive income for the year
82 Reed Elsevier Annual Reports and Financial Statements 2009
Note
1
3
8 7
8
9
10
2 –
4
Note
–
6 6
–
1
19
10
4
2009
£m
6,071
(2,252)
3,819
(1,112)
(1,935)
772
15
787
(298)
(291)
(61)
435
(40)
395
395
391
4
395
2009
£m
395
(122)
–
53
84
(25)
(3)
392
388
392
2008
£m
5,334
(1,916)
3,418
(1,053)
(1,482)
883
18
901
33
(225)
(192)
(92)
617
(155)
462
18
480
476
480
2008
£m
480
340
27
(347)
(9)
(243)
(14)
156
(90)
390
386
4
390
Combined statement of cash flows
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
(Net costs)/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
Distributions to non-controlling interests
Increase/(decrease) 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 discontinued operations
Combined financial statements
2009
£m
1,604
(302)
(120)
1,191
(94)
(78)
(164)
(3)
5
(2)
23
(314)
(457)
(3) –
107
1,807
(2,862)
(2)
834
(576)
Note
12
9
12
4
–
–
2 –
2008
£m
1,452
(222)
43
(215)
1,058
(2,161)
(57)
(115)
(4)
8
23
(2,301)
(2,404)
(407)
2,373
(411)
(56)
62
54
(94)
(883)
(48)
Increase/(decrease) in cash and cash equivalents
12
301
(2,174)
Movement in cash and cash equivalents
At start of year
Increase/(decrease) in cash and cash equivalents
Exchange translation differences
At end of year
375
301
58
734
2,467
(2,174)
82
375
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Annual Reports and Financial Statements 2009 Reed Elsevier 83
Combined statement of financial position
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
Non-controlling interests
Total equity
84 Reed Elsevier Annual Reports and Financial Statements 2009
Note
15
16
17
17
18
6
20
21
22
12
23 5
24
25
27
25
20
6
27
2009
£m
4,339
3,632
135
41
292
110
208
8,757
275
1,492
71
734
2,572
2008
£m
4,901
4,404
145
49
329
152
353
10,333
348
1,685
76
375
2,484
49
11,334
12,866
2,471
102
678
479
134
3,864
4,028
1,272
345
61
5,706
2,769
258
448
554
79
4,108
5,694
1,525
521
35
7,775
23 5
2
9,575
1,759
11,885
981
29
30
31
32
33
225
2,807
(698)
(100)
(502)
1,732
27
1,759
209
2,529
(783)
(14)
(988)
953
28
981
Combined statement of changes in equity
Combined
share
capitals
£m
Combined
share
premiums
£m
Combined
shares held
in treasury
£m
Translation
reserve
£m
Note
Other
Combined
combined shareholders’
equity
£m
reserves
£m
209
2,529
(783)
(14)
(988)
953
–
–
20
–
–
–
–
395
–
–
(4)
(117)
–
–
–
–
57
28
(122)
–
–
–
–
510
(457)
419
17
(60)
388
(457)
834
17
(3)
36
57
–
(2)
31 December 2009
225
2,807
(698)
(100)
(502)
1,732
27
1,759
Combined
share
capitals
£m
Combined
share
premiums
£m
Combined
shares held
in treasury
£m
Translation
reserve
£m
Other
combined
reserves
£m
Combined
shareholders’
equity
£m
Non-
controlling
interests
£m
Note
197
2,143
(619)
(145)
1,389
2,965
11
–
–
1
–
–
–
–
–
–
53
–
–
–
–
–
–
–
(94)
–
8
–
367
–
19
(2,404)
386
(2,404)
–
–
–
–
–
–
–
46
(8)
–
54
(94)
46
–
–
11
333
(78)
(236)
(30)
–
31 December 2008
209
2,529
(783)
(14)
(988)
953
14
Balance at 1 January 2009
Total comprehensive
income for the year
Dividends declared
Issue of ordinary shares,
net of expenses
Increase in share based
remuneration reserve
Settlement of share awards
Exchange differences
on translation of
capital and reserves
Balance at
14
31
Balance at 1 January 2008
Total comprehensive
income for the year
Dividends declared
Issue of ordinary shares,
net of expenses
Increase in shares
held in treasury
Increase in share based
remuneration reserve
Settlement of share awards
Acquisitions
Exchange differences
on translation of
capital and reserves
Balance at
Combined financial statements
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equity
£m
981
392
(460)
834
17
(3)
(2)
Total
equity
£m
2,976
390
(2,404)
54
(94)
46
–
11
2
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£m
28
4
(3)
–
–
–
4
–
–
–
–
–
11
2
28
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Annual Reports and Financial Statements 2009 Reed Elsevier 85
Accounting policies
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 61.
Adjusted operating profits are also grossed up to exclude the
equity share of taxes in joint ventures. Adjusted operating cash flow
is measured after dividends from joint ventures and net capital
expenditure, but before payments in relation to exceptional
restructuring and acquisition related costs. Reconciliations
between reported and adjusted figures are provided in note 11.
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.
Non-controlling interests in the net assets of the combined
businesses are identified separately from combined shareholders’
equity. Non-controlling 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
2006 or the Dutch Civil Code. Additional information is given in the
Annual Reports and Financial Statements of the parent companies
set out on pages 138 to 184. A list of principal businesses is set out
on page 194.
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 and impairment of
acquired intangible assets and goodwill, 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.
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 123 to 137.
Transactions in foreign currencies are recorded at the rate
of exchange prevailing on the date of the transaction. At each
statement of financial position date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the
rate prevailing on the statement of financial position 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 statement of financial position 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.
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 comprehensive income in the
period in which they occur.
86 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Accounting policies continued
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.
Net pension obligations in respect of defined benefit schemes
are included in the statement of financial position 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 statement of financial
position. Any net pension asset is limited to the extent that the asset
is recoverable through reductions in future contributions.
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
Borrowing costs that are directly attributable to the acquisition,
construction or production of an asset that takes a substantial
period of time to bring to use are capitalised. All other interest
on borrowings is expensed as incurred. The cost of issuing
borrowings is generally expensed over the period of borrowing
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 statement of financial position 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.
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.
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 statement of financial position at their fair value as
at the date of acquisition, less accumulated amortisation. Internally
generated intangible assets are stated in the statement of financial
position 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.
Annual Reports and Financial Statements 2009 Reed Elsevier 87
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Accounting policies continued
Property, plant and equipment
Property, plant and equipment are stated in the statement of
financial position 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 statement of financial position 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 statement of financial
position at cost as adjusted for post-acquisition changes in
Reed Elsevier’s share of net assets, less any impairment in value.
Impairment
At each statement of financial position 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.
88 Reed Elsevier Annual Reports and Financial Statements 2009
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 or software and the corresponding liability to pay rentals
is shown net of interest in the statement of financial position 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
statement of financial position 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 statement of financial position.
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 statement and statement of cash flows
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.
Accounting policies continued
Trade receivables are carried in the statement of financial position
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.
Derivative financial instruments that are not designated as hedging
instruments are classified as held for trading and recorded in the
statement of financial position 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 observable market rates
of interest and exchange. The fair value of long term borrowings is
calculated by discounting expected future cash flows at observable
market rates. (These instruments are accordingly classified as
Level 2 in the IFRS 7 fair value hierarchy.)
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.
Combined financial statements
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 statement of financial position 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.
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 number of awards that
are expected to vest and 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 expected levels of
vesting, 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.
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Annual Reports and Financial Statements 2009 Reed Elsevier 89
Accounting policies continued
Standards and amendments effective for the year
IFRS8 – Operating Segments 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 has not changed significantly the disclosure
of information in respect of Reed Elsevier’s operating segments.
Amendment to IAS23 – Borrowing Costs 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 has required a change of accounting policy on borrowing
costs and has not led to any significant borrowing costs being
capitalised in the year ended 31 December 2009.
Amendment to IAS1 – Presentation of Financial Statements
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.
Amendment to IFRS2 – Share Based Payment 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 has not significantly
impacted the measurement, presentation or disclosure of share
based remuneration in the combined financial statements.
Amendment to IFRS7 – Financial Instruments: Disclosures requires
financial instruments held at fair value to be disclosed according to
a three tier hierarchy depending on the inputs used in their valuation.
Adoption of this amendment has resulted in minor changes to
Reed Elsevier’s disclosures for financial instruments.
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.
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 IAS27 – 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.
Amendments to IAS32 – Financial Instruments: Presentation
(effective for the 2010 financial year). The amendment provides
relief to companies making rights issues in a currency other
than their functional currency. This amendment does not affect
Reed Elsevier as shares are not issued in currencies other than
its functional currencies.
IFRS9 – Financial Instruments (effective for the 2013 financial year,
with earlier adoption permitted). The standard replaces the existing
classification and measurement requirements in IAS39 for financial
assets by requiring entities to classify them as being measured
either at amortised cost or fair value depending on the business
model and contractual cash flow characteristics of the asset.
Adoption of this standard is not expected to have a significant
impact on the measurement, presentation or disclosure of financial
assets 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.
90 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
1 Segment analysis
Reed Elsevier has adopted IFRS8 Operating Segments with effect from 1 January 2009 and this has not resulted in a change to reported
segments. Reed Elsevier’s reported segments are based on the internal reporting structure and financial information provided to the
Chief Executive Officer and Boards.
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, providing information and marketing solutions to business professionals.
Adjusted operating profit figures are presented as additional performance measures. They are stated before amortisation and impairment
of acquired intangible assets and goodwill, 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 programmes announced in February 2008
and 2009. Exceptional restructuring costs principally comprise severance, outsourcing migration and associated property costs. Adjusted
operating profit is reconciled to operating profit in note 11.
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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
2009
£m
2008
£m
1,985
2,557
638
891
6,071
–
–
6,071
3,228
897
662
851
433
6,071
1,700
1,940
707
987
5,334
6
5,334
2,544
905
594
893
398
5,334
2009
£m
563
337
79
(163)
816
(35)
787
252
183
218
95
39
787
2008
£m
443
291
123
55
912
(50)
39 6
901
334
183
179
151
54
901
2009
£m
693
665
152
89
1,599
(35)
1,570
777
257
243
212
81
2008
£m
568
513
183
126
1,390
(50)
39
1,379
618
239
206
237
79
1,570
1,379
Revenue is analysed before the £118m (2008: £104m) share of joint ventures’ revenue, of which £25m (2008: £23m) relates to LexisNexis,
principally to Giuffrè, £90m (2008: £80m) relates to Reed Exhibitions, principally to exhibition joint ventures, and £3m (2008: £1m) relates
to Reed Business Information.
Share of post-tax results of joint ventures of £15m (2008: £18m) included in operating profit comprises £4m (2008: £4m) relating to
LexisNexis, £10m (2008: £14m) relating to Reed Exhibitions and £1m (2008: nil) relating to Reed Business Information. The unallocated
net pension credit of £6m (2008: £39m) comprises the expected return on pension scheme assets of £189m (2008: £219m) less interest
on pension scheme liabilities of £183m (2008: £180m).
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Annual Reports and Financial Statements 2009 Reed Elsevier 91
Notes to the combined financial statements
for the year ended 31 December 2009
1 Segment analysis continued
Analysis of revenue by geographical market
2009
£m
3,310
513
243
1,132
873
6,071
2009
£m
2,711
1,708
585
626
441
6,071
2008
£m
2,624
580
234
1,136
760
5,334
2008
£m
2,381
1,142
737
702
372
5,334
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Analysis of revenue by type
Subscriptions
Circulation/transactions
Advertising
Exhibitions
Other
Total
Business segment
Elsevier 4
LexisNexis 7
Reed Exhibitions
Reed Business Information –
Sub-total
Corporate –
Total
Expenditure on
acquired goodwill and
intangible assets
Capital
expenditure
additions
Amortisation and
impairment of
acquired intangible
assets and goodwill
Depreciation and
other amortisation
2009
£m
12
23
–
23
2008
£m
31
2,705
58
64
2,858
2,858
2009
£m
2008
£m
72
139
11
18
240
17 7
257
54
74
11
26
165
–
172
2009
£m
78
231
63
173
545
545
2008
£m
76
137
46 7
31
290
–
290
2009
£m
73
99
6
29
208
15
223
2008
£m
51
68
25
150
17
167
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. Amortisation
and impairment of acquired intangible assets and goodwill includes amounts in respect of joint ventures of £12m (2008: £3m) in Reed
Exhibitions. Other than the depreciation, amortisation and impairment above, non cash items include £17m (2008: £46m) relating to the
recognition of share based remuneration and comprise £4m (2008: £7m) in Elsevier, £7m (2008: £8m) in LexisNexis, £2m (2008: £3m)
in Reed Exhibitions, £2m (2008: £6m) in Reed Business Information and £2m (2008: £22m) in Corporate.
92 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the combined financial statements
for the year ended 31 December 2009
1 Segment analysis continued
Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Taxation
Cash
Net pension assets
Assets held for sale
Other assets
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Combined financial statements
Total assets
2009
£m
2008
£m
2,915
5,872
728
547
10,062
208
734
110
5
215
3,264
6,758
862
864
11,748
353
375
152
49
189
11,334
12,866
7,570
1,164
687
1,504
409
9,123
967
742
1,630
404
11,334
12,866
Investments in joint ventures of £135m (2008: £145m) included in segment assets above comprise £38m (2008: £42m) relating to LexisNexis,
£92m (2008: £99m) relating to Reed Exhibitions and £5m (2008: £4m) relating to Reed Business Information.
2 Discontinued operations
Discontinued operations comprise the results of the Education division, the disposal of which completed in January 2008 with the sale of
the educational assessment business. The disposal of the US K-12 Schools Education and International businesses had completed in 2007.
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
Cash flows from discontinued operations
Net cash flow from operating activities
Net cash flow used in investing activities
Net cash flow from financing activities
Net movement in cash and cash equivalents
–
–
2009
£m
–
–
–
–
2009
£m
2
–
–
2008
£m
12
(12)
67
(49)
18
2008
£m
(50)
(48)
–
–
–
–
–
–
–
–
Net cash flow from investing activities in 2008 includes cash proceeds, net of expenses, on the completed disposals of £270m and taxes
paid on completed disposals of £320m.
Annual Reports and Financial Statements 2009 Reed Elsevier 93
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Notes to the combined financial statements
for the year ended 31 December 2009
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, amortisation and impairment
Amortisation of acquired intangible assets
Share of joint ventures’ amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
Impairment of goodwill in joint ventures
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Total depreciation, amortisation and impairment
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
16
4
15, 16
8
16
18
2009
£m
1,610
183
42
17
1,852
364
3
169 9
–
139
84
768
2,252
132
(12)
2008
£m
1,384
164
59
46
1,653
278
88
79
457
1,916
116
(13)
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 for wages and salaries; nil for social security costs;
nil for pensions; and nil for share based remuneration.
4 Auditors’ remuneration
Auditors’ remuneration
For audit services
For non audit services
Total auditors’ remuneration
2009
£m
4.5
1.2
5.7
2008
£m
4.8
2.1
6.9
Auditors’ remuneration for audit services comprises £0.4m (2008: £0.4m) payable to the auditors of the parent companies and £4.1m (2008:
£4.4m) 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: £0.7m (2008: £0.6m) for taxation services, £0.1m (2008: £1.3m) for due diligence
and other transaction related services and £0.4m (2008: £0.2m) for other non audit services.
94 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the combined financial statements
for the year ended 31 December 2009
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
6 Pension schemes
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Combined financial statements
At 31 December
Average during the year
2009
2008
2009
2008
6,800
15,200
2,500
6,900
31,400
900
32,300
17,600
4,900
2,000
4,200
3,600
7,200
15,900
2,700
8,200
34,000
800
34,800
18,800
5,300
2,300
4,700
3,700
6,900
15,400
2,600
7,500
32,400
900
33,300
18,000
5,000
2,100
4,500
3,700
32,300
34,800
33,300
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
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
2009
5.8%
7.0%
4.0%
3.1%
3.1%
2008
6.2%
7.1%
3.7%
2.7%
2.8%
2007
5.9%
7.1%
4.4%
3.1%
3.2%
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
2009
Male
(years)
88
88
Female
(years)
87
87
2008
Male
(years)
86
86
Female
(years)
87
87
Annual Reports and Financial Statements 2009 Reed Elsevier 95
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Notes to the combined financial statements
for the year ended 31 December 2009
6 Pension schemes continued
The pension expense recognised within the income statement comprises:
Service cost (including curtailment credits of £43m (2008: nil))
Interest on pension scheme liabilities
Expected return on scheme assets
Net defined benefit pension expense
Defined contribution pension expense
Total pension expense
2009
£m
24
183
(189)
18
24
42
2008
£m
75
180
(219)
36
23
59
The amount recognised in the statement of financial position 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 (loss)/gain
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
2009
Fair value
of scheme
assets
£m
Net
pension
obligations
£m
Defined
benefit
obligations
£m
2008
Fair value
of scheme
assets
£m
Net
pension
obligations
£m
(3,051)
(24)
(183)
–
(295)
–
(12)
134
–
–
129
(3,302)
2,682
–
–
189
301
101
12
(134)
–
–
(84)
3,067
(369)
(24)
(183)
189
6
101
–
–
–
–
45
(235)
(2,968)
(75)
(180)
–
418
–
(13)
119
(9)
3
(346)
3,018
–
–
219
(765)
79
13
(119)
–
–
237
(3,051)
2,682
50
(75)
(180)
219
(347)
79
–
–
(9)
3
(109)
(369)
The net pension obligations of £235m (2008: £369m) at 31 December 2009 comprise schemes in deficit with net pension obligations of
£345m (2008: £521m) and schemes in surplus with net pension assets of £110m (2008: £152m).
As at 31 December 2009 the defined benefit obligations comprise £3,172m (2008: £2,923m) in relation to funded schemes and £130m
(2008: £128m) in relation to unfunded schemes. The weighted average duration of defined benefit scheme liabilities is 19 years (2008:
19 years). Deferred tax liabilities of £31m (2008: £44m) and deferred tax assets of £122m (2008: £190m) 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
8.6%
4.5%
5.3%
7.0%
2009
Fair value
of scheme
assets
£m
1,827
1,069
171
3,067
Proportion Expected rate
of return on
scheme
assets
of total
scheme
assets
60%
35%
5%
100%
8.9%
4.3%
5.5%
7.1%
2008
Fair value
of scheme
assets
£m
1,408
1,167
107
2,682
Proportion
of total
scheme
assets
52%
44%
4%
100%
The actual return on scheme assets for the year ended 31 December 2009 was a £490m gain (2008: £546m loss).
96 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
6 Pension schemes continued
A summary of pension balances in respect of funded and unfunded schemes for the five years ended 31 December 2009 is set out below.
Fair value of scheme assets
Defined benefit obligations
Net pension (obligations)/surplus
2009
£m
3,067
(3,302)
(235)
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)
Gains and losses arising on the revaluation of pension scheme assets and liabilities that have been recognised in the statement of
comprehensive income are set out below:
Gains and losses arising during the year:
Experience gains/(losses) on scheme liabilities
Experience gains/(losses) 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 (losses)/gains at start of year
Net cumulative (losses)/gains at end of year
2009
£m
18
301
(249)
(124)
60
(95)
(89)
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)
6
Regular contributions to defined benefit pension schemes in 2010 are expected to be approximately £89m.
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
5
143
5
75
6
122
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 £8m and would increase/decrease the amount of the net
pension surplus by £91m.
Annual Reports and Financial Statements 2009 Reed Elsevier 97
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Notes to the combined financial statements
for the year ended 31 December 2009
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, 2008 and 2009 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 62 to 78.
The estimated fair value of grants made in the two years ended 31 December 2009 are set out below. The fair values of grants are
recognised in the income statement over the vesting period, typically three years.
2009 grants
Share options
– ESOS
– Other
Total share options
Conditional shares
– ESOS
– LTIP
– RSP
– BIP
Total conditional shares
Total
2008 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
4,303
1,284
5,587
770
1,845
204
661
3,480
0.93
1.25
1.00
4.91
6.26
4.95
4.48
5.55
2,799
588
3,387
500
1,198
133
352
2,183
1.44
0.87
1.34
7.52
9.73
7.58
6.48
8.57
4
2
6
4
12
1
3
20
26
4
1
5
4
12
1
2
19
24
£m
8
3
11
8
24
2
5
39
50
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
98 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
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
2009
2008
2009
2008
£5.39
£5.44
£5.42
£4.91
£5.02
26%
4 years
3.1%
2.0%
3-5%
£6.26
£6.27
£6.28
£6.68
£6.30
22%
4 years
2.7%
4.4%
3-5%
J9.35
J9.50
J9.42
J8.05
J8.31
26%
4 years
3.4%
2.4%
3-4%
u12.16
u12.19
u12.21
u12.51
u11.55
22%
4 years
3.2%
3.6%
3-4%
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b
u
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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 2009, 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 2008
Granted
Exercised
Forfeited
Expired
Outstanding at 1 January 2009
Granted
Exercised
Forfeited
Expired
Outstanding at 31 December 2009
Exercisable at 31 December 2008
Exercisable at 31 December 2009
Weighted
average
exercise Number of
shares
’000
price
(pence)
Weighted
average
exercise Number of
shares
’000
price
(pence)
Weighted
average
exercise Number of
shares
’000
price
(pence)
Weighted
average
exercise
price
(pence)
Number of
shares
’000
34,067
4,397
(6,134)
(846)
(1,312)
30,172
4,303
(781)
(1,638)
(1,490)
30,566
19,692
20,763
547
626
517
607
570
562
539
436
602
522
562
540
547
2,872
–
(547)
–
–
2,325
–
–
–
(66)
2,259
2,325
2,259
489
–
487
–
–
489
–
–
–
487
489
489
489
3,110
656
(659)
(441)
(35)
2,631
1,284
(436)
(578)
(41)
2,860
434
504
411
459
407
454
402
404
469
408
436
40,049
5,053
(7,340)
(1,287)
(1,347)
35,128
5,587
(1,217)
(2,216)
(1,597)
35,685
69
349
420
422
22,086
23,371
534
610
505
556
561
549
508
424
549
518
547
534
540
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Annual Reports and Financial Statements 2009 Reed Elsevier 99
Notes to the combined financial statements
for the year ended 31 December 2009
7 Share based remuneration continued
ESOS
LTIP
Other
Total
Share options:
Reed Elsevier NV
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Expired
Outstanding at 1 January 2009
Granted
Exercised
Forfeited
Expired
Outstanding at 31 December 2009
Exercisable at 31 December 2008
Exercisable at 31 December 2009
Conditional shares: Reed Elsevier PLC
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Outstanding at 1 January 2009
Granted
Exercised
Forfeited
Outstanding at 31 December 2009
Conditional shares: Reed Elsevier NV
Outstanding at 1 January 2008
Granted
Exercised
Forfeited
Outstanding at 1 January 2009
Granted
Exercised
Forfeited
Outstanding at 31 December 2009
Weighted
average
exercise Number of
shares
’000
price
(J)
Weighted
average
exercise Number of
shares
’000
price
(J)
Weighted
average
exercise Number of
shares
’000
price
(J)
Weighted
average
exercise
price
(J)
Number of
shares
’000
23,893
2,891
(2,579)
(560)
(1,834)
21,811
2,799
–
(1,203)
(1,790)
21,617
14,875
15,217
12.16
12.16
10.78
13.04
13.43
12.23
9.35
–
11.73
11.98
11.88
12.04
12.01
1,918
–
(109)
–
–
1,809
–
–
–
(46)
1,763
10.60
–
10.57
–
–
10.60
–
–
–
10.57
10.60
2,044
694
(5)
(376)
–
2,357
588
(32)
(376)
–
2,537
12.54
11.55
10.85
12.94
–
12.19
8.31
7.93
12.00
–
11.32
27,855
3,585
(2,693)
(936)
(1,834)
25,977
3,387
(32)
(1,579)
(1,836)
25,917
1,809
1,763
10.60
10.60
2,357
2,537
12.19
11.32
19,041
19,517
ESOS
1,656
717
(85)
(237)
2,051
770
(867)
(87)
1,867
ESOS
1,058
469
(57)
(112)
1,358
500
(580)
(65)
1,213
Number of shares ’000
LTIP
3,432
1,524
–
(440)
4,516
1,845
(1,767)
(442)
4,152
RSP
145
19
(101)
(28)
35
204
(24)
–
215
Number of shares ’000
LTIP
2,231
1,006
–
(259)
2,978
1,198
(1,162)
(311)
2,703
RSP
98
13
(63)
(24)
24
133
(17)
–
140
BIP
1,843
720
(561)
(101)
1,901
661
(622)
(26)
1,914
BIP
724
319
(176)
(29)
838
352
(315)
(10)
865
12.08
12.04
10.77
13.00
13.43
12.11
9.17
7.93
11.84
11.94
11.74
11.92
11.79
Total
7,076
2,980
(747)
(806)
8,503
3,480
(3,280)
(555)
8,148
Total
4,111
1,807
(296)
(424)
5,198
2,183
(2,074)
(386)
4,921
The weighted average share price at the date of exercise of share options and conditional shares during 2009 was 506p (2008: 632p)
for Reed Elsevier PLC ordinary shares and u8.45 (2008: u12.22) for Reed Elsevier NV ordinary shares.
100 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the combined financial statements
for the year ended 31 December 2009
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)
7.01-8.00
8.01-9.00
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
Combined financial statements
2009
2008
Number
of shares
under
option
’000
Weighted
average
remaining
period until
expiry
(years)
16
2,157
8,219
12,638
3,593
6,600
2,462
35,685
175
511
4,011
4,912
6,297
2,854
2,990
3,971
196
25,917
0.3
2.6
2.9
6.0
2.3
7.6
1.2
4.3
9.2
9.0
6.8
4.4
5.1
7.4
2.5
4.0
1.3
5.2
Number
of shares
under
option
’000
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
Weighted
average
remaining
period until
expiry
(years)
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
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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Annual Reports and Financial Statements 2009 Reed Elsevier 101
Notes to the combined financial statements
for the year ended 31 December 2009
8 Net finance costs
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
Losses on derivatives not designated as hedges
Finance costs
Interest on bank deposits
Gains on loans and derivatives not designated as hedges
Finance income
Net finance costs
2009
£m
(63)
(226)
(1) –
(290)
–
(8)
(298)
2
7
(291)
2008
£m
(62)
(137)
(199)
(18)
(8)
(225)
31
33
(192)
5
2
Finance costs include £46m (2008: £6m) transferred from the hedge reserve. A net loss of £11m (2008: loss of £60m) on interest rate
derivatives designated as cash flow hedges was recognised directly in equity in the hedge reserve to be recognised in future periods.
Acquisition related finance costs in 2008 comprised 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 on disposal and write down of businesses and other assets
Net loss on disposals and other non operating items
8
2009
£m
(69)
(61)
2008
£m
(6)
(86)
(92)
The loss on disposal and write down of businesses and other assets in 2009 principally comprises severance and excess property costs
in relation to assets held for sale and related closures, in particular RBI US controlled circulation titles.
10 Taxation
Current tax
United Kingdom
The Netherlands
Rest of world
Total current tax charge
Deferred tax
Origination and reversal of temporary differences
Total taxation charge on profit from continuing operations
The current tax charge includes a tax credit of £34m (2008: nil) in respect of prior year disposals.
2009
£m
2008
£m
44
37
(1)
80
(40)
40
40
49
36
125
30
155
102 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
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
Prior year credits on disposals
Non deductible goodwill impairment
Net tax on share based remuneration
Non deductible amounts and other items
Tax expense
Tax expense 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 on share based remuneration
Net tax (charge)/credit recognised directly in equity
11 Adjusted figures
2009
£m
435
41
(6)
(34) –
19 –
10
10
40
9%
2009
£m
(10)
(15)
(25)
2008
£m
617
127
(5)
20
13
155
25%
2008
£m
116
59
(19)
156
–
Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation and impairment
of acquired intangible assets and goodwill, 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 programmes announced in February 2008 and 2009. 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
Impairment of acquired intangible assets and goodwill
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
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
8
2009
£m
787
368
177 9
182
48
2008
£m
901
281
152
27
9
1,570
1,379
435
368
177 9
182
48
8
61
617
281
152
45
9
92
Adjusted profit before tax from continuing operations
1,279
1,205
Annual Reports and Financial Statements 2009 Reed Elsevier 103
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Notes to the combined financial statements
for the year ended 31 December 2009
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
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax credits on acquired intangible assets not expected to crystallise in the near term
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
Profit attributable to parent companies’ shareholders – total operations
Adjustments (post tax):
Amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax credits on acquired intangible assets not expected to crystallise in the near term
Adjusted profit attributable to parent companies’ shareholders from total operations
–
4
12 Statement of cash flows
Reconciliation of operating profit before joint ventures to cash
generated from operations – continuing operations
Operating profit before joint ventures
Amortisation and impairment of acquired intangible assets and goodwill
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Share based remuneration
Total non cash items
Decrease in inventories and pre-publication costs
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease 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
Deferred payments relating to prior year acquisitions
Note
13
Total
104 Reed Elsevier Annual Reports and Financial Statements 2009
2009
£m
391
391
411
136 9
133
33
(22)
(100)
982
1,604
23
(78)
5
(164)
124
45
1,558
2009
£m
391
411
136 9
133
33
(22)
(100)
982
2009
£m
772
533
139
84
17
773
47 4
112
(100)
59
1,604
2009
£m
(9)
(56)
(29)
(94)
2008
£m
476
(18)
458
318
111
31
61
(69)
919
1,452
23
(57)
(115)
72
27
1,407
2008
£m
476
318
111
31
43
(69)
919
2008
£m
883
287
88
79
46
500
(106)
171
69
1,452
2008
£m
(2,112)
(19)
(30)
(2,161)
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
12 Statement of cash flows continued
Reconciliation of net borrowings
At start of year
Increase/(decrease) 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
2009
£m
375
(6,142)
41
(5,726)
2008
£m
(492)
301
–
–
–
–
–
–
301
–
–
–
58
(107)
(1,807)
2,862
2
–
950
–
(26)
7
505
734
(4,706)
–
–
–
–
–
–
–
–
–
4
(4)
41
301
(2,174)
(107)
(1,807)
2,862
2
–
1,251
(26)
11 2
559
(3,931)
407
(2,373)
411
56
(62)
(3,735)
(219)
(1)
(1,281)
(5,726)
–
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 include £5m (2008: £55m) held in trust to satisfy liabilities in respect of change of control obligations related
to the acquisition of ChoicePoint.
13 Acquisitions
During the year a number of small acquisitions were made for a total consideration of £11m (2008: £2,131m, including £1,931m in respect
of the acquisition of ChoicePoint, Inc.), after taking account of net cash acquired of £3m. 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.
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Current liabilities
Borrowings
Current tax
Deferred tax
Net assets acquired
Consideration (after taking account of £3m net cash acquired)
Less: consideration deferred to future years
Net cash flow
Book value
on acquisition
2009
£m
Notes
Fair
value
2009
£m
(i)
–
–
–
–
(11)
–
–
–
(11)
6
17
–
–
(11)
–
–
(1)
11
11
(2)
9
Fair
value
2008
£m
1,279
1,579
48
128
(237)
(219)
22
(469)
2,131
2,131
(19)
2,112
(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.
Annual Reports and Financial Statements 2009 Reed Elsevier 105
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Notes to the combined financial statements
for the year ended 31 December 2009
13 Acquisitions continued
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 2010 combined financial statements. There were no significant adjustments to the provisional fair values of prior year
acquisitions established in 2008.
The businesses acquired in 2009 contributed £6m to revenue, £1m to adjusted operating profit, £1m to adjusted profit attributable,
increased profit attributable by £1m, and contributed £2m 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 £6,072m, £1,570m, £982m and £395m respectively before taking account of acquisition financing costs.
14 Equity dividends
Ordinary dividends declared in the year
Reed Elsevier PLC
Reed Elsevier NV
Total
2009
£m
228
232
460
2008
£m
204
214
418
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2008 final dividend of 15.0p and a 2009 interim dividend
of 5.4p giving a total of 20.4p (2008: 18.9p) for Reed Elsevier PLC; and a 2008 final dividend of u0.290 and a 2009 interim dividend of
u0.107 giving a total of u0.397 (2008: u0.425) for Reed Elsevier NV.
The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2008: 15.0p). The directors of Reed Elsevier NV have proposed
a final dividend of u0.293 (2008: u0.290). The total cost of funding the proposed final dividends is expected to be £360m, for which no
liability has been recognised at the statement of financial position date.
Ordinary dividends paid and proposed relating to the financial year
Reed Elsevier PLC
Reed Elsevier NV
Total
2009
£m
245
250
495
2008
£m
221
222
443
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.
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 the Education division. 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.
15 Goodwill
At start of year
Acquisitions
Disposals
Impairment
Reclassified from held for sale
Exchange translation differences
At end of year
106 Reed Elsevier Annual Reports and Financial Statements 2009
2009
£m
4,901
6
(7)
(110)
22 –
(473)
4,339
2008
£m
2,462
1,279
(4)
(9)
1,173
4,901
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
15 Goodwill continued
The carrying amount of goodwill is after cumulative amortisation of £1,573m (2008: £1,715m) which was charged prior to the adoption of IFRS.
Impairment charges comprise £93m in Reed Business Information, principally relating to its US and International businesses, which have seen
a significant contraction in print advertising revenues, and £17m in Reed Exhibitions relating to deteriorating prospects for a number of minor
exhibitions, principally in Reed Exhibitions Continental Europe.
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.
The carrying value of goodwill recorded in the major groups of CGUs is set out below.
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Goodwill
Elsevier
LexisNexis US Legal
LexisNexis Risk Solutions
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
2009
£m
963
1,012
1,659
133
2,804
304
60
364
73
69
29
37
208
4,339
2008
£m
1,074
1,104
1,846
137
3,087
336
71
407
162
71
33
67
333
4,901
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 10.5-16.0% for Reed Business Information. Cash flows subsequent to the forecast
period of five years are assumed to grow at nominal perpetuity growth rates. The rates assumed are based on long-term historic growth
rates of the territories where the CGUs operate and the growth prospects for the sectors in which the CGUs operate. The nominal perpetuity
growth rates for all CGUs do not exceed 3%.
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 the 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 £111m.
Annual Reports and Financial Statements 2009 Reed Elsevier 107
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Notes to the combined financial statements
for the year ended 31 December 2009
16 Intangible assets
Market
and
customer
related
£m
Content,
software
and other
£m
Total
acquired
intangible
assets
£m
Internally
developed
intangible
assets
£m
Cost
At 1 January 2008
Acquisitions
Additions
Disposals
Exchange translation differences
At 1 January 2009
Acquisitions
Additions
Disposals
Reclassified (to)/from held for sale and other transfers
Exchange translation differences
At 31 December 2009
Amortisation and impairment
At 1 January 2008
Charge for the year
Disposals
Exchange translation differences
At 1 January 2009
Charge for the year
Impairment
Disposals
Reclassified (to)/from held for sale and other transfers
Exchange translation differences
At 31 December 2009
Net book amount
At 31 December 2008
At 31 December 2009
818
1,349
–
–
652
2,819
5
–
(1)
–
(288)
2,535
152
84
–
74
310
155
7
(1)
–
(34)
437
2,869
230
–
(15)
851
3,935
12
–
(14)
(233)
(310)
3,390
1,721
194
(15)
515
2,415
209
52
(8)
(217)
(191)
2,260
3,687
1,579
–
(15)
1,503
6,754
17
–
(15)
(233)
(598)
5,925
1,873
278
(15)
589
2,725
364
59
(9)
(217)
(225)
2,697
Total
£m
4,324
1,579
115
(34)
1,710
7,694
17
179
(35)
(212)
(676)
637
–
115
(19)
207
940
–
179
(20)
21
(78)
1,042
6,967
362
88
(8)
123
565
139
–
(20)
2
(48)
638
2,235
366
(23)
712
3,290
503
59
(29)
(215)
(273)
3,335
2,509
2,098
1,520
1,130
4,029
3,228
375
404
4,404
3,632
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 £698m (2008: £902m) 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 £356m (2008: £397m) 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.
Impairment charges in 2009 comprise amounts of £10m in Reed Exhibitions, relating to deteriorating prospects for a number of minor
exhibitions, and £49m in Reed Business Information’s US and International businesses which have seen a significant contraction in print
advertising revenues.
108 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the combined financial statements
for the year ended 31 December 2009
17 Investments
Investments in joint ventures
Available for sale investments
Venture capital investments held for trading
Total
Combined financial statements
2009
£m
135
9
32
176
2008
£m
145
24
25
194
The value of £11m (2008: £9m) of venture capital investments held for trading has been determined by reference to quoted market prices.
The value of other venture capital investments and available for sale investments has been determined by reference to other observable
market inputs.
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
2009
£m
145
15
(23)
4
(2)
135
2008
£m
116
18
(23)
30
145
–
Share of results of joint ventures includes impairment charges of £8m (2008: nil) in respect of minor joint ventures in Reed Exhibitions.
The principal joint ventures at 31 December 2009 are exhibition joint ventures within Reed Exhibitions and Giuffrè (an Italian legal publisher
in which Reed Elsevier has a 40% shareholding) within LexisNexis.
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
2009
£m
246
51
316
(152)
164
2008
£m
209
37
325
(163)
162
2009
£m
118
15
149
(73)
76
59
135
2008
£m
104
18
152
(75)
77
68
145
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Annual Reports and Financial Statements 2009 Reed Elsevier 109
Notes to the combined financial statements
for the year ended 31 December 2009
18 Property, plant and equipment
Cost
At start of year
Acquisitions
Capital expenditure
Disposals
Reclassified from held for sale
Exchange translation differences
At end of year
Accumulated depreciation
At start of year
Disposals
Reclassified from held for sale
Charge for the year
Exchange translation differences
At end of year
2009
Land and Fixtures and
equipment
buildings
£m
£m
259
–
10
(8)
–
(23)
238
106
(2)
–
12
(10)
106
644
–
68
(54)
18
(50)
626
468
(50)
12
72
(36)
466
2008
Land and
buildings
£m
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
Total
£m
903
–
78
(62)
18
(73)
864
574
(52)
12
84
(46)
572
Total
£m
667
48
57
(67)
–
198
903
428
(57)
–
79
124
574
Net book amount
132
160
292
153
176
329
No depreciation is provided on freehold land of £50m (2008: £51m). The net book amount of property, plant and equipment at
31 December 2009 includes £4m (2008: £6m) in respect of assets held under finance leases relating to fixtures and equipment.
110 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
19 Financial instruments
Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments are set out on pages 42 and 43
of the 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 2009
Borrowings
Fixed rate borrowings
Floating rate borrowings
Carrying
amount
£m
Within
1 year
£m
(3,824)
(882)
(252)
(673)
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
(45)
–
(57)
3
54
14
(28)
(6)
(907)
15
12
875
Contractual cash flow
1-2
years
£m
(592)
(4)
(12)
(10)
(378)
5
13
374
2-3
years
£m
(542)
(115)
(5)
(14)
(165)
–
15
166
3-4
years
£m
(837)
(4)
(3)
(183)
–
16
192
–
4-5
years
£m
More than
5 years
£m
Total
£m
(815)
(100)
(2,409)
(5)
(5,447)
(901)
(4)
(184)
–
–
217
–
(12)
–
–
(64)
(397)
(1,450)
–
–
–
36
449
1,415
Total
(4,737)
(964)
(604)
(660)
(819)
(886)
(2,426)
(6,359)
Contractual cash flow
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
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)
–
(169)
1
51
24
(27)
(13)
(909)
1
15
837
(37)
(8)
(358)
–
13
307
(20)
(13)
(177)
–
15
157
3-4
years
£m
(447)
(225)
(7)
(14)
(45)
–
15
42
4-5
years
£m
(177)
(1)
(3)
(199)
–
–
211
–
More than
5 years
£m
Total
£m
(1,967)
(5)
(3,342)
(4,023)
–
(204)
–
(94)
(451)
(1,489)
–
237
–
1
506
1,343
(7,549)
Total
(6,324)
(756)
(1,946)
(2,058)
(681)
(169)
(1,939)
Fixed rate term debt of $1,500m (£955m), u600m (£536m) and £300m and floating rate term debt of u50m (£45m) were issued in the year
and used to repay floating rate borrowings maturing within two years. The term debt was issued in four, five, eight and ten year maturities.
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Annual Reports and Financial Statements 2009 Reed Elsevier 111
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for the year ended 31 December 2009
19 Financial instruments continued
The carrying amount of derivative financial liabilities comprises £9m (2008: nil) in relation to fair value hedges, £67m (2008: £240m) in
relation to cash flow hedges and £26m (2008: £18m) held for trading. The carrying amount of derivative financial assets comprises £50m
(2008: £41m) in relation to fair value hedges, £12m (2008: £8m) in relation to cash flow hedges and £9m (2008: £27m) 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 2009, Reed Elsevier had access to a $2,500m committed bank facility maturing in May 2010, which was undrawn, and a
$2,000m committed bank facility, forward starting in May 2010 and maturing in May 2012. In January 2010 the $2,500m committed facility
maturing in May 2010 was cancelled and the start date of the $2,000m committed facility brought forward to start immediately. This back
up facility provides security of funding for $2,000m of short term debt to May 2012.
After taking account of the maturity of committed bank facilities that back short term borrowings at 31 December 2009, and after utilising
available cash resources, no borrowings mature within one year (2008: nil), no borrowings mature in the second year (2008: 31%), 19% of
borrowings mature in the third year (2008: 33%), 35% in the fourth and fifth years (2008: 12%), 36% in the sixth to tenth years (2008: 16%),
and 10% beyond the tenth year (2008: 8%).
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 2009, 90% of net borrowings were either fixed rate or had 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 £4m (2008: £25m), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial
paper borrowings at 31 December 2009. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs
of £4m (2008: £25m).
The impact on net equity of a theoretical change in interest rates as at 31 December 2009 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 £14m (2008: £39m) and a 100 basis
point increase in interest rates would increase net equity by an estimated £15m (2008: £38m). 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 2009 would decrease the carrying value of net assets,
excluding net borrowings, by £466m (2008: £551m). This would be offset to a large degree by a decrease in net borrowings of £321m
(2008: £495m). A strengthening of all currencies by 10% against sterling at 31 December 2009 would increase the carrying value of net
assets, excluding net borrowings, by £581m (2008: £685m) and increase net borrowings by £392m (2008: £605m).
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 £17m (2008: £38m). A 10% strengthening of all foreign currencies against
sterling on this basis would increase net profit for the year by £20m (2008: £46m).
112 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
19 Financial instruments continued
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 statement of financial position.
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 £248m (2008: £284m); past due two to three months £66m (2008: £123m); past due four to six months £25m (2008: £35m);
and past due greater than six months nil (2008: £11m). 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 £1,104m were in place at 31 December 2009
swapping fixed rate term debt issues denominated in sterling, euros and Swiss francs (CHF) to floating rate sterling, euro and US dollar (USD)
debt respectively for the whole of their term (2008: £300m swapping fixed rate term debt issues denominated in CHF to floating rate USD
debt for the whole of their term).
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Annual Reports and Financial Statements 2009 Reed Elsevier 113
Notes to the combined financial statements
for the year ended 31 December 2009
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 2009 were as follows:
Gains/(losses) on borrowings
and related derivatives
GBP debt
Related interest rate swaps
EUR debt
Related interest rate swaps
USD debt
Related interest rate swaps
EUR debt
Related EUR to USD cross currency
interest rate swaps
CHF debt
Related CHF to USD cross currency
interest rate swaps
Total GBP, USD, EUR and CHF debt
Total related interest rate derivatives
Net gain
1 January
2008
£m
Fair value
movement
gain/(loss)
£m
De-
designated
£m
Exchange
gain/(loss)
£m
Fair value
1 January movement
gain/(loss)
£m
2009
£m
Exchange 31 December
2009
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
–
9
(9)
–
(2)
2
–
–
–
–
–
–
–
(11)
11
–
(4)
4
–
–
–
–
–
–
–
–
–
–
–
–
–
4
(4)
–
4
(4)
–
9
(9)
–
(2)
2
–
–
–
–
–
–
–
(48)
48
–
(41)
41
–
All fair value hedges were highly effective throughout the two years ended 31 December 2009.
Gross borrowings as at 31 December 2009 included £59m (2008: £78m) in relation to fair value adjustments to borrowings previously
designated in a fair value hedge relationship which were de-designated in 2008. The related derivatives were closed out on de-designation
with a cash inflow of £62m. £11m (2008: £2m) of these fair value adjustments were amortised in the year 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 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 2009, including gains and losses on cash flow hedging instruments, were as follows:
Hedge reserve at 1 January 2008: (losses)/gains deferred
Losses arising in 2008
Amounts recognised in income statement
Exchange translation differences
Hedge reserve at 1 January 2009: losses deferred
(Losses)/gains arising in 2009
Amounts recognised in income statement
Exchange translation differences
Hedge reserve at 31 December 2009: losses deferred
Interest rate
hedges
£m
Foreign
exchange
hedges
£m
Total hedge
reserve
pre-tax
£m
(8)
(60)
6
(18)
(80)
(11)
46
7
(38)
36
(183)
(25)
(4)
(176)
64
58
3
(51)
28
(243)
(19)
(22)
(256)
53
104
10
(89)
All cash flow hedges were highly effective throughout the two years ended 31 December 2009.
A tax credit of £24m (2008: £61m credit) in respect of the above gains and losses at 31 December 2009 was also deferred in the hedge reserve.
114 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
19 Financial instruments continued
Of the amounts recognised in the income statement in the year, losses of £58m (2008: gains of £25m) were recognised in revenue,
and losses of £46m (2008: £6m) were recognised in finance costs. A tax credit of £20m (2008: charge of £5m) was recognised in relation
to these items.
The deferred losses on cash flow hedges at 31 December 2009 are currently expected to be recognised in the income statement in future
years as follows:
2010
2011
2012
2013
2014
Losses deferred in hedge reserve at end of year
Interest rate
hedges
£m
Foreign
exchange
hedges
£m
(19)
(11)
(6)
(2)
–
(38)
(33)
(16)
(1)
(1)
–
(51)
Total
hedge
reserve
pre-tax
£m
(52)
(27)
(7)
(3)
–
(89)
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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
2009
£m
208
(1,272)
(1,064)
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
Excess of
Pensions
over tax
assets differences allowances
£m
Other amortisation Tax losses
carried
forward
£m
temporary
£m
£m
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 1 January 2009
(Charge)/credit to profit
Credit/(charge) to equity
Transfers
Acquisitions
Exchange translation differences
Deferred tax (liability)/asset
at 31 December 2009
(125)
(37)
–
–
–
(57)
(219)
(20)
–
–
–
23
(498)
69
–
(536)
7
(281)
(1,239)
118
–
–
(1)
115
(51)
(6)
13
–
–
–
(44)
(4)
17
–
–
–
(21)
(5)
7
–
–
(4)
(23)
4
–
–
–
1
8
2
–
–
–
–
10
19
–
–
–
(2)
(216)
(1,007)
(31)
(18)
27
5
–
–
–
–
1
6
3
–
–
–
–
9
Other
Pensions
temporary
liabilities differences
£m
£m
52
(10)
103
4
–
41
190
(24)
(27)
–
–
(17)
76
(43)
33
63
–
18
147
(56)
(15)
(20)
–
(6)
Total
£m
(554)
(30)
156
(469)
7
(282)
(1,172)
40
(25)
(20)
(1)
114
122
50
(1,064)
Annual Reports and Financial Statements 2009 Reed Elsevier 115
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n
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a
t
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m
e
n
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a
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i
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o
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a
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i
o
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Notes to the combined financial statements
for the year ended 31 December 2009
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
9
2009
£m
168
98
275
2009
£m
1,367
(80)
1,287
205
1,492
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
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
Trade and other receivables
Total assets held for sale
Trade and other payables
Total liabilities associated with assets held for sale
2009
£m
77
33
(24)
4
(6)
80
2009
£m
3
7
2
2
–
–
–
–
5
5
5
5
2008
£m
11
233
104
348
2008
£m
1,578
(77)
1,501
184
1,685
2008
£m
48
29
(20)
16
77
2008
£m
24
15
49
Assets held for sale as at 31 December 2009 relate to Reed Business Information’s US controlled circulation titles. In 2009 assets and
associated liabilities held for sale at 31 December 2008 were retained and reclassified accordingly.
116 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the combined financial statements
for the year ended 31 December 2009
24 Trade and other payables
Payables and accruals
Deferred income
Total
25 Borrowings
Combined financial statements
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2009
£m
1,251
1,220
2,471
2008
£m
1,394
1,375
2,769
Financial liabilities measured at amortised cost:
Short term bank loans, overdrafts and commercial paper
Finance leases
Other loans
Other loans in fair value hedging relationships
Other loans previously in fair value hedging relationships
Total
2009
Falling due
within
1 year
£m
Falling due
in more
than 1 year
£m
515
7
156
–
–
678
–
20
2,247
1,144
617
4,028
Falling due
within
1 year
£m
2008
Falling due
in more
than 1 year
£m
446
2
–
–
–
448
–
1
4,652
341
700
5,694
Total
£m
515
27
2,403
1,144
617
4,706
Total
£m
446
3
4,652
341
700
6,142
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The total fair value of financial liabilities measured at amortised cost is £3,262m (2008: £5,201m). The total fair value of other loans in fair
value hedging relationships is £1,257m (2008: £325m). The total fair value of other loans previously in fair value hedging relationships is
£646m (2008: £773m).
Analysis by year of repayment
2009
2008
Short term
bank loans,
overdrafts and
commercial
paper
£m
515
–
–
–
–
–
–
515
Other
loans
£m
156
342
431
633
779
1,823
4,008
4,164
Finance
leases
£m
7
7
6
7
–
–
20
27
Short term
bank loans,
overdrafts and
commercial
paper
£m
Total
£m
678
349
437
640
779
1,823
4,028
4,706
446
–
–
–
–
–
–
446
Other
loans
£m
–
1,706
1,885
578
104
1,420
5,693
5,693
Finance
leases
£m
2
1
–
–
–
–
1
3
Total
£m
448
1,707
1,885
578
104
1,420
5,694
6,142
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
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Fixed rate term debt of $1,500m (£955m), u600m (£536m) and £300m and floating rate term debt of u50m (£45m) were issued in the period
and used to repay floating rate borrowings maturing within two years. The term debt was issued in four, five, eight and ten year maturities.
Short term bank loans, overdrafts and commercial paper were backed up at 31 December 2009 by a $2,500m (£1,548m) committed bank
facility maturing in May 2010, which was undrawn, with an additional $2,000m (£1,238m) committed bank facility, forward starting in May 2010
and maturing in May 2012. In January 2010 the $2,500m committed bank facility maturing in May 2010 was cancelled and the start date
of the $2,000m committed bank facility brought forward to start immediately. This facility provides security of funding for $2,000m of
short term debt to May 2012.
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Annual Reports and Financial Statements 2009 Reed Elsevier 117
Notes to the combined financial statements
for the year ended 31 December 2009
25 Borrowings continued
Analysis by currency
2009
2008
Short term
bank loans,
overdrafts and
commercial
paper
£m
371
–
117
27
515
Other
loans
£m
2,828
691
645
–
4,164
Finance
leases
£m
27
–
–
–
27
Short term
bank loans,
overdrafts and
commercial
paper
£m
Total
£m
3,226
691
762
27
4,706
10
–
375
61
446
Other
loans
£m
5,128
400
165
–
5,693
Finance
leases
£m
3
–
–
–
3
Total
£m
5,141
400
540
61
6,142
US Dollars
£ Sterling
Euro
Other currencies
Total
Included in the US dollar amounts for other loans above is £316m (2008: £341m) of debt denominated in Swiss francs (CHF 500m;
2008: CHF 500m) that was swapped into US dollars on issuance and against which there are related derivative financial instruments,
which, as at 31 December 2009, had a fair value of £48m (2008: £41m).
26 Lease arrangements
Finance leases
At 31 December 2009 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
2
2009
£m
7
23 1
30 3
(3) –
27 3
2
20 1
27 3
7
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 2009 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, £677m (2008: £805m) relate to land and buildings.
2009
£m
140
354
229
723
2008
£m
144
426
293
863
118 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
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
At end of year
2009
£m
17
36
60
7
2009
Property Restructuring
£m
£m
45
70
(20)
(6)
89
69
157
(114)
(6)
106
Total
£m
114
227
(134)
(12)
195
2008
Property Restructuring
£m
£m
21
22
(9)
11
45
–
57
–
12
69
2008
£m
21
52
14
87
Total
£m
21
79
(9)
23
114
Property provisions relate to estimated sub-lease shortfalls and guarantees given in respect of certain property leases for various periods
up to 2024. Restructuring provisions relate to costs incurred in connection with the major restructuring programmes announced in February
2008 and 2009, principally in respect of severance and outsourcing migration costs, and the restructuring in anticipation of sale and related
closures of Reed Business Information’s US controlled circulation titles.
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 £22m (2008: £26m) 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
2009
£m
134
61
195
2009
£m
209
20 1
(4)
225
2008
£m
79
35
114
2008
£m
197
11
209
In July 2009, Reed Elsevier PLC placed 109,198,190 new ordinary shares at 405p per share for proceeds, net of issue costs, of £435m
and Reed Elsevier NV placed 63,030,989 new ordinary shares at €7.08 per share for net proceeds of €441m. The number of shares issued
represented 9.9% of the issued ordinary share capital of the respective parent companies prior to the placings. No share premium was
recognised in Reed Elsevier PLC as the company took advantage of section 612 of the Companies Act 2006 regarding merger relief.
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.
Annual Reports and Financial Statements 2009 Reed Elsevier 119
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Notes to the combined financial statements
for the year ended 31 December 2009
30 Combined share premiums
At start of year
Issue of ordinary shares, net of expenses
Exchange translation differences
At end of year
2009
£m
2,529
395
(117)
2,807
2008
£m
2,143
53
333
2,529
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 2008
Purchase of shares
Settlement of share awards
Exchange translation differences
At 1 January 2009
Settlement of share awards
Exchange translation differences
At 31 December 2009
Shares Shares held
by parent
companies
£m
held
by EBT
£m
186
54
(8)
–
232
(57)
–
175
433
40
–
78
551
–
(28)
523
Total
£m
619
94
(8)
78
783
(57)
(28)
698
At 31 December 2009, shares held in treasury related to 15,350,605 (2008: 20,078,899) Reed Elsevier PLC ordinary shares and 8,219,196
(2008: 11,177,422) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT); and 34,196,298
(2008: 34,196,298) Reed Elsevier PLC ordinary shares and 23,952,791 (2008: 23,952,791) Reed Elsevier NV ordinary shares held by the
respective parent companies.
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
2009
£m
(14)
(122)
36
(100)
2008
£m
(145)
340
27
(236)
(14)
–
120 Reed Elsevier Annual Reports and Financial Statements 2009
Combined financial statements
Notes to the combined financial statements
for the year ended 31 December 2009
33 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
Dividends declared
Issue of ordinary shares, net of expenses
Actuarial gains/(losses) 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
2009
£m
Other
reserves
2009
£m
(195)
–
–
–
–
–
–
53
(15)
–
–
84
8
(65)
(793)
391
(457)
419
6
–
1
–
(10)
17
(60)
–
49
(437)
Total
2009
£m
(988)
391
(457)
419 –
6
1 –
53
(25)
17
(60)
84
57
(502)
Total
2008
£m
1,389
476
(2,404)
(347)
(9)
(243)
156
46
(8)
(14)
(30)
(988)
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 £2m (2008: £4m). As at
31 December 2009, amounts owed by joint ventures were £4m (2008: £3m). 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
Termination benefits
Share based remuneration
Total
2009
£m
2008
£m
6
1
1
1
7
1
–
10
18
9
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
36 Approval of financial statements
Income statement
Statement of
financial position
2009
1.12
1.57
2008
1.26
1.85
2009
1.12
1.62
2008
1.03
1.45
The combined financial statements were approved and authorised for issue by the boards of directors of Reed Elsevier PLC and
Reed Elsevier NV on 17 February 2010.
Annual Reports and Financial Statements 2009 Reed Elsevier 121
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Independent auditors’ report
to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV
Scope of the audit of the combined financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the combined financial statements sufficient to give
reasonable assurance that the combined financial statements are
free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the combined businesses’ circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by
the directors; and the overall presentation of the combined
financial statements.
The procedures selected depend on the auditors’ judgment,
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, the auditor considers internal
control relevant to the entity’s preparation 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 entity’s internal control.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion on the combined financial statements
In our opinion the combined financial statements:
>
give a true and fair view of the financial position of the combined
businesses’ affairs as at 31 December 2009 and of its profit and
cash flow for the year then ended; and
>
have been properly prepared in accordance with IFRSs as
adopted by the European Union.
Douglas King (Senior statutory auditor)
For and on behalf of
Deloitte LLP
Chartered Accountants
and Statutory Auditors
London, United Kingdom
17 February 2010
J P M Hopmans
Deloitte Accountants B.V.
Amsterdam
The Netherlands
17 February 2010
Report on the combined financial statements
We have audited the combined financial statements 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 2009
(“the combined financial statements”), which comprise the combined
income statement, the combined statement of comprehensive
income, the combined statement of cash flows, the combined
statement of financial position, the combined statement of changes
in equity, the accounting policies and the related notes 1 to 36.
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 and which include the other opinions required by local
laws and regulations, appear on pages 156 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.
Responsibilities of directors
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for preparation of the annual report and
the combined financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union
(“IFRS”) and for being satisfied that they give a true and fair view
and for such internal control as it is determined necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibilities
Our responsibility is to audit the combined financial statements
in accordance with International Standards on Auditing (UK and
Ireland) as issued by the United Kingdom Auditing Practices Board,
and Dutch law and to express an opinion on the combined financial
statements based on the audit. Those standards require us to
comply with our respective professions’ ethical requirements,
including the APB’s Ethical Standards for Auditors and plan to
perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatements.
122 Reed Elsevier Annual Reports and Financial Statements 2009
Summary combined financial information
in euros
124 Combined income statement
124 Combined statement of comprehensive income
125 Combined statement of cash flows
126 Combined statement of financial position
127 Combined statement of changes in equity
128 Notes to the summary combined financial information in euros
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Introduction
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
Non-controlling interests
Net profit for the year
Combined statement of comprehensive income
For the year ended 31 December
Net profit for the year
Exchange differences on translation of foreign operations
Cumulative exchange differences on disposal of foreign operations
Actuarial gains/(losses) 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
Transfer to net profit from hedge reserve (net of tax)
Tax recognised directly in equity
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
Attributable to:
Parent companies’ shareholders
Non-controlling interests
Total recognised income for the year
124 Reed Elsevier Annual Reports and Financial Statements 2009
Note
1
2009
Jm
6,800
(2,523)
4,277
(1,246)
(2,167)
864
17
881
(334)
(326)
(68)
487
(45)
442
442
438
5
442
2009
Jm
442
(50)
–
59
94
(28)
83
525
521
5
525
8
2 –
4
–
7
–
1
4
2008
um
6,721
(2,414)
4,307
(1,327)
(1,868)
1,112
23
1,135
42
(284)
(242)
(116)
777
(195)
582
10
592
587
592
2008
um
592
59
54
(437)
(11)
(306)
(18)
196
(463)
129
124
129
Combined statement of cash flows
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
(Net costs)/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
Distributions to non-controlling interests
Increase/(decrease) 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 discontinued operations
Increase/(decrease) in cash and cash equivalents
Movement in cash and cash equivalents
At start of year
Increase/(decrease) in cash and cash equivalents
Exchange translation differences
At end of year
Summary combined financial information in euros
Note
5
5
2009
Jm
1,796
(338)
10
(134)
1,334
(106)
(87)
(184)
(3)
4
(2)
26
(352)
(512)
(3) –
120
2,024
(3,206)
(2)
–
934
–
(645)
2008
um
1,830
(280)
54
(271)
1,333
(2,747)
(72)
(145)
(5)
6
10
29
(2,924)
(3,183)
(513)
3,017
(520)
(71)
78
68
(118)
(1,242)
2
5
–
(33)
337
(2,866)
386
337
99
822
3,355
(2,866)
(103)
386
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Annual Reports and Financial Statements 2009 Reed Elsevier 125
Combined statement of financial position
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
6
Liabilities associated with assets held for sale
6
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
Non-controlling interests
Total equity
126 Reed Elsevier Annual Reports and Financial Statements 2009
Note
3
5
6
7
6
3
7
8
9
10
11
2009
Jm
4,860
4,068
151
46
327
123
233
9,808
308
1,671
79
822
2,880
2008
um
5,048
4,536
149
51
339
157
363
10,643
358
1,736
78
386
2,558
50
12,694
13,251
2,768
114
759
536
150
4,327
4,511
1,425
386
69
6,391
2
10,724
1,970
252
3,144
(782)
79
(753)
1,940
30
1,970
2,852
266
461
571
81
4,231
5,865
1,570
537
36
8,008
12,241
1,010
215
2,605
(806)
174
(1,207)
981
29
1,010
Summary combined financial information in euros
Combined statement of changes in equity
Combined
share
capitals
Jm
Combined
share
premiums
Jm
Combined
shares held
in treasury
Jm
Translation
reserve
Jm
Other
Combined
combined shareholders’
equity
Jm
reserves
Jm
Non-
controlling
interests
Jm
Total equity
Jm
Balance at 1 January 2009
Total comprehensive
income for the year
Dividends declared
Issue of ordinary shares,
net of expenses
Increase in share based
remuneration reserve
Settlement of share awards
Exchange differences
on translation of
capital and reserves
Balance at
215
2,605
(806)
174
(1,207)
981
29
1,010
–
–
22
–
–
15
–
–
442
–
–
–
–
–
–
64
(50)
–
571
(512)
521
(512)
–
–
–
470
934
19
(67)
19
(3)
97
(40)
(45)
(27)
–
4
(3)
–
–
–
–
525
(515)
934
19
(3)
–
31 December 2009
252
3,144
(782)
79
(753)
1,940
30
1,970
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Balance at 1 January 2008
Total comprehensive
income for the year
Dividends declared
Issue of ordinary shares,
net of expenses
Increase in shares held
in treasury
Increase in share based
remuneration reserve
Settlement of share awards
Acquisitions
Exchange differences
on translation of
capital and reserves
Balance at
Combined
share
capitals
um
Combined
share
premiums
um
Combined
shares held
in treasury
um
Translation
reserve
um
Other
combined
reserves
um
Combined
shareholders’
equity
um
Non-
controlling
interests
um
Total equity
um
268
2,914
(842)
(170)
1,862
4,032
15
4,047
i
F
n
a
n
c
a
i
–
–
1
–
–
–
–
–
–
67
–
–
–
–
–
–
–
(118)
–
10
–
113
–
11
(3,183)
124
(3,183)
–
–
–
–
–
–
–
58
(10)
–
68
(118)
58
–
–
–
(54)
(376)
144
231
55
5
–
–
–
–
–
14
129
(3,183)
68
(118)
58
–
14
(5)
(5)
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o
v
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r
n
a
n
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31 December 2008
215
2,605
(806)
174
(1,207)
981
29
1,010
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Annual Reports and Financial Statements 2009 Reed Elsevier 127
Notes to the summary combined financial information in euros
1 Segment analysis
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
2009
Jm
2008
um
2,223
2,864
715
998
6,800
–
2,142
2,444
891
1,244
6,721
–
6,800
6,721
3,615
1,005
742
953
485
6,800
3,206
1,140
748
1,125
502
6,721
2009
Jm
631
377
88
(183)
913
(39)
7
881
282
205
244
106
44
881
2008
um
558
367
155
69
1,149
(63)
49 7
1,135
421
231
226
189
68
2009
Jm
776
745
170
99
1,790
(39)
1,758
870
288
272
237
91
2008
um
716
646
230
159
1,751
(63)
49
1,737
779
301
259
299
99
1,135
1,758
1,737
Revenue is analysed before the u132m (2008: u131m) share of joint ventures’ revenue, of which u28m (2008: u29m) relates to LexisNexis,
principally to Giuffrè, u101m (2008: u101m) relates to Reed Exhibitions, principally to exhibition joint ventures, and u3m (2008: u1m) relates
to Reed Business Information.
Share of post-tax results of joint ventures of u17m (2008: u23m) included in operating profit comprises u5m (2008: u5m) relating to LexisNexis,
u11m (2008: u18m) relating to Reed Exhibitions and u1m (2008: nil) relating to Reed Business Information. The unallocated net pension
credit of u7m (2008: u49m) comprises the expected return on pension scheme assets of u212m (2008: u276m) less interest on pension
scheme liabilities of u205m (2008: u227m).
2009
Jm
3,707
575
272
1,268
978
6,800
2009
Jm
3,037
1,913
655
701
494
6,800
2008
um
3,306
731
295
1,431
958
6,721
2008
um
3,000
1,439
929
884
469
6,721
Analysis of revenue by geographical market
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Analysis of revenue by type
Subscriptions
Circulation/transactions
Advertising
Exhibitions
Other
Total
128 Reed Elsevier Annual Reports and Financial Statements 2009
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 and impairment
of acquired intangible
assets and goodwill
2009
Jm
13
26
–
26
2008
um
39
3,440
73
81
3,633
3,633
2009
Jm
81
156
12
20
269
19 9
288
2008
um
68
93
14
33
208
–
217
2009
Jm
87
259
70
194
610
–
610
2008
um
96
172
58 8
39
365
365
Depreciation and
other amortisation
2009
Jm
2008
um
82
111
8
32
233
17
250
64
86
32
190
21
211
Business segment
Elsevier 5
LexisNexis 8
Reed Exhibitions
Reed Business Information –
Sub-total
Corporate –
Total
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. Amortisation and
impairment of acquired intangible assets and goodwill includes amounts in respect of joint ventures of u13m (2008: u4m) in Reed Exhibitions.
Other than the depreciation, amortisation and impairment above, non cash items include u19m (2008: u58m) relating to the recognition of
share based remuneration and comprise u5m (2008: u9m) in Elsevier, u8m (2008: u10m) in LexisNexis, u2m (2008: u4m) in Reed Exhibitions,
u2m (2008: u7m) in Reed Business Information and u2m (2008: u28m) in Corporate.
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Business segment
Elsevier
LexisNexis
Reed Exhibitions
Reed Business Information
Sub-total
Taxation
Cash
Net pension assets
Assets held for sale
Other assets
Total
Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world
Total
Total assets
2009
Jm
2008
um
3,265
6,576
815
613
11,269
233
822
123
6
241
12,694
8,478
1,304
769
1,685
458
3,362
6,960
888
890
12,100
363
386
157
50
195
13,251
9,396
996
764
1,679
416
12,694
13,251
Investments in joint ventures of u151m (2008: u149m) included in segment assets above comprise u42m (2008: u43m) relating to LexisNexis,
u103m (2008: u102m) relating to Reed Exhibitions and u6m (2008: u4m) relating to Reed Business Information.
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Notes to the summary combined financial information in euros
2 Discontinued operations
Discontinued operations comprise the results of the Education division, the disposal of which completed in January 2008 with the sale of
the educational assessment business. The disposal of the US K-12 Schools Education and International businesses had completed in 2007.
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
Cash flows from discontinued operations
Net cash flow from operating activities
Net cash flow used in investing activities
Net cash flow from financing activities
Net movement in cash and cash equivalents
2009
Jm
–
–
–
2009
Jm
3
–
–
–
–
–
–
–
–
–
2008
um
15
(15)
72
(62)
10
2008
um
(36)
(33)
–
–
–
–
Net cash flow from investing activities in 2008 includes cash proceeds, net of expenses, on the completed disposals of u367m and taxes
paid on completed disposals of u403m.
130 Reed Elsevier Annual Reports and Financial Statements 2009
Summary combined financial information in euros
Notes to the summary combined financial information in euros
3 Pension schemes
The pension expense recognised within the income statement comprises:
Service cost (including curtailment credits of u48m (2008: nil))
Interest on pension scheme liabilities
Expected return on scheme assets
Net defined benefit pension expense
Defined contribution pension expense
Total pension expense
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i
2009
Jm
27
205
(212)
20
27
47
2008
um
94
227
(276)
45
29
74
The amount recognised in the statement of financial position 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 (loss)/gain
Contributions by employer
Contributions by employees
Benefits paid
Acquisitions
Curtailment on disposal of operations
Exchange translation differences
At end of year
Defined
benefit
obligations
Jm
2009
Fair value
of scheme
assets
Jm
Net
pension
obligations
Jm
Defined
benefit
obligations
um
2008
Fair value
of scheme
assets
um
Net
pension
obligations
um
(3,143)
(27)
(205)
–
(330)
–
(13)
150
–
–
(130)
(3,698)
2,763
–
–
212
337
113
13
(150)
–
–
147
3,435
(380)
(27)
(205)
212
7
113
–
–
–
–
17
(263)
(4,036)
(94)
(227)
–
527
–
(16)
150
(11)
4
560
(3,143)
4,104
–
–
276
(964)
100
16
(150)
–
–
(619)
2,763
68
(94)
(227)
276
(437)
100
–
–
(11)
4
(59)
(380)
The net pension obligations of u263m (2008: u380m) at 31 December 2009 comprise schemes in deficit with net pension obligations of
u386m (2008: u537m) and schemes in surplus with net pension assets of u123m (2008: u157m).
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Notes to the summary combined financial information in euros
4 Adjusted figures
Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation and impairment
of acquired intangible assets and goodwill, 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 programmes announced in February 2008 and 2009. 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
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Reclassification of tax in joint ventures
Adjusted operating profit from continuing operations
2009
Jm
881
412
198
204
54
2008
um
1,135
354
11
192
34
11
1,758
1,737
9
132 Reed Elsevier Annual Reports and Financial Statements 2009
Summary combined financial information in euros
Notes to the summary combined financial information in euros
4 Adjusted figures continued
Profit before tax – continuing operations
Adjustments:
Amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
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
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax credits on acquired intangible assets not expected to crystallise in the near term
9
–
2009
Jm
487
412
198
204
54
68
1,432
438
438
460
152
149
37
(25)
(112)
2008
um
777
354
11
192
57
11
116
1,518
587
(10)
577
401
11
140
39
77
(86)
Adjusted profit attributable to parent companies’ shareholders from continuing operations
1,099
1,159
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
Profit attributable to parent companies’ shareholders – total operations
Adjustments (post tax):
Amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax credits on acquired intangible assets not expected to crystallise in the near term
4
1,796
26
(87)
6
(184)
139
51
1,745
438
460
152
149
37
(25)
(112)
1,830
29
(72)
(145)
91
34
1,773
587
401
11
140
39
67
(86)
Adjusted profit attributable to parent companies’ shareholders from total operations
1,099
1,159
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Annual Reports and Financial Statements 2009 Reed Elsevier 133
2009
Jm
864
597
156
94
19
866
53 5
125
(112)
66
2008
um
1,112
361
111
100
58
630
(133)
216
88
1,796
1,830
2009
Jm
(10)
(63)
(33)
(106)
2009
Jm
2008
um
(2,685)
(24)
(38)
(2,747)
2008
um
(669)
Notes to the summary combined financial information in euros
5 Statement of cash flows
Reconciliation of operating profit before joint ventures to cash generated from operations –
continuing operations
Operating profit before joint ventures
Amortisation and impairment of acquired intangible assets and goodwill
Amortisation of internally developed intangible assets
Depreciation of property, plant and equipment
Share based remuneration
Total non cash items
Decrease in inventories and pre-publication costs
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease 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
Deferred payments relating to prior year acquisitions
Total
Reconciliation of net borrowings
At start of year
Increase/(decrease) 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
Cash & cash
equivalents
Jm
Borrowings
Jm
Related
derivative
financial
instruments
Jm
386
(6,326)
42
(5,898)
337
–
–
–
–
–
–
337
–
–
–
99
(120)
(2,024)
3,206
2
–
1,064
–
(29)
8
13
–
–
–
–
–
–
–
–
–
–
–
4
–
337
(2,866)
(120)
(2,024)
3,206
2
1,401
(29)
12 3
112
513
(3,017)
520
71
(78)
(4,857)
(279)
(1)
(95)
At end of year
822
(5,270)
46
(4,402)
(5,898)
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 include u6m (2008: u57m) held in trust to satisfy liabilities in respect of change of control obligations related
to the acquisition of ChoicePoint.
134 Reed Elsevier Annual Reports and Financial Statements 2009
Summary combined financial information in euros
Notes to the summary combined financial information in euros
6 Borrowings
Financial liabilities measured at amortised cost:
Short term bank loans, overdrafts and commercial paper
Finance leases
Other loans
Other loans in fair value hedging relationships
Other loans previously in fair value hedging relationships
Total
Falling due
within
1 year
Jm
2009
Falling due
in more
than 1 year
Jm
577
8
174
–
–
759
–
22
2,517
1,281
691
4,511
Falling due
within
1 year
um
2008
Falling due
in more
than 1 year
um
459
2
–
–
–
461
–
1
4,792
351
721
5,865
Total
Jm
577
30
2,691
1,281
691
5,270
Total
um
459
3
4,792
351
721
6,326
The total fair value of financial liabilities measured at amortised cost is u3,653m (2008: u5,357m). The total fair value of other loans in fair
value hedging relationships is u1,408m (2008: u335m). The total fair value of other loans previously in fair value hedging relationships is
u724m (2008: u796m).
Analysis by year of repayment
2009
2008
Short term
bank loans,
overdrafts and
commercial
paper
Jm
577
–
–
–
–
–
–
577
Other
loans
Jm
174
383
483
709
872
2,042
4,489
4,663
Finance
leases
Jm
8
7
7
8
–
–
22
30
Short term
bank loans,
overdrafts and
commercial
paper
um
Total
Jm
759
390
490
717
872
2,042
4,511
5,270
459
–
–
–
–
–
–
459
Other
loans
um
–
1,757
1,942
595
107
1,463
5,864
5,864
Finance
leases
um
2
1
–
–
–
–
1
3
Total
um
461
1,758
1,942
595
107
1,463
5,865
6,326
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
Fixed rate term debt of $1,500m (u1,079m), €600m and £300m (u336m) and floating rate term debt of €50m were issued in the period and
used to repay floating rate borrowings maturing within two years. The term debt was issued in four, five, eight and ten year maturities. Short
term bank loans, overdrafts and commercial paper were backed up at 31 December 2009 by a $2,500m (u1,734m) committed bank facility
maturing in May 2010, which was undrawn, with an additional $2,000m (u1,387m) committed bank facility, forward starting in May 2010 and
maturing in May 2012. In January 2010 the $2,500m committed bank facility maturing in May 2010 was cancelled and the start date of the
$2,000m committed bank facility brought forward to start immediately. This facility provides security of funding for $2,000m of short term
debt to May 2012.
Analysis by currency
2009
2008
Short term
bank loans,
overdrafts and
commercial
paper
Jm
416
–
131
30
577
Other
loans
Jm
3,167
774
722
–
4,663
Finance
leases
Jm
30
–
–
–
30
Short term
bank loans,
overdrafts and
commercial
paper
um
Total
Jm
3,613
774
853
30
5,270
10
–
386
63
459
Other
loans
um
5,282
412
170
–
5,864
Finance
leases
um
3
–
–
–
3
Total
um
5,295
412
556
63
6,326
US Dollars
£ Sterling
Euro
Other currencies
Total
Included in the US dollar amounts for other loans above is u354m (2008: u351m) of debt denominated in Swiss francs (CHF 500m;
2008: CHF 500m) that was swapped into US dollars on issuance and against which there are related derivative financial instruments
which, as at 31 December 2009, had a fair value of u53m (2008: u42m).
Annual Reports and Financial Statements 2009 Reed Elsevier 135
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Notes to the summary combined financial information in euros
7 Provisions
At start of year
Charged
Utilised
Exchange translation differences
At end of year
2009
Property Restructuring
Jm
Jm
46
78
(22)
(3)
99
71
176
(128)
1
120
Total
Jm
117
254
(150)
(2)
219
2008
Property Restructuring
um
um
28
28
(11)
1
46
–
72
–
(1)
71
Total
um
28
100
(11)
–
117
Property provisions relate to estimated sub-lease shortfalls and guarantees given in respect of certain property leases for various periods
up to 2024. Restructuring provisions relate to costs incurred in connection with the major restructuring programmes announced in February
2008 and 2009, principally in respect of severance and outsourcing migration costs, and the restructuring in anticipation of sale and related
closures of Reed Business Information’s US controlled circulation titles.
Provisions have been analysed between current and non-current as set out below:
Current liabilities
Non-current liabilities
Total
8 Combined share capitals
At start of year
Issue of ordinary shares
Exchange translation differences
At end of year
2009
Jm
150
69
219
2009
Jm
215
22 1
15
252
2008
um
81
36
117
2008
um
268
(54)
215
On 4 August 2009, Reed Elsevier PLC issued 109,198,190 new ordinary shares at 405p per share for proceeds, net of issue costs, of
£435m and Reed Elsevier NV issued 63,030,989 new ordinary shares at €7.08 per share for net proceeds of €441m. The number of shares
issued represented 9.9% of the issued ordinary share capital of the respective parent companies prior to the placings. No share premium
was recognised in Reed Elsevier PLC as the company took advantage of section 612 of the Companies Act 2006 regarding merger relief.
Combined share capitals exclude the shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
9 Combined share premiums
At start of year
Issue of ordinary shares, net of expenses
Exchange translation differences
At end of year
2009
Jm
2,605
442
97
3,144
2008
um
2,914
67
(376)
2,605
Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
136 Reed Elsevier Annual Reports and Financial Statements 2009
Summary combined financial information in euros
Notes to the summary combined financial information in euros
10 Combined shares held in treasury
At 1 January 2008
Purchase of shares
Settlement of share awards
Exchange translation differences
At 1 January 2009
Settlement of share awards
Exchange translation differences
At 31 December 2009
11 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
Dividends declared
Issue of ordinary shares, net of expenses
Actuarial gains/(losses) 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 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
12 Exchange rates
Sterling to euro
US dollars to euro
Shares
held
by EBT
Jm
Shares held
by parent
companies
Jm
253
68
(10)
(72)
239
(64)
21
196
–
Hedge
reserve
2009
Jm
Other
reserves
2009
Jm
(201)
–
–
–
–
–
–
59
(17)
–
–
94
(8)
(73)
(1,006)
438
(512)
470
7
–
1
–
(11)
19
(67)
–
(19)
(680)
589
50
–
(72)
567
–
19
586
Total
2009
Jm
(1,207)
438
(512)
470 –
7
1 –
59
(28)
19
(67)
94
(27)
Total
Jm
842
118
(10)
(144)
806
(64)
40
782
Total
2008
um
1,862
587
(3,183)
(437)
(11)
(306)
196
58
(10)
(18)
55
(753)
(1,207)
Income statement
Statement of
financial position
2009
Jm
0.89
1.40
2008
um
0.80
1.47
2009
Jm
0.89
1.44
2008
um
0.97
1.41
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Annual Reports and Financial Statements 2009 Reed Elsevier 137
Reed Elsevier PLC annual report and
financial statements
139 Directors’ report
144 Consolidated financial statements
148 Group accounting policies
149 Notes to the consolidated financial statements
156 Independent auditors’ report on the consolidated
financial statements
157 Parent company financial statements
158 Parent company accounting policies
158 Notes to the parent company financial statements
159 Independent auditors’ report on the parent company financial
statements
160 5 year summary
Company number: 77536
138 Reed Elsevier Annual Reports and Financial Statements 2009
Directors’ report
The directors present their report, together with the financial
statements of the group and company, for the year ended
31 December 2009.
As a consequence of the merger of the company’s businesses
with those of Reed Elsevier NV in 1993, described on page 56,
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 122. A review
of the Reed Elsevier combined businesses and their performance
in the year is set out on pages 10 to 46, a summary of the principal
risks facing Reed Elsevier is set out on pages 47 and 48, and the
Reed Elsevier statement on Corporate Responsibility is set out on
pages 52 to 55.
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 reduced the consolidated attributable
earnings by £12m (2008: £11m), being 47.1% of the total amount
of the tax credit.
Reed Elsevier PLC
In addition to the reported figures, adjusted profit figures
are presented as additional performance measures used by
management. These exclude the tax credit equalisation adjustment
and, in relation to the results of joint ventures, the company’s share
of amortisation and impairment of acquired intangible assets and
goodwill, 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 PLC’s shareholders’ 52.9% share of the adjusted
profit before tax of the continuing operations of the Reed Elsevier
combined businesses was £677m, up from £637m in 2008 reflecting
Reed Elsevier’s flat adjusted operating profit performance and
currency translation benefits, partly offset by a higher net interest
expense. Reported profit before tax, including the Reed Elsevier PLC
shareholders’ share of amortisation and impairment charges,
exceptional restructuring and acquisition related costs and
disposals and other non operating items, was £201m (2008:
£247m, including the share of the gain on disposal of the educational
assessment business). Elsevier had a relatively robust year with
good subscription renewals from 2008, growing online sales in
medical reference, clinical decision support and nursing and health
professional education, partly held back by weak pharma promotion
markets. LexisNexis had a challenging year with the core law firm
business flat in the US and marginally lower internationally whilst
the US directory listings business was well behind the prior year.
Corporate, government and academic markets were lower.
ChoicePoint made an excellent contribution in its first year,
growing its profits strongly and boosting overall revenue and
adjusted operating profits. Reed Exhibitions had a difficult year
with customers cutting back on promotional expenditure and the
net cycling out of biennial exhibitions. Reed Business Information
had a very tough year with advertising markets severely impacted
by the economic recession. Significant restructuring and cost
actions were taken across Reed Elsevier mitigating the impact
of underlying revenue decline, with adjusted operating margin flat.
Reed Elsevier PLC’s shareholders’ share of the adjusted profit
attributable of the total operations of the combined businesses
was £519m, up from £486m in 2008. After deducting the company’s
share of the post tax charge for amortisation and impairment of
acquired intangible assets and goodwill, exceptional restructuring
and acquisition integration costs, disposals and other non operating
items and deferred taxes not expected to crystallise in the near
term, the reported net profit for the year was £195m, down from
£241m in 2008. The decrease largely reflects the intangible asset and
goodwill impairment charges in respect of Reed Business Information’s
US controlled circulation titles and International businesses.
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Annual Reports and Financial Statements 2009 Reed Elsevier 139
Directors’ report continued
Adjusted earnings per share increased 3% to 45.9p (2008: 44.6p).
At constant rates of exchange, the adjusted earnings per share
were 9% lower. Including the effect of the tax credit equalisation
as well as amortisation and impairment of acquired intangible
assets and goodwill, exceptional restructuring and acquisition
related costs, disposals and other non operating items, and tax
adjustments, the basic earnings per share was 17.2p (2008: 22.1p).
Consolidated statement of financial position
The consolidated statement of financial position of Reed Elsevier
PLC reflects its 52.9% economic interest in the net assets of
Reed Elsevier which as at 31 December 2009 was £916m (2008:
£504m). The £412m increase in net assets reflects the company’s
share in the attributable profits of Reed Elsevier and the equity
placing in the year partially offset by dividends paid.
Dividends
The board is recommending an equalised final dividend of 15.0p
per ordinary share, unchanged compared with the prior year.
This gives total ordinary dividends for the year of 20.4p (2008:
20.3p), up 0.5% on 2008. The final dividend will be paid on
21 May 2010 to shareholders on the Register on 30 April 2010.
Dividend cover, based on adjusted earnings per share and the
total interim and proposed final dividends for the year, is 2.3 times.
The boards of the company and Reed Elsevier NV have adopted
dividend policies in recent years in respect of their equalised
dividends that, subject to currency considerations, grow dividends
broadly in line with adjusted earnings per share whilst maintaining
dividend cover (being the number of times the annual dividend is
covered by the adjusted earnings per share) of at least two times
over the longer term.
The total dividend paid on the ordinary shares in the financial
year was £228m (2008: £1,245m, including the special distribution
described below of £1,041m).
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
the Education division. 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.
Parent company financial statements
The individual parent company financial statements of Reed Elsevier
PLC are presented on pages 157 and 158, and continue to be
prepared under UK generally accepted accounting practice
(UK GAAP). Parent company shareholders’ funds as at
31 December 2009 were £2,444m (2008: £2,229m).
Share capital
The company’s issued share capital comprises a single class of
ordinary shares, all of which are listed on the London Stock Exchange.
All issued shares are fully paid up and carry no additional obligations
or special rights. Each share carries the right to one vote at general
meetings of the company. In a general meeting, subject to any rights
and restrictions attached to any shares, on a show of hands every
member who is present in person shall have one vote and every proxy
present who has been duly appointed by one or more members
entitled to vote on the resolution has one vote (although a proxy has
one vote for and one vote against the resolution if: (i) the proxy has
been duly appointed by more than one member entitled to vote on
the resolution; and (ii) the proxy has been instructed by one or more
of those members to vote for the resolution and by one or more
other of those members to vote against it). Subject to any rights or
restrictions attached to any shares, on a vote on a resolution on a
poll every member present in person or by proxy shall have one vote
for every share of which he is the holder. Proxy appointments and
voting instructions must be received by the company’s registrars not
less than 48 hours before a general meeting. There are no specific
restrictions on the size of a holding nor on the transfer of shares,
which are both governed by the general provisions of the Articles of
Association and prevailing legislation. The company is not aware of
any agreements between shareholders that may result in restrictions
on the transfer of shares or on voting rights attached to the shares.
Shareholders passed a resolution at the 2009 Annual General
Meeting permitting the directors to allot shares up to a nominal value
of £8.2m, representing less than 5% of the company’s issued share
capital. Since the 2009 Annual General Meeting no shares have been
issued under this authority. The shareholder authority also permitted
the directors to allot shares in order to satisfy entitlements under
employee share plans, and details of such allotments are noted below.
The authority to allot shares will expire at the 2010 Annual General
Meeting, and a resolution to further extend the authority is to be put
to the 2010 Annual General Meeting.
During the year, 1,152,950 ordinary shares in the company were
issued in order to satisfy entitlements under employee share plans
as follows:
>
>
436,454 under a UK SAYE share option scheme at prices
between 377.6p and 504.0p per share.
716,496 under executive share option schemes at prices
between 424.0p and 533.5p per share.
140 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier PLC
Directors’ report continued
In July 2009 the company placed 109.2m ordinary shares at 405p
per share for proceeds, net of issue costs, of £435m in connection
with the financing of the September 2008 acquisition of ChoicePoint.
The number of ordinary shares issued represented 9.9% of the
issued ordinary share capital prior to the placing. The proceeds
of the share placing together with other available resources were
applied to increase investments in Reed Elsevier Group plc and,
together with the proceeds of a comparable share placing by Reed
Elsevier NV and investment in Reed Elsevier Group plc, used to
repay the ChoicePoint acquisition facility and other short term debt.
The issued share capital as at 31 December 2009 is shown in
note 12 to the consolidated financial statements.
Substantial shareholdings
At 17 February 2010, 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:
>
>
>
Lloyds Banking Group plc
Legal & General Group plc
Silchester International Investors Limited
4.97%
3.95%
3.03%
Employee benefit trust
The Trustee of the Reed Elsevier Employee Benefit Trust held
15,350,605 ordinary shares in the company (representing 1.2% of
the issued ordinary shares) as at 31 December 2009. The trustee
may vote or abstain from voting any shares it holds in any way it
sees fit.
Authority to purchase shares
At the 2009 Annual General Meeting a resolution was passed to
permit the company to purchase 113.7 million ordinary shares in the
company (representing less than 10% of the issued ordinary shares)
by market purchase. No shares were purchased by the company
during the year and, as at 31 December 2009, 34,196,298 shares,
representing 2.74% of issued ordinary shares, were held in treasury.
The authority to make market purchases will expire at the 2010
Annual General Meeting, and a resolution to further extend the
authority is to be put to the 2010 Annual General Meeting.
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
A J Habgood (Chairman - appointed 1 June 2009)
E Engstrom (Chief Executive Officer)
M H Armour (Chief Financial Officer)
Sir Crispin Davis (retired 19 March 2009)
M W Elliott
J Hommen (resigned 21 April 2009)
L Hook
R B Polet
A Prozes
D E Reid (senior independent non-executive director)
Lord Sharman of Redlynch OBE
I R Smith (appointed 1 January 2009, resigned 11 November 2009)
B van der Veer (appointed 3 September 2009)
E Engstrom, who was appointed an executive director in 2004,
succeeded I R Smith as Chief Executive Officer in November 2009.
Biographical details of the directors at the date of this report
are given on pages 50 and 51.
Directors may be appointed by the company by ordinary resolution
of the board. A director appointed by the board holds office only
until the next following Annual General Meeting and is then eligible
for election by the shareholders. Further, at every Annual General
Meeting of the company, one third of the directors (or if their number
is not a multiple of three the number nearest to one third) shall retire
from office and, if they wish, put themselves up for re-election by the
shareholders. Subject to the company’s Articles of Association and
the Companies Act 2006 the directors to retire by rotation shall be,
first, those who wish to retire and not be re-appointed to office and,
second, those who have been longest in office since their last
appointment or re-appointment. The office of director shall be
vacated if he or she: (i) resigns; (ii) becomes bankrupt or compounds
with his or her creditors generally; (iii) is or may be suffering from
a mental illness; (iv) is prohibited by law from being a director;
or (v) is removed from office pursuant to the company’s Articles
of Association. Subject to the shareholders’ rights to appoint
individuals to the board in accordance with the company’s Articles
of Association, no individual may be appointed to the board unless
such appointment is recommended by the Nominations Committee.
Having been appointed directors since the last Annual General
Meeting, A J Habgood and B van der Veer will retire at the
forthcoming Annual General Meeting in accordance with the Articles
of Association and, being eligible, offer themselves for election.
E Engstrom, M H Armour and R Polet will retire by rotation
at the forthcoming Annual General Meeting and, being eligible,
offer themselves for re-election. The Nominations Committee
recommends the appointment or re-appointment of the five
directors. The notice period applicable to the service contract
of E Engstrom and M H Armour is 12 months. A J Habgood,
B van der Veer and R Polet do not have service contracts.
Details of directors’ remuneration and their interests in the share
capital of the company are provided in the Directors’ Remuneration
Report on pages 62 to 78.
Annual Reports and Financial Statements 2009 Reed Elsevier 141
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Directors’ report continued
Powers of directors
Subject to the provisions of the Companies Act 2006, the
company’s Articles of Association and to any directions given by
special resolution, the business of the company shall be managed
by the board which may exercise all the powers of the company.
Directors’ indemnity
In accordance with the company’s Articles of Association, the
company has granted directors an indemnity, to the extent 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.
Related party transactions
Internal controls are in place to ensure that any related party
transactions involving directors or their connected persons are
carried out on an arm’s length basis and are properly recorded.
Conflict of interest
The company’s Articles of Association permit the board to approve
situations where a director has an interest that conflicts, or may
possibly conflict, with the interests of the company. The board has
established a formal system whereby the Nominations Committee
considers and decides whether to authorise any such conflict
or potential conflict, and whether to impose limits or conditions
when giving authorisation. In reaching its decision, the Nominations
Committee is required to act in a way it considers would be most
likely to promote the success of the company.
Charitable and political donations
Through the Reed Elsevier Cares programme, which concentrates
on education for disadvantaged young people, Reed Elsevier
companies made donations during the year for charitable purposes
amounting to £2.5m (2008: £2.1m) of which £0.5m (2008: £0.5m)
was in the United Kingdom. Further information concerning the
Reed Elsevier Cares programme is available from the Reed Elsevier
Corporate Responsibility Report at www.reedelsevier.com/
CorporateResponsibility.
In the United States, Reed Elsevier companies contributed £46,000
(2008: £39,000) to political parties. There were no donations made
in the European Union for political purposes.
Financial statements and accounting records
The directors are responsible for preparing the directors’ report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors are required
to prepare the consolidated financial statements in accordance
with International Financial Reporting Standards as adopted by
the European Union and Article 4 of the IAS Regulation and have
elected to prepare the parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law). Under company law the directors must not approve the
accounts unless they are satisfied that they give a true and fair
view of the state of affairs of the company and of the profit or
loss of the company for that period.
142 Reed Elsevier Annual Reports and Financial Statements 2009
In preparing the parent company financial statements, the directors
are required to: select suitable accounting policies and then apply
them consistently; make judgments and accounting estimates
that are reasonable and prudent; state whether applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
and prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will continue
in business.
In preparing the group financial statements, IAS1 requires that
directors: properly select and apply accounting policies; present
information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and financial performance; and
make an assessment of the company’s ability to continue as a
going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and 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 Companies Act 2006.
They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and
detection of 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.
Disclosure of information to auditors
As part of the process of approving the company’s 2009 financial
statements, the directors have taken steps pursuant to section
418(2) of the Companies Act 2006 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.
Directors’ report continued
Corporate governance
The company has complied throughout the period under review
with the provisions of the Combined Code on Corporate Governance
issued in June 2008 (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 56 to 61.
Details of the role and responsibilities, membership and activities
of the Reed Elsevier Audit Committees, including the company’s
Audit Committee, are set out in the Report of the Audit Committees
on pages 79 and 80.
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
2009 financial statements. In reaching this conclusion, the directors
have had due regard to the combined businesses’ financial position
as at 31 December 2009, the strong free cash flow of the combined
businesses, Reed Elsevier’s ability to access capital markets and the
principal risks facing Reed Elsevier.
A commentary on the Reed Elsevier combined businesses’
cash flows, financial position and liquidity for the year ended
31 December 2009 is set out in the Chief Financial Officer’s
Report on pages 38 and 39. This shows that after taking account
of available cash resources and committed bank facilities that
back up short term borrowings none of Reed Elsevier’s borrowings
fall due within the next two years. Reed Elsevier’s policies on
liquidity, capital management and management of risks relating to
interest rate, foreign exchange and credit exposures are set out on
pages 42 and 43. Further information on liquidity of the combined
businesses can be found in note 19 of the combined financial
statements. The principal risks facing Reed Elsevier are set out
on pages 47 and 48.
Creditor payment policy
Reed Elsevier companies agree terms and conditions for business
transactions with suppliers, including the terms of payment. Reed
Elsevier does not operate a standard code in respect of payments
to suppliers. The average time taken to pay suppliers was between
30 and 45 days (2008: between 30 and 45 days).
Articles of Association
A special resolution will be proposed at the 2010 Annual General
Meeting of the company to approve a number of amendments to the
company’s Articles of Association, primarily to reflect the implementation
of the Shareholders’ Rights Directive in August 2009 and the
remaining provisions of the Companies Act 2006 in October 2009.
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 2010 Annual General Meeting.
By order of the board
Registered Office
Stephen J Cowden
Secretary
17 February 2010
1-3 Strand
London
WC2N 5JR
Reed Elsevier PLC
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Annual Reports and Financial Statements 2009 Reed Elsevier 143
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
Profit before tax
Taxation
Profit attributable to ordinary shareholders
Consolidated statement of comprehensive income
For the year ended 31 December
Profit attributable to ordinary shareholders
Share of joint ventures’ other comprehensive expense for year
Total comprehensive income for the year
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
Note
1
2
11
5 2
6
2009
£m
(2)
(12)
213
199
1
201
(6)
195
2009
£m
195
(2)
193
2008
£m
(1)
(11)
258
246
247
(6)
241
2008
£m
241
(48)
193
Note
2009
pence
2008
pence
8
8 –
8
8
8 –
8
17.2
17.2
17.1
17.1
21.2
0.9
22.1
21.0
0.9
21.9
144 Reed Elsevier Annual Reports and Financial Statements 2009
Consolidated statement of cash flows
For the year ended 31 December
Cash flows from operating activities
Cash used by operations
Interest received
Tax paid
Net cash used in operating activities
Cash flows from investing activities
Dividends received from joint ventures
Increase in investment in joint ventures
Net cash (used in)/from investing activities
Cash flows from financing activities
Equity dividends paid
Proceeds on issue of ordinary shares
Purchase of treasury shares
Decrease in net funding balances due from joint ventures
Net cash from/(used in) financing activities
Movement in cash and cash equivalents
–
Reed Elsevier PLC
2008
£m
(1)
(10)
(11)
500
500
(1,245)
32
(20)
744
(489)
2009
£m
(2)
–
(6)
(6)
(462) –
(462)
(228)
440
256
468
–
Note
10
2
–
7
–
10
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Annual Reports and Financial Statements 2009 Reed Elsevier 145
Consolidated statement of financial position
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, 17 February 2010.
A J Habgood
Chairman
M H Armour
Chief Financial Officer
Note
11
12
13
14
15 4
16
17
2009
£m
927
927
11
11
916
180
1,159
(317)
4
92
(202)
916
2008
£m
515
515
11
11
504
164
1,154
(347)
157
(628)
504
146 Reed Elsevier Annual Reports and Financial Statements 2009
Consolidated statement of changes in equity
Balance at 1 January 2009
Total comprehensive income
for the year
Equity dividends declared
Issue of ordinary shares,
net of expenses
Share of joint ventures’ settlement
of share awards by employee
benefit trust
Share of joint ventures’ increase
in share based remuneration
reserve
Balance at 31 December 2009
Balance at 1 January 2008
Total comprehensive income
for the year
Equity dividends declared
Issue of ordinary shares,
net of expenses
Increase in shares held in treasury
(including joint ventures)
Share of joint ventures’ settlement
of share awards by employee
benefit trust
Share of joint ventures’ increase
in share based remuneration
reserve
Equalisation adjustments
Balance at 31 December 2008
Note
7
Note
7
14
Share
capital
£m
164
Share
premium
£m
1,154
–
–
16
–
–
–
–
5
–
–
180
1,159
Share
capital
£m
163
Share
premium
£m
1,123
–
–
1
–
–
–
–
–
–
31
–
–
–
–
Shares
held in
treasury
£m
Capital
redemption
reserve
£m
(347)
–
–
–
30
–
(317)
Shares
held in
treasury
£m
(302)
–
–
–
(49)
4
–
–
4
–
–
–
–
–
4
Capital
redemption
reserve
£m
4
–
–
–
–
–
–
–
4
164
1,154
(347)
Reed Elsevier PLC
Translation
reserve
£m
Other
reserves
£m
Total equity
£m
157
(628)
504
(65)
–
258
(228)
193
(228)
–
–
–
92
419
440
(32)
(2)
9
(202)
9
916
Translation
reserve
£m
Other
reserves
£m
Total equity
£m
(37)
617
1,568
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(19)
(628)
24
(19)
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Annual Reports and Financial Statements 2009 Reed Elsevier 147
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 statement of financial position 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 89.
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 90 of the combined financial statements and
are not expected to have a significant impact on the consolidated
financial statements.
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 143.
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 56.
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 86 to 90.
Investments
Reed Elsevier PLC’s 52.9% economic interest in the net assets
of the combined businesses has been shown on the statement
of financial position 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
statement of financial position date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the
rate prevailing on the statement of financial position 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.
148 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier PLC
Notes to the consolidated financial statements
for the year ended 31 December 2009
1 Administrative expenses
Administrative expenses include £712,000 (2008: £604,000) 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 (2008: nil).
2 Effect of tax credit equalisation on distributed earnings
The tax credit equalisation adjustment arises on ordinary 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 148.
3 Auditors’ remuneration
Audit fees payable by Reed Elsevier PLC were £26,000 (2008: £26,000). 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. Transactions with key management personnel
are set out in note 34 to the combined financial statements.
5 Finance income
Finance income from joint ventures
6 Taxation
UK corporation tax
2
6
2009
£m
1
2009
£m
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% (2008: 28%)
Tax at applicable rate on share of results of joint ventures
Other
Tax expense
2009
£m
201
56
(60)
10 9
6
6
2008
£m
2008
£m
2008
£m
247
69
(72)
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Annual Reports and Financial Statements 2009 Reed Elsevier 149
Notes to the consolidated financial statements
for the year ended 31 December 2009
7 Equity dividends
Ordinary dividends declared in the year
Ordinary shares
Final for prior financial year
Interim for financial year
Total
2009
pence
15.0p
5.4p
20.4p
2008
pence
13.6p
5.3p
18.9p
2009
£m
163
65
228
2008
£m
146
58
204
The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2008: 15.0p). The cost of funding the proposed final dividend
is expected to be £180m. No liability has been recognised at the statement of financial position date.
Ordinary dividends paid and proposed relating to the financial year
Ordinary shares
Interim (paid)
Final (proposed)
Total
2009
pence
5.4p
15.0p
20.4p
2008
pence
5.3p
15.0p
20.3p
On 18 January 2008, the company paid a special distribution of 82.0p per ordinary share from the net proceeds of the disposal of the
Education division. The distribution of £1,041m was recognised when paid.
8 Earnings per ordinary share (“EPS”)
2009
2008
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
Based on 52.9% interest in 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
Weighted
average
number of
shares
(millions)
1,131.4
1,131.4
1,131.4
1,131.4
1,139.5
1,139.5
1,139.5
Earnings
£m
EPS
pence
Weighted
average
number of
shares
(millions)
1,089.5
1,089.5
1,089.5
17.2
–
17.2
18.3
1,089.5
17.1
–
17.1
1,101.3
1,101.3
1,101.3
Earnings
£m
EPS
pence
231
10
241
252
231
10
241
21.2
0.9
22.1
23.1
21.0
0.9
21.9
195
–
195
207
195
–
195
The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options
and conditional shares.
150 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier PLC
Notes to the consolidated financial statements
for the year ended 31 December 2009
8 Earnings per ordinary share (“EPS”) 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 2009 are shown below.
Year ended 31 December
Number of ordinary shares
At start of year
Share consolidation
Issue of ordinary shares
Share repurchases
Net release/(purchase) of shares by employee benefit trust
At end of year
Weighted average number of equivalent ordinary shares during the year
Shares in
issue
(millions)
Treasury
shares
(millions)
–
–
1,136.9
–
110.4
–
–
1,247.3
(54.3)
–
–
–
4.7
(49.6)
2009
Shares in
issue net of
treasury
shares
(millions)
1,082.6
110.4
4.7
1,197.7
1,131.4
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
9 Adjusted figures
Adjusted profit and earnings per share figures are used by management 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
Impairment of acquired intangible assets and goodwill
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
2009
£m
195
12
207
217
72
70
18
(12)
(53)
519
2008
£m
241
11
252
168
5
59
16
23
(37)
486
2009
pence
17.2
1.1
18.3
19.2
6.4
6.2
1.6
(1.1)
(4.7)
45.9
2008
pence
22.1
1.0
23.1
15.4
0.5
5.4
1.5
2.1
(3.4)
44.6
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Annual Reports and Financial Statements 2009 Reed Elsevier 151
Notes to the consolidated financial statements
for the year ended 31 December 2009
10 Statement of cash flows
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 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
Settlement of share awards by employee benefit trust
Equalisation adjustments
Dividends received from joint ventures
Increase in investment in joint ventures
Decrease in net funding balances due from joint ventures
Net movement in the year
At start of year
At end of year
–
–
1
–
9
–
2009
£m
(2)
–
(2)
2009
£m
777
(256)
521
2009
£m
213
(47)
–
44
(2) –
(12)
462 –
(256)
412
515
927
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
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
2009
£m
6,071
395
2008
£m
5,334
480
2009
£m
3,212
213
2008
£m
2,822
258
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 (2008: £6m).
152 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier PLC
Notes to the consolidated financial statements
for the year ended 31 December 2009
11 Investments in joint ventures continued
Total assets
Total liabilities
Net assets/(liabilities)
Attributable to:
Joint ventures
Non-controlling interests
Funding balances due from joint ventures
Total
Total joint ventures
Reed Elsevier PLC
shareholders’ share
2009
£m
11,334
(9,575)
1,759
1,732
27
1,759
2008
£m
12,866
(11,885)
981
953
28 –
981
2009
£m
5,996
(5,590)
406
406
406
521
927
2008
£m
6,806
(7,068)
(262)
(262)
–
(262)
777
515
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 £388m (2008: £198m) and borrowings of £2,489m (2008: £3,249m) respectively.
12 Share capital
Authorised
Ordinary shares of 1451⁄116p each
Unclassified shares of 1451⁄116p each
Total
No. of shares
1,247,275,833
790,796,375
£m
180
114
294
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
1,136,924,693
–
110,351,140
1,247,275,833
2009
£m
No. of shares
164 1,305,891,497
(175,418,253)
6,451,449
–
16
180
1,136,924,693
2008
£m
163
–
1
164
The issue of ordinary shares relates to the exercise of share options and the share placing in 2009. Details of share option and conditional
share schemes are set out in note 7 to the Reed Elsevier combined financial statements.
A share placing was announced on 30 July 2009 for up to 109,198,190 new ordinary shares representing approximately 9.9% of the
company’s share capital prior to the placing. The shares were fully subscribed at a price of 405p per share, raising £435m net of issue
costs of £7m. No share premium was recognised in the company as it took advantage of section 612 of the Companies Act 2006 regarding
merger relief. Accordingly, the excess of the net proceeds received over the nominal value of the share capital issued is added to other
reserves rather than credited to the share premium account and is distributable.
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.
Details of shares held in treasury are provided in note 14.
Annual Reports and Financial Statements 2009 Reed Elsevier 153
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Notes to the consolidated financial statements
for the year ended 31 December 2009
13 Share premium
At start of year
Issue of ordinary shares, net of expenses
At end of year
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
5
–
–
Further 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
4
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
Issue of ordinary shares, net of expenses
Share of joint ventures’:
Actuarial gains/(losses) 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
–
3
–
1
9
–
2009
£m
1,154
1,159
2009
£m
347
(30)
317
2009
£m
2009
£m
157
(65)
92
2009
£m
(628)
195
419 –
–
28
(13)
(32)
44
(228)
(202)
2008
£m
1,123
31
1,154
2008
£m
302
20
29
(4)
347
2008
£m
4
2008
£m
(37)
180
14
157
2008
£m
617
241
(184)
(5)
(129)
84
24
(4)
(8)
(19)
(1,245)
(628)
154 Reed Elsevier Annual Reports and Financial Statements 2009
Notes to the consolidated financial statements
for the year ended 31 December 2009
18 Contingent liabilities
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
Reed Elsevier PLC
2009
£m
4,381
2008
£m
5,765
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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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
£14,634 ordinary R shares
£14,634 ordinary E shares
£100,000 7.5% cumulative preference non voting shares
100%
–
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.
20 Principal subsidiary
Reed Holding BV
Incorporated in the Netherlands
Radarweg 29
1043 NX Amsterdam, the Netherlands
191 ordinary shares
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At 31 December 2009 Reed Holding BV owned 4,303,179 (2008: 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.
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Annual Reports and Financial Statements 2009 Reed Elsevier 155
Independent auditors’ report on the consolidated
financial statements to the members of Reed Elsevier PLC
Opinion on financial statements
In our opinion the consolidated financial statements:
>
give a true and fair view of the state of the group’s affairs as
at 31 December 2009 and of its profit for the year then ended;
>
>
have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion the information given in the Directors’ Report for
the financial year for which the financial statements are prepared
is consistent with the consolidated financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
>
certain disclosures of directors’ remuneration specified by law
are not made; or
>
we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement contained within the Structure and
Corporate Governance report in relation to going concern; and
the part of the Structure and Corporate Governance report relating
to the company’s compliance with the nine provisions of the 2006
Combined Code specified for our review.
Douglas King (Senior statutory auditor)
For and on behalf of
Deloitte LLP
Chartered Accountants and Statutory Auditors
London
United Kingdom
17 February 2010
We have audited the consolidated financial statements of
Reed Elsevier PLC for the year ended 31 December 2009 (“the
consolidated financial statements”), which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of cash flows, the consolidated
statement of financial position, the consolidated statement of
changes in equity, the group accounting policies and the related
notes 1 to 20. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the
European Union.
We have reported separately on the individual parent company
financial statements of Reed Elsevier PLC for the year ended
31 December 2009 and on the information in the parts of the
Directors’ Remuneration Report presented in the Reed Elsevier
Annual Reports and Financial Statements 2009 that are described
as having been audited.
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members
as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for preparing the Annual Report and
the consolidated financial statements and for being satisfied that
they give a true and fair view.
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). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements.
156 Reed Elsevier Annual Reports and Financial Statements 2009
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
2009
£m
309
1,702
2,011
521
521
(11)
(77)
(88)
433
2,444
180
1,159
(224)
138
1,187
2,444
The parent company financial statements were approved by the Board of directors, 17 February 2010.
A J Habgood
Chairman
M H Armour
Chief Financial Officer
Parent company reconciliation of shareholders’ funds
Share
capital
£m
Share
premium
account
£m
Shares
held in
treasury
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Profit
and loss
reserve
£m
At 1 January 2008
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of ordinary shares, net of expenses
Equity instruments granted to employees
of combined businesses
At 1 January 2009
Profit attributable to ordinary shareholders
Equity dividends paid
Issue of ordinary shares, net of expenses
Equity instruments granted to employees
of combined businesses
At 31 December 2009
163
–
–
–
1
–
164
–
–
16
–
180
1,123
–
–
–
31
–
1,154
–
–
5
–
1,159
(204)
–
–
(20)
–
–
(224)
–
–
–
–
(224)
4
–
–
–
–
–
4
–
–
–
–
4
106
–
–
–
–
23
129
–
–
–
9
138
1,753
494
(1,245)
–
–
–
1,002
(6)
(228)
419
Reed Elsevier PLC
2008
£m
303
1,237
1,540
777
777
(11)
(77)
(88)
689
2,229
164
1,154
(224)
4
129
1,002
2,229
Total
£m
2,945
494
(1,245)
(20)
32
23
2,229
(6)
(228)
440
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1,187
2,444
Annual Reports and Financial Statements 2009 Reed Elsevier 157
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 Practice (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 143.
As permitted by section 408 of the Companies Act 2006, the
company has not presented its own profit and loss account.
The Reed Elsevier PLC accounting policies under UK GAAP are
set out below.
Investments
Fixed asset investments in the Reed Elsevier combined businesses
are stated at cost, less provision, if appropriate, for any impairment
in value. 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 are treated as a capital
contribution.
Principal joint ventures and subsidiaries are set out in notes 19
and 20 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 2008
Equity instruments granted to Reed Elsevier employees
At 1 January 2009
Increase in investments
Equity instruments granted to Reed Elsevier employees
At 31 December 2009
Subsidiary
undertaking
£m
Joint
ventures
£m
303
–
303
6
–
309
1,214
23
1,237
456
9
1,702
Total
£m
1,517
23
1,540
462
9
2,011
158 Reed Elsevier Annual Reports and Financial Statements 2009
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 2009 (“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 158. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice, or “UK GAAP”).
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
>
>
the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is consistent
with the parent company financial statements.
We have also audited the information in the parts of the Directors’
Remuneration Report presented in the Reed Elsevier Annual
Reports and Financial Statements 2009 (“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 2009.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent
>
company; or
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. 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.
>
>
>
the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or
we have not received all the information and explanations we
require for our audit.
Douglas King (Senior statutory auditor)
For and on behalf of
Deloitte LLP
Chartered Accountants and Statutory Auditors
London
United Kingdom
17 February 2010
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement
the directors are responsible for the preparation of the parent
company financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit the parent
company financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements.
Opinion on financial statements
In our opinion the parent company financial statements:
>
give a true and fair view of the state of the parent company’s
affairs as at 31 December 2009 and of its loss for the year
then ended;
> have been properly prepared in accordance with UK GAAP; and
>
have been prepared in accordance with the requirements of the
Companies Act 2006.
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Annual Reports and Financial Statements 2009 Reed Elsevier 159
5 year summary
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 ordinary share (pence)
Note
2
2
2
3
4
3
4
5
2009
£m
6,071
787
1,570
391
982
195
519
17.2p
45.9p
20.4p
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
(1) Adjusted figures are presented as additional performance measures used by management and are stated before amortisation and
impairment of acquired intangible assets and goodwill, 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
also 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 ordinary share is based on the interim dividend and proposed final dividend for the relevant year, and does not include
the 82.0p per share special distribution in 2008.
160 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV annual report and
financial statements
162 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
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Annual Reports and Financial Statements 2009 Reed Elsevier 161
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 joint report, together
with the financial statements of the group and of the company,
for the year ended 31 December 2009.
As a consequence of the merger of the company’s businesses
with those of Reed Elsevier PLC in 1993, described on page 56,
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 137, which are
incorporated by reference herein. Summary combined financial
information in euros is set out on pages 123 to 137. The combined
financial statements on pages 82 to 122 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 162 to 165 and, incorporated by
reference, pages 4 to 137. The Corporate Governance Statement
of Reed Elsevier NV dated 17 February 2010 is published on the
Reed Elsevier website (www.reedelsevier.com) and is incorporated by
reference herein as per the Vaststellingsbesluit nadere voorschriften
inhoud jaarverslag January 2010 article 2a under 1 sub b.
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.
In addition to the reported figures, adjusted profit figures are
presented as additional performance measures used by
management. These exclude, in relation to the results of joint
ventures, the company’s share of amortisation and impairment
of acquired intangible assets and goodwill, 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 €716m, down from €759m in 2008
reflecting Reed Elsevier’s flat adjusted operating profit performance
and higher net interest expense. Reported profit before tax, including
the Reed Elsevier NV shareholders’ share of amortisation and
impairment charges, exceptional restructuring and acquisition
related costs and disposals and non operating items, was €217m
(2008: €313m, including the share of the gain on disposal of the
educational assessment business). Elsevier had a relatively robust
year with good subscription renewals from 2008, growing online
sales in medical reference, clinical decision support and nursing
and health professional education, partly held back by weak pharma
promotion markets. LexisNexis had a challenging year with the core
law firm business flat in the US and marginally lower internationally
whilst the US directory listings business was well behind the prior
year. Corporate, government and academic markets were lower.
ChoicePoint made an excellent contribution in its first year,
growing its profits strongly and boosting overall revenue and
adjusted operating profits. Reed Exhibitions had a difficult year
with customers cutting back on promotional expenditure and the
net cycling out of biennial exhibitions. Reed Business Information
had a very tough year with advertising markets severely impacted
by the economic recession. Significant restructuring and cost
actions were taken across Reed Elsevier mitigating the impact
of underlying revenue decline, with adjusted operating margin flat.
Reed Elsevier NV’s shareholders’ share of the adjusted profit
attributable of the total operations of the combined businesses was
€550m, down from €580m in 2008. After deducting the company’s
share of the post tax charge for amortisation and impairment of
acquired intangible assets and goodwill, exceptional restructuring
and acquisition integration costs, disposals and other non operating
items and deferred taxes not expected to crystallise in the near term,
the reported net profit for the year was €219m, down from €294m
in 2008. The decrease largely reflects the intangible asset and
goodwill impairment charges in respect of Reed Business Information’s
US controlled circulation titles and International businesses.
Adjusted earnings per share decreased 9% to €0.79 (2008: €0.87).
At constant rates of exchange, the adjusted earnings per share
were 9% lower. Including the effect of the tax credit equalisation
as well as amortisation and impairment of acquired intangible assets
and goodwill, exceptional restructuring and acquisition related costs,
disposals and other non operating items, and tax adjustments,
the basic earnings per share was €0.32 (2008: €0.44).
162 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Report of the Supervisory Board and the Executive Board continued
Consolidated statement of financial position
The consolidated statement of financial position of Reed Elsevier NV
reflects its 50% economic interest in the net assets of Reed Elsevier
which as at 31 December 2009 was €970m (2008: €491m).
The €479m increase in net assets reflects the company’s share
in the attributable profits of Reed Elsevier and the equity placing
in the year partially offset by dividends paid.
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 practice (UK GAAP). The profit attributable
to the shareholders of Reed Elsevier NV was €22m (2008: €1,255m,
including dividends received from joint ventures of €1,200m) and
net assets as at 31 December 2009, 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 €4,065m (2008: €3,823m). Free reserves as at 31 December
2009 were €3,833m (2008: €3,605m), comprising reserves and
paid-in surplus less shares held in treasury.
Dividends
The Combined Board is recommending an equalised final dividend
of €0.293 per ordinary share, up 1% compared with the prior year.
This gives total ordinary dividends for the year of €0.400 (2008: €0.404),
down 1% on 2008. The final dividend will be paid on 28 May 2010.
Dividend cover, based on adjusted earnings per share and the
total interim and proposed final dividends for the year, is 2.0 times.
The boards of the company and Reed Elsevier PLC have adopted
dividend policies in recent years in respect of their equalised
dividends that, subject to currency considerations, grow dividends
broadly in line with adjusted earnings per share whilst maintaining
dividend cover (being the number of times the annual dividend is
covered by the adjusted earnings per share) of at least two times
over the longer term.
The total dividend paid on the ordinary shares in the financial year
was €260m (2008: €1,569m, including the special distribution
described below of €1,299m).
Special distribution and share consolidation
On 18 January 2008 the company paid a special distribution of
€1.767 per ordinary share from the net proceeds of the disposal of
the Education division. The distribution of €1,299m was recognised
when paid. On the same day, Reed Elsevier PLC paid a €1,391m
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 €0.07 for every 67 existing ordinary existing shares of €0.06,
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 capital
On 30 July 2009, a share placing was announced by Reed Elsevier
NV and Reed Elsevier PLC representing approximately 9.9%
of each company’s share capital. The share placings were fully
subscribed at a price of €7.08 and 405p per ordinary share
respectively. Reed Elsevier NV issued 63,030,989 new ordinary
shares through the placing and the shares were listed on Euronext
Amsterdam as of 4 August 2009. The total of outstanding ordinary
shares of Reed Elsevier NV was 723,662,051 after the placing.
Correspondingly Reed Elsevier NV also issued 252,459 new
R shares and transferred 135,179 existing R shares held in treasury
to Reed Holding BV at a price of €73.00 per share. The equity
placing raised €470m (including €29m in respect of R shares) for
Reed Elsevier NV and £435m for Reed Elsevier PLC, net of costs.
The excess of net proceeds over the nominal value of shares issued
has been included in paid-in surplus.
During 2009, 32,450 ordinary shares in the company were
issued under convertible debentures at prices between €7.35
and €8.86 per share.
Information regarding shares outstanding at 31 December 2009
is shown in note 13 to the consolidated financial statements.
As at 31 December 2009 32,171,987 of the ordinary shares were
held in treasury including 8,219,196 held by the Reed Elsevier Group
plc Employee Benefit Trust. No R shares were held in treasury.
As at 17 February 2010, 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.
Corporate Governance
Reed Elsevier NV and Reed Elsevier PLC are subject to various
corporate governance principles and best practice codes, in particular
the Dutch Corporate Governance Code (the Dutch Code) and the
UK Combined Code (the UK Code). Reed Elsevier NV may not apply
fully the verbatim language of these codes, but does fully apply
the principles and best practice provisions other than, in respect
of the Dutch Code, the following for reasons explained below:
> Best practice provision II.2.5: 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 Dutch Code. Shares received
on joining Reed Elsevier in compensation for benefits forfeited
under incentive schemes from a previous employer are not to be
considered as part of the minimum shareholding in this context.
Annual Reports and Financial Statements 2009 Reed Elsevier 163
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Report of the Supervisory Board and the Executive Board continued
> 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 in real time. Price
sensitive and other information relevant to shareholders is disclosed
as required or as appropriate and made available on the website.
For further information on the application of the Dutch Code, see the
Corporate Governance Statement of Reed Elsevier NV published on
the Reed Elsevier website, www.reedelsevier.com.
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
and Executive Boards during the year:
The Supervisory Board
A Habgood (Chairman –
appointed 1 June 2009)
G de Boer-Kruyt
M Elliott
L Hook
M van Lier Lels (appointed
13 January 2010)
The Executive Board
E Engstrom (Chairman and
Chief Executive Officer
from 11 November 2009)
I Smith (Chairman and
Chief Executive Officer,
appointed 22 April 2009,
resigned 11 November 2009)
Sir Crispin Davis
(Chairman and
R Polet
D Reid
Lord Sharman of Redlynch OBE Chief Executive Officer,
retired 19 March 2009)
B van der Veer (appointed
M Armour
3 September 2009)
(Chief Financial Officer)
J Hommen (Chairman –
A Prozes
resigned 22 April 2009)
Biographical details of the directors at the date of this report
are given on pages 50 and 51. 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 62 to 78.
> Best practice provision II.2.8: Reed Elsevier has arrangements
that are commensurate with local and legal requirements to
ensure a competitive employment offer to its board members.
Executive directors have employment agreements under English
or New York law that provide for notice periods not exceeding one
year. There are currently no executive directors with employment
agreements under Dutch law. In the event of dismissal, notice is
given in accordance with the agreed notice period. The payment
during the notice period may be mitigated if the director finds other
employment within this period. The application of this arrangement
may fall within the best practice provision that remuneration in
the event of dismissal may not exceed the fixed component of
one year’s salary. There are no other severance arrangements
in place for the executive directors and none of the employment
agreements contain severance pay arrangements. Although
the principle that severance pay should not exceed the fixed
component of one year’s salary is supported, there may be
exceptional circumstances where this maximum would be
manifestly unreasonable that could justify additional compensation
on termination for loss of variable remuneration components.
Full disclosure on remuneration in event of dismissal is provided
in the Director’s Remuneration Report in the Reed Elsevier
Annual Reports and Financial Statements 2009.
> Best practice provisions II.2.13 and II.2.14: 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.
> Principle III.5: Until his retirement in March 2009, the Chairman
of the Executive Board was a member of the Nominations
Committee (see pages 58 and 59).
> 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
and removal procedures for members of the Executive Board and
the Supervisory Board are set out in the Corporate Governance
Statement 2009. In order to safeguard the agreed board
harmonisation with the Board of Reed Elsevier PLC, the Articles
of Association of Reed Elsevier NV provide that a resolution of
the General Shareholders’ Meeting to appoint a member of the
Executive or Supervisory Board other than in accordance with
the proposal of the Combined Board shall require a majority
of at least two-thirds of the votes cast if less than one-half of the
company’s issued capital is represented at the meeting. 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.
164 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Report of the Supervisory Board and the Executive Board continued
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 2009
and of the profit or loss in 2009. 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 company and to prevent and detect fraud and other irregularities.
Internal control
As required under sections II.1.4. and II.1.5. of the Dutch 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 as regards financial reporting, 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, that:
>
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 as at 31 December 2009 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 arises under Dutch law.
Disclosure of information to auditors
As part of the process of approving the company’s 2009 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.
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 2009 financial statements. In reaching this conclusion,
the Combined Board has had due regard to the combined
businesses’ financial position as at 31 December 2009, the strong
free cash flow of the combined businesses, Reed Elsevier’s ability
to access capital markets and the principal risks facing Reed Elsevier.
A commentary on the Reed Elsevier combined businesses’
cash flows, financial position and liquidity for the year ended
31 December 2009 is set out in the Chief Financial Officer’s Report
on pages 38 and 39. This shows that after taking account of
available cash resources and committed bank facilities that back up
short term borrowings none of Reed Elsevier’s borrowings fall
due within the next two years. Reed Elsevier’s policies on liquidity,
capital management and management of risks relating to interest
rate, foreign exchange and credit exposures are set out on pages 42
and 43. Further information on liquidity of the combined businesses
can be found in note 19 of the combined financial statements. The
principal risks facing Reed Elsevier are set out on pages 47 and 48.
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.
The Executive Board
E Engstrom (Chairman and
Chief Executive Officer
from 11 November 200
M Armour
(Chief Financial Officer)
A Prozes
Signed by:
The Supervisory Board
A Habgood (Chairman –
appointed 1 June 2009)
G de Boer-Kruyt
M Elliott
L Hook
M van Lier Lels
(appointed 13 January 2010)
R Polet
D Reid
Lord Sharman of Redlynch OBE
B van der Veer
(appointed 3 September 2009)
Registered office
Radarweg 29
1043 NX The Netherlands
Chamber of Commerce Amsterdam
Register file No: 33155037
17 February 2010
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Annual Reports and Financial Statements 2009 Reed Elsevier 165
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
Consolidated statement of comprehensive income
For the year ended 31 December
Profit attributable to ordinary shareholders
Share of joint ventures’ other comprehensive income/(expense) for the year
Total comprehensive income for the year
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 statement of cash flows
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
Increase in investment in joint ventures
Net cash (used in)/from investing activities
Cash flows from financing activities
Equity dividends paid
Proceeds on issue of ordinary shares
Purchase of treasury shares
Decrease in net funding balances due from joint ventures
Net cash from/(used in) financing activities
Movement in cash and cash equivalents
166 Reed Elsevier Annual Reports and Financial Statements 2009
Note
2
11
5
6 2
Note
8
8 –
8
8
8 –
8
Note
10
–
7
–
10
2008
um
(3)
239
236
77
313
(19)
294
2008
um
294
(232)
62
2008
u
u0.43
u0.01
u0.44
u0.43
u0.01
u0.44
2008
um
(2)
78
(17)
59
1,200
1,200
(1,569)
27
(25)
311
(1,256)
2009
Jm
(2)
197
195
22
217
219
2009
Jm
219
42
261
2009
J
J0.32
J0.32
J0.31
J0.31
2009
Jm
(2)
24
(8)
14
(531) –
(531)
(260)
470
298
508
(9) 3
Consolidated statement of financial position
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 changes in equity
Reed Elsevier NV
Note
2009
Jm
2008
um
11
1,031
551
2
3
4
5
1,036
10
56
66
970
53
2,168
(434)
(153)
(664)
970
12
13
14
15
16
17
Note
7
Note
7
15
Balance at 1 January 2009
Total comprehensive income for the year
Equity dividends declared
Issue of ordinary shares, net of expenses
Share of joint ventures’ settlement of
share awards by employee benefit trust
Share of joint ventures’ increase in
share based remuneration reserve
Exchange translation differences
Balance at 31 December 2009
Balance at 1 January 2008
Total comprehensive income for the year
Equity dividends declared
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
(including joint ventures)
Share of joint ventures’ settlement of
share awards by employee benefit trust
Share of joint ventures’ increase in
share based remuneration reserve
Equalisation adjustments
Exchange translation differences
Balance at 31 December 2008
Share
capital
Jm
Paid-in
surplus
Jm
Shares held
in treasury
Jm
Translation
reserve
Jm
Other
reserves
Jm
49
–
–
4
–
–
–
1,712
–
–
456
–
–
–
53
2,168
(477)
–
–
21
32
–
(10)
(434)
(138)
(25)
–
–
–
–
10
(655)
286
(260)
(11)
(34)
10
–
(153)
(664)
Shares held
in treasury
um
Translation
reserve
um
Share
capital
um
49
–
–
–
–
–
–
–
–
Paid-in
surplus
um
1,685
–
–
27
–
–
–
–
–
(459)
–
–
–
(59)
5
–
–
36
49
1,712
(477)
Other
reserves
um
900
5
(1,569)
–
–
(5)
29
(15)
–
(655)
(159)
57
–
–
–
–
–
–
(36)
(138)
Annual Reports and Financial Statements 2009 Reed Elsevier 167
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12
16
567
10
66
76
491
49
1,712
(477)
(138)
(655)
491
Total
equity
Jm
491
261
(260)
470
(2)
10
–
970
Total
equity
um
2,016
62
(1,569)
27
(59)
–
29
(15)
–
491
Group accounting policies
These consolidated financial statements, which have been
prepared under the historic cost convention, report the consolidated
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.
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.
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 82 to 122 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 123 to 137.
As a consequence of the merger of the company’s businesses with
those of Reed Elsevier PLC, described on page 56, 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.
Combined financial statements
The accounting policies adopted in the preparation of the combined
financial statements are set out on pages 86 to 90.
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
statement of financial position 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
statement of financial position date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the
rate prevailing on the statement of financial position 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 statement of financial position date.
168 Reed Elsevier Annual Reports and Financial Statements 2009
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 89.
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 90 of the combined financial statements and
are not expected to have a significant impact on the consolidated
financial statements.
Reed Elsevier NV
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Annual Reports and Financial Statements 2009 Reed Elsevier 169
Notes to the consolidated financial statements
for the year ended 31 December 2009
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
Note
2009
2008
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
(i) –
£391m
£476m
J438m
(
J438m
J219m
u600m
u13)m
u587m
u294m
(i)
The combined financial statements for the year ended 31 December 2008 included gains on disposal of discontinued operations which,
due to their individual significance, were 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 included cumulative currency translation losses since adoption of IFRS previously
taken to reserves. Consequently, the gains expressed in euros were u13m 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
2009
2008
£1,732m
£953m
J1,940m
J970m
u982m
u491m
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
(2008: 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 (2008: nil).
3 Auditors’ remuneration
Audit fees payable by Reed Elsevier NV were u48,000 (2008: u48,000). 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.
170 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Notes to the consolidated financial statements
for the year ended 31 December 2009
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. Transactions
with key management personnel are set out in note 34 to the combined financial statements.
5 Finance income
Finance income from joint ventures
6 Taxation
2009
Jm
22
2008
um
77
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% (2008: 25.5%)
Tax at applicable rate on share of results of joint ventures
Other
Tax (credit)/expense
7 Equity dividends
Ordinary dividends declared in the year
Ordinary shares
Final for prior financial year
Interim for financial year
Total
R shares
2009
Jm
217
55
(50)
(7) –
(2)
2009
Jm
185
75
260
–
2008
um
313
80
(61)
19
2008
um
198
72
270
2009
J
2008
u
J0.290
J0.107
J0.397
–
u0.311
u0.114
u0.425
–
–
The directors of Reed Elsevier NV have proposed a final dividend of u0.293 (2008: u0.290). The cost of funding the proposed final dividend
is expected to be u205m. No liability has been recognised at the statement of financial position date.
Ordinary dividends paid and proposed relating to the financial year
Ordinary shares
Interim (paid)
Final (proposed)
Total
R shares
2009
J
2008
u
J0.107
J0.293
J0.400
–
–
u0.114
u0.290
u0.404
On 18 January 2008, the company paid a special distribution of u1.767 per ordinary share from the net proceeds of the disposal of the
Education division. The distribution of u1,299m was recognised when paid.
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Annual Reports and Financial Statements 2009 Reed Elsevier 171
Notes to the consolidated financial statements
for the year ended 31 December 2009
8 Earnings per ordinary share (“EPS”)
2009
2008
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
693.9
693.9
693.9
698.7
698.7
698.7
219
–
219
219
–
219
Weighted
average
number of
shares
(millions)
669.0
669.0
669.0
674.9
674.9
674.9
EPS
J
J0.32
–
J0.32
J0.31
–
J0.31
Earnings
um
289
5
294
289
5
294
EPS
u
u0.43
u0.01
u0.44
u0.43
u0.01
u0.44
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 2009 are shown below.
Number of ordinary shares
At start of year
Share consolidation
Issue of ordinary shares
Share repurchases
Net release/(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)
660.6
–
63.1
–
–
723.7
(35.2)
–
–
–
3.0
(32.2)
–
–
2009
Shares in
issue net of
treasury
shares
(millions)
2008
Shares in
issue net of
treasury
shares
(millions)
625.4
63.1
3.0
691.5
693.9
724.9
(97.4)
2.4
(2.1)
(2.4)
625.4
669.0
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.
172 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Notes to the consolidated financial statements
for the year ended 31 December 2009
9 Adjusted figures
Adjusted profit and earnings per share figures are used by management as additional performance measures. The adjusted figures are
derived as follows:
Profit attributable to
ordinary shares
Basic earnings
ordinary shares
Earnings per share from the total operations of the combined businesses
Reported figures
Share of adjustments in joint ventures:
Amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
Exceptional restructuring costs
Acquisition related costs
Disposals and other non operating items
Deferred tax adjustments
Adjusted figures
2009
Jm
219
230
76
75
19
(13)
(56)
550
10 Statement of cash flows
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
2008
um
294
201
5
70
19
34
(43)
580
–
2009
J
J0.32
J0.33
J0.11
J0.10
J0.03
J(0.02)
J(0.08)
J0.79
2009
Jm
(2)
1
(2)
2009
Jm
1,553
(298)
1,255
2008
u
u0.44
u0.30
u0.01
u0.10
u0.03
u0.05
u(0.06)
u0.87
2008
um
(3)
(2)
2008
um
1,864
(311)
1,553
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Annual Reports and Financial Statements 2009 Reed Elsevier 173
Notes to the consolidated financial statements
for the year ended 31 December 2009
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
Settlement of share awards by employee benefit trust
Equalisation adjustments
Dividends received from joint ventures
Increase in investment in joint ventures
Increase in net funding balances due from joint ventures
Net movement in the year
At start of year
At end of year
–
1
–
–
–
2009
Jm
197
(6)
–
47
10
(2) –
531 –
(298)
480
551
1,031
2008
um
239
(250)
27
(9)
(34)
29
(15)
(1,200)
(311)
(1,524)
2,075
551
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
2009
Jm
6,800
442
2008
um
6,721
592
2009
Jm
3,400
197
2008
um
3,361
239
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 u22m (2008: u55m).
Total assets
Total liabilities
Net assets/(liabilities)
Attributable to:
Joint ventures
Non-controlling interests
Net funding balances due from joint ventures
Total
Total joint ventures
Reed Elsevier NV
shareholders’ share
2009
Jm
12,694
(10,724)
1,970
1,940
30
1,970
2008
um
13,251
(12,241)
1,010
981
29
1,010
2009
Jm
6,342
(6,566)
(224)
(224)
– –
(224)
1,255
1,031
2008
um
6,610
(7,612)
(1,002)
(1,002)
(1,002)
1,553
551
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 u408m (2008: u181m) and borrowings of u2,625m (2008: u3,153m) respectively.
12 Payables
Included within payables are employee convertible debenture loans of u10m (2008: u10m) with a weighted average interest rate of 4.04%
(2008: 5.28%). 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.
174 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Notes to the consolidated financial statements
for the year ended 31 December 2009
13 Share capital
Authorised
Ordinary shares of u0.07 each
R shares of u0.70 each
Total
Issued and fully paid
At 1 January 2008
Share consolidation
Issue of ordinary shares
At 1 January 2009
Issue of ordinary shares
At 31 December 2009
No. of shares
1,800,000,000
26,000,000
R shares
Number
Ordinary
shares
Number
R shares
Jm
Ordinary
shares
Jm
4,679,249
(628,529)
–
760,250,364
(102,123,146)
2,502,244
4,050,720
252,459
660,629,462
63,063,439
4,303,179 723,692,901
3
–
–
3
–
3
46
–
–
46
4
50
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s
i
Jm
126
18
144
Total
Jm
49
–
–
49
4
53
The issue of shares relates to the exercise of share options and the share placing in 2009. Details of share option and conditional share
schemes are set out in note 7 to the Reed Elsevier combined financial statements.
A share placing was announced on 30 July 2009 for up to 63,030,989 new ordinary shares representing approximately 9.9% of the
company’s share capital prior to the placing. The shares were fully subscribed at a price of u7.08 per share, raising u441m net of issue costs
of u5m. The excess of the net proceeds received over the nominal value of the share capital issued has been credited to paid-in surplus.
252,459 new R shares were also issued for total proceeds of u18m.
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.
Details of shares held in treasury are provided in note 15.
At 31 December 2009 4,303,179 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 and each R share carries an entitlement to cast ten votes. 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 u1,991m (2008: u1,535m) is free of tax.
15 Shares held in treasury
At start of year
Share repurchases
Release of R shares from treasury
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
2009
Jm
1,712
456
2,168
2008
um
1,685
27
1,712
2009
Jm
477
–
(21) –
–
(32)
10
434
2008
um
459
25
34
(5)
(36)
477
Further details of shares held in treasury are provided in note 31 to the Reed Elsevier combined financial statements.
Annual Reports and Financial Statements 2009 Reed Elsevier 175
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Notes to the consolidated financial statements
for the year ended 31 December 2009
16 Translation reserve
At start of year
Share of joint ventures’ exchange differences on translation of foreign operations
Exchange translation differences on capital and reserves
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
Issue of ordinary shares, net of expenses
Share of joint ventures’:
Actuarial gains/(losses) 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
–
4
–
1
–
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
2009
Jm
(138)
(25)
10
(153)
2009
Jm
(655)
219
(11) –
–
29
(14)
10
(34)
47
(260)
(664)
2008
um
(159)
30
(36)
27
(138)
2008
um
900
294
(219)
(6)
(153)
98
29
(5)
(9)
(15)
(1,569)
(655)
2009
Jm
4,913
2008
um
5,917
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.
176 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Notes to the consolidated financial statements
for the year ended 31 December 2009
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
£14,634 ordinary R shares
£14,634 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 17 February 2010.
A J Habgood
Chairman of the Supervisory Board
and the Combined Board
M H Armour
Chief Financial Officer
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Annual Reports and Financial Statements 2009 Reed Elsevier 177
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 2009, 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 is
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
17 February 2010
Report on the consolidated financial statements
We have audited the accompanying consolidated financial
statements 2009 which are part of the financial statements of
Reed Elsevier NV, Amsterdam, which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated statement of cash flows, the consolidated
statement of financial position, the consolidated statement of
changes in equity, 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.
178 Reed Elsevier Annual Reports and Financial Statements 2009
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
2
3
Reed Elsevier NV
–
2009
Jm
(2)
22
22
2008
um
(3)
1,200
77
(19)
1,255
Note
2009
Jm
2008
um
2,871
2,330
1,255
1,553
2
4
1,257
1
1,260
(56)
(10)
(66)
1,194
4,065
53
2,168
(336)
179
2,001
4,065
1,557
12
1,569
(66)
(10)
(76)
1,493
3,823
49
1,712
(357)
169
2,250
3,823
The parent company financial statements were signed and authorised for issue by the Combined Board of directors on 17 February 2010.
A J Habgood
Chairman of the Supervisory Board
M H Armour
Chief Financial Officer
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Annual Reports and Financial Statements 2009 Reed Elsevier 179
Parent company reconciliation of shareholders’ funds
At 1 January 2008
Profit attributable to ordinary shareholders
Equity dividends paid
Purchase of shares
Issue of shares, net of expenses
Equity instruments granted to employees
of combined businesses
At 1 January 2009
Profit attributable to ordinary shareholders
Equity dividends paid
Release of shares
Issue of shares, net of expenses
Equity instruments granted to employees
of combined businesses
At 31 December 2009
Share capital
issued
Jm
Paid-in
surplus(i)
Jm
Shares held
in treasury
Jm
49
–
–
–
–
–
49
–
–
–
4
–
53
1,685
–
–
–
27
–
1,712
–
–
–
456
–
2,168
(332)
–
–
(25)
–
–
(357)
–
–
21
–
–
(336)
Other
reserves(iii)
Jm
139
–
–
–
–
30
169
–
–
–
–
10
179
Reserves
Jm
2,564
1,255
(1,569)
–
–
–
2,250
22
(260)
–
(11)
–
2,001
Total
Jm
4,105
1,255
(1,569)
(25)
27
30
3,823
22
(260)
21
449
10
4,065
(i) Within paid-in surplus, an amount of u1,991m (2008: u1,535m) is free of tax.
(ii) Free reserves of the company at 31 December 2009 were u3,833m (2008: u3,605m), comprising reserves and paid-in surplus less
shares held in treasury.
(iii) Other reserves relate to equity instruments granted to employees of the combined businesses under share based remuneration
arrangements. Other reserves do not form part of free reserves.
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.
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 Practice
(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.
Investments
Fixed asset investments in the combined businesses are stated at
cost, less provision, if appropriate, for any impairment in value. 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 are treated as a capital contribution.
Principal joint ventures are set out in note 19 of the Reed Elsevier NV
consolidated financial statements.
180 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Notes to the parent company financial statements
1 Other creditors
Other creditors include u10m (2008: u10m) of employee convertible debenture loans with a weighted average interest rate of 4.04%
(2008: 5.28%). 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
2009
Jm
22
197
219
2008
um
1,255
239
(1,200)
294
–
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 instruments granted to employees of combined businesses
Consolidated shareholders’ funds using the equity method
2009
Jm
4,065
(2,021)
(373)
178
(98)
(602)
(179)
970
2008
um
3,823
(2,218)
(358)
135
(120)
(602)
(169)
491
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Annual Reports and Financial Statements 2009 Reed Elsevier 181
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 parent company financial
statements 2009 which are part of the financial statements of
Reed Elsevier NV, Amsterdam, which comprise the parent company
balance sheet as at 31 December 2009, the parent company 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 parent company financial statements give a
true and fair view of the financial position of Reed Elsevier NV
as at 31 December 2009 and of its result for the year then ended
in accordance with accounting practice 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
is 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
17 February 2010
Management’s responsibility
Management is responsible for the preparation and fair presentation
of the parent company financial statements in accordance with
accounting practice 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 parent 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 parent 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 parent company financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the parent company financial
statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material
misstatement of the parent 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 parent 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 parent company financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
182 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier NV
Additional information
R shares
Reed Elsevier NV has two types of shares: ordinary shares of €0.07 nominal value and R shares of €0.70 nominal value. Each R share
is convertible into 10 ordinary shares and is entitled to cast ten (10) votes. Otherwise it has the same rights as an ordinary share, except
that Reed Elsevier may pay a lower dividend on it, but not less than 1% of the nominal value of an 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 on 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
2009
Jm
185
75
–
(238)
22
2008
um
198
72
1,299
(314)
1,255
–
–
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Annual Reports and Financial Statements 2009 Reed Elsevier 183
5 year summary
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 ordinary share (u)
Note
2
2
2
3
2009
Jm
6,800
881
1,758
438
1,099
219
550
g0.32
g0.79
g0.400
2008
um
6,721
1,135
1,737
587
1,159
294
580
u0.44
u0.87
u0.404
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
(1) Adjusted figures are presented as additional performance measures used by management and are stated before amortisation and
impairment of acquired intangible assets and goodwill, 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 also
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 ordinary share is based on the interim dividend and proposed final dividend for the relevant year, and does not include the
u1.767 per share special distribution in 2008.
184 Reed Elsevier Annual Reports and Financial Statements 2009
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
192 Contacts
193 Financial calendar
Principal operating locations
194 Principal operating locations
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Annual Reports and Financial Statements 2009 Reed Elsevier 185
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
Income statement
Statement of
financial position
2009
1.57
2008
1.85
2009
1.62
2008
1.45
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
–
2009
US$m
9,531
1,236
683
614
2,465
2,008
1,542
2008
US$m
9,868
1,667
1,141
33
881
2,551
2,229
1,700
186 Reed Elsevier Annual Reports and Financial Statements 2009
Reed Elsevier combined businesses
Combined statement of cash flows
For the year ended 31 December
Net cash from operating activities – continuing operations
Net cash used in investing activities – continuing operations
Net cash used in financing activities – continuing operations
Net cash used in discontinued operations
Increase/(decrease) in cash and cash equivalents
Movement in cash and cash equivalents
At start of year
Increase/(decrease) in cash and cash equivalents
Exchange translation differences
At end of year
Adjusted operating cash flow – continuing operations
Combined statement of financial position
As at 31 December
Non-current assets
Current assets
Assets held for sale
Total assets
Current liabilities
Non-current liabilities
Liabilities associated with assets held for sale
Total liabilities
Net assets
Additional information for US Investors
2009
US$m
1,870
(493)
(904)
473
544
473
172
1,189
2,446
2009
US$m
14,186
4,167
18,361
6,259
9,244
3
15,511
2,850
2008
US$m
1,957
(4,257)
(1,633)
(89)
(4,022)
4,934
(4,022)
(368)
544
2,603
2008
US$m
14,983
3,601
71
18,655
5,957
11,273
17,233
1,422
–
8
8
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Annual Reports and Financial Statements 2009 Reed Elsevier 187
Reed Elsevier PLC
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of Reed Elsevier PLC’s consolidated financial statements into US dollars
at the stated rates of exchange. The financial information provided below is prepared under IFRS as used in the preparation of the
Reed Elsevier PLC consolidated financial statements. It does not represent a restatement under US GAAP which would be different
in some significant respects.
Exchange rates for translation of sterling ($:£1)
Income statement
Statement of financial position
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
Impairment of acquired intangible assets and goodwill
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 statement of financial position
As at 31 December
Shareholders’ equity
2009
US$:£
1.57
1.62
2008
US$:£
1.85
1.45
2009
US$m
306
815
(341)
(113)
(110)
(28)
19
83
325
2009
US$
$2.88
$1.08
$1.28
$1.28
2008
US$m
446
899
(311)
(9)
(109)
(30)
(42)
68
466
2008
US$
$3.30
$1.64
$7.47
$1.50
2009
US$m
1,484
2008
US$m
731
Adjusted earnings per American Depositary Share is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted profit
attributable of the Reed Elsevier combined businesses, which excludes amortisation and impairment of acquired intangible assets
and goodwill, exceptional restructuring and acquisition related costs, disposals and other non operating items, related tax effects and
movements in deferred tax assets and liabilities that are not expected to crystallise in the near term. Adjusted figures are additional
performance measures used by management and are described in note 9 to the Reed Elsevier PLC consolidated financial statements.
Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary Shares (ADSs),
evidenced by American Depositary Receipts (ADRs), representing four Reed Elsevier PLC ordinary shares. (CUSIP No. 758205207; trading
symbol, RUK; Bank of New York is the ADR Depositary.)
188 Reed Elsevier Annual Reports and Financial Statements 2009
Additional information for US Investors
Reed Elsevier NV
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier NV consolidated financial statements into US dollars at the
stated rates of exchange. The financial information provided below is prepared under IFRS as used in the preparation of the Reed Elsevier NV
consolidated financial statements. It does not represent a restatement under US GAAP which would be different in some significant respects.
Exchange rates for translation of euros ($:J1)
Income statement
Statement of financial position
Consolidated income statement
For the year ended 31 December
Adjusted profit attributable to ordinary shareholders
Share of joint ventures’:
Amortisation of acquired intangible assets
Impairment of acquired intangible assets and goodwill
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 statement of financial position
As at 31 December
Shareholders’ equity
2009
US$:J
1.40
1.44
2008
US$:u
1.47
1.41
2009
US$m
770
(322)
(106)
(105)
(27)
18
79
307
2009
US$
$2.21
$0.90
$1.11
$1.12
2008
US$m
853
(296)
(7)
(103)
(28)
(50)
63
432
2008
US$
$2.56
$1.29
$6.44
$1.19
2009
US$m
1,403
2008
US$m
692
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 and impairment of acquired intangible assets and goodwill,
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 additional performance
measures used by management and 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 ADR Depositary.)
Annual Reports and Financial Statements 2009 Reed Elsevier 189
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Shareholder information
Annual Reports and Financial Statements 2009
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 2009 are available on the Reed
Elsevier website, or from the registered offices of the respective
parent companies shown on page 192. Additional financial
information is also available on the Reed Elsevier website, including
the Reed Elsevier combined financial statements in euros, Interim
and Full Year Results announcements, Interim Management
Statements and presentations.
Interim results
Reed Elsevier PLC and Reed Elsevier NV no longer publish interim
results in hard copy. The interim results are 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
190 Reed Elsevier Annual Reports and Financial Statements 2009
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 192.
Electronic communications
Whilst hard copy shareholder communications continue to
be available to those shareholders actively requesting them,
in accordance with the Companies Act 2006 and its Articles of
Association, Reed Elsevier PLC uses the Reed Elsevier website
as the main method of communicating with shareholders. By
registering their details online at www.shareview.co.uk, shareholders
can be notified by email when shareholder communications are
published on the website. The Shareview 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 shareholder meetings.
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.
Dividend mandates
Shareholders can arrange to have their dividends paid directly into
a UK 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. A dividend mandate form can be obtained online at
www.shareview.co.uk, or by contacting Equiniti at the address
shown on page 192.
Equiniti has established a service for overseas shareholders in over
30 countries, which enables shareholders to have their dividends
automatically converted from sterling and paid directly into their
nominated bank account. Further details of this service, and the fees
applicable, are available at www.shareview.co.uk or by contacting
Equiniti at the address shown on page 192.
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 online at
www.shareview.co.uk/dividends, or by contacting Equiniti at the
address shown on page 192.
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.
Shareholder information continued
Individual savings accounts (ISA)
A single company ISA for Reed Elsevier PLC shares is
available through Equiniti. Details may be obtained from
www.shareview.co.uk/ISA, by writing to Equiniti at the
address shown on page 192, or by calling their ISA helpline
on 0845 300 0430.
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.
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. On 2 May 1997 each 25p ordinary share was sub-divided into
two ordinary shares of 12.5p each. On 7 January 2008 the ordinary
shares of 12.5p each were consolidated on the basis of 58 new
ordinary shares of 1451⁄116p nominal value for every 67 ordinary
shares of 12.5p each held.
Capital gains tax
The mid-market price of Reed Elsevier PLC’s £1 ordinary shares on
31 March 1982 was 282p. Adjusting for the sub-divisions and share
consolidation referred to above, results in an equivalent mid-market
price of 40.72p for each existing ordinary share of 1451⁄116p
nominal value.
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 192.
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 (“DRIP”)
provided by Royal Bank of Scotland N.V. (“RBS”). Shareholders who
wish to participate in the DRIP are required to instruct their bank or
intermediary to apply for reinvestment of their dividend entitlement
with RBS.
Consolidation of ordinary shares
On 7 January 2008 the Reed Elsevier NV ordinary shares of €0.06
each were consolidated on the basis of 58 new ordinary shares of
€0.07 each for every 67 ordinary shares of €0.06 held.
Shareholder information
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 shareholders’ meetings. 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 shareholder meetings. Reed Elsevier NV
also uses the e-voting system of RBS, that allows its shareholders
to vote electronically at general meetings of shareholders and
provides the shareholder that uses the system confirmation that the
vote was cast.
Information for Reed Elsevier PLC and
Reed Elsevier NV ADR holders
The Reed Elsevier PLC and Reed Elsevier NV ADR Depositary is
BNY 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 192.
Dividends
Dividend payments on Reed Elsevier PLC and Reed Elsevier NV
ADRs are converted into 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 192.
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Annual Reports and Financial Statements 2009 Reed Elsevier 191
Reed Elsevier NV
Radarweg 29
1043 NX Amsterdam
The Netherlands
Tel: +31 (0) 20 485 2906
Fax: +31 (0) 20 485 2032
Reed Elsevier PLC and Reed Elsevier NV ADR Depositary
BNY Mellon Shareowner Services
480 Washington Blvd 27th Floor
Jersey City NJ 07310
USA
Tel: +1 888 269 2377
+1 201 680 6825 (outside the US)
email: https://vault.bnymellon.com
www.adrbny.com
Deloitte Accountants B.V.
Orlyplein 50
1043 DP Amsterdam
The Netherlands
Listing/paying agent
Royal Bank of Scotland N.V.
Gustav Mahlerlaan 10
1082 PP Amsterdam
The Netherlands
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 3BZ
United Kingdom
Stockbrokers
J.P. Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
UBS Investment Bank
1 Finsbury Avenue
London EC2M 2PP
United Kingdom
192 Reed Elsevier Annual Reports and Financial Statements 2009
2010 financial calendar
Shareholder information
20 April
18 February
20 April
21 April
22 April
26 April
28 April
30 April
21 May
PLC
NV
PLC
NV
NV
PLC
NV
NV
PLC
PLC
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
PLC
NV
3 September PLC
27 August
4 August
6 August
28 May
29 July
NV
18 November PLC
NV
Announcement of Results for the year ended 31 December 2009
Interim Management Statement issued in relation to the 2010 financial year
Annual General Meeting – Reed Elsevier NV, Marriott Hotel, Stadhouderskade 12, 1054 ES Amsterdam
Annual General Meeting – Reed Elsevier PLC, Millennium Hotel, Grosvenor Square, London W1K 2HP
Ex-dividend date – 2009 final dividend, Reed Elsevier NV ordinary shares and ADRs
Record date – 2009 final dividend, Reed Elsevier NV ordinary shares and ADRs
Ex-dividend date – 2009 final dividend, Reed Elsevier PLC ordinary shares and ADRs
Record date – 2009 final dividend, Reed Elsevier PLC ordinary shares and ADRs
Payment date – 2009 final dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
Payment date – 2009 final dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs
Announcement of Interim Results for the six months to 30 June 2010
Ex-dividend date – 2010 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
and ADRs
Record date – 2010 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares and ADRs
Payment date – 2010 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares
Payment date – 2010 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs
Interim Management Statement issued in relation to the 2010 financial year
The following tables set out dividends and distributions paid (or proposed) in relation to the three financial years 2007 – 2009.
Final dividend for 2009*
Interim dividend for 2009
Final dividend for 2008
Interim dividend for 2008
Final dividend for 2007
Special distribution
Interim dividend for 2007
per PLC ordinary share
per NV ordinary share
Payment date
15.0p
5.4p
15.0p
5.3p
13.6p
82.0p
4.5p
€0.293
€0.107
€0.290
€0.114
€0.311
€1.767
u0.114
21 May 2010
28 August 2009
22 May 2009
29 August 2008
16 May 2008
18 January 2008
24 August 2007
*Proposed dividend, to be submitted for approval at the respective Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2010.
Final dividend for 2009
Interim dividend for 2009
Final dividend for 2008
Interim dividend for 2008
Final dividend for 2007
Special distribution
Interim dividend for 2007
per PLC ADR
per NV ADR
Payment date
**
$0.35164
$0.94782
$0.38743
$1.05818
$6.40896
$0.35978
**
$0.26060
$0.68679
$0.28473
$0.82080
$4.38020
$0.26426
28 May 2010
04 September 2009
01 June 2009
05 September 2008
23 May 2008
28 January 2008
31 August 2007
**Payment will be determined using the appropriate £/US$ and u/US$ exchange rate on 21 May 2010.
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Annual Reports and Financial Statements 2009 Reed Elsevier 193
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)20 485 2032
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)20 485 2032
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, USA
www.us.elsevierhealth.com
3251 Riverport Lane
Maryland Heights, MO 63043, USA
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
1000 Alderman Drive
Alpharetta, GA 30005, 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
194 Reed Elsevier Annual Reports and Financial Statements 2009
Notes
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Annual Reports and Financial Statements 2009 Reed Elsevier 195
Notes
196 Reed Elsevier Annual Reports and Financial Statements 2009
Credits
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