As filed with the Securities and Exchange Commission on March 12, 20122013
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Or
þ | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20112012
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Or
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-3334 | Commission file number: 1-13688 |
REED ELSEVIER PLC | REED ELSEVIER NV | |
(Exact name of Registrant as specified in its charter) | (Exact name of Registrant as specified in its charter) | |
England | The Netherlands | |
(Jurisdiction of incorporation or organisation) | (Jurisdiction of incorporation or organisation) | |
1-3 Strand, London, WC2N 5JR, England | Radarweg 29, 1043 NX, Amsterdam, The Netherlands | |
(Address of principal executive offices) | (Address of principal executive offices) | |
Henry Udow | Jans van der Woude | |
Company Secretary | Company Secretary | |
Reed Elsevier PLC | Reed Elsevier NV | |
1-3 Strand, London, WC2N 5JR, England | Radarweg 29, 1043 NX, Amsterdam, The Netherlands | |
011 44 20 | 011 31 20 485 2222 | |
henry.udow@reedelsevier.com | j.vanderwoude@reedelsevier.com | |
(Name, telephone, e-mail and/or facsimile number and address of Company Contact Person) | (Name, telephone, e-mail and/or facsimile number and address of | |
Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of exchange on which
| |
Reed Elsevier PLC: | ||
American Depositary Shares | New York Stock Exchange | |
Ordinary shares of 14 51/116p each | New York Stock Exchange* | |
Reed Elsevier NV: | ||
American Depositary Shares | New York Stock Exchange | |
Ordinary shares of €0.07 each | New York Stock Exchange* |
* | Listed, not for trading, but only in connection with the listing of the applicable Registrant’s American Depositary Shares issued in respect thereof. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of December 31, 2011:2012:
Reed Elsevier PLC: | Number of outstanding shares | |||||
Ordinary shares of 14 51/116p each | ||||||
Reed Elsevier NV: | ||||||
Ordinary shares of €0.07 each | ||||||
R shares of €0.70 each (held by a subsidiary of Reed Elsevier PLC) | 4,303,179 |
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨ No þ
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this filing.
¨ US GAAP þ International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrants have elected to follow:
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
Yes ¨ No þ
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ITEM 1: | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | N/A | ||||
ITEM 2: | OFFER STATISTICS AND EXPECTED TIMETABLE | N/A | ||||
ITEM 3: | KEY INFORMATION | 3 | ||||
3 | ||||||
7 | ||||||
ITEM 4: | INFORMATION ON REED ELSEVIER | 11 | ||||
11 | ||||||
13 | ||||||
24 | ||||||
24 | ||||||
24 | ||||||
ITEM 4A: | UNRESOLVED STAFF COMMENTS | N/A | ||||
ITEM 5: | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 25 | ||||
25 | ||||||
35 | ||||||
37 | ||||||
ITEM 6: | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | |||||
42 | ||||||
ITEM 7: | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | |||||
ITEM 8: | FINANCIAL INFORMATION | |||||
ITEM 9: | THE OFFER AND LISTING | |||||
ITEM 10: | ADDITIONAL INFORMATION | |||||
ITEM 11: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |||||
ITEM 12: | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Page | ||||||
ITEM 13: | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | N/A | ||||
ITEM 14: | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | N/A | ||||
ITEM 15: | CONTROLS AND PROCEDURES | |||||
ITEM 16A: | AUDIT COMMITTEE FINANCIAL EXPERT | |||||
ITEM 16B: | CODES OF ETHICS | |||||
ITEM 16C: | PRINCIPAL ACCOUNTANT FEES AND SERVICES | |||||
ITEM 16D: | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | |||||
ITEM 16E: | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | |||||
ITEM 16F: | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | |||||
ITEM 16G: | CORPORATE GOVERNANCE | |||||
ITEM 17: | FINANCIAL STATEMENTS* | |||||
ITEM 18: | FINANCIAL STATEMENTS | F-1 | ||||
ITEM 19: | EXHIBITS | S-3 |
* | The registrants have responded to Item 18 in lieu of responding to this Item. |
THIS PAGE INTENTIONALLY BLANK
Reed Elsevier PLC and Reed Elsevier NV conduct their business through two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities. “Reed Elsevier” is not a legal entity but a collective reference to the separate legal entities of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures. The businesses of all of the entities comprising Reed Elsevier are collectively referred to in this annual report as “Reed Elsevier”, and the financial statements of the combined businesses are referred to as the “combined financial statements”. In this annual report, references to “we”, “our”, or “us” are to all of the entities comprising Reed Elsevier.
In this annual report, references to US dollars, $ and ¢ are to US currency; references to sterling, £, pence or p are to UK currency; references to euro and € are to the currency of the European Economic and Monetary Union.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This document contains or incorporates by reference a number of forward looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act 1934, as amended, with respect to:
— | financial condition; |
— | results of operations; |
— | competitive positions; |
— | the features and functions of and markets for the products and services we offer; and |
— | our business plans and strategies. |
We consider any statements that are not historical facts to be “forward looking statements”. These statements are based on the current expectations of the management of our businesses and are subject to risks and uncertainties that could cause actual results or outcomes to differ from those expressed in any forward looking statement. These differences could be material; therefore, you should evaluate forward looking statements in light of various important factors, including those set forth or incorporated by reference in this annual report.document.
Important factors that could cause actual results to differ materially from estimates or forecasts contained in the forward looking statements include, among others:
— | competitive factors in the industries in which we operate; |
— | demand for our products and services; |
— | exchange rate fluctuations; |
— | general economic, political and business conditions; |
— | legislative, fiscal, tax and regulatory developments and political risks; |
— | the availability of third party content and data; |
— | breaches of our data security systems or other unauthorised access to our databases; |
— | our ability to maintain high quality management; |
— | changes in law and legal interpretation affecting our intellectual property rights and internet communications; |
— | uncertainties as to whether our strategies, business plans and acquisitions will produce the expected returns; |
— | significant failures or interruptions of our electronic platforms; |
— | failure of third parties to whom we have outsourced business activities; |
— | changes in the market values of defined benefit pension scheme assets and in the market related assumptions used to value scheme liabilities; |
— | downgrades to the credit ratings of our debt; |
— | breaches of generally accepted ethical business standards or applicable statutes; |
— | our ability to manage our environmental impact; and |
— | other risks referenced from time to time in the filings of Reed Elsevier PLC and Reed Elsevier NV with the Securities and Exchange Commission (the |
The terms “estimate”, “project”, “plan”, “intend”, “expect”, “should be”, “will be”, “believe” and similar expressions identify forward looking statements. These forward looking statements are found at various places throughout this annual report and the other documents incorporated by reference in this annual report (see “Item 19: Exhibits” on pagepages S-3 and S-4 of this annual report).
You should not place undue reliance on these forward looking statements, which speak only as of the date of this annual report. We undertake no obligation to publicly update or release any revisions to these forward looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
REED ELSEVIER
The selected combined financial data for Reed Elsevier should be read in conjunction with, and is qualified by, the combined financial statements included in this annual report. In addition, as separate legal entities, Reed Elsevier PLC and Reed Elsevier NV prepare separate consolidated financial statements which reflect their respective shareholders’ economic interests in Reed Elsevier accounted for on an equity basis.
All of the selected financial data for Reed Elsevier set out below has been extracted or derived from the audited combined financial statements.
Combined Income Statement Data(1)
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2011(2) | 2011 | 2010 | 2009 | 2008 | 2007 | 2012(2) | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS: | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenue — continuing operations | $ | 9,603 | £ | 6,002 | £ | 6,055 | £ | 6,071 | £ | 5,334 | £ | 4,584 | ||||||||||||||||||||||||||||||||||||
Operating profit — continuing operations(3) | 1,928 | 1,205 | 1,090 | 787 | 901 | 888 | ||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 9,908 | £ | 6,116 | £ | 6,002 | £ | 6,055 | £ | 6,071 | £ | 5,334 | ||||||||||||||||||||||||||||||||||||
Operating profit(3) | 2,200 | 1,358 | 1,205 | 1,090 | 787 | 901 | ||||||||||||||||||||||||||||||||||||||||||
Net finance costs | (376 | ) | (235 | ) | (276 | ) | (291 | ) | (192 | ) | (139 | ) | (350 | ) | (216 | ) | (235 | ) | (276 | ) | (291 | ) | (192 | ) | ||||||||||||||||||||||||
Disposals and other non operating items(4) | (35 | ) | (22 | ) | (46 | ) | (61 | ) | (92 | ) | 63 | 73 | 45 | (22 | ) | (46 | ) | (61 | ) | (92 | ) | |||||||||||||||||||||||||||
Profit before tax — continuing operations | 1,517 | 948 | 768 | 435 | 617 | 812 | ||||||||||||||||||||||||||||||||||||||||||
Profit before tax | 1,923 | 1,187 | 948 | 768 | 435 | 617 | ||||||||||||||||||||||||||||||||||||||||||
Taxation(5) | (290 | ) | (181 | ) | (120 | ) | (40 | ) | (155 | ) | 82 | (183 | ) | (113 | ) | (181 | ) | (120 | ) | (40 | ) | (155 | ) | |||||||||||||||||||||||||
Net profit from continuing operations | 1,227 | 767 | 648 | 395 | 462 | 894 | ||||||||||||||||||||||||||||||||||||||||||
Net profit | 1,740 | 1,074 | 767 | 648 | 395 | 462 | ||||||||||||||||||||||||||||||||||||||||||
Net profit from discontinued operations(6) | — | — | — | — | 18 | 309 | — | — | — | — | — | 18 | ||||||||||||||||||||||||||||||||||||
Non-controlling interests | (11 | ) | (7 | ) | (6 | ) | (4 | ) | (4 | ) | (3 | ) | (8 | ) | (5 | ) | (7 | ) | (6 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||
Profit attributable to parent companies’ shareholders | 1,216 | 760 | 642 | 391 | 476 | 1,200 | 1,732 | 1,069 | 760 | 642 | 391 | 476 |
Combined Statement of Financial Position Data(1)
As at December 31, | As at December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2011(2) | 2011 | 2010 | 2009 | 2008 | 2007 | 2012(2) | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 17,829 | £ | 11,503 | £ | 11,158 | £ | 11,334 | £ | 12,866 | £ | 9,778 | $ | 17,843 | £ | 11,014 | £ | 11,503 | £ | 11,158 | £ | 11,334 | £ | 12,866 | ||||||||||||||||||||||||
Long term borrowings | (5,118 | ) | (3,300 | ) | (3,786 | ) | (4,028 | ) | (5,694 | ) | (2,002 | ) | (5,122 | ) | (3,162 | ) | (3,300 | ) | (3,786 | ) | (4,028 | ) | (5,694 | ) | ||||||||||||||||||||||||
Net assets | 3,405 | 2,197 | 1,970 | 1,759 | 981 | 2,976 | 3,749 | 2,314 | 2,197 | 1,970 | 1,759 | 981 | ||||||||||||||||||||||||||||||||||||
Non-controlling interests | (39 | ) | (25 | ) | (27 | ) | (27 | ) | (28 | ) | (11 | ) | (55 | ) | (34 | ) | (25 | ) | (27 | ) | (27 | ) | (28 | ) | ||||||||||||||||||||||||
Combined shareholders’ equity | 3,366 | 2,172 | 1,943 | 1,732 | 953 | 2,965 | 3,694 | 2,280 | 2,172 | 1,943 | 1,732 | 953 |
(1) | The combined financial statements are prepared in accordance with accounting policies that are in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”). The figures for |
(2) | Noon buying rates as at December 31, |
(3) | Operating profit |
(4) | Disposals and other non operating items comprise |
(5) | Taxation in |
(6) | Net profit from discontinued operations in 2008 includes the gain of £67 million on disposal of the educational assessment |
REED ELSEVIER PLC
The selected financial data for Reed Elsevier PLC should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier PLC included in this annual report. The results and financial position of Reed Elsevier PLC reflect the 52.9% economic interest of Reed Elsevier PLC’s shareholders in Reed Elsevier, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. These interests have been accounted for on an equity basis.
All of the selected consolidated financial data for Reed Elsevier PLC set out below has been extracted or derived from the audited financial statements of Reed Elsevier PLC.
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2011(3) | 2011 | 2010 | 2009 | 2008 | 2007 | 2012(3) | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS:(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Profit before tax(2) | $ | 624 | £ | 390 | £ | 328 | £ | 201 | £ | 247 | £ | 643 | $ | 884 | £ | 546 | £ | 390 | £ | 328 | £ | 201 | £ | 247 | ||||||||||||||||||||||||
Taxation | (2 | ) | (1 | ) | (1 | ) | (6 | ) | (6 | ) | (19 | ) | 10 | 6 | (1 | ) | (1 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||
Profit attributable to ordinary shareholders | 622 | 389 | 327 | 327 | 195 | 241 | 894 | 552 | 389 | 327 | 195 | 241 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier PLC ordinary share from total operations of the combined businesses | 50.3 | ¢ | 32.4 | p | 27.3 | p | 17.2 | p | 22.1 | p | 49.7 | p | 74.5 | ¢ | 46.0 | p | 32.4 | p | 27.3 | p | 17.2 | p | 22.1 | p | ||||||||||||||||||||||||
Earnings per Reed Elsevier PLC ordinary share from continuing operations of the combined businesses | 50.3 | ¢ | 32.4 | p | 27.3 | p | 17.2 | p | 21.2 | p | 36.6 | p | 74.5 | ¢ | 46.0 | p | 32.4 | p | 27.3 | p | 17.2 | p | 21.2 | p | ||||||||||||||||||||||||
Diluted earnings per Reed Elsevier PLC ordinary share from total operations of the combined businesses | 49.8 | ¢ | 32.1 | p | 27.1 | p | 17.1 | p | 21.9 | p | 49.1 | p | 73.5 | ¢ | 45.4 | p | 32.1 | p | 27.1 | p | 17.1 | p | 21.9 | p | ||||||||||||||||||||||||
Dividends per Reed Elsevier PLC ordinary share(4) | 32.0 | ¢ | 20.65 | p | 20.4 | p | 20.4 | p | 100.9 | p | 16.3 | p | 35.5 | ¢ | 21.9 | p | 20.65 | p | 20.4 | p | 20.4 | p | 100.9 | p | ||||||||||||||||||||||||
Total assets | $ | 1,796 | £ | 1,158 | £ | 1,037 | £ | 927 | £ | 515 | £ | 1,584 | $ | 1,955 | £ | 1,207 | £ | 1,158 | £ | 1,037 | £ | 927 | £ | 515 | ||||||||||||||||||||||||
Total equity/Net assets | 1,781 | 1,149 | 1,028 | 916 | 504 | 1,568 | 1,954 | 1,206 | 1,149 | 1,028 | 916 | 504 | ||||||||||||||||||||||||||||||||||||
Weighted average number of shares(5) | 1,202.0 | 1,202.0 | 1,199.1 | 1,131.4 | 1,089.5 | 1,256.5 | 1,200.6 | 1,200.6 | 1,202.0 | 1,199.1 | 1,131.4 | 1,089.5 |
(1) | The consolidated financial statements of Reed Elsevier PLC are prepared in accordance with accounting policies that are in conformity with IFRS as issued by the IASB and as adopted by the EU. The figures for |
(2) | Profit before tax includes Reed Elsevier PLC’s share of the post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax in 2008 includes Reed Elsevier PLC’s £10 million share of joint ventures’ post-tax gain on disposal of the educational assessment |
(3) | Noon buying rates as at December 31, |
(4) | The amount of dividends per Reed Elsevier PLC ordinary share shown excludes the UK tax credit available to certain Reed Elsevier PLC |
Dividends declared in the year, in amounts per ordinary share, comprise a |
Dividends per Reed Elsevier PLC ordinary share in respect of the financial year ended December 31, |
(5) | Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust. On January 7, 2008 the existing ordinary shares were consolidated into new ordinary shares on the basis of 58 new ordinary shares for every 67 existing ordinary shares. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the accompanying special distribution was paid. On July 30, 2009 Reed Elsevier PLC announced a share placing for 109,198,190 new ordinary shares, representing approximately 9.9% of the company’s share capital prior to the placing. The shares were fully subscribed at a price of 405p per share, raising £435 million, net of issue costs. This share placing was announced in conjunction with a similar share placing by Reed Elsevier NV. |
During 2012, Reed Elsevier PLC repurchased 23,288,616 Reed Elsevier PLC ordinary shares. |
REED ELSEVIER NV
The selected financial data for Reed Elsevier NV should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier NV included in this annual report. The results and financial position of Reed Elsevier NV reflect the 50% economic interest of Reed Elsevier NV’s shareholders in Reed Elsevier. These interests are accounted for on an equity basis.
All of the selected financial data for Reed Elsevier NV set out below has been extracted or derived from the audited consolidated financial statements of Reed Elsevier NV.
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2011(3) | 2011 | 2010 | 2009 | 2008 | 2007 | 2012(3) | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS:(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Profit before tax(2) | $ | 609 | € | 438 | € | 379 | € | 217 | € | 313 | € | 873 | $ | 871 | € | 660 | € | 438 | € | 379 | € | 217 | € | 313 | ||||||||||||||||||||||||
Taxation | (1 | ) | (1 | ) | (3 | ) | 2 | (19 | ) | (18 | ) | (3 | ) | (2 | ) | (1 | ) | (3 | ) | 2 | (19 | ) | ||||||||||||||||||||||||||
Profit attributable to ordinary shareholders | 608 | 437 | 376 | 219 | 294 | 855 | 868 | 658 | 437 | 376 | 219 | 294 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier NV ordinary share from total operations of the combined businesses | $ | 0.76 | € | 0.59 | € | 0.51 | € | 0.32 | € | 0.44 | € | 1.10 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier NV ordinary share from continuing operations of the combined businesses | $ | 0.76 | € | 0.59 | € | 0.51 | € | 0.32 | € | 0.43 | € | 0.84 | ||||||||||||||||||||||||||||||||||||
Diluted earnings per Reed Elsevier NV ordinary share from total operations of the combined businesses | $ | 0.76 | € | 0.59 | € | 0.51 | € | 0.31 | € | 0.44 | € | 1.09 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier NV share from total operations of the combined businesses | $ | 1.19 | € | 0.90 | € | 0.59 | € | 0.51 | € | 0.32 | € | 0.44 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier NV share from continuing operations of the combined businesses | $ | 1.19 | € | 0.90 | € | 0.59 | € | 0.51 | € | 0.32 | € | 0.43 | ||||||||||||||||||||||||||||||||||||
Diluted earnings per Reed Elsevier NV share from total operations of the combined businesses | $ | 1.17 | € | 0.89 | € | 0.59 | € | 0.51 | € | 0.31 | € | 0.44 | ||||||||||||||||||||||||||||||||||||
Dividends per Reed Elsevier NV ordinary share(4) | $ | 0.535 | € | 0.413 | € | 0.402 | € | 0.397 | € | 2.192 | € | 0.418 | $ | 0.60 | € | 0.456 | € | 0.413 | € | 0.402 | € | 0.397 | € | 2.192 | ||||||||||||||||||||||||
Total assets | $ | 1,768 | € | 1,364 | € | 1,203 | € | 1,036 | € | 567 | € | 2,089 | $ | 1,927 | € | 1,460 | € | 1,364 | € | 1,203 | € | 1,036 | € | 567 | ||||||||||||||||||||||||
Total equity/Net assets | 1,683 | 1,303 | 1,137 | 970 | 491 | 2,016 | 1,851 | 1,402 | 1,303 | 1,137 | 970 | 491 | ||||||||||||||||||||||||||||||||||||
Weighted average number of shares(5) | 735.3 | 735.3 | 734.5 | 693.9 | 669.0 | 774.9 | 734.0 | 734.0 | 735.3 | 734.5 | 693.9 | 669.0 |
(1) | The consolidated financial statements of Reed Elsevier NV are prepared in accordance with accounting policies that are in conformity with IFRS as issued by the IASB and as adopted by the EU. The figures for |
(2) | Profit before tax includes Reed Elsevier NV’s share of post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax in 2008 includes Reed Elsevier NV’s €11 million share of joint ventures’ post-tax gain on disposal of the educational assessment |
(3) | Noon buying rates as at December 31, |
(4) | Dividends declared in the year, in amounts per ordinary share, comprise a |
Dividends per Reed Elsevier NV ordinary share in respect of the financial year ended December 31, |
(5) | Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust and takes into account the R shares in the company held by a subsidiary of Reed Elsevier PLC, which |
During 2012 Reed Elsevier NV repurchased 12,660,296 Reed Elsevier NV ordinary shares and 62,341 R shares. |
EXCHANGE RATES
For a discussion of the impact of currency fluctuations on Reed Elsevier’s combined results of operations and combined financial position, see “Item 5: Operating and Financial Review and Prospects”.
The following tables illustrate, for the periods and dates indicated, certain information concerning the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00 and for the euro expressed in US dollars per €1.00. The exchange rate on February 15,27, 2012 was £1.00 = $1.57$1.51 and €1.00 = $1.31$1.31.
US dollars per £1.00 — Noon Buying Rates
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2011 | 1.55 | 1.60 | 1.67 | 1.54 | ||||||||||||
2010 | 1.56 | 1.55 | 1.64 | 1.43 | ||||||||||||
2009 | 1.62 | 1.57 | 1.70 | 1.37 | ||||||||||||
2008 | 1.45 | 1.85 | 2.03 | 1.44 | ||||||||||||
2007 | 2.00 | 2.00 | 2.11 | 1.92 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2012 (through February 15, 2012) |
| 1.59 | 1.57 | |||||||||||||
January 2012 |
| 1.58 | 1.53 | |||||||||||||
December 2011 |
| 1.57 | 1.54 | |||||||||||||
November 2011 |
| 1.61 | 1.55 | |||||||||||||
October 2011 |
| 1.61 | 1.54 | |||||||||||||
September 2011 |
| 1.62 | 1.54 | |||||||||||||
August 2011 |
| 1.66 | 1.62 |
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2012 | 1.62 | 1.59 | 1.63 | 1.53 | ||||||||||||
2011 | 1.55 | 1.60 | 1.67 | 1.54 | ||||||||||||
2010 | 1.56 | 1.55 | 1.64 | 1.43 | ||||||||||||
2009 | 1.62 | 1.57 | 1.70 | 1.37 | ||||||||||||
2008 | 1.45 | 1.85 | 2.03 | 1.44 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2013 (through February 27, 2013) |
| 1.58 | 1.51 | |||||||||||||
January 2013 |
| 1.63 | 1.57 | |||||||||||||
December 2012 |
| 1.63 | 1.60 | |||||||||||||
November 2012 |
| 1.61 | 1.58 | |||||||||||||
October 2012 |
| 1.62 | 1.59 | |||||||||||||
September 2012 |
| 1.63 | 1.59 | |||||||||||||
August 2012 |
| 1.59 | 1.55 |
US dollars per €1.00 — Noon Buying Rates
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2011 | 1.30 | 1.39 | 1.49 | 1.29 | ||||||||||||
2010 | 1.34 | 1.33 | 1.45 | 1.20 | ||||||||||||
2009 | 1.44 | 1.40 | 1.51 | 1.25 | ||||||||||||
2008 | 1.41 | 1.47 | 1.60 | 1.24 | ||||||||||||
2007 | 1.47 | 1.37 | 1.49 | 1.29 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2012 (through February 15, 2012) |
| 1.33 | 1.31 | |||||||||||||
January 2012 |
| 1.32 | 1.27 | |||||||||||||
December 2011 |
| 1.35 | 1.29 | |||||||||||||
November 2011 |
| 1.38 | 1.32 | |||||||||||||
October 2011 |
| 1.42 | 1.33 | |||||||||||||
September 2011 |
| 1.43 | 1.34 | |||||||||||||
August 2011 |
| 1.45 | 1.42 |
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2012 | 1.32 | 1.29 | 1.35 | 1.21 | ||||||||||||
2011 | 1.29 | 1.39 | 1.49 | 1.29 | ||||||||||||
2010 | 1.33 | 1.32 | 1.45 | 1.20 | ||||||||||||
2009 | 1.44 | 1.40 | 1.51 | 1.25 | ||||||||||||
2008 | 1.41 | 1.47 | 1.60 | 1.24 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2013 (through February 27, 2013) |
| 1.37 | 1.31 | |||||||||||||
January 2013 |
| 1.36 | 1.30 | |||||||||||||
December 2012 |
| 1.33 | 1.29 | |||||||||||||
November 2012 |
| 1.30 | 1.27 | |||||||||||||
October 2012 |
| 1.31 | 1.29 | |||||||||||||
September 2012 |
| 1.31 | 1.26 | |||||||||||||
August 2012 |
| 1.26 | 1.21 |
(1) | The average of the Noon Buying Rates on the last day of each month during the relevant period. |
Noon Buying Rates have not been used in the preparation of the Reed Elsevier combined financial statements, the Reed Elsevier PLC consolidated financial statements or the Reed Elsevier NV consolidated financial statements but have been used for certain convenience translations where indicated.
The key material risks to our business are included below. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.
We operate in a highly competitive environment that is subject to rapid change.
Our businesses operate in highly competitive markets. These markets continue to change in response to technological innovations, changing legislation, regulatory changes, the entrance of new competitors, and other factors. We cannot predict with certainty the changes that may occur and the effect of those changes on the competitiveness of our businesses. In particular, the means of delivering our products and services, and the products and services themselves, may be subject to rapid technological and other changes. We cannot predict whether technological innovations, changing legislation or other factors will, in the future, make some of our products wholly or partially obsolete or less profitable. Failure to anticipate market trends could impact the competitiveness of our products and services and consequently adversely affect our revenue and profit.
We cannot assure you that there will be continued demand for our products and services.
Our businesses are dependent on the continued acceptance by our customers of our products and services and the value placed on them. We cannot predict whether there will be changes in the future, either in the market demand or from the actions of competitors, which will affect the acceptability of products, services and prices to our customers.
Fluctuations in exchange rates may affect our reported results.
Our financial statements are expressed in pounds sterling and euros and are, therefore, subject to movements in exchange rates on the translation of the financial information of businesses whose operational currencies are other than our reporting currencies. The United States is our most important market and, accordingly, significant fluctuations in US dollar exchange rates can significantly affect our reported results and financial position from year to year. In addition, in some of our businesses we incur costs in currencies other than those in which revenues are earned. The relative movements between the exchange rates in the currencies in which costs are incurred and the currencies in which revenues are earned can significantly affect the results of those businesses.
Current and future economic, political and market forces, and dislocations beyond our control may adversely affect demand for our products and services.
The demand for our products and services may be impacted by factors that are beyond our control, including macro economic, political and market conditions, the availability of short term and long term funding and capital and the level of volatility of interest rates, currency exchange rates and inflation. The United States, Europe and other major economies have recently undergone a period of severe economic turbulence, and the global economic environment has recently been less favourable than in prior years and this may continue into the future. Any one or more of these factors may contribute to reduced activity by our customers, may result in a reduction of demand for our products and services, and may adversely affect suppliers and third parties to whom we have outsourced business activities. Further disruption to global credit markets, which has significantly contributed to the recent economic turbulence described above, could have further disruptive consequences for global economic growth and customer demand.
Changes in tax laws or uncertainty over their application and interpretation may adversely affect our reported results.
Our businesses operate worldwide and our earnings are subject to taxation in many differing jurisdictions and at differing rates. We seek to organise our affairs in a tax efficient manner, taking account of the jurisdictions in which we operate. However, tax laws that apply to our businesses may be amended or interpreted differently by the relevant authorities, which could adversely affect our reported results. In addition, disputes arise from time to time with tax authorities regarding the application of tax laws to our businesses.
Changes in regulation of information collection and use could adversely affect our revenues and our costs.
Legal regulation relating to internet communications, data protection, e-commerce, direct marketing, credit scoring and digital advertising, privacy, information governance and use of public records is becoming more prevalent. Existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, in the United States, the European Union and other jurisdictions may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. For example, many of the background screening report businessesproducts offered by LexisNexis Risk Solutions are governed by the US Fair Credit Reporting Act (“FCRA”), Graham Leach Bliley Act (“GLBA”), Drivers Privacy Protection Act (“DPPA”) and related state laws. Certain of 1970 and analogous statethese laws requiring that consumers be provided the contents of
background reports and allowed to have any inaccuracies in the reports corrected. It further providesprovide for statutory penalties and attorneyattorneys fees for non-compliance. We are unable to predict in what form laws and regulations will be adopted or modified or how they will be construed by the courts, or the extent to which any such laws or interpretation changes might adversely affect our business.
Changes in provision of third party information to us could adversely affect our businesses.
A number of our businesses rely extensively upon content and data from external sources to maintain our databases. Data is obtained from public records, governmental authorities, customers and other information companies, including competitors. In the case of public records, including social security number data which are obtained from public authorities, our access is governed by law. We also obtain the credit header data in our databases from consumer credit reporting agencies. The disruption or loss of data sources in the future, because of changes in the law or because data suppliers decide not to supply them, could adversely affect our businesses if we were unable to arrange for substitute sources in a timely manner or at all.
Our business, operations and reputation could be adversely affected by a failure to comply with FTC Settlement Orders.
Through our LexisNexis Risk Solutions business, we are party to two consent orders and two subsequent related supplemental orders (the “FTC Settlement Orders”) embodying settlements with the US Federal Trade Commission (“FTC”) that resolved FTC investigations into our compliance with federal laws governing consumer information security and related issues, including certain fraudulent data access incidents. We also entered into an Assurance of Voluntary Compliance and Discontinuance (“AVC”) with the Attorneys General of 43 states and the District of Columbia in connection with one such FTC investigation. The FTC Settlement Orders and the AVC require us to institute and maintain information security, verification, credentialing, audit and compliance, and reporting and record retention programmes and to obtain an assessment from a qualified, independent third party every two years for twenty years (with the FTC having the right to extend such twenty-year period by up to two additional biennial assessment periods) to ensure that our performance under these information security programmes complies with the FTC Settlement Orders. Failure to comply with the FTC Settlement Orders and the AVC could result in civil penalties and adversely affect our business, operations and reputation.
Breaches of our data security systems or other unauthorised access to our databases could adversely affect our business and operations.
Our businesses provide customers with access to database information such as case law, treatises, journals, and publications as well as other data. Our LexisNexis Risk Solutions business also provides authorised customers with access to public records and other information on US individuals made available in accordance with applicable privacy laws and regulations. There are persons who try to breach our data security systems or gain other unauthorised access to our databases in order to misappropriate such information for potentially fraudulent purposes and we have previously disclosed incidents of such unauthorised access. Because the techniques used by such persons change frequently, we may be unable to anticipate or protect against the threat of breaches of data security or other unauthorised access. Breaches of our data security systems or other unauthorised access to our databases could damage our reputation and expose us to a risk of loss or litigation and possible liability, as well as increase the likelihood of more extensive governmental regulation of these activities in a way that could adversely affect this aspect of our business.
Changes in government funding of, or spending by, academic institutions may adversely affect demand for the products and services of our science and medical businesses.
The principal customers for the information products and services offered by our science and medical publishing businesses are academic institutions, which fund purchases of these products and services from limited budgets that may be sensitive to changes in private and governmental sources of funding. Accordingly, any decreases in budgets of academic institutions or changes in the spending patterns of academic institutions could negatively impact our businesses.
Our intellectual property rights may not be adequately protected under current laws in some jurisdictions, which may adversely affect our results and our ability to grow.
Our products and services are largely comprised of intellectual property content delivered through a variety of media, including journals, books, compact discs, and online, including the internet. We rely on trademark, copyright, patent, trade secret and other intellectual property laws to establish and protect our proprietary rights in these products and services. However, we cannot assure you that our proprietary rights will not be challenged, limited, invalidated or circumvented. Despite trademark and copyright protection and similar intellectual property protection laws, third parties may be able to copy, infringe or otherwise profit from our proprietary rights without our authorisation. These unauthorised activities may be facilitated by the internet.
In addition, whilst there is now certain internet-specific copyright legislation in the United States and in the European Union, there remains significant uncertainty as to the date from which such legislation will be enforced and the form copyright law regulating digital content may ultimately take. In several jurisdictions, including the United States, Australia and the European Union, copyright laws are increasingly coming under legal review. These factors create additional challenges for us in protecting our proprietary rights in content delivered through the internet and electronic platforms. Moreover, whilst non-copyrightable databases are protected in many circumstances by law in the European Union, there is no equivalent legal protection in the United States.
We may be unable to implement and execute our strategic and business plans if we cannot maintain high quality management.
The implementation and execution of our strategic and business plans depend on the availability ofour ability to recruit, motivate and retain high quality people. We compete globally and across business sectors for talented management resources across alland skilled individuals, particularly those with technology and data analytics capabilities, inability to recruit, motivate or retain such people could adversely affect our businesses. We cannot predict that in the future such resources will be available.business performance.
We may not realize all of the future anticipated benefits of potential future acquisitions.
WeFrom time to time, we acquire businesses to reshape and strengthen our portfolio. Whilst our acquisitions are made within the framework of our overall strategy, which emphasizes organic development, we cannot assure you we will be able to generate the anticipated benefits such as revenue growth, synergies and/or cost savings associated with these acquisitions. Failure to realize the anticipated benefits of potential future acquisitions could adversely affect our business.return on invested capital and financial condition.
We cannot assure you whether our substantial investment in electronic product and platform initiatives will produce satisfactory, long term returns.
We are investing significant amounts to develop and promote electronic products and platforms. The provision of electronic products and services is very competitive and we may experience difficulties developing this aspect of our business due to a variety of factors, many of which are beyond our control. These factors may include competition from comparable and new technologies and changes in regulation.
Our businesses may be adversely affected if their electronic delivery platforms, networks or distribution systems experience a significant failure or interruption.
Our businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. From time to time we have experienced verifiable attacks on our platforms and systems by unauthorised parties. To date such attacks have not resulted in any material damage to us, however, our businesses could be adversely affected if their electronic delivery platforms and networks experience a significant failure, interruption or security breach.
Our businesses may be adversely affected by the failure of third parties to whom we have outsourced business activities.
We engage in outsourcingOur organisational and offshoring activities such as IT, productionoperational structures have increased dependency on outsourced and development engineering.offshored functions. Poor performance or the failure of third parties to whom we have outsourced business functions could adversely affect our business performance, reputation and financial condition.
Our scientific, technical and medical primary publications could be adversely affected by changes in the market.
Our scientific, technical and medical (STM)(“STM”) primary publications, like those of most of our competitors, are published on a paid subscription basis. There is continuous debate in government, academic and library communities, which are the principal customers for our STM publications, regarding whether such publications should be free and funded instead through fees charged to authors and from governmental and other subsidies or made freely available after a period following publication. If these methods of STM publishing are widely adopted or mandated, it could adversely affect our revenue from our paid subscription publications.
Spending by companies on advertising and other marketing activities, which comprises a significant portion of our revenue, has historically been cyclical.
Approximately 7%In 2012 6% of our revenue in 2011 was derived from advertising and 12%14% from exhibitions. In Reed Business Information, 38%30% of revenue was derived from advertising in 20112012 compared with 41%37% in 2010.2011. Total advertising revenues for our businesses in 20112012 were £437£350 million compared with £491£437 million in the prior year.2011.
Traditionally, spending by companies on advertising and other marketing activities has been cyclical, with companies spending significantly less on advertising in times of economic slowdown or turbulence. In addition, there has been a structural shift of advertising and lead generation to Google and other search engines.
The exhibitions business is similarly affected by cyclical pressures on spending by companies. Additionally, participation and attendance at exhibitions is affected by the availability of exhibition venues and the propensity of exhibitors and attendees to travel. Our results could be adversely affected if the availability of venues or the demand from exhibitors and attendees were reduced, for example due to international security or public health concerns or acts of terrorism or war.
Changes in the market values of defined benefit pension scheme assets and in the assumptions used to value defined benefit pension scheme obligations may adversely affect our businesses.
We operate a number of pension schemes around the world,world. Historically, the largest schemes beinghave been of the defined benefit type in the United Kingdom, the United States and the Netherlands. The assets and obligations associated with defined benefit pension schemes are particularly sensitive to changes in the market values of assets and the market related assumptions used to value scheme liabilities. In particular, a decrease in theadverse changes to asset values, discount rate used to value scheme liabilities, anrates or inflation could increase in life expectancy of scheme members, an increase in the rate of inflation or a decline in the market value of investments held by the defined benefitfuture pension schemes (absent any change in their expected long term rate of return) could adversely affect the reported resultscosts and financial position of the combined businesses.funding requirements.
Our impairment analysis of goodwill and indefinite lived intangible assets incorporates various assumptions which are highly judgemental. If these assumptions are not realised, we may be required to recognise a charge in the future for impairment.
As at December 31, 2011,2012, goodwill on the combined statement of financial position amounted to £4,729£4,545 million and intangible assets with an indefinite life amounted to £370£354 million. We conduct an impairment test at least annually, which involves a comparison of the carrying value of goodwill and indefinite lived intangible assets by cash generating unit with estimated values in use based on latest management cash flow projections. The assumptions used in the estimation of value in use are, by their very nature, highly judgemental, and include profit growth of the business over a five year forecast period, the long term growth rate of the business thereafter, and related discount rates. There is no guarantee that our businesses will be able to achieve the forecasted results which have been included in the impairment tests and impairment charges may be required in future periods if we are unable to meet these assumptions.
Our borrowing costs and access to capital may be adversely affected if the credit ratings assigned to our debt are downgraded.
Our outstanding debt instruments are, and any of our future debt instruments may be, publicly rated by independent rating agencies such as Moody’s Investors Service Inc., Standard & Poor’s Rating Services and Fitch Ratings. A rating is based upon information furnished by us or obtained by the relevant rating agency from its own sources and is subject to revision, suspension or withdrawal by the rating agency at any time. Rating agencies may review the assigned ratings due to developments that are beyond our control. Factors cited as a basis for a ratings downgrade or an assignment of a negative outlook could include the macro economic environment and the level of our indebtedness as a consequence of an acquisition. If the ratings of our debt are downgraded in the future, our borrowing costs and access to capital may be adversely affected.
Breaches of generally accepted ethical business standards or applicable statutes concerning bribery could adversely affect our reputation and financial condition.
As a leading global provider of professional information solutions to the Science, Medical, Risk, Legalscience, medical, risk, legal and Businessbusiness sectors, we are expected to adhere to high standards of independence and ethical conduct. Whilst our employees are expected to abide by the Reed Elsevier Code of Ethics and Business Conduct, employees may still fail to abide by its guidelines relating to anti-bribery and principled business conduct. Similarly, whilst our major suppliers are expected to abide by our Supplier Code of Conduct, suppliers may still fail to abide by its guideline relating to anti-bribery and principled business conduct. A breach of generally accepted principled business standards or applicable statues concerning bribery by our employees or our suppliers could adversely affect our business performance, reputation and financial condition.
Failure to manage our environmental impact could adversely affect our businesses.
Our businesses have an impact on the environment, principally through the use of energy and water, waste generation and, in our supply chain, through our paper use and print and production technologies. Whilst we are committed to reducing these impacts by limiting resource use and by efficiently employing sustainable materials and technologies, we cannot assure you that these efforts and expenditures incurred by us in order to comply with either new environmental legislation and regulations, new interpretations or existing laws and regulations or more rigorous enforcement of such laws and regulations will not adversely impact on our businesses or reputation.
ITEM 4: INFORMATION ON REED ELSEVIER
Corporate structure
Reed Elsevier came into existence in January 1993, when Reed Elsevier PLC and Reed Elsevier NV contributed their respective businesses to two jointly-owned companies, Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses, and Elsevier Reed Finance BV, a Dutch registered company which owns the financing activities. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities and are publicly held companies. Reed Elsevier PLC’s securities are listed in London and New York, and Reed Elsevier NV’s securities are listed in Amsterdam and New York.
Equalisation arrangements
Reed Elsevier PLC and Reed Elsevier NV each hold a 50% interest in Reed Elsevier Group plc. Reed Elsevier PLC holds a 39% interest in Elsevier Reed Finance BV, with Reed Elsevier NV holding a 61% interest. Reed Elsevier PLC additionally holds a 5.8% indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between the two companies at the time of the merger, which determined the equalisation ratio whereby one Reed Elsevier NV ordinary share is, in broad terms, intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares. The equalisation ratio is subject to change to reflect share splits and similar events that affect the number of outstanding ordinary shares of either Reed Elsevier PLC or Reed Elsevier NV.
Under the equalisation arrangements, Reed Elsevier PLC shareholders have a 52.9% economic interest in Reed Elsevier, and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% economic interest in Reed Elsevier. Holders of ordinary shares in Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect to their ordinary shares.
The Boards of both Reed Elsevier PLC and Reed Elsevier NV have agreed, other than in special circumstances, to recommend equivalent gross dividends (including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit), based on the equalisation ratio. A Reed Elsevier PLC ordinary share pays dividends in sterling and is subject to UK tax law with respect to dividend and capital rights. A Reed Elsevier NV ordinary share pays dividends in euros and is subject to Dutch tax law with respect to dividend and capital rights.
The principal assets of Reed Elsevier PLC comprise its 50% interest in Reed Elsevier Group plc, its 39% interest in Elsevier Reed Finance BV, its indirect equity interest in Reed Elsevier NV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc. The principal assets of Reed Elsevier NV comprise its 50% interest in Reed Elsevier Group plc, its 61% interest in Elsevier Reed Finance BV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV.plc. Reed Elsevier NV also owns shares, carrying special dividend rights, in Reed Elsevier Overseas BV, a Dutch registered subsidiary of Reed Elsevier Group plc. These shares enable Reed Elsevier NV to receive dividends from companies within its tax jurisdiction, thereby mitigating Reed Elsevier’s potential tax costs.
Material acquisitions and disposals
Total acquisition expenditure in the three years ended December 31, 2011,2012, including the buy out of non controllingnon-controlling interests, was £594£924 million, net of cash acquired. During 2012, a number of acquisitions were made for total consideration of £341 million, net of cash acquired of £12 million. During 2011, a number of acquisitions, including the buy out of non controllingnon-controlling interests, were made for a total consideration of £540 million, net of cash acquired of £24 million. The most significant of these was Accuity Inc., a leading provider of data in credit risk, regulatory compliance and online payment systems, acquired in November 2011 for cash consideration of £331 million, net of cash acquired. During 2010, a number of small acquisitions were made for a total consideration of £43 million. During 2009 a number
Gross cash proceeds from disposals amounted to £242 million (2011: £101 million; 2010: £66 million), including £7 million from the sale of small acquisitions were made for a total considerationnon-controlling interests. Net cash proceeds, before tax, amounted to £160 million (2011: £80 million; 2010: £6 million), after related separation and transaction costs, additional pension scheme contributions, and working capital and other adjustments in respect of £11 million.prior year transactions.
Restructuring
In February 2008 we announced a major restructuring plan to further consolidate and streamline operational activities and back office support. In 2009, having identified further restructuring and consolidation opportunities, we announced an expansion of this programme and a major restructuring in Reed Business Information. Restructuring costs incurred in 2011 were nil (2010: £57 million; 2009: £182 million; 2008: £152 million).
Capital expenditure
Capital expenditure on property, plant, equipment and internally developed intangible assets principally relates to investment in systems infrastructure to support electronic publishing activities, computer equipment and office facilities. Total such capital expenditure, which iswas financed from operating cash flows, amounted to £350£333 million in 2011 (2010:2012 (2011: £350 million; 2010: £311 million; 2009: £242 million) of the combined businesses.. In 20112012, there was continued investment in new product and related infrastructure, particularly in LexisNexis Legal & Professional.Legal. Further information on capital expenditure is given in notes 16 and 18 to the combined financial statements.
Principal Executive Offices
The principal executive offices of Reed Elsevier PLC are located at 1-3 Strand, London WC2N 5JR, England. Tel: +44 20 7930 7077.7166 5500. The principal executive offices of Reed Elsevier NV are located at Radarweg 29, 1043 NX Amsterdam, the Netherlands. Tel: +31 20 485 2222. The principal executive office located in the United States is at 125 Park Avenue, 23rd Floor, New York, New York, 10017. TelTel: +1 212 309 5498. Our internet address is www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
Reed Elsevier is a world leading provider of professional information solutions organised in 2011 as five businessoperating across several market segments: Elsevier,Scientific, Technical & Medical, providing information and tools to help its customers improve scientific technical and medical information solutions; LexisNexishealthcare outcomes; Risk Solutions, providing risktools that combine proprietary, public and third-party information, with advanced technology and analytics to business and government customers; LexisNexis Legal & Professional, providing legal, tax, regulatory and business information solutions to professionals, business and government customers; Reed Exhibitions, organising trade exhibitions and conferences; and Reedanalytics; Business Information, providing data services, information and marketing solutions to business professionals.
With effect from 1 January 2011 LexisNexis was reorganised as two separate businesses, LexisNexis Risk Solutionsprofessionals; Legal, providing legal, tax, regulatory news and LexisNexis Legal & Professional, which are accordingly now presented separately.business information to legal, corporate, government, and academic markets; and Exhibitions, organising exhibitions and conferences.
Our principal operations are in North America and Europe. For the year ended December 31, 20112012 we had total revenue of approximately £6.0£6.1 billion and an average of approximately 30,60030,500 employees. As at December 31, 20112012 we had approximately 30,50030,400 employees. In 2011,2012, North America represented our largest single geographic market, based on revenue by destination, contributing 54%52% of our total revenue.
Revenue is derived principally from subscriptions, circulation and transactional sales, exhibition fees and advertising sales and exhibition fees.sales. In 2011, 47%2012, 49% of Reed Elsevier’s revenue was derived from subscriptions; 27%26% from circulation and transactional sales; 12%14% from exhibition fees; 7%6% from advertising sales; and 7%5% from other sources. An increasing proportion of revenue is derived from electronic information products, principally internet based. In 2011, 63%2012, 64% of our revenue was derived from such sources, including 96% of LexisNexis Risk Solutions revenue, 75%76% of LexisNexis Legal revenue, 68% of Scientific, Technical & ProfessionalMedical revenue, 63%54% of Elsevier revenue, 51% of Reed Business Information revenue, and 2% of Reed Exhibitions revenue.
Subscription sales are defined as revenue derived from the periodic distribution or update of a product or from the provision of access to online services, which is often prepaid. Circulation and transactional sales include all other revenue from the distribution of a product and transactional sales of online services, usually on cash or credit terms. The level of publishing related advertising sales and exhibition fees has historically been tied closely to the economic and business investment cycle with changes in the profit performance of advertisers, business confidence and other economic factors having a high correlation with changes in the size of the market. Subscription sales and circulation and transactional sales have tended to be more stable than advertising sales through economic cycles.
Revenue is recognised for the various categories as follows: subscriptions — on periodic despatch of subscribed product or rateably over the period of the subscription where performance is not measurable by despatch; circulation and transactional — on despatch or occurrence of the transaction; exhibitions — on occurrence of the exhibition and advertising — on publication or period of online display; and exhibitions — on occurrence of the exhibition.display. Where sales consist of two or more independent components whose value can be reliably measured, revenue is recognised on each component as it is completed by performance, based on the attribution of relative value.
Certain of our businesses are seasonal in nature. In Elsevier, a significant proportion of annual revenue is derived from calendar year based journal subscriptions, with the substantial majority of annual cash inflow from these arising in the fourth quarter of each financial year. The majority of medical publishing and sales arise in the second half of the year. This, together with the phasing of other subscription receipts and exhibition deposits, results in significant cash flow seasonality whereby the substantial majority of annual operating cash inflows normally arise in the second half of the year.
Our businesses compete for subscription, circulation and transaction, and marketing expenditures in scientific and medical, risk, legal and business sectors. The bases of competition include, for readers and users of the information, the quality and variety of the editorial content and data, the quality of the software to derive added value from the information, the timeliness and the price of the products and, for advertisers, the quality and the size of the audiences targeted.
Revenue Year ended December 31, | ||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Elsevier | £ | 2,058 | 34 | % | £ | 2,026 | 34 | % | £ | 1,985 | 33 | % | ||||||||||||
LexisNexis Risk Solutions | 908 | 15 | 927 | 15 | 865 | 14 | ||||||||||||||||||
LexisNexis Legal & Professional | 1,634 | 27 | 1,691 | 28 | 1,692 | 28 | ||||||||||||||||||
Reed Exhibitions | 707 | 12 | 693 | 11 | 638 | 11 | ||||||||||||||||||
Reed Business Information | 695 | 12 | 718 | 12 | 891 | 14 | ||||||||||||||||||
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Total | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | £ | 6,071 | 100 | % | ||||||||||||
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2012 | 2011 | 2010 | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Scientific, Technical & Medical | £ | 2,063 | 34 | % | £ | 2,058 | 34 | % | £ | 2,026 | 34 | % | ||||||||||||
Risk Solutions | 926 | 15 | 908 | 15 | 927 | 15 | ||||||||||||||||||
Business Information | 663 | 11 | 695 | 12 | 718 | 12 | ||||||||||||||||||
Legal | 1,610 | 26 | 1,634 | 27 | 1,691 | 28 | ||||||||||||||||||
Exhibitions | 854 | 14 | 707 | 12 | 693 | 11 | ||||||||||||||||||
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Total | £ | 6,116 | 100 | % | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | ||||||||||||
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ELSEVIERSCIENTIFIC, TECHNICAL & MEDICAL
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Elsevier | ||||||||||||
Science & Technology | £ | 1,076 | £ | 1,015 | £ | 985 | ||||||
Health Sciences | 982 | 1,011 | 1,000 | |||||||||
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£ | 2,058 | £ | 2,026 | £ | 1,985 | |||||||
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2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Revenue | £ | 2,063 | £ | 2,058 | £ | 2,026 | ||||||
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In Scientific, Technical & Medical markets, we provide information and tools to help customers improve scientific and healthcare outcomes.
Elsevier is a leading provider of scientific, technical and medical information and serves scientists, health professionals and students worldwide. Its objective is to help its customers advance science and improve healthcare by providing world class information and innovative information solutions that enable customersthem to make critical decisions, enhance productivity and improve outcomes.
Elsevier is a global business with principal operations in Amsterdam, Beijing, Boston, Chennai, Delhi, London, Madrid, Milan, Munich, New York, Oxford, Paris, Philadelphia, Rio de Janeiro, St. Louis, San Diego, Singapore and Tokyo. ElsevierIt has 6,9007,000 employees.
Elsevier is organised around two market-facing businesses: Science & Technology, which serves the scientificneeds of the science, technology and technology communities,health markets by publishing primary research, reference, and Health Sciences, which serves the health community. Botheducation content, as well as by providing a range of these businesses are supported by a global shared services organisation which provides integrated editorial systems and production services, product platforms, distribution, and other support functions.
Science & Technology
Science & Technology is a leading scientific information provider. It delivers a wide array of informationdatabase and workflow tools that help researchers generate valuable insights in the advancement of scientific discovery and improve the productivity of research. Itssolutions. Elsevier’s customers are scientists, academic institutions, research leaders and administrators, medical researchers, doctors, nurses, allied health professionals and students, as well as hospitals, research institutions, health insurers, managed healthcare organisations, research-intensive corporations, and governments whichgovernments. All of these customers rely on Elsevier to:to provide high quality content;content and critical information for making scientific and medical decisions; to review, publish, disseminate and preserve research findings; andto create innovative tools to help focus research strategies, increase research effectiveness, improve medical outcomes, and improve their effectiveness.enhance the efficiency of healthcare and healthcare education.
The Science & Technology division contributed 52%In 2012, approximately 65% of the total Elsevier revenue in 2011. Of this revenue, 77% came from research (journals), 9%subscription sales, 27% from reference education (books)circulation and 14%transactional sales, 3% from databasesadvertising, and tools.the remaining 5% from other sources. Approximately 34%40% of Science & Technology revenue by destination in 20112012 was derived from North America, 34%31% from Europe and the remaining 32%29% from the rest of the world. 68% of revenues were delivered electronically.
In the primary research market during 2012, over 1 million research papers were submitted to Elsevier, publishes over 240,000 new science & technology researcha double digit increase on the prior year. Over 10,000 editors managed the peer review and selection of these papers, resulting in the publication of more than 330,000 articles each year through some 1,250in almost 2000 journals, many of which are the foremost publications in their field and a primary point of reference for new research. The vast majorityThis content was accessed by around 11 million people, with nearly 700 million full text article downloads last year. Content is provided free or at very low cost in most of customers receive thesethe world’s poorest countries. Elsevier’s journals are primarily published and delivered through theScienceDirect, aplatform, the world’s largest database of scientific and medical research, providing accesshosting over 11 million articles, and over 11,000 full-text e-books. Flagship journals includeCellandThe Lancetfamilies of titles. Elsevier continuously innovates to over 10 millionimprove the utility and effectiveness of its journals. For example, its “Article of the Future” enhances the traditional scientific paper with new and medical journal articles, used by over 7 million researchers each year.broader types of content, such as links to experimental data, related content, and enhanced media to supplement the article’s text.
Elsevier is also a global leader in the scientific, technical and medical reference market, providing authoritative and current professional reference content. While reference has traditionally been a print industry, Elsevier has been a leader in driving the shift from print to electronic. Elsevier publishes over 70020,000 reference titles, with 1,400 new English language science & technology book titles published annually along with supporting bibliographic data, indexesindices and abstracts, abstracts. Approximately 85% of these titles are available electronically. Flagship titles include works such asGray’s Anatomy,Nelson’s PediatricsandNetter’s Atlas of Human Anatomy.
Elsevier launchedClinicalKeyin 2012, a product that allows physicians to access the leading reference and evidence-based medicine content in a single, fully-integrated site.ClinicalKeyincludes a full taxonomy and improved smart content search to help clinicians look up detailed information on highly specific topics as they seek to answer clinical questions. The platform covers Elsevier’s as well as relevant third-party health content.ClinicalKeyhas already been deployed at leading teaching hospitals, such as Oxford University’s John Radcliffe, the Cleveland Clinic, and the US Department of Veterans Affairs.
In medical education, Elsevier serves students of medicine, nursing and allied health professions through print and electronic books, as well as electronic solutions. For example, itsEvolveportal provides a rich resource to support faculty and students and now has over 3.5 million registered users;Evolve Reachprovides online review and reference works. 15,000testing tools for nursing and the allied health professions;Evolve Teach provides online books are available onScienceDirect, with over 1,000 online books added each year.resources and solutions to support faculty.
Elsevier’s database and workflow products provide a range of tools and solutions for professionals in the science, technical, and medical fields. Customers include academic and corporate researchers, research administrators and healthcare professionals.
Other majorFor academic and corporate researchers, significant products includeScopus,Geofacets, andReaxys. Reaxys.Scopusis the largest abstract and citation database of research literature in the world, with abstracts and bibliographic information on more than 45almost 50 million scientific research articles from 19,00019,500 peer reviewed journals and over 5,000 international publishers.ScopusGeofacetsalso has data on more than 24 million patents.is an oil and gas exploration tool which packages research-relevant Elsevier and third-party geological content and tags that content to enable rich search functionality.Reaxysis a leading solution for synthetic chemists, that integratesintegrating chemical reaction and compound data searching with synthesis planning.
In December 2011,2012, Elsevier acquiredAriadne GenomicsKnovel, a web-based provider of pathway analysisproductivity tools and semantic technologies for life science researchers which will complement Elsevier’s efforts to serve the needs of researchers in the pharma biotech sector.
A major challenge facing researchers and institutions is the ever growing amount of research and relatedengineering community, integrating technical information with the limited timeanalytics and search to identifydeliver trusted answers and analyse what is most relevant. To address this challenge, Elsevier has been developing a suite of new products that significantly improve the speed at which researchers are able to find the most relevant information and analyse this information using the most innovative applications.SciVerse Hubprovides a single search interface for accessingScienceDirect,Scopusand scientific web content. In addition,SciVerse Application Marketplace & Developer Networkenables researchers and third party developers to build customised applications on top of Elsevier’s information and other data and analytics enhancing the utility of the underlying content.drive innovation.
Following a successful collaboration since 2007, Elsevier acquired QUOSA in January 2012. QUOSA’s technological capabilities will raise the efficiency of the search and discovery process and will also allow researchers to manage information more efficiently.
Elsevier is continuing to develop theserves academic and government research administrators through itsSciValsuite of products that help academic and government institutionsthem evaluate their institutions’ research performance, determine research strategies and increase institutional efficiencies. Leveraging bibliometric data, such as citations fromScopus,SciVal Spotlighthelps institutions and governments to identify their distinctive research strengths, evaluate performance and increase the focus of their research and development (“R&D”) investments.SciVal Fundingassists researchers and institutions in identifying grants that are most relevant in their research areas.SciVal Experts enables researchers to establish a directory of experts in their area of interest, whileSciVal Strata facilitates performance benchmarking by research teams.
In August 2012, Elsevier bolstered its research management portfolio by acquiringHealth SciencesAtira
Health Sciences is, a leading medical information provider. Through its medical journals, books, major reference works, databasesprovider of software and online information tools Elsevier provides critical informationthat complement theSciValplatform and analysis on which its customers rely to basehelp academic institutions and researchers improve their decisions, to improve medical outcomes and enhance the efficiency of healthcare. Health Sciences serves medical researchers, doctors, nurses, allied health professionals and students, as well as hospitals, research institutions, health insurers, managed healthcare organisations and pharmaceutical companies.
Health Sciences contributed approximately 48% of the total Elsevier revenue in 2011. This revenue came from five sectors: global medical research; clinical reference/clinical decision support; nursing/health professional education; global pharma promotion; and international (other), each of which contribute approximately 20% to revenue. Approximately 52% of Health Sciences revenue by destination in 2011 was derived from North America, 27% from Europe and the remaining 21% from the rest of the world.
Elsevier publishes over 700 health sciences journals, including on behalf of learned societies, and, in 2011, 1,500 new health sciences book titles and clinical reference works were published both in print and throughScienceDirectand other electronic platforms such asMD Consult. MD Consultis a leading online clinical information service with more than 2,400 institutional customers. Flagship titles include market leading medical journals such asThe Lancet, and major medical reference works such asGray’s Anatomy,Nelson’s PediatricsandNetter’s Atlas of Human Anatomy. In addition to its local language publishing in many countries across the world, Health Sciences leverages its content and solutions into new markets through local language versioning. In November 2011,ClinicalKeywas launched in beta allowing physicians to access the leading reference and evidence-based medicine in a single, fully-integrated site built to accommodate their clinical information workflows.outcomes.
For healthcare professionals, Elsevier is a leader in medical education and training resources, particularly to the nursing and allied health professions. From print and electronic books to virtual clinical patient care, Health Sciences supports students, teaching faculties and healthcare organisations in education and practice. A strong focus is on the further development of innovative electronic services: theEvolveportal provides a rich resource to support faculty and students and now has 3 million registered users;EvolveReach (Health Education Systems Inc.)provides online review and testing tools for nursing and the allied health professionals;Evolve Teachprovides online resources and solutions to support faculty.
A growing area of focus is clinical decision support, providing online information and analyticsdevelops products to deliver patient-specific solutions at the point of care to improve patient outcomes. Its clinical solutions includeGold Standard, which provides critical information on drug interactions to assist effective treatment;treatment, andCPM Resource Center, which provides a data drivendata-driven framework to support nurses in undertaking procedures;Nursing Consult provides nursing care guidelinesprocedures.
Elsevier further bolstered its clinical solutions portfolio with the acquisition in traumaSeptember 2012 ofExitCare, a provider of patient education and disease management;discharge instructions.MEDaiExitCare’suses patient data and analytics to help identify areas for improvement in clinical practice within hospitals and lower costs for the payers of healthcare through preventative interventions. In February 2011, Elsevier entered the emergingproducts, incorporated into Elsevier’s clinical decision support market in China throughcontent and tools, will help healthcare providers improve the acquisitiondelivery of Datong, a leading online provider of drug information that helps Chinese hospitals to improve quality of care through better drug usage.
Elsevier also provides services to the pharmaceutical industry through advertising and sponsored communications to the specialist community it serves. In 2011, Elsevier continued the restructuring of this business focusing more on the services which leverage Health Sciences’ corehealthcare information and distribution platform.
Shared Servicesservices across all care environments.
The shared service functions provide production, information technology, customer service, fulfilment and distribution for both the Science & Technology and Health Sciences divisions. Much of the pre-press production for journals and books is outsourced.
Market Opportunities
The science and medicalScientific, Technical & Medical information markets have good long termlong-term demand growth characteristics. The importance of research and development to economic performance and competitive positioning is well understood by governments, academic institutions and corporations. This is reflected in the long termlong-term growth in R&Dresearch and development spend and in the number of researchers worldwide, leading to greater research output and publishing. Additionally, thereworldwide.
Growth in health markets is growing demand for tools that allow research to better target and improve the spend and efficiency of the research process.
In health, market growth is also supporteddriven by demographic trends, with ageing populations that require more healthcare,in developed markets, rising prosperity in developing economies with increasing expectations of better healthcare provision,markets and the increasing focus on improving medical outcomes and efficiency.
Given that a significant portionproportion of scientific research and healthcare is funded directly or indirectly by governments, spending is influenced by governmental budgetary considerations. The commitment to research and health provision does, however, generally remain high, even in more difficult budgetary environments.
Strategic Priorities
Elsevier’s strategic goal is to make valued contributions to the communities it serves in advancingprovide information solutions that advance science improving medical outcomes and enhancing productivity.improve health. To achieve this, Elsevier is focused on: building world-class content; deepeningcreates solutions that reflect deep insight into the way its customer engagementusers work and the outcomes they are seeking to identify how betterachieve; drives for excellence in content, service and technology; constantly adapts and revitalises its products, solutions and business models; and leverages its shared resources and knowledge to help them achieve their desired outcomes more efficientlypromote innovation, efficiency and effectively; delivering tools which link, analyseexcellence in execution.
For academic and illuminate content and data to help customers make critical decisions and improve their productivity; increasing its investment in high-growth markets and disciplines; and continuously improving organisational efficiency.
In Science & Technology,corporate researchers, priorities are to continually enhancecontinue to strengthen journal brands and the quality of published articles, and to further improve scientific communication and user experience with our journal content. Elsevier is focused on delivering journal content quickly, making it available through different access channels, and exploring a range of innovative new business models. Elsevier will also build new services, and add greater functionality and utility to existing solutions to improve researcher productivity.
For science and health professionals, priorities are to continue enhancing the quality and relevance of research and referenceour content and expand data sets,our workflow tools, while adding greater functionality and utility toSciVerse,ScienceDirect,Scopusand new tools to assist researcher productivity. TheSciValsuite of performance and planning tools will continue to be expanded to help academic and government institutions target their research spend and improve research efficiency and economic outcomes.
In Health Sciences, priorities are to continue to enhance the quality and relevance of its content and actively managemanaging the ongoing format shift from print to electronic information consumption by developing improved electronic solutions that add more valueinformation.
For students, priorities are to its users and customers. Additionally, Health Sciences continuescontinue to build out clinical decision support services to meet customer demand for tools that deliver better medical outcomes and lowers costs for payers, physicians and hospitals. Elsevier is also focused on increasing growth in emerging markets through expansion of local publishing and versioning ofprovide the highest quality educational content and electronic services.tools and to develop an even better customer experience. In addition, Elsevier will develop tools to track student performance, train new faculty members, and improve the effectiveness of existing faculty staff.
Business Model, Distribution Channels and Competition
Science and medical research is principally disseminated on a paid subscription basis to the research facilities of academic institutions, government and corporations, and, in the case of medical and healthcare journals, also to individual practitioners and medical society members. AdvertisingFor a number of journals, advertising and promotional income represents a small proportion of revenues are derivedpredominantly from pharmaceutical companies in healthcare titles.
Over the past 15 years alternative payment models for the dissemination of research such as so-called “author-pays open access” or “author’s-funder-pays” have emerged. While it is expected that paid subscription will remain the primary distribution model, Elsevier has long invested in alternate business models to address the needs of customers and other companies. researchers. Over 1,500 of Elsevier’s journals now offer the option of funding research publishing and distribution via a sponsored article fee. In addition, Elsevier now publishes around 30 “author-pays” journals.
Electronic products, such asScienceDirect,ScopusandMD ConsultClinicalKey, are generally sold direct to customers through a dedicated sales force that has offices around the world. Subscription agents facilitate the sales and administrative process for print journals. Books are sold through traditional and online book stores, wholesalers and, particularly in medical and healthcare markets, directly to end users.
Competition within science and medical publishing is generally on a title by titletitle-by-title and product by productproduct-by-product basis. Competing journals, books and databases are typically published by learned societies and other professional publishers. Workflow tools face similar competition as well as from software companies and internal solutions developed by customers.
Major Brands
Elsevier is the master brand used for both the Science & Technology and Health Sciences businesses.business.
Elsevier’s major brands include:Cell, a life sciences journal in cellbiochemistry and molecular biology; andThe Lancet, one of the leading medical journals since 1823. Many other products and journals are major brands in their fields, including:Scopus, a scientific abstract and citation database;SciVal, a suite of funding intelligence and research performance tools for academic institutions;Reaxys®, a web-based chemical reaction workflow solution for industrial chemists;institutions and funding intelligence;pharmapendium, access to history of drug development through a unique online platform;MDConsult, an online drugs safety database that supports drug development researchers;ClinicalKey,combines reference and evidence-based medical content into its fully-integrated clinical information service, including reference works, journalsinsight engine;Geofacets,an extensive database of georeferenced geological maps;ScienceDirect,the world’s largest database of scientific and drug information;medical research articles; andMosby’s Nursing ConsultCPM CarePoints,, online evidence-based contenta comprehensive care planning and clinical documentation system.
RISK SOLUTIONS & BUSINESS INFORMATION
In Risk Solutions & Business Information, we provide data, analytics and insight that enable customers to inform nursing clinicalevaluate and manage risks, and develop market intelligence, supporting more confident decisions, at the point of care;Evolve, integrated, online resources that complement Elsevier’s nursing textbook content;improved economic outcomes, andMEDai, a clinical decision support tool to identify areas for improvement in medical practice.
LEXISNEXIS RISK SOLUTIONS
Year ended December 31, | ||||||||||||
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Revenue | £ | 908 | £ | 927 | £ | 865 | ||||||
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Year ended December 31, | ||||||||||||
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Revenue | £ | 926 | £ | 908 | £ | 927 | ||||||
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LexisNexis Risk Solutions is a leading provider of solutions that combine proprietary, public and third-party information, analyticswith advanced technology and advanced technology.analytics. These solutions assist customers in evaluating, predicting and managing risk and improving operational effectiveness, predominantly in the US.
With effect from 1 January 2011 LexisNexis was reorganised as two separate businesses, LexisNexis Risk Solutions and LexisNexis Legal & Professional, which are accordingly now presented separately.
LexisNexis Risk Solutions is headquartered in Alpharetta, Georgia, and has principal operations in Georgia, Florida, and Ohio, and has 4,0004,100 employees.
In 2011,2012, approximately 85%86% of LexisNexis Risk Solutions’ revenue came from circulation and transactional sales, 12%11% from subscription sales, and the remaining 3% from other sources. 96% of LexisNexis Risk Solutions’ revenue is delivered electronically.
LexisNexis Risk Solutions is organised around market facing industry/sector groups: insurance, government, screening, and business services (including the financial services, receivables management financial services and corporate groups), and government. The most significant of which insurancethese is the most significant.insurance. These groups are supported by a shared infrastructure providingfor technology operations, data management, and other support functions including compliance and marketing. A number of transactional support activities, including some financial processes, are provided from a shared services organisation managed by the LexisNexis Legal & Professional business. The LexisNexis Legal & Professional business also distributes LexisNexis Risk Solutions products into legal markets in the US and internationally.
Insurance Solutions provides the mosta comprehensive combination of data and analytics to property and casualty (P&C) personal and commercial insurance and life insurance carriers in the US to improve critical aspects of their business, from customer acquisition and underwriting to policy servicing and claims handling. Information solutions, including the US’s most comprehensive personal loss history database,C.L.U.E., help insurers assess risks and provide important inputs to pricing and underwriting policy. Recently introducedinsurance policies. Additional key products includeData PreFillPrefill, which provides accuratecritical information directly into the insurance workflow on customers, potential customers and their auto ownership directly into the insurance workflow, andCurrent Carrier, which identifies current or previous insurance as well as any lapses in coverage.
Business Services provides financial institutions with risk management, identity verification,management, fraud detection, credit risk management, and compliance solutions. These include “know your customer” and anti-money laundering products. The business also provides risk and identity management solutions for corporate customers in retail, telecommunications and utilities sectors. Receivables management solutions helpshelp debt recovery professionals in the segmentation, management and collection of consumer and business debt. The LexisNexis Risk Solutions business also provides identity verification and risk related information to the legal industry.
Government solutionsSolutions provides investigative solutionsdata and analytics to US federal, state and local law enforcement and government agencies to help solve criminal and intelligence cases and to identify fraud, waste and abuse in government programmes.
Screening Solutions focuses on employment-related, resident and volunteer screening, with the largest segment being pre-employment screening services offered across a number of industries including retail, recruitment, banking, and professional services.
During 2011, LexisNexisThe Risk Solutions sharpened its focus on its data and analytics activities withbusiness also provides risk-related information to the sale of the insurance software business, while Reed Elsevier’s acquisition ofAccuity complements and enhanceslegal industry through LexisNexis Legal & Professional.
Risk Solutions offerings in anti-money laundering. There has also been a continuedcontinues to focus on developing a pipeline of new solutions forto drive growth in selected adjacent markets sectors and geographies. For example, in the UK, Risk Solutions has launched a new product that uses public information to help insurers assess and segment risk more effectively among motor insurance customers and is planning to launch additional innovative products to facilitate sharing of data across motor insurers, improving insurers’ ability to understand underwriting risks. In the government segment, customers are adopting fraud detection, waste, and abuse solutions, which enable government agencies to identify incidences of tax and benefits fraud, and boost revenue collections. Risk Solutions has also continued to broaden its portfolio of identity management solutions, including one-time-password and biometric solutions, and has made existing identity products more configurable to address the specific needs of customers across our market segments.
The identity verification and risk evaluation solutions provided by LexisNexis Risk Solutions utilise a comprehensive database of public records and proprietary information with more than 2,000 terabytes of unique data, which ismakes it the largest database of its kind in the US market today.LexisNexis Accurintis thea flagship identity verification product, powered by the High Performance Cluster Computing (HPCC) technology. This market-leading technology enables Risk Solutions to provide its customers with highly relevant search results swiftly and to create new, low-cost solutions quickly and efficiently. It is also increasingly used across other Reed Elsevier markets such as Legal and Scientific, Technical & Medical.
In 2011, LexisNexisJanuary 2013, Risk Solutions launched an open-source initiative called HPCC Systemsannounced the sale of its Screening business. This will allow it to broaden usage, tap the innovation of the development communityincrease its focus on higher-growth segments leveraging its core data, technology and analytical capabilities. The Screening business presented limited opportunities to more fully compete in the “big data” market. Responseapply these capabilities to date has been positive, with press articles, website traffic, speaking invitations,generate unique customer value, sustained growth, and source code downloads all ahead of expectations.superior margins.
Market Opportunities
LexisNexis Risk Solutions operates in markets with strong long termlong-term underlying growth drivers:drivers including: insurance underwriting transactions; insurance, healthcare, tax and entitlement fraud; credit defaults and financial fraud; regulatory compliance and due diligence requirements surrounding customer enrolment and employment;enrolment; and security considerations.
In the insurance segment, growth is supported by increasing transactional activity in the auto, property and propertylife insurance markets and the increasing adoption by insurance carriers of more sophisticated data and analytics in the prospecting, underwriting and claims evaluation processes, to determine appropriateassess underwriting risk, pricing, increase competitiveness and improve operating cost efficiency. Transactional activity is driven by the levels ofproduct extensions across insurance quotingcarriers’ workflow and switchinggrowth in insurance quoting, as consumers seek better policy terms,terms. This activity is stimulated by increasing competition between insurance companies, high levels of carrier advertising, and rising levels of internet quoting and policy binding.
In screening, demand is driven mainly by employer hiring activity and, in receivables management, by levels of consumer debt and the prospects of recovering those debts. Both of these markets are linked to employment conditions in the US. A number of factors support growth for LexisNexis Risk Solutionsrisk solutions in the financial services market, including new credit originations, continued high fraud losses, stringent regulatory compliance requirements and increasing anti-money laundering fines. In receivables management, demand is driven mainly by levels of consumer debt and the prospect of recovering that debt, which is impacted by employment conditions in the US. In corporate markets, demand is supported by growth in online retail sales and continued high levels of credit card fraud. Growth in government markets is driven by the increasing use of data and analytics to combat criminal activity, fraud, and fraud,tax evasion and to address security issues. The level and timing of demand in this market is influenced by government funding and revenue considerations.
Strategic Priorities
LexisNexis Risk Solutions’ strategic goal is to make businesses and government more effective, through a better understanding of the risks associated with individuals, other businesses and transactions and by providing the tools to help manage those risks.risks efficiently and cost effectively. To achieve this, LexisNexis Risk Solutions is focused on: expanding the range ofdelivering innovative new products across customer workflows; leveraging our advanced technology capabilities; delivering innovative new products and expanding the range of risk management solutions across adjacent markets; and addressing international opportunities in selected markets to meet local risk management needs.needs; and continuing to strengthen its content, technology and analytical capabilities.
Business Model, Distribution Channels and Competition
LexisNexis Risk SolutionsSolutions’ products are predominantly sold directly, with pricing mostly on a transactional basis directly tofor insurance carriers and corporations, and primarily on a subscription basis tofor government entities. LexisNexis
Risk Solutions and Verisk, a competitor, each sell data and analytics solutions to insurance carriers but largely address different activities. LexisNexis Risk Solutions’ principal competitors in commercial and government sectors include Thomson Reuters and major credit bureaus. Major competitorsbureaus, in pre-employment screening are Altegrity and First Advantage.many cases addressing different activities in these sectors as well.
Major Brands
LexisNexis is the master brand used by LexisNexis Risk Solutions.
LexisNexis Risk Solutions’ major brands include:C.L.U.E.®, a comprehensive US personal insurance claims database;LexisNexis®Data Prefill, a tooltools to automate the insurance application process providing critical information insurers need to quote and underwrite a policy;LexisNexis® Insurance Exchange, a platform for sharing of customer application data designed to improve and enhance flow of application data and documents;Accurint® for Collections, a US solution to help locate debtors quickly and accurately; Accurint® LE Plus, an integrated suite of tools for US law enforcement investigators;LexisNexis® Identity Management, a range of solutions to help clients verify that an identity exists and authenticate individuals;LexisNexis® Anti-Money Laundering Solutions, content and information for anti-money laundering compliance, risk mitigation and enhanced due diligence;LexisNexis® Employment ScreeningCurrent Carrier,,database that identifies the existence of current or previous insurance, and whether or not the applicant has had a US providerpossible lapse in coverage;LexisNexis® RiskView,comprehensive suite of pre-employment screening solutions;credit risk management tools to help assess consumer creditworthiness and risk potential; andLexisNexis® Resident ScreeningRevenue Recovery and Discovery,a suite of tools to enable governments to leverage public records and analytics to identify instances of fraud and to more efficiently collect on outstanding debts.
BUSINESS INFORMATION
Year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
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Revenue | £ | 663 | £ | 695 | £ | 718 | ||||||
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Reed Business Information (“RBI”) provides data services, information and marketing solutions to business professionals across industries globally. It produces industry critical data services and lead generation tools, online community sites as well as business magazines with market leading positions in many sectors.
Approximately 27% of Business Information revenue in 2012 came from North America, 19% from the United Kingdom, 39% from Continental Europe and 15% from the rest of the world.
RBI is a global business headquartered in Sutton in the UK and in addition has principal operations in London, Amsterdam, Skokie (Illinois), Norcross (Georgia) and Boston (Massachusetts) in the US, as well as Paris, Milan and Shanghai. RBI has 4,800 employees worldwide.
RBI’s customers use its data services to help make key strategic decisions and reduce risk, to improve productivity and performance and identify new business opportunities. RBI’s magazines and websites deliver high value news, information and opinion to business professionals across many industry sectors while also providing an effective marketing channel for customers. RBI’s online marketing solutions bring buyers and sellers together through a range of innovative digital channels.
RBI’s market leading data services include:ICIS, an information and pricing service in chemicals, fertilisers and energy;BankersAccuity, a comprehensive US multi-family housing screeningprovider of payment routing data, anti-money laundering (AML) services and collections service.compliance information to the banking and corporate sectors;XpertHR, an online service providing regulatory guidance, best practices and tools for HR professionals; andReed Construction Data, a provider of online construction data and information to the construction industry.
LEXISNEXIS RBI’s leading brands includeNew Scientist,Farmers Weekly,Estates Gazette,Elseviermagazine andBoerderij. Online marketing solutions includeemedia, an email bulletin based lead generation service andBuyerZone, a web-based request for quotation (RFQ) service.
In 2012, RBI continued to reshape its portfolio significantly, addressing continued growth opportunities in data services while exiting areas not core to its paid content strategy. In addition, the business continued to focus on cost efficiency across the traditional publishing businesses.
As part of this strategy RBI sold Totaljobs Group, comprising seven recruitment job boards, created organically by RBI. RBI continued to create value from its existing magazine brands, while exiting a number of titles includingVariety, the entertainment market title in the US, and those in the electronics and catering markets in the UK. In January 2013, RBI announced that it had completed the sale of RBI Australia. RBI is in a process to exit its operations in Spain.
Market Opportunities
The growing need for high quality industry data and information is driving demand for online subscription data services and providing new opportunities. Business-to-business marketing spend has historically been driven by levels of corporate profitability, which itself has followed GDP growth, and business investment.
Strategic Priorities
RBI’s strategic goal is to help business professionals achieve better outcomes with information and decision support in its individual markets. Its areas of strategic focus are: further growing the data services businesses; restructuring the business magazines and advertising-driven portfolio; developing paid content services in key markets and supporting print franchises through brand extensions and redesign; and driving further organisational effectiveness.
Business Model, Distribution Channels and Competition
Across the RBI portfolio, user and subscription revenues now account for 69% of the total business with the remaining 31% derived from print and online advertising and lead generation. RBI electronic revenue streams now account for 54% of total revenue.
Data services are typically sold directly on a subscription or transactional basis. Business magazines are mainly distributed on a paid basis. Advertising and lead generation revenues are sold directly or through agents.
RBI’s data services and titles compete with a number of publishers on a service and title-by-title basis including: UBM, McGraw Hill and Wolters Kluwer as well as many niche and privately-owned competitors. RBI competes for online advertising with other business-to-business websites as well as Google and other search engines.
Major Brands
RBI’s major brands include:ICIS,a global provider of news, price benchmarks, data, analytics and research to the energy, chemical and fertiliser industries;Reed Construction Data,a provider of actionable insight for the construction industry through cost data, project leads, market intelligence and marketing solutions;NewScientist,a science and technology media brand;Flightglobal,data, news and advisory services for professionals working in the global aviation industry;XpertHR,online services with reference data, compliance information and good practice guides for HR professionals;Elsevier,news and opinion service in the Netherlands;BankersAccuity,payment routing data, AML services and compliance tools for the banking and corporate sectors worldwide;estatesgazette,news, data and research services for the UK commercial property industry; andemedia,digital lead generation services in the US, UK and Europe.
LEGAL & PROFESSIONAL
Year ended December 31, | ||||||||||||
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Revenue | £ | 1,634 | £ | 1,691 | £ | 1,692 | ||||||
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Revenue | £ | 1,610 | £ | 1,634 | £ | 1,691 | ||||||
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LexisNexisIn Legal & Professional ismarkets, we are a leading provider of contentlegal, regulatory and news & business information solutions forand analysis to legal, corporate, government, and other corporate markets. academic customers.
Serving customers in more than 100175 countries, LexisNexis Legal & Professional provides resources and services that inform decisions, increase productivity and drive new business.
With effect from 1 January 2011 LexisNexis was reorganised as two separate businesses, LexisNexis Risk Solutions and LexisNexis Legal & Professional, which are accordingly now presented separately.
LexisNexis Legal & Professional is headquartered in New York and has principal operations in the New York area, Ohio and New JerseyNorth Carolina in the United States, Toronto in Canada, London and Paris in Europe, Canada, and cities in several other countries in Africa and Asia Pacific. It has 10,30010,400 employees worldwide.
In 2011,2012, approximately 70%74% of LexisNexis Legal & Professional’sLegal’s revenue came from subscription sales, 8%13% from circulation and transactional sales, 6%5% from advertising, including directory listings, and the remaining 16%8% from other sources. Approximately 68% of Legal & Professional’sLegal’s revenue by destination in 20112012 was derived from North America, 21% from Europe and the remaining 11% from the rest of the world. 75%76% of LexisNexis Legal & Professional’sLegal’s revenues were delivered electronically.
LexisNexis Legal & Professional is organised throughin market facing businesses, thegroups. The most significant of which are Research & Litigation Solutions and Business of Law Software Solutions in the US and LexisNexis Europe, Middle East, Africa & AustralasiaInternational and LexisNexis Asia (together reported as International) outside the US. These are supported by global shared services organisations providing platform and product development, operational and distribution services, and other support functions.
LexisNexis LegalIn Research & Professional is a leading provider of legal and business information and analysis to law firms, corporations and government throughout the US. ElectronicLitigation Solutions, electronic information solutions and innovative workflow tools, developed through close collaboration with customers, help law firms and other legal and business professionals make better informed decisions in the practice of law and in managing their businesses.
In Research & Litigation Solutions, the flagship Flagship products for legal research areLexis.comandLexis Advance, which provide federal and state statutes and case law, together with analysis and expert commentaries from sources such asMatthew BenderandMichieand the leading citation serviceShepard’s, which advises on the continuing relevance of case law precedents. Research solutions also include news and business information, ranging from daily news to company filings, as well as public records information and analytics. Through its suite of litigation services,solutions, LexisNexis Legal & Professional additionally provides lawyers with a suite of tools for electronic discovery, evidence management,covering case analysis, court docket tracking, e-filing, expert witness identificationpreparation to processing and legal documentreview to trial preparation. LexisNexis Legal & Professional also partners with law schools to provide services to students as part of their training.
In December 2011,2012, LexisNexis Legal & Professional releasedintroduced in the US the next iterationtwo new releases ofLexis Advance, an innovative web application designed to transform how legal professionals conduct research. Built on an advanced technology platform,Lexis Advanceallows primary researchers within legal and professional organisations to find highly relevant information more easily and efficiently, helping them to drive better outcomes. The release is the next step in a series ofLexis Advancelaunches with futureFuture releases continuingwill continue to expand available content and add new innovative tools. LexisNexis Legal & Professional employs lawyers and trained editors with professional legal backgrounds who review, annotate and update the legal content to help ensure each document in itsthe collection is current and linked to other related documents.comprehensive. This domain expertise combined with the application of Reed Elsevier’s “big data” HPCC technology means LexisNexis Legal & Professional is able to update its entire legal collection faster and more efficiently, while also identifying and linking content, thereby uncoveringenabling customers to uncover previously undiscovered relationships between documents.
InLexisNexis launchedLexis Practice Advisorin the US in 2011,2012, a web-based practical guidance product tailored for attorneys who handle transactional matters. Additionally, LexisNexis Legal & Professional launchedintroduced a legal news solution through the acquisition ofLaw360— providing attorneys with breaking news and analysis by practice area to supplement the legal research process.
In litigation solutions, LexisNexis Firm ManagerreleasedHosted Concordance Evolution,which is a fully hosted service that delivers electronic discovery review capabilities on an online legal“on-demand” basis.Sanction Solutionswas also acquired, adding trial presentation software to the LexisNexis suite of litigation offerings.
The web-based marketing services group assists law firms in their client development throughlawyers.com and providing them with website development, search engine optimisation and other web marketing services.
LexisNexis Business of Law Software Solutions provides law firms with practice management applicationsolutions, including time and billing systems, case management, cost recovery and document management services.
In International markets outside the United States, LexisNexis serves legal, corporate, government, accounting and academic markets in Europe, Canada, Africa and Asia Pacific with local and international legal, regulatory and business information. The most significant businesses are in the UK, France, Australia, Canada, and South Africa.
LexisNexis focuses on providing customers with leading collections of content and innovative online solutions to help legal and business professionals make better decisions more efficiently. Penetration of online information services has grown strongly and electronic solutions now account for solo practitioners58% of revenue outside the US.
In the UK, LexisNexis is a leading legal information provider offering an unrivalled collection of primary and smallsecondary legislation, case law, practices. Among other expert commentary, and forms and precedents. Its extensive portfolio includes a number of heritage brands:Halsbury’s,Tolleys,Butterworths. The content is delivered through multiple formats — from print to online, to mobile apps and embedded in customers’ workflow.
In 2012, LexisNexis launched additional modules of theLexisPSLproduct releases, LexisNexis Legal & Professional also releasedEarly Data Analyzersuite which provides lawyers a single destination for their practical legal information needs with early insight intodirect links to the sizerelevant cases, legislation, precedents, forms, practical guidance and scopeexpert commentary. The ability to drive measurable customer value was recognised by the British Legal Awards which has named LexisNexis UK ‘2012 Supplier of discoverythe Year’ for its innovation, authority and an updated versionunderstanding of law firms’ needs. A similar service is being launched across other markets — Australia already has 13 practice area modules and by the end of next year it will have more.
In France, LexisNexis is a leading online provider of information to lawyers, notaries and courts. A heritage brandJurisClasseurand leading authoritative content is provided through multiple formats — lexisnexis.fr, mobile and in print. These content sources are, as in the UK, being combined with new content and innovative workflow tools to develop practical guidance and practice management solutions. In 2012, LexisNexis France launchedLexis 360, the first semantic search online tool combining legal information, practical content and results from the web.
Following the success ofLexis for Microsoft Office which(LMO) in US markets, a Canadian version was launched in 2012. LMO enables lawyerscustomers to conduct their Lexis searchesaccess LexisNexis content and services via add-ins/toolbars within Microsoft applications such as Word and Outlook.
In 2011, LexisNexis Legal & Professional rationalised its electronic discovery offerings and divested the Applied Discovery business.
Business Solutions provides law firms with practice management solutions, including time and billing systems, case management, cost recovery and document management services. LexisNexis Legal & Professional assists law firms in their client development throughLawyers.com, showcasing the qualifications and credentials of more than one million lawyers and law firms in the US and internationally, and providing law firms with website development, search engine optimisation and other web marketing services.
LexisNexis Legal & Professional also provides its legal and information services to US government, corporate and academic customers, including news and business information and public records. In addition to research and litigation services, capabilities for these customers include specialist products for corporate counsel focused on regulatory compliance, intellectual property management, and management of external counsel.
In International markets outside the United States, LexisNexis Legal & Professional serves legal, corporate, government and academic markets in Europe, Canada, Africa and Asia Pacific with local and international legal, tax, regulatory and business information. The most significant businesses are in the UK, France, Australia and Canada.
LexisNexis Legal & Professional is focused across all its geographies on leveraging best in class content and its market leading international online product platform to deliver innovative electronic information services and workflow tools to help legal and business professionals make better informed decisions more efficiently. Penetration of online information services is growing and print based products now account for less than 40% of LexisNexis Legal & Professional total revenues outside the US.
In the UK, LexisNexis Legal & Professional is a leading legal information provider in its market. It delivers a wide array of content and services, comprising an unrivalled collection of primary and secondary legislation, case law, expert commentary, and forms and precedents. Its extensive portfolio includesHalsbury’s Laws of England, Simon’s TaxesandButterworths Company Law Servicedelivered through the UK’s flagship online productLexisLibraryand in print. Other electronic products includeLexis Legal Intelligence, a resource on legal practice for lawyers, and media monitoring and reputation management tools for the corporate market such as theNexisDirectresearch tool. Additionally, LexisNexis Legal & Professional provides law firms with practice management solutions.
In France, LexisNexis Legal & Professional is a provider of information to lawyers, notaries and courts withJurisClasseurandLa Semaine Juridiquebeing the principal publications, delivered throughlexisnexis.frand in print. These content sources are, as in the UK, being combined with new content and innovative workflow tools to develop practical guidance and practice management solutions.
In international markets in 2011, LexisNexis Legal & Professional continued to roll outLegal Intelligence. Designed to match the way lawyers work,Lexis Legal Intelligenceprovides primary law, practical guidance, learning and productivity tools in one place. It reduces the time it takes to get the answers and documents lawyers need, helping to make practice more effective. In the UK, the practical guidance serviceLexisPSLnow has 13 practice areas including company, commercial, corporate, banking and finance, and will expand again in 2012. A similar service has been launched in Australia, with five practice areas in 2011. In France, LexisNexis Legal & Professional is completing the development ofLexis360, an innovative solution for legal professionals that combines semantic and federated search capabilities with practical guidance, legal concept navigation and brand-leadingJurisClasseurcontent.
In 2011,2012, LexisNexis Legal & Professional strengthened its positionpositions in key emerging markets including India. LexisNexis Legal & Professional released an initial version ofLexis India, an online legal research platformAsia through enhanced products created specifically for the legal professionals and practitioners, corporate counsels, legal researchers academics and government institutions in India.markets including India, China and Japan. In Japan, LexisNexis launchedLexis AS ONE, a product created specifically for corporate compliance and legal professionals to help navigate the complex regulatory environment.
Market Opportunities
Longer term growth in legal and regulatory markets worldwide is driven by increasing levels of legislation, regulation, regulatory complexity and litigation, and an increasing number of lawyers. Additional market opportunities are presented by the increasing demand for online information solutions and practice management tools that improve the quality and productivity of research, deliver better legal outcomes, and improve business performance. Notwithstanding this, legal activity and legal information markets are also influenced by economic conditions and corporate activity, as has been seen most recently with the dampening impact on demand of the recent global recession and the somewhat subdued environment that has followed in North America and in Europe.
Strategic Priorities
LexisNexis Legal & Professional’s strategic goal is to enable better legal outcomes and be the leading provider of productivity enhancing information and information-based workflow solutions in its markets. To achieve this LexisNexis is focused on: building world class content; developingon introducing next generation product platforms, tools and infrastructure to deliver best-in-class outcomes for legal and business professionals with greater speed and efficiency; building client development and practice management tools enabling customers to be more successful in their markets; international expansion and growth of online products and solutions; increasing LexisNexis Legal & Professional’s presence in emerging markets;solutions on the global New Lexis platform and infrastructure; leveraging New Lexis globally to continue to drive print to electronic migration and long-term international growth; and upgrading operational infrastructure, improving operational efficiency.process efficiency and gradually improving margins.
In the US, theLexisNexis’ focus is on the continuing development of the next generation of legal research and practice solutions as well assolutions. It is also conducting a major upgrade in operations infrastructure and customer service and support platforms toplatforms. This will provide customers with an integrated and superior customer experience across US legal research, litigation services, practice management and client development. ProgressiveOver the next few years progressive product introductions, often based on the New Lexis Advanceplatform, over the next few yearsleveraging big data HPCC technology, will combine advanced technology with enriched content, sophisticated analytics and applications to enable LexisNexis Legal & Professional’sLexisNexis’ customers to make better legal decisions and drive better outcomes for their organizationsorganisations and clients.
Outside the US, LexisNexis Legal & Professional is focused on growing online services and developing further high quality actionable content and workflow tools, including the development of practical guidance and practice management applications. In 2013, LexisNexis will begin to introduceNew Lexis globally. Additionally, LexisNexis is focusing on the expansion of its activities in emerging markets.
Business Model, Distribution Channels and Competition
LexisNexis Legal & Professional products and services are generally sold directly to law firms and to corporate, government, accounting and academic customers on a paid subscription basis, with subscriptions with law firms often under multi-year contracts.
Principal competitors for LexisNexis in US legal markets are West (Thomson Reuters), CCH (Wolters Kluwer) and Bloomberg,, and Bloomberg and Factiva (News Corporation) in news and business information. Competitors in litigation solutions also include software companies. MajorSignificant international competitors include Thomson Reuters, Wolters Kluwer and Factiva.
Major Brands
LexisNexis is the master brand used by LexisNexis Legal & Professional.
LexisNexis Legal & Professional’s major brands include:Lexis®, legal, news and public records content for legal professionals;Nexis®,news and business content for legal and other professionals;Matthew Bender®, critical legal analysis, checklists, forms, and practice guides authored by industry experts covering 50 major practice areas;CaseMap®, software allowing litigators to assess and analyse case information;Lexis® for Microsoft® Office, an integration of LexisNexis content, open Web search and Microsoft Office;LexisNexis® Verdict & Settlement Analyzer®, an early case assessment tool for researching and evaluating the risk and opportunity associated with a case;lawyers.comSM, a website for consumers seeking legal information and counsel;Lexis®Library, LexisNexis UK flagship legal online product;Lexis®PSL, LexisNexis UK legal practical guidance
service; andJurisClasseur, an authoritative online legal resource in France.France;Shepard’s®, a citation service;Lexis Advance™, a new online legal research tool that transforms the way legal professionals conduct research; andLexis® Practice Advisor, a new resource that offers guidance to help attorneys handle transactional matters more efficiently and effectively.
REED EXHIBITIONS
Year ended December 31, | ||||||||||||
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Revenue | £ | 707 | £ | 693 | £ | 638 | ||||||
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Revenue | £ | 854 | £ | 707 | £ | 693 | ||||||
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In Exhibitions we are a leading events business, with almost 500 events in over 30 countries.
Reed Exhibitions’ portfolio of exhibitions and conferences serves 44 industry sectors across the Americas, Europe, the Middle East, Africa and Asia Pacific. In 20112012, Reed Exhibitions brought together over six6 million event participants from around the world, generating billions of dollars in business for its customers.customers, and boosting the local economies where the events are hosted.
Reed Exhibitions is a global business headquartered in London and has principal offices in Paris, Vienna, Norwalk (Connecticut), São Paulo, Abu Dhabi, Beijing, Tokyo Sydney and São Paulo.Sydney. Reed Exhibitions has 2,8003,200 employees worldwide.
Over 70% of Reed Exhibitions’ revenue is derived from exhibitor participation fees, with the balance primarily comprising of conference fees, online and offline advertising, in exhibition guides, sponsorship fees and admission charges. In 2011,2012, approximately 18%15% of Reed Exhibitions’ revenue came from North America, 52%50% from Europe and the remaining 30%35% from the rest of the world on an event location basis.
Reed Exhibitions organises market leading events thatwhich are relevant to industry needs, where participants from around the world come togethermeet face to face to do business, to network and to learn. Its exhibitions and conferences encompass a wide range of sectors, including: broadcasting, TV, music & entertainment; building & construction;sectors. They include construction, electronics, & electrical engineering;energy and alternative energy, oil & gas; engineering, entertainment, gifts and jewellery, healthcare, hospitality, interior design, logistics, manufacturing, & processing; gifts; interior design; IT & telecoms; jewellery; life sciences & pharmaceuticals; marketing; property &pharmaceuticals, real estate; sports & recreation;estate, recreation, security and safety, transport and travel.
In January 2012 Reed Exhibitions took full ownership of our joint venture Alcantara Machado, Brazil’s leading exhibition organiser.
Market Opportunities
Growth in the exhibitions market is correlated to business to businessinfluenced by both business-to-business marketing spend historicallyand business investment. Historically, these have been driven by levels of corporate profitability, which itselfin turn has followed overall growth in gross domestic product (“GDP”), and business investment.GDP. Emerging markets and growth industries provide additional opportunities. As some events are held other than annually, growth in any one year is affected by the cycle of non-annual exhibitions.
Strategic Priorities
Reed Exhibitions’ strategic goal is to provide market leadingmarket-leading events in growth sectors, especially in higher growth geographies, that enable businessesenabling exhibitors to target and reach new customers quickly and cost effectivelycost-effectively and to provideproviding a platform for industry participants to do business, to network and to learn. To achieve this, Reed Exhibitions is focused on:on driving organic growth by leveraging its global sector groupsexpertise, by developing new events and by building out its technology platforms, developingplatforms. It is also shaping the portfolio through a combination of new launches, strategic partnerships and selective acquisitions in high growth sectors and geographies; and further developing websites, analytics and other online tools to enhance the exhibition experience and add to customer return on investment in event participation.
In 2011, at a portfolio level, this strategy delivered 43 new events in high growth sectors such as the gift and home industry in China, incentive travel in the USA, and smart grids in Japan and Singapore,geographies as well as further acquisitions to build out our position in Brazil, enter Mexicowithdrawal from markets and Morocco and increase our exposure to the renewable energy industry in the UK. In terms of systems and customer experience, industries with lower growth prospects.
Reed Exhibitions has continuedis committed to invest in developing itscontinually improving customer solutions and experience by implementing best practice initiatives across geographies and sectors. Its integrated web event web platform which is now used by more than 70%70 per cent of events and is driving both customer satisfaction and insight. Using customer insights, Reed Exhibitions has developed an innovative product offering which enhances the value proposition for exhibitors by broadening their options in terms of the type and location of stand they take and the timing of their commitment to the event.
In 2012 Reed Exhibitions launched 30 new events. These included events which extended the geographical footprint of the luxury travel brand, ILTM, to Mexico and the high end Privé jewellery brand to Panama. Reed Exhibitions Japan responded to customer demand by introducing several new events, some of which were in the fast moving sectors of cosmetics and high-technology plastics. In China, the Nepcon brand was used to launch an electronics manufacturing event in the western city of Chengdu. A key element of building business in China and Brazil is a regional strategy, taking more events to China’s second tier cities and cloning events from São Paulo to Recife in Brazil’s fast developing north east. Reed Exhibitions now organises over 150 events in emerging markets.
A number of targeted acquisitions were completed during 2012. In Brazil, Reed Exhibitions took full ownership of its joint venture, Reed Exhibitions Alcantara Machado, and expanded into hospitality (Equipotel) and logistics (Movimat), cementing Reed Exhibitions’ position as the leading exhibition organizer in Brazil. Elsewhere, acquisitions were made to extend Reed Exhibitions’ reach in China and its global position in the alternative energy sector. During the year, Reed Exhibitions also established positions in new markets with attractive growth prospects, including Indonesia, Saudi Arabia and Turkey, where a joint venture has been created with Tüyap, the country’s leading event organiser.
Business Model, Distribution Channels and Competition
The substantial majority of Reed Exhibitions’ revenues are from sales of exhibition space. The balance includes conference fees, online and offline advertising, in exhibition guides, sponsorship fees and, for some shows, admission charges. Exhibition space is sold directly or through local agents where applicable. Reed Exhibitions often works in collaboration with trade associations, which use the events to promote access for members to domestic and export markets, and with governments, for whom events can provide important support to stimulate foreign investment and promote regional and national enterprise.
Reed Exhibitions operatesis the global market leader in a fragmented industry, holding less than a 10%10 per cent global market share. Other international exhibition organisers include UBM, Informa IIR and some of the larger German Messe, including Messe Frankfurt, Messe DusseldorfDüsseldorf and Messe Munich. Competition also comes from industry trade associations and convention centre and exhibition hall owners.
Major Brands
Reed Exhibitions’ major brands include:Mipcom®, a leading entertainment content market;World Travel Market®, a global event for the travel industry;Mipim®,a global event for the property industry;Mecanica,Automec,an international machinery trade fair;JCK Las Vegas, a North American jewellery industry trade event;WorldFuture Energy Summit, a platformfair for sustainable future energy solutions;autoparts, equipment and services;Equip’hotel Paris,Batimat®,the international building exhibition;New York ComicCon™,an event for the restaurant, hotel, café and catering industries;East Coast popular-culture convention;In-cosmeticsSino Corrugated,, a corrugated manufacturing show;ISC West,an international exhibition for personal care ingredients;security conference; andGifts & HomeAluminum China,, a leading business gifts & home fair in China.
REED BUSINESS INFORMATION
Year ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
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Revenue | £ | 695 | £ | 718 | £ | 891 | ||||||
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Reed Business Information (“RBI”) provides data services, information and marketing solutionsbringing aluminium to business professionals in the UK, the US, Continental Europe, Asia and Australia. It produces industry critical data services and lead generation tools, online community and job sites as well as business magazines with market leading positions in many sectors.
Approximately 24% of RBI revenue in 2011 came from North America, 23% from the United Kingdom, 39% from Continental Europe and 14% from the rest of the world.
RBI is a global business headquartered in Sutton in the UK and has principal operations in Amsterdam in the Netherlands, Boston, Los Angeles, Skokie (Illinois) and Norcross (Georgia) in the US as well as Paris, Milan, Madrid, Bilbao, Sydney and Shanghai. RBI has 5,600 employees worldwide.
RBI’s data services enable businesses and professionals to enhance productivity through quicker and easier access to insightful and comprehensive industry information. Online marketing solutions, business to business magazines, online lead generation services and community websites provide effective marketing channels for advertisers to reach target audiences and for industry professionals to access valued information.
RBI’s market leading data services include:ICIS, a global information and pricing service for the petrochemicals and energy sector;BankersAccuity(previouslyBankers’ Almanac andAccuity), a leading provider of reference data on the banking industry;XpertHR, an online service providing human resources data, regulatory guidance, best practices and tools for HR professionals; andReed Construction Data, a provider of online construction data to the North American construction industry. The major online marketing solutions include:totaljobs.com, a major UK online recruitment site; andHotfrog, a global online business directory. Premier publishing brands includeVarietyin the US,New Scientistin the UK and theElseviermagazine in the Netherlands.
In 2011, RBI continued to significantly reshape its portfolio, addressing continued growth opportunities in data services and the accelerated migration of customer marketing spend to web media while managing value from the remaining print businesses. During the year RBI expanded the data services businesses with three significant acquisitions. In January 2011, RBI completed the transaction to take majority ownership ofCBI China, a market leading petrochemical and energy information service in China, bringing unrivalled coverage of the important and growing Chinese and Asian chemicals and energy markets, strengtheningICIS’sglobal position. In June 2011, RBI acquiredAscend,a provider of online fleet data and
valuations to the aviation industry, complementing RBI’s existing data and content services and the aerospace platform,Flightglobal. In November 2011, RBI completed the acquisition of Accuity Inc. for a total cost of £331 million, net of cash acquired.Accuityis a US provider of online subscription-based data solutions for the financial services industry which enable customers to maximise the accuracy of their banking and payment transactions, and to minimise the risk of non-compliance with government regulations in these transactions.Accuityis being integrated withRBI’s Bankers’ Almanac, to formBankersAccuity, establishing a global standard for payment efficiency and compliance solutions.
RBI continued to create value from its existing magazine brands, while exiting a number of titles including those in the computing, social care and road transport markets in the UK and the construction market in the Netherlands. RBI also sold the UK QSS magazine subscription fulfilment business during the course of the year.
Market Opportunities
The growing need for authoritative industry data and information is driving demand for online subscription data services and providing new opportunities. Business to business marketing spend has historically been driven by levels of corporate profitability, which itself has followed GDP growth, and business investment.
Strategic Priorities
RBI’s strategic goal is to help business professionals achieve better outcomes with information and decision support in its individual markets. Its areas of strategic focus are: further growing the data services businesses; restructuring the business magazines and advertising driven portfolio, to develop online services in key markets and support print franchises through brand extensions and redesign; and to realign the cost base with revenue expectations and drive further organisational effectiveness.
Business Model, Distribution Channels and Competition
Across the RBI portfolio, user and subscription revenues now account for 62% of the total business with the remaining 38% derived from print and online advertising and lead generation. RBI electronic revenue streams now account for 51% of total revenue.
Data services are typically sold directly on a subscription or transactional basis. Business magazines are distributed on a paid or controlled circulation basis. Advertising and lead generation revenues are sold directly or through agents.
RBI’s data services and titles compete with a number of publishers on a service and title by title basis including: UBM, McGraw Hill and Wolters Kluwer as well as many niche and privately owned competitors. RBI competes for online advertising with other business to business websites as well as Monster, Google and other search engines.
Major Brands
RBI’s major brands include:ICIS, a global provider of news and pricing data to the chemical and energy industries;BankersAccuity, a supplier of banking intelligence to the global financial industry;XpertHR, an HR legal compliance and good practice toolkit;Ascend,online aircraft and engine data;totaljobs.com, a UK generalist website attracting over 3.7 million jobseekers and carrying over 125,000 jobs every month;Reed Construction Data, construction data, building product information, cost data, market analysis and advertising channels to construction industry professionals;Variety, the premier source of entertainment business news and analysis since 1905;Elsevier, a news and opinion magazine in the Netherlands; andNew Scientist, a leading science and technology media brand.life.
ELSEVIER REED FINANCE BV
Elsevier Reed Finance BV, the Dutch parent company of the Elsevier Reed Finance BV group (“ERF”), is directly owned by Reed Elsevier PLC and Reed Elsevier NV. ERF provides treasury, finance, intellectual property and reinsurance services to the Reed Elsevier Group plc businesses through its subsidiaries in Switzerland: Elsevier Finance SA (“EFSA”), Reed Elsevier Properties SA (“EPSA”REPSA”) and Elsevier Risks SA (“ERSA”). These three Swiss companies are organised under one Swiss holding company, which is in turn owned by Elsevier Reed Finance BV.
EFSA is the principal treasury centre for the Reed Elsevier combined businesses. It is responsible for all aspects of treasury advice and support for Reed Elsevier Group plc’s businesses operating in Continental Europe, Latin America, the Pacific Rim, India, China and certain other territories, and undertakes foreign exchange and derivatives dealing services for the whole of Reed Elsevier. EFSA also arranges or directly provides Reed Elsevier Group plc businesses with financing for acquisitions, product development and other general requirements and manages cash pools, investments and debt programmes on their behalf.
EPSAREPSA owns and actively manages intellectual property assets including trademarks such asThe Lancetand databases such asReaxysandPharmaPendium. In 20112012 it continued to strengthen its position as a centre of excellence in the management, development and developmentbranding of intellectual property assets. ERSA is responsible for reinsurance activities for Reed Elsevier.
In 2011,2012, EFSA was active in arranging the financing and foreign currency contracts for Reed Elsevier Group plc companies related to cross border dividends and acquisitions. EFSA issued €550 million of term debt in September 2012, the proceeds of which pre-financed EFSA’s €600 million term debt maturing in April 2013. It negotiated and advised Reed Elsevier Group plc companies on a number of banking and cash management arrangements in Continental Europe and Asia and continued to advise on treasury matters, including interest rate, foreign currency and certain other financial exposures.
The average balance of cash under management by EFSA in 2011,2012, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.8$0.5 billion (2010:(2011: $0.8 billion).
At December 31, 2011,2012, 82% (2011: 91% (2010: 84%) of ERF’s gross assets were held in US dollars and 17% (2011: 9% (2010: 15%) in euros, including $8.6$8.4 billion (2010: $8.7(2011: $8.6 billion) and €0.6 billion (2010:(2011: €0.6 billion) in loans to Reed Elsevier Group plc subsidiaries. Loans made to Reed Elsevier Group plc businesses are funded from equity, long term debt of $2$2.6 billion and short term debt of $0.5$0.2 billion backed by committed bank facilities. Sources of long term debt include Swiss domestic public bonds, bilateral term loans, private placements and syndicated bank facilities. Short term debt is primarily derived from euro and US commercial paper programmes.
Certain of our businesses provide authorised customers with products and services such as access to public records and other information on US individuals. Our businesses that provide such products and services are subject to applicable privacy and consumer information laws and US federal and state and EU and member state regulation. Our compliance obligations vary from regulator to regulator, and include, among other things, strict data security programs, submissions of regulatory reports, providing consumers with certain notices and correcting inaccuracies in applicable reports. We are also subject to the terms of consent decrees and other settlements with certain regulators in the U.S. See “Item 8: Financial Information — Legal Proceedings” on page 70.68.
Section 219 of the Iran Threat Reduction and Syrian Human Rights Act of 2012 (the “ITRA”), which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires disclosures regarding certain activities relating to Iran or with persons designated pursuant to various U.S. Presidential Executive Orders. These disclosures are required even where the activities, transactions or dealings were conducted in compliance with applicable law. During 2012, Sepahan Oil Company, Zagros Petrochemical Company and Petroleum Marketing Department (Sytrol) subscribed to ourICIS price reports relating to the global petrochemical, energy and fertilizer markets. Our gross revenues invoiced in 2012 from these subscriptions were approximately £33,000 (thirty-three thousand pounds sterling). We do not normally allocate net profit on a country-by-country or publication-by-publication basis. However, we estimate that our net profit from such sales, after internal cost allocation, amounted to less than 0.004% of our net profit reported in our combined income statement for the year ended December 31, 2012. In addition, during 2012 we processed subscription refundsrelating toICISand BankersAlmanac products of approximately £41,000 (forty-one thousand pounds sterling) to Pars Oil Company, Parsian Bank, Real Estate Bank and Syria International Islamic Bank. We believe these transactions and dealings were lawful under applicable laws and regulations, and anticipate that similar transactions or dealings may occur in the future.
A description of the corporate structure is included under “— History and Development” on page 11. A list of significant subsidiaries, associates, joint ventures and business units is included as an exhibit, see “Item 19: Exhibits” on page S-3.pages S-3 and S-4.
We own or lease approximately 280 properties around the world, the majority of leased space being in the United States. The table below identifies the principal owned and leased properties which we use in our business.
Location | Business segment(s) | Principal use(s) | Floor space (square feet) | |||||
Owned properties | ||||||||
Alpharetta, Georgia | Office and data centre | 406,000 | ||||||
Miamisburg, Ohio | Office | 403,638 | ||||||
Linn, Missouri | Scientific, Technical & Medical | Warehouse | 236,105 | |||||
Albany, New York | Office | 194,780 | ||||||
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Binghamton, New York | Office and warehouse | 162,000 | ||||||
Leased properties | ||||||||
New York, New York | Office | 451,800 | ||||||
Amsterdam, Netherlands | Office | 426,036 | ||||||
Miamisburg, Ohio | Office and data centre | 213,802 | ||||||
Sutton, England | Office | 191,960 |
All of the above properties are substantially occupied by Reed Elsevier businesses with the exception of the New York and Colorado Springs properties,property, where Reed Elsevier occupies less than half of the floor space.
No property owned or leased by Reed Elsevier which is considered material to Reed Elsevier taken as a whole is presently subject to liabilities relating to environmental regulations and none has major encumbrances.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OPERATING RESULTS — REED ELSEVIER
The following discussion is based on the combined financial statements of Reed Elsevier for the three years ended December 31, 20112012 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). and as adopted by the European Union.
The following discussion should be read in conjunction with, and is qualified by reference to, the combined financial statements.
Reed Elsevier derives its revenue principally from subscriptions, circulation and transactional sales, advertising sales and exhibition fees.
Revenue by type
Year ended December 31,
2011 | 2010 | 2009 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Subscriptions | £ | 2,819 | 47 | % | £ | 2,709 | 45 | % | £ | 2,711 | 45 | % | £ | 2,978 | 49 | % | £ | 2,819 | 47 | % | £ | 2,709 | 45 | % | ||||||||||||||||||||||||
Circulation/transactions | 1,649 | 27 | 1,760 | 29 | 1,708 | 28 | 1,602 | 26 | 1,649 | 27 | 1,760 | 29 | ||||||||||||||||||||||||||||||||||||
Exhibitions | 700 | 12 | 675 | 11 | 626 | 10 | 846 | 14 | 700 | 12 | 675 | 11 | ||||||||||||||||||||||||||||||||||||
Advertising | 437 | 7 | 491 | 8 | 585 | 10 | 350 | 6 | 437 | 7 | 491 | 8 | ||||||||||||||||||||||||||||||||||||
Other | 397 | 7 | 420 | 7 | 441 | 7 | 340 | 5 | 397 | 7 | 420 | 7 | ||||||||||||||||||||||||||||||||||||
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Total | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | £ | 6,071 | 100 | % | £ | 6,116 | 100 | % | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | ||||||||||||||||||||||||
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Revenue by geographic market
Year ended December 31,
2011 | 2010 | 2009 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
North America | £ | 3,219 | 54 | % | £ | 3,303 | 55 | % | £ | 3,310 | 55 | % | £ | 3,154 | 52 | % | £ | 3,219 | 54 | % | £ | 3,303 | 55 | % | ||||||||||||||||||||||||
United Kingdom | 485 | 8 | 490 | 8 | 513 | 8 | 442 | 7 | 485 | 8 | 490 | 8 | ||||||||||||||||||||||||||||||||||||
The Netherlands | 189 | 3 | 204 | 3 | 243 | 4 | 165 | 3 | 189 | 3 | 204 | 3 | ||||||||||||||||||||||||||||||||||||
Rest of Europe | 1,095 | 18 | 1,131 | 19 | 1,132 | 19 | 1,176 | 19 | 1,095 | 18 | 1,131 | 19 | ||||||||||||||||||||||||||||||||||||
Rest of world | 1,014 | 17 | 927 | 15 | 873 | 14 | 1,179 | 19 | 1,014 | 17 | 927 | 15 | ||||||||||||||||||||||||||||||||||||
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Total | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | £ | 6,071 | 100 | % | £ | 6,116 | 100 | % | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | ||||||||||||||||||||||||
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The cost profile of individual businesses within Reed Elsevier varies widely and costs are controlled on an individual business unit basis. The most significant cost item for Reed Elsevier as a whole is staff costs of £1,820 million (2011: £1,797 million (2010:million; 2010: £1,838 million; 2009: £1,852 million).
The following tables show revenue, operating profit and adjusted operating profit for each of Reed Elsevier’s business segments in each of the three years ended December 31, 20112012 together with the percentage change in 20112012 and 20102011 at both actual and constant exchange rates. Adjusted operating profit is a measure included on the basis that it is athe key financialsegmental profit measure used by management to evaluate performance and allocate resources to the business segments, as reported under IFRS 8:IFRS8: Operating Segments in note 3 to the combined financial statements. Adjusted operating profit represents operating profit before amortisation and impairment of acquired intangible assets, and goodwill, exceptional restructuring andcosts, acquisition related costs, the share of profit on disposaldisposals in joint ventures, and is grossed up to exclude the equity share of taxes in joint ventures. RestructuringExceptional restructuring costs in 2010 related only to the restructuring of the Reed Business Information business and in 2009 relate to the exceptional restructuring programmes across Reed Elsevier.business. Exceptional restructuring costs principally comprise severance, outsourcing migration and associated property costs. A reconciliation of operating profit to adjusted operating profit is included below. Operating profit by business segment is provided as supplementary information.
With effect from January 1, January 2011, LexisNexis was reorganised as two separate businesses, LexisNexis Risk Solutions and LexisNexis Legal, & Professional, which are accordingly now presented separately. Comparative profit figures for 2010 have been restated on a proforma basis as if the businesses had operated separately in that year. Proforma profit information for 2009 is not available and the cost to develop it would be excessive.
Scientific, Technical & Medical Risk Solutions Business Information Legal Exhibitions Total Scientific, Technical & Medical Risk Solutions Business Information Legal Exhibitions Subtotal Corporate costs Unallocated net pension credit(3) Total Revenue
Year ended December 31, 2012 2011 % change 2010 % change actual
rates constant
rates(1) actual
rates constant
rates(2) (in millions, except percentages) £ 2,063 34 % £ 2,058 34 % 0 % +1 % £ 2,026 34 % +2 % +1 % 926 15 908 15 +2 +1 927 15 -2 +1 663 11 695 12 -5 -3 718 12 -3 -4 1,610 26 1,634 27 -1 -1 1,691 28 -3 -2 854 14 707 12 +21 +25 693 11 +2 +1 £ 6,116 100 % £ 6,002 100 % +2 % +3 % £ 6,055 100 % -1 % 0 % Operating Profit
Year ended December 31, 2012 2011 % change 2010 % change actual
rates constant
rates(1) actual
rates constant
rates(2) (in millions, except percentages) £ 706 52 % £ 695 57 % +2 % +1 % £ 647 59 % +7 % +4 % 281 20 181 15 +55 +54 165 15 +10 +13 76 5 68 5 +13 +15 — — — — 146 11 144 12 +1 +4 159 15 -9 -11 171 12 132 11 +29 +34 127 11 +4 +2 £ 1,380 100 % £ 1,220 100 % £ 1,098 100 % (47 ) (49 ) (34 ) 25 34 26 £ 1,358 £ 1,205 +13 % +13 % £ 1,090 +11 % +8 %
Revenue Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | % change | 2009 | % change | ||||||||||||||||||||||||||||||||||||
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(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Elsevier | £2,058 | 34 | % | £2,026 | 34 | % | +2 | % | +1 | % | £1,985 | 33 | % | +2 | % | +2 | % | |||||||||||||||||||||||
LexisNexis Risk Solutions | 908 | 15 | 927 | 15 | -2 | +1 | 865 | 14 | +7 | +6 | ||||||||||||||||||||||||||||||
LexisNexis Legal & Professional | 1,634 | 27 | 1,691 | 28 | -3 | -2 | 1,692 | 28 | — | -2 | ||||||||||||||||||||||||||||||
Reed Exhibitions | 707 | 12 | 693 | 11 | +2 | +1 | 638 | 11 | +9 | +9 | ||||||||||||||||||||||||||||||
Reed Business Information | 695 | 12 | 718 | 12 | -3 | -4 | 891 | 14 | -19 | -20 | ||||||||||||||||||||||||||||||
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Total | £6,002 | 100 | % | £6,055 | 100 | % | -1 | % | 0 | % | £6,071 | 100 | % | 0 | % | -1 | % | |||||||||||||||||||||||
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Operating Profit Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | % change | 2009 | % change | ||||||||||||||||||||||||||||||||||||
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(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Elsevier | £695 | 57 | % | £647 | 59 | % | +7 | % | +4 | % | £563 | 69 | % | +15 | % | +14 | % | |||||||||||||||||||||||
LexisNexis Risk Solutions | 181 | 15 | 165 | 15 | +10 | +13 | ||||||||||||||||||||||||||||||||||
LexisNexis Legal & Professional | 144 | 12 | 159 | 15 | -9 | -11 | ||||||||||||||||||||||||||||||||||
LexisNexis(5) | 337 | 41 | -4 | -6 | ||||||||||||||||||||||||||||||||||||
Reed Exhibitions | 132 | 11 | 127 | 11 | +4 | +2 | 79 | 10 | +61 | +61 | ||||||||||||||||||||||||||||||
Reed Business Information | 68 | 5 | — | — | (163 | ) | (20 | ) | +100 | +99 | ||||||||||||||||||||||||||||||
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Subtotal | £1,220 | 100 | % | £1,098 | 100 | % | £816 | 100 | % | |||||||||||||||||||||||||||||||
Corporate costs | (49 | ) | (34 | ) | (35 | ) | ||||||||||||||||||||||||||||||||||
Unallocated net pension credit(4) | 34 | 26 | 6 | |||||||||||||||||||||||||||||||||||||
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Total | £1,205 | £1,090 | +11 | % | +8 | % | £787 | +39 | % | +37 | % | |||||||||||||||||||||||||||||
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Elsevier LexisNexis Risk Solutions LexisNexis Legal & Professional LexisNexis(5) Reed Exhibitions Reed Business Information Subtotal Corporate costs Unallocated net pension credit(4) Total Scientific, Technical & Medical Risk Solutions Business Information Legal Exhibitions Subtotal Corporate costs Unallocated net pension credit(3) Total Adjusted Operating Profit(3)
Year ended December 31, 2011 2010 % change 2009 % change actual
rates constant
rates(1) actual
rates constant
rates(2) (in millions, except percentages) £768 47 % £724 46 % +6 % +3 % £693 43 % +4 % +4 % 362 22 354 23 +2 +6 229 14 238 15 -4 -4 665 42 -11 -12 167 10 158 10 +6 +4 152 10 +4 +4 110 7 89 6 +23 +22 89 5 — — £1,636 100 % £1,563 100 % £1,599 100 % (44 ) (34 ) (35 ) 34 26 6 £1,626 £1,555 +5 % +4 % £1,570 -1 % -2 % Adjusted Operating Profit(4)
Year ended December 31, 2012 2011 % change 2010 % change actual
rates constant
rates(1) actual
rates constant
rates(2) (in millions, except percentages) £780 45 % £768 47 % +2 % +1 % £724 46 % +6 % +3 % 392 23 362 22 +8 +7 354 23 +2 +6 119 7 110 7 +8 +10 89 6 +23 +22 234 13 229 14 +2 +4 238 15 -4 -4 210 12 167 10 +26 +30 158 10 +6 +4 £1,735 100 % £1,636 100 % £1,563 100 % (47 ) (44 ) (34 ) 25 34 26 1,713 £1,626 +5 % +6% £1,555 +5 % +4 %
(1) | Represents percentage change in 2012 over 2011 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2011 financial year. These rates were used in the preparation of the 2011 combined financial statements. |
(2) | Represents percentage change in 2011 over 2010 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2010 financial year. These rates were used in the preparation of the 2010 combined financial statements. |
Adjusted operating profit represents operating profit before the amortisation |
Adjusted operating profit for Reed Elsevier is a non-GAAP measure included on the basis that it is a key financial measure used by management to evaluatein assessing performance, and allocate resources, and is derived from operating profit as follows:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Operating profit | £ | 1,205 | £ | 1,090 | £ | 787 | ||||||
Adjustments: | ||||||||||||
Amortisation of acquired intangible assets | 359 | 349 | 368 | |||||||||
Impairment of acquired intangible assets and goodwill | — | — | 177 | |||||||||
Exceptional restructuring costs | — | 57 | 182 | |||||||||
Acquisition related costs | 52 | 50 | 48 | |||||||||
Share of profit on disposals in joint ventures | (1 | ) | — | — | ||||||||
Reclassification of tax in joint ventures | 11 | 9 | 8 | |||||||||
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Adjusted operating profit | £ | 1,626 | £ | 1,555 | £ | 1,570 | ||||||
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Operating profit Adjustments: Amortisation of acquired intangible assets Exceptional restructuring costs Acquisition related costs Share of profit on disposals in joint ventures Reclassification of tax in joint ventures Adjusted operating profit 2012 2011 2010 (in millions) £ 1,358 £ 1,205 £ 1,090 329 359 349 — — 57 21 52 50 — (1 ) — 5 11 9 £ 1,713 £ 1,626 £ 1,555
Underlying revenue growth is a non-GAAP measure included on the basis that it is a key financial measure used by management to evaluatein assessing performance. References to underlying performance are calculated to exclude the results of all acquisitions and disposals made in the current and prior year, assets held for sale and currency translation effects. A reconciliation of reported revenues and adjusted operating profit year-on-year is presented below:
Revenue | Adjusted operating profit | Revenue | Adjusted operating profit | |||||||||||||||||||||||||||||
£m | % change | £m | % change | £m | % change | £m | % change | |||||||||||||||||||||||||
Year to December 31, 2009 | 6,071 | — | 1,570 | | — | | ||||||||||||||||||||||||||
Year to December 31, 2010 | 6,055 | — | 1,555 | — | ||||||||||||||||||||||||||||
Underlying growth | 100 | +2 | % | (16 | ) | | -1 | % | 88 | +2 | % | 73 | +5 | % | ||||||||||||||||||
Acquisitions | 5 | 0 | % | — | | 0 | % | 46 | +1 | % | 8 | +1 | % | |||||||||||||||||||
Disposals | (173 | ) | -3 | % | (12 | ) | -1 | % | (156 | ) | -3 | % | (25 | ) | -2 | % | ||||||||||||||||
Currency effects | 52 | +1 | % | 13 | +1 | % | (31 | ) | -1 | % | 15 | +1 | % | |||||||||||||||||||
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Year to December 31, 2010 | 6,055 | 0 | % | 1,555 | -1 | % | ||||||||||||||||||||||||||
Year to December 31, 2011 | 6,002 | -1 | % | 1,626 | +5 | % | ||||||||||||||||||||||||||
Underlying growth | 88 | +2 | % | 73 | +5 | % | 230 | +4 | % | 85 | +6 | % | ||||||||||||||||||||
Acquisition | 46 | +1 | % | 8 | 0 | % | 148 | +3 | % | 35 | +2 | % | ||||||||||||||||||||
Disposals | (156 | ) | -3 | % | (25 | ) | -2 | % | (201 | ) | -4 | % | (22 | ) | -2 | % | ||||||||||||||||
Currency effects | (31 | ) | -1 | % | 15 | +1 | % | (63 | ) | -1 | % | (11 | ) | -1 | % | |||||||||||||||||
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Year to December 31, 2011 | 6,002 | -1 | % | 1,626 | +5 | % | ||||||||||||||||||||||||||
Year to December 31, 2012 | 6,116 | +2 | % | 1,713 | +5 | % | ||||||||||||||||||||||||||
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In the commentary below,following, percentage movements are at actual exchange rates unless otherwise stated. Percentage movements at constant exchange rates are calculated using the average and hedge exchange rates for the previous financial year. Percentage movements at both actual rates and constant rates are shown in tables on pages 26 and 27.page 26. The effect of currency movements on the 20112012 results is further described separately below (see “— Effect of Currency Translation” on pages 33 and 34)page 33). References to operating profit relate to operating profit including joint ventures. Adjusted operating margin and underlying growth are defined in the glossary on pages S-1 and S-2.
Results of Operations for the Year Ended December 31, 2012
Compared to the Year Ended December 31, 2011
Revenue was £6,116 million (2011: £6,002 million), up 2%. At constant exchange rates, revenue was up 3%. Underlying revenue growth was 4%, or 3% excluding the net cycling in of biennial exhibitions.
Cost of sales were £2,139 million, up 1% compared with 2011, with underlying volume growth and product development partly offset by the impact of disposals. Selling and distribution costs were £1,015 million, down 6%, including the impact of disposals. Administration and other expenses were £1,628 million, flat with the prior year, with the impact of disposals, including the lower acquired intangible asset amortisation, offset by technology investments. Changes in cost of sales, selling and distribution costs, and administration and other expenses, including changes in individual components thereof, were not material to the adjusted operating profit performance of the individual segments.
Reported operating profit was £1,358 million (2011: £1,205 million), primarily reflecting improved trading performance. Adjusted operating profit was £1,713 million (2011: £1,626 million), up 5%. At constant currencies, adjusted operating profits were up 6%. Underlying growth was also 6%. The overall adjusted operating margin at 28.0% was 0.9 percentage points higher than in the prior year. This included a 0.5 percentage point benefit to margin from portfolio change and a 0.1 percentage point benefit from the multi-year journal subscription currency hedging programme net of other currency translation effects. Underlying operating costs were up 4%, reflecting volume growth as well as organic investment in new product development and sales and marketing, partly offset by continued improvements in process efficiency.
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, amounted to £329 million (2011: £359 million). Acquisition related costs were £21 million (2011: £52 million), reflecting the completion of the ChoicePoint integration programme in 2011. Disposals and other non operating gains were £45 million (2011: £21 million losses), principally arising from business divestments, in particularTotaljobs, offset by property charges relating to disposed businesses.
Net finance costs were lower at £216 million (2011: £235 million), including the benefit of term debt refinancing.
The reported profit before tax was £1,187 million (2011: £948 million). The reported tax charge was £113 million (2011: £181 million). This includes an exceptional tax credit of £96 million resulting from the resolution of a number of significant prior year tax matters. The reported net profit attributable to the parent companies’ shareholders was £1,069 million (2011: £760 million).
Scientific, Technical & Medical
Elsevier achieved revenue growth in primary research and databases & tools across scientific & medical segments, with particular strength in emerging markets. Research article submissions and usage grew by double digits. Electronic revenues, which now account for 68% of total revenues, grew across all segments. Print book and pharma promotion revenues continued to decline.
Revenues and adjusted operating profits were both up 1% at constant currencies. Underlying revenues and adjusted operating profits were up 2% and 4% respectively.
Underlying revenue growth in primary research solutions across the scientific and medical segments was driven by double digit growth in both submissions and article downloads, with growth in faster growing economies outside Europe and the US. The number of article submissions to journals exceeded 1 million for the first time in 2012, with over 11 million users downloading nearly 700 million articles during the year. Elsevier’s overall relative impact factor and citation share continued to grow in the year.
In addition to growth in traditional “subscriber-pays” article volumes, “author-pays”, or “author’s-funder-pays” article volumes increased during the year, albeit from a small base. A sponsored article option is currently available in 1,500 journals and 30 stand-alone journals operate under this payment model.
Growth in databases & tools revenue was driven by new sales and usage growth.
Sales of print books to individuals continued to decline in 2012 reflecting format migration and subdued reference and education markets. Print pharma promotion revenues also continued to decline reflecting industry trends.
In August 2012 the management structure of Elsevier was reorganised, combining science & technology and health sciences. Had these revenue streams still been managed separately, their pro forma underlying revenue growth would have been 5% and flat respectively.
In 2012 the adjusted operating profit margin continued to improve, driven by continued process efficiencies and currency hedging benefits.
Risk Solutions
Risk Solutions reported underlying revenue growth in 2012 as data & analytics solutions were extended across risk markets, driving growth in both Insurance and Business Services. There was also a return to growth in the Government segment. The improvement in adjusted operating profit margin largely reflects the impact of disposals, with underlying cost growth broadly matching revenue growth, reflecting ongoing spend on new product development.
Revenues and adjusted operating profits were up 1% and 7% respectively at constant currencies. Underlying revenues and adjusted operating profits both grew 6%.
The Insurance business grew underlying revenues by 7%, with growth reflecting the extension of products and services across the insurance carrier workflow, and expansion in new market segments.
Business Services revenue growth was 7%. In financial services, the anti-money laundering, fraud detection and credit decisioning solutions all performed well, and revenues were positively impacted by some temporary effects of increased mortgage refinancing activities. The receivables management business remained soft.
The Government business returned to growth in 2012 reflecting demand for new fraud detection products in the state & local segment, with continuing moderate declines in the federal segment.
All Risk Solutions market segments now leverage HPCC “big data” technology to combine proprietary, public, and third party information with advanced analytics to help customers in evaluating, predicting, and managing risk and improving efficiency. In 2012, 96% of revenue was delivered electronically.
In January 2013 the disposal of the Screening business was announced, which has been excluded from underlying revenue growth figures. If Screening had been included in the underlying results, the underlying revenue growth rate for Risk Solutions as a whole would still have been 6%.
Underlying operating cost growth was broadly in line with revenue growth in 2012, reflecting spend on new products and content sets. The adjusted operating profit margin increased by 2.4 percentage points, largely reflecting the impact of portfolio changes in 2011.
Business Information
Underlying revenue growth in 2012 reflects growth from most of the Major Data Services businesses, modest growth in Marketing Solutions and Leading Brands, and a moderation in the rate of decline in Other Business Magazines & Services. In 2012 several businesses were divested that no longer fit with strategy. Process efficiencies together with portfolio development benefits drove a 2.2 percentage point margin improvement.
Revenues and adjusted operating profits were down 3% and up 10% respectively at constant currencies. Underlying revenues grew 2%, and underlying adjusted operating profits grew 10%.
Double digit growth atBankersAccuity andICIS helped to drive growth in Major Data Services, mitigated by continued weakness in US construction data. Major Data Services now accounts for approximately 45% of continuing portfolio pro forma revenues and the majority of Reed Business Information operating profit.
Marketing Solutions delivered modest growth in 2012 and, following the disposal ofTotaljobs andHotfrog, accounts for only a small proportion of continuing portfolio revenues.
Leading Brands also delivered modest underlying revenue growth as solid performances in the UK agriculture and property sectors were offset by advertising declines elsewhere.
Other Business Magazines & Services saw moderating underlying revenue declines and continued portfolio reshaping.
Businesses includingTotaljobs, Marketcast,Variety, RBI Australia, RBI Spain were disposed of or reclassified as held for sale during the year.
In 2012 focus on process innovation together with the benefits of portfolio development helped to increase the adjusted operating profit margin by 2.2 percentage points.
These actions have contributed to the transformation of Reed Business Information’s profile, with user and subscription services now accounting for nearly 70% of revenues, and electronic revenue streams now accounting for over half of the total.
In December 2012 the management structure was reorganised to bring LexisNexis Risk Solutions and Reed Business Information together more closely in order to continue to build the Risk Solutions’ business globally. Risk Solutions’ strength in data, analytics and technology is to be leveraged in combination with Reed Business Information’s broader geographic footprint and industry specific databases.
Legal
Underlying revenue growth was positive despite subdued legal markets in the US and Europe. Growth was driven by electronic products and services, which account for over 75% of total revenues. In 2012 new products and services were released on the New Lexis platform.
Revenues and adjusted operating profits were down 1% and up 4% respectively. Underlying revenues grew 1%, and underlying adjusted operating profits grew 4%.
In the US, usage and sales of online research and litigation solutions to law firms grew despite challenging market conditions. Underlying revenues from government and corporate customers also grew modestly. Print revenues continued to decline, and News & Business revenue declines moderated.
LexisNexis introduced new releases ofLexis Advance during 2012, combining the business’ deep domain expertise and content with Reed Elsevier’s “big data” HPCC technology to allow researchers within legal and professional organisations to find highly relevant information more easily and efficiently. The new applications had US customer penetration of 45% by the 2012 year end.
In Europe market conditions remain subdued, with growth in online revenue largely offset by declining print revenues.
The 2012 the adjusted operating profit margin improved slightly, with process efficiencies offsetting continued spend on new product development.
Exhibitions
Exhibitions saw growth in the US and Japan, moderate growth in Europe, and double digit growth in most emerging markets during the year. Investment continued throughout the year, launching 30 new shows in total, including several in high growth markets through partnerships and targeted acquisitions.
Revenue and adjusted operating profits were up 25% and 30% respectively at constant currencies. Underlying revenues and adjusted operating profits were up 15% and 20% respectively.
In the US and Japan underlying revenues increased, and growth in emerging markets was well into double digits. In Europe growth from a number of core events helped to offset some softness in southern European markets, resulting in moderate underlying revenue growth overall in the region.
During 2012 Exhibitions launched 30 new events, primarily in high growth sectors and geographies, and completed a number of targeted acquisitions. In Brazil, Exhibitions took full ownership of Alcantara Machado, previously a joint venture, and expanded into hospitality and logistics. In Turkey a new joint venture was created with Tüyap, a Turkish event organiser.
2012 adjusted operating profit margins improved by 1.0 percentage points, reflecting both process efficiencies and the positive impact of biennial event cycling.
During the year the business rolled out global platforms and processes across geographies and sectors. The integrated web event platform is now used by more than 70% of events.
Results of Operations for the Year Ended December 31, 2011
Compared to the Year Ended December 31, 2010
General
Revenues at £6,002 million (2010: £6,055 million) were down 1% compared with 2010. At constant exchange rates, revenue was flat compared with the prior year. Underlying revenue growth was 2%, or 3% excluding the net cycling out of biennial exhibitions. This compares with underlying revenue growth in the prior year of 2%, or 1% excluding the biennial exhibition cycling. The underlying revenue performance reflects the continued portfolio development, new product introduction, expanded sales & marketing, and other actions taken to improve the business.
Cost of sales were £2,126 million, down 4% compared with 2010, and selling and distribution costs were £1,075 million, down 1%, the reductions primarily reflecting business disposals and currency effects, as well as cost of sales savings in Risk Solutions from the ChoicePoint integration. Administration and other expenses were £1,626 million, down 4%, reflecting the completion of the RBI exceptional restructuring programme in 2010, with related costs in that year of £57 million, largely relating to severance and property costs. Other than as disclosed herein, changes in cost of sales, selling and distribution costs, and administration and other expenses, including changes in individual components thereof, were not material to the operating profit performance of the individual segments.
Reported operating profit was £1,205 million (2010: £1,090 million). The increase reflects improved trading performance and no exceptional restructuring costs.
Adjusted operating profit was £1,626m£1,626 million (2010: £1,555m)£1,555 million), up 5%. At constant currencies, adjusted operating profits were up 4%. Underlying growth in adjusted operating profits was 5%. The overall adjusted operating margin at 27.1% was 1.4 percentage points higher than last year. This included a 0.4 percentage point benefit to margin of the multi year subscription currency hedging programme and other currency translation effects. Underlying operating costs were flat against the prior year, despite business growth and additional spending on new product development and sales & marketing, reflecting the continued focus on process efficiency and procurement savings, and the benefit of prior year restructuring.
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, amounted to £359 million (2010: £349 million).
Exceptional restructuring costs were nil (2010: £57 million, in respect of the restructuring of RBI). Acquisition related costs amounted to £52 million (2010: £50 million) most significantly in respect of technology integration within LexisNexis Risk Solutions. Disposals and other non operating losses were £22 million (2010: £46 million), including the share of disposal profits in joint venues.
Net finance costs were lower at £235 million (2010: £276 million), reflecting the benefit of free cash flow, term debt redemptions and the expiry of interest rate swaps.
The reported profit before tax was £948 million (2010: £768 million). The reported tax charge was £181 million (2010: £120 million). The application of tax law and practice is subject to some uncertainty and amounts have been provided in respect of this. Issues are raised during the course of regular tax audits and discussions with the Internal Revenue Service including on the deductibility of interest in the US on cross-border financing are ongoing. Although the outcome of open items cannot be predicted, no material impact on results is expected from such issues.
Profit attributable to parent companies’ shareholders was £760 million, up from £642 million in 2010, reflecting the higher profit before tax partly offset by the higher tax charge.
Since January 1, 2011, Risk Solutions and Legal have been operating as separate businesses. In aggregate, revenue decreased by 3% to £2,542 million (2010: £2,618 million) and adjusted operating profits were flat at £591 million (2010: £592 million). The results of each business are presented separately below.
ElsevierScientific, Technical & Medical
Increasing global scientific and medical research activity supported growth in research information and online tools. Health Sciences saw continued pressure on print book sales to individuals and European pharmaceutical promotion, but achieved growth in global medical research and clinical decision support.
Revenues and adjusted operating profits were up 1% and 3% respectively at constant currencies. Underlying revenues and adjusted operating profits were up 2% and 4% respectively.
Science & Technology generated underlying revenue growth of 4%. Global research activity has continued to grow broadly in line with long term historic trends, and Elsevier generated growth in the volume of articles submitted and published in the year, and improved the quality of articles relative to other publishers as measured by citation share.
Health Sciences’ underlying revenues were flat. Our global medical research business benefited from similar drivers to those in the Science & Technology research business, and online clinical decision support achieved double digit growth as healthcare customers look to achieve improved medical outcomes and increased efficiency. Across Health Sciences, online solution and electronic products grew well and now account for nearly 40% of revenues. European pharma promotions declines have continued, and print book sales to individuals came under increasing pressure, reflecting the format shift to online, and pressure on enrolment in US nursing and health profession career schools. Our business in emerging markets, most notably India, China and Latin America, performed well.
Underlying operating cost growth was 1%, reflecting ongoing emphasis on process efficiencies and procurement savings offsetting business growth and spending on new product development and sales & marketing initiatives.
LexisNexis
Since January 1, 2011, LexisNexis Risk Solutions and LexisNexis Legal & Professional have been operating as separate businesses. In aggregate, revenue decreased by 3% to £2,542 million (2010: £2,618 million) and adjusted operating profits were flat at £591 million (2010: £592 million). The results of each business are presented separately below.
LexisNexis Risk Solutions
LexisNexis Risk solutionsSolutions reported growth in insurance data & analytics and business services reflecting demand for core products and the extension of the range of services that are provided. Screening revenues slowed in the second half reflecting US hiring trends, and federal government markets remained under pressure.
Revenues and adjusted operating profits were up 1% and 6% respectively at constant currencies. Underlying revenues and adjusted operating profits were up 4% and 12% respectively.
The insurance data & analytics business generated revenue growth of 7%, driven by the increasing adoption of solutions across the insurance workflow from marketing through to claims handling that improve underwriting economics and operational efficiency. In November LexisNexis2011, Risk Solutions completed the sale of its infrastructure software business, focusing the insurance business on high value data and analytics.
Business services achieved growth of 4%, reflecting growth in credit scoring and anti-money laundering for the financial services industry and e-commerce for corporate markets, moderated by the effect of a softening in the US real estate market on the mortgage-related business.
Screening solutions grew 3%, with growth slowing over the course of the year as operational improvements in sales force effectiveness and increased penetration of the mid-size corporate market were offset by a US hiring environment that weakened as the year progressed. Government solutions revenues declined as the wind down of some lower margin one-off federal sales were only partly offset by growth in state and local revenues, driven by increased focus on fraud, waste and abuse.
Underlying operating costs declined by 1% despite the business growth and new product investment, reflecting cost savings, notably in technology, and from the completion of the ChoicePoint integration. The adjusted operating margin increased by 1.7 percentage points to 39.9%.
LexisNexis Legal & Professional
LexisNexis Legal & Professional revenues returned to underlying revenue growth in 2011, and adjusted operating margins were broadly flat, as expected. Most legal markets have stabilized, and new products were launched.
Revenues and adjusted operating profits were down 2% and 4% respectively at constant currencies. Underlying revenues and adjusted operating profits were up 1% and down 2% respectively.
US research & litigation revenues returned to slight growth, benefiting from a stabilisation in legal industry activity. Growth was achieved in lexis.com searches and in new sales of research and litigation tools and services to law firms, government and corporate legal customers. Growth in practice management tools was offset by continued but moderating declines in news & business information to corporate customers, and in web based listings.
International markets outside of the US also returned to growth. Electronic revenues grew 7% reflecting demand for legal tools and solutions, although this was largely offset by further print declines as format transition continued. Print base products now account for less than 40% of revenue.
Underlying cost growth was 1% reflecting continued investment in the next generation legal offerings and sales & marketing, offset by continued cost initiatives. The adjusted operating margin was broadly flat at 14.0%.
Reed Exhibitions
The net cycling out of biennial shows held back growth in 2011. Excluding biennial cycling, underlying revenue growth was 10%, with growth across all geographies. New launch activity was accelerated in 2011, and a number of selective acquisitions were made which have increased the business’ presence in high growth markets.
Revenues and adjusted operating profits were up 1% and 4% respectively at constant currencies. Underlying revenues and adjusted operating profits were flat and up 2% respectively.
In Europe, underlying revenue grew 6% excluding biennial cycling, withMipcom andMapic performing well.Mipim, Reed Exhibitions’ largest individual show, returned to growth after experiencing a decline in 2010. In North America underlying revenues grew 16% excluding cycling. Outside Europe and North America underlying revenue growth was 13% excluding biennial events, including growth in China, Brazil, Russia and the Middle East.
Underlying costs were down 1%, reflecting cost control, while funding the significantly increased launch programme and build out of global industry groups and information technology capabilities. The adjusted operating margin was 0.8 percentage points higher than in 2010 at 23.6%.
Reed Business Information
RBIReed Business Information returned to underlying revenue growth, with growth in data services mostly offset by continued weakness in print advertising. Significant further progress on portfolio realignment was made with acquisitions in data services and disposals of print magazine titles. The majority of the margin increase reflects organic development, supported by exits from low margin businesses.
Revenues were down 4% and adjusted operating profits up at 22% at constant currencies. Underlying revenues and adjusted operating profits were up 1% and 15% respectively.
The major data services businesses, which accounted for 25% of RBIReed Business Information revenues in 2011, delivered underlying revenue growth of 9%, including growth inICIS,Bankers AlmanacandXpertHR, partially offset byReed Construction Dataserving the challenged US construction industry. Online marketing solutions grew 2%, driven largely byTotaljobsin the UK online recruitment market, offset by weakness in lead generation businesses,BuyerZoneandHotfrog. Leading brands saw stable revenues, with online growth compensating for print advertising declines. Other business magazines and communities saw an underlying revenue decline of 5% reflecting continued print advertising market weakness.
Underlying operating costs were down 2%, reflecting continuing measures taken to realign the cost base. Adjusted operating margins increased 3.4 percentage points to 15.8%.
Results of Operations for the Year Ended December 31, 2010
Compared to the Year Ended December 31, 2009
GeneralLegal
Revenue was £6,055 million (2009: £6,071 million), flat on the prior year and down 1% at constant exchange rates. UnderlyingLegal revenues were 2% higher.
Operating profits of £1,090 million were up 39%, or up 37% at constant exchange rates, compared with £787 million in 2009. The significant increase principally reflects no intangible asset and goodwill impairment and lower exceptional restructuring charges.
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, was £349 million (2009: £368 million), down £19 million as a result of disposals and prior year impairments. Charges for impairment of acquired intangible assets and goodwill were nil (2009: £177 million, principally relatingreturned to the RBI US business).
Exceptional restructuring costs, which in 2010 relate only to the restructuring of RBI, amounted to £57 million (2009: £182 million relating to major restructuring programmes across Reed Elsevier announced in February 2008 and 2009) and included severance and vacant property costs. Acquisition related costs amounted to £50 million (2009: £48 million) principally in respect of the integration within LexisNexis of the ChoicePoint business acquired in September 2008.
Excluding amortisation and impairment of acquired intangible assets and goodwill of £349 million (2009: £545 million), exceptional restructuring costs of £57 million (2009: £182 million), acquisition related costs of £50 million (2009: £48 million), and tax charges in respect of joint ventures of £9 million (2009: £8 million), operating profits would have been down 1% at £1,555 million (2009: £1,570 million), or down 2% at constant exchange rates, and down 1% on an underlying basis.
Operating margin, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and the equity share of taxes in joint ventures was 18.0% (2009: 13.0%). Excluding these items, the adjusted margin would have been 25.7%, 0.2 percentage points lower than the prior year and, excluding cost reduction from asset disposals and closures, which had a 0.5 percentage points benefit to this margin, costs increased by 3% on an underlying basis. Increased spending on new product development, infrastructure, and sales & marketing, particularly in the legal businesses, has been offset by cost actions across the business, including incremental savings from the earlier exceptional restructuring programmes.
Disposals and other non operating losses of £46 million (2009: £61 million) principally relate to asset sales and related closures in RBI’s US businesses.
Net finance costs were £276 million (2009: £291 million), with the benefit of cash flow and the July 2009 share placings being partly offset by the impact of higher coupon term debt issued in 2009 to repay certain of the ChoicePoint acquisition facility loans.
Profit before tax, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposals and other non operating items, was £768 million (2009: £435 million).
The tax charge was higher at £120 million (2009: £40 million) reflecting the increase in profit before tax and prior year tax credits on disposals. The application of tax law and practice is subject to some uncertainty and provisions are held in respect of this. Issues are raised during the course of regular tax audits and discussions with the Internal Revenue Service including on the deductibility of interest in the US on cross-border financing are ongoing. Although the outcome of open items cannot be predicted, no material impact on results is expected from such issues.
Profit attributable to shareholders was £642 million, up from £391 million in 2009, reflecting the higher profit before tax partly offset by the higher tax charge.
Elsevier
Elsevier sawrevenue growth in a constrained customer budget environment. 2011, and adjusted operating margins were broadly flat, as expected. Most legal markets have stabilized, and new products were launched.
Revenues and adjusted operating profits increased bywere down 2% and 4% respectively at constant currencies, with the improvement in adjusted operating margin reflecting increased cost efficiency.
Science & Technology saw 3% revenue growth at constant currencies.ScienceDirectand other journal subscription revenues developed as expected in a difficult academic budget environment. Content quantity, quality and usage continued to grow,reflecting the growth in research activity worldwide. TheScopusabstract and indexing database performed well with a significant increase in subscriptions. New content sets and product features were added andScopussaw a 30% increase in customer searches. Other specialist databases also grew well as the development of new features and content continued. In reference and education, in a smaller frontlist publishing year, electronic sales grew and print revenue decline stabilised.
In Health Sciences, revenues were flat at constant currencies, or up 1% underlying before taking account of small acquisitions and disposals. Modest growth was seen in medical research journal subscriptions revenues, reflecting the same academic budget pressures seen in Science & Technology. Subscriptions to integrated online solutions and other electronic product sales grew well in nursing and health professional education, clinical reference and in the majority of clinical decision support. Growth was tempered by constrained budgets, pending US healthcare reform and moderating enrolment, as career schools adjust to expected legislation affecting student funding. Pharma promotion and other advertising revenues were lower, with continuing weakness in Europe. Emerging markets grew well due to the continued expansion of local publishing to meet the increasing demand for medical education and clinical reference products.
Underlying cost growth, excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs was 1%, with increased spend on new product development, sales and marketing offset by additional cost savings in offshore production, procurement and the streamlining of operations and support services.
LexisNexis
In 2010 and 2009 LexisNexis Risk Solutions and LexisNexis Legal & Professional operated in one LexisNexis business.
LexisNexis returned to revenue growth, driven by growth in the risk business. Subscription revenues in the legal business continued to reflect the lower levels of law firm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing.
LexisNexis revenues increased by 1% and adjusted operating profits declined 12% at constant currencies, both beforewere up 1% and after small acquisitionsdown 2% respectively.
US research & litigation revenues returned to slight growth, benefiting from a stabilisation in legal industry activity. Growth was achieved in lexis.com searches and disposals.in new sales of research and litigation tools and services to law firms, government and corporate legal customers. Growth in practice management tools was offset by continued but moderating declines in news & business information to corporate customers, and in web based listings.
International markets outside of the US also returned to growth. Electronic revenues grew 7% reflecting demand for legal tools and solutions, although this was largely offset by further print declines as format transition continued. Print base products now account for less than 40% of revenue.
Underlying operating cost growth was 1% reflecting continued investment in the next generation legal offerings and sales & marketing, offset by continued cost initiatives. The adjusted operating margin declined 3.4% due to the revenue declinewas broadly flat at 14.0%.
Exhibitions
The net cycling out of biennial shows held back growth in the legal businesses combined with increases in spend on new legal product development, related infrastructure, sales & marketing, and restructuring costs. This was in part mitigated by continuing cost actions, including further outsourcing of production and engineering activities, supply chain management and operational streamlining in the legal businesses and the further integration within risk solutions. Underlying cost growth, excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs was 6%.
LexisNexis Risk Solutions grew revenues 6% at constant currencies, with the insurance segment continuing to grow and the more cyclical markets, most notably employment screening, returning to growth. The insurance solutions business saw2011. Excluding biennial cycling, underlying revenue growth of 8% driven by high transactional activity in the auto and property insurance markets and increasing sales of data and analytics products. The transactional activitywas 10%, with growth reflects increasing levels of insurance quoting as consumers seek better policy terms stimulated by sustained promotion by insurance companies and the growth of internet quoting and policy binding. The more cyclical businesses returned to growth as the US economy recovered. The employment screening business grew 12%, compared to a decline of 22% in the prior year, as major retailers and other employers increased hiring activity. Business services saw growth in the financial services segment with increasing demand for anti-money laundering and fraud prevention products. Demand growth in government markets for identity verification and authentication information and analytics was however held back by longer sales cycles reflecting the uncertainty over government budgets.
The LexisNexis Legal & Professional business saw a revenue decline of 2% at constant currencies reflecting the impact on renewals and print product of the low levels of law firm activity and employment. Corporate, government and academic markets were lower. US revenues declined 2% at constant currencies, or 1% underlying before the net effect of small disposals and acquisitions. This compares to a decline of 6% in the prior year. The decline was largely driven by the continued contraction in corporate, government and academic markets which saw revenues 5% lower in a challenging budgetary environment for customers, impacting in particular sales of the news & business information databases to corporate customers, which were down 13%. US law firm revenues were up 2% or down 2% before last year’s change in revenue allocation in Martindale-Hubbell. Law firm subscription, print and transactional revenues remained under pressure as contract renewals reflected the lower levels of law firm activity and lawyer employment than was the case when they were last agreed, typically two to three years ago. Aside from this late cycle impact on renewals, 2010 saw legal markets in the US stabilise and growth was seen in new sales. Growth continued in litigation solutions, practice management and other services for law firms. In December 2010, LexisNexis acquired StateNet, a publisher of information on the progress of prospective legislation through the US legislative process. Outside the US, International revenues declined 2% at constant currencies. Online legal solutions saw revenues up 6% as a result of demand for technology enabled content and new workflow tools. Market penetration of these services continues to increase across all geographies. Print sales declined, particularlyNew launch activity was accelerated in the UK as law firms cut back on spending and place increasing reliance on online services. Electronic revenues now account for more than 50% of the International business.
Reed Exhibitions
Reed Exhibitions saw revenue growth with the net cycling in of biennial exhibitions2011, and a significantly moderated declinenumber of selective acquisitions were made which have increased the business’ presence in annual show revenues.high growth markets.
Revenues and adjusted operating profits were up 9%1% and 4% respectively at constant currencies, or 8% and 4% before acquisitions.
currencies. Underlying revenues excluding the effect of biennial show cycling, declined by 3% compared with a 6% decline in the first half, with stable performance or modest growth in all major markets in the second half as conditions progressively improved. The 2010 shows have seen growing attendances at the majority of annual events and exhibitor numbers up 4% in the top 50 annual shows. In the largest market, Europe, underlying revenues excluding cycling were lower by 4% compared with a 16% decline in the prior year. The US also saw moderated declines with revenues down by 5% compared to 15% in 2009. By contrast, the shows in China, Russia, the Middle East and Brazil grew although some of these are joint ventures and are therefore not included in the revenues. Reed Exhibitions now operates nearly 100 shows in emerging markets with approximately 40 shows in each of Brazil and China.
The decline in adjusted operating margin primarily reflects the revenue decline in annual shows and increased spend, including on the development of websites, analytics and other innovative online tools to increase the effectiveness and efficiency of events for both exhibitors and attendees, partly mitigated through cost savings.
Reed Business Information
Reed Business Information saw growth in data services and online marketing solutions and moderated declines in advertising markets. The portfolio was reshaped through disposals and closures and costs were reduced.
Revenues were down 20% and adjusted operating profits were flat at constant currencies. Excluding portfolio changes,and up 2% respectively.
In Europe, underlying revenue grew 6% excluding biennial cycling, withMipcomandMapicperforming well.Mipim, Reed Exhibitions’ largest individual show, returned to growth after experiencing a decline in 2010. In North America underlying revenues grew 16% excluding cycling. Outside Europe and North America underlying revenue growth was 13% excluding biennial events, including growth in China, Brazil, Russia and the Middle East.
Underlying operating costs were down 2%1%, reflecting cost control, while funding the significantly increased launch programme and adjusted operating profits increased by 4%.
In 2010, Reed Business Information (RBI) was significantly restructured and refocused. The sale and closurebuild out of the US controlled circulation magazines and certain other titles were completed, together with the sale of RBI Germany and clusters of magazine titles in the Netherlands, UK, Italy, Spain, France, Ireland and Asia. The business was redefined by assetglobal industry groups and clear and distinct value creation plans were developed for each group.
information technology capabilities. The major data services businesses, which account for approximately 20% of RBI revenues, were up 4% with growth inICIS, Bankers AlmanacandXpertHR,tempered by weakness inRCDserving the US construction markets. The major online marketing solutions businesses, accounting for approximately 12% of RBI revenues, were up 10%, with a recovery inTotaljobsonline recruitment services and continuing growth in theHotfrogweb search business. Business magazines and related services, accounting for approximately 68% of RBI revenues, saw underlying revenues 6% lower driven by print advertising declines which more than offset online growth.
The 2.4% increase in adjusted operating margin reflects the significant restructuring of the business, with the disposal or closure of unprofitable assets and excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs a 3% reductionwas 0.8 percentage points higher than in costs of the continuing business, with consolidation of operations, procurement savings and tight cost control.2010 at 23.6%.
Critical Accounting Policies
The accounting policies of the Reed Elsevier combined businesses under IFRS as issued by the International Accounting Standards Board and as adopted by the European Union are described in note 2 to the combined financial statements. The most critical accounting policies and estimates used in determining the financial condition and results of the combined businesses, and those requiring the most subjective or complex judgments, relate to the valuation of goodwill and intangible assets, pensions, share based remuneration, litigation, taxation and property provisioning.
The Audit Committees of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc have reviewed the development and selection of critical accounting estimates, and the disclosure of critical accounting policies in this annual report.
Effect of Currency Translation
The combined financial statements are expressed in sterling and are therefore subject to the impact of movements in exchange rates on the translation of the financial information of individual businesses whose operational currencies are other than sterling. The principal exposures in relation to the results reported in sterling are to the US dollar and the euro, reflecting Reed Elsevier’s business exposure to the United States and the Euro Zone,euro zone, its most important markets outside the United Kingdom.
The currency profile of Reed Elsevier’s revenue, operating profit and adjusted operating profit for 2011 is set forth below.
Revenue, operating profit and adjusted operating profit in each currency as a percentage of total revenue,
operating profit and adjusted operating profit respectively
US Dollars | Sterling | Euro | Other | Total | ||||||||||||||||
Revenue | 51 | % | 16 | % | 23 | % | 10 | % | 100 | % | ||||||||||
Operating profit | 31 | % | 22 | % | 38 | % | 9 | % | 100 | % | ||||||||||
Adjusted operating profit | 41 | % | 18 | % | 32 | % | 9 | % | 100 | % | ||||||||||
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Individual businesses within Reed Elsevier Group plc and ERF are subject to foreign exchange transaction exposures caused by the effect of exchange rate movements on their revenue and operating costs, to the extent that such revenue and costs are not denominated in their functional currencies. Individual businesses are required to hedge their exposures at market rates with the centralised treasury department within ERF. Hedging of foreign exchange transaction exposure is the only hedging activity undertaken by the individual businesses. For further details see note 19 to the combined financial statements.
Currency differences decreased Reed Elsevier’s revenue by £31£63 million in 20112012 compared to 2010.2011. Excluding amortisation of acquired intangible assets, currency differences increaseddecreased operating profits by £15£11 million in 20112012 compared to 2010.2011. Acquired intangible assets and goodwill are predominantly denominated in US dollars and, after charging amortisation, currency differences increaseddecreased operating profits by £25£8 million in 20112012 compared to 2010.2011. Borrowings are predominantly denominated in US dollars and, after charging net finance costs, currency differences increaseddecreased profit before tax by £29£8 million in 20112012 compared to 2010.2011.
To help protect Reed Elsevier PLC’s and Reed Elsevier NV’s shareholders’ equity from the effect of currency movements, Reed Elsevier will, as deemed appropriate, hedge foreign exchange translation exposures by borrowing in those currencies where significant translation exposure exists or sell forward surplus cash flow in anticipation of dividend or capital repatriation. Hedging of foreign exchange translation exposure is undertaken only by the regional centralised treasury departments and under policies agreed by the Boards of Reed Elsevier PLC and Reed Elsevier NV. Borrowing in the functional currency of individual businesses provides a structural hedge for the assets in those markets and for the income realised from those assets.
Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements are set out in note 2 to the combined financial statements.
LIQUIDITY AND CAPITAL RESOURCES — REED ELSEVIER
Cash Flow
Reed Elsevier’s cash generated from operations in 20112012 amounted to £1,847 million (2011: £1,735 million (2010:million; 2010: £1,649 million; 2009: £1,604 million). Included in these net cash inflows are cash outflows of £62 million (2011: £90 million (2010:million; 2010: £150 million; 2009: £169 million) relating to exceptional restructuring costs incurred in prior years and acquisition related costs. Reed Elsevier generates significant cash inflows as its principal businesses do not generally require major fixed or working capital investments. A substantial proportion of revenue is received through subscription and similar advanced receipts, principally for scientific and medical journals and exhibition fees. At December 31, 20112012 subscriptions and other revenues received in advance totalledtotaled £1,394 million (2011: £1,412 million (2010:million; 2010: £1,308 million; 2009: £1,220 million).
Reed Elsevier’s cash outflow on the purchase of property, plant and equipment in 20112012 was £70 million (2011: £85 million (2010:million; 2010: £83 million; 2009: £78 million), while proceeds from the sale of property, plant and equipment amounted to £7 million (2010:(2011: £7 million; 2009: £42010: £7 million). The cash outflow on internally developed intangible assets in 20112012 was £263 million (2011: £265 million (2010:million; 2010: £228 million; 2009: £164 million), reflecting increasedsustained investment in new products and related infrastructure, particularly in the LexisNexis Legal & Professional business.
Gross cash proceeds from disposals amounted to £242 million, including £7 million from the sale of non-controlling interests. Net proceeds, before tax, amounted to £160 million, after related separation and transaction costs, additional pension scheme contributions, and working capital and other adjustments in respect of prior year transactions.
During 2011,2012, Reed Elsevier paid a total of £316 million (2011: £529 million (2010:million; 2010: £50 million; 2009: £94 million) for acquisitions, including the buy out of non controlling interests and deferred consideration payable on past acquisitions, after taking account of net cash acquired of £12 million (2011: £24 million; 2010: nil). A further £7 million (2010: nil; 2009: £3was paid on the purchase of investments (2011: £10 million; 2010: £5 million). Net proceeds from during the sale of equity investments and businesses were £80 million (2010: £6 million proceeds; 2009: £2 million costs).year. During 2011,2012, Reed Elsevier paid tax of £216 million (2011: £218 million (2010:million; 2010: £9 million; 2009: £120 million).
During 2011, Reed Elsevier paid ordinary dividends totalling £497 million to the shareholders ofShare repurchases by the parent companies (2010: £483 million; 2009: £457 million). No share repurchasesin 2012 were made by£250 million (2011: nil; 2010: nil), with a further £100 million repurchased in 2013 as at February 27. On February 28, 2013, Reed Elsevier PLC and Reed Elsevier NV announced their intention to repurchase further ordinary shares up to the value of £300 million in 2011 (2010: nil; 2009: nil) and no payments (2010: nil; 2009: nil)aggregate over the remainder of 2013. No shares of the parent companies were madepurchased by the Reed Elsevier Group plc Employee Benefit Trust to purchase(2011: nil; 2010: nil). Net proceeds from the exercise of share options were £48 million (2011: £9 million; 2010: £11 million).
During 2012, Reed Elsevier PLC and Reed Elsevier NV sharespaid ordinary dividends totalling £521 million to meet commitments under the Reed Elsevier share option and conditional share schemes.shareholders of the parent companies (2011: £497 million; 2010: £483 million). Dividend payments and share repurchases are funded by the operating cash flow of the business after capital spend. Proceeds, net of expenses, from share placings by the parent companies in July 2009 were £829 million.
Net borrowings, a key indebtedness measure used in assessing Reed Elsevier’s financial position, at December 31, 20112012 were £3,127 million (2011: £3,433 million (2010:million; 2010: £3,455 million; 2009: £3,931 million), comprising gross borrowings of £4,282£3,892 million, less £123£124 million of related derivative financial instrument assets and cash and cash equivalents of £726£641 million. Excluding currency effects, net borrowings increaseddecreased by £2£199 million with acquisitions and share repurchases funded from free cash flow and disposals.proceeds from divestments.
Net borrowings are reconciled as follows:
2012 | 2011 | 2010 | ||||||||||
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Cash & cash equivalents | 641 | 726 | 742 | |||||||||
Borrowings | (3,892 | ) | (4,282 | ) | (4,302 | ) | ||||||
Related derivative financial instruments | 124 | 123 | 105 | |||||||||
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Net borrowings | (3,127 | ) | (3,433 | ) | (3,455 | ) | ||||||
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During 2012, the second of two one year extension options was exercised on the $2.0 billion committed bank facility, extending the maturity to June 2015. This back up facility provides security of funding for short term debt.
In September 2012, €550 million of fixed rate term debt with a maturity of eight years was issued at a coupon of 2.5% (before taking into account fixed to floating interest swaps) and the proceeds used to pre-finance the €600 million 6.5% coupon term debt maturing in April 2013. In October and November 2012, $561 million of fixed rate term debt with a maturity of ten years was issued at a coupon of 3.125%. Related to this transaction, $299 million of fixed rate term debt maturing in January 2014 and January 2019, with a weighted average coupon of 8.4%, was exchanged for $311 million of the newly issued term debt and cash payments of $75 million. The remaining cash proceeds were used to reduce short term commercial paper borrowings ahead of the January 2014 bond maturity.
The directors of Reed Elsevier PLC and Reed Elsevier NV, having made appropriate enquiries, consider that adequate resources exist for the combined businesses to continue in operational existence for the foreseeable future.
The contractual obligations of Reed Elsevier relating to debt finance and operating leases at December 31, 20112012 analysed by when payments are due, are summarised below.
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||||||||||||||||||
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Short term debt(1)(2) | £ | 990 | £ | 990 | £ | — | £ | — | £ | — | £ | 762 | £ | 762 | £ | — | £ | — | £ | — | ||||||||||||||||||||
Long term debt (including finance leases)(2) | 4,427 | 209 | 1,681 | 838 | 1,699 | 4,187 | 173 | 1,112 | 959 | 1,943 | ||||||||||||||||||||||||||||||
Operating leases | 640 | 130 | 188 | 117 | 205 | 610 | 117 | 184 | 125 | 184 | ||||||||||||||||||||||||||||||
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Total | £ | 6,057 | £ | 1,329 | £ | 1,869 | £ | 955 | £ | 1,904 | £ | 5,559 | £ | 1,052 | £ | 1,296 | £ | 1,084 | £ | 2,127 | ||||||||||||||||||||
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(1) | Short term debt primarily comprises term debt issues maturing within one year and commercial paper, and is supported by a $2,000 million committed |
(2) | Short and long term debt obligations comprise undiscounted principal and interest cash flows. Interest cash flows are calculated by reference to the contractual payment dates and the fixed interest rates (for fixed rate debt) or the relevant forecast interest rates (for floating rate debt). |
Information on retirement benefit obligations is set out in note 7 to the combined financial statements.
Off-Balance Sheet Arrangements
At December 31, 20112012 Reed Elsevier had outstanding guarantees in respect of property leases. The maximum amount guaranteed as at December 31, 20112012 is £15£11 million for certain property leases up to 2024. These guarantees, which would crystallise in the event that existing lessees default on payment of their lease commitments, are unrelated to the ongoing business.
Save as disclosed above and under contractual obligations, Reed Elsevier has no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on the combined businesses’ financial condition, results of operations, liquidity, capital expenditure or capital resources.
Treasury Policies
The Boards of Reed Elsevier PLC and Reed Elsevier NV have requested that Reed Elsevier Group plc and Elsevier Reed Finance BV have due regard to the best interests of Reed Elsevier PLC and Reed Elsevier NV shareholders in the formulation of treasury policies. Financial instruments are used to finance the Reed Elsevier businesses and to hedge transactions. Reed Elsevier’s businesses do not enter into speculative transactions. The main treasury risks faced by Reed Elsevier are liquidity risk, interest rate risk, foreign currency risk and credit risk. The Boards of the parent companies agree overall policy guidelines for managing each of these risks and the Boards of Reed Elsevier Group plc and Elsevier Finance SA agree policies (in line with parent company guidelines) for their respective business and treasury centres. TheseA summary of these policies are summarisedis given below.
Interest Rate Exposure Management
Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses to changes in interest rates. The proportion of interest expense that is fixed on net debtborrowings is determined by reference to the level of net interest cover. Reed Elsevier uses fixed rate term debt, interest rate swaps, forward rate agreements and interest rate options to manage the exposure. Interest rate derivatives are used only to hedge an underlying risk and no net market positions are held.
After taking into account interest rate and currency derivatives, at December 31, 20112012 interest expense was fixed on an average of £2.4£2.2 billion of forecast debt for the next 12 months. This fixed rate debt reduces to £2.0£1.7 billion by the end of 20132014 and reduces further thereafter with all but £0.4£0.7 billion of fixed rate term debt (not swapped to floating rate) having matured by the end of 2019.
At December 31, 2011,2012, fixed rate term debt (not swapped to floating rate) amounted to £2.4£2.1 billion (2010: £2.5(2011: £2.4 billion) and had a weighted average life remaining of 5.76.2 years (2010: 6.4(2011: 5.7 years) and a weighted average interest rate of 6.4% (2011: 6.5% (2010: 6.4%). Interest rate derivatives in place at December 31, 2011,2012, which fix the interest cost on an additional £0.6£0.2 billion (2010:(2011: £0.6 billion) of variable rate debt, have a weighted average maturity of 0.80.3 years (2010: 1.1(2011: 0.8 years) and a weighted average interest rate of 3.6% (2011: 3.2% (2010: 4.2%).
Foreign Currency Exposure Management
Translation exposures arise on the earnings and net assets of business operations in countries other than those of each parent company. These exposures are hedged, to a significant extent, by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars.
Currency exposures on transactions denominated in a foreign currency are required to be hedged using forward contracts. In addition, recurring transactions and future investment exposures may be hedged, in advance of becoming contractual. The precise policy differs according to the specific circumstances of the individual businesses. Highly predictable future cash flows may be covered for transactions expected to occur during the next 24 months (50 months for Elsevier science and medicalthe Scientific, Technical & Medical subscription businesses) within limits defined according to the period before the transaction is expected to become contractual. Cover takes the form of foreign exchange forward contracts.
As at December 31, 2011,2012, the amount of outstanding foreign exchange cover against future transactions was £1.3£1.2 billion (2010: £1.1(2011: £1.3 billion).
Credit Risk
Reed Elsevier has a credit exposure for the full principal amount of cash and cash equivalents held with individual counterparties. In addition, it has a credit risk from the potential non performance by counterparties to financial instruments; this credit risk normally being restricted to the amounts of any hedge gain and not the full principal amount being hedged. Credit risks are controlled by monitoring the credit quality of counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with each of them.
Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A/A2A-/A3 by Standard & Poor’s, Moody’s orand Fitch. At December 31, 2011,2012, cash and cash equivalents totalled £726£641 million, of which 98% was held with banks rated A/A2 or better. Further information on credit risk is set out on page F-42.pages F-42 and F-43.
Capital and Liquidity Management
The capital structure is managed to support Reed Elsevier’s objective of maximising long term shareholder value through appropriate security of funding, ready access to debt and capital markets, cost effective borrowing and flexibility to fund business and acquisition opportunities whilst maintaining appropriate leverage to optimise the cost of capital.
Over the long term Reed Elsevier targets cash flow conversion (the proportion of adjusted operating profits converted into cash) and credit metrics to reflect this aim and that are consistent with a solid investment grade credit rating. Levels of net debtborrowings should not exceed those consistent with such a rating other than for relatively short periods of time, for instance following an acquisition.
The principal metrics utilised are free cash flow (after interest, tax and dividends) to net debt,borrowings, net debtborrowings to adjusted ebitda (adjusted earnings before interest, taxation, depreciation and amortisation)EBITDA (as reconciled in the table below) and adjusted ebitdaEBITDA to net interest. Theseinterest, all on a pensions and lease adjusted basis, and these metrics are monitored and reported to senior management and board representatives on a quarterly basis. Adjusted ebitdaEBITDA is derived from net profit as follows:
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Adjustments: | ||||
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Disposals and other non operating items | ) | |||
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Cash flow conversion of 90% or higher is consistent with the rating target. The cash flow conversion in 20112012 was 94% (2011: 93%) and as atfor the year ended December 31, 20112012 net debtborrowings to adjusted ebitdaEBITDA was 2.3x (2010: 2.5x)2.2x (2011: 2.3x) on a pensions and lease adjusted basis.
Reed Elsevier’s use of cash over the longer term reflects these objectives through a progressive dividend policy, selective acquisitions and, from time to time when conditions suggest, share repurchases whilst retaining the balance sheet strength to maintain access to the most cost effective sources of borrowing and to support Reed Elsevier’s strategic ambition in evolving publishing and information markets.
The balance of long term debt, short term debt and committed bank facilities is managed to provide security of funding, taking into account the cash generation of the business and the uncertain size and timing of acquisition spend. Reed Elsevier maintains a range of borrowing facilities and debt programmes from a variety of sources to fund its requirements at short notice and at competitive rates. The significance of Reed Elsevier Group plc’s US operations means that the majority of debt is denominated in US dollars. Policy requires that no more than US$1.5 billion of term debt issues should mature in any 12 month period and no more than US$3.0 billion in any 36 month period. In addition, minimum levels of borrowings with maturities over three and five years are specified, depending on the level of net debtborrowings and free cash flow. From time to time, Reed Elsevier may redeem term debt early or repurchase outstanding debt in the open market depending on market conditions.
There were no changes to Reed Elsevier’s long term approach to capital and liquidity management during the year.
The main treasury centres within Reed Elsevier operate commercial paper programmes to provide flexibility for funding operational requirements of the combined businesses on a daily basis, at short notice and at competitive rates. Commercial paper is issued under both US and Euro programmes and guaranteed by Reed Elsevier PLC and Reed Elsevier NV. In addition, short term borrowing facilities are established with local banks to support the daily requirements of businesses operating in certain countries where there may be restrictions on borrowing from affiliates or from lenders in a foreign jurisdiction. Other loans comprise term loans with an original maturity of greater than one year and which mature within
12 months of the reporting date. These short term borrowings were backed up at December 31, 20112012 by a $2,000 million committed bank facility maturing in June 20142015 which was undrawn. The short term borrowing programmes are run in conjunction with term debt programmes which comprise the majority of Reed Elsevier’s debt and provide the combined businesses with security of funding.
The average amount and the average interest rate during the year have been calculated by taking the average of the amounts outstanding at each month end (translated to sterling at the respective month end rate) and the average of the interest rate applicable at each month end. Commercial paper issuance reached a maximum month end level of £659£756 million in July 2011March 2012 as a result of trading flows and other loans reached a maximum month end level of £493£643 million in June 20112012 as the maturitymaturities of the $450 million term debt issueissues of €600 million and CHF 150 million, expiring in April 2013 and June 20122013 respectively, both then fell below 12 months.
Short term borrowings as at December 31, | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | 2012 £m | 2012 Weighted average interest rate % | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | ||||||||||||||||||||
Commercial paper | 576 | 0.7 | 346 | 0.6 | 118 | 0.2 | 576 | 0.7 | 346 | 0.6 | ||||||||||||||||||||
Short term loans and overdrafts | 20 | 10.1 | 33 | 8.6 | 13 | 1.5 | 20 | 10.1 | 33 | 8.6 | ||||||||||||||||||||
Finance leases | 2 | 2.7 | 7 | 5.1 | 7 | 2.5 | 2 | 2.7 | 7 | 5.1 | ||||||||||||||||||||
Other loans | 384 | 4.1 | 130 | 6.7 | 592 | 3.7 | 384 | 4.1 | 130 | 6.7 | ||||||||||||||||||||
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Total short term borrowings | 982 | 516 | 730 | 982 | 516 | |||||||||||||||||||||||||
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Average short term borrowings during the year ended December 31, | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | 2012 £m | 2012 Weighted average interest rate % | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | ||||||||||||||||||||
Commercial paper | 504 | 0.6 | 437 | 0.5 | 547 | 0.5 | 504 | 0.6 | 437 | 0.5 | ||||||||||||||||||||
Short term loans and overdrafts | 30 | 9.5 | 33 | 7.9 | 22 | 8.9 | 30 | 9.5 | 33 | 7.9 | ||||||||||||||||||||
Finance leases | 9 | 4.9 | 7 | 5.3 | 5 | 2.7 | 9 | 4.9 | 7 | 5.3 | ||||||||||||||||||||
Other loans | 297 | 5.0 | 197 | 4.6 | 469 | 3.7 | 297 | 5.0 | 197 | 4.6 |
Maximum month end short term borrowings | 2011 £m | 2010 £m | 2012 £m | 2011 £m | 2010 £m | |||||||||||||||
Commercial paper | 659 | 688 | 756 | 659 | 688 | |||||||||||||||
Short term loans and overdrafts | 37 | 37 | 27 | 37 | 37 | |||||||||||||||
Finance leases | 10 | 10 | 7 | 10 | 10 | |||||||||||||||
Other loans | 493 | 358 | 643 | 493 | 358 |
OPERATING RESULTS — REED ELSEVIER PLC AND REED ELSEVIER NV
The following discussion is based on the financial statements of Reed Elsevier PLC and Reed Elsevier NV for the three years ended December 31, 2011.2012. The results of Reed Elsevier PLC reflect its shareholders’ 52.9% economic interest in the Reed Elsevier combined businesses. The results of Reed Elsevier NV reflect its shareholders’ 50% economic interest in the Reed Elsevier combined businesses. The respective economic interests of the Reed Elsevier PLC and Reed Elsevier NV shareholders take account of Reed Elsevier PLC’s 5.8% indirect interest in Reed Elsevier NV. Both parent companies equity account for their respective share in the Reed Elsevier combined businesses.
Results of Operations for the Year Ended December 31, 2012
Compared to the Year Ended December 31, 2011
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 46.0p and €0.90 respectively in 2012, compared to 32.4p and €0.59 in 2011. The increase reflects the improved trading performance, disposals and other non operating items and the exceptional prior year tax credit.
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro:sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2011 final dividend of 15.9p and 2012 interim dividend of 6.0p giving a total of 21.9p (2011: 20.65p) for Reed Elsevier PLC; and a 2011 final dividend of €0.326 and 2012 interim dividend of €0.130 giving a total of €0.456 (2011: €0.413) for Reed Elsevier NV.
The Board of Reed Elsevier PLC has proposed a 2012 final dividend of 17.0p, up 7%, giving a total dividend of 23.0p in respect of the financial year, up 7% on 2011. The Boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 2012 final dividend of €0.337, up 3%, which results in a total dividend of €0.467 in respect of the financial year, up 7% on 2011. The difference in growth rates in the equalised final dividends reflects changes in the euro:sterling exchange rate since the respective prior year dividend announcement dates.
During 2012 Reed Elsevier repurchased 23,288,616 Reed Elsevier PLC ordinary shares and 12,660,296 Reed Elsevier NV ordinary shares for consideration of £250 million. These shares are held in treasury. On December 28, 2012 Reed Elsevier PLC and Reed Elsevier NV announced an irrevocable, non discretionary programme to repurchase further ordinary shares up to the value of £100 million which was completed by February 27, 2013. On February 28, 2013, Reed Elsevier PLC and Reed Elsevier NV announced their intention to repurchase further ordinary shares up to the value of £300 million in aggregate over the remainder of 2013.
Results of Operations for the Year Ended December 31, 2011
Compared to the Year Ended December 31, 2010
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 32.4p and €0.59 respectively in 2011, compared to 27.3p and €0.51 in 2010. The increase reflects the improved trading performance, no exceptional restructuring costs and lower net interest expense.
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/euro:sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2010 final dividend of 15.0p and 2011 interim dividend of 5.65p giving a total of 20.65p (2010: 20.4p) for Reed Elsevier PLC; and a 2010 final dividend of €0.303 and 2011 interim dividend of €0.110 giving a total of €0.413 (2010: €0.402) for Reed Elsevier NV.
The Board of Reed Elsevier PLC has proposed a 2011 final dividend of 15.90p, up 6%, giving a total dividend of 21.55p in respect of the financial year, up 6% on the prior year.2010. The Boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 2011 final dividend of €0.326, up 8%, which results in a total dividend of €0.436 in respect of the financial year, up 6% on 2010. The difference in growth rates in the equalised final dividends reflects changes in the euro:sterling exchange rate since the respective prior year dividend announcement dates.
No shares were repurchased in the year by either Reed Elsevier PLC or Reed Elsevier NV.
Results of Operations for the Year Ended December 31, 2010
Compared to the Year Ended December 31, 2009
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 27.3p and €0.51 respectively in 2010, compared to 17.2p and €0.32 in 2009. The increase principally reflects lower exceptional restructuring charges and none of the intangible asset and goodwill impairment charges seen in 2009, offset in part by the dilutive effect of the July 2009 equity placings.
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2009 final dividend of 15.0p and 2010 interim dividend of 5.4p giving a total of 20.4p (2009: 20.4p) for Reed Elsevier PLC; and a 2009 final dividend of €0.293 and 2010 interim dividend of €0.109 giving a total of €0.402 (2009: €0.397) for Reed Elsevier NV.
The Board of Reed Elsevier PLC proposed a 2010 final dividend of 15.0p, giving a total dividend of 20.4p in respect of the financial year, unchanged on the prior year. The Boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, proposed a 2010 final dividend of €0.303, which results in a total dividend of €0.412 in respect of the financial year, up 3% on 2009. The difference in growth rates in the equalised dividends reflects changes in the euro:sterling exchange rate since prior year dividend announcement dates.
No shares were repurchased in the year by either Reed Elsevier PLC or Reed Elsevier NV.
Trends, uncertainties and events which can affect the revenue, operating profit and liquidity and capital resources of the Reed Elsevier combined businesses include the usage, penetration and customer renewal of our print and electronic products and the prices that customers pay for our products, the migration of print and CD products to online services, investment in new products and services, cost control and the impact of our cost reduction programmes on operational efficiency, the levels of academic library funding, the impact of economic conditions on corporate and other customer budgets and the level of advertising demand, the actions of competitors and regulatory and legislative developments.
Trends, uncertainties and events which could have a material impact on Reed Elsevier’s revenue, operating profit and liquidity and capital resources are discussed in further detail in “Item 3: Key Information — Risk Factors”; “Item 4: Information on Reed Elsevier”; and “Item 5: Operating and Financial Review and Prospects — Operating Results — Reed Elsevier —Elsevier; Liquidity and Capital Resources — Reed Elsevier; Operating Results — Reed Elsevier PLC and Reed Elsevier NV”.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The directors of each of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV at February 15, 201227, 2013 were:
Name (Age) | Reed Elsevier PLC | Reed Elsevier NV | Reed Elsevier
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Rudolf van den Brink(65) | — | — | — | Chairman of the Supervisory Board | ||||
Mark | Non-executive Director(3)(4) | Member of the Supervisory Board(3)(4) | Non-executive Director(2) | — | ||||
Erik Engstrom(49) | Executive Director and Chief Executive Officer | Chairman of the Executive Board and Chief Executive Officer | Executive Director and Chief Executive Officer | — | ||||
Anthony Habgood(66) | Non-executive Chairman(3)(4) | Chairman of the Supervisory Board(3)(4) | Non-executive Chairman(2) | — | ||||
Adrian Hennah(55) | Non-executive Director(1)(4) | Member of the Supervisory Board(1)(4) | Non-executive Director(1) | — | ||||
Lisa Hook(54) | Non-executive Director(3)(4) | Member of the Supervisory Board(3)(4) | Non-executive Director(2) | — | ||||
Gerben de Jong(68) | — | — | — | Member of the Management Board | ||||
Marike van Lier Lels(53) | — | Member of the Supervisory Board(4) | — | Member of the Supervisory Board | ||||
Duncan Palmer(47) | Executive Director and Chief Financial Officer | Member of the Executive Board and Chief Financial Officer | Executive Director and Chief Financial Officer | Member of the Supervisory Board | ||||
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Sir David | Non-executive Director(1)(3)(4)(5) | Member of the Supervisory Board(1)(3)(4)(5) | Non-executive Director(1)(2)(5) | — | ||||
Alberto Romaneschi(54) | — | — | — | Member of the Management Board | ||||
Linda Sanford(60) | Non-executive Director(1)(4) | Member of the Supervisory Board(1)(4) | Non-executive Director(1) | — | ||||
Ben van der | Non-executive Director(1)(3)(4) |
Member of the Supervisory Board(1)(3)(4) | Non-executive Director(1) | Member of the Supervisory Board | ||||
Jans van der | — | — | — | Member of the Management Board |
(1) | Member of the Audit Committees of the Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc. |
(2) | Member of the Remuneration Committee of the Board of Reed Elsevier Group plc. |
(3) | Member of the joint Nominations Committee of the Boards of Reed Elsevier PLC and Reed Elsevier NV. |
(4) | Member of the joint Corporate Governance Committee of the Boards of Reed Elsevier PLC and Reed Elsevier NV. |
(5) | Senior independent non-executive director, as defined by the |
Mark Armour stepped down as Chief Financial Officer in November 2012 and retired from the Reed Elsevier Boards in December 2012.
A person described as a non-executive director of Reed Elsevier PLC or Reed Elsevier Group plc or a member of the Supervisory Board of Reed Elsevier NV is a director not employed by such company in an executive capacity.
Mark Armour (British) Chief Financial Officer since 1996. Non-executive director of SABMiller plc. Prior to joining Reed Elsevier as Deputy Chief Financial Officer in 1995, was a partner in Price Waterhouse. Holds an MA in Engineering from Cambridge University and qualified as a Chartered Accountant.
Jacques Billy (French) member of the Management Board of Elsevier Reed Finance BV since 2002. He is Managing Director of Elsevier Finance SA, having joined that company as Finance Manager in 1999.
Rudolf van den Brink (Dutch) Chairman of the Supervisory Board of Elsevier Reed Finance BV since 2006. A former member of the managing board of ABN AMRO Bank NV and of the advisory board of Deloitte & Touche in the Netherlands. A member of the supervisory board of Akzo Nobel NV.
Mark Elliott (American) Non-executive director since 2003. Chairman of the Remuneration Committee. Chairman of QinetiQ Group plc and a non-executive director of G4S plc. Until his retirement in 2008, was general manager of IBM Global Solutions, having held a number of positions with IBM, including managing director of IBM Europe, Middle East and Africa.
Erik Engstrom (Swedish) Chief Executive Officer since 2009. Joined Reed Elsevier as Chief Executive Officer of Elsevier in 2004. Prior to joining Reed Elsevier was a partner at General Atlantic Partners. Before that was presidentPresident and chief operating officerChief Operating Officer of Random House Inc and, before its merger with Random House, presidentPresident and chief executive officerChief Executive Officer of Bantam Doubleday Dell, North America. Began his career as a consultant with McKinsey and servedMcKinsey. Served as a non-executive director of Eniro AB and Svenska Cellulosa Aktiebolaget SCA. Holds a BSc from Stockholm School of Economics, an MSc from the Royal Institute of Technology in Stockholm, and gained an MBA from Harvard Business School as a Fulbright Scholar.
Anthony Habgood (British) Chairman since 2009. Chairman of the NominationNominations and Corporate Governance Committees. Chairman of Whitbread plc and of Preqin Holding Limited. Was chairman of Bunzl plc and of Mölnlycke HealthcareHealth Care Limited and served as chief executive of Bunzl plc, chief executive of Tootal Group plc and a director of The Boston Consulting Group Inc. Formerly non-executive director of Geest plc; Marks and Spencer plc; National Westminster Bank plc; Powergen plc; and SVG Capital plc. Holds an MA in Economics from Cambridge University and an MS in Industrial Administration from Carnegie Mellon University. He is a visiting Fellow at Oxford University.
Adrian Hennah (British) Non-executive director since 2011. He is chief financial officer of Reckitt Benckiser Group plc having been chief financial officer of Smith & Nephew plc.plc from 2006 to 2012. Before that was chief financial officer of Invensys plc havingand previously held various senior finance and management positions within GlaxoSmithKline for 18 years.
Lisa Hook (American) Non-executive director since 2006. President and chief executive officer of Neustar Inc. A director of The Ocean Foundation. Was president and chief executive officer at Sun Rocket Inc. Before that was president of AOL Broadband, Premium and Developer Services. Prior to joining AOL, was a founding partner at Brera Capital Partners LLC. Previously was chief operating officer of Time Warner Telecommunications. Has served as senior advisor to the Federal Communications Commission Chairman and a senior counsel to Viacom Cable.
Gerben de Jong (Dutch) member of the Management Board of Elsevier Reed Finance BV since 2007. Previously held senior finance positions in Royal Philips Electronics NV Group.
Marike van Lier Lels (Dutch) Appointed January 2010. Member of the supervisory boards of KPN NV, USG People NV and TKH Group NV and Maersk BV.NV. A member of various Dutch governmental advisory boards. Member of the Supervisory Board of Maersk BV until March 2012. Was executive vice president and chief operating officer of the Schiphol Group. Prior to joining Schiphol Group, was a member of the executive board of Deutsche Post Euro Express and held various senior positions with Nedlloyd.
Duncan Palmer (British and American) Chief Financial Officer since November 2012. Joined Reed Elsevier as Chief Financial Officer Designate in August 2012. Non-executive director of Oshkosh Corporation since 2011. Prior to joining Reed Elsevier was chief financial officer and senior vice president of Owens Corning Inc. from 2007, having previously held various senior finance positions within Royal Dutch Shell for 20 years in the UK, the Netherlands and the US. He holds an MA in mathematics from Cambridge University and an MBA from Stanford University. He is a UK-qualified Chartered Management Accountant.
Robert Polet (Dutch) Non-executive director since 2007. Chairman of Safilo Group S.p.A. and a non-executive director of Philip Morris International Inc; Wilderness Holdings Limited andInc, William Grant & Sons Limited.Limited and Crown Topco Limited, parent company of Vertu. Member of the supervisory board of Nyenrode Foundation. Was President and chief executive officer of Gucci Group from 2004 to 2011, having spent 26 years at Unilever working in a variety of marketing and senior executive positions throughout the world including president of Unilever’s Worldwide Ice Cream and Frozen Foods division. Formerly a non-executive director of Wilderness Holdings Limited from 2010 to 2012.
Sir David Reid (British) Non-executive director since 2003. Senior independent director. Chairman of Intertek Group plc.plc and a member of the Senior Advisory Board of Jefferies, the global investment banking firm. Was Chairman of Tesco PLC from 2004 to 2011, having previously been executive deputy chairman until December 2003, and finance director from 1985 to 1997. He has also been Chairman of Kwik-Fit and previously a non-executive director of De Vere PLC, Legal & General Group plc and Westbury PLC.
Alberto Romaneschi (Swiss) Member of the Management Board of Elsevier Reed Finance BV since October 2012. He has been the Managing Director of Elsevier Finance SA since 2012.
Linda Sanford (American) Non-executive director since 2012. Senior Vice President, Enterprise Transformation, IBM Corporation and non-executive director of ITT Corporation until May 2013. Serves on the board of directors of The Business Council of New York State and the Partnership for New York City. Also serves on the board of trustees of the State University of New York, St. John’s University, and Rensselaer Polytechnic Institute.
Ben van der Veer (Dutch) Non-executive director since 2009. Chairman of the Audit Committee.Committees. Member of the supervisory boards of AEGON NV, TomTom NV, Siemens Nederland NV and Koninklijke FrieslandCampina NV. Was chairman of the executive board of KPMG in the Netherlands and a member of the management committee of the KPMG International board until his retirement in 2008, having joined KPMG in 1976.
Jans van der Woude (Dutch) memberMember of the Management Board of Elsevier Reed Finance BV since 2009. Is Company Secretary and Legal Counsel of Reed Elsevier NV. Prior to joining Reed Elsevier in 2009 was Legal Advisor to Corporate Express NV. Before that was Corporate Legal Director of TNT NV, having previously been General Counsel at Getronics NV.
The executive officers of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc, other than directors, at February 15, 201227, 2013 were:
Henry Udow: Chief Legal Officer and Company Secretary of Reed Elsevier PLC and Reed Elsevier Group plc. A US and British citizen who is admitted to the Bar of New York State. Joined Reed Elsevier in March 2011. Prior to joining Reed Elsevier he was Chief Legal Officer and Company Secretary of Cadbury plc.
Ian Fraser:Global Human Resources Director of Reed Elsevier Group plc. Joined Reed Elsevier in 2005. Prior to joining Reed Elsevier, he was Human Resources Director at BHP Billiton plc and, before that, held senior positions in human resources at Charter plc and Woolworths plc.
Jans van der Woude:Company Secretary and Legal Counsel of Reed Elsevier NV. A Dutch lawyer. Joined Reed Elsevier in January 2009.
REMUNERATION COMMITTEE
Remuneration Committee Terms of Reference and Constitution
The Remuneration Committee’s (“the Committee”)(the Committee) remit and its duties are in relation to:
— | Executive Directors: |
— | to establish the remuneration policy for the executive directors and determine the remuneration in all its forms (including pensions and share plan participation), the terms of the service contracts and all other terms and conditions of employment of the executive directors of Reed Elsevier Group |
— | to approve any compensation or termination payments made to executive directors of Reed Elsevier Group plc and Reed Elsevier PLC. |
— | Senior Management |
— | on the advice of the |
— | to monitor the level and structure of remuneration for this group of executives. |
— | Reed Elsevier Chairman |
— | on the advice of the Senior Independent Director, to determine the remuneration of the Reed Elsevier Chairman (with respect to Reed Elsevier NV, to recommend, on advice of the Senior Independent Director, to the Combined Board the Chairman’s remuneration in respect of his Chairmanship of Reed Elsevier NV). |
— | General |
— | to review the ongoing appropriateness and relevance of the remuneration policy, in particular the |
— | to review and recommend amendments to the rules of all share-based incentive plans including the formulation of suitable performance conditions for share-based awards and options, and where necessary, to submit them for approval by shareholders; |
— | to maintain an open and ongoing dialogue with institutional investors on major remuneration policy issues; and |
— | to discharge its duties with due regard to any published corporate governance guidelines, codes or recommendations regarding the remuneration of directors of listed companies and formation and operation of share schemes which the Committee considers relevant or appropriate including, but not limited to, the UK and Dutch Corporate Governance Codes. |
A copy of the terms of reference of the Committee can be found on the Reed Elsevier website www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
Throughout 2011,2012, the Committee consisted of independent non-executive directors, as defined by the UK Corporate Governance Code and the Dutch Corporate Governance Code;directors; Mark Elliott (Committee Chairman), Sir David Reid, Lisa Hook and Robert Polet; and the Chairman of Reed Elsevier Group plc. The Chief Legal Officer and Company Secretary also attends the meetings in his capacity as secretary to the Committee. At the invitation of the Committee Chairman, the CEO of Reed Elsevier Group plc attends appropriate parts of the meetings. The CEO of Reed Elsevier Group plc is not in attendance during discussions pertaining to his remuneration.
The Global Human Resources Director provided material advice to the Committee during the year.
Towers Watson acted as external advisors to the Committee throughout 20112012 and also provided market data and data analysis. Towers Watson also provided actuarial and other human resources consultancy services directly to some Reed Elsevier companies.
The individual consultants involved in advising the Committee do not provide advice to the executive directors or act on their behalf.
EXECUTIVE DIRECTORS
Remuneration philosophy and policy
The context for Reed Elsevier’s remuneration policy and practices is set by the needs of a global business with business areas that operate internationally by line of business. Furthermore, Reed Elsevier PLC and Reed Elsevier NV’s respective stock market listings in London and Amsterdam, combined with the majority of its employees being based in the US, provides a particular set of challenges in the design and operation of remuneration policy.
Our remuneration philosophy
Reed Elsevier’s guiding remuneration philosophy for senior executives is based on the following precepts:
— | Performance-related compensation with demanding performance standards. |
— | Creation of shareholder value. |
— | Competitive remuneration opportunity to attract and retain the best executive talent from anywhere in the world. |
— | A balanced mix of remuneration between fixed and variable elements, and annual and |
— | Aligning the interests of executive directors with shareholders and other stakeholders. |
— | Operating the company consistent with long-term sustainability. |
Our remuneration policy
In line with this guiding philosophy our remuneration policy is described below.
— | Reed Elsevier aims to provide a total remuneration package that is able to attract and retain the best executive talent from anywhere in the world, at an appropriate level of cost. |
— | In reaching decisions on executive remuneration, the Committee takes into account the remuneration arrangements and levels of increase applicable to senior management and Reed Elsevier employees generally. The Committee takes into account the salary increases for the employee population worldwide as one of the inputs when determining salary increases for directors. |
— | The Committee considers the social, governance, and environmental implications of its decisions, particularly when setting and assessing performance objectives and targets, and seeks to ensure that incentives are consistent with the appropriate management of |
— | Total targeted remuneration of senior executives will be competitive with that of executives in similar positions in comparable companies, which includes global sector peers and companies of similar scale and international complexity. |
— | Competitiveness is assessed in terms of total remuneration (i.e. salary, annual and multi-year incentives and benefits). |
— | The intention is to provide total remuneration that reflects sustained individual and business performance; i.e. median performance will be rewarded by total remuneration that is positioned around the median of relevant market data and upper quartile performance by upper quartile total remuneration. |
— | The Committee will consider all available discretion to claw back any payouts made, or to reduce unvested awards, on the basis of materially misstated data. |
— | The Committee considers it important to encourage personal investment and ongoing holding of Reed Elsevier PLC and/or Reed Elsevier NV securities among the senior executive population. Executive directors and other senior executives are subject to minimum shareholding requirements. |
How the performance measures in the incentives link to our business strategy
OurReed Elsevier’s strategic focus is on transforming its core business through organic investment and the organic build out of new products into adjacent markets and geographies, supplemented by selective portfolio acquisitions and divestments.
The performance related components of the executive directors’ multi-year incentives support this strategy by focusing on return on capital, returns to shareholders and sustained earnings growth.
Furthermore, our annual incentive plan is focused on operational excellence as measured by the financial measures of revenue, profit and cash generation. In addition, a significant portion of the annual bonus is dependent upon the achievement of annual key
performance objectives (KPOs) that create a platform for sustainable future performance. These KPOs align with Reed Elsevier’s strategic plans and range from the delivery of specific projects and the achievement of customer metrics or efficiency targets to corporate and social responsibility objectives. Each executive director has at least one sustainability or corporate responsibility objective.
The Committee believes that one of the main drivers of long termlong-term shareholder value is sustained growth in profitability, underpinned by appropriate capital discipline. Therefore growth in earnings per share and targeted return on invested capital are both utilised in our multi-year incentives.
We aim to set challenging performance targets as demonstrated by the fact that there has been no vesting for directors under any of our multi-year incentives since the awards granted in 2006 vested in 2009, and no directors’ bonuses paid out above target since 2009.
The balance between fixed and performance-related pay
We aim to provide each executive director with an annual total remuneration package comprising fixed and variable pay with the majority of an executive director’s total remuneration package linked to performance. At target performance, incentive pay makes up approximately 70% of the total remuneration package, withpackage. For the CEO, the annual incentive representingrepresents around 20% and the multi-year incentiveincentives 50% of the total package. The fixed pay element for the CEO is around 30% (salary of around 20% and 10% pension and other benefits). The core components of the total remuneration package are described in detail in the remainder of this Report.
Our approach to market positioning and benchmarking
TheWhen reviewing executive director and senior executive remuneration, one factor which the Committee takes into account is market competitiveness ofcompetitiveness. This is done by assessing total remuneration (i.e. salary, annual and multi-year incentives and benefits) is assessed against a range of relevant comparator groups as follows:
— | Global peers operating in businesses similar to those of Reed Elsevier (including Thomson Reuters, WPP, Pearson, John Wiley, Wolters Kluwer, |
— | Companies listed on the London Stock Exchange (cross-industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope. |
— | Companies listed on the New York Stock Exchange (cross-industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope. |
— | Companies listed on the NYSE Euronext Amsterdam Stock Exchange, cross-industry and of a similar size (measured by aggregate market capitalisation) and international scope. |
Referring to companies listed in these three different locations is relevant and necessary as demonstrated by the fact that several recent senior executive hires have been recruited from the US including our CFO.
The composition of the respective comparator groups is subject to minor changes year on year reflecting changes in the size, international scope and listing status of specific companies during the year.
The competitiveness of our remuneration packages is assessed by the Committee as part of the annual review cycle for pay and performance, in line with the process set out below.
— | First, the overall competitiveness of the total remuneration packages is assessed both against the market and taking account of remuneration levels within Reed Elsevier more widely. The appropriate positioning of an individual’s total remuneration against the market is determined based on the Committee’s judgement of individual performance and potential. |
— | The Committee then considers market data and benchmarks for the different elements of the package including salary, total annual cash and total remuneration. While relevant benchmark information is a meaningful input to the process, |
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— | Benefits, including medical and retirement benefits, are positioned to reflect local country practice. |
The total remuneration package
Each element of the remuneration package for executive directors is designed to achieve specific objectives, as described in this section. In aggregate, they create a unified and balanced reward mix and competitive employment proposition. The value of the reward package is only maximised through the integrated delivery of annual and longer termlonger-term performance. Reward for the delivery of business results is connected with reward for value flowing to shareholders. Through the use of a range of performance metrics such as earnings per share, return on invested capital, profit after tax, revenue, cash flow conversion rate, personal objectives and total shareholder return and the assessment of performance over multiple time-horizons, the incentive arrangements are structured in such a way that reward cannot be maximised through inappropriate short termshort-term risk-taking.
The table below summarises the component parts of the remuneration package provided in 2012 to the executive directors during 2011. This includes the bonuses earned for performance during 2011, payouts received from and awards granted under the multi-year incentives during the year.who served in 2012.
Component | Erik Engstrom | Mark | Duncan Palmer*** | |||||||
Base salary | £ | £ | £600,000 | |||||||
Retirement benefit | UK defined benefit plan | UK defined benefit plan | UK defined contribution plan and cash supplement | |||||||
Other benefits | Includes | Includes company car or cash allowance and private medical benefit | Includes car allowance and private medical benefit | |||||||
Annual incentive (earned for 2012 and payable in March 2013) | £ | £ | ||||||||
| £230,205 | |||||||||
Multi-year incentives | ||||||||||
ESOS | Market value options over | n/a | Market value options over | |||||||
BIP | 68,475 NV ADRs | |||||||||
n/a | 179,551 PLC shares | |||||||||
Shareholding requirement | 300% of salary | 200% of salary | 200% of salary |
Policy in relation to the individual remuneration elements is described in greater detail in the remainder of this section.
* | No multi-year incentives vested in 2012. Multi-year incentives from previous years lapsed in early 2012 as already described in last year’s Report. |
** | Mark Armour served as a director until December 31, 2012. |
*** | Additional awards were made to Duncan Palmer in conjunction with his recruitment. Further details are contained on pages 52 and 53. |
Base Salary
Salary reflects the role and the sustained value of the executive in terms of skills, experience and contribution in the context of the relevant market.
Salaries for executive directors are reviewed annually in the context of the competitiveness of total remuneration and Reed Elsevier’s guidelines for wages and salaries agreed for the whole of Reed Elsevier for the forthcoming financial year. Any increases typically take effect on January 1.
The Committee decided to award a salary increase of 2.5% to each executive directorErik Engstrom, which increased his base salariessalary with effect from January 1, 20122013 to £1,050,625£1,076,891. Duncan Palmer’s service agreement provides that his first salary review following commencement of employment would be on or around January 1, 2014, so his base salary remains unchanged for Erik Engstrom and £644,495 for Mark Armour.2013. In determining the salary recommendation for executive directors,the CEO, the Committee considered, among other inputs, 20122013 salary guidance for Reed Elsevier’s most significant employee locations globally. The salary recommendations forincrease awarded to the executive directors areCEO is within the guidelines agreed for those employees in respect of 20122013 increases.
In respect of salaries for the broader employee population, Reed Elsevier uses the same factors to determine the levels of increase across all employee populations globally: i.e. relevant pay market, skills, experience and contribution. Reed Elsevier operates across many diverse countries in terms of their remuneration structures and practices. Any increases awarded to different employee groups in different geographies reflect this diversity and range of practices. An average increase of approximately 2.5% on average will be awarded across the senior management population globally for 2012.2013. This level of increase is in line with increases provided to the wider employee population.
Annual Incentive
The Annual Incentive Plan (AIP) provides focus on the delivery of stretching annual financial targets and the achievement of annual objectives and milestones that create a platform for sustainable future performance.
For 2012,2013, executive directors have a target bonus opportunity of 100% of salary that is weighted as follows across four elements (unchanged from 2011)2012):
Measure | Weighting | |||
— Revenue | ||||
— Adjusted Profit After Tax | ||||
— Cash Flow Conversion Rate | ||||
— Key Performance Objectives (KPOs) |
The target bonus opportunity for the financial measures is payable for the achievement of highly stretching financial targets. The four elements are measured separately, such that there could be a payout on one element and not on others.
For 2012,2013, the minimum threshold on the financial elements of the AIP at which a bonus starts to accrue is 94% of target achievement and the maximum bonus is 150% of target (unchanged from 2011), although, the Committee decided to slightly adjust the payout slope for financials between threshold and maximum to align executive directors with other executives and employees. This means that part of the bonus will accrue for achieving threshold whilst a higher level of out-performance will be required to achieve the maximum bonus.2012).
The KPOs are individual to each executive director. Each executive director is set up to six KPOs to reflect critical business priorities for which he is accountable. The KPO component for the executive directors and other senior executives will contain at least one KPO relating to the achievement of specific sustainability objectives and targets contained within Reed Elsevier’s corporate responsibility agenda.
Against each objective, measurable milestone targets are set for the year. All financial targets and KPOs are approved by the Committee and are subject to formal assessment at the end of each year. The Chairman of Reed Elsevier Group plc presents his assessment of performance against KPOs for the CEO of Reed Elsevier Group plc to the Committee while the CEO of Reed Elsevier Group plc presents his assessment of KPO performance for the CFO of Reed Elsevier Group plc. The Committee then discusses and agrees the final KPO score for each executive director.
AIP Payments for 20112012
In assessing the level of bonus payments for 2011,2012, the Committee noted the following performances:
% change over exchange rates | ||||
Underlying revenue | Total adjusted PAT | |||
Reed Elsevier | + | + |
Reed Elsevier continuedexecuted well on its positivestrategic and financial priorities in 2012. Positive revenue momentum in 2011. All five business areas contributedand focus on operating efficiency combined to underlying revenue growth, excluding biennial exhibition cycling, withlift underlying operating profits showing good growth.profit growth and earnings. Underlying revenues, which exclude the effects of currency translationstranslation and acquisitions and disposals, were up 2%4%, or 3% excluding the cycling effect of biennial exhibitions, reflecting a consistent performance from our subscription and online data businesses. Adjustedall five business areas contributed to the underlying growth. Underlying adjusted operating profits were up 4% at constant currencies. Total6%, with the improvement in profitability driven by a combination of process innovation and portfolio development across all business areas. Underlying costs including acquisitionswere up 4%, reflecting volume growth as well as organic investment in new product development and disposals, fellsales & marketing, partly offset by 2% at constant exchange rates and adjusted operating margins at 27.1% were 1.4 percentage points higher than last year.continued improvements in process efficiency. Adjusted operating cash flow was flat£1,603m (2011: £1,515m), up 6% compared with the prior year or down 1%and up 7% at constant currencies. The lower levelrate of conversion of adjusted operating profits into cash flow conversion reflects among other things, higher capital expenditure through increased investment in new products and related infrastructure in 2011.was 94% (2011: 93%). Returns on invested capital increased to 11.2%11.9%, 0.60.7 percentage points higher than in 2010,2011, reflecting improvements inthe improved trading performance strong cash flow and capital efficiency.
Overall,Set out below is a summary of the outcome of performance against each financial measure:
Revenue | Just above target | |
Adjusted Profit After Tax | Just above target | |
Cash Flow Conversion Rate | Just above target |
The progress on personal objectives for each director was then added in the form of the KPO score and, overall, the sum of the individual scores achieved against the four AIP components was close to target for boththe executive directors, resultingresulted in the following bonuses for 2011:2012:
2011 annual bonus (to be paid in March 2012) | % of 2011 base salary earnings | |||||||
Erik Engstrom | £ | 1,021,925 | 99.7% | |||||
Mark Armour | £ | 611,799 | 97.3% |
2012 annual bonus (to be paid in March 2013) | % of 2012 base salary earnings | |||
Erik Engstrom | £1,149,909 | 109.5% | ||
Mark Armour | £693,799 | 107.7% | ||
Duncan Palmer* | £230,205 | 107.7% |
*Duncan | Palmer’s bonus reflects service during the year of reporting. His service commenced on August 24, 2012. |
Multi-Year Incentives
TheIt is intended to continue to provide executive directors with multi-year incentives comprisecomprising a combination of a long-term incentive plan (LTIP), a personal investment bonus deferral plan (BIP) and market value options (ESOS). To this end, a new LTIP and ESOS are proposed and will be presented for shareholder approval at the Reed Elsevier Growth Plan (REGP), the Bonus Investment Plan (BIP), the Executive Share Option Scheme (ESOS) and the Long Term Incentive Plan (LTIP)2013 Annual General Meetings (AGMs).
The purpose of the multi-year incentives is to provide focus on the delivery of the medium to longer termlonger-term strategy and holding executives accountable for the deliveryexecution of that strategy while driving value creation through sustained financial performance, capital discipline and the delivery of returns for shareholders.
In addition, the multi-year incentives are structured so as to encourage personal investment and require a minimum level of ongoing shareholding in Reed Elsevier PLC and Reed Elsevier NV securities among the senior executive population in order to promote alignment with shareholders and to provide focus on the share price.
Awards under the current and proposed multi-year incentives take the form of restricted shares and market value options which typically vest over a period of three years, except for the one-off REGP under which awards vest over three and five years. The vesting of all awards made to executive directors under these plans is subject to meeting a number of stretching performance targets based on internal financial metrics and total shareholder return. Additionally, in the case of ESOS, a financial pre-grant performance condition applies which determines the annual size of the available grant pool for all participants in the plan.
Reed Elsevier Growth Plan (REGP)
The key featuresdetails of how the REGP are summarised below.operates have been disclosed in previous years’ Reports.
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Performance measures and targets
Total Shareholder Return (TSR)
The vesting of one third of the REGP award is subject to Reed Elsevier’s TSR performance compared against three comparator groups (the TSR tranche).
As Reed Elsevier accesses equity capital markets through three exchanges — London, Amsterdam and New York — in three separate currency zones, three distinct comparator groups are used — a Sterling Comparator Group, a Euro Comparator Group and a US Dollar Comparator Group. The TSR performance of Reed Elsevier PLC ordinary shares (based on the
London listing) is measured against the Sterling Comparator Group; the TSR performance of Reed Elsevier NV ordinary shares (based on the Amsterdam listing) is measured against the Euro Comparator Group; and the TSR performance of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRs (based on the New York listing) is measured against the US Dollar Comparator Group. The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award was made and the final six months of the last financial year of the performance period.
TSR performance of each security is measured separately against each comparator group and the proportion of the TSR tranche that vests is the sum of the payouts achieved against the three comparator groups.
TSR ranking within the relevant TSR comparator group | 3 year period: 2010-12 vesting percentage of each third of the TSR tranche | 5 year period: 2010-14 vesting percentage of each third of the TSR tranche | ||
Below median | 0% | 0% | ||
Median | 30% | 30% | ||
Upper quartile | 100% | 100% |
Vesting is on a straight-line basis for ranking between the median and the upper quartile.
TSR comparators groups
The constituents of each comparator group were selected on the following basis:a specific basis, as described in last year’s Report (page 49).
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Return on invested capital (ROIC)
The vesting of one third of the REGP award is subject to the percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV (the ROIC tranche) as follows:
3 years: 2010-12 | 2 years: 2013-14 | Vesting percentage of ROIC tranche | 2 years: 2013-14 | Vesting percentage of ROIC tranche | ||||
ROIC in 2012, subject to actual exceeding 2009 ROIC calculated on the same basis | ROIC in 2014 | |||||||
ROIC in 2012 subject to actual exceeding 2009 ROIC calculated on the same basis | ROIC in 2014 | |||||||
Below 10.2% | Below 10.7% | 0% | Below 10.7% | 0% | ||||
10.2% | 10.7% | 60% | 10.7% | 60% | ||||
11.2% or above | 12.7% or above | 100% | 12.7% or above | 100% |
Vesting is on a straight-line basis for performance between the minimum and maximum levels.
For the purposes of the plan, the following definitions apply:
— | Invested capital = arithmetic average of the opening and closing capital employed for the Reed Elsevier combined businesses for the financial year with all cumulative amortisation and impairment charges for acquired intangible assets and goodwill added back. In addition, any exceptional restructuring and acquisition integration charges (net of tax) are capitalised for these purposes and changes in exchange rates and movements in pension deficits are excluded. |
— | Return = adjusted operating profit for the Reed Elsevier combined businesses before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges. In addition, it is grossed up to exclude the equity share of taxes in joint ventures and further adjusted to exclude net pension financing credit movement, after applying the effective rate of tax used for adjusted earnings calculations and using exchange rates to match those used in the calculation of invested capital. |
In order to ensure that the performance score achieved is a fair reflection of underlying business performance, the Committee retains discretion to determine the treatment of major disposals and acquisitions that require board approval. Any significant adjustments made to the final performance score will be disclosed to shareholders.
Adjusted earnings per share (EPS)
The vesting of one third of the REGP award is subject to performance against growth in adjusted earnings per share measured at constant currencies (Adjusted EPS) (the EPS tranche) as follows:
3 years: 2010-12 | 2 years: 2013-14 | Vesting percentage | ||
Average Adjusted EPS growth in years 2011 and 2012 (subject to average Adjusted EPS growth over the whole three year period being positive) | Average Adjusted EPS growth over the two year period | |||
Below 5% p.a. | Below 7% p.a. | 0% | ||
5% p.a. | 7% p.a. | 60% | ||
9% p.a. or above | 13% p.a. or above | 100% |
Vesting is on a straight-line basis for performance between the minimum and maximum levels.
For the purposes of the plan, the following definitions apply:
— | Earnings = adjusted reported earnings measured at constant currencies. Adjustments include amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges, gains/losses on business disposals and |
— | Number of shares = weighted average number of shares in issue excluding shares held in treasury. |
Performance share awards were granted under the REGP to Mr Engstrom and Mr Armour in May 2010. At its meeting on April 25, 2013, the Committee will assess the extent to which the performance conditions have been met for these share awards, which includes an overall assessment of underlying business performance and other relevant factors. Based on a review of the three performance measures used in the plan, preliminary calculations indicate that 66.8% of the awards are expected to vest. This is based on a TSR ranking of just above median in respect of two of the comparator groups, ROIC achievement slightly below the 11.2% maximum after taking into account adjustments for such items as foreign exchange rates, pension deficits and acquisition integration costs as provided in the plan, and EPS growth slightly above the middle of the range specified in the plan.
This would result in 429,710 PLC ordinary shares and 282,187 NV ordinary shares vesting in respect of Erik Engstrom. 50% of these shares will be released to Mr Engstrom following the April Committee meeting and 50% of these shares will be deferred until 2015. In respect of Mr Armour, under the terms of the plan relating to retirement, 100% of the shares vesting will be released to him following the April Committee meeting. In accordance with the preliminary vesting calculations, this will result in 263,601 PLC ordinary shares and 173,105 NV ordinary shares being released to Mr Armour. Thereafter, Mr Armour will have no further entitlement for payment under this plan. Dividend equivalents will be payable in cash on any shares released which, based on the preliminary calculations, would result in payments of £135,251 and €179,329 to Mr Engstrom and £165,937 and €220,016 to Mr Armour.
Long-Term Incentive Plan (LTIP)
No awards under LTIP were made to executive directors in 2012 and no award cycles remain outstanding for directors under this plan.
A multi-yearlong-term incentive award was granted to senior leaders below the Board in 2011.2012. Grants under the plan are made on a rolling three-yearthree year basis and awards are in the form of performance shares that vest subject to the same performance metrics and vesting scales applicable toconsistent with the REGP and theREGP. The targets set for each metric are aligned to the five-year performance scale applicable to the executive directors under the REGP.
Subject to receipt of shareholder approval at the 2013 Annual General Meetings, it is intended to commence making annual grants under a new long-term incentive plan to executive directors from 2013 onwards, under which the first awards would vest in H1 2016, which is the year after the vesting of the second and final tranche of the REGP for the CEO, so there will be no overlapping payouts. The LTIP was required by the need to replace the one-off REGP incentive plan for directors with a more regular long-term.
Details of the proposed new LTIP are described in the 2013 notices of Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV.
Executive Share Option Scheme (ESOS)
The current ESOS, which was approved by shareholders in 2003, expires on April 8, 2013. A replacement ESOS, for which we are seeking shareholder approval at the Annual General Meetings in April 2013, is described in the notices of Annual General Meetings and it is intended to make grants under this plan to the executive directors in 2013. It is not intended to make any further grants under the existing ESOS, the key features of the ESOS are summarised below.
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The size of the total grant pool available for all participantswhich were described in a given year is determined basedlast year’s Report on growth in average compound adjusted EPS measured in constant currencies (adjusted EPS) over the three years prior to grant as follows:
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Adjusted EPS growth for the three years ended December 31, 2011 was less than 6% p.a. which means that the available grant pool for ESOS awards in 2012 is 50% of the 2003 pool.page 52.
During 2011 the executive directors each2012, Erik Engstrom received a grant of 150%200% of base salary of market value options (50%(two-thirds of the permitted maximum). On joining, Duncan Palmer received a grant of 135% of salary. The vesting of the awardoptions is subject to an Adjusted EPS growth hurdle of 6% p.a.
During compound growth in adjusted earnings per share hurdle, measured over a three year period commencing on January 1 of the year of grant (the same condition also applies to the 2008-102011 ESOS grants which were made to Erik Engstrom and Mark Armour). In view of his retirement at the end of 2012, Mr Armour did not receive an ESOS grant in 2012.
Early in 2012, as disclosed in last year’s Report, the 2009-11 cycle of ESOS lapsed for executive directors as a result of EPS performance being below the threshold required for vesting. Prior to the date of this report, the Committee determined that the 2009-11 cycle of ESOS also lapsed for executive directors as the adjusted EPS growth hurdle of 8% p.a. on vesting was not achieved.Erik Engstrom and Mark Armour.
Bonus Investment Plan (BIP)
The bonus investment planBIP is a voluntary plan aimed at encouraging personal investment in, and ongoing holding of, Reed Elsevier shares to promote greater alignment with shareholders and support the retention of key talent. The current bonus investment plan was approved by shareholders at the 2010 Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV and replaced the bonus investment plan implemented in 2003.
Under the BIP, participants may invest their own funds to purchase Reed Elsevier securities or allocate securities already owned outright for investment under the plan up to a specified maximum. In return, the participant is granted a matching award which vests over three years subject to performance (i.e. a maximum match of 1 for 1 can be earned on the personal investment). It is a condition of vesting that the underlying personal investment is retained throughout the vesting period. Dividend equivalents accrue on the matching shares during the vesting period and are paid out in cash at the end to the extent that the matching award vests. The table below summarises the key features of the BIP.
Feature | Detail | |||
Frequency of award | — | Annual grants of matching awards | ||
— | Ten-year life of the plan | |||
— | Implemented in | |||
Eligibility | — | Approximately 150 senior executives including executive directors | ||
— | Participation is voluntary | |||
Performance period | — | Three financial years | ||
Performance conditions | — | Average adjusted EPS growth measured in constant currencies and ROIC (see below) | ||
— | 50% of the award is subject to adjusted EPS growth and 50% subject to ROIC | |||
Vesting scale | — | Performance hurdle and | ||
Personal investment | — | Up to 100% of the target bonus opportunity net of tax | ||
Other provisions | — | On a change of control, awards vest on a pro-rated basis for service and subject to performance based on an assessment of progress against targets at the time the change of control occurs, unless the Committee determines that awards should not vest and instead be exchanged for equivalent awards over shares in the acquiring company (i.e. rollover applies) | ||
— | Claw-back applies | |||
— | Awards under the plan are satisfied with shares purchased in the market |
The following targets and vesting scale apply to awards granted under the BIP in 2011:2012:
Match earned on personal investment | Average growth in adjusted EPS (%) over the 3 year performance period | ROIC (%) in the third year of the performance period | ||
0% | below 4% p.a. | below 10.4% | ||
50% | 4% p.a. | 10.4% | ||
75% | 6.5% p.a. | 10.9% | ||
100% | 9% p.a. or above | 11.4% or above |
Match earned on personal investment Average growth in adjusted EPS (%) 0% 50% 75% 100%The same EPS targets as set out in the table above will apply to awards of matching shares to be granted in 2012 under the 2012-14 cycle of the plan. The targets applicable to the ROIC proportion will be increased to 11.0% at threshold and 12.0% at maximum, with straight-line vesting for performance between the points. The executive directors will be eligible to participate in BIP in 2012.
over the 3 year performance period ROIC (%) in the third year of
the performance period below 4% p.a. below 11% 4% p.a. 11% 6.5% p.a. 11.5% 9% p.a. or above 12% or above
The vesting scale and performance metrics applicable to awards
Awards were granted in 2010 under the BIP areto Mr Engstrom and Mr Armour in May 2010. At its meeting on April 25, 2013, in much the same way as above, except thatfor the EPS proportion is measured over years twoREGP, the Committee will assess the extent to which the performance conditions have been met for these awards, which includes an overall assessment of underlying business performance and threeother relevant factors.
Based on a review of the two performance period (i.e. 2011measures used in the plan, preliminary calculations indicate that 89.5% of the awards are expected to vest. This is based on ROIC achievement slightly below the 11.2% maximum after taking into account adjustments for such items as foreign exchange rates, pension deficits and 2012) withrestructuring costs as provided in the plan, and EPS growth just below the 70th percentile of the target range specified in the plan.
This would result in the vesting of the EPS component being subject to average EPS growth over the whole three year vesting period being positive. The targets applicable to the ROIC proportion under the 2010-12 cycle were 0.2% lower than the targets applicable to the 2011-13 cycle,62,819 NV ADR matching awards in respect of Mr Engstrom and a corresponding cash dividend equivalent payment of $178,181. In respect of Mr Armour, 58,223 PLC ordinary shares and 38,048 NV ordinary shares would be released, with a thresholdcorresponding dividend equivalent payments of 10.2%£36,651 and maximum vesting for achieving ROIC of 11.2% or above in the third year of the performance period. Straight-line vesting applies for performance between the points.
Long Term Incentive Plan (LTIP)
No awards under LTIP were given to executive directors in 2011 and no awards will be made in 2012.
Awards under this plan were in the form of restricted shares, with half of the award being over shares in Reed Elsevier PLC and the other half over shares in Reed Elsevier NV. A three year performance period applies and awards vest based on growth in average compound adjusted EPS growth measured at constant currencies and Reed Elsevier’s TSR performance compared to a group of industry peers.
The 2008-10 cycle of LTIP lapsed during 2011 as a result of performance conditions not being met. At the date of this Report, it had also been determined that the 2009-11 cycle of LTIP had also lapsed as the minimum performance hurdle of 10% adjusted EPS growth was not met.
No further unvested award cycles remain outstanding under this plan at the date of this report.€48,359 respectively.
Shareholding requirement
The Committee believes that one of the aspects that creates closer alignment between senior management and shareholders is to require executives to build up and maintain a significant personal stake in Reed Elsevier. The shareholding requirements applicable to the executive directors are set out in the table below and as described on page 48,47, were pre-requisites to participate in the REGP. Shareholding requirements also apply to selected senior executives below the Board.
Meeting the relevant shareholding requirement is both a condition of the vesting of awards as well as a pre-requisite to maintain eligibility to receive future awards under the multi-year incentives.
On December 31, 2011,2012, the executive directors’ shareholdings were as follows (valued at the mid-market closing prices of Reed Elsevier securities):
Shareholding requirement (in % of December 31, 2011 annualised base salary) | Actual shareholding as at December 31, 2011 (in % of December 31, 2011 annualised base salary) | Shareholding requirement (in % of December 31, 2012 annualised base salary) | Actual shareholding as at December 31, 2012 (in % of December 31, 2012 annualised base salary) | |||||
Erik Engstrom | 300% | 396% | 300% | 512% | ||||
Mark Armour | 200% | 376% | 200% | 442% | ||||
Duncan Palmer* | 200% | 0% |
Other employee share plans
UK-based executive directors are eligible to participate in the HMRC approved all-employee UK Savings-Related Share Option Scheme (SAYE).
* | Duncan Palmer has until December 31, 2015 to build up to his required level of shareholding and must retain any net shares earned from Reed Elsevier share plans until he meets his requirement. |
Retirement benefits
Retirement benefit provisions are set in the context of the total remuneration for each executive director, taking account of age and service and against the background of evolving legislation and practice in Reed Elsevier’s major countries of operation. Base salary is the only pensionable element of remuneration.
Erik Engstrom and Mark Armour areis provided with UK defined benefit pension arrangements under which they accruehe accrues a pension of 1/30th of salary for every year of service (up to a maximum of two thirds of salary). The pension is provided through a combination of:
— | the main UK Reed Elsevier Pension Scheme for salary restricted to |
— | Reed Elsevier’s unapproved pension arrangement for |
Prior to November 1, 2007, Erik Engstrom was not a member of any company pension scheme and Reed Elsevier made annual contributions of 19.5% of his salary to his personal pension plan. From November 1, 2007 contributions to his designated retirement account ceased and he became a member of the UK defined benefit pension arrangement.
The pension arrangements for the directorsErik Engstrom include life assurance cover while in employment, an entitlement to a pension in the event of ill health or disability and a spouse’s and/or dependants’ pension on death.
The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown in the table below. Transfer values have been calculated in accordance with the guidance note GN11 published by the UK Institute of Actuaries and Faculty of Actuaries. The transfer values at December 31, 20112012 have been calculated using the transfer value basis adopted by the trustees of the pension scheme from October 1, 2008.Reed Elsevier Pension Scheme.
The transfer value in respect of individual directors represents a liability in respect of directors’ pensionspension entitlement, and is not an amount paid or payable to the director.
Mark Armour retired on December 31, 2012, at which point he became entitled to a pension of £378,785 per annum.
Transfer values of accrued pension benefits
Age at December 31, 2012 | Director’s contributions | Transfer value of accrued pension at December 31, 2011 | Transfer value of accrued pension at December 31, 2012 | Increase in transfer value during the year (net of director’s contributions) | Accrued annual pension at December 31, 2012 | Increase in accrued annual pension during the year | Increase in accrued annual pension during the year (net of inflation) | Transfer value at December 31, 2012 of increase in accrued pension during the year (net of inflation and director’s contributions) | ||||||||||||||||||||||||||||
Erik Engstrom | 49 | £ | 9,158 | £ | 2,099,132 | £ | 2,730,651 | £ | 622,361 | £ | 180,958 | £ | 38,584 | £ | 31,750 | £ | 469,944 | |||||||||||||||||||
Mark Armour | 58 | £ | 1,944 | £ | 6,758,053 | £ | 7,525,908 | £ | 765,911 | £ | 384,878 | * | £ | 30,355 | £ | 13,362 | £ | 259,332 |
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Duncan Palmer is a member of the UK Reed Elsevier defined contribution pension plan (the Reed Elsevier Pension Plan — REPP). The company contribution is 19% of Mr Palmer’s salary. £50,000 is paid as a contribution to the REPP, being the maximum contribution which can be made under HMRC limits, and the balance is paid to him as a cash allowance, subject to deduction of income tax and national insurance. The pension arrangement for Mr Palmer includes life assurance cover while in employment.
Service contracts
Executive directors are employed under service contracts that provide for a maximum of one year’s notice. The contracts neither specify a pre-determined level of severance payment nor contain specific provisions in respect of a change in control.
The Committee believes that as a general rule, notice periods should be 12 months and that the executive directors should, subject to any legal constraints within their base country, be required to mitigate their losses in the event of termination. The Committee will, however, note local market conditions so as to ensure that the terms offered are appropriate to attract and retain top executives operating in global businesses.
The contractual terms of the executive directors (and for approximately 100 other senior executives) include certain covenants as follows:
— | non-competition restrictions apply which prevent the executive from working in a capacity which competes with any Reed Elsevier business which he/she was involved with during the preceding 12 months; from recruiting Reed Elsevier employees and from soliciting Reed Elsevier customers and suppliers for a period of 12 months after leaving employment; |
— | in the event of the executive resigning, he/she will immediately lose all rights to any outstanding awards under the multi-year incentives including any vested but unexercised options; and |
— | in the event of a breach of the covenants, any gains made or payouts received, in the period starting six months prior to and ending 12 months after leaving employment, on the vesting or exercise of awards from the multi-year incentives may be repayable. |
Each executive director has a service contract with Reed Elsevier Group plc, as summarised in the table below:
Current | Date employment commenced | Expiry date (subject to notice | Notice period | Subject to | ||||||||||||||
Erik Engstrom | March 14, 2011 | August 23, 2004 | June 14, 2028 | 12 months | English law | |||||||||||||
Mark | October 7, 1996 | February 1, 1995 | 12 months | English law | ||||||||||||||
Duncan Palmer | August 15, 2012 | August 24, 2012 | n/a | 12 months | English law |
Mark Armour’s retirement termsDuncan Palmer’s remuneration arrangements
TheDuncan Palmer’s annual base salary on his recruitment was £600,000 and he has an annual target bonus opportunity of 100% of base salary. He will be eligible to participate in BIP from 2013 onwards up to his target bonus opportunity net of tax and to participate in the ESOS and LTIP, subject to shareholders approving those plans. He will receive annual pension contributions equal to 19% of salary and benefits in accordance with the policies applicable to executive directors.
In addition, in September 2012, he was granted the following terms will apply to Mark Armour in connection with his retirement on December 31, 2012:awards:
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Policy on external appointments
The Committee believes that the experience gained by allowing executive directors to serve as non-executive directors on the boards of other organisations is of benefit to Reed Elsevier. Accordingly, executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive directors on the boards of up to two non-associated companies (of which only one may be to the board of a major company) and they may retain remuneration arising from such appointments.
Mark Armour is a non-executive director of SABMiller plc and received remuneration of £100,694£106,250 during 20112012 (£59,610100,694 during 2010 reflecting pro-rata payments2011). He is also a non-executive director of the Financial Reporting Council (FRC) and received remuneration of £12,500 since appointment).commencing his appointment on July 2, 2012.
Duncan Palmer is a non-executive director of Oshkosh Corporation and received fees of £15,487 since his appointment as a director of Reed Elsevier PLC up to the end of 2012.
NON-EXECUTIVE DIRECTORS
Policy on non-executive directors’ fees
The policy on non-executive directors’ fees is a matter for the Boards, subject to applicable law, and does not fall within the Committee’s remit.
Reed Elsevier seeks to recruit non-executive directors with the experience to contribute to the Boards of a dual-listed global business and with a balance of personal skills that will make a major contribution to the Boards and their committee structures. With the exception of Marike van Lier Lels who serves only on the Supervisory Board of Reed Elsevier NV, non-executive directors, including the Chairman, are appointed to the Boards of Reed Elsevier Group plc, Reed Elsevier PLC and the Supervisory Board of Reed Elsevier NV. Non-executive directors’ fees reflect the directors’ membership of the three Boards.
The primary source for comparative market data is the practice of FTSE 50 companies, although reference is also made to AEXNYSE Euronext Amsterdam (AEX) Index and US listed companies.
Non-executive directors, including the Chairman, serve under letters of appointment and are not entitled to notice of, or payments following, retirement from the Boards.
Fee levels
Non-executive directors receive an annual fee in respect of their memberships of the Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc. The fee paid to Marike van Lier Lels, who serves only on the Supervisory Board of Reed Elsevier NV, reflects her time commitment to that company and to other companies within the Reed Elsevier combined businesses. Non-executive directors are reimbursed for expenses incurred in attending meetings. They do not receive any performance-related bonuses, pension provision, share options or other forms of benefit except for the following: the Chairman is in receipt of private medical benefit and non-executive directors and the Chairman are provided with tax filing support to meet any tax filing obligations arising from their directorships with Reed Elsevier in countries other than their home country.
Fees may be reviewed annually, although in practice they have changed on a less frequent basis. DuringThe last fee review was during 2011 fees were reviewed for non-executive directors, Supervisory Board members and the Chairman, taking account of market practice and general governance trends. Prior to that,current fee arrangements took effect on January 1, 2012.
The fees for non-executive directors2013 are unchanged from 2012 and Supervisory Board members had last been reviewed in 2007 and increased with effect from January 1, 2008 although a separate fee of £20,000 was introduced with effect from January 1, 2011 for the senior independent director. In addition, the chairmanship of the Audit and Remuneration Committees attracts a separate fee of £25,000/€30,000 (£15,000/€20,000 until December 31, 2011) and £20,000 (£15,000 until December 31, 2011). The Chairman of Reed Elsevier does not receive committee chairman fees. are set out below.
Annual fee 2013 | ||
Chairman | £550,000 | |
Non-executive directors | £65,000/€80,000 | |
Senior Independent Director | £20,000 | |
Chairman of: | ||
— Audit Committee | £25,000/€30,000 | |
— Remuneration Committee | £20,000 |
The total annual fee payable to Marike van Lier Lels is €65,000 (€48,000 in 2011)(unchanged from 2012). The Chairman of Reed Elsevier does not receive committee chairman fees.
Directors’ emoluments and fees
(a) | Aggregate emoluments |
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows:
2011 £ | 2010 £ | 2012 £ | 2011 £ | |||||||||||||
£’000 | £’000 | £’000 | £’000 | |||||||||||||
Salaries and fees | 2,590 | 3,324 | 2,972 | 2,590 | ||||||||||||
Benefits | 56 | 97 | 89 | 56 | ||||||||||||
Annual performance-related bonuses | 1,634 | 2,351 | 2,074 | 1,634 | ||||||||||||
Payments for loss of office | — | 499 | ||||||||||||||
Pension contributions | 42 | 43 | 44 | 42 | ||||||||||||
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Total | 4,322 | 6,314 | 5,179 | 4,322 | ||||||||||||
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Salary £ | Benefits £ | Bonus £ | Total 2011 £ | Total 2010 £ | Salary £ | Benefits £ | Bonus £ | Total 2012 £ | Total 2011 £ | |||||||||||||||||||||||||||||||
Erik Engstrom | 1,025,000 | 28,492 | 1,021,925 | 2,075,417 | 2,028,108 | 1,050,625 | 28,396 | 1,149,909 | 2,228,930 | 2,075,417 | ||||||||||||||||||||||||||||||
Mark Armour | 628,776 | 22,988 | 611,799 | 1,263,563 | 1,248,742 | 644,495 | 23,984 | 693,799 | 1,362,278 | 1,263,563 | ||||||||||||||||||||||||||||||
Duncan Palmer* | 213,846 | 32,878 | 230,205 | 476,929 | n/a | |||||||||||||||||||||||||||||||||||
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Total | 1,653,776 | 51,480 | 1,633,724 | 3,338,980 | 3,276,850 | 1,908,966 | 85,258 | 2,073,913 | 4,068,137 | 3,338,980 | ||||||||||||||||||||||||||||||
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* | The benefits figure for Duncan Palmer includes the balance of his company pension contribution which is paid to him as a cash allowance, as detailed under the Retirement Benefits section on pages 51 and 52 which, for 2012, was £22,810. |
Market value options awarded under ESOS and restricted shares awarded in the year of reporting under BIP are set out by executive director on pages 6159 to 62.61. Vesting is subject to performance conditions relating to growth in adjusted EPS and ROIC, as described in the front section of this Report. The maximum number of options that can vest under ESOS and the maximum number of restricted shares that can vest under the BIP is equivalent to the awards granted.
The maximum number of shares which can vest under the September 2012 grants of performance share awards and restricted share awards to Duncan Palmer is equivalent to the awards granted. Erik Engstrom was the highest paid director in 2011.2012.
(c) | Individual fees of non-executive directors |
2011 £** | 2010 £** | 2012 £* | 2011 £* | |||||||||||||
Mark Elliott | 70,000 | 70,000 | 85,000 | 70,000 | ||||||||||||
Anthony Habgood | 500,000 | * | 500,000 | * | 550,000 | ** | 500,000 | ** | ||||||||
Adrian Hennah (from April 20, 2011) | 38,475 | — | 65,000 | 38,475 | ||||||||||||
Lisa Hook | 55,000 | 55,000 | 65,000 | 55,000 | ||||||||||||
Marike van Lier Lels (from January 13, 2010) | 41,739 | *** | 39,744 | |||||||||||||
Marike van Lier Lels | 52,846 | *** | 41,739 | |||||||||||||
Robert Polet | 55,000 | 55,000 | 65,000 | 55,000 | ||||||||||||
Sir David Reid | 75,000 | 55,000 | 85,000 | 75,000 | ||||||||||||
Lord Sharman (until April 20, 2011) | 18,333 | 63,750 | — | 18,333 | ||||||||||||
Linda Sanford (from December 4, 2012) | 5,416 | — | ||||||||||||||
Ben van der Veer | 82,609 | *** | 71,225 | 89,431 | *** | 82,609 | ||||||||||
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Total | 936,156 | 909,719 | 1,062,693 | 936,156 | ||||||||||||
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The above figures exclude an imputed notional benefit in respect of tax filing support provided to non-executive directors for tax filings in countries other than their home country resulting from |
** | Excludes private medical insurance benefit of £1,389 in respect of 2012 (£1,329 in 2011). |
*** | The fees for Marike van Lier Lels and Ben van der Veer are paid in euro and were |
Compensation of executive officers
The aggregate compensation paid during 20112012 (and relating to 2011)2012) to those who were executive officers (other than directors) of Reed Elsevier Group plc as at February 15, 201227, 2013 as a group for the year ended December 31, 20112012 was £2,043,070£2,331,660 which included contributions made to the pension plans in respect of such officers of £61,780.£84,882.
REED ELSEVIER
The Boards of directors of Reed Elsevier PLC and Reed Elsevier NV manage their respective shareholdings in Reed Elsevier Group plc and Elsevier Reed Finance BV. The Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc are harmonised. Subject to shareholders of Reed Elsevier PLC and Reed Elsevier NV re-electing retiring directors at their respective Annual General Meetings in 2012,2013, all the directors of Reed Elsevier Group plc will also be directors of Reed Elsevier PLC and of Reed Elsevier NV. For a complete description of the Board membership positions and executive officer positions within Reed Elsevier, see “— Directors” and “Senior Management” on pages 41 and40 to 42. Details of the Audit Committees of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV are given under “Item 15: Controls and Procedures” and details of the Remuneration Committee are given under “— Remuneration Committee” on page 43.42.
REED ELSEVIER GROUP PLCErik Engstrom
Mark Armour**
Duncan Palmer***
Base salary
Retirement benefit
Other benefits
Annual incentive
The Reed Elsevier Group plc Board currently consists of two executive directors(earned for 2012 and seven non-executive directors. A person may only be appointed or proposed or recommended for appointment to the Board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevierpayable in March 2013)
Multi-year incentives granted*
Shareholding requirement
* | No multi-year incentives vested in 2012. Multi-year incentives from previous years lapsed in early 2012 as already described in last year’s Report. |
** | Mark Armour served as a director until December 31, 2012. |
*** | Additional awards were made to Duncan Palmer in conjunction with his recruitment. Further details are contained on pages 52 and 53. |
Base Salary
Salary reflects the role and the sustained value of the executive in terms of skills, experience and contribution in the context of the relevant market.
Salaries for executive directors are reviewed annually in the context of the competitiveness of total remuneration and Reed Elsevier’s guidelines for wages and salaries agreed for the whole of Reed Elsevier for the forthcoming financial year. Any increases typically take effect on January 1.
The Committee decided to award a salary increase of 2.5% to Erik Engstrom, which increased his base salary with effect from January 1, 2013 to £1,076,891. Duncan Palmer’s service agreement provides that his first salary review following commencement of employment would be on or around January 1, 2014, so his base salary remains unchanged for 2013. In determining the salary recommendation for the CEO, the Committee considered, among other inputs, 2013 salary guidance for Reed Elsevier’s most significant employee locations globally. The increase awarded to the CEO is within the guidelines agreed for those employees in respect of 2013 increases.
In respect of salaries for the broader employee population, Reed Elsevier uses the same factors to determine the levels of increase across all employee populations globally: i.e. relevant pay market, skills, experience and contribution. Reed Elsevier operates across many diverse countries in terms of their remuneration structures and practices. Any increases awarded to different employee groups in different geographies reflect this diversity and range of practices. An average increase of approximately 2.5% will be awarded across the senior management population globally for 2013. This level of increase is in line with increases provided to the wider employee population.
Annual Incentive
The Annual Incentive Plan (AIP) provides focus on the delivery of stretching annual financial targets and the achievement of annual objectives and milestones that create a platform for sustainable future performance.
For 2013, executive directors have a target bonus opportunity of 100% of salary that is weighted as follows across four elements (unchanged from 2012):
Measure | Weighting | |
— Revenue | 30% | |
— Adjusted Profit After Tax | 30% | |
— Cash Flow Conversion Rate | 10% | |
— Key Performance Objectives (KPOs) | 30% |
The target bonus opportunity for the financial measures is payable for the achievement of highly stretching financial targets. The four elements are measured separately, such that there could be a payout on one element and not on others.
For 2013, the minimum threshold on the financial elements of the AIP at which a bonus starts to accrue is 94% of target and the maximum bonus is 150% of target (unchanged from 2012).
The KPOs are individual to each executive director. Each executive director is set up to six KPOs to reflect critical business priorities for which he is accountable. The KPO component for the executive directors and other senior executives will contain at least one KPO relating to the achievement of specific sustainability objectives and targets contained within Reed Elsevier’s corporate responsibility agenda.
Against each objective, measurable milestone targets are set for the year. All financial targets and KPOs are approved by the Committee and are subject to formal assessment at the end of each year. The Chairman of Reed Elsevier Group plc presents his assessment of performance against KPOs for the CEO of Reed Elsevier Group plc to the Committee while the CEO of Reed Elsevier Group plc presents his assessment of KPO performance for the CFO of Reed Elsevier Group plc. The Committee then discusses and agrees the final KPO score for each executive director.
AIP Payments for 2012
In assessing the level of bonus payments for 2012, the Committee noted the following performances:
% change over 2011 at constant exchange rates | ||||
Underlying revenue | Total adjusted PAT | |||
Reed Elsevier | +4% | +8% |
Reed Elsevier executed well on its strategic and financial priorities in 2012. Positive revenue momentum and focus on operating efficiency combined to lift underlying operating profit growth and earnings. Underlying revenues, which exclude the effects of currency translation and acquisitions and disposals, were up 4%, or 3% excluding the cycling effect of biennial exhibitions, and all five business areas contributed to the underlying growth. Underlying adjusted operating profits were up 6%, with the improvement in profitability driven by a combination of process innovation and portfolio development across all business areas. Underlying costs were up 4%, reflecting volume growth as well as organic investment in new product development and sales & marketing, partly offset by continued improvements in process efficiency. Adjusted operating cash flow was £1,603m (2011: £1,515m), up 6% compared with the prior year and up 7% at constant currencies. The rate of conversion of adjusted operating profits into cash flow was 94% (2011: 93%). Returns on invested capital increased to 11.9%, 0.7 percentage points higher than in 2011, reflecting the improved trading performance and capital efficiency.
Set out below is a summary of the outcome of performance against each financial measure:
Revenue | Just above target | |
Adjusted Profit After Tax | Just above target | |
Cash Flow Conversion Rate | Just above target |
The progress on personal objectives for each director was then added in the form of the KPO score and, overall, the sum of the scores achieved against the four AIP components for the executive directors, resulted in the following bonuses for 2012:
2012 annual bonus (to be | % of 2012 base salary earnings | |||
Erik Engstrom | £1,149,909 | 109.5% | ||
Mark Armour | £693,799 | 107.7% | ||
Duncan Palmer* | £230,205 | 107.7% |
*Duncan | Palmer’s bonus reflects service during the year of reporting. His service commenced on August 24, 2012. |
Multi-Year Incentives
It is intended to continue to provide executive directors with multi-year incentives comprising a combination of a long-term incentive plan (LTIP), a personal investment bonus deferral plan (BIP) and market value options (ESOS). To this end, a new LTIP and ESOS are proposed and will be presented for shareholder approval at the 2013 Annual General Meetings (AGMs).
The purpose of the multi-year incentives is to provide focus on the delivery of the medium to longer-term strategy and holding executives accountable for the execution of that strategy while driving value creation through sustained financial performance, capital discipline and the delivery of returns for shareholders.
In addition, the multi-year incentives are structured so as to encourage personal investment and require a minimum level of ongoing shareholding in Reed Elsevier securities among the senior executive population in order to promote alignment with shareholders and to provide focus on the share price.
Awards under the current and proposed multi-year incentives vest over a period of three years, except for the one-off REGP under which awards vest over three and five years. The vesting of all awards made to executive directors under these plans is subject to meeting a number of stretching performance targets based on internal financial metrics and total shareholder return.
Reed Elsevier Growth Plan (REGP)
The details of how the REGP operates have been disclosed in previous years’ Reports.
Performance measures and targets
Total Shareholder Return (TSR)
The vesting of one third of the REGP award is subject to Reed Elsevier’s TSR performance compared against three comparator groups (the TSR tranche).
As Reed Elsevier accesses equity capital markets through three exchanges — London, Amsterdam and New York — in three separate currency zones, three distinct comparator groups are used — a Sterling Comparator Group, a Euro Comparator Group and a US Dollar Comparator Group. The TSR performance of Reed Elsevier PLC ordinary shares (based on the
London listing) is measured against the Sterling Comparator Group; the TSR performance of Reed Elsevier NV ordinary shares (based on the Amsterdam listing) is measured against the Euro Comparator Group; and the TSR performance of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRs (based on the New York listing) is measured against the US Dollar Comparator Group. The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award was made and the final six months of the last financial year of the performance period.
TSR performance of each security is measured separately against each comparator group and the proportion of the TSR tranche that vests is the sum of the payouts achieved against the three comparator groups.
Vesting is on a straight-line basis for ranking between the median and the upper quartile.
TSR comparators groups
The constituents of each comparator group were selected on a specific basis, as described in last year’s Report (page 49).
The comparators which were included in each currency group are set on page 50 of last year’s Report.
Return on invested capital (ROIC)
The vesting of one third of the REGP award is subject to the percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV (the ROIC tranche) as follows:
3 years: 2010-12 | 2 years: 2013-14 | Vesting percentage of ROIC tranche | ||
ROIC in 2012 subject to actual exceeding 2009 ROIC calculated on the same basis | ROIC in 2014 | |||
Below 10.2% | Below 10.7% | 0% | ||
10.2% | 10.7% | 60% | ||
11.2% or above | 12.7% or above | 100% |
Vesting is on a straight-line basis for performance between the minimum and maximum levels. For the purposes of the plan, the following definitions apply:
— | Invested capital = arithmetic average of the opening and closing capital employed for the Reed Elsevier |
— | Return = adjusted operating profit for the Reed Elsevier |
In order to ensure that the performance score achieved is a fair reflection of underlying business performance, the Committee retains discretion to determine the treatment of major disposals and acquisitions that require board approval. Any significant adjustments made to the final performance score will be disclosed to shareholders.
Adjusted earnings per share (EPS)
The vesting of one third of the REGP award is subject to performance against growth in adjusted earnings per share measured at constant currencies (Adjusted EPS) (the EPS tranche) as follows:
3 years: 2010-12 | 2 years: 2013-14 | Vesting percentage of EPS tranche | ||
Average Adjusted EPS
2012 (subject to average Adjusted EPS growth over the whole three year period being positive) | Average Adjusted EPS growth over the two year period | |||
Below 5% p.a. | Below 7% p.a. | 0% | ||
5% p.a. | 7% p.a. | 60% | ||
9% p.a. or above | 13% p.a. or above | 100% |
Vesting is on a straight-line basis for performance between the minimum and maximum levels. For the purposes of the plan, the following definitions apply:
— | Earnings = adjusted reported earnings measured at constant currencies. Adjustments include amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges, gains/losses on business disposals and tax rate anomalies (deferred tax). The Committee retains discretion to adjust for changes in the net pension financing credit. |
— | Number of shares = weighted average number of shares in issue excluding shares held in treasury. |
Performance share awards were granted under the REGP to Mr Engstrom and Mr Armour in May 2010. At its meeting on April 25, 2013, the Committee will assess the extent to which the performance conditions have been met for these share awards, which includes an overall assessment of underlying business performance and other relevant factors. Based on a review of the three performance measures used in the plan, preliminary calculations indicate that 66.8% of the awards are expected to vest. This is based on a TSR ranking of just above median in respect of two of the comparator groups, ROIC achievement slightly below the 11.2% maximum after taking into account adjustments for such items as foreign exchange rates, pension deficits and acquisition integration costs as provided in the plan, and EPS growth slightly above the middle of the range specified in the plan.
This would result in 429,710 PLC ordinary shares and 282,187 NV ordinary shares vesting in respect of Erik Engstrom. 50% of these shares will be released to Mr Engstrom following the April Committee meeting and 50% of these shares will be deferred until 2015. In respect of Mr Armour, under the terms of the plan relating to retirement, 100% of the shares vesting will be released to him following the April Committee meeting. In accordance with the preliminary vesting calculations, this will result in 263,601 PLC ordinary shares and 173,105 NV ordinary shares being released to Mr Armour. Thereafter, Mr Armour will have no further entitlement for payment under this plan. Dividend equivalents will be payable in cash on any shares released which, based on the preliminary calculations, would result in payments of £135,251 and €179,329 to Mr Engstrom and £165,937 and €220,016 to Mr Armour.
Long-Term Incentive Plan (LTIP)
No awards under LTIP were made to executive directors in 2012 and no award cycles remain outstanding for directors under this plan.
A long-term incentive award was granted to senior leaders below the Board in 2012. Grants are made on a rolling three year basis in the form of performance shares that vest subject to performance metrics and vesting scales consistent with the REGP. The targets set for each metric are aligned to the five-year performance scale applicable to the executive directors under the REGP.
Subject to receipt of shareholder approval at the 2013 Annual General Meetings, it is intended to commence making annual grants under a new long-term incentive plan to executive directors from 2013 onwards, under which the first awards would vest in H1 2016, which is the year after the vesting of the second and final tranche of the REGP for the CEO, so there will be no overlapping payouts. The LTIP was required by the need to replace the one-off REGP incentive plan for directors with a more regular long-term.
Details of the proposed new LTIP are described in the 2013 notices of Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV.
Executive Share Option Scheme (ESOS)
The current ESOS, which was approved by shareholders in 2003, expires on April 8, 2013. A replacement ESOS, for which we are seeking shareholder approval at the Annual General Meetings in April 2013, is described in the notices of Annual General Meetings and it is intended to make grants under this plan to the executive directors in 2013. It is not intended to make any further grants under the existing ESOS, the key features of which were described in last year’s Report on page 52.
During 2012, Erik Engstrom received a grant of 200% of base salary of market value options (two-thirds of the permitted maximum). On joining, Duncan Palmer received a grant of 135% of salary. The vesting of the options is subject to an Adjusted EPS growth hurdle of 6% p.a. compound growth in adjusted earnings per share hurdle, measured over a three year period commencing on January 1 of the year of grant (the same condition also applies to the 2011 ESOS grants which were made to Erik Engstrom and Mark Armour). In view of his retirement at the end of 2012, Mr Armour did not receive an ESOS grant in 2012.
Early in 2012, as disclosed in last year’s Report, the 2009-11 cycle of ESOS lapsed for Erik Engstrom and Mark Armour.
Bonus Investment Plan (BIP)
The BIP is a voluntary plan aimed at encouraging personal investment in, and ongoing holding of, Reed Elsevier shares to promote greater alignment with shareholders and support the retention of key talent.
Under the BIP, participants may invest their own funds to purchase Reed Elsevier securities or allocate securities already owned outright for investment under the plan up to a specified maximum. In return, the participant is granted a matching award which vests over three years subject to performance (i.e. a maximum match of 1 for 1 can be earned on the personal investment). It is a condition of vesting that the underlying personal investment is retained throughout the vesting period. Dividend equivalents accrue on the matching shares during the vesting period and are paid out in cash at the end to the extent that the matching award vests. The table below summarises the key features of the BIP.
Feature | Detail | |||||||||||||||||
Frequency of award | — | Annual grants of matching awards | ||||||||||||||||
— | Ten-year life of the | |||||||||||||||||
— | Implemented in 2010 | |||||||||||||||||
Eligibility | — | Approximately 150 senior executives including executive directors | ||||||||||||||||
— | Participation is voluntary | |||||||||||||||||
Performance period | — | Three financial years | ||||||||||||||||
Performance conditions | — | Average adjusted EPS growth measured in constant currencies and
| ||||||||||||||||
Vesting scale | — | Performance hurdle and straight-line vesting | ||||||||||||||||
Personal investment | — | Up to 100% of the | ||||||||||||||||
Other provisions
| — | On a change of control, awards vest on a pro-rated basis for service and subject to performance based on an assessment of
| ||||||||||||||||
— | Claw-back applies | |||||||||||||||||
— | Awards under the plan are satisfied with shares purchased in the market |
The following targets and vesting scale apply to awards granted under the BIP in 2012:
Match earned on personal investment | Average growth in adjusted EPS (%) | ROIC (%) in the third year of the performance period | ||
0% | below 4% p.a. | below 11% | ||
50% | 4% p.a. | 11% | ||
75% | 6.5% p.a. | 11.5% | ||
100% | 9% p.a. or above | 12% or above |
Awards were granted under the BIP to Mr Engstrom and Mr Armour in May 2010. At its meeting on April 25, 2013, in much the same way as for the REGP, the Committee will assess the extent to which the performance conditions have been met for these awards, which includes an overall assessment of underlying business performance and other relevant factors.
Based on a review of the two performance measures used in the plan, preliminary calculations indicate that 89.5% of the awards are expected to vest. This is based on ROIC achievement slightly below the 11.2% maximum after taking into account adjustments for such items as foreign exchange rates, pension deficits and restructuring costs as provided in the plan, and EPS growth just below the 70th percentile of the target range specified in the plan.
This would result in the vesting of 62,819 NV ADR matching awards in respect of Mr Engstrom and a corresponding cash dividend equivalent payment of $178,181. In respect of Mr Armour, 58,223 PLC ordinary shares and 38,048 NV ordinary shares would be released, with corresponding dividend equivalent payments of £36,651 and €48,359 respectively.
Shareholding requirement
The Committee believes that one of the aspects that creates closer alignment between senior management and shareholders is to require executives to build up and maintain a significant personal stake in Reed Elsevier. The shareholding requirements applicable to the executive directors are set out in the table below and as described on page 47, were pre-requisites to participate in the REGP. Shareholding requirements also apply to selected senior executives below the Board.
Meeting the relevant shareholding requirement is both a condition of the vesting of awards as well as a pre-requisite to maintain eligibility to receive future awards under the multi-year incentives.
On December 31, 2012, the executive directors’ shareholdings were as follows (valued at the mid-market closing prices of Reed Elsevier securities):
Shareholding requirement (in % of December 31, 2012 annualised base salary) | Actual shareholding as at December 31, 2012 (in % of December 31, 2012 annualised base salary) | |||
Erik Engstrom | 300% | 512% | ||
Mark Armour | 200% | 442% | ||
Duncan Palmer* | 200% | 0% |
* | Duncan Palmer has until December 31, 2015 to build up to his required level of shareholding and must retain any net shares earned from Reed Elsevier share plans until he meets his requirement. |
Retirement benefits
Retirement benefit provisions are set in the context of the total remuneration for each executive director, taking account of age and service and against the background of evolving legislation and practice in Reed Elsevier’s major countries of operation. Base salary is the only pensionable element of remuneration.
Erik Engstrom is provided with UK defined benefit pension arrangements under which he accrues a pension of 1/30th of salary for every year of service (up to a maximum of two thirds of salary). The pension is provided through a combination of:
— | the main UK Reed Elsevier Pension Scheme for salary restricted to the Scheme Earnings Cap (determined annually on the same basis as the pre-April 2006 Inland Revenue earnings cap) and HMRC Annual Allowance, and |
— | Reed Elsevier’s unapproved pension arrangement for the balance. |
Prior to November 1, 2007, Erik Engstrom was not a member of any company pension scheme and Reed Elsevier made annual contributions of 19.5% of his salary to his personal pension plan. From November 1, 2007 contributions to his designated retirement account ceased and he became a member of the UK defined benefit pension arrangement.
The pension arrangements for Erik Engstrom include life assurance cover while in employment, an entitlement to a pension in the event of ill health or disability and a spouse’s and/or dependants’ pension on death.
The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown in the table below. Transfer values have been calculated in accordance with the guidance note GN11 published by the UK Institute of Actuaries and Faculty of Actuaries. The transfer values at December 31, 2012 have been calculated using the transfer value basis adopted by the trustees of the Reed Elsevier Pension Scheme.
The transfer value in respect of individual directors represents a liability in respect of directors’ pension entitlement, and is not an amount paid or payable to the director.
Mark Armour retired on December 31, 2012, at which point he became entitled to a pension of £378,785 per annum.
Transfer values of accrued pension benefits
Age at December 31, 2012 | Director’s contributions | Transfer value of accrued pension at December 31, 2011 | Transfer value of accrued pension at December 31, 2012 | Increase in transfer value during the year (net of director’s contributions) | Accrued annual pension at December 31, 2012 | Increase in accrued annual pension during the year | Increase in accrued annual pension during the year (net of inflation) | Transfer value at December 31, 2012 of increase in accrued pension during the year (net of inflation and director’s contributions) | ||||||||||||||||||||||||||||
Erik Engstrom | 49 | £ | 9,158 | £ | 2,099,132 | £ | 2,730,651 | £ | 622,361 | £ | 180,958 | £ | 38,584 | £ | 31,750 | £ | 469,944 | |||||||||||||||||||
Mark Armour | 58 | £ | 1,944 | £ | 6,758,053 | £ | 7,525,908 | £ | 765,911 | £ | 384,878 | * | £ | 30,355 | £ | 13,362 | £ | 259,332 |
* | The reason for the difference between Mr Armour’s accrued annual pension as at 12.31.12, as stated in the table above, and the annual pension entitlement following retirement is that Mr Armour retired early so there was a reduction made to his accrued annual pension as at 12.31.12. |
Duncan Palmer is a member of the UK Reed Elsevier defined contribution pension plan (the Reed Elsevier Pension Plan — REPP). The company contribution is 19% of Mr Palmer’s salary. £50,000 is paid as a contribution to the REPP, being the maximum contribution which can be made under HMRC limits, and the balance is paid to him as a cash allowance, subject to deduction of income tax and national insurance. The pension arrangement for Mr Palmer includes life assurance cover while in employment.
Service contracts
Executive directors are employed under service contracts that provide for a maximum of one year’s notice. The contracts neither specify a pre-determined level of severance payment nor contain specific provisions in respect of a change in control. The Committee believes that as a general rule, notice periods should be 12 months and that the executive directors should, subject to any legal constraints within their base country, be required to mitigate their losses in the event of termination. The Committee will, however, note local market conditions so as to ensure that the terms offered are appropriate to attract and retain top executives operating in global businesses.
The contractual terms of the executive directors (and for approximately 100 other senior executives) include certain covenants as follows:
— | non-competition restrictions apply which prevent the executive from working in a capacity which competes with any Reed Elsevier business which he/she was involved with during the preceding 12 months; from recruiting Reed Elsevier employees and from soliciting Reed Elsevier customers and suppliers for a period of 12 months after leaving employment; |
— | in the event of the |
— | in the event of a |
Each executive director has a service contract with Reed Elsevier Group plc, as summarised in the table below:
Current | Date employment commenced | Expiry date (subject to | Notice period | Subject to | ||||||||||||
Erik Engstrom | March 14, 2011 | August 23, 2004 | June 14, 2028 | 12 months | English law | |||||||||||
Mark Amour | October 7, 1996 | February 1, 1995 | Ceased to be a director and retired on December 31, 2012 | 12 months | English law | |||||||||||
Duncan Palmer | August 15, 2012 | August 24, 2012 | n/a | 12 months | English law |
Duncan Palmer’s remuneration arrangements
Duncan Palmer’s annual base salary on his recruitment was £600,000 and he has an annual target bonus opportunity of 100% of base salary. He will be eligible to participate in BIP from 2013 onwards up to his target bonus opportunity net of tax and to participate in the ESOS and LTIP, subject to shareholders approving those plans. He will receive annual pension contributions equal to 19% of salary and benefits in accordance with the policies applicable to executive directors.
In addition, in September 2012, he was granted the following awards:
— | A market value option under ESOS to acquire shares with a face value on the |
— | Performance shares (PSP) with an aggregate face value of 180% of base salary, which are subject to the same performance targets as will apply to any matching award that may be granted to the CEO under the REGP in 2013, with performance being assessed in the first half of 2015. The award is non-pensionable and carries a right to receive dividend equivalents (calculated on the same basis as under the REGP). The leaver rules are consistent with those which apply under the REGP with the |
— | Restricted shares (RSP) with an aggregate face value of 250% of base salary, which vest 50% in 2014 and 50% in 2015 provided all unvested stock-based awards granted to him by his previous employer lapse. This one-off grant of restricted shares was made to compensate Mr Palmer for the forfeiture of awards from his former employer. They are
|
The Committee considered the grant of performance shares and restricted shares noted above to have been essential to secure Duncan Palmer’s services. The Committee was satisfied that the awards are appropriate and align his interests with those of shareholders. Both awards fall within paragraph 9.4.2(2)R of the UK Listing Rules and were granted over Reed Elsevier PLC ordinary shares but half of each award will be settled on vesting with Reed Elsevier NV ordinary shares. The awards cannot be amended to the advantage of Duncan Palmer without shareholder approval and the documentation governing these awards will be available for inspection from the date of the notices of the 2013 Annual General Meetings up to and including the meetings themselves.
In recognition of Mr Palmer and his family having to relocate to the UK in order for him to take up his new position, he will receive a one-off cash relocation allowance of £500,000 in May 2013 (subject to a time pro-rated claw-back if he resigns or is summarily terminated prior to December 31, 2014) and relocation support under the standard Reed Elsevier Policy.
Mark Armour’s retirement terms
Mark Armour’s retirement terms were disclosed in last year’s Report (page 55).
Policy on external appointments
The Committee believes that the experience gained by allowing executive directors to serve as non-executive directors on the boards of other organisations is of benefit to Reed Elsevier. Accordingly, executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive directors on the boards of up to two non-associated companies (of which only one may be to the board of a major company) and they may retain remuneration arising from such appointments.
Mark Armour is a non-executive director of SABMiller plc and received remuneration of £106,250 during 2012 (£100,694 during 2011). He is also a non-executive director of the Financial Reporting Council (FRC) and received remuneration of £12,500 since commencing his appointment on July 2, 2012.
Duncan Palmer is a non-executive director of Oshkosh Corporation and received fees of £15,487 since his appointment as a director of Reed Elsevier PLC up to the end of 2012.
NON-EXECUTIVE DIRECTORS
Policy on non-executive directors’ fees
The policy on non-executive directors’ fees is a matter for the Boards, subject to applicable law, and does not fall within the Committee’s remit.
Reed Elsevier seeks to recruit non-executive directors with the experience to contribute to the Boards of a dual-listed global business and with a balance of personal skills that will make a major contribution to the Boards and their committee structures. With the exception of Marike van Lier Lels who serves only on the Supervisory Board of Reed Elsevier NV, non-executive directors, including the Chairman, are appointed to the Boards of Reed Elsevier Group plc, Reed Elsevier PLC and the Supervisory Board of Reed Elsevier NV. Non-executive directors’ fees reflect the directors’ membership of the three Boards.
The primary source for comparative market data is the practice of FTSE 50 companies, although reference is also made to NYSE Euronext Amsterdam (AEX) Index and US listed companies.
Non-executive directors, including the Chairman, serve under letters of appointment and are not entitled to notice of, or payments following, retirement from the Boards.
Fee levels
Non-executive directors receive an annual fee in respect of their memberships of the Boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc. The fee paid to Marike van Lier Lels, who serves only on the Supervisory Board of Reed Elsevier NV, reflects her time commitment to that company and to other companies within the Reed Elsevier combined businesses. Non-executive directors are reimbursed for expenses incurred in attending meetings. They do not receive any performance-related bonuses, pension provision, share options or other forms of benefit except for the following: the Chairman is in receipt of private medical benefit and non-executive directors and the Chairman are provided with tax filing support to meet any tax filing obligations arising from their directorships with Reed Elsevier in countries other than their home country.
Fees may be reviewed annually, although in practice they have changed on a less frequent basis. The last fee review was during 2011 and the current fee arrangements took effect on January 1, 2012.
The fees for 2013 are unchanged from 2012 and are set out below.
Annual fee 2013 | ||
Chairman | £550,000 | |
Non-executive directors | £65,000/€80,000 | |
Senior Independent Director | £20,000 | |
Chairman of: | ||
— Audit Committee | £25,000/€30,000 | |
— Remuneration Committee
| £20,000 |
The total annual fee payable to Marike van Lier Lels is €65,000 (unchanged from 2012). The Chairman of Reed Elsevier does not receive committee chairman fees.
Directors’ emoluments and fees
Notwithstanding the provisions outlined above in relation to the appointment to the Board, Reed Elsevier PLC shareholders retain their rights under Reed Elsevier PLC’s Articles of Association to appoint directors to the Reed Elsevier PLC Board by ordinary resolution. Reed Elsevier PLC shareholders may also, by ordinary resolution, remove a director from the Board of Reed Elsevier PLC, and in such circumstances that director will also be required to be removed or resign from the Boards of Reed Elsevier NV and Reed Elsevier Group plc (except in circumstances where there has been a change of control of Reed Elsevier PLC and not Reed Elsevier NV).
The Reed Elsevier PLC Board has also established the following committees:
(a) | Aggregate emoluments |
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows: