Business Context and Reporting Period
Company: RELX PLC (Reporting as Reed Elsevier, comprising Reed International P.L.C. and Elsevier NV)
Filing Type: Form 20-F Annual Report
Period Ended: December 31, 2000
Structure: Reed Elsevier is a collective reference to Reed International P.L.C. (UK), Elsevier NV (Netherlands), Reed Elsevier plc, and Elsevier Reed Finance BV. Reed International shareholders hold a 52.9% economic interest, while Elsevier shareholders hold 47.1%. The combined businesses operate in four segments: Science & Medical, Legal, Education, and Business.
Key Financial Metrics (Year Ended Dec 31, 2000)
| Metric | Combined (UK/Dutch GAAP) | Combined (US GAAP) |
|---|---|---|
| Turnover | £3,768 million ($5,635 million) | N/A (US GAAP Turnover not explicitly tabulated in summary) |
| Operating Profit | £210 million | £236 million (Continuing Ops) |
| Adjusted Operating Profit (Excl. amortization & exceptional items) |
£793 million ($1,186 million) | N/A |
| Profit Attributable to Shareholders | £33 million | £60 million |
| Adjusted Profit Attributable | £511 million ($764 million) | N/A |
| Net Borrowings | £433 million ($648 million) | £1,724 million (Long-term obligations less current) |
| Shareholders' Funds | £3,041 million ($4,548 million) | £3,707 million ($5,544 million) |
| Adjusted Operating Cash Flow | £775 million | N/A |
Note: US GAAP figures reflect significant adjustments for goodwill amortization and deferred taxation. Exchange rates used for convenience translation: £1.00 = $1.4955 (Noon Buying Rate at year-end).
Material Changes vs. Prior Period
- Revenue Growth: Turnover increased 11% to £3,768 million (5% underlying growth excluding acquisitions, disposals, and currency). North America contributed 57% of total turnover.
- Profitability: Reported profit before tax rose to £192 million from £105 million in 1999. However, Adjusted Operating Profit remained flat at £793 million (down 1% at constant exchange rates) due to significant investments in products and sales/marketing offset by cost savings.
- Exceptional Items: Net exceptional charge was £30 million in 2000 (reorganisation and acquisition costs), a significant improvement from the £232 million charge in 1999. This included an £85 million gain on the sale of businesses (Springhouse, KG Saur, REZsolutions).
- Amortization: Charge for goodwill and intangible assets increased to £468 million (from £373 million) due to acquisitions in 1999 and 2000.
- Segment Performance:
- Science & Medical: Turnover +7%, Adjusted Operating Profit +12%.
- Legal: Turnover +5%, Adjusted Operating Profit -19% (due to heavy investment in LEXIS-NEXIS U.S. products).
- Education: Turnover +9%, Adjusted Operating Profit +15%.
- Business: Turnover +12%, Adjusted Operating Profit +7%.
Guidance, Outlook, and Risks
Harcourt Acquisition
Reed Elsevier announced a definitive agreement to acquire Harcourt General, Inc.'s Scientific, Technical and Medical (STM) and U.S. Schools Education and Testing businesses for a net cost of approximately $4.5 billion. The transaction involves a cash tender offer for Harcourt and an on-sale of Harcourt's Higher Education and Corporate/Professional Services businesses to The Thomson Corporation for pre-tax proceeds of $2.06 billion.
Financing
To fund the acquisition, Reed International and Elsevier completed a joint international share offering in December 2000, raising £1.26 billion. Additional debt facilities of $6.5 billion were secured. Proforma net borrowings post-acquisition are estimated at £3.2 billion.
Key Risks
- Integration: Risks associated with integrating Harcourt operations and realizing anticipated synergies.
- Regulatory: The acquisition and on-sale are subject to regulatory approvals, which may require divestitures.
- Liabilities: Potential unknown contingent liabilities within Harcourt.
- Market: Dependence on advertising revenue (24% of total), intellectual property protection, and exchange rate fluctuations (USD/GBP and USD/EUR).
Investor Verification Checklist
- Harcourt Deal Closure: Verify the status of regulatory approvals for the Harcourt acquisition and the Thomson on-sale.
- Adjusted vs. GAAP Profit: Note the significant divergence between Adjusted Operating Profit (£793m) and Reported Operating Profit (£210m) due to £468m in amortization charges.
- Legal Segment Investment: Assess the long-term ROI of the heavy investment in LEXIS-NEXIS U.S. which caused a 19% drop in adjusted operating profit for the segment.
- Currency Exposure: Monitor the impact of USD/GBP and USD/EUR fluctuations on reported results, as North America represents 57% of turnover.
- Debt Levels: Review the proforma debt load of ~£3.2 billion post-Harcourt acquisition and the company's ability to service this debt.