Operating and financial review This review provides a commentary on the operating and financial performance of the Reed Elsevier combined businesses for the year ended 31 December 2003. It includes a description of the operating business, a review of performance and a financial review, including consideration of accounting policies, as well as a review of the finance activities and the financial performance and dividends of the parent companies. Reed Elsevier is one of the world’s leading publishers and information providers. The principal operations are in North America and Europe and include science and medical, legal, education and business publishing. Total revenues for the year ended 31 December 2003 were £4,925 million/ € 7,141 million, principally derived from subscriptions, circulation and copy sales, advertising sales and exhibition fees. Reed Elsevier is well positioned in long term attractive markets and has a clear investment led growth strategy which has delivered significant market outperformance in recent years.  Long term growth in our markets is expected to be sustained by the continuing demand for professional information. The increasing levels of scientific, medical, legal and business activity, as well as the commitment to improved educational standards, are generating more demand for high quality, specialist information. In addition, professionals are looking for significant improvements in productivity through access to highly functional online services and associated workflow tools.  Our strategy is aimed at delivering good sales growth in these markets through the development of innovative, superior products and strong sales and marketing capabilities. We expect to see sustainable growth in our core information offerings and to develop these further in new geographical and commercial markets. Additionally we are expanding through investment and acquisition into new and faster growing contiguous markets. Our commitment to our ongoing major investment programmes is aimed at delivering highly functional information based products and services that deliver greater productivity and success for our business and professional customers. Our strategy to deliver good top line growth is accompanied by continued commitment to outstanding execution built on strong management, organisational effectiveness and tight cost control.  We have established long term financial targets which are to achieve above market revenue growth and double digit adjusted earnings per share growth at constant currencies. The business is strongly cash generative. The science and medical business, Elsevier, comprises worldwide scientific, technical and medical publishing and communications businesses. Total revenues for the year ended 31 December 2003 were £1,381 million/ € 2,002 million. Growth in the scientific information market is driven by ever increasing scientific research and discovery and Science & Medical DESCRIPTION OF BUSINESS Reed Elsevier FORWARD LOOKING STATEMENTS The Reed Elsevier Annual Reports & Financial Statements 2003 contain forward looking statements within the meaning of Section 27A of the US Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward looking statements. The terms ‘expect’, ‘should be’, ‘will be’, and similar expressions identify forward looking statements. Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general economic conditions and business conditions in Reed Elsevier’s markets; exchange rate fluctuations; customers’ acceptance of its products and services; the actions of competitors; legislative, fiscal and regulatory developments; changes in law and legal interpretation affecting Reed Elsevier’s intellectual property rights and internet communications; and the impact of technological change.  REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003 3