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www.reedelsevier.com
Annual Reports and
Financial Statements
2012
2012_Reed_Covers_Final.indd 18
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Reed Elsevier is a world leading provider of
professional information solutions.
We provide solutions that help professional customers
across industries make better decisions, get better
results and be more productive. We do this by leveraging
deep customer understanding to combine content
& data with analytics & technology in global platforms,
sharing institutional skills, assets and resources
across Reed Elsevier.
Credits
designed and produced by
saslondon.com
Board photography by
Iain Crockart
Printed by
Pureprint Group, ISO14001, FSC® certified and CarbonNeutral®
The 2012 Annual Reports and Financial Statements is printed
using paper containing a minimum of 75% recycled content, of
which 100% is de-inked post-consumer waste. All of the pulp is
bleached using an elemental chlorine free process (ECF).
Printed in the UK by Pureprint using their
environmental printing technology; vegetable inks were used
throughout. Pureprint is a CarbonNeutral® company. Both
manufacturing mill and printer are ISO14001 registered and are
Forest Stewardship Council® (FSC) chain-of-custody certified.
and
Contents
1
7
Overview
1 Chairman’s statement
2
4
2012 Financial highlights
Chief Executive Officer’s
report
Business review
8 Reed Elsevier
12 Scientific, Technical & Medical
Risk Solutions & Business
18
Information
28
Legal
34 Exhibitions
39 Corporate responsibility
49 Financial review
93
50
Chief Financial Officer’s
report
58 Principal risks
61 Governance
62 Board Directors
64 Executive Leadership Team
65
Chairman’s introduction
to corporate governance
Structure and corporate
governance
Report of the Nominations
Committee
Directors’ remuneration
report
Report of the Audit
Committees
66
73
74
91
Financial statements and
other information
94
Combined financial
statements
133 Summary combined financial
information in euros
147 Reed Elsevier PLC Annual
Report and Financial
Statements
171 Reed Elsevier NV Annual
Report and Financial
Statements
195 Additional information
for US investors
196 Summary financial
information in US dollars
200 Shareholder information
202 Contacts
203 2013 financial calendar
204 Principal operating locations
Full report online
ThE REED ELSEVIER ANNUAL REPORTS AND FINANCIAL STATEMENTS 2012 ARE AVAILABLE TO VIEw ONLINE:
REPORTING.REEdElsEvIER.cOm/aR12
Forward-looking statements
The Reed Elsevier Annual Reports and Financial Statements 2012 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 are
referenced in the filings of Reed Elsevier with the US Securities and Exchange Commission.
2012_Reed_Covers_Final.indd 18
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Reed Elsevier Annual Reports and Financial Statements 2012
1
Chairman’s statement
£100m. Based on our strong financial position and planned
disposals we intend to complete a further £300m of share
buybacks in the remainder of 2013.
Dividends
The Boards are recommending equalised final dividends of 17.0p
for Reed Elsevier PLC and €0.337 for Reed Elsevier NV, up
respectively 7% and 3% against the prior year. This brings the total
dividends for the year to 23.0p for Reed Elsevier PLC, up 7% and
€0.467 for Elsevier NV, also up 7%. The differing growth rates of
the interim and final dividends for the two parent companies
reflect movements in the sterling-euro exchange rate between
dividend announcement dates.
Balance sheet
Net debt was £3.1bn/€3.8bn on 31 December 2012, down from
£3.4bn/€4.1bn last year. Net debt/EBITDA for 2012 was 2.2x,
down from 2.3x last year, and on an unadjusted basis, it was 1.7x,
down from 1.8x last year. The rate of adjusted operating cash flow
conversion was 94%, up from 93% in 2011, with capital expenditure
at 5.5% of revenues.
Board succession
In December, our longstanding Chief Financial Officer, Mark
Armour retired from the Boards of Reed Elsevier. I would like to
thank him for his outstanding service over 16 years and wish him
every good fortune in retirement. Following a rigorous search
process, Duncan Palmer joined in August and was appointed
Chief Financial Officer in November. He was previously at
Owens Corning where he was chief financial officer and senior vice
president from 2007 having previously held various senior finance
positions within Royal Dutch Shell for 20 years in the UK, the
Netherlands and the US. I would like to welcome Duncan to our
Boards. His enormous breadth of global business experience,
gained while living in our three largest office locations, makes him
uniquely qualified to be Chief Financial Officer of Reed Elsevier.
During the year, we also continued the process of progressively
refreshing the non-executive element of the Boards. Mark Elliott
and Sir David Reid will retire as non-executive Directors after ten
years of valuable service following the conclusion of the Annual
General Meetings in April 2013. After a search process using
external consultants, Linda Sanford joined the Boards in
December. She has over 35 years’ experience as a global
executive with IBM and, with her experience particularly in
leveraging technology to achieve business transformation, she
is already proving to be a valuable non-executive Director. After
a further search, in February 2013 we announced that Dr Wolfhart
Hauser will join the Boards subject to shareholder approval at our
AGMs in April. With his more than 30 years’ service in executive
and non-executive positions in international technology and
services businesses and his background in science and medicine,
he will be an excellent addition to our Boards. I would like to thank
Mark and David for their wise advice and assistance over many
years and to welcome Linda and Wolfhart to Reed Elsevier.
Corporate responsibility
Our focus on corporate responsibility is a source of strength for
Reed Elsevier. I fully support all our efforts to ensure the highest
levels of ethical management. Our actions indicate that we are
implementing our commitment to increase the diversity of our
Boards.
Anthony Habgood
Chairman
Anthony Habgood
Chairman
Reed Elsevier executed well
on its strategic and financial
priorities in 2012. Positive
revenue momentum and focus
on operating efficiency combined
to lift underlying operating profit
growth and earnings.
We continued to strengthen our balance sheet while maintaining
organic investment and sharpening the focus of our business.
We are recommending a 7% increase in the full year dividends for
both Reed Elsevier PLC and Reed Elsevier NV, reflecting our
confidence in the long term outlook for Reed Elsevier.
Underlying revenues, which exclude the effects of currency
translation, acquisitions and disposals, grew +4%, or +3% excluding
the cycling effect of biennial exhibitions, with all five business areas
contributing to underlying growth. Our reported revenues grew
+2% to £6,116m expressed in sterling and +9% to €7,523m
expressed in euros, or up +3% at constant exchange rates.
Underlying adjusted operating profits grew +6%, with the
improvement in profitability driven by a combination of process
innovation and portfolio development across all business areas.
Expressed in sterling, adjusted operating profits grew +5% to
£1,713m, or +13% to €2,107m expressed in euros.
Adjusted earnings per share grew +7% to 50.1p for Reed Elsevier
PLC, and +14% to €0.95 for Reed Elsevier NV. Reported earnings
per share grew +42% to 46.0p for Reed Elsevier PLC, and +53%
to €0.471 for Reed Elsevier NV.
Share buybacks
During the year we disposed of a number of businesses that no
longer fit our strategy and used the gross proceeds to buy back
shares. In 2012 we deployed a total of £250m on share buybacks,
and by the end of February 2013 we had deployed an additional
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Reed Elsevier 2012.indb 1
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2
overview
REED ELSEVIER
2012 Financial highlights
Underlying revenue up 4% (3% excluding biennial exhibition cycling)
Underlying adjusted operating profit up 6%; up 6% at constant currencies
Adjusted EPS up 7% to 50.1p for Reed Elsevier PLC; up 14% to €0.95 for Reed Elsevier NV
Reported EPS up 42% to 46.0p for Reed Elsevier PLC; up 53% to €0.90 for Reed Elsevier NV
Full year dividend up 7% to 23.0p for Reed Elsevier PLC and up 7% to €0.467 for
Reed Elsevier NV
Return on invested capital up by 0.7 percentage points to 11.9%
Net debt £0.3bn lower at £3.1bn; 2.2x EBITDA pensions and lease adjusted (1.7x unadjusted)
Reed Elsevier combined businesses
REVENUE
ADJUSTED OPERATING PROFIT
£m
€m
£m
€m
Underlying Growth +4%
Underlying Growth +6%
6,002
6,116
6,902
7,523
1,626
1,713
1,870
2,107
2011
2012
2011
2012
2011
2012
2011
2012
Parent companies
REED ElSEVIER PlC
Adjusted EPS
pence
Growth +7%
46.7
50.1
Dividend
pence
REED ElSEVIER NV
Adjusted EPS
€
Dividend
€
Growth +7%
Growth +14%
Growth +7%
0.83
0.95
21.55
23.00
0.436
0.467
2011
2012
2011
2012
2011
2012
2011
2012
Reed Elsevier 2012.indb 2
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Reed Elsevier Annual Reports and Financial Statements 2012
3
Reed Elsevier combined businesses
REPORTED FIGURES
For the year ended 31 December
Revenue
Operating profit
Profit before tax
Net profit
Net borrowings
ADJUSTED FIGURES
For the year ended 31 December
Operating profit
Operating margin
Profit before tax
Net profit
Operating cash flow
Operating cash flow conversion
Return on invested capital
Parent companies
Adjusted earnings per share
Reported earnings per share
Ordinary dividend per share
2012
£m
6,116
1,358
1,187
1,069
3,127
2012
£m
1,713
28.0%
1,497
1,138
1,603
94%
11.9%
£
2011
£m
6,002
1,205
948
760
3,433
£
2011
£m
Change
+2%
+13%
+25%
+41%
Change
1,626
+5%
27.1% +0.9%pts
+8%
1,391
+7%
1,060
1,515
+6%
93%
11.2% +0.7%pts
2012
€m
7,523
1,670
1,460
1,315
3,846
2012
€m
2,107
28.0%
1,841
1,400
1,972
94%
11.9%
€
2011
€m
6,902
1,386
1,090
874
4,119
€
2011
€m
Change at
constant
currencies
+3%
+13%
+26%
+40%
Change
+9%
+20%
+34%
+50%
Change at
constant
currencies
Change
1,870
+13%
27.1% +0.9%pts
+15%
1,600
+15%
1,219
1,742
+13%
93%
11.2% +0.7%pts
+6%
+8%
+8%
+7%
Change
underlying
+4%
Change
underlying
+6%
Reed Elsevier PlC
Reed Elsevier NV
2012
2011
Change
2012
2011
Change
50.1p
46.0p
23.00p
46.7p
32.4p
21.55p
+7%
+42%
+7%
€0.95
€0.90
€0.467
€0.83
€0.59
€0.436
+14%
+53%
+7%
Change at
constant
currencies
+8%
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 and underlying 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. Underlying growth
rates are calculated at constant currencies, and exclude the results of all acquisitions and disposals made in both the year and prior
year and assets held for sale. Constant currency growth rates are based on 2011 full year average and hedge exchange rates.
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Reed Elsevier 2012.indb 3
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4
overview
CHIEF EXECUTIVE OFFICER’S REPORT
Chief Executive Officer’s report
erik engstrom
Chief Executive Officer
In 2012 we made good progress
on our strategy to systematically
transform our business into a
professional information
solutions provider that combines
content & data with analytics &
technology in global platforms.
We are continuing to improve the
quality of our earnings, to deliver
more predictable revenues,
a higher growth profile, and
improving returns.
Strategic direction
Our strategy is to become a true professional information
solutions provider. A company that delivers improved outcomes
to professional customers across industries, to help them make
better decisions, get better results and be more productive.
We aim to do this by leveraging deep customer understanding
to combine content & data with analytics & technology in global
platforms. Our solutions often account for about 1% of our
customers’ total cost base but can have a significant, positive,
impact on the remaining 99%. We seek to build leading positions
in long term global growth markets by leveraging our institutional
skills, assets & resources across Reed Elsevier, both to build
solutions for our customers and to pursue cost efficiencies.
We are continuing to systematically migrate towards this type of
business across all of Reed Elsevier, primarily through organic
investment. We supplement our organic development with
selective acquisitions, when we are the natural owner and can
accelerate our strategy with good returns. We continue to divest
assets that we are not able to migrate or where we do not see
significant future value creation for Reed Elsevier.
By focusing on evolving the fundamentals of our business we
believe that, over time, we will improve the business profile of
Reed Elsevier and the quality of our earnings. This will lead to
more predictable revenues through a better asset mix and
geographic balance; a higher growth profile by expanding in
higher growth segments, exiting from structurally challenged
businesses and gradually reducing the drag from print format
declines; and improved returns by focusing on organic
development with strong cash generation.
Overall, we believe that Reed Elsevier has a better business
profile today than it had three years ago, and it is our objective to
make sure that it has a better business profile three years from
now than it has today.
UNDerLYiNG reveNUe GrowTH
including biennial exhibition cycling
+2%
+2%
+4%
-6%
2009
2010
2011
2012
57096_SAS_p001-006.indd 4
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Reed Elsevier Annual Reports and Financial Statements 2012
5
2012 progress
In 2012 we made good progress both on our organic
transformation and on reshaping our portfolio. Organically,
we extended our solution sets across customer workflows,
launching new products, and rolling out new technology platforms
and we continued to build out new products in adjacent markets
and geographies.
By the end of 2012 approximately 80% of our revenues were in
our targeted formats of electronic and face to face, generating
average underlying revenue growth rates of 5-7%.
We limited our acquisitions to small data and content assets
across business areas, and assets in high growth markets and
geographies. Over the past three years our average annual
acquisition spend has been around £300m per year, just over half
of our typical free cash flow after dividends. Only one acquisition in
the past three years has been in the hundreds of millions of pounds
sterling , Accuity, right in the intersection of Risk Solutions and
RBI’s Major Data Services. All other individual transactions have
required cash spend in the single digit millions or tens of millions
of pounds sterling.
Our acquisitions have been focused on electronic and face-to-face
formats, with less than 10% of the acquired revenue being in print
format. They have also been heavily weighted towards higher
growth markets and geographies, with only 10% of acquired
revenue in Europe, and virtually no acquired advertising revenues.
In 2012 we increased our disposal activity, exiting businesses that
are not likely to transform into the type of business that we want to
be in, or where we do not see significant future value creation for
Reed Elsevier. We also exited businesses where we have made a
decision not to invest further to pursue a global leadership
position, despite having successfully transformed an asset.
For example, in recruitment and pre-employment services,
we decided to dispose of both our Totaljobs online recruitment
business and our employment screening business.
Over the last three years we have exited businesses with total
revenues of approximately £600m, including significant amounts
of print and advertising related revenues in Europe.
With a strong balance sheet and strong cash flow generation, and
average acquisition spend comfortably covered by free cash flow,
we are able to continue to use the gross cash proceeds from
disposals to buy back shares, to mitigate the EPS dilution
associated with ongoing disposals.
Financial performance
Underlying revenue growth reached +4%, or +3% excluding the
effects of biennial exhibition cycling. Underlying operating profit
grew +6%, and adjusted earnings per share grew by +8% at
constant exchange rates. Despite continued organic investment in
our business and the completion of a number of small acquisitions,
our return on invested capital increased by another 70 basis points
to 11.9%. By the end of 2012 we had reduced our net debt/EBITDA
ratio to 2.2 times on a pension and lease adjusted basis, or
1.7 times on an unadjusted basis, and we remain in a leverage
range with which we are very comfortable.
All five business areas contributed to underlying revenue and
adjusted operating profit growth in 2012.
Elsevier achieved good revenue growth in primary research and
databases & tools across scientific & medical segments, with
particular strength in emerging markets. Research article
submissions and usage grew double digits. Electronic revenues,
which now account for approximately 70% of total revenues,
grew strongly across all segments.
LexisNexis Risk Solutions’ underlying revenue growth
accelerated slightly in 2012. Solid growth in the Insurance
business was driven by the extension of products and services
across insurance carrier workflows. In Business Services,
anti-money laundering, fraud detection and credit decisioning
solutions all performed well.
The underlying rate of revenue growth improved at Reed Business
Information, driven by strong growth from most of our Major Data
Services businesses. Marketing Solutions and Leading Brands
grew modestly, and the rate of decline in Other Business
Magazines & Services moderated. We continued to transform the
business in 2012, exiting businesses that no longer fit our strategy.
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UNDERLYING REVENUE GROWTH
Excluding biennial exhibition cycling
REVENUE BY FORmaT
2012 underlying revenue growth excluding cycling: +3%
+3%
+3%
+1%
-5%
2009
2010
2011
2012
Print
–5–6%
Face to face
+7%*
* excluding cycling
Electronic
+5–6%
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6
overview
CHIEF EXECUTIVE OFFICER’S REPORT
In December we announced that we are bringing LexisNexis Risk
Solutions and Reed Business Information more closely together.
We intend to leverage Risk Solutions’ strengths in data, analytics
and technology in combination with RBI’s broader geographic
footprint and its industry specific databases.
Underlying revenue growth at LexisNexis Legal & Professional
was positive despite subdued legal markets in the US and Europe.
Growth was driven by electronic revenues, which account for
approximately 75% of total revenues. In 2012 we continued to
release new products and platforms which have been well
received.
reed exhibitions performed strongly in 2012, driven by strong
growth in the US and Japan, moderate growth in Europe, and
double digit growth in emerging markets. We continued to invest
throughout the year, launching 30 new shows, and strengthened
our position in high growth markets through partnerships and
targeted acquisitions.
outlook
In 2013 we will remain focused on the systematic transformation
of our business and on improving the quality of our earnings.
While the outlook for the macro environment and its impact on our
customer markets is mixed, and 2013 will be a cycling out year for
our exhibitions business, we have entered the year with positive
momentum, and expect 2013 to be another year of underlying
revenue, profit, and earnings growth.
erik engstrom
Chief Executive Officer
UNderLYiNG AdJUSTed oPerATiNG ProFiT GrowTH
eArNiNGS Per SHAre GrowTH
Constant currency
+5%
+6%
-1%
-9%
2009
2010
2011
2012
+6%
+8%
-9%
2009
-6%
2010
2011
2012
reTUrN oN iNveSTed CAPiTAL
NeT deBT / eBiTdA
10.4%
10.6%
11.2%
11.9%
2.9x
2.5x
2.3x
2.2x
2009
2010
2011
2012
2009
2012
Pensions and lease adjusted; calculated in US dollars;
2012 unadjusted net debt / EBITDA 1.7x
2010
2011
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Reed Elsevier Annual Reports and Financial Statements 2012
7
Business
review
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In this section
Reed Elsevier
8
12 Scientific, Technical & Medical
18 Risk Solutions & Business Information
28 Legal
34 Exhibitions
39 Corporate responsibility
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8
BUSINESS REVIEW
REED ELSEVIER
Reed Elsevier
Reed Elsevier is a world leading provider of professional information
solutions. A company that delivers improved outcomes to professional
customers across industries, helping them make better decisions, get
better results and be more productive.
We achieve this by leveraging deep customer understanding to
combine high quality content & data with analytics & technology
in global platforms. Our solutions often account for about 1 percent
of our customers’ total cost base but can have a significant, positive,
impact on the remaining 99 percent.
We seek to build leading positions in long-term global growth markets
by leveraging our institutional skills, assets and resources across
Reed Elsevier, both to build solutions for our customers and to pursue
cost efficiencies.
Across Reed Elsevier, we are systematically migrating towards this type
of business, primarily through organic development, by investing in the
transformation of our current assets and building out new products and
solutions in adjacent markets and geographies. We are supplementing
organic growth with selective acquisitions where we are the natural
owner and can accelerate our strategy with good returns. We will
continue to divest assets that we are not able to migrate in this direction,
or where we do not see significant future value creation for Reed Elsevier.
revenue by format
revenue by geographic market
£6,116m
21%
15%
£6,116m
19%
Electronic
Face to face
Print/Other
64%
19%
52%
North America
UK
Netherlands
Rest of Europe
Rest of World
3%
7%
57096_SAS_p007-038.indd 8
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reed elsevier Annual Reports and Financial Statements 2012
9
Reed Elsevier operates across several professional market segments:
In Scientifi c,technical & medical markets, we provide
information and tools to help customers improve scientifi c
and healthcare outcomes.
In risk Solutions & business Information, we provide data,
analytics and insight that enable customers to evaluate and
manage risks, and develop market intelligence, supporting
more confi dent decisions, improved economic outcomes,
and enhanced operational effi ciency.
risk Solutions
C.L.U.E.®
In legal markets, we are a world leading provider of legal,
regulatory and news & business information and analysis
to legal, corporate, government and academic customers.
legal & professional
In exhibitions, we are the world’s leading events business,
with almost 500 events in over 30 countries.
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FINANCIAL SUMMARy
revenue
Scientifi c, Technical & Medical
Risk Solutions
Business Information
Legal
Exhibitions
adjusted operating profi t
Scientifi c, Technical & Medical
Risk Solutions
Business Information
Legal
Exhibitions
Unallocated items
2012
£m
2,063
926
663
1,610
854
6,116
780
392
119
234
210
(22)
1,713
2011
£m
2,058
908
695
1,634
707
6,002
768
362
110
229
167
(10)
1,626
Change
Change at constant
currencies
Change
underlying
0%
+2%
-5%
-1%
+21%
+2%
+2%
+8%
+8%
+2%
+26%
+5%
+1%
+1%
-3%
-1%
+25%
+3%
+1%
+7%
+10%
+4%
+30%
+6%
+2%
+6%
+2%
+1%
*
+15%
**
+4%
+4%
+6%
+10%
+4%
+20%
+6%
**+7% excluding biennial exhibition cycling.
**+3% excluding biennial exhibition cycling.
Adjusted operating profi t is presented as an additional performance measure used by management and is stated before amortisation of acquired intangible assets, acquisition
related costs, disposal gains and losses and other non operating items, related tax effects, exceptional prior year tax credits (in 2012 only) and movements in deferred taxation
assets and liabilities that are not expected to crystallise in the near term and include the benefi t of tax amortisation where available on acquired goodwill and intangible assets.
Adjusted operating profi t is also grossed up to exclude the equity share of taxes in joint ventures. Reconciliations between the reported and adjusted fi gures are provided in
note 10 to the combined fi nancial statements. Underlying growth rates are calculated at constant currencies and exclude the results of all acquisitions and disposals made in
both the year and prior year and assets held for sale. Constant currency growth rates are based on 2011 full year average and hedge exchange rates.
revenue
£6,116m
14%
26%
adjuSted operatIng profIt
£1,713m
12%
Scientific, Technical
& Medical
34%
Risk Solutions
Business Information
Legal
Exhibitions
13%
7%
Scientific, Technical
& Medical
Risk Solutions
45%
Business Information
Legal
Exhibitions
11%
15%
23%
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Reed Elsevier 2012.indb 9
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10
buSIneSS revIeW
REED ELSEVIER
HELPING CUSTOMERS
LEVERAGE BIG DATA:
REED ELSEVIER’S
HPCC SYSTEMS
the proliferation of mobile devices and rapid falls in
the cost of storage mean the volume of data being
captured around the world is doubling every two
years. by one estimate, it could increase 50-fold
between now and 2020*.
Our customers need to filter these vast quantities of
often incompatible structured and unstructured data
in order to make better decisions, get better results
and be more productive.
Whether they are governments looking to clamp down
on fraud, insurance companies looking to improve
their services, legal professionals who need the
latest case notes at their fingertips, or clinicians
requiring healthcare analytics, Reed Elsevier’s High
Performance Computing Cluster (HPCC) technology
helps them achieve these outcomes.
Uniquely, HPCC Systems combines trusted
methodologies with Reed Elsevier’s proprietary
linking algorithms in a single high quality repository,
enabling our customers to turn data into intelligence
– better, faster and cheaper.
*Source: IDC
30m
transactions
per hour
HPCC SYSTEMS IS AN
OPEN-SOURCE, BIG DATA
PROCESSING PLATFORM
THAT CAN HANDLE 30M
TRANSACTIONS PER HOUR
2012
Cool Vendor
GARTNER NAMED REED
ELSEVIER’S HPCC
SYSTEMS A ‘COOL VENDOR’
IN ITS APRIL 2012 REPORT
OUR HPCC PLATFORM
LINKS DISPARATE DATA
SOURCES TOGETHER
ON A LARGE SCALE
AND AT HIGH SPEED,
CREATING PRODUCT
OPPORTUNITIES THAT
OUR CUSTOMERS NEVER
KNEW EXISTED.
vijay raghavan
Chief Technology
Officer, LexisNexis
Risk Solutions
Reed Elsevier 2012.indb 10
08/03/2013 12:07
HELPING CUSTOMERS
LEVERAGE BIG DATA:
REED ELSEVIER’S
HPCC SYSTEMS
reed elsevier Annual Reports and Financial Statements 2012
11
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Reed Elsevier 2012.indb 11
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SCIENTIFIC, TECHNICAL & MEDICAL
Scientifi c, Technical & Medical
In Scientifi c, Technical & Medical
markets, we provide information
and tools to help customers
improve scientifi c and healthcare
outcomes.
Elsevier is the world’s leading provider of scientifi c, technical 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 information solutions that enable
them to make critical decisions, enhance productivity, and
improve outcomes.
Revenues for the year ended 31 December 2012 were £2,063m.
Elsevier is a global business with principal operations in
Amsterdam, Beijing, Boston, Chennai, Delhi, London, Madrid,
Munich, New York, Oxford, Paris, Philadelphia, Rio de Janeiro,
St. Louis, San Diego, Singapore and Tokyo. It has 7,000 employees.
Elsevier serves the needs of the science, technology and health
markets by publishing primary research, reference, and
education content, as well as by providing a range of database
and workfl ow solutions. Elsevier’s customers are scientists,
academic institutions, research leaders and administrators,
medical researchers, doctors, nurses, allied health professionals
and students, as well as hospitals, research institutions, health
insurers, managed healthcare organisations, research-intensive
corporations, and governments. All of these customers rely on
Elsevier to provide high quality content and critical information
for making scientifi c and medical decisions; to review, publish,
disseminate and preserve research fi ndings; to create innovative
tools to help focus research strategies, increase research
effectiveness, improve medical outcomes, and enhance the
effi ciency of healthcare and healthcare education.
In the primary research market during 2012, over 1m research
papers were submitted to Elsevier, a double digit increase on the
prior year. Over 10,000 editors managed the peer review and
selection of these papers, resulting in the publication of more
than 330,000 articles in almost 2,000 journals, many of which
are the foremost publications in their fi eld and a primary point of
reference for new research. This content was accessed by around
11m people, with nearly 700m full text article downloads last year.
Content is provided free or at very low cost in most of the world’s
poorest countries. Elsevier’s journals are primarily published and
delivered through the ScienceDirect platform, the world’s largest
database of scientifi c and medical research, hosting over 11m
articles, and over 11,000 full text e-books. Flagship journals
include Cell and The Lancet families of titles. Elsevier continuously
innovates to improve the utility and effectiveness of its journals.
For example, its “Article of the Future” enhances the traditional
scientifi c paper with new and broader types of content, such as
links to experimental data, related content, and enhanced media
to supplement the article’s text.
Elsevier is also a global leader in the scientifi c, technical and
medical reference market, providing authoritative and current
professional reference content. While reference has traditionally
been a print industry, Elsevier has been a leader in driving the
shift from print to electronic. Elsevier publishes over 20,000
reference titles, with 1,400 new titles published annually along
with supporting bibliographic data, indices and abstracts.
Approximately 85% of these titles are available electronically.
Flagship titles include works such as Gray’s Anatomy, Nelson’s
Pediatrics and Netter’s Atlas of Human Anatomy.
One of the world’s leading medical journals
since 1823
SciVal provides research performance
tools for academic institutions and funding
intelligence
Premier life sciences journal with the
highest impact factor in biochemistry
and molecular biology
ClinicalKey combines leading reference and
evidence-based medical content into its
fully-integrated clinical insight engine
PharmaPendium is an online drug safety
database that supports drug development
researchers
Scopus is the world’s largest
scientifi c abstract and citation
database
Geofacets is an extensive database of
georeferenced geological maps
ScienceDirect is the world’s largest
database of scientifi c and medical
research articles
CPM CarePoints is a leading comprehensive
care planning and clinical documentation
system
Reed Elsevier 2012.indb 12
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reed elsevier Annual Reports and Financial Statements 2012
13
Elsevier launched ClinicalKey in 2012, a product that allows
physicians to access the leading reference and evidence-based
medicine content in a single, fully-integrated site. ClinicalKey
includes a full taxonomy and improved smart content search to
help clinicians look up detailed information on highly specific
topics as they seek to answer clinical questions. The platform
covers Elsevier’s as well as relevant third-party health content.
ClinicalKey has already been deployed at leading teaching
hospitals, such as Oxford University’s John Radcliffe, the
Cleveland Clinic, and the US Department of Veterans Affairs.
In medical education, Elsevier serves students of medicine,
nursing and allied health professions through print and electronic
books, as well as electronic solutions. For example, its Evolve
portal provides a rich resource to support faculty and students
and now has over 3.5m registered users; Evolve Reach provides
online review and testing tools for nursing and the allied health
professions; Evolve Teach provides online resources and solutions
to support faculty.
Elsevier’s database and workflow products provide a range of
tools and solutions for professionals in the science, technical,
and medical fields. Customers include academic and corporate
researchers, research administrators and healthcare
professionals.
For academic and corporate researchers, significant products
include Scopus, Geofacets, and Reaxys. Scopus is the largest
abstract and citation database of research literature in the
world, with abstracts and bibliographic information on almost
50m scientific research articles from 19,500 peer reviewed
journals and 5,000 international publishers. Geofacets is an oil and
gas exploration tool which packages research-relevant Elsevier
and third-party geological content and tags that content to enable
rich search functionality. Reaxys is a leading solution for synthetic
chemists, integrating chemical reaction and compound data
searching with synthesis planning.
In December 2012, Elsevier acquired Knovel, a web-based
provider of productivity tools for the engineering community,
integrating technical information with analytics and search to
deliver trusted answers and drive innovation.
Elsevier serves academic and government research
administrators through its SciVal suite of products that help them
evaluate their institutions’ 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 research and development
investments. SciVal Funding assists researchers and institutions in
identifying grants that are most relevant in their research areas.
In August 2012, Elsevier bolstered its research management
portfolio by acquiring Atira, a provider of software and tools that
complement the SciVal platform and help academic institutions
and researchers improve their research outcomes.
For healthcare professionals, Elsevier develops products to
deliver patient-specific solutions at the point of care to improve
patient outcomes. Its clinical solutions include Gold Standard,
which provides critical information on drug interactions to assist
effective treatment, and CPM Resource Center, which provides
a data-driven framework to support nurses in undertaking
procedures.
Elsevier further bolstered its clinical solutions portfolio with the
acquisition in September 2012 of ExitCare, a provider of patient
education and discharge instructions. ExitCare’s products,
incorporated into Elsevier’s clinical decision support content
and tools, will help healthcare providers improve the delivery
of healthcare information and services across all care
environments.
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revenue by format
£2,063m
Print/Other
32%
revenue by geographIc market
£2,063m
Rest of World
Electronic
68%
North America
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14
BUSINESS REVIEW
SCIENTIFIC, TECHNICAL & MEDICAL
Market opportunities
Scientific, Technical and Medical information markets have good
long-term 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 research and development spend and in the number
of researchers worldwide. Growth in health markets is driven
by ageing populations in developed markets, rising prosperity
in developing markets and the increasing focus on improving
medical outcomes and efficiency. Given that a significant
proportion of scientific research and healthcare is funded
directly or indirectly by governments, spending is influenced
by governmental budgetary considerations. The commitment
to research and health provision does, however, remain high,
even in more difficult budgetary environments.
Strategic priorities
Elsevier’s strategic goal is to lead the way in providing information
solutions that advance science and improve health. To achieve
this, Elsevier creates solutions that reflect deep insight into the
way its users work and the outcomes they are seeking to achieve;
drives for excellence in content, service and technology;
constantly adapts and revitalises its products, solutions and
business models; and leverages its shared resources and
knowledge to promote innovation, efficiency and excellence in
execution.
For academic and corporate researchers, priorities are to
continue to strengthen journal brands and the quality of published
articles, and to further improve scientific communication and
user experience with our journal content. Elsevier is focused on
delivering journal content quickly, making it available through
different access channels, and exploring a range of innovative new
business models. Elsevier will also build new services, and add
greater functionality and utility to existing solutions to improve
researcher productivity.
For science and health professionals, priorities are to continue
enhancing the quality and relevance of our content and our
workflow tools, while actively managing the ongoing format
shift from print to electronic information.
For students, priorities are to continue to provide the highest
quality educational content and tools and to develop an even better
customer experience. In addition, Elsevier will develop tools to
track student performance, train new faculty members, and
improve the effectiveness of existing faculty staff.
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. For a number of journals,
advertising and promotional income represents a small
proportion of revenues predominantly from pharmaceutical
companies in healthcare titles.
Over the past 15 years alternative payment models for the
dissemination of research such as so-called “author-pays open
access” or ”author’s-funder-pays” have emerged. While it is
expected that paid subscription will remain the primary
distribution model, Elsevier has long invested in alternate
business models to address the needs of customers and
researchers. Over 1,500 of Elsevier’s journals now offer the option
of funding research publishing and distribution via a sponsored
article fee. In addition, Elsevier now publishes around 30
“author-pays” journals.
Electronic products, such as ScienceDirect, Scopus and ClinicalKey,
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.
RElatIVE IMpact factoR
gRoWth IN aRtIclE SUBMISSIoNS
1.00
1.02
1.06
1.08
+11%
2009
2010
2011
2012
2011
2012
Improvement in relative journal quality of Elsevier’s portfolio through
attracting the highest quality research.
Increased number of articles submitted to Elsevier journals with the total
exceeding 1m for the first time in 2012.
Relative impact factor is the average citation impact of Elsevier’s journal content
compared to other publishers (industry average = 1). Relative impact factors based on
journal-level impact factors released by Thomson Reuters in the given year.
57096_SAS_p007-038.indd 14
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Reed Elsevier Annual Reports and Financial Statements 2012
15
Revenue
Adjusted operating profit
2012
£m
2,063
780
2011
£m
2,058
768
Change
0%
+2%
Change at constant
currencies
+1%
+1%
Change
underlying
+2%
+4%
2012 financial performance
Elsevier achieved good revenue growth in primary research
and databases & tools across scientific & medical segments,
with particular strength in emerging markets. Research article
submissions and usage grew double digits. Electronic revenues,
which now account for approximately 70% of total revenues,
grew strongly across all segments. Print book and pharma
promotion revenues continued to decline.
Underlying revenues grew +2% and underlying adjusted operating
profits grew +4%.
Good underlying revenue growth in primary research solutions
across the scientific and medical segments was driven by double
digit growth in both submissions and article downloads, with
particularly strong growth in faster growing economies outside
Europe and the US. The number of article submissions to our
journals exceeded 1m for the first time in 2012, with over 11m
users downloading nearly 700m articles during the year.
Elsevier’s overall relative impact factor and citation share
continued to grow in the year as we focused on providing our
customers with high quality content embedded in sophisticated
online tools.
In addition to good growth in traditional “subscriber-pays” article
volumes, “author-pays”, or “author’s-funder-pays” article volumes
increased during the year, albeit from a small base. A sponsored
article option is currently available in 1,500 of our journals and
30 stand-alone journals operate under this payment model.
Good growth in databases & tools revenue was driven by strong
new sales and usage growth.
Sales of print books to individuals continued to decline in 2012
reflecting format migration and subdued reference and education
markets. Print pharma promotion revenues also continued to
decline reflecting industry trends.
In August 2012 the management structure of Elsevier was
reorganised, combining science & technology and health
sciences. Had these revenue streams still been managed
separately, their pro forma underlying revenue growth would
have been +5% and flat respectively.
In 2012 adjusted operating profit margin continued to improve,
driven by continued process efficiencies and currency hedging
benefits.
2013 Outlook
The customer environment is broadly unchanged on last year,
with variations by geography and customer segment. We expect
volume growth in research and strong demand for electronic
products and solutions to continue across scientific and medical
markets, with continued declines in print book and pharma
promotion revenues. Overall we expect another year of modest
underlying revenue growth in 2013.
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REvEnuE
£m
adjustEd OPERating PROfit
£m
1,985
2,026
2,058
2,063
693
724
768
780
2009
2010
2011
2012
2009
2010
2011
2012
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SCIENTIFIC, TECHNICAL & MEDICAL
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reed elsevier Annual Reports and Financial Statements 2012
17
scopus: reducing
the time it takes to
get new products
to customers
unilever is one of the world’s leading suppliers
of food, home and personal care products
with sales in over 190 countries. Its products
are present in seven out of 10 homes globally
and are used by more than 2bn people on a
daily basis.
Unilever undertakes an immense range of
product improvements and new product
development every year. In order to shorten the
time it takes to get new products to customers,
the R&D team needed a tool to speed up their
research decision making process. After
extensive evaluation against its existing
research discovery tool which had been in place
for 12 years, Unilever implemented Elsevier’s
Scopus in 2012.
Scopus now enables Unilever’s R&D and
Innovation teams to search 49m scientific
records to make faster, more informed decisions
and achieve better results. Unilever relies on
Scopus to determine quickly if a specific
experiment or chemical reaction has been
carried out before and if it is worth pursuing.
When deciding on using Scopus, David
Younghusband, Information Systems Specialist
for Unilever, based in Bedford, UK, asked for
feedback from the researchers as part of the
structured evaluation process. The unanimous
feedback was that they could not now work
without Scopus.
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About Scopus
Scopus is the largest abstract and
citation database of peer-reviewed
research literature from more than
5,000 international publishers. The
collection of research literature grows
every month and currently includes
more than 20,500 different sources,
including 19,500 peer-reviewed
journals, 400 trade publications, and
360 book series. Featuring smart tools
to track, analyse and visualise research,
Scopus is widely used across the
research community, with customers in
academia, government, and industry.
20,500
sources
THE COLLECTION OF RESEARCH
LITERATURE IN SCOPUS GROWS
EVERY MONTH AND CURRENTLY
INCLUDES MORE THAN 20,500
DIFFERENT SOURCES.
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SCOPUS HELPS US DO MORE
“E-SCIENCE”—SCIENTIFIC
INVESTIGATION THAT
CAN BE UNDERTAKEN
MORE EFFECTIVELy, LESS
EXPENSIVELy AND WITHOUT
HAVING TO PERFORM WORK IN
THE LAB THAT HAS ALREADy
BEEN DONE By OTHERS OR
THAT ISN’T LIKELy TO PRODUCE
RELEVANT OUTCOMES.
david younghusband
Information Systems
Specialist, Unilever
R&D
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18
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RISK SOLUTIONS & BUSINESS INFORMATION
Risk Solutions & Business Information
In Risk Solutions & Business
Information, we provide data,
analytics and insight that enable
customers to evaluate and
manage risks, and develop market
intelligence, supporting more
confi dent decisions, improved
economic outcomes, and
enhanced operational effi ciency.
Risk Solutions
LexisNexis Risk Solutions is a leading provider of solutions that
combine proprietary, public and third-party information, with
advanced technology and analytics. These solutions assist
customers in evaluating, predicting and managing risk and
improving operational effectiveness, predominantly in the US.
Revenues for the year ended 31 December 2012 were £926m.
LexisNexis Risk Solutions is headquartered in Alpharetta,
Georgia, has principal operations in Georgia, Florida, and Ohio,
and has 4,100 employees.
LexisNexis Risk Solutions is organised around market facing
industry/sector groups: insurance, business services (including
the fi nancial services, receivables management and corporate
groups), and government. The most signifi cant of these is
insurance. These groups are supported by a shared infrastructure
for technology operations, data management, and other support
functions including compliance and marketing. A number of
transactional support activities, including some fi nancial
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.
Insurance Solutions provides a comprehensive combination of
data and analytics to property and casualty (P&C) personal and
commercial insurance and life insurance carriers in the US to
improve critical aspects of their business, from customer
acquisition and underwriting to claims handling. 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 pricing and underwriting insurance policies.
Additional key products include Data Prefill, which provides critical
information on customers, potential customers and their auto
ownership directly into the insurance workfl ow, and Current
Carrier, which identifi es current or previous insurance as well
as any lapses in coverage.
business Services provides fi nancial institutions with risk
management, identity management, fraud detection, credit risk
management, and compliance solutions. These include “know
your customer” and anti-money laundering products. The
business also provides risk and identity management solutions
for corporate customers in retail, telecommunications and
utilities sectors. Receivables management solutions help debt
recovery professionals in the segmentation, management and
collection of consumer and business debt.
government Solutions provides data and analytics to US federal,
state and local law enforcement and government agencies to help
solve criminal and intelligence cases and to identify fraud, waste
and abuse in government programmes.
The Risk Solutions business also provides risk-related information
to the legal industry through LexisNexis Legal & Professional.
risk Solutions
C.L.U.E.®
Most comprehensive US personal insurance
claims database
LexisNexis® Data Prefi ll
Tool to automate insurance application
process providing critical information
insurers need to quote and underwrite
a policy
LexisNexis® Current Carrier
Database that identifi es the existence of
current or previous insurance, and whether
or not the applicant has had a possible lapse
in coverage
LexisNexis® Anti-Money
Laundering Solutions
Content and information for anti-money
laundering compliance, risk mitigation
and enhanced due diligence
Accurint® for Collections
The leading online US solution to help locate
debtors quickly and accurately
LexisNexis®
Identity Management
Range of solutions to help clients verify that
an identity exists and authenticate individuals
LexisNexis® RiskView
Comprehensive suite of credit risk
management tools to help assess consumer
creditworthiness and risk potential
LexisNexis® Revenue Recovery and Discovery
Suite of tools to enable governments to leverage public records and
analytics to identify instances of fraud and to more effi ciently collect
on outstanding debts
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reed elsevier Annual Reports and Financial Statements 2012
19
Risk Solutions continues to focus on developing a pipeline of
new solutions to drive growth in selected adjacent markets and
geographies. For example, in the UK, Risk Solutions has launched
a new product that uses public information to help insurers assess
and segment risk more effectively among motor insurance
customers and is planning to launch additional innovative
products to facilitate sharing of data across motor insurers,
improving insurers’ ability to understand underwriting risks.
In the government segment, customers are adopting fraud
detection, waste, and abuse solutions, which enable government
agencies to identify incidences of tax and benefits fraud, and boost
revenue collections. Risk Solutions has also continued to broaden
its portfolio of identity management solutions, including
one-time-password and biometric solutions, and has made
existing identity products more configurable to address the
specific needs of customers across our market segments.
The identity verification and risk evaluation solutions provided by
Risk Solutions utilise a comprehensive database of public records
and proprietary information with more than 2,000 terabytes of
unique data, which makes it the largest database of its kind in the
US market today. LexisNexis Accurint is a flagship product,
powered by the High Performance Computing Cluster (HPCC)
technology. This market-leading technology enables Risk
Solutions to provide its customers with highly relevant search
results swiftly and to create new, low-cost solutions quickly and
efficiently. It is also increasingly used across other Reed Elsevier
markets such as Legal and Scientific, Technical & Medical.
In January 2013, Risk Solutions announced the sale of its
Screening business. This will allow it to increase its focus on
higher-growth segments leveraging its core data, technology and
analytical capabilities. The Screening business presented limited
opportunities to apply these capabilities to generate unique
customer value, sustained growth, and superior margins.
market opportunities
Risk Solutions operates in markets with strong long-term
underlying growth drivers including: insurance underwriting
transactions; insurance, healthcare, tax and entitlement fraud;
credit defaults and financial fraud; regulatory compliance and
due diligence requirements surrounding customer enrolment;
and security considerations.
In the insurance segment, growth is supported by increasing
transactional activity in the auto, property and life insurance
markets and the increasing adoption by insurance carriers of
more sophisticated data and analytics in the prospecting,
underwriting and claims evaluation processes, to assess
underwriting risk, increase competitiveness and improve
operating cost efficiency. Transactional activity is driven by
product extensions across insurance carriers’ workflow and
growth in insurance quoting, as consumers seek better policy
terms. This activity is stimulated by increasing competition
between insurance companies, high levels of carrier advertising,
and rising levels of internet quoting and policy binding.
A number of factors support growth for risk solutions in the
financial services market, including new credit originations,
continued high fraud losses, stringent regulatory compliance
requirements, and increasing anti-money laundering fines. In
receivables management, demand is driven mainly by levels of
consumer debt and the prospect of recovering that debt, which
is impacted by employment conditions in the US. In corporate
markets, demand is supported by growth in online retail sales and
continued high levels of credit card fraud. Growth in government
markets is driven by the increasing use of data and analytics to
combat criminal activity, fraud and tax evasion, and to address
security issues. The level and timing of demand in this market is
influenced by government funding and revenue considerations.
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revenue by format
£926m
Print/Other 4%
revenue by Segment
£926m
Government
Screening
Electronic
96%
Insurance
Solutions
Business
Services
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RISK SOLUTIONS & BUSINESS INFORMATION
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 highest quality tools to help
manage those risks efficiently and cost effectively. To achieve this,
Risk Solutions is focused on: delivering innovative new products
across customer workflows; expanding the range of risk
management solutions across adjacent markets; addressing
international opportunities in selected markets to meet local risk
management needs; and continuing to strengthen its content,
technology, and analytical capabilities.
business model, distribution channels and competition
Risk Solutions’ products are predominantly sold directly, with
pricing mostly on a transactional basis for insurance carriers
and corporations, and primarily on a subscription basis for
government entities.
Risk Solutions and Verisk, a competitor, each sell data and
analytics solutions to insurance carriers but largely address
different activities. Risk Solutions’ principal competitors in
commercial and government segments include Thomson Reuters
and major credit bureaus, in many cases addressing different
activities in these segments as well.
groWth In fraud preventIon tranSactIonS
groWth In InSurance claImS tranSactIonS
+30%
+17%
2011
2012
2011
2012
Growth in fraud prevention transactions driven by increasing need to
identify and prevent fraud.
Increasing penetration of the insurance carrier workflow with uptake of
products to investigate claims, adjudicate them quickly and identify fraud
and subrogation opportunities.
Reed Elsevier 2012.indb 20
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reed elsevier Annual Reports and Financial Statements 2012
21
Revenue
Adjusted operating profit
2012
£m
926
392
2011
£m
908
362
Change
+2%
+8%
Change at constant
currencies
+1%
+7%
Change
underlying
+6%
+6%
2012 financial performance
underlying revenue growth accelerated slightly in 2012 as we
extended our data & analytics solutions across risk markets,
driving strong growth in both Insurance and business Services,
and a return to growth in the government segment. the
improvement in adjusted operating profit margin largely
reflects the impact of disposals, with underlying cost growth
broadly matching revenue growth, reflecting ongoing spend
on new product development.
Underlying revenues and adjusted operating profits both grew +6%.
The Insurance business grew underlying revenues by +7%, with
solid growth reflecting the extension of products and services
across the insurance carrier workflow, and expansion in new
market segments. The international launches progressed well
in 2012, albeit on a scale that was not material to Risk Solutions
overall.
Business Services revenue growth accelerated to +7%. In financial
services, the anti-money laundering, fraud detection and credit
decisioning solutions all performed well, and revenues were
positively impacted by some temporary effects of increased
mortgage refinancing activities. Our receivables management
business remained soft.
The Government business returned to growth in 2012 reflecting
good demand for new fraud detection products in the state &
local segment, with continuing moderate declines in the
federal segment.
All Risk Solutions market segments now leverage HPCC,
our proprietary “big data” technology, to combine proprietary,
public, and third party information with advanced analytics to
help customers in evaluating, predicting, and managing risk
and improving efficiency. The business is already virtually
100% electronic.
In January 2013 we announced the disposal of the Screening
business, which has been excluded from underlying revenue
growth figures. If Screening had been included in the underlying
results, the underlying revenue growth rate for Risk Solutions
as a whole would still have been 6%.
Underlying cost growth was broadly in line with revenue growth
in 2012, reflecting spend on new products and content sets.
The adjusted operating profit margin increased by 2.4 percentage
points, largely reflecting the impact of portfolio changes in 2011.
2013 outlook
Risk Solutions operates in markets with strong long-term
underlying growth drivers, and we will continue to invest in
new products that leverage our leading content and expertise
in “big data” analytics and extend our services across customer
workflows. We expect continued good growth in the Insurance
and Business Services market segments, and mixed
Government markets.
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revenue
£m
adjuSted operatIng profIt
£m
927
908
926
354
362
392
2010
2011
2012
2010*
2011
2012
*On a pro forma basis
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LexisNexis Risk Solutions and LexisNexis Legal & Professional, previously combined as one LexisNexis business, have operated as two distinct businesses from 1 January
2011. Comparative profit figures for 2010 are presented on a pro forma basis.
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22
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RISK SOLUTIONS & BUSINESS INFORMATION
$24m
georgia deployed the
lexisnexis tax refund
investigative solution
in January 2012, and to
date it has already
helped save nearly
$24m for its taxpayers.
tax refund investigative
solution: working
together to prevent
identity-based fraud
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reed elsevier Annual Reports and Financial Statements 2012
23
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About Tax Refund Investigative Solution
LexisNexis Tax Refund Investigative Solution
combines proven identity authentication tools with
advanced linking and analytics capabilities to help
federal and state governments detect fraudulent
tax refund claims and identify potentially millions
of dollars in lost tax revenues.
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fraud is a growing problem in the uS and around the
world. lexisnexis risk Solutions is helping the State
department of revenue and tax in georgia protect
its citizens from identity-based fraud. georgia
deployed the lexisnexis tax refund Investigative
Solution in january 2012, and to date it has already
helped save $24m for its taxpayers.
The success of the Georgia programme demonstrates
the value LexisNexis Risk Solutions delivers to its
customers. The Georgia Department of Revenue and
LexisNexis Risk Solutions are now looking to develop
their partnership further, working together to identify
and prevent benefits fraud.
LOOKING AT THE NUMBERS, I THINK
THE IMPACT IS HUGE. WE LAUNCHED
OUR ANTI-FRAUD PROGRAM TO STOP
TAX REFUND FRAUD IN GEORGIA. By
LEVERAGING BEST PRACTICES AND
ENHANCING OUR EXISTING SySTEM
WITH AN IDENTITy-BASED APPROACH
TO FINDING FRAUD, WE ARE
PROTECTING BOTH THE TAXPAyERS
AND THE STATE OF GEORGIA.
Doug MacGinnitie
Georgia Department of
Revenue Commissioner
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RISK SOLUTIONS & BUSINESS INFORMATION
Business Information
Reed Business Information (RBI) provides data services,
information and marketing solutions to business professionals
across industries globally. It produces industry critical data
services and lead generation tools, online community sites as
well as business magazines with market leading positions in
many sectors.
Revenues for the year ended 31 December 2012 were £663m.
RBI is a global business headquartered in Sutton in the UK and
in addition has principal operations in London, Amsterdam,
Skokie (Illinois), Norcross (Georgia) and Boston (Massachusetts)
in the US, as well as Paris, Milan and Shanghai. RBI has 4,800
employees worldwide.
RBI’s customers use its data services to help make key
strategic decisions and reduce risk, to improve productivity and
performance and identify new business opportunities. RBI’s
magazines and websites deliver high value news, information
and opinion to business professionals across many industry
sectors while also providing an effective marketing channel for
customers. RBI’s online marketing solutions bring buyers and
sellers together through a range of innovative digital channels.
RBI’s market leading data services include: ICIS, an information
and pricing service in chemicals, fertilisers and energy;
BankersAccuity, a provider of payment routing data, anti-money
laundering (AML) services and compliance information to the
banking and corporate sectors; XpertHR, an online service
providing regulatory guidance, best practices and tools for HR
professionals; and Reed Construction Data, a provider of online
construction data and information to the construction industry.
RBI’s leading brands include New Scientist, Farmers Weekly,
Estates Gazette, Elsevier magazine and Boerderij. Online marketing
solutions include emedia, an email bulletin based lead generation
service and BuyerZone, a web-based request for quotation (RFQ)
service.
In 2012, RBI continued to reshape its portfolio signifi cantly,
addressing continued growth opportunities in data services while
exiting areas not core to its paid content strategy. In addition,
the business continued to focus on cost effi ciency across the
traditional publishing businesses.
As part of this strategy RBI sold Totaljobs Group, comprising seven
recruitment job boards, created organically by RBI. RBI continued
to create value from its existing magazine brands, while exiting a
number of titles including Variety, the entertainment market title in
the US, and those in the electronics and catering markets in the
UK. In January 2013, RBI announced that it had completed the sale
of RBI Australia. RBI is in a process to exit its operations in Spain.
Global provider of news, price benchmarks,
data, analytics and research to the energy,
chemical and fertiliser industries
Data, news and advisory services for
professionals working in the global
aviation industry
Payment routing data, AML services
and compliance tools for the banking
and corporate sectors worldwide
Provider of actionable insight for the
construction industry through cost data,
project leads, market intelligence and
marketing solutions
Online services with reference data,
compliance information and good practice
guides for HR professionals
News, data and research services for the
UK commercial property industry
World’s leading science and technology
media brand
Leading news and opinion magazine
in the Netherlands
Digital lead generation services in the US,
UK and Europe
Reed Elsevier 2012.indb 24
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Reed Elsevier Annual Reports and Financial Statements 2012
25
Data services are typically sold directly on a subscription or
transactional basis. Business magazines are mainly distributed
on a paid 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
and Wolters Kluwer as well as many niche and privately-owned
competitors. RBI competes for online advertising with other
business-to-business websites as well as Google and other
search engines.
market opportunities
The growing need for high quality 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; restructuring the
business magazines and advertising-driven portfolio;
developing paid content services in key markets and
supporting print franchises through brand extensions and
redesign; and driving further organisational effectiveness.
business model, distribution channels and competition
Across the RBI portfolio, user and subscription revenues now
account for 69% of the total business with the remaining 31%
derived from print and online advertising and lead generation.
RBI electronic revenue streams now account for 54% of total
revenue.
electronIc revenue
uSer and SubScrIptIon revenue
46%
38%
51%
54%
54%
59%
62%
69%
2009
2010
2011
2012
2009
2010
2011
2012
Demand for online data services and marketing solutions drives increasing
proportion of online revenues.
Increasing proportion of user and subscription revenues driven by organic
growth in subscription businesses and portfolio change.
revenue by Segment
£663m
Other Business
Magazines & Services
revenue by geographIc market
£663m
Rest of World
Rest of
Europe
North America
Major Data
Services
Leading Brands
Marketing
Solutions
UK
Netherlands
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RISK SOLUTIONS & BUSINESS INFORMATION
Revenue
Adjusted operating profit
2012
£m
663
119
2011
£m
695
110
Change
-5%
+8%
Change at constant
currencies
-3%
+10%
Change
underlying
+2%
+10%
2012 financial performance
Improved underlying revenue growth in 2012 reflects strong
growth from most of our major data Services businesses,
modest growth in marketing Solutions and leading brands,
and a moderation in the rate of decline in other business
magazines & Services. In 2012 we continued the transformation
of the business, exiting businesses that no longer fit our
strategy. We have remained focused on process efficiencies
which, together with portfolio development benefits, drove
a 2.2 percentage point margin improvement.
Underlying revenues grew +2%, and underlying adjusted
operating profits grew +10%.
Double digit growth at BankersAccuity and ICIS helped to drive
growth in Major Data Services, only held back by continued
weakness in US construction data. Major Data Services now
accounts for approximately 45% of continuing portfolio pro forma
revenues and the majority of Reed Business Information
operating profit.
Marketing Solutions delivered modest growth in 2012 and,
following the disposal of Totaljobs and Hotfrog, accounts for
only a small proportion of continuing portfolio revenues.
Leading Brands also delivered modest underlying revenue
growth as solid performances in the UK agriculture and property
sectors were offset by advertising declines elsewhere.
Other Business Magazines & Services saw moderating underlying
revenue declines and continued portfolio reshaping.
We have continued to exit businesses that no longer fit our strategy,
including Totaljobs, Marketcast, Variety, RBI Australia, RBI Spain,
and a number of small businesses in other markets.
In 2012 we continued to focus on process innovation which, together
with the benefits of portfolio development, helped to increase the
adjusted operating profit margin by 2.2 percentage points to an
historic high of 18%.
These actions have contributed to the transformation of Reed
Business Information’s profile, with user and subscription services
now accounting for nearly 70% of revenues, and electronic revenue
streams now accounting for over half of the total.
In December 2012 we reorganised our management structure to
bring LexisNexis Risk Solutions and Reed Business Information
together more closely in order to continue to build out Risk
Solutions’ rapidly growing business globally. We plan to leverage
Risk Solutions’ strength in data, analytics and technology in
combination with Reed Business Information’s broader geographic
footprint and industry specific databases.
2013 outlook
Demand for data & analytics in our market segments continues to
grow, although print and advertising revenues remain weak. In 2013
we expect continued good growth in Major Data Services, stable
Leading Brands, and further benefits from portfolio reshaping.
revenue
£m
891
adjuSted operatIng profIt
£m
718
695
663
89
89
110
119
2009
2010
2011
2012
2009
2010
2011
2012
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reed elsevier Annual Reports and Financial Statements 2012
27
FLIGHTGLOBAL:
COMBINING DATA
AND ANALYTICS TO
DRIVE INCREASED
CUSTOMER VALUE
avolon, the dublin-based global aircraft
lessor, needs to understand key industry
trends and assess aircraft values in order
to make informed investment decisions.
To achieve this it relies on Reed Business
Information’s Flightglobal – a business
that has transformed from a traditional
UK-based print publisher into a 21st century
global brand with online aviation news,
market insights and data services.
The Ascend aircraft fi nance data business
came into the Flightglobal fold in 2011,
creating the world’s most comprehensive
database of commercial aircraft and their
values, enabling customers like Avolon to
save time and money, and increase
productivity.
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FLIGHTGLOBAL HAS
TRANSFORMED ITSELF TO
EMERGE AS A MAJOR FORCE IN
AVIATION DATA, DELIVERING
DOUBLE DIGIT REVENUE
GROWTH IN ITS CORE ONLINE
SUBSCRIPTION SERVICES.
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WORKING WITH FLIGHTGLOBAL IS ALL ABOUT
RELATIONSHIPS. BEING ABLE TO TALK WITH
THE TEAM, EXCHANGE KNOWLEDGE AND
SHARE THOUGHT PROCESSES HELPS US
UNDERSTAND OUR INDUSTRy BETTER, AND
BUILDS ON OUR INTELLECTUAL CAPITAL.
dick forsberg
Head of Strategy
Avolon
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LEGAL
Legal
In Legal markets, we are a world
leading provider of legal,
regulatory and news & business
information and analysis to legal,
corporate, government and
academic customers.
Serving customers in more than 175 countries, LexisNexis Legal
& Professional provides resources and services that inform
decisions, increase productivity and drive new business.
Revenues for the year ended 31 December 2012 were £1,610m.
LexisNexis Legal & Professional is headquartered in New York
and has principal operations in the New York area, Ohio and North
Carolina in the United States, Toronto in Canada, London and Paris
in Europe, and cities in several other countries in Africa and Asia
Pacifi c. It has 10,400 employees worldwide.
LexisNexis Legal & Professional is organised in market facing
groups. The most signifi cant are Research & Litigation Solutions
and Business of Law Software Solutions in the US and LexisNexis
International and LexisNexis Asia outside the US. These are
supported by global shared services organisations providing
platform and product development, operational and distribution
services, and other support functions.
In Research & Litigation Solutions, electronic information
solutions and innovative workfl ow tools, developed through
close collaboration with customers, help legal and business
professionals make better informed decisions in the practice of
law and in managing their businesses. Flagship products for legal
research are Lexis.com and Lexis Advance, which provide 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. Research solutions
also include news and business information, ranging from daily
news to company fi lings, as well as public records information
and analytics. Through its litigation solutions, LexisNexis
provides lawyers with a suite of tools covering case preparation
to processing and review to trial preparation. LexisNexis
partners with law schools to provide services to students as
part of their training.
In 2012, LexisNexis introduced in the US two new releases
of Lexis Advance, an innovative web application designed to
transform how legal professionals conduct research. Built on
an advanced technology platform, Lexis Advance allows primary
researchers within legal and professional organisations to fi nd
highly relevant information more easily and effi ciently, helping
them to drive better outcomes. Future releases will continue to
expand content and add new innovative tools. LexisNexis employs
lawyers and trained editors with professional legal backgrounds
who review, annotate and update the legal content to help ensure
each document in the collection is current and comprehensive.
This domain expertise combined with the application of Reed
Elsevier’s “big data” HPCC technology means LexisNexis is able
to update its entire legal collection faster and more effi ciently,
while also identifying and linking content, enabling customers
to uncover previously undiscovered relationships between
documents.
legal & professional
Lexis®
Unparalleled legal, news and public records
content for legal professionals
Lexis® for Microsoft® Offi ce
Integration of LexisNexis content, open web
search and Microsoft Offi ce
Lexis® Library
LexisNexis® UK fl agship legal online product
Matthew Bender®
Critical analysis, checklists, forms, and
practice guides authored by industry experts
covering over 50 major practice areas
Premier citation service
Lexis® PSL
LexisNexis® UK legal practical
guidance service
New online legal research tool that
transforms the way legal professionals
conduct research
Lexis® Practice Advisor
New resource that offers guidance to help
attorneys handle transactional matters
more effi ciently and effectively
JurisClasseur
Largest, most authoritative online legal
resource in France
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reed elsevier Annual Reports and Financial Statements 2012
29
In 2012, LexisNexis launched additional modules of the LexisPSL
product suite which provides lawyers a single destination for their
practical legal information needs with direct links to the relevant
cases, legislation, precedents, forms, practical guidance and
expert commentary. The ability to drive measurable customer
value was recognised by the British Legal Awards which has
named LexisNexis UK ‘2012 Supplier of the Year’ for its innovation,
authority and understanding of law firms’ needs. A similar service
is being launched across other markets – Australia already has 13
practice area modules and by the end of next year it will have more.
In France, LexisNexis is a leading online provider of information to
lawyers, notaries and courts. A heritage brand JurisClasseur and
leading authoritative content is provided through multiple formats
– lexisnexis.fr, mobile 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. In 2012, LexisNexis France launched
Lexis 360, the first semantic search online tool combining legal
information, practical content and results from the web.
Following the success of Lexis for Microsoft Office (LMO) in US
markets, a Canadian version was launched in 2012. LMO enables
customers to access LexisNexis content and services via add-ins/
toolbars within Microsoft Word and Outlook.
In 2012, LexisNexis Legal & Professional strengthened its
positions in Asia through enhanced products created specifically
for legal professionals and practitioners, corporate counsels,
legal researchers and government institutions in markets
including India, China and Japan. In Japan, LexisNexis launched
Lexis AS ONE, a product created specifically for corporate
compliance and legal professionals to help navigate the
complex regulatory environment.
LexisNexis launched Lexis Practice Advisor in the US in 2012,
a web-based practical guidance product tailored for attorneys
who handle transactional matters. Additionally, LexisNexis
introduced a legal news solution through the acquisition of Law360
– providing attorneys with breaking news and analysis by practice
area to supplement the legal research process.
In litigation solutions, LexisNexis released Hosted Concordance
Evolution which is a fully hosted service that delivers electronic
discovery review capabilities on an “on-demand” basis. Sanction
Solutions was also acquired, adding trial presentation software
to the LexisNexis suite of litigation offerings.
The web-based marketing services group assists law firms in
their client development through Lawyers.com and providing
them with website development, search engine optimisation
and other web marketing services.
LexisNexis Business of Law Software Solutions provides law
firms with practice management solutions, including time and
billing systems, case management, cost recovery and document
management services.
In International markets outside the United States, LexisNexis
serves legal, corporate, government, accounting and academic
markets in Europe, Canada, Africa and Asia Pacific with local
andinternational legal, regulatory and business information.
The most significant businesses are in the UK, France, Australia,
Canada and South Africa.
LexisNexis focuses on providing customers with leading
collections of content and innovative online solutions to help
legal and business professionals make better decisions more
efficiently. Penetration of online information services has grown
strongly and electronic solutions now account for 58% of revenue
outside the US.
In the UK, LexisNexis is a leading legal information provider
offering an unrivalled collection of primary and secondary
legislation, case law, expert commentary, and forms and
precedents. Its extensive portfolio includes a number of heritage
brands: Halsbury’s, Tolleys, Butterworths. The content is delivered
through multiple formats – from print to online, to mobile apps
and embedded in customers’ workflow.
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revenue by format
£1,610m
Print/Other
24%
revenue by geographIc market
£1,610m
Rest of World
Electronic
76%
Europe
North America
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LEGAL
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 with the dampening
impact on demand of the recent global recession and the
somewhat subdued environment that followed in North America
and in Europe.
customers with an integrated and superior experience across
US legal research, litigation services, practice management and
client development. Over the next few years progressive product
introductions, often based on the New Lexis platform, leveraging
big data HPCC technology, will combine advanced technology
with enriched content, sophisticated analytics and applications
to enable LexisNexis’ customers to make better legal decisions
and drive better outcomes for their organisations and clients.
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. In 2013, LexisNexis will
begin to introduce New Lexis globally. Additionally, LexisNexis is
focusing on the expansion of its activities in emerging markets.
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 introducing
next generation products and solutions on the global New Lexis
platform and infrastructure; leveraging New Lexis globally to
continue to drive print to electronic migration and long-term
international growth; and upgrading operational infrastructure,
improving process efficiency and gradually improving margins.
In the US, LexisNexis’ focus is on the continuing development of
next generation legal research and practice solutions. It is also
conducting a major upgrade in operations infrastructure and
customer service and support platforms. This will provide
business model, distribution channels and competition
LexisNexis Legal & Professional products and services are
generally sold directly to law firms and to corporate, government,
accounting 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 Bloomberg
and Factiva (News Corporation) in news and business information.
Competitors in litigation solutions also include software
companies. Significant international competitors include
Thomson Reuters, Wolters Kluwer and Factiva.
e-bookS tItleS
mobIle app doWnloadS
1,700
1,100
+121%
2011
2012
2011
2012
Increasing numbers of e-book titles reflecting enhanced online
content offering.
Sustained growth in the adoption of mobile apps.
Reed Elsevier 2012.indb 30
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Reed Elsevier Annual Reports and Financial Statements 2012
31
Revenue
Adjusted operating profit
2012
£m
1,610
234
2011
£m
1,634
229
Change
-1%
+2%
Change at constant
currencies
-1%
+4%
Change
underlying
+1%
+4%
In Europe market conditions remain subdued, with robust growth
in online revenue largely offset by declining print revenues.
The 2012 adjusted operating profit margin improved slightly, with
process efficiencies more than offsetting continued spend on new
product development.
2013 outlook
We will continue to roll out new products and platforms in 2013
and will maintain our focus on process efficiencies. Our customer
markets remain subdued, however, limiting the scope for revenue
and profit growth.
2012 financial performance
underlying revenue growth was positive despite subdued legal
markets in the uS and europe. growth was driven by electronic
revenues, which account for over 75% of total revenues. In 2012
we continued to release new products and platforms which
have been well received. the adjusted operating profit margin
improved in 2012 reflecting process efficiency.
Underlying revenues grew +1%, and underlying adjusted
operating profits grew +4%.
In the US, usage and sales of online research and litigation
solutions to law firms grew despite challenging market
conditions. Underlying revenues from government and corporate
customers also grew modestly. Print revenues continued to
decline, and News & Business revenue declines moderated.
LexisNexis introduced new releases of Lexis Advance during 2012,
combining our deep domain expertise and content with Reed
Elsevier’s “big data” HPCC technology to allow researchers
within legal and professional organisations to find highly relevant
information more easily and efficiently. The new applications
have been well received, with US customer penetration of 45%
by 2012 year end.
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revenue
£m
adjuSted operatIng profIt
£m
1,691
1,634
1,610
238
229
234
2010
2011
2012
2010*
2011
2012
*On a pro forma basis
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LexisNexis Risk Solutions and LexisNexis Legal & Professional, previously combined as one LexisNexis business, have operated as two distinct businesses from
1 January 2011. Comparative profit figures for 2010 are presented on a pro forma basis.
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32
buSIneSS revIeW
LEGAL
LExIS ADVANCE:
THE RIGHT
RESULTS, FASTER
AND EASIER
proskauer, a global law fi rm with offi ces in north and
South america, europe and asia, pairs deep customer
understanding with exceptional client service.
To keep its lawyers in close touch with clients and
ensure they have critical information and insights at
their fi ngertips, Proskauer deploys state-of-the-art
technology and information systems. Through Lexis
Advance, LexisNexis Legal & Professional’s dynamic
web-based legal information solution, Proskauer
lawyers enjoy instant access to over 1bn legal, news,
company & fi nancial documents as well as 36bn
public records. Its intuitive, internet-style searching,
easy-to-use fi ltering capabilities and sophisticated
analytical tools help Proskauer’s lawyers rapidly reach
the heart of legal issues. Whether in court, at home or
on the road, Proskauer lawyers can use their fi rm-wide
issued iPads or smartphones to fi nd the answers for
their clients whenever and wherever needed.
about lexis advance
Lexis Advance is our new
fl agship product for legal
research. Built on the New
Lexis platform and powered
by Reed Elsevier’s HPCC
technology, it allows primary
researchers in legal and
professional organisations to
fi nd highly relevant information
more easily and effi ciently,
driving better outcomes for
them and their clients.
30,000
interactions
MORE THAN 30,000
INTERACTIONS WITH LEGAL
PROFESSIONALS INFORMED
THE DEVELOPMENT OF
LExIS ADVANCE.
OUR CLIENTS EXPECT US
TO GET THEM THE MOST
EXHAUSTIVE ANSWERS
IN THE MOST EFFICIENT
WAy. THE LEXIS ADVANCE
IPAD APP HELPS
ME PROVIDE THOSE
ANSWERS QUICKLy –
ANyWHERE, ANyTIME.
andrew e. rice
Attorney at Law
Proskauer
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reed elsevier Annual Reports and Financial Statements 2012
33
LEXIS ADVANCE PROVIDES OUR
LAWyERS WITH A LEGAL RESEARCH
OPTION THAT MIRRORS THE WAy THEy
SEARCH THE INTERNET, MAKING IT
EASIER AND MORE EFFICIENT TO FIND
THE NEEDLE IN THE HAySTACK.
Elizabeth S. Proujansky,
Manager of Professional Resources
Proskauer
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34
buSIneSS revIeW
ExHIBITIONS
Exhibitions
In Exhibitions we are the world’s
leading events business, with
almost 500 events in over 30
countries.
market opportunities
Growth in the exhibitions market is infl uenced by both business-to-
business marketing spend and business investment. Historically,
these have been driven by levels of corporate profi tability, which
in its turn has followed overall growth in GDP. 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.
Reed Exhibitions’ portfolio of exhibitions and conferences serves
44 industry sectors across the Americas, Europe, the Middle East,
Africa and Asia Pacifi c. In 2012, Reed Exhibitions brought together
over 6m event participants from around the world, generating
billions of dollars in business for its customers, and boosting the
local economies where the events are hosted.
Revenues for the year ended 31 December 2012 were £854m.
Reed Exhibitions is a global business headquartered in London
and has principal offi ces in Paris, Vienna, Norwalk (Connecticut),
São Paulo, Abu Dhabi, Beijing, Tokyo, and Sydney. Reed Exhibitions
has 3,200 employees worldwide.
Reed Exhibitions organises market-leading events which are
relevant to industry needs, where participants from around the
world meet face to face to do business, to network and to learn.
Its exhibitions and conferences encompass a wide range of
sectors. They include construction, electronics, energy and
alternative energy, engineering, entertainment, gifts and
jewellery, healthcare, hospitality, interior design, logistics,
manufacturing, pharmaceuticals, real estate, recreation,
security and safety, transport and travel.
Strategic priorities
Reed Exhibitions’ strategic goal is to provide market-leading
events in growth sectors, especially in higher growth geographies,
enabling exhibitors to target and reach new customers quickly
and cost-effectively and providing a platform for industry
participants to do business, to network and to learn. To achieve
this, Reed Exhibitions is focused on driving organic growth by
leveraging its global sector expertise, by developing new events
and by building out its technology platforms. It is also shaping the
portfolio through a combination of strategic partnerships and
selective acquisitions in high growth sectors and geographies
as well as withdrawal from markets and industries with lower
growth prospects.
Reed Exhibitions is committed to continually improving customer
solutions and experience by implementing best practice initiatives
across geographies and sectors. Its integrated web event platform
is used by more than 70 per cent of events and is driving both
customer satisfaction and insight. Using customer insights,
Reed Exhibitions has developed an innovative product offering
which enhances the value proposition for exhibitors by broadening
their options in terms of the type and location of stand they take
and the timing of their commitment to the event.
The world’s entertainment content market
The international building exhibition
International security conference
TM
Premier global event for the travel industry
The East Coast’s biggest and most
exciting popular culture convention
International trade fair for autoparts,
equipment and services
The world’s property market
A world leading corrugated
manufacturing show
Bringing aluminium to life
Reed Elsevier 2012.indb 34
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reed elsevier Annual Reports and Financial Statements 2012
35
In 2012 Reed Exhibitions launched 30 new events. These included
events which extended the geographical footprint of the luxury
travel brand, ILTM, to Mexico and the high end Privé jewellery
brand to Panama. Reed Exhibitions Japan responded to customer
demand by introducing several new events, some of which were
in the fast moving sectors of cosmetics and high-technology
plastics. In China, the Nepcon brand was used to launch an
electronics manufacturing event in the western city of Chengdu.
A key element of building business in China and Brazil is a regional
strategy, taking more events to China’s second tier cities and
cloning events from São Paulo to Recife in Brazil’s fast developing
north east. Reed Exhibitions now organises over 150 events in
emerging markets.
A number of targeted acquisitions were completed during 2012.
In Brazil, Reed Exhibitions took full ownership of its joint
venture, Reed Exhibitions Alcantara Machado, and expanded
into hospitality (Equipotel) and logistics (Movimat), cementing
Reed Exhibitions’ position as the leading exhibition organizer
in Brazil. Elsewhere, acquisitions were made to extend
Reed Exhibitions’ reach in China and its global position in the
alternative energy sector. During the year, Reed Exhibitions
also established positions in new markets with attractive growth
prospects, including Indonesia, Saudi Arabia and Turkey, where
a joint venture has been created with Tüyap, the country’s
leading event organiser.
business model, distribution channels and competition
The substantial majority of Reed Exhibitions’ revenues are from
sales of exhibition space. The balance includes conference fees,
online and offline advertising, 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 global market leader in a fragmented
industry, holding less than a 10 percent global market share.
Other international exhibition organisers include UBM, Informa
IIR and some of the larger German Messe, including Messe
Frankfurt, Messe Düsseldorf and Messe Munich. Competition
also comes from industry trade associations and convention
centre and exhibition hall owners.
geography of 2012 launch revenueS*
eventS In emergIng marketS
Rest of World 70%
revenue by format
£854m
Other 3%
North America 5%
Europe 25%
165
139
2011
2012
*On an event location basis.
Increase in events taking place in high growth geographies through
launches and acquisitions.
revenue by geographIc market*
£854m
Rest of World
North America
Face to face
97%
Europe
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*On an event location basis.
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ExHIBITIONS
Revenue
Adjusted operating profit
2012
£m
854
210
2011
£m
707
167
Change
+21%
+26%
Change at constant
currencies
+25%
+30%
Change
underlying
+15%
+20%
2012 financial performance
exhibitions performed strongly in 2012, driven by strong growth
in the uS and japan, moderate growth in europe, and double
digit growth in most emerging markets. We continued to invest
throughout the year, launching 30 new shows in total, and we
strengthened our position in high growth markets through
partnerships and targeted acquisitions.
Underlying revenues grew +15% (+7% excluding biennial event
cycling), and underlying adjusted operating profits grew +20%.
In the US and Japan underlying revenues grew strongly, and
growth in emerging markets was well into double digits. In Europe
good growth from a number of core events helped to offset some
softness in southern European markets, resulting in moderate
underlying revenue growth overall in the region.
During 2012 we launched 30 new events, primarily in high growth
sectors and geographies, and completed a number of targeted
acquisitions. In Brazil we took full ownership of our joint venture,
Alcantara Machado, and expanded into hospitality and logistics,
and in Turkey we created a new joint venture with Tüyap, the
country’s leading event organiser.
2012 adjusted operating profit margins improved by 1.0
percentage points, reflecting both process efficiencies and
the positive impact of biennial event cycling.
During the year we continued to roll out global platforms and
processes across geographies and sectors. Our integrated web
event platform is now used by more than 70% of events, driving
customer satisfaction and providing customer insight. Innovative
products and services are enhancing the value proposition for
exhibitors by broadening their range of options.
2013 outlook
In 2013 we expect good growth in the US and Japan, limited growth
in Europe, and strong growth in other markets. However 2013 will
be a biennial cycling out year, reducing underlying revenue growth
by 5-6 percentage points.
revenue
£m
adjuSted operatIng profIt
£m
638
693
707
854
152
158
167
210
2009
2010
2011
2012
2009
2010
2011
2012
Reed Elsevier 2012.indb 36
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reed elsevier Annual Reports and Financial Statements 2012
37
37
AUTOMOVEL BRAzIL:
PRIORITISING
FASTER GROWTH
GEOGRAPHIES
AND SECTORS
exhibitors are increasingly looking to
develop their presence in new and
emerging markets where they can extend
their market share. reed exhibitions’
strategy of prioritising faster growth
geographies and sectors through new
launches and selective acquisitions is
a reflection of its customers’ needs.
In under 10 years, Reed Exhibitions has
become Brazil’s leading event organiser
building a business from less than $5m
in 2005 to more than $100m in 2012.
Automovel is already Latin America’s largest
auto show, and one of the largest auto shows
in the world. Exhibitors are increasingly
using the event for global product launches,
and are benefiting from the high levels of
social media engagement with customers
before, during and after the show.
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IT’S NOT JUST ANOTHER
LOCAL EVENT. IT’S AN EVENT
THAT GRABS THE ATTENTION
OF THE INTERNATIONAL
AUTO INDUSTRy.
frederico j. themoteo jr.
Director of Marketing
and Communications
General Motors
410,000
visitors
LATIN AMERICA’S
LARGEST AUTO SHOW
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38
Reed Elsevier 2012.indb 38
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Reed Elsevier Annual Reports and Financial Statements 2011
Reed Elsevier Annual Reports and Financial Statements 2012
39
39
Corporate
Business review
responsibility
Dest que occusae vel ex
explant vendae id etur,
quo maximent, consed
mo temea commodita
similia tiatur simolor
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The Corporate Responsibility Report is an
integral part of our Annual Reports and
Financial Statements. This section highlights
key achievements relative to our 2012 corporate
responsibility objectives. You can read the
full 2012 Corporate Responsibility Report
at reporting.reedelsevier.com/cr12
IN THIS SECTION
00 Elsevier
00 LexisNexis Risk Solutions
00 LexisNexis Legal & Professional
00 Reed Exhibitions
00 Reed Business Information
00 Corporate responsibility
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Reed Elsevier 2012.indb 39
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40
BUSINESS REVIEW
CORPORATE RESPONSIBILITY
Corporate responsibility
Corporate responsibility ensures
good management of risks 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 in which we operate and governments
helps us determine material corporate responsibility issues. The
Reed Elsevier Boards, senior management and the Corporate
Responsibility Forum oversee corresponding objectives and
monitor performance against them.
We concentrate on the contributions we make as a business
and on good management of the material areas that affect all
companies, encompassing:
1. Our unique contributions
2. Governance
3. People
4. Customers
5. Community
6. Supply management
7. Environment
1. Our unique contributions
We focus on areas where we can make a positive impact on society
through our knowledge, resources and skills. This includes
universal sustainable access to information, advance of science
and health, protection of society, and promotion of the rule of law
and justice.
Elsevier, the world’s leading provider of scientific, technical and
medical information, plays an important role in advancing human
welfare and economic progress through its science and health
information, which spurs the diffusion of innovation and enables
critical decision making. To ensure access to this information,
Elsevier supports key programmes in places where resources
are often scarce. Among them is Research4Life, a partnership
with United Nations agencies and other publishers. This
partnership provides core and cutting-edge scientific information
to researchers in more than 100 developing countries. As a
founding partner, we contribute 50% of the content available in
Research4Life, encompassing all Science Direct content, including
approximately 2,000 Elsevier journals and 7,000 books. In the year,
there were more than 6m Research4Life article downloads
from ScienceDirect, including from the Access to Research for
Development and Innovation (ARDI) programme, which we joined
in 2012. In addition to support for ongoing projects, the Elsevier
Foundation committed $650,000 to support libraries, new
scholars, and nursing, including a grant to the Medical Libraries
Association/Librarians Without Borders’ e-library training
initiative in Latin America and Asia, and the Appalachian Women
Scientists programme at Appalachian State University in the US.
LexisNexis Risk Solutions tools and resources help protect society.
LexisNexis Risk Solutions’ Bridger Insight XG watch list screening
solution is used by over 3,000 financial institutions globally to help
ensure compliance with sanctions regulations. The combination of
the Bridger Insight XG solution with Reed Business Information’s
BankersAccuity Global Watch List, a global data set of sanctioned
or high risk entities, helps customers ensure proactive
compliance. LexisNexis Risk Solutions employees created the
Automated Delivery of Alerts on Missing Children (ADAM)
programme which assists in the safe recovery of missing children.
ADAM alerts circulate missing child posters – more than 2.1m in
2012 – to police, news media, schools, businesses, medical centres
and other recipients within a specific geographic search area.
Since launching in 2000, 135 children have been located, including
nine in 2012.
Reed Elsevier 2012.indb 40
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Reed Elsevier Annual Reports and Financial Statements 2012
RESEARCH4LIFE:
IMPROVING HEALTH
THROUGH ACCESS
TO SCIENTIFIC
RESEARCH
41
Research4Life gives researchers and
practitioners in the developing world free
or low cost access to critical scientifi c
information.
Tiny Tim & Friends, a Zambian
organisation specialising in paediatric HIV/
AIDS clinical care, is improving the lives of
HIV-infected children through the use of
Elsevier’s leading-edge research.
As a founding partner, Elsevier provides
access to its complete collection of
journals, articles and books.
Research4Life is a primary example of
Reed Elsevier’s goal to provide universal,
sustainable access to information.
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The DevelOPInG wORlD BeneFITS enORmOuSlY FROm
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PuBlISheR PARTneRS. new COnTenT hAS mORe ThAn
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PRevIOuSlY InACCeSSIBle TO ReSeARCheRS AnD
PRACTITIOneRS In lOw AnD mIDDle InCOme COunTRIeS.
Kimberly Parker
HINARI Programme Manager,
Research4Life
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6,000
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RESEARCHERS AT MORE THAN
6,000 INSTITUTIONS IN OVER 100
DEVELOPING WORLD COUNTRIES
AND TERRITORIES BENEFIT FROM
RESEARCH4LIFE
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42
BUSINESS REVIEW
CORPORATE RESPONSIBILITY
Reed Business Information (RBI) uses the power of its brands to
aid communities. ICIS, providing news and market intelligence
for the chemicals, energy and fertiliser sectors, held its ninth
Innovation Awards in 2012 to reward innovation in the chemicals
industry. France’s Rhodia won Best Innovation for Sustainability
for creating an “urban mine” – a process to recover scarce
metallic elements from consumer waste. Over the past two years,
Hairdressers Journal has partnered with John Frieda to build
awareness of HAIRraising, a charity which has raised more than
£1m in support of London’s Great Ormond Street Children’s
Hospital, through its publications, sites and shows.
LexisNexis Legal & Professional promotes justice through its
products and services. Its Rule of Law Resource Center is a free
online community covering topics like human rights, protecting
minority communities and anti-human trafficking. In the year,
staff in the UK developed the free Human Trafficking Awareness
Index, which uses the Nexis news service to highlight emerging
trends within and across national borders to help campaigners in
their efforts to combat trafficking. Among the ways LexisNexis
expanded pro bono partnerships in 2012, was through a new
collaboration with the Lex Mundi Pro Bono Foundation to promote
law firm engagement with social entrepreneurs working around
the world to improve the lives of the poor and disenfranchised.
Reed Exhibitions’ trade shows provide platforms for supporting
our corporate responsibility focus areas. At the 2012 World Travel
Market, its global event for the travel industry, Reed Exhibitions
hosted World Responsible Tourism Day with events available to
the show’s more than 40,000 attendees on topics ranging from
poverty reduction to wildlife protection and reducing greenhouse
gas emissions. Over the last nine years, Reed Exhibitions has
given free space at the London Book Fair to Book Aid International,
which annually provides more than 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. In 2012, the International
Vision Expo & Conference expanded offerings for optometry
students through a new mentor programme, in addition to
providing free entry, a job fair, and travel grants to students from
the 22 schools of the American Optometric Student Association.
Drawing on expertise across Reed Elsevier, in 2012 we awarded
prizes in the second Reed Elsevier Environmental Challenge to
projects that improve sustainable access to water and sanitation
where it is presently at risk. We offered access to relevant
products from our businesses to nearly 600 registrants from
more than 50 countries and saw a 40% increase in proposals over
2011. The winner of the $50,000 first prize was the Centre for
Affordable Water and Sanitation Technology for a project that
modifies biosand filters with iron particles in order to remove
water contaminants, including viruses, to bring safe drinking
water to rural villages in Nepal. Over a period of two years,
150 filters will be installed. Second prize of $25,000 went to
Sanergy to extend a pilot project in Kenya that ensures accessible
and affordable hygienic sanitation through a network of
small-scale, high quality sanitation centres. Sanergy toilets are
franchised to local entrepreneurs and stimulate the economy
by turning waste into products, such as organic fertiliser sold
to farms. In 2012, we expanded our alternative energy portfolio
to include new products such as Elsevier’s Comprehensive
Renewable Energy and Reed Exhibitions’ Asia Future Energy
Forum and Exhibition.
2012 OBjECTIVES
Progress
Increase pro bono partnerships
Broaden reach of Reed Elsevier
Environmental Challenge
Expand alternative energy
product portfolio
Facilitate deeper country
analysis of UNICEF climate
change and children report
New and expanded
partnerships, for
example, Research4Life
access expanded to all
ScienceDirect content;
support for global social
entrepreneurs through
Lex Mundi Pro Bono
Foundation
90% increase in
registrations; 40% increase
in proposals over 2011
New products include
Comprehensive Renewable
Energy (Elsevier) and Asia
Future Energy Forum
and Exhibition (Reed
Exhibitions)
Research extended to
child-oriented disaster risk
assessments in Indonesia
and the Philippines; in-
kind assistance including
editorial support and
design
2013 OBjECTIVES
Create cross-business alternative energy roundtable to
foster knowledge sharing and product development
Deliver workshops with UNICEF on child-centred climate
change adaptation in high risk locations
New partnerships through Reed Elsevier Environmental
Challenge to share water and sanitation expertise
Reed Elsevier 2012.indb 42
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Reed Elsevier Annual Reports and Financial Statements 2012
43
2. Governance
2012 Objectives
Progress
Completion of Reed Elsevier
Code of Ethics and Business
Conduct training by 100% of
employees within 90 days of
their employment start date
Continue bribery law
compliance activities, with
particular reference to the UK
Bribery Act and US Foreign
Corrupt Practices Act
Records Management Policy
roll out to the UK and other
countries
100% completion achieved
100% of employees
completed online
training, rolled out to new
employees on an ongoing
basis; in-person training
for employees in higher
risk roles and geographies;
intermediary due diligence
and related monitoring as
part of routine process
Policy issued to all
employees in English-
speaking countries;
guidance to business units
on implementation efforts
2013 Objectives
Achieve 100% completion of all computer-based
compliance courses
Advance Record Management Policy implementation and
roll out translations
Enhanced training programme for internal investigators
of Code of Ethics and Business Conduct breaches
The Reed Elsevier Code of Ethics and Business Conduct (Code)
is disseminated to every employee, setting the standard for our
corporate and individual conduct. Encompassing topics such as
fair competition, anti-bribery, and human rights, it encourages
open and principled behaviour. In 2012, we ensured that 100% of
employees completed training on the Code within 90 days of
starting their employment. We provided refresher courses on
competition laws and data privacy and security to staff that had
completed courses previously, with 100% completion by year
end. All US managers have completed a course on preventing
workplace harassment.
We continued to enhance bribery law compliance efforts,
including compliance with the UK Bribery Act and US Foreign
Corrupt Practices Act, by ensuring 100% of employees had
completed online anti-bribery training at least once by the close
of 2012, and rolling it out to new employees on an ongoing basis.
We supplement online training with in-person sessions on topics
as required, including training on competition law and preventing
bribery for employees in higher risk positions and locations. Each
of our businesses have designated Preventing Bribery Working
Groups, which are engaged in implementing and overseeing
compliance activities. Our policies, training and other materials
are developed to help ensure compliance with laws globally.
We also undertake intermediary due diligence and monitoring
as part of routine process.
We maintain a Record Management Policy, Record Retention
Schedule and related resources to help employees properly
manage company records, setting out what, why, how, and for
how long, different types of records must be retained and
disposed of. In the year, we issued the policy to all employees
in English-speaking countries.
Reed Elsevier is a signatory of the United Nations Global Compact
(UNGC) – businesses must align their governance and operations
with ten principles related to human rights, labour, environment
and anti-corruption. We demonstrated leadership in 2012 by
serving on the UNGC Advisory Group for the UK and the UNGC
Supply Chain Advisory Group. We were also part of the CEO Water
Mandate Steering Group and represented the initiative on the
board of the Alliance for Water Stewardship. We participated in
the UNGC’s Corporate Sustainability Forum in Rio de Janeiro,
where a new Water Action Hub was launched, for which we are
providing a free news feed with water basin information. The
UNGC judged our 2012 Communication on Progress, required of
signatories each year, to have attained Advanced level. In the year,
we provided video content on the UNGC for lawyers and held
webinars on the UNGC for our suppliers.
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In the US, where we have our largest concentration of employees,
we expanded the REACH programme, which promotes workplace
wellbeing through health screenings, online assessments, stress
awareness training, and weight loss and smoking cessation
programmes, with financial incentives for participation. We
captured wellbeing metrics including the number of people who
attended a personal wellness screening which increased to 34%
of US employees. There was a 40% quit rate among employees
who undertook a stop smoking course. The resulting data is
helping us understand the health status of our people to better
target wellness programmes.
Our annual re:fit2win global wellbeing competition, which
encourages employees to establish fitness teams to compete for
cash prizes for the charities of their choice, continued to grow in
2012. 116 teams (84 in 2011) took part across Reed Elsevier and
ran, walked, cycled and swam a total of 106,271 miles/171,027
kilometres, a 77% increase over 2011.
2012 Objectives
Progress
Undertake global Employee
Opinion Survey
Completed with 77%
participation rate
Initiate diversity and inclusion
training pilot
Pilots completed for all
business units
Capture and report on
wellbeing performance and its
benefits
Metrics include number of
staff completing wellness
screenings – 34% of US
employees participated
(15% in 2011); benefits
include understanding
health status of workforce
to better target wellness
programmes
2013 Objectives
Follow up on global Employee Opinion Survey results
Expand diversity and inclusion training across business
units
Institute health coach programme to provide personalised
support to staff
44
BUSINESS REVIEW
CORPORATE RESPONSIBILITY
3. People
Our 30,400 people are our strength. Our workforce is 53% female
and 47% male, with an average length of service of 9 years.
The Reed Elsevier Nominations Committee considers the
knowledge, experience and background of individual Board
directors. By year end 2012, women made up 27% of the members
of the Reed Elsevier NV Combined Board and 20% of the members
of the Reed Elsevier PLC Board. Following the Annual General
Meetings to be held in 2013 we expect these percentages to have
increased to 30% and 22%, respectively, reaching the goals we
announced in 2011.
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. Our D&I
Strategy is focused on translating the Statement into practical
action. Among its commitments is maintaining a D&I Advisory
Group comprised of a senior business and HR leader from each
business unit, supported by a broader D&I Working Group.
Together with D&I specialists, Pluribus, we carried out a D&I
training pilot in 2012 involving 78 staff from all business units.
Course content included making the business case for D&I on
ethical, economic, regulatory, and reputational grounds. We
encourage affinity groups, like women’s forums, which provide
support and mentoring and encourage community involvement.
In 2012, we held a stakeholder session with our CR Forum (chaired
by a member of senior management and involving individuals
representing all key business functions and businesses) on
diversity and inclusion for media companies and Reed Elsevier.
Participants included the head of diversity and corporate social
responsibility for one of our customers; the CEO of the Association
of Women in Science; the head of talent for one of our business
units; a diversity expert; and the convener of the Media CSR
Forum. As a member of ID (Inclusion and Diversity) 100, a network
for sharing D&I knowledge among FTSE100 peers, we hosted a
panel on boardroom diversity with executive search firm leaders
Egon Zehnder, JCA Group and the Zygos Partnership.
In 2012, we conducted a global Employee Opinion Survey (EOS) to
understand how our people feel about Reed Elsevier. We donated
$1 for every completed survey to our global fundraising effort
for Plan UK focused on education for girls, and had a 77%
participation rate. Overall, employees rate Reed Elsevier as a
company that employs strong, ethical principles in its business
practices with improved scores since the last survey in 2009 in
overall satisfaction, innovation and customer focus. We are
prioritising areas identified in the EOS that remained flat with
local action plans led by managers.
Our employees have the right to a healthy and safe workplace
as outlined in the Reed Elsevier Health and Safety Policy. We
concentrate on areas of greatest risk, for example, warehouses,
events and exhibitions. However, as a primarily office-based
company, our key impact areas are posture-related muscular
strains, slips/trips and falls. To reduce our severity rate (lost days
per 200,000 hours worked), we conduct risk assessments, and
work with a third party in the US to assign a nurse case manager
to each complex or severe claim. We have achieved a 70%
reduction in the severity rate since 2008.
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Reed Elsevier Annual Reports and Financial Statements 2012
45
ENVIRONMENTAL
CHALLENGE:
ADVANCING ACCESS
TO SAFE WATER
AND SANITATION
The Reed Elsevier Environmental
Challenge advances sustainable
access to safe water and sanitation
where it is presently at risk.
Projects must be innovative, scalable,
involve local communities and address
issues such as health, education, and
non-discrimination. 2012 winners were
the Centre for Affordable Water and
Sanitation Technology, for a biosand
filter to improve drinking water in
Nepal, and Sanergy, a network of small,
high quality sanitation centres in Kenya,
run by local entrepreneurs.
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The ReeD elSevIeR envIROnmenTAl ChAllenGe
DemOnSTRATeS ThAT The DISSemInATIOn OF
ReSeARCh AnD IDeAS IS A POweRFul FORCe FOR
ImPROvInG heAlTh AnD quAlITY OF lIFe. wInnInG
PROjeCTS emBODY CReATIve SOluTIOnS TO ACCeSSInG
wATeR AnD SAnITATIOn In AReAS OF GReAT neeD.
Youngsuk “YS” Chi
Director, Corporate
Affairs
$150,000
awarded over the
past two years
Villagers in Nepal will gain access to better water through iron-amended biosand filters
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46
BUSINESS REVIEW
CORPORATE RESPONSIBILITY
4. Customers
5. Community
RE Cares, our global community programme, promotes education
for disadvantaged young people aligned with our unique
contributions as a business, and allows staff up to two days off per
year for their own community work. We donated £2.5m in cash
(including through matching gifts) and the equivalent of£2.8m in
products, services and staff time in 2012. 30% of employees were
engaged in volunteering through RE Cares and we reached 20,200
disadvantaged young people through volunteering, in-kind, and
cash donations.
An international network of more than 180 RE Cares Champions
engage colleagues throughout the year in activities such as the
RE Cares Challenge, which rewards business-sponsored
community engagement.
Each September, we hold RE Cares Month to celebrate our
community activities, with volunteering spotlighted on Global RE
Cares Day during the month. In 2012, activities involved more than
3,300 staff in local community projects. Among them, LexisNexis
Risk Solutions held the Windward Challenge, a 5km race in support
of KaBoom! which provides recreational spaces for children,
involving more than 500 staff and members of the community.
During the month we held our annual global book drive yielding
more than 12,000 books for local and developing world readers,
and announced the winners of the second Recognising Those
Who Care Awards to highlight the contributions to RE Cares of
eight individuals and four RE Cares teams. Individual winners
from across the business took part in visits to projects we are
supporting through Plan International in Peru and India led by
Youngsuk “YS” Chi, Reed Elsevier’s Director of Corporate Affairs,
and Hugo Zhang, Reed Elsevier China’s Director of Government
Affairs. The winning teams were from Elsevier Amsterdam,
LexisNexis Dayton, LexisNexis New York, and Reed Exhibitions
Norwalk who won cash prizes for their chosen charities.
2012 OBjECTIVES
25% of employees volunteering
through RE Cares
Progress
30% achieved
20,200 reached
Reach 10,000 disadvantaged
young people through
volunteering, in-kind, and
cash donations
2013 OBjECTIVES
Skills-based Two Days volunteer drive (all staff have two
days each year for community work of their own choosing)
25% of locations involved in RE Cares Month
In 2012, we surveyed more than 300,000 customers through
Net Promoter Score (measuring customer loyalty) and business
dashboard programmes. This allows us to deepen understanding
of their needs and further 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. To aid colleagues who
work with customers, in 2012 we began a CR Sales Academy to
help them articulate our commitment to corporate responsibility
and the benefits it provides to our business such as reducing risk
and strengthening our corporate reputation. Sessions included
our approach to corporate responsibility, the environment,
accessibility, and governance. Content is made available to all
staff through the Corporate Responsibility section of the
corporate intranet.
In the year, we consulted more widely on the Reed Elsevier Editorial
Policy, including with our European Works Council, further
strengthening provisions such as editorial independence as a result.
The Editorial Policy stipulates our responsibility to make clear
distinctions between fact and opinion and user-generated or other
content and encourages dialogue on our content, including through
social media. We made it available to all staff through the corporate
intranet and publicly available through the Reed Elsevier website.
We are committed to improving access to our products and
services for all users, regardless of physical ability. In 2012,
we drafted a Reed Elsevier Accessibility Policy that expresses
our desire to lead the industry in providing accessibility solutions
to customers and contribute to international standards with
products that are perceivable, operable, understandable, and
robust. In the year, members of the Accessibility Working Group
logged 76 projects in accessibility undertaken during the course
of the year. Elsevier’s Global Books Digital Archive fulfilled 4,000
disability requests, 50% of them through AccessText.org, a service
it helped establish.
2012 OBjECTIVES
Progress
Roll out updated Editorial
Policy
Develop CR Sales Academy
Develop Reed Elsevier
Accessibility Policy
Extended consultation on
Editorial Policy; disseminated
via global intranet and
corporate website
CR Sales Academy
initiated with sessions on
corporate responsibility
performance, the
environment, accessibility,
and governance
Reed Elsevier Accessibility
Policy drafted; principles
include leading industry
in providing accessibility
solutions to customers
2013 OBjECTIVES
Embed updated Editorial Policy
Incorporate corporate responsibility component into
regular customer-facing staff training
Consult on Reed Elsevier Accessibility Policy and begin
implementation
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Reed Elsevier Annual Reports and Financial Statements 2012
47
6. Supply management
7. environment
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, in 2012 we tracked 477 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 produced by Yale University and Columbia University.
The tracking list changes year on year based on the number of
suppliers we do business with who meet the required criteria.
We started 2012 with 47% of suppliers on the SRS tracking list as
signatories to the Supplier Code and reached 75% by year end.
We have embedded signing the Supplier Code into our e-sourcing
tool as one of the criteria for doing business with us and have an
additional 1,925 signed codes.
Specialist supply chain auditors, Intertek, undertook 52 external
audits for 2012 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.
To engage suppliers on key issues, we broadened our Socially
Responsible Supplier Academy covering the audit process,
environmental management, diversity and inclusion, community
engagement, preventing bribery, and the UN Global Compact,
among other topics.
2012 OBjECTIVES
Progress
75% of key suppliers as
Supplier Code of Conduct
signatories
75% (361 of 477 key
suppliers); 1,925 other
Code signatories
50 external audits of high risk
suppliers
56 completed (includes
4 carried over from 2011)
Broaden Socially Responsible
Supplier Academy
More subjects covered
such as diversity and
inclusion and accessibility;
47% increase in
registrations over 2011
2013 OBjECTIVES
78% of key suppliers as Supplier Code of Conduct
signatories
55 external audits of high risk suppliers
Develop US Supplier Diversity Plan
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In 2012, we launched our updated environmental targets following
extensive consultation with stakeholders. Our targets reflect
our performance and key issues and can be found along with full
environmental performance details in the 2012 Corporate
Responsibility Report at reporting.reedelsevier.com/cr12.
We attained 33% of our electricity from renewable sources in the
year and were ranked as the 2012 sector leader in the Carbon
Disclosure Project, representing 655 investors with $78,000bn
under management.
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 2012, 69 sites
(58% of key locations) achieved five or more standards attaining
green status. Reed Elsevier’s CFO wrote to all staff recognising
their achievement on World Environment Day and also identified
Green Heroes across the company, nominated by their peers for
their environmental efforts.
We have a positive environmental impact through our
environmental publications and services which spread good
practice, encourage debate, and aid researchers and decision
makers. The most recent results from independent Market
Analysis System show our share of citations in environmental
science represented 33% of the total market, and 71% in energy
and fuels. In 2012, CEO Erik Engstrom signed a CEO Water
Mandate Communiqué calling on government leaders attending
the Rio + 20 Earth Summit to prioritise sustainable water.
2012 OBjECTIVES
25% of electricity from
renewable energy or offsets
50% of key locations to achieve
five or more RE Environmental
Standards
Launch updated environmental
targets
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33% achieved
58% achieved (69 locations
vs. 40 in 2011)
Launched externally
through annual reporting
documents; internally
through Environmental
Champions and Green
Teams
2013 OBjECTIVES
35% of electricity from renewable energy or offsets
60% of key locations to achieve five or more updated
RE Environmental Standards
Map range of Reed Elsevier environmental products
and services
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48
BUSINESS REVIEW
CORPORATE RESPONSIBILITY
KEY ENVIRONMENTAL PERFORMANCE INDICATORS
Climate change
Energy
Water
Scope 1
Scope 2
Scope 3 (business travel)
Offi ce energy use intensity
Percentage of energy from
renewable or offset
Average data centre Power
Usage Effectiveness (PUE)
Percentage of key locations
in water stressed areas
achieving usage of 10m3 of
water per person per year
Waste Waste diverted from landfi ll
Target
2015 vs 2010
–20% intensity
–10% intensity
–15% intensity
–20% intensity
50% absolute
1.70 absolute
100% absolute
75% absolute
we achieved the following recognition in 2012:
Intensity
achievement
to date
2012 vs 2010
Absolute
achievement
to date
2012 vs 2010
-19%
-15%
0%
-22%
2012
Absolute
fi gure
10,752 tCO2e
127,105 tCO2e
34,950 tCO2e
2012
Intensity fi gure
(per million
turnover)
1.76 tCO2e
20.78 tCO2e
5.71 tCO2e
-18%
-14%
1%
-21%
115,724 MWh
18.92 MWh
33%
73,257 MWh
1.70
125,103 MWh
69%
67%
24 locations
7,056 tonnes
Business in the Community
CR Index
– Platinum status
Carbon Disclosure Project
Leadership Index
– FTSE 350 sector leader
Caring for Climate
top 25 performer
– FTSE 350 sector leader
Deloitte Sustainability
Reporting Scorecard
– current good/
leading practice
Dow jones Sustainability
Indexes
– included
ECPI Ethical Funds
recognition
Ethibel Pioneer and
Ethibel Excellence
– included
FTSE4Good Index
– included
SAM Sustainability Awards
– bronze medalist
Triodos Bank Sustainable
Equity/Bond Fund
– fi rst in the publishing
sector
UK National Business
Awards
– Sustainability
Awards fi nalist
VBDO supply chain
benchmark
– top 10
Vigeo top 20
– strong performer: top 120
in Europe, top 120 globally
THE FULL 2012 CORPORATE RESPONSIBILITY REPORT IS AVAILABLE AT REPORTING.REEDELSEVIER.COM/CR12
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49
Financial
review
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In this section
50 Chief Financial Officer’s report
58 Principal risks
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Reed Elsevier 2012.indb 49
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50
FInancIal REVIEW
CHIEF FINANCIAL OFFICER’S REPORT
Chief Financial Officer’s report
duncan palmer
Chief Financial Officer
2012 saw continued financial
progress reflecting further
improvements in trading
performance, strong cash flow
and capital efficiency. adjusted
earnings per share grew by
8%. Return on invested capital
improved to 11.9%. Reed elsevier’s
balance sheet remains strong with
net debt 2.2 times eBitda on a
pensions and lease adjusted basis.
Reported figures
Revenue was £6,116m (2011: £6,002m), up 2%. At constant
exchange rates, revenue was up 3%. Underlying revenue growth
was 4%, or 3% excluding the net cycling in of biennial exhibitions.
ReCOnCiliatiOn OF RepORted Revenues yeaR-On-yeaR
yEaR to 31 dEcEmbER
2011 revenue
Underlying growth
Acquisitions
Disposals
Currency effects
2012 revenue
£m
Change
6,002
230
148
(201)
(63)
6,116
+4%
+3%
-4%
-1%
+2%
Reported operating profit, after amortisation of acquired
intangible assets and acquisition related costs, was £1,358m
(2011: £1,205m), reflecting the improved trading performance
described in the Business Review.
The amortisation charge in respect of acquired intangible assets,
including the share of amortisation in joint ventures, amounted
to £329m (2011: £359m). Acquisition related costs were £21m
(2011: £52m), reflecting the completion of the ChoicePoint
integration programme in 2011. Disposals and other non operating
gains were £45m (2011: £21m losses), principally arising from
business divestments, in particular Totaljobs, offset by property
charges relating to disposed businesses.
Net finance costs were lower at £216m (2011: £235m), including
the benefit of term debt refinancing.
The reported profit before tax was £1,187m (2011: £948m). The
reported tax charge was £113m (2011: £181m). This includes an
exceptional tax credit of £96m resulting from the resolution of a
number of significant prior year tax matters. On the basis of its
size and nature the tax credit has been excluded from adjusted
net profit. The reported net profit attributable to the parent
companies’ shareholders was £1,069m (2011: £760m).
REVEnuE
£m
6,071
6,055
6,002
6,116
2009
2010
2011
2012
Reed Elsevier 2012.indb 50
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Reed Elsevier Annual Reports and Financial Statements 2012
51
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
2012
£m
2011
£m
Change
Change
at constant
currencies
Change
underlying
+4%
+6%
6,116
1,358
1,187
1,069
3,127
1,713
28.0%
1,497
1,138
1,603
94%
11.9%
6,002
1,205
948
760
3,433
+2%
+13%
+25%
+41%
1,626
+5%
27.1% +0.9%pts
+8%
1,391
+7%
1,060
1,515
+6%
93%
11.2% +0.7%pts
+3%
+13%
+26%
+40%
+6%
+8%
+8%
+7%
Reed Elsevier uses adjusted and underlying figures as additional performance measures. Adjusted figures are stated before the amortisation of acquired intangible assets,
acquisition related costs, disposal gains and losses and other non operating items, related tax effects, exceptional prior year tax credits (in 2012 only) and movements in
deferred taxation assets and liabilities that are not expected to crystallise in the near term and include 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. Acquisition related costs relate to acquisition integration,
professional and other transaction related fees, and adjustments to deferred and contingent consideration. The exceptional prior year tax credit arising in 2012 is described in
note 9 to the combined financial statements. Reconciliations between the reported and adjusted figures are set out in note 10 to the combined financial statements. Underlying
growth rates are calculated at constant currencies, and exclude the results of all acquisitions and disposals made in both the year and prior year and assets held for sale.
Constant currency growth rates are based on 2011 full year average and hedge exchange rates.
adjusted figures
Adjusted operating profit was £1,713m (2011: £1,626m), up 5%.
At constant currencies, adjusted operating profits were up 6%.
Underlying growth was also 6%. Profit performance across
the business is described in the Business Review.
ReCOnCiliatiOn OF adjusted OpeRating pROFit
yeaR-On-yeaR
yEaR to 31 dEcEmbER
£m
Change
Total operating costs increased by 2% at constant currencies,
including acquisitions and disposals. Underlying costs were up
4%, reflecting volume growth as well as organic investment in
new product development and sales & marketing, partly offset
bycontinued improvements in process efficiency.
The overall adjusted operating margin at 28.0% was 0.9 percentage
points higher than in the prior year. This included a 0.5 percentage
point benefit to margin from portfolio change and a 0.1 percentage
point benefit from the multi-year journal subscription currency
hedging programme net of other currency translation effects.
2011 adjusted operating profit
Underlying growth
Acquisitions
Disposals
Currency effects
2012 adjusted operating profit
1,626
85
35
(22)
(11)
1,713
+6%
+2%
-2%
-1%
+5%
The net pension expense, before the net pension financing credit,
was £89m (2011: £96m), including settlement and curtailment
credits of £20m (2011: £9m). The net pension financing credit was
£25m (2011: £34m) reflecting the increase in scheme liabilities at
the beginning of the year compared with a year before and lower
expected asset returns.
adjustEd opERatIng pRoFIt
adjustEd opERatIng pRoFIt maRgIn
£m
1,570
1,555
1,626
1,713
25.9%
25.7%
27.1%
28.0%
2009
2010
2011
2012
2009
2010
2011
2012
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Reed Elsevier 2012.indb 51
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52
FInancIal REVIEW
CHIEF FINANCIAL OFFICER’S REPORT
Adjusted profit before tax was £1,497m (2011: £1,391m), up 8%
at both reported and constant exchange rates, reflecting the
increase in adjusted operating profits and a lower net
interest expense.
ReCOnCiliatiOn OF adjusted and RepORted pROFit
BeFORe tax
yEaR to 31 dEcEmbER
Adjusted profit before tax
Amortisation of acquired intangible assets
Acquisition related costs
Reclassification of tax in joint ventures
Disposals and other non operating items
Reported profit before tax
2012
£m
1,497
(329)
(21)
(5)
45
1,187
2011
£m
1,391
(359)
(52)
(11)
(21)
948
The effective tax rate on adjusted profit before tax at 23.6% was
0.3 percentage points higher than in the prior year, resulting
from the geographic mix of the net increase in pre-tax profits.
The effective tax rate excludes an exceptional tax credit of £96m
described above, 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 amounts are provided in respect of this.
Discussions with tax authorities relating to cross border
transactions and other matters are ongoing. Although the
outcome of open items cannot be predicted, no significant
impact on the financial position of Reed Elsevier is expected.
The adjusted net profit attributable to shareholders of £1,138m
(2011: £1,060m) was up 7% and up 8% at constant currencies.
Cash flows
Adjusted operating cash flow was £1,603m (2011: £1,515m), up 6%
compared with the prior year and up 7% at constant currencies.
The rate of conversion of adjusted operating profits into cash flow
was 94% (2011: 93%).
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
2012
£m
1,713
(333)
227
(4)
1,603
94%
2011
£m
1,626
(350)
207
32
1,515
93%
Capital expenditure included within adjusted operating cash
flow was £333m (2011: £350m), including £263m (2011: £265m)
in respect of capitalised development costs included within
internally generated intangible assets. This reflects the sustained
investment in new products and related infrastructure,
particularly in the Legal business. Depreciation and the
amortisation of capitalised development costs was £227m
(2011: £207m).
Free cash flow – after interest and taxation – was £1,098m
(2011: £1,062m) before acquisition related spend and cash flows
relating to exceptional restructuring programmes from prior
years. The increase compared with the prior year is after higher
taxes paid of £281m (2011: £218m), reflecting the improved
profitability and the utilisation of prior year tax losses in 2011.
Payments made in respect of acquisition related costs amounted
to £37m (2011: 38m). Payments in respect of the exceptional
restructuring programmes from prior years were £25m
(2011: £52m), principally relating to property costs.
Free cash flow before dividends was £1,075m (2011: £977m).
Ordinary dividends paid to shareholders in the year, being the
2011 final and 2012 interim dividends, amounted to £521m (2011:
£497m). Free cash flow after dividends was £554m (2011: £480m).
REtuRn on InVEstEd capItal
adjustEd opERatIng cash FloW conVERsIon
10.4%
10.6%
11.2%
11.9%
99%
98%
93%
94%
2009
2010
2011
2012
2009
2010
2011
2012
Reed Elsevier 2012.indb 52
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Reed Elsevier Annual Reports and Financial Statements 2012
53
FRee Cash FlOw
yEaR to 31 dEcEmbER
Adjusted operating cash flow
Interest paid
Tax paid
Acquisition related/ restructuring costs*
Free cash flow before dividends
Ordinary dividends
Free cash flow post dividends
* Including cash tax relief/repayments.
2012
£m
1,603
(224)
(281)
(23)
1,075
(521)
554
2011
£m
1,515
(235)
(218)
(85)
977
(497)
480
Cash spend on acquisitions and other investments was £323m,
including deferred consideration of £30m on past acquisitions.
Gross cash proceeds from disposals amounted to £242m,
including £7m from the sale of non-controlling interests. Net
proceeds, before tax, amounted to £160m, after related separation
and transaction costs, additional pension scheme contributions,
and working capital and other adjustments in respect of prior year
transactions. Net tax recovered in respect of disposals was £26m
(2011: tax paid £5m).
Share repurchases by the parent companies in 2012 were £250m
(2011: nil), with a further £100m repurchased in 2013 as at
27 February. No shares of the parent companies were purchased
by the employee benefit trust (2011: nil). Net proceeds from the
exercise of share options were £48m (2011: £9m).
ReCOnCiliatiOn OF net deBt yeaR-On-yeaR
yEaR to 31 dEcEmbER
Net debt at 1 January
Free cash flow post dividends
Acquisitions/disposals:
Acquisitions*
Disposals*
Share repurchases
Net proceeds from share options exercised
Other**
Currency translation
2012
£m
(3,433)
554
2011
£m
(3,455)
480
(323)
242
(250)
48
(72)
107
(557)
101
–
9
(35)
24
Net debt at 31 December
(3,127)
(3,433)
* Gross cash amounts in year; includes borrowings in acquired businesses.
** Cash tax relief/payments and associated transaction costs on acquisitions/
disposals.
nEt dEbt
£m
3,931
3,455
3,433
3,127
Funding
debt
Net borrowings at 31 December 2012 were £3,127m, a decrease
of £306m since 31 December 2011. Excluding currency translation
effects, net debt decreased by £199m, with acquisitions and share
repurchases funded from free cash flow and proceeds from
divestments. Expressed in US dollars, net borrowings at
31 December 2012 were $5,079m, a decrease of $246m in the year.
Gross borrowings after fair value adjustments at 31 December
2012 amounted to £3,892m (2011: £4,282m). The fair value of
related derivative assets was £124m (2011: £123m). Cash balances
totalled £641m (2011: £726m). As at 31 December 2012, after
taking into account interest rate and currency derivatives, a total
of 59% of Reed Elsevier’s gross borrowings were at fixed rates
with a weighted average remaining life of 5.6 years and interest
rate of 6.1%. Taking into account the cash balances and the fair
value of derivatives, as at 31 December 2012, 74% of Reed
Elsevier’s net borrowings were at fixed rates.
The ratio of net debt to EBITDA (adjusted earnings before
interest, tax, depreciation and amortisation) for the year ended
31 December 2012 was 1.7x (2011: 1.8x), and 2.2x (2011: 2.3x)
on a pensions and lease adjusted basis.
liquidity
During 2012, the second of two one year extension options was
exercised on the $2.0bn committed bank facility, extending the
maturity to June 2015. This back up facility provides security of
funding for short term debt.
In September 2012, €550m of fixed rate term debt with a maturity
of eight years was issued at a coupon of 2.5% (before taking into
account fixed to floating interest swaps) and the proceeds used to
pre-finance the €600m 6.5% coupon term debt maturing in April
2013. In October and November 2012, $561m of fixed rate term debt
with a maturity of ten years was issued at a coupon of 3.125%.
Related to this transaction, $299m of fixed rate term debt maturing
in January 2014 and January 2019, with a weighted average coupon
of 8.4%, was exchanged for $311m of the newly issued term debt and
cash payments of $75m. The remaining cash proceeds were used
to reduce short term commercial paper borrowings ahead of the
January 2014 bond maturity.
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.
tERm dEbt matuRIty pRoFIlE
$m
935 937
650
522
286
729 726
604 507
0
0
2009
2010
2011
2012
2013 2014 2015 2016 2017 2018 2019 2020 2021
2022
>2022
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54
FInancIal REVIEW
CHIEF FINANCIAL OFFICER’S REPORT
Details on the treasury policies of the combined businesses are
on pages 56 and 57 and in note 18 to the combined financial
statements.
invested capital and returns
summaRy BalanCe sheet
as at 31 dEcEmbER
Goodwill and acquired intangible assets*
Internally developed intangible assets*
Property, plant and equipment* and
investments
Net assets held for sale
Net pension obligations
Working capital
2012
£m
7,173
647
443
201
(466)
(1,139)
2011
£m
7,628
595
476
27
(242)
(1,060)
Net capital employed
6,859
7,424
* Net of accumulated depreciation and amortisation.
Net capital employed was £6,859m (2011: £7,424m) at
31 December 2012, a decrease of £565m.
The carrying value of goodwill and acquired intangible assets fell
by £455m, reflecting divestments completed and in progress, the
annual amortisation charge and currency effects, partly offset by
acquisitions in 2012. An amount of £229m was capitalised in the
year as acquired intangible assets and £165m as goodwill.
Development costs of £261m (2011: £270m) were capitalised
within internally developed intangible assets, most notably
investment in new products and related infrastructure in the
Legal business.
Net pension obligations, i.e. pension obligations less pension
assets, at 31 December 2012 increased to £466m (31 December
2011: £242m), including a deficit of £306m (31 December 2011:
£87m) in respect of funded schemes, which were on average 93%
funded at the end of the year on an IFRS basis. The increased
deficit reflects an increase in liabilities following a reduction in
discount rates over the year.
Negative working capital increased by £79m, reflecting the impact
of divestments completed and in progress and reductions in
physical inventory.
Gross capital employed at 31 December 2012 was £11,338m
(2011: £11,968m) after adding back accumulated amortisation
and impairment of acquired intangible assets and goodwill.
The decrease of £630m principally reflects currency effects
and the increase in net pension obligations.
The post-tax return on average invested capital in the year was
11.9% (2011: 11.2%). This is based on adjusted operating profits for
the year, less tax at the effective rate, and the average of the gross
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 improved trading performance and
capital efficiency.
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”), Reed Elsevier
Properties SA (“REPSA”) 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.
REPSA actively manages intellectual property assets including
trademarks such as The Lancet and databases such as Reaxys and
PharmaPendium. In 2012 it continued to strengthen its position
as a centre of excellence in the management, development and
branding of intellectual property assets. ERSA is responsible for
reinsurance activities for Reed Elsevier.
major developments
In 2012, EFSA was active in arranging the financing and foreign
currency contracts for Reed Elsevier Group plc companies related
to cross border dividends and acquisitions. EFSA issued €550m
of term debt notes in September 2012 the proceeds of which
pre-financed EFSA’s €600m term debt maturing in April 2013.
It negotiated and advised Reed Elsevier Group plc companies
on a number of banking and cash management arrangements in
Continental Europe and Asia and continued to advise on treasury
matters, including interest rate, foreign currency and certain
other financial exposures.
The average balance of cash under management by EFSA in 2012,
on behalf of Reed Elsevier Group plc and its parent companies,
was approximately US$0.5bn (2011: US$0.8bn).
liabilities and assets
At 31 December 2012, 82% (2011: 91%) of ERF’s gross assets were
held in US dollars and 17% (2011: 9%) in euros, including US$8.4bn
(2011: US$8.6bn) and €0.6bn (2011: €0.6bn) in loans to Reed
Elsevier Group plc subsidiaries. Loans made to Reed Elsevier
Group plc businesses are funded from equity, long term debt of
US$2.6bn and short term debt of US$0.2bn 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.
Reed Elsevier 2012.indb 54
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Reed Elsevier Annual Reports and Financial Statements 2012
55
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
Reported earnings per share
Adjusted earnings per share
Ordinary dividend per share
2012
£m
552
602
46.0p
50.1p
23.0p
€m
658
700
2011
£m
389
561
32.4p
46.7p
21.55p
€m
437
610
€0.90
€0.95
€0.467
€0.59
€0.83
€0.436
Change
at constant
currencies
+7%
+8%
+15%
+8%
Change
+42%
+7%
+42%
+7%
+7%
+51%
+15%
+53%
+14%
+7%
The reported earnings per share for Reed Elsevier PLC
shareholders was 46.0p (2011: 32.4p) and for Reed Elsevier NV
shareholders was €0.90 (2011: €0.59), reflecting the improved
trading performance, disposals gains and the exceptional prior
year tax credit.
Adjusted earnings per share were up 7% at 50.1p (2011: 46.7p)
and 14% at €0.95 (2011: €0.83) for Reed Elsevier PLC and Reed
Elsevier NV respectively. At constant rates of exchange, the
adjusted earnings per share of both companies increased by 8%.
The equalised final dividends proposed by the respective Boards
are 17.0p per share for Reed Elsevier PLC and €0.337 per share
for Reed Elsevier NV, 7% and 3% higher respectively compared
with the prior year final dividends. This gives total dividends for
the year of 23.0p (2011: 21.55p) and €0.467 (2011: €0.436), both
up 7%. (The difference in growth rates in the equalised final
dividends, and in the earlier interim dividends, reflects changes
in the euro: sterling exchange rate since the respective 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 2.2 times
(2011: 2.2x) for Reed Elsevier PLC and 2.0 times (2011: 1.9x) 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.
Between September and December 2012, 23.3m Reed Elsevier
PLC shares and 12.7m Reed Elsevier NV shares were
repurchased, to mitigate the earnings per share dilution from
divestments. As at 31 December 2012, shares in issue for Reed
Elsevier PLC and Reed Elsevier NV respectively amounted to
1,186.6m and 682.4m (excluding R shares). A further 8.1m Reed
Elsevier PLC shares and 4.7m Reed Elsevier NV shares have
been repurchased in January and February 2013.
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adjustEd Eps gRoWth at constant cuRREncIEs
dIVIdEnds
+6%
+8%
21.55
23.0
0.436
0.467
Reed Elsevier PLC
pence
Reed Elsevier NV
€
-9%
2009
-6%
2010
2011
2012
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FInancIal REVIEW
CHIEF FINANCIAL OFFICER’S REPORT
accounting policies
treasury policies
The combined financial statements are prepared in accordance
with International Financial Reporting Standards as adopted by
the European Union and as issued by the International Accounting
Standards Board following the accounting policies shown on
pages 98 to 103. 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 101 to 103.
amendments to Ias19 – Employee benefits (effective for the
2013 financial year)
With effect from 1 January 2013, IAS19 – Employee Benefits
(revised) inter alia changes the methodology to be used in the
calculation of the net pension financing credit or charge in relation
to defined benefit pension schemes. Under the revised standard,
pension asset returns included within the net pension financing
credit or charge are to be calculated by reference to the discount
rate of high quality corporate bonds (being also the discount rate
applied in the calculation of pension obligations) and no longer
based on the expected returns on scheme assets. Typically the
effect will be to reduce the asset returns recognised in the income
statement. As required under the revised standard, comparatives
will be restated accordingly.
Adoption of IAS19 (revised) will have no impact on Reed Elsevier’s
combined balance sheet or cash flows. The net pension financing
credit or charge will, with effect from 1 January 2013, be
presented within net finance costs in Reed Elsevier’s combined
income statement, rather than within operating profit as currently
reported. Given that the revised standard may introduce greater
volatility to the income statement, following adoption on 1 January
2013 the net pension financing credit or charge will be excluded
from the adjusted earnings figures used by Reed Elsevier as
additional performance measures.
Had IAS19 (revised) and related presentation been in effect for the
2012 financial year, operating profit for the year to 31 December
2012 would have been £25m lower (2011: £34m) and net finance
costs would have been higher by £11m (2011: £9m). On an adjusted
basis, profit before tax would have been £25m lower (2011: £34m).
The balance sheet and cash flows would have been unchanged.
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 and EBITDA to net
interest, all on a pensions and lease adjusted basis, and these
metrics are monitored and reported to senior management and
board representatives on a quarterly basis. Cash flow conversion
of 90% or higher is consistent with the rating target. The cash flow
conversion in 2012 was 94% (2011: 93%) and for the year ended
31 December 2012 net debt to EBITDA was 2.2x (2011: 2.3x) 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.
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Reed Elsevier Annual Reports and Financial Statements 2012
57
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 facilities and debt programmes from a variety
of sources to fund its requirements at short notice and at
competitive rates. The significance of Reed Elsevier Group plc’s
US operations means that the majority of debt is denominated in
US dollars. Policy requires that no more than US$1.5bn of term
debt issues should mature in any 12-month period and no more
than US$3.0bn in any 36-month period. In addition, minimum
levels of borrowings with maturities over three and five years are
specified, depending on the level of net debt and free cash flow.
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 2012 interest expense was fixed on an average of
£2.2bn of forecast debt for the next 12 months. This fixed rate debt
reduces to £1.7bn by the end of 2014 and reduces further thereafter
with all but £0.7bn of fixed rate term debt (not swapped to floating
rate) having matured by the end of 2019.
At 31 December 2012, fixed rate term debt (not swapped to floating
rate) amounted to £2.1bn (2011: £2.4bn) and had a weighted average
life remaining of 6.2 years (2011: 5.7 years) and a weighted average
interest rate of 6.4% (2011: 6.5%). Interest rate derivatives in place
at 31 December 2012, which fix the interest cost on an additional
£0.2bn (2011: £0.6bn) of variable rate debt, have a weighted average
maturity of 0.3 years (2011: 0.8 years) and a weighted average
interest rate of 3.6% (2011: 3.2%).
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 24 months
(50 months for the Scientific, Technical & 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 2012, the amount of outstanding foreign
exchange cover against future transactions was £1.2bn
(2011: £1.3bn).
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-/A3 by Standard & Poor’s, Moody’s and
Fitch. At 31 December 2012, cash and cash equivalents totalled
£641m, of which 98% was held with banks rated A/A2 or better.
duncan palmer
Chief Financial Officer
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FInancIal REVIEW
PRINCIPAL RISKS
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
Chief Executive Officer’s report and Business Review. Financial
risks are discussed in the Chief Financial Officer’s report and in
note 18 to the combined financial statements. Our approach to
managing environmental and other non financial risks is set out in
the Business Review and the separate Corporate Responsibility
Report. Important specific risks identified include:
ExtERnal RIsks
Risk
description and impact
mitigation
Economy and
market
conditions
Demand for our products and services may be impacted
by factors such as the economic environment in the US,
Europe and other major economies, and
government funding.
Intellectual
property rights
data resources
paid
subscriptions
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 which
may impact demand for and pricing of our products
and services.
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, because of changes in the law or
because data suppliers decide not to supply them, could
adversely affect our products and services if we were
unable to arrange for substitute sources in a timely
manner or at all.
Our scientific, technical and medical (STM) primary
publications, like those of most of our competitors, are
published on a paid subscription basis. There is 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.
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. We have
extended our position in high growth markets through
organic new launches supported by selective small
acquisitions. We are disposing of businesses that no
longer fit our strategy at an accelerated pace.
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.
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 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. We are open to serving the
STM community under any payment model that can
sustainably provide researchers with the critical
information tools that they need. 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.
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Reed Elsevier Annual Reports and Financial Statements 2012
59
stRatEgIc RIsks
Risk
description and impact
mitigation
customer
acceptance of
products
competition
Reed Elsevier’s businesses are dependent on the
continued acceptance by our customers of our products
and services and the value placed on them. Failure to
meet evolving customer needs could impact demand
for our products and consequently adversely affect
our revenue.
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.
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. Failure to anticipate market trends
could impact the competitiveness of our products
and services and consequently adversely affect
our revenue.
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.
acquisitions
From time to time we acquire businesses to 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 return on invested capital
and financial condition.
Our acquisitions are made within the framework
of our overall strategy, which emphasises organic
development. 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, financial and
ethical acquisition criteria. We closely monitor the
performance of acquisitions.
opERatIonal RIsks
Risk
description and impact
mitigation
technology
failure
data security
supply chain
dependencies
talent
Our businesses are dependent on electronic platforms
and networks, primarily the internet, for delivery of
products and services. They could be adversely affected
if our electronic delivery platforms and networks
experience a significant failure, interruption, or
security breach.
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.
Our businesses maintain databases and information
online, including personal information. Breaches of
our data security or failure to comply with applicable
legislation or regulatory or contractual requirements
could damage our reputation and expose us to risk
of loss or litigation and increased regulation.
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.
Our organisational and operational structures have
increased dependency on outsourced and offshored
functions. Poor performance or 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
contractual service levels that we closely monitor,
including through key performance indicators and
targeted supplier audits. We have developed business
continuity plans to reduce disruption in the event of a
major failure by a vendor.
The implementation and execution of our strategies and
business plans depend on our ability to recruit, motivate
and retain high quality people. We compete globally and
across business sectors for talented management and
skilled individuals, particularly those with technology
and data analytics capabilities. Inability to recruit,
motivate or retain such people could adversely affect
our business performance.
We have well established management development
and talent review programmes. We monitor capability
needs and remuneration schemes are tailored to attract
and motivate the best talent available at an appropriate
level of cost. We actively seek feedback from employees,
which feeds into plans to enhance employee engagement
and motivation.
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60
FInancIal REVIEW
PRINCIPAL RISKS
FInancIal RIsks
Risk
pensions
tax
treasury
description and impact
mitigation
We have 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
ofindependent actuaries and ensure that the funding
plans are sufficient to meet future liabilities.
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.
Reed Elsevier’s approach to funding and management
of interest rate and foreign currency exposures is
described on pages 56 and 57. The approach to the
management of financial risks is described in note
18 to the combined financial statements.
We operate a number of pension schemes around the
world. Historically, the largest schemes have been of
the defined benefit type in the UK, the US and the
Netherlands. The assets and obligations associated
with those 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. Adverse changes to inter alia
asset values, discount rates or inflation could increase
future pension costs and funding requirements.
Our businesses operate globally 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.
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.
Macro economic, 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.
REputatIonal RIsks
Risk
Ethics
Environmental
description and impact
mitigation
As a world leading provider of professional information
solutions to the scientific, technical & medical, risk
solutions & business information, legal, and exhibitions
markets we are expected to adhere to high standards of
independence and ethical conduct. A breach of
generally accepted ethical business standards could
adversely affect our business performance, reputation
and financial condition.
The Reed Elsevier Code of Ethics and Business Conduct
is provided to every employee and is supported by
training. It encompasses such topics as fair competition,
anti-bribery and human rights and encourages open
and principled behaviour. We also have well established
processes for reporting and investigating unethical
conduct. Our major suppliers are required to adopt
our Supplier Code of Conduct.
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. Failure to manage our environmental
impact could adversely affect our reputation.
We are committed to reducing these environmental
impacts by limiting resource use and by efficiently
employing sustainable materials and technologies.
We require our major suppliers and contractors to
meet the same objectives. We seek to ensure that
Reed Elsevier’s businesses are compliant with all
relevant environmental regulation.
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Reed Elsevier Annual Reports and Financial Statements 2012
61
Governance
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In this section
62 Board Directors
64 Executive Leadership Team
65 Chairman’s introduction to
corporate governance
66 Structure and corporate governance
73 Report of the Nominations Committee
74 Directors’ remuneration report
91 Report of the Audit Committees
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62
govERnancE
BOARD DiRECTORS
Board Directors
Executive Directors
Non-Executive Directors
Erik Engstrom (49)
Chief Executive Officer
Anthony Habgood (66)
Chairman
R n c
Mark Elliott (63)
Chairman of the Remuneration Committee
R n c
Appointed: Chief Executive Officer since 2009.
Joined Reed Elsevier as Chief Executive Officer
of Elsevier in 2004.
Nationality: Swedish
Past appointments: 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.
Education: 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.
Appointed: 2009
Nationality: British
Other appointments: Chairman of Whitbread plc
and of Preqin Holding Limited.
Past appointments: Chairman of Bunzl plc and
of Mölnlycke Health Care Limited and served as
Chief Executive of Bunzl plc, Chief Executive of
Tootal Group plc and a director of The Boston
Consulting Group inc. Formerly non-executive
director of Geest plc, Marks and Spencer plc,
National Westminster Bank plc, Powergen plc,
and SVG Capital plc.
Education: 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.
Appointed: 2003
Nationality: American
Other appointments: Chairman of QinetiQ Group
plc and a non-executive director of G4S plc.
Past appointments: Until his retirement in 2008,
was general manager of iBM Global Solutions,
having held a number of positions with iBM,
including managing director of iBM Europe,
Middle East and Africa.
Duncan Palmer (47)
Chief Financial Officer
Robert Polet (57)
Non-Executive Director
R c
Sir David Reid (66)
Senior independent Director
a R n c
Appointed: 2012
Nationality: British and American
Other appointments: Non-executive director
of Oshkosh Corporation.
Past appointments: Prior to joining Reed
Elsevier was Chief Financial Officer and Senior
Vice President of Owens Corning inc. from 2007
having previously held various senior finance
positions within Royal Dutch Shell for 20 years
in the UK, the Netherlands and the US.
Education: Holds an MA in Mathematics from
Cambridge University and an MBA from
Stanford University, and is a UK-qualified
Chartered Management Accountant.
Appointed: 2007
Nationality: Dutch
Other appointments: Chairman of Safilo Group
S.p.A. and a non-executive director of Philip
Morris international inc, William Grant & Sons
Limited and Crown Topco Limited, parent
company of Vertu. Member of the supervisory
board of Nyenrode Foundation.
Past appointments: President and Chief
Executive Officer of Gucci Group from 2004
to 2011, having previously 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. Formerly a
non-executive director of Wilderness Holdings
Limited from 2010 to 2012.
Appointed: 2003
Nationality: British
Other appointments: Chairman of intertek Group
plc and a member of the Senior Advisory Board
of Jeffries, the global investment banking firm.
Past appointments: Chairman of Tesco PLC
from 2004 to 2011, having previously been
Executive Deputy Chairman until December
2003, and Finance Director from 1985 to 1997.
Formerly Chairman of Kwik-Fit and a
non-executive director of De Vere PLC, Legal &
General Group plc and Westbury PLC.
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Reed Elsevier Annual Reports and Financial Statements 2012
63
Adrian Hennah (55)
Non-Executive Director
a c
Lisa Hook (54)
Non-Executive Director
R n c
Appointed: April 2011
Nationality: British
Other appointments: Chief Financial Officer
of Reckitt Benckiser Group plc
Past appointments: Chief Financial Officer
of Smith & Nephew plc from 2006 to 2012.
Before that was Chief Financial Officer of
invensys plc, having previously held various
senior finance and management positions
with GlaxoSmithKline for 18 years.
Appointed: 2006
Nationality: American
Other appointments: President and Chief
Executive Officer of Neustar inc and a director
of The Ocean Foundation.
Past appointments: 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 Chief Operating Officer of Time
Warner Telecommunications and has served as
senior advisor to the Federal Communications
Commission Chairman and a senior counsel to
Viacom Cable.
Marike van Lier Lels (53)
Member of the Supervisory Board
of Reed Elsevier NV
c
Appointed: 2010
Nationality: Dutch
Other appointments: Member of the supervisory
boards of KPN NV, USG People NV and TKH
Group NV. A member of various Dutch
governmental advisory boards.
Past appointments: Member of the Supervisory
Board of Maersk BV until March 2012. 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.
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Linda Sanford (60)
Non-Executive Director
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Ben van der Veer (61)
Chairman of the Audit Committees
Appointed: 2012
Nationality: American
Other appointments: Senior Vice President,
Enterprise Transformation, iBM Corporation
and non-executive director of iTT Corporation
until May 2013. Serves on the board of directors
of The Business Council of New York State and
the Partnership for New York City. Also serves
on the board of trustees of the State University of
New York, St John’s University, and Rensselaer
Polytechnic institute.
Appointed: 2009
Nationality: Dutch
Other appointments: Member of the supervisory
boards of AEGON NV, TomTom NV, Siemens
Nederland NV and Koninklijke
FrieslandCampina NV.
Past appointments: 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.
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Board committee Membership
a Audit Committees: Reed Elsevier Group plc, Reed
Elsevier PLC and Reed Elsevier NV
R Remuneration Committee: Reed Elsevier Group plc
n Nominations Committee: joint Reed Elsevier PLC
and Reed Elsevier NV
c 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.
Marike 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.
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govERnancE
ExECUTiVE LEADERSHiP TEAM
Executive Leadership Team
Senior Business Executives
Mark Kelsey
CEO LexisNexis
Risk Solutions
CEO Reed Business
information
Mike Rusbridge
CEO Reed Exhibitions
Mike Walsh
CEO LexisNexis
Legal & Professional
Ron Mobed
CEO Elsevier
Corporate Executives
Henry Udow
Chief Legal Officer
& Company Secretary
Youngsuk “YS” Chi
Director of Corporate
Affairs
Kumsal Bayazit
Chief Strategy
Officer
Ian Fraser
Global Human
Resources Director
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Reed Elsevier Annual Reports and Financial Statements 2012
65
Chairman’s introduction to corporate governance
“ Effective corporate governance
is fundamental to the long-term
sustainability and success of
Reed Elsevier’s operations.”
The Boards of Reed Elsevier Group plc and Reed Elsevier PLC,
and the Combined Board of Reed Elsevier NV (the Boards) are
committed to high standards of corporate governance and
have put in place procedures which provide accountability,
transparency, probity and a focus on the sustainable success
of Reed Elsevier over the longer term.
This report is intended to provide shareholders with a clear view
of Reed Elsevier’s corporate governance arrangements and how
Reed Elsevier complied with the applicable corporate governance
codes of best practice during the year. Statements with regard to
compliance with corporate governance codes and in particular
the UK Corporate Governance Code 2010 are set out on page 66.
During the year, the Financial Reporting Council published a
revised UK Corporate Governance Code which will apply to
Reed Elsevier from 1 January 2013. We expect to adopt the
revised Code in full during 2013.
The Boards
2012 was an important year for the evolution of the Reed Elsevier
Boards. As well as recruiting a new Chief Financial Officer, we
confirmed our plans to continue the progressive refreshing of the
Boards with further appointments of Non-Executive Directors.
Additionally, we continued progress on Board diversity,
monitoring our position against the goals that we announced
in 2011.
Board succession
Following a rigorous search process, Duncan Palmer joined Reed
Elsevier in August and succeeded Mark Armour as Chief Financial
Officer in November. Duncan Palmer joined Reed Elsevier from
Owens Corning where he was chief financial officer and senior
vice president from 2007 having previously held various senior
finance positions within Royal Dutch Shell for 20 years in the UK,
the Netherlands and the US.
In March 2012, we confirmed our plans to continue the progressive
refreshing of the Boards since Mark Elliott and Sir David Reid
will retire after ten years’ service following the conclusion of
the Annual General Meetings in April 2013. Following a search
process using an external consultant, Linda Sanford joined the
Boards in December 2012. She has over 35 years’ experience as
a global executive with IBM, particularly in leveraging technology
to achieve business transformation. In February 2013, we
announced that Wolfhart Hauser will join the Boards subject to
shareholder approval at our Annual General Meetings in April.
He has more than 30 years’ service in executive and non-executive
positions in international technology and services businesses
and a background in science and medicine.
Diversity
Reed Elsevier recognises the need for, and desirability of,
diversity on its Boards. Diversity in the profile of board members
provides the necessary range of perspectives. In 2011, we
announced aspirational goals regarding the percentage of women
we aim to have on the Boards by 2013. I am pleased to report
that we have made good progress and that following the Annual
General Meetings in April 2013, we expect to have met our
aspirational goals. Further details are set out in the Nominations
Committee Report on page 73. Information about Reed Elsevier’s
approach to diversity and inclusion in its workforce can be found
in the Corporate Responsibility report on page 44.
Taking into account the recent changes to the composition of the
Boards and the outcome of this year’s Board evaluation process
(details of which are set out on page 67), I believe that the Boards
and their committees have an appropriate balance of skills,
experience, independence, knowledge and diversity to ensure
that they can discharge their duties effectively and the corporate
governance in place is appropriate to support the continued
growth and success of Reed Elsevier.
Anthony Habgood
Chairman
27 February 2013
Areas of significant skills and expertise of the Non-Executive Directors on the Boards
Executive board experience in a large international listed company
Knowledge of corporate governance issues for listed companies
Operational experience in Reed Elsevier’s product markets
Operational experience in Reed Elsevier’s main geographical markets
Marketing, customer relations
Operational experience with telecommunication/computer technology, electronic publishing
Management of human resources, selection and remuneration of executives
Corporate social responsibility
Legal matters
Banking, tax and corporate finance
Financial and organisational audit
Corporate strategy and organisation
Percentage of the
Non-Executive Directors
56
100
44
89
89
67
100
100
78
44
67
100
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govERnancE
STRUCTURE AND CORPORATE GOVERNANCE
Structure and corporate governance
Corporate structure
REED ELSEVIER PLC
REED ELSEVIER NV
REED ELSEVIER GROUP PLC
Publishing and Information Businesses
ELSEVIER REED FINANCE BV
Financing Activities
Reed Elsevier was created in January 1993, when Reed Elsevier
PLC and Reed Elsevier NV contributed their respective
businesses to two jointly owned companies, Reed Elsevier Group
plc, a UK-registered company which owns the publishing and
information businesses, and Elsevier Reed Finance BV, a Dutch-
registered company which owns the financing activities. Reed
Elsevier PLC and Reed Elsevier NV have retained their separate
legal and national identities and are publicly-held companies.
Reed Elsevier PLC’s securities are listed in London and New York,
and Reed Elsevier NV’s securities are listed in Amsterdam and
New York. 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.
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.
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.
Corporate governance
compliance with codes of best practice
The Boards of Reed Elsevier PLC and Reed Elsevier NV have
implemented standards of corporate governance and disclosure
policies applicable to companies listed on the stock exchanges
of the United Kingdom, the Netherlands 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 UK Corporate Governance
Code issued by the Financial Reporting Council (FRC) in May 2010
(the UK Code) and those contained in the Dutch Corporate
Governance Code issued in December 2008 (the Dutch Code).
The FRC published a revised UK Corporate Governance Code in
September 2012 (2012 Code) which applies to accounting periods,
beginning on or after 1 October 2012. The Board expects to comply
in full with the 2012 Code during 2013.
This report and the compliance statement set out below are made
in relation to the UK Code. The principles and provisions set out
in the UK Code and the Dutch Code have applied throughout the
financial year ended 31 December 2012. 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 NYSE Euronext Amsterdam
Stock Exchange, has also 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 172 to 175, 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.
Business model
As required by Provision C.1.2 of the UK Code, pages 4 to 37
describe the business and the progress made in 2012 against
Reed Elsevier’s long-term business priorities, aimed at delivering
better outcomes for our customers and creating value for
Reed Elsevier and shareholders.
Relations with shareholders
Reed Elsevier PLC and Reed Elsevier NV participate in regular
dialogue with institutional shareholders. Presentations on the
Reed Elsevier combined businesses are made by the Chairman,
Chief Executive Officer and Chief Financial Officer following the
announcement of the interim and full-year results and these are
simultaneously webcast. A conference call with investors was
also held following the third quarter interim Management
Statement. in addition, two investor seminars focusing on Reed
Exhibitions, Reed Business information and LexisNexis Legal &
Professional were held during the year. These seminars which
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Reed Elsevier Annual Reports and Financial Statements 2012
67
described the market background, business activities and growth
plans for the businesses were also webcast on the Reed Elsevier
website. 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, 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 presented to the respective Boards.
Both Reed Elsevier PLC and Reed Elsevier NV offer electronic
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
Following appointment and as required, Directors receive
training appropriate to their level of experience and knowledge.
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, the Directors attend 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 and
committee members.
Board evaluation
During the year, the Corporate Governance Committee, supported
by the company secretaries, 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 of the Directors, the Committee
reviewed the functioning and constitution of the Boards and their
committees, including the balance of skills, experience,
independence, knowledge of Reed Elsevier, and diversity, including
gender. The Chairman conducted interviews with each member of
the Boards to discuss individually board effectiveness. The results
were subsequently considered in a meeting of the Boards. The
Chairman of the Boards was not present during a discussion by
the Non-Executive Directors as it related to him. Based on these
assessments, and 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. The Committee also believes that the Boards
function effectively and collaboratively and with an appropriate
level of engagement with management and that the diverse
membership provides a broad range of skills and perspectives.
in seeking to further its effectiveness, the Boards will work to
ensure an appropriate level of review of risk-related matters
alongside strategic, financial and operational issues in line
with the recommendations of the review.
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 members of either the
Executive Board or the Supervisory Board of Reed Elsevier NV.
Reed Elsevier NV may nominate for appointment to the
Supervisory Board up to two Directors who are not appointed to
the Boards of either Reed Elsevier PLC or Reed Elsevier Group plc.
Currently, one such Director, Marike van Lier Lels, has been
appointed to the Supervisory Board. The names, nationalities and
biographical details of each Director at the date of this report
appear on pages 62 and 63.
in view of recent legislation to formalise the one-tier board model
in the Netherlands Civil Code that was enacted with effect from
1 January 2013, the Combined Board of Reed Elsevier NV has
resolved to take the necessary steps to establish a one-tier board
governance structure. For this purpose, the articles of association
of Reed Elsevier NV will require to be amended and therefore a
proposal for the one-tier governance structure will be put to the
Annual General Meeting of Reed Elsevier NV in April 2013.
There is a schedule of matters reserved to the Boards and
approved delegated authorities to the Chief Executive Officer and
other senior executives. There is a clear separation of the roles
of the Chairman and the Chief Executive Officer which are set out
in writing.
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, the Chairman, 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
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relationship which could materially interfere with their ability
to exercise independent judgement.
Notwithstanding that Mark Elliott and Sir David Reid have
served on the Boards for more than nine years, the Boards
have determined that they remain independent in character
and judgement and neither has formed associations with
Reed Elsevier that might compromise their ability to exercise
independent judgement.
The Boards of Reed Elsevier PLC and of Reed Elsevier NV have
appointed Sir 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 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 set
outon page 65 and 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.
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 Articles of Association, the Boards comply with
the recommendations contained in the UK Code, and all Directors
seek re-election by shareholders annually.
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 set out in the table on page 69.
Mark Armour stepped down as Chief Financial Officer in November
2012 and retired from the Reed Elsevier Boards in December 2012.
The Nominations Committee retained an external search
consultancy to conduct a rigorous search process in conjunction
with the Boards to identify a suitable candidate to succeed
Mr Armour. Following the conclusion of the search process and
on the recommendation of the Nominations Committee, the Boards
selected Duncan Palmer who joined Reed Elsevier in August 2012
and was appointed Chief Financial Officer in November 2012.
Mr Palmer’s biography is set out on page 62.
The Nominations Committee also engaged external search
consultancies to assist in the search for suitable Non-Executive
Directors. Following the search process, David Brennan and
Linda Sanford were identified as having the appropriate skills
and experience required by the Boards, and the Nominations
Committee recommended their appointment. As previously
announced, David Brennan’s appointment was to have been
effective as of November 2012; however, this has been postponed
indefinitely for personal reasons at his request and by agreement
with the Boards. in December 2012, Linda Sanford was appointed
to the Boards, the audit committees and corporate governance
committee. Ms Sanford’s biography is set out on page 63.
Following the postponement of David Brennan’s appointment,
the Nominations Committee continued the search and
recommended to the Boards, in February 2013, that Dr Wolfhart
Hauser be proposed for election as a member of the Supervisory
Board of Reed Elsevier NV and a Non-Executive Director of Reed
Elsevier PLC at the respective Annual General Meetings in April
2013. Dr Hauser has been the chief executive officer of intertek
Group plc since 2005, after serving as a non-executive director
since 2002. He was also a non-executive director of Logica plc
from 2007 to 2012. Dr Hauser is a German citizen with a strong
background in medicine, science and technology based
businesses. Subject to his election at the Annual General
Meetings, he will also be appointed as a Non-Executive Director
of Reed Elsevier Group plc.
Mark Elliott and Sir David Reid will retire from the Boards of
Reed Elsevier NV and Reed Elsevier PLC following the conclusion
of the Annual General Meetings in April 2013 after ten years’
service and will not seek re-election.
in accordance with the Articles of Association of Reed Elsevier
PLC, Directors are subject to election by shareholders at the first
Annual General Meeting following their appointment by the
Board. All other Directors are subject to re-election annually in
accordance with the UK Code. Accordingly, Duncan Palmer and
Linda Sanford will stand for election at the Reed Elsevier PLC
Annual General Meeting in April 2013. All other eligible Directors
will stand for re-election.
All eligible Directors of the Combined Board of Reed Elsevier NV
(including Duncan Palmer and Linda Sanford, whose
appointments were approved by shareholders at an Extraordinary
General Meeting in November 2012) will stand for re-election at
the Reed Elsevier NV Annual General Meeting in April 2013.
Based on assessments made 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 of these Directors be proposed for re-election at the
Annual General Meeting of the respective company.
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BoaRD aTTEnDancE
Members
Mark Armour
Mark Elliott
Erik Engstrom
Anthony Habgood
Adrian Hennah
Lisa Hook
Marike van Lier Lels
Duncan Palmer*
Robert Polet
Sir David Reid
Linda Sanford
Ben van der Veer
Date of appointment/
(cessation)
during the year
(December 2012)
December 2012
Reed Elsevier PLC
Reed Elsevier NV
Reed Elsevier Group plc
Number of
meetings
held whilst
a director
Number of
meetings
attended
Number of
meetings
held whilst
a director
Number of
meetings
attended
Number of
meetings
held whilst
a director
Number of
meetings
attended
7
7
7
7
7
7
n/a
3
7
7
1
7
6
6
7
7
6
7
n/a
3
7
4
1
7
7
7
7
7
7
7
7
2
7
7
1
7
6
6
7
7
6
7
7
2
7
4
1
7
7
7
7
7
7
7
n/a
3
7
7
1
7
6
6
7
7
6
7
n/a
3
7
4
1
7
*Duncan Palmer was appointed to the Boards of Reed Elsevier PLC and Reed Elsevier Group plc on 25 September 2012 and to the Executive Board of Reed Elsevier NV on
6 November 2012.
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), Duncan Palmer, Ben van der Veer and Marike van Lier Lels, with the management
board consisting of Alberto Romaneschi, Gerben de Jong and Jans van der Woude. Jacques Billy retired from the management board
in May 2012 and Mark Armour retired from the supervisory board in November 2012. Alberto Romaneschi was appointed to the
management board with effect from October 2012 and Duncan Palmer was appointed to the supervisory board in November 2012.
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.
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Mark Armour
Jacques Billy
Rudolf van den Brink
Gerben de Jong
Marike van Lier Lels
Duncan Palmer
Alberto Romaneschi
Ben van der Veer
Jans van der Woude
Board committees
Date of
appointment/
(cessation)
during the year
Number of
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Number of
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(November 2012)
(May 2012)
November 2012
October 2012
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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 and attendance during the year are set out below.
Audit Committees
The Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc have established Audit Committees. The Committees
comprise only independent Non-Executive Directors. The Committees are chaired by Ben van der Veer. A report of the Audit
Committees, setting out their role and main activities during the year, appears on pages 91 and 92.
Members
Ben van der Veer (Committee Chairman)
Lisa Hook
Sir David Reid
Linda Sanford*
Adrian Hennah
* Linda Sanford was appointed to the Committees after the meetings held in December 2012.
Date of
appointment/
(cessation)
during the year
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
(May 2012)
December 2012
5
2
5
–
5
5
2
5
–
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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
The Board of Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for considering the
remuneration of the Executive Directors and the Chairman. 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 74 to 90. This report also serves as disclosure of the Directors’ remuneration policy, and the
remuneration of the Directors and their interests in the shares of the two parent companies, Reed Elsevier PLC and Reed Elsevier NV.
Members
Mark Elliott (Committee Chairman)
Anthony Habgood
Lisa Hook
Robert Polet
Sir David Reid
Nominations Committee
Date of
appointment/
(cessation)
during the year
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
May 2012
5
5
3
5
5
5
5
3
5
5
The Boards of Reed Elsevier PLC and Reed Elsevier NV have established a joint Nominations Committee. The Committee comprises
only Non-Executive Directors, and is chaired by Anthony Habgood. A report of the Nominations Committee, setting out its role and main
activities during the year, appears on page 73.
Members
Anthony Habgood (Committee Chairman)
Mark Elliott
Lisa Hook
Sir David Reid
Ben van der Veer
Corporate Governance Committee
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
5
5
5
5
5
5
5
5
4
5
The Boards of 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
Anthony Habgood (Committee Chairman)
Mark Elliott
Adrian Hennah
Lisa Hook
Marike van Lier Lels
Robert Polet
Sir David Reid
Linda Sanford
Ben van der Veer
Date of
appointment/
(cessation)
during the year
Number of
meetings
held whilst a
Committee
member
Number of
meetings
attended
7
7
7
7
7
7
7
1
7
7
6
6
7
6
7
4
1
7
December 2012
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71
Internal control
Parent companies
The Boards of Reed Elsevier PLC and Reed Elsevier NV exercise
independent supervisory roles over the activities and systems of
internal control of Reed Elsevier Group plc and Elsevier Reed
Finance BV. The Boards of Reed Elsevier PLC and Reed Elsevier
NV have each adopted a schedule of matters which are required to
be brought to them for decision. in relation to Reed Elsevier Group
plc and Elsevier Reed Finance BV, the Boards of Reed Elsevier PLC
and Reed Elsevier NV approve the strategy and the annual
budgets, and receive regular reports on the operations,
including the treasury and risk management activities of the
two companies. Major transactions proposed by the Boards of
Reed Elsevier Group plc or Elsevier Reed Finance BV require
the approval of the Boards of both Reed Elsevier PLC and
Reed Elsevier NV.
The Reed Elsevier PLC and Reed Elsevier NV Audit Committees
meet on a regular basis to review the systems of internal control
and risk management of Reed Elsevier Group plc and Elsevier
Reed Finance BV.
operating companies
The Board of Reed Elsevier Group plc is responsible for the system
of internal control of the Reed Elsevier publishing and information
businesses, while the Boards of Elsevier Reed Finance BV are
responsible for the system of internal control in respect of the
finance group activities. The Boards of Reed Elsevier Group plc
and Elsevier Reed Finance BV are also responsible for reviewing
the effectiveness of their systems of internal control.
The Boards of Reed Elsevier Group plc and Elsevier Reed Finance
BV have 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 2012 and up to
the date of the approvals of the Annual Reports and Financial
Statements 2012.
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 principal risks facing
Reed Elsevier are set out on pages 58 to 60.
The major 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.
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govERnancE
STRUCTURE AND CORPORATE GOVERNANCE
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 2012 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 2012, 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 2012 is set out in the Chief Financial Officer’s Report
on pages 50 to 57. 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
56 and 57. 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 58 to 60.
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 2012 on Form 20-F to be filed
withthe Commission that they are responsible for establishing
and maintaining disclosure controls and procedures and that
they have:
designed such disclosure controls and procedures to ensure
that material information relating to Reed Elsevier is made
known to them;
evaluated the effectiveness of Reed Elsevier’s disclosure
controls and procedures;
based on their evaluation, disclosed to the Audit Committees
and the external auditors all significant deficiencies in the
design or operation of disclosure controls and procedures and
any frauds, whether or not material, that involve management
or other employees who have a significant role in Reed
Elsevier’s internal controls; and
presented in the Reed Elsevier Annual Report 2012 on Form
20-F their conclusions about the effectiveness of the disclosure
controls and procedures.
A Disclosure Committee, comprising the company secretaries of
Reed Elsevier PLC and Reed Elsevier NV and other senior Reed
Elsevier managers, provides assurance to the Chief Executive
Officer and Chief Financial Officer regarding their Section 302
certifications.
Section 404 of the US Sarbanes-Oxley Act 2002 requires the Chief
Executive Officer and Chief Financial Officer of Reed Elsevier PLC
and of Reed Elsevier NV to certify in the respective Annual Reports
2012 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 2012 on Form 20-F.
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Reed Elsevier Annual Reports and Financial Statements 2012
73
Report of the Nominations Committee
This report has been prepared by the joint Nominations
Committee of Reed Elsevier PLC and Reed Elsevier NV and has
been approved by the respective Boards.
Role of the committee
The principal role of the Committee is to provide assistance to the
Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier
Group plc by identifying individuals qualified to become Directors
and recommending to the Boards the appointment of such
individuals.
The responsibilities of the Committee are set out in written terms
of reference (available at www.reedelsevier.com) and include:
(i)
(ii)
to develop and agree the desired profile for potential
candidates for board membership;
in consultation with external search consultants, agree the
specification for the recruitment of new directors which
provides a formal and transparent procedure for the
selection and appointment of new directors to the Boards;
(iii) to recommend to the Boards the appointment of candidates
subject, where appropriate, to the approval of shareholders
of Reed Elsevier PLC and Reed Elsevier NV;
(iv) to recommend to the Boards directors to serve on Board
Committees, having regard to the criteria for service on each
committee as set out in the terms of reference for such
committees, and to recommend members to serve as the
Chair of those committees; and
(v)
to make recommendations to the Boards in relation to the
possible re-appointment of Directors at the Annual General
Meetings of Reed Elsevier PLC and Reed Elsevier NV.
committee membership
The Committee comprises only Non-Executive Directors, and is
chaired by Anthony Habgood. The other members are Mark Elliott,
Lisa Hook, Sir David Reid and Ben van der Veer. The Committee
met five times during the year.
composition of the Boards
During the year, the main focus of the Committee continued to be:
succession planning in relation to the planned retirement of two
long-serving Non-Executive Directors, Mark Elliott and Sir David
Reid; the appointment of a new Chief Financial Officer to succeed
Mark Armour who retired in December 2012; and progress against
Reed Elsevier’s aspirational goals regarding the percentage of
women on its Boards which were announced in 2011.
The Committee has established a formal, rigorous and
transparent procedure for the recruitment of candidates to the
Boards and recommendations by the Committee are made on
the basis of a candidate’s merit, against objective criteria and
with due regard for the benefits of diversity, including gender.
in addition, the Committee seeks to ensure that the Boards and
their committees comprise an appropriate balance of skills,
experience, independence and knowledge of Reed Elsevier’s
businesses, and diversity.
The Committee retained recruitment consultants specialising
in senior and non-executive appointments to carry out searches
for two new Non-Executive Directors and a new Chief Financial
Officer. The Committee worked closely with the consultants
and following a rigorous process of assessment and interviews,
recommended to the Boards the appointment of David Brennan
and Linda Sanford as Non-Executive Directors and Duncan
Palmer as Chief Financial Officer. When David Brennan’s
appointment was postponed indefinitely for personal reasons,
the Committee continued the search and recommended to the
Boards, in February 2013, that Dr Wolfhart Hauser be proposed
for election at the Annual General Meetings in April 2013.
in September 2011, in response to the publication of the Davies
Review, “Women on Boards”, the Boards announced their
aspirational goals that by 2013 the Reed Elsevier NV Combined
Board would be comprised of 30% women and the Reed Elsevier
PLC Board would be comprised of 22% women. At that time,
September 2011, the Reed Elsevier NV Combined Board was
comprised of 20% women and the Reed Elsevier PLC Board was
comprised of 11% women. During 2012, the Committee reviewed
progress against these goals and following the Annual General
Meetings to be held in April 2013 the Boards expect to have
met these goals. The Committee will continue to monitor the
composition of the Board against the Boards’ aspirational goals
while taking into account the benefits of diversity more generally.
Details of Reed Elsevier’s approach to diversity and inclusion in its
workforce can be found in the Corporate Responsibility report on
pages 39 to 48.
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74
governance
directors’ remuneration report
Directors’ remuneration report
remuneration committee
75 constitution and terms of reference
executive directors
75 remuneration philosophy and policy
77 the total remuneration package
84 service contracts
non-executive directors
85 policy on non-executive directors’ fees
Total Shareholder return graphs
85 total shareholder return graphs
remuneration and share tables
86 directors’ emoluments and fees
87 directors’ shareholdings in reed elsevier
87 share-based awards in reed elsevier
the directors’ remuneration report (the report) describes
how reed elsevier applies the principles of good governance
relating to directors’ remuneration. this report has been
prepared by the remuneration committee of reed elsevier
Group plc (the committee) in accordance with regulations
made under the companies act 2006 and the dutch
corporate Governance code (the dutch code).
the 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
annualGeneral meeting of reed elsevier pLc.
The audited parts of the 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
83; the tables showing ‘aggregate emoluments’ and ‘individual
fees of non-executive directors’ on page 86; the tables on
‘individual emoluments of executive directors’ and ‘directors’
shareholdings in reed elsevier pLc and reed elsevier nV’ on
page 87; and the section ‘share-based awards in reed elsevier
pLc and reed elsevier nV’ on pages 87 to 89.
Introduction from Remuneration
Committee Chairman
since erik engstrom’s appointment in late 2009, the company has
made good progress financially and strategically by systematically
transforming the business, primarily through organic development.
the performance related components of the executive directors’
remuneration arrangements in place since 2010, including the
one-off reed elsevier Growth plan (reGp), have supported this
strategy, focusing on return on capital, returns to shareholders
and sustained earnings growth.
2012, as reported elsewhere in this report, was a very solid year and
resulted in annual bonuses for erik engstrom, mark armour and
duncan palmer that were slightly above target (see pages 78 to 79).
indicate that erik engstrom and mark armour will earn 66.8% of their
initial award. For mr engstrom, 50% of this will be deferred for an
additional two years. For mark armour, who retired on 31 december
2012, there will be no deferral and no opportunity to earn further
shares. With regard to mr armour’s retirement, standard terms and
conditions were applied as reported in last year’s remuneration report.
duncan palmer joined at the end of august 2012 and took on his role
as chief Financial officer with effect from 15 november 2012. details
of his remuneration arrangements are set out on pages 77 and 84 of
this report.
in terms of salary increases, the committee decided to award
erik engstrom a salary increase of 2.5% effective 1 January 2013.
this level of increase is in line with 2013 increases applicable to
the wider employee population and other senior executives.
duncan palmer did not receive an increase to his starting salary.
His first salary review will be in January 2014.
Given the backdrop of solid progress, the committee spent much
of its time in 2012 considering alternatives for new multi-year
incentives. this was necessitated by the need to replace the one-off
reGp with a more regular Long term incentive plan (Ltip) and the
expiration of our existing executive share option scheme (esos) in
april 2013. the committee considered quantum, metrics and the
structure of these plans as they relate to supporting the execution
of business strategy.
earlier this year, we consulted with around 30 major shareholders
and shareholder representative bodies in the uK, the netherlands
and the us on the proposed new Ltip and the renewal of the esos.
Feedback received during the process shaped the final design of the
plans, which are being put to shareholders for approval at the annual
General meetings in april. a detailed description of the new plans is
contained in the notices of the annual General meetings.
in summary, subject to shareholder approval, we are proposing
to introduce a new three-year Ltip for executive directors and
approximately another 100 senior executives, as well as renew esos
for around 1,000 employees globally, including executive directors.
the proposed Ltip is based on a roll forward of what has been
successfully operated for the 100 executives annually since 2010,
thus minimising disruption and maximising stability in our most
senior management population.
the proposals for the new plans are based on the same foundations
as before, focusing on return on capital, returns to shareholders and
sustained earnings growth. the overall incentive opportunity for
executive directors under the multi-year plans remains within the
parameters previously approved by shareholders.
For 2013, the executive directors will be granted awards under the
new Ltip and esos, subject to receipt of shareholder approval,
and will be eligible to participate in the annual incentive plan and
the bonus investment plan, as in 2012.
as in previous years, our approach to preparing this report has been
to meet the highest standards of disclosure, balancing in a thoughtful
and responsible manner the uK legislative requirements with best
practice guidelines on disclosure in the netherlands. in preparing
this report, 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.
the first tranche of the reGp will be performance tested in late
april 2013 and, as discussed on page 81, preliminary calculations
Mark elliott
chairman, remuneration committee
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reed elsevier annual reports and Financial statements 2012
75
Remuneration Committee
constitution
throughout 2012, the committee consisted of independent
non-executive directors, as set out in the structure and corporate
governance report, 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’
on page 66 of the annual reports. the chief Legal officer &
company secretary 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. the ceo of reed elsevier Group plc is not
in attendance during discussions pertaining to his remuneration.
the Global Human resources director provided material advice
to the committee during the year.
advisers
towers Watson acted as external advisers to the committee
throughout 2012 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.
the individual consultants involved in advising the committee do
not provide advice to the executive directors or act on their behalf.
Terms of reference
the committee’s responsibilities are as follows:
Executive directors
to establish the remuneration policy for the executive directors
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
reed elsevier pLc and, on the advice of the chairman, the
remuneration terms of the ceo (with respect to reed elsevier
nV, the committee recommends to the supervisory Board the
remuneration policy and the remuneration in all its forms for
the ceo and other executive directors); and
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General
to review the ongoing appropriateness and relevance of the
remuneration policy, in particular the performance-related
elements and their compatibility with risk policies and
systems;
to review and recommend amendments to the rules of all
share-based incentive plans including the formulation of
suitable performance conditions for share-based awards and
options, and where necessary, to submit them for approval
by shareholders;
to maintain an open and ongoing dialogue with institutional
investors on major remuneration policy issues; and
to discharge its duties with due regard to any published
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.
Executive directors
remuneration philosophy and policy
the context for reed elsevier’s remuneration policy and practices
is set by the needs of a global business with business areas that
operate 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:
performance-related compensation with demanding
performance standards.
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to approve any compensation or termination payments
creation of shareholder value.
made to executive directors of reed elsevier Group plc and
reed elsevier pLc.
Senior management
on the advice of the ceo, to approve the remuneration policy of
other senior leaders and of the chief Legal officer & company
secretary; and
to monitor the level and structure of remuneration for this
competitive remuneration opportunity to attract and retain
the best executive talent from anywhere in the world.
a balanced mix of remuneration between fixed and variable
elements, and annual and longer-term performance.
aligning the interests of executive directors with shareholders
and other stakeholders.
group of executives.
operating the company consistent with long-term sustainability.
Reed Elsevier Chairman
on the advice of the senior independent director, to determine
the remuneration of the reed elsevier chairman (with
respect to reed elsevier nV, to recommend, on advice of the
senior independent director, to the combined Board the
chairman’s remuneration in respect of his chairmanship
of reed elsevier nV).
our remuneration policy
in line with this guiding philosophy, our remuneration policy is
described below.
reed elsevier aims to provide a total remuneration package
that is able to attract and retain the best executive talent from
anywhere in the world, at an appropriate level of cost.
in reaching decisions on executive remuneration, the
committee takes into account the remuneration arrangements
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governance
directors’ remuneration report
and levels of increase applicable to senior management and
reed elsevier employees generally. the committee takes
into account the salary increases for the employee population
worldwide as one of the inputs when determining salary
increases for directors.
the committee considers the social, governance, and
environmental implications of its decisions, particularly when
setting and assessing performance objectives and targets,
and seeks to ensure that incentives are consistent with the
appropriate management of risk and corporate sustainability.
total targeted remuneration of senior executives will be
competitive with that of executives in similar positions in
comparable companies, which includes global sector peers
and companies of similar scale and international complexity.
competitiveness is assessed in terms of total remuneration
(i.e. salary, annual and multi-year incentives and benefits).
the intention is to provide total remuneration that reflects
sustained individual and business performance; i.e. median
performance will be rewarded by total remuneration that
is positioned around the median of relevant market data
andupper quartile performance by upper quartile total
remuneration.
the committee will consider all available discretion to claw
back any payouts made, or to reduce unvested awards, on the
basis of materially misstated data. the rules of all incentive
plans provide for specific provisions in this regard.
the committee considers it important to encourage personal
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
reed elsevier’s strategic focus is on transforming its core
business through organic investment and the organic build out
of new products into adjacent markets and geographies,
supplemented by selective portfolio acquisitions and divestments.
the performance related components of the executive directors’
multi-year incentives support this strategy by focusing on return
on capital, returns to shareholders and sustained earnings
growth.
Furthermore, 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. each
executive director has at least one sustainability or corporate
responsibility objective.
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 earnings per share and targeted return on invested capital are
utilised in our multi-year incentives.
We aim to set challenging performance targets as demonstrated
by the fact that there has been no vesting for directors under any of
our multi-year incentives since the awards granted in 2006 vested
in 2009, and no directors’ bonuses paid out above target since 2009.
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 total remuneration package.
this is shown for the ceo in the pie chart below. the core
components of the current total remuneration package are
described in detail in the remainder of this report.
50%
20%
Fixed pay elements 30%
Salary
Pensions and
other benefits
10%
Variable pay elements 70%
Annual incentive
Multi-year incentives
20%
the chart below illustrates how our levels of compensation are
driven by business performance (scale in percent of base salary).
this shows the way in which annual remuneration payable to the
ceo 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.
700%
600%
500%
400%
300%
200%
100%
0%
Minimum
Threshold
Target
Maximum
Salary
Annual incentive
Multi-year incentives
our approach to market positioning and benchmarking
When reviewing executive director and senior executive
remuneration, one factor which the committee takes into
account is market competitiveness. this is done by assessing
total remuneration (i.e. salary, annual and multi-year incentives
and benefits) against a range of relevant comparator groups
as follows:
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reed elsevier annual reports and Financial statements 2012
77
Global peers operating in businesses similar to those of reed
elsevier (including thomson reuters, Wpp, pearson, John
Wiley, Wolters Kluwer, experian, mcGraw-Hill and equifax).
companies listed on the London stock exchange (cross-
industry but excluding those in the financial services sector) of
a similar size (measured by aggregate market capitalisation)
and international scope.
companies listed on the new York stock exchange
(cross-industry but excluding those in the financial services
sector) of a similar size (measured by aggregate market
capitalisation) and international scope.
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.
First, the overall competitiveness of the total remuneration
packages is assessed both against the market and taking
account of remuneration levels within reed elsevier more
widely. 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.
companies listed on the nYse euronext amsterdam stock
the committee then considers market data and benchmarks
exchange, cross-industry and of a similar size (measured by
aggregate market capitalisation) and international scope.
referring to companies listed in these three different locations is
relevant and necessary as demonstrated by the fact that several
recent senior executive hires have been recruited from the us,
including our cFo.
the composition of the respective comparator groups is subject
to minor changes year on year reflecting changes in the size,
for the different elements of the package including salary, total
annual cash and total remuneration. While relevant benchmark
information is a meaningful input to the process, it informs
rather than drives the outcome of the review and is just one
factor that the committee considers.
Benefits, including medical and retirement benefits, 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.
in aggregate, they create a unified and balanced reward mix and competitive employment proposition. the value of the reward package
is only maximised through the integrated delivery of annual and longer-term performance. reward for the delivery of business results
is connected with reward for value flowing to shareholders. through the use of a range of performance metrics such as earnings per
share, return on invested capital, profit after tax, revenue, cash flow conversion rate, personal objectives and total shareholder return
and the assessment of performance over multiple time-horizons, 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 in 2012 to executive directors who served in 2012.
component
erik engstrom
Mark armour**
Duncan Palmer***
annual base salary (page 78)
£1,050,625
£644,495
£600,000
retirement benefits (page 83)
uK defined benefit plan
uK defined benefit plan
other benefits
includes car allowance and
private medical benefit
includes company car or
car allowance and private
medical benefit
uK defined contribution plan
and cash supplement
includes car allowance and
private medical benefit
annual incentive (pages 78 to 79)
(earned for 2012 and payable
in march 2013)
Multi-year incentives*
granted (page 79)
esos
Bip
psp
£1,149,909
£693,799
£230,205
market value options over
198,836 pLc and 139,742 nV
ordinary shares
68,475 nV adrs
n/a
n/a
90,987 pLc and 21,028 nV
ordinary shares
n/a
market value options over
67,331 pLc and 48,018 nV
ordinary shares
n/a
179,551 pLc shares
Shareholding requirement (page 82)
300% of salary
200% of salary
200% of salary
* no multi-year incentives vested in 2012. multi-year incentives from previous years lapsed in early 2012 as already described in last
year's report.
** mark armour served as a director until 31 december 2012.
*** additional awards were made to duncan palmer in conjunction with his recruitment. Further details are contained on page 84.
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governance
directors’ remuneration report
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.
the committee decided to award a salary increase of 2.5% to
erik engstrom, which increased his base salary with effect from
1 January 2013 to £1,076,891. duncan palmer’s service agreement
provides that his first salary review following commencement of
employment would be on or around 1 January 2014, so his base
salary remains unchanged for 2013. in determining the salary
recommendation for the ceo, the committee considered, among
other inputs, 2013 salary guidance for reed elsevier’s most
significant employee locations globally. the increase awarded to
the ceo is within the guidelines agreed for those employees in
respect of 2013 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: i.e. 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 average increase
of approximately 2.5% will be awarded across the senior
management population globally for 2013. 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 2013, executive directors have a target bonus opportunity of
100% of salary that is weighted as follows across four elements
(unchanged from 2012):
measure
revenue
adjusted profit after tax
cash Flow conversion rate
Key performance objectives (Kpos)
Weighting
30%
30%
10%
30%
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 2013, the minimum threshold on the financial elements of
the aip at which a bonus starts to accrue is 94% of target and the
maximum bonus is 150% of target (unchanged from 2012).
the Kpos are individual to each executive director. each executive
director is set up to six Kpos to reflect critical business priorities
for which he is 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
reedelsevier Group plc to the committee while the ceo of
reedelsevier 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 2012
in assessing the level of bonus payments for 2012, the committee
noted the following performances:
reed elsevier
% change over 2011 at constant exchange rates
underlying
revenue growth
+4%
total adjusted
pat
+8%
reed elsevier executed well on its strategic and financial priorities
in 2012. positive revenue momentum and focus on operating
efficiency combined to lift underlying operating profit growth and
earnings. underlying revenues, which exclude the effects of
currency translation and acquisitions and disposals, were up 4%,
or 3% excluding the cycling effect of biennial exhibitions, and all
five business areas contributed to the underlying growth.
underlying adjusted operating profits were up 6%, with the
improvement in profitability driven by a combination of process
innovation and portfolio development across all business areas.
underlying costs were up 4%, reflecting volume growth as well
as organic investment in new product development and sales &
marketing, partly offset by continued improvements in process
efficiency. adjusted operating cash flow was £1,603m (2011:
£1,515m), up 6% compared with the prior year and up 7% at
constant currencies. the rate of conversion of adjusted operating
profits into cash flow was 94% (2011: 93%). returns on invested
capital increased to 11.9%, 0.7 percentage points higher than
in 2011, reflecting the improved trading performance and
capital efficiency.
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reed elsevier annual reports and Financial statements 2012
79
set out below is a summary of the outcome of performance
against each financial measure:
revenue
Just above target
adjusted profit
after tax
cash Flow
conversion rate
Just above target
Just above target
the progress on personal objectives for each director was then
added in the form of the Kpo score and, overall, the sum of the
scores achieved against the four aip components for the executive
directors, resulted in the following bonuses for 2012:
2012 annual bonus
(to be paid in march 2013)
% of 2012 base
salary earnings
erik engstrom
mark armour
duncan palmer*
£1,149,909
£693,799
£230,205
109.5%
107.7%
107.7%
*duncan palmer’s bonus reflects service during the year of reporting. His service
commenced on 24 august 2012.
Multi-year incentives
it is intended to continue to provide executive directors with
multi-year incentives comprising a combination of a long-term
incentive plan (Ltip), a personal investment bonus deferral plan
(Bip) and market value options (esos). to this end, a new Ltip
and esos are proposed and will be presented for shareholder
approval at the 2013 annual General meetings (aGms).
the purpose of the multi-year incentives is to provide focus on
the delivery of the medium to longer-term strategy and holding
executives accountable for the execution of that strategy while
driving value creation through sustained financial performance,
capital discipline and the delivery of returns for shareholders.
in addition, the multi-year incentives are structured so as to
encourage personal investment and require a minimum level of
ongoing personal shareholding in reed elsevier pLc and reed
elsevier nV securities among the senior executive population,
in order to promote alignment with shareholders and to provide
focus on the share price.
awards under the current and proposed multi-year incentives vest
over a period of three years, except for the one-off reGp under
which awards vest over three and five years. the vesting of all
awards made to executive directors under these plans is subject
to meeting a number of stretching performance targets based on
internal financial metrics and total shareholder return.
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reed elsevier growth Plan (regP)
the details of the reGp have been disclosed in previous years' reports.
MecHanIcS
the chart below illustrates how the reGp operates:
3 YEARS: 2010-12
H1 2013
2 YEARS: 2013-14
For the CEO, 50% of
performance shares
are released. For the
retired CFO (Mark
Armour),100% of
performance shares
are released and he
ceases to participate
in the plan.
Release of remaining 50% of the
performance shares is deferred until
H1 of 2015 subject to continued employment
Subject to performance against three metrics,
up to a 1 for 1 match can be earned over years
4 and 5 on the deferred performance shares
H1 2015
Release of deferred
performance shares
to CEO
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tested
EPS
1/3RD
TSR
1/3RD
Performance share
award of 600%
of salary
Performance
share award
ROIC
1/3RD
EPS
1/3RD
TSR
1/3RD
ROIC
1/3RD
Release of matching
shares earned
to CEO
On the date of grant, the CEO committed 300% of salary and
the CFO (Mark Armour) 200% of salary in shares to the plan
which must be retained throughout the life of the plan or until
the executive directors cease to be eligible for further payouts,
if earlier
For the CEO, subject to performance against the
three metrics, up to a 1 for 1 match can be earned
over years 4 and 5 on the personal shareholding
committed under the plan
Release of committed
holding – the
regular shareholding
guidelines continue
to apply to the CEO
Overall payout from the plan to each director is capped at 150% of the shares comprised in the performance share award
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governance
directors’ remuneration report
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 of each security 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.
3 year period:
2010-12
tsr ranking within the
relevant tsr
comparator group
Vesting percentage
of each third of the
tsr tranche
Below median
median
upper quartile
0%
30%
100%
5 year period:
2010-14
Vesting percentage
of each third of the
tsr tranche
0%
30%
100%
Vesting is on a straight-line basis for ranking between the median
and the upper quartile.
TSr comparators groups
the consituents of each comparator group were selected on a
specific basis, as described in last year's report (page 69).
the comparators which were included in each currency group
are set out on page 70 of last year’s report.
the committee retains discretion as to how to deal with changes
to the comparator groups as a result of demergers, de-listings or
other corporate events over the performance period and applies
its policy in this regard in an appropriate manner.
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:
2010-12
2 years:
2013-14
Vesting percentage
of roic tranche
roic in 2012, subject to
actual exceeding 2009
roic calculated on the
same basis
Below 10.2%
10.2%
11.2% or above
roic in 2014
Below 10.7%
10.7%
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:
invested capital = arithmetic average of the opening and 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.
return = adjusted operating profit for the reed elsevier
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.
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reed elsevier annual reports and Financial statements 2012
81
adjusted earnings per share (ePS)
the vesting of one third of the reGp award is subject to
performance against growth in adjusted earnings per share
measured at constant currencies (adjusted eps) (the eps
tranche) as follows:
3 years:
2010-12
2 years:
2013-14
Vesting percentage
of eps tranche
average adjusted
eps growth in years
2011 and 2012
(subject to average
adjusted eps growth over
the whole three year
period being positive)
Below 5% p.a.
5% p.a.
9% p.a. or above
average
adjusted eps
growth over the
two year period
Below 7% p.a.
7% p.a.
13% p.a. 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:
earnings = adjusted reported earnings measured at constant
currencies. adjustments include amortisation and impairment
of acquired intangible assets and goodwill, exceptional
restructuring and acquisition integration charges, gains/
losses on business disposals and tax rate anomalies (deferred
tax). the committee retains discretion to adjust for changes
in the net pension financing credit.
number of shares = weighted average number of shares in
issue excluding shares held in treasury.
performance share awards were granted under the reGp to
mr engstrom and mr armour in may 2010. at its meeting on 25 april
2013, the committee will assess the extent to which the
performance conditions have been met for these share awards,
which includes an overall assessment of underlying business
performance and other relevant factors. Based on a review of
the three performance measures used in the plan, preliminary
calculations indicate that 66.8% of the awards are expected to vest.
this is based on a tsr ranking of just above median in respect of
two of the comparator groups, roic achievement slightly below the
11.2% maximum after taking into account adjustments for such
items as foreign exchange rates, pension deficits and acquisition
integration costs as provided in the plan, and eps growth slightly
above the middle of the range specified in the plan.
this would result in 429,710 pLc ordinary shares and 282,187 nV
ordinary shares vesting in respect of erik engstrom. 50% of these
shares will be released to mr engstrom following the april
committee meeting and 50% of these shares will be deferred until
2015. in respect of mr armour, under the terms of the plan relating
to retirement, 100% of the shares vesting will be released to him
following the april committee meeting. in accordance with the
preliminary vesting calculations, this will result in 263,601 pLc
ordinary shares and 173,105 nV ordinary shares being released to
mr armour. thereafter, mr armour will have no further entitlement
for payment under this plan. dividend equivalents will be payable
in cash on any shares released which, based on the preliminary
calculations, would result in payments of £135,251 and €179,329
tomr engstrom and £165,937 and €220,016 to mr armour.
Long Term Incentive Plan (LTIP)
no awards under the Ltip were made to executive directors in
2012 and no award cycles remain outstanding for directors under
this plan.
a long-term incentive award was granted to senior leaders below
the Board in 2012. Grants are made on a rolling three-year basis in
the form of performance shares that vest subject to performance
metrics and vesting scales consistent with the reGp. the targets
set for each metric are aligned to the five-year performance scale
applicable to the executive directors under the reGp.
subject to receipt of shareholder approval at the 2013 aGms,
it is intended to commence making annual grants under a new
long-term incentive plan to executive directors from 2013
onwards, under which the first awards would vest in H1 2016.
details of the proposed new Ltip are described in the 2013 notices
of aGms of reed elsevier pLc and reed elsevier nV.
executive Share option Scheme (eSoS)
the current esos, which was approved by shareholders in 2003,
expires on 8 april 2013. a replacement esos, for which we are
seeking shareholder approval at the aGms in april 2013, is
described in the notices of aGms and it is intended to make grants
under this plan to around 1,000 employees globally, including the
executive directors, in 2013. it is not intended to make any further
grants under the existing esos, the key features of which were
described in last year’s remuneration report on page 71.
during 2012, erik engstrom received a grant of 200% of base
salary of market value options (two-thirds of the permitted
maximum). on joining, duncan palmer received a grant of 135% of
salary. the vesting of the options is subject to a 6% p.a. compound
growth in adjusted earnings per share hurdle, measured at
constant currencies over a three-year period commencing on
1 January of the year of grant (the same condition also applies
to the 2011 esos grants which were made to erik engstrom
and mark armour). in view of his retirement at the end of 2012,
mark armour did not receive an esos grant in 2012.
early in 2012, as disclosed in last year's report, the 2009-11 cycle
of esos lapsed for erik engstrom and mark armour.
Bonus Investment Plan (BIP)
the Bip is a voluntary plan aimed at encouraging personal
investment in, and ongoing holding of, reed elsevier shares to
promote greater alignment with shareholders and support the
retention of key talent.
under the Bip, participants may invest their own funds to purchase
reed elsevier securities or allocate securities already owned
outright for investment under the plan up to a specified maximum.
in return, the participant is granted a matching award which vests
over three years subject to performance (i.e. a maximum match of
1 for 1 can be earned on the personal investment). it is a condition
of vesting that the underlying personal investment is retained
throughout the vesting period. dividend equivalents accrue on the
matching shares during the vesting period and are paid out in cash
at the end to the extent that the matching award vests. the table
overleaf summarises the key features of the Bip.
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Bonus Investment Plan (BIP)
overview
Feature
Frequency of award
eligibility
performance period
performance conditions
Vesting scale
personal investment
other provisions
detail
annual grants of matching awards
ten-year life of the plan
implemented in 2010
approximately 150 senior executives including executive directors
participation is voluntary
three financial years
average adjusted eps growth measured in constant currencies and roic (see below)
50% of the award is subject to adjusted eps growth and 50% subject to roic
performance hurdle and straight-line vesting
up to 100% of the target bonus opportunity net of tax
on a change of control, awards vest on a pro-rated basis and subject to performance based on
an assessment of progress against targets at the time the change of control occurs, unless the
committee determines that awards should not vest and instead be exchanged for equivalent
awards over shares in the acquiring company (i.e. rollover applies)
claw-back applies
awards under the plan are satisfied with shares purchased in the market
the following targets and vesting scale apply to awards granted
under the Bip in 2012:
match earned on
personal investment
0%
50%
75%
100%
average growth
in adjusted eps (%)
over the 3 year
performance period
below 4% p.a.
4% p.a.
6.5% p.a.
9% p.a. or above
roic (%) in the
third year of the
performance
period
below 11%
11%
11.5%
12% or above
the targets for the 2010-12 and 2011-13 cycles of Bip are set out in
last year’s report.
awards were granted under the Bip to mr engstrom and mr armour
in may 2010. at its meeting on 25 april 2013, in much the same way
as for the reGp, the committee will assess the extent to which the
performance conditions have been met for these awards, which
includes an overall assessment of underlying business
performance and other relevant factors.
Based on a review of the two performance measures used in the
plan, preliminary calculations indicate that 89.5% of the awards
are expected to vest. this is based on roic achievement slightly
below the 11.2% maximum after taking into account adjustments
for such items as foreign exchange rates, pension deficits and
restructuring costs as provided in the plan, and eps growth just
below the 70th percentile of the target range specified in the plan.
this would result in the vesting of 62,819 nV adr matching awards
in respect of mr engstrom and a corresponding cash dividend
equivalent payment of $178,181. in respect of mr armour, 58,223
pLc ordinary shares and 38,048 nV ordinary shares would be
released, with corresponding dividend equivalent payments of
£36,651 and €48,359 respectively.
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 79, were pre-requisites to participate in the
reGp. shareholding requirements also apply to selected senior
executives below the Board.
meeting the relevant shareholding requirement is both a condition
of the vesting of awards as well as a pre-requisite to maintain
eligibility to receive future awards under the multi-year
incentives.
on 31 december 2012, the executive directors’ shareholdings
were as follows (valued at the mid-market closing prices of
reed elsevier securities):
shareholding requirement
(in % of 31 december 2012
annualised base salary)
actual shareholding as at
31 december 2012 (in % of
31 december 2012
annualised base salary)
erik engstrom
mark armour
duncan palmer*
300%
200%
200%
512%
442%
0%
* duncan palmer has until 31 december 2015 to build up to his required level of
shareholding and must retain any net shares earned from reed elsevier share plans
until he meets his requirement.
other employee share plans
the ceo and mr palmer have waived their right to participate
in any local all-employee share-based plans in any country,
including the Hmrc approved all-employee uK savings-related
share option scheme (saYe).
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83
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 is provided with uK defined benefit pension
arrangements under which he accrues a pension of 1/30th of
salary for every year of service (up to a maximum of two thirds
of salary). the pension is provided through a combination of:
the main uK reed elsevier pension scheme for salary
restricted to the scheme earnings cap, (determined annually
on the same basis as the pre-april 2006 inland revenue
earnings cap) and Hmrc annual allowance, and
reed elsevier’s unapproved pension arrangement for
the balance.
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.
Transfer values of accrued pension benefits
From 1 november 2007 contributions to his designated retirement
account ceased and he became a member of the uK defined
benefit pension arrangement.
the pension arrangements for erik engstrom 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
values have been calculated in accordance with the guidance note
Gn11 published by the uK institute of actuaries and Faculty of
actuaries. the transfer values at 31 december 2012 have been
calculated using the transfer value basis adopted by the trustees
of the reed elsevier pension scheme.
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.
mark armour retired on 31 december 2012, at which point he
became entitled to a pension of £378,785 per annum.
transfer
value
of accrued
pension at
31 december
2011
transfer
value
of accrued
pension at
31 december
2012
increase in
transfer
value during
the year
(net of
director’s
contributions)
age at
31 december
2012
director’s
contributions
erik engstrom
mark armour
49
58
£9,158
£1,944
£2,099,132
£6,758,053
£2,730,651
£7,525,908
£622,361
£765,911
accrued
annual
pension at
31 december
2012
£180,958
£384,878*
increase in
accrued
annual
pension
during
the year
£38,584
£30,355
transfer
value at
31 december
2012 of
increase
in accrued
pension
during the year
(net of inflation
and director’s
contributions)
£469,944
£259,332
increase in
accrued
annual
pension
during
the year
(net of
inflation)
£31,750
£13,362
*the reason for the difference between mr armour's accrued annual pension as at 31.12.12 as stated in the table above, and the annual pension entitlement following
retirement is that mr armour retired early so there was a reduction made to his accrued annual pension as at 31.12.12.
duncan palmer is a member of the uK reed elsevier defined
contribution pension plan (the reed elsevier pension plan –
“repp”). the company contribution is 19% of mr palmer’s salary.
£50,000 is paid as a contribution to the repp, being the maximum
contribution which can be made under Hmrc limits, and the
balance is paid to him as a cash allowance, subject to deduction of
income tax and national insurance. the pension arrangement for
mr palmer includes life assurance cover while in employment.
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governance
directors’ remuneration report
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 executive directors should, subject to
any legal constraints within their base country, be required to
mitigate their losses 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 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 to
and ending 12 months after leaving employment, on the vesting
or exercise of awards from the multi-year incentives may
be repayable.
each executive director has a service contract with reed elsevier Group plc, as summarised in the table below.
current contract date
date employment commenced
expiry date (subject to notice period)
notice period
subject to
erik engstrom
14 march 2011
23 august 2004
mark armour
duncan palmer
7 october 1996
15 august 2012
1 February 1995
24 august 2012
14 June 2028
ceased to be a director and
retired on 31 december 2012
n/a
12 months
english law
12 months
12 months
english law
english law
Duncan Palmer’s remuneration arrangements
duncan palmer’s annual base salary on his recruitment was
£600,000 and he has an annual target bonus opportunity of 100%
of base salary. He will be eligible to participate in Bip from 2013
onwards up to his target bonus opportunity and to participate in
the new esos and Ltip, subject to shareholders approving those
plans. He will receive annual pension contributions equal to 19%
of salary and benefits in accordance with the policies applicable
to executive directors.
in addition, in september 2012, he was granted the following
awards:
a market value option under esos to acquire shares with a face
value on the date of grant of 135% of base salary, which vests on
the 3rd anniversary of grant subject to achieving at least 6%
p.a. compound growth in adjusted eps at constant currencies
over the three year performance period from 1 January 2012
to 31 december 2014.
performance shares (psp) with an aggregate face value
of 180% of base salary, which are subject to the same
performance targets as will apply to any matching award
that may be granted to the ceo under the reGp in 2013, with
performance being assessed in the first half of 2015. the award
is non-pensionable and carries a right to receive dividend
equivalents (calculated on the same basis as under the reGp).
the leaver rules are consistent with those which apply under
the reGp with the exception that "retirement with the consent
of the company" is not automatically treated as an approved
leaver reason for the performance share award.
restricted shares (rsp) with an aggregate face value of 250%
of base salary, which vest 50% in 2014 and 50% in 2015 provided
all unvested stock-based awards granted to him by his previous
employer lapse. this one-off grant of restricted shares was
made to compensate mr palmer for the forfeiture of awards
from his former employer. they are subject to a time pro-rated
claw-back if he resigns, or is summarily terminated, before
the date of the announcement of the 2014 annual results in
2015.
the committee considered the grant of performance shares and
restricted shares noted above to have been essential to secure
duncan palmer's services. the committee was satisfied that
the awards are appropriate and align his interests with those of
shareholders. Both awards fall within paragraph 9.4.2(2)r of
the uK Listing rules and were granted over reed elsevier pLc
ordinary shares, but half of each award will be settled on vesting
with reed elsevier nV ordinary shares. the awards cannot be
amended to the advantage of duncan palmer without shareholder
approval and the documentation governing these awards will be
available for inspection from the date of the notices of the 2013
annual General meetings up to and including the meetings
themselves.
in recognition of mr palmer and his family having to relocate to
the uK in order for him to take up his new position, he will receive
a one-off cash relocation allowance of £500,000 in may 2013
(subject to a time pro-rated claw-back if he resigns or is
summarily terminated prior to 31 december 2014) and relocation
support under the standard reed elsevier policy.
Mark armour’s retirement terms
mark armour's retirement terms were disclosed in last year’s
remuneration report (page 74).
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
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reed elsevier annual reports and Financial statements 2012
85
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.
mark armour is a non-executive director of saBmiller plc and
received remuneration of £106,250 during 2012 (£100,694
during 2011). He is also a non-executive director of the Financial
reporting council (Frc) and received remuneration of £12,500
since commencing his appointment on 2 July 2012.
duncan palmer is a non-executive director of oshkosh
corporation and received fees of £15,487 since his appointment
as a director of reed elsevier pLc up to the end of 2012.
Non-executive directors
Policy on non-executive directors’ fees
the policy on non-executive directors’ fees is a matter for
the Boards, subject to applicable law and, with respect to
reed elsevier nV, the shareholders, and does not fall within
the committee’s remit.
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 marike van Lier Lels who serves only on the
supervisory Board of reed elsevier nV, non-executive directors,
including the chairman, are appointed to the Boards of reed
elsevier Group plc, reed elsevier pLc and the supervisory Board
of reed elsevier nV. non-executive directors’ fees 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 nYse
euronext amsterdam (aeX) index 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 marike van Lier
Lels, who serves only on the supervisory Board of reed elsevier
nV, reflects her time commitment to that company and to other
companies within the reed elsevier combined businesses.
non-executive directors are reimbursed for expenses incurred in
attending meetings. they do not receive any performance-related
bonuses, pension provision, share options or other forms of
benefit, except for the following: the chairman receives private
medical benefit and non-executive directors and the chairman are
provided with tax filing support to meet any tax filing obligations
arising from their directorships with reed elsevier in countries
other than their home country.
Fees may be reviewed annually, although in practice they have
changed on a less frequent basis. the last fee review was during
2011 and the current fee arrangements took effect on 1 January
2012.
the fees for 2013 are unchanged from 2012 and are set out below.
chairman
non-executive directors
senior independent director
Chairman of:
– audit committee
– remuneration committee
annual fee 2013
£550,000
£65,000/€80,000
£20,000
£25,000/€30,000
£20,000
the total annual fee payable to marike van Lier Lels is €65,000
(unchanged from 2012). the chairman of reed elsevier does not
receive committee chairman fees.
Total Shareholder Return graphs
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 aeX
index, over the five-year period from 31 december 2007 to
31 december 2012.
For the five-year period from 31 december 2007, the tsr for
reed elsevier pLc was 22.6%, against a Ftse 100 return of 11.7%.
For reed elsevier nV during the same period, tsr was 8.4%
against an aeX index return of minus 19%. these indices are
relevant since reed elsevier pLc is a member of the Ftse 100
index and reed elsevier nV is a member of the aeX index.
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REED ELSEVIER PLC v FTSE 100 – 5 YEARS
REED ELSEVIER NV v AEX – 5 YEARS
140%
120%
100%
80%
60%
40%
140%
120%
100%
80%
60%
40%
2007
2008
2009
2010
2011
2012
2007
2008
2009
Reed Elsevier PLC
FTSE 100
Reed Elsevier NV
2010
AEX
2011
2012
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 end and on the assumption that dividends were reinvested.
Remuneration and share tables
Directors’ emoluments and fees
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.
aggregate emoluments
the emoluments of the directors of reed elsevier pLc and reed
elsevier nV (including any entitlement to fees or emoluments
from either reed elsevier Group plc or elsevier reed Finance BV)
were as follows:
salaries and fees
Benefits
annual performance-related bonuses
pension contributions
Total
2012
£’000
2,972
89
2,074
44
5,179
2011
£’000
2,590
56
1,634
42
4,322
Individual fees of non-executive directors
mark elliott
anthony Habgood
adrian Hennah (from 20 april 2011)
Lisa Hook
marike van Lier Lels
robert polet
sir david reid
Lord sharman (until 20 april 2011)
Linda sanford (from 4 december 2012)
Ben van der Veer
total
2012
£*
2011
£*
85,000
550,000**
65,000
65,000
52,846***
65,000
85,000
–
5,416
89,431***
70,000
500,000**
38,475
55,000
41,739***
55,000
75,000
18,333
–
82,609***
1,062,693
936,156
* the above figures exclude an imputed notional benefit in respect of tax filing support provided to non-executive directors for tax filings in countries other than their home
country resulting from their directorship with reed elsevier. the incremental assessable benefit charge per relevant tax return has been agreed by pwc to amount to £300.
** excludes private medical insurance benefit of £1,389 in respect of 2012 (£1,329 in 2011).
*** the fees for marike van Lier Lels and Ben van der Veer are paid in euro and were €65,000 and €110,000 respectively for 2012 (€48,000 and €95,000 respectively for 2011).
For reporting purposes these were converted into pounds sterling at the average exchange rate for the year of reporting.
other required disclosures
no loans, advances or guarantees have been provided on behalf of any director.
as disclosed in last year's report, the 2009-11 cycle of awards made under esos and Ltip lapsed in early 2012 for erik engstrom and
mark armour. the executive directors made no pre-tax gains during 2012 on any multi-year incentives, except for mark armour, who
made a gain of £1,185 on the exercise of vested options during the year. details are shown on page 88.
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reed elsevier annual reports and Financial statements 2012
87
Individual emoluments of executive directors
erik engstrom
mark armour
duncan palmer*
total
Salary
£
1,050,625
644,495
213,846
1,908,966
Benefits
£
28,396
23,984
32,878
85,258
Bonus
£
1,149,909
693,799
230,205
2,073,913
Total 2012
£
2,228,930
1,362,278
476,929
4,068,137
total 2011
£
2,075,417
1,263,563
n/a
3,338,980
*the benefits figure for duncan palmer includes the balance of his company pension contribution which is paid to him as a cash allowance, as detailed under the retirement
Benefits section on page 83, which, for 2012, was £22,810.
market value options awarded under esos and restricted shares awarded in the year of reporting under the Bip are set out by executive
director on pages 88-89. Vesting is subject to performance conditions relating to growth in adjusted eps and roic as described in the
front section of this report. the maximum number of options that can vest under the esos and the maximum number of restricted
shares that can vest under the Bip is equivalent to the awards granted. the maximum number of shares which can vest under the
september 2012 grants of performance share awards and restricted share awards to duncan palmer is equivalent to the awards
granted. erik engstrom was the highest paid director in 2012.
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 2012 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
adrian Hennah
Lisa Hook
marike van Lier Lels
duncan palmer
robert polet
sir david reid
Linda sanford
Ben van der Veer
reed elsevier pLc
ordinary shares
reed elsevier nV
ordinary shares
1 January
2012*
31 december
2012
1 January
2012*
31 december
2012
248,742
–
107,040
50,000
5,163
–
–
–
1,000
–
–
–
250,242
–
107,040
50,000
5,163
–
–
–
1,000
–
–
–
136,889
7,600
447,356
25,000
–
–
–
–
–
–
–
5,000
136,889
7,600
509,556
25,000
–
4,800
–
–
–
–
–
5,000
*on date of appointment if subsequent to 1 January 2012.
there have been no changes in the interests of the current directors serving as at the date of this report in the issued share capital
of reed elsevier pLc or reed elsevier nV at the date of this report.
Share-based awards in reed elsevier PLc and reed elsevier nv
details of vested options (shown in orange) and unvested options and restricted shares held by executive directors in reed elsevier pLc
(pLc) and reed elsevier nV (nV) as at 31 december 2012 are shown in the tables overleaf. any awards that have been described as
lapsed in prior year reports have been excluded. 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, except for the rsp award granted to mr palmer on joining reed elsevier. the conditions of vesting of this award are set out on
page 84 of this report. For disclosure purposes, any pLc and nV adrs awarded 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 the date of this report. the market price at the date of award of grants made under the multi-year incentives are based on the middle
market price of the respective security.
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directors’ remuneration report
Erik Engstrom
oPTIonS
esos
Ltip
total pLc ords
total nV ords
SHareS
Bip
reGp
no. of
options
held on
1 Jan
2012
63,460
43,866
154,517
105,412
178,895
120,198
139,146
92,953
–
–
325,163
224,766
861,181
587,195
no. of
unvested
shares
held on
1 Jan
2012
140,378
122,352
–
643,086
Year of
grant
2004
2005
2006
2011
2012
2004
option
over:
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
Year of
grant
2010
2011
2012
2010
type of
security
nV ord
nV ord
nV ord
pLc ord
no. of
options
granted
during
2012
no. of
options
exercised
during
2012
market
price per
share at
exercise
Gross
gains
made on
exercise
£/€
option
price
£4.780
€10.30
£5.335
€11.31
£5.305
€11.47
£5.390
€8.969
198,836
£5.155
139,742 €9.030
£4.78
€10.30
198,836
139,742
no. of
shares
awarded
during
2012
market
price per
share at
award
€8.310
€8.969
136,950 €9.030
£4.665
no. of
shares
vested
during
2012
market
price per
share at
vesting
notional
gross
gains at
vesting
£/€
no. of
options
held on
31 dec
2012
63,460
43,866
154,517
105,412
178,895
120,198
139,146
92,953
198,836
139,742
325,163
224,766
1,060,017
726,937
no. of
unvested
shares
held on
31 dec
2012
140,378
122,352
136,950
643,086
unvested
options
vesting on:
options
exercisable
until:
23 aug 2014
23 aug 2014
17 Feb 2015
17 Feb 2015
13 mar 2016
13 mar 2016
5 may 2014 5 may 2021
5 may 2014 5 may 2021
2 may 2015 2 may 2022
2 may 2015 2 may 2022
23 aug 2014
23 aug 2014
date of
performance
testing
H1 2013
H1 2014
H1 2015
H1 2013
date of
release
H1 2013
H1 2014
H1 2015
50% H1 2013
50% H1 2015
50% H1 2013
50% H1 2015
nV ord
422,310
€8.310
422,310
H1 2013
total pLc ords
total nV ords
Mark Armour
643,086
685,040
136,950
oPTIonS
esos
Ltip
saYe
total pLc ords
total nV ords
Year of
grant
2002
2005
2006
2011
2004
2010
option
over:
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
no. of
options
granted
during
2012
option
price
£6.000
€13.94
£5.335
€11.31
£5.305
€11.47
£5.390
€8.969
£4.872
€10.57
£4.176
no. of
options
held on
1 Jan
2012
74,000
51,926
150,422
102,618
158,836
106,720
85,358
57,021
290,481
199,467
2,173
761,270
517,752
*expired unexercised on 22 February 2012.
**pro-rated for service.
643,086
821,990
no. of
options
held on
31 dec
2012
–
–
150,422
102,618
157,336
106,720
56,905
38,014
290,481
199,467
2,173
657,317
446,819
no. of
options
exercised
during
2012
market
price per
share at
exercise
Gross
gains
made on
exercise
£/€
1,500
£6.095
£1,185
1,500
unvested
options
vesting on:
options
exercisable
until:
expired*
expired*
17 Feb 2015
17 Feb 2015
13 mar 2016
13 mar 2016
9 may 2016**
9 may 2016**
19 Feb 2014
19 Feb 2014
30 Jun 2013
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reed elsevier annual reports and Financial statements 2012
89
SHareS
Bip
reGp
Year of
grant
2010
2011
2012
2010
type of
security
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
pLc ord
nV ord
total pLc ords
total nV ords
*pro-rated for service.
Duncan Palmer
oPTIonS
Year of
grant
2012
option
over:
pLc ord
nV ord
esos
total pLc ords
total nV ords
no. of
shares
vested
during
2012
market
price per
share at
vesting
notional
gross
gains at
vesting
£/€
no. of
unvested
shares
held on
1 Jan
2012
65,054
42,512
56,876
37,687
–
–
394,495
259,062
516,425
339,261
no. of
shares
awarded
during
2012
market
price per
share at
award
£4.665
€8.310
£5.390
€8.969
90,987
£5.155
21,028 €9.030
£4.665
€8.310
90,987
21,028
no. of
options
held on
1 Jan
2012
no. of
options
granted
during
2012
no. of
options
exercised
during
2012
market
price per
share at
exercise
Gross
gains
made on
exercise
£/€
option
price
–
–
–
–
67,331
£6.015
48,018 €10.560
67,331
48,018
SHareS
psp*
rsp*
no. of
unvested
shares
held on
1 Jan
2012
no. of
shares
awarded
during
2012
179,551
249,376
market
price per
share at
award
£6.015
£6.015
Year of
grant
2012
2012
type of
security
pLc ord
pLc ord
no. of
shares
vested
during
2012
market
price per
share at
vesting
notional
gross
gains at
vesting
£/€
total pLc ords
total nV ords
–
–
428,927
–
no. of
unvested
shares
held on
31 dec
2012
65,054
42,512
37,917
25,124
30,329
7,009
394,495
259,062
527,795
333,707
no. of
options
held on
31 dec
2012
67,331
48,018
67,331
48,018
no. of
unvested
shares
held on
31 dec
2012
179,551
249,376
428,927
–
date of
performance
testing
H1 2013
H1 2013
H1 2014
H1 2014
H1 2015
H1 2015
H1 2013
H1 2013
date of
release
H1 2013
H1 2013
H1 2014*
H1 2014*
H1 2015*
H1 2015*
H1 2013
H1 2013
unvested
options
vesting on:
options
exercisable
until:
7 sept 2015 7 sept 2022
7 sept 2015 7 sept 2022
date of
performance
testing
date of
release
H1 2015
–
–
H1 2015
50% H1 2014
50% H1 2015
* Half of duncan palmer’s 2012 psp and rsp awards which vest, if any, will be settled with reed elsevier nV ordinary shares. the number of nV shares will be calculated using
the closing price of a reed elsevier nV share and the euro/pound sterling exchange rate on the date of grant.
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Reed Elsevier 2012.indb 89
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governance
directors’ remuneration report
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,
except for the rsp grant to duncan palmer which vests subject
to an ongoing employment condition.
in respect of the reGp grant to erik engstrom, 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 the psp and rsp awards
granted to duncan palmer, the number of shares shown in the
share tables reflects the maximum number of shares which
can vest.
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 the 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 a uK all-employee scheme.
mr engstrom and mr palmer have waived any right to participate
in any local all-employee share based plans in any country
including the Hmrc approved all-employee uK savings-related
share option scheme (saYe).
the middle market price of a reed elsevier pLc ordinary share
at the date of award of grants in 2012 under the Bip was £5.155.
the middle market price of a reed elsevier nV ordinary share
at the date of award of grants in 2012 under the Bip was €9.03.
the middle market price of a reed elsevier pLc ordinary share
at the date of award of grants made to mr palmer on 7 september
2012 was £6.015.
the middle market price of a reed elsevier pLc ordinary
share during the year was in the range of £4.694 to £6.52 and
at 31 december 2012 was £6.42. the middle market price of a
reed elsevier nV ordinary share during the year was in the
range of €8.17 to €11.37 and at 31 december 2012 was €11.185.
Dilution
at 31 december 2012, the estimated potential dilution over a
ten-year period from awards over reed elsevier pLc shares
under all share-based plans was 4.7% of the reed elsevier pLc
share capital. the estimated potential dilution over the same
period in respect of awards over reed elsevier nV shares was
4.9% of the reed elsevier nV share capital at 31 december 2012.
the estimated potential dilution in relation to executive
share-based plans was 4.3% of the reed elsevier pLc and 4.5%
of the reed elsevier nV share capital at 31 december 2012.
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 2012, amounted to 13,451,468 reed elsevier
pLc ordinary shares (1.07% of issued share capital) and 6,990,101
reed elsevier nV ordinary shares (0.91% 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
27 February 2013.
Mark elliott
chairman of the remuneration committee
approved by the Board of reed elsevier pLc on
27 February 2013.
Mark elliott
non-executive director
approved by the combined Board of reed elsevier nV
on 27 February 2013.
Mark elliott
member of the supervisory Board
57096_SAS_p073-090 DIR_REMREP.indd 90
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Reed Elsevier Annual Reports and Financial Statements 2012
91
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. It provides an
overview of the membership, responsibilities and activities of
the Committees. 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.
In discharging their principal responsibilities in respect of the 2012
financial year, the Committees have:
(i)
received and discussed reports from the Reed Elsevier Group
plc group financial controller that set out areas of significance
in the preparation of the financial statements, including:
review of the carrying values of goodwill and intangible
assets, disposals, application of revenue recognition and
cost capitalisation policies, review of uncertain tax positions,
provisions for lease obligations, and the use of the going
concern basis in the preparation of the financial statements.
The Committees also received written reports from the
external auditors summarising the most significant findings
from their audit work.
Membership
The Committees 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), Sir David Reid, Adrian Hennah,
Lisa Hook (until May 2012) and Linda Sanford (from appointment
in December 2012). Sir David Reid and Adrian Hennah, 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. Sir David Reid has
served on the Audit Committees for more than nine years and after
having determined that he remained independent in character and
judgement and there were also no relationships or circumstances
which are likely to affect his independent judgement, he has
remained a member of the Audit Committees to allow for an
orderly transition to newly appointed directors.
Responsibilities
The main role and responsibilities of the Committees are to assist
the respective Boards in fulfilling their oversight responsibilities
regarding the integrity of Reed Elsevier’s interim and financial
statements and reporting process, risk management and internal
controls, the external auditors’ effectiveness, performance,
qualifications and independence and the performance of the
internal auditors. 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 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.
Principal activities
The Committees met five times during 2012. The Audit Committee
meetings are typically attended by the Chief Executive Officer, the
Chief Financial Officer, the Reed Elsevier Group plc group financial
controller, the Reed Elsevier Group plc chief legal officer, chief
risk officer and director of internal audit, and audit partners of the
external auditors. Additionally, the managing director and senior
representatives of the external auditors of Elsevier Reed Finance
BV attend the July and February meetings of the parent company
Audit Committees.
(ii) reviewed the critical accounting policies and compliance
with applicable accounting standards and other disclosure
requirements and received regular update reports on
accounting and regulatory developments.
(iii) received and discussed regular reports from the Reed
Elsevier Group plc chief risk officer and director of internal
audit summarising the status of Reed Elsevier risk
management activities and the findings from internal audit
reviews and the actions agreed with management. Areas
of focus in 2012 included: management of investment
programmes; regulatory compliance and review of
information security including the management of data
privacy; 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.
(iv) reviewed and approved the internal audit plan for 2012
and monitored execution, including progress in respect of
recommendations made. Reviewed the resources, terms of
reference and effectiveness of the Reed Elsevier Group plc
risk management and internal audit functions.
(v) received presentations from: the Reed Elsevier Group plc
chief compliance officer on the compliance programmes,
including the operation of Reed Elsevier’s codes of conduct,
training programmes, whistleblowing arrangements and
procedures in respect of the UK Bribery Act requirements;
the Reed Elsevier Inc. general counsel on the management
of data privacy, security and compliance; the Reed Elsevier
Group plc IT security officer on information technology
security; and the Reed Elsevier Group plc chief legal officer
on legal issues and claims.
(vi) received updates from the Reed Elsevier Group plc group
treasurer on pension arrangements and funding, treasury
policies and risk management, compliance with treasury
policies, and global insurance arrangements.
(vii) received presentations from the Reed Elsevier Group plc
head of group taxation on tax policies and related matters.
(viii) received regular updates from the chief financial officer on
developments within the finance function.
(ix) received presentations on a rotational basis from the chief
financial officers of major businesses on the priorities for
the finance functions and the risk management and internal
control activities.
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92
GoVERNANCE
REpORT OF THE AUDIT COMMITTEES
External audit effectiveness
Reed Elsevier has a well established policy on audit effectiveness
and independence of auditors that sets out inter alia: the
responsibilities of each Audit Committee in the selection of
auditors to be proposed for appointment or reappointment 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 Committees. The policy is available on the
Reed Elsevier website, www.reedelsevier.com.
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. The auditors may, however, provide non
audit services which do not conflict with their independence, and
where their skills and experience make them a logical supplier,
subject to pre-approval by the Audit Committees. The Committees
have, each quarter, reviewed and agreed the non audit services
provided in 2012, 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 tax compliance, due
diligence and other transaction related services. In compliance
with recent Dutch regulatory developments, from 2013 non
audit services performed in the Netherlands will be limited to
audit related activities, subject to transitional arrangements for
engagements already in progress. The Committees will consider
further policy amendments during the course of 2013 as the scope
of this regulatory change is clarified.
The external auditors are required to rotate the lead audit
partners responsible for the audit engagements every five years.
The lead engagement partner for Reed Elsevier pLC has now
completed his fourth year of auditing Reed Elsevier’s financial
statements and the lead engagement partner for Reed Elsevier
NV has completed three years. 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.
The Committees have monitored regulatory developments in
the UK and the Netherlands and will consider auditor tender
and rotation in line with the transitional arrangements set out
in the revised UK Corporate Governance Code and recent Dutch
legislation. Any further developments in 2013 will be studied
when considering the appointment of auditors for future years.
The Committees conducted an annual review during 2012 of the
performance of the external auditors and the effectiveness of
the external audit process for the year ended 31 December 2011.
Based on this review, and on their subsequent observations
on the planning and execution of the external audit for the year
ended 31 December 2012, 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
February 2013.
Ben van der Veer
Chairman of the Audit Committees
27 February 2013
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Reed Elsevier Annual Reports and Financial Statements 2012
93
Financial
statements
and other
information
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In this section
94 Combined financial statements
98 Accounting policies
104 Notes to the combined
financial statements
132 Independent auditors’ report
133 Summary combined financial
information in euros
147 Reed Elsevier PLC Annual Report and
Financial Statements
171 Reed Elsevier NV Annual Report and
Financial Statements
195 Additional information for US investors
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Reed Elsevier 2012.indb 93
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94
94
FInancIal statEmEnts and othER InFoRmatIon
FInancIal statEmEnts and othER InFoRmatIon
COmBINEd FINANCIAL StAtEmENtS
COmBINEd FINANCIAL StAtEmENtS
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 on defined benefit pension schemes
Fair value movements on available for sale investments
transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
transfer to net profit from cash flow hedge reserve (net of tax)
tax recognised directly in equity
other comprehensive expense for the year
total comprehensive income for the year
Attributable to:
Parent companies’ shareholders
Non-controlling interests
total comprehensive income for the year
Note
5
18
9
2012
£m
6,116
(2,139)
3,977
(1,015)
(1,628)
1,334
24
1,358
16
(232)
(216)
45
1,187
(113)
1,074
1,069
5
1,074
2012
£m
1,074
(136)
(329)
–
11
70
21
88
(275)
799
794
5
799
2011
£m
6,002
(2,126)
3,876
(1,075)
(1,626)
1,175
30
1,205
17
(252)
(235)
(22)
948
(181)
767
760
7
767
2011
£m
767
32
(113)
(1)
–
(24)
37
42
(27)
740
733
7
740
Reed Elsevier 2012.indb 94
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Reed Elsevier Annual Reports and Financial Statements 2012
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
Gross proceeds from other disposals
Payments on 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
disposal/(acquisition) of non-controlling interests
Repurchase of ordinary shares
Proceeds on issue of ordinary shares
net cash used in financing activities
Note
11
11
95
2012
£m
2011
£m
1,847
(231)
7
(216)
1,407
(316)
(70)
(263)
(7)
7
235
(82)
20
(476)
(521)
(4)
(434)
592
(437)
(4)
7
(250)
48
(1,003)
1,735
(247)
12
(218)
1,282
(481)
(85)
(265)
(10)
7
101
(21)
33
(721)
(497)
(9)
210
–
(248)
(22)
(48)
–
9
(605)
decrease in cash and cash equivalents
11
(72)
(44)
movement in cash and cash equivalents
At start of year
decrease in cash and cash equivalents
Exchange translation differences
at end of year
726
(72)
(13)
641
742
(44)
28
726
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96
FInancIal statEmEnts and othER InFoRmatIon
COmBINEd FINANCIAL StAtEmENtS
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
deferred tax assets
derivative financial instruments
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
19
20
21
11
22
23
24
26
24
19
5
26
22
28
28
28
29
2012
£m
4,545
3,275
100
79
264
79
138
8,480
159
1,380
57
641
2,237
297
11,014
2,544
11
730
603
30
3,918
3,162
919
466
139
4,686
96
8,700
2,314
223
2,727
(899)
(23)
252
2,280
34
2,314
2011
£m
4,729
3,494
124
64
288
212
–
8,911
190
1,483
149
726
2,548
44
11,503
2,657
69
982
677
39
4,424
3,300
1,236
242
87
4,865
17
9,306
2,197
223
2,723
(663)
88
(199)
2,172
25
2,197
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Reed Elsevier Annual Reports and Financial Statements 2012
Combined statement of changes in equity
combined
share
capitals
£m
224
combined
share
premiums
£m
2,754
combined
shares held
in treasury
£m
(677)
translation
reserve
£m
29
Note
13
13
Balance at 1 January 2011
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
Acquisitions
Acquisition of non-controlling
interests
Exchange differences on
translation of capital
and reserves
Balance at 1 January 2012
total comprehensive income
for the year
dividends paid
Issue of ordinary shares,
net of expenses
Repurchase of ordinary shares
Increase in share based
remuneration reserve
Settlement of share awards
Acquisitions
disposal of non-controlling
interests
Exchange differences on
translation of capital
and reserves
Balance at 31 december 2012
–
–
–
–
–
–
–
–
–
9
–
–
–
–
(1)
223
(40)
2,723
–
–
1
–
–
–
–
–
–
–
47
–
–
–
–
–
(1)
223
(43)
2,727
other
combined
reserves
£m
combined
shareholders’
equity
£m
non-
controlling
interests
£m
(387)
1,943
701
(497)
733
(497)
–
27
(7)
–
9
27
–
–
27
7
(9)
–
–
–
5
–
–
–
–
7
–
–
7
(663)
32
–
–
–
–
–
–
27
88
(43)
(43)
(5)
(48)
7
–
(199)
2,172
–
–
(136)
–
930
(521)
–
(250)
–
7
–
–
7
(899)
–
–
–
–
–
–
–
–
31
(7)
–
6
25
(23)
12
252
794
(521)
48
(250)
31
–
–
6
–
2,280
–
25
5
(4)
–
–
–
–
9
1
–
2,197
799
(525)
48
(250)
31
–
9
7
(2)
34
(2)
2,314
97
total
equity
£m
1,970
740
(506)
9
27
–
5
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98
FInancIal statEmEnts and othER InFoRmatIon
ACCOUNtING POLICIES
Accounting policies
the Reed Elsevier combined financial statements are prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted 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 72.
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 acquisition 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 147 to 194. A list of principal
businesses is set out on page 204.
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 133 to 146.
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.
Where sales consist of two or more independent components
whose value can be reliably measured, revenue is recognised
on each component as it is completed by performance, based
on attribution of relative value.
Employee benefits
the expense of defined benefit pension schemes and other
post-retirement employee benefits is determined using the
projected unit credit method and charged in the income statement
as an operating expense, based on actuarial assumptions
reflecting market conditions at the beginning of the financial year.
Actuarial gains and losses are recognised in full in the statement
of comprehensive income in the period in which they occur.
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.
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Reed Elsevier Annual Reports and Financial Statements 2012
99
the expense of defined contribution pension schemes and
other employee benefits is charged in the income statement
as incurred.
share based remuneration
the fair value of share based remuneration is determined at
the date of grant and recognised as an expense in the income
statement on a straight line basis over the vesting period, taking
account of the estimated number of shares that are expected to
vest. market based performance criteria are taken into account
when determining the fair value at the date of grant. Non-market
based performance criteria are taken into account when
estimating the number of shares expected to vest. the fair value
of share based remuneration is determined by use of a binomial or
monte Carlo simulation model as appropriate. All Reed Elsevier’s
share based remuneration is equity settled.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of an asset that takes a substantial
period of time to bring to use are capitalised. All other interest
on borrowings is expensed as incurred. the cost of issuing
borrowings is generally expensed over the period of borrowing
so as to produce a constant periodic rate of charge.
taxation
the tax expense represents the sum of the tax payable on the
current year taxable profits, adjustments in respect of prior year
taxable profits, and the movements on deferred tax that are
recognised in the income statement.
the tax payable on current year taxable profits is calculated using
the applicable tax rates that have been enacted, or substantively
enacted, by the date of the statement of financial position.
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 have been
substantively enacted at the date of the statement of financial
position. Full provision is made for deferred tax which would
become payable on the distribution of retained profits from
foreign subsidiaries, associates or joint ventures.
movements in deferred tax are charged or credited in the income
statement, except when they relate to items charged or credited
directly to equity, in which case the deferred tax is also recognised
in equity. deferred tax credits in respect of share based
remuneration are recognised in equity to the extent that expected
tax deductions exceed the related expense.
Goodwill
On the acquisition of a subsidiary or business, the purchase
consideration is allocated between the net tangible and
intangible assets on a fair value basis, with any excess purchase
consideration representing goodwill. Goodwill arising on
acquisitions also includes amounts corresponding to deferred
tax liabilities recognised in respect of acquired intangible assets.
Goodwill is recognised as an asset and reviewed for impairment
at least annually. Any impairment is recognised immediately in
the income statement and not subsequently reversed.
On disposal of a subsidiary or business, the attributable amount
of goodwill is included in the determination of the profit or loss
on disposal.
Intangible assets
Intangible assets acquired as part of a business combination are
stated in the statement of financial position at their fair value as at
the date of acquisition, less accumulated amortisation. Internally
generated intangible assets are stated in the statement of
financial position at the directly attributable cost of creation of the
asset, less accumulated amortisation.
Intangible assets acquired as part of business combinations
comprise: market related assets (e.g. trademarks, 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.
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100 FInancIal statEmEnts and othER InFoRmatIon
ACCOUNtING POLICIES
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.
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 is considered
highly probable to complete are classified as assets held for sale,
and are carried at the lower of carrying value 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.
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 IFRS7 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.
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
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Reed Elsevier Annual Reports and Financial Statements 2012
101
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 IFRS7 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, the obligation is reasonably estimable and
it is probable that settlement will be required. Provisions are
measured at the best estimate of the expenditure required to
settle the obligation at the statement of financial position date.
shares held in treasury
Shares of Reed Elsevier PLC and Reed Elsevier NV that are
repurchased by the respective parent companies and not
cancelled are classified as shares held in treasury. the
consideration paid, including directly attributable costs, is
recognised as a deduction from equity. Shares of the parent
companies that are purchased by the Reed Elsevier Group plc
Employee Benefit trust are also classified as shares held in
treasury, with the cost recognised as a deduction from equity.
critical judgements and key sources of estimation uncertainty
the most significant accounting policies in determining the
financial condition and results of the Reed Elsevier combined
businesses, and those requiring the most subjective or complex
judgement, relate to the valuation of goodwill and intangible
assets, share based remuneration, pensions, litigation, taxation,
and property provisioning.
Goodwill and acquired intangible assets
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 11.4%
for Scientific, technical & medical, 11.8% for Risk Solutions,
11.5-12.9% for Business Information, 11.6% for Legal and
11.2-12.9% for Exhibitions. the nominal long term growth rates,
which are based on historical growth rates and the growth
prospects for businesses, are 3%. there were no charges for
impairment of acquired intangible assets and goodwill in 2012
(2011: nil).
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 no impairment charges would result under any of the
sensitivity scenarios. 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
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102 FInancIal statEmEnts and othER InFoRmatIon
ACCOUNtING POLICIES
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 30%, of expected share
option life of four years, and of expected lapse rate of 2-5% 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 £26m in 2012 (2011: £27m).
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.
the principal assumptions as at 31 december 2012, expressed
as a weighted average of the various defined benefit pension
schemes, were a discount rate of 4.4% (2011: 5.2%; 2010: 5.6%), an
expected rate of salary increases of 3.2% (2011: 3.5%; 2010: 4.1%)
and inflation of 2.7% (2011: 2.9%; 2010: 3.2%). the expected return
on scheme assets set at the beginning of the year was 6.2% for
2012 and 6.8% for 2011. Future pension increases are assumed at
2.8% (2011: 2.9%; 2010: 3.2%) and average life expectancy of 88-89
years (2011: 88-89 years) for scheme members currently aged 45
and 60 years. the net defined benefit pension expense was £18m
(2011: £23m). the service cost was £43m (2011: £57m) after
pension curtailment credits of £20m (2011: £9m) 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 £25m (2011: £34m) reflecting the increase in
scheme liabilities at the beginning of the year compared with
a year before and lower expected asset returns. Further
information and sensitivity analysis is provided in note 5 to the
combined financial statements.
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 probable 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.
Taxation
Reed Elsevier is subject to tax in numerous jurisdictions, giving
rise to complex tax issues that require management to exercise
judgement in making tax determinations. While Reed Elsevier is
confident that tax returns are appropriately prepared and filed,
amounts are provided in respect of uncertain tax positions that
reflect the risk with respect to tax matters under active discussion
with tax authorities, or which are otherwise considered to involve
uncertainty. Amounts are provided using the best estimate of
tax expected to be paid based on a qualitative assessment of
all relevant factors. However, it is possible that at some future
date liabilities may be adjusted as a result of audits by taxing
authorities. discussions with tax authorities relating to cross
border transactions and other matters are ongoing. Although the
outcome of open items cannot be predicted, no significant impact
on the financial position of Reed Elsevier is expected.
In addition, estimation of income taxes includes assessments of
the recoverability of deferred tax assets. deferred tax assets are
only recognised to the extent that they are considered recoverable
based on existing tax laws and forecasts of future taxable profits
against which the underlying tax deductions can be utilised. the
recoverability of these assets is reassessed at the end of each
reporting period, and changes in recognition of deferred tax
assets will affect the tax liability in the period of that
reassessment.
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 £62m
(2011: £16m) relating to surplus property arising on the
restructuring, sale and closure of Business Information
businesses and includes expected losses on sub leases entered
into during 2012 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.
Revenue recognition policies, while an area of management
focus, are generally straightforward in application as the
timing of product or service delivery and customer acceptance
for the various revenue types can be readily determined.
Allowances for product returns are deducted from revenues
based on historical return rates. Where sales consist of two or
more components that operate independently, revenue is
recognised as each component is completed by performance,
based on attribution of relative value.
Pre-publication costs incurred in the creation of content prior to
production and publication are 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.
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Reed Elsevier Annual Reports and Financial Statements 2012
103
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.
standards and amendments effective for the year
the interpretations and amendments to IFRS effective for 2012
have not had a significant impact on Reed Elsevier’s accounting
policies or reporting.
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.
IAS19 – Employee Benefits (revised) (effective for the 2013
financial year). the revised standard inter alia changes the
methodology to be used in the calculation of the net pension
financing credit or charge in relation to defined benefit pension
schemes. Under the revised standard, pension asset returns
included within the net pension financing credit or charge are to
be calculated by reference to the discount rate of a high quality
corporate bond (being also the discount rate applied in the
calculation of pension obligations) and no longer based on the
expected returns on scheme assets. typically the effect will be
to reduce the asset returns recognised in the income statement.
As required under the revised standard, comparatives will be
restated accordingly. the revised standard also prohibits the use
of certain accounting alternatives, previously permitted, that
enabled the smoothing of volatility in the income statement and
balance sheet in relation to pensions, but this will not affect
Reed Elsevier’s pension accounting as such alternatives were
not applied. there is no change to the measurement of pension
scheme assets and obligations under the revised standard for
Reed Elsevier.
Adoption of IAS19 (revised) will have no impact on Reed Elsevier’s
combined balance sheet or cash flows. the net pension financing
credit or charge will, with effect from 1 January 2013, be
presented within net finance costs in Reed Elsevier’s combined
income statement, rather than within operating profit as currently
reported. Given that the revised standard may introduce greater
volatility to the income statement, following adoption on 1 January
2013 the net pension financing credit or charge will be excluded
from the adjusted earnings figures used by Reed Elsevier as
additional performance measures.
Had IAS19 (revised) and related presentation been in effect for the
2012 financial year, operating profit for the twelve months to 31
december 2012 would have been £25m lower (2011: £34m) and
net finance costs would have been higher by £11m (2011: £9m).
On an adjusted basis, profit before tax would have been £25m
lower (2011: £34m). the balance sheet and cash flows would
have been unchanged.
IFRS9 – Financial Instruments (effective for the 2015 financial year).
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 the 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.
IFRS10 – Consolidated Financial Statements (effective for the 2013
financial year). the standard introduces a single consolidation
model for all entities based on control, irrespective of the nature
of the investee. IFRS10 replaces IAS27 – Separate Financial
Statements. Adoption of the standard is not expected to have
a significant impact on the measurement, presentation or
disclosure of the consolidation of entities in the combined
financial statements.
IFRS11 – Joint Arrangements (effective for the 2013 financial year).
this standard classifies joint arrangements as either joint
ventures or a joint operation and removes the option to
proportionately consolidate joint ventures. IFRS11 replaces IAS28
– Investments in Associates and Joint Ventures. Adoption of the
standard is not expected to have a significant impact on the
measurement, presentation or disclosure of the joint ventures
in the combined financial statements.
IFRS12 – disclosure of Interests in Other Entities (effective for
the 2013 financial year). the standard combines the disclosure
requirements for subsidiaries, joint arrangements, associates
and unconsolidated structured entities into one standard.
Adoption of the standard may result in additional disclosures in
the combined financial statements but is not expected to have a
significant impact on Reed Elsevier’s reporting.
IFRS13 – Fair Value measurement (effective for the 2013 financial
year). the standard consolidates the guidance and disclosure
requirements of fair value measurement contained throughout
IFRS and also requires new disclosures related to valuation
techniques and inputs into fair value measurements. Adoption
of the 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.
IAS1 – Presentation of Items of Other Comprehensive Income –
Amendments to IAS1 (effective for the 2013 financial year).
the standard amends the grouping of items presented in the
statement of comprehensive income into items that may be
reclassified (or recycled) to the profit or loss in a future period and
items that will never be reclassified. Adoption of the standard will
lead to some re-presentation of the items in the statement of
comprehensive income in the combined financial statements.
Additionally, a number of interpretations have been issued which
are not expected to have any significant impact on Reed Elsevier’s
accounting policies and reporting.
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104 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
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 world leading provider of professional information solutions organised as five business segments: Scientific,
technical & medical, providing information and tools to help its customers improve scientific and healthcare outcomes; Risk Solutions,
providing tools that combine proprietary, public and third-party information with advanced technology and analytics; Business
Information, providing data services, information and marketing solutions to business professionals; Legal, providing legal, tax,
regulatory news & business information to legal, corporate, government, accounting and academic markets; and Exhibitions,
organising exhibitions and conferences.
Adjusted operating profit is the key segmental profit measure used by Reed Elsevier in assessing performance. It is stated before
amortisation of acquired intangible assets, the share of profit on disposals in joint ventures, acquisition related costs, and is grossed
up to exclude the equity share of taxes in joint ventures. Adjusted operating profit is reconciled to operating profit in note 10.
analYsIs BY BusInEss sEGmEnt
Revenue
operating profit
adjusted operating profit
Scientific, technical & medical
Risk Solutions
Business Information
Legal
Exhibitions
Sub-total
Corporate costs
Unallocated net pension financing credit
total
2012
£m
2,063
926
663
1,610
854
6,116
–
–
6,116
2011
£m
2,058
908
695
1,634
707
6,002
–
–
6,002
2012
£m
706
281
76
146
171
1,380
(47)
25
1,358
2011
£m
695
181
68
144
132
1,220
(49)
34
1,205
2012
£m
780
392
119
234
210
1,735
(47)
25
1,713
2011
£m
768
362
110
229
167
1,636
(44)
34
1,626
Revenue is analysed before the £91m (2011: £128m) share of joint ventures’ revenue, of which £2m (2011: £2m) relates to Business
Information, £22m (2011: £23m) relates to Legal, principally to Giuffrè, and £67m (2011: £103m) relates to Exhibitions.
Share of post-tax results of joint ventures of £24m (2011: £30m) included in operating profit comprises nil (2011: £1m) relating to
Business Information, £2m (2011: £4m) relating to Legal and £22m (2011: £25m) relating to Exhibitions. the unallocated net pension
financing credit of £25m (2011: £34m) comprises the expected return on pension scheme assets of £221m (2011: £235m) less interest
on pension scheme liabilities of £196m (2011: £201m).
analYsIs oF REvEnuE BY GEoGRaPhIcal oRIGIn
North America
United Kingdom
the Netherlands
Rest of Europe
Rest of world
total
2012
£m
3,122
966
611
788
629
6,116
2011
£m
3,103
947
616
783
553
6,002
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Reed Elsevier Annual Reports and Financial Statements 2012
105
1 Segment analysis continued
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
analYsIs BY BusInEss sEGmEnt
Scientific, technical & medical
Risk Solutions
Business Information
Legal
Exhibitions
total
2012
£m
3,154
442
165
1,176
1,179
6,116
2012
£m
2,978
1,602
350
846
340
6,116
2011
£m
3,219
485
189
1,095
1,014
6,002
2011
£m
2,819
1,649
437
700
397
6,002
Expenditure on
acquired goodwill and
intangible assets
capital
expenditure
additions
amortisation
of acquired
intangible assets
depreciation and
other amortisation
2012
£m
120
15
–
80
178
393
2011
£m
43
–
532
–
36
611
2012
£m
106
21
17
173
25
342
2011
£m
94
23
18
203
22
360
2012
£m
68
109
37
83
32
329
2011
£m
72
156
29
78
24
359
2012
£m
82
23
14
92
16
227
2011
£m
69
26
15
87
10
207
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. Amortisation of
acquired intangible assets includes amounts in respect of joint ventures of £1m (2011: £4m) in Exhibitions. Other than the depreciation
and amortisation above, non cash items include £31m (2011: £27m) relating to the recognition of share based remuneration, comprising
£5m (2011: £5m) in Scientific, technical & medical, nil (2011: £3m) in Risk Solutions, £3m (2011: £2m) in Business Information, £7m
(2011: £6m) in Legal, £4m (2011: £3m) in Exhibitions and £12m (2011: £8m) in Corporate.
analYsIs oF non-cuRREnt assEts BY GEoGRaPhIcal locatIon
North America
United Kingdom
the Netherlands
Rest of Europe
Rest of world
total
2012
£m
6,514
524
120
729
376
8,263
2011
£m
6,984
517
123
783
292
8,699
Non-current assets by geographical location exclude amounts relating to deferred tax and derivative financial instruments.
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106 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
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 and amortisation
Amortisation of acquired intangible assets
Share of joint ventures’ amortisation of acquired intangible assets
Amortisation of internally developed intangible assets
depreciation of property, plant and equipment
total depreciation and amortisation
other expenses and income
Pre-publication costs, inventory expenses and other cost of sales
Operating lease rentals expense
Operating lease rentals income
depreciation and amortisation 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
15
17
2012
£m
1,543
187
64
26
1,820
328
1
151
76
556
2011
£m
1,535
173
62
27
1,797
355
4
132
75
566
2,139
112
(10)
2,126
116
(11)
2012
£m
4.7
1.8
6.5
2011
£m
4.7
1.1
5.8
Auditors’ remuneration for audit services comprises £0.5m (2011: £0.5m) payable to the auditors of the parent companies and £4.2m
(2011: £4.2m) 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: £0.8m (2011: £0.7m) for tax compliance services,
£0.7m (2011: £0.2m) for other audit related assurance services and £0.3m (2011: £0.2m) for due diligence and other transaction related
services. Reed Elsevier’s policy on auditor independence is set out on page 92.
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107
4 Personnel
numBER oF PEoPlE EmPloYEd
Business segment
Scientific, technical & medical
Risk Solutions
Business Information
Legal
Exhibitions
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
2012
2011
2012
2011
7,000
4,100
4,800
10,400
3,200
29,500
900
30,400
15,700
4,100
1,600
3,600
5,400
30,400
6,900
4,000
5,600
10,300
2,800
29,600
900
30,500
16,000
4,600
1,600
3,700
4,600
30,500
7,000
4,000
5,200
10,400
3,000
29,600
900
30,500
15,900
4,200
1,600
3,700
5,100
30,500
6,900
4,300
5,400
10,400
2,700
29,700
900
30,600
16,300
4,600
1,600
3,800
4,300
30,600
A number of pension schemes are operated around the world. Historically, the major schemes have been of the defined benefit type with
assets held in separate trustee administered funds. the largest defined benefit schemes 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
2012
4.4%
n/a
3.2%
2.7%
2.8%
2011
5.2%
6.2%
3.5%
2.9%
2.9%
2010
5.6%
6.8%
4.1%
3.2%
3.2%
the discount rate is set by reference to AA corporate bond yields. 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
2012
2011
male
(years)
Female
(years)
male
(years)
Female
(years)
88
89
88
89
88
89
87
88
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108 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
5 Pension schemes continued
the pension expense recognised within the income statement comprises:
Service cost (including settlement and curtailment credits of £20m (2011: £9m))
Interest on pension scheme liabilities
Expected return on scheme assets
Net defined benefit pension expense
defined contribution pension expense
total pension expense
2012
£m
43
196
(221)
18
46
64
2011
£m
57
201
(235)
23
39
62
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
2012
defined
benefit
obligations
£m
Fair value
of scheme
assets
£m
net
pension
obligations
£m
defined
benefit
obligations
£m
2011
Fair value
of scheme
assets
£m
Net
pension
obligations
£m
(3,876)
(43)
(196)
–
(416)
–
(11)
216
54
(4,272)
3,634
–
–
221
87
116
11
(216)
(47)
3,806
(242)
(43)
(196)
221
(329)
116
–
–
7
(466)
(3,677)
(57)
(201)
–
(78)
–
(11)
141
7
(3,876)
3,507
–
–
235
(35)
66
11
(141)
(9)
3,634
(170)
(57)
(201)
235
(113)
66
–
–
(2)
(242)
the net pension obligations of £466m (2011: £242m) at 31 december 2012 comprise schemes in deficit with net pension obligations
of £466m (2011: £242m) and schemes in surplus with net pension assets of nil (2011: nil).
As at 31 december 2012 the defined benefit obligations comprise £4,112m (2011: £3,721m) in relation to funded schemes and £160m
(2011: £155m) in relation to unfunded schemes. the weighted average duration of defined benefit scheme liabilities is 19 years
(2011: 19 years). deferred tax assets of £153m (2011: £86m) are recognised in respect of the pension scheme deficits.
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
2012
2011
Fair value
of scheme
assets
£m
Proportion
of total
scheme
assets
1,804
1,715
287
3,806
47%
45%
8%
100%
Expected
rate of
return on
scheme
assets
8.7%
3.7%
4.3%
6.2%
Fair value
of scheme
assets
£m
Proportion
of total
scheme
assets
1,699
1,722
213
3,634
47%
47%
6%
100%
the actual return on scheme assets for the year ended 31 december 2012 was a £308m gain (2011: £200m gain).
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109
5 Pension schemes continued
A summary of pension balances in respect of funded and unfunded schemes for the five years ended 31 december 2012 is set out below:
Fair value of scheme assets
defined benefit obligations
net pension obligations
2012
£m
3,806
(4,272)
(466)
2011
£m
3,634
(3,876)
(242)
2010
£m
3,507
(3,677)
(170)
2009
£m
3,067
(3,302)
(235)
2008
£m
2,682
(3,051)
(369)
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 (losses)/gains on scheme assets
Actuarial (losses)/gains arising on the present value of scheme liabilities due
to changes in:
– discount rates
– inflation
– other actuarial assumptions
Net cumulative (losses)/gains at start of year
net cumulative losses at end of year
2012
£m
(32)
87
(552)
74
94
(329)
(265)
(594)
2011
£m
(27)
(35)
(238)
182
5
(113)
(152)
(265)
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)
Regular contributions to defined benefit pension schemes in respect of 2013 are expected to be approximately £55m.
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 service cost and the defined benefit pension obligations:
Increase/decrease of 0.25% in discount rate:
decrease/increase in annual service cost
decrease/increase in defined benefit pension obligations
Increase/decrease of one year in assumed life expectancy:
Increase/decrease in annual service cost
Increase/decrease in defined benefit pension obligations
Increase/decrease of 0.25% in the expected inflation rate:
Increase/decrease in annual service cost
Increase/decrease in defined benefit pension obligations
£m
5
195
1
104
3
113
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110 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
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 upon retirement or in exceptional circumstances, subject to the condition that the
employee remains in employment at the time of exercise.
Conditional shares granted under LtIP, REGP, RSP and BIP in 2010, 2011 and 2012 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 targeted percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV. LtIP grants in 2010, 2011 and 2012 and
REGP grants are also variable subject to the achievement of a total shareholder return performance target.
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 74 to 90.
2012 GRants
Share options
– ESOS
– Other
total share options
Conditional shares
– ESOS
– LtIP
– RSP
– BIP
total conditional shares
2011 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
£
Weighted
average fair
value per
award
£
number of
shares
’000
number of
shares
’000
1,801
702
2,503
797
1,807
256
1,542
4,402
0.90
1.04
0.94
4.60
4.45
6.00
5.20
4.83
1,263
293
1,556
560
1,144
5
696
2,405
1.20
0.95
1.15
6.41
6.13
7.82
7.41
6.57
In respect of
Reed Elsevier PLC
ordinary shares
In respect of
Reed Elsevier NV
ordinary shares
Weighted
average fair
value per
award
£
Weighted
average fair
value per
award
£
Number of
shares
’000
Number of
shares
’000
2,053
633
2,686
755
1,822
322
1,339
4,238
0.98
1.03
0.99
4.85
4.56
4.73
5.43
4.90
1,372
381
1,753
504
1,217
5
607
2,333
1.41
0.97
1.32
6.91
6.65
7.15
8.00
7.06
Reed Elsevier 2012.indb 110
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Reed Elsevier Annual Reports and Financial Statements 2012
111
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
– 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
2012
2011
2012
2011
£5.19
£5.25
£6.00
£5.20
£5.49
30%
4 years
3.9%
0.8%
2-5%
£5.39
£5.31
£5.26
£5.43
£5.13
29%
4 years
3.6%
1.9%
2-5%
€9.07
€8.91
€9.65
€9.15
€9.63
30%
4 years
4.5%
0.9%
2-4%
€8.97
€8.89
€9.27
€9.21
€9.03
29%
4 years
4.1%
2.5%
2-4%
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 2012, in respect of both Reed Elsevier PLC and Reed Elsevier NV
ordinary shares, are set out below:
shaRE oPtIons
Outstanding at 1 January 2011
Granted
Exercised
Forfeited
Expired
Outstanding at 1 January 2012
Granted
Exercised
Forfeited
Expired
outstanding at 31 december 2012
Exercisable at 31 december 2011
Exercisable at 31 december 2012
In respect of
Reed Elsevier Plc
ordinary shares
In respect of
Reed Elsevier nv
ordinary shares
number of
shares under
option
’000
33,711
2,686
(1,626)
(2,001)
(3,230)
Weighted
average
exercise
price
(pence)
544
509
493
479
640
number of
shares under
option
’000
24,833
1,753
(201)
(1,941)
(2,803)
29,540
2,503
(6,694)
(1,022)
(4,992)
19,335
20,061
12,573
534
497
497
498
592
529
552
553
21,641
1,556
(1,913)
(581)
(5,121)
15,582
16,876
12,329
Weighted
average
exercise
price
(€)
11.45
8.99
8.84
10.94
8.68
10.99
9.19
9.36
9.33
12.34
10.63
11.56
11.12
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112 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
6 Share based remuneration continued
condItIonal shaREs
Outstanding at 1 January 2011
Granted
Vested
Forfeited
Outstanding at 1 January 2012
Granted
Vested
Forfeited
outstanding at 31 december 2012
In respect of
Reed Elsevier Plc
ordinary shares
In respect of
Reed Elsevier nv
ordinary shares
number of shares
’000s
number of shares
’000s
12,037
4,238
(580)
(1,799)
13,896
4,402
(601)
(5,885)
11,812
7,293
2,332
(383)
(975)
8,267
2,405
(391)
(3,575)
6,706
the weighted average share price at the date of exercise of share options and vesting of conditional shares during 2012 was 593p
(2011: 554p) for Reed Elsevier PLC ordinary shares and €10.43 (2011: €9.71) for Reed Elsevier NV ordinary shares.
RanGE oF ExERcIsE PRIcEs FoR outstandInG shaRE oPtIons
2012
2011
Reed Elsevier Plc ordinary shares (pence)
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
Weighted
average
remaining
period until
expiry
(years)
number of
shares under
option
’000
Number of
shares under
option
’000
Weighted
average
remaining
period until
expiry
(years)
1,925
4,415
8,981
189
3,825
–
19,335
58
2,736
3,142
2,697
3,982
1,806
118
1,043
–
15,582
2.8
3.5
5.7
5.4
4.8
–
4.7
6.1
7.7
6.9
1.6
2.6
5.1
4.1
4.1
–
4.6
2,148
7,793
11,662
2,726
5,176
35
29,540
120
3,233
3,686
3,921
4,865
2,339
2,025
1,426
26
21,641
2.9
3.6
5.5
0.8
5.7
0.3
4.4
7.2
8.6
5.3
2.3
3.5
6.0
0.5
5.1
0.3
4.5
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 28). Conditional shares will be met from shares held by the EBt.
Reed Elsevier 2012.indb 112
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Reed Elsevier Annual Reports and Financial Statements 2012
113
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 loans and 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
2012
£m
(27)
(196)
(1)
(224)
(8)
(232)
7
9
16
(216)
2011
£m
(28)
(212)
(1)
(241)
(11)
(252)
12
5
17
(235)
Finance costs include £16m (2011: £15m) transferred from the hedge reserve. A net loss of £2m (2011: £3m) 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
Property provisions on disposed businesses
Gain/(loss) on disposal of businesses and assets held for sale
net gain/(loss) on disposals and other non operating items
9 Taxation
Current tax
United Kingdom
the Netherlands
Rest of world
total current tax charge
deferred tax
tax expense
2012
£m
19
(60)
86
45
2012
£m
73
68
12
153
(40)
113
2011
£m
6
(16)
(12)
(22)
2011
£m
64
87
107
258
(77)
181
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114 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
9 Taxation continued
the net tax expense charged on profit before tax differs from the theoretical amount that would arise using the weighted average of tax
rates applicable to accounting profits and losses of the consolidated entities, as follows:
Profit before tax
tax at average applicable rates
tax on share of results of joint ventures
Expenses not deductible for tax purposes
(Non-taxable)/non-deductible costs of share based remuneration
(Non-taxable)/non-deductible disposal related gains and losses
tax losses of the period not recognised
Recognition and utilisation of tax losses that arose in prior years
Exceptional prior year tax credit
Other adjustments in respect of prior periods
deferred tax effect of changes in tax rates
tax expense
2012
£m
1,187
255
(7)
30
(3)
(69)
6
(6)
(96)
2
1
113
2011
£m
948
180
(9)
26
3
7
4
(22)
–
(7)
(1)
181
the weighted average applicable tax rate for the year was 22% (2011: 19%). this increase is caused by a change in the relative profitability
of the consolidated entities in the countries in which they operate, partially offset by the impact of the reduction in the tax rate of the
United Kingdom (see below).
during 2012, Reed Elsevier resolved a number of significant prior year tax matters and reassessed its exposure to other tax matters
across the jurisdictions in which Reed Elsevier operates. As a result of this reassessment, current tax liabilities were reduced by £96m
to reflect the lower cash tax expected to be payable. On the basis of its size and nature, this exceptional credit has been excluded from
adjusted earnings.
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
tax credit on share based remuneration
net tax credit recognised directly in equity
2012
£m
102
(19)
5
88
2011
£m
36
5
1
42
A number of changes to the UK corporation tax system, including reductions of the main rate of corporation tax from 26% to 24% with
effect from 1 April 2012, and from 24% to 23% with effect from 1 April 2013, were substantively enacted on 3 July 2012. Reed Elsevier
has therefore remeasured its UK deferred tax assets and liabilities at the end of the reporting period at 23%, which has resulted in
recognition of a deferred tax debit of £1m in the income statement. the UK government has also announced an intention to reduce the
rate of corporation tax to 21% by 1 April 2014, but as this change had not been substantively enacted at the date of the statement of
financial position, the effect on deferred tax has not been recognised in these financial statements. It is not currently anticipated that
the proposed reduction in rate would have a significant impact on deferred tax balances.
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Reed Elsevier Annual Reports and Financial Statements 2012
115
10 Adjusted figures
Reed Elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation of acquired
intangible assets, acquisition related costs, disposal gains and losses and other non operating items, related tax effects, exceptional
prior year tax credits (in 2012 only, see note 9) and movements in deferred taxation assets and liabilities that are not expected to
crystallise in the near term and include 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. Acquisition related costs relate to
acquisition integration, 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 prior year exceptional restructuring programmes and acquisition related costs. Adjusted figures are derived as follows:
Operating profit
Adjustments:
Amortisation of acquired intangible assets
Acquisition related costs
Share of profit on disposals in joint ventures
Reclassification of tax in joint ventures
adjusted operating profit
Profit before tax
Adjustments:
Amortisation of acquired intangible assets
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
Acquisition related costs
disposals and other non operating items
Exceptional prior year tax credit
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
2012
£m
1,358
329
21
–
5
1,713
2011
£m
1,205
359
52
(1)
11
1,626
1,187
948
329
21
5
(45)
1,497
359
52
11
21
1,391
1,069
760
336
16
(103)
(96)
(84)
1,138
1,847
20
(70)
7
(263)
25
37
1,603
355
33
16
–
(104)
1,060
1,735
33
(85)
7
(265)
52
38
1,515
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116 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
11 Statement of cash flows
REconcIlIatIon oF oPERatInG PRoFIt BEFoRE joInt vEntuREs to cash GEnERatEd FRom oPERatIons
Operating profit before joint ventures
Amortisation of acquired intangible assets
Amortisation of internally developed intangible assets
depreciation of property, plant and equipment
Share based remuneration
total non cash items
decrease in inventories and pre-publication costs
decrease/(increase) in receivables
decrease in payables
Increase in working capital
cash generated from operations
cash FloW on acquIsItIons
Purchase of businesses
Investment in joint ventures
deferred payments relating to prior year acquisitions
total
REconcIlIatIon oF nEt BoRRoWInGs
2012
£m
1,334
328
151
76
31
586
21
4
(98)
(73)
1,847
2012
£m
(276)
(10)
(30)
(316)
2011
£m
1,175
355
132
75
27
589
32
(37)
(24)
(29)
1,735
2011
£m
(455)
(1)
(25)
(481)
Note
12
cash and
cash
equivalents
£m
Borrowings
£m
Related
derivative
financial
instruments
£m
2012
£m
2011
£m
At start of year
726
(4,282)
123
(3,433)
(3,455)
decrease in cash and cash equivalents
Net movement in short term bank loans, overdrafts and commercial paper
Issuance of other loans
Repayment of other loans
Repayment of finance leases
change in net borrowings resulting from cash flows
Borrowings in acquired businesses
Inception of finance leases
Fair value and other adjustments to borrowings and related derivatives
Exchange translation differences
at end of year
(72)
–
–
–
–
(72)
–
–
–
(13)
641
–
434
(592)
437
4
283
–
(13)
(4)
124
(3,892)
–
–
–
–
–
–
–
–
5
(4)
124
(72)
434
(592)
437
4
211
–
(13)
1
107
(3,127)
(44)
(210)
–
248
22
16
(18)
(8)
8
24
(3,433)
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.
Reed Elsevier 2012.indb 116
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Reed Elsevier Annual Reports and Financial Statements 2012
117
12 Acquisitions
during the year a number of acquisitions were made for a total consideration of £341m (2011: £492m), after taking account of net cash
acquired of £12m (2011: £24m). 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
Property, plant & equipment
Current assets
Current liabilities
Borrowings
Current tax
deferred tax
net assets acquired
consideration (after taking account of £12m (2011: £24m) net cash acquired)
Less: consideration deferred to future years
Less: acquisition date fair value of equity interest
net cash flow
Fair
value
2012
£m
165
229
1
21
(61)
–
2
(16)
341
341
(23)
(42)
276
Fair
value
2011
£m
300
311
1
23
(46)
(18)
(1)
(78)
492
492
(27)
(10)
455
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.
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 2013 combined financial statements. there were no significant adjustments to the provisional fair values of
prior year acquisitions established in 2011.
the businesses acquired in 2012 contributed £73m to revenue, increased adjusted operating profit by £18m, increased adjusted net
profit by £14m, decreased reported net profit by £10m, and contributed £2m to net cash inflow from operating activities for the part
year under Reed Elsevier ownership and before taking account of acquisition financing costs. Had the businesses been acquired at
the beginning of the year, on a pro forma basis the Reed Elsevier revenues, adjusted operating profit, adjusted net profit and reported
net profit for the year would have been £6,153m, £1,717m, £1,142m and £1,073m respectively before taking account of acquisition
financing costs.
13 Equity dividends
oRdInaRY dIvIdEnds dEclaREd In thE YEaR
Reed Elsevier PLC
Reed Elsevier NV
total
2012
£m
264
259
523
2011
£m
248
251
499
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2011 final dividend of 15.9p and a 2012 interim
dividend of 6.0p giving a total of 21.9p (2011: 20.65p) for Reed Elsevier PLC; and a 2011 final dividend of €0.326 and a 2012 interim dividend
of €0.13 giving a total of €0.456 (2011: €0.413) for Reed Elsevier NV.
the directors of Reed Elsevier PLC have proposed a final dividend of 17.0p (2011: 15.9p). the directors of Reed Elsevier NV have proposed
a final dividend of €0.337 (2011: €0.326). the total cost of funding the proposed final dividends is expected to be £391m, for which no
liability has been recognised at the statement of financial position date.
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118 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
13 Equity dividends continued
oRdInaRY dIvIdEnds PaId and PRoPosEd RElatInG to thE FInancIal YEaR
Reed Elsevier PLC
Reed Elsevier NV
total
2012
£m
273
262
535
2011
£m
259
265
524
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/reclassified as held for sale
Exchange translation differences
at end of year
2012
£m
4,729
165
(152)
(197)
4,545
2011
£m
4,441
300
(26)
14
4,729
the carrying amount of goodwill is after cumulative amortisation of £1,180m (2011: £1,332m) which was charged prior to the adoption
of IFRS and £20m (2011: £49m) of subsequent impairment charges.
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. Goodwill impairment testing is performed on the basis of 22 CGUs. 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:
GoodWIll
Scientific, technical & medical
Risk Solutions
Business Information US
Business Information UK
Business Information NL
Business Information International
Business Information
Legal US
Legal International
Legal
Exhibitions Continental Europe
Exhibitions other
Exhibitions
total
2012
£m
1,026
1,559
50
335
23
–
408
1,038
112
1,150
273
129
402
4,545
2011
£m
991
1,733
52
352
23
30
457
1,070
113
1,183
289
76
365
4,729
Reed Elsevier’s goodwill impairment testing methodology, assumptions and sensitivity analysis are disclosed within critical judgements
and key sources of estimation uncertainty on pages 101 to 103.
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Reed Elsevier Annual Reports and Financial Statements 2012
15 Intangible assets
cost
At 1 January 2011
Acquisitions
Additions
disposals/reclassified as held for sale
Exchange translation differences
At 1 January 2012
Acquisitions
Additions
disposals/reclassified as held for sale
Exchange translation differences
at 31 december 2012
accumulated amortisation
At 1 January 2011
Charge for the year
disposals/reclassified as held for sale
Exchange translation differences
At 1 January 2012
Charge for the year
disposals/reclassified as held for sale
Exchange translation differences
at 31 december 2012
net book amount
At 31 december 2011
at 31 december 2012
119
total
£m
7,186
311
270
(278)
(2)
7,487
229
261
(267)
(287)
7,423
3,729
487
(215)
(8)
3,993
479
(179)
(145)
4,148
market and
customer
related
£m
content,
software
and other
£m
total
acquired
intangible
assets
£m
Internally
developed
intangible
assets
£m
2,631
196
–
(38)
13
2,802
201
–
(56)
(131)
2,816
610
160
(30)
4
744
173
(11)
(36)
870
3,351
115
–
(189)
(14)
3,263
27
–
(97)
(103)
3,090
2,384
195
(149)
(8)
2,422
155
(89)
(80)
2,408
5,982
311
–
(227)
(1)
6,065
228
–
(153)
(234)
5,906
2,994
355
(179)
(4)
3,166
328
(100)
(116)
3,278
1,204
–
270
(51)
(1)
1,422
1
261
(114)
(53)
1,517
735
132
(36)
(4)
827
151
(79)
(29)
870
2,058
1,946
841
682
2,899
2,628
595
647
3,494
3,275
Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trademarks, 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 £431m (2011: £531m) 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 £354m (2011: £370m) of brands and imprints relating to Scientific,
technical & medical 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 critical
judgements and key sources of estimation uncertainty on pages 101 to 103.
Also included in market and customer related intangible assets are £1,037m (2011: £1,209m) of customer relationship assets arising
on the acquisition of ChoicePoint in 2008 with a remaining useful economic life of approximately 16 years.
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120 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
16 Investments
Investments in joint ventures
Available for sale investments
Venture capital investments held for trading
total
2012
£m
100
3
76
179
the value of venture capital investments held for trading, determined by reference to quoted market prices, amounted to £27m
(2011: £17m). 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 and transfers
Additions
Exchange translation differences
at end of year
2012
£m
124
24
(20)
(33)
10
(5)
100
2011
£m
124
8
56
188
2011
£m
136
30
(33)
(6)
1
(4)
124
the principal joint ventures at 31 december 2012 are exhibition joint ventures within Exhibitions and Giuffrè (an Italian legal publisher
in which Reed Elsevier has a 40% shareholding) within Legal.
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
2012
£m
187
45
227
(126)
101
2011
£m
254
62
255
(137)
118
2012
£m
91
24
104
(59)
45
55
100
2011
£m
128
30
122
(66)
56
68
124
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121
17 Property, plant and equipment
cost
At start of year
Acquisitions
Capital expenditure
disposals/reclassified as held for sale
Exchange translation differences
at end of year
accumulated depreciation
At start of year
disposals/reclassified as held for sale
Charge for the year
Exchange translation differences
at end of year
2012
2011
land and
buildings
Fixtures and
equipment
total
£m
Land and
buildings
Fixtures and
equipment
total
£m
238
–
10
(21)
(9)
218
118
(5)
8
(5)
116
582
1
70
(97)
(19)
537
414
(94)
68
(13)
375
820
1
80
(118)
(28)
755
532
(99)
76
(18)
491
246
–
8
(16)
–
238
115
(6)
9
–
118
578
1
82
(78)
(1)
582
418
(69)
66
(1)
414
824
1
90
(94)
(1)
820
533
(75)
75
(1)
532
net book amount
102
162
264
120
168
288
No depreciation is provided on freehold land of £39m (2011: £46m). the net book amount of property, plant and equipment at
31 december 2012 includes £11m (2011: £4m) in respect of assets held under finance leases relating to fixtures and equipment.
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 56 and 57 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 2012
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
Within
1 year
£m
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
more than
5 years
£m
total
£m
contractual cash flow
(3,695)
(197)
(803)
(132)
(797)
(1)
(251)
(63)
(530)
–
(428)
(1)
(1,940)
(3)
(4,749)
(200)
(2)
–
(9)
(3)
(166)
(1,382)
47
93
55
(3,708)
35
202
1,400
(849)
–
(180)
(442)
13
243
460
(704)
–
–
(194)
12
–
202
(294)
–
–
–
9
–
–
(521)
–
–
–
(5)
–
–
(8)
(346)
(2,018)
6
–
–
(423)
–
–
–
(1,948)
75
445
2,062
(4,739)
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122 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
18 Financial instruments continued
At 31 december 2011
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
(3,568)
(714)
Within
1 year
£m
(553)
(646)
(10)
–
(59)
(9)
(6)
(1,019)
39
99
11
(4,202)
13
14
987
(1,219)
Contractual cash flow
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
more than
5 years
£m
total
£m
(814)
(2)
(3)
(173)
(421)
27
208
414
(764)
(863)
(2)
–
(189)
(256)
6
248
252
(804)
(248)
(65)
(524)
(1)
(1,694)
(5)
(4,696)
(721)
–
–
–
5
–
–
(308)
–
–
–
–
–
–
5
–
–
(520)
3
–
–
(1,696)
(12)
(368)
(1,696)
59
470
1,653
(5,311)
the carrying amount of derivative financial liabilities comprises £7m (2011: £64m) in relation to cash flow hedges and £4m (2011: £5m)
not designated as hedging instruments. the carrying amount of derivative financial assets comprises £124m (2011: £123m) in relation
to fair value hedges, £46m (2011: £10m) in relation to cash flow hedges and £25m (2011: £16m) not designated as hedging instruments.
At 31 december 2012, Reed Elsevier had access to a $2,000m committed bank facility maturing in June 2015, which was undrawn.
the bank facility, together with certain private placements, are subject to financial covenants typical to Reed Elsevier’s size and
financial strength. Reed Elsevier was in compliance with these covenants for the year ended 31 december 2012. Financial covenants
are not included in the terms and conditions of any outstanding public bonds.
After taking account of the maturity of committed bank facilities that back short term borrowings at 31 december 2012, and after
utilising available cash resources, no borrowings mature within two years (2011: nil), 27% of borrowings mature in the third year (2011:
44%), 23% in the fourth and fifth years (2011: 18%), 39% in the sixth to tenth years (2011: 27%), and 11% beyond the tenth year (2011: 11%).
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 2012, 59% 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
£8m (2011: £5m), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper
borrowings at 31 december 2012. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of
£8m (2011: £5m).
the impact on net equity of a theoretical change in interest rates as at 31 december 2012 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 £1m (2011: £3m) and
a 100 basis point increase in interest rates would increase net equity by an estimated £2m (2011: £4m). 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.
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123
18 Financial instruments continued
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 2012 would decrease the carrying value of net assets,
excluding net borrowings, by £495m (2011: £525m). this would be offset to a large degree by a decrease in net borrowings of £286m
(2011: £297m). A strengthening of all currencies by 10% against sterling at 31 december 2012 would increase the carrying value of net
assets, excluding net borrowings, by £495m (2011: £525m) and increase net borrowings by £286m (2011: £297m).
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 £80m (2011: £59m). A 10% strengthening of all foreign currencies
against sterling on this basis would increase net profit for the year by £80m (2011: £59m).
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-/A3 by Standard & Poor’s, moody’s and 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 £148m (2011: £212m); past due two to three months £58m (2011: £54m); past due four to six months £14m (2011: £20m);
and past due greater than six months £1m (2011: £5m). 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 £1,502m (2011: £1,081m) were in
place at 31 december 2012 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. Included within this amount are interest rate derivatives
with a principal amount of £488m (2011: nil) which were de-designated as fair value hedges during the year.
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124 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
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 2012 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
2011
£m
Fair value
movement
gain/(loss)
£m
Exchange
gain/(loss)
£m
1 january
2012
£m
Fair value
movement
gain/(loss)
£m
de-
designated
£m
Exchange
gain/(loss)
£m
31 december
2012
£m
(7)
7
–
(12)
12
–
(86)
86
–
(105)
105
–
(23)
23
–
3
(3)
–
3
(3)
–
(17)
17
–
–
–
–
–
–
–
(1)
1
–
(1)
1
–
(30)
30
–
(9)
9
–
(84)
84
–
(123)
123
–
(6)
6
–
(8)
8
–
–
–
–
(14)
14
–
–
–
–
9
(9)
–
–
–
–
9
(9)
–
–
–
–
–
–
–
4
(4)
–
4
(4)
–
(36)
36
–
(8)
8
–
(80)
80
–
(124)
124
–
All fair value hedges were highly effective throughout the two years ended 31 december 2012.
Gross borrowings as at 31 december 2012 included £37m (2011: £43m) 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. £5m (2011: £8m) of these fair value adjustments were amortised in the year as a reduction
to finance costs.
Gross borrowings also included £2m (2011: nil) in relation to fair value adjustments to borrowings previously designated in a fair value
hedging relationship which were de-designated during the year. £7m (2011: nil) of these fair value adjustments were amortised in the
year as a reduction to finance costs. the related derivatives remained on the balance sheet at 31 december 2012 with a carrying value
of £3m.
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 Scientific, technical & medical businesses for up to 50 months.
movements in the hedge reserve (pre-tax) in 2011 and 2012, including gains and losses on cash flow hedging instruments,
were as follows:
Hedge reserve at 1 January 2011: losses deferred
Losses arising in 2011
Amounts recognised in income statement
Exchange translation differences
Hedge reserve at 1 January 2012: losses deferred
(Losses)/gains arising in 2012
Amounts recognised in income statement
Exchange translation differences
hedge reserve at 31 december 2012: (losses)/gains deferred
Interest rate
hedges
£m
Foreign
exchange
hedges
£m
total hedge
reserve
pre-tax
£m
(29)
(3)
15
–
(17)
(2)
16
1
(2)
(59)
(21)
33
1
(46)
72
10
1
37
(88)
(24)
48
1
(63)
70
26
2
35
All cash flow hedges were highly effective throughout the two years ended 31 december 2012.
A tax charge of £9m (2011: £15m credit) in respect of the above gains and losses at 31 december 2012 was also deferred in the hedge reserve.
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Reed Elsevier Annual Reports and Financial Statements 2012
125
18 Financial instruments continued
Of the amounts recognised in the income statement in the year, losses of £10m (2011: £33m) were recognised in revenue, and losses
of £16m (2011: £15m) were recognised in finance costs. A tax credit of £5m (2011: £11m) was recognised in relation to these items.
the deferred gains and losses on cash flow hedges at 31 december 2012 are currently expected to be recognised in the income
statement in future years as follows:
2013
2014
2015
2016
2017
(losses)/gains deferred in hedge reserve at end of year
Interest rate
hedges
£m
(2)
–
–
–
–
(2)
Foreign
exchange
hedges
£m
7
16
11
3
–
37
total hedge
reserve
pre-tax
£m
5
16
11
3
–
35
the cash flows for these hedges are expected to occur in line with the recognition of the gains and 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
2012
£m
79
(919)
(840)
2011
£m
212
(1,236)
(1,024)
movements in deferred tax liabilities and assets (before taking into consideration the offsetting of balances within the same jurisdiction)
are summarised as follows:
deferred tax liabilities
deferred tax assets
Excess of tax
allowances
over
amortisation
£m
acquired
intangible
assets
£m
Pensions
assets
£m
other
temporary
differences
£m
Excess of
amortisation
over tax
allowances
£m
tax losses
carried
forward
£m
Pensions
liabilities
£m
other
temporary
differences
£m
deferred tax (liability)/
asset at 1 January 2011
(Charge)/credit to profit
Credit to equity
transfers
Acquisitions
disposals/reclassified as
held for sale
Exchange translation
differences
deferred tax (liability)/
asset at 1 January 2012
(Charge)/credit to profit
(Charge)/credit to equity
Acquisitions
disposals/reclassified as
held for sale
Exchange translation
differences
(223)
(6)
–
–
–
–
(2)
(231)
(5)
–
1
2
10
(944)
131
–
–
(85)
–
(2)
(900)
85
–
(10)
18
35
deferred tax (liability)/asset
at 31 december 2012
(223)
(772)
(15)
(10)
25
–
–
–
–
–
–
–
–
–
–
–
(10)
(94)
–
–
–
1
(2)
(105)
(9)
(3)
–
7
2
(108)
13
3
–
–
–
–
–
16
(3)
–
(3)
–
(1)
9
13
32
–
–
2
–
1
48
(19)
–
(2)
(1)
(3)
78
(3)
11
–
–
–
–
86
(32)
102
–
–
(3)
23
153
47
24
6
(17)
5
(1)
(2)
62
23
(6)
(2)
(1)
2
78
total
£m
(1,041)
77
42
(17)
(78)
–
(7)
(1,024)
40
93
(16)
25
42
(840)
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126 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
19 Deferred tax continued
Other deferred tax liabilities includes temporary differences in respect of plant, property and equipment, and capitalised development
spend. Other deferred tax assets includes temporary differences in respect of share-based remuneration, provisions, and financial
instruments.
deferred tax assets in respect of tax losses and other deductible temporary differences have only been recognised to the extent that
it is more likely than not that sufficient taxable profits will be available to allow the asset to be recovered. Accordingly, no deferred tax
asset has been recognised in respect of unused trading losses of approximately £129m (2011: £133m) carried forward at year end.
the deferred tax asset not recognised in respect of these losses is approximately £34m (2011: £36m). Of the unrecognised losses,
£47m (2011: £45m) will expire if not utilised within 10 years, and £82m (2011: £88m) will expire after more than 10 years.
deferred tax assets of approximately £9m (2011: £31m) have not been recognised in respect of tax losses and other temporary
differences carried forward of £41m (2011: £94m) which can only be used to offset future capital gains.
20 Inventories and pre-publication costs
Raw materials
Pre-publication costs
Finished goods
total
2012
£m
3
101
55
159
2011
£m
6
115
69
190
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127
21 Trade and other receivables
trade receivables
Allowance for doubtful debts
Prepayments and accrued income
total
2012
£m
1,256
(51)
1,205
175
1,380
2011
£m
1,361
(63)
1,298
185
1,483
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
disposals
Exchange translation differences
at end of year
22 Assets and liabilities held for sale
the major classes of assets and liabilities of operations classified as held for sale are as follows:
Goodwill
Intangible assets
Property, plant & equipment
deferred tax assets
Inventories
trade and other receivables
total assets held for sale
trade and other payables
deferred tax liabilities
total liabilities associated with assets held for sale
23 Trade and other payables
Payables and accruals
deferred income
total
2012
£m
63
13
(18)
(6)
(1)
51
2012
£m
134
84
3
4
1
71
297
69
27
96
2011
£m
73
15
(23)
(1)
(1)
63
2011
£m
19
7
–
1
1
16
44
17
–
17
2012
£m
1,150
1,394
2,544
2011
£m
1,245
1,412
2,657
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128 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
24 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
2012
Falling due
within
1 year
£m
Falling due in
more than
1 year
£m
131
7
–
102
490
730
–
9
1,526
1,036
591
3,162
2011
Falling due
within
1 year
£m
Falling due in
more than
1 year
£m
596
2
384
–
–
982
–
6
1,466
1,204
624
3,300
total
£m
131
16
1,526
1,138
1,081
3,892
total
£m
596
8
1,850
1,204
624
4,282
In 2012, £184m principal amount of term debt maturing in 2014 and 2019 was exchanged for £191m principal amount of term debt
maturing in 2022 and cash payments of £46m. the exchange is treated as a debt modification for accounting purposes. the premium
arising of £53m is offset against the carrying amount of the newly issued term debt maturing in 2022 and will be amortised over its life.
the total fair value of financial liabilities measured at amortised cost is £1,996m (2011: £2,745m). the total fair value of other loans in fair
value hedging relationships is £1,177m (2011: £1,237m). the total fair value of other loans previously in fair value hedging relationships
is £1,189m (2011: £707m).
analysis by year of repayment
2012
2011
short term
bank loans,
overdrafts
and
commercial
paper
£m
other loans
£m
Finance
leases
£m
131
–
–
–
–
–
–
131
592
644
178
400
359
1,572
3,153
3,745
7
6
3
–
–
–
9
16
Short term
bank loans,
overdrafts
and
commercial
paper
£m
Other loans
£m
Finance
leases
£m
596
–
–
–
–
–
–
596
384
618
725
188
401
1,362
3,294
3,678
2
3
2
1
–
–
6
8
total
£m
730
650
181
400
359
1,572
3,162
3,892
total
£m
982
621
727
189
401
1,362
3,300
4,282
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 2012 by a $2,000m (£1,231m) committed bank
facility maturing in June 2015, which was undrawn.
analysis by currency
US dollars
£ sterling
Euro
Other currencies
total
2012
2011
short term
bank loans,
overdrafts
and
commercial
paper
£m
other loans
£m
Finance
leases
£m
25
–
103
3
131
2,059
736
950
–
3,745
16
–
–
–
16
Short term
bank loans,
overdrafts
and
commercial
paper
£m
Other loans
£m
Finance
leases
£m
485
–
91
20
596
2,431
730
517
–
3,678
8
–
–
–
8
total
£m
2,100
736
1,053
3
3,892
total
£m
2,924
730
608
20
4,282
Included in the US dollar amounts for other loans above is £347m (2011: £363m) of debt denominated in Swiss francs (CHF 500m;
2011: CHF 500m) that was swapped into US dollars on issuance and against which there are related derivative financial instruments,
which, as at 31 december 2012, had a fair value of £80m (2011: £84m).
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129
25 Lease arrangements
Finance leases
At 31 december 2012 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.
2012
£m
2011
£m
7
9
16
–
16
7
9
16
2
6
8
–
8
2
6
8
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 2012 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
2012
£m
117
309
184
610
2011
£m
129
305
206
640
Of the above outstanding commitments, £577m (2011: £605m) relate to land and buildings.
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
2012
£m
16
33
17
66
2011
£m
21
38
19
78
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130 FInancIal statEmEnts and othER InFoRmatIon
NOtES tO tHE COmBINEd FINANCIAL StAtEmENtS
Notes to the combined financial statements
for the year ended 31 december 2012
26 Provisions
At start of year
transfers
Charged
Utilised
Exchange translation differences
at end of year
2012
Property
£m
Restructuring
£m
109
22
62
(24)
(5)
164
17
–
–
(12)
–
5
total
£m
126
22
62
(36)
(5)
169
2011
Property
£m
Restructuring
£m
105
–
16
(12)
–
109
54
–
–
(37)
–
17
Property provisions relate to estimated sub lease shortfalls and guarantees given in respect of certain property leases for various
periods up to 2024. the charge in 2012 of £62m (2011: £16m) predominantly relates to property exposures on disposed businesses.
At 31 december 2012 provisions are included within current and non-current liabilities as follows:
Current liabilities
Non-current liabilities
total
2012
£m
30
139
169
total
£m
159
–
16
(49)
–
126
2011
£m
39
87
126
27 Contingent liabilities and capital commitments
there are contingent liabilities amounting to £11m (2011: £15m) in respect of property lease guarantees.
28 Combined share capitals, share premiums and shares held in treasury
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. Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV
held by a subsidiary of Reed Elsevier PLC.
during 2012 Reed Elsevier repurchased 23,288,616 Reed Elsevier PLC ordinary shares and 12,660,296 Reed Elsevier NV ordinary
shares for consideration of £250m. these shares are held in treasury. On 28 december 2012 Reed Elsevier PLC and Reed Elsevier NV
announced an irrevocable, non discretionary programme to repurchase further ordinary shares up to the value of £100m which was
completed in February 2013.
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. At 31 december 2012, shares held by the EBt
were £152m (2011: £159m).
details of the shares held in treasury are provided in note 12 of the Reed Elsevier PLC consolidated financial statements and note 13
of the Reed Elsevier NV consolidated financial statements.
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131
29 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
dividends paid
Actuarial losses on defined benefit pension schemes
Fair value movements on available for sale investments
transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
tax recognised directly in equity
Increase in share based remuneration reserve
Settlement of share awards
transfer from cash flow hedge reserve to net profit (net of tax)
disposal/(acquisition) of non-controlling interests
Exchange translation differences
at end of year
hedge
reserve
2012
£m
other
reserves
2012
£m
(48)
–
–
–
–
–
70
(19)
–
–
21
–
2
26
(151)
1,069
(521)
(329)
–
11
–
107
31
(7)
–
6
10
226
total
2012
£m
(199)
1,069
(521)
(329)
–
11
70
88
31
(7)
21
6
12
252
total
2011
£m
(387)
760
(497)
(113)
(1)
–
(24)
42
27
(7)
37
(43)
7
(199)
Other reserves principally comprise retained earnings, the share based remuneration reserve and available for sale investment
reserve.
30 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
(2011: £1m).
As at 31 december 2012, amounts owed by joint ventures were £1m (2011: £3m) and amounts due from joint ventures were £1m
(2011: nil). Key management personnel are also related parties and comprise the executive directors of Reed Elsevier PLC and
Reed Elsevier NV. transactions with key management personnel are set out below.
Salaries and other short term employee benefits
Post employment benefits
Share based remuneration*
total
2012
£m
2011
£m
4
–
5
9
3
–
4
7
*the share based remuneration charge comprises the multi-year incentive scheme charges in accordance with IFRS2 –
Share-based payment, relating to executive directors as follows: Erik Engstrom £2.7m (2011: £2.5m); mark Armour £2.1m
(2011: £1.5m); and duncan Palmer £0.3m (2011: nil). these IFRS2 charges do not reflect the actual value received on vesting.
details of directors’ remuneration are set out in the directors’ Remuneration Report on pages 74 to 90.
31 Exchange rates
the following exchange rates have been applied in preparing the combined financial statements:
Euro to sterling
US dollars to sterling
Income statement
statement of
financial position
2012
1.23
1.59
2011
1.15
1.60
2012
1.23
1.62
2011
1.20
1.55
32 Approval of financial statements
the combined financial statements were approved and authorised for issue by the Boards of directors of Reed Elsevier PLC
and Reed Elsevier NV on 27 February 2013.
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132 Financial statements and other inFormation
Independent audItors’ report
Independent auditors’ report
to the members of reed elsevier pLC and shareholders of reed elsevier nV
the procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of
the combined financial statements, whether due to fraud or error.
In making those risk assessments, 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 2012 and of their
profit for the year then ended; and
have been properly prepared in accordance with IFrs 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 166 and 188.
douglas King (senior statutory auditor)
For and on behalf of
deloitte llP
Chartered accountants
and statutory auditor
London, united Kingdom
27 February 2013
a sandler
deloitte accountants B.V.
amsterdam
the netherlands
27 February 2013
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 2012 (“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 significant
accounting policies and the related notes 1 to 32.
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 it determines 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 and the International ethical standards Board of
accountants Code of ethics.
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. In addition, we read all the
financial and non-financial information in the annual report to
identify material inconsistencies with the audited combined
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
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Reed Elsevier Annual Reports and Financial Statements 2012
133
Summary
combined
financial
information
in euros
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In this section
134 Combined income statement
134 Combined statement of
comprehensive income
135 Combined statement of cash flows
136 Combined statement of
financial position
137 Combined statement of
changes in equity
138 Notes to the summary combined
financial information in euros
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134 Financial statements and other information
COmBiNed FiNANCiAl StAtemeNtS iN euROS
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 31 to the combined
financial statements.
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 on defined benefit pension schemes
Fair value movements on available for sale investments
transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
transfer to net profit from cash flow hedge reserve (net of tax)
tax recognised directly in equity
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Attributable to:
Parent companies’ shareholders
Non-controlling interests
Total comprehensive income for the year
2012
€m
7,523
(2,631)
4,892
(1,249)
(2,002)
1,641
29
1,670
20
(286)
(266)
56
1,460
(139)
1,321
1,315
6
1,321
2012
€m
1,321
(102)
(405)
–
14
86
26
108
(273)
1,048
1,042
6
1,048
2011
€m
6,902
(2,445)
4,457
(1,236)
(1,870)
1,351
35
1,386
20
(290)
(270)
(26)
1,090
(208)
882
874
8
882
2011
€m
882
107
(130)
(1)
–
(28)
43
48
39
921
913
8
921
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Reed Elsevier Annual Reports and Financial Statements 2012
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
Gross proceeds from other disposals
Payments on 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
disposal/(acquisition) of non-controlling interests
Repurchase of ordinary shares
Proceeds on issue of ordinary shares
Net cash used in financing activities
Note
4
4
135
2012
€m
2011
€m
2,272
(284)
9
(266)
1,731
(389)
(86)
(323)
(9)
9
289
(101)
25
(585)
(641)
(5)
(534)
728
(538)
(5)
9
(308)
59
(1,235)
1,995
(284)
14
(251)
1,474
(553)
(98)
(305)
(11)
8
116
(24)
38
(829)
(572)
(10)
241
–
(285)
(25)
(55)
–
10
(696)
Decrease in cash and cash equivalents
4
(89)
(51)
Movement in cash and cash equivalents
At start of year
decrease in cash and cash equivalents
exchange translation differences
At end of year
871
(89)
6
788
868
(51)
54
871
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136 FINANCIAl sTATEMENTs AND OTHER INFORMATION
COmBiNed FiNANCiAl StAtemeNtS iN euROS
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
deferred tax assets
derivative financial instruments
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
2012
€m
2011
€m
5,591
4,028
123
97
325
97
170
10,431
196
1,697
70
788
2,751
365
13,547
3,129
14
898
742
37
4,820
3,889
1,130
573
171
5,763
118
10,701
2,846
5,675
4,192
149
77
346
254
–
10,693
228
1,780
179
871
3,058
53
13,804
3,188
83
1,178
813
47
5,309
3,960
1,483
290
105
5,838
21
11,168
2,636
274
3,354
(1,106)
161
121
2,804
42
2,846
268
3,268
(796)
297
(431)
2,606
30
2,636
4
6
7
6
2
7
8
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Reed Elsevier Annual Reports and Financial Statements 2012
Combined statement of changes in equity
137
Total
equity
€m
2,305
921
(582)
10
31
–
6
32
8
(10)
–
–
–
6
–
30
6
(5)
–
–
–
–
11
1
(1)
42
–
2,636
1,048
(646)
59
(308)
38
–
11
9
(1)
2,846
Combined
share
capitals
€m
262
Combined
share
premiums
€m
3,222
Combined
shares held
in treasury
€m
(792)
Translation
reserve
€m
229
Other
combined
reserves
€m
Combined
share-
holders’
equity
€m
Non-
controlling
interests
€m
(648)
2,273
–
–
–
–
–
–
–
6
–
–
10
–
–
–
–
36
268
3,268
–
–
1
–
–
–
–
–
–
–
58
–
–
–
–
–
–
–
–
–
8
–
–
(12)
(796)
–
–
–
(308)
–
9
–
–
107
–
806
(572)
913
(572)
–
31
(8)
–
10
31
–
–
–
–
–
–
–
(39)
297
(102)
–
9
–
(431)
2,606
1,144
(641)
1,042
(641)
–
–
–
–
–
–
–
–
38
(9)
–
8
59
(308)
38
–
–
8
5
274
28
3,354
(11)
(1,106)
(34)
161
12
121
–
2,804
(49)
(49)
(6)
(55)
Balance at 1 January 2011
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
Acquisitions
Acquisition of
non-controlling interests
exchange differences
on translation of
capital and reserves
Balance at 1 January 2012
total comprehensive
income for the year
dividends paid
issue of ordinary shares,
net of expenses
Repurchase of ordinary shares
increase in share based
remuneration reserve
Settlement of share awards
Acquisitions
disposal of
non-controlling interests
exchange differences
on translation of
capital and reserves
Balance at 31 December 2012
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138 FINANCIAl sTATEMENTs AND OTHER INFORMATION
NOteS tO the SummARy COmBiNed FiNANCiAl iNFORmAtiON iN euROS
Notes to the summary combined financial information
in euros
1 Segment analysis
ANAlYsIs BY BusINEss sEgMENT
Revenue
Operating profit
Adjusted operating profit
Scientific, technical & medical
Risk Solutions
Business information
legal
exhibitions
Sub-total
Corporate costs
unallocated net pension financing credit
Total
2012
€m
2,538
1,139
815
1,980
1,051
7,523
–
–
7,523
2011
€m
2,367
1,044
799
1,879
813
6,902
–
–
6,902
2012
€m
868
346
93
180
210
1,697
(58)
31
1,670
2011
€m
799
208
78
166
152
1,403
(56)
39
1,386
2012
€m
960
482
146
288
258
2,134
(58)
31
2,107
2011
€m
883
416
127
263
192
1,881
(50)
39
1,870
Revenue is analysed before the €112m (2011: €147m) share of joint ventures’ revenue, of which €3m (2011: €2m) relates to Business
information, €27m (2011: €26m) relates to legal , principally to Giuffrè and €82m (2011: €119m) relates to exhibitions.
Share of post-tax results of joint ventures of €29m (2011: €35m) included in operating profit comprises nil (2011: €1m) relating to
Business information, €2m (2011: €5m) relating to legal and €27m (2011: €29m) relating to exhibitions. the unallocated net pension
financing credit of €31m (2011: €39m) comprises the expected return on pension scheme assets of €272m (2011: €270m) less interest
on pension scheme liabilities of €241m (2011: €231m).
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
2012
€m
3,840
1,188
752
969
774
7,523
2012
€m
3,879
544
203
1,447
1,450
7,523
2012
€m
3,663
1,970
431
1,041
418
7,523
2011
€m
3,569
1,089
708
900
636
6,902
2011
€m
3,702
558
217
1,259
1,166
6,902
2011
€m
3,242
1,896
503
805
456
6,902
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Reed Elsevier Annual Reports and Financial Statements 2012
139
1 Segment analysis continued
ANAlYsIs BY BusINEss sEgMENT
Expenditure on
acquired goodwill and
intangible assets
Capital
expenditure
additions
Amortisation
of acquired
intangible assets
Depreciation and
other amortisation
Scientific, technical & medical
Risk Solutions
Business information
legal
exhibitions
Total
2012
€m
148
18
–
98
219
483
2011
€m
50
–
612
–
41
703
2012
€m
130
26
21
213
31
421
2011
€m
108
27
20
234
25
414
2012
€m
84
134
46
102
39
405
2011
€m
83
179
33
90
28
413
2012
€m
101
28
17
113
20
279
2011
€m
80
29
17
100
12
238
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. Amortisation of
acquired intangible assets includes amounts in respect of joint ventures of €1m (2011: €5m) in exhibitions. Other than the depreciation
and amortisation above, non cash items include €38m (2011: €31m) relating to the recognition of share based remuneration and
comprise €6m (2011: €6m) in Scientific, technical & medical, nil (2011: €4m) in Risk Solutions, €4m (2011: €2m) in Business information,
€8m (2011: €7m) in legal, €5m (2011: €3m) in exhibitions and €15m (2011: €9m) in Corporate.
ANAlYsIs OF NON-CuRRENT AssETs BY gEOgRAPHICAl lOCATION
North America
united Kingdom
the Netherlands
Rest of europe
Rest of world
Total
2012
€m
8,012
645
148
897
462
10,164
2011
€m
8,381
620
148
940
350
10,439
Non-current assets by geographical location exclude amounts relating to deferred tax assets and derivative financial intruments.
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140
FINANCIAl sTATEMENTs AND OTHER INFORMATION
NOteS tO the SummARy COmBiNed FiNANCiAl iNFORmAtiON iN euROS
Notes to the summary combined financial information
in euros
2 Pension schemes
the pension expense recognised within the income statement comprises:
Service cost (including settlement and curtailment credits of €25m (2011: €10m))
interest on pension scheme liabilities
expected return on scheme assets
Net defined benefit pension expense
defined contribution pension expense
Total pension expense
2012
€m
53
241
(272)
22
57
79
2011
€m
65
231
(270)
26
45
71
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
2012
Fair value
of scheme
assets
€m
Net pension
obligations
€m
defined
benefit
obligations
€m
2011
Fair value
of scheme
assets
€m
Net pension
obligations
€m
(4,651)
(53)
(241)
–
(512)
–
(14)
266
(50)
(5,255)
4,361
–
–
272
107
143
14
(266)
51
4,682
(290)
(53)
(241)
272
(405)
143
–
–
1
(573)
(4,302)
(65)
(231)
–
(90)
–
(13)
162
(112)
(4,651)
4,103
–
–
270
(40)
76
13
(162)
101
4,361
(199)
(65)
(231)
270
(130)
76
–
–
(11)
(290)
the net pension obligations of €573m (2011: €290m) at 31 december 2012 comprise schemes in deficit with net pension obligations
of €573m (2011: €290m) and schemes in surplus with net pension assets of nil (2011: nil).
As at 31 december 2012 the defined benefit obligations comprise €5,058m (2011: €4,465m) in relation to funded schemes and
€197m (2011: €186m) in relation to unfunded schemes.
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Reed Elsevier Annual Reports and Financial Statements 2012
141
3 Adjusted figures
Reed elsevier uses adjusted figures as additional performance measures. Adjusted figures are stated before amortisation of acquired
intangible assets, acquisition related costs, disposal gains and losses and other non operating items, related tax effects, exceptional
prior year tax credits (in 2012 only) and movements in deferred taxation assets and liabilities that are not expected to crystallise in the
near term and include 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. Acquisition related costs relate to acquisition integration,
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 prior year
exceptional restructuring programmes and acquisition related costs. Adjusted figures are derived as follows:
Operating profit
Adjustments:
Amortisation of acquired intangible assets
Acquisition related costs
Share of profit on disposals in joint ventures
Reclassification of tax in joint ventures
Adjusted operating profit
Profit before tax
Adjustments:
Amortisation of acquired intangible assets
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
Acquisition related costs
disposals and other non operating items
exceptional prior year tax credits
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
2012
€m
1,670
405
26
–
6
2,107
2011
€m
1,386
413
59
(1)
13
1,870
1,460
1,090
405
26
6
(56)
1,841
413
59
13
25
1,600
1,315
874
413
20
(127)
(118)
(103)
1,400
2,272
25
(86)
9
(323)
30
45
1,972
408
38
19
–
(120)
1,219
1,995
38
(98)
8
(305)
60
44
1,742
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142
FINANCIAl sTATEMENTs AND OTHER INFORMATION
NOteS tO the SummARy COmBiNed FiNANCiAl iNFORmAtiON iN euROS
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 of acquired intangible assets
Amortisation of internally developed intangible assets
depreciation of property, plant and equipment
Share based remuneration
Total non cash items
decrease in inventories and pre-publication costs
decrease/(increase) in receivables
decrease in payables
Increase in working capital
Cash generated from operations
CAsH FlOw ON ACquIsITIONs
Purchase of businesses
investment in joint ventures
deferred payments relating to prior year acquisitions
Total
RECONCIlIATION OF NET BORROwINgs
At start of year
2012
€m
1,641
404
186
93
38
721
26
5
(121)
(90)
2,272
2012
€m
(339)
(13)
(37)
(389)
2011
€m
1,351
408
152
86
31
677
37
(42)
(28)
(33)
1,995
2011
€m
(523)
(1)
(29)
(553)
Cash & cash
equivalents
€m
871
Borrowings
€m
(5,138)
Related
derivative
financial
instruments
€m
148
2012
€m
(4,119)
2011
€m
(4,043)
decrease in cash and cash equivalents
Net movement in short term bank loans, overdrafts and commercial paper
issuance of other loans
Repayment of other loans
Repayment of finance leases
Change in net borrowings resulting from cash flows
Borrowings in acquired businesses
inception of finance leases
Fair value and other adjustments to borrowings and related derivatives
exchange translation differences
At end of year
(89)
–
–
–
–
(89)
–
–
–
6
788
–
534
(728)
538
5
349
–
(16)
(5)
23
(4,787)
–
–
–
–
–
–
–
–
6
(1)
153
(89)
534
(728)
538
5
260
–
(16)
1
28
(3,846)
(51)
(241)
–
285
25
18
(21)
(9)
9
(73)
(4,119)
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.
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Reed Elsevier Annual Reports and Financial Statements 2012
143
5 Acquisitions
during the year a number of acquisitions were made for a total consideration of €419m (2011: €566m), after taking account of net
cash acquired of €15m (2011: €28m). 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
Property, plant & equipment
Current assets
Current liabilities
Borrowings
Current tax
deferred tax
Net assets acquired
Consideration (after taking account of €15m (2011: €28m) net cash acquired)
less: consideration deferred to future years
less: acquisition date fair value of equity interest
Net cash flow
Fair
value
2012
€m
203
281
1
26
(75)
–
3
(20)
419
419
(28)
(52)
339
Fair
value
2011
€m
345
358
1
27
(53)
(21)
(1)
(90)
566
566
(31)
(12)
523
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.
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 2013 combined financial statements. there were no significant adjustments to the provisional fair values of
prior year acquisitions established in 2011.
the businesses acquired in 2012 contributed €90m to revenue, increased adjusted operating profit by €22m, increased adjusted net
profit by €17m, decreased reported net profit by €12m, and contributed €2m to net cash inflow from operating activities for the part
year under Reed elsevier ownership and before taking account of acquisition financing costs. had the businesses been acquired at
the beginning of the year, on a pro forma basis the Reed elsevier revenues, adjusted operating profit, adjusted net profit and reported
net profit for the year would have been €7,568m, €2,112m, €1,405m and €1,320m respectively before taking account of acquisition
financing costs.
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144 FINANCIAl sTATEMENTs AND OTHER INFORMATION
NOteS tO the SummARy COmBiNed FiNANCiAl iNFORmAtiON iN euROS
Notes to the summary combined financial information
in euros
6 Borrowings
Financial liabilities measured at amortised cost:
Short term bank loans, overdrafts and commercial paper
Finance leases
Other loans
Other loans in fair value hedging relationships
Other loans previously in fair value hedging relationships
Total
2012
Falling due
within
1 year
€m
Falling due in
more than
1 year
€m
161
9
–
125
603
898
–
11
1,877
1,274
727
3,889
Total
€m
161
20
1,877
1,399
1,330
4,787
2011
Falling due
within
1 year
€m
Falling due in
more than
1 year
€m
715
2
461
–
–
1,178
–
7
1,759
1,445
749
3,960
total
€m
715
9
2,220
1,445
749
5,138
in 2012, €226m principal amount of term debt maturing in 2014 and 2019 was exchanged for €235m principal amount of term debt
maturing in 2022 and cash payments of €57m. the exchange is treated as a debt modification for accounting purposes. the premium
arising of €66m is offset against the carrying amount of the newly issued term debt and will be amortised over its life.
the total fair value of financial liabilities measured at amortised cost is €2,455m (2011: €3,294m). the total fair value of other loans
in fair value hedging relationships is €1,448m (2011: €1,484m). the total fair value of other loans previously in fair value hedging
relationships is €1,462m (2011: €848m).
Analysis by year of repayment
2012
2011
short term
bank loans,
overdrafts
and
commercial
paper
€m
161
Other loans
€m
728
Finance
leases
€m
9
–
–
–
–
–
–
161
792
219
492
442
1,933
3,878
4,606
7
4
–
–
–
11
20
Short term
bank loans,
overdrafts
and
commercial
paper
€m
715
Other loans
€m
461
Finance
leases
€m
2
–
–
–
–
–
–
715
742
870
226
481
1,634
3,953
4,414
3
3
1
–
–
7
9
Total
€m
898
799
223
492
442
1,933
3,889
4,787
total
€m
1,178
745
873
227
481
1,634
3,960
5,138
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 2012 by a $2,000m (€1,514m) committed bank
facility maturing in June 2015, which was undrawn.
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Reed Elsevier Annual Reports and Financial Statements 2012
145
6 Borrowings continued
Analysis by currency
uS dollars
£ sterling
euro
Other currencies
Total
2012
2011
short term
bank loans,
overdrafts and
commercial
paper
€m
Other loans
€m
Finance
leases
€m
30
–
127
4
161
2,532
905
1,169
–
4,606
20
–
–
–
20
Short term
bank loans,
overdrafts and
commercial
paper
€m
Other loans
€m
Finance
leases
€m
582
–
109
24
715
2,918
876
620
–
4,414
9
–
–
–
9
Total
€m
2,582
905
1,296
4
4,787
total
€m
3,509
876
729
24
5,138
included in the uS dollar amounts for other loans above is €427m (2011: €435m) of debt denominated in Swiss francs (ChF 500m;
2011: ChF 500m) that was swapped into uS dollars on issuance and against which there are related derivative financial instruments
which, as at 31 december 2012, had a fair value of €98m (2011: €100m).
7 Provisions
At start of year
transfers
Charged
utilised
exchange translation differences
At end of year
2012
Property
€m
Restructuring
€m
131
27
76
(30)
(2)
202
21
–
–
(15)
–
6
Total
€m
152
27
76
(45)
(2)
208
2011
Property
€m
Restructuring
€m
123
–
18
(14)
4
131
63
–
–
(42)
–
21
Property provisions relate to estimated sub lease shortfalls and guarantees given in respect of certain property leases for various
periods up to 2024. the charge in 2012 of €76m (2011: €18m) predominantly relates to property exposures on disposed businesses.
At 31 december 2012 provisions are included within current and non-current liabilities as follows:
Current liabilities
Non-current liabilities
Total
2012
€m
37
171
208
total
€m
186
–
18
(56)
4
152
2011
€m
47
105
152
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146 FINANCIAl sTATEMENTs AND OTHER INFORMATION
NOteS tO the COmBiNed FiNANCiAl iNFORmAtiON iN euROS
Notes to the summary combined financial information
in euros
8 Other combined reserves
At start of year
Profit attributable to parent companies’ shareholders
dividends paid
Actuarial losses on defined benefit pension schemes
Fair value movements on available for sale investments
transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
tax recognised directly in equity
increase in share based remuneration reserve
Settlement of share awards
transfer from hedge reserve to net profit (net of tax)
disposal/(acquisition) of non-controlling interests
exchange translation differences
At end of year
9 Exchange rates
Sterling to euro
uS dollars to euro
Hedge
reserve
2012
€m
Other
reserves
2012
€m
(58)
–
–
–
–
–
86
(23)
–
–
26
–
1
32
(373)
1,315
(641)
(405)
–
14
–
131
38
(9)
–
8
11
89
Total
2012
€m
(431)
1,315
(641)
(405)
–
14
86
108
38
(9)
26
8
12
121
total
2011
€m
(648)
874
(572)
(130)
(1)
–
(28)
48
31
(8)
43
(49)
9
(431)
Income statement
2012
0.81
1.29
2011
0.87
1.39
statement of
financial position
2012
0.81
1.32
2011
0.83
1.29
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Reed Elsevier Annual Reports and Financial Statements 2012
147
Reed Elsevier PLC
Annual Report and
Financial Statements
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In this section
148 Directors’ report
154 Consolidated financial statements
158 Group accounting policies
159 Notes to the consolidated
financial statements
166 Independent auditor’s report on the
consolidated financial statements
167 Parent company financial statements
168 Notes to the parent company
financial statements
169 Independent auditor’s report on the
company financial statements
170 5 year summary
Company number: 77536
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148 FInancIal statEmEnts and othER InFoRmatIon
ReeD elSevIeR PlC
Directors’ report
The Directors present their report, together with the financial
statements of the group and company, for the year ended
31 December 2012.
As a consequence of the merger of the company’s businesses with
those of Reed elsevier Nv in 1993, described on page 66, 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
1 to 132. 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 58 to 60, and the Reed elsevier statement on corporate
responsibility is set out on pages 40 to 48.
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 £14m (2011: £13m), being 47.1% of the
total amount of the tax credit.
In addition to the reported figures, adjusted profit figures are
presented as additional performance measures 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 of acquired intangible assets,
acquisition related costs, disposal gains and losses and other non
operating items, related tax effects, exceptional prior year tax
credits (in 2012 only) and movements in deferred taxation assets
and liabilities not expected to crystallise in the near term and
include 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
£792m (2011: £736m). Reported profit before tax, including the
Reed elsevier PlC shareholders’ share of amortisation charges,
acquisition related costs and disposals and other non operating
items, was £546m (2011: £390m). The increase reflects the
improved trading performance, disposal gains and an exceptional
prior year tax credit.
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Reed Elsevier Annual Reports and Financial Statements 2012
149
At elsevier, double digit growth in submissions and usage drove
good growth in scientific & medical research and databases &
tools, with strong growth in emerging markets. Risk Solutions
achieved strong growth in both insurance and business services,
and a return to growth in the government segment. Business
Information saw strong growth from our major data services,
modest growth in marketing services and leading brands, and a
moderation in the rate of decline in other magazines and services.
legal revenue growth was positive despite subdued legal markets
in the US and europe, with growth driven by online products and
services. exhibitions had another good year, benefiting from
biennial exhibition cycling, with moderate growth in europe,
strong growth in the US and Japan, and double digit growth in
most emerging markets. The overall adjusted operating margin
was 0.9 percentage points higher despite organic investment in
new product development and sales & marketing, reflecting the
benefit to margin from portfolio change.
dividends
The Board is recommending an equalised final dividend of 17.0p
per ordinary share (2011: 15.9p). This gives total ordinary dividends
for the year of 23.0p (2011: 21.55p). The final dividend will be paid
on 23 May 2013 to shareholders on the Register on 3 May 2013.
Dividend cover, based on adjusted earnings per share and the total
interim and proposed final dividends for the year, is 2.2 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 2.0 times
over the longer term.
The total dividend paid on the ordinary shares in the financial year
was £264m (2011: £248m).
Reed elsevier PlC’s shareholders’ share of the adjusted profit
attributable of the combined businesses was £602m
(2011: £561m). After deducting the company’s share of the post
tax charge for amortisation of acquired intangible assets, and
acquisition-related costs, disposal gains and losses and other
non operating items, exceptional prior year tax credit (in 2012 only)
and deferred taxes not expected to crystallise in the near term, the
reported net profit for the year was £552m (2011: £389m).
Adjusted earnings per share increased 7% to 50.1p (2011: 46.7p). At
constant rates of exchange, the adjusted earnings per share were
8% higher. Including the effect of the tax credit equalisation as well
as amortisation of acquired intangible assets, acquisition related
costs, disposal gains and losses and other non operating items,
and tax adjustments, the basic earnings per share were 46.0p
(2011: 32.4p).
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 2012 was £1,206m
(2011: £1,149m). The £57m increase in net assets reflects the
company’s share in the comprehensive income of Reed elsevier
partially offset by dividends paid and shares repurchased.
Parent company financial statements
The individual parent company financial statements of Reed
elsevier PlC are presented on pages 167 to 169, and are prepared
under UK Generally Accepted Accounting Practice (UK GAAP).
Parent company shareholders’ funds as at 31 December 2012
were £3,490m (2011: £3,163m).
corporate governance
The company has complied throughout the year with the
provisions of the UK Corporate Governance Code issued by the
Financial Reporting Council in May 2010 (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 66 to 72.
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 91 and 92.
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150 FInancIal statEmEnts and othER InFoRmatIon
ReeD elSevIeR PlC
Directors’ report
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 until 15 November 2012,
retired 31 December 2012)
D J Palmer (appointed 25 September 2012, Chief Financial Officer
from 15 November 2012)
M W elliott
A N Hennah
l Hook
R B Polet
Sir David Reid (Senior Independent Director)
l S Sanford (appointed 4 December 2012)
B van der veer
Biographical details of the Directors at the date of this report are
given on pages 62 and 63.
Directors are appointed in accordance with the Articles of
Association (the "Articles"), which provide that any director
appointed during the year holds office only until the next following
Annual General Meeting ("AGM") and is then eligible for election
by the shareholders. The company’s Articles provide that at every
AGM 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 UK Code recommends that
all directors should seek re-election by shareholders annually.
Accordingly, the Board has adopted this practice.
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. Subject to the
shareholders’ rights to appoint individuals to the Board in
accordance with the company’s Articles, no individual may be
appointed to the Board unless such appointment is recommended
by the Nominations Committee.
Mark elliott and Sir David Reid will retire as Directors at the
conclusion of the AGM in April 2013 and will not seek re-election.
Duncan Palmer and linda Sanford were appointed to the Board in
September and December respectively. In accordance with the
Articles of Association, they will retire from the Board and stand
for election at the Annual General Meeting in April 2013.
In accordance with the provisions of the UK Code, all other
Directors will retire from the Board at the AGM in 2013 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 2013 AGM.
At the AGM held in April 2012, David Brennan was appointed a
Non-executive Director which was to have been effective as of
November 2012. As previously announced, David Brennan’s
appointment has been postponed indefinitely for personal
reasons at his request and by agreement with the Board.
Following the postponement of David Brennan’s appointment,
the Nominations Committee, in conjunction with an external
consultant, continued the search for a Non-executive Director and
recommended that Dr Wolfhart Hauser be proposed for election
as a member of the Supervisory Board of Reed elsevier Nv and a
Non-executive Director of Reed elsevier PlC at the respective
AGMs in April 2013. Subject to his election at the AGMs, he will
also be appointed as a Non-executive Director of Reed elsevier
Group plc.
The notice period applicable to the service contracts of erik
engstrom and Duncan Palmer is 12 months. The remaining
Directors seeking re-election at the 2013 AGM 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 74 to 90.
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 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.
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Reed Elsevier Annual Reports and Financial Statements 2012
151
At the 2012 AGM, 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 2012 AGM 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 2013 AGM, and
a resolution to further extend the authority will be submitted
to the shareholders at the 2013 AGM.
During the year, 6,684,412 ordinary shares in the company were
issued in order to satisfy entitlements under employee share
plans as follows:
707,996 under a UK Save As You earn share option scheme
at prices between 401.6p and 504p per share;
5,097,939 under executive share option schemes at prices
between 420p and 644.5p per share; and
878,477 under the long Term Incentive Plan at prices between
487.25p and 524.5p per share.
The issued share capital as at 31 December 2012 is shown in note
12 to the consolidated financial statements.
authority to purchase shares
At the 2012 AGM, shareholders passed a resolution authorising
the purchase of up to 125.1 million ordinary shares in the company
(representing less than 10% of the issued ordinary shares) by
market purchase. During the year, 23.3 million were purchased
under this authority. As at 31 December 2012 there were
57,484,914 ordinary shares held in treasury, representing 4.57%
of the issued ordinary shares. A further 8.1 million shares were
purchased between 1 January 2013 and the date of this report.
The authority to make market purchases will expire at the 2013
AGM, and a resolution to further extend the authority will be
submitted to the shareholders at the 2013 AGM.
Employee benefit trust
The Trustee of the Reed elsevier Group plc employee Benefit
Trust held an interest in 13,451,468 ordinary shares in the
company (representing 1.07% of the issued ordinary shares)
as at 31 December 2012. 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.
Powers of directors
Subject to the provisions of the Companies Act 2006, the
company’s Articles 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, 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.
substantial share interests
As at 27 February 2013, 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:
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.
Franklin Mutual Advisers, llC
BlackRock Inc.
Silchester International Investment
lloyds Banking Group plc
The Capital Group Companies Inc.
legal & General Group plc
5.04%
5.03%
3.99%
3.98%
3.90%
3.40%
The percentage interests stated above are as disclosed at the date
on which the interests were notified to the company.
.
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152
FInancIal statEmEnts and othER InFoRmatIon
ReeD elSevIeR PlC
Directors’ report
conflict of interest
The company’s Articles 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 (2011: between 30 and 45 days).
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.
The Directors 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.
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 £2.5m (2011: £2.4m) of which £0.4m
(2011: £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 reporting.
reedelsevier.com/cr12
In preparing the parent company financial statements, the
Directors are required to: select suitable accounting policies and
then apply them consistently; make judgements 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.
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 £57,201 (2011: £53,550)
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.
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.
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Reed Elsevier Annual Reports and Financial Statements 2012
153
A commentary on the Reed elsevier combined businesses’
cash flows, financial position and liquidity for the year ended
31 December 2012 is set out in the Chief Financial Officer’s Report
on pages 50 to 57. 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
56 and 57. 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 58 to 60.
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 2013 AGM.
By order of the Board
Registered Office
henry Udow
Company Secretary
27 February 2013
1-3 Strand
london
WC2N 5JR
directors’ responsibility statement
The Board confirms that, to the best of its knowledge:
the consolidated financial statements, prepared in accordance
with International Financial Reporting Standards as issued by
the International Accounting Standards Board and as adopted
by the european Union, give a true and fair view of the financial
position and profit or loss of the group; and
the Directors’ report includes a fair review of the development
and performance of the business and the position of the group,
together with a description of the principal risks and
uncertainties that it faces.
Neither the company nor the Directors accept any liability to any
person in relation to the Annual Report except to the extent that
such liability could arise under english law. Accordingly, any
liability to a person who has demonstrated reliance on any
untrue or misleading statement or omission shall be determined
in accordance with Section 90A of the Financial Services and
Markets Act 2000.
disclosure of information to auditors
As part of the process of approving the company’s 2012 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 2012 financial statements. In reaching this
conclusion, the Directors have had due regard to the combined
businesses’ financial position as at 31 December 2012, the
strong free cash flow of the combined businesses, Reed elsevier’s
ability to access capital markets and the principal risks facing
Reed elsevier.
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154 Financial statements and other inFormation
reed elsevier plc
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 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
2012
£m
(2)
(14)
561
545
1
546
6
552
2012
£m
552
(146)
406
2011
£m
(2)
(13)
404
389
1
390
(1)
389
2011
£m
389
(14)
375
Note
8
8
2012
pence
46.0
45.4
2011
pence
32.4
32.1
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reed elsevier Annual reports and Financial statements 2012
155
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
net cash received from investing activities
cash flows from financing activities
equity dividends paid
repurchase of ordinary shares
proceeds on issue of ordinary shares
increase in net funding balances due from joint ventures
net cash used in financing activities
Note
10
11
7
10
2012
£m
2011
£m
(2)
1
(2)
(3)
694
694
(264)
(143)
33
(317)
(691)
(2)
1
(1)
(2)
600
600
(248)
–
8
(358)
(598)
movement in cash and cash equivalents
–
–
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156 Financial statements and other inFormation
reed elsevier plc
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, 27 February 2013.
a J habgood
chairman
d J Palmer
chief Financial Officer
Note
11
12
13
2012
£m
1,207
1,207
1
1
1,206
181
1,208
(447)
4
87
173
1,206
2011
£m
1,158
1,158
9
9
1,149
180
1,176
(308)
4
159
(62)
1,149
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reed elsevier Annual reports and Financial statements 2012
157
Consolidated statement of changes in equity
Note
7
7
For the Year ended 31 decemBer
Balance at 1 January 2011
Total comprehensive income for the year
equity dividends paid
issue of ordinary shares, net of expenses
share of joint ventures’ increase in share
based remuneration reserve
share of joint ventures’ settlement of share
awards by the employee benefit trust
share of joint ventures’ acquisition of
non-controlling interests
equalisation adjustments
Balance at 1 January 2012
Total comprehensive income for the year
equity dividends paid
issue of ordinary shares, net of expenses
repurchase of ordinary shares
share of joint ventures’ increase in share
based remuneration reserve
share of joint ventures’ settlement of share
awards by the employee benefit trust
share of joint ventures’ disposal of
non-controlling interests
equalisation adjustments
Balance at 31 december 2012
share
capital
£m
share
premium
£m
shares
held in
treasury
£m
capital
redemption
reserve
£m
translation
reserve
£m
other
reserves
£m
total equity
£m
180
–
–
–
–
–
–
–
180
–
–
1
–
–
–
–
–
181
1,168
–
–
8
–
–
–
–
1,176
–
–
32
–
–
–
–
–
1,208
(312)
–
–
–
–
4
–
–
(308)
–
–
–
(143)
–
4
–
–
(447)
4
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
4
142
17
–
–
–
–
–
–
159
(72)
–
–
–
–
–
–
–
87
(154)
358
(248)
–
14
(4)
(23)
(5)
(62)
478
(264)
–
–
16
(4)
3
6
173
1,028
375
(248)
8
14
–
(23)
(5)
1,149
406
(264)
33
(143)
16
–
3
6
1,206
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158 Financial statements and other inFormation
reed elsevier plc
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 adopted 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 153.
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 66.
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 98 to 103.
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.
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 date of the statement of financial position.
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 have been
substantively enacted at the date of the statement of financial
position. 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.
critical judgements and key sources of estimation uncertainty
critical judgements in the preparation of the combined financial
statements are set out on pages 101 to 103.
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 103 of the combined financial statements.
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reed elsevier Annual reports and Financial statements 2012
159
Notes to the consolidated financial statements
for the year ended 31 december 2012
1 Administrative expenses
Administrative expenses include £877,000 (2011: £799,000) 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 (2011: 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 158.
3 Auditor’s remuneration
Audit fees payable by reed elsevier plc were £28,000 (2011: £28,000). 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 30 to the combined financial statements.
5 Finance income
Finance income from joint ventures
6 Taxation
UK corporation tax (credit)/expense
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 24.5% (2011: 26.5%)
Tax at applicable rate on share of results of joint ventures
Other
tax (credit)/expense
2012
£m
546
134
(137)
(3)
(6)
2012
£m
1
2011
£m
1
2012
£m
(6)
2011
£m
1
2011
£m
390
103
(107)
5
1
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160 Financial statements and other inFormation
reed elsevier plc
Notes to the consolidated financial statements
for the year ended 31 december 2012
7 Equity dividends
ordinarY dividends declared in the Year
Ordinary shares
Final for prior financial year
interim for financial year
total
2012
pence
2011
pence
15.9p
6.0p
21.9p
15.0p
5.65p
20.65p
2012
£m
191
73
264
2011
£m
180
68
248
The directors of reed elsevier plc have proposed a final dividend of 17.0p (2011: 15.9p). The cost of funding the proposed final dividend
is expected to be £202m. 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”)
2012
pence
2011
pence
6.0p
17.0p
23.0p
5.65p
15.9p
21.55p
Basic earnings per share
Based on 52.9% interest in total operations
of the combined businesses
diluted earnings per share
2012
2011
Weighted
average
number of
shares
(millions)
1,200.6
1,200.6
1,215.1
earnings
£m
552
566
552
ePs
pence
46.0
47.1
45.4
Weighted
average
number of
shares
(millions)
1,202.0
1,202.0
1,211.7
earnings
£m
389
402
389
eps
pence
32.4
33.4
32.1
The diluted eps figures are calculated after taking account of the effect of potential additional ordinary shares arising from share
options and conditional shares.
Reed Elsevier 2012.indb 160
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reed elsevier Annual reports and Financial statements 2012
161
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 2012 are shown below.
nUmBer oF ordinarY shares
Year ended 31 december
At start of year
issue of ordinary shares
repurchase of ordinary shares
Net release of shares by the employee benefit trust
at end of year
Weighted average number of equivalent ordinary shares during the year
9 Adjusted figures
shares in
issue
(millions)
1,250.9
6.7
–
–
1,257.6
treasury
shares
(millions)
(48.3)
–
(23.3)
0.6
(71.0)
2012
shares in
issue net of
treasury
shares
(millions)
2011
shares in
issue net of
treasury
shares
(millions)
1,202.6
6.7
(23.3)
0.6
1,186.6
1,200.6
1,200.4
1.6
–
0.6
1,202.6
1,202.0
Adjusted profit and earnings per share figures are used by management as additional performance measures. The adjusted figures
are derived as follows:
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
Acquisition related costs
disposals and other non operating items
exceptional prior year tax credit
deferred tax adjustments
adjusted figures
Profit attributable to
ordinary shareholders
Basic earnings
per share
2012
£m
552
14
566
178
8
(55)
(51)
(44)
602
2011
£m
389
13
402
188
17
8
–
(54)
561
2012
pence
46.0
1.1
2011
pence
32.4
1.0
47.1
33.4
14.8
0.7
(4.6)
(4.2)
(3.7)
50.1
15.6
1.5
0.7
–
(4.5)
46.7
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162 Financial statements and other inFormation
reed elsevier plc
Notes to the consolidated financial statements
for the year ended 31 december 2012
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’ other comprehensive expense
share of joint ventures’ disposal/(acquisition) of non-controlling interests
share of joint ventures’ increase in share based remuneration reserve
equalisation adjustments
dividends received from joint ventures
increase in net funding balances due from joint ventures
Net movement in the year
At start of year
at end of year
2012
£m
(2)
(2)
2012
£m
632
317
949
2012
£m
561
(146)
3
16
(8)
(694)
317
49
1,158
1,207
2011
£m
(2)
(2)
2011
£m
274
358
632
2011
£m
404
(14)
(23)
14
(18)
(600)
358
121
1,037
1,158
during the year the company received dividends of £394m from elsevier reed Finance Bv and £300m from reed elsevier Group plc.
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
2012
£m
6,116
1,074
2011
£m
6,002
767
reed elsevier Plc
shareholders’ share
2012
£m
3,235
561
2011
£m
3,175
404
reed elsevier plc’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 plc of £5m (2011: £2m loss).
Reed Elsevier 2012.indb 162
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reed elsevier Annual reports and Financial statements 2012
163
11 Investments in joint ventures continued
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
2012
£m
11,014
(8,700)
2,314
2,280
34
2,314
2011
£m
11,503
(9,306)
2,197
2,172
25
2,197
2012
£m
5,826
(5,568)
258
258
–
258
949
1,207
2011
£m
6,085
(5,559)
526
526
–
526
632
1,158
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 £339m (2011: £384m) and borrowings of £2,059m (2011: £2,265m) respectively.
12 Share capital and shares held in treasury
aUthorised
Ordinary shares of 1451⁄116p each
Unclassified shares of 1451⁄116p each
total
no. of shares
1,257,597,977
787,158,643
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
1,250,913,565
6,684,412
1,257,597,977
2012
£m
180
1
181
No. of shares
1,249,286,224
1,627,341
1,250,913,565
£m
181
113
294
2011
£m
180
–
180
The issue of ordinary shares relates to the exercise of share options. details of share option and conditional share schemes are set out
in note 6 to the reed elsevier combined financial statements.
At 31 december 2012, shares held in treasury related to 13,451,468 (2011: 14,051,025) reed elsevier plc ordinary shares held by the
reed elsevier Group plc employee Benefit Trust (eBT); and 57,484,915 (2011: 34,196,298) reed elsevier plc ordinary shares held by
the parent company.
The eBT purchases reed elsevier plc shares which, at the Trustee’s discretion, can be used in respect of the exercise of share options
and to meet commitments under conditional share awards. At 31 december 2012, reed elsevier plc shares held by the eBT were £84m
(2011: £88m).
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164 Financial statements and other inFormation
reed elsevier plc
Notes to the consolidated financial statements
for the year ended 31 december 2012
13 Other reserves
At start of year
profit attributable to ordinary shareholders
share of joint ventures’:
Actuarial losses on defined benefit pension schemes
Fair value movements on available for sale investments
Transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
increase in share based remuneration reserve
settlement of share awards
Transfer to net profit from cash flow hedge reserve
disposal/(acquisition) of non-controlling interests
equalisation adjustments
equity dividends paid
at end of year
2012
£m
(62)
552
(174)
–
6
37
46
16
(4)
11
3
6
(264)
173
2011
£m
(154)
389
(60)
(1)
–
(12)
22
14
(4)
20
(23)
(5)
(248)
(62)
Reed Elsevier 2012.indb 164
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reed elsevier Annual reports and Financial statements 2012
165
14 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
2012
£m
3,595
2011
£m
3,920
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.
15 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
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.
16 Principal subsidiary
reed holding Bv
incorporated in the Netherlands
radarweg 29
1043 NX Amsterdam, the Netherlands
191 ordinary shares
% holding
100%
–
100%
100%
–
% holding
100%
At 31 december 2012 reed Holding Bv owned 4,240,838 (2011: 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.
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166 Financial statements and other inFormation
reed elsevier plc
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 2012
(“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 16. 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.
in addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the
audited financial statements. if we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
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 2012 and of its profit for the year then ended;
have been properly prepared in accordance with iFrs 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 report relating to the
company’s compliance with the nine provisions of the UK
corporate Governance 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 parent company financial
statements of reed elsevier plc for the year ended 31 december
2012 and on the information in the parts of the directors’
remuneration report presented in the reed elsevier Annual
reports and Financial statements 2012 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
27 February 2013
Reed Elsevier 2012.indb 166
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Reed Elsevier Annual Reports and Financial Statements 2012
Parent company balance sheet
AS AT 31 DECEMBER
Fixed assets
Investments in subsidiary undertakings
Investments in joint ventures
Current assets
Debtors: amounts due from joint ventures
Creditors: amounts falling due within one year
Taxation
Amounts owed to subsidiary undertakings
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium account
Shares held in treasury
Capital redemption reserve
Other reserves
Profit and loss reserve
Shareholders’ funds
Note
1
1
2012
£m
309
2,310
2,619
949
949
(1)
(77)
(78)
871
3,490
181
1,208
(367)
4
150
2,314
3,490
The parent company financial statements were approved by the Board of directors, 27 February 2013.
A J Habgood
Chairman
D J Palmer
Chief Financial Officer
Parent company reconciliation of shareholders’ funds
At 1 January 2011
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 2012
Profit attributable to ordinary shareholders
Equity dividends paid
Repurchase of ordinary shares
Issue of ordinary shares, net of expenses
Equity instruments granted to employees of
combined businesses
At 31 December 2012
Share
capital
£m
Share
premium
account
£m
Shares
held in
treasury
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Profit
and loss
reserve
£m
180
–
–
–
–
180
–
–
–
1
–
181
1,168
–
–
8
–
1,176
–
–
–
32
–
1,208
(224)
–
–
–
–
(224)
–
–
(143)
–
–
(367)
4
–
–
–
–
4
–
–
–
–
–
4
134
–
–
–
14
148
–
–
–
–
2
150
1,529
598
(248)
–
–
1,879
699
(264)
–
–
–
2,314
167
2011
£m
309
2,308
2,617
632
632
(9)
(77)
(86)
546
3,163
180
1,176
(224)
4
148
1,879
3,163
Total
£m
2,791
598
(248)
8
14
3,163
699
(264)
(143)
33
2
3,490
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168 FiNANCiAl STATEMENTS AND OTHER iNFORMATiON
REED ElSEvIER PlC
Parent company accounting policies
Basis of preparation
The parent company financial statements have been prepared
under the historical cost convention in accordance with UK
Generally Accepted Accounting 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 153.
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 15 and
16 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 note 12 of the Reed
Elsevier PlC consolidated financial statements and note 28 of
the Reed Elsevier combined 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 2011
Equity instruments granted to Reed Elsevier employees
At 1 January 2012
Equity instruments granted to Reed Elsevier employees
At 31 December 2012
Subsidiary
undertaking
£m
Joint
ventures
£m
309
–
309
–
309
2,304
4
2,308
2
2,310
Total
£m
2,613
4
2,617
2
2,619
Reed Elsevier 2012.indb 168
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Reed Elsevier Annual Reports and Financial Statements 2012
169
Independent auditor report on the parent company
financial statements to the members of Reed Elsevier PLC
We have audited the parent company financial statements of
Reed Elsevier PLC for the year ended 31 December 2012 (“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 168. 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).
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.
In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
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 2012 and of its profit for the year
then ended;
have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements
of the Companies Act 2006.
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
2012.
Douglas King (Senior statutory auditor)
For and on behalf of
Deloitte LLP
Chartered Accountants and Statutory Auditor
London
United Kingdom
27 February 2013
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170 Financial statements and other inFormation
reed elsevier plc
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
2012
£m
6,116
1,358
1,713
1,069
1,138
552
602
46.0p
50.1p
23.0p
2011
£m
6,002
1,205
1,626
760
1,060
389
561
32.4p
46.7p
21.55p
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
(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 (2008 - 2010) and acquisition related costs,
exceptional prior year tax credits (in 2012 only), 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 include the benefit of
tax amortisation where available on acquired goodwill 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.
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Reed Elsevier Annual Reports and Financial Statements 2011
171
Reed Elsevier NV
Annual Report and
Financial Statements
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In this section
172 Report of the Supervisory Board and the
Executive Board
176 Consolidated financial statements
178 Group accounting policies
180 Notes to the consolidated financial
statements
188 Independent auditor’s report on the
consolidated financial statements
189 Parent company financial statements
190 Parent company accounting policies
191 Notes to the parent company financial
statements
192 Additional information
193 Independent auditor’s report on the
parent company financial statements
194 5 year summary
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172 FInancIal statEmEnts and othER InFoRmatIon
REEd ElSEvIER Nv
Report of the Supervisory Board and the Executive Board
The Supervisory Board and the Executive Board (which jointly
make up “the Combined Board”) present their joint report,
together with the financial statements of the group and of the
company, for the year ended 31 december 2012.
As a consequence of the merger of the company’s businesses with
those of Reed Elsevier PlC in 1993, described on page 66, 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 1 to 146, which are
incorporated by reference herein. Summary combined financial
information in euros is set out on pages 133 to 146. The combined
financial statements on pages 93 to 132 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 171 to 175 and, incorporated
by reference, pages 1 to 146. The Corporate Governance
Statement of Reed Elsevier Nv dated 27 February 2013 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 of acquired
intangible assets, acquisition related costs, disposal gains and
losses and other non operating items, related tax effects,
exceptional prior year tax credits (in 2012 only) and movements in
deferred taxation assets and liabilities not expected to crystallise
in the near term and include 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 €921m
(2011: €800m). Reported profit before tax, including the Reed
Elsevier Nv shareholders’ share of amortisation, acquisition related
costs and disposals and non operating items, was €660m (2011:
€438m). The increase reflects the improved trading performance,
disposal gains and an exceptional prior year tax credit.
At Elsevier, double digit growth in submissions and usage drove
good growth in scientific & medical research and databases &
tools, with strong growth in emerging markets. Risk Solutions
achieved strong growth in both insurance and business services,
and a return to growth in the government segment. Business
Information saw strong growth from our major data services,
modest growth in marketing services and leading brands, and a
moderation in the rate of decline in other magazines and services.
legal revenue growth was positive despite subdued legal markets
in the US and Europe, with growth driven by online products and
services. Exhibitions had another good year, benefiting from
biennial exhibition cycling, with moderate growth in Europe,
strong growth in the US and Japan, and double digit growth in
most emerging markets. The overall adjusted operating margin
was 0.9 percentage points higher despite organic investment in
new product development and sales & marketing, reflecting the
benefit to margin from portfolio change.
Reed Elsevier Nv ’s shareholders’ share of the adjusted profit
attributable of the combined businesses was €700m (2011:
€610m). After deducting the company’s share of the post tax
charge for amortisation of acquired intangible assets, acquisition
related costs, disposal gains and losses and other non operating
items, exceptional prior year tax credits (in 2012 only) and
deferred taxes not expected to crystallise in the near term, the
reported net profit for the year was €658m (2011: €437m).
Adjusted earnings per share increased 14% to €0.95 (2011: €0.83).
At constant rates of exchange, the adjusted earnings per share
were 8% higher. Including amortisation of acquired intangible
assets, acquisition related costs, disposal gains and losses and
other non operating items, and tax adjustments, including an
exceptional prior year tax credit (in 2012 only), the basic earnings
per share were €0.90 (2011: €0.59).
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 2012 was € 1,402m (2011:
€1,303m). The €99m increase in net assets reflects the company’s
share in the attributable profits of Reed Elsevier partially offset by
dividends paid.
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Reed Elsevier Annual Reports and Financial Statements 2012
173
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 189 to 193) are prepared under UK
generally accepted accounting practice (UK GAAP). The profit
attributable to the shareholders of Reed Elsevier Nv was €758m
(2011: €17m) and net assets as at 31 december 2012, principally
representing the investments in Reed Elsevier Group plc and
Elsevier Reed Finance Bv under the historical cost method and
loans to their subsidiaries, were €4,948m (2011: €4,630m). Free
reserves as at 31 december 2012 were €4,701m (2011: €4,385m),
comprising reserves and paid-in surplus less shares held in
treasury.
dividends
The Combined Board is recommending an equalised final dividend
of €0.337 per ordinary share, up 3% compared with the prior year.
This gives total ordinary dividends for the year of €0.467 (2011:
€0.436), up 7% on 2011. The final dividend will be paid on 23 May
2013.
dividend cover, based on adjusted earnings per share and the total
interim and proposed final dividends for the year, is 2.0 times. The
Boards of the company and Reed Elsevier PlC have adopted
dividend policies in recent years in respect of their equalised
dividends that, subject to currency considerations, grow dividends
broadly in line with adjusted earnings per share whilst maintaining
dividend cover (being the number of times the annual dividend is
covered by the adjusted earnings per share) of at least two times
over the longer term.
The total dividend paid on the ordinary shares in the financial year
was €319m (2011: €289m).
share capital
during 2012, 1,906,470 ordinary shares in the company were
issued as follows:
under convertible debentures at prices between €9.05 and
€11.32
under executive share option schemes at prices between €8.87
and €11.37
Information regarding shares outstanding at 31 december 2012 is
shown in note 13 to the consolidated financial statements.
during the year Reed Elsevier Nv repurchased 13,283,706 shares
including 62,341 R shares (equivalent to 623,410 ordinary shares)
from Reed Holding Bv.
At 31 december 2012 the total shares held in treasury were
44,226,598. Of these 6,990,101 ordinary shares were held by the
Reed Elsevier Group plc Employee Benefit Trust and 36,613,087
ordinary shares and 62,341 R shares (equivalent to 623,410
ordinary shares) were held by Reed Elsevier Nv.
As at 27 February 2013, 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.
authority to purchase shares
At the 2012 AGM, shareholders passed a resolution delegating the
authority to the Executive Board to acquire ordinary shares in the
Company for a period of 18 months from the date of the annual
general meeting of shareholders and therefore up to and including
23 October 2013 , for the maximum amount of 10% of the issued
capital. during the year, 12,660,296 ordinary shares were
purchased under this delegation of authority. As at 31 december
2012 there were 43,603,188 ordinary shares held in treasury,
representing 6% of the issued ordinary shares. A further 4,698,519
ordinary shares were purchased between 1 January 2013 and the
date of this report.
A resolution to renew the delegation of the authority to the Executive
Board will be submitted to the shareholders at the 2013 AGM.
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 Corporate Governance Code issued in May 2010 (the
UK Code). Reed Elsevier Nv may not apply fully the verbatim
language of these codes, but does fully apply the principles and
best practice provisions other than, in respect of the dutch Code,
the following for reasons explained below:
Best practice provision II.2.5: Executive directors are required
to build up a minimum shareholding and Reed Elsevier uses
long term incentive arrangements in the form of awards of
shares which may vest after three years. The intent of this
shareholding policy is to align the interests of senior executives
and shareholders. This intent is in compliance with the dutch
Code. Shares received on joining Reed Elsevier in
compensation for benefits forfeited under incentive schemes
from a previous employer are not to be considered as part of
the minimum shareholding in this context.
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 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 notice period applicable to the
service contracts to both members of the Executive Board is 12
months. 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 directors’ Remuneration Report.
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174 FInancIal statEmEnts and othER InFoRmatIon
REEd ElSEvIER Nv
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.
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 per
annum 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 2012. 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. Presentations made following
the announcement of the interim and full year results are
simultaneously webcast. Investor seminars are also webcast.
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.
the Boards
Reed Elsevier Nv has a two-tier board system, comprising an
Executive Board and a Supervisory Board. The members of the
Executive Board and the members of the Supervisory Board
together form the Combined Board. It is established board
practice at Reed Elsevier Nv that the members of both boards
meet together as the Combined Board. The boards of Reed
Elsevier PlC and Reed Elsevier Group plc are one-tier boards.
In view of the legislation to formalise the one-tier board model in
the Netherlands Civil Code that was enacted with effect from 1
January 2013, the Combined Board of Reed Elsevier Nv has
resolved to take the necessary steps to establish a one-tier board
governance structure at the Company. For this purpose the
articles of association of the Company will have to be amended and
a proposal for this one-tier governance structure will be put to the
annual general shareholders’ meeting on 24 April 2013.
significant agreements – change of control
The Governing Agreement between Reed Elsevier Nv and Reed
Elsevier PlC states that upon a change of control of Reed Elsevier
Nv (for these purposes, the acquisition by a third party of 50% or
more of the issued share capital having voting rights), should there
not be a comparable offer from the offeror for Reed Elsevier PlC,
Reed Elsevier PlC may serve notice upon Reed Elsevier Nv
varying certain provisions of the Governing Agreement,
including the governance and the standstill provisions.
There are a number of borrowing agreements including
credit facilities that in the event of a change of control of both
Reed Elsevier Nv and Reed Elsevier PlC and, in some cases,
a consequential credit rating downgrade to sub-investment
grade may, at the option of the lenders, require repayment
and/or cancellation as appropriate.
directors
The following individuals served as members of the Supervisory
and Executive Boards during the year:
the supervisory Board
A Habgood (Chairman)
M Elliott
A Hennah
l Hook
M van lier lels
R Polet
Sir david Reid
the Executive Board
E Engstrom
(Chief Executive Officer)
M Armour
(Chief Financial Officer until
15 November 2012, retired as
member of the Executive
Board 31 december 2012)
(senior independent director)
d Palmer
l Sanford
(appointed 4 december 2012)
B van der veer
(member of the Executive
Board from 6 November 2012
– Chief Financial Officer from
15 November 2012)
At the Annual General Meeting held in April 2012, david Brennan
was appointed as a member of the Supervisory Board with effect
from 1 November 2012. The appointment of david Brennan was
postponed indefinitely at his request and by agreement with
Reed Elsevier in October 2012.
Erik Engstrom and duncan Palmer will stand for re-appointment
as members of the Executive Board at the Annual General Meeting
in April 2013. All members of the Supervisory Board other than
Mark Elliott and Sir david Reid, who will at that time have
served on the Supervisory Board for ten years, will stand for
re-appointment as members of the Supervisory Board at the
Annual General Meeting in April 2013. A search is being conducted
in conjunction with external consultants for another suitable
candidate to join the Supervisory Board. This has resulted in the
Nominations Committee recommending to the Combined Board
the appointment of dr Wolfhart Hauser as member of the
Supervisory Board of Reed Elsevier Nv and as a non-executive
director of Reed Elsevier PlC with effect from the closure of the
Annual General Meeting 2013. This will be proposed at the Annual
General Meetings in April 2013.
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Reed Elsevier Annual Reports and Financial Statements 2012
175
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 2012 financial
statements. In reaching this conclusion, the Combined Board has
had due regard to the combined businesses’ financial position as
at 31 december 2012, 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 2012 is set out in the Chief Financial Officer’s Report
on pages 50 to 57. 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
56 and 57. 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 58 to 60.
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 24 April 2013.
the Executive Board
E Engstrom
(Chief Executive Officer)
d Palmer
(Chief Financial Officer)
Signed by:
the supervisory Board
A Habgood (Chairman)
M Elliott
A Hennah
l Hook
M van lier lels
R Polet
Sir david Reid
l Sanford
B van der veer
Registered office
Radarweg 29
1043 NX The Netherlands
Chamber of Commerce Amsterdam
Register file No: 33155037
27 February 2013
Biographical details of the directors at the date of this report are
given on pages 62 and 63. 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 74 to 90.
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 2012 and
of the profit or loss in 2012. In preparing the financial statements,
the Supervisory Board and the Executive Board ensure that
suitable accounting policies, consistently applied and supported
by reasonable judgements and estimates, have been used and
applicable accounting standards have been followed. The Boards
are responsible for keeping proper accounting records, which
disclose with reasonable accuracy at any time the financial
position of the company and enable them to ensure that the
financial statements comply with the law. The Boards have
general responsibility for taking reasonable steps to safeguard
the assets of the company and to prevent and detect fraud and
other irregularities.
Internal control
As required under sections II.1.4. and II.1.5. of the dutch Code,
the Audit Committee and the Combined Board have reviewed
the effectiveness of the systems of internal control and risk
management during the last financial year. The 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 2012 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 2012 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.
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176 Financial statements and other inFormation
reed elsevier Nv
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 shareholders
Note
2
11
5
6
2012
€m
(2)
654
652
8
660
(2)
658
2011
€m
(2)
420
418
20
438
(1)
437
Consolidated statement of comprehensive income
For the Year ended 31 decemBer
Profit attributable to shareholders
share of joint ventures’ other comprehensive (expense)/income for the year
total comprehensive income for the year
2012
€m
658
(137)
521
2011
€m
437
20
457
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 (used in)/from operating activities
cash flows from investing activities
dividends received from joint ventures
net cash from investing activities
cash flows from financing activities
equity dividends paid
repurchase of shares
Proceeds on issue of ordinary shares
(increase)/decrease in net funding balances due from joint ventures
net cash used in financing activities
Note
8
8
2012
€
0.90
0.89
2011
€
0.59
0.59
Note
10
11
7
10
2012
€m
2011
€m
(5)
6
(2)
(1)
754
754
(319)
(141)
18
(313)
(755)
(3)
20
(5)
12
–
–
(289)
–
2
275
(12)
movement in cash and cash equivalents
(2)
–
Reed Elsevier 2012.indb 176
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reed elsevier Annual reports and Financial statements 2012
177
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
Balance at 1 January 2011
Total comprehensive income for the year
equity dividends paid
issue of ordinary shares, net of expenses
share of joint ventures’ increase in share based
remuneration reserve
share of joint ventures’ settlement of share awards by
the employee benefit trust
share of joint ventures’ acquisition of non-controlling
interests
equalisation adjustments
exchange translation differences
Balance at 1 January 2012
Total comprehensive income for the year
equity dividends paid
issue of ordinary shares, net of expenses
repurchase of shares
share of joint ventures’ increase in share based
remuneration reserve
share of joint ventures’ settlement of share awards by
the employee benefit trust
share of joint ventures’ disposal of non-controlling
interests
equalisation adjustments
exchange translation differences
Balance at 31 december 2012
Note
7
share
capital
€m
54
–
–
–
Paid-in
surplus
€m
2,169
–
–
2
shares held
in treasury
€m
(433)
–
–
–
translation
reserves
€m
(51)
54
–
–
other
reserves
€m
(602)
403
(289)
–
7
–
–
–
–
–
54
–
–
–
–
–
–
–
–
–
54
–
–
–
–
–
2,171
–
–
18
–
–
–
–
–
–
2,189
–
4
–
–
(3)
(432)
–
–
–
(141)
–
5
–
–
(3)
(571)
–
–
–
–
3
6
(51)
–
–
–
–
–
–
–
3
(42)
16
(4)
(25)
5
–
(496)
572
(319)
–
–
19
(5)
4
(3)
–
(228)
Reed Elsevier 2012.indb 177
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Note
2012
€m
2011
€m
11
1,455
1,359
4
1
5
1,460
7
51
58
1,402
54
2,189
(571)
(42)
(228)
1,402
12
13
14
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G
o
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a
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i
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a
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i
a
l
s
t
a
t
e
m
e
n
t
s
a
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d
o
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h
e
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i
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f
o
r
m
a
t
i
o
n
2
3
5
1,364
10
51
61
1,303
54
2,171
(432)
6
(496)
1,303
total
equity
€m
1,137
457
(289)
2
16
–
(25)
5
–
1,303
521
(319)
18
(141)
19
–
4
(3)
–
1,402
178 Financial statements and other inFormation
reed elsevier Nv
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.
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 adopted 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 175.
The reed elsevier combined financial statements presented in
pounds sterling on pages 93 to 132 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 133 to 146.
As a consequence of the merger of the company’s businesses
with those of reed elsevier PlC, described on page 66, 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.
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 98 to 103.
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 date of statement of financial position.
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 in respect of goodwill
that is not deductible for tax purposes.
Reed Elsevier 2012.indb 178
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reed elsevier Annual reports and Financial statements 2012
179
deferred tax is calculated using tax rates that have been
substantively enacted at the date of the statement of financial
position. 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. deferred tax credits in respect of share
based remuneration are recognised in equity to the extent that
expected tax deductions exceed the related expense.
critical judgements and key sources of estimation uncertainty
Critical judgements in the preparation of the combined financial
statements are set out on pages 101 to 103.
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 103 of the combined financial statements.
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180 Financial statements and other inFormation
reed elsevier Nv
Notes to the consolidated financial statements
for the year ended 31 december 2012
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 shareholders
2012
2011
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 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
£1,069m
£760m
€1,315m
€1,315m
€658m
€874m
€874m
€437m
2012
2011
£2,280m £2,172m
€2,804m €2,606m
€1,402m €1,303m
2 Administrative expenses
Administrative expenses include the gross remuneration for present and former directors of reed elsevier Nv in respect of services
rendered to reed elsevier Nv and the combined businesses. Fees for members of the supervisory Board of reed elsevier Nv of €0.3m
(2011: €0.3m) are included in remuneration. insofar as 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 (2011: nil).
3 Auditor’s remuneration
Audit fees payable by reed elsevier Nv were €142,000 (2011: €50,000). 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.
Reed Elsevier 2012.indb 180
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reed elsevier Annual reports and Financial statements 2012
181
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 30 to the combined financial statements.
5 Finance income
Finance income from joint ventures
6 Taxation
2012
€m
8
2011
€m
20
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below:
Profit before tax
Tax at applicable rate: 25% (2011: 25%)
Tax at applicable rate on share of results of joint ventures
Other
tax expense
7 Equity dividends
ordinarY dividends declared in the Year
Ordinary shares:
Final for prior financial year
interim for financial year
total
r shares
2012
€m
660
165
(163)
–
2
2012
€m
228
91
319
–
2011
€m
438
110
(105)
(4)
1
2011
€m
212
77
289
–
2012
€
2011
€
€0.326
€0.130
€0.456
–
€0.303
€0.110
€0.413
–
The directors of reed elsevier Nv have proposed a final dividend of €0.337 (2011: €0.326). The cost of funding the proposed final
dividend is expected to be €232m. 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
2012
€
2011
€
€0.130
€0.337
€0.467
–
€0.110
€0.326
€0.436
–
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182 Financial statements and other inFormation
reed elsevier Nv
Notes to the consolidated financial statements
for the year ended 31 december 2012
8 Earnings per ordinary share (“EPS”)
Basic earnings per share
diluted earnings per share
2012
2011
Weighted
average
number of
shares
(millions)
734.0
742.1
earnings
€m
658
658
ePs
€
0.90
0.89
Weighted
average
number of
shares
(millions)
735.3
740.8
earnings
€m
437
437
ePs
€
0.59
0.59
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 ordinary shares or equivalents for the year ended 31 december 2012
are shown below.
numBer oF ordinarY shares or equivalents
Year ended 31 december
At start of year
issue of ordinary shares
repurchase of ordinary and r shares
Net release of shares by the employee benefit trust
at end of year
Weighted average number of equivalent ordinary shares during the year
ordinary
shares in
issue
(millions)
724.1
1.9
–
–
726.0
r shares in
issue
(millions)
treasury
shares
(millions)
43.0
–
–
–
43.0
(31.3)
–
(13.3)
0.4
(44.2)
2012
ordinary
share
equivalents
net of
treasury
shares
(millions)
2011
Ordinary
share
equivalents
net of
treasury
shares
(millions)
735.8
1.9
(13.3)
0.4
724.8
734.0
735.2
0.2
–
0.4
735.8
735.3
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.
At 31 december 2012 4,240,838 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.
At 31 december 2012 treasury shares included 62,341 r shares (2011: nil), equivalent to 623,410 reed elsevier Nv ordinary shares.
Reed Elsevier 2012.indb 182
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reed elsevier Annual reports and Financial statements 2012
183
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
shareholders
Basic earnings
per share
reported figures
share of adjustments in joint ventures:
Amortisation of acquired intangible assets
Acquisition related costs
disposals and other non operating items
exceptional prior year tax credit
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
2012
€m
658
207
10
(64)
(59)
(52)
700
2011
€m
437
204
19
10
–
(60)
610
2012
€
0.90
0.28
0.01
(0.09)
(0.08)
(0.07)
0.95
2012
€m
(2)
(3)
(5)
2012
€m
1,084
313
1,397
2011
€
0.59
0.28
0.03
0.01
–
(0.08)
0.83
2011
€m
(2)
(1)
(3)
2011
€m
1,359
(275)
1,084
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184 Financial statements and other inFormation
reed elsevier Nv
Notes to the consolidated financial statements
for the year ended 31 december 2012
11 Investments in joint ventures
share of results of joint ventures
share of joint ventures’ other comprehensive (expense)/income
share of joint ventures’ disposal/(acquisition) of non-controlling interests
share of joint ventures’ increase in share based remuneration reserve
equalisation adjustments
dividends received from joint ventures
increase/(decrease) in net funding balances due from joint ventures
Net movement in the year
At start of year
at end of year
2012
€m
654
(137)
4
19
(3)
(754)
313
96
1,359
1,455
2011
€m
420
20
(25)
16
5
–
(275)
161
1,198
1,359
during the year the company received dividends of €754m from elsevier reed Finance Bv.
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
2012
€m
7,523
1,321
2011
€m
6,902
882
2012
€m
3,762
654
2011
€m
3,451
420
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 €4m (2011: €17m).
Total assets
Total liabilities
net assets
Attributable to:
Joint ventures
Non-controlling interests
Net funding balances due from joint ventures
total
total joint ventures
2012
€m
13,547
(10,701)
2,846
2011
€m
13,804
(11,168)
2,636
2,804
42
2,846
2,606
30
2,636
reed elsevier nv
shareholders’ share
2012
€m
6,773
(6,715)
58
58
–
58
1,397
1,455
2011
€m
6,897
(6,622)
275
275
–
275
1,084
1,359
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 €393m (2011: €433m) and borrowings of €2,386m (2011: €2,561m) respectively.
Reed Elsevier 2012.indb 184
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reed elsevier Annual reports and Financial statements 2012
185
12 Payables
included within payables are employee convertible debenture loans of €7m (2011: €8m) with a weighted average interest rate of 2.65%
(2011: 3.13%). depending on the conversion terms, the surrender of €200 par value debenture loans qualifies for 50 reed elsevier Nv
ordinary shares.
13 Share capital and shares held in treasury
authorised
Ordinary shares of €0.07 each
r shares of €0.70 each
total
issued and FullY Paid
At 1 January 2011
issue of ordinary shares
At 1 January 2012
issue of ordinary shares
at 31 december 2012
no. of shares
1,800,000,000
26,000,000
r shares
number
4,303,179
–
4,303,179
–
4,303,179
ordinary
shares
number
723,877,017
200,738
724,077,755
1,906,470
725,984,225
r shares
€m
3
–
3
–
3
ordinary
shares
€m
51
–
51
–
51
€m
126
18
144
total
€m
54
–
54
–
54
The issue of shares relates to the exercise of share options. details of share option and conditional share schemes are set out in note 6
to the reed elsevier combined financial statements.
At 31 december 2012 4,240,838 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.
At 31 december 2012, shares held in treasury related to 6,990,101 (2011: 7,380,906) reed elsevier Nv ordinary shares held by the
reed elsevier Group plc employee Benefit Trust (eBT); and 36,613,087 (2011: 23,952,791) reed elsevier Nv ordinary shares and 62,341
r shares (2011: nil) held by the parent company.
The eBT purchases 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. At 31 december 2012, reed elsevier Nv shares held by the eBT were €84m
(2011: €85m).
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186 Financial statements and other inFormation
reed elsevier Nv
Notes to the consolidated financial statements
for the year ended 31 december 2012
14 Other reserves
At start of year
Profit attributable to shareholders
share of joint ventures’:
Actuarial losses on defined benefit pension schemes
Fair value movements on available for sale investments
Transfer to net profit on disposal of available for sale investments
Fair value movements on cash flow hedges
Tax recognised directly in equity
increase in share based remuneration reserve
settlement of share awards
Transfer to net profit from cash flow hedge reserve
disposal/(acquisition) of non-controlling interests
equalisation adjustments
equity dividends paid
at end of year
15 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
2012
€m
(496)
658
(203)
–
7
43
54
19
(5)
13
4
(3)
(319)
(228)
2011
€m
(602)
437
(65)
(1)
–
(14)
24
16
(4)
22
(25)
5
(289)
(496)
2012
€m
4,422
2011
€m
4,704
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.
Reed Elsevier 2012.indb 186
08/03/2013 12:09
reed elsevier Annual reports and Financial statements 2012
16 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
equivalent to a 50% equity interest
133 ordinary r shares
205 ordinary e shares
equivalent to a 61% equity interest
187
% holding
–
100%
–
–
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.
17 Approval of financial statements
The consolidated financial statements were signed and authorised for issue by the Combined Board of directors on 27 February 2013.
a j habgood
Chairman of the supervisory Board
and the Combined Board
d j Palmer
Chief Financial Officer
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Reed Elsevier 2012.indb 187
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188 Financial statements and other inFormation
reed elsevier Nv
Independent auditor’s 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 2012, 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
whether 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
27 February 2013
report on the consolidated financial statements
We have audited the accompanying consolidated financial
statements 2012 which are part of the financial statements of
reed elsevier Nv, Amsterdam, which comprise the consolidated
statement of financial position as at 31 december 2012, 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 176 to 187.
directors’ responsibility
The directors are 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,
the directors are 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.
auditor’s 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 the directors,
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.
Reed Elsevier 2012.indb 188
08/03/2013 12:09
Reed Elsevier Annual Reports and Financial Statements 2012
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
189
2012
€m
(2)
754
8
(2)
758
2011
€m
(2)
–
20
(1)
17
Note
2012
€m
2011
€m
3,604
3,602
1
1,397
4
1,401
1
1,402
(51)
(7)
(58)
1,344
4,948
54
2,189
(477)
193
2,989
4,948
1,084
2
1,086
3
1,089
(51)
(10)
(61)
1,028
4,630
54
2,171
(336)
191
2,550
4,630
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The parent company financial statements were signed and authorised for issue by the Combined Board of directors on 27 February 2013.
A J Habgood
Chairman of the Supervisory Board
D J Palmer
Chief Financial Officer
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Reed Elsevier 2012.indb 189
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190 FiNANCiAl STATEMENTS AND OTHER iNFORMATiON
ReeD elSevIeR Nv
Parent company reconciliation of shareholders’ funds
At 1 January 2011
Profit attributable to shareholders
equity dividends paid
Issue of shares, net of expenses
equity instruments granted to employees of combined businesses
At 1 January 2012
Profit attributable to shareholders
equity dividends paid
Repurchase of shares
Issue of shares, net of expenses
equity instruments granted to employees of combined businesses
At 31 December 2012
Share
capital
issued
€m
Paid-in
surplus (
€m
i)
Shares
held in
treasury
€m
Other
reserves (
€m
ii) Reserves (
€m
iii)
54
–
–
–
–
54
–
–
–
–
–
54
2,169
–
–
2
–
2,171
–
–
–
18
–
2,189
(336)
–
–
–
–
(336)
–
–
(141)
–
–
(477)
175
–
–
–
16
191
–
–
–
–
2
193
2,822
17
(289)
–
–
2,550
758
(319)
–
–
–
2,989
Total
€m
4,884
17
(289)
2
16
4,630
758
(319)
(141)
18
2
4,948
(i) Within paid-in surplus, an amount of €2,012m (2011: €1,994m) is free of tax.
(ii)
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.
(iii) Free reserves of the company at 31 December 2012 were €4,701m (2011: €4,385m), comprising reserves and paid-in surplus less
shares held in treasury.
Parent company accounting policies
Basis of preparation
The parent company financial statements have been prepared
under the historical cost convention. As permitted by 2:362
subsection 1 of the Dutch Civil Code for companies with
international operations, the parent company financial statements
have been prepared in accordance with UK Generally Accepted
Accounting Practice (UK GAAP), ensuring consistency. The
financial information relating to the company is recognised
in the consolidated financial statements.
The parent company financial statements are prepared on a going
concern basis, as explained on page 175.
The Reed elsevier Nv accounting policies under UK GAAP are set
out below.
Principal joint ventures are set out in note 11 of the Reed elsevier
Nv consolidated financial statements.
Short term investments are stated at the lower of cost and net
realisable value. Other assets and liabilities are stated at
historical cost, less provision, if appropriate, for any impairment
in value.
Shares held in treasury
The amount of consideration paid, including directly attributable
costs, for shares repurchased is recognised as shares held in
treasury and presented as a deduction from total equity. Details
of share capital and shares held in treasury are set out in note 13
of the Reed elsevier Nv consolidated financial statements and
note 28 of the Reed elsevier combined financial statements.
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.
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.
Reed Elsevier 2012.indb 190
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Reed Elsevier Annual Reports and Financial Statements 2012
191
Notes to the parent company financial statements
1 Other creditors
Other creditors include €7m (2011: €8m) of employee convertible debenture loans with a weighted average interest rate of 2.65%
(2011: 3.13%). Depending on the conversion terms, the surrender of €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 shareholders
Share of results of joint ventures
Dividends received from joint ventures
Consolidated profit attributable to shareholders using the equity method
2012
€m
758
654
(754)
658
2011
€m
17
420
–
437
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
2012
€m
4,948
(2,427)
(262)
32
(94)
(602)
(193)
1,402
2011
€m
4,630
(2,327)
(214)
103
(96)
(602)
(191)
1,303
3 Other matters
Transactions with members of the executive Board including share based remuneration costs are set out in note 30 to the combined
financial statements and details of the directors' remuneration are included in the directors’ remuneration report on pages 74 to 90.
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Reed Elsevier 2012.indb 191
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192 FiNANCiAl STATEMENTS AND OTHER iNFORMATiON
ReeD elSevIeR Nv
Additional information
R shares
Reed elsevier Nv has two types of shares: ordinary shares of €0.07 nominal value and R shares of €0.70 nominal value. each R share
is convertible into 10 ordinary shares and is entitled to cast 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)
2012
€m
228
91
–
439
758
2011
€m
212
77
–
(272)
17
Reed Elsevier 2012.indb 192
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Reed Elsevier Annual Reports and Financial Statements 2012
193
Independent auditor’s report on the parent company
financial statements to the shareholders of 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 2012, and of its results and its cash flows for
the year then ended in accordance with accounting practices
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
whether 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 parent company financial
statements as required by 2:391 sub 4 of the Dutch Civil Code.
Deloitte Accountants B.V.
A Sandler
Amsterdam
The Netherlands
27 February 2013
Report on the company financial statements
We have audited the accompanying parent company financial
statements 2012 which are part of the financial statements of
Reed Elsevier NV, Amsterdam, which comprise the parent
company balance sheet as at 31 December 2012, 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 189 to 192.
Directors’ responsibility
The directors are responsible for the preparation and fair
presentation of the parent company financial statements both in
accordance with accounting practices 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, the directors are 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.
Auditor’s 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 the directors,
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.
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Reed Elsevier 2012.indb 193
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194 Financial statements and other inFormation
reed elsevier Nv
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 (€)
Adjusted earnings per ordinary share (€)
dividend per ordinary share (€)
Note
2
2
2
3
2012
€m
7,523
1,670
2,107
1,315
1,400
658
700
€0.90
€0.95
€0.467
2011
€m
6,902
1,386
1,870
874
1,219
437
610
€0.59
€0.83
€0.436
2010
€m
7,084
1,275
1,819
751
1,150
376
575
€0.51
€0.78
€0.412
2009
€m
6,800
881
1,758
438
1,099
219
550
€0.32
€0.79
€0.400
2008
€m
6,721
1,135
1,737
587
1,159
294
580
€0.44
€0.87
€0.404
(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 (2008 - 2010) and acquisition related costs,
exceptional prior year tax credits (in 2012 only), 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 financing 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 €1.767 per share special distribution in 2008.
Reed Elsevier 2012.indb 194
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Reed Elsevier Annual Reports and Financial Statements 2012
195
Other
information
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In this section
Additional information for US Investors
196 Reed Elsevier combined businesses
198 Reed Elsevier PLC
199 Reed Elsevier NV
Shareholder information
200 Shareholder information
202 Contacts
203 2013 financial calendar
Principal operating locations
204 Principal operating locations
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Reed Elsevier 2012.indb 195
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196 FInAncIAl StAtEmEntS And othER InFoRmAtIon
REEd ELSEViER COmBiNEd BuSiNESSES
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
2012
1.59
2011
1.60
2012
1.62
2011
1.55
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
2012
US$m
9,724
2,159
1,887
1,700
2,724
2,380
1,809
2011
uS$m
9,603
1,928
1,517
1,216
2,602
2,226
1,696
Reed Elsevier 2012.indb 196
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Reed Elsevier Annual Reports and Financial Statements 2012
197
Combined statement of cash flows
FoR thE YEAR EndEd 31 dEcEmBER
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
decrease in cash and cash equivalents
movement in cash and cash equivalents
At start of year
decrease in cash and cash equivalents
Exchange translation differences
At end of year
Adjusted operating cash flow
Combined statement of financial position
AS At 31 dEcEmBER
Non-current assets
Current assets
Assets held for sale
total assets
Current liabilities
Non-current liabilities
Liabilities associated with assets held for sale
total liabilities
net assets
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2012
US$m
2,237
(757)
(1,594)
(114)
1,125
(114)
27
1,038
2,549
2011
uS$m
2,052
(1,154)
(968)
(70)
1,158
(70)
37
1,125
2,424
2012
US$m
13,738
3,624
481
17,843
6,347
7,591
156
14,094
3,749
2011
uS$m
13,812
3,949
68
17,829
6,857
7,541
26
14,424
3,405
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Reed Elsevier 2012.indb 197
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198 FInAncIAl StAtEmEntS And othER InFoRmAtIon
REEd ELSEViER PLC
Reed Elsevier PLC
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier PLC consolidated financial statements into uS dollars
at the stated rates of exchange. The financial information provided below is prepared under iFRS as used in the preparation of the
Reed Elsevier PLC consolidated financial statements. it does not represent a restatement under uS GAAP which would be different
in some significant respects.
ExchAngE RAtES FoR tRAnSlAtIon oF StERlIng ($:£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
Acquisition related costs
disposals and other non operating items
Exceptional prior year tax credit
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
2012
US$:£
1.59
1.62
2011
uS$:£
1.60
1.55
2012
US$m
878
957
(283)
(13)
88
81
70
900
2012
US$
$3.19
$2.93
$1.39
$1.46
2011
uS$m
622
898
(301)
(27)
(13)
–
86
643
2011
uS$
$2.99
$2.07
$1.32
$1.38
2012
US$m
1,954
2011
uS$m
1,781
Adjusted earnings per American depositary Share is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted profit
attributable of the Reed Elsevier combined businesses, which excludes amortisation of acquired intangible assets, acquisition related
costs, disposal gains and losses and other non operating items, related tax effects, exceptional prior year tax credits (in 2012 only)
and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term and include the benefit of tax
amortisation where available on acquired goodwill and intangible assets. Adjusted figures are additional performance measures used
by management and are described in note 9 to the Reed Elsevier PLC consolidated financial statements.
Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American depositary Shares (AdSs),
evidenced by American depositary Receipts (AdRs), representing four Reed Elsevier PLC ordinary shares. (CuSiP No. 758205207;
trading symbol, RuK; Bank of New York is the AdR depositary.)
Reed Elsevier 2012.indb 198
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Reed Elsevier Annual Reports and Financial Statements 2012
199
Reed Elsevier NV
Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier NV consolidated financial statements into uS dollars
at the stated rates of exchange. The financial information provided below is prepared under iFRS as used in the preparation of the
Reed Elsevier NV consolidated financial statements. it does not represent a restatement under uS GAAP which would be different
in some significant respects.
ExchAngE RAtES FoR tRAnSlAtIon oF EURo ($:€1)
income statement
Statement of financial position
Consolidated income statement
FoR thE YEAR EndEd 31 dEcEmBER
Adjusted profit attributable to shareholders
Share of joint ventures’:
Amortisation of acquired intangible assets
Acquisition related costs
disposals and other non operating items
Exceptional prior year tax credit
deferred tax adjustments
Profit attributable to 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
2012
US$:€
1.29
1.32
2011
uS$:€
1.39
1.29
2012
US$m
903
(267)
(13)
83
76
67
849
2012
US$
$2.45
$2.32
$1.18
$1.20
2011
uS$m
849
(284)
(26)
(14)
–
83
608
2011
uS$
$2.31
$1.64
$1.15
$1.21
2012
US$m
1,851
2011
uS$m
1,683
Adjusted earnings per American depositary Share is based on Reed Elsevier NV shareholders’ 50% share of the adjusted profit
attributable of the Reed Elsevier combined businesses, which excludes amortisation of acquired intangible assets, acquisition related
costs, disposal gains and losses and other non operating items, related tax effects, exceptional prior year tax credits (in 2012 only)
and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term and include 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.)
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200 Financial statements and other inFormation
Shareholder information
Shareholder information
annual reports and Financial statements 2012
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 2012, and
the Corporate Governance Statement of reed elsevier nV are
available on the reed elsevier website, and from the registered
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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.
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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, www.reedelsevier.com.
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reed elsevier PlC’s ordinary shares are quoted on the london
Stock exchange.
reed elsevier nV’s ordinary shares are quoted on the nYSe
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
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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
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for further information ViSit www.reedelsevier.com
Information for Reed Elsevier PLC
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Reed Elsevier 2012.indb 200
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reed elsevier annual reports and financial Statements 2012
201
individual savings account (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 202, or by calling their iSa helpline on 0871 384 2244.
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
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warning to shareholders – unsolicited investment advice
many companies have become aware that their shareholders have
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Shareholders are advised to be very wary of any unsolicited
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the fSa can be contacted at www.fsa.gov.uk/pages/doing/
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Information for Reed Elsevier NV
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shareholder enquiries
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By instructing their bank or intermediary, shareholders can
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consolidation of ordinary shares
on 7 January 2008 the reed elsevier nV ordinary share of €0.06
each were consolidated on the basis of 58 new ordinary shares of
€0.07 each for every 67 ordinary shares of €0.06 each held.
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
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Commission. a copy of form 20-f is available on the reed elsevier
website, or from the adr depositary at the address shown on
page 202.
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Reed Elsevier 2012.indb 201
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reed elsevier nv
radarweg 29
1043 nX amsterdam
the netherlands
tel: +31 (0)20 485 2222
fax: +31 (0)20 485 2032
deloitte accountants BV
orlyplein 10
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listing/paying agent
aBn amro Bank nV
Gustav mahlerlaan 10
1082 PP amsterdam
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www.securitiesinFo.nl
202 Financial statements and other inFormation
ContaCtS
Contacts
reed elsevier Plc
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london WC2n 5Jr
united Kingdom
tel: +44 (0)20 7166 5500
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auditors
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registrar
equiniti limited
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tel: 0871 384 2960
(calls cost 8p per minute plus additional network charges
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Reed Elsevier 2012.indb 202
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reed elsevier annual reports and financial Statements 2012
203
2013 financial calendar
28 February
24 april
24 april
25 april
30 april
1 may
3 may
23 may
30 may
25 July
7 august
9 august
29 august
5 september
7 november
Plc/nv
Plc/nv
nv
Plc
nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
Plc/nv
results announcement for the year ended 31 december 2012
interim management statement issued in relation to the 2013 financial year
annual General meeting – reed elsevier nV, hotel okura, ferdinand Bolstraat 33, 1072 lh amsterdam
annual General meeting – reed elsevier PlC, millennium hotel, Grosvenor Square, london W1K 2hP
ex-dividend date – 2012 final dividend, reed elsevier nV ordinary shares
ex-dividend date – 2012 final dividend, reed elsevier PlC ordinary shares and adrs, and reed elsevier
nV adrs
record date – 2012 final dividend, reed elsevier PlC and reed elsevier nV ordinary shares and adrs
Payment date – 2012 final dividend, reed elsevier PlC and reed elsevier nV ordinary shares
Payment date – 2012 final dividend, reed elsevier PlC and reed elsevier nV adrs
interim results announcement for the six months to 30 June 2013
ex-dividend date – 2013 interim dividend, reed elsevier PlC and reed elsevier nV ordinary shares and adrs
record date – 2013 interim dividend, reed elsevier PlC and reed elsevier nV ordinary shares and adrs
Payment date – 2013 interim dividend, reed elsevier PlC and reed elsevier nV ordinary shares
Payment date – 2013 interim dividend, reed elsevier PlC and reed elsevier nV adrs
interim management statement issued in relation to the 2013 financial year
the following tables set out dividends paid (or proposed) in relation to the three financial years 2010–2012.
final dividend for 2012*
interim dividend for 2012
final dividend for 2011
interim dividend for 2011
final dividend for 2010
interim dividend for 2010
per Plc ordinary share
per nv ordinary share
Payment date
17.00p
6.00p
15.90p
5.65p
15.00p
5.40p
€0.337
€0.130
€0.326
€0.110
€0.303
€0.109
23 may 2013
31 august 2012
21 may 2012
26 august 2011
17 may 2011
27 august 2010
*Proposed dividend, to be submitted for approval at the respective annual General meetings of reed elsevier PlC and reed elsevier nV in april 2013.
final dividend for 2012
interim dividend for 2012
final dividend for 2011
interim dividend for 2011
final dividend for 2010
interim dividend for 2010
per Plc adr
**
$0.37898
$1.00379
$0.36860
$0.97236
$0.33480
per nv adr
**
$0.27638
$0.70499
$0.26875
$0.73118
$0.23512
Payment date
30 may 2013
7 September 2012
29 may 2012
2 September 2011
24 may 2011
3 September 2010
**Payment will be determined using the appropriate £/uS$ and €/uS$ exchange rate on 23 may 2013.
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204 Financial statements and other inFormation
PrinCiPal oPeratinG loCationS
Principal operating locations
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Reed Elsevier 2012.indb 204
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Reed Elsevier is a world leading provider of
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We provide solutions that help professional customers
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Contents
1
7
Overview
1 Chairman’s statement
2
4
2012 Financial highlights
Chief Executive Officer’s
report
Business review
8 Reed Elsevier
12 Scientific, Technical & Medical
Risk Solutions & Business
18
Information
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Legal
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93
50
Chief Financial Officer’s
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Structure and corporate
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Report of the Nominations
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91
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133 Summary combined financial
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147 Reed Elsevier PLC Annual
Report and Financial
Statements
171 Reed Elsevier NV Annual
Report and Financial
Statements
195 Additional information
for US investors
196 Summary financial
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200 Shareholder information
202 Contacts
203 2013 financial calendar
204 Principal operating locations
Full report online
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Annual Reports and
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2012
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