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## Combined financial statements ## REED ELSEVIER COMBINED FINANCIAL STATEMENTS 40 Accounting policies 42 Combined profit and loss account 43 Combined cash flow statement 44 Combined balance sheet 45 Combined statement of total recognised gains and losses 45 Combined shareholders’ funds reconciliation 46 Notes to the combined financial statements 70 Independent auditors’ report

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## Accounting policies These financial statements are presented under the historical cost convention and in accordance with applicable UK Generally Accepted Accounting Principles (“GAAP”). Prior to 2003, the financial statements were presented in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK and Dutch GAAP have diverged such that the Reed Elsevier accounting policies no longer accord with Dutch GAAP. Under Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, UK GAAP may be adopted by Dutch companies with international operations for the preparation of financial statements and, accordingly, UK GAAP has been so adopted ensuring consistency with the prior year of the accounting policies applied in the combined financial statements. ## Basis of preparation The equalisation agreement between Reed Elsevier PLC and Reed Elsevier NV has the effect that their shareholders can be regarded as having the interests of a single economic group. The Reed Elsevier combined financial statements (“the combined financial statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures, together with the parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”). These financial statements form part of the statutory information to be provided by Reed Elsevier NV, but are not for a legal entity and do not include all the information required to be disclosed by a company in its financial statements under the UK Companies Act 1985 or Netherlands Civil Code. Additional information is given in the annual reports and financial statements of the parent companies set out on pages 72 to 104. A list of principal businesses is set out on page 115. In addition to the figures required to be reported by applicable accounting standards, adjusted profit and operating cash flow figures have been presented as additional performance measures. Adjusted profit is shown before the amortisation of goodwill and intangible assets and exceptional items. Adjusted operating cash flow is measured after dividends from joint ventures, tangible fixed asset spend and proceeds from the sale of tangible fixed assets, but before exceptional payments and proceeds. ## Foreign exchange translation The combined financial statements are presented in both pounds sterling and euros. Balance sheet items are translated at year end exchange rates and profit and loss account and cash flow items are translated at average exchange rates. Exchange translation differences on foreign equity investments and the related foreign currency net borrowings and on differences between balance sheet and profit and loss account rates are taken to reserves. Transactions entered into in foreign currencies are recorded at the exchange rates applicable at the time of the transaction. The results of hedging transactions for profit and loss amounts in foreign currency are accounted for in the profit and loss account to match the underlying transaction. The principal exchange rates used are set out in note 28. ## Turnover Turnover represents the invoiced value of sales less anticipated returns on transactions completed by performance, excluding customer sales taxes and sales between the combined businesses. Sales are recognised for the various revenue sources as follows: subscriptions – over the period of the subscription; circulation – on despatch; advertising – on publication or period of online display; exhibitions – on exhibition date; educational testing contracts – on performance against delivery milestones. ## Development spend Development spend incurred on the launch of new products or services is expensed to the profit and loss account as incurred. The cost of developing application infrastructure and product delivery platforms is capitalised as a tangible fixed asset and written off over the estimated useful life. ## Pensions The expected costs of pensions in respect of defined benefit pension schemes are charged to the profit and loss account so as to spread the cost over the service lives of employees in the schemes. Actuarial surpluses and deficits are allocated over the average expected remaining service lives of employees. Pension costs are assessed in accordance with the advice of qualified actuaries. For defined contribution schemes, the profit and loss account charge represents contributions payable. ## Taxation Deferred taxation is provided in full for timing differences using the liability method. No provision is made for tax which would become payable on the distribution of retained profits by foreign subsidiaries, associates or joint ventures, unless there is an intention to distribute such retained earnings giving rise to a charge. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Deferred taxation balances are not discounted.

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## Accounting policies (continued) ## Goodwill and intangible assets On the acquisition of a subsidiary, associate, joint venture or business, the purchase consideration is allocated between the underlying net tangible and intangible assets on a fair value basis, with any excess purchase consideration representing goodwill. Acquired goodwill and intangible assets are capitalised and amortised systematically over their estimated useful lives up to a maximum of 40 years, subject to annual impairment review. For the majority of acquired goodwill and intangible assets, the maximum estimated useful life is 20 years, which is the rebuttable presumption under UK GAAP. In view of the longevity of certain of the goodwill and intangible assets relating to acquired science and medical and educational publishing businesses, this presumption has been rebutted in respect of these assets and a maximum estimated useful life of 40 years determined. The longevity of these assets is evidenced by their long established and well regarded brands and imprints, and their characteristically stable market positions. Intangible assets comprise publishing rights and titles, databases, exhibition rights and other intangible assets, which are stated at fair value on acquisition and are not subsequently revalued. ## Tangible fixed assets Tangible fixed assets are stated in the balance sheet at cost less accumulated depreciation. No depreciation is provided on freehold land. Freehold buildings and long leases are depreciated over their estimated useful lives up to a maximum of 50 years. Short leases are written off over the duration of the lease. Plant, equipment and computer systems are depreciated on a straight line basis at rates from 5%–33%. ## Investments Fixed asset investments in joint ventures and associates are accounted for under the gross equity and equity methods respectively. Other fixed asset investments are stated at cost, less provision, if appropriate, for any impairment in value. Short term investments are stated at the lower of cost and net realisable value. ## Inventories and pre-publication costs Inventories and pre-publication costs are stated at the lower of cost, including appropriate attributable overheads, and estimated net realisable value. Pre-publication costs, representing costs incurred in the origination of content prior to publication, are expensed systematically over the economic lives of the related products, generally up to five years. ## Finance leases Assets held under leases which confer rights and obligations similar to those attaching to owned assets are capitalised as tangible fixed assets and the corresponding liability to pay rentals is shown net of interest in the accounts as obligations under finance leases. The capitalised values of the assets are written off on a straight line basis over the shorter of the periods of the leases or the useful lives of the assets concerned. The interest element of the lease payments is allocated so as to produce a constant periodic rate of charge. ## Operating leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the leases. ## Financial instruments Payments and receipts on interest rate hedges are accounted for on an accruals basis over the lives of the hedges and included respectively within interest payable and interest receivable in the profit and loss account. Gains and losses on foreign exchange hedges, other than in relation to net currency borrowings hedging equity investments, are recognised in the profit and loss account on maturity of the underlying transaction. Gains and losses on net currency borrowings hedging equity investments are taken to reserves. Gains and losses arising on hedging instruments that are closed out due to the cessation of the underlying exposure are taken directly to the profit and loss account. Currency swap agreements are valued at exchange rates ruling at the balance sheet date with net gains and losses being included within short term investments or borrowings. Interest payable and receivable arising from the swap is accounted for on an accruals basis over the life of the swap. Finance costs associated with debt issuances are charged to the profit and loss account over the life of the related borrowings. ## Prior year adjustment Following the issuance of UITF38: Accounting for ESOP Trusts in December 2003, shares held in the parent companies by the Reed Elsevier Group plc Employee Benefit Trust, previously included within other fixed asset investments, are now presented as shares held in treasury and deducted within combined shareholders’ funds. Prior year comparatives have been restated accordingly.

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## Combined profit and loss account For the year ended 31 December 2003 <img src='content_image/17753.jpg'> ## Adjusted figures <img src='content_image/17754.jpg'> Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures, and are reconciled to the reported figures in note 10 to the combined financial statements.

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## Combined cash flow statement <img src='content_image/59541.jpg'> Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. <img src='content_image/59543.jpg'> Reed Elsevier businesses focus on adjusted operating cash flow as a key cash flow measure. Adjusted operating cash flow is measured after dividends from joint ventures, tangible fixed asset spend and proceeds from the sale of tangible fixed assets but before exceptional payments and proceeds, and is reconciled to the reported figures in note 10 to the combined financial statements. Adjusted operating cash flow conversion expresses adjusted operating cash flow as a percentage of adjusted operating profit.

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## Combined balance sheet As at 31 December 2003 <img src='content_image/121208.jpg'> Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 18 February 2004.

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## COMBINED FINANCIAL STATEMENTS ## Combined statement of total recognised gains and losses For the year ended 31 December 2003 <img src='content_image/28308.jpg'> ## Combined shareholders’ funds reconciliation For the year ended 31 December 2003 <img src='content_image/28310.jpg'>

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## COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS <img src='content_image/122971.jpg'> Adjusted operating profit is presented as an additional performance measure and is shown after share of operating profit of joint ventures and before amortisation of goodwill and intangible assets and exceptional items. Within prior year capital employed, goodwill of £183m/ € 280m arising on the Harcourt acquisition has been reclassified from the Education segment to the Science & Medical segment. Turnover is analysed before the £81m/ € 118m (2002: £74m/ € 117m) share of joint ventures’ turnover, of which £20m/ € 29m (2002: £17m/ € 27m) relates to the Legal segment, principally to Giuffrè, and £61m/ € 89m (2002: £57m/ € 90m) relates to the Business segment, principally to exhibition joint ventures. Share of operating profit in joint ventures of £16m/ € 23m (2002: £17m/ € 27m) comprises £5m/ € 7m (2002: £5m/ € 8m) relating to the Legal segment and £11m/ € 16m (2002: £12m/ € 19m) relating to the Business segment.

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## Segment analysis (continued) 1 <img src='content_image/8401.jpg'> <img src='content_image/8403.jpg'> <img src='content_image/8404.jpg'> <img src='content_image/8405.jpg'>

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## Cost of sales and operating expenses 2 <img src='content_image/50087.jpg'> <img src='content_image/50088.jpg'>

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the demands for greater efficiency and productivity in the research process. In healthcare, advances in medical science and procedures and the demand for improved medical outcomes drive the need for high quality specialist information and associated online tools. The Science & Technology division of Elsevier supplies scientific and technical information for libraries, scientists and professionals serving a wide range of research fields. It is a leading global academic journal publisher and each year publishes over 150,000 new research articles in some 1,200 journals and 1,000 new book titles. Elsevier also publishes secondary material in the form of supporting bibliographic data, indexes and abstracts, and tertiary information in the form of review and reference works. Its flagship electronic product, ScienceDirect, is a full text online research service holding over 5 million scientific articles and 15 major reference works. The fully searchable database is used by over 5 million researchers each year and has provided significant improvements in productivity through quicker and easier access to high quality content. The Health Sciences division of Elsevier comprises an international network of nursing, health professions and medical publishing and communications businesses. The division supplies healthcare and medical information to medical researchers, practising professionals and students. It publishes over 8,000 textbooks and clinical reference works and over 500 journals. Elsevier is also accelerating the development of electronic products. These include multimedia products for use by both medical faculties and students to support core textbooks as well as online products for continuing practitioner education. Internationally, Elsevier is leveraging both its print and online content into new markets through adaptation and translation. The Excerpta Medica communications business publishes customised information for healthcare professionals, medical societies and pharmaceutical companies. ## Legal The legal business, LexisNexis, provides legal, tax, regulatory and business information to professional, business and government customers internationally. Total revenues for the year ended 31 December 2003 were £1,318 million/ € 1,911 million. Legal and regulatory markets worldwide are seeing continuing expansion in legislative activity and increasing demand for legal services, together with a focus on improved efficiency and productivity. Additional opportunities are developing beyond the core research market, through the delivery of online workflow support services. Increasingly legal information and services are being delivered online, with considerable potential to deliver such products in markets outside the United States where online penetration is lower than in the US legal market. In recent years, LexisNexis has, with its comprehensive US public records databases, expanded in the market for risk solutions. This is growing strongly in the face of increasing credit card fraud and identity theft. LexisNexis North America offers legal information products in electronic and print formats to law firms and practitioners, law schools and state and local governments in the United States and Canada. Its North American Legal Markets division provides statutes and case law for all 50 US states and Canada as well as research, analysis and citation services from Matthew Bender, Michie and Shepard’s. The Martindale Hubbell Law Directory, including the martindale.com databases, provides access to the qualifications and credentials of over one million lawyers and law firms worldwide. LexisNexis also operates in fast growing areas beyond its core research product. These include electronic filing of documents with courts and electronic access and monitoring of court records as well as electronic legal discovery applications. The Corporate and Federal Markets division offers LexisNexis products and services to corporations, federal government agencies and academic institutions together with news, business, financial and public records content. Its risk management applications are designed to assist customers in managing risk through fraud detection and prevention, identity verification, pre- employment screening and due diligence. Outside North America, LexisNexis International serves markets in Europe, Africa, Asia Pacific and Latin America with a range of local and international legal, tax, regulatory and business information solutions. ## Education The education business, Harcourt Education, publishes school textbooks and related instructional and assessment materials, principally in the United States, the United Kingdom, Australia, New Zealand and

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## Personnel 3 <img src='content_image/128156.jpg'> ## Pension schemes 4 A number of pension schemes are operated around the world. The major schemes are of the defined benefit type with assets held in separate trustee administered funds. The two largest schemes, which cover the majority of employees, are in the UK and US. The main UK scheme was subject to a triennial valuation by Watson Wyatt Partners as at 5 April 2003. The main US scheme is valued annually and was subject to a valuation by Towers Perrin as at 1 January 2003. The principal valuation assumptions for the main UK scheme were: <img src='content_image/128155.jpg'> The principal valuation assumptions used for the US scheme were a rate of return on investments of 7.75%, increase in pensionable remuneration of 4.5%, and increase in present and future pensions in payment of 3.0%, applied under the projected unit method. The actuarial values placed on scheme assets under SSAP24 as at their last valuation date were sufficient to cover 113% and 104% of the benefits that had accrued to members of the main UK and US schemes, respectively. Actuarial surpluses are spread as a level amount over the average remaining service lives of employees. The actuarial values of the schemes’ assets as at the valuation dates, excluding assets held in respect of members’ additional voluntary contributions, were £1,350m/ € 1,958m and £260m/ € 369m in respect of the UK and US schemes respectively. Assessments for accounting purposes in respect of other funded schemes, including the Netherlands scheme, have been carried out by external qualified actuaries using prospective benefit methods. The actuarial value of assets of the schemes approximated to the aggregate benefits that had accrued to members, after allowing for expected future increases in pensionable remuneration and pensions in course of payment. The assets of the Netherlands scheme as at 31 December 2003 were sufficient to cover 101% of the actuarial value placed on the benefits that had accrued to the members of the scheme as at that date. The liabilities in respect of unfunded schemes have been determined by actuaries. As at 31 December 2003 £52m/ € 74m (2002: £52m/ € 80m) has been provided for within creditors.

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## Pension schemes (continued) 4 The net pension charge was £59m/ € 86m (2002: £59m/ € 94m). Pension contributions made in the year amounted to £49m/ € 72m (2002: £47m/ € 75m). The net SSAP24 charge on the main UK scheme comprises a regular cost of £23m/ € 33m (2002: £27m/ € 43m), less amortisation of the net actuarial surplus of £13m/ € 19m (2002: £24m/ € 38m). Based on the advice of the scheme actuaries, and with the agreement of the scheme trustees, no employer contributions have been made to the main UK scheme in 2003 (2002: nil) and, with effect from 1 January 2004, employer contributions will be made at a rate of 5% of pensionable salaries until the next triennial valuation in 2006. A prepayment of £115m/ € 163m (2002: £125m/ € 191m) is included in debtors falling due after more than one year, representing the excess of the net pension credit to the profit and loss account since 1988 over the amounts funded to the main UK scheme. Pension costs are accounted for in accordance with the UK accounting standard, SSAP24. A new UK financial reporting standard, FRS17: Retirement Benefits requires additional information to be disclosed based on methodologies set out in the standard which are different from those used under SSAP24 and by the scheme actuaries in determining funding arrangements. The assumed rates of return on scheme assets, the fair value of those assets and the present value of the scheme liabilities based on the methodologies and presentation prescribed by FRS17 were as follows: <img src='content_image/118489.jpg'> At 31 December 2003, the aggregate net deficit in respect of the defined benefit schemes under FRS17 comprised £189m/ € 268m (2002: £66m/ € 101m) in respect of funded schemes and liabilities of £62m/ € 88m (2002: £71m/ € 109m) in respect of unfunded schemes, of which £52m/ € 74m (2002: £52m/ € 80m) is provided for within creditors under SSAP24. At 31 December 2001, for the aggregate of schemes, the fair value of equities, bonds and assets, and the related assumed rates of return for those asset classes were £1,267m/ € 2,078m, £721m/ € 1,182m and £81m/ € 133m and 7.7%, 5.5% and 4.0% respectively.

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## Pension schemes (continued) 4 The movement in the net FRS17 surplus/(deficit) before taxation during the year was as follows: <img src='content_image/35157.jpg'> The principal assumptions made in valuing pension scheme liabilities for the purposes of FRS17 were: <img src='content_image/35161.jpg'> The combined profit and loss reserves as at 31 December 2003 of £497m/ € 706m (2002: £764m/ € 1,169m) would have been £285m/ € 405m (2002: £623m/ € 953m), had the accounting methodologies of FRS17 been applied in the 2003 and 2002 financial years. The operating charge, the amount credited to other finance income and the amounts recognised in the statement of total recognised gains and losses in the financial year based on the methodologies and presentation prescribed by FRS17 would have been as follows: <img src='content_image/35162.jpg'>

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## Pension schemes (continued) 4 <img src='content_image/112667.jpg'> The difference between the actual and expected returns on scheme assets, the experience losses arising on scheme liabilities, and the total actuarial loss that would have been recognised under FRS17 in the statement of total recognised gain and losses, expressed as a percentage of scheme assets and liabilities as appropriate, were as follows: <img src='content_image/112666.jpg'>

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<img src='content_image/103480.jpg'> Interest cover is calculated as the number of times adjusted operating profit is greater than the net interest expense. <img src='content_image/103482.jpg'> The tax charge for the year as a proportion of profit before tax was increased due to non tax-deductible amortisation and reduced by exceptional tax credits arising on prior year disposals. A reconciliation of the notional current tax charge based on average standard rates of tax (weighted in proportion to accounting profits) to the actual current tax charge is set out below: <img src='content_image/103484.jpg'> <img src='content_image/103486.jpg'> Dividends comprise a total dividend for Reed Elsevier PLC of 12.0p (2002: 11.2p) per ordinary share and a total dividend for Reed Elsevier NV of € 0.30 (2002: € 0.30) per ordinary share. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK tax credit of 10% received by certain Reed Elsevier PLC shareholders.

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## Adjusted figures 10 Adjusted profit and cash flow figures are used by the Reed Elsevier businesses as additional performance measures. The adjusted figures are stated before the amortisation of goodwill and intangible assets, exceptional items and related tax effects, and are derived as follows: <img src='content_image/117186.jpg'>

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## Cash flow statement 11 <img src='content_image/28454.jpg'> <img src='content_image/28450.jpg'> <img src='content_image/28451.jpg'> The repayment of other loans in 2003 relates primarily to the maturity of a US$125m Private Placement and the redemption of subordinated debentures with a nominal value of US$39m. The issuance of other loans in 2003 relates to term debt raised by a subsidiary of Elsevier Reed Finance BV.

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## COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS Cash flow statement (continued) 11 ## Reconciliation of net borrowings <img src='content_image/124434.jpg'> <img src='content_image/124436.jpg'> Net borrowings comprise cash and short term investments, loan capital, finance leases, promissory notes and bank and other loans, and are analysed further in notes 19 to 22.

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## Acquisitions 12 During the year a number of acquisitions were made for a total consideration amounting to £226m/ € 328m, including £3m/ € 5m deferred to future years, and after taking account of net cash acquired of £9m/ € 13m. The most significant acquisitions were the Holtzbrinck STM business in Germany, and, in the US, Applied Discovery Inc and the public records business of Dolan Media Company. The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of the consideration given and the assets and liabilities acquired are summarised below: <img src='content_image/50420.jpg'> The fair value adjustments in relation to the acquisitions made in 2003 relate principally to the valuation of intangible assets to conform with Reed Elsevier accounting policies. Goodwill represents the excess of the consideration over the net tangible and intangible assets acquired. The businesses acquired in 2003 contributed £80m/ € 116m to turnover, £16m/ € 25m to adjusted operating profit, before the amortisation of goodwill and intangible assets and exceptional items, and £15m/ € 22m to net cash inflow from operating activities for the part year under Reed Elsevier ownership.

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## OPERATING AND FINANCIAL REVIEW southern Africa. Total revenues for the year ended 31 December 2003 were £898 million/ € 1,302 million. The long standing commitment across the world to improving educational standards remains strong and there is a continuing requirement to deliver proven educational programmes to support this. In recent years, there has also been a developing trend for the measurement of the educational results of students, both to monitor and assist improvement in individual educational outcomes and to improve accountability. Overall funding for education is expected to continue to increase. In the United States, Harcourt School Publishers is a publisher of print and technology enabled instructional materials for students in kindergarten to 6th grade. Holt, Rinehart and Winston offers educational textbooks and related instructional materials for students in middle and secondary schools. Harcourt Achieve is a publisher of supplemental school and adult education materials as well as providing professional development services for teachers. Greenwood- Heinemann publishes monograph and reference lists and professional resources for teachers. Harcourt Education has achieved good performances in recent years both in the adoption states and in open territories based on strong curriculum product in key subjects such as reading and literature, science and health and elementary maths and social studies. Harcourt Assessment develops assessment products and services for elementary, secondary and higher education as well as tests for practising and research psychologists. In educational testing, it provides a range of achievement, aptitude and guidance testing services for measuring student progress. It is well known for the Stanford Achievement Test, now in its 10th edition, which is used in school districts in every US state. In clinical testing, it provides psychologists with assessment tests for many aspects of human behaviour, intelligence and development. The Wechsler products, including the Wechsler Preschool and Primary Scale of Intelligence, are licensed for publication in over 30 countries. Outside the United States, Harcourt Education International is a provider of textbooks and related instructional materials to the UK primary and secondary schools market through the Heinemann, Rigby and Ginn imprints and other English language markets in Australia, New Zealand and southern Africa. The Global Library business publishes reference materials for school libraries. ## Business The business division, Reed Business, provides information and marketing solutions, including trade shows, to business professionals in the United States, the United Kingdom, continental Europe, Australia and Asia. Total revenues for the year ended 31 December 2003 were £1,328 million/ € 1,926 million. Business to business magazines and exhibitions provide an effective marketing channel through which buyers and sellers are connected, increasingly through leading brands in each sector. Alongside print magazines, demand is growing for online products which provide improvements in productivity through quicker and easier access to more comprehensive and searchable data. Business to business marketing spend has been driven historically by levels of corporate profitability, which itself has followed overall GDP growth. Over the economic cycle, growth in marketing spend has historically at least equalled growth in GDP. Reed Business Information publishes over 500 trade magazines, directories, newsletters and loose leaf publications. Important magazine titles include Variety and Publishers Weekly in the United States, Computer Weekly, Estates Gazette, Flight International and New Scientist in the United Kingdom, and Elsevier and FEM in the Netherlands. Reed Business Information also publishes directories in selected markets, including the industrial directory Kelly’s and The Bankers’ Almanac. Through its Reed Construction Data business, it provides nationwide coverage of construction project information for the United States. The majority of Reed Business Information’s magazines drive further value through companion websites. In addition, Reed Business Information has been particularly successful in developing online products and services, which have been growing at well over 20% per annum and at $140 million now represent 7% of the division’s total revenues. These products include totaljobs.com, a major online recruitment site in the UK; ICIS-LOR, a global information and pricing service for the petrochemicals sector; zibb.nl, a business information service in the Netherlands; and an online version of the Kelly’s directory which is being launched internationally. Reed Exhibitions organises trade exhibitions and conferences internationally, with over 430 events in

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<img src='content_image/99697.jpg'> At 31 December 2003, the weighted average remaining estimated useful life of goodwill and intangible assets was 24 years (2002: 25 years). <img src='content_image/99698.jpg'> At 31 December 2003 and 2002, all assets were included at cost. No depreciation was provided on freehold land. The net book amount of tangible fixed assets includes £29m/ € 41m (2002: £24m/ € 37m) in respect of assets held under finance leases.

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<img src='content_image/52323.jpg'> The principal joint venture at 31 December 2003 is Giuffrè (an Italian legal publisher in which Reed Elsevier has a 40% shareholding). The cost and net book amount of goodwill and intangible assets in joint ventures were £37m/ € 53m and £19m/ € 27m respectively (2002: £36m/ € 55m and £21m/ € 32m). <img src='content_image/52324.jpg'> <img src='content_image/52325.jpg'> <img src='content_image/52326.jpg'>

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## Cash and short term investments 19 <img src='content_image/79669.jpg'> Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. ## Creditors: amounts falling due within one year 20 <img src='content_image/79670.jpg'> ## Creditors: amounts falling due after more than one year 21 <img src='content_image/79671.jpg'>

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## Financial instruments 22 Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments are set out in the Operating and Financial Review on pages 3 to 21. For the purpose of the disclosures which follow in this note, short term debtors and creditors have been excluded, as permitted under FRS13: Derivatives and Other Financial Instruments. ## Currency and interest rate profile of financial liabilities The currency and interest rate profile of the aggregate financial liabilities of £3,074m/ € 4,365m (2002: £3,391m/ € 5,188m), after taking account of interest rate and currency derivatives, is set out below: <img src='content_image/45831.jpg'> <img src='content_image/45832.jpg'> Included within fixed rate financial liabilities as at 31 December 2003 are £nil/ € nil (2002: £78m/ € 119m) of US dollar term debt and £421m/ € 598m (2002: £281m/ € 430m) of interest rate swaps and options denominated principally in US dollars that mature within one year. ## Currency and interest rate profile of financial assets The currency and interest rate profile of the aggregate financial assets of £702m/ € 997m (2002: £649m/ € 993m), after taking account of interest rate swaps, is set out below: <img src='content_image/45834.jpg'>

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<img src='content_image/21544.jpg'> Non interest bearing financial assets reflect the prior year adjustment in respect of other investments, as described in note 27. At 31 December 2003 there were interest rate swaps in place with a principal amount totalling £100m/ € 142m (2002: £nil/ € nil) and interest rate floors in place with a principal amount totalling £50m/ € 71m (2002: £150m/ € 230m) denominated in sterling that mature within one year. Floating rate interest rates payable on US commercial paper are based on US dollar commercial paper rates. Other financial assets and liabilities bear interest by reference to LIBOR or other national LIBOR equivalent interest rates. Included within non interest bearing financial assets are £41m/ € 58m (2002: £59m/ € 90m) of investments denominated principally in sterling and US dollars which have no maturity date. ## Forward starting interest rate derivatives At 31 December 2003, agreements totalling £653m/ € 927m (2002: £187m/ € 286m) were in place to enter into interest rate swaps at future dates. Of these, individual swap agreements totalling £449m/ € 638m (2002: £125m/ € 191m) were to fix the interest expense on US dollar borrowings commencing in 2004 and 2006 for periods of up to 30 months, at a weighted average interest rate of 2.5%. A further £104m/ € 148m (2002: £nil/ € nil) interest rate swap agreement starting in 2004 was to swap a US dollar fixed rate debt issue, to be drawn down in 2004, to floating rate debt for a period of 10 years. Interest rate swap agreements totalling £100m/ € 142m (2002: £nil/ € nil) and starting in 2004 were to fix the interest income on sterling short term investments for one year, at a weighted average interest rate of 3.6%. There were no forward starting interest rate options (2002: £62m/ € 95m) or interest rate floors (2002: £nil/ € nil). At 31 December 2003, forward rate agreements totalling £253m/ € 359m (2002: £780m/ € 1,193m) were in place. These comprised a succession of agreements to fix the interest expense on short term US dollar borrowings commencing in 2004 and 2006 for periods of three months only, at a weighted average interest rate of 3.2%. ## Maturity profile of financial liabilities The maturity profile of financial liabilities at 31 December comprised: <img src='content_image/21554.jpg'> Financial liabilities repayable within one year include US commercial paper and euro commercial paper. Short term borrowings are supported by committed facilities and by centrally managed cash and short term investments. As at 31 December 2003, a total of £1,684m/ € 2,372m (2002: £2,188m/ € 3,348m) of committed facilities were available, of which £51m/ € 72m (2002: £63m/ € 96m) was drawn and is included in financial liabilities repayable within one year. Of the total committed facilities, £421m/ € 598m (2002: £1,788m/ € 2,736m) matures within one year, £nil/ € nil (2002: £400m/ € 612m) within two to three years and £1,263m/ € 1,794m (2002: £nil/ € nil) within four to five years. Secured borrowings under finance leases were £23m/ € 33m (2002: £22m/ € 34m). ## Currency exposure The business policy is to hedge all significant transaction exposures on monetary assets and liabilities fully and consequently there are no material currency exposures that would give rise to gains and losses in the profit and loss account in the functional currencies of the operating units.

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## Financial instruments (continued) 22 ## Fair values of financial assets and liabilities The notional amount, book value and fair value of financial instruments are as follows: <img src='content_image/78504.jpg'>

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## Financial instruments (continued) 22 <img src='content_image/72.jpg'> The amounts shown as the book value of derivative financial instruments represent accruals or deferred income arising from these financial instruments. The fair value of long term debt has been based on current market rates offered to Reed Elsevier for debt of the same remaining maturities. The fair values for interest rate swaps, interest rate options and forward rate agreements represent the replacement cost calculated using market rates of interest at 31 December 2003 and 2002. The fair values of all other items have been calculated by discounting expected future cash flows at market rates. ## Hedges The unrecognised and deferred gains and losses on financial instruments used for hedging purposes as at 31 December 2003, and before taking into account gains and losses arising in the year and included in the profit and loss account, are derived as follows: <img src='content_image/73.jpg'>

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## Financial instruments 22 (continued) <img src='content_image/126944.jpg'> ## Obligations under leases 23 <img src='content_image/126946.jpg'> Of the above annual commitments, £100m/ € 142m relates to land and buildings (2002: £99m/ € 152m) and £6m/ € 9m to other leases (2002: £4m/ € 6m).

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## Provisions for liabilities and charges 24 <img src='content_image/48648.jpg'>

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## Contingent liabilities 25 There are contingent liabilities amounting to £77m/ € 109m (2002: £118m/ € 181m) in respect of property lease guarantees, in excess of provided amounts of £26m/ € 37m (2002: £32m/ € 49m), given by Harcourt General, Inc in favour of a former subsidiary (see note 24). ## Combined shareholders’ funds 26 <img src='content_image/100131.jpg'> <img src='content_image/100133.jpg'> Combined share capital excludes the shares of Reed Elsevier NV held by Reed Elsevier PLC. Combined reserves include a £4m/ € 6m (2002: £4m/ € 6m) capital redemption reserve following the redemption of non equity shares in Reed Elsevier PLC in 1999. At 31 December 2003, shares held in treasury related to the 6,383,333 (2002: 2,840,047) Reed Elsevier PLC ordinary shares and 1,327,777 (2002: 1,554,381) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”). The aggregate market value of these shares at 31 December 2003 was £39m/ € 55m (2002: £27m/ € 41m). The EBT purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options. ## Prior year adjustment 27 In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust are now presented as shares held in treasury and deducted within combined shareholders’ funds. Previously, such shares were included within other fixed asset investments. Within the combined cash flow statement, the purchase of such shares is now presented as a financing transaction and not as a purchase of fixed asset investments. The combined balance sheet as at 31 December 2002 and the combined cash flow statement for the year ended 31 December 2002 have been restated accordingly.

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34 countries, attracting over 85,000 exhibitors and more than 4.5 million visitors annually. Its exhibitions and conferences encompass a wide range of sectors, including IT, manufacturing, aerospace, defence, leisure, electronics, food and hospitality, travel and entertainment. Further information on the performance of the individual businesses in 2003 is set out in the Review of Operations below. ## Risks The key risks facing Reed Elsevier arise from the highly competitive and rapidly changing nature of our markets, the increasingly technological nature of our products and services, the international nature of our operations, and legal and regulatory uncertainties. Certain businesses are also affected by the impact on publicly funded customers of changes in funding and by cyclical pressures on advertising and promotional spending. Reed Elsevier has an established risk management system that is embedded into the operations of the businesses and is reviewed by the Boards and Audit Committees. Specific risks that have been identified and are continuously addressed include: •Reed Elsevier’s businesses are dependent on the continued acceptance by our customers of our products and services and the prices which we charge for them. We cannot predict whether there will be changes in the future, either in market demand or from the actions of competitors, which will affect the acceptability of products, services and prices to our customers. •We are investing significant amounts to develop and promote electronic products and platforms. The provision of these products and services is very competitive and is to some extent subject to factors outside our control such as competition from new technologies. There is no assurance that this investment will produce satisfactory long term returns. •Reed Elsevier’s businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. Although plans and procedures are in place to reduce such risks, our businesses could be adversely affected if their electronic delivery platforms experience a significant failure, interruption, or security breach. •Our products and services are largely comprised of intellectual property content delivered through a variety of media. We rely on trademark, copyright, patent and other intellectual property laws to establish and protect our proprietary rights in these products and services. However, there is a risk that our proprietary rights could be challenged, limited, invalidated or circumvented. •Our businesses operate in over 100 locations worldwide and our earnings are subject to taxation in many differing jurisdictions and at differing rates. We seek to organize our affairs in a tax efficient manner, taking account of the jurisdictions in which we operate. However, tax laws that apply to Reed Elsevier businesses may be amended by the relevant authorities. Such amendments, or their application to Reed Elsevier businesses, could adversely affect our reported results. Further details on risk management and internal control procedures are set out in the Structure and Corporate Governance description on pages 22 to 26.

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## Exchange rates 28 The following exchange rates have been applied in preparing the combined financial statements: <img src='content_image/44231.jpg'>

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## Independent auditors’ report to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV We have audited the combined financial statements of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc, Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures (together “the combined businesses’’) for the year ended 31 December 2003 which comprise the accounting policies, the profit and loss account, the cash flow statement, the balance sheet, the statement of total recognised gains and losses, the shareholders’ funds reconciliation and the related notes 1 to 28. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the parts of the directors’ remuneration report presented in the Annual Reports and Financial Statements (“the Remuneration Report”) that are described as having been audited. Our audit work has been undertaken so that we might state to the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by applicable law, we do not accept or assume responsibility to anyone other than Reed Elsevier PLC and Reed Elsevier NV and the members of Reed Elsevier PLC and shareholders of Reed Elsevier NV as a body, for our audit work, for this report, or for the opinions we have formed. ## Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the directors of Reed Elsevier PLC and Reed Elsevier NV are responsible for the preparation of the financial statements in accordance with applicable United Kingdom accounting standards. They are also responsible for the preparation of the other information contained in the Annual Report and Financial Statements including the Remuneration Report. Our responsibilities, as independent auditors of the combined financial statements and the parts of the Remuneration Report described as having been audited, are set out in auditing standards generally accepted in the United Kingdom and the Netherlands and by our respective professions’ ethical guidance. We report to you our opinion as to whether the combined financial statements give a true and fair view. We read the other information contained in the Annual Reports and Financial Statements, as described in the contents section, and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the combined financial statements. We are not required to consider whether the boards’ statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the combined businesses’ corporate governance procedures or their risk and control procedures. ## Basis of audit opinion We conducted our audit in accordance with auditing standards generally accepted in the United Kingdom and the Netherlands. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the parts of the Remuneration Report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the combined financial statements and the parts of the Remuneration Report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the combined financial statements and the parts of the Remuneration Report described as having been audited. ## Opinion In our opinion: • the combined financial statements give a true and fair view of the state of affairs of the combined businesses as at 31 December 2003, and of their profits for the year then ended; and • the parts of the Remuneration Report described as having been audited have been properly prepared in accordance with the United Kingdom Companies Act 1985. ## Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 18 February 2004 ## Deloitte Accountants Amsterdam 18 February 2004

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## Reed Elsevier PLC ## REED ELSEVIER PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 72 Financial highlights 73 Directors’ report 76 Accounting policies 77 Financial statements 81 Notes to the financial statements 88 Independent auditors’ report

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## Financial highlights <img src='content_image/99286.jpg'> (i) All amounts presented are based on the 52.9% share of Reed Elsevier combined profits attributable to the Reed Elsevier PLC shareholders (see note 9 to the financial statements). The statutory profit for Reed Elsevier PLC includes the impact of sharing the UK tax credit with Reed Elsevier NV as a reduction in reported profits. On this basis, the consolidated profit before tax, attributable profit and basic earnings per share for the year ended 31 December 2003 are £267m, £169m and 13.4p respectively. (ii) Adjusted figures are shown before amortisation of goodwill and intangible assets, exceptional items and related tax effects, and equalisation adjustments. The Reed Elsevier businesses focus on adjusted profit and cash flow as additional performance measures. These are reconciled to the reported figures in note 9 to the financial statements. (iii) Dividend cover is calculated as the number of times adjusted profit attributable to shareholders, after taking account of the sharing of the UK tax credit with Reed Elsevier NV, covers the annual dividend. (iv) Share prices quoted are the closing mid-price. Market capitalisation is the number of shares outstanding at the year end, excluding Reed Elsevier PLC shares held in treasury, multiplied by the closing mid-price at the year end date.

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## Directors’ report The directors present their report, together with the financial statements of the company, for the year ended 31 December 2003. As a consequence of the merger of the company’s businesses with those of Reed Elsevier NV in 1993, described on page 22, the shareholders of Reed Elsevier PLC and Reed Elsevier NV can be regarded as having the interests of a single economic group. The Reed Elsevier combined financial statements represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc, Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures, together with the parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses” or “Reed Elsevier”). This directors’ report and the financial statements of the company should be read in conjunction with the combined financial statements and other reports set out on pages 3 to 69, as well as the Report of the Chairman and the Chief Executive Officer in the Annual Review and Summary Financial Statements. ## Principal activities The company is a holding company and its principal investments are its direct 50% shareholding in Reed Elsevier Group plc and its 39% shareholding in Elsevier Reed Finance BV, which are engaged in publishing and information activities and financing activities, respectively. The remaining shareholdings in these two companies are held by Reed Elsevier NV. Reed Elsevier PLC also has an indirect equity interest in Reed Elsevier NV. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal identities and are publicly held companies. Reed Elsevier PLC’s securities are listed in London and New York and Reed Elsevier NV’s securities are listed in Amsterdam and New York. ## Financial statement presentation The consolidated financial statements of Reed Elsevier PLC include the 52.9% economic interest that shareholders have under the equalisation arrangements in the Reed Elsevier combined businesses, accounted for on a gross equity basis. Under the terms of the merger agreement, dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. Because of the tax credit, Reed Elsevier PLC normally requires less cash to fund its net dividend than Reed Elsevier NV does to fund its gross dividend. An adjustment is, therefore, required in the statutory profit and loss account of Reed Elsevier PLC to share this tax benefit between the two sets of shareholders in accordance with the equalisation agreement. The equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and it reduces the statutory attributable earnings of the company by 47.1% of the total amount of the tax credit, which in 2003 was £8m (2002: £7m). In addition to the reported figures, adjusted profit figures are presented as additional performance measures. These exclude the tax credit equalisation adjustment, the amortisation of goodwill and intangible assets and exceptional items and provide a basis for performance comparison that is not dependent on the choice of method of adoption of FRS10 in accounting for goodwill and intangible assets. ## Profit and loss account The company’s share of the operating profits of Reed Elsevier was £343m, up from £262m in 2002. The science & medical business performed well with strong publishing and new electronic products driving above market revenue growth. The legal business also continued to outperform its markets with consistent improvements in product performance and expansion of its online services. The education business had a mixed performance in weak markets, affected by the low level of textbook adoption opportunities compounded by state budget pressures. The business division continued to show impressive resilience in depressed markets. Underlying operating margins in all four divisions improved despite the high levels of investment, due to cost efficiency. Strong cash flows reinforced the quality of the financial result. The company’s share of the charge for amortisation of goodwill and intangible assets was £235m, down £44m from 2002, reflecting translation effects and some past acquisitions becoming fully amortised. The company’s share of the operating exceptional items was £38m (2002: £52m), principally comprising its share of integration and rationalisation costs relating to Harcourt and other acquisitions and other restructuring costs. The profit for the year also includes a £14m share of the gain (2002: loss £6m) on disposals of businesses and fixed asset investments. The reported attributable profit for Reed Elsevier PLC was £169m (2002: £89m). The adjusted profit attributable to shareholders – before the amortisation of goodwill and intangible assets and exceptional items – was £394m (2002: £361m). Adjusted earnings per share increased 9% to 31.2p (2002: 28.5p). Including the effect of the tax credit equalisation as well as the amortisation of goodwill and intangible assets and exceptional items and related tax effects, the basic earnings per share was 13.4p (2002: 7.0p).

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## Directors’ report (continued) ## Balance sheet The balance sheet of Reed Elsevier PLC reflects the shareholders 52.9% economic interest in the net assets of Reed Elsevier, which at 31 December 2003 amounted to £1,288m (2002: £1,397m). The £109m decrease in net assets principally reflects the company’s share in the attributable profits of Reed Elsevier, less dividends paid and proposed and exchange translation effects. ## Dividends The board is recommending a final dividend of 8.7p per ordinary share to be paid on 21 May 2004 to shareholders on the Register on 30 April 2004 which, when added to the interim dividend already paid on 5 September 2003 amounting to 3.3p per ordinary share, makes the total dividend for the year 12.0p (2002: 11.2p). The total dividend on the ordinary shares for the financial year will amount to £152m (2002: £143m), leaving a retained profit of £17m (2002: loss £54m). ## Directors The following served as directors during the year: M Tabaksblat (Chairman) CHL Davis (Chief Executive Officer) MH Armour (Chief Financial Officer) GJA van de Aast JF Brock MW Elliott (appointed 8 April 2003) CJA van Lede (appointed 8 April 2003) DJ Haank (resigned 18 June 2003) RJ Nelissen (resigned 8 April 2003) S Perrick (resigned 8 April 2003) A Prozes DE Reid (appointed 8 April 2003) Lord Sharman of Redlynch OBE RWH Stomberg (senior independent non-executive director) P Tierney (appointed 8 April 2003) Biographical details of the directors at the date of this Report are given on pages 10 and 11 of the Annual Review and Summary Financial Statements. Messrs Tabaksblat, van de Aast and Stomberg and Lord Sharman will retire by rotation at the forthcoming Annual General Meeting. Being eligible, they will each offer themselves for re-election. The notice period applicable to the service contracts of Mr van de Aast is set out in the Directors’ Remuneration Report on page 31, Messrs Tabaksblat and Stomberg and Lord Sharman do not have service contracts. Details of directors’ remuneration and their interests in the share capital of the company are provided in the Directors’ Remuneration Report on pages 29 to 38. ## Share capital During the period 2,737,010 ordinary shares in the company were issued in connection with the following share option schemes: 932,994 under a UK SAYE share option scheme at prices between 336.20p and 543.20p per share. 1,804,016 under executive share option schemes at prices between 321.75p and 537.50p per share. At 17 February 2004, the company had received notification of the following substantial interests in the company’s issued ordinary share capital: The Capital Group Companies, Inc 77,918,935 shares 6.13% Legal & General Group plc 44,174,343 shares 3.47% Oechsle International Advisors, LLC 42,907,149 shares 3.37% At the 2003 Annual General Meeting a resolution was passed to extend the authority given to the company to purchase up to 10% of its ordinary shares by market purchase. At 31 December 2003, this authority remained unutilised. A resolution to further extend the authority is to be put to the 2004 Annual General Meeting. ## Charitable and political donations Reed Elsevier companies made donations during the year for charitable purposes amounting to £1.3m of which £0.3m was in the United Kingdom. In the United States, Reed Elsevier companies contributed £49,000 to political parties. There were no donations made in the European Union for political purposes. ## Statement of directors’ responsibilities The directors are required by English company law to prepare financial statements for each financial period, which give a true and fair view of the state of affairs of the company and the group, and of the profit or loss for that period. In preparing those financial statements, the directors ensure that suitable accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, have been used, and accounting standards have been followed. The directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the law.

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## REED ELSEVIER PLC ## Directors’ report (continued) The directors have general responsibility for taking reasonable steps to safeguard the assets of the group and to prevent and detect fraud and other irregularities. ## Corporate governance The company has complied throughout the period under review with the provisions of Section 1 of the Combined Code – the Principles of Good Governance and Code of Best Practice, issued by the UK Financial Services Authority (“the Combined Code”). Details of how the provisions of the Combined Code have been applied and the directors’ statement on internal control are set out in the Structure and Corporate Governance report on pages 22 to 26. Details of the role and responsibilities, membership and activities of the Reed Elsevier PLC Audit Committee are set out in the Report of the Audit Committees on pages on 27 and 28. ## Going concern After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the financial statements. ## Payments to suppliers Reed Elsevier companies agree terms and conditions for business transactions with suppliers and payment is made on these terms. The average time taken to pay suppliers was between 30 and 45 days. ## Auditors On 1 August 2003, Deloitte & Touche, the company’s auditors, transferred their business to Deloitte & Touche LLP, a limited liability partnership incorporated under the Limited Liability Partnership Act 2000. The company’s consent has been given to treating the appointment of Deloitte & Touche as extending to Deloitte & Touche LLP with effect from 1 August 2003 under the provisions of Section 26(5) of the Companies Act 1989. Resolutions for the reappointment of Deloitte & Touche LLP as auditors of the company and authorising the directors to fix their remuneration will be submitted to the forthcoming Annual General Meeting. <img src='content_image/111674.jpg'>

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## Accounting policies These financial statements have been prepared under the historical cost convention in accordance with applicable accounting standards. ## Basis of preparation These statutory financial statements report the profit and loss account, cash flow and financial position of Reed Elsevier PLC, and have been prepared in accordance with UK generally accepted accounting principles. Unless otherwise indicated, all amounts shown in the financial statements are in millions of pounds. The basis of the merger of the businesses of Reed Elsevier PLC and Reed Elsevier NV is set out on page 22. As permitted by section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account. ## Determination of profit The Reed Elsevier PLC share of the Reed Elsevier combined results has been calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC shareholders in the Reed Elsevier combined businesses, after taking account of results arising in Reed Elsevier PLC and its subsidiary undertakings. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. In the financial statements, an adjustment is required to equalise the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement. This equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the attributable earnings of the company by 47.1% of the total amount of the tax credit. The accounting policies adopted in the preparation of the combined financial statements are set out on pages 40 and 41. ## Basis of valuation of assets and liabilities Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses has been shown on the balance sheet as interests in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier PLC and its subsidiaries. Joint ventures are accounted for using the gross equity method. In the parent company accounts, investments are stated at cost, less provision, if appropriate, for any impairment in value. ## Foreign exchange translation Profit and loss and cash flow items are translated at average exchange rates. In the consolidated balance sheet, assets and liabilities are translated at rates ruling at the balance sheet date or contracted rates where applicable. The gains or losses relating to the retranslation of Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses are taken directly to reserves. ## Taxation Deferred taxation is provided in full for timing differences using the liability method. No provision is made for tax which might become payable on the distribution of retained profits by foreign subsidiaries or joint ventures unless there is an intention to distribute such retained earnings giving rise to a charge. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Deferred taxation balances are not discounted. ## Prior year adjustment Following the issuance of UITF38: Accounting for ESOP Trusts in December 2003, shares held in the parent companies by the Reed Elsevier Group plc Employee Benefit Trust, previously included within share of gross assets of joint ventures, are now presented as shares held in treasury and deducted within consolidated shareholders’ funds. Prior year comparatives have been restated accordingly.

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## Consolidated profit and loss account For the year ended 31 December 2003 <img src='content_image/875.jpg'> ## Adjusted figures <img src='content_image/876.jpg'> Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures, and are reconciled to the reported figures in note 9 to the financial statements. ## Earnings per ordinary share (“EPS”) <img src='content_image/879.jpg'> The above amounts derive from continuing activities.

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## Consolidated cash flow statement <img src='content_image/58033.jpg'>

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## OPERATING AND FINANCIAL REVIEW <img src='content_image/113021.jpg'> Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before amortisation of goodwill and intangible assets and exceptional items. The Review of Operations refers to adjusted operating profit performance. Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before amortisation of goodwill and intangible assets and exceptional items. Reported operating results, including amortisation of goodwill and intangible assets and exceptional items, are analysed in note 1 to the combined financial statements and discussed further below in the Financial Review, and are reconciled to the adjusted figures in note 10 to the combined financial statements. Unless otherwise indicated, all percentage movements in the following commentary refer to constant currency rates, using 2002 full year average rates, and are stated before the amortisation of goodwill and intangible assets and exceptional items.

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## Balance sheets <img src='content_image/5384.jpg'> The financial statements were approved by the board of directors, 18 February 2004. M Tabaksblat Chairman MH Armour Chief Financial Officer

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## Consolidated statement of total recognised gains and losses For the year ended 31 December 2003 <img src='content_image/19485.jpg'> Recognised gains and losses include gains of £53m (2002: losses of £3m) in respect of joint ventures. ## Reconciliation of shareholders’ funds For the year ended 31 December 2003 <img src='content_image/19486.jpg'>

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## Income from interests in joint ventures 1 <img src='content_image/81547.jpg'> Segmental analysis of the Reed Elsevier combined results is shown in the Reed Elsevier combined financial statements. ## Effect of tax credit equalisation on distributed earnings 2 The tax credit equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the earnings of the company by 47.1% of the total amount of the tax credit, as set out in the accounting policies on page 76. ## Operating loss 3 The operating loss comprises administrative expenses and includes £330,000 (2002: £318,000) paid in the year to Reed Elsevier Group plc under a contract for the services of directors and administrative support. The company has no employees (2002: nil). ## Auditors’ remuneration 4 Audit fees payable for the group were £23,000 (2002: £23,000). ## Directors’ emoluments 5 Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is set out in the Directors’ Remuneration Report on pages 29 to 38. ## Net interest 6 <img src='content_image/81558.jpg'>

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## Tax on profit on ordinary activities 7 <img src='content_image/109751.jpg'> UK corporation tax has been provided at 30% (2002: 30%). The share of tax arising in joint ventures as a proportion of the share of profit before tax is increased due to non tax-deductible amortisation and reduced due to exceptional tax credits. ## Dividends 8 <img src='content_image/109749.jpg'> ## Adjusted figures 9 Adjusted profit and cash flow figures are used as additional performance measures. The adjusted figures are derived as follows: <img src='content_image/109748.jpg'>

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## Earnings per ordinary share (EPS) 10 <img src='content_image/108594.jpg'> <img src='content_image/108586.jpg'> The diluted EPS figures are calculated after taking into account the effect of share options. ## Cash flow statement 11 Reconciliation of operating loss to net cash outflow from operating activities <img src='content_image/108588.jpg'> Reconciliation of net funding balances to Reed Elsevier Group plc group <img src='content_image/108589.jpg'>

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## Fixed asset investments – consolidated investment in joint ventures 12 <img src='content_image/128745.jpg'> The investment in joint ventures comprises the group’s share at the following amounts of: <img src='content_image/128748.jpg'> Included within share of current assets and creditors are cash and short term investments of £338m (2002: £302m) and borrowings of £1,592m (2002: £1,747m) respectively. ## Fixed asset investments – company 13 <img src='content_image/128750.jpg'> ## Debtors 14 <img src='content_image/128751.jpg'> Amounts falling due after more than one year are £40m (2002: £40m). These amounts are denominated in sterling and earn interest at a fixed rate of 9.8% (2002: 9.8%) for a remaining duration of four years (2002: five years). At 31 December 2003 these amounts had a fair value of £47m (2002: £49m). ## Creditors: amounts falling due within one year 15 <img src='content_image/128754.jpg'>

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## Creditors: amounts falling due after more than one year 16 <img src='content_image/116654.jpg'> These amounts are denominated in sterling and earn interest at a fixed rate of 10.5% (2002: 10.5%) for a remaining duration of two years (2002: three years). At 31 December 2003 these amounts had a fair value of £40m (2002: £42m). ## Called up share capital 17 <img src='content_image/116656.jpg'> Details of shares issued under share option schemes are set out in note 18. ## Share option schemes 18 During the year a total of 2,737,010 ordinary shares in the company, having a nominal value of £0.3m, were allotted in connection with the exercise of share options. The consideration received by the company was £11.5m. Options were granted during the year under the Reed Elsevier Group plc Executive Share Option Scheme to subscribe for 15,004,082 ordinary shares, at prices between 431p and 540p per share. Options were also granted during the year under the Reed Elsevier Group plc SAYE Share Option Scheme to subscribe for 1,825,263 ordinary shares at a price of 399.6p per share. Options outstanding at 31 December 2003 over the company’s ordinary share capital were: <img src='content_image/116659.jpg'> The above entitlements are expected, upon exercise, to be met principally by the issue of new ordinary shares. Options to subscribe for 3,539,646 ordinary shares in the company lapsed during the year. Excluded from above are 2,407,064 options at subscription prices ranging between 424p and 537.5p and 232,461 nil cost options which, upon exercise, will be met by the Reed Elsevier Group plc Employee Benefit Trust from shares purchased in the market. ## Reserves 19 <img src='content_image/116660.jpg'> Details of shares held in treasury are provided in note 26 to the combined financial statements.

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## Reserves (continued) 19 <img src='content_image/113686.jpg'> Reed Elsevier PLC’s share of the revenue reserves of the Reed Elsevier combined businesses is £261m (2002: £402m). ## Contingent liabilities 20 There are contingent liabilities in respect of borrowings of the Reed Elsevier Group plc group and Elsevier Reed Finance BV group guaranteed by Reed Elsevier PLC as follows: <img src='content_image/113689.jpg'> Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 22 to the Reed Elsevier combined financial statements. ## Prior year adjustment 21 In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, the Reed Elsevier combined businesses now present the shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust as shares held within treasury, which are deducted within combined shareholders’ funds. Previously, such shares were included within the other fixed asset investments of the combined businesses. The consolidated balance sheet as at 31 December 2002 has been restated to reflect Reed Elsevier PLC’s share of the restatement made in the combined financial statements in relation to the presentation of shares held in treasury. ## Principal joint ventures 22 The principal joint ventures are: <img src='content_image/113691.jpg'> The “E” shares in Reed Elsevier Group plc and Elsevier Reed Finance BV are owned by Reed Elsevier NV.

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## Principal subsidiary undertaking 23 The principal subsidiary undertaking is: <img src='content_image/67045.jpg'> Reed Holding BV owns 4,679,249 shares of a separate class in Reed Elsevier NV, giving Reed Elsevier PLC a 5.8% indirect equity interest in Reed Elsevier NV.

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## Independent auditors’ report to the members of Reed Elsevier PLC We have audited the financial statements of Reed Elsevier PLC for the year ended 31 December 2003 which comprise the accounting policies, the profit and loss account, the cash flow statement, the balance sheets, the statement of total recognised gains and losses, the reconciliation of shareholders’ funds and the related notes 1 to 23. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the parts of the directors’ remuneration report presented in the Annual Reports and Financial Statements (“the Remuneration Report”) that are described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. ## Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the company’s directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the Annual Report and Financial Statements including, together with the directors of Reed Elsevier NV, the Remuneration Report. Our responsibility is to audit the financial statements and the parts of the Remuneration Report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the parts of the Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We review whether the corporate governance statement reflects the company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read the directors’ report and the other information contained in the Annual Report for the above year as described in the contents section including the unaudited parts of the Remuneration Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. ## Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the parts of the Remuneration Report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the parts of the Remuneration Report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the parts of the Remuneration Report described as having been audited. ## Opinion In our opinion: • the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 December 2003 and of the profit of the group for the year then ended; and • the financial statements and the parts of the Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985. ## Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 18 February 2004

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## SCIENCE & MEDICAL <img src='content_image/80170.jpg'> Elsevier has had another successful year against a background of considerable pressure on institutional budgets. Strong subscriptions renewals and growing online sales drove revenue growth in Science & Technology and a successful book publishing programme delivered good growth in Health Sciences. Underlying operating margins were improved by further actions to streamline operations. Continued investment in new publishing and in expanding ScienceDirect and other online services are expected to deliver future growth. Revenue and adjusted operating profits both increased by 8% at constant exchange rates, or 5% and 8% excluding the Holtzbrinck STM business acquired at the beginning of the year and other small acquisitions and disposals. Both the Science & Technology and Health Sciences divisions saw underlying revenue growth of 5%. In the Science & Technology division, growth was driven by strong subscription renewals and growing online sales including recently introduced back files and subject collections. Usage of ScienceDirect more than doubled to 175 million article downloads during the year, reflecting the dramatic increase in access and utility that this web based service provides. ScienceDirect now holds over 5 million scientific research articles that can be searched, accessed and linked at the click of a mouse, anywhere and at any time. Increasingly customers, either individually or through consortia, are subscribing to content hitherto outside their collections at attractive discounts. Electronic only subscriptions grew by 55% and now account for 23% of journal subscriptions by value. In Health Sciences, growth was driven by the strong book publishing programme with successful new titles and editions coupled with increased demand from the growing healthcare professions. Electronic

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## Reed Elsevier NV REED ELSEVIER NV ANNUAL REPORT AND FINANCIAL STATEMENTS 90 Financial highlights 91 The Supervisory Board’s report 91 The Executive Board’s report 92 Accounting policies 94 Financial statements 97 Notes to the financial statements 104 Independent auditors’ report 104 Other information

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## Financial Highlights For the years ended 31 December <img src='content_image/59787.jpg'> The information provided above is based on Reed Elsevier NV's gross equity share of the Reed Elsevier combined businesses. (i) Financial information for 1999 has been calculated on the basis of the official exchange rate of Dfl 2.20371 to one euro. Percentage changes and financial ratios have been calculated using historic Dutch guilder figures and may be affected by rounding. (ii) Adjusted profit before tax, adjusted profit attributable and adjusted earnings per share are presented as additional performance measures and stated before amortisation of goodwill and intangible assets, exceptional items and related tax effects. These are reconciled to the reported figures in note 8 to the financial statements. (iii) Per share information has been calculated using the average number of shares outstanding, taking into account that the R-shares can be converted into ten ordinary shares. (iv) Dividend cover is the number of times the adjusted earnings, before amortisation of goodwill and intangible assets, exceptional items and related tax effects, cover the cash dividends paid and proposed for the year. (v) The closing price is the final quotation at year end on the stockmarket of Euronext Amsterdam N.V. for ordinary shares. (vi) The number of shares outstanding at year end include the R-shares, assuming that they have been converted into ten ordinary shares, and exclude Reed Elsevier NV shares held in treasury. (vii) Market capitalisation is the number of shares outstanding at year end multiplied by the closing price.

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## The Supervisory Board’s report ## Supervisory Board M Tabaksblat, Chairman GJ de Boer-Kruyt JF Brock MW Elliott CJA van Lede DE Reid Lord Sharman of Redlynch OBE RWH Stomberg Together with the Executive Board, we herewith submit Reed Elsevier NV’s annual report and financial statements for the financial year ended 31 December 2003 to the shareholders’ meeting for adoption. The financial statements have been drawn up in accordance with the accounting principles explained on pages 92 and 93 of this document. They have been examined by Deloitte Accountants, Amsterdam. Their report and opinion is set out on page 104. The combined financial statements on pages 40 to 69 are part of the notes to and form an integral part of these statutory financial statements. We refer to the Report of the Chairman and the Chief Executive Officer and to the other reports contained within the Reed Elsevier Annual Review and Summary Financial Statements 2003 and the Reed Elsevier Annual Reports and Financial Statements 2003. These reports explain the business results of 2003, the financial state of the company at the end of 2003, and the key strategic issues. The equalisation agreement between Reed Elsevier NV and Reed Elsevier PLC has the effect that shareholders can be regarded as having the interests of a single economic group and provides that Reed Elsevier NV shall declare dividends such that the dividend on one Reed Elsevier NV ordinary share, which shall be payable in euros, will equal 1.538 times the cash dividend, including the related UK tax credit, paid on one Reed Elsevier PLC ordinary share. In that context, the combined meeting of the Supervisory and Executive Boards (“the Combined Board”) determines the amounts of the company’s profit to be retained. The ordinary shares and the R-shares are entitled to receive distribution in proportion to their nominal value. The combined board may resolve to pay less per R-share, but not less than 1% of the nominal value. Details of dividends are contained in the Operating and Financial Review on page 21. We have assessed Reed Elsevier NV’s compliance with the Dutch Corporate Governance Code (“the Code“) issued on 9 December 2003 and believe that Reed Elsevier’s policies and practices, as set out in the Reed Elsevier Annual Review and Summary Financial Statements 2003 and the Reed Elsevier Annual Reports and Financial Statements 2003, substantially comply with the recommendations of the Code. While some aspects of the Code are still being considered, we do not expect that there will be any significant issues regarding compliance during 2004. The agenda for the Annual General Meeting of the shareholders to be held on 29 April 2004 in the Hotel Okura in Amsterdam will include a discussion of Reed Elsevier’s corporate governance policies, practices and disclosures. At the Reed Elsevier NV Annual General Meeting, Lord Sharman, Mr Stomberg and Mr Tabaksblat will retire by rotation as members of the Supervisory Board. Having reviewed their performance, qualifications and availability, and the overall Supervisory Board profile, the Nominations Committee has recommended their re-appointment. Resolutions proposing the re-appointment of Lord Sharman, Mr Stomberg and Mr Tabaksblat will be submitted to the 2004 Annual General Meeting. The Supervisory Board 18 February 2004 ## The Executive Board’s report ## Executive Board CHL Davis, Chairman MH Armour, Chief Financial Officer GJA van de Aast A Prozes P Tierney We refer to the Report of the Chairman and the Chief Executive Officer and to the other reports contained within the Reed Elsevier Annual Review and Summary Financial Statements 2003 and the Reed Elsevier Annual Reports and Financial Statements 2003. These reports explain the business results of 2003, the financial state of the company at the end of 2003, and the key strategic issues. As explained in the financial statements on pages 92 and 93, Reed Elsevier NV prepares its financial statements in accordance with generally accepted accounting principles in the UK and therefore presents both group financial statements and parent company financial statements. In the group financial statements, the profit attributable to the shareholders of Reed Elsevier NV was € 242m (2002 € 144m) and net assets as at 31 December 2003, principally representing the investments in Reed Elsevier Group plc and Elsevier Reed Finance BV under the gross equity method, were € 1,728m (2002 € 2,019m). In the parent company financial statements, the profit attributable to the shareholders of Reed Elsevier NV was € 203m (2002 € 152m) and net assets as at 31 December 2003, principally representing the investments in Reed Elsevier Group plc and Elsevier Reed Finance BV under the historical cost method, were € 1,985m (2002 € 2,000m). At the Reed Elsevier NV Annual General Meeting, Mr van de Aast will retire by rotation as a member of the Executive Board. The Nominations Committee has recommended his re-appointment and a resolution will be submitted to the 2004 Annual General Meeting. The Executive Board 18 February 2004 Registered office Sara Burgerhartstraat 25 1055 KV Amsterdam Registered office Sara Burgerhartstraat 25 1055 KV Amsterdam

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## REED ELSEVIER NV ## Accounting policies These statutory financial statements report the profit and loss account, cash flow and financial position of Reed Elsevier NV. Unless otherwise indicated, all amounts shown in the financial statements are in millions of euros. The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. The Reed Elsevier combined financial statements on pages 40 to 69 form an integral part of the notes to Reed Elsevier NV’s statutory financial statements. The basis of the merger of the businesses of Reed Elsevier NV and Reed Elsevier PLC is set out on page 22. As a consequence of the merger of the company’s businesses with those of Reed Elsevier PLC, described on page 22, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group, enjoying substantially equivalent ordinary dividend and capital rights in the earnings and net assets of the Reed Elsevier combined businesses. ## Adoption of UK GAAP The financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom (“UK GAAP”). Prior to 2003, Reed Elsevier NV presented statutory financial statements prepared in accordance with generally accepted accounting principles in the Netherlands (“Dutch GAAP”) and the combined financial statements were prepared in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK GAAP and Dutch GAAP have diverged. As permitted by Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed Elsevier NV has therefore determined to prepare its financial statements in accordance with UK GAAP, thereby ensuring consistency with the prior year of the accounting policies applied within the Reed Elsevier combined financial statements, and with the accounting policies of Reed Elsevier PLC. ## Parent company financial statements Under UK GAAP, Reed Elsevier NV presents financial statements for the parent company which reflect, in the profit and loss account, its own income, including dividends from Reed Elsevier Group plc and Elsevier Reed Finance BV companies, and expenses, and, in the balance sheet, its fixed asset investments in these joint ventures accounted for using the historical cost method. These parent company financial statements have been presented for the first time as if UK GAAP had been adopted in prior years. The impact of the change in accounting principles from Dutch to UK GAAP on the parent company financial statements of Reed Elsevier NV is set out in note 18. ## Group financial statements Reed Elsevier NV holds a majority interest in Elsevier Reed Finance BV (61%) and is therefore prima facierequired to prepare consolidated financial statements in accordance with Book 2 Title 9 of the Netherlands Civil Code. However, management believes that a better insight into the financial position and results of Reed Elsevier NV is provided by looking at the investment in the combined businesses in aggregate, as presented in the Reed Elsevier combined financial statements. Reed Elsevier NV group financial statements are presented, as in prior years, incorporating Reed Elsevier NV’s investments in the Reed Elsevier combined businesses accounted for using the gross equity method, as adjusted for the effects of the equalisation arrangement between Reed Elsevier NV and Reed Elsevier PLC. The arrangement lays down the distribution of dividends and net assets in such a way that Reed Elsevier NV’s share in the profit and net assets of the Reed Elsevier combined businesses equals 50%, with all settlements accruing to shareholders from the equalisation arrangements taken directly to reserves. These group financial statements also meet the additional information requirements of the UK financial reporting standard FRS9: Associates and Joint Ventures where consolidated financial statements are not prepared. Because the dividend paid to shareholders by Reed Elsevier NV is equivalent to the Reed Elsevier PLC dividend plus the UK tax credit received by certain Reed Elsevier PLC shareholders, Reed Elsevier NV normally distributes a higher proportion of the combined profit attributable than Reed Elsevier PLC. Reed Elsevier PLC’s share in this difference in dividend distributions is settled with Reed Elsevier NV and is credited directly to group reserves under equalisation. Reed Elsevier NV can pay a nominal dividend on its R-shares held by Reed Elsevier PLC that is lower than the dividend on the ordinary shares. Reed Elsevier PLC is compensated by direct dividend payments by Reed Elsevier Group plc. Equally, Reed Elsevier NV has the possibility to receive dividends directly from Dutch affiliates. The settlements flowing from these arrangements are also taken directly to group reserves under equalisation. In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the UK Accounting Standards Board, shares in Reed Elsevier NV and Reed Elsevier PLC purchased by the Reed Elsevier Group plc Employee Benefit Trust, previously included within share of gross assets of joint ventures, are presented as shares held in

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treasury and deducted within group shareholders’ funds. Prior year comparatives have been restated accordingly. Other than in respect of the representation of shares held in treasury, the adoption of UK GAAP had no effect on group shareholders’ funds or on the group earnings compared to the amounts that would have been reported under Dutch GAAP. ## Combined financial statements The accounting policies adopted in the preparation of the combined financial statements are set out on pages 40 and 41. These include policies in relation to goodwill and intangible assets. Such assets are amortised over their estimated useful economic lives, which due to their longevity, may be for periods in excess of five years. ## Basis of valuation of assets and liabilities Reed Elsevier NV’s 50% economic interest in the net assets of the combined businesses has been shown on the group balance sheet as interests in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier NV. Joint ventures are accounted for using the gross equity method. In the parent company financial statements, fixed asset investments in the combined businesses are stated at cost, less provision, if appropriate, for any impairment in value. Short term investments are stated at the lower of cost and net realisable value. Other assets and liabilities are stated at historical cost, less provision, if appropriate, for any impairment in value. ## Foreign exchange translation Profit and loss and cash flow items are translated at average exchange rates. In the balance sheets, assets and liabilities are translated at rates ruling at the balance sheet date or contracted rates where applicable. The gains or losses relating to the retranslation of Reed Elsevier NV’s 50% interest in the net assets of the combined businesses are taken directly to group reserves. ## Taxation Deferred taxation is provided in full for timing differences using the liability method. No provision is made for tax which might become payable on the distribution of retained profits by foreign subsidiaries or joint ventures unless there is an intention to distribute such retained earnings giving rise to a charge. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Deferred taxation balances are not discounted.

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## Profit and loss accounts <img src='content_image/134337.jpg'> ## Earnings per ordinary share ("EPS") <img src='content_image/134338.jpg'> The above amounts derive from continuing activities. ## Adjusted figures <img src='content_image/134341.jpg'> Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures, and are reconciled to the reported figures in note 8 to the financial statements. Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are presented using the gross equity method.

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## Cash flow statements <img src='content_image/105119.jpg'> Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. ## Statements of total recognised gains and losses <img src='content_image/105122.jpg'> Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are presented using the gross equity method.

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## Balance sheets <img src='content_image/55473.jpg'> ## Reconciliations of shareholders’ funds <img src='content_image/55475.jpg'> Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are presented using the gross equity method.

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## Operating loss 1 Operating loss is stated after the gross remuneration for present and former directors of Reed Elsevier NV in respect of services rendered to Reed Elsevier NV and the combined businesses. Fees for members of the supervisory board of Reed Elsevier NV of € 0.2m (2002: € 0.1m) are included in gross remuneration. In so far as gross remuneration is related to services rendered to Reed Elsevier Group plc and Elsevier Reed Finance BV, it is borne by these companies. ## Income from interests in joint ventures 2 <img src='content_image/124675.jpg'> ## Auditors' remuneration 3 Audit fees payable for the company were € 44,000 (2002: € 43,000). ## Directors’ emoluments 4 Information on directors' remuneration, share options, longer term incentive plans, pension contributions and entitlements is set out in the Directors' Remuneration Report on pages 29 to 38. ## Net interest 5 <img src='content_image/124677.jpg'> ## Tax on profit on ordinary activities 6 <img src='content_image/124679.jpg'> Dutch corporation tax has been provided at 34.5%. The share of tax arising in joint ventures as a proportion of the share of profit before tax is increased due to non tax-deductible amortisation and reduced due to exceptional tax credits. ## Dividends 7 <img src='content_image/124681.jpg'>

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## Adjusted figures 8 <img src='content_image/20477.jpg'> <img src='content_image/20478.jpg'> Basic and diluted EPS for the parent company was € 0.26 (2002: € 0.19) based on earnings of € 203m (2002: € 152m) and a weighted average number of shares in issue of 785.3m (2002: 784.7m) and on a diluted basis of 785.3m (2002: 788.1m). The weighted average number of shares for the group is after deducting shares held in treasury. The diluted EPS figures are calculated after taking into account the effect of share options.

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<img src='content_image/85338.jpg'> ## THE ANNUAL GENERAL MEETING The Annual General Meeting of the Shareholders of Harvey Norman Holdings Limited will be held at Tattersalls, 181 Elizabeth Street, Sydney on Tuesday 25 November 2003 at 11.00 am. (for full details and Proxy Form see separate document enclosed) ## NAME OF ENTITY HARVEY NORMAN HOLDINGS LIMITED ## REGISTERED OFFICE A1 Richmond Road Homebush West NSW 2140 Telephone: (02) 9201 6111 Facsimile: (02) 9201 6250 ## ABN OR EQUIVALENT COMPANY REFERENCE 54 003 237 545 ## SHARE REGISTRY Registries Limited Level 2, 28 Margaret Street SYDNEY ## BANKERS Australia & New Zealand Banking Group Ltd ## AUDITORS Ernst & Young ## SOLICITORS Gillis Delaney Brown ## STOCK EXCHANGE LISTING Harvey Norman Holdings Limited shares are quoted on: - the Australian Stock Exchange (“ASX”); and - the New Zealand Stock Exchange

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## Significant Changes in the State of Affairs In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year. ## Significant Events After Balance Date There have been no material events subsequent to balance date, apart from: (1) the grant of certain options by Pertama Holdings Limited, Singapore to Martin Dunkerley (see Note 26 of the financial statements), (2) the opening of two Harvey Norman stores in the Republic of Ireland. ## Likely Developments and Future Results The directors have excluded from this report any further information on the likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years, as the directors believe that it would be likely to result in unreasonable prejudice to one or more entities in the consolidated entity. ## Environmental Regulation Performance The consolidated entity’s environmental obligations are regulated under both State and Federal Law. All environmental performance obligations are monitored by the Board. The consolidated entity has a policy of at least complying, but in most cases exceeding its environmental performance obligations. No environmental breaches have been notified to the consolidated entity by any Government agency during the year ended 30 June 2003. ## Emoluments of Board Members and Senior Executives ## Remuneration Policy The Remuneration Committee of the Board of Directors is responsible for reviewing compensation arrangements for the directors, the Managing Director and the executive team and making recommendations to the Board of Directors about such matters. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration received by such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. Remuneration is generally determined by the Board of Directors on a total cost of employment basis and packages generally comprise salary, superannuation and a fully maintained motor vehicle where appropriate. The present policy of the Board is that options to acquire shares in the company will not be granted to employees or executive directors without specific shareholder approval. The Board has determined that bonuses may be awarded to employees, but only as a consequence of exceptional performance.

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PORT HEDLAND Boulevarde Shopping Centre Anderson Street Port Hedland 6721 Phone (08) 9173 8000 ## NEW ZEALAND CHRISTCHURCH Cnr Moorhouse Ave & Colombo Street Christchurch Phone: 0011 643 353 2440 DUNEDIN Cnr MacLaggan & Rattay Streets Dunedin Phone: 0011 643 471 6510 HASTINGS 303 St Aubyns Street East Hastings Phone: 0011 646 873 7150 MANUKAU Manukau SupaCenta Ronwood Avenue Manukau City Auckland Phone: 0011 649 262 7050 MT WELLINGTON 20-54 Mt Wellington Highway Mt Wellington Auckland Phone: 0011 649 570 3440 NEW PLYMOUTH Cnr Smart & Devon Roads New Plymouth Phone: 0011 646 759 2900 PALMERSTON NORTH 361-371 Main Steet West Palmerston North Phone: 0011 646 350 0400 PORIRUA 19 Parumoana Street Porirua Wellington Phone: 0011 644 237 2600 WAIRAU PARK 10 Croftfield Lane Wairau Park North Glenfield Phone: 0011 649 441 9750 ## DOMAYNE AUBURN 103-123 Parramatta Road Auburn 2144 Phone: (02) 9648 5411 BUNDALL Cnr Racecourse & Ashmore Roads Bundall 4217 Phone: (07) 5553 2100 CAMPBELLTOWN 8 Blaxland Road Campbelltown 2560 Phone: (02) 4627 4311 FORTITUDE VALLEY Brisbane City Gate Shop 1, 1058 Ann Street Fortitude Valley 4006 Phone: (07) 3620 6600 FYSHWICK 80 Collie Street Fyshwick 2604 Phone: (02) 6126 2500 GOSFORD Cnr Pacific Highway & Manns Road West Gosford 2250 Phone: (02) 4322 5555 KOTARA 18 Bradford Place Kotara 2289 Phone: (02) 4941 3900 LIVERPOOL Liverpool Mega Centre Orangegrove Road Liverpool 2170 Phone: (02) 8778 2222 PENRITH 1$^{st}$ Floor Cnr Wolseley Street and Mulgoa Road Penrith 2750 Phone: (02) 4737 5000 WARRAWONG 119 – 121 King Street Warrawong 2502 Phone: (02) 4255 1800 ## JOYCE MAYNE MT DRUITT Shops 70 Marketown Centre Cnr Luxford & Carlisle Avenue Mt Druitt 2770 Phone: (02) 9832 9411 ## LIGHTING SHOWROOMS AUBURN 241 Parramatta Road Auburn 2144 Phone (02) 9202 4888

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CROWS NEST Spectrum Building, Podium Level 220 Pacific Highway Crows Nest 2065 Phone: (02) 9929 3833 ERINA (GOSFORD) 168-170 The Entrance Road Erina 2250 Phone: (02) 4367 6444 PENRITH Cnr Wolseley Street and Mulgoa Road Penrith 2750 Phone: (02) 4737 8960 ## EAST TIMOR DILI Cruzamento Das Ruas Dr Antonio Carvalho E Belarmino Lobo Dili Phone: 08 8947 1475 ## SLOVENIA LJUBLJANA Letaliska 3d 1000 Ljubljana Phone: 0011 386 1585 5000 ## SINGAPORE HARVEY NORMAN BUKIT PANJANG No. 1 Jelebu Road #03-08/09 Bukit Panjang Plaza Singapore 677743 Phone: 0011 65 6767 1402 HARVEY NORMAN CENTREPOINT 176 Orchard Road #03-08 Centrepoint Singapore 238843 Phone: 0011 65 6732 8686 HARVEY NORMAN FUNAN CENTRE 109 North Bridge Road #02-02/08 Funan Centre Singapore 170097 Phone: 0011 65 6334 5432 HARVEY NORMAN HOUGANG MALL 90 Hougang Avenue 10 #02-13 NTUC Hougang Mall Singapore 538766 Phone: 0011 65 6488 2305 HARVEY NORMAN MILLENIA WALK No. 9 Raffles Boulevard #02-27 Millenia Walk Singapore 039596 Phone: 0011 65 6311 9988 HARVEY NORMAN NORTHPOINT 930 Yishun Avenue 2 #B02-05/09 Northpoint Shopping Centre Singapore 769098 Phone: 0011 65 6757 7695 HARVEY NORMAN PARKWAY 80 Marine Parade Road #02-34/36 Parkway Parade Singapore 449269 Phone: 0011 65 6346 4705 HARVEY NORMAN RAFFLES CITY 252 North Bridge Road #03-22 Raffles City Shopping Centre Singapore 179103 Phone: 0011 65 6339 6777 HARVEY NORMAN SUNTEC CITY 3 Temasek Boulevard #02-001 Suntec City Mall Singapore 038983 Phone: 0011 65 6332 3463 HARVEY NORMAN TAMPINES MART No. 9 Tampines Mart #02-01 Tampines Street 32 Singapore 529286 Phone: 0011 65 6789 3818 HARVEY NORMAN WESTMALL No. 1 Bt Batok Central Link #03-06/09 West Mall Singapore 658713 Phone: 0011 65 6794 2812

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## Emoluments of Board Members and Senior Executives (continued) The details of the nature and amount of each element of the emoluments of each director and each of the five executive officers of the company receiving the highest emolument are set out below: ## Emoluments of Directors of Harvey Norman Holdings Limited (Parent Entity): <img src='content_image/98626.jpg'> The listed parent entity, Harvey Norman Holdings Limited, does not have any employees. No options were issued by Harvey Norman Holdings Limited during the current financial year. (a) Options granted to these directors (set out under “Directors’ Interests” on page 7) were exercisable from 1 July 2002. No amortisation amount has been included in the calculation of the long-term emoluments amortisation amount for the year ending 30 June 2003 for these directors. (b) The number of options disclosed in the above table represents those options that have been issued to the directors of Harvey Norman Holdings Limited that have not vested as at 30 June 2003. (c) Options have been valued at grant date, using the Black-Scholes option pricing model which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option. The value of the options has been apportioned over the vesting period. The amortisation amount disclosed in the above table represents the current year amortisation amount for the year ending 30 June 2003, calculated as the number of days in that financial year over the total number of days in that option vesting period multiplied by the number of options granted at the Black-Scholes value of $1.2665. The exercise price in respect of each option is $4.10. Details of the terms, conditions and value of options granted during the period are also set out in Notes 26 and 32 of the financial statements. ## Emoluments of the five most highly paid executive officers of the company and consolidated entity: <img src='content_image/98637.jpg'> Executives are those directly accountable and responsible for the operational management and strategic direction of the company and consolidated entity. The terms “director” and “officer” have been treated as mutually exclusive for the purposes of this disclosure. (a) The number of options disclosed in the above table represents those options that have been issued to the executive officers that have not vested as at 30 June 2003. These executive officers were executive officers of Rebel Sport Limited and these options represent options to subscribe for ordinary shares of Rebel Sport Limited. (b) Options have been valued at grant date, using the Black-Scholes option pricing model which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option. The value of the options has been apportioned over the vesting period. The amortisation amount disclosed in the above table represents the current year amortisation amount for the year ended 30 June 2003, calculated as the number of days in that financial year over the total number of days in that option vesting period multiplied by the number of options granted at the Black-Scholes value of $0.86 for S.M. Heath and $0.23 for B.C.Y. Hui.

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## Indemnification of Officers During the financial year, insurance and indemnity arrangements were continued for officers of the consolidated entity. An indemnity agreement was entered into between Harvey Norman Holdings Limited and each of the directors of the company named earlier in this report and with each full-time executive officer, director and secretary of all group entities. Under the agreement, the company has agreed to indemnify those officers against any claim or for any expenses or costs which may arise as a result of work performed in their respective capacities. This indemnity is limited to $10,000,000. Harvey Norman Holdings Limited paid an insurance premium of $69,300 in respect of a contract insuring each of the directors of the company named earlier in this report and each full-time executive officer, director and secretary of the Australian group entities, against all liabilities and expenses arising as result of work performed in their respective capacities, to the extent permitted by law. This report has been made in accordance with a resolution of directors. <img src='content_image/48410.jpg'> Sydney 26 September 2003 <img src='content_image/48409.jpg'> ## Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Harvey Norman Holdings Limited support and have adhered to the principles of corporate governance. The company’s Statement of Corporate Governance Practices follows the Directors’ Report. ## Tax Consolidation Effective 1 July 2002, for the purposes of income taxation, Harvey Norman Holdings Limited and its 100% owned subsidiaries have formed a tax consolidated group. Members of the group are in the process of entering into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. ## Rounding of Amounts The parent entity is a company of the kind specified in Australian Securities and Investments Commission class order 98/0100. In accordance with the class order, amounts in the financial statements and the Directors’ Report have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. <img src='content_image/48408.jpg'>

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## Statement of Corporate Governance Practices ## Functions and Responsibilities of the Board and Management ## Role of the Board of Directors The directors of the Company are accountable to shareholders for the proper management of business and affairs of the Company. The Managing Director is a member of the Board but does not hold the position of Chairman. The key responsibilities of the Board are to: ƒ establish, monitor and modify the corporate strategies of the Company; ƒ ensure proper corporate governance; ƒ monitor the performance of management of the Company; ƒ ensure that appropriate risk management systems, internal control and reporting systems and compliance frameworks are in place and are operating effectively; ƒ monitor financial results; ƒ approve decisions concerning the capital, including capital restructures, and dividend policy of the Company; and ƒ comply with the reporting and other requirements of the law. The Board delegates responsibility for day-to-day management of the Company to the Managing Director. However, the Managing Director must consult the Board on matters that are sensitive, extraordinary or of a strategic nature. The Board has adopted a formal Board Charter. ## Composition of the Board The constitution of the Company provides that the number of directors must be not less than three and not more than ten. There are presently ten directors. There are six executive directors, and four non-executive directors. One of the non-executive directors is an independent director. A majority of the Board are not independent directors. The Board believes that the individuals on the Board can make, and do make, quality and independent judgments in the best interests of the Company on all relevant issues, notwithstanding that the Chairperson is not an independent director and a majority of the Board are not independent directors. ## Chairperson of the Board The Chairperson is an executive director, and not an independent director. The roles of Chairperson and Managing Director are not exercised by the same individual. The Board believes that the Chairperson is able and does bring quality and independent judgment to all relevant issues falling within the scope of the role of a Chairperson. ## $^{ }$Management of the Business of the Company The business of the Company is conducted by or under the supervision of the Managing Director, and by employees to whom management functions have been delegated by the Managing Director. The Board has delegated responsibility for day-to-day management of the Company to the Managing Director. The Managing Director must consult the Board on matters that are sensitive, extraordinary or of a strategic nature. ## Nomination Committee The Board has established a nomination committee, consisting of three non-executive directors. ## Code of Conduct The Company has established a code of conduct to guide the directors, the Managing Director, the Finance Director and other key executives as to: (i) the practices necessary to maintain confidence in the Company's integrity; and (ii) the responsibility and accountability for individuals for reporting and investigating reports of unethical practices.

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## Statement of Corporate Governance Practices (continued) ## Code of Conduct (continued) The Company has introduced a share trading policy. Directors and senior management (and their associates) are prohibited from engaging in short-term trading of Company securities. The policy also restricts the buying or selling of Company securities to three "window" periods (between 24 hours and 30 working days following the release of the annual results, the release of the half-yearly results and the close of the annual general meeting) and such other times as the Board permits. In addition, directors and senior management must notify the Company chairperson before they or their close relatives buy or sell Company securities. ## Safeguard Integrity in Financial Reporting The Company has put in place a structure of review and authorisation designed to ensure the truthful and factual presentation of the financial position of the Company. The structure includes: (i) review and consideration of the accounts by the audit committee; and (ii) a process to ensure the independence and competence of the external auditors of the Company. The Board requires the Managing Director and the Finance Director to state in writing to the Board that the financial reports of the Company present a true and fair view, in all material respects, of the financial condition and operational results of the Company and are in accordance with relevant accounting standards. ## Audit Committee The Board has established an audit committee. The audit committee is structured so that the Committee consists of: (a) only non-executive directors; (b) prior to 1 July 2005, at least one member of the Committee must be an independent director; (c) after 30 June 2005, the majority of the members of the Committee must be independent directors; and (d) not less than three members. The chairman of the audit committee must not be the chairman of the Board of Directors. At least one member of the audit committee must have financial expertise (i.e. is a qualified accountant or other financial professional with experience of financial and accounting matters), and some members who have an understanding of the industry in which the Company operates. The audit committee shall meet at least four times each year. The purpose of these meetings shall be to: 1. Review and approve internal audit and external audit plans. 2. Review and approve the half-year financial report. 3. Update the internal and external audit plans. 4. Review and approve the annual financial report. 5. The audit committee shall meet in private session at least annually to assess the effectiveness of management. The audit committee shall provide assistance to the Board of Directors in fulfilling the corporate governance and oversight responsibilities of the Board to verify and safeguard the integrity of the financial reporting of the Company. The audit committee shall maintain free and open communication between the audit committee, external auditors, the internal auditors, and management of the Company. The audit committee is empowered to investigate any matter brought to the attention of the audit committee with full access to all books, records, facilities, and personnel of the Company and the authority to engage independent counsel and other advisers as the audit committee determines necessary to carry out the duties of the audit committee. The audit committee has a formal charter.

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## Timely and Balanced Disclosure The Company has established written policies and procedures designed to ensure compliance with the ASX Listing Rule requirements such that: (i) all investors have equal and timely access to material information concerning the Company - including its financial situation, performance, ownership and governance; and (ii) Company announcements are factual and presented in a clear and balanced way. ## Rights of Shareholders The Company has designed and disclosed a communications strategy to promote effective communication with shareholders, subject to privacy laws and the need to act in the best interests of the Company by protecting confidential commercial information, and encourage effective participation at general meetings. The Company requests the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the independent audit report. ## Recognition and Management of Risk The Board or appropriate Board committees have established policies on risk oversight and management. In order to carry out this function, the audit committee: (i) reviews the financial reporting process of the Company on behalf of the Board and reports the results of its activities to the Board; (ii) discusses with management, the internal auditors, and the external auditors, the adequacy and effectiveness of the accounting and financial controls, including the policies and procedures of the Company to assess, monitor and manage business risk, and any legal and ethical compliance programmes; (iii) reviews with the external auditor any audit problems or difficulties and the response of management; (iv) receives reports from the external auditor on the critical policies and practices of the Company; (v) makes recommendations to the Board on the appointment, reappointment or replacement (subject, if applicable, to shareholder ratification), remuneration, monitoring of the effectiveness, and independence of the external auditors; (vi) reviews and assesses the independence of the external auditor; (vii) reviews the mission, charter and resources of the internal auditor and discusses the scope of the internal audit with the internal auditor; (viii) reviews and discusses with the Board any ASX press releases, the half-year financial report, appendix 4E and other reports required to be lodged with the ASX, prior to the filing of these documents with the ASX; (ix) establishes procedures for the receipt, retention and treatment of complaints received by the Company (if any) regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of the Company of concerns regarding accounting or auditing matters. The Managing Director and the Finance Director state to the Board in writing that: (i) the statement made by the Managing Director and Finance Director to confirm to the Board that the accounts are true and fair and comply with accounting standards, is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and (ii) the Company's risk management and internal compliance is operating efficiently and effectively in all material respects. The systems of internal financial controls have been determined by senior management of the Company, and are designed to provide reasonable, but not absolute protection against fraud, material misstatement or loss. These controls are intended to identify, in a timely manner, control issues that require attention of the Board or audit committee.

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## Evaluation of Performance The performance of committees, individual directors and key executives is evaluated regularly by the Board. The Board regularly evaluates the performance of the Board. ## Remuneration The Company attempts to ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined. The Company has established a remuneration committee, consisting of four non-executive directors, one of whom is an independent director. The function of the remuneration committee is to make recommendations to the Board on remuneration issues. The Company believes that the individuals on the remuneration committee can make, and do make, quality and independent judgments in the best interests of the Company on remuneration issues, notwithstanding that all the members of the remuneration committee are not independent. The remuneration of non-executive directors is different from that of executives. Executive directors are remunerated by means of a salary, and in certain cases by equity based remuneration. All equity based remuneration is made in accordance with plans approved by shareholders. Non-executive directors are not entitled to any retiring allowance, payable upon their retirement as a director of the Company. ## Legitimate Interests of Stakeholders The Company has established a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders in the Company.

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## Statement of Financial Position At 30 June 2003 <img src='content_image/61020.jpg'> The accompanying notes form an integral part of this Statement of Financial Position.

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## Statement of Financial Position At 30 June 2003 (continued) <img src='content_image/85548.jpg'> The accompanying notes form an integral part of this Statement of Financial Position.

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## Statement of Financial Performance Year Ended 30 June 2003 <img src='content_image/55509.jpg'> The accompanying notes form an integral part of this Statement of Financial Performance.

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## Financial Highlights Consolidated profit from ordinary activities before income tax expense and outside equity interests for the 12 months to 30 June 2003 was $233.29 million, an increase of 23.2% on the previous year. Net profit attributable to members of the parent entity was $151.05 million, an increase of 17.8% on the previous year. The directors have recommended payment of a final dividend of 2.5c, fully franked on each share, to be paid on 5 December 2003. Basic earnings per share increased from 12.33 cents to 14.31 cents in respect of each share. Return on shareholders’ funds was 15.6% <img src='content_image/106749.jpg'> *Including outside equity interests. ## CONSOLIDATED <img src='content_image/106755.jpg'> <img src='content_image/106756.jpg'> <img src='content_image/106757.jpg'> <img src='content_image/106758.jpg'>

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## Statement of Cash Flows Year Ended 30 June 2003 <img src='content_image/88053.jpg'> The accompanying notes form an integral part of this Statement of Cash Flows.

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## Statement of Cash Flows Year Ended 30 June 2003 (continued) <img src='content_image/5646.jpg'> The accompanying notes form an integral part of this Statement of Cash Flows.

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## Commentary to the Statement of Cash Flows: (A) The amount of net receipts from franchisees is calculated by deducting from the aggregate amount of receipts from franchisees (including loan repayments), the aggregate amount of advances made to franchisees by the consolidated entity during the year ended 30 June 2003. All advances made to each franchisee are secured. The amount of advances to franchisees has increased to provide financial accommodation to franchisees for the purpose of funding anticipated strong trading after balance date together with the cost of acquisition of inventory by franchisees at new Harvey Norman and Domayne stores opened during the year. (B) Payments to suppliers and employees have increased as a result of opening new non-franchised Harvey Norman stores in Slovenia, New Zealand and new Rebel stores in Australia. (C) Network Consumer Finance (NCF) does not provide “no deposit interest free finance” to consumers due to the perceived risk. This form of finance is provided by external financiers. This has resulted in a decrease in the level of consumer finance provided by NCF. (D) The above factors have resulted in a decrease in net cash flows from operating activities. (E) For the year ended 30 June 2003, payment for purchases of land and buildings totalled $97.82 million and payment for purchases of plant and equipment totalled $63.26 million. (F) This relates to the reduction of units held in Financial Assets Specialised Trust No. 1 (“FAST”). (G) This relates to an amount of $7.9 million being proceeds of redemption of a promissory note owned by Rebel Sport Limited. (H) This relates to the successful takeover of Rebel Sport Limited by Becto Pty Limited, a wholly owned subsidiary of Harvey Norman Holdings Limited. (I) Relates to the balance of funds received from the rights issue completed on 14 January 2002 when 37,717,029 new shares were allotted and issued. The total amount raised was $103.75 million. An amount of approximately $53.99 million had already been received by the consolidated entity from related parties. This amount was set off against the issue price payable on issue of shares to those related parties. (J) Proceeds from borrowings of $101.3 million relates to the draw-down of commercial bill facilities which fluctuate on a monthly basis.

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## Segment Information ## PRIMARY SEGMENT – Business Segments – 30 June 2003 <img src='content_image/13994.jpg'>

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## Segment Information (continued) Primary Segment (continued) <img src='content_image/103010.jpg'> ## Other Segment Information <img src='content_image/103011.jpg'> HARVEY NORMAN HOLDINGS LIMITED AND ITS CONTROLLED ENTITIES – ANNUAL REPORT 2003

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## Segment Information (continued) Primary Segment – 30 June 2002 Comparative <img src='content_image/121504.jpg'>

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## Segment Information (continued) Primary Segment – 30 June 2002 Comparative (continued) <img src='content_image/67795.jpg'> ## Assets <img src='content_image/67799.jpg'> ## Liabilities <img src='content_image/67800.jpg'> ## Other Segment Information <img src='content_image/67801.jpg'>

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## Primary Segment Information (continued) The consolidated entity operates predominantly in ten primary segments: <img src='content_image/38648.jpg'> ## Primary Segment Analysis <img src='content_image/38649.jpg'> <img src='content_image/38650.jpg'>

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## Primary Segment Information (continued) ## Return on Primary Segment Assets <img src='content_image/57715.jpg'> ## Property Primary Segment Analysis The following table is a detailed analysis of the three different property segments. This analysis calculates the following two ratios which are integral in assessing the performance of the property segments: <img src='content_image/57717.jpg'>

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<img src='content_image/88874.jpg'> <img src='content_image/88875.jpg'>

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## Business Performance and Outlook I am delighted to announce another record year for the Harvey Norman group. The group consolidated operating profit before tax was $233.29 million, for the twelve months ended 30 June 2003 compared to $189.41 million for the prior year, AN INCREASE of 23.16%. The operating profit after tax attributable to members of the company was $151.05 million compared to $128.28 million for the prior year, an increase of 17.8% on the previous twelve month period. Basic earnings per share increased from 12.33¢ to 14.31¢. Sales in all categories of products sold by Harvey Norman franchisees or sold through Harvey Norman owned outlets outside Australia (excluding Pertama Holdings Limited in Singapore), have increased by 14.4% during the year when compared to the prior year. Like for like sales for the year ended 30 June 2003, when compared to the year ended 30 June 2002 have increased by 9.3%. Since the end of the financial year sales for the months of July and August 2003 from the franchised “Harvey Norman” complexes, Harvey Norman stores in New Zealand, Slovenia and other trading operations (excluding operations of Pertama Holdings Limited, Singapore, and Rebel Sport Limited) totalled $590.4 million. When compared to sales for July and August 2002 the increase was 21% . Like for like sales for the months of July and August 2003, when compared to the same period last year, have increased by 12.7% . During the twelve months to 30 June 2003, nine new stores or complexes have been opened in Australia, one small lighting store was closed, and the flagship Harvey Norman store in Slovenia was opened in Ljubljana. Six retail stores or complexes were opened in New Zealand. Since the end of the financial year, three stores have been opened in Australia, and I am proud to announce that the first Harvey Norman store opened in Dublin (Swords), Ireland on 19 August 2003, and the second Irish store opened at Dundalk on 2 September 2003. Initial trading results from the Irish stores have met expectations. I believe that the expansion into Ireland will be extremely positive for the company. During the year Harvey Norman developed a new franchised retail concept known as “Mega Flooring Depot” (MFD). MFD franchisees will sell carpets, general floor coverings, rugs and timber flooring. The MFD roll-out will extend over a number of years, throughout Australia. In recent years developments in technology have resulted in increased sales in product categories such as plasma television, DVD players, digital cameras, laptop computers and general home entertainment products. Although sales in all areas including furniture, bedding, electrical and computers have increased, the new technology will have a substantial impact on sales in years to come. The transition to digital video has been building rapidly, and consumers are now buying more than twice as many DVD players as VCR’s. Consumers now choose digital technology to watch the latest movies in their home theatres. Consumers prefer digital video and still cameras for better picture quality, smaller size and editing capabilities. The future has become very clear - digital technology is not only here, but the features and capabilities of new digital technologies are growing at a rapid pace. Bigger and brighter LCD and Plasma screens, better computer games, smarter phones, higher resolution digital cameras, at mass market prices will allow Harvey Norman to be at the forefront to satisfy consumer demands. Harvey Norman was first in Australia to embrace the computer superstore concept, and continues to offer the most outstanding product range to the consumer. Developments in digital technology will enhance the growth prospects for Harvey Norman.

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## 1. Statement of Significant Accounting Policies ## (a) Basis of Accounting The financial statements have been prepared as a general purpose financial report which complies with the requirements of the Corporations Act 2001, Australian Accounting Standards and Urgent Issues Group Consensus Views and other authoritative pronouncements. The financial report has been prepared in accordance with the historical cost convention using the accounting policies described below. These policies are consistent with those adopted in the previous year unless otherwise stated. Further they do not take account of changes in either the general purchasing power of the dollar or in the prices of specific assets, except for land and buildings, which are stated at fair value, as described in Note 14. ## (b) Principles of Consolidation The consolidated financial statements include the financial statements of the parent entity, Harvey Norman Holdings Limited, and its controlled entities (refer Note 40) referred to collectively throughout these financial statements as the “consolidated entity”. All intergroup transactions and balances have been eliminated. Franchisees are not controlled by the consolidated entity and have not been consolidated. Where an entity began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. Financial statements of foreign controlled entities presented in accordance with overseas accounting principles are, for consolidation purposes, adjusted to comply with group policy and generally accepted accounting principles in Australia. ## (c) Cash and Cash Equivalents Cash on hand and in banks and short-term deposits are stated at nominal value. For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks and deposits at call, net of outstanding bank overdrafts. ## (d) Receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate of the provision for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written- off as incurred. ## (e) Consumer Finance Loans Repayments of consumer finance loans are allocated between principal and interest components. Interest on consumer finance loans is recognised as income as each repayment instalment falls due. Unearned revenue on consumer finance loans has been calculated using actuarial methods so that revenue earned over the term of the contract bears a constant relationship to funds employed. Income is brought to account on consumer finance loans only where it has been paid or where it is unpaid but recovery is certain. ## (f) Land and Buildings It is the policy of the consolidated entity to review annually the values of land and buildings based on the use of the properties by the consolidated entity as a going concern. The directors have elected to carry these land and buildings at fair value. The valuations take no account of any potential capital gains tax as it is the intention of the consolidated entity to hold the properties as part of its ongoing operations. ## (g) Depreciation and Amortisation of Property, Plant and Equipment Properties in the ACT which are held under a 99 year ground crown land sublease from the Commonwealth Government, are not amortised over the remaining life of the lease, as the expectation is that these leases will be renewed at minimal cost once they expire. Buildings on these sites are depreciated over their useful lives using the straight line method. New assets are depreciated from the time of acquisition. Profits and losses on disposal of property, plant and equipment are taken into account in determining the profit for the year. Property, plant and equipment, excluding freehold land and leasehold property, are depreciated over their useful economic lives using the straight line method as follows: <img src='content_image/70136.jpg'> The directors have elected to carry plant and equipment at cost.

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## Notes to the Financial Statements (continued) 1. Statement of Significant Accounting Policies (continued) ## (h) Inventories Inventories are valued at the lower of cost and net realisable value. Costs have been assigned to inventory quantities on hand at balance date using a weighted average basis. ## (i) Intangibles ## Goodwill on Acquisition On acquisition of a controlled entity, the difference between the purchase consideration plus incidental expenses and the fair value of identifiable net assets acquired is initially brought to account as goodwill or discount on acquisition. Purchased goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise, which is currently between five and twenty years. The unamortised balance of goodwill is reviewed at each balance date and charged to the Statement of Financial Performance to the extent that applicable future benefits are no longer probable. ## (j) Leases ## Company as lessee ## Operating leases Where title is not expected to pass to the lessee at the end of the lease term the lease is classified as an operating lease. Lease payments are charged to the Statement of Financial Performance in the periods in which they are incurred. ## Company as lessor ## Direct finance leases Direct finance receivables are recognised as receivables at the beginning of the lease term at the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual expected to accrue to the benefit of the consolidated entity at the end of the lease term. The discount rate used in determining the present value is the interest rate implicit in the lease. Lease payments are allocated between principal and interest components. Lease receivables are reduced by payments of principal whilst the interest component is credited to the Statement of Financial Performance. ## (k) Taxes ## Income Tax Income tax has been brought to account using a method of tax effect accounting whereby income tax expense for the period is calculated on the accounting profit after adjusting for items which, as a result of their treatment under income tax legislation, create permanent differences between that profit and the taxable income. The tax effect of timing differences which arise from the recognition of revenue and expense items in the accounts in periods different from those in which they are assessable or allowable for income tax purposes, are presented in the Statement of Financial Position as a “future income tax benefit” at the tax rate expected to apply when the differences reverse. A future income tax benefit relating to timing differences is only carried forward as an asset where realisation of the benefit can be regarded as being assured beyond reasonable doubt. ## Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: ƒ Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and ƒ Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a net basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. ## (l) Provisions for Employee Benefits Provision has been made in the financial statements for benefits accruing to employees in relation to such matters as annual leave, long service leave and workers compensation. All employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to reporting date. All on- costs, including payroll tax, workers’ compensation premiums and fringe benefits tax are included in the determination of the provisions. Employee entitlement expenses and revenues are charged against profits on a net basis in their respective categories.

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## 1. Statement of Significant Accounting Policies (continued) ## (m) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Income is brought to account, in respect of the sale of goods, when the relevant goods are delivered to the purchaser. Rental income is brought to account when control over the right to receive rental payments is determined. Income attributable to franchise fees is brought to account only when the franchise fees have been earned, or where franchise fees are unpaid but recovery is certain. Dividend and trust income is brought to account when control over the right to receive dividend and trust payments is determined. Interest income is brought to account when control over the right to receive interest payments is determined. ## (n) Recoverable Amounts of Non-Current Assets The carrying amounts of all non-current assets are reviewed at least annually to determine whether they exceed their recoverable amount. The recoverable amount is determined by reference to net cash flows which have not been discounted. ## (o) Investments Accounted for Using Equity Method – Associated and Joint Venture Entities Interests in associated and joint venture entities are brought to account using the equity method. Under this method, the investment in associates and joint ventures is initially recognised at its cost of acquisition and its carrying value is subsequently adjusted for increases or decreases in the investor’s share of post- acquisition results and reserves of the associated and joint venture entities. The investment in associated and joint venture entities is decreased by the amount of dividends received or receivable. Investments in associates and joint ventures are carried at the lower of cost and recoverable amount in the accounts of the consolidated entity. Detailed equity accounting information concerning the consolidated entity’s interest in material associated and joint venture entities is provided in Note 39. ## (p) Accounting for Investments in Partnerships Interests in jointly controlled partnerships are brought to account as follows: The consolidated entity’s share of the total assets employed by the partnership is brought to account in the “Investment in Partnership” line within “Investments accounted for using equity method” on the Statement of Financial Position. The liabilities of the partnership are brought to account in their respective financial statement categories of the consolidated entity, as the consolidated entity is jointly and/or severally liable for the liabilities of the partnerships. The consolidated entity's share of the net profit, or the total net loss, is brought to account as “Share of net profit of associates, joint ventures and partnerships accounted for using equity method” on the Statement of Financial Performance. The consolidated entity recognises a right of indemnity for joint and/or several liabilities within receivables on the Statement of Financial Position. ## (q) Other Financial Assets Interests in non-subsidiary, non-associated corporations held for long-term purposes are included in “Other Financial Assets” (non-current) at cost. Shares in unlisted companies and units in unit trusts are included in “Other Financial Assets” (non-current) at cost. Listed shares held for trading are carried at net market value and are included in “Other Financial Assets” (current). Changes in net market value are recognised as revenue or expenses in the Statement of Financial Performance for the period. Where listed shares have been revalued, any capital gains tax which may become payable has not been taken into account in determining the revalued carrying amount. Where it is expected that a liability for capital gains tax exists, this amount is recognised in the Statement of Financial Performance for the reporting period.

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1. Statement of Significant Accounting Policies (continued) ## (r) Payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in future for goods and services received, whether or not billed to the consolidated entity. Payables to related parties are carried at the principal amount. ## (s) Foreign Currency Transactions Foreign currency items are translated to Australian currency on the following bases: ƒ Transactions are converted at exchange rates in effect at the date of each transaction; ƒ Amounts payable and receivable are translated at the average of the buy and sell rates available on the close of business at balance date; and ƒ The financial statements of all foreign operations are translated using the current rate method as they are considered self-sustaining. Exchange differences relating to monetary items are included in the Statement of Financial Performance, as exchange gains and losses in the period when exchange rates change, except where the difference relates to hedging part of the net investment in a self- sustaining foreign operation, in which case the differences are transferred to the foreign currency translation reserve on consolidation. ## (t) Interest-Bearing Liabilities Bills payable are recognised when issued at the amount of the net proceeds received, with the discount on issue amortised over the period to maturity. Interest is recognised as an expense on an effective yield basis. Interest rate swaps are recognised as a liability, measured by reference to amounts payable. Net receipts and payments are recognised as an adjustment to interest expense. All loans are measured at the principal amount. Interest is recognised as an expense as it accrues. ## (u) Derivative Financial Instruments The consolidated entity enters into forward exchange contracts where it agrees to buy specified amounts of foreign currencies in the future at a predetermined exchange rate. The objective is to match the contract with anticipated future cash flows from purchases in foreign currencies, to protect the consolidated entity against the possibility of loss from future exchange rate fluctuations. Foreign exchange contracts are recognised at the date that the contract is entered into. Except for specific hedges, all resulting exchange differences on settlement or restatement are recognised as revenues or expenses in the Statement of Financial Performance in the current year. ## (v) Contributed Equity Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders. Issued and paid up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction in share proceeds received. ## (w) Borrowing Costs Borrowing costs are expensed as incurred. ## (x) Earnings Per Share Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members adjusted for: ƒ costs of servicing equity (other than dividends) and preference share dividends; ƒ the after tax effect if dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and ƒ other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

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## Notes to the Financial Statements (continued) 1. Statement of Significant Accounting Policies (continued) (y) Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous year except for the accounting policies with respect to the provision for dividends and employee benefits. ## Provision for Dividends The consolidated entity has adopted the new Accounting Standard AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” which has resulted in a change in the accounting for the provision of dividends. Previously, the consolidated entity recognised a provision for dividend based on the amount that was proposed or declared after the reporting date. In accordance with the requirements of the new Standard, a provision for dividends will only be recognised at the reporting date where the dividends have been declared, determined or publicly recommended prior to the reporting date. The effect of the adoption of AASB 1044 has been to increase consolidated retained profits and decrease provisions at the beginning of the year by $26,397,336 (refer to Note 28). In accordance with AASB 1044, no provision for dividend has been recognised for the year ended 30 June 2003. ## Employee Benefits The consolidated entity has adopted the revised Accounting Standard AASB 1028 “Employee Benefits”, which has resulted in a change in the accounting policy for the measurement of employee benefit liabilities. Previously, the consolidated entity measured the provision for employee benefits based on remuneration rates at the date of recognition of the liability. In accordance with the requirements of the revised standard AASB 1028, the provision for employee benefits is now measured based on the remuneration rates expected to be paid when the liability is settled. By applying the revised standard, there has been no adjustment to the consolidated retained profits or to the employee benefit liabilities at the beginning of the year. (z) Comparative Amounts Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. ## AASB 1044 As a result of the first time application of AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets”, comparatives for provisions, as set out in Note 20, have been repositioned to be consistent with current year disclosures.

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## Notes to the Financial Statements (continued) <img src='content_image/103933.jpg'> ## 2. Revenue From Ordinary Activities <img src='content_image/103935.jpg'>

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## Notes to the Financial Statements (continued) <img src='content_image/43842.jpg'> ## 3. Expenses and Losses/(Gains): ## Depreciation and amortisation: <img src='content_image/43843.jpg'> ## Other expense items: <img src='content_image/43844.jpg'>

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## Notes to the Financial Statements (continued) <img src='content_image/31459.jpg'> ## 4. Income Tax ## Income Tax Expense The difference between income tax expense provided in the financial statements and the prima facie income tax is reconciled as follows: <img src='content_image/31453.jpg'> This future income tax benefit will only be obtained if: (a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; (b) the conditions for deductibility imposed by tax legislation continue to be complied with; and (c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit. <img src='content_image/31458.jpg'> ## Tax Consolidation Effective 1 July 2002, for the purposes of income taxation, Harvey Norman Holdings Limited and its 100% owned subsidiaries have formed a tax consolidated group. The transitional method of existing tax values will be adopted in determining the tax cost of assets owned by entities forming part of the consolidated group. At balance date, there has been no material effect on the future income tax benefit of $7.9 million and the provision for income tax of $26.0 million. Harvey Norman Holdings Limited has not formally notified the Australian Taxation Office of its adoption of the tax consolidation regime.

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## Notes to the Financial Statements (continued) <img src='content_image/89379.jpg'> ## 5. Earnings Per Share The following reflects the income and share data used in the calculations of basic and diluted earnings per share: <img src='content_image/89382.jpg'> In the prior year, the parent entity raised $103,744,599 (before costs of $23,487) and issued 37,717,029 new shares by means of a pro rata renounceable rights issue. The rights issue closed on 19 December 2001 and the new shares were allotted on 14 January 2002. In accordance with AASB 1027 “Earnings Per Share”, as a result of the rights issue disclosed above, the prior period basic and diluted earnings per share calculations have been adjusted by a bonus element, due to the market price immediately prior to the rights issue exercise date exceeding the rights issue exercise price. The 10,500,000 share options with an exercise price of $3.21 per option and the 4,000,000 share options with an exercise price of $4.10 per option have been excluded from the current year diluted earnings per share calculation. For these options, the exercise price exceeded the average market price for the year ended 30 June 2003 and therefore were not considered to be dilutive. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.

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## Sales ## Consolidated Entity Sales revenue for the consolidated entity, excluding sales revenue from Harvey Norman franchised stores, but including Harvey Norman stores in New Zealand and Slovenia, controlled entities such as Rebel in Australia, and Pertama Holdings Limited in Singapore, are up 26.9% to $1.0 billion (2002: $788.2 million) for the twelve months ending 30 June 2003. Main factors contributing to the increase were: ƒ sales revenue from New Zealand company owned stores was up $95.6 million or 62.9%, including revenue from six new Harvey Norman stores opened during the year; ƒ sales revenue from Rebel Limited increased by $48.2 million or 21.1%, including revenue from six new Rebel stores and one Glue store opened during the year; ƒ the first European Harvey Norman store located in Ljubljana, Slovenia which commenced trading during September 2002 contributed $17.9 million to sales revenue; ƒ sales revenue from Pertama Holdings Limited, Singapore, trading as “Harvey Norman” increased $19.4 million resulting from an increased acceptance of the Harvey Norman brand name, enhanced marketing initiatives, and varied product mix. ## Sales from Harvey Norman Franchised Complexes The sales revenue generated by franchised “Harvey Norman” complexes do not form part of the financial results of the consolidated entity. Retail sales in these complexes are made by separate independent business entities that are not consolidated in the group results. The information below is not intended to be representative of the results of the consolidated entity and partly reflects the results of the franchisee businesses which are not included in the consolidated results. <img src='content_image/27352.jpg'> <img src='content_image/27349.jpg'> <img src='content_image/27351.jpg'>