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Final Results

16th Feb 2006 07:02

Reed Elsevier PLC16 February 2006 ISSUED ON BEHALF OF REED ELSEVIER PLC AND REED ELSEVIER NV 16 FEBRUARY 2006 REED ELSEVIER: HIGHLIGHTS OF 2005 PRELIMINARY RESULTS OVERALL SUCCESSFUL YEAR; GOOD GROWTH MOMENTUM; ACTIONS TAKEN AT HARCOURT EDUCATION • Revenues up 7%, adjusted pre-tax profits up 9% and earnings per share up 11% at constant exchange rates; cash flow conversion 95% • Good performances in Elsevier, LexisNexis and Reed Business; Harcourt Education disappointing o Demand strong for scientific research and medical information in more supportive funding environment at Elsevier o Good performance at LexisNexis with strong growth from online total practice solutions, risk management and in international markets o Rapid online growth at Reed Business and exhibitions performing strongly as markets recover o Strong US basal growth at Harcourt Education offset by significant weakness in supplemental and assessment; actions taken to address performance issues • Targets reiterated for 2006: organic revenue growth of 5% and double digit growth in adjusted earnings per share at constant currencies • Focus on capital efficiency: Reed Elsevier PLC dividend up 11%, Reed Elsevier NV dividend up 9%; share repurchase programme introduced o Annual repurchase programme of $350m; c$1bn over three years o Dividends and share repurchases expected to equate to approximately 70-80% of 2006 free cashflow REED ELSEVIER 2005 2004 2005 2004 Change at £m £m •m •m constant currencies %___________________________________________________________________________________________________________________Turnover 5,166 4,812 7,542 7,074 +7%Reported profit before taxation 701 631 1,023 928 +14%Adjusted profit before taxation 1,002 934 1,463 1,373 +9%___________________________________________________________________________________________________________________ Adjusted figures are presented as additional performance measures and are statedbefore amortisation of acquired intangible assets and acquisition integrationcosts. Parent companies Reed Elsevier PLC Reed Elsevier NV __________________ _____________________________ 2005 2004 Change 2005 2004 Change Change at % % constant currencies %_______________________________________________________________________________________________________________________Reported earnings per share 18.6p 18.6p 0% €0.43 €0.43 0%Adjusted earnings per share 31.5p 28.7p +10% €0.70 €0.64 +9% +11%Dividend per share 14.4p 13.0p +11% €0.359 €0.330 +9% Sir Crispin Davis, Chief Executive Officer of Reed Elsevier, commented: "Three of our four divisions are performing well and delivered on or exceededtheir individual divisional targets for organic revenue growth. The Educationbusiness, however, disappointed in two significant markets and firm action isbeing taken to address the related product, marketing and organisational issues.Overall, revenue growth has accelerated, underlying operating margins havecontinued to improve, cash generation is strong, and good and growing returnsachieved on invested capital. The longer term outlook is promising. The digital environment continues toexpand our opportunity and we are very focused on exploiting our content,brands, market positions and technology to drive sustainable long term growthfor the benefit of our customers and shareholders alike. We will also continueto focus on increasing the returns on capital and believe that the sharerepurchase plan announced today will enhance shareholder returns whilstretaining financial flexibility." ENQUIRIES Sybella Stanley (Investors) Catherine May (Media) +44 20 7166 5630 +44 20 7166 5657 FINANCIAL HIGHLIGHTSFOR THE YEAR ENDED 31 DECEMBER 2005 REED ELSEVIER COMBINED BUSINESSES 2005 2004 2005 2004 Change at £m £m •m •m constant currencies %_______________________________________________________________________________________________________________________Reported figuresRevenue 5,166 4,812 7,542 7,074 +7%Operating profit 839 766 1,225 1,126 +12%Profit before tax 701 631 1,023 928 +14%Profit attributable to shareholders 462 459 675 675 +3%Net borrowings 2,694 2,532 3,933 3,570_______________________________________________________________________________________________________________________Adjusted figuresOperating profit 1,142 1,066 1,667 1,567 +8%Profit before tax 1,002 934 1,463 1,373 +9%Profit attributable to shareholders 754 687 1,101 1,010 +11%Operating cash flow 1,080 1,013 1,577 1,490 +8%_______________________________________________________________________________________________________________________Operating margin 22% 22% 22% 22%Operating cash flow conversion 95% 95% 95% 95%_______________________________________________________________________________________________________________________ Adjusted figures are presented as additional performance measures and are statedbefore the amortisation of acquired intangible assets, acquisition integrationcosts, gains on disposals and investments, and movements on deferred taxbalances not expected to crystallise in the near term. Reconciliations betweenthe reported and adjusted figures are provided in the notes to the combinedfinancial information. PARENT COMPANIES Reed Elsevier PLC Reed Elsevier NV __________________________________ ____________________________________________ 2005 2004 Change 2005 2004 Change Change at £m £m % •m •m % constant currencies %_______________________________________________________________________________________________________________________Reported profit 235 235 0% 338 338 0%attributableAdjusted profit 399 363 +10% 551 505 +9% +11%attributableAverage US$:£/• exchange 1.82 1.83 1.25 1.24rate_______________________________________________________________________________________________________________________Reported earnings per 18.6p 18.6p 0% €0.43 €0.43 0%shareAdjusted earnings per 31.5p 28.7p +10% €0.70 €0.64 +9% +11%shareDividend per share 14.4p 13.0p +11% €0.359 €0.330 +9%_______________________________________________________________________________________________________________________ The Reed Elsevier combined businesses encompass the businesses of Reed ElsevierGroup plc and Elsevier Reed Finance BV, together with their two parentcompanies, Reed Elsevier PLC and Reed Elsevier NV (the "Reed Elsevier combinedbusinesses"). The results of Reed Elsevier PLC reflect its shareholders' 52.9%economic interest in the Reed Elsevier combined businesses. The results of ReedElsevier NV reflect its shareholders' 50% economic interest in the Reed Elseviercombined businesses. The respective economic interests of the Reed Elsevier PLCand Reed Elsevier NV shareholders take account of Reed Elsevier PLC's 5.8%interest in Reed Elsevier NV. Following a regulation adopted by the European Parliament, the Reed Elseviercombined businesses and the two parent companies now prepare their consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) with effect from the 2005 financial year. Comparative amountsfor the year ended 31 December 2004 have been restated in accordance with ReedElsevier's accounting policies under IFRS, adopting a 1 January 2004 transitiondate, other than in respect of IAS39 - Financial Instruments, for which thetransition date was 1 January 2005. The percentage change at constant currencies refers to the movements at constantexchange rates, using 2004 full year average and hedged rates. REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER We are pleased to report on a year of overall good progress at Reed Elsevier. Our financial targets of 5% organic revenue growth and double digit adjustedearnings growth at constant currencies have been delivered and are reiterated asour targets for 2006. Three of our four divisions are performing well anddelivered on or exceeded their individual divisional targets for organic revenuegrowth. The Education business however disappointed in two significant marketsand firm action is being taken to address the related product, marketing andorganisational issues. Overall, revenue growth has accelerated, underlyingoperating margins have continued to improve, cash generation is strong, and goodand growing returns achieved on invested capital. Strategically and operationally we have also made positive progress. We haveexpanded our content, introduced new innovative online information products andservices, deployed market leading technology and expertise, widened ourdistribution in winning new customers globally, and broadened our productofferings to meet the expanding needs of our customers in a digital environment.One third of our revenues are now electronic and internet delivered, and theopportunities to add further value to our customers and shareholders throughonline information and applications is very promising. Financial Results and Progress Total revenues in 2005 were up 7% at constant currencies, with underlyingrevenue growth of 5% excluding acquisitions and disposals, up from the 3%underlying growth seen in 2004. In scientific and medical markets, demand has remained strong for scientificresearch and medical information within a more supportive funding environmentparticularly for online product and in the expanding health professions. Inlegal markets, good demand growth has been seen for online productivity toolsand practice solutions, and in international online expansion and riskmanagement. In education markets, strong growth in the US K-12 basal business,driven by success in an expanded state textbook adoptions market, was in largepart offset by a weak supplemental market and a significant underperformance inthe supplemental and assessment businesses. In business to business markets, weare now seeing a more positive overall environment. The exhibitions businessgrew strongly as markets recovered and, whilst print advertising remainssubdued, the online services in which we have been investing over the last fewyears continued their rapid growth. Adjusted operating profits were up 8% at constant currencies, or 6% underlying,with operating margins showing underlying improvement of 0.2 percentage pointsthrough a combination of the revenue growth and firm cost control. Adjustedoperating cashflow was strong at £1,080m/€1,577m, with a 95% conversion ofadjusted operating profits into cash as capital expenditures levelled off andthrough tight management of working capital as the business expands. The return on capital employed in the business increased by 0.4 percentagepoints to 9.4% and recent acquisitions are delivering, or are expected todeliver, over 10% return on capital within three years, with continuing goodgrowth in returns thereafter. Adjusted pre-tax profits at constant currencies were up 9%, and, including alower effective tax rate, adjusted earnings per share were up 11%. The financial results are reported this year under International FinancialReporting Standards (IFRS) for the first time, with the comparative periodrestated accordingly. The derivation of our new benchmark figures is set out inthe operating and financial review and summary financial information. At reported exchange rates, total revenues were £5,166m/€7,542m, up 7% whenreported in both sterling and euros, and adjusted earnings per share were up 10%for Reed Elsevier PLC at 31.5p and up 9% for Reed Elsevier NV at €0.70. The equalised final dividends proposed by the respective boards are 10.7p forReed Elsevier PLC and €0.267 for Reed Elsevier NV, both up 11%. Together withthe interim dividends, these give total dividends for the year of 14.4p and€0.359 respectively, up 11% for Reed Elsevier PLC and 9% for Reed Elsevier NV onthe prior year dividends. (The difference in dividend growth rates reflects theimpact of currency movements since the prior year dividend declaration dates.)This increase in dividends reflects the more progressive dividend policyannounced last year that more closely aligns dividend growth with growth inadjusted earnings. Use of cash Free cashflow for the year before dividends increased by £108m/€150m to £764m/€1,116m. Of this 44%, i.e. £336m/€491m, was paid out by way of dividends and37%, i.e. £284m/€415m, was spent on acquisitions net of minor disposals. Having reviewed our financial position and outlook, we are introducing witheffect from this year an annual share repurchase programme to further improvecapital efficiency. The amount may vary from year to year but we would expect,subject to prevailing market and business conditions, to spend approximately$350m (£200m/€290m) on share repurchases in 2006 and approximately $1 billion(£600m/€870m) over three years. With the stronger free cash flow and positivegrowth outlook, we believe that this new programme will enhance shareholderreturns whilst retaining the financial capability to continue to develop thebusiness through both organic and acquisition investment. This programme,together with our dividend policy, is expected to return to shareholders in theregion of 70-80% of free cash flow in 2006. The repurchase of shares in ReedElsevier PLC and Reed Elsevier NV will reflect the equalisation ratio. It is expected that the free cashflow available after dividends and sharerepurchases will be used to make acquisitions that accelerate Reed Elsevier'sstrategic development and growth, and deliver superior financial returns. Tothe extent that acquisition opportunities arise beyond the available freecashflow, we would expect these to be funded from debt. Divisional Performance and Business Progress The Elsevier science and medical business saw strong subscription renewals,growing online sales and successful second half medical book publishing todeliver 8% revenue growth at constant currencies, including a part yearcontribution from the MediMedia MAP business acquired in August. Organicrevenue growth was 5%, up from 4% in the prior year, with underlying marginsimilar to the prior year despite the costs of the newly launched Scopusdatabase and other products. This revenue momentum should continue withopportunities to improve underlying margins through revenue growth and continuedcost efficiency. LexisNexis showed very good growth in the year with delivery on the three keystrategic initiatives: to expand the business from research into total practicesolutions; to grow a significant business in risk management; and to expandinternationally through innovative online product and services. Strong demandfor online information and workflow solutions was seen in North American andInternational markets, and US corporate and federal markets saw continuedrecovery in online news and business information, higher patent volumes andstrong demand in risk management. LexisNexis saw overall revenues up 13% atconstant currencies and improving margins, with 6% organic revenue growth,against a target of 5% and against 4% growth in 2004. There was a strongcontribution from recent acquisitions including Seisint, which saw continuedstrong demand for its powerful risk management products with 20% year on yearsales growth. Harcourt Education had a disappointing year. There was a strong performance inthe US schools basal business, taking a leading share in new state textbookadoptions in the core curriculum subjects in which we compete, coming no.1 inElementary and no.2 in Secondary. This was however in large part offset by acombination of weak supplemental markets and significant underperformance in thesupplemental and assessment businesses. In a weak supplemental market, we sawgreater attrition in the backlist, which was not well aligned with the No ChildLeft Behind Act, and growth from new publishing was unable to compensate. Inassessment, we won fewer new state testing contracts than anticipated and saw acut back on catalog product in a slow new publishing year. Harcourt Education'srevenue growth was 3% at constant currencies, or 2% excluding acquisitions anddisposals against the 9-10% growth targeted. Underlying margin was broadlymaintained through firm cost management throughout the year. Firm action has been taken to address the performance issues in supplemental andassessment and to reinvigorate growth through management and organisationalchanges, new and accelerated publishing programmes, and much strengthened salesactivities. The benefits of this should start to be felt in 2006 although thegreater impact on revenue growth and margin development should be from 2007.2006 is not a strong adoption year, but the years 2007 to 2009 are, and strongpublishing plans are in place to maintain Harcourt's leading adoption position. Reed Business, after several years of market decline and no growth, sawimprovement in its markets, with strong demand for online services andexhibitions. The rapid growth in our online revenues reflects the benefit ofthe sustained investment in new online product and services over several yearsdespite difficult business markets. Print advertising remained variable bygeography and sector, in part reflecting migration to online. Reed Businessrevenues increased by 5% at constant currencies, both in total and underlying,against a 2005 organic growth target of 4-5% and the 2% growth achieved in theprior year, and saw margins improve. Whilst there is some uncertainty as to theeconomic outlook in major developed economies, the momentum going into 2006,particularly in exhibitions and online, is positive and Reed Business has thesame 4-5% organic growth target as last year with further margin improvementexpected. The operating and financial review describes the performances of our businessesin greater detail. Across our business, the focus has been on driving our business online, and thebenefits of this are increasingly evident in the strengthening of our revenuegrowth. Online now accounts for one third of our revenues and, although printis still important and expanding, the longer term future and faster growthopportunities are online. For the customer, online products have greaterutility, can be more widely accessed, can be integrated into workflows, anddrive higher productivity. For Reed Elsevier, online provides opportunities toexpand the product range, increase competitive differentiation, widendistribution, and build stronger relationships to deliver superior growth andmargin improvement. The customer is a more effective professional; ReedElsevier is a more valued partner. Outlook Looking to 2006, the market environments in which we operate are broadlyencouraging, and, whilst noting that 2006 is a slower year for state textbookadoptions, we are again targeting underlying revenue growth for 2006 of at least5% and double digit adjusted earnings per share growth at constant currencies.Looking further out, we are encouraged by the growing momentum in the businessand the success in developing and marketing innovative online services.2007-2009 should also see the benefit of three strong years in the adoptioncalendar in US education. We will continue to focus on expanding the business and increasing the returnson capital. The share repurchase plan announced today will we believe enhanceshareholder returns whilst retaining the financial flexibility to continue toincrease the value of the business through acquisition as well as organicdevelopment. The longer term outlook is promising. We have a clear consistent strategy andgrowing market success. The digital environment continues to expand ouropportunity and we are very focused on exploiting our content, brands, marketpositions, technology and management capabilities to drive sustainable long termgrowth for the benefit of our customers and shareholders alike. Jan Hommen Sir Crispin DavisChairman Chief Executive Officer REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE REVIEW OF OPERATIONS 2005 2004 2005 2004 % change at constant £m £m •m •m currencies_______________________________________________________________________________________________________________________RevenueElsevier 1,436 1,363 2,097 2,004 +8%LexisNexis 1,466 1,292 2,140 1,899 +13%Harcourt Education 901 868 1,315 1,276 +3%Reed Business 1,363 1,289 1,990 1,895 +5%_______________________________________________________________________________________________________________________Total 5,166 4,812 7,542 7,074 +7%_______________________________________________________________________________________________________________________ Adjusted operating profitElsevier 449 445 655 654 +5%LexisNexis 338 287 493 422 +17%Harcourt Education 161 157 235 231 +2%Reed Business 214 194 313 285 +9%Unallocated items (20) (17) (29) (25)_______________________________________________________________________________________________________________________Total 1,142 1,066 1,667 1,567 +8%_______________________________________________________________________________________________________________________ Adjusted figures are used by Reed Elsevier as additional performance measuresand are stated before amortisation of acquired intangible assets and acquisitionintegration costs. The comparative 2004 figures have been restated to conformto the IFRS accounting basis now adopted. Unallocated items comprise corporatecosts, return on pension scheme assets and interest on pension schemeliabilities. Reported operating results, including amortisation of acquired intangible assetsand acquisition integration costs, are analysed in note 2 to the combinedfinancial information and discussed further below in the Financial Review, andare reconciled to the adjusted figures in note 3 to the combined financialinformation. Unless otherwise indicated, all percentage movements in the following commentaryrefer to performance at constant exchange rates, using 2004 full year averageand hedged rates, and are stated before the amortisation of acquired intangibleassets and acquisition integration costs. REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE ELSEVIER 2005 2004 2005 2004 % change £m £m •m •m at constant currencies_______________________________________________________________________________________________________________________RevenueScience & Technology 785 779 1,146 1,145 +5%Health Sciences 651 584 951 859 +11%_______________________________________________________________________________________________________________________ 1,436 1,363 2,097 2,004 +8%_______________________________________________________________________________________________________________________Adjusted operating profit 449 445 655 654 +5%Adjusted operating margin 31.3% 32.6% 31.3% 32.6% -0.8pts_______________________________________________________________________________________________________________________ Elsevier has had a successful year with strong demand for scientific researchand medical information within a more supportive funding environment,particularly for online product and in the expanding health professions. Revenue and adjusted operating profits were ahead by 8% and 5% respectively atconstant exchange rates including a part year contribution from the MediMediaMAP business acquired in August. Underlying revenue growth was on target at 5%and adjusted operating profits also grew 5%, with underlying margins similar tothe prior year despite the significant costs of the newly launched Scopusproduct ahead of revenues building and other new product launches. Overalladjusted operating margins, at 31.3%, were 0.8 percentage points lower atconstant currencies reflecting the lower margin of MediMedia MAP and otheracquired businesses. The Science & Technology division saw underlying revenue growth of 5% atconstant exchange rates. Subscription renewals were strong at 97%, slightlyhigher than in the prior year, and good online growth was seen in wideningdistribution through ScienceDirect and in secondary databases including initialsales of Scopus. There has been continued good take up of e-only contractswhich now account for over 40% of journal subscriptions by value, andScienceDirect continues to see strong growth in usage, up over 20% year on year.The MDL software business saw only modest growth as a result of the extendedsales cycle as pharmaceutical companies migrate to the new platform. The booksbusiness performed well with a strong frontlist. The Health Sciences division saw underlying growth of 6%, with good growth in USbook sales, particularly for the expanding nursing and allied healthcaresectors, and in journals and pharma communications. 2005 saw acceleratingonline revenue growth with new product and platform releases, and growing andattractive opportunities to expand our business online. Outside the US, stronggrowth was seen in continental Europe and in Asia Pacific and Latin America withthe UK held back by comparison with a particularly strong prior year. Totalrevenue growth at constant currencies was 11% including MediMedia MAP and othersmaller acquisitions. Across Elsevier, the focus has been on execution. In Science & Technology, wehave expanded content with an increase of more than 4% in the number of newresearch articles accepted, and new online services and features have beenintroduced to improve customer productivity. The Scopus database service,developed in close cooperation with the scientific community, continues to bewell received in the market with well over 1,000 trial customers. We areexpanding distribution of our electronic products globally in areas such asChina as well as securing major new contracts and renewals, such as the contractto provide all our scientific content online to universities across theNetherlands. We are also developing more flexible customised offerings toexpand further into corporate research markets and smaller and mid-sizedinstitutions. A major reorganisation is nearing completion to move from aproduct-centric to a more market-focused organisation, with a real drive toimprove customer relations and service levels, and to focus on under-penetratedand higher growth market segments. Within Health Sciences, the focus has been on expanding world class content andinformation services, and building e-health workflow tools and applications.New online services were introduced, such as iConsult for the hospital andpractitioner markets and new modules for the Evolve online platform for the USmedical education market. Outside the US, we continue to build on strongpositions and leverage our global network through versioning and geocloning ofcontent and sharing electronic platforms and publishing infrastructure. InAugust, we acquired the MediMedia MAP business for €270m (£188m) with itsleading positions in the French, Spanish and Italian medical publishing marketsfrom which we expect strong growth from market demand and through innovation. The outlook for Elsevier is positive. Subscription renewals are strong, bookpublishing is expanding, new electronic product is developing well in themarket, and distribution is widening. Organic revenue growth of 5% is targetedfor 2006 with underlying margin improvement from good revenue growth and furthercost efficiency. LEXISNEXIS 2005 2004 2005 2004 % change £m £m •m •m at constant currencies_______________________________________________________________________________________________________________________RevenueNorth America 1,095 949 1,599 1,395 +15%International 371 343 541 504 +7%_______________________________________________________________________________________________________________________ 1,466 1,292 2,140 1,899 +13%_______________________________________________________________________________________________________________________Adjusted operating profit 338 287 493 422 +17%Adjusted operating margin 23.1% 22.2% 23.1% 22.2% +0.9pts_______________________________________________________________________________________________________________________ LexisNexis had a very successful year with revenue growth continuing to buildwith strong demand for online information and related productivity tools, andfurther improvement in operating margins. Revenues and adjusted operating profits were up 13% and 17% respectively atconstant exchange rates, including a full year contribution from Seisint andother recent acquisitions. Organic revenue growth excluding these acquisitionsand minor disposals was 6%, against a target for the year of 5% and compareswith the 4% growth achieved in the prior year, with underlying adjustedoperating profits up 9%. Overall adjusted operating margins improved by 0.9percentage points to 23.1% reflecting the good revenue growth and firm costmanagement. In North America, LexisNexis saw revenue growth of 15%, or 6% underlying. InNorth American Legal Markets, stronger demand was seen from law firms for onlineinformation and workflow tools as the total practice solutions strategy gainstraction, to deliver organic revenue growth of 5%. In Corporate and FederalMarkets, organic revenue growth was 8% with continued recovery in online newsand business, higher volumes for the US patent and trademark office and strongdemand in risk management. Additionally, the Seisint business acquired inSeptember 2004 achieved 20% pro-forma year on year sales growth and strongprofit growth despite higher security and other costs following the unauthorisedaccess to its databases reported earlier in the year. Adjusted operatingprofits for LexisNexis North America were up 20%, or 11% underlying, with a 1.1percentage point increase in adjusted operating margins due to the strongrevenue growth and the gearing in the business. The International business outside North America saw excellent growth in demandfor online information and from new publishing with particularly strongperformances in Europe and Africa. Organic revenue growth was 7%, driven by a16% increase in online revenues, with underlying adjusted operating profits up5% after further investment in Germany, Asia Pacific and Latin America. In LexisNexis, the focus in 2005 has been on combining content with onlineworkflow tools to build total practice solutions, expanding online servicesinternationally, and integrating Seisint within our risk management business.The success of our strategy is seen in the acceleration of growth in LexisNexis.There is significantly growing demand for practice solutions from law firms andbusinesses: Total Litigator, just launched, combines relevant research materialswith advanced tools covering electronic discovery, court docket tracking,e-filing, expert identification, legal document preparation and many otherlitigator tasks, in one integrated online service; Totalsearch providescustomers with a single interface to combine searches of their data with ourmaterials; and client development tools help law firms identify businessdevelopment opportunities and market themselves more effectively to existing andpotential clients. Internationally, the roll out of the global legal platformhas brought compelling functionalities to market. The integration of Seisint iswell progressed, with product integration on the Seisint platform expected to becompleted this year and the product development and sales and marketingactivities now combined. The return on capital invested in Seisint is buildingquickly and is expected to get close to a 10% post tax return in only the secondfull year of ownership, and to continue to grow thereafter. The outlook for LexisNexis is good. Revenue momentum is building in thebusiness as organic and acquisition investment expands market opportunities andenhances value added and differentiated offerings. Organic revenue growth of6-7% is targeted for 2006 and further margin improvement. HARCOURT EDUCATION 2005 2004 2005 2004 % change £m £m •m •m at constant currencies_______________________________________________________________________________________________________________________RevenueUS Schools & Testing 806 774 1,177 1,138 +4%International 95 94 138 138 -_______________________________________________________________________________________________________________________ 901 868 1,315 1,276 +3%_______________________________________________________________________________________________________________________Adjusted operating profit 161 157 235 231 +2%Adjusted operating margin 17.9% 18.1% 17.9% 18.1% -0.2pts_______________________________________________________________________________________________________________________ Harcourt Education had a disappointing year with modest revenue growth, wellbehind target. Strong growth in the US basal business, driven by success in anexpanded state textbook adoption market, was to a large part offset by a belowmarket performance in supplemental and assessment. Revenues and adjusted operating profits were up 3% and 2% respectively atconstant exchange rates. Organic revenue growth excluding acquisitions anddisposals was 2%, against a target for the year of 9-10%, with underlyingprofits flat. Adjusted operating margins were only slightly lower by 0.2percentage points to 17.9%, as the revenue shortfall was mostly mitigated bysales mix and firm cost management throughout the year. The Harcourt US Schools & Testing business saw underlying revenues and operatingprofits up 2% at constant currencies, with a strong performance in the K-12basal business undermined by a weak supplemental market and significantunderperformance in the supplemental and assessment business. The Harcourt US K-12 basal business saw strong revenue growth of 9% despite alower than 75% implementation rate in relevant Texas adoptions due to thefunding delays. Harcourt won a leading market share in new state textbookadoptions in the core curriculum subjects in which we compete, coming no.1 inElementary with a 33% share and no. 2 in Secondary with a 23% share. Particularadoption successes were seen in Texas health and Florida social studies inElementary and in literature and language arts and in Texas health and worldlanguages in Secondary. The supplemental business saw revenue decline of 11% excluding acquisitions anddisposals. This resulted from sharply reduced sales of the literacy backlisttitles not aligned to the approaches prompted by the No Child Left Behind Act,and tighter budgets at the school level, partly caused by funds moving to largescale intervention programmes sold at the district level. Firm remedial actionhas been taken: a major repositioning of the frontlist publishing programmes tofit with NCLB orientation; a new product line under development to address themore comprehensive intervention need at district level; and significantupgrading and re-staffing of the sales force. Some positive impact from thiswill be seen in 2006, with revenue expected to return to growth, but the majoreffect will be in 2007. Harcourt Assessment saw underlying revenue decline of 1% reflecting the failureto win a satisfactory share of significant state testing contracts, limited newclinical frontlist publishing, and an unexpected cut back on school spending ontraditional catalog product. Again, significant action is being implemented toaddress the issues. Changes are being made at a senior management level, amajor upgrade in sales management and in program servicing is underway, theclinical publishing frontlist is being strengthened, and a step change istargeted in margin through an extensive cost reduction and efficiency programme.We expect a meaningful impact from these initiatives in 2006, with revenuereturning to growth and margin improvement. Results will also benefit from thecontinuing roll out of the Stanford Learning First online interim assessmentproduct in 2006. The early modules of Stanford Learning First and the Unisonplatform on which it is based have both been well received in the market and theprospects look promising. The Harcourt Education International business saw underlying revenues 1% lower,reflecting a weak UK instructional materials market as schools held backspending in the face of considerable funding uncertainties surroundinggovernment initiatives. Adjusted operating profits were down 10% underlying,due to the revenue decline and investment in new assessment product. Despite the disappointment of 2005, we believe the outlook for HarcourtEducation is positive. Although the addressable adoption market for Harcourt in2006 is smaller than in 2005, the early market response to the 2006 adoptionprogramme is encouraging and, as stated above, progress is expected in restoringgrowth to the supplemental and assessment businesses. Overall, organic revenuegrowth of 2-4% is targeted for 2006, whilst adjusted operating profits areexpected to be lower due to the significant sales and marketing investment aheadof 2007 adoptions. In 2007-2009, the textbook adoption cycle sees a stronggrowth phase. Harcourt has a strong programme in development to capitalise onthis opportunity, and also expects to see improved momentum in the supplementaland assessment businesses. REED BUSINESS 2005 2004 2005 2004 % change £m £m •m •m at constant currencies_______________________________________________________________________________________________________________________RevenueReed Business InformationUS 324 323 473 475 -UK 259 244 378 359 +6%Continental Europe 270 268 394 394 -Asia Pacific 39 33 57 48 +14%Reed Exhibitions 471 421 688 619 +11%_______________________________________________________________________________________________________________________ 1,363 1,289 1,990 1,895 +5%_______________________________________________________________________________________________________________________Adjusted operating profit 214 194 313 285 +9%Adjusted operating margin 15.7% 15.0% 15.7% 15.0% +0.7pts_______________________________________________________________________________________________________________________ Reed Business had a successful year with stronger revenue growth, driven byrapidly growing online services and excellent growth in exhibitions. Marginsimproved further through revenue growth and firm cost management. Revenues and adjusted operating profits were up 5% and 9% respectively atconstant exchange rates. Organic revenue growth was 5%, against a target forthe year of 4-5% and compares with 2% in the prior year. Adjusted operatingprofits excluding acquisitions and disposals was 10%. The exhibitions businessgrew underlying revenues 11% whilst the magazines and information publishingbusinesses saw underlying revenue growth of 2%, which compares with a flatperformance in the prior year. Adjusted operating margins increased by 0.7percentage points to 15.7% despite the net cycling out of contribution frombiennial joint venture exhibitions. The Reed Business Information magazine and information publishing businesses sawcontinued strong growth in online services whilst print advertising remainsvariable by geography and sector, in part reflecting migration to stronglygrowing online services. In the US, revenues were up 1% from continuing titles,i.e. excluding the manufacturing product news titles which are currently beingsold, with adjusted operating profits up 20% through continuing cost actions.The Media division continues to perform well with other divisions broadly flatas print advertising migrates online. In the UK, organic revenue growth was 7%driven by strong growth in online recruitment and paid search. The property,science, aerospace and agriculture sectors performed well with weakness in thesocial care market. Adjusted operating profits were 15% ahead underlying due tostrong revenue growth and firm cost control. In Continental Europe, underlyingrevenues and adjusted operating profits were 1% and 6% lower respectively, witha continuing depressed market environment in The Netherlands in particular.Focus on new online services, market share performance and yield managementlargely mitigated the weakness in the advertising market. Asia Pacific saw 8%underlying revenue growth with strong performances in Japan and Singapore. Reed Exhibitions had a very successful year, with underlying revenue growth of11% whilst adjusted operating profits grew 7%, or 15% before the cycling out ofthe contribution from a number of biennial joint venture exhibitions. Goodgrowth was seen across the business, in the US, Europe and Asia-Pacific, withstrong demand, new launches and a turnaround in some underperforming sectors.Particularly strong performances were seen in Japan and in the internationalentertainment and property shows. In Reed Business, the focus in 2005 has been on expanding our online services tothe business communities we serve, through webzines, recruitment sites, searchand subscription information and data services. Reed Business Informationonline revenues grew over 30% in the year to more than $300m and now account fornearly 20% of RBI revenues. This follows several years of sustained investmentin online services, anticipating the shift from print to online in businessmarket growth. The most developed territory, where we started investing first,is the UK and well illustrates the potential for our online services. Onlinerevenues grew by over 30% in the UK in 2005 and now account for 35% of totalrevenues. Further continued development is underway of sector specificrecruitment sites, expansion of the Kellysearch service for sourcing industrialcomponents, and in providing more specialised search offerings. In addition toonline, Reed Business has continued to invest in new titles and exhibitions andin upgrading formats. Growth is accelerating in China and other developingmarkets through launch and alliance, such as the exhibitions joint venture inChina with Sinopharm announced in August. The outlook for Reed Business is positive. Exhibition demand remains good,although the exceptional growth of 2005 is not expected to be repeated in 2006,and the growing online business is delivering growth in the magazine andinformation publishing business. Organic revenue growth of 4-5% and furthermargin improvement is targeted for 2006. FINANCIAL REVIEW REED ELSEVIER COMBINED BUSINESSES Income statement Revenues, at £5,166m/€7,542m, increased by 7% expressed both in sterling andeuros, and at constant exchange rates. Excluding acquisitions and disposals,underlying revenue growth was 5%. Reported figures Reported operating profits, after amortisation of acquired intangible assets andacquisition integration costs, at £839m/€1,225m were up 10% expressed insterling and 9% expressed in euros against the £766m/€1,126m reported in 2004restated under IFRS. The increase reflects the strong underlying operatingperformance and the contribution from acquisitions. The amortisation charge inrespect of acquired intangible assets amounted to £276m/€403m, up £21m/€28m onthe prior year, principally as a result of a full year's amortisation for theSeisint and Saxon acquisitions made in 2004 and the MediMedia MAP acquisitionfrom August 2005. Acquisition integration costs were £21m/€30m against £38m/€56m in the prior year. The reported profit before tax for the Reed Elsevier combined businesses,including amortisation of acquired intangible assets, acquisition integrationcosts and net gains on disposals and investments, was £701m/€1,023m, which is up11% expressed in sterling and 10% expressed in euros. The reported tax charge of £237m/€346m compares with a charge of £170m/€250m inthe prior year. The increase principally reflects movements in deferred taxbalances, arising on unrealised exchange differences on long terminter-affiliate lending, that are recognised in the income statement under IFRSbut are not expected to be realised in the foreseeable future. The reported profit attributable to shareholders of £462m/€675m is broadly flatagainst the £459m/€675m reported in the prior year, reflecting the strongoperating performance of the business offset by the swing in non cash deferredtax balances referred to above. 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 effects of movements in deferred taxation assets and liabilities that arenot expected 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 2004 full year average and hedgedexchange rates. Adjusted operating profits, at £1,142m/€1,667m, were up 7% expressed in sterlingand 6% in euros. At constant exchange rates, adjusted operating profits were up8%, or 6% underlying excluding acquisitions and disposals. Underlying operatingmargins improved by 0.2 percentage points from the stronger revenue growth andthrough firm cost management. The overall adjusted operating margin, at 22.1%, was 0.1 percentage point lowerthan in the prior year reflecting the inclusion of lower margin acquisitions andcurrency effects, most particularly the year on year movement in hedge rates inElsevier journal subscriptions. (The net benefit of the Elsevier sciencejournal hedging programme is lower in 2005 than in 2004 as the effect of theweaker US dollar is systematically incorporated within the three year rollinghedging programme.) Within adjusted operating profits, the net pension expense (including the netpension financing items included within operating profit) was £100m/€146m, up£11m/€15m on the prior year principally reflecting the market decline in realcorporate bond yields used to calculate pension service costs. The charge forshare based payments was £57m/€83m, down from £59m/€87m in the prior year dueprincipally to expiry of the 2000 long term incentive plan service period.Restructuring costs, other than in respect of acquisition integration, were £25m/€37m, increasing £7m/€11m on the prior year as the businesses are reorganisedto improve cost efficiency and to better align behind the online growthopportunity. Net finance costs, at £140m/€204m, were £8m/€10m higher than in the prior yearand included a £8m/€12m net credit on the mark-to-market of non-qualifyinginstruments and undesignated hedges under IAS39 which applies from 1 January2005. The increase in costs reflects higher interest rates and the financing ofprior year and 2005 acquisitions, partly offset by the benefit of strong freecashflow. Adjusted profits before tax were £1,002m/€1,463m, up 7% expressed in bothsterling and euros. At constant exchange rates, adjusted profits before taxwere up 9%. The effective tax rate on adjusted earnings, at 24.6%, was lower than the 26.2%effective rate in the prior year, reflecting non recurrence of one off costs anda reduction in the corporation tax rate in the Netherlands. The effective taxrate on adjusted earnings excludes the effect of movements in deferred taxationassets and liabilities that are not expected to crystallise in the near term,and more closely aligns with cash tax costs. Adjusted operating profits andtaxation are also grossed up for the equity share of taxes in joint ventures. The adjusted profit attributable to shareholders of £754m/€1,101m was up 10%expressed in sterling and up 9% expressed in euros. At constant exchange rates,adjusted profit attributable to shareholders was up 11%. Cash flows and debt Adjusted operating cashflow was £1,080m/€1,577m, up 7% expressed in sterling and6% in euros on the prior year, and 8% at constant currencies. The conversionrate of adjusted operating profits into cashflow was strong at 95% (2004: 95%),reflecting the continuing focus on managing working capital as the businessexpands. Capital expenditure on fixed assets, included within adjusted operatingcashflow, was £195m/€285m (2004: £192m/€282m) as investment levelled off, andincluded £102m/€149m (2004: £110m/€162m) in respect of capitalised developmentcosts within intangible assets. Depreciation/amortisation of tangible fixedassets and capitalised development costs was £144m/€210m (2004: £126m/€185m). Net working capital excluding fixed assets and financing items (i.e. principallytrade debtors, inventories and pre-publication costs, less trade creditors,deferred revenues and provisions) was £107m/€156m negative (2004: £177m/€250mnegative), with the increase of £70m/€94m principally reflecting the growth ofthe business and currency translation effects. Net interest paid in the year of £142m/€207m (2004: £130m/€191m) was similar tothe net finance costs. Tax paid of £171m/€250m (2004: £209m/€307m) was lowerthan the effective tax charge on adjusted earnings and the prior year due torefunds of tax paid on earlier assessments. Free cash flow - after interest and taxation - was £764m/€1,116m (2004: £656m/€966m), up £108m/€150m reflecting the strong operating cashflow performance andlower taxes paid. Dividends paid to shareholders in the year amounted to £336m/€491m (2004: £309m/€454m), the increase reflecting the more progressive dividendpolicy announced in February 2005. After dividends, free cashflow was £428m/€625m (2004: £347m/€512m), up 23% in sterling and 22% in euros. Acquisitions in 2005 were made for a total consideration of £307m/€448m,including £14m/€20m deferred to future years, and after taking account of netcash acquired of £8m/€12m. The amounts capitalised in respect of goodwill andintangible assets were £182m/€266m and £149m/€218m respectively, the principalintangible assets acquired being the MediMedia MAP journal titles and otherbrands, imprints and subscriber relationships. £9m/€13m was paid in respect ofprior year acquisitions. Acquisition integration related spend in respect ofthe 2005 and other recent acquisitions amounted to £28m/€41m. The 2005acquisitions contributed £7m/€10m to adjusted operating profit in the year andadded £8m/€12m to net cash inflow from operating activities for the part yearunder Reed Elsevier ownership. Net borrowings at 31 December 2005 were £2,694m/€3,933m (2004: £2,532m/€3,570m),an increase of £162m in sterling and €363m in euros since 31 December 2004, dueto foreign exchange translation effects following the significant strengtheningof the US dollar between the beginning and end of the year. These translationeffects increase net debt expressed in sterling by £268m and in euros by €518m,more than offsetting the benefit of free cash flow less dividend and acquisitionspend. Net debt is stated including a fair value adjustment to increase grossdebt by £175m/€256m under IFRS which is largely offset by the corresponding fairvalue of derivatives used to hedge the related debt instruments. Gross borrowings after fair value adjustments at 31 December 2005 amounted to£3,164m/€4,619m, denominated mostly in US dollars, and were partly offset by thefair value of related derivatives of £174m/€254m and cash balances totalling£296m/€432m invested in short term deposits and marketable securities. Aftertaking into account interest rate and currency derivatives, a total of 75% ofReed Elsevier's gross borrowings were at fixed rates and had a weighted averageinterest coupon of 5.1% and an average remaining life of 4.0 years. Capital employed and returns The capital employed in the business at 31 December 2005 was £9,705m/€14,169m(2004: £8,579m/€12,096m), after adding back accumulated amortisation of acquiredintangible assets and goodwill. The increase of £1,126m/€2,073m principallyarises from currency translation effects (£767m/€1,549m), most particularly fromthe strengthening of the US dollar between 1 January and 31 December 2005, andfrom acquisitions (£318m/€464m). The return on average capital employed in the year was 9.4% (2004: 9.0%), andcompares with an estimated weighted average cost of capital for Reed Elsevier of7.5%. This return is based on adjusted operating profits, less tax at the 25%effective rate, and the average of the capital employed at the beginning and endof the year retranslated at average exchange rates. The improvement in the yearreflects the good underlying profit growth and management of working capital. 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 2002 to 2004 are delivering post taxreturns in 2005 of 12%, 12% and 6% respectively and continue to grow well. PARENT COMPANIES Earnings per share For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjustedearnings per share were respectively up 10% at 31.5p (2004: 28.7p) and 9% at€0.70 (2004: €0.64). Adjusted earnings are stated before the amortisation ofacquired intangible assets, acquisition integration costs, net gains ondisposals and other non-operating items, and movements in deferred tax balancesnot expected to crystallise in the near future. The difference in percentagechange is attributable to the impact of currency movements on the translation ofreported results and the effects of rounding. At constant rates of exchange,the adjusted earnings per share of both companies would have shown an increaseof 11% over 2004. The reported earnings per share for Reed Elsevier PLC shareholders was 18.6p(2004: 18.6p) and for Reed Elsevier NV shareholders was €0.43 (2004: €0.43). Dividends Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalisedat the gross level, including the benefit of the UK attributable tax credit of10% received by certain Reed Elsevier PLC shareholders. The exchange rate usedfor each dividend calculation - as defined in the Reed Elsevier merger agreement- is the spot euro/sterling exchange rate, averaged over a period of fivebusiness days commencing with the tenth business day before the announcement ofthe proposed dividend. The Board of Reed Elsevier PLC has proposed a final dividend of 10.7p, giving atotal dividend of 14.4p for the year, up 11% on 2004. The Boards of ReedElsevier NV, in accordance with the dividend equalisation arrangements, haveproposed a final dividend of €0.267, which results in a total dividend of €0.359for the year, up 9% on 2004. The difference in dividend growth rates reflectsthe movement in the euro:sterling exchange rate between dividend announcementdates. Dividend cover, based on adjusted earnings per share and the total of theinterim and proposed final dividend for the year, was 2.2 times for ReedElsevier PLC and 1.9 times for Reed Elsevier NV. Measured for the combinedbusinesses on a similar basis, dividend cover was 2.1 times. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Reed Elsevier now prepares financial statements under International FinancialReporting Standards (IFRS), with effect from the 2005 financial year. The 2004financial statements have been restated under IFRS, adopting a 1 January 2004transition date, other than in respect of IAS39 - Financial Instruments forwhich the transition date is 1 January 2005. The Annual Reports and FinancialStatements 2004 set out the accounting policies adopted under IFRS, theprincipal differences to the UK GAAP previously applied, and the restatement ofthe 2004 financial statements. The required changes in Reed Elsevier accounting policies in adopting IFRS werein six major areas: • Goodwill and intangible assets - goodwill is no longer amortised and intangible assets are generally amortised over shorter periods. • Employee benefits - pension costs and defined benefit scheme assets and liabilities are measured based on market values; the amount of any surplus or deficit is recognised in full in the balance sheet. • Share based remuneration - the fair value of share options, determined at date of grant, is expensed over the vesting period. • Financial instruments - with effect from 1 January 2005, all derivative financial instruments are measured at fair value; hedge accounting is only permissible where effectiveness criteria are met. • Deferred taxation - full provision is made for nearly all differences between the balance sheet amounts of assets and liabilities and their corresponding tax bases. • Dividends - accrual is made for dividends only when they have been formally declared by the directors. A presentation on the results will be audiocast live on the reedelsevier.comwebsite at 09.30 am (London)/10.30 am (Amsterdam) today.________________________________________________________________________________FORWARD LOOKING STATEMENTS________________________________________________________________________________ ________________________________________________________________________________This Preliminary Statement contains forward looking statements within themeaning of Section 27A of the Securities Act 1933, as amended, and Section 21Eof the Securities Exchange Act 1934, as amended. These statements are subject toa number of risks and uncertainties and actual results and events could differmaterially from those currently being anticipated as reflected in such forwardlooking statements. The terms 'expect', 'should be', 'will be', and similarexpressions identify forward looking statements. Factors which may cause futureoutcomes to differ from those foreseen in forward looking statements include,but are not limited to: general economic conditions and business conditions inReed Elsevier's markets; exchange rate fluctuations; customers' acceptance ofits products and services; the actions of competitors; legislative, fiscal andregulatory developments; changes in law and legal interpretation affecting ReedElsevier's intellectual property rights and internet communications; and theimpact of technological change.________________________________________________________________________________ COMBINED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 2005 2004 £m £m •m •m_______________________________________________________________________________________________________________________Revenue 2 5,166 4,812 7,542 7,074Cost of sales (1,890) (1,733) (2,759) (2,548)_______________________________________________________________________________________________________________________Gross profit 3,276 3,079 4,783 4,526Operating expenses (2,453) (2,330) (3,581) (3,426)_______________________________________________________________________________________________________________________Operating profit before joint ventures 823 749 1,202 1,100Share of results of joint ventures 16 17 23 26_______________________________________________________________________________________________________________________Operating profit 2 839 766 1,225 1,126_______________________________________________________________________________________________________________________Net finance costs (140) (132) (204) (194)_______________________________________________________________________________________________________________________Disposals and other non operating items 2 (3) 2 (4)_______________________________________________________________________________________________________________________Profit before tax 701 631 1,023 928Taxation (237) (170) (346) (250)_______________________________________________________________________________________________________________________Net profit for the year 464 461 677 678_______________________________________________________________________________________________________________________ Attributable to:Parent companies' shareholders 462 459 675 675Minority interests 2 2 2 3_______________________________________________________________________________________________________________________Net profit for the year 464 461 677 678_______________________________________________________________________________________________________________________Adjusted figures are presented in note 3 as additional performance measures. COMBINED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 2005 2004 £m £m •m •m_______________________________________________________________________________________________________________________Cash flow from operating activitiesCash generated from operations 4 1,223 1,154 1,786 1,696Interest paid (153) (146) (223) (215)Interest received 11 16 16 24Tax paid (171) (209) (250) (307)_______________________________________________________________________________________________________________________Net cash from operating activities 910 815 1,329 1,198_______________________________________________________________________________________________________________________ Cash flows from investing activitiesAcquisitions (317) (647) (463) (951)Purchases of property, plant and equipment (93) (82) (136) (120)Expenditure on internally developed intangible assets (102) (110) (149) (162)Purchases of investments (3) (13) (4) (19)Proceeds on disposal of property, plant and equipment 8 4 12 7Proceeds from other disposals 36 12 52 18Dividends received from joint ventures 16 17 23 25_______________________________________________________________________________________________________________________Net cash used in investing activities (455) (819) (665) (1,202)_______________________________________________________________________________________________________________________ Cash flows from financing activitiesDividends paid to shareholders of the parent companies (336) (309) (491) (454)Decrease in borrowings (51) (82) (75) (120)Proceeds on issue of ordinary shares 25 21 37 31Purchases of treasury shares (27) (29) (39) (43)_______________________________________________________________________________________________________________________Net cash used in financing activities (389) (399) (568) (586)_______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________Increase/(decrease) in cash and cash equivalents 66 (403) 96 (590)_______________________________________________________________________________________________________________________ Movement in cash and cash equivalentsAt start of year 225 638 317 906Increase/(decrease) in cash and cash equivalents 66 (403) 96 (590)Exchange translation differences 5 (10) 19 1_______________________________________________________________________________________________________________________At end of year 296 225 432 317_______________________________________________________________________________________________________________________Adjusted operating cash flow figures are presented in note 3 as additionalperformance measures. COMBINED BALANCE SHEETAS AT 31 DECEMBER 2005 2005 2004 2005 2004 £m £m •m •m_______________________________________________________________________________________________________________________Non-current assets Goodwill 3,030 2,611 4,424 3,682Intangible assets 2,979 2,835 4,349 3,997Investments 115 110 168 157Property, plant and equipment 314 292 458 411Deferred tax assets 266 235 388 331_______________________________________________________________________________________________________________________ 6,704 6,083 9,787 8,578_______________________________________________________________________________________________________________________Current assets Inventories and pre-publication costs 630 541 920 763Trade and other receivables 1,437 1,103 2,098 1,555Cash and cash equivalents 296 225 432 317_______________________________________________________________________________________________________________________ 2,363 1,869 3,450 2,635_______________________________________________________________________________________________________________________Assets held for sale 60 - 88 -_______________________________________________________________________________________________________________________Total assets 9,127 7,952 13,325 11,213_______________________________________________________________________________________________________________________ Current liabilitiesTrade and other payables 1,982 1,791 2,893 2,525Borrowings 900 1,051 1,314 1,482Taxation 269 299 393 422_______________________________________________________________________________________________________________________ 3,151 3,141 4,600 4,429_______________________________________________________________________________________________________________________Non-current liabilitiesBorrowings 2,264 1,706 3,305 2,405Taxation 287 198 420 279Deferred tax liabilities 980 857 1,431 1,208Net pension obligations 405 321 591 453Provisions 44 52 64 73_______________________________________________________________________________________________________________________ 3,980 3,134 5,811 4,418_______________________________________________________________________________________________________________________Liabilities associated with assets held for sale 11 - 16 -_______________________________________________________________________________________________________________________Total liabilities 7,142 6,275 10,427 8,847_______________________________________________________________________________________________________________________Net assets 1,985 1,677 2,898 2,366_______________________________________________________________________________________________________________________ Capital and reservesCombined share capitals 190 191 277 269Combined share premiums 1,805 1,805 2,635 2,545Combined shares held in treasury (93) (66) (136) (93)Translation reserve 89 (122) 130 (175)Other combined reserves (21) (144) (30) (200)_______________________________________________________________________________________________________________________Combined shareholders' equity 1,970 1,664 2,876 2,346Minority interests 15 13 22 20_______________________________________________________________________________________________________________________Total equity 1,985 1,677 2,898 2,366_______________________________________________________________________________________________________________________ COMBINED FINANCIAL INFORMATIONAS AT 31 DECEMBER 2005 COMBINED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 2005 2004 £m £m •m •m_______________________________________________________________________________________________________________________Net profit for the year 464 461 677 678 Exchange difference on translation of foreign operations 180 (121) 346 (196)Actuarial losses on defined benefit pension schemes (37) (74) (54) (109)Fair value movements on available for sale investments 3 - 4 -Fair value movements on cash flow hedges (10) - (15) -Tax on actuarial losses on defined benefit pension schemes 10 12 15 18Tax on fair value movements on cash flow hedges (13) - (19) -_______________________________________________________________________________________________________________________Net income/(expense) recognised directly in equity 133 (183) 277 (287)_______________________________________________________________________________________________________________________ Transfer to net profit from hedge reserve (19) - (28) -_______________________________________________________________________________________________________________________Total recognised income and expense for the year 578 278 926 391_______________________________________________________________________________________________________________________ Attributable to:Parent companies' shareholders 576 276 924 388Minority interests 2 2 2 3_______________________________________________________________________________________________________________________ 578 278 926 391_______________________________________________________________________________________________________________________Transition adjustment on adoption of IAS39 attributable to:Parent companies' shareholders 11 - 16 -Minority interests - - - -_______________________________________________________________________________________________________________________Transition adjustment on adoption of IAS39 11 - 16 -_______________________________________________________________________________________________________________________ COMBINED SHAREHOLDERS' EQUITY RECONCILIATIONFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Total recognised net income attributable to the parent companies' 576 276 924 388shareholdersDividends declared (336) (309) (491) (454)Issue of ordinary shares, net of expenses 25 21 37 31Increase in shares held in treasury (27) (29) (39) (43)Recognition of share based remuneration reserve 57 59 83 87__________________________________________________________________________________________________________________Net increase in combined shareholders' equity 295 18 514 9Combined shareholders' equity at start of year 1,664 1,646 2,346 2,337Transition adjustment on adoption of IAS39 11 - 16 -__________________________________________________________________________________________________________________Combined shareholders' equity at end of year 1,970 1,664 2,876 2,346__________________________________________________________________________________________________________________ COMBINED FINANCIAL INFORMATIONNOTES 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 2005. Financial information ispresented in both sterling and euros. Following a regulation adopted by the European Parliament, the combinedfinancial information has been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the European Union. TheReed Elsevier accounting policies under IFRS and an explanation of the principaldifferences between IFRS and previously applied UK GAAP (previous GAAP) are setout in the Reed Elsevier Annual Reports and Financial Statements 2004. Thetransition date for the application of IFRS is 1 January 2004. The comparativefigures for the year ended 31 December 2004 have been restated accordingly toreflect the transition to IFRS. Reconciliations of net income and shareholders'equity from previous GAAP to IFRS are also presented in the Reed Elsevier AnnualReports and Financial Statements 2004. IAS39 - Financial Instruments:Recognition and Measurement is applicable from the 2005 financial year with atransition date of 1 January 2005 and accordingly no restatement of the priorperiod comparatives has been made in respect of IAS39. 2 Segment analysis Revenue 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Business segment Elsevier 1,436 1,363 2,097 2,004LexisNexis 1,466 1,292 2,140 1,899Harcourt Education 901 868 1,315 1,276Reed Business 1,363 1,289 1,990 1,895__________________________________________________________________________________________________________________Total 5,166 4,812 7,542 7,074__________________________________________________________________________________________________________________ 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Geographical origin North America 2,888 2,656 4,216 3,904United Kingdom 870 846 1,270 1,244The Netherlands 500 503 730 739Rest of Europe 601 545 878 801Rest of world 307 262 448 386__________________________________________________________________________________________________________________Total 5,166 4,812 7,542 7,074__________________________________________________________________________________________________________________ 2005 2004 2005 2004 £m £m •m •m___________________________________________________________________________________________________________________Geographical market North America 2,974 2,779 4,342 4,085United Kingdom 568 545 829 801The Netherlands 202 202 295 297Rest of Europe 804 725 1,174 1,066Rest of world 618 561 902 825___________________________________________________________________________________________________________________Total 5,166 4,812 7,542 7,074___________________________________________________________________________________________________________________ 2 Segment analysis (continued) Operating profit 2005 2004 2005 2004 £m £m •m •m___________________________________________________________________________________________________________________Business segment Elsevier 396 402 578 591LexisNexis 218 188 318 276Harcourt Education 87 67 127 99Reed Business 158 126 231 185Subtotal 859 783 1,254 1,151Corporate costs (32) (29) (47) (43)Unallocated net pension credit 12 12 18 18___________________________________________________________________________________________________________________Total 839 766 1,225 1,126___________________________________________________________________________________________________________________ 2005 2004 2005 2004 £m £m •m •m___________________________________________________________________________________________________________________Geographical origin North America 364 315 531 462United Kingdom 158 129 231 190The Netherlands 161 182 235 268Rest of Europe 106 102 155 150Rest of world 50 38 73 56___________________________________________________________________________________________________________________Total 839 766 1,225 1,126___________________________________________________________________________________________________________________ Adjusted operating profit 2005 2004 2005 2004 £m £m •m •m___________________________________________________________________________________________________________________Business segment Elsevier 449 445 655 654LexisNexis 338 287 493 422Harcourt Education 161 157 235 231Reed Business 214 194 313 285Subtotal 1,162 1,083 1,696 1,592Corporate costs (32) (29) (47) (43)Unallocated net pension credit 12 12 18 18___________________________________________________________________________________________________________________Total 1,142 1,066 1,667 1,567___________________________________________________________________________________________________________________ 2005 2004 2005 2004 £m £m •m •m___________________________________________________________________________________________________________________Geographical origin North America 595 539 869 792United Kingdom 186 159 271 234The Netherlands 166 189 242 278Rest of Europe 141 138 206 203Rest of world 54 41 79 60___________________________________________________________________________________________________________________Total 1,142 1,066 1,667 1,567___________________________________________________________________________________________________________________ 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. 3 Adjusted figures Reed Elsevier uses adjusted figures as key 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. Adjusted operating cash flow is measured after net capital expenditure anddividends from joint ventures but before payments in relation to acquisitionintegration and related costs. 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Operating profit 839 766 1,225 1,126 Adjustments:Amortisation of acquired intangible assets 276 255 403 375Acquisition integration costs 21 38 30 56Reclassification of tax in joint ventures 6 7 9 10__________________________________________________________________________________________________________________Adjusted operating profit 1,142 1,066 1,667 1,567__________________________________________________________________________________________________________________ Profit before tax 701 631 1,023 928Adjustments:Amortisation of acquired intangible assets 276 255 403 375Acquisition integration costs 21 38 30 56Reclassification of tax in joint ventures 6 7 9 10Disposals and other non operating items (2) 3 (2) 4__________________________________________________________________________________________________________________Adjusted profit before tax 1,002 934 1,463 1,373__________________________________________________________________________________________________________________ Profit attributable to parent companies' shareholders 462 459 675 675Adjustments:Amortisation of acquired intangible assets 310 288 452 423Acquisition integration costs 17 29 24 43Disposals and other non operating items (2) 2 (2) 3Deferred tax adjustment (33) (91) (48) (134)__________________________________________________________________________________________________________________Adjusted profit attributable to parent companies' shareholders 754 687 1,101 1,010__________________________________________________________________________________________________________________ 1,223 1,154 1,786 1,696 Cash generated from operationsDividends received from joint ventures 16 17 23 25Purchases of property, plant and equipment (93) (82) (136) (120)Proceeds from sale of property, plant and equipment 8 4 12 7Expenditure on internally developed intangible assets (102) (110) (149) (162)Payments in relation to acquisition integration costs 28 30 41 44__________________________________________________________________________________________________________________Adjusted operating cash flow 1,080 1,013 1,577 1,490__________________________________________________________________________________________________________________Adjusted operating cash flow conversion 95% 95% 95% 95%__________________________________________________________________________________________________________________ Tax cash flow benefits of £3m/€4m (2004: £18m/€26m) were obtained in relationto acquisition integration costs and disposals and other non operating items. 4 Reconciliation of operating profit before joint ventures to cash generated fromoperations 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Operating profit before joint ventures 823 749 1,202 1,100 Amortisation of acquired intangible assets 276 255 403 375Amortisation of internally developed intangible assets 57 55 83 81Depreciation of property, plant and equipment 87 71 127 104Share based remuneration 57 59 83 87__________________________________________________________________________________________________________________Total non cash items 477 440 696 647__________________________________________________________________________________________________________________Increase in inventories and pre-publication costs (56) (39) (82) (58)Increase in receivables (92) (69) (134) (100)Increase in payables 71 73 104 107__________________________________________________________________________________________________________________Increase in working capital (77) (35) (112) (51)__________________________________________________________________________________________________________________Cash generated from operations 1,223 1,154 1,786 1,696__________________________________________________________________________________________________________________ 5 Reconciliation of net borrowings 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Net borrowings at start of year (2,532) (2,372) (3,570) (3,368)Transition adjustment on adoption of IAS39 (6) - (8) - Increase/(decrease) in cash and cash equivalents 66 (403) 96 (590)Decrease in borrowings 51 82 75 120__________________________________________________________________________________________________________________Change in net borrowings resulting from cash flows 117 (321) 171 (470)__________________________________________________________________________________________________________________Borrowings in acquired business - (2) - (3)Inception of finance leases (10) (11) (15) (16)Mark-to-market of hedges 5 - 7 -Exchange translation differences (268) 174 (518) 287__________________________________________________________________________________________________________________Net borrowings at end of year (2,694) (2,532) (3,933) (3,570)__________________________________________________________________________________________________________________ 6 Pension schemes Pension costs are accounted for in accordance with the International FinancialReporting Standard, IAS19, with actuarial gains and losses on defined benefitpension schemes recognised in full through the Statement of Recognised Incomeand Expense. Reed Elsevier operates a number of pension schemes around the world. The majorschemes are of the defined benefit type with assets held in separate trusteeadministered funds. The largest schemes, which cover the majority of employees,are in the UK, the US and the Netherlands. Under these plans, employees areentitled to retirement benefits normally dependent on the number of yearsservice. The net pension charge was £100m/€146m (2004: £89m/€131m), comprising £79m/€115m(2004: £71m/€104m) in relation to defined benefit pension schemes and £21m/€31m(2004: £18m/€27m) in relation to defined contribution schemes. Pensioncontributions made in the year amounted to £68m/€99m (2004: £79m/€116m). Thecombined businesses expect to contribute approximately £70m/€102m into theirdefined benefit pension schemes in 2006. At 31 December 2005, the aggregate net deficit in respect of the defined benefitschemes under IAS19 was £405m/€591m (2004: £321m/€453m). 7 Exchange rates In preparing the combined financial information, the following exchange rateshave been applied: Income statement Balance sheet ________________________________________________ 2005 2004 2005 2004_________________________________________________________________________________________________________________Euro to sterling 1.46 1.47 1.46 1.41US dollars to sterling 1.82 1.83 1.73 1.93US dollars to euro 1.25 1.24 1.18 1.37_________________________________________________________________________________________________________________ REED ELSEVIER PLCSUMMARY 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 accounted for on an equitybasis, after taking account of results arising in Reed Elsevier PLC and itssubsidiaries. Reed Elsevier PLC's 52.9% economic interest in the net assets ofthe combined businesses is shown in the balance sheet as investment in jointventures, net of the assets and liabilities reported within Reed Elsevier PLCand its subsidiaries. The summary financial information has been prepared on thebasis of the accounting policies of the combined businesses, which, following aregulation adopted by the European Parliament, are now in accordance with IFRSas endorsed by the European Union. Adjusted figures, which exclude theamortisation of acquired intangible assets, acquisition integration costs,disposals and other non operating items, related tax effects, and movements indeferred taxation assets and liabilities that are not expected to crystallise inthe near term, are presented as additional performance measures. Summary consolidated income statementFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 £m £m___________________________________________________________________________________________________________________Share of adjusted attributable profit 399 363Share of amortisation of acquired intangible assets (164) (152)Share of acquisition integration costs (9) (15)Share of disposals and other non operating items 1 (1)Share of deferred tax adjustment 17 48Reed Elsevier NV's share of UK tax credit on distributed earnings (9) (8)___________________________________________________________________________________________________________________Profit attributable to ordinary shareholders 235 235Basic earnings per share 18.6p 18.6pDiluted earnings per share 18.4p 18.5pAdjusted earnings per share 31.5p 28.7p___________________________________________________________________________________________________________________ Adjusted earnings per share is based upon the Reed Elsevier PLC shareholders'52.9% share of the adjusted profit attributable of the Reed Elsevier combinedbusinesses. Dividends Reed Elsevier PLC has declared and paid dividends in the year of 9.6p perordinary share in respect of the prior year final dividend (2004: 8.7p) and3.7p per ordinary share in respect of the current year interim dividend (2004:3.4p). The total cost of dividends declared and paid in the year was £168m(2004: £153m). The directors of Reed Elsevier PLC have proposed a finaldividend for the 2005 financial year of 10.7p per ordinary share (2004: 9.6p),which together with the interim dividend gives a total dividend for the year of14.4p (2004: 13.0p). The cost of the final dividend, if approved byshareholders, will be £137m. The Reed Elsevier PLC final dividend as approvedwill be paid on 12 May 2006, with ex-dividend and record dates of 19 April 2006and 21 April 2006 respectively. Dividends paid to Reed Elsevier PLC and ReedElsevier NV shareholders are equalised at the gross level inclusive of the UKtax credit received by certain Reed Elsevier PLC shareholders. The equalisationadjustment equalises the benefit of the tax credit between the two sets ofshareholders in accordance with the equalisation agreement. Summary consolidated cash flow statementFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 £m £m___________________________________________________________________________________________________________________Cash used by operations (2) (2)Dividends received from Reed Elsevier Group plc 168 153Equity dividends paid (168) (153)Financing (including issue of ordinary shares £14m (2004: £11m)) 9 -Other cash flows (7) 2___________________________________________________________________________________________________________________Change in cash and cash equivalents - -___________________________________________________________________________________________________________________ Summary consolidated balance sheetAS AT 31 DECEMBER 2005 2005 2004 £m £m___________________________________________________________________________________________________________________Investments in joint ventures 490 334Net current assets 588 582Non-current liabilities (36) (36)___________________________________________________________________________________________________________________Net assets 1,042 880___________________________________________________________________________________________________________________ Net current assets includes amounts owed by Reed Elsevier Group plc group of£600m (2004: £595m). The financial information set out above has been abridged from Reed ElsevierPLC's consolidated financial statements for the year ended 31 December 2005,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 S237(2) or (3) Companies Act 1985. REED ELSEVIER NVSUMMARY FINANCIAL INFORMATION Basis of preparation The Reed Elsevier NV consolidated results for the year ended 31 December 2005reflect the Reed Elsevier NV shareholders' 50% economic interest in the ReedElsevier combined businesses accounted for on an equity basis, after takingaccount of the results of Reed Elsevier NV and its subsidiary. Reed ElsevierNV's 50% economic interest in the net assets of the combined businesses is shownin the balance sheet as investment in joint ventures, net of assets andliabilities reported within Reed Elsevier NV and its subsidiary. The summaryfinancial information has been prepared on the basis of the accounting policiesof the combined businesses, which, following a regulation adopted by theEuropean Parliament, are now in accordance with IFRS as endorsed by the EuropeanUnion. Adjusted figures, which exclude the amortisation of acquired intangibleassets, acquisition integration costs, disposals and other non operating items,related tax effects, and movements in deferred taxation assets and liabilitiesthat are not expected to crystallise in the near term, are presented asadditional performance measures. Summary consolidated income statementFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 •m •m___________________________________________________________________________________________________________________Share of adjusted attributable profit 551 505Share of amortisation of acquired intangible assets (226) (212)Share of acquisition integration costs (12) (21)Share of disposals and other non operating items 1 (1)Share of deferred tax adjustment 24 67___________________________________________________________________________________________________________________Profit attributable to shareholders 338 338___________________________________________________________________________________________________________________Basic earnings per share €0.43 €0.43Diluted earnings per share €0.43 €0.43Adjusted earnings per share €0.70 €0.64___________________________________________________________________________________________________________________ Adjusted earnings per share is based upon the Reed Elsevier NV shareholders' 50%share of the adjusted profit attributable of the Reed Elsevier combinedbusinesses. Dividends Reed Elsevier NV has declared and paid dividends in the year of €0.240 perordinary share in respect of the prior year final dividend (2004: €0.220) and€0.092 per ordinary share in respect of the current year interim dividend (2004:€0.090). The total cost of dividends declared and paid in the year was €245m(2004: €229m). The directors of Reed Elsevier NV have proposed a final dividendof €0.267 per ordinary share (2004: €0.240), which together with the interimdividend gives a total dividend for the year of €0.359 (2004: €0.330). The costof the final dividend, if approved by shareholders, will be €198m. The ReedElsevier NV final dividend as approved will be paid on 12 May 2006, with recordand ex-dividend dates of 21 April 2006 and 24 April 2006 respectively.Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders areequalised at the gross level inclusive of the UK tax credit received by certainReed Elsevier PLC shareholders. Summary consolidated cash flow statementFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 •m •m___________________________________________________________________________________________________________________Cash used by operations (5) (3)Dividends received from Reed Elsevier Group plc group 189 220Equity dividends paid (245) (229)Financing (including issue of ordinary shares €18m (2004: €14m)) 34 34Other cash flows 3 (4)___________________________________________________________________________________________________________________Change in cash and cash equivalents (24) 18___________________________________________________________________________________________________________________ Summary consolidated balance sheetAS AT 31 DECEMBER 2005 2005 2004 •m •m___________________________________________________________________________________________________________________Investments in joint ventures 1,487 1,183Net current assets 9 48Non-current liabilities (58) (58)___________________________________________________________________________________________________________________Net assets 1,438 1,173___________________________________________________________________________________________________________________ The financial information in respect of the year ended 31 December 2005 has beenextracted from the consolidated financial statements of Reed Elsevier NV whichhave been audited and received an unqualified audit report. ADDITIONAL INFORMATIONFOR US INVESTORS REED ELSEVIER SUMMARY COMBINED FINANCIAL INFORMATION UNDER US GAAP SUMMARY OF PRINCIPAL DIFFERENCES TO US GAAP Basis of preparation The combined financial statements for Reed Elsevier are prepared in accordancewith International Financial Reporting Standards (IFRS), which differ in certainsignificant respects to US GAAP. The principal differences relate to goodwilland intangible assets, pensions, derivative financial instruments and deferredtaxation. A more complete explanation of the accounting policies used by thecombined businesses and the differences to US GAAP will be set out in the 2005Reed Elsevier Annual Reports and Financial Statements and the Reed ElsevierAnnual Report 2005 on Form 20-F. Net incomeFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Net income as reported under IFRS 462 459 675 675US GAAP adjustments: Intangible assets 5 3 7 4Pensions (78) 6 (114) 9Derivative financial instruments (5) 32 (7) 47Deferred taxation 3 (75) 4 (110)Other (13) (7) (19) (10)__________________________________________________________________________________________________________________Net income under US GAAP 374 418 546 615__________________________________________________________________________________________________________________Combined shareholders' equityAS AT 31 DECEMBER 2005 2005 2004 2005 2004 £m £m •m •m__________________________________________________________________________________________________________________Combined shareholders' equity as reported under IFRS 1,970 1,664 2,876 2,346US GAAP adjustments: Goodwill and intangible assets 1,491 1,378 2,177 1,943 Pensions 409 485 597 684 Derivative financial instruments 5 12 7 17 Deferred taxation (119) (124) (174) (175) Other 7 16 10 22__________________________________________________________________________________________________________________Shareholders' equity under US GAAP 3,763 3,431 5,493 4,837__________________________________________________________________________________________________________________ Net income and shareholders' equity in the 2004 financial year under US GAAPhave been restated for the adoption of SFAS123(R) - Share-Based Payment, whichrequires an expense to be recorded based on the fair value at the date of grant,and related deferred tax effects. Accordingly, net income and shareholders'equity under US GAAP for 2004 are respectively £31m/€45m lower and £58m/€81mhigher than the amounts previously reported. Both Reed Elsevier PLC ('RUK', CUSIP No. 758205108) and Reed Elsevier NV ('ENL',CUSIP No. 758204101) 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 19 May 2006. 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 Annual Review 2005 and Reed Elsevier PLC 2005 Annual Reportand Financial Statements are being posted to Reed Elsevier PLC shareholders on10 March 2006. Copies of the Reed Elsevier Annual Review 2005 and Reed ElsevierNV 2005 Annual Report and Financial Statements will be available to shareholdersin Reed Elsevier NV on request. Copies of the Preliminary Statement areavailable 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 Statement, 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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