Monday, February 27, 2012

MediaWeek (Vol 5, No9): Pearson Keeps Growing, Economist on Enhanced Books + More

Pearson announced their preliminary 2011 results and unless you were living under a rock you shouldn't be surprised that they continue to be the poster publisher for revenue growth, operating efficiency, investment and dividend growth.  I've been following Pearson for almost 10 yrs and it is uncanny how they underplay their performance all year and deliver consistent performance year after year.  Here there is nothing of the divestiture scuttle but that surrounds McGraw Hill and Reed Elsevier and the company seems to have put behind them the issues around the FT group. Didn't Murdoch say he was going to bury the FT?

Here is the summary of their results from their press release:

Pearson 2011 Preliminary results (unaudited)

Financial performance

  • Sales up 6% at CER in spite of tough trading conditions in many markets.
  • Adjusted operating profit up 12% to £942m with growth in all businesses.
  • Adjusted EPS up 12% to 86.5p (headline growth).
  • Cash conversion remains strong at 104%; operating cash flow of £983m (£1,057m in 2010, which benefited from an unusually high working capital contribution).
  • Return on invested capital of 9.1%, above Pearson’s cost of capital; ROIC lower than in 2010 largely due to significant acquisition spend and higher cash tax.

Growth markets

  • Digital revenues up 18% in headline terms to £2bn, now 33% of Pearson’s sales. Substantial digital growth in all parts of Pearson including:
    • Students using our digital learning programmes up 23% to 43m.
    • Penguin eBook revenues up 106%; now 12% of total Penguin revenues.
    • FT digital subscriptions up 29% to 267,000; approximately 44% of total paid circulation.
  • Developing markets revenues up 24% in headline terms to $1bn ($834m in 2010), now 11% of Pearson’s sales.


  • Operating margins reach 16.1% (up 1.0% points)
  • Average working capital: sales ratio improved to 16.9% (20.1% in 2010).


  • Sustained organic investment of approximately £500m in new products and technologies.
  • £896m invested in acquisitions including Schoolnet and Connections Education in North America and Global Education in China.
  • Strong balance sheet (net debt of £499m) and approximately £1bn of headroom available for bolt-on acquisitions.

In Education, we expect to achieve continued growth in 2012. In North America, we anticipate modest growth in higher education as rapid take-up of our technology and services is partially offset by lower college enrolments and challenging conditions in the market for printed textbooks. We expect our Assessment and Information business to remain resilient as it prepares for the transition to next-generation Common Core assessments. We expect good growth in digital school programmes and services but another tough year for the School textbook publishing industry, which will continue to be affected by pressure on state budgets and delays in purchasing decisions during the transition to the new Common Core standards.

We expect our International education business to show good growth. Austerity measures will continue to affect education spending in much of the developed world, but we see significant opportunity in emerging markets in China, south-east Asia, Latin America, the Middle East and Sub-Saharan Africa – which together accounted for more than 40% of our International education revenues in 2011. Across our education company, we will be integrating acquisitions made in 2011 (and expensing the costs) and making a series of organic investments in fast-growing segments including digital learning, English language teaching and institutional services. We expect our Professional education business to grow again, benefiting from the continued strength of our worldwide professional testing business. In the UK, government funding pressures and policy change relating to apprenticeships are creating a tough trading environment in professional training.

The FT Group’s profits will be lower in 2012 than in 2011, reflecting the sale of our 50% stake in FTSE International and further actions weighted towards the first half of the year to accelerate the shift from print to digital. The Financial Times and The Economist Group (in which Pearson owns a 50% stake) are predicting weak advertising markets but strong growth in digital subscription revenues. Mergermarket will benefit from its high subscription renewal rates, although the outlook for M&A activity remains uncertain.

Penguin has performed strongly in recent years in the context of rapid structural change in the consumer publishing industry. We expect it to perform in line with the overall industry this year, facing tough conditions in the physical bookstore channel but helped by its strong position in digital. eBook revenues accounted for 12% of Penguin revenues worldwide in 2011, up from 6% in 2010, and we expect this percentage to increase significantly again in 2012. 

Of course it's not all rosy since the FT journalists have voted to strike (Guardian)

The Economist on Enhanced Books:
Print purists needn’t retreat with horror to their laden shelves. Multimedia enhancement will still affect only a tiny proportion of new titles. Children’s books were first to get this bells-and-whistles treatment, but adult fiction has proven a harder sell. Few readers have been willing to pay more for extras at the back. While ordinary e-books continue to eat into print sales, a British experiment with adding author videos and other material to best-selling novels, called Enhanced Editions, was quietly abandoned last year.

Yet for certain kinds of book, such as biographies, cookbooks, literary classics and newer forms of interactive fiction, enhancement can add rich and startling new layers. Penguin’s forthcoming biography of Malcolm X, for instance, features rare archival footage and an interactive map of Harlem. The life of “Muhammad Ali” now comes with audio clips of him rapping about his prowess. Richard Dawkins’s “The Magic of Reality” (voted best app at the 2012 Digital Book World) and E.O. Wilson’s “Life on Earth”, are cunning fusions of documentary and textbook, with molecules and stories spinning at a finger’s touch.

Timeless classics have also proved to be good candidates for a bit of extra gloss. Breaking a losing streak of enhanced apps that failed to turn a profit, a multimedia edition of T.S. Eliot’s “The Waste Land” swiftly earned back its cost for Faber & Faber, says Henry Volans, the publisher's digital director. The “book” serves up Eliot’s original manuscript with footnotes and scholarly addenda, as well as video and audio recordings of the poem in performance. And this spring Faber will reach for the brightest star in the literary firmament and publish Shakespeare’s sonnets. Penguin, meanwhile, chose as its inaugural “amplified edition” the modern classic “On the Road”, featuring archival photos of Jack Kerouac’s original manuscript typed on a scroll, along with snapshots of his fellow Beats, some video interviews and maps of the cross-country journey.
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