Pearson PLC Results year 2000

RECORD PERFORMANCE AND ACCELERATED GROWTH

Financial summary
  Year to 31 Dec 2000 Year to 31 Dec 1999 % Change




Sales £3,874m £3,332m 16%
Operating profit (pre Internet enterprises)* £686m £588m 17%
Investment in Internet enterprises £(196)m £(39)m  
Pre-tax profit (post Internet enterprises)* £333m £402m (17)%
Adjusted earnings per share ? pre Internet enterprises** 54.6p 47.6p 15%
Adjusted earnings per share ? post Internet enterprises** 31.9p 43.3p (26)%
Dividend per share** 21.4p 20.1p 6%
       

* Before goodwill, integration costs and non-operating items ** 1999 restated to reflect the rights issue

Record Performance

 

  • Sales up 16%; operating profit up 17% to £686 million.
  • Underlying sales up 9.2%; trading margin up from 15.2% to 16.5%; cash conversion rate of 85%.
  • Record profits across all business operations: FT Group up 41%, Pearson Education up 25%, Penguin Group up 22%.

Accelerated Growth

 

  • The acquisitions of NCS and Dorling Kindersley expected to contribute strongly to earnings growth in 2001 and future years.
  • £196 million net costs of Internet enterprises in education and the FT Group; faster path to profitability for these businesses. FT Internet enterprises on track to break even by end of 2002; Learning Network to break even by end of 2003.
  • Good start to 2001 across all business operations puts Pearson in good shape to deliver another year of strong revenue and earnings growth.

Marjorie Scardino, Pearson's chief executive, said:

"This is another great set of results. For the fourth straight year, we increased our organic revenue growth, improved our margins and turned in a good cash performance. All the time, we are making the moves that enable Pearson to grow more quickly and more profitably."

2000 overview

In 2000, operating profit pre Internet enterprises increased by 17% to £686 million and we generated a related operating cash flow of £580 million. Underlying sales growth, which represents year-on-year increase in sales excluding portfolio changes and exchange rate movements, was 9.2%. The trading margin, excluding profits from associates and passive investments and before net investment in developing our Internet enterprises, was 16.5%. The net cost of developing these enterprises was £196 million, with investment peaking in the second half of 2000. We expect the net cost of developing these enterprises will decline significantly in 2001.

The financial results also reflect a number of major strategic moves made during the course of the year. We completed the disposal of our stake in the Lazard investment houses for £436 million. We merged Pearson TV with CLT-Ufa and took a 22% stake in the RTL Group, which is Europe's largest television company. We made the £1.7 billion acquisition, financed by a rights issue, of NCS, one of the leading commercial testing and educational services companies in the US. We acquired, for £318 million, Dorling Kindersley, the worldwide illustrated reference publisher. We also made a number of smaller acquisitions and strategic investments. The net effect of these portfolio changes, which are expected to enable the company to accelerate revenue and earnings growth in 2001 and future years, was to reduce operating profit by some £10 million and pre-tax profit by around £20 million in 2000.

Outlook for 2001

All our business operations have made a good start to the year. Across the company we are in good shape to deliver another year of strong revenue and earnings growth.



For further information

Pearson plc

John Fallon/ Luke Swanson
+ 44 (0) 20 7411 2310

 

Operating Performance

Pearson Education

Pearson Education
£ millions

Year to 31 Dec 2000

Year to 31 Dec 1999 % Change




Sales      
US School 722 586 23%
US Higher Education & Professional 779 666 17%
International 540 446 21%
Discontinued 3 8  
       
Pearson Education 2,044* 1,706 20%
FT Knowledge 43 19  
       
  2,087 1,725 21%
Internet enterprises 3 -  




Operating profit/(loss)      
Pearson Education 337* 265 27%
FT Knowledge (17) (8)  
       
  320 257 25%
Internet enterprises (83) (3)  
       

*Includes the NCS acquisition, completed on 11 September 2000. NCS sales for the period ended 31 December 2000 were £146m and operating profits were £15m

Pearson Education

Sales at Pearson Education increased to £2.044 billion. Stripping out the benefits of the acquisition of National Computer Systems (NCS), completed in September, sales increased by 11% and profits by 22% as Pearson Education continued to develop new online and print products and services. The acquisition of NCS, the leading provider of assessment, testing and software services to US schools, is transforming Pearson Education, enabling it to capitalise on the worldwide movement towards accountability in education and to personalise learning through the alignment of testing and assessment with curriculum and content.

NCS Pearson has met our revenue and profit expectations, benefiting from its leadership both in state testing and delivering enterprise software solutions to schools. Its latest product, NCS4School, will launch this summer. The integration of NCS Pearson with Pearson Education and Learning Network is on track to deliver $50 million of annual cost savings by the end of 2002.

Our US School business increased sales by 23%. Excluding revenues from NCS, sales were up 10%. Building on a very strong performance in 1999, we made significant market share gains in some key adoptions, benefiting from a range of new print and online programmes. In secondary science, Prentice Hall School took a 40% share in the major state adoptions including California and our new Scott Foresman reading programme grew market share from less than 5% to approximately 25% nationwide. We continued to build on the success of our best selling math programmes and took the leading position in secondary social studies.

The US Higher Education & Professional business increased sales by 17%, gaining market share and growing margins. Excluding the NCS business, sales were up 9%. The college business delivered particularly strong growth in math, computer sciences, history and developmental English and continued to invest in combined text and online programmes, which helped to mitigate the impact of lower growth rates in the consumer IT publishing market.

The International business increased sales to £540 million. Excluding the NCS business, sales increased by 18%. Our major international operations all reported double digit revenue growth, with particularly strong progress in Latin America and English Language Training. We extended our lead in the international education market through a series of acquisitions in France, Brazil, Korea and Japan.

The integration of the Simon & Schuster and Addison Wesley Longman businesses is now completed, and, in 2001, is expected to deliver the projected $130 million in annual cost savings.

FT Knowledge made losses of £17m as it invested in developing its global corporate learning and executive education businesses, a market that continues to experience rapid international growth. FT Knowledge acquired The Forum Corporation, one of America's top corporate training companies; extended its financial training company, New York Institute of Finance, to Europe and Asia; launched FT Dynamo, a subscription portal focusing on world-class management thinking; and continued to develop online courses for the finance, investment and marketing professions.

Pearson launched its consumer education portal, Learning Network, in September 2000. It is already established as the leading consumer education source on the web, generating more than 130 million page views in February 2001, and provides learning content and services for teachers, students and parents in the K-12, professional development and lifelong learning and reference markets. Learning Network will launch its Higher Education offering later this year. We expect Learning Network to increase revenues strongly this year as it moves towards breakeven by the end of 2003. Pearson Broadband, a new initiative to create interactive education television for K-12, Higher Education, Professional and Lifelong Learning markets, will launch its first products later this month

Financial Times Group

Financial Times Group
£ millions

Year to 31 Dec 2000

Year to 31 Dec 1999 % Change




Sales

802 680 18%
Internet enterprises 42 7  
       
Operating profit / (loss)      
FT Newspaper 81 56 45%
FT Interactive Data 59 31 90%
FT Business 10 1  
FT Businesses sold (1) (2)  
Les Echos 29 18 61%
Recoletos 38 34 12%
Associates and joint ventures (5) 12  




  211 150 41%
Internet enterprises (113) (36)  
       
       

The Financial Times Group had an outstanding year. While circulation and advertising revenues hit record levels, the Group continued to invest in international expansion and new print and online products and services. The FT Group's Internet enterprises grew rapidly during the year, increasing revenues from £7 million in 1999 to £42 million in 2000. They are on track to break even by the end of 2002, two years ahead of our original expectations.

The Financial Times newspaper increased profits by 45% to £81 million. Average daily sales in December increased to 485,000, up 10% year on year. Worldwide advertising revenues increased by 34%, with vigorous growth sustained throughout the year. The newspaper continued its successful expansion into North America, with circulation up 26% to 129,000. In the first two months of 2001, circulation and advertising revenues have continued to increase.

FT.com continues to grow rapidly and by January 2001 had 1.7 million unique monthly users (up 55% on January 2000) and 39 million monthly page views (up 57%). The Financial Times newspaper and FT.com now have integrated editorial, advertising sales and support teams and a number of blue-chip international companies and financial institutions have run integrated advertising campaigns across the FT and FT.com.

The FT Group and The Carphone Warehouse Group PLC are today announcing the launch of a virtual mobile network offering high quality phones, with business and financial news and analysis from the FT with customer service and support from The Carphone Warehouse. FT branded WAP handsets will be available in the spring through FT.com, Carphone Warehouse stores, and carphonewarehouse.com.

FTMarketWatch, our joint venture with MarketWatch, operator of America's leading online personal finance site (and in which we own a 34% stake), delivers incisive, real-time financial and market news to Europe's rapidly growing community of private investors and is generating strong advertising and content licensing revenues. The business expanded further with the launch of a German language site in November, targeting Europe's largest community of private investors.

Les Echos increased its circulation by 5% to a record 154,000, gaining market share, and increased advertising revenues by 37%. Its online service lesechos.fr built on its position as France's leading newspaper website and grew advertising revenues by 180%. Lesechos.fr also established content partnership deals with a number of websites and launched a new personal finance portal, mesfinances.fr.

Expansion grew its circulation to a new high of 63,000 and increased advertising revenues by 41%. Expansiondirecto.com more than doubled traffic and increased its advertising and e-commerce revenues.

Revenues and profits at FT Interactive Data were boosted by its merger with Data Broadcasting Corporation (DBC) in February to create a leading source of securities pricing, financial information and analytic tools to global investors. Pearson is now a 60% shareholder in DBC, which has a Nasdaq listing. The businesses have been successfully integrated and revenues and earnings were ahead of expectations at the time of the merger, despite the sharp decline in the Nasdaq Index which affected eSignal, DBC's service for active online traders. The new company continued to build its institutional business, which provides data and tools for leading financial institutions to value and manage their portfolios.

FT Business had a strong year, with many of its leading financial titles delivering record revenues. Investors Chronicle grew its average sales by more than 20% to 75,000 copies and launched a new online service.

Recoletos, our Spanish media group, increased profits 12% to £38 million. In addition to the strong performance of Expansion, Marca, Spain's leading sports newspaper, reached a circulation of 403,000, increased advertising revenues by 16% and more than quadrupled traffic to its website Marca Digital to 53 million monthly page views. El Mundo, the Spanish daily newspaper in which Recoletos owns a 30% stake, increased circulation to 292,000 and monthly page views to 43 million.

Recoletos extended its position as Spain's leading multimedia business by winning licenses for digital free-to-air television and radio channels, which are being rolled out in 2001. Outside Spain, Recoletos built its presence in Latin America with the acquisition of El Cronista, Argentina's most influential business and financial newspaper. The IPO of Recoletos, completed in October, has enhanced the company's ability to grow its business online and in Spanish and Portuguese speaking markets around the world.

Associates and joint ventures

The Economist Group, in which Pearson has a 50% stake, had another excellent year and continues to invest in its two global brands, The Economist and CFO, both in print and online. Circulation at The Economist newspaper continued to grow and its worldwide circulation now averages 762,000 copies, 5% higher than last year. The newspaper also benefited from strong advertising revenues. The CFO business also performed well and the international rollout of the CFO brand continues.

Profits from The Economist Group were more than offset by our share of the start-up costs of FT Deutschland, our joint venture with Gruner + Jahr. It reached a circulation of 66,000 just nine months after its launch and is running ahead of its advertising targets.

Business Day & Financial Mail, the South African titles in which we also own a 50% stake, maintained market share in a difficult economic environment. Average circulation at Business Day for the six months to the end of December was stable at approximately 44,000.

 

The Penguin Group

The Penguin Group
£ millions

Year to 31

Dec 2000
Year to 31 Dec 1999 % Change




Sales 755 565 34%
       
Operating profit 79 65 22%
       

Includes the Dorling Kindersley acquisition, completed on 6 May 2000. For the period ended 31 December 2000, DK broke even on sales of £125m.

Penguin posted its best ever performance. Stripping out the impact of Dorling Kindersley, the worldwide illustrated reference publisher acquired in May, sales increased by 12% and profits by a record 22%. Penguin also continued to improve operating efficiencies and trading margin was 12.6%, up from 11.4% in 1999.

Penguin's success was built on continued increased investment and development of new author talent and established best selling authors such as Tom Clancy, Patricia Cornwell, Clive Cussler, Spencer Johnson, Jamie Oliver, Nora Roberts and many others.

In the US, Penguin Putnam achieved record revenues and profits and gained market share across all categories - adult hardcover, mass market, trade paperback and children's books. It landed 106 titles on The New York Times bestseller lists, up 56% on 1999, including 13 titles that reached the number one position. Its adult hardcover and paperback titles spent a total of 600 weeks on the New York Times bestseller lists, up 36% on 1999. In the UK, Penguin had 39 titles in the Bookseller Booktrack top 15, with best selling authors including Alex Garland, Jeremy Paxman, Sue Townsend and Jamie Oliver, whose Return of the Naked Chef was the number one book for 16 weeks.

Penguin titles are winning more awards than ever, including the Whitbread Prize (Matthew Kneale's English Passengers), the Whitbread first novel award (Zadie Smith's White Teeth) a National Book Award for Nonfiction (Nathaniel Philbrick's In the Heart of the Sea), the 2001 Caldecott Award (Judith St George and David Small's So You Want To Be President?), the 2001 Newbery Award (Richard Peck's A Year Down Yonder) and many others.

Penguin continued to invest in online and ebook enterprises, focused on securing long-term growth opportunities and creating more direct relationships with our readers. Penguin has developed hundreds of author companion websites that provide readers with access to authors and books; stages interactive Yahoo! webcasts in the US with its best selling authors; has an alliance with Lightning Source to be Penguin's ebook fulfilment service partner; and, through a partnership with Gemstar, is marketing ebooks by a number of best selling authors.

The integration of Dorling Kindersley is going well. We steered the business to breakeven in 2000 and we expect significant revenue and profit growth over the next few years. Dorling Kindersley is also opening new revenue opportunities across Pearson, creating new printed and online learning materials with Pearson Education and developing services for the lifelong learning market with Learning Network and Pearson Broadband.

Pearson Television/ RTL Group

Pearson Television/ RTL Group
£ millions

Year to 31 Dec 2000

Year to 31 Dec 1999
     



Sales* 185 355
     
Operating profit** 68 68

* Pearson TV sales until 25 July 2000, the completion of the merger to create RTL Group. ** Comprises £32 million contribution from Pearson TV until 25 July 2000 and Pearson's share of RTL Group's profits for the remainder of the year.

Pearson TV's merger with CLT-Ufa to create RTL Group, Europe's leading integrated broadcasting and production company, was completed on 25 July 2000. Pearson now holds a 22% stake in the merged business, which is listed on the London Stock Exchange. RTL Group will report its results for the 12 months ended 31 December 2000 on 21 March 2001.

 

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Preliminary Results 2000 (pdf, 3MB)

Download the presentation (pdf, 24MB)