2007 PRELIMINARY RESULTS

21st Feb 2008 07:01

Reed Elsevier PLC21 February 2008 Issued on behalf of Reed Elsevier PLC and Reed Elsevier NV 21 February 2008 REED ELSEVIER 2007 PRELIMINARY RESULTS HIGHLIGHTS • Strong financial performance for 2007, good momentum and significant plans to accelerate growth • Major reshaping of portfolio - Sale of Harcourt Education now completed - Planned divestment of Reed Business Information • Significant restructuring programme around a more cohesive business delivering important cost efficiencies • Agreed £2.1 billion/€2.8 billion acquisition of ChoicePoint, Inc separately announced today Strong financial performance • Underlying revenue growth +6%, driven by good growth in online information and workflow solutions; reported revenues of £4,584m/€6,693m, up 2% and 1% respectively in sterling and euros • Adjusted operating margin +80 basis points (underlying +100 basis points), from good revenue growth and ongoing cost initiatives • Adjusted earnings per share +12% at constant currencies; at reported rates up 7% to 35.9p for Reed Elsevier PLC and up 5% to €0.80 for Reed Elsevier NV • US dollar decline adversely affects growth rates on translation at reported exchange rates Major reshaping and strengthening of portfolio • Sale of Harcourt Education for £2.5bn/€3.6bn successfully completed with substantial gain; net proceeds distributed to shareholders in January 2008 • Reed Business Information to be divested, reducing exposure to advertising markets and cyclicality • Acquisition of ChoicePoint, Inc (2007 revenues £491m/€717m) significantly expands position in fast growing risk management marketplace • More cohesive and synergistic business with stronger growth prospects Major restructuring to accelerate growth • Further consolidation and streamlining of operational activities and back office support in a more integrated company • Significant savings of £245m/€335m over 2008-2011 with annual savings targeted of £100m/€135m by 2011, over and above normal expected margin improvement • Exceptional costs of approximately £140m/€190m; cash payback in 2.5 years Reed Elsevier's Chief Executive Officer, Sir Crispin Davis, commented: "We have made good progress over the last year. Investment against our onlinegrowth and workflow solutions strategy is paying off with good revenue momentum.Together with our cost initiatives, this is driving underlying marginimprovement and a strong earnings performance. The decline of the US dollartakes some shine off the earnings performance expressed in sterling and euros,but the strength of the underlying growth is very encouraging with 2007representing the highest constant currency earnings growth of the last tenyears. "The sale of Harcourt Education has moved us towards a more consistent, cohesiveand synergistic business and today we have announced a further major step withthe planned divestment of Reed Business Information ("RBI"). RBI is awell-managed high quality business as evidenced by the success of its onlinegrowth and the control of costs. Its advertising revenue model and theinherent cyclicality fit less well however with the subscription-basedinformation and workflow solutions focus of Reed Elsevier's strategy. "The move to a more cohesive portfolio provides us with the opportunity toaccelerate progress in consolidating and streamlining our technology, operationsand back office support. In doing so, Reed Elsevier becomes a more integratedcompany with significant savings in cost structure. The restructuring planannounced today has an attractive payback and will make a meaningful addition tomargin and earnings growth. "The acquisition of ChoicePoint represents a major further step in the buildingof our risk management business and in the development of Reed Elsevier's onlineworkflow solutions strategy. The market growth in risk information andanalytics is highly attractive and ChoicePoint brings important assets andmarket positions that fit well with our existing business and, in combination,can be leveraged to very good effect. "ChoicePoint's insurance business in particular has seen strong consistentgrowth, and through the combination of ChoicePoint's highly regarded data andanalytics assets and our leading LexisNexis risk technology, we can furtherdevelop compelling offerings for customers and realise significant synergybenefits. The acquisition will accelerate Reed Elsevier's revenue and profitgrowth and deliver a good and growing return on capital. "The outlook for Reed Elsevier is very positive. We are well positioned inattractive markets; the momentum in the business is showing through in the goodfinancial performance; and the changes we are making will strengthen thebusiness and accelerate our growth." REED ELSEVIER COMBINED BUSINESSES Continuing operations 2007 2006 Change 2007 2006 Change Change at £m £m % •m •m % constant currenciesRevenue 4,584 4,509 +2% 6,693 6,628 +1% +6%Reported operating profit 888 837 +6% 1,296 1,231 +5% +12%Adjusted operating profit 1,137 1,081 +5% 1,660 1,589 +4% +11%Adjusted operating margin 24.8% 24.0% 24.8% 24.0%Adjusted operating cash flow 1,108 1,086 +2% 1,618 1,596 +1% +6% Parent companies Reed Elsevier PLC Reed Elsevier NV Change at constant 2007 2006 Change 2007 2006 Change currenciesContinuing and discontinued operations % % %Reported earnings per share 49.7p 25.6p +94% €1.10 €0.59 +86%Adjusted earnings per share 35.9p 33.6p +7% €0.80 €0.76 +5% +12%Dividend per share 18.1p 15.9p +14% €0.425 €0.406 +5% The results of the Harcourt Education division are presented as discontinuedoperations and are excluded from revenue, reported and adjusted operatingprofit, adjusted operating margin and adjusted operating cash flow. Adjusted figures are presented as additional performance measures and are statedbefore amortisation of acquired intangible assets and acquisition integrationcosts, and, in respect of earnings reflect a tax rate that excludes the effectof movements in deferred taxation assets and liabilities that are not expectedto crystallise in the near term. Profit and loss on disposals and othernon-operating items are also excluded from the adjusted figures.Reconciliations between the reported and adjusted figures are provided in note 5to the combined financial information and note 1 to the summary financialinformation of the respective parent companies. ENQUIRIES Sybella Stanley (Investors) Patrick Kerr (Media) +44 20 7166 5630 +44 20 7166 5646 FINANCIAL HIGHLIGHTS Adjusted Figures Continuing operations (Elsevier, LexisNexis and Reed Business) Continued revenue momentum and margin improvement • Good performances seen across all the continuing businesses. • Revenues up 2% to £4,584m/up 1% to €6,693m, up 6% at constant currencies. • Underlying revenue growth, excluding acquisitions and disposals, of 6% driven by strong growth in online information and workflow solutions. • Adjusted operating profits, before amortisation of acquired intangible assets and acquisition integration costs, up 5% to £1,137m/ up 4% to €1,660m, up 11% at constant currencies. Underlying adjusted operating profit growth of 10%. • Adjusted operating margins up 0.8% points (1.0% points underlying) at 24.8%, reflecting good revenue growth and continuing cost efficiency. • Reported revenue and operating profit growth in sterling and euros restrained by the effect on translation of the average year on year decline in the US dollar of 9% against sterling and 10% against the euro. • 11% growth in online information and workflow solutions which now account for nearly 50% of revenues reflecting the success of the investment led digital growth strategy. Strong cash flow • 97% of adjusted operating profits converted into cash reflecting focus on management of working capital. Increasing return on capital • Return on invested capital up 0.8% points to 11.8% post tax from increased profitability and low capital requirements. This is the sixth successive year of improving return on capital. Total operations (including Harcourt Education) Growth in adjusted earnings and dividends • Adjusted earnings per share, at reported exchange rates, up 7% to 35.9p for Reed Elsevier PLC and up 5% to €0.80 for Reed Elsevier NV, up 12% at constant currencies. • Final dividends proposed of 13.6p and €0.311 for Reed Elsevier PLC and Reed Elsevier NV respectively. Total dividends for 2007 of 18.1p for Reed Elsevier PLC, up 14%, and €0.425 for Reed Elsevier NV, up 5%. (Differential growth rates in the equalised dividends reflect movements in the sterling euro exchange rate.) • Cash returned to shareholders in January 2008 of £2.0bn/€2.7bn from net proceeds of Harcourt Education sale. Reported Figures • Reported operating profit, after amortisation of acquired intangible assets and acquisition integration costs, up 6% to £888m/up 5% to €1,296m. • Reported earnings per share, including disposal gains, up 94% to 49.7p/up 86% to €1.10. The growth principally reflects the improvement in underlying operating performance, the gain on the sale of Harcourt Education, and movements in deferred tax balances not expected to crystallise in the near term. STRENGTHENING THE PORTFOLIO The Reed Elsevier business is being reshaped through the sale of HarcourtEducation and the planned divestment of Reed Business Information (RBI) tocreate a more consistent, cohesive and synergistic business and accelerategrowth. As previously announced, the Harcourt Education business was sold in twoseparate transactions that have now completed. The aggregate proceeds were£2.5bn/€3.6bn, representing 21 times 2006 adjusted operating profits and asubstantial gain. After taxation and other costs related to the sale, theestimated net proceeds of £2.0bn/€2.7bn were distributed to shareholders on 18January 2008. The planned divestment of RBI is a further major step in our portfoliodevelopment. Although RBI has had considerable success in developinghigh-growth online services, its advertising revenue model and its inherentcyclicality fit less well with the subscription based information and workflowsolutions focus of Reed Elsevier's strategy. Advertising accounts forapproximately 60% of revenues. In the year to 31 December 2007, RBI hadrevenues of £906m/€1,323m and adjusted operating profits of £119m/€174m. Theprecise method of divestment of RBI will be the subject of review in comingmonths. The Reed Exhibitions business will be retained. The acquisition of ChoicePoint, and its combination with the very successfulLexisNexis Risk Information and Analytics Group ("RIAG"), creates for ReedElsevier a position as a world leading provider of risk information andanalytics by adding a major presence in the insurance segment and complementaryproducts and new capabilities in the screening, authentication and publicrecords areas. The acquisition will accelerate Reed Elsevier's growth and, through thecombination of ChoicePoint's highly regarded data and analytics assets andRIAG's market leading technology infrastructure, will provide the opportunity todevelop more compelling products for the market and considerable synergybenefits. The acquisition of ChoicePoint meets all of Reed Elsevier's acquisitionfinancial criteria: it is expected to accelerate Reed Elsevier's revenue andprofit growth; be marginally accretive to earnings in the first year ofownership with significant earnings enhancement thereafter; have a post taxreturn on capital in excess of Reed Elsevier's WACC in the third year ofownership; and add substantial net present value. During 2007 further investment was made in new publishing and workflow solutionsthrough both organic development and selective acquisitions that meet ReedElsevier's strict growth and financial criteria. These acquisitions are focusedin particular on accelerating our development and growth in e-health, legalworkflow solutions, risk information and analytics and exhibitions and are ontrack to deliver a return on capital in excess of the weighted average cost ofcapital within three years. 2008 should see continuing organic and acquisitioninvestment in workflow solutions to strengthen and accelerate growth in thecontinuing businesses. RESTRUCTURING PLAN: COST AND ANNUAL SAVINGS The reshaping of the portfolio and the good progress on the cost initiativesannounced last year, have provided the opportunity to take more radical actionon our cost base to capitalise on the more synergistic portfolio and acceleratemargin growth. The restructuring plan represents further consolidation ofoperational activities and back office support both within Elsevier andLexisNexis and across the group. The principal focus is on managementorganisation, technology, operations, development engineering, production,procurement, customer service and support, finance and administration. Some ofthese savings will be used to fund additional investment in new product, salesand marketing to take advantage of the growing opportunities for workflowsolutions in our markets and to build further competitive differentiation. The restructuring plan is targeted to deliver a total of £245m/€335m of costsavings over the next four years, with progressive net annual savings reaching£100m/€135m in 2011 over and above the normal expected annual margin improvementand additional investment. The annual savings targets over the 2008-11 yearsare £15m/€20m in 2008; £50m/€70m in 2009; £80m/€110m in 2010; and £100m/€135m in2011. The exceptional restructuring costs are estimated to be approximately£140m/€190m, most of which will be incurred in 2008. These relate principallyto severance, outsourcing migration costs and associated property costs. Thecash payback of the restructuring plan is approximately 2.5 years. Ongoing cost efficiency to improve margins including savings from regular annualrestructuring initiatives are excluded from the above figures. BALANCE SHEET Reed Elsevier looks to maintain its capital efficiency through its progressivedividend policy and annual share repurchase programme whilst having the balancesheet strength to maintain access to the most cost effective sources ofborrowing and to support our strategic ambition in evolving professionalpublishing and information markets. Over the longer term, we would expect netdebt to EBITDA to range between 2.0x and 3.0x depending on financial conditionsand acquisition opportunities and timing, consistent with a solid investmentgrade credit rating. OPERATING AND FINANCIAL REVIEW 2007 2006 Change 2007 2006 Change Change at £m £m % •m •m % constant currenciesCONTINUING OPERATIONSRevenueElsevier 1,507 1,521 -1% 2,200 2,236 -2% +4%LexisNexis 1,594 1,570 +2% 2,328 2,308 +1% +8%Reed Business 1,483 1,418 +5% 2,165 2,084 +4% +7%Total 4,584 4,509 +2% 6,693 6,628 +1% +6%Adjusted operating profitElsevier 477 465 +3% 696 683 +2% +9%LexisNexis 406 380 +7% 593 559 +6% +14%Reed Business 260 241 +8% 380 354 +7% +10%Unallocated items (6) (5) (9) (7)Total 1,137 1,081 +5% 1,660 1,589 +4% +11% DISCONTINUED OPERATIONSRevenue 752 889 1,098 1,307Adjusted operating profit 121 129 177 190 Adjusted figures and constant currency growth rates are used by Reed Elsevier asadditional performance measures. Adjusted operating profit is stated before theamortisation of acquired intangible assets and acquisition integration costs.Constant currency growth rates are based on 2006 full year average and hedgeexchange rates. Unless otherwise indicated, all percentage movements in the following commentaryrefer to performance at constant exchange rates. Underlying growth rates arecalculated at constant currencies, excluding acquisitions and disposals. The reported operating profit figures are set out in note 2 to the combinedfinancial information and reconciled to the adjusted figures in note 5. FORWARD LOOKING STATEMENTS This Preliminary Statement contains forward looking statements within themeaning of Section 27A of the US Securities Act 1933, as amended, and Section21E of the US Securities Exchange Act 1934, as amended. These statements aresubject to a number of risks and uncertainties and actual results and eventscould differ materially from those currently being anticipated as reflected insuch forward looking statements. The terms 'expect', 'should be', 'will be' andsimilar expressions identify forward looking statements. Factors which may causefuture outcomes to differ from those foreseen in forward looking statementsinclude, but are not limited to: general economic conditions in Reed Elsevier'smarkets; exchange rate fluctuations; customers' acceptance of our products andservices; the actions of competitors; legislative, fiscal and regulatorydevelopments; changes in law and legal interpretations affecting Reed Elsevier'sintellectual property rights and internet communications; and the impact oftechnological change. ELSEVIER 2007 2006 Change 2007 2006 Change Change £m £m % •m •m % at constant currenciesRevenueScience & Technology 774 792 -2% 1,130 1,164 -3% +2%Health Sciences 733 729 +1% 1,070 1,072 0% +6% 1,507 1,521 -1% 2,200 2,236 -2% +4%Adjusted operating profit 477 465 +3% 696 683 +2% +9%Adjusted operating margin 31.7% 30.6% +1.1pts 31.7% 30.6% +1.1pts +1.4pts Elsevier had a very successful year with good underlying growth driven by newpublishing and continued expansion of our online information and workflowsolutions. Revenues and adjusted operating profits were up 6% and 10% respectively atconstant currencies before acquisitions and disposals. After portfolio effects,most notably the acquisition of the Beilstein chemical compounds database andthe sale of the MDL software business, revenues were up 4% and adjustedoperating profits up 9% at constant currencies. The overall adjusted operatingmargin improved by 1.1 percentage points, driven by revenue growth and costefficiency most particularly in production and procurement. The Science & Technology business saw underlying revenue growth of 6%, or 2% atconstant currencies after acquisitions and disposals, reflecting journalsubscription renewals at record levels and growing online sales with increasingmarket penetration. ScienceDirect saw widening distribution especially in smallacademic and emerging markets, and particular success from the further launch ofelectronic books. ScienceDirect online usage was again up over 20%. Impact Factors, one of theindustry's standard measures of content quality, increased for 65% of ourjournals, more than for any other major science and medical publisher. Goodprogress was also made in our customer service programmes with positivedevelopments across a wide range of surveyed measures. In March, we acquired the full rights to the Beilstein chemical compoundsdatabase, previously operated under licence, which is now being integrated withother resources to deliver content rich and innovative online solutions. InOctober we sold the MDL software services business which increasingly did notfit within Elsevier's strategy. In Health Sciences, revenue growth at constant currencies was 6%, both beforeand after the impact of acquisitions and disposals, driven by good growth in thenursing and allied health professional sector, and expanding online solutions.The year saw successful publishing and a growing appetite within the healthcareindustry for technology enabled information solutions to improve the quality andeffectiveness of diagnosis, treatment and care. Growth was partly held back bya flat performance in pharma advertising, with share gains compensating forweaker markets. Electronic products, such as the MDConsult clinical reference product, areshowing good double digit growth in usage. The Evolve digital learning platformhad a successful year with a 40% increase in registered users. New productswere rolled out with very positive market response. These included Mosby'sNursing Skills, endorsed by the American Association of Clinical Nurses, whichoffers detailed interactive guidance in over 500 skills drawn from our leadingreference works. At the British Medical Awards in September, we won more topawards for our publishing than any other publisher. In addition to investment in new publishing and digital solutions, we continuedto expand our businesses in attractive high-growth segments through two highlycomplementary acquisitions in December: Clinical Practice Model Resource Centre(CPMRC), a leading provider of decision support solutions for nurses andhealthcare practitioners to improve patient care and safety; and, MEDai, aprovider of clinical outcome analytics and risk identification and managementfor both the payers and providers of healthcare. The outlook for Elsevier is positive. Revenue momentum is good with successfulpublishing, strong renewals and growing digital product in attractive markets.The revenue growth and continuous actions to improve cost efficiency is drivinggood underlying margin improvement. We look forward to another successful yearin Elsevier in 2008. LEXISNEXIS 2007 2006 Change 2007 2006 Change Change £m £m % •m •m % at constant currenciesRevenueUnited States 1,113 1,129 -1% 1,625 1,660 -2% +7%International 481 441 +9% 703 648 +8% +10% 1,594 1,570 +2% 2,328 2,308 +1% +8%Adjusted operating profit 406 380 +7% 593 559 +6% +14%Adjusted operating margin 25.5% 24.2% +1.3pts 25.5% 24.2% +1.3pts +1.3pts LexisNexis also had a good year with a successful Total Solutions strategy bothin the US and internationally and good growth in risk information and analyticsmarkets. Revenues and adjusted operating profits were up 7% and 12% respectively atconstant currencies before acquisitions, and 8% and 14% including acquisitions.The overall adjusted operating margin improved by 1.3 percentage points,reflecting the strong revenue growth and the actions taken to improve costefficiency. In US Legal markets, strong subscription renewals and additional onlineinformation and solutions sales, partly held back by fewer large sized discoverycases, drove underlying revenue growth of 5%. New Total Solutions products were introduced throughout the year in the coreareas of litigation, client development, practice management, and research.Total Practice Advantage, with a series of releases in 2007, has seen particularsuccess providing small law firms with practice management and clientdevelopment tools in one integrated easy to use solution. Other Total Solutionsare also growing well such as Total Litigator, combining case management tools,document and evidence repositories, discovery tools, file and serveapplications, and research. The growth in the attractive Total Solutions markets is being acceleratedthrough acquisition as well as organic investment. In July, we acquired Juris,which provides medium sized law firms with time and billing and other practicemanagement solutions, to complement what we have achieved in small law firmswith Total Practice Advantage. In electronic discovery, we acquired ImageCapture Engineering in June to complement the Concordance business acquired lastyear. These businesses are being integrated within Total Litigator to servicethe majority of electronic discovery needs and are steadily migrating to asubscription model. In US Corporate and Public Markets, underlying revenue growth was 6%. Whilstthe news and business information business is slower growing, we saw strongdemand in risk management and in processing higher volumes for the US patent andtrademark office. The Risk Information and Analytics business again sawdouble-digit revenue growth and further good margin expansion driven by thecontinued strength of the market combined with leading technology and content.The business continues to expand its product offerings and build its presence inthis attractive sector. The LexisNexis International business outside the US delivered underlyingrevenue growth of 8% at constant rates, or 10% including acquisitions and strongmargin and profit growth. Underlying revenue growth has now been at or aroundthis level for each of the last four years, driven by the growing penetration ofonline information services across our markets and new publishing. Good growthwas seen in the UK, France and Southern Africa in particular as well as inemerging markets such as India, Korea, China and Taiwan. To support the penetration of our Total Solutions strategy, we have beenrealigning and transforming the sales organisation. This has involved theintegration of multiple sales forces into one in the US, global salescoordination, a substantial upgrade in capabilities and the deployment of ourportfolio solution selling methodology, tools and processes. This will beextended globally as Total Solutions products are introduced internationally.Additionally, we have streamlined and strengthened our organisation byestablishing global management responsibilities for solutions development anddelivery, unified marketing, production and customer support. The outlook for LexisNexis is positive. The Total Solutions strategy, increasedpenetration of online services internationally and the strong demand for riskinformation and analytics is driving good revenue momentum. LexisNexis hasshown meaningful good underlying margin improvement in each of the last sevenyears and, with good revenue growth and continued action on costs, furtherstrong progress is expected. REED BUSINESS 2007 2006 Change 2007 2006 Change Change £m £m % •m •m % at constant currenciesRevenueReed Business Information 906 896 +1% 1,323 1,317 0% +4%Reed Exhibitions 577 522 +11% 842 767 +10% +13% 1,483 1,418 +5% 2,165 2,084 +4% +7%Adjusted operating profit 260 241 +8% 380 354 +7% +10%Adjusted operating margin 17.5% 17.0% +0.5pts 17.5% 17.0% +0.5pts +0.5pts Reed Business has performed well this year with a strong performance in theexhibitions business (partly held back by the cycling out of a number ofnon-annual shows) and rapid growth in online services more than compensating forprint declines. Revenues and adjusted operating profits were up 6% and 8% respectively atconstant currencies before acquisitions and disposals, or 7% and 10% afterportfolio changes. The overall adjusted operating margin was up 0.5 percentagepoints, with the cycling out of contribution from biennial joint ventureexhibitions reducing margin growth by 0.2 percentage points. Reed Exhibitions saw revenues 13% ahead at constant currencies, or 12% excludingacquisitions and disposals. Strong growth was seen across the show portfoliowith particular success at the Mipim international property show in Cannes andthe JCK jewellery show in Las Vegas. Adjusted operating profits were up 11% atconstant currencies, or 8% excluding acquisitions and disposals, held back bythe cycling out of the contribution from biennial joint venture shows.Excluding the cycling of shows, underlying revenue growth and adjusted operatingprofit growth were 10% and 11% respectively. Thirty new shows were launched in the year, in sectors ranging from personalcare to aerospace and from Argentina to China. The portfolio was also added tothrough the acquisition of a joint venture interest in Alcantara Machado, theleading show organiser in Brazil, and of a group of six international aerospaceshows. The decision was taken to exit the defence sector and a sale process isunderway. The Reed Business Information magazine and information businesses saw revenues4% ahead at constant currencies, or 3% before acquisitions and disposals.Continued strong growth in online services of 20% underlying more thancompensated for a 2% decline in print as the business migrates online. Onlinerevenues now contribute 30% of RBI's revenues. Adjusted operating profits wereup 10% at constant currencies through continued actions to improve costefficiency. In the UK, underlying revenues were up 5% reflecting strong growth in onlinesales, up 19% and which now represent 46% of total RBI UK revenue. Totaljobs,the leading UK recruitment site, continued its rapid growth with revenues up35%. The number of market leading job boards increased from 10 to 12 in 2007with the launch of UK regional sites in Scotland and the North West of Englandand further launches are planned. In the Netherlands and International,underlying revenue growth was 4% with good growth in online products. In theNetherlands, Elsevier magazine reached record print circulation levels andreceived an industry award as the number one magazine for advertisers and mediaagencies. In the US, RBI underlying revenue was flat, with online revenuesgrowing rapidly, offset by the decline in print including discontinued titles.Advertising revenues grew rapidly across community sites, up 31%. This reflectssurging web traffic as these sites increasingly become a starting point on theweb for the communities they serve with their mix of professional content,community interaction and online tools proving attractive for both users andadvertisers. The growth of online sales in RBI was accelerated by a number of acquisitions,including BuyerZone, a fast growing online service for matching vendors andbuyers in procurement tendering, acquired in January 2007 and DoubleTrade, anonline tendering service, acquired in April 2007. Both are performing strongly. The outlook for Reed Business is positive. The demand for exhibitions remainsgood and advance bookings, particularly for the important first half of 2008,are encouraging. The business magazines and information businesses, whilstseeing some general uncertainty in markets such as property and construction,are seeing no overall shift in market trends with continued strong growth inonline services and slow decline in print. Continued cost actions are expectedto deliver overall margin improvement together with the cycling in of jointventure exhibitions. DISCONTINUED OPERATIONS - HARCOURT EDUCATION 2007 2006 Change 2007 2006 Change Change £m £m % •m •m % at constant currenciesRevenueSchools & Assessment 708 776 -9% 1,034 1,141 -9% -1%International 44 113 -61% 64 166 -61% -59% 752 889 -15% 1,098 1,307 -16% -9%Adjusted operating profit 121 129 -6% 177 190 -7% +2%Adjusted operating margin 16.1% 14.5% +1.6pts 16.1% 14.5% +1.6pts +1.8pts Following announcement in February 2007 of the planned sale of HarcourtEducation, the division is presented as a discontinued operation. On 4 May, thesale of the Harcourt Education International and Harcourt Assessment businessesto Pearson plc was announced, and on 16 July the sale of the Harcourt US K-12Education businesses to Houghton Mifflin Riverdeep Group was announced. Thedisposals of the UK, Australian and New Zealand businesses of Harcourt EducationInternational completed in May 2007 with the South African business completingin August 2007. The disposal of the Harcourt US K-12 Education businessescompleted in December 2007, and the disposal of Harcourt Assessment and theremaining Harcourt Education International businesses completed in January 2008. Harcourt performed well in US state book adoptions, particularly in thesecondary schools market, and saw a significant turnaround in operationalperformance in the Assessment business. The reduced revenues and adjusted operating profits reported for HarcourtEducation in the year reflect the timing of the business disposals and theseasonality of the businesses. The Harcourt Education US K-12 business saw revenues up 4% at constantcurrencies for the first eleven months of the year with good growth in the basalpublishing businesses partly offset by a weaker supplemental market. Harcourthad significant success in the state textbook adoption market and in particularwith its new elementary social studies and math programmes and secondary math.The secondary business again took by far the largest market share in newtextbook adoptions. The supplemental market declined as traditionalsupplemental product gives way to more comprehensive intervention and assessmentproducts and further investment was made in these. The new StoryTown elementaryreading programme launched in open territories has been very well received whichbodes well for the major reading adoptions in 2008. The Assessment business saw revenues 1% lower at constant currencies. Thisreflected the prior year loss of two major state testing contracts, with thebusiness almost making up the gap with new publishing and contract wins andextensions. The turnaround in operational performance is also reflected insignificantly improved profitability. The sale of the majority of the International business was completed in May 2007with the remainder completed in August 2007 and January 2008. FINANCIAL REVIEW REED ELSEVIER COMBINED BUSINESSES Currency The average US dollar exchange rate in 2007 was significantly weaker than in2006, down 9% against sterling and down 10% against the euro. The reportedresults are therefore significantly impacted by currency translation effects. Income statement Revenue from continuing operations (ie excluding Harcourt Education) at £4,584m/€6,693m increased by 2% expressed in sterling and 1% expressed in euros. Atconstant exchange rates, revenue was 6% higher, both including and excludingacquisitions and disposals. Reported figures Continuing operations Reported operating profit from continuing operations, after amortisation ofacquired intangible assets and acquisition integration costs, at £888m/€1,296m,was up 6% in sterling and 5% in euros. The increase reflects the strongunderlying operating performance, partly offset by currency translation effects. The amortisation charge in respect of acquired intangible assets, including theshare of amortisation in joint ventures, amounted to £221m/€323m, up £10m/€14m,principally as a result of recent acquisitions, partly offset by currencytranslation effects. Acquisition integration costs amounted to £20m/€29m (2006: £23m/€34m).Disposals and other non operating items within continuing operations comprisegains on disposals of businesses and investments of £65m/€95m and fair valuedecreases in the portfolio of venture capital investments of £2m/€3m. The reported profit before tax, including amortisation of acquired intangibleassets, acquisition integration costs and non operating items, at £812m/€1,185m,was up 20% expressed in sterling and 19% in euros. The reported tax credit of £82m/€120m compares with a charge of £86m/€127m inthe prior year. The current year credit includes the benefit of £223m/€326m inrespect of previously unrecognised deferred tax assets and capital lossesarising in continuing operations, which are realisable as a result of thedisposal of Harcourt Education. The reported tax credit also reflects movementson deferred tax balances arising on unrealised exchange differences on long terminter-affiliate lending. These deferred tax movements are recognised in theincome statement but are not expected to crystallise in the foreseeable future. Discontinued operations The reported operating profit of Harcourt Education of £112m/€164m was up £69m/€101m on the prior year, principally reflecting the cessation of amortisation ofacquired intangible assets following the disposal announcement. The gain on the disposal of the Harcourt US Schools business and those HarcourtInternational businesses completed in the year was £611m/€849m. Taxes on thecompleted disposals were £380m/€555m, excluding the tax credits included incontinuing operations described above. Total operations The reported attributable profit of £1,200m/€1,709m compares with a reportedattributable profit of £623m/€916m in 2006, reflecting the strong operatingperformance and the part disposal of Harcourt Education. Adjusted figures Adjusted figures are used by Reed Elsevier as additional performance measuresand are stated before amortisation of acquired intangible assets and acquisitionintegration costs, and, in respect of earnings, reflect a tax rate that excludesthe effect of movements in deferred taxation assets and liabilities that are notexpected to crystallise in the near term. Profit and loss on disposals andother non operating items are also excluded from the adjusted figures.Comparison at constant exchange rates uses 2006 average and hedge exchangerates. Continuing operations Adjusted operating profit from continuing operations, at £1,137m/€1,660m, was up5% expressed in sterling and up 4% in euros. At constant exchange rates,adjusted operating profits were up 11%, or 10% excluding acquisitions anddisposals. The net pension expense (including the unallocated net pension financing credit)was £49m/€72m, down £16m/€24m from 2006, principally reflecting higher returnson plan assets and curtailments. The charge for share based payments was £38m/€55m (2006: £44m/€65m). Restructuring costs, other than in respect ofacquisition integration, were £16m/€23m (2006: £18m/€26m). Overall adjusted operating margin for the continuing businesses was up 0.8percentage points at 24.8% reflecting the good revenue growth and costefficiency. The cycling out of biennial joint venture exhibitions, whichcontribute to profit but not to revenues, had a 0.1 percentage point adverseeffect on overall margin growth. Currency translation mix and the effect of thescience journal currency hedging programme reduced margin by 0.2 percentagepoints. (The net benefit of the Elsevier science journal hedging programme islower in 2007 than in 2006 as the effect of the weaker US dollar is incorporatedwithin the three year rolling hedging programme.) Net finance costs, at £139m/€203m, were £19m/€30m lower than in the prior yearlargely due to currency translation effects and the benefit of proceeds from thedisposal of Harcourt Education. Adjusted profit before tax from continuing operations was £998m/€1,457m, up 8%compared to the prior year expressed in sterling and 7% in euros. At constantexchange rates, adjusted profit before tax was up 13%. The effective tax rate on adjusted earnings for the continuing businesses, at23%, was similar to the rate in 2006. (The effective tax rate on adjustedearnings excludes movements in deferred taxation assets and liabilities that arenot expected to crystallise in the near term, and more closely aligns with cashtax costs. Adjusted operating profits and taxation are also grossed up for theequity share of taxes in joint ventures.) Discontinued operations Adjusted operating profit from discontinued operations, at £121m/€177m, was down£8m/€13m, largely as a result of the timing of disposals and currencytranslation effects. Total operations The adjusted profit attributable to shareholders, including discontinuedoperations, was £852m/€1,244m, up 7% compared to the prior year in sterling andup 6% in euros. At constant exchange rates, adjusted profit attributable toshareholders was up 13%. The effective tax rate on the profit from total operations was 23.6%, slightlylower than the 24.1% effective rate for 2006. Cash flows and debt Adjusted operating cash flow from continuing operations was £1,108m/€1,618m, up2% in sterling and 1% in euros, and 6% at constant currencies. The rate ofconversion of adjusted operating profits into cash flow for the continuingbusinesses was high at 97% (2006: 100%) reflecting the continued focus onmanagement of working capital. Capital expenditure included within adjusted operating cash flow from continuingoperations was £145m/€212m (2006: £167m/€246m), including £80m/€117m in respectof capitalised development costs included within intangible assets. Spend onacquisitions was £327m/€478m (2006: £163m/€240m). Including deferredconsideration payable, an amount of £262m/€383m was capitalised as acquiredintangible assets and £101m/€147m as goodwill. Acquisition integration spend inrespect of these and other recent acquisitions amounted to £19m/€28m. Proceedsfrom disposals of businesses and other assets amounted to £86m/€126m. Free cash flow from continuing operations - after interest and taxation - was£717m/€1,047m, down £39m/€66m, reflecting higher tax paid than in 2006 which sawcertain tax refunds. Dividends paid to shareholders in the year amounted to£416m/€607m (2006: £371m/€545m). Share repurchases by the parent companiesamounted to £199m/€291m (2006: £217m/€319m). Additionally, shares of the parentcompanies were purchased by the employee benefit trust to meet futureobligations in respect of share based remuneration for £74m/€108m (2006: £68m/€100m). Net proceeds from share issuance under share option programmes were£177m/€258m (2006: £93m/€137m). Cash proceeds from the sale of discontinued operations in the year were £1,933m/€2,704m. Net borrowings at 31 December 2007 were £492m/€669m (2006: £2,314m/€3,448m).The decrease of £1,822m/€2,779m since 31 December 2006 reflects the proceedsreceived from the part disposal of Harcourt Education, proceeds from shareissuances and the benefit of free cash flow, partially offset by dividends,share buy backs and acquisition spend. Expressed in sterling, currencytranslation differences increased net borrowings by £18m, reflecting thestrengthening of the euro during the year against sterling, mostly offset by theweakening of the US dollar. Expressed in euros, currency translationdifferences decreased net borrowings by €211m, reflecting the strengthening ofthe euro during the year. Gross borrowings after fair value adjustments at 31 December 2007 amounted to£3,129m/€4,256m, denominated mostly in US dollars. The fair value of relatedderivatives was £170m/€232m. Cash balances totalled £2,467m/€3,355m invested inshort term deposits and marketable securities including £1,933m/ €2,704mproceeds received from the part disposal of Harcourt Education, which wereincluded in the special distribution to shareholders of the parent companies inJanuary 2008. After adjusting net debt for the Harcourt disposal proceeds andtaking into account interest rate and currency derivatives, a total of 54% ofReed Elsevier's gross borrowings (equivalent to 69% of net borrowings) were atfixed rates and had a weighted average remaining life of 5.5 years and interestcoupon of 5.3%. The net pension surplus, ie pension assets less pension obligations, at 31December 2007 was £50m/€68m which compares with a net deficit as at 31 December2006 of £236m/€351m. The improvement principally arises from increases in longterm corporate bond yields used to discount scheme obligations. Capital employed and returns The capital employed in the continuing businesses at 31 December 2007 was£7,825m/€10,622m (2006: £7,266m/€10,828m), after adding back accumulatedamortisation of acquired intangible assets and goodwill. Expressed in sterling,the increase of £559m principally reflects the impact of acquisitions andmovement of the pension schemes into a net surplus, partially offset bydisposals. Expressed in euros, the decrease of €206m reflects the impact ofcurrency translation effects, most particularly the strengthening of the euroagainst the US dollar and sterling between 1 January and 31 December 2007,partially offset by the movements described above. The return on average capital employed for the continuing businesses in the yearwas 11.8% (2006: 11.0%; total operations 9.8%). This return is based onadjusted operating profits, less tax at the effective rate, and the average ofthe capital employed at the beginning and end of the year retranslated ataverage exchange rates. The improvement in the year reflects the goodunderlying profit growth and low capital requirements. Acquisitions typically dilute the overall return initially, but build quickly todeliver longer term returns well over Reed Elsevier's average for the business.The recent acquisitions made in the years 2005 to 2007 are delivering post taxreturns in 2007 of 10%, 7% and proforma 5% respectively and continue to growwell. PARENT COMPANIES For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjustedearnings per share for total operations were respectively up 7% at 35.9p (2006:33.6p) and 5% at €0.80 (2006: €0.76). At constant rates of exchange, theadjusted earnings per share of both companies increased by 12% over the prioryear. Shares repurchased in the year under the annual share repurchase plan announcedin February 2006 totalled 15.2 million ordinary shares of Reed Elsevier PLC and11.9 million ordinary shares of Reed Elsevier NV. Taking into account theassociated financing cost, these share repurchases are estimated to have addedapproximately 0.2% to adjusted earnings per share in 2007. The reported earnings per share for Reed Elsevier PLC shareholders was 49.7p(2006: 25.6p) and for Reed Elsevier NV shareholders was €1.10 (2006: €0.59). The equalised final dividends proposed are 13.6p per share for Reed Elsevier PLCand €0.311 per share for Reed Elsevier NV up 15% and 2% on the prior yearrespectively. This gives total dividends for the year of 18.1p and €0.425, up14% and 5% on 2006 respectively. The difference in dividend growth ratesreflects the movement in the euro:sterling exchange rate between dividendannouncement dates. Dividend cover, based on adjusted earnings per share and the total of theinterim and proposed final dividend for the year, was 2.0 times for ReedElsevier PLC and 1.9 times for Reed Elsevier NV. SUBSEQUENT EVENTS On 18 January 2008, a special distribution was paid to shareholders in theequalisation ratio from the estimated net proceeds of the sale of the HarcourtEducation division. The distribution was 82.0p per share for Reed Elsevier PLCand €1.767 per share for Reed Elsevier NV and amounted to £2,013m/€2,690m inaggregate. The special distribution was accompanied by a consolidation of the ordinaryshare capital of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 newordinary shares for every 67 existing ordinary shares. This represents a 13.4%consolidation of ordinary share capital, being the aggregate specialdistribution expressed as a percentage of the combined market capitalisation ofReed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equityinterest in Reed Elsevier NV held by Reed Elsevier PLC), as at the date of theannouncement of the special distribution. Following the share consolidation, effective 7 January 2008, there were1,130,473,244 Reed Elsevier PLC ordinary shares of 14 51/116 pence in issue, ofwhich 46,880,490 were held in treasury including 15,849,192 held by the employeebenefit trust; and 658,127,218 Reed Elsevier NV ordinary shares of €0.07 inissue, of which 30,584,845 were held in treasury including 8,682,054 held by theemployee benefit trust. Additionally, post share consolidation there were4,050,720 Reed Elsevier NV R-shares of €0.70 in issue, of which 135,179 wereheld in treasury, representing Reed Elsevier PLC's 5.8% indirect equity interestin Reed Elsevier NV. For the purposes of calculating earnings per share, the effective date of theshare consolidation is deemed to be 18 January 2008, being the date on which thespecial distribution was paid. On a proforma basis, net debt as at 31 December 2007 adjusted for the specialdistribution paid to shareholders on 18 January 2008 would have been £2,505m/€3,359m. On 30 January 2008, the sale of Harcourt Assessment and the remaining HarcourtInternational businesses, first announced in May 2007, completed followingreceipt of regulatory clearance in the United States. Proceeds received ondisposal were £330m/€449m. COMBINED FINANCIAL INFORMATION Combined Income StatementFor the year ended 31 December 2007 2007 2006 2007 2006 £m £m •m •mRevenue - continuing operations 4,584 4,509 6,693 6,628Cost of sales (1,624) (1,602) (2,371) (2,355)Gross profit 2,960 2,907 4,322 4,273Selling and distribution costs (938) (925) (1,370) (1,360)Administration and other expenses (1,150) (1,163) (1,679) (1,709)Operating profit before joint ventures 872 819 1,273 1,204Share of results of joint ventures 16 18 23 27Operating profit - continuing operations 888 837 1,296 1,231Finance income 43 21 63 31Finance costs (182) (179) (266) (264)Net finance costs (139) (158) (203) (233)Disposals and other non operating items 63 (1) 92 (1)Profit before tax - continuing operations 812 678 1,185 997Taxation 82 (86) 120 (127)Net profit from continuing operations 894 592 1,305 870Net profit from discontinued operations 309 33 408 49Net profit for the year 1,203 625 1,713 919 Attributable to:Parent companies' shareholders 1,200 623 1,709 916Minority interests 3 2 4 3Net profit for the year 1,203 625 1,713 919 Net profit from discontinued operations is analysed in note 3. Adjusted profit figures are presented in note 5 as additional performancemeasures. Combined Cash Flow StatementFor the year ended 31 December 2007 2007 2006 2007 2006 £m £m •m •mCash flows from operating activities - continuing operationsCash generated from operations 1,218 1,213 1,778 1,782Interest paid (174) (172) (254) (253)Interest received 26 12 38 18Tax paid (239) (165) (349) (241)Net cash from operating activities 831 888 1,213 1,306 Cash flows from investing activities - continuing operationsAcquisitions (327) (163) (478) (240)Purchases of property, plant and equipment (65) (68) (95) (100)Expenditure on internally developed intangible assets (80) (99) (117) (146)Purchase of investments (4) (9) (6) (13)Proceeds from disposals of property, plant and equipment 4 2 6 3Proceeds from other disposals 82 48 120 70Dividends received from joint ventures 12 16 18 24Net cash used in investing activities (378) (273) (552) (402) Cash flows from financing activities - continuing operationsDividends paid to shareholders of the parent companies (416) (371) (607) (545)Increase in bank loans, overdrafts and commercial paper 111 72 163 105Issuance of other loans 276 407 403 598Repayment of other loans (311) (337) (454) (495)Repayment of finance leases (12) (12) (18) (18)Proceeds on issue of ordinary shares 177 93 258 137Purchase of treasury shares (273) (285) (399) (419)Net cash used in financing activities (448) (433) (654) (637) Net cash from discontinued operations 1,912 57 2,674 84 Increase in cash and cash equivalents 1,917 239 2,681 351 Movement in cash and cash equivalentsAt start of year 519 296 774 432Increase in cash and cash equivalents 1,917 239 2,681 351Exchange translation differences 31 (16) (100) (9)At end of year 2,467 519 3,355 774 Net cash from discontinued operations is analysed in note 3. Adjusted operating cash flow figures are presented in note 5 as additionalperformance measures. Combined Balance SheetAs at 31 December 2007 2007 2006 2007 2006 £m £m •m •mNon-current assetsGoodwill 2,462 2,802 3,348 4,175Intangible assets 2,089 2,524 2,841 3,761Investments in joint ventures 116 73 158 108Other investments 111 50 151 75Property, plant and equipment 239 298 325 444Net pension assets 183 20 249 30Deferred tax assets 141 170 192 253 5,341 5,937 7,264 8,846Current assetsInventories and pre-publication costs 271 633 368 943Trade and other receivables 1,148 1,224 1,561 1,824Derivative financial instruments 210 219 286 326Cash and cash equivalents 2,467 519 3,355 774 4,096 2,595 5,570 3,867Assets held for sale 341 - 464 -Total assets 9,778 8,532 13,298 12,713 Current liabilitiesTrade and other payables 1,966 1,925 2,674 2,868Derivative financial instruments 22 9 30 14Borrowings 1,127 921 1,533 1,372Taxation 752 479 1,023 714 3,867 3,334 5,260 4,968Non-current liabilitiesBorrowings 2,002 2,085 2,723 3,107Deferred tax liabilities 695 850 945 1,266Net pension obligations 133 256 181 381Provisions 21 28 28 42 2,851 3,219 3,877 4,796Liabilities associated with assets held for sale 84 - 114 -Total liabilities 6,802 6,553 9,251 9,764Net assets 2,976 1,979 4,047 2,949 Capital and reservesCombined share capitals 197 191 268 285Combined share premiums 2,143 1,879 2,914 2,800Combined shares held in treasury (619) (377) (842) (562)Translation reserve (145) (136) (170) (201)Other combined reserves 1,389 409 1,862 607Combined shareholders' equity 2,965 1,966 4,032 2,929Minority interests 11 13 15 20Total equity 2,976 1,979 4,047 2,949 Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 20 February2008. Combined statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 2007 2006 £m £m •m •mNet profit for the year 1,203 625 1,713 919 Exchange differences on translation of foreign operations (33) (244) (350) (300)Actuarial gains on defined benefit pension schemes 224 139 327 204Fair value movements on available for sale investments - 3 - 4Fair value movements on cash flow hedges 3 54 4 79Tax recognised directly in equity (50) (60) (73) (88)Net income/(expense) recognised directly in equity 144 (108) (92) (101) Cumulative exchange differences on disposal of foreign 148 - 206 -operationsCumulative fair value movements on disposal of available (7) - (10) -for sale investmentsTransfer to net profit from hedge reserve (net of tax) (20) (5) (29) (7)Total recognised income and expense for the year 1,468 512 1,788 811 Attributable to:Parent companies' shareholders 1,465 510 1,784 808Minority interests 3 2 4 3Total recognised income and expense for the year 1,468 512 1,788 811 Combined reconciliation of shareholders' equityFor the year ended 31 December 2007 2007 2006 2007 2006 £m £m •m •mTotal recognised net income attributable to the parent 1,465 510 1,784 808companies' shareholdersDividends declared (416) (371) (607) (545)Issue of ordinary shares, net of expenses 177 93 258 137Increase in shares held in treasury (273) (285) (399) (419)Increase in share based remuneration reserve 46 49 67 72Net increase/(decrease) in combined shareholders' equity 999 (4) 1,103 53Combined shareholders' equity at start of year 1,966 1,970 2,929 2,876Combined shareholders' equity at end of year 2,965 1,966 4,032 2,929 NOTES TO THE COMBINED FINANCIAL INFORMATION 1 Basis of preparation The Reed Elsevier combined financial information ("the combined financialinformation") represents the combined interests of the Reed Elsevier PLC andReed Elsevier NV shareholders and encompasses the businesses of Reed ElsevierGroup plc and Elsevier Reed Finance BV and their respective subsidiaries,associates and joint ventures, together with the two parent companies, ReedElsevier PLC and Reed Elsevier NV ("the combined businesses"). The combinedfinancial information has been abridged from the audited combined financialstatements for the year ended 31 December 2007, which have been prepared inaccordance with International Financial Reporting Standards ("IFRS") as endorsedby the European Union and as issued by the International Accounting StandardsBoard ("IASB"). Financial information is presented in both sterling and euros. The Reed Elsevier accounting policies under IFRS are set out in the ReedElsevier Annual Reports and Financial Statements 2006 on pages 58 to 61. Thecombined financial information has been prepared in accordance with thoseaccounting policies. 2 Segment analysis Harcourt Education, which has previously been presented as a separate businesssegment, has been classified as a discontinued operation and its results for theperiod are presented in note 3. Revenue 2007 2006 2007 2006 £m £m •m •mBusiness segmentElsevier 1,507 1,521 2,200 2,236LexisNexis 1,594 1,570 2,328 2,308Reed Business 1,483 1,418 2,165 2,084Total 4,584 4,509 6,693 6,628Geographical originNorth America 2,147 2,219 3,135 3,262United Kingdom 896 828 1,308 1,217The Netherlands 505 497 737 731Rest of Europe 708 675 1,034 992Rest of world 328 290 479 426Total 4,584 4,509 6,693 6,628Geographical marketNorth America 2,233 2,322 3,260 3,413United Kingdom 603 531 880 781The Netherlands 206 196 301 288Rest of Europe 897 866 1,310 1,273Rest of world 645 594 942 873Total 4,584 4,509 6,693 6,628 Adjusted operating profit 2007 2006 2007 2006 £m £m •m •mBusiness segmentElsevier 477 465 696 683LexisNexis 406 380 593 559Reed Business 260 241 380 354Sub-total 1,143 1,086 1,669 1,596Corporate costs (45) (39) (66) (57)Unallocated net pension credit 39 34 57 50Total 1,137 1,081 1,660 1,589Geographical originNorth America 505 486 737 715United Kingdom 211 196 308 288The Netherlands 181 175 264 257Rest of Europe 174 169 254 248Rest of world 66 55 97 81Total 1,137 1,081 1,660 1,589 Adjusted operating profit figures are presented as additional performancemeasures. They are stated before the amortisation of acquired intangible assetsand acquisition integration costs, and are grossed up to exclude the equityshare of taxes in joint ventures. Adjusted figures are reconciled to thereported figures in note 5. The unallocated net pension credit of £39m/€57m(2006: £34m/€50m) comprises the expected return on pension scheme assets of£196m/€286m (2006: £178m/€262m) less interest on pension scheme liabilities of£157m/€229m (2006: £144m/€212m). Operating profit 2007 2006 2007 2006 £m £m •m •mBusiness segmentElsevier 410 395 598 581LexisNexis 287 264 419 388Reed Business 197 183 288 269Sub-total 894 842 1,305 1,238Corporate costs (45) (39) (66) (57)Unallocated net pension credit 39 34 57 50Total 888 837 1,296 1,231Geographical originNorth America 353 329 515 485United Kingdom 180 167 263 245The Netherlands 179 172 261 253Rest of Europe 118 117 172 172Rest of world 58 52 85 76Total 888 837 1,296 1,231 Share of post-tax results of joint ventures of £16m/€23m (2006: £18m/€27m)included in operating profit comprises £3m/€4m (2006: £3m/€5m) relating toLexisNexis and £13m/€19m (2006: £15m/€22m) relating to Reed Business. 3 Discontinued operations Following announcement in February 2007 of the planned sale of HarcourtEducation, the division is presented as a discontinued operation. On 4 May 2007the sale of the Harcourt Assessment and Harcourt Education Internationalbusinesses for $950m was announced, and on 16 July 2007 the sale of the HarcourtUS Schools Education businesses for $4.0bn was announced. All disposals hadcompleted by 31 December 2007, with the exception of Harcourt Assessment andcertain Harcourt International businesses, the disposal of which completed on 30January 2008. Those businesses are presented in the balance sheet as assetsheld for sale. Net profit from discontinued operations 2007 2006 2007 2006 £m £m •m •mRevenue 752 889 1,098 1,307Operating costs (640) (846) (934) (1,244)Operating profit and profit before tax 112 43 164 63Taxation (34) (10) (50) (14)Profit after taxation 78 33 114 49Gain on disposals 611 - 849 -Tax on disposals (380) - (555) -Net profit from discontinued operations 309 33 408 49 Operating profit is stated after amortisation of acquired intangible assets of£9m/€13m (2006: £86m/€127m). The adjusted operating profit, before amortisationof acquired intangible assets, of the discontinued operations was £121m/€177m(2006: £129m/€190m). The gain on disposals of discontinued operations relates to the completed saleof the Harcourt US Schools Education business and certain of the HarcourtEducation International businesses. Net assets disposed comprise £318m/€445m ofgoodwill, £383m/€537m of intangible assets, £39m/€55m of property, plant andequipment, £377m/€527m of inventory and £40m/€56m of other net assets. Tax ondisposals is stated before taking account of tax credits of £223m/€326m inrespect of previously unrecognised deferred tax assets and capital losses.These have been realised as a result of the disposal of discontinued operations,but are reported within continuing operations whence they first arose. Cash flows from discontinued operations 2007 2006 2007 2006 £m £m •m •mNet cash flow from operating activities 33 86 48 126Net cash flow from investing activities 1,879 (29) 2,626 (42)Net cash flow from financing activities - - - -Net movement in cash and cash equivalents 1,912 57 2,674 84 Net cash flow from investing activities includes cash proceeds on the completeddisposals of £1,933m/€2,704m (2006: nil). Cash and cash equivalents disposed was£7m/€10m (2006: nil). 4 Combined cash flow statement Reconciliation of operating profit before joint ventures to cash generated fromoperations - continuing operations 2007 2006 2007 2006 £m £m •m •mOperating profit before joint ventures 872 819 1,273 1,204 Amortisation of acquired intangible assets 219 211 320 309Amortisation of internally developed intangible assets 72 66 105 97Depreciation of property, plant and equipment 76 81 111 119Share based remuneration 38 44 55 65Total non cash items 405 402 591 590Movement in working capital (59) (8) (86) (12)Cash generated from operations 1,218 1,213 1,778 1,782 Reconciliation of net borrowings Cash Related & derivative cash financial equivalents Borrowings instruments 2007 2006 £m £m £m £m £mAt start of year 519 (3,006) 173 (2,314) (2,694) Increase in cash and cash equivalents 1,917 - - 1,917 239Increase in borrowings - (64) - (64) (130)Changes resulting from cash flows 1,917 (64) - 1,853 109Inception of finance leases - (11) - (11) (9)Fair value adjustments - (2) - (2) 3Exchange translation differences 31 (46) (3) (18) 277At end of year 2,467 (3,129) 170 (492) (2,314) Related Cash & derivative cash financial equivalents Borrowings instruments 2007 2006 •m •m •m •m •mAt start of year 774 (4,479) 257 (3,448) (3,933) Increase in cash and cash equivalents 2,681 - - 2,681 351Increase in borrowings - (94) - (94) (190)Changes resulting from cash flows 2,681 (94) - 2,587 161Inception of finance leases - (16) - (16) (14)Fair value adjustments - (3) - (3) 5Exchange translation differences (100) 336 (25) 211 333At end of year 3,355 (4,256) 232 (669) (3,448) Net borrowings comprise cash and cash equivalents, loan capital, finance leases,promissory notes, bank and other loans, and those derivative financialinstruments used to hedge the fair value of fixed rate borrowings. 5 Adjusted figures Reed Elsevier uses adjusted figures as additional performance measures. Adjustedfigures are stated before amortisation of acquired intangible assets,acquisition integration costs, disposals and other non operating items, relatedtax effects and movements in deferred taxation assets and liabilities that arenot expected to crystallise in the near term. Adjusted operating profit is alsogrossed up to exclude the equity share of taxes in joint ventures. Adjustedoperating cash flow is measured after net capital expenditure and dividends fromjoint ventures but before payments in relation to acquisition integration costs.Adjusted figures are derived as follows: Continuing operations 2007 2006 2007 2006 £m £m •m •mOperating profit - continuing operations 888 837 1,296 1,231Adjustments:Amortisation of acquired intangible assets 221 211 323 309Acquisition integration costs 20 23 29 34Reclassification of tax in joint ventures 8 10 12 15Adjusted operating profit from continuing operations 1,137 1,081 1,660 1,589 Profit before tax - continuing operations 812 678 1,185 997Adjustments:Amortisation of acquired intangible assets 221 211 323 309Acquisition integration costs 20 23 29 34Reclassification of tax in joint ventures 8 10 12 15Disposals and other non operating items (63) 1 (92) 1Adjusted profit before tax from continuing operations 998 923 1,457 1,356 Profit attributable to parent companies' shareholders 1,200 623 1,709 916Net profit from discontinued operations (309) (33) (408) (49)Profit attributable to parent companies' shareholders - 891 590 1,301 867continuing operationsAdjustments (post tax):Amortisation of acquired intangible assets 247 236 361 347Acquisition integration costs 13 16 19 24Disposals and other non operating items (290) (64) (423) (95)Deferred tax not expected to crystallise in the near term:Unrealised exchange differences on long term inter (21) (22) (31) (32)affiliate lendingAcquired intangible assets (60) (56) (88) (82)Other (15) 6 (22) 9Adjusted profit attributable to parent companies' 765 706 1,117 1,038shareholders from continuing operations Cash generated from operations 1,218 1,213 1,778 1,782Dividends received from joint ventures 12 16 18 24Purchases of property, plant and equipment (65) (68) (95) (100)Proceeds from disposals of property, plant and equipment 4 2 6 3Expenditure on internally developed intangible assets (80) (99) (117) (146)Payments in relation to acquisition integration costs 19 22 28 33Adjusted operating cash flow from continuing operations 1,108 1,086 1,618 1,596 2007 2006 2007 2006 £m £m •m •mOperating profit - continuing operations 888 837 1,296 1,231Operating profit - discontinued operations 112 43 164 63Operating profit - total operations 1,000 880 1,460 1,294 Adjustments:Amortisation of acquired intangible assets 230 297 336 436Acquisition integration costs 20 23 29 34Reclassification of tax in joint ventures 8 10 12 15Adjusted operating profit from total operations 1,258 1,210 1,837 1,779 Profit before tax - continuing operations 812 678 1,185 997Profit before tax - discontinued operations 112 43 164 63Profit before tax - total operations 924 721 1,349 1,060Adjustments:Amortisation of acquired intangible assets 230 297 336 436Acquisition integration costs 20 23 29 34Reclassification of tax in joint ventures 8 10 12 15Disposals and other non operating items (63) 1 (92) 1Adjusted profit before tax from total operations 1,119 1,052 1,634 1,546 Profit attributable to parent companies' shareholders - 1,200 623 1,709 916total operationsAdjustments (post tax):Amortisation of acquired intangible assets 259 324 378 476Acquisition integration costs 13 16 19 24Disposals and other non operating items (521) (64) (717) (95)Deferred tax not expected to crystallise in the near term:Unrealised exchange differences on long term inter (21) (22) (31) (32)affiliate lendingAcquired intangible assets (63) (87) (92) (128)Other (15) 6 (22) 9Adjusted profit attributable to parent companies' 852 796 1,244 1,170shareholders from total operations 6 Exchange translation rates In preparing the combined financial information the following exchange rateshave been applied: Income statement Balance sheet 2007 2006 2007 2006Euro to sterling 1.46 1.47 1.36 1.49US dollars to sterling 2.00 1.84 2.00 1.96US dollars to euro 1.37 1.25 1.47 1.32 7 Post balance sheet events On 18 January 2008, Reed Elsevier PLC paid a special distribution of 82.0p perordinary share and Reed Elsevier NV paid a special distribution of €1.767 perordinary share, from the net proceeds of the disposal of Harcourt Education.The aggregate special distribution, announced on 12 December 2007, of £2,013m/€2,690m was recognised when paid in January 2008. The special distributions were accompanied by a consolidation of the ordinaryshare capital of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 newordinary shares for every 67 existing ordinary shares, being the ratio of theaggregate special distribution to the combined market capitalisation of ReedElsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interestin Reed Elsevier NV held by Reed Elsevier PLC) as at the date of theannouncement of the special distributions. On 30 January 2008 the sale of Harcourt Assessment and the remaining HarcourtInternational businesses, first announced in May 2007, completed followingreceipt of regulatory clearance in the United States. Proceeds received ondisposal were £330m/€449m. On 20 February 2008, Reed Elsevier approved a plan to divest Reed BusinessInformation. In the year to 31 December 2007, Reed Business Informationreported revenues of £906m/€1,323m and adjusted operating profits of £119m/€174m. On 20 February 2008, Reed Elsevier entered into a definitive merger agreementwith ChoicePoint, Inc to acquire the company for cash. Taking into account$0.6bn of ChoicePoint's estimated net debt, the total value of the transactionis $4.1bn. The ChoicePoint board will convene a meeting of ChoicePoint shareholders toapprove the merger and is unanimous in its recommendation of the merger. The merger is subject to customary regulatory approvals and is expected to becompleted later in the year. The transaction will be financed initially throughcommitted new bank facilities, to be later refinanced through the issuance ofterm debt. ChoicePoint provides unique information and analytics to support underwritingdecisions within the property and casualty insurance sector; screening andauthentication services for employment, real estate leasing and customerenrolment; and public information solutions primarily to banking, professionalservices and government customers. Combination of ChoicePoint with theLexisNexis' Risk Information and Analytics Group will create a risk managementbusiness with $1.5bn in revenues and a leading position in the fast growing riskmanagement markets. REED ELSEVIER PLC SUMMARY FINANCIAL INFORMATION Basis of preparation The Reed Elsevier PLC share of the Reed Elsevier combined results has beencalculated on the basis of the 52.9% economic interest of the Reed Elsevier PLCshareholders in the Reed Elsevier combined businesses, after taking account ofthe results arising in Reed Elsevier PLC and its subsidiary undertakings. Thesummary financial information has been prepared on the basis of the groupaccounting policies of Reed Elsevier PLC as set out on page 112 of the ReedElsevier Annual Reports and Financial Statements 2006, which are in accordancewith International Financial Reporting Standards ("IFRS") as endorsed by theEuropean Union and as issued by the International Accounting Standards Board ("IASB"). Reed Elsevier PLC's 52.9% economic interest in the net assets of thecombined businesses is shown in the balance sheet as investments in jointventures, net of the assets and liabilities reported as part of Reed ElsevierPLC and its subsidiary undertakings. The financial information set out below has been abridged from Reed ElsevierPLC's consolidated financial statements for the year ended 31 December 2007,which have been audited and will be filed with the UK Registrar of Companiesfollowing the Annual General Meeting. The audit report was unqualified and didnot contain statements under Sections 237(2) or (3) of the Companies Act 1985. Consolidated income statementFor the year ended 31 December 2007 2007 2006 £m £mAdministrative expenses (1) (2)Effect of tax credit equalisation on distributed earnings (11) (10)Share of results of joint ventures 658 343Operating profit 646 331Finance charges (3) (3)Profit before tax 643 328Taxation (19) (8)Profit attributable to ordinary shareholders 624 320 Earnings per ordinary shareFor the year ended 31 December 2007 2007 2006 pence penceBasic earnings per shareFrom continuing operations of the combined businesses 36.6p 24.1pFrom discontinued operations of the combined businesses 13.1p 1.5pFrom total operations of the combined businesses 49.7p 25.6pDiluted earnings per shareFrom continuing operations of the combined businesses 36.2p 23.8pFrom discontinued operations of the combined businesses 12.9p 1.5pFrom total operations of the combined businesses 49.1p 25.3p Adjusted profit and earnings per share figures are presented in note 1 asadditional performance measures. Consolidated cash flow statementFor the year ended 31 December 2007 2007 2006 £m £mCash flows from operating activitiesCash used by operations (2) (2)Interest paid (3) (3)Tax paid (16) (6)Net cash used in operating activities (21) (11) Cash flows from investing activitiesDividends received from joint ventures 850 596 Cash flows from financing activitiesEquity dividends paid (206) (186)Proceeds on issue of ordinary shares 92 47Purchase of treasury shares (92) (112)Repayment of loan from joint ventures (36) -Increase in net funding balances due from joint ventures (587) (334)Net cash used in financing activities (829) (585) Movement in cash and cash equivalents - - Consolidated balance sheetAs at 31 December 2007 2007 2006 £m £mNon-current assetsInvestments in joint ventures 1,584 1,090Total assets 1,584 1,090Current liabilitiesAmounts owed to joint ventures - 36Payables - 1Taxation 16 13Total liabilities 16 50Net assets 1,568 1,040Capital and reservesCalled up share capital 163 161Share premium account 1,123 1,033Shares held in treasury (including in joint ventures) (302) (200)Capital redemption reserve 4 4Translation reserve (37) (98)Other reserves 617 140Total equity 1,568 1,040 Approved by the board of directors, 20 February 2008. Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 £m £mProfit attributable to ordinary shareholders 624 320Share of joint ventures' net income/(expense) recognised directly in equity 77 (57)Share of joint ventures' cumulative exchange differences on disposal of foreign operations 78 -Share of joint ventures' cumulative fair value movements on disposal of available for sale (4) -investmentsShare of joint ventures' transfer to net profit from hedge reserve (11) (3)Total recognised net income and expense for the year 764 260 Consolidated reconciliation of shareholders' equityFor the year ended 31 December 2007 2007 2006 £m £mTotal recognised net income 764 260Equity dividends declared (206) (186)Issue of ordinary shares, net of expenses 92 47Increase in shares held in treasury (including in joint ventures) (130) (151)Increase in share based remuneration reserve 24 26Equalisation adjustments (16) 2Net increase/(decrease) in shareholders' equity 528 (2)Shareholders' equity at start of year 1,040 1,042Shareholders' equity at end of year 1,568 1,040 Notes to the summary financial information 1 Adjusted figures Adjusted profit and earnings per share figures are used as additionalperformance measures. Adjusted earnings per share is based upon the ReedElsevier PLC shareholders' 52.9% economic interest in the adjusted profitattributable of the Reed Elsevier combined businesses, which is reconciled tothe reported figures in note 5 to the combined financial information. Theadjusted figures are derived as follows: Earnings per share from total operations of the combined businesses Profit attributable to Basic earnings ordinary shareholders per share 2007 2006 2007 2006 £m £m pence penceReported figures 624 320 49.7p 25.6pEffect of tax credit equalisation on distributed earnings 11 10 0.8p 0.8pProfit attributable to ordinary shareholders based on 52.9% 635 330 50.5p 26.4peconomic interest in the Reed Elsevier combined businessesShare of adjustments in joint ventures (184) 91 (14.6)p 7.2pAdjusted figures 451 421 35.9p 33.6p Earnings per share from the continuing operations of the combined businesses Profit attributable to Basic earnings ordinary shareholders per share 2007 2006 2007 2006 £m £m pence penceReported figures 624 320 49.7p 25.6pShare of joint ventures' net profit from discontinued operations (164) (18) (13.1)p (1.5)pProfit attributable to ordinary shareholders based on the 460 302 36.6p 24.1pcontinuing operations of the combined businesses 2 Equity dividendsDividends declared in the year 2007 2006 2007 2006 pence pence £m £mOrdinary sharesFinal for prior financial year 11.8p 10.7p 149 135Interim for financial year 4.5p 4.1p 57 51Total 16.3p 14.8p 206 186 The Directors of Reed Elsevier PLC have proposed a final dividend of 13.6p(2006: 11.8p). The cost of the final dividend, if approved by shareholders, isexpected to be £147m. No liability has been recognised at the balance sheetdate. The Reed Elsevier PLC final dividend as approved will be paid on 16 May2008, with ex-dividend and record dates of 30 April 2008 and 2 May 2008respectively. Dividends paid to Reed Elsevier PLC and Reed Elsevier NVshareholders are equalised at the gross level inclusive of the UK tax creditreceived by certain Reed Elsevier PLC shareholders. The equalisation adjustmentequalises the benefit of the tax credit between the two sets of shareholders inaccordance with the equalisation agreement. Dividends paid and proposed relating to the financial year 2007 2006 pence penceOrdinary sharesInterim (paid) 4.5p 4.1pFinal (proposed) 13.6p 11.8pTotal 18.1p 15.9p 3 Share capital and treasury shares 2007 2006 Shares in Shares in issue net of issue net Shares in Treasury treasury of treasury issue shares shares shares millions millions millions millionsNumber of ordinary sharesAt start of year 1,287.4 (37.8) 1,249.6 1,266.2Issue of ordinary shares 18.5 - 18.5 10.4Share repurchases - (15.2) (15.2) (20.6)Net purchase of shares by employee benefit trust - (1.6) (1.6) (6.4)At end of year 1,305.9 (54.6) 1,251.3 1,249.6Average number of ordinary shares during the year 1,256.5 1,251.9 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint venturesguaranteed jointly and severally by Reed Elsevier PLC and Reed Elsevier NVamounting to £2,759m at 31 December 2007 (2006: £2,589m). 5 Post balance sheet events On 18 January 2008, the company paid a special distribution of 82.0p perordinary share from the net proceeds of the disposal of Harcourt Education. Thedistribution, announced on 12 December 2007, of £1,041m was recognised when paidin January 2008. The special distribution was accompanied by a consolidation of ordinary sharecapital on the basis of 58 new ordinary shares of 14 51/116p for every 67existing ordinary shares of 12.5p, being the ratio of the aggregate specialdistribution (including that paid by Reed Elsevier NV) to the combined marketcapitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8%indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as atthe date of the announcement of the special distribution. Following the share consolidation, effective 7 January 2008, there were1,130,473,244 Reed Elsevier PLC ordinary shares of 14 51/116p in issue, of which46,880,490 were held in treasury including 15,849,192 held by the Reed ElsevierGroup plc employee benefit trust. For the purposes of calculating earnings pershare, the effective date of the share consolidation is deemed to be 18 January2008, being the date on which the special distribution was paid. On 30 January 2008 the sale of Harcourt Assessment and the remaining HarcourtInternational businesses, first announced in May 2007, completed followingreceipt of regulatory clearance in the United States. Proceeds received ondisposal by the Reed Elsevier combined businesses were £330m. On 20 February 2008, Reed Elsevier approved a plan to divest Reed BusinessInformation. In the year to 31 December 2007, Reed Business Informationreported revenues of £906m and adjusted operating profits of £119m. On 20 February 2008, Reed Elsevier entered into a definitive merger agreementwith ChoicePoint, Inc to acquire the company for cash. Taking into account$0.6bn of ChoicePoint's estimated net debt, the total value of the transactionis $4.1bn. The ChoicePoint board will convene a meeting of ChoicePointshareholders to approve the merger and is unanimous in its recommendation of themerger. The merger is subject to customary regulatory approvals and is expectedto be completed later in the year. REED ELSEVIER NV SUMMARY FINANCIAL INFORMATION Basis of preparation The Reed Elsevier NV share of the Reed Elsevier combined results has beencalculated on the basis of the 50% economic interest of the Reed Elsevier NVshareholders in the Reed Elsevier combined businesses, after taking account ofthe results arising in Reed Elsevier NV and its subsidiary undertakings. Thesummary financial information has been prepared on the basis of the groupaccounting policies of Reed Elsevier NV as set out on page 130 of the ReedElsevier Annual Reports and Financial Statements 2006, which are in accordancewith International Financial Reporting Standards ("IFRS") as endorsed by theEuropean Union and as issued by the International Accounting Standards Board ("IASB"). Reed Elsevier NV's 50% economic interest in the net assets of thecombined businesses is shown in the balance sheet as investments in jointventures, net of the assets and liabilities reported as part of Reed Elsevier NVand its subsidiary undertakings. The financial information in respect of the year ended 31 December 2007 has beenabridged from the consolidated financial statements of Reed Elsevier NV whichhave been audited and will be filed with the Chamber of Commerce following theAnnual General Meeting. The audit report was unqualified. Consolidated income statementFor the year ended 31 December 2007 2007 2006 •m •mAdministrative expenses (3) (3)Share of results of joint ventures 803 455Operating profit 800 452Finance income 73 7Profit before tax 873 459Taxation (18) (1)Profit attributable to ordinary shareholders 855 458 Earnings per ordinary shareFor the year ended 31 December 2007 2007 2006 • •Basic earnings per shareFrom continuing operations of the combined businesses €0.84 €0.56From discontinued operations of the combined businesses €0.26 €0.03From total operations of the combined businesses €1.10 €0.59Diluted earnings per shareFrom continuing operations of the combined businesses €0.83 €0.56From discontinued operations of the combined businesses €0.26 €0.03From total operations of the combined businesses €1.09 €0.59 Adjusted profit and earnings per share figures are presented in note 1 asadditional performance measures. Consolidated cash flow statementFor the year ended 31 December 2007 2007 2006 •m •mCash flows from operating activitiesCash used by operations (2) (3)Interest received 71 12Tax paid (18) (1)Net cash from operating activities 51 8 Cash flows from investing activitiesDividends received from joint ventures 1,410 1,111 Cash flows from financing activitiesEquity dividends paid (310) (272)Proceeds on issue of ordinary shares 124 68Purchase of treasury shares (176) (156)Increase in net funding balances due from joint ventures (1,238) (612)Net cash used in financing activities (1,600) (972) Movement in cash and cash equivalents (139) 147 Consolidated balance sheetAs at 31 December 2007 2007 2006 •m •mNon-current assetsInvestments in joint ventures 2,075 1,386Current assetsAmounts due from joint ventures - other 5 3Cash and cash equivalents 9 148 14 151Total assets 2,089 1,537Current liabilitiesPayables 9 8Taxation 64 64Total liabilities 73 72Net assets 2,016 1,465Capital and reservesShare capital issued 49 48Paid-in surplus 1,685 1,562Shares held in treasury (including in joint ventures) (459) (282)Translation reserve (129) (70)Other reserves 870 207Total equity 2,016 1,465 Approved by the combined board of directors, 20 February 2008. Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 •m •mProfit attributable to ordinary shareholders 855 458Share of joint ventures' net expense recognised directly in equity (45) (50)Share of joint ventures' cumulative exchange differences on disposal of foreign operations 103 -Share of joint ventures' cumulative fair value movements on disposal of available for sale (5) -investmentsShare of joint ventures' transfer to net profit from hedge reserve (15) (4)Total recognised net income and expense for the year 893 404 Consolidated reconciliation of shareholders' equityFor the year ended 31 December 2007 2007 2006 •m •mTotal recognised net income for the year 893 404Equity dividends declared (310) (272)Issue of ordinary shares, net of expenses 124 68Increase in shares held in treasury (including in joint ventures) (200) (210)Increase in share based remuneration reserve 34 36Equalisation adjustments 10 1Net increase in shareholders' equity 551 27Shareholders' equity at start of year 1,465 1,438Shareholders' equity at end of year 2,016 1,465 Notes to the summary financial information 1 Adjusted figures Adjusted profit and earnings per share figures are used as additionalperformance measures. Adjusted earnings per share is based upon the ReedElsevier NV shareholders' 50% economic interest in the adjusted profitattributable of the Reed Elsevier combined businesses, which is reconciled tothe reported figures in note 5 to the combined financial information. Theadjusted figures are derived as follows: Earnings per share from total operations of the combined businesses Profit attributable to Basic earnings ordinary shareholders per share 2007 2006 2007 2006 •m •m • •Reported figures 855 458 €1.10 €0.59Share of adjustments in joint ventures (233) 127 •(0.30) €0.17Adjusted figures 622 585 €0.80 €0.76 Earnings per share from the continuing operations of the combined businesses Profit attributable to Basic earnings ordinary shareholders per share 2007 2006 2007 2006 •m •m • •Reported figures 855 458 €1.10 €0.59Share of joint ventures' net profit from discontinued operations (204) (24) •(0.26) •(0.03)Profit attributable to ordinary shareholders based on the 651 434 €0.84 €0.56continuing operations of the combined businesses 2 Equity dividends Dividends declared in the year 2007 2006 2007 2006 • • •m •mOrdinary sharesFinal for prior financial year €0.304 €0.267 225 197Interim for financial year €0.114 €0.102 85 75R-shares - - - -Total €0.418 €0.369 310 272 The Directors of Reed Elsevier NV have proposed a final dividend of €0.311(2006: €0.304). The cost of the final dividend, if approved by shareholders, isexpected to be €195m. No liability has been recognised at the balance sheetdate. The Reed Elsevier NV final dividend as approved will be paid on 16 May2008, with ex-dividend and record dates of 28 April 2008 and 30 April 2008respectively. Dividends paid to Reed Elsevier PLC and Reed Elsevier NVshareholders are equalised at the gross level inclusive of the UK tax creditreceived by certain Reed Elsevier PLC shareholders. Dividends paid and proposed relating to the financial year 2007 2006 • •Ordinary sharesInterim (paid) €0.114 €0.102Final (proposed) €0.311 €0.304R-shares - -Total €0.425 €0.406 3 Share capital and treasury shares 2007 2006 Shares in Shares in issue net of issue net Shares in Treasury treasury of treasury issue shares shares shares millions millions millions millionsNumber of ordinary sharesAt start of year 748.6 (22.6) 726.0 736.3Issue of ordinary shares 11.7 - 11.7 6.8Share repurchases - (11.9) (11.9) (13.4)Net purchase of shares by employee benefit trust - (0.9) (0.9) (3.7)At end of year 760.3 (35.4) 724.9 726.0Average number of equivalent ordinary shares during the year 774.9 772.1 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint venturesguaranteed jointly and severally by Reed Elsevier NV and Reed Elsevier PLCamounting to €3,745m at 31 December 2007 (2006: €3,858m). 5 Post balance sheet events On 18 January 2008, the company paid a special distribution of €1.767 perordinary share from the net proceeds of the disposal of Harcourt Education. Thedistribution, announced on 12 December 2007, of €1,299m was recognised when paidin January 2008. The special distribution was accompanied by a consolidation of ordinary sharecapital on the basis of 58 new ordinary shares of €0.07 for every 67 existingordinary shares of €0.06, being the ratio of the aggregate special distribution(including that paid by Reed Elsevier PLC) to the combined market capitalisationof Reed Elsevier NV and Reed Elsevier PLC (excluding the 5.8% indirect equityinterest in Reed Elsevier NV held by Reed Elsevier PLC) as at the date of theannouncement of the special distribution. The existing R-shares of €0.60 wereconsolidated on a similar basis into new R-shares of €0.70. Following the share consolidation, effective 7 January 2008, there were658,127,218 Reed Elsevier NV ordinary shares of €0.07 in issue, of which30,584,845 were held in treasury including 8,682,054 held by the Reed ElsevierGroup plc employee benefit trust. Additionally, post share consolidation therewere 4,050,720 Reed Elsevier NV R-shares of €0.70 in issue, of which 135,179were held in treasury. For the purposes of calculating earnings per share, theeffective date of the share consolidation is deemed to be 18 January 2008, beingthe date on which the special distribution was paid. On 30 January 2008 the sale of Harcourt Assessment and the remaining HarcourtInternational businesses, first announced in May 2007, completed followingreceipt of regulatory clearance in the United States. Proceeds received ondisposal by the Reed Elsevier combined businesses were €449m. On 20 February 2008, Reed Elsevier approved a plan to divest Reed BusinessInformation. In the year to 31 December 2007, Reed Business Information reportedrevenues of €1,323m and adjusted operating profits of €174m. On 20 February 2008, Reed Elsevier entered into a definitive merger agreementwith ChoicePoint, Inc to acquire the company for cash. Taking into account$0.6bn of ChoicePoint's estimated net debt, the total value of the transactionis $4.1bn. The ChoicePoint board will convene a meeting of ChoicePointshareholders to approve the merger and is unanimous in its recommendation of themerger. The merger is subject to customary regulatory approvals and is expectedto be completed later in the year. ADDITIONAL INFORMATION FOR US INVESTORS Summary financial information in US dollars This summary financial information in US dollars is a simple translation of theReed Elsevier combined financial information into US dollars at the rates ofexchange set out in note 6 to the combined financial information. The financialinformation provided below is prepared in accordance with accounting principlesas used in the preparation of the Reed Elsevier combined financial information.It does not represent a restatement under US Generally Accepted AccountingPrinciples ("US GAAP"), which would be different in some significant respects. Combined income statement 2007 2006 US$m US$mRevenue - continuing operations 9,168 8,297Operating profit - continuing operations 1,776 1,540Profit before tax - continuing operations 1,624 1,248Net profit from discontinued operations 618 61Net profit attributable to parent companies' shareholders - total operations 2,400 1,146Adjusted operating profit - continuing operations 2,274 1,989Adjusted profit attributable to parent companies' shareholders - total operations 1,704 1,465Basic earnings per American Depositary Share (ADS) - total operations US$ US$Reed Elsevier PLC (Each ADS comprises four ordinary shares) $3.98 $1.88Reed Elsevier NV (Each ADS comprises two ordinary shares) $3.01 $1.48Adjusted earnings per American Depositary Share (ADS) - total operationsReed Elsevier PLC (Each ADS comprises four ordinary shares) $2.87 $2.47Reed Elsevier NV (Each ADS comprises two ordinary shares) $2.19 $1.90 Adjusted earnings per American Depository Share is based on Reed Elsevier PLCshareholders' 52.9% and Reed Elsevier NV's 50% respective share of the adjustedprofit attributable of the Reed Elsevier combined businesses. Adjusted figuresare presented as additional performance measures and are reconciled to thereported figures at their sterling and euro amounts in note 6 to the combinedfinancial information and in note 1 to the summary financial information of eachof the two parent companies. Combined cash flow statement 2007 2006 US$m US$mNet cash from operating activities - continuing operations 1,662 1,634Net cash used in investing activities - continuing operations (756) (503)Net cash used in financing activities - continuing operations (896) (796)Net cash from discontinued operations 3,824 105Increase in cash and cash equivalents 3,834 440Adjusted operating cash flow - continuing operations 2,216 1,998 Combined balance sheet 2007 2006 US$m US$mNon-current assets 10,682 11,637Current assets 8,192 5,086Assets held for sale 682 -Total assets 19,556 16,723Current liabilities 7,734 6,535Non-current liabilities 5,702 6,309Liabilities associated with assets held for sale 168 -Total liabilities 13,604 12,844Net assets 5,952 3,879 Both Reed Elsevier PLC ('RUK', CUSIP No. 758205207) and Reed Elsevier NV ('ENL',CUSIP No. 758204200) have American Depositary Shares (ADSs) listed on the NewYork Stock Exchange (Depositary: Bank of New York NA). An ADS in Reed ElsevierNV represents two ordinary shares in Reed Elsevier NV, while a Reed Elsevier PLCADS represents four ordinary shares in Reed Elsevier PLC. Final dividends onReed Elsevier PLC and Reed Elsevier NV ADSs will be paid on 23 May 2008. INVESTOR INFORMATION Notes for Editors Reed Elsevier is a world leading publisher and information provider and itsprincipal operations are in North America and Europe. Its two parent companies -Reed Elsevier PLC and Reed Elsevier NV - are listed on the London and AmsterdamStock Exchanges respectively, and also on the New York Stock Exchange. Thereturns to their respective shareholders are equalised in terms of dividend andcapital rights. 'Reed Elsevier' and 'the combined businesses' comprise ReedElsevier PLC and Reed Elsevier NV plus their two jointly owned companies, ReedElsevier Group plc and Elsevier Reed Finance BV, and their respectivesubsidiaries and joint ventures. The Reed Elsevier PLC 2007 Annual Report and Financial Statements are beingposted to Reed Elsevier PLC shareholders on 14 March 2008. Copies of the ReedElsevier PLC and Reed Elsevier NV 2007 Annual Report and Financial Statementswill be available to shareholders in Reed Elsevier NV on request. Copies of thePreliminary Statement are available to the public from the respective companies: Reed Elsevier PLC Reed Elsevier NV1-3 Strand Radarweg 29London WC2N 5JR 1043 NX AmsterdamUnited Kingdom The Netherlands Copies of all recent announcements, including this Preliminary Announcement, andadditional information on Reed Elsevier can be found on the Reed Elsevier Home Page on the World Wide Web: http://www.reedelsevier.com This information is provided by RNS The company news service from the London Stock Exchange

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