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I N T E R I M R E S U L T S 2 0 0 3. Highlights. Good performance in challenging markets Continuing strong progress against strategic priorities Acceleration of growth in second half On track to deliver 2003 targets. Financial Update. Mark Armour Chief Financial Officer.

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I n t e r i m r e s u l t s 2 0 0 3

I N T E R I M R E S U L T S 2 0 0 3


Highlights

Highlights

  • Good performance in challenging markets

  • Continuing strong progress against strategic priorities

  • Acceleration of growth in second half

  • On track to deliver 2003 targets


Financial update

Financial Update

Mark Armour

Chief Financial Officer


Adjusted profit and loss

Adjusted Profit And Loss

2003£m

2002£m

2003€m

2002 €m

% changeconstant

6 months to 30 June

Turnover

2,345

2,467

3,424

3,972

0

%

496

724

0

Adjusted operating profit

505

813

%

Operating margin

20.5%

20.5%

21.2%

21.2%

Net interest expense

(88)

(107)

(128)

(172)

Adjusted profit before tax

398

641

%

408

596

+3

  • Reported results reflect currency translation effects

Adjusted figures exclude amortisation of goodwill and intangible assets and exceptional items


Science medical revenues up 6 operating profit up 5 margin 33 9

2002

2002

2003

2003

2002

2002

2003

2003

Science & MedicalRevenues up 6% - operating profit up 5% - margin 33.9%

Revenues

Operating profit

  • Underlying revenues up 4%; operating profit up 5%

  • Strong subscription renewals and growing online sales

  • Science & Technology revenues up 4%

  • Health Sciences revenues up 3%

  • Book publishing programme to accelerate second half

£m

€m

£m

€m


Legal revenues up 4 operating profit up 17 margin 20 7

2002

2002

2003

2003

2002

2002

2003

2003

LegalRevenues up 4% - operating profit up 17% - margin 20.7%

Revenues

Operating profit

  • Underlying revenues up 2%; operating profit up 13%

  • Strong operating margin improvement in first half

  • US Legal revenues up 3%; Online up 7% - strong small law

  • US Corporate & Federal Markets flat; strong risk solutions

  • International underlying revenues up 3%; accelerating demand for online

£m

€m

€€

£m

€m


Education revenues down 5 operating profit down 32 margin 7 5

2002

2002

2003

2003

2002

2002

2003

2003

EducationRevenues down 5% - operating profit down 32% - margin 7.5%

Revenues

Operating profit

  • Underlying revenues down 6%; operating profit down 35%

  • First half growth unrepresentative; revenues and profit second half weighted

  • US K-12 revenues flat; orders deferred to second half

  • Testing revenues down 27%; loss of California contract

  • International revenues up 1%; UK funding shortfalls

£m

€m

£m

€m


Business revenues down 6 operating profit down 12 margin 17 2

2002

2002

2003

2003

2002

2002

2003

2003

BusinessRevenues down 6% - operating profit down 12% - margin 17.2%

Revenues

Operating profit

  • Underlying revenues down 6%; operating profit 12%

  • Rate of decline in advertising markets slowed; few signs of recovery

  • Margins defended through continued cost actions

  • Investment in product quality and disciplined yield management

  • Exhibitions resilient: revenues down 3% excluding cycling

£m

€m

£m

€m


Adjusted profit before tax reconciliation

Adjusted Profit Before Tax: Reconciliation

6 months to 30 June

£m

%

change

€m

%

change

2002 Adjusted profit before tax

398

641

Base business

8

+2%

12

+2%

Acquisitions/Disposals

5

+1%

7

+1%

(64)

Currency translation effect

-10%

(3)

-

2003 Adjusted profit before tax

408

+3%

596

-7%

Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items


Cash flow

Cash Flow

6 months to 30 June

2003

£m

2002

£m

2003

€m

2002

€m

Adjusted operating cash flow

177

36%

(5)

(209)

(214)

(97)

89

(41)

(263)

160

32%

(36)

(190)

(226)

(90)

113

(37)

(240)

258

36%

(8)

(305)

(313)

(141)

130

(59)

(383)

258

32%

(58)

(306)

(364)

(145)

182

(59)

(386)

% conversion

Free cash flow before dividends

Dividends

Free cash flow after dividends

Acquisition spend

Disposals

Other exceptional items

Total cash outflow before financing


Reported profit attributable

Reported Profit Attributable

6 months to 30 June

2003

£m

2002

£m

2003

€m

2002

€m

Adjusted profit attributable

300

293

438

472

Amortisation of goodwill and intangible assets

(228)

(269)

(332)

(433)

Exceptional items

25

73

36

117

Reported profit attributable

97

97

142

156

Reed Elsevier PLC EPS

3.9p

3.9p

Reed Elsevier NV EPS

€0.09

€0.10


Adjusted earnings and dividends

Adjusted Earnings and Dividends

Reed

Elsevier

PLC

Reed

Elsevier

NV

% change constant

Adjusted EPS

12.6p

+2%

€0.28

-7%

+3%

Equalised dividends

3.3p

+3%

€0.08

-11%


Strategy execution

Strategy & Execution

Crispin Davis

Chief Executive Officer


Reed elsevier key objectives for 2003

Reed Elsevier:Key Objectives For 2003

  • Maximise above market organic growth from four core businesses

  • Execute and deliver on all strategic milestones

  • Improve operating margin further through increased efficiency

  • Deliver double digit earnings growth

ON TRACK

ON TRACK

ON TRACK

ON TRACK


Science medical sciencedirect increasing usage

124

86

50

28

16

2001

1999

2002

2000

2003*

Science & Medical:ScienceDirect:Increasing Usage

  • Article downloads (millions)

* 12 months to 30 June


Science medical sciencedirect expanding content

4.5

3.3

1.8

1.2

2001

2002

2000

2003*

Science & Medical:ScienceDirect:Expanding Content

  • Full text articles (millions)

* At 30 June


Science technology continued low attrition

8.5%

5.2%

4.0%

4.0%

4.0%

Science & Technology:Continued Low Attrition

1999

2000

2001

2002

2003*

* Full Year Estimate


Science medical health sciences

Science & Medical: Health Sciences

  • Successful front list publishing programme

  • Accelerating electronic information business

    • MD Consult 13% ahead

    • Wide ranging introduction of new products

    • Significant online education training opportunities

  • Accelerating international expansion

    • Local versioning of authoritative content

    • Acquisition of Holtzbrinck STM in Germany

  • Integration of book production and distribution on track


Science medical 2003 outlook

Science & Medical: 2003Outlook

  • Revenue growth to accelerate

    • Strong 2003 book publishing programme

    • Continued growth in electronic sales

  • Cost efficiencies and operational gearing to drive further margin improvement

  • Expansion of content and innovative electronic services


Legal us legal online usage growing

+20%

+22%

+31%

+17%

Legal:US Legal Online Usage Growing

  • Growth in commercial searches

1999

2000

2001

2002

2003*

Online revenues up 7%

* To 30 June


Legal risk solutions long term growth

Risk Mgmt.

Enterprise/Lib.

Legal/Tax

CFM

Law Firms

Total LN

Legal: Risk Solutions: Long Term Growth

Growth in public records


Legal optimising cost efficiency

24.9%

21.3%

20.1%

19.7%

1999

2000

2001

2002

Legal:Optimising Cost Efficiency

  • Operating margin

c.22.5%

2003*

*Full Year Estimate


Legal 2003 outlook

Legal: 2003 Outlook

  • Maintain above market revenue momentum in US markets

  • Acceleration of growth from new product initiatives and acquired businesses

  • Margin improvement from focused cost actions, releasing funds for investment

  • International – strong growth in online sales mitigated by print migration and weak corporate markets


Education us schools market

Education:US Schools Market

  • Attractive long term growth market

  • Strong federal and state commitment

  • Short term market weakness in 2003/2004

    • Low point in adoption cycle

    • State budget pressures

  • 2003 impact from federal funding modest


Education winning performance in 2003 adoption revenues

Education:Winning Performance in 2003 Adoption Revenues

Elementary

Secondary

Reading/Literature

# 3

# 1

Language Arts

# 1

# 1

Mathematics

# 1

# 3

Social Studies

# 1

# 4

Science

# 1

# 1

Overall # 1

Overall # 1 =

Based on estimated share of total available adoption revenues


Education harcourt assessment

Education:Harcourt Assessment

  • 2003 revenues impacted by loss of California

  • Momentum regenerated: management, product, scoring, operations

  • New edition of Stanford Achievement Test launched

  • Awarded 7 out of 11 state contracts tendered

  • Strong pipeline of state level bids


Education 2003 outlook

Education: 2003 Outlook

  • US schools market broadly flat; small decline possible

  • Success in state adoptions will come through as second half sales

  • Continued success in state Testing contracts

  • Margin improvement through continuing process efficiency


Business trading environment

Business: Trading environment

Overall

  • No marked deterioration; no real sign of recovery

US

  • Variability by sector: Growth in Entertainment; Manufacturing and Electronics still weak; Construction late cycle

UK

  • Variability by sector; Aerospace, Social Services and Property holding up

Continental Europe

  • Economic conditions weaker; resilient subscription revenues mitigated advertising declines across all sectors

Global Exhibitions

  • Impact of economic weakness, SARS and Iraq; cycling out of non-annual shows


Business online revenue growth

$140m

$115m

$95m

$57m

$22m

Business:Online Revenue Growth

1999

2000

2001

2002

2003*

* Full year estimate


Business market outperformance

Business: Market Outperformance

  • Continuing to build market share on magazines

  • Further improvement in yield management

  • Tight control of costs

  • Exhibitions challenging, but showing resilience


Business 2003 outlook

Business: 2003 Outlook

  • Continued tough trading conditions across markets

  • Product quality, sales effectiveness and yield management restrict revenue decline

  • Continued margin improvement, mitigating impact on profitability

  • Significant upside as economy recovers


Product upgrade initiatives

Product Upgrade Initiatives:

  • Reference works online

  • Scirus search engine

  • MD Consult upgrade

  • EVOLVE medical education platform

  • ScienceDirect multimedia capability

  • State annotated codes

  • e-Filing, e-Access, e-Discovery

  • Integrated Risk Solutionscapability

  • Industry Dossier

  • Global Legal Platform

  • Market leading adoption programmes

  • Online HRW Basal

  • Stanford 10

  • Texas STARgate

  • Alzheimer Quicktest

  • Totaljobs.com

  • KellySearch

  • 14 magazines relaunched

  • RCD Connect

  • 16 new exhibitions launched


I n t e r i m r e s u l t s 2 0 0 3

Sales and Marketing Initiatives:

Elsevier

Dedicated Engineering/

Life Sciences/Chemistry sales forces

Reed Business

Customer researchprogramme for all magazines

LexisNexis

Strengthened small

law programme

Elsevier

Coordinated

global price increase

programme

Elsevier/LexisNexis

Implementation of

global branding programme

All Divisions

Execution of

sales audit programmes

Harcourt

Major upgrade of

Open Territories sales

force

Harcourt

Global Library

marketing programme

Reed Business

RCD national

accounts programme

Reed Business

Successful yield

management programme

LexisNexis

Key account

relationship programme

Elsevier

Introduction of

Health Sciences telesales


Infrastructure and cost initiatives

Infrastructure and Cost Initiatives:

  • New content management systems

  • New customer fulfilment systems

  • New editorial systems

  • Off-shore printing/outsourcing

  • Pre-plate restructuring

  • Electronic author workbench

  • New CRM systems

  • 2000-2002: $500m of savings achieved

  • 2003: $150m further savings


Shooting stars

“Shooting Stars”

  • All businesses outperforming in dynamic growth sectors

  • Annual revenue growth at high single/double digit

  • Total revenue c.$700m

  • Endeavor Library Services

  • International Healthcare

  • e-Healthcare

  • Risk Management

  • e-Discovery, e-Filing, e-Access

  • Clinical Testing

  • Customised State Testing

  • On-line recruitment, directories

  • Variety franchise


Reed elsevier key objectives for 2003 unchanged

Reed Elsevier:Key Objectives For 2003 Unchanged

  • Maximise above market organic growth from four core businesses

  • Execute and deliver on all strategic milestones

ON TRACK

ON TRACK

  • Improve operating margin further through increased efficiency

  • Deliver double digit earnings growth

ON TRACK

ON TRACK


I n t e r i m r e s u l t s 2 0 0 3

I N T E R I M R E S U L T S 2 0 0 3


Appendices

Appendices


Turnover reconciliation

Turnover: Reconciliation

£m

%

change

€m

%

change

6 months to 30 June

2002 Turnover

2,467

3,972

Base businesses

(29)

-1%

(42)

-1%

Acquisitions

37

+1%

54

+1%

Disposals

(13)

-

(19)

-

Currency translation effect

(117)

-5%

(541)

-14%

2003 Turnover

2,345

-5%

3,424

-14%


Currency profile adjusted profit before tax

Currency Profile:Adjusted Profit Before Tax

First half average rates:

20032002

$:£1.611.44

$:€ 1.100.90

€:£ 1.46 1.61

LTM to 30 June 2003

Sterling

21%

Full year average rates:

2003* 2002

$:£1.62 1.50

$:€ 1.13 0.94

€:£ 1.43 1.59

Euro

41%

US Dollar

33%

Other

5%

*2003 average rates (approx) if recent spot rates continue ($1.62:£1; $1.15:€1; €1.41:£1)


Free cash flow

Free Cash Flow

2003200220032002£m£m €m €m

Adjusted operating cash flow177 160258258

Interest (85)(108)(124)(174)

Tax(97)(88)(142)(142)

Dividends(209)(190)(305)(306)

Free cash outflow(214)(226) (313)(364)

6 months to 30 June


Cash flow seasonality

Cash Flow Seasonality

12 monthsto 30 June

12 monthsto 30 June

H1 H2

H1 H2

2003

2003

2003 2002

2003 2002

€m

£m

€m

£m

€m

£m

1,499

258

1,241

1,027

177

850

Adjusted operating cash flow

Cash flow conversion %

90%

36%

136%

90%

36%

136%


Exceptional items

Exceptional Items

6 months to 30 June

2003

£m

2002

£m

2003

€m

2002

€m

Reorganisation costs

(8)

(9)

(12)

(14)

Acquisition related costs

(15)

(22)

(22)

(36)

Charged to operating profit

(23)

(31)

(34)

(50)

Net profit on sale of fixed asset investments and businesses

57

9

82

14

Exceptional credit/(charge) before tax

34

(22)

48

(36)

Net tax (charge)/credit

(9)

95

(12)

153

Total exceptional credit

25

73

36

117


Balance sheet

Balance Sheet

2003

£m

2002

£m

2003

€m

2002

€m

At 30 June

Goodwill/intangible assets

5,541

6,210

7,979

9,563

Tangible fixed assets

489

496

704

764

Investments

143

161

206

248

Working capital

60

(43)

87

(66)

6,233

6,824

8,976

10,509

Shareholders’ funds

2,616

2,859

3,767

4,403

Net debt

2,923

3,296

4,209

5,076

694

669

1,000

1,030

Other net liabilities/minorities

6,233

6,824

8,976

10,509


Dividend equalisation

Dividend Equalisation

Interim

%Change

2002

2003

Reed Elsevier PLC (p)

3.3

3.2

+3%

UK tax credit rate

10%

10%

Gross (p)

3.67

3.56

Equalisation ratio

1.538

1.538

Exchange rate (€:£)

1.41

1.59

Reed Elsevier NV (€)

0.08

0.09

-11%


I n t e r i m r e s u l t s 2 0 0 3

I N T E R I M R E S U L T S 2 0 0 3


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