pearson interim results. financial highlights £m 2002 half year 2001 half year change...
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PearsonPearson interim results interim results
Financial highlightsFinancial highlights
£m£m20022002
half yearhalf year20012001
half yearhalf year changechange
salessales 1,8131,813 1,8761,876 - 3%- 3%
operating profitoperating profit 7676 6060 + 27%+ 27%
pre-tax profitpre-tax profit 2626 (28)(28)
adjusted earnings per shareadjusted earnings per share 0.5p0.5p (1.5)p(1.5)p
dividend per sharedividend per share 9.1p9.1p 8.7p8.7p + 5%+ 5%
CONTINUING OPERATIONS AFTER INTERNET ENTERPRISES; CONTINUING OPERATIONS AFTER INTERNET ENTERPRISES; BEFORE INTEGRATION COSTS, GOODWILL AND NON-OPERATING ITEMSBEFORE INTEGRATION COSTS, GOODWILL AND NON-OPERATING ITEMS
2001 RESTATED FOR FRS192001 RESTATED FOR FRS19
HeadlinesHeadlines
Earnings rebound on trackEarnings rebound on track
Competitive performances strongCompetitive performances strong
Cash and returns a major focusCash and returns a major focus
PearsonPearson financial performance financial performance
Financial priorities for Financial priorities for 20022002
Protect marginsProtect margins
Maintain balance sheet strengthMaintain balance sheet strength
Increase cash flowIncrease cash flow
SalesSales
£m£mH1H1
20022002H1H1
20012001totaltotal
growth growthunderlying underlying
growthgrowth
educationeducation 1,0491,049 1,0451,045 0%0% 0%0%
ft groupft group 370370 429429 - 14%- 14% - 12% - 12%
penguinpenguin 394394 402402 - 2%- 2% - 1%- 1%
total salestotal sales 1,8131,813 1,8761,876 - 3%- 3% - 3%- 3%
Operating profitsOperating profits
£m£mH1H1
20022002H1H1
20012001totaltotal
growthgrowthunderlying underlying
growthgrowth
educationeducation 00 (27)(27) -- --
ft groupft group 3838 5050 - 24%- 24% - 26%- 26%
penguinpenguin 3838 3737 + 3%+ 3% + 1%+ 1%
continuing operationscontinuing operations 7676 6060 + 27%+ 27% + 10%+ 10%
televisiontelevision soldsold 3333 --
operating profits operating profits 7676 9393 - 18%- 18% + 10%+ 10%
BEFORE GOODWILL, INTEGRATION COSTS AND NON-OPERATING ITEMSBEFORE GOODWILL, INTEGRATION COSTS AND NON-OPERATING ITEMS
Operating profitsOperating profits
£m£mH1H1
20022002H1H1
20012001 variancevarianceheadline headline
growthgrowth
educationeducation
pearson educationpearson education 2222 2828 - 21%- 21%
ftkftk (9)(9) (12)(12) + 25%+ 25%
internetinternet (13)(13) (43)(43) + 30+ 30 + 70%+ 70%
total educationtotal education 00 (27)(27)
ft groupft group
newsnews 2525 5656 - 31- 31 - 55%- 55%
idcidc 3737 3232 + 16%+ 16%
internetinternet (24)(24) (38)(38) + 14+ 14 + 37%+ 37%
total ft grouptotal ft group 3838 5050 - 24%- 24%
total penguin grouptotal penguin group 3838 3737 -- + 3%+ 3%
total operating profittotal operating profit 7676 6060 + 27%+ 27%
Internet enterprises – lossesInternet enterprises – losses
H1 99 H2 99 H1 00 H2 00 H1 01 H2 01 H1 02
37
55
81
112
85
32
7
FT Group
Education
Deferred taxationDeferred taxation
P&L impactP&L impact 2002e2002e 20012001
tax rate pre frs19tax rate pre frs19 26%26% 31%31%
tax rate post frs19tax rate post frs19 34%34% 34%34%
ON ADJUSTED EARNINGS POST INTERNET ENTERPRISESON ADJUSTED EARNINGS POST INTERNET ENTERPRISES
Adjusted earnings per shareAdjusted earnings per shareH1H1
20022002H1H1
20012001
operating profitoperating profit 7676 9393
finance costfinance cost (50)(50) (88)(88)
taxationtaxation (9)(9) (2)(2)
profit (loss) after taxprofit (loss) after tax 1717 33
minoritiesminorities (13)(13) (15)(15)
adjusted profit (loss)adjusted profit (loss) 44 (12)(12)
adjusted earnings per shareadjusted earnings per share 0.5p0.5p (1.5)p(1.5)p
dividend per sharedividend per share 9.1p9.1p 8.7p8.7p
2001 RESTATED FOR FRS192001 RESTATED FOR FRS19
P&LP&L
£m£mH1H1
20022002H1H1
20012001
operating profit operating profit (including TV for ’01)(including TV for ’01) 7676 9393
goodwillgoodwill (182)(182) (184)(184)
integration costsintegration costs (5)(5) (28)(28)
total operating (loss) / profit total operating (loss) / profit (111)(111) (119)(119)
non-operating itemsnon-operating items 1010 (22)(22)
finance costsfinance costs (87)(87) (88)(88)
taxationtaxation (6)(6) 124124
minoritiesminorities (13)(13) (13)(13)
(loss)/profit (loss)/profit (207)(207) (118)(118)
Balance sheetBalance sheet£m£m
H1H120022002
H1H120012001
intangible assetsintangible assets 3,9393,939 4,5684,568
tangible assetstangible assets 528528 557557
operating working capitaloperating working capital 1,1291,129 1,2131,213
other net assets / (liabilities)other net assets / (liabilities) (47)(47) 900900
net trading assetsnet trading assets 5,5495,549 7,2387,238
shareholders’ fundsshareholders’ funds 3,5093,509 4,2994,299
deferred tax / provisions / minoritiesdeferred tax / provisions / minorities 8383 6767
net debtnet debt 1,9571,957 2,8722,872
capital employedcapital employed 5,5495,549 7,2387,238
2001 RESTATED FOR FRS192001 RESTATED FOR FRS19
Balance sheet – key ratiosBalance sheet – key ratios
£m£mH1H1
20022002H1H1
20012001
debt / equitydebt / equity 60%60% 71%71%
net debt / ebitda (rolling 12 months)net debt / ebitda (rolling 12 months)** 3.93.9 4.14.1
interest cover (rolling interest cover (rolling 1212 months) months) 3.43.4 2.92.9
* AFTER INTERNET ENTERPRISES* AFTER INTERNET ENTERPRISES
Cash flowCash flow£m£m H1H1
20022002H1H1
20012001
operating profitoperating profit 7676 6060
working capitalworking capital (269)(269) (312)(312)
net tangible fixed assetsnet tangible fixed assets (73)(73) (98)(98)
depreciationdepreciation 6363 6464
other movementsother movements (26)(26) 4848
operating cash flowoperating cash flow** (229)(229) (238)(238)
tax paidtax paid (19)(19) (28)(28)
finance chargesfinance charges (56)(56) (79)(79)
free cash flowfree cash flow (304)(304) (345)(345)
* CONTINUING OPERATIONS BEFORE INTEGRATION COSTS* CONTINUING OPERATIONS BEFORE INTEGRATION COSTS
Average annual working capitalAverage annual working capital
Pre-publication/Pre-publication/authors’ advancesauthors’ advances
InventoryInventory
Receivables/payablesReceivables/payables
EducationEducation
PenguinPenguin
FTFT
by valueby value20022002
by businessby business20022002
100%100%£1.1£1.1bnbn
Average annual working capitalAverage annual working capital
Pre-publication/Pre-publication/authors’ advancesauthors’ advances
InventoryInventory
Receivables/PayablesReceivables/Payables
£1,115m£1,115m £1,098m£1,098m
20012001 20022002
+£+£4848mm
£(£(61)61)mm
£(£(4)4)mm
£(£(17)17)mm
Progress on 2002 financial Progress on 2002 financial priorities priorities
Protect marginsProtect margins– Lower cost base in all businesses offsets Lower cost base in all businesses offsets
advertising downturn at profit lineadvertising downturn at profit line
Maintain balance sheet strengthMaintain balance sheet strength– Improvements on all key ratiosImprovements on all key ratios
Increase cash flowIncrease cash flow– Good cash generation and reduced working capitalGood cash generation and reduced working capital
PearsonPearson
First half performanceFirst half performance
Management agendaManagement agenda
Full-year outlookFull-year outlook
Business priorities for Business priorities for 20022002
Secure earnings reboundSecure earnings rebound
Drive performance in future yearsDrive performance in future years
Benefit from more cohesive companyBenefit from more cohesive company
19%
Operating profitsOperating profits
£m£m20022002
half yearhalf year20012001
half yearhalf year
ft newspaperft newspaper 77 3232
les echosles echos 66 1515
recoletosrecoletos 1414 1313
interactive datainteractive data 3737 3232
joint ventures and associatesjoint ventures and associates (3)(3) (6)(6)
ft businessft business 11 22
6262 8888
internet enterprisesinternet enterprises (24)(24) (38)(38)
totaltotal 3838 5050
h1 performance management agenda fy outlook
h1 performance management agenda fy outlook
FT NewspaperFT NewspaperLong term trendsLong term trends
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 H102
worldwide circulation, 000s
1987 = 100
advertising revenues (at constant prices)advertising volumes
100 -
- 0
- 100
- 200
- 300
- 400
- 500
0 -
FT display advertising volumes FT display advertising volumes 2001 by category2001 by category
International business International business titlestitles volumes, volumes, 44 months to April months to April 20022002
h1 performance management agenda fy outlook
TechnologyTechnology
-- 40 40%%
Corporate financeCorporate finance
- - 37%37%
Business to businessBusiness to business
- - 35%35%
TechnologyTechnology 29%29%
Corporate financeCorporate finance
28%28%
15%15%
12%12%16%16%
B2BB2B
Personal financePersonal financeOtherOther
SOURCE: CMRSOURCE: CMR
Manage the cost baseManage the cost base
Build the FT’s reach and brandBuild the FT’s reach and brand
Make online investments payMake online investments pay
Develop Interactive DataDevelop Interactive Data
Broaden into education and booksBroaden into education and books
h1 performance management agenda fy outlook
100
96
90
85
H2 00 H1 01 H2 01 H1 02
FT NEWSPAPERFT NEWSPAPERIndex:Index: H2 00 = 100 H2 00 = 100
Manage the cost baseManage the cost base
h1 performance management agenda fy outlook
circulationcirculation469,000469,000
circulationcirculation486,000486,000
354385
458487 486
98 99 00 01 02
SOURCE: ABC/ FT.COMSOURCE: ABC/ FT.COM
FT.COMUNIQUE USERS2.8m
JAN 247,743
Build the FT’s reach and brandBuild the FT’s reach and brand
h1 performance management agenda fy outlook
FT CIRCULATIONFT CIRCULATIONsix months to June six months to June (000’s)(000’s)
h1 performance management agenda fy outlook
Make online investments payMake online investments payFT.com revenue sourcesFT.com revenue sources
subscriptions subscriptions 5%5%
content sales content sales 45%45%
advertising advertising 50%50%
content sales content sales 15%15%
advertisingadvertising 85%85%
20002000
2002E2002E
Develop Interactive DataDevelop Interactive Data
Subscription based ‘must-have’ premium Subscription based ‘must-have’ premium servicesservices– fixed income as well as equitiesfixed income as well as equities– 9595% renewal rates% renewal rates
Integration on planIntegration on plan
Set for double digit profit growthSet for double digit profit growth
h1 performance management agenda fy outlook
Broaden into education and booksBroaden into education and books
Linking up on campusLinking up on campus
Creating new publishing franchisesCreating new publishing franchises
h1 performance management agenda fy outlook
No sign of an advertising recoveryNo sign of an advertising recovery
Benefits of a lower cost baseBenefits of a lower cost base
FT.com to meet breakeven targetFT.com to meet breakeven target
Double digit growth at Interactive DataDouble digit growth at Interactive Data
h1 performance management agenda fy outlook
Outlook 2002Outlook 2002
19%
h1 performance management agenda fy outlook
£m£mH1H1
20022002H1H1
20012001FYFY
20012001
salessales 394394 402402 820820
profitprofit 3388 3737 8080
Operating resultsOperating results
Work capital harderWork capital harder
Make Dorling Kindersley profitableMake Dorling Kindersley profitable
Sustain bestseller performanceSustain bestseller performance
Deliver back-office savingsDeliver back-office savings
h1 performance management agenda fy outlook
Make DK profitableMake DK profitable
h1 performance management agenda fy outlook
£m£mH1H1
20022002H1H1
20012001FYFY
20012001
salessales 7171 6666 146146
profitprofit 00 (5)(5) (7)(7)
Deliver back office savingsDeliver back office savings
Operating as one company in Australia and Operating as one company in Australia and CanadaCanada
Combining back offices in US and UKCombining back offices in US and UK
h1 performance management agenda fy outlook
Outlook 2002Outlook 2002
Revenue growth ahead of marketRevenue growth ahead of market
DK on track for DK on track for 55% margin this year% margin this year
Growth in double digits across PenguinGrowth in double digits across Penguin
h1 performance management agenda fy outlook
14%
23%
11%
14%
USSchool
USCollege
US Professional
International
SalesSales
£m£m20022002
half yearhalf year20012001
half yearhalf yearunderlyinunderlying changeg change
us schoolus school 393393 430430 - 8%- 8%
us collegeus college 158158 139139 + 15%+ 15%
us professionalus professional 232232 202202 + 17%+ 17%
internationalinternational 242242 240240 - 3%- 3%
pearson educationpearson education 1,0251,025 1,0111,011 + 1%+ 1%
ft knowledgeft knowledge 2323 3131 - 35%- 35%
internet enterprisesinternet enterprises 11 33 - 52%- 52%
1,0491,049 1,0451,045 0%0%
h1 performance management agenda fy outlook
InternationalInternational
Restore profitability in Latin Restore profitability in Latin AmericaAmerica– $$2525m benefit in m benefit in ’02’02 Capitalise on demand to learn EnglishCapitalise on demand to learn English
– good growth outside the USgood growth outside the US
Grow in College and School publishingGrow in College and School publishing– strong in Asia and Europe; very strong in Canada and Australiastrong in Asia and Europe; very strong in Canada and Australia
Enlarge Enlarge gglobal lobal ttesting esting bbusinessusiness– UK, Canada and Australia the major prioritiesUK, Canada and Australia the major priorities
h1 performance management agenda fy outlook
US ProfessionalUS Professional
Protect margins in technology Protect margins in technology publishingpublishing– cost management sustains marginscost management sustains margins
Make corporate training profitableMake corporate training profitable– losses falling in ’losses falling in ’0202
Expand certification contractsExpand certification contracts– sales up sales up 2020% at H% at H11– new testing centers open; more professions moving onlinenew testing centers open; more professions moving online
Exploit surge in federal testing and trainingExploit surge in federal testing and training– $$150150m in new contracts in m in new contracts in ’02’02– new opportunities in ’new opportunities in ’0303
h1 performance management agenda fy outlook
US CollegeUS College
Keep growing market Keep growing market shareshare– on track to outperform on track to outperform
industryindustry Use technology to increase adoptions and sell-throughUse technology to increase adoptions and sell-through– CourseCompass driving salesCourseCompass driving sales
Increase lead in custom publishingIncrease lead in custom publishing– 20%20%+ growth is achievable+ growth is achievable
h1 performance management agenda fy outlook
Our US School businessOur US School business
Basal & supplemental Basal & supplemental publishingpublishing
Testing & assessmentTesting & assessment
Software & online learningSoftware & online learning
h1 performance management agenda fy outlook
Our US School businessOur US School business
Market growth through the Market growth through the cycle?cycle?
Market prospects for ’02 and ’03?Market prospects for ’02 and ’03?
Our performance?Our performance?
h1 performance management agenda fy outlook
US School marketUS School market 19811981 19911991 19961996 20012001
Spending per student on Spending per student on instructional materialsinstructional materials $34$34 $49$49 $51$51 $69$69
$ per $1,000 of US $ per $1,000 of US School spending on School spending on instructional materialsinstructional materials
$7.4$7.4 $8.7$8.7 $9$9 $11$11
sources: association of american publishers, us dept of educationsources: association of american publishers, us dept of education
Standards movement drives Standards movement drives school spendingschool spending
h1 performance management agenda fy outlook
US School market 2002 – 2003US School market 2002 – 2003
The adoption cycleThe adoption cycle
Budgets under pressureBudgets under pressure
Education remains the Education remains the #1#1 priority priority
Services that deliver results being protected:Services that deliver results being protected:– curriculumcurriculum– testingtesting– assessment and learning toolsassessment and learning tools
h1 performance management agenda fy outlook
US SchoolUS School
Gain share profitably in publishingGain share profitably in publishing
Build on leadership in testingBuild on leadership in testing
Target early learning revenuesTarget early learning revenues
Make leadership in online learning payMake leadership in online learning pay
h1 performance management agenda fy outlook
US SchoolUS SchoolGain share profitably in publishing – ’02Gain share profitably in publishing – ’02
Match market growth in open territoriesMatch market growth in open territories
Stronger growth in supplemental publishingStronger growth in supplemental publishing
35%35%+ share of adoption dollars competed for+ share of adoption dollars competed for
h1 performance management agenda fy outlook
SubjectSubject OpportunityOpportunity Market shareMarket share
secondary sciencesecondary science $130m$130m 35% +35% +
elementary readingelementary reading $120m$120m 35%35%
secondary literaturesecondary literature $80m$80m 40%40%
elementary / secondary elementary / secondary mathmath $40m$40m 25%25%
secondary social studiessecondary social studies $35m$35m 30%30%
otherother $25m$25m 40%40%
h1 performance management agenda fy outlook
US SchoolUS SchoolGain share profitably in publishing – ’03Gain share profitably in publishing – ’03
More adoption opportunitiesMore adoption opportunities
New federal fundingNew federal funding
New marketsNew markets
h1 performance management agenda fy outlook
US SchoolUS SchoolExtend leadership in testingExtend leadership in testing
50%50% + share of + share of $400 $400m marketm market
California contract renewed California contract renewed
Leadership in online testing extendedLeadership in online testing extended
All set to meet doubling in demand over next All set to meet doubling in demand over next five yearsfive years
h1 performance management agenda fy outlook
US SchoolUS School
Target Early Learning revenuesTarget Early Learning revenues– on track for double digit growth in on track for double digit growth in ’02’02– targeting new federal dollars intargeting new federal dollars in ’03 ’03
Make leadership in online learning payMake leadership in online learning pay– new products now launchednew products now launched– profitable in ’profitable in ’0202; double-digit revenue growth in ; double-digit revenue growth in
’03’03
h1 performance management agenda fy outlook
h1 performance management agenda fy outlook
Outlook 2002Outlook 2002
3-5% underlying revenue growth3-5% underlying revenue growth
Margins maintainedMargins maintained
HeadlinesHeadlines
Earnings rebound on trackEarnings rebound on track
Competitive performances strongCompetitive performances strong
Cash and returns a major focusCash and returns a major focus