LONDON, July 26 /PRNewswire-FirstCall/ --
PEARSON PLC INTERIM RESULTS (unaudited)
Six months ended 30 June 2004
(in pounds sterling except noted)
Half year Half year Half year Half year
2004 2004 2003 2003
Sales 1,594m $2,885m 1,665m $3,014m
Business performance
Adjusted operating
profit* 39m $71m 38m $69m
Adjusted profit/
(loss) before tax* 2m $4m (1)m $(2)m
Adjusted earnings
per share* (1.8)p $(.033) (2.3)p $(.042)
Operating cash flow (195)m $(353)m (338)m $(612)m
Free cash flow (262)m $(474)m (381)m $(670)m
Statutory results
Operating (loss)/ profit (77)m $(139)m (110)m $(199)m
(Loss)/ profit
before tax (112)m $(203)m (138)m $(250)m
(Loss)/ earnings
per share (15.5)p $(.0281) (20.1)p $(.0364)
Dividend per share 9.7p $.0176 9.4p $.017
Net borrowings 1,734m $3,139m 1,897m $3,434m
Change - Change - Full year Full year
underlying headline 2003 2003
Sales 1% (4)% 4,048m $7,327m
Business performance
Adjusted operating
profit* 47% 3% 490m $887m
Adjusted profit/
(loss) before tax* -- 410m $742m
Adjusted earnings
per share* 22% 32.0p $.0579
Operating cash flow 42% 320m $579m
Free cash flow
Statutory results 31% 192m $348m
Operating (loss)/ profit 30% 226m $409m
(Loss)/ profit
before tax
(Loss)/ earnings
per share 19% 152m $275m
23% 6.9p $.0125
Dividend per share 3% 24.2p $.0438
Net borrowings 9% 1,361m $2,463m
*Continuing operations before goodwill and non-operating items.
Throughout this statement, we refer to business performance measures and
growth rates on an underlying basis unless otherwise stated. Underlying
growth rates exclude the impact of currency movements and portfolio
changes. In the first half of 2004, portfolio changes reduced profits by
6m pounds($11m) and increased revenues by 39m pounds ($71m). This was
largely due to the acquisition of London Qualifications.
Strong first-half performance; on track for the full year
-- Good progress on adjusted operating profit (up 47%) and operating cash
flow (improved 42% as reported).
-- Decline in the US dollar reduces headline revenues by 129m
pounds ($233m) and adjusted operating profit by 8m pounds ($14m).
-- Cost actions paying off: FT reduces first-half losses by 9m
pounds($16m); profits increasing at all business newspapers; school
digital learning businesses return to first-half profit.
-- Gaining share and getting stronger: School business takes number one
position in new maths adoptions and extends lead in personalised
learning; Higher Education, Penguin US and IDC growing ahead of their
markets; business newspapers gaining audience share; $400m worth of new
long-term contracts in testing and government services.
Improving market conditions support confidence in 2004 and beyond
-- Business advertising revenue growth turns positive for the first time
in three years.
-- Growing base of long-term contracts, helped by growth trends in school
testing, professional certification and government outsourcing.
-- Recovery in state budgets and political commitment to education support
healthy outlook for US school and higher education businesses.
Marjorie Scardino, chief executive, said:
"These results for the first half are a good sign of our financial and
competitive success, though as usual they represent a small part of our annual
total. They make us confident that we will meet our goals, both this year and
beyond, as our market conditions improve."
Outlook
Pearson makes most of its sales and almost all of its profits in the
second half of the year, due to the seasonal phasing of our book publishing
businesses. At this stage we continue to expect underlying progress in
earnings, cash and returns. The outlook for our major businesses is:
At Pearson Education, we expect revenues at our School business to be
broadly level with 2003, as growth in our testing and supplementary businesses
offsets the particularly weak 2004 school adoption opportunity. We expect our
US Higher Education business to grow in the 4-6% range, as its leading print
and online programmes enable it to grow ahead of its market once again. Our
Professional operations are on track to increase revenues and profits, despite
our investment in new professional testing centres. We continue to expect that
we will receive the full $151m payment for work completed in 2002 on behalf of
the US Transportation and Security Administration.
We expect significant revenue and profit growth from Pearson Education in
2005, helped by a rebound in the School adoption cycle, improving state
budgets, steady growth in Higher Education and the benefits of our 2003
Professional contract wins.
The FT Group is on track to make good profit progress this year. Although
advertising trends at our business newspapers remain erratic from month to
month and between categories, advertising revenue growth has turned positive
for the first half as a whole and forward bookings continue to run a little
ahead of last year. With costs now significantly lower than at any point in
the past three years, all of our business newspapers are in good shape to
benefit from further improvement in the corporate advertising environment. We
expect losses at the Financial Times to be some 20m pounds ($36m) lower than
last year, even without any growth in full-year advertising revenues. The FT
Group will also benefit from another strong year from IDC.
The Penguin Group's publishing schedule is once again heavily weighted to
the second half of the year. Penguin faces tough comparisons after a record
2003 and reported results will again be affected by the weak US dollar. We
expect a good second half as we have a very strong publishing schedule in the
US and the UK, and we are now well on the way to restoring fulfilment
standards following the move to our new UK warehouse.
Exchange rates and interest. A five cent change in the average exchange
rate for the full year (which in 2003 was 1 pound:$1.63) will have an impact
of approximately 1p ($.018) on adjusted earnings per share. We expect our
interest charge in the second half to be marginally higher than the first-half
level of 37m pounds ($67m), as better cash flow is offset by the expected rise
in interest rates.
Trading updates. From this year, Pearson will issue an additional trading
statement to the market around the end of October. This will provide investors
and analysts with an update on trading in the third quarter, which is an
important selling period for our book publishing businesses. Our pre-close
trading update will now be published early in January, after our busy end of
year trading period.
For more information:
Luke Swanson / Charlotte Elston + 44 (0) 20 7010 2310
Pearson's interim results presentation for investors and analysts will be
webcast live today from 0900 (BST) and available for replay from 12 noon (BST)
via http://www.pearson.com. 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 http://www.pearson.com.
A video interview with Rona Fairhead is also available at
http://www.pearson.com.
High resolution photographs are available for the media at
http://www.newscast.co.uk.
For the complete release, including all financial detail, please access
http://www.pearson.com
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 2004 was 1 pound: $1.82 (1 pound: $1.61 in the
first half of 2003). The full year exchange rate in 2003 was
1 pound:$1.63;
2. Adjusted figures are presented as additional measures of business
performance. They are stated before goodwill 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 adjusted operating profit,
adjusted profit/ (loss) before tax, adjusted earnings per share and
operating cash flow to the equivalent statutory heading under UK GAAP
are included in notes 2, 5, 6 and 10 respectively.
4. All US dollar equivalents have been converted at a rate of
$1.81: 1 pound for illustrative purposes only.
Financial review
Due to the seasonal phasing of our book publishing businesses, we generate
most of our sales and profits in the second half of the year. We make
approximately two-thirds of our revenues in the US and our reported results
continue to be affected by the weakness of the US dollar. The weakening of the
dollar to 1 pound: $1.82 in the first half of 2004 (from 1 pound: $1.61 in the
first half of 2003) reduced our headline sales by 129m pound ($233m) and our
adjusted operating profit by 8m pound ($14m).
Sales in the first half were 1,594m pound ($2,885m), 1% ahead of the first
half of 2003 in underlying terms. Growth in Higher Education and the FT Group
was largely offset by lower sales in US School publishing as a result of the
expected weak adoption cycle.
Adjusted operating profit was up 47% to 39m pound ($71m), helped by cost
actions -- particularly at the FT Group, where profits were up 36% on 5%
revenue growth. Adjusted loss per share improved from (2.3)p to (1.8)p, or
($.042) to ($.033).
Operating cash flow improved by 143m pounds($259m) to (195)m pounds
($(353)m) and free cash flow by 119m pounds($215m) to (262)m pounds($(474)m).
Our cash flow benefited from Penguin's very strong publishing schedule in the
fourth quarter of 2003, which pushed collections into the early part of this
year, cost reductions at the FT Group, and an improved cash performance from
Pearson Education. Excluding the impact of TSA, the average working capital
to sales ratio improved from 31.0% to 30.7% even as we increased investment in
our businesses.
On a statutory basis, our loss before tax improved 19% to (112)m pounds
($(203)m), helped by a lower (non-cash) goodwill amortisation charge of 116m
pounds ($210m) (148m pounds($268m) in 2003). We make a statutory loss in the
first half because we make most of our operating profits in the second half
but spread our goodwill amortisation evenly through the year.
Pearson's net borrowings, which peak at the half-year stage, were 9% lower
than last year at 1,734m pounds ($3,139m). During the first half, we
successfully refinanced Pearson's debt facilities maturing in 2004 and 2005.
In May we issued $750m of 5-year and 10-year bonds into the US market,
refinancing bonds due in the second half of 2004. In July we signed a $1,350m
revolving credit facility arrangement with a group of 18 banks to support our
working capital borrowings and to refinance a similar agreement due in July
2005. These refinancings have extended the average maturity of Pearson's debt
by about two years.
The board has declared a 3% increase in the interim dividend to 9.7p
($.0176), payable on 24 September 2004 to shareholders who are on the register
at the close of business on 27 August 2004.
Pearson Education
pounds millions
Half year Half year Change - Change - Full year
2004 2003 underlying headline 2003
Sales
School 466 487 (2)% (4)% 1,176
Higher
Education 187 196 6% (5)% 772
Professional 220 244 0% (10)% 503
Total 873 927 0% (6)% 2,451
Adjusted operating
profit
School 8 12 29% (33)% 127
Higher Education (41) (43) (9)% 5% 148
Professional 7 5 100% 40% 38
Total (26) (26) 6% 0% 313
Pearson Education generates most of its sales in the second half of the
year and is typically loss-making in the first half.
Sales at our School business were 2% lower. 2004 is as expected a weak
year for the US School publishing industry, driven by the low new adoption
opportunity. (In the US, 20 'adoption' states buy textbooks and related
programmes on a planned contract schedule or 'adoption cycle'. The level of
spending varies from year to year with this schedule, depending on the number
of adoptions in the largest states and subjects. In 'open territory' states,
school districts or individual schools buy textbooks according to their own
individual schedules rather than on a statewide basis.)
However, we have had another strong year in new adoption sales, taking
approximately 27% of the total new adoption market (after competing for some
90% of the total). We have taken the leading share in maths, science and
social studies adoptions this year, benefiting from the breadth of our
business across subject disciplines and across elementary, middle and high
school grades. We have also begun the year strongly in non-adoption states or
'open territories', which mostly buy textbooks in the second half and will
constitute a larger proportion of the overall market this year, given the weak
adoption calendar. We are performing well in all major subject areas and
particularly in maths and social studies as we customise major programmes for
individual states.
Our digital learning and supplementary publishing businesses are well
placed to benefit from the recovery in US state budgets which is now under way
and the flow of new federal education funds into the market under the No Child
Left Behind legislation. Though both businesses make most of their sales in
the second half, profits improved significantly as a result of measures taken
last year to reduce costs and focus on a smaller number of large-scale, more
profitable programmes. Revenues were down a little at our school testing
business as a result of the phasing of its major contracts this year. However,
we continued to win contracts to help states including Florida and New Jersey
meet the No Child Left Behind accountability requirements from 2005.
Our school businesses are also performing well outside the US. We have
begun to introduce our testing capabilities in the UK, successfully marking
more than one million GCSE and A-level scripts on screen this summer. In
addition, the UK's National Assessment Agency has recently awarded Pearson a
three-year contract for the National Curriculum or Key Stage Tests.
KnowledgeBox, our digital learning programme launched last year, which
contains content, assessment and lesson plans, is now installed in more than
500 primary schools. We also launched English Adventure, our new English
language teaching programme, in the first half. The series, for ages 4 - 12,
uses Disney characters to motivate young learners, and is our first worldwide
ELT programme for schools. It is exceeding our expectations in Spain, its
first market, where over 100,000 children will be learning with it from
September. Seven further editions for other markets are due to be launched
next year.
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 6%.
In the US, sales were up 4%. We have had a successful first-half sales
campaign, benefiting from new publishing in targeted segments such as health
and languages, success in high enrolment basic English and maths skills
courses, the rapid roll-out of our online learning services to new subject
areas and our fast-growing custom publishing business. The US higher
education market is changing rapidly, and we are helping faculty and students
to adapt by offering a broad range of choice and value. Our Pearson Choices
programme makes our leading educational content available in a wide range of
formats: conventional textbooks, low-cost print alternatives, online learning
platforms and custom programmes. This summer we are using our Safari joint
venture to launch the latest addition to that range: an online service
(http://www.safarix.com) which will provide more than 300 web-based textbooks
at 50% of the cost of their print alternatives.
In our Professional business, profits were ahead on flat revenues. Our
technology publishing businesses around the world continue to face very tough
market conditions, with employment levels and software releases in the IT
industry still low. Although technology publishing revenues were 3% lower in
the first half, our business is gaining share and expects to benefit from a
pick-up in new software and games releases from the second half of 2004. Our
Government Solutions business increased revenues by 10%, with good growth from
existing contracts, and won more than $100m in new contracted business.
Revenues at our Professional Testing business were 14% ahead, with
particularly strong growth from our contract with the National Council of
State Boards of Nursing. We are investing this year to expand our
international network of testing centres to support newly won contracts for
customers such as the Graduate Management Admissions Council and the UK's
Driving Standards Agency.
Financial Times Group
pounds millions
Half year Half year Change - Change - Full year
2004 2003 underlying headline 2003
Sales
Financial Times 104 102 3% 2% 203
Other FT
publishing 56 54 10% 4% 112
Recoletos 90 82 12% 10% 169
IDC 130 132 2% (2)% 273
Total 380 370 5% 3% 757
Adjusted operating
profit
Financial Times (6) (15) 60% 60% (32)
Other FT
publishing 6 3 58% 100% 6
Recoletos 15 14 7% 7% 28
IDC 37 41 2% (10)% 81
Associates and
joint ventures 3 0 -- -- 3
Total 55 43 36% 28% 86
The Financial Times Group grew revenues by 5% and profits by 36% as our
business newspapers benefited from cost savings and, for the first time in
three years, improvements in advertising revenues.
Losses at the Financial Times improved by 9m pounds as a result of cost
measures taken last year including the integration of our UK and European
commercial operations. Advertising revenues were 3% higher for the first half
of the year, having been 4% lower in the first two months and flat at the end
of April. Advertising trends remain erratic from week to week and across
categories. We have seen rapid growth in recruitment, luxury goods and
business travel advertising, although the technology and business-to-business
sectors remain weak. Newspaper circulation was some 5% lower at 427,000, but
the FT is performing well on the key business readership surveys and FT.com's
paying subscribers increased from 57,000 in June 2003 to 76,000 in June 2004.
Profits at Les Echos were significantly ahead of last year as costs were
lower and advertising revenues grew 7%, benefiting from the French government
privatisation programme and increased M&A activity including the Sanofi/
Aventis deal. Daily paid circulation was slightly ahead at 118,000 as the
relaunch of Les Echos in its new Berliner format helped it to grow as the
overall French newspaper market declined. FT Business has seen a broad-based
return to advertising growth since the start of the year, and is performing
well.
Recoletos (Bolsa Madrid: REC) achieved sales growth of 12% and profit
growth of 7%, recovering strongly after a weak March following the terrorist
attacks in Madrid and the Spanish election. Advertising revenues increased 14%
overall and 5% in Recoletos' business and finance division. Circulation at
sports newspaper Marca declined by 5% to 360,000 and was up 3% to 48,000 at
Expansion, Spain's leading business newspaper. Recoletos has announced plans
to invest $16.5m in the second half - with a profit impact of some $13.5m -
in the launch of Rumbo, a network of Spanish-language newspapers targeted at
the fast-growing Hispanic community in Texas and other southern US states.
Interactive Data Corporation (NYSE: IDC) increased revenues by 2% and
adjusted operating profit by 2%. Renewal rates in IDC's institutional data
business, which accounts for two-thirds of revenues, remain very high at or
above 95%, and IDC has successfully launched several new products. The
integration of Comstock is going well and IDC is in the process of
consolidating its data centres in the US. After several difficult years for
the market data industry, IDC is now seeing a gradual improvement in market
conditions.
The FT's associates and joint ventures generated a profit of 3m pounds,
against breakeven in the first half of 2003. FT Deutschland, our joint venture
with Gruner + Jahr, increased circulation a further 5% to 95,500 and increased
advertising revenues in double digits despite the tough market environment.
The Economist continued its excellent circulation performance: average
worldwide weekly circulation grew to 943,490, a 4% increase for the year, with
the strongest growth in North America.
The Penguin Group
pounds millions
Half year Half year Change - Change - Full year
2004 2003 underlying headline 2003
Sales 341 368 0% (7)% 840
Adjusted
operating profit 10 21 (15)% (52)% 91
At Penguin, sales were level with last year, with our schedule of major
frontlist titles once again heavily weighted to the second half. Adjusted
operating profit declined by 4m pounds, as a result of our investment in new
channel initiatives, the bankruptcy of distributor Thomas Cork and disruption
to UK distribution. Reported profit shows a further 7m pounds impact from the
weaker dollar.
In the US, Penguin's largest market, sales were ahead, helped by strong
performances from Lynne Truss' Eats, Shoots and Leaves, Tom Clancy's Battle
Ready with Gen. Tony Zinni (Ret.), Nora Roberts' Key trilogy, Chesapeake Blue
and Birthright and Karen Joy Fowler's The Jane Austen Book Club. The Penguin
translation of Leo Tolstoy's Anna Karenina, which sells an average of 20,000
copies per year, was selected in May for Oprah Winfrey's book club and now has
almost one million copies in print. Penguin US has also benefited from
contributions from its new imprints The Penguin Press, Gotham and Portfolio.
All three new imprints have published New York Times bestselling titles,
including Ron Chernow's Alexander Hamilton and Steve Coll's Ghost Wars. In
the first half Penguin had a total of 75 titles on the New York Times list.
In the UK, Penguin had a strong first half bestseller performance, with a
total of 34 books in the Nielsen Bookscan top 10. Kevin Lewis' memoir The Kid
spent nine weeks at number one, and Marian Keyes' The Other Side of the Story
also hit number one. There were strong debuts from a number of new fiction
authors, with Jillian Hoffman's Retribution, Plum Sykes' Bergdorf Blondes and
PJ Tracy's Want to Play? all making it into the bestseller charts.
We are continuing to integrate back offices, warehousing and distribution
for Penguin and Pearson Education in several markets around the world. We have
successfully combined our businesses and their supply chains in Australia,
Canada and India and are on track to deliver some 20m pounds of annual cost
savings from our integration initiatives from 2005, which will be shared with
Pearson Education.
In the UK, the move to a new shared distribution centre for Penguin and
Pearson Education disrupted supply of Penguin titles to bookstores in the
second quarter. We are well on the way to restoring fulfilment standards to
normal levels, ahead of Penguin's major selling season in the second half.
In the second half, Penguin will benefit from another strong publishing
schedule. In US fiction we have new titles from many of our most reliable
repeat best-selling writers, including Patricia Cornwell, Nora Roberts, Sue
Grafton, Clive Cussler, GP Taylor and Madonna. In the UK, we have new titles
from Jamie Oliver, Jeremy Clarkson and Sue Townsend, as well as a number of TV
tie-ins: You are What you Eat, How to Buy a House and Too Posh to Wash.
Dorling Kindersley is also set for a strong second half, with Human and Plant
in the same series as existing bestsellers Earth and Animal, and a follow up
to last year's America 24/7 with The America 24/7 State Book series, with a
book for each of the 50 states.
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.
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