2009 half-year results 27 July 2009
Forward-looking statements Except for the historical information co Except for the historical information conta ntained herein, the m ned herein, the matters discussed in tters discussed in this presentation include forward-look this presentation include forward-looking statements. In particular, all ing statements. In particular, all statements that express fo statements th at express forecasts, exp recasts, expectatio ions and projectio ns and projections w s with resp th respec ect to t to future matters, including trends in resu future matters, including trends in results of o lts of opera ratio tions, margins, gro s, margins, growth ra wth rates, tes, overall market trends, the overall market trends, the impact of intere impact of interest or exchange rates, st or exchange rates, the the availability availability of financing, anticipated costs saving of financing, anticipated costs savings a s and synergies a d synergies and the exec d the executio ution of n of Pearson's strategy, are forward looking Pearson's strategy, are forward looking statements. By their nature, forward statements. By their nature, forward looking statements involve risks and uncertainties because they relate to looking statements involve risks and un certainties because they relate to events and depend on circumstanc events and depend on circumstances that will occur in future. es that will occur in future. There are a number of factors wh There are a number of factors which co ich could cause ac uld cause actual results and tual results and developments to differ materially from those expressed or developments to differ materially from those expressed or implied by these implied by these forward looking statements, including forward looking statements, including a number of factors outside Pearson's a number of factors outside Pearson's control. These include international, control. These include international, national and local condit national and local conditio ions, as w , as well as ll as competition. They also include other risk competition. They also include other risks detailed fr s detailed from time to om time to time in the time in the company's publicly-filed documents. company's publicly-filed documents. Any for Any forward looking statements speak on ard looking statements speak only as of the date they are made, and ly as of the date they are made, and Pearson gives no undertaking to update Pearson gives no undertaking to update for forward-looking statements to reflect ard-looking statements to reflect any changes in its expectat any changes in its expectations with regard thereto ions with regard thereto or any changes to events, or any changes to events, conditions or circumstances on conditions or circumstances on which any such statement is based. which any such statement is based.
Agenda • How we’re doing Robin • What we’re seeing CEOs • Where we’re heading Marjorie
First-half financial highlights • Sales up 1% * • Operating profit up 25% * • Adjusted EPS up to 7.9p • Dividend up 3.4% *Growth rates at constant exchange
Highlights • Strategy • Market share • Investment and innovation • Durability and growth
How we’re doing
Sales growth Headline CER H1 2009 £m H1 2008 Growth Growth 943 713 North American Education 32% 1% 446 365 International Education 22% 13% 132 105 Professional 26% 2% 1,521 1,183 Pearson Education 29% 5% 176 188 FT Publishing (6)% (13)% 249 186 Interactive Data 34% 9% 425 374 FT Group 14% (2)% 452 408 Penguin 11% (8)% Total 2,398 1,965 22% 1%
Sales growth, £m 413 413 2,398 2,398 2,398 2,398 40 40 (15) (15) (23) (23) 18 18 Education FT Gro FT Group Penguin Acquisi Acquisitions tions F/X F/X Penguin Education 1,965 1,965 1,965 1,965 Organic growth Organic growth 2008 2008 2009 2009
Operating profit Headline CER H1 2009 £m H1 2008 Growth Growth 12 (16) North American Education -- -- 23 20 International Education 15% 80% 14 10 Professional 40% 10% 49 14 Pearson Education -- -- 14 30 FT Publishing (53)% (40)% 74 54 Interactive Data 37% 7% 88 84 FT Group 5% (10)% 21 26 Penguin (19)% (23)% Total 158 124 27% 25%
Profit growth, £m 43 43 (11) (11) 3 5 (6) (6) 158 158 F/X F/X 158 158 FT Gro FT Group Penguin Penguin Acquisi Acquisitions tions 124 124 Education Education 124 124 Organic growth Organic growth 2008 2008 2009 2009
Adjusted earnings per share H1 2009 £m H1 2008 158 124 Adjusted operating profit (6) 5 Finance costs – Pensions (41) (45) Finance costs – Traditional 111 84 Adjusted profit before tax (30) (24) Taxation 81 60 Adjusted profit after tax (18) (15) Minorities 63 45 Adjusted earnings 7.9p 5.6p Adjusted EPS
P&L – statutory H1 2009 £m H1 2008 158 124 Adjusted operating profit (49) (29) Intangible amortisation 109 95 Statutory operating profit (47) (40) Finance costs 62 55 Profit before tax (18) (16) Taxation 44 39 Profit after tax (continuing) - (88) Discontinued 44 (49) Profit/(loss) for the period 3.5p (7.8)p EPS (statutory)
Free cash flow H1 2009 £m H1 2008 Var 158 124 Adjusted operating profit 34 (332) (316) Working capital (16) (63) (46) Fixed asset purchases (17) 65 54 Depreciation and amortisation 11 (34) (7) Other movements (27) (206) (191) Operating cash flow (15) (43) (48) Operating tax paid 5 (35) (35) Operating finance charges - (284) (274) Free cashflow (10)
Balance sheet H1 2009 £m H1 2008 4,935 4,118 Goodwill & intangible assets 386 349 Tangible fixed assets 1,215 1,062 Operating working capital (50) (34) Other net liabilities 6,486 5,495 Net assets 4,033 3,509 Shareholders’ funds 233 58 Pension provisions 98 91 Other provisions 261 191 Minorities 1 (36) Deferred tax 1,860 1,682 Net debt 6,486 5,495 Capital employed Total business basis
Highlights • Trading ahead • Business resilient • Acquisitions, integrations paying off • Strong balance sheet; steady cash returns
What we’re seeing
Where we’re heading
A durable company Pearson revenue analysis 2000 2009 (est) Technology publishing 19% Advertising 6% New adoptions
A growth company Pearson revenues 2.5 2.5 Digital, $bn Testing, $bn 1.5 1.5 2.2 2.2 1.2 1.2 1.8 1.8 1.0 1.0 1.4 1.4 0.8 0.8 1.2 1.2 0.5 0.6 0.6 0.5 0.3 0.3 04 04 05 05 06 06 07 07 08 08 02 02 03 03 04 04 05 05 06 06 07 07 08 08
eBook sales Penguin US monthly volumes 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009
FT.com Registered users 1.4m 1.4m 12k 12k 2009 2009 2007 2007
Mylab student registrations 4.3m 4.3m 2.5m 2.5m 1.8m 1.8m 2005 2005 2006 2006 2007 2007 2008 2008 H1 09 H1 09
eCollege enrolments 2.5m 2.5m 0.2m 0.2m 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008
Fronter users 538,000 538,000 31,000 31,000 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008
A growth company Pearson International Revenues, £bn Profits, £m 1.8 1.8 1.7 1.7 CAGR = 7% CAGR = 7% CAGR = 65% CAGR = 65% 252 252 1.5 1.5 1.4 1.4 1.4 1.4 186 186 110 110 74 74 34 34 04 04 05 05 06 06 07 07 08 08 04 04 05 05 06 06 07 07 08 08
Our five-year record • 10% annual sales growth • 20% annual EPS growth • 17% annual growth in operating cashflow • ROIC from 6.3% to 9.2% • 7% annual dividend growth Headline growth rates
Appendices
Share gains in new school adoptions 2009 estimates Market share Total (where we Subject opportunity compete) Position Science $25m 31% #2 Social Studies $50m 24% #3 Reading/literature $175m 33% #2 Maths $175m 46% #1 Other $20m 27% #2 Total competed for $445m 37% #1 Total – all adoptions $520m 32% #2
Reconciliation: statutory to adjusted earnings 2009 Other net Amortisation Other net Tax gains / of acquired finance amortisation Adjusted £m Statutory (losses) intangibles costs benefit earnings Operating profit Operating profit 109 109 - 49 49 - - 15 158 Net finance costs (47) - - - - (47) Profit before tax Profit before tax 62 62 - 49 49 - - 111 111 Income tax (18) (14) - 2 (30) Profit after tax Profit after tax 44 44 - 35 35 - 2 81 81 Discontinued - - - - - - operations Profit for the Profit for the pe peri riod od 44 44 - 35 35 - 2 81 81 Minority Interest (16) - (2) - - (18) Earnings Earnings 28 28 - 33 33 - 2 63 63
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