2008 has been a successful year for Reed Elsevier with significant strategic and financial progress.
Strategic and financial progress
On strategy, our focus has been on the reshaping and strengthening of the portfolio, on streamlining the cost base and on product innovation. With the sale of Harcourt Education completed early in the year and the acquisition of ChoicePoint in September, Reed Elsevier has become a sharper, more cohesive and synergistic business. We were clearly disappointed not to be able to sell Reed Business Information due to the difficult credit market and economic conditions, and our priority now is to manage RBI through the economic downturn whilst developing its online franchises further to be better positioned for a more favourable market environment. The major restructuring programme we announced at the start of 2008 is progressing on plan, and is delivering cost savings and support for margin development. Across the portfolio, we have continued to invest in new and enhanced online product offerings to make our customers more productive and Reed Elsevier a more valued partner.
In financial performance, our focus has been on margin development and capital discipline. Good revenue growth, tight cost control and our restructuring programmes have delivered meaningful underlying margin improvement; our cash generation was strong; and our return on capital at record levels. Adjusted earnings per share growth of 15% at constant currencies was the highest rate of growth in the last ten years.
Following the return to shareholders of the net proceeds of the Harcourt Education sale and the acquisition of ChoicePoint, we increased our debt beyond more usual levels for Reed Elsevier. However, with the refinancing programme well advanced and our substantial free cash flow, we are in a strong financial position.
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Outlook
Going into 2009, the economic environment is more challenging than it has been for a long time. Although the professional markets we serve are more resilient than most, they are not immune and business-to-business markets are more significantly affected. Our strategy, however, is clear and the business well positioned, with investment continuing in our online product and restructuring plans already demonstrating results. We should therefore see positive earnings growth at constant currencies in 2009, even if not at the growth levels seen in recent years. The longer term prospects for Reed Elsevier continue to be promising and we are well placed as markets recover.
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Board changes
Crispin Davis will hand over the reins to Ian Smith towards the end of March. Crispin has been CEO for the last nine years which have seen significant change in the publishing industry and the transformation of Reed Elsevier. Today Reed Elsevier is one of the leading digital, professional information companies in the world, and is a market leader in most of its markets, with a strong online presence and well defined strategy going forward. Crispin leaves an impressive record on which to build, and I would like to thank him for his exceptional contribution.
Ian Smith joined Reed Elsevier as CEO-designate in January. Ian is spending his time getting to know Reed Elsevier’s businesses, employees and customers before he takes over from Crispin in March. So far the handover has been smooth and well planned. We have every reason to believe that Ian will provide strong leadership to the business.
I will step down as Chairman and from the Boards following the Annual General Meetings in April 2009. It will not be possible for me to combine the Chairmanship with the CEO position of ING Group which I take up in April.
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Looking back
During my tenure as Chairman, next to my normal duties, I have especially focused on helping management with a number of important areas: management development, capital management, innovation management, portfolio management and making processes and systems more common and standardised. I must compliment the management and the people of Reed Elsevier with the progress they have made in these areas.
I would like to thank my Board colleagues and all those I have worked with over the last four years; it has been a privilege to work with such dedicated and talented people. Although the economic environment is currently the most challenging many of us have ever encountered, it will pass and Reed Elsevier is firmly positioned for long term success for its customers, its employees and its shareholders.
Jan Hommen
Chairman