OPERATING AND FINANCIAL REVIEW % change 2003 2002 2003 2002 at constant £m £m € m € m currencies Turnover Harcourt Education US Schools & Testing 745 846 1,080 1,345 –5% International 153 147 222 234 5% 898 993 1,302 1,579 –3% Adjusted operating profit 174 183 252 291 2% Adjusted operating margin 19.4% 18.4% 19.4% 18.4% 1.0pts The Harcourt Education business performed well given the difficult schools markets, with education budgets under pressure and a trough in the US state textbook adoption cycle, and the effect on revenues of past contract losses. Harcourt performed well in new US state textbook adoptions and saw good growth in backlist sales and non-adoption states.  Revenues, before acquisitions and disposals, were 2% lower than in the prior year whilst adjusted operating profits were 3% ahead at constant exchange rates. Excluding the impact of the loss of the California state testing contract announced in 2002, underlying revenue growth would have been  1-2%, broadly in line with the market. Despite lower revenues, adjusted operating margins improved by 1.0 percentage points to 19.4% as substantial cost savings were realised from rationalisation of editorial and production processes and further integration.  The Harcourt US K-12 schools business performed well in 2003 state adoptions, gaining the joint overall market share leadership in new state adoption opportunities. Taking into account that Harcourt did not participate in the second year implementation of the 2002 California elementary reading adoption, this is an impressive performance. Particular successes in the Elementary market were achieved in Georgia reading and in social studies in North Carolina and Texas. In the secondary market, whilst performance in social studies was below expectation, the literature and language arts programmes have maintained their leading positions with successes in California and Florida and the science programme also led with a major win in Tennessee. The market for state adoptions was however weak due to the 12 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003 EDUCATION