HIGHLIGHTS
Strong financial performance
Adjusted earnings per share at constant currency +15%; strongest growth in a decade
Good underlying revenue growth +6% for Elsevier, LexisNexis and Reed Exhibitions businesses
Meaningful underlying margin improvement at 110 basis points
Return on capital increases for fifth successive year to 12.1% post tax

Major reshaping of portfolio
Sale of Harcourt Education fully completed; net proceeds of £2.0bn/€2.7bn returned to shareholders
£2.1bn/€2.7bn acquisition of ChoicePoint completed; business performance and integration going well
Divestment of Reed Business Information halted due to poor credit markets and deterioration in economic outlook

Restructuring programme on track and expanded
$290m restructuring announced February 2008 on track to deliver $200m annual savings by 2011
Restructuring programme expanded ($60m) and RBI now added ($160m)
The additional $220m restructuring targeting further $150m annual savings by 2011

Strong financial position
Strongly cash generative; conversion of adjusted operating profit into cash at 102%
Free cash flow of £999m/€1,259m before restructuring, acquisition spend and dividends
Refinancing of ChoicePoint acquisition facility on track
Term debt maturities well spaced; revolving credit facilities extended to 2012

Significant currency translation effects
Movement in average exchange rates boosts growth in adjusted eps expressed in sterling to 24% and constrains growth expressed in euros to 9%

2009 OUTLOOK
Challenging environment, Reed Elsevier resilient

Challenging economic environment; Elsevier and LexisNexis professional markets resilient but not immune; Reed Exhibitions and Reed Business Information business-to-business markets more impacted
Adjusted earnings growth at constant currencies expected to be positive
Significant positive currency translation impact on earnings reported in sterling, small benefit expressed in euros, at current exchange rates



Reed Elsevier’s Chief Executive Officer, Sir Crispin Davis, commented:


“Reed Elsevier has had a very successful year with major progress in developing the business, and the strongest constant currency adjusted eps growth in a decade. Good revenue growth was seen across most of the business driven by the growing demand for online information and workflow solutions. The revenue growth and a strong focus on restructuring and cost management delivered meaningful margin improvement and the operating cash generation was excellent. Whilst the economic environment has become progressively more challenging, our business is more resilient than most and we are in a strong financial position.

The year saw demonstrable progress across the business from our continued investment in new content and online product development. In Elsevier, subscription renewals reached record levels whilst other online solutions for the scientific and healthcare communities grew rapidly. Online legal information solutions have continued to expand, and there is growing demand for information analytics in the risk market. In legal research we see significant opportunities for more intuitive and interoperable offerings to enhance customer productivity and are stepping up our investment to reflect this. Reed Exhibitions had an exceptional year including the benefit of non annual shows cycling in. Reed Business Information held up well for most of the year, helped by the strong growth of its significant online franchises. In the last quarter, however, the business increasingly felt the impact on advertising markets of the global downturn.

The year has also seen a major reshaping of our business with completion of the sale of the remaining Harcourt Education businesses and the acquisition of ChoicePoint. ChoicePoint transforms our position in the risk information and analytics sector and the strategic and financial benefits are very attractive. The business has performed well with the insurance data and services business, which accounts for the substantial majority of ChoicePoint’s operating profits, delivering 10% year-on-year organic revenue growth. The integration with our existing risk business is progressing well and we are confident of achieving our savings and returns targets.

We were disappointed not to be able to sell Reed Business Information but the macro-economic environment and poor credit market conditions made it too difficult to structure a transaction on acceptable terms. Whilst the short term outlook for RBI is very challenging, RBI is a high quality business, with a strong management team and a record of success in developing online services. It remains our intention to divest RBI in the medium term when conditions are more favourable.

The $290m restructuring programme announced in February 2008 is progressing well and is expected to deliver a 2½ year cash payback, with the targeted 2008 cost savings of $30m delivered and the targeted $200m annual savings by 2011 on track. The scope of the programme has now been expanded both to include the RBI business and to add further restructuring and consolidation opportunities which have been identified reflecting the good progress made and the more challenging economic environment. The further targeted savings represent a 2½ year cash payback on $220m additional restructuring costs, with additional targeted annual savings of $150m by 2011; the bulk of this represents the inclusion of RBI in the programme.

Following the return to shareholders of £2.0bn/€2.7bn of net proceeds from the Harcourt Education sale and the £2.1bn/€2.7bn acquisition of ChoicePoint, Reed Elsevier remains in a strong financial position, with excellent cash flow generation. In January 2009 we issued $1.6bn of term debt as part of our planned refinancing of the ChoicePoint acquisition facility and Reed Elsevier’s term debt maturities are well spaced over the next few years. In February 2009 we extended our revolving credit facilities beyond the 2010 maturity. Over the next 12-18 months our focus is on repayment of debt out of cash flow and to restore Reed Elsevier’s credit ratios to more usual levels.

Turning to the outlook, 2009 is clearly going to be a more difficult year with most of the world’s largest economies currently in recession. The key professional markets served by Elsevier and LexisNexis (which account for over 80% of Reed Elsevier’s adjusted operating profits), whilst not immune to the impact of the economic downturn, are more resilient than most, and these businesses benefit from a strong subscription base and the growing demand for online solutions. In business-to-business markets the demand for advertising and marketing services is much more affected by the tougher economic environment. Our businesses here are expected to show a significant profit decline this year, including the major effect in our exhibitions business of the net cycling out of biennial shows.

Overall, with the cost actions we are taking, while continuing to invest in new and upgraded online products, Reed Elsevier should see positive adjusted eps development at constant currencies. Whilst the short term outlook is more challenging, the portfolio restructuring, continued development of workflow solutions and the aggressive cost programme are standing Reed Elsevier in good stead for the future.

In March, Ian Smith will succeed me as Chief Executive Officer. Ian joined us at the beginning of the year and has spent most of his time with our businesses and in meeting customers. He will make a meaningful impact in the development and success of Reed Elsevier and I wish him well for the future. Reed Elsevier is a very fine business.”