Pearson PLC (PSO) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the US investor conference call. My name is Beverly and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Marjorie Scardino, CEO of Pearson. Ma'am, please go ahead.

Thanks everybody for joining our call. I have here with me Rona Fairhead, our CFO. At the interims I think we always start by reminding people that our business is weighted towards the second half. And so we do that today, but we are pleased to be announcing a good set of results that show progress so far this year. We have been saying for some time that 2005 was going to be the first of several good years for Pearson, and the signs so far this year reinforce that confidence in our growth.

Just looking at our financial highlights, our sales are up for every one of our businesses, up 10% overall. Our operating profits from continuing businesses are well ahead, though as I say this is -- a small amount of our profits are made in the first half. And we have continued to declare a dividend ahead of inflation. So our Board has chosen a dividend of 3% to 10p.

There are a lot of things going on behind these numbers, so if you allow me I'll just enumerate some of them. Our market conditions are improving, of course. In school we have improvements in local and national funding in the US, along with very favorable conditions for school testing all over the world. In higher education the trend toward digital and computer driven courses continues. We're seeing very strong growth in workforce education as well. That is skills and vocational programs. And at Penguin in our consumer books business we've seen decent overall market growth in the US and the UK, although the US mass-market continues to be below last year. Finally, in the FT Group we've seen some growth return to IDC, our data pricing company. We've seen growth return to their financial market, though they have grown ahead of the market for a long time. And our business newspapers are still while seeing erratic advertising experiencing growing advertising for the third half in a row.

We're not just counting on these market upturns, however; we are getting the full benefit we believe now of the effort and investment we've put into our strategy over the last few years. And we think that strategy of having leading businesses that are based on having good content and innovation is now working. Our school business where we have built the largest and broadest business in the world is up 19% in the first half. Our higher ed business, which is also the world's largest and where our investment in technology and customizing programs has been very important to us, looks to outgrow the market for the seventh year. Our professional business is where we're busy delivering on some of the major contracts we won in the last couple of years. That business has grown about 12%. And at Penguin, this is something of a transitional year, but we're seeing some good results from our attention to new imprints and home-grown authors and new formats. And at the FT seeing readership surveys show our reading size and quality up, and we think that contributing to our advertising revenue rise of 5%. Along with the fact that we have such a global newspaper now, we're able to sell worldwide packages and Europe-wide packages that no other paper can.

So I think that's a quick rundown of all of our highlights, but we would be happy to answer any questions you'd like to ask us.

(OPERATOR INSTRUCTIONS)

Thank you everybody. It doesn't appear there are any questions. We really appreciate your attendance, and let us know if you develop any questions. Thanks very much.

I have questions.

Hello?

Hello. Is that you, Marjorie?

It is. We don't seem to be able to get the operator to give us any questions.

It's Peter Appert at Goldman Sachs. Could you talk for a second, Marjorie, about any state-specific data in terms of what you're seeing on the adoption market currently in terms of early indications from a share perspective, and at the same time maybe give us your interpretation on what's going on in Texas and what your folks -- or how your folks think that may play out?

All I can talk about in share terms really is what we think we've done. As you know, you have to round it up in the end. You'll remember that we're participating in around about 70% of total adoption market this year, so not all of it because a large portion of it, as you know, is health in Texas and we're not in that area. But we think of what we have participated in, we've got a little bit better than a 30% share. We're very happy with that. We think we will probably be number one in math and science, number one in music, probably about number two in reading and literature or very close to being number one, but probably number two. And we will be number three in social studies, our elementary social studies program being the one that was not as good as we wanted it to be. So that's our take on the market.

In Texas, they're just all crazy as far as we can tell. This is about the third time that I've been knowing about this -- you won't tell any Texans that will you? It's about the third time that we've seen this happen when Texas couldn't quite get the mandates passed. As I think you know, they're in their second special session. A special session can only last 30 days. I don't know where they are in a 30-day period. They just started it. So they have certainly said, and the governor has certainly said, Peter you will have followed this, that they intend to fund this program -- fund the textbook purchases. And the government does have the power -- the governor does have the power through administrative order to put the funding in. And we fully expect it's going to get funded. I think we feel fairly strongly about that.

That's at the full roughly $300 million level?

Yes, roughly that. School starts in the middle of August and so they will have to get it done by then. Obviously publishers can ship quite quickly, so that's not a very big issue. So we will see. But it's always gotten funded in the end after some wrangles. Of course, as you know, this discussion is not about Texas funding, it's about other political issues, mainly (multiple speakers) policy.

How about the issue -- they're talking about essentially revising categorical funding to give the districts more flexibility in how the spending goes. Do your people express any nervousness around that particular issue and that perhaps becoming more broad-based in other districts?

No, I think that where we would be nervousness if they did away with categorical funding. Categorical funding is very important to keep people focused on buying materials to teach. It's a small part of the budget, as you know. But without categorical funding the spending can go anywhere. So as long as you have categorical funding you can give the local districts the choice of what they want to do with it.

May I ask you one other questions on the Penguin business? There's been some discussion, I think, in the trade publishing business that perhaps the success of Harry Potter pulls money out of the market that could have gone to other titles. Do you have a sense that that's how it plays out?

No, our sense would not be that. I think it would be that it creates more market than it sucks up. I think that we've seen our children's list continue to thrive. We have not a Harry Potter level, but a section of books called Artemis Foul that are for teenage boys and they have gone incredibly well. So we think that it creates a reading market where there probably wasn't much of one.

Great, thanks very much.

Pardon the interruption. We have some questions compiled at this time. John Janedis, Banc of America Securities.

My question was answered. Thank you.

John Rutledge (ph) Davis Skaggs.

I was wondering if you could talk a little bit about the Penguin schedule. You seem to indicate that some of your titles were pulled into the first half. Does that sort of rob Peter to pay Paul, so to speak, or are you still comfortable with the back half outlook?

Rona will take that.

I'm not sure I would agree with the robbing Peter to pay Paul analogy. I think what we have said is we were pleased with the first-half performance. We've had some good publishing. We've had more best sellers this first half than ever before. And we have won a lot of industry prizes.

I think, though, we have said over the last couple of years that as the facing has been pushed more to the second half our effort has been to push back some of that and to do more publishing in the first-half. And what we're seeing is some early successes of that. In the US, for example, we published 10% more big sellers titles in the first half than we did last year, and we do expect that to reverse. So we have taken some of those titles out of the second half and published in the first half.

And I think the other thing that we've said about the first-half performance, which is up 5%, was that in the UK and (indiscernible) in particular those were effective last year by the disruption at the Rugby warehouse and that's why there was a pretty weak comparator year. And therefore, that's why it looks such a big jump in the first half.

I think we're being more moderate about the outlook in the second half. We've still got a good list. But as Marjorie said, the mass market in the US continues to be soft. And as that phasing reverses I think we're just being prudent about the second half.

Are there any other questions ma'am?

(OPERATOR INSTRUCTIONS) Lisa Monaco, Morgan Stanley.

My questions have been answered. Thank you.

(OPERATOR INSTRUCTIONS)

Do we have any more questions? Operator, if you can tell us whether anyone -- whether there are any questions left please and just put them straight through?

Simon May Smith (ph) of -- one moment --

We know Simon. Just put him through.

Hello chaps. Man, that's a bit painful. I'm sorry, not you -- you, of course, are as wonderful as ever. Open territories in supplemental -- McHorton (ph) and McGraw said in Q1 that they thought the market would grow 8 to 10% in open territories, and it feels from what you said today and what they've said so far that it could be that or better. Do you have any on open territories anything you would want to add on supplemental for the year?

No, I don't think so. I think we're keeping with our guidance that our school business as a whole is going to be in double digits. And you know what the adoption market is. We started well and strongly in both open territories and supplemental. But I wouldn't really change that guidance.

Okay, thanks.

Ma'am, there are no other questions at this time.

Please thank everyone. And I apologize to everyone that it's been a drawn out process. We really appreciate your interest. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day everyone.