Reed Elsevier Results 2010 Mark Armour, CFO Erik Engstrom, CEO This presentation contains forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. These statements are subject to a number of risks and uncertainties that could cause actual results or outcomes to differ materially from those currently being anticipated. The terms “estimate”, “project”, t i ll f th tl b i ti i t d Th t “ ti t ” “ j t” “plan”, “intend”, “expect”, “should be”, “will be”, “believe” and similar expressions identify forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to: general economic and business conditions; competitive factors in the industries in which Reed Elsevier operates; demand for Reed Elsevier's products and services; exchange rate fluctuations; legislative, fiscal and regulatory developments; political risks; changes in law and legal interpretations affecting Reed Elsevier's intellectual risks; changes in law and legal interpretations affecting Reed Elsevier s intellectual property rights and internet communications; the availability of third party content and data; terrorism, acts of war and pandemics; the impact of technological change; and other risks referenced from time to time in the filings of Reed Elsevier PLC and Reed Elsevier NV with the US Securities and Exchange Commission. 2 1
Mark Armour, CFO 3 2010 financial highlights Improved trading performance in stabilising / improving markets • – Underlying revenue: +2% (2009: -6%) – Underlying adjusted operating profit: -1% (2009: -9%) Adjusted operating margin -0 2%pts at 25 7% Adjusted operating margin -0.2%pts at 25.7% • – Step-up in product development, sales & marketing largely offset by cost efficiencies Adjusted eps: Reed Elsevier PLC -5%; Reed Elsevier NV -1% (inc. 4% dilution • from July 2009 equity placing) Reported profits strongly ahead • – Exceptional restructuring charges significantly reduced Strong cash flow generation: free cash flow pre dividends £1,023m/€1,196m • – Cash conversion rate 98% (2009: 99%) Good financial position: net debt / adjusted ebitda 2.5x* (2009: 2.9x) • Return on invested capital 0.2% pts higher at 10.6% • *Pension and lease adjusted 4 2
Adjusted profit and loss 2010 2009 % % change Year to 31 December £m £m change constant Revenue -1% 6,055 6,071 0% Adjusted operating profit -2% 1,555 1,570 -1% Net interest expense (276) (291) Adjusted profit before tax -1% 1,279 1,279 0% Tax (290) (293) Minority interests (6) (4) Adjusted net profit -1% 983 982 0% Adjusted figures are stated before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposal gains / losses and anomalous tax effects 5 Adjusted profit and loss 2010 2009 % change % change Year to 31 December £m £m % change constant underlying Revenue Revenue -1% 1% +2% +2% 6 055 6,055 6 071 6,071 0% 0% Adjusted operating profit -2% -1% 1,555 1,570 -1% Adjusted operating margin -0.2%pts -0.7%pts 25.7% 25.9% -0.2%pts Return to underlying revenue growth; includes benefit of biennial exhibition cycling • Increased new product development, sales & marketing largely offset by cost I d d d l l & k i l l ff b • efficiency gains; benefit of RBI and 2008/2009 restructuring programmes Divestments of low return assets; 0.5% margin benefit • Underlying change fully excludes results of acquisitions and disposals made both in year and in prior year 6 3
Revenue: £6,055m £m % change % change Year to 31 December 2010 constant underlying Elsevier Elsevier +2% +2% +2% +2% 718 LexisNexis +1% +1% 693 2,026 Reed Exhibitions +9% +8% Reed Business Information -20% -2% 2,618 2 618 Reed Elsevier -1% +2% 7 Adjusted operating profit: £1,555m £m % change % change Year to 31 December 2010 constant underlying Elsevier El i +4% 4% +4% 4% 89 158 LexisNexis -12% -12% Reed Exhibitions +4% +4% 724 592 Reed Business Information 0% +4% Reed Elsevier -2% -1% 8 4
Change in underlying revenue, cost, profit Adjusted Adjusted operating operating Year to 31 December 2010 Revenue cost profit Elsevier El i +2% 2% +1% 1% +4% 4% +1% +6% -12% LexisNexis Reed Exhibitions +8% +10% +4% -2% -3% +4% Reed Business Information +2% 2% +3% 3% -1% 1% Reed Elsevier – underlying -1% -1% -2% Reed Elsevier - total % underlying change excluding acquisitions and disposals 9 Adjusted operating cash flow 2010 2009 Year to 31 December £m £m Adjusted operating profit j p g p 1,555 , 1,570 , Capital expenditure (311) (242) Depreciation 237 223 (74) (19) Working capital and other items 38 7 Adjusted operating cash flow 1,519 1,558 Cash flow conversion rate 98% 99% 10 5
Capital expenditure % of 2010 2010 2009 Year to 31 December revenues £m £m Elsevier 4% 79 72 LexisNexis LexisNexis 8% 8% 209 209 140 140 Reed Exhibitions 1% 10 11 Reed Business Information 2% 13 19 Total 5% 311 242 Increased investment in next generation of legal products and operations • infrastructure Capital expenditure to remain at broadly similar percentage level • 11 Adjusted profit and loss 2010 2009 % % change Year to 31 December £m £m change constant Adjusted operating profit 1,555 1,570 -1% -2% Net interest expense N t i t t (276) (276) (291) (291) Adjusted profit before tax 1,279 1,279 0% -1% Tax (290) (293) Adjusted tax rate % 22.7% 22.9% Minority interests (6) (4) Adjusted net profit 983 982 0% -1% • Interest expense: benefit of free cash flow and July 2009 share placings; full year of higher coupon term debt issued in 2009; low marginal interest rates • Adjusted effective tax rate similar to prior year 12 6
Adjusted earnings per share Year to 31 December 2010 2009 % 2010 2009 % Adjusted net profit: Reed Elsevier £983m £982m 0% €1,150m €1,099m , , +5% PLC (52.9%) £520m £519m 0% NV (50.0%) €575m €550m +5% Average number of shares: PLC (m) 1,199.1 1,131.4 +6% NV (m) 734.5 693.9 +6% Adjusted earnings per share: PLC 43.4p 45.9p -5% NV €0.78 €0.79 -1% 13 Reported profit before tax 2010 2009 % Year to 31 December £m £m change Adjusted profit before tax 1,279 1,279 0% Adjustments Amortisation of acquired intangible assets (349) (368) Impairment of acquired intangible assets and goodwill - (177) Exceptional restructuring costs (57) (182) Acquisition integration costs (50) (48) Reclassification of tax in joint ventures (9) (8) Disposals and other non-operating items (46) (61) Reported profit before tax 768 435 +77% 14 7
Free cash flow 2010 2009 % Year to 31 December £m £m change Adjusted operating cash flow 1,519 1,558 -3% Interest paid (287) (293) Tax paid (101) (214) Free cash flow before exceptional spend 1,131 1,051 +8% Restructuring / acquisition integration* (108) (133) Free cash flow before dividends 1,023 918 Ordinary dividends (483) (457) Free cash flow post dividends Free cash flow post dividends 540 540 461 461 Benefit of one-off tax repayments from prior years • Reducing exceptional restructuring spend as programmes run off • *Including cash tax relief / repayments 15 Movement in net debt £m $m Net debt at 31 December 2009 (3,931) (6,349) Free cash flow post dividends 540 835 Acquisitions / disposals: Disposals* 40 62 Acquisitions* (39) (61) 1 1 Net proceeds from share options exercised / other 12 19 Currency translation (77) 107 Net debt at 31 December 2010 (3,455) (5,387) • Net debt / adjusted ebitda 2.5x (pensions and lease adjusted) (2009: 2.9x) *Including cash tax relief / repayments 16 8
Balance sheet 2010 2009 £m £m Goodwill & intangible assets 7,898 7,971 Tangible fixed assets 291 292 Investments & net assets held for sale 184 176 Net pensions obligations (170) (235) Working capital (1,000) (857) Capital employed 7,203 7,347 Shareholders’ equity 1,943 1,732 Net debt 3,455 3,931 Current & deferred tax (net) 1,687 1,543 Other net liabilities / minorities 118 141 7,203 7,347 17 Post tax return on invested capital 2010 2009 £m £m Taxed adjusted operating profit 1,202 1,210 Average invested capital at average exchange rates 11,332 11,609 Return on average invested capital 10.6% 10.4% Strong cash generation and capital efficiency g g p y • Divestment of low return assets • 18 9
Dividends Reed Elsevier Reed Elsevier PLC NV Equalised dividends: Interim dividend 5.4p 0% €0.109 +2% Final dividend (proposed) 15.0p 0% €0.303 +3% Total 20.4p 0% 0.412 +3% Dividend cover 2.1x 1.9x • Difference in dividend growth rates reflects changes in the euro:sterling exchange rate since prior year dividend announcement dates – Interim: 2010 €1.18:£1 v €1.16:£1 for 2009 – Final: 2010 €1.18:£1 v €1.14:£1 for 2009 19 Erik Engstrom, CEO 20 10
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