Final Results

15th Feb 2007 07:02

Reed Elsevier PLC15 February 2007 Issued on behalf of Reed Elsevier PLC and Reed Elsevier NV 15 February 2007 REED ELSEVIER 2006 PRELIMINARY RESULTS GOOD FINANCIAL PROGRESS AND SHARPENED STRATEGIC FOCUS Good financial progress Adjusted Figures - Revenues up 4% to £5,398m/up 5% to €7,935m, up 6% at constant currencies. - Adjusted operating profits, before amortisation of acquired intangible assets and acquisition integration costs, up 6% to £1,210m/up 7% to €1,779m, up 9% at constant currencies. - Adjusted earnings per share, at reported exchange rates, up 7% to 33.6p for Reed Elsevier PLC and up 9% to €0.76 for Reed Elsevier NV, up 11% at constant currencies. - 10% growth in online information and digital services which now account for 37% of total revenues. - Adjusted operating margins at 22.4%, up 0.7%pts underlying. - 95% of adjusted operating profits converted into cash with free cash flow after interest and taxation up 7% to £817m/up 8% to €1,201m. - £588m/€864m of cash returned to shareholders in 2006 through dividends and share buybacks, representing 72% of free cash flow. - Return on invested capital increased to 9.8% post tax. - Increase in equalised final dividends for Reed Elsevier PLC and Reed Elsevier NV of 10% and 14% respectively giving total dividends for 2006 up 10% to 15.9p and up 13% to €0.406 respectively. Reported Figures - Reported operating profit, after amortisation of acquired intangible assets and acquisition integration costs, up 5% to £880m/up 6% to €1,294m. - Reported earnings per share up 38% to 25.6p/up 37% to €0.59. Sharpened strategic focus - Following a detailed review, Reed Elsevier is to sharpen its strategic focus to best capitalise on growing digital opportunities in its key markets of Science and Medical, Legal and Business. - Sale of the Education division is planned; its business dynamics and strategy have increasingly differed from the other three divisions as Elsevier, LexisNexis and Reed Business accelerate their online information and workflow solution strategies. - It is the intention to return the net proceeds to shareholders by way of a special distribution in the equalisation ratio. The sale of Education and return of capital is expected to be modestly dilutive to proforma adjusted earnings per share. - Reed Elsevier's strategic focus across all its businesses will be: • to deliver authoritative content through leading brands • to drive online solutions • to improve cost efficiency • selective portfolio development. - This strategy, coupled with the disposal of the Education business, will produce a more cohesive and predictable business with an expectation of a minimum 10% annual growth in adjusted earnings per share at constant currencies. Reed Elsevier's Chief Executive Officer, Sir Crispin Davis, commented: "2006 saw important progress in the development of Reed Elsevier's business.There is momentum behind our digital revenues driven by a widening range ofinnovative online information products, increasingly embedded in customerworkflows. The planned sale of our Harcourt Education division announced todaysharpens our strategic focus and concentrates our resources on the digitalopportunities across an increasingly synergistic portfolio. The 2006 financial results were encouraging, with revenue growth in line withour expectations and improved underlying margins. Strong cash generation andhigher returns on invested capital have also been delivered. Recentacquisitions in e-health, legal solutions, risk management and business tobusiness online are accelerating our digital progress and delivering increasingreturns. Going into 2007, market conditions are generally favourable. Our strategy isclear, the business well focused, and we are leveraging our resources to goodeffect. The digital horizon is expanding and Reed Elsevier is well placed." __________________________________________________________________________________________________________________ 2006 2005 Change 2006 2005 Change Change at £m £m % •m •m constantREED ELSEVIER COMBINED BUSINESSES % currencies %__________________________________________________________________________________________________________________Revenue 5,398 5,166 +4% 7,935 7,542 +5% +6%__________________________________________________________________________________________________________________Reported operating profit 880 839 +5% 1,294 1,225 +6% +9%Reported profit before tax 721 701 +3% 1,060 1,023 +4% +8%Adjusted operating profit 1,210 1,142 +6% 1,779 1,667 +7% +9%Adjusted profit before tax 1,052 1,002 +5% 1,546 1,463 +6% +9%__________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________PARENT COMPANIES Reed Elsevier PLC Reed Elsevier NV Change at constant 2006 2005 Change 2006 2005 Change currencies % % %__________________________________________________________________________________________________________________Reported earnings per share 25.6p 18.6p 38% €0.59 €0.43 37% +44%Adjusted earnings per share 33.6p 31.5p +7% €0.76 €0.70 +9% +11%Dividend per share 15.9p 14.4p +10% €0.406 €0.359 +13%__________________________________________________________________________________________________________________ Adjusted figures are presented as additional performance measures and are statedbefore amortisation of acquired intangible assets and acquisition integrationcosts, and, in respect of earnings, reflect a tax rate that excludes the effectof movements in deferred taxation assets and liabilities that are not expect tocrystallise in the near term. Profit and loss on disposals and other nonoperating items are also excluded from the adjusted figures. Comparison atconstant exchange rates uses 2005 average and hedge exchange rates. ENQUIRIES Sybella Stanley (Investors) Patrick Kerr (Media) +44 20 7166 5630 +44 20 7166 5646 FINANCIAL HIGHLIGHTS (Growth rates at constant currencies unless otherwise indicated) Revenue growth and underlying margin improvement Revenues were up 6% and adjusted operating profits were up 9% at constantcurrencies. Organic revenue growth was 5% despite the weak education markets. Organicadjusted operating profit was 8% reflecting underlying margin improvement acrossthe rest of the business. Revenue growth was driven by a 10% increase in digital revenues representing thepayback on the continuing investment in new electronic product, innovativemarketing and expanded sales coverage. The 0.7% point improvement in underlying margin reflects the impact of higherrevenue growth combined with continuing cost actions to improve operationalefficiency as the business migrates online. Overall operating margin was up 0.3% points at reported exchange rates, impactedby the US dollar decline as it works its way through the Elsevier subscriptionsrolling currency hedging programme. Strong cash flow and increasing returns on capital The quality of the earnings is underpinned by the strong cash flow, with 95% ofoperating profits converting into cash. Increasing profitability and capital discipline drove the return on capitalemployed in the business 0.4% points higher to 9.8% post tax. The recentacquisitions to accelerate strategy in e-health, legal solutions, riskmanagement and business to business online are contributing well to thedevelopment of the business and are on track to deliver a return on capital of10% within three years, with good growth in returns thereafter. Growth in adjusted earnings and dividends Growth in adjusted earnings per share at constant currencies was 11%. The impactof the weaker US dollar, including the impact on the currency hedging programme,gives, at reported exchange rates, adjusted earnings growth of 7% for ReedElsevier PLC to 33.6p and 9% for Reed Elsevier NV to €0.76. The Boards are recommending an increase in the equalised final dividends forReed Elsevier PLC and Reed Elsevier NV of 10% and 14% respectively, to givetotal dividends for the year up 10% and 13% (the differential growth ratesreflect movements in the sterling/euro exchange rate). Dividends paid in the year, together with share buybacks under the sharerepurchase programme, have distributed £588m/€864m to shareholders, representing72% of free cash flow. Reported earnings per share Reported earnings per share (taking into account the amortisation of acquiredintangible assets, disposal gains and losses, and movements in deferred taxbalances not expected to crystallise in the near term) were up 38% expressed insterling and 37% in euros at 25.6p and €0.59 for Reed Elsevier PLC and ReedElsevier NV respectively. This growth reflects the improvement in underlyingoperating performance together with a lower reported tax charge including thefavourable settlement of tax on prior year disposals and movements in deferredtax balances not expected to crystallise in the near term. SHARPENED STRATEGIC FOCUS Following a detailed review Reed Elsevier is sharpening its strategic focus tobest capitalise on the growing digital opportunities in its markets. ReedElsevier will derive the best returns on its brand franchises and digitalinvestments by focusing on the Science, Medical, Legal and Business markets.Accordingly Reed Elsevier has announced the planned sale of the HarcourtEducation division. The strategy is focused on four priorities, closely linked to financialstrategy. Deliver authoritative content through leading brands Reed Elsevier delivers authoritative, and to a great extent proprietary, contentof the highest quality through market leading brands. In its publications andservices Reed Elsevier's professional customers find the essential data,analysis and comment to support their decisions. Editorial investment andselective acquisitions are generating new sources of content to widen theproduct offering to customers, and to expand into new segments and geographicregions. As online information sources increase, Reed Elsevier's trustedleadership brands play a vital role. Drive online solutions Over the last five years digital revenues have built to £2.0bn/€2.9bn, or 37% oftotal revenues. Authoritative information, technology enabled and increasinglyintegrated into customer workflows, is making Reed Elsevier's customers moreeffective professionally and making Reed Elsevier a more valued partner. As Reed Elsevier's customers and core markets rapidly migrate online, there areopportunities to leverage its leadership brands and authoritative proprietarycontent. Digital technology enables Reed Elsevier to move up the value chainwith its customers by providing a range of innovative solution orientatedproducts that become embedded in their workflow. This will play a major part inReed Elsevier's strategy going forward. Improve cost efficiency Digital growth and an increasingly synergistic portfolio provide opportunitiesto further leverage scale and commonalities across the business, sharing skillsets, resources and collective experience. Substantial cost savings have beenmade over the last five years, and there are further opportunities across thesupply chain and in technology and infrastructure to continue this progress.Improving cost efficiency remains a fundamental feature of Reed Elsevier. Selective portfolio development In addition to significant internal investment, Reed Elsevier will continue toallocate capital and resources to pursue selective acquisition opportunitiesthat accelerate its strategy and overall business progress. Reed Elsevier hasspent £1.6bn/€2.1bn on acquisitions over the last five years, focused on strongbrands and proprietary content, customer workflow solutions, leadingtechnologies and expansion into attractive adjacent markets, most notably inlegal solutions, risk management, health and e-business. Financial strategy Reed Elsevier expects progress in the development of its digital business todeliver good revenue growth and, with improvements in cost efficiency, this willflow through at a higher rate to operating profitability. Additional financialbenefits are delivered through leverage and fiscal efficiency. With anincreasing and substantial portion of the revenues being delivered bysubscription based products and the trend to longer term contracts, ReedElsevier will be a more predictable business. Reed Elsevier aims to distribute 70-80% of free cash flow through dividends andshare buybacks. The balance (£229m/€337m in 2006) will be invested in thebusiness, mainly through acquisitions, so maintaining capital efficiency alignedto its strategy. Reed Elsevier aims to maintain its credit rating in order totake advantage of opportunities within its markets and access the cheapestsources of borrowing, particularly the commercial paper markets. This business and financial strategy is directed at delivering good revenuegrowth, continuous margin improvement, strong cash generation and growingreturns on capital. These are targeted to deliver consistent adjusted earningsper share growth of a minimum 10% annually at constant currencies. Thisstrategy is supported by long term incentive programmes which are based ongrowth in adjusted earnings per share and total shareholder return relative to apeer group of media companies. OUTLOOK Going into 2007, market conditions are generally favourable. Elsevier,LexisNexis and Reed Business are expected to make further good progress in thedevelopment of Reed Elsevier's digital business as well as show good revenuemomentum and margin improvement. The financial goal is for a minimum of 10% annual adjusted earnings per sharegrowth at constant currencies. Adjusted earnings per share for 2007 will howeverbe influenced by the timing of the sale of the highly seasonal educationbusiness. DIVISIONAL PERFORMANCE SUMMARY (Growth rates at constant currencies unless otherwise indicated) Elsevier delivered revenues and adjusted operating profits ahead 8% and 10%respectively at constant currencies, or 5% and 8% before acquisitions anddisposals. Growth was driven by strong subscription renewals and wideningdistribution of its scientific and medical journals and databases, as well asnew online product sales and a successful book publishing programme. In Health,our market strategies in electronic health information services are acceleratingthrough the launch of electronic reference materials, medical educationresources, and specialist information services and workflow tools to enhance theefficacy of clinical diagnosis and treatment. LexisNexis saw revenues and adjusted operating profits up 8% and 13%respectively at constant currencies, or 7% and 13% before acquisitions.Subscription renewals were strong, good growth was seen in new sales of itsonline information solutions, both in the US and internationally, and in theRisk Information and Analytics business. The Total Solutions strategy launchedin the year has gained good traction in the market, focused on the distinctiveneeds of lawyers across major areas of their workflow. In Risk Information andAnalytics, the Seisint business saw strong revenue growth and delivered a 10%post tax return in only its second full year of ownership. Harcourt Education held revenues flat at constant currencies despite a weakermarket. Adjusted underlying operating profits were 20% lower, largelyreflecting investment ahead of the much stronger 2007 state textbook adoptionmarket and the significant impact of underperformance and contract cost overrunsin assessment. Harcourt's US basal and supplemental businesses performed wellto grow revenues 1% against a textbook market estimated to be down 6%. Harcourtwon the leading share, at 38%, in the new state textbook adoptions in which itparticipated and the supplemental business saw a good market response to its newpublishing. Reed Business revenues and adjusted operating profits were up 5% and 14%respectively at constant currencies, both in total and underlying. The onlineinformation services grew at over 20%, more than compensating for printmigration, and the Exhibition business performed strongly. Reed Business hasgrown its digital revenues to $400m over the last five years almost entirelythrough organic investment and new product launches, leveraging its brands,content and market positions. With 24% of the revenues of the magazines andinformation businesses now from online services, the overall growth trajectoryis encouraging. 2006 2005 2006 2005 Change at £m £m •m •m constant currencies__________________________________________________________________________________________________________________RevenueElsevier 1,521 1,436 2,236 2,097 +8%LexisNexis 1,570 1,466 2,308 2,140 +8%Harcourt Education 889 901 1,307 1,315 0%Reed Business 1,418 1,363 2,084 1,990 +5%__________________________________________________________________________________________________________________Total 5,398 5,166 7,935 7,542 +6%__________________________________________________________________________________________________________________Adjusted operating profitElsevier 465 449 683 655 +10%LexisNexis 380 338 559 493 +13%Harcourt Education 129 161 190 235 -19%Reed Business 241 214 354 313 +14%Unallocated items (5) (20) (7) (29)__________________________________________________________________________________________________________________Total 1,210 1,142 1,779 1,667 +9%__________________________________________________________________________________________________________________ Adjusted figures and constant currency growth rates are used by Reed Elsevier asadditional performance measures. Adjusted operating profit is stated before theamortisation of acquired intangible assets and acquisition integration costs.The reported operating profit figures are set out in Note 2 to the combinedfinancial information and reconciled to the adjusted figures in Note 4. OPERATING AND FINANCIAL REVIEW ELSEVIER 2006 2005 2006 2005 Change £m £m •m •m at constant currencies__________________________________________________________________________________________________________________RevenueScience & Technology 792 785 1,164 1,146 +4%Health Sciences 729 651 1,072 951 +13%__________________________________________________________________________________________________________________ 1,521 1,436 2,236 2,097 +8%__________________________________________________________________________________________________________________Adjusted operating profit 465 449 683 655 +10%Adjusted operating margin 30.6% 31.3% 30.6% 31.3% +0.7pts__________________________________________________________________________________________________________________ Elsevier had a successful year, with strong subscription renewals, wideningdistribution of its scientific and medical journals and databases, growing newonline product sales and a successful book publishing programme. Revenues and adjusted operating profits were ahead 8% and 10% respectively atconstant currencies, or 5% and 8% before acquisitions and disposals. Underlyingoperating margins were 0.9 percentage points ahead before acquisition andcurrency effects, driven by revenue growth, stabilising investment levels andfurther supply chain efficiency. The Science & Technology business saw organic revenue growth of 5% at constantcurrencies reflecting strong journal subscription renewals, at 97%, wideningdistribution through an expanded sales force, and good growth in onlinedatabases. ScienceDirect usage continues to grow at over 20% and e-onlycontracts now account for 45% of journal subscription revenues. The Scopusabstract and indexing database has been well received in the market and isseeing good conversion of trials into firm contracts. Early in the year, the Science & Technology business was reorganised into a moremarket-focused organisation, to better serve large academic and governmentinstitutions as well as to focus more directly on smaller and mid sizedinstitutions, the corporate sector, and societies and individuals. Customersatisfaction scores have significantly improved during the year as a result ofthe sustained programme to improve service levels, and new products andmarketing strategies are being developed for under penetrated segments. In Health Sciences, revenue growth was 13% at constant currencies, or 6%underlying. Strong growth was seen in the nursing and allied healthprofessional sectors and in new society journal publishing. Online revenues aregrowing rapidly, up 37% in total, as the medical community increasingly adoptsonline information services to drive productivity and enhance outcomes. Theyear saw increasing penetration of the ScienceDirect and MDConsult products andfurther launches made and planned of electronic reference materials, medicaleducation resources, and specialist information services and workflow tools. The integration of the MediMedia MAP businesses acquired in August 2005 is nowcomplete with revenue growth initiatives building momentum and adjustedoperating margins improved significantly. The acquisition in May of the GoldStandard drug information database and related products is accelerating ourmarket strategies in electronic health information services to enhance theefficacy of clinical diagnosis and treatment. In December, the Endeavorsoftware business was sold following a reappraisal of its position withinElsevier's overall market strategies. At reported exchange rates, adjusted operating margins were 0.7 percentagepoints lower largely reflecting the low, but rapidly improving, margins of theMediMedia acquisition made in 2005 as well as the impact of the rolling threeyear currency hedging programme as the US dollar decline over the last few yearsworks its way through the hedge rates. The outlook for Elsevier is positive. Subscription renewals are strong,customer satisfaction is improving, our publishing programmes are expanding, newelectronic product is developing well, and distribution is widening. LEXISNEXIS 2006 2005 2006 2005 Change £m £m •m •m at constant currencies__________________________________________________________________________________________________________________RevenueLexisNexisUnited States 1,129 1,061 1,660 1,549 +8%International 441 405 648 591 +9%__________________________________________________________________________________________________________________ 1,570 1,466 2,308 2,140 +8%__________________________________________________________________________________________________________________Adjusted operating profit 380 338 559 493 +13%Adjusted operating margin 24.2% 23.1% 24.2% 23.1% +1.1pts__________________________________________________________________________________________________________________ LexisNexis had a successful year. Subscription renewals were strong, goodgrowth was seen in new sales of its online information solutions both in the USand internationally, and further good growth was seen in risk information andanalytics. Revenues and adjusted operating profits were up 8% and 13% respectively atconstant currencies, or 7% and 13% before acquisitions. This 7% organic revenuegrowth compares with 6% in 2005 and 4% in 2004 and reflects the strengtheningmomentum in the business. The adjusted operating margin was 1.1 percentagepoints higher reflecting the good revenue growth and tight cost control. In US Legal Markets, strong subscription renewals and additional onlineinformation and solutions sales to both large and small firms drove organicgrowth of 6%. The Total Solutions strategy launched in the year has gained goodtraction in the market, focused on the distinctive needs of lawyers across fourmajor areas of their workflow: litigation, client development, research andpractice management. An integrated solutions product was also launched for therisk management market. The product portfolio was expanded through organicdevelopment and selective acquisition: Casesoft (litigation case analysis),Dataflight (online repository and tools for evidence management). In Corporate and Public Markets organic revenue growth was 8% with continuedstrengthening in online news and business information, higher patent volumes andstrong demand in risk management. The Seisint business acquired in September2004 saw continued strong revenue growth and LexisNexis' existing riskmanagement business has now been fully migrated to the Seisint technologyplatform. The Seisint business delivered a 10% post tax return in only itssecond full year of ownership, and returns continue to grow. The LexisNexis International business outside the US saw underlying revenuegrowth of 8% driven by the growing demand for LexisNexis' online informationservices across its markets and new publishing. The Total Solutions strategy isalso being rolled out in these international markets behind increasing onlinepenetration. In the UK this was accelerated with the acquisition of Visualfiles(case management and compliance tools). Particularly strong growth was seen inthe UK, France, Germany, Canada and South Africa. The outlook for LexisNexis is positive. Revenue momentum is good, with strongsubscription renewals, increasing take up of new online services and totalsolutions across our markets, and strong demand growth in risk management. HARCOURT EDUCATION 2006 2005 2006 2005 Change £m £m •m •m at constant currencies__________________________________________________________________________________________________________________RevenueHarcourt EducationUS Schools & Testing 796 806 1,170 1,177 0%International 93 95 137 138 +1%__________________________________________________________________________________________________________________ 889 901 1,307 1,315 0%__________________________________________________________________________________________________________________Adjusted operating profit 129 161 190 235 -19%Adjusted operating margin 14.5% 17.9% 14.5% 17.9% -3.4pts__________________________________________________________________________________________________________________ Harcourt Education's basal textbook and supplemental businesses performed wellagainst a weaker education market to hold overall revenues flat. Profits werelower through investment ahead of major adoptions and underperformance inassessment. Revenues at Harcourt Education were flat against the prior year at constantcurrencies, whilst adjusted operating profits were 19% lower, or 20% lowerbefore minor disposals. Adjusted operating margin was 3.4 percentage pointslower at 14.5% largely reflecting sales and marketing investment ahead of themuch stronger 2007 adoption market, sales mix and the impact of theunderperformance in assessment. The Harcourt US K-12 basal and supplemental businesses have performed well bothachieving 1% revenue growth in a US textbook market estimated to be down around6%. (The weaker market reflects the state textbook adoption cycle and reducedspending by elementary schools in non-adoption states partly as a result ofsignificant prior year spending on federally supported Reading Firstprogrammes.) Harcourt won the leading market share, at 38%, in new statetextbook adoptions in which it participated, with great success from newpublishing particularly in the secondary schools market in literature andlanguage arts, science and social studies. A good market response to newpublishing in the supplemental business, and more manageable backlist attrition,continues the recovery in this business as it replaces traditional supplementalproduct with more comprehensive intervention programmes, and reorientates salesand marketing activities from individual school to district level. The assessment business saw revenues 4% lower reflecting the net loss of statetesting contracts and lower catalog sales. Operational difficulties surroundinga major state testing contract and knock on effects on other contracts resultedin significant cost overruns. New management were appointed in the year andorganisational changes made which are beginning to make a real difference to thebusiness. Whilst revenues are expected to decline further due to lostcontracts, the actions taken have positioned the business for a recovery inperformance and margin this year and next. The Harcourt Education International business saw revenues 1% higher. Stronggrowth in South Africa and in UK export sales were offset by a weak performancein a flat UK market. The outlook for Harcourt Education is positive. The textbook adoption cycle hasentered a strong growth phase, the new textbook programmes for 2007 are beingwell received in the market, and the pipeline is strong with a high level ofdevelopment activity. The new publishing in the supplemental business isgaining momentum and assessment is on a firm recovery path. Organisationalchanges in the business are expected to deliver increasingly integrated marketstrategies and significant further cost efficiencies. REED BUSINESS 2006 2005 2006 2005 Change £m £m •m •m at constant currencies__________________________________________________________________________________________________________________RevenueReed Business Information 896 892 1,317 1,302 +1%Reed Exhibitions 522 471 767 688 +12%__________________________________________________________________________________________________________________ 1,418 1,363 2,084 1,990 +5%__________________________________________________________________________________________________________________Adjusted operating profit 241 214 354 313 +14%Adjusted operating margin 17.0% 15.7% 17.0% 15.7% +1.3pts__________________________________________________________________________________________________________________ Reed Business has had a successful year. The online information services grewrapidly, more than compensating for print migration, and the exhibitionsbusiness again performed strongly. Revenues and adjusted operating profits were 5% and 14% ahead respectively atconstant currencies, with acquisitions and disposals having no overall effect onthese growth rates. Adjusted operating margins were 1.3 percentage pointshigher, reflecting the strong growth in the exhibitions business and tight costcontrol. At Reed Exhibitions, revenues were 12% higher, or 10% underlying. Strong growthwas seen in key shows across the principal geographies in the US, Europe andAsia Pacific, with particularly good performances in Japan and in theinternational Midem entertainment and property shows held in Cannes. Whilstmuch of B2B marketing is moving online, the demand for exhibitions remains verystrong as exhibitors and buyers place great value on physical meetings andevents to balance other information sources and connections. Underlying profitgrowth was 16% including 6% from share of joint ventures cycling in. The neteffect of other biennial shows cycling in and out is broadly neutral. TheSinopharm exhibitions acquired in a joint venture in China in 2005 areperforming well ahead of plan and new shows are to be launched in 2007. The Reed Business Information magazine and information businesses saw continuedstrong underlying growth in online services of over 20%, more than compensatingfor the 3% decline in print as the business migrates online. Overall RBIrevenues were up 2% underlying. With 24% of revenues now from online services,the overall growth trajectory is encouraging. Adjusted operating profits wereup 12% through continued action on costs as resources are rebalanced to thedigital opportunity. In the US, RBI underlying revenues were 2% lower. Online revenues are growingrapidly, particularly from advertising in community sites and new services, andare close to offsetting the print decline seen across most sectors. In the UK,RBI underlying revenues were up 6% reflecting the strong growth in onlinerecruitment (up 39%) and online subscription services (up 17%). Online revenuesnow account for 41% of RBI UK revenues with strong growth and new launches setto increase this further. Print revenues benefited from innovative publishingand design. In continental Europe underlying revenues were up 3%, with againgood growth in new online services and some further recovery in advertisingmarkets. Revenues in Asia grew 6%. As part of a repositioning of the portfolio, the US manufacturing product newstabloid business was sold during the year as well as a number of other titlesand North American manufacturing shows. In January 2007 RBI acquired Buyerzone,a fast growing online service for matching vendors and buyers in procurementtendering that can be leveraged across RBI's categories. The outlook for Reed Business is encouraging. Strong demand for onlineservices, good growth in exhibitions and ongoing portfolio management aresteadily repositioning the business for good long term growth. FINANCIAL REVIEW REED ELSEVIER COMBINED BUSINESSES Income statement Revenue, at £5,398m/€7,935m, increased by 4% expressed in sterling and 5%expressed in euros. At constant exchange rates, revenue was 6% higher, or 5%excluding acquisitions and disposals. Reported figures Reported operating profit, after amortisation of acquired intangible assets andacquisition integration costs, at £880m/€1,294m, was up 5% in sterling and 6% ineuros. The increase reflects the strong underlying operating performance,partly offset by the effect of a weaker US dollar hedge rate applicable forElsevier journal subscription revenues and other currency translation effects. The amortisation charge in respect of acquired intangible assets amounted to£297m/€436m, up £21m/€33m, principally as a result of recent acquisitions. Acquisition integration costs amounted to £23m/€34m (2005: £21m/€30m). Netlosses on business disposals and other non-operating items were £1m/€1m (2005:net gain £2m/€2m). The reported profit before tax, including amortisation of acquired intangibleassets, acquisition integration costs and non operating items, at £721m/€1,060m,was up 3% expressed in sterling and 4% in euros. The reported tax charge of £96m/€141m compares with a charge of £237m/€346m inthe prior year principally reflecting favourable settlement of tax on prior yeardisposals and movements on deferred tax balances arising on unrealised exchangedifferences on long term inter-affiliate lending. These deferred tax movementsare recognised in the income statement but are not expected to crystallise inthe foreseeable future. The reported attributable profit of £623m/€916m compares with a reportedattributable profit of £462m/€675m in 2005, reflecting the strong operatingperformance and the lower reported tax charge. Adjusted figures Adjusted figures are used by Reed Elsevier as additional performance measuresand are stated before amortisation of acquired intangible assets and acquisitionintegration costs, and, in respect of earnings, reflect a tax rate that excludesthe effect of movements in deferred taxation assets and liabilities that are notexpected to crystallise in the near term. Profit and loss on disposals andother non operating items are also excluded from the adjusted figures.Comparison at constant exchange rates uses 2005 average and hedge exchangerates. Adjusted operating profit, at £1,210m/€1,779m, was up 6% expressed in sterlingand up 7% in euros. At constant exchange rates, adjusted operating profits wereup 9%, or 8% excluding acquisitions and disposals. Underlying operating marginsimproved by 0.7 percentage points. Overall adjusted operating margins, up 0.3percentage points at 22.4%, were held back by the inclusion of lower marginacquisitions and currency effects, most particularly the year on year movementin hedge rates in Elsevier's journal subscriptions. (The net benefit of theElsevier science journal hedging programme is lower in 2006 than in 2005 as theeffect of the weaker US dollar is systematically incorporated within the threeyear rolling hedging programme.) Within adjusted operating profit, the net pension expense (including the netpension financing items included within operating profit) was £20m/€28m lowerthan in the prior year principally reflecting a wider differential between thereturn on plan assets and interest on pension obligations. The charge for sharebased payments was £49m/€72m (2005: £57m/€83m). Restructuring costs, other thanin respect of acquisition integration, were £21m/€31m (2005: £25m/€37m). Net finance costs, at £158m/€233m, were £18m/€29m higher than in the prior yeardue to higher short term interest rates and the financing cost of acquisitionsand the share repurchase programme, partly offset by the benefit of strong freecash flow. Adjusted profit before tax was £1,052m/€1,546m, up 5% compared to the prior yearexpressed in sterling and 6% in euros. At constant exchange rates, adjustedprofit before tax was up 9%. The effective tax rate on adjusted earning was 24.1% (2005: 24.6%). Theeffective tax rate on adjusted earnings excludes the effect of movements indeferred taxation assets and liabilities that are not expected to crystallise inthe near term, and more closely aligns with cash tax costs. Adjusted operatingprofits and taxation are also grossed up for the equity share of taxes in jointventures. The adjusted profit attributable to shareholders of £796m/€1,170m was up 6%compared to the prior year expressed in both sterling and euros. At constantexchange rates, adjusted profit attributable to shareholders was up 9%. Cash flows and debt Adjusted operating cash flow was £1,152m/€1,693m, up 7% expressed in bothsterling and euros, and 7% at constant currencies. The rate of conversion ofadjusted operating profits into cash flow was 95% (2005: 95%) reflecting thecontinuing focus on capital discipline and managing working capital as thebusiness expands. Capital expenditure included within adjusted operating cash flow was £196m/€288m(2005: £195m/€285m), including £108m/€159m in respect of capitalised developmentcosts included within intangible assets. Spend on acquisitions was £171m/€251mincluding deferred consideration payable. An amount of £87m/€128m wascapitalised as acquired intangible assets and £102m/€150m as goodwill.Acquisition integration spend in respect of these and other recent acquisitionsamounted to £26m/€37m principally in respect of the MediMedia MAP integration.Disposal proceeds amounted to £48m/€70m. Free cash flow - after interest and taxation - was £817m/€1,201m, up £53m/€85m.Dividends paid to shareholders in the year amount to £371m/€545m (2005: £336m/€491m). Share repurchases by the parent companies amounted to £217m/€319m.Additional shares of the parent companies were purchased by the employee benefittrust for £68m/€100m to meet future obligations in respect of share basedremuneration. Net proceeds from share issuance under share option programmeswere £93m/€137m. Net borrowings at 31 December 2006 were £2,314m/€3,448m (2005: £2,694m/€3,933m),a decrease of £380m in sterling and €485m in euros since 31 December 2005principally due to foreign exchange translation effects following thesignificant weakening of the US dollar between the beginning and end of theyear. These translation effects decreased net debt expressed in sterling by£277m and in euros by €333m. Additionally, net debt benefited from the freecash flow less dividends and share buy backs and acquisition spend. Gross borrowings after fair value adjustments at 31 December 2006 amounted to£3,006m/€4,479m, denominated mostly in US dollars, and were partly offset by thefair value of related derivatives of £173m/€257m and cash balances totalling£519m/€774m invested in short term deposits and marketable securities. Aftertaking into account interest rate and currency derivatives, a total of 68% ofReed Elsevier's gross borrowings (equivalent to 88% of net borrowings) were atfixed rates and had a weighted average remaining life of 5.2 years and interestcoupon of 5.2%. The net pension deficit, ie pensions obligations less pension assets, at 31December 2006 was £236m/€351m (2005: £405m/€591m). The reduction in the deficitof £169m/€240m principally arises from the good asset returns and the increasein long term corporate bond yields which are used to discount the pensionobligations. Capital employed and returns The capital employed in the business at 31 December 2006 was £9,079m/€13,528m(2005: £9,705m/ €14,169m), after adding back accumulated amortisation ofacquired intangible assets and goodwill. The decrease of £626m/€641mprincipally arises from currency translation effects (£913m/€1,063m), mostparticularly from the weakening of the US dollar between 1 January and 31December 2006, partly offset by acquisition spend of £163m/€240m and the lowernet pension deficit. The return on average capital employed in the year was 9.8% (2005: 9.4%). Thisreturn is based on adjusted operating profits, less tax at the 24% effectiverate, and the average of the capital employed at the beginning and end of theyear retranslated at average exchange rates. The improvement in the yearreflects the good underlying profit growth and capital discipline. 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 2004 to 2006 are delivering post taxreturns in 2006 of 10%, 6% and proforma 5% respectively and continue to growwell. PARENT COMPANIES For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjustedearnings per share were respectively up 7% at 33.6p (2005: 31.5p) and 9% at€0.76 (2005: €0.70). At constant rates of exchange, the adjusted earnings pershare of both companies increased by 11% over the prior year. Shares repurchased in the year under the annual share repurchase plan announcedin February 2006 totalled 20.6 million ordinary shares of Reed Elsevier PLC and13.4 million ordinary shares of Reed Elsevier NV. Taking into account theassociated financing cost, these share repurchases are estimated to have addedapproximately 0.5% to adjusted earnings per share in 2006. The reported earnings per share for Reed Elsevier PLC shareholders was 25.6p(2005: 18.6p) and for Reed Elsevier NV shareholders was €0.59 (2005: €0.43). The equalised final dividends proposed are 11.8p per share for Reed Elsevier PLCand €0.304 per share for Reed Elsevier NV up 10% and 14% on the prior yearrespectively. This gives total dividends for the year of 15.9p and €0.406, up10% and 13% on 2005 respectively. The difference in dividend growth ratesreflects the movement in the euro:sterling exchange rate between dividendannouncement dates. Dividend cover, based on adjusted earnings per share and the total of theinterim and proposed final dividend for the year, was 2.1 times for ReedElsevier PLC and 1.9 times for Reed Elsevier NV. Measured for the combinedbusinesses on a similar basis, dividend cover was 2.0 times. FORWARD LOOKING STATEMENTS This Preliminary Statement contains forward looking statements within themeaning of Section 27A of the US Securities Act 1933, as amended, and Section21E of the US Securities Exchange Act 1934, as amended. These statements aresubject to a number of risks and uncertainties and actual results and eventscould differ materially from those currently being anticipated as reflected insuch forward looking statements. The terms 'expect', 'should be', 'will be' andsimilar expressions identify forward looking statements. Factors which may causefuture outcomes to differ from those foreseen in forward looking statementsinclude, but are not limited to: general economic conditions in Reed Elsevier'smarkets; exchange rate fluctuations; customers' acceptance of our products andservices; the actions of competitors; legislative, fiscal and regulatorydevelopments; changes in law and legal interpretations affecting Reed Elsevier'sintellectual property rights and internet communications; and the impact oftechnological change. COMBINED FINANCIAL INFORMATION COMBINED INCOME STATEMENT For the year ended 31 December 2006 2006 2005 2006 2005 Note £m £m •m •m__________________________________________________________________________________________________________________Revenue 2 5,398 5,166 7,935 7,542Cost of sales (1,983) (1,890) (2,915) (2,759)__________________________________________________________________________________________________________________Gross profit 3,415 3,276 5,020 4,783Selling and distribution costs (1,148) (1,120) (1,688) (1,635)Administration and other expenses (1,405) (1,333) (2,065) (1,946)__________________________________________________________________________________________________________________Operating profit before joint ventures 862 823 1,267 1,202Share of results of joint ventures 18 16 27 23__________________________________________________________________________________________________________________Operating profit 2 880 839 1,294 1,225__________________________________________________________________________________________________________________Finance income 21 36 31 52Finance costs (179) (176) (264) (256)__________________________________________________________________________________________________________________Net finance costs (158) (140) (233) (204)__________________________________________________________________________________________________________________Disposals and other non operating items (1) 2 (1) 2__________________________________________________________________________________________________________________Profit before tax 721 701 1,060 1,023Taxation (96) (237) (141) (346)__________________________________________________________________________________________________________________Net profit for the year 625 464 919 677__________________________________________________________________________________________________________________ Attributable to:Parent companies' shareholders 623 462 916 675Minority interests 2 2 3 2__________________________________________________________________________________________________________________Net profit for the year 625 464 919 677__________________________________________________________________________________________________________________ Adjusted profit figures are presented in note 4 as additional performancemeasures. COMBINED CASH FLOW STATEMENT For the year ended 31 December 2006 2006 2005 2006 2005 Note £m £m •m •m__________________________________________________________________________________________________________________Cash flows from operating activitiesCash generated from operations 3 1,304 1,223 1,917 1,786Interest paid (172) (153) (253) (223)Interest received 12 11 18 16Tax paid (170) (171) (250) (250)__________________________________________________________________________________________________________________Net cash from operating activities 974 910 1,432 1,329__________________________________________________________________________________________________________________ Cash flows from investing activitiesAcquisitions (163) (317) (240) (463)Purchase of property, plant and equipment (88) (93) (129) (136)Expenditure on internally developed intangible (108) (102) (159) (149)assetsPurchase of investments (9) (3) (13) (4)Proceeds from disposal of property, plant and 2 8 3 12equipmentProceeds from other disposals 48 36 70 52Dividends received from joint ventures 16 16 24 23__________________________________________________________________________________________________________________Net cash used in investing activities (302) (455) (444) (665)__________________________________________________________________________________________________________________ Cash flows from financing activitiesDividends paid to shareholders of the parent (371) (336) (545) (491)companiesIncrease/(decrease) in bank loans, overdrafts 72 (492) 105 (718)and commercial paperIssuance of other loans 407 544 598 794Repayment of other loans (337) (90) (495) (132)Repayment of finance leases (12) (13) (18) (19)Proceeds on issue of ordinary shares 93 25 137 37Purchase of treasury shares (285) (27) (419) (39)__________________________________________________________________________________________________________________Net cash used in financing activities (433) (389) (637) (568)__________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________Increase in cash and cash equivalents 239 66 351 96__________________________________________________________________________________________________________________ Movement in cash and cash equivalentsAt start of year 296 225 432 317Increase in cash and cash equivalents 239 66 351 96Exchange translation differences (16) 5 (9) 19__________________________________________________________________________________________________________________At end of year 519 296 774 432__________________________________________________________________________________________________________________ Adjusted operating cash flow figures are presented in note 4 as additionalperformance measures. COMBINED BALANCE SHEET As at 31 December 2006 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Non-current assetsGoodwill 2,802 3,030 4,175 4,424Intangible assets 2,524 2,979 3,761 4,349Investments in joint ventures 73 71 108 104Other investments 50 44 75 64Property, plant and equipment 298 314 444 458Net pension assets 20 - 30 -Deferred tax assets 170 266 253 388__________________________________________________________________________________________________________________ 5,937 6,704 8,846 9,787__________________________________________________________________________________________________________________Current assetsInventories and pre-publication costs 633 630 943 920Trade and other receivables 1,443 1,437 2,150 2,098Cash and cash equivalents 519 296 774 432__________________________________________________________________________________________________________________ 2,595 2,363 3,867 3,450__________________________________________________________________________________________________________________Assets held for sale - 60 - 88__________________________________________________________________________________________________________________Total assets 8,532 9,127 12,713 13,325__________________________________________________________________________________________________________________ Current liabilitiesTrade and other payables 1,934 1,982 2,882 2,893Borrowings 921 900 1,372 1,314Taxation 479 556 714 813__________________________________________________________________________________________________________________ 3,334 3,438 4,968 5,020__________________________________________________________________________________________________________________Non-current liabilitiesBorrowings 2,085 2,264 3,107 3,305Deferred tax liabilities 850 980 1,266 1,431Net pension obligations 256 405 381 591Provisions 28 44 42 64__________________________________________________________________________________________________________________ 3,219 3,693 4,796 5,391__________________________________________________________________________________________________________________Liabilities associated with assets held for sale - 11 - 16__________________________________________________________________________________________________________________Total liabilities 6,553 7,142 9,764 10,427__________________________________________________________________________________________________________________Net assets 1,979 1,985 2,949 2,898__________________________________________________________________________________________________________________ Capital and reservesCombined share capitals 191 190 285 277Combined share premiums 1,879 1,805 2,800 2,635Combined shares held in treasury (377) (93) (562) (136)Translation reserve (136) 89 (201) 130Other combined reserves 409 (21) 607 (30)__________________________________________________________________________________________________________________Combined shareholders' equity 1,966 1,970 2,929 2,876Minority interests 13 15 20 22__________________________________________________________________________________________________________________Total equity 1,979 1,985 2,949 2,898__________________________________________________________________________________________________________________ Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 14 February2007. COMBINED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Net profit for the year 625 464 919 677 Exchange differences on translation of foreign (244) 180 (300) 346operationsActuarial gains/(losses) on defined benefit 139 (37) 204 (54)pension schemesFair value movements on available for sale 3 3 4 4investmentsFair value movements on cash flow hedges 54 (10) 79 (15)Tax recognised directly in equity (60) (3) (88) (4)__________________________________________________________________________________________________________________Net (expense)/income recognised directly in (108) 133 (101) 277equity__________________________________________________________________________________________________________________ Transfer to net profit from hedge reserve (net of (5) (19) (7) (28)tax)__________________________________________________________________________________________________________________Total recognised income and expense for the year 512 578 811 926__________________________________________________________________________________________________________________ Attributable to:Parent companies' shareholders 510 576 808 924Minority interests 2 2 3 2__________________________________________________________________________________________________________________Total recognised income and expense for the year 512 578 811 926__________________________________________________________________________________________________________________ COMBINED SHAREHOLDERS' EQUITY RECONCILIATION For the year ended 31 December 2006 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Total recognised net income attributable to the 510 576 808 924parent companies' shareholdersDividends declared (371) (336) (545) (491)Issue of ordinary shares, net of expenses 93 25 137 37Increase in shares held in treasury (285) (27) (419) (39)Increase in share based remuneration reserve 49 57 72 83__________________________________________________________________________________________________________________Net (decrease)/increase in combined shareholders' (4) 295 53 514equityCombined shareholders' equity at start of year 1,970 1,675 2,876 2,362__________________________________________________________________________________________________________________Combined shareholders' equity at end of year 1,966 1,970 2,929 2,876__________________________________________________________________________________________________________________ NOTES TO THE COMBINED FINANCIAL INFORMATION 1 Basis of preparation The Reed Elsevier combined financial information ("the combined financialinformation") represents the combined interests of the Reed Elsevier PLC andReed Elsevier NV shareholders and encompasses the businesses of Reed ElsevierGroup plc and Elsevier Reed Finance BV and their respective subsidiaries,associates and joint ventures, together with the two parent companies, ReedElsevier PLC and Reed Elsevier NV ("the combined businesses"). The combinedfinancial information has been abridged from the audited combined financialstatements for the year ended 31 December 2006. Financial information ispresented in both sterling and euros. The combined financial information has been prepared in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EuropeanUnion. The Reed Elsevier accounting policies under IFRS are set out in the ReedElsevier Annual Reports and Financial Statements 2005 on pages 60 to 64. Thecombined financial information has been prepared in accordance with thoseaccounting policies. 2 Segment analysis Revenue 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Business segmentElsevier 1,521 1,436 2,236 2,097LexisNexis 1,570 1,466 2,308 2,140Harcourt Education 889 901 1,307 1,315Reed Business 1,418 1,363 2,084 1,990__________________________________________________________________________________________________________________Total 5,398 5,166 7,935 7,542__________________________________________________________________________________________________________________Geographical originNorth America 2,979 2,888 4,379 4,216United Kingdom 898 870 1,320 1,270The Netherlands 503 500 739 730Rest of Europe 685 601 1,007 878Rest of world 333 307 490 448__________________________________________________________________________________________________________________Total 5,398 5,166 7,935 7,542__________________________________________________________________________________________________________________Geographical marketNorth America 3,082 2,974 4,531 4,342United Kingdom 592 568 870 829The Netherlands 202 202 297 295Rest of Europe 880 804 1,294 1,174Rest of world 642 618 943 902__________________________________________________________________________________________________________________Total 5,398 5,166 7,935 7,542__________________________________________________________________________________________________________________ Adjusted operating profit 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Business segmentElsevier 465 449 683 655LexisNexis 380 338 559 493Harcourt Education 129 161 190 235Reed Business 241 214 354 313__________________________________________________________________________________________________________________Subtotal 1,215 1,162 1,786 1,696Corporate costs (39) (32) (57) (47)Unallocated net pension credit 34 12 50 18__________________________________________________________________________________________________________________Total 1,210 1,142 1,779 1,667__________________________________________________________________________________________________________________Geographical originNorth America 602 595 885 869United Kingdom 199 186 293 271The Netherlands 176 166 259 242Rest of Europe 172 141 253 206Rest of world 61 54 89 79__________________________________________________________________________________________________________________Total 1,210 1,142 1,779 1,667__________________________________________________________________________________________________________________ Adjusted operating profit figures are presented as additional performancemeasures. They are stated before the amortisation of acquired intangible assetsand acquisition integration costs, and are grossed up to exclude the equityshare of taxes in joint ventures. Adjusted figures are reconciled to thereported figures in note 4. The unallocated net pension credit of £34m/€50m(2005: £12m/€18m) comprises the expected return on pension scheme assets of£178m/€262m (2005: £149m/€218m) less interest on pension scheme liabilities of£144m/€212m (2005: £137m/€200m). Operating profit 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Business segmentElsevier 395 396 581 578LexisNexis 264 218 388 318Harcourt Education 43 87 63 127Reed Business 183 158 269 231__________________________________________________________________________________________________________________Subtotal 885 859 1,301 1,254Corporate costs (39) (32) (57) (47)Unallocated pension credit 34 12 50 18__________________________________________________________________________________________________________________Total 880 839 1,294 1,225__________________________________________________________________________________________________________________Geographical originNorth America 364 364 535 531United Kingdom 166 158 244 231The Netherlands 173 161 254 235Rest of Europe 120 106 177 155Rest of world 57 50 84 73__________________________________________________________________________________________________________________Total 880 839 1,294 1,225__________________________________________________________________________________________________________________ Share of post-tax results of joint ventures of £18m/€27m (2005: £16m/€23m)included in operating profit and adjusted operating profit comprises £3m/€5m(2005: £3m/€4m) relating to LexisNexis and £15m/€22m (2005: £13m/€19m) relatingto Reed Business. 3 Combined cash flow statement Reconciliation of operating profit before joint ventures to cash generated fromoperations 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Operating profit before joint ventures 862 823 1,267 1,202 Amortisation of acquired intangible assets 297 276 436 403Amortisation of internally developed intangible assets 71 57 104 83Depreciation of property, plant and equipment 91 87 134 127Share based remuneration 49 57 72 83__________________________________________________________________________________________________________________Total non cash items 508 477 746 696__________________________________________________________________________________________________________________Movement in working capital (66) (77) (96) (112)__________________________________________________________________________________________________________________Cash generated from operations 1,304 1,223 1,917 1,786__________________________________________________________________________________________________________________ Reconciliation of net borrowings 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________At start of year (2,694) (2,538) (3,933) (3,578) Increase in cash and cash equivalents 239 66 351 96(Increase)/decrease in borrowings (130) 51 (190) 75__________________________________________________________________________________________________________________Changes in net borrowings resulting from cash flows 109 117 161 171__________________________________________________________________________________________________________________Inception of finance leases (9) (10) (13) (15)Fair value adjustments 3 5 4 7Exchange translation differences 277 (268) 333 (518)__________________________________________________________________________________________________________________At end of year (2,314) (2,694) (3,448) (3,933)__________________________________________________________________________________________________________________ Net borrowings comprise cash and cash equivalents, loan capital, finance leases,promissory notes, bank and other loans, and those derivative financialinstruments used to hedge the fair value of fixed rate borrowings. 4 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 profits arealso grossed up to exclude the equity share of taxes in joint ventures. Adjusted operating cash flow is measured after dividends from joint ventures andnet capital expenditure but before payments in relation to acquisitionintegration costs. 2006 2005 2006 2005 £m £m •m •m__________________________________________________________________________________________________________________Operating profit 880 839 1,294 1,225Adjustments:Amortisation of acquired intangible assets 297 276 436 403Acquisition integration costs 23 21 34 30Reclassification of tax in joint ventures 10 6 15 9__________________________________________________________________________________________________________________Adjusted operating profit 1,210 1,142 1,779 1,667__________________________________________________________________________________________________________________ Profit before tax 721 701 1,060 1,023Adjustments:Amortisation of acquired intangible assets 297 276 436 403Acquisition integration costs 23 21 34 30Reclassification of tax in joint ventures 10 6 15 9Disposals and other non operating items 1 (2) 1 (2)__________________________________________________________________________________________________________________Adjusted profit before tax 1,052 1,002 1,546 1,463__________________________________________________________________________________________________________________ Profit attributable to parent companies' shareholders 623 462 916 675Adjustments (post tax):Amortisation of acquired intangible assets 324 310 476 452Acquisition integration costs 16 17 24 24Disposals and other non operating items (64) (2) (95) (2)Deferred tax not expected to crystallise in the near term:Unrealised exchange differences on long term inter-affiliate (22) 44 (32) 64lendingAcquired intangible assets (87) (65) (128) (95)Other 6 (12) 9 (17)__________________________________________________________________________________________________________________Adjusted profit attributable to parent companies' 796 754 1,170 1,101shareholders__________________________________________________________________________________________________________________Cash generated from operations 1,304 1,223 1,917 1,786Dividends received from joint ventures 16 16 24 23Purchase of property, plant and equipment (88) (93) (129) (136)Proceeds from disposal of property, plant and equipment 2 8 3 12Expenditure on internally developed intangible assets (108) (102) (159) (149)Payments in relation to acquisition integration costs 26 28 37 41__________________________________________________________________________________________________________________Adjusted operating cash flow 1,152 1,080 1,693 1,577__________________________________________________________________________________________________________________ Tax cash flow benefits of £5m/€7m (2005: £3m/€4m) were obtained in relation toacquisition integration costs and disposals and other non operating items. 5 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 £80m/€118m (2005: £100m/€146m), comprising £60m/€88m(2005: £79m/€115m) in relation to defined benefit pension schemes and £20m/€30m(2005: £21m/€31m) in relation to defined contribution schemes. Pensioncontributions made in the year amounted to £79m/€116m (2005: £68m/€99m). At 31 December 2006, the aggregate net deficit in respect of the defined benefitschemes under IAS19 was £236m/€351m (2005: £405m/€591m). 6 Exchange translation rates In preparing the combined financial information the following exchange rateshave been applied: __________________________________________________________________________________________________________________ Income statement Balance sheet _________________ _________________ 2006 2005 2006 2005__________________________________________________________________________________________________________________Euro to sterling 1.47 1.46 1.49 1.46US dollars to sterling 1.84 1.82 1.96 1.73US dollars to euro 1.25 1.25 1.32 1.18__________________________________________________________________________________________________________________ REED ELSEVIER PLC SUMMARY FINANCIAL INFORMATION Basis of preparation The Reed Elsevier PLC share of the Reed Elsevier combined results has beencalculated on the basis of the 52.9% economic interest of the Reed Elsevier PLCshareholders in the Reed Elsevier combined businesses, after taking account ofthe results arising in Reed Elsevier PLC and its subsidiary undertakings. Thesummary financial information has been prepared on the basis of the accountingpolicies of the Reed Elsevier combined businesses as set out on pages 60 to 64of the Reed Elsevier Annual Reports and Financial Statements 2005, which are inaccordance with International Financial Reporting Standards (IFRS) as endorsedby the European Union. Reed Elsevier PLC's 52.9% economic interest in the netassets of the combined businesses is shown in the balance sheet as investmentsin joint ventures, net of the assets and liabilities reported as part of ReedElsevier PLC and its subsidiary undertakings. The financial information set out below has been abridged from Reed ElsevierPLC's consolidated financial statements for the year ended 31 December 2006,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) of the Companies Act 1985. CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2006 2006 2005 £m £m__________________________________________________________________________________________________________________Administrative expenses (2) (2)Effect of tax credit equalisation on distributed earnings (10) (9)Share of results of joint ventures 343 252__________________________________________________________________________________________________________________Operating profit 331 241Finance (charges)/income (3) 1__________________________________________________________________________________________________________________Profit before tax 328 242Taxation (8) (7)__________________________________________________________________________________________________________________Profit attributable to ordinary shareholders 320 235__________________________________________________________________________________________________________________ EARNINGS PER ORDINARY SHARE 2006 2005 pence pence__________________________________________________________________________________________________________________Basic earnings per share 25.6 18.6pDiluted earnings per share 25.3 18.4p__________________________________________________________________________________________________________________ Adjusted profit and earnings per share figures are presented in note 1 asadditional performance measures. CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2006 2006 2005 £m £m__________________________________________________________________________________________________________________Cash flows from operating activitiesCash used by operations (2) (2)Interest (paid)/received (3) 1Tax paid (6) (8)__________________________________________________________________________________________________________________Net cash used in operating activities (11) (9)__________________________________________________________________________________________________________________ Dividends received from joint ventures 596 168 Cash flows from financing activitiesEquity dividends paid (186) (168)Proceeds on issue of ordinary shares 47 14Purchase of treasury shares (112) -Increase in net funding balances due from joint ventures (334) (5)__________________________________________________________________________________________________________________Net cash used in financing activities (585) (159)____________________________________________________________________________________________________________________________________________________________________________________________________________________________________Movement in cash and cash equivalents - -__________________________________________________________________________________________________________________ CONSOLIDATED BALANCE SHEET As at 31 December 2006 2006 2005 £m £m__________________________________________________________________________________________________________________Non-current assetsInvestments in joint ventures 156 490Current assetsAmounts due from joint ventures 934 600__________________________________________________________________________________________________________________Total assets 1,090 1,090__________________________________________________________________________________________________________________Current liabilitiesAmounts owed to joint ventures 36 -Payables 1 1Taxation 13 11__________________________________________________________________________________________________________________ 50 12__________________________________________________________________________________________________________________Non-current liabilitiesAmounts owed to joint ventures - 36__________________________________________________________________________________________________________________Total liabilities 50 48__________________________________________________________________________________________________________________Net assets 1,040 1,042__________________________________________________________________________________________________________________Capital and reservesCalled up share capital 161 160Share premium account 1,033 987Shares held in treasury (200) (49)Capital redemption reserve 4 4Translation reserve (98) 31Other reserves 140 (91)__________________________________________________________________________________________________________________Total equity 1,040 1,042__________________________________________________________________________________________________________________ Approved by the board of directors, 14 February 2007. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 2006 2005 £m £m___________________________________________________________________________________________________________________Profit attributable to ordinary shareholders 320 235Share of joint ventures' net (expense)/income recognised directly in equity (57) 71Share of joint ventures' transfer to net profit from hedge reserve (3) (10)___________________________________________________________________________________________________________________Total recognised net income and expense for the year 260 296___________________________________________________________________________________________________________________ RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' EQUITY For the year ended 31 December 2006 2006 2005 £m £m___________________________________________________________________________________________________________________Total recognised net income for the year 260 296Equity dividends declared (186) (168)Issue of ordinary shares, net of expenses 47 14Increase in shares held in treasury (151) (14)Increase in share based remuneration reserve 26 30Equalisation adjustments 2 (2)___________________________________________________________________________________________________________________Net (decrease)/increase in shareholders' equity (2) 156Shareholders' equity at start of year 1,042 886___________________________________________________________________________________________________________________Shareholders' equity at end of year 1,040 1,042___________________________________________________________________________________________________________________ Notes to the summary financial information 1 Adjusted figures Adjusted profit and earnings per share figures are used as additionalperformance measures. Adjusted earnings per share is based upon the ReedElsevier PLC shareholders' 52.9% economic interest in the adjusted profitattributable of the Reed Elsevier combined businesses, which is reconciled tothe reported figures in note 4 to the combined financial information. Theadjusted figures are derived as follows: Profit attributable Basic earnings to per share ordinary shareholders ___________________________________________ 2006 2005 2006 2005 £m £m pence pence___________________________________________________________________________________________________________________Reported figures 320 235 25.6p 18.6pEffect of tax credit equalisation on distributed earnings 10 9 0.8p 0.7p___________________________________________________________________________________________________________________Profit attributable to ordinary shareholders based on 52.9% economic 330 244 26.4p 19.3pinterest in the Reed Elsevier combined businessesShare of adjustments in joint ventures 91 155 7.2p 12.2p___________________________________________________________________________________________________________________Adjusted figures 421 399 33.6p 31.5p___________________________________________________________________________________________________________________ 2 Dividends___________________________________________________________________________________________________________________Dividends declared in the year 2006 2005 2006 2005 pence pence £m £m___________________________________________________________________________________________________________________Ordinary shares of 12.5 pence eachFinal for prior financial year 10.7p 9.6p 135 120Interim for financial year 4.1p 3.7p 51 48___________________________________________________________________________________________________________________Total 14.8p 13.3p 186 168___________________________________________________________________________________________________________________ The Directors of Reed Elsevier PLC have proposed a final dividend of 11.8p(2005: 10.7p). The cost of the final dividend, if approved by shareholders, isexpected to be £148m. No liability has been recognised at the balance sheetdate. The Reed Elsevier PLC final dividend as approved will be paid on 11 May2007, with ex-dividend and record dates of 18 April 2007 and 20 April 2007respectively. Dividends paid to Reed Elsevier PLC and Reed Elsevier NVshareholders are equalised at the gross level inclusive of the UK tax creditreceived by certain Reed Elsevier PLC shareholders. The equalisation adjustmentequalises the benefit of the tax credit between the two sets of shareholders inaccordance with the equalisation agreement. ___________________________________________________________________________________________________________________Dividends paid and proposed relating to the financial year 2006 2005 pence pence___________________________________________________________________________________________________________________Ordinary shares of 12.5 pence eachInterim (paid) 4.1p 3.7pFinal (proposed) 11.8p 10.7p___________________________________________________________________________________________________________________Total 15.9p 14.4p___________________________________________________________________________________________________________________ 3 Share capital and treasury shares___________________________________________________________________________________________________________________ 2006 2005 ____________________________ Shares in Treasury Shares in Shares in issue shares issue net of issue net of treasury treasury shares shares millions millions millions millions___________________________________________________________________________________________________________________Number of ordinary sharesAt start of year 1,277.0 (10.8) 1,266.2 1,265.4Issue of ordinary shares 10.4 - 10.4 3.6Share repurchases - (20.6) (20.6) -Purchase of shares by employee benefit trust (net) - (6.4) (6.4) (2.8)___________________________________________________________________________________________________________________At end of year 1,287.4 (37.8) 1,249.6 1,266.2___________________________________________________________________________________________________________________Average number of ordinary shares during the year 1,251.9 1,266.2___________________________________________________________________________________________________________________ 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint venturesguaranteed jointly and severally by Reed Elsevier PLC and Reed Elsevier NVamounting to £2,589m at 31 December 2006 (2005: £2,705m). REED ELSEVIER NV SUMMARY FINANCIAL INFORMATION BASIS OF PREPARATION The Reed Elsevier NV share of the Reed Elsevier combined results has beencalculated on the basis of the 50% economic interest of the Reed Elsevier NVshareholders in the Reed Elsevier combined businesses, after taking account ofthe results arising in Reed Elsevier NV and its subsidiary undertakings. Thesummary financial information has been prepared on the basis of the accountingpolicies of the Reed Elsevier combined businesses as set out on pages 60 to 64of the Reed Elsevier Annual Reports and Financial Statements 2005, which are inaccordance with International Financial Reporting Standards (IFRS) as endorsedby the European Union. Reed Elsevier NV's 50% economic interest in the netassets of the combined businesses is shown in the balance sheet as investmentsin joint ventures, net of the assets and liabilities reported as part of ReedElsevier NV and its subsidiary undertakings. The financial information in respect of the year ended 31 December 2006 has beenextracted from the consolidated financial statements of Reed Elsevier NV whichhave been audited and received an unqualified audit report. CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2006 2006 2005 •m •m___________________________________________________________________________________________________________________Administrative expenses (3) (3)Share of results of joint ventures 455 339___________________________________________________________________________________________________________________Operating profit 452 336Finance income 7 2___________________________________________________________________________________________________________________Profit before tax 459 338Taxation (1) -___________________________________________________________________________________________________________________Profit attributable to ordinary shareholders 458 338___________________________________________________________________________________________________________________ EARNINGS PER ORDINARY SHARE 2006 2005 • •___________________________________________________________________________________________________________________Basic earnings per share €0.59 €0.43Diluted earnings per share €0.59 €0.43___________________________________________________________________________________________________________________ Adjusted profit and earnings per share figures are presented in note 1 asadditional performance measures. CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2006 2006 2005 •m •m___________________________________________________________________________________________________________________Cash flows from operating activitiesCash used by operations (3) (5)Interest received 12 1Tax (paid)/received (1) 2___________________________________________________________________________________________________________________Net cash from/(used in) operating activities 8 (2)___________________________________________________________________________________________________________________ Dividends received from joint ventures 1,111 189 Cash flows from financing activitiesEquity dividends paid (272) (245)Proceeds on issue of ordinary shares 68 18Purchase of treasury shares (156) -(Increase)/decrease in net funding balances due from joint ventures (612) 16___________________________________________________________________________________________________________________Net cash used in financing activities (972) (211)______________________________________________________________________________________________________________________________________________________________________________________________________________________________________Movement in cash and cash equivalents 147 (24)___________________________________________________________________________________________________________________ CONSOLIDATED BALANCE SHEET As at 31 December 2006 2006 2005 •m •m___________________________________________________________________________________________________________________Non-current assetsInvestments in joint ventures 760 1,487Current assetsAmounts due from joint ventures - funding 626 14Amounts due from joint ventures - other 3 8Cash and cash equivalents 148 1___________________________________________________________________________________________________________________ 777 23___________________________________________________________________________________________________________________Total assets 1,537 1,510___________________________________________________________________________________________________________________Current liabilitiesPayables 8 8Taxation 64 64___________________________________________________________________________________________________________________Total liabilities 72 72___________________________________________________________________________________________________________________Net assets 1,465 1,438___________________________________________________________________________________________________________________Capital and reservesShare capital issued 48 47Paid-in surplus 1,562 1,495Shares held in treasury (282) (68)Translation reserve (70) 76Other reserves 207 (112)___________________________________________________________________________________________________________________Total equity 1,465 1,438___________________________________________________________________________________________________________________ Approved by the Combined Board of directors, 14 February 2007. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 2006 2005 •m •m___________________________________________________________________________________________________________________Profit attributable to ordinary shareholders 458 338Share of joint ventures' net (expense)/income recognised directly in equity (50) 138Share of joint ventures' transfer to net profit from hedge reserve (4) (14)___________________________________________________________________________________________________________________Total recognised net income and expense for the year 404 462___________________________________________________________________________________________________________________ RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' EQUITY For the year ended 31 December 2006 2006 2005 •m •m___________________________________________________________________________________________________________________Total recognised net income for the year 404 462Equity dividends declared (272) (245)Issue of ordinary shares, net of expenses 68 18Increase in shares held in treasury (210) (20)Increase in share based remuneration reserve 36 42Equalisation adjustments 1 -___________________________________________________________________________________________________________________Net increase in shareholders' equity 27 257Shareholders' equity at start of year 1,438 1,181___________________________________________________________________________________________________________________Shareholders' equity at end of year 1,465 1,438___________________________________________________________________________________________________________________ NOTES TO THE SUMMARY FINANCIAL INFORMATION 1 Adjusted figures Adjusted profit and earnings per share figures are used as additionalperformance measures. Adjusted earnings per share is based upon the ReedElsevier NV shareholders' 50% economic interest in the adjusted profitattributable of the Reed Elsevier combined businesses, which is reconciled tothe reported figures in note 4 to the combined financial information. Theadjusted figures are derived as follows: Profit attributable to Basic earnings ordinary shareholders per share ___________________________________________________ 2006 2005 2006 2005 •m •m • •___________________________________________________________________________________________________________________Reported figures 458 338 €0.59 €0.43Share of adjustments in joint ventures 127 213 €0.17 €0.27___________________________________________________________________________________________________________________Adjusted figures 585 551 €0.76 €0.70___________________________________________________________________________________________________________________ 2 Dividends___________________________________________________________________________________________________________________Dividends declared in the year 2006 2005 2006 2005 • • •m •m___________________________________________________________________________________________________________________Ordinary shares of €0.06 eachFinal for prior financial year €0.267 €0.240 197 177Interim for financial year €0.102 €0.092 75 68R-shares of €0.60 each - - - -___________________________________________________________________________________________________________________Total €0.369 €0.332 272 245___________________________________________________________________________________________________________________ The Directors of Reed Elsevier NV have proposed a final dividend of €0.304(2005: €0.267). The cost of the final dividend, if approved by shareholders, isexpected to be €223m. No liability has been recognised at the balance sheetdate. The Reed Elsevier NV final dividend as approved will be paid on 11 May2007, with ex-dividend and record dates of 20 April 2007 and 24 April 2007respectively. The ex-dividend and record dates are in accordance with the newrules and practices recently announced by Euronext, which will be implemented on26 March 2007. Dividends paid to Reed Elsevier PLC and Reed Elsevier NVshareholders are equalised at the gross level inclusive of the UK tax creditreceived by certain Reed Elsevier PLC shareholders. ___________________________________________________________________________________________________________________Dividends paid and proposed relating to the financial year 2006 2005 • •___________________________________________________________________________________________________________________Ordinary shares of €0.06 eachInterim (paid) €0.102 €0.092Final (proposed) €0.304 €0.267R-shares of €0.60 each - -___________________________________________________________________________________________________________________Total €0.406 €0.359___________________________________________________________________________________________________________________ 3 Share capital and treasury shares___________________________________________________________________________________________________________________ 2006 2005 __________________________________ Shares in Treasury Shares in Shares in issue shares issue net of issue net of treasury shares treasury shares millions millions millions millions___________________________________________________________________________________________________________________Number of ordinary sharesAt start of year 741.8 (5.5) 736.3 736.4Issue of ordinary shares 6.8 - 6.8 1.9Share repurchases - (13.4) (13.4) -Purchase of shares by employee benefit trust (net) - (3.7) (3.7) (2.0)___________________________________________________________________________________________________________________At end of year 748.6 (22.6) 726.0 736.3___________________________________________________________________________________________________________________Average number of equivalent ordinary shares 772.1 783.1 during the year___________________________________________________________________________________________________________________ The average number of equivalent ordinary shares takes into account the "R"shares in the company held by Reed Elsevier PLC, which represents a 5.8%interest in the company's share capital. 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint venturesguaranteed jointly and severally by Reed Elsevier NV and Reed Elsevier PLCamounting to €3,858m at 31 December 2006 (2005: €3,949m). ADDITIONAL INFORMATION FOR US INVESTORS Summary financial information in US dollars This summary financial information in US dollars is a simple translation of theReed Elsevier combined financial information into US dollars at the rates ofexchange set out in note 6 to the combined financial information. The financialinformation provided below is prepared in accordance with accounting principlesas used in the preparation of the Reed Elsevier combined financial information.It does not represent a restatement under US Generally Accepted AccountingPrinciples ("US GAAP"), which would be different in some significant respects. Combined income statement 2006 2005 US$m US$m___________________________________________________________________________________________________________________Revenue 9,932 9,402Operating profit 1,619 1,527Profit before tax 1,327 1,276Profit attributable to parent companies' shareholders 1,146 841Adjusted operating profit 2,226 2,078Adjusted profit before tax 1,936 1,824Adjusted profit attributable to parent companies' shareholders 1,465 1,372___________________________________________________________________________________________________________________Basic earnings per American Depositary Share (ADS) US$ US$Reed Elsevier PLC (Each ADS comprises four ordinary shares) $1.88 $1.35Reed Elsevier NV (Each ADS comprises two ordinary shares) $1.48 $1.07Adjusted earnings per American Depositary Share (ADS)Reed Elsevier PLC (Each ADS comprises four ordinary shares) $2.47 $2.29Reed Elsevier NV (Each ADS comprises two ordinary shares) $1.90 $1.75___________________________________________________________________________________________________________________ Adjusted earnings per American Depository Share is based on Reed Elsevier PLCshareholders' 52.9% and Reed Elsevier NV's 50% respective share of the adjustedprofit attributable of the Reed Elsevier combined businesses. Adjusted figuresare presented as additional performance measures and are reconciled to thereported figures in note 4 to the combined financial information and in note 1to the summary financial information of each of the two parent companies. Combined cash flow statement 2006 2005 US$m US$m___________________________________________________________________________________________________________________Net cash from operating activities 1,792 1,656Net cash used in investing activities (556) (828)Net cash used in financing activities (796) (708)___________________________________________________________________________________________________________________Increase in cash and cash equivalents 440 120___________________________________________________________________________________________________________________Adjusted operating cash flow 2,120 1,966___________________________________________________________________________________________________________________ Combined balance sheet 2006 2005 US$m US$m___________________________________________________________________________________________________________________Non-current assets 11,637 11,598Current assets 5,086 4,088Assets held for sale - 104___________________________________________________________________________________________________________________Total assets 16,723 15,790Current liabilities 6,535 5,451Non-current liabilities 6,309 6,885Liabilities associated with assets held for sale - 20___________________________________________________________________________________________________________________Total liabilities 12,844 12,356___________________________________________________________________________________________________________________Net assets 3,879 3,434___________________________________________________________________________________________________________________ Summary of the principal differences between IFRS and US GAAP IFRS differ in certain significant respects to US GAAP. A more completeexplanation of the accounting policies used by the combined businesses and thedifferences to US GAAP will be set out in the Reed Elsevier Annual Reports andFinancial Statements 2006 and the Reed Elsevier Annual Report 2006 on Form 20-F.The effects on net income attributable to shareholders and combinedshareholders' equity of material differences to US GAAP are set out below. 2006 2005 2006 2005 £m £m •m •m___________________________________________________________________________________________________________________Net income as reported (IFRS) 623 462 916 675US GAAP adjustments:Intangible assets 1 5 1 7Disposals (41) - (60) -Pensions (156) (78) (229) (114)Derivative financial instruments 3 (5) 4 (7)Current taxation (54) - (79) -Deferred taxation 20 3 29 4Other 3 (13) 5 (19)___________________________________________________________________________________________________________________Net income under US GAAP 399 374 587 546___________________________________________________________________________________________________________________ 2006 2005 2006 2005 £m £m •m •m___________________________________________________________________________________________________________________Combined shareholders' equity as reported (IFRS) 1,966 1,970 2,929 2,876US GAAP adjustments:Goodwill and intangible assets 1,256 1,491 1,871 2,177Pensions - 409 - 597Derivative financial instruments - 5 - 7Deferred taxation (9) (119) (13) (174)Other 7 7 10 10___________________________________________________________________________________________________________________Combined shareholders' equity under US GAAP 3,220 3,763 4,797 5,493___________________________________________________________________________________________________________________ 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 18 May 2007. 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 2006 and Reed Elsevier PLC 2006 Annual Reportand Financial Statements are being posted to Reed Elsevier PLC shareholders on 9March 2007. Copies of the Reed Elsevier Annual Review 2006 and Reed Elsevier NV2006 Annual Report and Financial Statements will be available to shareholders inReed Elsevier NV on request. Copies of the Preliminary Statement are availableto 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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