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Reed Elsevier Combined Businesses, Reed International P.L.C 135136 Covers 25/2/02 21:36 Page 2 ANNUAL REPORTS & FINANCIAL STATEMENTS 2001 For the Reed Elsevier Combined Businesses, Reed International P.L.C. and Elsevier NV Reed Elsevier TA ELSEVIER SCIENCE • SCIENCEDIRECT • CHEMWEB • BIOMEDNET • MDL INFORMATION SYSTEMS • SCIRUS • EXCERPTA • MEDICA • THE LANCET • GRAY’S ANATOMY • ACADEMIC PRESS • CHURCHILL LIVINGSTONE • MOSBY • WB SAUNDERS • F CELL • BRAIN RESEARCH • ONCOLOGY TODAY • TETRAHEDRON LETTERS • VASCULAR SURGERY • ENCYCLOPEDIA OF • GENETICS • LEXISNEXIS • BUTTERWORTHS TOLLEY • MATTHEW BENDER • SHEPARD’S • MARTINDALE HUBBELL • LEXIS.COM • • NEXIS.COM • EDITIONS DU JURIS CLASSEUR • MALAYAN LAW JOURNAL • DEPALMA • CONOSUR • NIMMER ON COPYRIGHT • • HALSBURY’S LAWS • MOORE’S FEDERAL PRACTICE • HARCOURT SCHOOL PUBLISHERS • €LEX POLONICA • RIGBY • N HEINEMANN • GINN • GREENWOOD£ • HOLT RINEHART% AND WINSTON • STECK-VAUGHN$ • THE PSYCHOLOGICAL CORPORATION RT • WECHSLER TEST() • HI.COM.AU • STANFORD()() ACHIEVEMENT TEST • WECHSLER INTELLIGENCE() SERIES • HARCOURT R EDUCATIONAL MEASUREMENT • ELECTRONIC DESIGN NEWS • VARIETY • RESTAURANTS & INSTITUTIONS • COMPUTER M WEEKLY • COMMUNITY CARE • NEW SCIENTIST • FLIGHT INTERNATIONAL • ESTATES GAZETTE • CNI.COM • RATI.COM • • ELSEVIER • BELEGGERS BELANGEN • BIZZ • ZIBB.NL • TOERISTIEK • MIDEM • WORLD TRAVEL MARKET • HOTELYMPIA • M BATIMAT • BOOKEXPO • STRATEGIES • MIPCOM • DOCTOR • KELLY’S DIRECTORIES • FARMERS’ WEEKLY • TOTALJOBS.COM Indispensable global information SCIENCE LEGAL EDUCATION BUSINESS & MEDICAL 135136 Covers 25/2/02 21:36 Page 3 CONTENTS 01...FINANCIAL HIGHLIGHTS 02...REVIEW OF 2001 FINANCIAL PERFORMANCE 13...STRUCTURE AND CORPORATE GOVERNANCE 17...REMUNERATION REPORT REED ELSEVIER COMBINED FINANCIAL STATEMENTS 26...ACCOUNTING POLICIES 28...COMBINED FINANCIAL STATEMENTS 32...NOTES TO THE COMBINED FINANCIAL STATEMENTS 54...INDEPENDENT AUDITORS’ REPORT REED INTERNATIONAL P.L.C. ANNUAL REPORT AND FINANCIAL STATEMENTS 56...FINANCIAL HIGHLIGHTS 57...DIRECTORS’ REPORT 60...ACCOUNTING POLICIES 61...FINANCIAL STATEMENTS 64...NOTES TO THE FINANCIAL STATEMENTS 70...INDEPENDENT AUDITORS’ REPORT ELSEVIER NV ANNUAL REPORT AND FINANCIAL STATEMENTS 72...FIVE YEAR FINANCIAL SUMMARY 73...THE SUPERVISORY BOARD’S REPORT 73...THE EXECUTIVE BOARD’S REPORT 74...FINANCIAL STATEMENTS 77...ACCOUNTING POLICIES 78...NOTES TO THE FINANCIAL STATEMENTS 81...AUDITORS’ REPORT 81...OTHER INFORMATION ADDITIONAL INFORMATION FOR US INVESTORS 84...REED ELSEVIER COMBINED BUSINESSES 89...REED INTERNATIONAL P.L.C. 91...ELSEVIER NV 92...PRINCIPAL OPERATING LOCATIONS This document contains detailed Annual Report and Accounts information in respect of the Reed Elsevier combined businesses and the two parent companies, Reed International P.L.C. and Elsevier NV. This, together with the separate summary document Reed Elsevier Annual Review and Summary Financial Statements 2001, forms the Annual Reports and Financial Statements of Reed International P.L.C. and Elsevier NV for the year ended 31 December 2001 and the two documents should be read together. 135136 pp01_12 Reed 25/2/02 21:37 Page 01 REED ELSEVIER Financial highlights The financial highlights refer to ‘adjusted’ profit and cash flow figures. Adjusted pre-tax profit is presented for total operations; other highlights relate to These figures are used by the Reed Elsevier businesses as additional continuing operations, which exclude the consumer publishing businesses sold in performance measures and are stated before the amortisation of goodwill the period to 1998. and intangible assets, exceptional items and related tax effects. 01 135136 pp01_12 Reed 25/2/02 21:37 Page 02 REED ELSEVIER Review of 2001 financial performance REVIEW OF OPERATIONS % change 2001 2000 2001 2000 at constant £m £m €m €m currencies Turnover Science & Medical 1,024 693 1,649 1,137 44% Legal 1,330 1,201 2,141 1,970 7% Education 579 202 932 331 177% Business 1,627 1,672 2,620 2,742 (5)% Total 4,560 3,768 7,342 6,180 18% Adjusted operating profit Science & Medical 344 252 554 413 34% Legal 267 237 430 389 9% Education 132 40 212 66 218% Business 247 264 398 433 (8)% Total 990 793 1,594 1,301 22% Adjusted figures, which exclude the amortisation of goodwill and intangible assets and exceptional items, are presented as additional performance measures. This review provides a commentary on the REVIEW OF OPERATIONS Unless otherwise indicated, all percentage operating and financial performance of the Reed The combined financial statements encompass the movements in the following commentary refer to Elsevier combined businesses for the year ended businesses of Reed Elsevier plc and Elsevier Reed constant currency rates, using 2000 full year 31 December 2001. In addition, it describes Finance BV, together with their parent companies, average rates, and are stated before the other financial aspects of the combined Reed International and Elsevier (the “Reed Elsevier amortisation of goodwill and intangible assets and businesses including taxation and treasury combined businesses” or “Reed Elsevier”). exceptional items. management and accounting policies. The review Financial information is presented in both sterling also includes information on the financial and euros. performance and dividends of the parent companies and on the finance activities of the Elsevier Reed Finance BV group. FORWARD-LOOKING STATEMENTS The Reed Elsevier Annual Reports & Financial Statements 2001 contain forward-looking statements within the meaning of Section 27A of the US Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward-looking statements. The terms ‘expect’, ‘should be’, ‘will be’, and similar expressions identify forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to, general economic conditions and business conditions in Reed Elsevier’s markets, customers’ acceptance of its products and services, the actions of competitors, changes in law and legal interpretation affecting Reed Elsevier’s intellectual property rights, and the impact of technological change. 02 135136 pp01_12 Reed 25/2/02 21:37 Page 03 REED ELSEVIER SCIENCE & MEDICAL % change 2001 2000 2001 2000 at constant £m £m €m €m currencies Turnover Science & Technology 748 592 1,204 971 24% Health Sciences 276 101 445 166 165% 1,024 693 1,649 1,137 44% Adjusted operating profit 344 252 554 413 34% Operating margin 33.6% 36.4% 33.6% 36.4% (2.8)pts SCIENCE & MEDICAL offset by cost savings particularly in production extended regulatory review process prior to The Science & Medical business has had following prior year rationalisation. The overall acquisition and some momentum in the another very successful year. Elsevier Science margin, at 34%, decreased by 2.8 percentage business was lost. On a pro forma calendar year has extended its leading position, growing points due to the inclusion of the lower margin basis, the Harcourt STM business saw revenue revenue well ahead of the market and Harcourt STM business. and operating profit growth of 3% and 5% delivering double digit profit growth. The key respectively in 2001 over 2000. The strategies indicators on ScienceDirect usage, penetration The ScienceDirect service saw its penetration of and management organisation for the enlarged and customer retention, all show good the subscriber base increase to 66% by value, up Elsevier Science business – within two divisions, progress. The Harcourt Science, Technical and from 45% a year ago and 25% a year before that. Science & Technology and Health Sciences – Medical (STM) business acquired in July 2001 Usage continues to grow strongly with annual are now in place and substantial progress has is contributing well and the business page views doubled over the year to 220 million. been made in the integration of the businesses. integration is well advanced. The majority of the targeted annual cost savings New product development has focused on of $40 million will be realised in 2002, Revenue and operating profits increased by customised subject collections and superior principally in production, technology and back 44% and 34% respectively at constant navigation tools. Good progress was made in a office functions. This will fund the investments exchange rates, including the part year three year programme to make all our historical being made in new online medical information contribution of the Harcourt STM business. scientific research archive available online on products and in sales and marketing. Excluding this and other acquisitions and ScienceDirect, with modules released in three disposals, revenue and operating profit growth Chemistry disciplines. Also well received by The outlook for the Science & Medical business were 8% and 13% respectively. The good sales customers has been the Scirus scientific web is good. Revenue growth momentum in Science performance was driven by stronger subscription search engine, which enables retrieval in a & Technology is strong and in Health Sciences renewals and growing sales of online products. focused way of scientific material from over is building. The opportunities in the medical 70 million pages available on the web. field for electronically delivered information and Underlying operating margins improved by solutions are growing and considerable.
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