Pearson 2007 Preliminary results

Pearson announced 2007 Preliminary Results on March 3rd, 2008

US Conference call

A conference call for US investors was held at 15.00 (GMT) / 10.00 (EST) a replay of the call is now available

UK Presentation

Marjorie Scardino, CEO and Robin Freestone, CFO, hosted a presentation of the results for analysts and investors at 09:00 (GMT).

A replay of the presentation is now available.

Click here to download slides of the presentation.

Download an electronic (html) version of the press release here.

Download the full press release and financials in PDF format here.

Video interviews

Click here to download video interviews with Marjorie Scardino, CEO and Robin Freestone, CFO.


Press Release (HTML)

Record profits, earnings, cash and dividends. Adjusted operating profit up 14% to £634m; adjusted earnings per share up 8% to 46.7p (up 15% at constant exchange rates); operating free cash flow up 23% to £533m; dividend up 7.8% to 31.6p.

Faster growth. Underlying sales growth of 6%, with strong competitive performances and every business growing at or above 2006 levels.

Higher margins and returns. Margins up 1.1% points to 15.0% with substantial progress at School (up 0.6% pts), Penguin (up 0.9%pts), Interactive Data (up 1.4% pts) and FT Publishing (up 6.7% pts). Return on invested capital up 0.2% points to 8.2% (a 1.0% point underlying improvement).

All-round progress. Strong profit growth in all continuing businesses: Education up 9% to £404m; Penguin up 20% to £74m; FT Group up 30% to £153m.

Sustained growth. Good start to 2008; further financial progress expected in all businesses.

Marjorie Scardino, chief executive, said: "This is another record set of results and an excellent performance from every part of Pearson. We continue to reshape Pearson into a more digital, more international and more efficient company, and those changes make us confident that 2008 will be another good year."

£ millions 2007 2006 Headline
Business performance
Sales 4,218 4,051 4% 6%
Adjusted operating profit 634 592 7% 14%
Adjusted profit before tax 549 502 9% --
Adjusted earnings per share 46.7p 43.1p* 8% --
Operating cash flow 684 575 19% --
Operating free cash flow 533 434 23% --
Return on invested capital 8.2% 8.0% 0.2 ppts 1.0 ppts
Net Debt 973 1,059 (8)% --
Statutory results
Sales 4,162 3,990 4%  
Operating profit 574 522 10% --
Profit before tax 468 448 4% --
Basic earnings per share - continuing 39.0p 52.7p (26)% --
Cash generated from operations 659 621 6% --
Dividend per share 31.6p 29.3p 7.8% --


*Restated for tax deductibility of goodwill amortisation of 2.9p

Growth rates are stated on an underlying basis (i.e. excluding currency movements and portfolio changes) unless otherwise stated. The 'business performance' measures are non-GAAP measures and reconciliations to the equivalent statutory heading under IFRS are included in notes 2, 7 and 17 to the attached financial statements.


In 2007, Pearson's sales increased by 6% to £4.2bn and adjusted operating profit by 14% to a record £634m. Every part of Pearson contributed to this profit increase, with adjusted operating profit at Pearson Education up 9%, Penguin up 20% and the FT Group up 30%. Headline earnings per share were 46.7p, up 8% (and up 15% at constant currency). Currency movements reduced adjusted sales by £228m, adjusted operating profit by £37m and adjusted earnings per share by 2.7p.

We also produced record cash flows. Operating cash flow increased by 19% or £109m to £684m and operating free cash flow by £99m to £533m. Cash conversion was once again very strong at 108% of operating profit. Over the past three years, the proportion of our profits converted to cash has averaged more than 100%. The ratio of average working capital to sales at Pearson Education and Penguin improved by a further 0.7% points to 25.6%. Our return on invested capital shows a headline increase of 0.2% points (to 8.2%) and a 1.0% point underlying improvement.

Statutory results show an increase of £52m in operating profit to £574m (£522m in 2006). Basic earnings per share for continuing businesses were 39.0p in 2007 against 52.7p in 2006, largely reflecting the absence of a 2006 tax credit. Net debt was £86m lower at £973m (from £1,059m in 2006).

Acquisitions. In 2007, we announced the acquisitions of Harcourt's US assessment and international education businesses, eCollege, and several small companies which extend our worldwide leadership positions. Our total investment in acquisitions completed in 2007 was £472m and acquisitions added £90m of sales and £13m of operating profit to our 2007 results (after integration costs, which are expensed). The acquisition of Harcourt's US assessment business, announced in May 2007, was completed in January 2008 after clearance from the US regulatory authorities and therefore had no impact on the 2007 results.

Disposals. In February 2007 we completed the sale of our Government Solutions business to Veritas Capital for $560m in cash, $40m in preferred stock and a 10% interest in the company. In December 2007 we completed the sale of Les Echos to LVMH for €240m in cash and in January 2008 we announced the disposal of our 50% stake in FT Deutschland to Gruner + Jahr. In February 2008, we sold our Data Management (Scanners) business to M & F Worldwide Corp for $225m.

Dividend. The board is proposing a dividend increase of 7.8% to 31.6p. Subject to shareholder approval, 2007 will be Pearson's 16th straight year of increasing our dividend above the rate of inflation. Over the last ten years we have increased our dividend at a compound annual rate of 6.1%.

Our financial goals. Pearson's three key financial measures are adjusted earnings per share, free cash flow and return on invested capital. We use these measures to drive performance and to align our plans and targets with the interests of shareholders. Our five-year record on these goals is:


  2003 2004 2005 2006 2007
Adjusted earning per share 27.6p* 27.5p* 34.1p* 43.1p 46.7p
Operating cash flow £318m £418m £570m £575m £684m
Return on invested capital 6.0% 6.2% 6.7% 8.0% 8.2%


* As reported (before restatement for tax deductibility of goodwill amortisation).


In recent years we have significantly changed the shape of Pearson, building and diversifying our education company, shifting our financial information businesses towards recurring revenue streams and becoming more efficient through a centralised operations organisation. These moves have made Pearson a more profitable, more cash generative and more resilient company, and we expect to make further progress on our financial goals in 2008.

At this early stage, our outlook for 2008 is:

  • In Education (64% of 2007 sales and operating profit), we expect another year of good profit growth, benefiting once again from the unique breadth of our education business - from pre-school to adult learning; across publishing, testing and technology; and in the US and around the world.
    In our School business, integration of our recently-acquired Harcourt businesses is progressing well. In 2008, we expect School margins to be similar to 2007, after expensing integration costs relating to the acquisition. In 2009, we expect School margins to rise to around 15% as the majority of the integration costs fall away and as we realise the financial benefits of the acquisition.
    Including the Harcourt contribution, we expect our School business to grow sales well into double digits in 2008 at constant currency. Excluding Harcourt, we expect underlying sales growth in the low single digits, as US market growth of 3-4% is partly offset by our lower participation rate in new US adoptions and the conclusion of our UK key stage testing contract.
    In Higher Education, we expect our underlying sales to grow in the mid single digits, a little ahead of the industry. We expect margins to be stable, as we continue to invest in expanding our adaptive learning technologies and in taking our recently-acquired eCollege platform into new segments and geographic markets.
    In Professional, we expect sales to increase in the low single digits in underlying terms with underlying margins improving once again.
  • Penguin (20% of sales; 12% of operating profit) expects to improve margins further and into double digits. Penguin's good publishing and trading performance has continued into the early part of 2008.
  • The Financial Times Group (16% of sales; 24% of operating profit) expects to continue its profit growth. We have substantially increased our digital and subscription revenues and reduced our exposure to print advertising in recent years (in 2007, digital services accounted for 63% of FT Group revenues, compared with 28% in 2000; advertising accounted for 30% of FT Group revenues, down from 52% in 2000). At FT Publishing, advertising revenues have continued to grow in the early part of the year, but future advertising trends remain difficult to predict. However, as a result of our revenue diversification and cost actions we expect further profit improvement at FT Publishing this year, even without any growth in advertising revenues. Interactive Data expects to achieve revenue growth in the 7-9% range and operating profit growth in the 9-11% range (headline growth under US GAAP).

Interest and Tax. We expect our interest charge to be similar to that in 2007 with the higher level of net debt following the completion of the Harcourt transaction offset by strong cash generation and the recent proceeds from the disposals of Les Echos and Data Management (Scanners). Our pension credit will remain at a similar level to 2007, despite an upward revision to life expectancy assumptions. We expect our effective tax rate to be in the 27-29% range.

Exchange rates. Pearson generates approximately 60% of its sales in the US and each five cent change in the average £:$ exchange rate for the full year (which in 2007 was £1:$2.00) would have an impact of approximately 1p on adjusted earnings per share.

For more information:

Luke Swanson / Simon Mays-Smith/ Charles Goldsmith + 44 (0) 20 7010 2310

Pearson's results presentation for investors and analysts will be webcast live today from 09.00 (GMT) and available for replay from 12.00 (GMT) via

We are holding a conference call for US investors at 15.00 (GMT) / 10.00 (EST). To participate please dial in on + 1 866 966 5335 (inside the US) or +44 (0)203 003 2666 (outside the US). The call will be available for replay at

Video interviews with Marjorie Scardino and Robin Freestone are available at high resolution photographs are available for the media at


Except for the historical information contained herein, the matters discussed in this Preliminary Statement include forward-looking statements. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing, anticipated costs savings and synergies and the execution of Pearson's strategy, are forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in future. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by these forward looking statements, including a number of factors outside Pearson's control. These include international, national and local conditions, as well as competition. They also include other risks detailed from time to time in the company's publicly-filed documents. Any forward looking statements speak only as of the date they are made, and Pearson gives no undertaking to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes to events, conditions or circumstances on which any such statement is based.


£ millions 2007 2006 Headline
School 1,537 1,455 6% 6%
Higher Education 793 795 0% 5%
Professional* 354 341 4% 9%
Pearson Education 2,684 2,591 4% 6%
FT Publishing 344 280 23% 12%
Interactive Data 344 332 4% 8%
FT Group 688 612 12% 10%
Penguin 846 848 0% 3%
Total 4,218 4,051 4% 6%
Adjusted operating profit
School 203 184 10% 11%
Higher Education 161 161 0% 5%
Professional* 40 38 5% 11%
Pearson Education 404 383 5% 9%
FT publishing 56 27 107% 85%
Interactive Data 97 89 9% 13%
FT Group 153 116 32% 30%
Penguin 74 66 12% 20%
Total 631 565 12% 14%
Discontinued 3 27    
Total 634 592 7% 14%


*Professional includes Data Management (Scanners) for both years. It is reported as discontinued for statutory purposes. In 2007, the Data Management business contributed £56m of sales and £12m of operating profit to Pearson.


£ millions 2007 2006 Headline
Sales 1,537 1,455 6% 6%
Adjusted operating profit 203 184 10% 11%
  • Record sales (up 6%) and profits (up 11%)
  • Margins up by 0.6% points to 13.2%

Continued share gains in school publishing

  • Pearson US School publishing up 3.5%, against industry growth of 2.7% (source: Association of American Publishers), as we benefit from our sustained investment in new basal programmes and innovative digital services.
  • Faster underlying growth in international school publishing, with continued margin improvement.
  • Pearson takes a leading share of the new US adoption market: 30% of the total market and 31% where we competed. #1 or #2 market share in reading, maths, science and social studies. Total 2007 new adoption opportunity of approximately $830m, up from $670m in 2006.
  • US School new adoption market expected to remain strong over the next three years (estimated at $900m in '08; $860m in '09; and more than $1bn in '10). In 2008 we are competing for around 90% of the total new adoption opportunity.
  • Acquisition of Harcourt International brings leading content for school and vocational customers in many markets including the UK, South Africa, Australia and New Zealand. Transaction adds further scale to Pearson's international education businesses and accelerates the combination of educational content and innovative technology to personalise learning. Integration of the Harcourt business is progressing well.
  • Major cross company global English, maths and science projects launched, with the aim of sharing assets, expertise, investment and technology across all major international markets.
  • Successful global ELT publishing franchises in every major market segment - primary, secondary, adult, business and exam preparation - drives strong growth worldwide. Sales of student editions of English Adventure, developed with Disney, top six million units in less than three years; Economist and FT branded courses also performing strongly with major launch of Penguin Readers planned for this year.
  • Strong performance from school publishing businesses in South Africa and Australia; in Italy, integration of Pearson Paravia Bruno Mondadori complete, producing integration savings, margin improvement and market share gains; strong organic growth in Spanish language school publishing.

Innovation in school technology

  • 13 product nominations in 10 categories, more than any other education company, for the Software and Information Industry Association 'Codie' awards. The products include: PASeries, the first formative assessment product designed to measure progress and forecast student growth toward state goals or grade level expectations; Pearson Inform 4.1, a K-12 data analysis and decision support tool; PowerSchool Premier, a student information system that provides access to student information, enabling data-driven decisions that enhance student learning; and eCollege, an on-demand distance learning platform.
  • Continued investment in digital programmes both for basal adoption and for special populations, including NovaNet and SuccessMaker. Pre-publication expenditure for digital programmes growing as a proportion of total pre-publication expenditure.
  • enVision Math, our new integrated print-and-digital elementary maths programme (and the next generation of our successful California Social Studies programme), successfully launched for the 2008 adoption campaign. In 2008, maths accounts for approximately one-third of the total new adoption opportunity.

Strong growth and share gains in school testing

  • US School testing sales up in double digits (after high single digit growth in 2006), benefiting from further contract wins, market share gains and strength in online assessment.
  • 2.5 million secure online tests delivered across 13 states during the year, up from 1.4 million in 2006.
  • Acquisition of Harcourt Assessment complements our existing assessment business, broadens our scale and reach in adjacent markets and creates new publishing and digital opportunities both in the US and around the world.
  • In the UK, we marked a total of 9.6 million GCSE, AS and A-level exam scripts, 4.6 million of which were marked on-screen. ResultsPlus rolled out across the UK and internationally providing more than 2,250 schools with secure online access to question-level examination performance data on exam results day for the first time. More than 100,000 students access their results online on results day for the first time.


£ millions 2007 2006 Headline
Sales 793 795 0% 5%
Adjusted operating profit 161 161 0% 5%
  • Sales and profits up 5%.
  • US Higher Education up 6%, ahead of the industry for the ninth straight year.
  • Steady growth and good profit improvement in international higher education.

Rapid growth in online learning and custom publishing

  • Investment in established and new author franchises, such as Campbell's Biology, Kotler's Marketing Management, Hubbard's Economics and Cicarrelli's Psychology, continues to underpin the strong performance of our higher education business.
  • 'MyLab' digital homework and assessment programmes launched in 22 new subject disciplines in 2007, increasing the total number of disciplines covered to 38. These programmes support over 2,000 textbooks and were used globally by 2.9m students in 2007 (up more than 30% on 2006). Evaluation studies show that the use of the MyLab programmes can significantly improve student test scores and instructional productivity.
  • In corporate finance, one of the largest global markets in business education, Pearson publishes the successful first edition bestseller, Berk/DeMarzo's Corporate Finance, together with MyFinanceLab. Pearson's market share increases from 4% to 11% in the US and from 39% to 48% in the UK. It is the most successful launch of a first edition in this discipline in more than a decade and one of Pearson's most successful global launches ever, winning university adoptions in 22 countries. In World History, the first edition of Fernandez-Armesto's The World: A History with MyHistoryLab increases Pearson's market share from 25% to 35%.
  • Acquisition of eCollege builds Pearson's position as an education services provider. eCollege works with partner educational institutions to design, build and support online degree, certificate, diploma and professional development programmes. Student enrolments increase 44% in 2007 to 1.9m. eCollege broadens Pearson's services to academic institutions; Pearson's scale and reach enable eCollege to access new customers in the school, post-secondary and professional/vocational markets both in the US and worldwide.
  • Pearson is the largest publisher on, a joint venture of the largest US education textbook publishers with over 2,500 titles. provides cost effective ebooks to students and time-efficient review of textbooks for professors.
  • Continued strong double digit growth in our custom solutions business - which builds customised textbooks and online services and has become a leader in the creation of courseware and curriculum for e-learning institutions.

Good progress in international markets

  • In Europe, good revenue growth and strong margin improvement as organic and acquisition investment in international education continues to bear fruit. Particular areas of strength included local language editions of our major authors and custom publishing including the successful launch of "local language" science publishing in Germany.
  • Major programme of adapting/versioning "MyLab" and "Mastering" technology platforms for international markets. MyLab programmes now being used internationally in almost 50 countries, with almost 160,000 student registrations for online courses in Europe, the Middle East & Africa.


£ millions 2007 2006 Headline
Sales 354 341 4% 9%
Adjusted operating profit 40 38 5% 11%


Note: excludes Government Solutions and includes Data Management (Scanners).

  • Rapid sales growth driven by professional testing and publishing
  • Sales up 9%; profits up 11%; margins up by 0.2% points to 11.3%
  • With the sale of Government Solutions in 2007 and Data Management in 2008, our Professional business is focused on publishing for professionals in business and technology, and on testing and certifying adults to be professionals.

Professional Testing: rapid organic sales and profit growth

  • Professional Testing sales up 14% in 2007. Approximately 5.8m secure online tests delivered in more than 5,000 test centres worldwide in 2007.
  • Strong margin improvement as test volumes rise, driven by higher demand from existing customers such as GMAC (for business school applicants), NCLEX (for nurses) and the DSA/DVTA driving theory test. Good new contract performance, including the American Board of Internal Medicine and the National Association Boards of Pharmacy; and strong renewals, including the Institute of Financial Services and the American Registry of Radiological Technologists.

Professional publishing: good sales growth and further margin improvement

  • Technology Publishing achieves good sales growth and significantly improved profitability, benefiting from a focused and refreshed front list, a favourable software release schedule and Safari Books Online, our electronic publishing platform (a joint venture with O'Reilly Media). Scott Kelby, a Peachpit author, is the top-selling US computer book author for the fourth consecutive year with titles including The iPod Book; The Digital Photography Book; and The Adobe Photoshop Lightroom Book for Digital Photographers.
  • Strong performance in Europe, helped by success of publishing for the new Windows Vista launch; a new partnership with Microsoft Press in the Netherlands; and a successful move into digital publishing and training in Germany.
  • Strong performance from business imprints Wharton School Publishing and FTPress, aided by Pearson's global distribution and strong retail relationships. Wharton School Publishing recognised on the Best Business Books of 2007 with We Are Smarter Than Me: How to Unleash the Power of Crowds in Your Business, by Barry Libert and Jon Spector, and Firms of Endearment: How World-Class Companies Profit from Passion and Purpose, by Rajendra S. Sisodia, David B. Wolfe and Jaqdish N. Sheth.

Data Management (Scanners): sale completed 22 February 2008

  • Sale of Data Management to M & F Worldwide Corp. for $225m. Data Management contributed $112m of sales and $25m of operating profit to Pearson in 2007.


£ millions 2007 2006 Headline
Sales 344 280 23% 12%
Adjusted operating profit 56 27 107% 85%


Note: excludes Les Echos, sold in December 2007.

  • Sales up 12%; profits up 85%
  • Margins up by 6.7% points to 16.3%

Great publishing, continued growth and significant margin improvement

  • FT Publishing revenues up 12% (advertising revenues up 10%) with operating profit more than doubling to £56m in headline terms.
  • Outstanding year at the Financial Times:
    • FT newspaper circulation up 2% to almost 440,000 (for the July-December 2007 ABC period), with a 19% increase in subscriptions;
    • Digital subscribers to the FT up 13% to 101,000; monthly unique users up 30% to 5.7m; monthly page views up 33% to 48.2m;
    • attracts 150,000 new registered users since launch of its innovative new access model in October 2007; strong growth continues in the early part of 2008.
    • FT named Newspaper of the Year at the 2007 What the Papers Say Awards.

  • Strong trading performance at FT Business as integration with the FT Newspaper helps to generate additional revenue and reduce costs.
  • The Economist, in which Pearson owns a 50% stake, increases its circulation by 9% to 1.3m (for the July-December 2007 ABC period).

Continued shift towards global digital businesses and subscription revenues

  • Strong contribution from Mergermarket: rapid revenue growth with 90%+ subscription renewal rates and a series of new product launches around the world including Pharmawire, DebtWire in Asia Pacific and dealReporter in Emerging Europe, Middle East and Africa.
  • FTSE, in which Pearson owns a 50% stake, achieves double digit sales growth, benefiting from a strong new business performance, a joint venture with Xinhua Finance in China and strong growth in Exchange Traded Fund (ETF) licenses.
  • Several small acquisitions of complementary subscription-based and digital businesses:
    • Infinata, a provider of research and business information to life science and financial services companies. The company's products, which include BioPharm Insight and HNW Insight, provide clients with comprehensive, timely information used to make strategic and tactical business decisions.
    • Exec-Appointments, a well-established global job site that focuses on the high-earning executive sector with approximately 200,000 registered executive users.
    • Money-Media, acquired in January 2008, a provider of must-have news and analysis via email and websites to US mutual fund managers, institutional investors, high net-worth individuals, company directors and advisers. Approximately two-thirds of Money-Media's revenues were generated through subscriptions with close to 90% renewal rates.
  • Sale of Les Echos to LVMH for €240m (£174m) completed in December 2007.
  • Sale of 50% stake in FT Deutschland to Gruner + Jahr announced in January 2008.


£ millions 2007 2006 Headline
Sales 344 332 4% 8%
Adjusted operating profit 97 89 9% 13%


  • Good sales growth and significant profit increase
  • Sales up 8%; profits up 13%; margins up by 1.4% points to 28.2%

Strong sales momentum

  • Underlying sales growth of 8% driven primarily by strong sales to both existing and new institutional customers and a renewal rate of approximately 95% within the Institutional Services segment.
  • Strong new sales momentum in Q4 2007 further supported activities to realign the company's two largest institutional businesses under a single management structure.

Continued focus on high value services

  • Pricing and Reference Data continues to generate good growth in North American and Europe. The business continues to broaden its coverage of complex securities by expanding its universe of European asset-backed and mortgage-backed securities. The business also launched a new web-based offering, the Basket Calculation Service, designed to provide clients with the indicative optimised portfolio value for equity and fixed income exchange traded funds.
  • Real-Time Services continues to achieve strong growth with new institutional sales in its two core product areas of real-time data feeds and managed solutions. Highlights include: growing adoption of its PlusFeed data service for algorithmic trading applications; the introduction of DirectPlus, a new ultra low latency direct exchange data service; and excellent sales momentum for managed solutions in North America with new customers including media companies, online brokerages, stock exchanges and financial institutions.
  • Fixed Income Analytics completed 30 new BondEdge® installations during the year and made good progress in the development of its next-generation BondEdge® platform.
  • In the Active Trader Services segment, eSignal experienced modest expansion of its direct subscriber base, delivered numerous innovations across its suite of active trader services, and added new content and capabilities on its financial websites.
  • Interactive Data is listed on the New York Stock Exchange (NYSE: IDC) and Pearson owns a 62% stake. Interactive Data's 2007 results under US GAAP are available at .


£ millions 2007 2006 Headline
Sales 846 848 0% 3%
Adjusted operating profit 74 66 12% 20%
  • Good sales growth and significant profit increase
  • Sales up 3%; profits up 20%
  • Margins up by 0.9% pts to 8.7%; on track for double-digit margins in 2008

Strong competitive performance in major markets

  • Successful global publishing performance led by Alan Greenspan's The Age of Turbulence, with almost 1m hard cover copies shipped to date worldwide, and Kim Edwards' first novel, The Memory Keeper's Daughter, a global #1 bestseller for Penguin in the US, UK, Australia and Canada.
  • Outstanding year for bestsellers in the US with titles including Elizabeth Gilbert's Eat, Pray, Love (4.4m copies shipped to date); Khaled Hosseini's A Thousand Splendid Suns (2.2m); and Ken Follett's World Without End (almost 1m).
  • UK bestsellers included Marian Keyes' Anybody Out There?, Jamie Oliver's Jamie at Home, Jeremy Clarkson's Don't Stop Me Now and Charlie Higson's Double or Die. Strong year for Brands & Licensing division driven by The Dr Who Annual (the second best-selling children's book of 2007) and bestselling In the Night Garden titles.
  • Australia: strong publishing from authors including Bryce Courtenay with The Persimmon Tree and Dr Manny Noakes with CSIRO Total Wellbeing Diet Book 2.
  • DK delivered a strong global performance in traditional, custom and digital publishing, benefiting from innovative formats including The Human Body Book, personalised travel guides via and the first DK textbooks for higher education markets.

Rapid growth in emerging markets

  • India: Penguin India celebrated its 20th anniversary in 2007 with continued rapid growth. Penguin authors win all the major English language prizes in India's national book awards: Vikram Chandra in fiction for Sacred Games, Vikram Seth in non-fiction for Two Lives and Kiran Desai in readers' choice for The Inheritance of Loss.
  • China: Jiang Rong and Howard Goldblatt win inaugural Man Asian Literary prize for Wolf Totem, to be published in English around the world by Penguin in 2008.
  • South Africa: another strong year led by John van de Ruit's Spud: The Madness Continues.

Innovation in print and online

  • Rapid growth in sales through online retail and digital channels driven by innovative digital marketing initiatives and investment in ebooks (with 5,000 Penguin titles currently available) and digital content. Strong growth in online revenues and unique visitors to Penguin and DK websites.
  • Continued innovation in formats (including the pioneering US premium paperback and personalised 'on-demand' travel guides), genres (Portfolio business imprint in India), sales channels (bestselling eBooks via online retailers and Penguin's own websites; audio books via iTunes and Audible; Rough Guides via Motorola, Nokia and Samsung phones) and communications channels (, an online community for teenagers).
  • Subscribers to Penguin and DK opt-in newsletters building rapidly, up 34% year-on-year to over 150,000, allowing Penguin consumers to personalise areas of interest and strengthening relationship with Penguin brand.

Continued focus on quality and efficiency

  • Pearson-wide renegotiation of major global paper, print and binding contracts continue to bring cost savings in 2007.
  • Further improvement expected in 2008 from ongoing management of production, warehousing and distribution costs.

Strong 2008 publishing schedule; strong start to the year

  • Strong list of new titles for 2008 from bestselling and new authors including Patricia Cornwell, Steve Coll, Michael Pollan, Jamie Oliver, Marian Keyes, Jeremy Clarkson, Thomas Friedman, Niall Ferguson and the new James Bond book from Sebastian Faulks.
  • Outstanding sales performance from Eckhart Tolle's A New Earth, with 4m copies shipped since its selection for Oprah Winfrey's book club on 30 January. First of ten online classes featuring Eckhart Tolle and Oprah Winfrey airs today, 3 March.


Operating result

On a headline basis, adjusted sales increased by £167m or 4% from £4,051m to £4,218m and total adjusted operating profit increased by £42m or 7% to £634m in 2007 from £592m in 2006.

On an underlying basis adjusted sales grew by 6% and adjusted operating profit by 14%. Our underlying measures exclude the effects of exchange and portfolio changes. In 2007 currency movements reduced adjusted sales by £228m and adjusted operating profit by £37m while portfolio changes increased adjusted sales by £146m and adjusted operating profit by £22m.

Adjusted sales include discontinued operations held throughout the current and previous year. In 2007 the sales by our Data Management (Scanners) business have been included in adjusted sales. Adjusted operating profit excludes amortisation and adjustment of acquired intangibles but also includes the adjusted profits from discontinued operations.

Statutory operating profit from continuing operations increased by £52m or 10%, to £574m in 2007 from £522m in 2006. The statutory operating profit includes the effect of increased intangible amortisation but does not reflect the decreased contribution from discontinued operations.

Net finance costs

Net finance costs reported in our adjusted earnings comprise net interest payable and net finance income relating to post-retirement plans. Net interest payable in 2007 was £95m, up from £94m in 2006. Although we were partly protected by our fixed rate policy, a rise in average US dollar floating interest rates had an adverse effect. Year on year, average three month LIBOR (weighted for the Group's borrowings in US dollars, euros and sterling at each year end) rose by 0.5% to 5.4%, reflecting a rise in interest rates and a change in the currency mix of year end debt. These two factors, together with a decrease in the Group's average net debt of £90m, increased the Group's average net interest rate payable by 0.3% to 7.3%. In 2007 the net finance income relating to post-retirement plans was an income of £10m compared to an income of £4m in the previous year, giving an overall net finance cost reflected in adjusted earnings of £85m in 2007 compared to £90m in 2006.

Also included in the statutory definition of net finance costs are foreign exchange and other gains and losses. These are excluded from adjusted earnings as they represent short-term fluctuations in market value and are subject to significant volatility. Other gains and losses may not be realised in due course as it is normally the intention to hold the related instruments to maturity. Net foreign exchange losses of £17m in 2007 mainly relate to exchange losses on Euro-denominated debt used to hedge the receipt of proceeds from the sale of Les Echos. A corresponding gain is included in higher proceeds realised on this sale. In 2006 the exchange gains mainly relate to the un-hedged exposure on Euro borrowings and swaps that could not be designated as a net investment hedge under IAS 39.


In 2007 we revised our calculation of the effective tax rate on adjusted earnings to reflect the benefit of tax deductions attributable to amortisation of acquired goodwill and intangibles as this benefit more accurately aligns the adjusted tax charge with the expected rate of cash tax payment. We have restated the 2006 comparative figure.

On this basis the effective tax rate on adjusted earnings was 26.4% in 2007 compared with 25.9% in 2006. Our overseas profits, which arise mainly in the US, remain mostly subject to tax rates which are higher than the UK corporation tax rate (which was 30% in 2007 but will fall to 28% from 1 April 2008).

But this factor was offset by the amortisation-related tax deductions and, as in 2006, by releases from provisions reflecting continued progress in agreeing our tax affairs with the authorities.

The reported tax charge on a statutory basis was £131m, representing a rate of 28.0%. As we explained last year, the 2006 rate was abnormally low because of one-off adjustments related to the recognition of deferred tax assets for both capital losses and operating losses. The tax effects of the disposals during 2007, mainly Government Solutions (tax £93m) and Les Echos (tax £nil) are reflected in discontinued operations.

Tax paid in 2007 was £87m, compared with £59m in 2006. The 2007 amount included £26m paid in respect of disposals.

Discontinued operations

Discontinued operations relate to the disposal of Government Solutions (in February 2007), Les Echos (in December 2007) and the Data Management (Scanners) business (in February 2008). In total, we received cash proceeds of £469m for disposals in 2007.

As previously announced, we realised a loss before tax of £19m and a tax charge of £93m on the sale of Government Solutions. We realised a profit before tax of £165m with no tax payable on the sale of Les Echos. In anticipation of a loss on sale of the Data Management (Scanners) business, a goodwill impairment of £97m has been charged to the income statement in 2007. We received cash proceeds of $225m on the sale of Data Management on 22 February 2008.

Minority interests

Our minority interests comprise mainly the minority share in Interactive Data. Our stake in Interactive Data remained at 62% throughout 2007, leaving the minority interest unchanged at 38%.


The dividend accounted for in our 2007 financial statements totalling £238m, represents the final dividend (18.8p) in respect of 2006 and the 2007 interim dividend of 11.1p.

We are proposing a final dividend for 2007 of 20.5p, bringing the total paid and payable in respect of 2007 to 31.6p, a 7.8% increase on 2006. This final 2007 proposed dividend was approved by the board in February 2008, is subject to shareholder approval at the forthcoming AGM and will be charged against 2008 profits. For 2007, the dividend is covered 1.5 times by adjusted earnings.


Pearson operates a variety of pension plans. Our UK Group plan is by far the largest and includes a significant defined benefit section. We also have some smaller defined benefit plans in the US and Canada. Outside the UK, most of our companies operate defined contribution plans.

Our charge to profit in respect of worldwide pensions and post retirement benefits amounted to £61m in 2007 (2006: £60m) of which a charge of £71m (2006: £64m) was reported in operating profit and the net finance benefit of £10m (2006: £4m) was reported against interest.

Following the completion of the latest actuarial valuation of the UK Group pension plan as at January 2006, we made additional payments to the plan in 2007 amounting to £100m. These additional payments have contributed to the overall surplus recognised on the UK plan.