129691 Cover 12/3/01 9:45 pm Page 2 LEGAL EDUCATION SCIENCE & MEDICAL BUSINESS REED ELSEVIER ANNUAL REPORTS & FINAN IAL STATEMENTS 2000 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2000 FOR THE REED ELSEVIER COMBINED BUSINESSES, REED INTERNATIONAL P.L.C. AND ELSEVIER NV 129691 Cover 12/3/01 9:45 pm Page 3 LEGAL This document contains detailed Annual Report and Accounts information in EDUCATION SCIENCE & MEDICAL BUSINESS respect of the Reed Elsevier combined businesses and the two parent companies, REED ELSEVIER ANNUAL REVIEW & SUMMARY FINANCIAL STATEMENTS 2000 Reed International P.L.C. and Elsevier NV. This, together with the separate summary document Reed Elsevier Annual Review and Summary Financial Statements 2000, forms the Annual Reports and Financial Statements of Reed International P.L.C. and Elsevier NV for the year ended 31 December 2000 and the two documents should be read together. REED INTERNATIONAL P.L.C. ELSEVIER NV REED ELSEVIER PLC PUBLISHING AND INFORMATION BUSINESSES SCIENCE & MEDICAL LEGAL EDUCATION BUSINESS ELSEVIER REED FINANCE BV FINANCE ACTIVITIES CONTENTS Reed International P.L.C. annual report 75 Supervisory Board’s report and financial statements 01 Financial highlights 75 Executive Board’s report 56 Financial highlights 02 Review of 2000 financial performance 76 Financial statements 57 Directors’ report 16 Structure and corporate governance 78 Accounting policies 60 Accounting policies 20 Remuneration report 79 Notes to the financial statements 61 Financial statements 82 Other information 64 Notes to the financial statements Reed Elsevier combined financial statements 70 Auditors’ report 28 Accounting policies Additional information for US investors 71 Shareholder information 30 Combined financial statements 84 Reed Elsevier combined businesses 34 Notes to the combined financial statements 89 Reed International P.L.C. Elsevier NV annual report 54 Auditors’ report and financial statements 91 Elsevier NV 74 Five year financial summary 92 Principal operating locations 129691 pp01-15Reed12/3/019:51pmPage01 amortisation ofgoodwillandintangibleassets, exceptionalitemsandrelated taxeffects. by theReedElsevierbusinessesasadditionalperformancemeasuresandarestated beforethe ‘adjusted’ profitandcashflow figures.The financialhighlightsreferto Thesefiguresareused PARENT COMPANIES COMPANIES PARENT € £ sterling REED ELSEVIERCOMBINED per share Adjusted earnings Reed International Turnover Turnover euro 96 97 98 99 28.10p 96 97 98 99 €3,457m 96 97 98 99 £2,897m 28.30p €4,324m £2,987m 26.40p €4,708m £3,163m Results fortheyearended31December 24.40p €5,153m £3,390m 00 00 00 23.30p €6,180m £3,768m Results fortheyearended31December pre-tax profit pre-tax Adjusted profit pre-tax Adjusted dividends Full year Reed International 96 97 98 99 96 97 98 99 13.60p 96 97 98 99 €961m £805m 14.60p €1,191m £823m 15.00p €1,150m £773m 10.00p €1,079m £710m 00 00 10.00p 00 €1,132m £690m operating profit operating Adjusted profit operating Adjusted per share Adjusted earnings Elsevier period to 1998. continuing operations, theconsumerpublishingbusinesses soldinthe whichexclude Adjusted pre-taxprofitispresentedfortotaloperations; otherhighlightsrelate to 96 97 98 99 96 97 98 99 €0.51 96 97 98 99 €939m £787m €0.62 €1,175m £812m €0.60 €1,210m £813m €0.57 €1,204m £792m 00 00 00 €0.59 €1,301m £793m FINANCIAL HIGHLIGHTS dividends Full year Elsevier cashflow operating Adjusted cashflow operating Adjusted 96 97 98 99 €0.34 96 97 98 99 €903m 96 97 98 99 £757m €0.43 €1,148m £793m €0.39 €1,203m £808m €0.27 €1,186m £780m 00 €0.28 00 €1,271m 00 £775m 01 129691 pp01-15 Reed 12/3/01 9:51 pm Page 02 02 REVIEW OF 2000 FINANCIAL PERFORMANCE This review provides a commentary on the REVIEW OF OPERATIONS amortisation of goodwill and intangibles assets operating and financial performance of the The combined financial statements encompass and exceptional items. Reed Elsevier combined businesses for the the businesses of Reed Elsevier plc and Elsevier year ended 31 December 2000. In addition, Reed Finance BV, together with their parent In anticipation of the acquisition of Harcourt it describes other financial aspects of the companies, Reed International and Elsevier (the General’s STM and Education and Testing combined businesses including taxation and ‘Reed Elsevier combined businesses’ or ‘Reed businesses, the Reed Educational & Professional treasury management and accounting policies. Elsevier’). Financial information is presented in Publishing business, formerly reported within the The review also includes information on the both sterling and euros. Legal segment, is now reported separately as an financial performance and dividends of the Education segment, and comparatives have been two parent companies and on the finance Unless otherwise indicated, all percentage restated accordingly. The Scientific segment has activities of the Elsevier Reed Finance BV group. movements in the following commentary refer been renamed Science & Medical to reflect to constant currency rates, using 1999 full year business strategy. average rates, and are stated before the FORWARD-LOOKING STATEMENTS The Reed Elsevier Annual Reports & Financial Statements 2000 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. REVIEW OF OPERATIONS % change 2000 1999 2000 1999 at constant £m £m €m €m currencies Turnover Science & Medical 693 652 1,137 991 7% Legal 1,201 1,087 1,970 1,652 5% Education 202 181 331 275 9% Business 1,672 1,470 2,742 2,235 12% Total 3,768 3,390 6,180 5,153 9% Adjusted operating profit Science & Medical 252 231 413 351 12% Legal 237 282 389 428 (19)% Education 40 34 66 52 15% Business 264 245 433 373 7% Total 793 792 1,301 1,204 (1)% Adjusted figures, which exclude the amortisation of goodwill and intangible assets and exceptional items, are presented as additional performance measures. 129691 pp01-15 Reed 12/3/01 9:51 pm Page 03 REVIEW OF 2000 03 FINANCIAL PERFORMANCE SCIENCE & MEDICAL respectively at constant rates of exchange, or 8% up from 25% a year ago, and usage is growing 2000 has been a very successful year for Elsevier and 12% excluding acquisitions and disposals. rapidly with more than 15 million page views in Science. Our results have demonstrated the The good sales growth was driven by the stronger January 2001. Over 1,200,000 scientific articles good growth momentum in the business and we subscription renewals in the year and the can now be retrieved in full text search over the have made major progress in the execution of increasing contribution from Internet services. The web. New functionalities and customised web our strategy. We have significantly expanded previously adverse subscriber attrition trends were services for specific user groups, such as ScienceDirect accelerating the migration of our reversed. Operating margins were slightly higher PhysicsDirect, PharmaDirect, and EngineeringDirect, business from print to electronic information reflecting the strong revenue growth, with the have been introduced, increasing utility and services, and we are now reaching new usage significant increase in investment, in new product relevance and expanding the user base. The groups. Our sales and customer services activities and sales and marketing initiatives, offset by ScienceDirect sales force was doubled and have been significantly expanded and we have cost savings in production, distribution and back customer service activities significantly expanded to continued to upgrade our systems infrastructure office functions. capture the market opportunity. to support our growth strategy. The customer takeup of the ScienceDirect online In addition to the positive impact on subscription Turnover and operating profit in the Science & services continues to progress well. ScienceDirect renewals, the Internet services contributed an Medical business increased by 7% and 12% now covers over 45% of the subscription revenues, additional 2 percentage points to sales growth. SCIENCE & MEDICAL SEGMENT % change 2000 1999 2000 1999 at constant £m £m €m €m currencies Turnover Elsevier Science 592 534 971 812 12% Medical Businesses 101 118 166 179 (15)% 693 652 1,137 991 7% Adjusted operating profit 252 231 413 351 12% Operating margin 36.4% 35.4% 36.4% 35.4% 1.0 pts 129691 pp01-15 Reed 12/3/01 9:51 pm Page 04 04 REVIEW OF 2000 FINANCIAL PERFORMANCE The new policy on pricing introduced for the 2000 business, focused on the nursing community, The outlook for the Science & Medical business subscription year, moderating increases and the was sold for $105 million. is good. Revenue growth momentum is strong impact of currencies so as to give more predictable with high subscription renewals expected and an journal