Final Results part 1

Pearson PLC
4 March 2002

PART 1

4 March 2002



PEARSON PLC PRELIMINARY RESULTS (audited)

Year ended 31 December 2001


                                                        Year to 31           Year to 31                %

                                                          Dec 2001             Dec 2000           Change
Sales*                                                     £4,225m              £3,689m              15%
Operating profit (pre internet enterprises)*                 £563m                £610m             (8)%
Losses from internet enterprises                           £(137)m              £(196)m              30%
Operating profit*                                            £426m                £414m               3%
Pre-tax profit                                               £294m                £333m            (12)%
Adjusted earnings per share                                  22.5p                31.9p            (29)%
Dividend per share                                           22.3p                21.4p               4%



             * Continuing operations (excludes RTL Group/ Pearson TV and Lazard)

              before goodwill amortisation, exceptional and non-operating items.



Strong competitive performances; results hit by advertising downturn



•         Underlying sales level with 2000; trading margin 13.6%; 94% cash
          conversion.



•         Pre-tax profit down £39 million as falling newspaper and television
          advertising-related profits (down £116 million) and increased interest 
          charge (£12 million) more than offset improvements elsewhere (£89 million).



•         Strong growth in US education markets offset by downturn in technology
          publishing and Latin America. NCS Pearson underlying revenues up 6%; 
          underlying operating profits up 47%, helped by integration savings.



•         Penguin underlying sales increase by 3% with underlying profits up 6%.



•         FT Group underlying sales down 7% as advertising volumes fall sharply;
          all business newspapers outperform their markets; FT Interactive Data 
          delivers double-digit revenue and profits growth.



•         £153 million of non-cash write-downs, mostly relating to the Dorling
          Kindersley acquisition and the value of equity investments.



Outlook for 2002



•         Good prospects for education operations boosted by $250m of new
          federal contracts won by NCS Pearson.



•         Lower costs across business newspapers and online services will help
          FT Group mitigate a difficult advertising market.



•         Dorling Kindersley expected to be profitable this year.



•         Internet enterprises on track to hit break-even targets with losses
          expected to fall by more than half.



•         Lower interest costs to more than offset higher group tax charge.





Marjorie Scardino, Pearson's Chief Executive, said:

"The recession in advertising and technology markets meant that it was not
possible last year to build on the steady improvement in performance which our
shareholders have come to expect. Good growth in our less cyclical businesses
allowed us to keep the overall level of sales and profit roughly level with the
year before and, as we look ahead into 2002, we are confident of resuming our
progress whatever the economic climate."





For more information:

John Fallon/ Luke Swanson                Pearson plc     + 44 (0) 20 7010 2310





Pearson's preliminary results presentation for investors and analysts will be
webcast live today from 0930 GMT - and available for replay from 1200 GMT - via
www.pearson.com.



We will also be holding a conference call for US investors at 1500 GMT (1000
EST). To participate in the conference call or to listen to the audiocast,
please register at www.pearson.com.

Financial review



Performance



In 2001, sales increased 15% from £3,689m to £4,225m and operating profit before
goodwill and exceptional items increased 3% to £426m (this excludes the profit
contribution from Pearson's 22% stake in the RTL Group, the disposal of which
was announced on 24 December 2001). The 2001 figures include the first full-year
contributions from Dorling Kindersley and NCS Pearson and losses from our
internet enterprises, which reduced by 30% to £137 million from £196 million.
Adjusted earnings per share fell 29% to 22.5p with the growth in profits from
continuing operations offset by a major drop in the earnings contribution from
RTL Group, higher interest and tax charges and the impact of minorities. Profits
from newspaper and television advertising-related operations were £116 million
lower than in 2000. On an underlying basis, sales were flat year-on-year and
operating profits fell 2%.



A reported loss for the year of £391 million (a loss per share of 49.2p)
reflects increased goodwill amortisation charges, £153 million of write-downs
relating to Dorling Kindersley and a number of smaller acquisitions and equity
investments, and a further £123 million of non-operating losses relating to
businesses closed or sold in the course of the year. Integration charges
increased from £40 million to £74 million, reflecting the costs of integrating
Dorling Kindersley and NCS Pearson. The total negative cash impact of all these
items was £5 million.



Outlook



Looking ahead to 2002, we expect a number of factors to contribute to a
significant recovery in adjusted earnings per share. We expect each of our
businesses to deliver a strong competitive performance in their markets and
benefit from actions taken to reduce costs.  Losses from our internet
enterprises should fall by more than 50% as the FT's internet enterprises are on
track to reach breakeven in the fourth quarter of the year and Learning
Network's cost base is substantially lower as it heads for breakeven by the end
of 2003. The proceeds of 1.5 billion Euros from the disposal of our 22% stake in
RTL Group have been used to reduce Pearson's net debt. This, and actions we have
taken to maintain the proportion of debt we pay at fixed and floating interest
rates, should reduce interest charges in 2002 by some 40% (excluding a one-time
cost this year of £39 million). The earnings benefit of this lower interest
charge more than offsets a higher tax charge resulting from the implementation
of new accounting standard, FRS 19.








Business review



Pearson Education


£ millions                                         Year to            Year to                %       Underlying
                                               31 Dec 2001        31 Dec 2000           Change           Change


Sales
US School                                              978                732              34%               6%
US College                                             574                524              10%               5%
US Professional                                        417                248              68%            (21)%
International                                          568                540               5%             (2)%
Pearson Education                                    2,537              2,044              24%               1%

FT Knowledge                                            59                 43              37%            (15)%
Internet enterprises                                     8                  3                -                -

Total                                                2,604              2,090              25%               1%

Operating profit/(loss)
Pearson Education                                      374                337              11%
FT Knowledge                                          (23)               (17)            (35)%
Internet enterprises                                  (77)               (83)               7%

Total                                                  274                237              16%



        Includes a full-year contribution from NCS Pearson. In 2001, NCS Pearson
                                                                     contributed

 revenues of £592 million (2000: £146 million) and profits of £63 million (2000:
                                                                   £15 million).



Performance



Revenues and operating profits increased by 25% and 16% respectively, including
the first full year contribution from NCS Pearson. Excluding NCS Pearson and
other acquisitions and disposals, underlying revenues increased by 1% and
operating profits fell by 5%.  On a pro forma basis (i.e. if we had owned NCS
Pearson for the whole of 2000), underlying revenues increased by 3%. Difficult
market conditions hit the operating performance of our technology publishing and
Latin American educational publishing operations, reducing operating profits by
£30 million.



Our US School business increased underlying sales by 6% (8% on a pro forma
basis.) Basal and supplementary publishing sales increased by 9%, ahead of the
market. Scott Foresman, our elementary school publisher, took 25% of state
adoption revenues (34% of those competed for) and had the year's best-selling
reading programme. Prentice Hall School, our secondary school publisher, took
30% of state adoption revenues, and is now the nation's biggest secondary
publisher. Assessment and testing revenues increased 18% as states such as
California, Florida and Texas increased their testing programmes. Sales of
curriculum and school enterprise software fell 2% as the uncertain economic
outlook caused schools to defer discretionary spending.



Our US College business increased underlying sales by 5%, slightly ahead of the
market as a whole. The business benefited from its online investment, with more
than 60% of revenues generated through bundled textbook and internet programs.
Over 900 colleges are now running courses on CourseCompass, the online course
management system launched last year.



The underlying revenues of our US Professional business fell 21% (14% on a pro
forma basis.) Our technology publishing business was hit hard by the
industry-wide recession but gained market share and, through early action to
reduce costs, sustained healthy margins. Our government solutions business,
which helps to test and train federal staff in customer service and technology
skills and operates large-scale data management projects, increased revenues by
18% (stripping out the benefits of the decennial Census contract in 2000 and an
acquisition made in 2001). We saw modest revenue growth in our professional
assessment and certification business offset by an expected fall in revenues
from data management services.



Our International operations saw underlying revenues decline by 2% (and by 1% on
a pro forma basis.) Growth in our English language training (ELT) business was
offset by a fall in revenues from technology publishing.   Our school and
college publishing operations in Asia, Europe and South Africa all performed
well. In Latin America, particularly in Argentina and Columbia, trading
performance was badly hit by the economic downturn. We restructured our
operations in the region, tightening our credit terms and increasing reserves
for obsolescence and bad debts.



On a standalone basis, total sales at NCS Pearson were up 1% to £592 million and
profits were up 30% to £63 million, benefiting from the integration into Pearson
Education. Stripping out the benefit of the decennial US Census contract in
2000, underlying sales were up 6% and underlying operating profits were up 47%.



Losses of £23 million at FT Knowledge reflected a slowdown in the corporate
training market, restructuring costs and the impact of the September 11
terrorist attacks on the New York Institute of Finance, which was based in the
World Trade Center. Losses from education internet enterprises fell to £77
million. We fully integrated Learning Network, our consumer education portal,
within Pearson Education, reducing its cost base by 75% by the end of the year.
Pearson Broadband, our new multimedia education business, made a good start in
its first year of operation. It launched KnowledgeBox, its interactive classroom
curriculum product, in the US and Asia and created a joint venture to produce
educational English language programming for CCTV, China's state broadcaster.






Outlook



The outlook for our education businesses is good.



In the US school market, we don't expect any growth in publishing this year,
largely due to the phasing of the state adoption cycle. We expect to continue to
grow our testing business and benefit from the launch of a number of new early
reading and online learning programmes, including NCS4School. Learning Network
is now focused on supporting our US K-12 publishing business and we expect its
losses to fall sharply this year as it moves toward breakeven by the end of
2003.



We expect the US College publishing market to grow more quickly this year and
for us to gain share by using our lead in technology to increase adoption and
sell-through rates. Our US professional business will benefit from the actions
taken in 2001 to reduce costs in technology publishing and corporate training.
We also expect strong revenue growth due to a number of new federal contracts
valued at $250m (with half coming through this year) won by NCS Pearson. FT
Knowledge is now focused on providing blended classroom and e-learning services
to major corporations and we expect it to halve its losses in 2002.



In International, our priorities for the year are to restore profitability in
Latin America, grow in school, college and English language publishing and
expand our testing business in the UK and Australia. On a standalone basis, we
would expect NCS Pearson to deliver at least 15% revenue growth and higher
profits growth with the benefits from the second year of integration savings.



Financial Times Group


£ millions                                                  Year to             Year to                 %
                                                        31 Dec 2001         31 Dec 2000            Change
Sales                                                           750                 802              (6)%

Internet enterprises                                             51                  42               21%

Operating profit / (loss)
FT Newspaper                                                     31                  81             (62)%
Les Echos                                                        16                  29             (45)%
Recoletos                                                        23                  38             (39)%
Interactive Data Corporation                                     67                  59               14%
Associates and joint ventures                                  (10)                 (5)            (100)%
FT Business                                                       4                   7             (43)%
FT Businesses sold                                                1                   2

Total                                                           132                 211             (37)%
Internet enterprises                                           (60)               (113)               47%
                                                                 72                  98             (27%)





Performance



In the toughest advertising market for a decade, in which business-to-business
advertising was particularly adversely affected, the FT Group's revenues
declined by 6% and profits by 27%.



The Financial Times newspaper ended the year with December average daily sales
of 501,259, an increase of 3% on the previous year. International circulation
continued to grow strongly, particularly in the US with sales up 9% to 141,000.
After a strong start to the year, advertising declined sharply in May and June
and further still in the third and fourth quarters. For the full year,
advertising volumes were down 29% and advertising revenues down 20%. Benefiting
from a series of measures to protect profits, operating margins at the FT were
significantly higher than in the last advertising recession.



At Les Echos, average circulation was flat at approximately 127,000, gaining
share in a French national newspaper market that was down 4%. Advertising
volumes were down 21% and advertising revenues down 20%, contributing to a 45%
decline in profits at Groupe Les Echos. Actions taken to reduce costs ensured
Groupe Les Echos remains France's most profitable newspaper group.



At Recoletos, our Spanish media group, revenues were flat on last year, with
advertising revenue declines offset by cover price increases and higher
circulation revenues. Profits declined by 39% as Recoletos invested in new media
channels and new markets in the Spanish-speaking world. Circulation was down 16%
to 53,000 at business newspaper Expansion, down 8% to 372,000 at sports
newspaper Marca and up 8% to 314,000 at El Mundo, the daily newspaper in which
Recoletos holds a 30% stake.



Interactive Data Corporation (NASDAQ NM: IDCO), the FT's asset pricing business,
had an outstanding year with revenues up 12% and profits up 14%. Its
institutional business, which provides asset pricing services to major financial
institutions on a subscription basis and accounts for approximately 90% of IDC
revenues, continued to prove extremely resilient.



The FT Group's internet enterprises (which include the online businesses of the
Financial Times, Les Echos and Expansion as well as our share of  FT
Deutschland's FTD.de, economist.com, CBSMarketWatch and eSignal) generated
revenues of £51 million, up 21% on 2000, despite the advertising downturn.
Losses were lower at £60 million as start-up costs fell away as planned and as
we aggressively integrated the FT's internet businesses.



FT.com's popularity continues to increase and in January 2002 it achieved 55
million page views (up 29% on January 2001) and 2.7 million unique monthly users
(up 37%). FT.com has successfully introduced new revenue streams, including
content syndication and premium services, so that advertising now accounts for
approximately 60% of its revenues (compared with 85% in 2000).



The Economist Group, in which Pearson owns a 50% stake, increased circulation of
its flagship weekly title by 10% to 830,000. It too felt the impact of the
advertising downturn, with its contribution to the FT Group's profits declining.
The Economist Intelligence Unit has successfully transformed itself into a
digital business, with more than 70% of revenues now being electronic, and Chief
Financial Officer magazine is expanding internationally.



FT Deutschland, our joint venture with Gruner + Jahr, delivered robust
circulation growth. For the fourth quarter, circulation was up 18% on the
previous year to 78,000. FTD also continued to gain advertising market share,
though the market was particularly tough.



FT Business, the FT Group's UK specialist financial magazine publisher,
increased share and maintained advertising revenues in a tough market. We have
recently announced our intention to consider strategic options for FT Business,
in order to focus more closely on our international network of business and
financial newspapers and information companies.



Outlook



Across the Financial Times Group, the advertising outlook remains uncertain.



In the first two months of the year advertising revenues were, as expected, down
significantly on the same period last year. However, we are benefiting from the
actions we started to take early last year to reduce costs across all our
business newspapers including the Financial Times. Lower print, distribution and
staff costs, and the benefits of integrating our internet businesses with their
print counterparts, are helping to offset the decline in advertising revenues.
FT.com is on track to break even by the fourth quarter of this year and make a
growing profits contribution in the years ahead. This year we expect
subscriptions from new premium services to add to the revenues generated by
advertising, syndication and  services.  A successful cost reduction programme
means that Recoletos has started 2002 with a significantly lower cost base and
should generate strong profits growth. IDC is expecting another good year,
boosted by the integration of the Merrill Lynch Securities Pricing Service and
the launch of the first in a range of new products to provide intra-day pricing
data.





The Penguin Group


£ millions                                  Year to             Year to                %       Underlying
                                        31 Dec 2001         31 Dec 2000           Change           Change
Sales                                           820                 755               9%               3%

Operating profit                                 80                  79               1%               6%



2001 includes a full-year contribution from Dorling Kindersley: revenues of £146
                                                million and losses of £7million.

The DK acquisition was completed on 6 May 2000 and in the remaining seven months
of 2000 DK broke even on sales of £125 million. For the 12 months to 31 December
                                                                           2000,

                         DK made losses of £21 million on sales of £182 million.



Performance



The Penguin Group's total sales increased 9%, boosted by a full-year
contribution from Dorling Kindersley. Underlying sales were up 3% with continued
strong bestseller performance partially offset by industry-wide softness in
travel books and backlist sales. Total operating profits include losses of £7
million at Dorling Kindersley. Underlying operating profits increased by 6%.



In the US, Penguin Putnam posted a record performance on the bestseller lists
for a fifth consecutive year. 139 Penguin Putnam titles reached the New York
Times adult and children's bestseller lists, an increase of 30%. In the UK,
Penguin had another strong year of bestseller performance, with 41 titles
reaching the Booktrack top 15 (up 5% on 2000). At Dorling Kindersley (assuming
we had owned DK for the whole of 2000), pro forma sales were 20% lower due to
the closure of the loss-making DKFL and multi-media operations and a one-off
increase in returns in the US resulting from actions to improve the distribution
network. Pro forma losses fell to £7 million from £21 million the previous year.
Animal, the first title in DK's new frontlist, exceeded all expectations,
selling more than 500,000 copies in 23 languages since its launch in October
2001.



Outlook



The outlook for the Penguin group is good.



The restructuring of Dorling Kindersley and its integration into Penguin is now
largely complete and should deliver a significant boost to profits in 2002. As a
result of the integration, DK is benefiting from a larger sales force, lower
production costs, faster origination and a focus on fewer, bigger selling
titles. Both Penguin Putnam and Penguin UK  have a powerful frontlist for 2002,
including new books by number one best-selling authors. This year, the release
of titles will be more heavily weighted to the second half of the year.



Penguin and Pearson Education continue to work together on new publishing, back
office integration and steps to improve working capital. Scott Foresman's new
elementary social sciences programme, launched next month, is the first to
benefit from Dorling Kindersley's creative approach, with other programmes in
production. The two companies are combining warehousing, distribution and
purchasing and salesforce clout. Worldwide, Penguin and Pearson Education are
looking to reduce working capital through lower production costs, better
forecasting and faster collection.



Ends









Except for the historical information contained herein, the matters discussed in
this press release 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 on 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.





                      This information is provided by RNS
            The company news service from the London Stock Exchange

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