Pearson announces its interim results for the six months ended 30 June 2003

Pearson announced its interim results for the six months ended 30 June 2003 at 07:00 BST on Monday, 28 July 2003. 

Marjorie Scardino, chief executive, and Rona Fairhead, chief financial officer, held a presentation for analysts and investors at 09:30 BST at the British Library Conference Centre on Euston Road, London.

Marjorie and Rona also held a conference call for US analysts and investors at 15:00 BST (10:00am EDT). To replay the conference call, please dial 1-800-475-6701 toll free in the US using passcode '692682'. For those outside the US, please call +1 320 365 3844 and use passcode '692682'. The replay will be available for one week.

Six months ended 30 June 2003

  Half year 2003 Half year 2002 Change -
as reported
Change -
Full year 2002






Sales £1,665m £1,813m (8)% (3)% £4,320m






Business performance          
Operating profit* £38m £76m (50)% (71)% £493m
Profit/ (loss) before tax* £(1)m £26m --   £399m
Adjusted earnings/ (loss) per share (2.3)p 0.5p --   30.3p
Operating free cash flow £(375)m £(304)m (23)%   £305m






Statutory results          
Operating profit/ (loss) £(110)m £(111)m 1%   £143m
Loss before tax £(138)m £(188)m 27%   £(25)m
Loss per share (20.1)p (26.0)p 23%   (13.9)p






Dividend per share 9.4p 9.1p 3%   23.4p
Net borrowings £1,897m £1,957m 3%   £1,408m







*Continuing operations before goodwill, non-operating items and integration costs.

On track for the full year

  • Pearson makes most of its sales and all of its profits in the second half.
  • Revenues and operating profits were down in the first half, as expected, due to tough trading conditions in advertising and technology businesses and phasing of book publishing revenues into the second half.
  • Strong momentum built for second half, based on significant market share gains and further cost reductions.

Strong competitive performances

  • Pearson Education takes the number one position in new US School adoptions; US Higher Education continues to grow well ahead of the industry.
  • FT Group profits up as IDC remains resilient and cost controls reduce impact of advertising declines at business newspapers.
  • Penguin profits down in first half as expected; best-ever publishing schedule in the second half.

Continuing efficiency gains

  • Ongoing cost reductions offset tough trading conditions in business newspapers and technology publishing.
  • Further integration of school software and book publishing businesses.
  • Working capital management continues to improve.

Marjorie Scardino, Pearson's chief executive, said:

"We are confident about the full year because we are making the most of our strong market positions and operating on much lower costs. Our book publishing operations are proving resilient and performing well ahead of their competitors. Our business newspapers, with lower costs and improved content, will bounce back strongly when business advertising recovers."

Financial review

Sales in the six months to June 30, 2003 were £1,665m, 3% lower than in the first half of 2002. Sales were affected by tough trading conditions for our business newspapers and technology-related operations, a shift of business into the second half of the year at our education and consumer publishing businesses and the absence of the one-off, 2002 Transportation and Security Administration (TSA) contract. Operating profit was £38m versus £76m last year, due to business phasing. Adjusted earnings per share fell from 0.5p to a loss of 2.3p.

Operating free cash flow was £71m lower at (£375)m. The two main factors were business phasing and a receivable due from the TSA. Improved inventory management resulted in the average working capital to sales ratio in our book publishing businesses improving to 31.9% (from 32.8% in 2002). Total free cash flow improved by £8m to (£381)m, helped by lower finance and integration charges.

On a statutory basis, our loss before tax for the half-year improved 27% to £138m, helped by a lower (non cash) goodwill charge of £148m (£182m in 2002). The loss reflects the fact that Pearson makes all its profits in the second half but amortises goodwill evenly through the year.

Pearson's net borrowings, which are at their peak at the half-year stage, were 3% lower than last year at £1,897m. The board has declared a 3% increase in the interim dividend to 9.4p.


At this stage the outlook for our major businesses is:

  • At Pearson Education, we expect the US School industry to grow at the low end of the 0-3% range and the US College industry to grow in the 5-7% range this year. In both markets, we expect to grow ahead of the industry as we build on the market share we gained in the first half.  Revenues and profits in our Professional business will be significantly lower than last year due to the continued recession in technology publishing and the absence of the one-off, $400m TSA contract.
  • Though corporate and financial advertising remains depressed, the FT Group should deliver profits ahead of last year. The FT Group is benefiting from continued strength at IDC and further cost reductions across its business newspapers. Those cost measures, together with investments in our business newspapers, will increase the benefits of an eventual advertising recovery.
  • At Penguin, we are confident of revenue growth greater than the overall consumer publishing industry, which we expect to be broadly flat this year, and further profits progress. Penguin has its strongest-ever publishing schedule and has made an excellent start to the rest of the year.

In the second half, we expect our interest charge to be similar to the first-half level of £39m based on current exchange rates. We expect free cash flow to benefit from reduced finance charges, working capital efficiencies and lower integration spend.

For more information

Luke Swanson/ Jeff Taylor + 44 (0) 20 7010 2310

Pearson's interim results presentation for investors and analysts will be webcast live today from 0930 (BST) and available for replay from 12 noon (BST) via We are holding a conference call for US investors at 1500 (BST)/ 1000 (EDT). To participate in the conference call or to listen to the audiocast, please register at

Video interviews with Marjorie Scardino and Rona Fairhead are also available at
High resolution photographs are available for the media at

Notes. Throughout this statement (unless otherwise stated):

  1. Growth rates are stated on an underlying basis, excluding the impact of currency movements and portfolio changes. Pearson generates approximately 70% of its revenues in the US. The average exchange rate for the first half of 2003 was £1:$1.61 (£1:$1.45 in the first half of 2002). The full year exchange rate in 2002 was £1:$1.51;
  2. Adjusted figures are presented as additional measures of business performance. They are stated before goodwill, integration costs and non-operating items. Goodwill is amortised over no more than 20 years.
  3. The ?business performance' measures, which Pearson uses alongside other measures to track performance, are included to provide additional detail on business performance. They are non-GAAP measures for both US and UK reporting. Reconciliations of operating profit, profit/ (loss) before tax, adjusted earnings per share and operating free cash flow to the equivalent statutory heading under UK GAAP are included in notes 2, 5, 6 and 10 respectively.


Pearson Education

Pearson Education
£ millions Half year 2003 Half year 2002 Change -
as reported
Change -
Full year 2002






School 487 519 (6)% 0% 1,151
Higher Education 196 222 (12)% 3% 775
Professional 244 285 (14)% (6)% 784
FT Knowledge - 23 -- -- 46






Total 927 1,049 (12)% (1)% 2,756






Operating profit          
School 12 12 0% (26)% 115
Higher Education (43) (32) (34)% (54)% 142
Professional 5 29 (83)% (81)% 81
FT Knowledge -- (9) -- -- (12)






Total (26) 0 -- -- 326








  1. In May 2003, Pearson and Edexcel agreed to create a new UK examining body, London Qualifications, with Pearson taking a 75% stake. In the first half of the year, Edexcel contributed £16m of revenues to our School division.
  2. At the start of 2003, we moved our Alpha consumer publishing imprint from Pearson Education's Professional division to Penguin.
  3. In January 2003 we restructured FT Knowledge, selling its corporate training arm and integrating its remaining businesses within the FT and Pearson Education's Professional business.

Sales at Pearson Education were down level with last year. Pearson Education faces tough comparisons throughout 2003 due to the absence of the one-off, $400m TSA contract (which contributed $55m/ £38m of revenues in the first half of 2002).

Sales at our School business were flat. The US School industry has been affected by state budget pressures, with some states reducing their planned spend on textbooks, testing programs and software, or deferring purchases into the second half of the year. However, adoption states are spending and our business is performing very strongly and growing ahead of the industry.

In school publishing we expect to lead the industry in new adoption sales* this year, taking approximately 30% of the total new adoption market (even though we competed for only 85% of the adoption opportunities). We have successfully re-entered the Social Studies market, securing approximately 33% of all Social Studies adoptions and taking the leading position in the key Texas adoption. We expect to win more than 40% of Secondary Literature adoptions, taking the number one position in both Florida and California. We also have good early results from the open territories, which buy textbooks later in the year.

Revenues at our US School testing business were slightly up, as it began work on several contracts won last year. It continued to extend its market leadership, even as some states delayed or reduced their testing programmes in the face of budget pressures. In the first half we have won several major new testing contracts in the US, including a five-year contract with the US College Board, beginning in 2005, to process and score the constructed response part of the SAT, the world's most widely used college admissions test. In May we became a major player in UK education testing through our partnership with Edexcel, one of the UK's leading examining and awarding bodies. Although, with budget pressures, school software sales are down on last year, we have significantly reduced costs and improved products by integrating our software and content businesses, and we expect them to breakeven for the full year.

Outside the US, our English Language Teaching business grew 7%. We are benefiting from strong demand for textbooks and online programs as countries in Asia, Latin America and Europe integrate English language instruction into their school curriculum.

* In the US, 21 'adoption' states buy textbooks and related programmes to a planned contract schedule, which means the level of spending varies from year to year according to this schedule. The 'open territory' states are those in which local districts buy textbooks on an as-needed basis rather than on a published state adoption schedule.

Our Higher Education business makes approximately three-quarters of its revenues in the second half of the year, with major selling seasons in July/ August and December, ahead of the two US college semesters. The business reports losses in the first half as it invests in publishing, sales and marketing to deliver full-year growth. Worldwide, sales were up 3% and increased investment moved first-half losses up to £43m.

In the US, sales were up 4%. According to Management Practice Data, gross sales for the industry were flat. Our share gains are based on a strong publishing schedule with several successful first editions, sales growth of more than 20% in custom publishing and the extension of our technology, particularly online course management systems, into new subject areas such as economics, health and physiology.

Revenues were down 6% in our Professional business and profits down sharply. The key factors were the 2002 TSA contract and the continued recession in technology markets around the world. Stripping out the impact of the TSA contract, the Professional business is growing. We are benefiting from several major new contracts won from Federal departments including Defense and Health and Human Services, and the first full year of our contract to certify nurses in our 200 professional testing centres. These contracts were in start-up phase in the first half, with profits coming through strongly later in the year.

Sales at our technology publishing business continued to decline with the IT industry. Our costs are already some $80m lower than three years ago and we have taken a series of further steps to reduce costs, both in the US and internationally. In the second half we will benefit from the absence of restructuring costs to implement these changes (which were absorbed in our operating profit) and the normal phasing of the business, which is weighted to the end of the year.

Financial Times Group

Financial Times Group
£ millions Half year 2003 Half year 2002 Change -
as reported
Change -
Full year 2002






Financial Times 102 115 (11)% (14)% 224
Other FT publishing 54 55 (2)% (12)% 105
Recoletos 82 74 11% 0% 148
IDC 132 126 5% 3% 249






Total 370 370 0% (5)% 726






Operating profit          
Financial Times (15) (11) (36)% (38)% (23)
Other FT publishing 3 6 (50)% (54)% 10
Recoletos 14 14 0% (9)% 29
IDC 41 35 17% 21% 70
Associate and joint ventures 0 (6) -- -- (6)






 Total 43 38 13% 17% 80







Note: In February 2003, IDC acquired S&P Comstock, a real-time pricing business. In the first half of the year, Comstock contributed £13m of revenues to IDC.

Sales at the FT Group were 5% lower as the deep recession in corporate and financial advertising continued to hit our business newspapers. Profits were up 17%, helped by lower internet losses, additional cost savings and further progress at IDC.

Advertising revenues at the Financial Times continued to decline, falling 18% in the first half of the year. Average daily sales of the Financial Times for the six months to June were 461,000, a decline of 5% on the previous year. Although also felt the effects of the advertising downturn, its revenues were level with last year as paid subscribers grew to 57,000 (against 16,000 a year ago).'s audience continued to grow with 3.5m unique monthly users in June, up from 2.8m a year ago.

The UK edition of the Financial Times has been successfully revamped with more UK business news, improved design and a new weekend magazine. The FT's UK circulation was 6% higher in May and June than in the four months before the revamp (though still lower than in the previous year), and the magazine is attracting new consumer advertising campaigns. We will launch a new Asian edition of the FT in the Autumn, completing our global coverage. We have continued to reduce costs at the FT, more than funding our investments in the newspaper through £13m of further cost savings this year. We are taking additional cost measures, including integrating our UK and European commercial operations, which we expect to generate approximately £15m of cost savings in 2004.

The advertising recession also reduced profits at Les Echos and FT Business. Average daily circulation at Les Echos was 117,000, a 3% decline that was significantly better than the overall newspaper industry in France. In September we will launch Les Echos in a new format, broadening its appeal to readers and advertisers. At FT Business, advertising volumes were approximately 20% lower but a series of cost reduction measures enabled us to maintain double digit margins.

At Recoletos (Bolsa Madrid: REC), our 79%-owned Spanish media company, sales were level with last year. Advertising revenues were down 3% overall and 14% in Recoletos' business and finance division. Circulation at sports newspaper Marca increased a further 4% to 378,000, but declined 6% to 46,000 at Expansion, Spain's leading business newspaper. All of Recoletos' major titles are gaining readership share.

Interactive Data Corporation (NYSE: IDC), our 60%-owned asset pricing business, increased revenues by 3% and operating profit by 21%.  It is benefiting from the complete integration of the Merrill Lynch pricing business; its latest acquisition, real-time pricing service Comstock; and good growth from its high value pricing services. Although revenue growth has been dampened by tough conditions in the financial services industry, renewal rates in IDC's institutional business have remained high at 95%.

The FT Group's Associates and Joint Ventures broke even in the first half (against a loss of £6m in the first half of 2002). FT Deutschland, our joint venture with Gruner + Jahr, grew circulation 11% to 91,000 and increased advertising revenues, and we are considering further expansion. The Economist Group, in which Pearson owns a 50% stake, increased profits despite the difficult advertising market, with weekly circulation at The Economist up to more than 900,000 (from 838,000 in the first half of 2002).


The Penguin Group

The Penguin Group
£ millions Half year 2003 Half year 2002 Change -
as reported
Change - underlying Full year 2002






Sales 368 394 (7)% (3)% 838






Operating profit 21 38 (45)% (45)% 87







Note:  At the start of 2003, we moved our Alpha publishing imprint from Pearson Education's Professional division to Penguin.

The Penguin Group's revenues and profits declined, as expected, in the first half of the year. Our schedule of major frontlist titles is strongly weighted to the second half and the war in Iraq dampened US consumer spending in general and backlist sales in particular in April and May. Penguin's US sales were down 4% in the first half, in line with the overall US consumer publishing industry. Sales were up 4% in the UK, with strong performance from non-fiction titles including Michael Moore's million copy selling Stupid White Men, Antony Beevor's Berlin and Ellen MacArthur's Taking on the World.

Though the industry remains soft, we have seen a pick-up in June and July, with Penguin making an excellent start to the second half of the year. John Steinbeck's East of Eden has sold 1.2 million copies in the four weeks since it was selected for Oprah Winfrey's Book Club. Kate Remembered, Scott Berg's account of 20 years of conversations with Katharine Hepburn, was published in mid-July and we have already shipped more than 680,000 copies in hardback.

Penguin's second-half publishing list is its strongest ever. Many of our most popular and consistent best-selling authors have major books scheduled for publication in the Autumn. In the US, they include Patricia Cornwell, Nora Roberts, John Sandford, Nathaniel Philbrick, Amy Tan, Jan Karon, Garrison Keillor and Terry McMillan; and in the UK, Michael Moore, Simon Jenkins, Griff Rhys Jones, Pat Barker, Lisa Jewell and Lesley Pearse. Penguin is publishing new books by Tom Clancy and Clive Cussler in both markets. In September The English Roses, the first of five illustrated children's books by Madonna, will be published in 42 language editions in 100 countries. Penguin is the distributor in the US and publisher in other English language markets worldwide. Dorling Kindersley is also on track for a strong second half, led by Tom Peters' new-style business book Re-Imagine, Earth, the definitive family reference book on the planet, and America 24/7, which captures more than 1200 images documenting the lives of people in every US state in a single week.

Penguin and Pearson Education continue to collaborate on joint publishing initiatives and programmes to capitalize on the scale they enjoy as the world's largest book publisher. Having successfully integrated Pearson Education and Penguin in Australia and Canada, we are now moving to shared back offices, technology, warehousing and distribution in the UK. This integration programme, which will cost £20m in 2003, will generate £20m of annual cost savings worldwide from 2005, shared between Penguin and Pearson Education.


Except for the historical information contained herein, the matters discussed in this press release include forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. These risks and uncertainties include international, national and local conditions, as well as competition. They also include other risks detailed from time to time in the company's publicly-filed documents, including the company's Annual Report on form 20-F. The company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.