Chairman’s statement
Our 2009 results were relatively robust given the depth of the global recession. During the second half we substantially strengthened our balance sheet through both an equity placing and good cash generation.
In November, Erik Engstrom took over as CEO and, as expected, hit the ground running. The late cycle nature of some of our markets makes for a tough environment in 2010 but the fundamentals of our businesses are strong, our balance sheet is in good shape and new management is in place with the background, experience and ambition to drive the business forward.
I am pleased to make this first report as Chairman of Reed Elsevier. The downturn in the economies in all our major geographies in 2009 was deep and unprecedented and it is a testament to the robustness of the business that Reed Elsevier delivered an increase in revenues and adjusted operating profits of 14% to £6,071m and £1,570m respectively expressed in sterling, and an increase of 1% to €6,800m and €1,758m respectively expressed in euros. (The higher sterling growth reflects the impact on currency translation of the weakness of sterling against the US dollar and euro.)
At constant currencies, revenues were flat and adjusted operating profits up 1%. (Adjusted operating profits are stated before amortisation and impairment of acquired goodwill and intangible assets and exceptional restructuring costs.) The ChoicePoint business, acquired in September 2008, delivered a strong first year contribution with proforma adjusted operating profit growth of 44%. Its insurance sector business performed well and the integration of ChoicePoint with LexisNexis’ Risk Solutions business has been well managed.
Underlying revenue, i.e. excluding ChoicePoint, was 6% lower. Reed Elsevier’s core professional information businesses held up well, but advertising and promotion markets were significantly impacted by the economic downturn. Firm action on costs, including execution of the exceptional restructuring programmes first announced two years ago and now mostly complete, has meant that underlying adjusted operating margins were only 0.8 percentage points lower than in 2008 and, including ChoicePoint, the adjusted operating margin was flat at 25.9%. This is a highly creditable achievement. Adjusted profit before tax was up 6% to £1,279m/6% lower to €1,432m after higher net interest expense.
Including intangible asset amortisation, impairment charges and other exceptional items, reported operating profits were 22% lower at constant currencies mostly due to impairment charges. Reported earnings per share for Reed Elsevier PLC were 22% lower at 17.2p and for Reed Elsevier NV 27% lower at €0.32.
Adjusted earnings per share were up 3% for Reed Elsevier PLC at 45.9p and 8% lower for Reed Elsevier NV at €0.79. This takes into account 4% dilution from the July equity placing.
Dividends
The Boards are recommending equalised final dividends of 15.0p for Reed Elsevier PLC and €0.293 for Reed Elsevier NV, flat and up 1% respectively against the prior year. This brings the total dividend for the year to 20.4p for Reed Elsevier PLC and €0.40 for Reed Elsevier NV, respectively a slight increase of 0.5% and a decrease of 1%. The differing dividend growth rates reflect movements in the sterling-euro exchange rate between dividend announcement dates.
Balance sheet
During the year significant steps were taken to strengthen the balance sheet following the $4.1 billion acquisition of ChoicePoint and the onset of global recession. Term debt totalling $2.8 billion was issued in the first quarter of 2009 and in July we raised $1.3 billion from the equity placings albeit at the expense of earnings dilution. These together with excellent cash generation and capital discipline have ensured that we have the balance sheet to support our business strategies in uncertain economic times.
Boards
We have entered 2010 with a new Chief Executive Officer, a relatively recently appointed Chairman and strong independent Boards. Erik Engstrom’s appointment as CEO in November is already providing us with positive leadership based on both a fresh approach and the combination of international media sector experience and depth of knowledge of Reed Elsevier built up over five highly successful years as CEO of Elsevier and an executive member of the Boards. The strong independent non-executive component of the Boards was further enhanced by the appointment of Ben van der Veer in September. Ben’s wide experience and knowledge of international business and finance is of great value to us. The Reed Elsevier NV Supervisory Board was also enhanced with the appointment of Marike van Lier Lels in January 2010. Marike’s appointment is in anticipation of the retirement of Dien de Boer-Kruyt after ten very constructive years as a member of that Board.
As was reported in last year’s Annual Report, Crispin Davis retired after nine years as CEO in March 2009 and Jan Hommen stepped down in April after four years as Chairman. Ian Smith who had been appointed to the Board as CEO designate in January resigned in November by mutual agreement. I would like to thank Ian for his contribution over a period of unprecedented economic turbulence. I would also like to add my personal thanks with those of my fellow Board members to Crispin and Jan for their stewardship of Reed Elsevier over many years. They have left behind a strong business which is well placed in its international markets.
Going forward
The late cycle nature of some of our markets is making for a tough environment in 2010 but the fundamentals of our businesses are strong, our balance sheet is in good shape and new management is in place with the background, experience and ambition to drive the business forward.
Anthony Habgood
Chairman
