Pearson trading update

On November 10th 2004, Pearson provided investors and analysts with a trading update. All growth rates are for the first nine months of the year and are stated on an underlying basis, excluding the impact of currency movements and portfolio changes.

Pearson's sales are up 2%, operating profit is up 7% and free cash flow is well ahead of 2003. At this stage we remain on track to achieve underlying progress on earnings, cash and returns in 2004.

Our education businesses are performing well and we are making good profit progress across the FT Group. This is helping us to mitigate the impact on earnings of the weak dollar, the long-expected slow year for US School adoptions and a difficult period for Penguin.

Looking ahead to 2005 and beyond, we remain confident of a significant acceleration in earnings, cash and returns. With leading market positions and lower costs, we are in good shape to take advantage of a strong rebound in the US School publishing industry, improving US state budgets and federal education funding, the rapid expansion of our testing businesses and further profit improvement at our business newspapers.

Sales at Pearson Education are up 1% for the first nine months of the year.

Sales at our School business are 1% lower.  Good growth in open territories, in supplementary publishing and outside the US is offsetting the weak adoption calendar. We expect revenues at our total School business to be broadly level for the year as a whole. In the US we have led in share of new adoption business, winning approximately 28% of the total new adoptions (and approximately 31% of those we competed in) in a new adoption market that is some 30% lower than in 2003. We are also performing well in the open territories and in supplementary publishing, where growth is picking up with the continuing recovery in state budgets. Outside the US, we are gaining share in key markets including Canada, Hong Kong and the UK.

In Higher Education, our sales are up 3%. We are once again growing ahead of the industry, with strong performances in online learning and custom publishing. We expect our US Higher Education business to grow ahead of its market this year and in the 4-6% range, as planned.

Sales are up 3% at our Professional education business, and we continue to expect sales and profit to be ahead for the full year. Government Solutions and Professional Testing are growing strongly with the start-up of new contracts with customers such as the US Department of Health and Human Services and the UK's Driving Standards Agency. Our technology publishing business continues to face weak conditions in the IT industry but is gaining share and benefiting from its lower cost base. We continue to expect that we will receive the full $151m payment for work completed in 2002 on behalf of the US Transportation and Security Administration.

Penguin generates a large proportion of its sales and profits in the fourth quarter. In the first nine months, underlying sales are up 1% although, as previously stated, headline sales and profits will be affected by the weak US dollar. As a result of disruption to UK distribution and a slowdown in the US consumer publishing industry in recent months, Penguin's full-year profits are likely to be around the low end of current market expectations.

In the US, the AAP has reported that net sales for the industry were level with last year in the first half, but down 3% for the first nine months. We expect the US book retail market - which slowed down in the run-up to the US elections - to pick up for the holiday season. In the UK, despite distribution difficulties, our total volumes shipped to bookstores are up 4% compared with the same period last year and we have maintained our market share. However, we have seen a change in the mix towards lower margin frontlist titles, and have incurred additional costs from delivering direct from printers to bookstores and running two UK warehouses.  For the important fourth quarter we have a strong schedule of frontlist titles, including new books from Nora Roberts, Clive Cussler, Jamie Oliver and Sue Townsend.

At the FT Group, sales are up 6% and we expect a significant profit improvement for the full year. The Financial Times is on track to reduce losses by approximately £20 million this year, and we expect it to return to breakeven in the fourth quarter. Though advertising trends remain erratic from week to week and across industry sectors, advertising revenues are ahead of last year at all our business newspapers. At the Financial Times, advertising revenues are 2% higher and forward bookings are slightly ahead. Recruitment and luxury goods advertising revenues are growing at more than 20%, but technology and business-to-business advertising remain weak. Geographically, we are seeing good growth in Europe and Asia, largely offset by a weaker US corporate advertising market. IDC's total revenues as reported are up 12% and net income up 10%, helped by acquisitions and organic revenue growth, which accelerated to 5% in the third quarter.  Recoletos will announce its third quarter results tomorrow.

Exchange rates Pearson makes approximately two-thirds of its sales in the US and a five cent change in the average exchange rate for the full year (which in 2003 was £1:$1.63) will have an impact of approximately 1p on adjusted earnings per share. For the first nine months of 2004 our average exchange rate was £1: $1.82.

For more information

UK: Luke Swanson/ Charlotte Elston + 44 (0) 20 7010 2310

US:  Jeff Taylor    + 1 212 641 2409

Pearson held two conference calls on Novermber 10th, with Marjorie Scardino, chief executive, and Rona Fairhead, chief financial officer, for analysts and investors. Both calls are available on demand at www.pearson.com details below:

Europe

The call took place at 0830 GMT on November 10th. Click here to listen to the replay of the conference call.

US

This call took place at 1000 EST (1500 GMT) on November 10th. Click here to listen to the replay of the conference call