Pearson nine-month sales figures and trading update

In the light of an exceptional downturn in advertising in the last three weeks in September, we are issuing a trading update based on sales in the first nine months of the year.

In the last month, we have seen a large number of advertising cancellations and very little new advertising activity. This has led to a dramatic drop in advertising revenues across all our business titles. If advertising continues at current levels, FT Group full-year profits could be 40% lower than last year. The advertising slowdown is also likely to have a greater impact on the RTL Group, in which we own a 22% stake, than we anticipated at the half-year. We have also seen further weakness in technology markets, which means that profits from technology publishing could be as much as £25 million lower than our expectations at the half-year.

Sales

Sales
  9 months to 30 September 2001 % change Underlying change




FT Group £567m (2)% (4)%
Pearson Education £1,993m +36% +2%
Penguin Group £624m +11% +2%




Total £3,184m +14% +1%




Note: Underlying sales growth excludes the impact of acquisitions, disposals and currency movements.

Financial Times Group: Since September 11, all our business newspapers have seen a further major downturn in advertising. For September, advertising revenues were down 40% on last year at the Financial Times newspaper, and our other titles – Les Echos, Expansion, FT Deutschland and The Economist – saw advertising revenues fall significantly. The FT newspaper continues to increase its circulation faster than its major competitors and to reduce its cost base. As a result, we expect to achieve margins above 15% for the FT newspaper this year – significantly higher than at the bottom of the last cycle.

Pearson Education: In the first nine months, our US school business increased underlying sales by 9%, ahead of its market, and our US College business increased underlying sales by 4% with the important fourth quarter to go. In the US, technology publishing sales are down 20%. International sales are flat on last year, with continuing weakness in Latin America and technology publishing offset by growth in English Language Teaching and Asian markets. NCS Pearson is now an integral part of our education operations. On a standalone basis, underlying sales are up 3% after nine months. Stripping out the impact of last year’s decennial US Census contract, underlying sales are up 12%. Losses from FT Knowledge could be some £5 million worse as a direct result of the impact of September 11 on the New York Institute of Finance, which was located in the World Trade Center. Some of these losses may be recovered from insurance.

The Penguin Group: Underlying sales growth has slowed as a consequence of industry-wide softness in backlist sales, which is hitting illustrated reference titles and travel guides particularly hard. Our continued success in the bestseller lists helps to offset this impact.

Internet enterprises: Losses from our internet enterprises should be some £60m in the second half, down 45% on the same period last year. With the start-up investment now behind us, and major steps taken to reduce costs and integrate our internet enterprises within our established businesses, we are on track to meet our break-even targets.

Marjorie Scardino, Pearson’s Chief Executive, said:
"We are now expecting profits to be significantly below our original plans for the year, almost entirely because of the weakness in advertising markets and, to a lesser extent, the technology recession. These markets are cyclical in character and will bounce back. When they do, we will see the benefit. In the meantime we will continue to manage our costs and our cash to minimise the impact on our financial performance."

Further information

John Fallon/ Luke Swanson Pearson plc + 44 (0) 20 7010 2310

Investor conference calls:

Marjorie Scardino, Chief Executive, and John Makinson, Finance Director, are holding conference calls today to discuss Pearson’s nine-month sales performance and outlook for the year.

For European investors, a conference call will be held at 0930 BST. The dial-in number is +44 (0) 208 240 8242 and the password is Pearson. To register, please dial in at least five minutes before the call begins.

For US investors, a conference call will be held at 0930 EST. The dial-in number is + 1 303 224 6997 and the password is Pearson. To register, please dial in at least five minutes before the call begins.

Live audio webcasts of the conference calls will be available at www.pearson.com. The webcasts will be archived on www.pearson.com later today.