SEC Filing Summary: RELX PLC (Reed International P.L.C. / Elsevier NV)
Business Context and Reporting Period
Filing Type: Form 20-F (Annual Report)
Registrants: Reed International P.L.C. (England) and Elsevier NV (Netherlands)
Reporting Period: Fiscal year ended December 31, 1998
Business Overview: Reed Elsevier is a global leader in scientific, professional, and business publishing and information services. The company operates through a unique dual-listed structure where Reed International and Elsevier each hold a 50% interest in Reed Elsevier plc (operating businesses) and share economic interests in the combined group. In 1998, the company completed a major strategic refocus by divesting its consumer publishing businesses (IPC Magazines and consumer book operations) to concentrate on high-margin professional and scientific markets.
Key Financial Metrics (1998)
| Metric | Reed Elsevier Combined (U.K./Dutch GAAP) | Reed International (U.K. GAAP) | Elsevier (Dutch GAAP) |
|---|---|---|---|
| Net Sales | L3,191 million | -- (Holding Company) | -- (Holding Company) |
| Net Income | L772 million | L396 million | Dfl1,266 million |
| Adjusted Operating Income (Excl. exceptional items & amortization) |
L813 million | -- | -- |
| Operating Margin (Continuing Ops, Adjusted) |
25.7% | -- | -- |
| Total Assets | L5,760 million | L1,292 million | Dfl3,826 million |
| Shareholders' Equity | L2,130 million | L1,127 million | Dfl3,333 million |
| Net Borrowings | (L962 million) | -- | -- |
| Cash & Short-term Investments | L708 million | -- | -- |
Note: Reed International and Elsevier are holding companies; their financial statements reflect their equity interest in the combined businesses. Combined figures are presented in Pounds Sterling (L). Exchange rates used: $1.66 = L1.00; $0.53 = Dfl1.00.
Material Changes vs. Prior Period
- Revenue: Total net sales decreased 7% to L3,191 million from L3,417 million in 1997. This decline is primarily due to the divestment of consumer publishing businesses (Discontinued Operations). Excluding these disposals, continuing operations sales increased 6% (8% at constant exchange rates).
- Profitability: Reported net income surged to L772 million from a net loss of L14 million in 1997. This improvement is largely driven by a L692 million exceptional gain from the sale of IPC Magazines. On an adjusted basis (excluding exceptional items and amortization), net income decreased 6% to L571 million.
- Segment Performance:
- Scientific: Sales up 9%; Adjusted operating income down 3% due to lower journal subscriptions in Asia and investment in electronic initiatives (ScienceDirect).
- Professional: Sales up 7%; Adjusted operating income up 11%, driven by the acquisition of Matthew Bender and Shepard's.
- Business: Sales up 4%; Adjusted operating income down 9%, impacted by a decline in Travel publishing businesses and investment in operational restructuring.
- Acquisitions: Significant acquisition spending of L1,232 million in 1998, including Matthew Bender and the remaining 50% of Shepard's (L1.0 billion).
Guidance, Outlook, and Risks
- Management Commentary: Management emphasizes a strategy of focusing on leading positions in professional, scientific, and business information markets. The company is heavily investing in electronic distribution (e.g., ScienceDirect, LEXIS-NEXIS web services) to complement print products.
- Year 2000 Compliance: A major risk area. Compliance costs in 1998 were L53 million, with an additional L40 million forecast for 1999. Total estimated costs are approximately L100 million. Management aims to complete remediation of critical systems by mid-1999.
- European Economic and Monetary Union (EMU): The introduction of the euro on January 1, 1999, is expected to have a low initial impact due to limited cross-border trade, though systems conversion is underway.
- Travel Publishing Restructuring: The company is completing a recompense program for advertisers affected by circulation irregularities in Reed Travel Group publications, a significant issue in 1997 that continued to impact 1998 results.
- Management Structure: The company announced a move to a unitary management structure with a single non-executive Chairman and sole Chief Executive Officer, effective in 1999.
Investor Verification Checklist
- Adjusted vs. Reported Earnings: Verify the distinction between reported net income (heavily influenced by the L692 million gain on IPC Magazines sale) and adjusted net income (L571 million) to assess underlying operational performance.
- Goodwill Amortization: Confirm the impact of the new U.K. accounting standard (FRS 10) adopted in 1998, which requires capitalization and amortization of goodwill over 20 years, significantly increasing non-cash charges compared to prior years.
- Year 2000 Exposure: Assess the sufficiency of the L100 million budget for Y2K compliance and the status of third-party supplier readiness.
- Travel Segment Recovery: Monitor the completion of the advertiser recompense program and the stabilization of the Travel publishing segment's operating margins.
- Currency Sensitivity: Review the impact of exchange rate fluctuations, particularly the strengthening of the Sterling against the U.S. Dollar and Dutch Guilder, which reduced reported sales and income by L62 million and L14 million respectively in 1998.