Chief executive's review The Pearson goals

Chief executive's review
The Pearson goals
Underlying sales growth
Trading margin
Adjusted earnings per share
Cash conversion
Free cash flow
Return on invested capital

Trading margin

Trading margin represents our ability to turn our sales into profit. Our aim is to ensure that all our businesses generate 'best-in-class' margins, relative to their industries.

In 2002, our trading margins improved to 11.4% (from 10.5% in 2001). We benefited from lower internet losses and actions taken in 2001 to reduce our cost base. This more than offset the continued business advertising and technology publishing downturn and a change in the revenue mix at Pearson Education (where we saw a very big increase in the sales contribution from our lower-margin professional operations). Throughout 2002 we continued to take cost actions, which we expect to help improve margins in future years. These included ongoing business restructuring costs (which we expense as operating costs) and a 30m investment in back office integration and systems rationalisations.

Looking ahead to 2003, we expect to reduce internet losses and the costs of our business integration investment to fall to 20m. This investment spend will disappear in 2004 and we aim to generate some 20m of annual cost savings from 2005 onwards.


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