OPERATING AND FINANCIAL REVIEW FINANCIAL REVIEW Profit and loss Adjusted figures, which exclude the amortisation of goodwill and intangible assets and exceptional items, are used by Reed Elsevier as additional performance measures. A reconciliation between the reported and adjusted figures is provided in note 10 to the combined financial statements. The  reported profit before tax for the Reed Elsevier combined businesses, after the amortisation of goodwill and intangible assets and exceptional items, was £519m/ € 752m, which compares with a reported profit of £289m/ € 460m in 2002. The increase principally reflects higher underlying operating profits, lower goodwill and intangible asset amortisation and a £65m/ € 108m reduction in exceptional charges, as well as reduced net interest expense. The reported attributable profit of £334m/ € 484m increased against a reported attributable profit of £181m/ € 288m in 2002, reflecting the improved operating performance and the lower interest costs. The year on year decline of the US dollar since 2002 has had adverse translation effects on the results expressed in sterling and, more particularly, in euros. The strengthening of the euro relative to sterling has compounded this adverse translation effect on the results expressed in euros, whilst mitigating the impact on the results expressed in sterling. This translation effect does not however have any impact on the underlying performance of the businesses. Turnover decreased by 2% expressed in sterling to £4,925m, and by 11% expressed in euros to  € 7,141m. At constant exchange rates, turnover was 1% higher, or flat excluding acquisitions and disposals.  Adjusted operating profits, excluding the amortisation of goodwill and intangible assets and exceptional items, were up 4% expressed in sterling at £1,178m, whilst down 5% expressed in euros at  € 1,708m. At constant exchange rates, adjusted operating profits were up 6%, or 5% excluding acquisitions and disposals.  Adjusted operating margins improved by 1.3 percentage points to 23.9% reflecting the continued tight management of costs. The amortisation charge for intangible assets and goodwill, including in joint ventures, amounted to £445m/ € 645m, down £82m/ € 193m on the prior year as a result of translation effects and some past acquisitions becoming fully amortised. Exceptional items showed a pre-tax charge of £46m/ € 68m, comprising, £49m/ € 72m of Harcourt and other acquisition integration and related costs, £23m/ € 33m in respect of restructuring actions taken in response to the effect of the protracted global economic slowdown, less a £26m/ € 37m net gain on disposal of businesses and fixed asset investments. After a tax credit of £84m/ € 122m principally arising on the exceptional costs and in respect of prior year disposals, exceptional items showed a net post-tax gain of £38m/ € 54m. This compares with a net post-tax exceptional gain of £11m/ € 18m in 2002. Net interest expense, at £168m/ € 243m, was £38m/ € 84m lower than in the prior year, reflecting the benefit of the 2002 free cash flow, lower interest rates and currency translation effects. Net interest cover on an adjusted basis was 7.0 times. Adjusted profits before tax , before the amortisation of goodwill and intangible assets and exceptional items, at £1,010m/ € 1,465m, were up 9% expressed in sterling, whilst down 1% expressed in euros. At constant exchange rates, adjusted profits before tax were up 10%.  The  effective tax rate on adjusted earnings was little changed at 26%. The  adjusted profit attributable to shareholders of £744m/ € 1,079m was up 9% expressed in sterling, and down 1% expressed in euros. At constant exchange rates, the adjusted profit attributable to shareholders was up 10%. 16 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003 REED ELSEVIER COMBINED BUSINESSES Change at constant 2003 2002 2003 2002 currencies £m £m € m € m % Reported figures Turnover 4,925 5,020 7,141 7,982 1% Operating profit 661 507 958 806 29% Profit before taxation 519 289 752 460 75% Net borrowings 2,372 2,732 3,368 4,180 Adjusted figures Operating profit 1,178 1,133 1,708 1,801 6% Operating margin 24% 23% 24% 23% 1.3pts Profit before taxation 1,010 927 1,465 1,474 10% Operating cash flow 1,028 1,010 1,491 1,606 3% Operating cash flow conversion 87% 89% 87% 89% Interest cover (times) 7.0 5.5 7.0 5.5