ARCOURT: FINANCING
ACCELERATED REVENUE AND PROFIT GROWTHPreliminary Results 2000Execution and Delivery on Strategy
HIGHLIGHTS
• Results ahead of target
• Execution and delivery of strategy on track across all businesses
• Acquisition of Harcourt is major opportunity
• Confidence in future growth targets
Financial Results 2000
Mark ArmourChief Financial Officer
ADJUSTED PROFIT AND LOSS
Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items
Turnover
Adjusted operating profit
Operating margin
Net interest expense
Adjusted profit before tax
%
%
%
% changeconstant
1999€m
2000€m
1999£m
2000£m
3390
1204792
23.4%23.4%
(125)(82)
1079710
12 months to 31 December
51533768
793
21.0%
(103)
690
6180
1301
21.0%
(169)
1132
+9
-1
-3
SCIENCE & MEDICAL
• Underlying revenues up 8%; operating profit up 12%
• Strong take up of ScienceDirect and lower attrition
• ScienceDirect adds 2% pts to revenue growth
• Additional investment funded by cost savings
REVENUES UP 7% - OPERATING PROFIT UP 12% - MARGIN 36.4%
Revenues €m£m Operating profit
€m£m
652
991
1137
693
0
200
400
600
800
1000
1200
1999 20001999 2000
231
351
413
252
0
100
200
300
400
1999 20001999 2000
LEGAL
• Underlying revenues up 3%; operating profit down 19%
• Substantial investment programme; major cost savings
• LEXIS online up 5%; NEXIS online up 4%
• LEXIS-NEXIS International solid performance
REVENUES UP 5% - OPERATING PROFIT DOWN 19% - MARGIN 19.7%
€m£m €m£m
1087
1652
1970
1201
0
400
800
1200
1600
2000
1999 20001999 2000
282
428389
237
0
100
200
300
400
500
1999 20001999 2000
Revenues Operating profit
EDUCATION
• Rigby US supplementary revenues up 37%
• UK secondary revenues up 23%
• Reduced funding for UK elementary literacy
REVENUES UP 9% - OPERATING PROFIT UP 15% - MARGIN 19.8%
€m£m €m£m
181
275
331
202
0
100
200
300
400
1999 20001999 2000
34
52
66
40
0
20
40
60
80
100
1999 20001999 2000
Revenues Operating profit
BUSINESS
• Underlying revenues up 4%; operating profit up 3%
• Revenue recovery at Cahners and restructuring benefits
• Good growth in other markets; exhibitions adverse show cycling
• Significant increase in investment; cost savings delivered
REVENUES UP 12% - OPERATING PROFIT UP 7% - MARGIN 15.8%
€m£m €m£m
1470
2235
2742
1672
0
800
1600
2400
3200
1999 20001999 2000
245
373
433
264
0
100
200
300
400
500
1999 20001999 2000
Revenues Operating profit
ADJUSTED PROFIT BEFORE TAX : RECONCILIATION
Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items
1999 Adjusted profit before tax
Acquisitions
Currency translation effect
%change€m
%change
710
12 months to 31 December 2000 £m
2000 adjusted profit before tax
Base business
(8)
(1)
-1%
0%
1079
(12)
Disposals
Equity issue
(8) -1% (12)
5 +1% 8
82
(8) -1% (13) -1%
-1%
-1%
+1%
+8%
690 -3% 1132 +5%
CASH FLOW
Adjusted operating cash flow
% conversion
Free cash flow
Acquisition spend
1999 €m
2000€m
1999£m
12 months to 31 December 2000
£m
Total cash outflow
Other exceptional items
780 1186
98% 98%
775
98%
(167) (1499)
1271
98%
(914) (254)
(41) (803)(490) (61)
334 187 548 286
Disposals 153 3 251 5
(63) (64) (103) (98)
EARNINGS AND DIVIDENDS
• Adjusted EPS
• Equalised dividends
+4%
+4%
ElsevierReed International
€0.59
€0.28
-5%
0%
23.3p
10.0p
-5%
0%
changeconstant
HARCOURT REPORTED 2000 RESULTS
Notes: Segment analysis adjusted from reported figures to reallocate revenues to respective businessesAdjusted operating profit is stated before amortisation of goodwill/intangible assetsBusinesses to be on-sold excluded; also corporate expenses of $26 million (1999 $21 million)
RevenueYear to 31 October
STM
Education and Testing
Adjusted Operating Profit
2000 1999 Growth 2000 1999 Growth $m $m % $m $m %
688 633 +9% 161 138 +17%
990 787 +26% 210 159 +32%
1678 1420 +18% 371 297 +25%
Strategy and Execution
Crispin DavisChief Executive Officer
KEY STRATEGIC FOUNDATIONS
• Focus on core businesses
• Upgrade management effectiveness
• Deliver demonstrably superior Internet products
• Substantial upgrade of marketing and sales
• Significant increase in investment spend
• Aggressive cost savings programme
• Build global capability and leadership
• Target infill acquisitions/alliances
CLEAR STRUCTURE AND MANAGEMENT
Group CEO
Crispin Davis
CEO
Andrew Prozes
CFOMark Armour
CTOKeith McGarr
EDUCATION
HR DirectorJean Luc Augustin
LEGALCEO
Andrew Prozes
BUSINESSCEO
Gerard van de Aast
SCIENCECEO
Derk Haank
EDUCATION
SCIENCE & MEDICAL: DELIVERY OF STRATEGIC MILESTONES
• ScienceDirect successful rollout
• Customised products launched and well received
• Sales force expanded
• New pricing policy affirmed
• Investment programme executed as planned
• Targeted cost savings exceeded
• Acquisition of Harcourt STM announced
+
SCIENCE & MEDICAL: PROVEN BUSINESS MODEL
UPGRADEDSCIENCEDIRECT
PRODUCT
HIGHERPENETRATION
HIGHER USAGE
INTERNET MIGRATIONCUSTOMER PREFERENCE
MODERATEPRICINGPOLICY
AGGRESSIVESALES ANDMARKETING
LOWERATTRITION
ACCELERATED REVENUE GROWTH
4.1
6.0
8.5
5.2
0
2
4
6
8
10
1997 1998 1999 2000
%
SCIENCE & MEDICAL: REVERSAL IN ATTRITION
1015
25
35
45
65
0
10
20
30
40
50
60
70
Mar 99 Aug 99 Feb 00 Aug 00 Dec 00 Dec 01
%
SCIENCEDIRECT: INCREASE IN PENETRATION
SCIENCEDIRECT: INCREASE IN USAGE
0
2
4
6
8
10
12
14
16
Jan99
Feb99
Mar99
Apr99
May99
Jun99
Jul99
Aug99
Sep99
Oct99
Nov99
Dec99
Jan00
Feb00
Mar00
Apr00
May00
Jun00
Jul00
Aug00
Sep00
Oct00
Nov00
No of Page Views
m
HARCOURT: STM
• Excellent fit with Elsevier Science
• Outstanding portfolio in Science and Medical
• Strong platform for faster internet growth
• Well positioned to take on integration and expansion
ACCELERATE REVENUE AND PROFIT GROWTH
SCIENCE & MEDICAL: 2001 PRIORITIES
• Further upgrade of ScienceDirect
- new customised products
- enrich content, including backfiles
- add navigation tools
• Broaden user base
- upsell existing users
- expand to new users
- increase overall usage
• Successfully integrate Harcourt STM
- reorganise medical operations on key clinical disciplines
- realise $40 million of synergies
- accelerate online solutions
LEGAL: DELIVERY OF STRATEGIC MILESTONES
• Deliver competitive online product v West
• Achieve parity preference in US Law Schools
• Introduce US small law turnaround programme
• Launch of legal portal
• Launch of significantly improved nexis.com product
• Investment in upgraded products, sales, marketing
• Targeted cost savings delivered
• Acquisitions to expand global capability and reach
LEGAL: SOUND BUSINESS MODEL
ACCELERATED MIGRATIONACCELERATED IGRATION
ACCELERATED REVENUE GROWTH
CUSTOMER PREFERENCEINTERNET MIGRATION
US LAW SCHOOL PREFERENCE
SMALL LAWPROGRAMME
UPGRADEDSALES AND MARKETING
COMPETITIVEPRODUCTlexis.comnexis.com
HIGHER USAGE
NEWSALES
STRONGERRENEWALS
LEGAL : PRODUCT UPGRADE PROGRAMME
TAXCCH/Tax Analysts
LEGALExpanded E-treatises
Improved Linkages
CITATORFunctionality
Upgrade
CASE SUMMARIES300 700 Editors
$19m Investment in 2001
WEB RELIABILITYPrivate Nodes
EASE OF USENew lexis.com
New WebSphere Platform
NEWS & BUSINESSFT Profile/
Company Dossier
PUBLIC RECORDSRiskwise/Corp America
Acquisitions
LEGAL: US LAW SCHOOL PROGRAMME
0
10
20
30
40
50
60
Fall 1997 Fall 1998 Spring1999
Fall 1999 Spring2000
Fall 2000
%
LEXIS Preference Overall
1519
22
3235
54
LAUNCH OF LEGAL PORTAL FOR US SMALL LAW
+13% REVENUE; STRONG SHARE GROWTHOUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%JANUARY 2001: 43,500 REGISTERED USERS, 8.2M PAGE VIEWS, AVERAGE TIME 18 MINUTES
LexisONE.com
Paid LegalResearch
Legal and Business News
ClientDevelopment
Community
Legal FirmSuppliesPractice
Management
ProfessionalDevelopment
Travel, SportsEntertainment etc
Legal InternetGuide
Free CaseLaw, Forms etc
LEGAL: NEXIS.COM RELAUNCH
SUBSTANTIAL REVENUE PROGRESS: +18%
SUBSTANTIAL REVENUE PROGRESS: +18%
+13% REVENUE; STRONG SHARE GROWTHOUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%REVENUE GROWTH TURNAROUND: 2000: +4%; 1999: -4%
Plain EnglishSearch
Simple SearchResults Reports
Point and Click Access to News, Company, Legislative Sources
Tailored Results
LEGAL: ACQUISITIONS AND ALLIANCES
+13% REVENUE; STRONG SHARE GROWTHOUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%
US Legal MealeysCCH allianceTax Analysts alliance
State code publishingLong term licenseLong term license
US Corporate/Federal FT ProfileRiskwisePress Access
FT archive and licenseOnline validationMedia database and planningsoftware
International PublitecsaEclipseConosurTHC Press
ChileUKChileHong Kong
BUILDING GLOBAL CAPABILITY
LEGAL: 2001 PRIORITIES
• Continued product upgrade: content, customisation, functionality
• Build targeted marketing/sales efforts behind upgraded products
• Monetise increased usage
• Improve print performances within on-line migration strategy
• Adopt Lexis Nexis as global brand and product platform
• Expand geographical presence in key markets
EDUCATION: 2001 PRIORITIES
• Maintain momentum in existing business
- continued share progress in UK
- capitalise on new Rigby supplemental programmes
• Integrate Harcourt Education and Testing businesses
- maintain momentum in US state adoptions
- combine Steck-Vaughn and Rigby
- step up investment in US secondary
- accelerate Testing through Internet delivery and services
- expand e-learning programme: +18%
• Investment programme driving print growth
• Successful launch of Internet portals
• Expansion of portfolio through acquisitions and launches
• Major cost savings delivered
• Global division established
• Focus on fewer, faster growing sectors
BUSINESS: DELIVERY ON STRATEGIC MILESTONES
BUSINESS: NEW AND UPGRADED PORTALS LAUNCHED
INTERNET B2B REVENUE GROWTH
SUBSTANTIAL REVENUE PROGRESS: +18%
SUBSTANTIAL REVENUE PROGRESS: +18%
+13% REVENUE; STRONG SHARE GROWTH
• Traffic and revenues building
• Size of market opportunity smaller
• Investment slightly reduced and reprioritised
0
20
40
60
80
1999 2000 2001
Organic Including Acquisitions
15
39
70
£m
BUSINESS: PORTFOLIO REFOCUS AND EXPANSION
+13% REVENUE; STRONG SHARE GROWTHOUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%FEWER, FASTER GROWING, HIGHER QUALITY SECTORS
Construction
Entertainment
Global Chemicals
European Exhibitions
Travel
US Auto, Metals, Food Processing
Tuition Businesses
Bowker Directories
Non Core Titles, Exhibitions, Reference
+ -
Electronics
• Maintain print momentum through upgraded product/sales programmes
• Maximise revenues and returns from internet programme
• Drive global strategy: organisation, portfolio, platforms, acquisitions/disposals
• Complete integration of CMD Group and Miller Freeman Europe
• Respond quickly to changing economic environment
BUSINESS: 2001 PRIORITIES
INTERNET REVENUES
+13% REVENUE; STRONG SHARE GROWTHOUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%2000 TARGET EXCEEDED
0
200
400
600
800
1000
1999 2000 2001 2002
Target
436
120
Actual
700
1000£m
PROGRESS ON HARCOURT ACQUISITION
• Results (year to October 2000) reaffirmed very positive momentum
• Meetings with management encouraging and confirmed opportunity
• Integration plans well advanced
• Strategies and programmes for growth developing well
CONCLUSIONS: 2000
• Organisational issues addressed
• Clear, customer led growth strategies and targets
• Investment programme showing real benefits
• Increasing evidence of business turnaround
• Harcourt acquisition is substantial opportunity
KEY OBJECTIVES FOR 2001
• Drive benefits from strengthened management structure
• Continue to execute effectively against strategic milestones
• Accelerate revenue growth, exceeding market growth in 75% of businesses
• Grow operating margin through increased efficiency
• Accelerate profit growth strongly towards double digit
• Integrate Harcourt successfully
ARCOURT: FINANCING
ACCELERATED REVENUE AND PROFIT GROWTHPreliminary Results 2000Execution and Delivery on Strategy
Appendices
% % £m change €m change
1999 Turnover 3390 5153
Base businesses 146 +5% 237 +5%
1999 & 2000 acquisitions 205 +6% 336 +6%
Disposals (59) -2% (97) -2%
Currency translation effect 86 +2% 551 +11%
2000 Turnover 3,768 +11% 6180 +20%
TURNOVER: RECONCILIATION
INVESTMENT SPEND
Science Legal Business Education
£35m/€57m
£126m/€205m
£105m/€171m
2000 TOTAL: £270m/€440m
• Applied to product upgrade, sales and marketing• £10m/€16m higher than budgeted• Additional £20m/€32m budgeted in 2001
£4m/€7m
COST SAVINGS
Science Legal Education Business Centre
2000 TOTAL: £143m/€235m
£19m/€31m
£53m/€87m£61m/€100m
£8m/€13m
£2m/€3m
• Principally production, infrastructure and support staff• £13m/€21m ahead of plan• On track to deliver targeted £170m/€278m savings in 2001
Interim Final
2000 1999 % change 2000 1999 % change
Reed Int (p) 3.10 4.60 -33% 6.90 5.40 +28%
UK tax credit rate 10% 10% 10% 10%
Reed Int (gross) (p) 3.44 5.11 7.67 6.00 +28%
Equalisation ratio 1.538 1.538 1.538 1.538
Exchange rate (€:£) 1.62 1.50 1.57 1.62
Elsevier (€) 0.09 0.12 -25% 0.19 0.15 +27%
DIVIDEND EQUALISATION
2000 1999
£m £m
Adjusted profit attributable 511 527 838 801
Amortisation of goodwill and
intangible assets (468) (373) (768) (567)
Exceptional items (10) (217) (16) (329)
Reported profit attributable 33 (63) 54 (95)
Reed International EPS 1.0p (3.4)p
Elsevier EPS €0.04 €(0.07)
2000 1999
€m €m
REPORTED PROFIT ATTRIBUTABLE
ACQUISITIONS
Science EndeavorAfferent
Legal Conosur and PublitecsaEclipseRiskwiseFT ProfileMealeyPress AccessCorpAmerica
Business CMDe:LogicMarket Cast/LA411SchnellInstitut VerlagMiller Freeman Europe
TOTAL ACQUISITION SPEND £952M/€1562m; CONTRIBUTION AHEAD OF PLAN
DISPOSAL PROGRAMME
Science Springhouse
Legal RTIS
Business Tuition businessesREZsolutionsKG SaurUS Exhibitions
TOTAL 2000 DISPOSAL PROCEEDS: £153M/€251M
In Progress OAG WorldwideCahners Travel Group Bowker
EXCEPTIONAL ITEMS
2000 1999 2000 1999 12 months to 31 December £m £m €m €m
Reorganisation costs (77) (161) (126) (244)
Acquisition related costs (38) (28) (63) (43)
Year 2000 compliance costs - (50) - (76)
Charged to operating profit (115) (239) (189) (363)
Net profit on sale of businesses 85 7 140 11 and fixed asset investments
Total exceptional charge (30) (232) (49) (352)
Net tax credit 20 15 33 23
Sales by Market Sales by Source
57%
14%
6%
13%
10%
North America UK
The Netherlands Rest of Europe
Rest of World
17%
24%
10%10%
39%
Circulation Advertising
Exhibitions Other
Subscriptions
SALES BY MARKET AND SOURCE
Exchange rate to £1:
2000 1999
US Dollar 1.51 1.62
Euro 1.64 1.5233%
29%
31%
7%
US Dollar UK Sterling
Euro Other
CURRENCY PROFILE: ADJUSTED PROFIT BEFORE TAX
Exchange rate to €1:
2000 1999
US Dollar 0.92 1.06
Sterling 0.61 0.66
BALANCE SHEET
Goodwill/intangible assets
Tangible fixed assets
Working capital/othernet liabilities
2000
£m £m €m €m
4127 3400
Shareholders’ funds
Provisions and minorities
Net debt
416 386
(934)
3609
3041
135
433
Capital Employed 3609 3042
(744)
3042
1855
121
1066
1999 19992000
6644 5474
670 622
(1504) (1196)
5810 4900
4896
217
697
2987
196
1717
5810 4900
2000 1999 2000 1999
£m £m €m €m
Adjusted operating cash flow 775 780 1271 1186
Interest (104) (81) (171) (123)
Tax (141) (173) (231) (262)
Dividends (196) (339) (321) (515)
Free cash inflow 334 187 548 286
FREE CASH FLOW
12 months to 31 December