Interim results: Pearson makes strong start to 2005

Pearson announced its Interim Results on Monday 25th July, 2005.

Download an electronic (html) version of the press release here

Download the full press release and financials in PDF format here.

UK Presentation
Marjorie Scardino, CEO and Rona Fairhead, CFO, hosted a presentation of the results for analysts and investors today at 09:00 (BST). They were joined for the questions and answers session by Olivier Fleurot, John Makinson, Will Ethridge, Steve Dowling and George Werner

Click here to download a transcript of the presentation.

Click here to download a PDF of the slide presentation.


Press Release (HTML)

Six months ended 30 June 2005

PEARSON INTERIM RESULTS (unaudited) Six months ended 30 June 2005


  • Underlying sales up 10% and operating profit from continuing operations higher at £33m (£7m in 2004) with good growth in all businesses;
  • Pearson Education sales up 14%. Higher Education up 5%, Professional up 12% and School, our largest business, up 19%; all benefiting from investments in content, testing and technology;
  • FT Group sales up 5% and profits up 34%; Financial Times advertising revenues up 5% and IDC profits up 23%;
  • Penguin sales up 5%, with record bestseller performance and stronger first-half phasing.

Marjorie Scardino, chief executive, said: "We are very pleased with the start we've made on 2005. We still have the majority of the year's trading ahead of us, but the first-half momentum supports our confidence that we will meet our financial goals."

Financial summary
£ millions Half year 2005 Half year 2004 Underlying growth Full year 2004

Sales 1,613 1,481 10% 3,696
Business performance        
Adjusted operating profit - continuing 33 7   395
Discontinued (Recoletos) (3) 17   26
Adjusted (loss) / profit before tax (9) (16)   345
Adjusted (loss) / earnings (15) (22)   217
Adjusted (loss) / earnings per share (1.9)p (2.8)p   27.3p
Operating cash flow (196) (195)   418
Free cash flow (265) (262)   284

Statutory results        
Operating profit 73 9   404
Profit / (loss) before tax 48 (33)   325
Basic earnings / (loss) 337 (20)   262
Basic earnings / (loss) per share 42.3p (2.5)p   32.9p

Dividend per share 10p 9.7p 3% 25.4p
Net borrowings 1,298 1,747   1,221

Throughout this statement, we refer to business performance measures for total operations and growth rates on an underlying basis unless otherwise stated. 'Underlying' means growth excluding currency impact and portfolio changes. Our continuing businesses exclude Recoletos following the sale of our 79% stake on 8 April 2005.

The basis for our business performance measures is explained below.


These results are Pearson's first to be reported under IFRS. In May we published reconciliations of our 2003 and 2004 results from UK GAAP to IFRS, available at\ifrs.

  • Sales up 10%, with good growth in all parts of the company.
  • Adjusted operating profit from continuing operations higher at £33 million (£7 million in 2004); adjusted loss per share improved to (1.9)p from (2.8)p.
  • Operating cash flow level with 2004 at £(196)m; average working capital to sales ratio improved to 28.7% (from 30.7% in first half of 2004).
  • Statutory profit for the period up to £346m from £(9)m, with gains on disposals of £342m after tax.
  • Net borrowings reduced to £1,298m from £1,747m, with £426m net proceeds from the sale of our stakes in Recoletos and MarketWatch.
  • Dividend increased 3% to 10p per share.


For more information

Luke Swanson / Charlotte Elston + 44 (0) 20 7010 2310

Jeff Taylor / David Hakensen + 1 212 641 2409

Pearson's results presentation for investors and analysts will be webcast live today from 09.00 (BST) and available for replay from 12.00 (BST) via

We are holding a conference call for US investors at 15.00 (BST) / 10.00 (EDT). To participate please dial in on +1 866 800 8648 (inside the US) or +1 617 614 2702 (outside the US), participant code 69353005. The call will be available on replay for seven days on +1 888 286 8010 (inside the US) or +1 617 801 6888 (outside the US), pass code 51433647.

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

Note: 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 under both US GAAP and IFRS. Reconciliations of adjusted operating profit, adjusted profit/ (loss) before tax, adjusted earnings per share and operating cash flow to the equivalent statutory heading under IFRS are included in notes to the accounts 2, 5, 7 and 15 respectively. Business performance measures are presented on an adjusted basis to exclude other net gains and losses arising on the sale of subsidiaries, investments and associates together with short-term fluctuations in the market value of financial instruments following the adoption of IAS 39.



Due to the seasonal phasing of our book publishing businesses, Pearson makes most of its sales and almost all of its profits in the second half of the year. However, based on our trading performance in the first half, we are confident of strong growth, in line with expectations, for the year as a whole. Our outlook for the full year is:

  • Our School business is performing well in rapidly growing markets in the US and around the world. We expect our total worldwide School business to grow sales in double digits, and to improve margins by 1-2 percentage points.
  • Our Higher Education business has a unique competitive advantage based on its leading market position, publishing strength and technological innovation. We expect it to grow by around 4% this year, ahead of the industry once again, and with similar margins to 2004.
  • We expect our Professional division to grow sales in mid-to-high single digits this year. Our testing and government solutions businesses continue to achieve double digit sales growth and our worldwide technology publishing business has seen sales begin to stabilise after a severe downturn in technology markets.
  • Penguin has made a solid start to 2005, a transitional year, in line with expectations. It has delivered a very strong bestseller performance in the US and the UK, with some major titles shifted into the first half. Our UK business is showing good growth, helped by the recovery of our UK warehouse and the comparison with a difficult first half of 2004. In the US, we are seeing good success with new imprints, homegrown authors and our new premium paperback format, although the mass market category has remained weak.
  • We expect profits to improve further at FT Publishing, our group of business publications. Advertising revenues at the Financial Times were up 5% in the first half and if they grow at similar levels in the second half, we would expect the FT to be around breakeven for the year as a whole (after an IFRS impact of approximately £(3)m).
  • IDC has reported that it expects to grow net income at the high end of the high single digit to low double digit range.

Interest and tax. As previously stated, we expect our full year interest charge to be a little lower than in 2004, with the benefit of lower average net debt being partly offset by the absence of the 2004 one-off credit of £9m. We expect our effective tax rate for the full year to be 32%, plus or minus a percentage point.

Exchange rates. Pearson generates around two-thirds of its sales in the US and each five cent change in the average £:$ exchange rate for the full year (which in 2004 was £1:$1.83) would have an impact of approximately 1p on adjusted earnings per share. The average rate during the first half of 2004 was £1:$1.87 and the closing rate at the end of June was £1:$1.79.


£ millions Half year 2005 Half year 2004 Underlying growth Full year 2004

School 518 444 19% 1,087
Higher Education 192 186 5% 729
Professional 243 220 12% 507

Pearson Education 953 850 14% 2,323
FT Publishing 164 160 2% 318
IDC 143 130 8% 269

FT Group 307 290 5% 587
Penguin 353 341 5% 786

Total continuing 1,613 1,481 10% 3,696

Adjusted operating profit        
School 15 3 -- 108
Higher Education (45) (42) (12)% 129
Professional 8 6 33% 40

Pearson Education (22) (33) 30% 277
FT Publishing 6 2 -- 4
IDC 36 29 23% 62

FT Group 42 31 34% 66
Penguin 13 9 22% 52

Total continuing 33 7 -- 395
Discontinued (Recoletos) (3) 17 -- 26

Total 30 24 -- 421


  • Market conditions improving: increased new adoption opportunity, improved state budgets, implementation of No Child Left Behind requirements in reading, testing and student data.
  • Mid single digit growth in US publishing, despite delay of new adoptions in Texas, and on track for double digit growth for the full year. New programmes performing well in adoption states: estimated market share of more than 30% in new adoptions where we competed. Leading positions in maths, science and music.
  • Testing businesses in the US and the UK up more than 30% in the first half, helped by the build-up of new contracts and phasing. New contracts won include Michigan, Minnesota and Louisiana; largest single contract, Texas, renewed for five more years. Edexcel marks three million GCSE and A-level scripts on screen and begins new contract to mark the UK's Key Stage tests.
  • School technology business showing good growth, benefiting from investments in instructional and student information software.
  • $270m acquisition of AGS Publishing completed on 22 July, strengthening testing and supplementary businesses. Targets growth in funds for students with special educational needs.
  • Strong growth in international school businesses. Continued investment in English Language Teaching; major new worldwide courses for primary schools (English Adventure, a partnership with Disney), secondary schools (Sky), adults (Total English) and business people (Intelligent Business, in partnership with The Economist).



  • Worldwide Higher Education sales growth of 5%, with strong growth in the US and international level with 2004, ahead of the key second half selling seasons.
  • Rapid growth in career or workforce education segment, with new publishing in allied health, criminal justice, paralegal, homeland security and hospitality.
  • 3m US college students now following their course through one of our online learning platforms. Continued roll-out to new subject areas including economics for the new academic year.
  • Custom publishing business continues to grow at 20%+; launch of custom media solutions team to provide integrated print and online programmes.
  • Contract to provide customised print and online materials for DeVry University's 43,000 students across 69 locations.
  • Exclusive partnership with to publish audio study guides, downloadable to iPods, other MP3 players and PDAs, beginning autumn 2005.



  • Double digit sales growth in Government Solutions and Professional Testing.
  • Solid execution on major new contracts including the Driving Standards Agency, National Association of Securities Dealers and the Graduate Management Admissions Council.
  • Government Solutions' largest contract, with the US Department of Education, renewed and extended for a further ten years.
  • Technology Publishing sales level on first half of 2004; stabilising after four years of severe declines.



  • Financial Times sales up 4% to £108m and first-half loss reduced to £2m (loss of £7m in first half of 2004).
  • FT advertising revenues up 5% with up more than 20%. Average circulation of 427,000 for the first six months; UK circulation stabilising, with three consecutive months of modest year-on-year growth.
  • Excellent performance on key readership surveys. FT is Europe's leading business title with 22% more readers than its nearest rival (Europe 2005); UK readership is up 11% (NRS).
  • Sales and profits broadly level at the FT's other business newspapers and magazines in erratic advertising markets. Circulation up 2% at Les Echos to 120,000, up 6% at FT Deutschland to 101,000, and growing beyond the one million mark at The Economist.
  • Continued cost actions at our business newspapers. FT Publishing cost base now more than £160 million lower than it was four years ago.



  • Underlying sales growth of 8% from customer wins and 95%+ renewal rate, with profit growth of 23%.
  • Successful integration of FutureSource into e-Signal, adding new real-time futures, commodities and FX data.
  • Special dividend of $0.80 per share announced in June (and paid after the period end).
  • IDC reported second-half results on 21 July 2005, available at



  • Strong first-half publishing performance, helped by shift in publishing strategy towards the first half of the year.
  • Record number of bestsellers in the US (79 New York Times bestsellers), with strong showings in adult hardcover, adult paperback and young readers. Successful focus on new imprints, including Steve Coll's 2005 Pulitzer Prize-winning Ghost Wars from Penguin Press, and on homegrown talent with close to 150 first-time authors published in the US.
  • Good growth in the UK with great publishing, recovery of UK distribution and benefit of comparison with a difficult first half of 2004. Strong growth at Dorling Kindersley with more key titles published in the first half.
  • £4m invested in actions to reduce Penguin's cost base.
  • Launch of 'premium paperback' format in US as part of plans to tackle industry-wide challenges in mass market segment (industry mass market sales down a further 2% in first five months of 2005, according to the AAP). Six major Penguin authors publishing new premium paperbacks in the second half.
  • Good performance in children's books across the group, developing strong best-selling brands such as Eoin Colfer's Artemis Fowl, Young Bond, Charlie and the Chocolate Factory and US licences including The Little Engine That Could and Atomic Betty.
  • Second half publishing schedule includes new books from Patricia Cornwell, Nora Roberts, Jan Karon, Amy Tan, Peggy Noonan, John Berendt, Terry McMillan, Maureen Dowd, Billy Graham, JM Coetzee, Paul McCartney, Jamie Oliver, Zadie Smith, Ryan Giggs, Ellen MacArthur and Gloria Hunniford.


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 update publicly any forward looking statement, whether as a result of new information, future events or otherwise.