Basis of preparation
The parent company financial statements have been prepared under the historical cost convention in accordance with UK Generally Accepted Accounting Principles (UK GAAP). Unless otherwise indicated, all amounts in the financial statements are in millions of pounds.
As permitted by Section 230 of the Companies Act 1985, the company has not presented its own profit and loss account. The Reed Elsevier PLC accounting policies under UK GAAP are set out below.
Investments
Fixed asset investments in the Reed Elsevier combined businesses are stated at cost, less provision, if appropriate, for any impairment in value.
Principal joint ventures and subsidiaries are set out in notes 20 and 21 of the Reed Elsevier PLC consolidated financial statements.
Shares held in treasury
The consideration paid, including directly attributable costs, for shares repurchased is recognised as shares held in treasury and presented as a deduction from total equity. Details of share capital and shares held in treasury are set out in notes 12 and 14 of the Reed Elsevier PLC consolidated financial statements.
Foreign exchange translation
Transactions entered into in foreign currencies are
recorded at the exchange rates applicable at the time of the transaction.
Taxation
Deferred taxation is provided in full for timing differences using the liability method. Deferred tax assets are only recognised to the extent that they are considered
recoverable in the short term. Deferred taxation balances are not discounted.
We have audited the individual parent company financial statements of Reed Elsevier PLC for the year ended 31 December 2006 (“the company financial statements”) which comprise the parent company balance sheet, the parent company reconciliation of shareholders’ funds and the parent company accounting policies. These company
financial statements have been prepared under the accounting policies set out therein.
We have also audited the information in the parts of the Directors’ Remuneration Report presented in the Reed Elsevier Annual Reports and Financial Statements 2006 (“the Remuneration Report”) that are described as having been audited. We have reported separately on the
consolidated financial statements of Reed Elsevier PLC for the year ended 31 December 2006.
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors The directors’ responsibilities for the preparation of the directors’ report and the company financial statements in accordance with applicable United Kingdom law and United Kingdom Generally Accepted Accounting Principles are set out in the statement of directors’ responsibilities. They are also responsible for the preparation of the other information contained in the Reed Elsevier Annual Reports and Financial Statements 2006 including, together with the directors of Reed Elsevier NV, the Remuneration Report.
Our responsibility is to audit the company financial statements and the parts of the Remuneration Report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the company financial statements give a true and fair view and whether the company financial statements and the parts of the Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether, in our opinion, the directors’ report is consistent with the company financial statements. The information given in the directors’ report includes the business review that is cross referred from pages 5 to 25 of the Reed Elsevier Annual Reports and Financial Statements 2006.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding
directors’ remuneration and transactions with the company is not disclosed.
We also report to you if, in our opinion, the company has not complied with any of the four directors’ remuneration disclosure requirements specified for our review by the Listing Rules of the Financial Services Authority. These comprise the amount of each element in the remuneration package, information on share options, details of long term incentive schemes, and money purchase and defined benefit schemes. We give a statement, to the extent possible, of details of any non-compliance.
We read the other information contained in the Reed Elsevier Annual Reports and Financial Statements 2006 and
described in the contents section including the unaudited parts of the Remuneration Report and consider whether it is consistent with the audited company financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the company financial statements. Our responsibilities do not extend to any further information outside the Reed Elsevier Annual Reports and Financial Statement 2006.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the company financial statements and the part of the Remuneration Report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the company financial statements and the parts of the Remuneration Report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the company financial statements and the parts of the Remuneration Report described as having been audited.
Opinion In our opinion:
> The company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Principles, of the state of the company’s affairs as at 31 December 2006;
> the company financial statements and the parts of the Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985: and
> the information given in the directors’ report is consistent with the company financial statements.
Deloitte & Touche LLP Chartered Accountants and Registered Auditors
London
United Kingdom 14 February 2007
financial statements
The Supervisory Board’s report 126 The Executive Board’s report 127 Consolidated financial statements 128 Group accounting policies 130 Notes to the consolidated financial
statements 132 Independent auditors’ report on the
consolidated financial statements 138 Additional information 138 Parent company financial statements 139 Parent company accounting policies 140 Notes to the parent company
financial statements 141 Independent auditors’ report on
the parent company financial
statements 142 Additional information 143
J Hommen, Chairman D E Reid
G J de Boer-Kruyt Lord Sharman of Redlynch OBE
M W Elliott R W H Stomberg
L Hook (appointed S Zelnick 19 April 2006)
C J A van Lede
Together with the Executive Board, we herewith submit to the Annual General Meeting for adoption Reed Elsevier NV’s annual report and financial statements, comprising the consolidated financial statements and the parent company financial statements for the financial year ended
31 December 2006. The financial statements have been drawn up in accordance with the accounting policies explained on pages 130, 131 and 140 of this document and have been examined by Deloitte Accountants BV, Amsterdam. Their reports and opinions are set out on pages 138 and 142. The combined financial statements on pages 54 to 90 are part of the notes to and form an integral part of these statutory financial statements. Additional information providing a translation into euros of the primary combined financial statements and selected notes is presented on pages 94 to 103.
We refer to the Chairman and Chief Executive’s Report and to the other reports contained within the Reed Elsevier Annual Review and Summary Financial Statements 2006 and the Reed Elsevier Annual Reports and Financial Statements 2006. These reports explain the business results of 2006, the financial state of the company as at 31 December 2006, and contain disclosures in respect of corporate governance, systems of internal control and risk management, corporate responsibility, remuneration of board members and key strategic issues.
The equalisation agreement between Reed Elsevier NV and Reed Elsevier PLC has the effect that the respective shareholders can be regarded as having the interests of a single economic group and provides that Reed Elsevier NV shall declare dividends such that the dividend on one Reed Elsevier NV ordinary share, which shall be payable in euros, will equal 1.538 times the cash dividend, including, other than in special circumstances, the related UK tax credit, paid on one Reed Elsevier PLC ordinary share. In that context, the combined meeting of the members of the Supervisory and Executive Boards (the Combined Board) determines the amounts of the company’s profit to be retained. The ordinary shares and the R-shares are entitled to receive distribution in proportion to their nominal value. The Combined Board may resolve to pay less per R-share, but not less than 1% of their nominal value. Details of dividends are contained in note 6 to the consolidated financial statements.
The Combined Board of Reed Elsevier NV, together with the board of Reed Elsevier PLC, approved the introduction of an annual share repurchase programme in 2006 to further improve capital efficiency. During 2006 a total of 13.4m ordinary shares of the company were repurchased under the programme at a cost of a156m and are held in treasury.
Reed Elsevier’s policies, practices and disclosures, and an explanation of the way in which Reed Elsevier has complied with the Dutch Corporate Governance Code, are set out in pages 26 to 31 of the Reed Elsevier Annual Reports and Financial Statements 2006.
At the forthcoming Reed Elsevier NV Annual General Meeting on 18 April 2007, Messrs Hommen and Stomberg and Lord Sharman will retire by rotation as members of the
Supervisory Board and, being eligible, will offer themselves for re-election. Mr van Lede will retire as a member of the Supervisory Board at the conclusion of the Annual General Meeting and a resolution to appoint Robert Polet as a member of the Supervisory Board will be submitted to the meeting. Messrs Armour and Engstrom will retire by rotation as members of the Executive Board and, being eligible, will offer themselves for re-election. A recommendation will be made at the Annual General Meeting for the appointment of these directors.
The Supervisory Board Registered office
14 February 2007 Radarweg 29
Sir Crispin Davis, Chairman E Engstrom M H Armour, Chief Financial Officer A Prozes
G J A van de Aast P Tierney
We refer to the Chairman and Chief Executive’s Report and to the other reports contained within the Reed Elsevier Annual Review and Summary Financial Statements 2006 and the Reed Elsevier Annual Reports and Financial Statements 2006. These reports explain the business results of 2006, the financial state of the company as at 31 December 2006, and the key operational and strategic issues.
As explained in the financial statements on pages 128 to 143, Reed Elsevier NV prepares its consolidated financial
statements in accordance with International Financial Reporting Standards and its parent company financial statements in accordance with generally accepted accounting principles in the UK.
In the consolidated financial statements, the profit attributable to the shareholders of Reed Elsevier NV was
a458m (2005: a338m) and net assets as at 31 December
2006, principally representing the investments in Reed Elsevier Group plc and Elsevier Reed Finance BV under the equity method, were a1,465m (2005:a1,438m).
In the parent company financial statements, the profit attributable to the shareholders of Reed Elsevier NV was
a1,114m (2005: a188m) and net assets as at 31 December
2006, principally representing the investments in Reed Elsevier Group plc and Elsevier Reed Finance BV under the historical cost method and loans to their subsidiaries, were
a2,866m (2005: a2,112m). Free reserves as at 31 December
2006 were a1,256m (2005:a570m). Following receipt of a
dividend from Reed Elsevier Overseas BV of a750m on 14 February 2007, the free reserves of the company, after taking account of other income and expenses from 1 January 2006 to 14 February 2007, were a2,007m.
The Executive Board Registered office
14 February 2007 Radarweg 29
2006 2005
For the year ended 31 December Note dm am
Administrative expenses 1 (3) (3)
Share of results of joint ventures 10 455 339
Operating profit 452 336
Finance income 4 7 2
Profit before tax 459 338
Taxation 5 (1) –
Profit attributable to ordinary shareholders 458 338
Earnings per ordinary share
2006 2005
For the year ended 31 December Note d a
Basic earnings per share 7 d0.59 a0.43
Diluted earnings per share 7 d0.59 a0.43
Consolidated cash flow statement
2006 2005
For the year ended 31 December Note dm am
Cash flows from operating activities
Cash used by operations 9 (3) (5)
Interest received 12 1
Tax (paid)/received (1) 2
Net cash flow from/(used in) operating activities 8 (2)
Dividends received from joint ventures 1,111 189
Cash flows from financing activities
Equity dividends paid 6 (272) (245)
Proceeds on issue of ordinary shares 68 18
Purchase of treasury shares (156) –
(Increase)/decrease in net funding balances due from joint ventures 9 (612) 16
Net cash used in financing activities (972) (211)
2006 2005
As at 31 December Note dm am
Non-current assets
Investments in joint ventures 10 760 1,487
Current assets
Amounts due from joint ventures – funding 626 14
Amounts due from joint ventures – other 3 8
Cash and cash equivalents 148 1
777 23 Total assets 1,537 1,510 Current liabilities Payables 11 8 8 Taxation 64 64 Total liabilities 72 72 Net assets 1,465 1,438
Capital and reserves
Share capital issued 12 48 47
Paid-in surplus 13 1,562 1,495
Shares held in treasury (including in joint ventures) 14 (282) (68)
Translation reserve 15 (70) 76
Other reserves 16 207 (112)
Total equity 1,465 1,438