RELX Annual Report 2014 | Quarterlytics

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A n n u a l i R e p o r t s a n d F n a n c i a l S t a t e m e n t s 2 0 1 4 www.relxgroup.com Annual Reports and Financial Statements 2014 21654 Reed AR 2014 Cover Outer and Inner.indd 1-3 05/03/2015 18:52 Credits Designed and produced by mslgroup.com Board photography by Douglas Fry, Piranha Photography Printed by Pureprint Group, ISO14001, FSC® certified and CarbonNeutral® The 2014 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. RELX Group is a world-leading provider of information solutions for professional customers across industries. We help scientists make new discoveries, lawyers win cases, doctors save lives, and executives forge commercial relationships with their clients. We help insurance groups offer customers lower prices by assessing risk better, and save taxpayers and consumers money by enabling governments and financial groups to detect fraud. RELX Group is owned by two parent companies: Reed Elsevier PLC is the London Stock Exchange listed vehicle for holding shares in RELX Group. Shareholders in Reed Elsevier PLC own a 52.9% economic interest in the Group. Reed Elsevier NV is the Amsterdam Stock Exchange listed vehicle for holding shares in RELX Group. External shareholders in Reed Elsevier NV own a 47.1% economic interest in the Group. Forward-looking statements The Reports and Financial Statements 2014 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”, “trends” and similar expressions identify forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to competitive factors in the industries in which the Group operates; demand for the Group’s products and services; exchange rate ﬂuctuations; general economic and business conditions; legislative, fiscal, tax and regulatory developments and political risks; the availability of third-party content and data; breaches of our data security systems and interruptions in our information technology systems; changes in law and legal interpretations affecting the Group’s intellectual property rights and other risks referenced from time to time in the filings of the Group with the US Securities and Exchange Commission. 94118_Reed_AR_Cover.indd 4-6 09/03/2015 17:46 RELX Group Annual Reports and Financial Statements 2014 1 Contents Get more information online A full pdf of the Annual Report and further information about the Group and our businesses can be found online at our corporate website: www.relxgroup.com Overview* 2 3 4 2014 Financial highlights Chairman’s statement Chief Executive Ofﬁcer’s report Business review* 8 14 20 26 32 37 The Group Scientiﬁc, Technical & Medical Risk & Business Information Legal Exhibitions Corporate responsibility Financial review* 50 58 Chief Financial Ofﬁcer’s report Principal risks Governance 62 64 66 68 74 75 89 Board Directors The Group Business Leaders Chairman's introduction to Corporate Governance Corporate Governance Report of the Nominations Committee Directors' Remuneration Report Report of the Audit Committees Financial statements and other information 91 135 147 165 187 191 194 195 196 Combined ﬁnancial statements Summary combined ﬁnancial information in euros Reed Elsevier PLC Annual Report and Financial Statements Reed Elsevier NV Annual Report and Financial Statements Summary ﬁnancial information in US dollars Shareholder information Contacts 2015 ﬁnancial calendar Principal operating locations * Comprises the Strategic Report in accordance with The (UK) Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p001-006.indd 1 06/03/2015 08:42 2 OVERVIEW RELX Group 2014 Financial highlights § Underlying revenue up 3% (excluding exhibition cycling effects) § Underlying adjusted operating proﬁt up 5% § Adjusted EPS 56.3p (54.0p) for Reed Elsevier PLC; €1.07 (€0.99) for Reed Elsevier NV; +10% constant currency § Reported EPS 43.0p (48.8p) for Reed Elsevier PLC; €0.85 (€0.91) for Reed Elsevier NV § Full year dividend up 6% to 26.0p for Reed Elsevier PLC and up 16% to €0.589 for Reed Elsevier NV § Return on invested capital up 0.7pts to 12.8% § Net debt at £3.5bn; 2.3x EBITDA pensions and lease adjusted (1.7x unadjusted) Reed Elsevier combined businesses REVENUE ADJUSTED OPERATING PROFIT £m €m £m €m Underlying Growth +3% Underlying Growth +5% 7,121 7,159 2,064 2,156 6,035 5,773 1,749 1,739 2013 2014 2013 2014 2013 2014 2013 2014 Parent companies REED ELSEVIER PLC Adjusted EPS pence Growth +4% 56.3 54.0 Dividend pence Growth +6% 24.6 26.0 REED ELSEVIER NV Adjusted EPS € Growth +8% 0.99 1.07 Dividend € Growth +16% 0.506 0.589 2013 2014 2013 2014 2013 2014 2013 2014 The Reed Elsevier combined businesses (or “the combined businesses”) in 2014 encompassed 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”). Effective 25 February 2015, ownership of Elsevier Reed Finance BV was transferred to Reed Elsevier Group plc and this newly combined single group entity was named RELX Group plc. A full description is set out on pages 66 and 67. Adjusted and underlying ﬁgures are additional performance measures used by management. Adjusted ﬁgures 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. Underlying revenue growth rates also exclude the effects of exhibition cycling. Constant currency growth rates are based on 2013 full year average and hedge exchange rates. The underlying growth in revenue and in adjusted operating proﬁt are the key performance indicators used by the Group in assessing performance. 94118_Reed_AR_p001-006.indd 2 06/03/2015 08:42 RELX Group Annual Reports and Financial Statements 2014 3 Chairman’s statement Balance sheet Net debt was £3.5bn/€4.6bn on 31 December 2014, compared with £3.1bn/€3.7bn last year. Net debt/EBITDA on a pensions and lease adjusted basis for 2014 was 2.3x, up from 2.1x last year, and on an unadjusted basis, it was 1.7x, up from 1.6x last year. Adjusted cash ﬂow conversion was 96%, down from 97% in 2013, with capital expenditure at 4.7% of revenues. Share buybacks During the year, we continued with our share buyback programme. In 2014, we deployed a total of £600m on share buybacks. In 2015, we intend to deploy a total of £500m on share buybacks. By February, £100m of this year’s total had already been completed, leaving a further £400m to be deployed during the year. The Boards Following the resignation of Duncan Palmer, Nick Luff joined the Group as Chief Financial Ofﬁcer in September. I would like to take this opportunity to thank Duncan for his contributions over two years, and welcome Nick to our Boards. Corporate structure and corporate entity names We are proposing measures to shareholders at our Annual General Meetings in April which will simplify our corporate structure, clarify the economic interests of parent company shareholders, and increase share price transparency. None of the changes impact the economic interests of any shareholder. We are also proposing to shareholders to align the two parent company names with RELX Group plc, the name that we adopted for the new single group entity on 25 February. The proposed new names are RELX PLC for the London listed shareholding vehicle and RELX NV for the Amsterdam listed shareholding vehicle. We believe it to be in the interests of the shareholders of both parent companies to make the company into a more understandable group with a more modern name to reﬂect where the company is today. Corporate responsibility We remain focused on corporate responsibility, which continues to be a source of strength at the company. The Boards are particularly proud of the initiatives we are taking, which build on our unique contributions to society. Our commitment to the highest standards of ethical management also underpins the vitality of the company. Here, the Boards monitor performance to ensure sustained progress in areas ranging from governance and diversity to responsible supply chain management. Anthony Habgood Chairman Anthony Habgood Chairman Once again underlying revenue and proﬁts grew across all major business units during 2014, as we continued to streamline our operations. We are now proposing measures that will modernise and simplify our corporate structure, increasing transparency without impacting the economic interests of shareholders. Growth of underlying revenues, which exclude the effects of currency translation, acquisitions, disposals and biennial exhibitions cycling, was 3%. Underlying adjusted operating proﬁts grew 5%, with the improvement in proﬁtability reﬂecting a combination of underlying revenue growth, process innovation and portfolio development. Adjusted operating proﬁts fell 1% to £1,739m expressed in sterling, and increased 4% to €2,156m expressed in euros. Adjusted earnings per share grew 4% to 56.3p for Reed Elsevier PLC, and 8% to €1.07 for Reed Elsevier NV. Reported earnings per share fell 12% to 43p for Reed Elsevier PLC, and 7% to €0.85 for Reed Elsevier NV. The year-on-year declines largely reﬂect the absence of a non-recurring tax credit which was taken in 2013. Dividends The Boards are recommending equalised ﬁnal dividends of 19.00p for Reed Elsevier PLC and €0.438 for Reed Elsevier NV, up respectively 6% and 17% against the prior year. This brings the total dividends for the year to 26.00p for Reed Elsevier PLC, up 6% and €0.589 for Reed Elsevier NV, up 16%. 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p001-006.indd 3 06/03/2015 08:42 4 OVERVIEW CHIEF EXECUTIVE OFFICER’S REPORT Chief Executive Ofﬁcer’s report Strategic direction Our strategy remains consistent: to become a global professional information solutions provider, a company that delivers improved outcomes for professional customers across industries. Our goal is to help our customers make better decisions, get better results and be more productive. We do this by leveraging a deep understanding of our customers to create innovative solutions which combine content and data with analytics and technology in global platforms. These solutions often account for about 1% of our customers’ total cost base but can have a signiﬁcant and positive impact on the economics of the remaining 99%. We aim to build leading positions in long-term global growth markets and leverage our skills, assets and resources across the company, both to build solutions for our customers and to pursue cost efﬁciencies. During the year we continued to make progress in this strategic direction. We are systematically migrating all of our businesses towards electronic decision tools, adding broader data sets, embedding more sophisticated analytics and leveraging more powerful technology, primarily through organic development. We are transforming our core business, building out new products and expanding into higher growth adjacencies and geographies. We are supplementing this organic development with selective acquisitions of targeted data and content sets, and assets in high-growth markets and geographies, where we are the natural owner and can accelerate our strategy with good returns. We continue to divest assets that we are unable to migrate or where we do not see signiﬁcant future value creation. By focusing on evolving the fundamentals of our business we believe that, over time, we are improving our business proﬁle and the quality of our earnings. This is leading 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. Erik Engstrom Chief Executive Ofﬁcer In 2014, we maintained good momentum across our key ﬁnancial metrics of underlying revenue growth, underlying operating proﬁt growth, adjusted earnings per share growth, and return on invested capital. We made further strategic and operational progress as we continued to transform our business, primarily through organic development. UNDERLYING REVENUE GROWTH* UNDERLYING ADJUSTED OPERATING PROFIT GROWTH +3% +3% +3% +3% +5% +6% +5% +5% 2011 2012 2013 2014 2011 2012 2013 2014 * Excluding cycling effects. 94118_Reed_AR_p001-006.indd 4 06/03/2015 08:42 RELX Group Annual Reports and Financial Statements 2014 5 2014 progress In 2014, we made further strategic and operational progress, as we continued to transform our business, primarily through organic development. With 82% of revenues in our targeted formats of electronic and face-to-face, generating average underlying revenue growth rates of 5% to 7%, we are now primarily focused on driving the transition from electronic reference to electronic decision tools. Our transition away from advertising and marketing services is substantially complete. In 2014, we continued to focus our acquisitions on targeted data sets and analytics, and assets in high-growth markets that support our organic growth strategies. We completed 27 acquisitions for a total consideration of £385m. We also continued to dispose of assets across business areas, closing 17 small transactions for a total consideration of £74m. With a strong balance sheet, strong cash ﬂow characteristics and with average acquisition spend comfortably covered by free cash ﬂow after dividends, we continued to take a pragmatic approach to ensuring that the value compounding within the business translates into shareholder value. As part of this we maintained our share buyback programme at £600m in 2014. We are now extending our efforts to modernise and simplify the company to our corporate structure, our share listings and our corporate entity names. Ownership of all businesses, subsidiaries and ﬁnancing activities below the two listed parent companies has been transferred to one new single group entity for the ﬁrst time. This newly-formed single group entity is the result of combining Reed Elsevier Group plc and Elsevier Reed Finance BV. In addition, we are proposing to eliminate the cross-shareholding between the two parent companies and align their direct equity holdings in the new single group entity with their external shareholders’ respective economic interests of 52.9% and 47.1%. We also propose to simplify our share listings and increase share price transparency by moving the equalisation ratio for all our share listings to one-to-one from 1 July 2015. The newly-combined single group entity has been named RELX Group plc. We believe this shorter and more modern name reﬂects the transformation of the company to a technology, content and analytics-driven business, while maintaining the link with our proud heritage names. We are proposing to align the names of the parent companies, Reed Elsevier PLC and Reed Elsevier NV, with that of RELX Group plc on 1 July, to RELX PLC for the London listed shareholding vehicle, and RELX NV for the Amsterdam listed shareholding vehicle. There will not be any brand or name changes for any customer-facing products or business units. Financial performance We maintained good momentum throughout 2014 across our four key ﬁnancial metrics. Underlying revenue growth, excluding exhibition cycling effects, was 3%. Underlying operating proﬁt growth was 5%. Earnings per share at constant currencies grew 10%, and our return on invested capital increased by 0.7 percentage points to 12.8%. All four major business areas again delivered underlying revenue and proﬁt growth. We improved proﬁtability through process innovation and portfolio development. Scientiﬁc, Technical & Medical saw double digit growth in subscription journal article submissions and usage, and we saw continued good growth in Databases and Tools, with good electronic revenue growth across all segments. Strong underlying revenue growth in Risk & Business Information was driven by volume growth, new product roll-outs and adjacency expansion across segments. Legal underlying revenue growth was maintained in 2014, in subdued markets, with continued growth in online revenues largely offset by print declines. The roll-out of new platform and product releases continued as planned with adoption and usage progressing well. Exhibitions maintained strong underlying revenue growth. While growth in Europe was modest, the US, Japan and other markets grew strongly. EARNINGS PER SHARE GROWTH Constant currency RETURN ON INVESTED CAPITAL +8% +7% +6% +10% 11.2% 11.7%* 12.1% 12.8% 2011 2012 2013 2014 2011 2012 2013 2014 * 2012 ROIC restated for IAS19. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p001-006.indd 5 06/03/2015 08:42 6 OVERVIEW CHIEF EXECUTIVE OFFICER’S REPORT Corporate responsibility We prioritise our unique contributions to society, including universal sustainable access to information; advancement of science and health; access to justice and the rule of law; and protection of society. In 2014, for example, we supported indigenous African research through Publishers Without Borders; advanced Business for the Rule of Law with the United Nations Global Compact, an initiative that will help businesses further the rule of law at the national and international level; and helped recover three missing children through our Automated Delivery of Alerts on Missing Children (ADAM) programme. Outlook Business trends in the early part of 2015 remain consistent with 2014 trends across our business, and we are conﬁdent that, by continuing to execute on our strategy, we will deliver another year of underlying revenue, proﬁt and earnings growth in 2015. Erik Engstrom Chief Executive Ofﬁcer REVENUE BY FORMAT REVENUE BY GEOGRAPHICAL MARKET REVENUE BY TYPE £5,773m 18% 16% £5,773m 21% Electronic Face to face Print/Other 50% North America Europe Rest of World £5,773m 2% Subscriptions Transactional Advertising 66% 29% 47% 51% 94118_Reed_AR_p001-006.indd 6 06/03/2015 08:42 RELX Group Annual Reports and Financial Statements 2014 7 Business review In this section RELX Group 8 14 Scientiﬁc, Technical & Medical 20 Risk & Business Information 26 Legal 32 Exhibitions 37 Corporate responsibility O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 7 06/03/2015 08:49 8 BUSINESS REVIEW RELX Group RELX Group RELX Group is a world-leading provider of information solutions for professional customers across industries. We help scientists make new discoveries, lawyers win cases, doctors save lives and executives forge commercial relationships with their clients. We help insurance groups offer customers lower prices by assessing risk better, and save taxpayers and consumers money by enabling governments and ﬁnancial groups to detect fraud. We achieve this by using our deep customer understanding to combine high-quality content and data with analytics and technology in global platforms. These solutions often account for about 1 percent of our customers’ total cost base but can have a signiﬁcant, positive impact on the economics of the remaining 99 percent. We aim to build leading positions in long-term global growth markets and we are leveraging our institutional skills, assets and resources across the company, both to build solutions for our customers and to pursue cost efﬁciencies. We continue to evolve into a company that delivers improved outcomes to professional customers across industries. We are achieving this primarily through organic development, supplemented by selective portfolio reshaping. 94118_Reed_AR_p007-036.indd 8 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 9 Reed Elsevier combined businesses REPORTED FIGURES 2014 £m 5,773 1,402 1,229 955 16.5% 3,550 2014 £m 1,739 30.1% 1,592 1,213 21.0% 1,662 96% 12.8% For the year ended 31 December Revenue Operating proﬁt Proﬁt before tax Net proﬁt Net margin Net borrowings ADJUSTED FIGURES For the year ended 31 December Operating proﬁt Operating margin Proﬁt before tax Net proﬁt Net margin Cash ﬂow Cash ﬂow conversion Return on invested capital Parent companies Adjusted earnings per share Reported earnings per share Ordinary dividend per share £ 2013 £m 6,035 1,376 1,196 1,110 18.4% 3,072 £ 2013 £m 1,749 29.0% 1,572 1,197 19.8% 1,703 97% 12.1% Change –4% +2% +3% –14% Change –1% +1% +1% –2% 2014 €m 7,159 1,738 1,523 1,184 16.5% 4,579 2014 €m 2,156 30.1% 1,974 1,504 21.0% 2,061 96% 12.8% € 2013 €m 7,121 1,624 1,412 1,310 18.4% 3,686 € 2013 €m 2,064 29.0% 1,855 1,413 19.8% 2,010 97% 12.1% Change at constant currencies +1% +8% +9% –9% Change +1% +7% +8% –10% Change underlying +3%* Change underlying +5% Change at constant currencies Change +4% +6% +6% +3% +5% +7% +7% +3% Reed Elsevier PLC Reed Elsevier NV 2014 56.3p 43.0p 26.0p 2013 Change 2014 2013 Change 54.0p 48.8p 24.6p +4% –12% €1.07 €0.85 +6% €0.589 €0.99 €0.91 €0.506 +8% –7% +16% Change at constant currencies +10% * Excluding exhibition cycling. Had exhibition cycling been included, underlying growth would have been 4%. The Reed Elsevier combined businesses (or “the combined businesses”) in 2014 encompassed 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”). Effective 25 February 2015, ownership of Elsevier Reed Finance BV was transferred to Reed Elsevier Group plc and this newly combined single group entity was named RELX Group plc. 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. These 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. We serve customers in more than 180 countries and have 28,500 full-time employees worldwide. 50% of revenues GENERATED IN NORTH AMERICA 82% of revenues GENERATED FROM ELECTRONIC OR FACE- TO-FACE FORMATS $1.3bn technology SPEND EVERY YEAR 8,000 technologists EMPLOYED GLOBALLY O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 9 09/03/2015 17:58 10 BUSINESS REVIEW RELX Group LEVERAGING INNOVATION ACROSS THE GROUP: HPCC SYSTEMS The company’s big data technology, known as HPCC, allows users to leverage structured and unstructured data, opening up huge possibilities for our customers. It powers all of the LexisNexis Risk Solutions’ operations, and now other businesses across the company are capitalising on its capabilities. 82% OF NORTH AMERICAN CUSTOMERS ARE ACTIVATED TO USE LEXIS ADVANCE AS OF FEBRUARY 2015 LEXIS ADVANCE Lexis Advance offers lawyers trusted information and unique insight supporting all aspects of their daily work. Powered by HPCC Systems’ big data technology, and guided by the principle of ‘power in simplicity’, the new portfolio of content, analytical and productivity tools delivers results quickly and easily. More than 4bn connections within the LexisNexis database are continually explored and updated to deliver the latest, most accurate results via computer, tablet or smartphone. LEGAL PROFESSIONALS WORK UNDER ENORMOUS BUSINESS AND TIME PRESSURES AS THEY SOLVE COMPLEX PROBLEMS AND MITIGATE RISK FOR THEIR CLIENTS, AGENCIES AND COMPANIES. THE DATA PROCESSING POWER OF HPCC SYSTEMS ALLOWS LEXIS ADVANCE TO DIRECTLY ADDRESS THEIR NEEDS TO QUICKLY TURN INSIGHTS INTO ACTION. Sean Fitzpatrick MD, North American Research Solutions, LexisNexis 94118_Reed_AR_p007-036.indd 10 09/03/2015 17:40 RELX Group Annual Reports and Financial Statements 2014 11 90,000bn possible metric values Signing ceremony of the Big Data Initiative between Elsevier and University College London. L–R: (back row) Professor Stephen Caddick, UCL’s Vice-Provost (Enterprise & London); Rt Hon David Willetts, Minister of State for Universities and Science; Anthony Habgood, Chairman; Nick Fowler (Elsevier) L–R: (seated) Prof David Price, Vice Provost (Research) UCL; Prof Michael Arthur, President and Provost UCL; Ron Mobed, CEO Elsevier; Olivier Dumon (Elsevier) SCIVAL SciVal offers research institutions an evidence base to benchmark the productivity and impact of their research against any of their peers worldwide. It is powered by a supercomputer, using HPCC Systems. This allows more than 4,600 institutions and entire countries to draw on more than 90,000bn possible metric values, derived from more than 33m Scopus publications. The results are displayed within a second. SCIVAL’S HALLMARK IS ITS ENORMOUS FLEXIBILITY THAT ALLOWS CUSTOMERS TO LOOK AT THEIR PERFORMANCE IN THEIR OWN WAY. CUSTOMERS ARE AMAZED TO SEE HOW MANY OPTIONS SCIVAL OFFERS THEM TO COMPARE THEMSELVES AGAINST THEIR PEERS. Marcel Vonder Head of Product Development for SciVal 7 years PERSONAL AUTOMOBILE POLICY CLAIMS CONTAINED IN C.L.U.E.® AUTO C.L.U.E.® AUTO C.L.U.E.® Auto, part of the LexisNexis Risk Solutions product suite, provides insurance companies access to prior claim information to assist them in determining premiums during the underwriting process. It is the US insurance industry’s most complete source of historical personal automobile claims data. Using HPCC Systems has improved the ability of LexisNexis to provide a complete history of a potential policyholder’s claim experience. HPCC Systems enables us to discover claims even when given minimal search criteria by the insurance carrier. AS A CONTRIBUTORY DATABASE, C.L.U.E.® AUTO HAS PROVEN TO BE INVALUABLE TO THE INSURANCE INDUSTRY BECAUSE OF THE INSIGHTS IT PROVIDES DURING THE UNDERWRITING PROCESS. Victor Bayus Vice President, Product Management, LexisNexis Risk Solutions O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 11 09/03/2015 17:40 12 BUSINESS REVIEW RELX Group The Group operates across a number of market segments MARKET SEGMENTS SEGMENT POSITION In Scientiﬁc, Technical & Medical markets, we provide information and tools to help customers improve scientiﬁc and healthcare outcomes. Global #1 In Risk & Business Information, we provide data, analytics and insight that enable customers to evaluate and manage risks, and develop market intelligence, supporting more conﬁdent decisions, improved economic outcomes, and enhanced operational efﬁciency. Key verticals #1 In Legal markets, we are a world-leading provider of legal, regulatory and news and business information and analysis to legal, corporate, government and academic customers. US #2 Outside US #1 or 2 In Exhibitions, we are the world’s leading events business, with 500 events in over 30 countries. Global #1 Financial summary by market segment Revenue Scientiﬁc, Technical & Medical Risk & Business Information Legal Exhibitions Adjusted operating proﬁt Scientiﬁc, Technical & Medical Risk & Business Information Legal Exhibitions Unallocated items 2014 £m 2,048 1,439 1,396 890 5,773 762 506 260 217 (6) 1,739 2013 £m 2,126 1,480 1,567 862 6,035 787 507 250 210 (5) 1,749 Change Change at constant currencies Change underlying –4% –3% –11% +3% –4% –3% 0% +4% +3% –1% +1% +2% –6% +11% +1% +1% +5% +10% +12% +5% +2% +6% +1% +7%* +3%* +3% +6% +6% +9% +5% * Excluding exhibition cycling effects. Had cycling effects been included the Group’s underlying growth would have been 4% and Exhibitions’ would have been 9%. Adjusted and underlying ﬁgures are additional performance measures used by management. Adjusted ﬁgures are reconciled to the reported ﬁgures in note 10 to the combined ﬁnancial statements and note 9 to the respective parent company ﬁnancial statements. 2013 comparative ﬁnancial information has been restated following the adoption of a new method for the allocation of corporate and shared costs from 1 January 2014. 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. Underlying revenue growth rates also exclude the effects of exhibition cycling. Constant currency growth rates are based on 2013 full year average and hedge exchange rates. The underlying growth in revenue and in adjusted operating proﬁt are the key performance indicators used by the Group in assessing performance. REVENUE £5,773m 15% 36% 24% Scientiﬁc, Technical & Medical Risk & Business Information Legal Exhibitions ADJUSTED OPERATING PROFIT £1,739m 12% 15% 25% 29% Scientiﬁc, Technical & Medical 44% Risk & Business Information Legal Exhibitions 94118_Reed_AR_p007-036.indd 12 09/03/2015 16:55 RELX Group Annual Reports and Financial Statements 2014 Market segments O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 13 06/03/2015 08:49 14BUSINESS REVIEWSCIENTIFIC, TECHNICAL & MEDICALIn Scientific, Technical & Medical markets, we provide information and tools to help customers improve scientific and healthcare outcomes.Elsevier is the world’s leading provider of scientific, technical & medical information serving scientists, health professionals and students worldwide. Its objective is to help its customers advance science and improve healthcare by providing world-class content and innovative information solutions that enable them to make critical decisions, enhance productivity, and improve outcomes.Revenues for the year ended 31 December 2014 were £2,048m. 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.Approximately 37% of revenue by destination in 2014 was derived from North America, 30% from Europe and the remaining 33% from the rest of the world.Elsevier serves the needs of the science, technology & medical markets by publishing primary research, reference and education content, as well as by providing a range of database and workflow solutions. Elsevier’s customers are scientists, academic institutions, educators, 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 scientific and medical decisions; to review, publish, disseminate and preserve research findings; to create innovative tools to help focus research strategies, increase research effectiveness, improve medical outcomes, and enhance the efficiency of healthcare and healthcare education.In the primary research market during 2014, over 1.1m research papers were submitted to Elsevier. Over 16,000 editors managed the peer review and selection of these papers, resulting in the publication of more than 360,000 articles in over 2,000 journals, many of which are the foremost publications in their field and a primary point of reference for new research. This content was accessed by around 12m people, with more than 750m 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 scientific and medical research, hosting over 12m pieces of content, and 30,000 e-books. Flagship journals include Cell and The Lancet families of titles.In 2014, Elsevier expanded the Lancet collection, adding new titles, such as The Lancet Psychiatry, The Lancet HIV and The Lancet Haematology. Elsevier is also a global leader in the scientific, technical & medical reference market, providing authoritative and current professional reference content. While reference has traditionally been provided in print, Elsevier has been a leader in driving the shift from print to electronic. Flagship titles include works such as Gray’s Anatomy, Nelson’s Pediatrics and Netter’s Atlas of Human Anatomy.Combines leading reference and evidence-based medical content into its fully integrated clinical insight engineAn innovative research management and social collaboration platformThe leading suite of preparation, testing and remediation resources that generate actionable data to prepare nursing and health profession students for success in pursuing degrees, passing licensure exams and starting their careersOne of the world’s leading medical journals since 1823The world’s largest database of scientific and medical research articlesScientific, Technical & Medical Premier life sciences journal with the highest impact factor in biochemistry and molecular biologyProvides research performance tools for academic institutions and funding intelligenceReady-to-use tools to analyse the world of research, and establish, execute and evaluate the best strategies for research organisations94118_Reed_AR_p007-036.indd 1410/03/2015 10:05RELX Group Annual Reports and Financial Statements 2014 15 Elsevier’s ﬂagship clinical reference platform, ClinicalKey, provides physicians with access to leading Elsevier and third-party reference and evidence-based medical content in a single, fully integrated site. ClinicalKey is continuing to grow strongly, and is currently accessed by over 2,000 institutions. 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, HESI, an online testing and remediation solution designed to help students of nursing and allied health professions, conducted over 700,000 tests in 2014. Elsevier’s database and workﬂow products provide a range of tools and solutions for professionals in the scientiﬁc, technical and medical ﬁelds. Customers include academic and corporate researchers, research administrators and healthcare professionals. For academic and corporate researchers, signiﬁcant products include Scopus, Reaxys and Knovel. Scopus is the largest abstract and citation database of research literature in the world, with over 56m abstract and bibliographic information records from more than 21,000 peer-reviewed journals and 5,000 international publishers. Reaxys is a leading solution for synthetic chemists, integrating chemical reaction and compound data searching with synthesis planning. Knovel provides a range of web-based 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 Elsevier Research Intelligence suite of products. Leveraging bibliometric data from Scopus and other data types, SciVal helps institutions to establish, execute and evaluate research strategies. Pure is a comprehensive research information management system which enables evidence-based research management decisions, promotes collaboration, simpliﬁes administration and optimises impact. Our Analytical Services team provides accurate, unbiased analysis on research performance by combining high-quality data sources with technical and research metrics expertise. SciVal Funding assists researchers and institutions in identifying grants that are most relevant in their research areas. For healthcare professionals, Elsevier develops products to deliver patient-speciﬁc solutions at the point of care to improve patient outcomes. Its clinical solutions include ExitCare which provides patient education and discharge information and CPM Resource Center, which provides a data-driven framework to support nurses in undertaking procedures. Market opportunities Scientiﬁc, technical & 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, technology and 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; strives for excellence in content, service and execution; constantly adapts and revitalises its products, business models and technology; and leverages its institutional skills, assets and resources to promote innovation and efﬁciency. Elsevier’s strategic priorities are to continue to increase content volume and quality; to expand content coverage, building out integrated solutions combining Elsevier, third-party and customer data; to increase content utility, using “Smart Content” to enable new e-solutions; to combine content with analytics and technology, focused on measurably improving productivity and outcomes for customers; and to continue to drive operational efﬁciency and effectiveness. In the primary research market, Elsevier aims to grow volume through new journal launches, expansion of author-pays journals and growth from emerging markets; to enhance quality by building on our premium brands; and to add value to core platforms by implementing new capabilities such as advanced recommendations on ScienceDirect and social collaboration through Mendeley. In clinical reference markets, priorities are to expand content coverage, including licensing high-quality third-party content for ClinicalKey, as well as ensuring consistent tagging to link content assets across products. REVENUE BY FORMAT REVENUE BY GEOGRAPHICAL MARKET £2,048m £2,048m Print 25% Face-to-face 1% Electronic 74% Rest of World 33% North America 37% Europe 30% O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 15 06/03/2015 08:49 16 BUSINESS REVIEW SCIENTIFIC, TECHNICAL & MEDICAL 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 “author-pays” 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 alternative business models to address the needs of customers and researchers. Over 1,600 of Elsevier’s journals now offer the option of funding research publishing and distribution via a sponsored article fee. In addition, Elsevier now publishes more than 100 open access 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. GROWTH IN FULL TEXT ARTICLE DOWNLOADS GROWTH IN SUBSCRIPTION JOURNAL ARTICLE SUBMISSIONS +10% +10% 2013 2014 2013 2014 94118_Reed_AR_p007-036.indd 16 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 17 2014 ﬁnancial performance Revenue Adjusted operating proﬁt 2014 £m 2,048 762 2013 £m 2,126 787 Change –4% –3% Change at constant currencies +1% +1% Change underlying +2% +3% Key business trends were positive for the year with underlying research subscription revenue growth around half a percentage point ahead of the prior year. Electronic revenues, which now account for around 74% of the total, continued to see good growth across segments. The volume of “author-pays” or “author’s-funder-pays” articles grew strongly from a small base. We continued to launch new journals, and now operate over 100 stand-alone author-pays open access journals alongside our sponsored article option in over 1,600 subscription journals. Underlying revenue growth was +2% and underlying adjusted operating proﬁt growth was +3%. The difference between the reported and underlying growth rates primarily reﬂects the impact of exchange rate movements. We saw continued good growth in databases and tools, as well as in electronic reference and education. Print book and pharma promotion revenues continued to decline, albeit at a slightly lower rate than in the prior year. In primary research, article submissions to subscription journals and usage continued to grow in double digits, and journal quality, as measured by relative impact factor, was maintained. Subscription revenue growth rates were around half a percentage point higher than in the prior year, driven by increased volume and new sales. 2015 outlook Our customer environment remains largely unchanged, with last year’s trends continuing into 2015. Overall we expect another year of modest underlying revenue growth REVENUE £m Underlying growth +2% 2,126 2,048 ADJUSTED OPERATING PROFIT £m Underlying growth +3% 787 762 2013 2014 2013 2014 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 17 06/03/2015 08:49 18 BUSINESS REVIEW SCIENTIFIC, TECHNICAL & MEDICAL CLINICAL SOLUTIONS: TRANSFORMING CLINICAL PRACTICE TO IMPROVE PATIENT CARE More than six years ago, The North Shore-Long Island Jewish Health System (NSLIJHS), one of the largest health systems in the US, began a major strategic effort to implement an electronic health record across its multi-hospital enterprise. NHLIJHS sought to “advance clinical practice and use technology to integrate it”. NSLIJHS partnered with Elsevier to equip every care provider with the clinical information and systems support needed to provide superior integrated, interdisciplinary care. With the help of Elsevier’s CPM Transformation Services, NSLIJHS embedded CPM’s patient-centred care planning and clinical documentation framework into its various electronic health records across a majority of its 18 hospitals in the New York metro region. CPM Transformation Services enabled NSLIJHS to create a high-quality, transparent, patient-centred care culture, which contributed to it receiving the 2010 National Quality Healthcare Award from the National Quality Forum and the 2013 Human Resource Management Impact Award from the Society for Industrial and Organizational Psychology and the Society for Human Resource Management. NSLIJHS also utilises Elsevier’s ClinicalKey, ExitCare and Revenue Cycle eLearning – all elements of Elsevier’s integrated suite of clinical information solutions. WE MADE IT CLEAR FROM THE BEGINNING THAT OUR PRIMARY FOCUS WAS ABOUT THE PATIENT AND ADVANCING PRACTICE. OUR PARTNERSHIP WITH ELSEVIER HAS BEEN CRITICAL TO INFORMING OUR CARE MODEL AND CREATING AN EVIDENCE-BASED STANDARD ACROSS ALL CLINICAL SETTINGS SO THAT OUR CLINICIANS CAN IMPROVE OUTCOMES FOR OUR PATIENTS. Maureen White RN, MBA, NEA-BC, FAAN Senior Vice President, Chief Nurse Executive Syosset Hospital Pain Management team with the prestigious Press Gainey award for customer service 94118_Reed_AR_p007-036.indd 18 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 19 85–95% AVERAGE PERCENTAGE THAT ELSEVIER CUSTOMERS WITH THE CPM FRAMEWORK OUTPERFORM US CARE MEASURES. THIS INCLUDES SUCCESS IN TREATING CONDITIONS SUCH AS HEART FAILURE AND PNEUMONIA. 94118_Reed_AR_p007-036.indd 19 06/03/2015 08:49 20 BUSINESS REVIEW RISK & BUSINESS INFORMATION Risk & Business Information In Risk & Business Information, we provide data, analytics and insight that enable customers to evaluate and manage risk. We develop market intelligence, supporting more conﬁdent decisions, improving economic outcomes, and enhancing operational efﬁciency. From 2014 Risk Solutions and Business Information have been combined into one business area. This union brings together LexisNexis Risk Solutions’ proprietary, public and third-party information, advanced technology and analytics, with Reed Business Information’s high-value industry critical data services, information and tools as well as conferences, websites and business magazines. Revenues for the year ended 31 December 2014 were £1,439m. Risk & Business Information has principal operations in Georgia, Florida, Illinois and Ohio in the US and London, Amsterdam and Shanghai. Risk & Business Information has 7,400 employees. Approximately 73% of revenue in 2014 came from North America, 22% from Europe and 5% from the rest of the world. Risk & Business Information is organised around market-facing industry/sector groups including insurance, business services, government, healthcare, major data services (including banking, energy and chemicals, human resources) and other leading brands. The largest of these sector groups is insurance. The identity management and risk evaluation solutions provided by Insurance Solutions, Business Services, Government Solutions and Health Care Solutions utilise comprehensive database platforms of public records and proprietary information with more than two petabytes of unique data, which makes it the largest database of its kind in the US market today. Our market-leading technology enables Risk & Business Information 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 Group business areas such as Legal and Scientiﬁc, Technical & Medical. Risk & Business Information is focused on developing a pipeline of new solutions to drive growth in existing business segments and selected adjacent markets and geographies. Insurance Solutions provides a comprehensive combination of data and analytics to personal, commercial 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 most comprehensive US 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 LexisNexis® Data Preﬁll, which provides critical information on customers, potential customers and their auto, property and life policy information directly into the insurance workﬂow, and LexisNexis® Current Carrier, which identiﬁes current or previous insurance coverage details as well as any lapses in coverage. Insurance Solutions released new driving behaviour products in four states in 2014. These products aggregate court data within speciﬁc states to provide insurers with vital trafﬁc violation information for use in underwriting. In the UK, Insurance Solutions’ contributory No Claims Discount (NCD) module, which automates veriﬁcation of consumers’ claims history, has achieved data contribution from over 55% of the UK auto insurance sector in just over a year. LexisNexis® Identity Management Range of solutions to help clients verify that an identity exists and authenticate individuals C.L.U.E.® Most comprehensive US personal insurance claims database Data, news and advisory services for professionals working in the global aviation industry LexisNexis® Data Prefill Tool to automate insurance application process providing critical information insurers need to quote and underwrite a policy 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 efﬁciently collect on outstanding debts Payment efﬁciency solutions, AML and KYC services and compliance tools for the banking and corporate sectors worldwide Global provider of news, price benchmarks, data, analytics and research to the energy, chemical and fertiliser industries LexisNexis® Anti-Money Laundering Solutions Content and information for anti-money laundering compliance, risk mitigation and enhanced due diligence 94118_Reed_AR_p007-036.indd 20 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 21 In the Insurance business, Risk & Business Information acquired four businesses during 2014. Wunelli is an industry-leading telematics data services company based in the United Kingdom. The combined LexisNexis and Wunelli data sets will result in one of the largest provider-held insurance telematics databases in the world, with solutions to support insurers as they assess risk and discount safer drivers. Risk & Business Information also acquired three US-based businesses to enhance the LexisNexis eCrash solution. iyeTek is an innovative provider of mobile and handheld software solutions, enabling public safety agencies to save time and money and improve services provided to their communities. PoliceReports.US is an online distributor of vehicle accident reports currently in use by 29 states and Coplogic is a leading provider of citizen self-reporting software solutions to law enforcement agencies. In October, a joint venture was signed with Jing You to supply data into the fast-growing auto insurance market in China. Business Services provides ﬁnancial 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. In 2014, the group substantially advanced its international strategy, with the expansion of its international sales force, launch of a simpliﬁed Chinese language version of Bridger Insight® XG, a Bank Secrecy Act and Anti-Money Laundering solution, and the ongoing upgrade of the WorldCompliance heightened risk individuals database. In Business Services, Risk & Business Information acquired Tracesmart, a United Kingdom-based provider of tracing, identity veriﬁcation, fraud prevention, anti-money laundering, debt collection and data cleansing solutions. Tracesmart, a leader in identity management and fraud solutions in the UK, is a natural complement to Risk & Business Information’s core competencies and brings a robust set of UK public records, allowing Risk & Business Information to extend its capabilities beyond the US in order to serve its customers more fully. 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 group’s Tax Refund Investigative Solution (TRIS), now sold into eight states and the District of Columbia, continues to generate substantial beneﬁts for both clients and taxpayers, with results to date of over $100m in avoided fraud losses. Health Care Solutions provides identity, fraud and clinical analytics solutions across key stages of the healthcare workﬂow to enable intelligent decision making for payers and providers. During the year, the acquisition of Health Market Science, a leading supplier of high-quality data on healthcare professionals and an administrator of one of the largest practitioner-level medical claim databases in the US, was completed. The business also provides risk-related information to the legal industry through LexisNexis Legal & Professional. Outside of these areas, Risk & Business Information provides information and online data services to business professionals worldwide, with high-value industry critical data services, information and tools as well as producing conferences, websites and business magazines. It has many strong global brands with market-leading positions across a wide range of industry sectors. Data Services include: ICIS, an information and data service in chemicals, energy and fertiliser; Accuity, a provider of services and solutions to the banking and corporate sectors focused on payment efﬁciency, Know Your Customer, Anti-Money Laundering and compliance; and XpertHR, an online service providing regulatory guidance, best practices and tools for HR professionals. During the year, Accuity completed the acquisition of FircoSoft, a leading provider of watch list ﬁltering solutions for ﬁnancial institutions and corporates. Accuity also launched risk solutions for customers in trade ﬁnance. Leading Brands include Flightglobal, Farmers Weekly, Boerderij, Fiscaal Totaal, Estates Gazette, Elsevier and New Scientist and deliver a mix of high-quality data, workﬂow tools and high-value news, information and opinion to business professionals across many industry sectors while also providing an effective marketing channel for customers. During the year Flightglobal completed the acquisition of Innovata, a provider of global airline schedule data. Risk & Business Information also acquired Farmade, a UK-based supplier of crop recording, mapping and precision farming workﬂow tools. REVENUE BY FORMAT REVENUE BY GEOGRAPHY £1,439m Print 12% Face to face 3% £1,439m Rest of World 5% Europe 22% Electronic 85% North America 73% O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 21 06/03/2015 08:49 22 BUSINESS REVIEW RISK & BUSINESS INFORMATION In 2014, Risk & Business Information continued to reshape its portfolio, exiting areas not core to its strategy. As part of this strategy, 51% of Reed Construction Data (RCD), a provider of online construction data and information to the construction industry was divested, and 100% of RS Means, a construction costing service which had previously been a division of RCD. Risk & Business Information also completed its exit from its Marketing Solutions businesses, including the sales of BuyerZone and emedia and one divestment of a portfolio of B2B assets from its Netherlands operation is now also completed. Market opportunities Risk & Business Information operates in markets with strong long-term underlying growth drivers with growing demand for high-quality industry data and information and insight including: insurance underwriting transactions; insurance, healthcare, tax and entitlement fraud; credit defaults and ﬁnancial fraud; regulatory compliance and due diligence requirements surrounding customer enrolment; security and privacy considerations; and data and analytics for the banking, energy and chemicals, human resources and aviation sectors. 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 growth in insurance quoting and policy switching, as consumers seek better policy terms. This activity is stimulated by competition among insurance companies, high levels of carrier advertising, and rising levels of internet quoting and policy binding. A number of factors support growth in banking and ﬁnancial services markets, including cross-border payments and trade ﬁnance levels, 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. In Health Care, there are numerous growth drivers for fraud and analytics solutions including the expansion of insurance coverage under the Affordable Care Act and the focus on cost containment and better patient outcomes. Growth in the global energy and chemicals markets is driven by increasing trade and demand for more sophisticated information solutions. Risk & Business Information’s aviation information markets are being driven by increases in air trafﬁc and in the number of aircraft transactions. Strategic priorities Risk & Business Information’s strategic goal is to help businesses and government achieve better outcomes with information and decision support in its individual markets through better understanding of risks associated with individuals, other businesses and transactions. By providing the highest quality industry data and tools, we assist customers in understanding their markets and managing risks efﬁciently and cost effectively. To achieve this, Risk & Business Information 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 needs; further growing its data services businesses, and continuing to strengthen its content, technology and analytical capabilities. GROWTH IN PROVIDER DATA RECORDS GROWTH IN FLIGHTGLOBAL DATABASE 35% 13% 2013 2014 2013 2014 Growth in Provider Data Records processed by Healthcare customers driven by increased demand for cost, quality and compliance solutions. Flightglobal holds a database of 156,000 minimum connection times between ﬂights at all of the world’s major airports. 94118_Reed_AR_p007-036.indd 22 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 23 Business model, distribution channels and competition Risk & Business Information’s products in Insurance, Business Services and Government are for the most part sold directly, with pricing predominantly on a transactional basis for insurance carriers and corporations, and primarily on a subscription basis for government entities. Data services are typically sold directly on a subscription or transactional basis. Business magazines are mainly distributed on a paid basis. Advertising revenues are sold directly. which in many cases address different activities in these segments as well. Risk & Business Information’s data services and leading brands compete with a number of information providers on a service and title-by-title basis including: Platts, Thomson Reuters, IHS and Wolters Kluwer as well as many niche and privately owned competitors. Risk & Business Information competes for online advertising with other business-to-business websites, search engines and social media. Risk & Business Information and Verisk, a competitor, each sell data and analytics solutions to insurance carriers but largely address different activities. Risk & Business Information’s principal competitors in business services and government segments include Thomson Reuters and major credit bureaus, Across Risk & Business Information, user and subscription revenues now account for 94% of the total business with the remaining 6% derived from print and online advertising. Electronic revenue streams now account for 85% of total revenue. 2014 ﬁnancial performance Revenue Adjusted operating proﬁt 2014 £m 1,439 506 2013 £m 1,480 507 Change –3% 0% Change at constant currencies +2% +5% Change underlying +6% +6% Strong underlying revenue growth was driven by volume growth, new product roll-outs and expansion in adjacent segments. Underlying proﬁt growth broadly matched revenue growth reﬂecting ongoing organic initiatives. Underlying revenue growth was +6% and underlying adjusted operating proﬁt growth was +6%. The difference between the reported and underlying growth rates reﬂects the impact of exchange rate movements and portfolio changes. Strong growth in the insurance segment was driven by solid demand for the US auto underwriting business, good take up of new products and services across the insurance workﬂow, and expansion in adjacent market verticals. The international initiatives are progressing well. In Business Services, growth was driven by demand for identity authentication and fraud detection solutions, particularly in the ﬁnancial services sector. In Government, the state and local segment continued to achieve strong growth. Federal government revenue trends improved during the year. Major Data Services maintained strong underlying revenue growth, driven by Accuity, XpertHR and ICIS, and other magazines and services were stable. In 2014 we continued to support organic growth through the acquisition of data and analytics assets. In 2014 we completed the acquisition of Innovata, a provider of airline schedule data, Tracesmart, a provider of UK public records, Wunelli, a provider of telematics solutions for the auto industry, FircoSoft, a provider of anti-money laundering solutions for the ﬁnancial services industry, and Health Market Science, a supplier of high-quality data on healthcare professionals. We also exited assets that no longer ﬁt our strategy, including the disposal of several magazines and the spin-off of certain construction industry assets. 2015 outlook The fundamental growth drivers of Risk & Business Information remain strong. We expect underlying revenue growth trends to continue in 2015. REVENUE £m Underlying growth +6% 1,480 1,439 ADJUSTED OPERATING PROFIT £m Underlying growth +6% 507 506 2013 2014 2013 2014 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 23 06/03/2015 08:49 24 24 BUSINESS REVIEW BUSINESS REVIEW RISK & BUSINESS INFORMATION REED ELSEVIER LEXISNEXIS RISK SOLUTIONS: SAVING LIVES ONE TRAFFIC INCIDENT AT A TIME BY INTERACTING WITH THE PUBLIC MORE EFFICIENTLY, WE ARE ABLE TO FREE UP MANPOWER AND ASSIGN OFFICERS TO POSITIONS THAT ARE BETTER FOR THE DEPARTMENT AND OUR COMMUNITY. THE IMPROVEMENT IN THE EFFICIENCY OF THE SYSTEM HAS A POSITIVE IMPACT FOR THE AGENCY AS WE ARE CHALLENGED WITH LIMITED RESOURCES. Pete Kassetas Chief of Police, New Mexico State Police More police ofﬁcers in the US are killed in trafﬁc accidents than are killed by guns. LexisNexis and New Mexico State Police are reducing the toll with a revolutionary electronic application, eCrash. In 2012, New Mexico was one of the ﬁrst state police agencies to minimise the manual administrative process associated with accident reporting and fulﬁlment. By auto-ﬁlling information, clearing roads more quickly and sharing reports automatically with state agencies, ofﬁcers can get back to patrolling the streets and better serving their communities. eCrash can reduce the average time it takes an ofﬁcer to write a report from 60 minutes down to only 19 minutes. This reduces the time spent in a potentially dangerous environment by 41 minutes. From all the information gathered electronically, ofﬁcers can use eCrash provided analytics to evaluate when, where and why accidents occur, further improving trafﬁc safety, reducing injuries and fatalities. 2,000+ LAW ENFORCEMENT AGENCIES USING ECRASH IN THE US 41 minutes TIME SAVED BY USING ECRASH Police ofﬁcer recording road accident 94118_Reed_AR_p007-036.indd 24 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 25 ACCUITY: ENSURING AN EFFICIENT, COMPLIANT AND COST- EFFECTIVE SOLUTION TO PAYMENT PROCESSING The Ecobank Group is a full-service bank with operations in 36 countries across Africa. It provides wholesale, retail, investment and transactional banking services to governments, ﬁnancial institutions, multinationals, local companies, small and medium enterprises, and individuals. Ecobank needs to ensure its transactions are fast and accurate and it uses Accuity’s Global Payment ﬁle to achieve this. Accuity provides solutions to banks and businesses worldwide. Its unmatched data and services deliver optimal payment efﬁciency, compliant transactions, bank counterparty insight and anti-money laundering screening success. Accuity’s global data ensures that the payments process for companies like Ecobank are efﬁcient, compliant and cost effective. ACCUITY’S INTEGRATED DATA LINKS INTO OUR CORE BANKING SYSTEMS. THIS MEANS THAT WE CAN PROCESS HUNDREDS OF THOUSANDS OF PAYMENTS ACCURATELY, QUICKLY AND EFFICIENTLY USING THE MOST UP-TO-DATE AND TRUSTED BANKING DATA OUT THERE. Victor Oyango Group Manager, Cash Management Operations, Ecobank O v e r v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 25 09/03/2015 18:04 26 BUSINESS REVIEW LEGAL Legal In Legal markets, we are a world- leading provider of legal, regulatory, and news and business information and analysis to law ﬁrm, 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 2014 were £1,396m. LexisNexis Legal & Professional is headquartered in New York and has principal operations in the New York area, Ohio and North Carolina in the US, Toronto in Canada, London and Paris in Europe, and cities in several other countries in Africa and Asia Paciﬁc. It has 9,500 employees worldwide. Approximately 66% of revenue by destination in 2014 was derived from North America, 23% from Europe and the remaining 11% from the rest of the world. LexisNexis Legal & Professional is organised in market-facing groups. These are supported by global shared services organisations providing platform and product development, operational and distribution services, and other support functions. In North America, electronic information solutions and innovative workﬂow tools from Research Solutions 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 ﬁlings, as well as public records information and analytics. LexisNexis also partners with law schools to provide services to students as part of their training. In 2014, LexisNexis continued to release new versions 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 ﬁnd relevant information more easily and efﬁciently, helping to drive better outcomes. Future releases will continue to expand content and outreach 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 the Group’s big data HPCC technology means Lexis Nexis is able to update its entire legal collection faster and more efﬁciently, while also identifying and linking content, enabling customers to uncover previously undiscovered relationships between documents. LexisNexis® UK ﬂagship legal online product LexisNexis® UK legal practical guidance service Matthew Bender® Critical analysis, checklists, forms and practice guides authored by industry experts covering over 50 major practice areas Premier citations service Leading legal news provider covering the entire spectrum of practice areas every single business day Lexis® New online legal research tool that transforms the way legal professionals conduct research New resource that offers guidance to help attorneys handle transactional matters more efﬁciently and effectively Unparalleled legal, news and public records content for legal professionals 94118_Reed_AR_p007-036.indd 26 10/03/2015 07:24 RELX Group Annual Reports and Financial Statements 2014 27 New workﬂow and analytical tools and content sets are regularly introduced on Lexis Advance. For example, in 2014 LexisNexis launched LexisNexis Counsel Benchmarking, a new analytics solution that works with Verdict & Settlement Analyzer to inform litigation strategy decisions. Also, LexisNexis launched new modules for Lexis Practice Advisor, a web-based practical guidance product tailored for attorneys who handle transactional matters. 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 and Butterworths. The content is delivered through multiple formats – from print to online to mobile apps and embedded in customers’ workﬂow. LexisNexis Business & Litigation Software Solutions serves as the software arm for the company. Its business of law software provides law ﬁrms with practice management solutions, including time and billing systems, case management, cost recovery and document management services. Its litigation software provides lawyers with a suite of tools covering case preparation to processing and review to trial preparation. During 2014, LexisNexis released multiple new versions for its existing portfolio including CounselLink, PCLaw, Sanction and Firm Manager. In international markets outside the US, LexisNexis serves legal, corporate, government, accounting and academic markets in Europe, Canada, Africa and Asia Paciﬁc with local and international 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 63% of revenue outside the US. In 2014, LexisNexis launched additional modules for the UK LexisPSL product suite which provides lawyers with a single destination for their practical legal information needs with direct links to the relevant cases, legislation, precedents, forms, practical guidance and expert commentary. 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 2014, LexisNexis France continued to enhance Lexis 360, the ﬁrst semantic search online tool combining legal information, practical content and results from the web by providing tailored solutions for the public sector and the accounting markets. Additional practical guidance solutions were launched in Canada, South Africa and Australia. Following the continued success of Lexis Advance in the US, an Australian version was launched in 2014 and additional international launches are planned. In 2014, LexisNexis Legal & Professional strengthened its positions in Asia by introducing products created speciﬁcally for legal professionals and practitioners, corporate counsels, legal researchers and government institutions in markets including India, China and Japan. New practical guidance offerings are now available in China, Hong Kong and Japan. Also, LexisNexis continued its investment in broadening its core content offerings in India, Singapore and other countries in the region. REVENUE BY FORMAT REVENUE BY GEOGRAPHICAL MARKET £1,396m Print 22% Face to face 1% £1,396m Rest of World 11% Europe 23% Electronic 77% North America 66% O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 27 06/03/2015 08:49 28 BUSINESS REVIEW 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 of demand and the subdued environment in North America and Europe in the aftermath of the global recession. 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 customers with an integrated and superior experience across multiple products and solutions. 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 continuous development of practical guidance and practice management applications. In 2015, LexisNexis will continue to introduce New Lexis globally. Additionally, LexisNexis is focusing on the expansion of its activities in emerging markets. Business model, distribution channels and competition LexisNexis Legal & Professional products and services are generally sold directly to law ﬁrms and to corporate, government, 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. In news and business information they are Bloomberg and Factiva (News Corporation). Competitors in litigation solutions also include software companies. Signiﬁcant international competitors include Thomson Reuters, Wolters Kluwer and Factiva. LEXIS ADVANCE CUSTOMER PENETRATION MOBILE DOCUMENT ACCESSES 82% 73% +54% 2013 2014 2013 2014 Increasing uptake of next generation legal platform. Increasing use of Lexis Advance and lexis.com mobile content. 94118_Reed_AR_p007-036.indd 28 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 29 2014 ﬁnancial performance Revenue Adjusted operating proﬁt 2014 £m 1,396 260 2013 £m 1,567 250 Change –11% +4% Change at constant currencies –6% +10% Change underlying +1% +6% Underlying revenue trends remained unchanged in 2014, with subdued market conditions in the US and Europe limiting overall revenue growth. The improvement in proﬁtability reﬂects a combination of process innovation, infrastructure decommissioning and portfolio reshaping. Underlying revenue growth was +1% and underlying adjusted operating proﬁt growth was +6%. The difference between the reported and underlying growth rates reﬂects the impact of exchange rate movements and portfolio changes. Electronic revenues, which now account for 77% of the total, saw continued growth, partially offset by print declines. US and European markets remained stable but subdued. In other international markets we continued to see good growth. The roll-out of new platform releases continued in 2014, and adoption and usage rates for new products and solutions have continued to progress well. Around one percentage point of the 270 basis points of margin improvement was achieved through organic process innovation and infrastructure decommissioning, with the balance largely reﬂecting portfolio changes. 2015 outlook Trends in our major customer markets are unchanged, limiting the scope for underlying revenue growth. We will maintain our focus on process innovation, and expect further improvement in proﬁtability over the medium term, albeit at a modest rate in 2015 following the sharp margin increase in 2014. REVENUE £m Underlying growth +1% 1,567 1,396 ADJUSTED OPERATING PROFIT £m Underlying growth +6% 250 260 2013 2014 2013 2014 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 29 06/03/2015 08:49 3030 BUSINESS REVIEW LEGAL LEXISNEXIS DIGITAL LIBRARY: LEGAL INSIGHTS, ANYTIME ANYWHERE Foley & Lardner, a full-service law ﬁrm with 20 ofﬁces in the United States and across the globe, serves clients in 49 distinct practice areas within 12 major industry sectors. The ﬁrm, which is recognised for its exceptional client service, combines extensive resources with a local focus to deliver seamless business and legal insight. Foley implemented the LexisNexis Digital Library solution to transform the management of its 40 disparate collections and services across geographies to offer a better user experience and save staff time and operating costs. By centralising its library collection and services into one digital solution, Foley’s 850 attorneys now have one single, easy-to-use destination to search and access titles. The eLending capabilities extend to any device – computer, smartphone and tablet. Digital library management and eLending helps Foley’s library staff maximise content investments and frees up administrative time so they can better support their attorneys with value-added services. LEXISNEXIS DIGITAL LIBRARY HELPED US CENTRALISE OUR COLLECTION AND ITS ACCESS POINTS, ELIMINATE REDUNDANCIES ACROSS OUR OFFICES, AND REDUCE THE OVERALL RESOURCES NEEDED TO SUPPORT OUR LIBRARY SYSTEM. Jeffrey A. Bois Director of Research & Information Services, Foley & Lardner 94118_Reed_AR_p007-036.indd 30 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 31 About LexisNexis Digital Library LexisNexis Digital Library provides librarians with a user friendly, centralised platform to order titles, supervise lending of all electronic content, and manage their collections—reducing storing, ﬁling and distribution costs. Built in collaboration with Overdrive, its platform is based on an open industry standard, allowing other legal publishers such as the American Bar Association to add their content to the collection. 800,000 Titles FROM MORE THAN 2,000 PUBLISHERS CAN BE PURCHASED THROUGH LEXISNEXIS DIGITAL LIBRARY. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 31 06/03/2015 08:49 32 BUSINESS REVIEW EXHIBITIONS Exhibitions We operate the world’s leading exhibitions business, with 500 events in over 30 countries. Reed Exhibitions’ portfolio of exhibitions and conferences serves 43 industry sectors across the globe. In 2014, Reed Exhibitions brought together over 7m event participants from around the world, generating billions of dollars of business and facilitating entry into new markets for its customers and boosting the local economies where the events are hosted. Revenues for the year ended 31 December 2014 were £890m. Reed Exhibitions is a global business headquartered in London and has principal ofﬁces in Paris, Vienna, Norwalk (Connecticut), São Paulo, Abu Dhabi, Beijing, Moscow, Tokyo and Sydney. Reed Exhibitions has 3,700 employees worldwide. In 2014, approximately 16% of Exhibitions’ revenue came from North America, 47% from Europe and the remaining 37% from the rest of the world on an event location basis. 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, cosmetics, 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. Market opportunities Growth in the exhibitions market is inﬂuenced by both business-to- business marketing spend and business investment. Historically, these have been driven by levels of corporate proﬁtability, which in turn has followed overall growth in GDP. Emerging markets and higher growth sectors provide additional opportunities for Reed Exhibitions. As some events are held other than annually, growth in any one year is affected by the cycle of non-annual exhibitions. Strategic priorities Reed Exhibitions’ strategic goal is to understand and respond to its customers’ evolving needs and objectives better than its competition through deep knowledge of its customers and the markets they serve. Reed Exhibitions delivers a platform for industry communities to conduct business, to network and to learn through a range of market-leading events in growth sectors, especially in higher growth geographies, enabling exhibitors to target and reach new customers quickly and cost effectively. Organic growth will be achieved by continuing to generate greater customer value through the intelligent application of customer knowledge, by developing new events, and by building out technology platforms to ensure the rapid deployment of innovation and best practices across the organisation. Reed Exhibitions is also shaping its portfolio through a combination of strategic partnerships and acquisitions in high-growth sectors and geographies as well as by withdrawing from markets and industries with lower long-term growth prospects. Manufacturing World Tokyo – Japan’s largest trade show for the manufacturing industry Premier global event for the travel industry International contemporary art fair The world’s property market The North American jewellery industry’s premier trade event Asia’s sourcing and Asia’s sourcing and networking platform for the complete aluminium industry chain International machinery trade fair Pax Prime – Game festival for tabletop, videogame and PC gamers 94118_Reed_AR_p007-036.indd 32 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 33 Reed Exhibitions is committed to continuously improving customer solutions and experience. By providing a variety of services, including its integrated web platform, the company continues to drive customer satisfaction. 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. In 2014 Reed Exhibitions launched 36 new events. These included many events which delivered on the strategy of taking sector expertise, customer relationships and leading brands from one market and extending them into new geographies using local operational capability. Mipim, the leading property show held annually in Cannes, responded to the buoyant UK property market with the launch of an offshoot in London; FIBO China (health and ﬁtness) was launched in Shanghai, building on the successful and long running German event FIBO; and in Singapore, Reed Exhibitions launched an Asian version of Maison&Objet, the leading design-led home and furniture show held twice a year in Paris. A number of targeted acquisitions and investments were completed during 2014. Increasing its holding in Reed Tüyap gave Reed Exhibitions a strong position in Turkey, and with the acquisition of Fidalex and AFG, Reed Exhibitions achieved market leader status in Mexico. The Mexican acquisitions brought events such as Expo Carga (transport and logistics) and the Beauty Show into its portfolio. In addition, an investment in the Bakery event, serving the bakery and confectionery industry, broadened its footprint in China. 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. Increasingly, Reed Exhibitions is offering visitors and exhibitors the opportunity to interact before and after the show through the use of online and mobile tools such as directories and matchmaking. Reed Exhibitions is the global market leader in a fragmented industry, holding less than a 10% 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. NUMBER OF EVENT LAUNCHES EVENTS IN EMERGING MARKETS 37 36 192 209 2013 2014 2013 2014 REVENUE BY FORMAT REVENUE BY GEOGRAPHICAL MARKET* £890m Electronic 3% £890m Rest of World 37% Face-to-face 97% *On an event location basis. North America 16% Europe 47% O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p007-036.indd 33 06/03/2015 08:49 34 BUSINESS REVIEW EXHIBITIONS 2014 ﬁnancial performance Revenue Adjusted operating proﬁt 2014 £m 890 217 2013 £m 862 210 Change +3% +3% Change at constant currencies +11% +12% Change underlying +7%* +9% * Excluding exhibition cycling. Had cycling effects been included underlying growth would have been +9%. Exhibitions achieved another year of strong underlying revenue and proﬁt growth, and continued to actively pursue growth opportunities through new launches and small acquisitions. Underlying revenue growth was +7% and underlying adjusted operating proﬁt growth was +9%. Had the effects of exhibition cycling been included underlying revenue growth would have been around two percentage points higher. The difference between the reported and underlying growth rates primarily reﬂects the impact of exchange rate movements. The US and Japan achieved strong growth. In the US, growth reﬂected strong demand across our broad portfolio of leading events. Strong growth in Japan was driven by new launches and strong demand across our major events. Europe saw modest growth overall. Domestic markets remained subdued, but international events in the UK and France achieved good growth. China continued to see strong growth in certain sectors, and moderate growth elsewhere. Revenues in Brazil reﬂected good growth in some of our leading events, but a slowdown in the wider economy. Most other markets continued to grow strongly. In 2014 we launched 36 new events and completed several small acquisitions and joint venture investments, primarily in high-growth geographies and sectors. 2015 outlook We expect underlying revenue growth trends to continue, with strong growth in the US and Japan and modest growth in Europe. In other markets the outlook remains strong, albeit slightly below the high levels achieved in recent years. In 2015 we expect cycling out effects to reduce the overall revenue growth rate by three to four percentage points. REVENUE £m Underlying growth +7% 862 890 ADJUSTED OPERATING PROFIT £m Underlying growth +9% 210 217 2013 2014 2013 2014 94118_Reed_AR_p007-036.indd 34 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 35 35 IN-COSMETICS: AN AWARD-WINNING GLOBAL BRAND The leading global business platform for the personal care ingredients industry, in-cosmetics is an outstanding example of Reed Exhibitions’ ability to leverage the strength of its brands in new geographies. From a single event in 1990, the in-cosmetics brand has grown to encompass four events across Europe, Asia and Latin America, all delivering access to the very latest cosmetic ingredients and technologies, world-class educational programmes and unrivalled networking opportunities. In April 2015 in-cosmetics celebrates its 25th anniversary in Barcelona, marking a major milestone in the show’s history. Staged each spring in a major European city, the ﬂagship global event has played a dynamic role in helping to shape the landscape of the personal care ingredients industry as the annual launch pad for new products, and set the standard for in-cosmetics events around the world. in-cosmetics Asia was launched in 2008 and has quickly grown to become the largest pan-Asian personal care ingredients event. The ﬁrst in-cosmetics Brazil took place in São Paulo in September 2014 and in June 2015 in-cosmetics makes its debut in South Korea, Asia’s third largest cosmetics market. The combined portfolio has achieved double digit revenue growth year-on-year for the last ﬁve years. Reﬂecting the strength of the brand, in-cosmetics scooped two awards at the AEO (Association of Exhibition Organisers) Excellence Awards 2014, taking the top spot for ‘Best Overseas Tradeshow Exhibition’ and ‘Best Tradeshow Exhibition Overall’. 90% Visitor satisfaction THE SHOW HAS BEEN VERY SUCCESSFUL AND EXTREMELY BUSY. IN-COSMETICS SETS THE INDUSTRY STANDARD FOR OTHER EXHIBITIONS AND MOST OF OUR CUSTOMERS HAVE BEEN HERE, BIG AND SMALL. IT’S A GOOD WAY TO MEET PEOPLE FROM ALL OVER THE WORLD, NOT JUST EUROPE BUT PEOPLE FROM COUNTRIES SUCH AS BRAZIL AND CHINA. IN THREE DAYS YOU CAN MEET MORE PEOPLE THAN YOU COULD IN SIX MONTHS OF TRAVELLING AND THE INTERACTION IS BETTER FACE TO FACE. Dr Thomas Satzinger Director, Global Marketing, Evonik Industries 94118_Reed_AR_p007-036.indd 35 06/03/2015 08:49 94118_Reed_AR_p007-036.indd 36 06/03/2015 08:49 RELX Group Annual Reports and Financial Statements 2014 Reed Elsevier Annual Reports and Financial Statements 2014 37 37 Business review Corporate Dest que occusae vel responsibility ex explant vendae id etur, quo maximent, consed mo temea commodita similia tiatur simolor The Corporate Responsibility Report is an integral part of our Annual Reports and Financial Statements. This section highlights progress on our 2014 corporate responsibility objectives. You can read the full 2014 Corporate Responsibility Report at www.relxgroup.com/go/CRReport IN THIS SECTION 00 Elsevier 00 LexisNexis Risk Solutions 00 LexisNexis Legal & Professional 00 Reed Exhibitions 00 Reed Business Information 00 Corporate responsibility O O v v e e r r v v i i e e w w B B u u s s i i n n e e s s s s r r e e v v i i e e w w i i F F n n a a n n c c i i a a l l r r e e v v i i e e w w G G o o v v e e r r n n a a n n c c e e i i F F n n a a n n c c i i a a l l s s t t a a t t e e m m e e n n t t s s a a n n d d o o t t h h e e r r i i n n f f o o r r m m a a t t i i o o n n 94118_Reed_AR_p037-047.indd 37 10/03/2015 09:28 38 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. Consistent engagement with stakeholders, including shareholders, employees, governments and communities where we operate, helps us determine material corporate responsibility issues. The Boards of Directors, 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: 1. Our unique contributions 2. Governance 3. People 4. Customers 5. Community 6. Supply chain 7. Environment 1. Our unique contributions We focus on areas where we can make a positive impact on society through our unique knowledge, resources, and skills including universal sustainable access to information, advance of science and health, protection of society and promotion of the rule of law and justice. Scientiﬁc, Technical & Medical 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 innovation and enables critical decision making. To broaden access to its content, Elsevier supports programmes where resources are often scarce. Among them is Research4Life, a partnership with United Nations agencies and other publishers; we provide core and cutting-edge scientiﬁc information to researchers in more than 100 developing countries. As a founding partner, we contribute over a quarter of the material available in Research4Life, encompassing all ScienceDirect content, including more than 3,000 Elsevier journals and nearly 13,000 books. In 2014, there were more than 3.9m Research4Life article downloads from ScienceDirect. In the year, Elsevier collaborated with the World Bank to examine research trends across Africa to help countries understand how to invest in science, technology, engineering and mathematics research in order to advance competitiveness, independence and cooperation. The ﬁndings show that while international collaboration is high, more engagement among African countries will beneﬁt the continent overall. Risk & Business Information Risk & Business Information tools and resources help protect society. During the year, it enhanced its eCrash solution, which aids law enforcement professionals by automating vehicle crash reporting from initial data capture to report distribution. Through the 2014 acquisition of Coplogic, eCrash now has a citizen incident reporting capability, eliminating the need to dispatch ofﬁcers to minor incidents. This will allow forces to allocate resources to more serious issues, potentially saving lives – more US law enforcement ofﬁcers died in trafﬁc-related accidents than from gun crime (2010). Risk & Business Information employees created the Automated Delivery of Alerts on Missing Children (ADAM) programme, which assists in the safe recovery of missing children. Since launching in 2000, 142 children have been located, including three in 2014. It also uses the power of its brands to aid communities. In 2014, to help young farmers, the business unit’s Farmers Weekly title hosted its annual business event, Fertile Minds. 150 farmers in the early stages of their careers heard presentations by entrepreneurs and industry experts on jobs, wages, beneﬁts, work load and also had the chance to address the UK’s Farming Minister. 94118_Reed_AR_p037-047.indd 38 06/03/2015 08:52 RELX Group Annual Reports and Financial Statements 2014 39 PRIORITISING ACCESSIBILITY AT SCIENCEDIRECT, THE WORLD’S LARGEST SCIENTIFIC DATABASE Investment in accessibility at ScienceDirect – Elsevier’s full text scientiﬁc database, with articles from more than 2,500 active journals and chapters from nearly 20,000 books – makes it possible for customers with disabilities to access content more quickly and easily. Over the last three years, Elsevier has collaborated with ten university leaders in assistive technology and accessibility to translate best practice into improvements of its ﬂagship product, ScienceDirect. The result is improved visibility for all users. Among resulting upgrades are fewer links on search results and journal home pages, making it simpler for those using screen readers to load, navigate and understand the relevant pages. There are also ‘ARIA’ landmarks allowing screen readers to bring up main page regions enhanced to help users understand page composition and facilitate skipping to key sections. In a survey undertaken by the Publishers Accessibility Action Group released in 2014, Elsevier was judged to have “the broadest range of tests encompassing screenreaders, keyboard only operation, and screen enlargement” and was also cited for providing captions for all images. THE WAY WE DEVELOP SCIENCEDIRECT DEMONSTRATES THAT WE ARE SERIOUS ABOUT MAKING OUR PRODUCTS ACCESSIBLE FOR EVERYONE REGARDLESS OF ABILITY. Ammy Vogtländer Vice President, ScienceDirect Product Management, Elsevier 10 Universities ARE PART OF ELSEVIER ACCESSIBILITY COLLABORATION GROUP University of California, Berkeley, one of the participating universities Lucy Greco, a member of the Elsevier Accessibility Collaboration Group who is visually impaired, demonstrates the accessibility features of ScienceDirect, at our 2014 CR Forum Stakeholder Session O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p037-047.indd 39 06/03/2015 08:52 40 BUSINESS REVIEW CORPORATE RESPONSIBILITY Legal LexisNexis Legal & Professional promotes justice through its products and services. In 2014, it partnered with the UK National Archives on Big Data for Law to provide new open data, tools and research methodologies to more easily maintain and interpret vast amounts of current legislation. It launched a free iPhone app, My Legal Places, which locates UK police stations, courts, citizen advice bureaus and community legal ofﬁces to support access to justice. It also released Dressed to Kill, a report examining the cotton industry and human trafﬁcking undertaken in conjunction with STOP THE TRAFFIK. The report measures media coverage of both fashion and human trafﬁcking to highlight key issues and ways participants in the global cotton supply chain are working to prevent trafﬁcking through campaign-driven community action. Exhibitions Reed Exhibitions’ trade shows provide platforms for supporting our corporate responsibility focus areas. At the start of 2014, Comic Con New York, which attracted 151,000 attendees, joined the Comic Book Legal Defense Fund, a non-proﬁt organisation protecting the rights of comics artists, publishers, retailers, librarians and fans. During the year, to support the development of the event management industry in China, launched a new annual scholarship programme beneﬁtting 50 university students studying relevant subjects. Its South African ofﬁce won a 2014 Corporate Social Responsibility Award from Media 24 for its support of indigenous communities. Across the Group In 2014, we helped advance Business for the Rule of Law, a global initiative led by the UN Global Compact with the support of other organisations including the Atlantic Council, the World Justice Project and the International Chamber of Commerce. Key developments in the year include the creation of a Steering Group and the start of international consultation on a formal framework to be launched in 2015 focused on actions, practical examples and interactive technology to promote corporate support for the rule of law around the world. During the year we began working with Oxfam on Raising Her Voice to strengthen women’s rights in Nepal. We have supported efforts to develop 90 community discussion groups across districts in the country’s midwest region. The groups aim to empower women, helping them develop action plans to address personal, family and community challenges, while training for men aims to increase awareness of gender equality. We are providing access to content in health, water, sanitation, education and forestry use. Our partnership has also broadened to include assistance with Oxfam’s Action4Justice project, an online legal information platform to facilitate cases that promote positive social change, in collaboration with Greenpeace, Transparency International and Avocats Sans Frontières. 2014 OBJECTIVES Progress Partner with United Nations Global Compact to reﬁne and launch stakeholder consultation on Business for the Rule of Law Develop media and/or academic partnership to further awareness and engagement with the Environmental Challenge Collaboration with Oxfam to advance Raising Her Voice women’s rights programme in Nepal §§ Steering group formed; global consultation on framework under way §§ Shared case studies highlighting our support for the rule of law as a foundation for an ‘example hub’ §§ Media partnership with a UK national newspaper §§ New links with university hydrologic science network §§ Supporting community discussion groups with health, water, sanitation, education and forestry use content §§ Pro bono support for other projects including Action4Justice platform 2015 OBJECTIVES §§ Support the development and release of Business for the Rule of Law framework §§ Power of Research: five-year Environmental Challenge collaboration project §§ Big Data for Good: explore project to find missing children in Europe 94118_Reed_AR_p037-047.indd 40 06/03/2015 08:52 RELX Group Annual Reports and Financial Statements 2014 41 2. Governance 2014 OBJECTIVES Progress Implement updated corporate governance policies §§ Operating and Governance Principles reviewed by cross-functional team Conduct a review and refresh of the Group’s Code of Ethics and Business Conduct §§ Compliance Committee review completed, with Board review pending Evaluate the Company’s Export and Trade Controls Policy and compliance efforts §§ Enhancements include streamlined language; reference to social media; and more learning aids and interactivity §§ Designees appointed for each business; strengthening controls as appropriate §§ Global policy updated for issuance in early 2015 2015 OBJECTIVES §§ Establish common approach to development and management of corporate policies §§ New communication campaigns to supplement formal compliance training §§ Continue to enhance trade sanctions and export controls compliance procedures and tools The Group’s Code of Ethics and Business Conduct (the Code) is disseminated to every employee and sets the standards for our corporate and individual conduct. The Code has been updated for release during the ﬁrst half of 2015. The revised Code describes our social media policy and includes learning aids, increased interactivity and streamlined wording. Among other topics, the Code addresses fair competition, anti-bribery, conﬂicts of interest, employment practices, data protection and appropriate use of company property and information. It also encourages reporting of violations – with an anonymous reporting option – and prohibits retaliation. It makes clear our commitment to human rights, incorporating the principles of the United Nations Global Compact (UNGC). In accordance with the UN’s Guiding Principles on Business and Human Rights, we have considered where and how we operate and have concluded that there is low human rights risk in our direct employment activities (for more information on human rights see Supply Chain). All employees complete training on the Code, as part of their new hire induction and at regular intervals, to ensure their understanding and acknowledgement of the Code. In 2014, NYSE Governance Services ranked our Code among the top 10% of more than 2,500 codes it has evaluated. We also provide mandatory online training on anti-bribery, competition laws, protecting data and preventing workplace harassment, supplemented by in-person training for higher-risk roles. We routinely issue computer-based training on these same topics to new employees. We achieve 100% completion rates for all courses within four months of issuance. In 2014, we remained diligent in our ongoing efforts to ensure compliance with applicable bribery laws. We improved processes to ensure compliance with sanctions laws and are updating relevant policy and compliance tools. We also released new Privacy Principles setting out our approach to data protection and privacy. As a signatory to the UNGC and its principles, encompassing labour, environment, anti-corruption, as well as human rights, we demonstrated leadership in 2014 by serving on the UNGC Advisory Group for the UK and the UNGC Supply Chain and Caring for Climate Advisory Groups. We were also on the board of the Alliance for Water Stewardship. UNGC peers judged our 2014 Communication on Progress, required of signatories each year, to have attained Advanced Level. In the year, we served on the UN Secretary General’s legal taskforce helping to consider post-2015 sustainable development goals. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p037-047.indd 41 06/03/2015 08:52 42 BUSINESS REVIEW CORPORATE RESPONSIBILITY 3. People Our 28,500 people are our strength. Our workforce is 53% female and 47% male, with an average length of service of eight years. There were 44% female and 56% male managers, and 29% female and 71% male senior operational managers. Board of directors Senior operational managers* Female 3 30% 7 Male 70% 121 29% 300 71% All employees** 15,100 53% 13,400 47% * Senior operational managers are deﬁned as those managers up to and including three reporting lines from the CEO ** Full time equivalent The Group’s Nominations Committee considers the knowledge, experience and background of individual Board Directors. At year end 2014, women made up 30% of the members of the Reed Elsevier NV Board and 22% of the members of the Reed Elsevier PLC Board. The two Executive Directors on the Board are male. The Group’s Diversity and Inclusion (D&I) Statement (www.relxgroup.com/go/Diversity), articulates our commitment to a diverse workforce and environment that respects individuals and their contributions, regardless of 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 composed of a senior business and HR leader from each business unit, supported by a broader D&I Working Group. We encourage both afﬁnity groups, such as women’s forums, which provide support and mentoring, and community involvement. During 2014, we took steps to develop inclusive leadership as a core management competency engaging our heads of talent to ensure it is incorporated in manager training. We reviewed our Business Leadership Programme course syllabus for up and coming leaders to ensure it contains relevant themes. In the year, we joined Business in the Community’s Opportunity Now initiative to tap into additional D&I expertise, shared with our D&I networks. In 2014, CEO Erik Engstrom signed the Women’s Empowerment Principles, a UN Global Compact and UN Women initiative, which aim to help companies empower women and promote gender equality. In the year, we created a template for reviewing our existing practices relative to the Principles. Our employees have the right to a healthy and safe workplace as outlined in the Group’s Global 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 manual handling, 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. The number of lost time reportable cases decreased in the year (23 in 2014 vs 31 in 2013). In the US, where we have our largest concentration of employees, the REACH programme promotes workplace wellbeing through health screenings, online assessments, stress awareness training and weight loss and smoking cessation courses, with ﬁnancial incentives for participation. In 2014, we continued our US health coach programme which provides personalised support to all staff. 1,530 employees worked with a coach to help with issues related to diet, exercise and smoking; 3,071 calls were made to CareConnect, our health concierge service. Our annual re:ﬁt2win global wellbeing competition encourages employees to establish ﬁtness teams to compete for cash prizes for charities of their choice. Across the Group, 79 teams took part and ran, walked, cycled and swam a total of 89,195 miles/ 143,545 kilometres, with a 22% increase in the number of participants over 2013. 2014 OBJECTIVES Sign up to the UN Women’s Empowerment Principles; review practice relative to Principles Develop inclusive leadership as a core management competency Progress §§ Signed §§ Tool created to measure business alignment; reviews under way §§ Heads of talent engaged §§ Review of Business Leadership Programme syllabus to identify inclusive leadership themes 10% increase in re:ﬁt2win participants §§ 22% increase in employees participating 2015 OBJECTIVES §§ Map internal practice against the UN Women’s Empowerment Principles §§ Embed inclusive leadership as a core management competency §§ Targeted wellness campaign focused on avoiding/managing diabetes 94118_Reed_AR_p037-047.indd 42 06/03/2015 08:52 RELX Group Annual Reports and Financial Statements 2014 ENVIRONMENTAL CHALLENGE: ADVANCING ACCESS TO SAFE WATER AND SANITATION THE GROUP PRIZE WILL ALLOW US TO SCALE AND REACH THOUSANDS OF GUATEMALAN FAMILIES. Philip Wilson Ecoﬁltro, second prize winner, 2014 Reed Elsevier Environmental Challenge 43 The Group 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. The $50,000 2014 ﬁrst prize winner was Sustainable Sanitation Design (Susan Design), an NGO which will bring 10,000 households in Uganda its low-cost, unisex urinal featuring a safe organic fertiliser recovery system. The $25,000 2014 second prize winner was Ecoﬁltro, a social enterprise company working to provide thousands of families in Guatemala with new ceramic disk ﬁlters that remove bacteria and other harmful agents from potable water. The $15,000 WASH Alliance prize winner was the Stanford Program on Water, Health and Development which will install automated chlorine dosing systems at shared water points in Bangladesh used by 2,000 families. The WASH Alliance is a consortium of six Dutch NGOs promoting hygienic use of sustainable water and sanitation. $330,000 awarded over the past four years Susan Design supported Ugandan farmer and his sustainably fertilised pineapple ﬁeld O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p037-047.indd 43 06/03/2015 08:53 44 BUSINESS REVIEW CORPORATE RESPONSIBILITY 4. Customers 2014 OBJECTIVES Progress Roll out translations of the Group’s Editorial Policy; launch related Data Quality Standards Create CR ‘blueprint’ to help sales staff enhance their customer conversations; put CR on the agenda at ﬁve sales conferences Embed Accessibility Policy and conduct accessibility review of at least 10 key product sites §§ Editorial Policy translated into 12 languages; Editorial Policy for Suppliers created and rolled out §§ Launched the Group’s Quality First Principles with global email from Henry Udow, Chief Legal Officer and Company Secretary §§ CR fast facts document created and promoted across the company §§ CR as a Sales Tool sessions delivered to more than five sales teams across the Group §§ Accessibility Policy launched in January by Kumsal Bayazit, Chief Strategy Officer §§ 33 product sites reviewed 2015 OBJECTIVES §§ Conduct 10 Quality First Principles risk assessments §§ Customer engagement: sharing our CR expertise webinar series §§ Develop baseline tool to determine accessibility requirements for new and existing sites In 2014, we surveyed over 450,000 customers through Net Promoter Score (measuring customer loyalty) and business dashboard programmes. This allows us to deepen our understanding of their needs and further drives forward a customer-centric culture across the Group. Results, reviewed by the CEO and senior operational managers and communicated to staff, highlight where we are doing well and where we must do better. To aid colleagues who work with customers, during the year we continued to incorporate CR into customer-facing staff training with outreach to key sales and marketing teams. We updated our intranet resource, CR as a Sales Tool; created a CR fast facts document distributed across the business; and developed new CR Sales Academy content. In the year, we translated the Group’s Editorial Policy into 12 languages. The Policy commits us to producing information of the highest quality and encompasses, among other key issues, producing content that is accurate, clear, timely, avoids bias, defamation, conﬂict of interest, plagiarism and makes a distinction between editorial and advertising. In 2014, we also created and rolled out an Editorial Policy for Suppliers and launched Quality First Principles with a message to all employees from the Chief Legal Ofﬁcer and Company Secretary. More than 100 employees and other stakeholders helped develop the Principles, and a new Quality First Working Group has been formed. We are committed to improving access to our products and services for all users, regardless of physical ability. Our Accessibility Policy – developed in 2013 to lead the industry in providing accessibility solutions to customers with products that are operable, understandable and robust – was disseminated to all employees by the Chief Strategy Ofﬁcer at the start of 2014. In the year, 33 key product sites were reviewed, and accessibility challenges and opportunities were the theme of the 2014 CR Forum Stakeholder session; participants included a corporate peer responsible for accessibility, a member of Elsevier’s Accessibility and Usability Collaboration Group, who herself is a blind user, the founder of a disability NGO and the leader of our Accessibility Working Group. The session was webcast to a live audience and made available on the corporate intranet for all employees. In 2014, members of the Accessibility Working Group logged over 100 accessibility projects and Elsevier’s Global Books Digital Archive fulﬁlled more than 4,500 disability requests, 60% of them through AccessText.org, a service it helped establish. 94118_Reed_AR_p037-047.indd 44 06/03/2015 08:53 RELX Group Annual Reports and Financial Statements 2014 45 5. Community 6. Supply chain RE Cares, our global community programme, promotes education for disadvantaged young people that advances one or more of our unique contributions as a business, and allows staff up to two days’ paid leave per year for their own community work. We donated £3.4m in cash (including through matching gifts) and the equivalent of £2.6m in products, services and staff time in 2014. 32% of employees were engaged in volunteering through RE Cares and we reached nearly 34,000 disadvantaged young people through time, in-kind and cash donations. In the year, we expanded our RE Cares Champions network with 21 new Champions (190 in total) covering 19 ofﬁces; we also created an induction programme to help them plan activities and engage staff. In 2014, we increased volunteering in company time by 6%. Each September, we hold RE Cares Month to celebrate our community activities and in 2014, over 50% of the Group’s locations around the world took part. Among them, LexisNexis Legal & Professional in New York helped organise a children’s library for Books for Kids, while their counterparts in South Africa engaged senior leaders in cycling over 200km to raise funds for three charities in Johannesburg, Durban and Cape Town. During RE Cares Month, we held our annual global book drive yielding nearly 11,000 books for local and developing world readers, and announced the winners of the fourth 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 travelled to Cameroon with Book Aid International, a charity partner for more than 10 years, which provides books and library support services to 12 countries in sub-Saharan Africa. The trip was led by Youngsuk ‘YS’ Chi, RELX Group Director of Corporate Affairs. Among the teams winning for exceptional community engagement were Risk & Business Information Skokie, Illinois which organised 29 volunteer programmes over one year and Reed Exhibitions Norwalk, Connecticut which volunteered more than 500 hours in the same period. 2014 OBJECTIVES Progress Increase use of two days’ volunteering by 10% Expand RE Cares Champions network and create new induction programme §§ 6% increase achieved §§ 21 new Champions recruited §§ Induction programme developed with new tools including an introductory webinar and handbook 2015 OBJECTIVES §§ 60% of locations taking part in RE Cares Month §§ Develop RE Cares impact measurement tool 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 2014, we tracked 499 critical, preferred and strategic suppliers, and those we deem high risk according to the Carnstone Supplier Risk Tool developed for the Group which incorporates eight indicators, including human trafﬁcking information from the US State Department and Environmental Performance Index results produced by Yale and Columbia universities. The tracking list changes year-on-year based on the number of suppliers we do business with who meet the required criteria. We started 2014 with 57% of suppliers on the SRS tracking list as signatories to the Supplier Code and reached 84% by year end (2% of the total are suppliers which have provided internal codes, which we believe to be a stringent as our own, in lieu). We have embedded signing the Supplier Code into our e-sourcing tool as a criterion for doing business with us, and have an additional 1,885 supplier signatories. Specialist supply chain auditors, Intertek, undertook 56 external audits of high-risk suppliers, using their comprehensive Workplace Conditions Assessment template. Any incidence of non-compliance identiﬁed in the audit process triggers a corrective action plan agreed with the supplier, with remediation required on all issues. We implemented our new US Supplier Diversity programme in 2014, which invites tenders from diverse suppliers, and all relevant staff received training. The programme provides suppliers with feedback after competitive bidding and opportunities for development, while an improved diverse supplier tracking system is helping us understand how we are doing in this area. 2014 OBJECTIVES Progress Supplier Code of Conduct incorporated into terms and conditions of purchase orders Expand use of new Workplace Conditions Assessment tool to enhance high-risk supplier audits Implement new US Supplier Diversity programme §§ Incorporated into nearly 28,000 purchase orders, valued at over $500m §§ 56 Workplace Conditions Assessment audits completed §§ Programme launched encompassing internal training for procurement staff §§ Number of opportunities and business awarded tracked 2015 OBJECTIVES §§ Increase core suppliers as signatories to the Code §§ Enhance external Workplace Conditions Assessment tool with external review of Corrective Action Plan fulfilment §§ Advance US Supplier Diversity and Inclusion programme O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p037-047.indd 45 06/03/2015 08:53 46 BUSINESS REVIEW CORPORATE RESPONSIBILITY 7. Environment 2014 OBJECTIVES Progress 45% of electricity from renewable energy or Renewable Energy Certiﬁcates 70% of key locations to achieve ﬁve or more Group Environmental Standards Expand Green Heroes programme recognising employee action §§ Goal achieved; renewable energy certificates purchased through US auction §§ 72% achieved (81 locations designated green vs 77 in 2013) §§ New Green Heroes award programme with individual and Green Team winners 2015 OBJECTIVES §§ Consultation on new environmental targets with key stakeholders §§ 50% of electricity from renewable energy or Renewable Energy Certificates §§ 75% of key locations to achieve five or more Group Environmental Standards Our environmental targets reﬂect our performance and focus areas and can be found, along with full details, in the 2014 Corporate Responsibility Report at www.relxgroup.com/go/ CRReport. In 2014, we purchased 46% of our electricity from renewable energy and renewable energy certiﬁcates, and were ranked among the top FTSE 350 companies for disclosure in the 2014 CDP Leadership Index, representing 767 investors with assets of $92,000bn. The Group received an A grade in CDP’s Global Performance Leadership Index. Our Environmental Champions network, employee-led Green Teams, and engagement through networks such as Publishers database for Responsible Ethical Paper Sourcing, inform how we address our environmental impacts. Our Environmental Standards programme sets benchmark performance levels and inspires green competition among ofﬁces. In 2014, 81 sites (72% of key locations) achieved ﬁve or more standards and attained green status. The Chief Financial Ofﬁcer wrote to all staff recognising their achievements on World Environment Day and also identiﬁed Green Heroes across the company, nominated by their peers for their environmental efforts. New in 2014, Green Teams submitted environmental project ideas to engage staff; winners received funding to carry out their plans. The overall winner of the individual category chose to join a research expedition with Earthwatch in Malawi. 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 40% of the total market, and 79% in energy and fuels. In the year, we continued to map the range of our environmental products and services, covering some 400 products on areas such as ocean and coastal management, forestry, environmental law and waste management, and trade shows on environmental engineering, renewable energy and water. 94118_Reed_AR_p037-047.indd 46 10/03/2015 07:19 RELX Group Annual Reports and Financial Statements 2014 47 2014 ENVIRONMENTAL PERFORMANCE TARGETS Scope 1 (direct emissions) tCO2e Scope 2 (gross electricity and heat) tCO2e Total energy (MWh) Ofﬁce energy (MWh) Absolute performance Intensity ratio (Absolute/revenue £m) 2014 variance 2013 2014 variance 2013 8,932 -23% 11,602 1.55 -20% 1.92 109,129 -4% 113,691 18.90 0% 18.84 Focus area Climate change Key performance indicators Scope 1 intensity (direct emissions) Scope 2 intensity (gross electricity and heat) Ofﬁce energy use intensity Energy 222,658 -7% 239,187 38.57 -3% 39.63 109,387 -9% 120,381 18.95 -5% 19.95 Water (m3) 343,661 -14% 401,788 59.53 -11% 66.58 Water Waste diverted from landﬁll (%)* Production paper (t) 70% 1%pt 69% 1.19 1% 1.18 52,163 6% 49,410 9.04 10% 8.19 Waste * Intensity metric shows tonnes of waste diverted from landﬁll /£m revenue Percentage of electricity from renewables or Renewable Energy Certiﬁcates Average data centre Power Usage Effectiveness (PUE) Percentage of key locations achieving 10 m3 of water per person per year Waste diverted from landﬁll Target 2010–2015 -20% -10% -20% 50% 1.69 100% Achievement to date -29% Achieved -22% Achieved -26% Achieved 46% Under way 1.65 Achieved 90% Under way 75% 70% Under way We have reported on all emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Report), Regulations 2013. These sources fall within our combined ﬁnancial statement. We have included emissions from the operating companies within the combined businesses. We have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and the data has been assured by an independent third party, EY. Details on methodology and the assurance statement can be viewed in the 2014 Corporate Responsibility Report at www.relxgroup.com/go/CRReport. 2014 Recognition: Business in the Community CR Index – included Dow Jones Sustainability Indices – included CDP Indexes: – Global Climate Performance Leadership Index: Grade A – Disclosure Leadership Index Green Power Leader, US EPA FTSE4Good Index – included Natural Capital Leaders Index – included Carbon Clear FTSE 100 rankings – Top 20 ECPI Indices – included UK National Business Awards – Sustainability Award ﬁnalist STOXX Global ESG Leaders Indices – included Four Euronext Vigeo indices – UK 20 – Benelux 20 – Eurozone 120 – Europe 120 Oekom – First in media sector THE FULL 2014 CORPORATE RESPONSIBILITY REPORT IS AVAILABLE AT WWW.RELXGROUP.COM/GO/CRREPORT O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p037-047.indd 47 09/03/2015 17:13 94118_Reed_AR_p048-060.indd 48 09/03/2015 17:14 RELX Group Annual Reports and Financial Statements 2014 49 Financial review In this section 50 Chief Financial Ofﬁcer's Report 58 Principal risks O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 49 06/03/2015 09:08 50 FINANCIAL REVIEW CHIEF FINANCIAL OFFICER’S REPORT Chief Financial Ofﬁcer’s report Nick Luff Chief Financial Ofﬁcer Financial stewardship and discipline are important to the Group for the beneﬁt of shareholders. In 2014, we maintained the trends in ﬁnancial performance that have been delivered in recent years. Return on Invested Capital improved to 12.8%. Our balance sheet remains strong and cash generation was robust. Revenue Growth of underlying revenue, which excludes the effects of currency translation, acquisitions, disposals and exhibition cycling, was 3%, with all four business areas contributing to underlying growth. At constant currencies, revenue growth was 1%. SOURCES OF 2014 REVENUE GROWTH YEAR TO 31 DECEMBER 2013 revenue Underlying growth Exhibition cycling Acquisitions Disposals Currency effects 2014 revenue £m Change 6,035 171 30 77 (228) (312) 5,773 +3% +1% +1% –4% –5% –4% The difference between underlying and constant currency growth rates reﬂects the impact of acquisitions, disposals and exhibition cycling in 2013 and 2014. If exhibition cycling effects had been included, underlying revenue growth would have been 4%. The overall effect of disposals in 2014 was to reduce revenue growth by 4%, partially offset by a 1% contribution from acquisitions. Disposals made throughout 2014 will continue to impact reported revenue and operating proﬁt growth rates in 2015. The impact of currency movements was to reduce revenue by 5%, principally due to the weakening of the US dollar, on average, against sterling during 2014. Proﬁt Underlying adjusted operating proﬁt grew ahead of revenue at 5%. Total adjusted operating proﬁt was £1,739m, down 1%, while at constant currencies adjusted operating proﬁts were up 5%. SOURCES OF 2014 PROFIT GROWTH YEAR TO 31 DECEMBER £m Change 2013 adjusted operating proﬁt Underlying growth Acquisitions Disposals Currency effects 1,749 78 11 (2) (97) 2014 adjusted operating proﬁt 1,739 +5% – – –6% –1% Acquisitions and disposals had no net impact on adjusted operating proﬁt. Currency effects reduced adjusted operating proﬁt by 6%. REVENUE £m 6,002 6,116 6,035 5,773 2011 2012 2013 2014 94118_Reed_AR_p048-060.indd 50 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 51 Proﬁt continued Adjusted ﬁgures Revenue Operating proﬁt Operating margin Proﬁt before tax Net proﬁt Net margin Cash ﬂow Cash ﬂow conversion Return on invested capital * Excluding exhibition cycling. 2014 £m 2013 £m Change Change at constant currencies Change underlying 5,773 1,739 30.1% 1,592 1,213 21.0% 1,662 96% 12.8% 6,035 1,749 29.0% 1,572 1,197 19.8% 1,703 97% 12.1% +3%* +5% –4% –1% +1% +1% –2% +1% +5% +7% +7% +3% The Group uses adjusted and underlying ﬁgures as additional performance measures. Adjusted ﬁgures primarily exclude the amortisation of acquired intangible assets and other items related to acquisitions and disposals, and the associated deferred tax movements. Reconciliation between the reported and adjusted ﬁgures are set out in note 10 to the combined ﬁnancial statements on page 114. 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. Underlying revenue growth rates also exclude the effects of exhibition cycling. Constant currency growth rates are based on 2013 full year average and hedge exchange rates. Underlying costs were up 3%, reﬂecting investment in global technology platforms and the launch of new products and services, partly offset by continued process innovation. Actions were taken across our businesses to improve cost efﬁciency. Total operating costs, including the impact of acquisitions and disposals, decreased by 6%. At constant currencies, total operating costs decreased by 1%. The net pension expense, excluding the net pension ﬁnancing charge, was £95m (2013: £61m), including settlement and past service credits of £15m (2013: £59m). The overall adjusted operating margin at 30.1% was 1.1 percentage points higher than in the prior year. This included a 0.9 percentage point beneﬁt to margin from portfolio change and a 0.1 percentage point decrease from currency effects. Interest expense, excluding the net pension ﬁnancing charge, was £147m (2013: £177m). The reduction primarily reﬂects the beneﬁt of term debt reﬁnancing at lower rates and currency translation effects. Adjusted proﬁt before tax was £1,592m (2013: £1,572m), up 1%. At constant exchange rates, adjusted proﬁt before tax was up 7%, reﬂecting the increase in constant currency adjusted operating proﬁts and a lower net interest expense. The adjusted effective tax rate on adjusted proﬁt before tax was 23.5%, in line with the prior year. The effective tax rate excludes movements in deferred taxation assets and liabilities related to goodwill and acquired intangible assets, and includes the beneﬁt of tax amortisation where available on those items. 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 proﬁtability is expected. The adjusted net proﬁt attributable to shareholders of £1,213m (2013: £1,197m) was up 1% and up 7% at constant currencies. ADJUSTED OPERATING PROFIT ADJUSTED OPERATING PROFIT MARGIN £m 1,626 1,688* 1,749 1,739 27.1% 27.6%* 29.0% 30.1% 2011 2012 2013 2014 2011 2012 2013 2014 * 2012 restated for IAS19. * 2012 restated for IAS19. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 51 06/03/2015 09:08 52 FINANCIAL REVIEW CHIEF FINANCIAL OFFICER’S REPORT Cash ﬂows Adjusted cash ﬂow was £1,662m (2013: £1,703m), down 2% compared with the prior year and up +3% at constant currencies. The rate of conversion of adjusted cash ﬂow was 96% (2013: 97%). 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 cash ﬂow Cash ﬂow conversion 2014 £m 1,739 (270) 237 (44) 1,662 96% 2013 £m 1,749 (308) 249 13 1,703 97% Capital expenditure was £270m (2013: £308m), including £203m (2013: £251m) in respect of capitalised development costs. This reﬂects sustained investment in new products and related infrastructure, particularly in the Legal business. Depreciation and the amortisation of capitalised development costs were £237m (2013: £249m). Capital expenditure was 4.7% of revenue (2013: 5.1%). Depreciation and amortisation were 4.1% of revenue (2013: 4.1%). Tax paid increased to £363m (2013: £347m), reﬂecting increased taxable proﬁts, predominantly in the US. Interest paid was £126m (2013: £195m). Payments made in respect of acquisition-related costs amounted to £27m (2013: £28m). Payments relating to exceptional restructuring programmes from prior years were nil (2013: £12m). Free cash ﬂow before dividends was £1,156m (2013: £1,131m). Ordinary dividends paid to shareholders in the year, being the 2013 ﬁnal and 2014 interim dividends, amounted to £565m (2013: £549m). Free cash ﬂow after dividends was £591m (2013: £582m). Total consideration on acquisitions completed in the year was £385m (2013: £230m). FREE CASH FLOW YEAR TO 31 DECEMBER Adjusted 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. 2014 £m 1,662 (126) (363) (17) 1,156 (565) 591 2013 £m 1,703 (195) (347) (30) 1,131 (549) 582 Cash spent on acquisitions was £437m (2013: £231m), including deferred consideration of £34m (2013: £21m) on past acquisitions, payments of £15m (2013: nil) for the acquisition of non-controlling interests, spend on venture capital investments of £6m (2013: £10m) and borrowings in acquired businesses totalling £20m (2013: nil). Total consideration on the disposal of non-strategic assets in 2014 was £74m (2013: £331m), including £10m (2013: £6m) in respect of freehold properties. Net cash received after timing differences and separation and transaction costs was £53m (2013: £195m). Net tax recovered in respect of disposals was £5m (2013: tax paid £25m). Share repurchases by the parent companies in 2014 were £600m (2013: £600m), with a further £100m repurchased in 2015 as at 25 February. The Employee Beneﬁt Trust purchased shares of the parent companies to meet future obligations in respect of share based remuneration totalling £39m (2013: nil). Proceeds from the exercise of share options were £45m (2013: £125m). RECONCILIATION OF NET DEBT YEAR-ON-YEAR YEAR TO 31 DECEMBER Net debt at 1 January Free cash ﬂow post dividends Net disposal proceeds Acquisitions Share repurchases Net proceeds from share options exercised Other* Currency translation 2014 £m (3,072) 591 53 (437) (639) 45 (12) (79) 2013 £m (3,127) 582 195 (231) (600) 125 (44) 28 Net debt at 31 December (3,550) (3,072) * Cash tax relief/payments on disposals, distributions to minorities and ﬁnance leases. ADJUSTED CASH FLOW CONVERSION RETURN ON INVESTED CAPITAL NET DEBT 93% 95%* 97% 96% £m 11.2% 3,433 11.7%* 3,127 12.1% 3,072 12.8% 3,550 2011 2012 2013 2014 2011 2011 2012 2012 2013 2013 2014 2014 * 2012 restated for IAS19. * 2012 restated for IAS19. 94118_Reed_AR_p048-060.indd 52 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 53 Funding Debt Net borrowings at 31 December 2014 were £3,550m, an increase of £478m since 31 December 2013. The majority of our borrowings are denominated in US dollars and the weakening of sterling against the dollar at the year end compared with the start of the year resulted in higher net borrowings when translated into sterling. Excluding currency translation effects, net borrowings increased by £399m. Expressed in US dollars, net borrowings at 31 December 2014 were $5,532m, an increase of $443m. Gross borrowings at 31 December 2014 amounted to £3,825m (2013: £3,281m). The fair value of related derivative liabilities was £1m (2013: assets of £77m). Cash balances totalled £276m (2013: £132m). In aggregate, these give the net borrowings ﬁgure of £3,550m (2013: £3,072m). The effective interest rate on gross borrowings was 4.2% in 2014, down from 4.8% in the prior year. As at 31 December 2014, after taking into account interest rate derivatives, a total of 52% of gross borrowings were at ﬁxed rates with a weighted average remaining life of 5.8 years. The ratio of net debt to 12-month trailing EBITDA (adjusted earnings before interest, tax, depreciation and amortisation) was 1.7x (2013: 1.6x). Incorporating the capitalisation of operating leases and the pension deﬁcit, in line with the approach taken by the credit rating agencies, the ratio was 2.3x (2013: 2.1x). Liquidity In June 2014, the ﬁrst of two one-year extension options was exercised on the $2.0bn committed bank facility, taking the maturity to July 2019. This back-up facility provides security of funding for short-term debt. At 31 December 2014, this facility was undrawn. In May 2014, €350m of euro denominated ﬂoating rate term debt was issued with a maturity of three years, and swapped to $480m on issue. In August 2014, £300m of sterling denominated ﬁxed rate term debt was issued with a maturity of ﬁve years and a coupon of 2.75%. In December 2014, $20m of US term debt maturing in January 2019 was purchased on the open market. The Group has ample liquidity and access to debt capital markets, providing the ability to repay or reﬁnance borrowings as they mature. 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 (liabilities)/assets held for sale Net pension obligations Working capital 2014 £m 7,365 780 464 (2) (632) (1,124) 2013 £m 6,980 720 454 18 (379) (1,156) Net capital employed 6,851 6,637 * Net of accumulated depreciation and amortisation. Net capital employed was £6,851m at 31 December 2014 (2013: £6,637m), an increase of £214m. The carrying value of goodwill and acquired intangible assets increased by £385m, reﬂecting the strengthening of the dollar against sterling and acquisitions in 2014, partly offset by the annual amortisation charge and divestments. An amount of £187m was capitalised in the year in respect of acquired intangible assets and £240m was recorded as goodwill. Development costs of £203m (2013: £251m) 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, increased to £632m (2013: £379m). There was a deﬁcit of £439m (2013: £219m) in respect of funded schemes, which were on average 91% funded at the end of the year on an IFRS basis. The higher deﬁcit reﬂects lower discount rates in the UK, US and the Netherlands. Gross capital employed at 31 December 2014 was £11,604m (2013: £11,155m) after adding back accumulated amortisation and impairment of acquired intangible assets and goodwill. The increase principally reﬂects currency effects, which more than offset the impact of disposals and an increase in the net pension deﬁcit. The post-tax return on average invested capital in the year was 12.8% (2013: 12.1%). 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 certain acquired intangible assets. The increase in the return reﬂects the improved trading performance and a lower capital base (at average exchange rates). TERM DEBT MATURITY PROFILE RETURN ON INVESTED CAPITAL $m 186 982 623 868 666 382 993 0 150 0 207 150 11.2% 11.7%* 12.1% 12.8% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 >2025 2011 2012 2013 2014 * 2012 restated for IAS19. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 53 06/03/2015 09:08 54 FINANCIAL REVIEW CHIEF FINANCIAL OFFICER’S REPORT Reported ﬁgures Reported ﬁgures Revenue Operating proﬁt Proﬁt before tax Net proﬁt Net margin Net borrowings * Excluding exhibition cycling. Change at constant currencies Change underlying +3%* +1% +8% +9% –9% Change –4% +2% +3% –14% 2014 £m 2013 £m 5,773 1,402 1,229 955 16.5% 3,550 6,035 1,376 1,196 1,110 18.4% 3,072 The Group uses adjusted and underlying ﬁgures as additional performance measures. Adjusted ﬁgures primarily exclude the amortisation of acquired intangible assets and other items related to acquisitions and disposals, and the associated deferred tax movements. Reconciliation between the reported and adjusted ﬁgures are set out in note 10 to the combined ﬁnancial statements on page 114. 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. Underlying revenue growth rates also exclude the effects of exhibition cycling. Constant currency growth rates are based on 2013 full year average and hedge exchange rates. Reported operating proﬁt, after amortisation of acquired intangible assets and acquisition-related costs, was £1,402m (2013: £1,376m). The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, decreased to £286m (2013: £318m) reﬂecting certain assets becoming fully amortised and currency effects. Acquisition-related costs were £30m (2013: £43m), including a charge for deferred consideration payments required to be expensed under IFRS. The reported proﬁt before tax was £1,229m (2013: £1,196m). 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 Net pension ﬁnancing charge Disposals and other non-operating items Reported proﬁt before tax 2014 £m 1,592 (286) (30) (21) (15) (11) 1,229 2013 £m 1,572 (318) (43) (12) (19) 16 1,196 Reported net ﬁnance costs of £162m (2013: £196m) include a charge of £15m (2013: £19m) in respect of the deﬁned beneﬁt pension schemes. Net pre-tax disposal losses were £11m (2013: gain of £16m) arising largely from the sale of certain Risk & Business Information businesses. These losses are increased by an associated tax charge of £3m (2013: £34m). RECONCILIATION OF ADJUSTED AND REPORTED TAX CHARGE YEAR TO 31 DECEMBER Adjusted tax charge Tax on disposals and other non-operating items Deferred tax credits from intangible assets Other items Reported tax charge 2014 £m (374) (3) 68 40 (269) 2013 £m (370) (34) 300 23 (81) The reported tax charge was £269m (2013: £81m). In 2013, the reported tax charge included a non-recurring deferred tax credit of £221m arising on the alignment of business assets with their global management structure. The reported net proﬁt attributable to the parent companies’ shareholders was £955m (2013: £1,110m). 94118_Reed_AR_p048-060.indd 54 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 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 2014 £m 490 642 43.0p 56.3p 26.0p €m 592 752 2013 £m 572 633 48.8p 54.0p 24.6p €m 655 707 €0.85 €1.07 €0.589 €0.91 €0.99 €0.506 Change at constant currencies +7% +10% +7% +10% Change –14% +1% –12% +4% +6% –10% +6% –7% +8% +16% The reported earnings per share for Reed Elsevier PLC was down 12% at 43.0p (2013: 48.8p) and for Reed Elsevier NV was down 7% at €0.85 (2013: €0.91), reﬂecting the impact of deferred tax credits in 2013 on both companies. Adjusted earnings per share were up 4% at 56.3p (2013: 54.0p) and 8% at €1.07 (2013: €0.99) for Reed Elsevier PLC and Reed Elsevier NV respectively. At constant rates of exchange, the adjusted earnings per share of both companies increased by 10%. The equalised ﬁnal dividends proposed by the respective Boards are 19.0p per share for Reed Elsevier PLC and €0.438 per share for Reed Elsevier NV, 6% and 17% higher respectively compared with the prior year ﬁnal dividends. This gives total dividends for the year of 26.0p (2013: 24.6p) and €0.589 (2013: €0.506). 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 (2013: 2.2x) for Reed Elsevier PLC and 1.8 times (2013: 2.0x) 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 while 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. During 2014, 35.2m Reed Elsevier PLC shares and 21.5m Reed Elsevier NV shares (including R share equivalents) were repurchased. A further 0.8m Reed Elsevier PLC shares and 2.0m Reed Elsevier NV shares were purchased by the Employee Beneﬁt Trust. During 2014, 65.0m Reed Elsevier PLC shares and 40.0m Reed Elsevier NV shares held in treasury were cancelled. As at 31 December 2014, shares in issue for Reed Elsevier PLC and Reed Elsevier NV respectively, net of shares held in treasury, amounted to 1,127.7m and 690.9m (including R share equivalents). A further 4.8m Reed Elsevier PLC shares and 2.8m Reed Elsevier NV shares have been repurchased in January and February 2015. Elsevier Reed Finance BV Elsevier Reed Finance BV, the Dutch parent company of the Elsevier Reed Finance BV group (“ERF”), was directly owned by Reed Elsevier PLC and Reed Elsevier NV during 2014. Effective 25 February 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interests in ERF to their jointly owned company RELX Group plc (see “Changes to corporate structure”, on page 57). During 2014, ERF provided treasury, ﬁnance, intellectual property and reinsurance services to the Group businesses through its subsidiaries in Switzerland: Elsevier Finance SA (“EFSA”); Reed Elsevier Properties SA (“REPSA”); and Elsevier Risks SA (“ERSA”). These three Swiss companies were organised under one Swiss holding company, which was in turn owned by Elsevier Reed Finance BV. EFSA is the principal treasury centre for the combined businesses. It is responsible for all aspects of treasury advice and support for certain Group businesses, and undertakes foreign exchange and derivatives dealing services for the whole Group. EFSA also arranges or directly provides the Group 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. ERSA is responsible for reinsurance activities for Reed Elsevier. Distributable reserves As at 31 December 2014, the parent companies Reed Elsevier PLC and Reed Elsevier NV each had distributable reserves of over £1.5bn (€1.9bn). In line with respective legislation in the UK and the Netherlands, distributable reserves are derived from the non-consolidated parent company balance sheets. The combined and parent company consolidated reserves reﬂect adjustments such as the amortisation of acquired intangible assets that are not taken into account when calculating distributable reserves. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 55 06/03/2015 09:08 56 FINANCIAL REVIEW CHIEF FINANCIAL OFFICER’S REPORT Accounting policies Capital and liquidity management 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 96 to 101. The accounting policies and estimates which require the most signiﬁcant judgement relate to the valuation of goodwill and intangible assets, the capitalisation of development costs, taxation and accounting for deﬁned beneﬁt pension schemes. Further detail is provided in the accounting policies on pages 99 and 100. Treasury policies The main treasury risks faced by the Group are liquidity risk, interest rate risk, foreign currency risk and credit risk. The Boards of Reed Elsevier PLC and Reed Elsevier NV agree overall policy guidelines for managing each of these risks and the Boards of RELX 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 provided in note 18 to the ﬁnancial statements on pages 120 to 123. Financial instruments are used to ﬁnance the combined businesses and to hedge transactions. The Group’s businesses do not enter into speculative transactions. The capital structure is managed to support the Group’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 while maintaining appropriate leverage to ensure an efﬁcient capital structure. Over the long-term, the Group seeks to maintain cash ﬂow conversion of 90% or higher and credit metrics that are consistent with a solid investment grade credit rating. The typical credit metrics are net debt to EBITDA, on a pensions and lease adjusted and on an unadjusted basis, and free cash ﬂow as percentage of net debt. The Group’s uses of free cash ﬂow over the longer-term balance the dividend policy, selective acquisitions and share repurchases, while retaining the balance sheet strength to maintain access to cost-effective sources of borrowing. Further detail on the Group’s capital and liquidity management is provided on page 120. Corporate responsibility We attach equal importance to assessing our non-ﬁnancial performance as we do in reviewing the other aspects of our business activity. The social and environmental metrics that appear in this report, and in the companion 2014 Corporate Responsibility Report, have been calculated using robust methodologies aligned with best practice. Environmental and health and safety data has been assured by EY. 94118_Reed_AR_p048-060.indd 56 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 57 Changes to Corporate structure: impact on ﬁnancial statements in Reed Elsevier NV. Consequently, the consolidated earnings of Reed Elsevier NV attributable to its ordinary shareholders will not change. As described in the Chairman’s introduction to Corporate Governance on pages 66 and 67 of this report, the Boards have reviewed the Group’s corporate structure, share listings, equalisation arrangements and corporate entity names to explore ways in which they might be simpliﬁed and modernised. Certain changes have recently been made and others are being proposed to shareholders at the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV to be held in April 2015. If approved, these changes will be effective from 1 July 2015. It is important to note that: these changes will not impact the combined financial statements furthermore, there will be no impact on the consolidated financial statements of Reed Elsevier PLC, nor on its adjusted earnings per share but there will be changes to the consolidated financial statements of Reed Elsevier NV and its adjusted earnings per share, as explained below As a result of the proposed changes, Reed Elsevier NV’s interest in the combined results will reduce from 50% to 47.1%. This reduction will be matched by the cancellation of the shares through which Reed Elsevier PLC currently owns a 5.8% interest The proposed bonus issue of shares will increase the number of shares in issue for Reed Elsevier NV by 53.8%. As a result, earnings per share and dividend per share for Reed Elsevier NV will reduce by around 35%. However, the reduction in the per share economic interests of Reed Elsevier NV shareholders will be offset by the number of additional shares each Reed Elsevier NV shareholder receives in the bonus issue, leaving the economic interest of each shareholder unchanged. In the future, adjusted earnings per share for Reed Elsevier NV will be the same as adjusted earnings per share for Reed Elsevier PLC, when expressed in the same currency. Note that, although Reed Elsevier PLC will hold a 52.9% economic interest in RELX Group plc, voting control will continue to be held 50%/50% between the two parent companies. Both parent companies will, therefore, continue to account for their interest in RELX Group plc as a joint venture. Subject to approval by Reed Elsevier NV shareholders and the completion of the bonus issue during the ﬁrst half of 2015, from the 2015 interim results onwards, historical earnings and dividend per share ﬁgures for Reed Elsevier NV will be restated to reﬂect the bonus issue. The table below illustrates the impact of the changes on a pro forma basis. Reed Elsevier NV Adjusted net proﬁt Weighted average net shares in issue Adjusted earnings per share Dividend per ordinary share Year ended 31 December 2014 Before changes to structure Restated pro forma €752m 700.1m(1) €1.07 €0.589 €708m(2) 1,014.2m(3) €0.698(4) €0.383(5) (1) Including ordinary share equivalents of convertible exchange shares held by Reed Elsevier PLC (2) Reﬂecting Reed Elsevier NV’s reduced interest in the combined business of 47.1% (3) Reﬂecting the bonus issue (4) Equal to 56.3p at the average exchange rate of €1.24=£1 (5) Equal to 26.0p at the spot exchange rates averaged over ﬁve consecutive business days commencing on the tenth business day before the announcement of the interim and proposed ﬁnal dividends. Nick Luff Chief Financial Ofﬁcer O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 57 06/03/2015 09:08 58 FINANCIAL REVIEW PRINCIPAL RISKS Principal risks The Group has established risk management practices that are embedded into the operations of the businesses, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). The principal risks facing the business, which have been considered by the Audit Committees and Boards, are described below. While our process is robust and includes consideration of risks that would threaten the Group’s business models and its solvency, 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 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. 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 levels of government funding. Intellectual property rights Data resources Paid subscriptions Our products and services are largely composed 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, either because of changes in the law or because data suppliers decide not to supply them could adversely affect our products and services. Our scientiﬁc, technical and medical (STM) primary publications, like those of most of our competitors, are published largely on a paid subscription basis. There is continued debate in government, academic and library communities, which are the principal customers for our STM publications, regarding to what extent such publications should be funded instead through fees charged to authors or authors’ funders and/or made freely available in some form 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 long-term global growth markets through organic new launches supported by the selective acquisition of small content and data sets. We continue to dispose of businesses that no longer ﬁt our strategy. We actively engage in developing and promoting the legal protection of intellectual property rights. Our subscription contracts with customers contain provisions regarding the use of proprietary content. We are 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 aim 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 serve and are currently serving the STM community under a broad range of payment models 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. 94118_Reed_AR_p048-060.indd 58 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 59 STRATEGIC RISKS Risk Description and impact Mitigation Customer acceptance of products Competition Acquisitions Our 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. Our businesses operate in highly competitive markets, which continue to evolve in response to technological innovations, legislative and 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. We regularly make small acquisitions to strengthen our portfolio. If we are unable to generate the anticipated beneﬁts such as revenue growth and/or cost savings associated with these acquisitions this could adversely affect return on invested capital and ﬁnancial condition. We are focused on the needs and economics of our customers and employ user-centred design and customer analytics to provide content and innovative solutions that help them achieve better outcomes and enhance productivity. We gain insights into our markets, evolving customers’ needs, the potential application of new technologies and business models, and the actions of competitors. These insights inform our market strategies and operational priorities. We continuously invest signiﬁcant resources in our products and services, and the infrastructure to support them. 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 criteria. We closely monitor the integration and 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. These could be adversely affected if our electronic delivery platforms or networks experience a signiﬁcant failure, interruption, or security breach. Our businesses maintain databases and information that are accessed 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, litigation and increased regulation. Our organisational and operational structures are dependent 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. 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. An inability to recruit, motivate or retain such people could adversely affect our business performance. We have established procedures for the protection of our technology assets. These include the development of business continuity plans, including IT disaster recovery plans and back-up delivery systems, to reduce business disruption in the event of a major technology failure. We have established data privacy and security programmes and evolve our programmes in line with emerging threats. 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 legislative, regulatory and contractual requirements. 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. 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p048-060.indd 59 06/03/2015 09:08 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 of independent actuaries and ensure that the funding plans are appropriate. We have clear and consistent tax policies and tax matters are dealt with by a professional tax function, supported by external tax advisers. We maintain an open dialogue with the relevant tax authorities and are vigilant in ensuring that we comply with tax legislation. Our approach to funding and the management of ﬁnancial risks, including interest rate and foreign currency exposures, 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 local versions of the deﬁned beneﬁt type in the UK, the US and the Netherlands. The assets and obligations associated with those pension schemes are 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 our 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 STM, risk & 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. Our businesses have an impact on the environment, principally through the use of energy and water, waste generation and, in our supply chain, through paper use and print and production technologies. Failure to manage our environmental impact could adversely affect our reputation. Our 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 have well established processes for reporting and investigating instances of unethical conduct. Our major suppliers are required to adopt our Supplier Code of Conduct. We are committed to reducing these environmental impacts by limiting resource use and efﬁciently employing sustainable materials and technologies. We require our major suppliers and contractors to meet the same objectives. We seek to ensure that all our businesses are compliant with relevant environmental regulation. The Strategic Report, as set out on pages 2 to 60, has been approved by the Board of Reed Elsevier PLC in accordance with local UK requirements. By order of the Board Henry Udow Company Secretary 25 February 2015 Registered Ofﬁce 1–3 Strand London WC2N 5JR 94118_Reed_AR_p048-060.indd 60 06/03/2015 09:08 RELX Group Annual Reports and Financial Statements 2014 61 Governance In this section 62 Board Directors 64 RELX Group Business Leaders 66 Chairman’s introduction to Corporate Governance 68 Corporate Governance 74 Report of the Nominations Committee 75 Directors’ Remuneration Report 89 Report of the Audit Committees O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 61 09/03/2015 17:16 62 GOVERNANCE BOARD DIRECTORS Board Directors Executive Directors Non-Executive Directors Erik Engstrom (51) Chief Executive Ofﬁcer Anthony Habgood (68) Chairman R N C Wolfhart Hauser (65) Chairman of the Remuneration Committee R C Appointed: Chief Executive Ofﬁcer since 2009. Joined Reed Elsevier as Chief Executive Ofﬁcer of Elsevier in 2004. Nationality: Swedish Other appointments: Non-Executive Director of Smith & Nephew plc. 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: Court of the Bank of England, Preqin Holding Limited and Norwich Research Partners LLP. Past appointments: Previously was Chairman of Whitbread plc, 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. Formerly Non-Executive Director of Geest plc, Marks and Spencer plc, National Westminster Bank plc, Powergen plc, SVG Capital plc, and Norfolk and Norwich University Hospitals Trust. 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: 2013 Nationality: German Other appointments: Chief Executive Ofﬁcer of Intertek Group plc and a Non-Executive Director of Associated British Foods plc. Past appointments: Chairman of Dragenopharm GmbH & Co AG from 2002 to 2006. Prior to that he was Chief Executive Ofﬁcer of TÜV Suddeutschland between 1998 and 2002 and Chief Executive Ofﬁcer of TÜV Product Service GmbH for 10 years. Served as a Non-Executive Director of Logica plc and Intertek Group plc before his current position at the company. Nick Luff (47) Chief Financial Ofﬁcer Marike van Lier Lels (55) Non-Executive Director of Reed Elsevier NV C Robert Polet (59) Non-Executive Director R C Appointed: Chief Financial Ofﬁcer on 1 September 2014 Nationality: British Other appointments: Non-Executive Director of Lloyds Banking Group plc. Past appointments: Prior to joining Reed Elsevier was Group Finance Director of Centrica plc from 2007. Before that he was Chief Financial Ofﬁcer at The Peninsular & Oriental Steam Navigation Company (P&O) and its afﬁliated companies, having previously held a number of senior ﬁnance roles at P&O. Began his career as an accountant with KPMG. Formerly a Non-Executive Director of QinetiQ Group plc. Education: Has a degree in Mathematics from Oxford University and is a qualiﬁed UK Chartered Accountant. Appointed: 2010 Nationality: Dutch Other appointments: Member of the Supervisory Boards of TKH Group NV, Eneco Holding NV and Royal Imtech NV, and a member of the Executive Committee of Aegon Association. A member of various Dutch governmental advisory boards. Past appointments: Member of the Supervisory Boards of Maersk BV, KPN NV and USG People NV, and 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. Appointed: 2007 Nationality: Dutch Other appointments: Chairman of Saﬁlo Group S.p.A., Chairman of the Supervisory Board of Rituals Cosmetics BV, and a Non-Executive Director of Philip Morris International Inc, William Grant & Sons Limited, Scotch and Soda NV and Crown Topco Limited, parent company of Vertu. 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 positions including President of Unilever’s Worldwide Ice Cream and Frozen Foods division. Formerly a member of the Supervisory Board of Nyenrode Foundation and a Non-Executive Director of Wilderness Holdings Limited. 94118_Reed_AR_p061-088.indd 62 06/03/2015 09:04 RELX Group Annual Reports and Financial Statements 2014 63 Adrian Hennah (57) Non-Executive Director A C Lisa Hook (56) Senior Independent Director R N C Appointed: 2011 Nationality: British Other appointments: Chief Financial Ofﬁcer of Reckitt Benckiser Group plc and Non-Executive Director of Indivior 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 Vantiv, Inc and Island Press. Serves on the US President’s National Security Telecommunications Advisory Committee (NSTAC), and as a member of the Advisory Board of the Peggy Guggenheim Collection. 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. Formerly a Director of Covad Communications, Inc and The Ocean Foundation. Linda Sanford (62) Non-Executive Director A C Ben van der Veer (63) Chairman of the Audit Committees A N C Board Committee Membership Appointed: 2012 Nationality: American Other appointments: An independent Director of Consolidated Edison, Inc. Serves on the boards of directors of The Business Council of New York State and the Partnership for New York City. Also serves on the boards of trustees of the State University of New York, St John’s University, Rensselaer Polytechnic Institute and the New York Hall of Science. Past appointments: Senior Vice President, Enterprise Transformation, IBM Corporation until December 2014, having joined the company in 1975. Formerly a Non-Executive Director of ITT Corporation. Appointed: 2009 Nationality: Dutch Other appointments: Member of the Supervisory Boards of Aegon NV, TomTom NV, Koninklijke FrieslandCampina NV and Royal Imtech 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. Formerly a member of the Supervisory Board of Siemens Nederland NV. A Audit Committees: RELX Group plc, Reed Elsevier PLC and Reed Elsevier NV R Remuneration Committee: RELX 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 RELX Group plc, Reed Elsevier PLC and Reed Elsevier NV. Marike van Lier Lels is a Non-Executive Director of Reed Elsevier NV. All of the other Non-Executive Directors are directors of RELX Group plc, Reed Elsevier PLC and Reed Elsevier NV. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 63 06/03/2015 09:05 64 GOVERNANCE BUSINESS LEADERS RELX Group Business Leaders Senior Business Executives Mark Kelsey Chief Executive Ofﬁcer Risk & Business Information Mike Rusbridge Chairman Exhibitions Mike Walsh Chief Executive Ofﬁcer Legal Ron Mobed Chief Executive Ofﬁcer Scientiﬁc, Technical & Medical Joined in 1989. Appointed CEO Business Information in 2010 and CEO Risk Solutions 2012. Has held a number of senior positions across the Group over the past 30 years. Studied at Liverpool University and received his MBA from Bradford University. Joined in 1994. Appointed to current position in 1996. Joined in 2003. Appointed to current position in 2011. Joined in 2011. Appointed to current position in 2012. Previously President of Reed Exhibitions Europe and Asia and President Reed Exhibitions North America. Prior to that worked with leading US exhibition organiser, Clapp and Poliak. Studied at Manchester University and Harvard Business School. Previously CEO of LexisNexis US Legal Markets and Director of Strategic Business Development Home Depot. Prior to that was a practising attorney at Weil, Gotshal and Manges in Washington D.C. and served as a consultant with The Boston Consulting Group. Holds a Juris Doctor degree from Harvard Law School and is a graduate of Yale University. Previously President of Cengage Learning’s Academic & Professional Group and Co-President and Co-Chief Operating Ofﬁcer with information services company, IHS. Holds a degree from Trinity College, Cambridge and a master’s degree from Imperial College, London. 94118_Reed_AR_p061-088.indd 64 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 65 Corporate Executives Ian Fraser Human Resources Director Kumsal Bayazit Chief Strategy Ofﬁcer Youngsuk “YS” Chi Director of Corporate Affairs and Chairman Elsevier Henry Udow Chief Legal Ofﬁcer and Company Secretary Joined in 2005. Appointed to current position at that time. Joined in 2004. Appointed to current position in 2012. Joined in 2005. Appointed to current position in 2011. Joined in 2011. Appointed to current position at that time. Previously Global HR Director at BHP Billiton (1998 to 2005). Holds an MBA in Finance and International Business from London’s City University and an MA from Edinburgh University. Ian is also a Chartered Psychologist. Previously Executive Vice President of Global Strategy and Business Development for LexisNexis Legal and Professional. Prior to that she worked with Bain & Company in New York, Los Angeles, Johannesburg and Sydney. Holds an MBA from Harvard Business School and is a Graduate of the University of California at Berkeley. Previously he was President and Chief Operating Ofﬁcer of Random House, founding Chairman of Random House Asia and Chief Operating Ofﬁcer for Ingram Book Group. Holds an MBA from Columbia University and is a Graduate of Princeton University. Previously Chief Legal Ofﬁcer and Company Secretary of Cadbury plc having spent 23 years working with the company. Prior to that he worked at Shearman & Sterling in New York and London. Holds a Juris Doctor degree from the University of Michigan Law School and a bachelor’s degree from the University of Rochester. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 65 06/03/2015 09:05 66 GOVERNANCE CORPORATE GOVERNANCE Chairman’s introduction to Corporate Governance “ As we evolve and transform our businesses, we are proposing to simplify and modernise our corporate structure to promote greater transparency of shareholders’ economic interests in the combined businesses of the Group.” Introduction to Corporate Governance The Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc are committed to high standards of corporate governance and believe that such standards are integral to the success of the Group. Our corporate governance arrangements have been updated periodically to ensure they reﬂect best practice as it has developed. The corporate structure has served the Group well to date, but as the businesses have evolved under our strategy to become an information solutions provider, the Boards considered it an appropriate time to undertake a review of the corporate structure to ensure it remains appropriate for the modern operating environment. The Directors are proposing certain changes which are designed to promote greater transparency of shareholders’ economic interests in the combined businesses and comparability between both parent companies’ share prices. Importantly, these changes do not affect the economic interests or voting rights of any shareholder. Dividend and capital rights are unchanged. A detailed description of the proposed changes is set out in this introduction. The Boards have also put in place policies and procedures that promote corporate responsibility, accountability and probity, and include the Group’s Code of Ethics and Business Conduct which sets the standard for our corporate and individual behaviour. The Code of Ethics and Business Conduct applies to all Directors and employees of the Group and more information on its application can be found in the Corporate Responsibility section on page 41. The Group is listed in the UK, the US and the Netherlands and therefore it is subject to corporate governance requirements in those jurisdictions. This Corporate Governance Report describes the Group’s governance arrangements and the work of the Boards and their Committees. It is intended to provide shareholders with a clear view of how the Group has complied with the applicable corporate governance codes during the year. Statements with regard to compliance with corporate governance codes and in particular the UK Corporate Governance Code published by the Financial Reporting Council in September 2012 (the UK Code) are set out on page 68. Board changes and succession In last year’s introduction to Corporate Governance, I reported that Nick Luff had been identiﬁed to succeed Duncan Palmer as Chief Financial Ofﬁcer at a date which was to be determined. I am pleased to report that shareholders approved Nick’s appointment at the Annual General Meetings in 2014 and he joined the Boards as Chief Financial Ofﬁcer in September. Duncan stood down from the Boards in September. I would like to welcome Nick to our Boards and to thank Duncan for his contribution to the Group. Looking ahead, Lisa Hook, our Senior Independent Director, will have served for nine years as a Non-Executive Director as of this year’s Annual General Meetings. Lisa has kindly agreed to serve for a further term of one year to provide continuity while the Nominations Committee leads the process for refreshing the Boards and to ensure there is a smooth transition of responsibilities. I am grateful to Lisa for agreeing to this. Further details of the work of the Nominations Committee are set out in the report on page 74. Board evaluation An externally facilitated evaluation of the Boards and their Committees was last undertaken in 2011. In accordance with the UK Code, the Corporate Governance Committee appointed an external facilitator, Lorna Parker, to conduct an independent effectiveness review for 2014. Details of the review, which conﬁrmed that the Boards and their Committees continue to function effectively, are set out on page 69. Following the changes to the Boards during the year and taking into account the outcome of the effectiveness review, I believe that the Boards and the Committees operate effectively and have an appropriate balance of skills, experience, independence, knowledge of the Group and diversity to ensure that they continue to do so. Additionally, all of our Directors continue to contribute effectively and are committed to their roles. Therefore, on the recommendation of the Nominations Committee, they will all stand for re-election at the Annual General Meetings in April 2015. The biographical details of each of the Directors are set out on pages 62 and 63. Simpliﬁed, Modernised and More Transparent Corporate Structure, Equalisation Arrangements and Corporate Entity Names During 2014, the Boards carried out a review of the Group’s corporate structure, share listings, equalisation arrangements and corporate entity names to explore ways in which they might be simpliﬁed and modernised. Certain changes have recently been made and others are being proposed to shareholders at the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV to be held in April 2015. These changes will be cost and proﬁt neutral and none of these changes impact the economic or voting interests of any shareholder. In particular, dividend and capital distribution rights are unaffected. All parent company guarantees over debt are also unaffected. Corporate Structure Reed Elsevier PLC and Reed Elsevier NV are separate, publicly-held companies. Through the end of 2014 they jointly owned two companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Effective 25 February 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interests in Elsevier Reed Finance BV to their jointly owned company Reed Elsevier Group plc and named this newly-combined single group entity RELX Group plc. As a result, RELX Group plc now holds all the Group’s businesses, subsidiaries and ﬁnancing activities. Together Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc (and its subsidiaries and joint ventures) comprise the Reed Elsevier combined businesses. 94118_Reed_AR_p061-088.indd 66 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 67 Shareholders in Reed Elsevier PLC, the London (and New York) publicly listed entity, hold a 52.9% economic interest in the combined businesses. Reed Elsevier PLC owns a 50% direct holding in RELX Group plc and has a 5.8% shareholding in Reed Elsevier NV, the Amsterdam (and New York) publicly listed entity. All other shareholders (other than Reed Elsevier PLC) in Reed Elsevier NV hold a 47.1% economic interest in the combined businesses. In order to simplify the corporate structure and make the respective economic interests of the two parent companies’ shareholders more transparent it is being proposed that Reed Elsevier PLC’s 5.8% shareholding in Reed Elsevier NV be replaced by a 2.9% direct (non-voting) shareholding in RELX Group plc. As a result, Reed Elsevier PLC’s direct equity holding in RELX Group plc will become 52.9% and Reed Elsevier NV’s direct equity holding in RELX Group plc will become 47.1%, which aligns with their shareholders’ respective economic interests. Simpliﬁcation of Corporate Structure Revised corporate structure, reﬂecting the changes that became effective 25 February 2015 and those being proposed to shareholders: External shareholders’ economic interest in the Reed Elsevier combined businesses: 31 December 2014 25 February 2015 Proposed 1 July 2015 52.9% 47.1% 52.9% 47.1% Reed Elsevier PLC Reed Elsevier NV Reed Elsevier Group plc Elsevier Reed Finance BV 52.9% RELX PLC 47.1% RELX NV Reed Elsevier NV 5.8% Reed Elsevier PLC 50% 50% 52.9%* 47.1%* RELX Group plc RELX Group plc *These percentages reﬂect the respective equity interests of Reed Elsevier PLC and Reed Elsevier NV in RELX Group plc, subject to shareholder approval. Reed Elsevier PLC and Reed Elsevier NV will each continue to have equal voting rights in RELX Group plc, thus retaining the current 50%/50% joint voting control of the combined businesses. Equalisation Arrangements Presently the equalisation ratio of Reed Elsevier PLC to Reed Elsevier NV shares is such that one Reed Elsevier NV ordinary share is generally intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares. At its Annual General Meeting in April 2015, Reed Elsevier NV is proposing a resolution to issue additional bonus ordinary shares to existing Reed Elsevier NV shareholders on the basis of 0.538 bonus shares for each share held. If approved by shareholders, this will result in one ordinary share of Reed Elsevier NV conferring equivalent economic interests to one ordinary share of Reed Elsevier PLC. The reduction in the per share economic interests of Reed Elsevier NV shareholders as a result of the increase in the number of Reed Elsevier NV shares will be correspondingly offset by the number of additional shares each Reed Elsevier NV shareholder receives in the bonus issue, leaving the economic interest of each shareholder unchanged. Reed Elsevier PLC and Reed Elsevier NV ADRs on the New York Stock Exchange will also be adjusted so that they each represent one Reed Elsevier PLC or one Reed Elsevier NV ordinary share (from their current 4 to 1 and 2 to 1 ratios) respectively. By moving from the current 1.538 to 1 to a new 1 to 1 equalisation ratio between Reed Elsevier PLC and Reed Elsevier NV ordinary shares, capital rights (on a per share basis), dividends per share (on a gross basis including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit) and adjusted earnings per share all will be readily identiﬁable as substantially equivalent between ordinary shares as well as their respective ADRs , subject only to the prevailing currency exchange rates between pounds sterling, euros or US dollars. This will also make it simpler to compare the prices of Reed Elsevier PLC and Reed Elsevier NV ordinary shares as well as their respective ADRs. Subject to shareholder approval of the issuance of additional bonus shares by Reed Elsevier NV, the bonus issue, the changes to the number of Reed Elsevier PLC and Reed Elsevier NV ADRs and the requisite amendments to the Governing Agreement, will all be effective as of 1 July 2015. Corporate Entity Names Along with the simpliﬁcation and modernisation of the corporate structure, the Boards undertook a review of the names of the corporate entities. Following that review, as already noted, the Boards determined that as part of the transfer of ownership of Elsevier Reed Finance BV from Reed Elsevier PLC and Reed Elsevier NV to Reed Elsevier Group plc it was appropriate to name the newly-combined single group entity that holds all businesses, subsidiaries and ﬁnancing activities, RELX Group plc. The Boards believe this shorter and more modern name reﬂects the transformation of the Company to a technology, content and analytics driven business while at the same time maintaining the link with its proud heritage. The Boards are proposing to shareholders at the Annual General Meetings in 2015 to also change the corporate names of Reed Elsevier PLC and Reed Elsevier NV to RELX PLC and RELX NV, respectively. There will not be any brand or name changes for any customer-facing products or business units. Shareholder Approval As noted, certain of the structural changes and the change of name of the two parent companies, Reed Elsevier PLC and Reed Elsevier NV, will require the approval of shareholders. A more detailed description of the resolutions to be put to the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2015 are set out in the respective Notices of Annual General Meeting. Anthony Habgood Chairman 25 February 2015 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 67 06/03/2015 09:05 68 GOVERNANCE CORPORATE GOVERNANCE 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 UK, the US and the Netherlands. 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 support the principles and provisions of corporate governance contained in the UK Corporate Governance Code issued by the Financial Reporting Council (FRC) in September 2012 (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 2014 (the 2014 Code) which applies to accounting periods beginning on or after 1 October 2014. The Boards expect to comply in full with the 2014 Code during 2015. 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 2014. Reed Elsevier PLC, which has its primary listing on the London Stock Exchange, has complied throughout the year with the UK Code. Reed Elsevier NV, which has its primary listing on the Euronext Amsterdam Stock Exchange, has also complied throughout the year with the UK Code, and subject to limited exceptions, as explained in the Reed Elsevier NV Report of the Board on pages 167 and 168, 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 website, www.relxgroup.com. Business model As required by Provision C.1.2 of the UK Code, pages 2 to 60 describe the business and the progress made in 2014 against the Group’s long-term business priorities, aimed at delivering better outcomes for our customers and creating value for the Group and shareholders. Shareholder engagement Reed Elsevier PLC and Reed Elsevier NV participate in regular dialogue with institutional shareholders. Presentations on the 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. 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, other important announcements and corporate governance documents concerning the Group, are published on the website, www.relxgroup.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 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 comprehensive brieﬁng pack and a tailored induction programme so as to provide newly-appointed Directors with information about the Group’s businesses and other relevant information to assist them in performing their duties. Non-Executive Directors are encouraged to visit the Group’s businesses to meet management and senior staff. Since joining the Group as Chief Financial Ofﬁcer, Nick Luff has undertaken an extensive induction programme, designed to ensure familiarisation with the Group’s businesses, people, and governance and control processes. This programme has included site visits to the Group’s operating businesses, internal brieﬁngs from senior management and their teams, and external meetings with corporate advisers and major investors. Mr Luff’s familiarisation programme will continue in the coming year with further site visits and meetings with senior management and advisers. 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 the Group’s management and staff, and external advisers. 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. 94118_Reed_AR_p061-088.indd 68 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 69 Board evaluation In 2014, the Corporate Governance Committee appointed an external facilitator to carry out an independent effectiveness review of the Boards and their Committees. The facilitator was Lorna Parker, an independent practitioner with no other connection to the Group. Ms Parker’s review took the form of structured interviews with Directors and the company secretaries, supported by individual questionnaires completed by all participants. Access to Board and Committee papers for the prior 12 months was provided to Ms Parker. The review explored key areas, including: Board performance and effectiveness of decision-making Board composition and succession planning Talent management and executive leadership succession Risk management, corporate governance and compliance Agenda planning and quality of information provided by management Committee effectiveness The principal ﬁndings and recommendations from the review were discussed with the Chairman and Senior Independent Director, following which they were presented to a meeting of the Boards. The review of the performance of the Chairman of the Boards was led by the Senior Independent Director. The Chairman of the Boards was not present during a discussion by the Non-Executive Directors as it related to him. The review conﬁrmed that overall, the Directors believe that the Boards remain effective, are committed and engaged with a diverse mix of complementary and relevant skills and perspectives. Themes demonstrating the effectiveness of the Boards included: alignment on strategy, objectives, risks and the role of the Boards; well-structured meeting agendas with good allocation of Board time; efﬁcient and thorough Board processes; and well-chaired Committees with good linkages to the Boards. All Directors commented on the Chairman’s effective style, noting he continues to foster a supportive and cohesive yet disciplined culture that encourages open dialogue. Areas for Board focus in 2015 included further reﬁning the Boards’ time allocation, increasing its involvement in talent management, and continuing its engagement with individual business areas and their strategies through senior management dialogue. Based on the ﬁndings of the external effectiveness review, the Corporate Governance Committee believes that the Boards and their Committees function effectively and collaboratively and with an appropriate level of engagement with management. The Committee also believes that the performance of each Director continues to be effective and that they demonstrate commitment to their respective roles. The review conﬁrmed that good progress is being made in response to the prior year’s recommendations to ensure that the Boards continue to monitor the level of detail provided to and balance of focus by the Boards between ﬁnancial data and strategic matters. Areas of signiﬁcant skills and expertise of the Non-Executive Directors on the Boards Knowledge of corporate governance issues for listed companies Operational experience in the Group’s main geographical markets Management of human resources, selection and remuneration of executives Corporate responsibility Corporate strategy and organisation Marketing, customer relations Legal matters Financial and organisational audit Executive board experience in a large international listed company Operational experience with telecommunications/information technology, electronic publishing Operational experience in the Group’s product markets Banking, tax and corporate ﬁnance Percentage of the Non-Executive Directors 100 100 100 100 100 88 88 75 63 63 38 38 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 69 09/03/2015 17:19 70 GOVERNANCE CORPORATE GOVERNANCE The Boards The Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc are harmonised. All of the Directors of RELX Group plc are also Directors of Reed Elsevier PLC and Reed Elsevier NV. Reed Elsevier NV may nominate for appointment to the Board up to two Non-Executive Directors who are not appointed to the Boards of either Reed Elsevier PLC or RELX Group plc. Currently, one such Director, Marike van Lier Lels, has been appointed to the Board of Reed Elsevier NV. The names, nationalities and biographical details of each Director at the date of this report appear on pages 62 and 63. The Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc are unitary boards. The implementation of a unitary board structure at Reed Elsevier NV was approved at its Annual General Meeting in April 2013, following the enactment of legislation to formalise the unitary board governance structure in the Netherlands Civil Code. 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, RELX Group plc (and, with respect to Elsevier Reed Finance BV, until the transfer of its ownership to RELX Group plc on 25 February 2015) 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 of Reed Elsevier PLC and Reed Elsevier NV 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 he has in corporate governance. Notwithstanding this, Anthony Habgood met the independence criteria contained in the UK Code when he was appointed Chairman in 2009. The Boards consider all Non-Executive Directors (other than the Chairman) to be independent of management and free from any business or other relationship which could materially interfere with their ability to exercise independent judgement. Notwithstanding that Lisa Hook will, at the time of the forthcoming Annual General Meetings, have served on the Boards for nine years, she will stand for re-election and, if re-elected, will serve for a further term of one year. The Boards have determined that Ms Hook remains independent in character and judgement despite her length of service and there are no relationships or circumstances which are likely to affect her independent judgement. The Boards believe that this will allow for an orderly transition of responsibilities. The Boards of Reed Elsevier PLC and Reed Elsevier NV have appointed Lisa Hook 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 and Reed Elsevier NV. A proﬁle, which identiﬁes the skills and experience of the Non-Executive Directors of Reed Elsevier PLC and Reed Elsevier NV, is set out on page 69 and is available on the website, www.relxgroup.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 or RELX 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 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, it is the Boards’ policy to comply with the recommendations contained in the UK Code, and all Directors will 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 RELX Group plc are set out in the table on page 71. Having given notice of his resignation in 2013, Duncan Palmer stepped down as Chief Financial Ofﬁcer and as a Director during September 2014. At the time of his resignation, 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 Palmer. Following the conclusion of the search process and on the recommendation of the Nominations Committee, the Boards selected Nick Luff and recommended his election to shareholders. Mr Luff’s election was approved by shareholders at the Annual General Meetings in April 2014 and he joined the Boards as Chief Financial Ofﬁcer on 1 September 2014. His biography is set out on page 62. In accordance with the UK Code, all Directors will retire from the Boards of Reed Elsevier NV and Reed Elsevier PLC at the respective Annual General Meetings and, being eligible, will offer themselves for re-election. Based on the review of performance and effectiveness made by the Corporate Governance Committee of each individual seeking re-election, the Boards have accepted a recommendation from the Nominations Committee that each Director be proposed for re-election at the 2015 Annual General Meeting of the respective company. In accordance with the articles of association of Reed Elsevier PLC, Directors are normally subject to election by shareholders at the ﬁrst Annual General Meeting following their appointment by the Board. 94118_Reed_AR_p061-088.indd 70 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 71 Board Attendance Audit Committees The Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc have established Audit Committees. The Committees comprise only independent Non-Executive Directors and 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 89 and 90. Ben van der Veer (Committee Chairman) Adrian Hennah Linda Sanford 5/5 5/5 5/5 The functions of an audit committee in respect of the ﬁnancing activities were carried out by the Supervisory Board of Elsevier Reed Finance BV. Remuneration Committee The Board of RELX 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 Wolfhart Hauser. A Directors’ Remuneration Report, which has been approved by the Boards of RELX Group plc, Reed Elsevier PLC and Reed Elsevier NV, appears on pages 75 to 88. This report serves as disclosure of the Annual Remuneration Report which contains the remuneration of the Directors and their interests in the shares of the two parent companies, Reed Elsevier PLC and Reed Elsevier NV. Wolfhart Hauser (Committee Chairman) Anthony Habgood Lisa Hook Robert Polet 3/3 3/3 3/3 2/3 Nominations Committee 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 74. Anthony Habgood (Committee Chairman) Lisa Hook Ben van der Veer 4/4 4/4 4/4 The following tables show the attendance of Directors at Board meetings for the year. Attendance is expressed as the number of meetings attended out of the number eligible to be attended. Reed Elsevier PLC Reed Elsevier NV RELX Group plc Anthony Habgood (Chairman) Erik Engstrom Nick Luff (1) Wolfhart Hauser Adrian Hennah Lisa Hook Marike van Lier Lels (2) Duncan Palmer (3) Robert Polet Linda Sanford Ben van der Veer 6/6 6/6 2/2 6/6 5/6 6/6 6/6 4/4 4/6 6/6 6/6 6/6 6/6 2/2 6/6 5/6 6/6 6/6 4/4 4/6 6/6 6/6 7/7 7/7 3/3 7/7 6/7 7/7 7/7 4/4 5/7 6/7 7/7 (1) Appointed to the Boards on 1 September 2014 (2) As a Reed Elsevier NV Director, Ms van Lier Lels attended the Board meetings of Reed Elsevier PLC and RELX Group plc; however, she is not a Director of those companies, is not counted in the quorum and does not vote on matters relating to those companies (3) Resigned from the Boards on 24 September 2014 Throughout 2014, Elsevier Reed Finance BV had a two-tier board structure comprising a Supervisory Board and a Management Board. The Supervisory Board was chaired by Marike van Lier Lels who succeeded Rudolf van den Brink as Chairman in July 2014 and, in addition, consisted of Nick Luff and Ben van der Veer. The Management Board consisted of Gerben de Jong, Alberto Romaneschi and Jans van der Woude. Rudolf van den Brink (1) Gerben de Jong Marike van Lier Lels Nick Luff (2) Duncan Palmer (3) Alberto Romaneschi Ben van der Veer Jans van der Woude Elsevier Reed Finance BV 2/2 3/3 3/3 1/1 2/2 3/3 3/3 3/3 (1) Resigned from the Supervisory Board on 21 July 2014 (2) Appointed to the Supervisory Board on 1 September 2014 (3) Resigned from the Supervisory Board on 24 September 2014 Board Committees In accordance with the principles of good corporate governance, the following Committees have been established by the respective Boards. All of the Committees have written terms of reference, which are published on the website, www.relxgroup.com. Membership of each Committee and attendance during the year are set out below. Attendance is expressed as the number of meetings attended out of the number eligible to be attended. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 71 06/03/2015 09:05 72 GOVERNANCE CORPORATE GOVERNANCE Corporate Governance Committee 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. The Committee comprises only Non-Executive Directors and is chaired by Anthony Habgood. Anthony Habgood (Committee Chairman) Wolfhart Hauser Adrian Hennah Lisa Hook Marike van Lier Lels Robert Polet Linda Sanford Ben van der Veer 5/5 5/5 5/5 5/5 5/5 5/5 4/5 5/5 Internal control Parent companies 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. During 2014 the Boards of Reed Elsevier PLC and Reed Elsevier NV exercised independent supervisory roles over the activities and systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. In relation to Reed Elsevier Group plc and Elsevier Reed Finance BV, the Boards of Reed Elsevier PLC and Reed Elsevier NV approved the strategy and the annual budgets, and received 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 required the approval of the Boards of both Reed Elsevier PLC and Reed Elsevier NV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees met on a regular basis to review the systems of internal control and risk management of Reed Elsevier Group plc and Elsevier Reed Finance BV. Effective 25 February, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interests in Elsevier Reed Finance BV to their jointly-owned company, Reed Elsevier Group plc and named this newly combined single group entity RELX Group plc. As a result, RELX Group plc now holds all businesses, subsidiaries and ﬁnancing activities (including Elsevier Reed Finance BV). In the future, Elsevier Reed Finance BV and its subsidiaries will be subject to the framework of procedures and controls established by RELX Group plc and the Audit Committee of RELX Group plc will review, on a regular basis, the system of internal control and risk management of Elsevier Reed Finance BV and its subsidiaries. Operating companies The Board of RELX Group plc is responsible for the system of internal control of the the Group and reviewing the effectiveness of such systems. While the Boards of Elsevier Reed Finance BV were responsible for the system of internal control in respect of the ﬁnance group activities during 2014 and reviewing the effectiveness of such systems, the responsibility transferred to RELX Group plc with effect from 25 February 2015. The Boards of Reed Elsevier Group plc and Elsevier Reed Finance BV each implemented an ongoing process for identifying, evaluating, monitoring and managing the principal risks faced by their respective businesses. These processes were in place throughout the year ended 31 December 2014 and up to the date of the approvals of the Annual Reports and Financial Statements 2014. RELX Group plc RELX 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 strategic, operational, ﬁnancial and legal compliance risks that they face. The Board of RELX Group plc has adopted a schedule of matters that are required to be brought to it for decision. RELX 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 the Group’s ﬁnancial reporting practice. The Code is published on the website, www.relxgroup.com. Each business area has identiﬁed and evaluated its principal 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 the Group are set out on pages 58 to 60. The principal risks facing the RELX Group plc businesses are regularly reported to and assessed by the Board and Audit Committee. With the close involvement of business management and central functions, the risk management and control procedures ensure that the Group is managing its business risks effectively and in a co-ordinated 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 US. The RELX 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 business area 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 RELX Group plc. These reports are summarised and, as part of the annual review of effectiveness, submitted to the Audit Committee of RELX Group plc. The Chairman of the Audit Committee reports to the Board on any signiﬁcant internal control matters arising. 94118_Reed_AR_p061-088.indd 72 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 73 Elsevier Reed Finance BV During 2014, Elsevier Reed Finance BV had established policy guidelines, which were applied to all Elsevier Reed Finance BV companies. The respective Boards of Elsevier Reed Finance BV adopted schedules of matters 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 principal 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 were monitored by the Boards. In future, these will be monitored by the Audit Committee of RELX Group plc. Annual review As part of the year-end procedures, the Audit Committees and Boards of Reed Elsevier PLC, Reed Elsevier NV, RELX Group plc and Elsevier Reed Finance BV 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 Boards have conﬁrmed, subject to the above, that as regards ﬁnancial reporting risks, the respective risk management and control systems provide reasonable assurance against material inaccuracies or loss and have functioned properly during the year. Responsibilities in respect of the ﬁnancial statements The Directors of Reed Elsevier PLC, Reed Elsevier NV, RELX 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. Having taken into account all the matters considered by the Boards and brought to the attention of the Boards, the Directors are satisﬁed that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the company’s performance, business model and strategy. 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 2014 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 2014, the strong free cash ﬂow of the combined businesses, the Group’s ability to access capital markets and the principal risks facing the Group. A commentary on the combined businesses’ cash ﬂows, ﬁnancial position and liquidity for the year ended 31 December 2014 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, all of the Group’s borrowings that mature within the next two years can be covered. The Group’s policies on liquidity, capital management and management of risks relating to interest rate, foreign exchange and credit exposures are set out on pages 120 to 123. The principal risks facing the Group 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 2014 on Form 20-F to be ﬁled with the Commission that they are responsible for establishing and maintaining disclosure controls and procedures and that they have: designed such disclosure controls and procedures to ensure that material information relating to the Group is made known to them evaluated the effectiveness of the Group’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 the Group’s internal controls; and presented in the Reed Elsevier Annual Report 2014 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 managers of the Group, 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 2014 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 2014 on Form 20-F. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 73 06/03/2015 09:05 74 GOVERNANCE CORPORATE GOVERNANCE 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. Committee membership The Committee comprises only Non-Executive Directors, and is chaired by Anthony Habgood. The other members are Lisa Hook and Ben van der Veer. The Committee met four times during the year. 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 RELX 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.relxgroup.com) and include: (i) to keep under review the size and composition of the Boards (ii) to develop and agree the speciﬁcation for the recruitment of new directors (iii) to procure the recruitment of new directors (iv) 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 (v) to recommend Directors to serve on the Committees of the Boards, 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 (vi) to make recommendations to the Boards in relation to the election or re-election of Directors at the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV; and (vii) to review and make recommendations to the Boards in relation to any Directors’ actual or potential conﬂicts of interest Composition of the Boards During the year, the Committee focused on succession planning in relation to the future retirement of long-serving Non-Executive Directors from the Boards, to ensure that, as the Boards are refreshed, an appropriate level of experience and knowledge of the Group is maintained and to allow for an orderly transition of responsibilities. 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. The Committee undertook a review of the composition of the Boards, focusing on the balance of skills, experience, independence, knowledge of the Group and diversity, including gender. The Committee also took into account the Group’s strategy to transform the business into a professional information solutions provider. Following that review, the Committee drew up a proﬁle of necessary attributes for potential candidates as Non-Executive Directors. The Committee also recommended to the Boards the re-election of the Directors and in doing so took into account the outcome of the Board evaluation. Details of the 2014 Board evaluation can be found on page 69. The Boards continued to meet their aspirational goals – set in response to the Davies Review, “Women on Boards” – that the Reed Elsevier NV Board would be comprised of 30% women and the Reed Elsevier PLC Board would be comprised of 22% women. During 2014, the Committee continued to monitor the composition of the Boards against these aspirational goals while taking into account the beneﬁts of diversity more generally. Further details of the Group’s approach to diversity and inclusion in its workforce can be found in the Corporate Responsibility Report on page 42. 94118_Reed_AR_p061-088.indd 74 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 75 Directors’ Remuneration Report The Directors’ Remuneration Report (the Report) describes how the Group applies the principles of good governance relating to Directors’ remuneration. This Report has been prepared by the Remuneration Committee of RELX Group plc in accordance with the UK Corporate Governance Code, the UK Listing Rules, the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the UK Regulations) and the Dutch Corporate Governance Code (the Dutch Code). The Report was approved by the Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc. The Remuneration Policy was approved by shareholders at the 2014 Annual General Meeting of Reed Elsevier PLC for three years. The policy can be found at http://www.relxgroup.com/go/remunerationpolicy or on pages 79 to 85 of the 2013 Remuneration Report. Reed Elsevier PLC shareholders will be invited to vote on our 2014 Annual Remuneration Report (by way of a non-binding advisory vote) at the 2015 Annual General Meeting of Reed Elsevier PLC. The audited sections of the Report are clearly marked. Introduction from Remuneration Committee Chairman As you will read elsewhere in this Annual Report, 2014 was another good year of progress for the company. Management continued to transform the business into a global professional information solutions provider that delivers improved outcomes for professional customers across industries. The business helps customers make better decisions, get better results and be more productive. This is achieved by leveraging a deep understanding of the business' customers to create innovative solutions which combine content and data with analytics and technology in global platforms. Management continues to build leading positions in long-term global growth markets, primarily through organic investment supplemented by selective acquisitions where the business is the natural owner and can accelerate the strategy with good returns. It continues to divest assets that do not have the potential for signiﬁcant future value creation for the business. By consistently following this strategy over a ﬁve-year period management has improved the business proﬁle of the Group and the quality of earnings. This has led to more predictable revenues, a higher growth proﬁle and improving returns. This longer term performance is reﬂected in the earnings per share (EPS), return on invested capital (ROIC) and total shareholder return (TSR) outcomes under the ﬁve-year Reed Elsevier Growth Plan (REGP). The second and ﬁnal performance period of the one-off, discontinued REGP ended on 31 December 2014 and the second tranche of the award vested. The plan was introduced in 2010 during a challenging and volatile business environment and in the context of a newly appointed Chief Executive Ofﬁcer (CEO). The company’s underlying revenues had declined, constant currency earnings had declined and Reed Elsevier PLC’s and Reed Elsevier NV’s share prices were ﬂat for 2009 (in contrast to 22% and 36% increases in the FTSE100 and AEX indices respectively). Committee) determined at the time that prior multi-year plans for the Executive Directors no longer were best positioned to meet long-term shareholder interests. Following consultations with over 30 major shareholders and shareholder representative bodies, the Committee determined that a balanced pursuit of sustained earnings growth, return on invested capital and shareholder returns was more appropriate. To achieve this objective, a one-off, ﬁve-year plan was implemented, focused on EPS growth, ROIC and TSR with one-third of the award based on each measure. The performance targets, put in place in the context of a volatile business and economic climate in 2010, were stretching. Since the inception of the REGP, average growth in adjusted earnings per share for the two performance periods under the plan were 7% and 8.5%, ROIC increased from 10.4% to 12.8% and the Reed Elsevier PLC and Reed Elsevier NV share prices more than doubled, signiﬁcantly outperforming applicable local indices and comparators, adding over £11bn in combined market capitalisation. The ﬁve-year REGP operated in two tranches. The performance share award with respect to the ﬁrst tranche vested in H1 2013 at 66.8% and the second tranche vested on 27 February 2015 at 86%, with TSR targets having been almost fully achieved with respect to the second tranche and EPS and ROIC around the middle of the target range. Since the plan was designed to target and reward performance over a ﬁve-year period (2010-2014), performance and total payout need to be assessed over that entire period. Since 2013 the CEO was the only remaining participant in the REGP and no other awards have been or will be granted under the plan. As intended when it was originally adopted, the CEO again participates in rolling annual grants of three-year performance cycle LTIP awards, with awards vesting, subject to performance, commencing in 2016. 2014 annual incentive payments to the Executive Directors were just above target and ROIC and EPS performance in respect of the 2012-14 cycle of the BIP (Bonus Investment Plan) and the ESOS (Executive Share Option Scheme) resulted in respective outcomes for the CEO close to and at the full amount of the original awards. Duncan Palmer’s employment with the Group terminated on 24 September 2014 in accordance with the terms previously disclosed in the 2013 Remuneration Report. Nick Luff joined the Group during the year and the performance shares with a 2013-2014 performance period, which were awarded to him on joining as part compensation for forfeited entitlements from previous employment, vested in full. As we are not proposing any changes to the Remuneration Policy which was approved by shareholders in April 2014, it will continue to apply unchanged for 2015. In line with increases for the wider employee population, the Remuneration Committee has approved 2015 salary increases for the Executive Directors of 2.5%. This year’s Report has been prepared in a manner which balances the speciﬁc local requirements of the UK Regulations and the Dutch Code with the desire to provide additional information which may be helpful to our broader investor base. Given the late cycle impact of the global economic crisis on the business’s professional markets and the then recent acquisition of the ChoicePoint business, the Remuneration Committee (the Wolfhart Hauser Chairman, Remuneration Committee O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 75 06/03/2015 09:05 76 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Annual Remuneration Report Single Total Figure of Remuneration – Executive Directors (audited) (a) (b) (c) (d) (e) Short-term employee beneﬁts Share based awards (f) Pension (g) (h) Total (i) £’000 Erik Engstrom 2014 2013 Nick Luff (6) 2014 Duncan Palmer 2014 2013 Salary 1,104 1,077 217 442 600 Beneﬁts (5) Annual Incentive UK statutory basis (1,2,4,7) Dutch Civil Code basis (3) UK statutory basis (2) Dutch Civil Code basis (3) UK statutory basis (1,2) Dutch Civil Code basis (3) 29 28 5 202 230 1,170 1,134 685 0 609 13,181 2,472 1,371 0 0 3,943 3,300 1,341 0 598 692 719 65 84 114 562 528 65 84 114 16,176 5,430 2,343 728 1,553 6,808 6,067 2,313 728 2,151 (1) The 2014 ﬁgure includes the vesting of the second and ﬁnal tranche of the discontinued REGP. (2) UK statutory basis (columns (d), (f) and (h)): These ﬁgures are calculated in accordance with the methodology set out in the BIS Regulations. They include, for performance-related Share based awards, the value attributable to share price appreciation since the date the award was granted. In the case of the CEO’s ﬁgures, the amount included that relates to share price appreciation is £1.5m for 2013 and £7.6m for 2014. (3) Dutch Civil Code basis (columns (e), (g) and (i)): These ﬁgures comply with the requirements of the Dutch Civil Code. The ﬁgures for Share based awards comprise the multi-year incentive charges in accordance with IFRS2 – Share based Payment. These IFRS2 charges do not reﬂect the actual value received on vesting. The ﬁgures for pensions reﬂect the cost of pension provision which comprises (i) for deﬁned beneﬁt schemes, the transfer value of the increase in accrued pension during the year (net of inﬂation, Directors’ contributions and participation fee) based on the factors and basis applicable prior to the introduction of the new UK statutory basis in 2013 and (ii) for deﬁned contribution schemes, payments made to the scheme or to the Executive Director in lieu of pension. (4) Share based awards for Erik Engstrom (columns (d) and (e)): The ﬁgure for 2013 in column (d) was based on an estimate and has been restated in this Report to reﬂect the amount vested and the share prices and foreign exchange rates on the vesting dates of the 2011-13 cycle of BIP and ESOS. The vesting percentages under these plans were determined on 28 February 2014 and were in line with those disclosed on page 87 in the 2013 Remuneration Report. Using the share prices and exchange rates on the vesting dates increased the 2013 disclosed ﬁgure by £5,651 (from £2,466,655 to £2,472,306). The 2014 ﬁgures reﬂect the vesting of the matching shares under the ﬁnal tranche of the REGP measured over the 2010-14 period and the 2012-14 cycle of BIP and ESOS, both measured over the 2012-14 period. As the REGP matching shares and BIP vest after the approval date of the Report and ESOS vests in May 2015, the average share prices and foreign exchange rates for the last quarter of 2014 have been used to arrive at an estimated ﬁgure under the UK statutory basis in respect of these awards. The amount attributable to the vesting of the ﬁnal tranche of the REGP in the UK statutory basis 2014 Share based awards ﬁgure is £9m. The Share based awards ﬁgure includes the dividend equivalent payments paid out in cash in 2015 on the REGP matching shares and the BIP. The proportion of the value of the CEO’s Share based awards under the UK statutory basis that relates to share price appreciation between the dates of grant and vesting is 59% (or £1.5m) for 2013 and 57% (or £7.6m) for 2014 using, as required, the average share prices for the last quarter of 2014. (5) Beneﬁts: Each Executive Director receives a car allowance, private medical/dental insurance and the company meets the cost of tax return preparation. In respect of Duncan Palmer, the ﬁgure also includes a cash adjustment payment of £162,906 that was contractually due to him on termination relating to the pro-rated restricted share award released to him and legal expenses of £2,760 met by Reed Elsevier in connection with his loss of ofﬁce arrangement. Following his termination date, although not reﬂected in the 2014 ﬁgure, he received a cash payment of £75,117, representing dividend equivalents on his pro-rated restricted shares granted in 2012. All payments are in accordance with policy as disclosed on pages 83 and 84 of the 2013 Remuneration Report. The 2013 beneﬁts ﬁgure for Duncan Palmer included estimated amounts in respect of the relocation beneﬁts and has been restated in this Report to reﬂect actuals. This reduced the 2013 beneﬁts ﬁgure previously reported by £1,768 (from £231,668 to £229,900). (6) Nick Luff receives an annual base salary of £650,000, beneﬁts as per note 5 and a 30% of salary cash allowance in lieu of pension. He participates in the annual incentive plan (AIP) and is eligible for annual multi-year incentive grants in accordance with the policy approved by shareholders at the 2014 Annual General Meetings of Reed Elsevier PLC. (7) Exchange rates used for Share based awards: The exchange rates used to convert Share based awards to pounds sterling are (i) for the UK statutory basis, those that applied at the vesting dates or, if vesting has not occurred at the time of sign off of this Report, the average exchange rates for the last quarter of 2014, (ii) for dividend equivalents, the exchange rates at the time of payment and (iii) for estimated dividend equivalents in respect of awards for which vesting has not occurred at the time of sign off of this Report and which are yet to be paid, the average exchange rates for the last quarter of 2014. (8) Total remuneration for Directors: This is set out in note 28 to the combined ﬁnancial statements on page 130. 94118_Reed_AR_p061-088.indd 76 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 77 2014 Annual Incentive Set out below is a summary of performance against each ﬁnancial measure and the resulting annual incentive payments for 2014 (payable in March 2015): Performance measure Relative weighting Achievement vs target Revenue 30% Adjusted proﬁt after tax Cash ﬂow conversion rate 30% 10% Key Performance Objectives (KPOs) 30% Erik Engstrom (six KPOs) Key Performance Objectives (KPOs) 30% Nick Luff (six KPOs) Underlying revenue growth of 3% was at target, reﬂecting good growth in electronic and face-to-face revenues in a mixed macroeconomic environment. Total adjusted proﬁt after tax grew by 7% in constant currency, just above target, reﬂecting a combination of underlying revenue growth and continued process innovation. Cash ﬂow conversion of 96% was just above target, reﬂecting strong proﬁts and the cash ﬂow impact from continued capital expenditure to enable continued investment in technology and new products and services. The ﬁrst and second KPOs, related to business proﬁle evolution through organic development and selective acquisitions and disposals, were achieved. The third KPO, related to the development of the corporate structure and the global functions, was achieved. The fourth and ﬁfth KPOs, related to speciﬁc strategic initiatives across business areas and select priorities within each business, including technology and product development milestones, were achieved. The sixth KPO was to complete the actions listed in the 2013 Corporate Responsibility Report and meet the quantiﬁed targets in the report. This KPO was almost fully met as set out on pages 40 to 47. The ﬁrst KPO, related to 2014 ﬁnal results and reporting, was achieved. The second KPO, related to achieving speciﬁc operating plan and ﬁnancial milestones for the company, was achieved. The third and fourth KPOs, related to speciﬁc deliverables for the ﬁnance function, were essentially fully achieved. The ﬁfth KPO, related to the development of the corporate structure, was achieved. The sixth KPO was to complete the actions listed in the 2013 Corporate Responsibility Report and meet the quantiﬁed targets in the report. This KPO was almost fully met as set out on pages 40 to 47. Payout as % of salary Erik Engstrom Payout as % of salary Nick Luff Close to 30% Close to 30% Just above 30% Just above 30% Just above 10% Just above 10% Close to 30% Close to 30% * The maximum annual incentive opportunity is 150% of base salary. ** Nick Luff joined the Group on 1 September 2014. The terms of his service agreement, which he signed on 6 January 2014, provided that his full year 2014 annual incentive would be reduced on a pound for pound basis by the amount of any annual incentive payment received from his previous employer in respect of services rendered during 2014. No such payment was received from his previous employer. The Board believes that disclosing details beyond what is disclosed above would be commercially sensitive and would give competitors an unfair insight into our strategic direction and annual execution plans. 106.0%* 105.4%* £1,169,766 £684,938** O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 77 06/03/2015 09:05 78 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Multi-year incentives Multi-year incentives with a performance period ended 31 December 2014 were for Erik Engstrom BIP 2012, ESOS 2012 and the ﬁnal tranche of the REGP and for Nick Luff a performance share award granted as part compensation for forfeited entitlements from previous employment. The Committee assessed the performance measures for these awards and made an overall assessment of underlying business performance and other relevant factors. The vesting outcome resulting from this review is summarised below. Discontinued REGP: Final tranche performance outcome Performance measure Weighting TSR measured over ﬁve years 2010-2014 1/3rd Average growth in adjusted EPS in 2013 and 2014(2) 1/3rd ROIC in 2014(2) 1/3rd Total vesting percentage: Performance range and vesting levels set at grant (1) below median median upper quartile 0% 30% 100% below 7% p.a. 7% p.a. 13% p.a. or above below 10.7% 10.7% 12.7% or above 0% 60% 100% 0% 60% 100% Achievement against the performance range Resulting vesting percentage 99.7% In upper quartile of FTSE and European comparator groups; close to upper quartile in US comparator group 8.5% p.a. 70.0% 12.1% 88.2% 86.0% (1) Calculated on a straight-line basis for performance between the minimum and maximum levels. (2) The calculation methodology for EPS and ROIC is set out in the 2010 Notices of Annual General Meetings, which can be found on the company’s website. BIP: 2012-14 cycle performance outcome Performance measure Weighting Average growth in adjusted EPS over the three-year performance period(2) 50% ROIC in the third year of the performance period(2) 50% Total vesting percentage: Performance range and vesting levels set at grant (1) Achievement against the performance range Resulting vesting percentage below 4% p.a. 4% p.a. 6.5% p.a. 9% p.a. or above below 11% 11% 11.5% 12% or above 0% 50% 75% 100% 0% 50% 75% 100% 8.4% p.a. 93.7% 13.0% 100% 96.8% (1) Calculated on a straight-line basis for performance between the minimum and maximum levels. (2) The calculation methodology for EPS and ROIC is set out in the 2010 Notices of Annual General Meetings, which can be found on the company’s website. ESOS: 2012-14 cycle performance outcome Performance measure Weighting Performance range and vesting levels set at grant Achievement against the performance range Resulting vesting percentage Average growth in adjusted EPS over the three-year performance period 100% below 6% p.a. 6% p.a. or above 0% 100% 8.4% p.a. 100% Nick Luff: PSP award to compensate for forfeited entitlements from previous employment with performance period ended 31 December 2014 Performance measure Weighting Performance range and vesting levels set at grant Achievement against the performance range Resulting vesting percentage Average growth in adjusted EPS in 2013 and 2014 2/3rds ROIC in 2014 Total vesting percentage: 1/3rd below 7% p.a. 7% p.a. or above below 10.7% 10.7% or above 0% 100% 0% 100% 8.5% p.a. 100% 12.1% 100% 100% 94118_Reed_AR_p061-088.indd 78 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 79 Single Total Figure of Remuneration – Non-Executive Directors (audited) Anthony Habgood Wolfhart Hauser (from 25 April 2013) Adrian Hennah Lisa Hook Marike van Lier Lels(2) Robert Polet Linda Sanford Ben van der Veer(2) Total fee Beneﬁts(1) Total 2014 2013 £550,000 £90,000 £77,500 £110,000 £56,671 £77,500 £77,500 £95,968 £550,000 £65,058 £65,000 £80,462 £55,085 £65,000 £65,000 £93,220 2014 £2,150 £720 £720 £1,230 £1,230 £1,230 £510 2013 £1,900 £500 £1,000 £500 £1,000 £500 2014 2013 £552,150 £90,720 £78,220 £111,230 £56,671 £78,730 £78,730 £96,478 £551,900 £65,058 £65,500 £81,462 £55,085 £65,500 £66,000 £93,720 (1) Beneﬁts comprise the notional beneﬁt of tax ﬁling support provided to Non-Executive Directors for ﬁlings outside their home country resulting from their directorships with the Group. The incremental assessable beneﬁt charge per tax return has been agreed for 2014 to amount to £510 for a UK tax return and £720 for a Netherlands tax return. Anthony Habgood’s beneﬁts also include £1,430 (£1,400 in 2013) in respect of private medical insurance. (2) The fees for Marike van Lier Lels and Ben van der Veer were paid in euros and were €70,272 and €119,000 respectively for 2014. For reporting purposes these were converted into pounds sterling at the average exchange rate for 2014. The 2013 ﬁgures were converted into pounds sterling at the average exchange rate for 2013. (3) The total remuneration for Directors is set out in note 28 to the combined ﬁnancial statements on page 130. 2014 Non-Executive Directors’ fees The fees in the Single Total Figure table for Non-Executive Directors reﬂect the following fees in 2014: Chairman Non-Executive Directors* Senior Independent Director Chairman of: – Audit Committee – Remuneration Committee Committee membership fee: – Audit Committee – Remuneration Committee – Nominations Committee Annual fee 2013 £550,000 £65,000/€80,000 £20,000 £25,000/€30,000 £20,000 Annual fee 2014 £550,000 £65,000/€80,000 £25,000 £25,000/€30,000 £25,000 £12,500 £12,500 £7,500/€9,000 * An annual fee of €65,000 is paid to Marike van Lier Lels in respect of her membership of the Reed Elsevier NV Board and reﬂects her time commitment to that company. Since 22 July 2014, she chaired the Board of Elsevier Reed Finance BV for which an annual fee of €10,000 is payable. Total pension entitlements (audited) Erik Engstrom is a member of the Group’s UK deﬁned beneﬁt pension arrangements. Further details are provided in the Policy Report on page 79 of the 2013 Remuneration Report and below. Pension – UK statutory basis Accrued annual pension at 31 December 2013 £227,360 Accrued annual pension at 31 December 2014 £263,704 Single ﬁgure pensions value £691,702(1) Pension – Standard information Pension – Dutch Civil Code basis (consistent with prior disclosure) Age at December 2014 Normal retirement age Director’s contributions Participation fee 51 60 £11,216 £23,962 Increase in accrued pension during the year (net of inﬂation) Transfer value(2) at 31.12.14 of increase in accrued pension during the year (net of inﬂation, Directors’ contributions and participation fee) £561,989 £36,344 Since October 2013, the CEO pays a participation fee on the amount of his base salary which exceeds the UK earnings cap. Starting with an initial rate of 1%, on 1 April 2014 the fee increased to 3%, and each 1 April thereafter this fee will increase by a further 2% of base salary which exceeds the UK earnings cap. (1) Net of Directors’ contribution and participation fee. (2) The transfer value represents a liability in respect of Directors’ pension entitlements, and is not an amount paid or payable to the Director calculated using the factors and basis applicable prior to the introduction of the UK statutory basis in 2013. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 79 06/03/2015 09:05 80 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Scheme interests awarded during the ﬁnancial year (audited) CURRENT MULTI-YEAR INCENTIVE PLANS Basis on which award is made Face value of award at grant(1) Value of awards if vest in line with expectations(2) Percentage of maximum that would be received if threshold performance achieved (3) End of performance period BIP – matching share awards Erik Engstrom Nick Luff Opportunity to invest cash and/or shares up to value of target bonus opportunity and receive 1 for 1 matching award £1,076,856 £721,493 If one measure pays out at threshold, the overall payout is 25%. If both measures pay out at threshold, the overall payout is 50%. 31 December 2016 £649,992 £435,495 LTIP – performance share awards Erik Engstrom 250% of salary £2,692,223 £1,346,111 Nick Luff 200% of salary £1,299,988 £649,994 If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 3%. If each measure pays out at threshold, the overall payout is 32%. 31 December 2016 ESOS – market value options Erik Engstrom 250% of salary £2,692,223 £430,756 33% Nick Luff 200% of salary £1,299,988 £207,998 31 December 2016 ONE-OFF MULTI-YEAR INCENTIVE PLAN AWARDS TO COMPENSATE FOR FORFEITED ENTITLEMENTS FROM PREVIOUS EMPLOYMENT Performance share awards(4) Nick Luff 200% of salary £1,299,988 £1,299,988 200% of salary £1,299,988 £649,994 If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 33%. If each measure pays out at threshold, the overall payout is 100%. If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 3%. If each measure pays out at threshold, the overall payout is 32%. 31 December 2014 31 December 2015 (1) The face value of the LTIP and ESOS awards is calculated using (1) the middle market quotation of PLC ordinary shares; (2) the closing price of NV ordinary shares; and (3) the exchange rate on the day before grant. In respect of grants made to Erik Engstrom on 7 April 2014, (1) was £9.245 and (2) was €15.82. In respect of Nick Luff, who joined the Group on 1 September 2014, and whose grants were made on 2 September 2014, (1) was £9.90 and (2) was €17.50. These share prices are used to determine the number of awards granted, as well as to set option exercise prices. The face value of the ESOS options shown in this column has not been reduced to reﬂect the fact that the aggregate option price is payable on exercise. The face value of the BIP awards is calculated using the average price of participants’ investment shares purchased by the trustee. In respect of the matching award to Erik Engstrom on 7 April 2014, who invested in NV ADRs, the price per NV ADR was $42.951. In respect of the matching award to Nick Luff on 2 September 2014, who invested in PLC and NV ordinary shares, the price per PLC ordinary share was £9.96 and the price per NV ordinary share was €17.614. The face values for BIP and LTIP do not take into account the dividend equivalents relating to those awards. (2) For BIP, LTIP and ESOS, vesting in line with expectations is as per the performance scenario chart disclosed on page 83 of the 2013 Remuneration Report, i.e. 67% for BIP, 50% for LTIP and 80% for ESOS. For options vesting in line with expectations, a valuation factor of 20% of the face value of the award at grant has been applied. Vesting in line with expectations for the performance share awards granted to Nick Luff, assumes, in respect of the award with a performance period ended 31 December 2014, that the thresholds for EPS and ROIC are met which results in 100% vesting. In respect of the award with the performance period ending 31 December 2015, which mirrors the performance conditions applicable to the 2013 LTIP award, vesting in line with expectations is 50%. (3) Threshold payout levels for each measure have been included. Where there are multiple measures, it is possible to achieve threshold, and hence payout, in respect of just one of the measures (or, for TSR, in respect of one of the three TSR comparator groups). The performance measures and targets for awards granted in 2014 under each of the plans and for the performance share awards granted to Nick Luff are set out on page 81. (4) The performance share awards granted to Nick Luff on 2 September 2014 were essential to facilitate his recruitment and were disclosed in the notices of the 2014 annual general meetings of Reed Elsevier PLC and Reed Elsevier NV. The awards were split evenly between ordinary shares in Reed Elsevier PLC and Reed Elsevier NV. The awards of Reed Elsevier PLC ordinary shares fall within paragraph 9.4.2(2)R of the UK Listing Rules and the awards of Reed Elsevier NV ordinary shares were approved by shareholders at the Annual General Shareholders' Meeting of Reed Elsevier NV on 23 April 2014. The awards are not pensionable and lapse on resignation or dismissal for cause (although in the case of a resignation, if an award has already vested and the date of resignation is within two years of Mr Luff joining the Group, then time pro-ration clawback provisions will apply to such award). In all other circumstances of termination, the share awards will vest subject to performance at the end of the applicable performance period with pro-ration for service applied, except in the case of a company initiated termination in which event the award will not be pro-rated. 94118_Reed_AR_p061-088.indd 80 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 81 The following targets and vesting scales apply to awards granted in 2014: BIP: 2014–16 cycle Match earned on personal investment Average growth in adjusted EPS over the three-year performance period* 0% 50% 75% 100% 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 11.6% 11.6% 12.1% 12.6% or above Vesting percentage of EPS and ROIC tranches* Average growth in adjusted EPS over the three-year performance period 0% 33% 52.5% 65% 75% 85% 92.5% 100% below 5% p.a. 5% p.a. 6% p.a. 7% p.a. 8% p.a. 9% p.a. 10% p.a. 11% p.a. or above ROIC in the third year of the performance period below 11.6% 11.6% 11.85% 12.1% 12.35% 12.6% 12.85% 13.1% or above * EPS and ROIC have equal weighting and straight-line vesting applies to performance between the points. * Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth/ROIC percentages. LTIP: 2014-16 cycle Vesting is dependent on three separate performance measures of equal weighting: a TSR measure comprising three comparator groups, an EPS measure and a ROIC measure.(1) Vesting percentage of each third of the TSR tranche(2) TSR ranking within the relevant TSR comparator group 0% 30% 100% Below median Median Upper quartile (1) The calculation methodology for TSR, EPS and ROIC is set out in the 2013 Notices of Annual General Meetings, which can be found on the company’s website. (2) Vesting is on a straight-line basis for performance between the minimum and maximum levels. The three TSR comparator groups (Sterling, Euro and US Dollar) reﬂect the fact that the Group accesses equity capital markets through three exchanges – London, Amsterdam and New York – in three currency zones. The Group’s TSR performance is measured separately against each comparator group and each ranking achieved will produce a payout, if any, in respect of one-third of the TSR measure. The proportion of the TSR measure that vests will be the sum of the three payouts. Each comparator group comprises approximately 40 companies. The companies for the 2014-16 LTIP cycle were selected on the following basis (unchanged from 2013-15): (a) they were in a relevant market index or are the largest listed companies on the relevant exchanges at the end of the year before the start of the performance period: the FTSE 100 for the Sterling group; AEX, Euronext and the Frankfurt Stock Exchange for the Euro group; and the S&P 500 for the US Dollar group; (b) certain companies were then excluded: those with mainly domestic revenues (as they do not reﬂect the global nature of the Group’s customer base) those engaged in extractive industries (as they are exposed to commodity cycles); and ﬁnancial services companies (as they have a different risk/ reward proﬁle). (c) the remaining companies were then ranked by market capitalisation and, for each comparator group, the 20 companies above and below the Group were taken; and (d) relevant listed global peers operating in businesses similar to those of the Group but not otherwise included were added. ESOS: 2014-2016 cycle Proportion of the award vesting Average growth in adjusted EPS over the three-year performance period* 0% 33% 80% 100% below 4% p.a. 4% p.a. 6% p.a. 8% p.a. or above * Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth percentages. PSP awards granted to Nick Luff as compensation for forfeited entitlements from previous employment PSP: Performance period ended 31 December 2014 Vesting percentage Average growth in adjusted EPS in 2013 and 2014* 0% 100% below 7% p.a. 7% p.a. or above ROIC in 2014* below 10.7% 10.7% or above * 2/3rds of the award is subject to EPS and 1/3rd subject to ROIC performance. PSP: Performance period ending 31 December 2015 Vesting is dependent on three separate performance measures of equal weighting: a TSR measure (comprising three comparator groups as set out in the 2013 Notices of Annual General Meetings), an EPS measure and a ROIC measure.(1) Vesting percentage of each third of the TSR tranche(2) TSR ranking within the relevant TSR comparator group 0% 30% 100% Below median Median Upper quartile (1) The calculation methodology for TSR, EPS and ROIC is the same as applies to the LTIP award granted to Erik Engstrom in 2013. (2) Vesting is on a straight-line basis for performance between the minimum and maximum levels. Vesting percentage of EPS and ROIC tranches* Average growth in adjusted EPS over the three-year performance period 0% 33% 52.5% 65% 75% 85% 92.5% 100% below 5% p.a. 5% p.a. 6% p.a. 7% p.a. 8% p.a. 9% p.a. 10% p.a. 11% p.a. or above ROIC in the third year of the performance period below 11.2% 11.2% 11.45% 11.7% 11.95% 12.2% 12.45% 12.7% or above * Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth/ROIC percentages. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 81 06/03/2015 09:05 82 GOVERNANCE DIRECTORS’ REMUNERATION REPORT 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 the Group. Accordingly, Executive Directors may, subject to the approval of the Chairman and the CEO (or the Chairman only in the case of the CEO), serve as Non-Executive Directors on the boards of up to two non-associated companies (of which only one may be a major company) and they may retain remuneration arising from such appointments. Nick Luff is a Non-Executive Director of Lloyds Banking Group plc and received fees of £45,000 since his appointment as a Director of the Group up to the end of 2014. Duncan Palmer is a Non-Executive Director of Oshkosh Corporation and received fees of £44,773 and 2,500 shares of Oshkosh common stock during the year up to the date of termination of his employment with the Group (£63,141 in 2013). Payments to past Directors and payments for loss of ofﬁce (audited) There have been no payments to past Directors or payments for loss of ofﬁce in 2014 other than those included in the single ﬁgure table and the notes thereto. Statement of Directors’ shareholdings and other share interests (audited) Shareholding requirement The Committee believes that a closer alignment of interests can be created between senior management and shareholders if executives build and maintain a signiﬁcant personal stake in the Group. The shareholding requirements applicable to the Executive Directors are set out in the table below. Shares that count for this purpose are any type of Reed Elsevier PLC or Reed Elsevier NV security owned outright by the individual and their spouse, civil partner or dependent child. Meeting the shareholding requirement is both a vesting condition for awards granted and a requirement to maintain eligibility for future awards. Shareholding requirements fall away on leaving the company. On 31 December 2014, the Executive Directors’ shareholdings were as follows (valued using the middle market closing prices of the relevant securities): Shareholding requirement (% of 31 December 2014 annual base salary) Actual shareholding as at 31 December 2014 (% of 31 December 2014 annual base salary) Erik Engstrom Nick Luff 300% 200%* 830% 59% * Nick Luff has until 31 December 2016 to build up to his required level of shareholding and is required to retain all net shares earned from incentive plans until he reaches this level. Share interests Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares 1 January 2014 31 December 2014 1 January 2014 31 December 2014 114,552 50,000 5,163 118,552 50,000 4,107 10,508 88 * 1,000 3,600 88** 17,187 1,000 6,700 513,765 25,000 750 516,765 25,000 2,010 4,800 4,800 30,022 * 30,022** 12,106 5,000 7,000 Erik Engstrom Anthony Habgood Wolfhart Hauser Adrian Hennah Lisa Hook Marike van Lier Lels Duncan Palmer Nick Luff Robert Polet Linda Sanford Ben van der Veer * On date of appointment. ** On the date on which ceased to be an Executive Director. There have been no changes in these share interests at the date of this Report for those who were Directors of Reed Elsevier PLC and Reed Elsevier NV on 31 December 2014. Multi-year incentive interests (audited) All outstanding unvested options and share awards in the tables overleaf and on page 84 are subject to performance conditions. For disclosure purposes, any PLC and NV ADRs awarded under the BIP or the REGP have been converted into ordinary share equivalents. Between 31 December 2014 and the date of this Report, there have been no changes in the options or share awards held by Executive Directors. 94118_Reed_AR_p061-088.indd 82 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 83 Erik Engstrom OPTIONS Year of grant Type of security No. of options held on 1 Jan 2014 No. of options granted during 2014 ESOS 2006 PLC ord 178,895 NV ord 120,198 2011 PLC ord 139,146 NV ord 92,953 2012* PLC ord 198,836 NV ord 139,742 2013 PLC ord 178,799 NV ord 124,337 2014 PLC ord NV ord Total PLC ords Total NV ords 695,676 477,230 145,604 102,839 145,604 102,839 * The performance outcome for the ESOS 2012 is set out on page 78. Option price £5.305 €11.470 £5.390 €8.969 £5.155 €9.030 £7.345 €12.530 £9.245 €15.820 No. of options exercised during 2014 178,895 120,198 Market price per share at exercise £9.138 €15.755 178,895 120,198 No. of options held on 31 Dec 2014 139,146 92,953 198,836 139,742 178,799 124,337 145,604 102,839 662,385 459,871 Unvested options vesting on Options exercisable until 05 May 21 05 May 21 02 May 22 02 May 22 09 May 23 09 May 23 07 Apr 24 07 Apr 24 02 May 15 02 May 15 09 May 16 09 May 16 07 Apr 17 07 Apr 17 SHARES BIP No. of unvested shares held on 1 Jan 2014 122,352 136,950 96,830 Year of grant Type of security 2011 2012(1) 2013 2014 NV ord NV ord NV ord NV ord €9.030 €12.530 81,388 €15.820 No. of shares awarded during 2014 Market price per share at award No. of shares vested/ performance tested during 2014 Market price per share at vesting/ performance testing No. of unvested/non- performance tested shares held on 31 Dec 2014 €8.969 110,728 €15.975 End of performance period Date of release LTIP 2013 PLC ord 178,799 NV ord 124,337 REGP(2) 2014 PLC ord NV ord 2013 PLC ord NV ord Total PLC ords Total NV ords 145,604 102,839 145,604 184,227 321,895 450,494 500,694 930,963 £7.345 €12.530 £9.245 €15.820 £7.760 €13.150 110,728 136,950 Dec 2014 96,830 Dec 2015 81,388 Dec 2016 178,799 Dec 2015 124,337 Dec 2015 145,604 Dec 2016 Dec 2016 Dec 2014 Dec 2014 102,839 321,895 450,494 646,298 992,838 H1 2015 H1 2016 H1 2017 H1 2016 H1 2016 H1 2017 H1 2017 H1 2015 H1 2015 (1) The performance outcome for the BIP 2012 is set out on page 78. (2) The performance outcome for the second and ﬁnal tranche of the REGP is set out on page 78. The deferred shares from the ﬁrst tranche of the REGP (i.e. 214,855 PLC ordinary shares and 141,094 NV ordinary shares) were performance tested in H1 2013 and fully disclosed as part of the 2012 single ﬁgure on page 91 of the 2013 Remuneration Report. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 83 06/03/2015 09:05 84 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Nick Luff OPTIONS ESOS Year of grant 2014 Type of security PLC ord NV ord Total PLC ords Total NV ords SHARES BIP LTIP PSP Year of grant Type of security 2014 PLC ord NV ord 2014 PLC ord NV ord 2014 PLC ord 2014 NV ord PLC ord NV ord Total PLC ords Total NV ords Duncan Palmer SHARES No. of options exercised during 2014 Market price per share at exercise No. of options held on 1 Jan 2014 No. of options granted during 2014 65,656 46,963 65,656 46,963 Option price £9.900 €17.500 No. of options held on 31 Dec 2014 65,656 46,963 65,656 46,963 Unvested options vesting on Options exercisable until 02 Sep 17 02 Sep 24 02 Sep 17 02 Sep 24 No. of unvested shares held on 1 Jan 2014 No. of shares awarded during 2014 Market price per share at award No. of shares vested/ performance tested during 2014 Market price per share at vesting/ performance testing No. of unvested/non- performance tested shares held on 31 Dec 2014 £9.900 €17.500 £9.900 €17.500 £9.900 €17.500 £9.900 €17.500 32,630 22,870 65,656 46,963 65,656 46,963 65,656 46,963 229,598 163,759 32,630 22,870 65,656 46,963 65,656 46,963 65,656 46,963 229,598 163,759 End of performance period Date of release Dec 2016 H1 2017 Dec 2016 H1 2017 Dec 2016 H1 2017 Dec 2016 H1 2017 Dec 2014 Dec 2014 Dec 2015 Dec 2015 H1 2015 H1 2015 H1 2016 H1 2016 RSP* Year of grant 2012 Type of security PLC ord NV ord Total PLC ords Total NV ords No. of unvested shares held on 1 Jan 2014 72,042 51,378 72,042 51,378 No. of shares awarded during 2014 Market price per share at award £6.015 No. of shares vested/ performance tested during 2014 Market price per share at vesting/ performance testing No. of unvested/non- performance tested shares held on 31 Dec 2014 End of performance period £9.781 €17.570 72,042 51,378 72,042 51,378 Date of release 25 Sep 14 25 Sep 14 * Reﬂects the pro-rated number of shares following his resignation as previously disclosed. In accordance with the terms of the award, the full award was granted over Reed Elsevier PLC ordinary shares but half was settled with Reed Elsevier NV ordinary shares. 94118_Reed_AR_p061-088.indd 84 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 85 Performance graphs The graphs below show total shareholder returns for Reed Elsevier PLC and Reed Elsevier NV, calculated on the basis of the average share price in the 30 trading days before the respective year end and assuming dividends were reinvested. Reed Elsevier PLC’s performance is compared with the FTSE 100 and Reed Elsevier NV with the AEX Index (to reﬂect their respective memberships of those indices), over the ﬁve years from 31 December 2009 to 31 December 2014. This period also reﬂects the tenure of the CEO and the TSR performance period for the ﬁnal tranche of the REGP. The three-year charts cover the performance period of the 2012-14 cycles of BIP and ESOS. 3 years REED ELSEVIER PLC vs FTSE 100 – 3 YEARS TSR REED ELSEVIER NV vs AEX – 3 YEARS TSR % 300 275 250 225 200 175 150 125 100 75 +135% ∆=99% +36% % 300 275 250 225 200 175 150 125 100 75 +154% ∆=98% +56% Dec-11 Dec-12 Reed Elsevier PLC Dec-13 FTSE 100 Dec-14 Dec-11 Dec-12 Dec-13 Dec-14 Reed Elsevier NV AEX Index 5 years REED ELSEVIER PLC vs FTSE 100 – 5 YEARS TSR REED ELSEVIER NV vs AEX – 5 YEARS TSR % 300 275 250 225 200 175 150 125 100 75 +169% ∆=121% +48% % 300 275 250 225 200 175 150 125 100 75 +192% ∆=138% +54% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Reed Elsevier PLC FTSE 100 Reed Elsevier NV AEX Index 10 years REED ELSEVIER PLC vs FTSE 100 – 10 YEARS TSR % 300 275 250 225 200 175 150 125 100 75 4 0 - c e D 5 0 - c e D 6 0 - c e D 7 0 - c e D 8 0 - c e D 9 0 - c e D 0 1 - c e D 1 1 - c e D 2 1 - c e D 3 1 - c e D 4 1 - c e D +214% ∆=114% +100% REED ELSEVIER NV vs AEX – 10 YEARS TSR % 300 275 250 225 200 175 150 125 100 75 +183% ∆=108% +75% 4 0 - c e D 5 0 - c e D 6 0 - c e D 7 0 - c e D 8 0 - c e D 9 0 - c e D 0 1 - c e D 1 1 - c e D 2 1 - c e D 3 1 - c e D 4 1 - c e D Reed Elsevier PLC FTSE 100 Reed Elsevier PLC AEX Index UK regulations require disclosure of the relative share performance for the six-year period, 2009–2014, of Reed Elsevier PLC. During that period the total return for the FTSE 100 was +94% while TSR for Reed Elsevier PLC was +170%, an outperformance of 76 percentage points. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 85 06/03/2015 09:05 86 CEO historical pay table The table below shows the historical CEO pay over a seven-year period. 2008 has been included to show the pre-2009 position, as 2009 was a transition year with three CEO incumbents. £’000 CEO Annualised base salary Annual incentive payout as a % of maximum Multi-year incentive vesting as a % of maximum CEO total (UK statutory basis)(1) CEO total (Dutch Civil Code basis)(2) 2008 2009 (3) 2010 2011 2012 2013 2014 Sir Crispin Davis Sir Crispin Davis Ian Smith Erik Engstrom Erik Engstrom Erik Engstrom Erik Engstrom Erik Engstrom Erik Engstrom 1,181 1,181 900 1,000 1,000 1,025 1,051 1,077 1,104 61% 30% 37% 71% 67% 66% 73% 70% 71% 100% 0% 0% 0% 0% 0% 70%(4) 96%(4) 90%(4) 7,193 706 1,033 6,631 (514) 1,033 426 431 3,140 2,738 11,145(5) 5,425 16,176(6) 2,675 5,045 5,443 6,067 6,808 (1) UK statutory basis: This is described in footnote 2 to the Single Total Figure table on page 76. (2) Dutch Civil Code basis: This is described in footnote 3 to the Single Total Figure table on page 76. (3) Sir Crispin Davis was CEO from 1 January to 31 March, Ian Smith was CEO from 1 April to 10 November and Erik Engstrom was CEO from 11 November to 31 December. (4) The 2014 percentage reﬂects REGP tranche 2, BIP and ESOS. The 2013 percentage reﬂects BIP and ESOS only and the 2012 ﬁgure reﬂects REGP tranche 1 and BIP. (5) The 2012 ﬁgure reﬂects the vesting of tranche 1 of the REGP and includes the entire amount that was performance tested over the 2010-12 period, including the 50% of shares deferred until 2015 in accordance with the plan rules. It also includes £3m attributed to share price appreciation. (6) The 2014 ﬁgure includes the vesting of the second and ﬁnal tranche of the discontinued REGP and includes £7.6m attributed to share price appreciation. 94118_Reed_AR_p061-088.indd 86 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 87 Comparison of change in CEO pay with change in employee pay The table below shows the percentage change in remuneration (salary, beneﬁts and annual incentive) from 2013 to 2014 for the CEO compared with the average employee. LTIP: 2015–17 cycle Vesting is dependent on three separate performance measures of equal weighting: a TSR measure (comprising three comparator groups), an EPS measure and a ROIC measure.(1) Vesting percentage of each third of the TSR tranche(2) TSR ranking within the relevant TSR comparator group 0% 30% 100% Below median Median Upper quartile (1) The calculation methodology for TSR, EPS and ROIC is set out in the 2013 Notices of Annual General Meetings, which can be found on the company’s website. The methodology for selecting the TSR comparator group companies is unchanged from 2013 (see page 89 of the 2013 Remuneration Report). Each comparator group comprises approximately 40 companies. The companies for the 2015-17 LTIP cycle were selected on the same basis as the comparator groups for prior cycles under this plan. (2) Vesting is on a straight-line basis for performance between the minimum and maximum levels. Vesting percentage of EPS and ROIC tranches* Average growth in adjusted EPS over the three-year performance period ROIC in the third year of the performance period 0% 33% 52.5% 65% 75% 85% 92.5% 100% below 5% p.a. 5% p.a. 6% p.a. 7% p.a. 8% p.a. 9% p.a. 10% p.a. 11% p.a. or above below 12.3% 12.3% 12.55% 12.8% 13.05% 13.3% 13.55% 13.8% or above * Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth/ROIC percentages. ESOS: 2015-2017 cycle Proportion of the award vesting Average growth in adjusted EPS over the three-year performance period* 0% 33% 80% 100% below 4% p.a. 4% p.a. 6% p.a. 8% p.a. or above * Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth percentages. Salary Beneﬁts Annual incentive % change from 2013 to 2014 CEO 2.5% 2.0% 3.1% Average employee* 2.5% 2.5% 3.3% * This reﬂects a substantial proportion of our global employee population. Relative importance of spend on pay The following table sets out the total employee costs for all employees, as well as the amounts paid in dividends and share repurchases. 2014 (£m) 2013 (£m) % change Employee costs* 1,709 1,775 Dividends Share repurchases 565 600 549 600 –4% +3% 0% * Employee costs include wages and salaries, social security costs, pensions and Share based and related remuneration. Implementation of Remuneration Policy in 2015 Salary: The Committee has awarded a salary increase of 2.5% to the Executive Directors, which means that, from 1 January 2015, Erik Engstrom’s salary rose to £1,131,408 and Nick Luff’s salary to £666,250. This is in line with the guidelines agreed for employees in the Group’s most signiﬁcant locations globally for 2015. AIP: The operation of the AIP in 2015 remains the same as in 2014. Details of annual ﬁnancial targets and KPOs are not disclosed as the Board believes that these are commercially sensitive and that disclosing them would give competitors an unfair insight into our strategic direction and annual execution plans. The targets are designed to be challenging relative to the 2015 execution plan. Multi-year incentives: The award levels (% of salary) for 2015 are: BIP opportunity LTIP ESOS CEO 100% 250% 250% CFO 100% 200% 200% The targets and vesting scales for the multi-year incentive awards granted in 2015 are as follows: BIP: 2015-17 cycle Match earned on personal investment Average growth in adjusted EPS over the three-year performance period* 0% 50% 75% 100% 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 12.3% 12.3% 12.8% 13.3% or above * EPS and ROIC have equal weighting and straight-line vesting applies to performance between the points. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p061-088.indd 87 06/03/2015 09:05 88 GOVERNANCE DIRECTORS’ REMUNERATION REPORT Remuneration Committee advice The Committee consists of independent Non-Executive Directors and the Chairman of RELX Group plc. Details of members and their attendance are contained in the Corporate Governance section on page 71. The Chief Legal Ofﬁcer and Company Secretary attends meetings as secretary to the Committee. At the invitation of the Chairman of the Committee, the CEO of RELX Group plc attends appropriate parts of the meetings. The CEO of RELX Group plc is not in attendance during discussions about his remuneration. The Human Resources Director advised the Committee during the year. Towers Watson is the external adviser, appointed by the Committee through a competitive process. Towers Watson also provided actuarial and other human resources consultancy services to some Group companies during the year. The Committee is satisﬁed that the ﬁrm’s advice continues to be objective and independent, and that no conﬂict of interest exists. The individual consultants who work with the Committee do not provide advice to the Executive Directors, or act on their behalf. Towers Watson is a member of the Remuneration Consultants’ Group and conducts its work in line with the UK Code of Conduct for executive remuneration consulting. During 2014, Towers Watson received fees of £10,726 for advice given to the Committee, charged on a time and expense basis. Shareholder Vote at 2014 Annual General Meetings At the Annual General Meeting of Reed Elsevier NV, on 23 April 2014, votes cast by proxy and at the meeting in respect of the Directors’ remuneration were as follows: Resolution Votes For % For Votes Against % Against Total votes cast Votes Withheld Award of shares to Nick Luff (approval) 481,844,636 99.62% 1,860,791 0.38% 483,705,427 1,797,764 At the Annual General Meeting of Reed Elsevier PLC, on 24 April 2014, votes cast by proxy and at the meeting in respect of the Directors’ remuneration were as follows: Resolution Votes For % For Votes Against % Against Total votes cast Votes Withheld Remuneration Policy (approval) 834,792,974 93.83% 54,920,711 6.17% 889,713,685 25,296,745 Remuneration Report (advisory) 810,363,386 89.06% 99,538,952 10.94% 909,902,338 5,107,375 Wolfhart Hauser Chairman, Remuneration Committee 25 February 2015 94118_Reed_AR_p061-088.indd 88 06/03/2015 09:05 RELX Group Annual Reports and Financial Statements 2014 89 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 RELX 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 were carried out during 2014 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 RELX Group plc Audit Committee and the Elsevier Reed Finance BV Supervisory Board in this respect. 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), Adrian Hennah and Linda Sanford. Adrian Hennah, a UK chartered accountant, and Ben van der Veer, a registered accountant in the Netherlands, are considered to have signiﬁcant, recent and relevant ﬁnancial experience. Responsibilities The main role and responsibilities of the Committees are to assist the respective boards in fulﬁlling their oversight responsibilities regarding: §§ the integrity of the Group’s interim and full year ﬁnancial Financial reporting In discharging their responsibilities in respect of the 2014 interim and full year ﬁnancial statements, the Committees have: §§ reviewed and discussed areas of signiﬁcant judgement in the preparation of the ﬁnancial statements, including in particular: i. the carrying values of goodwill and intangible assets – the signiﬁcant judgements in respect of asset carrying values relate to the assumptions underlying the value in use calculations including discount rates and long-term growth assumptions. The Committees received and discussed reports from the RELX Group plc group Financial Controller on the methodology and the basis of the assumptions used; ii. capitalisation of internally generated intangible assets – the capitalisation of costs related to the development of new products and business infrastructure, together with the useful economic lives applied to the resulting assets, requires the exercise of judgement. The Committees received reports from the RELX Group plc group ﬁnancial controller on the amounts capitalised and asset lives selected for major projects; iii. uncertain tax positions – assessing potential liabilities across numerous jurisdictions is complex and requires judgement in making tax determinations. The Committees received and discussed reports from the RELX Group plc head of group taxation on the potential liabilities identiﬁed and judgements applied; statements and ﬁnancial reporting processes; iv. we operate a number of deﬁned beneﬁt schemes which §§ risk management and internal controls, and the effectiveness of the internal auditors; and §§ the performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of Deloitte. 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 Group’s website, www.relxgroup.com. Committee meetings The Committees met ﬁve times during 2014. The Audit Committee meetings are typically attended by the Chief Executive Ofﬁcer, the Chief Financial Ofﬁcer, the RELX Group plc group ﬁnancial controller, the RELX Group plc chief legal ofﬁcer, the RELX Group plc head of audit and risk, and audit partners from the external auditors. require management to exercise judgement in estimating the ultimate cost of providing post-employment beneﬁts, especially given the length of each scheme’s liabilities. The recognition of certain scheme liabilities is also subject to judgement. The Committees received and discussed reports from the RELX Group plc group Financial Controller on the methodology and the basis of the assumptions used. The Committees also received detailed written and verbal reports from the external auditors on these matters. The Committees were satisﬁed with the explanations provided and conclusions reached. §§ 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; and §§ considered whether the Annual Report taken as a whole was fair, balanced and understandable. Risk management and internal controls With respect to their oversight of risk management and internal controls, the Committees have: §§ received and discussed regular reports summarising the status of the Group’s risk management activities and the ﬁndings from internal audit reviews and the actions agreed with management. Areas of focus in 2014 included: management of investment programmes; post acquisition integration; regulatory compliance and review of information security including the management of data privacy; business O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p089-090.indd 89 06/03/2015 12:39 90 GOVERNANCE REPORT OF THE AUDIT COMMITTEES 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; §§ reviewed and approved the internal audit plan for 2014 and monitored execution, including progress in respect of recommendations made; §§ reviewed the resources, terms of reference and effectiveness of the RELX Group plc risk management and internal audit functions; §§ received presentations from: the RELX Group plc Chief Compliance Ofﬁcer on the compliance programmes, including the operation of the Group’s codes of conduct, training programmes and whistleblowing arrangements; the RELX Group plc Chief Strategy Ofﬁcer and Chief Legal Ofﬁcer on information security and other technology-related risks; and the RELX Group plc Chief Legal Ofﬁcer on legal issues and claims; §§ received updates from the RELX Group plc group treasurer on pension arrangements and funding, treasury policies and risk management and compliance with treasury policies; §§ received presentations from the RELX Group plc head of group taxation on tax policies and related matters; §§ received regular updates from the Chief Financial Ofﬁcer on developments within the ﬁnance function. The Committees monitored the Chief Financial Ofﬁcer transition to ensure an effective transfer of responsibilities; and §§ received presentations from recently appointed chief ﬁnancial ofﬁcers of major businesses. External audit effectiveness The Group 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 re-appointment and for agreement on the terms of their engagement, scope and remuneration; 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 website, www.relxgroup.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. Non-audit services performed in the Netherlands are limited to audit assurance activities. The Committees will continue to review the policy on the provision of non-audit services in the light of ongoing regulatory developments. The Committees have, each quarter, reviewed and agreed the non- audit services provided in 2014, 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 audit-related activities such as royalty assurance, tax advice and compliance, due diligence and other transaction-related services. The external auditors have conﬁrmed their independence and compliance with the Group policy on auditor independence to the Audit Committees. Deloitte LLP and Deloitte Accountants BV or their predecessor ﬁrms were ﬁrst appointed auditors of Reed Elsevier PLC and Reed Elsevier NV respectively for the ﬁnancial year ended 31 December 1994. The auditors are required to rotate the lead audit partners responsible for the audit engagements every ﬁve years. The lead engagement partners for Reed Elsevier PLC and Reed Elsevier NV have both completed one year. The Committees have conducted their review of the performance of the external auditors and the effectiveness of the external audit process for the year ended 31 December 2014. The review was based on a survey of key stakeholders across the Group, consideration of public reports by regulatory authorities on key Deloitte member ﬁrms and the quality of the auditors’ reporting to and interaction with the Audit Committees. Based on this review, the Audit Committees were satisﬁed with the performance of the auditors and the effectiveness of the audit process. Any decision to open the audit to tender is taken only on the recommendation of the Audit Committees. The Committees continue to monitor regulatory developments in the UK and the Netherlands regarding length of audit tenure, tendering and audit ﬁrm rotation. In light of the transition of the Chief Financial Ofﬁcer and the continued objectivity, independence and effectiveness of Deloitte LLP and Deloitte Accountants BV, the Audit Committees concluded that it was neither appropriate or necessary to change auditors in respect of the 2015 year end. The Committees have, therefore, recommended to the respective boards that resolutions for the re-appointment of Deloitte as the external auditors be proposed at the forthcoming Annual General Meetings. We have commenced preparations for an audit tender process for rotation of the audit ﬁrm in respect of the 2016 ﬁnancial year. The audit tender is expected to be concluded in mid-2015 and the selected audit ﬁrm will be proposed to the Annual General Meetings in 2016. In accordance with legislation in the Netherlands, Deloitte will not be eligible to participate in this tender. The effectiveness of the Audit Committees was reviewed as part of the 2014 Board evaluation. Ben van der Veer Chairman of the Audit Committees 25 February 2015 94118_Reed_AR_p089-090.indd 90 06/03/2015 12:39 RELX Group Annual Reports and Financial Statements 2014 91 Financial statements and other information In this section 92 Combined ﬁnancial statements 96 Accounting policies 102 Notes to the combined ﬁnancial statements 131 Independent auditors’ report 136 Summary combined ﬁnancial information in euros 147 Reed Elsevier PLC Annual Report and Financial Statements 165 Reed Elsevier NV Annual Report and Financial Statements 187 Other ﬁnancial information O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 91 10/03/2015 07:43 92 92 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 Current tax Deferred tax Tax expense Net proﬁt for the year Attributable to: Parent companies’ shareholders Non-controlling interests Net proﬁt for the year Note 1 1, 2 7 7 8 9 2014 £m 5,773 (2,006) 3,767 (934) (1,467) 1,366 36 1,402 7 (169) (162) (11) 1,229 (357) 88 (269) 960 2013 £m 6,035 (2,118) 3,917 (1,005) (1,565) 1,347 29 1,376 10 (206) (196) 16 1,196 (352) 271 (81) 1,115 955 5 960 1,110 5 1,115 Combined statement of comprehensive income FOR THE YEAR ENDED 31 DECEMBER Net proﬁt for the year Items that will not be reclassiﬁed to proﬁt or loss: Actuarial (losses)/gains on deﬁned beneﬁt pension schemes Tax on items that will not be reclassiﬁed to proﬁt or loss Total items that will not be reclassiﬁed to proﬁt or loss Items that may be reclassiﬁed subsequently to proﬁt or loss: Exchange differences on translation of foreign operations Fair value movements on cash ﬂow hedges Transfer to net proﬁt from cash ﬂow hedge reserve Tax on items that may be reclassiﬁed to proﬁt or loss Total items that may be reclassiﬁed to proﬁt or loss Other comprehensive loss 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 9 18 18 9 2014 £m 960 (266) 63 (203) 137 (81) 19 13 88 (115) 845 840 5 845 2013 £m 1,115 40 (24) 16 (88) 65 (3) (14) (40) (24) 1,091 1,086 5 1,091 94118_Reed_AR_p091-134.indd 92 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 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 business disposals Payments on business 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 Increase in short term bank loans, overdrafts and commercial paper Issuance of term debt Repayment of term debt Repayment of ﬁnance leases Acquisition of non-controlling interest Repurchase of ordinary shares Purchase of shares by employee beneﬁt trust Proceeds on issue of ordinary shares Net cash used in ﬁnancing activities 93 2014 £m 2013 £m 1,851 (139) 13 (348) 1,377 (396) (67) (203) (6) 10 78 (25) 44 (565) (565) (7) 232 589 (300) (10) (15) (600) (39) 45 (670) 1,943 (200) 5 (362) 1,386 (221) (57) (251) (10) 6 311 (116) 22 (316) (549) (6) 169 184 (915) (10) – (600) – 125 (1,602) Note 11 11 11 11 26 26 Increase/(decrease) in cash and cash equivalents 11 142 (532) Movement in cash and cash equivalents At start of year Increase/(decrease) in cash and cash equivalents Exchange translation differences At end of year 132 142 2 276 641 (532) 23 132 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 93 06/03/2015 12:43 94 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 Derivative ﬁnancial instruments 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 18 20 21 18 11 22 18 23 25 18 23 19 5 25 26 26 26 27 2014 £m 4,981 3,164 125 112 227 464 78 9,151 142 1,487 31 276 1,936 – 11,087 2,636 23 676 582 19 3,936 71 3,149 1,056 632 104 5,012 2 8,950 2,137 2013 £m 4,576 3,124 125 92 237 442 64 8,660 142 1,416 124 132 1,814 21 10,495 2,595 4 648 588 17 3,852 13 2,633 1,076 379 116 4,217 3 8,072 2,423 212 2,820 (1,107) 74 107 2,106 31 2,137 224 2,887 (1,464) (137) 880 2,390 33 2,423 94118_Reed_AR_p091-134.indd 94 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 Combined statement of changes in equity Note 13 13 Balance at 1 January 2013 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 (net of tax) Settlement of share awards Exchange differences on translation of capital and reserves Balance at 1 January 2014 Total comprehensive income for the year Dividends paid Issue of ordinary shares, net of expenses Repurchase of ordinary shares Cancellation of shares Increase in share based remuneration reserve (net of tax) Settlement of share awards Acquisitions Acquisition of non-controlling interest Exchange differences on translation of capital and reserves Balance at 31 December 2014 Combined share capitals £m 223 Combined share premiums £m 2,727 Combined shares held in treasury £m (899) Translation reserve £m (23) Other combined reserves £m Combined shareholders’ equity £m Non- controlling interests £m 252 2,280 34 – – 1 – – – – 224 – – 2 – (11) – – – – – – 124 – – – 36 – – – (600) – 40 (5) 2,887 (1,464) – – 43 – – – – – – – – – (639) 930 – 27 – – (88) – 1,174 (549) – – – – (26) (137) 137 – – – – – – – – – – 48 (40) (5) 880 703 (565) – – (919) 48 (27) – (13) 1,086 (549) 125 (600) 48 – – 2,390 840 (565) 45 (639) – 48 – – 5 (6) – – – – – 33 5 (7) – – – – – 1 (13) (2) (15) (3) 212 (110) 2,820 39 (1,107) 74 74 – 107 – 2,106 1 31 1 2,137 95 Total equity £m 2,314 1,091 (555) 125 (600) 48 – – 2,423 845 (572) 45 (639) – 48 – 1 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 95 06/03/2015 12:43 96 FINANCIAL STATEMENTS AND OTHER INFORMATION ACCOUNTING POLICIES Accounting policies The Group’s 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 73. The Group 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. For 2014 the Group 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 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 PLC and 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 185. A list of principal businesses is set out on page 197. Foreign exchange translation The combined ﬁnancial statements are presented in pounds sterling. Additional information providing a translation into euros of the primary combined ﬁnancial statements and selected notes is presented on pages 135 to 145. 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. The Group uses derivative ﬁnancial instruments, primarily forward contracts, to hedge its exposure to certain foreign exchange risks. Details of the Group’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. Revenues are recognised for the various categories as follows: subscriptions – on periodic despatch of subscribed product or rateably over the period of the subscription where performance is not measurable by despatch; transactional – on despatch or occurrence of the transaction; and advertising – on publication or over the period of online display. 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 at the earlier of when plan amendments or curtailments occur and when related restructuring costs or termination beneﬁts are recognised. Settlements are recognised when they occur. Net pension obligations in respect of deﬁned beneﬁt schemes are included in the statement of ﬁnancial position at the present value of scheme liabilities, less the fair value of scheme assets. Where schemes are in surplus, i.e. assets exceed liabilities, the net pension assets are separately included in the statement of ﬁnancial position. Any net pension asset is limited to the extent that the asset is recoverable through reductions in future contributions. The expense of deﬁned contribution pension schemes and other employee beneﬁts is charged in the income statement as incurred. 94118_Reed_AR_p091-134.indd 96 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 97 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 the Group’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 Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside proﬁt or loss (either in other comprehensive income, directly in equity, or through a business combination) in which case the tax appears in the same statement as the transaction that gave rise to it. Current tax is the amount of corporate income taxes payable or recoverable based on the proﬁt for the period as adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the date of the statement of ﬁnancial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of ﬁnancial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent it is probable that taxable proﬁts will be available against which the deductible temporary differences can be utilised, and are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted. 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 when there is an indicator that the asset may be impaired and 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 on a straight-line basis 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 97 06/03/2015 12:43 98 FINANCIAL STATEMENTS AND OTHER INFORMATION ACCOUNTING POLICIES Accounting policies Property, plant and equipment Property, plant and equipment are stated in the statement of ﬁnancial position at cost less accumulated depreciation. No depreciation is provided on freehold land. Freehold buildings and long leases are depreciated over their estimated useful lives up to a maximum of 50 years. Short leases are written off over the duration of the lease. Depreciation is provided on other assets on a straight- line basis over their estimated useful lives as follows: leasehold improvements – shorter of life of lease and 10 years; plant – 3 to 20 years; ofﬁce furniture, ﬁxtures and ﬁttings – 5 to 10 years; computer systems, communication networks and equipment – 3 to 7 years. Investments Investments, other than investments in joint arrangements 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 in disposals and other non-operating items in 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 arrangements and associates, are reported as disposals and other 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. Advice from valuation experts is used as appropriate. All joint arrangements are classiﬁed as joint ventures because the Group shares joint control and has rights to the net assets of the arrangements. 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 the Group’s share of net assets, less any impairment in value. Impairment At each statement of ﬁnancial position date, the carrying amounts of tangible and intangible assets and goodwill are reviewed 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. Fair value is based on anticipated disposal proceeds, typically derived from ﬁrm or indicative offers from potential acquirers. 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, borrowings and derivative ﬁnancial instruments. 94118_Reed_AR_p091-134.indd 98 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 99 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 typically classiﬁed as either Level 1 or 2 in the IFRS13 fair value hierarchy.) The fair value of such investments is based on either quoted market prices or other observable market inputs. 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 and payables are recorded initially at fair value and subsequently carried at amortised cost (other than ﬁxed rate borrowings in designated hedging relationships for which the carrying amount of the hedged portion of the borrowings is subsequently adjusted for the gain or loss attributable to the hedged risk). Derivative ﬁnancial instruments are used to hedge interest rate and foreign exchange risks. Changes in the fair value of derivative ﬁnancial instruments that are designated and effective as hedges of future cash ﬂows are recognised (net of tax) directly in equity in the hedge reserve. If a hedged ﬁrm commitment or forecasted transaction results in the recognition of a non-ﬁnancial asset or liability, then, at the time that the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net proﬁt or loss. Any ineffective portion of hedges is recognised immediately in the income statement. Derivative ﬁnancial instruments that are not designated as hedging instruments are classiﬁed as held for trading and recorded in the statement of ﬁnancial position at fair value, with changes in fair value recognised in the income statement. Where an effective hedge is in place against changes in the fair value of ﬁxed rate borrowings, the hedged borrowings are adjusted for changes in fair value attributable to the risk being hedged with a corresponding income or expense included in the income statement within ﬁnance costs. The offsetting gains or losses from remeasuring the fair value of the related derivatives are also recognised in the income statement within ﬁnance costs. When the related derivative expires, is sold or terminated, or no longer qualiﬁes for hedge accounting, the cumulative change in fair value of the hedged borrowing is amortised in the income statement over the period to maturity of the borrowing using the effective interest method. The fair values of interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts represent the replacement costs calculated using observable market rates of interest and exchange. The fair value of long-term borrowings is calculated by discounting expected future cash ﬂows at observable market rates. (These instruments are accordingly classiﬁed as Level 2 in the IFRS13 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 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 combined businesses, and those requiring the most subjective or complex judgement, relate to the valuation of goodwill and intangible assets, capitalisation of development spend, taxation and accounting for deﬁned beneﬁt pension schemes. 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 99 06/03/2015 12:43 100 FINANCIAL STATEMENTS AND OTHER INFORMATION ACCOUNTING POLICIES Accounting policies 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 the latest management cash ﬂow projections, approved by the Board. Key areas of judgement in estimating the values in use of businesses are the growth in cash ﬂows over a forecast period of up to ﬁve years, the long-term growth rate assumed thereafter and the discount rate applied to the forecast cash ﬂows. A description of the key assumptions and sensitivities is provided in note 14. Development spend Development spend embraces investment in new products and other initiatives, ranging from the building of online delivery platforms, to launch costs of new services, to building new infrastructure applications. Launch costs and other ongoing operating expenses of new products and services are expensed as incurred. The costs of building product applications, platforms and infrastructure are capitalised as intangible assets, where the investment they represent has demonstrable value and the technical and commercial feasibility is assured. Costs eligible for capitalisation must be incremental, clearly identiﬁed and directly attributable to a particular project. The resulting assets are amortised over their estimated useful lives. Impairment reviews are carried out at least annually. Judgement is required in the assessment of the potential value of a development project, the identiﬁcation of costs eligible for capitalisation and the selection of appropriate asset lives. Taxation The Group is subject to tax in numerous jurisdictions, giving rise to complex tax issues that require management to exercise judgement in making tax determinations. While the Group 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 these discussions cannot be predicted, no signiﬁcant impact on the ﬁnancial position of the Group 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. Pensions The Group operates a number of deﬁned beneﬁt pension schemes across the world. The largest schemes are in the UK, the US and the Netherlands, as described in note 5 to the combined ﬁnancial statements. These schemes require management to exercise judgement in estimating the ultimate cost of providing post-employment beneﬁts, especially given the length of each scheme’s liabilities. The recognition of certain scheme liabilities is also subject to judgement. Accounting for deﬁned beneﬁt pension schemes involves judgement about uncertain events, including the life expectancy of the members, salary and pension increases, inﬂation, the future operation of each scheme 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. The estimates made around future developments of each of the critical assumptions are made in conjunction with independent actuaries. Each scheme is subject to a periodic review by independent actuaries. Information regarding some of the assumptions used for valuation is provided in note 5 to the combined ﬁnancial statements, together with a sensitivity analysis. Other signiﬁcant accounting policies The accounting policies in respect of revenue recognition, pre-publication costs, and property provisioning are also signiﬁcant in determining the ﬁnancial condition and results of the 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. The Group 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 nil (2013: nil). Further information is provided in note 24 to the combined ﬁnancial statements. 94118_Reed_AR_p091-134.indd 100 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 101 Standards and amendments effective for the year The interpretations and amendments to IFRS effective for 2014 have not had a signiﬁcant impact on the Group’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 the Group are set out below. IFRS15 – Revenue from Contracts with Customers (effective for the 2017 ﬁnancial year). The new standard provides a single point of reference for revenue recognition replacing a range of different revenue accounting standards, interpretations and guidance. The Group is in the process of assessing the impact of this new standard. IFRS9 – Financial Instruments (effective for the 2018 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. Additionally, a number of amendments and interpretations have been issued which are not expected to have any signiﬁcant impact on the Group’s accounting policies and reporting. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 101 06/03/2015 12:43 102 FINANCIAL STATEMENTS AND OTHER INFORMATION COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 1 Segment analysis The Group is a world leading provider of professional information solutions serving four market segments: Scientiﬁc, Technical & Medical, providing information and tools to help its customers improve scientiﬁc and healthcare outcomes; Risk & Business Information, providing data, analytics and insight that enables customers to evaluate and manage risk and develop market intelligence; Legal, providing legal, tax and regulatory news and business information to legal, corporate, government, accounting and academic markets; and Exhibitions, organising exhibitions and conferences. The Group’s reported segments are based on the internal reporting structure and ﬁnancial information provided to the Boards. During 2014, Risk Solutions and Business Information have been combined into one business area, having previously operated separately. Accordingly, they are now presented as a single operating segment. Comparative ﬁgures have been presented as if the businesses had operated on a combined basis in the prior year. Following a review of activities, assets and costs across the business, the Group introduced a new method for the allocation of corporate and shared costs from 1 January 2014. Previously unallocated items and costs relating to shared activities and resources have been attributed to the business segments on the basis of usage and beneﬁts derived. This new allocation reﬂects an increased level of shared resources and capitalised costs. Comparative adjusted operating proﬁt and operating proﬁt ﬁgures have been restated as if these allocation methods had operated in the prior year. This reﬂects the presentation of ﬁnancial information provided to the Boards. Adjusted operating proﬁt is the key segmental proﬁt measure used by the Group in assessing performance. 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 & Business Information Legal Exhibitions Sub-total Corporate costs Total 2014 £m 2,048 1,439 1,396 890 5,773 – 5,773 2013 £m 2,126 1,480 1,567 862 6,035 – 6,035 2014 £m 684 377 173 174 1,408 (6) 1,402 Restated 2013 £m 693 369 161 158 1,381 (5) 1,376 2014 £m 762 506 260 217 1,745 (6) 1,739 Restated 2013 £m 787 507 250 210 1,754 (5) 1,749 Share of post-tax results of joint ventures of £36m (2013: £29m) included in operating proﬁt comprises £16m (2013: £6m) relating to Legal and £20m (2013: £23m) relating to Exhibitions. 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 2014 £m 2,884 1,013 636 686 554 5,773 2014 £m 2,878 455 153 1,053 1,234 5,773 2013 £m 3,103 985 656 698 593 6,035 2013 £m 3,082 443 166 1,074 1,270 6,035 94118_Reed_AR_p091-134.indd 102 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 103 1 Segment analysis continued ANALYSIS OF REVENUE BY FORMAT Electronic Print Face-to-face Total ANALYSIS OF REVENUE BY TYPE Subscriptions Transactional Advertising Total 2014 £m 3,839 1,012 922 5,773 2014 £m 2,966 2,672 135 5,773 2013 £m 3,971 1,168 896 6,035 2013 £m 3,112 2,683 240 6,035 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 & Business Information Legal Exhibitions Total 2014 £m 25 330 48 23 426 2013 £m 50 169 15 56 290 2014 £m 56 53 145 27 281 2013 £m 93 43 170 15 321 2014 £m 79 116 57 34 286 Restated 2013 £m 86 128 64 40 318 2014 £m 94 34 94 15 237 Restated 2013 £m 100 33 101 15 249 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 £3m (2013: nil) in Legal and £1m (2013: £1m) in Exhibitions. Other than the depreciation and amortisation above, non-cash items include £32m (2013: £31m) relating to the recognition of share based remuneration, comprising £12m (2013: £11m) in Scientiﬁc, Technical & Medical, £8m (2013: £8m) in Risk & Business Information, £7m (2013: £7m) in Legal and £5m (2013: £5m) in Exhibitions. ANALYSIS OF NON-CURRENT ASSETS BY GEOGRAPHICAL LOCATION North America United Kingdom The Netherlands Rest of Europe Rest of world Total 2014 £m 6,569 701 109 816 414 8,609 2013 £m 6,291 584 125 753 401 8,154 Non-current assets by geographical location exclude amounts relating to deferred tax and derivative ﬁnancial instruments. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 103 06/03/2015 12:43 104 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 2 Operating proﬁt Operating proﬁt is stated after charging/(crediting) the following: Staff costs Wages and salaries Social security costs Pensions Share based remuneration Total staff costs Depreciation and amortisation Amortisation of acquired intangible assets Share of joint ventures’ amortisation of acquired intangible assets 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 The amortisation of acquired intangible assets is included within administration and other expenses. 3 Auditors’ remuneration Auditors’ remuneration Payable to the auditors of the parent companies Payable to the auditors of the operating and ﬁnancing businesses For audit services Audit-related assurance services Tax services Due diligence and other transaction-related services For non-audit services Total auditors’ remuneration Note 5 6 15 15 17 2014 £m 1,415 167 95 32 1,709 282 4 158 79 523 2013 £m 1,508 175 61 31 1,775 317 1 160 89 567 2,006 91 (8) 2,118 108 (10) 2014 £m 2013 £m 0.6 4.2 4.8 0.5 1.0 0.3 1.8 6.6 0.6 4.3 4.9 0.4 1.8 – 2.2 7.1 Amounts payable to the auditors of the operating and ﬁnancing businesses include amounts for the review and testing of internal controls over ﬁnancial reporting in accordance with the US Sarbanes-Oxley Act. Non-audit services performed in the Netherlands or by Deloitte BV are limited to audit-related assurance services. The Group’s policy on auditor independence is set out in the Report of the Audit Committees on page 90. 94118_Reed_AR_p091-134.indd 104 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 105 4 Personnel NUMBER OF PEOPLE EMPLOYED: FULL TIME EQUIVALENTS Business segment Scientiﬁc, Technical & Medical Risk & 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 2014 2013 2014 2013 7,000 7,400 9,500 3,700 27,600 900 28,500 13,300 4,300 1,600 2,800 6,500 28,500 6,700 7,200 10,000 3,400 27,300 900 28,200 13,900 4,100 1,600 2,800 5,800 28,200 6,900 7,300 9,600 3,500 27,300 900 28,200 13,400 4,200 1,600 2,800 6,200 28,200 6,900 7,700 10,400 3,300 28,300 900 29,200 14,800 4,100 1,600 3,100 5,600 29,200 A number of pension schemes are operated around the world. Historically, the largest schemes have been local versions 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. The UK scheme is a ﬁnal salary scheme and is closed to new hires. Members accrue a portion of their ﬁnal pensionable earnings based on the number of years of service. The US scheme is a cash balance scheme and is closed to new hires. Members earn pay credits dependent on age and years of service up to certain limits which are added to an account balance that accrues interest at speciﬁed minimum rates. The Netherlands scheme is a career average salary scheme and remains open to new hires. Members accrue a portion of their current salary at a rate calculated to enable them to reach a pension level based on their average salary. Each of the major deﬁned beneﬁt schemes is administered by a separate fund that is legally separated from the Group. The trustees of the pension funds in the UK and the Netherlands and plan ﬁduciaries of the US scheme are required by law to act in the interest of the funds’ beneﬁciaries. In the UK and in the Netherlands the trustees of the pension fund are responsible for the investment policy with regard to the assets of the fund. The boards of trustees consist of an equal number of company appointed and member nominated Directors. In the US, the ﬁduciary duties for the scheme are allocated between committees which are staffed by senior employees of the Group; the investment committee has the primary responsibility for the investment and management of plan assets. The funding of the Group’s major schemes reﬂects the different rules within each jurisdiction. In the UK the level of funding is determined by statutory triennial actuarial valuations in accordance with pensions legislation. Where the scheme falls below 100% funded status, the Group and the scheme trustees must agree on how the deﬁcit is to be remedied. The UK Pensions Regulator has signiﬁcant powers and sets out in codes and guidance the parameters for scheme funding. The US scheme has an annual statutory valuation which forms the basis for establishing the employer contribution each year (subject to ERISA and IRS minimums). Should the statutory funded status fall to below 100%, the US Pensions Protection Act requires the deﬁcit to be rectiﬁed with additional contributions over a seven year period. In the Netherlands, on a regulatory basis, with effect from 1 January 2015, the scheme funding level is determined by the new Financial Assessment Framework (nFTK). The nFTK introduces, inter alia, a 12 month average funding ratio, higher buffer requirements and stricter indexation than under previous legislation, and a 10 year recovery plan in the event of funding shortfalls. In case of a shortfall in the funding level, the ﬁrst recovery plans are required to be ﬁled with the Dutch Central Bank on 1 July 2015. On a contractual basis, the employer contribution is capped at 11.9% of salary. Total regular employer contributions to deﬁned beneﬁt pension schemes in respect of 2015 are expected to be approximately £65m. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 105 06/03/2015 12:43 106 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 5 Pension schemes continued The pension expense recognised within operating expense is: Deﬁned beneﬁt pension expense Deﬁned contribution pension expense Total 2014 £m 48 47 95 2013 £m 14 47 61 The amounts recognised in the income statement in respect of deﬁned beneﬁt pension schemes during the year are presented by major scheme as follows: Service cost Settlements and past service credits Deﬁned beneﬁt pension expense Net interest on net deﬁned beneﬁt obligation Net deﬁned beneﬁt pension expense 2014 2013 UK £m 31 – 31 8 39 US £m 18 – 18 4 22 NL £m 14 (15) (1) 3 2 Total £m 63 (15) 48 15 63 UK £m 29 – 29 6 35 US £m 29 (51) (22) 9 (13) NL £m 15 (8) 7 4 11 Total £m 73 (59) 14 19 33 Net interest on net deﬁned beneﬁt pension scheme liabilities is presented within net ﬁnance costs in the income statement. Service cost, including settlements, past service credits and curtailments is presented within operating expenses. Settlements and past service credits in 2014 relate to plan design changes and a reduction in accrued beneﬁts in respect of the scheme in the Netherlands. Settlements and past service credits recognised in 2013 principally relate to plan design changes and the transfer out of certain deferred members in the US scheme and a reduction in accrued beneﬁts in respect of the scheme in the Netherlands. The signiﬁcant valuation assumptions, determined for each major scheme in conjunction with the respective independent actuaries are presented below. The net deﬁned beneﬁt pension expense for each year is based on the assumptions and scheme valuations set at 31 December of the prior year. As at 31 December Discount rate Inﬂation UK 3.75% 2.90% 2014 US 4.25% 2.50% NL 2.30% 2.00% UK 4.60% 3.25% 2013 US 5.05% 3.00% NL 3.60% 2.00% Discount rates are set by reference to high-quality corporate bond yields. Mortality assumptions make allowance for future improvements in longevity and have been determined by reference to applicable mortality statistics. The average life expectancy assumptions are set out below: Male average life expectancy (at 31 December) Member currently aged 60 years Member currently aged 45 years Female average life expectancy (at 31 December) Member currently aged 60 years Member currently aged 45 years 2014 US 87 87 2014 US 89 90 UK 90 92 UK 89 91 NL 86 87 NL 89 90 2013 US 84 83 2013 US 86 85 UK 90 92 UK 89 91 NL 86 87 NL 89 89 94118_Reed_AR_p091-134.indd 106 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 107 5 Pension schemes continued 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: Deﬁned beneﬁt obligation At start of year Service cost Settlements and past service credits Interest on pension scheme liabilities Actuarial (loss)/gain on ﬁnancial assumptions Actuarial (loss)/gain arising from experience assumptions Contributions by employees Beneﬁts paid* Exchange translation differences At end of year Fair value of scheme assets At start of year Interest income on plan assets Return on assets excluding amounts included in interest income Contributions by employer Contributions by employees Beneﬁts paid* Exchange translation differences At end of year 2014 2013 UK £m (2,882) (31) – (130) US £m (762) (18) – (39) NL £m Total £m UK £m (716) (14) 15 (25) (4,360) (63) 15 (194) (2,654) (29) – (122) US £m (922) (29) 51 (41) NL £m (696) (15) 8 (25) Total £m (4,272) (73) 59 (188) (339) (107) (120) (566) (173) 86 18 (69) 26 (7) 96 – (3,267) 2,691 122 110 36 7 (96) – 2,870 (3) – 52 (55) (932) 676 35 72 31 – (52) 48 810 5 (5) 27 55 (778) 614 22 90 9 5 (27) (48) 665 28 (12) 175 – (4,977) 3,981 179 272 76 12 (175) – 4,345 8 (6) 94 – (2,882) 2,516 116 111 36 6 (94) – 2,691 (10) – 93 10 (762) 710 32 4 33 – (93) (10) 676 (3) (5) 19 (17) (716) 580 21 (1) 14 5 (19) 14 614 (5) (11) 206 (7) (4,360) 3,806 169 114 83 11 (206) 4 3,981 Net deﬁned beneﬁt obligation (397) (122) (113) (632) (191) (86) (102) (379) * included in beneﬁts paid are settlements of nil (2013: £52m). As at 31 December 2014, the deﬁned beneﬁt obligations comprise £4,784m (2013: £4,200m) in relation to funded schemes and £193m (2013: £160m) in relation to unfunded schemes. The weighted average duration of deﬁned beneﬁt scheme liabilities is 19 years in the UK (2013: 19 years), 15 years in the US (2013:16 years) and 24 years in the Netherlands (2013:21 years). Deferred tax assets of £161m (2013: £104m) are recognised in respect of the pension scheme deﬁcits. Amounts recognised in the statement of comprehensive income are set out below: Gains and losses arising during the year: Experience gains/(losses) on scheme liabilities Experience gains 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 at start of year Net cumulative losses at end of year 2014 £m 28 272 (773) 159 48 (266) (475) (741) 2013 £m (5) 114 78 (171) 24 40 (515) (475) O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 107 06/03/2015 12:43 108 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 5 Pension schemes continued The major categories and fair values of scheme assets at the end of the reporting period are as follows: FAIR VALUE OF SCHEME ASSETS 2014 2013 Equities Government bonds Corporate bonds Property funds Cash Other Total UK £m 1,260 1,249 – 270 74 17 2,870 US £m 263 70 455 – 2 20 810 NL £m 226 261 143 30 5 – 665 Total £m 1,749 1,580 598 300 81 37 4,345 UK £m 1,351 1,089 – 147 87 17 2,691 US £m 174 68 411 – 4 19 676 NL £m 223 261 93 34 3 – 614 Total £m 1,748 1,418 504 181 94 36 3,981 The actual return on scheme assets for the year ended 31 December 2014 was £451m (2013: £283m). Assets and obligations associated with the schemes are sensitive to changes in the market values of assets and the market-related assumptions used to value scheme liabilities. In particular, adverse changes to asset values, discount rates or inﬂation could increase future pension costs and funding requirements. Typically the Group’s schemes are exposed to: investment risks, whereby actual rates of return on plan assets may be below those rates used to determine the deﬁned beneﬁt obligations and interest rate risks, whereby scheme deﬁcits may increase if bond yields in the UK, the US and the Netherlands decline and are not offset by returns in government and corporate bond portfolios. The schemes are also exposed to other risks such as unanticipated future increases in: member mortality patterns; inﬂation; and future salaries, all potentially leading to an increase in scheme liabilities particularly in the Netherlands which is the only major scheme which remains open to new members. Investment policies of each scheme are intended to ensure continuous payment of deﬁned beneﬁt pensions in the short term and long term. Efforts are made to limit risks on marketable securities by adopting investment policies that diversify assets across geographies and among equities, government and corporate bonds, property funds and cash. Asset allocations are dependent on a variety of factors including the duration of scheme liabilities and the statutory funded status of the plan. All equities and government and corporate bonds have quoted prices in active markets. Sensitivity analysis The valuation of the Group’s pension scheme liabilities involves signiﬁcant actuarial assumptions, being the life expectancy of the members, inﬂation and the rate at which the future pension payments are discounted. 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 that are reasonably possible would have the following approximate effects on the deﬁned beneﬁt pension obligations: Increase/decrease of 0.25% in discount rate Increase/decrease of 0.25% in the expected inﬂation rate Increase/decrease of one year in assumed life expectancy £m 233 121 131 The above analysis has been calculated on the same basis used to determine the deﬁned beneﬁt obligation recognised in the statement of ﬁnancial position. There has been no change in the methods used to prepare the analysis compared with prior years. This sensitivity analysis may not be representative of the actual change in the deﬁned beneﬁt obligation as it is unlikely that the change in the above assumptions would occur in isolation of one another as some of the assumptions may be correlated. 94118_Reed_AR_p091-134.indd 108 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 109 6 Share based remuneration The Group 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) (discontinued ater 2014), 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 10 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 between 2011 and 2014 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 between 2011 and 2014 and REGP grants in 2013 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 75 to 88. 2014 GRANTS Share options – ESOS – Other Total share options Conditional shares – ESOS – LTIP – RSP – BIP Total conditional shares 2013 GRANTS Share options – ESOS – Other Total share options Conditional shares – ESOS – LTIP – RSP – REGP – BIP Total conditional shares In respect of Reed Elsevier PLC ordinary shares In respect of Reed Elsevier NV ordinary shares Weighted average fair value per award £ Number of shares ’000 Weighted average fair value per award £ Number of shares ’000 1,221 1,064 2,285 365 1,031 131 769 2,296 0.98 1.31 1.13 8.27 7.81 9.90 9.23 8.48 863 314 1,177 258 729 94 483 1,564 1.13 0.90 1.07 11.24 10.85 14.18 12.88 11.74 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 1,521 645 2,166 524 1,338 10 322 987 3,181 1.12 1.29 1.17 6.51 6.14 7.35 6.49 7.40 6.63 1,058 257 1,315 365 930 7 450 615 2,367 1.52 1.10 1.44 9.28 8.90 10.65 9.34 10.69 9.51 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 109 06/03/2015 12:43 110 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 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 – REGP – 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 2014 2013 2014 2013 £9.28 £9.29 £9.90 £9.23 – £8.86 19% 4 years 3.8% 1.5% 2-5% £7.35 £7.35 £7.35 £7.39 £7.76 £7.45 28% 4 years 4.1% 0.5% 2-5% €15.92 €15.94 €17.50 €15.90 – €15.63 19% 4 years 4.5% 0.6% 2-4% €12.53 €12.54 €12.53 €12.53 €13.15 €11.89 28% 4 years 4.7% 0.4% 2-4% Expected share price volatility has been estimated based on relevant historical 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 2014, in respect of both Reed Elsevier PLC and Reed Elsevier NV ordinary shares, are set out below: SHARE OPTIONS Outstanding at 1 January 2013 Granted Exercised Forfeited Expired Outstanding at 1 January 2014 Granted Exercised Forfeited Expired Outstanding at 31 December 2014 Exercisable at 31 December 2013 Exercisable at 31 December 2014 In respect of Reed Elsevier PLC ordinary shares In respect of Reed Elsevier NV ordinary shares Number of shares under option ’000 19,335 2,166 (9,102) (112) (560) Weighted average exercise price (pence) 529 694 542 535 537 Number of shares under option ’000 15,582 1,315 (7,628) (167) (462) 11,727 2,285 (3,318) (832) (535) 9,327 5,150 3,163 549 827 520 514 577 629 537 550 8,640 1,177 (2,740) (348) (573) 6,156 5,535 3,480 Weighted average exercise price (€) 10.63 12.41 10.72 11.30 11.30 10.77 15.86 11.13 10.28 10.28 11.66 11.09 11.11 94118_Reed_AR_p091-134.indd 110 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 111 6 Share based remuneration continued CONDITIONAL SHARES Outstanding at 1 January 2013 Granted Vested Forfeited/lapsed Outstanding at 1 January 2014 Granted Vested Forfeited/lapsed Outstanding at 31 December 2014 In respect of Reed Elsevier PLC ordinary shares In respect of Reed Elsevier NV ordinary shares Number of shares ’000 Number of shares ’000 11,812 3,181 (3,256) (1,395) 10,342 2,296 (2,772) (1,236) 8,630 6,706 2,367 (1,966) (923) 6,184 1,564 (1,591) (622) 5,535 The weighted average share price at the date of exercise of share options and vesting of conditional shares during 2014 was 885p (2013: 761p) for Reed Elsevier PLC ordinary shares and €15.03 (2013: €13.15) for Reed Elsevier NV ordinary shares. RANGE OF EXERCISE PRICES FOR OUTSTANDING SHARE OPTIONS 2014 2013 Reed Elsevier PLC ordinary shares (pence) 401-450 451-500 501-550 551-600 601-650 701-750 801-850 851-900 901-950 951-1000 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 16.01-17.00 17.01-18.00 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) 834 451 3,184 576 788 2,301 10 2 1,088 93 9,327 24 1,024 1,459 60 587 1,424 87 406 976 15 94 6,156 1.6 5.4 5.5 2.8 2.8 6.3 8.6 8.9 9.3 9.7 5.4 4.0 5.7 6.4 2.8 1.6 6.5 3.7 3.0 9.2 9.0 9.5 6.0 1,772 1,161 5,284 695 1,338 1,462 10 2 3 – 11,727 41 1,834 1,813 619 1,670 1,864 134 663 2 – – 8,640 1.9 4.2 5.6 3.9 4.0 9.4 9.6 9.9 9.0 – 5.1 5.0 6.8 7.2 1.4 2.3 7.1 4.7 3.1 9.9 – – 5.4 Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares but may also be met from shares held by the Employee Beneﬁt Trust (EBT) (see note 26). Conditional shares will be met from shares held by the EBT. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 111 06/03/2015 12:43 112 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 7 Net ﬁnance costs Interest on short-term bank loans, overdrafts and commercial paper Interest on term debt Interest on obligations under ﬁnance leases Total borrowing costs Losses on loans and derivatives not designated as hedges Net ﬁnancing charge on deﬁned beneﬁt pension schemes Finance costs Interest on bank deposits Gains on loans and derivatives not designated as hedges Finance income Net ﬁnance costs 2014 £m (13) (134) – (147) (7) (15) (169) 7 – 7 (162) 2013 £m (11) (168) (1) (180) (7) (19) (206) 4 6 10 (196) A net loss of £52m (2013: £1m gain) on interest rate derivatives designated as cash ﬂow hedges was recognised directly in equity. This included losses of £54m (2013: nil) related to foreign exchange movements on debt hedges, which were reclassiﬁed immediately to the income statement and offset £54m (2013: nil) of foreign exchange gains on the related debt. The remaining gain of £2m (2013: £1m) recognised in equity may be reclassiﬁed to the income statement in future periods. Including the £54m (2013: nil) of foreign exchange losses, losses of £56m (2013: £3m) in total were transferred from the hedge reserve in the period. 8 Disposals and other items Revaluation of held for trading investments (Loss)/gain on disposal of businesses and assets held for sale Net (losses)/gains on disposals and other items 9 Taxation Current tax United Kingdom The Netherlands Rest of world Total current tax charge Deferred tax Tax expense 2014 £m 8 (19) (11) 2014 £m (36) (93) (228) (357) 88 (269) 2013 £m 5 11 16 2013 £m (50) (80) (222) (352) 271 (81) The decrease in the UK current tax charge over the year reﬂects the reduction in the UK statutory rate of tax, and the settlement of prior year tax matters. 94118_Reed_AR_p091-134.indd 112 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 113 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 and US state taxes Non-taxable costs of share based remuneration 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 Deferred tax credit on the alignment of business assets Other adjustments in respect of prior periods Deferred tax effect of changes in tax rates Tax expense 2014 £m 1,229 (292) 21 (26) – (22) (4) 4 – 50 – (269) 2013 £m 1,196 (280) 10 (38) 3 (22) (4) 9 221 24 (4) (81) The weighted average applicable tax rate for the year was 23.7% (2013: 23.4%). This increase is caused by a change in the relative proﬁtability of the Group entities in the countries in which they operate, partially offset by the impact of the reduction in the tax rate of the UK (see below). During 2013, the Group aligned certain business assets with their global management structure. As a result of this alignment the tax deductible value of these assets was updated to market value. This resulted in a deferred tax credit of £221m which was excluded from adjusted earnings along with other deferred tax assets from intangible assets. The following tax has been recognised in other comprehensive income or directly in equity during the year: Tax on items that will not be reclassiﬁed to proﬁt or loss Tax on actuarial movements on deﬁned beneﬁt pension schemes Tax on items that may be reclassiﬁed to proﬁt or loss Tax on fair value movements on cash ﬂow hedges Net tax credit/(debit) recognised in other comprehensive income Tax credit on share based remuneration recognised directly in equity 2014 £m 2013 £m 63 63 13 13 76 20 (24) (24) (14) (14) (38) 20 A number of changes to the UK corporation tax system, including reductions of the main rate of corporation tax from 23% to 21% with effect from 1 April 2014, and from 21% to 20% with effect from 1 April 2015, were substantively enacted on 2 July 2013. The Group has measured its UK deferred tax assets and liabilities at the end of the reporting period at 20% (2013: 20%). O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 113 06/03/2015 12:43 114 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 10 Adjusted ﬁgures The Group uses adjusted ﬁgures as additional performance measures. Adjusted operating proﬁt excludes amortisation of acquired intangible assets, acquisition-related costs and the share of taxes in joint ventures. Acquisition-related costs relate to acquisition integration, transaction-related fees, and those elements of deferred and contingent consideration required to be expensed under IFRS. Adjusted proﬁt before tax also excludes disposal-related and other non-operating items and the net ﬁnancing charge or credit on deﬁned beneﬁt pension schemes. The adjusted tax charge excludes the tax effect of these adjusting items and movements on deferred tax assets and liabilities related to goodwill and acquired intangible assets. It includes the beneﬁt of tax amortisation where available on goodwill and acquired intangible assets. Adjusted 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 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 Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Adjusted proﬁt before tax Tax charge Adjustments: Deferred tax movements on goodwill and acquired intangible assets Tax on acquisition-related costs Reclassiﬁcation of tax in joint ventures Tax on net ﬁnancing charge on deﬁned beneﬁt pension schemes Tax on disposals and other non-operating items Other deferred tax credits from intangible assets* Adjusted tax charge Net proﬁt attributable to parent companies’ shareholders Adjustments (post tax): Amortisation of acquired intangible assets Acquisition-related costs Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* Adjusted net 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 cash ﬂow 2014 £m 2013 £m 1,402 1,376 286 30 21 1,739 318 43 12 1,749 1,229 1,196 286 30 21 15 11 1,592 318 43 12 19 (16) 1,572 (269) (81) (6) (9) (21) (4) 3 (68) (374) 7 (12) (12) (6) 34 (300) (370) 955 1,110 280 21 11 14 (68) 1,213 1,851 44 (67) 10 (203) – 27 1,662 325 31 13 18 (300) 1,197 1,943 22 (57) 6 (251) 12 28 1,703 * Movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. 94118_Reed_AR_p091-134.indd 114 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 115 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 (Increase)/decrease 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 2014 £m 2013 £m 1,366 1,347 282 158 79 32 551 3 (66) (3) (66) 1,851 2014 £m (347) (15) (34) (396) 317 160 89 31 597 10 5 (16) (1) 1,943 2013 £m (194) (6) (21) (221) Note 12 Cash and cash equivalents £m Borrowings £m Related derivative ﬁnancial instruments £m 2014 £m 2013 £m At start of year 132 (3,281) 77 (3,072) (3,127) Increase/(decrease) in cash and cash equivalents Net movement in short-term bank loans, overdrafts and commercial paper Issuance of term debt Repayment of term debt 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 142 – – – – 142 – – – 2 276 – (241) (589) 300 10 (520) (20) (3) 78 (79) (3,825) – 9 – – – 9 – – (85) (2) (1) 142 (232) (589) 300 10 (369) (20) (3) (7) (79) (3,550) (532) (169) (184) 915 10 40 – (12) (1) 28 (3,072) Net borrowings comprise cash and cash equivalents, loan capital, ﬁnance leases, promissory notes, bank and other loans, derivative ﬁnancial instruments that are used to hedge certain borrowings, and adjustments in respect of cash collateral received/paid. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 115 06/03/2015 12:43 116 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 12 Acquisitions During the year a number of acquisitions were made for a total consideration of £356m (2013: £239m), after taking account of net cash acquired of £9m (2013: £14m). 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 and equipment Current assets Current liabilities Borrowings Deferred tax Net assets acquired Consideration (after taking account of £9m (2013: £14m) net cash acquired) Less: consideration deferred to future years Less: acquisition date fair value of equity interest Net cash ﬂow Fair value 2014 £m 240 187 3 21 (39) (20) (36) 356 356 (8) (1) 347 Fair value 2013 £m 157 133 – 9 (21) – (39) 239 239 (36) (9) 194 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; and acquisition synergies that are speciﬁc to the Group. 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 2015 combined ﬁnancial statements. There were no signiﬁcant adjustments to the provisional fair values of prior year acquisitions established in 2013. The businesses acquired in 2014 contributed £37m to revenue, increased adjusted operating proﬁt by £7m, increased adjusted net proﬁt by £3m, decreased net proﬁt by £6m; and contributed a net cash inﬂow of £3m from operating activities for the part year under the Group’s 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 Group revenues, adjusted operating proﬁt, adjusted net proﬁt attributable to parent companies’ shareholders and net proﬁt attributable to parent companies’ shareholders for the year would have been £5,840m, £1,746m, £1,215m and £957m respectively before taking account of acquisition ﬁnancing costs. 13 Equity dividends ORDINARY DIVIDENDS DECLARED AND PAID IN THE YEAR Reed Elsevier PLC Reed Elsevier NV Total 2014 £m 285 281 566 2013 £m 278 273 551 Ordinary dividends declared and paid in the year, in amounts per ordinary share, comprise: a 2013 ﬁnal dividend of 17.95p and a 2014 interim dividend of 7.00p giving a total of 24.95p (2013: 23.65p) for Reed Elsevier PLC; and a 2013 ﬁnal dividend of €0.374 and a 2014 interim dividend of €0.151 giving a total of €0.525 (2013: €0.469) for Reed Elsevier NV. The Directors of Reed Elsevier PLC have proposed a ﬁnal dividend of 19.00p (2013: 17.95p). The Directors of Reed Elsevier NV have proposed a ﬁnal dividend of €0.438 (2013: €0.374). The total cost of funding the proposed ﬁnal dividends is expected to be £445m, for which no liability has been recognised at the statement of ﬁnancial position date. 94118_Reed_AR_p091-134.indd 116 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 117 13 Equity dividends continued ORDINARY DIVIDENDS PAID AND PROPOSED RELATING TO THE FINANCIAL YEAR Reed Elsevier PLC Reed Elsevier NV Total 2014 £m 294 312 606 2013 £m 283 288 571 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% available to certain Reed Elsevier PLC shareholders. 14 Goodwill At start of year Acquisitions Disposals/reclassiﬁed as held for sale Exchange translation differences At end of year 2014 £m 4,576 240 (34) 199 4,981 2013 £m 4,545 157 (46) (80) 4,576 The carrying amount of goodwill is after cumulative amortisation of £1,106m (2013: £1,154m) which was charged prior to the adoption of IFRS and £9m (2013: £9m) of subsequent impairment charges recorded in prior years. Impairment review Impairment testing of goodwill and indeﬁnite lived intangible assets is performed at least annually in accordance with the methodology described within critical judgements and key sources of estimation uncertainty on page 99. There were no charges for impairment of goodwill in 2014 (2013: nil). Goodwill is compiled and assessed among groups of cash generating units (CGUs), which represent the lowest level at which goodwill is monitored by management. Typically, acquisitions are integrated into existing business units, and the goodwill arising is allocated to the groups of CGUs that are expected to beneﬁt from the synergies of the acquisition. As the business areas have become increasingly integrated and globalised, management has reviewed the allocation of goodwill to groups of CGUs. In order to reﬂect the global leverage of assets, skills, knowledge and technology platforms, and consequential changes to the monitoring of goodwill by management, the number of groups of CGUs to which goodwill is allocated has been reduced from 25 in 2013 to 5 in 2014. Reducing the number of groups of CGUs had no impact on the carrying values of goodwill, which are set out below: GOODWILL Scientiﬁc, Technical & Medical Risk Solutions Business Information Legal Exhibitions Total The key assumptions for each group of CGUs are disclosed below. KEY ASSUMPTIONS Scientiﬁc, Technical & Medical Risk Solutions Business Information Legal Exhibitions 2014 £m 1,109 1,779 480 1,199 414 4,981 2013 £m 1,051 1,604 374 1,121 426 4,576 Nominal long-term market growth rate 3.0% 3.0% 3.0% 2.0% 3.0% Pre-tax discount rate 10.4% 11.5% 11.7% 11.5% 11.7% The pre-tax discount rates used are based on the Group’s weighted average cost of capital, adjusted to reﬂect a risk premium speciﬁc to each business. Nominal long-term market growth rates, which are applied after the forecast period of up to ﬁve years, do not exceed the long-term average growth prospects for the sectors and territories in which the businesses operate. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 117 06/03/2015 12:43 118 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 14 Goodwill continued 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 cash ﬂow in the ﬁve-year forecast period of 2.0%; and a decrease in the nominal long-term market growth rates of 0.5%. The sensitivity analysis shows that no impairment charges would result from these scenarios. 15 Intangible assets Cost At 1 January 2013 Acquisitions Additions Disposals/reclassiﬁed as held for sale Exchange translation differences At 1 January 2014 Acquisitions Additions Disposals/reclassiﬁed as held for sale Exchange translation differences At 31 December 2014 Accumulated amortisation At 1 January 2013 Charge for the year Disposals/reclassiﬁed as held for sale Exchange translation differences At 1 January 2014 Charge for the year Disposals/reclassiﬁed as held for sale Exchange translation differences At 31 December 2014 Net book amount At 31 December 2013 At 31 December 2014 Market and customer related £m Content, software and other £m Total acquired intangible assets £m Internally developed intangible assets £m 2,816 49 – (55) (65) 2,745 69 – – 151 2,965 870 178 (55) (26) 967 154 – 58 1,179 3,090 84 – (216) (16) 2,942 117 – (62) 44 3,041 2,408 139 (216) (15) 2,316 128 (44) 43 2,443 5,906 133 – (271) (81) 5,687 186 – (62) 195 6,006 3,278 317 (271) (41) 3,283 282 (44) 101 3,622 1,517 – 251 (27) (24) 1,717 1 207 (73) 32 1,884 870 160 (22) (11) 997 158 (64) 13 1,104 Total £m 7,423 133 251 (298) (105) 7,404 187 207 (135) 227 7,890 4,148 477 (293) (52) 4,280 440 (108) 114 4,726 1,778 1,786 626 598 2,404 2,384 720 780 3,124 3,164 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 £265m (2013: £353m) 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 expected to generate future economic beneﬁts. Included in market and customer-related intangible assets are £369m (2013: £347m) 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 99 and 100. 94118_Reed_AR_p091-134.indd 118 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 119 16 Investments Investments in joint ventures Available for sale investments Venture capital investments held for trading Total 2014 £m 125 2 110 237 The value of venture capital investments held for trading, determined by reference to quoted market prices, amounted to nil (2013: £12m). The value of other venture capital investments and available for sale investments has been determined by reference to other observable market inputs. Gains and losses included in the combined income statement are provided in note 8. 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 2014 £m 125 36 (44) (1) 15 (6) 125 2013 £m 125 2 90 217 2013 £m 100 29 (22) (3) 21 – 125 The principal joint ventures at 31 December 2014 are exhibition joint ventures within Exhibitions and Giuffrè and Martindale within Legal. Summarised aggregate information in respect of joint ventures and the Group’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 2014 £m 284 69 285 (181) 104 2013 £m 225 57 246 (134) 112 2014 £m 153 36 138 (91) 47 78 125 2013 £m 110 29 117 (64) 53 72 125 The Group’s combined other comprehensive income includes nil (2013: nil) relating to joint ventures. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 119 06/03/2015 12:43 120 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 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 2014 Land and buildings £m Fixtures and equipment £m 210 – 9 (25) 7 201 117 (16) 9 4 114 558 3 61 (40) 18 600 414 (38) 70 14 460 2013 Land and buildings £m Fixtures and equipment £m 218 – 4 (8) (4) 210 116 (6) 9 (2) 117 537 – 66 (34) (11) 558 375 (32) 80 (9) 414 Total £m 768 3 70 (65) 25 801 531 (54) 79 18 574 Total £m 755 – 70 (42) (15) 768 491 (38) 89 (11) 531 Net book amount 87 140 227 93 144 237 No depreciation is provided on freehold land of £14m (2013: £14m). The net book amount of property, plant and equipment at 31 December 2014 includes £13m (2013: £17m) in respect of assets held under ﬁnance leases relating to ﬁxtures and equipment. 18 Financial instruments The main ﬁnancial risks faced by the Group are liquidity risk, market risk – comprising interest rate risk and foreign exchange risk – and credit risk. Financial instruments are used to ﬁnance the Group businesses and to hedge interest rate and foreign exchange risks. The Group’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 The Group maintains a range of borrowing facilities and debt programmes to fund its requirements, at short notice and at competitive rates. 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 cycle of the business and the uncertain size and timing of acquisition spend. To accommodate the signiﬁcant free cash ﬂow generated by the Group and to capitalise on an inexpensive source of funding, a meaningful portion of the overall debt portfolio is typically kept short term as long as there exists acceptable liquidity in the commercial paper markets and sufﬁcient capacity under committed credit lines. The treasury policies ensure adequate liquidity by requiring (a) that no more than $1.5bn of term debt matures in any 12-month period, (b) that the sum of term debt maturing over the ensuing 12 months plus commercial paper is less than the sum of available cash plus committed facilities and (c) minimum levels of borrowing with maturities over three and ﬁve years are maintained. The treasury policies ensure debt efﬁciency by (a) targeting certain levels of commercial paper across a given year, (b) maintaining a weighted average maturity of the gross debt portfolio of approximately 5 years and (c) minimising surplus cash balances. From time to time, based on cash ﬂow and market conditions, the Group may redeem term debt early or repurchase outstanding debt in the open market. Debt is issued to meet the funding requirements of various jurisdictions and in the currency that is needed. It is recognised that debt can act as a natural translation hedge of earnings and net assets in currencies other than the reporting currencies. For this reason, a signiﬁcant proportion of the Group’s net debt has historically been denominated in US dollars, reﬂecting the size and importance of the US businesses. There were no changes to the Group’s long-term approach to capital and liquidity management during the year. 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. 94118_Reed_AR_p091-134.indd 120 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 121 18 Financial instruments continued At 31 December 2014 Borrowings Fixed rate borrowings Floating rate borrowings Derivative ﬁnancial liabilities Interest rate derivatives Cross-currency interest rate swaps Forward foreign exchange contracts Derivative ﬁnancial assets Interest rate derivatives Cross-currency interest rate swaps Forward foreign exchange contracts Total At 31 December 2013 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 (2,937) (888) Within 1 year £m (263) (551) – (47) (47) – (11) (1,288) 46 6 57 (3,810) 14 3 1,293 (803) Carrying amount £m (2,931) (350) Within 1 year £m (497) (288) (4) (6) (7) – (180) (1,031) 19 70 99 (3,110) 13 247 1,082 (654) 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 (536) (3) (432) (275) (265) (65) (632) – (1,631) (2) (3,759) (896) – (10) (474) 13 3 475 (532) – (318) (150) 11 275 150 (739) – (188) (58) 4 181 62 (329) – – – – – – – (527) (1,970) 4 – – (628) 5 – – (1,628) 51 462 1,980 (4,659) 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 (243) (61) – (3) (402) 11 2 431 (265) (524) – (420) (1) (264) – (1,909) (2) (3,857) (352) – (5) (222) 6 2 233 (510) (1) (7) – 1 3 – (425) (4) (193) – – 189 – (272) (7) – – (12) (388) (1,655) – – – (1,918) 31 443 1,746 (4,044) The carrying amount of derivative ﬁnancial liabilities comprises £3m (2013: £10m) in relation to fair value hedges, £78m (2013: £7m) in relation to cash ﬂow hedges and £9m (2013: nil) not designated as hedging instruments, plus £4m of cash collateral received from swap counterparties which has been added to the related derivative ﬁnancial liabilities (2013: £13m which has been offset against the related derivative ﬁnancial assets) (see ‘Credit risk’ below). The carrying amount of derivative ﬁnancial assets comprises £46m (2013: £84m) in relation to fair value hedges, £60m (2013: £88m) in relation to cash ﬂow hedges and £3m (2013: £29m) not designated as hedging instruments. The expected cash ﬂows in respect of the cash collateral have been included in the tables above together with the cash ﬂows for the related cross-currency interest rate swaps. At 31 December 2014, the Group had access to a $2,000m committed bank facility maturing in July 2019, which was undrawn. This facility backs up short-term borrowings. All borrowings that mature within the next two years can be covered by the facility and by utilising available cash resources. The committed bank facility, together with certain private placements, are subject to ﬁnancial covenants typical to the Group’s size and ﬁnancial strength. The Group had signiﬁcant headroom within these covenants for the year ended 31 December 2014. There are no ﬁnancial covenants in any outstanding public bonds. Market risk The Group’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 the Group 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 121 06/03/2015 12:43 122 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 18 Financial instruments continued Interest rate exposure management The Group’s interest rate exposure management policy aims to reduce the exposure of the combined businesses to changes in interest rates at efﬁcient cost. To achieve this the Group uses ﬁxed rate term debt, interest rate swaps, forward rate agreements and interest rate options. Interest rate derivatives are used only to hedge an underlying risk and no net market positions are held. At 31 December 2014, 52% 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 £16m (2013: £12m), based on the composition of ﬁnancial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at 31 December 2014. A 100 basis point rise in interest rates would result in an estimated increase in net ﬁnance costs of £16m (2013: £12m). The impact on net equity of a theoretical change in interest rates as at 31 December 2014 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, of which there were none in the Group as at 31 December 2014. A 100 basis point reduction in interest rates would therefore result in a reduction in net equity of nil (2013: nil) and a 100 basis point increase in interest rates would increase net equity by nil (2013: £1m). The impact of a change in interest rates on the carrying value of ﬁxed rate borrowings in a designated fair value hedge relationship would be offset by the change in carrying value of the related interest rate derivative. Fixed rate borrowings not in a designated hedging relationship are carried at amortised cost. Foreign currency exposure management Translation exposures arise on the earnings and net assets of business operations in countries other than those of each parent company. Some of these exposures are offset by denominating borrowings in US dollars. Currency exposures on transactions denominated in a foreign currency are generally 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 2014, the amount of outstanding foreign exchange cover against future transactions was £1.4bn (2013: £1.3bn). A theoretical weakening of all currencies by 10% against sterling at 31 December 2014 would decrease the carrying value of net assets, excluding net borrowings, by £524m (2013: £500m). This would be offset to a degree by a decrease in net borrowings of £255m (2013: £246m). A strengthening of all currencies by 10% against sterling at 31 December 2014 would increase the carrying value of net assets, excluding net borrowings, by £524m (2013: £500m) and increase net borrowings by £255m (2013: £246m). 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 (2013: £92m). A 10% strengthening of all foreign currencies against sterling on this basis would increase net proﬁt for the year by £80m (2013: £92m). Credit risk The Group 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. The Group 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. In certain situations, the Group enters into credit support arrangements with derivative counterparties to mitigate the credit exposures arising from hedge gains on the related ﬁnancial instruments. Under these arrangements, the Group receives (or pays) cash collateral equal to the mark to market valuation of the related derivative asset (or liability) on monthly settlement dates. At 31 December 2014, £4m (2013: £13m) of cash collateral had been received, and the resulting payable balance was added to the related derivative liabilities of £1m (2013: £13m offset against the related derivative assets of £12m) in the statement of ﬁnancial position. The Group 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 2014, cash and cash equivalents totalled £276m (2013: £132m), of which 96% (2013: 90%) was held with banks rated A-/A3 or better. 94118_Reed_AR_p091-134.indd 122 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 123 18 Financial instruments continued The Group 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 £136m (2013: £156m); past due two to three months £66m (2013: £76m); past due four to six months £30m (2013: £26m); and past due greater than six months £7m (2013: £7m). 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 The Group 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 £908m were in place at 31 December 2014 swapping ﬁxed rate term debt issues denominated in US dollars (USD), sterling and euros to ﬂoating rate USD, sterling and euro debt respectively for the whole or part of their term (2013: £1,104m swapping ﬁxed rate term debt issues denominated in USD, sterling, euros and Swiss francs (CHF) to ﬂoating rate USD, sterling, euro and USD debt respectively for the whole or part of their term). 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 2014 were as follows: GAINS/(LOSSES) ON BORROWINGS AND RELATED DERIVATIVES USD debt Related interest rate swaps GBP debt Related interest rate swaps EUR debt Related interest rate swaps CHF debt Related CHF to USD cross-currency interest rate swaps Total relating to USD, GBP, EUR and CHF debt Total related interest rate derivatives Net gain 1 January 2013 £m – – – Fair value movement gain/(loss) £m 6 (6) – Exchange gain/(loss) £m – – – 1 January 2014 £m 6 (6) – (36) 36 – (8) 8 – (80) 80 – (124) 124 – 17 (17) – 13 (13) – 14 (14) – 50 (50) – – – – (1) 1 – 1 (1) – – – – (19) 19 – 4 (4) – (65) 65 – (74) 74 – Fair value movement gain/(loss) £m Exchange gain/(loss) £m 31 December 2014 £m (3) 3 – (1) 1 – (31) 31 – 65 (65) – 30 (30) – – – – – – – 1 (1) – – – – 1 (1) – 3 (3) – (20) 20 – (26) 26 – – – – (43) 43 – All fair value hedges were highly effective throughout the two years ended 31 December 2014. Gross borrowings as at 31 December 2014 included £29m (2013: £31m) 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. £4m (2013: £5m) of these fair value adjustments were amortised in the year as a reduction to ﬁnance costs. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 123 06/03/2015 12:43 124 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 18 Financial instruments continued Cash ﬂow hedges The Group enters into two types of cash ﬂow hedge: 1 2 Debt hedges comprising 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), and cross-currency interest rate derivatives which hedge the cash ﬂow exposure arising from foreign currency denominated debt. Revenue hedges comprising forward foreign exchange contracts 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 in 2013 and 2014, including gains and losses on cash ﬂow hedging instruments, were as follows: Hedge reserve at 1 January 2013: (losses)/gains deferred Gains arising in 2013 Amounts recognised in income statement Exchange translation differences Hedge reserve at 1 January 2014: gains deferred Losses arising in 2014 Amounts recognised in income statement Exchange translation differences Hedge reserve at 31 December 2014: gains deferred Debt hedges £m Revenue hedges £m Total hedge reserve pre-tax £m (2) 1 3 – 2 (52) 56 – 6 37 64 (6) (1) 94 (29) (37) 1 29 35 65 (3) (1) 96 (81) 19 1 35 All cash ﬂow hedges were highly effective throughout the two years ended 31 December 2014. A tax charge of £10m (2013: £23m) in respect of the above gains and losses at 31 December 2014 was also deferred in the hedge reserve. Of the amounts recognised in the income statement in the year, gains of £37m (2013: £6m) were recognised in revenue, and losses of £56m (2013: £3m) were recognised in ﬁnance costs. A tax charge of £9m (2013: £1m) was recognised in relation to these items. The deferred gains and losses on cash ﬂow hedges at 31 December 2014 are currently expected to be recognised in the income statement in future years as follows: 2015 2016 2017 2018 2019 Gains deferred in hedge reserve at end of year Debt hedges £m (1) – 2 5 – 6 Revenue hedges £m 24 6 (2) 1 – 29 Total hedge reserve pre-tax £m 23 6 – 6 – 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 occur in advance of the subscription year. 94118_Reed_AR_p091-134.indd 124 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 125 19 Deferred tax Deferred tax assets Deferred tax liabilities Total 2014 £m 464 (1,056) (592) 2013 £m 442 (1,076) (634) 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 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 2013 (Charge)/credit to proﬁt (Charge)/credit to equity/other comprehensive income Acquisitions Disposals/reclassiﬁed as held for sale Exchange translation differences Deferred tax (liability)/asset at 1 January 2014 Credit/(charge) to proﬁt (Charge)/credit to equity/other comprehensive income Acquisitions Exchange translation differences Deferred tax (liability)/asset at 31 December 2014 (223) (138) – – (3) 13 (351) 11 – – (21) (772) 98 – (39) (18) 13 (718) 71 – (53) (34) (108) (106) (6) – (9) 4 (225) (18) (8) – 10 9 346 – – – (6) 349 (4) – – (22) (361) (734) (241) 323 23 (8) – – – (1) 14 5 – 17 – 36 Total £m (840) 271 (18) (39) (30) 22 (634) 88 70 (36) (80) 153 (26) (24) – – 1 104 (6) 63 – – 78 105 12 – – (2) 193 29 15 – (13) 161 224 (592) Other deferred tax liabilities includes temporary differences in respect of plant, property and equipment, capitalised development spend and ﬁnancial instruments. 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 £80m (2013: £84m) carried forward at year end. The deferred tax asset not recognised in respect of these losses is approximately £19m (2013: £20m). Of the unrecognised losses, £49m (2013: £56m) will expire if not utilised within 10 years, and £31m (2013: £28m) will expire after more than 10 years. Deferred tax assets of approximately £13m (2013: £14m) have not been recognised in respect of tax losses and other temporary differences carried forward of £65m (2013: £69m) which can only be used to offset future capital gains. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 125 06/03/2015 12:43 126 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 20 Inventories and pre-publication costs Raw materials Pre-publication costs Finished goods Total 21 Trade and other receivables Trade receivables Allowance for doubtful debts Prepayments and accrued income Total 2014 £m 2 92 48 142 2013 £m 3 90 49 142 2014 £m 1,361 (50) 1,311 176 1,487 2013 £m 1,299 (57) 1,242 174 1,416 Trade receivables are predominantly non-interest bearing and their carrying amounts approximate to their fair value. Trade receivables are stated net of allowances for bad and doubtful debts. The movements in the provision during the year were as follows: At start of year Charge for the year Trade receivables written off Exchange translation differences At end of year 22 Trade and other payables Trade payables Accruals Social security and other taxes Other payables Deferred income Total 2014 £m 57 8 (14) (1) 50 2014 £m 333 462 88 300 1,453 2,636 2013 £m 51 17 (11) – 57 2013 £m 330 443 88 331 1,403 2,595 Trade and other payables are predominately non-interest bearing and their carrying amounts approximate to their fair value. 94118_Reed_AR_p091-134.indd 126 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 127 23 Borrowings Financial liabilities measured at amortised cost: Short-term bank loans, overdrafts and commercial paper Term debt Finance leases Term debt in fair value hedging relationships Term debt previously in fair value hedging relationships Total 2014 Falling due within 1 year £m Falling due in more than 1 year £m 548 – 7 – 121 676 – 1,823 5 951 370 3,149 2013 Falling due within 1 year £m Falling due in more than 1 year £m 287 – 9 240 112 648 – 1,223 8 938 464 2,633 Total £m 548 1,823 12 951 491 3,825 Total £m 287 1,223 17 1,178 576 3,281 The total fair value of ﬁnancial liabilities measured at amortised cost is £2,597m (2013: £1,709m). The total fair value of term debt in fair value hedging relationships is £1,045m (2013: £1,288m). The total fair value of term debt previously in fair value hedging relationships is £588m (2013: £650m). In 2013, £186m principal amount of term debt maturing in 2019 was exchanged for £235m principal amount of term debt maturing in 2022 and cash. The exchange is treated as a debt modiﬁcation for accounting purposes. The premium arising is offset against the carrying amount of the newly issued term debt maturing in 2022 and will be amortised over its life. Analysis by year of repayment 2014 2013 Short-term bank loans, overdrafts and commercial paper £m Term debt £m Finance leases £m 548 – – – – – – 548 121 400 615 242 553 1,334 3,144 3,265 7 4 1 – – – 5 12 Short-term bank loans, overdrafts and commercial paper £m Term debt £m Finance leases £m 287 – – – – – – 287 352 174 400 341 181 1,529 2,625 2,977 9 5 3 – – – 8 17 Total £m 676 404 616 242 553 1,334 3,149 3,825 Total £m 648 179 403 341 181 1,529 2,633 3,281 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 After 1 year Total Short-term bank loans, overdrafts and commercial paper were backed up at 31 December 2014 by a $2,000m (£1,284m) committed bank facility maturing in July 2019, which was undrawn. Analysis by currency US dollars £ sterling Euro Other currencies Total 2014 2013 Short-term bank loans, overdrafts and commercial paper £m Term debt £m Finance leases £m 254 69 224 1 548 1,788 1,020 457 – 3,265 12 – – – 12 Short-term bank loans, overdrafts and commercial paper £m Term debt £m Finance leases £m 87 27 167 6 287 1,800 719 458 – 2,977 17 – – – 17 Total £m 2,054 1,089 681 1 3,825 Total £m 1,904 746 625 6 3,281 Included in the US dollar amounts for term debt above is £449m (2013: £427m) of debt denominated in euros (€350m; 2013: nil) and Swiss francs (CHF 275m; 2013: CHF 625m) that was swapped into US dollars on issuance and against which there are related derivative ﬁnancial instruments, which, as at 31 December 2014, had a fair value of £40m (2013: £81m). O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 127 06/03/2015 12:43 128 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 24 Lease arrangements Finance leases At 31 December 2014 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. 2014 £m 2013 £m 7 5 12 – 12 7 5 12 9 8 17 – 17 9 8 17 Operating leases The Group 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 2014 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 2014 £m 96 279 148 523 2013 £m 103 275 169 547 Of the above outstanding commitments, £509m (2013: £528m) relate to land and buildings. The Group has a number of properties that are sub-leased. The future lease receivables contracted with sub-tenants fall due as follows: Within one year In the second to ﬁfth years inclusive After ﬁve years Total 2014 £m 15 46 21 82 2013 £m 16 43 25 84 94118_Reed_AR_p091-134.indd 128 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 129 25 Provisions At start of year Charged Utilised Exchange translation differences Total 2014 £m 133 – (16) 6 123 2013 £m 169 – (35) (1) 133 Provisions principally relate to leasehold properties, including sub-lease shortfalls and guarantees given in respect of certain property leases for various periods up to 2024. At 31 December 2014, provisions are included within current and non-current liabilities as follows: Current liabilities Non-current liabilities Total 2014 £m 19 104 123 2013 £m 17 116 133 26 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 11 to the Reed Elsevier PLC consolidated ﬁnancial statements and note 12 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 the year, Reed Elsevier PLC repurchased 35.2m Reed Elsevier PLC ordinary shares and Reed Elsevier NV repurchased 20.4m Reed Elsevier NV ordinary shares for consideration of £600m. These shares are held in treasury. In addition, Reed Elsevier NV repurchased 107,901 R shares. During the year 65m Reed Elsevier PLC and 40m Reed Elsevier NV shares held in treasury were cancelled. The Employee Beneﬁt Trust (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. During the year, the EBT purchased 0.8m Reed Elsevier PLC shares and 2.0m Reed Elsevier NV shares for a total cost of £39m (2013: nil). At 31 December 2014, shares held by the EBT were £117m (2013: £112m) at cost. Details of the shares held in treasury are provided in note 11 of the Reed Elsevier PLC consolidated ﬁnancial statements and note 12 of the Reed Elsevier NV consolidated ﬁnancial statements. 27 Other combined reserves At start of year Proﬁt attributable to parent companies’ shareholders Dividends paid Actuarial (losses)/gains on deﬁned beneﬁt pension schemes Fair value movements on cash ﬂow hedges Transfer to net proﬁt from cash ﬂow hedge reserve Tax recognised in other comprehensive income Increase in share based remuneration reserve (net of tax) Cancellation of shares Settlement of share awards Acquisition of non-controlling interest Exchange translation differences At end of year Hedge reserve 2014 £m Other reserves 2014 £m 73 – – – (81) 19 13 – – – – 1 25 807 955 (565) (266) – – 63 48 (919) (27) (13) (1) 82 Total 2014 £m 880 955 (565) (266) (81) 19 76 48 (919) (27) (13) – 107 Total 2013 £m 252 1,110 (549) 40 65 (3) (38) 48 – (40) – (5) 880 Other reserves principally comprise retained earnings and the share based remuneration reserve. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 129 06/03/2015 12:43 130 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS Notes to the combined ﬁnancial statements for the year ended 31 December 2014 28 Related party transactions Transactions between the 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 nil (2013: £1m). As at 31 December 2014, amounts owed by joint ventures were £1m (2013: £7m) and amounts due to joint ventures were £6m (2013: £6m). Key management personnel are also related parties as deﬁned by IAS24 – Related Party Disclosures and comprise the Executive and Non-Executive Directors of Reed Elsevier PLC and Reed Elsevier NV. Key management personnel remuneration is set out below. The remuneration details of Executive Directors employed during 2014 are given in the Directors’ Remuneration Report single total remuneration table on page 76, with these details forming an integral part of the ﬁnancial statements. For reporting purposes, salary, beneﬁts and annual incentive payments are considered short-term employee beneﬁts. KEY MANAGEMENT PERSONNEL REMUNERATION Salaries, other short-term employee beneﬁts and non-executive fees Post employment beneﬁts Share based remuneration* Total 2014 £m 5 1 5 11 EXECUTIVE DIRECTORS Total Executive Directors Salary £’000 1,763 1,677 Beneﬁts £’000 236 260 2014 2013 Annual Incentive £’000 1,855 1,743 Cost of share based remuneration* £’000 5,284 3,898 Cost of pension provision* £’000 711 642 2013 £m 4 1 4 9 Total £’000 9,849 8,220 *The share based remuneration charge comprises the multi-year incentive scheme charges in accordance with IFRS2 – Share Based Payment. These IFRS2 charges do not reﬂect the actual value received on vesting. The cost of pension provision comprises the transfer value of the increase in accrued pension during the year (net of inﬂation, Directors’ contributions and participation fee) for deﬁned beneﬁt schemes and payments made to deﬁned contribution schemes or in lieu of pension. NON-EXECUTIVE DIRECTORS Fees and beneﬁts 2014 £’000 1,143 2013 £’000 1,088 The remuneration details of Non-Executive Directors are set out in the Remuneration Report on page 79, with these details forming an integral part of the ﬁnancial statements. Termination beneﬁts of £238,023 were paid to Directors during 2014 (2013:nil), further details are shown on page 76. No loans, advances or guarantees have been provided on behalf of any Director. The aggregate gains made by Executive Directors on the exercise of options during 2014 were £1,101,114 (2013: £2,526,305). Details of Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 75 to 88. 29 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 2014 1.24 1.65 2013 1.18 1.56 2014 1.29 1.56 2013 1.20 1.66 30 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 25 February 2015. 94118_Reed_AR_p091-134.indd 130 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 131 Independent auditors’ report to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV Opinion on our audit of the combined ﬁnancial statements of Reed Elsevier In our opinion the combined ﬁnancial statements: §§ give a true and fair view of the state of affairs of Reed Elsevier PLC, Reed Elsevier NV, RELX Group plc, Elsevier Reed Finance BV and their subsidiaries, associates and joint ventures (together “the combined businesses”) as at 31 December 2014 and of their profit and their cash flows for the year then ended; and §§ have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. We have audited the combined ﬁnancial statements of the combined businesses 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, a summary of the signiﬁcant accounting policies and the related notes 1 to 30. The ﬁnancial reporting framework that has been applied in the preparation is applicable law and IFRSs as adopted by the European Union. We are independent of the combined businesses within the meaning of the FRC’s Ethical Standards for Auditors and relevant Dutch ethical requirements as included in “Verordening op de gedrags- en beroepsregels accountants” (VGBA) and the “Verordening inzake de onafhankelijkheid van accountants bij assurance opdrachten”(ViO) and have fulﬁlled our other responsibilities under those ethical requirements. Key audit matters Key audit matters are those that, in our professional judgment, were of most signiﬁcance in our audit of the combined ﬁnancial statements. They included the risks of material misstatement which had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. We have communicated these key audit matters to the Audit Committees; the Audit Committees’ consideration of these risks is set out on page 89. The key audit matters are not a comprehensive reﬂection of all matters discussed. Our audit procedures relating to these matters were addressed in the context of our audit of the combined ﬁnancial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these individual matters. The accounting policies and critical judgements made in respect of these matters are included on pages 96 – 101. KEY AUDIT MATTER HOW WE RESPONDED The assessment of the carrying value of goodwill and acquired intangible assets; The combined businesses had £4,981 million of goodwill and £2,384 million of acquired intangible assets as at 31 December 2014. The quantum of these balances together with the judgements required to be made when performing an impairment review have resulted in us considering this a signiﬁcant risk. The carrying value of internally developed intangible assets in accordance with IAS 38 “Intangible Assets”; The closing net book value of all capitalised development projects is £780 million. The quantum of these balances, the signiﬁcant level of additions, and the judgements required to be made when performing an impairment review have resulted in us considering this a signiﬁcant risk. Revenue recognition, including the timing of revenue recognition; and the accounting for multiple element arrangements; The Group’s businesses continue to evolve and new business models can result in new revenue arrangements. This can result in circumstances which require careful consideration to determine how revenue should be recognised. We have tested the operating effectiveness of management’s internal controls in their review of the carrying values for goodwill and acquired intangible assets including controls over the valuation model and assumptions applied. We challenged management on the level at which goodwill is monitored and the identiﬁcation of cash generating units. This included checking consistency with how goodwill is allocated and monitored by the businesses. We challenged management’s assumptions used in the impairment model with certain key assumptions outlined in Note 14 to the combined ﬁnancial statements. Speciﬁcally we challenged the cash ﬂow projections, discount rate, perpetuity growth rates and sensitivities used, with assistance from our valuations experts where appropriate, by looking at external market data and assessing the historical accuracy of management’s forecasting. We tested the operating effectiveness of relevant internal controls related to the capitalisation of internally developed intangible assets and their subsequent valuation, including the assessment of useful economic lives. We have tested the amounts capitalised in the period to ensure the right to capitalise is in accordance with the requirements of IFRS. We also challenged management’s assessment as to whether development projects in-progress were still expected to deliver sufﬁcient positive economic beneﬁts to the combined businesses upon their completion, and for completed development projects, considered whether the useful economic lives selected remained appropriate. We have tested revenue recognition in each of the full scope audit locations including testing the associated internal controls. We performed analytical reviews on revenues recognised to identify any material new revenue streams and tested the timing of recognition and accounting for multiple element arrangements in accordance with IFRS. We also focused our audit procedures on the nature of revenues, the degree of automation, unusual contractual terms and the requirement for exercise of signiﬁcant management judgement. Our testing included agreeing amounts to customer contracts and, verifying the extent, timing and customer acceptance of delivery, where relevant. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 131 06/03/2015 12:43 132 FINANCIAL STATEMENTS AND OTHER INFORMATION INDEPENDENT AUDITORS’ REPORT Independent auditors’ report to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV KEY AUDIT MATTER HOW WE RESPONDED The valuation of amounts recorded for uncertain tax positions The Group operates in a signiﬁcant number of jurisdictions around the world, all with differing tax regimes with complex cross-border arrangements, and is therefore open to challenge from multiple tax authorities. The valuation of deﬁned beneﬁt pension liabilities The combined businesses’ operate deﬁned beneﬁt pension schemes for existing and former employees in three main jurisdictions. The liabilities for these schemes are valued using data on scheme members and applying certain actuarial assumptions. The gross pension liabilities total £4,977 million (2013: £4,360 million) as set out in Note 5. Our application of materiality A misstatement arising from fraud or error will be considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identiﬁed misstatements on our opinion. We have considered a number of benchmarks in order to guide our determination of our materiality. Based on our professional judgement, we determined materiality for the combined businesses to be £85 million, which is around 7% of pre-tax proﬁt and below 5% of equity. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the ﬁnancial statements for qualitative reasons. Our audit work at the operating locations was executed at levels of materiality lower than the materiality for the combined businesses and was capped at £30 million or $50 million. We agreed with the Audit Committees that we would report to them all audit misstatements in excess of £1.7 million, as well as smaller misstatements that, in our view, must be reported on qualitative grounds. Our audit team was supported by tax experts in testing the relevant uncertain tax positions, including assumptions and estimates used, and tested the operating effectiveness of management’s relevant controls. We considered the appropriateness of management’s assumptions and estimates in relation to uncertain tax positions, challenging those assumptions and considering advice received by management from external parties to support their analysis and accounting for the uncertain tax position in accordance with IFRS. We tested management’s controls over the valuation of pension liabilities. We engaged our actuarial specialists to assist in the auditing of management’s assumptions used to value the pension liabilities. For each of the three main jurisdictions we considered the appropriateness of the assumptions both individually and when combined with the other assumptions. We performed testing on the member data used by management’s actuaries to determine the valuation of the liabilities. which were also subject to a full scope audit, account for 92% of the combined businesses’ net assets, 93% of the combined businesses’ liabilities, 79% of the combined businesses’ revenue, 89% of the combined businesses’ adjusted operating proﬁt and 94% of the combined businesses’ proﬁt before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identiﬁed above. The combined businesses’ audit team continued to follow a programme of planned visits that has been designed so that the Audit Partners of Reed Elsevier PLC and Reed Elsevier NV visit the key locations. The Audit Partners also attend audit close meetings with management of each of the group’s four operating segments, alongside the local auditors of the business units. We also tested the consolidation process and carried out analytical procedures to conﬁrm our conclusion that there were no signiﬁcant risks of material misstatement of the aggregated ﬁnancial information of the remaining components not subject to audit. We obtain sufﬁcient appropriate audit evidence regarding the ﬁnancial information of the entities and business activities to express an opinion on the combined ﬁnancial statements. We are responsible for the direction, supervision and performance of the group audit. We remain responsible for our audit opinion. An overview of the scope of our group audit Our audit of the combined ﬁnancial statements was scoped by obtaining an understanding of the combined businesses and their environment, including the entity-wide controls, and assessing the risks of material misstatement at the combined businesses level. Based on that risk assessment, we designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion. In making those risk assessments, we considered internal control relevant to the entity's preparation and fair presentation of the ﬁnancial statements in order to design audit procedures that are appropriate in the circumstances. As part of an audit in accordance with the applicable standards, we exercised professional judgment and maintain professional scepticism throughout the planning and performance of the audit. Based on that assessment, our audit scope for the combined businesses focused primarily on the audits of seventeen operating locations, which represent the principal business units within the combined businesses’ four reportable segments. These locations, together with the combined businesses’ head ofﬁce functions, Going concern The combined ﬁnancial statements have been prepared using the going concern basis of accounting. In preparing the combined ﬁnancial statements, management is responsible for assessing the combined businesses ability to continue as a going concern. Based on the relevant ﬁnancial reporting frameworks, management should prepare the combined ﬁnancial statements using the going concern basis of accounting unless management either intends to liquidate the combined businesses or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast signiﬁcant doubt on the combined businesses’ ability to continue as a going concern. We have reviewed the Report of the Boards on page 73 where the Boards have not identiﬁed a material uncertainty that may cast signiﬁcant doubt on the combined businesses’ ability to continue as a going concern. We conﬁrm that: §§ we have not identified material uncertainties related to events or conditions that may cast significant doubt on the combined businesses’ ability to continue as a going concern which we 94118_Reed_AR_p091-134.indd 132 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 133 believe would need to be disclosed in accordance with IFRSs as adopted by the European Union; and §§ we have concluded that the Board’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the combined businesses’ ability to continue as a going concern. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the combined businesses to cease to continue as a going concern. Other matters The separate audit reports on the consolidated and stand-alone ﬁnancial statements of Reed Elsevier PLC and Reed Elsevier NV, which have been audited under locally adopted auditing standards and which include the other opinions required by local laws and regulations, appear on pages 162 and 183. Responsibilities of directors As explained more fully in the Directors’ responsibilities statement, the Boards are responsible for the preparation and fair presentation of the combined ﬁnancial statements in accordance with International Financial Reporting Standards as adopted by the European Union and for being satisﬁed that they give a true and fair view and for such internal control as they determine is necessary to enable the preparation of combined ﬁnancial statements that are free from material misstatement, whether due to fraud or error. The Audit Committees assist the respective Boards in overseeing the combined businesses’ ﬁnancial reporting process. Our Responsibility for the audit of the ﬁnancial statements 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. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. We are required to communicate with the Audit Committees regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant deﬁciencies in internal control that we identify during our audit. We are also required to provide the Audit Committees with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable related safeguards. 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. Reasonable assurance does not provide an absolute level of assurance which means we may not have detected all errors and fraud. An audit 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. 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 and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with ISAs (UK and Ireland), Dutch Standards on Auditing, ethical standards and relevant independence requirements. Our audit included: §§ identifying and assessing the risks of material misstatement of the combined financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; §§ obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the combined businesses’ internal control; §§ concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the combined businesses’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the combined businesses to cease to continue as a going concern; §§ evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and §§ evaluating whether the combined financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Engagement We were engaged by the Audit Committees as auditor of Reed Elsevier PLC and as auditor of Reed Elsevier NV for the audit of the ﬁnancial year ended 31 December 2014 and have operated as statutory auditor since 1994. Graham Richardson (Senior statutory auditor) M.J. van der Vegte For and on behalf of; Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 25 February 2015 Deloitte Accountants B.V. Amsterdam The Netherlands 25 February 2015 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p091-134.indd 133 06/03/2015 12:43 134 FINANCIAL STATEMENTS AND OTHER INFORMATION COMBINED FINANCIAL STATEMENTS 94118_Reed_AR_p091-134.indd 134 06/03/2015 12:43 RELX Group Annual Reports and Financial Statements 2014 RELX Group Annual Reports and Financial Statements 2014 135 Summary combined financial information in euros In this section 136 Combined income statement 136 Combined statement of comprehensive income 137 Combined statement of cash flows 138 Combined statement of financial position 139 Combined statement of changes in equity 140 Notes to the summary combined financial information in euros O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 135 10/03/2015 09:34 136 FINANCIAL STATEMENTS AND OTHER INFORMATION SUMMARY COMBINED FINANCIAL STATEMENTS IN EUROS Introduction The 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 29 to the combined ﬁnancial statements. Combined income statement Note 1 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 Current tax Deferred tax Tax expense Net proﬁt for the year Attributable to: Parent companies’ shareholders Non-controlling interests Net proﬁt for the year Combined statement of comprehensive income Note 2 FOR THE YEAR ENDED 31 DECEMBER Net proﬁt for the year Items that will not be reclassiﬁed to proﬁt or loss: Actuarial (losses)/gains on deﬁned beneﬁt pension schemes Tax on items that will not be reclassiﬁed to proﬁt or loss Total items that will not be reclassiﬁed to proﬁt or loss Items that may be reclassiﬁed subsequently to proﬁt or loss: Exchange differences on translation of foreign operations Fair value movements on cash ﬂow hedges Transfer to net proﬁt from cash ﬂow hedge reserve Tax on items that may be reclassiﬁed to proﬁt or loss Total items that may be reclassiﬁed to proﬁt or loss Other comprehensive income/(loss) for the year Total comprehensive income for the year Attributable to: Parent companies’ shareholders Non-controlling interests Total comprehensive income for the year 2014 €m 7,159 (2,488) 4,671 (1,158) (1,819) 1,694 44 1,738 9 (210) (201) (14) 1,523 (443) 110 (333) 1,190 2013 €m 7,121 (2,499) 4,622 (1,186) (1,847) 1,589 35 1,624 12 (243) (231) 19 1,412 (416) 320 (96) 1,316 1,184 6 1,190 1,310 6 1,316 2014 €m 1,190 2013 €m 1,316 (330) 78 (252) 371 (100) 24 16 311 59 1,249 1,243 6 1,249 47 (28) 19 (171) 77 (3) (17) (114) (95) 1,221 1,215 6 1,221 94118_Reed_AR_p135-145.indd 136 06/03/2015 13:15 RELX Group Annual Reports and Financial Statements 2014 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 business disposals Payments on business 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 Increase in short-term bank loans, overdrafts and commercial paper Issuance of term debt Repayment of term debt Repayment of ﬁnance leases Acquisition of non-controlling interest Repurchase of ordinary shares Purchase of shares by employee beneﬁt trust Proceeds on issue of ordinary shares Net cash used in ﬁnancing activities Note 4 137 2014 €m 2013 €m 2,295 (172) 16 (432) 1,707 (491) (83) (252) (7) 12 97 (31) 55 (700) (701) (9) 288 730 (372) (12) (19) (744) (48) 56 (831) 2,293 (236) 6 (427) 1,636 (261) (67) (296) (12) 7 367 (137) 26 (373) (648) (7) 199 217 (1,080) (12) – (708) – 148 (1,891) Increase/(decrease) in cash and cash equivalents 4 176 (628) Movement in cash and cash equivalents At start of year Increase/(decrease) in cash and cash equivalents Exchange translation differences At end of year 158 176 22 356 788 (628) (2) 158 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 137 06/03/2015 13:15 138 FINANCIAL STATEMENTS AND OTHER INFORMATION SUMMARY 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 Derivative ﬁnancial instruments 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 2014 €m 2013 €m 4 5 5 2 6,425 4,082 161 144 293 599 101 11,805 183 1,918 40 356 2,497 – 14,302 3,400 30 872 751 24 5,077 92 4,062 1,362 815 134 6,465 3 11,545 2,757 5,491 3,749 150 110 285 530 77 10,392 171 1,699 149 158 2,177 25 12,594 3,114 5 778 705 20 4,622 16 3,159 1,291 455 139 5,060 4 9,686 2,908 273 3,638 (1,428) 285 (51) 2,717 40 2,757 269 3,464 (1,757) 25 867 2,868 40 2,908 94118_Reed_AR_p135-145.indd 138 06/03/2015 13:15 RELX Group Annual Reports and Financial Statements 2014 Combined statement of changes in equity Balance at 1 January 2013 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 (net of tax) Settlement of share awards Exchange differences on translation of capital and reserves Balance at 1 January 2014 Total comprehensive income for the year Dividends paid Issue of ordinary shares, net of expenses Repurchase of ordinary shares Cancellation of shares Increase in share based remuneration reserve (net of tax) Settlement of share awards Acquisitions Acquisition of non-controlling interest Exchange differences on translation of capital and reserves Balance at 31 December 2014 Combined share capitals €m 274 – – 1 – Combined share premiums €m 3,354 – – 147 – Combined shares held in treasury €m (1,106) – – – (708) Translation reserve €m 161 (171) – – – – – (6) 269 – – 2 – (14) – – – – – – (37) 3,464 – – 54 – – – – – – – 47 10 (1,757) – – – (792) 1,153 – 33 – – – – 35 25 371 – – – – – – – – 16 273 120 3,638 (65) (1,428) (111) 285 Other combined reserves €m Combined share- holders’ equity €m Non- controlling interests €m 121 1,386 (648) – – 57 (47) (2) 867 872 (701) – – (1,139) 60 (33) – (17) 40 (51) 2,804 1,215 (648) 148 (708) 57 – – 2,868 1,243 (701) 56 (792) – 60 – – (17) – 2,717 42 6 (7) – – – – (1) 40 6 (9) – – – – – 1 (2) 4 40 139 Total equity €m 2,846 1,221 (655) 148 (708) 57 – (1) 2,908 1,249 (710) 56 (792) – 60 – 1 (19) 4 2,757 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 139 06/03/2015 13:15 140 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 & Business Information Legal Exhibitions Sub-total Corporate costs Total 2014 €m 2,540 1,784 1,731 1,104 7,159 – 7,159 2013 €m 2,509 1,746 1,849 1,017 7,121 – 7,121 2014 €m 848 467 214 216 1,745 (7) 1,738 Restated 2013 €m 817 436 190 187 1,630 (6) 1,624 2014 €m 945 627 322 269 2,163 (7) 2,156 Restated 2013 €m 929 598 295 248 2,070 (6) 2,064 Share of post-tax results of joint ventures of €44m (2013: €35m) included in operating proﬁt comprises €20m (2013: €7m) relating to Legal and €24m (2013: €28m) relating to Exhibitions. 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 FORMAT Electronic Print Face-to-face Total 2014 €m 3,576 1,256 789 851 687 7,159 2014 €m 3,569 564 190 1,306 1,530 7,159 2014 €m 4,761 1,255 1,143 7,159 2013 €m 3,661 1,162 774 824 700 7,121 2013 €m 3,637 523 196 1,267 1,498 7,121 2013 €m 4,686 1,378 1,057 7,121 94118_Reed_AR_p135-145.indd 140 06/03/2015 13:15 RELX Group Annual Reports and Financial Statements 2014 141 1 Segment analysis continued ANALYSIS OF REVENUE BY TYPE Subscriptions Transactional Advertising Total 2014 €m 3,678 3,313 168 7,159 2013 €m 3,672 3,166 283 7,121 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 & Business Information Legal Exhibitions Total 2014 €m 31 409 59 29 528 2013 €m 59 199 18 66 342 2014 €m 69 66 180 33 348 2013 €m 110 51 200 18 379 2014 €m 98 144 71 42 355 Restated 2013 €m 101 151 76 47 375 2014 €m 116 42 117 19 294 Restated 2013 €m 118 39 119 18 294 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 €4m (2013: nil) in Legal and €1m (2013: €1m) in Exhibitions. Other than the depreciation and amortisation above, non cash items include €40m (2013: €37m) relating to the recognition of share based remuneration and comprise €14m (2013: €13m) in Scientiﬁc, Technical & Medical, €10m (2013: €10m) in Risk & Business Information, €9m (2013: €8m) in Legal and €7m (2013: €6m) in Exhibitions. ANALYSIS OF NON-CURRENT ASSETS BY GEOGRAPHICAL LOCATION North America United Kingdom The Netherlands Rest of Europe Rest of world Total 2014 €m 8,474 904 140 1,053 534 11,105 2013 €m 7,549 701 150 904 481 9,785 Non-current assets by geographical location exclude amounts relating to deferred tax assets and derivative ﬁnancial instruments. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 141 06/03/2015 13:15 142 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 operating expense is: ANALYSIS OF REVENUE BY FORMAT Deﬁned beneﬁt pension expense Deﬁned contribution pension expense Total 2014 €m 60 58 118 2013 €m 16 56 72 The amounts recognised in the income statement in respect of deﬁned beneﬁt pension schemes during the year are presented by major scheme as follows: Service cost Settlement, past service and curtailment credits Deﬁned beneﬁt pension expense Net interest on net deﬁned beneﬁt obligation Net deﬁned beneﬁt pension expense 2014 2013 UK €m 39 – 39 10 49 US €m 22 – 22 5 27 NL €m 17 (18) (1) 4 3 Total €m 78 (18) 60 19 79 UK €m 34 – 34 7 41 US €m 34 (60) (26) 10 (16) NL €m 18 (10) 8 5 13 Total €m 86 (70) 16 22 38 Net interest on deﬁned beneﬁt pension scheme liabilities is presented within net ﬁnance costs in the income statement. Service cost, including settlements, past service credits and curtailments is presented within operating expenses. 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: Deﬁned beneﬁt obligation At start of year Service cost Settlements, past service and curtailment credits Interest on pension scheme liabilities Actuarial (loss)/gain on ﬁnancial assumptions Actuarial (loss)/gain arising from experience assumptions Contributions by employees Beneﬁts paid* Exchange translation differences At end of year Fair value of scheme assets At start of year Interest income on plan assets Return on assets excluding amounts included in interest income Contributions by employer Contributions by employees Beneﬁts paid* Exchange translation differences At end of year UK €m (3,458) (39) – (161) 2014 US €m (915) (22) – (48) NL €m Total €m UK €m 2013 US €m NL €m Total €m (859) (17) (5,232) (78) (3,264) (34) (1,135) (34) (856) (18) (5,255) (86) 18 (31) 18 (240) – (144) 60 (49) (420) (132) (149) (701) (204) 101 32 (9) 119 (278) (4,214) (4) – 64 (145) (1,202) 6 (6) 34 – (1,004) 34 (15) 217 (423) (6,420) 3,229 151 136 45 9 (119) 251 3,702 811 43 90 38 – (64) 127 1,045 737 27 111 11 6 (34) – 858 4,777 221 337 94 15 (217) 378 5,605 9 (7) 111 75 (3,458) 3,095 137 131 42 7 (111) (72) 3,229 (12) – 110 44 (915) 874 39 5 39 – (110) (36) 811 10 (30) 21 (3) (6) 22 1 (859) 713 25 (1) 17 6 (22) (1) 737 70 (223) (82) (6) (13) 243 120 (5,232) 4,682 201 135 98 13 (243) (109) 4,777 Net deﬁned beneﬁt pension obligation (512) (157) (146) (815) (229) (104) (122) (455) * included in beneﬁts paid are settlements of nil (2013: €61m). As at 31 December 2014, the deﬁned beneﬁt obligations comprise €6,171m (2013: €5,040m) in relation to funded schemes and €249m (2013: €192m) in relation to unfunded schemes. 94118_Reed_AR_p135-145.indd 142 06/03/2015 13:16 RELX Group Annual Reports and Financial Statements 2014 143 3 Adjusted ﬁgures The Group uses adjusted ﬁgures as additional performance measures. Adjusted operating proﬁt excludes amortisation of acquired intangible assets, acquisition-related costs and the share of taxes in joint ventures. Acquisition-related costs relate to acquisition integration, transaction-related fees, and those elements of deferred and contingent consideration required to be expensed under IFRS. Adjusted proﬁt before tax also excludes disposal-related and other non-operating items and the net ﬁnancing charge or credit on deﬁned beneﬁt pension schemes. The adjusted tax charge excludes the tax effect of these adjusting items, and movements on deferred tax assets and liabilities related to goodwill and acquired intangible assets. It includes the beneﬁt of tax amortisation where available on goodwill and acquired intangible assets. Adjusted 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 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 Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Adjusted proﬁt before tax Tax charge Adjustments: Deferred tax movements on goodwill and acquired intangible assets Tax on acquisition-related costs Reclassiﬁcation of tax in joint ventures Tax on net ﬁnancing charge on deﬁned beneﬁt pension schemes Tax on disposals and other non-operating items Other deferred tax credits from intangible assets* Adjusted tax charge Proﬁt attributable to parent companies’ shareholders Adjustments (post tax): Amortisation of acquired intangible assets Acquisition-related costs Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* 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 cash ﬂow 2014 €m 1,738 355 37 26 2,156 2013 €m 1,624 375 51 14 2,064 1,523 1,412 355 37 26 19 14 1,974 375 51 14 22 (19) 1,855 (333) (96) (8) (11) (26) (5) 3 (84) (464) 9 (14) (14) (7) 40 (354) (436) 1,184 1,310 347 26 14 17 (84) 1,504 2,295 55 (83) 12 (252) – 34 2,061 384 37 15 21 (354) 1,413 2,293 26 (67) 7 (296) 14 33 2,010 * movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 143 06/03/2015 13:16 144 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 (Increase)/decrease in receivables Decrease in payables Increase in working capital Cash generated from operations RECONCILIATION OF NET BORROWINGS At start of year Cash & cash equivalents €m 158 Borrowings €m (3,937) Related derivative ﬁnancial instruments €m 93 Increase/(decrease) in cash and cash equivalents Net movement in short-term bank loans, overdrafts and commercial paper Issuance of term debt Repayment of term debt Repayment of ﬁnance leases Change in net borrowings resulting from cash ﬂows Borrowings in acquired business Inception of ﬁnance leases Fair value and other adjustments to borrowings and related derivatives Exchange translation differences At end of year 176 – – – – 176 – – – 22 356 – (299) (730) 372 12 (645) (25) (4) 97 (420) (4,934) – 11 – – – 11 – – (105) – (1) 2014 €m 1,694 350 196 98 40 684 3 (82) (4) (83) 2,295 2014 €m (3,686) 176 (288) (730) 372 12 (458) (25) (4) (8) (398) (4,579) 2013 €m 1,589 374 189 105 37 705 12 6 (19) (1) 2,293 2013 €m (3,846) (628) (199) (217) 1,080 12 48 – (14) (1) 127 (3,686) Net borrowings comprise cash and cash equivalents, loan capital, ﬁnance leases, promissory notes, bank and other loans, derivative ﬁnancial instruments that are used to hedge certain borrowings, and adjustments in respect of cash collateral received/paid. 5 Borrowings Financial liabilities measured at amortised cost: Short-term bank loans, overdrafts and commercial paper Term debt Finance leases Term debt in fair value hedging relationships Term debt previously in fair value hedging relationships Total 2014 Falling due within 1 year €m Falling due in more than 1 year €m 707 – 9 – 156 872 – 2,352 6 1,227 477 4,062 Total €m 707 2,352 15 1,227 633 4,934 2013 Falling due within 1 year €m Falling due in more than 1 year €m 344 – 11 288 135 778 – 1,468 9 1,126 556 3,159 Total €m 344 1,468 20 1,414 691 3,937 The total fair value of ﬁnancial liabilities measured at amortised cost is €3,350m (2013: €2,051m). The total fair value of other loans in fair value hedging relationships is €1,348m (2013: €1,546m). The total fair value of other loans previously in fair value hedging relationships is €759m (2013: €780m). In 2013, €223m principal amount of term debt maturing in 2019 was exchanged for €282m principal amount of term debt maturing in 2022 and cash. The exchange is treated as a debt modiﬁcation for accounting purposes. The premium is offset against the carrying amount of the newly issued term debt maturing in 2022 and will be amortised over its life. 94118_Reed_AR_p135-145.indd 144 06/03/2015 13:16 RELX Group Annual Reports and Financial Statements 2014 145 5 Borrowings continued Analysis by year of repayment 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 After 1 year Total 2014 2013 Short-term bank loans, overdrafts and commercial paper €m 707 – – – – – – 707 Term debt €m 156 516 794 312 713 1,721 4,056 4,212 Finance leases €m 9 5 1 – – – 6 15 Total €m 872 521 795 312 713 1,721 4,062 4,934 Short-term bank loans, overdrafts and commercial paper €m 344 – – – – – – 344 Term debt €m 423 209 480 409 217 1,835 3,150 3,573 Finance leases €m 11 6 3 – – – 9 20 Total €m 778 215 483 409 217 1,835 3,159 3,937 Short-term bank loans, overdrafts and commercial paper were backed up at 31 December 2014 by a $2,000m (€1,656m) committed bank facility maturing in July 2019, which was undrawn. Analysis by currency US dollars £ sterling Euro Other currencies Total 2014 2013 Short-term bank loans, overdrafts and commercial paper €m 328 89 289 1 707 Term debt €m 2,306 1,316 590 – 4,212 Finance leases €m 15 – – – 15 Total €m 2,649 1,405 879 1 4,934 Short-term bank loans, overdrafts and commercial paper €m 104 32 201 7 344 Term debt €m 2,160 863 550 – 3,573 Finance leases €m 20 – – – 20 Total €m 2,284 895 751 7 3,937 Included in the US dollar amounts for term debt above is €579m (2013: €512m) of debt denominated in euros (€350m; 2013: nil) and Swiss francs (CHF 275m; 2013: CHF 625m) that was swapped into US dollars on issuance and against which there are related derivative ﬁnancial instruments, which, as at 31 December 2014, had a fair value of €51m (2013: €97m). 6 Exchange rates Sterling to euro US dollars to euro Income statement 2014 0.81 1.33 2013 0.85 1.32 Statement of ﬁnancial position 2014 0.78 1.21 2013 0.83 1.38 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p135-145.indd 145 06/03/2015 13:16 94118_Reed_AR_p146-159.indd 146 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 147 Reed Elsevier PLC Annual Report and Financial Statements In this section 148 Directors’ report 152 Consolidated financial statements 154 Group accounting policies 155 Notes to the consolidated financial statements 160 Parent company financial statements 161 Parent company accounting policies 161 Notes to the parent company financial statements 162 Independent auditor’s report 164 5 year summary Company number: 77536 O O v v e e r r v v i i e e w w B B u u s s i i n n e e s s s s r r e e v v i e i e w w i i F F n n a a n n c c i i a a l l r r e e v v i i e e w w G G o o v v e e r r n n a a n n c c e e i i F F n n a a n n c c i i a a l l s s t t a a t t e e m m e e n n t t s s a a n n d d o o t t h h e e r r i i n n f f o o r r m m a a t t i i o o n n 94118_Reed_AR_p146-159.indd 147 10/03/2015 09:31 148 FINANCIAL STATEMENTS AND OTHER INFORMATION DIRECTORS’ REPORT Directors’ report The Directors present their report, together with the ﬁnancial statements of the Group and Reed Elsevier PLC (“the Company”), for the year ended 31 December 2014. As a consequence of the merger of Reed Elsevier PLC’s businesses with those of Reed Elsevier NV, and the Governing Agreement regulating the relationship including board composition and economic interests of the parties, the shareholders of Reed Elsevier PLC and Reed Elsevier NV can be regarded as having the interests of a single economic group. The 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 subsidiaries, associates and joint ventures, together with the parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”). 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 2 to 145. A review of the combined businesses and their performance in the year is set out on pages 7 to 35, a summary of the principal risks facing the Group is set out on pages 58 to 60, and the Group statement on corporate responsibility is set out on pages 37 to 47. Effective 25 February 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their ownership interests in Elsevier Reed Finance BV to Reed Elsevier Group plc and named this newly combined single group entity RELX Group plc, as part of a proposed simpliﬁcation and modernisation of the corporate structure, equalisation arrangements and corporate entity names. A full description is set out on pages 66 and 67. 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 combined businesses, accounted for on an equity basis. 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 available to 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 £15m (2013: £15m), 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, Reed Elsevier PLC’s share of amortisation of acquired intangible assets, acquisition-related costs, disposal gains and losses and other non-operating items, related tax effects, and movements in deferred taxation assets and liabilities related to acquired intangible assets 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 combined businesses was £842m (2013: £832m). 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 £493m (2013: £576m). The decrease reﬂects the non-recurring deferred tax credits in 2013. Elsevier achieved good growth in primary research submissions and usage, and in databases and tools, across the scientiﬁc, technical and medical segments. At Risk & Business Information, all business segments achieved strong growth. Legal maintained positive underlying revenue growth despite subdued market conditions in the US and Europe. Exhibitions achieved strong underlying growth and continued to actively pursue growth opportunities through new launches and small acquisitions. The overall adjusted operating margin was 1.1 percentage points higher despite investment in global technology platforms and new products and services, reﬂecting a combination of process innovation, portfolio development and currency effects. Reed Elsevier PLC’s shareholders’ share of the adjusted proﬁt attributable to the combined businesses was £642m (2013: £633m). After deducting Reed Elsevier PLC’s share of the post tax charge for amortisation of acquired intangible assets, and acquisition-related costs, disposal-related and other non- operating items, the net ﬁnancing charge on deﬁned beneﬁt pension schemes, and movements on deferred taxes related to acquired intangible assets, the reported net proﬁt for the year was £490m (2013: £572m). Adjusted earnings per share increased 2.3p to 56.3p (2013: 54.0p). At constant rates of exchange, the adjusted earnings per share were 10% higher. Including the effect of the tax credit equalisation as well as amortisation of acquired intangible assets, acquisition- related costs, disposal-related and other non-operating items, the net ﬁnancing charge on deﬁned beneﬁt pension schemes, and tax adjustments, the basic earnings per share were 43.0p (2013: 48.8p). Consolidated statement of ﬁnancial position The consolidated statement of ﬁnancial position of Reed Elsevier PLC reﬂects its economic interest in the net assets of the Group which as at 31 December 2014 was £1,117m (2013: £1,266m). The £149m decrease in net assets reﬂects dividends paid and shares repurchased, partially offset by Reed Elsevier PLC’s share in the comprehensive income of the Group. Dividends The Board is recommending an equalised ﬁnal dividend of 19.00p per ordinary share (2013: 17.95p). This gives total ordinary dividends for the year of 26.00p (2013: 24.60p). The ﬁnal dividend will be paid on 22 May 2015 to shareholders on the Register on 1 May 2015. 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 Reed Elsevier PLC 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. 94118_Reed_AR_p146-159.indd 148 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 149 The total dividend paid on the ordinary shares in the ﬁnancial year was £285m (2013: £278m). Parent company ﬁnancial statements The individual parent company ﬁnancial statements of Reed Elsevier PLC are presented on page 160, and were prepared under UK Generally Accepted Accounting Practice (UK GAAP). Distributable reserves as at 31 December 2014 were £1,459m (2013: £1,449m), comprising reserves less shares held in treasury. Parent company shareholders’ funds as at 31 December 2014 were £3,074m (2013: £3,044m). Corporate Governance Reed Elsevier PLC has complied throughout the year with the provisions of the UK Corporate Governance Code issued by the FRC in September 2012 (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 Corporate Governance report on pages 66 to 73. The FRC published a revised UK Corporate Governance Code in September 2014 (the 2014 Code) which applies to accounting periods beginning on or after 1 October 2014. The Board expects to comply in full with the 2014 Code during 2015. Details of the role and responsibilities, membership and activities of the Audit Committees, including Reed Elsevier PLC’s Audit Committee, are set out in the Report of the Audit Committees on pages 89 to 90. Greenhouse Gas Emissions Reed Elsevier PLC is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from group operational activities. Details of our emissions during the year ended 31 December 2014 and the actions being taken to reduce them are set out in the Corporate Responsibility section of the Strategic Report on pages 46 and 47 and form part of the Directors’ report disclosures. Further details can be found in our online Corporate Responsibility Report at www.relxgroup.com/go/ CRReport. Directors The following served as Directors of the Company during the year: A Habgood (Chairman) E Engstrom (Chief Executive Ofﬁcer) D Palmer (Chief Financial Ofﬁcer until 1 September 2014; resigned 24 September 2014) N Luff (joined as Chief Financial Ofﬁcer on 1 September 2014) W Hauser A Hennah L Hook (Senior Independent Director) R Polet L Sanford 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. Reed Elsevier PLC’s Articles provide that at every AGM of Reed Elsevier PLC, 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. Duncan Palmer stepped down as Chief Financial Ofﬁcer on 1 September 2014 and left the Group on 24 September 2014. Nick Luff was elected as a Director by shareholders at the AGM in April 2014. He joined the Board as Chief Financial Ofﬁcer on 1 September 2014. In accordance with the provisions of the UK Code, all of the Directors will retire from the Board at the AGM in 2015 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 2015 AGM. The notice period applicable to the service contracts of Erik Engstrom and Nick Luff is 12 months. The remaining Directors seeking re-election at the 2015 AGM do not have service contracts. Details of Directors’ remuneration and their interests in the share capital of Reed Elsevier PLC are provided in the Directors’ Remuneration Report on pages 75 to 88. Share capital Reed Elsevier PLC’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 Reed Elsevier PLC. 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 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. Reed Elsevier PLC 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. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p146-159.indd 149 06/03/2015 13:17 150 FINANCIAL STATEMENTS AND OTHER INFORMATION DIRECTORS’ REPORT At the 2014 AGM, shareholders passed a resolution authorising the Directors to allot shares up to a nominal value of £9m, representing less than 5% of the Reed Elsevier PLC issued share capital. Since the 2014 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 2015 AGM, and a resolution to further extend the authority will be submitted to the shareholders at the 2015 AGM. During the year, 3,360,624 ordinary shares in Reed Elsevier PLC were issued in order to satisfy entitlements under employee share plans as follows: 497,870 under a UK Sharesave option scheme at prices between 401.60p and 708.80p per share; 2,744,793 under executive share option schemes at prices between 466.50p and 991p per share; and 117,961 under the Long Term Incentive Plan at 511.50p per share. The issued share capital as at 31 December 2014 is shown in note 11 to the consolidated ﬁnancial statements. Authority to purchase shares At the 2014 AGM, shareholders passed a resolution authorising the purchase of up to 126.7 million ordinary shares in Reed Elsevier PLC (representing less than 10% of the issued ordinary shares) by market purchase. During the year, 35,251,501 ordinary shares were purchased under this and the previous authority. On 29 December 2014, 65 million ordinary treasury shares were cancelled. Therefore, as at 31 December 2014 there were 69,698,335 ordinary shares held in treasury, representing 5.8% of the issued ordinary shares. A further 4,815,950 ordinary shares were purchased between 2 January 2015 and the date of this report. The authority to make market purchases will expire at the 2015 AGM, at which a resolution to further extend the authority will be submitted to shareholders. Substantial share interests As at 25 February 2015, Reed Elsevier PLC had been notiﬁed by the following shareholders that they held an interest of 3% or more in voting rights of its issued share capital: §§ BlackRock Inc §§ Invesco Limited §§ Lloyds Banking Group plc §§ Legal & General Group plc 5.03% 5.03% 3.47% 3.40% The percentage interests stated above are as disclosed at the date on which the interests were notiﬁed to Reed Elsevier PLC. Employee Beneﬁt Trust The Trustee of the Employee Beneﬁt Trust held an interest in 8,032,643 ordinary shares in Reed Elsevier PLC (representing 0.7% of the issued ordinary shares) as at 31 December 2014. 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 Reed Elsevier PLC Articles and any directions given by special resolutions, the business of Reed Elsevier PLC shall be managed by the Board which may exercise all the powers of Reed Elsevier PLC. Directors’ indemnity In accordance with its Articles, Reed Elsevier PLC has granted Directors an indemnity, to the extent permitted by law, in respect of liabilities incurred as a result of their ofﬁce. Reed Elsevier PLC also purchased and maintained throughout the year Directors’ and Ofﬁcers’ liability insurance in respect of itself and its Directors. Related party transactions Internal controls are in place to ensure that any related party transactions involving Directors or their connected persons are carried out on an arm’s length basis and are properly recorded and disclosed where appropriate. Conﬂicts of interest The Reed Elsevier PLC Articles permit the Board to approve situations where a Director has an interest that conﬂicts, or may possibly conﬂict, with the interests of Reed Elsevier PLC. The Board has established a formal system whereby the Nominations Committee considers any such conﬂict or potential conﬂict and makes a recommendation to the Board on whether to authorise it. In reaching its decision, the Board is required to act in a way it considers would be most likely to promote the success of Reed Elsevier PLC and may impose limits or conditions when giving its authorisation, if it thinks this is appropriate. Political donations The Group does not make donations to European Union (EU) political organisations or incur EU political expenditure. In the US, the Group companies donated £55,793 (2013: £48,000) to political organisations. In line with US law, these donations were not made at federal level, but only to candidates and political parties at the state and local levels. Disclosures required under UK Listing Rule 9.8.4 The following information is disclosed pursuant to Listing Rule 9.8.4: Long-term incentive schemes – page 80; Dividend waivers – page 158, note 11. 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. 94118_Reed_AR_p146-159.indd 150 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 151 Neither Reed Elsevier PLC 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 Reed Elsevier PLC 2014 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 Reed Elsevier PLC auditors are aware of that information. In that context, so far as the Directors are aware, there is no relevant audit information of which Reed Elsevier PLC’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 2014 ﬁnancial statements. In reaching this conclusion, the Directors have had due regard to the combined businesses’ ﬁnancial position as at 31 December 2014, the strong free cash ﬂow of the combined businesses, the Group’s ability to access capital markets and the principal risks facing the Group. No material uncertainties have been identiﬁed. A commentary on the combined businesses’ cash ﬂows, ﬁnancial position and liquidity for the year ended 31 December 2014 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, all of the Group’s borrowings that mature within the next two years can be covered. The Group’s policies on liquidity, capital management and management of risks relating to interest rate, foreign exchange and credit exposures are set out on pages 120 to 123. The principal risks facing the Group are set out on pages 58 to 60. Auditors Resolutions for the re-appointment of Deloitte LLP as auditors of Reed Elsevier PLC and to authorise the Directors to ﬁx their remuneration will be submitted to shareholders at the 2015 AGM. By order of the Board Registered Ofﬁce Henry Udow Company Secretary 25 February 2015 1-3 Strand London WC2N 5JR 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 (IFRS) as adopted by the EU and Article 4 of the IAS Regulation. The Directors have elected to prepare the parent company ﬁnancial statements in accordance with UK GAAP (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisﬁed that they give a true and fair view of the state of affairs of the Company and of the proﬁt or loss of the Company for that period. In preparing the parent company ﬁnancial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make 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. 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 IFRS 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 Reed Elsevier PLC’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of Reed Elsevier PLC and enable them to ensure that the ﬁnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of Reed Elsevier PLC and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Directors’ responsibility statement The Board conﬁrms that, to the best of its knowledge: §§ the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the European Union, give a true and fair view of the financial position and profit or loss of the group; and §§ the Directors’ report includes a fair review of the development and performance of the business and the position of the group. A description of the principal risks and uncertainties facing the group is set out on pages 58 to 60. Having taken into account all the matters considered by the Board and brought to the attention of the Board during the year, the Directors are satisﬁed that the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess Reed Elsevier PLC’s performance, business model and strategy. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p146-159.indd 151 06/03/2015 13:17 152 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 Tax expense Proﬁt attributable to ordinary shareholders Note 1 2 10 4 5 2014 £m (2) (15) 495 478 15 493 (3) 490 2013 £m (2) (15) 583 566 10 576 (4) 572 Consolidated statement of comprehensive income FOR THE YEAR ENDED 31 DECEMBER Proﬁt attributable to ordinary shareholders Share of joint ventures’ other comprehensive loss 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 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)/decrease in net funding balances due from joint ventures Net cash used in ﬁnancing activities 2014 £m 490 (61) 429 2013 £m 572 (13) 559 Note 7 7 2014 pence 43.0 42.5 2013 pence 48.8 48.2 Note 9 10 6 9 2014 £m 2013 £m (2) 15 (4) 9 618 618 (285) (333) 18 (27) (627) (2) 10 (3) 5 102 102 (278) (326) 50 447 (107) Movement in cash and cash equivalents – – 94118_Reed_AR_p146-159.indd 152 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 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 153 2013 £m 1,266 1,266 2 2 1,264 182 1,257 (752) 4 40 533 1,264 Note 10,15 11 12 2014 £m 1,117 1,117 1 1 1,116 174 1,274 (593) 13 112 136 1,116 The consolidated ﬁnancial statements were approved by the Board of Directors, 25 February 2015. A J Habgood Chairman N L Luff Chief Financial Ofﬁcer Consolidated statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER Balance at 1 January 2013 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 (net of tax) Share of joint ventures’ settlement of share awards by the employee beneﬁt trust Equalisation adjustments Balance at 1 January 2014 Total comprehensive income for the year Equity dividends paid Issue of ordinary shares, net of expenses Repurchase of ordinary shares Cancellation of shares Share of joint ventures’ increase in share based remuneration reserve (net of tax) Share of joint ventures’ settlement of share awards by the employee beneﬁt trust Share of joint ventures' acqusition of non-controlling interest Equalisation adjustments Balance at 31 December 2014 Note 6 6 Share capital £m 181 – – 1 – Share premium £m 1,208 – – 49 – Shares held in treasury £m (447) – – – (326) Capital redemption reserve £m 4 – – – – Translation reserve £m 87 (47) – – – Other reserves £m 173 606 (278) – – Total equity £m 1,206 559 (278) 50 (326) – – – 182 – – 1 – (9) – – – – 174 – – – 1,257 – – 17 – – – – – – 1,274 – 21 – (752) – – – (350) 495 – 14 – – (593) – – – 4 – – – – 9 – – – – 13 – – – 40 72 – – – – – – – – 112 25 (21) 28 533 357 (285) – – (495) 25 (14) (7) 22 136 25 – 28 1,264 429 (285) 18 (350) – 25 – (7) 22 1,116 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p146-159.indd 153 06/03/2015 13:17 154 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, comprehensive income, cash ﬂow, ﬁnancial position and changes in equity of Reed Elsevier PLC (incorporated and domiciled in the UK), 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 151. Unless otherwise indicated, all amounts shown in the ﬁnancial statements are in millions of pounds. The combined ﬁnancial statements presented in pounds sterling on pages 92 to 95 form an integral part of the notes to Reed Elsevier PLC’s statutory ﬁnancial statements. The accounting policies adopted in the preparation of the combined ﬁnancial statements are set out on pages 96 to 101. Determination of proﬁt The Reed Elsevier PLC share of the combined results has been calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC shareholders in the 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 available to 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. Investments Reed Elsevier PLC’s 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 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 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 Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside proﬁt or loss (either in other comprehensive income, directly in equity, or through a business combination) in which case the tax appears in the same statement as the transaction that gave rise to it. Current tax is the amount of corporate income taxes payable or recoverable based on the proﬁt for the period as adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the date of the statement of ﬁnancial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of ﬁnancial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent it is probable that taxable proﬁts will be available against which the deductible temporary differences can be utilised; and reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted. Critical judgements and key sources of estimation uncertainty Critical judgements in the preparation of the combined ﬁnancial statements are set out on pages 99 to 100. Standards and amendments effective for the year The interpretations and amendments to IFRS effective for 2014 have not had a signiﬁcant impact on the Group’s accounting policies or reporting. 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 101 of the combined ﬁnancial statements. 94118_Reed_AR_p146-159.indd 154 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 155 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 1 Administrative expenses Administrative expenses include £1,371,000 (2013: £972,000) paid in the year to RELX Group plc under a contract for the services of Directors and administrative support. Reed Elsevier PLC has no employees (2013: 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 154. 3 Auditor’s remuneration Audit fees payable by Reed Elsevier PLC were £30,000 (2013: £29,000). 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 Finance income Finance income from joint ventures 5 Taxation UK corporation tax expense 2014 £m 15 2013 £m 10 2014 £m (3) 2013 £m (4) 2013 £m 576 (134) 136 (6) (4) 2013 £m 200 78 278 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 21.5% (2013: 23.25%) Tax at applicable rate on share of results of joint ventures Other Tax expense 6 Equity dividends ORDINARY DIVIDENDS DECLARED AND PAID IN THE YEAR Ordinary shares Final for prior ﬁnancial year Interim for ﬁnancial year Total 2014 £m 493 (106) 103 – (3) 2014 £m 205 80 285 2014 pence 2013 pence 17.95p 7.00p 24.95p 17.00p 6.65p 23.65p The Directors of Reed Elsevier PLC have proposed a ﬁnal dividend of 19.00p (2013: 17.95p). The cost of funding the proposed ﬁnal dividend is expected to be £214m. 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 2014 pence 2013 pence 7.00p 19.00p 26.00p 6.65p 17.95p 24.60p O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p146-159.indd 155 06/03/2015 13:17 156 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER PLC Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 7 Earnings per ordinary share (EPS) Basic earnings per share Based on 52.9% interest in total operations of the combined businesses Diluted earnings per share 2014 2013 Weighted average number of shares (millions) 1,140.2 1,140.2 1,152.7 Earnings £m 490 505 490 EPS pence 43.0 44.3 42.5 Weighted average number of shares (millions) 1,172.2 1,172.2 1,187.2 Earnings £m 572 587 572 EPS pence 48.8 50.1 48.2 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 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 2014 are shown in note 11. 8 Adjusted ﬁgures 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 Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* Adjusted ﬁgures Proﬁt attributable to ordinary shareholders Basic earnings per share 2014 £m 490 15 505 148 11 6 8 (36) 642 2013 £m 572 15 587 172 16 7 10 (159) 633 2014 pence 43.0 1.3 2013 pence 48.8 1.3 44.3 50.1 13.0 1.0 0.5 0.7 (3.2) 56.3 14.6 1.4 0.6 0.9 (13.6) 54.0 * Movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. 9 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 2014 £m (2) (2) 2014 £m 502 27 529 2013 £m (2) (2) 2013 £m 949 (447) 502 94118_Reed_AR_p146-159.indd 156 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 157 10 Investments in joint ventures Share of results of joint ventures Share of joint ventures’ other comprehensive loss Share of joint ventures’ acquisition of non-controlling interests Share of joint ventures’ increase in share based remuneration reserve (net of tax) Share of joint ventures’ purchase of treasury shares by employee beneﬁt trust 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 2014 £m 495 (61) (7) 25 (17) 7 (618) 27 (149) 1,266 1,117 2013 £m 583 (13) – 25 – 13 (102) (447) 59 1,207 1,266 During the year the company received dividends of £500m from RELX Group plc and £118m from Elsevier Reed Finance BV. Summarised information showing total amounts in respect of joint ventures and Reed Elsevier PLC shareholders’ share is set out below: Revenue Net proﬁt for the year Total joint ventures 2014 £m 5,773 960 2013 £m 6,035 1,115 Reed Elsevier PLC shareholders’ share 2014 £m 3,054 495 2013 £m 3,193 583 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 £10m (2013: £4m). Reed Elsevier PLC’s other comprehensive income includes a loss of £61m (2013: £13m) relating to joint ventures. 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 2014 £m 11,087 (8,950) 2,137 2,106 31 2,137 2013 £m 10,495 (8,072) 2,423 2,390 33 2,423 2014 £m 5,876 (5,288) 588 588 – 588 529 1,117 2013 £m 5,552 (4,788) 764 764 – 764 502 1,266 The above amounts for Reed Elsevier PLC’s shareholders’ share of total assets and total liabilities exclude assets and liabilities held by Reed Elsevier PLC, but include the counterparty balances of amounts owed to and by other Group businesses. Included within Reed Elsevier PLC’s share of assets and liabilities are cash and cash equivalents of £146m (2013: £70m) and borrowings of £2,027m (2013: £1,736m) respectively. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i i F F n n a a n n c c i i a a l l s s t t a a t t e e m m e e n n t t s s a a n n d d o o t t h h e e r r i i n n f f o o r r m m a a t t i i o o n n 94118_Reed_AR_p146-159.indd 157 06/03/2015 13:17 158 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER PLC Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 11 Share capital and shares held in treasury CALLED UP SHARE CAPITAL – ISSUED AND FULLY PAID At start of year Issue of ordinary shares Shares cancelled At end of year No. of shares 1,267,036,696 3,360,624 (65,000,000) 1,205,397,320 2014 £m 182 1 (9) 174 No. of shares 1,257,597,977 9,438,719 – 1,267,036,696 2013 £m 181 1 – 182 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 combined ﬁnancial statements. 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 Shares cancelled At end of year Weighted average number of equivalent ordinary shares during the year Shares in issue (millions) 1,267.0 3.4 – – (65.0) 1,205.4 Treasury shares (millions) (109.6) – (35.2) 2.1 65.0 (77.7) 2014 Shares in issue net of treasury shares (millions) 2013 Shares in issue net of treasury shares (millions) 1,157.4 3.4 (35.2) 2.1 – 1,127.7 1,140.2 1,186.6 9.4 (41.9) 3.3 – 1,157.4 1,172.2 All of the ordinary shares rank equally with respect to voting rights and rights to receive dividends, except for shares held in treasury by the parent company, which do not attract voting or dividend rights. The Employee Beneﬁt Trust (EBT) has waived the right to receive dividends on Reed Elsevier PLC shares. There are no restrictions on the rights to transfer shares. At 31 December 2014, shares held in treasury included 8,032,643 (2013: 10,120,537) Reed Elsevier PLC ordinary shares held by the EBT and 69,698,335 (2013: 99,446,834) 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 2014, Reed Elsevier PLC shares held by the EBT were £54m (2013: £64m) at cost. During December 2014, 65,000,000 Reed Elsevier PLC ordinary shares held in treasury were cancelled. 12 Other reserves At start of year Proﬁt attributable to ordinary shareholders Cancellation of shares Share of joint ventures’: Actuarial (losses)/gains on deﬁned beneﬁt pension schemes Fair value movements on cash ﬂow hedges Transfer to net proﬁt from cash ﬂow hedge reserve Tax recognised in other comprehensive income Increase in share based remuneration reserve (net of tax) Settlement of share awards Acquisition of non-controlling interest Equalisation adjustments Equity dividends paid At end of year 13 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 2014 £m 533 490 (495) (140) (43) 10 40 25 (14) (7) 22 (285) 136 2013 £m 173 572 – 21 34 (2) (19) 25 (21) – 28 (278) 533 2014 £m 3,607 2013 £m 3,063 Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 18 to the combined ﬁnancial statements. 94118_Reed_AR_p146-159.indd 158 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 159 14 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 Directors of Reed Elsevier PLC. Transactions with key management personnel are set out in note 1 and in note 28 to the combined ﬁnancial statements. 15 Principal joint ventures as at 31 December 2014 Reed Elsevier Group plc Incorporated and operating in Great Britain 1-3 Strand London WC2N 5JR During 2014 was a 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, Netherlands During 2014 was a 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 % holding as at 31 December 100% – 100% 100% – Principal operating locations are set out on page 197. During 2014 the E shares in Reed Elsevier Group plc and Elsevier Reed Finance BV were 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% At 31 December 2014, Reed Holding BV owned 4,038,884 (2013: 4,146,785) 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. 17 Events after the balance sheet date Effective 25 February 2015, Reed Elsevier PLC transferred its direct ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. Simultaneously, Reed Elsevier NV transferred its direct ownership interest in Elsevier Reed Finance BV to Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. This newly-combined single group entity was named RELX Group plc. The R shares and E shares of RELX Group plc held by Reed Elsevier PLC and Reed Elsevier NV respectively were converted into non-voting shares. Reed Elsevier PLC has retained its 52.9% economic interest in the combined businesses, and no gain or loss was recorded on the transaction. As Reed Elsevier PLC and Reed Elsevier NV each hold 50% of the voting shares in issue, joint control of RELX Group plc has been retained and their respective interests will continue to be accounted for under the equity method, as described in the accounting policies on page 154. Subsequently, Reed Elsevier PLC transferred non-interest bearing, payable-on-demand receivables of £475m to RELX Group plc for consideration of 2 ordinary non-voting R shares. As these R shares do not have voting rights, this transaction did not impact the joint-control of RELX Group plc. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p146-159.indd 159 06/03/2015 13:17 160 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER PLC 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 The parent company ﬁnancial statements were approved by the Board of Directors, 25 February 2015. A J Habgood Chairman N L Luff Chief Financial Ofﬁcer Parent company reconciliation of shareholders’ funds At 1 January 2013 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 1 January 2014 Proﬁt attributable to ordinary shareholders Equity dividends paid Repurchase of ordinary shares Cancellation of shares Issue of ordinary shares, net of expenses Equity instruments granted to employees of combined businesses At 31 December 2014 Share capital £m 181 – – – 1 – 182 – – – (9) 1 – 174 Share premium account £m 1,208 – – – 49 – 1,257 – – – – 17 – 1,274 Shares held in treasury £m (367) – – (326) – Capital redemption reserve £m 4 – – – – Other reserves £m 150 – – – – – (693) – – (333) 495 – – (531) – 4 – – – 9 – – 13 2 152 – – – – – 2 154 Proﬁt and loss reserve £m 2,314 106 (278) – – – 2,142 628 (285) – (495) – – 1,990 Note 2014 £m 2013 £m 1 1 2 2 309 2,314 2,623 529 529 1 77 78 451 3,074 174 1,274 (531) 13 154 1,990 3,074 309 2,312 2,621 502 502 2 77 79 423 3,044 182 1,257 (693) 4 152 2,142 3,044 Total £m 3,490 106 (278) (326) 50 2 3,044 628 (285) (333) – 18 2 3,074 94118_Reed_AR_p160-163.indd 160 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 161 Parent company accounting policies Basis of preparation The parent company ﬁnancial statements have been prepared under the historical cost convention in accordance with UK Generally Accepted Accounting Practice (UK GAAP). Unless otherwise indicated, all amounts in the ﬁnancial statements are in millions of pounds. The parent company ﬁnancial statements should be read in conjunction with the consolidated ﬁnancial statements and notes presented on pages 152 to 159. The parent company ﬁnancial statements are prepared on a going concern basis, as explained on page 151. 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 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 combined businesses are treated as a capital contribution. Other assets and liabilities are are stated at historic cost, less provision, if appropriate, for any impairment in value. 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 11 of the Reed Elsevier PLC consolidated ﬁnancial statements and note 26 of the 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 tax 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 tax balances are not discounted. Notes to the parent company ﬁnancial statements 1 Investments At 1 January 2013 Equity instruments granted to Group employees At 1 January 2014 Equity instruments granted to Group employees At 31 December 2014 Subsidiary undertaking £m 309 – 309 – 309 Joint ventures £m 2,310 2 2,312 2 2,314 Total £m 2,619 2 2,621 2 2,623 Principal joint ventures and subsidiaries are set out in notes 15 and 16 of the Reed Elsevier PLC consolidated ﬁnancial statements. 2 Related party transactions All transactions with joint ventures, subsidiaries and RELX Group employees, which are related parties of Reed Elsevier PLC, are reﬂected in these ﬁnancial statements. Transactions with key management personnel including share based remuneration costs are set out in note 1 and in note 28 to the combined ﬁnancial statements and details of the directors’ remuneration are included in the Directors’ Remuneration Report on pages 75 to 88. 3 Events after the balance sheet date Effective 25 February 2015, Reed Elsevier PLC transferred its direct ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc and this newly combined single group entity was named RELX Group plc. Reed Elsevier PLC also transferred non-interest bearing, payable-on-demand receivables of £475m to Reed Elsevier Group plc for consideration of 2 ordinary non-voting shares. Reed Elsevier PLC has retained its 52.9% economic interest in the combined businesses, and no gains or losses were recorded on the transactions. Further details are provided on page 66. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p160-163.indd 161 06/03/2015 13:17 162 FINANCIAL STATEMENTS AND OTHER INFORMATION AUDITOR’S REPORT Independent auditor’s report to the members of Reed Elsevier PLC Opinion on our audit of the consolidated and parent company ﬁnancial statements of Reed Elsevier PLC (“the Company”) In our opinion: §§ the financial statements give a true and fair view of the state of the Company’s affairs as at 31 December 2014 and of the consolidated profit and their cash flows for the year then ended; §§ the consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; §§ the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice and in accordance with the provisions of the Companies Act 2006; and §§ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. We have audited the consolidated ﬁnancial statements which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of ﬁnancial position, the consolidated cash ﬂow statement, the consolidated statement of changes in equity, a summary of the consolidated accounting policies and the related notes 1 to 17. The ﬁnancial reporting framework that has been applied in their preparation of the consolidated ﬁnancial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The parent company ﬁnancial statements comprise the parent company balance sheet, the parent company reconciliation of shareholders’ funds, a summary of the parent company signiﬁcant accounting policies and the related notes 1-3. The ﬁnancial reporting framework that has been applied in their preparation of the parent company ﬁnancial statements is applicable law and United Kingdom Accounting Standards. Our assessment of risks of material misstatement, application of materiality and overview of the scope of our audit Given the nature of the Reed Elsevier PLC and Reed Elsevier NV legal structure, our assessment of risks of material misstatement, materiality and audit scoping for the Combined Businesses equally applies to the audit of the parent company and the consolidated ﬁnancial statements of Reed Elsevier PLC. See page 132 for further details. 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 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 and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the 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 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. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews. 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. We are required to communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant deﬁciencies in internal control that we identify during our audit. We are also required to provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable related safeguards. Going Concern As required by the Listing Rules we have reviewed the directors’ statement contained on page 73 that the Company is a going concern. We conﬁrm that given the nature of the Reed Elsevier PLC and Reed Elsevier NV legal structure, our assessment of the combined businesses’ ability to continue as a going concern equally applies to the parent company and the consolidated ﬁnancial statements of Reed Elsevier PLC. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s ability to continue as a going concern. 94118_Reed_AR_p160-163.indd 162 06/03/2015 13:17 RELX Group Annual Reports and Financial Statements 2014 163 In particular, we are required to consider whether we have identiﬁed any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We have nothing to report in respect of these matters. Graham Richardson (Senior statutory auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London United Kingdom 25 February 2015 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 Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: §§ we have not received all the information and explanations we require for our audit; or §§ 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 are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. Under the Listing Rules we are required to review certain elements of the Directors’ Remuneration Report. We have nothing to report arising from these matters or our review. Corporate Governance Statement Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the Company’s compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report arising from our review. Our duty to read other information in the Annual Report Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: §§ materially inconsistent with the information in the audited financial statements; or §§ apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or §§ is otherwise misleading. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p160-163.indd 163 06/03/2015 13:17 164 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER PLC 5 year summary Combined ﬁnancial information Revenue Reported operating proﬁt Adjusted operating proﬁt Reported net proﬁt attributable to shareholders Adjusted net proﬁt attributable to shareholders Reed Elsevier PLC consolidated ﬁnancial information Reported net proﬁt attributable to shareholders Adjusted net proﬁt attributable to shareholders Reported earnings per ordinary share (pence) Adjusted earnings per ordinary share (pence) Dividend per ordinary share (pence) IAS19 (revised)(5) 2014 £m 2013 £m Note 5,773 1,402 1,739 955 1,213 490 642 43.0p 56.3p 26.0p 6,035 1,376 1,749 1,110 1,197 572 633 48.8p 54.0p 24.6p 1 1 2 3 2 3 4 2012 £m 6,116 1,333 1,688 1,044 1,121 538 593 44.8p 49.4p 23.0p As reported 2011 £m 6,002 1,205 1,626 760 1,060 389 561 32.4p 46.7p 21.55p 2012 £m 6,116 1,358 1,713 1,069 1,138 552 602 46.0p 50.1p 23.0p 2010 £m 6,055 1,090 1,555 642 983 327 520 27.3p 43.4p 20.4p (1) Adjusted ﬁgures are presented as additional performance measures used by management and are stated before amortisation and impairment of acquired intangible assets and goodwill, the net ﬁnancing cost on deﬁned beneﬁt pension schemes, exceptional restructuring (in 2010 only) and acquisition-related costs, exceptional prior year tax credits (in 2012 only), and in respect of attributable net 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) Reported net 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. (3) Adjusted net 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. (4) Dividend per ordinary share is based on the interim dividend and proposed ﬁnal dividend for the relevant year. (5) Comparative ﬁgures for 2012 have been restated following the adoption of IAS19 Employee Beneﬁts (revised). 94118_Reed_AR_p164.indd 164 06/03/2015 13:18 RELX Group Annual Reports and Financial Statements 2014 165 Reed Elsevier NV Annual Report and Financial Statements In this section 166 Report of the Board 170 Consolidated financial statements 172 Group accounting policies 173 Notes to the consolidated financial statements 179 Parent company financial statements 180 Parent company accounting policies 181 Notes to the parent company financial statements 181 Additional information 182 Independent auditor’s report 184 5 year summary O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p165-169.indd 165 10/03/2015 09:33 166 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Report of the Board The Non-Executive and Executive Directors present their joint report, together with the ﬁnancial statements of the group and of Reed Elsevier NV, for the year ended 31 December 2014. As a consequence of the merger of Reed Elsevier NV’s businesses with those of Reed Elsevier PLC, and the Governing Agreement regulating the relationship including board composition and economic interests of the parties, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group. The 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 subsidiaries, associates and joint ventures, together with the parent companies, Reed Elsevier NV and Reed Elsevier PLC (“the combined businesses”). This report of the Board and the consolidated and parent company ﬁnancial statements should be read in conjunction with the combined ﬁnancial statements and other reports set out on pages 2 to 145, which are incorporated by reference herein. Summary combined ﬁnancial information in euros is set out on pages 136 to 139. The combined ﬁnancial statements on pages 92 to 95 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 165 to 169 and, incorporated by reference, pages 2 to 146. The Corporate Governance Statement of Reed Elsevier NV dated 25 February 2015 is published on the Reed Elsevier website (www.relxgroup.com) and is incorporated by reference herein as per the Vaststellingsbesluit nadere voorschriften inhoud jaarverslag January 2010 article 2a under 1 sub b. Effective 25 February 2015, Reed Elsevier NV and Reed Elsevier PLC transferred their respective ownership interests in Elsevier Reed Finance BV to Reed Elsevier Group plc and named this newly combined single group entity RELX Group plc, as part of a proposed modernisation of the corporate structure. A full description is set out on pages 66 and 67. Principal activities Reed Elsevier NV is a holding company and its principal investment is its direct 50% shareholding in RELX Group plc, which is engaged in providing information solutions for professional customers across industries. The remaining shareholding in RELX Group plc is 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 Reed Elsevier NV) have under the equalisation arrangements in the combined businesses, accounted for on an equity basis. 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 available to 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, Reed Elsevier NV’s share of amortisation of acquired intangible assets, acquisition-related costs, disposal-related and other non-operating items, the net pension ﬁnancing charge or credit, 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 combined businesses was €987m (2013: €928m). Reported proﬁt before tax, including the Reed Elsevier NV shareholders’ share of amortisation, acquisition-related costs and disposals and non-operating items, was €597m (2013: €659m). The decrease reﬂects the non-recurring deferred tax credits in 2013. Elsevier achieved good growth in primary research submissions and usage, and in databases and tools, across the scientiﬁc, technical and medical segments. At Risk & Business Information; all business segments achieved strong growth. Legal maintained positive underlying revenue growth despite subdued market conditions in the US and Europe. Exhibitions achieved strong underlying growth and continued to actively pursue growth opportunities through new launches and small acquisitions. The overall adjusted operating margin was 1.1 percentage points higher despite investment in global technology platforms and new products and services, reﬂecting a combination of process innovation, portfolio development and currency effects. Reed Elsevier NV ’s shareholders’ share of the adjusted proﬁt attributable to the combined businesses was €752m (2013: €707m). After deducting Reed Elsevier NV’s share of the post-tax charge for amortisation of acquired intangible assets, acquisition- related costs, disposal-related and other non-operating items, the net ﬁnancing charge on deﬁned beneﬁt pension schemes and movements in deferred taxes related to acquired intangible assets the reported net proﬁt for the year was €592m (2013: €655m). Adjusted earnings per share increased 8% to €1.07 (2013: €0.99). At constant rates of exchange, the adjusted earnings per share were 10% higher. Including amortisation of acquired intangible assets, acquisition-related costs, disposal-related and other non-operating items, the net ﬁnancing charge on deﬁned beneﬁt pension schemes and tax adjustments, the basic earnings per share were €0.85 (2013: €0.91). 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 the combined businesses which as at 31 December 2014 was €1,359m (2013: €1,434m). The €75m decrease in net assets reﬂects dividends paid and shares repurchased partially offset by Reed Elsevier NV’s share in the comprehensive income of the Group. 94118_Reed_AR_p165-169.indd 166 06/03/2015 13:19 RELX Group Annual Reports and Financial Statements 2014 167 Parent company ﬁnancial statements In accordance with article 2:362(1) of the Dutch Civil Code, the individual parent company ﬁnancial statements of Reed Elsevier NV (presented on pages 179 to 181) are prepared under UK Generally Accepted Accounting Practice (UK GAAP). The proﬁt attributable to the shareholders of Reed Elsevier NV was €537m (2013: €199m) and net assets as at 31 December 2014, 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 €4,441m (2013: €4,579 m). Free reserves as at 31 December 2014 were €4,192m (2013: €4,329m), comprising reserves and paid-in surplus less shares held in treasury. Dividends The Board is recommending an equalised ﬁnal dividend of €0.438 per ordinary share, up 17% compared with the prior year. This gives total ordinary dividends for the year of €0.589 (2013: €0.506), up 16% on 2013. The ﬁnal dividend will be paid on 22 May 2015. Dividend cover, based on adjusted earnings per share and the total interim and proposed ﬁnal dividends for the year, is 1.8 times. The Boards of Reed Elsevier NV 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 €349m (2013: €321m). Share capital During 2014, 3,003,289 ordinary shares in Reed Elsevier NV were issued as follows: §§ under convertible debentures at prices between €14.58 and €20.00 §§ under executive share option schemes at prices between €14.72 and €19.90 Information regarding shares outstanding at 31 December 2014 is shown in note 12 to the consolidated ﬁnancial statements. At 31 December 2014 the total shares held in treasury were 49,279,277. Of these 5,337,782 ordinary shares were held by the Employee Beneﬁt Trust and 41,298,545 ordinary shares and 264,295 R shares (equivalent to 2,642,950 ordinary shares) were held by Reed Elsevier NV. At an extraordinary general meeting of shareholders of Reed Elsevier NV held in October 2014, the shareholders approved the reduction of the capital of the Reed Elsevier NV by the cancellation of up to 40 million of its ordinary shares held in treasury. Following the shareholders’ meeting, the Board ﬁled a declaration about cancellation of 40 million ordinary shares with the Trade Register at the Chamber of Commerce on 22 October 2014. The 40 million ordinary shares in Reed Elsevier NV were subsequently cancelled with effect from 24 December 2014. Substantial holdings As at 25 February 2015, 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 3% by the following persons or organisations: §§ FIL Limited §§ The Bank of New York Mellon Corporation §§ Reed Elsevier PLC §§ Black Rock, Inc. §§ UBS AG §§ Reed Elsevier NV Authority to purchase shares At the 2014 Annual General Meeting, shareholders passed a resolution delegating the authority to the Board to acquire shares in Reed Elsevier NV for a period of 18 months from the date of the Annual General Meeting of Shareholders and therefore up to and including 22 October 2015, for the maximum amount of 10% of the issued capital. During the year, 20,403,351 ordinary shares and additionally 107,901 R shares (equivalent to 1,079,010 ordinary shares), were purchased under this and the previous delegation of authority. As at 31 December 2014 there were 49,279,276 ordinary shares held in treasury, representing 6.7% of the issued ordinary shares. A further 2,787,800 ordinary shares were purchased between 2 January 2015 and the date of this report. A resolution to renew the delegation of the authority is to be put to the 2015 Annual General Meeting, together with a proposal for approval of the reduction of Reed Elsevier NV’s capital by cancellation of accumulated ordinary shares held in treasury. 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 issued in December 2008 (the Dutch Code) and the UK Corporate Governance Code issued by the UK Financial Reporting Council (FRC) in September 2012 (the UK Code). The FRC published a revised UK Corporate Governance Code in September 2014 (the 2014 Code) which applies to accounting periods beginning on or after 1 October 2014. Reed Elsevier NV may not apply fully the verbatim language of the UK Code, but does fully apply the principles and best practice provisions of the Dutch Code, other than the following for the reasons explained below: §§ Best practice provision II.2.5: Executive directors are required to build up a minimum shareholding and 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. The Group 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 the Group 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: The Group has arrangements that are commensurate with local and legal requirements to ensure a competitive employment offer to its Board Members. Executive directors have service contracts 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 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p165-169.indd 167 06/03/2015 13:19 168 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV is given in accordance with the agreed notice period. The notice period applicable to the service contracts of executive directors 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 service contracts 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. §§ 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. For further information on the application of the Dutch Code, see the Corporate Governance Statement of Reed Elsevier NV published on the website, www.relxgroup.com. The Board Since May 2013, Reed Elsevier NV has had a unitary board comprising both executive and non-executive directors. The Boards of Reed Elsevier PLC and RELX Group plc are also unitary boards. It is established board practice at Reed Elsevier NV that the executive and the non-executive directors meet together. 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 directors during the year: §§ Principle III.7: The remuneration of non-executive directors is determined by the Board in the context of the board harmonisation with Reed Elsevier PLC and RELX Group plc, having regard for the maximum per annum approved by the general meeting of shareholders. Non-executive directors A Habgood (Chairman) W Hauser A Hennah L Hook §§ Best practice provision IV.1.1: Appointments, suspensions and removal procedures for executive directors are set out in the Reed Elsevier NV Corporate Governance Statement 2014. 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 an executive director other than in accordance with the proposal of the 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 Board believes 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. Executive directors E Engstrom (Chief Executive Ofﬁcer) D Palmer (Chief Financial Ofﬁcer, until 1 September 2014, resigned 24 September 2014) N Luff (Chief Financial Ofﬁcer, appointed 1 September 2014) (Senior Independent Director) M van Lier Lels R Polet L Sanford B van der Veer Duncan Palmer stepped down as Chief Financial Ofﬁcer on 1 September 2014 and left the Group on 24 September 2014. Following the conclusion of the search process and on the recommendation of the Nominations Committee, the Boards selected Nick Luff who joined the Group and was appointed as Chief Financial Ofﬁcer on 1 September 2014. All directors will stand for re-appointment at the Annual General Meeting in April 2015. With great sadness we have learnt of the sudden death of Professor Dolf van den Brink in December 2014. Mr Van den Brink was Chairman of the Supervisory Board of Elsevier Reed Finance BV for a period of 8 years until July 2014. Earlier in 2014 he had decided to stand down as Chairman due to his busy work schedule. Mr Van den Brink was very committed to the Group and his expertise and good humour were much appreciated. He was greatly valued by everyone in the Group who knew and worked with him. 94118_Reed_AR_p165-169.indd 168 06/03/2015 13:19 RELX Group Annual Reports and Financial Statements 2014 169 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 2014 ﬁnancial statements. In reaching this conclusion, the Directors have had due regard to the combined businesses’ ﬁnancial position as at 31 December 2014, the strong free cash ﬂow of the combined businesses, the Group’s ability to access capital markets and the principal risks facing the Group. No material uncertainties have been identiﬁed. A commentary on the combined businesses’ cash ﬂows, ﬁnancial position and liquidity for the year ended 31 December 2014 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, all of the Group’s borrowings that mature within the next two years can be covered. The Group’s policies on liquidity, capital management and management of risks relating to interest rate, foreign exchange and credit exposures are set out on pages 120 to 123. The principal risks facing the Group are set out on pages 58 to 60. Auditors Resolutions for the re-appointment of Deloitte Accountants BV as auditors of the company and to authorise the Board to determine their remuneration will be submitted to the forthcoming Annual General Meeting on 22 April 2015. Executive directors E Engstrom (Chief Executive Ofﬁcer) N Luff (Chief Financial Ofﬁcer) Signed by: Non-executive directors A Habgood (Chairman) W Hauser A Hennah L Hook M van Lier Lels R Polet L Sanford B van der Veer Registered ofﬁce Radarweg 29 1043 NX Amsterdam The Netherlands Chamber of Commerce Amsterdam Register ﬁle No: 33155037 25 February 2015 Biographical details of the Directors at the date of this report are given on pages 62 and 63. Details of the remuneration of the Directors and their interests in the share capital of the company are provided in the Directors’ Remuneration Report on pages 75 to 88. Financial statements and accounting records The ﬁnancial statements provide a true and fair view of the state of affairs of Reed Elsevier NV and the Group as of 31 December 2014 and of the proﬁt or loss in 2014. In preparing the ﬁnancial statements, the Board ensures that suitable accounting policies, consistently applied and supported by reasonable judgements and estimates, have been used and applicable accounting standards have been followed. The Board is 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 Board has 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 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 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 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 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 2014 together with a description of the principal risks and uncertainties that it faces. Neither Reed Elsevier NV 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 Reed Elsevier NV 2014 ﬁnancial statements, the Board has taken steps to ensure that all relevant information was provided to the Reed Elsevier NV auditors and, so far as the Board is aware, there is no relevant audit information of which the Reed Elsevier NV auditors are unaware of. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p165-169.indd 169 06/03/2015 13:19 170 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 Tax expense Proﬁt attributable to shareholders Note 2 10 4 5 1 Consolidated statement of comprehensive income FOR THE YEAR ENDED 31 DECEMBER ••• Proﬁt attributable to shareholders Share of joint ventures’ other comprehensive income/(loss) for the year Total comprehensive income for the year Earnings per ordinary share FOR THE YEAR ENDED 31 DECEMBER Basic earnings per share Diluted earnings per share Consolidated statement of cash ﬂows FOR THE YEAR ENDED 31 DECEMBER Cash ﬂows from operating activities Cash used by operations Interest received Tax paid Net cash from operating activities Cash ﬂows from investing activities Dividends received from joint ventures Net cash from investing activities Cash ﬂows from ﬁnancing activities Equity dividends paid Repurchase of shares Proceeds on issue of ordinary shares Decrease in net funding balances due from joint ventures Net cash used in ﬁnancing activities 2014 €m (3) 575 572 25 597 (5) 592 2014 €m 592 29 621 2013 €m (2) 642 640 19 659 (4) 655 2013 €m 655 (48) 607 Note 7 7 2014 € 0.85 0.84 2013 € 0.91 0.90 Note 9 10 6 9 2014 €m 2013 €m (3) 26 (3) 20 520 520 (349) (361) 33 141 (536) (3) 19 (1) 15 186 186 (321) (337) 88 370 (200) Movement in cash and cash equivalents 4 1 94118_Reed_AR_p170-178.indd 170 06/03/2015 13:20 RELX Group Annual Reports and Financial Statements 2014 171 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 Note 2014 €m 2013 €m 10,16 1,412 1,488 3 6 9 1,421 6 56 62 1,359 52 2,309 (711) 60 (351) 1,359 4 2 6 1,494 6 54 60 1,434 55 2,276 (881) (131) 115 1,434 11 12 13 1 Consolidated statement of changes in equity Balance at 1 January 2013 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 (net of tax) Share of joint ventures’ settlement of share awards by the employee beneﬁt trust Equalisation adjustments Exchange translation differences Balance at 1 January 2014 Total comprehensive income for the year Equity dividends paid Issue of ordinary shares, net of expenses Repurchase of shares Cancellation of shares Share of joint ventures’ increase in share based remuneration reserve (net of tax) Share of joint ventures’ settlement of share awards by the employee beneﬁt trust Share of joint ventures' acquisition of non-controlling interest Equalisation adjustments Exchange translation differences Balance at 31 December 2014 Note 6 6 Share capital €m 54 – – 1 – Paid–in surplus €m 2,189 – – 87 – Shares held in treasury €m (571) – – – (337) Translation reserves €m (42) (86) – – – Other reserves €m (228) 693 (321) – – Total equity €m 1,402 607 (321) 88 (337) – – – – 55 – – – – (3) – – – – – 52 – – – 29 29 – – – 2,276 – – 33 – – – – – – – 2,309 24 – 3 (881) – – – (381) 540 – 17 – – (6) (711) – – (3) (131) 185 – – – – – – – – 6 60 (24) (34) – 115 436 (349) – – (537) 30 (17) (9) (20) – (351) – (34) – 1,434 621 (349) 33 (381) – 30 – (9) (20) – 1,359 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p170-178.indd 171 06/03/2015 13:20 172 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV 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, comprehensive income, cash ﬂow, ﬁnancial position and changes in equity of Reed Elsevier NV (incorporated and domiciled in the Netherlands), 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 169. Unless otherwise indicated, all amounts shown in the ﬁnancial statements are in millions of euros. The combined ﬁnancial statements presented in pounds sterling on pages 92 to 95 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 135 to 145. The accounting policies adopted in the preparation of the combined ﬁnancial statements are set out on pages 96 to 101. Determination of proﬁt The Reed Elsevier NV share of the Group’s combined results has been calculated on the basis of the 50% economic interest of the Reed Elsevier NV shareholders in the combined businesses, after taking account of results arising in Reed Elsevier NV and its subsidiaries. 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 available to 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 RELX Group plc. The settlements ﬂowing from these arrangements are also taken directly to consolidated reserves under equalisation. Investments 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 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 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 Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside proﬁt or loss (either in other comprehensive income, directly in equity, or through a business combination) in which case the tax appears in the same statement as the transaction that gave rise to it. Current tax is the amount of corporate income taxes payable or recoverable based on the proﬁt for the period as adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the date of the statement of ﬁnancial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of ﬁnancial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent it is probable that taxable proﬁts will be available against which the deductible temporary differences can be utilised; and reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted. Critical judgements and key sources of estimation uncertainty Critical judgements in the preparation of the combined ﬁnancial statements are set out on pages 99 to 100. Standards and amendments effective for the year The interpretations and amendments to IFRS effective for 2014 have not had a signiﬁcant impact on the Group’s accounting policies or reporting. 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 101 of the combined ﬁnancial statements. 94118_Reed_AR_p170-178.indd 172 06/03/2015 13:20 RELX Group Annual Reports and Financial Statements 2014 173 Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 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 combined businesses, accounted for on an equity basis. The combined ﬁnancial statements are presented in pounds sterling, which is the functional currency of the Group. The following analysis presents how the consolidated ﬁnancial statements of Reed Elsevier NV, presented in euros, are derived from the combined ﬁnancial statements. REED ELSEVIER NV CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS Combined businesses net proﬁt attributable to parent company shareholders in pounds sterling Combined businesses net proﬁt attributable to parent company shareholders in pounds sterling translated into euros at average exchange rates Reed Elsevier NV’s 50% share of combined net proﬁt attributable to shareholders REED ELSEVIER NV CONSOLIDATED TOTAL EQUITY Combined shareholders’ equity in pounds sterling Combined shareholders’ equity in pounds sterling translated into euros at year-end exchange rates Reed Elsevier NV’s 50% share of combined equity 2014 2013 £955m £1,110m €1,184m €1,310m €655m €592m 2014 2013 £2,106m £2,390m €2,717m €2,868m €1,359m €1,434m 2 Administrative expenses Administrative expenses include the 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 Non–Executive Directors of Reed Elsevier NV of €0.3m (2013: €0.3m) are included in remuneration. Insofar as remuneration is related to services rendered during 2014 to Reed Elsevier Group plc and Elsevier Reed Finance BV group, it was borne by these groups. Reed Elsevier NV has no employees (2013: nil). 3 Auditor’s remuneration Audit fees payable by Reed Elsevier NV were €130,000 (2013: €129,000). Further information on the audit and non-audit fees paid by the combined businesses to Deloitte Accountants BV and its associates is set out in note 3 to the combined ﬁnancial statements. 4 Finance income Finance income from joint ventures 5 Taxation 2014 €m 25 2013 €m 19 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% (2013: 25%) Tax at applicable rate on share of results of joint ventures Tax expense 2014 €m 597 (149) 144 (5) 2013 €m 659 (165) 161 (4) O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p170-178.indd 173 06/03/2015 13:20 174 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 6 Equity dividends ORDINARY DIVIDENDS DECLARED AND PAID IN THE YEAR Ordinary shares: Final for prior ﬁnancial year Interim for ﬁnancial year Total R shares 2014 € 2013 € €0.374 €0.151 €0.525 – €0.337 €0.132 €0.469 – 2014 €m 249 100 349 – 2013 €m 230 91 321 – The Board of Reed Elsevier NV has proposed a ﬁnal dividend of €0.438 (2013: €0.374). The cost of funding the proposed ﬁnal dividend is expected to be €287m. 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 ••• 7 Earnings per ordinary share (“EPS”) 2014 € 2013 € €0.151 €0.438 €0.589 – €0.132 €0.374 €0.506 – Basic earnings per share Diluted earnings per share 2014 2013 Weighted average number of shares (millions) 700.1 708.3 Earnings €m 592 592 EPS € 0.85 0.84 Weighted average number of shares (millions) 717.6 726.9 Earnings €m 655 655 EPS € 0.91 0.90 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. R shares in the company are held by a subsidiary of Reed Elsevier PLC and represent a 5.8% interest in Reed Elsevier NV’s share capital. The diluted EPS ﬁgures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares. Movements in the number of ordinary shares or equivalents for the year ended 31 December 2014 are shown in note 12. 8 Adjusted ﬁgures Adjusted proﬁt and earnings per share ﬁgures are used by management as additional performance measures. The adjusted ﬁgures are derived as follows: Reported ﬁgures Share of adjustments in joint ventures: Amortisation of acquired intangible assets Acquisition-related costs Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* Adjusted ﬁgures Proﬁt attributable to shareholders Basic earnings per share 2014 €m 592 174 13 7 8 (42) 752 2013 €m 655 192 18 8 11 (177) 707 2014 € 0.85 0.24 0.02 0.01 0.01 (0.06) 1.07 2013 € 0.91 0.27 0.03 0.01 0.02 (0.25) 0.99 * Movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. 94118_Reed_AR_p170-178.indd 174 06/03/2015 13:20 RELX Group Annual Reports and Financial Statements 2014 9 Statement of cash ﬂows RECONCILIATION OF ADMINISTRATIVE EXPENSES TO CASH USED BY OPERATIONS Administrative expenses 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 10 Investments in joint ventures Share of results of joint ventures Share of joint ventures’ other comprehensive gain/(loss) Share of joint ventures’ acquisition of non–controlling interests Share of joint ventures’ increase in share based remuneration reserve (net of tax) Share of joint ventures’ purchase of treasury shares by employee beneﬁt trust Equalisation adjustments Dividends received from joint ventures Decrease in net funding balances due from joint ventures Net movement in the year At start of year At end of year 175 2013 €m (2) (1) (3) 2013 €m 1,397 (370) 1,027 2013 €m 642 (48) – 29 – (34) (186) (370) 33 1,455 1,488 2014 €m (3) – (3) 2014 €m 1,027 (141) 886 2014 €m 575 29 (9) 30 (20) (20) (520) (141) (76) 1,488 1,412 During the year Reed Elsevier NV received dividends of €300m from Reed Elsevier Overseas BV and €220m 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 2014 €m 7,159 1,190 2013 €m 7,121 1,316 2014 €m 3,580 575 2013 €m 3,561 642 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 €17m (2013: €13m). Reed Elsevier NV’s other comprehensive income includes an income of €29m (2013: €48m loss) relating to joint ventures. Total assets Total liabilities Net assets Attributable to: Joint ventures Non–controlling interests Net funding balances due from joint ventures Total Total joint ventures 2014 €m 14,302 (11,545) 2,757 2013 €m 12,594 (9,686) 2,908 2,717 40 2,868 40 2,757 2,908 Reed Elsevier NV shareholders’ share 2014 €m 7,145 (6,619) 526 526 – 526 886 1412 2013 €m 6,295 (5,834) 461 461 – 461 1,027 1,488 The above amounts for Reed Elsevier NV’s shareholders share of total assets and total liabilities exclude assets and liabilities held by Reed Elsevier NV, but include the counterparty balances of amounts owed to and by other Group businesses. Included within Reed Elsevier NV’s share of assets and liabilities are cash and cash equivalents of €172m (2013: €77m) and borrowings of €2,467m (2013: €1,963m) respectively. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p170-178.indd 175 06/03/2015 13:20 176 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 11 Payables Included within payables are RELX Group employee convertible debenture loans of €4m (2013: €5m) with a weighted average interest rate of 1.65% (2013: 1.95%). Depending on the conversion terms, the surrender of €200 par value debenture loans qualiﬁes for 50 Reed Elsevier NV ordinary shares. 12 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 2013 Issue of ordinary shares At 1 January 2014 Issue of ordinary shares Cancellation of shares At 31 December 2014 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 725,984,225 8,165,731 734,149,956 3,003,289 (40,000,000) 697,153,245 R shares €m 3 – Ordinary shares €m 51 1 3 – – 3 52 – (3) 49 €m 126 18 144 Total €m 54 1 55 – (3) 52 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 combined ﬁnancial statements. TOTAL ORDINARY SHARES OR EQUIVALENTS Year ended 31 December Ordinary shares at start of year Issue of ordinary shares Repurchase of ordinary shares Cancellation of shares Net (purchase)/release of ordinary shares by the employee beneﬁt trust Ordinary shares at end of year R share equivalents at start of year Repurchase of R share equivalents R share equivalents at end of year Total ordinary share equivalents at end of year Weighted average number of ordinary share equivalents during the year *ordinary share equivalents. Ordinary shares in issue (millions) 734.1 3.0 – (40.0) – 697.1 – – – 697.1 R shares in issue* (millions) – – – – – – 43.0 – 43.0 43.0 Treasury shares (millions) (65.9) – (20.4) 40.0 (0.3) (46.6) (1.5) (1.1) (2.6) (49.2) 2014 Ordinary shares or equivalents net of treasury shares (millions) 668.2 3.0 (20.4) – (0.3) 650.5 41.5 (1.1) 40.4 690.9 700.1 2013 Ordinary shares or equivalents net of treasury shares (millions) 682.4 8.1 (24.3) – 2.0 668.2 42.4 (0.9) 41.5 709.7 717.6 At 31 December 2014, 4,038,884 R shares (2013: 4,146,785) 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 2014 shares held in treasury comprised 41,298,545 ordinary shares and 264,295 R shares (equivalent to 2,642,950 ordinary shares). In addition, 5,337,782 ordinary shares were held by the Employee Beneﬁt Trust. At an extraordinary general meeting of shareholders of Reed Elsevier NV held in October 2014, the shareholders approved the reduction of the capital of Reed Elsevier NV by the cancellation of up to 40,000,000 of its ordinary shares held in treasury. Following the shareholders’ meeting, the Board ﬁled a declaration for the cancellation of 40,000,000 ordinary shares with the Trade Register at the Chamber of Commerce on 22 October 2014. The 40,000,000 ordinary shares of Reed Elsevier NV were subsequently cancelled with effect from 24 December 2014. 94118_Reed_AR_p170-178.indd 176 06/03/2015 13:20 RELX Group Annual Reports and Financial Statements 2014 177 13 Other reserves At start of year Proﬁt attributable to shareholders Cancellation of shares Share of joint ventures’: Actuarial (losses)/gains on deﬁned beneﬁt pension schemes Fair value movements on cash ﬂow hedges Transfer to net proﬁt from cash ﬂow hedge reserve Tax recognised in other comprehensive income Increase in share based remuneration reserve (net of tax) Settlement of share awards Acquisition of non-controlling interest Equalisation adjustments Equity dividends paid At end of year 14 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 2014 €m 115 592 (537) (165) (50) 12 47 30 (17) (9) (20) (349) (351) 2013 €m (228) 655 – 24 38 (2) (22) 29 (24) – (34) (321) 115 2014 €m 4,653 2013 €m 3,676 Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 18 to the combined ﬁnancial statements. 15 Related party transactions All transactions with joint ventures and RELX Group employees, which are related parties of Reed Elsevier NV, are reﬂected in these ﬁnancial statements. Key management personnel are also related parties and comprise the Directors of Reed Elsevier NV. Transactions with key management personnel are set out in note 2 and in note 28 to the combined ﬁnancial statements. 16 Principal joint ventures as at 31 December 2014 Reed Elsevier Group plc Incorporated and operating in Great Britain 1–3 Strand London WC2N 5JR During 2014 was a 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 During 2014 was a 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 % holding – 100% – – 100% As at 31 December 2014, the R shares in Reed Elsevier Group plc and Elsevier Reed Finance BV and the non–voting preference shares in Reed Elsevier Group plc were 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 the Group is ﬁled with the Amsterdam Chamber of Commerce in the Netherlands. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p170-178.indd 177 06/03/2015 13:20 178 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Notes to the consolidated ﬁnancial statements for the year ended 31 December 2014 17 Events after the balance sheet date Effective 25 February 2015, Reed Elsevier NV transferred interest bearing receivables of €836m to Elsevier Reed Finance BV for consideration of 1 ordinary voting E share. Subsequently, on 25 February 2015, Reed Elsevier NV transferred its direct ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. Simultaneously, Reed Elsevier PLC transferred its direct ownership interest in Elsevier Reed Finance BV to Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. This newly combined single group entity was named RELX Group plc. The R shares and E shares of RELX Group plc held by Reed Elsevier PLC and Reed Elsevier NV respectively were converted into non-voting shares. Reed Elsevier NV has retained its 50% economic interest in the combined businesses, and no gains or losses were recorded on the transactions. As Reed Elsevier NV and Reed Elsevier PLC each hold 50% of the voting shares in issue, joint control of RELX Group plc has been retained and their respective interests will continue to be accounted for under the equity method, as described in the accounting policies on page 172. 18 Approval of ﬁnancial statements The consolidated ﬁnancial statements were signed and authorised for issue by the Board of Directors on 25 February 2015. A J Habgood Chairman of the Board N L Luff Chief Financial Ofﬁcer 94118_Reed_AR_p170-178.indd 178 06/03/2015 13:20 RELX Group Annual Reports and Financial Statements 2014 179 Parent company proﬁt and loss account FOR THE YEAR ENDED 31 DECEMBER Administrative expenses Dividends received from joint ventures Finance income from joint ventures Tax expense 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 Note 2 2014 €m (3) 520 25 (5) 537 2013 €m (2) 186 19 (4) 199 Note 2014 €m 2013 €m 3 3 3 1 2 3,608 3,606 886 3 889 6 895 56 6 62 833 4,441 52 2,309 (635) 197 2,518 4,441 1,027 4 1,031 2 1,033 54 6 60 973 4,579 55 2,276 (814) 195 2,867 4,579 O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p179-184.indd 179 06/03/2015 13:21 180 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Parent company reconciliation of shareholders’ funds At 1 January 2013 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 1 January 2014 Proﬁt attributable to shareholders Equity dividends paid Repurchase of shares Cancellation of shares Issue of shares, net of expenses Equity instruments granted to employees of combined businesses At 31 December 2014 Share capital issued €m Paid-in surplus (i) €m Shares held in treasury €m Other reserves (ii) €m Reserves (iii) €m 54 – – – 1 – 55 – – – (3) – – 52 2,189 – – – 87 – 2,276 – – – – 33 – 2,309 (477) – – (337) – – (814) – – (361) 540 – – (635) 193 – – – – 2 195 – – – – – 2 197 2,989 199 (321) – – – 2,867 537 (349) – (537) – – 2,518 Total €m 4,948 199 (321) (337) 88 2 4,579 537 (349) (361) – 33 2 4,441 (i) Within paid–in surplus, an amount of €2,132m (2013: €2,099m) 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 2014 were €4,192m (2013: €4,329m), 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). Unless otherwise stated the ﬁnancial statements are in millions of euro. The parent company ﬁnancial statements and notes should be read in conjunction with the consolidated ﬁnancial statements presented on pages 170 to 178. The parent company ﬁnancial statements are prepared on a going concern basis, as explained on page 169. The Reed Elsevier NV accounting policies under UK GAAP are set out below. Investments Fixed asset investments 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 combined businesses are treated as a capital contribution. 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 12 of the Reed Elsevier NV consolidated ﬁnancial statements and note 26 of the 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. 94118_Reed_AR_p179-184.indd 180 06/03/2015 13:21 RELX Group Annual Reports and Financial Statements 2014 181 Notes to the parent company ﬁnancial statements 1 Other creditors Other creditors include €4m (2013: €5m) of RELX Group employee convertible debenture loans with a weighted average interest rate of 1.65% (2013: 1.95%). 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 2014 €m 537 575 (520) 592 2013 €m 199 642 (186) 655 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 2014 €m 4,441 (1,916) (160) (131) (76) (602) (197) 1,359 2013 €m 4,579 (1,971) (351) 41 (67) (602) (195) 1,434 3 Related party transactions All transactions with joint ventures and RELX Group employees which are related parties of Reed Elsevier NV, are reﬂected in these ﬁnancial statements. Principal joint ventures are set our in note 16 of the Reed Elsevier NV consolidated ﬁnancial statements. Investments in joint ventures include equity instruments granted to Group employees of €2m (2013: €2m). Transactions with key management personnel including share based remuneration costs are set out in note 28 to the combined ﬁnancial statements and details of the directors’ remuneration are included in the Directors’ Remuneration Report on pages 75 to 88. 4 Events after the balance sheet date Effective 25 February 2015, Reed Elsevier NV transferred interest bearing receivables of €836m to Elsevier Reed Finance BV for consideration of 1 ordinary voting share. Subsequently, Reed Elsevier NV transferred its direct 61% ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc and this newly combined single group entity was named RELX Group plc. Reed Elsevier NV has retained its 50% economic interest in the combined businesses, and no gains or losses were recorded on the transactions. Further details are provided on page 66. 5 Approval of ﬁnancial statements The consolidated ﬁnancial statements were signed and authorised for issue by the Board of Directors on 25 February 2015. A J Habgood Chairman of the Board N L Luff Chief Financial Ofﬁcer O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p179-184.indd 181 06/03/2015 13:21 182 FINANCIAL STATEMENTS AND OTHER INFORMATION REED ELSEVIER NV Additional information (unaudited) 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 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 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. OVERVIEW OF PROFIT FOR THE YEAR AND DIVIDENDS PAID Final dividend on ordinary shares for prior ﬁnancial year Interim dividend on ordinary shares for ﬁnancial year Dividend on R shares Surplus/(deﬁcit) for the year Total 2014 €m 249 100 – 188 537 2013 €m 230 91 – (122) 199 94118_Reed_AR_p179-184.indd 182 06/03/2015 13:21 RELX Group Annual Reports and Financial Statements 2014 183 Independent auditor’s report on ﬁnancial statements to the shareholders of Reed Elsevier NV Opinion on our audit of the consolidated and parent company ﬁnancial statements of Reed Elsevier NV (“the Company”) We have audited the accompanying 2014 ﬁnancial statements of Reed Elsevier NV, based in Amsterdam. The ﬁnancial statements include the consolidated ﬁnancial statements and the company 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 December 31, 2014 and of its results and its cash flows in the year 2014 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code. §§ the parent company financial statements give a true and fair view of the financial position of Reed Elsevier N.V.as at December 31, 2014 and of its result for the year 2014 in accordance with United Kingdom Generally Accepted Accounting Practice and in accordance with Part 9 of Book 2 of the Dutch Civil Code. The consolidated ﬁnancial statements comprise: 1. 2. the consolidated statement of ﬁnancial position as at December 31, 2014; the following statements for 2014: consolidated income statements, consolidated statement of comprehensive income, consolidated statement of cashﬂows and consolidated statement of changes in equity; and 3. the related notes 1 to 18, including a summary of the signiﬁcant accounting policies and other explanatory information. The company ﬁnancial statements comprise: 1. 2. 3. 4. the parent company proﬁt and loss account for the year 2014; the parent company balance sheet as at December 31, 2014; the parent reconciliation of shareholders’ funds; and notes comprising a summary of the signiﬁcant accounting policies and other explanatory information and the related notes 1 to 5. Basis for Our Opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the ﬁnancial statements” section of our report. We are independent of the Company in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA). We believe the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those that, in our professional judgment, were of most signiﬁcance in our audit of the consolidated and parent company ﬁnancial statements. We have communicated these key audit matters to the Audit Committees; the Audit Committees’ consideration of these risks is set out on page 89. The key audit matters are not a comprehensive reﬂection of all matters discussed. Our audit procedures relating to these matters were addressed in the context of our audit of the consolidated and parent company ﬁnancial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these individual matters. Given the nature of the Reed Elsevier PLC and Reed Elsevier NV legal structure, the key audit matters, our assessed risks of material misstatement, application of materiality, overview of the scope of our group audit, and considerations regarding going concern for the combined business equally applies to the audit of the consolidated and parent company ﬁnancial statements of Reed Elsevier NV. See page 132 for further details. Responsibilities of Executive Directors and the Non-Executive Directors for the Financial Statements Executive directors are responsible for the preparation and fair presentation of the ﬁnancial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the report of the board in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, executive directors are responsible for such internal control as executive directors determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. As part of the presentation of the ﬁnancial statements, executive directors are responsible for assessing the company’s ability to continue as a going concern. Based on the ﬁnancial reporting frameworks mentioned, executive directors should prepare the ﬁnancial statements using the going concern basis of accounting unless executive directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Executive directors should disclose events and circumstances that may cast signiﬁcant doubt on the company’s ability to continue as a going concern. The non executive directors are responsible for overseeing the company’s ﬁnancial reporting process. Our responsibility for the audit of the ﬁnancial statements Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufﬁcient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud. We have exercised professional judgment and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p179-184.indd 183 06/03/2015 13:21 184 FINANCIAL STATEMENTS AND OTHER INFORMATION INDEPENDENT AUDITOR’S REPORT Our audit included: Report on Other Legal and Regulatory Requirements §§ identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. §§ obtaining an understanding of internal control relevant to the audit 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 company’s internal control. Report of the Board and the Other Information Pursuant to legal requirements of Part 9 of Book 2 of the Dutch Civil Code (concerning our obligation to report about the report of the board and other data), we declare that: §§ we have no deficiencies to report as a result of our examination whether the report of the board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code, and whether the information as required of Part 9 of Book 2 of the Dutch Civil Code has been annexed. §§ further we report that the report of the board report, to the extent we can assess, is consistent with the financial statements. §§ evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. §§ concluding on the appropriateness of management’s use of the Engagement We were engaged by the Audit Committee as auditor of RELX Group plc and as auditor of Reed Elsevier NV on 23 July 2014, for the audit of the ﬁnancial year ended 31 December 2014 and have operated as statutory auditor since 1994. Deloitte Accountants BV M.J. van der Vegte Amsterdam The Netherlands 25 February 2015 going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern. §§ evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and §§ evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the non executive directors regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant ﬁndings in internal control that we identify during our audit. We provide the non executive directors with a statement that we have complied with relevant ethical requirements regarding independence and communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, including where applicable, related safeguards. From the matters communicated with the non executive directors we determine those matters that were of most signiﬁcance in the audit of the ﬁnancial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. 94118_Reed_AR_p179-184.indd 184 06/03/2015 13:21 RELX Group Annual Reports and Financial Statements 2014 185 5 year summary Combined ﬁnancial information Revenue Reported operating proﬁt Adjusted operating proﬁt Reported net proﬁt attributable to shareholders Adjusted net proﬁt attributable to shareholders Reed Elsevier NV consolidated ﬁnancial information Reported net proﬁt attributable to shareholders Adjusted net proﬁt attributable to shareholders Reported earnings per ordinary share (€) Adjusted earnings per ordinary share (€) Dividend per ordinary share (€) IAS19 (revised)(3) 2014 €m 2013 €m Note 7,159 1,738 2,156 1,184 1,504 592 752 €0.85 €1.07 €0.589 7,121 1,624 2,064 1,310 1,413 655 707 €0.91 €0.99 €0.506 1 1 2 2012 €m 7,523 1,639 2,076 1,284 1,379 642 689 €0.87 €0.94 €0.467 As reported 2012 €m 2011 €m 2010 €m 7,523 1,670 2,107 1,315 1,400 658 700 €0.90 €0.95 €0.467 6,902 1,386 1,870 874 1,219 437 610 €0.59 €0.83 €0.436 7,084 1,275 1,819 751 1,150 376 575 €0.51 €0.78 €0.412 (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, the net ﬁnancing cost on deﬁned beneﬁt pension schemes, exceptional restructuring (in 2010 only) and acquisition-related costs, exceptional prior year tax credits (in 2012 only), and in respect of attributable net 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) Dividend per ordinary share is based on the interim dividend and proposed ﬁnal dividend for the relevant year. (3) Comparative ﬁgures for 2012 have been restated following the adoption of IAS19 Employee Beneﬁts (revised). O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p185.indd 185 06/03/2015 13:22 186 FINANCIAL STATEMENTS AND OTHER INFORMATION NOTES TO THE COMBINED FINANCIAL STATEMENTS 94118_Reed_AR_p186-190.indd 186 06/03/2015 13:23 RELX Group Annual Reports and Financial Statements 2014 187 Other financial information In this section Additional information for US Investors 188 Reed Elsevier combined businesses 189 Reed Elsevier PLC 190 Reed Elsevier NV O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p186-190.indd 187 10/03/2015 09:29 188 FINANCIAL STATEMENTS AND OTHER FINANCIAL 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 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 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 2014 1.65 2013 1.56 2014 1.56 2013 1.66 Combined income statement FOR THE YEAR ENDED 31 DECEMBER Revenue Operating proﬁt Proﬁt before tax Net proﬁt attributable to parent companies’ shareholders Adjusted operating proﬁt Adjusted proﬁt before tax Adjusted net proﬁt attributable to parent companies’ shareholders Combined statement of cash ﬂows FOR THE YEAR ENDED 31 DECEMBER Net cash from operating activities Net cash used in investing activities Net cash used in ﬁnancing activities Increase/(decrease) in cash and cash equivalents Movement in cash and cash equivalents At start of year Increase/(decrease) in cash and cash equivalents Exchange translation differences At end of year Adjusted 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 2014 US$m 9,525 2,313 2,028 1,576 2,869 2,627 2,001 Restated 2013 US$m 9,415 2,147 1,866 1,732 2,728 2,452 1,867 2014 US$m 2,272 (932) (1,106) 234 219 234 (22) 431 2,742 2014 US$m 14,276 3,020 – 17,296 6,140 7,819 3 13,962 3,334 2013 US$m 2,162 (493) (2,499) (830) 1,038 (830) 11 219 2,657 2013 US$m 14,376 3,011 35 17,422 6,395 7,000 5 13,400 4,022 94118_Reed_AR_p186-190.indd 188 06/03/2015 13:23 RELX Group Annual Reports and Financial Statements 2014 189 Reed Elsevier PLC Summary ﬁnancial information in US dollars Basis of preparation The summary ﬁnancial information is a simple translation of the Reed Elsevier PLC consolidated ﬁnancial statements into US dollars at the stated rates of exchange. The ﬁnancial information provided below is prepared under IFRS as used in the preparation of the Reed Elsevier PLC consolidated ﬁnancial statements. It does not represent a restatement under US GAAP which would be different in some signiﬁcant respects. EXCHANGE RATES FOR TRANSLATION OF STERLING ($:£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 Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* Proﬁt attributable to 52.9% interest in Reed Elsevier combined businesses 2014 US$:£ 1.65 1.56 2013 US$:£ 1.56 1.66 2014 US$m 809 1,059 (244) (18) (10) (13) 59 833 2013 US$m 892 987 (267) (25) (11) (16) 248 916 * Movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. 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 paid 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 2014 US$ 2013 US$ $3.72 $2.84 $1.65 $1.72 $3.37 $3.05 $1.48 $1.54 2014 US$m 1,741 2013 US$m 2,098 Adjusted earnings per American Depositary Share (ADS) is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted proﬁt attributable to the combined businesses, which excludes amortisation of acquired intangible assets, acquisition-related costs, disposal-related and other non-operating items, the net ﬁnancing charge or credit on deﬁned beneﬁt pension scheme, and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term and include the beneﬁt of tax amortisation where available on acquired goodwill and intangible assets. Adjusted ﬁgures are additional performance measures used by management and are described in note 8 to the Reed Elsevier PLC consolidated ﬁnancial statements. Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs), representing four Reed Elsevier PLC ordinary shares. (CUSIP No. 758205207; trading symbol, RUK; Citibank NA is the ADR Depositary.) O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p186-190.indd 189 06/03/2015 13:23 190 FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION REED ELSEVIER NV Reed Elsevier NV Summary ﬁnancial information in US dollars Basis of preparation The summary ﬁnancial information is a simple translation of the Reed Elsevier NV consolidated ﬁnancial statements into US dollars at the stated rates of exchange. The ﬁnancial information provided below is prepared under IFRS as used in the preparation of the Reed Elsevier NV consolidated ﬁnancial statements. It does not represent a restatement under US GAAP which would be different in some signiﬁcant respects. EXCHANGE RATES FOR TRANSLATION OF EURO ($:€1) Income statement Statement of ﬁnancial position 2014 US$:€ 1.33 1.21 2013 US$:€ 1.32 1.38 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 Net ﬁnancing charge on deﬁned beneﬁt pension schemes Disposals and other non-operating items Other deferred tax credits from intangible assets* Proﬁt attributable to shareholders 2014 US$m 1,000 (232) (17) (9) (11) 56 787 * Movements on deferred tax liabilities arising on acquired intangible assets that do not qualify for tax amortisation and in 2013 non-recurring deferred tax credits arising on the alignment of certain business assets with their global management structure. DATA PER AMERICAN DEPOSITARY SHARE (ADS) Earnings per ADS based on 50% interest in Reed Elsevier combined businesses: Adjusted Basic Net dividend per ADS paid in the year Net dividend per ADS paid and proposed in relation to the ﬁnancial year 2014 US$ $2.85 $2.26 $1.40 $1.57 2013 US$m 933 (253) (24) (10) (15) 234 865 2013 US$ $2.61 $2.40 $1.24 $1.34 Consolidated statement of ﬁnancial position AS AT 31 DECEMBER Shareholders’ equity 2014 US$m 1,644 2013 US$m 1,979 Adjusted earnings per American Depositary Share is based on Reed Elsevier NV shareholders’ 50% share of the adjusted proﬁt attributable to the Reed Elsevier combined businesses, which excludes amortisation of acquired intangible assets, acquisition-related costs, disposal-related and other non-operating items, the net ﬁnancing charge or credit on deﬁned beneﬁt pension schemes, 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; Citibank N. is the ADR Depositary.) 94118_Reed_AR_p186-190.indd 190 06/03/2015 13:23 RELX Group Annual Reports and Financial Statements 2014 Reed Elsevier Annual Reports and Financial Statements 2014 191 Shareholder information In this section 192 Shareholder information 194 Contacts 195 2015 financial calendar 196 Principal operating locations O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p191-196.indd 191 10/03/2015 09:30 192 FINANCIAL STATEMENTS AND OTHER INFORMATION SHAREHOLDER INFORMATION Shareholder information Annual Reports and Financial Statements 2014 The Annual Reports and Financial Statements for the combined businesses, Reed Elsevier PLC and Reed Elsevier NV for the year ended 31 December 2014, and the Corporate Governance Statement of Reed Elsevier NV are available on the Group’s website, and from the registered ofﬁces of the respective parent companies shown on page 194. Additional ﬁnancial information, including the interim and full-year results announcements, Interim Management Statements and presentations is also available on the Group’s website, www.relxgroup.com. The 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. Interim results Reed Elsevier PLC and Reed Elsevier NV no longer publish interim results in hard copy. The interim results are available on the Group’s website, www.relxgroup.com. Share price information Reed Elsevier PLC’s ordinary shares are quoted on the London Stock Exchange. Reed Elsevier NV’s ordinary shares are quoted on the Euronext Amsterdam Stock Exchange. The Reed Elsevier PLC and Reed Elsevier NV ordinary shares are quoted on the New York Stock Exchange in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs). Each Reed Elsevier PLC ADR represents four Reed Elsevier PLC ordinary shares. Each Reed Elsevier NV ADR represents two Reed Elsevier NV ordinary shares. The Reed Elsevier PLC and Reed Elsevier NV ordinary share prices and the ADR prices may be obtained from the Group’s website, other online sources and the ﬁnancial pages of some newspapers. FOR FURTHER INFORMATION VISIT WWW.RELXGROUP.COM Information for Reed Elsevier PLC ordinary shareholders Shareholder services The Reed Elsevier PLC ordinary share register is administered by Equiniti Limited. Equiniti provides a free online portal for shareholders at www.shareview.co.uk. Shareview allows shareholders to monitor the value of their shareholdings, view their dividend payments and submit dividend mandate instructions. Shareholders can also submit their proxy voting instructions ahead of company meetings, as well as update their personal contact details. Shareview Dealing provides a share purchase and sale facility. Equiniti’s contact details appear on page 194. Electronic communications While hard copy shareholder communications continue to be available to those shareholders requesting them, in accordance with the Companies Act 2006 and the Company's articles of association, Reed Elsevier PLC uses the Group’s website as the main method of communicating with shareholders. By registering their details online at Shareview, shareholders can be notiﬁed by email when shareholder communications are published on the Group’s website. Shareholders can also use the Shareview website to appoint a proxy to vote on their behalf at shareholder meetings. Shareholders who hold their Reed Elsevier PLC shares through CREST may appoint proxies for shareholder meetings through the CREST electronic proxy appointment service by using the procedures described in the CREST manual. Dividend mandates Shareholders are encouraged to have their dividends paid directly into a UK bank or building society account. This method of payment reduces the risk of delay or loss of dividend cheques in the post and ensures the account is credited on the dividend payment date. A dividend mandate form can be obtained online at www.shareview.co.uk, or by contacting Equiniti at the address shown on page 194. Equiniti has established a service for overseas shareholders in over 90 countries, which enables shareholders to have their dividends automatically converted from sterling and paid directly into their nominated bank account. Further details of this service, and the fees applicable, are available at www.shareview.co.uk or by contacting Equiniti at the address shown on page 194. Dividend Reinvestment Plan Shareholders can choose to reinvest their Reed Elsevier PLC dividends by purchasing further shares through the Dividend Reinvestment Plan (DRIP) provided by Equiniti. Further information concerning the DRIP facility, together with the terms and conditions and an application form can be obtained online at www.shareview.co.uk/dividends or by contacting Equiniti at the address shown on page 194. 94118_Reed_AR_p191-196.indd 192 06/03/2015 13:24 RELX Group Annual Reports and Financial Statements 2014 193 How to avoid share fraud and boiler room scans The Financial Conduct Authority (FCA) has issued some guidance on how to recognise and avoid investment fraud: §§ Legitimate firms authorised by the FCA are unlikely to contact you unexpectedly with an offer to buy or sell shares. §§ If you receive an unsolicited phone call, do not get into a conversation, note the name of the person and firm contacting you and then end the call. §§ Check the Financial Services Register available at www.fca.org.uk to see if the person and firm contacting you is authorised by the FCA. If you wish to call the person or firm back, only use the contact details listed on the Register. §§ Call the FCA on 0800 111 6768 if the firm does not have any contact details on the Register, or if you are told that they are out of date. §§ Search the list of unauthorised firms to avoid at www.fca.org.uk/scams. §§ If you do buy or sell shares through an unauthorised firm, you will not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. §§ Consider obtaining independent financial and professional advice before you hand over any money. If it sounds too good to be true it probably is. How to report a scam If you are approached by fraudsters, please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can ﬁnd out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters, you should contact Action Fraud on 0300 123 2040. Share dealing service A telephone and internet dealing service is available through Reed Elsevier PLC’s Registrar, Equiniti, which provides a simple way for UK-resident shareholders to buy or sell Reed Elsevier PLC shares. For telephone dealing call 08456 037037 between 8.00am and 4.30pm, Monday to Friday, and for internet dealing log on to www.shareview.co.uk/dealing. You will need your shareholder account number shown on your dividend tax voucher. Individual savings account 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 194, 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 mid-market price of 40.72p for each existing ordinary share of 1451⁄116p nominal value. Warning to shareholders – unsolicited investment advice §§ From time to time shareholders may receive unsolicited calls from fraudsters. §§ Fraudsters use persuasive and high-pressure tactics to lure investors into scams, sometimes known as boiler room scams. §§ They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. §§ While high profits are promised, if you buy or sell shares in this way you will probably lose your money. §§ 5,000 people contact the Financial Conduct Authority about share fraud each year, with victims losing an average of £20,000. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p191-196.indd 193 06/03/2015 13:24 194 FINANCIAL STATEMENTS AND OTHER INFORMATION SHAREHOLDER INFORMATION Shareholder information and contacts Information for Reed Elsevier NV ordinary shareholders Information for Reed Elsevier PLC and Reed Elsevier NV ADR holders Shareholder enquiries Enquiries from holders of Reed Elsevier NV registered ordinary shares in relation to share transfers, dividends, change of address and bank accounts should be directed to the Company Secretary of Reed Elsevier NV, at the registered ofﬁce address shown below. Dividends Dividends on Reed Elsevier NV ordinary shares are declared and paid in euros. Registered shareholders in Reed Elsevier NV will receive dividends from the company by transmission to the bank account which they have notiﬁed to the company. Dividends on shares in bearer form are paid through the intermediary of a bank or broker. Dividend Reinvestment Plan By instructing their bank or intermediary, shareholders can choose to reinvest their Reed Elsevier NV dividends by purchasing further shares through the Dividend Reinvestment Plan (DRIP) provided by ABN AMRO Bank NV. Further information concerning the DRIP facility can be obtained online at www.securitiesinfo.com. 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. The Reed Elsevier PLC and Reed Elsevier NV ADR Depositary is Citibank NA Reed Elsevier PLC’s CUSIP number is 758205207 and its trading symbol is RUK. Each Reed Elsevier PLC ADR represents four Reed Elsevier PLC ordinary shares. Reed Elsevier NV’s CUSIP number is 758204200 and its trading symbol is ENL. Each Reed Elsevier NV ADR represents two Reed Elsevier NV ordinary shares. ADR shareholder services Enquiries concerning Reed Elsevier PLC or Reed Elsevier NV ADRs should be addressed to the ADR Depositary at the address shown below. Dividends Dividend payments on Reed Elsevier PLC and Reed Elsevier NV ADRs are converted into US dollars by the ADR Depositary. Annual Report on Form 20-F The Annual Report on Form 20-F for the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV is ﬁled electronically with the United States Securities and Exchange Commission. A copy of the Form 20-F is available on the Group’s website, or from the ADR Depositary at the address shown below. Reed Elsevier PLC and Reed Elsevier NV ADR Depositary Citibank Depositary Receipt Services PO Box 43077 Providence, RI 02940-3077 USA WWW.CITI.COM/DR Email: citibank@shareholders-online.com Tel: +1 877 248 4327 +1 781 575 4555 (callers outside the US) Reed Elsevier PLC 1-3 Strand London WC2N 5JR United Kingdom Tel: +44 (0)20 7166 5500 Fax: +44 (0)20 7166 5799 Auditors Deloitte LLP 2 New Street Square London EC4A 3BZ United Kingdom Registrar Equiniti Limited Aspect House Spencer Road Lancing BN99 6DA West Sussex United Kingdom WWW.SHAREVIEW.CO.UK 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 Gustav Mahlerlaan 2970 1081 LA Amsterdam The Netherlands Listing/paying agent ABN AMRO Bank NV Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands WWW.SECURITIESINFO.COM Tel: 0871 384 2960 (calls cost 8p per minute plus additional network charges where applicable) Tel: +44 121 415 7047 (callers outside the UK) 94118_Reed_AR_p191-196.indd 194 06/03/2015 13:24 RELX Group Annual Reports and Financial Statements 2014 195 2015 ﬁnancial calendar 26 February 22 April 22 April 23 April 29 April 30 April 1 May 4 May 22 May 28 May 23 July 5 August 6 August 7 August 28 August 2 September PLC/NV PLC/NV NV PLC PLC 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 2014 Interim management statement issued in relation to the 2015 ﬁnancial year Annual General Meeting – Reed Elsevier NV, World Trade Center, Strawinskylaan 77, 1077 XW Amsterdam Annual General Meeting – Reed Elsevier PLC, Millennium Hotel, Grosvenor Square, London W1K 2HP Ex-dividend date – 2014 ﬁnal dividend, Reed Elsevier PLC ADRs Ex-dividend date – 2014 ﬁnal dividend, Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares and ADRs Record date – 2014 ﬁnal dividend, Reed Elsevier PLC ordinary shares and ADRs Record date – 2014 ﬁnal dividend, Reed Elsevier NV ordinary shares and ADRs Payment date – 2014 ﬁnal dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares Payment date – 2014 ﬁnal dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs Interim results announcement for the six months to 30 June 2015 Ex-dividend date – 2015 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs Ex-dividend date – 2015 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares Record date – 2015 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs Payment date – 2015 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares Payment date – 2015 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs The following tables set out dividends paid (or proposed) in relation to the three ﬁnancial years 2012–2014. ORDINARY SHARES Final dividend for 2014* Interim dividend for 2014 Final dividend for 2013 Interim dividend for 2013 Final dividend for 2012 Interim dividend for 2012 pence per PLC ordinary share € per NV ordinary share Payment date 19.00 7.00 17.95 6.65 17.00 6.00 0.438 0.151 0.374 0.132 0.337 0.130 22 May 2015 28 August 2014 23 May 2014 29 August 2013 23 May 2013 31 August 2012 * Proposed dividend, to be submitted for approval at the respective Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2015. ADRs Final dividend for 2014 Interim dividend for 2014 Final dividend for 2013 Interim dividend for 2013 Final dividend for 2012 Interim dividend for 2012 $ per PLC ADR $ per NV ADR Payment date ** 0.46398 1.20918 0.412 1.02578 0.37898 ** 0.39752 1.01892 0.34948 0.86555 0.32515 28 May 2015 4 September 2014 30 May 2014 5 September 2013 30 May 2013 7 September 2012 ** Payment will be determined using the appropriate £/US$ and €/US$ exchange rate on 22 May 2015. Note: The dividend rates shown for Reed Elsevier NV ordinary shares and ADRs are gross dividend rates before the deduction of Dutch withholding tax. O v e r v i e w B u s i n e s s r e v i e w i F n a n c i a l r e v i e w G o v e r n a n c e i F n a n c i a l s t a t e m e n t s a n d o t h e r i n f o r m a t i o n 94118_Reed_AR_p191-196.indd 195 06/03/2015 13:24 196 FINANCIAL STATEMENTS AND OTHER INFORMATION 2015 FINANCIAL CALENDAR Principal operating locations RELX Group 1-3 Strand London WC2N 5JR United Kingdom Tel: +44 (0)20 7166 5500 Fax: +44 (0)20 7166 5799 Radarweg 29 1043 NX Amsterdam The Netherlands Tel: +31 (0)20 485 2222 Fax: +31 (0)20 485 2032 230 Park Avenue New York, NY 10169 USA Tel: +1 212 309 8100 Fax: +1 212 309 8187 FOR FURTHER INFORMATION OR CONTACT DETAILS, PLEASE CONSULT OUR WEBSITE: WWW.RELXGROUP.COM Elsevier Radarweg 29 1043 NX Amsterdam The Netherlands WWW.ELSEVIER.COM The Boulevard Langford Lane Kidlington Oxford OX5 1GB United Kingdom 125 London Wall London EC2Y 5AJ United Kingdom 1600 John F. Kennedy Blvd Suite 1800 Philadelphia, PA 19103 USA 3251 Riverport Lane Maryland Heights, MO 63043 USA LexisNexis Risk Solutions 1000 Alderman Drive Alpharetta, GA 30005 USA WWW.LEXISNEXIS.COM/RISK Reed Business Information Quadrant House The Quadrant Sutton Surrey SM2 5AS United Kingdom WWW.REEDBUSINESS.CO.UK LexisNexis Legal & Professional 230 Park Avenue New York, NY 10169 USA WWW.LEXISNEXIS.COM 9443 Springboro Pike Miamisburg, OH 45342 USA Lexis House 30 Farringdon Street London EC4A 4HH United Kingdom WWW.LEXISNEXIS.CO.UK Reed Exhibitions Gateway House 28 The Quadrant Richmond Surrey TW9 1DN United Kingdom WWW.REEDEXPO.COM Elsevier Reed Finance BV Radarweg 29 1043 NX Amsterdam The Netherlands Tel: +31 (0)20 4852222 Fax: +31 (0)20 4852032 94118_Reed_AR_p191-196.indd 196 06/03/2015 13:24 Credits Designed and produced by mslgroup.com Board photography by Douglas Fry, Piranha Photography Printed by Pureprint Group, ISO14001, FSC® certified and CarbonNeutral® The 2014 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. RELX Group is a world-leading provider of information solutions for professional customers across industries. We help scientists make new discoveries, lawyers win cases, doctors save lives, and executives forge commercial relationships with their clients. We help insurance groups offer customers lower prices by assessing risk better, and save taxpayers and consumers money by enabling governments and financial groups to detect fraud. RELX Group is owned by two parent companies: Reed Elsevier PLC is the London Stock Exchange listed vehicle for holding shares in RELX Group. Shareholders in Reed Elsevier PLC own a 52.9% economic interest in the Group. Reed Elsevier NV is the Amsterdam Stock Exchange listed vehicle for holding shares in RELX Group. External shareholders in Reed Elsevier NV own a 47.1% economic interest in the Group. Forward-looking statements The Reports and Financial Statements 2014 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”, “trends” and similar expressions identify forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to competitive factors in the industries in which the Group operates; demand for the Group’s products and services; exchange rate ﬂuctuations; general economic and business conditions; legislative, fiscal, tax and regulatory developments and political risks; the availability of third-party content and data; breaches of our data security systems and interruptions in our information technology systems; changes in law and legal interpretations affecting the Group’s intellectual property rights and other risks referenced from time to time in the filings of the Group with the US Securities and Exchange Commission. 94118_Reed_AR_Cover.indd 4-6 09/03/2015 17:46 A n n u a l i R e p o r t s a n d F n a n c i a l S t a t e m e n t s 2 0 1 4 www.relxgroup.com Annual Reports and Financial Statements 2014 94118_Reed_AR_Cover.indd 1-3 09/03/2015 11:17

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