Trading Update

Pearson plc, the international media group, is today issuing its annual pre-year end update on current trading conditions.

In the second half of the year, Pearson is trading in line with expectations. Group revenues and operating profits continue to grow, in spite of planned revenue investment in the future growth of all our businesses, particularly the Financial Times group, and the continuing strength of sterling against the US dollar and a number of European currencies. The significant improvement in cash flow signalled at the half year has been sustained, with operating cash flow in 1998 likely to be somewhat ahead of earlier expectations.

Trading at Pearson Education is in line with the promising start it made to the year. The US school and college businesses are capitalising on strong domestic market growth, although the international business is having to work hard to mitigate the impact of lower growth rates in Asia and Latin America. Pearson completed the acquisition of the Simon & Schuster education, reference and business & professional divisions on November 27. December trading at these businesses should have a modest, positive impact on 1998 group earnings. The integration of the Addison Wesley Longman and Simon & Schuster education businesses is now underway and, at this early stage, is on track to deliver the planned $130m of annual cost savings by the end of the year 2000.

Investment in the international expansion of the Financial Times newspaper continues, with sales hitting new peaks in continental Europe and the United States. Advertising revenues are in line with expectations, despite some softening in the classified sector. Trading margins in FT branded businesses are picking up, benefiting from the steps taken to reduce fixed costs. And we are making good progress in building as the gateway of all FT branded electronic products. The Les Echos group is on track for another record year. At Recoletos, the business daily, Expansion, is having a very strong year but the sports newspaper, Marca, is trading in an increasingly competitive environment.

Second half trading at the Penguin group has, as expected, benefited from the autumn publication of major new titles by a number of established authors. Its financial results for the full year will be suppressed by the one-off costs of the recently announced closure of Ladybird's Loughborough operations and its integration into the UK Children's division, based in London.

Profits at Pearson Television will reflect the successful integration of All American Communications. The business is on track to meet full year expectations, in spite of more difficult trading conditions in a number of important emerging markets.

All three Lazard houses continue to trade strongly.

Exchange Rates
The strength of sterling, against the US dollar and a number of European currencies, means that full year operating profits will be some £8m lower than if 1997 exchange rates had prevailed in 1998.

Looking Ahead
Although the general economic outlook is more difficult than it was 12 months ago, the reshaping of the Pearson group, with a more flexible cost base and smaller proportion of advertising related revenues, is creating a resilient business better placed to grow revenues and profits in these uncertain times. Our goal remains to deliver annual double digit earnings growth.

The preliminary results will be announced on 10 March 1999, the annual report and accounts will be published in early April and the annual general meeting will be held on April 30.

For further information

Pearson plc


John Fallon


+ 44 171 411 2310