RELX

Business Context and Reporting Period

Company: Reed Elsevier PLC and Reed Elsevier NV (collectively "Reed Elsevier")
Filing Type: Form 6-K (Interim Results)
Reporting Period: Six months ended 30 June 2005
Accounting Basis: First-time adoption of International Financial Reporting Standards (IFRS); comparative 2004 figures restated.

Key Financial Metrics

Note: Adjusted figures exclude amortisation of acquired intangible assets, acquisition integration costs, and gains/losses on disposals.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 6% at constant exchange rates. Organic growth was 3%, with momentum expected to accelerate in the second half due to seasonality in Education and Health Sciences.
• Profitability: Adjusted operating profit rose 5% at constant currencies. Reported profit remained relatively flat due to higher amortisation charges (£131m) from recent acquisitions (Saxon, Seisint) and currency translation effects.
• Segment Performance:
  • LexisNexis: Revenue +13% (organic +6%); Adjusted operating profit +25%. Driven by online workflow tools and risk management (Seisint).
  • Elsevier: Revenue +5% (organic +4%); Adjusted operating profit flat. Strong subscription renewals and online growth offset by cost phasing.
  • Harcourt Education: Revenue +4% (organic flat); Adjusted operating profit -33%. First-half results are unrepresentative due to seasonal sales cycles; strong textbook adoptions expected in H2.
  • Reed Business: Revenue +3% (organic +2%); Adjusted operating profit +1%. Online growth offset by advertising weakness in Europe and US manufacturing.
• Debt: Net borrowings increased by £381m (€770m) primarily due to dividend payments, acquisition spend, and adverse foreign exchange translation effects from a stronger US dollar.

Guidance, Outlook, and Risks

• 2005 Guidance: Management reaffirms targets of at least 5% organic revenue growth and double-digit growth in adjusted earnings per share at constant currencies.
• Outlook: Strong second-half performance is anticipated, driven by the seasonal bias of Harcourt Education sales and Elsevier Health Sciences book publishing. Momentum in LexisNexis and Reed Business online services is expected to continue.
• Acquisitions: Completion of MediMedia MAP (€270m) is expected shortly, strengthening positions in French, Spanish, and Italian medical markets.
• Risks & Contingencies:
  • Legislative Delays: Harcourt Education's 9-10% organic growth target assumes resolution of funding delays for Texas textbook adoptions.
  • Accounting Transition: First-year adoption of IFRS impacts reported figures (e.g., pension costs, share-based remuneration, deferred tax), though growth rates remain comparable to prior UK GAAP.
  • Market Conditions: Advertising weakness in continental Europe and US manufacturing sectors continues to impact Reed Business.

Investor Verification Checklist

• Seasonality Impact: Verify the extent to which H1 results for Harcourt Education and Elsevier Health Sciences understate full-year performance due to second-half revenue concentration.
• IFRS Adjustments: Review Note 5 reconciliations to understand the specific impact of IFRS adoption on net profit and equity compared to previous UK GAAP reporting.
• Organic vs. Acquired Growth: Distinguish between organic growth (3% H1) and total growth (6% H1) to assess underlying business momentum versus M&A contribution.
• Currency Exposure: Assess the impact of the strengthening US dollar on net borrowings and reported earnings, as significant translation effects occurred in the period.
• Texas Funding: Monitor the status of Texas legislative funding for school adoptions, which is a key assumption for Harcourt Education's full-year targets.