Operating review Financial review

Operating review
The Financial Times Group
The Penguin Group
Pearson Education
Financial review

Pearson Education

Pearson Education is the world's leading education company. We serve every age and level of student from early learning right through to professional life. We offer the broadest range of publishing and services from the most comprehensive list of textbooks, to leadership in testing, assessment and enterprise software and the very best in online consumer and professional learning.


Underlying sales at Pearson Education increased 11% and profits 22%. Profits were helped by a 52m reduction in internet losses but offset by Pearson Education's 20m share of investment in new back-office systems and processes and an 11m increase in pension contributions. NCS Pearson is now an integral part of Pearson Education. On a standalone basis, revenues increased 42% to 843m and profits increased 46% to 92m.

In our School business sales were down 5% and operating profits down 15%. In the US, our School business includes publishing, testing and software operations. School publishing revenues were down 6% due to the slower adoption cycle* and our decision to compete for just 65% of the available new adoption dollars. Our school imprints, Scott Foresman and Prentice Hall, took a 23% share of the total new adoption market and a 36% share of the adoptions in which we participated. Overall, our share of the US School publishing market was 24% (24.5% in 2001).

* In the US, 21 'adoption' states buy textbooks and related programmes to a planned contract schedule, which means the level of spending varies from year to year according to this schedule. The 'open territory' states are those that buy textbooks on an as-needed basis rather than on a published adoption schedule.

SALES 2002   2001   UNDERLYING
SCHOOL 1,151m $1,853m 1,266m $2,038m (5)
HIGHER EDUCATION 775m $1,248m 721m $1,161m 13
PROFESSIONAL 784m $1,262m 558m $898m 48
FT KNOWLEDGE 46m $74m 59m $95m (18)
TOTAL 2,756m $4,437m 2,604m $4,192m 11

SCHOOL 140m $225m 167m $269m (15)
HIGHER EDUCATION 142m $229m 127m $204m 17
PROFESSIONAL 81m $130m 80m $129m 8
INTERNET (25)m $(40)m (77)m $(124)m -
FT KNOWLEDGE (12)m $(19)m (23)m $(37)m -
TOTAL 326m $525m 274m $441m 22

After 13% growth in 2001, our school testing business grew by a further 3%. It renewed and expanded two of its largest multi-year statewide contracts - California and Ohio - as well as the National Assessment of Educational Progress contract from the US Department of Education. It won new contracts in California and six other states that will start to contribute to revenues in 2003. Revenues were down at our school software business, primarily due to the deferral of a number of contracts into 2003, but losses fell as we outsourced more of our software development needs.

Outside the US, our school publishing businesses performed strongly in Hong Kong, Japan, Singapore and Spain. Strong growth in English Language Teaching sales in Europe and Asia was partially offset by some weakness in US and Latin American markets.

Our Higher Education business increased revenues by 13% and operating profits by 17%. In the US the Higher Education publishing business grew its revenues by 14%, ahead of market growth of 10% (8% excluding Pearson). The business benefited from a booming college population, its publishing and salesforce strength and its lead in making online services an integral part of its products. Our custom publishing business, which produces text books and course materials custom-made for individual college professors, continued its rapid growth, with sales up 50% in the year (and 300% over the past three years). Around the world, our Higher Education operations benefited from the same trends we saw in the US, with a particularly strong performance in Europe where revenues were up in double digits.

The Professional business increased sales by 48% and profits by 8%. A major investment in 200 professional certification centres across the US, along with a change in business mix and a further decline in our higher-margin technology publishing businesses, and double digit growth in the lower margin Government Solutions division, meant that profits grew considerably slower than revenues. In the US, we helped the newly-formed Transportation Security Administration to recruit 64,000 security personnel for US airports, a one-year contract worth more than $300m in revenues to our Government Solutions business. A series of smaller, longer-term contract wins - with the Immigration and Naturalization Service, the Department of Health and Human Services and the US Department of Defense - gives the business a strong pipeline for 2003 and future years. With IT and technology markets continuing to be bleak, sales at our technology publishing arm were down 12% in the US (following a 20% fall in 2001) and margins declined, although due to further cost actions they were still in double digits. In Europe, where technology publishing sales were down more than 20% in 2002, we have taken similar actions to reduce costs.

SALES ANALYSIS total 2,756m $4.437m

SALES ANALYSIS total 2,206m $4.192m

About Pearson Education

Through our Scott Foresman and Prentice Hall School imprints, one in three American schoolchildren studies English or Maths with one of our textbooks.

We are America's leading test scoring and reporting company, scoring and processing 40 million student tests across the US every year.

More than 40,000 schools in the US use at least one of our online programmes and more than 14 million parents, students and teachers connect to our learning tools from home using the internet.

We are the largest college publisher in the world, with imprints such as Prentice Hall, Addison Wesley, Longman, Allyn & Bacon and Benjamin Cummings. These publishers represent around one in three of all the text and online programmes studied on US campuses.

Our professional and technology group publishes leading computer and business titles through imprints such as Addison-Wesley Professional, Peachpit Press, Prentice Hall PTR and Cisco Press.

Pearson Government Solutions is our fastest-growing business providing data management information and education-related services to the US federal Government.

We teach more people English as a second language than any other company in the world - 40 million of them. We're also the leading education company outside the US, operating in 55 countries and 17 languages.

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We are the world?s biggest book publisher and we are beginning to make that scale count in our favour. We have combined our book businesses in Australia and Canada and we are moving to share back office operations such as warehousing and distribution in the UK and New Zealand.

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