Pearson PLC interim results (unaudited)
30 July 2002 Pearson announces its 2002 interim results
Six months ended 30 June 2002
|Six months to |
30 June 2002
|Six months to |
30 June 2001
|Adjusted earnings per share**||0.5p||(1.5)p||--|
|Dividend per share||9.1p||8.7p||5%|
* Continuing operations before goodwill, integration costs and non-operating items ** Restated for FRS19
On track for strong earnings rebound in 2002
- Competitive performances in all businesses:
- Education and consumer publishing set for good revenue and earnings growth
- Cost management across business newspapers to mitigate advertising downturn
- Sharing assets, process and culture to drive performance.
- Internet losses and interest charges down sharply on last year.
- Improvements in cash and working capital.
Marjorie Scardino, Pearson’s chief executive, said: "We’ve improved our earnings and cash performance despite the worst downturn in corporate advertising for 30 years. The strength of our education and consumer publishing businesses should help us to sustain this momentum both through the second half, when we make most of our profits, and in 2003."
Notes. Throughout this statement:
- 2001 numbers have been restated for FRS19, the new accounting standard for deferred tax.
- Unless otherwise stated, reference to operating profit excludes goodwill amortisation and impairment and integration costs.
- ‘underlying growth’ excludes the impact of acquisitions, disposals and currency movements, but all are detailed in this announcement.
Sales in the six months to June 30, 2002 were £1,813 million, 3% lower than in the first half of 2001, due almost entirely to lower advertising revenues at the Financial Times Group. Operating profit from continuing operations (before goodwill and exceptional items) increased by 27% to £76m. Adjusted earnings per share increased to 0.5p from a loss of 1.5p per share in the same period last year, with the benefit of lower internet losses and reduced interest charges, which more than offset a £31 million (55%) fall in the earnings contribution from advertising-related newspaper operations.
A reported loss for the half-year of £207 million (26.0p per share) reflects the fact that Pearson makes nearly all its profits in the second half, but goodwill is amortised evenly through the year. A reported loss of £118 million (14.8p per share) in the same period last year reflected an exceptional tax gain of £121 million which was not repeated in 2002.
Pearson makes most of its sales and almost all of its profits in the second half of the year. We are on course to deliver a significant recovery in adjusted earnings per share in 2002, in line with our previous expectations*.
We expect our education businesses to increase underlying revenues in the 3-5% range with margins broadly in line with those achieved in 2001. The Penguin Group looks set to deliver double-digit growth in profits. If advertising demand continues at the level we saw in the first half of the year, we expect the FT Group to record operating profits for the full year some 10-15% lower than in 2001. This is before losses from internet enterprises, which are expected to be less than £60 million for the full year for Pearson as a whole (compared to £137 million last year).
For the full year, we expect free cash flow to benefit from actions taken to improve use of working capital and lower restructuring costs. We also expect a modest reduction in our interest charge, compared to the first half of this year**.
* A 5 cent change in the average exchange rate for the full year (which for the six months to June 30 was £1:$1.45) will have an impact of approximately 1p on adjusted earnings per share.
** This excludes a one-time cost this year of £37m relating to actions taken this year to maintain the proportion of debt we pay at fixed and floating rates.
For more information:
John Fallon/ Luke Swanson + 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 www.pearson.com.
We will also be holding a conference call for US investors at 1500 (BST)/ 1000 (EST). To participate in the conference call or to listen to the audiocast, please register at www.pearson.com.
Video interviews with Pearson’s senior management are also available at www.pearson.com.
High resolution photographs are available for the media at www.newscast.co.uk
|£ millions||2002 |
Underlying sales at Pearson Education increased 1% on last year’s very strong first half performance.
In our US School business (23% of Pearson’s total revenues in 2001), underlying sales were down 8%, as this year’s major textbook adoptions* have reverted to the normal seasonal pattern. (Last year, underlying revenues were up 23% at the half year, as an exceptional number of major adoptions fell in the first six months of 2001). We expect to take a market share of approximately 35% of the adoptions in which we are competing. Education software sales are down on last year, with a major contract deferred into the second half of the year. Learning Network (now renamed Family Education Network), Pearson’s online consumer education portal, has been scaled back to focus on the US K-12 market and fully integrated into our US School business. As a result, education internet losses fell sharply, from £43 million in the first half of 2001 to £13 million in 2002. The testing and assessment business continues to prosper, benefiting from the sustained growth of a number of long-term contracts.
The US College business (14% of 2001 revenues), with a very strong publishing schedule and its lead in the use of technology, has made an excellent start to the year. Underlying sales were up 15%, well ahead of the industry as a whole, but benefiting in part from the earlier phasing of orders from retailers. Our custom publishing business, which produces text books in small print runs custom-made to a college professor’s individual course, has made a particularly good start to the year.
* 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 that buy textbooks on an as-needed basis rather than on a published adoption schedule.
The US Professional business (11% of 2001 revenues) grew underlying sales by 17%. As expected, technology publishing and corporate training markets remain difficult, but we are seeing strong growth in our professional certification and government solutions businesses. In NCS Pearson’s professional certification business, sales were up 20% in the year to date with two major new contracts – to manage the licensing and certification of clinical pathologists and nurses in the US – starting in the second half. NCS Pearson’s government solutions business is growing even faster, benefiting from three new federal contracts.
In our International education operations (14% of 2001 revenues), underlying sales were 3% lower than last year. The school and college publishing businesses are performing well, particularly in Asia, but the technology recession has driven down sales in our international IT publishing business. Our Latin American operations are delivering a sharply improved performance, benefiting from the actions we took last year to reduce costs.
NCS Pearson is now an integral part of Pearson Education. On a standalone basis, revenues increased to $489 million (up 10% on an underlying basis) and profits increased to $56 million (up 13% on an underlying basis)*.
Sales at FT Knowledge, our corporate training business, are down on last year but losses have also fallen on the back of a substantially lower cost base. FT Knowledge is working with Accenture to create new training programmes for large corporations and with our Government Solutions business on a number of opportunities.
Pearson Education: outlook
For the full year, our education businesses are on track to increase underlying revenues in the 3-5% range with margins broadly in line with those achieved in 2001. We expect revenues in our US school business to be at a similar level to last year. Our US college business should outperform an industry expected to grow by 6%-8%. We expect strong double-digit revenue growth from our US professional operations. Our operations outside the US should achieve modest revenue growth. On a standalone basis, NCS Pearson is on track for revenue growth of more than 15%, topping $1 billion in annual sales. For the full year, losses from our education internet enterprises are expected to be no more than £25 million and losses from FT Knowledge are expected to be lower than last year.
* All reported figures for NCS Pearson include Computer Curriculum Corporation, which has been fully integrated within NCS Learn, our curriculum software business.
FINANCIAL TIMES GROUP
|£ millions||2002 |
|Operating profit / (loss)|
|Interactive Data Corporation||37||32||16%||67|
|Associates and joint ventures||(3)||(6)||50%||(10)|
|FT Businesses sold||-||1|
The Financial Times Group (19% of 2001 revenues) saw revenues fall 14% in the face of a deep and prolonged advertising recession. The three categories hardest hit by the downturn – business-to-business, finance and technology – account for the majority of our advertising revenues. In spite of this downturn, our network of business newspapers and online services continues to grow its audience and reach.
Average daily sales of the Financial Times newspaper for the six months to June were 486,000, with good growth in the US (up 14%) and in Asia (up 18%) offsetting a decline in the UK (down 7%). In the first half of the year, advertising revenues fell by 31% against the same period last year (which included the first quarter when advertising revenues were up 8%). A series of profit protection measures reduced the FT newspaper’s cost base by 12% for the first half of the year compared with the same period in 2001.
FT.com continued to grow its revenues and reduce its cost base and remains on track to break even in the fourth quarter of this year. FT.com had 2.8 million unique monthly users in June, up by more than 50% on a year ago. Though the market for online advertising remains tough, content syndication sales continue to grow strongly and FT.com has successfully launched subscription services.
Profits at Les Echos declined sharply as advertising revenues fell by 32%. Average daily circulation was 153,000, level with last year. Les Echos has taken a number of actions to reduce costs, which it will benefit from in the second half of the year.
Recoletos (Bolsa Madrid: REC), our Spanish media group, increased profits by 8% in spite of a 6% fall in revenues. Marca, its sports newspaper, capitalised on an exceptional calendar of sporting events and Recoletos as a whole benefited from a substantially lower cost base. Advertising revenues at its business newspaper, Expansion, were 22% lower.
Interactive Data Corporation (NASDAQ: IDCO), our 60%-owned asset pricing business, increased revenues by 9% and profits by 16%. Customer contract renewal rates are running at 95% in our institutional business, we have launched several new products and the integration of the Merrill Lynch Securities Pricing Service is going to plan.
Stripping out the contribution of FT Energy, which was sold in 2001, FT Business, our specialist financial publications company, maintained profits despite the advertising downturn. Tight control of the cost base and a strong competitive performance have helped it to perform well in a difficult environment.
Losses from the FT’s internet enterprises (which include the online businesses of the FT, Les Echos and Expansion as well as our share of FT Deutschland’s FTD.de, economist.com, CBSMarketWatch and Esignal) fell to £24 million, as revenues across these operations were broadly in line with last year and the cost base was significantly reduced.
Associates and joint ventures
Losses from the FT’s associates and joint ventures were 50% lower than the previous year, primarily due to progress at FT Deutschland, our joint venture with Gruner and Jahr. FT Deutschland grew its advertising revenues slightly and increased its circulation by 12% to 83,000.
The Economist Group, in which Pearson owns a 50% interest, continued to make progress despite the advertising environment. The Economist's worldwide weekly circulation grew by 10% to 838,030; the Economist Intelligence Unit continued its transition from print to electronic delivery and CFO's international expansion continued with the successful launch of CFO China.
Business Day & Financial Mail, the South African titles in which we own a 50% interest, held their circulation steady and reduced their costs.
FT Group: outlook
At this stage, we see no sign of an advertising recovery. If demand for advertising across our network of business newspapers continues at the levels we saw in the first half of this year, the FT Group is expected to record operating profits (before internet enterprises) for the full year some 10-15% lower than last year. We expect losses from the FT’s internet enterprises to be less than £35 million for the full year.
THE PENGUIN GROUP
|£ millions||2002 |
The Penguin Group (19% of 2001 revenues) held revenues and profits broadly level with 2001, even though this year’s publishing schedule is heavily weighted towards the second half of the year.
In the US, 57 Penguin Putnam titles reached the New York Times bestseller lists in the first half of the year, a similar number to the previous year. In the UK, 38 titles reached the Neilsen Bookscan top 15, an increase of 20%. The integration of Dorling Kindersley into Penguin is now complete. For the first half of the year, DK broke even on sales of £71 million (up 8% on 2001), benefiting from a lower cost base, a stronger salesforce and a revitalised publishing programme. Dorling Kindersley now has a dedicated unit of designers working with Pearson Education on a range of publishing projects, from a new programme for the 2003 Texas social studies adoption to an international elementary reading programme.
The Penguin Group is expected to grow sales ahead of its major markets (which are forecast to increase by up to 3% this year) and deliver double-digit growth in profits. Revenue in the second half should benefit from the forthcoming publishing schedule, which is significantly stronger than in the same period last year. Dorling Kindersley is expected to be profitable for the year as a whole.
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 for the period ended December 31, 2001. The company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.