Pearson 2013 half-year results

Included in this release:

Pearson 2013 Interim results (unaudited)

Financial highlights*

  • Sales up 5% at constant exchange rates (2% underlying growth) to £2.8bn.
  • Good growth in Education (up 3%) led by North America (up 5%) and developing markets.
  • FT Group sales broadly level with resilient content and subscription revenue offset by weak advertising.
  • Penguin Random House merger completed on 1 July 2013; strong growth at Penguin (up 14%) in the first half.
  • Adjusted operating profit £50m lower at £137m, including £37m of gross restructuring charges and, in addition, investments to support new product launches in the second half.
  • Adjusted earnings per share down 4.9p to 9.9p including restructuring charges.
  • Interim dividend up 7% to 16p.

Rapid growth in digital and services businesses and developing markets

  • Underlying sales growth of 9% in developing markets.
  • Education digital platform registrations up 19%; FT digital subscriptions up 14%.
  • Headline deferred revenues from continuing operations up 12% to £692m, with a strong performance from subscription-based business models.

Acceleration of global education strategy

  • Restructuring to shift education businesses towards fast-growing economies and digital and services businesses on track.
  • Reorganisation of Pearson into one globally-connected education company. Pearson will organise around three global lines of business – School, Higher Education and Professional – and three geographic market categories – North America, Growth and Core from 2014.
  • Global education strategy designed to produce faster growth, larger addressable market opportunity and greater impact on learning outcomes.
  • Process to explore the possible sale of Mergermarket initiated.

*Total business

Full year outlook reiterated

  • Gross restructuring costs of approximately £150m in 2013 (£100m including cost savings achieved during the year).
  • Adjusted EPS expected to be broadly level with 2012 adjusted EPS of 82.6p under revised IAS 19, before expensing restructuring costs.
  • From 1 July 2013 Penguin Random House will be treated as an associate.

John Fallon, chief executive, said: “In trading terms, 2013 has begun much as we expected. In general, good growth in our digital, services and developing-market businesses continues to offset tough conditions for traditional publishing. Our strategy is to transform Pearson into a single operating company that is sharply focussed on the biggest needs in global education and on measurable learning outcomes. With our restructuring programme on track and the reorganisation of the company under way, we are making significant progress towards that goal.”


Financial Highlights
£ millions Half year 2013 Half year 2012 (2) Headline growth CER growth Underlying growth Full year 2012 (2)
Business performance
Sales 2,756 2,583 7% 5% 2% 6,112
Adjusted operating profit (1) 137 186 (26)% (27)% (38)% 932
Adjusted earnings per share 9.9p 14.8p (33)%     82.6p
Operating cash flow (247) (203) (22)%     788
Net debt 1,837 1,178 (56)%     918
Statutory results
Sales 2,243 2,142 5%     5,059
Operating profit 20 52 (62)%     511
Basic earnings per share (1.0)p 4.5p       38.7p
Cash generated from operations (161) (131) (23)%     916
Dividend per share 16.0p 15.0p 7%     45.0p


Divisional Analysis
£ millions Half year 2013 Half year 2012 Headline growth CER growth Underlying growth Full year 2012
North American Education 1,102 1,022 8% 5% 0% 2,658
International Education 736 724 2% 2% 2% 1,568
Professional 188 180 4% 2% 6% 390
Education 2,026 1,926 5% 3% 1% 4,616
FT Group 217 216 0% (1)% (2)% 443
Continuing 2,243 2,142 5% 3% 1% 5,059
Penguin 513 441 16% 14% 6% 1,053
Total 2,756 2,583 7% 5% 2% 6,112
Adjusted operating profit (1)
North American Education 13 62 (79)% (77)% (95)% 536
International Education 50 72 (31)% (30)% (30)% 214
Professional 20 9 122% 111% (15)% 37
Education 83 143 (42)% (41)% (54)% 787
FT Group 26 21 24% 19% 19% 47
Continuing 109 164 (34)% (34)% (45)% 834
Penguin 28 22 27% 27% 14% 98
Total 137 186 (26)% (27)% (38)% 932

(1) Includes £29m net restructuring charges as follows: North American Education, £7m; International Education, £18m; FT Group, £4m.

(2) Re-stated for the adoption of IAS 19 revised.

Throughout this announcement:

a)  Growth rates are stated on a constant exchange rate (CER) basis unless otherwise stated. Where quoted, underlying growth rates exclude both currency movements and portfolio changes. Sales and operating profit are stated on a continuing basis unless otherwise stated.

b)  The 'business performance' measures are non-GAAP measures and reconciliations to the equivalent statutory heading under IFRS are included in notes to the attached condensed consolidated financial statements 2, 3, 4, 5, 7 and 17.


Our 2013 outlook is unchanged. We expect the external environment to remain challenging for our developed world and publishing businesses in 2013 owing to a combination of cyclical and structural factors: pressures on education budgets and college enrolments; retail consolidation; the shift in our business model from print sales to digital subscriptions; changing consumer behaviour and a dynamic competitive landscape. In general, we expect market conditions to remain favourable for our businesses in developing economies and education software and services.

At the full year results in February, our guidance included Penguin Group for the full year. On 1 July 2013, we completed the merger of Penguin with Random House and will account for Penguin Random House as an associate in the second half of the year. This results in lower operating profit for Pearson, as we will consolidate 47% of the profit after tax of Penguin Random House into our operating profit. There will be a compensating reduction in our tax charge.

Excluding that accounting treatment relating to Penguin Random House, our guidance for 2013 is unchanged. We continue to expect adjusted EPS to be broadly level with 2012 before expensing £100m of net restructuring costs (compared to 2012 adjusted EPS of 82.6p under revised IAS 19 which we have adopted in 2013). Our guidance is struck at the 2012 average exchange rate of £1:$1.59 and reflects the following outlook:

In Education, we expect to achieve modest revenue growth in 2013 with margins similar to 2012. In North America, we anticipate modest growth with challenging cyclical and structural market conditions in publishing offset by growth in digital and services. We expect our International education business to show good growth. Austerity measures will continue to affect education spending in much of the developed world and we expect a slower year for UK examinations and qualifications. However, we see significant opportunity in developing markets in Asia, Latin America, the Middle East and Sub-Saharan Africa – which together accounted for 45% of our International education revenues in 2012. Our Professional education business will reflect the closure of our UK professional training business and continued growth from our professional certification business.

We expect the FT Group to benefit from continued growth in digital and subscription revenues in 2013 but advertising to remain weak and volatile with profits reflecting further actions to accelerate the shift from print to digital. Mergermarket will benefit from its high subscription renewal rates, with market activity likely to boost its core product offerings.

Penguin’s first half trading was boosted by a strong performance from Khaled Hosseini and Sylvia Day compared to a relatively light publishing schedule in the same period last year. We completed the merger of Penguin and Random House on 1 July 2013. In 2012, Penguin Random House had pro forma revenues of £2.6bn (€3.2bn) and operating profit of £346m (€427m) with an exceptional contribution from the bestselling Fifty Shades of Grey.

Exchange rates. Pearson generates approximately 60% of its sales in the US. A five cent move in the average £:$ exchange rate for the full year (which in 2012 was £1:$1.59) has an impact of approximately 1.5p on adjusted earnings per share. The average rate during the first half of 2013 was £1:$1.53 (£1:$1.58 in H1 2012) and the closing rate at the end of June was £1:$1.52 (£1:$1.57 at the end of June 2012).

For more information

Simon Mays-Smith / Charles Goldsmith + 44 (0) 20 7010 2310

Pearson’s results presentation for investors and analysts will be audio-cast live today from 0900 (BST) and available for replay from 1200 (BST) via High resolution photographs for the media are available from our website


Pearson’s goal is to help people make progress in their lives through learning.

Over the past 15 years, through a major programme of organic investment and acquisitions, Pearson has become the leading education company in the world, with unique geographic reach, product breadth and professional depth.

More recently, we have achieved particularly rapid growth in digital products and in education services businesses, which together now account for half our sales, and in emerging economies, which now make up 16% of sales on a continuing basis. At the same time, structural factors have placed some pressure on parts of our business, including book publishing and financial advertising.

Looking ahead, we see considerable growth opportunities in education, driven by trends including rapid growth of the global middle class, adoption of learning technologies, the connection between education and career prospects and increasing consumer spend on education, especially in emerging economies.

We are therefore significantly accelerating our push into digital learning, education services and emerging markets. For some time we have been focusing our acquisition and organic investment in these areas; we now intend a further significant reallocation of internal resources to these activities. We are directing our resources and capital towards being an education services company that is global in its ambition and intensely local in its focus on its largest market opportunities.

To enable the successful execution of this strategy, we have established a new organisation design for Pearson as a single global education company. We are structuring the company around three key stages of learning and three geographies, underpinned by a series of global support functions.

  • Our three global lines of business represent three key stages of learning: School, Higher Education and Professional. These lines of business will be responsible for the strategy for each learner stage, including our product portfolio, new product development and the institutionalization of efficacy into everything that we do. They will be global in nature and outlook, ensuring that we understand the needs of learners across the globe, and that when we invest in major new products and technologies we build them to solve international educational needs.
  • Our three geographies will be North America, Core markets (including the UK and Australia) and Growth markets (including Brazil, China, India and South Africa).  They will have prime responsibility for customer relationships, sales, marketing and delivery of education products.

Running throughout this strategy is a process to ensure that our products and services deliver demonstrable learning outcomes to the student or the institution. we have therefore developed the Pearson efficacy framework: a unique, rigorous and scalable quality assurance system that checks that the necessary conditions are in place for an education programme to deliver intended learning outcomes. we now require that all Pearson acquisitions and all product investments over $3m go through the Pearson efficacy framework and set out a plan to implement its recommendations before approval.

We have designed a new organization structure and appointed a new Executive team and a leadership team of approximately 100 people. The design and reorganisation work will continue through the second half and we will run Pearson on the basis of this new organisation from 1 January 2014.

Through this process, we are accelerating the work that is already under way to transform Pearson from the world’s most international education publishing company to the world’s leading global learning services business. We believe it will provide Pearson with a larger market opportunity, sharper focus on the fastest-growing markets, stronger financial returns and a greater impact on educational outcomes.


In the first half of 2013, Pearson’s total sales increased by 7% in headline terms to £2.8bn. Continuing headline revenues grew 5% to £2.2bn. Adjusted headline operating profit declined by £49m to £137m reflecting three major factors: a £29m net restructuring charge (comprising a £37m gross restructuring charge offset by estimated benefits of £8m), increased incentive compensation accruals and the timing of increased levels of new product development spend and launch costs.

The headline growth rates include the impact from currency movements and acquisitions:

  • At constant exchange rates (ie stripping out the impact of currency movements), our total sales grew by 5% and operating profit declined by 27%. Currency movements – primarily the strengthening of the US dollar against sterling – increased sales by £48m and operating profit by £1m.
  • Acquisitions and disposals in our education company and Penguin added a net of £86m to total sales and, with the closure of Pearson in Practice, £25m to total operating profit. This includes integration costs and investments related to our newly-acquired companies, which are expensed. In underlying terms (ie stripping out the impact of both portfolio changes and currency movements), total sales were up 2% with operating profit down 38%.

Continuing revenues, which exclude Penguin, grew 5% headline, 3% at constant exchange rates and 1% underlying. Continuing headline operating profit declined (£55m) to £109m.

Our statutory results show a decrease in operating profit to £20m (£52m in 2012). Statutory profit/(loss) before tax was £(4)m (£28m in 2012). Statutory earnings for the period show a £44m reduction in profit to a loss of £(9)m (£35m in 2012) due to a £29m net restructuring charge, increased incentive compensation accruals and the timing of increased levels of new product development spend and launch costs.

Our net debt, which reaches a seasonal peak around the half-year and is mainly dollar-denominated, was £1,837m (£1,178m in 2012) at 30 June. The year-on-year increase reflects acquisition spend in the second half of 2012 and higher tax payments.

The board has declared an interim dividend of 16p per share, a 7% increase on 2012.


In the first half of 2013, our strength in digital and services businesses enabled us to perform ahead of our more traditional print publishing markets, benefiting from the phasing of purchasing, particularly in higher education. Profits reflect restructuring charges, incentive compensation accruals and investments to support new product launches in the second half. Our broad partnerships at course, institution/system, state and national levels are enabling us to have a more demonstrable impact on student learning and a more collaborative relationship with our customers. Key highlights from the first half include:

  • At our Higher Education business, revenues were boosted by the acquisition of EmbanetCompass, market share gains in a publishing market that declined by 6.5% gross in H1 2013 (according to the Association of American Publishers) and later second semester purchasing. Total US College enrolments were 2% lower in the spring 2013 than in spring 2012, affected by rising employment rates, state budget pressures and regulatory change affecting the for-profit sector.
  • We introduced adaptive learning capabilities in over 200 MyLab and Mastering products across eleven subjects. Student registrations in North America grew 7% to 4.7 million. Usage continues to grow strongly with graded submissions up 32% to almost 200 million across the globe. Evaluation studies show that the use of MyLab programmes, as part of a broader course redesign, can significantly improve student test scores and institutional efficiency (
  • Enterprise-wide partnerships with Arizona State University Online, Ocean Community College and Rutgers, where we run fully-online learning programmes and earn revenues based on the success of the students and the institution, gained more than 29,000 student registrations (up from 21,000 in the first half of 2012). Pearson Embanet had a strong start, growing enrolments 7% to 22,275 and adding ten new programmes at five institutions including the University of Maryland’s Robert H. Smith School of Business and the New Jersey Institute of Technology. More than 200 colleges are working with Pearson to build online learning programmes that improve access to high quality undergraduate and graduate degree programmes.
  • We partnered with West Virginia University Parkersburg Online to redesign its Developmental Education curriculum using Competency-Based Learning (CBL) modules. Our CourseConnect CBL products will enhance up to 220 existing courses and will be delivered through OpenClass where we will also provide access to eTextbooks, tutoring and media resources. Other CBL partnerships include Kentucky Community & Technical College System and Northern Arizona University.
  • We launched OpenClass Exchange which includes a collection of complete Open Education Resource college courses from the Open Course Library and a curated catalogue of more than 630,000 items. 
  • We partnered with The Boy Scouts of America, the largest youth organisation in the US with 2.7 million young members and more than 1 million adult volunteers, to create and implement its new digital curriculum.
  • At our School businesses, revenues were level in the first half of 2013 with state funding pressures, the Federal sequester and the transition to Common Core assessments continuing to make market conditions tough. Declines in state assessment contracts and clinical assessments were offset by gains in national assessment contracts for the PARCC consortium and the federal government’s NAEP programme, as well as demand for Connections Education’s virtual charter schools and Common Core reading/language arts and math programmes.
  • Actionable data is critical to personalising learning and boosting achievement. Our Schoolnet business aligns assessment, curriculum and other services to help individualise instruction and improve teacher effectiveness. PowerSchool helps teachers automate and manage student attendance records, gradebooks and timetables. Schoolnet won a number of significant contracts, including: two new Race to the Top State Instructional Improvement System contracts in New York and Maryland, which takes the total number of state system contracts to 7; and new district contracts for Schoolnet assessment, educator development and learning management solutions in Dallas, Texas, and New York City. PowerSchool won new contracts in Charlotte-Mecklenberg, North Carolina, and San Diego, California and its mobile app connecting teachers, students and parents was downloaded by almost 1.6 million users. PowerSchool supported almost 13 million students (in 70 countries), up more than 20% on 2012 while Schoolnet supports 9 million students, up almost 30% on 2012.  
  • The Partnership for Assessment of Readiness for College and Careers (PARCC), a consortium of 20 states, awarded Pearson a further contract to deliver test item tryouts, develop field tests and to provide the online delivery platform using our cloud-based, mobile-ready TestNav8 system for new English and mathematics assessments. The assessments will be based on what students need to be ready for college and careers, and will measure and track their progress along the way. We continued to produce strong growth in secure online testing. In the year-to-date we have delivered more than eleven million secure online tests, up 15% on 2012.
  • We renewed our contract with the US Department of Education to administer the National Assessment of Educational Progress (NAEP) for the 2013-2017 assessment cycles and won a number of state contract extensions in Tennessee, Maryland, Arizona, South Dakota and Oklahoma.
  • ACT Aspire, a college and career readiness assessment aligned to the Common Core State Standards, successfully launched its first field test on the new TestNav 8 assessment system.   ACT Aspire is a joint venture between Pearson and ACT, Inc.  Alabama is the first state to adopt the ACT Aspire system for measuring the Common Core State Standards.
  • Pearson Clinical Assessment launched Q-interactive, a groundbreaking new digital platform for clinicians to access advanced assessment tools on tablets in the US, UK, and Australia.
  • We announced a partnership with the Los Angeles Unified School District and Apple to deliver next generation digital learning through our Common Core System of Courses across K-12 Mathematics and English Language Arts and professional development, initially to 30,000 students.
  • In school curriculum, we performed well in new adoptions, taking an estimated 32% of new adoptions competed for (or 31% of the total new adoption market which we expect will be similar in size to 2012) with notable success in mathematics in Oklahoma, Georgia and Louisiana; English literature in Alabama; and Social Studies in Oklahoma. In the open territories, New York City adopted our new K-5 balanced literacy programme Ready Gen and our middle school math offering Connected Math programme, while the David Douglas Oregon School District adopted Forward, Pearson’s new integrated elementary curriculum. Our new digital reading intervention programme, iLit, has performed well in numerous efficacy trials, and we are seeing student achievement gains of as much as 2.5 grade levels of reading improvement in one academic year. Online Learning Exchange (OLE), our online learning environment with curated high-quality, standards-based resources achieved its first state-wide solution sale in North Carolina. The US School publishing market was broadly level in the first five months of the year, according to the Association of American Publishers.
  • Connections Education, our virtual school operator, had a strong start to the year with paid full-time enrolments growing 26% to 42,100 boosted by the launch of new virtual and blended charter schools. Enrolments in summer school courses grew 42% compared to 2012. In the second half of the year, we will launch 21 new online Career Technical Education Courses for Grades 9-12, which provide students with the academic and technical knowledge and skills they need to pursue their chosen career options, as well as a new virtual school in New Mexico and 2 new blended charter schools (in Michigan and Indiana).


Our businesses in emerging markets continued to grow revenues strongly in the first half of 2013, supported by good enrolment trends in China and a strong performance in adoptions in South Africa, partially offset by a slower year in our public sistemas in Brazil following national elections in 2012. Our UK business was resilient despite significant curriculum and assessment changes across vocational and general qualifications. Conditions in the rest of the world were much tougher, particularly in Japan, when compared to a strong performance in the first half of 2012 following the 2011 tsunami, and Australia. Key highlights from the first half include:

  • In English Language Learning, Wall Street English (WSE), Pearson’s worldwide chain of English language centres for professionals, opened a new centre in Ho Chi Minh City in Vietnam (and is now present in 28 countries), bringing the total number to 457. Student numbers were broadly level at 192,000. Registered users for ELL digital products grew 115% to 332,000 with MyEnglishLabs registrations up 81% to 164,000 and Our Discovery Island registrations, an online adventure aimed at Primary education, up almost 100% to 115,000. GlobalEnglish and the FT partnered with Nikkei Inc on a 'GlobalEnglish Nikkei edition,' an English language learning service to serve English students in the Japanese business community
  • More than 530,000 students registered for our MyLab digital learning, homework and assessment programmes, an increase of 11%, with good growth in school, ELT and institutional selling in higher education.
  • In the United Kingdom, a strong performance in the GCSE and A/AS level qualifications market offset a softer curriculum market anticipating curriculum change. In higher education, we partnered with Leeds Metropolitan University to develop a suite of online learning business education courses. In assessment, we marked more than 6.2 million GCSE, A/AS Level and other examinations with more than 90% using onscreen technology and more than 2.7 million test scripts for over half a million pupils taking National Curriculum Tests at Key Stage Two in 2012, and were selected to administer the test until 2016. School Bug Club subscribers grew to 2,300, reaching 463,000 children. 7,000 primary schools now subscribe to at least one of Pearson Primary online services (33% market penetration).
  • In China, student enrolments at Wall Street English increased 8% to almost 62,000. Our students rapidly acquire high-level English skills with average grade levels rising by 4% during 2013. Enrolments at Global Education, our test preparation services for English language qualifications, increased 28% to 687,000, through 79 owned and 403 franchised learning centres. In higher education, we launched approximately 100 courses on seven subjects including Chinese, geography, music, history, IT, physics, and English.
  • In South Africa, we performed strongly in the school publishing market as major curriculum reform began to be implemented. Student enrolments grew strongly at CTI, our universities, up 22% to more than 12,600.
  • In Brazil, we ended 2012 with 533,000 students in our public and private sistemas (or learning systems) and in the first half of 2013 added 24,000 net students in our three private sistemas, COC, Dom Bosco and Pueri Domus, up 7% on 2012.  Market conditions for public sistemas were tough in this post-election year but our NAME sistema includes the #1 performing lower secondary school in Brazil based on the 2011 IDEB (national public test) scores of 3,067 municipalities.  90% of our municipal customers tested 20% above the national standard and 70% of the municipalities that adopted NAME showed improvement in their IDEB scores.
  • In Mexico, our fully accredited online university partnership, UTEL, reached 3,000 active undergraduate students in 20 undergraduate and 2 graduate programmes and through its services arm, Scala, signed its first 3 agreements to help campus based universities make the transition to online.  2,000 students have completed short duration courses in programmes developed to address corporate and government work force training needs.
  • In India, our 39 schools admitted more than 5,000 new students with enrolments now totalling more than 25,000; we delivered our first large scale assessment for the Central Board of Secondary Education (CBSE) for 2.4 million students across 12,000 schools; we launched PowerSchool, added 10,000 students; and our multimedia teaching solution Digiclass is now installed in approximately 22,000 classrooms, up more than 60% on 2012. We bought out the minority stake in Tutorvista in February 2013.
  • In the Middle East, we won a five year contract with the UAE's Ministry of Education to provide leadership training and professional development for 700 current and future Emirati school principals, which we are providing in partnership with the UK's National College for Teaching and Leadership.
  • In Italy, we launched 50 new interactive digital textbooks compatible with any tablet device, helping us to gain market share in the lower secondary school market.
  • In Australia, market conditions were very tough, particularly in vocational learning. We continue to make good progress developing our digital and services business including significant sales of Secondary School Australian Curriculum ebooks and web books and a 6,500 student enterprise implementation of the MyLab suite of products including faculty training.
  • In Japan, we disposed of our school publishing business, Kirihara, on 1 July 2013 retaining a distribution agreement for our products and services in the market. Pearson Japan will focus on tertiary education, assessments and qualifications and education consulting and services.
  • In Ghana, Omega Schools, a privately-owned chain of affordable schools, opened 10 new schools and added almost 5,000 students and now runs 20 schools with 11,250 students. Students in Omega Schools score, on average, 27% more in mathematics and English compared to equivalent public schools; with fees, on average, 40% less per student compared to equivalent private schools. The Omega Schools are financed, in part, by our Affordable Learning Fund, which invests in private companies that are creating innovative approaches to provide access to high-quality education in some of the poorest communities in the world.


Our Professional education business is focused on publishing, training, testing and certification for professionals. In the first half, revenues grew well at VUE and TQ. Profits were boosted by the absence of Pearson in Practice and the Certiport acquisition, partly offset by publishing. Key highlights from the first half include:

  • In professional training, TQ was awarded a five-year contract by Saudi Arabia’s Colleges of Excellence to develop and operate three vocational colleges in Saudi Arabia, providing high quality vocational skills and qualifications for more than 8,000 students. The three colleges will open in the second half of 2013 with an expected initial intake of 1,100 students, rising to 8,000 students over time.  
  • IndiaCan’s partnership with the Government of Assam to deliver vocational training to more than 600 Grade 9 students across 10 publicly funded schools completed 240-hour skill development programmes in IT/Computer hardware and Retail sales skills that helped reduce drop outs, increase school attendance and improve school grades and student employability. In April 2013, we raised our holding in IndiaCan from 50% to 100%.
  • Professional testing continued to see good revenue and profit growth with test volumes at Pearson VUE up 8% on 2012 to 4.2 million, with Certiport adding an additional 1.4 million tests, up 9% on 2012. Key contract renewals included tests for Cardiovascular Credentialing International and The American Osteopathic Board of Family Physicians.
  • We won a number of new contracts for computer-based testing including the State Officer Certification Exam for the Florida Department of Law Enforcement, the Sogo-Tekisei-Kensa aptitude test for SHL-Japan and certification and professional development tests for the Iowa Fire Service Training Bureau.
  • In professional publishing, challenging market conditions in retail were partially offset by our growing digital and direct businesses.  In particular, we saw substantially increased demand for our video-based training materials both directly and through partners and a strong performance from our Safari Books Online joint venture.


The Financial Times Group was resilient in the first half, increasing profits despite tough advertising markets. Digital and mobile channels continued to grow well, while our investments in educational products and services are an important area of expansion. Digital and services revenues accounted for 54% of FT Group revenues. Content revenues comprised 64% of revenues, while advertising accounted for 36% of FT Group revenues. Key highlights from the first half include:

  • The Financial Times continued strong progress in transforming its business model, driving digital, content and subscription revenues. Digital subscriptions grew 14% year on year to over 343,000 and total paid circulation was 602,000, a modest increase on 2012. We continue to invest to shift resources from analogue to digital and have further reduced leased printing capacity globally since 30 June 2012 from 21 to 19 sites.
  • Mobile readership continued to grow sharply, with over half of all subscriber consumption, more than a third of total page views and 24% of new digital subscriptions coming through mobile devices.
  • New products and innovations have strengthened our digital offering and driven engagement. A redesign of the award-winning FT web app, which now has over 4 million users, contributed to a 33% increase in the amount of content subscribers consume in the app. In May, the FT launched fastFT, an original and dynamic service that provides market-moving news and views 24 hours a day across all devices, with over half of users coming through mobile devices.
  • The FT Non-Executive Director (NED) Diploma, the first post-graduate course designed specifically to train independent non-executive directors, was extended to Hong Kong in June which has helped to increase overall global enrolment on the programme by 36% year to date against 2012.
  • Digital subscriptions at Investors Chronicle increased 45% to 11,528 while print subscriptions grew 7% to 21,245. Just two months after launching, Money-Media's Financial Advisor IQ was named one of the highest rated digital news sources in its market. Medley Global Advisors had a strong first half, with high renewal rates and a significant number of new hedge fund clients across the globe, particularly in Canada, Brazil, and the US, helped by the strong performance of most asset markets and high demand for MGA’s analysis of central bank policy in the US, Europe, China and Japan.
  • Mergermarket continued to grow despite a challenging M&A market, with strong performances from Debtwire and mergermarket. New product launches included FT Remark, a bespoke research offering and joint venture with, Debtwire Analytics for North America, Europe and Asia Pacific, and Infinata's Retirement PlanVision for pension-focused advisors and asset managers in the US.
  • Pearson has initiated a process to explore a possible sale of Mergermarket, the financial intelligence, data and analysis business. This process is at an early stage and there is no certainty that it will lead to a transaction. Pearson has appointed J.P. Morgan Cazenove to advise on the process.
  • The Economist Group, in which Pearson owns a 50% stake, has seen strong growth in its digital revenues, which made up 39% of total revenues for the 12 months to 31 March 2013. Non-advertising revenues now comprise 60% of the total, up from just 44% five years ago. Print advertising revenue declines and long term investments in Asia and the Economist Intelligence Unit are likely to reduce earnings this year.


The merger of Penguin and Random House was completed on 1 July 2013. Bertelsmann owns 53% of the merged business and Pearson owns 47%. Penguin Random House is the first truly global consumer publishing company.

In market conditions that remained challenging, Penguin had a good start to the year with market share gains and a strong bestseller performance in all major territories reflecting a stronger publishing schedule in the first half. Key highlights from the first half include:

  • In the US, we published 148 New York Times bestsellers (132 in 2012).  Highlights included Khaled Hosseini’s And the Mountains Echoed; Entwined with You, the latest instalment of Sylvia Day’s Crossfire trilogy; Dead Ever After from Charlaine Harris as well as new titles from bestselling authors including John le Carré, Nora Roberts, John Sandford and Harlan Coben.
  • In the UK, we had 48 Bookscan bestsellers (47 in 2012).  Highlights included Sylvia Day’s Entwined with You; Marian Keyes’ The Mystery of Mercy Close; John le Carré’s A Delicate Truth; Daniel Kahneman’s Thinking, Fast and Slow along with the only official biography of Margaret Thatcher, Thatcher, from Charles Moore.
  • In Australia, we gained share in challenging market conditions boosted by Jamie Oliver’s Jamie’s 15 Minute Meals which held the number one slot on the Bookscan non-fiction chart for 26 weeks.  Penguin also led the children’s market with bestsellers from Jeff Kinney, Richelle Mead, John Green and Kami Garcia & Margaret Stohl. 
  • In Children’s, Penguin and DK grew their children’s businesses globally.  In the US, John Green’s The Fault in Our Stars, has remained on the New York Times bestseller list for a total of 75 weeks since publication. Penguin had bestsellers with some of the UK’s most loved Children’s brands Peppa Pig, Moshi Monsters and Jeff Kinney’s Wimpy Kid. The Peter Rabbit animated series, developed in partnership with Silvergate Media, aired on Nickelodeon and CBeebies in the first half of the year.
  • DK grew market share globally, boosted by its LEGO® publishing with LEGO® Ninjago spending a total of 23 weeks on the New York Times list. In July, DK announced a new licensing partnership with DeLiSo to bring Sophie la Girafe to life with a range of board books and apps.       
  • eBook revenue grew strongly and accounted for 21% of Penguin’s global revenue (19% in 2012), and 33% in the US (31% in 2012).
  • In self-publishing, Author Solutions performed well helping more than 13,000 authors to publish titles in the first half of 2013. In February, Penguin India launched Partridge, a new self-publishing imprint, in partnership with Author Solutions.
  • In India, we grew strongly with titles from Ravinder Singh and Durjoy Datta.  In China, we introduced global children’s brand Peppa Pig, the first brand launched under Ladybird in Chinese. In Brazil, Companhia das Letras published Para sempre sua, the Portuguese edition of Sylvia Day’s latest release along with Lean In by Sheryl Sandberg.
  • For the second half of 2013, Penguin Random House has a strong publishing list with major new books from authors including Elizabeth Gilbert, John Grisham, Janet Evanovich, Danielle Steel, Nora Roberts, Sue Grafton, Jo Nesbo, A. Scott Berg and Eric Schlosser in the US, and Jamie Oliver, Helen Fielding, Jennifer Saunders, Conn Iggulden, Mary Berry, David Jason and Jeff Kinney in the UK. DK will continue to expand its LEGO® range and Brady Games will publish GTA V.


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. The company undertakes no obligation to update publicly any forward looking statement, whether as a result of new information, future events or otherwise.


Operating result

On a headline basis, sales from continuing operations for the six months to 30 June 2013 increased by £101m or 5% from £2,142m for the first six months of 2012 to £2,243m for the equivalent period in 2013. Total adjusted operating profit decreased by £49m or 26% from £186m in the first six months of 2012 to £137m in 2013. The majority of this variance is due to restructuring costs in the first half of 2013 of £37m (offset by benefits estimated at £8m).

On an underlying basis, sales from continuing operations were up 1% in 2013 compared to 2012 and total adjusted operating profit declined by 38%. Our underlying measures exclude the effects of exchange and portfolio changes arising from acquisitions and disposals. In 2013, currency movements increased sales by £37m (2%) and adjusted operating profit by £1m (1%). Portfolio changes increased sales by £50m (2%) and adjusted operating profit by £25m (11%).

Adjusted operating profit excludes intangible amortisation and impairment, acquisition related costs and other gains and losses arising from acquisitions and disposals. Statutory operating profit decreased by £32m or 62% from £52m in 2012 to £20m in 2013. The decrease reflects the fall in adjusted operating profit but is offset by reduced intangible charges. In 2012 intangible charges included an accelerated write-down of £21m relating to intangibles in our Professional business relating to Pearson in Practice.

Discontinued operations

In October 2012, Pearson and Bertelsmann announced an agreement to create a new consumer publishing business by combining Penguin and Random House. The transaction completed on 1 July 2013 and from that point, Pearson no longer controls the Penguin Group of companies but will equity account for its 47% associate interest in the new Penguin Random House venture. The loss of control resulted in the Penguin business being classified as held for sale on the Pearson balance sheet at 30 June 2013 and 31 December 2012 and the results for both 2012 and 2013 have been included in discontinued operations. Also included in discontinued operations are the costs associated with the formation of the Penguin Random House venture including costs associated with the settlement of litigation related to the agency arrangements for eBooks.

Net finance costs

Net interest payable to 30 June 2013 was £33m, up from £29m in the first half of 2012.  This increase is mainly due to higher levels of average net debt in the period.

Finance costs relating to retirement benefits have been restated to reflect the adoption of IAS 19 (revised) and were £2m in the first half of 2013 compared to £1m in the prior period. Finance costs relating to retirement benefits have been excluded from our adjusted earnings as we believe the new presentation does not reflect the economic substance of the underlying assets and liabilities.

Also included in the statutory definition of net finance costs are finance costs on put options associated with acquisitions, foreign exchange and other gains and losses. Finance costs for put options are excluded from adjusted earnings as they relate to the future potential acquisition of minority interests and don’t reflect cash expended. Foreign exchange and other gains and losses are excluded from adjusted earnings as they represent short-term fluctuations in market value and are subject to significant volatility. Other gains and losses may not be realised in due course as it is normally the intention to hold the related instruments to maturity. In the period to 30 June 2013, the total of these items excluded from adjusted earnings was a gain of £11m compared to a gain of £6m in the period to 30 June 2012. The gain in 2013 and 2012 relates to foreign exchange differences on unhedged US dollar cash and cash equivalents.


Taxes on income in the period are accrued using the tax rates that would be applicable to expected annual earnings. The reported tax charge on statutory earnings for the six months to 30 June 2013 was a £6m credit compared to a charge of £8m in the period to 30 June 2012. The charge reflects the overall mix of profits projected for the full year and the tax rates expected to apply to those statutory profits.

The effective tax rate on adjusted earnings for the six months to 30 June 2013 is 24.0%. This rate is lower than the average statutory rate applicable to the countries we operate in as it includes the benefit of tax deductions attributable to amortisation of goodwill and other intangibles. The benefit more accurately aligns the adjusted tax charge with the expected rate of cash tax payment.

Other comprehensive income

Included in other comprehensive income are the net exchange differences on translation of foreign operations. The gain on translation of £252m at 30 June 2013 compares to a loss at 30 June 2012 of £89m and is principally due to movements in the US dollar. A significant proportion of the group’s operations are based in the US and the US dollar strengthened in 2013 from an opening rate of £1:$1.63 to a closing rate at the end of June 2013 of £1:$1.52. At the end of June 2012 the US dollar had weakened slightly in comparison to the opening rate moving from £1:$1.55 to £1:$1.57.

Also included in other comprehensive income in 2013 is an actuarial gain of £100m in relation to post retirement plans. This gain arises from changes in the assumptions used to value the liabilities and from returns on plan assets that are in excess of the discount rate. The gain compares to an actuarial gain at 30 June 2012 of £65m.

Non-controlling interest

There are non-controlling interests in the group’s businesses in South Africa, China and India although none of these are material to the group numbers.


Pearson operates a variety of pension plans. Our UK group plan has by far the largest defined benefit section. We have some smaller defined benefit sections in the US and Canada but, outside the UK, most of our companies operate defined contribution plans.

The charge to profit in respect of worldwide pensions and retirement benefits after restating 2012 figures for IAS 19 (revised) and including discontinued operations amounted to £60m in the period to 30 June 2013 (30 June 2012: £55m) of which a charge of £58m (30 June 2012: £54m) was reported in adjusted operating profit and £2m (30 June 2012: £1m) was reported against other net finance costs.

The overall deficit on the UK group plan of £19m at the end of 2012 has become a surplus of £99m at 30 June 2013. The movement has arisen principally due to a favourable movement in the discount rate and other assumptions used to value the liabilities together with continuing asset returns and deficit funding. In total, our worldwide deficit in respect of pensions and other post retirement benefits fell from a deficit of £172m at the end of 2012 to a net deficit of £37m at the end of June 2013.


The dividend accounted for in the six months to 30 June 2013 is the final dividend in respect of 2012 of 30.0p. An interim dividend for 2013 of 16.0p was approved by the Board in July 2013 and will be accounted for in the second half of 2013.

Principal risks and uncertainties

We conduct regular reviews to identify risk factors which may affect our business or financial performance. Our internal audit function facilitates risk reviews with each business, shared service operations and corporate functions, identifying measures to mitigate these risks. The principal risks and uncertainties have not changed from those detailed in the 2012 Annual Report and are summarised below:

We operate in markets which are dependent on Information Technology systems and technological change. Our education, business information and book publishing businesses will be impacted by the rate of and state of technological change, including the digital revolution and other disruptive technologies.

Our US educational solutions and assessment businesses and our UK training businesses may be adversely affected by changes in government funding resulting from either general economic conditions, changes in government educational funding, programmes, policy decisions, legislation and/or changes in the procurement processes.

Global economic conditions may adversely impact our financial performance. A significant deterioration in Group profitability and/or cash flow caused by prolonged economic instability could reduce our liquidity and/or impair our financial ratios, and trigger a need to raise additional funds from the capital markets and/or renegotiate our banking covenants.

We generate a substantial proportion of our revenue in foreign currencies, particularly the US dollar, and foreign exchange rate fluctuation could adversely affect our earnings and the strength of our balance sheet.

If we do not adequately protect our intellectual property and proprietary rights our competitive position and results may be adversely affected and limit our ability to grow.

Our investment into inherently riskier emerging markets is growing and the returns may be lower than anticipated.

Failure to comply with data privacy regulations and standards or weakness in internet security could result in a major data privacy breach causing reputational damage to our brands and financial loss.

A control breakdown or service failure in our school assessment businesses could result in financial loss and reputational damage. Our professional services and school assessment businesses involve complex contractual relationships with both government agencies and commercial customers for the provision of various testing services. Our financial results, growth prospects and/or reputation may be adversely affected if these contracts and relationships are poorly managed.

Failure to generate anticipated revenue growth, synergies and/or cost savings from acquisitions, mergers and other business combinations could lead to goodwill and intangible asset impairments.

Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our business.