Reed Elsevier growth hit by US syllabus changes

Shares in Reed Elsevier slumped 7 per cent yesterday after the publishing giant warned that its earnings growth is set to slow in 2004.

Reed shares lost 35p to 459p as the company, normally considered to be one of the best managed in its sector, told investors to expect "mid to high single-digit growth" in a trading statement. For the current year the group said it was on track for double-digit earnings growth.

Three factors will combine to hit earnings at Reed next year. The company will hit a low point in the US textbook adoptions cycle, a three to five year cycle which sees State education authorities change the content of subject syllabuses. Reed also faces tough trading at its Business Information unit, which publishes magazines like Computer Weekly and organises trade shows, and finds itself having to put cash aside to invest in new products. Reed will earmark an extra £30m next year for the development of new products, which it hopes will drive medium-term growth.

Following the news of yesterday's setback, Investec Securities downgraded its rating on to "hold" from "buy". "While Reed's valuation is not expensive in a historic context and compared with other media stocks, it is difficult to see the shares outperform in the medium term until the investment starts to boost organic growth," said the broker.

Reed used yesterday's trading statement as an opportunity to play down recent suggestions that its science publishing unit faces a series of long-term threats. There have been worries that the emergence of the Public Library of Science, a non-profit organisation which aims to make the world's scientific and medical literature a public resource, could eat into Reed's profits. In October it launched its first freely available online journal.

Reed dismissed the organisation's model for publishing scientific literature as "unsustainable" and also argued that a bill being sponsored by US congressman Martin Sabo, which seeks to exclude any government funded scientific research from US copyright protection, is unlikely to become law.