Free cash flow
Free cash flow is the measure of the cash that is available from our business
operations, after the payment of interest and tax, for distribution in the form
of dividends or for re-investment in our business. The proceeds of disposals and
the cost of acquisitions, together with any substantial integration costs
associated with them, are excluded from the calculation.
Pearson's total free cash flow has been depressed in recent years by a high
level of investment, particularly in the internet operations, but also in our
print businesses. We believe that these investments will generate future growth,
but we also need to ensure that dividends to shareholders can be paid from the
cash generated by our businesses. In 2002, our focus on working capital and
capital expenditure helped us to deliver a 29% improvement in free cash flow -
even as we continued to invest in our businesses.
Looking ahead, we expect to deliver steady progress in cash generation, although
we recognise that free cash flow in any one year may be affected by individual
investment programmes. In the short term, we expect cash flow generation to be