Continuing investment in new products and innovation, and in sales and marketing initiatives, is driving momentum across our business

FINANCIAL RESULTS
In 2002, revenues were up 10% to £5,020 million/9% to 7,982 million, including a full year contribution from the Harcourt acquired businesses. At constant exchange rates, revenues were up 13%.

Adjusted pre-tax profits were 9% higher at £927 million/8% at 1,474 million, representing an 11% increase at constant exchange rates. The incremental contribution from the Harcourt acquisition offset the dilutive impact of other acquisitions and disposals. Adjusted figures are stated before amortisation of goodwill and intangible assets and exceptional items.

Underlying revenue and adjusted operating profit growth, including the Harcourt acquired businesses on a proforma basis, were 1% and 8% respectively, or 4% and 9% excluding the Business division which has been the most affected by the global economic slowdown. Overall operating margins at 22.6% were 0.9 percentage points higher. Tight cost control and Harcourt integration benefits more than offset the effect of lower margin acquired businesses.

Adjusted operating cashflow at £1,010 million/1,606 million represents a strong 89% conversion of adjusted operating profits into cash.

The Science & Medical business, now branded Elsevier, had a good year with strong subscription renewals and growing online sales, as well as a very successful medical book publishing programme. Revenues and adjusted operating profits were up 29% and 26% respectively at constant exchange rates, with underlying growth of 6% and 11% including the Harcourt STM businesses on a proforma basis.

In the Science & Technology business, subscription renewals are strong, migration to electronic only contracts is accelerating, and sales of new information services, including backfiles and subject collections, are going well. The Harcourt journal content has been migrated to the ScienceDirect service, which now covers 72% of the subscription base by value. In Health Sciences, there has been a major turnaround in the Harcourt business, moving from 3% proforma revenue growth in 2001 to 6% in 2002, and outperforming the market. The business has been reinvigorated under a new management team, with much greater focus on new product investment, sales and marketing. Good growth in book sales came from a strong publishing programme and increased demand from the expanding healthcare professions. Electronic revenues are also growing well with new subscribers and new online services.

Across both Elsevier businesses, usage of online services is growing strongly and helping offset the pressures on institutional budgets, through delivering greater customer productivity and value. The integration of the Harcourt businesses is now mostly complete and much of the resulting cost savings is being reinvested in further growth initiatives.

The Legal business, now branded LexisNexis, performed well, with continued momentum in the turnaround of the business seen in the prior year. Revenues and adjusted operating profits were up 5% and 10% respectively at constant exchange rates, or 4% and 11%, excluding acquisitions and disposals; a very satisfactory performance in markets that have been affected by the economic slowdown. LexisNexis continues, we believe, to outperform the US legal markets with revenue growth of 4%, driven by good growth in online usage and building customer preference. Online revenues were 8% ahead with particularly strong growth in sales to the small law firm market. In corporate and federal markets, continued strong growth in risk solutions is more than compensating for weakness in corporate business information, to deliver 5% revenue growth. The LexisNexis International businesses performed satisfactorily, other than in Latin America where conditions remain particularly difficult. Operating margins improved by 1.2 percentage points to 21.3% as we continue to focus on building the margin across the Legal business, especially in the US, whilst releasing funds for further investment.

The Education business, now branded Harcourt Education, has performed well against a schools market that was weaker than in the prior year. Revenues and adjusted operating profits were up 78% and 45% respectively at constant exchange rates, or underlying 2% and 4% including the Harcourt US education business acquired in 2001 on a proforma basis. The US schools market was an estimated 5% lower in 2002 with a weak adoption cycle compounded by more cautious spending by US states, with budgets under pressure and deferral of spend in anticipation of increased federal funding. Harcourt offset this market decline through a significant outperformance, gaining the leading share of the new state adoption revenues available and performing well in backlist sales and in open territories to deliver revenues marginally ahead of the prior year. The Testing business acquired with Harcourt had another good year with good growth from state testing contracts and new publishing, delivering revenues 8% ahead of a particularly strong 2001. Integration and rationalisation of the Harcourt businesses is yielding higher than expected savings enabling additional investment in the business, particularly in electronic learning, whilst improving margins. Outside the US, growth in the Harcourt Education International business was held back by a much lower UK primary schools market against a prior year of significant curriculum change.

The Business division, now branded Reed Business, saw another year of significant outperformance in a very difficult market. Through a continued focus on building market share, managing yields and aggressive action to reduce costs, underlying revenue decline was limited to 6% and profits were increased by 2%. The sector and geographic spread of the business, its market leading positions and the mix of subscription sales also helped to mitigate the decline in advertising markets. Reported revenues and adjusted operating profits were 14% and 4% lower respectively at constant exchange rates reflecting the disposal of the travel publishing and other non-core businesses in 2001. The Exhibitions business, although affected by late cycle pressures in its markets, delivered underlying revenues only 1% lower and flat adjusted operating profits, a very satisfactory performance in difficult markets reflecting the strength of its shows and tight cost management.

Disposals and acquisitions, other than Harcourt, reduced adjusted pre-tax profits against the prior year by 3%, principally due to the lost contribution from the travel publishing businesses and the investment we are making in electronic development at the Courtlink and Classroom Connect acquisitions. This dilution is offset by a full year versus part year contribution after financing of the acquired Harcourt businesses.

Amortisation of goodwill and intangible assets at £527 million/838 million was £26 million/32 million higher than in the prior year reflecting the 2001 and 2002 portfolio changes less some currency translation effects. Exceptional pre-tax charges of £111 million/176 million relate to acquisition integration and other restructuring, in which we have seen over 1,500 positions eliminated, and disposals. After tax, and including prior year tax credits, exceptional items showed a net gain of £11 million/18 million.

The reported profit before tax, including the amortisation of goodwill and intangible assets and exceptional items, was £289 million/460 million, which compares with £275 million/442 million in the prior year. The reported attributable profit of £181 million/288 million increased against a reported attributable profit of £126 million/202 million in the prior year.