Global Corporate Research                                                                                                 ...
Mark ODonnell                 Europe Equity Research(44-20) 7325-7149              27 January 2012mark.x.odonnell@jpmorgan...
Mark ODonnell                                  Europe Equity Research(44-20) 7325-7149                               27 Ja...
Mark ODonnell                                  Europe Equity Research(44-20) 7325-7149                               27 Ja...
Mark ODonnell                                     Europe Equity Research(44-20) 7325-7149                                 ...
Mark ODonnell                         Europe Equity Research(44-20) 7325-7149                      27 January 2012mark.x.o...
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  1. 1. Global Corporate Research 27 January 2012Print/Digital Book PublishingNovember AAP Monthly Sales: K-12 Textbooks +3%,Higher Ed Net Sales +4%, E-books +66%The Association of American Publishers (AAP) has released book publishing Professional Publishersindustry sales for November. (The data is typically released on a 1-2 month lag.) AC Mark ODonnellK-12 textbook sales rose 3.4% with Open Territories down 16.4% and Adoption (44-20) 7325-7149States up 30.3% — that increase isn’t a big surprise given the recent funding mark.x.odonnell@jpmorgan.comincrease in Texas and the early shipment of adoptions in 2010 (Texas (Reading) J.P. Morgan Securities Ltd.and Florida (Math)). Higher Ed net sales rose 4.1%, Professional sales rose 0.4%,and Consumer books fell 0.5%. E-books increased 65.9% led by adoption of iPads Marcus Diebel (44-20) 7325-9424and other devices—and represented 15% of total Consumer/Trade sales. marcus.x.diebel@jpmorgan.com K-12 industry sales rose 3.4% in November, but are down 9.3% YTD,11. J.P. Morgan Securities Ltd. November typically accounts for 3-6% of annual sales. Adoption States rose 30.3% in November with Pre-K-6 up 30.1% and 6-12 up 30.7%. Open Information Services AC Territories declined 16.4% with both Pre K-6 and 6-12 down 16.4%. Michael A. Meltz, CFA We expect K-12 industry sales down high-single-digits in 2011. Industry (1-212) 622-0416 michael.meltz@jpmorgan.com results could reflect declines in Adoption markets and Open Territories as local school budgets remain pressured (esp. in states such as CA, TX, FL). J.P. Morgan Securities LLC McGraw-Hill recently cut its outlook for new Adoptions to David Lewis, CPA -17% (v. flat to +2% previously) due partly to delayed spending in TX. (1-212) 622-6435 Pearson has been pointing to sales down since its FY 10 results in February. david.m.lewis@jpmorgan.com Higher Ed net sales rose 4.1% in November, but are down 0.9% YTD,11. J.P. Morgan Securities LLC November typically accounts for 4-6% of annual sales. Results have European TMT Credit moderated in 2011 following strong industry growth in 2010 (+7.8%) and Malin Hedman 2009 (+12.9%)—which was led by higher enrollments and good pricing. We (44-20) 7325-9353 expect 2011 industry sales to be driven by the transition to digital, more malin.b.hedman@jpmorgan.com modest enrollment growth (incl. pressure from for-profit regulations), and J.P. Morgan Securities Ltd. growth in rental programs (such as Chegg, Amazon, eCampus, etc). Media/Broadcasting & Publishing E-books continue to see impressive growth—up 65.9% in November and Avi Steiner, CFA represented 15% of all consumer/trade sales. Total Consumer/Trade book (1-212) 270-5512 sales fell 0.5% in November and are down 5.4% YTD,11. The Professional avi.a.steiner@jpmorgan.com category rose 0.4% but is down 7.5% YTD,11. J.P. Morgan Securities LLCTable 1: Monthly Educational Book Publishing Sales (Industry-wide) Adoption Open Total Figure 1: US Educational Publishing Period States Territories K-12 Higher Ed Professional Industry-wide Sales Trends, YTD 2011 Nov-10 -10.2% 8.7% -0.3% 29.4% -13.6% Dec-10 13.0% -6.5% 1.4% -3.6% -3.5% 0% Jan-11 -2.2% -23.8% -14.9% -1.4% 1.3% -1% Feb-11 -0.1% -5.6% -3.0% -42.9% -3.6% -1% -2% Mar-11 -9.6% 3.9% -2.3% -13.0% -5.9% Apr-11 -23.0% -12.0% -16.9% -28.3% -7.0% -3% May-11 2.0% 1.4% 1.7% -1.7% -17.0% -4% Jun-11 -52.7% -4.1% -37.9% -11.3% -10.1% -5% Jul-11 -34.2% -11.3% -24.1% -6.0% -17.6% -6% Aug-11 11.3% -4.1% 3.3% 4.3% -6.9% -7% Sep-11 70.1% 3.0% 31.5% 8.8% 12.9% -8% Oct-11 19.5% -7.7% 4.0% 218.9% -12.7% -9% Nov-11 30.3% -16.4% 3.4% 4.1% 0.4% -10% -9% YTD, 11 -14.6% -3.2% -9.3% -0.9% -7.5% K-12 Higher edSource: Association of American Publishers (AAP), J.P. Morgan. Note: Higher ed sales are net of returns . Source: AAPSee page 3 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware thatthe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision. www.morganmarkets.com
  2. 2. Mark ODonnell Europe Equity Research(44-20) 7325-7149 27 January 2012mark.x.odonnell@jpmorgan.comMichael A. Meltz, CFA(1-212) 622-0416michael.meltz@jpmorgan.com Table 2: Monthly Consumer Trade Book Sales Adult Children E-Books Period Hardcover Paperback Mass Mkt Hardcover Paperback E-Books Share Nov-10 4.3% -19.0% -9.5% -2.7% -5.5% 129.7% 8.9% Dec-10 23.1% 4.5% 14.6% 0.2% 4.5% 164.8% 9.6% Jan-11 -11.3% -19.7% -30.9% -1.9% -17.7% 115.8% 22.4% Feb-11 -43.0% -24.6% -41.5% -6.1% -25.9% 202.3% 28.4% Mar-11 6.0% -7.7% 1.2% -8.5% -26.3% 145.7% 16.1% Apr-11 -22.7% -25.4% -41.6% 1.5% -7.2% 157.5% 18.1% May-11 -38.2% -14.3% -39.4% -11.4% 4.7% 146.9% 18.4% Jun-11 -25.4% -63.8% -21.6% -30.8% -13.6% 167.1% 22.1% Jul-11 33.9% -29.2% -29.0% -11.9% -22.6% 105.3% 21.2% Aug-11 -11.2% -5.7% -36.4% -24.6% -21.2% 116.5% 20.3% Sep-11 -18.1% -0.1% -54.3% 2.1% -14.6% 100.9% 15.7% Oct-11 -16.9% -18.2% -37.6% -7.3% -2.4% 81.2% 12.6% Nov-11 -20.9% -3.7% -56.4% 67.4% -1.2% 65.9% 15.0% YTD, 11 -18.9% -16.0% -35.4% -3.0% -11.9% 123.4% 18.7% Source: Association of American Publishers (AAP). Note: E-Books “Share” represents percentage of overall consumer/trade book sales. Table 3: Annual U.S. K-12 Industry Textbook Sales, 1980-Present Year Change Year Change Year Change 1980 NA 1991 1.4% 2002 -4.5% 1981 NA 1992 1.3% 2003 2.5% 1982 NA 1993 11.4% 2004 0.1% 1983 5.5% 1994 -7.0% 2005 10.5% 1984 12.6% 1995 14.4% 2006 -5.8% 1985 11.9% 1996 6.2% 2007 2.7% 1986 8.3% 1997 14.8% 2008 -4.4% 1987 6.3% 1998 10.3% 2009 -13.8% 1988 5.2% 1999 3.3% 2010 3.2% 1989 11.2% 2000 13.3% YTD, 11 -9.3% 1990 2.1% 2001 7.8% Source: Association of American Publishers (AAP) Table 4: Annual U.S. Higher Education Industry Textbook Sales (Net), 1980-Present Year Change Year Change Year Change 1980 NA 1991 0.5% 2002 12.4% 1981 NA 1992 4.1% 2003 3.6% 1982 NA 1993 2.7% 2004 1.8% 1983 4.9% 1994 1.7% 2005 5.3% 1984 3.6% 1995 6.8% 2006 2.8% 1985 3.6% 1996 7.0% 2007 6.5% 1986 5.7% 1997 7.4% 2008 2.7% 1987 7.9% 1998 8.2% 2009 12.9% 1988 10.8% 1999 8.3% 2010 7.8% 1989 7.3% 2000 3.5% YTD, 11 -0.9% 1990 8.1% 2001 7.2% Source: Association of American Publishers (AAP). Note: Sales are net of returns. Table 5: Education Segment Revenue Breakdown – Pearson v. McGraw-Hill As a % of Revenues As a % of Revenues Segment / Product Line PSON - Education PSON - Total MHP - Education MHP - Total Textbooks 15% 12% 32% 13% Testing and Information 20% 14% 7% 3% Supplemental 1% 1% 7% 3% US Schools Total 36% 27% 46% 18% US Higher Education 27% 20% 30% 12% International Education 29% 22% 19% 7% Professional Education 8% 6% 6% 2% Consumer Books 19% NA NA Total 100% 93% 100% 39% Source: Company data. In 2010, MHP’s Education revenues totaled $2.4 billion while Pearson’s totaled £4.2 billion2
  3. 3. Mark ODonnell Europe Equity Research(44-20) 7325-7149 27 January 2012mark.x.odonnell@jpmorgan.comMichael A. Meltz, CFA(1-212) 622-0416michael.meltz@jpmorgan.comAnalyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.Conflict of InterestThis research contains the views, opinions and recommendations of J.P. Morgan credit research analysts. Research analystsroutinely consult with J.P. Morgan trading desk personnel in formulating views, opinions and recommendations in preparingresearch. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and report(s).Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflictwith your interests. In addition, research analysts receive compensation based, in part, on the quality and accuracy of theiranalysis, client feedback, trading desk and firm revenues and competitive factors. As a general matter, J.P. Morgan and/or itsaffiliates normally make a market and trade as principal in fixed income securities discussed in research reports.Important DisclosuresCompany-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailingresearch.disclosure.inquiries@jpmorgan.com with your request.Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months,we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverageuniverse.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocksin the analysts (or the analysts teams) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, eachstock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe canbe found on J.P. Morgan’s research website, www.morganmarkets.com.Coverage Universe: ODonnell, Mark William: BSkyB (BSY.L), Informa (INF.L), Pearson (PSON.L), Reed (REL.L), Reed NV(ELSN.AS), Seat Pagine Gialle (PGIT.MI), Sky Deutschland (SKYDn.DE), UBM (UBM.L), Wolters Kluwer (WLSNc.AS), Yell(YELL.L)Meltz, Michael A: Arbitron (ARB), Belo Corp. (BLC), CBS Corporation (CBS), D&B (DNB), Equifax (EFX), Experian plc (EXPN.L),IHS Inc. (IHS), Meredith Corporation (MDP), Moodys Corp. (MCO), Nielsen Holdings N.V. (NLSN), Sinclair Broadcast Group (SBGI),The McGraw-Hill Companies (MHP), Thomson Reuters (TRI), Verisk Analytics (VRSK)J.P. Morgan Equity Research Ratings Distribution, as of January 6, 2012 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 47% 42% 12% IB clients* 52% 45% 36% JPMS Equity Research Coverage 45% 47% 8% IB clients* 72% 62% 58%*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category.Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analystor your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.Company-Specific Disclosures: Important disclosures are available for compendium reports and all J.P. Morgan–covered companies byvisiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailingresearch.disclosure.inquiries@jpmorgan.com with your request. 3
  4. 4. Mark ODonnell Europe Equity Research(44-20) 7325-7149 27 January 2012mark.x.odonnell@jpmorgan.comMichael A. Meltz, CFA(1-212) 622-0416michael.meltz@jpmorgan.comExplanation of Credit Research Ratings:Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, therecommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, therecommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the nextthree months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. MorgansEmerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating.Valuation & Methodology: In J.P. Morgans credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral)based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by creditrating agencies and the market prices for the issuers securities. Our credit view of an issuer is based upon our opinion as to whether theissuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, theissuers credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capitalinvestment). We also analyze the issuers ability to generate cash flow by reviewing standard operational measures for comparablecompanies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuers balance sheet relative tothe operational leverage in its business.J.P. Morgan Credit Research Ratings Distribution, as of January 6, 2012 Overweight Neutral UnderweightEMEA Credit Research Universe 28% 49% 23% IB clients* 57% 64% 54%Represents Ratings on the most liquid bond or 5-year CDS for all companies under coverage.*Percentage of investment banking clients in each rating category.Equity Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues,which include revenues from, among other business units, Institutional Equities and Investment Banking.Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-USaffiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, publicappearances, and trading securities held by a research analyst account.Analysts Compensation: The research analysts responsible for the preparation of this report receive compensation based upon variousfactors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which includerevenues from, among other business units, Institutional Equities, Fixed Income, and Investment Banking.Other DisclosuresJ.P. 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  5. 5. Mark ODonnell Europe Equity Research(44-20) 7325-7149 27 January 2012mark.x.odonnell@jpmorgan.comMichael A. Meltz, CFA(1-212) 622-0416michael.meltz@jpmorgan.comMorgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealerby the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan SecuritiesSingapore Private Limited (JPMSS) [MICA (P) 032/01/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange SecuritiesTrading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCBSingapore) which is regulated by the MAS. 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  6. 6. Mark ODonnell Europe Equity Research(44-20) 7325-7149 27 January 2012mark.x.odonnell@jpmorgan.comMichael A. Meltz, CFA(1-212) 622-0416michael.meltz@jpmorgan.comCopyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan. #$J&098$#*P6

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