As filed with the Securities and Exchange Commission on March 12, 201310, 2015
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, 20122014
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 7166 5500 | 011 31 20 485 2222 | |
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, 2012:2014:
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: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
Page | ||||||
1 | ||||||
SPECIAL NOTE REGARDING | 2 | |||||
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 | 11 | ||||
11 | ||||||
ITEM 4A: | UNRESOLVED STAFF COMMENTS | N/A | ||||
ITEM 5: | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | |||||
ITEM 6: | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | |||||
61 | ||||||
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 16H: | MINE SAFETY DISCLOSURE | N/A | ||||
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 conductconducted their business through two jointly owned companies during 2014, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal identities. Effective February 25, 2015, Reed Elsevier PLC and national identities. “Reed Elsevier”Reed Elsevier NV transferred their direct ownership interests in Elsevier Reed Finance BV to their jointly-owned company Reed Elsevier Group plc and named this newly-combined single group entity RELX Group plc. As a result, RELX Group plc now holds all Reed Elsevier businesses, subsidiaries and financing activities. Further information is not a legal entity but a collective referenceprovided on pages 23 to 24. As used in this Annual Report on Form 20-F, the separate legal entities ofterms the “Group,” “RELX,” the “combined businesses,” “we,” “our” or “us” refer collectively, to Reed Elsevier PLC, Reed Elsevier NV, Reed ElsevierRELX 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 herein as the “combined financial statements”. In this annual report, references to “we”, “our”, or “us”Additional terms are to alldefined in the Glossary of the entities comprising Reed Elsevier.Terms on pages S-1 and S-2.
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.
Statements regarding our competitive position included herein were obtained from internal surveys, market research, publicly available information and industry publications. While we believe that the market research, publicly available information and industry publications we use are reliable, we have not independently verified market and industry data from third-party sources. Moreover, while we believe our internal surveys are reliable, they have not been verified by any independent source.
SPECIAL NOTE REGARDING FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
This document contains or incorporates by reference a number of forward lookingforward-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 of 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“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 lookingforward-looking statement. These differences could be material; therefore, you should evaluate forward lookingforward-looking statements in light of various important factors, including those set forth or incorporated by reference in this 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 “SEC”). |
The terms “estimate”, “project”, “plan”, “intend”, “expect”, “should be”, “will be”, “believe”, “trends” and similar expressions identify forward lookingforward-looking statements. These forward lookingforward-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 pages S-3 and S-4 of this annual report).report.
You should not place undue reliance on these forward lookingforward-looking statements, which speak only as of the date of this annual report. WeExcept as may be required by law, we undertake no obligation to publicly update or release any revisions to these forward lookingforward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
REED ELSEVIERTHE GROUP
The selected combined financial data for Reed Elsevierthe Group 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 Elsevierthe Group accounted for on an equity basis.
All ofThe 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 selected financial data for Reed Elsevierthe Group (in £) as at and for the years ended December 31, 2014, 2013 and 2012 set out below has been extracted or derived from the audited combined financial statements.statements, included herein. The selected financial data for the Group as at and for the years ended December 31, 2011 and 2010 set out below has been extracted or derived from our audited financial statements, which are not included herein, and restated for the adoption of International Accounting Standard (“IAS”) 19 Employee Benefits (revised), which was adopted in the year ended December 31, 2013.
Combined Income Statement Data(1)
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||
2012(2) | 2012 | 2011 | 2010 | 2009 | 2008 | 2014(2) | 2014 | 2013 | 2012 | 2011 Restated | 2010 | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS: | ||||||||||||||||||||||||||||||||||||
Revenue | $ | 9,908 | £ | 6,116 | £ | 6,002 | £ | 6,055 | £ | 6,071 | £ | 5,334 | $9,006 | £5,773 | £6,035 | £6,116 | £6,002 | £6,055 | ||||||||||||||||||
Operating profit(3) | 2,200 | 1,358 | 1,205 | 1,090 | 787 | 901 | 2,187 | 1,402 | 1,376 | 1,333 | 1,171 | 1,064 | ||||||||||||||||||||||||
Net finance costs | (350 | ) | (216 | ) | (235 | ) | (276 | ) | (291 | ) | (192 | ) | (253) | (162) | (196) | (227) | (244) | (289) | ||||||||||||||||||
Disposals and other non operating items(4) | 73 | 45 | (22 | ) | (46 | ) | (61 | ) | (92 | ) | (17) | (11) | 16 | 45 | (22) | (46) | ||||||||||||||||||||
Profit before tax | 1,923 | 1,187 | 948 | 768 | 435 | 617 | 1,917 | 1,229 | 1,196 | 1,151 | 905 | 729 | ||||||||||||||||||||||||
Taxation(5) | (183 | ) | (113 | ) | (181 | ) | (120 | ) | (40 | ) | (155 | ) | ||||||||||||||||||||||||
Net profit | 1,740 | 1,074 | 767 | 648 | 395 | 462 | ||||||||||||||||||||||||||||||
Net profit from discontinued operations(6) | — | — | — | — | — | 18 | ||||||||||||||||||||||||||||||
Non-controlling interests | (8 | ) | (5 | ) | (7 | ) | (6 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||
Profit attributable to parent companies’ shareholders | 1,732 | 1,069 | 760 | 642 | 391 | 476 | ||||||||||||||||||||||||||||||
Tax expense(5) | (419) | (269) | (81) | (102) | (167) | (132) | ||||||||||||||||||||||||||||||
Net profit for the year | 1,498 | 960 | 1,115 | 1,049 | 738 | 597 | ||||||||||||||||||||||||||||||
Net profit for the year attributable to non-controlling interests | (8) | (5) | (5) | (5) | (7) | (6) | ||||||||||||||||||||||||||||||
Net profit attributable to parent companies’ shareholders | 1,490 | 955 | 1,110 | 1,044 | 731 | 591 |
Combined Statement of Financial Position Data(1)
As at December 31, | As at December 31, | |||||||||||||||||||||||||||||||||||
2012(2) | 2012 | 2011 | 2010 | 2009 | 2008 | 2014(2) | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS: | ||||||||||||||||||||||||||||||||||||
Total assets | $ | 17,843 | £ | 11,014 | £ | 11,503 | £ | 11,158 | £ | 11,334 | £ | 12,866 | $17,296 | £11,087 | £10,495 | £11,014 | £11,503 | £11,158 | ||||||||||||||||||
Long term borrowings | (5,122 | ) | (3,162 | ) | (3,300 | ) | (3,786 | ) | (4,028 | ) | (5,694 | ) | (4,912) | (3,149) | (2,633) | (3,162) | (3,300) | (3,786) | ||||||||||||||||||
Net assets | 3,749 | 2,314 | 2,197 | 1,970 | 1,759 | 981 | 3,334 | 2,137 | 2,423 | 2,314 | 2,197 | 1,970 | ||||||||||||||||||||||||
Non-controlling interests | (55 | ) | (34 | ) | (25 | ) | (27 | ) | (27 | ) | (28 | ) | (49) | (31) | (33) | (34) | (25) | (27) | ||||||||||||||||||
Combined shareholders’ equity | 3,694 | 2,280 | 2,172 | 1,943 | 1,732 | 953 | 3,285 | 2,106 | 2,390 | 2,280 | 2,172 | 1,943 |
(1) | The combined financial statements are prepared in accordance with accounting policies that are in conformity with |
(2) | Noon buying rates as at December 31, |
(3) | Operating profit is stated after charging |
2010: £57 |
(4) | Disposals and other non operating items comprise |
(5) |
REED ELSEVIER PLC
The selected financial data for Reed Elsevier PLC should be read in conjunction with, and is qualified in its entirety 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,the Group, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. These interests have been accounted for on an equity basis.
All ofThe consolidated financial statements 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 selected consolidated financial data for Reed Elsevier PLC (in £) as at and for the years ended December 31, 2014, 2013 and 2012 set out below has been extracted or derived from the audited consolidated financial statements, ofincluded herein. The selected financial data for Reed Elsevier PLC.PLC as at and for the years ended December 31, 2011 and 2010 set out below has been extracted or derived from our audited financial statements, which are not included herein, and restated for the adoption of IAS19 Employee Benefits (revised), which was adopted in the year ended December 31, 2013.
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012(3) | 2012 | 2011 | 2010 | 2009 | 2008 | 2014(3) | 2014 | 2013 | 2012 | 2011 Restated | 2010 Restated | |||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS:(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Profit before tax(2) | $ | 884 | £ | 546 | £ | 390 | £ | 328 | £ | 201 | £ | 247 | $769 | £493 | £576 | £532 | £375 | £301 | ||||||||||||||||||||||||||||||
Taxation | 10 | 6 | (1 | ) | (1 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||
Tax (expense)/credit | (5 | ) | (3 | ) | (4 | ) | 6 | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||
Profit attributable to ordinary shareholders | 894 | 552 | 389 | 327 | 195 | 241 | 764 | 490 | 572 | 538 | 374 | 300 | ||||||||||||||||||||||||||||||||||||
Earnings per Reed Elsevier PLC ordinary share from total operations of the combined businesses | 74.5 | ¢ | 46.0 | p | 32.4 | p | 27.3 | p | 17.2 | p | 22.1 | p | 67 | ¢ | 43.0p | 48.8p | 44.8p | 31.1p | 25.0p | |||||||||||||||||||||||||||||
Earnings per Reed Elsevier PLC ordinary share from continuing operations of the combined businesses | 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 | 73.5 | ¢ | 45.4 | p | 32.1 | p | 27.1 | p | 17.1 | p | 21.9 | p | 66 | ¢ | 42.5p | 48.2p | 44.3p | 30.9p | 24.9p | |||||||||||||||||||||||||||||
Dividends per Reed Elsevier PLC ordinary share(4) | 35.5 | ¢ | 21.9 | p | 20.65 | p | 20.4 | p | 20.4 | p | 100.9 | p | 39 | ¢ | 24.95p | 23.65p | 21.9p | 20.65p | 20.4p | |||||||||||||||||||||||||||||
Total assets | $ | 1,955 | £ | 1,207 | £ | 1,158 | £ | 1,037 | £ | 927 | £ | 515 | $1,743 | £1,117 | £1,266 | £1,207 | £1,158 | £1,037 | ||||||||||||||||||||||||||||||
Total equity/Net assets | 1,954 | 1,206 | 1,149 | 1,028 | 916 | 504 | 1,741 | 1,116 | 1,264 | 1,206 | 1,149 | 1,028 | ||||||||||||||||||||||||||||||||||||
Weighted average number of shares(5) | 1,200.6 | 1,200.6 | 1,202.0 | 1,199.1 | 1,131.4 | 1,089.5 | 1,140.2 | 1,140.2 | 1,172.2 | 1,200.6 | 1,202.0 | 1,199.1 |
(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 |
(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 shareholders; see “Item 10: Additional Information — |
Dividends |
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 |
During |
REED ELSEVIER NV
The selected financial data for Reed Elsevier NV should be read in conjunction with, and is qualified in its entirety 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.the Group. These interests are accounted for on an equity basis.
All ofThe consolidated financial statements 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 selected financial data for Reed Elsevier NV (in €) as at and for the years ended December 31, 2014, 2013 and 2012 set out below has been extracted or derived from the audited consolidated financial statements, ofincluded herein. The selected financial data for Reed Elsevier NV.NV as at and for the years ended December 31, 2011 and 2010 set out below has been extracted or derived from our audited financial statements, which are not included herein, and restated for the adoption of IAS19 Employee Benefits (revised), which was adopted in the year ended December 31, 2013.
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012(3) | 2012 | 2011 | 2010 | 2009 | 2008 | 2014(3) | 2014 | 2013 | 2012 | 2011 Restated | 2010 Restated | |||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
Amounts in accordance with IFRS:(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Profit before tax(2) | $ | 871 | € | 660 | € | 438 | € | 379 | € | 217 | € | 313 | $722 | €597 | €659 | €644 | €421 | €349 | ||||||||||||||||||||||||||||||
Taxation | (3 | ) | (2 | ) | (1 | ) | (3 | ) | 2 | (19 | ) | |||||||||||||||||||||||||||||||||||||
Tax (expense) | (6 | ) | (5 | ) | (4 | ) | (2 | ) | (1 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||
Profit attributable to ordinary shareholders | 868 | 658 | 437 | 376 | 219 | 294 | 716 | 592 | 655 | 642 | 420 | 346 | ||||||||||||||||||||||||||||||||||||
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 | $1.03 | €0.85 | €0.91 | €0.87 | €0.57 | €0.47 | ||||||||||||||||||||||||||||||
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 | $1.02 | €0.84 | €0.90 | €0.87 | €0.57 | €0.47 | ||||||||||||||||||||||||||||||
Dividends per Reed Elsevier NV ordinary share(4) | $ | 0.60 | € | 0.456 | € | 0.413 | € | 0.402 | € | 0.397 | € | 2.192 | $0.64 | €0.525 | €0.469 | €0.456 | €0.413 | €0.402 | ||||||||||||||||||||||||||||||
Total assets | $ | 1,927 | € | 1,460 | € | 1,364 | € | 1,203 | € | 1,036 | € | 567 | $1,719 | €1,421 | €1,494 | €1,460 | €1,364 | €1,203 | ||||||||||||||||||||||||||||||
Total equity/Net assets | 1,851 | 1,402 | 1,303 | 1,137 | 970 | 491 | 1,644 | 1,359 | 1,434 | 1,402 | 1,303 | 1,137 | ||||||||||||||||||||||||||||||||||||
Weighted average number of shares(5) | 734.0 | 734.0 | 735.3 | 734.5 | 693.9 | 669.0 | 700.1 | 700.1 | 717.6 | 734.0 | 735.3 | 734.5 |
(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 |
(3) | Noon buying rates as at December 31, |
(4) | Dividends |
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 |
During |
EXCHANGE RATES
For a discussion of the impact of currency fluctuations on Reed Elsevier’sthe Group’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 27, 20122015 was £1.00 = $1.51$1.54 and €1.00 = $1.31.$1.12.
US dollars per £1.00 — Noon Buying Rates
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 |
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2014 | 1.56 | 1.65 | 1.72 | 1.55 | ||||||||||||
2013 | 1.66 | 1.56 | 1.66 | 1.48 | ||||||||||||
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 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2015 |
| 1.55 | 1.50 | |||||||||||||
January 2015 |
| 1.56 | 1.50 | |||||||||||||
December 2014 |
| 1.57 | 1.55 | |||||||||||||
November 2014 |
| 1.60 | 1.56 | |||||||||||||
October 2014 |
| 1.62 | 1.59 | |||||||||||||
September 2014 |
| 1.66 | 1.61 |
US dollars per €1.00 — Noon Buying Rates
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 |
Period | ||||||||||||||||
Year ended December 31, | End | Average(1) | High | Low | ||||||||||||
2014 | 1.21 | 1.33 | 1.39 | 1.21 | ||||||||||||
2013 | 1.38 | 1.32 | 1.38 | 1.28 | ||||||||||||
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 | ||||||||||||
Month | High | Low | ||||||||||||||
February 2015 |
| 1.15 | 1.12 | |||||||||||||
January 2015 |
| 1.21 | 1.13 | |||||||||||||
December 2014 |
| 1.25 | 1.21 | |||||||||||||
November 2014 |
| 1.26 | 1.24 | |||||||||||||
October 2014 |
| 1.28 | 1.25 | |||||||||||||
September 2014 |
| 1.32 | 1.26 |
(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 materialprincipal risks tofacing 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,legislative and 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. Failure to meet evolving customer needs could impact demand for our products and services and consequently adversely affect our revenue.
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 recentlyin recent years 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 worldwideglobally 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.
Changes in regulation of information collection and use could adversely affect our revenues and our costs.business.
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.prevalent worldwide. 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 jurisdictionsregulators 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 products offered by Risk Solutions& Business Information are governed bysubject to regulation under the US Fair Credit Reporting Act (“FCRA”), GrahamGramm Leach Bliley Act (“GLBA”), Drivers Privacy Protection Act (“DPPA”) and related state laws. Certain of these laws further provide for statutory penalties and attorneys 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 and regulators, 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.sources. 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,either 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.products and services.
Our business, operations and reputation could be adversely affected by a failure to comply with FTC Settlement Orders.
Through our Risk Solutions& Business Information business in the United States, 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”(the “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 Risk Solutions businessSome of our businesses also providesprovide 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 levels of government funding of, or spending by, academic institutions may adversely affect demand for the products and services of our sciencescientific, technical and medical (“STM”) businesses.
The principal customers for the information products and services offered by our science and medicalSTM 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.business and revenues.
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 online, journals books, compact discs, and online, including the internet.books. 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 qualityhigh-quality management.
The implementation and execution of our strategic and business plans depend on our ability to recruit, motivate and retain high qualityhigh-quality people. We compete globally and across business sectors for talented management and skilled individuals, particularly those with technology and data analytics capabilities,capabilities. An inability to recruit, motivate or retain such people could adversely affect our business performance.
We may not realizerealise all of the future anticipated benefits of acquisitions.
From time to time, we acquire businessesWe regularly make small business acquisitions to strengthen our portfolio. Whilst our acquisitions are made within the framework of our overall strategy, which emphasizesemphasises 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 realizerealise the anticipated benefits of acquisitions could adversely affect our 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 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.
Our organisational and operational structures have increased dependencyare dependent on outsourced and 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 continued debate in government, academic and library communities, which are the principal customers for our STM publications, regarding, whetherto what extent such publications should be free and funded instead through fees charged to authors and from governmental and other subsidies or authors’ funders and/or made freely available in some form 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.
In 2012 6%2014 2% of our revenue was derived from advertising and 14% from exhibitions. In Business Information, 30% of revenue was derived from advertising in 2012 compared with 37% in 2011.advertising. Total advertising revenues for our businesses in 20122014 were £350£135 million compared with £437£240 million in 2011.
2013. 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 businessExhibitions 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. Historically, the largest schemes have been local versions 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, declines in asset values, or increases in pension scheme liabilities, due to adverse changes to asset values,in discount rates, inflation or inflationmortality assumptions could increase future pension costs and 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, 2012,2014, goodwill on the combined statement of financial position amounted to £4,545£4,981 million and intangible assets with an indefinite life amounted to £354£369 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 from publicly available information 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, legalSTM, Risk & Business Information, Legal and business sectors,Exhibitions markets, we are expected to adhere to high standards of independence and ethical conduct. Whilst our employees are expected to abide by the Reed Elsevierour 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 guidelineguidelines relating to anti-bribery and principled business conduct. A breach of generally accepted principledethical business standards or applicable statuesstatutes 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 ELSEVIERTHE GROUP
Corporate structureIntroduction
Reed Elsevier came into existenceNV was originally incorporated in January1880 and Reed Elsevier PLC in 1903. In 1993 whenthey contributed their respective businesses to two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. The parent companies, Reed Elsevier PLC and Reed Elsevier NV, contributed their respective businesses to two jointly-owned companies,are separate, publicly-held entities. Reed Elsevier PLC’s ordinary shares are listed in London and New York, and Reed Elsevier NV’s ordinary shares are listed in Amsterdam and New York. Trading on the New York Stock Exchange is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs) issued by Citibank N.A., as depositary. During 2014, Reed Elsevier Group plc, a UK registered company which ownsincorporated in England, owned the publishing and information businesses and Elsevier Reed Finance BV, a Dutch registered company which ownsincorporated in the Netherlands, oversaw financing and treasury activities. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities and are publiclyeach 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. Until February 2015, Reed Elsevier PLC holdsheld a 39% interest in Elsevier Reed Finance BV withand Reed Elsevier NV holdingheld a 61% interest. Reed Elsevier PLC additionally holds a 5.8%an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between the two companiesReed Elsevier PLC and Reed Elsevier NV 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 inEffective February 25, 2015, Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect totransferred 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% interestdirect ownership interests 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 into their jointly-owned company Reed Elsevier Group plc its 61% interest in Elsevier Reed Finance BV and certain amounts receivable from subsidiaries ofnamed this newly-combined single group entity RELX Group plc. As a result, RELX Group plc now holds all Reed Elsevier Group 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.businesses, subsidiaries and financing activities. Further information is provided on pages 23 to 24.
Material acquisitions and disposals
Total acquisition expenditure in the three years ended December 31, 2012, including the buy out of non-controlling interests,2014, was £924£933 million, net of cash acquired.acquired of £35 million. During 2012,2014, a number of acquisitions were made for total consideration of £341£396 million, net of cash acquired of £9 million. During 2013, a number of acquisitions were made for total consideration of £221 million, net of cash acquired of £14 million. During 2012, a number of acquisitions were made for a total consideration of £316 million, net of cash acquired of £12 million. During 2011, a number
The net cash received on the disposal of acquisitions, including the buy out of non-controlling interests, were made for a total consideration of £540 million, net of cash acquired. During 2010, a number of small acquisitions were made for a total consideration of £43 million.
Gross cash proceeds from disposals amounted to £242 million (2011: £101 million; 2010: £66 million), including £7 million from the sale of non-controlling interests. Net cash proceeds, before tax, amounted to £160 million (2011: £80 million; 2010: £6 million),non-strategic assets, after relatedtiming differences and separation and transaction costs, additional pension scheme contributions, and working capital and other adjustments in respect of prior year transactions.was £53 million (2013: £195 million; 2012: £160 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 was financed from operatingusing cash flows generated from operations, amounted to £333£270 million in 2012 (2011: £3502014 (2013: £308 million; 2010: £3112012: £333 million). In 2012,2014, there was continued investment in new product and related infrastructure, particularly in Legal.the Legal segment. Further information on capital expenditure is given in notes 1615 and 1817 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 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 125230 Park Avenue, 23rd Floor, New York, New York, 10017.10169. Tel: +1 212 309 5498.8100. Our internet address is www.reedelsevier.com.www.relxgroup.com. The information on our website is not incorporated by reference into this report.
Our agent in the United States is Kenneth Thompson II, General Counsel Intellectual Property, Privacy and Governance, RELX Group, kenneth.thompson@relxgroup.com, 9443 Springboro Pike, B4/F5/514, Miamisburg, Ohio, 45342.
Reed Elsevier isWe are a world leading provider of professional information solutions operatingfor professional customers across severalindustries. We operate in four market segments: Scientific, Technical & Medical, providing information and tools to help its customers improve scientific and healthcare outcomes; Risk Solutions,& Business Information, providing data services and tools that combine proprietary, public and third-party information, with advanced technology and analytics; Business Information, providing data services, information and marketing solutionsanalytics to business professionals;and government customers; Legal, providing legal, tax, regulatory news and business information to legal, corporate, government and academic markets; and Exhibitions, organising exhibitions and conferences.
The Group’s reported segments are based on the internal reporting structure and financial information provided to the Boards. During 2014, Risk Solutions and Business Information have been combined into one business area, having previously operated separately. Accordingly, they are now presented as a single operating segment. Comparative figures have been presented as if the businesses had operated on a combined basis in the prior year.
Our principal operations are in North America and Europe. For the year ended December 31, 20122014 we had total revenue of approximately £6.1£5.8 billion and an average of approximately 30,500of28,200 employees. As at December 31, 20122014 we had approximately 30,400had28,500 employees. In 2012,2014, North America represented our largest single geographic market, contributing 52%contributing50% of our total revenue.
Revenue is derived principally from subscriptions, circulation and transactional sales, exhibition fees and advertising sales. In 2012, 49%2014, 51% of Reed Elsevier’sour revenue was derived from subscriptions; 26%subscriptions,47% from circulation and transactional sales; 14% from exhibition fees; 6%sales and2% from advertising sales; and 5% from other sources.sales. An increasing proportion of revenue is derived from electronic information products, principally internet based. In 2012, 64%2014, 66% of our revenue was derived from such sources, including 96%including85% of Risk Solutions revenue, 76%& Business Information revenue,77% of Legal revenue, 68%revenue,74% of Scientific, Technical & Medical revenue, 54% of Business Information revenue, and 2%revenueand3% of 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 transactionalTransactional sales include all other revenue from the distribution of a product and transactional salestransactions 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 exhibitiontransaction or exhibition; and advertising — on publication or period of online 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.
Our businesses compete for subscription, circulationtransactional, and transaction, and marketingadvertising 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 exhibitors and advertisers, the quality and the size of the audiences targeted.
For additional information regarding revenue from our business activities and geographic markets, see “Item 5: Operating and Financial Review and Prospects” on page 26.
Revenue Year ended December 31, | ||||||||||||||||||||||||
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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Scientific, Technical & Medical | £ | 2,048 | 36 | % | £ | 2,126 | 35 | % | £ | 2,063 | 34 | % | ||||||||||||
Risk & Business Information | 1,439 | 25 | 1,480 | 25 | 1,589 | 26 | ||||||||||||||||||
Legal | 1,396 | 24 | 1,567 | 26 | 1,610 | 26 | ||||||||||||||||||
Exhibitions | 890 | 15 | 862 | 14 | 854 | 14 | ||||||||||||||||||
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Total | £ | 5,773 | 100 | % | £ | 6,035 | 100 | % | £ | 6,116 | 100 | % | ||||||||||||
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SCIENTIFIC, TECHNICAL & MEDICAL
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2012 | 2011 | 2010 | ||||||||||
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Revenue | £ | 2,063 | £ | 2,058 | £ | 2,026 | ||||||
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Year ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
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Revenue | £ | 2,048 | £ | 2,126 | £ | 2,063 | ||||||
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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 servesserving scientists, health professionals and students worldwide. Its objective is to help its customers advance science and improve healthcare by providing world class informationcontent and innovative information solutions that enable them 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, Munich, New York, Oxford, Paris, Philadelphia, Rio de Janeiro, St. Louis, San Diego, Singapore and Tokyo. It has 7,000 employees.
In 2014, approximately 68% of revenue came from subscription sales, 30% from transactional sales, and 2% from advertising. Approximately37% of revenue by destination in 2014 was derived from North America,30% from Europe and the remaining33% from the rest of the world.74% of revenue was delivered electronically.
Elsevier serves the needs of the science, technology and health& medical markets by publishing primary research, reference, and education content, as well as by providing a range of database and workflow solutions. Elsevier’s customers are scientists, academic institutions, educators, 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. All of these customers rely on Elsevier to provide high qualityhigh-quality content and critical information for making scientific and medical decisions; to review, publish, disseminate and preserve research findings; to create innovative tools to help focus research strategies, increase research effectiveness, improve medical outcomes, and enhance the efficiency of healthcare and healthcare education.
In 2012, approximately 65% of revenue came from subscription sales, 27% from circulation and transactional sales, 3% from advertising, and the remaining 5% from other sources. Approximately 40% of revenue by destination in 2012 was derived from North America, 31% from Europe and the remaining 29% from the rest of the world. 68% of revenues were delivered electronically.
In the primary research market during 2012, over 12014, over1.1 million research papers were submitted to Elsevier, a double digit increase on the prior year.Elsevier. Over 10,00016,000 editors managed the peer review and selection of these papers, resulting in the publication of more than 330,000360,000 articles in almost 2000over 2,000 journals, many of which are the foremost publications in their field and a primary point of reference for new research. This content was accessed by around 1112 million people, with nearly 700more than 750 million full text article downloads last year. Content is provided free or at very low cost in most of the world’s poorest countries. Elsevier’s journals are primarily published and delivered through theScienceDirectplatform, the world’s largest database of scientific and medical research, hosting over 1112 million articles,pieces of content, and over 11,00030,000 full-text e-books. Flagship journals includeCellandThe Lancetfamilies of titles.
In 2014, Elsevier continuously innovates to improveexpanded the utility and effectiveness of its journals. For example, its “Article of the Future” enhances the traditional scientific paper withLancet collection, adding new and broader types of content,titles such as links to experimental data, related content,The Lancet Psychiatry, The Lancet HIV and enhanced media to supplement the article’s text.The Lancet Haematology.
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 aprovided in print, industry, Elsevier has been a leader in driving the shift from print to electronic. Elsevier publishes over 20,000 reference titles, with 1,400 new titles published annually along with supporting bibliographic data, indices and 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.Anatomy.
Elsevier’s flagship clinical reference platform, ClinicalKey, provides physicians with access to leading Elsevier launchedClinicalKeyin 2012, a product that allows physicians to access the leadingand third-party reference and evidence-based medicinemedical content in a single, fully-integratedfully integrated site.ClinicalKeyincludes a full taxonomy is continuing to grow, 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.is currently accessed by over 2,000 institutions.
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 resourceHESI, an online testing and remediation solution designed to support faculty andhelp students and now has over 3.5 million registered users;Evolve Reachprovides online review and testing tools forof nursing and the allied health professions;Evolve Teach provides online resources and solutions to support faculty.professionals, conducted over 700,000 tests in 2014.
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.
For academic and corporate researchers, significant products includeScopus,,Geofacets, Reaxys, andReaxys. Knovel. Scopusis the largest abstract and citation database of research literature in the world, with abstractsover 56 million abstract and bibliographic information on almost 50 million scientific research articlesrecords from 19,500 peer reviewedmore than 21,000 peer-reviewed journals and 5,000 international publishers.Geofacetsis 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, integrating chemical reaction and compound data searching with synthesis planning.
In December 2012, Elsevier acquiredKnovel, provides a range of web-based provider of productivity tools for the engineering community, integrating technical information with analytics and search to deliver trusted answers and drive innovation.
Elsevier serves academic and government research administrators through itsSciValitsElsevier Research Intelligence suite of products that help them evaluate their institutions’ research performance, determine research strategies and increase institutional efficiencies.products. Leveraging bibliometric data such as citations fromScopus, and other data types, SciVal, Spotlighthelps institutions to establish, execute and governments to identify their distinctiveevaluate research strengths, evaluatestrategies. Pure is a comprehensive research information management system which enables evidence-based research management decisions, promotes collaboration, simplifies administration and optimises impact. Our Analytical Services team provides accurate, unbiased analysis on research performance by combining high quality data sources with technical and increase the focus of their research and development investments.metrics expertise. SciVal Fundingassists researchers and institutions in identifying grants that are most relevant in their research areas.
In August 2012, Elsevier bolstered its research management portfolio by acquiringAtira, a provider of software and tools that complement theSciValplatform and help academic institutions and researchers improve their research outcomes.
For healthcare professionals, Elsevier develops products to deliver patient-specific solutions at the point of care to improve patient outcomes. Its clinical solutions includeGold Standard, ExitCare which provides criticalpatient education and discharge information on drug interactions to assist effective treatment, andCPM Resource Center,, which provides a data-driven framework to support nurses in undertaking procedures.
Elsevier further bolstered its clinical solutions portfolio with the acquisition in September 2012 ofExitCare, a provider of patient education and discharge instructions.ExitCare’sproducts, incorporated into Elsevier’s clinical decision support content and tools, will help healthcare providers improve the delivery of healthcare information and services across all care environments.
Market Opportunitiesopportunities
Scientific, Technicaltechnical & Medicalmedical information markets have good long-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-term growth in research and development spend and in the number of researchers worldwide.
Growth in health markets is driven by ageing populations in developed markets, rising prosperity in developing markets and the increasing focus on improving medical outcomes and efficiency. Given that a significant proportion 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, remain high, even in more difficult budgetary environments.
Strategic Prioritiespriorities
Elsevier’s strategic goal is to providelead the way in providing information solutions that advance science, technology and improve health. To achieve this, Elsevier creates solutions that reflect deep insight into the way its users work and the outcomes they are seeking to achieve; drivesstrives for excellence in content, service and technology;execution; constantly adapts and revitalises its products, solutionsbusiness models and business models;technology; and leverages its sharedinstitutional skills, assets and resources and knowledge to promote innovation efficiency and excellence in execution.efficiency.
For academic and corporate researchers,Elsevier’s strategic priorities are to continue to strengthen journal brandsincrease content volume and the quality of published articles,quality; to expand content coverage, building out integrated solutions combining Elsevier, third-party and customer data; to increase content utility, using “Smart Content” to enable new e-solutions; to combine content with analytics and technology, focused on measurably improving productivity and outcomes for customers; and to further improve scientific communicationcontinue to drive operational efficiency and user experience witheffectiveness.
In the primary research market, Elsevier aims to grow volume through new journal launches, expansion of author-pays journals and growth from emerging markets; to enhance quality by building on our journal content. Elsevier is focusedpremium brands; and to add value to core platforms by implementing new capabilities such as advanced recommendations on delivering journal content quickly, making it availableScienceDirect and social collaboration 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.Mendeley.
For science and health professionals,In clinical reference markets, priorities are to continue enhancing the quality and relevance of ourexpand content and our workflow tools, while actively managing the ongoing format shift from printcoverage, including licensing high-quality third-party content for ClinicalKey, as well as ensuring consistent tagging to electronic information.
For students, priorities are to continue to provide the highest quality educationallink content and 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.assets across products.
Business Model, Distribution Channelsmodel, distribution channels and Competitioncompetition
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. For a number of journals, advertising and promotional income represents a small proportion of revenues predominantly 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”“author-pays” or “author’s-funder-pays”“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 researchers. Over 1,5001,600 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”more than 100 open access journals.
Electronic products, such asScienceDirect,,ScopusandClinicalKey,, 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-title and product-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 Brandsbrands
Elsevier is the master brand used for the business.
Elsevier’s major brands include:Cell,, a life sciences journal in biochemistry and molecular biology; andThe Lancet,, one of the world’s leading medical journals since 1823. Many other products and journals are major brands in their fields, including:Scopus, a scientific abstract Mendeley, an innovative research management and citation database;social collaboration platform; SciVal,, ready-to-use tools to analyse the world of research, performance toolsand establish, execute and evaluate the best strategies for academic institutions and funding intelligence;pharmapendium, an online drugs safety database that supports drug development researchers;research organisations; ClinicalKey,combines reference and evidence-based medical content into its fully-integrated clinical insight engine;Geofacets,an extensive database of georeferenced geological maps;ScienceDirect,the world’s largest database of scientific and medical research articles; andCPM CarePoints,Scopus, a comprehensive care planningresearch performance tool for academic institutions and clinical documentation system.funding intelligence; and HESI, a suite of preparation testing and remediation resources that generate actionable data to prepare nursing and health profession students for success in pursuing degrees, passing licensure exams and starting their careers.
RISK SOLUTIONS & BUSINESS INFORMATION
Year ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
(in millions) | ||||||||||||
Revenue | £ | 1,439 | £ | 1,480 | £ | 1,589 | ||||||
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In Risk Solutions & Business Information, we provide data, analytics and insight that enable customers to evaluate and manage risks, andrisk. We develop market intelligence, supporting more confident decisions, improvedimproving economic outcomes, and enhancedenhancing operational efficiency.
RISK SOLUTIONS
Year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Revenue | £ | 926 | £ | 908 | £ | 927 | ||||||
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From 2014 Risk Solutions and Business Information have been combined into one business area. This union brings together LexisNexis Risk Solutions is a provider of solutions that combineSolutions’ proprietary, public and third-party information, with advanced technology and analytics. These solutions assist customers in evaluating, predictinganalytics, with Reed Business Information’s high-value industry critical data services, information and managing risktools as well as conferences, websites and improving operational effectiveness, predominantly in the US.business magazines.
LexisNexis Risk Solutions is headquartered in Alpharetta, Georgia,& Business Information has principal operations in Georgia, Florida, Illinois and Ohio and has 4,100 employees.
In 2012, approximately 86% of Risk Solutions’ revenue came from circulation and transactional sales, 11% from subscription sales, and the remaining 3% from other sources. 96% of Risk Solutions’ revenue is delivered electronically.
LexisNexis Risk Solutions is organised around market facing industry/sector groups: insurance, business services (including the financial services, receivables management and corporate groups), and government. The most significant of these is insurance. These groups are supported by a shared infrastructure for 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 Legal & Professional business also distributes Risk Solutions products into legal markets in the US and internationally.
Risk & Business Information is organised around market-facing industry/sector groups including insurance, business services, government, healthcare, major data services (including banking, energy and chemicals, human resources) and other leading brands. The largest of these sector groups is insurance.
The identity management and risk evaluation solutions provided by Insurance Solutions, Business Services, Government Solutions and Health Care Solutions utilise comprehensive database platforms of public records and proprietary information with more than two petabytes of unique data, which makes it the largest database of its kind in the US market today. Our market-leading technology enables Risk & Business Information 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 Group business areas such as Legal and Scientific, Technical & Medical.
Risk & Business Information is focused on developing a pipeline of new solutions to drive growth in existing business segments and selected adjacent markets and geographies.
Insurance Solutions provides a 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 claims handling. Information solutions, including the US’s most comprehensive US personal loss history database,C.L.U.E.®, help
insurers assess risks and provide important inputs to pricing and underwriting insurance policies. Additional key products include LexisNexis®Data Prefill,, which provides critical information on customers, potential customers and their auto, ownershipproperty and life policy information directly into the insurance workflow, and LexisNexis®Current Carrier,, which identifies current or previous insurance coverage details as well as any lapses in coverage. Insurance Solutions released new driving behaviour products in four states in 2014. These products aggregate court data within specific states to provide insurers with vital traffic violation information for use in underwriting. In the UK, Insurance Solutions’ contributory No Claims Discount (NCD) module, which automates verification of consumers’ claims history, has achieved data contribution from over 55% of the UK auto insurance sector in just over a year.
In the Insurance business, Risk & Business Information acquired four businesses during 2014. Wunelli is an industry-leading telematics data services company based in the United Kingdom. The combined LexisNexis and Wunelli datasets will result in one of the largest provider-held insurance telematics databases in the world, with solutions to support insurers as they assess risk and discount safer drivers. Risk & Business Information also acquired three US based businesses to enhance the LexisNexis eCrash solution. iyeTek is an innovative provider of mobile and handheld software solutions, enabling public safety agencies to save time and money and improve services provided to their communities. PoliceReports.US is an online distributor of vehicle accident reports currently in use by 29 states and Coplogic is a leading provider of citizen self-reporting software solutions to law enforcement agencies. In October, a joint venture was signed with Jing You to supply data into the fast-growing auto insurance market in China.
Business Services provides financial institutions with risk management, identity management, fraud detection, credit risk management, and compliance solutions. These include “know your customer”Know Your Customer and anti-money launderingAnti-Money Laundering products. The business also provides risk and identity management solutions for corporate customers in retail, telecommunications and utilities sectors. Receivables management solutions help debt recovery professionals in the segmentation, management and collection of consumer and business debt. In 2014, the group substantially advanced its international strategy, with the expansion of its international sales force, launch of a simplified Chinese language version of Bridger Insight® XG, a Bank Secrecy Act and Anti-Money Laundering solution, and the ongoing upgrade of the WorldCompliance heightened risk individuals database.
In Business Services, Risk & Business Information acquired Tracesmart, a United Kingdom-based provider of tracing, identity verification, fraud prevention, Anti-Money Laundering, debt collection and data cleansing solutions. Tracesmart, a leader in identity management and fraud solutions in the UK, is a natural complement to Risk & Business Information’s core competencies and brings a robust set of UK public records, allowing Risk & Business Information to extend its capabilities beyond the US in order to serve its customers more fully.
Government Solutions provides data 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. The group’s Tax Refund Investigative Solution (TRIS), now sold into eight states and the District of Columbia, continues to generate substantial benefits for both clients and taxpayers, with results to date over $100 million in avoided fraud losses.
Health Care Solutions provides identity, fraud, and clinical analytics solutions across key stages of the healthcare workflow to enable intelligent decision making for payers and providers.
During the year, the acquisition of Health Market Science, a leading supplier of high-quality data on healthcare professionals and an administrator of one of the largest practitioner-level medical claim databases in the US, was completed.
The Risk Solutions business also provides risk-related information to the legal industry through LexisNexis Legal & Professional.
Outside of these areas, Risk Solutions continues& Business Information provides information and online data services to focus on developingbusiness professionals worldwide, with high-value industry critical data services, information and tools as well as producing conferences, websites and business magazines. It has many strong global brands with market-leading positions across a pipelinewide range of newindustry sectors.
Data Services include: ICIS, an information and data service in chemicals, energy and fertiliser; Accuity, a provider of services and solutions to drive growththe banking and corporate sectors focused on payment efficiency, Know Your Customer, Anti-Money Laundering and compliance; and XpertHR, an online service providing regulatory guidance, best practices and tools for HR professionals. During the year, Accuity completed the acquisition of FircoSoft, a leading provider of watch list filtering solutions for financial institutions and corporates. Accuity also launched risk solutions for customers in selected adjacent marketstrade finance.
Leading Brands include Flightglobal, Farmers Weekly, Boerderij, Fiscaal Totaal, Estates Gazette, Elsevier and geographies. For example, inNew Scientist and deliver a mix of high quality data, workflow tools and high-value news, information and opinion to business professionals across many industry sectors while also providing an effective marketing channel for customers. During the UK,year Flightglobal completed the acquisition of Innovata, a provider of global airline schedules data. Risk Solutions has launched& Business Information also acquired Farmade, a new product that uses publicUK-based supplier of crop recording, mapping and precision farming workflow tools.
In 2014, Risk & Business Information continued to reshape its portfolio, exiting areas not core to its strategy. As part of this strategy, 51% of Reed Construction Data (RCD), a provider of online construction data and information to help insurers assessthe construction industry was divested, and segment risk more effectively among motor insurance customers100% of RS Means, a construction costing service which had previously been a division of RCD. Risk & Business Information also completed its exit from its Marketing Solutions businesses, including the sales of BuyerZone and is planning to launch additional innovative products to facilitate sharingemedia and one divestment 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 itsa 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 Risk Solutions utilise a comprehensive database of public records and proprietary information with more than 2,000 terabytes of unique data, which makes it the largest database ofB2B assets from its kind in the US market today.LexisNexis Accurint is a flagship 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 isNetherlands operation now also increasingly used across other Reed Elsevier markets such as Legal and Scientific, Technical & Medical.
In January 2013, Risk Solutions announced the sale of its Screening business. This will allow it to increase its focus on higher-growth segments leveraging its core data, technology and analytical capabilities. The Screening business presented limited opportunities to apply these capabilities to generate unique customer value, sustained growth, and superior margins.completed.
Market Opportunitiesopportunities
Risk Solutions& Business Information operates in markets with strong long-term underlying growth drivers with growing demand for high-quality industry data and information and insight including: insurance underwriting transactions; insurance, healthcare, tax and entitlement fraud; credit defaults and financial fraud; regulatory compliance and due diligence requirements surrounding customer enrolment; security and security considerations.privacy considerations; and data and analytics for the banking, energy and chemicals, human resources and aviation sectors.
In the insurance segment, growth is supported by increasing transactional activity in the auto, property and life insurance markets and the increasing adoption by insurance carriers of more sophisticated data and analytics in the prospecting, underwriting and claims evaluation processes, to assess underwriting risk, increase competitiveness and improve operating cost efficiency. Transactional activity is driven by product extensions across insurance carriers’ workflow and growth in insurance quoting and policy switching, as consumers seek better policy terms. This activity is stimulated by increasing competition betweenamong insurance companies, high levels of carrier advertising, and rising levels of internet quoting and policy binding.
A number of factors support growth for risk solutions in thebanking and financial services market,markets, including cross-border payments and trade finance levels, new credit originations, continued high fraud losses, stringent regulatory compliance requirements, and increasing anti-money launderingAnti-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 tax evasion, and to address security issues. The level and timing of demand in this market is influenced by government funding and revenue considerations.
Growth in the global energy and chemicals markets is driven by increasing trade and demand for more sophisticated information solutions. Risk & Business Information’s aviation information markets are being driven by increases in air traffic and in the number of aircraft transactions.
Strategic Prioritiespriorities
Risk Solutions’& Business Information’s strategic goal is to makehelp businesses and government more effective,achieve better outcomes with information and decision support in its individual markets through a better understanding of the risks associated with individuals, other businesses and transactions and bytransactions. By providing the highest quality industry data and tools, to help manage thosewe assist customers in understanding their markets and managing risks efficiently and cost effectively. To achieve this, Risk Solutions& Business Information is focused on: delivering innovative new products across customer workflows; expanding the range of risk management solutions across adjacent markets; addressing international opportunities in selected markets to meet local risk management needs; further growing its data services businesses; and continuing to strengthen its content, technology, and analytical capabilities.
Business Model, Distribution Channelsmodel, distribution channels and Competitioncompetition
Risk Solutions’& Business Information’s products in Insurance, Business Services and Government are predominantlyfor the most part sold directly, with pricing mostlypredominantly on a transactional basis for insurance carriers and corporations, and primarily on a subscription basis for government entities.
Data services are typically sold directly on a subscription or transactional basis. Business magazines are mainly distributed on a paid basis. Advertising revenues are sold directly.
Risk Solutions& Business Information and Verisk, a competitor, each sell data and analytics solutions to insurance carriers but largely address different activities. Risk Solutions’& Business Information’s principal competitors in commercialbusiness services and government sectorssegments include Thomson Reuters and major credit bureaus, which in many cases addressingaddress different activities in these sectorssegments as well.
Risk & Business Information’s data services and leading brands compete with a number of information providers on a service and title-by-title basis including: Platts, Thomson Reuters, IHS and Wolters Kluwer as well as many niche and privately owned competitors. Risk & Business Information competes for online advertising with other business-to-business websites, search engines and social media.
Across Risk & Business Information, subscription revenues now account for 94% of the total business with the remaining 6% derived from print and online advertising.
Major Brandsbrands
LexisNexis is the master brand used by LexisNexis Risk Solutions.
LexisNexis Risk Solutions’& Business Information’s major brands include:C.L.U.E. C.L.U.E.®, a comprehensive US personal insurance claims database;LexisNexis®Data Prefill,, tools to automate the insurance application process providing critical information insurers need to quote and underwrite a policy;Accurint® for Collections, a US solution to help locate debtors quickly and accurately;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® Current Carrier,database that identifies the existence of current or previous insurance, and whether or not the applicant has had a possible lapse in coverage;LexisNexis® RiskView,comprehensive suite of credit risk management tools to help assess consumer creditworthiness and risk potential; andLexisNexis® Revenue 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,debts; Accuity, a provider of payment routing data, anti-money laundering (AML)efficiency solutions, AML and KYC services and compliance information totools for 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.
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:sectors worldwide; ICIS,a global provider of news, price benchmarks, data, analytics and research to the energy, chemical and fertiliser industries;Reed Construction Data, and Flightglobal, 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 servicesservice 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.industry.
LEGAL
Year ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
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Revenue | £ | 1,610 | £ | 1,634 | £ | 1,691 | ||||||
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In Legal markets, we are a leading provider of legal, regulatory and news & business information and analysis to legal,law firm, corporate, government and academic customers.
Serving customers in more than 175 countries, LexisNexis Legal & Professional provides resources and services that inform decisions, increase productivity and drive new business.
LexisNexis Legal & Professional is headquartered in New York and has principal operations in the New York area, Ohio and North Carolina in the United States,US, Toronto in Canada, London and Paris in Europe, and cities in several other countries in Africa and Asia Pacific. It has 10,4009,500 employees worldwide.
In 2012,2014, approximately 74%79% of Legal’sthe revenue came from subscription sales 13%and 21% from circulation and transactional sales, 5% from advertising, including directory listings, and the remaining 8% from other sources.sales. Approximately 68%66% of Legal’s revenue by destination in 20122014 was derived from North America, 21%23% from Europe and the remaining 11% from the rest of the world. 76%77% of Legal’s revenues wererevenue was delivered electronically.
LexisNexis Legal & Professional is organised in market facingmarket-facing groups. The most significant are Research & Litigation Solutions and Business of Law Software Solutions in the US and LexisNexis International and LexisNexis Asia outside the US. These are supported by global shared services organisations providing platform and product development, operational and distribution services, and other support functions.
In Research & Litigation Solutions,North America, electronic information solutions and innovative workflow tools developed through close collaboration with customers,from Research Solutions help legal and business professionals make better informed decisions in the practice of law and in managing their businesses. 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 litigation solutions, LexisNexis provides lawyers with a suite of tools covering case preparation to processing and review to trial preparation. LexisNexisalso partners with law schools to provide services to students as part of their training.
In 2012,2014, LexisNexis introduced in the US twocontinued to release new releasesversions 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. Future releases will continue to expand content and outreach and add new innovative tools. LexisNexis employs lawyers and trained editors with professional legal backgrounds who review, annotate and update the legal content to help ensure each document in the collection is current and comprehensive. This domain expertise combined with the application of Reed Elsevier’sour “big data” HPCC technology means LexisNexisthe Group is able to update its entire legal collection faster and more efficiently, while also identifying and linking content, enabling customers to uncover previously undiscovered relationships between documents.
New workflow and analytical tools and content sets are regularly introduced on Lexis Advance. For example, in 2014 LexisNexis launched LexisNexis Counsel Benchmarking, a new analytics solution that works with Verdict & Settlement Analyzer to inform litigation strategy decisions. Also, LexisNexis launched new modules for Lexis Practice Advisor,in the US in 2012, a web-based practical guidance product tailored for attorneys who handle transactional matters. Additionally, LexisNexis introduced 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 releasedHosted Concordance Evolutionwhich is a fully hosted service that delivers electronic discovery review capabilities on an “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& Litigation Software Solutions serves as the software arm for the company. Its business of law software provides law firms with practice management solutions, including time and billing systems, case management, cost
recovery and document management services. Its litigation software provides lawyers with a suite of tools covering case preparation to processing and review to trial preparation. During 2014, LexisNexis released multiple new versions for its existing portfolio including CounselLink, PCLaw, Sanction and Firm Manager.
In International markets outside the United States,US, 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 58%63% of revenue outside the US.
In the UK, LexisNexis is a leading legal information provider offering an unrivalled collection of primary and secondary legislation, case law, expert commentary, and forms and precedents. Its extensive portfolio includes a number of heritage brands:Halsbury’s,,Tolleys,Butterworths. and Butterworths. The content is delivered through multiple formats —– from print to online to mobile apps and embedded in customers’ workflow.
In 2012,2014, LexisNexis launched additional modules offor the UK LexisPSLproduct suite which provides lawyers a single destination for their practical legal information needs with direct links to the relevant cases, legislation, precedents, forms, practical guidance and expert commentary. The ability to drive measurable customer value was recognised by the British Legal Awards which has named LexisNexis UK ‘2012 Supplier of the Year’ for its innovation, authority and understanding 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 2012,2014, LexisNexis France launchedcontinued to enhance Lexis 360,, the first semantic search online tool combining legal information, practical content and results from the web.web by providing tailored solutions for the public sector and the accounting markets.
Additional practical guidance solutions were launched in Canada, South Africa and Australia. Following the continued success ofLexis for Microsoft Office(LMO)Advance in the US, markets, a Canadianan Australian version was launched in 2012. LMO enables customers to access LexisNexis content2014 and services via add-ins/toolbars within Microsoft Word and Outlook.additional international launches are planned.
In 2012,2014, LexisNexis Legal & Professional strengthened its positions in Asia through enhancedby introducing products created specifically for legal professionals and practitioners, corporate counsels, legal researchers and government institutions in markets including India, China and Japan. In Japan,New practical guidance offerings are now available in China, Hong Kong and Japan. Also, LexisNexis launchedLexis AS ONE, a product created specifically for corporate compliancecontinued its investment in broadening its core content offerings in India, Singapore and legal professionals to help navigateother countries in the complex regulatory environment.region.
Market Opportunitiesopportunities
Longer termLonger-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 with the dampening impact onof demand of the recent global recession and the somewhat subdued market environment that followed in North America and Europe in Europe.the aftermath of the global recession.
Strategic Prioritiespriorities
LexisNexis Legal & Professional’s strategic goal is to enable better legal outcomes and be the leading provider of productivity enhancingproductivity-enhancing information and information-based workflow solutions in its markets. To achieve this LexisNexis is focused on introducing next generation products and 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 process efficiency and gradually improving margins.
In the US, LexisNexis’ focus is on the continuing development of next generation legal research and practice solutions. It is also conducting a major upgrade in operations infrastructure and customer service and support platforms. This will provide customers with an integrated and superior experience across US legal research, litigation services, practice managementmultiple products and client development.solutions. Over the next few years progressive product introductions, often based on the New Lexis platform, leveraging big data HPCC technology, will combine advanced technology with enriched content, sophisticated analytics and applications to enable LexisNexis’ customers to make better legal decisions and drive better outcomes for their organisations and clients.
Outside the US, LexisNexis is focused on growing online services and developing further high qualityhigh-quality actionable content and workflow tools, including the continuous development of practical guidance and practice management applications. In 2013,2015, LexisNexis will begincontinue to introduceNewintroduce New Lexis globally. Additionally, LexisNexis is focusing on the expansion of its activities in emerging markets.
Business Model, Distribution Channelsmodel, distribution channels and Competitioncompetition
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. In news and business information they are Bloomberg and Factiva (News Corporation) in news and business information.. Competitors in litigation solutions also include software companies. Significant international competitors include Thomson Reuters, Wolters Kluwer and Factiva.
Major Brandsbrands
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;Matthew Bender®, critical analysis, checklists, forms, and practice guides authored by industry experts covering over 50 major practice areas;Lexis® for Microsoft® Office, an integration of LexisNexis content, open Web search and Microsoft Office;Lexis®Library,, LexisNexis® UK flagship legal online product;Lexis®PSL,, LexisNexis® UK legal practical guidance
service;JurisClasseur, an authoritative online legal resource in France;Shepard’s®, Citations Service, 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.effectively; and Law360, a legal news provider covering the entire spectrum of practice areas every single business day.
EXHIBITIONS
Year ended December 31, | ||||||||||||
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Revenue | £ | 854 | £ | 707 | £ | 693 | ||||||
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Revenue | £ | 890 | £ | 862 | £ | 854 | ||||||
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InReed Exhibitions we areis a leading eventsexhibitions business, with almost 500 events in over 30 countries.
Reed Exhibitions’ portfolio of exhibitions and conferences serves 4443 industry sectors across the Americas, Europe, the Middle East, Africa and Asia Pacific.globe. In 2012,2014, Reed Exhibitions brought together over 67 million event participants from around the world, generating billions of dollars inof business and facilitating entry into new markets for its 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, Moscow, Tokyo, and Sydney. Reed Exhibitions has 3,2003,700 employees worldwide.
Over In 2014, approximately 70% of Exhibitions’ revenue is derived from exhibitor participation fees, with the balance primarily comprising of conference fees, online and offline advertising, sponsorship fees and admission charges. In 2012, approximately 15%Approximately 16% of Exhibitions’ revenue came from North America, 50%47% from Europe and the remaining 35%37% from the rest of the world on an event location basis.
Reed Exhibitions organises market-leading events which are relevant to industry needs, where participants from around the world meet face to faceface-to-face to do business, to network and to learn. Its exhibitions and conferences encompass a wide range of sectors. They include construction, cosmetics, electronics, energy and alternative energy, engineering, entertainment, gifts and jewellery, healthcare, hospitality, interior design, logistics, manufacturing, pharmaceuticals, real estate, recreation, security and safety, transport and travel.
Market Opportunitiesopportunities
Growth in the exhibitions market is influenced by both business-to-business marketing spend and business investment. Historically, these have been driven by levels of corporate profitability, which in its turn has followed overall growth in GDP. Emerging markets and higher growth industriessectors provide additional opportunities.opportunities for Reed Exhibitions. As some events are held other than annually, growth in any one year is affected by the cycle of non-annual exhibitions.
Strategic Prioritiespriorities
Reed Exhibitions’ strategic goal is to provideunderstand and respond to its customers’ evolving needs and objectives better than its competition through deep knowledge of its customers and the markets they serve.
Reed Exhibitions delivers a platform for industry communities to conduct business, to network and to learn through a range of market-leading events in growth sectors, especially in higher growth geographies, enabling exhibitors to target and reach new customers quickly and cost-effectively and providing a platform for industry participantscost effectively.
Organic growth will be achieved by continuing to do business, to network and to learn. To achieve this, Reed Exhibitions is focused on driving organic growth by leveraging its global sector expertise,generate greater customer value through the intelligent application of customer knowledge, by developing new events, and by building out its technology platforms. Itplatforms to ensure the rapid deployment of innovation and best practices across the organisation. Reed Exhibitions is also shaping theits portfolio through a combination of strategic partnerships and selective acquisitions in high growthhigh-growth sectors and geographies as well as withdrawalby withdrawing from markets and industries with lower long-term growth prospects.
Reed Exhibitions is committed to continually improving customer solutions and experience by implementing best practice initiatives across geographies and sectors. Itsexperience. By providing a variety of services, including its integrated web event platform, is used by more than 70 per cent of events and is driving bothwe continue to drive customer satisfaction and insight.satisfaction. 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 20122014 Reed Exhibitions launched 3036 new events. These included many events which extendeddelivered on the geographical footprintstrategy of taking sector expertise, customer relationships and leading brands from one market and extending them into new geographies using local operational capability. Mipim, the luxury travel brand, ILTM,leading property show held annually in Cannes, responded to Mexicothe buoyant UK property market with the launch of an offshoot in London, FIBO China (health and fitness) was launched in Shanghai, building on the high end Privé jewellery brand to Panama.successful and long running German event FIBO, and in Singapore, Reed Exhibitions Japan responded to customer demand by introducing several new events, somelaunched an Asian version of which wereMaison&Objet, the leading design-led home and furniture show held twice a year 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.Paris.
A number of targeted acquisitions and investments were completed during 2012. In Brazil,2014. Increasing its holding in Reed Tüyap gave Reed Exhibitions took full ownershipa strong position in Turkey, and with the acquisition of its joint venture,Fidalex and AFG, Reed Exhibitions Alcantara Machado,achieved market leader status in Mexico. The Mexican acquisitions brought events such as Expo Carga (transport and expandedlogistics) and the Beauty Show 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 positionportfolio. In addition, an investment in the alternative energy sector. DuringBakery event, serving the year, Reed Exhibitions also established positionsbakery and confectionery industry, broadening its footprint 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.China.
Business Model, Distribution Channelsmodel, distribution channels and Competitioncompetition
The substantial majority of Reed Exhibitions’ revenues are from sales of exhibition space. The balance includes conference fees, online and offline advertising, 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. Increasingly, Reed Exhibitions is offering visitors and exhibitors the opportunity to interact before and after the show through the use of online and mobile tools such as directories and matchmaking.
Reed Exhibitions is the global market leader in a fragmented industry, holding less than a 10 per cent10% global market share. Other international exhibition organisers include UBM, Informa IIR and some of the larger German Messe, including Messe Frankfurt, Messe Düsseldorf and Messe Munich. Competition also comes from industry trade associations and convention centre and exhibition hall owners.
Major Brandsbrands
Reed Exhibitions’ major brands include:Mipcom®, a leading entertainment content Mipim, the world’s property market;World Travel Market,®, a global an event for the travel industry;Mipim® fiac!,a global event an international contemporary art fair; Aluminium China, Asia’s sourcing and networking platform for the propertycomplete aluminium industry chain; Manufacturing World Tokyo, Japan’s largest trade show for the manufacturing industry;Automec, Mecanica, an international machinery trade fairfair; JCK Las Vegas, a North American jewellery industry trade event; and Pax Prime, a game festival for autoparts, equipmentTabletop, Videogame and services;Batimat®,the international building exhibition;New York ComicCon™,an East Coast popular-culture convention;Sino Corrugated,a corrugated manufacturing show;ISC West,an international security conference; andAluminum China,bringing aluminium to life.PC Gamers.
ELSEVIER REED FINANCE BV
Elsevier Reed Finance BV, the Dutch parent company of the Elsevier Reed Finance BV group (“ERF”), iswas directly owned by Reed Elsevier PLC and Reed Elsevier NV.NV during 2014. Effective February 25, 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interests in ERF providesto their jointly-owned company Reed Elsevier Group plc. See
“Organisational Structure — Proposed Modifications to Corporate Structure, Equalisation Arrangements and Corporate Entity Names”. ERF provided 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 (“REPSA”) and Elsevier Risks SA (“ERSA”). These three Swiss companies arewere organised under one Swiss holding company, which iswas in turn owned by Elsevier Reed Finance BV.ERF.
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 Elseviercertain 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.Group. EFSA also arranges or directly provides Reed Elsevierthe Group plc businesses with financing for acquisitions, product development and other general requirements and manages cash pools, investments and debt programmes on their behalf.
REPSA owns and actively manages intellectual property assets including trademarks such asThe Lancetand databases such asReaxysandPharmaPendium. In 2012 it continued to strengthen its position as a centre of excellence in the management, development and branding of intellectual property assets.PharmaPendium. ERSA is responsible for reinsurance activities for Reed Elsevier.
In 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.Group.
The average balance of cash under management by EFSA in 2012, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.5 billion (2011: $0.8 billion).
At December 31, 2012, 82% (2011: 91%) of ERF’s gross assets were held in US dollars and 17% (2011: 9%) in euros, including $8.4 billion (2011: $8.6 billion) and €0.6 billion (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 $2.6 billion and short term debt of $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 regulations, including US federal and state and EU and member state regulation. Our compliance obligations vary from regulator to regulator, and may 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 68.72.
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. The ownership or control of our customers in Iran is often difficult to determine with certainty.
During 2012, Sepahan Oil Company, Zagros Petrochemical Company and Petroleum Marketing Department (Sytrol)2014,
— | our Scientific, Technical & Medical publications business sold subscriptions to online products and print publications to the Iran Ministry of Health, the Iran Ministry of Science Research and Technology and Islamic Azad University; and hosted pre-existing informational content from Masih Daneshvari Hospital on an online platform; |
— | our Business Information business sold online subscription services to National Petrochemical Company, Abadan Petrochemical Company, Arya Sasol Polymer Company, Bandar Imam Petrochemical Company, Khorosan Petrochemical Company, Kimyagran Emrooz Chemical Industries, Petrochemical Commercial Company FZE, Polynar Corporation, Sepahan Oil Company and Tabriz Petrochemical Company; and |
— | our Exhibitions business provided exhibition space to IRIB Media Trade, AITO Iran, Shahid Beheshti Medical University and the Cultural Centre of the Embassy of the Islamic Republic of Iran. |
Numerous Iranian nationals attended conferences organised by our exhibitions business. Individuals located in Iran also subscribed to or purchased certain of ourICIS price reports relating scientific, medical and technical publications. Many of these individuals are researchers, doctors or other professionals who have obtained subscriptions or purchased publications in their individual capacity, but who may be employed by government agencies in Iran or by hospitals, universities or other entities owned or controlled by the government of Iran. In addition, we work with authors, other contributors and journal editorial board members who are located in Iran, many of whom are employed at hospitals, universities or research institutions that are owned or controlled by the government of Iran. We also sometimes receive payments from authors located in Iran who pay us to make their articles publicly available.
During 2014, our aggregate revenue from the global petrochemical, energy and fertilizer markets. Our gross revenues invoiced in 2012 from these subscriptions wereforegoing activities was approximately £33,000 (thirty-three thousand pounds sterling).£6.3 million. We do not normally allocate net profit on a country-by-countrysubscription-by-subscription, individual customer or publication-by-publicationcountry-by-country basis. However, we estimate that our net profit from such sales,these activities, after internal cost allocation,allocations, amounted to less than 0.004%0.1% 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. 2014.
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.
Reed Elsevier PLC was originally incorporated in 1903 and Reed Elsevier NV was originally incorporated in 1880. Their businesses were combined in 1993. A description of our corporate structure as of December 31, 2014 is contained in note 1 to our combined financial statements on page F-10.
Proposed Modifications to Corporate Structure, Equalisation Arrangements and Corporate Entity Names
During 2014, the Boards carried out a review of our corporate structure and equalisation arrangements to explore ways in which it might be simplified and modernised. Certain changes have recently been made and others are being proposed to shareholders at the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV to be held in April 2015. None of these changes will impact the economic or voting interests of any shareholder. In particular, dividend and capital distribution rights are unaffected. All parent company guarantees over debt are also unaffected.
Corporate Structure
Effective February 25, 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interests in Elsevier Reed Finance BV to their jointly-owned company Reed Elsevier Group plc and named this newly-combined single group entity RELX Group plc. As a result, RELX Group plc now holds the businesses and subsidiaries, and carries out the Group’s financing activities.
Shareholders in Reed Elsevier PLC hold a 52.9% economic interest in the combined businesses. Reed Elsevier PLC owns a 50% direct holding in RELX Group plc and has a 5.8% shareholding in Reed Elsevier NV. All other shareholders (other than Reed Elsevier PLC) in Reed Elsevier NV hold a 47.1% economic interest in the combined businesses. In order to simplify the corporate structure and make the respective economic interests of the two parent companies’ shareholders more transparent we have proposed that Reed Elsevier PLC’s 5.8% shareholding in Reed Elsevier NV be replaced by a 2.9% direct (non-voting) shareholding in RELX Group plc. As a result, Reed Elsevier PLC’s direct equity holding in RELX Group plc will become 52.9% and Reed Elsevier NV’s direct equity holding in RELX Group plc will become 47.1%, which aligns with their shareholders’ respective economic interests.
The revised corporate structure, reflecting the changes that became effective February 25, 2015 and those being proposed to shareholders, is included under “— Historyas follows:
* | These percentages reflect the respective equity interests of Reed Elsevier PLC and Reed Elsevier NV in RELX Group plc, subject to shareholder approval. Reed Elsevier PLC and Reed Elsevier NV will each continue to have equal voting rights in RELX Group plc, thus retaining the current 50%/50% joint voting control of the combined businesses. |
Equalisation Arrangements
Presently the equalisation ratio of Reed Elsevier PLC to Reed Elsevier NV shares is such that one Reed Elsevier NV ordinary share is generally intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares. At its Annual General Meeting in April 2015, Reed Elsevier NV is proposing a resolution to issue additional bonus ordinary shares to existing Reed Elsevier NV shareholders on the basis of 0.538 bonus shares for each share held. If approved by shareholders, this will result in one ordinary share of Reed Elsevier NV conferring equivalent economic interests to one ordinary share of Reed Elsevier PLC. The reduction in the per share economic interests of Reed Elsevier NV shareholders as a
result of the increase in the number of Reed Elsevier NV shares will be correspondingly offset by the number of additional shares each Reed Elsevier NV shareholder receives in the bonus issue, leaving the economic interest of each shareholder unchanged. Reed Elsevier PLC and Development”Reed Elsevier NV ADRs on page 11. the New York Stock Exchange will also be adjusted so that they each represent one Reed Elsevier PLC or one Reed Elsevier NV ordinary share (from their current 4-to-1 and 2-to-1 ratios respectively).
By moving from the current 1.538-to-1 to a new 1-to-1 equalisation ratio between Reed Elsevier PLC and Reed Elsevier NV ordinary shares, capital rights (on a per share basis), dividends per share (on a gross basis including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit) and adjusted earnings per share all will be readily identifiable as substantially equivalent between ordinary shares as well as their respective ADRs, subject only to the prevailing currency exchange rates between pounds sterling, euros or US dollars. This will also make it simpler to compare the prices of Reed Elsevier PLC and Reed Elsevier NV ordinary shares as well as their respective ADRs.
Subject to shareholder approval of the issuance of additional bonus shares by Reed Elsevier NV, the bonus issue, the changes to the number of Reed Elsevier PLC and Reed Elsevier NV ADRs and the requisite amendments to the Governing Agreement, all will be effective as of July 1, 2015.
Corporate Entity Names
Along with the proposed changes to the corporate structure, the Boards undertook a review of the names of the corporate entities. Following that review, as already noted, the Boards determined that as part of the transfer of ownership of Elsevier Reed Finance BV from Reed Elsevier PLC and Reed Elsevier NV to Reed Elsevier Group plc it was appropriate to name the newly-combined entity that holds the businesses and subsidiaries, and carries out the Group’s financing activities, RELX Group plc. The Boards believe this shorter and more modern name reflects the transformation of the Group to a technology, content and analytics driven business while at the same time maintaining the link with its proud heritage. The Boards are proposing to shareholders at the Annual General Meetings in 2015 to also change the corporate names of Reed Elsevier PLC and Reed Elsevier NV to RELX PLC and RELX NV, respectively. There will not be any brand or name changes for any customer facing products or business units.
Shareholder Approval
As noted, certain of the structural changes and the change of name of the two parent companies, Reed Elsevier PLC and Reed Elsevier NV, will require the approval of shareholders. Detailed descriptions of the resolutions to be put to the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2015 will be set out in the respective Notices of Annual General Meeting.
Significant Subsidiaries, Associates, Joint Ventures and Business Units
A list of significant subsidiaries, associates, joint ventures and business units is included as an exhibit, see “Itemunder Item 19: Exhibits”Exhibits on pages S-3 and S-4.
INTELLECTUAL PROPERTY
Our products and services are largely comprised of intellectual property content delivered through a variety of media, including online, journals and books. We rely on trademark, copyright, patent, trade secret and other intellectual property laws, as well as in some cases licensing arrangements with third parties, to establish and protect our proprietary rights in these products and services.
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 | Primary Business segment(s) | Principal use(s) | Floor space (square feet) | |||||
Owned properties | ||||||||
Alpharetta, Georgia | Risk | Office and data centre | 406,000 | |||||
Miamisburg, Ohio | Risk | Office | 403,638 | |||||
Linn, Missouri | Scientific, Technical & Medical | Warehouse | ||||||
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Binghamton, New York | 162,000 | |||||||
Leased properties | ||||||||
New York, New York | Office | 451,800 | ||||||
Amsterdam, Netherlands | Risk & Business Information and Scientific, Technical & Medical | Office | ||||||
Miamisburg, Ohio | Risk | Office and data centre | 213,802 | |||||
Sutton, England | Risk & Business Information and Legal | Office | 191,960 |
All of the above properties are substantially occupied by Reed Elsevierour businesses with the exception of the New York, New York property, where Reed Elsevier occupieswe occupy less than half of the floor space.
No property owned or leased by Reed Elsevierus which is considered material to Reed Elsevierus 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 ELSEVIERTHE GROUP
The following discussion is based on the combined financial statements of Reed Elsevierthe Group for the three years ended December 31, 20122014 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 itsThe following tables analyse the Group’s revenue in each of the three years ended December 31, 2014, 2013 and 2012 by type, format and geographic market. We derive our revenue principally from subscriptions, circulationtransactional and transactionaladvertising sales. Transactional sales advertising sales and exhibition fees.includes revenue from exhibitions. For additional information, see note 3 to the combined financial statements.
Revenue by type
Year ended December 31,
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Subscriptions | £ | 2,978 | 49 | % | £ | 2,819 | 47 | % | £ | 2,709 | 45 | % | £2,966 | 51 | % | £ | 3,112 | 52 | % | £ | 2,978 | 49 | % | |||||||||||||||||||||||||
Circulation/transactions | 1,602 | 26 | 1,649 | 27 | 1,760 | 29 | ||||||||||||||||||||||||||||||||||||||||||
Exhibitions | 846 | 14 | 700 | 12 | 675 | 11 | ||||||||||||||||||||||||||||||||||||||||||
Transactional | 2,672 | 47 | 2,683 | 44 | 2,788 | 45 | ||||||||||||||||||||||||||||||||||||||||||
Advertising | 350 | 6 | 437 | 7 | 491 | 8 | 135 | 2 | 240 | 4 | 350 | 6 | ||||||||||||||||||||||||||||||||||||
Other | 340 | 5 | 397 | 7 | 420 | 7 | ||||||||||||||||||||||||||||||||||||||||||
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Total | £ | 6,116 | 100 | % | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | £5,773 | 100 | % | £ | 6,035 | 100 | % | £ | 6,116 | 100 | % | |||||||||||||||||||||||||
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Revenue by format
Year ended December 31,
2014 | 2013 | 2012 | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Electronic | £ | 3,839 | 66 | % | £ | 3,971 | 66 | % | £ | 3,896 | 64 | % | ||||||||||||
1,012 | 18 | 1,168 | 19 | 1,305 | 21 | |||||||||||||||||||
Face to face | 922 | 16 | 896 | 15 | 915 | 15 | ||||||||||||||||||
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Total | £ | 5,773 | 100 | % | £ | 6,035 | 100 | % | £ | 6,116 | 100 | % | ||||||||||||
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Revenue by geographic market
Year ended December 31,
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
North America | £ | 3,154 | 52 | % | £ | 3,219 | 54 | % | £ | 3,303 | 55 | % | £2,878 | 50 | % | £ | 3,082 | 51 | % | £ | 3,154 | 52 | % | |||||||||||||||||||||||||
United Kingdom | 442 | 7 | 485 | 8 | 490 | 8 | 455 | 8 | 443 | 7 | 442 | 7 | ||||||||||||||||||||||||||||||||||||
The Netherlands | 165 | 3 | 189 | 3 | 204 | 3 | 153 | 3 | 166 | 3 | 165 | 3 | ||||||||||||||||||||||||||||||||||||
Rest of Europe | 1,176 | 19 | 1,095 | 18 | 1,131 | 19 | 1,053 | 18 | 1,074 | 18 | 1,176 | 19 | ||||||||||||||||||||||||||||||||||||
Rest of world | 1,179 | 19 | 1,014 | 17 | 927 | 15 | 1,234 | 21 | 1,270 | 21 | 1,179 | 19 | ||||||||||||||||||||||||||||||||||||
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Total | £ | 6,116 | 100 | % | £ | 6,002 | 100 | % | £ | 6,055 | 100 | % | £5,773 | 100 | % | £ | 6,035 | 100 | % | £ | 6,116 | 100 | % | |||||||||||||||||||||||||
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The cost profile of individual businesses within Reed Elsevierthe Group varies widely and costs are controlled on an individual business unit basis. TheOur most significant cost item for Reed Elsevier as a whole is staff costs of £1,820£1,709 million (2011: £1,797(2013: £1,775 million; 2010: £1,8382012: £1,845 million).
The following tables show revenue operating profit and adjusted operating profit for each of Reed Elsevier’sour business segments in each of the three years ended December 31, 2014, 2013 and 2012 together with the percentage change in 20122014 and 20112013 at both actual and constant exchange rates. Adjusted operating profit is included on the basis that it is the key segmental profit measure used by management to evaluate performance and allocate resources to the business segments, as reported under IFRS8: Operating Segments in note 3 to the combined financial statements. Adjusted operating profit represents operating profit before amortisation of acquired intangible assets, exceptional restructuring costs, acquisition related costs, the share of profit on disposals in joint ventures, and is grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs in 2010 related only to the restructuring of the Business Information 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
Following a review of activities, assets and costs across the business, segment is provided as supplementary information.
With effectwe introduced a new method for the allocation of corporate and shared costs from January 1, 2011, LexisNexis was reorganised as two separate businesses, Risk Solutions2014. Previously unallocated items and Legal, which are accordingly now presented separately.costs relating to shared activities and resources have been attributed to the business segments on the basis of usage and benefits derived. This new allocation reflects an increased level of shared resources and capitalised costs. Comparative adjusted operating profit figures for 20102013 and 2012 have been restated on a proforma basis as if the businessesthis allocation method had operated separately in that year.the prior periods.
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 %
Adjusted Operating Profit(4) Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2012 | 2011 | % change | 2010 | % change | ||||||||||||||||||||||||||||||||||||
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(in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Scientific, Technical & Medical | £780 | 45 | % | £768 | 47 | % | +2 | % | +1 | % | £724 | 46 | % | +6 | % | +3 | % | |||||||||||||||||||||||
Risk Solutions | 392 | 23 | 362 | 22 | +8 | +7 | 354 | 23 | +2 | +6 | ||||||||||||||||||||||||||||||
Business Information | 119 | 7 | 110 | 7 | +8 | +10 | 89 | 6 | +23 | +22 | ||||||||||||||||||||||||||||||
Legal | 234 | 13 | 229 | 14 | +2 | +4 | 238 | 15 | -4 | -4 | ||||||||||||||||||||||||||||||
Exhibitions | 210 | 12 | 167 | 10 | +26 | +30 | 158 | 10 | +6 | +4 | ||||||||||||||||||||||||||||||
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Subtotal | £1,735 | 100 | % | £1,636 | 100 | % | £1,563 | 100 | % | |||||||||||||||||||||||||||||||
Corporate costs | (47 | ) | (44 | ) | (34 | ) | ||||||||||||||||||||||||||||||||||
Unallocated net pension credit(3) | 25 | 34 | 26 | |||||||||||||||||||||||||||||||||||||
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Total | 1,713 | £1,626 | +5 | % | +6% | £1,555 | +5 | % | +4 | % | ||||||||||||||||||||||||||||||
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Revenue Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2014 | 2013 | % change | 2012 | % change | ||||||||||||||||||||||||||||||||||||
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Scientific, Technical & Medical | £ | 2,048 | 36 | % | £ | 2,126 | 35 | % | -4 | % | +1 | % | £ | 2,063 | 34 | % | +3 | % | +1 | % | ||||||||||||||||||||
Risk & Business Information | 1,439 | 25 | % | 1,480 | 25 | % | -3 | % | +2 | % | 1,589 | 26 | % | -7 | % | -8 | % | |||||||||||||||||||||||
Legal | 1,396 | 24 | % | 1,567 | 26 | % | -11 | % | -6 | % | 1,610 | 26 | % | -3 | % | -4 | % | |||||||||||||||||||||||
Exhibitions | 890 | 15 | % | 862 | 14 | % | +3 | % | +11 | % | 854 | 14 | % | +1 | % | +2 | % | |||||||||||||||||||||||
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Total | £ | 5,773 | 100 | % | £ | 6,035 | 100 | % | -4 | % | +1 | % | £ | 6,116 | 100 | % | -1 | % | -3 | % | ||||||||||||||||||||
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Adjusted Operating Profit(3) Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2014 | 2013 Restated | % change | 2012 Restated | % change | ||||||||||||||||||||||||||||||||||||
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Scientific, Technical & Medical | £762 | 44 | % | £787 | 45 | % | -3 | % | +1 | % | £743 | 44 | % | +6 | % | +2 | % | |||||||||||||||||||||||
Risk & Business Information | 506 | 29 | % | 507 | 29 | % | 0 | % | +5 | % | 498 | 29 | % | +2 | % | 0 | % | |||||||||||||||||||||||
Legal | 260 | 15 | % | 250 | 14 | % | +4 | % | +10 | % | 244 | 15 | % | +2 | % | +2 | % | |||||||||||||||||||||||
Exhibitions | 217 | 12 | % | 210 | 12 | % | +3 | % | +12 | % | 208 | 12 | % | +1 | % | +4 | % | |||||||||||||||||||||||
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Subtotal | £1,745 | 100 | % | £1,754 | 100 | % | £1,693 | 100 | % | |||||||||||||||||||||||||||||||
Corporate costs | (6) | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||||||
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Total | £1,739 | £1,749 | -1 | % | +5 | % | £1,688 | +4% | +1 | % | ||||||||||||||||||||||||||||||
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(1) | Represents percentage change in |
(2) | Represents percentage change in |
(3) |
Adjusted operating profit represents operating profit before the amortisation of acquired intangible assets, |
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 in assessing performance, and is derived from operating profit as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Operating profit | £ | 1,358 | £ | 1,205 | £ | 1,090 | ||||||
Adjustments: | ||||||||||||
Amortisation of acquired intangible assets | 329 | 359 | 349 | |||||||||
Exceptional restructuring costs | — | — | 57 | |||||||||
Acquisition related costs | 21 | 52 | 50 | |||||||||
Share of profit on disposals in joint ventures | — | (1 | ) | — | ||||||||
Reclassification of tax in joint ventures | 5 | 11 | 9 | |||||||||
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Adjusted operating profit | £ | 1,713 | £ | 1,626 | £ | 1,555 | ||||||
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Underlying revenue growth is a non-GAAP measure included on the basis that it is a key financial measure used by management in assessing performance. It is derived from operating profit as follows:
2014 | 2013 | 2012 | ||||||||||
(in millions) | ||||||||||||
Operating profit | £1,402 | £ | 1,376 | £ | 1,333 | |||||||
Adjustments: | ||||||||||||
Amortisation of acquired intangible assets | 286 | 318 | 329 | |||||||||
Acquisition related costs | 30 | 43 | 21 | |||||||||
Reclassification of tax in joint ventures | 21 | 12 | 5 | |||||||||
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Adjusted operating profit | £1,739 | £ | 1,749 | £ | 1,688 | |||||||
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Underlying revenue growth and underlying adjusted operating profit growth are non-GAAP measures included on the basis that they are key financial measures used by management in assessing performance. References to underlying performancegrowth are calculated toat constant currencies, and exclude the results of all acquisitions and disposals made in both the currentyear and prior year and assets held for sale and currency translation effects. A reconciliationsale. Underlying revenue growth rates also exclude the effects of exhibition cycling. The reconciliations of reported revenuesrevenue and adjusted operating profit year-on-year isare presented below:
Revenue | Adjusted operating profit | Revenue | Adjusted operating profit | |||||||||||||||||||||||||||||
£m | % change | £m | % change | £m | % change | £m | % change | |||||||||||||||||||||||||
Year to December 31, 2010 | 6,055 | — | 1,555 | — | ||||||||||||||||||||||||||||
Year to December 31, 2012 | 6,116 | 1,688 | ||||||||||||||||||||||||||||||
Underlying growth | 88 | +2 | % | 73 | +5 | % | 167 | +3 | % | 75 | +5 | % | ||||||||||||||||||||
Exhibition cycling | (31 | ) | -1 | % | ||||||||||||||||||||||||||||
Acquisitions | 46 | +1 | % | 8 | +1 | % | 69 | +1 | % | 11 | — | |||||||||||||||||||||
Disposals | (156 | ) | -3 | % | (25 | ) | -2 | % | (362 | ) | -6 | % | (62 | ) | -4 | % | ||||||||||||||||
Currency effects | (31 | ) | -1 | % | 15 | +1 | % | 76 | +2 | % | 37 | +3 | % | |||||||||||||||||||
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Year to December 31, 2011 | 6,002 | -1 | % | 1,626 | +5 | % | ||||||||||||||||||||||||||
Year to December 31, 2013 | 6,035 | -1 | % | 1,749 | +4 | % | ||||||||||||||||||||||||||
Underlying growth | 230 | +4 | % | 85 | +6 | % | 171 | +3 | % | 78 | +5 | % | ||||||||||||||||||||
Acquisition | 148 | +3 | % | 35 | +2 | % | ||||||||||||||||||||||||||
Exhibition cycling | 30 | +1 | % | |||||||||||||||||||||||||||||
Acquisitions | 77 | +1 | % | 11 | — | |||||||||||||||||||||||||||
Disposals | (201 | ) | -4 | % | (22 | ) | -2 | % | (228 | ) | -4 | % | (2 | ) | — | |||||||||||||||||
Currency effects | (63 | ) | -1 | % | (11 | ) | -1 | % | (312 | ) | -5 | % | (97 | ) | -6 | % | ||||||||||||||||
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Year to December 31, 2012 | 6,116 | +2 | % | 1,713 | +5 | % | ||||||||||||||||||||||||||
Year to December 31, 2014 | 5,773 | -4 | % | 1,739 | -1 | % | ||||||||||||||||||||||||||
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In the commentary 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 page 26.27. The effect of currency movements on the 20122014 results is further described separately below (see “— Effect of Currency Translation” on page 33)37). 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, 20122014
Compared to the Year Ended December 31, 20112013
Revenue was £6,116£5,773 million (2011: £6,002(2013: £6,035 million), up 2%. At constant exchange rates, revenue was up 3%down 4%. 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%. Underlyingrevenue growth was also 6%1%. The overall adjusted operating margin at 28.0% was 0.9 percentage points higher than in the prior year. ThisIf exhibition cycling effects had been 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%4%.
The overall effect of disposals in 2014 was to reduce revenue growth by 4%, partially offset by a 1% contribution from acquisitions. Disposals made throughout 2014 will continue to impact reported revenue 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 matchingcurrency movements was to reduce 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%5%, with growth reflectingprincipally due to 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 disposalweakening of the Screening business was announced, which has been excluded from underlying revenue growth figures. If Screening had been included inUS dollar, on average, against sterling during 2014.
Total operating costs, including the underlying results, the underlying revenue growth rate for Risk Solutions as a whole would still have beenamortisation of acquired intangible assets and acquisition related costs, decreased by 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 primarilyprincipally reflecting business disposals and currency effects, as well aspartly offset by an increase in underlying costs. Actions were taken across our businesses to improve cost efficiency. At constant currencies, total operating costs decreased by 1%.
Underlying operating costs, excluding acquisitions and disposals, were up 3%, reflecting investment in global technology platforms and the launch of new products and services, partly offset by continued process innovation.
Cost of sales savingswere £2,006 million, down 5% compared with 2013, in Risk Solutions fromline with the ChoicePoint integration. Administrationoverall decrease in revenue. Selling and distribution costs were £934 million, down 7%, while administration and other expenses were £1,626£1,467 million, down 4%6%, both principally reflecting the completionimpact of the RBI exceptional restructuring programme in 2010, with related costs in that year of £57 million, largely relating to severancebusiness disposals and property costs. Other thancurrency effects. Except as disclosed herein,noted, 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.
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, decreased to £286 million (2013: £318 million), reflecting certain assets becoming fully amortised and currency effects. Acquisition related costs were £30 million (2013: £43 million), including a charge for deferred consideration payments required to be expensed under IFRS.
Total operating costs, excluding the amortisation of acquired intangible assets and acquisition related costs, decreased by 6%, principally reflecting business disposals and currency effects. Depreciation and amortisation of internally generated intangible assets decreased to £237 million (2013: £249 million).
The net pension expense, excluding the net pension financing charge, was £95 million (2013: £61 million), including settlement and past service credits of £15 million (2013: £59 million).
Reported operating profit was £1,205£1,402 million (2010: £1,090(2013: £1,376 million).
Total adjusted operating profit was £1,739 million (2013: £1,749 million), down 1%. Underlying adjusted operating profit grew 5%. Acquisitions and disposals had minimal net impact on adjusted operating profit. Currency effects reduced adjusted operating profit by 6%.
The overall adjusted operating margin of 30.1% was 1.1 percentage points higher than in the prior year. This included a 0.9 percentage point benefit to margin from portfolio change and a 0.1 percentage point decrease from currency effects.
Net pre-tax disposal losses were £11 million (2013: £16 million gain), arising largely from the sale of certain Risk & Business Information assets. These losses were increased by a related tax charge of £3 million (2013: £34 million charge).
Net finance costs were lower at £162 million (2013: £196 million), including the pension financing charge of £15 million (2013: £19 million). The increasereduction primarily reflects the benefit of term debt refinancing at lower rates and currency translation effects.
Profit before tax was £1,229 million (2013: £1,196 million). The tax charge was £269 million (2013: £81 million). In 2013, this included a deferred tax credit of £221 million arising on the alignment of certain business assets with their global management structure. The reported net profit attributable to the parent companies’ shareholders was £955 million (2013: £1,110 million).
Scientific, Technical & Medical
Revenue % change* | Adjusted operating profit % change* | |||||||
Underlying growth | +2 | % | +3 | % | ||||
Acquisitions/disposals | –1 | % | –2 | % | ||||
Currency effects | –5 | % | –4 | % | ||||
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Total growth | –4 | % | –3 | % | ||||
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* | Percentage movements in this and similar tables on pages 31 to 36 relate to changes in revenue and adjusted operating profit expressed in sterling. |
Key business trends were positive for the year with underlying revenue growth in research subscriptions. Electronic revenues, which now account for 74% of the total, continued to grow across all segments.
Revenue was £2,048 million (2013: £2,126 million), down 4%. Underlying revenue growth was2%.
In primary research, article submissions to subscription journals and usage continued to grow in double digits, and journal quality, as measured by relative impact factor, was maintained. Subscription revenue growth was driven by increased volume and new sales.
The volume of “author-pays” or “author’s-funder-pays” articles continued to grow from a small base. We continued to launch new journals, and now operate over 100 stand-alone author pays open access journals alongside our sponsored article option in over 1,600 subscription journals.
We saw continued growth in databases and tools, as well as in electronic reference and education.
Print book and pharma promotion revenues continued to decline, albeit at a slightly lower rate than in the prior year.
The impact of currency movements was to reduce revenue by5%. The overall effect of portfolio changes was to reduce revenue by 1%.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by5% to £1,364 million, largely reflecting currency movements. Amortisation of acquired intangible assets decreased to £79 million (2013: £86 million). Depreciation and amortisation of internally generated intangible assets decreased to £94 million (2013: £100 million).
Underlying operating costs, excluding acquired intangible asset amortisation and acquisition related costs, grew by 1%.
Adjusted operating profit was £762 million (2013: £787 million),down 3%. Underlying adjusted operating profit grew3%. The effect of portfolio changes was to reduce adjusted operating profit by2%. The impact of currency movements was to reduce adjusted operating profit by4%.
The adjusted operating margin increased by0.2 percentage points, which included a0.2 percentage point benefit from currency effects.
Risk & Business Information
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth | +6 | % | +6 | % | ||||
Acquisitions/disposals | –4 | % | –1 | % | ||||
Currency effects | –5 | % | –5 | % | ||||
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Total growth | –3 | % | 0 | % | ||||
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Underlying revenue growth was driven by volume growth, new product roll-outs and expansion in adjacent segments. Underlying adjusted operating profit growth broadly matched underlying revenue growth, reflecting ongoing organic investment initiatives.
Revenue was £1,439 million (2013: £1,480 million),down 3%. Underlying revenue growth was6%.
Growth in the insurance segment was driven by demand for the US auto underwriting business, take up of new products and services across the insurance workflow, and expansion in adjacent market verticals. The businesses continued to expand internationally, with 5% of revenue outside of the US and Europe.
In Business Services, growth was driven by demand for identity authentication and fraud detection solutions, particularly in the financial services sector.
In Government, the state & local segment continued to grow. Federal government revenue trends improved trading performanceduring the year.
Major Data Services maintained underlying revenue growth, driven by Accuity, XpertHR, and ICIS, and other magazines & services were stable.
The impact of currency movements was to reduce revenue by 5%.
In 2014 we continued to support organic growth through the acquisition of data and analytics assets. In 2014 we completed the acquisition of Innovata, a provider of airline schedule data, Tracesmart, a provider of UK public records, Wunelli, a provider of telematics solutions for the auto industry, FircoSoft, a provider of anti-money laundering solutions for the financial services industry, and Health Market Science, supplier of data on health care professionals.
We also exited assets that no exceptional restructuring costs.longer fit our strategy, including the disposal of several magazines and the spin-off of certain construction industry assets. The overall effect of portfolio changes was to reduce revenue by 4%.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by4% to £1,062 million principally reflecting currency effects and the impact of disposals. The amortisation charge in respect of acquired intangible assets decreased to £116 million (2013: £128 million), reflecting certain assets becoming fully amortised and currency effects.
Underlying operating costs, excluding acquired intangible asset amortisation and acquisition related costs, grew6%, reflecting continued investment in new product development.
Adjusted operating profit was £506 million (2013: £507 million),flat on prior year. Underlying adjusted operating profit grew6%. The effect of portfolio changes was to reduce adjusted operating profit by1%. The impact of currency movements was to reduce adjusted operating by profit by5%.
The adjusted operating margin increased by 0.9 percentage points, principally driven by portfolio changes.
Legal
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth | +1 | % | +6 | % | ||||
Acquisitions/disposals | –7 | % | +4 | % | ||||
Currency effects | –5 | % | –6 | % | ||||
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Total growth | –11 | % | +4 | % | ||||
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Underlying revenue trends remained unchanged in 2014, with subdued market conditions in the US and Europe limiting overall revenue growth. The improvement in profitability reflects a combination of process innovation, infrastructure decommissioning, and portfolio reshaping.
Revenue was£1,396 million (2013: £1,567 million), down11%. Underlying revenue growth was1%. US and European markets remained stable but subdued. In other international markets we continued to see growth, with 11% of revenues outside of the US and Europe.
Portfolio changes reduced revenue by7%. The impact of currency movements was to reduce revenue by5%. Electronic revenues, which now account for 77% of the total, saw continued growth, partially offset by print declines.
The roll out of new platform releases continued in 2014, and adoption and usage rates for new products and solutions have continued to progress well.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by14% to £1,223 million principally reflecting currency effects and the impact of disposals. The amortisation charge in respect of acquired intangible assets amounted to £57 million (2013: £64 million). Acquisition related costs reduced to £17 million (2013: £22 million) including a charge for deferred consideration required to be expensed under IFRS. Depreciation and amortisation of internally generated intangible assets decreased to £94 million (2013: £101 million).
Underlying operating costs, excluding acquired intangible asset amortisation and acquisition related costs, were flat year on year.
Adjusted operating profit was £1,626£260 million (2010: £1,555(2013: £250 million), up 5%up4%. At constant currencies,Underlying adjusted operating profits were up 4%profit grew6%. The effect of portfolio changes was to increase adjusted operating profit by4%. The impact of currency movements was to reduce adjusted operating profit by6%.
Organic process innovation, infrastructure decommissioning and portfolio changes contributed to a2.6 percentage point improvement in the adjusted operating profit margin during 2014.
Exhibitions
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth (excluding cycling) | +7 | % | ||||||
Cycling effects | +2 | % | ||||||
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Underlying growth (adjusted for cycling) | +9 | % | +9 | % | ||||
Acquisitions/disposals | +2 | % | +3 | % | ||||
Currency effects | -8 | % | -9 | % | ||||
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Total growth | +3 | % | +3 | % | ||||
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Exhibitions achieved another year of underlying revenue and adjusted operating profit growth, and continued to actively pursue growth opportunities through new launches and small acquisitions.
Revenue was £890 million (2013: £862 million), up3%. Underlying revenue growth was7%. Had the effects of cycling been included, underlying revenue growth would have been two percentage points higher.
Portfolio changes increased revenue by 2%. Currency movements reduced revenue by8%.
The US and Japan achieved underlying revenue growth. In the US, growth reflected demand across our broad portfolio of leading events. Strong growth in Japan was driven by new launches and demand across our major events.
Europe saw modest growth overall. Domestic markets remained subdued, but international events in the UK and France achieved growth.
China continued to see strong growth in certain sectors, and moderate growth elsewhere. Revenues in Brazil reflected growth in some of our leading events, but a slowdown in the wider economy. Most other markets continued to grow.
In 2014 we launched 36 new events and completed several small acquisitions and joint venture investments, primarily in high growth geographies and sectors. In total, 37% of revenues were outside of the US and Europe.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, were £716 million, up2%. The amortisation charge in respect of acquired intangible assets fell to £34 million (2013: £40 million).
Underlying operating costs, excluding acquired intangible asset amortisation and acquisition related costs, grew 6%, slightly below revenue, reflecting the increase in activity.
Adjusted operating profit was £217 million (2013: £210 million), up3%. Underlying adjusted operating profits was 5%profit grew9%. The overalleffect of portfolio changes was to increase adjusted operating profit by 3%. The impact of currency movements was to reduce adjusted operating profit by9%.
The adjusted operating margin at 27.1% was 1.4 percentage points higher than lastflat year on year.
Results of Operations for the Year Ended December 31, 2013
Compared to the Year Ended December 31, 2012
In 2012 and 2013, Risk Solutions and Business Information operated as separate business areas. Accordingly, financial information has been presented separately.
In 2014, following a review of activities, assets and costs across the business, we introduced a new method for the allocation of corporate and shared costs from January 1, 2014. Previously unallocated items and costs relating to shared activities and resources have been attributed to the business segments on the basis of usage and benefits derived. This new allocation reflects an increased level of shared resources and capitalised costs. Adjusted operating profit and operating profit figures for 2013 and 2012 have been restated as if this allocation method had been used in the prior years.
Revenue was £6,035 million (2012: £6,116 million), down 1%. Underlying revenue growth was 3%. Had the effects of exhibition cycling been included, underlying revenue growth would have been 2%.
The overall effect of disposals in 2013 was to reduce revenue by 6%, partially offset by a 0.4 percentage point benefit1% increase from acquisitions. There have been disposals in each of our businesses, but the effect is most significant in Risk Solutions, where we sold the pre-employment screening business, in Business Information where we made a number of disposals, and in Legal where Martindale-Hubbell, the US lawyer directory business, was spun out into a joint venture. Disposals made throughout 2013 will continue to marginimpact reported revenue and operating profit growth rates in 2014.
The impact of currency movements was to increase revenue by 2%, principally due to the strengthening of the multi year subscription currency hedging programmeUS dollar, on average, against sterling during 2013.
Total operating costs, including the amortisation of acquired intangible assets and acquisition related costs, decreased by 2%, principally reflecting business disposals.
Cost of sales were £2,118 million, down 1% compared with 2012, in line with the overall decrease in revenue. Selling and distribution costs were £1,005 million, also down 1%. Administration and other currency translation effects. Underlying operating costsexpenses were flat against the prior year, despite business growth and additional spending on new product development and sales & marketing,£1,565 million, down 5%, principally reflecting the continued focus on process efficiencyimpact of business disposals. Except as noted, changes in cost of sales, selling and procurement savings,distribution costs, and administration and other expenses, including changes in individual components thereof, were not material to the benefitoperating profit performance of prior year restructuring.the individual segments.
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, amounted to £359was £318 million (2010: £349(2012: £329 million).
Exceptional restructuring costs were nil (2010: £57 million, in respect of the restructuring of RBI). Acquisition related costs amounted to £52were £43 million (2010: £50 million) most significantly in respect of technology integration within Risk Solutions. Disposals and other non operating losses were £22 million (2010: £46(2012: £21 million), including a charge for deferred consideration payments required to be expensed under IFRS.
Total operating costs, excluding the shareamortisation of acquired intangible assets and acquisition related costs, decreased by 3%, reflecting business disposals.
Depreciation and amortisation of internally generated intangible assets increased to £249 million (2012: £227 million), while actions were taken across our businesses, especially Legal, to improve cost efficiency.
The net pension expense, excluding the net pension financing charge, was £61 million (2012: £89 million), including settlement and past service credits of £59 million (2012: £20 million), mainly arising from benefits changes in the US, which will reduce future costs for our US businesses.
Underlying operating costs, excluding acquisitions and disposals, were up 2%, reflecting investment in global technology platforms and launching of new products and services, partly offset by continued process improvements.
Reported operating profit was £1,376 million (2012: £1,333 million).
Total adjusted operating profit was £1,749 million (2012: £1,688 million), up 4%. Underlying adjusted operating profit grew 5%. The impact of disposals was to reduce adjusted operating profit by 4%. Currency effects increased adjusted operating profit by 3%.
The overall adjusted operating margin of 29.0% was 1.4 percentage points higher than in the prior year. This included a 0.5 percentage point benefit to margin from portfolio change and a 0.3 percentage point benefit from currency effects.
Net pre-tax disposal profits in joint venues.gains were £16 million (2012: £45 million), arising from a gain on the sale of Risk Solutions’ pre-employment screening business, offset by a net loss on other disposals. These were offset by a related tax charge of £34 million (2012: £58 million credit).
Net finance costs were lower at £235£196 million (2010: £276(2012: £227 million), reflectingincluding the pension financing charge of £19 million (2012: £11 million). The reduction primarily reflects the benefit of free cash flow, term debt redemptions and the expiry of interest rate swaps.refinancing at lower rates.
The reported profitProfit before tax was £948£1,196 million (2010: £768(2012: £1,151 million). The reported tax charge was £181£81 million (2010: £120(2012: £102 million). This included a deferred tax credit of £221 million arising on the alignment of certain business assets with their global management
Profit
structure. The reported net profit attributable to the parent companies’ shareholders was £760£1,110 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(2012: £1,044 million) and adjusted operating profits were flat at £591 million (2010: £592 million). The results of each business are presented separately below.
Scientific, Technical & Medical
Increasing global
Revenue* % change | Adjusted* operating profit % change | |||||||
Underlying growth | +2 | % | +3 | % | ||||
Acquisitions/disposals | -1 | % | -1 | % | ||||
Currency effects | +2 | % | +4 | % | ||||
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Total growth | +3 | % | +6 | % | ||||
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The Scientific, Technical & Medical business achieved volume growth in primary research submissions and usage, and in databases & tools, across the scientific, technical & medical segments. Electronic revenue, which now accounts for 72% of the total, grew across all segments. Print book sales and pharma promotion continued to decline.
Revenue was £2,126 million (2012: £2,063 million), up 3%. Underlying revenue growth was 2%.
In primary research, growth in article submissions and usage remained strong across the scientific, technical and medical research activity supportedsegments, and journal quality, as measured by Impact Factor, continued to improve. Revenue growth in research informationwas driven by solid subscription renewals 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 hasnew sales. “Author-pays” or “author’s-funder-pays” article volumes continued to grow broadly in line with long term historic trends, and Elsevier generatedfrom a small base. Good growth in the volumescientific databases & tools and electronic clinical solutions was also supported by new sales.
Print book sales and pharma promotion continued to decline reflecting a combination of articles submittedformat migration and publishedstructural changes in the year,pharmaceutical industry.
Portfolio development continued in 2013. Disposals included Elsevier Business Intelligence and improved the qualitya number of articles relativesmall print and pharma focused assets. We supported our organic growth strategy with small targeted acquisitions, including Mendeley, an online reference management and collaboration solution. The overall effect of portfolio changes was to other publishers as measuredreduce revenue 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.
Risk Solutions
Risk Solutions 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 businessimpact of currency movements was to increase revenue by 2%.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, increased by 2% to £1,433 million. Amortisation of acquired intangible assets increased to £86 million (2012: £78 million). Depreciation and amortisation of internally generated revenue growth of 7%, driven by the increasing adoption of solutions across the insurance workflow from marketing throughintangible assets increased to claims handling that improve underwriting economics and operational efficiency. In November 2011, 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.£100 million (2012: £87 million).
Underlying operating costs, declinedexcluding acquired intangible asset amortisation and acquisition related costs, grew by 1% despite the business growth and new product investment, reflecting cost savings, notably in technology, and from the completion.
Adjusted operating profit was £787 million (2012: £743 million), up 6%. Underlying adjusted operating profit grew 3%. The effect of the ChoicePoint integration. portfolio changes was to reduce adjusted operating profit by 1%. The impact of currency movements was to increase adjusted operating profit by 4%.
The adjusted operating margin increased by 1.71.0 percentage points, which included a 0.6 percentage point benefit from currency effects.
Risk Solutions
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth | +8 | % | +8 | % | ||||
Acquisitions/disposals | -9 | % | -4 | % | ||||
Currency effects | +2 | % | +2 | % | ||||
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Total growth | +1 | % | +6 | % | ||||
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All business segments achieved growth in 2013. The improvement in adjusted operating margin largely reflects the impact of portfolio changes, as underlying operating cost growth was in line with underlying revenue growth, reflecting continued new product development.
Revenue was £933 million (2012: £926 million), up 1%. Underlying revenue growth was 8%.
The 2013 results reflect the impact of portfolio changes, including the disposal of the pre-employment screening business, and some small acquisitions. Taken together, these portfolio changes had the effect of reducing revenue by 9%.
The impact of currency movements was to 39.9%increase revenue by 2%.
Revenue growth in the insurance segment was driven by good take up of new products and services across the insurance workflow, expansion into adjacent market verticals, and volume growth in the core underwriting business. The expansion into international markets is progressing well, although the absolute revenue contribution remains small relative to Risk Solutions overall.
Business Services growth reflected strong demand for identity authentication and fraud detection solutions across markets. The US mortgage refinancing market did slow down in the second half as expected, but the impact of this was largely offset by continued good growth elsewhere.
New product sales drove strong growth in government revenue for the year, somewhat tempered by a slowdown in federal markets in the fourth quarter.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by 4% to £634 million. The amortisation charge in respect of acquired intangible assets decreased to £97 million (2012: £109 million), reflecting business disposals.
Underlying operating costs, excluding acquired intangible asset amortisation and acquisition related costs, grew 8% reflecting continued investment in new product development.
Adjusted operating profit was £401 million (2012: £380 million), up 6%. Underlying adjusted operating profit grew 8%. The effect of portfolio changes was to reduce adjusted operating profit by 4%. The impact of currency movements was to increase adjusted operating by profit by 2%.
The adjusted operating margin increased by 2.1 percentage points, principally driven by portfolio changes.
Business Information
Reed Business Information returned to underlying
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth | +4 | % | +14 | % | ||||
Acquisitions/disposals | -23 | % | -25 | % | ||||
Currency effects | +2 | % | +1 | % | ||||
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Total growth | -17 | % | -10 | % | ||||
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Underlying revenue growth withaccelerated in 2013 reflecting continued good growth in data services mostly offset by continued weaknessand modest growth elsewhere. Focus on process innovation drove a further improvement 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.profit margin.
Revenue was £547 million (2012: £663 million), down 17%. Underlying revenuesrevenue growth was 4%.
Major Data Services, which now accounts for over 50% of continuing portfolio revenue, achieved strong growth in 2013 driven by Accuity, ICIS and adjusted operating profits were up 1%XpertHR.
Leading Brands and 15% respectively.Other Business Magazines & Services achieved modest growth, despite weak print advertising markets, with solid results from data solutions and the agricultural segments.
In 2013 we continued to exit from businesses that no longer fit our strategy, with disposals during the period including RBI Australia, Italy, and France. Since the beginning of 2014 we have also divested BuyerZone in the Marketing Solutions segment. Portfolio changes reduced revenue by 23%.
The major data services businesses, which accounted for 25%impact of currency movements was to increase revenue by 2%.
Since bringing the management structure of Reed Business Information revenuesand Risk Solutions more closely together at the end of 2012 we have made good initial progress on leveraging Risk Solutions’ strength in 2011, delivered underlying revenue growthdata, analytics and technology across Reed Business Information’s broader geographic footprint.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by 19% to £477 million. This included a £36 million reduction in cost of 9%, including growthsales, a £36 million reduction inICIS,Bankers Almanac selling andXpertHR, partially offset byReed Construction Dataserving the challenged US construction industry. Online marketing solutions grew 2%, driven largely byTotaljobs distribution costs
and a £38 million reduction in the UK online recruitment market, offset by weaknessadministration and other expenses, each reflecting business disposals. The amortisation charge 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 declinerespect of 5% reflecting continued print advertising market weakness.acquired intangible assets decreased to £31 million (2012: £37 million).
Underlying operating costs, were down 2%, reflecting continuing measures taken to realign the cost base. excluding acquired intangible asset amortisation and acquisition related costs, grew by 1%.
Adjusted operating marginsprofit was £106 million (2012: £118 million), down 10%. Underlying adjusted operating profit grew 14%. The effect of portfolio changes was to reduce adjusted operating profit by 25%. The impact of currency movements was to increase adjusted operating profit by 1%.
The adjusted operating margin increased 3.4by 1.5 percentage points, to 15.8%.the result of the continued organic transformation of the business.
Legal
Legal revenues returned to
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth | +1 | % | +5 | % | ||||
Acquisitions/disposals | -5 | % | -4 | % | ||||
Currency effects | +1 | % | +1 | % | ||||
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Total growth | -3 | % | +2 | % | ||||
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Positive underlying revenue growth was maintained in 2011,2013 despite subdued market conditions in the US and adjusted operating margins were broadly flat, as expected. Most legal markets have stabilized, and new products were launched.Europe. Electronic revenue continued to show good growth, largely offset by print declines.
Revenues and adjusted operating profits wereRevenue was £1,567 million (2012: £1,610 million), down 2% and 4% respectively at constant currencies.3%. Underlying revenues and adjusted operating profits were uprevenue growth was 1% and down 2% respectively..
In the 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. Growthour major European markets, conditions remained subdued, with growth in practice management tools wasonline solutions largely offset by continued but moderating declines in news & business information to corporateprint declines. Other international markets achieved good growth.
The roll out of new product releases continued, with 73% of US legal customers activated on the New Lexis platform at period end, and in web based listings.new product usage progressing well.
International markets outsideThe 2013 results reflect the impact of portfolio reshaping over the last 18 months, including the disposal of the US also returneddocument retrieval and filing business in late 2012 and other small print assets early in 2013. In the second half of 2013 LexisNexis Martindale-Hubbell, the US lawyer directory, was spun out into a joint venture with Internet Brands, a broad-based internet marketing firm.
Portfolio changes reduced revenue by 5%. The impact of currency movements was to growth. Electronic revenues grew 7% reflecting demandincrease revenue by 1%.
Total operating costs, including acquired intangible asset amortisation and acquisition related costs, decreased by 2% to £1,406 million. The amortisation charge in respect of acquired intangible assets amounted to £64 million (2012: £73 million). Acquisition related costs increased to £22 million (2012: £4 million) including a charge for legal toolscertain deferred consideration required to be expensed under IFRS. Depreciation and solutions, although this was largelyamortisation of internally generated intangible assets increased to £101 million (2012: £85 million), offset by further print declines as format transition continued. Print base products now account for less than 40% of revenue.actions taken to improve cost efficiency.
Underlying operating cost growthcosts, excluding acquired intangible asset amortisation and acquisition related costs, were flat year on year.
Adjusted operating profit was £250 million (2012: £244 million), up 2%. Underlying adjusted operating profit grew 5%. The effect of portfolio changes was to reduce adjusted operating profit by 4%. The impact of currency movements was to increase adjusted operating profit by 1% reflecting continued investment.
Ongoing process innovation and some initial decommissioning of old infrastructure more than offset inflation and higher depreciation, contributing to a 0.7 percentage point improvement in the next generation legal offerings and sales & marketing, offset by continued cost initiatives. The adjusted operating profit margin was broadly flat at 14.0%.during 2013.
Exhibitions
The net cycling out of biennial shows held back
Revenue % change | Adjusted operating profit % change | |||||||
Underlying growth (excluding cycling) | +7 | % | ||||||
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Acquisitions/disposals | 0 | % | 0 | % | ||||
Currency effects | -1 | % | -3 | % | ||||
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In 2013 Exhibitions maintained strong underlying revenue growth. While growth in 2011. Excluding biennialEurope was modest, the US, Japan, Brazil and other markets all grew well.
Revenue was £862 million (2012: £854 million), up 1%. Underlying revenue growth was 7%. Had the effects of cycling been included, underlying revenue growth would have been 2%.
The US and Japan achieved strong revenue growth for the year. US shows reported good growth in visitor numbers, and growth in Japan was 10%, withsupported by leadership of the alternative energy sector and new launches. Brazil and China continued to generate strong growth.
In Europe good growth across all geographies. Newin international events more than offset softness in some domestic continental European events, resulting in modest overall growth.
In 2013 we launched 37 new events, primarily in high-growth geographies and sectors, including the highly successful launch activity was accelerated in 2011, andof World Travel Market Latin America, building on a global franchise.
We undertook a number of selectiveportfolio changes during the year, with acquisitions were made which have increasedincluding Expo Ferretera in Mexico, IPSA in Russia, Travelweek Sao Paulo in Brazil and Capsule in the business’ presence in high growth markets.US. Disposals include a number of Spanish events as well as some smaller events across geographies.
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, 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 underlyingPortfolio changes had no overall effect on revenue growth was 13% excluding biennial events,during 2013. Currency movements reduced revenue by 1%.
The impact of exhibition cycling has steadily been reduced from 10% in 2011 through 8% in 2012, to 5% in 2013.
Total operating costs, including growthacquired intangible asset amortisation and acquisition related costs, were £704 million, up 3%. The amortisation charge in China, Brazil, Russiarespect of acquired intangible assets increased to £40 million (2012: £32 million) as a result of acquisitions completed in 2013 and the Middle East.2012.
Underlying operating costs, were downexcluding acquired intangible asset amortisation and acquisition related costs, grew 1%, reflecting cost control, while funding the significantly increased launch programme and build outslightly below revenue.
Adjusted operating profit was £210 million (2012: £208 million), up 1%. Underlying adjusted operating profit grew 4%. Portfolio changes had no overall impact on adjusted operating profit growth during 2013. The impact of global industry groups and information technology capabilities. currency movements was to reduce adjusted operating profit by 3%.
The adjusted operating margin was 0.8increased by 0.1 percentage points higher than in 2010 at 23.6%.points.
Critical Accounting Policies
The accounting policies of the Reed Elsevier combined businesses under IFRS as issued by the International Accounting Standards BoardIASB and as adopted by the European UnionEU 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 acquired intangible assets, capitalisation of development spend, pensions share based remuneration, litigation, taxation and property provisioning.taxation.
The Audit Committees of Reed Elsevier PLC, Reed Elsevier NV and Reed ElsevierRELX Group plc have reviewed the development and selection of critical accounting estimates, and the disclosure of critical accounting policies in this annual report.the financial statements.
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’sour business exposure to the United States and the euro zone, its most important markets outside the United Kingdom.markets. Some of these exposures are offset by denominating borrowings in US dollars.
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 togenerally 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 1918 to the combined financial statements.
Currency differences decreased Reed Elsevier’sreduced the Group’s revenue by £63£312 million in 20122014 compared to 2011.2013. Excluding amortisation of acquired intangible assets of £286 million and acquisition related costs of £30 million, currency differences decreasedreduced operating profits by £11£97 million in 20122014 compared to 2011.2013. Acquired intangible assetsasset amortisation and goodwillacquisition related costs are
predominantly denominated in US dollars and, after charging amortisation,these charges, currency differences decreasedreduced operating profits by £8£70 million in 20122014 compared to 2011.2013. Borrowings are predominantly denominated in US dollars and, after charging net finance costs, currency differences decreasedreduced profit before tax by £8£78 million in 20122014 compared to 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.2013.
Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements are set out in note 2 to the combined financial statements.
LIQUIDITY AND CAPITAL RESOURCES — REED ELSEVIERTHE GROUP
Cash Flow
Reed Elsevier’sThe Group’s cash generated from operations in 20122014 amounted to £1,847£1,851 million (2011: £1,735(2013: £1,943 million; 2010: £1,6492012: £1,847 million). Included in these net cash inflows are cash outflows of £62£27 million (2011: £90(2013: £40 million; 2010: £1502012: £62 million) relating to acquisition related costs and 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.years. 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, 20122014 subscriptions and other revenues received in advance totaledtotalled £1,453 million (2013: £1,403 million; 2012: £1,394 million (2011: £1,412 million; 2010: £1,308 million).
Reed Elsevier’sThe Group’s cash outflow on the purchase of property, plant and equipment in 20122014 was £70£67 million (2011: £85(2013: £57 million; 2010: £832012: £70 million), while proceeds from the sale of property, plant and equipment amounted to £7£10 million (2011: £7(2013: £6 million; 2010:2012: £7 million). The cash outflow on internally developed intangible assets in 20122014 was £263£203 million (2011: £265(2013: £251 million; 2010: £2282012: £263 million), reflecting sustained investment in new products and related infrastructure, particularly in the Legal business.
GrossNet 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£53 million, after related separation and transaction costs, additional pension scheme contributions, and working capital and other adjustments in respect of prior year transactions.
During 2012, Reed Elsevier2014, the Group paid a total of £316£396 million (2011: £529(2013: £221 million; 2010: £502012: £316 million) for acquisitions, including deferred consideration payableof £34 million (2013: £21 million; 2012: £30 million) on past acquisitions and after taking account of net cash acquired of £9 million (2013: £14 million; 2012: £12 million (2011: £24 million; 2010: nil)million). A further £6 million (2013: £10 million; 2012: £7 millionmillion) was paid on the purchase of investments (2011: £10 million; 2010: £5 million) during the year. During 2012, Reed Elsevier2014, the Group paid tax of £216£348 million (2011: £218(2013: £362 million; 2010: £92012: £216 million).
Share repurchases by the parent companies in 20122014 were £600 million (2013: £600 million; 2012: £250 million (2011: nil; 2010: nil)million), with a further £100 million repurchased in 20132015 as at February 27.25, 2015. On February 28, 2013,26, 2015, Reed Elsevier PLC and Reed Elsevier NV announced their intention to repurchase further ordinary shares up to the value of £300£400 million in aggregate over the remainder of 2013. No2015. The Employee Benefit Trust purchased shares ofin the parent companies were purchased by the Reed Elsevier Group plc Employee Benefit Trust (2011:totalling £39 million (2013: nil; 2010:2012: nil). Net proceedsProceeds from the exercise of share options were £48£45 million (2011: £9(2013: £125 million; 2010: £112012: £48 million).
During 2012, Reed Elsevier2014, the Group paid ordinary dividends totalling £521£565 million to the shareholders of the parent companies (2011: £497(2013: £549 million; 2010: £4832012: £521 million). Dividend payments are funded by the operating cash flow of the business after capital spend.
Debt
Net borrowings, a key indebtedness measure used in assessing Reed Elsevier’sthe Group’s financial position, at December 31, 20122014 were £3,127£3,550 million (2011: £3,433(2013: £3,072 million; 2010: £3,4552012: £3,127 million), comprising gross borrowings of £3,892£3,825 million, less £124and £1 million of related derivative financial instrument assets andliabilities, less cash and cash equivalents of £641£276 million. Excluding currency effects, net borrowings decreasedincreased by £199 million with acquisitions and share repurchases funded from free cash flow and proceeds from divestments.£399 million.
Net borrowings are reconciled as follows:
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Cash & cash equivalents | 641 | 726 | 742 | 276 | 132 | 641 | ||||||||||||||||||
Borrowings | (3,892 | ) | (4,282 | ) | (4,302 | ) | (3,825 | ) | (3,281 | ) | (3,892 | ) | ||||||||||||
Related derivative financial instruments | 124 | 123 | 105 | (1 | ) | 77 | 124 | |||||||||||||||||
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Net borrowings | (3,127 | ) | (3,433 | ) | (3,455 | ) | (3,550 | ) | (3,072 | ) | (3,127 | ) | ||||||||||||
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During 2012,Liquidity
In June 2014, the secondfirst of two one year extension options was exercised on the $2.0 billion committed bank facility, extendingtaking the maturity to June 2015.July 2019. This back upback-up facility provides security of funding for short termshort-term debt. At December 31, 2014, this facility was undrawn.
In September 2012, €550May 2014, €350 million of euro denominated floating rate term debt was issued with a maturity of three years, and swapped to $480 million on issue. In August 2014, £300 million of sterling denominated fixed rate term debt was issued with a maturity of eightfive years was issued atand 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 2013.2.75%. In October and November 2012, $561December 2014, $20 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 rateUS term debt maturing in January 2014 and January 2019 with a weighted average coupon of 8.4%, was exchanged for $311 million ofpurchased in 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.open market.
The directors of Reed Elsevier PLCGroup has ample liquidity and Reed Elsevier NV, having made appropriate enquiries, consider that adequate resources exist foraccess to debt capital markets, providing the combined businessesability to continue in operational existence for the foreseeable future.repay or refinance borrowings as they mature.
The contractual obligations of Reed Elsevierthe Group relating to debt finance and operating leases at December 31, 20122014 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 | |||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||
Short term debt(1)(2) | £ | 762 | £ | 762 | £ | — | £ | — | £ | — | £679 | £ | 679 | £ | — | £ | — | £ | — | |||||||||||||||||||||
Long term debt (including finance leases)(2) | 4,187 | 173 | 1,112 | 959 | 1,943 | 3,976 | 135 | 1,246 | 962 | 1,633 | ||||||||||||||||||||||||||||||
Operating leases | 610 | 117 | 184 | 125 | 184 | 523 | 96 | 157 | 121 | 149 | ||||||||||||||||||||||||||||||
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Total | £ | 5,559 | £ | 1,052 | £ | 1,296 | £ | 1,084 | £ | 2,127 | £ | 5,178 | £ | 910 | £ | 1,403 | £ | 1,083 | £ | 1,782 | ||||||||||||||||||||
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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 bank facility maturing in |
(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 76 to the combined financial statements.
Off-Balance Sheet Arrangements
At December 31, 2012 Reed Elsevier had outstanding guarantees in respect of property leases. The maximum amount guaranteed as at December 31, 2012 is £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“Contractual Obligations”, we have 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 Policiespolicies
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 Elsevierthe Group are liquidity risk, interest rate risk, foreign currency risk and credit risk. The Boards of the parent companiesReed Elsevier PLC and Reed Elsevier NV agree overall policy guidelines for managing each of these risks and the Boards of Reed ElsevierRELX Group plc and Elsevier Finance SA agree policies (in line with parent company guidelines) for their respective business and treasury centres. A summary of these policies is 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 changesprovided in interest rates. The proportion of interest expense that is fixed on net borrowings is determined by referencenote 18 to the level of net interest cover. Reed Elsevier uses fixed rate term debt, interest rate swaps, forward rate agreements and interest rate optionsfinancial statements on pages F-37 to manage the exposure. Interest rate derivativesF-44. Financial instruments are used onlyto finance our businesses and to hedge an underlying risk and no net market positions are held.
After taking into account interest rate and currency derivatives, at December 31, 2012 interest expense was fixed on an average of £2.2 billion of forecast debt for the next 12 months. This fixed rate debt reduces to £1.7 billion by the end of 2014 and reduces further thereafter with all but £0.7 billion of fixed rate term debt (not swapped to floating rate) having matured by the end of 2019.
At December 31, 2012, fixed rate term debt (not swapped to floating rate) amounted to £2.1 billion (2011: £2.4 billion) and had a weighted average life remaining of 6.2 years (2011: 5.7 years) and a weighted average interest rate of 6.4% (2011: 6.5%). Interest rate derivatives in place at December 31, 2012, which fix the interest cost on an additional £0.2 billion (2011: £0.6 billion) of variable rate debt, have a weighted average maturity of 0.3 years (2011: 0.8 years) and a weighted average interest rate of 3.6% (2011: 3.2%).
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 the 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, 2012, the amount of outstanding foreign exchange cover against future transactions was £1.2 billion (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 whichtransactions. Our businesses do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A-/A3 by Standard & Poor’s, Moody’s and Fitch. At December 31, 2012, cash and cash equivalents totalled £641 million, of which 98% was held with banks rated A/A2 or better. Further information on credit risk is set out on pages F-42 and F-43.enter into speculative transactions.
Capital and Liquidity Managementliquidity management
The capital structure is managed to support Reed Elsevier’sour objective of maximising long termlong-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 whilstwhile maintaining appropriate leverage to optimise the cost of capital.ensure an efficient capital structure.
Over the long term Reed Elsevier targetslong-term, we seek to maintain cash flow conversion (the proportion of adjusted operating profits converted into cash)90% or higher and credit metrics to reflect this aim and that are consistent with a solid investment grade credit rating. Levels ofThe typical credit metrics are net borrowings 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)debt to net borrowings, net borrowings to adjusted EBITDA, (as reconciled in the table below) and adjusted EBITDA to net interest, all on a pensions and lease adjusted and on an unadjusted basis, and these metrics are monitored and reported to senior management and board representatives on a quarterly basis.free cash flow as percentage of net debt. Adjusted EBITDA is derived from net profit as follows:
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Cash flow conversion
Our uses of 90% or higher is consistent with the rating target. Thefree cash flow conversion in 2012 was 94% (2011: 93%) and for the year ended December 31, 2012 net borrowings to adjusted EBITDA was 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 progressivelonger-term balance the dividend policy, selective acquisitions and from time to time when conditions suggest, share repurchases, whilstwhile 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.borrowing.
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, dependingFurther detail on the level of net borrowings 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 toour capital and liquidity management during the year.is provided on page F-37.
Short TermShort-Term Borrowings
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 termshort-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 loansaffiliates. Term debt comprises borrowings with an original maturity of greater than one year and which mature within 12 months of the reporting date. These short termshort-term borrowings were backed up at December 31, 20122014 by a $2,000 million$2.0 billion committed bank facility maturing in June 2015July 2019 which was undrawn. The short termshort-term borrowing programmes are run in conjunction with term debt programmes which comprise the majority of Reed Elsevier’sour 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 £756£747 million in March 2012 as a result of trading flowsSeptember 2014, and othershort-term loans and overdrafts reached a maximum month end level of £643£103 million in June 2012January 2014, both as a result of movements in trading cash flows. Term debt reached a maximum month end level of £351 million in February 2014 as the maturities of the term debt issues of €600CHF 350 million and CHF 150$186.5 million, expiring in April 2013May 2014 and June 2013February 2015 respectively, both then fell below 12 months.
Short term borrowings as at December 31, | 2012 £m | 2012 Weighted average interest rate % | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | ||||||||||||||||||||||||||||||||||||
Short-term borrowings as at December 31, | 2014 £m | 2014 Weighted average interest rate % | 2013 £m | 2013 Weighted average interest rate % | 2012 £m | 2012 Weighted average interest rate % | ||||||||||||||||||||||||||||||||||||
Commercial paper | 118 | 0.2 | 576 | 0.7 | 346 | 0.6 | 465 | 0.3 | 229 | 0.3 | 118 | 0.2 | ||||||||||||||||||||||||||||||
Short term loans and overdrafts | 13 | 1.5 | 20 | 10.1 | 33 | 8.6 | 84 | 0.8 | 58 | 1.3 | 13 | 1.5 | ||||||||||||||||||||||||||||||
Finance leases | 7 | 2.5 | 2 | 2.7 | 7 | 5.1 | 7 | 2.2 | 9 | 2.1 | 7 | 2.5 | ||||||||||||||||||||||||||||||
Other loans | 592 | 3.7 | 384 | 4.1 | 130 | 6.7 | ||||||||||||||||||||||||||||||||||||
Term debt | 120 | 5.2 | 352 | 2.0 | 592 | 3.7 | ||||||||||||||||||||||||||||||||||||
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Total short term borrowings | 730 | 982 | 516 | 676 | 648 | 730 | ||||||||||||||||||||||||||||||||||||
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Average short term borrowings during the year ended December 31, | 2012 £m | 2012 Weighted average interest rate % | 2011 £m | 2011 Weighted average interest rate % | 2010 £m | 2010 Weighted average interest rate % | ||||||||||||||||||||||||||||||||||||
Average short-term borrowings during the year ended December 31, | 2014 £m | 2014 Weighted average interest rate % | 2013 £m | 2013 Weighted average interest rate % | 2012 £m | 2012 Weighted average interest rate % | ||||||||||||||||||||||||||||||||||||
Commercial paper | 547 | 0.5 | 504 | 0.6 | 437 | 0.5 | 600 | 0.3 | 333 | 0.2 | 547 | 0.5 | ||||||||||||||||||||||||||||||
Short term loans and overdrafts | 22 | 8.9 | 30 | 9.5 | 33 | 7.9 | 51 | 1.4 | 71 | 1.3 | 22 | 8.9 | ||||||||||||||||||||||||||||||
Finance leases | 5 | 2.7 | 9 | 4.9 | 7 | 5.3 | 4 | 2.3 | 8 | 2.3 | 5 | 2.7 | ||||||||||||||||||||||||||||||
Other loans | 469 | 3.7 | 297 | 5.0 | 197 | 4.6 | ||||||||||||||||||||||||||||||||||||
Term debt | 183 | 3.2 | 725 | 4.7 | 469 | 3.7 |
Maximum month end short term borrowings | 2012 £m | 2011 £m | 2010 £m | |||||||||||||||||||||
Maximum month end short-term borrowings | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||
Commercial paper | 756 | 659 | 688 | 747 | 486 | 756 | ||||||||||||||||||
Short term loans and overdrafts | 27 | 37 | 37 | 103 | 230 | 27 | ||||||||||||||||||
Finance leases | 7 | 10 | 10 | 7 | 9 | 7 | ||||||||||||||||||
Other loans | 643 | 493 | 358 | |||||||||||||||||||||
Term debt | 351 | 1,050 | 643 |
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, 2014, 2013 and 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 ElsevierGroup’s combined businesses.
Results of Operations for the Year Ended December 31, 20122014
Compared to the Year Ended December 31, 20112013
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 46.0p43.0p and €0.90€0.85 respectively in 2012,2014, compared to 32.4p48.8p and €0.59€0.91 in 2011.2013. The increase reflectsreductions reflect the improved trading performance, disposals and other non operating items and the exceptional prior yearimpact of deferred tax credit.credits in 2013 on both companies.
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 byavailable to 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 declaredpaid in the year, in amounts per ordinary share, comprise: a 20112013 final dividend of 15.9p17.95p and 20122014 interim dividend of 6.0p7.00p giving a total of 21.9p (2011: 20.65p)24.95p (2013: 23.65p) for Reed Elsevier PLC; and a 20112013 final dividend of €0.326€0.374 and 20122014 interim dividend of €0.130€0.151 giving a total of €0.456 (2011: €0.413)€0.525 (2013: €0.469) for Reed Elsevier NV.
The Board of Reed Elsevier PLC has proposed a 20122014 final dividend of 17.0p, up 7%of19.0p, up6%, giving a total dividend of 23.0pof26.0p in respect of the financial year, up 7%up6% on 2011.2013. The BoardsBoard of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 20122014 final dividend of €0.337, up 3%€0.438, up16%, which results in a total dividend of €0.467€0.589 in respect of the financial year, up 7%up16% on 2011.2013. 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 23,288,6162014, 35,251,501 Reed Elsevier PLC ordinary shares and 12,660,29620,403,351 Reed Elsevier NV shares were repurchased. A further 757,781 Reed Elsevier PLC shares and 1,989,279 Reed Elsevier NV shares were purchased by the Employee Benefit Trust. Reed Elsevier NV also repurchased 107,901 Reed Elsevier NV R shares (equivalent to 1,079,010 ordinary shares) from a subsidiary of Reed Elsevier PLC. During December 2014, 65,000,000 Reed Elsevier PLC shares for consideration of £250 million. Theseand 40,000,000 Reed Elsevier NV shares are held in treasury. Ontreasury were cancelled. As at December 28, 201231, 2014, shares in issue for Reed Elsevier PLC and Reed Elsevier NV announced an irrevocable, non discretionary programmerespectively, net of shares held in treasury, amounted to repurchase1,127,666,342 and 690,905,759 (including R share equivalents). A further ordinary shares up to the value of £100 million which was completed by February 27, 2013. On February 28, 2013,4,815,950 Reed Elsevier PLC shares and 2,787,800 Reed Elsevier NV announced their intention to repurchase further ordinary shares up to the value of £300 millionhave been repurchased in aggregate over the remainder of 2013.January and February 2015.
Results of Operations for the Year Ended December 31, 20112013
Compared to the Year Ended December 31, 20102012
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 32.4p48.8p and €0.59€0.91 respectively in 2011,2013, compared to 27.3p44.8p and €0.51€0.87 in 2010.2012. The increase reflects the improved trading performance no exceptional restructuring costs and lower net interest expense.deferred tax credits.
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 byavailable to 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 declaredpaid in the year, in amounts per ordinary share, comprise: a 20102012 final dividend of 15.0p17.0p and 20112013 interim dividend of 5.65p6.65p giving a total of 20.65p (2010: 20.4p)23.65p (2012: 21.9p) for Reed Elsevier PLC; and a 20102012 final dividend of €0.303€0.337 and 20112013 interim dividend of €0.110€0.132 giving a total of €0.413 (2010: €0.402)€0.469 (2012: €0.456) for Reed Elsevier NV.
The Board of Reed Elsevier PLC has proposed a 20112013 final dividend of 15.90p,17.95p, up 6%, giving a total dividend of 21.55p24.60p in respect of the financial year, up 6%7% on 2010.2012. The BoardsBoard of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 20112013 final dividend of €0.326,€0.374, up 8%11%, which results in a total dividend of €0.436€0.506 in respect of the financial year, up 6%8% on 2010.2012. 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.
NoDuring 2013, 41,961,920 Reed Elsevier PLC ordinary shares and 24,282,106 Reed Elsevier NV ordinary shares were repurchased in the year by eitherfor consideration of £600 million. Reed Elsevier PLC orNV also repurchased 94,053 Reed Elsevier NV.NV R shares (equivalent to 940,530 ordinary shares) from a subsidiary of Reed Elsevier PLC. These shares are held in treasury.
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’sour 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”the Group”; and “Item 5: Operating and Financial Review and Prospects — Operating Results — Reed Elsevier;The Group; Liquidity and Capital Resources — Reed Elsevier;The Group; Operating Results — Reed Elsevier PLC and Reed Elsevier NV”.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The directorsDirectors of each of Reed Elsevier PLC, Reed Elsevier NV Reed Elsevierand RELX Group plc and Elsevier Reed Finance BVas at February 27, 201325, 2015 were:
Name (Age) | Reed Elsevier PLC | Reed Elsevier NV |
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Erik | Executive Director | Executive Director and Chief Executive Officer | ||||||
Anthony | Non-Executive Chairman | |||||||
Wolfhart Hauser (65) | Non-Executive Director(4) | Non-Executive Director(4) | Non-Executive Director(2) | |||||
Adrian Hennah (57) | Non-Executive Director(1)(4) | Non-Executive Director(1)(4) | Non-Executive Director(1) | |||||
Lisa Hook (56) | Non-Executive Director(3)(4)(5) | Non-Executive Director(3)(4) | Non-Executive Director(2) | |||||
Marike van Lier Lels (55) | — | Non-Executive Director(4) | — | |||||
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(1) | Member of the Audit Committees of the Boards of Reed Elsevier PLC, Reed Elsevier NV and |
(2) | Member of the Remuneration Committee of the Board of |
(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 |
Mark ArmourDuncan Palmer stepped down as Chief Financial Officer in November 2012 and retired from the Reed ElsevierGroup’s Boards in December 2012.September 2014.
A person described as a non-executive directorNon-Executive Director of Reed Elsevier PLC, or Reed Elsevier Group plc or a member of the Supervisory Board of Reed Elsevier NV or RELX Group plc is a directorDirector not employed by such company in an executive capacity.
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 Elsevierthe Group as Chief Executive Officer of Elsevier in 2004. Non-Executive Director of Smith & Nephew plc. Prior to joining Reed Elsevierthe Group was a partner at General Atlantic Partners. Before that was President and Chief Operating Officer of Random House Inc and, before its merger with Random House, President and Chief Executive Officer of Bantam Doubleday Dell, North America. Began his career as a consultant with McKinsey. Served as a non-executive directorNon-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 Nominations and Corporate Governance Committees. Chairman of: Court of the Bank of England, Preqin Holding Limited and Norwich Research Partners LLP. Previously was Chairman of Whitbread plc, and of Preqin Holding Limited. Was chairman of Bunzl plc and of Mölnlycke Health Care Limited and served as chief executiveChief Executive of Bunzl plc, chief executiveChief Executive of Tootal Group plc and a directorDirector of The Boston Consulting Group Inc.Group. Formerly non-executive directorNon-Executive Director of Geest plc;plc, Marks and Spencer plc;plc, National Westminster Bank plc;plc, Powergen plc; andplc, SVG Capital plc.plc and Norfolk and Norwich University Hospitals Trust. 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.
Wolfhart Hauser (German) Non-Executive Director since 2013. Chairman of the Remuneration Committee. Chief Executive Officer of Intertek Group plc and a Non-Executive Director of Associated British Foods plc. Was Chairman of Dragenopharm GmbH & Co AG from 2002 to 2006. Prior to that he was Chief Executive Officer of TÜV Suddeutschland AG between 1998 and 2002 and Chief Executive Officer of TÜV Product Services GmbH for 10 years. Served as a Non-Executive Director of Logica Plc and Intertek Group plc before his current position at the company.
Adrian Hennah (British) Non-executive directorNon-Executive Director since 2011. He is chief financial officerChief Financial Officer of Reckitt Benckiser Group plc having been chief financial officerand Non-Executive Director of Indivior PLC. Was Chief Financial Officer of Smith & Nephew plc from 2006 to 2012. Before that was chief financial officerChief Financial Officer of Invensys plc andhaving previously held various senior finance and management positions within GlaxoSmithKline for 18 years.
Lisa Hook (American) Non-executive directorNon-Executive Director since 2006. Senior Independent Director. President and chief executive officerChief Executive Officer of Neustar, Inc. A directorInc and a Director of The Ocean Foundation.Vantiv, Inc and Island Press serves on the US President’s National Security Telecommunications Advisory Committee (NSTAC) and as a member of the Advisory Board of the Peggy Guggenheim Collection. Was presidentPresident and chief executive officerChief Executive Officer at Sun Rocket Inc. Before that was presidentPresident of AOL Broadband, Premium and Developer Services. Prior to joining AOL, was a founding partner at Brera Capital Partners LLC. Previously was chief operating officerChief Operating Officer of Time Warner Telecommunications. HasTelecommunications and has served as senior advisor to the Federal Communications Commission Chairman and a senior counsel to Viacom Cable.
Gerben de Jong (Dutch) member Formerly a Director of the Management Board of Elsevier Reed Finance BV since 2007. Previously held senior finance positions in Royal Philips Electronics NV Group.Covad Communications, Inc and The Ocean Foundation.
Marike van Lier Lels (Dutch) Appointed JanuaryNon-Executive Director of Reed Elsevier NV since 2010. Member of the supervisory boardsSupervisory Boards of KPNTKH Group NV, USG PeopleEneco Holding NV and TKH Group NV.Royal Imtech NV, and a member of the executive committee of Aegon Association. A member of various Dutch governmental advisory boards. MemberPreviously was a member of the Supervisory Board of Maersk BV, until March 2012. Was executive vice presidentKPN NV, USG People NV and chief operating officerExecutive Vice President and Chief Operating Officer of the Schiphol Group. Prior to joining Schiphol Group, was a member of the executive boardExecutive Board of Deutsche Post Euro Express and held various senior positions with Nedlloyd.
Duncan Palmer (British and American)Nick Luff (British) Chief Financial Officer since November 2012. Joined Reed Elsevier asSeptember 2014. Non-Executive Director of Lloyds Banking Group plc. Prior to joining the Group was Group Finance Director of Centrica plc from 2007. Before that he was Chief Financial Officer Designate in August 2012. Non-executive director of Oshkosh Corporation since 2011. Prior to joining Reed Elsevier was chief financial officerat The Peninsular & Oriental Steam Navigation Company (P&O) and senior vice president of Owens Corning Inc. from 2007,its affiliated companies, having previously held variousa number of senior finance positions within Royal Dutch Shell for 20 yearsroles at P&O. Began his career as an accountant with KPMG. Formerly a Non-Executive Director of QinetiQ Group plc. He has a degree in the UK, the Netherlands and the US. He holds an MA in mathematicsMathematics from CambridgeOxford University and an MBA from Stanford University. He is a UK-qualifiedqualified UK Chartered Management Accountant.
Robert Polet (Dutch) Non-executive directorNon-Executive Director since 2007. Chairman of Safilo Group S.p.A., Chairman of the Supervisory Board of Rituals Cosmetics BV and a non-executive directorNon-Executive Director of Philip Morris International Inc, William Grant & Sons Limited, Scotch and Soda NV and Crown Topco Limited, parent company of Vertu. Member of the supervisory board of Nyenrode Foundation. Was President and chief executive officerChief Executive Officer of Gucci Group from 2004 to 2011, having previously spent 26 years at Unilever working in a variety of marketing and senior executive positions throughout the world, including presidentPresident of Unilever’s Worldwide Ice Cream and Frozen Foods division. Formerly a non-executive directormember of the Supervisory Board of Nyenrode Foundation and 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 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 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.Limited.
Linda Sanford (American) Non-executive directorNon-Executive Director since 2012. Senior Vice President, Enterprise Transformation, IBM Corporation and non-executive directorAn independent Director of ITT Corporation until May 2013.Consolidated Edison, Inc. Serves on the boardboards of directors of The Business Council of New York State and the Partnership for New York City. Also serves on the boardboards of trustees of the State University of New York, St. John’s University, and Rensselaer Polytechnic Institute.Institute and the New York Hall of Science. Was Senior Vice President, Enterprise Transformation, IBM Corporation until December 2014, having joined the company in 1975. Formerly a Non-Executive Director of ITT Corporation.
Ben van der Veer (Dutch) Non-executive directorNon-Executive Director since 2009. Chairman of the Audit Committees. Member of the supervisory boardsSupervisory Boards of AEGONAegon NV, TomTom NV, Siemens NederlandKoninklijke FrieslandCampina NV and Koninklijke FrieslandCampinaRoyal Imtech NV. Was chairmanChairman of the executive boardExecutive 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. Formerly a member of the Supervisory Board of Siemens Nederland NV.
Jans van der Woude (Dutch) Member 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 ElsevierRELX Group plc, other than directors,Directors, at February 27, 201325, 2015 were:
Henry Udow: Chief Legal Officer and Company Secretary of Reed Elsevier PLC and Reed ElsevierRELX Group plc. A US and British citizen who is admitted to the Bar of New York State. Joined Reed Elsevierthe Group in MarchApril 2011. Prior to joining Reed Elsevierthe Group he was Chief Legal Officer and Company Secretary of Cadbury plc.
Ian Fraser:Global Human Resources Director of Reed ElsevierRELX Group plc. Joined Reed Elsevierthe Group in 2005. Prior to joining Reed Elsevier,the Group, 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 ElsevierPrior to joining the Group in January 2009.2009 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 remuneration policy as approved by Reed Elsevier PLC shareholders at the 2014 Annual General Meeting continues to apply unchanged. A copy is available on the Group website under http://www.relxgroup.com/go/remunerationpolicy or on pages 47 to 56 of the 2013 Annual Report on Form 20-F.
REMUNERATION COMMITTEEAnnual Remuneration Report
Single Total Figure of Remuneration Committee Terms of Reference and Constitution– Executive Directors
The Remuneration Committee’s (the Committee) remit and its duties are in relation to:
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||||||||||||||||||||||||||||||
Short-term employee benefits | Share-based awards | Pension | Total | |||||||||||||||||||||||||||||||||||||||||||
£‘000 | Salary | Benefits5 | Annual Incentive | UK statutory basis1,2,4,7 | Dutch Civil Code basis3 | UK statutory basis2 | Dutch Civil Code basis3 | UK statutory basis1,2 | Dutch Civil Code basis3 | |||||||||||||||||||||||||||||||||||||
Erik Engstrom | 2014 | 1,104 | 29 | 1,170 | 13,181 | 3,943 | 692 | 562 | 16,176 | 6,808 | ||||||||||||||||||||||||||||||||||||
2013 | 1,077 | 28 | 1,134 | 2,472 | 3,300 | 719 | 528 | 5,430 | 6,067 | |||||||||||||||||||||||||||||||||||||
Nick Luff6 | 2014 | 217 | 5 | 685 | 1,371 | 1,341 | 65 | 65 | 2,343 | 2,313 | ||||||||||||||||||||||||||||||||||||
Duncan Palmer | 2014 | 442 | 202 | 0 | 0 | 0 | 84 | 84 | 728 | 728 | ||||||||||||||||||||||||||||||||||||
2013 | 600 | 230 | 609 | 0 | 598 | 114 | 114 | 1,553 | 2,151 |
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2. | UK statutory basis (columns (d), (f) and (h)):These figures are calculated in accordance with the methodology set out in the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the UK Regulations). They include, for performance related share-based awards, the value attributable to share price appreciation since the date the award was granted. In the case of |
3. | Dutch Civil Code basis (columns (e), (g) and (i)): These figures comply with the requirements of the Dutch Civil Code. The figures for share-based awards comprise the multi-year incentive charges in accordance with IFRS2 – Share-Based Payment. These IFRS2 charges do not reflect the actual value received on vesting. The figures for pensions reflect the cost of pension provision which comprises (i) for defined benefit schemes, the transfer value of the increase in accrued pension during the year (net of inflation, Directors’ contributions and participation fee) based on the |
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4. | Share-based awards for Erik Engstrom (columns (d) and |
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(e)): The figure for 2013 in column (d) was based on an estimate and has been restated in this Annual Report on Form 20-F to reflect the amount vested and the share prices and foreign exchange rates on the |
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5. | Benefits:Each Executive Director receives a car allowance, private medical/dental insurance and the Group meets the cost of tax return preparation. In respect of Duncan Palmer, the figure also includes a cash adjustment payment of £162,906 that was contractually due to |
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 2012, the Committee consisted of independent non-executive 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 2012 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:
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Our remuneration policy
In line with this guiding philosophy our remuneration policy is described below.
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How the performance measures in the incentives link to our business strategy
Reed 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-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. For the CEO, the annual incentive represents around 20% and the multi-year incentives 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
When reviewing executive director and senior executive remuneration, one factor which the Committee takes into account is market competitiveness. This is done by assessing total remuneration (i.e. salary, annual and multi-year incentives and benefits) against a range of relevant comparator groups as follows:
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Referring to companies listed in these three different locations2014 Annual Incentive
Set out below 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.
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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-term performance. Reward for the delivery of business results is connected with reward for value flowing to shareholders. Through the use of a rangesummary 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 returnagainst each financial measure and the assessment of performance over multiple time-horizons, theresulting annual incentive arrangements are structuredpayments for 2014 (payable in such a way that reward cannot be maximised through inappropriate short-term risk-taking.
The table below summarises the component parts of the remuneration package provided in 2012 to executive directors who served in 2012.March 2015):
| Relative weighting | Achievement versus target | Payout as % Erik Engstrom |
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| 30% | Underlying revenue growth of 3% was at target, reflecting good growth in electronic and face to face revenues in a mixed macroeconomic environment. | Close to 30% | Close to 30% | |||||||
Adjusted profit after tax | 30% | Total adjusted profit after tax grew by 7% in constant currency, just above target, reflecting a combination of underlying revenue growth and continued process innovation. | Just above 30% | Just above 30% | |||||||
Cash flow conversion rate | 10% | Cash flow conversion of 96% was just above target, reflecting strong profits and the cash flow impact from continued capital expenditure to enable continued investment in technology and new products and services. | Just above 10% | Just above 10% | |||||||
Key Performance Objectives (KPOs) | 30% | ||||||||||
Erik Engstrom (six KPOs) | The first and second KPOs, related to business profile evolution through organic development and selective acquisitions and disposals, were achieved. The third KPO, related to the development of the corporate structure and the global functions, was achieved. The fourth and fifth KPOs, related to specific strategic initiatives across business areas and select priorities within each business, including technology and product development milestones, were achieved. The sixth KPO was to complete the actions listed in the 2013 corporate responsibility report and meet the quantified targets in the report. This KPO was almost fully met as set out on pages 40 to 47 of the corporate responsibility report in the RELX Group Annual Reports and Financial Statements 2014. | ||||||||||
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| The first KPO related to 2014 final results and reporting. It was achieved. The second KPO related to achieving specific operating plan and financial milestones for the Group. It was achieved. The third and fourth KPOs related to specific deliverables for the finance function. They were essentially fully achieved. The fifth KPO related to the development of the corporate structure. It was achieved. The sixth KPO was to complete the actions listed in the 2013 corporate responsibility report and meet the quantified targets in the report. This KPO was almost fully met as set out on pages 40 to 47 of the corporate responsibility report in the RELX Group Annual Reports and Financial Statements 2014. | ||||||||||
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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):
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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:
106.0%* | 105.4%* | |||||||
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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:
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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:
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* | The maximum annual incentive opportunity is 150% of base salary. |
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The Board believes that disclosing details beyond what is disclosed above would be commercially sensitive and would give competitors an unfair insight into our strategic direction and annual execution plans.
Multi-Year IncentivesMulti-year incentives
It is intended to continue to provide executive directorsMulti-year incentives 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 andperformance period ended December 31, 2014 were for Erik Engstrom BIP 2012, 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 discipline2012 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 thirdfinal tranche of the REGP and for Nick Luff a performance share award is subject to Reed Elsevier’s TSR performance compared against three comparator groups (the TSR tranche).granted as part compensation for forfeited entitlements from previous employment.
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 ofCommittee assessed 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:
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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:
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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:
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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 metmeasures for these share awards which includesand made an overall assessment of underlying business performance and other relevant factors. BasedThe vesting outcome resulting from this review is summarised below.
Discontinued REGP: Final tranche performance outcome
Performance measure | Weighting | Performance range and vesting levels set at grant1 | Achievement against the | Resulting vesting percentage | ||||||
TSR measured over five years 2010-2014 | 1/3rd | below median median upper quartile | 0% 30% 100% | In upper quartile of FTSE and European comparator groups; close to upper quartile in US comparator group | 99.7% | |||||
Average growth in adjusted EPS in 2013 and 20142 | 1/3rd | below 7% p.a. 7% p.a. 13% p.a. or above | 0% 60% 100% | 8.5% p.a. | 70.0% | |||||
ROIC in 20142 | 1/3rd | below 10.7% | 0% | |||||||
10.7% | 60% | 12.1% | 88.2% | |||||||
12.7% or above | 100% | |||||||||
Total vesting percentage: | 86.0% |
1. | Calculated on a straight-line basis for performance between the minimum and maximum levels. |
2. | The calculation methodology for EPS and ROIC is set out in the 2010 Notices of Annual General Meetings, which can be found on our website. |
BIP: 2012-14 cycle performance outcome
Performance measure | Weighting | Performance range and vesting levels set at grant1 | Achievement against the performance range | Resulting vesting percentage | ||||||||
Average growth in adjusted EPS over the three-year performance period2 | 50% | below 4% p.a. 4% p.a. | 0% 50% | |||||||||
6.5% p.a. | 75% | 8.4% p.a. | 93.7% | |||||||||
9% p.a. or above | 100% | |||||||||||
ROIC in the third year of the performance period2 | 50% | below 11% 11% | 0% 50% | |||||||||
11.5% | 75% | |||||||||||
12% or above | 100% | 13.0% | 100% | |||||||||
Total vesting percentage: | 96.8% |
1. | Calculated on a straight-line basis for performance between the minimum and maximum levels. |
2. | The calculation methodology for EPS and ROIC is set out in the 2010 Notices of Annual General Meetings, which can be found on our website. |
ESOS: 2012-14 cycle performance outcome
Performance measure | Weighting | Performance range and vesting levels set at grant | Achievement against the performance range | Resulting vesting percentage | ||||||
Average growth in adjusted EPS over the three-year performance period | 100% | below 6% p.a. 6% p.a. or above | 0% 100% | 8.4% p.a. | 100% |
Nick Luff: PSP award to compensate for forfeited entitlements from previous employment with performance period ended December 31, 2014
Performance measure | Weighting | Performance range and vesting levels set at grant | Achievement against the performance range | Resulting vesting percentage | ||||||
Average growth in adjusted EPS in 2013 and 2014 | 2/3rds | below 7% p.a. | 0% | 8.5% p.a. | 100% | |||||
7% p.a. or above | 100% | |||||||||
ROIC in 2014 | 1/3rd | below 10.7% | 0% | 12.1% | 100% | |||||
10.7% or above | 100% | |||||||||
Total vesting percentage: | 100% |
Single Total Figure of Remuneration – Non-Executive Directors
Total fee | Benefits1 | Total | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Anthony Habgood | £ | 550,000 | £ | 550,000 | £ | 2,150 | £ | 1,900 | £ | 552,150 | £ | 551,900 | ||||||||||||
Wolfhart Hauser (from April 25, 2013) | £ | 90,000 | £ | 65,058 | £ | 720 | £ | 90,720 | £ | 65,058 | ||||||||||||||
Adrian Hennah | £ | 77,500 | £ | 65,000 | £ | 720 | £ | 500 | £ | 78,220 | £ | 65,500 | ||||||||||||
Lisa Hook | £ | 110,000 | £ | 80,462 | £ | 1,230 | £ | 1,000 | £ | 111,230 | £ | 81,462 | ||||||||||||
Marike van Lier Lels2 | £ | 56,671 | £ | 55,085 | £ | 56,671 | £ | 55,085 | ||||||||||||||||
Robert Polet | £ | 77,500 | £ | 65,000 | £ | 1,230 | £ | 500 | £ | 78,730 | £ | 65,500 | ||||||||||||
Linda Sanford | £ | 77,500 | £ | 65,000 | £ | 1,230 | £ | 1,000 | £ | 78,730 | £ | 66,000 | ||||||||||||
Ben van der Veer2 | £ | 95,968 | £ | 93,220 | £ | 510 | £ | 500 | £ | 96,478 | £ | 93,720 |
1. | Benefits comprise the notional benefit of tax filing support provided to Non-Executive Directors for filings outside their home country resulting from their directorships with the Group. The incremental assessable benefit charge per tax return has been agreed for 2014 to amount to £510 for a UK tax return and £720 for a Netherlands tax return. Anthony Habgood’s benefits also include £1,430 (£1,400 in 2013) in respect of private medical insurance. |
2. | The fees for Marike van Lier Lels and Ben van der Veer were paid in euros and were €70,272 and €119,000 respectively for 2014. For reporting purposes these were converted into pounds sterling at the average exchange rate for 2014. The 2013 figures were converted into pounds sterling at the average exchange rate for 2013. |
3. | The total remuneration for Directors is set out in note 29 to the combined financial statements on page F-51. |
2014 Non-Executive Directors’ fees
The fees in the Single Total Figure table for Non-Executive Directors reflect the following fees in 2014:
Annual fee 2014 | Annual fee 2013 | |||||||
Chairman | £ | 550,000 | £ | 550,000 | ||||
Non-Executive Directors* | £ | 65,000/€80,000 | £ | 65,000/€80,000 | ||||
Senior Independent Director | £ | 25,000 | £ | 20,000 | ||||
Chairman of: | ||||||||
– Audit Committee | £ | 25,000/€30,000 | £ | 25,000/€30,000 | ||||
– Remuneration Committee | £ | 25,000 | £ | 20,000 | ||||
Committee membership fee: | ||||||||
– Audit Committee | £ | 12,500 | ||||||
– Remuneration Committee | £ | 12,500 | ||||||
– Nominations Committee | £ | 7,500/€9,000 |
* | An annual fee of €65,000 is paid to Marike van Lier Lels in respect of her membership of the Reed Elsevier NV Board and reflects her time commitment to that company. Since July 22, 2014, she chaired the board of Elsevier Reed Finance BV for which an annual fee of €10,000 is payable. |
Total pension entitlements
Erik Engstrom is a reviewmember of the three performance measures used in the plan, preliminary calculations indicate that 66.8% of the awardsUK Group’s defined benefit pension arrangements. Further details 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 middlePolicy Report on page 48 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 fromReport on Form 20-F and below.
Pension – Standard information
Age at December 2014 | Normal retirement age | Director’s contributions | Participation fee | |||
51 | 60 | £11,216 | £23,962 |
Since October 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 bypays a participation fee on the need to replaceamount of his base salary which exceeds the one-off REGP incentive plan for directorsUK earnings cap. Starting with a more regular long-term.
Detailsan initial rate 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, expires1%, on April 8, 2013. A replacement ESOS, for which we are seeking shareholder approval at1, 2014 the Annual General Meetings infee increased to 3%, and each April 2013, is described in the notices of Annual General Meetings and it is intended to make grants under1, thereafter this plan to the executive directors in 2013. It is not intended to make anyfee will increase by a 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%2% of base salary of market value options (two-thirds ofwhich exceeds 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 adjustedUK 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.cap.
Bonus Investment Plan (BIP)Pension – UK statutory basis
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.
| Accrued annual pension at |
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£227,360 | £263,704 | £691,7021 |
Pension – Dutch Civil Code basis (consistent with prior disclosure)
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during the year (net of | ||||
participation fee) | ||||
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1. | Net of Directors’ contribution and participation fee. |
2. | The transfer value represents a liability in respect of Directors’ pension entitlements, and is not an amount paid or payable to the Director calculated using the factors and basis applicable prior to the introduction of the UK statutory basis in 2013. |
Scheme interests awarded during the financial year
CURRENT MULTI-YEAR INCENTIVE PLANS
Basis on which award | Face value of award at grant1 | Value of awards if vest in line with expectations2 | Percentage of maximum that would | End of performance period | ||||||||||||
BIP – matching share awards | ||||||||||||||||
Erik Engstrom | Opportunity to invest cash and/or shares up to value of target bonus opportunity and receive 1 for 1 matching award | £ | 1,076,856 | £ | 721,493 | If one measure pays out at threshold, the overall payout is 25%. If both measures pay out at threshold, the overall payout is 50%. |
| December 31, 2016 |
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Nick Luff | £ | 649,992 | £ | 435,495 | ||||||||||||
LTIP – performance share awards | ||||||||||||||||
Erik Engstrom | 250% of salary | £ | 2,692,223 | £ | 1,346,111 | If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 3%. If each measure pays out at threshold, the overall payout is 32%. |
| December 31, 2016 |
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Nick Luff | 200% of salary | £ | 1,299,988 | £ | 649,994 | |||||||||||
ESOS – market value options | ||||||||||||||||
Erik Engstrom | 250% of salary | £ | 2,692,223 | £ | 430,756 | 33% | December 31, | |||||||||
Nick Luff | 200% of salary | £ | 1,299,988 | £ | 207,998 | 2016 |
ONE-OFF MULTI-YEAR INCENTIVE PLAN AWARDS TO COMPENSATE FOR FORFEITED ENTITLEMENTS FROM PREVIOUS EMPLOYMENT
Basis on which award | Face value of award at grant1 | Value of awards if vest in line with expectations2 | Percentage of maximum that would | End of performance period | ||||||||||||
Performance share awards4 |
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Nick Luff | 200% of salary | £ | 1,299,988 | £ | 1,299,988 | If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 33%. If each measure pays out at threshold, the overall payout is 100%. | | December 31, 2014 | | |||||||
200% of salary | £ | 1,299,988 | £ | 649,994 | If the measure with the lowest payout at threshold pays out at threshold, the overall payout is 3%. If each measure pays out at threshold, the overall payout is 32%. | | December 31, 2015 | |
1. | The face value of the LTIP and ESOS awards is calculated using (1) the middle market quotation of PLC ordinary shares; (2) the closing price of NV ordinary shares; and (3) the exchange rate on the day before grant. In respect of grants made to Erik Engstrom on April 7, 2014, (1) was £9.245 and (2) was €15.82. In respect of Nick Luff, who joined the Group on September 1, 2014, and whose grants were made on September 2, 2014, (1) was £9.90 and (2) was €17.50. These share prices are used to determine the number of awards granted, as well as to set option exercise prices. The face value of the ESOS options shown in this column has not been reduced to reflect the fact that the aggregate option price is payable on exercise. The face value of the BIP awards is calculated using the average price of participants’ investment shares purchased by the trustee. In respect of the matching award to Erik Engstrom on April 7, 2014, who |
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3. | Threshold payout levels for each measure have been included. Where there are multiple measures, it is possible to achieve threshold, and hence payout, in respect of just one of the measures (or, for TSR, in respect of one of the three TSR comparator groups). The performance measures and targets for awards granted in 2014 under each of the plans and for the performance share awards granted to Nick Luff are set out on pages 54 and 55. |
4. | ||||
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The following targets and vesting scalescales 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.2014:
Shareholding requirementBIP: 2014-16 cycle
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% |
Match earned on personal investment | Average growth in adjusted EPS | ROIC in the third year of the | ||
0% | below 4% p.a. | below 11.6% | ||
50% | 4% p.a. | 11.6% | ||
75% | 6.5% p.a. | 12.1% | ||
100% | 9% p.a. or above | 12.6% or above |
* |
Retirement benefitsLTIP: 2014-16 cycle
Retirement benefit provisions areVesting is dependent on three separate performance measures of equal weighting: a TSR measure comprising three comparator groups, an EPS measure and a ROIC measure.1
Vesting percentage of each third of | TSR ranking within the relevant TSR comparator group | |
0% | Below median | |
30% | Median | |
100% | Upper quartile |
1. | The calculation methodology for TSR, EPS and ROIC is set out in the 2013 Notices of Annual General Meetings, which can be found on our website. |
2. | Vesting is on a straight-line basis for performance between the minimum and maximum levels. |
The three TSR comparator groups (Sterling, Euro and US Dollar) reflect the fact that we access equity capital markets through three exchanges – London, Amsterdam and New York – in the contextthree currency zones. The Group’s TSR performance is measured separately against each comparator group and each ranking achieved will produce a payout, if any, in respect of one-third of the total remunerationTSR measure. The proportion of the TSR measure that vests will be the sum of the three payouts.
Each comparator group comprises approximately 40 companies. The companies 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 is2014-16 LTIP cycle were selected on 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:following basis (unchanged from 2013-15):
(a) | they were in a relevant market index or are the largest listed companies on the relevant exchanges at the end of the year before the start of the performance period: the FTSE 100 for the Sterling group; AEX, Euronext and the Frankfurt Stock Exchange for the Euro group; and the S&P 500 for the US Dollar group; |
(b) | certain companies were then excluded: |
— | those with mainly domestic revenues (as they do not reflect the |
— |
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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 |
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:
— |
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(d) | relevant listed global peers operating in businesses similar to ours but not otherwise included were added. |
Vesting percentage of EPS and ROIC tranches* | Average growth in adjusted EPS over the three-year performance period | ROIC in the third | ||||
0% | below 5% p.a. | below 11.6% | ||||
33% | 5% p.a. | 11.6% | ||||
52.5% | 6% p.a. | 11.85% | ||||
65% | 7% p.a. | 12.1% | ||||
75% | 8% p.a. | 12.35% | ||||
85% | 9% p.a. | 12.6% | ||||
92.5% | 10% p.a. | 12.85% | ||||
100% | 11% p.a. or above | 13.1% or above |
* | Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth/ROIC percentages. |
ESOS: 2014-2016 cycle
| Average growth in adjusted EPS over the period* | |||
0% | below 4% p.a. | |||
33% | 4% p.a. | |||
80% | 6% p.a. | |||
100% | 8% p.a. or |
Each executive director has a service contract with Reed Elsevier Group plc,
* | Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth percentages. |
PSP awards granted to Nick Luff as summarised in the table below:compensation for forfeited entitlements from previous employment
PSP: Performance period ended December 31, 2014
Vesting percentage | Average growth in adjusted EPS | ROIC in 2014* | ||||
0% | below 7% p.a. | below 10.7% | ||||
100% | 7% p.a. or above | 10.7% or above |
* | 2/3rds of the award is subject to EPS and 1/3rd subject to ROIC performance. |
PSP: Performance period ending December 31, 2015
Vesting is dependent on three separate performance measures of equal weighting: a TSR measure (comprising three comparator groups as set out in the 2013 Notices of Annual General Meetings), an EPS measure and a ROIC measure.1
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| TSR ranking within the relevant TSR comparator group | |||||||||||||||
| Below median | |||||||||||||||
| Median | |||||||||||||||
100% |
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:
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2. |
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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.
Vesting percentage of EPS and ROIC tranches* | Average growth in adjusted | ROIC in the third | ||||
0% | below 5% p.a. | below 11.2% | ||||
33% | 5% p.a. | 11.2% | ||||
52.5% | 6% p.a. | 11.45% | ||||
65% | 7% p.a. | 11.7% | ||||
75% | 8% p.a. | 11.95% | ||||
85% | 9% p.a. | 12.2% | ||||
92.5% | 10% p.a. | 12.45% | ||||
100% | 11% p.a. or above | 12.7% or above |
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.
* | Vesting is on a straight-line basis for performance between the stated average adjusted EPS growth/ROIC percentages. |
Mark Armour’s retirement terms
Mark Armour’s retirement terms were disclosed in last year’s Report (page 55).
Policy on externalExternal appointments
The Committee believes that the experience gained by allowing executive directorsExecutive Directors to serve as non-executive directorsNon-Executive Directors on the boards of other organisations is of benefit to Reed Elsevier.the Group. Accordingly, executive directorsExecutive Directors may, subject to the approval of the Chairman and the Chief Executive Officer,CEO (or the Chairman only in the case of the CEO), 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 ArmourNick Luff is a non-executive directorNon-Executive Director of SABMillerLloyds Banking Group plc and received remunerationfees of £106,250 during 2012 (£100,694 during 2011). He is also£45,000 since his appointment as a non-executive director of the Financial Reporting Council (FRC) and received remunerationGroup up to the end of £12,500 since commencing his appointment on July 2, 2012.
2014. Duncan Palmer is a non-executive directorNon-Executive Director of Oshkosh Corporation and received fees of £15,487 since£44,773 and 2,500 shares of Oshkosh common stock during the year up to the date of termination of his appointment asemployment with the Group (£63,141 in 2013).
Payments to past Directors and payments for loss of office
There have been no payments to past Directors or payments for loss of office in 2014 other than those included in the Single Total Figure table and the notes thereto.
Statement of Directors’ shareholdings and other share interests
Shareholding requirement
The Committee believes that a directorcloser alignment of interests can be created between senior management and shareholders if executives build and maintain a significant personal stake in the company. The shareholding requirements applicable to the Executive Directors are set out in the table below. Shares that count for this purpose are any type of Reed Elsevier PLC upor Reed Elsevier NV security owned outright by the individual and their spouse, civil partner or dependent child.
Meeting the shareholding requirement is both a vesting condition for awards granted and a requirement to maintain eligibility for future awards. Shareholding requirements fall away on leaving the endGroup.
On December 31, 2014, the Executive Directors’ shareholdings were as follows (valued using the middle market closing prices of 2012.the relevant securities):
Shareholding requirement (% of 31 December 2014 annual base salary) | Actual shareholding as at 31 December 2014 (% of 31 December 2014 annual base salary) | |||
Erik Engstrom | 300% | 830% | ||
Nick Luff | 200%* | 59% |
* | Nick Luff has until December 31, 2016 to build up to his required level of shareholding and is required to retain all net shares earned from incentive plans until he reaches this level. |
NON-EXECUTIVE DIRECTORSShare interests
See page 65.
Policy on non-executive directors’ feesPerformance graphs
The policy on non-executive directors’ fees is a mattergraphs below show total shareholder returns 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 Reed Elsevier NV, calculated on the Supervisory Boardbasis of the average share price in the 30 trading days before the respective year end and assuming dividends were reinvested. Reed Elsevier PLC’s performance is compared with the FTSE 100 and Reed Elsevier NV with the AEX Index (to reflect their respective memberships of those indices), over the five years from December 31, 2009 to December 31, 2014. This period also reflects the tenure of the CEO and the TSR performance period for the final tranche of the REGP. The three-year charts cover the performance period of the 2012-14 cycles of BIP and ESOS.
3 years
5 years
10 years
UK regulations require disclosure of the relative share performance for the six-year period, 2009-2014, of Reed Elsevier NV. Non-executive directors’ fees reflectPLC. During that period the directors’ membership oftotal return for the three Boards.
The primary sourceFTSE 100 was +94% while TSR 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 NVwas +170%, an outperformance of 76 percentage points.
CEO historical pay table
The table below shows the historical CEO pay over a seven-year period. 2008 has been included to show the pre-2009 position, as 2009 was a transition year with three CEO incumbents.
£‘000 | 2008 | 20093 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||
CEO | Sir Crispin Davis | Sir Crispin Davis | Ian Smith | Erik Engstrom | Erik Engstrom | Erik Engstrom | Erik Engstrom | Erik Engstrom | Erik Engstrom | |||||||||||||||||||||||||||
Annualised base salary | 1,181 | 1,181 | 900 | 1,000 | 1,000 | 1,025 | 1,051 | 1,077 | 1,104 | |||||||||||||||||||||||||||
Annual incentive payout as a % of maximum | 61% | 30% | 37% | 71% | 67% | 66% | 73% | 70% | 71% | |||||||||||||||||||||||||||
Multi-year incentive vesting as a % of maximum | 100% | 0% | 0% | 0% | 0% | 0% | 70% | 4 | 96% | 4 | 90% | 4 | ||||||||||||||||||||||||
CEO total (UK statutory basis)1 | 7,193 | 706 | 1,033 | 426 | 3,140 | 2,738 | 11,145 | 5 | 5,425 | 16,176 | 6 | |||||||||||||||||||||||||
CEO total (Dutch Civil Code basis)2 | 6,631 | (514 | ) | 1,033 | 431 | 2,675 | 5,045 | 5,443 | 6,067 | 6,808 |
1. | UK statutory basis: This is described in footnote 2 to the Single Total Figure table on page 46. |
2. | Dutch Civil Code basis: This is described in footnote 3 to the Single Total Figure table on page 46. |
3. | Sir Crispin Davis was CEO from January 1 to March 31, Ian Smith was CEO from April 1 to November 10 and Erik Engstrom was CEO from November 11 to December 31. |
4. | The 2014 percentage reflects REGP tranche 2, BIP and ESOS. The 2013 percentage reflects BIP and ESOS only and the 2012 figure reflects REGP tranche 1 and BIP. |
5. | The 2012 figure reflects the vesting of tranche 1 of the REGP and includes the entire amount that was performance tested over the 2010-12 period, including the 50% of shares deferred until 2015 in accordance with the plan rules. It also includes £3m attributed to share price appreciation. |
6. | The 2014 figure includes the vesting of the second and final tranche of the discontinued REGP and includes £7.6m attributed to share price appreciation. |
Comparison of change in CEO pay with change in employee pay
The table below shows the percentage change in remuneration (salary, benefits and Reed Elsevier Group plc. The fee paidannual incentive) from 2013 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 except2014 for the following:CEO compared with the Chairmanaverage employee.
% change from 2013 to 2014 | ||||||||
CEO | Average employee* | |||||||
Salary | 2.5% | 2.5% | ||||||
Benefits | 2.0% | 2.5% | ||||||
Annual incentive | 3.1% | 3.3% |
* | This reflects a substantial proportion of our global employee population. |
Relative importance of spend on pay
The following table sets out the total employee costs for all employees, as well as the amounts paid in dividends and share repurchases.
2014 (£m) | 2013 (£m) | % change | ||||||||||
Employee costs* | 1,709 | 1,775 | -4% | |||||||||
Dividends | 565 | 549 | +3% | |||||||||
Share repurchases | 600 | 600 | 0% |
* | Employee costs include wages and salaries, social security costs, pensions and share-based and related remuneration. |
Implementation of remuneration policy in 2015
Salary: The Committee has awarded a salary increase of 2.5% to the Executive Directors, which means that, from January 1, 2015, Erik Engstrom’s salary rose to £1,131,408 and Nick Luff’s salary to £666,250. This is in receiptline with the guidelines agreed for employees in the Group’s most significant locations globally for 2015.
AIP: The operation of private medical benefitthe AIP in 2015 remains the same as in 2014. Details of annual financial targets and non-executive directorsKPOs are not disclosed as the Board believes that these are commercially sensitive and that disclosing them would give competitors an unfair insight into our strategic direction and annual execution plans. The targets are designed to be challenging relative to 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.2015 execution plan.
Fees may be reviewed annually, although in practice they have changed on a less frequent basis. Multi-year incentives: The last fee review was during 2011 and the current fee arrangements took effect on January 1, 2012.award levels (% of salary) for 2015 are:
CEO | CFO | |||
BIP opportunity | 100% | 100% | ||
LTIP | 250% | 200% | ||
ESOS | 250% | 200% |
The feestargets and vesting scales for 2013the multi-year incentive awards granted in 2015 are unchanged from 2012as follows:
BIP: 2015-17cycle
Match earned on personal investment | Average growth in adjusted EPS over thethree-year performance period* | ROIC in the third year of the performance period* | ||
0% | below 4% p.a. | below 12.3% | ||
50% | 4% p.a. | 12.3% | ||
75% | 6.5% p.a. | 12.8% | ||
100% | 9% p.a. or above | 13.3% or above |
* | EPS and ROIC have equal weighting and straight-line vesting applies to performance between the points. |
LTIP: 2015-17 cycle
Vesting is dependent on three separate performance measures of equal weighting: a TSR measure (comprising three comparator groups), an EPS measure and are set out below.a ROIC measure.1
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| TSR ranking within the relevant TSR comparator group | |
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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
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:
2012 £ | 2011 £ | |||||||
£’000 | £’000 | |||||||
Salaries and fees | 2,972 | 2,590 | ||||||
Benefits | 89 | 56 | ||||||
Annual performance-related bonuses | 2,074 | 1,634 | ||||||
Pension contributions | 44 | 42 | ||||||
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Total | 5,179 | 4,322 | ||||||
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Salary £ | Benefits £ | Bonus £ | Total 2012 £ | Total 2011 £ | ||||||||||||||||
Erik Engstrom | 1,050,625 | 28,396 | 1,149,909 | 2,228,930 | 2,075,417 | |||||||||||||||
Mark Armour | 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 | 1,908,966 | 85,258 | 2,073,913 | 4,068,137 | 3,338,980 | |||||||||||||||
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Vesting percentage of EPS and ROIC tranches* 0% 33% 52.5% 65% 75% 85% 92.5% 100% Average growth in adjusted
EPS over the three-year
performance period ROIC in the third
year of the
performance
period below 5% p.a. below 12.3% 5% p.a. 12.3% 6% p.a. 12.55% 7% p.a. 12.8% 8% p.a. 13.05% 9% p.a. 13.3% 10% p.a. 13.55% 11% p.a. or above 13.8% or above
* |
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 59 to 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 2012.ESOS: 2015-2017 cycle
vesting | Average growth in adjusted EPS over the | |
0% | below 4% p.a. | |
33% | 4% p.a. | |
80% | 6% p.a. | |
100% | 8% p.a. or above |
2012 £* | 2011 £* | |||||||
Mark Elliott | 85,000 | 70,000 | ||||||
Anthony Habgood | 550,000 | ** | 500,000 | ** | ||||
Adrian Hennah (from April 20, 2011) | 65,000 | 38,475 | ||||||
Lisa Hook | 65,000 | 55,000 | ||||||
Marike van Lier Lels | 52,846 | *** | 41,739 | |||||
Robert Polet | 65,000 | 55,000 | ||||||
Sir David Reid | 85,000 | 75,000 | ||||||
Lord Sharman (until April 20, 2011) | — | 18,333 | ||||||
Linda Sanford (from December 4, 2012) | 5,416 | — | ||||||
Ben van der Veer | 89,431 | *** | 82,609 | |||||
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Total | 1,062,693 | 936,156 | ||||||
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* |
Remuneration Committee advice
The Committee consists of independent Non-Executive Directors and the Chairman of RELX Group plc. Details of members are contained in the section, “— Directors” on page 44. The Chief Legal Officer & Company Secretary attends meetings as secretary to the Committee. At the invitation of the Chairman of the Committee, the CEO of RELX Group plc attends appropriate parts of the meetings. The CEO of RELX Group plc is not in attendance during discussions about his remuneration.
The Human Resources Director advised the Committee during the year.
Towers Watson is the external adviser, appointed by the Committee through a competitive process. Towers Watson also provided actuarial and other human resources consultancy services to some of our companies during the year. The Committee is satisfied that the firm’s advice continues to be objective and independent, and that no conflict of interest exists. The individual consultants who work with the Committee do not provide advice to the Executive Directors, or act on their behalf. Towers Watson is a member of the Remuneration Consultants’ Group and conducts its work in line with the UK Code of Conduct for executive remuneration consulting. During 2014, Towers Watson received fees of £10,726 for advice given to the Committee, charged on a time and expense basis.
Compensation of executive officers
The aggregate compensation (salary, annual incentive, benefits, pension and dividend equivalents received in respect of shares vested during 2014 under BIP and LTIP) paid during 20122014 (and relating to 2012)in respect of the annual incentive earned in respect of 2014) to those who were executive officers (other than directors)Directors) of Reed ElsevierRELX Group plc as at February 27, 2013 as a group25, 2015 for the year ended December 31, 20122014 was £2,331,660£2,725,675, which included contributions made to the pension plans in respect of such officers of £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 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 40 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 42.
REED ELSEVIER GROUP PLC
The Reed Elsevier Group plc Board currently consists of two executive directors and eight 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 Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier Group plc Board, prior to appointment to the Reed Elsevier Group plc Board.
Decisions of the Board of directors of Reed Elsevier Group plc require a simple majority, and the quorum required for meetings of the Board of Reed Elsevier Group plc is any two directors.
The Reed Elsevier Group plc Board has established the following committees:
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Arrangements established at the time of the merger of Reed Elsevier PLC’s and Reed Elsevier NV’s businesses provide that, if any person (together with persons acting in concert with him) acquires shares, or control of the voting rights attaching to shares, carrying more than 50% of the votes ordinarily exercisable at a general meeting of Reed Elsevier PLC or Reed Elsevier NV and has not made a comparable takeover offer for the other party, the other party may by notice suspend or modify the operation of certain provisions of the merger arrangements, such as (i) the right of the party in which control has been acquired (the “Acquired Party”) to appoint or remove directors of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc and (ii) the Standstill Obligations (defined below) in relation to the Acquired Party. Such a notice will cease to apply if the person acquiring control makes a comparable offer for all the equity securities of the other within a specified period or if the person (and persons acting in concert with him) ceases to have control of the other.
In the event of a change of control of one parent company and not the other (where there has been no comparable offer for the other), the parent company which has not suffered the change in control will effectively have the sole right to remove and appoint directors of Reed Elsevier Group plc. Also, a director removed from the Board of a parent company which has suffered a change in control will not have to resign from the Board of the other parent company or Reed Elsevier Group plc.
The Articles of Association of Reed Elsevier Group plc contain certain restrictions on the transfer of shares in Reed Elsevier Group plc. In addition, pursuant to arrangements established at the time of the merger, neither Reed Elsevier PLC nor Reed Elsevier NV may acquire or dispose of any interest in the share capital of the other or otherwise take any action to acquire the other without the prior approval of the other (the “Standstill Obligations”). The Panel on Takeovers and Mergers in the United Kingdom (the “Panel”) has stated that in the event of a change of statutory control of either Reed Elsevier PLC or Reed Elsevier NV, the person or persons acquiring such control will be required to make an offer to acquire the share capital of Reed Elsevier Group plc (but not Elsevier Reed Finance BV) held by the other, in accordance with the requirements of the City Code on Take-overs and Mergers in the United Kingdom. This requirement would not apply if the person acquiring statutory control of either Reed Elsevier PLC or Reed Elsevier NV made an offer for the other on terms which are considered by the Panel to be appropriate.
REED ELSEVIER PLC
The Reed Elsevier PLC Board currently consists of two executive directors and eight 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 Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier PLC Board, prior to the appointment to the Reed Elsevier PLC Board. A copy of the terms of reference of the Nominations Committee is available on request and can
be viewed on the Reed Elsevier website, www.reedelsevier.com. The information on our website is not incorporated by reference into this report. The joint Nominations Committee currently comprises five non-executive directors.
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:
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Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for determining the remuneration for the executive directors of Reed Elsevier PLC, Reed Elsevier Group plc and Reed Elsevier NV.
Under the Articles of Association of Reed Elsevier PLC, one third of the directors shall retire from office and, if they wish, make themselves available for re-appointment by shareholders at the Annual General Meeting. Notwithstanding these provisions in the Articles of Association, in accordance with the provisions of the UK Corporate Governance Code all directors retire and offer themselves for re-election at each Annual General Meeting.
REED ELSEVIER NV
Reed Elsevier NV has a two-tier board structure currently comprising two executive directors (the “Executive Board”) and nine non-executive directors (the “Supervisory Board” and, together with the Executive Board, the “Combined Board”, all together referred to as the “Boards”). Members of the Boards shall be appointed by the General Shareholders’ Meeting upon a proposal of the Combined Board based on a nomination for appointment by the joint Nominations Committee of Reed Elsevier NV and Reed Elsevier PLC. The Articles of Association of Reed Elsevier NV provide that a resolution of the General Shareholders’ Meeting to appoint a member of the Boards other than in accordance with a proposal of the Combined Board can only be taken by a majority of at least two-thirds of the votes cast if less than one-half of Reed Elsevier NV’s issued capital is represented at the meeting.
The General Shareholders’ Meeting of Reed Elsevier NV shareholders may also, by ordinary resolution, resolve to suspend or dismiss each member from the Boards of Reed Elsevier NV. In addition, each member of the Executive Board can at any time be suspended by the Supervisory Board. In such circumstances that director will also be required to be removed or resign from the Boards of Reed Elsevier PLC and Reed Elsevier Group plc (except in circumstances where there has been a change of control of Reed Elsevier NV and not Reed Elsevier PLC).
The Reed Elsevier NV Supervisory Board has established the following committees:
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Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for determining the remuneration for the executive directors of Reed Elsevier NV, Reed Elsevier Group plc and Reed Elsevier PLC.
Under the Articles of Association of Reed Elsevier NV, each member of the Reed Elsevier NV Supervisory Board is appointed for a three-year term, with the possibility of reappointment and shall retire periodically in accordance with a rotation plan drawn up by the Combined Board. Notwithstanding these provisions in the Articles of Association, in accordance with the provisions of the UK Corporate Governance Code all members of the Boards retire and seek re-appointment at each Annual General Meeting of Shareholders. To align the arrangements regarding appointment for the Boards of Reed Elsevier NV and Reed Elsevier PLC annual re-appointment shall not affect the term of their three-year appointment. A schedule with the anticipated dates of retirement of members of the Supervisory Board is published on the Reed Elsevier website, www.reedelsevier.com. As a general rule, members of the Supervisory Board serve for two three-year terms. The Nominations Committee may recommend that individual members of the Supervisory Board serve up to one additional three-year term.
The Combined Board of Reed Elsevier NV has resolved to take the necessary steps to establish a one-tier governance structure at Reed Elsevier NV. For this purpose the articles of association of Reed Elsevier NV will have to be amended and a proposal for the one-tier governance structure will be put to the Annual General Meeting of shareholders on April 24, 2013.
ELSEVIER REED FINANCE BV
Elsevier Reed Finance BV has a two-tier board structure comprising a Management Board, currently consisting of three members, and a Supervisory Board, currently consisting of four members. The members of the Management Board and of the Supervisory Board are appointed by the shareholders of Elsevier Reed Finance BV. The Articles of Association of Elsevier Reed Finance BV provide that certain material resolutions of the Management Board will require the approval of the Supervisory Board. At a meeting of the Supervisory Board valid resolutions can be taken with a simple majority if the majority of the members are present or represented. Pursuant to the Articles of Association of Elsevier Reed Finance BV, there are specific provisions governing the appointment and dismissal of managing directors and members of the Supervisory Board during periods when a notice of suspension as mentioned in the governing agreement between Reed Elsevier PLC and Reed Elsevier NV is in force. These provisions intend to neutralise the influence of a party which has acquired control over either Reed Elsevier PLC or Reed Elsevier NV without having also acquired control in the other.
Employee numbers are disclosed in note 6 to the combined financial statements.
The Board of Reed Elsevier Group plc is fully committed to the concept of employee involvement and participation, and encourages each of its businesses to formulate its own tailor-made approach with the co-operation of employees. Reed Elsevier is an equal opportunity employer, and recruits and promotes employees on the basis of suitability for the job. Appropriate training and development opportunities are available to all employees. A code of ethics and business conduct applicable to employees within Reed Elsevier has been adopted throughout its businesses.£107,524.
Share based awards in Reed Elsevier PLC and Reed Elsevier NVMulti-year incentive interests
Details of vested options,(in italics)andAll outstanding unvested options and restricted shares held by executive directors in Reed Elsevier PLC (PLC) and Reed Elsevier NV (NV) as at December 31, 2012 are shownshare awards in the tables below. Any awards that have been described as lapsed in prior year Reports have been excluded. The shading in the tables denotes awards granted during the year of reporting. The vesting of outstanding unvested awards isbelow and on page 62 are subject to performance conditions in accordance with the provisions of the respective plan rules. conditions.
For disclosure purposes, any PLC and NV ADRs awarded under the BIP or the REGP have been converted into ordinary share equivalents. AtBetween December 31, 2014 and the date of this Annual Report on Form 20-F, there have been no changes in the options or restricted sharesshare awards held by executive directors in office at the date of this Report. The market price at the date of award of grants made under the multi-year incentives are based on the middle market price of the respective security.Executive Directors.
Erik Engstrom
Options | Year of grant | Option | No. of options held on Jan 1, 2012 | No. of options granted during 2012 | Option price | No. of options exercised during 2012 | Market price per share at exercise | Gross gains made on exercise £/€ | No. of options held on Dec 31, 2012 | Unvested options vesting on: | Options exercisable until: | |||||||||||||||||||||||
ESOS | 2004 | PLC ord | 63,460 | £ | 4.780 | 63,460 | Aug 23, 2014 | |||||||||||||||||||||||||||
NV ord | 43,866 | € | 10.30 | 43,866 | Aug 23, 2014 | |||||||||||||||||||||||||||||
2005 | PLC ord | 154,517 | £ | 5.335 | 154,517 | Feb 17, 2015 | ||||||||||||||||||||||||||||
NV ord | 105,412 | € | 11.31 | 105,412 | Feb 17, 2015 | |||||||||||||||||||||||||||||
2006 | PLC ord | 178,895 | £ | 5.305 | 178,895 | Mar 13,2016 | ||||||||||||||||||||||||||||
NV ord | 120,198 | € | 11.47 | 120,198 | Mar 13,2016 | |||||||||||||||||||||||||||||
2011 | PLC ord | 139,146 | £ | 5.390 | 139,146 | May 5, 2014 | May 5, 2021 | |||||||||||||||||||||||||||
NV ord | 92,953 | € | 8.969 | 92,953 | May 5, 2014 | May 5, 2021 | ||||||||||||||||||||||||||||
2012 | PLC ord | — | 198,836 | £ | 5.155 | 198,836 | May 2, 2015 | May 2, 2022 | ||||||||||||||||||||||||||
NV ord | — | 139,742 | € | 9.030 | 139,742 | May 2, 2015 | May 2, 2022 | |||||||||||||||||||||||||||
LTIP | 2004 | PLC ord | 325,163 | £ | 4.78 | 325,163 | Aug 23, 2014 | |||||||||||||||||||||||||||
NV ord | 224,766 | € | 10.30 | 224,766 | Aug 23, 2014 | |||||||||||||||||||||||||||||
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Total PLC ords | 861,181 | 198,836 | 1,060,017 | |||||||||||||||||||||||||||||||
Total NV ord | 587,195 | 139,742 | 726,937 | |||||||||||||||||||||||||||||||
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Shares | Year of grant | Type of security | No. of unvested shares held on Jan 1, 2012 | No. of shares awarded during 2012 | Market price per share at award | No. of shares vested during 2012 | Market price per share at vesting | Notional gross gains at vesting £/€ | No. of unvested shares held on Dec 31, 2012 | Date of performance testing | Date of release | |||||||||||||||||||||||
BIP | 2010 | NV ord | 140,378 | € | 8.310 | 140,378 | H1 2013 | H1 2013 | ||||||||||||||||||||||||||
2011 | NV ord | 122,352 | € | 8.969 | 122,352 | H1 2014 | H1 2014 | |||||||||||||||||||||||||||
2012 | NV ord | — | 136,950 | € | 9.030 | 136,950 | H1 2015 | H1 2015 | ||||||||||||||||||||||||||
REGP | 2010 | PLC ord | 643,086 | £ | 4.665 | 643,086 | H1 2013 | 50% H1 2013 | ||||||||||||||||||||||||||
— | 50% H1 2015 | |||||||||||||||||||||||||||||||||
NV ord | 422,310 | € | 8.310 | 422,310 | H1 2013 | 50% H1 2013 | ||||||||||||||||||||||||||||
50% H1 2015 | ||||||||||||||||||||||||||||||||||
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Total PLC ords | 643,086 | 643,086 | ||||||||||||||||||||||||||||||||
Total NV ord | 685,040 | 136,950 | 821,990 | |||||||||||||||||||||||||||||||
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Mark Armour
Options | Year of | Option over | No. of options held on Jan 1, 2012 | No. of options granted during 2012 | Option price | No. of options exercised during 2012 | Market price per share at exercise | Gross gains made on exercise £/€ | No. of options held on Dec 31, 2012 | Unvested options vesting on: | Options exercisable until: | |||||||||||||||||||||||||
ESOS | 2002 | PLC ord | 74,000 | £ | 6.000 | — | Expired | * | ||||||||||||||||||||||||||||
NV ord | 51,926 | € | 13.94 | — | Expired | * | ||||||||||||||||||||||||||||||
2005 | PLC ord | 150,422 | £ | 5.335 | 150,422 | Feb 17, 2015 | ||||||||||||||||||||||||||||||
NV ord | 102,618 | € | 11.31 | 102,618 | Feb 17, 2015 | |||||||||||||||||||||||||||||||
2006 | PLC ord | 158,836 | £ | 5.305 | 1,500 | £ | 6.095 | £ | 1,185 | 157,336 | Mar 13,2016 | |||||||||||||||||||||||||
NV ord | 106,720 | € | 11.47 | 106,720 | Mar 13,2016 | |||||||||||||||||||||||||||||||
2011 | PLC ord | 85,358 | £ | 5.390 | 56,905 | May 9, 2016 | ** | |||||||||||||||||||||||||||||
NV ord | 57,021 | € | 8.969 | 38,014 | May 9, 2016 | ** | ||||||||||||||||||||||||||||||
LTIP | 2004 | PLC ord | 290,481 | £ | 4.872 | 290,481 | Feb 19, 2014 | |||||||||||||||||||||||||||||
NV ord | 199,467 | € | 10.57 | 199,467 | Feb 19, 2014 | |||||||||||||||||||||||||||||||
SAYE | 2010 | PLC ord | 2,173 | £ | 4.176 | 2,173 | Jun 30, 2013 | |||||||||||||||||||||||||||||
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Total PLC ords | 761,270 | 1,500 | 657,317 | |||||||||||||||||||||||||||||||||
Total NV ord | 517,752 | 446,819 | ||||||||||||||||||||||||||||||||||
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OPTIONS | Year of grant | Type of security | No. of options held on 1 Jan 2014 | No. of options granted during 2014 | Option price | No. of options exercised during 2014 | Market price per share at exercise | No. of options held on 31 Dec 2014 | Unvested options vesting on | Options exercisable until | ||||||||||||||||||||||||||||||
ESOS | 2006 | PLC ord | 178,895 | £ | 5.305 | 178,895 | £ | 9.138 | ||||||||||||||||||||||||||||||||
NV ord | 120,198 | € | 11.470 | 120,198 | € | 15.755 | ||||||||||||||||||||||||||||||||||
2011 | PLC ord | 139,146 | £ | 5.390 | 139,146 | May 5, 21 | ||||||||||||||||||||||||||||||||||
NV ord | 92,953 | € | 8.969 | 92,953 | May 5, 21 | |||||||||||||||||||||||||||||||||||
2012 | * | PLC ord | 198,836 | £ | 5.155 | 198,836 | May 2, 15 | May 2, 22 | ||||||||||||||||||||||||||||||||
NV ord | 139,742 | € | 9.030 | 139,742 | May 2, 15 | May 2, 22 | ||||||||||||||||||||||||||||||||||
2013 | PLC ord | 178,799 | £ | 7.345 | 178,799 | May 9, 16 | May 9, 23 | |||||||||||||||||||||||||||||||||
NV ord | 124,337 | € | 12.530 | 124,337 | May 9, 16 | May 9, 23 | ||||||||||||||||||||||||||||||||||
2014 | PLC ord | 145,604 | £ | 9.245 | 145,604 | Apr 7, 17 | Apr 7, 24 | |||||||||||||||||||||||||||||||||
NV ord | 102,839 | € | 15.820 | 102,839 | Apr 7, 17 | Apr 7, 24 | ||||||||||||||||||||||||||||||||||
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Total PLC ords | 695,676 | 145,604 | 178,895 | 662,385 | ||||||||||||||||||||||||||||||||||||
Total NV ords | 477,230 | 102,839 | 120,198 | 459,871 | ||||||||||||||||||||||||||||||||||||
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* |
SHARES | Year of grant | Type of security | No. of unvested shares held on 1 Jan 2014 | No. of shares awarded during 2014 | Market price per share at award | No. of shares vested/ performance tested during 2014 | Market price per share at vesting/ performance testing | No. of unvested/ non- performance tested shares held on 31 Dec 2014 | End of performance period | Date of release | ||||||||||||||||||||||||||||||
BIP | 2011 | NV ord | 122,352 | € | 8.969 | 110,728 | € | 15.975 | ||||||||||||||||||||||||||||||||
2012 | 1 | NV ord | 136,950 | € | 9.030 | 136,950 | Dec 2014 | H1 2015 | ||||||||||||||||||||||||||||||||
2013 | NV ord | 96,830 | € | 12.530 | 96,830 | Dec 2015 | H1 2016 | |||||||||||||||||||||||||||||||||
2014 | NV ord | 81,388 | € | 15.820 | 81,388 | Dec 2016 | H1 2017 | |||||||||||||||||||||||||||||||||
LTIP | 2013 | PLC ord | 178,799 | £ | 7.345 | 178,799 | Dec 2015 | H1 2016 | ||||||||||||||||||||||||||||||||
NV ord | 124,337 | € | 12.530 | 124,337 | Dec 2015 | H1 2016 | ||||||||||||||||||||||||||||||||||
2014 | PLC ord | 145,604 | £ | 9.245 | 145,604 | Dec 2016 | H1 2017 | |||||||||||||||||||||||||||||||||
NV ord | 102,839 | € | 15.820 | 102,839 | Dec 2016 | H1 2017 | ||||||||||||||||||||||||||||||||||
REGP2 | 2013 | PLC ord | 321,895 | £ | 7.760 | 321,895 | Dec 2014 | H1 2015 | ||||||||||||||||||||||||||||||||
NV ord | 450,494 | € | 13.150 | 450,494 | Dec 2014 | H1 2015 | ||||||||||||||||||||||||||||||||||
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Total PLC ords |
| 500,694 | 145,604 | 646,298 | ||||||||||||||||||||||||||||||||||||
Total NV ords |
| 930,963 | 184,227 | 110,728 | 992,838 | |||||||||||||||||||||||||||||||||||
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1. | The performance outcome for the BIP 2012 is set out on page 49. |
Nick Luff
Shares | Year of | Type of security | No. of unvested shares held on Jan 1, 2012 | No. of shares awarded during 2012 | Market price per share at award | No. of shares vested during 2012 | Market price per share at vesting | Notional gross gains at vesting £/€ | No. of unvested shares held on Dec 31, 2012 | Date of performance testing | Date of release | |||||||||||||||||||||||
BIP | 2010 | PLC ord | 65,054 | £ | 4.665 | 65,054 | H1 2013 | H1 2013 | ||||||||||||||||||||||||||
NV ord | 42,512 | € | 8.310 | 42,512 | H1 2013 | H1 2013 | ||||||||||||||||||||||||||||
2011 | PLC ord | 56,876 | £ | 5.390 | 37,917 | H1 2014 | H1 2014 | * | ||||||||||||||||||||||||||
NV ord | 37,687 | € | 8.969 | 25,124 | H1 2014 | H1 2014 | * | |||||||||||||||||||||||||||
2012 | PLC ord | — | 90,987 | £ | 5.115 | 30,329 | H1 2015 | H1 2015 | * | |||||||||||||||||||||||||
NV ord | — | 21,028 | € | 9.030 | 7,009 | H1 2015 | H1 2015 | * | ||||||||||||||||||||||||||
REGP | 2010 | PLC ord | 394,495 | £ | 4.665 | 394,495 | H1 2013 | H1 2013 | ||||||||||||||||||||||||||
NV ord | 259,062 | € | 8.310 | 259,062 | H1 2013 | H1 2013 | ||||||||||||||||||||||||||||
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Total PLC ords | 516,425 | 90,987 | 527,795 | |||||||||||||||||||||||||||||||
Total NV ord | 339,261 | 21,028 | 333,707 | |||||||||||||||||||||||||||||||
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OPTIONS | Year of grant | Type of security | No. of options held on 1 Jan 2014 | No. of options granted during 2014 | Option price | No. of options exercised during 2014 | Market price per share at exercise | No. of options held on 31 Dec 2014 | Unvested options vesting on | Options exercisable until | ||||||||||||||||||||||||||||||
ESOS | 2014 | PLC ord | 65,656 | £ | 9.900 | 65,656 | Sep 2, 17 | Sep 2, 24 | ||||||||||||||||||||||||||||||||
NV ord | 46,963 | € | 17.500 | 46,963 | Sep 2, 17 | Sep 2, 24 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total PLC ords | 65,656 | 65,656 | ||||||||||||||||||||||||||||||||||||||
Total NV ords | 46,963 | 46,963 | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
SHARES | Year of grant | Type of security | No. of unvested shares held on 1 Jan 2014 | No. of shares awarded during 2014 | Market price per share at award | No. of shares vested/ performance tested during 2014 | Market price per share at vesting/ performance testing | No. of unvested/ non- performance tested shares held on 31 Dec 2014 | End of performance period | Date of release | ||||||||||||||||||||||||||||||
BIP | 2014 | PLC ord | 32,630 | £ | 9.900 | 32,630 | Dec 2016 | H1 2017 | ||||||||||||||||||||||||||||||||
NV ord | 22,870 | € | 17.500 | 22,870 | Dec 2016 | H1 2017 | ||||||||||||||||||||||||||||||||||
LTIP | 2014 | PLC ord | 65,656 | £ | 9.900 | 65,656 | Dec 2016 | H1 2017 | ||||||||||||||||||||||||||||||||
NV ord | 46,963 | € | 17.500 | 46,963 | Dec 2016 | H1 2017 | ||||||||||||||||||||||||||||||||||
PSP | 2014 | PLC ord | 65,656 | £ | 9.900 | 65,656 | Dec 2014 | H1 2015 | ||||||||||||||||||||||||||||||||
NV ord | 46,963 | € | 17.500 | 46,963 | Dec 2014 | H1 2015 | ||||||||||||||||||||||||||||||||||
2014 | PLC ord | 65,656 | £ | 9.900 | 65,656 | Dec 2015 | H1 2016 | |||||||||||||||||||||||||||||||||
NV ord | 46,963 | € | 17.500 | 46,963 | Dec 2015 | H1 2016 | ||||||||||||||||||||||||||||||||||
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Total PLC ords | 229,598 | 229,598 | ||||||||||||||||||||||||||||||||||||||
Total NV ords | 163,759 | 163,759 | ||||||||||||||||||||||||||||||||||||||
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Duncan Palmer |
| |||||||||||||||||||||||||||||||||||||||
SHARES | Year of grant | Type of security | No. of unvested shares held on 1 Jan 2014 | No. of shares awarded during 2014 | Market price per share at award | No. of shares vested/ performance tested during 2014 | Market price per share at vesting/ performance testing | No. of unvested/ non- performance tested shares held on 31 Dec 2014 | End of performance period | Date of release | ||||||||||||||||||||||||||||||
RSP* | 2012 | PLC ord | 72,042 | £ | 6.015 | 72,042 | £ | 9.781 | Sep 25, 14 | |||||||||||||||||||||||||||||||
NV ord | 51,378 | 51,378 | € | 17.570 | Sep 25, 14 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total PLC ords |
| 72,042 | 72,042 | |||||||||||||||||||||||||||||||||||||
Total NV ords |
| 51,378 | 51,378 | |||||||||||||||||||||||||||||||||||||
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* |
Duncan Palmer
Options | Year of | Option over | No. of options held on Jan 1, 2012 | No. of options granted during 2012 | Option price | No. of options exercised during 2012 | Market price per share at exercise | Gross gains made on exercise £/€ | No. of options held on Dec 31, 2012 | Unvested options vesting on: | Options exercisable until: | |||||||||||||||||||||||
ESOS | 2012 | PLC ord | — | 67,331 | £ | 6.015 | 67,331 | Sep 7, 2015 | Sep 7, 2022 | |||||||||||||||||||||||||
NV ord | — | 48,018 | € | 10.560 | 48,018 | Sep 7, 2015 | Sep 7, 2022 | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total PLC ords | — | 67,331 | 67,331 | |||||||||||||||||||||||||||||||
Total NV ord | — | 48,018 | 48,018 | |||||||||||||||||||||||||||||||
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Shares Year of PSP* RSP* Total PLC ords Total NV ord
grant Type of
security No. of
unvested
shares
held on
Jan 1,
2012 No. of
shares
awarded
during
2012 Market
price per
share at
award No. of
shares
vested
during
2012 Market
price per
share at
vesting Notional
gross
gains at
vesting
£/€ No. of
unvested
shares
held on
Dec 31,
2012 Date of
performance
testing Date of
release 2012 PLC ord 179,551 £ 6.015 179,551 H1 2015 H1 2015 2012 PLC ord 249,376 £ 6.015 249,376 — 50% H1 2014 50% H1 2015 428,927 428,927 — —
The number of shares and options that vest in respect of all outstanding (unvested) awards under the multi-year incentives depend on the extent to which performance conditions are met, except for the RSP grant to Duncan Palmer which vests subject to an ongoing employment condition.
In respect of the REGP grant to Erik Engstrom, the maximum number of shares that can vest is 150% of the number of shares shown in the tables above. In respect of ESOS and BIP, the number of share options and shares shown in the table is the maximum capable of vesting. ESOS awards vest on the third anniversary and expire on the tenth anniversary of the date of grant. For the PSP and RSP awards granted to Duncan Palmer, the number of shares shown in the share tables reflects the maximum number of shares which can vest.
Options under the SAYE Scheme, in which all eligible UK employees are invited to participate, are granted at a maximum discount of 20% to the market price at time of grant. They are normally exercisable after the expiry of three or five years from the date of grant. No performance targets are attached to these option grants as the SAYE Scheme is a UK all-employee scheme.
The middle market price of a Reed Elsevier PLC ordinary share at the date of award of grants in 2012 under the BIP was £5.155. The middle market price of a Reed Elsevier NV ordinary share at the date of award of grants in 2012 under the BIP was €9.03. The middle market price of a Reed Elsevier PLC ordinary share at the date of award of grants made to Mr Palmer on September 7, 2012 was €6.015.
The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range of £4.694 to £6.52 and at December 31, 2012 was £6.42. The middle market price of a Reed Elsevier NV ordinary share during the year was in the range of €8.17 to €11.37 and at December 31, 2012 was €11.185.
REED ELSEVIERTHE GROUP
As of December 31, 2012 Reed Elsevier2014 we operated and/or had awards outstanding under a number of equity-based plans as follows:
(i) | All-Employee Equity-Based Plans |
Reed Elsevier’sOur all-employee equity-based plans comprise the following two plans. Mr Engstrom and Mr Palmer have waived their right to participate in any local all-employee share based plans in any country.
(a) |
Options over Reed Elsevier PLC ordinary shares have been granted under the SAYE Scheme. Shares may be acquired at not less than the higher of (i) 80% of the closing middle market price for the relevant share on The London Stock Exchange three dealing days before invitations to apply for options are issued, and (ii) if new shares are to be subscribed, their nominal value.
All UK employees of Reed ElsevierRELX Group plc and participating companies under its control in employment at the date of invitation are entitled to participate in the SAYE Scheme. In addition, the directorsDirectors of Reed ElsevierRELX Group plc may permit other employees of Reed ElsevierRELX Group plc and participating companies under its control to participate.
Invitations to apply for options may normally only be issued within 42 days after the announcement of theour combined results of Reed Elsevier for any period. No options may be granted more than 10 years after the approval of the scheme. A new 2013 SAYE Share Option Scheme was implemented during 2013, to replace the 2003 SAYE Share Option, under which the final grant of options permitted within the scheme’s 10 year validity period, was made during 2012. Outstanding options granted under the 2003 SAYE Share Option Scheme will remain capable of exercise until 2018.
On joining the SAYE Scheme, a save as you earn contract (a Savings Contract) must be entered into with an appropriate savings body, under which savings of between £10 and £250£500 per month may be made to such savings body for a period of three or five years. A bonus may be payable under the Savings Contract at the end of the savings period. Bonus rates are determined by HMRC. The amount of the monthly contributions may be reduced if applications exceed the number of Reed Elsevier PLC ordinary shares available for the grant of options on that occasion.
The number of Reed Elsevier PLC ordinary shares over which an option may be granted is limited to that number of shares which may be acquired at the exercise price out of the repayment proceeds (including any bonus) of the Savings Contract.
Options under the SAYE Scheme may normally only be exercised for a period of six months after the bonus date under the relevant Savings Contract. However, options may be exercised earlier than the normal exercise date in certain specified circumstances, including death, reaching age 60, or on ceasing employment on account of injury, disability, redundancy, reaching contractual retirement age, or upon retirement under our self-standing retirement policy for the SAYE Scheme or the sale of the business or subsidiary for which the participant works, or on ceasing employment for any other reason, or provided the option has been held for at least three years, on ceasing employment for any other reason.years. Exercise is allowed in the event of an amalgamation, reconstruction or take-over of the company whose shares are under option; alternatively, such options may, with the agreement of an acquiring company or a company associated with it, be exchanged for options over shares in the acquiring company or that associated company. Options may also be exercised in the event of the voluntary winding-up of the company whose shares are under option. In the event that options are exercised before the bonus date, the participant may acquire only the number of shares that can be purchased with the accumulated savings up to the date of exercise, plus interest (if any).
In the event of any capitalisation or rights issue by Reed Elsevier PLC or Reed Elsevier NV, or of any consolidation, subdivision or reduction of their share capital, the number of shares subject to any relevant option and/or the exercise price may be adjusted with the approval of the UK HMRC, subject to the independent auditors of Reed ElsevierRELX Group plc confirming in writing that such adjustment is, in their opinion, fair and reasonable.
Mr Engstrom and Mr Luff have waived their right to participate in the SAYE Scheme.
(b) | Convertible debenture stock arrangements |
This facility consists of an annual issue by Reed Elsevier NV of a convertible debenture loan (the Netherlands Convertible Debenture Stock Scheme) that is open for subscription by Dutch staff employed by Reed Elsevierour companies in the Netherlands or temporarily seconded to affiliates abroad. The interest rate of the scheme is determined quarterly on the basis of market rates on internet savings accounts in the Netherlands. With effect from February 19, 2004 for new issues, interest is determined quarterly on the basis of market rates on internet savings accountswhich can be withdrawn at a day’s notice in the Netherlands. Employees can annually subscribe for one or more debentures of €200 each, up to a maximum amount equal to 20% of the equivalent of their15 times the employee’s fixed gross monthly salary, including any fixed monthly allowances, but excluding any non-monthly salary components (holiday pay, annual salary components.incentives, profit shares etc). Interest is payable in arrears in the month of January following the subscription year. The loans have a term of 10 years. During the 10-year term of the loan employees can decide to convert their claim on the CompanyReed Elsevier NV into shares at an exercise price equal to the price of a Reed Elsevier NV ordinary share on NYSE Euronext Amsterdam aton the endlast dealing day of the month in which the employee has subscribed for the loan (the exercise price). Each debenture of €200 can be converted into 50 ordinary shares in Reed Elsevier NV against payment of 50 times the exercise price, less €200.
(ii) | Executive Equity-Based Plans |
Reed Elsevier’sOur executive equity-based plans comprise:
(a) | Reed Elsevier Group plc Growth Plan (REGP) (discontinued as of December 31, 2014) |
The details of how the REGP operates have been disclosed in previous years’ Reports.on page 51 of the 2013 Annual Report on Form 20-F. The performance measures and targets for the matching awards granted in 2013 are disclosed in thisthe 2013 Annual Report on pages 47 to 49.Form 20-F on page 62. No further awards have been or will be granted under this plan and the final tranche of awards vested on February 27, 2015.
(b) | Long-term incentive plans (LTIP) |
The plans in this category comprise Reed Elsevier Group plcthe Long-Term Incentive Plan 2013 (LTIP 2013), the Long-Term Incentive Plan 2010 (LTIP 2010) and the Reed Elsevier Group plc Long-Term Incentive Share Option Scheme 2003 (LTIS 2003) (details. Details of the LTIP 2010 and the LTIS 2003 have been disclosed in previous years’ Reports).Annual Reports on Form 20-F.
The LTIP 2010 was implemented in 2010. The plan2013 applies to senior executives (including executive officers) other thanofficers and executive directors.directors). Awards are in the form of restricted shares whichmay be granted as performance share awards or nil-cost options but it is currently intended to only grant performance share awards. Awards vest subject to performance measured over three financial years. Awards aremay be satisfied with new issue shares, a transfer of treasury shares or shares purchased in the market, but it is currently intended to continue the existing practice of satisfying awards with shares purchased in the market. The performance conditions attached to awards made in 2010 under this plan mirror those applicable to years one to three (i.e. 2010 through to 2012) of the REGP (see pages 47 to 49 for details). Themeasures and targets applicable to awards madegranted in 20122014 under this plan continue to be aligned to the REGP.are set out on pages 53 and 54. The vesting of awards is also subject to participants meeting a minimum shareholding requirement and continued employment (except for certain categories of approved leavers). Dividend equivalents accrue over the performance period and are paid out in cash at the end to the extent that the awards vest.
The LTIP 2010 has awards outstanding which were granted in 2012. No awards were granted under this plan in 2014.
The LTIS 2003 enabled the grant of options and restricted shares. Options previously granted under this plan vested subject to performance and will lapse to the extent they remain unexercised, on the tenth anniversary of the date of grant. No awards were made under the LTIS 2003 in 2012 and no awards will be made under this plan in 2013.
(c) | Executive share option schemes (ESOS) |
The plans in this category comprise the Reed Elsevier Group plcExecutive Share Option Scheme 2013 (ESOS 2013) and the Share Option Scheme 2003 (ESOS 2003) (details. Details of the ESOS 2003 have been disclosed in previous years’ Reports),Annual Reports on Form 20-F.
The ESOS 2013 applies to around 1,000 executives (including executive officers and executive directors). Market value options are granted which vest (subject to performance in the Reed Elsevier Group plc Executive U.K. Share Option Scheme 1993case of executive directors) after three years and the Reed Elsevier Group plc Executive Overseas Share Option Scheme 1993 (together ESOS 1993). ESOS 1993 has expired and all outstanding awards under these plans have vested and will lapse,remain exercisable, subject to the extent they remain unexercised, oncontinued employment, until the tenth anniversary of grant. Options may be satisfied with new issue shares, a transfer of treasury shares or shares purchased in the datemarket, but it is currently intended to continue the existing practice of grant.satisfying options with new issue shares. The performance measure and targets applicable to options granted in 2014 under this plan to executive directors are set out on page 54.
ESOS 2003 has options outstanding under it but no options were granted under this plan in 2014 and no future options will be granted under this plan.
(d) | Bonus investment plans (BIP) |
The Reed Elsevier Group plc Bonus Investment Plan 2010 (BIP 2010) (see page 50 of the 2013 annual report for a description of this plan) is a voluntary plan aimed at encouraging personal investment in, and ongoing holding of, Reed Elsevierour shares to promote greater alignment with shareholders and support the retention of key talent. Awards were made in 20122014 under BIP 2010.
No2010 to senior executives (including executive officers and Executive Directors). The performance measures and targets applicable to awards were madegranted in 2012 under the BIP 2003 and no awards will be made under this plan in 2013. There2014 are no further awards outstanding under BIP 2003.set out on page 53.
(e) |
The Reed Elsevier Group plc Retention Share Plan is a share plan operated under the discretion of the Reed Elsevier Remuneration Committee which approves all grants. It facilitates the grant of restricted share awards over Reed Elsevier PLC and Reed Elsevier NV ordinary shares, subject to such conditions as specified from time to time by the Reed Elsevier Remuneration Committee. Participation in the plan is limited to employees of Reed Elsevier and participating companies under its control, excluding executive directors.
The plan isRSP has been used to facilitate the grant of one-off awards of restricted shares, where appropriate, to senior new hires for example, to buy out share-based awards from previous employment. The restricted shares which have been awarded will be satisfied by shares purchased in the market and Executive Directors are not eligible to participate.
In addition, since 2006, employees eligible to participate in the ESOS 2003 (see (c) above), other than executive directors,Executive Directors, have been able to choose prior to the date of grant whether to receive all or part of their grant in the form of restricted shares based on a pre-determined conversion ratio of one share for every five options that would otherwise be granted to them under ESOS 2003.ESOS. The RSP is the vehicle used to deliver the award of such restricted shares. The restricted shares vest after the expiry of three years from the date of grant, subject to the participant remaining employed by Reed Elsevierus or a participating company under itsour control. The restricted shares awarded are satisfied by market purchase shares.
On termination of employment, unvested awards made undershares purchased in the plan lapse (except for certain categories of approved leavers).
Note that the RSP award granted to Duncan Palmer on recruitment was not granted under this plan. The terms of that award are described on page 53 and in Exhibit 4.16 incorporated by reference in this Annual Report (see “Item 19: Exhibits” on pages S-3 and S-4 of this Annual Report).
At December 31, 2012, the estimated potential dilution over a 10-year period from awards over Reed Elsevier PLC shares under all equity-based plans was 4.7% of the Reed Elsevier PLC share capital. The estimated potential dilution over the same period in respect of awards over Reed Elsevier NV shares was 4.9% of the Reed Elsevier NV share capital at December 31, 2012. The estimated potential dilution in relation to executive equity-based plans was 4.3% of the Reed Elsevier PLC and 4.5% of the Reed Elsevier NV share capital at December 31, 2012.market.
Share options and conditional share awards
At February 27, 201325, 2015 the total number of ordinary shares subject to outstanding options was:
Number of outstanding options | Options over shares | Option price range | ||||||||
SAYE Scheme | 2,295,649 | Reed Elsevier PLC | £ | |||||||
Netherlands Convertible Debenture Stock Scheme | 1,159,250 | Reed Elsevier NV | €9.00 — | |||||||
ESOS | 6,126,253 | Reed Elsevier PLC | £4.20 — | |||||||
4,361,270 | Reed Elsevier NV | €7.301 — | ||||||||
LTIS 2003 | 29,948 | Reed Elsevier PLC | £ | |||||||
20,630 | Reed Elsevier NV | € |
Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares, but may also be met from shares held by the Reed Elsevier Group plc Employee Benefit Trust.
At February 27, 201325, 2015 the following conditional share awards were also outstanding:
Number of outstanding awards | Awards over | |||||
| Reed Elsevier PLC | |||||
Reed Elsevier NV | ||||||
LTIP | Reed Elsevier PLC | |||||
Reed Elsevier NV | ||||||
BIP* | Reed Elsevier PLC | |||||
Reed Elsevier NV | ||||||
RSP | Reed Elsevier PLC | |||||
Reed Elsevier NV | ||||||
Other** | 131,312 | Reed Elsevier PLC | ||||
93,926 | Reed Elsevier NV |
* | For disclosure purposes, any Reed Elsevier PLC and Reed Elsevier NV ADRs awarded under |
** | Performance share awards granted to Nick Luff on September 2, 2014. These were not granted under an existing plan – the awards of Reed Elsevier PLC ordinary shares fall within paragraph 9.4.2(2)R of the UK Listing Rules and the awards of Reed Elsevier NV ordinary shares were approved by shareholders at the Annual General Shareholders’ Meeting of Reed Elsevier NV on April 23, 2014. More detail in relation to these awards is set out on pages 52 to 55. |
It is intended that these awards will be met by the Reed Elsevier Group plc Employee Benefit Trust fromsatisfied with shares purchased in the market.
REED ELSEVIERTHE GROUP
Share ownership
The interests of those individuals who were directorsDirectors of Reed Elsevier PLC and Reed Elsevier NV as at December 31, 20122014 in the issued share capital of the respective companies at the beginning and end of the year are shown below. Reed Elsevier PLC and Reed Elsevier NV ADRs are converted into ordinary share equivalents.
Reed Elsevier PLC ordinary shares | Reed Elsevier NV ordinary shares | Reed Elsevier PLC ordinary shares | Reed Elsevier NV ordinary shares | |||||||||||||||||||||||||||||
January 1, 2012* | December 31, 2012 | January 1, 2012* | December 31, 2012 | January 1, 2014 | December 31, 2014 | January 1, 2014 | December 31, 2014 | |||||||||||||||||||||||||
Mark Armour | 248,742 | 250,242 | 136,889 | 136,889 | ||||||||||||||||||||||||||||
Mark Elliott | — | — | 7,600 | 7,600 | ||||||||||||||||||||||||||||
Erik Engstrom | 107,040 | 107,040 | 447,356 | 509,556 | 114,552 | 118,552 | 513,765 | 516,765 | ||||||||||||||||||||||||
Anthony Habgood | 50,000 | 50,000 | 25,000 | 25,000 | 50,000 | 50,000 | 25,000 | 25,000 | ||||||||||||||||||||||||
Wolfhart Hauser | 4,107 | 750 | 2,010 | |||||||||||||||||||||||||||||
Adrian Hennah | 5,163 | 5,163 | — | — | 5,163 | 10,508 | ||||||||||||||||||||||||||
Lisa Hook | — | — | — | 4,800 | 4,800 | 4,800 | ||||||||||||||||||||||||||
Marike van Lier Lels | — | — | — | — | ||||||||||||||||||||||||||||
Duncan Palmer | — | — | — | — | ||||||||||||||||||||||||||||
Nick Luff | * | 17,187 | * | 12,106 | ||||||||||||||||||||||||||||
Robert Polet | 1,000 | 1,000 | — | 1,000 | 1,000 | |||||||||||||||||||||||||||
Sir David Reid | — | — | — | — | ||||||||||||||||||||||||||||
Linda Sanford | — | — | — | — | 3,600 | 6,700 | ||||||||||||||||||||||||||
Ben van der Veer | — | — | 5,000 | 5,000 | 5,000 | 7,000 |
* | On date of |
The interests of the current executive directorsExecutive Directors of Reed Elsevier PLC and Reed Elsevier NV in the issued share capital of the respective companies as at March 7, 20139, 2015 were:
Interest in Reed Elsevier PLC ordinary shares | Interest in Reed Elsevier NV ordinary shares | Interest in Reed Elsevier PLC ordinary shares* | Interest in Reed Elsevier NV ordinary shares* | |||||||||||||
Erik Engstrom | 107,040 | 509,556 | 127,040 | 521,556 | ||||||||||||
Duncan Palmer | 88 | 126 | ||||||||||||||
Nick Luff | 67,534 | 47,616 |
* | In the table above, Reed Elsevier PLC and Reed Elsevier NV ADRs are converted into ordinary share equivalents. |
Employee Benefit Trust
Any securities required to satisfy entitlements under the REGP, the RSP, the BIP and the other multi-year incentives are provided by the Employee Benefit Trust (EBT) from market purchases. As a potential beneficiary under the EBT in the same way as other employees of Reed Elsevier, each executive director is deemed to be interested in all the shares held by the EBT which at December 31, 2012 amounted to 13,451,468 Reed Elsevier PLC ordinary shares (1.07% of issued share capital) and 6,990,101 Reed Elsevier NV ordinary shares (0.91% of issued share capital). These numbers include ordinary share equivalents held in the form of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRS.
Shares and options held by executive officers
The following table indicates the total aggregate number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares beneficially owned and the total aggregate number of share options and conditional share awards held by the executive officers (other than directors)Directors) of Reed ElsevierRELX Group plc (three persons) as a group in office as of February 27, 2013:25, 2015:
Reed Elsevier PLC ordinary shares | Reed Elsevier PLC ordinary shares subject to options | Reed Elsevier PLC conditional share awards | Reed Elsevier NV ordinary shares* | Reed Elsevier NV ordinary shares subject to options | Reed Elsevier NV conditional share awards | |||||||
Executive officers (other than directors) as a group | 147,104 | 431,407 | 589,823 | 37,547 | 349,658 | 295,558 |
Reed Elsevier PLC ordinary shares | Reed Elsevier PLC ordinary shares subject to options | Reed Elsevier PLC conditional share awards | Reed Elsevier NV ordinary shares | Reed Elsevier NV ordinary shares subject to options | Reed Elsevier NV conditional share awards | |||||||||||||||||||
Executive officers (other than Directors) | 239,065 | 204,242 | 579,613 | 61,575 | 192,448 | 272,099 |
In the table above, Reed Elsevier PLC and Reed Elsevier NV ADRs are converted into ordinary share equivalents.
The options over Reed Elsevier PLC ordinary shares included in the above table are exercisable at prices ranging from £4.665 to £6.445£9.245 per share and between the date hereof and 2022.2024. The options over Reed Elsevier NV ordinary shares included in the above table are exercisable at prices ranging from €8.31 to €14.51€21.74 per share and between the date hereof and 2022.2024. The Reed Elsevier PLC and Reed Elsevier NV conditional share awards included in the above table will vest between 2015 and 2017.
THE GROUP
During 2014, the Boards of Directors of Reed Elsevier PLC and Reed Elsevier NV managed their respective shareholdings in Reed Elsevier Group plc and Elsevier Reed Finance BV. Effective February 25, 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interest in Elsevier Reed Finance BV to their jointly-owned company, Reed Elsevier Group plc and named this newly-combined single group entity RELX Group plc. For further information regarding this transfer and developments to the corporate structure, see Item 4: Organisational Structure on pages 23 to 24. The Boards of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc are harmonised. All of the Directors of RELX Group plc are also Directors of Reed Elsevier PLC and Reed Elsevier NV. Reed Elsevier NV may nominate for appointment up to two Non-Executive Directors who are not appointed to the Boards of either Reed Elsevier PLC or RELX Group plc. Currently, one such Director has been appointed to the Board of Reed Elsevier NV. Subject to shareholders of Reed Elsevier PLC and Reed Elsevier NV re-electing retiring Directors at their respective Annual General Meetings in 2015, all the Directors of RELX 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 the Group, see “— Directors” and “Senior Management” on pages 44 to 46. Details of the membership of the Audit Committees of RELX Group plc, Reed Elsevier PLC and Reed Elsevier NV and details of the membership of the Remuneration Committee are given under “Directors” on page 44.
RELX GROUP PLC
The RELX Group plc Board consists of two Executive Directors 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 Elsevier PLC and Reed Elsevier NV. Persons nominated by the Nominations Committee will be required to be approved by the RELX Group plc Board, prior to appointment to the RELX Group plc Board.
Decisions of the Board of Directors of RELX Group plc require a simple majority, and the quorum required for meetings of the Board of RELX Group plc is any two Directors.
The RELX Group plc Board has established the following Committees:
— | Audit — currently comprising three independent Non-Executive Directors; and |
— | Remuneration — currently comprising three independent Non-Executive Directors and the Chairman of RELX Group plc. |
Arrangements established at the time of the merger of Reed Elsevier PLC’s and Reed Elsevier NV’s businesses provide that, if any person (together with persons acting in concert with him) acquires shares, or control of the voting rights attaching to shares, carrying more than 50% of the votes ordinarily exercisable at a general meeting of Reed Elsevier PLC or Reed Elsevier NV and has not made a comparable takeover offer for the other party, the other party may by notice suspend or modify the operation of certain provisions of the merger arrangements, such as (i) the right of the party in which control has been acquired (the “Acquired Party”) to appoint or remove directors of Reed Elsevier PLC, Reed Elsevier NV and RELX Group plc and (ii) the Standstill Obligations (defined below) in relation to the Acquired Party. Such a notice will cease to apply if the person acquiring control makes a comparable offer for all the equity securities of the other within a specified period or if the person (and persons acting in concert with him) ceases to have control of the other.
In the event of a change of control of one parent company and not the other (where there has been no comparable offer for the other), the parent company which has not suffered the change in control will effectively have the sole right to remove and appoint directors of RELX Group plc. Also, a director removed from the Board of a parent company which has suffered a change in control will not have to resign from the Board of the other parent company or RELX Group plc.
The articles of association of RELX Group plc contain certain restrictions on the transfer of shares in RELX Group plc. In addition, pursuant to arrangements established at the time of the merger, neither Reed Elsevier PLC nor Reed Elsevier NV may acquire or dispose of any interest in the share capital of the other or otherwise take any action to acquire the other without the prior approval of the other (the “Standstill Obligations”). The Panel on Takeovers and Mergers in the United Kingdom (the “Panel”) has stated that in the event of a change of statutory control of either Reed Elsevier PLC or Reed Elsevier NV, the person or persons acquiring such control will be required to make an offer to acquire the share capital of RELX Group plc held by the other, in accordance with the requirements of the City Code on Takeovers and Mergers in the United Kingdom. This requirement would not apply if the person acquiring statutory control of either Reed Elsevier PLC or Reed Elsevier NV made an offer for the other on terms which are considered by the Panel to be appropriate.
REED ELSEVIER PLC
The Reed Elsevier PLC Board currently consists of two Executive Directors 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 Elsevier PLC and Reed Elsevier NV. Persons nominated by the Nominations Committee will be required to be approved by the Reed Elsevier PLC Board, prior to the appointment to the Reed Elsevier PLC Board. A copy of the terms of reference of the Nominations Committee is available on request and can be viewed on our website, www.relxgroup.com. The information on our website is not incorporated by reference into this report.
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 RELX 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:
— | Audit — currently comprising three independent Non-Executive Directors; |
— | Corporate Governance — a joint Committee of Reed Elsevier PLC and Reed Elsevier NV, comprising all Non-Executive Directors of each company; and |
— | Nominations — a joint Committee of Reed Elsevier PLC and Reed Elsevier NV, currently comprising three Non-Executive Directors of the Board including the Chairman of the Board. |
RELX Group plc has established a Remuneration Committee, which is responsible for determining the remuneration policy (subject to shareholder approval) and monitoring its implementation for the Executive Directors of Reed Elsevier PLC and RELX Group plc, and considering the remuneration for the Executive Directors of Reed Elsevier NV.
Under the articles of association of Reed Elsevier PLC, one third of the Directors shall retire from office and, if they wish, make themselves available for re-election by shareholders at the Annual General Meeting. Notwithstanding these provisions in the articles of association, in accordance with the provisions of the UK Corporate Governance Code all Directors normally retire and offer themselves for re-election at each Annual General Meeting.
REED ELSEVIER NV
On May 8, 2013 and 2015.the unitary board governance structure became effective. Reed Elsevier NV has a unitary board comprising both Executive and Non-Executive Directors. The Board currently comprises two Executive Directors and eight Non-Executive Directors. Directors shall be appointed by the General Shareholders’ Meeting upon a proposal of the Non-Executive Directors based on a nomination for appointment by the joint Nominations Committee of Reed Elsevier NV and Reed Elsevier PLC. The articles of association of Reed Elsevier NV provide that a resolution of the General Shareholders’ Meeting to appoint a Director other than in accordance with a proposal of the Board can only be taken by a majority of at least two-thirds of the votes cast if less than one-half of Reed Elsevier NV’s issued capital is represented at the meeting.
The General Shareholders’ Meeting of Reed Elsevier NV shareholders may also, by ordinary resolution, resolve to suspend or dismiss each Director of Reed Elsevier NV. In addition, each Executive Director of the Board can, at any time, be suspended by the Board. In such circumstances that Executive Director will also be required to be removed or resign from the Boards of Reed Elsevier PLC and RELX Group plc (except in circumstances where there has been a change of control of Reed Elsevier NV and not Reed Elsevier PLC).
The Reed Elsevier NV Board has established the following committees:
— | Audit — currently comprising three Non-Executive Directors; |
— | Corporate Governance — a joint Committee of Reed Elsevier NV and Reed Elsevier PLC, comprising all Non-Executive Directors of each company; and |
— | Nominations — a joint Committee of Reed Elsevier NV and Reed Elsevier PLC, currently comprising three Non-Executive Directors including the Chairman of the Board. |
RELX Group plc has established a Remuneration Committee, which is responsible for considering the remuneration for the Executive Directors of Reed Elsevier NV, and determining the remuneration policy (subject to shareholder approval) and monitoring its implementation for the Executive Directors of RELX Group plc and Reed Elsevier PLC.
Under the articles of association of Reed Elsevier NV, a Director of Reed Elsevier NV shall retire no later than on the day on which the first General Meeting of Shareholders’ is held following the lapse of three years after his appointment, with the possibility of re-appointment and shall retire periodically in accordance with a rotation plan drawn up by the Board. Notwithstanding these provisions in the articles of association, in accordance with the provisions of the UK Corporate Governance Code all Directors retire and seek re-appointment at each Annual General Meeting of Shareholders. To align the arrangements regarding appointment for the Boards of Reed Elsevier NV and Reed Elsevier PLC annual re-appointment shall not affect the term of their three-year appointment. As a general rule, Non-Executive Directors serve for two three-year terms. The Nominations Committee may recommend that individual Non-Executive Directors serve up to one additional three-year term. A schedule with the anticipated dates of retirement of Directors is published on our website, www.relxgroup.com. A copy of the terms of reference of the Nominations Committee is available on request and can be viewed on our website. The information on our website is not incorporated by reference into this report.
ELSEVIER REED FINANCE BV
During 2014, Elsevier Reed Finance BV had a two-tier board structure comprising a Management Board, consisting of three members, and a Supervisory Board, consisting of three members.
The number of people employed is disclosed in note 5 to the combined financial statements.
The Board of RELX Group plc is fully committed to the concept of employee involvement and participation, and encourages each of its businesses to formulate its own tailor-made approach with the co-operation of employees. We are an equal opportunity employer, and recruit and promote employees on the basis of suitability for the job. Appropriate training and development opportunities are available to all employees. A code of ethics and business conduct applicable to employees within the Group has been adopted throughout its businesses.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
REED ELSEVIER PLC
Substantial share interests
As at March 7, 2013, the company6, 2015, we had been notified by the following shareholders that they held an interest of 3% or more in voting rights(1) of the issued share capital of the company:Reed Elsevier PLC:
Identity of Person or Group(2) | % of Class | |||
| ||||
BlackRock, Inc | 5.03 | |||
| ||||
Lloyds Banking Group plc | ||||
| ||||
Legal & General Group plc | 3.40 |
The percentage interests stated above are as disclosed at the date on which the interests were notified to the company.us.
(1) | Under the UK Disclosure and Transparency Rules, subject to certain limited exceptions, persons or groups with an interest of 3% or more in voting rights of the issued Reed Elsevier PLC ordinary share capital are required to notify both Reed Elsevier PLC and the UK Financial Conduct Authority of their interest. |
(2) | Under the UK Large and |
As far as Reed Elsevier PLC is aware, except as disclosed herein, it is neither directly or indirectly owned nor controlled by one or more corporations or by any government.
At December 31, 20122014 there were 18,06416,795 ordinary shareholders, including the depositorydepositary for Reed Elsevier PLC’s ADR programme, with a registered address in the United Kingdom, representing 99.65%99.85% of shares issued.
Reed Elsevier PLC is not aware of any arrangements the operation of which may at a subsequent date result in a change in control of Reed Elsevier PLC. The major shareholders of Reed Elsevier PLC do not have different voting rights to other ordinary shareholders.
REED ELSEVIER NV
Substantial share interests
As of March 7, 2013 Reed Elsevier NV is6, 2015, we were aware of the following disclosable interests of 5%3% or more in the issued Reed Elsevier NV ordinary shares based on the public database of and on notification received from the Netherlands Authority for the Financial Markets(1) or provided as a Schedule 13G filing(2):
Identity of Person or Group | % of Class | |||
BlackRock, Inc | 6.10 | |||
Reed Elsevier PLC(3) | 5.89 | |||
Causeway Capital Management LLC | 5.81 | |||
ING Groep N.V. | 5.00 | |||
The Bank of New York Mellon Corporation | 4.59 | |||
FIL Limited | 3.72 | |||
Reed Elsevier NV(4) | 5.94 |
(1) | Under Article 5:38 of the Netherlands Financial Markets Supervision Act, any person acquiring or disposing of shares or voting rights in public companies established under the laws of the Netherlands listed on a stock exchange in the European Union, is required to notify the Netherlands Authority for the Financial Markets (AFM) without delay if such person knows, or should know, that such interest therein reaches, exceeds or drops below a 3%, 5% |
(2) | The Securities Exchange Act of 1934 as amended requires any person who has, as at the end of the calendar year, a direct or indirect beneficial interest in 5% or more of the issued share capital of a company, to file a statement on Schedule 13G with the Securities and Exchange Commission reporting such interest within 45 days following the end of the calendar year. |
(3) | Reed Elsevier PLC’s interest comprises a holding of R shares of €0.70 nominal value each held by a subsidiary of Reed Elsevier |
(4) | Under Dutch regulations, Reed Elsevier NV is required to notify the AFM if it acquires shares in its own capital as a result of which its percentage of shares in its own capital reaches, exceeds or falls below certain thresholds (including 3 and 5%). |
As far as Reed Elsevier NV is aware, except as disclosed herein, it is neither directly nor indirectly owned or controlled by any single corporation or corporations acting jointly, nor by any government.
Reed Elsevier NV is not aware of any arrangements the operation of which may at a subsequent date result in a change in control of Reed Elsevier NV. The major shareholders of Reed Elsevier NV do not have different voting rights to other ordinary shareholders.
Transactions with joint ventures and key management personnel, comprising the executive directorsExecutive and Non-Executive Directors of Reed Elsevier PLC and Reed Elsevier NV, are set out in note 3429 to the combined financial statements. Further details of remuneration of key management personnel are set out in “Item 6 — Directors, Senior Management and Employees”.
FINANCIAL STATEMENTS
See Item 18: Financial Statements.
DIVIDEND POLICY
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 byavailable to 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. The Boards of Reed Elsevier PLC and Reed Elsevier NV have adopted dividend policies in recent years in respect of their equalised dividends that, subject to currency considerations, more closely align dividend growth with growth in adjusted earnings, consistent with the dividend normally being covered over the longer term at least two times by adjusted earnings (i.e. before the amortisation and impairment of acquired intangible assets, and goodwill, exceptional restructuring and acquisition related costs, net financing charge on defined benefit pension schemes, disposal gains and losses and other non operating items, related tax effects, other deferred tax credits from intangible assets and exceptional prior year tax credits and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term and include the benefit of tax amortisation where available on acquired goodwill and intangible assets)credits).
Reed Elsevier NV may resolve that the dividend to be paid on each R share shall be lower than the dividend to be paid on each ordinary share, but not less than 1% of the nominal value of an R share.
LEGAL PROCEEDINGS
Beginning in 2005, variousVarious of Reed Elsevier’sthe Group’s subsidiaries operating in the United States becamehave been the subject of legal proceedings and federal and state regulatory actions relating to data security breaches, pursuant to which unauthorised persons obtained personal identifying information from Reed Elsevierour databases, or alleged breaches of federal privacy laws in connection with the obtaining and disclosure by such subsidiaries of information without the consent of the individuals involved. The principal actions and investigations have been settled, with the substantial portion of cash payments agreed to be paid by these subsidiaries being reimbursed by insurance and third-party indemnities. The settlements generally require strict data security programs, submissions of regulatory reports and on-going monitoring by independent third parties to ensure Reed Elsevier’sour compliance with the terms of those settlements. While the costs of such on-going monitoring will be borne by Reed Elsevier,us, neither the costs of compliance nor the costs of such on-going monitoring are expected to have a material adverse effect on our financial position or the results of our operations.
Many of the products offered by Risk Solutions is governed byare subject to regulation under the US Fair Credit Reporting Act (“FCRA”), Graham Leach Bliley Act (“GLBA”), Drivers Privacy Protection Act (“DPPA”) and related state laws requiring that consumers be providedwe meet certain notices.obligations in connection with the disclosure of information. Certain of these laws further provide for statutory penalties and attorneys fees for non-compliance. In the normal course of its business, Risk Solutions& Business Information deals with individual and class action lawsuits claiming violation of one or more of these statutes. Other than pending matters, to date, these cases have either been settled or successfully defended to date with a substantial portion of cash payments agreed to be paid by insurance.our insurance providers. These proceedings have not had, and are not expected to have, a material adverse effect on our financial position or the results of our operations.
We are party to various other legal proceedings arising in the ordinary course of our business, the ultimate resolutions of which are not expected to have a material adverse effect on our financial position or the results of our operations.
REED ELSEVIER PLC
The Reed Elsevier PLC ordinary shares are listed on the London Stock Exchange and the New York Stock Exchange. The London Stock Exchange is the principal trading market for Reed Elsevier PLC ordinary shares. Trading on the New York Stock Exchange is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs) issued by The Bank of New York Mellon,Citibank N.A., as depositary. Each ADS represents four Reed Elsevier PLC ordinary shares.
The table below sets forth, for the periods indicated, the high and low closing middle market quotations for the Reed Elsevier PLC ordinary shares on the London Stock Exchange as derived from the Daily Official List of the London Stock Exchange and the high and low last reported sales prices in US dollars for the Reed Elsevier PLC ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Thomson Reuters Datastream:
Pence per ordinary share | US dollars per ADS | Pence per ordinary share | US dollars per ADS | |||||||||||||||||||||||||||||
Calendar Periods | High | Low | High | Low | High | Low | High | Low | ||||||||||||||||||||||||
2014 | 1,113 | 866 | 69.76 | 57.73 | ||||||||||||||||||||||||||||
2013 | 899 | 641 | 60.05 | 41.01 | ||||||||||||||||||||||||||||
2012 | 652 | 469 | 42.04 | 28.90 | 652 | 469 | 42.04 | 28.90 | ||||||||||||||||||||||||
2011 | 591 | 461 | 37.74 | 29.61 | 591 | 461 | 37.74 | 29.61 | ||||||||||||||||||||||||
2010 | 563 | 461 | 35.70 | 26.82 | 563 | 461 | 35.70 | 26.82 | ||||||||||||||||||||||||
2009 | 560 | 420 | 33.56 | 26.20 | ||||||||||||||||||||||||||||
2008 | 690 | 451 | 54.60 | 27.06 | ||||||||||||||||||||||||||||
2007 | 690 | 558 | 54.85 | 44.02 | ||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 1,113 | 938 | 69.76 | 59.69 | ||||||||||||||||||||||||||||
Third Quarter | 1,011 | 917 | 66.56 | 63.21 | ||||||||||||||||||||||||||||
Second Quarter | 959 | 866 | 65.27 | 58.39 | ||||||||||||||||||||||||||||
First Quarter | 935 | 878 | 62.56 | 57.73 | ||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 899 | 822 | 60.05 | 52.69 | ||||||||||||||||||||||||||||
Third Quarter | 854 | 761 | 54.39 | 46.18 | ||||||||||||||||||||||||||||
Second Quarter | 796 | 715 | 48.39 | 44.36 | ||||||||||||||||||||||||||||
First Quarter | 782 | 641 | 47.53 | 41.01 | ||||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 652 | 598 | 42.04 | 38.25 | 652 | 598 | 42.04 | 38.25 | ||||||||||||||||||||||||
Third Quarter | 608 | 506 | 39.34 | 31.53 | 608 | 506 | 39.34 | 31.53 | ||||||||||||||||||||||||
Second Quarter | 565 | 469 | 36.24 | 28.90 | 565 | 469 | 36.24 | 28.90 | ||||||||||||||||||||||||
First Quarter | 563 | 509 | 35.75 | 31.44 | 563 | 509 | 35.75 | 31.44 | ||||||||||||||||||||||||
2011 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 555 | 489 | 35.93 | 30.33 | ||||||||||||||||||||||||||||
Third Quarter | 578 | 461 | 36.99 | 29.61 | ||||||||||||||||||||||||||||
Second Quarter | 566 | 526 | 36.89 | 34.13 | ||||||||||||||||||||||||||||
First Quarter | 591 | 506 | 37.74 | 32.20 | ||||||||||||||||||||||||||||
2010 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 563 | 509 | 35.65 | 31.73 | ||||||||||||||||||||||||||||
Third Quarter | 561 | 490 | 35.70 | 29.74 | ||||||||||||||||||||||||||||
Second Quarter | 545 | 461 | 33.94 | 26.82 | ||||||||||||||||||||||||||||
First Quarter | 526 | 482 | 33.71 | 29.91 | ||||||||||||||||||||||||||||
Month | ||||||||||||||||||||||||||||||||
February 2013 (through February 27, 2013) | 716 | 687 | 44.92 | 41.50 | ||||||||||||||||||||||||||||
January 2013 | 692 | 641 | 43.96 | 41.01 | ||||||||||||||||||||||||||||
December 2012 | 652 | 628 | 42.04 | 40.63 | ||||||||||||||||||||||||||||
November 2012 | 645 | 603 | 41.28 | 38.32 | ||||||||||||||||||||||||||||
October 2012 | 618 | 598 | 39.81 | 38.25 | ||||||||||||||||||||||||||||
September 2012 | 608 | 592 | 39.34 | 37.41 | ||||||||||||||||||||||||||||
August 2012 | 594 | 545 | 37.41 | 33.90 | ||||||||||||||||||||||||||||
February 2015 | 1,188 | 1,118 | 73.51 | 69.02 | ||||||||||||||||||||||||||||
January 2015 | 1,162 | 1,066 | 70.33 | 64.75 | ||||||||||||||||||||||||||||
December 2014 | 1,110 | 1,042 | 69.76 | 65.22 | ||||||||||||||||||||||||||||
November 2014 | 1,113 | 1,028 | 69.32 | 65.02 | ||||||||||||||||||||||||||||
October 2014 | 1,027 | 938 | 65.74 | 59.69 | ||||||||||||||||||||||||||||
September 2014 | 1,011 | 980 | 66.28 | 63.94 |
REED ELSEVIER NV
The Reed Elsevier NV ordinary shares are quoted on Euronext Amsterdam NV and the New York Stock Exchange. Euronext Amsterdam NV is the principal trading market for Reed Elsevier NV ordinary shares. Trading on the New York Stock Exchange is in the form of ADSs, evidenced by ADRs issued by The Bank of New York Mellon,Citibank N.A., as depositary. Each ADS represents two Reed Elsevier NV ordinary shares.
The table below sets forth, for the periods indicated, the high and low closing middle market quotations for the Reed Elsevier NV Ordinary Shares on Euronext Amsterdam NV as derived from theOfficiële Prijscourantof Euronext Amsterdam NV and the high and low last reported sales prices in US dollars for the Reed Elsevier NV ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Thomson Reuters Datastream:
€ per ordinary share | US dollars per ADS | € per ordinary share | US dollars per ADS | |||||||||||||||||||||||||||||
Calendar Periods | High | Low | High | Low | High | Low | High | Low | ||||||||||||||||||||||||
2014 | 19.95 | 14.70 | 49.32 | 40.78 | ||||||||||||||||||||||||||||
2013 | 15.82 | 11.18 | 43.01 | 28.97 | ||||||||||||||||||||||||||||
2012 | 11.37 | 8.17 | 29.58 | 20.35 | 11.37 | 8.17 | 29.58 | 20.35 | ||||||||||||||||||||||||
2011 | 10.27 | 7.59 | 27.84 | 21.23 | 10.27 | 7.59 | 27.84 | 21.23 | ||||||||||||||||||||||||
2010 | 10.12 | 8.17 | 26.93 | 20.14 | 10.12 | 8.17 | 26.93 | 20.14 | ||||||||||||||||||||||||
2009 | 9.42 | 7.19 | 25.05 | 19.85 | ||||||||||||||||||||||||||||
2008 | 13.69 | 7.72 | 39.61 | 20.73 | ||||||||||||||||||||||||||||
2007 | 14.89 | 11.49 | 40.49 | 33.20 | ||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 19.95 | 16.42 | 49.32 | 42.03 | ||||||||||||||||||||||||||||
Third Quarter | 18.10 | 16.23 | 46.50 | 44.11 | ||||||||||||||||||||||||||||
Second Quarter | 16.85 | 14.70 | 45.94 | 40.78 | ||||||||||||||||||||||||||||
First Quarter | 16.23 | 15.09 | 44.51 | 40.89 | ||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 15.82 | 14.46 | 43.01 | 39.05 | ||||||||||||||||||||||||||||
Third Quarter | 15.07 | 13.00 | 40.55 | 33.68 | ||||||||||||||||||||||||||||
Second Quarter | 13.43 | 12.26 | 34.38 | 32.21 | ||||||||||||||||||||||||||||
First Quarter | 13.37 | 11.18 | 34.18 | 28.97 | ||||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 11.37 | 10.23 | 29.58 | 26.50 | 11.37 | 10.23 | 29.58 | 26.50 | ||||||||||||||||||||||||
Third Quarter | 10.66 | 9.14 | 27.49 | 22.20 | 10.66 | 9.14 | 27.49 | 22.20 | ||||||||||||||||||||||||
Second Quarter | 9.73 | 8.17 | 25.97 | 20.35 | 9.73 | 8.17 | 25.97 | 20.35 | ||||||||||||||||||||||||
First Quarter | 9.64 | 8.79 | 25.76 | 22.36 | 9.64 | 8.79 | 25.76 | 22.36 | ||||||||||||||||||||||||
2011 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 9.13 | 8.15 | 25.74 | 21.67 | ||||||||||||||||||||||||||||
Third Quarter | 9.42 | 7.59 | 27.16 | 21.23 | ||||||||||||||||||||||||||||
Second Quarter | 9.51 | 8.74 | 27.36 | 25.07 | ||||||||||||||||||||||||||||
First Quarter | 10.27 | 8.66 | 27.84 | 23.85 | ||||||||||||||||||||||||||||
2010 | ||||||||||||||||||||||||||||||||
Fourth Quarter | 9.66 | 9.01 | 26.93 | 23.45 | ||||||||||||||||||||||||||||
Third Quarter | 10.12 | 8.92 | 26.64 | 22.19 | ||||||||||||||||||||||||||||
Second Quarter | 9.35 | 8.17 | 24.98 | 20.14 | ||||||||||||||||||||||||||||
First Quarter | 9.00 | 8.29 | 24.83 | 22.73 | ||||||||||||||||||||||||||||
Month | ||||||||||||||||||||||||||||||||
February 2013 (through February 27, 2013) | 11.75 | 11.18 | 32.07 | 28.97 | ||||||||||||||||||||||||||||
January 2013 | 11.54 | 11.18 | 31.11 | 29.21 | ||||||||||||||||||||||||||||
December 2012 | 11.37 | 10.90 | 29.58 | 28.60 | ||||||||||||||||||||||||||||
November 2012 | 11.11 | 10.44 | 28.95 | 26.50 | ||||||||||||||||||||||||||||
October 2012 | 10.60 | 10.23 | 27.57 | 26.54 | ||||||||||||||||||||||||||||
September 2012 | 10.66 | 10.35 | 27.49 | 26.10 | ||||||||||||||||||||||||||||
August 2012 | 10.39 | 9.59 | 26.10 | 23.37 | ||||||||||||||||||||||||||||
February 2015 | 22.73 | 21.63 | 51.52 | 49.20 | ||||||||||||||||||||||||||||
January 2015 | 21.83 | 19.10 | 49.28 | 45.45 | ||||||||||||||||||||||||||||
December 2014 | 19.95 | 18.70 | 49.32 | 46.43 | ||||||||||||||||||||||||||||
November 2014 | 19.77 | 18.36 | 49.03 | 45.96 | ||||||||||||||||||||||||||||
October 2014 | 18.37 | 16.42 | 46.01 | 42.03 | ||||||||||||||||||||||||||||
September 2014 | 18.10 | 17.36 | 46.35 | 44.83 |
ITEM 10: ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
REED ELSEVIER PLC (the “Company”)
At the Company’s Annual General Meeting held in April 2010, shareholders passed a special resolution to adopt newA copy of Reed Elsevier PLC’s current Articles of Association (the “Articles”) to reflect fully the implementation of the UK Companies Act 2006 (the “Act”).
A copy of the Company’s current Articles is incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 filed with the SEC on May 25, 2010 — see “Item 19: Exhibits” on pages S-3 and S-4.
The following is a summary of the current Articles. As a summary, it is not exhaustive and is qualified in its entirety by reference to UK law and the Articles.
Company’s Objects
The Company’sReed Elsevier PLC’s objects are unrestricted.
Share Capital
As at December 31, 2012 the company’s2014 issued ordinary share capital comprised 1,257,597,9771,205,397,320 shares of 14 51/116p. 51/116p. At December 31, 20122014 the total shares held in treasury were 70,936,383.77,730,978. Of these 13,451,4688,032,643 ordinary shares were held by the Reed Elsevier Group plc Employee Benefit Trust and 57,484,91569,698,335 ordinary shares were held in treasury by Reed Elsevier PLC. During 2014, Reed Elsevier PLC bought back35,251,501 ordinary shares pursuant to the Company.authority given by shareholders at the Annual General Meeting held on April 24, 2014 and the previous authority given by shareholders at the Annual General Meeting held on April 25, 2013. These shares are included in the number of ordinary shares held in treasury.
The CompanyReed Elsevier PLC by ordinary resolution and subject to the UK Companies Act 2006 (the “Act”) may:
1. | Allot shares up to a limit of 1/3 of the issued share capital, a further 1/3 of the issued share capital may be allotted but only in connection with a fully pre-emptive rights issue; |
2. | Sub-divide all or part of the share capital into shares of a smaller nominal value than the existing shares; and |
3. | Consolidate and divide all or part of the share capital into shares of a larger nominal value than the existing shares. |
All shares created by increase of the Company’sReed Elsevier PLC’s share capital by consolidation, division or sub-division shall be subject to all the provisions of the Articles.
The CompanyReed Elsevier PLC by special resolution and subject to the Act may:
1. | Disapply shareholders pre-emption rights on new issue shares up to a limit of 5% of the issued share capital; |
2. | Buy back its own shares up to a limit of 10% of the issued share capital; and |
3. | Reduce its share capital. |
Transfer of ordinary shares
A certificated shareholding may be transferred in the usual form or in any other form approved by the Board. The Board in its discretion may refuse to register the transfer of a certificated share unless the instrument of transfer:
1. | is stamped or certified and lodged, at the registered office or other place that the Board decide, accompanied by the relevant share certificate and any other evidence that the Board may reasonably require to prove a legitimate right to transfer; |
2. | is in respect of only one class of shares; |
3. | is in favour of not more than four transferees; and |
4. | is not fully paid. |
Where the Board refuses to register a transfer of certificated shares, it must notify the transferee of the refusal within two months after the date on which the instrument of transfer was lodged with the Company.Reed Elsevier PLC.
For those members holding uncertificated shares, such transfers must be conducted using a relevant system as defined in the UK Uncertificated Securities Regulations 2001.
Untraced shareholders
The CompanyReed Elsevier PLC is entitled to sell any of its ordinary shares if;
1. | during the period of twelve years prior to the publication of any advertisement stating the intent to sell, at least three dividends have become payable on the shares which have remained uncashed; and |
2. | during the period of three months following the publication of any advertisement stating the intent to sell, |
Dividend Rights
Subject to the provisions of the Act, the shareholders may by ordinary resolution declare a dividend no larger than the amount recommended by the Board. Interim dividends may also be payable if the Board deems that there is sufficient profit available for distribution. Except as otherwise provided by the rights attached to the shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is declared. No dividend payable in respect of a share shall bear interest against the Company,Reed Elsevier PLC, unless otherwise provided by the rights attached to the share.
Unclaimed dividends
Any dividend which remains unclaimed for 12 years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to be owed by the CompanyReed Elsevier PLC to the shareholder. The CompanyReed Elsevier PLC may stop issuing dividend cheques or warrants:
1. | Where on at least two consecutive occasions dividend cheques/warrants are left uncashed or returned undelivered; or |
2. | Where after one such occasion reasonable enquiries have failed to establish an updated address. |
If the member goes on to claim a dividend or warrant, the CompanyReed Elsevier PLC must recommence issuing dividend cheques and warrants.
Distribution of assets on winding up
In the event of the companyReed Elsevier PLC being wound up, on the authority of a special resolution of the CompanyReed Elsevier PLC and subject to the UK Insolvency Act 1986 (as amended) the liquidator may:
1. | Divide among the members the whole or any part of the assets of |
2. | Value any assets and determine how the division should be made between the members or different classes of members. |
3. | Place the whole or any part of the assets in trust for the benefit of the members and determine the scope and terms of these trusts. |
A member cannot be compelled to accept an asset with an inherent liability.
Variation of rights
Subject to the Act, where the capital of the CompanyReed Elsevier PLC is divided into different classes of shares, the unique rights attached to the respective classes may be varied or cancelled:
1. | With the written consent of the holders of 75% in nominal value of the issued shares of the class (excluding any treasury shares held in that class); or |
2. | By authority of a special resolution passed at a separate general meeting of the holders of the shares of the class. |
General meetings of shareholders
Subject to the Act, the companyReed Elsevier PLC must hold a general meeting as its annual general meeting within six months from January 1 every year. The Board may convene a general meeting when necessary and must do so promptly upon requisition by the shareholders. The notice period for annual general meetings is 21 clear days and 14 clear days for other general meetings. Subject to the Act and the Articles, the notice shall be sent to every member at their registered address. If, on two consecutive occasions notices are sent to a members registered address and have been returned undelivered the member shall not be entitled to receive any subsequent notice.
Voting rights
On a poll, every shareholder present in person or by proxy has one vote andfor every proxy duly appointed by a member has one vote.share of which he is the holder. No member is entitled to vote on a partly paid share. The Board also has the discretion to prevent a member from voting in person or by proxy if they are in default of a duly served notice under section 793 of the Act, concerning a request for information about interest in the company’sReed Elsevier PLC’s shares.
Directors’ Interests
Subject to the provisions of the Act, where a Director declares an interest to the Board, the Board may authorise the matter proposed to it which would otherwise constitute a conflict of interest and place a directorDirector in breach of their statutory
duty. Such authorisation is effective where the directorDirector in question is not included in the quorum for the meeting and the matter was agreed without their vote, or would have been agreed to had their vote not been counted. A director’sDirector’s duty to declare an interest does not apply in the circumstances provided for by section 177(5) and 177(6) of the Act. A director:Director:
1. | May be a party to, or otherwise interested in, any transaction or arrangement with |
2. | May act solely or with his firm in a professional capacity (not as auditor) for |
3. | May be interested in a body corporate in which |
A directorDirector with a declared interest that has been authorised by the Board, is not liableaccountable to account to the CompanyReed Elsevier PLC or its shareholders for any benefits received.
Directors’ Remuneration
The remuneration of any executive directorExecutive Director shall be determined by the Board. ItBoard in accordance with Reed Elsevier PLC’s Remuneration Policy and may include (without limitation) admission to or continuance of membership of any scheme (including share acquisition schemes), life assurance, pension provision or other such benefits payable to the directorDirector on or after retirement, or to his dependants on or after death.
For directorsDirectors who do not hold an executive position in the company,Reed Elsevier PLC, their ordinary remuneration shall not exceed in aggregate £500,000 per annum or such higher amount as the CompanyReed Elsevier PLC may determine by ordinary resolution from time to time. Each directorDirector shall be paid a fee for their services which is deemed to accrue from day to day at such rate as determined by the Board.
The directorsDirectors may grant extra remuneration to any directorDirector who does not hold executive office but sits on any committee of the Board, or performs any other special services at the request of the Company.Reed Elsevier PLC. This extra remuneration may be paid in addition to, or in substitution for the ordinary remuneration.
Directors’ appointment/retirement/removal
The Board may appoint a person willing to act as director,Director, either to fill a vacancy or as an additional director,Director, provided the upper limit set by the Articles is not exceeded. The CompanyReed Elsevier PLC may by ordinary resolution remove any directorDirector from office, no special notice need be given and no directorDirector proposed for removal under the Articles has a right of protest against such removal.
Borrowing powers
Subject to the Act, the Board may exercise all the powers of the CompanyReed Elsevier PLC to borrow money, guarantee, indemnify, mortgage or charge its undertaking, property, assets (present and future) and uncalled capital and to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of the CompanyReed Elsevier PLC or of any third party. Without the authority of an ordinary resolution the directors are prohibited from borrowing an amount equal to the higher of (i) eight thousand million pounds; and (ii) two and a half times the adjusted total of capital and reserves.
Indemnity
Subject to the Act, without bar to any other existing indemnity entitlements, the CompanyReed Elsevier PLC may use its assets to indemnify a directorDirector against liability incurred through negligence, default, breach of duty or breach of trust in relation to CompanyReed Elsevier PLC’s affairs.
REED ELSEVIER NV (the “Company”)
The following is a summary of the principal provisions of the Company’s articlesReed Elsevier NV’s Articles of associationAssociation (the “Articles”). As a summary, it is not exhaustive and is qualified in its entirety by reference to Dutch law and the Articles as they read in the Dutch language. The Articles were last amended before a civil law notary in Amsterdam on March 3, 2010October 21, 2014 after a shareholders’ resolution was passed to approve such amendment at the Extraordinarya General Shareholders’ Meeting held on January 13, 2010.October 21, 2014. A copy of the current Articles is incorporated by reference from the 2009 Annual Report on Form 20-F filed with the SEC on March 18, 2010as Exhibit 1.2 — see “Item 19: Exhibits” on pagesS-3 and S-4.
Share Capital
Reed Elsevier NV has two types of shares: ordinary shares of 0.07 euro nominal value and R shares of 0.70 euro nominal value. At the General Shareholders’ Meeting, each ordinary share is entitled to cast one vote. Each R share is convertible into
10 ordinary shares and is entitled to cast ten (10) votes. Otherwise it has the same rights as an ordinary share, except that Reed Elsevier NV may pay a lower dividend on an R share, but not less than 1% of the nominal value of an R share. The ordinary shares are listed at NYSE Euronext Amsterdam and atADRs in respect of the ordinary shares are listed on the NYSE New York.
As at December 31, 2012 the Company’s2014 Reed Elsevier NV’s issued share capital comprised 725,984,225697,153,245 ordinary shares and 4,303,179 R shares held by a subsidiary of Reed Elsevier PLC.shares. At December 31, 20122014 the total shares held in treasury were 44,226,598.49,279,276. Of these 6,990,1015,337,782 ordinary shares were held by the Reed Elsevier Group plc Employee Benefit Trust and 36,613,08741,298,544 ordinary shares and 62,341264,295 R shares (equivalent to 623,4102,642,950 ordinary shares) were held in treasury by Reed Elsevier NV.
At the Company.extraordinary general meeting of shareholders of Reed Elsevier NV held in October 2014, the shareholders approved the reduction of the capital of Reed Elsevier NV by the cancellation of up to 40 million of its ordinary shares held in treasury. Following the shareholders’ meeting, the Board filed a declaration for the cancellation of 40 million ordinary shares with the Trade Register at the Chamber of Commerce on October 22, 2014. The 40 million ordinary shares of Reed Elsevier NV were subsequently cancelled with effect from December 24, 2014.
At the 2014 Annual General Shareholders’ Meeting, shareholders passed a resolution delegating the authority to the Board to acquire shares in Reed Elsevier NV for a period of 18 months from the date of the annual general meeting of shareholders and therefore up to and including October 22, 2015, for the maximum amount of 10% of the issued capital. During the year, 20,403,351 ordinary shares and additionally 107,901 R shares (equivalent to 1,079,010 ordinary shares) were purchased under this and the previous delegation of authority.
A resolution to renew the delegation of the authority to the Board to acquire shares in Reed Elsevier NV will be submitted to the shareholders at the 2015 Annual General Shareholders’ Meeting with a proposal to reduce the capital of Reed Elsevier NV by cancellation of up to 30 million of its ordinary shares held in treasury.
Ordinary shares can be registered in a shareholder’s name or held via a book-entry deposit under the Dutch Giro Securities TradeSecurity Depositary Act.
Issuance of shares
Shares may be issued on the basis of a resolution of the general meeting of shareholders, which can designate this authority to the Combined Board, provided that the aggregate nominal value ofup to which shares may be issued under this designated authority cannot exceed one-third of the sum of (i) the Company’sReed Elsevier NV’s issued share capital at the time the resolution to make the designation is adopted and (ii) the aggregate nominal value of any rights granted by the CompanyReed Elsevier NV to take up shares outstanding at that time.
Pre-emptive rights of existing shareholders may be restricted or excluded by a resolution of the general meeting and in the event of an issue of shares pursuant to a resolution of the Combined Board, the pre-emptive rights can be restricted or excluded pursuant to a resolution of the Combined Board if that boardthe Board is designated competent to do so by the general meeting.
Acquisition of the Company’sReed Elsevier NV’s own shares
The CompanyReed Elsevier NV is entitled to acquire its own fully paid-up shares or depositary receipts thereof, provided that either the acquisition is for no consideration or that:
(a) |
(b) | the nominal value of the shares or depositary receipts thereof, which |
An acquisition of Reed Elsevier NV’s own shares other than for no consideration is only permitted if the general meeting has granted authorisation to the Board. No voting rights may be exercised on shares held by Reed Elsevier NV or a subsidiary and no dividend shall be paid on these shares.
The general meeting of shareholders may at the proposal of the Combined Board resolve to reduce the Company’sReed Elsevier NV’s issued share capital through cancellation of shares or through reduction of the nominal value of shares by amendment of the Articles of Association, provided that the issued share capital or the paid-up part thereof will not drop below the amount prescribed by the Dutch Civil Code.
Transfer of shares
The transfer of a share shall require an instrument intended for such purpose and the written acknowledgement by the CompanyReed Elsevier NV of the transfer. The transfer of the rights of a Euroclear-participant with respect to ordinary shares which are included in the securities depositary system of Euroclear Nederland shall be effected in accordance with the provisions of the Dutch Giro Securities TradeSecurity Depositary Act (Wet giraal effectenverkeer).
Dividend Rights
Each year the Combined Board shall determine which part of the profits shown in the adopted profit and loss account shall be reserved. After allocation to reserves, the shareholders’ meeting shall determine the allocation of remaining profits. Distributions may be made only insofar as the Company’sReed Elsevier NV’s equity exceeds the amount of the paid in and called up part of the issued share capital, increased by the reserves which must be kept by virtue of the law. Dividends shall be paid after adoption of the annual accounts showing that payment of dividends is permitted. Interim distributions may be payable, provided there is sufficient profit available for distribution in accordance with the aforementioned requirements as shown by interim accounts.
The BoardsBoard
Reed Elsevier NV has a two-tierunitary board system,governance structure, comprising an Executive Boardexecutive and a Supervisory Board. The members of the Executive Board and the members of the Supervisory Board together form the Combined Board.non-executive directors. It is established board practice at Reed Elsevier NV that the members of both boardsexecutive and non-executive directors meet together astogether. In performing their duties, the Combined Board.
Executive Board
The Executive Board is entrusteddirectors shall act in accordance with the managementinterests of Reed Elsevier NV and the company. The Executive Board functions as a collective bodybusiness connected with shared responsibility. it.
The number of members of the Executive Boarddirectors is determined by the Combined Board, butBoard. The number of executive directors shall at all times be less than the number of members of the Supervisory Board. Members of the Executive Boardnon-executive directors.
Directors shall be appointed by the General Shareholders’ Meeting on the basis of a proposal of the Combined Board.Non-Executive Directors. Under the Articles, members of the Executive Boarddirectors are appointed for a three-year term, with the possibility of reappointment.re-appointment. Notwithstanding these provisions in the articles of association and in accordance with the provisions of the UK Corporate Governance Code, all members of the Executive BoardDirectors seek annual reappointmentre-appointment at the Annual General Meeting to align the arrangements regarding appointment for the Boards of Reed Elsevier NV and Reed Elsevier PLC.
SupervisoryExecutive Directors
The Executive Directors are entrusted with the management of Reed Elsevier NV. In performing their duties, the Executive Directors shall act in accordance with the interests of Reed Elsevier NV and the business connected with it. The Board has established rules regarding the decision-making and working methods of the Executive Directors in addition to the Articles. In this context, the Board has also determined the duties for which each Executive Director in particular shall be responsible.
Non-Executive Directors
The duties of the Supervisory BoardNon-Executive Directors are to supervise the management of the Executive Board, to supervise the policies of the Executive BoardDirectors and the general affairs in the CompanyReed Elsevier NV and the business connected with it, and to assist the Executive Boardexecutive directors by providing advice. In performing their duties the Non-Executive Directors shall act in accordance with the interests of Reed Elsevier NV and the business connected with it. The Non-Executive Directors have established rules regarding their decision-making process and working methods in addition to the Articles.
The number of members ofReed Elsevier NV pursues a remuneration policy for the Supervisory BoardExecutive Directors, which is determined by the Combined Board.general meeting upon a proposal by the Non-Executive Directors. The numberRemuneration Committee of membersRELX Group plc makes recommendations to the Non-Executive Directors of Reed Elsevier NV with regard to the Supervisory Board must always exceedremuneration policy for Executive Directors and the number of members ofremuneration in all its forms for the Executive Board.Directors.
Members of the Supervisory Board shall be appointed by the General Shareholders’ Meeting on proposal of the Combined Board. Under the Articles, members of the Supervisory Board are appointed for a three-year term, with the possibility of re-appointment and shall retire periodically in accordance with a rotation plan drawn up by the Combined Board. They shall retire no later than three years after appointment. As a general rule, members of the Supervisory BoardNon-Executive Directors serve for two three yearthree-year terms. Individual directorsDirectors may serve up to one additional three-year term. Notwithstanding these provisions in the articles of association and in accordance with the provisions of the UK Corporate Governance Code, all members of the Supervisory Board seek annual reappointment at the Annual General Meeting to align the arrangements regarding appointment for the Boards of Reed Elsevier NV and Reed Elsevier PLC. Annual reappointment will not affect the term of their three year appointment.
Suspension/dismissal
Each member of the Executive Board and/or the Supervisory BoardDirector can at any time be suspended or dismissed by the General Shareholders’ Meeting. In addition, each member of the Executive BoardDirector can at any time be suspended by the Supervisory Board.
Amendment of the Articles
Amendment of the Articles requires a shareholders’ resolution passed with an absolute majority of the votes cast, provided such resolution is passed at the proposal of the Combined Board. Otherwise, a majority of two-thirds of the votes cast is required in a meeting at which at least half of the Company’sReed Elsevier NV’s issued capital is represented. The notice for such a meeting must state that amendment of the Articles is on the agenda. A copy of the full text of the proposed amendment of the Articles must be made available free of charge to shareholders at the time of notice for the meeting. In accordance with Article 4443 of the Articles, only certain provisions in the Articles including provisions governing appointments and dismissals of members of the Executive and Supervisory Boardsdirectors can be amended upon a proposal of the Combined Board.
The Combined Board of Reed Elsevier NV has resolved to take the necessary steps to establish a one-tier governance structure at Reed Elsevier NV. For this purpose the Articles of Association of Reed Elsevier NV will have to be amended and a proposal for the one-tier governance structure will be put to the Annual General Meeting on April 24, 2013.
General meetings of shareholders
At least once a year, a General Shareholders’ Meeting is held. Notices of a general meeting are posted on the Reed Elsevierour website and are made in accordance with the relevant provisions of the law. This means that the meeting is called at no less than 42 calendar days notice by an announcement on the Reed Elsevierour website. The agenda and explanatory notes for the General Shareholders’ Meeting are published in advance on the website and are available at the listing agent and at the offices of Reed Elsevier NV from the day of the notice.
The Articles provide for a record date and this has been used at the recent General Shareholders’ Meetings. In accordance with Dutch law, the record date will be the 28th day before the date of the General Shareholders’ Meeting and the holder of shares as per the record date will be entitled to vote, irrespective of any transfer of such shares between the record date and the date of the general shareholders’ meeting.
The Annual General Shareholders’ Meeting discusses the annual report, adopts the annual accounts, resolves on a proposal to pay a dividend and votes on release from liability of the members of the Executive Board and the Supervisory Board from liabilitydirectors as separate agenda items in the annual general shareholders’ meeting.
Conflict of Interest - members of the BoardsInterest—Directors
The handling of any (apparent) conflict ofA Director shall not participate in the discussions and decision-making if he has a direct or indirect personal interest between a member ofin the Executive Board or a member ofmatter which is conflicting with the Supervisory Board and the company is governed by the Articles and the Rules for the Boardsinterests of Reed Elsevier NV.NV and the business connected with it. In case because of this no resolution can be adopted by the Executive Directors, the Non-Executive Directors will resolve on the matter. In case because of this no resolution can be adopted by the Non-Executive Directors, the general meeting will resolve on the matter.
Remuneration
The remuneration policy for members of the Executive and the Supervisory BoardsDirectors is adopteddetermined by the General Shareholders’ Meeting.Meeting upon a proposal of the Non-Executive Directors. The remuneration of the members of the Executive BoardDirectors is determined by the Supervisory BoardNon-Executive Directors in line with the remuneration policy agreed by the shareholders’ meeting. With respect to remuneration in the form of shares in Reed Elsevier NV and/or rights to subscribe for such shares, the Non-Executive Directors will submit a proposal for approval to the shareholders’ meeting.
The Non-Executive Directors receive an annual remuneration. The remuneration of members of the Supervisory Boardeach Non-Executive Director individually, is determined by the Combined Board, in line with the remuneration policy for non-executive directors. The maximum amount of annual remuneration shall be determined by the shareholders’ meeting and can only be adopted at the proposal of the Combined Board. At the Annual General Meeting in 2011 the maximum amount of remuneration for the Supervisory BoardNon-Executive Directors was set at €600,000 per annum, for the proportion of the fees borne by the Company.Reed Elsevier NV.
Dissolution of the CompanyReed Elsevier NV
A resolution to dissolve the CompanyReed Elsevier NV requires an absolute majority of the votes cast at the General Meeting of Shareholders. The notice for such a meeting must state that dissolution will be on the agenda. If the CompanyReed Elsevier NV is dissolved by a resolution of the general meeting, the members of the Executive Boardexecutive directors shall be charged with the liquidation of the CompanyReed Elsevier NV and the Supervisory Boardnon-executive directors with the supervision thereof, subject to the relevant provisions of Book 2 of the Dutch Civil Code.
Assets which remain after payment of the debts shall be transferred to the holders of ordinary shares and the holders of class R shares in proportion to the nominal value of their shareholdings.
Indemnity
Under the Articles, to the extent permissible by law, the CompanyReed Elsevier NV shall indemnify and hold harmless each sitting and former member of the Executive Board and of the Supervisory Boarddirector against the financial consequences of any liabilities or claims, brought by any party other than the CompanyReed Elsevier NV itself or its group companies, in relation to acts or omissions performed or committed in that person’s capacity of member of the Executive Board or of the Supervisory Board.director.
MATERIAL CONTRACTSPROPOSED CHANGES TO CORPORATE STRUCTURE
Certain changes to the corporate structure of our combined businesses are being proposed for shareholder approval at the Annual General Meetings of Reed Elsevier has not entered into any material contract withinPLC and Reed Elsevier NV to be held in April 2015. In addition, the lastBoards of those two years.companies are proposing to shareholders to change the corporate names of Reed Elsevier PLC and Reed Elsevier NV to RELX PLC and RELX NV, respectively. See “Item 4. Information on the Group—Organisational Structure” on pages 23 and 24.
There is currently no UK or Dutch legislation restricting the import or export of capital or affecting the remittance of dividends or other payments to holders of, respectively, Reed Elsevier PLC ordinary shares who are non-residents of the United Kingdom and Reed Elsevier NV ordinary shares who are non-residents of the Netherlands.
There are no limitations relating only to non-residents of the United Kingdom under UK law or Reed Elsevier PLC’s Memorandum and Articles of Association on the right to be a holder of, and to vote, Reed Elsevier PLC ordinary shares, or to non-residents of the Netherlands under Dutch law or Reed Elsevier NV’s Articles of Association on the right to be a holder of, and to vote, Reed Elsevier NV ordinary shares.
The following discussion is a summary under present law and tax authority practice of the material UK, Dutch and US federal income tax considerations relevant to the purchase, ownership and disposal of Reed Elsevier PLC ordinary shares or ADSs and Reed Elsevier NV ordinary shares or ADSs. This discussion applies to you only if you are a US holder, you hold your ordinary shares or ADSs as capital assets and you use the US dollar as your functional currency. It does not address the tax treatment of US holders subject to special rules, such as banks, dealers or traders in securities or currencies, insurance companies, tax-exempt entities, partnerships or other pass-through entities for US federal income tax purposes, holders of 10% or more of Reed Elsevier PLC or Reed Elsevier NV voting shares, persons holding ordinary shares or ADSs as part of a hedging, straddle, conversion or constructive sale transaction, persons that are resident ordinarily resident or domiciled in the
UK (or who have ceased to be resident in or became treated as resident outside the UK for the purpose of a double tax treaty (treaty non-resident) within the past five years of assessment, or, for departures before April 6, 2013, who have ceased to be resident or ordinarily resident or become treaty non-resident within the past five years of assessment) and persons that are resident in the Netherlands. The summary also does not discuss the US federal alternative minimum tax or the tax laws of particular states or localities in the US.
This summary does not consider your particular circumstances. It is not a substitute for tax advice.We urge you to consult your own independent tax advisors about the income, capital gains and/or transfer tax consequences to you in light of your particular circumstances of purchasing, holding and disposing of ordinary shares or ADSs.
As used in this discussion, “US holder” means a beneficial owner of ordinary shares or ADSs that is for US federal income tax purposes: (i) an individual US citizen or resident, (ii) a corporation, partnership or other business entity created or organised under the laws of the United States, any state thereof or the District of Columbia, (iii) a trust (a) that is subject to the control of one or more US persons and the primary supervision of a US court or (b) that has a valid election in effect under US Treasury regulations to be treated as a US person or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.
UK Taxation
Dividends
Under current UK taxation legislation, no tax is required to be withheld at source from dividends paid on the Reed Elsevier PLC ordinary shares or ADSs. A shareholder in Reed Elsevier PLC who is an individual resident for UK tax purposes in the United Kingdom may be entitled, in calculating their liability to UK income tax, to a tax credit on cash dividends paid by Reed Elsevier PLC. The tax credit is equal to one-ninth of the cash dividend.
Capital Gains
YouShareholders may be liable for UK taxation on capital gains realised on the disposal of yourtheir Reed Elsevier PLC ordinary shares or ADSs if at the time of the disposal you carrythe shareholder carries on a trade, profession or vocation in the United Kingdom through a branch or agency, or in the case of a company a permanent establishment, and such ordinary shares or ADSs are or have been used, held or acquired for the purposes of such trade, profession, vocation, branch, agency or permanent establishment.
UK Stamp Duty and Stamp Duty Reserve Tax
Current UK law includes provision whereby UK stamp duty reserve tax (SDRT) or UK stamp duty is payable upon the transfer or issue of Reed Elsevier PLC ordinary shares to the depositary in exchange for Reed Elsevier PLC ADSs evidenced by ADRs. For this purpose, the current rate of stamp duty and SDRT is 1.5%, applied, in each case, to: (i) the issue price when the ordinary shares are issued; (ii) the amount or value of the consideration where shares are transferred for consideration in money or money’s worth; or (iii) the value of the ordinary shares in any other case. Following litigation HMRC have accepted that they will no longer seek to apply the 1.5% SDRT charge on an issue of shares into a clearance service or depositary receipt system on the basis that the charge is not compatible with EU law. Accordingly no UK SDRT or UK stamp duty is payable upon the issue of Reed Elsevier PLC shares to the depositary in exchange for Reed Elsevier PLC ADSs evidenced by ADRs. HMRC’s view is that the 1.5% SDRT or stamp duty charge will continue to apply to transfer of shares into a clearance service or depositary receipt system, unless they are an integral part of the issue of share capital. This view is currently being challenged in further litigation.
Provided that the relevant instrument of transfer is not executed in the UK and remains outside the UK, no UK stamp duty will be payable on the acquisition or subsequent transfer of Reed Elsevier PLC ADSs. Under current law, an agreement to transfer Reed Elsevier PLC ADSs will not give rise to a liability to SDRT.
A transfer of Reed Elsevier PLC ordinary shares by the depositary to an ADS holder where there is no transfer of beneficial ownership will not be chargeable to UK stamp duty or SDRT.
Purchases of Reed Elsevier PLC ordinary shares, as opposed to ADSs, will generally give rise to UK stamp duty or SDRT at the time of transfer or agreement to transfer, normally at the rate of 0.5% of the amount payable for the ordinary shares. SDRT and UK stamp duty are usually paid by the purchaser. If the ordinary shares are later transferred to the depositary, additional UK stamp duty or SDRT may be payable as described above.
Dutch Taxation
Withholding tax
Dividends distributed to you by Reed Elsevier NV are normally subject to a withholding tax imposed by the Netherlands at a rate of 15%, which rate equals the rate of tax that the Netherlands is generally allowed to levy under the US-Netherlands income tax treaty. As a consequence, no administrative procedures for a partial relief at source from or a refund of Dutch dividend withholding tax need be complied with in respect of dividend distributions by Reed Elsevier NV. Dividends include, among other things, stock dividends unless the dividend is distributed out of recognised paid-in share premium for Dutch tax purposes.
Taxation of dividends and capital gains
You will not be subject to any Dutch taxes on dividends distributed by Reed Elsevier NV (other than the withholding tax described above) or any capital gain realised on the disposal of Reed Elsevier NV ordinary shares or ADSs provided that (i) the Reed Elsevier NV ordinary shares or ADSs are not attributable to an enterprise or an interest in an enterprise that you carry on, in whole or part through a permanent establishment or a permanent representative in the Netherlands, (ii) you do not have a substantial interest or a deemed substantial interest in Reed Elsevier NV (generally, 5% or more of either the total issued and outstanding capital or the issued and outstanding capital of any class of shares) or, if you have such an interest, you do not hold such interest with the avoidance of Netherlands (or foreign) (withholding) tax as (one of) the main purpose(s) or it forms part of the assets of an enterprise, and (iii) if you are an individual, such dividend or capital gain from your Reed Elsevier NV ordinary shares or ADSs does not form benefits from miscellaneous activities(“resultaat uit overige werkzaamheden”) in the Netherlands. Benefits from miscellaneous activities in the Netherlands include income and gains derived from the holding, whether directly or indirectly, of (a combination of) shares, debt claims or other rights (together, a “lucrative interest”) that the holder thereof has acquired under such circumstances that such income and gains are intended to be remuneration for work or services performed by such holder (or a related person) in the Netherlands, whether within or outside an employment relation, where such lucrative interest provides the holder thereof, economically speaking, with certain benefits that have a relation to the relevant work or services.
US Federal Income Taxation
Holders of the ADSs generally will be treated for US federal income tax purposes as owners of the ordinary shares represented by the ADSs. Accordingly, deposits of ordinary shares for ADSs and withdrawals of shares for ADSs will not be subject to US federal income tax.
Dividends
Dividends on Reed Elsevier PLC ordinary shares or ADSs or Reed Elsevier NV ordinary shares or ADSs (including any Dutch tax withheld) will generally be included in your gross income as ordinary income from foreign sources. The dollar amount recognised on receiving a dividend in pounds sterling or euros will be based on the exchange rate in effect on the date the depositary receives the dividend, or in the case of ordinary shares on the date you receive the dividend, as the case may be, whether or not the payment is converted into US dollars at that time. Any gain or loss recognised on a subsequent conversion of pounds sterling or euros for a different amount will be US source ordinary income or loss. Dividends received will not be eligible for the dividends received deduction available to corporations. Dividends received will be included in net investment income for purposes of the 3.8% Medicare contribution tax applicable to certain non-corporate US holders.
With respect to US holders who are individuals, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of certain comprehensive income tax treaties with the United States. United States Treasury Department guidance indicates that the United Kingdom is a country with which the United States has a treaty in force that meets these requirements, and Reed Elsevier PLC believes it is eligible for the benefits of this treaty. Additionally, the same guidance indicates that the Netherlands is also a country with which the United States has a treaty in force that meets the above requirements, and Reed Elsevier NV believes it is eligible for the benefits of this treaty. Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the US Internal Revenue Code of 1986, as amended, will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. US holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
Subject to certain conditions and limitations, foreign withholding taxes on dividends withheld at the appropriate rate may be treated as foreign taxes eligible for credit against your US federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares or ADSs will be treated as income from sources outside the US and will generally constitute passive category income. Further, in certain circumstances, if you have held the ordinary shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on the dividends on the ordinary shares or ADSs. Individuals that treat a dividend as qualified dividend income may take into account for foreign tax credit limitation purposes only the portion of the dividend effectively taxed at the highest applicable marginal rate. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Dispositions
You will recognise a gain or loss on the sale or other disposition of ordinary shares or ADSs in an amount equal to the difference between your basis in the ordinary shares or ADSs and the amount realised. The gain or loss generally will be
capital gain or loss. It will be long term capital gain or loss if you have held the ordinary shares or ADSs for more than one year at the time of sale or other disposition. Long term capital gains of individuals are eligible for reduced rates of taxation. Deductions for capital losses are subject to limitations. Any gain or loss you recognise generally will be treated as income from US sources for foreign tax credit limitation purposes.
If you receive pounds sterling or euros on the sale or other disposition of your ordinary shares or ADSs, you will realise an amount equal to the US dollar value of the pounds sterling or euros on the date of sale or other disposition (or in the case of cash basis and electing accrual basis taxpayers, if the ordinary shares or ADSs are traded on an established securities market, the settlement date for the sale or other disposition). You will have a tax basis in the pounds sterling or the euros that you receive equal to the US dollar amount received on the settlement date. Any gain or loss realised by a US holder between the sale date and the settlement date or on a subsequent conversion of pounds sterling or euros into US dollars will be US source ordinary income or loss. Gains recognised will be included in net investment income for purposes of the 3.8% Medicare contribution tax applicable to certain non-corporate US holders.
Information Reporting and Backup Withholding Tax
Dividends from ordinary shares or ADSs and proceeds from the sale of the ordinary shares or ADSs may be reported to the Internal Revenue Service (“IRS”)(IRS) unless the shareholder is a corporation or other exempt recipient. A backup withholding tax may apply to such amounts unless the shareholder (i) is a corporation, (ii) provides an accurate taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules, or (iii) otherwise establishes a basis for exemption. The amount of any backup withholding tax will be allowed as a credit against the holder’s US federal income tax liability and may entitle the holder to a refund, provided the required information is furnished to the IRS.
Recently enacted legislation requires certain
Certain US holders are required to report to the IRS information about their investment in ordinary shares or ADSs not held through an account with a domestic financial institution. Investors who fail to report required information are subject to substantial penalties. Investors should consult with their own tax advisers about the effect of this legislation on their investment in the ordinary shares or ADSs.
You may read and copy documents referred to in this annual report that have been filed with the SEC at the SEC’s public reference room located at 100 F Street NE, Washington, DC 20549-2521. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Reed Elsevier’sOur primary market risks are to changes in interest rates and exchange rates as well as liquidity and credit risk.
Net finance costs are exposed to interest rate fluctuations on borrowings, cash and cash equivalents. Upward fluctuations in interest rates increase the interest cost of floating rate borrowings whereas downward fluctuations in interest rates decrease the interest return on floating rate cash and cash equivalents. Interest expense payable on fixed rate borrowings is protected against upward fluctuations in interest rates but does not benefit from downward fluctuations. Reed ElsevierOur companies engage in foreign currency denominated transactions and are therefore subject to exchange rate risk on such transactions. Net finance costs are also exposed to changes in the fair value of derivatives (as a result of interest and exchange rate fluctuations) which are not part of a designated hedging relationship under IAS39 — Financial Instruments,Instruments: Recognition and Measurement, and to ineffectiveness that may arise on designated hedging relationships. Reed Elsevier’sOur management of this interest rate risk and foreign exchange rate risk is described below.
Reed Elsevier managesWe manage a portfolio of long term debt, short term debt and committed bank facilities to support itsour capital structure and isare exposed to the risk that relevant markets are closed and debt cannot be refinanced on a timely basis. In addition, the credit spread at which Reed Elsevier borrowswe borrow is exposed to changes in market liquidity and investor demand. Reed Elsevier managesWe manage this risk by maintaining a range of borrowing facilities and debt programmes with a maturity profile to facilitate refinancing.
Reed Elsevier hasWe have 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 managed by monitoring the credit quality of counterparties and restricting the amounts outstanding with each of them.
Reed Elsevier’sOur management of the above market risks is described in further detail in note 18 on pages 34F-39 to 37F-40 of Item 5: Operating and Financial Review and Prospects: Liquidity and Capital Resources — Reed Elsevier.the combined financial statements.
Management of Interest Rate Risk and Foreign Exchange Rate Risk
Reed Elsevier seeksWe seek to limit itsour risk to interest and exchange rates by means of derivative financial instruments, including interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts. Reed ElsevierWe only entersenter into derivative financial instruments to hedge (or reduce) the underlying risks described above.
Reed Elsevier entersWe enter into interest rate swaps in order to achieve an appropriate balance between fixed and variablefloating rate borrowings, cash and cash equivalents. They are used to hedge the effects of fluctuating interest rates on variablefloating rate borrowings, cash and cash equivalents by allowing Reed Elsevierus to fix the interest rate on a notional principal amount equal to the principal amount of the underlying floating rate cash, cash equivalents or borrowings being hedged. They are also used to swap fixed interest rates payable on long term borrowings for a variablefloating rate. Such swaps may be used to swap a whole fixed rate bond for variablefloating rate or they may be used to swap a portion of the period or a portion of the principal amount for the variablefloating rate.
Forward swaps and forward rate agreements are entered into to hedge interest rate exposures known to arise at a future date. These exposures may include new borrowings or cash deposits to be entered into at a future date or future rollovers of existing borrowings or cash deposits. Interest exposure arises on future, new and rollover borrowings and cash deposits because interest rates can fluctuate between the time a decision is made to enter into such transactions and the time those transactions are actually entered into. The purpose of forward swaps and forward rate agreements is to fix the interest cost on future borrowings or interest return on cash investments at the time it is known such a transaction will be entered into. The fixed interest rate, the floating rate index (if applicable) and the time period covered by forward swaps and forward rate agreements are known at the time the agreements are entered into. The use of forward swaps and forward rate agreements is limited to hedging activities; consequently no trading position results from their use. The hedging effect of forward swaps and forward rate agreements is the same as interest rate swaps. Similarly, Reed Elsevier utilisesWe use forward foreign exchange contracts to hedge the effects of exchange rate movements on itsour foreign currency revenue and operating costs.
Interest rate options protect against fluctuating interest rates by enabling Reed Elsevierus to fix the interest rate on a notional principal amount of borrowings or cash deposits (in a similar manner to interest rate swaps and forward rate agreements) whilst at the same time allowing Reed Elsevierus to improve the fixed rate if the market moves in a certain way. Reed Elsevier usesWe use interest rate options from time to time when it expectswe expect interest rates to move in itsour favour but it is deemed imprudent to leave the interest rate risk completely unhedged. In such cases, Reed Elsevierwe may use an option to lock in at certain rates whilst at the same time maintaining some freedom to benefit if rates move in its favour.
Where net finance costs are exposed to changes in the fair value of derivatives (as a result of interest and exchange rate fluctuations), Reed Elsevier managesWe manage this risk by designating derivatives in a highly effective hedging relationship unless the potential change in their fair value is deemed to be insignificant.
Derivative financial instruments are utilised to hedge (or reduce) the risks of interest rate or exchange rate movements and are not entered into unless such risks exist. Derivatives utilised, while appropriate for hedging a particular kind of risk, are not considered specialised or high-risk and are generally available from numerous sources.
Sensitivity Analysis
The following analysis sets out the sensitivity of the fair value of Reed Elsevier’sour financial instruments to selected changes in interest rates and exchange rates. The range of changes represents Reed Elsevier’sour view of the changes that are reasonably possible over a one year period.
The fair values of interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts set out below represent the replacement costs calculated using market rates of interest and exchange at December 31, 2012.2014. The fair value of long term borrowings has been calculated by discounting expected future cash flows at market rates.
Reed Elsevier’sOur use of financial instruments and its accounting policies for financial instruments are described more fully in notes 2 and 1918 to the combined financial statements.
(a) Interest Rate Risk
The following sensitivity analysis assumes an immediate 100 basis point change in interest rates for all currencies and maturities from their levels at December 31, 20122014 with all other variables held constant.
Financial Instrument | Fair Value December 31, 2012 | Fair Value Change | Fair Value December 31, 2011 | Fair Value Change | Fair Value December 31, 2014 | Fair Value Change | Fair Value December 31, 2013 | Fair Value Change | ||||||||||||||||||||||||||||||||||||||||
+100 basis points | -100 basis points | +100 basis points | -100 basis points | +100 basis points | -100 basis points | +100 basis points | -100 basis points | |||||||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||
Short term borrowings | £ | (131 | ) | £ | — | £ | — | £ | (596 | ) | £ | — | £ | — | £ | (548 | ) | £ | — | £ | — | £ | (287 | ) | £ | — | £ | — | ||||||||||||||||||||
Long term borrowings (including current portion) | (4,231 | ) | 190 | (187 | ) | (4,093 | ) | 171 | (175 | ) | (3,682 | ) | 159 | (172 | ) | (3,360 | ) | 159 | (166 | ) | ||||||||||||||||||||||||||||
Interest rate swaps (swapping fixed rate debt to floating) | 127 | (47 | ) | 49 | 123 | (28 | ) | 23 | 45 | (38 | ) | 40 | 92 | (47 | ) | 44 | ||||||||||||||||||||||||||||||||
Interest rate swaps (swapping floating rate debt to fixed) | (2 | ) | 2 | (1 | ) | (10 | ) | 4 | (3 | ) | — | — | — | — | 1 | — |
A 100 basis point change in interest rates would not result in a material change to the fair value of other financial instruments.
At December 31, 2012, 59%2014, 52% of gross borrowings are either fixed rate or have been fixed through the use of interest rate swaps, forward rate agreements and options. A 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £8£16 million (2011: £5(2013: £12 million), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at December 31, 2012.2014. A 100 basis points rise in interest rates would result in an estimated increase in net finance costs of £8£16 million (2011: £5(2013: £12 million).
(b) Foreign Exchange Rate Risk
The following sensitivity analysis assumes an immediate 10% change in all foreign currency exchange rates against sterling from their levels at December 31, 20122014 with all other variables held constant. A +10% change indicates a strengthening of the currency against sterling and a -10% change indicates a weakening of the currency against sterling.
Financial Instrument | Fair Value December 31, 2012 | Fair Value Change | Fair Value December 31, 2011 | Fair Value Change | Fair Value December 31, 2014 | Fair Value Change | Fair Value December 31, 2013 | Fair Value Change | ||||||||||||||||||||||||||||||||||||||||
+10% | -10% | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | £ | 641 | £ | 23 | £ | (23 | ) | £ | 726 | £ | 56 | £ | (56 | ) | £ | 276 | £ | 26 | £ | (26 | ) | £ | 132 | £ | 13 | £ | (13 | ) | ||||||||||||||||||||
Short term borrowings | (131 | ) | (13 | ) | 13 | (596 | ) | (60 | ) | 60 | (548 | ) | (48 | ) | 48 | (287 | ) | (26 | ) | 26 | ||||||||||||||||||||||||||||
Long term borrowings (including current portion) | (4,231 | ) | (339 | ) | 339 | (4,093 | ) | (330 | ) | 330 | (3,682 | ) | (259 | ) | 259 | (3,360 | ) | (256 | ) | 256 | ||||||||||||||||||||||||||||
Interest rate swaps (including cross currency interest rate swaps) | 138 | 10 | (10 | ) | 128 | 10 | (10 | ) | 5 | (2 | ) | 2 | 79 | 6 | (6 | ) | ||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | 46 | (58 | ) | 58 | (48 | ) | (57 | ) | 57 | 11 | (55 | ) | 55 | 92 | (62 | ) | 62 |
A 10% change in foreign currency exchange rates would not result in a material change to the fair value of other financial instruments.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Fees and charges for American Depositary Receipt (ADR) holders
The Bank of New York Mellon,Citibank N.A., as depositary for the Reed Elsevier PLC and Reed Elsevier NV American Depositary ReceiptADR programs, collects its fees for delivery and surrender of American Depositary Shares (ADSs) directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Persons depositing or withdrawing shares must pay | For | |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property (in certain circumstances volume discounts may be available) | |
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
$ | Any cash distribution to ADS registered holders | |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | |
$ | Depositary services | |
Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | |
Expenses of the depositary | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | |
Converting foreign currency to US dollars | ||
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | |
Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary | |
Fees and other payments made by the depositary to Reed Elsevierthe Group
In consideration of acting as depositary, Bank of New York MellonCitibank N.A. has agreed to make certain reimbursements and payments to Reed Elsevierus on an annual basis for expenses related to the administration and maintenance of the ADR programs including, but not limited to, New York Stock Exchange listing fees, investor relations expenses, or any other program related expenses. The depositary has also agreed to pay the standard out-of-pocket administrative, maintenance and shareholder services expenses for providing services to the registered DR holders. It has also agreed with Reed Elsevierus to waive certain standard fees associated with promotional services, program visibility campaigns and program analytic reporting. In certain instances, the depositary has agreed to provide additional annual reimbursements and payments to Reed Elsevierus based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse Reed Elsevier,us, but the amount of reimbursement available to Reed Elsevierus is not necessarily tied to the amount of fees the depositary collects from investors.
From January 1, 20122014 to February 27, 2013, Reed Elsevier25, 2015, we received a reimbursement of $225,000,$282,500, net of withheld taxes, from the depositary for New York Stock Exchange listing fees, investor relations expenses and other program related expenses, in connection with the ADR facility.
ITEM 15: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Reed Elsevier PLC and Reed Elsevier NV are required to comply with applicable US regulations, including the Sarbanes-Oxley Act of 2002, insofar as they apply to foreign private issuers. Accordingly, Reed Elsevier PLC and Reed Elsevier NV have established a Disclosure Committee comprising the company secretaries of Reed Elsevier PLC and Reed Elsevier NV and other senior Reed Elsevier managers appointed bywith the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV. The committee has reviewed and evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012.2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that ourthe disclosure controls and procedures for the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV are effective as of the end of the period covered by this report.
Management’s Annual Report on Internal Control over Financial Reporting
In accordance with Section 404 of the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a — 15(f) and 15d — 15(f) under the Exchange Act, as amended. Reed Elsevier’sThe internal controlcontrols over financial reporting isof the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV, are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of Reed Elsevier’sthe financial statements of the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV would be prevented or detected.
Reed Elsevier managementManagement conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the internal controls over financial reporting of the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV were effective as of December 31, 2012.2014.
Certifications by the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV as required by the Sarbanes-Oxley Act are submitted as exhibits to this Form 20-F (see “Item 19: Exhibits” on pages S-3 andS-4).
Deloitte LLP and Deloitte Accountants BV havehas audited the Reed Elsevier combined financial statements for the fiscal year ended December 31, 20122014 and have audited the effectiveness of internal control over financial reporting. Their report in respect of the Reed Elsevier combined businesses is included herein. Deloitte LLP have audited the consolidated financial statements of Reed Elsevier PLC and Deloitte Accountants BV have audited the consolidated financial statements of Reed Elsevier NV for the fiscal year ended December 31, 2012.2014. They have also audited the effectiveness of internal control over financial reporting; their reports in respect of Reed Elsevier PLC and Reed Elsevier NV, respectively, are included herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and members of Reed Elsevier PLC and to the membersBoard of the SupervisoryDirectors and Executive Boards and the shareholders of Reed Elsevier NV:
We have audited the internal control over financial reporting of the combined businesses of Reed Elsevier PLC, Reed Elsevier NV, RELX Group plc (formerly Reed Elsevier Group plcplc) and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures (together the “Combined Businesses”), as at December 31, 2012,2014, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The management of Reed Elsevier PLC and Reed Elsevier NV are responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Combined Businesses’ internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Combined Businesses maintained, in all material respects, effective internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the combined statement of financial position and the related combined income statement and combined statements of comprehensive income, cash flows and changes in equity as at and for the year ended December 31, 20122014 of the Combined Businesses and our report dated February 27, 201325, 2015 expressed an unqualified opinion on those financial statements.
/s/ DELOITTE LLP London, United Kingdom February |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and members of Reed Elsevier PLC:
We have audited the internal control over financial reporting of Reed Elsevier PLC and its subsidiaries (the “Company”) as at December 31, 2012,2014, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternalControl—IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position and the related consolidated income statement and the statements of comprehensive income, cash flows and changes in equity as at and for the year ended December 31, 20122014 of the Company and our report dated February 27, 201325, 2015 expressed an unqualified opinion on those financial statements.
/ |
London, United Kingdom |
February |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the membersBoard of the SupervisoryDirectors and Executive Boards and the shareholders of Reed Elsevier NV:
We have audited the internal control over financial reporting of Reed Elsevier NV and its subsidiaries (the “Company”) as at December 31, 2012,2014, based on criteria established inInternalControl—IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternalControl—IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position and the related consolidated income statement and statements of comprehensive income, cash flows and changes in equity as at and for the year ended December 31, 20122014 of the Company and our report dated February 27, 201325, 2015 expressed an unqualified opinion on those financial statements.
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London, United Kingdom |
February |
Internal ControlsControl over Financial Reporting
Management, including the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV, have reviewed whether or not during the period covered by the annual report, there have been any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the internal controlcontrols over financial reporting.reporting of the combined businesses, Reed Elsevier PLC and Reed Elsevier NV. Based on that review, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that there have been no such changes.
An outline of the internal control structure is set out below.
Parent companies
The Boards of Reed Elsevier PLC and Reed Elsevier NV exercisehave each adopted a schedule of matters which are required to be brought to them for decision. During 2014, the Boards of Reed Elsevier PLC and Reed Elsevier NV exercised independent supervisory roles over the activities and systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. The Boards of Reed Elsevier PLC and Reed Elsevier NV have each adopted a schedule of matters which are required to be brought to them for decision. In relation to Reed Elsevier Group plc and Elsevier Reed Finance BV, the Boards of Reed Elsevier PLC and Reed Elsevier NV approveapproved the strategy and the annual budgets, and receivereceived regular reports on the operations, including the treasury and risk management activities of the two companies. Major transactions proposed by the Boards of Reed Elsevier Group plc or Elsevier Reed Finance BV requirerequired the approval of the Boards of both Reed Elsevier PLC and Reed Elsevier NV.
The Reed Elsevier PLC and Reed Elsevier NV Audit Committees meetmet on a regular basis to review the systems of internal control and risk management of Reed Elsevier Group plc and Elsevier Reed Finance BV.
Effective February 25, 2015, Reed Elsevier PLC and Reed Elsevier NV transferred their direct ownership interest in Elsevier Reed Finance BV to their jointly-owned company, Reed Elsevier Group plc and named this newly-combined single group entity RELX Group plc. As a result, RELX Group plc now holds all of our businesses and subsidiaries and controls our financing activities. In the future, Elsevier Reed Finance BV and its subsidiaries will be subject to the framework of procedures and controls established by RELX Group plc and the Audit Committee of RELX Group plc will review on a regular basis the system of internal control and risk management of Elsevier Reed Finance BV and its subsidiaries.
Operating companies
The Board of Reed ElsevierRELX Group plc is responsible for the system of internal control of the Reed Elsevier publishingGroup and information businesses, whilereviewing the effectiveness of such systems. While the Boards of Elsevier Reed Finance BV arewere responsible for the system of internal control in respect of the finance activities. The Boards of Reed Elsevier Group plcactivities during 2014 and Elsevier Reed Finance BV are also responsible for reviewing the effectiveness of their system of internal control.such systems, the responsibility transferred to RELX Group plc with effect from February 25, 2015.
The Boards of Reed Elsevier Group plc and Elsevier Reed Finance BV have each implemented an ongoing process for identifying, evaluating, monitoring and managing the more significantprincipal risks faced by their respective businesses. This process has beenThese processes were in place throughout the year ended December 31, 20122014 and up to the date of the approvals of this annual report.
Reed ElsevierRELX Group plc
Reed ElsevierRELX Group plc has an established framework of procedures and internal controls, with which the management of each business is required to comply. Group businesses are required to maintain systems of internal control which are appropriate to the nature and scale of their activities and address all significant strategic, operational, financial and financiallegal compliance risks that they face. The Board of Reed ElsevierRELX Group plc has adopted a schedule of matters that are required to be brought to it for decision.
Reed ElsevierRELX Group plc has a Code of Ethics and Business Conduct that provides a guide for achieving its business goals and requires officers and employees to behave in an open, honest, ethical and principled manner. The code also outlines confidential procedures enabling employees to report any concerns about compliance, or about Reed Elsevier’sthe Group’s financial reporting practice. The code is published on the Reed Elsevierour website, www.reedelsevier.com.www.relxgroup.com. The information on our website is not incorporated by reference into this report.
Each divisionbusiness area has identified and evaluated its majorprincipal risks, the controls in place to manage those risks and the levellevels of residual risk accepted. Risk management and control procedures are embedded into the operations of the business and include the monitoring of progress in areas for improvement that come to management and board attention. The majorprincipal risks identified include business continuity, protection of IT systems and data, challenges to intellectual property rights, management of strategic and operational change, evaluation and integration of acquisitions, and recruitment and retention of personnel. Further detail on the principal risks facing Reed Elsevierthe Group is set out on pages 7 to 10.
The major strategicprincipal risks facing the Reed ElsevierRELX Group plc businesses are consideredregularly reported to and assessed by the Board. Reed Elsevier’s Chief Risk Officer has the responsibility to provide regular reports to the Board and Audit Committee. Working closely withWith the close involvement of business management and with the central functions, the role of the Chief Risk Officer is torisk management and control procedures ensure that Reed Elsevier iswe are managing itsour business risks effectively and in a coordinated manner across the business with clarity on the respective responsibilities and interdependencies. Litigation and other legal and regulatory matters are managed by legal directors in Europe and the United States.
The Reed ElsevierRELX Group plc Audit Committee receives regular reports on the management of material risks and reviews these reports. The Audit Committee also receives regular reports from both internal and external auditors on internal control and risk management matters. In addition, each divisionbusiness area is required, at the end of the financial year, to review the
effectiveness of internal controls and risk management and report its findings on a detailed basis to the management of Reed ElsevierRELX Group plc. These reports are summarised and, as part of the annual review of effectiveness, submitted to the Audit Committee of Reed ElsevierRELX Group plc. The Chairman of the Audit Committee reports to the boardBoard on any significant internal control matters arising.
Elsevier Reed Finance BV
During 2014, Elsevier Reed Finance BV hashad established policy guidelines, which arewere applied forto all Elsevier Reed Finance BV companies. The respective Boards of Elsevier Reed Finance BV have adopted schedules of matters that are required to be brought to them for decision.
Procedures are in place for monitoring the activities of the finance group, including a comprehensive treasury reporting system. The majorprincipal risks affecting the finance group have been identified and evaluated and are subject to regular review. The controls in place to manage these risks and the level of residual risk accepted arewere monitored by the Boards of Elsevier Reed Finance BV. In future, these will be monitored by the Audit Committee of RELX Group plc.
Audit Committees
Reed ElsevierRELX Group plc, Reed Elsevier PLC and Reed Elsevier NV have established Audit Committees which comprise only non-executive directors, all of whom are independent. The Audit Committees, which meet regularly, are chaired by Ben van der Veer, the other members being Sir David Reid, Linda Sanford and Adrian Hennah.
The main roles and responsibilities of the Audit Committees in relation to the respective companies are set out in written terms of reference and include:
(i) | to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; |
(ii) | to review the company’s internal financial controls and the company’s internal control and risk management systems; |
(iii) | to monitor and review the effectiveness of the company’s internal audit function; |
(iv) | to make recommendations to the Board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor; |
(v) | to review and monitor the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements; and |
(vi) | to develop and recommend policy on the engagement of the external auditor to supply non audit services, taking into account relevant ethical guidance regarding the provision of non audit services by the external audit firm, and to monitor compliance. |
The Audit Committees report to the respective boards on their activities identifying any matters in respect of which they consider that action or improvement is needed and making recommendations as to the steps to be taken.
The Reed ElsevierRELX Group plc Audit Committee fulfils this role in respect of the publishing and information operating business. The functions of an audit committee in respect of the financing activities arewere carried out by the Supervisory Board of Elsevier Reed Finance BV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees fulfil their roles from the perspective of the parent companies and both Committees have access to the reports to and the work of the Reed ElsevierRELX Group plc Audit Committee and, with respect to 2014, the Elsevier Reed Finance BV Supervisory Board in this respect.Board.
The Audit Committees have explicit authority to investigate any matters within their terms of reference and have access to all resources and information that they may require for this purpose. The Audit Committees are entitled to obtain legal and other independent professional advice and have the authority to approve all fees payable to such advisers.
The terms of reference of each Audit Committee are reviewed annually and a copy of each is published on the Reed Elsevierour website, www.reedelsevier.com.www.relxgroup.com. The information on our website is not incorporated by reference into this report.
Compliance with New York Stock Exchange Corporate Governance Rules
Reed Elsevier PLC and Reed Elsevier NV, as companies listed on the New York Stock Exchange (the “NYSE”), are subject to the listing requirements of the NYSE and the rules of the U.S. Securities and Exchange Commission (the “SEC”). We also continually monitor our compliance with the provisions of the Sarbanes-Oxley Act of 2002 that are applicable to foreign private issuers.
In November 2003, the SEC approved new corporate governance standards for companies that are listed on the NYSE. As a foreign private issuer, Reed Elsevier iswe are only required to comply with certain of the NYSE corporate governance rules and is in compliance with all applicable rules. The NYSE’s rules also require disclosure of any significant ways in which our corporate governance practices differ from those required of US companies under the NYSE listing standards.
Reed Elsevier followsWe follow UK corporate governance practice, which does not differ significantly from the NYSE corporate governance standards for foreign issuers. We also follow Dutch corporate governance practice. We believe that our corporate governance practices do not differ in any significant way from those required to be followed by US companies under the NYSE corporate governance listing standards.
The NYSE listing standards provide that US companies must have a nominating/corporate governance committee composed entirely of independent directors and with a written charter that addresses the committee’s purpose and responsibilities which, at a minimum, must be to identify individuals qualified to become board members, develop and recommend to the Board a set of corporate governance principles and to oversee the evaluation of the board and management.
Reed Elsevier PLC and Reed Elsevier NV have a joint Nominations Committee and a joint Corporate Governance Committee. The written terms of reference adopted by the Reed Elsevier PLC and the Reed Elsevier NV Boards for these committees specify purposes and responsibilities that correspond to those of a US company’s nominating/corporate governance committee under the NYSE’s listing standards. The Nominations Committee and the Corporate Governance Committee isare composed entirely of non executive directors.Non-Executive Directors.
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Each of Reed Elsevier PLC and Reed Elsevier NV has an Audit Committee, the members of which are identified in “Item 15: Controls6: Directors, Senior Management and Procedures”Employees”. The members of the Board of Directors of Reed Elsevier PLC and members of the Supervisory Board of Reed Elsevier NV, respectively, have determined that each of their respective Audit Committees contains at least one Audit Committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission (“SEC”).SEC. The Audit Committee financial experts serving on the Reed Elsevier PLC and the Reed Elsevier NV Audit Committees are Adrian Hennah Sir David Reid and Ben van der Veer. Each is considered independent.
Reed ElsevierThe Group has adopted a code of ethics (Code of Ethics and Business Conduct) that applies to all directors, officers and employees, and an additional separate code of ethics (Code for Senior Officers) that also applies to the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV and the Group Financial Controller of Reed ElsevierRELX Group plc. Both these codes of ethics are available on the Reed Elsevierour website, www.reedelsevier.com.www.relxgroup.com. The information on our website is not incorporated by reference into this report.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accountants, Deloitte LLP, Deloitte Accountants BV, the member firmsfirm of Deloitte Touche Tohmatsu and their respective affiliates, were as follows:
Year ended December 31, 2012 | Year ended December 31, 2011 | Year ended December 31, 2014 | Year ended December 31, 2013 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Audit fees | £ | 4.7 | £ | 4.7 | £4.8 | £ | 4.9 | |||||||||
Audit related fees | 0.7 | 0.2 | 0.5 | 0.4 | ||||||||||||
Tax fees | 0.8 | 0.7 | 1.0 | 1.8 | ||||||||||||
All other fees | 0.3 | 0.2 | ||||||||||||||
Due diligence and other transaction related services | 0.3 | — | ||||||||||||||
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Total | £ | 6.5 | £ | 5.8 | £6.6 | £ | 7.1 | |||||||||
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Auditors’ remuneration for audit services comprises £0.5
Audit fees of £4.8 million (2011: £0.5 million; 2010: £0.4(2013: £4.9 million) comprise £0.6 million (2013: £0.6 million) payable to the auditors of the parent companies and £4.2 million (2011: £4.2 million; 2010: £4.1(2013: £4.3 million) payable to the auditors of the parent companies and their associates for the audit of the financial statements of the operating and financing businesses, including the review and testing of internal control over financial reporting in accordance with the US Sarbanes-Oxley Act. Auditors’ remuneration for non audit services comprises: £0.8Audit related fees comprise £0.5 million (2011: £0.7 million; 2010: £0.9(2013: £0.4 million) for other audit related assurance services. Tax fees of £1 million (2013: £1.8 million) relate to tax compliance services, £0.3 million (2011: £0.2 million; 2010: nil) for dueservices. Due diligence and other transaction related services and £0.7fees of £0.3 million (2011: £0.2 million; 2010: £0.3 million) for other audit related assurance(2013: nil) relate to due diligence services.
The Audit Committees of Reed Elsevier PLC and Reed Elsevier NV have adopted policies and procedures for the pre-approval of audit and non audit services provided by the auditors. These policies and procedures are summarised below.
The terms of engagement and scope of the annual audit of the financial statements are agreed by the respective Audit Committees in advance of the engagement of the auditors in respect of the annual audit. The audit fees are approved by the Audit Committees.
The auditors are not permitted to provide non audit services that would compromise their independence or violate any laws or regulations that would affect their appointment as auditors. They are eligible for selection to provide non audit services only to the extent that their skills and experience make them a logical supplier of the services. The respective Audit Committees must pre-approve the provision of all non audit services by the auditors and will consider SEC rules and other guidelines in determining the scope of permitted services. The respective Audit Committees have pre-approved non audit services in respect of individual assignments for permitted services that meet certain criteria. Assignments outside these parameters must be specifically pre-approved by the Audit Committees in advance of commissioning the work. Aggregate non audit fees must not exceed the annual audit fees in any given year, unless approved in advance by the Audit Committees.
All of the audit and non audit services carried out in the year ended December 31, 20122014 were pre-approved under the policies and procedures summarised above.
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
During 2012 Reed Elsevier2014 we repurchased 23,288,61635,251,501 Reed Elsevier PLC ordinary shares and 12,660,29620,403,351 Reed Elsevier NV ordinary shares for total consideration of £250£600 million. These shares are held in treasury.
PLC | NV | |||||||||||||||
Number of ordinary shares | Average price paid per share | Number of ordinary shares | Average price paid per share | |||||||||||||
| pence |
| € | |||||||||||||
January 2014 | 3,786,360 | 908 | 2,195,000 | 15.59 | ||||||||||||
February 2014 | 2,658,910 | 899 | 1,546,668 | 15.45 | ||||||||||||
March 2014 | 7,012,000 | 919 | 4,053,500 | 15.62 | ||||||||||||
April 2014 | 3,432,000 | 897 | 1,984,000 | 15.27 | ||||||||||||
May 2014 | 4,836,000 | 891 | 2,798,500 | 15.16 | ||||||||||||
June 2014 | 2,462,531 | 949 | 1,425,833 | 16.58 | ||||||||||||
July 2014 | 703,500 | 966 | 406,500 | 17.08 | ||||||||||||
August 2014 | 3,196,800 | 958 | 1,849,800 | 16.81 | ||||||||||||
September 2014 | 2,494,000 | 993 | 1,442,250 | 17.66 | ||||||||||||
October 2014 | 1,654,500 | 991 | 955,000 | 17.73 | ||||||||||||
November 2014 | 2,731,000 | 1,057 | 1,579,000 | 18.84 | ||||||||||||
December 2014 | 283,900 | 1,112 | 164,300 | 19.80 | ||||||||||||
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35,251,501 | 938 | 20,403,351 | 16.24 | |||||||||||||
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All shares were purchased under programmes publicly announced on December 16, 2013, February 27, 2014 and July 24, 2014. All of these programmes were completed during 2014.
On December 28, 201214, 2014 Reed Elsevier PLC and Reed Elsevier NV announced an irrevocable, non discretionarya non-discretionary programme to repurchase further ordinary shares up to the value of £100 million. A further 4,815,950 Reed Elsevier PLC shares and
2,787,800 Reed Elsevier NV ordinary shares have been repurchased in January and February 2015, under this programme. On February 26, 2015, Reed Elsevier PLC and Reed Elsevier NV announced their intention to repurchase further ordinary shares up to the value of £400 million in aggregate which was completed in February 2013.over the remainder of 2015.
During 2014 we also repurchased 107,901 Reed Elsevier Group plcNV R shares (equivalent to 1,079,010 Reed Elsevier NV ordinary shares).
During 2014 the Employee Benefit Trust (“EBT”) has not made any share purchases during the year.also purchased 757,781 Reed Elsevier PLC Shares and 1,989,279 Reed Elsevier NV Shares.
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.On February 16, 2015, the Audit Committee of Reed Elsevier NV approved for the purposes of the Annual Report on Form 20-F the selection of Deloitte LLP to serve as Reed Elsevier NV’s independent registered public accounting firm, and the Audit Committees of Reed Elsevier PLC and Reed Elsevier NV approved for the purposes of Form 20-F the selection of Deloitte LLP to serve as the sole accounting firm of the combined businesses, which, for the fiscal year ended December 31, 2014, comprised Reed Elsevier PLC, Reed Elsevier NV, RELX Group plc (formerly Reed Elsevier Group plc), Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures. Deloitte LLP was notified on February 16, 2015 of the change from being joint auditor to sole auditor for the fiscal year ended December 31, 2014. Accordingly the term of Deloitte Accountants B.V. as Reed Elsevier NV’s independent registered public accounting firm for the Form 20-F has ended.
The audit reports of Deloitte Accountants B.V. on the consolidated financial statements of Reed Elsevier NV and its subsidiaries and on the combined financial statements of the combined businesses as of and for the years ended December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of Deloitte Accountants B.V. on the effectiveness of internal control over financial reporting of Reed Elsevier NV and the combined businesses as of December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years ended December 31, 2013 and 2012, there were no disagreements between Reed Elsevier NV, the combined businesses and Deloitte Accountants B.V. on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of Deloitte Accountants B.V., would have caused Deloitte Accountants B.V. to make reference thereto in their reports on the consolidated financial statements for such years.
Reed Elsevier NV and the combined businesses provided Deloitte Accountants B.V. with a copy of this disclosure, and requested them to furnish it with a letter addressed to the U.S. Securities and Exchange Commission stating whether it agrees with the above statements. A copy of such letter, dated February 25, 2015, is filed as Exhibit 16.1 to this Form 20-F.
ITEM 16G: CORPORATE GOVERNANCE
Details of Reed Elsevier’sour corporate governance practices are set out on pages 8788 to 8995 of Item 15: Controls and Procedures.
The Registrants have responded to Item 18 in lieu of responding to this Item.
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Financial Statements filed as part of this annual report
The following financial statements and related schedules, together with reports of independent registered public accounting firms thereon, are filed as part of this annual report:
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THIS PAGE INTENTIONALLY BLANK
COMBINED FINANCIAL STATEMENTS
THIS PAGE INTENTIONALLY BLANK
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and members of Reed Elsevier PLC and to the membersBoard of the SupervisoryDirectors and Executive Boards and the shareholders of Reed Elsevier NV:
We have audited the accompanying combined statements of financial position of Reed Elsevier PLC, Reed Elsevier NV, RELX Group plc (formerly Reed Elsevier Group plcplc) and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures (together the “Combined Businesses”) as at December 31, 2012, 20112014, 2013 and 2010,2012, and the related combined income statements and combined statements of comprehensive income, cash flows and changes in equity for each of the years then ended. These combined financial statements are the responsibility of the management of Reed Elsevier PLC and Reed Elsevier NV. Our responsibility is to express an opinion on the combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of the Combined Businesses as at December 31, 2012, 20112014, 2013 and 2010,2012, and the combined results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Combined Businesses’ internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 201325, 2015 expressed an unqualified opinion on the Combined Businesses’ internal control over financial reporting.
/s/ DELOITTE LLP London, United Kingdom February |
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COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Revenue | 3 | 6,116 | 6,002 | 6,055 | 3 | 5,773 | 6,035 | 6,116 | ||||||||||||||||||||||||
Cost of sales | (2,139 | ) | (2,126 | ) | (2,209 | ) | (2,006 | ) | (2,118 | ) | (2,139 | ) | ||||||||||||||||||||
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Gross profit | 3,977 | 3,876 | 3,846 | 3,767 | 3,917 | 3,977 | ||||||||||||||||||||||||||
Selling and distribution costs | (1,015 | ) | (1,075 | ) | (1,091 | ) | | (934 | ) | (1,005 | ) | (1,015 | ) | |||||||||||||||||||
Administration and other expenses | (1,628 | ) | (1,626 | ) | (1,687 | ) | (1,467 | ) | (1,565 | ) | (1,653 | ) | ||||||||||||||||||||
Share of results of joint ventures | 24 | 30 | 22 | 36 | 29 | 24 | ||||||||||||||||||||||||||
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Operating profit | 4 | 1,358 | 1,205 | 1,090 | 3, 4 | 1,402 | 1,376 | 1,333 | ||||||||||||||||||||||||
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Finance income | 9 | 16 | 17 | 8 | 8 | 7 | 10 | 16 | ||||||||||||||||||||||||
Finance costs | 9 | (232 | ) | (252 | ) | (284 | ) | 8 | (169 | ) | (206 | ) | (243 | ) | ||||||||||||||||||
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Net finance costs | (216 | ) | (235 | ) | (276 | ) | (162 | ) | (196 | ) | (227 | ) | ||||||||||||||||||||
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Disposals and other non operating items | 10 | 45 | (22 | ) | (46 | ) | 9 | (11) | 16 | 45 | ||||||||||||||||||||||
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Profit before tax | 1,187 | 948 | 768 | 1,229 | 1,196 | 1,151 | ||||||||||||||||||||||||||
Taxation | 11 | (113 | ) | (181 | ) | (120 | ) | |||||||||||||||||||||||||
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Current tax | (357 | ) | (352 | ) | (153 | ) | ||||||||||||||||||||||||||
Deferred tax | 88 | 271 | 51 | |||||||||||||||||||||||||||||
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Tax expense | 10 | (269 | ) | (81 | ) | (102 | ) | |||||||||||||||||||||||||
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Net profit for the year | 1,074 | 767 | 648 | 960 | 1,115 | 1,049 | ||||||||||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||||||||||
Parent companies’ shareholders | 1,069 | 760 | 642 | 955 | 1,110 | 1,044 | ||||||||||||||||||||||||||
Non-controlling interests | 5 | 7 | 6 | 5 | 5 | 5 | ||||||||||||||||||||||||||
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Net profit for the year | 1,074 | 767 | 648 | 960 | 1,115 | 1,049 | ||||||||||||||||||||||||||
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COMBINED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Net profit for the year | 1,074 | 767 | 648 | 960 | 1,115 | 1,049 | ||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||
Actuarial (losses)/gains on defined benefit pension schemes | 6 | (266 | ) | 40 | (293 | ) | ||||||||||||||||||||||||||
Tax on items that will not be reclassified to profit or loss | 10 | 63 | (24 | ) | 96 | |||||||||||||||||||||||||||
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Total items that will not be reclassified to profit or loss | (203 | ) | 16 | (197 | ) | |||||||||||||||||||||||||||
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Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||
Exchange differences on translation of foreign operations | (136 | ) | 32 | 94 | 137 | (88 | ) | (136 | ) | |||||||||||||||||||||||
Actuarial losses on defined benefit pension schemes | 7 | (329 | ) | (113 | ) | (63 | ) | |||||||||||||||||||||||||
Fair value movements on available for sale investments | — | (1 | ) | — | ||||||||||||||||||||||||||||
Transfer to net profit on disposal of available for sale investments | 11 | — | — | — | — | 11 | ||||||||||||||||||||||||||
Fair value movements on cash flow hedges | 70 | (24 | ) | (58 | ) | 18 | (81 | ) | 65 | 70 | ||||||||||||||||||||||
Transfer to net profit from cash flow hedge reserve (net of tax) | 19 | 21 | 37 | 46 | ||||||||||||||||||||||||||||
Tax recognised directly in equity | 11 | 88 | 42 | 29 | ||||||||||||||||||||||||||||
Transfer to net profit from cash flow hedge reserve | 18 | 19 | (3 | ) | 26 | |||||||||||||||||||||||||||
Tax on items that may be reclassified to profit or loss | 10 | 13 | (14 | ) | (24 | ) | ||||||||||||||||||||||||||
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Other comprehensive (expense)/income for the year | (275 | ) | (27 | ) | 48 | |||||||||||||||||||||||||||
Total item that may be reclassified to profit or loss | 88 | (40 | ) | (53 | ) | |||||||||||||||||||||||||||
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Other comprehensive loss for the year | (115 | ) | (24 | ) | (250 | ) | ||||||||||||||||||||||||||
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Total comprehensive income for the year | 799 | 740 | 696 | 845 | 1,091 | 799 | ||||||||||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||||||||||
Parent companies’ shareholders | 794 | 733 | 690 | 840 | 1,086 | 794 | ||||||||||||||||||||||||||
Non-controlling interests | 5 | 7 | 6 | 5 | 5 | 5 | ||||||||||||||||||||||||||
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Total comprehensive income for the year | 799 | 740 | 696 | 845 | 1,091 | 799 | ||||||||||||||||||||||||||
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COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||
Cash generated from operations | 12 | 1,847 | 1,735 | 1,649 | 11 | 1,851 | 1,943 | 1,847 | ||||||||||||||||||||||||
Interest paid | (231 | ) | (247 | ) | (295 | ) | (139 | ) | (200 | ) | (231 | ) | ||||||||||||||||||||
Interest received | 7 | 12 | 8 | 13 | 5 | 7 | ||||||||||||||||||||||||||
Tax paid (net) | (216 | ) | (218 | ) | (9 | ) | (348 | ) | (362 | ) | (216 | ) | ||||||||||||||||||||
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Net cash from operating activities | 1,407 | 1,282 | 1,353 | 1,377 | 1,386 | 1,407 | ||||||||||||||||||||||||||
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Cash flows from investing activities | ||||||||||||||||||||||||||||||||
Acquisitions | 12 | (316 | ) | (481 | ) | (50 | ) | 11 | (396 | ) | (221 | ) | (316 | ) | ||||||||||||||||||
Purchases of property, plant and equipment | (70 | ) | (85 | ) | (83 | ) | (67 | ) | (57 | ) | (70 | ) | ||||||||||||||||||||
Expenditure on internally developed intangible assets | (263 | ) | (265 | ) | (228 | ) | (203 | ) | (251 | ) | (263 | ) | ||||||||||||||||||||
Purchase of investments | (7 | ) | (10 | ) | (5 | ) | (6 | ) | (10 | ) | (7 | ) | ||||||||||||||||||||
Proceeds from disposals of property, plant and equipment | 7 | 7 | 7 | 10 | 6 | 7 | ||||||||||||||||||||||||||
Gross proceeds from other disposals | 235 | 101 | 66 | |||||||||||||||||||||||||||||
Payments on other disposals | (82 | ) | (21 | ) | (60 | ) | ||||||||||||||||||||||||||
Gross proceeds from business disposals | 78 | 311 | 235 | |||||||||||||||||||||||||||||
Payments on business disposals | (25 | ) | (116 | ) | (82 | ) | ||||||||||||||||||||||||||
Dividends received from joint ventures | 20 | 33 | 24 | 44 | 22 | 20 | ||||||||||||||||||||||||||
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Net cash used in investing activities | (476 | ) | (721 | ) | (329 | ) | (565 | ) | (316 | ) | (476 | ) | ||||||||||||||||||||
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Cash flows from financing activities | ||||||||||||||||||||||||||||||||
Dividends paid to shareholders of the parent companies | (521 | ) | (497 | ) | (483 | ) | (565 | ) | (549 | ) | (521 | ) | ||||||||||||||||||||
Distributions to non-controlling interests | (4 | ) | (9 | ) | (8 | ) | (7 | ) | (6 | ) | (4 | ) | ||||||||||||||||||||
(Decrease)/increase in short term bank loans, overdrafts and commercial paper | (434 | ) | 210 | (143 | ) | |||||||||||||||||||||||||||
Issuance of other loans | 592 | — | — | |||||||||||||||||||||||||||||
Repayment of other loans | (437 | ) | (248 | ) | (394 | ) | ||||||||||||||||||||||||||
Increase/(decrease) in short term bank loans, overdrafts and commercial paper | 232 | 169 | (434 | ) | ||||||||||||||||||||||||||||
Issuance of term debt | 589 | 184 | 592 | |||||||||||||||||||||||||||||
Repayment of term debt | (300 | ) | (915 | ) | (437 | ) | ||||||||||||||||||||||||||
Repayment of finance leases | (4 | ) | (22 | ) | (7 | ) | (10 | ) | (10 | ) | (4 | ) | ||||||||||||||||||||
Disposal/(acquisition) of non-controlling interests | 7 | (48 | ) | — | ||||||||||||||||||||||||||||
(Acquisition)/disposal of non-controlling interest | (15 | ) | — | 7 | ||||||||||||||||||||||||||||
Repurchase of ordinary shares | (250 | ) | — | — | (600 | ) | (600 | ) | (250 | ) | ||||||||||||||||||||||
Purchase of shares by employee benefit trust | (39 | ) | — | — | ||||||||||||||||||||||||||||
Proceeds on issue of ordinary shares | 48 | 9 | 11 | 45 | 125 | 48 | ||||||||||||||||||||||||||
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Net cash used in financing activities | (1,003 | ) | (605 | ) | (1,024 | ) | (670 | ) | (1,602 | ) | (1,003 | ) | ||||||||||||||||||||
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Decrease in cash and cash equivalents | (72 | ) | (44 | ) | — | |||||||||||||||||||||||||||
Increase/(decrease) in cash and cash equivalents | 142 | (532 | ) | (72 | ) | |||||||||||||||||||||||||||
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Movement in cash and cash equivalents | ||||||||||||||||||||||||||||||||
At start of year | 726 | 742 | 734 | 132 | 641 | 726 | ||||||||||||||||||||||||||
Decrease in cash and cash equivalents | (72 | ) | (44 | ) | — | |||||||||||||||||||||||||||
Increase/(decrease) in cash and cash equivalents | 142 | (532 | ) | (72 | ) | |||||||||||||||||||||||||||
Exchange translation differences | (13 | ) | 28 | 8 | 2 | 23 | (13 | ) | ||||||||||||||||||||||||
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At end of year | 641 | 726 | 742 | 276 | 132 | 641 | ||||||||||||||||||||||||||
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COMBINED STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||||||
Goodwill | 15 | 4,545 | 4,729 | 4,441 | 14 | 4,981 | 4,576 | 4,545 | ||||||||||||||||||||||||
Intangible assets | 16 | 3,275 | 3,494 | 3,457 | 15 | 3,164 | 3,124 | 3,275 | ||||||||||||||||||||||||
Investments in joint ventures | 17 | 100 | 124 | 136 | 16 | 125 | 125 | 100 | ||||||||||||||||||||||||
Other investments | 17 | 79 | 64 | 48 | 16 | 112 | 92 | 79 | ||||||||||||||||||||||||
Property, plant and equipment | 18 | 264 | 288 | 291 | 17 | 227 | 237 | 264 | ||||||||||||||||||||||||
Net pension assets | 7 | — | — | 55 | ||||||||||||||||||||||||||||
Deferred tax assets | 20 | 79 | 212 | 151 | 19 | 464 | 442 | 79 | ||||||||||||||||||||||||
Derivative financial instruments | 19 | 138 | — | — | 18 | 78 | 64 | 138 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
8,480 | 8,911 | 8,579 | 9,151 | 8,660 | 8,480 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||
Inventories and pre-publication costs | 21 | 159 | 190 | 228 | 20 | 142 | 142 | 159 | ||||||||||||||||||||||||
Trade and other receivables | 22 | 1,380 | 1,483 | 1,475 | 21 | 1,487 | 1,416 | 1,380 | ||||||||||||||||||||||||
Derivative financial instruments | 19 | 57 | 149 | 134 | 18 | 31 | 124 | 57 | ||||||||||||||||||||||||
Cash and cash equivalents | 641 | 726 | 742 | 276 | 132 | 641 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
2,237 | 2,548 | 2,579 | 1,936 | 1,814 | 2,237 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Assets held for sale | 23 | 297 | 44 | — | 22 | — | 21 | 297 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total assets | 11,014 | 11,503 | 11,158 | 11,087 | 10,495 | 11,014 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||
Trade and other payables | 24 | 2,544 | 2,657 | 2,584 | 23 | 2,636 | 2,595 | 2,544 | ||||||||||||||||||||||||
Derivative financial instruments | 19 | 11 | 69 | 80 | 18 | 23 | 4 | 11 | ||||||||||||||||||||||||
Borrowings | 25 | 730 | 982 | 516 | 24 | 676 | 648 | 730 | ||||||||||||||||||||||||
Taxation | 603 | 677 | 646 | 582 | 588 | 603 | ||||||||||||||||||||||||||
Provisions | 27 | 30 | 39 | 71 | 26 | 19 | 17 | 30 | ||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
3,918 | 4,424 | 3,897 | 3,936 | 3,852 | 3,918 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||||||
Derivative financial instruments | 18 | 71 | 13 | — | ||||||||||||||||||||||||||||
Borrowings | 25 | 3,162 | 3,300 | 3,786 | 24 | 3,149 | 2,633 | 3,162 | ||||||||||||||||||||||||
Deferred tax liabilities | 20 | 919 | 1,236 | 1,192 | 19 | 1,056 | 1,076 | 919 | ||||||||||||||||||||||||
Net pension obligations | 7 | 466 | 242 | 225 | 6 | 632 | 379 | 466 | ||||||||||||||||||||||||
Provisions | 27 | 139 | 87 | 88 | 26 | 104 | 116 | 139 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
4,686 | 4,865 | 5,291 | 5,012 | 4,217 | 4,686 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Liabilities associated with assets held for sale | 23 | 96 | 17 | — | 22 | 2 | 3 | 96 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total liabilities | 8,700 | 9,306 | 9,188 | 8,950 | 8,072 | 8,700 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net assets | 2,314 | 2,197 | 1,970 | 2,137 | 2,423 | 2,314 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Capital and reserves | ||||||||||||||||||||||||||||||||
Combined share capitals | 29 | 223 | 223 | 224 | 27 | 212 | 224 | 223 | ||||||||||||||||||||||||
Combined share premiums | 30 | 2,727 | 2,723 | 2,754 | 27 | 2,820 | 2,887 | 2,727 | ||||||||||||||||||||||||
Combined shares held in treasury | 31 | (899 | ) | (663 | ) | (677 | ) | 27 | (1,107 | ) | (1,464 | ) | (899 | ) | ||||||||||||||||||
Translation reserve | 32 | (23 | ) | 88 | 29 | 74 | (137 | ) | (23 | ) | ||||||||||||||||||||||
Other combined reserves | 33 | 252 | (199 | ) | (387 | ) | 28 | 107 | 880 | 252 | ||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Combined shareholders’ equity | 2,280 | 2 ,172 | 1,943 | 2,106 | 2,390 | 2,280 | ||||||||||||||||||||||||||
Non-controlling interests | 34 | 25 | 27 | 31 | 33 | 34 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total equity | 2,314 | 2,197 | 1,970 | 2,137 | 2,423 | 2,314 | ||||||||||||||||||||||||||
|
|
|
|
|
|
COMBINED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | Combined share capitals £m | Combined share premiums £m | Combined shares held in treasury £m | Translation reserve £m | Other combined reserves £m | Combined shareholders’ equity £m | Non- controlling interests £m | Total equity £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | 224 | 2,887 | (1,464 | ) | (137 | ) | 880 | 2,390 | 33 | 2,423 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 137 | 703 | 840 | 5 | 845 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | 13 | — | — | — | — | (565 | ) | (565 | ) | (7 | ) | (572 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 2 | 43 | — | — | — | 45 | — | 45 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | — | — | (639 | ) | — | — | (639 | ) | — | (639 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of shares | (11 | ) | — | 930 | — | (919 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in share based remuneration reserve (net of tax) | — | — | — | — | 48 | 48 | — | 48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of share awards | — | — | 27 | — | (27 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interest | — | — | — | — | (13 | ) | (13 | ) | (2 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences on translation of capital and reserves | (3 | ) | (110 | ) | 39 | 74 | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2014 | 212 | 2,820 | (1,107 | ) | 74 | 107 | 2,106 | 31 | 2,137 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2013 | 223 | 2,727 | (899 | ) | (23 | ) | 252 | 2,280 | 34 | 2,314 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | (88 | ) | 1,174 | 1,086 | 5 | 1,091 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | 13 | — | — | — | — | (549 | ) | (549 | ) | (6 | ) | (555 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 124 | — | — | — | 125 | — | 125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | — | — | (600 | ) | — | — | (600 | ) | — | (600 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in share based remuneration reserve (net of tax) | — | — | — | — | 48 | 48 | — | 48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of share awards | — | — | 40 | — | (40 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences on translation of capital and reserves | — | 36 | (5 | ) | (26 | ) | (5 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2013 | 224 | 2,887 | (1,464 | ) | (137 | ) | 880 | 2,390 | 33 | 2,423 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Combined share capitals £m | Combined share premiums £m | Combined shares held in treasury £m | Translation reserve £m | Other combined reserves £m | Combined shareholders’ equity £m | Non- controlling interests £m | Total equity £m |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2012 | 223 | 2,723 | (663 | ) | 88 | (199 | ) | 2,172 | 25 | 2,197 | 223 | 2,723 | (663 | ) | 88 | (199 | ) | 2,172 | 25 | 2,197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | (136 | ) | 930 | 794 | 5 | 799 | — | — | — | (136 | ) | 930 | 794 | 5 | 799 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | 14 | — | — | — | — | (521 | ) | (521 | ) | (4 | ) | (525 | ) | 13 | — | — | — | — | (521 | ) | (521 | ) | (4 | ) | (525 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 47 | — | — | — | 48 | — | 48 | 1 | 47 | — | — | — | 48 | — | 48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | 31 | — | — | (250 | ) | — | — | (250 | ) | — | (250 | ) | — | — | (250 | ) | — | — | (250 | ) | — | (250 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Increase in share based remuneration reserve | — | — | — | — | 31 | 31 | — | 31 | — | — | — | — | 31 | 31 | — | 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of share awards | — | — | 7 | — | (7 | ) | — | — | — | — | — | 7 | — | (7 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | — | — | — | — | — | 9 | 9 | — | — | — | — | — | — | 9 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of non-controlling interests | — | — | — | — | 6 | 6 | 1 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of non-controlling interest | — | — | — | — | 6 | 6 | 1 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences on translation of capital and reserves | (1 | ) | (43 | ) | 7 | 25 | 12 | — | (2 | ) | (2 | ) | (1 | ) | (43 | ) | 7 | 25 | 12 | — | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2012 | 223 | 2,727 | (899 | ) | (23 | ) | 252 | 2,280 | 34 | 2,314 | 223 | 2,727 | (899 | ) | (23 | ) | 252 | 2,280 | 34 | 2,314 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2011 | 224 | 2,754 | (677 | ) | 29 | (387 | ) | 1,943 | 27 | 1,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 32 | 701 | 733 | 7 | 740 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | 14 | — | — | — | — | (497 | ) | (497 | ) | (9 | ) | (506 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 9 | — | — | — | 9 | — | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Increase in share based remuneration reserve | — | — | — | — | 27 | 27 | — | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of share awards | — | — | 7 | — | (7 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | — | — | — | — | (43 | ) | (43 | ) | (5 | ) | (48 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences on translation of capital and reserves | (1 | ) | (40 | ) | 7 | 27 | 7 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 | 223 | 2,723 | (663 | ) | 88 | (199 | ) | 2,172 | 25 | 2,197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2010 | 225 | 2,807 | (698 | ) | (100 | ) | (502 | ) | 1,732 | 27 | 1,759 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 94 | 596 | 690 | 6 | 696 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | 14 | — | — | — | — | (483 | ) | (483 | ) | (8 | ) | (491 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 11 | — | — | — | 11 | — | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Decrease in share based remuneration reserve | — | — | — | — | (7 | ) | (7 | ) | — | (7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of share awards | — | — | 9 | — | (9 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences on translation of capital and reserves | (1 | ) | (64 | ) | 12 | 35 | 18 | — | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2010 | 224 | 2,754 | (677 | ) | 29 | (387 | ) | 1,943 | 27 | 1,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. | Basis of preparation |
The Reed Elsevier combined financial statements are 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.
On January 1, 1993As a consequence of the merger of their respective businesses, Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. During 2014, Reed Elsevier Group plc, which ownsa company incorporated in England, owned the publishing and information businesses, is incorporated in England and Elsevier Reed Finance BV, which owns the financing companies, isa company incorporated in the Netherlands.Netherlands, owned the financing and treasury companies. Reed Elsevier PLC and Reed Elsevier NV each holdheld a 50% interest in Reed Elsevier Group plc. Until the end of 2014, Reed Elsevier PLC holdsheld a 39% interest in Elsevier Reed Finance BV withand Reed Elsevier NV holdingheld a 61% interest. Reed Elsevier PLC additionally holds an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV 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 agreement between Reed Elsevier PLC and Reed Elsevier NV has the effect that their shareholders can be regarded as having the interests of a single economic group. The Reed ElsevierFor 2014 the Group combined financial statements (“the combined financial statements”Statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures, together with the two parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).
2. | Accounting policies |
The Reed ElsevierGroup accounting policies are set out below:
Principles of combination
In preparing the combined financial statements, subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV are accounted for under the acquisition method and investments in associates and joint ventures are accounted for under the equity method. All transactions and balances between the combined businesses are eliminated.
On acquisition of a subsidiary, or interest in an associate or joint venture, fair values, reflecting conditions at the date of acquisition, are attributed to the net assets, including identifiable intangible assets acquired. This includes those adjustments made to bring accounting policies into line with those of the combined businesses. The results of subsidiaries sold or acquired are included in the combined financial statements up to or from the date that control passes from or to the combined businesses.
Non-controlling interests in the net assets of the combined businesses are identified separately from combined shareholders’ equity. Non-controlling interests consist of the amount of those interests at the date of the original acquisition and the non-controlling share of changes in equity since the date of acquisition.
Foreign exchange translation
The combined financial statements are presented in pounds sterling.
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the statement of financial position date. Exchange differences arising are recorded in the income statement other than where hedge accounting applies as set out below.
Assets and liabilities of foreign operations are translated at exchange rates prevailing on the statement of financial position date. Income and expense items and cash flows of foreign operations are translated at the average exchange rate for the period. Significant individual items of income and expense and cash flows in foreign operations are translated at the rate prevailing on the date of transaction. Exchange differences arising are classified as equity and transferred to the translation reserve. When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
Reed ElsevierThe Group uses derivative financial instruments, primarily forward contracts, to hedge its exposure to certain foreign exchange risks. Details of Reed Elsevier’sthe Group’s accounting policies in respect of derivative financial instruments are set out below.
2. | Accounting policies – (continued) |
Revenue
Revenue represents the invoiced value of sales less anticipated returns on transactions completed by performance, excluding customer sales taxes and sales between the combined businesses.taxes.
Revenues are recognised for the various categories of turnover 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;transaction and advertising — on publication or over the 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 attribution of relative value.
Employee benefits
The expense of defined benefit pension schemes and other post-retirement employee benefits is determined using the projected unit credit method and charged in the income statement as an operating expense, based on actuarial assumptions reflecting market conditions at the beginning of the financial year. Actuarial gains and losses are recognised in full in the statement of comprehensive income in the period in which they occur.
Past service costs are recognised immediately toat the extent thatearlier of when plan amendments or curtailments occur and when related restructuring costs or termination benefits have vested, or, if not vested, on a straight line basis over the period until the benefits vest.are recognised. Settlements are recognised when they occur.
Net pension obligations in respect of defined benefit schemes are included in the statement of financial position at the present value of scheme liabilities, less the fair value of scheme assets. Where schemes are in surplus, i.e. assets exceed liabilities, the net pension assets are separately included in the statement of financial position. Any net pension asset is limited to the extent that the asset is recoverable through reductions in future contributions.
The expense of defined contribution pension schemes and other employee benefits is charged in the income statement as incurred.
Share based remuneration
The fair value of share based remuneration is determined at the date of grant and recognised as an expense in the income statement on a straight line basis over the vesting period, taking account of the estimated number of shares that are expected to vest. Market based performance criteria are taken into account when determining the fair value at the date of grant. Non-market based performance criteria are taken into account when estimating the number of shares expected to vest. The fair value of share based remuneration is determined by use of a binomial or Monte Carlo simulation model as appropriate. All Reed Elsevier’sthe Group’s share based remuneration is equity settled.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to bring to use are capitalised. All other interest on borrowings is expensed as incurred. The cost of issuing borrowings is generally expensed over the period of borrowing so as to produce a constant periodic rate of charge.
Taxation
TheTax expense comprises current and deferred tax. Current and deferred tax expense representsare charged or credited in the sum ofincome statement except to the extent that the tax payable on the current year taxable profits, adjustments in respect of prior year taxable profits, and the movements on deferred tax that arearises from a transaction or event which is recognised, in the same or a different period, outside profit or loss (either in other comprehensive income, statement.directly in equity, or through a business combination) in which case the tax appears in the same statement as the transaction that gave rise to it.
TheCurrent tax is the amount of corporate income taxes payable or recoverable based on current yearthe profit for the period as adjusted for items that are not taxable profitsor not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the date of the statement of financial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted byat the dateend of the statement of financial position.
Deferred tax isreporting period, and which are expected to apply when the tax arising on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences andrelated deferred tax assets are recognised toasset is realised or the extent that, based on current forecasts, itdeferred tax liability is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised on temporary differences arising in respect of goodwill that is not deductible for tax purposes.settled.
2. | Accounting policies – (continued) |
Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures where the reversal of the temporary difference can be controlled and it is calculated usingprobable that the difference will not reverse in the foreseeable future. Deferred tax ratesliabilities are not recognised on temporary differences that have been substantively enactedarise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilised and are reviewed at the dateend of the statement of financial position. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. Deferred tax credits in respect of share based remuneration are recognised in equityeach reporting period and reduced to the extent that expectedit is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax deductions exceed the related expense.assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted.
Goodwill
On the acquisition of a subsidiary or business, the purchase consideration is allocated between the net tangible and intangible assets on a fair value basis, with any excess purchase consideration representing goodwill. Goodwill arising on acquisitions also includes amounts corresponding to deferred tax liabilities recognised in respect of acquired intangible assets.
Goodwill is recognised as an asset and reviewed for impairment when there is an indicator that the asset may be impaired and at least annually. Any impairment is recognised immediately in the income statement and not subsequently reversed.
On disposal of a subsidiary or business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Intangible assets
Intangible assets acquired as part of a business combination are stated in the statement of financial position at their fair value as at the date of acquisition, less accumulated amortisation. Internally generated intangible assets are stated in the statement of financial position at the directly attributable cost of creation of the asset, less accumulated amortisation.
Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trademarks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); editorial content; software and systems (e.g. application infrastructure, product delivery platforms, in-process research and development); contract based assets (e.g. publishing rights, exhibition rights, supply contracts); and other intangible assets. Internally generated intangible assets typically comprise software and systems development where an identifiable asset is created that is probable to generate future economic benefits.
Intangible assets, other than brands and imprints determined to have indefinite lives, are amortised systematicallyon a straight line basis over their estimated useful lives. The estimated useful lives of intangible assets with finite lives are as follows: market and customer related assets — 3 to 40 years; content, software and other acquired intangible assets — 3 to 20 years; and internally developed intangible assets — 3 to 10 years. Brands and imprints determined to have indefinite lives are not amortised and are subject to an impairment review at least annually.
Property, plant and equipment
Property, plant and equipment are stated in the statement of financial position at cost less accumulated depreciation. No depreciation is provided on freehold land. Freehold buildings and long leases are depreciated over their estimated useful lives up to a maximum of 50 years. Short leases are written off over the duration of the lease. Depreciation is provided on other assets on a straight line basis over their estimated useful lives as follows: leasehold improvements — shorter of life of lease and 10 years; plant — 3 to 20 years; office furniture, fixtures and fittings — 5 to 10 years; computer systems, communication networks and equipment — 3 to 7 years.
Investments
Investments, other than investments in joint venturesarrangements and associates, are stated in the statement of financial position at fair value. Investments held as part of the venture capital portfolio are classified as held for trading, with changes in fair value reported throughin disposals and other non operating items in the income statement. All other investments are classified as available for sale with changes in fair value recognised directly in equity until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is brought into the net profit or loss for the period. All items recognised in the income statement relating to investments, other than investments in joint venturesarrangements and associates, are reported as disposals and other non operating items.
2. | Accounting policies – (continued) |
Available for sale investments and venture capital investments held for trading represent investments in listed and unlisted securities. The fair value of listed securities is determined based on quoted market prices, and of unlisted securities on management’s estimate of fair value based on standard valuation techniques, including market comparisons and discounts of future cash flows, having regard to maximising the use of observable inputs and adjusting for risk. Advice from independent valuation experts areis used as appropriate.
All joint arrangements are classified as joint ventures because the Group shares joint control and has rights to the net assets of the arrangements. Investments in joint ventures and associates are accounted for under the equity method and stated in the statement of financial position at cost as adjusted for post-acquisition changes in Reed Elsevier’sthe Group’s share of net assets, less any impairment in value.
Impairment
At each statement of financial position date, the carrying amounts of tangible and intangible assets and goodwill are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount, which is the higher of value in use and fair value less costs to sell, of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, value in use estimates are made based on the cash flows of the cash generating unit to which the asset belongs. Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is any indication that the asset may be impaired.
If the recoverable amount of an asset or cash generating unit is estimated to be less than its net carrying amount, the net carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised immediately in the income statement in administration and other expenses.
Inventories and pre-publication costs
Inventories and pre-publication costs are stated at the lower of cost, including appropriate attributable overhead, and estimated net realisable value. Pre-publication costs, representing costs incurred in the origination of content prior to publication, are expensed systematically reflecting the expected sales profile over the estimated economic lives of the related products, generally up to five years.
Leases
Assets held under leases which confer rights and obligations similar to those attaching to owned assets are classified as assets held under finance leases and capitalised within property, plant and equipment or software and the corresponding liability to pay rentals is shown net of interest in the statement of financial position as obligations under finance leases. The capitalised value of the assets is depreciated on a straight line basis over the shorter of the periods of the leases or the useful lives of the assets concerned. The interest element of the lease payments is allocated so as to produce a constant periodic rate of charge.
Operating lease rentals are charged to the income statement on a straight line basis over the period of the leases. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and other short term highly liquid investments and are held in the statement of financial position at fair value.
Assets held for sale
Assets of businesses that are available for immediate sale in their current condition and for which a sales process is considered highly probable to complete are classified as assets held for sale, and are carried at the lower of carrying value and fair value less costs to sell. Fair value is based on anticipated disposal proceeds, typically derived from firm or indicative offers from potential acquirers. Non-current assets are not amortised or depreciated following their classification as held for sale. Liabilities of businesses held for sale are also separately classified on the statement of financial position.
Financial instruments
Financial instruments comprise investments (other than investments in joint ventures or associates), trade receivables, cash and cash equivalents, payables and accruals, provisions, borrowings and derivative financial instruments.
2. | Accounting policies – (continued) |
Investments (other than investments in joint ventures and associates) are classified as either held for trading or available for sale, as described above. (These investments are typically classified as either Level 1 or Level 2 in the IFRS7IFRS13 fair value hierarchy.). The fair value of such investments is based on either quoted market prices or other observable market inputs.
Trade receivables are carried in the statement of financial position at invoiced value less allowance for estimated irrecoverable amounts. Irrecoverable amounts are estimated based on the ageing of trade receivables, experience and circumstance.
Borrowings and payables are recorded initially at fair value and subsequently carried at amortised cost (other than fixed rate borrowings in designated hedging relationships and for which the carrying value is adjusted to reflect changes in the fair valueamount of the hedged risk), payables, accruals and provisions are recorded initially at fair value andportion of the borrowings is subsequently at amortised cost.
adjusted for the gain or loss attributable to the hedged risk).
Derivative financial instruments are used to hedge interest rate and foreign exchange risks. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised (net of tax) directly in equity in the hedge reserve. If a hedged firm commitment or forecasted transaction results in the recognition of a non financial asset or liability, then, at the time that the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss. Any ineffective portion of hedges is recognised immediately in the income statement.
Derivative financial instruments that are not designated as hedging instruments are classified as held for trading and recorded in the statement of financial position at fair value, with changes in fair value recognised in the income statement.
Where an effective hedge is in place against changes in the fair value of fixed rate borrowings, the hedged borrowings are adjusted for changes in fair value attributable to the risk being hedged with a corresponding income or expense included in the income statement within finance costs. The offsetting gains or losses from remeasuring the fair value of the related derivatives are also recognised in the income statement within finance costs. When the related derivative expires, is sold or terminated, or no longer qualifies for hedge accounting, the cumulative change in fair value of the hedged borrowing is amortised in the income statement over the period to maturity of the borrowingsborrowing using the effective interest method.
The fair values of interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts represent the replacement costs calculated using observable market rates of interest and exchange. The fair value of long term borrowings is calculated by discounting expected future cash flows at observable market rates. (These instruments are accordingly classified as Level 2 in the IFRS7IFRS13 fair value hierarchy.)
Cash flow hedge accounting is discontinued when a hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is either retained in equity until the firm commitment or forecasted transaction occurs, or, where a hedged transaction is no longer expected to occur, is immediately credited or expensed in the income statement.
Provisions
Provisions are recognised when a present obligation exists as a result of a past event, the obligation is reasonably estimable, and it is probable that settlement of the obligation will be required. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the statement of financial position date.
Shares held in treasury
Shares of Reed Elsevier PLC and Reed Elsevier NV that are repurchased by the respective parent companies and not cancelled are classified as shares held in treasury. The consideration paid, including directly attributable costs, is recognised as a deduction from equity. Shares of the parent companies that are purchased by the Reed Elsevier Group plc Employee Benefit Trust are also classified as shares held in treasury, with the cost recognised as a deduction from equity.
Critical judgements and key sources of estimation uncertainty
The most significant accounting policies in determining the financial condition and results of the Reed Elsevier combined businesses, and those requiring the most subjective or complex judgement, relate to the valuation of goodwill and intangible assets, share based remuneration, pensions, litigation,capitalisation of development spend, taxation and property provisioning.accounting for defined benefit pension schemes.
2. | Accounting policies – (continued) |
Goodwill and acquired intangible assets
On acquisition of a subsidiary or business, the purchase consideration is allocated between the net tangible and intangible assets other than goodwill on a fair value basis, with any excess purchase consideration representing goodwill. The valuation of acquired intangible assets represents the estimated economic value in use, using standard valuation methodologies, including as appropriate, discounted cash flow, relief from royalty and comparable market transactions. Acquired intangible assets are capitalised and amortised systematically over their estimated useful lives, subject to impairment review.
Appropriate amortisation periods are selected based on assessments of the longevity of the brands and imprints, the strength and stability of customer relationships, the market positions of the acquired assets and the technological and competitive risks that they face. Certain intangible assets in relation to acquired science and medical publishing businesses have been determined to have indefinite lives. The longevity of these assets is evidenced by their long established and well regarded brands and imprints, and their characteristically stable market positions.
The carrying amounts of goodwill and indefinite lived intangible assets in each business are reviewed for impairment at least annually. The carrying amounts of all other intangible assets are reviewed where there are indications of possible impairment. An impairment review involves a comparison of the carrying value of the asset with estimated values in use based on the latest management cash flow projections.projections approved by the board. Key areas of judgement in estimating the values in use of businesses are the growth in cash flows over a five year forecast period of up to five years, the long term growth rate assumed thereafter and the discount rate applied to the forecast cash flows.
The discount rates used are based on A description of the Reed Elsevier weighted average cost of capital, adjusted to reflect a risk premium specific to each business. The pre-tax discount rates applied are 11.4% for Scientific, Technical & Medical, 11.8% for Risk Solutions, 11.5-12.9% for Business Information, 11.6% for Legal and 11.2-12.9% for Exhibitions. The nominal long term growth rates, which are based on historical growth rates and the growth prospects for businesses, are 3%. There were no charges for impairment of acquired intangible assets and goodwill in 2012 (2011: nil; 2010: nil).
A sensitivity analysis has been performed based on changes in key assumptions considered to be reasonably possible by management: an increase in the discount rate of 0.5%; a decrease in the compound annual growth rate for adjusted operating cash flow in the five year forecast period of 2.0%; and a decrease in perpetuity growth rates of 0.5%. The sensitivity analysis shows that no impairment charges would result under any of the sensitivity scenarios. Further informationsensitivities is provided in note 15 to the combined financial statements.14.
Share based remunerationDevelopment spend
Share based remunerationDevelopment spend embraces investment in new products and other initiatives, ranging from the building of online delivery platforms, to launch costs of new services, to building new infrastructure applications. Launch costs and other ongoing operating expenses of new products and services are expensed as incurred. The costs of building product applications, platforms and infrastructure are capitalised as intangible assets where the investment they represent has demonstrable value and technical and commercial feasibility is determined based onassured. Costs eligible for capitalisation must be incremental, clearly identified and directly attributable to a particular project. The resulting assets are amortised over their estimated useful lives. Impairment reviews are carried out at least annually. Judgement is required in the fairassessment of the potential value of an award ata development project, the dateidentification of grant, and is spread over the vesting period on a straight line basis, taking into account the number of shares that are expected to vest. The fair value of awards is determined at the date of grant by use of a binomial or Monte Carlo simulation model as appropriate, which requires judgements to be made regarding share price volatility, dividend yield, risk free rates of return and expected option lives. The number of awards that are expected to vest requires judgements to be made regarding forfeiture ratescosts eligible for capitalisation and the extent to which performance conditions will be met. The assumptions are determined in conjunction with independent actuaries based on historical data and trends.
The assumptionsselection of share price volatility of 30%, of expected share option life of 4 years, and of expected lapse rate of 2-5% are based on relevant historical data. Other judgements made on grant are based on market data. Assumptions as to future performance against non market related vesting conditions are based on management estimates. The charge for share based and related remuneration was £26 million in 2012 (2011: £27 million; 2010: £11 million). Further information is provided in note 8 to the combined financial statements.
Pensions
Accounting for defined benefit pension schemes involves judgement about uncertain events, including the life expectancy of the members, salary and pension increases, inflation, the return on scheme assets and the rate at which the future pension payments are discounted. Estimates for these factors are used in determining the pension cost and liabilities reported in the financial statements. These best estimates of future developments are made in conjunction with independent actuaries. Each scheme is subject to a periodic review by independent actuaries.
The principal assumptions as at December 31, 2012, expressed as a weighted average of the various defined benefit pension schemes, were a discount rate of 4.4% (2011: 5.2%; 2010: 5.6%), an expected rate of salary increases of 3.2% (2011: 3.5%; 2010: 4.1%) and inflation of 2.7% (2011: 2.9%; 2010: 3.2%). The expected return on scheme assets, set at the beginning of the year, was 6.2% (2011: 6.8%; 2010: 7.0%). Future pension increases are assumed at 2.8% (2011: 2.9%; 2010: 3.2%) and average life expectancy of 88-89 years (2011: 87-89 years, 2010: 87-89 years) for scheme members currently aged 45 and 60 years. The net defined benefit pension expense was £18 million (2011: £23 million; 2010: £22 million). The service cost was £43 million (2011: £57 million; 2010: £48 million) after pension curtailment credits of £20 million (2011: £9 million; 2010: £17 million) from changes to pension plan design and staff reductions. The net pension financing credit is based on market data at the beginning of the year and was £25 million (2011: £34 million; 2010: £26 million) reflecting the increase in scheme liabilities at the beginning of the year compared with a year before and lower expectedappropriate asset returns. Further information and sensitivity analysis is provided in note 7 to the combined financial statements.
Litigation
Reed Elsevier is involved in various legal proceedings, which arise in the normal course of its business, relating to commercial disputes, employment, data security and product liability. Provisions for liabilities are recognised when it is probable that a settlement is required. Although the outcome of legal proceedings is uncertain, the ultimate resolution of such matters is not expected to have a material impact on results.
lives.
Taxation
Reed ElsevierThe Group is subject to tax in numerous jurisdictions, giving rise to complex tax issues that require management to exercise judgement in making tax determinations. While Reed Elsevierthe Group is confident that tax returns are appropriately prepared and filed, provisionsamounts are maintainedprovided in respect of uncertain tax positions that are believed to appropriately reflect the risk with respect to tax matters under active discussion with tax authorities, or which are otherwise considered to involve uncertainty. Amounts are provided using the best estimate of the amounttax expected to be paid based on a qualitative assessment of all relevant factors. However, it is possible that at some future date liabilities may be adjusted as a result of audits by taxing authorities. Discussions with tax authorities relating to cross-border transactions and other matters are ongoing. Although the outcome of open itemsthese discussions cannot be predicted, no significant impact on the financial position of Reed Elsevierthe Group is expected.
In addition, estimation of income taxes includes assessments of the recoverability of deferred tax assets. Deferred tax assets are only recognized to the extent that they are considered recoverable based on existing tax laws and forecasts of future taxable profits against which the underlying tax deductions can be utilized. The recoverability of these assets is reassessed at the end of each reporting period, and changes in recognition toof deferred tax assets will affect the tax provisionliability in the period of that reassessment.
Property provisionsPensions
Reed Elsevier has exposuresThe Group operates a number of defined benefit pension schemes across the world. The largest schemes are in the UK, the US and the Netherlands, as described in note 6 to sub lease shortfalls in respect of certain property leases for periods upthe financial statements. These schemes require management to 2024. Provisions are recognised for net liabilities expected to arise on these exposures. Estimation of the provisions requiresexercise judgement in respectestimating the ultimate cost of future head lease costs, sub lease income andproviding post-employment benefits, especially given the length of vacancy periods.each scheme’s liabilities. The chargerecognition of certain scheme liabilities is also subject to judgement. Accounting for property provisions was £62 million (2011: £16 million; 2010: £36 million) relatingdefined benefit pension schemes involves judgement about uncertain events, including the life expectancy of the members, salary and pension increases, inflation, the future operation of each scheme and the rate at which the future pension payments are discounted. Estimates for these factors are used in determining the pension cost and liabilities reported in the financial statements. The estimates made around future developments of each of the critical assumptions are made in conjunction with independent actuaries. Each scheme is subject to surplus property arising ona periodic review by independent actuaries. Information regarding some of the restructuring, sale and closure of businesses and includes expected losses on sub-leases entered into during 2012 and an estimate of vacancy periods and future market conditions. Further informationassumptions used for valuation is provided in note 276 to the combined financial statements.statements, together with a sensitivity analysis.
2. | Accounting policies – (continued) |
Other significant accounting policies
The accounting policies in respect of revenue recognition, pre-publication costs and development spendproperty provisioning are also significant in determining the financial condition and results of the Reed Elsevier combined businesses, although the application of these policies is more straightforward.
Revenue recognition policies, while an area of management focus, are generally straightforward in application as the timing of product or service delivery and customer acceptance for the various revenue types can be readily determined. Allowances for product returns are deducted from revenues based on historical return rates. Where sales consist of two or more components that operate independently, revenue is recognised as each component is completed by performance, based on attribution of relative value.
Pre-publication costs incurred in the creation of content prior to production and publication are typically deferred and expensed over their estimated useful lives based on sales profiles. Such costs typically comprise direct internal labour costs and externally commissioned editorial and other fees. Estimated useful lives generally do not exceed five years. Annual reviews are carried out to assess the recoverability of carrying amounts.
Development spend embraces investmentThe Group has exposures to sub lease shortfalls in new productrespect of certain property leases for periods up to 2024. Provisions are recognised for net liabilities expected to arise on these exposures. Estimation of the provisions requires judgement in respect of future head lease costs, sub lease income and other initiatives, ranging from the buildinglength of new online delivery platforms,vacancy periods. The charge for property provisions was nil (2013: nil; 2012: £62 million) relating to launch costssurplus property arising on the restructuring, sale and closure of new services,Risk & Business Information businesses and includes expected losses on sub-leases entered into, an estimate of vacancy periods and future market conditions. Further information is provided in note 26 to building new infrastructure applications. Launch costs and other operating expenses of new products and services are expensed as incurred. The costs of building product applications and infrastructure are capitalised as intangible assets and amortised over their estimated useful lives. Impairment reviews are carried out at least annually.the combined financial statements.
Standards and amendments effective for the year
The interpretations and amendments to IFRS effective for 20122014 have not had a significant impact on Reed Elsevier’sthe Group’s accounting policies or reporting.
Standards, amendments and interpretations not yet effective
New accounting standards and amendments and their expected impact on the future accounting policies and reporting of Reed Elsevierthe Group are set out below.
IAS19 — Employee Benefits (Revised)IFRS 15 – Revenue from contracts with customers (effective for the 20132017 financial year). The revisednew standard inter alia changes the methodology to be usedprovides a single point of reference for revenue recognition replacing a range of different revenue accounting standards, interpretations and guidance. The Group is in the calculationprocess of assessing the net pension financing credit or charge in relation to defined benefit
pension schemes. Under the revised standard, pension asset returns included within the net pension financing credit or charge are to be calculated by reference to the discount rateimpact of a high quality corporate bond (being also the discount rate applied in the calculation of pension obligations) and no longer based on the expected returns on scheme assets. Typically the effect will be to reduce the asset returns recognised in the income statement. As required under the revised standard, comparatives will be restated accordingly. The revised standard also prohibits the use of certain accounting alternatives, previously permitted, that enabled the smoothing of volatility in the income statement and balance sheet in relation to pensions, but this will not affect Reed Elsevier’s pension accounting as such alternatives were not applied. There is no change to the measurement of pension scheme assets and obligations under the revised standard for Reed Elsevier.
Adoption of IAS19 (revised) will have no impact on Reed Elsevier’s combine balance sheet or cash flows. The net pension financing credit or charge will, with effect from 1 January 2013, be presented within net finance costs in Reed Elsevier’s combined income statement, rather than within operating profit as currently reported. Given that the revised standard may introduce greater volatility to the income statement, following adoption on 1 January 2013 the net pension financing credit or charge will be excluded from the adjusted earnings figures used by Reed Elsevier as additional performance measures.
Had IAS19 (revised) and related presentation been in effect for the 2012 financial year, operating profit for the twelve months to December 31, 2012 would have been £25m lower (2011: £34 million, 2010: £26 million) and net finance costs would have been higher by £11 million (2011: £9 million, 2010: £14 million). The balance sheet and cash flows would have been unchanged.standard.
IFRS9 —– Financial Instruments (effective for the 20152018 financial year). The standard replaces the existing classification and measurement requirements in IAS39 for financial assets by requiring entities to classify them as being measured either at amortised cost or fair value depending on the business model and contractual cash flow characteristics of the asset. For financial liabilities, IFRS9 requires an entity choosing to measure a liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income rather than the income statement. Adoption of the standard is not expected to have a significant impact on the measurement, presentation or disclosure of financial assets and liabilities in the combined financial statements.
IFRS10 — Consolidated Financial Statements (effective for the 2013 financial year). The standard introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee. IFRS10 replaces IAS27 — Separate Financial Statements. Adoption of the standard is not expected to have a significant impact on the measurement, presentation or disclosure of the consolidation of entities in the combined financial statements.
IFRS11 — Joint Arrangements (effective for the 2013 financial year). This standard classifies joint arrangements as either joint ventures or a joint operation and removes the option to proportionately consolidate joint ventures. IFRS11 replaces IAS28 — Investments in Associates and Joint Ventures. Adoption of the standard is not expected to have a significant impact on the measurement, presentation or disclosure of the joint ventures in the combined financial statements.
IFRS12 — Disclosure of Interests in Other Entities (effective for the 2013 financial year). This standard combines the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities into one standard. Adoption of the standard may result in additional disclosures in the combined financial statements but is not expected to have a significant impact on Reed Elsevier’s reporting.
IFRS13 — Fair Value Measurement (effective for the 2013 financial year). The standard consolidates the guidance and disclosure requirements of fair value measurement contained throughout IFRS and also requires new disclosures related to valuation techniques and inputs into fair value measurements. Adoption of the standard is not expected to have a significant impact on the measurement, presentation or disclosure of financial assets and liabilities in the combined financial statements.
IAS1 — Presentation of Items of Other Comprehensive Income — Amendments to IAS1 (effective for the 2013 financial year). The standard amends the grouping of items presented in the statement of comprehensive income into items that may be reclassified (or recycled) to the profit or loss in a future period and items that will never be reclassified. Adoption of the standard will lead to some re-presentation of the items in the statement of comprehensive income in the combined financial statements.
Additionally, a number of amendments and interpretations have been issued which are not expected to have any significant impact on Reed Elsevier’sthe Group’s accounting policies and reporting.
3. | Segment analysis |
Reed Elsevier’s reported segments are based on the internal reporting structure and financial information provided to the Chief Executive Officer and Boards.
Reed ElsevierThe Group is a world leading provider of professional information solutions organised as five businessfor professional customers across industries. We operate in four market segments: Scientific, Technical & Medical, providing information and tools to help its customers improve scientific and healthcare outcomes; Risk Solutions,& Business Information, providing data services and tools that combine proprietary, public and third-party information, with advanced technology and analytics; Business Information, providing data services, information and marketing solutionsanalytics to business professionals;and government customers; Legal, providing legal, tax, regulatory news &and business information to legal, corporate, government accounting and academic markets; and Exhibitions, organising exhibitions and conferences.
The Group’s reported segments are based on the internal reporting structure and financial information provided to the Boards. During 2014, Risk Solutions and Business Information have been combined into one Business area, having previously operated separately. Accordingly, they are now presented as a single operating segment. Comparative figures have been presented as if the businesses had operated on a combined basis in the prior year.
Following a review of activities, assets and costs across the business, the Group introduced a new method for the allocation of corporate and shared costs from January 1, 2014. Previously unallocated items and costs relating to shared activities and resources have been attributed to the business segments on the basis of usage and benefits derived. This new allocation reflects an increased level of shared resources and capitalised costs. Comparative adjusted operating profit figures have been restated as if this allocation method had been used in the prior years. This reflects the presentation of financial information provided to the Boards.
Adjusted operating profit is the key segmental profit measure used by Reed Elsevierthe Group in assessing performance. It is stated before amortisation of acquired intangible assets, the share of profit on disposals in joint ventures, exceptional restructuring (none in 2012 or 2011), acquisition related costs, and is grossed up to exclude the equity share of taxes in joint ventures.
Operating profit by segment is included as supplementary information.
Analysis by business segment
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 Restated £m | 2012 Restated £m | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Scientific, Technical & Medical | 2,063 | 2,058 | 2,026 | 2,048 | 2,126 | 2,063 | ||||||||||||||||||
Risk Solutions | 926 | 908 | 927 | |||||||||||||||||||||
Business Information | 663 | 695 | 718 | |||||||||||||||||||||
Risk & Business Information | 1,439 | 1,480 | 1,589 | |||||||||||||||||||||
Legal | 1,610 | 1,634 | 1,691 | 1,396 | 1,567 | 1,610 | ||||||||||||||||||
Exhibitions | 854 | 707 | 693 | 890 | 862 | 854 | ||||||||||||||||||
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Total | 6,116 | 6,002 | 6,055 | 5,773 | 6,035 | 6,116 | ||||||||||||||||||
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Operating profit | ||||||||||||||||||||||||
Adjusted operating profit | ||||||||||||||||||||||||
Scientific, Technical & Medical | 706 | 695 | 647 | 762 | 787 | 743 | ||||||||||||||||||
Risk Solutions | 281 | 181 | 165 | |||||||||||||||||||||
Business Information | 76 | 68 | — | |||||||||||||||||||||
Risk & Business Information | 506 | 507 | 498 | |||||||||||||||||||||
Legal | 146 | 144 | 159 | 260 | 250 | 244 | ||||||||||||||||||
Exhibitions | 171 | 132 | 127 | 217 | 210 | 208 | ||||||||||||||||||
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Sub-total | 1,380 | 1,220 | 1,098 | 1,745 | 1,754 | 1,693 | ||||||||||||||||||
Corporate costs | (47 | ) | (49 | ) | (34 | ) | (6 | ) | (5 | ) | (5 | ) | ||||||||||||
Unallocated net pension financing credit | 25 | 34 | 26 | |||||||||||||||||||||
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|
| |||||||||||||||||||
Total | 1,358 | 1,205 | 1,090 | 1,739 | 1,749 | 1,688 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Adjusted operating profit | ||||||||||||||||||||||||
Scientific, Technical & Medical | 780 | 768 | 724 | |||||||||||||||||||||
Risk Solutions | 392 | 362 | 354 | |||||||||||||||||||||
Business Information | 119 | 110 | 89 | |||||||||||||||||||||
Legal | 234 | 229 | 238 | |||||||||||||||||||||
Exhibitions | 210 | 167 | 158 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Sub-total | 1,735 | 1,636 | 1,563 | |||||||||||||||||||||
Corporate costs | (47 | ) | (44 | ) | (34 | ) | ||||||||||||||||||
Unallocated net pension financing credit | 25 | 34 | 26 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | 1,713 | 1,626 | 1,555 | |||||||||||||||||||||
|
|
|
Analysis by geographical origin
2014 £m | 2013 £m | 2012 £m | ||||||||||
Revenue | ||||||||||||
North America | 2,884 | 3,103 | 3,122 | |||||||||
United Kingdom | 1,013 | 985 | 966 | |||||||||
The Netherlands | 636 | 656 | 611 | |||||||||
Rest of Europe | 686 | 698 | 788 | |||||||||
Rest of world | 554 | 593 | 629 | |||||||||
|
|
|
|
|
| |||||||
Total | 5,773 | 6,035 | 6,116 | |||||||||
|
|
|
|
|
|
3. | Segment analysis – (continued) |
Analysis by geographical originmarket
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
North America | 3,122 | 3,103 | 3,213 | 2,878 | 3,082 | 3,154 | ||||||||||||||||||
United Kingdom | 966 | 947 | 907 | 455 | 443 | 442 | ||||||||||||||||||
The Netherlands | 611 | 616 | 620 | 153 | 166 | 165 | ||||||||||||||||||
Rest of Europe | 788 | 783 | 825 | 1,053 | 1,074 | 1,176 | ||||||||||||||||||
Rest of world | 629 | 553 | 490 | 1,234 | 1,270 | 1,179 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 6,116 | 6,002 | 6,055 | 5,773 | 6,035 | 6,116 | ||||||||||||||||||
|
|
|
|
|
|
Analysis by geographical marketformat
2012 £m | 2011 £m | 2010 £m | ||||||||||
Revenue | ||||||||||||
North America | 3,154 | 3,219 | 3,303 | |||||||||
United Kingdom | 442 | 485 | 490 | |||||||||
The Netherlands | 165 | 189 | 204 | |||||||||
Rest of Europe | 1,176 | 1,095 | 1,131 | |||||||||
Rest of world | 1,179 | 1,014 | 927 | |||||||||
|
|
|
|
|
| |||||||
Total | 6,116 | 6,002 | 6,055 | |||||||||
|
|
|
|
|
|
2014 £m | 2013 £m | 2012 £m | ||||||||||
Revenue | ||||||||||||
Electronic | 3,839 | 3,971 | 3,896 | |||||||||
1,012 | 1,168 | 1,305 | ||||||||||
Face to face | 922 | 896 | 915 | |||||||||
|
|
|
|
|
| |||||||
Total | 5,773 | 6,035 | 6,116 | |||||||||
|
|
|
|
|
|
Analysis by type
2012 £m | 2011 £m | 2010 £m | ||||||||||
Revenue | ||||||||||||
Subscriptions | 2,978 | 2,819 | 2,709 | |||||||||
Circulation/transactions | 1,602 | 1,649 | 1,760 | |||||||||
Advertising | 350 | 437 | 491 | |||||||||
Exhibitions | 846 | 700 | 675 | |||||||||
Other | 340 | 397 | 420 | |||||||||
|
|
|
|
|
| |||||||
Total | 6,116 | 6,002 | 6,055 | |||||||||
|
|
|
|
|
|
Revenue is analysed before the £91 million (2011: £128 million; 2010: £116 million) share of joint ventures’ revenue, of which £2 million (2011: £2 million; 2010: £3 million) relates to Business Information, £22 million (2011: £23 million; 2010: £24 million) relates to Legal, principally to Giuffrè, and £67 million (2011: £103 million; 2010: £89 million) relates to Exhibitions.
2014 £m | 2013 £m | 2012 £m | ||||||||||
Revenue | ||||||||||||
Subscriptions | 2,966 | 3,112 | 2,978 | |||||||||
Transactional | 2,672 | 2,683 | 2,788 | |||||||||
Advertising | 135 | 240 | 350 | |||||||||
|
|
|
|
|
| |||||||
Total | 5,773 | 6,035 | 6,116 | |||||||||
|
|
|
|
|
|
Share of post-tax results of joint ventures of £24£36 million (2011: £30(2013: £29 million; 2010: £222012: £24 million) included in operating profit comprises nil (2011: £1£16 million (2013: £6 million; 2010: £1 million) relating to Business Information,2012: £2 million (2011: £4 million; 2010: £4 million) relating to Legal and £22£20 million (2011: £25(2013: £23 million; 2010: £172012: £22 million) relating to Exhibitions. The unallocated net pension financing credit of £25 million (2011: £34 million; 2010: £26 million) comprises the expected return on pension scheme assets of £221 million (2011: £235 million; 2010: £217 million) less interest on pension scheme liabilities of £196 million (2011: £201 million; 2010: £191 million).
A reconciliation of operating profit to adjusted operating profit is provided below:
2012 £m | 2011 £m | 2010 £m | ||||||||||
Operating profit | 1,358 | 1,205 | 1,090 | |||||||||
Adjustments: | ||||||||||||
Amortisation of acquired intangible assets | 329 | 359 | 349 | |||||||||
Exceptional restructuring costs | — | — | 57 | |||||||||
Acquisition related costs | 21 | 52 | 50 | |||||||||
Share of profit on disposals in joint ventures | — | (1 | ) | — | ||||||||
Reclassification of tax in joint ventures | 5 | 11 | 9 | |||||||||
|
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|
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| |||||||
Adjusted operating profit | 1,713 | 1,626 | 1,555 | |||||||||
|
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|
Analysis by business segment
2012 £m | 2011 £m | 2010 £m | ||||||||||
Expenditure on acquired goodwill and intangible assets | ||||||||||||
Scientific, Technical & Medical | 120 | 43 | 13 | |||||||||
Risk Solutions | 15 | — | — | |||||||||
Business Information | — | 532 | 1 | |||||||||
Legal | 80 | — | 34 | |||||||||
Exhibitions | 178 | 36 | 6 | |||||||||
|
|
|
|
|
| |||||||
Total | 393 | 611 | 54 | |||||||||
|
|
|
|
|
| |||||||
Capital expenditure additions | ||||||||||||
Scientific, Technical & Medical | 106 | 94 | 81 | |||||||||
Risk Solutions | 21 | 23 | 31 | |||||||||
Business Information | 17 | 18 | 12 | |||||||||
Legal | 173 | 203 | 179 | |||||||||
Exhibitions | 25 | 22 | 12 | |||||||||
|
|
|
|
|
| |||||||
Total | 342 | 360 | 315 | |||||||||
|
|
|
|
|
| |||||||
Amortisation of acquired intangible assets | ||||||||||||
Scientific, Technical & Medical | 68 | 72 | 75 | |||||||||
Risk Solutions | 109 | 156 | 149 | |||||||||
Business Information | 37 | 29 | 30 | |||||||||
Legal | 83 | 78 | 72 | |||||||||
Exhibitions | 32 | 24 | 23 | |||||||||
|
|
|
|
|
| |||||||
Total | 329 | 359 | 349 | |||||||||
|
|
|
|
|
| |||||||
Depreciation and other amortisation | ||||||||||||
Scientific, Technical & Medical | 82 | 69 | 74 | |||||||||
Risk Solutions | 23 | 26 | 29 | |||||||||
Business Information | 14 | 15 | 26 | |||||||||
Legal | 92 | 87 | 94 | |||||||||
Exhibitions | 16 | 10 | 14 | |||||||||
|
|
|
|
|
| |||||||
Total | 227 | 207 | 237 | |||||||||
|
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|
|
|
|
2014 £m | 2013 £m | 2012 £m | ||||||||||
Operating profit | 1,402 | 1,376 | 1,333 | |||||||||
Adjustments: | ||||||||||||
Amortisation of acquired intangible assets | 286 | 318 | 329 | |||||||||
Acquisition related costs | 30 | 43 | 21 | |||||||||
Reclassification of tax in joint ventures | 21 | 12 | 5 | |||||||||
|
|
|
|
|
| |||||||
Adjusted operating profit | 1,739 | 1,749 | 1,688 | |||||||||
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|
|
|
3. | Segment analysis – (continued) |
Analysis by business segment
2014 £m | 2013 Restated £m | 2012 Restated £m | ||||||||||
Expenditure on acquired goodwill and intangible assets | ||||||||||||
Scientific, Technical & Medical | 25 | 50 | 120 | |||||||||
Risk & Business Information | 330 | 169 | 15 | |||||||||
Legal | 48 | 15 | 80 | |||||||||
Exhibitions | 23 | 56 | 178 | |||||||||
|
|
|
|
|
| |||||||
Total | 426 | 290 | 393 | |||||||||
|
|
|
|
|
| |||||||
Capital expenditure additions | ||||||||||||
Scientific, Technical & Medical | 56 | 93 | 106 | |||||||||
Risk & Business Information | 53 | 43 | 38 | |||||||||
Legal | 145 | 170 | 173 | |||||||||
Exhibitions | 27 | 15 | 25 | |||||||||
|
|
|
|
|
| |||||||
Total | 281 | 321 | 342 | |||||||||
|
|
|
|
|
| |||||||
Amortisation of acquired intangible assets | ||||||||||||
Scientific, Technical & Medical | 79 | 86 | 78 | |||||||||
Risk & Business Information | 116 | 128 | 146 | |||||||||
Legal | 57 | 64 | 73 | |||||||||
Exhibitions | 34 | 40 | 32 | |||||||||
|
|
|
|
|
| |||||||
Total | 286 | 318 | 329 | |||||||||
|
|
|
|
|
| |||||||
Depreciation and other amortisation | ||||||||||||
Scientific, Technical & Medical | 94 | 100 | 87 | |||||||||
Risk & Business Information | 34 | 33 | 38 | |||||||||
Legal | 94 | 101 | 85 | |||||||||
Exhibitions | 15 | 15 | 17 | |||||||||
|
|
|
|
|
| |||||||
Total | 237 | 249 | 227 | |||||||||
|
|
|
|
|
|
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. Amortisation of acquired intangible assets includes amounts in respect of joint ventures of £1 million (2011: £4(2013: £1 million; 2010: £42012: £1 million) in Exhibitions.Exhibitions and £3 million (2013: nil; 2012 nil) in Legal. Other than the depreciation and amortisation above, non cash items includes a £32 million charge (2013: £31 million charge (2011: £27charge; 2012: £31 million charge; 2010: £7 million credit)charge) relating to the recognition of share based remuneration, comprising £5£12 million (2011: £5 million charge; 2010: £2 million credit)(2013: £11 million; 2012: £11 million) in Scientific, Technical & Medical, nil (2011: £3£8 million (2013: £8 million; 2010: £22012: £7 million) in Risk Solutions, £3 million (2011: £2 million; 2010: £3 million credit) in& Business Information, £7 million (2011: £6(2013: £7 million; 2010: £1 million credit)2012: £8 million) in Legal £4and £5 million (2011: £3(2013: £5 million; 2010: £1 million credit)2012: £5 million) in Exhibitions and £12 million (2011: £8 million; 2010: £2 million credit) in Corporate.Exhibitions.
Analysis by geographical location
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||
North America | 6,514 | 6,984 | 6,716 | 6,569 | 6,291 | 6,514 | ||||||||||||||||||
United Kingdom | 524 | 517 | 456 | 701 | 584 | 524 | ||||||||||||||||||
The Netherlands | 120 | 123 | 140 | 109 | 125 | 120 | ||||||||||||||||||
Rest of Europe | 729 | 783 | 851 | 816 | 753 | 729 | ||||||||||||||||||
Rest of world | 376 | 292 | 210 | 414 | 401 | 376 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 8,263 | 8,699 | 8,373 | 8,609 | 8,154 | 8,263 | ||||||||||||||||||
|
|
|
|
|
|
Non-current assets by geographical location exclude amounts relating to deferred tax net pension assets and derivative financial instruments.
4. | Operating profit |
Operating profit is stated after charging/(crediting) the following:
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Staff costs | ||||||||||||||||||||||||||||||||
Wages and salaries | 1,543 | 1,535 | 1,594 | 1,415 | 1,508 | 1,543 | ||||||||||||||||||||||||||
Social security costs | 187 | 173 | 179 | 167 | 175 | 187 | ||||||||||||||||||||||||||
Pensions | 7 | 64 | 62 | 54 | 6 | 95 | 61 | 89 | ||||||||||||||||||||||||
Share based and related remuneration | 26 | 27 | 11 | 32 | 31 | 26 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total staff costs | 1,820 | 1,797 | 1,838 | 1,709 | 1,775 | 1,845 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Depreciation and amortisation | ||||||||||||||||||||||||||||||||
Amortisation of acquired intangible assets | 16 | 328 | 355 | 345 | 15 | 282 | 317 | 328 | ||||||||||||||||||||||||
Share of joint ventures’ amortisation of acquired intangible assets | 1 | 4 | 4 | 4 | 1 | 1 | ||||||||||||||||||||||||||
Amortisation of internally developed intangible assets | 16 | 151 | 132 | 158 | 15 | 158 | 160 | 151 | ||||||||||||||||||||||||
Depreciation of property, plant and equipment | 18 | 76 | 75 | 79 | 17 | 79 | 89 | 76 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total depreciation and amortisation | 556 | 566 | 586 | 523 | 567 | 556 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Other expenses and income | ||||||||||||||||||||||||||||||||
Pre-publication costs, inventory expenses and other cost of sales | 2,139 | 2,126 | 2,209 | 2,006 | 2,118 | 2,139 | ||||||||||||||||||||||||||
Operating lease rentals expense | 112 | 116 | 123 | 91 | 108 | 112 | ||||||||||||||||||||||||||
Operating lease rentals income | (10 | ) | (11 | ) | (11 | ) | (8 | ) | (10 | ) | (10 | ) | ||||||||||||||||||||
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|
|
|
|
Depreciation andThe amortisation charges areof acquired intangible assets is included within administration and other expenses.
5. |
2012 £m | 2011 £m | 2010 £m | ||||||||||
For audit services | 4.7 | 4.7 | 4.5 | |||||||||
For non audit services | 1.8 | 1.1 | 1.2 | |||||||||
|
|
|
|
|
| |||||||
Total auditors’ remuneration | 6.5 | 5.8 | 5.7 | |||||||||
|
|
|
|
|
|
Auditors’ remuneration for audit services comprises £0.5 million (2011: £0.5 million; 2010: £0.4 million) payable to the auditors of the parent companies and £4.2 million (2011: £4.2 million; 2010: £4.1 million) payable to the auditors of the parent companies and their associates for the audit of the financial statements of the operating and financing businesses, including the review and testing of internal control over financial reporting in accordance with the US Sarbanes-Oxley Act. Auditors’ remuneration for non audit services comprises: £0.8 million (2011: £0.7 million; 2010: £0.9 million) for tax compliance services, £0.3 million (2011: £0.2 million; 2010: nil) for due diligence and other transaction related services and £0.7 million (2011: £0.2 million; 2010: £0.3 million) for other audit related assurance services.
Personnel |
Number of people employedemployed: full time equivalents
At December 31 | Average during the year | At December 31 | Average during the year | |||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2010 | 2014 | 2013 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
Business segment | ||||||||||||||||||||||||||||||||||||||||
Scientific, Technical & Medical | 7,000 | 6,900 | 7,000 | 6,900 | 6,800 | 7,000 | 6,700 | 6,900 | 6,900 | 7,000 | ||||||||||||||||||||||||||||||
Risk Solutions | 4,100 | 4,000 | 4,000 | 4,300 | 4,500 | |||||||||||||||||||||||||||||||||||
Business Information | 4,800 | 5,600 | 5,200 | 5,400 | 5,800 | |||||||||||||||||||||||||||||||||||
Risk & Business Information | 7,400 | 7,200 | 7,300 | 7,700 | 9,200 | |||||||||||||||||||||||||||||||||||
Legal | 10,400 | 10,300 | 10,400 | 10,400 | 10,400 | 9,500 | 10,000 | 9,600 | 10,400 | 10,400 | ||||||||||||||||||||||||||||||
Exhibitions | 3,200 | 2,800 | 3,000 | 2,700 | 2,600 | 3,700 | 3,400 | 3,500 | 3,300 | 3,000 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Sub-total | 29,500 | 29,600 | 29,600 | 29,700 | 30,100 | 27,600 | 27,300 | 27,300 | 28,300 | 29,600 | ||||||||||||||||||||||||||||||
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|
| ||||||||||||||||||||||||||||||||||||
Corporate/shared functions | 900 | 900 | 900 | 900 | 900 | 900 | 900 | 900 | 900 | 900 | ||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 30,400 | 30,500 | 30,500 | 30,600 | 31,000 | 28,500 | 28,200 | 28,200 | 29,200 | 30,500 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Geographical location | ||||||||||||||||||||||||||||||||||||||||
North America | 15,700 | 16,000 | 15,900 | 16,300 | 16,900 | 13,300 | 13,900 | 13,400 | 14,800 | 15,900 | ||||||||||||||||||||||||||||||
United Kingdom | 4,100 | 4,600 | 4,200 | 4,600 | 4,700 | 4,300 | 4,100 | 4,200 | 4,100 | 4,200 | ||||||||||||||||||||||||||||||
The Netherlands | 1,600 | 1,600 | 1,600 | 1,600 | 1,800 | 1,600 | 1,600 | 1,600 | 1,600 | 1,600 | ||||||||||||||||||||||||||||||
Rest of Europe | 3,600 | 3,700 | 3,700 | 3,800 | 4,000 | 2,800 | 2,800 | 2,800 | 3,100 | 3,700 | ||||||||||||||||||||||||||||||
Rest of world | 5,400 | 4,600 | 5,100 | 4,300 | 3,600 | 6,500 | 5,800 | 6,200 | 5,600 | 5,100 | ||||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||
Total | 30,400 | 30,500 | 30,500 | 30,600 | 31,000 | 28,500 | 28,200 | 28,200 | 29,200 | 30,500 | ||||||||||||||||||||||||||||||
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Pension schemes |
A number of pension schemes are operated around the world. Historically, the majorlargest schemes have been local versions of the defined benefit type with assets held in separate trustee administered funds. The largest defined benefit schemes are in the UK, the US and the Netherlands. Under these plans, employees are entitled
The UK scheme is a final salary scheme and is closed to retirement benefits dependentnew hires. Members accrue a portion of their final pensionable earnings based on the number of years of service. The US scheme is a cash balance scheme and is closed to new hires. Members earn pay credits dependent on age and years of service provided.up to certain limits which are added to an account balance that accrues interest at specified minimum rates. The Netherlands scheme is a career average salary scheme and remains open to new hires. Members accrue a portion of their current salary at a rate calculated to enable them to reach a pension level based on their average salary.
Each of the major defined benefit schemes is administered by a separate fund that is legally separated from the Group. The trustees of the pension funds in the UK and the Netherlands and plan fiduciaries of the US scheme are required by law to act in the interest of the funds’ beneficiaries. In the UK and in the Netherlands the trustees of the pension fund are responsible for the investment policy with regard to the assets of the fund. The boards of trustees consist of an equal number of Group appointed and member nominated directors. In the US, the fiduciary duties for the scheme are allocated between committees which are staffed by senior employees of the Group; the investment committee has the primary responsibility for the investment and management of plan assets.
The funding of the Group’s major schemes reflects the different rules within each jurisdiction.
In the UK the level of funding is determined by statutory triennial actuarial valuations in accordance with pensions legislation. Where the scheme falls below 100% funded status, the Group and the scheme trustees must agree on how the deficit is to be remedied. The UK Pensions Regulator has significant powers and sets out in codes and guidance the parameters for scheme funding.
The US scheme has an annual statutory valuation which forms the basis for establishing the employer contribution each year (subject to ERISA and IRS minimums). Should the statutory funded status fall to below 100%, the US Pensions Protection Act requires the deficit to be rectified with additional contributions over a 7 year period.
In the Netherlands, on a regulatory basis, with effect from January 1, 2015 the scheme funding level is determined by the new Financial Assessment Framework (nFTK). The nFTK introduces, inter alia, a twelve-month average funding ratio, higher buffer requirements and stricter indexation than under previous legislation, and a 10 year recovery plan in the event of funding shortfalls. In case of a shortfall in the funding level, the first recovery plans are required to be filed with the Dutch Central Bank on July 1, 2015. On a contractual basis, the employer contribution is capped at 11.9% of salary.
Total regular employer contributions to defined benefit pension schemes in respect of 2015 are expected to be approximately £65 million.
The pension expense recognised within operating expense is:
2014 £m | 2013 £m | 2012 £m | ||||||||||
Defined benefit pension expense | 48 | 14 | 43 | |||||||||
Defined contribution pension expense | 47 | 47 | 46 | |||||||||
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| |||||||
Total | 95 | 61 | 89 | |||||||||
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The amounts recognised in the income statement in respect of defined benefit pension schemes during the year are presented by major scheme as follows:
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||||||||||
UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | |||||||||||||||||||||||||||||||||||||
Service cost | 31 | 18 | 14 | 63 | 29 | 29 | 15 | 73 | 27 | 28 | 8 | 63 | ||||||||||||||||||||||||||||||||||||
Settlements and past service credits | — | — | (15 | ) | (15 | ) | — | (51 | ) | (8 | ) | (59 | ) | (1 | ) | (19 | ) | — | (20 | ) | ||||||||||||||||||||||||||||
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Defined benefit pension expense | 31 | 18 | (1 | ) | 48 | 29 | (22 | ) | 7 | 14 | 26 | 9 | 8 | 43 | ||||||||||||||||||||||||||||||||||
Net interest on net defined benefit obligation | 8 | 4 | 3 | 15 | 6 | 9 | 4 | 19 | 5 | 7 | (1 | ) | 11 | |||||||||||||||||||||||||||||||||||
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Net defined benefit pension expense | 39 | 22 | 2 | 63 | 35 | (13 | ) | 11 | 33 | 31 | 16 | 7 | 54 | |||||||||||||||||||||||||||||||||||
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Net interest on defined benefit pension scheme liabilities is presented within net finance costs in the income statement. Service cost, including settlements and past service credits is presented within operating expenses.
Pension schemes – (continued) |
Settlements and past service credits in 2014 relate to plan design changes and a reduction in accrued benefits in respect of the scheme in the Netherlands. Settlements and past service credits recognised in 2013 and 2012 principally relate to plan design changes and the transfer out of certain deferred members in the US scheme and a reduction in accrued benefits in respect of the scheme in the Netherlands.
The principalsignificant valuation assumptions, determined for each major scheme in conjunction with the purpose of valuation under IAS19 — Employee Benefitsrespective independent actuaries are presented below as the weighted average of the various defined benefit pension schemes.below. The net defined benefit pension expense for each year is based on the assumptions and scheme valuations set at December 31, of the prior year.
At December 31 | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Discount rate | 4.4 | % | 5.2 | % | 5.6 | % | ||||||
Expected rate of return on scheme assets | n/a | 6.2 | % | 6.8 | % | |||||||
Expected rate of salary increases | 3.2 | % | 3.5 | % | 4.1 | % | ||||||
Inflation | 2.7 | % | 2.9 | % | 3.2 | % | ||||||
Future pension increases | 2.8 | % | 2.9 | % | 3.2 | % |
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||
As at December 31, | UK | US | NL | UK | US | NL | UK | US | NL | |||||||||||||||||||||||||||
Discount rate | 3.75 | % | 4.25 | % | 2.30 | % | 4.60 | % | 5.05 | % | 3.60 | % | 4.65 | % | 4.25 | % | 3.50 | % | ||||||||||||||||||
Inflation | 2.90 | % | 2.50 | % | 2.00 | % | 3.25 | % | 3.00 | % | 2.00 | % | 2.85 | % | 3.00 | % | 2.00 | % |
The discount rate isDiscount rates are set by reference to AAhigh quality corporate bond yields. The expected rates of return on individual categories of scheme assets are determined by reference to relevant market indices and market expectations of real rates of return. The overall expected rate of return on scheme assets is based on the weighted average of each asset category.
Mortality assumptions used in assessing defined benefit obligations make allowance for future improvements in longevity and have been determined by reference to applicable mortality statistics and expectations for each scheme.statistics. The average life expectancies assumed in the valuation of the defined benefit obligationsexpectancy assumptions are set out below:
2012 | 2011 | 2010 | ||||||||||||||||||||||
Average life expectancy (at December 31) | Male (years) | Female (years) | Male (years) | Female (years) | Male (years) | Female (years) | ||||||||||||||||||
Member currently aged 60 | 88 | 88 | 88 | 87 | 88 | 87 | ||||||||||||||||||
Member currently aged 45 | 89 | 89 | 89 | 88 | 89 | 88 |
The pension expense recognised within the income statement comprises:
2012 £m | 2011 £m | 2010 £m | ||||||||||
Service cost (including settlement and curtailment credits of £20 million (2011: £9 million; 2010: £17 million)) | 43 | 57 | 48 | |||||||||
Interest on pension scheme liabilities | 196 | 201 | 191 | |||||||||
Expected return on scheme assets | (221 | ) | (235 | ) | (217 | ) | ||||||
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Net defined benefit pension expense | 18 | 23 | 22 | |||||||||
Defined contribution pension expense | 46 | 39 | 32 | |||||||||
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Total pension expense | 64 | 62 | 54 | |||||||||
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2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||
Male average life expectancy (as | UK | US | NL | UK | US | NL | UK | US | NL | |||||||||||||||||||||||||||
Member currently aged 60 | 90 | 87 | 86 | 90 | 84 | 86 | 90 | 84 | 86 | |||||||||||||||||||||||||||
Member currently aged 45 | 92 | 87 | 87 | 92 | 83 | 87 | 92 | 83 | 87 | |||||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||
Female average life expectancy (as | UK | US | NL | UK | US | NL | UK | US | NL | |||||||||||||||||||||||||||
Member currently aged 60 | 89 | 89 | 89 | 89 | 86 | 89 | 89 | 86 | 89 | |||||||||||||||||||||||||||
Member currently aged 45 | 91 | 90 | 90 | 91 | 85 | 89 | 91 | 85 | 89 |
The amount recognised in the statement of financial position in respect of defined benefit pension schemes at the start and end of the year and the movements during the year were as follows:
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit obligations £m | Fair value of scheme assets £m | Net pension obligations £m | Defined benefit obligations £m | Fair value of scheme assets £m | Net pension obligations £m | Defined benefit obligations £m | Fair value of scheme assets £m | Net pension obligations £m | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit obligation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At start of year | (3,876 | ) | 3,634 | (242 | ) | (3,677 | ) | 3,507 | (170 | ) | (3,302 | ) | 3,067 | (235 | ) | (2,882 | ) | (762 | ) | (716 | ) | (4,360 | ) | (2,654 | ) | (922 | ) | (696 | ) | (4,272 | ) | (2,479 | ) | (858 | ) | (539 | ) | (3,876 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Service cost | (43 | ) | — | (43 | ) | (57 | ) | — | (57 | ) | (48 | ) | — | (48 | ) | (31 | ) | (18 | ) | (14 | ) | (63 | ) | (29 | ) | (29 | ) | (15 | ) | (73 | ) | (27 | ) | (28 | ) | (8 | ) | (63 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Settlements and past service credits | — | — | 15 | 15 | — | 51 | 8 | 59 | 1 | 19 | — | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest on pension scheme liabilities | (196 | ) | — | (196 | ) | (201 | ) | — | (201 | ) | (191 | ) | — | (191 | ) | (130 | ) | (39 | ) | (25 | ) | (194 | ) | (122 | ) | (41 | ) | (25 | ) | (188 | ) | (124 | ) | (44 | ) | (30 | ) | (198 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Expected return on scheme assets | — | 221 | 221 | — | 235 | 235 | — | 217 | 217 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial (loss)/gain | (416 | ) | 87 | (329 | ) | (78 | ) | (35 | ) | (113 | ) | (261 | ) | 198 | (63 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions by employer | — | 116 | 116 | — | 66 | 66 | — | 154 | 154 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial (loss)/gain on financial assumptions | (339 | ) | (107 | ) | (120 | ) | (566 | ) | (173 | ) | 86 | 18 | (69 | ) | (92 | ) | (145 | ) | (145 | ) | (382 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gain/(loss) arising from experience assumptions | 26 | (3 | ) | 5 | 28 | 8 | (10 | ) | (3 | ) | (5 | ) | (15 | ) | (18 | ) | 1 | (32 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions by employees | (11 | ) | 11 | — | (11 | ) | 11 | — | (11 | ) | 11 | — | (7 | ) | — | (5 | ) | (12 | ) | (6 | ) | — | (5 | ) | (11 | ) | (7 | ) | — | (4 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Benefits paid | 216 | (216 | ) | — | 141 | (141 | ) | — | 139 | (139 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefits paid* | 96 | 52 | 27 | 175 | 94 | 93 | 19 | 206 | 89 | 112 | 15 | 216 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | 54 | (47 | ) | 7 | 7 | (9 | ) | (2 | ) | (3 | ) | (1 | ) | (4 | ) | — | (55 | ) | 55 | — | — | 10 | (17 | ) | (7 | ) | — | 40 | 14 | 54 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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At end of year | (4,272 | ) | 3,806 | (466 | ) | (3,876 | ) | 3,634 | (242 | ) | (3,677 | ) | 3,507 | (170 | ) | (3,267 | ) | (932 | ) | (778 | ) | (4,977 | ) | (2,882 | ) | (762 | ) | (716 | ) | (4,360 | ) | (2,654 | ) | (922 | ) | (696 | ) | (4,272 | )�� | |||||||||||||||||||||||||||||||||||||||||||||
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The net pension obligations of £466 million at December 31, 2012 (2011: £242 million; 2010: £170 million) comprise schemes in deficit with net pension obligations of £466 million (2011: £242 million; 2010: £225 million) and schemes in surplus with net pension assets of nil (2011: nil; 2010: £55 million).
6. | Pension schemes – (continued) |
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||||||||||
UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | |||||||||||||||||||||||||||||||||||||
Fair value of scheme assets | ||||||||||||||||||||||||||||||||||||||||||||||||
At start of year | 2,691 | 676 | 614 | 3,981 | 2,516 | 710 | 580 | 3,806 | 2,371 | 726 | 537 | 3,634 | ||||||||||||||||||||||||||||||||||||
Interest income on plan assets | 122 | 35 | 22 | 179 | 116 | 32 | 21 | 169 | 119 | 37 | 31 | 187 | ||||||||||||||||||||||||||||||||||||
Return on assets excluding amounts included in interest income | 110 | 72 | 90 | 272 | 111 | 4 | (1 | ) | 114 | 45 | 53 | 23 | 121 | |||||||||||||||||||||||||||||||||||
Contributions by employer | 36 | 31 | 9 | 76 | 36 | 33 | 14 | 83 | 63 | 38 | 15 | 116 | ||||||||||||||||||||||||||||||||||||
Contributions by employees | 7 | — | 5 | 12 | 6 | — | 5 | 11 | 7 | — | 4 | 11 | ||||||||||||||||||||||||||||||||||||
Benefits paid* | (96 | ) | (52 | ) | (27 | ) | (175 | ) | (94 | ) | (93 | ) | (19 | ) | (206 | ) | (89 | ) | (112 | ) | (15 | ) | (216 | ) | ||||||||||||||||||||||||
Exchange translation differences | — | 48 | (48 | ) | — | — | (10 | ) | 14 | 4 | — | (32 | ) | (15 | ) | (47 | ) | |||||||||||||||||||||||||||||||
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At end of year | 2,870 | 810 | 665 | 4,345 | 2,691 | 676 | 614 | 3,981 | 2,516 | 710 | 580 | 3,806 | ||||||||||||||||||||||||||||||||||||
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Net defined benefit obligation | (397 | ) | (122 | ) | (113 | ) | (632 | ) | (191 | ) | (86 | ) | (102 | ) | (379 | ) | (138 | ) | (212 | ) | (116 | ) | (466 | ) | ||||||||||||||||||||||||
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* | Included in benefits paid are settlements of nil (2013: £52 million; 2012: £75 million). |
As at December 31, 20122014 the defined benefit obligations comprise £4,112£4,784 million (2011: £3,721(2013: £4,200 million; 2010: £3,5312012: £4,112 million) in relation to funded schemes and £193 million (2013: £160 million (2011: £155 million; 2010: £1462012: £160 million) in relation to unfunded schemes.
The weighted average duration of defined benefit scheme liabilities is 19 years (2011:in the UK (2013: 19 years; 2010:2012: 19 years), 15 years in the US (2013: 16 years; 2012: 16 years) and 24 years in the Netherlands (2013: 21 years; 2012: 21 years). Deferred tax liabilities of nil (2011: nil; 2010: £15 million) and deferred tax assets of £153£161 million (2011: £86(2013: £104 million; 2010: £782012: £153 million) are recognised in respect of the pension scheme surplusesdeficits.
Amounts recognised in the statement of comprehensive income are set out below:
2014 £m | 2013 £m | 2012 £m | ||||||||||
Gains and losses arising during the year | ||||||||||||
Experience losses on scheme liabilities | 28 | (5 | ) | (32 | ) | |||||||
Experience gains on scheme assets | 272 | 114 | 121 | |||||||||
Actuarial (losses)/gains arising on the present value of scheme liabilities due to changes in: | ||||||||||||
— discount rates | (773 | ) | 78 | (552 | ) | |||||||
— inflation | 159 | (171 | ) | 74 | ||||||||
— other actuarial assumptions | 48 | 24 | 96 | |||||||||
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(266 | ) | 40 | (293 | ) | ||||||||
Net cumulative losses at start of year | (475 | ) | (515 | ) | (222 | ) | ||||||
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Net cumulative losses at end of year | (741 | ) | (475 | ) | (515 | ) | ||||||
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The major categories and deficits respectively.
The fair valuevalues of scheme assets heldat the end of the reporting period are as equities, bonds and other assets, and their expected rates of return as at December 31, are shown below:follows:
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of scheme assets £m | Proportion of total scheme assets % | Expected rate of return on scheme assets % | Fair value of scheme assets £m | Proportion of total scheme assets % | Expected rate of return on scheme assets % | Fair value of scheme assets £m | Proportion of total scheme assets % | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | UK £m | US £m | NL £m | Total £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 1,804 | 47 | 8.7 | 1,699 | 47 | 8.7 | 1,963 | 56 | 1,260 | 263 | 226 | 1,749 | 1,351 | 174 | 223 | 1,748 | 1,207 | 409 | 167 | 1,783 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonds | 1,715 | 45 | 3.7 | 1,722 | 47 | 4.4 | 1,318 | 38 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 1,249 | 70 | 261 | 1,580 | 1,089 | 68 | 261 | 1,418 | 1,088 | 164 | 71 | 1,323 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | 455 | 143 | 598 | — | 411 | 93 | 504 | — | 88 | 304 | 392 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property funds | 270 | — | 30 | 300 | 147 | — | 34 | 181 | 85 | 29 | 35 | 149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | 74 | 2 | 5 | 81 | 87 | 4 | 3 | 94 | 106 | 1 | 3 | 110 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 287 | 8 | 4.3 | 213 | 6 | 5.1 | 226 | 6 | 17 | 20 | — | 37 | 17 | 19 | — | 36 | 30 | 19 | — | 49 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 3,806 | 100 | 6.2 | 3,634 | 100 | 6.8 | 3,507 | 100 | 2,870 | 810 | 665 | 4,345 | 2,691 | 676 | 614 | 3,981 | 2,516 | 710 | 580 | 3,806 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The actual return on scheme assets for the year ended December 31, 20122014 was a£451 million (2013: £283 million; 2012: £308 million gain (2011: £200 million gain; 2010: £415 million gain)million).
Pension schemes – (continued) |
A summaryAssets and obligations associated with the schemes are sensitive to changes in the market values of pension balances in respect of funded and unfunded schemes for the five years ended December 31, 2012 is set out below:
2012 £m | 2011 £m | 2010 £m | 2009 £m | 2008 £m | ||||||||||||||||
Fair value of scheme assets | 3,806 | 3,634 | 3,507 | 3,067 | 2,682 | |||||||||||||||
Defined benefit obligations | (4,272 | ) | (3,876 | ) | (3,677 | ) | (3,302 | ) | (3,051 | ) | ||||||||||
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Net pension obligations | (466 | ) | (242 | ) | (170 | ) | (235 | ) | (369 | ) | ||||||||||
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Gains and losses arising on the revaluation of pension scheme assets and liabilities that have been recognisedthe market related assumptions used to value scheme liabilities. In particular, adverse changes to asset values, discount rates or inflation could increase future pension costs and funding requirements.
Typically the Group’s schemes are exposed to: investment risks, whereby actual rates of return on plan assets may be below those rates used to determine the defined benefit obligations and interest rate risks, whereby scheme deficits may increase if bond yields in the statementUK, US and the Netherlands decline and are not offset by returns in government and corporate bond portfolios. The schemes are also exposed to other risks such as unanticipated future increases in: member mortality patterns; inflation; and future salaries, all potentially leading to an increase in scheme liabilities (particularly in the Netherlands which is the only major scheme which remains open to new members).
Investment policies of comprehensive incomeeach scheme are set out below:
2012 £m | 2011 £m | 2010 £m | 2009 £m | 2008 £m | ||||||||||||||||
Gains and losses during the year: | ||||||||||||||||||||
Experience (losses)/gains on scheme liabilities | (32 | ) | (27 | ) | (43 | ) | 18 | (9 | ) | |||||||||||
Experience gains/(losses) on scheme assets | 87 | (35 | ) | 198 | 301 | (765 | ) | |||||||||||||
Actuarial (losses)/gains arising on the present value of scheme liabilities due to changes in: | ||||||||||||||||||||
— discount rates | (552 | ) | (238 | ) | (162 | ) | (249 | ) | 202 | |||||||||||
— inflation | 74 | 182 | (50 | ) | (124 | ) | 198 | |||||||||||||
— other actuarial assumptions | 94 | 5 | (6 | ) | 60 | 27 | ||||||||||||||
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(329 | ) | (113 | ) | (63 | ) | 6 | (347 | ) | ||||||||||||
Net cumulative (losses)/gains at start of year | (265 | ) | (152 | ) | (89 | ) | (95 | ) | 252 | |||||||||||
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Net cumulative losses at end of year | (594 | ) | (265 | ) | (152 | ) | (89 | ) | (95 | ) | ||||||||||
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Regular contributionsintended to ensure continuous payment of defined benefit pension schemespensions in respectthe short term and long term. Efforts are made to limit risks on marketable securities by adopting investment policies that diversify assets across geographies and among equities, government and corporate bonds, property funds and cash. Asset allocations are dependent on a variety of 2013 are expected to be approximately £55 million.factors including the duration of scheme liabilities and the statutory funded status of the plan.
All equities and government and corporate bonds have quoted prices in active markets.
Sensitivity analysis
ValuationThe valuation of Reed Elsevier’sthe Group’s pension scheme liabilities involves judgements about uncertain events, includingsignificant actuarial assumptions, being the life expectancy of the members, salary and pension increases, inflation and the rate at which the future pension payments are discounted. Estimates are used for each of these factors. Differences arising from actual experience or future changes in assumptions may materially affect future pension charges. In particular, changes in assumptions for discount rates, inflation and life expectancies that are reasonably possible would have the following approximate effects on the annual service cost and the defined benefit pension obligations:
£m | ||||
Increase/decrease of 0.25% in discount rate: | 233 | |||
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Increase/decrease of one year in assumed life | ||||
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The above analysis has been calculated on the same basis used to determine the defined benefit obligation recognised in the statement of financial position. There has been no change in the methods used to prepare the analysis compared with prior years. This sensitivity analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in the above assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Share based remuneration |
Reed ElsevierThe Group provides a number of share based remuneration schemes to directorsDirectors and employees. The principal share based remuneration schemes are the Executive Share Option Schemes (ESOS), the Long Term Incentive Plan (LTIP), the Reed Elsevier Growth Plan (REGP) (discontinued after 2014), the Retention Share Plan (RSP) and the Bonus Investment Plan (BIP). Share options granted under ESOS and LTIP are exercisable after three years and up to ten years from the date of grant at a price equivalent to the market value of the respective shares at the date of grant. Conditional shares granted under ESOS, LTIP, RSP and BIP are exercisable after three years for nil consideration if conditions are met. Conditional shares granted under REGP are exercisable for nil consideration if conditions are met after three and five years. Other awards principally relate to all employee share based saving schemes in the UK and the Netherlands.
Share based remuneration awards are, other than upon retirement or in exceptional circumstances, subject to the condition that the employee remains in employment at the time of exercise.
Conditional shares granted under LTIP, REGP, RSP and BIP in 2010,between 2011 and 20122014 are subject to the achievement of growth targets of Reed Elsevier PLC and Reed Elsevier NV adjusted earnings per share measured at constant exchange rates as well as the achievement of a targeted percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV. LTIP grants in 2010,between 2011 and 20122014 and REGP grants in 20102013 are also variable subject to the achievement of a total shareholder return performance target.
The weighted average fair value per award is based on full vesting on achievement of non market related performance conditions and stochastic models for market related components. The conditional shares and option awards are recognised in the income statement over the vesting period, being between three and five years, on the basis of expected performance against the non market related conditions, with the fair value related to market related components unchanging.
Share based remuneration – (continued) |
2014 grants
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||||||||||
Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | |||||||||||||
Share options | ||||||||||||||||
ESOS | 1,221 | 0.98 | 863 | 1.13 | ||||||||||||
Other | 1,064 | 1.31 | 314 | 0.90 | ||||||||||||
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Total share options | 2,285 | 1.13 | 1,177 | 1.07 | ||||||||||||
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Conditional shares | ||||||||||||||||
ESOS | 365 | 8.27 | 258 | 11.24 | ||||||||||||
LTIP | 1,031 | 7.81 | 729 | 10.85 | ||||||||||||
RSP | 131 | 9.90 | 94 | 14.18 | ||||||||||||
BIP | 769 | 9.23 | 483 | 12.88 | ||||||||||||
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Total conditional shares | 2,296 | 8.48 | 1,564 | 11.74 | ||||||||||||
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2013 grants
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||||||||||
Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | |||||||||||||
Share options | ||||||||||||||||
ESOS | 1,521 | 1.12 | 1,058 | 1.52 | ||||||||||||
Other | 645 | 1.29 | 257 | 1.10 | ||||||||||||
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Total share options | 2,166 | 1.17 | 1,315 | 1.44 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Conditional shares | ||||||||||||||||
ESOS | 524 | 6.51 | 365 | 9.28 | ||||||||||||
LTIP | 1,338 | 6.14 | 930 | 8.90 | ||||||||||||
REGP | 322 | 6.49 | 450 | 9.34 | ||||||||||||
RSP | 10 | 7.35 | 7 | �� | 10.65 | |||||||||||
BIP | 987 | 7.40 | 615 | 10.69 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total conditional shares | 3,181 | 6.63 | 2,367 | 9.51 | ||||||||||||
|
|
|
|
|
|
|
|
7. | Share based remuneration – (continued) |
2012 grants
In respect of Reed Elsevier PLC | In respect of Reed Elsevier NV ordinary shares | |||||||
Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | |||||
Share options | ||||||||
ESOS | 1,801 | 0.90 | 1,263 | 1.20 | ||||
Other | 702 | 1.04 | 293 | 0.95 | ||||
|
|
|
| |||||
Total share options | 2,503 | 0.94 | 1,556 | 1.15 | ||||
|
|
|
| |||||
Conditional shares | ||||||||
ESOS | 797 | 4.60 | 560 | 6.41 | ||||
LTIP | 1,807 | 4.45 | 1,144 | 6.13 | ||||
RSP | 256 | 6.00 | 5 | 7.82 | ||||
BIP | 1,542 | 5.20 | 696 | 7.41 | ||||
|
|
|
| |||||
Total conditional shares | 4,402 | 4.83 | 2,405 | 6.57 | ||||
|
|
|
| |||||
2011 grants | ||||||||
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||
Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | |||||
Share options | ||||||||
ESOS | 2,053 | 0.98 | 1,372 | 1.41 | ||||
Other | 633 | 1.03 | 381 | 0.97 | ||||
|
|
|
| |||||
Total share options | 2,686 | 0.99 | 1,753 | 1.32 | ||||
|
|
|
| |||||
Conditional shares | ||||||||
ESOS | 755 | 4.85 | 504 | 6.91 | ||||
LTIP | 1,822 | 4.56 | 1,217 | 6.65 | ||||
RSP | 322 | 4.73 | 5 | 7.15 | ||||
BIP | 1,339 | 5.43 | 607 | 8.00 | ||||
|
|
|
| |||||
Total conditional shares | 4,238 | 4.90 | 2,333 | 7.06 | ||||
|
|
|
|
2010 grants
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||||||||||||||||||||||||
Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | Number of shares ’000 | Weighted average fair value per award £ | |||||||||||||||||||||||||
Share options | ||||||||||||||||||||||||||||||||
ESOS | 2,204 | 0.77 | 1,448 | 1.08 | 1,801 | 0.90 | 1,263 | 1.20 | ||||||||||||||||||||||||
Other | 846 | 0.99 | 381 | 0.82 | 702 | 1.04 | 293 | 0.95 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total share options | 3,050 | 0.83 | 1,829 | 1.02 | 2,503 | 0.94 | 1,556 | 1.15 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Conditional shares | ||||||||||||||||||||||||||||||||
ESOS | 751 | 4.23 | 493 | 6.37 | 797 | 4.60 | 560 | 6.41 | ||||||||||||||||||||||||
LTIP | 1,677 | 4.01 | 1,101 | 6.11 | 1,807 | 4.45 | 1,144 | 6.13 | ||||||||||||||||||||||||
REGP | 1,038 | 6.99 | 681 | 10.66 | ||||||||||||||||||||||||||||
RSP | 236 | 4.23 | 155 | 6.37 | 256 | 6.00 | 5 | 7.82 | ||||||||||||||||||||||||
BIP | 1,714 | 4.64 | 820 | 6.93 | 1,542 | 5.20 | 696 | 7.41 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total conditional shares | 5,416 | 4.82 | 3,250 | 7.32 | 4,402 | 4.83 | 2,405 | 6.57 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The main assumptions used to determine the fair values are set out below:
Assumptions for grants made during the year
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||||||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||
Weighted average share price at date of grant | ||||||||||||||||||||||||||||||||||||||||||||||||
ESOS | £ | 5.19 | £ | 5.39 | £ | 4.69 | € | 9.07 | € | 8.97 | € | 8.36 | £ | 9.28 | £ | 7.35 | £ | 5.19 | € | 15.92 | € | 12.53 | € | 9.07 | ||||||||||||||||||||||||
LTIP | £ | 5.25 | £ | 5.31 | £ | 4.67 | € | 8.91 | € | 8.89 | € | 8.31 | £ | 9.29 | £ | 7.35 | £ | 5.25 | € | 15.94 | € | 12.54 | € | 8.91 | ||||||||||||||||||||||||
REGP | £ | 4.67 | € | 8.31 | — | £ | 7.76 | — | — | € | 13.15 | — | ||||||||||||||||||||||||||||||||||||
RSP | £ | 6.00 | £ | 5.26 | £ | 4.67 | € | 9.65 | € | 9.27 | € | 8.33 | £ | 9.90 | £ | 7.35 | £ | 6.00 | € | 17.50 | € | 12.53 | € | 9.65 | ||||||||||||||||||||||||
BIP | £ | 5.20 | £ | 5.43 | £ | 4.64 | € | 9.15 | € | 9.21 | € | 8.11 | £ | 9.23 | £ | 7.39 | £ | 5.20 | € | 15.90 | € | 12.53 | € | 9.15 | ||||||||||||||||||||||||
Other | £ | 5.49 | £ | 5.13 | £ | 5.22 | € | 9.63 | € | 9.03 | € | 8.86 | £ | 8.86 | £ | 7.45 | £ | 5.49 | € | 15.63 | € | 11.89 | € | 9.63 | ||||||||||||||||||||||||
Expected share price volatility | 30 | % | 29 | % | 26 | % | 30 | % | 29 | % | 26 | % | 19 | % | 28 | % | 30 | % | 19 | % | 28 | % | 30 | % | ||||||||||||||||||||||||
Expected option life | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | ||||||||||||||||||||||||||||||||||||
Expected dividend yield | 3.9 | % | 3.6 | % | 3.5 | % | 4.5 | % | 4.1 | % | 3.9 | % | 3.8 | % | 4.1 | % | 3.9 | % | 4.5 | % | 4.7 | % | 4.5 | % | ||||||||||||||||||||||||
Risk free interest rate | 0.8 | % | 1.9 | % | 1.8 | % | 0.9 | % | 2.5 | % | 1.2 | % | 1.5 | % | 0.5 | % | 0.8 | % | 0.6 | % | 0.4 | % | 0.9 | % | ||||||||||||||||||||||||
Expected lapse rate | 2-5 | % | 2-5 | % | 3-5 | % | 2-4 | % | 2-4 | % | 3-4 | % | 2-5 | % | 2-5 | % | 2-5 | % | 2-4 | % | 2-4 | % | 2-4 | % |
Expected share price volatility has been estimated based on relevant historic data in respect of the Reed Elsevier PLC and Reed Elsevier NV ordinary share prices. Expected share option life has been estimated based on historical exercise patterns in respect of Reed Elsevier PLC and Reed Elsevier NV share options.
Share based remuneration – (continued) |
The share based remuneration awards outstanding as at December 31, 20122014 in respect of both Reed Elsevier PLC and Reed Elsevier NV ordinary shares are set out below:
In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | In respect of Reed Elsevier PLC ordinary shares | In respect of Reed Elsevier NV ordinary shares | |||||||||||||||||||||||||||||
Number of shares under option ’000 | Weighted average exercise price (pence) | Number of shares under option ’000 | Weighted average exercise price (€) | Number of shares under option ’000 | Weighted average exercise price (pence) | Number of shares under option ’000 | Weighted average exercise price (€) | |||||||||||||||||||||||||
Share options | ||||||||||||||||||||||||||||||||
Outstanding at January 1, 2010 | 35,685 | 547 | 25,917 | 11.74 | ||||||||||||||||||||||||||||
Granted | 3,050 | 455 | 1,829 | 8.45 | ||||||||||||||||||||||||||||
Exercised | (2,008 | ) | 470 | (184 | ) | 8.63 | ||||||||||||||||||||||||||
Forfeited | (1,355 | ) | 496 | (1,008 | ) | 8.75 | ||||||||||||||||||||||||||
Expired | (1,661 | ) | 554 | (1,721 | ) | 6.71 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Outstanding at January 1, 2011 | 33,711 | 544 | 24,833 | 11.45 | ||||||||||||||||||||||||||||
Granted | 2,686 | 509 | 1,753 | 8.99 | ||||||||||||||||||||||||||||
Exercised | (1,626 | ) | 493 | (201 | ) | 8.84 | ||||||||||||||||||||||||||
Forfeited | (2,001 | ) | 479 | (1,941 | ) | 10.94 | ||||||||||||||||||||||||||
Expired | (3,230 | ) | 640 | (2,803 | ) | 8.68 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Outstanding at January 1, 2012 | 29,540 | 534 | 21,641 | 10.99 | 29,540 | 534 | 21,641 | 10.99 | ||||||||||||||||||||||||
Granted | 2,503 | 497 | 1,556 | 9.19 | 2,503 | 497 | 1,556 | 9.19 | ||||||||||||||||||||||||
Exercised | (6,694 | ) | 497 | (1,913 | ) | 9.36 | (6,694 | ) | 497 | (1,913 | ) | 9.36 | ||||||||||||||||||||
Forfeited | (1,022 | ) | 498 | (581 | ) | 9.33 | (1,022 | ) | 498 | (581 | ) | 9.33 | ||||||||||||||||||||
Expired | (4,992 | ) | 592 | (5,121 | ) | 12.34 | (4,992 | ) | 592 | (5,121 | ) | 12.34 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Outstanding at December 31, 2012 | 19,335 | 529 | 15,582 | 10.63 | ||||||||||||||||||||||||||||
Outstanding at January 1, 2013 | 19,335 | 529 | 15,582 | 10.63 | ||||||||||||||||||||||||||||
Granted | 2,166 | 694 | 1,315 | 12.41 | ||||||||||||||||||||||||||||
Exercised | (9,102 | ) | 542 | (7,628 | ) | 10.72 | ||||||||||||||||||||||||||
Forfeited | (112 | ) | 535 | (167 | ) | 11.30 | ||||||||||||||||||||||||||
Expired | (560 | ) | 537 | (462 | ) | 11.30 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Exercisable at December 31, 2010 | 22,048 | 552 | 18,735 | 11.88 | ||||||||||||||||||||||||||||
Exercisable at December 31, 2011 | 20,061 | 552 | 16,876 | 11.56 | ||||||||||||||||||||||||||||
Outstanding at January 1, 2014 | 11,727 | 549 | 8,640 | 10.77 | ||||||||||||||||||||||||||||
Granted | 2,285 | 827 | 1,177 | 15.86 | ||||||||||||||||||||||||||||
Exercised | (3,318 | ) | 520 | (2,740 | ) | 11.13 | ||||||||||||||||||||||||||
Forfeited | (832 | ) | 514 | (348 | ) | 10.28 | ||||||||||||||||||||||||||
Expired | (535 | ) | 577 | (573 | ) | 10.28 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Outstanding at December 31, 2014 | 9,327 | 629 | 6,156 | 11.66 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Exercisable at December 31, 2012 | 12,573 | 553 | 12,329 | 11.12 | 12,573 | 553 | 12,329 | 11.12 | ||||||||||||||||||||||||
Exercisable at December 31, 2013 | 5,150 | 537 | 5,535 | 11.09 | ||||||||||||||||||||||||||||
Exercisable at December 31, 2014 | 3,163 | 550 | 3,480 | 11.11 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Number of Reed Elsevier PLC ordinary shares (’000) | Number of Reed Elsevier NV ordinary shares (’000) | Number of Reed Elsevier PLC ordinary shares ’000 | Number of Reed Elsevier NV ordinary shares ’000 | |||||||||||||
Conditional shares | ||||||||||||||||
Outstanding at January 1, 2010 | 8,148 | 4,921 | ||||||||||||||
Granted | 5,416 | 3,250 | ||||||||||||||
Vested | (678 | ) | (425 | ) | ||||||||||||
Forfeited | (849 | ) | (453 | ) | ||||||||||||
|
| |||||||||||||||
Outstanding at January 1, 2011 | 12,037 | 7,293 | ||||||||||||||
Granted | 4,238 | 2,332 | ||||||||||||||
Vested | (580 | ) | (383 | ) | ||||||||||||
Forfeited | (1,799 | ) | (975 | ) | ||||||||||||
|
| |||||||||||||||
Outstanding at January 1, 2012 | 13,896 | 8,267 | 13,896 | 8,267 | ||||||||||||
Granted | 4,402 | 2,405 | 4,402 | 2,405 | ||||||||||||
Vested | (601 | ) | (391 | ) | (601 | ) | (391 | ) | ||||||||
Forfeited | (5,885 | ) | (3,575 | ) | ||||||||||||
Forfeited/lapsed | (5,885 | ) | (3,575 | ) | ||||||||||||
|
|
|
| |||||||||||||
Outstanding at December 31, 2012 | 11,812 | 6,706 | ||||||||||||||
Outstanding at January 1, 2013 | 11,812 | 6,706 | ||||||||||||||
Granted | 3,181 | 2,367 | ||||||||||||||
Vested | (3,256 | ) | (1,966 | ) | ||||||||||||
Forfeited/lapsed | (1,395 | ) | (923 | ) | ||||||||||||
|
|
|
| |||||||||||||
Outstanding at January 1, 2014 | 10,342 | 6,184 | ||||||||||||||
Granted | 2,296 | 1,564 | ||||||||||||||
Vested | (2,772 | ) | (1,591 | ) | ||||||||||||
Forfeited/lapsed | (1,236 | ) | (622 | ) | ||||||||||||
|
| |||||||||||||||
Outstanding at December 31, 2014 | 8,630 | 5,535 | ||||||||||||||
|
|
Share based remuneration – (continued) |
The weighted average share price at the date of exercise of share options and vesting of conditional shares during 20122014 was 593p (2011: 554p; 2010: 522p)885p (2013: 761p; 2012: 593p) for Reed Elsevier PLC ordinary shares and €10.43 (2011: €9.71; 2010: €8.82)€15.03 (2013: €13.15; 2012: €10.43) for Reed Elsevier NV ordinary shares.
Range of exercise prices for outstanding share options
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
Number of shares under option ’000 | Weighted average remaining period until expiry (years) | Number of shares under option ’000 | Weighted average remaining period until expiry (years) | Number of shares under option ’000 | Weighted average remaining period until expiry (years) | Number of shares under option ’000 | Weighted average remaining period until expiry (years) | Number of shares under option ’000 | Weighted average remaining period until expiry (years) | Number of shares under option ’000 | Weighted average remaining period until expiry (years) | |||||||||||||||||||||||||||||||||||||
Reed Elsevier PLC ordinary shares (pence) | ||||||||||||||||||||||||||||||||||||||||||||||||
401-450 | 1,925 | 2.8 | 2,148 | 2.9 | 2,017 | 3.3 | 834 | 1.6 | 1,772 | 1.9 | 1,925 | 2.8 | ||||||||||||||||||||||||||||||||||||
451-500 | 4,415 | 3.5 | 7,793 | 3.6 | 8,919 | 4.5 | 451 | 5.4 | 1,161 | 4.2 | 4,415 | 3.5 | ||||||||||||||||||||||||||||||||||||
501-550 | 8,981 | 5.7 | 11,662 | 5.5 | 11,299 | 5.6 | 3,184 | 5.5 | 5,284 | 5.6 | 8,981 | 5.7 | ||||||||||||||||||||||||||||||||||||
551-600 | 189 | 5.4 | 2,726 | 0.8 | 3,153 | 1.6 | 576 | 2.8 | 695 | 3.9 | 189 | 5.4 | ||||||||||||||||||||||||||||||||||||
601-650 | 3,825 | 4.8 | 5,176 | 5.7 | 6,053 | 6.6 | 788 | 2.8 | 1,338 | 4.0 | 3,825 | 4.8 | ||||||||||||||||||||||||||||||||||||
651-700 | — | — | 35 | 0.3 | 2,270 | 0.2 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
701-750 | 2,301 | 6.3 | 1,462 | 9.4 | — | — | ||||||||||||||||||||||||||||||||||||||||||
801-850 | 10 | 8.6 | 10 | �� | 9.6 | — | — | |||||||||||||||||||||||||||||||||||||||||
851-900 | 2 | 8.9 | 2 | 9.9 | — | — | ||||||||||||||||||||||||||||||||||||||||||
901-950 | 1,088 | 9.3 | 3 | 9.0 | — | — | ||||||||||||||||||||||||||||||||||||||||||
951-1000 | 93 | 9.7 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 19,335 | 4.7 | 29,540 | 4.4 | 33,711 | 4.6 | 9,327 | 5.4 | 11,727 | 5.1 | 19,335 | 4.7 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Reed Elsevier NV ordinary shares (euro) | ||||||||||||||||||||||||||||||||||||||||||||||||
7.01-8.00 | 58 | 6.1 | 120 | 7.2 | 137 | 8.2 | 24 | 4.0 | 41 | 5.0 | 58 | 6.1 | ||||||||||||||||||||||||||||||||||||
8.01-9.00 | 2,736 | 7.7 | 3,233 | 8.6 | 2,062 | 9.0 | 1,024 | 5.7 | 1,834 | 6.8 | 2,736 | 7.7 | ||||||||||||||||||||||||||||||||||||
9.01-10.00 | 3,142 | 6.9 | 3,686 | 5.3 | 3,915 | 6.0 | 1,459 | 6.4 | 1,813 | 7.2 | 3,142 | 6.9 | ||||||||||||||||||||||||||||||||||||
10.01-11.00 | 2,697 | 1.6 | 3,921 | 2.3 | 4,385 | 3.3 | 60 | 2.8 | 619 | 1.4 | 2,697 | 1.6 | ||||||||||||||||||||||||||||||||||||
11.01-12.00 | 3,982 | 2.6 | 4,865 | 3.5 | 5,670 | 4.4 | 587 | 1.6 | 1,670 | 2.3 | 3,982 | 2.6 | ||||||||||||||||||||||||||||||||||||
12.01-13.00 | 1,806 | 5.1 | 2,339 | 6.0 | 2,653 | 6.8 | 1,424 | 6.5 | 1,864 | 7.1 | 1,806 | 5.1 | ||||||||||||||||||||||||||||||||||||
13.01-14.00 | 118 | 4.1 | 2,025 | 0.5 | 2,502 | 1.4 | 87 | 3.7 | 134 | 4.7 | 118 | 4.1 | ||||||||||||||||||||||||||||||||||||
14.01-15.00 | 1,043 | 4.1 | 1,426 | 5.1 | 3,414 | 3.2 | 406 | 3.0 | 663 | 3.1 | 1,043 | 4.1 | ||||||||||||||||||||||||||||||||||||
15.01-16.00 | — | — | 26 | 0.3 | 95 | 0.8 | 976 | 9.2 | 2 | 9.9 | — | — | ||||||||||||||||||||||||||||||||||||
16.01-17.00 | 15 | 9.0 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
17.01-18.00 | 94 | 9.5 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 15,582 | 4.6 | 21,641 | 4.5 | 24,833 | 3.9 | 6,156 | 6.0 | 8,640 | 5.4 | 15,582 | 4.6 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares but may also be met from shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT)(“EBT”) (see note 31)27). Conditional shares will be met from shares held by the EBT.
Net finance costs |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Interest on short term bank loans, overdrafts and commercial paper | (27 | ) | (28 | ) | (33 | ) | (13 | ) | (11 | ) | (27 | ) | ||||||||||||
Interest on other loans | (196 | ) | (212 | ) | (236 | ) | ||||||||||||||||||
Interest on term debt | (134 | ) | (168 | ) | (196 | ) | ||||||||||||||||||
Interest on obligations under finance leases | (1 | ) | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total borrowing costs | (224 | ) | (241 | ) | (270 | ) | (147 | ) | (180 | ) | (224 | ) | ||||||||||||
Losses on loans and derivatives not designated as hedges | (8 | ) | (11 | ) | (14 | ) | (7 | ) | (7 | ) | (8 | ) | ||||||||||||
Net financing charge on defined benefit pension schemes | (15 | ) | (19 | ) | (11 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Finance costs | (232 | ) | (252 | ) | (284 | ) | (169 | ) | (206 | ) | (243 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Interest on bank deposits | 7 | 12 | 7 | 7 | 4 | 7 | ||||||||||||||||||
Gains on loans and derivatives not designated as hedges | 9 | 5 | 1 | — | 6 | 9 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Finance income | 16 | 17 | 8 | 7 | 10 | 16 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net finance costs | (216 | ) | (235 | ) | (276 | ) | (162 | ) | (196 | ) | (227 | ) | ||||||||||||
|
|
|
|
|
|
Finance costs include £16 million (2011: £15 million; 2010: £26 million) transferred from the hedge reserve. A net loss of £52 million (2013: £1 million gain; 2012: £2 million (2011: £3 million; 2010: £15 million)loss) on interest rate derivatives designated as cash flow hedges was recognised directly in equity. This included losses of £54 million (2013: nil; 2012: nil) related to foreign exchange movements on debt hedges, which were reclassified immediately to the income statement and offset £54 million (2013: nil; 2012: nil) of foreign exchange gains on the related debt. The remaining gain of £2 million (2013: £1 million gain; 2012:£2 million loss) recognised in equity may be reclassified to the income statement in future periods. Including the £54 million (2013: nil; 2012: nil) of foreign exchange losses, losses of £56 million (2013: £3 million; 2012:£16 million) in total were transferred from the hedge reserve to be recognised in future periods.the period.
Disposals and other non operating items |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Revaluation of held for trading investments | 19 | 6 | 8 | 8 | 5 | 19 | ||||||||||||||||||
Property provisions on disposed businesses | (60 | ) | (16 | ) | (22 | ) | — | — | (60 | ) | ||||||||||||||
Gain/(loss) on disposal of businesses and assets held for sale | 86 | (12 | ) | (32 | ) | |||||||||||||||||||
(Loss)/gain on disposal of businesses and assets held for sale | (19 | ) | 11 | 86 | ||||||||||||||||||||
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|
| |||||||||||||||||||
Net gain/(loss) on disposals and other non operating items | 45 | (22 | ) | (46 | ) | |||||||||||||||||||
Net (loss)/gain on disposals and other non operating items | (11 | ) | 16 | 45 | ||||||||||||||||||||
|
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Taxation |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Current tax | ||||||||||||||||||||||||
United Kingdom | 73 | 64 | 44 | (36 | ) | (50 | ) | (73 | ) | |||||||||||||||
The Netherlands | 68 | 87 | 58 | (93 | ) | (80 | ) | (68 | ) | |||||||||||||||
Rest of world | 12 | 107 | 64 | (228 | ) | (222 | ) | (12 | ) | |||||||||||||||
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| |||||||||||||||||||
Total current tax charge | 153 | 258 | 166 | (357 | ) | (352 | ) | (153 | ) | |||||||||||||||
Deferred tax | (40 | ) | (77 | ) | (46 | ) | 88 | 271 | 51 | |||||||||||||||
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| |||||||||||||||||||
Tax expense | 113 | 181 | 120 | (269 | ) | (81 | ) | (102 | ) | |||||||||||||||
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The decrease in the UK current tax charge over the period reflects the reductions in the UK statutory rate of tax, and the settlement of prior year tax matters.
10. | Taxation – (continued) |
The net tax expense charged on profit before tax differs from the theoretical amount that would arise using the weighted average of tax rates applicable to accounting profits and losses of the consolidated entities, as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Profit before tax | 1,187 | 948 | 768 | 1,229 | 1,196 | 1,151 | ||||||||||||||||||
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| |||||||||||||||||||
Tax at average applicable rates | 255 | 180 | 118 | (292 | ) | (280 | ) | (244 | ) | |||||||||||||||
Tax on share of results of joint ventures | (7 | ) | (9 | ) | (9 | ) | 21 | 10 | 7 | |||||||||||||||
Expenses not deductible for tax purposes | 30 | 26 | 24 | |||||||||||||||||||||
(Non-taxable)/non-deductible costs of share based remuneration | (3 | ) | 3 | 2 | ||||||||||||||||||||
(Non-taxable)/non-deductible disposal related gains and losses | (69 | ) | 7 | 1 | ||||||||||||||||||||
Expenses not deductible for tax purposes and US state taxes | (26 | ) | (38 | ) | (30 | ) | ||||||||||||||||||
Non-taxable costs of share based remuneration | — | 3 | 3 | |||||||||||||||||||||
(Non-deductible)/non-taxable disposal related gains and losses | (22 | ) | (22 | ) | 69 | |||||||||||||||||||
Tax losses of the period not recognised | 6 | 4 | — | (4 | ) | (4 | ) | (6 | ) | |||||||||||||||
Recognition and utilization of tax losses that arose in prior years | (6 | ) | (22 | ) | (6 | ) | 4 | 9 | 6 | |||||||||||||||
Exceptional prior year tax credit | (96 | ) | — | — | — | — | 96 | |||||||||||||||||
Deferred tax credit on the alignment of business assets | — | 221 | — | |||||||||||||||||||||
Other adjustments in respect of prior periods | 2 | (7 | ) | (9 | ) | 50 | 24 | (2 | ) | |||||||||||||||
Deferred tax effect of changes in tax rates | 1 | (1 | ) | (1 | ) | — | (4 | ) | (1 | ) | ||||||||||||||
|
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|
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| |||||||||||||||||||
Tax expense | 113 | 181 | 120 | (269 | ) | (81 | ) | (102 | ) | |||||||||||||||
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| |||||||||||||||||||
Tax expense as a percentage of profit before tax | 10 | % | 19 | % | 16 | % | 22 | % | 7 | % | 9 | % | ||||||||||||
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|
The weighted average applicable tax rate for the year was 22% (2011: 19%23.7% (2013: 23.4%, 2010: 16%2012: 21.2%). This increase is caused by a change in the relative profitability of the consolidated entities in the countries in which they operate, partially offset by the impact of the reduction in the tax rate of the United Kingdom (see below).
During 2013, the Group aligned certain business assets with their global management structure. As a result of this alignment the tax deductible value of these assets was updated to market value. This results in a deferred tax credit of £221 million which was excluded from adjusted earnings along with other deferred tax assets from intangible assets.
During 2012, Reed Elsevierthe Group resolved a number of significant prior year tax matters and reassessed its exposure to other tax matters across the jurisdictionjurisdictions in which Reed Elsevierthe Group operates. As a result of this reassessment, current tax liabilities were reduced by £96 million to reflect the lower cash tax expected to be payable.
The following tax has been recognizedrecognised directly in other comprehensive income or equity during the year:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Tax on items that will not be reclassified to profit or loss | ||||||||||||||||||||||||
Tax on actuarial movements on defined benefit pension schemes | 102 | 36 | 16 | 63 | (24 | ) | 91 | |||||||||||||||||
Tax credit on other items | — | — | 5 | |||||||||||||||||||||
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| ||||||||||||||||||||||
63 | (24 | ) | 96 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
Tax on items that may be reclassified to profit or loss | ||||||||||||||||||||||||
Tax on fair value movements on cash flow hedges | (19 | ) | 5 | 12 | 13 | (14 | ) | (24 | ) | |||||||||||||||
Tax credits on share based remuneration | 5 | 1 | 1 | |||||||||||||||||||||
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|
| |||||||||||||||||||
Net tax credit/(charge) recognised directly in equity | 88 | 42 | 29 | |||||||||||||||||||||
|
|
| 13 | (14 | ) | (24 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Net tax credit/(debit) recognised in other comprehensive income | 76 | (38 | ) | 72 | ||||||||||||||||||||
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|
| ||||||||||||||||||||||
Tax credit on share based remuneration recognised directly in equity | 20 | 20 | — | |||||||||||||||||||||
|
|
|
A number of changes into the UK corporation tax system, including reductions of the main rate of corporation tax from 26%23% to 24%21% with effect from April 1, 2012,2014, and from 24%21% to 23%20% with effect from April 1, 2013,2015, were substantively enacted on July 3, 2012. Reed Elsevier2, 2013. The Group has therefore remeasuredmeasured its UK deferred tax assets and liabilities at the end of the reporting period at 20% (2013: 20%; 2012: 23%, which has resulted in recognition of a deferred tax debit of £1 million in the income statement. The UK government has also announced an intention to reduce the rate of corporation tax to 21% by April 1, 2014, but as this change had not been substantively enacted at the date of the statement of financial position, the effect on deferred tax has not been recognized in these financial statements. It is not currently anticipated that the proposed reduction in rate would have a significant impact on deferred tax balances.).
Statement of cash flows |
Reconciliation of profit before tax to cash generated from operations
2012 £m | 2011 £m | 2010 £m | ||||||||||
Profit before tax | 1,187 | 948 | 768 | |||||||||
Disposals and other non operating items | (45 | ) | 22 | 46 | ||||||||
Net finance costs | 216 | 235 | 276 | |||||||||
Share of results of joint ventures | (24 | ) | (30 | ) | (22 | ) | ||||||
|
|
|
|
|
| |||||||
Operating profit before joint ventures | 1,334 | 1,175 | 1,068 | |||||||||
|
|
|
|
|
| |||||||
Amortisation of acquired intangible assets | 328 | 355 | 345 | |||||||||
Amortisation of internally developed intangible assets | 151 | 132 | 158 | |||||||||
Depreciation of property, plant and equipment | 76 | 75 | 79 | |||||||||
Share based remuneration | 31 | 27 | (7 | ) | ||||||||
|
|
|
|
|
| |||||||
Total non cash items | 586 | 589 | 575 | |||||||||
|
|
|
|
|
| |||||||
Decrease in inventories and pre-publication costs | 21 | 32 | 35 | |||||||||
Decrease/(increase) in receivables | 4 | (37 | ) | 24 | ||||||||
Decrease in payables | (98 | ) | (24 | ) | (53 | ) | ||||||
|
|
|
|
|
| |||||||
(Increase)/decrease in working capital | (73 | ) | (29 | ) | 6 | |||||||
|
|
|
|
|
| |||||||
Cash generated from operations | 1,847 | 1,735 | 1,649 | |||||||||
|
|
|
|
|
|
2014 £m | 2013 £m | 2012 £m | ||||||||||
Profit before tax | 1,229 | 1,196 | 1,151 | |||||||||
Disposals and other non operating items | 11 | (16 | ) | (45 | ) | |||||||
Net finance costs | 162 | 196 | 227 | |||||||||
Share of results of joint ventures | (36 | ) | (29 | ) | (24 | ) | ||||||
|
|
|
|
|
| |||||||
Operating profit before joint ventures | 1,366 | 1,347 | 1,309 | |||||||||
|
|
|
|
|
| |||||||
Amortisation of acquired intangible assets | 282 | 317 | 328 | |||||||||
Amortisation of internally developed intangible assets | 158 | 160 | 151 | |||||||||
Depreciation of property, plant and equipment | 79 | 89 | 76 | |||||||||
Share based remuneration | 32 | 31 | 31 | |||||||||
|
|
|
|
|
| |||||||
Total non cash items | 551 | 597 | 586 | |||||||||
|
|
|
|
|
| |||||||
Decrease in inventories and pre-publication costs | 3 | 10 | 21 | |||||||||
(Increase)/decrease in receivables | (66 | ) | 5 | 4 | ||||||||
Decrease in payables | (3 | ) | (16 | ) | (73 | ) | ||||||
|
|
|
|
|
| |||||||
Increase in working capital | (66 | ) | (1 | ) | (48 | ) | ||||||
|
|
|
|
|
| |||||||
Cash generated from operations | 1,851 | 1,943 | 1,847 | |||||||||
|
|
|
|
|
|
Cash flow on acquisitions
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Purchase of businesses | 13 | (276 | ) | (455 | ) | (38 | ) | 12 | (347 | ) | (194 | ) | (276 | ) | ||||||||||||||||||
Investment in joint ventures | (10 | ) | (1 | ) | — | (15 | ) | (6 | ) | (10 | ) | |||||||||||||||||||||
Deferred payments relating to prior year acquisitions | (30 | ) | (25 | ) | (12 | ) | (34 | ) | (21 | ) | (30 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | (316 | ) | (481 | ) | (50 | ) | (396 | ) | (221 | ) | (316 | ) | ||||||||||||||||||||
|
|
|
|
|
|
Acquisitions |
Acquisitions in 2014
During the year a number of acquisitions were made for a total consideration of £356 million, after taking account of net cash acquired of £9 million. The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. Provisional fair values of the consideration given and of the assets and liabilities acquired are summarised below:
Fair value £m | ||||
Goodwill | 240 | |||
Intangible assets | 187 | |||
Property, plant and equipment | 3 | |||
Current assets | 21 | |||
Current liabilities | (39 | ) | ||
Borrowings | (20 | ) | ||
Deferred tax | (36 | ) | ||
Net assets acquired | 356 | |||
Consideration (after taking account of £9 million net cash acquired) | 356 | |||
Less: consideration deferred to future years | (8 | ) | ||
Less: acquisition date fair value of equity interest | (1 | ) | ||
Net cash flow | 347 | |||
12. | Acquisitions – (continued) |
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of the business to generate higher returns than individual assets, skilled workforces, and acquisition synergies that are specific to the Group. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets, for which amortisation does not qualify for tax deductions.
The fair value of the assets and liabilities acquired are provisional pending the completion of the valuation exercises. Final fair values will be incorporated in the 2015 combined financial statements. There were no significant adjustments to the provisional fair values of prior year acquisitions established in 2013.
The businesses acquired in 2014 contributed £37 million to revenue, decreased net profit by £6 million and contributed a net cash inflow of £3 million from operating activities for the part year under the Group’s ownership and before taking account of acquisition financing costs. Had the businesses been acquired at the beginning of the year, on a proforma basis the the Group revenues and net profit attributable to parent companies’ shareholders for the year would have been £5,840 million and £957 million respectively, before taking account of acquisition financing costs.
Acquisitions in 2013
During the year a number of acquisitions were made for a total consideration of £239 million, after taking account of net cash acquired of £14 million. The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. Fair values of the consideration given and of the assets and liabilities acquired are summarised below:
Fair value £m | ||||
Goodwill | 157 | |||
Intangible assets | 133 | |||
Current assets | 9 | |||
Current liabilities | (21 | ) | ||
Deferred tax | (39 | ) | ||
Net assets acquired | 239 | |||
Consideration (after taking account of £14 million net cash acquired) | 239 | |||
Less: consideration deferred to future years | (36 | ) | ||
Less: acquisition date fair value of equity interest | (9 | ) | ||
Net cash flow | 194 | |||
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of the business to generate higher returns than individual assets, skilled workforces, and acquisition synergies that are specific to the Group. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets, for which amortisation does not qualify for tax deductions.
In 2013, there were no significant adjustments to the provisional fair values of prior year acquisitions established in 2012.
The businesses acquired in 2013 contributed £27 million to revenue, decreased net profit by £1 million and contributed a net cash outflow of £3 million from operating activities for the part year under the Group’s ownership and before taking account of acquisition financing costs. Had the businesses been acquired at the beginning of the year, on a proforma basis the the Group revenues and net profit attributable to parent companies’ shareholders for the year would have been £6,067 million and £1,112 million respectively, before taking account of acquisition financing costs.
12. | Acquisitions – (continued) |
Acquisitions in 2012
During the year a number of acquisitions were made for a total consideration of £341 million, after taking account of net cash acquired of £12 million. The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The provisional fair values of the consideration given and of the assets and liabilities acquired are summarised below:
Fair value £m | ||||
Goodwill | 165 | |||
Intangible assets | 229 | |||
Property, plant and equipment | 1 | |||
Current assets | 21 | |||
Current liabilities | (61 | ) | ||
Current tax | 2 | |||
Deferred tax | (16 | ) | ||
|
| |||
Net assets acquired | 341 | |||
|
| |||
Consideration (after taking account of £12 million net cash acquired) | 341 | |||
Less: consideration deferred to future years | (23 | ) | ||
Less: acquisition date fair value of equity interest | (42 | ) | ||
|
| |||
Net cash flow | 276 | |||
|
|
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of the business to generate higher returns than individual assets, skilled workforces, and acquisition synergies that are specific to Reed Elsevier.the Group. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets, for which amortisation does not qualify for tax deductions.
The fair value of the assets and liabilities acquired are provisional pending the completion of the valuation exercises. Final fair values will be incorporated in the 2013 combined financial statements. ThereIn 2012, there were no significant adjustments to the provisional fair values of prior year acquisitions established in 2011.
The businesses acquired in 2012 contributed £73 million to revenue, decreased net profit by £10 million and contributed £2 million to net cash inflow from operating activities for the part year under Reed Elsevierthe Group’s ownership and before taking account of acquisition financing costs. Had the businesses been acquired at the beginning of the year, on a proforma basis the Reed Elsevierthe Group revenues and net profit attributable to parent companies’ shareholders for the year would have been £6,153 million and £1,073£1,048 million respectively, before taking account of acquisition financing costs.
Acquisitions in 2011
During the year a number of acquisitions were made for a total consideration of £492 million, after taking account of net cash acquired of £24 million, the most significant of which was the acquisition of Accuity Inc. for £331 million, net of cash acquired, which completed on November 1, 2011.
13. |
The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The provisional fair values of the consideration given and of the assets and liabilities acquired are summarised below:
| ||||
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| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
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Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of the business to generate higher returns than individual assets, skilled workforces, and acquisition synergies that are specific to Reed Elsevier. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets, for which amortisation does not qualify for tax deductions.
In 2011, there were no significant adjustments to the provisional fair values of prior year acquisitions established in 2010.
The businesses acquired in 2011 contributed £34 million to revenue, decreased net profit by £10 million and contributed £7 million to net cash inflow from operating activities for the part year under Reed Elsevier ownership and before taking account of acquisition financing costs. Had the businesses been acquired at the beginning of the year, on a proforma basis the Reed Elsevier revenues and net profit for the year would have been £6,065 million and £771 million respectively, before taking account of acquisition financing costs.
Acquisitions in 2010
During the year a number of small acquisitions were made for a total consideration of £43 million, after taking account of net cash acquired of nil.
The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of the consideration given and of the assets and liabilities acquired are summarised below.
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of the business to generate higher returns than individual assets, skilled workforces, acquisition synergies that are specific to Reed Elsevier. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation does not qualify for tax deductions.
Equity dividends |
Ordinary dividends declaredpaid in the year
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Reed Elsevier PLC | 264 | 248 | 245 | 285 | 278 | 264 | ||||||||||||||||||
Reed Elsevier NV | 259 | 251 | 240 | 281 | 273 | 259 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 523 | 499 | 485 | 566 | 551 | 523 | ||||||||||||||||||
|
|
|
|
|
|
Ordinary dividends declaredpaid in the year, in amounts per ordinary share, comprise: a 20112013 final dividend of 15.9p17.95p and a 20122014 interim dividend of 6.0p7p giving a total of 21.9p (2011: 20.65p; 2010: 20.4p)24.95p (2013: 23.65p; 2012: 21.9p) for Reed Elsevier PLC; and a 20112013 final dividend of €0.326€0.374 and a 20122014 interim dividend of €0.13€0.151 giving a total of €0.456 (2011: €0.413; 2010: €0.402)€0.525 (2013: €0.469; 2012: €0.456) for Reed Elsevier NV.
The directors of Reed Elsevier PLC have proposed a final dividend of 17.0p (2011: 15.9p; 2010: 15.0p)19.0p (2013: 17.95p; 2012: 17.0p). The directors of Reed Elsevier NV have proposed a final dividend of €0.337 (2011: €0.326; 2010: €0.303)€0.438 (2013: €0.374; 2012: €0.337). The total cost of funding the proposed final dividends is expected to be £391£445 million, for which no liability has been recognised at the statement of financial position date.
13. | Equity dividends – (continued) |
Ordinary dividends paid and proposed relating to the financial year
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||
Reed Elsevier PLC | 273 | 259 | 245 | 294 | 283 | 273 | ||||||||||||||||
Reed Elsevier NV | 262 | 265 | 246 | 312 | 288 | 262 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||
Total | 535 | 524 | 491 | 606 | 571 | 535 | ||||||||||||||||
|
|
|
|
|
|
Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level inclusive of the UK tax credit of 10% received byavailable to certain Reed Elsevier PLC shareholders. The cost of funding the Reed Elsevier PLC dividends is therefore similar to that of Reed Elsevier NV.
Goodwill |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
At January 1 | 4,729 | 4,441 | 4,339 | 4,576 | 4,545 | 4,729 | ||||||||||||||||||
Acquisitions | 165 | 300 | 27 | 240 | 157 | 165 | ||||||||||||||||||
Disposals/reclassified as held for sale | (152 | ) | (26 | ) | (38 | ) | (34 | ) | (46 | ) | (152 | ) | ||||||||||||
Exchange translation differences | (197 | ) | 14 | 113 | 199 | (80 | ) | (197 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
At December 31 | 4,545 | 4,729 | 4,441 | 4,981 | 4,576 | 4,545 | ||||||||||||||||||
|
|
|
|
|
|
The carrying amount of goodwill is after £20cumulative amortisation of £1,106 million (2011: £49(2013: £1,154 million; 2012: £1,180 million) which was charged prior to the adoption of IFRS and £9 million (2013: £9 million; 2012: £20 million) of subsequent impairment charges.
charges recorded in prior years.
Impairment review
Impairment testing of goodwill and indefinite lived intangible assets is performed at least annually basedin accordance with the methodology described within critical judgements and key sources of estimation uncertainty on page F-15. There were no charges for impairment of goodwill in 2014 (2013: nil; 2012: nil).
Goodwill is compiled and assessed among groups of cash generating units (CGUs). A CGU which represent the lowest level at which goodwill is the smallest identifiable group of assets that generate cash inflows thatmonitored by management. Typically, acquisitions are largely independent of the cash inflows from other groups of assets. Goodwill impairment testing is performed on the basis of 22 CGUs. CGUs which are not individually significant have been aggregated for presentation purposes. Typically, when an acquisition is made the acquired business is fully integrated into the relevantexisting business unit and CGU,units, and the goodwill arising is allocated to the CGUs, or groups of CGUs that are expected to benefit from the synergies of the acquisition.
The carrying value As the business areas have become increasingly integrated and globalised, management has reviewed the allocation of goodwill recorded into groups of CGUs. In order to reflect the majorglobal leverage of assets, skills, knowledge and technology platforms, and consequential changes to the monitoring of goodwill by management, the number of groups of CGUs to which goodwill is allocated has been reduced from 25 in 2013 to 5 in 2014 (2012: 22). Reducing the number of groups of CGUs had no impact on the carrying values of goodwill, which are set out below:
2012 £m | 2011 £m | 2010 £m | ||||||||||
Scientific, Technical & Medical | 1,026 | 991 | 994 | |||||||||
|
|
|
|
|
| |||||||
Risk Solutions | 1,559 | 1,733 | 1,720 | |||||||||
|
|
|
|
|
| |||||||
Business Information US | 50 | 52 | 63 | |||||||||
Business Information UK | 335 | 352 | 71 | |||||||||
Business Information NL | 23 | 23 | 24 | |||||||||
Business Information International | — | 30 | 31 | |||||||||
|
|
|
|
|
| |||||||
Business Information | 408 | 457 | 189 | |||||||||
|
|
|
|
|
| |||||||
Legal US | 1,038 | 1,070 | 1,064 | |||||||||
Legal International | 112 | 113 | 115 | |||||||||
|
|
|
|
|
| |||||||
Legal | 1,150 | 1,183 | 1,179 | |||||||||
|
|
|
|
|
| |||||||
Exhibitions Continental Europe | 273 | 289 | 293 | |||||||||
Exhibitions other | 129 | 76 | 66 | |||||||||
|
|
|
|
|
| |||||||
Exhibitions | 402 | 365 | 359 | |||||||||
|
|
|
|
|
| |||||||
Total | 4,545 | 4,729 | 4,441 | |||||||||
|
|
|
|
|
|
2014 £m | 2013 £m | 2012 £m | ||||||||||
Scientific, Technical & Medical | 1,109 | 1,051 | 1,026 | |||||||||
Risk Solutions | 1,779 | 1,604 | 1,559 | |||||||||
Business Information | 480 | 374 | 408 | |||||||||
Legal | 1,199 | 1,121 | 1,150 | |||||||||
Exhibitions | 414 | 426 | 402 | |||||||||
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Total | 4,981 | 4,576 | 4,545 | |||||||||
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Reed Elsevier’s goodwill impairment testing methodology,The key assumptions for each group of CGUs are disclosed below:
Key Assumptions | Pre-tax discount rate | Nominal long term market growth rate | ||
Scientific, Technical & Medical | 10.4% | 3.0% | ||
Risk Solutions | 11.5% | 3.0% | ||
Business Information | 11.7% | 3.0% | ||
Legal | 11.5% | 2.0% | ||
Exhibitions | 11.7% | 3.0% | ||
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14. | Goodwill – (continued) |
The pre-tax discount rates used are based on the Group’s weighted average cost of capital, adjusted to reflect a risk premium specific to each business. Nominal long-term market growth rates do not exceed the long term average growth prospects for the sectors and territories in which the businesses operate.
A sensitivity analysis are disclosed within critical judgmentshas been performed based on changes in key assumptions considered to be reasonably possible by management: an increase in the discount rate of 0.5%; a decrease in the compound annual growth rate for adjusted cash flow in the five-year forecast period of 2.0%; and key sourcesa decrease in the nominal long term market growth rates of estimation uncertainty on pages F-14 to F-16.0.5%. The sensitivity analysis shows that no impairment charges would result from these scenarios.
Intangible assets |
Market and customer related £m | Content, software and other £m | Total acquired intangible assets £m | Internally developed intangible assets £m | Total £m | ||||||||||||||||
Cost | ||||||||||||||||||||
At January 1, 2010 | 2,535 | 3,390 | 5,925 | 1,042 | 6,967 | |||||||||||||||
Acquisitions | 11 | 16 | 27 | — | 27 | |||||||||||||||
Additions | — | — | — | 230 | 230 | |||||||||||||||
Disposals/reclassified as held for sale | — | (99 | ) | (99 | ) | (77 | ) | (176 | ) | |||||||||||
Exchange translation differences | 85 | 44 | 129 | 9 | 138 | |||||||||||||||
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At January 1, 2011 | 2,631 | 3,351 | 5,982 | 1,204 | 7,186 | |||||||||||||||
Acquisitions | 196 | 115 | 311 | — | 311 | |||||||||||||||
Additions | — | — | — | 270 | 270 | |||||||||||||||
Disposals | (38 | ) | (189 | ) | (227 | ) | (51 | ) | (278 | ) | ||||||||||
Exchange translation differences | 13 | (14 | ) | (1 | ) | (1 | ) | (2 | ) | |||||||||||
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At January 1, 2012 | 2,802 | 3,263 | 6,065 | 1,422 | 7,487 | |||||||||||||||
Acquisitions | 201 | 27 | 228 | 1 | 229 | |||||||||||||||
Additions | — | — | — | 261 | 261 | |||||||||||||||
Disposals/reclassified as held for sale | (56 | ) | (97 | ) | (153 | ) | (114 | ) | (267 | ) | ||||||||||
Exchange translation differences | (131 | ) | (103 | ) | (234 | ) | (53 | ) | (287 | ) | ||||||||||
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At December 31, 2012 | 2,816 | 3,090 | 5,906 | 1,517 | 7,423 | |||||||||||||||
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Accumulated amortisation and impairment | ||||||||||||||||||||
At January 1, 2010 | 437 | 2,260 | 2,697 | 638 | 3,335 | |||||||||||||||
Charge for the year | 161 | 184 | 345 | 158 | 503 | |||||||||||||||
Disposals | — | (93 | ) | (93 | ) | (64 | ) | (157 | ) | |||||||||||
Exchange translation differences | 12 | 33 | 45 | 3 | 48 | |||||||||||||||
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At January 1, 2011 | 610 | 2,384 | 2,994 | 735 | 3,729 | |||||||||||||||
Charge for the year | 160 | 195 | 355 | 132 | 487 | |||||||||||||||
Disposals/reclassified as held for sale | (30 | ) | (149 | ) | (179 | ) | (36 | ) | (215 | ) | ||||||||||
Exchange translation differences | 4 | (8 | ) | (4 | ) | (4 | ) | (8 | ) | |||||||||||
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At January 1, 2012 | 744 | 2,422 | 3,166 | 827 | 3,993 | |||||||||||||||
Charge for the year | 173 | 155 | 328 | 151 | 479 | |||||||||||||||
Disposals | (11 | ) | (89 | ) | (100 | ) | (79 | ) | (179 | ) | ||||||||||
Exchange translation differences | (36 | ) | (80 | ) | (116 | ) | (29 | ) | (145 | ) | ||||||||||
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At December 31, 2012 | 870 | 2,408 | 3,278 | 870 | 4,148 | |||||||||||||||
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Net book amount | ||||||||||||||||||||
At December 31, 2010 | 2,021 | 967 | 2,988 | 469 | 3,457 | |||||||||||||||
At December 31, 2011 | 2,058 | 841 | 2,899 | 595 | 3,494 | |||||||||||||||
At December 31, 2012 | 1,946 | 682 | 2,628 | 647 | 3,275 | |||||||||||||||
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Market and customer related £m | Content, software and other £m | Total acquired intangible assets £m | Internally developed intangible assets £m | Total £m | ||||||||||||||||
Cost | ||||||||||||||||||||
At January 1, 2012 | 2,802 | 3,263 | 6,065 | 1,422 | 7,487 | |||||||||||||||
Acquisitions | 201 | 27 | 228 | 1 | 229 | |||||||||||||||
Additions | — | — | — | 261 | 261 | |||||||||||||||
Disposals/reclassified as held for sale | (56 | ) | (97 | ) | (153 | ) | (114 | ) | (267 | ) | ||||||||||
Exchange translation differences | (131 | ) | (103 | ) | (234 | ) | (53 | ) | (287 | ) | ||||||||||
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At January 1, 2013 | 2,816 | 3,090 | 5,906 | 1,517 | 7,423 | |||||||||||||||
Acquisitions | 49 | 84 | 133 | — | 133 | |||||||||||||||
Additions | — | — | — | 251 | 251 | |||||||||||||||
Disposals/reclassified as held for sale | (55 | ) | (216 | ) | (271 | ) | (27 | ) | (298 | ) | ||||||||||
Exchange translation differences | (65 | ) | (16 | ) | (81 | ) | (24 | ) | (105 | ) | ||||||||||
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At January 1, 2014 | 2,745 | 2,942 | 5,687 | 1,717 | 7,404 | |||||||||||||||
Acquisitions | 69 | 117 | 186 | 1 | 187 | |||||||||||||||
Additions | — | — | — | 207 | 207 | |||||||||||||||
Disposals/reclassified as held for sale | — | (62 | ) | (62 | ) | (73 | ) | (135 | ) | |||||||||||
Exchange translation differences | 151 | 44 | 195 | 32 | 227 | |||||||||||||||
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At December 31, 2014 | 2,965 | 3,041 | 6,006 | 1,884 | 7,890 | |||||||||||||||
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Accumulated amortisation and impairment | ||||||||||||||||||||
At January 1, 2012 | 744 | 2,422 | 3,166 | 827 | 3,993 | |||||||||||||||
Charge for the year | 173 | 155 | 328 | 151 | 479 | |||||||||||||||
Disposals/reclassified as held for sale | (11 | ) | (89 | ) | (100 | ) | (79 | ) | (179 | ) | ||||||||||
Exchange translation differences | (36 | ) | (80 | ) | (116 | ) | (29 | ) | (145 | ) | ||||||||||
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At January 1, 2013 | 870 | 2,408 | 3,278 | 870 | 4,148 | |||||||||||||||
Charge for the year | 178 | 139 | 317 | 160 | 477 | |||||||||||||||
Disposals | (55 | ) | (216 | ) | (271 | ) | (22 | ) | (293 | ) | ||||||||||
Exchange translation differences | (26 | ) | (15 | ) | (41 | ) | (11 | ) | (52 | ) | ||||||||||
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At January 1, 2014 | 967 | 2,316 | 3,283 | 997 | 4,280 | |||||||||||||||
Charge for the year | 154 | 128 | 282 | 158 | 440 | |||||||||||||||
Disposals | — | (44 | ) | (44 | ) | (64 | ) | (108 | ) | |||||||||||
Exchange translation differences | 58 | 43 | 101 | 13 | 114 | |||||||||||||||
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At December 31, 2014 | 1,179 | 2,443 | 3,622 | 1,104 | 4,726 | |||||||||||||||
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Net book amount | ||||||||||||||||||||
At December 31, 2012 | 1,946 | 682 | 2,628 | 647 | 3,275 | |||||||||||||||
At December 31, 2013 | 1,778 | 626 | 2,404 | 720 | 3,124 | |||||||||||||||
At December 31, 2014 | 1,786 | 598 | 2,384 | 780 | 3,164 | |||||||||||||||
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Intangible assets – (continued) |
Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trademarks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); and content, software and other intangible assets (e.g. editorial content, software and product delivery systems, other publishing rights, exhibition rights and supply contracts). Included in content, software and other acquired intangible assets are assets with a net book value of £431£265 million (2011: £531(2013: £353 million; 2010: £6192012: £431 million) that arose on acquisitions completed prior to the adoption of IFRS that have not been allocated to specific categories of intangible assets. Internally developed intangible assets typically comprise software and systems development where an identifiable asset is created that is probableexpected to generate future economic benefits.
Included in market and customer related intangible assets are £354£369 million (2011: £370(2013: £347 million; 2010: £3682012: £354 million) of brands and imprints relating to Scientific, Technical & Medical determined to have indefinite lives based on an assessment of their historical longevity and stable market positions. Indefinite lived intangibles are tested for impairment at least annually using the same value in use assumptions as set out in critical judgements and key sources of estimation uncertainty on pages F-14 to F-16.
Also included in market and customer related intangible assets are £1,037 million (2011: £1,209 million; 2010: £1,274 million) of customer relationship assets arising on the acquisition of ChoicePoint in 2008 with a remaining useful economic life of approximately 16 years.F-15.
Investments |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Investments in joint ventures | 100 | 124 | 136 | 125 | 125 | 100 | ||||||||||||||||||
Available for sale investments | 3 | 8 | 10 | 2 | 2 | 3 | ||||||||||||||||||
Venture capital investments held for trading | 76 | 56 | 38 | 110 | 90 | 76 | ||||||||||||||||||
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Total | 179 | 188 | 184 | 237 | 217 | 179 | ||||||||||||||||||
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The value of venture capital investments held for trading, determined by reference to quoted market prices, amounted to £27 million (2011: £17nil (2013: £12 million; 2010: £122012: £27 million). The value of other venture capital investments and available for sale investments has been determined by reference to other observable market inputs. Gains and losses included in the combined income statement are set out in note 9.
An analysis of changes in the carrying value of investments in joint ventures is set out below:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
At January 1 | 124 | 136 | 135 | 125 | 100 | 124 | ||||||||||||||||||
Share of results of joint ventures | 24 | 30 | 22 | 36 | 29 | 24 | ||||||||||||||||||
Dividends received from joint ventures | (20 | ) | (33 | ) | (24 | ) | (44 | ) | (22 | ) | (20 | ) | ||||||||||||
Disposals and transfers | (33 | ) | (6 | ) | (1 | ) | (1 | ) | (3 | ) | (33 | ) | ||||||||||||
Additions | 10 | 1 | — | 15 | 21 | 10 | ||||||||||||||||||
Exchange translation differences | (5 | ) | (4 | ) | 4 | (6 | ) | — | (5 | ) | ||||||||||||||
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At December 31 | 100 | 124 | 136 | 125 | 125 | 100 | ||||||||||||||||||
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The principal joint ventures at December 31, 20122014 are exhibition joint ventures within Exhibitions and Giuffrè (an Italian legal publisher in which Reed Elsevier has a 40% shareholding)and Martindale within Legal.
Summarised aggregate information in respect of joint ventures and Reed Elsevier’sthe Group’s share is set out below:
Total joint ventures | Reed Elsevier share | Total joint ventures | The Group’s share | |||||||||||||||||||||||||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | 2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||||||||||||||
Revenue | 187 | 254 | 235 | 91 | 128 | 116 | 284 | 225 | 187 | 153 | 110 | 91 | ||||||||||||||||||||||||||||||||||||
Net profit for the year | 45 | 62 | 46 | 24 | 30 | 22 | 69 | 57 | 45 | 36 | 29 | 24 | ||||||||||||||||||||||||||||||||||||
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Total assets | 227 | 255 | 264 | 104 | 122 | 122 | 285 | 246 | 227 | 138 | 117 | 104 | ||||||||||||||||||||||||||||||||||||
Total liabilities | (126 | ) | (137 | ) | (132 | ) | (59 | ) | (66 | ) | (62 | ) | (181 | ) | (134 | ) | (126 | ) | (91 | ) | (64 | ) | (59 | ) | ||||||||||||||||||||||||
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Net assets | 101 | 118 | 132 | 45 | 56 | 60 | 104 | 112 | 101 | 47 | 53 | 45 | ||||||||||||||||||||||||||||||||||||
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Goodwill | 55 | 68 | 76 | 78 | 72 | 55 | ||||||||||||||||||||||||||||||||||||||||||
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Total | 100 | 124 | 136 | 125 | 125 | 100 | ||||||||||||||||||||||||||||||||||||||||||
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The Group’s combined other comprehensive income includes nil relating to joint ventures (2013: nil; 2012: nil).
Property, plant and equipment |
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land and buildings £m | Fixtures and equipment £m | Total £m | Land and buildings £m | Fixtures and equipment £m | Total £m | Land and buildings £m | Fixtures and equipment £m | Total £m | Land and buildings £m | Fixtures and equipment £m | Total £m | Land and buildings £m | Fixtures and equipment £m | Total £m | Land and buildings £m | Fixtures and equipment £m | Total £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At January 1 | 238 | 582 | 820 | 246 | 578 | 824 | 238 | 626 | 864 | 210 | 558 | 768 | 218 | 537 | 755 | 238 | 582 | 820 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | 1 | 1 | — | 1 | 1 | — | — | — | — | 3 | 3 | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditure | 10 | 70 | 80 | 8 | 82 | 90 | 7 | 78 | 85 | 9 | 61 | 70 | 4 | 66 | 70 | 10 | 70 | 80 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals/reclassified | (21 | ) | (97 | ) | (118 | ) | (16 | ) | (78 | ) | (94 | ) | (5 | ) | (141 | ) | (146 | ) | (25 | ) | (40 | ) | (65 | ) | (8 | ) | (34 | ) | (42 | ) | (21 | ) | (97 | ) | (118 | ) | ||||||||||||||||||||||||||||||||||||
Exchange translation differences | (9 | ) | (19 | ) | (28 | ) | — | (1 | ) | (1 | ) | 6 | 15 | 21 | 7 | 18 | 25 | (4 | ) | (11 | ) | (15 | ) | (9 | ) | (19 | ) | (28 | ) | |||||||||||||||||||||||||||||||||||||||||||
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At December 31 | 218 | 537 | 755 | 238 | 582 | 820 | 246 | 578 | 824 | 201 | 600 | 801 | 210 | 558 | 768 | 218 | 537 | 755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accumulated depreciation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At January 1 | 118 | 414 | 532 | 115 | 418 | 533 | 106 | 466 | 572 | 117 | 414 | 531 | 116 | 375 | 491 | 118 | 414 | 532 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals/reclassified | (5 | ) | (94 | ) | (99 | ) | (6 | ) | (69 | ) | (75 | ) | (5 | ) | (127 | ) | (132 | ) | (16 | ) | (38 | ) | (54 | ) | (6 | ) | (32 | ) | (38 | ) | (5 | ) | (94 | ) | (99 | ) | ||||||||||||||||||||||||||||||||||||
Charge for the year | 8 | 68 | 76 | 9 | 66 | 75 | 12 | 67 | 79 | 9 | 70 | 79 | 9 | 80 | 89 | 8 | 68 | 76 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | (5 | ) | (13 | ) | (18 | ) | — | (1 | ) | (1 | ) | 2 | 12 | 14 | 4 | 14 | 18 | (2 | ) | (9 | ) | (11 | ) | (5 | ) | (13 | ) | (18 | ) | |||||||||||||||||||||||||||||||||||||||||||
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At December 31 | 116 | 375 | 491 | 118 | 414 | 532 | 115 | 418 | 533 | 114 | 460 | 574 | 117 | 414 | 531 | 116 | 375 | 491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net book amount | 102 | 162 | 264 | 120 | 168 | 288 | 131 | 160 | 291 | 87 | 140 | 227 | 93 | 144 | 237 | 102 | 162 | 264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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No depreciation is provided on freehold land of £39£14 million (2011: £46(2013: £14 million; 2010: £482012: £15 million). The net book amount of property, plant and equipment at December 31, 20122014 includes £11£13 million (2011: £4(2013: £17 million; 2010: £22012: £11 million) in respect of assets held under finance leases relating to fixtures and equipment.
Financial instruments |
The main financial risks faced by Reed Elsevierthe Group are liquidity risk, market risk — comprising interest rate risk and foreign exchange risk — and credit risk. Financial instruments are used to finance the Reed ElsevierGroup’s businesses and to hedge interest rate and foreign exchange risks. Reed Elsevier’sThe Group’s businesses do not enter into speculative derivative transactions. Details of financial instruments subject to liquidity, market and credit risks are described below.
Liquidity risk
Reed ElsevierThe Group maintains a range of borrowing facilities and debt programmes to fund its requirements, at short notice and at competitive rates.
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 cycle of the business and the uncertain size and timing of acquisition spend. To accommodate the significant free cash flow generated by the Group and to capitalise on an inexpensive source of funding, a meaningful portion of the overall debt portfolio is typically kept short term as long as there exists acceptable liquidity in the commercial paper markets and sufficient capacity under committed credit lines. The treasury policies ensure adequate liquidity by requiring (a) that no more than $1.5 billion of term debt matures in any 12-month period, (b) that the sum of term debt maturing over the ensuing 12 months plus commercial paper is less than the sum of available cash plus committed facilities and (c) minimum levels of borrowing with maturities over three and five years are maintained.
The treasury policies ensure debt efficiency by (a) targeting certain levels of commercial paper across a given year, (b) maintaining a weighted average maturity of the gross debt portfolio of approximately 5 years and (c) minimising surplus cash balances. From time to time, based on cash flow and market conditions, the Group may redeem term debt early or
18. | Financial instruments – (continued) |
repurchase outstanding debt in the open market. Debt is issued to meet the funding requirements of various jurisdictions and in the currency that is needed. It is recognised that debt can act as a natural translation hedge of earnings and net assets in currencies other than the reporting currencies. For this reason, a significant proportion of our net debt has historically been denominated in US dollars, reflecting the size and importance of the US businesses.
There were no changes to the Group’s long-term approach to capital and liquidity management during the year.
The remaining contractual maturities for borrowings and derivative financial instruments are shown in the table below. The table shows undiscounted principal and interest cash flows and includes contractual gross cash flows to be exchanged as part of cross currency interest rate swaps and forward foreign exchange contracts where there is a legal right of set-off.
Contractual cash flow | Contractual cash flow | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2012 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2014 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate borrowings | (3,695 | ) | (803 | ) | (797 | ) | (251 | ) | (530 | ) | (428 | ) | (1,940 | ) | (4,749 | ) | (2,937 | ) | (263 | ) | (536 | ) | (432 | ) | (265 | ) | (632 | ) | (1,631 | ) | (3,759 | ) | ||||||||||||||||||||||||||||||||
Floating rate borrowings | (197 | ) | (132 | ) | (1 | ) | (63 | ) | — | (1 | ) | (3 | ) | (200 | ) | (888 | ) | (551 | ) | (3 | ) | (275 | ) | (65 | ) | — | (2 | ) | (896 | ) | ||||||||||||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | (2 | ) | (3 | ) | — | — | — | — | (5 | ) | (8 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Cross currency interest rate swaps | — | (166 | ) | (180 | ) | — | — | — | — | (346 | ) | (47 | ) | (11 | ) | (10 | ) | (318 | ) | (188 | ) | — | — | (527 | ) | |||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | (9 | ) | (1,382 | ) | (442 | ) | (194 | ) | — | — | — | (2,018 | ) | (47 | ) | (1,288 | ) | (474 | ) | (150 | ) | (58 | ) | — | — | (1,970 | ) | |||||||||||||||||||||||||||||||||||||
Derivative financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | 47 | 35 | 13 | 12 | 9 | 6 | — | 75 | 46 | 14 | 13 | 11 | 4 | 4 | 5 | 51 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cross currency interest rate swaps | 93 | 202 | 243 | — | — | — | — | 445 | 6 | 3 | 3 | 275 | 181 | — | — | 462 | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | 55 | 1,400 | 460 | 202 | — | — | — | 2,062 | 57 | 1,293 | 475 | 150 | 62 | — | — | 1,980 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total | (3,708 | ) | (849 | ) | (704 | ) | (294 | ) | (521 | ) | (423 | ) | (1,948 | ) | (4,739 | ) | (3,810 | ) | (803 | ) | (532 | ) | (739 | ) | (329 | ) | (628 | ) | (1,628 | ) | (4,659 | ) | ||||||||||||||||||||||||||||||||
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Contractual cash flow | ||||||||||||||||||||||||||||||||
At December 31, 2013 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||
Borrowings | ||||||||||||||||||||||||||||||||
Fixed rate borrowings | (2,931 | ) | (497 | ) | (243 | ) | (524 | ) | (420 | ) | (264 | ) | (1,909 | ) | (3,857 | ) | ||||||||||||||||
Floating rate borrowings | (350 | ) | (288 | ) | (61 | ) | — | (1 | ) | — | (2 | ) | (352 | ) | ||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||
Interest rate derivatives | (4 | ) | — | — | — | (1 | ) | (4 | ) | (7 | ) | (12 | ) | |||||||||||||||||||
Cross currency interest rate swaps | (6 | ) | (180 | ) | (3 | ) | (5 | ) | (7 | ) | (193 | ) | — | (388 | ) | |||||||||||||||||
Forward foreign exchange contracts | (7 | ) | (1,031 | ) | (402 | ) | (222 | ) | — | — | — | (1,655 | ) | |||||||||||||||||||
Derivative financial assets | ||||||||||||||||||||||||||||||||
Interest rate derivatives | 19 | 13 | 11 | 6 | 1 | — | — | 31 | ||||||||||||||||||||||||
Cross currency interest rate swaps | 70 | 247 | 2 | 2 | 3 | 189 | — | 443 | ||||||||||||||||||||||||
Forward foreign exchange contracts | 99 | 1,082 | 431 | 233 | — | — | — | 1,746 | ||||||||||||||||||||||||
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Total | (3,110 | ) | (654 | ) | (265 | ) | (510 | ) | (425 | ) | (272 | ) | (1,918 | ) | (4,044 | ) | ||||||||||||||||
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Financial instruments – (continued) |
Contractual cash flow | ||||||||||||||||||||||||||||||||
At December 31, 2011 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||
Borrowings | ||||||||||||||||||||||||||||||||
Fixed rate borrowings | (3,568 | ) | (553 | ) | (814 | ) | (863 | ) | (248 | ) | (524 | ) | (1,694 | ) | (4,696 | ) | ||||||||||||||||
Floating rate borrowings | (714 | ) | (646 | ) | (2 | ) | (2 | ) | (65 | ) | (1 | ) | (5 | ) | (721 | ) | ||||||||||||||||
Derivative financial liabilities Interest rate derivatives | (10 | ) | (9 | ) | (3 | ) | — | — | — | — | (12 | ) | ||||||||||||||||||||
Cross currency interest rate swaps | — | (6 | ) | (173 | ) | (189 | ) | — | — | — | (368 | ) | ||||||||||||||||||||
Forward foreign exchange contracts | (59 | ) | (1,019 | ) | (421 | ) | (256 | ) | — | — | — | (1,696 | ) | |||||||||||||||||||
Derivative financial assets | 39 | 13 | 27 | 6 | 5 | 5 | 3 | 59 | ||||||||||||||||||||||||
Cross currency interest rate swaps | 99 | 14 | 208 | 248 | — | — | — | 470 | ||||||||||||||||||||||||
Forward foreign exchange contracts | 11 | 987 | 414 | 252 | — | — | — | 1,653 | ||||||||||||||||||||||||
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Total | (4,202 | ) | (1,219 | ) | (764 | ) | (804 | ) | (308 | ) | (520 | ) | (1,696 | ) | (5,311 | ) | ||||||||||||||||
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Contractual cash flow | Contractual cash flow | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2010 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2012 | Carrying amount £m | Within 1 year £m | 1-2 Years £m | 2-3 Years £m | 3-4 Years £m | 4-5 Years £m | More than 5 Years £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate borrowings | (3,711 | ) | (370 | ) | (558 | ) | (833 | ) | (865 | ) | (246 | ) | (2,210 | ) | (5,082 | ) | (3,695 | ) | (803 | ) | (797 | ) | (251 | ) | (530 | ) | (428 | ) | (1,940 | ) | (4,749 | ) | ||||||||||||||||||||||||||||||||
Floating rate borrowings | (591 | ) | (383 | ) | (53 | ) | (6 | ) | (99 | ) | (67 | ) | (5 | ) | (613 | ) | (197 | ) | (132 | ) | (1 | ) | (63 | ) | — | (1 | ) | (3 | ) | (200 | ) | |||||||||||||||||||||||||||||||||
Derivative financial liabilities Interest rate derivatives | (25 | ) | (19 | ) | (8 | ) | (2 | ) | — | (1 | ) | (6 | ) | (36 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | (2 | ) | (3 | ) | — | — | — | — | (5 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cross currency interest rate swaps | — | (5 | ) | (7 | ) | (179 | ) | (190 | ) | — | — | (381 | ) | — | (166 | ) | (180 | ) | — | — | — | — | (346 | ) | ||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | (55 | ) | (1,283 | ) | (413 | ) | (154 | ) | (32 | ) | — | — | (1,882 | ) | (9 | ) | (1,382 | ) | (442 | ) | (194 | ) | — | — | — | (2,018 | ) | |||||||||||||||||||||||||||||||||||||
Derivative financial assets | 19 | 15 | 10 | 20 | — | — | — | 45 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | 47 | 35 | 13 | 12 | 9 | 6 | — | 75 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cross currency interest rate swaps | 100 | 14 | 14 | 209 | 248 | — | — | 485 | 93 | 202 | 243 | — | — | — | — | 445 | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | 15 | 1,262 | 401 | 154 | 33 | — | — | 1,850 | 55 | 1,400 | 460 | 202 | — | — | — | 2,062 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total | (4,248 | ) | (769 | ) | (614 | ) | (791 | ) | (905 | ) | (314 | ) | (2,221 | ) | (5,614 | ) | (3,708 | ) | (849 | ) | (704 | ) | (294 | ) | (521 | ) | (423 | ) | (1,948 | ) | (4,739 | ) | ||||||||||||||||||||||||||||||||
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The carrying amount of derivative financial liabilities comprises £3 million (2013: £10 million; 2012: nil) in relation to fair value hedges, £78 million (2013: £7 million (2011: £64 million; 2010: £682012: £7 million) in relation to cash flow hedges and £4£9 million (2011: £5 million; 2010: £12(2013: nil; 2012: £4 million) not designated as hedging instruments.instruments, plus £4 million of cash collateral received from swap counterparties which has been added to the related derivative financial liabilities (2013: £13 million which has been offset against the related derivative financial assets; 2012: nil) (see ‘Credit risk’ below). The carrying amount of derivative financial assets comprises £124£46 million (2011: £123(2013: £84 million; 2010: £1052012: £124 million) in relation to fair value hedges, £46£60 million (2011: £10(2013: £88 million; 2010: £122012: £46 million) in relation to cash flow hedges and £25£3 million (2011: £16(2013: £29 million; 2010: £172012: £25 million) not designated as hedging instruments. The expected cash flows in respect of the cash collateral have been included in the tables above together with the cash flows for the related cross currency interest rate swaps.
At December 31, 2012, Reed Elsevier2014, the Group had access to a $2,000 million committed bank facility maturing in June 2015,July 2019, which was undrawn. This facility backs up short term borrowings. All borrowings that mature within the next two years can be covered by the facility and by utilising available cash resources.
The committed bank facility, together with certain of Reed Elsevier’s private placements, are subject to financial covenants typical to Reed Elsevier’sthe Group’s size and financial strength. Reed Elsevier was in compliance withThe Group had significant headroom within these covenants for the year ended December 31, 2012. Financial2014. There are no financial covenants are not included in the terms and conditions of any outstanding public bonds.
After taking account of the maturity of committed bank facilities that back short term borrowings at December 31, 2012, and after utilising available cash resources, no borrowings mature within two years (2011: nil; 2010: nil), 27% of borrowings mature in the third year (2011: 44%; 2010: 23%), 23% in the fourth and fifth years (2011: 18%; 2010: 27%), 39% in the sixth to tenth years (2011: 27%; 2010: 39%), and 11% beyond the tenth year (2011: 11%; 2010: 11%).
Market Risk
Reed Elsevier’sThe Group’s primary market risks are to interest rate fluctuations and exchange rate movements. Derivatives are used to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist. Derivatives used by Reed Elsevierthe Group for hedging a particular risk are not specialised and are generally available from numerous sources. The impact of market risks on net post employment benefit obligations and taxation is excluded from the following market risk sensitivity analysis.
Interest rate riskexposure management
Reed Elsevier’sThe Group’s interest rate exposure management policy is aimed at reducingaims to reduce the exposure of the combined businesses to changes in interest rates.rates at efficient cost. To achieve this we use fixed rate term debt, interest rate swaps, forward rate agreements and interest rate options. Interest rate derivatives are used only to hedge an underlying risk and no net market positions are held.
At December 31, 2012, 59%2014, 52% of gross borrowings were either fixed rate or had been fixed through the use of interest rate swaps, forward rate agreements and options. A 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £8£16 million (2011: £5(2013: £12 million; 2010: £32012: £8 million), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at December 31, 2012.2014. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £16 million (2013: £12 million; 2012: £8 million (2011: £5 million; 2010: £3 million).
18. | Financial instruments – (continued) |
The impact on net equity of a theoretical change in interest rates as at December 31, 20122014 is restricted to the change in carrying value of floating rate to fixed rate interest rate derivatives in a designated cash flow hedge relationship and undesignated interest rate derivatives.derivatives, of which there were none in the Group as at December 31, 2014. A 100 basis point reduction in interest rates would therefore result in an estimateda reduction in net equity of nil (2013: nil; 2012: £1 million (2011: £3 million; 2010: £8 million) and a 100 basis point increase in interest rates would increase net equity by an estimatednil (2013: £1 million; 2012: £2 million (2011: £4 million; 2010: £9 million). The impact of a change in interest rates on the carrying value of fixed rate borrowings in a designated fair value hedge relationship would be offset by the change in carrying value of the related interest rate derivative. Fixed rate borrowings not in a designated hedging relationship are carried at amortised cost.
Foreign exchange rate riskcurrency exposure management
Translation exposures arise on the earnings and net assets of business operations in countries with currencies other than sterling, most particularly in respectthose of the US businesses. Theseeach parent company. Some of these exposures are hedged, to a significant extent,offset by a policy of denominating borrowings in currencies where significant translationUS dollars. Currency exposures exist, most notably US dollars (see note 25)on transactions denominated in a foreign currency are generally 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 the 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, 2014, the amount of outstanding foreign exchange cover against future transactions was £1.4 billion (2013: £1.3 billion; 2012: £1.2 billion).
A theoretical weakening of all currencies by 10% against sterling at December 31, 20122014 would decrease the carrying value of net assets, excluding net borrowings, by £495£524 million (2011: £525(2013: £500 million; 2010: £5082012: £495 million). This would be offset to a large degree by a decrease in net borrowings of £286£255 million (2011: £297(2013: £246 million; 2010: £2972012: £286 million). A strengthening of all currencies by 10% against sterling at December 31, 20122014 would increase the carrying value of net assets, excluding net borrowings, by £495£524 million (2011: £525(2013: £500 million; 2010: £5082012: £495 million) and increase net borrowings by £286£255 million (2011: £297(2013: £246 million; 2010: £2972012: £286 million).
A retranslation of the combined businesses’ net profit for the year assuming a 10% weakening of all foreign currencies against sterling but excluding transactional exposures would reduce net profit by £80 million (2011: £59(2013: £92 million; 2010: £562012: £80 million). A 10% strengthening of all foreign currencies against sterling on this basis would increase net profit for the year by £80 million (2011: £59(2013: £92 million; 2010: £562012: £80 million).
Credit risk
Reed ElsevierThe Group seeks to limit interest rate and foreign exchange risks described above by the use of financial instruments and as a result has a credit risk from the potential non performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. Reed ElsevierThe Group also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Credit risks are controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with each of them.
Reed ElsevierThe Group 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-/A3 by Standard & Poor’s, Moody’s and Fitch. At December 31, 2014, cash and cash equivalents totalled £276 million (2013: £132 million; 2012: £641 million), of which 96% (2013: 90%; 2012: 98%) was held with banks rated A-/A3 or better.
Reed ElsevierThe Group also has credit risk with respect to trade receivables due from its customers that include national and state governments, academic institutions and large and small enterprises including law firms, book stores and wholesalers. The
18. | Financial instruments – (continued) |
concentration of credit risk from trade receivables is limited due to the large and broad customer base. Trade receivable exposures are managed locally in the business units where they arise. Where appropriate, business units seek to minimise this exposure by taking payment in advance and through management of credit terms. Allowance is made for bad and doubtful debts based on management’s assessment of the risk taking into account the ageing profile, experience and circumstance. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, recorded in the statement of financial position.
Included within trade receivables are the following amounts which are past due but for which no allowance has been made. Past due up to one month £148£136 million (2011: £212(2013: £156 million; 2010: £2412012: £148 million); past due two to three months £58£66 million (2011: £54(2013: £76 million; 2010:2012: £58 million); past due four to six months £14£30 million (2011: £20(2013: £26 million; 2010: £162012: £14 million); and past due greater than six months £7 million (2013: £7 million; 2012: £1 million (2011: £5 million; 2010: £5 million.)million). Examples of trade receivables which are past due but for which no allowance has been made include those receivables where there is no concern over the creditworthiness of the customer and where the history of dealings with the customer indicate the amount will be settled.
Hedge accounting
The hedging relationships that are designated under IAS39 — Financial Instruments are described below:
Fair value hedges
Reed ElsevierThe Group has entered into interest rate swaps and cross currency interest rate swaps to hedge the exposure to changes in the fair value of fixed rate borrowings due to interest rate and foreign currency movements which could affect the income statement.
Interest rate derivatives (including cross currency interest rate swaps) with a principal amount of £1,502£908 million (2011: £1,081 million; 2010: £1,093 million). were in place at December 31, 20122014, swapping fixed rate term debt issues denominated in US dollars (USD), sterling and euros to floating rate USD, sterling and euro debt respectively for the whole or part of their term (2013: £1,104 million swapping fixed rate term debt issues denominated in USD, sterling, euros and Swiss francs (CHF) to floating rate USD, sterling, euro and USD debt respectively for the whole or part of their term; 2012: £1,502 million swapping fixed rate term debt issues denominated in sterling, euros and Swiss francs (CHF) to floating rate sterling, euroeuros and US dollar (USD) debt respectively for the whole of their term. Included within this amount are interest rate derivatives with a principal amount of £488 million (2011: nil; 2010: nil) which were de-designated as fair value hedges during the year.term).
The gains and losses on the borrowings and related derivatives designated as fair value hedges, which are included in the income statement, for the three years ended December 31, 20122014 were as follows:
Gains/(losses) on borrowings and related derivatives
January 1, 2010 £m | Fair value movement gain/(loss) £m | Exchange gain/(loss) £m | December 31, 2010 £m | January 1, 2012 £m | Fair value movement gain/(loss) £m | De-designated £m | Exchange gain/(loss) £m | December 31, 2012 £m | ||||||||||||||||||||||||||||
GBP debt | 9 | (16 | ) | — | (7 | ) | (30 | ) | (6 | ) | — | — | (36 | ) | ||||||||||||||||||||||
Related interest rate swaps | (9 | ) | 16 | — | 7 | 30 | 6 | — | — | 36 | ||||||||||||||||||||||||||
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EUR debt | (2 | ) | (10 | ) | — | (12 | ) | (9 | ) | (8 | ) | 9 | — | (8 | ) | |||||||||||||||||||||
Related interest rate swaps | 2 | 10 | — | 12 | 9 | 8 | (9 | ) | — | 8 | ||||||||||||||||||||||||||
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CHF debt | (48 | ) | (37 | ) | (1 | ) | (86 | ) | (84 | ) | — | — | 4 | (80 | ) | |||||||||||||||||||||
Related CHF to USD cross currency interest rate swaps | 48 | 37 | 1 | 86 | 84 | — | — | (4 | ) | 80 | ||||||||||||||||||||||||||
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— | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
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Total GBP, EUR and CHF debt | (41 | ) | (63 | ) | (1 | ) | (105 | ) | ||||||||||||||||||||||||||||
Total relating to GBP, EUR and CHF debt | (123 | ) | (14 | ) | 9 | 4 | (124 | ) | ||||||||||||||||||||||||||||
Total related interest rate derivatives | 41 | 63 | 1 | 105 | 123 | 14 | (9 | ) | (4 | ) | 124 | |||||||||||||||||||||||||
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Net gain | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Financial instruments – (continued) |
January 1, 2013 £m | Fair value movement gain/(loss) £m | Exchange gain/(loss) £m | December 31, 2013 £m | |||||||||||||||||||||||||||||
USD debt | — | 6 | — | 6 | ||||||||||||||||||||||||||||
Related interest rate swap | — | (6 | ) | — | (6 | ) | ||||||||||||||||||||||||||
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— | — | — | — | |||||||||||||||||||||||||||||
January 1, 2011 £m | Fair value movement gain/(loss) £m | Exchange gain/(loss) £m | December 31, 2011 £m |
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GBP debt | (7 | ) | (23 | ) | — | (30 | ) | (36 | ) | 17 | — | (19 | ) | |||||||||||||||||||
Related interest rate swaps | 7 | 23 | — | 30 | 36 | (17 | ) | — | 19 | |||||||||||||||||||||||
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— | — | — | — | — | — | — | — | |||||||||||||||||||||||||
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EUR debt | (12 | ) | 3 | — | (9 | ) | (8 | ) | 13 | (1 | ) | 4 | ||||||||||||||||||||
Related interest rate swaps | 12 | (3 | ) | — | 9 | 8 | (13 | ) | 1 | (4 | ) | |||||||||||||||||||||
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— | — | — | — | — | — | — | — | |||||||||||||||||||||||||
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CHF debt | (86 | ) | 3 | (1 | ) | (84 | ) | (80 | ) | 14 | 1 | (65 | ) | |||||||||||||||||||
Related CHF to USD cross currency interest rate swaps | 86 | (3 | ) | 1 | 84 | 80 | (14 | ) | (1 | ) | 65 | |||||||||||||||||||||
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— | — | — | — | — | — | — | — | |||||||||||||||||||||||||
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Total GBP, EUR and CHF debt | (105 | ) | (17 | ) | (1 | ) | (123 | ) | ||||||||||||||||||||||||
Total USD, GBP, EUR and CHF debt | (124 | ) | 50 | — | (74 | ) | ||||||||||||||||||||||||||
Total related interest rate derivatives | 105 | 17 | 1 | 123 | 124 | (50 | ) | — | 74 | |||||||||||||||||||||||
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Net gain | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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January 1, 2014 £m | Fair value movement gain/(loss) £m | Exchange gain/(loss) £m | December 31, 2014 £m | |||||||||||||||||||||||||||||||||
USD debt | 6 | (3 | ) | — | 3 | |||||||||||||||||||||||||||||||
Related interest rate swap | (6 | ) | 3 | — | (3 | ) | ||||||||||||||||||||||||||||||
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— | — | — | — | |||||||||||||||||||||||||||||||||
January 1, 2012 £m | Fair value movement gain/(loss) £m | De-designated £m | Exchange gain/(loss) £m | December 31, 2012 £m |
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GBP debt | (30 | ) | (6 | ) | — | — | (36 | ) | (19 | ) | (1 | ) | — | (20 | ) | |||||||||||||||||||||
Related interest rate swaps | 30 | 6 | — | — | 36 | 19 | 1 | — | 20 | |||||||||||||||||||||||||||
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— | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
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EUR debt | (9 | ) | (8 | ) | 9 | — | (8 | ) | 4 | (31 | ) | 1 | (26 | ) | ||||||||||||||||||||||
Related interest rate swaps | 9 | 8 | (9 | ) | — | 8 | (4 | ) | 31 | (1 | ) | 26 | ||||||||||||||||||||||||
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— | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
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CHF debt | (84 | ) | — | — | 4 | (80 | ) | (65 | ) | 65 | — | — | ||||||||||||||||||||||||
Related CHF to USD cross currency interest rate swaps | 84 | — | — | (4 | ) | 80 | 65 | (65 | ) | — | — | |||||||||||||||||||||||||
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— | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
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Total GBP, EUR and CHF debt | (123 | ) | (14 | ) | 9 | 4 | (124 | ) | ||||||||||||||||||||||||||||
Total USD, GBP, EUR and CHF debt | (74 | ) | 30 | 1 | (43 | ) | ||||||||||||||||||||||||||||||
Total related interest rate derivatives | 123 | 14 | (9 | ) | (4 | ) | 124 | 74 | (30 | ) | (1 | ) | 43 | |||||||||||||||||||||||
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Net gain | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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All fair value hedges were highly effective throughout the three years ended December 31, 2012.2014.
Gross borrowings as at December 31, 20122014 included £37£29 million (2011: £43(2013: £31 million; 2010: £512012: £37 million) in relation to fair value adjustments to borrowings previously designated in a fair value hedge relationship which were de-designated in 2008. The related derivatives were closed out on de-designation with a cash inflow of £62 million. £4 million (2013: £5 million; 2012: £5 million (2011: £8 million; 2010: £10 million)) of these fair value adjustments were amortised in the year as a reduction to finance costs.
Gross borrowings also included £2 million (2011: nil; 2010: nil) in relation to fair value adjustments to borrowings previously designated in a fair value hedging relationship which were de-designated during the year. £7 million (2011: nil; 2010: nil) of these fair value adjustments were amortised in the year as a reduction of finance costs. The related derivatives remained on the balance sheet at December 31, 2012 with a carrying value of £3 million.
18. | Financial instruments – (continued) |
Cash flow hedges
Reed ElsevierThe Group enters into two types of cash flow hedge:
(1) |
(2) |
Movements in the hedge reserve (pre-tax) in 2012, 20112014, 2013 and 2010,2012, including gains and losses on cash flow hedging instruments, were as follows:
Interest rate hedges £m | Foreign exchange hedges £m | Total hedge reserve pre-tax £m | ||||||||||||||||||||||
Hedge reserve at January 1, 2010: losses deferred | (38 | ) | (51 | ) | (89 | ) | ||||||||||||||||||
Losses arising in 2010 | (15 | ) | (43 | ) | (58 | ) | ||||||||||||||||||
Amounts recognised in income statement | 26 | 35 | 61 | |||||||||||||||||||||
Exchange translation differences | (2 | ) | — | (2 | ) | |||||||||||||||||||
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Hedge reserve at January 1, 2011: losses deferred | (29 | ) | (59 | ) | (88 | ) | ||||||||||||||||||
Losses arising in 2011 | (3 | ) | (21 | ) | (24 | ) | ||||||||||||||||||
Amounts recognised in income statement | 15 | 33 | 48 | |||||||||||||||||||||
Exchange translation differences | — | 1 | 1 | |||||||||||||||||||||
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| Debt hedges £m | Revenue hedges £m | Total hedge reserve pre-tax £m | |||||||||||||||||||
Hedge reserve at January 1, 2012: losses deferred | (17 | ) | (46 | ) | (63 | ) | (17 | ) | (46 | ) | (63 | ) | ||||||||||||
(Losses)/gains arising in 2012 | (2 | ) | 72 | 70 | (2 | ) | 72 | 70 | ||||||||||||||||
Amounts recognised in income statement | 16 | 10 | 26 | 16 | 10 | 26 | ||||||||||||||||||
Exchange translation differences | 1 | 1 | 2 | 1 | 1 | 2 | ||||||||||||||||||
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Hedge reserve at December 31, 2012: (losses)/gains deferred | (2 | ) | 37 | 35 | ||||||||||||||||||||
Hedge reserve at January 1, 2013: (losses)/gains deferred | (2 | ) | 37 | 35 | ||||||||||||||||||||
Gains arising in 2013 | 1 | 64 | 65 | |||||||||||||||||||||
Amounts recognised in income statement | 3 | (6 | ) | (3 | ) | |||||||||||||||||||
Exchange translation differences | — | (1 | ) | (1 | ) | |||||||||||||||||||
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Hedge reserve at January 1, 2014: gains deferred | 2 | 94 | 96 | |||||||||||||||||||||
Losses arising in 2014 | (52 | ) | (29) | (81 | ) | |||||||||||||||||||
Amounts recognised in income statement | 56 | (37) | 19 | |||||||||||||||||||||
Exchange translation differences | — | 1 | 1 | |||||||||||||||||||||
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Hedge reserve at December 31, 2014: gains deferred | 6 | 29 | 35 | |||||||||||||||||||||
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All cash flow hedges were highly effective throughout the three years ended December 31, 2012.2014.
A tax charge of £10 million (2013: £23 million; 2012: £9 million (2011: £15 million credit; 2010: £21 million credit)million) in respect of the above gains and losses at December 31, 20122014 was also deferred in the hedge reserve.
Of the amounts recognised in the income statement in the year, lossesgains of £37 million (2013: £6 million gain; 2012: £10 million (2011: £33 million; 2010: £35 million)loss) were recognised in revenue, and losses of £16£56 million (2011: £15(2013: £3 million; 2010: £262012: £16 million) were recognised in finance costs. A tax creditcharge of £9 million (2013: £1 million charge; 2012: £5 million (2011: £11 million; 2010: £15 million)credit) was recognised in relation to these items.
18. | Financial instruments – (continued) |
The deferred gains and losses on cash flow hedges at December 31, 20122014 are currently expected to be recognised in the income statement in future years as follows:
Interest rate hedges £m | Foreign exchange hedges £m | Total hedge reserve pre-tax £m | Debt hedges £m | Revenue hedges £m | Total hedge reserve pre-tax £m | |||||||||||||||||||
2013 | (2 | ) | 7 | 5 | ||||||||||||||||||||
2014 | — | 16 | 16 | |||||||||||||||||||||
2015 | — | 11 | 11 | (1) | 24 | 23 | ||||||||||||||||||
2016 | — | 3 | 3 | — | 6 | 6 | ||||||||||||||||||
2017 | — | — | — | 2 | (2 | ) | — | |||||||||||||||||
2018 | 5 | 1 | 6 | |||||||||||||||||||||
2019 | — | — | — | |||||||||||||||||||||
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(Losses)/gains deferred in hedge reserve at end of year | (2 | ) | 37 | 35 | ||||||||||||||||||||
Gains deferred in hedge reserve at end of year | 6 | 29 | 35 | |||||||||||||||||||||
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The cash flows for these hedges are expected to occur in line with the recognition of the gain and losses in the income statement, other than in respect of certain forward foreign exchange hedges on subscriptions, where cash flows may be expected to occur in advance of the subscription year.
Deferred tax |
2012 £m | 2011 £m | 2010 £m | ||||||||||
Deferred tax assets | 79 | 212 | 151 | |||||||||
Deferred tax liabilities | (919 | ) | (1,236 | ) | (1,192 | ) | ||||||
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Total | (840 | ) | (1,024 | ) | (1,041 | ) | ||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
Deferred tax assets | 464 | 442 | 79 | |||||||||
Deferred tax liabilities | (1,056 | ) | (1,076 | ) | (919 | ) | ||||||
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Total | (592 | ) | (634 | ) | (840 | ) | ||||||
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Movements in deferred tax liabilities and assets (before taking into consideration the offsetting of balances within the same jurisdiction) are summarised as follows:
Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess of tax allowances over amortisation £m | Acquired intangible assets £m | Pensions assets £m | Other temporary differences £m | Excess of amortisation over tax allowances £m | Tax losses carried forward £m | Pensions liabilities £m | Other temporary differences £m | Total £m | Excess of tax allowances over amortisation £m | Acquired intangible assets £m | Other temporary differences £m | Excess of amortisation over tax allowances £m | Tax losses carried forward £m | Pensions liabilities £m | Other temporary differences £m | Total £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax (liability)/asset at January 1, 2010 | (216 | ) | (1,007 | ) | (31 | ) | (18 | ) | 27 | 9 | 122 | 50 | (1,064 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit/(charge) to profit | 2 | 100 | (7 | ) | 1 | (14 | ) | 4 | (40 | ) | — | 46 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit/(charge) to equity | — | — | 23 | 7 | — | — | (7 | ) | 6 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers | — | — | — | — | — | — | — | (11 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | (9 | ) | — | — | — | — | — | (9 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | (9 | ) | (28 | ) | — | — | — | — | 3 | 2 | (32 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Deferred tax (liability)/asset at January 1, 2011 | (223 | ) | (944 | ) | (15 | ) | (10 | ) | 13 | 13 | 78 | 47 | (1,041 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax (liability)/asset at January 1, 2012 | (231 | ) | (900 | ) | (105 | ) | 16 | 48 | 86 | 62 | (1,024 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to profit | (6 | ) | 131 | (10 | ) | (94 | ) | 3 | 32 | (3 | ) | 24 | 77 | (5 | ) | 85 | (9 | ) | (3 | ) | (19 | ) | (32 | ) | 23 | 40 | ||||||||||||||||||||||||||||||||||||||||||
Credit/(charge) to equity | — | — | 25 | — | — | — | 11 | 6 | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers | — | — | — | — | — | — | — | (17 | ) | (17 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to equity/other comprehensive income | — | — | (3 | ) | — | — | 102 | (6 | ) | 93 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | (85 | ) | — | — | — | 2 | — | 5 | (78 | ) | 1 | (10 | ) | — | (3 | ) | (2 | ) | — | (2 | ) | (16 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Disposals/reclassified as held for sale | — | — | — | 1 | — | — | — | (1 | ) | — | 2 | 18 | 7 | — | (1 | ) | — | (1 | ) | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | (2 | ) | (2 | ) | — | (2 | ) | — | 1 | — | (2 | ) | (7 | ) | 10 | 35 | 2 | (1 | ) | (3 | ) | (3 | ) | 2 | 42 | |||||||||||||||||||||||||||||||||||||||||||
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Deferred tax (liability)/asset at January 1, 2012 | (231 | ) | (900 | ) | — | (105 | ) | 16 | 48 | 86 | 62 | (1,024 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax (liability)/asset at January 1, 2013 | (223 | ) | (772 | ) | (108 | ) | 9 | 23 | 153 | 78 | (840 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to profit | (5 | ) | 85 | — | (9 | ) | (3 | ) | (19 | ) | (32 | ) | 23 | 40 | (138 | ) | 98 | (106 | ) | 346 | (8 | ) | (26 | ) | 105 | 271 | ||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to equity | — | — | — | (3 | ) | — | — | 102 | (6 | ) | 93 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to equity/other comprehensive income | — | — | (6 | ) | — | — | (24 | ) | 12 | (18 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | 1 | (10 | ) | — | — | (3 | ) | (2 | ) | — | (2 | ) | (16 | ) | — | (39 | ) | — | — | — | — | — | (39 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Disposals/reclassified as held for sale | 2 | 18 | — | 7 | — | (1 | ) | — | (1 | ) | 25 | (3 | ) | (18 | ) | (9 | ) | — | — | — | — | (30 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | 10 | 35 | — | 2 | (1 | ) | (3 | ) | (3 | ) | 2 | 42 | 13 | 13 | 4 | (6 | ) | (1 | ) | 1 | (2 | ) | 22 | |||||||||||||||||||||||||||||||||||||||||||||
Deferred tax (liability)/asset at December 31, 2012 | (223 | ) | (772 | ) | — | (108 | ) | 9 | 23 | 153 | 78 | (840 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Deferred tax (liability)/asset at January 1, 2014 | (351 | ) | (718 | ) | (225 | ) | 349 | 14 | 104 | 193 | (634 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit/(charge) to profit | 11 | 71 | (18 | ) | (4 | ) | 5 | (6 | ) | 29 | 88 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Charge)/credit to equity/other comprehensive income | — | — | (8 | ) | — | — | 63 | 15 | 70 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | (53 | ) | — | — | 17 | — | — | (36 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals/reclassified as held for sale | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | (21 | ) | (34 | ) | 10 | (22 | ) | — | — | (13 | ) | (80 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Deferred tax (liability)/asset at December 31, 2014 | (361 | ) | (734 | ) | (241 | ) | 323 | 36 | 161 | 224 | (592 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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19. | Deferred tax – (continued) |
Other deferred tax liabilities includes temporary differences in respect of plant, property and equipment, capitalised development spend and capitalized development spend.financial instruments. Other deferred tax assets includes temporary differences in respect of share-basedshare based remuneration, provisions and financial instruments.
Deferred tax assets in respect of tax losses and other deductible temporary differences have only been recognizedrecognised to the extent that it is more likely than not that sufficient taxable profits will be available to allow the asset to be recovered. Accordingly, no deferred tax asset has been recognizedrecognised in respect of unused trading losses of approximately £129£80 million (2011: £133 million, 2010: £147(2013: £84 million; 2012: £129 million) carried forward at the year end. The deferred tax asset not recognizedrecognised in respect of these losses is approximately £34£19 million (2011: £36 million, 2010: £41(2013: £20 million; 2012: £34 million). Of these unrecognizedthe unrecognised losses, £47£49 million (2011: £45(2013: £56 million; 2010: £452012: £47 million) will expire if not utilizedutilised within 10 years, and £82£31 million (2011: £88(2013: £28 million; 2010: £1022012: £82 million) will expire after more than 10 years.
Deferred tax assets of approximately £9£13 million (2011: £31(2013: £14 million; 2010: £172012: £9 million) have not been recognizedrecognised in respect of tax losses and other temporary differences carried forward of £41£65 million (2011: £94(2013: £69 million; 2010: £632012: £41 million) which can only be used to offset future capital gains.
Inventories and pre-publication costs |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Raw materials | 3 | 6 | 6 | 2 | 3 | 3 | ||||||||||||||||||
Pre-publication costs | 101 | 115 | 130 | 92 | 90 | 101 | ||||||||||||||||||
Finished goods | 55 | 69 | 92 | 48 | 49 | 55 | ||||||||||||||||||
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| |||||||||||||||||||
Total | 159 | 190 | 228 | 142 | 142 | 159 | ||||||||||||||||||
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|
Trade and other receivables |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Trade receivables | 1,256 | 1,361 | 1,361 | 1,361 | 1,299 | 1,256 | ||||||||||||||||||
Allowance for doubtful debts | (51 | ) | (63 | ) | (73 | ) | (50 | ) | (57 | ) | (51 | ) | ||||||||||||
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| |||||||||||||||||||
1,205 | 1,298 | 1,288 | 1,311 | 1,242 | 1,205 | |||||||||||||||||||
Prepayments and accrued income | 175 | 185 | 187 | 176 | 174 | 175 | ||||||||||||||||||
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|
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| |||||||||||||||||||
Total | 1,380 | 1,483 | 1,475 | 1,487 | 1,416 | 1,380 | ||||||||||||||||||
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|
|
Trade receivables are predominantly non-interest bearing and their carrying amounts approximate to their fair value.
Trade receivables are stated net of allowances for bad and doubtful debts. The movements in the provision during the year were as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
At January 1 | 63 | 73 | 80 | 57 | 51 | 63 | ||||||||||||||||||
Charge for the year | 13 | 15 | 15 | 8 | 17 | 13 | ||||||||||||||||||
Trade receivables written off | (18 | ) | (23 | ) | (22 | ) | (14 | ) | (11 | ) | (18 | ) | ||||||||||||
Disposals | (6 | ) | (1 | ) | — | — | — | (6 | ) | |||||||||||||||
Exchange translation differences | (1 | ) | (1 | ) | — | (1 | ) | — | (1 | ) | ||||||||||||||
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| |||||||||||||||||||
At December 31 | 51 | 63 | 73 | 50 | 57 | 51 | ||||||||||||||||||
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|
Assets and liabilities held for sale |
The major classes of assets and liabilities of operations classified as held for sale are as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Goodwill | 134 | 19 | — | — | 16 | 134 | ||||||||||||||||||
Intangible assets | 84 | 7 | — | — | — | 84 | ||||||||||||||||||
Property, plant and equipment | 3 | — | — | — | — | 3 | ||||||||||||||||||
Deferred tax assets | 4 | 1 | — | — | — | 4 | ||||||||||||||||||
Inventories | 1 | 1 | — | — | — | 1 | ||||||||||||||||||
Trade and other receivables | 71 | 16 | — | — | 5 | 71 | ||||||||||||||||||
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Total assets held for sale | 297 | 44 | — | — | 21 | 297 | ||||||||||||||||||
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Trade and other payables | 69 | 17 | — | 2 | 3 | 69 | ||||||||||||||||||
Deferred tax liabilities | 27 | — | — | — | — | 27 | ||||||||||||||||||
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Total liabilities associated with assets held for sale | 96 | 17 | — | 2 | 3 | 96 | ||||||||||||||||||
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|
Trade and other payables |
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Payables and accruals | 1,150 | 1,245 | 1,276 | |||||||||||||||||||||
Payables | 333 | 330 | 303 | |||||||||||||||||||||
Accruals | 462 | 443 | 420 | |||||||||||||||||||||
Social security and other taxes | 88 | 88 | 85 | |||||||||||||||||||||
Other payables | 300 | 331 | 342 | |||||||||||||||||||||
Deferred income | 1,394 | 1,412 | 1,308 | 1,453 | 1,403 | 1,394 | ||||||||||||||||||
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| |||||||||||||||||||
Total | 2,544 | 2,657 | 2,584 | 2,636 | 2,595 | 2,544 | ||||||||||||||||||
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Trade and other payables are predominately non-interest bearing and their carrying amounts approximate to their fair value.
Borrowings |
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | Falling due within 1 year £m | Falling due in more than 1 year £m | Total £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities measured at amortised cost: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short term bank loans, overdrafts and commercial paper | 131 | — | 131 | 596 | — | 596 | 379 | — | 379 | 548 | — | 548 | 287 | — | 287 | 131 | — | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term debt | — | 1,823 | 1,823 | �� | — | 1,223 | 1,223 | — | 1,526 | 1,526 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Finance leases | 7 | 9 | 16 | 2 | 6 | 8 | 7 | 15 | 22 | 7 | 5 | 12 | 9 | 8 | 17 | 7 | 9 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans | — | 1,526 | 1,526 | 384 | 1,466 | 1,850 | 130 | 1,944 | 2,074 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans in fair value hedging relationships | 102 | 1,036 | 1,138 | — | 1,204 | 1,204 | — | 1,198 | 1,198 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans previously in fair value hedging relationships | 490 | 591 | 1,081 | — | 624 | 624 | — | 629 | 629 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term debt in fair value hedging relationships | — | 951 | 951 | 240 | 938 | 1,178 | 102 | 1,036 | 1,138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term debt previously in fair value hedging relationships | 121 | 370 | 491 | 112 | 464 | 576 | 490 | 591 | 1,081 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 730 | 3,162 | 3,892 | 982 | 3,300 | 4,282 | 516 | 3,786 | 4,302 | 676 | 3,149 | 3,825 | 648 | 2,633 | 3,281 | 730 | 3,162 | 3,892 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The total fair value of financial liabilities measured at amortised cost is £2,597 million (2013: £1,709 million; 2012: £1,996 million). The total fair value of term debt in fair value hedging relationships is £1,045 million (2013: £1,288 million; 2012: £1,177 million). The total fair value of term debt previously in fair value hedging relationships is £588 million (2013: £650 million; 2012: £1,189 million).
24. | Borrowings – (continued) |
In 2012, £1842013, £186 million principal amount of term debt maturing in 2014 and 2019 was exchanged for £191£235 million principal amount of term debt maturing in 2022 and cash payments of £46 million.cash. The exchange is treated as a debt modification for accounting purposes. The premium arising of £53 million is offset against the carrying amount of the newly issued term debt maturing in 2022 and will be amortised over its life.
The total fair value of financial liabilities measured at amortised cost is £1,996 million (2011: £2,745 million; 2010 £2,796 million). The total fair value of other loans in fair value hedging relationships is £1,177 million (2011: £1,237 million; 2010: £1,279 million). The total fair value of other loans previously in fair value hedging relationships is £1,189 million (2011: £707 million; 2010: £685 million).
Other loans includeTerm debt includes term debt issued by Reed Elsevier Capital Inc., a 100% owned finance subsidiary of Reed ElsevierRELX Group plc. The parent companies have fully and unconditionally guaranteed these securities. No other subsidiary of the parent companies Reed Elsevieror RELX Group plc or Elsevier Reed Finance BV guarantees the securities.
Analysis by year of repayment
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 1 year | 131 | 592 | 7 | 730 | 596 | 384 | 2 | 982 | 379 | 130 | 7 | 516 | 548 | 121 | 7 | 676 | 287 | 352 | 9 | 648 | 131 | 592 | 7 | 730 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Within 1 to 2 years | — | 644 | 6 | 650 | — | 618 | 3 | 621 | — | 382 | 7 | 389 | — | 400 | 4 | 404 | — | 174 | 5 | 179 | — | 644 | 6 | 650 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 2 to 3 years | — | 178 | 3 | 181 | — | 725 | 2 | 727 | — | 636 | 8 | 644 | — | 615 | 1 | 616 | — | 400 | 3 | 403 | — | 178 | 3 | 181 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 3 to 4 years | — | 400 | — | 400 | — | 188 | 1 | 189 | — | 825 | — | 825 | — | 242 | — | 242 | — | 341 | — | 341 | — | 400 | — | 400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Within 4 to 5 years | — | 359 | — | 359 | — | 401 | — | 401 | — | 188 | — | 188 | — | 553 | — | 553 | — | 181 | — | 181 | — | 359 | — | 359 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
After 5 years | — | 1,572 | — | 1,572 | — | 1,362 | — | 1,362 | — | 1,740 | — | 1,740 | — | 1,334 | — | 1,334 | — | 1,529 | — | 1,529 | — | 1,572 | — | 1,572 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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— | 3,153 | 9 | 3,162 | — | 3,294 | 6 | 3,300 | — | 3,771 | 15 | 3,786 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
After 1 year | — | 3,144 | 5 | 3,149 | — | 2,625 | 8 | 2,633 | — | 3,153 | 9 | 3,162 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 131 | 3,745 | 16 | 3,892 | 596 | 3,678 | 8 | 4,282 | 379 | 3,901 | 22 | 4,302 | 548 | 3,265 | 12 | 3,825 | 287 | 2,977 | 17 | 3,281 | 131 | 3,745 | 16 | 3,892 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Short term bank loans, overdrafts and commercial paper were backed up at December 31, 20122014 by a $2,000 million (£1,2311,284 million) committed bank facility maturing in June 2015,July 2019, which was undrawn.
Analysis by currency
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Other loans £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | Short term bank loans, overdrafts and commercial paper £m | Term debt £m | Finance leases £m | Total £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US Dollars | 25 | 2,059 | 16 | 2,100 | 485 | 2,431 | 8 | 2,924 | 225 | 2,566 | 22 | 2,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£ Sterling | — | 736 | — | 736 | — | 730 | — | 730 | — | 707 | — | 707 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US dollars | 254 | 1,788 | 12 | 2,054 | 87 | 1,800 | 17 | 1,904 | 25 | 2,059 | 16 | 2,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£ sterling | 69 | 1,020 | — | 1,089 | 27 | 719 | — | 746 | — | 736 | — | 736 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Euro | 103 | 950 | — | 1,053 | 91 | 517 | — | 608 | 123 | 628 | — | 751 | 224 | 457 | — | 681 | 167 | 458 | — | 625 | 103 | 950 | — | 1,053 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other currencies | 3 | — | — | 3 | 20 | — | — | 20 | 31 | — | — | 31 | 1 | — | — | 1 | 6 | — | — | 6 | 3 | — | — | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 131 | 3,745 | 16 | 3,892 | 596 | 3,678 | 8 | 4,282 | 379 | 3,901 | 22 | 4,302 | 548 | 3,265 | 12 | 3,825 | 287 | 2,977 | 17 | 3,281 | 131 | 3,745 | 16 | 3,892 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Included in the US dollar amounts for other loansterm debt above is £347£449 million (2011: £363(2013: £427 million; 2010: £3642012: £347 million) of debt denominated in euros (€350 million; 2013: nil; 2012: nil) and Swiss francs (CHF 500275 million; 2011:2013: CHF 500625 million; 2010:2012: CHF 500 million) that was swapped into US dollars on issuance and against which there are related derivative financial instruments, which, as at December 31, 2012,2014, had a fair value of £80£40 million (2011: £84(2013: £81 million; 2010: £862012: £80 million).
Lease arrangements |
Finance leases
At December 31, 20122014 future finance lease obligations fall due as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Within one year | 7 | 2 | 8 | 7 | 9 | 7 | ||||||||||||||||||
In the second to fifth years inclusive | 9 | 6 | 17 | 5 | 8 | 9 | ||||||||||||||||||
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16 | 8 | 25 | 12 | 17 | 16 | |||||||||||||||||||
Less future finance charges | — | — | (3 | ) | — | — | — | |||||||||||||||||
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Total | 16 | 8 | 22 | 12 | 17 | 16 | ||||||||||||||||||
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Present value of future finance lease obligations payable: | ||||||||||||||||||||||||
Within one year | 7 | 2 | 7 | 7 | 9 | 7 | ||||||||||||||||||
In the second to fifth years inclusive | 9 | 6 | 15 | 5 | 8 | 9 | ||||||||||||||||||
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Total | 16 | 8 | 22 | 12 | 17 | 16 | ||||||||||||||||||
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The fair value of the lease obligations approximates to their carrying amount.
Operating leases
Reed ElsevierThe Group leases various properties, principally offices and warehouses, which have varying terms and renewal rights that are typical to the territory in which they are located.
At December 31, 20122014 outstanding commitments under non-cancellable operating leases fall due as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Within one year | 117 | 129 | 128 | 96 | 103 | 117 | ||||||||||||||||||
In the second to fifth years inclusive | 309 | 305 | 306 | 279 | 275 | 309 | ||||||||||||||||||
After five years | 184 | 206 | 208 | 148 | 169 | 184 | ||||||||||||||||||
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Total | 610 | 640 | 642 | 523 | 547 | 610 | ||||||||||||||||||
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Of the above outstanding commitments, £577£509 million (2011: £605(2013: £528 million; 2010: £6092012: £577 million) relate to land and buildings.
Reed ElsevierThe Group has a number of properties that are sub leased.sub-leased. The future lease receivables contracted with sub-tenants fall due as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Within one year | 16 | 21 | 17 | 15 | 16 | 16 | ||||||||||||||||||
In the second to fifth years inclusive | 33 | 38 | 25 | 46 | 43 | 33 | ||||||||||||||||||
After five years | 17 | 19 | 5 | 21 | 25 | 17 | ||||||||||||||||||
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Total | 66 | 78 | 47 | 82 | 84 | 66 | ||||||||||||||||||
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Provisions |
2012 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||
Property £m | Restructuring £m | Total £m | Property £m | Restructuring £m | Total £m | Property £m | Restructuring £m | Total £m | ||||||||||||||||||||||||||||
At January 1 | 109 | 17 | 126 | 105 | 54 | 159 | 89 | 106 | 195 | |||||||||||||||||||||||||||
Transfer | 22 | — | 22 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Charged | 62 | — | 62 | 16 | — | 16 | 36 | 31 | 67 | |||||||||||||||||||||||||||
Utilised | (24 | ) | (12 | ) | (36 | ) | (12 | ) | (37 | ) | (49 | ) | (22 | ) | (82 | ) | (104 | ) | ||||||||||||||||||
Exchange translation differences | (5 | ) | — | (5 | ) | — | — | — | 2 | (1 | ) | 1 | ||||||||||||||||||||||||
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At December 31 | 164 | 5 | 169 | 109 | 17 | 126 | 105 | 54 | 159 | |||||||||||||||||||||||||||
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2014 | 2013 | 2012 | ||||||||||
£m | £m | £m | ||||||||||
At January 1 | 133 | 169 | 126 | |||||||||
Transfer | — | — | 22 | |||||||||
Charged | — | — | 62 | |||||||||
Utilised | (16 | ) | (35 | ) | (36 | ) | ||||||
Exchange translation differences | 6 | (1 | ) | (5 | ) | |||||||
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At December 31 | 123 | 133 | 169 | |||||||||
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Property provisionsProvisions principally relate to estimated sub leaseleasehold properties, including sub-lease shortfalls and guarantees given in respect of certain property leases for various periods up to 2024. The charge in 2012 of £62 million (2011: £16 million; 2010: 36 million) predominantly relates to property exposures on disposed businesses.
Provisions as atAt December 31, 20122014, provisions are included within current and non-current liabilities as follows:
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Current liabilities | 30 | 39 | 71 | 19 | 17 | 30 | ||||||||||||||||||
Non-current liabilities | 139 | 87 | 88 | 104 | 116 | 139 | ||||||||||||||||||
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Total | 169 | 126 | 159 | 123 | 133 | 169 | ||||||||||||||||||
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There are contingent liabilities amounting to £11 million (2011: £15 million; 2010: £18 million) in respect of property lease guarantees.
Combined share capitals, share premiums and shares held in treasury |
2012 £m | 2011 £m | 2010 £m | ||||||||||
At January 1 | 223 | 224 | 225 | |||||||||
Issue of ordinary shares | 1 | — | — | |||||||||
Exchange translation differences | (1 | ) | (1 | ) | (1 | ) | ||||||
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At December 31 | 223 | 223 | 224 | |||||||||
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Combined share capitals exclude the shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
Disclosures in respect of share capital are given in note 1312 to the Reed Elsevier PLC consolidated financial statements and note 1413 to the Reed Elsevier NV consolidated financial statements.
2012 £m | 2011 £m | 2010 £m | ||||||||||
At January 1 | 2,723 | 2,754 | 2,807 | |||||||||
Issue of ordinary shares, net of expenses | 47 | 9 | 11 | |||||||||
Exchange translation differences | (43 | ) | (40 | ) | (64 | ) | ||||||
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At December 31 | 2,727 | 2,723 | 2,754 | |||||||||
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Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
Shares held by EBT £m | Shares held by parent companies £m | Total £m | ||||||||||
At January 1, 2010 | 175 | 523 | 698 | |||||||||
Settlement of share awards | (9 | ) | — | (9 | ) | |||||||
Exchange translation differences | — | (12 | ) | (12 | ) | |||||||
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At January 1, 2011 | 166 | 511 | 677 | |||||||||
Settlement of share awards | (7 | ) | — | (7 | ) | |||||||
Exchange translation differences | — | (7 | ) | (7 | ) | |||||||
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At January 1, 2012 | 159 | 504 | 663 | |||||||||
Repurchase of ordinary shares | — | 250 | 250 | |||||||||
Settlement of share awards | (7 | ) | — | (7 | ) | |||||||
Exchange translation differences | — | (7 | ) | (7 | ) | |||||||
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At December 31, 2012 | 152 | 747 | 899 | |||||||||
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At December 31, 2012 shares held in treasury related to 13,451,468 (2011: 14,051,025; 2010: 14,654,161)During the year, Reed Elsevier PLC repurchased 35.2 million Reed Elsevier PLC ordinary shares and 6,990,101 (2011: 7,380,906; 2010: 7,781,790) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”); and 57,484,915 (2011: 34,196,298; 2010: 34,196,298) Reed Elsevier PLC ordinary shares and 36,613,087 (2011: 23,952,791; 2010: 23,952,791) Reed Elsevier NV ordinary shares held by the respective parent companies.
During 2012 Reed Elsevier repurchased 23,288,616 Reed Elsevier PLC ordinary shares and 12,660,29620.4 million Reed Elsevier NV ordinary shares for consideration of £250£600 million. On December 28, 2012These shares are held in treasury. In addition, Reed Elsevier NV repurchased 107,901 R shares. During the year 65 million Reed Elsevier PLC and 40 million Reed Elsevier NV announced an irrevocable, non discretionary programme to repurchase further ordinary shares up to the value of £100 million which was completedheld in February 2013.treasury were cancelled.
The EBTEmployee Benefit Trust (EBT) purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options and to meet commitments under conditional share awards. During the year the EBT purchased 0.8 million Reed Elsevier PLC shares and 2.0 million Reed Elsevier NV shares for a total cost of £39 million (2013: nil; 2012: nil). At 31 December 2014, shares held by the EBT were £117 million (2013: £112 million; 2012: £152 million) at cost.
Details of the shares held in treasury are provided in note 12 of the Reed Elsevier PLC consolidated financial statements and note 13 of the Reed Elsevier NV consolidated financial statements.
2012 £m | 2011 £m | 2010 £m | ||||||||||
At January 1 | 88 | 29 | (100 | ) | ||||||||
Exchange differences on translation of foreign operations | (136 | ) | 32 | 94 | ||||||||
Exchange translation differences on capital and reserves | 25 | 27 | 35 | |||||||||
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At December 31 | (23 | ) | 88 | 29 | ||||||||
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Other combined reserves |
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||
Hedge reserve £m | Other reserves £m | Total £m | Total £m | Total £m | Hedge reserve £m | Other reserves £m | Total £m | Total £m | Total £m | |||||||||||||||||||||||||||||||
At January 1 | (48 | ) | (151 | ) | (199 | ) | (387 | ) | (502 | ) | 73 | 807 | 880 | 252 | (199 | ) | ||||||||||||||||||||||||
Profit attributable to parent companies’ shareholders | — | 1,069 | 1,069 | 760 | 642 | — | 955 | 955 | 1,110 | 1,044 | ||||||||||||||||||||||||||||||
Dividends paid | — | (521 | ) | (521 | ) | (497 | ) | (483 | ) | — | (565 | ) | (565 | ) | (549 | ) | (521 | ) | ||||||||||||||||||||||
Actuarial losses on defined benefit pension schemes | — | (329 | ) | (329 | ) | (113 | ) | (63 | ) | |||||||||||||||||||||||||||||||
Fair value movements on available for sale investments | — | — | — | (1 | ) | — | ||||||||||||||||||||||||||||||||||
Transfer to net profit on disposals of available for sale investments | — | 11 | 11 | — | — | |||||||||||||||||||||||||||||||||||
Actuarial (losses)/gains on defined benefit pension schemes | — | (266 | ) | (266 | ) | 40 | (293 | ) | ||||||||||||||||||||||||||||||||
Transfer to net profit on disposal of available for sale investments | — | — | — | — | 11 | |||||||||||||||||||||||||||||||||||
Fair value movements on cash flow hedges | 70 | — | 70 | (24 | ) | (58 | ) | (81 | ) | — | (81 | ) | 65 | 70 | ||||||||||||||||||||||||||
Tax recognised directly in equity | (19 | ) | 107 | 88 | 42 | 29 | ||||||||||||||||||||||||||||||||||
Increase/(decrease) in share based remuneration reserve | — | 31 | 31 | 27 | (7 | ) | ||||||||||||||||||||||||||||||||||
Transfer to net profit from cash flow hedge reserve | 19 | — | 19 | (3 | ) | 26 | ||||||||||||||||||||||||||||||||||
Tax recognised in other comprehensive income | 13 | 63 | 76 | (38 | ) | 72 | ||||||||||||||||||||||||||||||||||
Increase in share based remuneration reserve (net of tax) | — | 48 | 48 | 48 | 31 | |||||||||||||||||||||||||||||||||||
Cancellation of shares | — | (919 | ) | (919 | ) | — | — | |||||||||||||||||||||||||||||||||
Settlement of share awards | — | (7 | ) | (7 | ) | (7 | ) | (9 | ) | — | (27 | ) | (27 | ) | (40 | ) | (7 | ) | ||||||||||||||||||||||
Transfer from cash flow hedge reserve to net profit (net of tax) | 21 | — | 21 | 37 | 46 | |||||||||||||||||||||||||||||||||||
Disposal/(acquisition) of non-controlling interest | — | 6 | 6 | (43 | ) | — | ||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | — | (13 | ) | (13 | ) | — | 6 | |||||||||||||||||||||||||||||||||
Exchange translation differences | 2 | 10 | 12 | 7 | 18 | 1 | (1 | ) | — | (5 | ) | 12 | ||||||||||||||||||||||||||||
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At December 31 | 26 | 226 | 252 | (199 | ) | (387 | ) | 25 | 82 | 107 | 880 | 252 | ||||||||||||||||||||||||||||
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Other reserves principally comprise retained earnings and the share based remuneration reserve and available for sale investment reserve.
Related party transactions |
Transactions between the Reed Elsevier combined businesses have been eliminated within the combined financial statements. Transactions with joint ventures were made on normal market terms of trading and comprise sales of goods and services of £1 million (2011:nil (2013: £1 million; 2010:2012: £1 million).
As at December 31, 20122014 amounts owed by joint ventures were £1 million (2011: £3(2013: £7 million; 2010: £22012: £1 million) and amounts due fromto joint ventures were £6 million (2013: £6 million; 2012: £1 million (2011: nil; 2010: nil)million).
Key management personnel remuneration is set out below. Key Management personnel are also related parties as defined by IAS 24 — Related Party Disclosures and comprise the executive directorsExecutive and Non-Executive Directors of Reed Elsevier PLC and Reed Elsevier NV. Transactions with key managementFor reporting purposes, salary, benefits and annual incentive payments are considered short term employee benefits.
Key Management personnel are set out below:remuneration
2012 £m | 2011 £m | 2010 £m | ||||||||||
Salaries and other short term employee benefits | 4 | 3 | 5 | |||||||||
Post employment benefits | — | — | 1 | |||||||||
Share based remuneration | 5 | 4 | (1 | ) | ||||||||
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Total | 9 | 7 | 5 | |||||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
Salaries and other short term employee benefits and Non-Executive fees | 5 | 4 | 5 | |||||||||
Post employment benefits* | 1 | 1 | 1 | |||||||||
Share based remuneration** | 5 | 4 | 5 | |||||||||
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Total | 11 | 9 | 11 | |||||||||
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* | Post employment benefits comprises the transfer value of the increase in accrued pension during the year (net of inflation, Directors’ contributions and participation fee) for defined benefit schemes and payments made to defined contribution schemes or in lieu of pension. |
** | The share based remuneration charge comprises the multi-year incentive scheme charges in accordance with IFRS2 — Share Based Payment. These IFRS 2 charges do not reflect the actual value received on vesting. |
Termination benefits of £238,023 were paid to directors during 2014 (2013: nil; 2012: nil) further details are shown on page 46. No loans, advances or guarantees have been provided on behalf of any Director. The aggregate gain made by Executive Directors on the exercise of options during 2014 were £1,101,114 (2013: £2,526,305). The current Executive Directors did not exercise any options during 2012.
Approval of financial statements |
The combined financial statements were approved by the Boards of directors of Reed Elsevier PLC and Reed Elsevier NV on February 27, 2013.25, 2015.
THIS PAGE INTENTIONALLY BLANK
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and members of Reed Elsevier PLC:
We have audited the accompanying consolidated statements of financial position of Reed Elsevier PLC and its subsidiaries (the “Company”) as at December 31, 2012, 20112014, 2013 and 2010,2012, and the related consolidated income statements, and consolidated statements of comprehensive income, cash flows and changes in equity for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Reed Elsevier PLC and its subsidiaries as at December 31, 2012, 20112014, 2013 and 2010,2012, and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 201325, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE LLP
London, United Kingdom
February 27, 201325, 2015
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Administrative expenses | 3 | (2 | ) | (2 | ) | (2 | ) | 3 | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||
Effect of tax credit equalisation on distributed earnings | 4 | (14 | ) | (13 | ) | (13 | ) | 4 | (15 | ) | (15 | ) | (14 | ) | ||||||||||||||||||
Share of results of joint ventures | 12 | 561 | 404 | 342 | 11 | 495 | 583 | 547 | ||||||||||||||||||||||||
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Operating profit | 545 | 389 | 327 | 478 | 566 | 531 | ||||||||||||||||||||||||||
Finance income | 7 | 1 | 1 | 1 | 6 | 15 | 10 | 1 | ||||||||||||||||||||||||
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Profit before tax | 546 | 390 | 328 | 493 | 576 | 532 | ||||||||||||||||||||||||||
Taxation | 8 | 6 | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
Tax (expense)/credit | 7 | (3 | ) | (4 | ) | 6 | ||||||||||||||||||||||||||
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Profit attributable to ordinary shareholders | 552 | 389 | 327 | 490 | 572 | 538 | ||||||||||||||||||||||||||
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REED ELSEVIER PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 20122014
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||
Profit attributable to ordinary shareholders | 552 | 389 | 327 | 490 | 572 | 538 | ||||||||||||||||||||
Share of joint ventures’ other comprehensive (expense)/income for the year | (146 | ) | (14 | ) | 25 | |||||||||||||||||||||
Share of joint ventures’ other comprehensive loss for the year | (61 | ) | (13 | ) | (132 | ) | ||||||||||||||||||||
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Total comprehensive income for the year | 406 | 375 | 352 | 429 | 559 | 406 | ||||||||||||||||||||
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Note | pence | pence | pence | |||||||||||||
Earnings per ordinary share (“EPS”) | ||||||||||||||||
Basic earnings per share | ||||||||||||||||
Diluted earnings per share |
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||
Cash used by operations | 11 | (2 | ) | (2 | ) | (2 | ) | 10 | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||
Interest received | 1 | 1 | 1 | 15 | 10 | 1 | ||||||||||||||||||||||||||
Tax paid | (2 | ) | (1 | ) | (3 | ) | (4 | ) | (3 | ) | (2 | ) | ||||||||||||||||||||
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Net cash used in operating activities | (3 | ) | (2 | ) | (4 | ) | ||||||||||||||||||||||||||
Net cash from/(used in) operating activities | 9 | 5 | (3 | ) | ||||||||||||||||||||||||||||
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Cash flows from investing activities | ||||||||||||||||||||||||||||||||
Dividends received from joint ventures | 12 | 694 | 600 | 589 | 11 | 618 | 102 | 694 | ||||||||||||||||||||||||
Increase in investment in joint ventures | 12 | — | — | (596 | ) | |||||||||||||||||||||||||||
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Net cash received from/(used in) investing activities | 694 | 600 | (7 | ) | ||||||||||||||||||||||||||||
Net cash received from investing activities | 618 | 102 | 694 | |||||||||||||||||||||||||||||
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Cash flows from financing activities | ||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | (264 | ) | (248 | ) | (245 | ) | 8 | (285 | ) | (278 | ) | (264 | ) | ||||||||||||||||||
Repurchase of ordinary shares | (143 | ) | — | — | (333 | ) | (326 | ) | (143 | ) | ||||||||||||||||||||||
Proceeds on issue of ordinary shares | 33 | 8 | 9 | 18 | 50 | 33 | ||||||||||||||||||||||||||
(Increase)/decrease in net funding balances due from joint ventures | 11 | (317 | ) | (358 | ) | 247 | 10 | (27 | ) | 447 | �� | (317 | ) | |||||||||||||||||||
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Net cash (used in)/from financing activities | (691 | ) | (598 | ) | 11 | |||||||||||||||||||||||||||
Net cash used in financing activities | (627 | ) | (107 | ) | (691 | ) | ||||||||||||||||||||||||||
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Movement in cash and cash equivalents | — | — | — | — | — | — | ||||||||||||||||||||||||||
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REED ELSEVIER PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 20122014
Note | 2012 £m | 2011 £m | 2010 £m | Note | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||||||
Investments in joint ventures | 12 | 1,207 | 1,158 | 1,037 | 11 | 1,117 | 1,266 | 1,207 | ||||||||||||||||||||||||
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Total assets | 1,207 | 1,158 | 1,037 | 1,117 | 1,266 | 1,207 | ||||||||||||||||||||||||||
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Current liabilities | ||||||||||||||||||||||||||||||||
Taxation | 1 | 9 | 9 | 1 | 2 | 1 | ||||||||||||||||||||||||||
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Total liabilities | 1 | 9 | 9 | 1 | 2 | 1 | ||||||||||||||||||||||||||
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Net assets | 1,206 | 1,149 | 1,028 | 1,116 | 1,264 | 1,206 | ||||||||||||||||||||||||||
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Capital and reserves | ||||||||||||||||||||||||||||||||
Called up share capital | 13 | 181 | 180 | 180 | 12 | 174 | 182 | 181 | ||||||||||||||||||||||||
Share premium account | 14 | 1,208 | 1,176 | 1,168 | 1,274 | 1,257 | 1,208 | |||||||||||||||||||||||||
Shares held in treasury (including in joint ventures) | 15 | (447 | ) | (308 | ) | (312 | ) | (593 | ) | (752 | ) | (447 | ) | |||||||||||||||||||
Capital redemption reserve | 16 | 4 | 4 | 4 | 13 | 4 | 4 | |||||||||||||||||||||||||
Translation reserve | 17 | 87 | 159 | 142 | 112 | 40 | 87 | |||||||||||||||||||||||||
Other reserves | 18 | 173 | (62 | ) | (154 | ) | 13 | 136 | 533 | 173 | ||||||||||||||||||||||
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Total equity | 1,206 | 1,149 | 1,028 | 1,116 | 1,264 | 1,206 | ||||||||||||||||||||||||||
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REED ELSEVIER PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | Share capital £m | Share premium £m | Shares held in treasury £m | Capital redemption reserve £m | Translation reserve £m | Other reserves £m | Total equity £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | 182 | 1,257 | (752 | ) | 4 | 40 | 533 | 1,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 72 | 357 | 429 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 8 | — | — | — | — | — | (285) | (285 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 17 | — | — | — | — | 18 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | — | — | (350 | ) | — | — | — | (350 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of shares | (9 | ) | — | 495 | 9 | — | (495 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve (net of tax) | — | — | — | — | — | 25 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 14 | — | — | (14 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ acquisition of non controlling interest | — | — | — | — | — | (7 | ) | (7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | — | 22 | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2014 | 174 | 1,274 | (593 | ) | 13 | 112 | 136 | 1,116 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at January 1, 2013 | 181 | 1,208 | (447 | ) | 4 | 87 | 173 | 1,206 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | (47 | ) | 606 | 559 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 8 | — | — | — | — | — | (278) | (278 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 49 | — | — | — | — | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | — | — | (326 | ) | — | — | — | (326 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve (net of tax) | — | — | — | — | — | 25 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 21 | — | — | (21 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | — | 28 | 28 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2013 | 182 | 1,257 | (752 | ) | 4 | 40 | 533 | 1,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital £m | Share premium £m | Shares held in treasury £m | Capital redemption reserve £m | Translation reserve £m | Other reserves £m | Total equity £m |
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Balance at January 1, 2012 | 180 | 1,176 | (308 | ) | 4 | 159 | (62 | ) | 1,149 | 180 | 1,176 | (308 | ) | 4 | 159 | (62 | ) | 1,149 | ||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | (72 | ) | 478 | 406 | — | — | — | — | (72 | ) | 478 | 406 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | — | (264 | ) | (264 | ) | 8 | — | — | — | — | — | (264 | ) | (264 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 32 | — | — | — | — | 33 | 1 | 32 | — | — | — | — | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | — | — | (143 | ) | — | — | — | (143 | ) | — | — | (143 | ) | — | — | — | (143 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve | — | — | — | — | — | 16 | 16 | — | — | — | — | — | 16 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 4 | — | — | (4 | ) | — | — | — | 4 | — | — | (4 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint venture’s disposal of non-controlling interests | — | — | — | — | — | 3 | 3 | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | — | 6 | 6 | — | — | — | — | — | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2012 | 181 | 1,208 | (447 | ) | 4 | 87 | 173 | 1,206 | 181 | 1,208 | (447 | ) | 4 | 87 | 173 | 1,206 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at January 1, 2011 | 180 | 1,168 | (312 | ) | 4 | 142 | (154 | ) | 1,028 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 17 | 358 | 375 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | — | (248 | ) | (248 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 8 | — | — | — | — | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve | — | — | — | — | — | 14 | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 4 | — | — | (4 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint venture’s acquisitions of non-controlling interests | — | — | — | — | — | (23 | ) | (23 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | — | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2011 | 180 | 1,176 | (308 | ) | 4 | 159 | (62 | ) | 1,149 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at January 1, 2010 | 180 | 1,159 | (317 | ) | 4 | 92 | (202 | ) | 916 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | — | 50 | 302 | 352 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | — | (245 | ) | (245 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 9 | — | — | — | — | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve | — | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 5 | — | — | (5 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 | 180 | 1,168 | (312 | ) | 4 | 142 | (154 | ) | 1,028 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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REED ELSEVIER PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of financial statements |
On January 1, 1993As a consequence of the merger of their respective businesses, Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. During 2014, Reed Elsevier Group plc, which owns alla company incorporated in England, owned the publishing and information businesses, is incorporated in England and Elsevier Reed Finance BV, which ownsa company incorporated in the Netherlands, owned the financing and treasury companies, is incorporated in the Netherlands.companies. Reed Elsevier PLC and Reed Elsevier NV each holdheld a 50% interest in Reed Elsevier Group plc. Until the end of 2014, Reed Elsevier PLC holdsheld a 39% interest in Elsevier Reed Finance BV withand Reed Elsevier NV holdingheld a 61% interest. Reed Elsevier PLC additionally holds an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV 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.
Under theThe equalisation arrangements Reed Elsevier PLC shareholders have a 52.9% economic interest in the Reed Elsevier combined businesses and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% interest. Holders of ordinary shares inagreement between Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividendhas the effect that their shareholders can be regarded as having the interests of a single economic group. For 2014 the Group combined financial statements (“the combined financial Statements”) represent the combined interests of both sets of shareholders and capital rightsencompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their subsidiaries, associates and joint ventures, together with respectthe two parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).
The combined financial statements on pages F-3 to F-51 form an integral part of the notes to Reed Elsevier PLC’s consolidated financial statements. The combined financial statements (“the combined financial statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their ordinary shares.subsidiaries, associates and joint ventures, together with the two parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).
2. | Accounting policies |
Basis of preparation
These consolidated financial statements, which have been prepared under the historichistorical cost convention, report the consolidated statements of income, comprehensive income, cash flow, and financial position and changes in equity of Reed Elsevier PLC (incorporated and domiciled in the United Kingdom), and have been 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 IFRS as adopted by the European Union.
Unless otherwise indicated, all amounts shown in the financial statements are in pounds sterling (“£”).
The basiscombined financial statements presented in pounds sterling on pages F-3 to F-51 form an integral part of the mergernotes to Reed Elsevier PLC’s statutory financial statements. The accounting policies adopted in the preparation of the businesses of Reed Elsevier PLC and Reed Elsevier NV iscombined financial statements are set out on page 11.pages F-53 to F-65.
Determination of profit
The Reed Elsevier PLC share of the Reed Elsevier combined results has been calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC shareholders in the Reed Elsevier combined businesses, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level inclusive of the UK tax credit received byavailable to certain Reed Elsevier PLC shareholders. In Reed Elsevier PLC’s consolidated financial statements, an adjustment is required to equalise the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement. This equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the consolidated attributable earnings by 47.1% of the total amount of the tax credit.
The accounting policies adopted in the preparation of the combined financial statements are set out on pages F-10 to F-17.
Investments
Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses has been shown on the statement of financial position as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier PLC and its subsidiaries. Investments in joint ventures are accounted for using the equity method.
2. | Accounting policies – (continued) |
Foreign exchange translation
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the statement of financial position date. Exchange differences arising are recorded in the income statement. The exchange gains or losses relating to the retranslation of Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses are classified as equity and transferred to the translation reserve.
When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
Taxation
TheTax expense comprises current and deferred tax. Current and deferred tax expense representsare charged or credited in the sum ofincome statement except to the extent that the tax payable on the current year taxable profits, adjustments in respect of prior year taxable profits and the movements on deferred tax that arearises from a transaction or event which is recognised, in the same or a different period, outside profit or loss (either in other comprehensive income, statement. Tax arisingdirectly in joint ventures is includedequity, or through a business combination) in which case the tax appears in the sharesame statement as the transaction that gave rise to it.
Current tax is the amount of results of joint ventures.
The taxcorporate income taxes payable or recoverable based on current yearthe profit for the period as adjusted for items that are not taxable profitsor not deductible, and is calculated using the applicable tax raterates and laws that has beenwere enacted or substantively enacted byat the date of the statement of financial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences arising between the tax arising on differences between the carrying amountsbases of assets and liabilities and their carrying amounts in the statement of financial statementsposition. Deferred tax is calculated using tax rates and their correspondinglaws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax bases used inasset is realised or the computation of taxable profit, anddeferred tax liability is accounted for using the balance sheet liability method. settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and deferredjoint ventures where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent that, based on current forecasts, it is probable that taxable profits will be available against which the deductible temporary differences can be utilised.utilised, and reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not recognised on temporary differences arising in respect of goodwill that is not deductible for tax purposes.
Deferred tax is calculated using tax rates that have been substantively enacted at the date of the statement of financial position. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. Deferred tax credits in respect of share based remuneration are recognised in equity to the extent that expected tax deductions exceed the related expense.discounted.
Critical judgements and key sources of estimation uncertainty
Critical judgments in the preparation of the combined financial statements are set out on pages F-14 to F-16.F-15.
Standards and amendments effective for the year
The interpretations and amendments to IFRS effective for 2014 have not had a significant impact on Reed Elsevier PLC’s policies or reporting.
Standards, amendments and interpretations not yet effective
Recently issued standards, amendments and interpretations and their impact on future accounting policies and reporting have been considered on pages F16 to F17page F-16 of the combined financial statements.
3. | Administrative expenses |
Administrative expenses include £877,000 (2011: £799,000; 2010: £742,000)£1,371,000 (2013: £972,000; 2012: £877,000) paid in the year to Reed Elsevier Group plc under a contract for the services of directorsDirectors and administrative support. Reed Elsevier PLC has no employees (2011:(2013: nil; 2010:2012: nil).
4. | Effect of tax credit equalisation on distributed earnings |
The tax credit equalisation adjustment arises on ordinary dividends paid by Reed Elsevier PLC to its shareholders and reduces the consolidated profit attributable to ordinary shareholders by 47.1% of the total amount of the tax credit, as set out in the accounting policies in note 2.
5. |
Audit fees payable by Reed Elsevier PLC were £28,000 (2011: £28,000; 2010: £27,000). Further information on the audit and non audit fees paid by the Reed Elsevier combined businesses to Deloitte LLP and its associates is set out in note 5 to the combined financial statements.
Related party transactions |
All transactions with joint ventures, which are related parties of Reed Elsevier PLC, are reflected in these financial statements. Key management personnel are also related parties and comprise the executive directorsExecutive Directors of Reed Elsevier PLC. Transactions with key management personnel are set out in note 343 and in note 29 to the combined financial statements.
Finance income |
2012 £m | 2011 £m | 2010 £m | ||||||||||
Finance income from joint ventures | 1 | 1 | 1 | |||||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
Finance income from joint ventures | 15 | 10 | 1 | |||||||||
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Taxation |
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
UK corporation tax (credit)/expense |
| (6 | ) | 1 | 1 | |||||||||||||||||||
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A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below. | ||||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
Profit before tax |
| 546 | 390 | 328 | ||||||||||||||||||||
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Tax at applicable rate 24.5% (2011: 26.5%; 2010: 28.0%) |
| 134 | 103 | 92 | ||||||||||||||||||||
Tax at applicable rate on share of results of joint ventures |
| (137 | ) | (107 | ) | (96 | ) | |||||||||||||||||
Other |
| (3 | ) | 5 | 5 | |||||||||||||||||||
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Tax (credit)/expense |
| (6 | ) | 1 | 1 | |||||||||||||||||||
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9. Equity dividends |
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Ordinary dividends declared in the year | 2012 pence | 2011 pence | 2010 pence | 2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Final for prior financial year | 15.9p | 15.0p | 15.0p | 191 | 180 | 180 | ||||||||||||||||||
Interim for financial year | 6.0p | 5.65p | 5.4p | 73 | 68 | 65 | ||||||||||||||||||
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Total | 21.9p | 20.65p | 20.4p | 264 | 248 | 245 | ||||||||||||||||||
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The directors of Reed Elsevier PLC have proposed a final dividend of 17.0p (2011: 15.9p; 2010: 15.0p). The cost of funding the proposed final dividend is expected to be £202 million. No liability has been recognised at the statement of financial position date.
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Ordinary dividends paid and proposed relating to the financial year | 2012 pence | 2011 pence | 2010 pence | |||||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Interim (paid) |
| 6.0p | 5.65p | 5.4p | ||||||||||||||||||||
Final (proposed) |
| 17.0p | 15.9p | 15.0p | ||||||||||||||||||||
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Total |
| 23.0p | 21.55p | 20.4p | ||||||||||||||||||||
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10. Earnings per ordinary share (“EPS”) |
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2012 | ||||||||||||||||||||||||
Weighted average number of shares (millions) | Earnings £m | EPS pence | ||||||||||||||||||||||
Basic EPS |
| 1,200.6 | 552 | 46.0p | ||||||||||||||||||||
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Diluted EPS |
| 1,215.1 | 552 | 45.4p | ||||||||||||||||||||
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2011 | ||||||||||||||||||||||||
Weighted average number of shares (millions) | Earnings £m | EPS pence | ||||||||||||||||||||||
Basic EPS |
| 1,202.0 | 389 | 32.4p | ||||||||||||||||||||
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Diluted EPS |
| 1,211.7 | 389 | 32.1p | ||||||||||||||||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
UK corporation tax (expense)/credit | (3 | ) | (4 | ) | 6 | |||||||
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A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below. |
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2014 £m | 2013 £m | 2012 £m | ||||||||||
Profit before tax | 493 | 576 | 532 | |||||||||
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Tax at applicable rate 21.5% (2013: 23.25%; 2012: 24.5%) | (106 | ) | (134 | ) | (131 | ) | ||||||
Tax at applicable rate on share of results of joint ventures | 103 | 136 | 134 | |||||||||
Other | — | (6 | ) | 3 | ||||||||
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Tax (expense)/credit | (3 | ) | (4 | ) | 6 | |||||||
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8. | Equity dividends |
Ordinary dividends declared and paid in the year | 2014 pence | 2013 pence | 2012 pence | 2014 £m | 2013 £m | 2012 £m | ||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Final for prior financial year | 17.95p | 17.00p | 15.90p | 205 | 200 | 191 | ||||||||||||||||||
Interim for financial year | 7.00p | 6.65p | 6.00p | 80 | 78 | 73 | ||||||||||||||||||
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Total | 24.95p | 23.65p | 21.90p | 285 | 278 | 264 | ||||||||||||||||||
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The directors of Reed Elsevier PLC have proposed a final dividend of 19.0p (2013: 17.95p; 2012: 17.0p). The cost of funding the proposed final dividend is expected to be £214 million. No liability has been recognised at the statement of financial position date.
Ordinary dividends paid and proposed relating to the financial year | 2014 pence | 2013 pence | 2012 pence | |||||||||||||||
Ordinary shares | ||||||||||||||||||
Interim (paid) | 7.00p | 6.65p | 6.00p | |||||||||||||||
Final (proposed) | 19.00p | 17.95p | 17.00p | |||||||||||||||
Total | 26.00p | 24.60p | 23.00p | |||||||||||||||
Earnings per ordinary share (“EPS”) |
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Weighted average number of shares (millions) | Earnings £m | EPS pence | Weighted average number of shares (millions) | Earnings £m | EPS pence | |||||||||||||||||||
Basic EPS | 1,199.1 | 327 | 27.3p | 1,140.2 | 490 | 43.0p | ||||||||||||||||||
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Diluted EPS | 1,205.1 | 327 | 27.1p | 1,152.7 | 490 | 42.5p | ||||||||||||||||||
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2013 | ||||||||||||||||||||||||
Weighted average number of shares (millions) | Earnings £m | EPS pence | ||||||||||||||||||||||
Basic EPS | 1,172.2 | 572 | 48.8p | |||||||||||||||||||||
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Diluted EPS | 1,187.2 | 572 | 48.2p | |||||||||||||||||||||
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2012 | ||||||||||||||||||||||||
Weighted average number of shares (millions) | Earnings £m | EPS pence | ||||||||||||||||||||||
Basic EPS | 1,200.6 | 538 | 44.8p | |||||||||||||||||||||
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Diluted EPS | 1,215.1 | 538 | 44.3p | |||||||||||||||||||||
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The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares.
The weighted average number of shares is after deducting shares held in treasury. Movements in the number of shares in issue net of treasury shares for the year ended December 31, 20122014 are shown below.in note 12.
Year Ended December 31, | ||||||||||||||||||||
Shares in issue (millions) | Treasury shares (millions) | 2012 Shares in issue net of treasury shares (millions) | 2011 Shares in issue net of treasury shares (millions) | 2010 Shares in issue net of treasury shares (millions) | ||||||||||||||||
Number of ordinary shares | ||||||||||||||||||||
At January 1 | 1,250.9 | (48.3 | ) | 1,202.6 | 1,200.4 | 1,197.7 | ||||||||||||||
Issue of ordinary shares | 6.7 | — | 6.7 | 1.6 | 2.0 | |||||||||||||||
Repurchase of ordinary shares | — | (23.3 | ) | (23.3 | ) | — | — | |||||||||||||
Net release of shares by the employee benefit trust | — | 0.6 | 0.6 | 0.6 | 0.7 | |||||||||||||||
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At December 31 | 1,257.6 | (71.0 | ) | 1,186.6 | 1,202.6 | 1200.4 | ||||||||||||||
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Weighted average number of equivalent ordinary shares during the year | 1,200.6 | 1,202.0 | 1,199.1 | |||||||||||||||||
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The weighted average number of shares used in the diluted EPS calculations above is after deducting shares held in treasury and is derived as follows:
2012 (millions) | 2011 (millions) | 2010 (millions) | ||||||||||
Weighted average number of shares — Basic | 1,200.6 | 1,202.0 | 1,199.1 | |||||||||
Weighted average number of dilutive shares under option | 14.5 | 9.7 | 6.0 | |||||||||
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Weighted average number of shares — Diluted | 1,215.1 | 1,211.7 | 1,205.1 | |||||||||
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11. Statement of cash flows
Reconciliation of profit before tax to cash used by operations
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2012 £m | 2011 £m | 2010 £m | ||||||||||
Profit before tax | 546 | 390 | 328 | |||||||||
Effect of tax credit equalisation on distributed earnings | 14 | 13 | 13 | |||||||||
Net finance income | (1 | ) | (1 | ) | (1 | ) | ||||||
Share of results of joint ventures | (561 | ) | (404 | ) | (342 | ) | ||||||
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Cash used by operations | (2 | ) | (2 | ) | (2 | ) | ||||||
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2014 (millions) | 2013 (millions) | 2012 (millions) | ||||||||||
Weighted average number of shares — Basic | 1,140.2 | 1,172.2 | 1,200.6 | |||||||||
Weighted average number of dilutive shares under option | 12.5 | 15.0 | 14.5 | |||||||||
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Weighted average number of shares — Diluted | 1,152.7 | 1,187.2 | 1,215.1 | |||||||||
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Statement of cash flows |
Reconciliation of profit before tax to cash used by operations
2014 £m | 2013 £m | 2012 £m | ||||||||||
Profit before tax | 493 | 576 | 532 | |||||||||
Effect of tax credit equalisation on distributed earnings | 15 | 15 | 14 | |||||||||
Net finance income | (15 | ) | (10 | ) | (1 | ) | ||||||
Share of results of joint ventures | (495 | ) | (583 | ) | (547 | ) | ||||||
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Cash used by operations | (2 | ) | (2 | ) | (2 | ) | ||||||
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Reconciliation of net funding balances due from joint ventures
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At January 1 |
| 632 | 274 | 521 | ||||||||||||||||||||
Cash flow |
| 317 | 358 | (247 | ) | |||||||||||||||||||
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At December 31 |
| 949 | 632 | 274 | ||||||||||||||||||||
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12. Investments in joint ventures |
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Share of results of joint ventures |
| 561 | 404 | 342 | ||||||||||||||||||||
Share of joint ventures’: | ||||||||||||||||||||||||
Other comprehensive (expense)/income |
| (146 | ) | (14 | ) | 25 | ||||||||||||||||||
Disposal/(acquisition) of non-controlling interests |
| 3 | (23 | ) | — | |||||||||||||||||||
Increase/(decrease) in share based remuneration reserve |
| 16 | 14 | (4 | ) | |||||||||||||||||||
Equalisation adjustments |
| (8 | ) | (18 | ) | (13 | ) | |||||||||||||||||
Dividends received from joint ventures |
| (694 | ) | (600 | ) | (589 | ) | |||||||||||||||||
Increase in investment in joint ventures |
| — | — | 596 | ||||||||||||||||||||
Increase/(decrease) in net funding balances due from joint ventures |
| 317 | 358 | (247 | ) | |||||||||||||||||||
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Net movement in the year |
| 49 | 121 | 110 | ||||||||||||||||||||
At January 1 |
| 1,158 | 1,037 | 927 | ||||||||||||||||||||
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At December 31 |
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During the year the company received dividends of £394 million from Elsevier Reed Finance BV and £300 million from Reed Elsevier Group plc.
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier PLC shareholders’ 52.9% share is set out below. |
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Total joint ventures | Reed Elsevier PLC shareholders’ share | |||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | 2012 £m | 2011 £m | 2010 £m | |||||||||||||||||||
Revenue | 6,116 | 6,002 | 6,055 | 3,235 | 3,175 | 3,203 | ||||||||||||||||||
Net profit for the year | 1,074 | 767 | 648 | 561 | 404 | 342 | ||||||||||||||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
At January 1 | 502 | 949 | 632 | |||||||||
Cash flow | 27 | (447 | ) | 317 | ||||||||
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At December 31 | 529 | 502 | 949 | |||||||||
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Investments in joint ventures |
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Share of results of joint ventures | 495 | 583 | 547 | |||||||||
Share of joint ventures’: | ||||||||||||
Other comprehensive loss | (61 | ) | (13 | ) | (132 | ) | ||||||
(Acquisition)/disposal of non-controlling interests | (7 | ) | — | 3 | ||||||||
Increase in share based remuneration reserve (net of tax) | 25 | 25 | 16 | |||||||||
Share of joint ventures purchase of treasury shares by employee benefit trust | (17 | ) | — | — | ||||||||
Equalisation adjustments | 7 | 13 | (8 | ) | ||||||||
Dividends received from joint ventures | (618 | ) | (102 | ) | (694 | ) | ||||||
Increase/(decrease) in net funding balances due from joint ventures | 27 | (447 | ) | 317 | ||||||||
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Net movement in the year | (149 | ) | 59 | 49 | ||||||||
At January 1 | 1,266 | 1,207 | 1,158 | |||||||||
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At December 31 | 1,117 | 1,266 | 1,207 | |||||||||
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During the year Reed Elsevier PLC received dividends of £118 million (2013: £102 million; 2012: £394 million) from Elsevier Reed Finance BV and £500 million from RELX Group plc (2013: nil; 2012: £300 million).
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier PLC shareholders’ share is set out below.
Total joint ventures | Reed Elsevier PLC shareholders’ share | |||||||||||||||||||||||
2014 £m | 2013 £m | 2012 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Revenue | 5,773 | 6,035 | 6,116 | 3,054 | 3,193 | 3,235 | ||||||||||||||||||
Net profit for the year | 960 | 1,115 | 1,049 | 495 | 583 | 547 | ||||||||||||||||||
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Reed Elsevier PLC’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net profit that arose directly in Reed Elsevier PLC of £5£10 million (2011: £2 million loss; 2010: £2(2013: £4 million; 2012: £5 million loss).
Reed Elsevier PLC’s other comprehensive income includes a loss of £61 million (2013: £13 million; 2012: £132 million) relating to joint ventures.
Total joint ventures | Reed Elsevier PLC shareholders’ share | |||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | 2012 £m | 2011 £m | 2010 £m | |||||||||||||||||||
Total assets | 11,014 | 11,503 | 11,158 | 5,826 | 6,085 | 5,903 | ||||||||||||||||||
Total liabilities | (8,700 | ) | (9,306 | ) | (9,188 | ) | (5,568 | ) | (5,559 | ) | (5,140 | ) | ||||||||||||
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| |||||||||||||
Net assets | 2,314 | 2,197 | 1,970 | 258 | 526 | 763 | ||||||||||||||||||
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| |||||||||||||
Attributable to: | ||||||||||||||||||||||||
Joint ventures | 2,280 | 2,172 | 1,943 | 258 | 526 | 763 | ||||||||||||||||||
Non-controlling interests | 34 | 25 | 27 | — | — | — | ||||||||||||||||||
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| |||||||||||||
2,314 | 2,197 | 1,970 | 258 | 526 | 763 | |||||||||||||||||||
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| |||||||||||||||||||
Funding balances due from joint ventures | 949 | 632 | 274 | |||||||||||||||||||||
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| |||||||||||||||||||
Total | 1,207 | 1,158 | 1,037 | |||||||||||||||||||||
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Total joint ventures | Reed Elsevier PLC shareholders’ share | |||||||||||||||||||||||
2014 £m | 2013 £m | 2012 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
Total assets | 11,087 | 10,495 | 11,014 | 5,876 | 5,552 | 5,826 | ||||||||||||||||||
Total liabilities | (8,950 | ) | (8,072 | ) | (8,700 | ) | (5,288 | ) | (4,788 | ) | (5,568 | ) | ||||||||||||
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| |||||||||||||
Net assets | 2,137 | 2,423 | 2,314 | 588 | 764 | 258 | ||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||
Joint ventures | 2,106 | 2,390 | 2,280 | 588 | 764 | 258 | ||||||||||||||||||
Non-controlling interests | 31 | 33 | 34 | — | — | — | ||||||||||||||||||
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| |||||||||||||
2,137 | 2,423 | 2,314 | 588 | 764 | 258 | |||||||||||||||||||
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| |||||||||||||||||||
Funding balances due from joint ventures | 529 | 502 | 949 | |||||||||||||||||||||
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| |||||||||||||||||||
Total | 1,117 | 1,266 | 1,207 | |||||||||||||||||||||
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F-63
10. | Statement of cash flows – (continued) |
11. | Investments in joint ventures – (continued) |
The above amounts for Reed Elsevier PLC’s shareholders’ share of total assets and total liabilities exclude assets and liabilities held directly by Reed Elsevier PLC, andbut include the counterparty balances of amounts owed to and by other Reed ElsevierGroup businesses. Included within Reed Elsevier PLC’s share of assets and liabilities are cash and cash equivalents of £339£146 million (2011: £384(2013: £70 million; 2010: £3932012: £339 million) and borrowings of £2,059£2,027 million (2011: £2,265(2013: £1,736 million; 2010: £2,2762012: £2,059 million) respectively.
Share capital |
No. of shares | £m | |||||||
Authorised | ||||||||
Ordinary shares of 14 51/116p each | 1,257,597,977 | 181 | ||||||
Unclassified shares of 14 51/116p each | 787,158,643 | 113 | ||||||
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| |||||||
Total | 294 | |||||||
|
|
All of the ordinary shares rank equally with respect to voting rights and rights to receive dividends. There are no restrictions on the rights to transfer shares.
Called up share capital — issued and fully paid
2012 | 2011 | 2010 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||
No. of shares | £m | No. of shares | £m | No. of shares | £m | No. of shares | £m | No. of shares | £m | No. of shares | £m | |||||||||||||||||||||||||||||||||||||
At January 1 | 1,250,913,565 | 180 | 1,249,286,224 | 180 | 1,247,275,833 | 180 | 1,267,036,696 | 182 | 1,257,597,977 | 181 | 1,250,913,565 | 180 | ||||||||||||||||||||||||||||||||||||
Issue of ordinary shares | 6,684,412 | 1 | 1,627,341 | — | 2,010,391 | — | 3,360,624 | 1 | 9,438,719 | 1 | 6,684,412 | 1 | ||||||||||||||||||||||||||||||||||||
Shares cancelled | (65,000,000 | ) | (9 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
At December 31 | 1,257,597,977 | 181 | 1,250,913,565 | 180 | 1,249,286,224 | 180 | 1,205,397,320 | 174 | 1,267,036,696 | 182 | 1,257,597,977 | 181 | ||||||||||||||||||||||||||||||||||||
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The issue of ordinary shares relates to the exercise of share options. Details of share option and conditional share schemes are set out in note 87 to the Reed Elsevier combined financial statements.
Details
Year Ended December 31, | ||||||||||||||||||||
Shares in issue (millions) | Treasury shares (millions) | 2014 Shares in issue net of treasury shares (millions) | 2013 Shares in issue net of treasury shares (millions) | 2012 Shares in issue net of treasury shares (millions) | ||||||||||||||||
Number of ordinary shares | ||||||||||||||||||||
At January 1 | 1,267.0 | (109.6 | ) | 1,157.4 | 1,186.6 | 1,202.6 | ||||||||||||||
Issue of ordinary shares | 3.4 | — | �� | 3.4 | 9.4 | 6.7 | ||||||||||||||
Repurchase of ordinary shares | — | (35.2 | ) | (35.2 | ) | (41.9 | ) | (23.3 | ) | |||||||||||
Net release of shares by the employee benefit trust | — | 2.1 | 2.1 | 3.3 | 0.6 | |||||||||||||||
Shares cancelled | (65.0 | ) | 65.0 | — | — | — | ||||||||||||||
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| |||||||||||
At December 31 | 1,205.4 | (77.7 | ) | 1,127.7 | 1,157.4 | 1,186.6 | ||||||||||||||
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| |||||||||||
Weighted average number of equivalent ordinary shares during the year | 1,140.2 | 1,172.2 | 1,200.6 | |||||||||||||||||
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|
All of the ordinary shares rank equally with respect to voting rights and rights to receive dividends, except for shares held in treasury by the parent company, which do not attract voting or dividend rights. The Employee Benefit Trust (EBT) has waived the right to receive dividends on Reed Elsevier PLC shares. There are providedno restrictions on the rights to transfer shares.
At December 31, 2014, shares held in note 15.treasury related to 8,032,643 (2013: 10,120,537; 2012: 13,451,468) Reed Elsevier PLC ordinary shares held by the EBT; and 69,698,335 (2013: 99,446,834; 2012: 57,484,914) Reed Elsevier PLC ordinary shares held by the parent company. The EBT purchases Reed Elsevier PLC shares which, at the Trustees’ discretion, can be used in respect of the exercise of share options and to meet commitments under conditional shares awards. At December 31, 2014, Reed Elsevier PLC shares held by the EBT were £54 million (2013: £64 million; 2012: £84 million) at cost. During December 2014, 65,000,000 Reed Elsevier PLC ordinary shares held in treasury were cancelled.
2012 £m | 2011 £m | 2010 £m | 2014 £m | 2013 £m | 2012 £m | |||||||||||||||||||
At January 1 | 1,176 | 1,168 | 1,159 | 533 | 173 | (62 | ) | |||||||||||||||||
Issue of ordinary shares, net of expenses | 32 | 8 | 9 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
At December 31 | 1,208 | 1,176 | 1,168 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
15. Shares held in treasury
| ||||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
At January 1 | 308 | 312 | 317 | |||||||||||||||||||||
Repurchase of ordinary shares | 143 | — | — | |||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | (4 | ) | (4 | ) | (5 | ) | ||||||||||||||||||
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|
| ||||||||||||||||||||||
At December 31 | 447 | 308 | 312 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
At December 31, 2012, shares held in treasury related to 13,451,468 (2011: 14,051,025, 2010: 14,654,161) Reed Elsevier PLC ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”); and 57,484,915 (2011: 34,196,298, 2010: 34,196,298) Reed Elsevier PLC ordinary shares held by the parent company.
The EBT purchases Reed Elsevier PLC shares which, at the Trustees’ discretion, can be used in respect of the exercise of share options and to meet commitments under conditional shares awards. At December 31, 2012, Reed Elsevier PLC shares held by the EBT were £84 million (2011: £88 million; 2010: £92 million).
16. Capital redemption reserve
|
| |||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
At January 1 and December 31 | 4 | 4 | 4 | |||||||||||||||||||||
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| ||||||||||||||||||||||
17. Translation reserve
| ||||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
At January 1 | 159 | 142 | 92 | |||||||||||||||||||||
Share of joint ventures’ exchange differences on translation of foreign operations | (72 | ) | 17 | 50 | ||||||||||||||||||||
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| ||||||||||||||||||||||
At December 31 | 87 | 159 | 142 | |||||||||||||||||||||
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| ||||||||||||||||||||||
18. Other reserves
| ||||||||||||||||||||||||
2012 £m | 2011 £m | 2010 £m | ||||||||||||||||||||||
At January 1 | (62 | ) | (154 | ) | (202 | ) | ||||||||||||||||||
Profit attributable to ordinary shareholders | 552 | 389 | 327 | 490 | 572 | 538 | ||||||||||||||||||
Cancellation of shares | (495 | ) | — | — | ||||||||||||||||||||
Share of joint ventures’: | ||||||||||||||||||||||||
Actuarial losses on defined benefit pension schemes | (174 | ) | (60 | ) | (33 | ) | ||||||||||||||||||
Fair value movements on available for sale investments | — | (1 | ) | — | ||||||||||||||||||||
Transfer to net profit on disposals of available for sale investments | 6 | — | — | |||||||||||||||||||||
Actuarial (losses)/gains on defined benefit pension schemes | (140 | ) | 21 | (155 | ) | |||||||||||||||||||
Transfer to net profit on disposal of available for sale investments | — | — | 6 | |||||||||||||||||||||
Fair value movements on cash flow hedges | 37 | (12 | ) | (31 | ) | (43 | ) | 34 | 37 | |||||||||||||||
Tax recognised directly in equity | 46 | 22 | 15 | |||||||||||||||||||||
Increase/(decrease) in share based remuneration reserve | 16 | 14 | (4 | ) | ||||||||||||||||||||
Transfer to net profit from cash flow hedge reserve | 10 | (2 | ) | 14 | ||||||||||||||||||||
Tax recognised in other comprehensive income | 40 | (19 | ) | 38 | ||||||||||||||||||||
Increase in share based remuneration reserve (net of tax) | 25 | 25 | 16 | |||||||||||||||||||||
Settlement of share awards | (4 | ) | (4 | ) | (5 | ) | (14 | ) | (21 | ) | (4 | ) | ||||||||||||
Transfer to net profit from cash flow hedge reserve | 11 | 20 | 24 | |||||||||||||||||||||
Disposal/(acquisition) of non-controlling interest | 3 | (23 | ) | — | ||||||||||||||||||||
(Acquisition)/disposal of non-controlling interest | (7 | ) | — | 3 | ||||||||||||||||||||
Equalisation adjustments | 6 | (5 | ) | — | 22 | 28 | 6 | |||||||||||||||||
Equity dividends paid | (264 | ) | (248 | ) | (245 | ) | (285 | ) | (278 | ) | (264 | ) | ||||||||||||
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| |||||||||||||||||||
At December 31 | 173 | (62 | ) | (154 | ) | 136 | 533 | 173 | ||||||||||||||||
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Contingent liabilities |
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier PLC as follows:
2012 £m | 2011 £m | 2010 £m | ||||||||||
Guaranteed jointly and severally with Reed Elsevier NV | 3,595 | 3,920 | 3,924 | |||||||||
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2014 £m | 2013 £m | 2012 £m | ||||||||||
Guaranteed jointly and severally with Reed Elsevier NV | 3,607 | 3,063 | 3,595 | |||||||||
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Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 1918 to the Reed Elsevier combined financial statements.
Events after the balance sheet data |
Effective February 25, 2015, Reed Elsevier PLC transferred its direct ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. Simultaneously, Reed Elsevier NV transferred its direct ownership interest in Elsevier Reed Finance BV to Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. This newly-combined single group entity was named RELX Group plc. The R shares and E shares of RELX Group plc held by Reed Elsevier PLC and Reed Elsevier NV respectively were converted into non-voting shares.
Reed Elsevier PLC has retained its 52.9% economic interest in the combined businesses, and no gain or loss was recorded on the transaction. As Reed Elsevier PLC and Reed Elsevier NV each hold 50% of the voting shares in issue, joint control of RELX Group plc is retained and their respective interests will continue to be accounted for under the equity method, as described in the accounting policies on page F-59.
Subsequently, Reed Elsevier PLC transferred non-interest bearing, payable-on-demand receivables of £475 million to RELX Group plc for consideration of 2 ordinary non-voting R shares. As these R shares do not have voting rights, this transaction did not impact the joint-control of RELX Group plc.
16. | Approval of financial statements |
The consolidated financial statements were approved by the Board of directors on February 27, 2013.25, 2015.
THIS PAGE INTENTIONALLY BLANK
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the membersBoard of the SupervisoryDirectors and Executive Boards and the shareholders of Reed Elsevier NV:
We have audited the accompanying consolidated statements of financial position of Reed Elsevier NV and its subsidiaries (the “Company”) as at December 31, 2012, 20112014, 2013 and 2010,2012, and the related consolidated income statements, and consolidated statements of comprehensive income, cash flows and changes in equity for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Reed Elsevier NV and its subsidiaries as at December 31, 2012, 20112014, 2013 and 2010,2012, and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as at December 31, 2012,2014, based on the criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 201325, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE ACCOUNTANTS B.V.LLP
Amsterdam, The NetherlandsLondon, United Kingdom
February 27, 201325, 2015
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 €m | 2011 €m | 2010 €m | Note | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||||||||
Administrative expenses | 4 | (2 | ) | (2 | ) | (2 | ) | 4 | (3 | ) | (2 | ) | (2 | ) | ||||||||||||||||||
Share of results of joint ventures | 12 | 654 | 420 | 367 | 11 | 575 | 642 | 638 | ||||||||||||||||||||||||
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Operating profit | 652 | 418 | 365 | 572 | 640 | 636 | ||||||||||||||||||||||||||
Finance income | 7 | 8 | 20 | 14 | 6 | 25 | 19 | 8 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit before tax | 660 | 438 | 379 | 597 | 659 | 644 | ||||||||||||||||||||||||||
Taxation | 8 | (2 | ) | (1 | ) | (3 | ) | |||||||||||||||||||||||||
Tax expense | 7 | (5 | ) | (4 | ) | (2 | ) | |||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit attributable to shareholders | 658 | 437 | 376 | 592 | 655 | 642 | ||||||||||||||||||||||||||
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|
REED ELSEVIER NV
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 20122014
2012 €m | 2011 €m | 2010 €m | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||
Profit attributable to shareholders | 658 | 437 | 376 | 592 | 655 | 642 | ||||||||||||||||||
Share of joint ventures’ other comprehensive (expense)/income for the year | (137 | ) | 20 | 71 | ||||||||||||||||||||
Share of joint ventures’ other comprehensive income/(loss) for the year | 29 | (48 | ) | (121 | ) | |||||||||||||||||||
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| |||||||||||||||||||
Total comprehensive income for the year | 521 | 457 | 447 | 621 | 607 | 521 | ||||||||||||||||||
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Note | 2012 | 2011 | 2010 | Note | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||||||||
Earnings per share (“EPS”) | ||||||||||||||||||||||||||||||||
Basic earnings per share | 10 | € | 0.90 | € | 0.59 | € | 0.51 | 9 | € | 0.85 | € | 0.91 | € | 0.87 | ||||||||||||||||||
Diluted earnings per share | 10 | € | 0.89 | € | 0.59 | € | 0.51 | 9 | € | 0.84 | € | 0.90 | € | 0.87 |
REED ELSEVIER NV
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | 2012 €m | 2011 €m | 2010 €m | Note | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||
Cash used by operations | 11 | (5 | ) | (3 | ) | (1 | ) | 10 | (3 | ) | (3 | ) | (5 | ) | ||||||||||||||||||
Interest received | 6 | 20 | 14 | 26 | 19 | 6 | ||||||||||||||||||||||||||
Tax paid | (2 | ) | (5 | ) | (4 | ) | (3 | ) | (1 | ) | (2 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net cash (used in)/from operating activities | (1 | ) | 12 | 9 | ||||||||||||||||||||||||||||
Net cash from/(used in) operating activities | 20 | 15 | (1 | ) | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||
Dividends received from joint ventures | 12 | 754 | — | 1,093 | 11 | 520 | 186 | 754 | ||||||||||||||||||||||||
Increase in investment in joint ventures | 12 | — | — | (719 | ) | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net cash from investing activities | 754 | — | 374 | 520 | 186 | 754 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | (319 | ) | (289 | ) | (281 | ) | 8 | (349 | ) | (321 | ) | (319 | ) | ||||||||||||||||||
Repurchase of shares | (141 | ) | — | — | (361 | ) | (337 | ) | (141 | ) | ||||||||||||||||||||||
Proceeds on issue of ordinary shares | 18 | 2 | 2 | 33 | 88 | 18 | ||||||||||||||||||||||||||
(Increase)/decrease in net funding balances due from joint ventures | 11 | (313 | ) | 275 | (104 | ) | ||||||||||||||||||||||||||
Decrease/(increase) in net funding balances due from joint ventures | 10 | 141 | 370 | (313 | ) | |||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||
Net cash used in financing activities | (755 | ) | (12 | ) | (383 | ) | (536 | ) | (200 | ) | (755 | ) | ||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||
Net decrease in cash and cash equivalents | (2 | ) | — | — | ||||||||||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | 4 | 1 | (2 | ) | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Cash and cash equivalents at beginning of year | 3 | 3 | 3 | |||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||
Cash and cash equivalents at end of year | 1 | 3 | 3 | |||||||||||||||||||||||||||||
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|
REED ELSEVIER NV
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 20122014
Note | 2012 €m | 2011 €m | 2010 €m | Note | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||||||
Investments in joint ventures | 12 | 1,455 | 1,359 | 1,198 | 11 | 1,412 | 1,488 | 1,455 | ||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||
Amounts due from joint ventures | 4 | 2 | 2 | 3 | 4 | 4 | ||||||||||||||||||||||||||
Cash and cash equivalents | 1 | 3 | 3 | 6 | 2 | 1 | ||||||||||||||||||||||||||
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5 | 5 | 5 | 9 | 6 | 5 | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total assets | 1,460 | 1,364 | 1203 | 1,421 | 1,494 | 1,460 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||
Payables | 13 | 7 | 10 | 11 | 12 | 6 | 6 | 7 | ||||||||||||||||||||||||
Taxation | 51 | 51 | 55 | 56 | 54 | 51 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total liabilities | 58 | 61 | 66 | 62 | 60 | 58 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net assets | 1,402 | 1,303 | 1,137 | 1,359 | 1,434 | 1,402 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Capital and reserves | ||||||||||||||||||||||||||||||||
Share capital issued | 14 | 54 | 54 | 54 | 13 | 52 | 55 | 54 | ||||||||||||||||||||||||
Paid-in surplus | 15 | 2,189 | 2,171 | 2,169 | 2,309 | 2,276 | 2,189 | |||||||||||||||||||||||||
Shares held in treasury (including in joint ventures) | 16 | (571 | ) | (432 | ) | (433 | ) | (711 | ) | (881 | ) | (571 | ) | |||||||||||||||||||
Translation reserve | 17 | (42 | ) | 6 | (51 | ) | 60 | (131 | ) | (42 | ) | |||||||||||||||||||||
Other reserves | 18 | (228 | ) | (496 | ) | (602 | ) | 14 | (351 | ) | 115 | (228 | ) | |||||||||||||||||||
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| |||||||||||||||||||||||||||
Total equity | 1,402 | 1,303 | 1,137 | 1,359 | 1,434 | 1,402 | ||||||||||||||||||||||||||
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|
REED ELSEVIER NV
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20122014
Note | Share capital €m | Paid-in surplus €m | Shares held in treasury €m | Translation reserve €m | Other reserves €m | Total equity €m | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | 55 | 2,276 | (881 | ) | (131 | ) | 115 | 1,434 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 185 | 436 | 621 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 8 | — | — | — | — | (349 | ) | (349 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 33 | — | — | — | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | (381 | ) | — | — | (381 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cancellation of shares | (3 | ) | — | 540 | — | (537 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve (net of tax) | — | — | — | — | 30 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 17 | — | (17 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ acquisition of non-controlling interest | — | — | — | — | (9 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | (20 | ) | (20 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | — | — | (6) | 6 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2014 | 52 | 2,309 | (711 | ) | 60 | (351 | ) | 1,359 | ||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2013 | 54 | 2,189 | (571 | ) | (42 | ) | (228 | ) | 1,402 | |||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | (86 | ) | 693 | 607 | |||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 8 | — | — | — | — | (321 | ) | (321 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 87 | — | — | — | 88 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | (337 | ) | — | — | (337 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve (net of tax) | — | — | — | — | 29 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 24 | — | (24 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | (34 | ) | (34 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | — | — | 3 | (3 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2013 | 55 | 2,276 | (881) | (131) | 115 | 1,434 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share capital €m | Paid-in surplus €m | Shares held in treasury €m | Translation reserve €m | Other reserves €m | Total equity €m |
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| ||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2012 | 54 | 2,171 | (432 | ) | 6 | (496 | ) | 1,303 | 54 | 2,171 | (432 | ) | 6 | (496 | ) | 1,303 | ||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | (51 | ) | 572 | 521 | — | — | — | (51 | ) | 572 | 521 | ||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | (319 | ) | (319 | ) | 8 | — | — | — | — | (319 | ) | (319 | ) | ||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 18 | — | — | — | 18 | — | 18 | — | — | — | 18 | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | (141 | ) | — | — | (141 | ) | — | — | (141 | ) | — | — | (141 | ) | ||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve | — | — | — | — | 19 | 19 | — | — | — | — | 19 | 19 | ||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 5 | — | (5 | ) | — | — | — | 5 | — | (5 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ disposal of non-controlling interest | — | — | — | — | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ acquisition of non-controlling interest | — | — | — | — | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | (3 | ) | (3 | ) | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
Exchange translation difference | — | — | (3 | ) | 3 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | — | — | (3 | ) | 3 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2012 | 54 | 2,189 | (571 | ) | (42 | ) | (228 | ) | 1,402 | 54 | 2,189 | (571 | ) | (42 | ) | (228 | ) | 1,402 | ||||||||||||||||||||||||||||||||||||||
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Balance at January 1, 2011 | 54 | 2,169 | (433 | ) | (51 | ) | (602 | ) | 1,137 | |||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 54 | 403 | 457 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | (289 | ) | (289 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ increase in share based remuneration reserve | — | — | — | — | 16 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 4 | — | (4 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ acquisition of non-controlling interest | — | — | — | — | (25 | ) | (25 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation difference | — | — | (3 | ) | 3 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 | 54 | 2,171 | (432 | ) | 6 | (496 | ) | 1,303 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at January 1, 2010 | 53 | 2,168 | (434 | ) | (153 | ) | (664 | ) | 970 | |||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year | — | — | — | 98 | 349 | 447 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividends paid | 9 | — | — | — | — | (281 | ) | (281 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares, net of expenses | 1 | 1 | — | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ decrease in share based remuneration reserve | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | — | — | 5 | — | (5 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Equalisation adjustments | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange translation differences | — | — | (4 | ) | 4 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 | 54 | 2,169 | (433 | ) | (51 | ) | (602 | ) | 1,137 | |||||||||||||||||||||||||||||||||||||||||||||||
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REED ELSEVIER NV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of financial statements |
On January 1, 1993As a consequence of the merger of their respective businesses, Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. During 2014, Reed Elsevier Group plc, which owns alla company incorporated in England, owned the publishing and information businesses, is incorporated in England and Elsevier Reed Finance BV, which ownsa company incorporated in the Netherlands, owned the financing and treasury companies, is incorporated in the Netherlands.companies. Reed Elsevier PLC and Reed Elsevier NV each holdheld a 50% interest in Reed Elsevier Group plc. Until the end of 2014, Reed Elsevier PLC holdsheld a 39% interest in Elsevier Reed Finance BV withand Reed Elsevier NV holdingheld a 61% interest. Reed Elsevier PLC additionally holds an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV 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.
Unless otherwise indicated, all amounts shown in the consolidated financial statements are stated in euros (“€”). Certain disclosures required to comply with Dutch statutory reporting requirements have been omitted.
The combined financial statements on pages F-3 to F-51 form an integral part of the notes to Reed Elsevier NV’s consolidated financial statements. The combined financial statements (“the combined financial statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their subsidiaries, associates and joint ventures, together with the two parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).
2. | Accounting policies |
Basis of Preparation
These consolidated financial statements, which have been prepared under the historical cost convention, report the consolidated statements of income, comprehensive income, cash flow, financial position and changes in equity of Reed Elsevier NV (incorporated and domiciled in the Netherlands), and have been 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.
Unless otherwise indicated, all amounts shown in the financial statements are in euros (“€”).
As a consequence of the merger of the company’s businesses with those of Reed Elsevier PLC, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group, enjoying substantially equivalent ordinary dividend and capital rights in the earnings and net assets of the combined businesses. The combined businesses are composed of Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries and joint ventures, together with the two parent companies, Reed Elsevier NV and Reed Elsevier PLC. The combined businesses.
Unless otherwise indicated, all amounts shown in the consolidated financial statementsbusinesses are stated in euros (“€”). Certain disclosures required to comply with Dutch statutory reporting requirements have been omitted.jointly controlled by Reed Elsevier NV and Reed Elsevier PLC.
The Reed Elsevier combined financial statements on pages F-3 to F-53 form an integral part of the notes to Reed Elsevier NV’s consolidated financial statements.
Basis of Preparation
These consolidated financial statements, which have been prepared under the historic cost convention, report the consolidated statements of income, cash flow and financial position of Reed Elsevier NV and have been 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.
Unless otherwise indicated, all amounts shown in the financial statements are in euros (“€”).
The basis of the merger of the businesses of Reed Elsevier PLC and Reed Elsevier NV is set out on page 11.
Reed Elsevier NV’s consolidated financial statements are presented incorporating Reed Elsevier NV’s investments in the Reed Elsevier combined businesses accounted for using the equity method, as adjusted for the effects of the equalisation arrangement between Reed Elsevier NV and Reed Elsevier PLC. The arrangement lays down the distribution of dividends and net assets in such a way that Reed Elsevier NV’sN.V’s share in the profit and net assets of the Reed Elsevier combined businesses equals 50%, with all settlements accruing to shareholders from the equalisation arrangements taken directly to reserves.
Because the dividend paid to shareholders by Reed Elsevier NV is, other than in special circumstances, equivalent to the Reed Elsevier PLC dividend plus the UK tax credit received byavailable to certain Reed Elsevier PLC shareholders, Reed Elsevier NV normally distributes a higher proportion of the combined profit attributable than Reed Elsevier PLC. Reed Elsevier PLC’s share in this difference in dividend distributions is settled with Reed Elsevier NV and is credited directly to consolidated reserves under equalisation. Reed Elsevier NV can pay a nominal dividend on its R shares held by a subsidiary of Reed Elsevier PLC that is lower than the dividend on the ordinary shares. Equally, Reed Elsevier NV has the possibility to receive dividends directly from Dutch affiliates. During 2014, Reed Elsevier PLC iswas compensated by direct dividend payments by Reed Elsevier Group plc. The settlements flowing from these arrangements are also taken directly to consolidated reserves under equalisation.
Combined financial statements
The accounting policies adopted in the preparation of the combined financial statements are set out on pages F-10 to F-17.F-16.
2. | Accounting policies – (continued) |
Basis of valuation of assets and liabilities
Reed Elsevier NV’s 50% economic interest in the net assets of the combined businesses has been shown on the consolidated statement of financial position as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier NV. Joint ventures are accounted for using the equity method.
Assets and liabilities are stated at historical cost, less provision, if appropriate, for any impairment in value.
Foreign exchange translation
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the statement of financial position date. Exchange differences arising are recorded in the income statement. The gains or losses relating to the retranslation of Reed Elsevier NV’s 50% interest in the net assets of the combined businesses are classified as equity and transferred to the translation reserve.
When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
Taxation
TheTax expense comprises current and deferred tax. Current and deferred tax expense representsare charged or credited in the sum ofincome statement except to the extent that the tax payable on the current year taxable profits, adjustments in respect of prior year taxable profits and the movements on deferred tax that arearises from a transaction or event which is recognised, in the same or a different period, outside profit or loss (either in other comprehensive income, statement. Tax arisingdirectly in joint ventures is includedequity, or through a business combination) in which case the tax appears in the sharesame statement as the transaction that gave rise to it.
Current tax is the amount of results of joint ventures.
The taxcorporate income taxes payable or recoverable based on current yearthe profit for the period as adjusted for items that are not taxable profitsor not deductible, and is calculated using the applicable tax raterates and laws that has beenwere enacted or substantively enacted byat the date of the statement of financial position. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised on temporary differences arising between the tax arising on differences between the carrying amountsbases of assets and liabilities and their carrying amounts in the statement of financial statementsposition. Deferred tax is calculated using tax rates and their correspondinglaws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax bases used inasset is realised or the computation of taxable profit, anddeferred tax liability is accounted for using the balance sheet liability method. settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries, associates and deferredjoint ventures where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent that, based on current forecasts, it is probable that taxable profits will be available against which the deductible temporary differences can be utilised.utilised, and reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not recognised on temporary differences in respect of goodwill that is not deductible for tax purposes.
Deferred tax is calculated using tax rates that have been substantively enacted at the date of the statement of financial position. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. Deferred tax credits in respect of share based remuneration are recognised in equity to the extent that expected tax deduction exceed the related expense.discounted.
Critical judgements and key sources of estimation uncertainty
Critical judgments in the preparation of the combined financial statements are set out on pages F-14 to F-16.F-15.
Standards and amendments effective for the year
The interpretations and amendments to IFRS effective for 2014 have not had a significant impact on Reed Elsevier NV’s accounting policies or reporting.
2. | Accounting policies – (continued) |
Standards, amendments and interpretations not yet effective
Recently issued standards, amendments and interpretations and their impact on future accounting policies and reporting have been considered on pages F16 to F17page F-16 of the combined financial statements.
3. | Basis of preparation |
The consolidated financial statements of Reed Elsevier NV reflect the 50% economic interest that its shareholders have under the equalisation arrangements in the Reed Elsevier combined businesses, accounted for on an equity basis.
The Reed Elsevier combined financial statements are presented in pounds sterling, which is the functional currency of Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses of Reed Elsevier.Group. The following analysis presents how the consolidated financial statements of Reed Elsevier NV, presented in euros, are derived from the Reed Elsevier combined financial statements.
Reed Elsevier NV consolidated profit attributable to shareholders | 2012 | 2011 | 2010 | |||||||||
Reed Elsevier combined businesses net profit attributable to parent company shareholders in pounds sterling | £ | 1,069m | £ | 760m | £ | 642m | ||||||
Reed Elsevier combined businesses net profit attributable to parent company shareholders translated into euros at year end exchange rates (2012: €1.23 to £1.00; 2011: €1.15 to £1.00; 2010: €1.17 to £1.00) | € | 1,315m | € | 874m | € | 751m | ||||||
Reed Elsevier NV’s 50% share of combined net profit attributable to shareholders | €658m | € | 437m | € | 376m | |||||||
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Reed Elsevier NV consolidated profit attributable to shareholders | 2014 | 2013 | 2012 | |||||||||
Combined businesses net profit attributable to parent company shareholders in pounds sterling | £ | 955m | £ | 1,110m | £ | 1,044m | ||||||
Combined businesses net profit attributable to parent company shareholders translated into euros at year end exchange rates (2014: €1.24 to £1.00; 2013: €1.18 to £1.00; 2012: €1.23 to £1.000) | € | 1,184m | € | 1,310m | € | 1,284m | ||||||
Reed Elsevier NV’s 50% share of combined net profit attributable to shareholders | € | 592m | € | 655m | € | 642m | ||||||
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Reed Elsevier NV consolidated total equity | 2012 | 2011 | 2010 | 2014 | 2013 | 2012 | ||||||||||||||||||
Reed Elsevier combined shareholders’ equity in pounds sterling | £ | 2,280m | £ | 2,172m | £ | 1,943m | ||||||||||||||||||
Reed Elsevier combined shareholders’ equity in pounds sterling translated into euros at year end exchange rates (2012: €1.23 to £1.00; 2011: €1.15 to £1.00; 2010: €1.17 to £1.00) | € | 2,804m | € | 2,606m | € | 2,273m | ||||||||||||||||||
Combined shareholders’ equity in pounds sterling | £ | 2,106m | £ | 2,390m | £ | 2,280m | ||||||||||||||||||
Combined shareholders’ equity in pounds sterling translated into euros at year end exchange rates (2014: €1.29 to £1.00; 2013: €1.20 to £1.00; 2012: €1.23 to £1.00) | € | 2,717m | € | 2,868m | € | 2,804m | ||||||||||||||||||
Reed Elsevier NV’s 50% share of combined equity | € | 1,402m | € | 1,303m | € | 1,137m | € | 1,359m | € | 1,434m | € | 1,402m | ||||||||||||
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4. | Administrative expenses |
Administrative expenses include the gross remuneration for present and former directorsExecutive and Non-Executive Directors of Reed Elsevier NV in respect of services rendered to Reed Elsevier NV and the combined businesses. Fees for members of the Supervisory BoardNon-Executive Directors of Reed Elsevier NV of €0.3 million (2011:(2013: €0.3 million; 2010:2012: €0.3 million) are included in remuneration. Insofar as remuneration isduring 2014 was related to services rendered to Reed Elsevier Group plc group and Elsevier Reed Finance BV group, it iswas borne by these groups. Reed Elsevier NV has no employees (2011:(2013: nil; 2010:2012: nil).
5. |
Audit fees payable by Reed Elsevier NV were €142,000 (2011: €50,000; 2010: €48,000). Further information on the audit and non audit fees paid by the Reed Elsevier combined businesses to Deloitte Accountants B.V. and its associates is set out in note 5 to the combined financial statements.
Related party transactions |
All transactions with joint ventures, which are related parties of Reed Elsevier NV, are reflected in these financial statements. Key management personnel are also related parties and comprise the members of the Executive BoardDirectors of Reed Elsevier NV. Transactions with key management personnel are set out in note 344 and in note 29 to the combined financial statements.
Finance income |
2012 €m | 2011 €m | 2010 €m | ||||||||||
Finance income from joint ventures | 8 | 20 | 14 | |||||||||
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2014 €m | 2013 €m | 2012 €m | ||||||||||
Finance income from joint ventures | 25 | 19 | 8 | |||||||||
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Taxation |
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below.
2012 €m | 2011 €m | 2010 €m | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||
Profit before tax | 660 | 438 | 379 | 597 | 659 | 644 | ||||||||||||||||||
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Tax at applicable rate 25.0% (2011: 25.0%; 2010: 25.5%) | 165 | 110 | 97 | |||||||||||||||||||||
Tax at applicable rate 25.0% (2013: 25.0%; 2012: 25.0%) | (149 | ) | (165 | ) | (161 | ) | ||||||||||||||||||
Tax at applicable rate on share of results of joint ventures | (163 | ) | (105 | ) | (94 | ) | 144 | 161 | 159 | |||||||||||||||
Other | — | (4 | ) | — | ||||||||||||||||||||
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Tax expense | 2 | 1 | 3 | (5 | ) | (4 | ) | (2 | ) | |||||||||||||||
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Equity dividends |
Dividends declared in the year | 2012 € | 2011 € | 2010 € | 2012 €m | 2011 €m | 2010 €m | ||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Final for prior financial year | € | 0.326 | € | 0.303 | € | 0.293 | 228 | 212 | 205 | |||||||||||||||
Interim for financial year | € | 0.130 | € | 0.110 | € | 0.109 | 91 | 77 | 76 | |||||||||||||||
R shares | — | — | — | — | — | — | ||||||||||||||||||
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Total | € | 0.456 | € | 0.413 | € | 0.402 | 319 | 289 | 281 | |||||||||||||||
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Dividends declared and paid in the year | 2014 € | 2013 € | 2012 € | 2014 €m | 2013 €m | 2012 €m | ||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Final for prior financial year | € | 0.374 | € | 0.337 | € | 0.326 | 249 | 230 | 228 | |||||||||||||||
Interim for financial year | € | 0.151 | € | 0.132 | € | 0.130 | 100 | 91 | 91 | |||||||||||||||
R shares | — | — | — | — | — | — | ||||||||||||||||||
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| |||||||||||||
Total | € | 0.525 | € | 0.469 | € | 0.456 | 349 | 321 | 319 | |||||||||||||||
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The directors of Reed Elsevier NV have proposed a final dividend of €0.337 (2011: €0.326; 2010: €0.303)€0.438 (2013: €0.374; 2012: €0.337). The cost of funding the proposed final dividend is expected to be €232€287 million. No liability has been recognised at the statement of financial position date.
Dividends paid and proposed relating to the financial year | 2012 € | 2011 € | 2010 € | 2014 € | 2013 € | 2012 € | ||||||||||||||||||
Ordinary shares | ||||||||||||||||||||||||
Interim (paid) | €0.130 | € | 0.110 | € | 0.109 | € | 0.151 | € | 0.132 | € | 0.130 | |||||||||||||
Final (proposed) | €0.337 | € | 0.326 | € | 0.293 | € | 0.438 | € | 0.374 | € | 0.337 | |||||||||||||
R shares | — | — | — | — | — | — | ||||||||||||||||||
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| |||||||||||||||||||
Total | €0.467 | € | 0.436 | € | 0.402 | € | 0.589 | € | 0.506 | € | 0.467 | |||||||||||||
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Earnings per share (“EPS”) |
2012 | ||||||||||||
Weighted average number of shares (millions) | Earnings €m | EPS € | ||||||||||
Basic EPS | 734.0 | 658 | € | 0.90 | ||||||||
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Diluted EPS | 742.1 | 658 | € | 0.89 | ||||||||
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2014 | ||||||||||||
Weighted average number of shares (millions) | Earnings €m | EPS € | ||||||||||
Basic EPS | 700.1 | 592 | € | 0.85 | ||||||||
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Diluted EPS | 708.3 | 592 | € | 0.84 | ||||||||
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2013 | ||||||||||||
Weighted average number of shares (millions) | Earnings €m | EPS € | ||||||||||
Basic EPS | 717.6 | 655 | € | 0.91 | ||||||||
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Diluted EPS | 726.9 | 655 | € | 0.90 | ||||||||
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2011 | ||||||||||||
Weighted average number of shares (millions) | Earnings €m | EPS € | ||||||||||
Basic EPS | 735.3 | 437 | € | 0.59 | ||||||||
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Diluted EPS | 740.8 | 437 | € | 0.59 | ||||||||
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9. | Earnings per share (“EPS”) – (continued) |
2010 | 2012 | |||||||||||||||||||||||
Weighted average number of shares (millions) | Earnings €m | EPS € | Weighted average number of shares (millions) | Earnings Restated €m | EPS Restated € | |||||||||||||||||||
Basic EPS | 734.5 | 376 | € | 0.51 | 734.0 | 642 | € | 0.87 | ||||||||||||||||
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Diluted EPS | 737.8 | 376 | € | 0.51 | 742.1 | 642 | € | 0.87 | ||||||||||||||||
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The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares.
The weighted average number of shares reflects the equivalent ordinary shares amount taking into account R shares and is after deducting shares held in treasury. Movements in the number of ordinary shares or equivalents for the year ended December 31, 20122014 are shown below.in note 13.
Year Ended December 31, | ||||||||||||||||||||||||
Ordinary shares in issue (millions) | R shares in issue (millions) | Treasury shares (millions) | 2012 Ordinary share equivalents net of treasury shares (millions) | 2011 Ordinary shares equivalents net of treasury shares (millions) | 2010 Ordinary shares equivalents net of treasury shares (millions) | |||||||||||||||||||
Number of ordinary shares or equivalents | ||||||||||||||||||||||||
At January 1 | 724.1 | 43.0 | (31.3 | ) | 735.8 | 735.2 | 734.5 | |||||||||||||||||
Issue of ordinary shares | 1.9 | — | — | 1.9 | 0.2 | 0.2 | ||||||||||||||||||
Repurchase of ordinary and R shares | — | — | (13.3 | ) | (13.3 | ) | — | — | ||||||||||||||||
Net release of shares by the employee benefit trust | — | — | 0.4 | 0.4 | 0.4 | 0.5 | ||||||||||||||||||
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At December 31 | 726.0 | 43.0 | (44.2 | ) | 724.8 | 735.8 | 735.2 | |||||||||||||||||
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Weighted average number of equivalent ordinary shares during the year | 734.0 | 735.3 | 734.5 | |||||||||||||||||||||
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The average number of equivalent ordinary shares takes into account the R shares in the companyReed Elsevier NV held by a subsidiary of Reed Elsevier PLC, which represents a 5.8% interest in the company’sReed Elsevier NV’s share capital.
TreasuryThe weighted average number of shares used in the calculation of diluted EPS is after deducting shares held in treasury and is derived as follows:
2014 (millions) | 2013 (millions) | 2012 (millions) | ||||||||||
Weighted average number of shares — Basic | 700.1 | 717.6 | 734.0 | |||||||||
Weighted average number of dilutive shares under options | 8.2 | 9.3 | 8.1 | |||||||||
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Weighted average number of shares — Diluted | 708.3 | 726.9 | 742.1 | |||||||||
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10. | Statement of cash flows |
Reconciliation of profit before tax to cash used by operations
2014 €m | 2013 €m | 2012 €m | ||||||||||
Profit before tax | 597 | 659 | 644 | |||||||||
Finance income | (25 | ) | (19 | ) | (8 | ) | ||||||
Share of results of joint ventures | (575 | ) | (642 | ) | (638 | ) | ||||||
Decrease in payables | — | (1 | ) | (3 | ) | |||||||
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Cash used by operations | (3 | ) | (3 | ) | (5 | ) | ||||||
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Reconciliation of net funding balances due from joint ventures
2014 €m | 2013 €m | 2012 €m | ||||||||||
At January 1 | 1,027 | 1,397 | 1,084 | |||||||||
Cash flow | (141 | ) | (370 | ) | 313 | |||||||
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| |||||||
At December 31 | 886 | 1,027 | 1,397 | |||||||||
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11. | Investments in joint ventures |
2014 €m | 2013 €m | 2012 €m | ||||||||||
Share of results of joint ventures | 575 | 642 | 638 | |||||||||
Share of joint ventures’: | ||||||||||||
Other comprehensive income/(loss) | 29 | (48 | ) | (121 | ) | |||||||
(Acquisition)/disposal of non-controlling interests | (9 | ) | — | 4 | ||||||||
Increase in share based remuneration reserve (net of tax) | 30 | 29 | 19 | |||||||||
Purchase of treasury shares by employee benefit trust | (20 | ) | — | — | ||||||||
Equalisation adjustments | (20 | ) | (34 | ) | (3 | ) | ||||||
Dividends received from joint ventures | (520 | ) | (186 | ) | (754 | ) | ||||||
(Decrease)/increase in net funding balances due from joint ventures | (141 | ) | (370 | ) | 313 | |||||||
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| |||||||
Net movement in the year | (76 | ) | 33 | 96 | ||||||||
At January 1 | 1,488 | 1,455 | 1,359 | |||||||||
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| |||||||
At December 31 | 1,412 | 1,488 | 1,455 | |||||||||
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During the year Reed Elsevier NV received dividends of €300 million from Reed Elsevier Overseas BV (2013: nil; 2012: nil) and €220 million from Elsevier Reed Finance BV (2013: €186 million; 2012: €394 million) and nil from RELX Group plc (2013: nil; 2012: €300 million).
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier NV shareholders’ 50% share is set out below:
Total joint ventures | Reed Elsevier NV shareholders’ share | |||||||||||||||||||||||
2014 €m | 2013 €m | 2012 €m | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||
Revenue | 7,159 | 7,121 | 7,523 | 3,580 | 3,561 | 3,762 | ||||||||||||||||||
Net profit for the year | 1,190 | 1,316 | 1,290 | 575 | 642 | 638 | ||||||||||||||||||
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Reed Elsevier NV’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net profit that arose directly in Reed Elsevier NV of €17 million (2013: €13 million; 2012: €4 million).
Reed Elsevier NV’s other comprehensive income includes income of €29 million (2013: €48 million loss; 2012: €21 million loss) relating to joint ventures.
Total joint ventures | Reed Elsevier NV shareholders’ share | |||||||||||||||||||||||
2014 €m | 2013 €m | 2012 €m | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||
Total assets | 14,302 | 12,594 | 13,547 | 7,145 | 6,295 | 6,773 | ||||||||||||||||||
Total liabilities | (11,545 | ) | (9,686 | ) | (10,701 | ) | (6,619 | ) | (5,834 | ) | (6,715 | ) | ||||||||||||
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|
| |||||||||||||
Net assets/(liabilities) | 2,757 | 2,908 | 2,846 | 526 | 461 | 58 | ||||||||||||||||||
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| |||||||||||||
Attributable to: | ||||||||||||||||||||||||
Joint ventures | 2,717 | 2,868 | 2,804 | 526 | 461 | 58 | ||||||||||||||||||
Non-controlling interests | 40 | 40 | 42 | — | — | — | ||||||||||||||||||
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2,757 | 2,908 | 2,846 | 526 | 461 | 58 | |||||||||||||||||||
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| |||||||||||||||||||
Net funding balances due from joint ventures | 886 | 1,027 | 1,397 | |||||||||||||||||||||
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| |||||||||||||||||||
Total | 1,412 | 1,488 | 1,455 | |||||||||||||||||||||
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The above amounts for Reed Elsevier NV’s shareholders’ share of total assets and total liabilities exclude assets and liabilities held directly by Reed Elsevier NV, but include 62,341 R shares (2011: nil; 2010: nil), equivalentthe counterparty balances of amounts owed to 623,410and by other Group businesses. Included within Reed Elsevier NV’s share of assets and liabilities are cash and cash equivalents of €172 million (2013: €77 million; 2012: €393 million) and borrowings of €2,467 million (2013: €1,963 million; 2012: €2,386 million) respectively.
12. | Payables |
Included within payables are employee convertible debenture loans of €4 million (2013: €5 million; 2012: €7 million) with a weighted average interest rate of 1.65% (2013: 1.95%; 2012: 2.56%). Depending on the conversion terms, the surrender of €200 par value debenture loans qualifies for 50 Reed Elsevier NV ordinary shares.
13. | Share capital |
Authorised
No. of shares | €m | |||||||
Ordinary shares of €0.07 each | 1,800,000,000 | 126 | ||||||
R shares of €0.70 each | 26,000,000 | 18 | ||||||
|
| |||||||
Total | 144 | |||||||
|
|
Issued and fully paid
R shares Number | Ordinary shares Number | R shares €m | Ordinary shares €m | Total €m | ||||||||||||||||
At January 1, 2012 | 4,303,179 | 724,077,755 | 3 | 51 | 54 | |||||||||||||||
Issue of ordinary shares | — | 1,906,470 | — | — | — | |||||||||||||||
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|
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|
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| |||||||||||
At January 1, 2013 | 4,303,179 | 725,984,225 | 3 | 51 | 54 | |||||||||||||||
Issue of ordinary shares | — | 8,165,731 | — | 1 | 1 | |||||||||||||||
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|
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|
| |||||||||||
At January 1, 2014 | 4,303,179 | 734,149,956 | 3 | 52 | 55 | |||||||||||||||
Issue of ordinary shares | — | 3,003,289 | — | — | — | |||||||||||||||
Cancellation of shares | — | (40,000,000 | ) | — | (3 | ) | (3 | ) | ||||||||||||
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|
| |||||||||||
At December 31, 2014 | 4,303,179 | 697,153,245 | 3 | 49 | 52 | |||||||||||||||
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The issue of shares relates to the exercise of share options. Details of share option and conditional share schemes are set out in note 7 to the combined financial statements.
Year Ended December 31, | ||||||||||||||||||||||||
Ordinary shares in issue (millions) | R share in issue* (millions) | Treasury shares (millions) | 2014 Ordinary share equivalents net of treasury shares (millions) | 2013 Ordinary share equivalents net of treasury shares (millions) | 2012 Ordinary shares equivalents net of treasury shares (millions) | |||||||||||||||||||
Number of ordinary shares or equivalents | ||||||||||||||||||||||||
Ordinary shares at January 1 | 734.1 | — | (65.9 | ) | 668.2 | 682.4 | 692.8 | |||||||||||||||||
Issue of ordinary shares | 3.0 | — | — | 3.0 | 8.1 | 1.9 | ||||||||||||||||||
Repurchase of ordinary shares | — | — | (20.4 | ) | (20.4 | ) | (24.3 | ) | (12.7 | ) | ||||||||||||||
Cancellation of shares | (40.0 | ) | — | 40.0 | — | — | — | |||||||||||||||||
Net (purchase)/release of ordinary shares by the employee benefit trust | — | — | (0.3 | ) | (0.3 | ) | 2.0 | 0.4 | ||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||
Ordinary shares at December 31 | 697.1 | — | (46.6 | ) | 650.5 | 668.2 | 682.4 | |||||||||||||||||
|
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|
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| |||||||||||||
R share equivalents at January 1 | — | 43.0 | (1.5 | ) | 41.5 | 42.4 | 43 | |||||||||||||||||
Repurchase of R share equivalents | — | — | (l.1 | ) | (1.1 | ) | (0.9 | ) | (0.6 | ) | ||||||||||||||
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| |||||||||||||
R share equivalents at December 31 | — | 43.0 | (2.6 | ) | 40.4 | 41.5 | 42.4 | |||||||||||||||||
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|
|
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| |||||||||||||
Total ordinary share equivalents at December 31 | 697.1 | 43.0 | (49.2 | ) | 690.9 | 709.7 | 724.8 | |||||||||||||||||
|
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|
|
|
|
|
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| |||||||||||||
Weighted average number of equivalent ordinary shares during the year | 700.1 | 717.6 | 734.0 | |||||||||||||||||||||
|
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|
* | Ordinary share equivalents |
13. | Share capital – (continued) |
At December 31, 2012 4,240,8382014, 4,038,884 R shares (2013: 4,146,785; 2012: 4,240,838) were held by a subsidiary of Reed Elsevier PLC. The R shares are convertible at the election of the holders into ten ordinary shares each and each R share carries an entitlement to cast ten votes. They have otherwise the same rights as the ordinary shares, except that Reed Elsevier NV may pay a lower dividend on the R shares.
The weighted average number of shares used in the calculation of diluted EPS is after deductingAt December 31, 2014 shares held in treasury comprised 41,298,544 ordinary shares and is derived as follows:
2012 (millions) | 2011 (millions) | 2010 (millions) | ||||||||||
Weighted average number of shares — Basic | 734.0 | 735.3 | 734.5 | |||||||||
Weighted average number of dilutive shares under options | 8.1 | 5.5 | 3.3 | |||||||||
|
|
|
|
|
| |||||||
Weighted average number of shares — Diluted | 742.1 | 740.8 | 737.8 | |||||||||
|
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|
|
|
Reconciliation of profit before tax to cash used by operations
2012 €m | 2011 €m | 2010 €m | ||||||||||
Profit before tax | 660 | 438 | 379 | |||||||||
Finance income | (8 | ) | (20 | ) | (14 | ) | ||||||
Share of results of joint ventures | (654 | ) | (420 | ) | (367 | ) | ||||||
(Decrease)/increase in payables | (3 | ) | (1 | ) | 1 | |||||||
|
|
|
|
|
| |||||||
Cash used by operations | (5 | ) | (3 | ) | (1 | ) | ||||||
|
|
|
|
|
|
Reconciliation of net funding balances due from joint ventures
2012 €m | 2011 €m | 2010 €m | ||||||||||
At January 1 | 1,084 | 1,359 | 1,255 | |||||||||
Cash flow | 313 | (275 | ) | 104 | ||||||||
|
|
|
|
|
| |||||||
At December 31 | 1,397 | 1,084 | 1,359 | |||||||||
|
|
|
|
|
|
2012 €m | 2011 €m | 2010 €m | ||||||||||
Share of results of joint ventures | 654 | 420 | 367 | |||||||||
Share of joint ventures’: | ||||||||||||
Other comprehensive (expense)/income | (137 | ) | 20 | 71 | ||||||||
Disposal/(acquisition) of non-controlling interests | 4 | (25 | ) | — | ||||||||
Increase/(decrease) in share based remuneration reserve | 19 | 16 | (4 | ) | ||||||||
Equalisation adjustments | (3 | ) | 5 | 3 | ||||||||
Dividends received from joint ventures | (754 | ) | — | (1,093 | ) | |||||||
Increase in investment in joint ventures | — | — | 719 | |||||||||
Increase/(decrease) in net funding balances due from joint ventures | 313 | (275 | ) | 104 | ||||||||
|
|
|
|
|
| |||||||
Net movement in the year | 96 | 161 | 167 | |||||||||
At January 1 | 1,359 | 1,198 | 1,031 | |||||||||
|
|
|
|
|
| |||||||
At December 31 | 1,455 | 1,359 | 1,198 | |||||||||
|
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|
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|
|
During the year the company received dividends of €754 million from Elsevier Reed Finance BV.
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier NV shareholders’ 50% share is set out below:
Total joint ventures | Reed Elsevier NV shareholders’ share | |||||||||||||||||||||||
2012 €m | 2011 €m | 2010 €m | 2012 €m | 2011 €m | 2010 €m | |||||||||||||||||||
Revenue | 7,523 | 6,902 | 7,084 | 3,762 | 3,451 | 3,542 | ||||||||||||||||||
Net profit for the year | 1,321 | 882 | 758 | 654 | 420 | 367 | ||||||||||||||||||
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Reed Elsevier NV’s shareheld in October 2014, the shareholders approved the reduction of joint ventures’ net profit attributable to parent company shareholders for the year excludescapital of the net profit that arose directly in Reed Elsevier NV by the cancellation of €4 million (2011: €17 million; 2010: €9 million).
Total joint ventures | Reed Elsevier NV shareholders’ share | |||||||||||||||||||||||
2012 €m | 2011 €m | 2010 €m | 2012 €m | 2011 €m | 2010 €m | |||||||||||||||||||
Total assets | 13,547 | 13,804 | 13,055 | 6,773 | 6,897 | 6,523 | ||||||||||||||||||
Total liabilities | (10,701 | ) | (11,168 | ) | (10,750 | ) | (6,715 | ) | (6,622 | ) | (6,684 | ) | ||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Net assets/(liabilities) | 2,846 | 2,636 | 2,305 | 58 | 275 | (161 | ) | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
| |||||||||||||
Attributable to: | ||||||||||||||||||||||||
Joint ventures | 2,804 | 2,606 | 2,273 | 58 | 275 | (161 | ) | |||||||||||||||||
Non-controlling interests | 42 | 30 | 32 | — | — | — | ||||||||||||||||||
|
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|
|
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|
| |||||||||||||
2,846 | 2,636 | 2,305 | 58 | 275 | (161 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net funding balances due from joint ventures | 1,397 | 1,084 | 1,359 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 1,455 | 1,359 | 1,198 | |||||||||||||||||||||
|
|
|
|
|
|
up to 40,000,000 of its ordinary shares held in treasury. Following the shareholders’ meeting, the Board filed a declaration for the cancellation of 40,000,000 ordinary shares with the Trade Register at the Chamber of Commerce on October 22, 2014. The above amounts exclude assets and liabilities held directly by40,000,000 ordinary shares of Reed Elsevier NV and include the counterparty balances of amounts owed to and by other Reed Elsevier businesses. Included within Reed Elsevier NV’s share of assets and liabilities are cash and cash equivalents of €393 million (2011: €433 million; 2010: €431 million) and borrowings of €2,386 million (2011: €2,561 million; 2010: €2,508 million) respectively.
Included within payables are employee convertible debenture loans of €7 million (2011: €8 million; 2010: €9 million)were subsequently cancelled with a weighted average interest rate of 2.65% (2011: 3.13%; 2010: 3.30%). Depending on the conversion terms, the surrender of €200 par value debenture loans qualifies for 50 Reed Elsevier NV ordinary shares.effect from December 24, 2014.
14. |
Authorised
No. of shares | €m | |||||||
Ordinary shares of €0.07 each | 1,800,000,000 | 126 | ||||||
R shares of €0.70 each | 26,000,000 | 18 | ||||||
|
| |||||||
Total | 144 | |||||||
|
|
Issued and fully paid
R shares Number | Ordinary shares Number | R shares €m | Ordinary shares €m | Total €m | ||||||||||||||||
At January 1, 2010 | 4,303,179 | 723,692,901 | 3 | 50 | 53 | |||||||||||||||
Issue of ordinary shares | — | 184,116 | — | 1 | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At January 1, 2011 | 4,303,179 | 723,877,017 | 3 | 51 | 54 | |||||||||||||||
Issue of ordinary shares | — | 200,738 | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At January 1, 2012 | 4,303,179 | 724,077,755 | 3 | 51 | 54 | |||||||||||||||
Issue of ordinary shares | — | 1,906,470 | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
At December 31, 2012 | 4,303,179 | 725,984,225 | 3 | 51 | 54 | |||||||||||||||
|
|
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|
|
|
|
|
|
|
The issue of shares relates to the exercise of share options. Details of share option and conditional share schemes are set out in note 8 to the Reed Elsevier combined financial statements.
Details of shares held in treasury are provided in note 16.
At December 31, 2012 4,240,838 R shares were held by a subsidiary of Reed Elsevier PLC. The R shares are convertible at the election of the holders into ten ordinary shares each and each R share carries an entitlement to cast ten votes. They have otherwise the same rights as the ordinary shares, except that Reed Elsevier NV may pay a lower dividend on the R shares.
2012 €m | 2011 €m | 2010 €m | ||||||||||
At January 1 | 2,171 | 2,169 | 2,168 | |||||||||
Issue of ordinary shares | 18 | 2 | 1 | |||||||||
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At December 31 | 2,189 | 2,171 | 2,169 | |||||||||
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Within paid-in surplus, an amount of €2,012 million (2011: €1,994 million; 2010: €1,992 million) is free of tax.
2012 €m | 2011 €m | 2010 €m | ||||||||||
At January 1 | 432 | 433 | 434 | |||||||||
Repurchase of ordinary and R shares | 141 | — | — | |||||||||
Share of joint ventures’ settlement of share awards by the employee benefit trust | (5 | ) | (4 | ) | (5 | ) | ||||||
Exchange translation differences | 3 | 3 | 4 | |||||||||
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At December 31 | 571 | 432 | 433 | |||||||||
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At December 31, 2012, shares held in treasury related to 6,990,101 (2011: 7,380,906; 2010: 7,781,790) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”); and 36,613,087 (2011: 23,952,791; 2010: 23,952,791) Reed Elsevier NV ordinary shares and 62,341 R shares (2011: nil; 2010: nil) held by the parent company.
The EBT purchases Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options and to meet commitments under conditional share awards. At December 31, 2012, Reed Elsevier NV shares held by the EBT were €84 million (2011: €85 million; 2010: €87 million).
2012 €m | 2011 €m | 2010 €m | ||||||||||
At January 1 | 6 | (51 | ) | (153 | ) | |||||||
Share of joint ventures’ exchange differences on translation of foreign operations | (51 | ) | 54 | 98 | ||||||||
Exchange translation differences on capital and reserves | 3 | 3 | 4 | |||||||||
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At December 31 | (42 | ) | 6 | (51 | ) | |||||||
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Other reserves |
2012 €m | 2011 €m | 2010 €m | 2014 €m | 2013 €m | 2012 €m | |||||||||||||||||||
At January 1 | (496 | ) | (602 | ) | (664 | ) | 115 | (228 | ) | (496 | ) | |||||||||||||
Profit attributable to shareholders | 658 | 437 | 376 | 592 | 655 | 642 | ||||||||||||||||||
Cancellation of shares | (537 | ) | — | — | ||||||||||||||||||||
Share of joint ventures’: | ||||||||||||||||||||||||
Actuarial losses on defined benefit pension schemes | (203 | ) | (65 | ) | (37 | ) | ||||||||||||||||||
Fair value movements on available for sale investments | — | (1 | ) | — | ||||||||||||||||||||
Actuarial (losses)/gains on defined benefit pension schemes | (165 | ) | 24 | (180 | ) | |||||||||||||||||||
Transfer to net profit on disposal of available for sale investments | 7 | — | — | — | — | 7 | ||||||||||||||||||
Fair value movements on cash flow hedges | 43 | (14 | ) | (34 | ) | (50 | ) | 38 | 43 | |||||||||||||||
Tax recognised directly in equity | 54 | 24 | 17 | |||||||||||||||||||||
Increase/(decrease) in share based remuneration reserve | 19 | 16 | (4 | ) | ||||||||||||||||||||
Transfer to net profit from cash flow hedge reserve | 12 | (2 | ) | 16 | ||||||||||||||||||||
Tax recognised in other comprehensive income | 47 | (22 | ) | 44 | ||||||||||||||||||||
Increase in share based remuneration reserve (net of tax) | 30 | 29 | 19 | |||||||||||||||||||||
Settlement of share awards | (5 | ) | (4 | ) | (5 | ) | (17 | ) | (24 | ) | (5 | ) | ||||||||||||
Transfer to net profit from cash flow hedge reserve | 13 | 22 | 27 | |||||||||||||||||||||
Disposal/(acquisition) of non-controlling interests | 4 | (25 | ) | — | ||||||||||||||||||||
(Acquisition)/disposal of non-controlling interests | (9 | ) | — | 4 | ||||||||||||||||||||
Equalisation adjustments | (3 | ) | 5 | 3 | (20 | ) | (34 | ) | (3 | ) | ||||||||||||||
Equity dividends paid | (319 | ) | (289 | ) | (281 | ) | (349 | ) | (321 | ) | (319 | ) | ||||||||||||
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At December 31 | (228 | ) | (496 | ) | (602 | ) | (351 | ) | 115 | (228 | ) | |||||||||||||
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Contingent liabilities |
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier NV as follows:
2012 €m | 2011 €m | 2010 €m | ||||||||||
Guaranteed jointly and severally with Reed Elsevier PLC | 4,422 | 4,704 | 4,591 | |||||||||
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2014 €m | 2013 €m | 2012 €m | ||||||||||
Guaranteed jointly and severally with Reed Elsevier PLC | 4,653 | 3,676 | 4,422 | |||||||||
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Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 1918 to the Reed Elsevier combined financial statements.
Events after the balance sheet data |
Effective February 25, 2015, Reed Elsevier NV transferred interest bearing receivables of €836 million to Elsevier Reed Finance BV for consideration of 1 ordinary voting E share. Subsequently, on February 25, 2015, Reed Elsevier NV transferred its direct ownership interest in Elsevier Reed Finance BV to its jointly-owned company Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. Simultaneously, Reed Elsevier PLC transferred its direct ownership interest in Elsevier Reed Finance BV to Reed Elsevier Group plc, for consideration of 31,613 ordinary voting shares in Reed Elsevier Group plc. This newly-combined single group entity was named RELX Group plc. The R shares and E shares of RELX Group plc held by Reed Elsevier PLC and Reed Elsevier NV respectively were converted into non-voting shares.
Reed Elsevier NV has retained its 50% economic interest in the combined businesses, and no gains or losses were recorded on the transactions. As Reed Elsevier NV and Reed Elsevier PLC each hold 50% of the voting shares in issue, joint control of RELX Group plc is retained and their respective interests will continue to be accounted for under the equity method, as described in the accounting policies on page F-73.
17. | Approval of financial statements |
The consolidated financial statements were approved by the Combined Board of directors on February 27, 2013.
THIS PAGE INTENTIONALLY BLANK
25, 2015.
GLOSSARY OF TERMS
Terms used in Annual Report on Form 20-F | US equivalent or brief description |
Accruals | Accrued expenses |
Adjusted | Cash generated from operations plus dividends from joint ventures less net capital expenditure on property, plant and equipment and internally developed intangible assets, and excluding payments in relation to exceptional restructuring and acquisition related costs |
Adjusted operating margin | Adjusted operating profit expressed as a percentage of revenue. This is a key financial measure used by management to evaluate performance and allocate resources |
Adjusted operating profit | Operating profit before amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, the share of profit on disposals in joint ventures, and grossed up to exclude the equity share of taxes in joint ventures. This is a key financial measure used by management to evaluate performance and allocate resources and is presented in accordance with IFRS8-Operating Segments |
Allotted | Issued |
Associate | An entity in which |
Bank borrowings | Payable to banks |
Called up share capital | Issued share capital |
Capital and reserves | Shareholders’ equity |
Cash flow conversion |
Combined businesses | Reed Elsevier PLC, Reed Elsevier NV |
Current instalments of loans | Long term debt due within one year |
Effective tax rate on adjusted operating profit | Tax rate excluding movements on deferred tax balances not expected to crystallise in the near term, more closely aligning with cash taxes payable, and includes the benefit of deductible tax amortisation on acquired goodwill and intangible assets |
EPS | Earnings per ordinary share |
Finance lease | Capital lease |
Free cash flow | Operating cash flow excluding the effects of interest, tax and dividends |
Invested capital | Average capital employed in the year expressed at the average exchange rates for the year. Capital employed represents the net assets of the business before borrowings and derivative financial instruments and current and deferred taxes, after adding back the cumulative amortisation and impairment of acquired intangible assets and goodwill and deducting from goodwill the gross up in respect of deferred tax liabilities recognised on acquisition of intangible assets |
Investments | Non-current investments |
Freehold | Ownership with absolute rights in perpetuity |
Interest receivable | Interest income |
Interest payable | Interest expense |
Net borrowings | Gross borrowings, less related derivative financial instrument assets and cash and cash equivalents |
Net cash acquired | Cash less debt acquired with a business |
Operating costs | Cost of sales plus selling and distribution costs plus administration and other expenses |
Prepayments | Prepaid expenses |
Profit | Income |
Profit attributable | Net income |
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Share based remuneration | Stock based compensation |
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Share premium account | Premiums paid in excess of par value of ordinary shares |
Return on invested capital | Post tax adjusted operating profit expressed as a percentage of average capital employed. This is a key financial measure used by management |
Revenue | Sales |
Underlying growth |
Exhibits filed as part of this annual report
1.1 | Articles of Association of Reed Elsevier PLC (incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 (File No. 333-167058) filed with the SEC on May 25, 2010) | |
1.2 | Articles of Association of Reed Elsevier NV (as amended October 21, 2014) | |
1.3 | Governing Agreement, (as amended on July 17, 2013) between Reed Elsevier PLC and Reed Elsevier NV (incorporated by reference from Exhibit | |
1.4 | RHBV Agreement, dated December 23, 1992 among Elsevier NV and Reed Holding B.V. (incorporated by reference from Exhibit 1.4 to the 2002 Annual Report on Form 20-F filed with the SEC on March 10, 2003) | |
2.1 | Amended and Restated Deposit Agreement, dated as of | |
2.2 | Amended and Restated Deposit Agreement, dated as of | |
4.1 | ||
4.2 |
to the 2003 Annual Report on Form 20-F filed with the SEC on March 15, 2004) | |
4.3 | ||
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| RELX Group plc Long-Term Incentive Plan 2013 (incorporated by reference from Exhibit 10.2 to the Registration Statement on Form S-8 (File No. 333-191419) filed with the SEC on September 27, 2013) | |
4.9 | RELX Group plc Executive Share Option Scheme 2013 (incorporated by reference from Exhibit 10.1 to the Registration Statement on Form S-8 (File No. 333-191419) filed with the SEC on September 27, 2013) | |
4.10 | RELX Group plc Restricted Share Plan 2014 (incorporate by reference from Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-197580) filed with the SEC on July 23, 2014) | |
4.11 | Service Agreement between | |
| Service Agreement between | |
| Letter between | |
8.0 | List of significant subsidiaries, associates, joint ventures and business units | |
12.1 | Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC | |
12.2 | Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC |
12.3 | Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV | |
12.4 | Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV | |
13.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC | |
13.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC | |
13.3 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV |
13.4 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV | |
15.1 | Independent Registered Public Accounting Firm’s Consent — | |
15.2 | Independent Registered Public Accounting Firm’s Consent — Reed Elsevier PLC Consolidated Financial Statements | |
15.3 | Independent Registered Public Accounting Firm’s Consent — Reed Elsevier NV Consolidated Financial Statements | |
16.1 | Letter between Deloitte Accountants B.V. and SEC regarding the change in the registrant’s certifying accountant (dated February 25, 2015) |
The total amount of long term debt securities of Reed Elsevierthe Group authorised under any single instrument does not exceed 10% of the combined total assets of Reed Elsevier.the Group. The Registrants hereby agree to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long term debt of Reed Elsevierthe Group or any of the combined businesses for which consolidated or unconsolidated financial statements are required to be filed.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representation and warranties made by any of the registrants in there agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of Section 12Each of the Securities Exchange Act of 1934, each of the Registrants hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report to be signed on its behalf by the undersigned, thereto duly authorised, on March 12, 2013.behalf.
REED ELSEVIER PLC Registrant | REED ELSEVIER NV Registrant | |
By: /s/ E ENGSTROM
E Engstrom Chief Executive Officer | By: /s/ E ENGSTROM
E Engstrom
Chief Executive Officer | |
By: /s/
Chief Financial Officer | By: /s/
Chief Financial Officer | |
Dated: March | Dated: March |
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