RELX Annual Report 2010 | Quarterlytics

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www.reedelsevier.com Annual Reports and Financial Statements 2010 A n n u a l R e p o r t s a n d i F n a n c i a l S t a t e m e n t s 2 0 1 0 47213_Covers.indd 1 1/3/11 11:52:12 Reed Elsevier is a world leading provider of professional information solutions in the Science, Medical, Risk, Legal and Business sectors. Our customers use our products every day to advance science, improve medical outcomes, evaluate risk, enable better legal decisions, forge business relationships and gain business insight. Credits Designed and produced by CONRAN DESIGN GROUP Board photography by Julian Calder Printed by Pureprint Group, ISO14001, FSC® certiﬁed and CarbonNeutral® Printed on Revive 50:50 Silk a recycled paper, Forest Stewardship Council (FSC) certiﬁed, containing 50% recycled waste and 50% virgin ﬁbre and manufactured at a mill certiﬁed with ISO 14001 environmental management standard. The pulp used in this product is bleached using an Elemental Chlorine Free process (ECF). The inks used in the printing of this report are all vegetable based. Full report online The Reed Elsevier Annual Reports and Financial Statements 2010 are available to view online. www.reedelsevier.com/ar10 47213_Covers.indd 2 3/3/11 13:51:10 Contents Overview 2010 highlights 2 4 6 Governance 54 Board Directors Chairman’s statement 56 Structure and corporate governance Chief Executive Ofﬁcer’s report 62 Directors’ remuneration report Business review 8 Reed Elsevier 10 Elsevier 18 LexisNexis 30 Reed Exhibitions 34 Reed Business Information 38 Corporate responsibility Financial review 42 Chief Financial Ofﬁcer’s report 42 Combined businesses 47 Parent companies 50 Principal risks 81 Report of the Audit Committees Financial statements and other information 86 Combined ﬁnancial statements 129 Summary combined ﬁnancial information in euros 142 Reed Elsevier PLC annual report and ﬁnancial statements 165 Reed Elsevier NV annual report and ﬁnancial statements 189 Additional information for US investors 194 Shareholder information 198 Principal operating locations Forward looking statements The Reed Elsevier Annual Reports and Financial Statements 2010 contain forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. These statements are subject to a number of risks and uncertainties that could cause actual results or outcomes to differ materially from those currently being anticipated. The terms “estimate”, “project”, “plan”, “intend”, “expect”, “should be”, “will be”, “believe” 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; competitive factors in the industries in which Reed Elsevier operates; demand for Reed Elsevier’s products and services; exchange rate ﬂuctuations; legislative, ﬁscal and regulatory developments; political risks; changes in law and legal interpretations affecting Reed Elsevier’s intellectual property rights and internet communications; the availability of third party content and data; terrorism, acts of war and pandemics; 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 2010 Reed Elsevier 01 Annual Reports and Financial Statements 2010 Reed Elsevier 1 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 1 1/3/11 11:17:32 2010 highlights Improved trading performance and good business progress > Revenue growth of 2% underlying against 6% decline in 2009 > Adjusted operating margin 0.2% pts lower at 25.7% > Good progress on business unit speciﬁc priorities – New content and information solutions launched – Increased product development and sales & marketing – Focus on cost efﬁciency and process innovation – Portfolio actions taken > Strong cash generation Prospects encouraging; recovery will be gradual Reed Elsevier combined businesses Revenue £m 6,071 6,055 Adjusted operating profit Adjusted profit before tax €m 6,800 7,084 £m 1,570 1,555 €m 1,758 1,819 £m 1,279 1,279 €m 1,432 1,496 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 Parent companies Reed Elsevier PLC: Adjusted EPS pence 45.9 43.4 Reed Elsevier PLC: Dividend pence 20.4 20.4 Reed Elsevier NV: Adjusted EPS a 0.79 0.78 Reed Elsevier NV: Dividend a 0.400 0.412 2009 2010 2009 2010 2009 2010 2009 2010 2 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 2 1/3/11 11:17:35 Reed Elsevier combined businesses £€ 2009 £m 6,071 787 435 391 3,931 £€ 2009 £m 1,570 25.9% 1,279 982 1,558 99% 2010 £m 6,055 1,090 768 642 3,455 2010 £m 1,555 25.7% 1,279 983 1,519 98% Change 0% +39% +77% +64% 2010 €m 7,084 1,275 898 751 4,043 2009 €m 6,800 881 487 438 4,402 Change +4% +45% +84% +71% Change 2010 €m 2009 €m Change -1% 0% 0% -3% 1,819 25.7% 1,496 1,150 1,777 98% 1,758 25.9% 1,432 1,099 1,745 99% +3% +4% +5% +2% For the year ended 31 December Reported ﬁgures Revenue Operating proﬁt Proﬁt before tax Net proﬁt Net borrowings For the year ended 31 December Adjusted ﬁgures Operating proﬁt Operating margin Proﬁt before tax Net proﬁt Operating cash ﬂow Operating cash ﬂow conversion Parent companies Reed Elsevier PLC Reed Elsevier NV Adjusted earnings per share Reported earnings per share Ordinary dividend per share 2010 2009 43.4p 27.3p 20.4p 45.9p 17.2p 20.4p Change -5% +58% 0% 2010 2009 Change €0.78 €0.51 €0.412 €0.79 €0.32 €0.400 -1% +62% +3% Change at constant currencies -1% +37% +74% +61% Change at constant currencies -2% -1% -1% -3% Change at constant currencies -6% O v e r v e w i i B u s n e s s r e v e w i Change underlying +2% Change underlying -1% i F n a n c a i l r e v e w i G o v e r n a n c e 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% indirect interest in Reed Elsevier NV. Adjusted ﬁgures are additional performance measures used by management and are reconciled to the reported ﬁgures in note 10 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 2009 full year average and hedge rates. Underlying change excludes the results of acquisitions and disposals made both in the year and in the prior year. i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 3 1/3/11 11:17:35 Annual Reports and Financial Statements 2010 Reed Elsevier 3 Chairman’s statement Anthony Habgood Chairman Considerable progress has been made during the year resulting in improvements in trading performance with underlying sales returning to positive organic growth. Reported proﬁts are strongly ahead with the bulk of our major restructuring programmes now behind us. Management has put in place business unit teams to sharpen the focus on value creation and operational execution. I am conﬁdent that the good progress which is being made on individual business priorities will deliver further improvements. I am pleased to report that Reed Elsevier has made signiﬁcant progress in 2010 as our markets strengthened and we saw the beneﬁt of the actions which management has taken in the business. Underlying revenues were 2% higher in constant currencies with the return to growth reﬂecting improved performance in our more cyclical markets, together with a sustained commitment to new product development and a focus on sales & marketing initiatives. Our reported revenues were ﬂat at £6,055m expressed in sterling and increased by 4% to €7,084m expressed in euros. During the year, action was taken to divest low return assets, such that total revenues were 1% lower in constant currencies. Firm action on costs and further innovations in our operational processes has meant that total costs at constant exchange rates declined 1% and adjusted operating margins at 25.7% were just 0.2 percentage points lower than in 2009, despite the increased spending on new product development and sales & marketing. Adjusted operating proﬁts were 1% lower at £1,555m/up 3% at €1,819m. Adjusted proﬁt before tax was ﬂat at £1,279m/up 4% at €1,496m. Adjusted earnings per share were down 5% for Reed Elsevier PLC at 43.4p and 1% lower for Reed Elsevier NV at €0.78, taking into account 4% dilution from the July 2009 equity placing. Reported operating proﬁt was up 39% to £1,090m/45% to €1,275m. This reﬂects the absence of intangible asset and goodwill impairment in 2010 and much lower exceptional restructuring charges as we get these programmes behind us. Reported earnings per share for Reed Elsevier PLC were up 58% at 27.3p and for Reed Elsevier NV up 62% at €0.51. 4 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 4 2/3/11 21:41:52 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l Dividends The Boards are recommending equalised ﬁnal dividends of 15.0p for Reed Elsevier PLC and €0.303 for Reed Elsevier NV, ﬂat and up 3% respectively against the prior year. This brings the total for the year to 20.4p for Reed Elsevier PLC and €0.412 for Reed Elsevier NV, respectively unchanged and an increase of 3%. The differing growth rates reﬂect movements in the sterling-euro exchange rate between dividend announcement dates. Balance Sheet During the year our net debt, which is principally denominated in US dollars, reduced from $6.3 billion to $5.4 billion reﬂecting the excellent cash generation in the year and capital discipline. Our ﬁnancial position is strong and our balance sheet is well placed to support our business strategies. Management and Boards Over the past twelve months, our Chief Executive Ofﬁcer, Erik Engstrom, has been reshaping the management organisation. LexisNexis, with effect from January 2011, has been divided into the Risk Solutions and Legal & Professional businesses, with distinct management teams reporting directly to him. Reed Business Information has undergone a major restructuring of its portfolio and operations during the year and is now organised by key asset groups, each with its own speciﬁc strategic priorities and management team. These changes will further improve the focus of each business in their respective markets and accelerate our progress. In December 2010, Andrew Prozes retired from our Boards and as Chief Executive Ofﬁcer of LexisNexis after 10 years of service. During that time, Andy built a leading Risk Solutions business, led the transition of the legal businesses from publishers of content to providers of online solutions, and developed a leadership position in online legal solutions outside the US. I would like to thank Andy for his contribution to the development of LexisNexis and Reed Elsevier over many years. In April 2010, Dien de Boer-Kruyt retired from the Reed Elsevier NV Supervisory Board. At the Annual General Meetings in April 2011, Lord Sharman will also be stepping down as a non-executive director of our Boards. Both completed more than nine years of valuable Board service. Colin Sharman also served for all this period as an important member of the Audit Committees, eight years as their chairman, and was a key member of the Nominations Committee. I would like to thank both Dien and Colin for their substantial contributions to the Boards through a period of signiﬁcant change for Reed Elsevier. Marike van Lier Lels joined the Reed Elsevier NV Supervisory Board in January 2010 in anticipation of Dien’s retirement and I am pleased to say that Mr Adrian Hennah will join our Boards as a non-executive director, to succeed Lord Sharman, subject to shareholder approval at the respective Annual General Meetings in April. Adrian is a serving Chief Financial Ofﬁcer of a FTSE 100 company with over 25 years’ experience in ﬁnance and operations in the medical devices, technology and pharmaceuticals industries and he will bring highly relevant experience to our board discussions. On appointment, he will become a member of our Audit Committees and of the Corporate Governance Committee. Going forward Our markets have stabilised or are showing improvement. Each of our businesses is focused on value creation and operational execution. I am conﬁdent that the good progress which is being made on individual business priorities will deliver further improvements. Anthony Habgood Chairman s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 5 1/3/11 11:17:37 Annual Reports and Financial Statements 2010 Reed Elsevier 5 Chief Executive Ofﬁcer’s report on product development and sales & marketing, particularly in the legal & professional business, was funded largely by cost actions across the businesses with continuing focus on process innovation. Adjusted pre-tax proﬁts were ﬂat at £1,279m/up 4% at €1,496m, and 1% lower at constant currencies. Adjusted operating cash ﬂow continued to be strong at £1,519m/€1,777m with an excellent 98% conversion of adjusted operating proﬁts into cash. The post tax return on capital employed improved to 10.6%, 0.2 percentage points higher reﬂecting the strong cash generation and increased capital efﬁciency. Erik Engstrom Chief Executive Ofﬁcer Adjusted earnings per share were down 5% to 43.4p for Reed Elsevier PLC, 1% lower at €0.78 for Reed Elsevier NV, and 6% lower at constant currencies. This included a 4% dilutive effect from the July 2009 equity placing. The year has seen improved trading performance, with 2% organic revenue growth against a 6% decline last year. Increased spend on product development and sales & marketing was largely offset by cost efﬁciency gains. During 2010, we also made good progress against the key priorities we outlined for each of the businesses at the start of the year. In Elsevier, subscription renewals for 2010 were completed in line with our expectations and the renewals process for 2011 is well progressed. We continued to develop new content and innovative tools, including the launch of SciVerse, an integrated platform for researchers. LexisNexis Risk Solutions captured the beneﬁt of increased market activity and growing demand for data and analytics. LexisNexis Legal & Professional added new features and content sets, including the initial launch of Lexis Advance for Solos, the ﬁrst of a series of tools for speciﬁc legal segments. Effective from January 2011, we reorganised LexisNexis Risk Solutions and Legal & Professional to operate as separate businesses, reporting directly to me, to sharpen the management focus on their respective markets. Reed Exhibitions signiﬁcantly stepped up its launch programme with 35 new shows, particularly targeting high growth sectors and emerging markets and continued to invest in technology and innovation. Within Reed Business Information, we reshaped the portfolio, signiﬁcantly reduced costs, and invested behind the successful data services business, including in early January this year the acquisition of a majority share in the leading petrochemical and energy information service CBI China. Financial results Total revenues were ﬂat at £6,055m/up 4% to €7,084m and down 1% at constant currencies, as the portfolio was reshaped through disposal and closure, most notably in Reed Business Information. Importantly on an underlying basis, excluding acquisitions and divestments, revenues returned to growth, up 2%, reﬂecting both the progress against our business priorities made during the year and our more cyclical markets stabilising. Adjusted operating proﬁt was lower by 1% at £1,555m/up 3% at €1,819m and down 2% at constant currencies; on an underlying basis adjusted operating proﬁt was down 1%. Increased spend We use adjusted ﬁgures as key performance measures, and these are stated principally before amortisation on acquired intangible assets, exceptional restructuring charges and acquisition related costs, and disposal gains and losses. Including these items, reported operating proﬁt and pre-tax proﬁt were 39% and 77% higher in sterling and 45% and 84% higher in euros, reﬂecting no intangible asset and goodwill impairment and much lower exceptional charges as our major restructuring programmes completed, with charges in 2010 relating to Reed Business Information only. Reported earnings per share were 58% higher at 27.3p for Reed Elsevier PLC and 62% higher at €0.51 for Reed Elsevier NV. The Elsevier science and medical business (46% of adjusted operating proﬁt) saw modest growth reﬂecting a constrained customer budget environment. Elsevier has continued to develop innovative new content and tools, with the initial launch in 2010 of SciVerse, an integrated platform for accessing ScienceDirect, Scopus and scientiﬁc web content. Also launched in beta version is the SciVerse Application Marketplace which facilitates collaboration across the scientiﬁc community in the development of customised search and discovery applications. Further institutional planning and performance tools are also being developed to help academic and government institutions evaluate their research performance and determine research strategies. In Health Sciences, the focus of development is in clinical decision support point-of-care solutions, clinical practice guidelines and predictive analytics to address the demand to make healthcare more efﬁcient and to improve medical outcomes. LexisNexis (38% of adjusted operating proﬁt) returned to overall revenue growth, with strong growth in the risk business. Subscription revenues in the legal business continued to reﬂect the lower levels of law ﬁrm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing. In the risk solutions business, strong growth in the insurance business is supported by high transactional activity in the US auto and property markets. A continuous pipeline of new data and analytics products also drives growth, ranging from helping insurers better assess underwriting risk to reducing cost and improving the effectiveness of the insurers’ workﬂow, from initial potential customer contact to policy renewal. Recently introduced products include Data Pre-Fill, which provides accurate information directly into the 6 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 6 2/3/11 21:43:42 insurance workﬂow on customers, potential customers and their auto ownership, and Insurance Exchange, which is directed at improving the efﬁciency and transparency of communications between insurance agents, brokers and carriers through the sharing of customer application data. 40 shows in each of Brazil and China. Reed Exhibitions also continued to develop websites, analytics and other innovative online tools to increase the effectiveness and efﬁciency of events for both exhibitors and attendees. In the legal & professional business, continued good progress is being made in the development of the next generation of legal products and advanced operational infrastructure, which will be progressively introduced over the next few years. 2010 saw the initial market introduction, on version 1.0 of the new LexisNexis research platform, of Lexis Advance for Solos, a legal research tool speciﬁcally for US solo attorneys. This is the ﬁrst of a series of tools for speciﬁc segments of the legal market. Features and content are also being progressively added to existing services such as Lexis for Microsoft Ofﬁce, which enables lawyers to conduct their Lexis searches within Microsoft applications, and LexisNexis Verdict & Settlement Analyzer, which provides data and analytics on previous settlements. In the UK, LexisNexis continued to build out its practical guidance service LexisPSL, with the introduction of further practice areas, including company commercial. The increased spend on supporting these important developments has in part been mitigated by continuing cost efﬁciencies, including further outsourcing of production and engineering activities, supply chain management and operational streamlining. Reed Exhibitions (10% of adjusted operating proﬁt) saw good revenue growth with the net cycling in of biennial exhibitions and a signiﬁcantly moderated decline in annual show revenues. The 2010 shows have seen overall success, with growing attendances at the majority of annual events and exhibitor numbers up 4% in the top 50 annual shows. While recovery in the larger markets has taken longer to materialise, by contrast, the shows in China, Russia, the Middle East and Brazil grew strongly. Reed Exhibitions signiﬁcantly stepped up its launch programme in 2010 with 35 new events of which 14 were in Asia, including the successful Cloud Computing show in Japan, and the PAX East games event in Boston. Reed Exhibitions now operates nearly 100 shows in emerging markets with approximately Revenue by format 64% 14% 22% 25% 14% 61% Reed Business Information (6% of adjusted operating proﬁt) saw good growth in data services and online marketing solutions and signiﬁcantly moderated declines in advertising markets. The portfolio was signiﬁcantly reshaped and refocused. The sale and closure of the US controlled circulation magazines and certain other titles were completed, together with the sale of clusters of titles in Europe and Asia. The business was redeﬁned by asset group and clear, distinct value creation plans were developed for each group. We invested in data services and in January 2011, we increased our investment to a majority position in the leading petrochemical and energy information service in CBI China. There was also a signiﬁcant restructuring of the business with the consolidation of operations, procurement savings and tight cost control. The business and ﬁnancial reviews set out in pages 8 to 37 describe in more detail our markets, businesses and the performance and outlook by business. Outlook Going forward we will continue to focus on creating value for our customers, in each business unit and across Reed Elsevier. As we go into 2011, most of our markets are stable or improving and we are building on the actions taken in 2010 to strengthen the business further. Overall, we expect a gradual recovery and a continued improvement in performance. We are focused on creating value for our professional customers through helping them to deliver better outcomes more efﬁciently. The business units have well deﬁned priorities designed to capture growth and deliver good returns targeting high growth markets supported by a commitment to new product development and increased sales & marketing. Across Reed Elsevier, we enhance these initiatives through the building and leveraging of institutional skills, including professional customer analysis and product development, knowledge, methods and people as well as sharing resources in software, technology and infrastructure. We have a strong management team in place, with a sharpened focus on value creation and operational execution. Our employees are knowledgeable and passionate about the customers they serve and are critical to achieving our goals over the coming years. I would like to thank them for their continuing enthusiasm and commitment to our customers and to creating value for Reed Elsevier. Erik Engstrom Chief Executive Ofﬁcer 00 01 02 03 04 05 06 07 08 09 10 Electronic Face to face Print Completion of Reed Elsevier Code of Ethics and Business Conduct training Reed Elsevier has seen a signiﬁcant migration from print products to electronic content and tools over the last ten years, so that print revenues now account for only 25% of revenues. We prioritise employee ethics training as part of our ongoing commitment to implementing the highest standards of corporate and individual behaviour across Reed Elsevier 93%93% Annual Reports and Financial Statements 2010 Reed Elsevier 7 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 7 1/3/11 11:17:40 Reed Elsevier Elsevier is the world’s leading provider of scientiﬁc and medical information and serves scientists, health professionals and students worldwide. Its objective is to help its customers advance science and improve healthcare by providing world class information and innovative solutions that enable customers to make critical decisions, enhance productivity and improve outcomes. Elsevier publishes over 1,800 scientiﬁc and medical journals, through ScienceDirect, the world’s largest database of scientiﬁc and medical research, used by over 11 million researchers each year. In 2010, Elsevier published over 2,400 new book titles and clinical reference works both in print and online, as well as offering an extensive portfolio of online information databases and analytics. LexisNexis’ content and tools enable legal, risk and other professional customers to make more effective and efﬁcient decisions. LexisNexis Risk Solutions provides data and analytics that enable its customers to evaluate and manage risks associated with transactions and improve performance. LexisNexis Legal & Professional provides legal, tax, regulatory and news & business information and analysis to legal, corporate, government, accounting and academic markets. Reed Exhibitions is the world’s leading events business, with over 450 events in 35 countries. 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. Through its portfolio of exhibitions and conferences it serves 44 industry sectors across the Americas, Europe, the Middle East and Asia Paciﬁc. Reed Business Information is a provider of business information, data and marketing solutions in multiple formats. It produces industry critical data services and lead generation tools, and over 100 online community and job sites. It publishes over 100 business magazines with market leading positions in many sectors. 8 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 8 1/3/11 11:17:41 Revenue Elsevier LexisNexis Reed Exhibitions Reed Business Information Adjusted operating proﬁt Elsevier LexisNexis Reed Exhibitions Reed Business Information Unallocated items 2010 £m 2,026 2,618 693 718 6,055 724 592 158 89 (8) 2009 £m 1,985 2,557 638 891 6,071 693 665 152 89 (29) 1,555 1,570 Change +2% +2% +9% -19% 0% +4% -11% +4% 0% -1% Change at constant currencies Change underlying +2% +1% +9% -20% -1% +4% -12% +4% 0% -2% +2% +1% +8% -2% +2% +4% -12% +4% +4% -1% 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 10 to the combined ﬁnancial statements. The percentage change at constant currencies refers to the movements at constant exchange rates, using 2009 full year average and hedge rates. Underlying change excludes the results of acquisitions and disposals made both in the year and the prior year. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i In 2010, Reed Elsevier announced that LexisNexis would be reorganised into two separate risk solutions and legal & professional businesses, with the separation effective from 1 January 2011. The charts below reﬂect the Reed Elsevier business split of revenue and adjusted operating proﬁt including this separation. The adjusted operating proﬁt split is a pro forma division of the 2010 LexisNexis adjusted operating proﬁt for the two businesses. Revenue £6,055m Adjusted operating proﬁt £1,555m Elsevier 34% LexisNexis Risk Solutions 15% LexisNexis Legal & Professional 28% Reed Exhibitions 11% Reed Business Information 12% Elsevier 46% LexisNexis Risk Solutions 23% LexisNexis Legal & Professional 15% Reed Exhibitions 10% Reed Business Information 6% l r e v e w i G o v e r n a n c e Revenue by format £6,055m Revenue by geographic market £6,055m Electronic 61% Face to face 14% Print 25% North America 55% UK 8% Netherlands 3% Rest of Europe 19% Rest of World 15% i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 9 1/3/11 11:17:43 Annual Reports and Financial Statements 2010 Reed Elsevier 9 ADVANCING SCIENCE 10 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 10 1/3/11 11:17:49 ELSEVIER IS THE WORLD’S LEADING SCIENTIFIC INFORMATION PROVIDER, SERVING OVER 11 MILLION RESEARCHERS Elsevier delivers a wide array of information and workflow tools that help researchers generate valuable insights in the advancement of scientific discovery and improve the productivity of research. 47213_Text_p001-055.indd 11 1/3/11 11:17:55 Annual Reports and Financial Statements 2010 Reed Elsevier 11 IMPROVING MEDICAL OUTCOMES 12 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 12 1/3/11 11:18:02 ELSEVIER IS A WORLD LEADING MEDICAL INFORMATION PROVIDER, USED BY HEALTH PROFESSIONALS WORLDWIDE Through its medical journals, books, major reference works, databases and online information tools, Elsevier provides critical information and analysis on which its customers rely to base their decisions, to improve medical outcomes and enhance the efficiency of healthcare. 47213_Text_p001-055.indd 13 1/3/11 11:18:09 Annual Reports and Financial Statements 2010 Reed Elsevier 13 Elsevier’s scientiﬁc and medical information and tools help its customers 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. Its objective is to help its customers advance science and improve healthcare by providing world class information and innovative solutions that enable customers to make critical decisions, enhance productivity and improve outcomes. Total revenues for the year ended 31 December 2010 were £2,026m. Elsevier is a global business with principal operations in Amsterdam, Beijing, Boston, Chennai, Delhi, London, Madrid, Milan, Munich, New York, Oxford, Paris, Philadelphia, Rio de Janeiro, St. Louis, San Diego, Singapore and Tokyo. Elsevier has 6,700 employees. Elsevier is organised around two market-facing businesses: Science & Technology, which serves the scientiﬁc and technology communities, and Health Sciences, which serves the health community. Both of these businesses are supported by a global shared services organisation which provides integrated editorial systems and production services, product platforms, distribution, and other support functions. Science & Technology is the world’s leading scientiﬁc information provider. It delivers a wide array of information and workﬂow tools that help researchers generate valuable insights in the advancement of scientiﬁc discovery and improve the productivity of research. Its customers are scientists, academic institutions, research leaders and administrators, corporations and governments which rely on Elsevier to: provide high quality content; review, publish, disseminate and preserve research ﬁndings; and create innovative tools to help focus research strategies and improve their effectiveness. Elsevier publishes over 200,000 new science & technology research articles each year through some 1,150 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 ScienceDirect, the world’s largest database of scientiﬁc and medical research, providing access to over 10 million scientiﬁc and medical journal articles, used by over 11 million researchers each year. Elsevier also publishes over 700 new science & technology book titles annually, supporting bibliographic data, indexes and abstracts, and review and reference works. 14,000 online books are available on ScienceDirect, with over 600 online books added each year. Other major products include Scopus and Reaxys. Scopus is the largest abstract and citation database of research literature in the world, with abstracts and bibliographic information on more than 40 million scientiﬁc research articles from 18,000 peer reviewed journals and over 5,000 publishers. Scopus also has data on more than 23 million patents. Reaxys is a leading solution for synthetic chemists that integrates chemical reaction and compound data searching with synthesis planning. A major challenge facing researchers and institutions is the ever growing amount of research and related information but the limited time to identify and analyse what is most relevant. To address this challenge, Elsevier has been developing a suite of new products that signiﬁcantly improve the speed at which researchers are able to ﬁnd the most relevant information and analyse this information using the most innovative applications. In 2010, SciVerse Hub beta was launched providing a single search interface for accessing ScienceDirect, Scopus and scientiﬁc web content. In November 2010, SciVerse Application Marketplace & Developer Network was launched in beta enabling researchers and third party developers to build customised applications on top of Elsevier’s information and combine this with other data and analytics held by the customer. Elsevier is continuing to develop the SciVal suite of products that help academic and government institutions evaluate their research performance, determine research strategies and increase institutional efﬁciencies. Leveraging bibliometric data, such as citations from Scopus, SciVal Spotlight helps institutions and governments to identify their distinctive research strengths, evaluate performance and increase the focus of their R&D investments. SciVal Funding assists researchers and institutions in identifying grants that are most relevant in their research areas. In support of this strategy, Collexis was acquired in 2010, a leading developer of semantic technology, which increases the efﬁciency and effectiveness of the evaluation of grant applications by funding agencies. Journal Citation Reports® categories where Elsevier journals ranked #1 by Impact Factor* Growth in Scopus searches Elsevier continues to improve journal quality and relevance to the communities they serve through its world class editorial process and by attracting the highest quality research 2009 2008 Copyright© Thomson Reuters 57 51 *Impact Factor is the average citation rate of a journal’s articles over a deﬁned period. The Journal Citation Reports relate to the 2009 and 2008 edition but were published in 2010 and 2009 respectively 14 Reed Elsevier Annual Reports and Financial Statements 2010 Increased customer base, growth in available content and higher customer usage drives growth in Scopus searches +30% 47213_Text_p001-055.indd 14 1/3/11 11:18:10 Health Sciences is a world leading medical information provider. Through its medical journals, books, major reference works, databases and online information tools, Elsevier 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 serves medical researchers, doctors, nurses, allied health professionals and students, as well as hospitals, research institutions, health insurers, managed healthcare organisations and pharmaceutical companies. Elsevier publishes over 700 health sciences journals, including on behalf of learned societies, and, in 2010, over 1,700 new health sciences book titles and clinical reference works were published both in print and through ScienceDirect and other electronic platforms such as MD Consult. MD Consult is a leading online clinical information service with more than 2,200 institutional customers. 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 many countries across the world, Health Sciences leverages its content and solutions into new markets through local language versioning. Market Opportunities The science and medical information markets have good long term demand growth characteristics. The importance of research and development to economic performance and competitive positioning is well understood by governments, academic institutions and corporations. This is reﬂected in the long term growth in R&D spend and in the number of researchers worldwide, leading to greater research output and publishing. Additionally there is growing demand for tools that allow research to better target and improve the spend and efﬁciency of the research process. In health, market growth is also supported by demographic trends, with ageing populations that require more healthcare, rising prosperity in developing economies with increasing expectations of better healthcare provision, and the increasing focus on improving medical outcomes and efﬁciency. Given that a majority of global R&D and healthcare is funded directly or indirectly by governments, spending is inﬂuenced by governmental budgetary considerations. The commitment to R&D and health provision does however generally remain high, even in more difﬁcult budgetary environments. Elsevier is a leader in medical education and training resources, particularly to the nursing and allied health professions. From core textbooks to virtual clinical patient care, Health Sciences supports students, teaching faculties and healthcare organisations in education and practice. A strong focus is on the further development of innovative electronic services: the Evolve portal provides a rich resource to support faculty and students and now has 2.4 million registered users; Evolve Reach (Health Education Systems Inc.) provides online review and testing tools for students of nursing and the allied health professionals; Evolve Teach provides online resources and solutions to support faculty. Strategic Priorities Elsevier’s strategic goal is to make valued contributions to the communities it serves in advancing science, improving medical outcomes and enhancing productivity. To achieve this, Elsevier is focused on: building world-class content; deepening its customer engagement to identify how better to help them achieve their desired outcomes more efﬁciently and effectively; delivering tools which link, analyse and illuminate content and data to help customers make critical decisions and improve their productivity; increasing its investment in high-growth markets and disciplines; and continuously improving organisational efﬁciency. A growing area of focus 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. Elsevier also provides marketing services to the pharmaceutical industry through advertising and sponsored communications to the specialist community it serves. In 2010, the standalone medical agency communications business Excerpta Medica was divested as part of a restructuring of this business focusing more on the services which leverage Health Sciences’ core information and distribution platforms. In Science & Technology, priorities are to continually enhance the quality and relevance of research and reference content and expand data sets, while adding greater functionality and utility to the newly launced SciVerse, ScienceDirect, Scopus and new tools to assist researcher productivity. The SciVal suite of performance and planning tools will continue to be expanded to help academic and government institutions target their research spend and improve research efﬁciency and economic outcomes. In Health Sciences, priorities are similar, particularly with regard to medical research, focusing on the quality and relevance of content and the functionality of electronic platforms and services. Additionally, Health Sciences continues to build out clinical decision support services to meet customer demand for tools that deliver better medical outcomes and lowers costs for payers, physicians and hospitals. Elsevier is also focused on increasing growth in emerging markets through expansion of local publishing and versioning of content and electronic services. Evolve unique site visits Growth in international MD Consult sessions Evolve site visits grow as more users register and nursing faculties and students increasingly use electronic resources +36% Increasing expansion in international markets (outside the US) as customers look to use the online clinical information service to access content +18% O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 15 1/3/11 11:18:11 Annual Reports and Financial Statements 2010 Reed Elsevier 15 In Health Sciences, revenues were ﬂat at constant currencies, or up 1% underlying before taking account of small acquisitions and disposals. Modest growth was seen in medical research journal subscriptions revenues, reﬂecting the same academic budget pressures seen in Science & Technology. Subscriptions to integrated online solutions and other electronic product sales grew well in nursing and health professional education, clinical reference and in the majority of clinical decision support. Growth was tempered, however, by constrained budgets, pending US healthcare reform and moderating enrolment, as career schools adjust to expected legislation affecting student funding. Pharma promotion and other advertising revenues were lower, with continuing weakness in Europe. Emerging markets grew well due to the continued expansion of local publishing to meet the increasing demand for medical education and clinical reference products. Underlying cost growth was 1%, with increased spend on new product development, sales and marketing offset by additional cost savings in offshore production, procurement and the streamlining of operations and support services. The reported operating margin, after amortisation of acquired intangible assets, was 31.9%, up 3.5 percentage points reﬂecting in particular that there were no exceptional restructuring costs in 2010. Going into 2011, the budget environment remains constrained in many markets but with large variations by geography and customer. The customer by customer renewal process for 2011 is well progressed. Good demand growth for electronic tools is continuing. Another year of modest revenue growth for Elsevier is expected. Business Model, Distribution Channels and Competition Science and medical research is principally disseminated on a paid subscription basis to the research facilities of academic institutions, government and corporations, and, in the case of medical and healthcare journals, also to individual practitioners and medical society members. Advertising and promotional revenues are derived from pharmaceutical and other companies. Electronic products, such as ScienceDirect, Scopus and MDConsult, are generally sold direct to customers through a dedicated sales force that has ofﬁces around the world. Subscription agents facilitate the sales and 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 science and medical publishing 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. Workﬂow tools face similar competition as well as from software companies and internal solutions developed by customers. 2010 ﬁnancial performance Elsevier saw modest growth reﬂecting a constrained customer budget environment. Revenues and adjusted operating proﬁts increased by 2% and 4% respectively at constant currencies, with the improvement in adjusted operating margin reﬂecting increased cost efﬁciency. Science & Technology saw 3% revenue growth at constant currencies. ScienceDirect and other journal subscription revenues developed much as expected in a difﬁcult academic budget environment. Content quantity, quality and usage continued to grow, reﬂecting the growth in research activity worldwide. The Scopus abstract and indexing database performed particularly well with a signiﬁcant increase in subscriptions. New content sets and product features were added and Scopus saw much higher usage with a 30% increase in customer searches. Other specialist databases also grew well as the development of new features and content continued. In reference and education, in a smaller frontlist publishing year, electronic sales grew well and print revenue decline stabilised. 16 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 16 1/3/11 11:18:11 Revenue Science & Technology Health Sciences Adjusted operating proﬁt 2010 £m 1,015 1,011 2,026 724 2009 £m 985 1,000 1,985 693 Change +3% +1% +2% +4% Change at constant currencies +3% 0% +2% +4% Change underlying +3% +1% +2% +4% Revenue % of Reed Elsevier Adjusted operating profit % of Reed Elsevier Revenue £m Adjusted operating profit £m 1,985 2,026 693 724 1,521 1,507 1,700 568 465 477 Elsevier 34% Elsevier 46% 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 The SciVerse platform combines content from Elsevier products with a new discovery hub and community developed applications Leading web-based chemical reaction workﬂow solutions for industrial chemists Online clinical information service, including reference works, journals and drug information Science Direct is the world’s largest database of scientiﬁc and medical research articles Access to history of drug development through unique online platform Online evidence-based content to inform nursing clinical decisions at the point of care Scopus is the world’s largest scientiﬁc abstract and citation database Premier life sciences journal with the highest impact factor in cell biology Integrated, online resources that complement Elsevier’s nursing textbook content SciVal provides funding intelligence and research performance tools for academic institutions One of the world’s leading medical journals since 1823 Clinical decision support tool to identify areas for improvement in medical practice O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 17 1/3/11 11:18:18 Annual Reports and Financial Statements 2010 Reed Elsevier 17 EVALUATING RISK 18 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 18 1/3/11 11:18:25 LEXISNEXIS RISK SOLUTIONS PROVIDES DATA AND ANALYTICS TO EVALUATE AND MANAGE RISKS ASSOCIATED WITH TRANSACTIONS AND IMPROVE PERFORMANCE The identity verification and risk evaluation data and analytics provided by LexisNexis Risk Solutions utilise a comprehensive database of public records and proprietary information, which is the largest database of its kind in the US market today. 47213_Text_p001-055.indd 19 1/3/11 11:18:31 Annual Reports and Financial Statements 2010 Reed Elsevier 19 ENABLING BETTER LEGAL DECISI 20 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 20 1/3/11 11:19:03 ONS LEXISNEXIS LEGAL & PROFESSIONAL IS A WORLD LEADING PROVIDER OF CONTENT AND INFORMATION SOLUTIONS Serving customers in more than 100 countries, LexisNexis provides resources and services that inform decisions and increase productivity. 47213_Text_p001-055.indd 21 1/3/11 11:19:15 Annual Reports and Financial Statements 2010 Reed Elsevier 21 LexisNexis’ content and tools enable legal, risk and other professional customers to make more effective and efﬁcient decisions In 2010, LexisNexis comprised the two market facing businesses: Risk Solutions and Legal & Professional supported by shared service functions. These businesses are described on the following pages. Total LexisNexis revenues for the year ended 31 December 2010 were £2,618m. During 2010, LexisNexis was headquartered in New York and at 31 December 2010 had 14,700 employees worldwide. Revenue Adjusted operating proﬁt 2010 £m 2,618 592 2009 £m 2,557 665 Change +2% -11% Change at constant currencies +1% -12% Change underlying +1% -12% Revenue £m 1,940 1,570 1,594 2,557 2,618 Adjusted operating proﬁt £m 665 592 513 380 406 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2010 ﬁnancial performance LexisNexis returned to overall revenue growth, with strong growth in the risk business. Subscription revenues in the legal business continued to reﬂect the lower levels of law ﬁrm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing. LexisNexis revenues increased by 1% and adjusted operating proﬁts declined 12% at constant currencies, both before and after small acquisitions and disposals. The adjusted operating margin declined 3.4 percentage points due to the revenue decline in the legal businesses combined with signiﬁcant increases in spend on new legal product development, related infrastructure, sales & marketing, and restructuring costs. This was in part mitigated by continuing cost actions, including further outsourcing of production and engineering activities, supply chain management and operational streamlining in the legal businesses and the further integration within risk solutions. Underlying cost growth was 6%. The reported operating margin, after amortisation of acquired intangible assets and acquisition integration costs, was 12.4%, down 0.8 percentage points from the prior year which included exceptional restructuring costs. There were no exceptional restructuring costs in 2010 other than in respect of acquisition integration. 22 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 22 1/3/11 11:19:16 Effective from January 2011, the LexisNexis business has been split into two separate businesses – Risk Solutions and Legal & Professional – to sharpen the management focus on their respective markets. The division of 2010 adjusted operating proﬁt between the two businesses is provided in the chart below on a pro forma basis for information only. 2010 Risk Solutions Legal & Professional Total * 2010 pro forma split of adjusted operating proﬁt Revenue £m 927 1,691 2,618 Adjusted operating proﬁt* £m 354 238 592 %* Margin 38.2% 14.1% 22.6% In LexisNexis Legal & Professional, the 2008 pro forma adjusted operating margin is estimated to have been in the low 20s%. The decline in adjusted operating margin to the 2010 level of 14.1% (pro forma) has been driven by two main factors: ﬁrst, a decline in revenues of approximately 3.5% per annum (5% decline in 2009 and 2% decline in 2010); and secondly, growth in costs in the business of approximately 2% per annum as restructuring savings and other cost efﬁciencies have been offset by increased spend on product development and sales & marketing. Going forward, the adjusted operating margin is expected to remain broadly ﬂat in 2011. In the medium term, margin is expected to recover gradually. The adjusted operating margin of LexisNexis in 2010 was 22.6%, with Risk Solutions at 38.2% and Legal & Professional at 14.1% (on a pro forma basis). The overall LexisNexis margin has declined over the last two years from 26.4% in 2008. In LexisNexis Risk Solutions, the ChoicePoint business represents the majority of the revenue. When it was acquired in 2008 it had a pro forma adjusted operating margin of 24% and the existing LexisNexis risk business had an estimated operating margin in the mid to high 30s%. Since then, the combined Risk Solutions margins have beneﬁted from cost efﬁciencies derived from the leveraging of resources across Risk Solutions, LexisNexis and Reed Elsevier in product technology, operations and other shared services to reach the 2010 pro forma 38%. Management focus on cost efﬁciencies will continue. LexisNexis Risk Solutions LexisNexis Risk Solutions provides data and analytics that enable its customers to evaluate and manage risks associated with transactions and improve performance Risk Solutions is a leading provider of workﬂow solutions that combine proprietary, public and third-party information, analytics and advanced technology. These solutions assist customers in evaluating, predicting and managing risk and improving operational effectiveness, predominantly in the US. support functions including compliance and marketing. A number of transactional support activities, including some ﬁnancial processes, are provided from a shared services organisation managed by the LexisNexis Legal & Professional business. The Legal & Professional business also distributes Risk Solutions products into legal markets in the US and internationally. Total revenues for the year ended 31 December 2010 were £927m. LexisNexis Risk Solutions is headquartered in Alpharetta, Georgia and has principal operations in Georgia, Florida, Connecticut and Ohio, and has 4,400 employees. LexisNexis Risk Solutions is organised around market facing industry/sector groups: insurance, government, screening, and business services (including the receivables management, ﬁnancial services and corporate groups), of which insurance is the most signiﬁcant. These groups are supported by a shared infrastructure providing technology operations, data management, and other Insurance solutions provides the most comprehensive combination of data, analytics and software to property and casualty (P&C) personal and commercial insurance carriers in the US to improve critical aspects of their 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 and provide important inputs to underwriting policy. Recently introduced products include Data Pre-Fill, which provides accurate information directly into the insurance workﬂow on customers, potential customers and their auto ownership, and Current Carrier, which identiﬁes current or previous insurance as well Annual Reports and Financial Statements 2010 Reed Elsevier 23 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 23 1/3/11 11:19:16 between insurance companies and rising levels of internet quoting and policy binding. In screening, demand is driven mainly by employer hiring activity and, in receivables management, by levels of consumer debt defaults and the prospects of recovering those debts; both of these markets are linked to employment levels in the US. A number of factors support demand for risk solutions in the ﬁnancial services market, including new credit originations, fraud losses and regulatory compliance requirements. Growth in government markets is driven by the increasing use of data and analytics to combat criminal activity and fraud, and to address security issues. The level and timing of demand in this market is inﬂuenced by government funding considerations. Strategic Priorities Risk Solutions’ strategic goal is to make businesses and government more effective, through a better understanding of the risks associated with individuals, other businesses and transactions and by providing the tools to help manage those risks. To achieve this, Risk Solutions is focused on: expanding the range of products across the insurance carrier workﬂow; leveraging our advanced technology capabilities; delivering innovative new products and expanding the range of risk management solutions across adjacent markets; and completing the multi-year process of integrating the ChoicePoint businesses acquired in September 2008. Business Model, Distribution Channels and Competition Risk Solutions’ products are predominantly sold on a transactional basis directly to insurance carriers, other corporations and government entities. Risk Solutions and Verisk sell data and analytics to insurance carriers but largely address different activities. Risk Solutions’ principal competitors include Thomson Reuters and First Data Corporation in a number of segments that utilise public records. Major competitors in pre-employment screening are Altegrity and Symphony Technology Group. LexisNexis Risk Solutions as any lapses in coverage. In 2010, the Insurance Exchange was launched enabling the sharing of customer application data among participating insurance agents, brokers and carriers. The exchange is directed at improving the efﬁciency and transparency of the independent agent-based distribution system for insurance products. Government solutions provides investigative solutions to US federal, state and local law enforcement and government agencies to help solve cases and identify and locate individuals. Additionally, Government solutions helps mitigate risks of fraud, waste and abuse in government programmes. Screening solutions focuses on employment-related, resident and volunteer screening, with the largest segment being pre-employment screening services offered across a number of industries including retail, recruitment, banking, and professional services. Receivables Management solutions helps debt recovery professionals in the segmentation, management and collection of consumer and business debt. Financial Services provides ﬁnancial institutions with risk management, identity veriﬁcation, fraud detection, credit risk management, and compliance solutions. These include “know your customer” and anti-money laundering products. The Corporate group provides risk and identity management solutions for customers in retail, telecommunications and utilities. The Risk Solutions business also provides identity veriﬁcation and risk related information to the legal industry. During 2010, a particular focus has been on developing a pipeline of new solutions for select adjacent markets, sectors and geographies. The identity veriﬁcation and risk evaluation solutions provided by Risk Solutions utilise a comprehensive database of public records and proprietary information, which is the largest database of its kind in the US market today. LexisNexis Accurint is the ﬂagship identity veriﬁcation product, powered by the powerful High Performance Cluster Computing (HPCC) technology. This technology enables Risk Solutions to provide its customers with highly relevant search results swiftly and to create new, low-cost solutions quickly and efﬁciently. Market Opportunities Risk Solutions operates in markets with strong long term underlying growth drivers: insurance underwriting transactions; insurance, healthcare and entitlement fraud; credit defaults and ﬁnancial fraud; regulatory compliance and due diligence requirements surrounding customer enrolment and employment; and security considerations. In the insurance segment, growth is supported by increasing transactional activity in the auto and property insurance markets and the increasing adoption by insurance carriers of more sophisticated data and analytics in the prospecting, underwriting and claims evaluation processes, to determine appropriate risk pricing, increase competitiveness and improve operating cost efﬁciency. Transactional activity is driven by the levels of insurance quoting as consumers seek better policy terms, stimulated by increasing competition Growth in insurance underwriting transactions Growth in background screens Growth in insurance underwriting transactions is supported by increased consumer demand for quotes, encouraged by insurance industry promotion and online quoting +11% Strong employee hiring activity, particulary in the retail sector, and share gains have driven the increase in background screens +11% 24 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 24 1/3/11 11:19:17 Revenue 2010 £m 927 2009 £m 865 Change +7% Change at constant currencies +6% Change underlying +6% Revenue % of Reed Elsevier Adjusted operating profit % of Reed Elsevier Revenue £m Adjusted operating proﬁt* £m 927 865 354 378 Risk Solutions 15% Risk Solutions 23% 2008 2009 2010 2010 * On a pro forma basis O v e r v e w i i B u s n e s s r e v e w i 2010 ﬁnancial performance LexisNexis Risk Solutions grew revenues 6% at constant currencies, with the insurance segment continuing to grow strongly and the more cyclical markets, most notably employment screening, returning to growth. C.L.U.E.® Most comprehensive US personal insurance claims database The insurance solutions business saw revenue growth of 8% driven by high transactional activity in the auto and property insurance markets and increasing sales of data and analytics products. The transactional activity growth reﬂects increasing levels of insurance quoting as consumers seek better policy terms stimulated by sustained promotion by insurance companies and the growth of internet quoting and policy binding. A continuous pipeline of new data and analytics products also drives growth, ranging from helping insurers better assess underwriting risk to reducing cost and improving the effectiveness of the insurers’ workﬂow, from initial potential customer contact to policy renewal. The more cyclical businesses returned to growth as the US economy recovered. The employment screening business grew 12%, compared to a decline of 22% in the prior year, as major retailers and other employers increased hiring activity. Business services saw good growth in the ﬁnancial services segment with increasing demand for anti-money laundering and fraud prevention products. Demand growth in government markets for identity veriﬁcation and authentication information and analytics was however held back somewhat by longer sales cycles reﬂecting the uncertainty over government budgets. Good growth is expected to continue in insurance with high transactional activity and increasing sales of data and analytics. A strong pipeline of product initiatives continues across the Risk Solutions businesses. LexisNexis® Identity Management Range of solutions to help clients verify that an identity exists and authenticate individuals LexisNexis® Anti-Money Laundering Solutions Content and information for anti- money laundering compliance, risk mitigation and enhanced due diligence LexisNexis® Employment Screening Leading US provider of pre-employment screening solutions i F n a n c a i l r e v e w i G o v e r n a n c e LexisNexis®(cid:3)(cid:39)(cid:68)(cid:87)(cid:68)(cid:3)(cid:51)(cid:85)(cid:72)(cid:191)(cid:79)(cid:79) Tool to automate insurance application process providing critical information insurers need to quote and underwrite a policy LexisNexis® Insurance Exchange Platform for sharing of customer application data designed to improve and enhance ﬂow of application data and documents Accurint® for Collections The leading online US solution to help locate debtors quickly and accurately LexisNexis® Resident Screening One of the most comprehensive US multi-family housing screening and collections services Accurint® LE Plus Integrated suite of tools for US law enforcement investigators i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 25 1/3/11 11:19:18 Annual Reports and Financial Statements 2010 Reed Elsevier 25 LexisNexis Legal & Professional LexisNexis Legal & Professional provides legal, tax, regulatory and news & business information and analysis to legal, corporate, government, accounting and academic markets LexisNexis Legal & Professional is a world leading provider of content and information solutions for legal and other corporate markets. Serving customers in more than 100 countries, LexisNexis Legal & Professional provides resources and services that inform decisions and increase productivity. Total revenues for the year ended 31 December 2010 were £1,691m. LexisNexis Legal & Professional is headquartered in New York and has principal operations in Ohio and New Jersey in the United States, in London and Paris in Europe, Canada, and in several other countries in Africa and Asia Paciﬁc. It has 10,300 employees worldwide. LexisNexis Legal & Professional is organised through market facing businesses, the most signiﬁcant of which are Research & Litigation Solutions and Marketing & Business Solutions in the US and LexisNexis Europe, Middle East, Africa & Australasia and LexisNexis Asia (together reported as International) outside the US. These are supported by global shared services organisations providing platform and product development, operational and distribution services, and other support functions. LexisNexis is a leading provider of legal and business information and analysis to law ﬁrms, corporations and government throughout the US. Electronic information solutions and innovative workﬂow tools, developed through close collaboration with customers, help law ﬁrms and other legal and business professionals make better informed decisions in the practice of law and in managing their businesses. In Research & Litigation solutions, the 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 also partners with law schools to provide services to students as part of their training. In October 2010, LexisNexis launched Lexis Advance for Solos, which is a legal research tool built speciﬁcally for the US solo attorney market and is the ﬁrst product to be launched on the new LexisNexis research platform. Both the product and the platform are version 1.0 and over the next few years LexisNexis will be introducing products of increasing sophistication and depth for speciﬁc customer segments and to perform speciﬁc functions across the legal markets. Earlier in the year, LexisNexis introduced Lexis for Microsoft Ofﬁce, which enables lawyers to conduct their Lexis searches within Microsoft applications such as Word and Outlook. Other product introductions included LexisNexis Verdict & Settlement Analyzer, which provides data and analytics on previous settlements. In the business of law, Marketing & Business solutions 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 Lawyers.com, showcasing the qualiﬁcations and credentials of more than one million lawyers and law ﬁrms in the US and internationally, and providing law ﬁrms with website development, search engine optimisation and other web marketing services. 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. In International markets outside the United States, LexisNexis 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, France, Australia and Canada. LexisNexis is focused across all its geographies on leveraging best in class content and its market leading international online product platform to deliver innovative electronic information services and workﬂow tools to help legal and business professionals make better informed decisions more efﬁciently. Penetration of online information services is growing and electronic revenues now account for over 50% of LexisNexis total revenues outside the US. Growth in Lawyers.com trafﬁc Growth in international online legal solutions Increase in consumers searching for lawyers online and growth in law ﬁrm online marketing drives growth in trafﬁc to Lawyers.com +12% Growth in international (outside US) online solutions and workflow tools to help lawyers make better informed decisions more efficiently +6% 26 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 26 1/3/11 11:19:19 In the UK, LexisNexis is a leading legal information provider in its market. It delivers a wide array of content and services, comprising an unrivalled collection of primary and secondary legislation, case law, expert commentary, and forms and precedents. Its extensive portfolio includes Halsbury’s Laws of England, Simon’s Taxes and Butterworths Company Law Service delivered through the UK’s ﬂagship online product LexisLibrary and in print. Other electronic products include Lexis Legal Intelligence, a resource on legal practice for lawyers, and media monitoring and reputation management tools for the corporate market such as the NexisDirect research tool. Additionally, LexisNexis provides law ﬁrms with practice management solutions. In 2010, LexisNexis continued to build its UK legal practical guidance service LexisPSL, and now has ten practice areas including company commercial, dispute resolution and employment. LexisPSL provides practical guidance on the application of law to complement and integrate with LexisNexis authoritative legal content and commentaries and legal forms and precedents. In France, LexisNexis 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. These content sources are, as in the UK, being combined with new content and innovative workﬂow tools to develop practical guidance and practice management solutions. During 2010, LexisNexis divested its legal publishing business in Germany as the investment required to build proﬁtable scale was not considered to have adequate prospective returns. The news and business activities in Germany were retained. Market Opportunities Longer term growth in legal and regulatory markets worldwide is driven by increasing levels 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 practice management tools that improve the quality and productivity of research, deliver better legal outcomes, and improve business performance. Notwithstanding this, legal activity and legal information markets are also inﬂuenced by economic conditions and corporate activity, as has been seen most recently with the dampening impact on demand of the recent global recession and the somewhat subdued environment that has followed in North America and in Europe. Strategic Priorities LexisNexis Legal & Professional’s strategic goal is to enable better legal outcomes and 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 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; international expansion and growth of online products and solutions; increasing LexisNexis’ presence in emerging markets; and improving operational efﬁciency. In the US, the focus is on the continuing development of the next generation of legal research and practice solutions and a major upgrade in operations 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. 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. Outside the US, LexisNexis is focused on growing online services and developing further high quality actionable content and workﬂow tools, including the development of practical guidance and practice management applications. Additionally, LexisNexis is focusing on the expansion of its activities in emerging markets. Business Model, Distribution Channels and Competition LexisNexis Legal & Professional products and services are generally sold directly to law ﬁrms and to corporate, government and academic customers on a paid subscription basis, with subscriptions with law ﬁrms often under multi year contracts. Principal competitors for LexisNexis in US legal markets are West (Thomson Reuters), CCH (Wolters Kluwer) and BNA, and Bloomberg and Factiva (News Corporation) in news and business information. Competitors in litigation solutions also include software companies. Major international competitors include Thomson Reuters, Wolters Kluwer and Factiva. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 27 1/3/11 11:19:19 Annual Reports and Financial Statements 2010 Reed Elsevier 27 LexisNexis Legal & Professional 2010 ﬁnancial performance The LexisNexis Legal & Professional business saw a small revenue decline of 2% at constant currencies reﬂecting the impact on renewals and print product of the low levels of law ﬁrm activity and employment. Corporate, government and academic markets were lower. US revenues declined 2% at constant currencies, or 1% underlying before the net effect of small disposals and acquisitions. This compares to a decline of 6% in the prior year. The decline was largely driven by the continued contraction in corporate, government and academic markets which saw revenues 5% lower in a challenging budgetary environment for customers, impacting in particular sales of the news & business information databases to corporate customers, which were down 13%. US law ﬁrm revenues were up 2%; these would however have been down 2% ignoring the effect of last year’s revenue recognition change in Martindale Hubbell. Law ﬁrm subscription, print and transactional revenues remained under pressure as contract renewals reﬂected the lower levels of law ﬁrm activity and lawyer employment than was the case when they were last agreed, typically two to three years ago. Aside from this late cycle impact on renewals, which by the end of 2011 will be fully reﬂected in the base, legal markets in the US stabilised and good growth was seen in new sales. Good growth continued in litigation solutions, practice management and other services for law ﬁrms. In December 2010, LexisNexis acquired StateNet, the leading publisher of information on the progress of prospective legislation through the US legislative process. Outside the US, International revenues declined 2% at constant currencies. Online legal solutions saw revenues up 6% with strong demand for technology enabled content and new workﬂow tools. Market penetration of these services continues to increase across all geographies. Print sales declined, particularly in the UK as law ﬁrms cut back on spending and place increasing reliance on online services. Electronic revenues now account for more than 50% of the International business. Continued good progress is being made in the development of the next generation of legal products and advanced operational infrastructure, which will be progressively introduced over the next few years. While law ﬁrms, corporations and governments remain cautious in their spending, new sales continue to be higher and the environment is more stable. Revenue recovery is expected to be gradual, with the adjusted operating margin broadly ﬂat in 2011. 28 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 28 1/3/11 11:19:19 Revenue US International Total 2010 £m 1,121 570 1,691 2009 £m 1,126 566 1,692 Change 0% +1% 0% Change at constant currencies -2% -2% -2% Change underlying -1% -2% -2% Revenue % of Reed Elsevier Adjusted operating profit % of Reed Elsevier Revenue £m Adjusted operating proﬁt* £m 1,692 1,691 1,562 238 O v e r v e w i i B u s n e s s r e v e w i Legal & Professional 28% Legal & Professional 15% 2008 2009 2010 2010 * On a pro forma basis Lexis® Unparalleled legal, news and public records content for legal professionals Lexis® for Microsoft®(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72) Integration of LexisNexis content, open Web search and Microsoft Ofﬁce Lexis® Library LexisNexis® UK ﬂagship legal online product Matthew Bender® Critical legal analysis, checklists, forms, and practice guides authored by industry experts covering over 50 major practice areas LexisNexis® Verdict & Settlement Analyzer Early case assessment tool for researching and evaluating the risk and opportunity associated with a case Lexis® PSL LexisNexis® UK legal practical guidance service CaseMap® Software allowing litigators to assess and analyse case information Lawyers.comSM Leading website for consumers seeking legal information and counsel Juris Classeur Largest, most authoritative online legal resource in France i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 29 1/3/11 11:19:21 Annual Reports and Financial Statements 2010 Reed Elsevier 29 FORGING BUSINESS RELATIO 30 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 30 1/3/11 11:19:33 NSHIPS REED EXHIBITIONS IS THE WORLD’S LEADING EVENTS BUSINESS, WITH OVER 450 EVENTS IN 35 COUNTRIES In 2010 Reed Exhibitions brought together over six million event participants from around the world, generating billions of dollars in business for its customers. 47213_Text_p001-055.indd 31 1/3/11 11:19:42 Annual Reports and Financial Statements 2010 Reed Elsevier 31 Reed Exhibitions is the world’s leading events business, with over 450 events in 35 countries Reed Exhibitions’ portfolio of exhibitions and conferences serves 44 industry sectors across the Americas, Europe, the Middle East and Asia Paciﬁc. In 2010 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 2010 were £693m. Reed Exhibitions is a global business headquartered in London and has principal ofﬁces in Paris, Vienna, Norwalk Connecticut, Abu Dhabi, Beijing, Tokyo, Sydney and São Paulo. Reed Exhibitions has 2,600 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; alternative energy, oil & gas; engineering, manufacturing & processing; gifts; interior design; IT & telecoms; jewellery; life sciences & pharmaceuticals; marketing; property & real estate; sports & recreation; and travel. Well represented in the developed world, increasingly Reed Exhibitions is investing in the developing economies. Reed Exhibitions expanded in 2010 through new launches in the beauty and healthcare sectors in China; environment, construction and machinery in Brazil; and security in the UAE. 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. To achieve this, Reed Exhibitions is focused on: developing the portfolio through a combination of new launches, strategic partnerships and selective acquisitions in high growth sectors and geographies; and further developing websites, analytics and other online tools to enhance the exhibition experience and add to customer return on investment in event participation. Business Model, Distribution Channels and Competition The substantial majority of Reed Exhibitions’ revenues are from sales of exhibition space. The balance includes conference fees, advertising in exhibition guides, sponsorship fees and, for some shows, admission charges. Exhibition space is sold directly or through local agents where applicable. Reed Exhibitions often works in collaboration with trade associations, which use the events to promote access for members to domestic and export markets, and with governments, for whom events can provide important support to stimulate foreign investment and promote regional and national enterprise. 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), Informa IIR and Messe Frankfurt. Competition also comes from industry trade associations and convention centres and exhibition hall owners. 2010 ﬁnancial performance Reed Exhibitions saw good revenue growth with the net cycling in of biennial exhibitions and a signiﬁcantly moderated decline in annual show revenues. Revenues and adjusted operating proﬁts were up 9% and 4% respectively at constant currencies, or 8% and 4% before minor acquisitions. Underlying revenues, excluding the effect of biennial show cycling, declined by 3% compared with a 6% decline in the ﬁrst half, with stable performance or modest growth in all major markets in the second half as conditions progressively improved. The 2010 shows have seen overall success, with growing attendances at the majority of annual events and exhibitor numbers up 4% in the top 50 annual shows. In the largest market, Europe, underlying revenues excluding cycling were lower by 4% compared with a 16% decline in the prior year. Particular successes were the World Travel Market in London and InCosmetics and a robust Mapic (retail real estate show) in France. Growth in exhibitor numbers Number of event launches The customer value proposition of face to face events continues to be strong with exhibitor numbers increasing at top 50 annual events +4% Stepped up new launch programme including 14 new events in Asia 35 32 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 32 1/3/11 11:19:43 Revenue Adjusted operating proﬁt 2010 £m 693 158 2009 £m 638 152 Change +9% +4% Revenue % of Reed Elsevier Adjusted operating profit % of Reed Elsevier Revenue £m 707 693 638 577 522 Change at constant currencies +9% +4% Change underlying +8% +4% Adjusted operating profit £m 183 152 158 139 129 Reed Exhibitions 11% Reed Exhibitions 10% 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 The US also saw signiﬁcantly moderated declines with revenues down by 5% compared to 15% in 2009. By contrast, the shows in China, Russia, the Middle East and Brazil grew strongly although some of these are joint ventures and are therefore not included in the reported revenues. Successful shows in emerging markets included Salão do Automóvel motor show in Brazil, pharmaceutical and aluminium shows in China, and the Intercharm beauty show in Russia. Reed Exhibitions now operates nearly 100 shows in emerging markets with approximately 40 shows in each of Brazil and China. Reed Exhibitions signiﬁcantly stepped up its launch programme in 2010 with 35 new events of which 14 were in Asia, including the successful Cloud Computing show in Japan, and the PAX East games event in Boston. The decline in adjusted operating margin primarily reﬂects the revenue decline in annual shows and increased spend, including on the development of websites, analytics and other innovative online tools to increase the effectiveness and efﬁciency of events for both exhibitors and attendees, partly mitigated through cost savings. The reported operating margin, after amortisation of acquired intangible assets, was 18.3%, up from 12.4% in the prior year which included impairment charges on certain minor shows and exceptional restructuring costs. There were no exceptional restructuring costs in 2010. The outlook is encouraging, with momentum building in annual shows and signiﬁcant launch activity continuing. 2011 will see the net cycling out of biennial shows, particularly in the ﬁrst half. The world’s entertainment market World’s platform for sustainable future energy solutions Premier global event for the travel market One of the largest and longest standing electronics manufacturing trade events in China International offshore oil & gas trade show Leading international exhibition for personal care ingredients A world leading construction exhibition One of the largest business gifts & home fairs in China The North American jewellery industry’s premier trade event International exhibition of environmental equipment, technology and services O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 33 1/3/11 11:19:47 Annual Reports and Financial Statements 2010 Reed Elsevier 33 GAINING BUSINESS INSIGHTS 34 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 34 1/3/11 11:20:14 REED BUSINESS INFORMATION IS A PROVIDER OF BUSINESS INFORMATION, DATA AND MARKETING SOLUTIONS IN MULTIPLE FORMATS 47213_Text_p001-055.indd 35 1/3/11 11:20:30 Annual Reports and Financial Statements 2010 Reed Elsevier 35 Reed Business Information is a provider of business information, data and marketing solutions in multiple formats Reed Business Information (RBI) provides data services, information and marketing solutions to business professionals in the UK, the US, Continental Europe, Asia and Australia. It produces industry critical data services and lead generation tools, and over 100 online community and job sites. It publishes over 100 business magazines with market leading positions in many sectors. Total revenues for the year ended 31 December 2010 were £718m. RBI is a global business headquartered in London and has principal operations in Sutton in the UK, Amsterdam and Doetinchem in the Netherlands, Boston, Los Angeles and Norcross, Georgia in the US as well as Paris, Milan, Madrid, Bilbao, Sydney and Shanghai. RBI has 5,300 employees worldwide. RBI’s data services enable businesses and professionals to enhance productivity through quicker and easier access to insightful and comprehensive industry information. Online marketing solutions, business to business magazines, online lead generation services and community websites provide effective marketing channels for advertisers to reach target audiences and for industry professionals to access valued information. In 2010, RBI was signiﬁcantly restructured and refocused, to reﬂect the reduction in revenues caused by recession, the accelerated migration of customer marketing spend to web media, and the continued growth and opportunity in data services. During the year, the sale and closure of the US controlled circulation magazines and certain other titles were completed, together with the sale of RBI Germany and clusters of titles in the Netherlands, UK, Italy, Spain, France, Ireland and Asia. The business was redeﬁned and is now managed by key asset group – data services, online marketing solutions, leading brands, and other magazine brands/websites – and speciﬁc strategies and action plans have been developed for each group. RBI’s market-leading data services include ICIS, a global information and pricing service for the petrochemicals and energy sector; Bankers Almanac, a leading provider of reference data on the banking industry; XpertHR, an online service providing HR data, regulatory guidance, best practices and tools for HR professionals; and Reed Construction Data, a provider of online construction data to the North American construction industry. In 2010, RBI entered into an agreement to increase its interest in CBI China, the market leading petrochemical and energy information service in China, and now has majority ownership. This transaction was completed in January 2011 and has brought ICIS unrivalled coverage of the important and growing Chinese and Asian chemicals and energy markets, considerably strengthening its global position. The major online marketing solutions include: 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 the Elsevier magazine in the Netherlands. Market Opportunities The growing need for authoritative industry data and information is driving demand for online subscription data services and providing new opportunities. Business to business marketing spend has historically been driven by levels of corporate proﬁtability, which itself has followed GDP growth, and business investment. Strategic Priorities RBI’s strategic goal is to help business professionals achieve better outcomes with information and decision support in its individual markets. Its areas of strategic focus are: further growing the data services businesses; capturing the economic recovery in the major online marketing solutions 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 with revenue expectations and drive further organisational effectiveness. Business Model, Distribution Channels and Competition Across the RBI portfolio, user and subscription revenues now account for 59% of the total business with the remaining 41% derived from print and online advertising and lead generation. RBI electronic revenue streams now account for 46% of total revenue. 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 data services and titles compete with a number of publishers on a service and title by title basis including: UBM, McGraw Hill, Wolters Kluwer and Incisive as well as many niche and privately- owned competitors. RBI competes for online advertising with other business to business websites as well as Monster, Google and other search engines. Advertising revenue % Online revenue % Significant transformation of RBI focusing on subscription data services is reducing its exposure to advertising revenues 2010 2008 41% 54% Demand for online data services and marketing solutions drives increasing proportion of online revenue 2010 2008 46% 34% 36 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 36 1/3/11 11:20:30 Revenue Adjusted operating proﬁt 2010 £m 718 89 2009 £m 891 89 Change -19% 0% Change at constant currencies -20% 0% Change underlying -2% +4% Revenue % of Reed Elsevier Adjusted operating profit % of Reed Elsevier Revenue £m Adjusted operating profit £m 896 906 987 891 121 126 112 718 89 89 Reed Business Information 12% Reed Business Information 6% 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 O v e r v e w i i B u s n e s s r e v e w i 2010 ﬁnancial performance Reed Business Information saw good growth in data services and online marketing solutions and signiﬁcantly moderated declines in advertising markets. The portfolio was reshaped through disposals and closures and costs were signiﬁcantly reduced. Revenues were down 20% and adjusted operating proﬁts ﬂat at constant currencies. Excluding portfolio changes, underlying revenues were down 2% and adjusted operating proﬁts increased by 4%. The major data services businesses, which account for approximately 20% of RBI revenues, were up 4% with strong growth in ICIS, Bankers Almanac and XpertHR, tempered by weakness in RCD serving the US construction markets. The major online marketing solutions businesses, accounting for approximately 12% of RBI revenues, were up 10%, with a strong recovery in Totaljobs online recruitment services and continuing strong growth in the Hotfrog web search business. Business magazines and related services, accounting for approximately 68% of RBI revenues, saw underlying revenues 6% lower driven by print advertising declines which more than offset online growth. The 2.4% increase in adjusted operating margin reﬂects the signiﬁcant restructuring of the business, with the disposal or closure of unproﬁtable assets and a 3% reduction in costs of the continuing business, with consolidation of operations, procurement savings and tight cost control. The reported operating margin, after amortisation of acquired intangible assets and exceptional restructuring costs, was 0%, up 18 percentage points principally reﬂecting no impairment charges in 2010. Data services and online marketing solutions are seeing continued good growth. Portfolio changes and improving markets are also expected to beneﬁt 2011. i F n a n c a i Global provider of news and pricing data to the chemical and energy industries Leading online user generated business directory with versions in 38 countries A leading supplier of banking intelligence to the global ﬁnancial industry Pioneers in B2B lead generation, emedia specialises in accelerated demand generation from permission-based audiences Leading HR legal compliance and good practice toolkit Premier source of entertainment business news and analysis since 1905 l r e v e w i G o v e r n a n c e Construction data, building product information, cost data, market analysis and advertising channels to construction industry professionals Leading news and opinion magazine in the Netherlands UK generalist job website attracting over 3.7 million jobseekers and carrying over 125,000 jobs every month World’s leading science and technology media brand i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 37 1/3/11 11:20:36 Annual Reports and Financial Statements 2010 Reed Elsevier 37 Corporate responsibility Corporate responsibility ensures good management of 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, helps us determine material corporate responsibility issues. The Reed Elsevier Board, senior management and the Corporate Responsibility Forum oversee corresponding objectives and monitor performance against them – encompassing our unique contributions as a business, as well as governance, people and community, customers, health and safety, supply chain, and environment. Our unique contributions We focus on areas where we can make a positive impact on society through our knowledge, resources and skills. These include universal sustainable access to information, advance of science and health, promotion of the rule of law and justice, and protection of society. Elsevier, the world’s largest scientiﬁc publisher, has an important role to play in advancing human welfare and economic progress in places where information resources are often scarce. Among key programmes is Research4Life, in partnership with United Nations agencies and other publishers, which provides core and cutting-edge scientiﬁc information to researchers in more than 100 developing countries. In 2010, there were 3.1 million Research4Life article downloads from ScienceDirect – a 20% increase over 2009. In the year, the Elsevier Foundation, through its Innovative Libraries in Developing Countries programme, committed over $300,000 to support libraries with grants to improve infrastructure-building access to primary source material. Recipients included HIV/AIDS Audio-Visual Archive, University of Cape Town, South Africa; Library Infrastructure Boost, University of Hargeisa, Somaliland; and the Egyptian National Cancer Database. LexisNexis concentrates on promoting justice. Its Rule of Law Resource Center is a free online community covering topics like human rights, protecting minority communities, and anti-human trafﬁcking. In 2010, LexisNexis signed an agreement to provide content and support for the World Justice Project’s Rule of Law Index, a new quantitative assessment tool ranking over 75 countries. As a founder of the UK’s International Law Book Facility, since 2005, LexisNexis has provided 5,000 legal texts to assist 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. LexisNexis Risk Solutions works to protect society by supporting non-proﬁt organisations such as the National Center for Missing & Exploited Children (NCMEC) and the Cal Ripken Sr. Foundation. Since 2005, LexisNexis has completed nearly 6 million volunteer background checks for such organisations, identifying over 870,000 individuals with criminal convictions, including more than 58,000 registered sex offenders. Employees helped create the ADAM programme which assists in the safe recovery of missing children. In partnership with NCMEC, ADAM distributes missing child posters to police, news media, schools, businesses, medical centres, and other recipients within a speciﬁc geographic search area. Since launching in 2000, 117 children have been located. Reed Exhibitions provides platforms at its trade shows to organisations that support our corporate responsibility focus areas. At the 2010 World Travel Market, its global event for the travel industry, Reed Exhibitions marked World Responsible Tourism Day with the Responsible Tourism Awards, recognising sector initiatives in areas like poverty reduction, low carbon transport and technology, and conservation. Over the last seven years, Reed Exhibitions has given free space at the London Book Fair to Book Aid 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. 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 initiatives like the 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 $850,000 to aid children; in 2010 beneﬁciaries included LA’s BEST, Education through Music, Girl Up, and Pencils of Promise. Variety has built on the Power of Youth model to launch Power of Women and the Power of Comedy to highlight those using their celebrity to beneﬁcial effect. Drawing on expertise across Reed Elsevier, in 2010 we launched the Reed Elsevier Environmental Challenge to identify projects that improve sustainable access to water where it is presently at risk. We have provided access to products from our businesses to over 100 registrants from more than 50 countries and winners will be announced in June 2011. 2011 Objectives (cid:116) (cid:116) Complete RE Environmental Challenge; launch plans for 2012 Undertake UNICEF project on the impact of climate change on children Further expansion of Research4Life (cid:116) Percentage of key suppliers as signatories to Reed Elsevier Supplier Code of Conduct Reduction in health and safety severity rate (lost days per 200,000 hours worked) 2008-2010 We uphold Reed Elsevier values by requiring our suppliers to meet the same standards we set for ourselves 60% 60% Valuing our people means going beyond legal obligations to ensure staff wellbeing -29% -29% 38 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 38 1/3/11 11:20:36 Corporate responsibility continued Governance 2010 Objectives (cid:116) 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 (cid:116) (cid:116) The Reed Elsevier Code of Ethics and Business Conduct (Code) 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. 93% of current employees completed online Code training by year end 2010, and 80% of all employees completed a data privacy and security course. In 2010, we provided anti-bribery training for approximately 78% of relevant employees in higher risk roles and geographies. Further by the close of 2010, 2,700 managers had completed online training on anti-harassment and 5,500 employees on fair competition. In 2010, we actively promoted the United Nations Global Compact (UNGC) to which we are a signatory – businesses must align their governance and operations with ten principles related to human rights, labour, environment and anti-corruption. We served on the steering group for the United Kingdom; contributed to the UNGC Supply Chain Advisory Group; produced a video on the UNGC for the legal community; and helped launch a report on UK signatories and the Millennium Development Goals. 2011 Objectives (cid:116) Code of Ethics and Business Conduct course completion by 95% of all employees Full alignment with Adequate Procedures Guidance under the UK Bribery Act; 95% completion of anti-bribery training by relevant employees in higher risk jobs and geographies Implementation of updated records management policy People and community 2010 Objectives (cid:116) (cid:116) (cid:116) Advance divisional Employee Opinion Survey (EOS) action plans Develop a diversity and inclusion strategy for key locations Closer alignment of RE Cares donations with corporate responsibility focus areas Increase in-kind contributions (cid:116) (cid:116) (cid:116) Our 30,200 people are our strength. In 2010, we implemented activities across the business to address the results of our 2009 global Employee Opinion Survey. For example, LexisNexis developed new initiatives to help employees build their management capabilities, with a percentage of executive bonuses tied to higher 2010 interim, ‘pulse’ survey scores in this and other areas. At Reed Exhibitions, focus groups were held to address career development and satisfaction with feedback translated into management activities. The Reed Elsevier Diversity and Inclusion (D&I) Statement articulates our commitment to a diverse workforce and environment that respects individuals and their contributions, regardless of their gender, race, or other characteristics. In 2010, we developed a D&I strategy endorsed by the Reed Elsevier Management Committee, with key objectives such as ensuring each key location has a D&I value proposition and broad implementation plan. Our cross- business D&I Working Group, drawing on internal and external expertise, promoted best practice in areas ranging from training to communication. Afﬁnity groups, like women’s forums, provide support and mentoring and encourage community involvement. Reed Elsevier Cares, our global community programme, promotes education for disadvantaged young people, and allows staff up to two days off per year for their own community work. We donated £2.3 million in cash (including through matching gifts) and the equivalent of £6.6 million in products, services, and staff time in 2010. We worked to increase in-kind contributions throughout the year, examples of which include LexisNexis Corporate Responsibility Day which involved nearly 2,000 staff in local community projects, and Elsevier Beijing which worked with an underprivileged school in He Bei Province over two days providing educational support and supplies. Champions engage colleagues throughout the year in activities such as the Reed Elsevier Cares Challenge, which rewards business sponsored community engagement, and Reed Elsevier Cares Month, with hundreds of events around the globe. During the Month, we launched a global fundraising effort to raise $50,000 for Plan International’s Because I’m a Girl campaign to help girls in India, for example, in gaining educational opportunities and awareness of their legal and employment rights. Our annual global book drive involved over 5,000 employees and yielded some 18,240 books for local and developing world readers. 2011 Objectives (cid:116) Begin implementation of diversity and inclusion strategy in key locations New and improved People sections of internal and external websites Launch RE Cares recognition awards (cid:116) (cid:116) To date, Elsevier has helped the International Council of Nurses (ICN) Mobile Library set up more than 250 mobile libraries to deliver current health information to nursing professionals working in remote areas of 17 developing countries. Each library is housed in a sturdy, transportable trunk with approximately 80 titles. In 2010, through Elsevier and the Reed Elsevier Cares programme, resources, products, and assistance supported the ICN Supporting Nurses and Nursing in Haiti Fund in aiding post-earthquake recovery and reconstruction with tailored French-language Nursing Mobile Libraries containing books on post-disaster response, infectious diseases, and reinitiating interrupted treatment of life-threatening conditions like HIV and tuberculosis. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 39 1/3/11 11:20:38 Annual Reports and Financial Statements 2010 Reed Elsevier 39 Corporate responsibility continued We concentrated on wellness in the workplace providing stress awareness training, weight loss and smoking cessation programmes. In 2010, we advanced collection of absenteeism data by incorporating it into a new global human resources information system launched in North America during the year. We held the second RE:Fit2Win global competition in 2010 to recognise employees for walking, cycling, and running, with winners receiving $1,000 for the charity of their choice. 1,083 employees took part. 2011 Objectives (cid:116) (cid:116) Benchmark health and safety performance Extend preventive care programmes Supply Chain 2010 Objectives (cid:116) (cid:116) (cid:116) 60% of key suppliers as Supplier Code of Conduct signatories 40 external audits of high risk suppliers Ask key suppliers to become UN Global Compact signatories We require our suppliers to meet the 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 environment. Through our Socially Responsible Supplier (SRS) database, we tracked 606 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, human trafﬁcking data from the US State Department, and rankings in the Environmental Performance Index (EPI) produced by Yale University and Columbia University. We achieved our target of 60% of SRS suppliers as signatories to the Supplier Code by year end, and specialists ITS undertook 43 external audits of high risk suppliers. Any incidence of Supplier Code non-compliance identiﬁed in the audit process triggers a corrective action plan with supplier remediation required on all issues. We have embedded signing the Supplier Code into our e-sourcing tool as one of the criteria for doing business with us. We provided training to increase reporting on the Reed Elsevier portion of suppliers’ CO2 emissions and undertook six supplier webinars on the beneﬁts of joining the UN Global Compact. 2011 Objectives (cid:116) (cid:116) (cid:116) 75% of key suppliers as Supplier Code of Conduct signatories 45 external audits of high risk suppliers Introduce Socially Responsible Supplier Academy Customers 2010 Objectives (cid:116) Improve customer loyalty as measured by Net Promoter Scores; advance dashboard programmes Continue to improve website accessibility (cid:116) We surveyed more than 150,000 customers through Net Promoter Score (measuring customer loyalty) and business dashboard programmes. This allows us to deepen understanding of their needs and drives forward a customer centric culture across Reed Elsevier. 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. Upgrades to core LexisNexis products in 2010 have incorporated WCAG 2.0, the most recent web accessibility guidelines. The Accessibility Working Group held educational webinars with disabled customers and accessibility experts, and helped process 3,250 requests for accessible versions of our publications, many from AccessText.org, a service we helped establish – 95% of requests were addressed in one day or less. In 2010, Elsevier won the ﬁrst JISC Publisher Lookup Award for Accessibility, and also enabled the text-to-speech option on all e-books titles to aid users with sight, motor or other challenges. 2011 Objectives (cid:116) Launch CR webinars on non-ﬁnancial performance to support customer-facing staff Consult on Reed Elsevier Editorial Policy Assess accessibility of key product websites (cid:116) (cid:116) Health and safety 2010 Objectives (cid:116) (cid:116) 10% reduction in severity rate by 2010 (from 2008 baseline) Advance collection of absenteeism data 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 conduct risk assessments and work with a third party resource in the US to assign a nurse case manager to each complex or severe claim. We achieved a 29% reduction in the severity rate between 2008 and 2010. Through its trade shows, Reed Exhibitions advances our CR focus areas by bringing people together to share information. In 2010 Reed Exhibitions ran Pollutec Lyon, a leading international environment exhibition bringing together innovative techniques for the prevention and treatment of pollution of all kinds as well as for the preservation of the environment as a whole. Close to 2,000 exhibitors and over 50,000 visitors attended to discuss innovations in key sectors such as water, waste (which includes recycling and cleaning), air quality, and energy. 40 Reed Elsevier Annual Reports and Financial Statements 2010 40 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 40 1/3/11 11:20:43 Corporate responsibility continued Environment Key Performance Indicators C02 emissions (2006-2015)2 Total energy (2008-2015) Travel emissions (2008-2015) Water (2008-2015) Waste recycled (2015) Intensity achievement to date1 Absolute achievement to date 2010 Absolute ﬁgure -14% 1% -12% -7% n/a 16% 15% -1% 5% 63% 195,936 tCO2e 273,983 MWh 40,611 tCO2e 465,619m3 7,720t Target -10% -5% -5% -10% 70% 2010 Intensity ﬁgure (Absolute/revenue £m) 32.36 45.25 6.71 76.90 1.27 1The percentage variance between absolute performance divided by revenue in 2010 compared with absolute performance divided by revenue in start year 2Gross CO2e emissions (scopes 1, 2 and scope 3 business travel) O v e r v e w i i B u s n e s s r e v e w i 2010 Objectives (cid:116) 20 key sites to achieve ﬁve Reed Elsevier Environmental Standards Management plans to achieve environmental targets Map Reed Elsevier and supplier water stress locations (cid:116) (cid:116) Our Environmental Champions network, employee-led Green Teams, and engagement through networks such as Publishers Database for Responsible Ethical Paper Sourcing, inform management plans to address our environmental impact. Among them is the Reed Elsevier Environmental Standards programme, which sets benchmark performance levels and inspires green competition among ofﬁces. In 2010, 26 sites achieved ﬁve or more standards attaining green status, a 38% increase in the number of standards achieved the year previous. We mapped key locations and 149 major suppliers against local water stress to identify where we should concentrate reduction efforts. Our internal focus on corporate responsibility is recognised externally We achieved the following in 2010: (cid:116) (cid:116) (cid:116) (cid:116) (cid:116) (cid:116) (cid:116) (cid:116) (cid:116) Platinum, Business in the Community’s Corporate Responsibility Index Carbon Disclosure Project Leadership Index; 7th out of 350 companies in FTSE CDP Carbon Strategy Index Series Carbon Footprint ASN Mutual Funds Dow Jones Sustainability Index and SAM Sustainability Yearbook, scoring in top 15% of companies Ethibel Pioneer and Ethibel Excellence Investment Registers FTSE4Good Index Sector leader in investor-led Forest Disclosure Project Retained in Goldman Sachs Sustain fund of “best managed companies around the globe that will succeed on a sustainable basis” Triodos Bank Sustainable Equity/Bond Fund, ﬁrst in publishing sector (cid:116) VBDO Supply Chain Award View the 2010 Corporate Responsibility Report at www.reedelsevier.com/cr10 We have a positive environmental impact through our environmental publications and services which spread good practice, encourage debate, and aid researchers and decisions makers. The most recent results from independent Market Analysis System (2009) show our share of citations in environmental science represented 36% of the total market, and 69% in energy and fuels. Full details of our 2010 environmental performance are available at www.reedelsevier.com/cr10. 2011 Objectives (cid:116) (cid:116) (cid:116) Undertake data centre efﬁciency study 20% of electricity from renewables or offsets Establish Green Team Environmental Training Academy i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 41 1/3/11 11:20:57 Annual Reports and Financial Statements 2010 Reed Elsevier 41 Annual Reports and Financial Statements 2010 Reed Elsevier 41 Chief Financial Ofﬁcer’s report Reported ﬁgures Revenue Operating proﬁt Proﬁt before tax Net proﬁt Net borrowings Adjusted ﬁgures Operating proﬁt Operating margin Proﬁt before tax Net proﬁt Operating cash ﬂow Operating cash ﬂow conversion Return on invested capital Parent Companies Reported earnings per share Adjusted earnings per share Ordinary dividend per share 2010 £m 6,055 1,090 768 642 3,455 1,555 25.7% 1,279 983 1,519 98% 10.6% 2009 £m 6,071 787 435 391 3,931 1,570 25.9% 1,279 982 1,558 99% 10.4% Change 0% +39% +77% +64% -1% 0% 0% -3% Change at constant currencies -1% +37% +74% +61% -2% -1% -1% -3% Reed Elsevier PLC Reed Elsevier NV 2010 27.3p 43.4p 20.4p 2009 17.2p 45.9p 20.4p Change +58% -5% 0% 2010 €0.51 €0.78 €0.412 2009 Change €0.32 €0.79 €0.400 +62% -1% +3% Change underlying +2% -1% Change at constant currencies -6% 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 and includes the beneﬁt of tax amortisation where available on acquired goodwill and intangible assets. Exceptional restructuring costs in 2009 relate to the major restructuring programmes announced in February 2008 and 2009 and in 2010 relate only to the restructuring of RBI. Acquisition related costs relate to acquisition integration and, from 2010, professional and other transaction related fees and adjustments to deferred and contingent consideration now required to be expensed under international ﬁnancial reporting standards. 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 10 to the combined ﬁnancial statements. Comparison at constant exchange rates uses 2009 full year average and hedge exchange rates. Underlying growth rates are the year on year change at constant currencies, excluding the results of all acquisitions and disposals made both in the year and prior year. Mark Armour Chief Financial Ofﬁcer Reported ﬁgures Revenues at £6,055m (2009: £6,071m) were ﬂat compared with 2009. At constant exchange rates, revenues were down 1% compared with the prior year. Underlying revenues, i.e. before acquisitions and disposals, were 2% higher. Revenue performance across the business is described in the Business Review. Reconciliation of reported revenues year-on-year Year to 31 December 2009 revenue Underlying growth Acquisitions Disposals Currency effects 2010 revenue £m 6,071 100 5 (173) 52 6,055 Change +2% 0% -3% +1% 0% Reported operating proﬁt, after amortisation and impairment of acquired intangible assets and goodwill and exceptional restructuring and acquisition related costs, was up 39% at £1,090m (2009: £787m). The signiﬁcant increase principally reﬂects no intangible asset and goodwill impairment and lower exceptional restructuring charges. 42 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 42 1/3/11 11:20:58 Chief Financial Ofﬁcer’s report continued The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, amounted to £349m (2009: £368m), down £19m as a result of disposals and prior year impairments. Charges for impairment of acquired intangible assets and goodwill were nil (2009: £177m, principally relating to the RBI US business). Exceptional restructuring costs, which in 2010 relate only to the restructuring of RBI, amounted to £57m (2009: £182m relating to major restructuring programmes across Reed Elsevier announced in February 2008 and 2009) and included severance and vacant property costs. Acquisition related costs amounted to £50m (2009: £48m) principally in respect of the integration within LexisNexis of the ChoicePoint business acquired in September 2008. Disposals and other non operating losses of £46m principally relate to asset sales and related closures in RBI’s US businesses. Net ﬁnance costs were £276m (2009: £291m), with the beneﬁt of free cash ﬂow and the July 2009 share placings being partly offset by the impact of higher coupon term debt issued in 2009 to repay certain of the ChoicePoint acquisition facility loans. The reported proﬁt before tax, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposals and other non operating items, was £768m (2009: £435m). The reported tax charge was higher at £120m (2009: £40m) reﬂecting the increase in reported proﬁt before tax and prior year tax credits on disposals. The reported net proﬁt attributable to the parent companies’ shareholders was £642m (2009: £391m). Adjusted ﬁgures Adjusted operating proﬁt was £1,555m (2009: £1,570m), down 1%. (Adjusted operating proﬁts are stated before amortisation of acquired goodwill and intangible assets, acquisition integration and exceptional restructuring costs). At constant exchange rates, adjusted operating proﬁts were down 2%, including in particular the disposals within the RBI US business. Underlying adjusted operating proﬁts, i.e. excluding acquisitions and disposals, were 1% lower. Proﬁt performance across the business is described in the Business Review. The overall adjusted operating margin at 25.7% was 0.2 percentage points lower than in the prior year, with total costs reduced by 1% at constant exchange rates. Excluding cost reduction from asset disposals and closures, which had a 0.5 percentage points beneﬁt to margin, costs increased by 3% on an underlying basis. Increased spending on new product development, infrastructure, and sales & marketing, particularly in the legal businesses, has been offset by cost actions across the business, including incremental savings from the earlier exceptional restructuring programmes. Changes in underlying revenue, cost and proﬁt Year to 31 December 2010 Revenue Adjusted operating cost Adjusted operating profit Elsevier LexisNexis Reed Exhibitions Reed Business Information Reed Elsevier – underlying Reed Elsevier – total +2% +1% +8% -2% +2% -1% +1% +6% +10% -3% +3% -1% +4% -12% +4% +4% -1% -2% The net pension expense was higher at £54m (2009: £42m), reﬂecting lower curtailment credits of £17m (2009: £43m) from changes to pension plan design and staff reductions, partly offset by an increase in the net pension ﬁnancing credit to £26m (2009: £6m) reﬂecting the higher market value of scheme assets. The share based and related remuneration charge was £11m (2009: £17m). Restructuring costs included within adjusted operating proﬁt, i.e. other than in respect of the exceptional restructuring programme in RBI and acquisition integration, amounted to £31m (2009: £21m). Adjusted proﬁt before tax was £1,279m (2009: £1,279m), ﬂat against the prior year. At constant exchange rates, adjusted proﬁt before tax was down 1%. Reconciliation of adjusted and reported proﬁt before tax Year to 31 December Adjusted profit before tax Amortisation of acquired intangible assets Impairment of acquired intangibles and goodwill Exceptional restructuring costs Acquisition related costs Reclassification of tax in joint ventures Disposals and other non operating items Reported profit before tax 2010 £m 1,279 (349) – (57) (50) (9) (46) 768 2009 £m 1,279 (368) (177) (182) (48) (8) (61) 435 The effective tax rate on adjusted proﬁt before tax at 22.7% was similar to the 2009 effective rate. 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 includes the beneﬁt of tax amortisation where available on acquired goodwill and intangible assets. This more closely aligns with cash tax costs over the longer term. Adjusted operating proﬁts and taxation are grossed up for the equity share of taxes in joint ventures. The application of tax law and practice is subject to some uncertainty and provisions are held in respect of this. Issues are raised during the course of regular tax audits and discussions including on the deductibility of interest on cross-border ﬁnancing are ongoing. Although the outcome of open items cannot be predicted, no material impact on results is expected from such issues. The adjusted net proﬁt attributable to shareholders of £983m (2009: £982m) was ﬂat compared with the prior year. At constant exchange rates, adjusted net proﬁt attributable to shareholders was down 1%. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 43 1/3/11 11:20:59 Annual Reports and Financial Statements 2010 Reed Elsevier 43 Chief Financial Ofﬁcer’s report continued Cash ﬂows Adjusted operating cash ﬂow was £1,519m (2009: £1,558m), down 3% at both reported exchange rates and constant currencies. Free cash ﬂow before dividends was £1,023m (2009: £918m). Ordinary dividends paid to shareholders in the year, being the 2009 ﬁnal and 2010 interim dividends, amounted to £483m (2009: £457m). Free cash ﬂow after dividends was £540m (2009: £461m). 2010 £m 1,519 (287) (101) 1,131 (108) 1,023 (483) 540 2009 £m 1,558 (293) (214) 1,051 (133) 918 (457) 461 The small decrease in adjusted operating cash ﬂow at constant currencies reﬂects the 2% decrease in adjusted operating proﬁts at constant currencies. The impact of higher capital expenditure was largely offset by working capital improvements with the rate of conversion of adjusted operating proﬁts into cash ﬂow very high at 98% (2009: 99%). Free cash flow Year to 31 December Adjusted operating cash flow Interest paid Tax paid Conversion of adjusted operating proﬁt into cash Year to 31 December Adjusted operating profit Capital expenditure Depreciation and amortisation of internally developed intangible assets Working capital and other items Adjusted operating cash flow Cash flow conversion rate 2010 £m 1,555 (311) 237 38 1,519 98% 2009 £m 1,570 (242) 223 7 1,558 99% Capital expenditure included within adjusted operating cash ﬂow was £311m (2009: £242m), including £228m (2009: £164m) in respect of capitalised development costs included within internally generated intangible assets. The increase from the prior year reﬂects increased investment in new products and related infrastructure, particularly in the LexisNexis legal business. Free cash ﬂow, after interest and taxation, was £1,131m (2009: £1,051m) before exceptional restructuring and acquisition related spend. The increase principally reﬂects the lower than usual taxes paid because of tax repayments from prior years. Exceptional restructuring spend was £99m (2009: £124m) principally relating to severance and vacant property costs. Payments made in respect of acquisition related costs amounted to £51m (2009: £45m) principally in respect of the ChoicePoint integration. Net tax paid in the year was reduced by £42m (2009: £36m) in respect of exceptional restructuring and acquisition related spend. Free cash flow before exceptional spend Restructuring expense/acquisition integration* Free cash flow before dividends Ordinary dividends Free cash flow post dividends *Including cash tax relief/repayments Funding Debt Net borrowings at 31 December 2010 were £3,455m, a decrease of £476m since 31 December 2009 after currency translation effects which increased net borrowings by £77m on the largely US dollar denominated net debt. The signiﬁcance of Reed Elsevier Group plc’s US operations means that the majority of debt is denominated in US dollars. Excluding currency translation effects, net debt reduced by £553m reﬂecting the strong free cash ﬂow and limited acquisition activity. Expressed in US dollars, net borrowings at 31 December 2010 were $5,387m, a decrease of $962m since 31 December 2009. Gross borrowings after fair value adjustments at 31 December 2010 amounted to £4,302m (2009: £4,706m). The fair value of related derivative assets was £105m (2009: £41m). Cash balances totalled £742m (2009: £734m). As at 31 December 2010, after taking into account interest rate and currency derivatives, a total of 73% of Reed Elsevier’s gross borrowings were at ﬁxed rates with a weighted average remaining life of 5.3 years and interest rate of 6.0%. Underlying revenue growth Underlying adjusted operating profit growth +2% 2009 2010 -6% 2009 2010 -1% -9% 44 Reed Elsevier Annual Reports and Financial Statements 2010 Adjusted operating margin 25.9% 25.7% 2009 2010 47213_Text_p001-055.indd 44 1/3/11 11:21:00 Chief Financial Ofﬁcer’s report continued June 2013, with an option for two further one year extensions. This back up facility provides security of funding for $2.0bn of short term debt to June 2013. During the year, $350m of US term debt maturing in August 2011 was redeemed early by taking advantage of the make-whole election. After taking account of the committed bank facilities and available cash resources, no borrowings mature until 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. Further details on the treasury policies of the Combined Businesses are on pages 48 and 49 and in note 18 to the Combined Financial Statements. Capital employed and returns The capital employed at 31 December 2010 was £11,661m (2009: £11,918m) after adding back accumulated amortisation and impairment of acquired intangible assets and goodwill. The decrease of £257m principally reﬂects asset disposals and strong cash generation. The return on average capital employed in the year was 10.6% (2009: 10.4%). 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 to exclude the gross up to goodwill in respect of deferred tax liabilities established on acquisitions in relation to intangible assets. The increase in the return reﬂects the strong cash generation and increased capital efﬁciency. Spend on acquisitions and investments was £55m, including deferred consideration payable on past acquisitions. An amount of £27m was capitalised in the year as acquired intangible assets and £27m as goodwill. Cash tax relief on certain prior year acquisition costs amounted to £16m. Net cash proceeds less associated restructuring costs from disposals, including tax repayments of £34m in respect of prior year transactions, amounted to £40m. Net proceeds from the exercise of share options were £11m (2009: £5m). No share repurchases were made by the parent companies in the year (2009: nil) and no shares of the parent companies were purchased by the employee beneﬁt trust (2009: nil). In 2009, proceeds, net of expenses, from share placings by the parent companies were £829m. Movement in net debt Net debt at 1 January Free cash flow post dividends Acquisitions/disposals: Disposals* Acquisitions* Net proceeds from equity placings and share options exercised Other Currency translation Net debt at 31 December *Including cash tax relief/repayments 2010 £m (3,931) 540 40 (39) 11 1 (77) 2009 £m (5,726) 461 3 (44) 834 (18) 559 (3,455) (3,931) The ratio of net debt to adjusted ebitda (earnings before interest, tax, depreciation and amortisation) at 31 December 2010 was 1.9x (2009: 2.2x), and 2.5x (2009: 2.9x) 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 In January 2010, the start date of a new $2.0bn committed facility maturing in May 2012 was brought forward and the $2.5bn committed facility maturing in May 2010 cancelled. In June 2010, the maturity of the new committed facility was extended to Term debt maturities $m 1,172 945 594 200 624 503 286 950 551 2011 2012 2013 2014 2015 2016 2017 2018 2019 >2020 Currency profile 2010 adjusted profit before tax Sterling 16% Euro 35% Other 9% US dollar 40% O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 45 1/3/11 11:21:01 Annual Reports and Financial Statements 2010 Reed Elsevier 45 Chief Financial Ofﬁcer’s report continued Major developments In 2010, EFSA was active in renegotiating the terms of Reed Elsevier’s $2 billion revolving credit facility, which is available to EFSA. It negotiated and advised Reed Elsevier Group plc companies on a number of banking and cash management arrangements in Continental Europe, in particular in the Netherlands and France, as well as Asia and continued to advise on treasury matters, including interest, foreign currency and certain other ﬁnancial exposures. The average balance of cash under management by EFSA in 2010, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.8 billion (2009: $0.4 billion). Liabilities and assets At 31 December 2010, 84% (2009: 92%) of ERF’s gross assets were held in US dollars and 15% (2009: 7%) in euros, including $8.7 billion (2009: $10.0 billion) and €0.6 billion (2009: €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 $0.3 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. Accounting policies The combined ﬁnancial statements are prepared in accordance with International Financial Reporting Standards as endorsed by the European Union and as issued by the International Accounting Standards Board following the accounting policies shown on pages 90 to 96. 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, litigation, taxation and property provisioning. Further detail is provided in the accounting policies on pages 94 and 95. 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. 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. EPSA actively manages intellectual property assets including trademarks such as The Lancet and databases such as Reaxys and PharmaPendium. In 2010 it continued to strengthen its position as a centre of excellence in the management and development of intellectual property assets. ERSA is responsible for reinsurance activities for Reed Elsevier. Return on invested capital 10.4% 10.6% 2009 2010 46 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 46 1/3/11 11:21:01 Chief Financial Ofﬁcer’s report continued The equalised ﬁnal dividends proposed by the respective boards are 15.0p per share for Reed Elsevier PLC and €0.303 per share for Reed Elsevier NV, unchanged and 3% higher respectively compared with the prior year ﬁnal dividends. This gives total dividends for the year of 20.4p (2009: 20.4p) and €0.412 (2009: €0.400), unchanged and up 3% respectively. The difference in growth rates in the equalised dividends reﬂects changes in the euro: sterling exchange rate since the 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 2.1 times for Reed Elsevier PLC and 1.9 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. Parent companies Reed Elsevier PLC Reported net proﬁt Adjusted net proﬁt Reported earnings per share Adjusted earnings per share Ordinary dividend per share Reed Elsevier NV Reported net proﬁt Adjusted net proﬁt 2010 £m 327 520 27.3p 43.4p 20.4p €m 376 575 2009 £m 195 519 17.2p 45.9p 20.4p €m 219 550 Reported earnings per share Adjusted earnings per share Ordinary dividend per share €0.51 €0.78 €0.412 €0.32 €0.79 €0.400 Change at constant currencies -1% -6% -1% -6% Change +68% 0% +58% -5% 0% +72% +5% +62% -1% +3% For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjusted earnings per share were respectively down 5% at 43.4p (2009: 45.9p) and 1% at €0.78 (2009: €0.79). At constant rates of exchange, the adjusted earnings per share of both companies decreased by 6%. The July 2009 equity placings had a dilutive effect on adjusted earnings per share of approximately 4% in 2010, 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. (In July 2009, Reed Elsevier PLC placed 109.2m ordinary shares at 405p per share for proceeds, net of issue costs, of £435m (€487m) and Reed Elsevier NV placed 63.0m ordinary shares at €7.08 per share for net proceeds of €441m (£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.) The reported earnings per share for Reed Elsevier PLC shareholders was 27.3p (2009: 17.2p) and for Reed Elsevier NV shareholders was €0.51 (2009: €0.32). The increase principally reﬂects lower exceptional restructuring charges and no intangible asset and goodwill impairment in 2010. Reed Elsevier PLC Adjusted EPS pence 45.9 43.4 Reed Elsevier PLC Ordinary dividend pence 20.4 20.4 Reed Elsevier NV Adjusted EPS a 0.79 0.78 Reed Elsevier NV Ordinary dividend a 0.400 0.412 2009 2010 2009 2010 2009 2010 2009 2010 Annual Reports and Financial Statements 2010 Reed Elsevier 47 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 47 1/3/11 11:21:03 Chief Financial Ofﬁcer’s report continued 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. Reed Elsevier maintains a range of borrowing faciltites 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. 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 redeem term debt early or repurchase outstanding debt in the open market depending on market conditions. There were no changes to Reed Elsevier’s long term approach to capital and liquidity management during the 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 2010 interest expense was ﬁxed on an average of £3.0 billion of forecast debt for the next 12 months. This ﬁxed rate debt reduces to £2.0 billion by the end of 2013 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. At 31 December 2010, ﬁxed rate term debt (not swapped to ﬂoating rate) amounted to £2.5 billion (2009: £2.7 billion) and had a weighted average life remaining of 6.4 years (2009: 6.9 years) and a weighted average interest rate of 6.4% (2009: 6.4%). Interest rate derivatives in place at 31 December 2010, which ﬁx the interest cost on an additional £0.6 billion (2009: £0.8 billion) of variable rate debt, have a weighted average maturity of 1.1 years (2009: 1.7 years) and a weighted average interest rate of 4.2% (2009: 4.2%). 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 line with parent company guidelines) for their respective business and treasury centres. A summary of these policies is given below. Capital and liquidity management The capital structure is managed to support Reed Elsevier’s objective of maximising long-term shareholder value through appropriate security of funding, 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 and these metrics are monitored and reported to senior management and the board representatives on a quarterly basis. 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 on a pensions and lease adjusted basis are consistent with the rating target. The cash ﬂow conversion in 2010 was 98% and as at 31 December 2010 net debt to adjusted ebitda was 2.5x (2009: 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 in 2010 by the repayment of debt out of free cash ﬂow and this focus on debt reduction will continue over the next 12 months. 48 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 48 1/3/11 11:21:03 Chief Financial Ofﬁcer’s report continued 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 2010, the amount of outstanding foreign exchange cover against future transactions was £1.1 billion (2009: £1.0 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 A/A2 by Standard and Poor’s, Moody’s or Fitch. At 31 December 2010, cash and cash equivalents totalled £742 million, of which 97% was held with banks rated A+/A1 or better. Mark Armour Chief Financial Ofﬁcer Key performance measures Reed Elsevier uses a range of performance indicators to help measure its development against strategy and ﬁnancial objectives. These indicators are integrated into the annual reports and are shown within the following sections: Chief Executive Ofﬁcer’s report (pages 6 to 7) Business Review (pages 8 to 37) Corporate responsibility (pages 38 to 41) Chief Financial Ofﬁcer’s report (pages 42 to 49) O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 49 1/3/11 11:21:03 Annual Reports and Financial Statements 2010 Reed Elsevier 49 Principal risks 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). The principal risks facing Reed Elsevier, which have been considered by the Audit Committees and Boards, are described below. It is not possible to identify every risk that could affect our businesses, and the actions taken to mitigate the risks described below cannot provide absolute assurance that a risk will not materialise and/or adversely affect our business or ﬁnancial performance. Our risk management and internal control processes are described in the Structure and Corporate Governance section. A description of the business and a discussion of factors affecting performance is set out in the Business and Financial Review and our ﬁnancial risks are discussed in the Chief Financial Ofﬁcer’s report and in note 18 to the combined ﬁnancial statements of Reed Elsevier. Important speciﬁc risks that have been identiﬁed include: Risk Mitigation Economy and market conditions Demand for our products and services may be impacted by factors beyond our control such as the economic environment in the US and other major economies, and government funding. Our businesses are focused on professional markets which have generally been more resilient in periods of economic downturn. We deliver information solutions, many on a subscription basis, which are important to our customers’ effectiveness and efﬁciency. Customer acceptance of products 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 are focused on the needs and economics of our customers and seek to provide content and innovative solutions that help them achieve better outcomes and enhance productivity. Competition 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. Technology failure Reed Elsevier’s businesses are increasingly dependent on electronic platforms and networks, primarily the internet, for delivery of products and services. Our businesses could be adversely affected if their electronic delivery platforms and networks experience a signiﬁcant failure, interruption, or security breach. Data security Our businesses maintain databases and information online, including personal information, and could be adversely affected if these experience a breach in security or if we fail to comply with applicable legislation or regulatory or contractual requirements governing such databases and information. To remain competitive we continuously invest signiﬁcant resources in our products and services, and the infrastructure to support them. We gain insights into our markets, evolving customers’ needs and opportunities, the potential application of new technologies and business models, and the actions of competitors, and these insights inform our market strategies and operational priorities. We have established procedures for the protection of our technology assets. These include the development of business continuity plans, including IT disaster recovery plans and back-up delivery systems, to reduce business disruption in the event of a major technology failure. We have established data privacy and security programmes. We test and re-evaluate our procedures and controls with the aim of ensuring that personal data is protected and that we comply with relevant legislation, regulatory and contractual requirements. Intellectual property rights 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. There is a risk that our proprietary rights could be challenged, limited, invalidated or circumvented. We actively engage in developing and promoting the legal protection of intellectual property rights. In our businesses, subscription contracts with customers contain provisions as to the use of proprietary content. We are also vigilant as to the use of our content and, as appropriate, take legal action to challenge illegal distribution sources. 50 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 50 1/3/11 11:21:03 Principal risks continued Risk Mitigation Data sources A number of our businesses rely extensively upon content and data from external sources. 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. Paid subscriptions Our scientiﬁc, technical and medical (STM) primary publications, like those of most of our competitors, are published on a paid subscription basis. There has been continuous 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. We seek as far as possible to have proprietary content. Where content is supplied to us by third parties, we seek to have contracts which provide mutual commercial beneﬁt. We also maintain an active dialogue with regulatory authorities on privacy and other data related issues, and we promote, with others, the responsible use of data. We engage extensively with stakeholders in the STM community to better understand their needs and deliver value to them. While we adopt a number of publishing models and continue to experiment, through the principal paid subscription model we encourage the submission of research output by scientists without the penalty of publishing cost. We focus on the integrity and quality of research through the editorial and peer review process; we invest in efﬁcient editorial and distribution platforms and in innovation in platforms and tools to make content and data more accessible and actionable; and we ensure vigilance on plagiarism and the long term preservation of research ﬁndings. Supply chain dependencies Our organisational and operational structures have increased dependency on outsourced and offshored functions. The failure of third parties to whom we have outsourced activities could adversely affect our business performance, reputation and ﬁnancial condition. We select our vendors with care and establish service level agreements that we closely monitor, including through key performance indicators. We also have developed business continuity plans to reduce disruption in the event of a major failure by a vendor. Pensions 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. Further information on risks associated with deﬁned beneﬁt pensions schemes is set out in note 5 to the Reed Elsevier combined ﬁnancial statements. We have well established professional management of our pension schemes and we focus on maintaining appropriate asset allocation and plan designs. We review our funding requirements on a regular basis with the assistance of independent actuaries and ensure that the funding plans are sufﬁcient to meet future liabilities. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 51 1/3/11 11:21:03 Annual Reports and Financial Statements 2010 Reed Elsevier 51 Principal risks continued Risk Mitigation Tax Our businesses operate 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 or interpreted differently which could adversely affect our reported results. Acquisitions We often acquire businesses to reshape and strengthen our portfolio. If we are unable to generate the anticipated beneﬁts such as revenue growth, synergies and/or cost savings associated with these acquisitions this could adversely affect our reputation and ﬁnancial condition. Treasury The Reed Elsevier combined ﬁnancial statements are expressed in pounds sterling and are subject to movements in exchange rates on the translation of the ﬁnancial information of businesses whose operational currencies are other than sterling. The US is our most important market and, accordingly, signiﬁcant ﬂuctuations in the US dollar exchange rate could signiﬁcantly affect our reported results. Macroeconomic, political and market conditions may also adversely affect the availability of short and long term funding, volatility of interest rates, currency exchange rates and inﬂation. Ethics Our businesses operate around the world and we have over 30,000 employees. A breach of generally accepted ethical business standards could adversely affect our business performance, reputation and ﬁnancial condition. Environmental Reed Elsevier and its businesses have an impact on the environment, principally through the use of energy and water, waste generation and, in our supply chain, through our paper use and print and production technologies. We have clear and consistent tax policies and tax matters are dealt with by a professional tax function, supported by external tax advisors. We maintain an open dialogue with the relevant tax authorities and are vigilant in ensuring that we comply with tax legislation. Our acquisitions are made within the framework of our overall strategy. We have a well formulated process for reviewing and executing acquisitions and for managing the post acquisition integration. This process is underpinned with clear strategic and ﬁnancial acquisition criteria. We closely monitor the performance of acquisitions. The main treasury risks faced by Reed Elsevier are liquidity risk, interest rate risk, foreign currency risk and credit risk. Reed Elsevier’s approach to funding and management of interest rate and foreign currency exposures is described on pages 48 and 49. The approach to the management of ﬁnancial risks is described in note 18 to the combined ﬁnancial statements. Our Reed Elsevier Code of Ethics and Business Conduct is provided to every employee and is supported by training on speciﬁc topics. It encompasses such topics as fair competition, anti-bribery and human rights and it encourages open and principled behaviour. We also have well established processes for reporting and investigating unethical conduct. Our approach to managing ethical risks is set out in our Corporate Responsibility Report available at www.reedelsevier.com/cr10 We are committed to reducing these impacts by limiting resource use whenever possible 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 regulation. Our approach to managing environmental risks is set out in our Corporate Responsibility Report available at www.reedelsevier.com/cr10 52 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 52 1/3/11 11:21:03 Governance 54 Board Directors 56 Structure and corporate governance 62 Directors’ remuneration report 81 Report of the Audit Committees O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 53 1/3/11 11:21:03 Annual Reports and Financial Statements 2010 Reed Elsevier 53 2 5 8 3 6 9 Board Directors 1 4 7 10 54 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p001-055.indd 54 1/3/11 11:21:29 Executive Directors 1 Erik Engstrom (47) (Swedish) Chief Executive Ofﬁcer since 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. Holds a BSc from Stockholm School of Economics, an MSc from the Royal Institute of Technology in Stockholm, and gained an MBA from Harvard Business School as a Fulbright Scholar. 2 Mark Armour (56) (British) Chief Financial Ofﬁcer since 1996. Non-executive director of SABMiller plc. Prior to joining Reed Elsevier as Deputy Chief Financial Ofﬁcer in 1995, was a partner in Price Waterhouse. Holds an MA in Engineering from Cambridge University and qualiﬁed as a Chartered Accountant. Non-Executive Directors 3 Anthony Habgood (64) (British) Appointed Chairman 2009. Chairman of Whitbread plc. Was chairman of Bunzl plc and of Mölnlycke Healthcare Limited and served as chief executive of Bunzl plc, chief executive of Tootal Group plc and a director of The Boston Consulting Group lnc. He has also been a non-executive director of Geest plc; Marks and Spencer plc; National Westminster Bank plc; Powergen plc; and SVG Capital plc. Holds an MA in Economics from Cambridge University and an MS in Industrial Administration from Carnegie Mellon University. He is a visiting Fellow at Oxford University. 4 Mark Elliott (61) (American) Appointed 2003. Chairman of the Remuneration Committee. Chairman of QinetiQ Group plc and a non-executive director of G4S plc. 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. 5 Lisa Hook (52) (American) Appointed 2006. President and chief executive 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. 6 Marike van Lier Lels (51) (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. Prior to joining Schiphol Group, was a member of the executive board of Deutsche Post Euro Express and held various senior positions with Nedlloyd. 7 Robert Polet (55) (Dutch) Appointed 2007. President and chief executive ofﬁcer of Gucci Group. Non-executive director of Wilderness Holdings Limited. 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. 8 David Reid (64) (British) Appointed 2003. Senior independent 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 & General Group plc and Westbury PLC. 9 Lord Sharman of Redlynch OBE (67) (British) Appointed 2002. Served as Chairman of the Audit Committee until August 2010. 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 non-executive directorships include: chairman of Aegis Group plc; deputy chairman of G4S plc; Young & Co’s Brewery plc; AEA Technology plc; and member of the supervisory board of ABN AMRO Holding NV. 10 Ben van der Veer (59) (Dutch) Appointed 2009. Chairman of the Audit Committee from August 2010. 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, having joined KPMG in 1976. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l Board Committee Membership Audit Committees: 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 Both 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 van Lier Lels is a member of the Supervisory Board of Reed Elsevier NV. All of the other non-executive directors are directors of Reed Elsevier Group plc and Reed Elsevier PLC and members of the Supervisory Board of Reed Elsevier NV. Annual Reports and Financial Statements 2010 Reed Elsevier 55 s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p001-055.indd 55 1/3/11 11:21:29 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. Following the merger of their respective businesses, Reed Elsevier PLC and Reed Elsevier NV entered into a Governing Agreement to regulate their relationship, including 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. Reed Elsevier PLC Reed Elsevier NV Reed Elsevier Group plc Publishing and Information Businesses Elsevier LexisNexis Risk Solutions LexisNexis Legal & Professional Reed Exhibitions Reed Business Information Elsevier Reed Finance BV Finance Activities 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 the Reed Elsevier combined businesses, and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% economic interest in the Reed Elsevier combined businesses. 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. 56 Reed Elsevier Annual Reports and Financial Statements 2010 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 on the tenth business day before the announcement of the proposed dividend. Compliance 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. The boards of Reed Elsevier PLC and Reed Elsevier NV (which comprises an Executive Board and a 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). The principles and provisions set out in the UK Code and the Dutch Code have applied throughout the ﬁnancial year ended 31 December 2010. 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 166 to 169, has applied the best practice provisions of the Dutch Code. The ways in which Reed Elsevier PLC and Reed Elsevier NV have applied the main principles of the UK Code are described below. For further information on the application of the Dutch Code by Reed Elsevier NV, see the Corporate Governance Statement of Reed Elsevier NV published on the Reed Elsevier website, www.reedelsevier.com. New UK Corporate Governance Code In May 2010 the Financial Reporting Council issued The UK Corporate Governance Code (the New UK Code), which replaces the UK Code for ﬁnancial years beginning on or after 29 June 2010. The New UK Code will, therefore, apply to Reed Elsevier in respect of the ﬁnancial year beginning 1 January 2011. It is the intention of the boards to comply with the New UK Code and in accordance with its recommendation, all directors will seek annual re-election at the respective Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV commencing from the meetings to be held in April 2011. Relations with shareholders Reed Elsevier PLC and Reed Elsevier NV participate in regular dialogue with institutional shareholders. Presentations are made by the Chairman, Chief Executive Ofﬁcer and Chief Financial Ofﬁcer following the announcement of the interim and full year results and 47213_Text_p056-084.indd 56 1/3/11 10:43:21 Structure and corporate governance continued these are simultaneously webcast. Two investor seminars on speciﬁc areas of the business are currently planned for 2011 and these will also be webcast. The Chief Executive Ofﬁcer, the Chief Financial Ofﬁcer and the investor relations team meet institutional shareholders on a regular basis and the Chairman also makes himself available to major institutions as appropriate. A trading update is provided ahead of the Annual General Meetings of the two companies and towards the end of the ﬁnancial year through Interim Management Statements. The interim and annual results announcements and presentations, together with the Interim Management Statements, investor seminar presentations and other important announcements and corporate governance documents concerning Reed Elsevier, are published on the Reed Elsevier website, www.reedelsevier.com. In accordance with the provisions of the Dutch Code, Reed Elsevier NV has adopted a bilateral shareholder contact policy, which is also published on the Reed Elsevier website. 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. Both Reed Elsevier PLC and Reed Elsevier NV offer e-voting facilities in relation to proxy voting at shareholder meetings. The Annual General Meetings provide an opportunity for the boards to communicate with individual shareholders. The Chairman, the Chief Executive Ofﬁcer, the Chief Financial Ofﬁcer, the chairmen of the board committees, other directors and a representative of the external auditors are available to answer questions from shareholders. 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. Board evaluation During the year the Corporate Governance 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. The Committee currently envisages initiating an independent evaluation of the boards and their committees in 2011. 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 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 to the Supervisory Board two directors who are not appointed to the boards of either Reed Elsevier PLC or Reed Elsevier Group plc. Marike van Lier Lels was appointed to the Reed Elsevier NV Supervisory Board in January 2010, in succession to Dien de Boer-Kruyt who retired at the conclusion of the Reed Elsevier NV Annual General Meeting in April 2010. The names, nationality and biographical details of each director at the date of this report appear on pages 54 and 55. The boards of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV each comprise a balance of executive and non-executive directors who bring a wide range of skills and experience to the deliberations of the boards. The boards review the independence of the non-executive directors every year, based on the criteria for independence set out in the UK Code. The UK Code does not consider the Chairman to be independent due to the unique role the Chairman has in corporate governance. Notwithstanding this, Anthony Habgood met the independence criteria contained in the UK Code when he was appointed Chairman in 2009. The boards consider all non-executive directors (other than the Chairman) to be independent of management and free from any business or other relationship which could materially interfere with their ability to exercise independent judgement. Lord Sharman, who was appointed as a non-executive director of Reed Elsevier PLC in January 2002, and a member of the Reed Elsevier NV Supervisory Board in April 2002, will retire from the respective boards at the conclusion of the Reed Elsevier NV and Reed Elsevier PLC Annual General Meetings in April 2011. The boards have determined that Lord Sharman remains independent in character and judgement despite having served on the board of Reed Elsevier PLC for more than nine years; there are also no relationships or circumstances which are likely to affect his independent judgement. The boards of Reed Elsevier PLC and of Reed Elsevier NV have appointed David Reid 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 deemed 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 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. s t a t e m e n t s a n d o t h e r i f n o r m a t i o n Annual Reports and Financial Statements 2010 Reed Elsevier 57 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l 47213_Text_p056-084.indd 57 1/3/11 10:43:21 Structure and corporate governance continued Board attendance Members Mark Armour Dien de Boer-Kruyt Mark Elliott Erik Engstrom Anthony Habgood Lisa Hook Marike van Lier Lels Robert Polet Andrew Prozes David Reid Lord Sharman 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 (April 2010) January 2010 (December 2010) 6 n/a 6 6 6 6 n/a 6 6 6 6 6 5 n/a 5 6 6 5 n/a 5 4 4 4 6 6 2 6 6 6 6 6 6 6 6 6 6 5 1 5 6 6 5 5 5 4 4 4 6 7 n/a 7 7 7 7 n/a 7 7 7 7 7 6 n/a 6 7 7 6 n/a 6 5 5 4 7 As a general rule, letters of appointment in respect of non-executive directors of Reed Elsevier PLC and members of the Supervisory Board of Reed Elsevier NV provide that individuals will serve for an initial term of three years, and are typically expected to serve two three-year terms, although the boards may invite an individual to serve for an additional period of three years. The respective Articles of Association of Reed Elsevier PLC and Reed Elsevier NV provide that all directors should be subject to retirement at least every three years and are then able to make themselves available for re-election by shareholders at subsequent Annual General Meetings. Notwithstanding the provisions of the said Articles of Association, the boards intend to comply with the recommendations contained in the New UK Code, and all directors will seek re-election by shareholders annually, commencing with the Annual General Meetings to be held in April 2011. 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 above. Based on recommendations from the Nominations Committee, Marike van Lier Lels was appointed a member of the Reed Elsevier NV Supervisory Board in January 2010. Mrs Van Lier Lels has extensive business and international experience, along with speciﬁc knowledge of employee related matters in the Netherlands. Mrs de Boer-Kruyt retired from the Reed Elsevier NV Supervisory Board in April 2010. Mr Prozes retired as an executive director of the boards on 31 December 2010. Lord Sharman will retire from the boards at the conclusion of the Reed Elsevier NV and Reed Elsevier PLC Annual General Meetings in April 2011, and will not seek re-election. In accordance with the recommendation in the New UK Code, all other directors will retire from the boards at the respective Annual General Meetings and, being eligible, they will offer themselves for re-election. Taking into account the assessment by the Corporate Governance Committee of the qualiﬁcations, performance and effectiveness of each individual director seeking re-election, the boards have accepted a recommendation from the Nominations Committee that each director be proposed for re-election at the Annual General Meeting of the respective company. The boards, in conjunction with external recruitment consultants, have been conducting a search for a suitable candidate as a non-executive director and, on the recommendation of the Nominations Committee, Adrian Hennah will be proposed for appointment as a non-executive director of Reed Elsevier PLC and as a member of the Supervisory Board of Reed Elsevier NV at the Reed Elsevier PLC and Reed Elsevier NV Annual General Meetings in April 2011. Mr Hennah was appointed chief ﬁnancial ofﬁcer of Smith & Nephew plc in 2006. He has over 25 years’ experience in ﬁnance and operations in the medical devices, technology and pharmaceuticals industries, and will bring highly relevant experience to the board discussions. Subject to his appointment at the Annual General Meetings, he will also be appointed a non-executive director of Reed Elsevier Group plc and a member of the Audit Committees and of the Corporate Governance Committee. 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, Ben van der Veer and Marike van Lier Lels, with the Management Board consisting of Jacques Billy, Gerben de Jong and Jans van der Woude. Appointments to the Supervisory Board and the Management Board are made by Elsevier Reed Finance BV’s shareholders, in accordance with the company’s Articles of Association. Members Mark Armour Jacques Billy Dien de Boer-Kruyt Rudolf van den Brink Gerben de Jong Marike van Lier Lels Ben van der Veer Jans van der Woude Date of appointment (cessation) during the year Number of meetings held whilst a director Number of meetings attended (April 2010) February 2010 February 2010 3 3 1 3 3 2 2 3 3 3 1 3 3 2 2 3 Board committees In accordance with the principles of good corporate governance, the following committees have been established by the respective boards. All of the committees have written terms of reference, which are published on the Reed Elsevier website, www.reedelsevier.com. Membership of each committee during the year is set out on page 59. 58 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 58 1/3/11 10:43:21 Structure and corporate governance continued Audit Committees: Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc have established Audit Committees. The Committees comprise only non-executive directors. The Committees have been chaired by Ben van der Veer since August 2010, having previously been chaired by Lord Sharman. A report of the Audit Committees, setting out their role and main activities during the year, appears on pages 81 to 84. Members Mark Elliott Anthony Habgood David Reid Lord Sharman Number of meetings held whilst a Committee member 5 5 5 5 Number of meetings attended 5 5 5 3 Members Lisa Hook David Reid Lord Sharman Ben van der Veer Number of meetings held whilst a Committee member 5 5 5 5 Number of meetings attended 5 5 4 5 The functions of an audit committee in respect of the ﬁnancing activities are carried out by the Supervisory Board of Elsevier Reed Finance BV. Remuneration Committee: Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for determining the remuneration for the executive directors of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV. The Committee comprises only non-executive directors, and is chaired by Mark Elliott. A Directors’ Remuneration Report, which has been approved by the boards of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV, appears on pages 62 to 80. This report also serves as disclosure of the directors’ remuneration policy, and the remuneration and interests of the directors in the shares of the two parent companies, Reed Elsevier PLC and Reed Elsevier NV. Members Mark Elliott Anthony Habgood Robert Polet David Reid Date of appointment during the year January 2010 Number of meetings held whilst a Committee member 6 6 6 6 Number of meetings attended 6 6 6 5 Nominations Committee: Reed Elsevier PLC and Reed Elsevier NV have established a joint Nominations Committee, which provides a formal and transparent procedure for the selection and appointment of new directors to the boards. The Committee comprises only non-executive directors, and is chaired by Anthony Habgood. 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 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 PLC and Reed Elsevier NV Boards, the Committee considers the knowledge, experience and background of individual directors and has regard to diversity. In respect of the Supervisory Board as a whole, it also has regard to the proﬁle adopted for the constitution of the Supervisory Board (see www.reedelsevier.com). Ben van der Veer was appointed a member of the Committee in January 2011. 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 assessing the performance of the directors and 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. Members Dien de Boer-Kruyt Mark Elliott Anthony Habgood Lisa Hook Marike van Lier Lels Robert Polet David Reid Lord Sharman Ben van der Veer Date of appointment (cessation) during the year (April 2010) January 2010 Number of meetings held whilst a Committee member Number of meetings attended 2 3 3 3 3 3 3 3 3 1 3 3 2 2 3 3 3 3 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. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 59 1/3/11 10:43:21 Annual Reports and Financial Statements 2010 Reed Elsevier 59 Structure and corporate governance continued 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 each implemented an ongoing process for identifying, evaluating, monitoring and managing the more signiﬁcant risks faced by their respective businesses. These processes have been in place throughout the year ended 31 December 2010 and up to the date of the approvals of the Annual Reports and Financial Statements 2010. Reed Elsevier Group plc Reed Elsevier Group plc has an established framework of procedures and internal controls, with which the management of each business is required to comply. Group businesses are required to maintain systems of internal control which are appropriate to the nature and scale of their activities and address all signiﬁcant operational and ﬁnancial risks that they face. The board of Reed Elsevier Group plc has adopted a schedule of matters that are required to be brought to it for decision. Reed Elsevier Group plc has a Code of Ethics and Business Conduct that provides a guide for achieving its business goals and requires ofﬁcers and employees to behave in an open, honest, ethical and principled manner. The Code also outlines conﬁdential procedures enabling employees to report any concerns about compliance, or about Reed Elsevier’s ﬁnancial reporting practice. The Code is published on the Reed Elsevier website, www.reedelsevier.com. Each division has identiﬁed and evaluated its major risks, the controls in place to manage those risks and the levels of residual risk accepted. Risk management and control procedures are embedded into the operations of the business and include the monitoring of progress in areas for improvement that come to management and board attention. The major risks identiﬁed include business continuity, protection of IT systems and data, challenges to intellectual property rights, management of strategic and operational change, evaluation and integration of acquisitions, and recruitment and retention of personnel. Further detail on the principal risks facing Reed Elsevier is set out on pages 50 to 52. The major strategic risks facing the Reed Elsevier Group plc businesses are considered by the Board. Reed Elsevier’s Chief Risk Ofﬁcer is responsible for providing regular reports to the Board and Audit Committee. Working closely with 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 respective 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. 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. 60 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 60 1/3/11 10:43:21 Structure and corporate governance continued 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. 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 2010 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 2010, 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 2010 is set out in the Chief Financial Ofﬁcer’s Report on pages 44 and 45. 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 48 and 49. Further information on liquidity of the combined businesses can be found in note 18 of the combined ﬁnancial statements. The principal risks facing Reed Elsevier are set out on pages 50 to 52. 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 2010 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: (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:69)(cid:70)(cid:84)(cid:74)(cid:72)(cid:79)(cid:70)(cid:69)(cid:1)(cid:84)(cid:86)(cid:68)(cid:73)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:77)(cid:80)(cid:84)(cid:86)(cid:83)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:81)(cid:83)(cid:80)(cid:68)(cid:70)(cid:69)(cid:86)(cid:83)(cid:70)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:79)(cid:84)(cid:86)(cid:83)(cid:70)(cid:1) that material information relating to Reed Elsevier is made known to them; (cid:1)(cid:70)(cid:87)(cid:66)(cid:77)(cid:86)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:71)(cid:71)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:8)(cid:84)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:77)(cid:80)(cid:84)(cid:86)(cid:83)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:84)(cid:1) and procedures; (cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:74)(cid:83)(cid:1)(cid:70)(cid:87)(cid:66)(cid:77)(cid:86)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:77)(cid:80)(cid:84)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:34)(cid:86)(cid:69)(cid:74)(cid:85)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:84)(cid:1) 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 (cid:116)(cid:1) (cid:1)(cid:81)(cid:83)(cid:70)(cid:84)(cid:70)(cid:79)(cid:85)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:1)(cid:80)(cid:79)(cid:1)(cid:39)(cid:80)(cid:83)(cid:78)(cid:1) 20-F their conclusions about the effectiveness of the disclosure controls and procedures. A Disclosure Committee, comprising the company secretaries of Reed Elsevier PLC and Reed Elsevier NV and other senior Reed Elsevier managers, provides assurance to the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer regarding their Section 302 certiﬁcations. Section 404 of the US Sarbanes-Oxley Act 2002 requires the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer of Reed Elsevier PLC and of Reed Elsevier NV to certify in the respective Annual Reports 2010 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 2010 on Form 20-F. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 61 1/3/11 10:43:22 Annual Reports and Financial Statements 2010 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 73 Service contracts Non-executive directors 74 Policy on non-executive directors’ fees Total Shareholder Return graphs 75 Total Shareholder Return graphs Remuneration and share tables 75 Directors’ emoluments and fees 76 Directors’ shareholdings in Reed Elsevier 76 Share-based awards in Reed Elsevier This report (the Directors’ Remuneration Report) describes how Reed Elsevier applies the principles of good governance relating to directors’ remuneration. In respect to 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. In addition, resolutions will be submitted to the Annual General Meeting of Reed Elsevier NV requesting approval for the introduction of a separate annual fee for the senior independent director and for setting the maximum amount of annual remuneration of the Supervisory Board of Reed Elsevier NV at €600,000. 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 values of accrued pension benefits’ on page 73; the tables showing ‘Aggregate emoluments’ and ‘Individual fees of non-executive directors’ on page 75; the tables on ‘Individual emoluments of executive directors’ and ‘Directors’ shareholdings in Reed Elsevier PLC and Reed Elsevier NV’ on page 76; and the section ‘Share-based awards in Reed Elsevier PLC and Reed Elsevier NV’ on pages 76-79. 62 Reed Elsevier Annual Reports and Financial Statements 2010 Introduction from Remuneration Committee Chairman 2010 saw the implementation of two new multi-year incentives, the Reed Elsevier Growth Plan (REGP) and the new Bonus Investment Plan (BIP), both of which received overwhelming shareholder approval at the 2010 Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV. Awards were made in May 2010 under both plans while no awards were made under the Long-Term Incentive Plan (LTIP) approved by shareholders in 2003 (and amended in 2006). As previously communicated to shareholders, no new Long-Term Incentive Plan for executive directors in 2011 or thereafter will be introduced without shareholder approval. No awards were made during the year under the Executive Share Option Scheme (ESOS), also approved by shareholders in 2003, to executive directors. During the year, awards granted under the 2007-09 cycle of ESOS, BIP and LTIP lapsed for executive directors as a result of performance conditions not being met. ESOS and LTIP awards granted under the 2008-10 cycle lapsed for executive directors prior to the date of this report for the same reasons. In addition, unvested matching awards granted under the BIP prior to 2010 lapsed during the year. Since the REGP is a one-off arrangement, the executive directors are not eligible for any further grants under that plan and no grants will be made to them in 2011 under the LTIP. For 2011 the executive directors are eligible to participate in the 2011-13 cycle of the new BIP and the Committee intends to make grants of market value options under the ESOS to the executive directors. The grants will be made within the limits and be subject to pre- and post grant performance conditions as previously approved by shareholders. The grants to all participants under the multi-year incentives will be made in May. Having given no annual salary increases to executive directors since January 2008, the Committee decided to award the executive directors a salary increase of 2.5% each effective 1 January 2011. Annual bonuses payable for 2010 to the executive directors were below target as the Committee had decided that an on or above target bonus could only be achieved if profits in 2010 exceeded 2009. Standard terms and conditions were applied to the retirement of Andrew Prozes who retired on 31 December 2010. Furthermore, the Committee revised its terms of reference during the year in the context of best practice guidance. Our approach to preparing this report has been to meet the highest standards of disclosure. In balancing relevant requirements in the UK and the Netherlands, the Committee had regard to the approach adopted by other large global businesses subject to disclosure requirements in more than one jurisdiction. As in prior years, our aim has been to produce a clear, informative and understandable report. Mark Elliott Chairman, Remuneration Committee 47213_Text_p056-084.indd 62 2/3/11 21:45:11 Directors’ remuneration report continued Remuneration Committee Constitution Throughout 2010, the Committee consisted of independent non-executive directors, as defined by the UK Corporate Governance Code and the Dutch Code, and the Chairman of Reed Elsevier Group plc. Details of Committee members and meeting attendance are contained in the section on ‘Structure and corporate governance’ in the Annual Reports. 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 Group plc attends appropriate parts of the meetings. Ian Fraser, Global Human Resources Director, provided material advice to the Committee during the year. Advisors Towers Watson acted as external advisers to the Committee throughout 2010 and also provided market data and data analysis. Towers Watson also provided actuarial and other human resources consultancy services directly to some Reed Elsevier companies. General (cid:116)(cid:1) (cid:1)(cid:85)(cid:80)(cid:1)(cid:83)(cid:70)(cid:87)(cid:74)(cid:70)(cid:88)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:80)(cid:79)(cid:72)(cid:80)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:81)(cid:83)(cid:74)(cid:66)(cid:85)(cid:70)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:83)(cid:70)(cid:77)(cid:70)(cid:87)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) remuneration policy, in particular the performance-related elements and their compatibility with risk policies and systems; (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:84)(cid:85)(cid:66)(cid:67)(cid:77)(cid:74)(cid:84)(cid:73)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:78)(cid:70)(cid:79)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:86)(cid:77)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:14)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:68)(cid:70)(cid:79)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1) plans including the formulation of suitable performance conditions for share based awards and options, and where necessary, to submit them for approval by shareholders; (cid:1)(cid:85)(cid:80)(cid:1)(cid:78)(cid:66)(cid:74)(cid:79)(cid:85)(cid:66)(cid:74)(cid:79)(cid:1)(cid:66)(cid:79)(cid:1)(cid:80)(cid:81)(cid:70)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:80)(cid:79)(cid:72)(cid:80)(cid:74)(cid:79)(cid:72)(cid:1)(cid:69)(cid:74)(cid:66)(cid:77)(cid:80)(cid:72)(cid:86)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:74)(cid:79)(cid:84)(cid:85)(cid:74)(cid:85)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1) investors on major remuneration policy issues; and (cid:1)(cid:85)(cid:80)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:73)(cid:66)(cid:83)(cid:72)(cid:70)(cid:1)(cid:74)(cid:85)(cid:84)(cid:1)(cid:69)(cid:86)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:69)(cid:86)(cid:70)(cid:1)(cid:83)(cid:70)(cid:72)(cid:66)(cid:83)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:79)(cid:90)(cid:1)(cid:81)(cid:86)(cid:67)(cid:77)(cid:74)(cid:84)(cid:73)(cid:70)(cid:69)(cid:1) corporate governance guidelines, codes or recommendations regarding the remuneration of directors of listed companies and formation and operation of share schemes which the Committee considers relevant or appropriate including, but not limited to, the UK and Dutch Corporate Governance Codes. A copy of the terms of reference of the Committee can be found on the Reed Elsevier website, www.reedelsevier.com. The individual consultants involved in advising the Committee do not provide advice to the executive directors or act on their behalf. Executive directors Terms of reference During 2010, the Committee reviewed its terms of reference in the context of latest best practice guidance. As a result, the Committee’s remit was revised and its duties are in relation to: Executive Directors (cid:116)(cid:1) (cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:84)(cid:85)(cid:66)(cid:67)(cid:77)(cid:74)(cid:84)(cid:73)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:81)(cid:80)(cid:77)(cid:74)(cid:68)(cid:90)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1) and determine the remuneration in all its forms (including pensions and share plan participation), the terms of the service contracts and all other terms and conditions of employment of the executive directors of Reed Elsevier Group plc; and 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: (cid:116)(cid:1) (cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:1)(cid:66)(cid:79)(cid:90)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:79)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:83)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:81)(cid:66)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1) executive directors. (cid:116)(cid:1) (cid:1)(cid:1)(cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:14)(cid:83)(cid:70)(cid:77)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:79)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:69)(cid:70)(cid:78)(cid:66)(cid:79)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1) performance standards. Senior Management (cid:116)(cid:1) (cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:69)(cid:87)(cid:74)(cid:68)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:73)(cid:74)(cid:70)(cid:71)(cid:1)(cid:38)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:48)(cid:71)(cid:71)(cid:74)(cid:68)(cid:70)(cid:83)(cid:13)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) remuneration policy of other senior leaders and of the Company Secretary; and (cid:116)(cid:1) (cid:1)(cid:1)(cid:85)(cid:80)(cid:1)(cid:78)(cid:80)(cid:79)(cid:74)(cid:85)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:86)(cid:83)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:74)(cid:84)(cid:1)(cid:72)(cid:83)(cid:80)(cid:86)(cid:81)(cid:1) of executives. Reed Elsevier Chairman (cid:116)(cid:1) (cid:1)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:69)(cid:87)(cid:74)(cid:68)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:52)(cid:70)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:42)(cid:79)(cid:69)(cid:70)(cid:81)(cid:70)(cid:79)(cid:69)(cid:70)(cid:79)(cid:85)(cid:1)(cid:37)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:13)(cid:1)(cid:85)(cid:80)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:1) the remuneration of the Reed Elsevier Chairman. (cid:116)(cid:1) (cid:1)(cid:1)(cid:36)(cid:83)(cid:70)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:15) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:81)(cid:81)(cid:80)(cid:83)(cid:85)(cid:86)(cid:79)(cid:74)(cid:85)(cid:90)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:85)(cid:85)(cid:83)(cid:66)(cid:68)(cid:85)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:83)(cid:70)(cid:85)(cid:66)(cid:74)(cid:79)(cid:1) the best executive talent from anywhere in the world. (cid:1)(cid:1)(cid:34)(cid:1)(cid:67)(cid:66)(cid:77)(cid:66)(cid:79)(cid:68)(cid:70)(cid:69)(cid:1)(cid:78)(cid:74)(cid:89)(cid:1)(cid:80)(cid:71)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:67)(cid:70)(cid:85)(cid:88)(cid:70)(cid:70)(cid:79)(cid:1)(cid:71)(cid:74)(cid:89)(cid:70)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:87)(cid:66)(cid:83)(cid:74)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1) elements, and annual and longer term performance. (cid:1)(cid:1)(cid:34)(cid:77)(cid:74)(cid:72)(cid:79)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:83)(cid:70)(cid:84)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1) and other stakeholders. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 63 2/3/11 21:46:00 Annual Reports and Financial Statements 2010 Reed Elsevier 63 Directors’ remuneration report continued Our remuneration policy In line with this guiding philosophy our remuneration policy is described below. (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:66)(cid:74)(cid:78)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:1)(cid:66)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:81)(cid:66)(cid:68)(cid:76)(cid:66)(cid:72)(cid:70)(cid:1) that is able to attract and retain the best executive talent from anywhere in the world, at an appropriate level of cost. (cid:1)(cid:42)(cid:79)(cid:1)(cid:83)(cid:70)(cid:66)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:69)(cid:70)(cid:68)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1) takes into account the remuneration arrangements and levels of increase applicable to senior management and Reed Elsevier employees generally. (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:74)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:80)(cid:68)(cid:74)(cid:66)(cid:77)(cid:13)(cid:1)(cid:72)(cid:80)(cid:87)(cid:70)(cid:83)(cid:79)(cid:66)(cid:79)(cid:68)(cid:70)(cid:13)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1) 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. (cid:1)(cid:53)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:85)(cid:66)(cid:83)(cid:72)(cid:70)(cid:85)(cid:70)(cid:69)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:70)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:84)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1) competitive with that of executives in similar positions in comparable companies, which includes global sector peers and companies of similar scale and international complexity. (cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:74)(cid:84)(cid:1)(cid:66)(cid:84)(cid:84)(cid:70)(cid:84)(cid:84)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1) (ie salary, annual and multi-year incentives and benefits). (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:79)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:74)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:83)(cid:70)(cid:71)(cid:77)(cid:70)(cid:68)(cid:85)(cid:84)(cid:1) 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. (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:74)(cid:69)(cid:70)(cid:83)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:83)(cid:70)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:85)(cid:80)(cid:1)(cid:68)(cid:77)(cid:66)(cid:88)(cid:1)(cid:67)(cid:66)(cid:68)(cid:76)(cid:1) 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. (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:74)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:74)(cid:85)(cid:1)(cid:74)(cid:78)(cid:81)(cid:80)(cid:83)(cid:85)(cid:66)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:79)(cid:68)(cid:80)(cid:86)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1) investment and ongoing holding of Reed Elsevier PLC and/or Reed Elsevier NV securities among 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 plans and range from the delivery of specific projects and the achievement of customer metrics or 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. Therefore growth in EPS and targeted ROIC are both utilised in our multi-year incentives. 64 Reed Elsevier Annual Reports and Financial Statements 2010 The balance between fixed and performance related pay We aim to provide each executive director with an annual total remuneration package comprising fixed and variable pay with the majority of an executive director’s total remuneration package linked to performance. At target performance, incentive pay makes up approximately 70% of the annual total remuneration package as shown in the diagram below. The core components of the total remuneration package are described in detail in the remainder of this report. Fixed pay elements – 30% 20% salary 10% pensions and other beneﬁts Variable pay elements – 70% 20% annual incentive 50% multi-year incentives 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 shows the way in which annual remuneration payable to an executive director would vary under different performance scenarios. For the purposes of this illustration assumptions have been made in relation to vesting/payout levels at the different levels of performance. Multi-year incentives Annual incentive 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 multi-year incentives and benefits) is assessed against a range of relevant comparator groups as follows: (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:1)(cid:40)(cid:77)(cid:80)(cid:67)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:70)(cid:83)(cid:84)(cid:1)(cid:80)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:74)(cid:79)(cid:1)(cid:67)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:70)(cid:84)(cid:1)(cid:84)(cid:74)(cid:78)(cid:74)(cid:77)(cid:66)(cid:83)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:80)(cid:84)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1) Reed Elsevier (including Thomson Reuters, WPP, Pearson, John Wiley, Wolters Kluwer, Dun & Bradstreet, Experian, McGraw-Hill, UBM, DMGT, Informa, Lagardère and FICO). (cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:74)(cid:70)(cid:84)(cid:1)(cid:77)(cid:74)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:45)(cid:80)(cid:79)(cid:69)(cid:80)(cid:79)(cid:1)(cid:52)(cid:85)(cid:80)(cid:68)(cid:76)(cid:1)(cid:38)(cid:89)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:9)(cid:68)(cid:83)(cid:80)(cid:84)(cid:84)(cid:14) industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope. (cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:74)(cid:70)(cid:84)(cid:1)(cid:77)(cid:74)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:47)(cid:70)(cid:88)(cid:1)(cid:58)(cid:80)(cid:83)(cid:76)(cid:1)(cid:52)(cid:85)(cid:80)(cid:68)(cid:76)(cid:1)(cid:70)(cid:89)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:9)(cid:68)(cid:83)(cid:80)(cid:84)(cid:84)(cid:14) industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope. (cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:74)(cid:70)(cid:84)(cid:1)(cid:77)(cid:74)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:34)(cid:78)(cid:84)(cid:85)(cid:70)(cid:83)(cid:69)(cid:66)(cid:78)(cid:1)(cid:52)(cid:85)(cid:80)(cid:68)(cid:76)(cid:1)(cid:38)(cid:89)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:13)(cid:1) cross-industry and of a similar size (measured by aggregate market capitalisation) and international scope. 47213_Text_p056-084.indd 64 1/3/11 10:43:23 Directors’ remuneration report continued O v e r v e w i 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. (cid:116)(cid:1) (cid:1)(cid:39)(cid:74)(cid:83)(cid:84)(cid:85)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:66)(cid:77)(cid:77)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1) 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. (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:79)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:74)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:69)(cid:66)(cid:85)(cid:66)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:67)(cid:70)(cid:79)(cid:68)(cid:73)(cid:78)(cid:66)(cid:83)(cid:76)(cid:84)(cid:1) for the different elements of the package including salary, total annual cash and total remuneration. While relevant benchmark information are a meaningful input to the process, they inform rather than drive the outcome of the review. (cid:1)(cid:42)(cid:71)(cid:1)(cid:74)(cid:85)(cid:1)(cid:74)(cid:84)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:66)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:78)(cid:86)(cid:79)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:72)(cid:66)(cid:81)(cid:1) exists, the Committee believes that this should be addressed via a review of performance-linked compensation elements in the first instance. (cid:116)(cid:1) (cid:1)(cid:35)(cid:70)(cid:79)(cid:70)(cid:71)(cid:74)(cid:85)(cid:84)(cid:13)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:78)(cid:70)(cid:69)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:83)(cid:70)(cid:85)(cid:74)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:67)(cid:70)(cid:79)(cid:70)(cid:71)(cid:74)(cid:85)(cid:84)(cid:13)(cid:1) are positioned to reflect local country practice. The total remuneration package Each element of the remuneration package for executive directors is designed to achieve specific objectives, as described in this section. (cid:42)(cid:79)(cid:1)(cid:66)(cid:72)(cid:72)(cid:83)(cid:70)(cid:72)(cid:66)(cid:85)(cid:70)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:90)(cid:1)(cid:68)(cid:83)(cid:70)(cid:66)(cid:85)(cid:70)(cid:1)(cid:66)(cid:1)(cid:86)(cid:79)(cid:74)(cid:71)(cid:74)(cid:70)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:67)(cid:66)(cid:77)(cid:66)(cid:79)(cid:68)(cid:70)(cid:69)(cid:1)(cid:83)(cid:70)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:78)(cid:74)(cid:89)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:70)(cid:78)(cid:81)(cid:77)(cid:80)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:81)(cid:83)(cid:80)(cid:81)(cid:80)(cid:84)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:15)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:81)(cid:66)(cid:68)(cid:76)(cid:66)(cid:72)(cid:70)(cid:1) 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 summarises the component parts of the remuneration package provided to the executive directors during 2010. This includes the bonuses earned for performance during 2010, payouts received from and awards granted under the multi-year incentives during the year. Component Erik Engstrom Mark Armour Andrew Prozes Base salary (page 66) £1,000,000 £613,440 $1,215,180 Retirement beneﬁ ts (page 72) UK defined benefit plan UK defined benefit plan Retired 31 December 2010 Other beneﬁ ts Annual incentive (page 66) (earned for 2010 and payable in March 2011) Multi-year incentives granted (page 67) Company car or cash allowance and private medical benefit Company car or cash allowance and private medical benefit Company car and private medical benefit £999,000 £612,827 $1,146,332 REGP LTIP ESOS 643,086 PLC and 422,310 NV ordinary shares 394,495 PLC and 259,062 NV ordinary shares – – – – – – – BIP 70,189 NV ADRs 65,054 PLC and 42,512 NV ordinary shares 88,687 PLC and 58,545 NV ordinary shares Multi-year incentives vested (2007-09 cycle) LTIP ESOS BIP – – – – – – – – – Shareholding requirement (page 72) 300% of salary 200% of salary 200% of salary Policy in relation to the individual remuneration elements is described in greater detail in the remainder of this section. (cid:74) (cid:35) (cid:86) (cid:84) (cid:79) (cid:70) (cid:84) (cid:84) (cid:1) (cid:83) (cid:70) (cid:87) (cid:70) (cid:88) (cid:74) (cid:74) (cid:74) (cid:39) (cid:79) (cid:66) (cid:79) (cid:68) (cid:66) (cid:77) (cid:1) (cid:83) (cid:70) (cid:87) (cid:70) (cid:88) (cid:74) G o v e r n a n c e (cid:74) (cid:74) (cid:39) (cid:79) (cid:66) (cid:79) (cid:68) (cid:66) (cid:77) (cid:1) (cid:84) (cid:85) (cid:66) (cid:85) (cid:70) (cid:78) (cid:70) (cid:79) (cid:85) (cid:84) (cid:1) (cid:66) (cid:79) (cid:69) (cid:80) (cid:85) (cid:73) (cid:70) (cid:83) (cid:1) (cid:74) (cid:79) (cid:80) (cid:83) (cid:78) (cid:66) (cid:85) (cid:74) (cid:80) (cid:79) (cid:1) (cid:71) 47213_Text_p056-084.indd 65 2/3/11 21:48:45 Annual Reports and Financial Statements 2010 Reed Elsevier 65 Directors’ remuneration report continued Base 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 and Reed Elsevier’s guidelines for wages and salaries agreed for the whole of Reed Elsevier for the forthcoming financial year. Any increases typically take effect on 1 January. No increases in the base salary of executive directors have been given since 1 January 2008, except for Erik Engstrom who received a promotional increase in November 2009 following his appointment as CEO of Reed Elsevier Group plc. The Committee decided to award a salary increase of 2.5% to each executive director which increased base salaries with effect from 1 January 2011 to £1,025,000 for Erik Engstrom and £628,776 for Mark Armour. This level of increase is within the guidelines agreed for all employees in respect of 2011 increases. In respect of salaries for the broader employee population, 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 2.5% on average will be awarded across the senior management population globally for 2011. This level of increase is in line with increases provided to the wider employee population. Annual incentive The annual incentive plan (AIP) 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. For 2011, executive directors have a target bonus opportunity of 100% of salary that is weighted as follows across four elements (unchanged from 2010): Measure Revenue Profit* Cash Flow Conversion Rate Key Performance Objectives (KPOs) Weighting 30% 30% 10% 30% * The Profit measure for the CEO and CFO of Reed Elsevier Group plc is Adjusted Profit After Tax (PAT) for the Reed Elsevier combined businesses. 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. For 2011, the Committee decided to retain the incentive slope and payout range used in 2010 under which a small bonus starts to accrue for achieving 94% of target against each individual financial performance measure. The level of out-performance required to achieve the maximum bonus (150% of target and unchanged) will also be retained. 66 Reed Elsevier Annual Reports and Financial Statements 2010 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. The KPO component for the executive directors and other senior executives will contain at least one KPO relating to the achievement of specific sustainability objectives and targets contained within Reed Elsevier’s corporate responsibility agenda. 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 Group plc presents his assessment of performance against KPOs for the CEO of Reed Elsevier Group plc to the Committee while the CEO of Reed Elsevier Group plc presents his assessment of KPO performance for the CFO of Reed Elsevier Group plc. The Committee then discusses and agrees the final KPO score for each executive director. AIP payments for 2010 In assessing the level of bonus payments for 2010, the Committee noted the following performances: % change over 2009 at constant exchange rates Underlying revenue growth Total Adjusted PAT/OP +2% +1% -1% -12% Reed Elsevier LexisNexis Reed Elsevier has made significant progress in 2010 as our markets strengthened and we saw the benefit of the actions which management has taken in the business. Underlying revenues were 2% higher in constant currencies with the return to growth reflecting improved performance in our more cyclical markets, together with a sustained commitment to new product development and a focus on sales & marketing initiatives. Firm action on costs and further innovations in our operational processes has meant that total costs at constant exchange rates declined 1% and adjusted operating margins at 25.7% were just 0.2 percentage points lower than in 2009, despite the increased spending on new product development and sales & marketing. Adjusted operating profits were 1% lower at £1,555m/up 3% at €1,819m. Adjusted operating cash flow continued to be strong at £1,519m/€1,777m with an excellent 98% conversion of adjusted operating profits into cash. The post tax return on capital employed improved to 10.6%, 0.2 percentage points higher reflecting the strong cash generation and increased capital efficiency. LexisNexis returned to overall revenue growth, with strong growth in the risk business. Subscription revenues in the legal business continued to reflect lower levels of law firm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing. The increased spend on supporting these important developments has in part been mitigated by continuing cost efficiencies including further outsourcing of production and engineering activities, supply chain management and operational streamlining. For Erik Engstrom and Mark Armour the sum of the individual scores achieved against the four AIP components exceeded target AIP. However, as Reed Elsevier’s PAT did not exceed 2009 adjusted PAT, the overall bonus was capped at just below target. 47213_Text_p056-084.indd 66 3/3/11 16:13:14 Directors’ remuneration report continued (cid:48) (cid:87) (cid:70) (cid:83) (cid:87) (cid:70) (cid:88) (cid:74) (cid:53)(cid:73)(cid:70)(cid:1)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:74)(cid:79)(cid:72)(cid:1)(cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:70)(cid:84)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:81)(cid:66)(cid:74)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:88)(cid:73)(cid:80)(cid:1)(cid:84)(cid:70)(cid:83)(cid:87)(cid:70)(cid:69)(cid:1) (cid:69)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:27) 2010 annual bonus (to be paid in March 2011) % of 2010 base salary earnings (cid:38)(cid:83)(cid:74)(cid:76)(cid:1)(cid:38)(cid:79)(cid:72)(cid:84)(cid:85)(cid:83)(cid:80)(cid:78) (cid:46)(cid:66)(cid:83)(cid:76)(cid:1)(cid:34)(cid:83)(cid:78)(cid:80)(cid:86)(cid:83) (cid:34)(cid:79)(cid:69)(cid:83)(cid:70)(cid:88)(cid:1)(cid:49)(cid:83)(cid:80)(cid:91)(cid:70)(cid:84) Multi-year incentives £999,000 £612,827 $1,146,332 99.9 99.9 93.9 (cid:53)(cid:73)(cid:70)(cid:1)(cid:78)(cid:86)(cid:77)(cid:85)(cid:74)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:74)(cid:79)(cid:68)(cid:70)(cid:79)(cid:85)(cid:74)(cid:87)(cid:70)(cid:84)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:83)(cid:74)(cid:84)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:51)(cid:38)(cid:40)(cid:49)(cid:13)(cid:1)(cid:35)(cid:42)(cid:49)(cid:13)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:45)(cid:53)(cid:42)(cid:49)(cid:15)(cid:1) (cid:53)(cid:73)(cid:70)(cid:1)(cid:81)(cid:86)(cid:83)(cid:81)(cid:80)(cid:84)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:86)(cid:77)(cid:85)(cid:74)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:74)(cid:79)(cid:68)(cid:70)(cid:79)(cid:85)(cid:74)(cid:87)(cid:70)(cid:84)(cid:1)(cid:74)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:1)(cid:71)(cid:80)(cid:68)(cid:86)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:69)(cid:70)(cid:77)(cid:74)(cid:87)(cid:70)(cid:83)(cid:90)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:70)(cid:69)(cid:74)(cid:86)(cid:78)(cid:1)(cid:85)(cid:80)(cid:1)(cid:77)(cid:80)(cid:79)(cid:72)(cid:70)(cid:83)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:1)(cid:84)(cid:85)(cid:83)(cid:66)(cid:85)(cid:70)(cid:72)(cid:90)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:73)(cid:80)(cid:77)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:84)(cid:1) (cid:66)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:70)(cid:77)(cid:74)(cid:87)(cid:70)(cid:83)(cid:90)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:84)(cid:85)(cid:83)(cid:66)(cid:85)(cid:70)(cid:72)(cid:90)(cid:1)(cid:88)(cid:73)(cid:74)(cid:77)(cid:70)(cid:1)(cid:69)(cid:83)(cid:74)(cid:87)(cid:74)(cid:79)(cid:72)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:1) (cid:68)(cid:83)(cid:70)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:83)(cid:80)(cid:86)(cid:72)(cid:73)(cid:1)(cid:84)(cid:86)(cid:84)(cid:85)(cid:66)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:71)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:13)(cid:1)(cid:68)(cid:66)(cid:81)(cid:74)(cid:85)(cid:66)(cid:77)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:74)(cid:81)(cid:77)(cid:74)(cid:79)(cid:70)(cid:1) Reed Elsevier Growth Plan (REGP) The key features of the REGP are summarised below. 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(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:81)(cid:81)(cid:77)(cid:74)(cid:70)(cid:84)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:84)(cid:74)(cid:91)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1) (cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:15) Feature Frequency of award (cid:38)(cid:77)(cid:74)(cid:72)(cid:74)(cid:67)(cid:74)(cid:77)(cid:74)(cid:85)(cid:90) Detail (cid:116)(cid:1)(cid:48)(cid:79)(cid:70)(cid:14)(cid:80)(cid:71)(cid:71)(cid:1)(cid:66)(cid:83)(cid:83)(cid:66)(cid:79)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85) (cid:116)(cid:1)(cid:1)(cid:34)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:80)(cid:79)(cid:1)(cid:19)(cid:23)(cid:1)(cid:46)(cid:66)(cid:90)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17) (cid:116)(cid:1)(cid:1)(cid:36)(cid:38)(cid:48)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:36)(cid:39)(cid:48)(cid:1)(cid:80)(cid:71)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:40)(cid:83)(cid:80)(cid:86)(cid:81)(cid:1)(cid:81)(cid:77)(cid:68) (cid:116)(cid:1)(cid:1)(cid:34)(cid:84)(cid:1)(cid:66)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:83)(cid:70)(cid:82)(cid:86)(cid:74)(cid:83)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:73)(cid:80)(cid:77)(cid:69)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1) (cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:66)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:20)(cid:17)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:66)(cid:77)(cid:66)(cid:83)(cid:90)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:66)(cid:84)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:38)(cid:48)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:19)(cid:17)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:66)(cid:77)(cid:66)(cid:83)(cid:90)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:66)(cid:84)(cid:70)(cid:1) (cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:39)(cid:48)(cid:15)(cid:1)(cid:34)(cid:79)(cid:90)(cid:1)(cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:35)(cid:42)(cid:49)(cid:1)(cid:69)(cid:74)(cid:69)(cid:1)(cid:79)(cid:80)(cid:85)(cid:1)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:85)(cid:73)(cid:74)(cid:84)(cid:1)(cid:73)(cid:80)(cid:77)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:83)(cid:70)(cid:82)(cid:86)(cid:74)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85) (cid:1)(cid:116)(cid:1)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:83)(cid:70)(cid:82)(cid:86)(cid:74)(cid:83)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:78)(cid:66)(cid:74)(cid:79)(cid:85)(cid:66)(cid:74)(cid:79)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:84)(cid:81)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:84)(cid:1)(cid:85)(cid:73)(cid:83)(cid:80)(cid:86)(cid:72)(cid:73)(cid:80)(cid:86)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:77)(cid:74)(cid:71)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:9)(cid:74)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:71)(cid:74)(cid:87)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:10) (cid:74) (cid:35) (cid:86) (cid:84) (cid:79) (cid:70) (cid:84) (cid:84) (cid:1) (cid:83) (cid:70) (cid:87) (cid:70) (cid:88) (cid:74) (cid:74) (cid:74) (cid:39) (cid:79) (cid:66) (cid:79) (cid:68) (cid:66) (cid:77) (cid:1) (cid:83) (cid:70) (cid:87) (cid:70) (cid:88) (cid:74) (cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69) (cid:116)(cid:1)(cid:1)(cid:39)(cid:74)(cid:87)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:84)(cid:81)(cid:77)(cid:74)(cid:85)(cid:1)(cid:74)(cid:79)(cid:85)(cid:80)(cid:1)(cid:66)(cid:79)(cid:1)(cid:74)(cid:79)(cid:74)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:66)(cid:1)(cid:71)(cid:86)(cid:83)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:85)(cid:88)(cid:80)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84) (cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:81)(cid:80)(cid:83)(cid:85)(cid:86)(cid:79)(cid:74)(cid:85)(cid:90)(cid:1)(cid:85)(cid:80)(cid:1)(cid:83)(cid:70)(cid:68)(cid:70)(cid:74)(cid:87)(cid:70)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:81)(cid:66)(cid:90)(cid:80)(cid:86)(cid:85)(cid:1)(cid:66)(cid:71)(cid:85)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84) Performance conditions (cid:116)(cid:1)(cid:1)(cid:51)(cid:70)(cid:77)(cid:66)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:53)(cid:52)(cid:51)(cid:1)(cid:78)(cid:70)(cid:66)(cid:84)(cid:86)(cid:83)(cid:70)(cid:69)(cid:1)(cid:66)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:85)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:66)(cid:83)(cid:66)(cid:85)(cid:80)(cid:83)(cid:1)(cid:72)(cid:83)(cid:80)(cid:86)(cid:81)(cid:84)(cid:13)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:51)(cid:48)(cid:42)(cid:36)(cid:1) (cid:55)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:84)(cid:68)(cid:66)(cid:77)(cid:70) (cid:36)(cid:66)(cid:81)(cid:1) (see section entitled ‘Performance measures and targets’ below) (cid:116)(cid:1)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:78)(cid:70)(cid:85)(cid:83)(cid:74)(cid:68)(cid:84)(cid:1)(cid:73)(cid:66)(cid:87)(cid:70)(cid:1)(cid:70)(cid:82)(cid:86)(cid:66)(cid:77)(cid:1)(cid:88)(cid:70)(cid:74)(cid:72)(cid:73)(cid:85)(cid:74)(cid:79)(cid:72)(cid:13)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:18)(cid:16)(cid:20)(cid:83)(cid:69)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1) (cid:66)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:84)(cid:81)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:78)(cid:70)(cid:85)(cid:83)(cid:74)(cid:68)(cid:1)(cid:9)(cid:66)(cid:69)(cid:69)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:78)(cid:70)(cid:66)(cid:84)(cid:86)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:10)(cid:1) (cid:116)(cid:1)(cid:1)(cid:1)(cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:68)(cid:66)(cid:77)(cid:70)(cid:69)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72) (cid:116)(cid:1)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:79)(cid:86)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:74)(cid:84)(cid:1)(cid:68)(cid:66)(cid:81)(cid:81)(cid:70)(cid:69)(cid:1)(cid:66)(cid:85)(cid:1)(cid:18)(cid:22)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:79)(cid:86)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:83)(cid:74)(cid:84)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:74)(cid:79)(cid:74)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1) share award (cid:40) (cid:80) (cid:87) (cid:70) (cid:83) (cid:79) (cid:66) (cid:79) (cid:68) (cid:70) (cid:37)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:1)(cid:70)(cid:82)(cid:86)(cid:74)(cid:87)(cid:66)(cid:77)(cid:70)(cid:79)(cid:85)(cid:84) (cid:116)(cid:1)(cid:1)(cid:37)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:1)(cid:70)(cid:82)(cid:86)(cid:74)(cid:87)(cid:66)(cid:77)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:66)(cid:68)(cid:68)(cid:83)(cid:86)(cid:70)(cid:1)(cid:69)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:81)(cid:66)(cid:74)(cid:69)(cid:1)(cid:80)(cid:86)(cid:85)(cid:1)(cid:74)(cid:79)(cid:1)(cid:68)(cid:66)(cid:84)(cid:73)(cid:1)(cid:88)(cid:73)(cid:70)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1) (cid:66)(cid:83)(cid:70)(cid:1)(cid:83)(cid:70)(cid:77)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:13)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:77)(cid:90)(cid:74)(cid:79)(cid:72)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85) (cid:48)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:84) (cid:116)(cid:1)(cid:1)(cid:48)(cid:79)(cid:1)(cid:66)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:13)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:1)(cid:80)(cid:79)(cid:1)(cid:66)(cid:1)(cid:81)(cid:83)(cid:80)(cid:14)(cid:83)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:67)(cid:66)(cid:84)(cid:74)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:1) (cid:66)(cid:84)(cid:84)(cid:70)(cid:84)(cid:84)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:80)(cid:71)(cid:1)(cid:81)(cid:83)(cid:80)(cid:72)(cid:83)(cid:70)(cid:84)(cid:84)(cid:1)(cid:66)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:85)(cid:1)(cid:85)(cid:66)(cid:83)(cid:72)(cid:70)(cid:85)(cid:84)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:74)(cid:78)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:1)(cid:80)(cid:68)(cid:68)(cid:86)(cid:83)(cid:84) (cid:116)(cid:1)(cid:1)(cid:36)(cid:77)(cid:66)(cid:88)(cid:14)(cid:67)(cid:66)(cid:68)(cid:76)(cid:1)(cid:66)(cid:81)(cid:81)(cid:77)(cid:74)(cid:70)(cid:84)(cid:1) (cid:1)(cid:116)(cid:1)(cid:1)(cid:34)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:84)(cid:66)(cid:85)(cid:74)(cid:84)(cid:71)(cid:74)(cid:70)(cid:69)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:81)(cid:86)(cid:83)(cid:68)(cid:73)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85) i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 67 2/3/11 21:54:21 Annual Reports and Financial Statements 2010 Reed Elsevier 67 Directors’ remuneration report continued Mechanics The chart below illustrates how the REGP operates. 3 years: 2010-2012 Q1 2013 2 years: 2013-2014 Q1 2015 50% of performance shares are released (cid:48)(cid:1)(cid:21)(cid:28)(cid:34)(cid:28)(cid:24)(cid:40)(cid:28)(cid:1)(cid:37)(cid:29)(cid:1)(cid:39)emaining 50% of the performance shares is deferred until Q1 of 2015 subject to continued employment (cid:48)(cid:1)(cid:22)(cid:42)(cid:25)(cid:33)(cid:28)(cid:26)(cid:41)(cid:1)(cid:41)(cid:37)(cid:1)(cid:38)(cid:28)(cid:39)(cid:29)(cid:37)(cid:39)(cid:35)(cid:24)(cid:36)(cid:26)(cid:28)(cid:1)(cid:24)(cid:30)(cid:24)(cid:32)(cid:36)(cid:40)(cid:41)(cid:1)(cid:41)(cid:31)(cid:39)ee metrics, up to a 1 for 1 match can be earned over years 4 and 5 on the deferred performance shares Performance share award of 600% of salary Performance tested (cid:15)(cid:19)(cid:22) 1/3rd (cid:23)(cid:22)(cid:21) 1/3rd Performance share award (cid:21)(cid:18)(cid:17)(cid:14) 1/3rd (cid:15)(cid:19)(cid:22) 1/3rd (cid:23)(cid:22)(cid:21) 1/3rd (cid:21)(cid:18)(cid:17)(cid:14) 1/3rd On the date of grant the CEO committed 300% of salary and the CFO 200% of salary in shares to the plan which must be retained throughout the life of the plan (cid:22)(cid:42)(cid:25)(cid:33)(cid:28)(cid:26)(cid:41)(cid:1)(cid:41)(cid:37)(cid:1)(cid:38)(cid:28)(cid:39)(cid:29)(cid:37)(cid:39)(cid:35)(cid:24)(cid:36)(cid:26)(cid:28)(cid:1)(cid:24)(cid:30)(cid:24)(cid:32)(cid:36)(cid:40)(cid:41)(cid:1)(cid:41)(cid:31)(cid:39)ee metrics, up to a 1 for 1 match can be earned over years 4 and 5 on the personal shareholding committed under the plan (cid:21)(cid:28)(cid:34)(cid:28)(cid:24)(cid:40)(cid:28)(cid:1)(cid:37)(cid:29)(cid:1)(cid:27)(cid:28)(cid:29)(cid:28)(cid:39)(cid:39)ed performance shares (cid:21)(cid:28)(cid:34)(cid:28)(cid:24)(cid:40)(cid:28)(cid:1)(cid:37)(cid:29) matching shares earned (cid:21)(cid:28)(cid:34)(cid:28)(cid:24)(cid:40)(cid:28)(cid:1)(cid:37)(cid:29)(cid:1) committed holding – the regular shareholding guidelines continue to apply to the executive directors Overall payout from the plan to each executive director is capped at 150% of the shares comprised in the performance share award Performance measures and targets Total Shareholder Return (TSR) The vesting of one third of the REGP award is subject to Reed Elsevier’s TSR performance compared against three comparator groups (the TSR tranche). As Reed Elsevier accesses equity capital markets through three exchanges – London, Amsterdam and New York – in three separate currency zones, three distinct comparator groups are used – a Sterling Comparator Group, a Euro Comparator Group and a US Dollar Comparator Group. The TSR performance of Reed Elsevier PLC ordinary shares (based on the London listing) is measured against the Sterling Comparator Group, the TSR performance of Reed Elsevier NV ordinary shares (based on the Amsterdam listing) is measured against the Euro Comparator Group; and the TSR performance of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRs (based on the New York listing) is measured against the US Dollar Comparator Group. The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award was made and the final six months of the last financial year of the performance period. TSR performance is measured separately against each comparator group and the proportion of the TSR tranche that vests is the sum of the payouts achieved against the three comparator groups. TSR ranking within the relevant TSR comparator group Below Median Median Upper quartile 3-year period: 2010-2012 Vesting percentage of each third of the TSR tranche 5-year period: 2010-14 Vesting percentage of each third of the TSR tranche 0% 30% 100% 0% 30% 100% Vesting is on a straight line basis for ranking between the median and the upper quartile. 68 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 68 1/3/11 10:43:24 Directors’ remuneration report continued Return on invested capital (ROIC) The vesting of one third of the REGP award is subject to the percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV (the ROIC tranche) as follows: 3 years: 2010-2012 ROIC in 2012, subject to actual exceeding 2009 ROIC calculated on the same basis 2 years: 2013-14 ROIC in 2014 Vesting percentage of ROIC tranche Below 10.2% Below 10.7% 10.2% 10.7% 11.2% or above 12.7% or above 0% 60% 100% Vesting is on a straight-line basis for performance between the minimum and maximum levels. For the purposes of the plan, the following definitions apply: (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:42)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:68)(cid:66)(cid:81)(cid:74)(cid:85)(cid:66)(cid:77)(cid:1)(cid:30)(cid:1)(cid:66)(cid:83)(cid:74)(cid:85)(cid:73)(cid:78)(cid:70)(cid:85)(cid:74)(cid:68)(cid:1)(cid:66)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:80)(cid:81)(cid:70)(cid:79)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1) closing capital employed for the Reed Elsevier combined businesses for the financial year with all cumulative amortisation and impairment charges for acquired intangible assets and goodwill added back. In addition, any exceptional restructuring and acquisition integration charges (net of tax) are capitalised for these purposes and changes in exchange rates and movements in pension deficits are excluded. (cid:1)(cid:51)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:1)(cid:30)(cid:1)(cid:66)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:80)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:83)(cid:80)(cid:71)(cid:74)(cid:85)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1) combined businesses before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges. In addition, it is grossed up to exclude the equity share of taxes in joint ventures and further adjusted to exclude net pension financing credit movement, after applying the effective rate of tax used for adjusted earnings calculations and using exchange rates to match those used in the calculation of invested capital. In order to ensure that the performance score achieved is a fair reflection of underlying business performance, the Committee retains discretion to determine the treatment of major disposals and acquisitions that require board approval. Any significant adjustments made to the final performance score will be disclosed to shareholders. TSR comparators groups The constituents of each comparator group were selected on the following basis: (cid:116)(cid:1) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:74)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:77)(cid:70)(cid:87)(cid:66)(cid:79)(cid:85)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:74)(cid:79)(cid:69)(cid:70)(cid:89)(cid:1)(cid:66)(cid:84)(cid:1)(cid:66)(cid:85)(cid:1) 31 December 2009 and nearest in size to Reed Elsevier in terms of market capitalisation. (cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:77)(cid:70)(cid:87)(cid:66)(cid:79)(cid:85)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:74)(cid:79)(cid:69)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:66)(cid:83)(cid:70)(cid:27)(cid:1)(cid:9)(cid:18)(cid:10)(cid:1)(cid:39)(cid:53)(cid:52)(cid:38)(cid:18)(cid:17)(cid:17)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:52)(cid:85)(cid:70)(cid:83)(cid:77)(cid:74)(cid:79)(cid:72)(cid:1) Comparator Group; (2) Euronext100 and the DAX30 for the Euro Comparator Group; and (3) the S&P500 for the US Dollar Comparator Group. (cid:1)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:74)(cid:70)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:70)(cid:89)(cid:68)(cid:77)(cid:86)(cid:69)(cid:70)(cid:69)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:74)(cid:84)(cid:1)(cid:81)(cid:86)(cid:83)(cid:81)(cid:80)(cid:84)(cid:70)(cid:27) – companies with mainly domestic revenues (as they do not reflect the global nature of Reed Elsevier’s customer base); – those engaged in extractive industries (as they are exposed to commodity cycles); and – financial services companies (as they have a different risk/reward profile). (cid:116)(cid:1) (cid:1)(cid:1)(cid:51)(cid:70)(cid:77)(cid:70)(cid:87)(cid:66)(cid:79)(cid:85)(cid:1)(cid:77)(cid:74)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:72)(cid:77)(cid:80)(cid:67)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:70)(cid:83)(cid:84)(cid:1)(cid:80)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:74)(cid:79)(cid:1)(cid:67)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:70)(cid:84)(cid:1)(cid:84)(cid:74)(cid:78)(cid:74)(cid:77)(cid:66)(cid:83)(cid:1) to those of Reed Elsevier not otherwise included were added to the relevant comparator group. Set out below are the comparators included in each currency group applicable to awards made in 2010 under the REGP. Sterling Comparator Group* Aggreko AstraZeneca Autonomy Corp. BAE Systems British Airways British American Tobacco Bunzl Burberry Group Cobham Compass Group DMGT Diageo Experian GlaxoSmithkline Intercontinental Hotels Imperial Tobacco Group Informa Inmarsat International Power Intertek Group Invensys Johnson Matthey Kingﬁsher National Grid Pearson Reckitt Benckiser Group Rexam Rolls-Royce Group SABMiller Sage Group Shire Smith & Nephew Smiths Group Thomas Cook Group TUI Travel Unilever (LSE) United Business Media Vodafone Wolseley WPP Euro Comparator Group* Accor Adidas Ahold Air Liquide Akzo Nobel Alstom ASML Holding BASF BMW Carrefour Christian Dior Daimler Deutsche Post EADS Essilor Intl. Heineken Hermes Intl. K+S Lafarge Lagardère Groupe Linde LVMH MAN Metro Michelin Pernod-Ricard Philips Eltn. Koninklijke Portugal Telecom SGPS PPR Renault Saint-Gobain SAP Schneider Electric Suez Environnement Thales ThyssenKrupp TNT Unilever (AEX) Vallourec Veolia Environnement Volkswagen Wolters Kluwer US Dollar Comparator Group* 3M Adobe Systems Agilent Techs. Air Prds. & Chems. Amazon.com Analog Devices Applied Mats. Avon Products Baxter Intl. Becton Dickinson Caterpillar Colgate-Palmolive Corning Cummins Deere Dow Chemical Dun & Bradstreet E. I. Du pont de Nemours Ebay Emerson Electric FICO Ford Motor Genzyme H.J. Heinz Illinois Tool Works John Wiley Johnson Controls Juniper Networks Life Technologies McDonalds McGraw-Hill Micron Technology Motorola News Corp Nike Nvidia Paccar PPG Industries Spectra Energy Texas Insts. Thomson Reuters (NYSE) United Technologies Yum! Brands *Reflects the composition of the comparator group as at the date of grant. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 69 1/3/11 10:43:25 Annual Reports and Financial Statements 2010 Reed Elsevier 69 Directors’ remuneration report continued Adjusted earnings per share (EPS) (cid:53)(cid:73)(cid:70)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:80)(cid:71)(cid:1)(cid:80)(cid:79)(cid:70)(cid:1)(cid:85)(cid:73)(cid:74)(cid:83)(cid:69)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:51)(cid:38)(cid:40)(cid:49)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:74)(cid:84)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1) (cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:66)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:85)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:70)(cid:66)(cid:83)(cid:79)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:81)(cid:70)(cid:83)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:1) (cid:78)(cid:70)(cid:66)(cid:84)(cid:86)(cid:83)(cid:70)(cid:69)(cid:1)(cid:66)(cid:85)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:85)(cid:66)(cid:79)(cid:85)(cid:1)(cid:68)(cid:86)(cid:83)(cid:83)(cid:70)(cid:79)(cid:68)(cid:74)(cid:70)(cid:84)(cid:1)(cid:9)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:10)(cid:1)(cid:9)(cid:85)(cid:73)(cid:70)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:85)(cid:83)(cid:66)(cid:79)(cid:68)(cid:73)(cid:70)(cid:10)(cid:1) as follows: (cid:55)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:74)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1)(cid:66)(cid:1)(cid:84)(cid:85)(cid:83)(cid:66)(cid:74)(cid:72)(cid:73)(cid:85)(cid:14)(cid:77)(cid:74)(cid:79)(cid:70)(cid:1)(cid:67)(cid:66)(cid:84)(cid:74)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:67)(cid:70)(cid:85)(cid:88)(cid:70)(cid:70)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:78)(cid:74)(cid:79)(cid:74)(cid:78)(cid:86)(cid:78)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:78)(cid:66)(cid:89)(cid:74)(cid:78)(cid:86)(cid:78)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:84)(cid:15)(cid:1) (cid:39)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:86)(cid:83)(cid:81)(cid:80)(cid:84)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:74)(cid:79)(cid:72)(cid:1)(cid:69)(cid:70)(cid:71)(cid:74)(cid:79)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:66)(cid:81)(cid:81)(cid:77)(cid:90)(cid:27) 3 years: 2010-2012 2 years: 2013-14 Vesting percentage of EPS tranche (cid:34)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69) (cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83) (cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:88)(cid:80)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69) (cid:34)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1) (cid:1) (cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:74)(cid:79)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1) (cid:1) (cid:19)(cid:17)(cid:18)(cid:18)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:19)(cid:17)(cid:18)(cid:19)(cid:1)(cid:1) (cid:1) (cid:1) (cid:9)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1) (cid:1) (cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83) (cid:85)(cid:73)(cid:70)(cid:1)(cid:88)(cid:73)(cid:80)(cid:77)(cid:70)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1) (cid:1) (cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69)(cid:1)(cid:67)(cid:70)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:80)(cid:84)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:10) (cid:1) (cid:35)(cid:70)(cid:77)(cid:80)(cid:88)(cid:1)(cid:22)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1) (cid:35)(cid:70)(cid:77)(cid:80)(cid:88)(cid:1)(cid:24)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1) (cid:22)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1) (cid:24)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1) (cid:26)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1)(cid:80)(cid:83)(cid:1)(cid:66)(cid:67)(cid:80)(cid:87)(cid:70)(cid:1) (cid:18)(cid:20)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1)(cid:80)(cid:83)(cid:1)(cid:66)(cid:67)(cid:80)(cid:87)(cid:70)(cid:1) (cid:17)(cid:6) (cid:23)(cid:17)(cid:6) (cid:18)(cid:17)(cid:17)(cid:6) Executive Share Option Scheme (ESOS) The key features of the ESOS are summarised below. (cid:116)(cid:1) (cid:1)(cid:38)(cid:66)(cid:83)(cid:79)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:30)(cid:1)(cid:66)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:83)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:70)(cid:69)(cid:1)(cid:70)(cid:66)(cid:83)(cid:79)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:78)(cid:70)(cid:66)(cid:84)(cid:86)(cid:83)(cid:70)(cid:69)(cid:1)(cid:66)(cid:85)(cid:1)(cid:68)(cid:80)(cid:79)(cid:84)(cid:85)(cid:66)(cid:79)(cid:85)(cid:1) (cid:68)(cid:86)(cid:83)(cid:83)(cid:70)(cid:79)(cid:68)(cid:74)(cid:70)(cid:84)(cid:15)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:70)(cid:1)(cid:66)(cid:78)(cid:80)(cid:83)(cid:85)(cid:74)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:74)(cid:78)(cid:81)(cid:66)(cid:74)(cid:83)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1) (cid:80)(cid:71)(cid:1)(cid:66)(cid:68)(cid:82)(cid:86)(cid:74)(cid:83)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:85)(cid:66)(cid:79)(cid:72)(cid:74)(cid:67)(cid:77)(cid:70)(cid:1)(cid:66)(cid:84)(cid:84)(cid:70)(cid:85)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:72)(cid:80)(cid:80)(cid:69)(cid:88)(cid:74)(cid:77)(cid:77)(cid:13)(cid:1)(cid:70)(cid:89)(cid:68)(cid:70)(cid:81)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1) (cid:83)(cid:70)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:68)(cid:82)(cid:86)(cid:74)(cid:84)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:72)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:68)(cid:73)(cid:66)(cid:83)(cid:72)(cid:70)(cid:84)(cid:13)(cid:1)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:16)(cid:77)(cid:80)(cid:84)(cid:84)(cid:70)(cid:84)(cid:1) (cid:80)(cid:79)(cid:1)(cid:67)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:69)(cid:74)(cid:84)(cid:81)(cid:80)(cid:84)(cid:66)(cid:77)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:85)(cid:66)(cid:89)(cid:1)(cid:83)(cid:66)(cid:85)(cid:70)(cid:1)(cid:66)(cid:79)(cid:80)(cid:78)(cid:66)(cid:77)(cid:74)(cid:70)(cid:84)(cid:1)(cid:9)(cid:69)(cid:70)(cid:71)(cid:70)(cid:83)(cid:83)(cid:70)(cid:69)(cid:1)(cid:85)(cid:66)(cid:89)(cid:10)(cid:15)(cid:1) (cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:83)(cid:70)(cid:85)(cid:66)(cid:74)(cid:79)(cid:84)(cid:1)(cid:69)(cid:74)(cid:84)(cid:68)(cid:83)(cid:70)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:79)(cid:70)(cid:85)(cid:1)(cid:81)(cid:70)(cid:79)(cid:84)(cid:74)(cid:80)(cid:79)(cid:1)(cid:71)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:83)(cid:70)(cid:69)(cid:74)(cid:85)(cid:15) (cid:116)(cid:1) (cid:1)(cid:47)(cid:86)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:30)(cid:1)(cid:88)(cid:70)(cid:74)(cid:72)(cid:73)(cid:85)(cid:70)(cid:69)(cid:1)(cid:66)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:79)(cid:86)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1) (cid:74)(cid:84)(cid:84)(cid:86)(cid:70)(cid:1)(cid:70)(cid:89)(cid:68)(cid:77)(cid:86)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:73)(cid:70)(cid:77)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:83)(cid:70)(cid:66)(cid:84)(cid:86)(cid:83)(cid:90)(cid:15) (cid:42)(cid:79)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:13)(cid:1)(cid:66)(cid:1)(cid:78)(cid:86)(cid:77)(cid:85)(cid:74)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:74)(cid:79)(cid:68)(cid:70)(cid:79)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:88)(cid:66)(cid:84)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:84)(cid:70)(cid:79)(cid:74)(cid:80)(cid:83)(cid:1)(cid:77)(cid:70)(cid:66)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1) (cid:67)(cid:70)(cid:77)(cid:80)(cid:88)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:67)(cid:80)(cid:66)(cid:83)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:74)(cid:85)(cid:84)(cid:1)(cid:78)(cid:70)(cid:85)(cid:83)(cid:74)(cid:68)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:85)(cid:66)(cid:83)(cid:72)(cid:70)(cid:85)(cid:84)(cid:1)(cid:78)(cid:74)(cid:83)(cid:83)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:80)(cid:84)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:51)(cid:38)(cid:40)(cid:49)(cid:15)(cid:1) Feature Frequency of award Eligibility (cid:55)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69) Detail (cid:116)(cid:1)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77) (cid:116)(cid:1)(cid:1)(cid:35)(cid:83)(cid:80)(cid:66)(cid:69)(cid:70)(cid:84)(cid:85)(cid:1)(cid:78)(cid:86)(cid:77)(cid:85)(cid:74)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:74)(cid:79)(cid:68)(cid:70)(cid:79)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:80)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83) (cid:116)(cid:1)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:89)(cid:74)(cid:78)(cid:66)(cid:85)(cid:70)(cid:77)(cid:90)(cid:1)(cid:18)(cid:13)(cid:17)(cid:17)(cid:17)(cid:1)(cid:70)(cid:78)(cid:81)(cid:77)(cid:80)(cid:90)(cid:70)(cid:70)(cid:84)(cid:1)(cid:66)(cid:68)(cid:83)(cid:80)(cid:84)(cid:84)(cid:1)(cid:84)(cid:80)(cid:78)(cid:70)(cid:1)(cid:19)(cid:17)(cid:12)(cid:1)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:83)(cid:74)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1) (cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84) (cid:116)(cid:1)(cid:1)(cid:53)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:66)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85) (cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:83)(cid:68)(cid:74)(cid:84)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:67)(cid:70)(cid:85)(cid:88)(cid:70)(cid:70)(cid:79)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:85)(cid:70)(cid:79)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:66)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:80)(cid:83)(cid:1)(cid:80)(cid:79)(cid:1)(cid:68)(cid:70)(cid:84)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1) (cid:80)(cid:71)(cid:1)(cid:70)(cid:78)(cid:81)(cid:77)(cid:80)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:13)(cid:1)(cid:74)(cid:71)(cid:1)(cid:70)(cid:66)(cid:83)(cid:77)(cid:74)(cid:70)(cid:83)(cid:1)(cid:9)(cid:71)(cid:80)(cid:83)(cid:1)(cid:69)(cid:70)(cid:71)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:68)(cid:66)(cid:85)(cid:70)(cid:72)(cid:80)(cid:83)(cid:74)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:77)(cid:70)(cid:66)(cid:87)(cid:70)(cid:83)(cid:84)(cid:10) Performance conditions (cid:116)(cid:1)(cid:1)(cid:49)(cid:83)(cid:70)(cid:14)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:74)(cid:91)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1) (cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:9)(cid:84)(cid:70)(cid:70)(cid:1)(cid:67)(cid:70)(cid:77)(cid:80)(cid:88)(cid:10) (cid:116)(cid:1)(cid:1)(cid:49)(cid:80)(cid:84)(cid:85)(cid:14)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:66)(cid:81)(cid:81)(cid:77)(cid:74)(cid:68)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:80)(cid:71)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1) (cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84) (cid:36)(cid:66)(cid:81)(cid:1) (cid:1)(cid:116)(cid:1)(cid:1)(cid:46)(cid:66)(cid:89)(cid:74)(cid:78)(cid:86)(cid:78)(cid:1)(cid:66)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:9)(cid:74)(cid:79)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:72)(cid:72)(cid:83)(cid:70)(cid:72)(cid:66)(cid:85)(cid:70)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:80)(cid:81)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:69)(cid:66)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:10)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:85)(cid:74)(cid:78)(cid:70)(cid:84)(cid:1)(cid:84)(cid:66)(cid:77)(cid:66)(cid:83)(cid:90)(cid:1)(cid:81)(cid:70)(cid:83)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83) (cid:48)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:84) (cid:116)(cid:1)(cid:1)(cid:48)(cid:79)(cid:1)(cid:66)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:13)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:1)(cid:66)(cid:84)(cid:84)(cid:70)(cid:84)(cid:84)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:80)(cid:71)(cid:1)(cid:81)(cid:83)(cid:80)(cid:72)(cid:83)(cid:70)(cid:84)(cid:84)(cid:1) (cid:66)(cid:72)(cid:66)(cid:74)(cid:79)(cid:84)(cid:85)(cid:1)(cid:85)(cid:66)(cid:83)(cid:72)(cid:70)(cid:85)(cid:84)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:74)(cid:78)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:1)(cid:80)(cid:68)(cid:68)(cid:86)(cid:83)(cid:84)(cid:28)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:78)(cid:66)(cid:90)(cid:1)(cid:70)(cid:89)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:74)(cid:83)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1) (cid:71)(cid:80)(cid:83)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:68)(cid:82)(cid:86)(cid:74)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:13)(cid:1)(cid:74)(cid:71)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1) (cid:116)(cid:1)(cid:36)(cid:77)(cid:66)(cid:88)(cid:14)(cid:67)(cid:66)(cid:68)(cid:76)(cid:1)(cid:66)(cid:81)(cid:81)(cid:77)(cid:74)(cid:70)(cid:84)(cid:1) (cid:116)(cid:1)(cid:34)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:84)(cid:66)(cid:85)(cid:74)(cid:84)(cid:71)(cid:74)(cid:70)(cid:69)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:79)(cid:70)(cid:88)(cid:77)(cid:90)(cid:1)(cid:74)(cid:84)(cid:84)(cid:86)(cid:70)(cid:69)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84) (cid:53)(cid:73)(cid:70)(cid:1)(cid:84)(cid:74)(cid:91)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:1)(cid:72)(cid:74)(cid:87)(cid:70)(cid:79)(cid:1) (cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:74)(cid:84)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:74)(cid:79)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1) (cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:81)(cid:83)(cid:74)(cid:80)(cid:83)(cid:1)(cid:85)(cid:80)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:66)(cid:84)(cid:1)(cid:71)(cid:80)(cid:77)(cid:77)(cid:80)(cid:88)(cid:84)(cid:27)(cid:1) Average Adjusted EPS growth p.a. over the three-years prior to grant % of the 2003 grant pool available for distribution (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:45)(cid:70)(cid:84)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:23)(cid:6)(cid:1) (cid:23)(cid:6)(cid:1)(cid:80)(cid:83)(cid:1)(cid:78)(cid:80)(cid:83)(cid:70)(cid:1)(cid:67)(cid:86)(cid:85)(cid:1)(cid:77)(cid:70)(cid:84)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:25)(cid:6)(cid:1) (cid:25)(cid:6)(cid:1)(cid:80)(cid:83)(cid:1)(cid:78)(cid:80)(cid:83)(cid:70)(cid:1)(cid:67)(cid:86)(cid:85)(cid:1)(cid:77)(cid:70)(cid:84)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:18)(cid:17)(cid:6)(cid:1) (cid:18)(cid:17)(cid:6)(cid:1)(cid:80)(cid:83)(cid:1)(cid:78)(cid:80)(cid:83)(cid:70)(cid:1)(cid:67)(cid:86)(cid:85)(cid:1)(cid:77)(cid:70)(cid:84)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:18)(cid:19)(cid:6)(cid:1) (cid:18)(cid:19)(cid:6)(cid:1)(cid:80)(cid:83)(cid:1)(cid:78)(cid:80)(cid:83)(cid:70)(cid:1) (cid:22)(cid:17)(cid:6) (cid:24)(cid:22)(cid:6) (cid:18)(cid:17)(cid:17)(cid:6) (cid:18)(cid:19)(cid:22)(cid:6) (cid:18)(cid:22)(cid:17)(cid:6) (cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:19)(cid:17)(cid:17)(cid:20)(cid:15)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1) (cid:67)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:77)(cid:74)(cid:78)(cid:74)(cid:85)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:67)(cid:70)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:84)(cid:86)(cid:68)(cid:73)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:66)(cid:84)(cid:1) (cid:81)(cid:83)(cid:70)(cid:87)(cid:74)(cid:80)(cid:86)(cid:84)(cid:77)(cid:90)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:15)(cid:1)(cid:53)(cid:73)(cid:74)(cid:84)(cid:1)(cid:78)(cid:70)(cid:66)(cid:79)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1) (cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:71)(cid:74)(cid:79)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1) (cid:85)(cid:73)(cid:70)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:79)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1) (cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:23)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1)(cid:42)(cid:79)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:74)(cid:79)(cid:69)(cid:74)(cid:87)(cid:74)(cid:69)(cid:86)(cid:66)(cid:77)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1) (cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:73)(cid:66)(cid:84)(cid:1)(cid:73)(cid:66)(cid:69)(cid:1)(cid:83)(cid:70)(cid:72)(cid:66)(cid:83)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:71)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1) (cid:80)(cid:71)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:84)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:84)(cid:70)(cid:85)(cid:1)(cid:66)(cid:85)(cid:1)(cid:22)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:66)(cid:89)(cid:74)(cid:78)(cid:86)(cid:78)(cid:1) (cid:74)(cid:79)(cid:69)(cid:74)(cid:87)(cid:74)(cid:69)(cid:86)(cid:66)(cid:77)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:77)(cid:70)(cid:87)(cid:70)(cid:77)(cid:15) (cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:70)(cid:79)(cid:69)(cid:70)(cid:69)(cid:1)(cid:20)(cid:18)(cid:1)(cid:37)(cid:70)(cid:68)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:1) (cid:88)(cid:66)(cid:84)(cid:1)(cid:77)(cid:70)(cid:84)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:23)(cid:6)(cid:1)(cid:81)(cid:15)(cid:66)(cid:15)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:78)(cid:70)(cid:66)(cid:79)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:87)(cid:66)(cid:74)(cid:77)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:1) (cid:71)(cid:80)(cid:83)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:19)(cid:17)(cid:18)(cid:18)(cid:1)(cid:74)(cid:84)(cid:1)(cid:22)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:19)(cid:17)(cid:17)(cid:20)(cid:1)(cid:81)(cid:80)(cid:80)(cid:77)(cid:15)(cid:1) (cid:39)(cid:80)(cid:83)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:13)(cid:1)(cid:79)(cid:80)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:15)(cid:1) (cid:53)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:79)(cid:69)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:83)(cid:70)(cid:84)(cid:86)(cid:78)(cid:70)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:74)(cid:79)(cid:1)(cid:19)(cid:17)(cid:18)(cid:18)(cid:1)(cid:85)(cid:80)(cid:1) (cid:38)(cid:83)(cid:74)(cid:76)(cid:1)(cid:38)(cid:79)(cid:72)(cid:84)(cid:85)(cid:83)(cid:80)(cid:78)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:46)(cid:66)(cid:83)(cid:76)(cid:1)(cid:34)(cid:83)(cid:78)(cid:80)(cid:86)(cid:83)(cid:13)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:68)(cid:68)(cid:80)(cid:83)(cid:69)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1) (cid:37)(cid:86)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1)(cid:84)(cid:74)(cid:72)(cid:79)(cid:74)(cid:71)(cid:74)(cid:68)(cid:66)(cid:79)(cid:85)(cid:1)(cid:70)(cid:89)(cid:68)(cid:70)(cid:81)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:73)(cid:66)(cid:83)(cid:72)(cid:70)(cid:84)(cid:1)(cid:85)(cid:66)(cid:76)(cid:70)(cid:79)(cid:1)(cid:74)(cid:79)(cid:1)(cid:19)(cid:17)(cid:17)(cid:25)(cid:1) (cid:66)(cid:79)(cid:69)(cid:1)(cid:19)(cid:17)(cid:17)(cid:26)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1) (cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:23)(cid:6)(cid:1)(cid:85)(cid:80)(cid:1)(cid:25)(cid:6)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:19)(cid:17)(cid:17)(cid:25)(cid:14)(cid:18)(cid:17)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:19)(cid:17)(cid:17)(cid:26)(cid:14)(cid:18)(cid:18)(cid:1)(cid:68)(cid:90)(cid:68)(cid:77)(cid:70)(cid:84)(cid:1) of ESOS during which restructuring benefits were realised. Prior to (cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:66)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:74)(cid:84)(cid:1)(cid:83)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:70)(cid:1)(cid:69)(cid:70)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:19)(cid:17)(cid:17)(cid:25)(cid:14)(cid:18)(cid:17)(cid:1) (cid:68)(cid:90)(cid:68)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:77)(cid:66)(cid:81)(cid:84)(cid:70)(cid:69)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:66)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1) (cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:80)(cid:79)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:88)(cid:66)(cid:84)(cid:1)(cid:79)(cid:80)(cid:85)(cid:1)(cid:66)(cid:68)(cid:73)(cid:74)(cid:70)(cid:87)(cid:70)(cid:69)(cid:15)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:19)(cid:17)(cid:17)(cid:26)(cid:14)(cid:18)(cid:18)(cid:1)(cid:68)(cid:90)(cid:68)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1) (cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:14)(cid:85)(cid:70)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:70)(cid:66)(cid:83)(cid:77)(cid:90)(cid:1)(cid:19)(cid:17)(cid:18)(cid:19)(cid:15) 70 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 70 2/3/11 22:20:40 Directors’ remuneration report continued (cid:48) (cid:87) (cid:70) (cid:83) (cid:87) (cid:70) (cid:88) (cid:74) Bonus Investment Plan (BIP) (cid:53)(cid:73)(cid:70)(cid:1)(cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:74)(cid:84)(cid:1)(cid:66)(cid:1)(cid:87)(cid:80)(cid:77)(cid:86)(cid:79)(cid:85)(cid:66)(cid:83)(cid:90)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:66)(cid:74)(cid:78)(cid:70)(cid:69)(cid:1)(cid:66)(cid:85)(cid:1)(cid:70)(cid:79)(cid:68)(cid:80)(cid:86)(cid:83)(cid:66)(cid:72)(cid:74)(cid:79)(cid:72)(cid:1) (cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:74)(cid:79)(cid:13)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:80)(cid:79)(cid:72)(cid:80)(cid:74)(cid:79)(cid:72)(cid:1)(cid:73)(cid:80)(cid:77)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:80)(cid:71)(cid:13)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1) (cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:83)(cid:80)(cid:78)(cid:80)(cid:85)(cid:70)(cid:1)(cid:72)(cid:83)(cid:70)(cid:66)(cid:85)(cid:70)(cid:83)(cid:1)(cid:66)(cid:77)(cid:74)(cid:72)(cid:79)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:86)(cid:81)(cid:81)(cid:80)(cid:83)(cid:85)(cid:1) (cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:85)(cid:70)(cid:79)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:76)(cid:70)(cid:90)(cid:1)(cid:85)(cid:66)(cid:77)(cid:70)(cid:79)(cid:85)(cid:15)(cid:1)(cid:34)(cid:1)(cid:79)(cid:70)(cid:88)(cid:1)(cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:88)(cid:66)(cid:84)(cid:1) (cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:40)(cid:70)(cid:79)(cid:70)(cid:83)(cid:66)(cid:77)(cid:1)(cid:46)(cid:70)(cid:70)(cid:85)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1) (cid:80)(cid:71)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:49)(cid:45)(cid:36)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:47)(cid:55)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:83)(cid:70)(cid:81)(cid:77)(cid:66)(cid:68)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:74)(cid:78)(cid:81)(cid:77)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:19)(cid:17)(cid:17)(cid:20)(cid:15)(cid:1) (cid:78)(cid:66)(cid:89)(cid:74)(cid:78)(cid:86)(cid:78)(cid:15)(cid:1)(cid:42)(cid:79)(cid:1)(cid:83)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:79)(cid:85)(cid:1)(cid:74)(cid:84)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:70)(cid:69)(cid:1)(cid:66)(cid:79)(cid:1)(cid:70)(cid:82)(cid:86)(cid:74)(cid:87)(cid:66)(cid:77)(cid:70)(cid:79)(cid:85)(cid:1) (cid:79)(cid:86)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1) (cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:9)(cid:74)(cid:15)(cid:70)(cid:15)(cid:1)(cid:66)(cid:1)(cid:78)(cid:66)(cid:89)(cid:74)(cid:78)(cid:86)(cid:78)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:1)(cid:80)(cid:71)(cid:1)(cid:18)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:18)(cid:1)(cid:68)(cid:66)(cid:79)(cid:1)(cid:67)(cid:70)(cid:1)(cid:70)(cid:66)(cid:83)(cid:79)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:10)(cid:15)(cid:1)(cid:42)(cid:85)(cid:1)(cid:74)(cid:84)(cid:1)(cid:66)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:77)(cid:90)(cid:74)(cid:79)(cid:72)(cid:1) (cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:74)(cid:84)(cid:1)(cid:83)(cid:70)(cid:85)(cid:66)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:83)(cid:80)(cid:86)(cid:72)(cid:73)(cid:80)(cid:86)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69)(cid:15)(cid:1) (cid:37)(cid:74)(cid:87)(cid:74)(cid:69)(cid:70)(cid:79)(cid:69)(cid:1)(cid:70)(cid:82)(cid:86)(cid:74)(cid:87)(cid:66)(cid:77)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:66)(cid:68)(cid:68)(cid:83)(cid:86)(cid:70)(cid:1)(cid:80)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:84)(cid:1)(cid:69)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) (cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:81)(cid:66)(cid:74)(cid:69)(cid:1)(cid:80)(cid:86)(cid:85)(cid:1)(cid:74)(cid:79)(cid:1)(cid:68)(cid:66)(cid:84)(cid:73)(cid:1)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:79)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1) (cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:84)(cid:15)(cid:1)(cid:53)(cid:73)(cid:70)(cid:1)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:67)(cid:70)(cid:77)(cid:80)(cid:88)(cid:1)(cid:84)(cid:86)(cid:78)(cid:78)(cid:66)(cid:83)(cid:74)(cid:84)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1) 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(cid:81)(cid:86)(cid:83)(cid:68)(cid:73)(cid:66)(cid:84)(cid:70)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:80)(cid:83)(cid:1)(cid:66)(cid:77)(cid:77)(cid:80)(cid:68)(cid:66)(cid:85)(cid:70)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:66)(cid:77)(cid:83)(cid:70)(cid:66)(cid:69)(cid:90)(cid:1) (cid:80)(cid:88)(cid:79)(cid:70)(cid:69)(cid:1)(cid:80)(cid:86)(cid:85)(cid:83)(cid:74)(cid:72)(cid:73)(cid:85)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79)(cid:1)(cid:86)(cid:81)(cid:1)(cid:85)(cid:80)(cid:1)(cid:66)(cid:1)(cid:84)(cid:81)(cid:70)(cid:68)(cid:74)(cid:71)(cid:74)(cid:70)(cid:69)(cid:1) Feature Frequency of award Detail (cid:116)(cid:1)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1) (cid:116)(cid:1)(cid:1)(cid:53)(cid:70)(cid:79)(cid:14)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1)(cid:77)(cid:74)(cid:71)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:77)(cid:66)(cid:79) (cid:116)(cid:1)(cid:1)(cid:39)(cid:74)(cid:83)(cid:84)(cid:85)(cid:1)(cid:78)(cid:66)(cid:85)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:78)(cid:66)(cid:69)(cid:70)(cid:1)(cid:74)(cid:79)(cid:1)(cid:46)(cid:66)(cid:90)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17) (cid:38)(cid:77)(cid:74)(cid:72)(cid:74)(cid:67)(cid:74)(cid:77)(cid:74)(cid:85)(cid:90) 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(cid:116)(cid:1)(cid:1)(cid:53)(cid:73)(cid:83)(cid:70)(cid:70)(cid:1)(cid:71)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84) (cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84) (cid:116)(cid:1)(cid:1)(cid:34)(cid:69)(cid:75)(cid:86)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:38)(cid:49)(cid:52)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:85)(cid:73)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:51)(cid:48)(cid:42)(cid:36)(cid:1)(cid:9)(cid:84)(cid:70)(cid:70)(cid:1)(cid:67)(cid:70)(cid:77)(cid:80)(cid:88)(cid:10) 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(cid:116)(cid:1)(cid:1)(cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:73)(cid:86)(cid:83)(cid:69)(cid:77)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:68)(cid:66)(cid:77)(cid:70)(cid:69)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1) (cid:49)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85) (cid:116)(cid:1)(cid:1)(cid:54)(cid:81)(cid:1)(cid:85)(cid:80)(cid:1)(cid:18)(cid:17)(cid:17)(cid:6)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:66)(cid:83)(cid:72)(cid:70)(cid:85)(cid:1)(cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:1)(cid:80)(cid:81)(cid:81)(cid:80)(cid:83)(cid:85)(cid:86)(cid:79)(cid:74)(cid:85)(cid:90)(cid:1)(cid:79)(cid:70)(cid:85)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:66)(cid:89) (cid:48)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:84) (cid:116)(cid:1)(cid:1)(cid:48)(cid:79)(cid:1)(cid:66)(cid:1)(cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:80)(cid:77)(cid:13)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:87)(cid:70)(cid:84)(cid:85)(cid:1)(cid:80)(cid:79)(cid:1)(cid:66)(cid:1)(cid:81)(cid:83)(cid:80)(cid:14)(cid:83)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:67)(cid:66)(cid:84)(cid:74)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:86)(cid:67)(cid:75)(cid:70)(cid:68)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1) 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(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:69)(cid:83)(cid:66)(cid:88)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:73)(cid:70)(cid:74)(cid:83)(cid:1)(cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:74)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1) (cid:85)(cid:73)(cid:70)(cid:84)(cid:70)(cid:1)(cid:68)(cid:90)(cid:68)(cid:77)(cid:70)(cid:84)(cid:15)(cid:1)(cid:48)(cid:79)(cid:1)(cid:20)(cid:18)(cid:1)(cid:37)(cid:70)(cid:68)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1) (cid:84)(cid:85)(cid:74)(cid:77)(cid:77)(cid:1)(cid:73)(cid:70)(cid:77)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:69)(cid:83)(cid:66)(cid:88)(cid:79)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:67)(cid:80)(cid:85)(cid:73)(cid:1)(cid:68)(cid:90)(cid:68)(cid:77)(cid:70)(cid:84)(cid:15) (cid:40) (cid:80) (cid:87) (cid:70) (cid:83) (cid:79) (cid:66) (cid:79) (cid:68) (cid:70) (cid:74) (cid:74) (cid:39) (cid:79) (cid:66) (cid:79) (cid:68) (cid:66) (cid:77) (cid:1) (cid:84) (cid:85) (cid:66) (cid:85) (cid:70) (cid:78) (cid:70) (cid:79) (cid:85) (cid:84) (cid:1) (cid:66) (cid:79) (cid:69) (cid:80) (cid:85) (cid:73) (cid:70) (cid:83) (cid:1) (cid:74) (cid:79) (cid:80) (cid:83) (cid:78) (cid:66) (cid:85) (cid:74) (cid:80) (cid:79) (cid:1) (cid:71) 47213_Text_p056-084.indd 71 2/3/11 21:55:54 Annual Reports and Financial Statements 2010 Reed Elsevier 71 Directors’ remuneration report continued Long-Term Incentive Plan (LTIP) No awards under the LTIP were given to executive directors in 2010. Awards under this plan were in the form of restricted shares, with half of the award being over shares in Reed Elsevier PLC and the other half over shares in Reed Elsevier NV. A three-year performance period applies and awards vest based on the Adjusted EPS growth and Reed Elsevier’s TSR performance compared to a group of industry peers. The 2007-09 cycle of LTIP lapsed during 2010 as the hurdle of 8% Adjusted EPS growth was not met. The 2008-10 cycle of LTIP lapsed as the performance hurdle of 10% Adjusted EPS growth was not met. The 2009-11 cycle of LTIP, as disclosed on pages 77-79, vests for achieving Adjusted EPS growth of 12% and median TSR. Depending on performance, the vesting may be higher or lower based on the following matrix: Adjusted EPS 2009 awards Below 10% 10% 12% 14% and above TSR ranking Median 0% 35% 100% 135% Upper 62.5th quartile and above percentile 0% 42% 120% 162% 0% 49% 140% 189% Below median 0% 28% 80% 108% To the extent that the underlying shares vest, dividend equivalents are paid on the vested shares in cash at the end of the performance period. 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 reflect 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. The TSR comparator group for the 2008-10 cycle comprised: ChoicePoint, DMGT, Dun & Bradstreet, Emap, FICO, Informa, John Wiley, Lagardère Groupe, McGraw-Hill, Pearson, Taylor Nelson Sofres, Thomson Reuters, UBM, Wolters Kluwer and WPP Group. The TRS comparator group for the 2009 LTIP award comprises: DMGT, Dun & Bradstreet, Experian, FICO, Informa, John Wiley, Lagardère Groupe, McGraw-Hill, Pearson, Thomson Reuters, UBM, Wolters Kluwer and WPP Group. This reflects the composition of the comparator group on the date of grant. Mergers and acquisitions that impact the comparator groups during the three-year performance cycle will be dealt with on a fair and consistent basis in accordance with the following approach. Companies which are taken over within six months after the start of a performance period are excluded from the comparator group. For those that are subject to a transaction more than six months into a performance period, any transaction- related share price premium is eliminated and the TSR prior to the transaction is indexed forward using the daily average share price movement for the remaining companies in the peer group. The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award is made and the final six months of the third financial year of the performance period. 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. 72 Reed Elsevier Annual Reports and Financial Statements 2010 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 growth and TSR targets at the time the change of control occurs (subject to any rollover that may apply). Shareholding requirement The Committee believes that one of the aspects that creates closer alignment between senior management and shareholders is to require executives to build up and maintain a significant personal stake in Reed Elsevier. The shareholding requirements applicable to the executive directors are set out in the table below and as described on page 67 were pre-requisites to participate in the REGP. Shareholding requirements also apply to selected senior executives below the board. On 31 December 2010, the executive directors’ shareholdings were (valued at the mid-market closing prices of Reed Elsevier securities): Shareholding requirement (in % of 31 December 2010 annualised base salary) Actual shareholding as at 31 December 2010 (in % of 31 December 2010 annualised base salary) Erik Engstrom Mark Armour Andrew Prozes* 300% 200% 200% 361% 396% 216% * The formal shareholding requirement ceased on retirement. 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). During 2010, US-based executive directors were 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 At 31 December 2010, the estimated dilution over a ten-year period from awards over Reed Elsevier PLC shares under all share-based plans was 5.4% of the Reed Elsevier PLC share capital. The estimated dilution over the same period in respect of awards over Reed Elsevier NV shares was 6% of the Reed Elsevier NV share capital at 31 December 2010. The estimated dilution in relation to executive share-based plans was 5% of the Reed Elsevier PLC and 5.5% of the Reed Elsevier NV share capital at 31 December 2010. 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: 47213_Text_p056-084.indd 72 2/3/11 21:57:05 Directors’ remuneration report continued (cid:116)(cid:1) (cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:78)(cid:66)(cid:74)(cid:79)(cid:1)(cid:54)(cid:44)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:49)(cid:70)(cid:79)(cid:84)(cid:74)(cid:80)(cid:79)(cid:1)(cid:52)(cid:68)(cid:73)(cid:70)(cid:78)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:84)(cid:66)(cid:77)(cid:66)(cid:83)(cid:90)(cid:1)(cid:83)(cid:70)(cid:84)(cid:85)(cid:83)(cid:74)(cid:68)(cid:85)(cid:70)(cid:69)(cid:1) to a cap, determined annually on the same basis as the pre-April 2006 Inland Revenue earnings cap, and Revenue Code, payment of the pension will commence six months after the retirement date at which point payment of the retirement benefit relating to the six months ending 30 June 2011 will be made in a single sum plus interest at the applicable federal rate. (cid:116)(cid:1) (cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:8)(cid:84)(cid:1)(cid:86)(cid:79)(cid:66)(cid:81)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:69)(cid:1)(cid:81)(cid:70)(cid:79)(cid:84)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:83)(cid:83)(cid:66)(cid:79)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:84)(cid:66)(cid:77)(cid:66)(cid:83)(cid:90)(cid:1) 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 (cid:66)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:1)(cid:68)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:73)(cid:70)(cid:1)(cid:67)(cid:70)(cid:68)(cid:66)(cid:78)(cid:70)(cid:1)(cid:66)(cid:1)(cid:78)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:54)(cid:44)(cid:1)(cid:69)(cid:70)(cid:71)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1) benefit pension arrangement. Andrew Prozes, who retired on 31 December 2010, will be entitled to an annual pension of $613,572 in accordance with the terms of his employment agreement. In view of the split of LexisNexis into two standalone businesses of risk solutions and legal & professional with effect from 1 January 2011, Mr Prozes’ retirement date was brought forward by one month from his 65th birthday. In order to fall (cid:80)(cid:86)(cid:85)(cid:84)(cid:74)(cid:69)(cid:70)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:70)(cid:79)(cid:66)(cid:77)(cid:85)(cid:90)(cid:1)(cid:85)(cid:66)(cid:89)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:52)(cid:70)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:21)(cid:17)(cid:26)(cid:34)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:54)(cid:52)(cid:1)(cid:42)(cid:79)(cid:85)(cid:70)(cid:83)(cid:79)(cid:66)(cid:77)(cid:1) Transfer values of accrued pension benefits (cid:53)(cid:73)(cid:70)(cid:1)(cid:81)(cid:70)(cid:79)(cid:84)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:83)(cid:83)(cid:66)(cid:79)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:9)(cid:54)(cid:44)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:79)(cid:80)(cid:79)(cid:14)(cid:54)(cid:44)(cid:10)(cid:1) include life assurance cover while in employment, an entitlement to a pension in the event of ill health or disability and a spouse’s and/or dependants’ pension on death. The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown in the table below. Transfer (cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:54)(cid:44)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:84)(cid:1)(cid:73)(cid:66)(cid:87)(cid:70)(cid:1)(cid:67)(cid:70)(cid:70)(cid:79)(cid:1)(cid:68)(cid:66)(cid:77)(cid:68)(cid:86)(cid:77)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:68)(cid:68)(cid:80)(cid:83)(cid:69)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1) (cid:85)(cid:73)(cid:70)(cid:1)(cid:72)(cid:86)(cid:74)(cid:69)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:79)(cid:80)(cid:85)(cid:70)(cid:1)(cid:40)(cid:47)(cid:18)(cid:18)(cid:1)(cid:81)(cid:86)(cid:67)(cid:77)(cid:74)(cid:84)(cid:73)(cid:70)(cid:69)(cid:1)(cid:67)(cid:90)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:54)(cid:44)(cid:1)(cid:42)(cid:79)(cid:84)(cid:85)(cid:74)(cid:85)(cid:86)(cid:85)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:34)(cid:68)(cid:85)(cid:86)(cid:66)(cid:83)(cid:74)(cid:70)(cid:84)(cid:1) and Faculty of Actuaries. The transfer values at 31 December 2010 have been calculated using the transfer value basis adopted by the trustees of the pension scheme from 1 October 2008. 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. Age at 31 December 2010 Director’s contributions Transfer value of accrued pension 31 December 2009 Transfer value of accrued pension 31 December 2010 Erik Engstrom Mark Armour Andrew Prozes 47 56 64 £6,180 £6,180 – £624,769 £1,366,389 £5,170,768 £5,643,891 $6,719,734 $7,894,300 Increase in transfer value during the year (net of director’s contributions) £735,440 £466,943 $1,174,566 Accrued annual pension 31 December 2010 £105,575 £325,426 $613,572 Increase in accrued annual pension during the year £56,448 £20,450 $98,373 Increase in accrued annual pension Transfer value at 31 December 2010 of increase in accrued pension during during the year (net of inflation and director’s contributions) the year (net of inflation) £55,269 £709,128 £221,696 £13,139 $98,373 $1,265,670 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 a 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 contractual terms of the executive directors (and for approximately 100 other senior executives) include certain covenants. These were reviewed during the year within the context of the implementation of the REGP and the new BIP and revised, where appropriate. The covenants are as follows: > > > non-competition restrictions apply which prevent the executive from working in a capacity which competes with any Reed Elsevier business which he/she was involved with during the preceding 12 months; from recruiting Reed Elsevier employees and from soliciting Reed Elsevier customers and suppliers for a period of 12 months after leaving employment; in the event of the executive resigning, he/she will immediately lose all rights to any outstanding awards under the multi-year incentives including any vested but unexercised options; and in the event of a breach of the covenants, any gains made or payouts received, in the period starting six months prior and ending 12 months after leaving employment, on the vesting or exercise of awards from the multi-year incentives may be repayable. Each of the executive directors has/had a service contract, as summarised in the table below. Contract Date Expiry date (subject to notice period) Erik Engstrom(i) Mark Armour(i) Andrew Prozes(ii) 25 June 2004 7 October 1996 5 July 2000 14 June 2025 29 July 2014 Retired effective 31 December 2010 Notice period 12 months 12 months * Subject to: English law English law New York law (i) Employed by Reed Elsevier Group plc (ii) Employed by Reed Elsevier Inc. * The terms of his contract provided for a payment of one year’s base salary on termination without cause. Since Andrew Prozes retired by mutual agreement on 31 December 2010 no additional payments are due under the terms of his contract. The terms agreed in respect of his retirement are set out below. Annual Reports and Financial Statements 2010 Reed Elsevier 73 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 73 2/3/11 21:57:43 Directors’ remuneration report continued Andrew Prozes’ retirement arrangements The following terms applied to Andrew Prozes who retired on 31 December 2010: (cid:116)(cid:1) (cid:1)(cid:73)(cid:70)(cid:1)(cid:74)(cid:84)(cid:1)(cid:70)(cid:77)(cid:74)(cid:72)(cid:74)(cid:67)(cid:77)(cid:70)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:66)(cid:79)(cid:1)(cid:66)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:67)(cid:80)(cid:79)(cid:86)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:34)(cid:42)(cid:49)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:71)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:1) 2010. Any bonus due will be paid by no later than 15 March 2011 and will be subject to performance against his KPOs and LexisNexis financial performance for 2010 in the same way as the bonuses payable to the other executive directors; (cid:116)(cid:1) (cid:1)(cid:79)(cid:80)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:74)(cid:79)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:81)(cid:66)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:69)(cid:86)(cid:70)(cid:1)(cid:84)(cid:74)(cid:79)(cid:68)(cid:70)(cid:1)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:85)(cid:74)(cid:83)(cid:70)(cid:69)(cid:28) (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:116)(cid:1) (cid:1)(cid:116)(cid:1) (cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:68)(cid:68)(cid:80)(cid:83)(cid:69)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:85)(cid:70)(cid:83)(cid:78)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:73)(cid:74)(cid:84)(cid:1)(cid:68)(cid:80)(cid:79)(cid:85)(cid:83)(cid:66)(cid:68)(cid:85)(cid:13)(cid:1)(cid:73)(cid:70)(cid:1)(cid:88)(cid:74)(cid:77)(cid:77)(cid:1)(cid:67)(cid:70)(cid:1)(cid:70)(cid:79)(cid:85)(cid:74)(cid:85)(cid:77)(cid:70)(cid:69)(cid:1) to fully subsidised retiree medical benefits for life which are also available to his surviving spouse; (cid:1)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:68)(cid:70)(cid:74)(cid:87)(cid:70)(cid:69)(cid:1)(cid:79)(cid:80)(cid:1)(cid:72)(cid:83)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:1)(cid:38)(cid:52)(cid:48)(cid:52)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:69)(cid:74)(cid:69)(cid:1)(cid:79)(cid:80)(cid:85)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:74)(cid:68)(cid:74)(cid:81)(cid:66)(cid:85)(cid:70)(cid:1)(cid:74)(cid:79)(cid:1) the REGP implemented during 2010; (cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:68)(cid:80)(cid:87)(cid:70)(cid:79)(cid:66)(cid:79)(cid:85)(cid:84)(cid:1)(cid:83)(cid:70)(cid:77)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:85)(cid:80)(cid:1)(cid:79)(cid:80)(cid:79)(cid:14)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:13)(cid:1)(cid:79)(cid:80)(cid:79)(cid:14)(cid:84)(cid:80)(cid:77)(cid:74)(cid:68)(cid:74)(cid:85)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1) confidentiality remain in place for 12 months post-retirement; (cid:1)(cid:66)(cid:77)(cid:77)(cid:1)(cid:86)(cid:79)(cid:87)(cid:70)(cid:84)(cid:85)(cid:70)(cid:69)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:14)(cid:67)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:66)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:88)(cid:70)(cid:83)(cid:70)(cid:1)(cid:85)(cid:83)(cid:70)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:68)(cid:68)(cid:80)(cid:83)(cid:69)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1) with the rules of the plans, and outstanding options remain exercisable for three years from retirement; and (cid:1)(cid:116)(cid:1) (cid:1)(cid:73)(cid:74)(cid:84)(cid:1)(cid:45)(cid:53)(cid:42)(cid:49)(cid:1)(cid:84)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)(cid:83)(cid:70)(cid:82)(cid:86)(cid:74)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:68)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:83)(cid:70)(cid:85)(cid:74)(cid:83)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:15) 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. (cid:116)(cid:1) (cid:116)(cid:1) (cid:1)(cid:34)(cid:79)(cid:69)(cid:83)(cid:70)(cid:88)(cid:1)(cid:49)(cid:83)(cid:80)(cid:91)(cid:70)(cid:84)(cid:1)(cid:74)(cid:84)(cid:1)(cid:66)(cid:1)(cid:79)(cid:80)(cid:79)(cid:14)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:69)(cid:74)(cid:83)(cid:70)(cid:68)(cid:85)(cid:80)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:85)(cid:85)(cid:1) Corporation and received a fee of $130,000 (£83,871) during 2010 ($127,285 (£81,073) during 2009). (cid:1)(cid:46)(cid:66)(cid:83)(cid:76)(cid:1)(cid:34)(cid:83)(cid:78)(cid:80)(cid:86)(cid:83)(cid:1)(cid:75)(cid:80)(cid:74)(cid:79)(cid:70)(cid:69)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:67)(cid:80)(cid:66)(cid:83)(cid:69)(cid:1)(cid:80)(cid:71)(cid:1)(cid:52)(cid:34)(cid:35)(cid:46)(cid:74)(cid:77)(cid:77)(cid:70)(cid:83)(cid:1)(cid:81)(cid:77)(cid:68)(cid:1)(cid:66)(cid:84)(cid:1)(cid:66)(cid:1) non-executive director on 1 May 2010 and received a fee of £59,610 (pro-rata since appointment) during 2010. Non-executive directors Policy on non-executive directors’ fees Reed Elsevier seeks to recruit non-executive directors with the experience to contribute to the boards of a dual-listed global business and with a balance of personal skills that will make a major contribution to the boards and their committee structures. With the exception of Dien de Boer-Kruyt, who retired during 2010, and Marike van Lier Lels who served/serves only on the Supervisory Board of Reed Elsevier NV, non-executive directors, including the Chairman, are appointed to the boards of Reed Elsevier Group plc, Reed Elsevier PLC and the Supervisory Board of Reed Elsevier NV. Non-executive directors’ fees reflect 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 fee paid to Dien de Boer-Kruyt until her retirement and to Marike van Lier Lels, who served/serves 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, except the Chairman of Reed Elsevier Group plc, who is in receipt of private medical benefit. Fees may be reviewed annually, although in practice they have changed on a less frequent basis. It is the intention to introduce a separate fee for the senior independent director of £20,000 p.a. subject to obtaining relevant approval at the 2011 Annual General Meeting of Reed Elsevier NV. Subject to approval being granted, this fee is proposed to apply retroactively from 1 January 2011. Annual fee 2011 Annual fee 2010 Chairman Non-executive directors Senior Independent Director Chairman of: – Audit Committee – Remuneration Committee £500,000 £500,000 £55,000/€75,000 £55,000/€75,000 – £20,000 (proposed) £15,000/€20,000 £15,000/€20,000 £15,000/€20,000 £15,000/€20,000 The total annual fee payable to Marike van Lier Lels 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. At the Annual General Meeting of Reed Elsevier NV a proposal will be made to set the maximum amount of annual remuneration of the Supervisory Board of Reed Elsevier NV at €600,000. 74 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 74 1/3/11 10:43:26 Directors’ remuneration report continued Total Shareholder Return graphs Remuneration and share tables 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 2005 to 31 December 2010. For the five-year period from 31 December 2005, the TSR for Reed Elsevier PLC was 17.3%, against a FTSE 100 return of 26.3%. For Reed Elsevier NV during the same period, TSR was minus 2.7% against an AEX Index return of minus 3.1%. As Reed Elsevier PLC and Reed Elsevier NV are members of the FTSE 100 and AEX Index respectively, these indices are relevant. Reed Elsevier PLC v FTSE 100 – 5 years (cid:116)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:49)(cid:45)(cid:36) (cid:116)(cid:1)(cid:39)(cid:53)(cid:52)(cid:38)(cid:1)(cid:18)(cid:17)(cid:17) 200 180 160 140 120 100 80 60 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Reed Elsevier NV v AEX – 5 years (cid:116)(cid:1)(cid:51)(cid:70)(cid:70)(cid:69)(cid:1)(cid:38)(cid:77)(cid:84)(cid:70)(cid:87)(cid:74)(cid:70)(cid:83)(cid:1)(cid:47)(cid:55) (cid:116)(cid:1)(cid:34)(cid:38)(cid:57)(cid:1)(cid:42)(cid:79)(cid:69)(cid:70)(cid:89) 200 180 160 140 120 100 80 60 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 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. 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. Directors’ emoluments and fees Aggregate emoluments The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows: Salaries and fees Benefits Annual performance-related bonuses Payments for loss of office Pension contributions Payments to former directors Pension in respect of former directors Total 2010 £’000 3,324 97 2,351 499* 43 – 1,179 7,493 2009 £’000 4,016 360 2,294 1,124 32 284 1,034 9,144 * Ian Smith’s employment ended on 10 November 2009 under the arrangements described on page 71 of the 2009 Remuneration Report. In accordance with the terms agreed on termination, he received a further five instalments of his previous base salary and benefits during 2010. Payments ceased in November 2010 and there are no further obligations. Individual fees of non-executive directors Dien de Boer-Kruyt (until 19 April 2010) Mark Elliott Anthony Habgood (from 1 June 2009) Lisa Hook Marike van Lier Lels (from 13 January 2010) Robert Polet David Reid Lord Sharman Ben van der Veer (from 3 September 2009) Total * Excludes private medical insurance benefit of £1,244. 2010 £ 13,675 70,000 500,000* 55,000 39,744 55,000 55,000 63,750 71,225 923,394 2009 £ 42,857 70,000 291,667 55,000 – 55,000 55,000 70,000 22,321 661,845 Other required disclosures No loans, advances or guarantees have been provided on behalf of any director. The 2007-09 cycle of awards made under ESOS, BIP and LTIP lapsed for the executive directors as a result of performance conditions not being met. The executive directors made no notional pre-tax gains during 2010 on any multi-year incentives (2009: £8,303,637) except for Andrew Prozes who made a gain of £595 on the exercise of vested options during the year. Details are shown on pages 77-79. Annual Reports and Financial Statements 2010 Reed Elsevier 75 O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 75 1/3/11 10:43:27 Directors’ remuneration report continued Individual emoluments of executive directors Erik Engstrom Mark Armour Andrew Prozes Total Salary £ 1,000,000 613,440 787,002 2,400,442 Benefits £ 29,108 22,475 45,481* Bonus £ 999,000 612,827 739,569 Total 2010 £ 2,028,108 1,248,742 1,572,052 Total 2009 £ 1,851,374 1,227,550 1,452,698 97,064 2,351,396 4,848,902 4,531,622 *Includes a cash payment of £24,123 in respect of accrued but untaken holiday at the date of retirement. Conditional shares awarded in the year under the multi-year incentives are set out by executive director on pages 77-79. Vesting is subject to performance conditions relating to growth in EPS, ROIC and TSR and other conditions, including shareholding requirements, as described on previous pages. The maximum number of conditional shares that can vest under the Reed Elsevier Growth Plan is 150% of the grant award if performance conditions are met over a five-year period. The maximum number of conditional shares that can vest under the Bonus Investment Plan is equivalent to the grant award. Erik Engstrom was the highest paid director in 2010. 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 2010 in the issued share capital of the respective companies at the beginning and end of the year are shown below. Mark Armour Mark Elliott Erik Engstrom Anthony Habgood Lisa Hook Marike van Lier Lels Robert Polet Andrew Prozes David Reid Lord Sharman Ben van der Veer Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares 1 January 2010* 31 December 2010 1 January 2010* 31 December 2010 248,742 – 107,040 50,000 – – – 148,142 – – – 248,742 – 107,040 50,000 – – – 148,142 – – – 136,889 – 365,580 – – – – 112,004 – – 1,298 136,889 – 383,450 25,000 – – – 112,004 – – 1,298 *On date of appointment if subsequent to 1 January 2010. 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 options, including options vested during the year, (all shown in blue) and unvested options and restricted shares held by directors in Reed Elsevier PLC (PLC) and Reed Elsevier NV (NV) as at 31 December 2010 are shown in the tables overleaf. The shading in the tables denotes awards granted during the year of reporting. 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 executive directors in office at 31 December 2010 other than those relating to the 2008-10 cycles of ESOS and LTIP as disclosed on pages 77-79. The market price at the date of award of grants made under the REGP, ESOS, BIP and LTIP and gains made on the exercise of options are based on the middle market price of the respective security. 76 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 76 2/3/11 22:37:24 Directors’ remuneration report continued Erik Engstrom Options ESOS LTIP Total PLC ords Total NV ords 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 * Lapsed prior to the date of this report Shares BIP LTIP REGP Year of grant Type of security NV ord 2007 NV ord 2008 NV ord 2009 NV ord 2010 2007 PLC ord NV ord 2008 PLC ord NV ord 2009 PLC ord NV ord 2010 PLC ord 63,460 43,866 154,517 105,412 178,895 120,198 130,060 85,897 143,000 94,000 146,923 95,399 325,163 224,766 1,142,018 769,538 No. of unvested shares held on 1 Jan 2010 27,572 30,318 57,216 61,453 40,586 68,500 45,000 103,902 67,465 No. of options held on 1 Jan 2010 No. of options granted during 2010 No. of options Market exercised price per share at exercise during 2010 Option price £4.780 €10.30 £5.335 €11.31 £5.305 €11.47 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 £4.78 €10.30 Gross gains made on exercise £/€ No. of options held on 31 Dec 2010 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 13 Mar 2016 120,198 Lapsed – Lapsed – Lapsed* 143,000 94,000 Lapsed* 146,923 19 Feb 2012 19 Feb 2019 95,399 19 Feb 2012 19 Feb 2019 23 Aug 2014 325,163 224,766 23 Aug 2014 1,011,958 683,641 No. of shares Market awarded price per share at award during 2010 €13.49 €12.44 €8.201 140,378 €8.310 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 643,086 £4.665 No. of shares Market vested price per share at during vesting 2010 Notional gross gains at vesting £/€ No. of unvested shares held on 31 Dec 2010 – – – 140,378 – – 68,500 45,000 103,902 67,465 643,086 422,310 815,488 675,153 Date of vesting Lapsed Lapsed Lapsed Q1 2013 Lapsed Lapsed Lapsed* Lapsed* 19 Feb 2012 19 Feb 2012 50% Q1 2013 50% Q1 2015 50% Q1 2013 50% Q1 2015 NV ord 422,310 €8.310 Total PLC ords Total NV ords 233,855 643,086 268,157 562,688 * Lapsed prior to the date of this report O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 77 1/3/11 10:43:28 Annual Reports and Financial Statements 2010 Reed Elsevier 77 Directors’ remuneration report continued Mark Armour Options ESOS LTIP SAYE Total PLC ords Total NV ords Year of grant Option over: 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 2010 PLC ord * Lapsed prior to the date of this report Shares BIP LTIP REGP Year of grant Type of security 2007 PLC ord NV ord 2008 PLC ord NV ord 2009 PLC ord NV ord 2010 PLC ord NV ord 2007 PLC ord NV ord 2008 PLC ord NV ord 2009 PLC ord NV ord 2010 PLC ord No. of options held on 1 Jan 2010 62,974 44,882 74,000 51,926 150,422 102,618 158,836 106,720 130,740 86,347 144,000 94,000 147,692 95,899 290,481 199,467 1,159,145 781,859 No. of unvested shares held on 1 Jan 2010 19,859 13,371 25,291 16,993 27,886 18,568 61,775 40,799 67,000 44,000 76,397 49,605 No. of options granted during 2010 Option price £6.590 €14.75 £6.000 €13.94 £5.335 €11.31 £5.305 €11.47 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 £4.872 €10.57 2,173 £4.176 2,173 No. of shares Market awarded price per share at award during 2010 £6.155 €13.49 £6.600 €12.44 £4.985 €8.201 65,054 £4.665 42,512 €8.310 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 394,495 £4.665 NV ord 259,062 €8.310 Total PLC ords Total NV ords 278,208 459,549 183,336 301,574 * Lapsed prior to the date of this report 78 Reed Elsevier Annual Reports and Financial Statements 2010 No. of options Market exercised price per share at exercise during 2010 Gross gains made on exercise £/€ No. of options held on 31 Dec 2010 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 13 Mar 2016 106,720 Lapsed – Lapsed – Lapsed* 144,000 94,000 Lapsed* 147,692 19 Feb 2012 19 Feb 2019 95,899 19 Feb 2012 19 Feb 2019 19 Feb 2014 290,481 19 Feb 2014 199,467 1 Feb 2014 2,173 1,030,578 695,512 1 Aug 2013 No. of shares Market vested price per share at during vesting 2010 Notional gross gains at vesting £/€ No. of unvested shares held on 31 Dec 2010 – – – – – – 65,054 42,512 – – 67,000 44,000 76,397 49,605 394,495 259,062 602,946 395,179 Date of vesting Lapsed Lapsed Lapsed Lapsed Lapsed Lapsed Q1 2013 Q1 2013 Lapsed Lapsed Lapsed* Lapsed* 19 Feb 2012 19 Feb 2012 50% Q1 2013 50% Q1 2015 50% Q1 2013 50% Q1 2015 47213_Text_p056-084.indd 78 1/3/11 10:43:28 Directors’ remuneration report continued Andrew Prozes Options ESOS LTIP Total PLC ords Total NV ords Shares BIP LTIP Year of grant Option over: 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 2004 PLC ord NV ord Year of grant Type of security 2007 PLC ord NV ord 2008 PLC ord NV ord 2009 PLC ord NV ord 2010 PLC ord NV ord 2007 PLC ord NV ord 2008 PLC ord NV ord 2009 PLC ord NV ord Total PLC ords Total NV ords * Awards have been pro-rated for service ** Lapsed prior to the date of this report 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 96,000 149,722 97,216 304,558 209,133 1,550,952 1,056,063 No. of unvested shares held on 1 Jan 2010 21,548 14,574 20,030 13,505 32,335 21,626 62,623 41,359 68,000 44,500 105,881 68,750 310,417 204,314 No. of options held on 1 Jan 2010 No. of options granted during 2010 No. of options Market exercised price per share at exercise during 2010 1,000 £5.110 1,000 Option price £6.590 €14.75 £6.000 €13.94 £4.515 €9.34 £4.872 €10.57 £5.335 €11.31 £5.305 €11.47 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 £4.872 €10.57 Gross gains made on exercise £/€ No. of options held on 31 Dec 2010 £595 83,785 59,714 103,722 72,783 131,142 94,086 162,666 111,699 154,517 105,412 182,303 122,487 – – 145,000 96,000 99,815 64,811 304,558 209,133 £595 1,367,508 936,125 No. of shares Market awarded price per share at award during 2010 £6.155 €13.49 £6.600 €12.44 £4.985 €8.201 88,687 £4.665 58,545 €8.310 £6.445 €14.51 £6.275 €12.21 £5.420 €9.415 88,687 58,545 No. of shares Market vested price per share at during vesting 2010 Notional gross gains at vesting £/€ No. of unvested shares held on 31 Dec 2010 – – – – – – 29,562 19,515 – – 68,000 44,500 70,587 45,833 168,149 109,848 Unvested options vesting on: Options exercisable until: 23 Feb 2011 23 Feb 2011 22 Feb 2012 22 Feb 2012 21 Feb 2013 21 Feb 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013 Lapsed Lapsed 31 Dec 2013 31 Dec 2013 31 Dec 2013* 31 Dec 2013* 31 Dec 2013 31 Dec 2013 Date of vesting Lapsed Lapsed Lapsed Lapsed Lapsed Lapsed Q1 2013* Q1 2013* Lapsed Lapsed Lapsed** Lapsed** 19 Feb 2012* 19 Feb 2012* O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 79 2/3/11 22:21:21 Annual Reports and Financial Statements 2010 Reed Elsevier 79 Directors’ remuneration report continued Employee Benefit Trust Any securities required to satisfy entitlements under the REGP, LTIP and BIP 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 2010, amounted to 14,654,161 Reed Elsevier PLC ordinary shares (1.17% of issued share capital) and 7,781,790 Reed Elsevier NV ordinary shares (1.01% of issued share capital). These numbers include ordinary share equivalents held in the form of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRs. Approved by the Board of Reed Elsevier Group plc on 16 February 2011. Mark Elliott Chairman of the Remuneration Committee Approved by the Board of Reed Elsevier PLC on 16 February 2011 Mark Elliott Non-Executive Director Approved by the Combined Board of Reed Elsevier NV on 16 February 2011 Mark Elliott Member of the Supervisory Board Other required disclosures in respect of share-based awards The number of shares and options that vest in respect of all outstanding (unvested) awards under the multi-year incentives depend on the extent to which performance conditions are met. In respect of the REGP, the maximum number of shares that can vest is 150% of the number of shares shown in the tables above. In respect of ESOS and BIP, the number of awards shown in the table is the maximum capable of vesting. ESOS awards vest on the third anniversary and expire on the tenth anniversary of the date of grant. For LTIP, the number of shares shown in the share tables reflects the target award. The target award under the 2009-11 cycle of LTIP vests for achieving Adjusted EPS growth of 12% and median TSR relative to an industry comparator group. Depending on actual Adjusted EPS growth and TSR, the proportion of the target award that may vest could be lower or higher. The maximum that can potentially vest in respect of these awards is 189% of the number of shares comprised in the target awards shown in the tables above. Options under the SAYE scheme, in which all eligible UK employees are invited to participate, are granted at a maximum discount of 20% to the market price at time of grant. They are normally exercisable after the expiry of three or five years from the date of grant. No performance targets are attached to these option grants as the SAYE is an all-employee scheme. The middle market price of a Reed Elsevier PLC ordinary share at the date of award of grants under the REGP and BIP was £4.665. The middle market price of a Reed Elsevier NV ordinary share at the date of award of grants under the REGP and BIP was €8.31. The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range of £4.606 to £5.63 and at 31 December 2010 was £5.415. The middle market price of a Reed Elsevier NV ordinary share during the year was in the range of €8.174 to €10.115 and at 31 December 2010 was €9.257. 80 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 80 1/3/11 10:43:28 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 UK Corporate Governance Code, issued by the UK Financial Reporting Council, and the Dutch Corporate Governance Code, issued by Dutch Corporate Governance Code Monitoring Committee. Audit Committees The main role and responsibilities of the Committees in relation to the respective companies are set out in written terms of reference and include: (i) to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; (ii) to review the company’s internal financial controls and the company’s internal control and risk management systems; (iii) to monitor and review the effectiveness of the company’s internal audit function; (iv) to make recommendations to the board, for it to put to the shareholders for their approval in general meeting, 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. The terms of reference of each Audit Committee are reviewed annually and a copy of each 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: Ben van der Veer (Chairman of the Committees from August 2010), Lord Sharman (Chairman of the Committees until August 2010), Lisa Hook and David Reid. 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. Lord Sharman will retire as a member of the Committees in April 2011. Biographies of the members of each of the Committees are set out on page 55. 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 2010 are set out in the Directors’ Remuneration Report on pages 62 to 80. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 81 1/3/11 10:43:29 Annual Reports and Financial Statements 2010 Reed Elsevier 81 Report of the Audit Committees continued Committee activities The Committees hold meetings five times a year: in January, February, June, July and December, and reports on these meetings are made to the respective boards at the next board meetings. The principal business of these meetings typically includes: – January: review of critical accounting policies and practices, and significant financial reporting issues and judgements arising in connection with the annual financial statements, including appropriateness of the going concern assumption; review of risk management activities, compliance and internal control effectiveness; reviewing and approving the internal audit plan; review of internal audit findings; review of the Reed Elsevier policy on auditor independence and the fees paid to the external auditor for audit and non audit services; 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. From time to time the Chairman and Chief Executive Officer may attend the Audit Committee meetings. 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 least one meeting each year, the Committees meet separately with the external auditors without management present. The Chairman of the Audit Committees has at least one separate meeting each year with the director of internal audit. In discharging their principal responsibilities in respect of the 2010 financial year, the Committees have: – – – – February: review and recommending for approval to the Boards of annual financial statements, results announcement, annual report on Form 20-F and related formal statements; review of external audit findings; (i) June: monitoring and assessing the qualification, performance, expertise, resources, objectivity and independence of the external auditors and the effectiveness of the external 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 tax policies: review of compliance activities; review of report from external auditors on control matters; review of internal audit findings; July: review of critical accounting policies and practices, and significant financial reporting issues and judgements arising in connection with the interim financial statements, including appropriateness of the going concern assumption; review and recommending for approval to the Boards of the interim financial statements, results announcement and related formal statements; review of external audit findings; review of risk management activities and internal audit findings; review and approval of the external audit engagement letters; review of estimated external audit fees; 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; review of the terms of reference and effectiveness of internal audit; review of the terms of reference of the Audit Committees. 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 2010 were the accounting and judgements in respect of: the carrying value of goodwill and intangible assets, taking into account the effects of the recent global recession and subsequent economic environment on business performance; revenue recognition and cost capitalisation as business models evolve from print publications to online services; accounting for the sale and/or closure of a number of Reed Business Information titles and businesses; tax provisioning; and the recognition of liabilities arising from the restructuring programmes and lease obligations. (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. 82 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 82 1/3/11 10:43:29 Report of the Audit Committees continued (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 2010 included: project management of development spend, particularly in relation to the significant product and infrastructure investment in the US legal business; restructuring and acquisition integration activities, notably in the restructuring of Reed Business Information and the integration of the ChoicePoint acquisition within LexisNexis Risk Solutions; regulatory compliance and review of information security; business continuity planning; and 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. (v) reviewed and approved the internal audit plan for 2010 and monitored execution, including progress in respect of recommendations made. Reviewed the resources, budget and effectiveness of the internal audit function. (vi) received presentations from the Reed Elsevier vice president compliance on the compliance programme, including the operation of Reed Elsevier’s codes of conduct, training programmes and whistleblowing arrangements; and from the LexisNexis senior vice president, privacy, security and compliance on management of data privacy, security and compliance. (vii) received regular updates from the Chief Financial Officer on developments within the finance function. Ben van der Veer, Lisa Hook and David Reid attended all five meetings of the Committees in 2010. Lord Sharman attended four meetings. 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. External auditor independence and audit effectiveness The Audit Committees have the delegated responsibility for reviewing the effectiveness of the external audit and overseeing the independence and objectivity of the auditors. Reed Elsevier has a well established policy on audit effectiveness and independence of auditors that sets out inter alia: the responsibilities of the Audit Committee in the selection of auditors to be proposed for appointment or reappointment at the annual general meeting and for agreement on the terms of their engagement and the scope of the annual audit; the auditor independence requirements and the policy on the provision of non audit services; the rotation of audit partners and staff; and the conduct of meetings between the auditors and the Audit Committee. The policy is available on the Reed Elsevier website, www.reedelsevier.com. Under the policy, the auditors are precluded from engaging in non audit services that would compromise their independence or violate any professional requirements or regulations affecting their appointment as auditors. In general, the auditors may not provide a service which creates a mutuality of interest; places the auditor in a position to audit their own work; results in the auditor acting in a capacity akin to that of a company manager or employee; or puts the auditor in the role of advocate for the company. The policy sets out specific services that may not be provided by the auditors. The auditors may provide non audit services which do not conflict with their independence where their skills and experience make them a logical supplier of the services, and subject to pre-approval by the Audit Committee. The Committees have reviewed and agreed the non audit services provided in 2010 by the external auditors, together with the associated fees which are set out in note 3 to the combined financial statements. The non audit services provided were in the areas of taxation, other audit related services, due diligence and other transaction related services where their knowledge of the Reed Elsevier businesses and experience made them most suitable to carry out the work required. The external auditors are required to rotate the audit partners responsible for the audit engagement every five years. The lead engagement partner has now completed his second year of auditing Reed Elsevier’s financial statements. Any decision to open the audit to tender is taken only on the recommendation of the Committees. The external auditors have confirmed their independence and compliance with the Reed Elsevier policy on auditor independence. O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p056-084.indd 83 1/3/11 10:43:29 Annual Reports and Financial Statements 2010 Reed Elsevier 83 Report of the Audit Committees continued The Committees conducted a formal review during 2010 of the performance of the external auditors and the effectiveness of the external audit process for the year ended 31 December 2009. As part of this process, the Committees reviewed the report on the external auditors by the Audit Inspection Unit of the UK Financial Reporting Council issued in September 2010 and the report of the Autoriteit Financiële Markten in the Netherlands issued on 1 September 2010 on the general findings of the quality and effectiveness of audits performed by external audit firms (Rapport algemene bevindingen kwaliteit accountantscontrole en kwaliteitsbewaking). Based on these reviews, and on their subsequent observations on the planning and execution of the external audit for the year ended 31 December 2010, 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 will 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 as part of the effectiveness review of the Boards in December 2010. Ben van der Veer Chairman of the Audit Committees 16 February 2011 84 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p056-084.indd 84 1/3/11 10:43:29 Financial Statements 86 Combined ﬁnancial statements 90 Accounting policies 97 Notes to the combined ﬁnancial statements 128 Independent auditors’ report 129 Summary combined ﬁnancial information in euros 142 Reed Elsevier PLC annual report and ﬁnancial statements 165 Reed Elsevier NV annual report and ﬁnancial statements 189 Additional information for US investors O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 85 1/3/11 10:38:36 Annual Reports and Financial Statements 2010 Reed Elsevier 85 Combined income statement For the year ended 31 December Revenue 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 Finance income Finance costs Net finance costs Disposals and other non operating items Profit before tax Taxation Net profit for the year Attributable to: Parent companies’ shareholders Non-controlling interests Net profit for the year Note 1 2 7 7 8 9 Combined statement of comprehensive income For the year ended 31 December Net profit for the year Exchange differences on translation of foreign operations Actuarial (losses)/gains on defined benefit pension schemes 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 comprehensive income for the year Note 5 18 9 2010 £m 6,055 (2,209) 3,846 (1,091) (1,687) 1,068 22 1,090 8 (284) (276) (46) 768 (120) 648 642 6 648 2010 £m 648 94 (63) – (58) 46 29 48 696 690 6 696 2009 £m 6,071 (2,252) 3,819 (1,112) (1,935) 772 15 787 7 (298) (291) (61) 435 (40) 395 391 4 395 2009 £m 395 (122) 6 1 53 84 (25) (3) 392 388 4 392 86 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 86 1/3/11 10:38:36 Combined statement of cash ﬂows For the year ended 31 December Cash flows from operating activities Cash generated from operations Interest paid Interest received Tax paid (net) Net cash from operating activities Cash flows from investing activities 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 proceeds/(costs) from other disposals Dividends received from joint ventures Net cash used in investing activities Cash flows from financing activities Dividends paid to shareholders of the parent companies Distributions to non-controlling interests (Decrease)/increase in short term bank loans, overdrafts and commercial paper Issuance of other loans Repayment of other loans Repayment of finance leases Proceeds on issue of ordinary shares Net cash used in financing activities Combined ﬁnancial statements Note 11 11 2010 £m 1,649 (295) 8 (9) 1,353 (50) (83) (228) (5) 7 6 24 (329) (483) (8) (143) – (394) (7) 11 (1,024) 2009 £m 1,604 (302) 9 (120) 1,191 (94) (78) (164) (3) 4 (2) 23 (314) (457) (3) 107 1,807 (2,862) (2) 834 (576) Increase in cash and cash equivalents 11 – 301 Movement in cash and cash equivalents At start of year Increase in cash and cash equivalents Exchange translation differences At end of year 734 – 8 742 375 301 58 734 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 87 1/3/11 10:38:36 Annual Reports and Financial Statements 2010 Reed Elsevier 87 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 Note 14 15 16 16 17 5 19 20 21 11 22 23 24 26 24 19 5 26 22 28 29 30 31 32 2010 £m 4,441 3,457 136 48 291 55 151 8,579 228 1,475 134 742 2,579 – 2009 £m 4,339 3,632 135 41 292 110 208 8,757 275 1,492 71 734 2,572 5 11,158 11,334 2,584 80 516 646 71 3,897 3,786 1,192 225 88 5,291 – 9,188 1,970 224 2,754 (677) 29 (387) 1,943 27 1,970 2,471 102 678 479 134 3,864 4,028 1,272 345 61 5,706 5 9,575 1,759 225 2,807 (698) (100) (502) 1,732 27 1,759 88 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 88 1/3/11 10:38:36 Combined statement of changes in equity Combined ﬁnancial statements 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 225 2,807 (698) (100) (502) 1,732 13 Balance at 1 January 2010 Total comprehensive income for the year Dividends paid Issue of ordinary shares, net of expenses Decrease in share based remuneration reserve Settlement of share awards Exchange differences on translation of capital and reserves Balance at – – – – – – – 11 – – – – – – 9 (1) (64) 12 31 December 2010 224 2,754 (677) 13 Balance at 1 January 2009 Total comprehensive income for the year Dividends paid 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 209 2,529 (783) – – 20 – – – – 395 – – (4) (117) – – – – 57 28 94 – – – – 35 29 (14) (122) – – – – 596 (483) 690 (483) – (7) (9) 18 11 (7) – – (387) 1,943 (988) 510 (457) 419 17 (60) 953 388 (457) 834 17 (3) – 36 57 31 December 2009 225 2,807 (698) (100) (502) 1,732 Non- controlling interests £m 27 6 (8) – – – 2 27 28 4 (3) – – – (2) 27 Total equity £m 1,759 696 (491) 11 (7) – 2 1,970 981 392 (460) 834 17 (3) (2) 1,759 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 89 1/3/11 10:38:36 Annual Reports and Financial Statements 2010 Reed Elsevier 89 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. 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 non-controlling 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 142 to 188. A list of principal businesses is set out on page 198. 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, disposal gains and losses 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 and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. 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 10. 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 129 to 141. 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 and transactional – on despatch or occurrence of the transaction; advertising – on publication or over the period of online display; and exhibitions – on occurrence of the exhibition. 90 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 90 3/3/11 13:32:34 Accounting policies continued Combined ﬁnancial statements 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. 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. 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. 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, i.e. 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. 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 91 1/3/11 10:38:37 Annual Reports and Financial Statements 2010 Reed Elsevier 91 Accounting policies continued 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 (e.g. trade marks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); editorial content; software and systems (e.g. application infrastructure, product delivery platforms, in-process research and development); contract based assets (e.g. 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. 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. 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. 92 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 92 1/3/11 10:38:37 Accounting policies continued 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. (These investments are classified as either Level 1 or 2 in the IFRS 7 fair value hierarchy.) 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. Combined ﬁnancial statements 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. 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 93 1/3/11 10:38:37 Annual Reports and Financial Statements 2010 Reed Elsevier 93 Accounting policies continued 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, litigation, taxation, and property provisioning. Goodwill and intangibles 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 acquired 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. The discount rates used are based on the Reed Elsevier weighted average cost of capital, adjusted to reflect a risk premium specific to each business. 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 10.5-12.0% for Reed Business Information. The nominal long term growth rates, which are based on historic growth rates and the growth prospects for businesses, do not exceed 3%. There were no charges for impairment of acquired intangible assets and goodwill in 2010 (2009: £177m principally relating to the RBI controlled circulation titles). A sensitivity analysis has been performed based on changes in key assumptions considered to be reasonably possible by management: an increase in the discount rate of 0.5%; a decrease in the compound annual growth rate for adjusted operating cash flow in the five year forecast period of 2.0%; and a decrease in perpetuity growth rates of 0.5%. The sensitivity analysis shows that impairment charges resulting from these scenarios would be less than £10m. Further information is provided in note 14 to the combined financial statements. Share based remuneration Share based remuneration 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. The assumptions of share price volatility of 26%, of expected share option life of 4 years, and of expected lapse rate of 3-5% are based on relevant historical data. Other judgements made on grant are based on market data. Assumptions as to future performance against non market related vesting conditions are based on management estimates. The charge for share based and related remuneration was £11m in 2010 (2009: £17m) as a result of reduced vesting assumptions. Further information is provided in note 6 to the combined financial statements. Pensions 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. 94 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 94 1/3/11 10:38:37 Accounting policies continued Combined ﬁnancial statements The principal assumptions as at 31 December 2010, expressed as a weighted average of the various defined benefit pension schemes, were a discount rate of 5.6% (2009: 5.8%; 2008: 6.2%), an expected return on scheme assets of 6.8% (2009: 7.0%; 2008: 7.1%), an expected rate of salary increases of 4.1% (2009: 4.0%; 2008: 3.7%) and inflation of 3.2% (2009: 3.1%; 2008: 2.7%). Future pension increases are assumed at 3.2% (2009: 3.1%; 2008: 2.8%) and average life expectancy of 87-89 years (2009: 87-88 years) for scheme members currently aged 45 and 60 years. The net defined benefit pension expense was £22m (2009: £18m). Excluding the net pension financing credit, the expense was £48m (2009: £24m) reflecting the lower discount rates and higher inflation assumptions at the beginning of the year compared with the prior year, and pension curtailment credits of £17m (2009: £43m) from changes to pension plan design and staff reductions. The net pension financing credit is based on market data at the beginning of the year and was £26m (2009: £6m) reflecting the higher market value of scheme assets. Further information and sensitivity analysis is provided in note 5 to the combined financial statements. Property provisions Reed Elsevier has exposures to sub-lease shortfalls in respect of certain property leases for periods up to 2024. Provisions are recognised for net liabilities expected to arise on these exposures. Estimation of the provisions requires judgement in respect of future head lease costs, sub lease income and the length of vacancy periods. The charge for property provisions was £36m (2009: £70m) relating to surplus property arising on the restructuring, sale and closure of RBI businesses and includes expected losses on sub leases entered into during 2010 and an estimate of vacancy periods and future market conditions. Further information is provided in note 26 to the combined financial statements. Other significant accounting policies The accounting policies in respect of revenue recognition, pre-publication costs and development spend are also significant in determining the financial condition and results of the Reed Elsevier combined businesses, although the application of these policies is more straightforward. Litigation Reed Elsevier is involved in various legal proceedings, which arise in the normal course of its business, relating to commercial disputes, employment, data security and product liability. Provisions for liabilities are recognised when it is likely that a settlement is required. Although the outcome of legal proceedings is uncertain, the ultimate resolution of such matters is not expected to have a material impact on results. 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. Taxation Reed Elsevier is subject to tax in numerous jurisdictions, giving rise to complex tax issues that require management to exercise judgment in making tax determinations. While Reed Elsevier is confident that tax returns are appropriately prepared and filed, the application of tax law and practice is subject to some uncertainty and provisions are held in respect of this. Issues are raised during the course of regular tax audits and discussions including on the deductibility of interest in the US on certain cross-border financing are ongoing. Although the outcome of open items cannot be predicted, no material impact on results is expected from such issues. 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. Pre-publication costs incurred in the creation of content prior to production and publication are typically 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 95 1/3/11 10:38:37 Annual Reports and Financial Statements 2010 Reed Elsevier 95 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. For financial liabilities, IFRS9 requires an entity choosing to measure a liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income rather than the income statement. Adoption of this standard is not expected to have a significant impact on the measurement, presentation or disclosure of financial assets and liabilities 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. Accounting policies continued Standards and amendments effective for the year Those amendments to IFRS which are relevant to Reed Elsevier and are effective for the current year are set out below. Amendments to IFRS3 – Business Combinations requires transaction related costs (including professional fees) to be expensed and adjustments to contingent and deferred consideration to be recognised in income and allows non-controlling interests to be measured either at fair value or the proportionate share of net identifiable assets. Adoption of this standard has not required a restatement of prior year business combinations and has not had a significant impact in the year ended 31 December 2010. Amendments to IAS27 – Consolidated and Separate Financial Statements amendments has introduced changes to the accounting for partial disposals of subsidiaries, associates and joint ventures. Adoption of this standard has not had a significant impact in the year ended 31 December 2010. Amendment to IAS39 – Financial Instruments: Recognition and Measurement clarifies the eligibility of hedge accounting for inflation and hedging with options and has not had a significant impact for the year ended 31 December 2010. Amendments to IAS32 – Financial Instruments: Presentation amendment provides relief to companies making rights issues in a currency other than their functional currency. This amendment has not affected Reed Elsevier as shares are not issued in currencies other than its functional currencies. 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. 96 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 96 1/3/11 10:38:37 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 1 Segment analysis 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 in 2010 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 in 2010 relate to the restructuring of the Reed Business Information business and in 2009 relate to the exceptional restructuring programmes across Reed Elsevier. Exceptional restructuring costs principally comprise severance, outsourcing migration and associated property costs. Adjusted operating profit is reconciled to operating profit in note 10. O v e r v e w i O u r b u s n e s s i Business segment Elsevier LexisNexis Reed Exhibitions Reed Business Information Sub-total Corporate costs Unallocated net pension credit Total Revenue Operating profit Adjusted operating profit 2010 £m 2,026 2,618 693 718 6,055 – – 6,055 2009 £m 1,985 2,557 638 891 6,071 – – 6,071 2010 £m 647 324 127 – 1,098 (34) 26 1,090 2009 £m 563 337 79 (163) 816 (35) 6 787 2010 £m 724 592 158 89 1,563 (34) 26 1,555 2009 £m 693 665 152 89 1,599 (35) 6 1,570 Revenue is analysed before the £116m (2009: £118m) share of joint ventures’ revenue, of which £24m (2009: £25m) relates to LexisNexis, principally to Giuffrè, £89m (2009: £90m) relates to Reed Exhibitions, principally to exhibition joint ventures, and £3m (2009: £3m) relates to Reed Business Information. Share of post-tax results of joint ventures of £22m (2009: £15m) included in operating profit comprises £4m (2009: £4m) relating to LexisNexis, £17m (2009: £10m) relating to Reed Exhibitions and £1m (2009: £1m) relating to Reed Business Information. The unallocated net pension credit of £26m (2009: £6m) comprises the expected return on pension scheme assets of £217m (2009: £189m) less interest on pension scheme liabilities of £191m (2009: £183m). Analysis of revenue by geographical origin North America United Kingdom The Netherlands Rest of Europe Rest of world Total 2010 £m 3,213 907 620 825 490 6,055 2009 £m 3,228 897 662 851 433 6,071 i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 97 1/3/11 10:38:37 Annual Reports and Financial Statements 2010 Reed Elsevier 97 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 1 Segment analysis continued Analysis of revenue by geographical market 2010 £m 3,303 490 204 1,131 927 6,055 2010 £m 2,709 1,760 491 675 420 6,055 2009 £m 3,310 513 243 1,132 873 6,071 2009 £m 2,711 1,708 585 626 441 6,071 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 LexisNexis Reed Exhibitions Reed Business Information Total Expenditure on acquired goodwill and intangible assets Capital expenditure additions Amortisation and impairment of acquired intangible assets and goodwill Depreciation and other amortisation 2010 £m 13 34 6 1 54 2009 £m 4 7 12 – 23 2010 £m 81 210 12 12 315 2009 £m 77 150 11 19 257 2010 £m 75 221 23 30 349 2009 £m 78 231 63 173 545 2010 £m 74 123 14 26 237 2009 £m 80 107 7 29 223 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 £4m (2009: £12m) in Reed Exhibitions. Other than the depreciation, amortisation and impairment above, non cash items include £7m credit (2009: £17m charge) relating to the recognition of share based remuneration and comprise £2m credit (2009: £4m charge) in Elsevier, £1m charge (2009: £7m charge) in LexisNexis, £1m credit (2009: £2m charge) in Reed Exhibitions, £3m credit (2009: £2m charge) in Reed Business Information and £2m credit (2009: £2m charge) in Corporate. 98 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 98 1/3/11 10:38:37 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 1 Segment analysis continued Business segment Elsevier LexisNexis Reed Exhibitions Reed Business Information Sub-total Taxation Cash and cash equivalents 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 2010 £m 2009 £m 2,871 5,921 681 456 9,929 151 742 55 – 281 11,158 7,556 933 854 1,356 459 2,915 5,872 728 547 10,062 208 734 110 5 215 11,334 7,570 1,164 687 1,504 409 11,158 11,334 Investments in joint ventures of £136m (2009: £135m) included in segment assets above comprise £38m (2009: £38m) relating to LexisNexis, £92m (2009: £92m) relating to Reed Exhibitions and £6m (2009: £5m) relating to Reed Business Information. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 99 1/3/11 10:38:37 Annual Reports and Financial Statements 2010 Reed Elsevier 99 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 2 Operating profit Operating profit is stated after charging/(crediting) the following: Staff costs Wages and salaries Social security costs Pensions Share based and related 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 Depreciation, amortisation and impairment charges are included within administration and other expenses. 3 Auditors’ remuneration Auditors’ remuneration For audit services For non-audit services Total auditors’ remuneration Note 5 15 14, 15 15 17 2010 £m 1,594 179 54 11 1,838 345 4 – – 158 79 586 2009 £m 1,610 183 42 17 1,852 364 4 169 8 139 84 768 2,209 123 (11) 2,252 132 (12) 2010 £m 4.5 1.2 5.7 2009 £m 4.5 1.2 5.7 Auditors’ remuneration for audit services comprises £0.4m (2009: £0.4m) payable to the auditors of the parent companies and £4.1m (2009: £4.1m) 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: £0.9m (2009: £0.7m) for taxation services, £0.3m (2009: £0.4m) for other audit related services and nil (2009: £0.1m) for due diligence and other transaction related services. Reed Elsevier’s policy on auditor independence is set out on page 83. 100 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 100 1/3/11 10:38:38 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 4 Personnel Number of people employed 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 5 Pension schemes At 31 December Average during the year 2010 2009 2010 2009 6,700 14,700 2,600 5,300 29,300 900 30,200 16,500 4,600 1,700 3,800 3,600 30,200 6,800 15,200 2,500 6,900 31,400 900 32,300 17,600 4,900 2,000 4,200 3,600 6,800 14,900 2,600 5,800 30,100 900 31,000 16,900 4,700 1,800 4,000 3,600 32,300 31,000 6,900 15,400 2,600 7,500 32,400 900 33,300 18,000 5,000 2,100 4,500 3,700 33,300 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 2010 5.6% 6.8% 4.1% 3.2% 3.2% 2009 5.8% 7.0% 4.0% 3.1% 3.1% 2008 6.2% 7.1% 3.7% 2.7% 2.8% 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 2010 Male (years) 88 89 Female (years) 87 88 2009 Male (years) 88 88 Female (years) 87 87 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 101 1/3/11 10:38:38 Annual Reports and Financial Statements 2010 Reed Elsevier 101 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 5 Pension schemes continued The pension expense recognised within the income statement comprises: Service cost (including curtailment credits of £17m (2009: £43m)) Interest on pension scheme liabilities Expected return on scheme assets Net defined benefit pension expense Defined contribution pension expense Total pension expense 2010 £m 48 191 (217) 22 32 54 2009 £m 24 183 (189) 18 24 42 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 Exchange translation differences At end of year Defined benefit obligations £m 2010 Fair value of scheme assets £m Net pension obligations £m Defined benefit obligations £m 2009 Fair value of scheme assets £m Net pension obligations £m (3,302) (48) (191) – (261) – (11) 139 (3) (3,677) 3,067 – – 217 198 154 11 (139) (1) 3,507 (235) (48) (191) 217 (63) 154 – – (4) (170) (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) The net pension obligations of £170m (2009: £235m) at 31 December 2010 comprise schemes in deficit with net pension obligations of £225m (2009: £345m) and schemes in surplus with net pension assets of £55m (2009: £110m). As at 31 December 2010 the defined benefit obligations comprise £3,531m (2009: £3,172m) in relation to funded schemes and £146m (2009: £130m) in relation to unfunded schemes. The weighted average duration of defined benefit scheme liabilities is 19 years (2009: 19 years). Deferred tax liabilities of £15m (2009: £31m) and deferred tax assets of £78m (2009: £122m) 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, are shown below: Equities Bonds Other Total Expected rate of return on scheme assets 8.7% 4.4% 5.1% 6.8% 2010 Fair value of scheme assets £m 1,963 1,318 226 3,507 Proportion of total scheme assets Expected rate of return on scheme assets 56% 38% 6% 100% 8.6% 4.5% 5.3% 7.0% 2009 Fair value of scheme assets £m 1,827 1,069 171 3,067 Proportion of total scheme assets 60% 35% 5% 100% The actual return on scheme assets for the year ended 31 December 2010 was a £415m gain (2009: £490m gain). 102 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 102 1/3/11 10:38:38 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 5 Pension schemes continued A summary of pension balances in respect of funded and unfunded schemes for the five years ended 31 December 2010 is set out below. Fair value of scheme assets Defined benefit obligations Net pension (obligations)/surplus 2010 £m 3,507 (3,677) (170) 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) 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 (losses)/gains on scheme liabilities Experience gains/(losses) on scheme assets Actuarial (losses)/gains 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 2010 £m (43) 198 (162) (50) (6) (63) (89) (152) 2009 £m 18 301 (249) (124) 60 6 (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 Regular contributions to defined benefit pension schemes in respect of 2011 are expected to be approximately £70m. 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 5 162 5 87 5 137 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 £9m and would decrease/increase the amount of the net pension obligations by £98m. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 103 2/3/11 22:31:11 Annual Reports and Financial Statements 2010 Reed Elsevier 103 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 6 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 Reed Elsevier Growth Plan (REGP), 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. Conditional shares granted under REGP are exercisable for nil consideration if conditions are met after three and five years. Other awards principally relate to all employee share based 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 in 2009 and prior years 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. Conditional shares granted under LTIP, REGP, RSP and BIP in 2010 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 as well as the achievement of a percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV. The weighted average fair value per award is based on full vesting on achievement of non market related performance conditions and stochastic models for market related components. The conditional shares and option awards are recognised in the income statement over the vesting period, being between three and five years, on the basis of expected performance against the non market related conditions, with the fair value related to market related components unchanging. Further details of performance conditions are given in the Directors’ Remuneration Report on pages 62 to 80. 2010 grants Share options – ESOS – Other Total share options Conditional shares – ESOS – LTIP – REGP – RSP – BIP Total conditional shares 2009 grants Share options – ESOS – Other Total share options Conditional shares – ESOS – LTIP – RSP – BIP Total conditional shares In respect of Reed Elsevier PLC ordinary shares In respect of Reed Elsevier NV ordinary shares Weighted average fair value per award £ Number of shares ’000 Weighted average fair value per award £ Number of shares ’000 2,204 846 3,050 751 1,677 1,038 236 1,714 5,416 0.77 0.99 0.83 4.23 4.01 6.99 4.23 4.64 4.82 1,448 381 1,829 493 1,101 681 155 820 3,250 1.08 0.82 1.02 6.37 6.11 10.66 6.37 6.93 7.32 In respect of Reed Elsevier PLC ordinary shares In respect of Reed Elsevier NV ordinary shares Weighted average fair value per award £ Number of shares ’000 Weighted average fair value per award £ Number of shares ’000 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 8.57 104 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 104 1/3/11 10:38:38 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 6 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 – REGP – 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 2010 2009 2010 2009 £4.69 £4.67 £4.67 £4.67 £4.64 £5.22 26% 4 years 3.5% 1.8% 3-5% £5.39 £5.44 – £5.42 £4.91 £5.02 26% 4 years 3.1% 2.0% 3-5% (cid:19)8.36 (cid:19)8.31 (cid:19)8.31 (cid:19)8.33 (cid:19)8.11 (cid:19)8.86 26% 4 years 3.9% 1.2% 3-4% (cid:56)9.35 (cid:56)9.50 – (cid:56)9.42 (cid:56)8.05 (cid:56)8.31 26% 4 years 3.4% 2.4% 3-4% O v e r v e w i O u r b u s n e s s i 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 2010, in respect of both Reed Elsevier PLC and Reed Elsevier NV ordinary shares, are set out below. Share options: Reed Elsevier PLC Outstanding at 1 January 2009 Granted Exercised Forfeited Expired Outstanding at 1 January 2010 Granted Exercised Forfeited Expired Outstanding at 31 December 2010 Exercisable at 31 December 2009 Exercisable at 31 December 2010 ESOS LTIP Other Total 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 30,172 4,303 (781) (1,638) (1,490) 30,566 2,204 (1,039) (988) (1,494) 29,249 20,763 19,929 562 539 436 602 522 562 469 481 560 578 557 547 559 2,325 – – – (66) 2,259 – (269) – – 1,990 2,259 1,990 489 – – – 487 489 – 487 – – 489 489 489 2,631 1,284 (436) (578) (41) 2,860 846 (700) (367) (167) 2,472 349 129 454 402 404 469 408 436 418 447 432 425 428 422 468 35,128 5,587 (1,217) (2,216) (1,597) 35,685 3,050 (2,008) (1,355) (1,661) 33,711 23,371 22,048 549 508 424 549 518 547 455 470 496 554 544 540 552 i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 105 1/3/11 10:38:38 Annual Reports and Financial Statements 2010 Reed Elsevier 105 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 6 Share based remuneration continued ESOS LTIP Other Total Weighted average exercise Number of shares ’000 price ((cid:19)) Weighted average exercise Number of shares ’000 price ((cid:19)) Weighted average exercise Number of shares ’000 price ((cid:19)) Weighted average exercise price ((cid:19)) Number of shares ’000 Share options: Reed Elsevier NV Outstanding at 1 January 2009 Granted Exercised Forfeited Expired Outstanding at 1 January 2010 Granted Exercised Forfeited Expired 21,811 2,799 – (1,203) (1,790) 21,617 1,448 (50) (556) (1,499) Outstanding at 31 December 2010 20,960 Exercisable at 31 December 2009 Exercisable at 31 December 2010 15,217 14,862 Conditional shares: Reed Elsevier PLC Outstanding at 1 January 2009 Granted Exercised Forfeited Outstanding at 1 January 2010 Granted Exercised Forfeited Outstanding at 31 December 2010 Conditional shares: Reed Elsevier NV Outstanding at 1 January 2009 Granted Exercised Forfeited Outstanding at 1 January 2010 Granted Exercised Forfeited Outstanding at 31 December 2010 12.23 9.35 – 11.73 11.98 11.88 8.36 9.31 10.16 13.00 11.61 12.01 12.22 1,809 – – – (46) 1,763 – – – (222) 1,541 1,763 1,541 10.60 – – – 10.57 10.60 – – – 10.57 10.60 10.60 10.60 2,357 588 (32) (376) – 2,537 381 (134) (452) – 2,332 2,537 2,332 12.19 8.31 7.93 12.00 – 11.32 8.86 8.38 14.01 – 10.57 11.32 10.57 Number of shares ’000 ESOS 2,051 770 (867) (87) 1,867 751 (594) (81) 1,943 ESOS 1,358 500 (580) (65) 1,213 493 (389) (47) 1,270 LTIP 4,516 1,845 (1,767) (442) 4,152 1,677 (15) (595) 5,219 LTIP 2,978 1,198 (1,162) (311) 2,703 1,101 (10) (324) 3,470 REGP – – – – – 1,038 – – 1,038 RSP 35 204 (24) – 215 236 (4) – 447 Number of shares ’000 REGP – – – – – 681 – – 681 RSP 24 133 (17) – 140 155 (3) – 292 25,977 3,387 (32) (1,579) (1,836) 25,917 1,829 (184) (1,008) (1,721) 12.11 9.17 7.93 11.84 11.94 11.74 8.45 8.63 8.75 6.71 24,833 11.45 19,517 18,735 11.79 11.88 BIP 1,901 661 (622) (26) 1,914 1,714 (65) (173) Total 8,503 3,480 (3,280) (555) 8,148 5,416 (678) (849) 3,390 12,037 BIP 838 352 (315) (10) 865 820 (23) (82) 1,580 Total 5,198 2,183 (2,074) (386) 4,921 3,250 (425) (453) 7,293 The weighted average share price at the date of exercise of share options and conditional shares during 2010 was 522p (2009: 506p) for Reed Elsevier PLC ordinary shares and (cid:56)8.82 (2009: (cid:56)8.45) for Reed Elsevier NV ordinary shares. 106 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 106 1/3/11 10:38:38 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 6 Share based remuneration continued Combined ﬁnancial statements 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 2010 2009 Number of shares under option ’000 Weighted average remaining period until expiry (years) – 2,017 8,919 11,299 3,153 6,053 2,270 33,711 137 2,062 3,915 4,385 5,670 2,653 2,502 3,414 95 24,833 – 3.3 4.5 5.6 1.6 6.6 0.2 4.6 8.2 9.0 6.0 3.3 4.4 6.8 1.4 3.2 0.8 3.9 Number of shares under option ’000 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 Weighted average remaining period until expiry (years) 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 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 30). Conditional shares will be met from shares held by the EBT. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 107 1/3/11 10:38:38 Annual Reports and Financial Statements 2010 Reed Elsevier 107 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 7 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 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 2010 £m (33) (236) (1) (270) (14) (284) 7 1 8 2009 £m (63) (226) (1) (290) (8) (298) 5 2 7 (276) (291) Finance costs include £26m (2009: £46m) transferred from the hedge reserve. A net loss of £15m (2009: £11m) on interest rate derivatives designated as cash flow hedges was recognised directly in equity in the hedge reserve to be recognised in future periods. 8 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 2010 £m 8 (54) (46) The loss on disposal and write down of businesses and other assets in 2009 and 2010 principally relate to asset sales and closures in RBI US’s businesses. 9 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 The current tax charge includes a tax credit of £7m (2009: £34m) in respect of prior year disposals. 2010 £m 44 58 64 166 (46) 120 2009 £m 8 (69) (61) 2009 £m 44 37 (1) 80 (40) 40 108 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 108 1/3/11 10:38:38 Combined ﬁnancial statements Notes to the combined ﬁnancial statements for the year ended 31 December 2010 9 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 Tax at average applicable rates Tax on share of results of joint ventures Prior year credits on disposals Non deductible goodwill impairment Non deductible loss on disposals 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 credit/(charge) recognised directly in equity 10 Adjusted figures 2010 £m 768 118 (7) (7) – 10 2 4 120 16% 2010 £m 16 12 1 29 2009 £m 435 41 (6) (34) 19 – 10 10 40 9% 2009 £m (10) (15) – (25) 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, disposal gains and losses 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 and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. Adjusted operating profit is also grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs in 2010 relate to the restructuring of the Reed Business Information business and in 2009 relate to the exceptional restructuring programmes across Reed Elsevier. Acquisition related costs relate to acquisition integration and, from 2010, professional and other transaction related fees and adjustments to deferred and contingent consideration. 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: Operating profit 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 Profit before tax 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 2010 £m 1,090 349 – 57 50 9 2009 £m 787 368 177 182 48 8 1,555 1,570 768 349 – 57 50 9 46 435 368 177 182 48 8 61 l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 1,279 1,279 Annual Reports and Financial Statements 2010 Reed Elsevier 109 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i 47213_Text_p085-128.indd 109 1/3/11 10:38:38 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 10 Adjusted figures continued Profit attributable to parent companies’ shareholders 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 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 11 Statement of cash flows Reconciliation of operating profit before joint ventures to cash generated from 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 in receivables Decrease in payables Decrease in working capital Cash generated from operations Cash flow on acquisitions Purchase of businesses Payment of ChoicePoint change of control and other non operating payables assumed Deferred payments relating to prior year acquisitions Total 2010 £m 642 337 – 37 30 37 (100) 983 1,649 24 (83) 7 (228) 99 51 1,519 2010 £m 1,068 345 158 79 (7) 575 35 24 (53) 6 2009 £m 391 411 136 133 33 (22) (100) 982 1,604 23 (78) 4 (164) 124 45 1,558 2009 £m 772 533 139 84 17 773 47 112 (100) 59 Note 12 1,649 1,604 2010 £m (38) (7) (5) (50) 2009 £m (9) (56) (29) (94) 110 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 110 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 11 Statement of cash flows continued Reconciliation of net borrowings At start of year Increase in cash and cash equivalents Net movement in short term bank loans, overdrafts and commercial paper Issuance of other loans Repayment of other loans Repayment of finance leases Change in net borrowings resulting from cash flows Inception of finance leases Fair value adjustments to borrowings and related derivatives Exchange translation differences Cash & cash equivalents £m Borrowings £m Related derivative financial instruments £m 2010 £m 2009 £m 734 (4,706) 41 (3,931) (5,726) – – – – – – – – 8 – 143 – 394 7 544 (2) (52) (86) – – – – – – – 63 1 105 – 301 143 – 394 7 544 (2) 11 (77) (107) (1,807) 2,862 2 1,251 (26) 11 559 (3,455) (3,931) At end of year 742 (4,302) 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 £4m (2009: £5m) held in trust to satisfy liabilities in respect of change of control obligations related to the acquisition of ChoicePoint. 12 Acquisitions During the year a number of small acquisitions were made for a total consideration of £43m (2009: £11m), after taking account of net cash acquired of nil. 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 of the assets and liabilities acquired are summarised below. Goodwill Intangible assets Current liabilities Deferred tax Net assets acquired Consideration (after taking account of nil net cash acquired) Less: consideration deferred to future years Net cash flow Fair value 2010 £m 27 27 (2) (9) 43 43 (5) 38 Fair value 2009 £m 6 17 (11) (1) 11 11 (2) 9 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. s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 111 1/3/11 10:38:39 Annual Reports and Financial Statements 2010 Reed Elsevier 111 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l Notes to the combined ﬁnancial statements for the year ended 31 December 2010 12 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 2011 combined financial statements. There were no significant adjustments to the provisional fair values of prior year acquisitions established in 2009. The businesses acquired in 2010 contributed £2m to revenue, decreased adjusted operating profit by £1m, decreased adjusted profit attributable by £1m, decreased profit attributable by £3m, and contributed nil 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 pro forma basis the Reed Elsevier revenues, adjusted operating profit, adjusted profit attributable and profit attributable for the year would have been £6,065m, £1,556m, £984m and £643m respectively before taking account of acquisition financing costs. 13 Equity dividends Ordinary dividends declared in the year Reed Elsevier PLC Reed Elsevier NV Total 2010 £m 245 240 485 2009 £m 228 232 460 Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2009 final dividend of 15.0p and a 2010 interim dividend of 5.4p giving a total of 20.4p (2009: 20.4p) for Reed Elsevier PLC; and a 2009 final dividend of (cid:56)0.293 and a 2010 interim dividend of (cid:56)0.109 giving a total of (cid:56)0.402 (2009: (cid:56)0.397) for Reed Elsevier NV. The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2009: 15.0p). The directors of Reed Elsevier NV have proposed a final dividend of (cid:56)0.303 (2009: (cid:56)0.293). The total cost of funding the proposed final dividends is expected to be £361m, 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 2010 £m 245 246 491 2009 £m 245 250 495 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. 14 Goodwill At start of year Acquisitions Disposals Impairment Reclassified from held for sale Exchange translation differences At end of year 2010 £m 4,339 27 (38) – – 113 4,441 2009 £m 4,901 6 (7) (110) 22 (473) 4,339 112 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 112 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 14 Goodwill continued The carrying amount of goodwill is after cumulative amortisation of £1,407m (2009: £1,573m) which was charged prior to the adoption of IFRS. Impairment charges in 2009 comprise £93m in Reed Business Information, principally relating to its US and International businesses, and £17m in Reed 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. O v e r v e w i O u r b u s n e s s i 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 2010 £m 994 1,064 1,720 115 2,899 293 66 359 63 71 24 31 189 4,441 2009 £m 963 1,012 1,659 133 2,804 304 60 364 73 69 29 37 208 4,339 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 10.5-12.0% 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 reasonably 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 2.0%; and a decrease in perpetuity growth rates of 0.5%. The sensitivity analysis shows that impairment charges resulting from these sensitivity scenarios would be less than £10m. i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 113 2/3/11 22:32:02 Annual Reports and Financial Statements 2010 Reed Elsevier 113 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 15 Intangible assets Cost At 1 January 2009 Acquisitions Additions Disposals Reclassified (to)/from held for sale and other transfers Exchange translation differences At 1 January 2010 Acquisitions Additions Disposals Exchange translation differences At 31 December 2010 Amortisation and impairment At 1 January 2009 Charge for the year Impairment Disposals Reclassified (to)/from held for sale and other transfers Exchange translation differences At 1 January 2010 Charge for the year Disposals Exchange translation differences At 31 December 2010 Net book amount At 31 December 2009 At 31 December 2010 Market and customer related £m Content, software and other £m Total acquired intangible assets £m Internally developed intangible assets £m 2,819 5 – (1) – (288) 2,535 11 – – 85 2,631 310 155 7 (1) – (34) 437 161 – 12 610 3,935 12 – (14) (233) (310) 3,390 16 – (99) 44 3,351 2,415 209 52 (8) (217) (191) 2,260 184 (93) 33 2,384 6,754 17 – (15) (233) (598) 5,925 27 – (99) 129 5,982 2,725 364 59 (9) (217) (225) 2,697 345 (93) 45 2,994 2,098 2,021 1,130 967 3,228 2,988 940 – 179 (20) 21 (78) 1,042 – 230 (77) 9 1,204 565 139 – (20) 2 (48) 638 158 (64) 3 735 404 469 Total £m 7,694 17 179 (35) (212) (676) 6,967 27 230 (176) 138 7,186 3,290 503 59 (29) (215) (273) 3,335 503 (157) 48 3,729 3,632 3,457 Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trade marks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); and content, software and other intangible assets (e.g. 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 £619m (2009: £698m) 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 £368m (2009: £356m) 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 14. Impairment charges in 2009 comprise amounts of £10m in Reed Exhibitions, and £49m in Reed Business Information’s US and International businesses. 114 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 114 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 16 Investments Investments in joint ventures Available for sale investments Venture capital investments held for trading Total Combined ﬁnancial statements 2010 £m 136 10 38 184 2009 £m 135 9 32 176 The value of £12m (2009: £11m) 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 Disposals Exchange translation differences At end of year 2010 £m 135 22 (24) (1) 4 136 2009 £m 145 15 (23) – (2) 135 Share of results of joint ventures includes impairment charges of nil (2009: £8m) in respect of minor joint ventures in Reed Exhibitions. The principal joint ventures at 31 December 2010 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 2010 £m 235 46 264 (132) 132 2009 £m 246 51 284 (152) 132 2010 £m 116 22 122 (62) 60 76 136 2009 £m 118 15 133 (73) 60 75 135 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 115 3/3/11 13:33:42 Annual Reports and Financial Statements 2010 Reed Elsevier 115 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 17 Property, plant and equipment 2010 Land and buildings £m Fixtures and equipment £m Land and buildings £m 2009 Fixtures and equipment £m Cost At start of year 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 Net book amount 238 7 (5) – 6 246 106 (5) – 12 2 115 131 Total £m 864 85 (146) – 21 824 572 (132) – 79 14 533 259 10 (8) – (23) 238 106 (2) – 12 (10) 106 626 78 (141) – 15 578 466 (127) – 67 12 418 160 291 132 Total £m 903 78 (62) 18 (73) 864 574 (52) 12 84 (46) 572 292 644 68 (54) 18 (50) 626 468 (50) 12 72 (36) 466 160 No depreciation is provided on freehold land of £48m (2009: £50m). The net book amount of property, plant and equipment at 31 December 2010 includes £2m (2009: £4m) in respect of assets held under finance leases relating to fixtures and equipment. 116 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 116 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 18 Financial instruments Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments and capital management are set out on pages 48 and 49 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 2010 Borrowings Fixed rate borrowings Floating rate borrowings Carrying amount £m Within 1 year £m (3,711) (591) (370) (383) Derivative financial liabilities Interest rate derivatives Cross currency interest rate swaps Forward foreign exchange contracts (25) – (55) (19) (5) (1,283) Derivative financial assets Interest rate derivatives Cross currency interest rate swaps Forward foreign exchange contracts Total 19 100 15 15 14 1,262 (4,248) (769) At 31 December 2009 Borrowings Fixed rate borrowings Floating rate borrowings Derivative financial liabilities Interest rate derivatives Cross currency interest rate swaps Forward foreign exchange contracts Derivative financial assets Interest rate derivatives Cross currency interest rate swaps Forward foreign exchange contracts Total Carrying amount £m (3,824) (882) (45) – (57) 3 54 14 (4,737) Within 1 year £m (252) (673) (28) (6) (907) 15 12 875 (964) 1-2 years £m (558) (53) (8) (7) (413) 10 14 401 (614) 1-2 years £m (592) (4) (12) (10) (378) 5 13 374 (604) Contractual cash flow 2-3 years £m (833) (6) (2) (179) (154) 20 209 154 (791) 3-4 years £m (865) (99) – (190) (32) – 248 33 (905) Contractual cash flow 2-3 years £m (542) (115) (5) (14) (165) – 15 166 (660) 3-4 years £m (837) (4) (3) (183) – 16 192 – (819) 4-5 years £m More than 5 years £m Total £m (246) (67) (2,210) (5) (5,082) (613) (1) – – – – – (6) – – – – – (36) (381) (1,882) 45 485 1,850 (314) (2,221) (5,614) 4-5 years £m (815) (100) (4) (184) – – 217 – More than 5 years £m Total £m (2,409) (5) (5,447) (901) (12) – – – – – (64) (397) (1,450) 36 449 1,415 (886) (2,426) (6,359) O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 117 1/3/11 10:38:39 Annual Reports and Financial Statements 2010 Reed Elsevier 117 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 18 Financial instruments continued The carrying amount of derivative financial liabilities comprises nil (2009: £9m) in relation to fair value hedges, £68m (2009: £67m) in relation to cash flow hedges and £12m (2009: £26m) held for trading. The carrying amount of derivative financial assets comprises £105m (2009: £50m) in relation to fair value hedges, £12m (2009: £12m) in relation to cash flow hedges and £17m (2009: £9m) 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 2010, Reed Elsevier had access to a $2,000m committed bank facility maturing in June 2013, which was undrawn. After taking account of the maturity of committed bank facilities that back short term borrowings at 31 December 2010, and after utilising available cash resources, no borrowings mature within two years (2009: nil), 23% of borrowings mature in the third year (2009: 19%), 27% in the fourth and fifth years (2009: 35%), 39% in the sixth to tenth years (2009: 36%), and 11% beyond the tenth year (2009: 10%). 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 2010, 73% of gross 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 £3m (2009: £4m), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at 31 December 2010. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £3m (2009: £4m). The impact on net equity of a theoretical change in interest rates as at 31 December 2010 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 £8m (2009: £14m) and a 100 basis point increase in interest rates would increase net equity by an estimated £9m (2009: £15m). 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 24). A theoretical weakening of all currencies by 10% against sterling at 31 December 2010 would decrease the carrying value of net assets, excluding net borrowings, by £457m (2009: £466m). This would be offset to a large degree by a decrease in net borrowings of £270m (2009: £321m). A strengthening of all currencies by 10% against sterling at 31 December 2010 would increase the carrying value of net assets, excluding net borrowings, by £570m (2009: £581m) and increase net borrowings by £329m (2009: £392m). 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 £51m (2009: £17m). A 10% strengthening of all foreign currencies against sterling on this basis would increase net profit for the year by £62m (2009: £20m). 118 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 118 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements 18 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/A2 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 £241m (2009: £248m); past due two to three months £58m (2009: £66m); past due four to six months £16m (2009: £25m); and past due greater than six months £5m (2009: nil). 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 creditworthiness 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 £1,093m (2009: £1,104m) were in place at 31 December 2010 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 119 1/3/11 10:38:39 Annual Reports and Financial Statements 2010 Reed Elsevier 119 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 18 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 2010 were as follows: Gains/(losses) on borrowings and related derivatives GBP debt Related interest rate swaps EUR debt Related interest rate swaps CHF debt Related CHF to USD cross currency interest rate swaps Total GBP, EUR and CHF debt Total related interest rate derivatives Net gain 1 January 2009 £m Fair value movement gain/(loss) £m Exchange gain/(loss) £m Fair value 1 January movement gain/(loss) £m 2010 £m Exchange 31 December 2010 gain/(loss) £m £m – – – – – – (41) 41 – (41) 41 – 9 (9) – (2) 2 – (11) 11 – (4) 4 – – – – – – – 4 (4) – 4 (4) – 9 (9) – (2) 2 – (48) 48 – (41) 41 – (16) 16 – (10) 10 – (37) 37 – (63) 63 – – – – – – – (1) 1 – (1) 1 – (7) 7 – (12) 12 – (86) 86 – (105) 105 – All fair value hedges were highly effective throughout the two years ended 31 December 2010. Gross borrowings as at 31 December 2010 included £51m (2009: £59m) 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. £10m (2009: £11m) 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 2009 and 2010, including gains and losses on cash flow hedging instruments, were as follows: Hedge reserve at 1 January 2009: losses deferred (Losses)/gains arising in 2009 Amounts recognised in income statement Exchange translation differences Hedge reserve at 1 January 2010: losses deferred Losses arising in 2010 Amounts recognised in income statement Exchange translation differences Hedge reserve at 31 December 2010: losses deferred Interest rate hedges £m Foreign exchange hedges £m Total hedge reserve pre-tax £m (80) (11) 46 7 (38) (15) 26 (2) (29) (176) 64 58 3 (51) (43) 35 – (59) (256) 53 104 10 (89) (58) 61 (2) (88) All cash flow hedges were highly effective throughout the two years ended 31 December 2010. A tax credit of £21m (2009: £24m) in respect of the above gains and losses at 31 December 2010 was also deferred in the hedge reserve. 120 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 120 1/3/11 10:38:39 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 Combined ﬁnancial statements O v e r v e w i 18 Financial instruments continued Of the amounts recognised in the income statement in the year, losses of £35m (2009: £58m) were recognised in revenue, and losses of £26m (2009: £46m) were recognised in finance costs. A tax credit of £15m (2009: £20m) was recognised in relation to these items. The deferred losses on cash flow hedges at 31 December 2010 are currently expected to be recognised in the income statement in future years as follows: 2011 2012 2013 2014 2015 Losses deferred in hedge reserve at end of year Interest rate hedges £m Foreign exchange hedges £m Total hedge reserve pre-tax £m O u r b u s n e s s i (14) (12) (3) – – (29) (35) (15) (8) (1) – (59) (49) (27) (11) (1) – (88) 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. 19 Deferred tax Deferred tax assets Deferred tax liabilities Total 2010 £m 151 (1,192) (1,041) 2009 £m 208 (1,272) (1,064) 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 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 1 January 2010 Credit/(charge) to profit Credit/(charge) to equity Transfers Acquisitions Exchange translation differences Deferred tax (liability)/asset at 31 December 2010 (219) (20) – – – 23 (216) 2 – – – (9) (1,239) 118 – – (1) 115 (1,007) 100 – – (9) (28) (223) (944) Pensions Excess of Other amortisation over tax assets differences allowances £m temporary £m £m (44) (4) 17 – – – (31) (7) 23 – – – (15) (23) 4 – – – 1 (18) 1 7 – – – (10) 10 19 – – – (2) 27 (14) – – – – 13 Tax losses carried forward £m Other Pensions temporary liabilities differences £m £m 6 3 – – – – 9 4 – – – – 190 (24) (27) – – (17) 122 (40) (7) – – 3 147 (56) (15) (20) – (6) 50 – 6 (11) – 2 Total £m (1,172) 40 (25) (20) (1) 114 (1,064) 46 29 (11) (9) (32) 13 78 47 (1,041) i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 121 1/3/11 10:38:40 Annual Reports and Financial Statements 2010 Reed Elsevier 121 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 20 Inventories and pre-publication costs Raw materials Pre-publication costs Finished goods Total 21 Trade and other receivables Trade receivables Allowance for doubtful debts Prepayments and accrued income Total 2010 £m 6 130 92 228 2010 £m 1,361 (73) 1,288 187 1,475 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 Exchange translation differences At end of year 2010 £m 80 15 (22) – 73 2009 £m 9 168 98 275 2009 £m 1,367 (80) 1,287 205 1,492 2009 £m 77 33 (24) (6) 80 22 Assets and liabilities held for sale The major classes of assets and liabilities of operations classified as held for sale are as follows: Trade and other receivables Total assets held for sale Trade and other payables Total liabilities associated with assets held for sale 2010 £m 2009 £m – – – – 5 5 5 5 Assets held for sale as at 31 December 2009 related to Reed Business Information’s US controlled circulation and other titles. 122 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 122 1/3/11 10:38:40 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 23 Trade and other payables Payables and accruals Deferred income Total 24 Borrowings Combined ﬁnancial statements O v e r v e w i O u r b u s n e s s i 2010 £m 1,276 1,308 2,584 2009 £m 1,251 1,220 2,471 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 £m 2010 Falling due in more than 1 year £m 379 7 130 – – 516 – 15 1,944 1,198 629 3,786 Falling due within 1 year £m 2009 Falling due in more than 1 year £m 515 7 156 – – 678 – 20 2,247 1,144 617 4,028 Total £m 379 22 2,074 1,198 629 4,302 Total £m 515 27 2,403 1,144 617 4,706 The total fair value of financial liabilities measured at amortised cost is £2,796m (2009: £3,262m). The total fair value of other loans in fair value hedging relationships is £1,279m (2009: £1,257m). The total fair value of other loans previously in fair value hedging relationships is £685m (2009: £646m). Analysis by year of repayment 2010 2009 Short term bank loans, overdrafts and commercial paper £m 379 – – – – – – 379 Other loans £m 130 382 636 825 188 1,740 3,771 3,901 Finance leases £m 7 7 8 – – – 15 22 Short term bank loans, overdrafts and commercial paper £m 515 – – – – – – 515 Total £m 516 389 644 825 188 1,740 3,786 4,302 Other loans £m 156 342 431 633 779 1,823 4,008 4,164 Finance leases £m 7 7 6 7 – – 20 27 Total £m 678 349 437 640 779 1,823 4,028 4,706 Within 1 year Within 1 to 2 years Within 2 to 3 years Within 3 to 4 years Within 4 to 5 years After 5 years Total Short term bank loans, overdrafts and commercial paper were backed up at 31 December 2010 by a $2,000m (£1,283m) committed bank facility maturing in June 2013, which was undrawn. i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 123 1/3/11 10:38:40 Annual Reports and Financial Statements 2010 Reed Elsevier 123 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 24 Borrowings continued Analysis by currency 2010 2009 Short term bank loans, overdrafts and commercial paper £m 225 – 123 31 379 Other loans £m 2,566 707 628 – 3,901 Finance leases £m 22 – – – 22 Short term bank loans, overdrafts and commercial paper £m 371 – 117 27 515 Total £m 2,813 707 751 31 4,302 Other loans £m 2,828 691 645 – 4,164 Finance leases £m 27 – – – 27 Total £m 3,226 691 762 27 4,706 US Dollars £ Sterling Euro Other currencies Total Included in the US dollar amounts for other loans above is £364m (2009: £316m) of debt denominated in Swiss francs (CHF 500m; 2009: CHF 500m) that was swapped into US dollars on issuance and against which there are related derivative financial instruments, which, as at 31 December 2010, had a fair value of £86m (2009: £48m). 25 Lease arrangements Finance leases At 31 December 2010 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 The fair value of the lease obligations approximates to their carrying amount. 2010 £m 2009 £m 8 17 25 (3) 22 7 15 22 7 23 30 (3) 27 7 20 27 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 2010 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, £609m (2009: £677m) relate to land and buildings. 2010 £m 128 306 208 642 2009 £m 140 354 229 723 124 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 124 1/3/11 10:38:40 Combined ﬁnancial statements Notes to the combined ﬁnancial statements for the year ended 31 December 2010 25 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 26 Provisions At start of year Charged Utilised Exchange translation differences At end of year 2010 £m 17 25 5 47 2010 Property Restructuring £m £m 89 36 (22) 2 105 106 31 (82) (1) 54 Total £m 195 67 (104) 1 159 2009 Property £m Restructuring £m 45 70 (20) (6) 89 69 157 (114) (6) 106 2009 £m 17 36 7 60 Total £m 114 227 (134) (12) 195 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 at 31 December 2010 principally relate to Reed Business Information. At 31 December 2010 provisions are included within current and non-current liabilities as follows: Current liabilities Non-current liabilities Total 27 Contingent liabilities and capital commitments There are contingent liabilities amounting to £10m (2009: £22m) in respect of property lease guarantees. 28 Combined share capitals At start of year Issue of ordinary shares Exchange translation differences At end of year 2010 £m 71 88 159 2010 £m 225 – (1) 224 2009 £m 134 61 195 2009 £m 209 20 (4) 225 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 (cid:56)7.08 per share for net proceeds of (cid:56)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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 125 1/3/11 10:38:40 Annual Reports and Financial Statements 2010 Reed Elsevier 125 Notes to the combined ﬁnancial statements for the year ended 31 December 2010 29 Combined share premiums At start of year Issue of ordinary shares, net of expenses Exchange translation differences At end of year 2010 £m 2,807 11 (64) 2,754 2009 £m 2,529 395 (117) 2,807 Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC. 30 Combined shares held in treasury At 1 January 2009 Settlement of share awards Exchange translation differences At 1 January 2010 Settlement of share awards Exchange translation differences At 31 December 2010 Shares held by EBT £m Shares held by parent companies £m 232 (57) – 175 (9) – 166 551 – (28) 523 – (12) 511 Total £m 783 (57) (28) 698 (9) (12) 677 At 31 December 2010, shares held in treasury related to 14,654,161 (2009: 15,350,605) Reed Elsevier PLC ordinary shares and 7,781,790 (2009: 8,219,196) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT); and 34,196,298 (2009: 34,196,298) Reed Elsevier PLC ordinary shares and 23,952,791 (2009: 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. 31 Translation reserve At start of year Exchange differences on translation of foreign operations Exchange translation differences on capital and reserves At end of year 2010 £m (100) 94 35 29 2009 £m (14) (122) 36 (100) 126 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 126 1/3/11 10:38:40 Combined ﬁnancial statements Notes to the combined ﬁnancial statements for the year ended 31 December 2010 32 Other combined reserves At start of year Profit attributable to parent companies’ shareholders Dividends paid Issue of ordinary shares, net of expenses Actuarial (losses)/gains on defined benefit pension schemes Cumulative fair value movements on disposals of available for sale investments Fair value movements on cash flow hedges Tax recognised directly in equity (Decrease)/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 2010 £m Other reserves 2010 £m (65) – – – – – (58) 12 – – 46 (2) (67) (437) 642 (483) – (63) – – 17 (7) (9) – 20 (320) Total 2010 £m (502) 642 (483) – (63) – (58) 29 (7) (9) 46 18 (387) Total 2009 £m (988) 391 (457) 419 6 1 53 (25) 17 (60) 84 57 (502) Other reserves principally comprise retained earnings, the share based remuneration reserve and available for sale investment reserve. 33 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 £1m (2009: £2m). As at 31 December 2010, amounts owed by joint ventures were £2m (2009: £4m). 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 34 Exchange rates The following exchange rates have been applied in preparing the combined financial statements: 2010 £m 2009 £m 5 1 – (1) 5 6 1 1 1 9 Euro to sterling US dollars to sterling 35 Approval of financial statements Income statement Statement of financial position 2010 1.17 1.55 2009 1.12 1.57 2010 1.17 1.56 2009 1.12 1.62 The combined financial statements were approved and authorised for issue by the Boards of directors of Reed Elsevier PLC and Reed Elsevier NV on 16 February 2011. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p085-128.indd 127 1/3/11 10:38:40 Annual Reports and Financial Statements 2010 Reed Elsevier 127 Independent auditors’ report to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV 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 2010 (“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 35. 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. 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 auditor’s 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 the preparation of 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 they determine is 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 and express an opinion on 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, including the Dutch Standards on Auditing. Those standards require us to comply with our respective professions’ ethical requirements, including the Auditing Practices Board’s Ethical Standards for Auditors. The procedures selected depend on the auditor’s 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 state of the combined businesses’ affairs as at 31 December 2010 and of its profit for the year then ended; and > have been properly prepared in accordance with IFRSs as adopted by the European Union Other matter 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 160 and 182. Douglas King (Senior statutory auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 16 February 2011 A Sandler Deloitte Accountants B.V. Amsterdam The Netherlands 16 February 2011 128 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p085-128.indd 128 1/3/11 10:38:40 Summary combined ﬁnancial information in euros 130 Combined income statement 130 Combined statement of comprehensive income 131 Combined statement of cash ﬂows 132 Combined statement of ﬁnancial position 133 Combined statement of changes in equity 134 Notes to the summary combined ﬁnancial information in euros O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 129 1/3/11 10:37:16 Annual Reports and Financial Statements 2010 Reed Elsevier 129 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 34 to the combined financial statements, except for significant transactions which are translated at the relevant spot rate. Combined income statement Note 1 1 For the year ended 31 December Revenue 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 Finance income Finance costs Net finance costs Disposals and other non operating items Profit before tax Taxation 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 Actuarial (losses)/gains on defined benefit pension schemes 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 for the year Total comprehensive income for the year Attributable to: Parent companies’ shareholders Non-controlling interests Total recognised income for the year 130 Reed Elsevier Annual Reports and Financial Statements 2010 2010 (cid:19)m 7,084 (2,584) 4,500 (1,276) (1,974) 1,250 25 1,275 9 (332) (323) (54) 898 (140) 758 751 7 758 2010 (cid:19)m 758 196 (74) – (68) 54 34 142 900 893 7 900 2009 (cid:56)m 6,800 (2,523) 4,277 (1,246) (2,167) 864 17 881 8 (334) (326) (68) 487 (45) 442 438 4 442 2009 (cid:56)m 442 (50) 7 1 59 94 (28) 83 525 521 4 525 47213_Text_p129-141.indd 130 1/3/11 10:37:16 Combined statement of cash ﬂows Summary combined ﬁnancial information in euros For the year ended 31 December Cash flows from operating activities Cash generated from operations Interest paid Interest received Tax paid (net) Net cash from operating activities Cash flows from investing activities 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 proceeds/(costs) from other disposals Dividends received from joint ventures Net cash used in investing activities Cash flows from financing activities Dividends paid to shareholders of the parent companies Distributions to non-controlling interests (Decrease)/increase in short term bank loans, overdrafts and commercial paper Issuance of other loans Repayment of other loans Repayment of finance leases Proceeds on issue of ordinary shares Net cash used in financing activities Note 4 4 2010 (cid:19)m 1,929 (345) 9 (10) 1,583 (58) (97) (267) (6) 8 7 28 (385) (565) (9) (168) – (461) (8) 13 (1,198) 2009 (cid:56)m 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) Increase in cash and cash equivalents 4 – 337 Movement in cash and cash equivalents At start of year Increase in cash and cash equivalents Exchange translation differences At end of year 822 – 46 868 386 337 99 822 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 131 1/3/11 10:37:16 Annual Reports and Financial Statements 2010 Reed Elsevier 131 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 Note 2 4 5 6 5 2 6 7 8 9 10 2010 (cid:19)m 5,196 4,045 159 56 341 64 177 10,038 267 1,725 157 868 3,017 – 2009 (cid:56)m 4,860 4,068 151 46 327 123 233 9,808 308 1,671 79 822 2,880 6 13,055 12,694 3,023 94 604 755 83 4,559 4,430 1,395 263 103 6,191 – 2,768 114 759 536 150 4,327 4,511 1,425 386 69 6,391 6 10,750 2,305 10,724 1,970 262 3,222 (792) 229 (648) 2,273 32 2,305 252 3,144 (782) 79 (753) 1,940 30 1,970 132 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p129-141.indd 132 1/3/11 10:37:16 Combined statement of changes in equity Summary combined ﬁnancial information in euros Combined share capitals (cid:19)m Combined share premiums (cid:19)m Combined shares held in treasury (cid:19)m Translation reserve (cid:19)m Other Combined combined shareholders’ equity (cid:19)m reserves (cid:19)m Balance at 1 January 2010 Total comprehensive income for the year Dividends paid Issue of ordinary shares, net of expenses Decrease in share based remuneration reserve Settlement of share awards Exchange differences on translation of capital and reserves Balance at 31 December 2010 Balance at 1 January 2009 Total comprehensive income for the year Dividends paid 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 31 December 2009 252 3,144 (782) – – – – – 10 262 215 – – 22 – – 15 252 – – 13 – – – – – – 11 65 3,222 (21) (792) 2,605 (806) – – 442 – – – – – – 64 97 3,144 (40) (782) 79 196 – – – – (46) 229 174 (50) – – – – (45) 79 (753) 1,940 697 (565) – (8) (11) (8) (648) (1,207) 571 (512) 470 19 (67) (27) (753) 893 (565) 13 (8) – – 2,273 981 521 (512) 934 19 (3) – 1,940 Non- controlling interests (cid:19)m 30 7 (9) – – – 4 32 29 4 (3) – – – – 30 Total equity (cid:19)m 1,970 900 (574) 13 (8) – 4 2,305 1,010 525 (515) 934 19 (3) – 1,970 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 133 1/3/11 10:37:16 Annual Reports and Financial Statements 2010 Reed Elsevier 133 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 Revenue Operating profit Adjusted operating profit 2010 (cid:19)m 2,370 3,063 811 840 7,084 – – 7,084 2009 (cid:56)m 2,223 2,864 715 998 6,800 – – 6,800 2010 (cid:19)m 757 379 149 – 1,285 (40) 30 1,275 2009 (cid:56)m 631 377 88 (183) 913 (39) 7 881 2010 (cid:19)m 847 693 185 104 1,829 (40) 30 1,819 2009 (cid:56)m 776 745 170 99 1,790 (39) 7 1,758 Revenue is analysed before the (cid:56)136m (2009: (cid:56)132m) share of joint ventures’ revenue, of which (cid:56)28m (2009: (cid:56)28m) relates to LexisNexis, principally to Giuffrè, (cid:56)104m (2009: (cid:56)101m) relates to Reed Exhibitions, principally to exhibition joint ventures, and (cid:56)4m (2009: (cid:56)3m) relates to Reed Business Information. Share of post-tax results of joint ventures of (cid:56)25m (2009: (cid:56)17m) included in operating profit comprises (cid:56)5m (2009: (cid:56)5m) relating to LexisNexis, (cid:56)19m (2009: (cid:56)11m) relating to Reed Exhibitions and (cid:56)1m (2009: (cid:56)1m) relating to Reed Business Information. The unallocated net pension credit of (cid:56)30m (2009: (cid:56)7m) comprises the expected return on pension scheme assets of (cid:56)254m (2009: (cid:56)212m) less interest on pension scheme liabilities of (cid:56)224m (2009: (cid:56)205m). Analysis of revenue by geographical origin North America United Kingdom The Netherlands Rest of Europe Rest of world Total 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 2010 (cid:19)m 3,759 1,061 726 965 573 7,084 2010 (cid:19)m 3,864 573 239 1,323 1,085 7,084 2010 (cid:19)m 3,170 2,059 574 790 491 7,084 2009 (cid:56)m 3,615 1,005 742 953 485 6,800 2009 (cid:56)m 3,707 575 272 1,268 978 6,800 2009 (cid:56)m 3,037 1,913 655 701 494 6,800 134 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p129-141.indd 134 1/3/11 10:37:16 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 Depreciation and other amortisation 2010 (cid:19)m 15 41 7 1 64 2009 (cid:56)m 5 8 13 – 26 2010 (cid:19)m 95 246 14 14 369 2009 (cid:56)m 86 168 13 21 288 2010 (cid:19)m 88 258 27 35 408 2009 (cid:56)m 87 259 70 194 610 2010 (cid:19)m 87 144 16 30 277 2009 (cid:56)m 90 120 8 32 250 Business segment Elsevier LexisNexis Reed Exhibitions Reed Business Information 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 (cid:56)4m (2009: (cid:56)13m) in Reed Exhibitions. Other than the depreciation, amortisation and impairment above, non cash items include (cid:56)8m credit (2009: (cid:56)19m charge) relating to the recognition of share based remuneration and comprise (cid:56)2m credit (2009: (cid:56)5m charge) in Elsevier, (cid:56)1m charge (2009: (cid:56)8m charge) in LexisNexis, (cid:56)1m credit (2009: (cid:56)2m charge) in Reed Exhibitions, (cid:56)4m credit (2009: (cid:56)2m charge) in Reed Business Information and (cid:56)2m credit (2009: (cid:56)2m charge) in Corporate. Total assets 2010 (cid:19)m 2009 (cid:56)m O v e r v e w i O u r b u s n e s s i i F n a n c a i Business segment Elsevier LexisNexis Reed Exhibitions Reed Business Information Sub-total Taxation Cash and cash equivalents 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 3,359 6,928 797 533 11,617 177 868 64 – 329 13,055 8,840 1,092 999 1,587 537 l r e v e w i G o v e r n a n c e 3,265 6,576 815 613 11,269 233 822 123 6 241 12,694 8,478 1,304 769 1,685 458 13,055 12,694 Investments in joint ventures of (cid:56)159m (2009: (cid:56)151m) included in segment assets above comprise (cid:56)44m (2009: (cid:56)42m) relating to LexisNexis, (cid:56)108m (2009: (cid:56)103m) relating to Reed Exhibitions and (cid:56)7m (2009: (cid:56)6m) relating to Reed Business Information. i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 135 1/3/11 10:37:16 Annual Reports and Financial Statements 2010 Reed Elsevier 135 Notes to the summary combined ﬁnancial information in euros 2 Pension schemes The pension expense recognised within the income statement comprises: Service cost (including curtailment credits of (cid:56)20m (2009: (cid:56)48m)) Interest on pension scheme liabilities Expected return on scheme assets Net defined benefit pension expense Defined contribution pension expense Total pension expense 2010 (cid:19)m 56 224 (254) 26 37 63 2009 (cid:56)m 27 205 (212) 20 27 47 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 Exchange translation differences At end of year Defined benefit obligations (cid:19)m 2010 Fair value of scheme assets (cid:19)m Net pension obligations (cid:19)m Defined benefit obligations (cid:56)m 2009 Fair value of scheme assets (cid:56)m Net pension obligations (cid:56)m (3,698) (56) (224) – (306) – (13) 163 (168) (4,302) 3,435 – – 254 232 180 13 (163) 152 4,103 (263) (56) (224) 254 (74) 180 – – (16) (199) (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) The net pension obligations of (cid:56)199m (2009: (cid:56)263m) at 31 December 2010 comprise schemes in deficit with net pension obligations of (cid:56)263m (2009: (cid:56)386m) and schemes in surplus with net pension assets of (cid:56)64m (2009: (cid:56)123m). As at 31 December 2010 the defined benefit obligations comprise (cid:56)4,131m (2009: (cid:56)3,553m) in relation to funded schemes and (cid:56)171m (2009: (cid:56)145m) in relation to unfunded schemes. 136 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p129-141.indd 136 1/3/11 10:37:16 Summary combined ﬁnancial information in euros Notes to the summary combined ﬁnancial information in euros 3 Adjusted figures Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposal gains and loses 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 and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. Adjusted operating profit is also grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs in 2010 relate to the restructuring of the Reed Business Information business and in 2009 relate to the exceptional restructuring programmes across Reed Elsevier. Acquisition related costs relate to acquisition integration and, from 2010, professional and other transaction related fees and adjustments to deferred and contingent consideration. 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. O v e r v e w i O u r b u s n e s s i Operating profit 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 Profit before tax 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 Profit attributable to parent companies’ shareholders 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 2010 (cid:19)m 1,275 408 – 67 58 11 2009 (cid:56)m 881 412 198 204 54 9 1,819 1,758 898 408 – 67 58 11 54 487 412 198 204 54 9 68 1,496 1,432 751 394 – 44 35 43 (117) 438 460 152 149 37 (25) (112) Adjusted profit attributable to parent companies’ shareholders 1,150 1,099 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 1,929 28 (97) 8 (267) 116 60 1,777 1,796 26 (87) 4 (184) 139 51 1,745 i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 137 1/3/11 10:37:16 Annual Reports and Financial Statements 2010 Reed Elsevier 137 Notes to the summary combined ﬁnancial information in euros 4 Statement of cash flows Reconciliation of operating profit before joint ventures to cash generated from 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 in receivables Decrease in payables Decrease in working capital Cash generated from operations Cash flow on acquisitions Purchase of businesses Payment of ChoicePoint change of control and other non operating payables assumed Deferred payments relating to prior year acquisitions Total 2010 (cid:19)m 1,250 404 185 92 (8) 673 40 28 (62) 6 2009 (cid:56)m 864 597 156 94 19 866 53 125 (112) 66 1,929 1,796 2010 (cid:19)m (44) (8) (6) (58) 2009 (cid:56)m (10) (63) (33) (106) Reconciliation of net borrowings At start of year Increase in cash and cash equivalents Net movement in short term bank loans, overdrafts and commercial paper Issuance of other loans Repayment of other loans Repayment of finance leases Change in net borrowings resulting from cash flows Inception of finance leases Fair value adjustments to borrowings and related derivatives Exchange translation differences Cash & cash equivalents (cid:19)m Borrowings (cid:19)m Related derivative financial instruments (cid:19)m 2010 (cid:19)m 2009 (cid:56)m 822 (5,270) 46 (4,402) (5,898) – – – – – – – – 46 – 168 – 461 8 637 (2) (61) (338) – – – – – – – 74 3 – 168 – 461 8 637 (2) 13 (289) 337 (120) (2,024) 3,206 2 1,401 (29) 12 112 At end of year 868 (5,034) 123 (4,043) (4,402) 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 (cid:56)5m (2009: (cid:56)6m) held in trust to satisfy liabilities in respect of change of control obligations related to the acquisition of ChoicePoint. 138 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p129-141.indd 138 1/3/11 10:37:16 Summary combined ﬁnancial information in euros Notes to the summary combined ﬁnancial information in euros 5 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 (cid:19)m 2010 Falling due in more than 1 year (cid:19)m 444 8 152 – – 604 – 18 2,274 1,402 736 4,430 Falling due within 1 year (cid:56)m 2009 Falling due in more than 1 year (cid:56)m 577 8 174 – – 759 – 22 2,517 1,281 691 4,511 Total (cid:19)m 444 26 2,426 1,402 736 5,034 Total (cid:56)m 577 30 2,691 1,281 691 5,270 The total fair value of financial liabilities measured at amortised cost is (cid:56)3,271m (2009: (cid:56)3,653m). The total fair value of other loans in fair value hedging relationships is (cid:56)1,496m (2009: (cid:56)1,408m). The total fair value of other loans previously in fair value hedging relationships is (cid:56)801m (2009: (cid:56)724m). Analysis by year of repayment 2010 2009 Short term bank loans, overdrafts and commercial paper (cid:19)m 444 – – – – – – 444 Other loans (cid:19)m 152 447 744 965 220 2,036 4,412 4,564 Finance leases (cid:19)m 8 8 10 – – – 18 26 Short term bank loans, overdrafts and commercial paper (cid:56)m 577 – – – – – – 577 Total (cid:19)m 604 455 754 965 220 2,036 4,430 5,034 Other loans (cid:56)m 174 383 483 709 872 2,042 4,489 4,663 Finance leases (cid:56)m 8 7 7 8 – – 22 30 Total (cid:56)m 759 390 490 717 872 2,042 4,511 5,270 Within 1 year Within 1 to 2 years Within 2 to 3 years Within 3 to 4 years Within 4 to 5 years After 5 years Total Short term bank loans, overdrafts and commercial paper were backed up at 31 December 2010 by a $2,000m ((cid:56)1,501m) committed bank facility maturing in June 2013, which was undrawn. Analysis by currency 2010 2009 Short term bank loans, overdrafts and commercial paper (cid:19)m 263 – 144 37 444 Other loans (cid:19)m 3,002 827 735 – 4,564 Finance leases (cid:19)m 26 – – – 26 Short term bank loans, overdrafts and commercial paper (cid:56)m 416 – 131 30 577 Total (cid:19)m 3,291 827 879 37 5,034 Other loans (cid:56)m 3,167 774 722 – 4,663 Finance leases (cid:56)m 30 – – – 30 Total (cid:56)m 3,613 774 853 30 5,270 US Dollars £ Sterling Euro Other currencies Total Included in the US dollar amounts for other loans above is (cid:56)425m (2009: (cid:56)354m) of debt denominated in Swiss francs (CHF 500m; 2009: CHF 500m) that was swapped into US dollars on issuance and against which there are related derivative financial instruments which, as at 31 December 2010, had a fair value of (cid:56)100m (2009: (cid:56)53m). O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 139 1/3/11 10:37:17 Annual Reports and Financial Statements 2010 Reed Elsevier 139 Notes to the summary combined ﬁnancial information in euros 6 Provisions At start of year Charged Utilised Exchange translation differences At end of year 2010 Property Restructuring (cid:19)m (cid:19)m 99 42 (26) 8 123 120 36 (96) 3 63 Total (cid:19)m 219 78 (122) 11 186 2009 Property (cid:56)m Restructuring (cid:56)m 46 78 (22) (3) 99 71 176 (128) 1 120 Total (cid:56)m 117 254 (150) (2) 219 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 at 31 December 2010 principally relate to Reed Business Information. At 31 December 2010 provisions are included within current and non-current liabilities as follows: Current liabilities Non-current liabilities Total 7 Combined share capitals At start of year Issue of ordinary shares Exchange translation differences At end of year 2010 (cid:19)m 83 103 186 2010 (cid:19)m 252 – 10 262 2009 (cid:56)m 150 69 219 2009 (cid:56)m 215 22 15 252 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 issued 63,030,989 new ordinary shares at (cid:56)7.08 per share for net proceeds of (cid:56)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. 8 Combined share premiums At start of year Issue of ordinary shares, net of expenses Exchange translation differences At end of year 2010 (cid:19)m 3,144 13 65 3,222 2009 (cid:56)m 2,605 442 97 3,144 Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC. 140 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p129-141.indd 140 1/3/11 10:37:17 Summary combined ﬁnancial information in euros Notes to the summary combined ﬁnancial information in euros 9 Combined shares held in treasury At 1 January 2009 Settlement of share awards Exchange translation differences At 1 January 2010 Settlement of share awards Exchange translation differences At 31 December 2010 10 Other combined reserves At start of year Profit attributable to parent companies’ shareholders Dividends paid Issue of ordinary shares, net of expenses Actuarial (losses)/gains on defined benefit pension schemes Cumulative fair value movements on disposal of available for sale investments Fair value movements on cash flow hedges Tax recognised directly in equity (Decrease)/increase in share based remuneration reserve Settlement of share awards Transfer from hedge reserve to net profit (net of tax) Exchange translation differences At end of year 11 Exchange rates Sterling to euro US dollars to euro Shares held by EBT (cid:19)m Shares held by parent companies (cid:19)m 239 (64) 21 196 (11) 9 194 Hedge reserve 2010 (cid:19)m Other reserves 2010 (cid:19)m (73) – – – – – (68) 14 – – 54 (6) (79) (680) 751 (565) – (74) – – 20 (8) (11) – (2) (569) 567 – 19 586 – 12 598 Total 2010 (cid:19)m (753) 751 (565) – (74) – (68) 34 (8) (11) 54 (8) (648) Total (cid:19)m 806 (64) 40 782 (11) 21 792 Total 2009 (cid:56)m (1,207) 438 (512) 470 7 1 59 (28) 19 (67) 94 (27) (753) Income statement Statement of financial position 2010 0.85 1.32 2009 0.89 1.40 2010 0.85 1.33 2009 0.89 1.44 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p129-141.indd 141 1/3/11 10:37:17 Annual Reports and Financial Statements 2010 Reed Elsevier 141 Reed Elsevier PLC annual report and ﬁnancial statements 143 Directors’ report 148 Consolidated ﬁnancial statements 152 Group accounting policies 153 Notes to the consolidated ﬁnancial statements 160 Independent auditors’ report on the consolidated ﬁnancial statements 161 Parent company ﬁnancial statements 162 Parent company accounting policies 162 Notes to the parent company ﬁnancial statements 163 Independent auditors’ report on the parent company ﬁnancial statements 164 5 year summary Company number: 77536 142 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 142 1/3/11 10:36:15 Directors’ report The directors present their report, together with the financial statements of the group and company, for the year ended 31 December 2010. 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 128. A review of the Reed Elsevier combined businesses and their performance in the year is set out on pages 8 to 37, a summary of the principal risks facing Reed Elsevier is set out on pages 50 to 52, and the Reed Elsevier statement on Corporate Responsibility is set out on pages 38 to 41. 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 £13m (2009: £12m), 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, disposal gains and losses and other non operating items, related tax effects and movements in deferred taxation assets and liabilities not expected to crystallise in the near term and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. Consolidated income statement Reed Elsevier PLC’s shareholders’ 52.9% share of the adjusted profit before tax of the Reed Elsevier combined businesses was £677m, the same as the 2009 level. 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 £328m (2009: £201m). The increase largely reflects the intangible asset and goodwill impairment charges in the prior year and lower exceptional restructuring spend in 2010 compared to the prior year. Elsevier saw continued growth although at a lower rate than the prior year due to a constrained customer budget environment. The LexisNexis risk business saw strong growth, driven by the insurance sector and the return to growth in more cyclical markets. The LexisNexis legal and professional businesses saw a small underlying revenue decline reflecting the impact on renewals and print product of the low levels of law firm activity and employment. Reed Exhibitions benefited from a net cycling in of biennial exhibitions and a return to growth in annual exhibitions in the second half of the year. Reed Business Information saw good growth in data services and online marketing solutions and significantly moderated declines in advertising markets, while the portfolio was reshaped through disposals and closures and costs significantly reduced. The adjusted operating margin declined 0.2 percentage points reflecting increased spend on product development, sales & marketing and infrastructure, largely offset by tight cost control and the incremental benefits from the earlier restructuring programmes. Reed Elsevier PLC’s shareholders’ share of the adjusted profit attributable of the combined businesses was £520m, up from £519m in 2009. 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 related costs, disposal gains and losses and other non operating items and deferred taxes not expected to crystallise in the near term, the reported net profit for the year was £327m, up from £195m in 2009. Adjusted earnings per share decreased 5% to 43.4p (2009: 45.9p). At constant rates of exchange, the adjusted earnings per share were 6% 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, disposal gains and losses and other non operating items, and tax adjustments, the basic earnings per share was 27.3p (2009: 17.2p). 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 2010 was £1,028m (2009: £916m). The £112m increase in net assets reflects the company’s share in the attributable profits of Reed Elsevier partially offset by dividends paid. Annual Reports and Financial Statements 2010 Reed Elsevier 143 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 143 2/3/11 22:45:01 Directors’ report continued Dividends The board is recommending an equalised final dividend of 15.0p per ordinary share, unchanged from the prior year. This gives total ordinary dividends for the year of 20.4p (2009: 20.4p), unchanged on 2009. The final dividend will be paid on 17 May 2011 to shareholders on the Register on 26 April 2011. Dividend cover, based on adjusted earnings per share and the total interim and proposed final dividends for the year, is 2.1 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 £245m (2009: £228m). Parent company financial statements The individual parent company financial statements of Reed Elsevier PLC are presented on pages 161 to 163, and are prepared under UK Generally Accepted Accounting Practice (UK GAAP). Parent company shareholders’ funds as at 31 December 2010 were £2,791m (2009: £2,444m). Corporate Governance The company has complied throughout the year with the provisions of the Combined Code on Corporate Governance issued in June 2008 (the “UK Code”). The UK Code is publicly available at www.frc.org.uk. 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. In May 2010 the Financial Reporting Council issued The UK Corporate Governance Code (“the New UK Code”), which replaces the UK Code for financial years beginning on or after 29 June 2010. The New UK Code will, therefore, apply in respect of the company’s financial year beginning 1 January 2011. 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 81 to 84. Directors The following served as directors of the company during the year: A J Habgood (Chairman) E Engstrom (Chief Executive Officer) M H Armour (Chief Financial Officer) M W Elliott L Hook R B Polet A Prozes (Retired 31 December 2010) D E Reid (senior independent director) Lord Sharman of Redlynch OBE B van der Veer 144 Reed Elsevier Annual Reports and Financial Statements 2010 Biographical details of the directors at the date of this report are given on pages 54 and 55. Directors are appointed in accordance with the Articles of Association, which provides that any director appointed during the year holds office only until the next following Annual General Meeting and is then eligible for election by the shareholders. The company’s Articles of Association provide that 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. The New UK Code, applicable in respect of the company’s financial year beginning 1 January 2011, recommends that all directors should seek re-election by shareholders annually. Accordingly, the board intends to implement this provision with effect from the Annual General Meeting to be held in April 2011. 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. Lord Sharman will retire as a director at the conclusion of the Annual General Meeting in April 2011, and will not seek re-election. In accordance with the provisions of the New UK Code, all other directors will retire from the board at the Annual General Meeting in 2011 and, being eligible, they will each offer themselves for re-election. Taking into account the assessment by the Corporate Governance Committee of the qualifications, performance and effectiveness of each individual director seeking re-election, the board has accepted a recommendation from the Nominations Committee that each director be proposed for re-election at the 2011 Annual General Meeting. The board, in conjunction with external recruitment consultants, has been conducting a search for a suitable candidate as a non-executive director and, on the recommendation of the Nominations Committee, Adrian Hennah will be proposed for appointment as a non-executive director of Reed Elsevier PLC and as a member of the Supervisory Board of Reed Elsevier NV at the Reed Elsevier PLC and Reed Elsevier NV Annual General Meetings in April 2011. Mr Hennah was appointed chief financial officer of Smith & Nephew plc in 2006. He has over 25 years’ experience in finance and operations in the medical devices, technology and pharmaceuticals industries, and will bring highly relevant experience to the board discussions. Subject to his appointment at the Annual General Meetings, he will also be appointed a non-executive director of Reed Elsevier Group plc and a member of the Audit Committees and of the Corporate Governance Committee. The notice period applicable to the service contracts of E Engstrom and M H Armour is 12 months. The remaining directors seeking re-appointment at the 2011 Annual General Meeting 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 80. 47213_Text_p142-164.indd 144 1/3/11 10:36:15 Directors’ report continued Reed Elsevier PLC 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. At the 2010 Annual General Meeting, shareholders passed a resolution authorising the directors to allot shares up to a nominal value of £9m, representing less than 5% of the company’s issued share capital. Since the 2010 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 2011 Annual General Meeting, and a resolution to further extend the authority will be submitted to the shareholders at the 2011 Annual General Meeting. During the year, 2,010,391 ordinary shares in the company were issued in order to satisfy entitlements under employee share plans as follows: Substantial share interests As at 16 February 2011, the company had been notified by the following shareholders that they held an interest of 3% or more in voting rights of the issued share capital of the company: > Legal & General Group plc > Silchester International Investors Limited 4.30% 3.03% The percentage interests stated above are as disclosed at the date on which the interests were notified to the company. In addition to the interests noted above, the company is aware that as at the year end Scottish Widows Investment Partnership held, approximately, a 4.83% shareholding in the company and BlackRock Group held, approximately, a 4.22% shareholding in the company. Employee benefit trust The Trustee of the Reed Elsevier Group plc Employee Benefit Trust held an interest in 14,654,161 ordinary shares in the company (representing 1.17% of the issued ordinary shares) as at 31 December 2010. The Trustee may vote or abstain from voting any shares it holds in any way it sees fit. 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. > 704,655 under a UK SAYE share option scheme at prices between 377.6p and 504.0p per share. > 1,305,736 under executive share option schemes at prices between 451.5p and 534.0p per share. The issued share capital as at 31 December 2010 is shown in note 12 to the consolidated financial statements. Authority to purchase shares At the 2010 Annual General Meeting, shareholders passed a resolution authorising the purchase of up to 124.7 million ordinary shares in the company (representing less than 10% of the issued ordinary shares) by market purchase. No shares were purchased under this authority during the year. As at 31 December 2010 there were 34,196,298 ordinary shares held in treasury, representing 2.74% of the issued ordinary shares. The authority to make market purchases will expire at the 2011 Annual General Meeting, and a resolution to further extend the authority will be submitted to the shareholders at the 2011 Annual General Meeting. Powers of directors Subject to the provisions of the Companies Act 2006, the company’s Articles of Association and any directions given by special resolutions, 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. Annual Reports and Financial Statements 2010 Reed Elsevier 145 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 145 1/3/11 10:36:15 Directors’ report continued 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. 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 during the year was between 30 and 45 days (2009: between 30 and 45 days). Charitable 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 £2.3m (2009: £2.5m) of which £0.5m (2009: £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. Political donations Reed Elsevier does not make donations to EU political organisations or incur EU political expenditure. In the United States, Reed Elsevier companies donated £53,000 (2009: £46,000) to political organisations. In line with US law, these donations were not made at federal level, but only to candidates and political parties at the state and local levels. 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. 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 being disclosed and explained in the financial statements; and prepare the financial statements on a 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. 146 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 146 1/3/11 10:36:16 Directors’ report continued Disclosure of information to auditors As part of the process of approving the company’s 2010 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. 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 2010 financial statements. In reaching this conclusion, the directors have had due regard to the combined businesses’ financial position as at 31 December 2010, 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 2010 is set out in the Chief Financial Officer’s Report on pages 44 and 45. 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 48 and 49. Further information on liquidity of the combined businesses can be found in note 18 of the combined financial statements. The principal risks facing Reed Elsevier are set out on pages 50 to 52. Auditors Resolutions for the re-appointment of Deloitte LLP as auditors of the company and to authorise the directors to fix their remuneration will be submitted to shareholders at the 2011 Annual General Meeting. By order of the board Registered Office Stephen J Cowden Secretary 16 February 2011 1-3 Strand London WC2N 5JR Reed Elsevier PLC O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 147 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 147 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 Note 1 2 11 5 6 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 year Total comprehensive income for the year Earnings per ordinary share For the year ended 31 December Basic earnings per share Diluted earnings per share 2010 £m (2) (13) 342 327 1 328 (1) 327 2010 £m 327 25 352 2009 £m (2) (12) 213 199 2 201 (6) 195 2009 £m 195 (2) 193 Note 8 8 2010 pence 27.3 27.1 2009 pence 17.2 17.1 148 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 148 1/3/11 10:36:16 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 investing activities Cash flows from financing activities Equity dividends paid Proceeds on issue of ordinary shares Decrease in net funding balances due from joint ventures Net cash from financing activities O v e r v e w i O u r b u s n e s s i Reed Elsevier PLC 2010 £m 2009 £m (2) 1 (3) (4) 589 (596) (7) (245) 9 247 11 (2) 2 (6) (6) – (462) (462) (228) 440 256 468 Note 10 11 11 7 10 Movement in cash and cash equivalents – – i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 149 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 149 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, 16 February 2011. A J Habgood Chairman M H Armour Chief Financial Officer Note 11 12 13 14 15 16 17 2010 £m 1,037 1,037 9 9 1,028 180 1,168 (312) 4 142 (154) 1,028 2009 £m 927 927 11 11 916 180 1,159 (317) 4 92 (202) 916 150 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 150 1/3/11 10:36:16 Consolidated statement of changes in equity Reed Elsevier PLC Note 7 7 Balance at 1 January 2010 Total comprehensive income for the year Equity dividends paid Issue of ordinary shares, net of expenses Share of joint ventures’ settlement of share awards by employee benefit trust Share of joint ventures’ decrease in share based remuneration reserve Balance at 31 December 2010 Balance at 1 January 2009 Total comprehensive income for the year Equity dividends paid 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 Share capital £m 180 Share premium £m 1,159 Shares held in treasury £m (317) Capital redemption reserve £m Translation reserve £m Other reserves £m Total equity £m 4 – – – – – 4 4 – – – – – 4 92 50 – – – – 142 157 (65) – – – – 92 (202) 302 (245) – (5) (4) (154) (628) 258 (228) 419 916 352 (245) 9 – (4) 1,028 504 193 (228) 440 (32) (2) 9 (202) 9 916 – – 9 – – – – – 5 – 1,168 (312) 1,154 (347) – – 5 – – – – – 30 – (317) – – – – – 180 164 – – 16 – – 180 1,159 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 151 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 151 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 pages 94 and 95. 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 96 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 147. 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 90 to 96. 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. 152 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 152 1/3/11 10:36:16 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 Reed Elsevier PLC 1 Administrative expenses Administrative expenses include £742,000 (2009: £712,000) 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 (2009: 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 152. 3 Auditors’ remuneration Audit fees payable by Reed Elsevier PLC were £27,000 (2009: £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 3 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 33 to the combined financial statements. 5 Finance income Finance income from joint ventures 6 Taxation UK corporation tax 2010 £m 1 2010 £m 1 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% (2009: 28%) Tax at applicable rate on share of results of joint ventures Other Tax expense 2010 £m 328 92 (96) 5 1 2009 £m 2 2009 £m 6 2009 £m 201 56 (60) 10 6 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 153 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 153 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 7 Equity dividends Ordinary dividends declared in the year Ordinary shares Final for prior financial year Interim for financial year Total 2010 pence 15.0p 5.4p 20.4p 2009 pence 15.0p 5.4p 20.4p 2010 £m 180 65 245 2009 £m 163 65 228 The directors of Reed Elsevier PLC have proposed a final dividend of 15.0p (2009: 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 8 Earnings per ordinary share (“EPS”) 2010 pence 5.4p 15.0p 20.4p 2009 pence 5.4p 15.0p 20.4p Basic earnings per share Based on 52.9% interest in total operations of the combined businesses Diluted earnings per share 2010 2009 Weighted average number of shares (millions) 1,199.1 1,199.1 1,205.1 Earnings £m 327 340 327 EPS pence 27.3 28.4 27.1 Weighted average number of shares (millions) 1,131.4 1,131.4 1,139.5 Earnings £m 195 207 195 EPS pence 17.2 18.3 17.1 The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares. 154 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 154 1/3/11 10:36:16 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 Reed Elsevier PLC 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 2010 are shown below. Year ended 31 December Number of ordinary shares At start of year Issue of ordinary shares Net release of shares by employee benefit trust At end of year Weighted average number of equivalent ordinary shares during the year Shares in issue (millions) 1,247.3 2.0 – 1,249.3 Treasury shares (millions) (49.6) – 0.7 (48.9) 2010 Shares in issue net of treasury shares (millions) 1,197.7 2.0 0.7 1,200.4 1,199.1 2009 Shares in issue net of treasury shares (millions) 1,082.6 110.4 4.7 1,197.7 1,131.4 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 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 2010 £m 327 13 340 178 – 20 15 20 (53) 520 2009 £m 195 12 207 217 72 70 18 (12) (53) 519 2010 pence 27.3 1.1 28.4 14.8 – 1.7 1.2 1.7 (4.4) 43.4 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e 2009 pence 17.2 1.1 18.3 19.2 6.4 6.2 1.6 (1.1) (4.7) 45.9 i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 155 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 155 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 10 Statement of cash flows Reconciliation of administrative expenses to cash used by operations Administrative expenses 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 income/(expense) recognised directly in equity Cumulative fair value movements on disposal of available for sale investments Transfer to net profit from hedge reserve (Decrease)/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 2010 £m (2) (2) 2010 £m 521 (247) 274 2010 £m 342 1 – 24 (4) – (13) (589) 596 (247) 110 927 1,037 2009 £m (2) (2) 2009 £m 777 (256) 521 2009 £m 213 (47) 1 44 9 (2) (12) – 462 (256) 412 515 927 During the year the company received a dividend of £589m from Elsevier Reed Finance BV. The company also subscribed for 3,751 new ordinary R shares in Reed Elsevier Group plc for £596m. 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 2010 £m 6,055 648 2009 £m 6,071 395 2010 £m 3,203 342 2009 £m 3,212 213 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 £2m (2009: £6m). 156 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 156 1/3/11 10:36:16 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 11 Investments in joint ventures continued Reed Elsevier PLC Total assets Total liabilities Net assets Attributable to: Joint ventures Non-controlling interests Funding balances due from joint ventures Total Total joint ventures Reed Elsevier PLC shareholders’ share 2010 £m 11,158 (9,188) 1,970 1,943 27 1,970 2009 £m 11,334 (9,575) 1,759 1,732 27 1,759 2010 £m 5,903 (5,140) 763 763 – 763 274 1,037 2009 £m 5,996 (5,590) 406 406 – 406 521 927 O v e r v e w i O u r b u s n e s s i 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 £393m (2009: £388m) and borrowings of £2,276m (2009: £2,489m) respectively. 12 Share capital Authorised Ordinary shares of 1451⁄116p each Unclassified shares of 1451⁄116p each Total No. of shares 1,249,286,224 788,785,984 £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 Issue of ordinary shares At end of year No. of shares 1,247,275,833 2,010,391 1,249,286,224 2010 £m 180 – 180 No. of shares 1,136,924,693 110,351,410 1,247,275,833 2009 £m 164 16 180 The issue of ordinary shares relates to the exercise of share options and the 2009 share placing. Details of share option and conditional share schemes are set out in note 6 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. Details of shares held in treasury are provided in note 14. i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 157 1/3/11 10:36:16 Annual Reports and Financial Statements 2010 Reed Elsevier 157 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 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 of joint ventures’ settlement of share awards by employee benefit trust At end of year Further details of shares held in treasury are provided in note 30 to the Reed Elsevier combined financial statements. 15 Capital redemption reserve At start and end of year 16 Translation reserve At start of year Share of joint ventures’ exchange differences on translation of foreign operations 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 (losses)/gains on defined benefit pension schemes Cumulative fair value movements on disposal of available for sale investments Fair value movements on cash flow hedges Tax recognised directly in equity (Decrease)/increase in share based remuneration reserve Settlement of share awards by employee benefit trust Transfer to net profit from hedge reserve Equity dividends paid At end of year 2010 £m 1,159 9 1,168 2010 £m 317 (5) 312 2010 £m 4 2010 £m 92 50 142 2010 £m (202) 327 – (33) – (31) 15 (4) (5) 24 (245) (154) 2009 £m 1,154 5 1,159 2009 £m 347 (30) 317 2009 £m 4 2009 £m 157 (65) 92 2009 £m (628) 195 419 3 1 28 (13) 9 (32) 44 (228) (202) 158 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 158 1/3/11 10:36:16 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 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 2010 £m 3,924 2009 £m 4,381 Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 18 to the Reed Elsevier combined financial statements. O v e r v e w i O u r b u s n e s s i 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, risk management, 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 £18,385 ordinary R shares £18,385 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 i F n a n c a i 100% – l r e v e w i % holding 100% G o v e r n a n c e At 31 December 2010 Reed Holding BV owned 4,303,179 (2009: 4,303,179) 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. i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 159 1/3/11 10:36:17 Annual Reports and Financial Statements 2010 Reed Elsevier 159 Independent auditor’s report on the consolidated ﬁnancial statements to the members of Reed Elsevier PLC We have audited the consolidated financial statements of Reed Elsevier PLC for the year ended 31 December 2010 (“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. 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 auditor’s 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 auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the consolidated 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 group’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 consolidated financial statements: > give a true and fair view of the state of the group’s affairs as at 31 December 2010 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; > the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the 2008 Combined Code specified for our review; and > certain elements of the report to shareholders by the Board on directors’ remuneration. Other matter We have reported separately on the individual parent company financial statements of Reed Elsevier PLC for the year ended 31 December 2010 and on the information in the parts of the Directors’ Remuneration Report presented in the Reed Elsevier Annual Reports and Financial Statements 2010 that are described as having been audited. Douglas King (Senior statutory auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London United Kingdom 16 February 2011 160 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 160 1/3/11 10:36:17 Parent company balance sheet Reed Elsevier PLC 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 Other creditors 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 2010 £m 309 2,304 2,613 274 274 (10) (9) (77) (96) 178 2,791 180 1,168 (224) 4 134 1,529 2,791 The parent company financial statements were approved by the Board of directors, 16 February 2011. A J Habgood Chairman M H Armour Chief Financial Officer Parent company reconciliation of shareholders’ funds 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 1 January 2010 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 2010 Share capital £m Share premium account £m Shares held in treasury £m Capital redemption reserve £m Other reserves £m 164 – – 16 – 180 – – – – 180 1,154 – – 5 – 1,159 – – 9 – 1,168 (224) – – – – (224) – – – – (224) 4 – – – – 4 – – – – 4 129 – – – 9 138 – – – (4) 134 Profit and loss reserve £m 1,002 (6) (228) 419 – 1,187 587 (245) – – (4) 1,529 2,791 2009 £m 309 1,702 2,011 521 521 – (11) (77) (88) 433 2,444 180 1,159 (224) 4 138 1,187 2,444 Total £m 2,229 (6) (228) 440 9 2,444 587 (245) 9 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 161 1/3/11 10:36:17 Annual Reports and Financial Statements 2010 Reed Elsevier 161 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 147. 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 2009 Increase in investments Equity instruments granted to Reed Elsevier employees At 1 January 2010 Increase in investments Equity instruments granted to Reed Elsevier employees At 31 December 2010 Subsidiary undertaking £m Joint ventures £m 303 6 – 309 – – 309 1,237 456 9 1,702 596 6 2,304 Total £m 1,540 462 9 2,011 596 6 2,613 162 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 162 1/3/11 10:36:17 Independent auditor’s report on the parent company ﬁnancial statements to the members of Reed Elsevier PLC Reed Elsevier PLC 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. 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 returns adequate for our audit have not been received from branches not visited by us; or > > > 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. Other matter We have reported separately on the consolidated financial statements of Reed Elsevier PLC for the year ended 31 December 2010. Douglas King (Senior statutory auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London United Kingdom 16 February 2011 We have audited the parent company financial statements of Reed Elsevier PLC for the year ended 31 December 2010 (“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 162. 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”). 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 auditor’s 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 auditor 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 and express an opinion on 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 2010 and of its profit 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p142-164.indd 163 1/3/11 10:36:17 Annual Reports and Financial Statements 2010 Reed Elsevier 163 5 year summary Combined financial information 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 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 2010 £m 6,055 1,090 1,555 642 983 327 520 27.3p 43.4p 20.4p 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 (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 and includes the benefit of tax amortisation where available on acquired goodwilll and intangible assets. Acquisition related finance costs and profit and loss from disposal gains and losses 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. 164 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p142-164.indd 164 1/3/11 10:36:17 Reed Elsevier NV annual report and ﬁnancial statements 166 Report of the Supervisory Board and the Executive Board 170 Consolidated ﬁnancial statements 172 Group accounting policies 174 Notes to the consolidated ﬁnancial statements 182 Independent auditors’ report on the consolidated ﬁnancial statements 183 Parent company ﬁnancial statements 184 Parent company accounting policies 185 Notes to the parent company ﬁnancial statements 186 Additional information 187 Independent auditors’ report on the parent company ﬁnancial statements 188 5 year summary O v e r v e w i i B u s n e s s r e v e w i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 165 1/3/11 10:35:30 Annual Reports and Financial Statements 2010 Reed Elsevier 165 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 2010. 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 141, which are incorporated by reference herein. Summary combined financial information in euros is set out on pages 129 to 141. The combined financial statements on pages 86 to 128 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 166 to 169 and, incorporated by reference, pages 4 to 141. The Corporate Governance Statement of Reed Elsevier NV dated 16 February 2011 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, disposal gains and losses and other non operating items, related tax effects and movements in deferred taxation assets and liabilities not expected to crystallise in the near term and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. Consolidated income statement Reed Elsevier NV’s shareholders’ 50% share of the adjusted profit before tax of the Reed Elsevier combined businesses was (cid:56)748m, up from (cid:56)716m in 2009 reflecting the 3% increase in adjusted operating profits and the lower 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 (cid:56)379m (2009: (cid:56)217m). The increase largely reflects intangible asset and goodwill impairment charges in the prior year and lower exceptional restructuring spend in 2010 compared to the prior year. Elsevier saw continued growth although at a lower rate than the prior year due to a constrained customer budget environment. The LexisNexis risk business saw strong growth, driven by the insurance sector and the return to growth in more cyclical markets. The LexisNexis legal and professional businesses saw a small underlying revenue decline reflecting the impact on renewals and print product of the low levels of law firm activity and employment. Reed Exhibitions benefited from a net cycling in of biennial exhibitions and a return to growth in annual exhibitions in the second half of the year. Reed Business Information saw good growth in data services and online marketing solutions and significantly moderated declines in advertising markets, while the portfolio was reshaped through disposals and closures and costs significantly reduced. The adjusted operating margin declined 0.2 percentage points reflecting increased spend on product development, sales & marketing and infrastructure, partially offset by tight cost control and the incremental benefits of the earlier restructuring programmes. Reed Elsevier NV’s shareholders’ share of the adjusted profit attributable of the combined businesses was (cid:56)575m, up from (cid:56)550m in 2009. 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 related costs, disposal gains and losses and other non operating items and deferred taxes not expected to crystallise in the near term, the reported net profit for the year was (cid:56)376m, up from (cid:56)219m in 2009. Adjusted earnings per share decreased 1% to (cid:56)0.78 (2009: (cid:56)0.79). At constant rates of exchange, the adjusted earnings per share were 6% lower. Including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposal gains and losses and other non operating items, and tax adjustments, the basic earnings per share was (cid:56)0.51 (2009: (cid:56)0.32). 166 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 166 2/3/11 22:46:35 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 2010 was (cid:56)1,137m (2009: (cid:56)970m). The (cid:56)167m increase in net assets reflects the company’s share in the attributable profits of Reed Elsevier 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 183 to 187) are prepared under UK generally accepted accounting practice (UK GAAP) The profit attributable to the shareholders of Reed Elsevier NV was (cid:56)9m (2009: (cid:56)22m) and net assets as at 31 December 2010, 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 (cid:56)4,884m (2009: (cid:56)4,065m). Free reserves as at 31 December 2010 were (cid:56)4,655m (2009: (cid:56)3,833m), comprising reserves and paid-in surplus less shares held in treasury. Dividends The Combined Board is recommending an equalised final dividend of (cid:56)0.303 per ordinary share, up 3% compared with the prior year. This gives total ordinary dividends for the year of (cid:56)0.412 (2009: (cid:56)0.400), up 3% on 2009. The final dividend will be paid on 17 May 2011. Dividend cover, based on adjusted earnings per share and the total interim and proposed final dividends for the year, is 1.9 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 (cid:56)281m (2009: (cid:56)260m). Share capital During 2010, 184,116 ordinary shares in the company were issued as follows: > 134,350 under convertible debentures at prices between (cid:56)7.35 and (cid:56)9.45 > 49,766 under executive share option schemes at prices between (cid:56)8.31 and (cid:56)9.34 Information regarding shares outstanding at 31 December 2010 is shown in note 13 to the consolidated financial statements. As at 31 December 2010 31,734,581 of the ordinary shares were held in treasury including 7,781,790 held by the Reed Elsevier Group plc Employee Benefit Trust. No R shares were held in treasury. As at 16 February 2011, 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). In May 2010 the Financial Reporting Council issued the UK Corporate Governance Code (“the New UK Code”), which replaces the UK code for financial years beginning on or after 29 June 2010. The New UK Code will, therefore, apply in respect of the company’s financial year beginning 1 January 2011. 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. > 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 2010. > 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. > 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. Annual Reports and Financial Statements 2010 Reed Elsevier 167 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 167 1/3/11 10:35:30 Report of the Supervisory Board and the Executive Board continued > 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 2010. 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. > 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 Executive Board E Engstrom (Chairman and Chief Executive Officer) M Armour (Chief Financial Officer) A Prozes (retired 31 December 2010) The Supervisory Board A Habgood (Chairman) G de Boer-Kruyt (retired 20 April 2010) 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 Lord Sharman will retire as a member of the Supervisory Board at the conclusion of the Annual General Meeting in April 2011. In view of the retirement of Lord Sharman, a search has been conducted in conjunction with external recruitment consultants for a suitable candidate to join the Supervisory Board. This has resulted in the Nominations Committee recommending to the Combined Board the appointment of Adrian Hennah as a member of the Supervisory Board of Reed Elsevier NV and as a non-executive director of Reed Elsevier PLC. This will be proposed at the Annual General Meetings in April 2011. Subject to shareholder approval of his appointment, he will become a member of the Audit Committees and of the Corporate Governance Committee. Biographical details of the directors at the date of this report are given on pages 54 and 55. 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 80. 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 2010 and of the profit or loss in 2010. 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. 168 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 168 1/3/11 10:35:30 Report of the Supervisory Board and the Executive Board continued Reed Elsevier NV A commentary on the Reed Elsevier combined businesses’ cash flows, financial position and liquidity for the year ended 31 December 2010 is set out in the Chief Financial Officer’s Report on pages 44 and 45. 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 48 and 49. Further information on liquidity of the combined businesses can be found in note 18 of the combined financial statements. The principal risks facing Reed Elsevier are set out on pages 50 to 52. Auditors Resolutions for the re-appointment of Deloitte Accountants BV as auditors of the company and authorising the Supervisory Board to determine their remuneration will be submitted to the forthcoming Annual General Meeting on 19 April 2011. The Executive Board E Engstrom (Chairman and Chief Executive Officer) M Armour (Chief Financial Officer) Signed by: The Supervisory Board A Habgood (Chairman) M Elliott L Hook M van Lier Lels R Polet D Reid Lord Sharman of Redlynch OBE B van der Veer Registered office Radarweg 29 1043 NX The Netherlands Chamber of Commerce Amsterdam Register file No: 33155037 16 February 2011 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 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 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 2010 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 2010 financial statements, the Supervisory and the Executive Boards and their 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 2010 financial statements. In reaching this conclusion, the Combined Board has had due regard to the combined businesses’ financial position as at 31 December 2010, the strong free cash flow of the combined businesses, Reed Elsevier’s ability to access capital markets and the principal risks facing Reed Elsevier. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 169 2/3/11 22:47:37 Annual Reports and Financial Statements 2010 Reed Elsevier 169 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 Note 2 11 5 6 Consolidated statement of comprehensive income For the year ended 31 December Profit attributable to ordinary shareholders Share of joint ventures’ other comprehensive income for the year Total comprehensive income for the year Earnings per ordinary share For the year ended 31 December Basic earnings per share Diluted earnings per share 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 from/(used in) investing activities Cash flows from financing activities Equity dividends paid Proceeds on issue of ordinary shares (Increase)/decrease in net funding balances due from joint ventures Net cash (used in)/from financing activities Note 8 8 Note 10 11 11 7 10 2010 (cid:19)m (2) 367 365 14 379 (3) 376 2010 (cid:19)m 376 71 447 2009 (cid:56)m (2) 197 195 22 217 2 219 2009 (cid:56)m 219 42 261 2010 (cid:19) (cid:19)0.51 (cid:19)0.51 2009 (cid:56) (cid:56)0.32 (cid:56)0.31 2010 (cid:19)m 2009 (cid:56)m (1) 14 (4) 9 1,093 (719) 374 (281) 2 (104) (383) (2) 24 (8) 14 – (531) (531) (260) 470 298 508 Movement in cash and cash equivalents – (9) 170 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 170 1/3/11 10:35:30 Reed Elsevier NV Note 2010 (cid:19)m 2009 (cid:56)m 11 1,198 1,031 2 3 5 2 3 5 1,203 1,036 O v e r v e w i O u r b u s n e s s i 12 13 14 15 16 17 11 55 66 1,137 54 2,169 (433) (51) (602) 1,137 10 56 66 970 53 2,168 (434) (153) (664) 970 Total equity (cid:19)m 970 447 (281) 2 – (4) 3 – i F n a n c a i l r e v e w i G o v e r n a n c e 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 Note 7 7 Balance at 1 January 2010 Total comprehensive income for the year Equity dividends paid Issue of ordinary shares, net of expenses Share of joint ventures’ settlement of share awards by employee benefit trust Share of joint ventures’ decrease in share based remuneration reserve Equalisation adjustments Exchange translation differences Balance at 31 December 2010 Balance at 1 January 2009 Total comprehensive income for the year Equity dividends paid 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 53 – – 1 – – – – 54 49 – – 4 – – – Share capital (cid:19)m Paid-in surplus (cid:19)m Shares held in treasury (cid:19)m Translation reserve (cid:19)m Other reserves (cid:19)m 2,168 – – 1 – – – – (434) – – – 5 – – (4) (153) 98 – – – – – 4 (664) 349 (281) – (5) (4) 3 – 2,169 (433) (51) (602) 1,137 1,712 – – 456 – – – (477) – – 21 32 – (10) (434) (138) (25) – – – – 10 (655) 286 (260) (11) (34) 10 – (153) (664) 491 261 (260) 470 (2) 10 – 970 Annual Reports and Financial Statements 2010 Reed Elsevier 171 i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 53 2,168 47213_Text_p165-188.indd 171 1/3/11 10:35:30 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 169. The Reed Elsevier combined financial statements presented in pounds sterling on pages 86 to 128 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 129 to 141. 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 90 to 96. 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. 172 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 172 1/3/11 10:35:30 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 pages 94 and 95. 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 96 of the combined financial statements and are not expected to have a significant impact on the consolidated financial statements. Reed Elsevier NV O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 173 1/3/11 10:35:30 Annual Reports and Financial Statements 2010 Reed Elsevier 173 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 1 Basis of preparation The consolidated financial statements of Reed Elsevier NV reflect the 50% economic interest that its shareholders have under the equalisation arrangements in the Reed Elsevier combined businesses, accounted for on an equity basis. The Reed Elsevier combined financial statements are presented in pounds sterling, which is the functional currency of Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses of Reed Elsevier. The following analysis presents how the consolidated financial statements of Reed Elsevier NV, presented in euros, are derived from the Reed Elsevier combined financial statements. Reed Elsevier NV consolidated profit attributable to ordinary shareholders Reed Elsevier combined businesses net profit attributable to parent company shareholders in pounds sterling Reed Elsevier combined businesses net profit attributable to parent company shareholders in pounds sterling translated into euros at average exchange rates 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 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 2010 2009 £642m £391m (cid:19)751m (cid:19)751m (cid:19)376m (cid:56)438m (cid:56)438m (cid:56)219m 2010 2009 £1,943m £1,732m (cid:19)2,273m (cid:19)1,137m (cid:56)1,940m (cid:56)970m 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 (cid:56)0.3m (2009: (cid:56)0.2m) 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 (2009: nil). 3 Auditors’ remuneration Audit fees payable by Reed Elsevier NV were (cid:56)48,000 (2009: (cid:56)48,000). 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 3 to the combined financial statements. 174 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 174 1/3/11 10:35:30 Reed Elsevier NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 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 33 to the combined financial statements. 5 Finance income Finance income from joint ventures 6 Taxation 2010 (cid:19)m 14 2009 (cid:56)m 22 A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below. O v e r v e w i O u r b u s n e s s i Profit before tax Tax at applicable rate: 25.5% (2009: 25.5%) Tax at applicable rate on share of results of joint ventures Other Tax expense/(credit) 7 Equity dividends Ordinary dividends declared in the year Ordinary shares Final for prior financial year Interim for financial year Total R shares 2010 (cid:19)m 379 97 (94) – 3 2010 (cid:19)m 205 76 281 – 2009 (cid:56)m 217 55 (50) (7) (2) 2009 (cid:56)m 185 75 260 – 2010 (cid:19)(cid:0) 2009 (cid:56) (cid:19)0.293 (cid:19)0.109 (cid:19)0.402 – (cid:56)0.290 (cid:56)0.107 (cid:56)0.397 – The directors of Reed Elsevier NV have proposed a final dividend of (cid:56)0.303 (2009: (cid:56)0.293). The cost of funding the proposed final dividend is expected to be (cid:56)212m. 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 2010 (cid:19)(cid:0) 2009 (cid:56) (cid:19)0.109 (cid:19)0.303 (cid:19)0.412 – (cid:56)0.107 (cid:56)0.293 (cid:56)0.400 – i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 175 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 175 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 8 Earnings per ordinary share (“EPS”) Basic earnings per share Diluted earnings per share 2010 2009 Weighted average number of shares (millions) 734.5 737.8 Earnings (cid:19)m 376 376 EPS (cid:19) (cid:19)0.51 (cid:19)0.51 Weighted average number of shares (millions) 693.9 698.7 Earnings (cid:56)m 219 219 EPS (cid:56) (cid:56)0.32 (cid:56)0.31 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 reflects the equivalent ordinary shares amount taking 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 2010 are shown below. Number of ordinary shares At start of year Issue of ordinary shares Net release 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) 723.7 0.2 – 723.9 (32.2) – 0.5 (31.7) 2010 Shares in issue net of treasury shares (millions) 2009 Shares in issue net of treasury shares (millions) 691.5 0.2 0.5 692.2 734.5 625.4 63.1 3.0 691.5 693.9 The average number of equivalent ordinary shares takes into account the R shares in the company held by a subsidiary of Reed Elsevier PLC, which represents a 5.8% interest in the company’s share capital. 176 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 176 1/3/11 10:35:31 Reed Elsevier NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 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 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 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 2010 (cid:19)m 376 197 – 22 18 21 (59) 575 2009 (cid:56)m 219 230 76 75 19 (13) (56) 550 2010 (cid:19) (cid:19)0.51 (cid:19)0.27 – (cid:19)0.03 (cid:19)0.02 (cid:19)0.03 (cid:19)(0.08) (cid:19)0.78 2010 (cid:19)m (2) 1 (1) 2010 (cid:19)m 1,255 104 1,359 2009 (cid:56) (cid:56)0.32 (cid:56)0.33 (cid:56)0.11 (cid:56)0.10 (cid:56)0.03 (cid:56)(0.02) (cid:56)(0.08) (cid:56)0.79 2009 (cid:56)m (2) – (2) 2009 (cid:56)m 1,553 (298) 1,255 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 177 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 177 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 11 Investments in joint ventures Share of results of joint ventures Share of joint ventures’: Net income/(expense) recognised directly in equity Cumulative fair value movements on disposal of available for sale investments Transfer to net profit from hedge reserve (Decrease)/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/(increase) in net funding balances due from joint ventures Net movement in the year At start of year At end of year 2010 (cid:19)m 367 44 – 27 (4) – 3 (1,093) 719 104 167 1,031 1,198 2009 (cid:56)m 197 (6) 1 47 10 (2) – – 531 (298) 480 551 1,031 During the year the company received a dividend of (cid:56)1,093m from Elsevier Reed Finance BV. The company also subscribed for 3,751 new ordinary E shares in Reed Elsevier Group plc for (cid:56)719m. 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 2010 (cid:19)m 7,084 758 2009 (cid:56)m 6,800 442 2010 (cid:19)m 3,542 367 2009 (cid:56)m 3,400 197 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 (cid:56)9m (2009: (cid:56)22m). 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 2010 (cid:19)m 13,055 (10,750) 2,305 2,273 32 2,305 2009 (cid:56)m 12,694 (10,724) 1,970 1,940 30 1,970 2010 (cid:19)m 6,523 (6,684) (161) (161) – (161) 1,359 1,198 2009 (cid:56)m 6,342 (6,566) (224) (224) – (224) 1,255 1,031 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 (cid:56)431m (2009: (cid:56)408m) and borrowings of (cid:56)2,508m (2009: (cid:56)2,625m) respectively. 12 Payables Included within payables are employee convertible debenture loans of (cid:56)9m (2009: (cid:56)10m) with a weighted average interest rate of 3.30% (2009: 4.04%). Depending on the conversion terms, the surrender of (cid:56)227 or (cid:56)200 par value debenture loans qualifies for 50 Reed Elsevier NV ordinary shares. 178 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 178 1/3/11 10:35:31 Reed Elsevier NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 13 Share capital Authorised Ordinary shares of (cid:56)0.07 each R shares of (cid:56)0.70 each Total Issued and fully paid At 1 January 2009 Issue of ordinary shares At 1 January 2010 Issue of ordinary shares At 31 December 2010 No. of shares 1,800,000,000 26,000,000 R shares Number 4,050,720 252,459 4,303,179 – Ordinary shares Number 660,629,462 63,063,439 723,692,901 184,116 4,303,179 723,877,017 R shares (cid:19)m Ordinary shares (cid:19)m 3 – 3 – 3 46 4 50 1 51 O v e r v e w i O u r b u s n e s s i (cid:19)m 126 18 144 Total (cid:19)m 49 4 53 1 54 The issue of shares relates to the exercise of share options and the 2009 share placing. Details of share option and conditional share schemes are set out in note 6 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 (cid:56)7.08 per share, raising (cid:56)441m net of issue costs of (cid:56)5m. 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 (cid:56)18m. Details of shares held in treasury are provided in note 15. At 31 December 2010 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 (cid:56)1,992m (2009: (cid:56)1,991m) is free of tax. 15 Shares held in treasury At start of year Release of R shares from treasury Share of joint ventures’ settlement of share awards by employee benefit trust Exchange translation differences At end of year 2010 (cid:19)m 2,168 1 2,169 2009 (cid:56)m 1,712 456 2,168 2010 (cid:19)m 434 – (5) 4 433 2009 (cid:56)m 477 (21) (32) 10 434 Further details of shares held in treasury are provided in note 30 to the Reed Elsevier combined financial statements. i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 179 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 179 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 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 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 (losses)/gains on defined benefit pension schemes Cumulative fair value movements on disposal of available for sale investments Fair value movements on cash flow hedges Tax recognised directly in equity (Decrease)/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 paid At end of year 18 Contingent liabilities 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 2010 (cid:19)m (153) 98 4 (51) 2010 (cid:19)m (664) 376 – (37) – (34) 17 (4) (5) 27 3 (281) (602) 2009 (cid:56)m (138) (25) 10 (153) 2009 (cid:56)m (655) 219 (11) 4 1 29 (14) 10 (34) 47 – (260) (664) 2010 (cid:19)m 4,591 2009 (cid:56)m 4,913 Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 18 to the Reed Elsevier combined financial statements. 180 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 180 1/3/11 10:35:31 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2010 Reed Elsevier NV 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, risk management, 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 £18,385 ordinary R shares £18,385 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 16 February 2011. A J Habgood Chairman of the Supervisory Board and the Combined Board M H Armour Chief Financial Officer O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 181 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 181 Independent auditors’ report on the consolidated ﬁnancial statements to the shareholders of Reed Elsevier NV Opinion with respect to the consolidated financial statements 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 2010, and of its results 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 Dutch Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirement under 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the report of the Supervisory Board and the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and if the information as required under section 2:392 sub 1 at b-h has been annexed. Further we report, to the extent we can assess, 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 Dutch Civil Code. Deloitte Accountants B.V. A Sandler Amsterdam The Netherlands 16 February 2011 Report on the consolidated financial statements We have audited the accompanying consolidated financial statements 2010 which are part of the financial statements of Reed Elsevier NV, Amsterdam, which comprise the consolidated statement of financial position as at 31 December 2010, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of cash flows, and the consolidated statement of changes in equity for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information, as set out in pages 170 to 181. 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 Dutch 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 Dutch Civil Code. Furthermore, management is responsible for such internal control as it determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 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, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about 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. 182 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 182 1/3/11 10:35:31 Parent company proﬁt and loss account For the year ended 31 December Administrative expenses Dividends received from joint ventures Finance income from joint ventures Taxation Profit attributable to ordinary shareholders Parent company balance sheet As at 31 December Fixed assets Investments in joint ventures Current assets Amounts due from joint ventures – funding Amounts due from joint ventures – other Cash Creditors: amounts falling due within one year Taxation Other creditors Net current assets Net assets Capital and reserves Share capital issued Paid-in surplus Shares held in treasury Other reserves Reserves Shareholders’ funds Reed Elsevier NV 2010 (cid:19)m (2) 1,093 14 (3) 1,102 2009 (cid:56)m (2) – 22 2 22 O v e r v e w i O u r b u s n e s s i Note 2010 (cid:19)m 2009 (cid:56)m 3,597 2,871 1 1,359 2 1,361 3 1,364 (55) (22) (77) 1,287 4,884 54 2,169 (336) 175 2,822 4,884 1,255 2 1,257 3 1,260 (56) (10) (66) 1,194 4,065 53 2,168 (336) 179 2,001 4,065 i F n a n c a i l r e v e w i G o v e r n a n c e The parent company financial statements were signed and authorised for issue by the Combined Board of directors on 16 February 2011. A J Habgood Chairman of the Supervisory Board M H Armour Chief Financial Officer i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 183 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 183 Parent company reconciliation of shareholders’ funds 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 1 January 2010 Profit attributable to ordinary shareholders Equity dividends paid Issue of shares, net of expenses Equity instruments granted to employees of combined businesses At 31 December 2010 Share capital issued (cid:19)m Paid-in surplus(i) (cid:19)m Shares held in treasury (cid:19)m 49 – – – 4 – 53 – – 1 – 54 1,712 – – – 456 – 2,168 – – 1 – 2,169 (357) – – 21 – – (336) – – – – (336) Other reserves(iii) (cid:19)m 169 – – – – 10 179 – – – (4) 175 Reserves (cid:19)m 2,250 22 (260) – (11) – 2,001 1,102 (281) – Total (cid:19)m 3,823 22 (260) 21 449 10 4,065 1,102 (281) 2 – (4) 2,822 4,884 (i) Within paid-in surplus, an amount of (cid:56)1,992m (2009: (cid:56)1,991m) is free of tax. (ii) Free reserves of the company at 31 December 2010 were (cid:56)4,655m (2009: (cid:56)3,833m), 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. Parent company accounting policies 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. 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 (UK 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 169. 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. 184 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 184 1/3/11 10:35:31 Notes to the parent company ﬁnancial statements Reed Elsevier NV 1 Other creditors Other creditors include (cid:56)9m (2009: (cid:56)10m) of employee convertible debenture loans with a weighted average interest rate of 3.30% (2009: 4.04%). Depending on the conversion terms, the surrender of (cid:56)227 or (cid:56)200 par value debenture loans qualifies for 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 2010 (cid:19)m 1,102 367 (1,093) 376 2009 (cid:56)m 22 197 – 219 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 2010 (cid:19)m 4,884 (2,747) (271) 145 (97) (602) (175) 1,137 2009 (cid:56)m 4,065 (2,021) (373) 178 (98) (602) (179) 970 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 185 1/3/11 10:35:31 Annual Reports and Financial Statements 2010 Reed Elsevier 185 Additional information R shares Reed Elsevier NV has two types of shares: ordinary shares of (cid:56)0.07 nominal value and R shares of (cid:56)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 NV 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 Dividend on R shares Retained profit/(loss) 2010 (cid:19)m 205 76 – 821 1,102 2009 (cid:56)m 185 75 – (238) 22 186 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 186 1/3/11 10:35:31 Independent auditors’ report on the parent company ﬁnancial statements to the shareholders of Reed Elsevier NV Reed Elsevier NV Opinion with respect to the parent company financial statements 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 2010 and of its result for the year then ended in accordance with accounting principles generally accepted in the United Kingdom and with Part 9 of Book 2 of the Dutch Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirement under 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the report of the Supervisory Board and the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and if the information as required under section 2:392 sub 1 at b-h has been annexed. Further we report that the report of the Supervisory Board and the Executive Board, to the extent we can assess, is consistent with the consolidated financial statements as required by 2:391 sub 4 of the Dutch Civil Code. Deloitte Accountants B.V. A Sandler Amsterdam The Netherlands 16 February 2011 Report on the company financial statements We have audited the accompanying parent company financial statements 2010 which are part of the financial statements of Reed Elsevier NV, Amsterdam, which comprise the parent company balance sheet as at 31 December 2010, the parent company profit and loss account for the year then ended, the parent company reconciliation of shareholders’ funds and the notes, comprising a summary of the accounting policies and the additional information, as set out in pages 183 to 186. Management’s responsibility Management is responsible for the preparation and fair presentation of the parent company financial statements both in accordance with accounting principles generally accepted in the United Kingdom and with Part 9 of Book 2 of the Dutch 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 Dutch Civil Code. Furthermore, management is also responsible for such internal control as it determines necessary to enable the preparation of the parent company financial statements that are free from material misstatement, whether due to fraud or error. 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, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about 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. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p165-188.indd 187 1/3/11 10:35:32 Annual Reports and Financial Statements 2010 Reed Elsevier 187 5 year summary Combined financial information 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 Reported profit attributable to shareholders Adjusted profit attributable to shareholders Reported earnings per ordinary share ((cid:56)) Adjusted earnings per ordinary share ((cid:56)) Dividend per ordinary share ((cid:56)) Note 2 2 2 3 2010 (cid:19)m 7,084 1,275 1,819 751 1,150 376 575 (cid:42)0.51 (cid:42)0.78 (cid:42)0.412 2009 (cid:56)m 6,800 881 1,758 438 1,099 219 550 (cid:56)0.32 (cid:56)0.79 (cid:56)0.400 2008 (cid:56)m 6,721 1,135 1,737 587 1,159 294 580 (cid:56)0.44 (cid:56)0.87 (cid:56)0.404 2007 (cid:56)m 6,693 1,296 1,660 1,709 1,244 855 622 (cid:56)1.10 (cid:56)0.80 (cid:56)0.425 2006 (cid:56)m 6,628 1,231 1,589 916 1,170 458 585 (cid:56)0.59 (cid:56)0.76 (cid:56)0.406 (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 and includes the benefit of tax amortisation where available on acquired goodwill and intangible assets. Acquisition related costs and profit and loss from disposal gains and losses 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 (cid:56)1.767 per share special distribution in 2008. 188 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p165-188.indd 188 1/3/11 10:35:32 Other information Additional information for US Investors 190 Reed Elsevier combined businesses 192 Reed Elsevier PLC 193 Reed Elsevier NV Shareholder information 194 Shareholder information 196 Contacts 197 Financial calendar Principal operating locations 198 Principal operating locations O O v v e e r r v v e e w w i i O B u u s r i n b e u s s s n r e e s v s e w i i i i F F n n a a n n c c a a i i l l r r e e v v e e w w i i G G o o v v e e r r n n a a n n c c e e i i F F n n a a n n c c a a i i l l s s t t a a t t e e m m e e n n t t s s a a n n d d o o t t h h e e r r i i f f n n o o r r m m a a t t i i o o n n 47213_Text_p189-200.indd 189 1/3/11 10:34:06 Annual Reports and Financial Statements 2010 Reed Elsevier 189 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 2010 1.55 2009 1.57 2010 1.56 2009 1.62 Combined income statement For the year ended 31 December Revenue Operating proﬁt Proﬁt before tax Proﬁt attributable to parent companies’ shareholders Adjusted operating proﬁt Adjusted proﬁt before tax Adjusted proﬁt attributable to parent companies’ shareholders 2010 US$m 9,385 1,690 1,190 995 2,410 1,982 1,524 2009 US$m 9,531 1,236 683 614 2,465 2,008 1,542 190 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 190 1/3/11 10:34:06 Reed Elsevier combined businesses Combined statement of cash ﬂows For the year ended 31 December Net cash from operating activities Net cash used in investing activities Net cash used in ﬁnancing activities Increase in cash and cash equivalents Movement in cash and cash equivalents At start of year Increase in cash and cash equivalents Exchange translation differences At end of year Adjusted operating cash ﬂow Combined statement of ﬁnancial position As at 31 December Non-current assets Current assets Assets held for sale Total assets Current liabilities Non-current liabilities Liabilities associated with assets held for sale Total liabilities Net assets Additional information for US Investors 2010 US$m 2,097 (510) (1,587) – 1,189 – (31) 1,158 2,354 2010 US$m 13,383 4,023 – 17,406 6,079 8,254 – 14,333 3,073 2009 US$m 1,870 (493) (904) 473 544 473 172 1,189 2,446 2009 US$m 14,186 4,167 8 18,361 6,259 9,244 8 15,511 2,850 O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p189-200.indd 191 1/3/11 10:34:06 Annual Reports and Financial Statements 2010 Reed Elsevier 191 Reed Elsevier PLC Summary ﬁnancial information in US dollars Basis of preparation The summary ﬁnancial information is a simple translation of Reed Elsevier PLC’s consolidated ﬁnancial statements into US dollars at the stated rates of exchange. The ﬁnancial information provided below is prepared under IFRS as used in the preparation of the Reed Elsevier PLC consolidated ﬁnancial statements. It does not represent a restatement under US GAAP which would be different in some signiﬁcant respects. Exchange rates for translation of sterling ($:£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 2010 US$:£ 1.55 1.56 2009 US$:£ 1.57 1.62 2010 US$m 507 806 (276) – (31) (23) (31) 82 527 2010 US$ $2.69 $1.69 $1.26 $1.26 2009 US$m 306 815 (341) (113) (110) (28) 19 83 325 2009 US$ $2.88 $1.08 $1.28 $1.28 2010 US$m 1,604 2009 US$m 1,484 Adjusted earnings per American Depositary Share is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted proﬁt attributable of the Reed Elsevier combined businesses, which excludes amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposal gains and losses and other non operating items, related tax effects and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term and includes the beneﬁt of tax amortisation where available on acquired goodwill and intangible assets. Adjusted ﬁgures are additional performance measures used by management and are described in note 9 to the Reed Elsevier PLC consolidated ﬁnancial statements. Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs), representing four Reed Elsevier PLC ordinary shares. (CUSIP No. 758205207; trading symbol, RUK; Bank of New York is the ADR Depositary.) 192 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 192 1/3/11 10:34:06 Reed Elsevier NV Additional information for US Investors Summary ﬁnancial information in US dollars Basis of preparation The summary ﬁnancial information is a simple translation of the Reed Elsevier NV consolidated ﬁnancial statements into US dollars at the stated rates of exchange. The ﬁnancial information provided below is prepared under IFRS as used in the preparation of the Reed Elsevier NV consolidated ﬁnancial statements. It does not represent a restatement under US GAAP which would be different in some signiﬁcant respects. Exchange rates for translation of euros ($:(cid:19)1) 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 2010 US$:(cid:19) 1.32 1.33 2009 US$:(cid:56) 1.40 1.44 2010 US$m 762 (261) – (29) (24) (28) 78 498 2010 US$ $2.07 $1.35 $1.07 $1.09 2009 US$m 770 (322) (106) (105) (27) 18 79 307 2009 US$ $2.21 $0.90 $1.11 $1.12 2010 US$m 1,516 2009 US$m 1,403 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, disposal gains and losses 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 and includes the beneﬁt of tax amortisation where available on acquired goodwill and intangible assets. 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.) O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p189-200.indd 193 1/3/11 10:34:06 Annual Reports and Financial Statements 2010 Reed Elsevier 193 Shareholder information Annual Reports and Financial Statements 2010 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 2010, and the Corporate Governance Statement of Reed Elsevier NV are available on the Reed Elsevier website, and from the registered ofﬁces of the respective parent companies shown on page 196. Additional ﬁnancial information, including the Interim and Full Year Results announcements, Interim Management Statements and presentations is also available on the Reed Elsevier website www.reedelsevier.com. The Reed Elsevier combined ﬁnancial statements set out in the Annual Reports and Financial Statements are expressed in sterling, with summary combined ﬁnancial information expressed in euros. The ﬁnancial statements of Reed Elsevier PLC and Reed Elsevier NV are expressed in sterling and euros respectively. Reed Elsevier NV no longer publishes on the website a full convenience translation in euros of the Reed Elsevier Annual Reports and Financial Statements. 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 Amsterdam Stock Exchange. 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 some newspapers. (cid:27) (cid:3)For further information visit www.reedelsevier.com Information for Reed Elsevier PLC ordinary shareholders Shareholder services The Reed Elsevier PLC ordinary share register is administered by Equiniti Limited. Equiniti provides a free online portal for shareholders at www.shareview.co.uk. Shareview provides shareholders with instant access to details of their shareholding and dividend payments, with the ability to update personal details and to register a bank mandate. Equiniti’s contact details appear on page 196. Electronic communications While 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 Shareview, shareholders can be notiﬁed by email when shareholder communications are published on the website. Shareholders can also use the Shareview website to appoint a proxy to vote on their behalf at shareholder meetings. Shareholders who hold their Reed Elsevier PLC shares through CREST may appoint proxies for shareholder meetings through the CREST electronic proxy appointment service by using the procedures described in the CREST manual. Dividend mandates Shareholders are encouraged 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 196. 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 196. Dividend Reinvestment Plan Shareholders can choose to reinvest their Reed Elsevier PLC dividends by purchasing further shares through the Dividend Reinvestment Plan (“DRIP”) provided by Equiniti. Further information concerning the DRIP facility, together with the terms and conditions and an application form can be obtained online at www.shareview. co.uk/dividends or by contacting Equiniti at the address shown on page 196. 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. 194 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 194 2/3/11 22:48:56 Shareholder information continued 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 196. 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 will be ﬁled electronically with the United States Securities and Exchange Commission. A copy of Form 20-F for the year ended 31 December 2010 will be available on the Reed Elsevier website, or from the ADR Depositary at the address shown on page 196. 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 196, 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 196. 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 By instructing their bank or intermediary, shareholders can choose to reinvest their Reed Elsevier NV dividends by purchasing further shares through the Dividend Reinvestment Plan (“DRIP”) provided by Royal Bank of Scotland N.V. Further information concerning the DRIP facility can be obtained online at www.securitiesinfo.nl. Consolidation of ordinary shares On 7 January 2008 each Reed Elsevier NV ordinary share of (cid:56)0.06 each were consolidated on the basis of 58 new ordinary shares of (cid:56)0.07 each for every 67 ordinary shares of (cid:56)0.06 held. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p189-200.indd 195 1/3/11 10:34:07 Annual Reports and Financial Statements 2010 Reed Elsevier 195 Reed Elsevier NV Radarweg 29 1043 NX Amsterdam The Netherlands Tel: +31 (0) 20 485 2222 Fax: +31 (0) 20 485 2032 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 Auditors Deloitte LLP 2 New Street Square London EC4A 3BZ United Kingdom Registrar Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA United Kingdom www.shareview.co.uk 0871 384 2960 Tel: (calls charged at 8p per minute from a BT landline, other telephony providers’ costs may vary) Tel: +44 121 415 7047 (non-UK callers) Reed Elsevier PLC and Reed Elsevier NV ADR Depositary BNY Mellon Shareowner Services 480 Washington Blvd 27th Floor Jersey City NJ 07310 USA email: https://vault.bnymellon.com www.adrbny.com Tel: +1 888 269 2377 +1 201 680 6825 (outside the US) 196 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 196 1/3/11 10:34:07 2011 ﬁnancial calendar Shareholder information 17 February 19 April 19 April 20 April 20 April 21 April 26 April 27 April 17 May 24 May 28 July 3 August 5 August 26 August 2 September 17 November PLC NV PLC NV NV PLC PLC NV PLC NV PLC NV PLC NV PLC NV PLC NV PLC NV PLC NV PLC NV PLC NV Announcement of Results for the year ended 31 December 2010 Interim Management Statement issued in relation to the 2011 ﬁnancial year Annual General Meeting – Reed Elsevier NV, Hilton Hotel, Apollolaan 138, 1077 BG Amsterdam Annual General Meeting – Reed Elsevier PLC, Millennium Hotel, Grosvenor Square, London W1K 2HP Ex-dividend date – 2010 ﬁnal dividend, Reed Elsevier PLC ordinary shares and ADRs Ex-dividend date – 2010 ﬁnal dividend, Reed Elsevier NV ordinary shares and ADRs Record date – 2010 ﬁnal dividend, Reed Elsevier PLC ordinary shares and ADRs Record date – 2010 ﬁnal dividend, Reed Elsevier NV ordinary shares and ADRs Payment date – 2010 ﬁnal dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares Payment date – 2010 ﬁnal dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs Announcement of Interim Results for the six months to 30 June 2011 Ex-dividend date – 2011 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares and ADRs Record date – 2011 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares and ADRs Payment date – 2011 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares Payment date – 2011 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs Interim Management Statement issued in relation to the 2011 ﬁnancial year The following tables set out dividends paid (or proposed) in relation to the three ﬁnancial years 2008–2010. Final dividend for 2010* Interim dividend for 2010 Final dividend for 2009 Interim dividend for 2009 Final dividend for 2008 Interim dividend for 2008 per PLC ordinary share 15.0p 5.4p 15.0p 5.4p 15.0p 5.3p per NV ordinary share (cid:56)0.303 (cid:56)0.109 (cid:56)0.293 (cid:56)0.107 (cid:56)0.290 (cid:56)0.114 Payment date 17 May 2011 27 August 2010 21 May 2010 28 August 2009 22 May 2009 29 August 2008 *Proposed dividend, to be submitted for approval at the respective Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2011. Final dividend for 2010 Interim dividend for 2010 Final dividend for 2009 Interim dividend for 2009 Final dividend for 2008 Interim dividend for 2008 per PLC ADR per NV ADR Payment date ** $0.33480 $0.86010 $0.35164 $0.94782 $0.38743 ** $0.23512 $0.62137 $0.26060 $0.68679 $0.28473 24 May 2011 3 September 2010 28 May 2010 4 September 2009 1 June 2009 5 September 2008 **Payment will be determined using the appropriate £/US$ and (cid:56)/US$ exchange rate on 17 May 2011. O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p189-200.indd 197 2/3/11 22:49:38 Annual Reports and Financial Statements 2010 Reed Elsevier 197 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 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 1600 John F. Kennedy Blvd Suite 1800, Philadelphia PA 19103, USA www.us.elsevierhealth.com 3251 Riverport Lane Maryland Heights, MO 63043, USA LexisNexis Legal & Professional 125 Park Avenue, 23rd Floor New York, NY 10017, USA www.lexisnexis.com 9443 Springboro Pike Miamisburg, OH 45342, USA Halsbury House, 35 Chancery Lane London WC2A 1EL, UK www.lexisnexis.co.uk LexisNexis Risk Solutions 1000 Alderman Drive Alpharetta, GA 30005, USA Reed Exhibitions Gateway House, 28 The Quadrant Richmond, Surrey TW9 1DN, UK www.reedexpo.com Reed Business Information Quadrant House, The Quadrant Sutton, Surrey SM2 5AS, UK www.reedbusiness.co.uk Elsevier Reed Finance BV Radarweg 29 1043 NX Amsterdam The Netherlands Tel: +31 (0)20 485 2222 Fax: +31 (0)20 485 2032 198 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 198 1/3/11 10:34:07 Notes O v e r v e w i O u r b u s n e s s i i F n a n c a i l r e v e w i G o v e r n a n c e i F n a n c a i l s t a t e m e n t s a n d o t h e r i f n o r m a t i o n 47213_Text_p189-200.indd 199 1/3/11 10:34:07 Annual Reports and Financial Statements 2010 Reed Elsevier 199 Notes 200 Reed Elsevier Annual Reports and Financial Statements 2010 47213_Text_p189-200.indd 200 1/3/11 10:34:07 Reed Elsevier is a world leading provider of professional information solutions in the Science, Medical, Risk, Legal and Business sectors. Our customers use our products every day to advance science, improve medical outcomes, evaluate risk, enable better legal decisions, forge business relationships and gain business insight. Credits Designed and produced by CONRAN DESIGN GROUP Board photography by Julian Calder Printed by Pureprint Group, ISO14001, FSC® certiﬁed and CarbonNeutral® Printed on Revive 50:50 Silk a recycled paper, Forest Stewardship Council (FSC) certiﬁed, containing 50% recycled waste and 50% virgin ﬁbre and manufactured at a mill certiﬁed with ISO 14001 environmental management standard. The pulp used in this product is bleached using an Elemental Chlorine Free process (ECF). The inks used in the printing of this report are all vegetable based. Full report online The Reed Elsevier Annual Reports and Financial Statements 2010 are available to view online. www.reedelsevier.com/ar10 47213_Covers.indd 2 3/3/11 13:51:10 www.reedelsevier.com Annual Reports and Financial Statements 2010 A n n u a l R e p o r t s a n d i F n a n c i a l S t a t e m e n t s 2 0 1 0 47213_Covers.indd 1 1/3/11 11:52:12

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