. Strong organic growth. Sales up 9% at constant exchange rates with rapid growth in digital services.
. All businesses performing well.First-half operating profits doubled at Education, the FT Group and Penguin with good underlying progress also helped by phasing. Adjusted continuing operating profits up 79% to £178m; adjusted EPS of 16.6p (7.9p in 2009).
. Interim dividend raised by 7% to 13.0p.
. Shift to services and developing economies accelerating. Sale of stake in Interactive Data expected to close in the next few weeks. Process of . . reinvestment under way with acquisitions of Melorio in vocational training and SEB’s sistemas in Brazil.
Full year outlook upgraded. Market conditions remain uncertain and growth is still expected to slow in the second half on tougher comparables. Even so, Pearson expects to achieve adjusted earnings of approximately 70p per share for the full year (65.4p in 2009), even after earnings impact from sale of Interactive Data.
Marjorie Scardino, chief executive, said: “The 2010 finish line isn’t yet in sight, but this is as good a start to our year as I’ve seen. That boosts our confidence in the full year, enabling us to brighten our outlook and raise our guidance. We’ve invested consistently in global and digital education and information and that’s helping every part of Pearson grow strongly, even in uncertain markets. We’re also able to accelerate that change as we part company with Interactive Data and put the proceeds to work in the world’s leading learning company.”
£ millions Half year 2010 Half year 2009 Headline growth CER growth Underlying growth Full year 2009
Business performance
Sales 2,342 2,149 9% 9% 7% 5,140
Adjusted operating profit 178 84 -- 79% 79% 710
Adjusted profit before tax 203 111 -- 761
Adjusted earnings per share 16.6p 7.9p -- 65.4p
Free cash flow (165) (284) 42% 723
Net debt 1,746 1,860 6% 1,092
Statutory results
Sales 2,342 2,149 9% 5,140
Operating profit 128 41 -- 619
Profit before tax 94 (7) -- 523
Basic earnings per share 11.5p 3.5p -- 53.2p
Cash /generated from operations (32) (147) -- 1,012
Dividend per share 13.0p 12.2p 7% 35.5p
Throughout this announcement:
a. Growth rates are stated on a constant exchange rate (CER) basis unless otherwise stated. Where quoted, underlying growth rates exclude both currency movements and portfolio changes.
b. Interactive Data is treated as a discontinued business and sales, operating profit and growth rates are stated on a continuing business basis, excluding Interactive Data from both 2009 and 2010. In the first half of 2010, Interactive Data contributed revenues of £256m (2009: £249m) and adjusted operating profit of £70m (2009: £74m) and for the 2009 full year it contributed £484m of revenues and £148m of adjusted operating profit.
c. The ‘business performance’ measures are non-GAAP measures and reconciliations to the equivalent statutory heading under IFRS are included in notes to the attached condensed consolidated financial statements 2, 3, 4, 5, 7 and 16.
OUTLOOK
At this early stage in the year, there is much to be cautious about. Pearson generates only a small proportion of its profits in the first half; we face tougher comparables as we go through the year; and the macroeconomic environment remains very uncertain.
Still, we expect Pearson to remain resilient. The key features of our markets in the year to date are:
Healthy trading conditions in our major growth markets – US higher education, educational assessment, international education, digital learning. The momentum of our education company remains strong with underlying sales growth of 7% in the first half.
Some improvement in cyclical markets that were weak in 2009. Our US School publishing business and FT advertising returned to growth in the first half of 2010 and Mergermarket benefited from an improvement in renewal rates. However, with public sector funding still under severe pressure (both in the US and around the world) and corporate confidence still fragile, we remain cautious about the prospects for sustained recovery in these markets.
We continue to see – and to be in the vanguard of – the structural changes in our markets towards digital delivery, personalisation, subscription services and mobile devices. Digital revenues account for around a quarter of Pearson’s total sales in 2009, excluding Interactive Data, and continue to grow rapidly across all parts of Pearson.
In the context of those market conditions, we are encouraged by our good financial and competitive performance in the first half of 2010. In the first half we benefited from favourable phasing patterns in education and Penguin but we also continued to benefit from our sustained organic investment in content, technology and developing markets. For the full year we continue to expect to gain share in the US School, Higher Education and International Education markets; to sustain healthy renewal rates and margins at the FT Group; and to post another good competitive performance in the consumer publishing industry.
As a result of our strong business performance, we now expect that Pearson will generate adjusted earnings of approximately 70p per share in 2010, even after the sale of our stake in Interactive Data (which is now expected to complete in the next few weeks). This guidance assumes that the current rate of £1:$1.54 prevails in the second half.
Interest and tax. In 2010, we expect our interest charge to adjusted earnings to be broadly level with 2009. We expect our P&L tax charge to be in the 25% to 27% range and our cash tax rate to be similar to 2009.
Exchange rates. Pearson generates approximately 60% of its sales in the US. Excluding Interactive Data, a 5 cent move in the average £:$ exchange rate for the full year (which in 2009 was £1:$1.57) has an impact of approximately 1.2p on adjusted earnings per share. The average rate during the first half of 2010 was £1:1.52 (£1:$1.49 in H109) and the closing rate at the end of June was £1:$1.50 (£1:$1.65 at the end of June 2009).
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