Interim Results - Part 1
July 30 2001 - 3:01AM
UK Regulatory
RNS Number:6689H
Pearson PLC
30 July 2001
30 July 2001
PEARSON PLC INTERIM RESULTS (unaudited)
Six months ended 30 June 2001
Six months to 30 Six months to 30 %
June 2001 June 2000 Change
Sales #1,876m #1,545m 21%
Operating profit (pre Internet #174m #148m 18%
enterprises)*
Investment in Internet enterprises #(81)m #(84)m
Pre-tax profit (post Internet #5m #(4)m
enterprises)*
Adjusted earnings per share - pre 6.8p 8.9p** (24)%
Internet enterprises
Adjusted earnings per share - post (2.6)p (0.6)p**
Internet enterprises
Dividend per share 8.7p 8.2p** 6%
* Continuing operations before goodwill, integration costs and non-operating
items
** Restated to reflect the rights issue
Pearson performing in tougher times
- Group underlying sales+ up 5%
- Pearson Education underlying sales up 8% driven by strong US School
performance
- Penguin underlying sales up 7% due to frontlist successes
Results hit by advertising slowdown
- FT Group profits down 19%; costs reduced across business newspapers
- RTL Group's contribution of #33m reflects downturn in European
advertising markets
Investments making Pearson stronger
- NCS operating profits up 26% on the back of school testing boom
- Integrating Dorling Kindersley across Pearson and investing in the
frontlist
- Internet enterprises on track to hit breakeven targets
Marjorie Scardino, Pearson's chief executive, said: "Our main businesses are
all performing strongly in the face of the economic downturn. The depressed
advertising market has affected our business newspapers, although each of them
is still reporting good profits and a strong competitive position. Our
education and consumer publishing businesses are more resistant to the cycle
and are performing reliably and ahead of their markets."
+Note: throughout this statement, underlying growth excludes the impact of
acquisitions, disposals and currency movements.
Outlook
Pearson makes approximately two-thirds of its sales and most of its profits in
the second half, so interim results are not always a good guide to the full
year. At this stage, our guidance for the full year is:
* Pearson's education businesses are on track to deliver revenue and
profits growth in line with our expectations. We expect both our US School
and US College businesses to grow as fast as or ahead of their markets
this year.
* The FT Group's operating profits will benefit from the steps we have
already taken to reduce costs significantly across its newspaper
operations. We expect the Financial Times newspaper to end the year with
daily sales of approximately 500,000, up from 300,000 five years ago, and,
in the face of the sharpest advertising downturn for a decade, to deliver
margins of more than 20%. Even so, based on current advertising levels, we
would expect FT Group profits to be some 15 per cent lower than in 2000.
* The Penguin Group will benefit from a strong second half schedule of new
titles offset by continued industry-wide softness in back-list sales. This
has a particular impact on Dorling Kindersley, ahead of the revitalisation
of its frontlist.
* The earnings contribution from the RTL Group will reflect its
announcement today that, due to the weakness in the advertising market, it
expects full year EBITA to be 10 to 15 per cent below the 2000 pro forma
level of EUR 555 million, before new investments and US restructuring
totalling EUR 50 million.
* The net costs of internet enterprises in the second half are expected to
be some #60 million, down 45% on the same period last year.
* The interest charge in the second half will be broadly in line with the
#88 million incurred in the first half and we expect to meet our goal of
converting 80% of operating profit into cash.
Overall, all of our businesses are performing strongly in their markets and,
in a difficult economic environment, will report good profits for the year.
For more information:
John Fallon/ Luke Swanson Pearson plc + 44 (0) 207 411 2310
Operating Performance
Pearson Education
# millions 2001 2000 % Underlying 2000
half half Change growth full
year year year
Sales
US School 451 222 103% 23% 722
US Higher Education & 319 215 48% (5%) 779
Professional
International 241 197 22% 4% 540
Discontinued - 2 3
Pearson Education 1,011 636 59% 8% 2,044
FT Knowledge 31 11 43
1,042 647 61% 2,087
Internet enterprises 3 - 3
Operating profit/(loss)
Pearson Education 28 (21) 337
FT Knowledge (12) (5) (17)
16 (26) 320
Internet enterprises (43) (19) (83)
Sales at Pearson Education, boosted by a full six-month contribution from NCS
Pearson, increased by 59% to #1,011 million. Underlying sales increased by 8%.
Although the seasonality of the US school and college publishing businesses
mean that Pearson Education traditionally makes a first-half loss, this year
Pearson Education reported an operating profit of #28 million. This is due to
the first-time contribution from NCS which makes its sales and profits more
evenly throughout the year.
Our US School business increased underlying sales by 23%. It performed
strongly in major adoptions in elementary reading and mathematics and
secondary mathematics and literature. Sales in open territory states are
strong and the Waterford early reading programme has won a number of major new
orders. Although we benefited from the earlier phasing of adoptions in a
number of key states, we do expect to do better than market growth of 8%-10%
for the year as a whole.
The US Higher Education & Professional business saw underlying sales fall 5%,
with growth in US college publishing offset by a difficult trading environment
in technology publishing. In the US College business, the successful launch of
CourseCompass, our new online course management system, is helping us to
increase both adoption and sell-through rates. Underlying sales in the College
business are up 3% in the first half. For the full year, we expect to grow
faster than the 5%-6% predicted for the market as a whole. In our technology
publishing operations, with sales in the first half down over 20% on the same
period last year, we have reduced costs and focused on more profitable, higher
value segments of the market.
The International business increased underlying sales by 4%. The business
continued to grow strongly in English Language Teaching and in Asia, which was
partially offset by a more difficult trading environment in Latin America and
softness in the IT publishing market in Europe and Canada.
NCS Pearson is now an integral part of Pearson Education and its revenues and
earnings are reported within Pearson Education's US School, US Higher
Education & Professional and International businesses. On a standalone basis,
the NCS Pearson businesses posted a 4% increase in underlying revenues to #275
million and profits increased 26% to #38 million. The testing and assessment
and school enterprise software operations both performed strongly, while
revenues were down in government services due to the revenue gap left by the
2000 US Census contract. Stripping out the decennial US Census contract and
the benefit from two smaller acquisitions made earlier this year, revenues
were up 14% and profits up 41%.
FT Knowledge made losses of #12m on revenues of #31m, as companies cut back
their training and development budgets in a more difficult economic
environment. The losses include restructuring costs as FT Knowledge focuses on
providing specialist training programmes for major corporations, with the aim
of breaking even in 2002.
Learning Network, Pearson's online consumer education business, continues to
be the most popular education destination on the web. During the school year,
it attracted 130m page views and 10m unique users per month. We are now
focusing Learning Network on the K-12 market, reducing operating costs and
scaling back investments in other areas. Losses are expected to be
significantly lower in the second half of the year.
Financial Times Group
# millions 2001 2000 % 2000
half year half year Change full year
Sales 403 392 3% 802
Internet enterprises 26 16 63% 42
Operating profit / (loss)
FT Newspaper 32 50 (36)% 81
Les Echos 15 16 (6)% 29
Recoletos 13 19 (32)% 38
Interactive Data Corporation 32 26 23% 59
Associates and joint ventures (6) (5) (20)% (5)
FT Business 2 3 (33)% 10
FT Businesses sold - - (1)
88 109 (19)% 211
Internet enterprises (38) (64) (113)
Our business newspapers and online services are facing the toughest
advertising market for a decade, with the finance and technology sectors
hardest hit.
Average daily sales of the Financial Times newspaper were 490,000 for the
month of June, an increase of 6% on the previous year, with international
sales up 15%. After a strong start to the year, advertising declined sharply
in May and June. As a result, advertising volumes were down 18% and
advertising revenues down 6% in the first half. Operating profit fell from #
50m to #32m, reflecting the advertising downturn and increased circulation
costs that underpin the newspaper's international growth. A series of measures
taken to protect profits will ensure that, by the fourth quarter, the
newspaper costs will be some 16% lower than in the same period in 2000.
Les Echos and Recoletos have both suffered from the advertising downturn. At
Les Echos, revenues fell by 4%. June circulation at Les Echos declined by 1%
to 127,000, while the monthly magazine Enjeux Les Echos was up 10% to 147,000.
At Recoletos, underlying revenues were flat. Circulation was down 15% to
57,000 at Expansion, down 3% to 362,000 at Marca and up 7% to 326,000 at El
Mundo, in which Recoletos holds a 30% stake. Profits at Recoletos also fell
due to start-up costs related to the launch of a series of new ventures.
Interactive Data Corporation, our subscription-based business which accounts
for some 25% of FT Group revenues, increased sales by 21% and profits by 23%.
It continued to build its institutional business, which provides data and
tools for leading financial institutions to value their portfolios, usually on
long-term contracts.
FT 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, FTMarketWatch and Esignal) continue to build
their audiences and have increased revenues by 63% compared with the same
period last year. We have reduced costs substantially and continue to do so.
FT internet enterprises remain on track to break even by the end of 2002.
FT.com continues to grow rapidly and for the six months to June it generated
an average of approximately 40 million monthly page views and 1.8 million
unique monthly users. In this more difficult market for online advertising,
FT.com continued to grow advertising revenues year-on-year and has
successfully opened up new revenue sources including content syndication and
premium services.
Associates and joint ventures
The Economist Group, in which Pearson owns a 50% interest, continued to grow
circulation and advertising revenues at its two global titles, The Economist
and CFO. For the last quarter, worldwide circulation of The Economist is up 7%
at more than 790,000.
FT Deutschland, our joint venture with Gruner + Jahr, continues to make steady
progress in a highly competitive marketplace. Circulation is now more than
74,000, up 34% on a year ago. Advertising revenues are up on a year ago but
have been held back by the difficulties of the German advertising market.
Business Day & Financial Mail, the South African titles in which we own a 50%
interest, have also been hit by the advertising slowdown. Sales of Business
Day and Financial Mail have held firm.
The Penguin Group
# millions 2001 2000 % 2000
half year half year Change full year
Sales* 402 326 23% 755
Operating profit 37 33 12% 79
*Includes #66 million from Dorling Kindersley in first six months of 2001; #32
million in 2000 .
Penguin increased both underlying revenues and underlying profits by 7% as
investment in its frontlist of established and new authors continued to drive
strong revenue and earnings growth. In the US, 59 Penguin Putnam titles
reached the New York Times bestseller list, an increase of 26% over the first
half of 2000, of which 13 were number one titles and three were first-time
authors. Penguin has also had a very strong frontlist performance in the UK,
with 31 titles on the Booktrack Top 15 bestseller lists, including five number
ones. Penguin's backlist sales showed slower growth as retailers focused on
faster-moving frontlist titles in more uncertain economic conditions. In
Australia and Canada, the trading environment is also more difficult.
The integration of Dorling Kindersley is going well. We have combined UK
warehousing, centralised publishing operations in one London location and
combined DK's TV production unit with Pearson's new broadband education
business. In the US, DK and Penguin Putnam are working closely to strengthen
DK's US operations including sales and marketing, warehousing and
distribution. However, DK's revenue contribution reflects both the softness in
backlist sales and higher returns following last year's closure of DK Family
Learning. We expect DK to break even this year and steadily to grow revenues
and margins over the next few years as we invest to revitalise the frontlist.
RTL Group
# millions 2001 2000 2000
half year half year full year
Sales - 164 185
Operating profit 33 32 68
Pearson holds a 22% stake in RTL Group, Europe's leading integrated
broadcasting and production company, and Pearson's share of RTL Group's
profits for the first half was #33 million. In a trading update today, RTL
Group has reported that advertising markets have remained tough and showed low
or negative growth for the first half of the year. RTL expects full year EBITA
to be 10 to 15 per cent below the 2000 pro forma level of EUR 555 million,
before new investments and US restructuring totalling EUR 50 million.
RTL Group will announce its interim results on 14 September 2001.
ENDS
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, 2000. The company undertakes no obligation
to publicly update any forward looking statement, whether as a result of new
information, future events or otherwise.
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