Cash conversion

Our newspaper businesses typically convert almost all their operating profit into operating cash flow, but, if they are to grow, our book publishing businesses need to absorb capital - in the form of authors' advances, pre-publication costs, inventory and receivables. We do not as a result, seek to convert 100% of our operating profit into cash, although we set ourselves a minimum target of 80% cash conversion for any year.

We achieved that target again last year with a strong performance in both cash collection and inventory management.

working capital

Of our £1bn of working capital in 2002, 53% represents our investment in future growth - the advances that Penguin pays its authors before they deliver their manuscripts; and the new product development (or 'pre-publication costs') at Dorling Kindersley and Pearson Education.

* Pearson Education and Penguin only

We'll continue to make these investments, so long as we can see adequate returns. The rest of our working capital represents cash tied up in our processes, and here we see potential to become more efficient.

In our book publishing businesses we targeted and delivered a 5% improvement - some £53m - in the absolute level of average working capital, based on constant sales.

Improving our average working capital to sales in 2003 and 2004 will be extremely challenging as, at our education business in particular, we'll be ramping up new product investment ahead of very strong expected sales in 2005. However, we will seek to deliver continued efficiency gains and yearly progress on this measure.