Análisis e interpretación de resultados de la encuesta aplicada a los padres

The carrying amount of derivative financial liabilities comprises £9m (2008: nil) in relation to fair value hedges, £67m (2008: £240m) in relation to cash flow hedges and £26m (2008: £18m) held for trading. The carrying amount of derivative financial assets comprises £50m (2008: £41m) in relation to fair value hedges, £12m (2008: £8m) in relation to cash flow hedges and £9m (2008: £27m) held for trading. Derivative financial assets and liabilities held for trading comprise interest rate derivatives and forward foreign exchange contracts that were not designated as hedging instruments.

At 31 December 2009, Reed Elsevier had access to a $2,500m committed bank facility maturing in May 2010, which was undrawn, and a $2,000m committed bank facility, forward starting in May 2010 and maturing in May 2012. In January 2010 the $2,500m committed facility maturing in May 2010 was cancelled and the start date of the $2,000m committed facility brought forward to start immediately. This back up facility provides security of funding for $2,000m of short term debt to May 2012.

After taking account of the maturity of committed bank facilities that back short term borrowings at 31 December 2009, and after utilising available cash resources, no borrowings mature within one year (2008: nil), no borrowings mature in the second year (2008: 31%), 19% of borrowings mature in the third year (2008: 33%), 35% in the fourth and fifth years (2008: 12%), 36% in the sixth to tenth years (2008: 16%), and 10% beyond the tenth year (2008: 8%).

Market risk

Reed Elsevier’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 Elsevier 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 risk

Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses to changes in interest rates.

At 31 December 2009, 90% of net 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 £4m (2008: £25m), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at 31 December 2009. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £4m (2008: £25m).

The impact on net equity of a theoretical change in interest rates as at 31 December 2009 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. A 100 basis point reduction in interest rates would result in an estimated reduction in net equity of £14m (2008: £39m) and a 100 basis point increase in interest rates would increase net equity by an estimated £15m (2008: £38m). 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 risk

Translation exposures arise on the earnings and net assets of business operations in countries with currencies other than sterling, most particularly in respect of the US businesses. 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 (see note 25).

A theoretical weakening of all currencies by 10% against sterling at 31 December 2009 would decrease the carrying value of net assets, excluding net borrowings, by £466m (2008: £551m). This would be offset to a large degree by a decrease in net borrowings of £321m (2008: £495m). A strengthening of all currencies by 10% against sterling at 31 December 2009 would increase the carrying value of net assets, excluding net borrowings, by £581m (2008: £685m) and increase net borrowings by £392m (2008: £605m).

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 £17m (2008: £38m). A 10% strengthening of all foreign currencies against sterling on this basis would increase net profit for the year by £20m (2008: £46m).

Notes to the combined financial statements

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Credit risk

Reed Elsevier 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 Elsevier 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 Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A by Standard and Poor’s, Moody’s or Fitch.

Reed Elsevier 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 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 £248m (2008: £284m); past due two to three months £66m (2008: £123m); past due four to six months £25m (2008: £35m); and past due greater than six months nil (2008: £11m). 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 credit worthiness 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 Elsevier 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 £1,104m were in place at 31 December 2009 swapping fixed rate term debt issues denominated in sterling, euros and Swiss francs (CHF) to floating rate sterling, euro and US dollar (USD) debt respectively for the whole of their term (2008: £300m swapping fixed rate term debt issues denominated in CHF to floating rate USD debt for the whole of their term).

Notes to the combined financial statements

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The gains and losses on the borrowings and related derivatives designated as fair value hedges, which are included in the income statement, for the two years ended 31 December 2009 were as follows:

Fair value Fair value

1 January movement De- Exchange 1 January movement Exchange 31 December Gains/(losses) on borrowings 2008 gain/(loss) designated gain/(loss) 2009 gain/(loss) gain/(loss) 2009

and related derivatives £m £m £m £m £m £m £m £m

GBP debt – – – – – 9 – 9

Related interest rate swaps – – – – – (9) – (9)

– – – – – – – –

EUR debt – – – – – (2) – (2)

Related interest rate swaps – – – – – 2 – 2

– – – – – – – –

USD debt (15) (46) 62 (1) – – – –

Related interest rate swaps 15 46 (62) 1 – – – –

– – – – – – – –

EUR debt (149) 161 – (12) – – – –

Related EUR to USD cross currency

interest rate swaps 149 (161) – 12 – – – –

– – – – – – – –

CHF debt (6) (25) – (10) (41) (11) 4 (48)

Related CHF to USD cross currency

interest rate swaps 6 25 – 10 41 11 (4) 48

– – – – – – – –

Total GBP, USD, EUR and CHF debt (170) 90 62 (23) (41) (4) 4 (41)

Total related interest rate derivatives 170 (90) (62) 23 41 4 (4) 41

Net gain – – – – – – – –

All fair value hedges were highly effective throughout the two years ended 31 December 2009.

Gross borrowings as at 31 December 2009 included £59m (2008: £78m) 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 £62m. £11m (2008: £2m) of these fair value adjustments were amortised in the year as a reduction to finance costs.

Cash flow hedges

Reed Elsevier enters into two types of cash flow hedge:

(1) Interest rate derivatives which fix the interest expense on a portion of forecast floating rate debt (including commercial paper, short term bank loans and floating rate term debt).

(2) Foreign exchange derivatives which fix the exchange rate on a portion of future foreign currency subscription revenues forecast by the Elsevier science and medical businesses for up to 50 months.

Movements in the hedge reserve (pre-tax) in 2008 and 2009, including gains and losses on cash flow hedging instruments, were as follows:

Foreign Total hedge Interest rate exchange reserve hedges hedges pre-tax

£m £m £m

Hedge reserve at 1 January 2008: (losses)/gains deferred (8) 36 28 Losses arising in 2008 (60) (183) (243) Amounts recognised in income statement 6 (25) (19) Exchange translation differences (18) (4) (22) Hedge reserve at 1 January 2009: losses deferred (80) (176) (256)

(Losses)/gains arising in 2009 (11) 64 53

Amounts recognised in income statement 46 58 104

Exchange translation differences 7 3 10

Hedge reserve at 31 December 2009: losses deferred (38) (51) (89)

Notes to the combined financial statements

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Of the amounts recognised in the income statement in the year, losses of £58m (2008: gains of £25m) were recognised in revenue, and losses of £46m (2008: £6m) were recognised in finance costs. A tax credit of £20m (2008: charge of £5m) was recognised in relation to these items.

The deferred losses on cash flow hedges at 31 December 2009 are currently expected to be recognised in the income statement in future years as follows:

Total Foreign hedge Interest rate exchange reserve hedges hedges pre-tax

£m £m £m 2010 (19) (33) (52) 2011 (11) (16) (27) 2012 (6) (1) (7) 2013 (2) (1) (3) 2014 – – –

Losses deferred in hedge reserve at end of year (38) (51) (89)

The cash flows for these hedges are expected to occur in line with the recognition of the 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.