StockMarketWire.com - Educational publisher Reed Elsevier said it enjoyed first half underlying growth in all businesses with an improving performance from large subscription and data businesses.

Adjusted operating margin was up 1.3% pts at 26.6% and there was a return to growth in adjusted earnings per share of 5%.

The full year outlook was reaffirmed.

Adjusted operating profit was £774m/€890m for the half-year to end-June (2010: £758m/€872m), up 2% expressed in both sterling and euros. At constant exchange rates, adjusted operating profits were up 3%. Underlying adjusted operating profits, ie excluding acquisitions and disposals, were 2% higher. Profit performance across the business is described in the Operating Review.

Total costs were reduced by 2% at constant exchange rates reflecting the sale and closure of low-returning assets and continued tight cost control as the business returned to growth.

The overall adjusted operating margin at 26.6% was 1.3 percentage points higher than in the prior first half.

The net pension expense, before the net pension financing credit, was £49m/€56m (2010: £47m/€54m). The net pension financing credit was £17m/€20m (2010: £13m/€15m). The share based and related remuneration charge was £18m/€21m (2010: £8m/€9m).

Adjusted profit before tax was £662m/€761m (2010: £624m/€718m), up 6% against the prior first half when expressed in both sterling and euros, and at constant exchange rates, reflecting the increase in adjusted operating profits and the lower net interest expense.

The effective tax rate on adjusted profit before tax was 23.3% (2010: 22.5%; full year 22.7%) reflecting the geographic mix of the net increase in pre-tax profits.

The adjusted net profit attributable to shareholders of £506m/€582m (2010: £482m/€554m) was up 5% when expressed in both sterling and euros, and at constant exchange rates.

Adjusted operating cash flow was £692m/€796m (2010: £743m/€854m), down 7% when expressed in both sterling and euros, or down 8% at constant currencies.

The rate of conversion of adjusted operating profits into cash flow in the first half was 89% (2010: 98%). The adjusted operating cash flow for the last 12 months to 30thune 2011 was £1,468m/€1,719m (2010: £1,584m/€1,796m) representing a cash flow conversion rate of 93% (2010: 102%).

Capital expenditure included within adjusted operating cash flow was £154m/€177m (2010: £134m/€154m), including £116m/€133m (2010: £101m/€116m) in respect of capitalised development costs included within internally generated intangible assets.

Free cash flow before dividends was £440m/€506m (2010: £569m/€654m). Ordinary dividends paid to shareholders in the first half, being the 2010 final dividends, amounted to £363m/€417m (2010: £356m/€409m). Free cash flow after dividends was £77m/€89m (2010: £213m/€245m).

Spend on acquisitions and investments was £139m/€160m, including debt acquired and deferred consideration on past acquisitions. An amount of £69m/€79m was capitalised in the year as acquired intangible assets and £92m/€106m as goodwill. Net cash proceeds from disposals amounted to £19m/€22m. Tax paid in respect of disposals was nil (2010: £103m/€118m tax repayment).

Net borrowings at 30thune 2011 were £3,404m/€3,779m, a decrease of £51m/€264m since 31st December 2010, reflecting currency translation effects on the largely US dollar denominated net debt. Excluding currency translation effects, net debt increased by £37m/€42m reflecting the seasonally low first half free cash flow and acquisition spend.

As at 30 June 2011, after taking into account interest rate and currency derivatives, a total of 66% of Reed Elsevier's gross borrowings were at fixed rates with a weighted average remaining life of 6.0 years and interest rate of 6.2%.

The ratio of net debt to ebitda (earnings before interest, tax, depreciation and amortisation) as at 30th June 2011 was 1.9x (31st December 2010: 1.9x), and 2.4x (31st December 2010: 2.5x) on a pensions and lease adjusted basis.

CEO, Erik Engstrom, commented: 'The first half has seen the growth trajectory improve with our large subscription and data revenues strengthening and most of our cyclical businesses recovering.

'Good growth in global scientific and medical research activity has supported spend on research information and tools. The risk business with its pipeline of new product innovation is expanding its data and analytics across insurance carriers' workflow. In our legal businesses new sales continue to grow and our product and content enhancements are resonating well with customers. Our exhibitions are demonstrating the value of their offering with strong growth in the annual shows and a further acceleration of the new launch programme. Reed Business Information has returned to underlying revenue growth and delivered its highest margin in recent history, as it continued to focus the portfolio on high growth data services and online marketing, and increased the efficiency in its operations.

'With positive momentum across our businesses, we continue to expect a gradual improvement in performance.'



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