1999 Preliminary Results And Results Presentation

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PEARSON PLC PRELIMINARY RESULTS (audited)

Year ended 31 December 1999

 6 March 2000 

Financial summary
  Year to 31 Dec 1999 Year to 31 Dec 1998 % change




Sales £3,332m £2,395m +39%
Operating profit * £549m £389m +41%
Pre tax profit * £402m £350m +15%
Adjusted earnings per share ? pre Internet enterprises 53.3p 42.0p +27%
Adjusted earnings per share ? post Internet enterprises 48.5p 42.0p +15%
Dividend per share 22.5p 21.0p +7%




* Before goodwill, exceptional & non-operating items

Financial Headlines
  • Underlying sales up 7.3%.
     
  • Trading margin up from 13% to 15.2%.
     
  • Operating cash conversion rate of 92%.
Business Headlines

Record profits from all businesses:

  • Pearson Education gained market share in its US school and higher education & professional businesses, managed the successful integration of the Addison Wesley Longman and Simon & Schuster businesses and delivered on first full year profit expectations.
  • The Financial Times Group increased underlying sales by 13% and posted record profits, with business titles generating strong circulation and advertising growth, and sharpened its focus on creating a world leading financial and business information brand.
  • Pearson Television increased profits by 11%, with strong performances by its European production business and Channel 5, and stepped up the online development of its shows and formats.
  • The Penguin Group increased underlying profits by 23%, with a strong list of best-selling authors, and capitalised on new technology to improve margins.

 

Marjorie Scardino, chief executive of Pearson, said:

"These are a fine set of results. Financially, we are performing very well with good growth in revenues and margins and a strong cash performance. Strategically, we are making the networked world an integral part of our future. In a world mesmerised by technology, we try to focus on how we can use it to transport our rich content and great brands in ways that make life easier, simpler, faster and more personal for our growing bands of customers." 

ENQUIRIES: +44 171 411 2310

Marjorie Scardino, chief executive

John Makinson, finance director

John Fallon, communications director

Internet Enterprises

We are stepping up investment in developing Internet enterprises, which capitalise on the power of our brands and content and generate new and distinct revenue streams. In 1999, the net costs of developing these enterprises was £39m. In January, we raised £250m, through the issue of new equity, to finance the next stages of their development. New developments include:

  • We are announcing today a series of agreements that will accelerate the development of our education network, a new online consumer portal scheduled for launch later this year. Pearson and American Online, Inc., have reached a preliminary agreement to serve as a framework for developing a relationship. . It is envisaged that the relationship would establish Pearson?s education network as the preferred supplier of educational content and online learning tools with AOL providing carriage for Pearson?s education network on the AOL service and other America Online Inc., brands. The two companies will also investigate opportunities to collaborate on the development of a curriculum architecture and a range of select education tools.
  • Pearson has also announced today the first of a number of strategic alliances with, and equity investments in, leading Internet educational companies which will further strengthen the development of its education network. The alliances are with SCORE! Learning Inc., Copernicus Education Gateway and Blackboard Inc. More details are set out in a separate statement
  • FT.com, now transformed into an international business portal, will launch its first major US marketing campaign later this month. Last year, FT.com trebled both revenues and traffic and we expect it to sustain that level of growth
  • We expect to launch FTMarketWatch.com, our joint venture with MarketWatch.com, operator of America?s leading finance website and the 36th most visited site in the world, in June. We also plan to launch a French language personal finance website, modelled on FTYourMoney.com, our new UK personal finance website, by the autumn. These projects form part of our strategy of building a comprehensive network of leading European and U.S. business and financial news, private investor and personal finance websites.
  • FT Knowledge, our management education business, is forming a new venture with The Wharton School of the University of Pennsylvania, one of the most prestigious business schools in the world, to offer programs in eBusiness which will be delivered and supported on line.
Share Listing

Later this year, we plan to seek a listing of our ordinary shares on the New York Stock Exchange (NYSE). Over half our employees are based in the United States and a listing will enhance our ability to offer them equity participation in our company.

Business Review

In 1999, pre tax profits, before goodwill, exceptional and non operating items, increased by 15% to £402 million. Operating profits increased to £549m and we generated related operating cash flow of £506 million. Underlying sales growth, which represents the year-on-year increase in sales, after portfolio changes and movements in exchange rates, was 7.3%. The trading margin, excluding profits from associates and passive investments was, 15.2%. Post Internet enterprises, it was 14%.

Pearson Education
Pearson Education
£m Year to 31 Dec 1999 Proforma Year to 31 Dec 1998 % change




Sales      
US School  586 537  +9%
US Higher Education & Professional 666 593 +12%
International 446 423 +5%
Discontinued 8 22 -




Pearson Education sales 1,706 1,575 +8%
FT Knowledge 19 -  




  1,725 1,575  




Operating profit/(loss)      
Pearson Education 265 99*  
FT Knowledge (8) -  




  257 99  
Internet enterprises (3) -  




* Actual

Pearson Education, formed in November 1998 through the acquisition of the Simon & Schuster education business and its merger with Addison Wesley Longman, performed very strongly in its full year of operation. Sales increased to £1.706 billion, an underlying increase of 9.4%, taking account of currency and disposals, on pro forma sales in 1998. Operating profits increased to £265m.

 

The US School business had an excellent year, with our best selling math and social studies programmes leading the way. They gained substantial market share, creating a platform which will drive strong backlist sales in future years. We stepped up investment in our market leading range of electronic learning tools and in new reading, literature and science programmes, ahead of state adoptions starting this year. In early results, these programmes are scoring major sales in both adoption states and open territories.

Our US Higher Education and Professional Publishing business also had a great year. We enhanced our leadership of the US college publishing market and invested more in signing new authors and creating successful first editions. We also increased investment in developing text/web and online course management programmes that create more interactive learning, enabling us to build closer relations with professors and students. Our professional and technology publishing operations, buoyed by a strong publishing programme and surging interest in technology and e-commerce, also delivered double digit revenue growth.

Our International business increased sales by 5% to £446m. We moved swiftly to transform the extensive international networks of both AWL and Simon & Schuster into a single cohesive force, building up our local publishing presence and strengthening our distribution and marketing networks. In print and online, we continued to expand our leading English language teaching business as the number of people around the world who want to learn English grows rapidly by the day. In the latter part of the year, we capitalised on the first signs of sustained economic recovery in emerging Asian and Latin American markets.

The full integration of the Addison Wesley Longman and Simon & Schuster businesses is on track and we are in good shape to deliver the planned $130m of annual integration savings by the end of 2000.

FT Knowledge, our newly formed management education business, made losses of £8m as it invested rapidly in expanding its scale and scope to capitalise on the explosive growth of on-line learning and the burgeoning demand for business qualifications. Last month, we announced an agreement with the University of Michigan Business School, one of the leading providers of executive education in America, to offer on-line executive management courses. We also set up a joint venture with Regents? College, a leading US 'virtual university', to accredit a wide range of FT Knowledge business and computing programmes. Today, we are announcing a new venture with The Wharton School of the University of Pennsylvania, one of the most prestigious business schools in the world, to offer programmes in eBusiness which will be delivered and supported on line.

Financial Times Group
Financial Times Group
£m Year to 31 Dec 1999 Year to 31 Dec 1998 % change




Sales 687 683  




Operating profit / (loss)      
FT Newspaper 56 42 +33%
FT Interactive Data 31 22 +41%
FT Business 1 1  
Les Echos 18 10 +80%
Recoletos 34 30 +13%
Associates 12 15 -20%
Discontinued businesses* (2) (2)  




  150 118 +27%
Internet enterprises (36) -  




* Businesses discontinued include the newsletter operations of FT Business, the medical publishing business of Les Echos and FT Profile

We increased substantially the revenues and profits of our business newspapers - and invested heavily in their electronic and international expansion. We have transformed the prospects of FTID, our specialist financial information business, through the acquisition of the Thomson Financial Securities Management business (TFSM) and the subsequent merger with the Data Broadcasting Corporation (DBC.) As we sharpened our focus on the goal of creating the world?s leading business and financial information brand, we disposed of a number of marginal businesses. Stripping out the impact of these exceptional factors, underlying revenue growth was 13%. Operating profits increased 27% to £150m.

Our business newspapers had an excellent year, increasing circulation and advertising yields and working together on a number of new pan-European projects. The Financial Times newspaper increased profits by 33% to £56 million. Average daily sales increased to 440,381 by December, up 14% year on year. Advertising revenues increased by 19%. Les Echos increased its circulation by 7% to a record 143,000 and advertising revenues increased by 41%. Expansion increased advertising revenues by 44% and grew its circulation to a new high of 59,700. Financial Times Deutschland, our new German language business newspaper, launched two weeks ago in a joint venture with Gruner + Jahr, the German publishing group, is running well ahead of its initial circulation and advertising targets.

Our integrated network of finance and business websites grew rapidly during the year, trebling advertising and e-commerce revenues. FT.com is attracting new users rapidly, with over one million unique monthly visitors and 22 million monthly page views. Later this month, with FT.com now transformed into a global business portal, we will launch the site?s first major US marketing campaign. During the year, lesechos.fr and expansiondirecto.com both more than doubled traffic and are firmly established as the leading business and financial news websites in France and Spain. In its first three months of operation, FTYourMoney.com is already establishing itself as the UK?s leading personal finance website and is ahead of its revenue and traffic growth targets. We plan to launch French, Spanish and German language personal finance sites, modelled on FTYourMoney, over the coming months. FTMarketWatch.com, our pan European joint venture with MarketWatch.com (in which we control an indirect 32% stake), operator of CBS.MarketWatch.com, America?s leading finance website, will launch in June. We plan to launch French, German and Spanish versions of the site over the next year. In the US, CBS.MarketWatch.com attracted 6.9m unique monthly visitors in the last quarter of the year and is now the 36th most visited website in the world.

FT Interactive Data delivered another year of double-digit growth and, through its acquisition of TFSM and subsequent merger with DBC, is now able to develop a much wider range of Internet delivered products to every sector of the global money management community. At FT Business, we have now sold the loss-making newsletters and management operations, enabling us to focus on market leading positions in specialist energy and finance titles and research products.

Recoletos increased underlying sales by 7%. Profits increased by 13% to £34m. In addition to the strong performance of Expansion, profits were boosted by a 20% increase in advertising revenues at Marca, Europe?s leading sports newspaper. It retained its strong leadership of the Spanish sports newspaper market and transformed its website, marca.es, into Spain?s leading sports portal. El Mundo, the leading Spanish daily newspaper in which Recoletos owns a 30% stake, increased circulation and advertising revenues and built its own online presence. Its success means Recoletos owns, or has a stake in, three of Spain?s ten most popular websites.

The profits contribution from Associates reflects our share of the start up costs of Financial Times Deutschland. The Economist Group, in which we have a 50% stake, had another record year, with The Economist newspaper increasing average weekly circulation by 4% to 723,000. Across the group, it continued to focus on developing its global media brands and increase investment in the electronic delivery of its products and services. Business Day and Financial Mail, the South African finance and business publisher, in which we also own a 50% stake, grew advertising revenues to record levels.

Pearson Television
Pearson Television
£m Year to 31 Dec 1999 Year to 31 Dec 1998 % change




Sales 355 343 +3%




Operating profit/(loss)      
Pearson TV 74 71 +4%
Channel 5 (7) (14) +50%
BSkyB 1 4  




  68 61 +11%




In 1999, Pearson Television increased sales by 3%. Profits increased by 11% to £68m, boosted by the strong growth of our joint venture with the broadcaster, CLT-UFA, in Germany and lower start up losses from Channel 5.

Our serial dramas delivered big peak time audiences across Europe and new productions from our library of game show formats proved a big hit worldwide. Our game shows won new audiences in Spain, Portugal, Mexico, Germany, Finland and Poland and the new version of Family Feud was the highest rated new game show in syndication in the US. And our programmes are finding big on-line audiences. The online version of Family Feud is proving to be a big draw for Uproar.com, the online entertainment site, in which we own an 8% stake. Uproar.com is generating 106 million page views from 3.6 million unique monthly users with visitors spending an average of 17 minutes per day on the site.

We increased investment in new shows and formats, focusing on situation comedies and television animation, and made a number of acquisitions that strengthened our local television production businesses. Our share of Channel 5?s start up losses, after amortisation and start up costs, fell to £7m from £14m in the previous year. Channel 5 was the only UK terrestrial channel to increase its overall audience share, achieving an average all-channel viewing share among adults of 5.3%. In February 2000, we increased our Channel 5 stake from 24% to 29%, reflecting our satisfaction in its performance to date, and our confidence in its future.

Penguin
Penguin
£m Year to 31 Dec 1999 Year to 31 Dec 1998 % change




Sales 565 523 +8%




Operating profit 65 48 +35%




Penguin?s underlying sales increased by 5% with underlying profits up by 23%. Our success was built on the back of increased investment in new and established best-selling authors, a concerted campaign to maximise the value of our ever popular back-list titles and sustained efforts to put the supply side of our business on a stronger commercial footing.

Increased investment in building a stronger list of top authors was rewarded with Penguin Putnam titles spending a record 262 weeks on the New York Times bestseller lists. In the UK, we nearly doubled our number of books in The Guardian Top 100 Bestsellers of 1999, taking the largest share of the Christmas market. We expanded Penguin?s global reach, acquiring world publishing rights to a growing family of bestselling authors.

We continued to capitalise on the potential of television and movie tie-ins in all territories. In the UK we invested in the Penguin brand, with a highly successful marketing campaign and in the US the acquisition of Avery Publishing allowed us to move into a market-leading position in the burgeoning healthcare and nutrition market, with strong on-line potential.

We expanded the online and cross media potential of our stories, titles and imprints through out the world. Penguin is forming numerous internet alliances and is building online communities around our Classics and Rough Guides websites. Our worldwide internet sales doubled during the year and now account for over 5% of total sales in the US. We were the first major publisher to release a new title in electronic format ahead of its hard copy launch. Additionally, we are now employing printing on demand technology for select backlist titles.

There are several projects currently being developed with Pearson Television including children?s animation and Penguin has linked up with Pearson Education to develop a global Penguin branded educational programme ? known as Penguin Readers. And we continued to improve the economics of our business, with the rationalisation of our US warehousing and distribution systems, and the successful integration of Ladybird in the UK, both helping to improve margins.

Lazard
Lazard
£m Year to 31 Dec 1999 Year to 31 Dec 1998 % change




Attributable profit 48 42 +14%




Income from the three Lazards houses was a record £48m. The sale of our stake in the three houses, announced last June, was completed on Friday 3rd March.

OUTLOOK

All our business operations have made a strong start to the year and are in good shape to deliver further growth in revenues and margins. We continue to step up our investment in developing the Internet enterprises that will secure Pearson?s longer term growth.