Mr Smith was regarded as an unknown quantity to investors when he was
appointed a year ago. He surprised the City in his only results presentation
in July when Reed, seen as one of the FTSE’s more conservative companies,
announced a equity fund raising of almost £1bn ($1.67bn) to cut debt, a
halving of first-half pre-tax profit and a retreat from positive full-year
earnings guidance.

Engstrom
He is replaced with immediate effect by Erik Engstrom, chief executive of
Elsevier, the group’s Dutch arm.

A trading update from Reed Elsevier confirmed the tough market conditions in
publishing had broadly continued into the second half, and increased
investment in the business would “modestly” hit adjusted operating margins
in 2010.

That has been reflected in Reed’s shares, which have underperformed the FTSE
100 by more than 20 per cent year to date. The shares opened down 2.8 per
cent on Wednesday at 470.8p.

Outsider Smith
Mr Smith, like his predecessor Sir Crispin Davis, was regarded an untried and
untested outsider before his appointment. He had held a number of management
positions, including time at oil group Royal Dutch Shell, and executive
roles in various sectors, but lacked sector experience or much time at the
helm of a listed company.

His only role as chief executive of a FTSE company was a six-month stint
heading Taylor Woodrow, the housebuilder, which he left following its merger
with George Wimpey in mid-2007.

By contrast, the incoming Mr Engstrom has been a director of Reed Elsevier
since 2004. He was also a director at SCA, the Swedish paper products
company, and has worked in the publishing sector at Bertelsmann, Random
House and Bantam Doubleday Dell North America.

”It is a mutual agreement,” a spokesman said: ”The feeling was this wasn’t the
right role for Ian given the current economic circumstances. It’s been
obviously a fairly tough year and this wasn’t working out.”

The decision to turn to Mr Engstrom, the leading internal candidate when the
board was looking to replace Sir Crispin after a decade at the helm, follows
Mr Smith’s effective rebuke of former management’s financial strategy.

He deemed July’s 109.2m share placing necessary after Reed’s balance sheet
became strained by the $4.1bn acquisition of Choicepoint and subsequent
failure to sell Reed Business Information.

Mr Engstrom, who was a well-regarded member of Sir Crispin’s core team, faces
the task of restoring relations with investors while stepping up the pace of
investment in some businesses.

He will be paid an annual salary of £1m and Reed’s bonus and long-term
incentive schemes have the potential to deliver an additional 3.5 times
salary.

Mr Smith will be paid seven months of his £900,000 salary, plus 30 per cent of
his salary in lieu of pension payments, another 35 per cent in bonuses and a
possible further four months’ salary if he fails to find work in that period.

Mr Engstrom will have to turn round a business in which weak advertising
markets and a decline in exhibition and promotional activity has severely
hampered its core markets.

Reed warned that those trends were likely to continue for the rest of the year
and into 2010.

“The effects of operational gearing in a weak revenue environment combined
with increased investment, particularly focused in US legal markets, which
are only partially mitigated by restructuring and other cost actions, are
likely to lead to a modest reduction in adjusted operating margin in 2010,”
it said.

Last year margins rose 110 basis points from 24.8 per cent to 25.9 per cent.

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