UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------------------------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2004
PEARSON plc
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address of principal executive office)
Indicate by check mark whether the Registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F X Form 40-F
Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes No X
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Report includes the following documents:
1. A press release from Pearson plc announcing Final Results
1 March 2004
PEARSON PLC PRELIMINARY RESULTS
12 months ended 31 December 2003
2003 2002 Change - Change - Change
---------------- -------- --------- underlying constant -headline
--------- currency ---------
---------
Sales GBP4,048m GBP4,320m (4)% (2)% (6)%
Business performance*
Operating
profit GBP490m GBP493m 0% 5% (1)%
Profit before
tax GBP410m GBP399m 8% 3%
Adjusted
earnings per
share 32.0p 30.3p 11% 6%
Operating free
cash flow GBP210m GBP305m (31)%
Free cash flow GBP192m GBP215m (11)%
Operating
margin 12.1% 11.4%
Return on
invested
capital 6.3% 6.0%
Statutory results
Operating
profit GBP226m GBP143m 58%
Profit/ (loss)
before tax GBP152m GBP(25)m --
Basic
earnings/
(loss) per
share 6.9p (13.9)p --
Dividend per
share 24.2p 23.4p 3%
Net borrowings GBP1,361m GBP1,408m (3)%
* Continuing operations before goodwill (2003: GBP(264)m; 2002: GBP(340)m),
integration costs (2003: GBPnil; 2002: GBP(10)m), non operating items (2003:
GBP6m; 2002: GBP(37)m) and net finance costs (2003: GBPnil; 2002: GBP(37)m).
Constant currency growth rates are calculated using constant 2002 exchange
rates. In 2003, currency movements reduced revenues by GBP181m and profits by
GBP27m. Underlying growth rates exclude the impact of currency movements and
portfolio changes. In 2003, portfolio changes increased revenues by GBP89m and
profits by GBP24m. Throughout this statement, we refer to business performance
measures and growth rates on an underlying basis unless otherwise stated.
2003: market share and efficiency gains bring improvements in operating margin,
adjusted earnings per share and return on invested capital;
2004: underlying progress on earnings, cash and returns expected, despite a weak
school calendar and investments to gain share and accelerate organic growth;
2005: acceleration in earnings, cash and returns, with the strengthening of the
US School industry, $1bn of multi-year contract wins in 2003 and lower costs in
advertising and technology-related businesses.
Marjorie Scardino, chief executive, said:
"In the face of a tough business environment over the past few years we have
improved our market positions through operating efficiency and product quality.
We are now leaner, stronger and more ready for the better conditions we're
beginning to see ahead.
"In 2004 we expect to make further underlying progress toward our financial
goals, and in 2005 we see a very strong performance from our whole company. That
will be underpinned by US school publishing and the contracts we already have
in-house. Any recovery in our cyclical businesses would be a further benefit."
2003 highlights: strong competitive performances and further efficiency gains
- School sales up 1% and profit up 13%. US basal publishing up 4% (against
market growth of 1%); digital learning business returns to profit despite
lower sales; testing business wins $300m of new contracts;
- Higher Education sales up 6% and profit up 11%. US Higher Education
business up 6% (against market up 3%) in fifth straight year of market share
gains;
- Professional sales and profits lower due to impact of the 2002 TSA
contract. Technology publishing business maintains margins and gains share
in a declining market; Professional Testing and Government Solutions win
$800m of new long-term contracts;
- FT Group profits up 8% despite tough market for business advertising;
first signs of improvements in advertising trends in the second half of the
year. IDC increases profits by 18% and business newspapers invest to
strengthen competitive positions;
- Penguin increases revenues and profits by 2% for another record year.
Strong publishing offsets industry-wide backlist softness.
Outlook
At this early stage in the year, we continue to expect further underlying
progress on earnings, cash and returns in 2004. Pearson generates approximately
two thirds of its revenues in the US and a five cent change in the average
exchange rate for the full year (which in 2003 was GBP1:$1.63) will have an
impact of approximately 1p on adjusted earnings per share. Our outlook is:
- We expect revenues at our School business to be broadly in line with
2003, as growth in testing and digital learning offset lower sales in US
school publishing, where we expect the industry to decline in the mid-single
digits. We expect our US publishing margins to ease by 1 - 2% points but
expect margin progress elsewhere in the School business. We are continuing
to invest in our programmes in key subjects and in 2005, based on the
current adoption schedule, we expect revenues at our US School publishing
business to grow in double digits, with a margin recovery. Full
implementation of No Child Left Behind from 2005 and improving state budgets
should benefit our testing and digital learning businesses;
- In 2004, we expect our US Higher Education business to grow in the 4-6%
range, gaining share with a strong publishing schedule, our online services
and custom publishing;
- We expect our Professional businesses to show revenue and profit growth
in 2004, even as we invest in our new professional testing centres;
- Penguin faces tough revenue and profit comparisons after another record
year in 2003, but we expect to grow faster than the consumer publishing
market with another strong publishing schedule. This year, Penguin will
increase investment in its publishing and in initiatives to reach new
readers. We expect Penguin to deliver a good cash performance, even though
its publishing schedule will again be concentrated in the fourth quarter;
- Advertising trends at our business newspapers have continued to improve
in the first two months of the year. Advertising revenues at the Financial
Times, which were 18% lower in the first half of 2003 and 12% lower in the
second half, are 4% lower in the year to date. Forward bookings are running
a little ahead of last year at all our business newspapers. Although the
outlook for our business newspapers remains uncertain, we expect the cost
actions we have taken to reduce losses at the Financial Times by
approximately GBP20m this year even without any advertising recovery. Once
again, we expect IDC to deliver good results, with profit growth in the
mid-single digits.
For more information:
UK: Luke Swanson / Charlotte Elston + 44 (0) 20 7010 2310
US: Jeff Taylor (analysts and investors) +1 952 201 6878 / David Hakensen
(media) + 1 952 681 3040
Pearson's preliminary results presentation for investors and analysts will be
webcast live today from 0930 (GMT) and available for replay from 12 noon (GMT)
via www.pearson.com.
We will also be holding a conference call for US investors at 1000 (EST)/1500
(GMT) To participate in the conference call or to listen to the audiocast,
please register at www.pearson.com.
Video interviews with Marjorie Scardino, chief executive, and Rona Fairhead,
chief financial officer, are also available at www.pearson.com.
High resolution photographs are available for the media at www.newscast.co.uk.
Throughout this statement (unless otherwise stated):
1. Adjusted figures are stated before goodwill, integration costs and non
operating items. Goodwill is amortised over no more than 20 years;
2. The 'business performance' measures, which Pearson uses alongside other
measures to track performance, are non-GAAP measures for both US and UK
reporting. Reconciliations of operating profit, adjusted earnings per share and
operating free cash flow to the equivalent statutory heading under UK GAAP are
included in notes 2, 5 and 10.
Operating review
2003 overview
In 2003, sales declined by 4%. Strong competitive performances in our book
businesses could not offset the absence of the one-off Transportation Security
Administration (TSA) contract, which contributed some GBP250m to our sales in
2002, and tough trading conditions for our advertising and technology-related
businesses. The impact of the GBP272m sales decline was almost entirely offset
by cost reductions, so that operating profit was GBP3m lower at GBP490m and
profit before tax improved to GBP410m (GBP399m in 2002). Operating margins
improved from 11.4% to 12.1%. Adjusted earnings per share grew to 32.0p, an
increase of 6%.
Operating free cash flow was GBP210m (GBP305m in 2002) and free cash flow was
GBP192m (GBP215m in 2002). Two major factors, both timing-related, masked an
otherwise strong performance. Penguin's publishing schedule was particularly
concentrated in the fourth quarter, pushing collections into 2004, and the TSA
has not yet paid some $151m relating to the 2002 contract. We held capital
expenditure below the level of depreciation and, stripping out the TSA impact,
average use of working capital improved slightly on 2002, even as we increased
investment in new authors, titles and programmes. We reduced our cash spend on
integration, finance charges and tax from GBP240m in 2002 to GBP128m in 2003.
On a statutory basis, Pearson reported a profit before tax for the year of
GBP152m (a GBP25m loss in 2002) and generated earnings per share of 6.9p (a loss
per share of 13.9p in 2002). Net borrowings fell a further 3% to end the year at
GBP1,361m. The board is recommending a 3.4% increase in the dividend to 24.2p
per share.
Pearson Education
GBP millions 2003 2002 Change - Change - constant Change -
------------- --------- --------- underlying currency headline
--------- --------- ---------
Sales
School 1,176 1,151 1% 8% 2%
Higher
Education 772 775 6% 6% 0%
Professional 503 784 (30)% (32)% (36)%
FT Knowledge - 46 - - -
Pearson
Education 2,451 2,756 (6)% (5)% (11)%
Operating
profit
School 127 115 13% 17% 10%
Higher
Education 148 142 11% 11% 4%
Professional 38 81 (51)% (52)% (53)%
FT Knowledge - (12) - - -
Pearson
Education 313 326 (2)% 2% (4)%
Sales at Pearson Education were 6% lower than in 2002, as good growth in our
School and Higher Education businesses could not fill the gap left by the
absence of the GBP250m TSA contract. Profits were 2% lower, as progress in
School and Higher Education largely offset a 51% decline in our Professional
operations. Margins improved as we benefited from sales growth, operating
efficiencies and the 2002 disposal of FT Knowledge.
In our School business, sales were 1% higher and operating profits up 13%. In
the US, our textbook publishing business grew 2% as our basal imprints Scott
Foresman and Prentice Hall increased revenues by 4% against basal market growth
of some 1%. Our new elementary social studies programme took a market share of
more than 50% in adoption states, helping Pearson to take the leading position
in new adoptions with a share of approximately 29%.
Sales at our supplementary publishing business were lower than in 2002 as we
discontinued some unprofitable product lines and were affected by industry-wide
weakness in state budgets. Although the same pressures reduced sales at our
School digital learning business, strong cost management enabled it to return to
a small profit. In School testing, 2003 revenues were a little ahead of the
previous year and we won more than $300m worth of new multi-year contracts which
will boost sales from 2005, when the Federal Government's No Child Left Behind
accountability measures become mandatory.
Outside the US, revenues were up 7% with good growth in English Language
Teaching and in our School publishing operations in Hong Kong, South Africa, the
UK and the Middle East. Our UK testing business, London Qualifications,
contributed revenues of GBP89m.
Our Higher Education business increased revenues by 6% and operating profits by
11%. In the US the Higher Education publishing business grew its revenues by 6%.
Excluding Pearson, the market grew by 3%. This comes on top of 14% revenue
growth in 2002 and marks our fifth straight year of market share gains. Though
industry growth slowed a little in 2003, the long-term fundamentals of growing
enrolments, a boom in community colleges and a strong demand for post-secondary
qualifications more than offset the impact of state budget weaknesses and rising
tuition fees.
Our business benefited from a strong schedule of first editions including
Faigley's Penguin Handbook in English Composition, Wood & Wood's Mastering World
Psychology and Jones & Wood's Created Equal in American History. The use of
technology continues to distinguish our learning programmes, with almost one
million students now following their courses through our paid-for online sites,
an increase of 30% on last year, and a further 1.4 million using our free online
services. Our market-leading custom publishing business, which creates
personalised textbooks and online packages for individual professors and
faculties, grew revenues by 35%, with sales exceeding $100m for the first time.
Outside the US, our Higher Education imprints grew 7%, helped by strong growth
in key markets including Europe and Canada, solid local publishing and the
introduction of our custom publishing model.
Revenues and profits were significantly lower in our Professional business,
caused by both the absence of the TSA contract and the associated close-out
costs. The $151m receivable from the TSA remains outstanding, and we are
discussing with the TSA the post-contract audit and payment. We expect this
process to be completed in 2004, and that we will receive payment of the amount
due, although the timing of the receipt remains uncertain.
TSA apart, our Government Solutions business grew by 39%, benefiting from new
contracts with the Department of Health and the USAC. The Professional Testing
business, which had revenues of approximately $100m in 2003, 51% higher than in
2002 excluding TSA, won more than $600m of new long-term contracts. These
include testing learner drivers for the UK's Driving Standards Agency, business
school applicants for the Graduate Management Admissions Test and securities
professionals for the National Association of Securities Dealers. In 2004 we
will invest in the expansion of our international network of testing centres to
support these contracts, from which we expect to generate significant revenue
and profit growth from 2005.
Our worldwide technology publishing operations maintained margins despite a 12%
drop in revenues. After a severe three-year technology recession, in which our
publishing revenues have fallen by 36%, the rate of decline now appears to be
slowing, particularly in the US.
The Penguin Group
GBP 2003 2002 Change - Change - constant Change -
millions --------- --------- underlying currency headline
----------- ---------- --------- ---------
Sales 840 838 2% 4% 0%
Operating
profit 91 87 2% 8% 5%
Note: At the beginning of 2003 we transferred our Alpha consumer technology
publishing business from Pearson Education's Professional division to Penguin.
Our calculation of Penguin's underlying growth includes Alpha for both 2002 and
2003.
Penguin increased revenues and profits by 2%. In the US, our largest market,
accounting for around two-thirds of sales, our best ever schedule of new titles
enabled Penguin to grow ahead of the industry despite tough conditions for
backlist publishing. In the UK our backlist performed well, helped by the
relaunch of Penguin Classics and BBC's The Big Read.
Penguin's best-selling books included Sue Monk Kidd's debut novel The Secret
Life of Bees (2.3m copies sold) John Steinbeck's East of Eden (1.5m), Al
Franken's Lies and the Lying Liars Who Tell Them (1.1m), Scott Berg's Kate
Remembered (0.5m), Paul Burrell's A Royal Duty (0.9m), Madonna's The English
Roses and Mr Peabody's Apples (0.9m) and Michael Moore's Stupid White Men (0.8m)
.. Dorling Kindersley faced a tough backlist market but benefited from three
major new titles: America 24/7, Tom Peters' Re-Imagine! and an e-Encyclopaedia
published in association with Google.
We increased spending on authors' advances as we invested in a number of new
imprints including Portfolio (business books), Gotham (non-fiction), and The
Penguin Press (non-fiction), which has already signed almost 100 authors,
including Alexandra Fuller, Ron Chernow and John Berendt. We signed new
multi-book deals with a number of our most successful authors including
Catherine Coulter and Nora Roberts, whose books have spent a total of 71 weeks
at number one on the New York Times bestseller list. In the year ahead we will
also be investing in channel initiatives to build the Penguin and DK brands and
to reach new consumers. These include Penguin TV, which will commission
non-fiction and children's programmes based on DK and Penguin books, and a pilot
direct selling programme in the US.
Pearson is the world's largest book publisher and last year we continued to
integrate our book publishing operations around the world. In Australia and
Canada, the first two markets where we combined Penguin and Pearson Education
into one company, profits were up 17% and 12% respectively. In the UK, we are
shortly to move the two businesses to a single shared warehousing and
distribution centre and in the US we have begun to consolidate central
functions. The costs of these integration moves were absorbed in the operating
profits of Pearson Education and Penguin in 2002 and 2003, and we continue to
expect them to deliver some GBP20m of annual cost savings from 2005.
Financial Times Group
GBP millions 2003 2002 Change - Change - Change -
underlying constant headline
--------------- -------- -------- --------- currency
--------- ---------
Sales
Financial
Times 203 224 (9)% (9)% (9)%
Other FT
publishing 112 105 (7)% 0% 7%
Recoletos 169 148 4% 4% 14%
IDC 273 249 2% 15% 10%
Total 757 726 (3)% 3% 4%
Operating profit /
(loss)
Financial
Times (32) (23) (37)% (37)% (39)%
Other FT
publishing 6 10 (42)% (45)% (40)%
Associates &
Joint Ventures 3 (6) -- -- --
Recoletos 28 29 (11)% (11)% (3)%
IDC 81 70 18% 24% 16%
Total 86 80 8% 13% 8%
The Financial Times Group increased profits by 8% despite a 3% revenue decline
as IDC, our asset pricing business, posted an 18% profit increase (before the
benefits of Comstock, acquired last January). For our business newspapers, 2003
was the third year of a savage corporate advertising recession which has seen
advertising volumes at the Financial Times fall almost two-thirds since their
peak in 2000. Over the same period, we have reduced the FT's cost base by more
than GBP100 million.
Losses at the Financial Times were GBP9m higher than in 2002 as advertising
revenues fell by GBP23m and we invested some GBP10m in the newspaper's continued
expansion around the world. Advertising revenues were down 15% as industry
conditions remained tough for the FT's key advertising categories of corporate
finance, technology and business to business. The advertising declines were
significantly worse immediately before and during the war in Iraq, but the rate
of decline began to narrow towards the end of the year, helped by growth in US,
online and recruitment advertising. The newspaper's circulation in the six
months to January 2004 was 433,000, 4% lower than in the same period last year,
although FT.com's subscribers are some 50% higher at 74,000. The launch of our
Asian edition in September completed the FT's global network of four regional
newspaper editions, backed up by a single editorial, commercial and technology
infrastructure and by FT.com.
Profits at Les Echos were behind last year, reflecting continuing declines in
advertising revenues and investment in the newspaper's relaunch. Average
circulation for the year was down 4% to 116,400, but the September relaunch
generated a positive response, with newsstand sales in the final quarter up 4%
against a market decline of 6%. Despite a continued decline in the advertising
market, FT Business posted profit growth, due to tight cost management.
The FT's associates and joint ventures returned to profit (GBP6m loss in 2002)
with good progress at FT Deutschland, our joint venture with Gruner + Jahr, and
at the Economist Group, in which Pearson owns a 50% interest. FT Deutschland's
average circulation for 2003 was 92,000, an increase of 9% on the previous year
and advertising revenues increased in a declining market. The Economist Group
increased its operating profit despite further revenue declines, reflecting
additional measures to reduce costs. The Economist's circulation growth
continued, with average weekly circulation 3% higher at 908,000.
Revenues at Recoletos (Bolsa Madrid: REC), our 79%-owned Spanish media group,
were up 4% as its consumer titles, including sports newspaper Marca, performed
strongly, more than offsetting further advertising revenue decline at business
newspaper Expansion. Profits were 11% lower as Recoletos invested in existing
and new titles. Average circulation at Marca increased 3% to 391,000, and at
Expansion fell 3% to 46,000.
Interactive Data Corporation (NYSE: IDC), our 61%-owned asset pricing business,
grew its underlying revenues in a declining market for the fourth consecutive
year. Revenues increased by 2% and profits by 18%, despite continuing weakness
in the market for financial services as institutions focused on containing
costs. It was helped by strong institutional renewal rates, which continue to
run at more than 95%, the addition of new asset classes to its core pricing
services, and the successful launch of our Fair Value Pricing service, which is
now installed in 35 leading institutions. IDC continued to extend its range of
services through new products such as e-Finance Solutions, enhancements of
existing products such as BondEdge and eSignal and bolt-on acquisitions
including Comstock, a real-time financial data service, and Hyperfeed
Technologies.
Financial review
Profit before tax
In 2003 we report a profit before tax of GBP152m against a loss of GBP25m in
2002 as acquisition integration charges ceased and the goodwill amortisation
charge reduced.
Goodwill amortisation
Goodwill is a balance sheet item which represents the difference between the
price paid for acquisitions and the fair value of the assets acquired. Pearson
amortises goodwill to the profit and loss account over whichever is the shorter
of the estimated useful life of the acquisition and a period of 20 years. The
goodwill amortisation charge fell by GBP66m last year to GBP264m, mainly due to
Family Education Network and CBS Marketwatch, where the final amortisation
charges were incurred in the first half of 2003.
Goodwill impairment
Goodwill is subject to an impairment review at the end of the first full year
following an acquisition and at any other time if events or changes in
circumstances indicate that the carrying value may not be recoverable. In 2003
no impairment charges were necessary.
Integration costs
Integration costs are the one-off costs of integrating significant recent
acquisitions into our existing businesses. The last of these significant
acquisitions occurred in 2000 and the final costs of integration were incurred
in 2002. In 2003 there were no integration charges and all other restructuring
and related costs have been expensed through the profit and loss account as part
of the ongoing operations of our businesses.
Non operating items
Non operating items relate to gains and losses on the sale or closure of
businesses and on the sale of fixed assets. In 2003 we had an overall profit on
non operating items of GBP6m, mainly relating to the sale of an associate
investment in Unidesa by Recoletos.
Interest
Net operating interest fell by GBP14m to GBP80m, with average net debt
decreasing by GBP157m. Interest was further reduced by the effect of a general
fall in interest rates during the year. The weighted average three month LIBOR
rate, reflecting the Group's borrowings in US dollars, euros, and sterling, fell
by 75 basis points, or 0.75%. The impact of these falls was dampened by our
treasury policy of having 40 - 65% of net debt at fixed interest rates. As a
result, the Group's net interest rate payable averaged approximately 4.6%,
improving from 5.0% in the previous year.
Taxation
The tax charge for the year was GBP75m. As in previous years, this high rate of
tax has come about mainly because there is only very limited tax relief
available for the goodwill amortisation charged in the accounts. The total tax
charge of GBP75m includes credits of GBP56 million relating to prior year items;
these reflect a combination of settlements with Revenue authorities and changes
to deferred tax balances.
The tax rate on adjusted earnings fell from 32.8% in 2002 to 31.2% in 2003. This
decline reflects the factors above, the impact of the dollar exchange rate, and
a more favorable mix of profits between higher and lower tax rate jurisdictions.
Minority interests
Minority interests include a 39% minority share in IDC and a 21% minority share
in Recoletos.
Dividends
The dividend payment of GBP192m which we are recommending in respect of 2003
represents 24.2p per share - a 3.4% increase on 2002. The dividend is covered
1.3 times by adjusted earnings, and 1.1 times by operating free cash flow. The
company seeks to maintain a balance between the requirements of our
shareholders, including our many private shareholders, for a rising stream of
dividend income and the re-investment opportunities that we see across the
Group. This balance has been expressed in recent years as a commitment to
increase our annual dividend faster than the prevailing rate of inflation while
progressively reinvesting a higher proportion of our distributable earnings in
our business.
Pensions
Pearson operates a variety of pension schemes. Our UK fund is by far the largest
and we also have some smaller defined benefit funds in the US and Canada.
Outside the UK, most of our people operate 401K (essentially defined
contribution) plans. Our most recent full valuation of the UK Pension Fund was
in 2001 and the next full valuation will be completed during 2004. The pension
funding level is kept under regular review by the company and the Fund trustees.
After an informal indication in 2002, and taking account of current stock market
conditions, the company increased contributions by GBP5m to GBP25m in 2003 and
has taken an additional GBP6m charge to the profit and loss account, ahead of
the full valuation in 2004. The additional contributions were designed to keep
the scheme fully funded and bridge the gap between the 2001 valuation and
current expectations.
Except for the historical information contained herein, the matters discussed in
this preliminary announcement include forward-looking statements that involve
risk and uncertainties that could cause actual results to differ materially from
those predicted by such forward-looking statements. These risks and
uncertainties include international, national and local conditions, as well as
competition. They also include other risks detailed from time to time in the
company's publicly-filed documents, including the company's Annual Report and US
Form 20-F. The company undertakes no obligation to publicly update any forward
looking statement, whether as a result of new information, future events or
otherwise.
Consolidated Profit and Loss Account
for the year ended 31 December 2003
------------------------ ----- ------ ------ ------ ------ ------ ------
------ 2003 ----------- ------ 2002 ------------
Results Results
from from
all figures in GBP Note oper- Other Total oper- Other Total
millions ations items ations items
------------------------ ----- ------ ------ ------ ------ ------ ------
Sales
(including
share of joint
ventures) 4,066 - 4,066 4,331 - 4,331
Less: share of
joint ventures (18) - (18) (11) - (11)
------------------------ ----- ------ ------ ------ ------ ------ ------
Sales 2a 4,048 - 4,048 4,320 - 4,320
Group
operating
profit 483 (257) 226 496 (302) 194
Share of operating
profit/(loss) of joint
ventures and
associates 2c 7 (7) - (3) (48) (51)
------------------------ ----- ------ ------ ------ ------ ------ ------
Total
operating
profit 2b 490 (264) 226 493 (350) 143
------------------------ ----- ------ ------ ------ ------ ------ ------
Loss on sale
of fixed
assets and
investments 3a - (2) (2) - (13) (13)
Profit/(loss)
on sale of
subsidiaries
and associates 3b - 8 8 - (27) (27)
Profit on sale
of
subsidiaries
by an
associate 3c - - - - 3 3
------------------------ ----- ------ ------ ------ ------ ------ ------
Non operating
items - 6 6 - (37) (37)
------------------------ ----- ------ ------ ------ ------ ------ ------
Profit before
interest and
taxation 490 (258) 232 493 (387) 106
Net finance
costs 4 (80) - (80) (94) (37) (131)
------------------------ ----- ------ ------ ------ ------ ------ ------
Profit/(loss)
before
taxation 410 (258) 152 399 (424) (25)
Taxation 6 (128) 53 (75) (131) 67 (64)
------------------------ ----- ------ ------ ------ ------ ------ ------
Profit/(loss)
after taxation 282 (205) 77 268 (357) (89)
Equity
minority
interests (28) 6 (22) (27) 5 (22)
------------------------ ----- ------ ------ ------ ------ ------ ------
Profit/(loss)
for the
financial year 254 (199) 55 241 (352) (111)
Dividends on
equity shares 7 (192) (187)
------------------------ ----- ------ ------ ------ ------ ------ ------
Loss retained (137) (298)
------------------------ ----- ------ ------ ------ ------ ------ ------
Adjusted
earnings per
share 5 32.0p 30.3p
Basic
earnings/(loss)
per share 5 6.9p (13.9)p
Diluted
earnings/(loss)
per share 5 6.9p (13.9)p
Dividend per
share 7 24.2p 23.4p
There is no difference between the profit/(loss) before taxation and the
retained loss for the year stated above and their historical cost equivalents.
Consolidated Balance Sheet
as at 31 December 2003
--------------------------------- ------- --------- ---------
all figures in GBP millions Note 2003 2002
--------------------------------- ------- --------- ---------
Fixed assets
Intangible assets 3,260 3,610
Tangible assets 468 503
Investments: joint ventures
--------- ---------
Share of gross assets 7 7
Share of gross liabilities (1) -
--------- ---------
6 7
Investments: associates 58 106
Investments: other 80 84
--------------------------------- ------- --------- ---------
3,872 4,310
--------------------------------- ------- --------- ---------
Current assets
Stocks 683 734
Debtors 1,132 1,057
Deferred taxation 145 174
Investments 2 2
Cash at bank and in hand 561 575
--------------------------------- ------- --------- ---------
2,523 2,542
--------------------------------- ------- --------- ---------
Creditors - amounts falling due within one year
Short-term borrowing (575) (249)
Other creditors (1,129) (1,114)
--------------------------------- ------- --------- ---------
(1,704) (1,363)
--------------------------------- ------- --------- ---------
Net current assets 819 1,179
--------------------------------- ------- --------- ---------
Total assets less current liabilities 4,691 5,489
Creditors - amounts falling due after more than one
year
Medium and long-term borrowing (1,347) (1,734)
Other creditors (45) (60)
--------------------------------- ------- --------- ---------
(1,392) (1,794)
Provisions for liabilities and charges (152) (165)
--------------------------------- ------- --------- ---------
Net assets 3,147 3,530
--------------------------------- ------- --------- ---------
Capital and reserves
Called up share capital 9 201 200
Share premium account 9 2,469 2,465
Profit and loss account 9 282 673
--------------------------------- ------- --------- ---------
Equity shareholders' funds 2,952 3,338
Equity minority interests 195 192
--------------------------------- ------- --------- ---------
3,147 3,530
--------------------------------- ------- --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2003
---------------------------------- ------ --------- ---------
all figures in GBP millions Note 2003 2002
---------------------------------- ------ --------- ---------
Net cash inflow from operating activities 10 359 529
---------------------------------- ------ --------- ---------
Dividends from joint ventures and associates 9 6
---------------------------------- ------ --------- ---------
Interest received 11 11
Interest paid (86) (151)
Debt issue costs (1) -
Dividends paid to minority interests (19) (1)
---------------------------------- ------ --------- ---------
Returns on investments and servicing of finance (95) (141)
---------------------------------- ------ --------- ---------
Taxation (44) (55)
---------------------------------- ------ --------- ---------
Purchase of tangible fixed assets (105) (126)
Sale of tangible fixed assets 8 7
Purchase of investments (4) (21)
Sale of investments - 3
---------------------------------- ------ --------- ---------
Capital expenditure and financial investment (101) (137)
---------------------------------- ------ --------- ---------
Purchase of subsidiaries (94) (87)
Net cash acquired with subsidiaries 34 1
Purchase of joint ventures and associates (5) (40)
Sale of subsidiaries (4) 3
Net overdrafts/(cash) disposed with subsidiaries 1 (1)
Sale of associates 57 920
---------------------------------- ------ --------- ---------
Acquisitions and disposals (11) 796
---------------------------------- ------ --------- ---------
Equity dividends paid (188) (181)
---------------------------------- ------ --------- ---------
Net cash (outflow)/inflow before management of
liquid resources and financing (71) 817
---------------------------------- ------ --------- ---------
Liquid resources acquired (85) (65)
Collateral deposit reimbursed - 22
---------------------------------- ------ --------- ---------
Management of liquid resources (85) (43)
---------------------------------- ------ --------- ---------
Issue of equity share capital 5 6
Capital element of finance leases (3) (5)
Loan facility advanced/(repaid) 1 (507)
Bonds advanced 180 -
Bonds repaid (159) (167)
Collateral deposit received 54 17
Net movement in other borrowings (13) (7)
---------------------------------- ------ --------- ---------
Financing 65 (663)
---------------------------------- ------ --------- ---------
(Decrease)/increase in cash in the year (91) 111
---------------------------------- ------ --------- ---------
2003 results
The preliminary results for the year ended 31 December 2003 have been extracted
from audited accounts, which have not yet been delivered to the Registrar of
Companies. The 2002 accounts carry an unqualified audit report and have been so
delivered. The 2003 Annual Report will be posted to shareholders on Thursday 25
March 2003.
Dividend
The directors recommend a final dividend of 14.8p per share, payable on Friday 7
May 2004 to shareholders on the register at the close of business on Tuesday 13
April 2004.
Annual General Meeting
The AGM will be held at The Queen Elizabeth II Conference Centre, Broad
Sanctuary, Westminster, London, SW1P 3EE, at 12 noon on Friday 30 April 2004.
Statement of Total Recognised Gains and Losses
for the year ended 31 December 2003
-------------------------------------- --------- ---------
all figures in GBP millions 2003 2002
-------------------------------------- --------- ---------
Profit/(loss) for the financial year 55 (111)
Other net gains and losses recognised in reserves:
Currency translation differences (254) (317)
Taxation on currency translation differences - 5
-------------------------------------- --------- ---------
Total recognised gains and losses relating to the year (199) (423)
-------------------------------------- --------- ---------
Prior year adjustment - FRS 19 - 209
-------------------------------------- --------- ---------
Total recognised gains and losses (199) (214)
-------------------------------------- --------- ---------
Reconciliation of Movements in Equity Shareholders' Funds
for the year ended 31 December 2003
all figures in GBP millions 2003 2002
------------------------------------- ----------- ---------
Profit/(loss) for the financial year 55 (111)
Dividends on equity shares (192) (187)
------------------------------------- ----------- ---------
(137) (298)
Currency translation differences (net of taxation) (254) (312)
Goodwill written back on sale of subsidiaries and - 144
associates
Shares issued 5 6
Replacement options granted on acquisition of subsidiary - 1
------------------------------------- ----------- ---------
Net movement for the year (386) (459)
Equity shareholders' funds at beginning of the year 3,338 3,797
------------------------------------- ----------- ---------
Equity shareholders' funds at end of the year 2,952 3,338
------------------------------------- ----------- ---------
Notes to the 2003 Results
for the year ended 31 December 2003
1. Basis of preparation
----------------------------------------------------
The results for the year ended 31 December 2003 have been prepared in accordance
with the accounting policies set out in the 2002 Annual Report, except that the
amendment to FRS 5 - Application Note G 'Revenue recognition' has been applied
in respect of multiple element arrangements, which has not given rise to a
material adjustment.
2a. Analysis of sales
all figures in GBP millions 2003 2002
------------------------------------- --------- ---------
Business sectors
Pearson Education 2,451 2,756
FT Group 757 726
The Penguin Group 840 838
------------------------------------- --------- ---------
Continuing operations 4,048 4,320
------------------------------------- --------- ---------
Geographical markets supplied
United Kingdom 474 411
Continental Europe 463 419
North America 2,742 3,139
Asia Pacific 255 249
Rest of World 114 102
------------------------------------- --------- ---------
Continuing operations 4,048 4,320
------------------------------------- --------- ---------
2b. Analysis of total operating profit
---------------------------------------------------------------
2003
------------------------------------------------------------
all figures in GBP Results Integration Goodwill Goodwill Operating
millions from costs amortisation impairment profit
operations
---------------- ----------- -------- --------- --------- --------
Business
sectors
Pearson
Education 313 - (207) - 106
FT Group 86 - (36) - 50
The Penguin
Group 91 - (21) - 70
---------------- ----------- -------- --------- --------- --------
Continuing
operations 490 - (264) - 226
---------------- ----------- -------- --------- --------- --------
2b. Analysis of total operating profit (continued)
---------------------------------------------------------------
2003
------------------------------------------------------------
all figures in GBP Results Integration Goodwill Goodwill Operating
millions from costs amortisation impairment profit
operations
---------------- ----------- -------- --------- --------- --------
Geographical
markets
supplied
United Kingdom (46) - (31) - (77)
Continental
Europe 29 - (10) - 19
North America 466 - (218) - 248
Asia Pacific 33 - (5) - 28
Rest of World 8 - - - 8
---------------- ----------- -------- --------- --------- --------
Continuing
operations 490 - (264) - 226
---------------- ----------- -------- --------- --------- --------
---------------- -------------------------------------
---------------------------------------------------------------
---------------- 2002
------------------------------------------------------------
----------- -------- --------- --------- --------
all figures in GBP Results Integration Goodwill Goodwill Operating
millions from costs amortisation impairment profit
operations
---------------- ----------- -------- --------- --------- --------
Business
sectors
Pearson
Education 326 (7) (244) - 75
FT Group 80 - (65) (10) 5
The Penguin
Group 87 (3) (18) - 66
---------------- ----------- -------- --------- --------- --------
Continuing
operations 493 (10) (327) (10) 146
Discontinued
operations - - (3) - (3)
---------------- ----------- -------- --------- --------- --------
493 (10) (330) (10) 143
---------------- ----------- -------- --------- --------- --------
Geographical
markets
supplied
United Kingdom (72) (5) (25) - (102)
Continental
Europe 40 - (8) - 32
North America 495 (5) (288) - 202
Asia Pacific 31 - (6) - 25
Rest of World (1) - - (10) (11)
---------------- ----------- -------- --------- --------- --------
Continuing
operations 493 (10) (327) (10) 146
Discontinued
operations - - (3) - (3)
---------------- ----------- -------- --------- --------- --------
493 (10) (330) (10) 143
---------------- ----------- -------- --------- --------- --------
Note: Analyses of the profits and losses of joint ventures and associates are
shown in note 2c.
2c. Share of operating loss of joint ventures and operating profit/(loss) of
associates
Joint
ventures --------------------------------------
---------------
---------------------------------------------------------------
--------------- 2003
---------------------------------------------------------------
----------- --------- ---------- -------- --------
all figures in Results Integration Goodwill Goodwill Operating
GBP millions from costs amortisation impairment loss
operations
--------------- ----------- --------- ---------- -------- --------
Business
sectors
Pearson - - - - -
Education
FT Group (11) - - - (11)
The Penguin
Group 1 - - - 1
--------------- ----------- --------- ---------- -------- --------
Continuing
operations (10) - - - (10)
--------------- ----------- --------- ---------- -------- --------
--------------- --------------------------------------
---------------------------------------------------------------
--------------- 2002
----------------------------------------------------------------
----------- --------- ---------- -------- --------
all figures in Results Integration Goodwill Goodwill Operating
GBP millions from costs amortisation impairment loss
operations
--------------- ----------- --------- ---------- -------- --------
Business
sectors
Pearson
Education (1) - - - (1)
FT Group (13) - - - (13)
The Penguin
Group 1 - - - 1
--------------- ----------- --------- ---------- -------- --------
Continuing
operations (13) - - - (13)
--------------- ----------- --------- ---------- -------- --------
Associates
--------------- --------------------------------------
---------------------------------------------------------------
--------------- 2003
---------------------------------------------------------------
----------- --------- ---------- -------- --------
all figures in Results Integration Goodwill Goodwill Operating
GBP millions from costs amortisation impairment profit
operations
--------------- ----------- --------- ---------- -------- --------
Business
sectors
Pearson
Education 1 - - - 1
FT Group 16 - (7) - 9
The Penguin - - - - -
Group ----------- --------- ---------- -------- --------
---------------
Continuing
operations 17 - (7) - 10
--------------- ----------- --------- ---------- -------- --------
--------------------------------------
---------------------------------------------------------------
--------------- 2002
----------------------------------------------------------------
----------- --------- ---------- -------- --------
all figures in Results Integration Goodwill Goodwill Operating
GBP millions from costs amortisation impairment loss
operations
--------------- ----------- --------- ---------- -------- --------
Business
sectors
Pearson
Education 3 - (1) - 2
FT Group 7 - (44) - (37)
The Penguin - - - - -
Group ----------- --------- ---------- -------- --------
---------------
Continuing
operations 10 - (45) - (35)
Discontinued
operations - - (3) - (3)
--------------- ----------- --------- ---------- -------- --------
10 - (48) - (38)
--------------- ----------- --------- ---------- -------- --------
3a. Loss on sale of fixed assets and investments
all figures in GBP millions 2003 2002
--------------------------------------- -------- --------
Net loss on sale of property (1) (3)
Net loss on sale of investments (1) (10)
--------------------------------------- -------- --------
Continuing operations (2) (13)
--------------------------------------- -------- --------
Taxation - 6
--------------------------------------- -------- --------
3b. Profit/(loss) on sale of subsidiaries and associates
all figures in GBP millions 2003 2002
--------------------------------------- -------- --------
Profit on sale of Unidesa 12 -
Loss on sale of Forum (1) (40)
Loss on sale of PH Direct - (8)
Net (loss)/profit on sale of other businesses and associates (3) 3
--------------------------------------- -------- --------
Continuing operations 8 (45)
--------------------------------------- -------- --------
Profit on sale of the RTL Group - discontinued operations - 18
--------------------------------------- -------- --------
8 (27)
--------------------------------------- -------- --------
Taxation (3) (6)
--------------------------------------- -------- --------
3c. Profit on sale of subsidiaries by an associate
all figures in GBP millions 2003 2002
--------------------------------------- -------- --------
Profit on sale of Journal of Commerce by the Economist -
continuing operations - 3
--------------------------------------- -------- --------
4. Net finance costs
all figures in GBP millions 2003 2002
--------------------------------------- -------- --------
Net interest payable (80) (94)
Early repayment of debt and termination of swap contracts - (37)
--------------------------------------- -------- --------
(80) (131)
--------------------------------------- -------- --------
5. Earnings/(loss) per share
--------------------------------------------------
In order to show results from operating activities on a comparable basis, an
adjusted earnings per share is presented which excludes certain items as set out
below. The company's definition of adjusted earnings per share may not be
comparable to other similarly titled measures reported by other companies.
---------------------------------------
All figures in GBP millions 2003 2002
--------------------------------------- -------- --------
Profit/(loss) for the financial year 55 (111)
Adjustments:
Non operating items (6) 37
Integration costs - 10
Goodwill amortisation 264 330
Goodwill impairment - 10
Other net finance costs - 37
Taxation on above items (53) (67)
Minority interest share of above items (6) (5)
--------------------------------------- -------- --------
Adjusted earnings 254 241
--------------------------------------- -------- --------
Weighted average number of shares (millions)
- for basic earnings and adjusted earnings 794.4 796.3
Effect of dilutive share options 0.9 -
--------------------------------------- -------- --------
Weighted average number of shares (millions)
- for diluted earnings 795.3 796.3
--------------------------------------- -------- --------
Adjusted earnings per share 32.0p 30.3p
Basic earnings/(loss) per share 6.9p (13.9)p
Diluted earnings/(loss) per share 6.9p (13.9)p
--------------------------------------- -------- --------
Note: In 2002 the Group made a loss for the financial year (after taking into
account goodwill amortisation). Consequently, the effect of share options is
anti-dilutive and there is no difference between the loss per share and the
diluted loss per share.
6. Taxation
The tax rate provided in the profit and loss account is analysed as follows:
all figures in percentages 2003 2002
------------------------------------------ ------- -------
United Kingdom tax rate 30.0 30.0
Effect of overseas tax rates 1.3 2.8
Other items (0.1) -
------------------------------------------ ------- -------
Tax rate reflected in adjusted earnings 31.2 32.8
------------------------------------------ ------- -------
The taxation charge is analysed as:
all figures in GBP millions 2003 2002
------------------------------------------ ------- -------
Parent and subsidiaries (70) (60)
Joint ventures and associates (5) (4)
------------------------------------------ ------- -------
(75) (64)
------------------------------------------ ------- -------
7. Dividends
-------------------------------- -------- ------ ------- -------
2003 2003 2002 2002
Pence per GBPm Pence per GBPm
share share
-------------------------------- -------- ------ ------- -------
Interim paid 9.4 73 9.1 72
Final proposed 14.8 119 14.3 115
-------------------------------- -------- ------ ------- -------
Dividends for the year 24.2 192 23.4 187
-------------------------------- -------- ------ ------- -------
8. Exchange rates
Pearson earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant rates are as
follows:
------------------------------------------ ------------
----- GBP versus US$ -----
2003 2002
------------------------------------------ ------- -------
Average rate for the year 1.63 1.51
Year end rate 1.79 1.61
------------------------------------------ ------- -------
9. Equity shareholders' funds
--------------------------------- ------- ------ ------ ------
all figures in GBP millions Share Share Profit and Total
capital premium loss
account
--------------------------------- ------- ------ ------ ------
At 31 December 2002 200 2,465 673 3,338
Exchange differences - - (254) (254)
Equity shares issued 1 - - 1
Premium on issue of equity
shares - 4 - 4
Loss retained for the year - - (137) (137)
--------------------------------- ------- ------ ------ ------
At 31 December 2003 201 2,469 282 2,952
--------------------------------- ------- ------ ------ ------
10. Note to consolidated statement of cash flows
all figures in GBP millions 2003 2002
------------------------------------------ ------- -------
Reconciliation of operating profit to net cash
inflow from operating activities
Total operating profit 226 143
Share of loss of joint ventures and associates - 51
Depreciation 111 122
Goodwill amortisation and impairment 257 292
(Increase)/decrease in stocks (8) 43
Increase in debtors (96) (111)
(Decrease)/increase in creditors (68) 64
Decrease in operating provisions (20) (50)
Other and non-cash items (43) (25)
------------------------------------------ ------- -------
Net cash inflow from operating activities 359 529
------------------------------------------ ------- -------
Dividends from joint ventures and associates 9 6
Purchase of tangible fixed assets (105) (126)
Capital element of finance leases (3) (5)
Sale of tangible fixed assets 8 7
Add back: cash received relating to acquired deferred income 42 -
Add back: non operating capital expenditure 2 -
Add back: integration costs 8 44
------------------------------------------ ------- -------
Operating cash flow 320 455
------------------------------------------ ------- -------
Operating tax paid (34) (46)
Operating finance charges (76) (104)
------------------------------------------ ------- -------
Operating free cash flow 210 305
------------------------------------------ ------- -------
Non operating tax paid (10) (9)
Non operating finance charges - (37)
Integration costs (8) (44)
------------------------------------------ ------- -------
Total free cash flow 192 215
------------------------------------------ ------- -------
Dividends paid (including minorities) (207) (182)
------------------------------------------ ------- -------
Net movement of funds from operations (15) 33
------------------------------------------ ------- -------
Acquisitions of businesses and investments (112) (124)
Disposals of businesses, investments and property 52 930
New equity 5 6
Other non operating items - (5)
------------------------------------------ ------- -------
Net movement of funds (70) 840
------------------------------------------ ------- -------
Exchange movements on net debt 117 131
------------------------------------------ ------- -------
Total movement in net debt 47 971
------------------------------------------ ------- -------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEARSON plc
Date: 01 March 2004
By: /s/ STEPHEN JONES
-----------------------
Stephen Jones
Deputy Secretary