Slide1: I N T E R I M R E S U L T S 2 0 0 3
Highlights: Highlights Good performance in challenging markets
Continuing strong progress against strategic priorities
Acceleration of growth in second half
On track to deliver 2003 targets
Financial Update: Financial Update Mark Armour
Chief Financial Officer
Adjusted Profit And Loss: Adjusted figures exclude amortisation of goodwill and intangible assets and exceptional items Turnover Adjusted operating profit Operating margin Net interest expense Adjusted profit before tax % % % % change constant 2002 €m 2003 €m 2002 £m 2003 £m 2,467 813 505 20.5% 20.5% (172) (107) 641 398 6 months to 30 June 3,972 2,345 496 21.2% (88) 408 3,424 724 21.2% (128) 596 0 0 +3 Adjusted Profit And Loss Reported results reflect currency translation effects
Science & MedicalRevenues up 6% - operating profit up 5% - margin 33.9%: Revenues Operating profit Science andamp; Medical Revenues up 6% - operating profit up 5% - margin 33.9% Underlying revenues up 4%; operating profit up 5%
Strong subscription renewals and growing online sales
Science andamp; Technology revenues up 4%
Health Sciences revenues up 3%
Book publishing programme to accelerate second half £m €m £m €m
LegalRevenues up 4% - operating profit up 17% - margin 20.7%: Legal Revenues up 4% - operating profit up 17% - margin 20.7% Underlying revenues up 2%; operating profit up 13%
Strong operating margin improvement in first half
US Legal revenues up 3%; Online up 7% - strong small law
US Corporate andamp; Federal Markets flat; strong risk solutions
International underlying revenues up 3%; accelerating demand for online £m £m €€ €m €m Revenues Operating profit
EducationRevenues down 5% - operating profit down 32% - margin 7.5%: Education Revenues down 5% - operating profit down 32% - margin 7.5% Underlying revenues down 6%; operating profit down 35%
First half growth unrepresentative; revenues and profit second half weighted
US K-12 revenues flat; orders deferred to second half
Testing revenues down 27%; loss of California contract
International revenues up 1%; UK funding shortfalls £m £m €m €m Revenues Operating profit
BusinessRevenues down 6% - operating profit down 12% - margin 17.2%: Business Revenues down 6% - operating profit down 12% - margin 17.2% Underlying revenues down 6%; operating profit 12%
Rate of decline in advertising markets slowed; few signs of recovery
Margins defended through continued cost actions
Investment in product quality and disciplined yield management
Exhibitions resilient: revenues down 3% excluding cycling £m £m €m €m Revenues Operating profit
Adjusted Profit Before Tax: Reconciliation: Adjusted Profit Before Tax: Reconciliation -7% 596 +3% 408 2003 Adjusted profit before tax -10% (64) - (3) Currency translation effect +1% 7 +1% 5 Acquisitions/Disposals +2% 12 +2% 8 Base business 641 398 2002 Adjusted profit before tax %
change €m %
change £m 6 months to 30 June Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items
Cash Flow: Cash Flow Total cash outflow before financing Free cash flow after dividends Other exceptional items Disposals Acquisition spend % conversion 2002
€m 2003
€m 2002
£m 2003
£m 6 months to 30 June Adjusted operating cash flow 177
36%
(5)
(209)
(214)
(97)
89
(41)
(263) 160
32%
(36)
(190)
(226)
(90)
113
(37)
(240) 258
36%
(8)
(305)
(313)
(141)
130
(59)
(383) 258
32%
(58)
(306)
(364)
(145)
182
(59)
(386) Dividends Free cash flow before dividends
Reported Profit Attributable: Reported Profit Attributable €0.10 €0.09 Reed Elsevier NV EPS 3.9p 3.9p Reed Elsevier PLC EPS 156 142 97 97 Reported profit attributable 117 36 73 25 Exceptional items (433) (332) (269) (228) Amortisation of goodwill and intangible assets 472 438 293 300 Adjusted profit attributable 2002
€m 2003
€m 2002
£m 2003
£m 6 months to 30 June
Adjusted Earnings and Dividends: Adjusted Earnings and Dividends -11% €0.08 +3% 3.3p Equalised dividends +3% -7% €0.28 +2% 12.6p Adjusted EPS % change constant Reed
Elsevier
NV Reed
Elsevier
PLC
Strategy & Execution: Strategy andamp; Execution Crispin Davis
Chief Executive Officer
Reed Elsevier:Key Objectives For 2003: Reed Elsevier: Key Objectives For 2003 Maximise above market organic growth from four core businesses
Execute and deliver on all strategic milestones
Improve operating margin further through increased efficiency
Deliver double digit earnings growth
ON TRACK ON TRACK ON TRACK ON TRACK
Science & Medical:ScienceDirect: Increasing Usage: Science andamp; Medical: ScienceDirect: Increasing Usage Article downloads (millions) * 12 months to 30 June
Science & Medical:ScienceDirect: Expanding Content: Science andamp; Medical: ScienceDirect: Expanding Content Full text articles (millions) * At 30 June
Science & Technology:Continued Low Attrition: Science andamp; Technology: Continued Low Attrition * Full Year Estimate 2003* 2001 2000 1999 2002
Science & Medical: Health Sciences: Science andamp; Medical: Health Sciences Successful front list publishing programme
Accelerating electronic information business
MD Consult 13% ahead
Wide ranging introduction of new products
Significant online education training opportunities
Accelerating international expansion
Local versioning of authoritative content
Acquisition of Holtzbrinck STM in Germany
Integration of book production and distribution on track
Science & Medical: 2003 Outlook: Science andamp; Medical: 2003 Outlook Revenue growth to accelerate
Strong 2003 book publishing programme
Continued growth in electronic sales
Cost efficiencies and operational gearing to drive further margin improvement
Expansion of content and innovative electronic services
Legal:US Legal Online Usage Growing: Legal: US Legal Online Usage Growing Growth in commercial searches Online revenues up 7% 1999 2002 2001 2000 2003* * To 30 June
Legal: Risk Solutions: Long Term Growth: Legal: Risk Solutions: Long Term Growth Growth in public records
Legal:Optimising Cost Efficiency: Legal: Optimising Cost Efficiency Operating margin 2003* c.22.5% *Full Year Estimate
Legal: 2003 Outlook: Legal: 2003 Outlook Maintain above market revenue momentum in US markets
Acceleration of growth from new product initiatives and acquired businesses
Margin improvement from focused cost actions, releasing funds for investment
International – strong growth in online sales mitigated by print migration and weak corporate markets
Education:US Schools Market: Education: US Schools Market Attractive long term growth market
Strong federal and state commitment
Short term market weakness in 2003/2004
Low point in adoption cycle
State budget pressures
2003 impact from federal funding modest
Education:Winning Performance in 2003 Adoption Revenues: Education: Winning Performance in 2003 Adoption Revenues # 1 # 1 Science # 4 # 1 Social Studies # 3 # 1 Mathematics # 1 # 1 Language Arts # 1 # 3 Reading/Literature
Secondary
Elementary Overall # 1 Overall # 1 = Based on estimated share of total available adoption revenues
Education:Harcourt Assessment: Education: Harcourt Assessment 2003 revenues impacted by loss of California
Momentum regenerated: management, product, scoring, operations
New edition of Stanford Achievement Test launched
Awarded 7 out of 11 state contracts tendered
Strong pipeline of state level bids
Education: 2003 Outlook: Education: 2003 Outlook US schools market broadly flat; small decline possible
Success in state adoptions will come through as second half sales
Continued success in state Testing contracts
Margin improvement through continuing process efficiency
Business: Trading environment: Business: Trading environment No marked deterioration; no real sign of recovery Overall Variability by sector: Growth in Entertainment; Manufacturing and Electronics still weak; Construction late cycle US Economic conditions weaker; resilient subscription revenues mitigated advertising declines across all sectors Continental Europe UK Variability by sector; Aerospace, Social Services and Property holding up Impact of economic weakness, SARS and Iraq; cycling out of non-annual shows Global Exhibitions
Business:Online Revenue Growth: Business: Online Revenue Growth 2002 2001 2000 1999 2003* * Full year estimate
Business: Market Outperformance: Business: Market Outperformance Continuing to build market share on magazines
Further improvement in yield management
Tight control of costs
Exhibitions challenging, but showing resilience
Business: 2003 Outlook: Business: 2003 Outlook Continued tough trading conditions across markets
Product quality, sales effectiveness and yield management restrict revenue decline
Continued margin improvement, mitigating impact on profitability
Significant upside as economy recovers
Product Upgrade Initiatives: : State annotated codes
e-Filing, e-Access, e-Discovery
Integrated Risk Solutions capability
Industry Dossier
Global Legal Platform
Reference works online
Scirus search engine
MD Consult upgrade
EVOLVE medical education platform
ScienceDirect multimedia capability Market leading adoption programmes
Online HRW Basal
Stanford 10
Texas STARgate
Alzheimer Quicktest Totaljobs.com
KellySearch
14 magazines relaunched
RCD Connect
16 new exhibitions launched Product Upgrade Initiatives:
Slide33: Elsevier
Dedicated Engineering/
Life Sciences/Chemistry sales forces Reed Business
Customer research programme for all magazines LexisNexis
Strengthened small
law programme All Divisions
Execution of
sales audit programmes Elsevier
Coordinated
global price increase
programme Elsevier/LexisNexis
Implementation of
global branding programme Harcourt
Major upgrade of
Open Territories sales
force Harcourt
Global Library
marketing programme Reed Business
RCD national
accounts programme Reed Business
Successful yield
management programme LexisNexis
Key account
relationship programme Elsevier
Introduction of
Health Sciences telesales Sales and Marketing Initiatives:
Infrastructure and Cost Initiatives:: Infrastructure and Cost Initiatives: New content management systems
New customer fulfilment systems
New editorial systems
Off-shore printing/outsourcing
Pre-plate restructuring
Electronic author workbench
New CRM systems 2000-2002: $500m of savings achieved
2003: $150m further savings
“Shooting Stars”: Risk Management
e-Discovery, e-Filing, e-Access
Endeavor Library Services
International Healthcare
e-Healthcare Clinical Testing
Customised State Testing On-line recruitment, directories
Variety franchise 'Shooting Stars' All businesses outperforming in dynamic growth sectors
Annual revenue growth at high single/double digit
Total revenue c.$700m
Reed Elsevier:Key Objectives For 2003 Unchanged: Reed Elsevier: Key Objectives For 2003 Unchanged Maximise above market organic growth from four core businesses
Execute and deliver on all strategic milestones Improve operating margin further through increased efficiency
Deliver double digit earnings growth ON TRACK ON TRACK ON TRACK ON TRACK
Slide37: I N T E R I M R E S U L T S 2 0 0 3
Appendices: Appendices
Turnover: Reconciliation: Turnover: Reconciliation %
change €m %
change £m -14% 3,424 -5% 2,345 2003 Turnover -14% (541) -5% (117) Currency translation effect - (19) - (13) Disposals +1% 54 +1% 37 Acquisitions -1% (42) -1% (29) Base businesses 3,972 2,467 2002 Turnover 6 months to 30 June
Currency Profile:Adjusted Profit Before Tax: First half average rates:
2003 2002
$:£ 1.61 1.44
$:€ 1.10 0.90
€:£ 1.46 1.61 Full year average rates:
2003* 2002
$:£ 1.62 1.50
$:€ 1.13 0.94
€:£ 1.43 1.59 Currency Profile: Adjusted Profit Before Tax Euro
41% Sterling
21% US Dollar
33% Other
5% *2003 average rates (approx) if recent spot rates continue ($1.62:£1; $1.15:€1; €1.41:£1)
Free Cash Flow: 2003 2002 2003 2002 £m £m €m €m
Adjusted operating cash flow 177 160 258 258
Interest (85) (108) (124) (174)
Tax (97) (88) (142) (142)
Dividends (209) (190) (305) (306)
Free cash outflow (214) (226) (313) (364)
6 months to 30 June Free Cash Flow
Cash Flow Seasonality: Cash Flow Seasonality Cash flow conversion % 90% 36% 136% 1,027 177 850
£m 12 months to 30 June £m
£m 2003 2002 2003 90% 36% 136% 1,499 258 1,241
€m 12 months to 30 June €m
€m 2003 2002 2003 H1 H2 H1 H2 Adjusted operating cash flow
Exceptional Items: Exceptional Items 153 (12) 95 (9) Net tax (charge)/credit (36) 48 (22) 34 Exceptional credit/(charge) before tax 14 82 9 57 Net profit on sale of fixed asset investments and businesses (50) (34) (31) (23) Charged to operating profit (36) (22) (22) (15) Acquisition related costs (14) (12) (9) (8) Reorganisation costs 2002
€m 2003
€m 2002
£m 2003
£m 6 months to 30 June 117 36 73 25 Total exceptional credit
Balance Sheet: Balance Sheet 1,030 1,000 669 694 Net debt 5,076 4,209 3,296 2,923 Other net liabilities/minorities 4,403 3,767 2,859 2,616 Shareholders’ funds 10,509 8,976 6,824 6,233 248 206 161 143 Investments 764 704 496 489 Tangible fixed assets 9,563 7,979 6,210 5,541 Goodwill/intangible assets 2002
€m 2003
€m 2002
£m 2003
£m (66) 87 (43) 60 Working capital 10,509 8,976 6,824 6,233 At 30 June
Dividend Equalisation: Dividend Equalisation Reed Elsevier PLC (p) 2003 2002 % Change Interim 3.3 3.2 UK tax credit rate Gross (p) Equalisation ratio Exchange rate (€:£) Reed Elsevier NV (€) 10% 10% 3.67 3.56 1.538 1.41 0.08 1.538 1.59 0.09 -11% +3%
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