Pearson Post Strong H1 Results

Pearson reported strong revenue increases (up 14% to £1.965bn) and adjusted operating profit up 38% to £124m versus the same period last year. Additionally, their adjusted EPS is up to 5.6p (from 3.1p in H107) and the company's interim dividend has been raised 6.3% to 11.8p. (Press Release).

According to the company this is evidence that their long-term investment strategy is paying off as evidenced by,

• Education sales up 17% and first-half profit of £14m with rapid growth in digital learning services and continued international expansion;
• FT Group sales up 11% and profits up 21%, benefiting from shift towards subscription and digital revenues and focus on global businesses;
• Penguin sales up 9% and profits up 22%, with strong publishing and innovation in all markets.

Marjorie Scardino, chief executive, said: "Our momentum is strong, even in these tough economic conditions. We have leadership positions in good markets and an effective growth strategy based on quality content, digital innovation and international expansion. That strategy makes us confident that 2008 will be another record year, and that we will continue to grow."

By segment the company notes its full year 2008 prospects:

Pearson Education (63% of 2007 sales and operating profit). Our education business is trading in line with expectations. As previously announced, we have begun a reorganisation of our education company, which we are now managing and reporting as three segments: North America, International and Professional. Our expectations provided at the full-year results under the previous segmental analysis (worldwide School, Higher Education and Professional) are unchanged.

In North American Education, we have a strong market leadership position and demand for our products remains healthy. We expect our North American Education business to increase sales by around 10% at constant exchange rates (or by 2-4% in underlying terms).
In International Education, we are well placed to benefit from the growing demand for materials, assessment, technology and related services at all stages of learning. We expect our International Education business to grow sales by around 10% at constant exchange rates (or in the low single digits in underlying terms). These growth rates include the impact of the completion of the UK key stage testing contract in 2007.

In Professional Education we continue to expect sales to increase in the low single digits at constant exchange rates.

For Education as a whole, we expect 2008 margins to be similar to the 2007 level of approximately 15%, in spite of significant integration costs relating to the Harcourt businesses (which we include in our operating results). In 2009, we expect to increase Education margins by around one percentage point as we begin to realise the financial benefit of the acquisitions. Beyond 2009, we see further opportunities to increase margins in Education as we continue to consolidate our businesses.

Penguin (20% of 2007 sales, 12% of operating profit). Penguin has made an excellent start to the year, with a particularly strong first-half publishing schedule. It is on track to reach its goal of double digit margins for the full year.

Financial Times Group (17% of 2007 sales, 25% of operating profit). The FT Group is on track to achieve continued profit growth this year. FT Publishing has shown sustained growth in subscription, circulation and advertising revenues (up 2%) in the first half. Future advertising revenues remain difficult to predict, but we continue to expect to increase profit at FT Publishing even without any growth in advertising revenue. Interactive Data has raised its guidance and now expects to achieve full-year revenue growth in the 8-10% range and operating profit growth within the 11-13% range (headline growth under US GAAP).