RELX

SEC Filing Summary: RELX PLC (Reed International P.L.C. & Elsevier NV)

Business Context and Reporting Period

This Form 20-F Annual Report covers the fiscal year ended December 31, 1999, for Reed International P.L.C. (U.K.) and Elsevier NV (Netherlands), collectively operating as Reed Elsevier. The company is a global leader in scientific, legal, and business publishing and information services. The reporting period reflects a strategic pivot toward Internet-based delivery, significant restructuring costs, and the adoption of the Euro by Elsevier.

Key Financial Metrics (Year Ended Dec 31, 1999)

Note: USD figures are translated at the year-end rate of $1.615/£1.00. Adjusted figures exclude amortization of goodwill and exceptional items.

Material Changes vs. Prior Period

• Revenue Growth: Total turnover increased 6% to £3,390 million. Continuing operations grew 7% at actual rates (6% at constant exchange rates), driven by acquisitions (e.g., Cell Press) and the full-year impact of 1998 acquisitions (Matthew Bender, Shepard's).
• Profitability Decline: GAAP operating profit fell 50% to £180 million, and the company reported a net loss of £63 million. This contrasts sharply with 1998's profit of £772 million.
• Exceptional Items: The decline is primarily due to £232 million in exceptional costs, including £161 million for a major reorganization program, £50 million for Year 2000 compliance, and acquisition integration costs. In 1998, exceptional items included a £692 million gain from the sale of IPC Magazines.
• Segment Performance:
  • Scientific: Turnover up 5%; Adjusted operating profit up 4%.
  • Legal: Turnover up 15%; Adjusted operating profit down 2% due to heavy investment in product development and sales.
  • Business: Turnover up 3%; Adjusted operating profit down 9%, impacted by weak advertising demand in U.S. manufacturing and electronics sectors.

Guidance, Outlook, and Risks

• Strategic Investment: Management plans to invest approximately £260 million in 2000 on new development initiatives, with a three-year total investment target of £750 million, focusing on Internet portals and e-commerce.
• Dividend Policy: To fund investment, the company reduced the equalized dividend by one-third from 1998 levels. The 1999 final dividend was reduced, and the 2000 interim dividend will also be reduced.
• Divestitures: The company plans to exit non-core businesses contributing ~£200 million in revenue, including OAG Worldwide and Springhouse Corporation.
• Risks:
  • Legal Proceedings: A lawsuit by Jurisline.com LLC challenges copyright and subscription agreements; a separate $6 billion claim by attorneys in the U.S. Virgin Islands is deemed baseless.
  • Market Risk: Exposure to interest rate fluctuations and foreign exchange rates (USD and Euro). The company uses hedging instruments to mitigate these risks.
  • Year 2000: Compliance costs totaled £114 million over the program life; the company reported negligible disruption during the millennium date change.

Investor Verification Checklist

• Adjusted vs. GAAP Earnings: Verify the sustainability of the £792 million adjusted operating profit versus the £63 million GAAP loss, specifically analyzing the £161 million restructuring charge.
• Dividend Sustainability: Confirm the long-term viability of the reduced dividend policy given the £750 million investment plan and current cash flow generation.
• Internet Migration: Assess the progress of the ScienceDirect and lexis.com platforms, which are central to the growth strategy, noting that only 4% of turnover was Internet-sourced in 1999.
• Legal Exposure: Monitor the status of the Jurisline.com litigation regarding database protection and subscription validity.
• Debt Structure: Review the £1,066 million net borrowing position and the maturity profile of the £1 billion committed credit facilities.