pearson interim results. financial highlights £m 2002 half year 2001 half year change...

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


£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


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


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


£m£m20022002


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


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


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


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


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


FT CIRCULATIONFT CIRCULATIONsix months to June six months to June (000’s)(000’s)


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


Broaden into education and booksBroaden into education and books

Linking up on campusLinking up on campus

Creating new publishing franchisesCreating new publishing franchises


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


Outlook 2002Outlook 2002


£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


Make DK profitableMake DK profitable


£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



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


14%

23%

11%

14%

USSchool

USCollege

US Professional

International

SalesSales

£m£m20022002


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%


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


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


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


Our US School businessOur US School business

Basal & supplemental Basal & supplemental publishingpublishing

Testing & assessmentTesting & assessment

Software & online learningSoftware & online learning


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?


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


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


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


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


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%


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


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


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




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

pearson interim results. financial highlights £m 2002 half year 2001 half year change...

Documents

operating profitsmh1

2002h1 performance

nonoperating items2001

shareh1 2002h1

frs19plmh1 2002h1

loss profit

profit2628adjusted earnings

continuing operations7660