1999 Interim Results: Pearson Makes a Strong Start to the Year

PEARSON PLC INTERIM RESULTS (unaudited)

Six months ended 30 June 1999

PEARSON MAKES STRONG START TO THE YEAR

Highlights

Total sales up 32% to £1,306m

Operating profits up 15% to £126m
- before goodwill and other items

Dividend per share up 8% to 8.6p

Strong performance across all businesses

  • Pearson Education on track to meet first full year profit expectations
  • FT Group grows profits and invests more in international expansion
  • Penguin doubles first half profits
  • Pearson Television posts 13% increase in underlying profits

Commenting on the results, Marjorie Scardino, chief executive of Pearson plc, said:

"We have had a great first half. Pearson Education, now half of our business, is right on track to meet our expectations. Across the company, we?re in shape to deliver on our sales, margins and cash targets. We?ve made Pearson a 100% media company. With our rich content and powerful brands, we?re stepping up our investment to exploit the opportunities of the digital age."

ENQUIRIES: 0171 411 2310
Marjorie Scardino, chief executive
John Makinson, finance director
John Fallon, communications director

Overview

In the first six months of 1999, operating profits before goodwill and other items increased by 15% to £126m, with strong trading performances across the company. Adjusted earnings of 6.3p per share (10.8p per share in 1998) reflect the seasonal pattern of earnings in Pearson Education which now accounts for around half of our company following the acquisition of the Simon & Schuster education business. Pearson Education, which makes around two thirds of its sales - and all its profits - in the second half of the year, is firmly on track to meet full year expectations. The US school business, in particular, has made an impressive start to the year and the integration process continues to time and budget. The FT Group has increased profits and boosted investment in the international growth of the newspaper and the electronic expansion of its online business news and information services. Pearson Television has increased first half profits; its European production business is performing strongly and losses at Channel 5 are falling as its audience share - and advertising revenues - grow. Penguin has made an excellent start to the year on the back of a stronger publishing list and more efficient operations.

This year, Pearson has sold, or reached agreement to sell, assets with a total value of over £1bn. We have disposed of a number of the reference and business & professional operations, acquired from Viacom Inc. as part of the larger acquisition of its Simon & Schuster education business, to a range of buyers for £220m. We have agreed to sell our interests in the three Lazard houses to Gaz et Eaux, a French listed investment company, for £410m in cash. And we have also agreed to sell our 4% indirect stake in BSkyB to Vivendi for £408m. We are using the proceeds of these disposals to reduce debt. Pearson has now formally agreed the strategic alliance with Telefonica, the Spanish telecommunications company, to develop internet and multi-media opportunities in the Spanish and Portuguese speaking worlds. Pearson has agreed to make arrangements for the purchase of Telefonica?s 20% stake in Recoletos, our Spanish media group, for 30 billion pesetas, some £121m at current exchange rates.

Pearson Education

Pearson Education
  1999 1998 1998
£m half year half year full year




Sales      
US School 196 62 244
US Higher Education & Professional 188 41 232
International 170 77 226




  554 180 702




Operating (loss)/profit (38) (19) 99




Education markets in the United States continue to grow and Pearson Education is capitalising on the revenue opportunities this creates. The school business is performing well in adoption and open territory states throughout the United States. It is on target to emerge as the leading publisher in the major math adoptions this year and is also performing strongly in social studies. The US college publishing business continues to build on its very strong market-leading position. And the International business is making major efficiency gains and publishing the new programmes which will enable it to capitalise on the recovery of Asian and Latin American markets. Across Pearson Education, revenues generated by electronic products continue to grow strongly as we build on our position as the world?s leading education technology company. The integration of the Addison Wesley Longman and Simon & Schuster businesses continues to time and budget, with many of the key milestones now reached. We are on track to deliver the anticipated annual cost savings of $130m by the end of next year.

FT Group

FT Group
  1999 1998   1998
£m half year half year % change full year





Sales 330 335   683





Operating profit        
FT Newspaper 34 27 +26% 42
FT branded businesses 6 8 -25% 19
Les Echos 13 9 +44% 12
Recoletos 18 17 +6% 30
Associates 8 8 - 15





  79 69 +14% 118





The FT Group increased underlying sales by 10% after taking account of portfolio and exchange rate changes. Underlying operating profits increased by 11% on the same basis. Investment in the international expansion of the FT newspaper continues to bring rewards. Average daily sales for the six months to the end of June 1999 were 385,000, up 9% on last year. Advertising revenues were up 13 %. In North America, average daily sales in June were over 79,000, up 38% on a year ago and on track to reach 100,000 by the end of the year.

In FT branded businesses, ft.com continues to grow advertising revenues and traffic - in June alone, overall traffic to the site was up 40% on the back of increased marketing in the UK. Increased investment in ft.com masks strong profits growth at FT Asset Management (FTAM.) The acquisition of the Thomson Financial Securities Management division for $150m, announced last Friday, has enhanced FTAM?s position as a leading provider of securities pricing and other specialist information to the global financial community and the integration of the two businesses will deliver substantial cost savings. Les Echos groupe has made a very strong start to the year, with newspaper circulation up 4% year on year and advertising revenues increasing by more than 20%. lesechos.com, the leading French language media website, has more than doubled traffic in the last year. At Recoletos, our Spanish media group, a slight dip in total copy sales has been offset by growing advertising revenues. It continues to develop an on-line presence that capitalises on its position as the leading newspaper publishing group on the Iberian peninsula. Plans for the launch of a new German language business newspaper, in partnership with Gruner + Jahr, one of Germany?s leading news and magazine publishers, are going well. We expect to launch the product on the internet later this year with the newspaper making its debut early next year.

In Associates, profits from Business Day and Financial Mail, our South African associate, have held up well despite some weakness in the advertising market in the run-up to the South African general election in June. In The Economist Group, the newspaper continues to perform well whilst the group is making significant investment in developing its on-line potential.

Penguin

Penguin Group
  1999 1998   1998
£m half year half year % change full year





Sales 263 232 +13% 523





Operating profit 31 16 +94% 48





The Penguin Group had an excellent first half, with sales up by 13% to £263m and operating profits almost doubling. Penguin titles have featured strongly in best-seller lists in all of its major markets, with a strong publishing schedule that is less heavily geared to the second half of the year than it was in 1998. Penguin is now realising the full benefits of the cost savings resulting from the Penguin Putnam integration in the U.S. and the integration of Ladybird childrens books within Penguin U.K. Penguin continued to build its brand globally with the launch of Penguinclassics.com, which has already generated strong consumer interest.

Pearson Television

Pearson Television
  1999 1998   1998
£m half year half year % change full year





Sales 159 153 +4% 343





Operating profit
  
 
 
 
Pearson TV 35 33
 
71
Channel 5 (3) (8)
 
(14)
BSkyB 1 2
 
4





  33 27 +22% 61





Pearson Television increased sales by 4% to £159m and operating profits by 22% to £33m. Stripping out the benefits of lower losses at Channel 5 and the loss of dividends from last year?s disposal of its stake in SES, the satellite broadcast operator, the underlying increase in operating profits was 13%. Pearson Television continues to perform strongly, particularly in its European production markets and in its UK operations. Channel 5, in which Pearson Television owns a 24% stake, is performing ahead of expectations in terms of both audience share and advertising revenues. We expect to complete the disposal of our stake in BSkyB to Vivendi in the autumn.

Lazard

Lazard
  1999 1998   1998
£m
half year
half year
% change
full year





Attributable profit 21 15 +40% 42





The three houses are all trading well, with a significantly stronger performance in London than at this stage last year. We announced the planned sale of our stake in the three Lazards houses in June, and we anticipate that the disposal will be completed later in the year.

OUTLOOK

The company, and in particular, Pearson Education, has made a good start to the second half of the year. We are on track to deliver our sales, margins and cash targets and we are committed to our target of annual double digit earnings growth.