REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
The first half of 2004 saw continued good progress across the business. The science and medical business has seen strong subscription renewals and growing online sales and the book publishing programme is well
positioned for the important second half. The legal business has continued to perform well in its markets with good growth in new electronic services. The education business is on track to perform well in a weak market, with successful textbook publishing and new state testing contracts. The business division is seeing stabilisation in underlying revenues as markets recover although some geographies and sectors remain difficult.
Our investment programme continues to deliver outperformance in our markets and good progress is being made with the additional investment committed across our business this year. Recent acquisitions have accelerated our strategic progress.
We remain on track to deliver on our stated 2004 goals of above market revenue growth and mid to high single digit adjusted earnings per share growth at constant exchange rates.

Financial Results
Total revenues in the six months to 30 June 2004 were up 4% at constant exchange rates. At reported exchange rates, revenues were 3% lower to £2,263m/2% lower to €3,349m due to the effect on currency translation of the relative weakness of the US dollar in comparison with the prior first half. The underlying performance of the business is unaffected by these translation differences.
Adjusted pre-tax profits were 11% higher at constant exchange rates, from a 6% increase in adjusted operating profits and a lower net interest charge. This strong result was boosted by the contribution from a number of exhibitions that take place every other year. At reported rates, adjusted pre-tax profits were
up 6% to £433m/8% to €641m. Adjusted figures are stated before amortisation of goodwill and intangible assets and exceptional items.
The science and medical business, Elsevier, has had a satisfactory start to the year with strong subscription renewals and good growth in online sales. Revenues were up 3% at constant exchange rates whilst adjusted operating profits were 3% lower reflecting revenue and cost phasing within the business including investment. The second half weighted publishing programme should accelerate revenue growth, resulting in a satisfactory profit performance for the year after taking into account the additional investment in new electronic services.
The legal business, LexisNexis, has continued to perform well. Although US legal markets remain somewhat subdued, strong growth is being seen from our recent acquisitions and investments in areas beyond core research, such as electronic discovery and risk management, and in international markets.
Revenues and adjusted operating profits were up 5% and 11% respectively at constant exchange rates, or both up 4% excluding acquisitions and disposals. Underlying adjusted operating profit growth is expected to be stronger in the second half given the timing of investment and cost savings when compared with the prior year.
The education business, Harcourt Education, has had a good start to the year with strong wins in US state textbook adoption opportunities and good growth in open territories and testing. The US market is however still expected to be lower this year due to the trough in the adoption cycle and the cautious funding environment, and the first half results are unrepresentative of the year as a whole since the vast majority of sales and profits are generated in the second half. Revenues and adjusted operating profits were up 3% and 11% respectively at constant exchange rates and are flattered by an earlier call for
product this year from some school districts ahead of the new academic year.
The business division, Reed Business, performed well in the first half, in part through the benefit of nonannual exhibitions, but also with encouraging signs of an emerging recovery in some of its key markets.
Advertising across a number of sectors is starting to see some recovery in the US although the manufacturing sector remains difficult. In Europe, UK recruitment advertising has grown strongly, although tempered by the continuing economic difficulties in the Netherlands. Revenues were 4% ahead at constant exchange rates, whereas adjusted operating profits were up 17% including the contribution of exhibition joint ventures cycling in in the first half. Whilst the second half should see some improvement in advertising sales, the exhibition business will see a number of non-annual shows cycling out, to deliver, as previously indicated, an overall performance for the division at least comparable to the prior year.
Amortisation of goodwill and intangible assets at £193m/€286m was £33m/€43m lower than in the prior first half, principally as a result of currency translation effects and some past acquisitions becoming fully amortised. Exceptional pre-tax charges of £18m/€27m relate to acquisition integration and other restructuring costs.
The reported profit before tax, including amortisation of goodwill and intangible assets and exceptional items, was £222m/€328m, compared to £216m/€315m in the 2003 first half.

Parent company earnings and dividends
For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, the adjusted earnings per share were up 11% at constant exchange rates. The adjusted earnings per share at reported exchange rates were up 6% for Reed Elsevier PLC at 13.4p and up 7% for Reed Elsevier NV at €0.30. The reported earnings per share, including the amortisation of goodwill and intangible assets and exceptional items, were for Reed Elsevier PLC 4.5p (2003: 3.9p) and for Reed Elsevier NV €0.10 (2003: €0.09).
The equalised interim dividends are 3.4p, up 3%, for Reed Elsevier PLC and €0.09, up 13%, for Reed Elsevier NV. The difference in dividend growth rates reflects the impact of the appreciation of sterling against the euro since last year’s interim dividend declaration.

Outlook
We are encouraged by the first half performance. Our businesses are performing well in their respective markets with a clear focus on building our revenue potential whilst tightly managing costs.
We continue to target for 2004 above market revenue growth and mid to high single digit growth in adjusted earnings per share at constant currencies, reflecting the overall low market growth environment this year and the expansion of our investment programme.
The outlook beyond this year is encouraging with recovery expected in education and business markets and a continued good return from the investments we are making to accelerate our long term revenue growth. Reed Elsevier expects to deliver on its long term targets of above market revenue growth and double digit adjusted EPS growth at constant currencies in 2005 and beyond.