Final Results - Year Ended 31 December 1999

Pearson PLC 6 March 2000 PEARSON PLC PRELIMINARY RESULTS (audited) Year ended 31 December 1999 Year to Year to % 31 31 change Dec 1999 Dec 1998 Sales £3,332m £2,395m +39% Operating profit * £549m £389m +41% Pre tax profit * £402m £350m +15% Adjusted earnings per share - pre 53.3p 42.0p +27% Internet enterprises Adjusted earnings per share - post 48.5p 42.0p +15% Internet enterprises Dividend per share 22.5p 21.0p +7% * Before goodwill, exceptional & non-operating items FINANCIAL HEADLINES * Underlying sales up 7.3%. * Trading margin up from 13% to 15.2%. * Operating cash conversion rate of 92%. BUSINESS HEADLINES Record profits from all businesses: * Pearson Education gained market share in its US school and higher education & professional businesses, managed the successful integration of the Addison Wesley Longman and Simon & Schuster businesses and delivered on first full year profit expectations. * The Financial Times Group increased underlying sales by 13% and posted record profits, with business titles generating strong circulation and advertising growth, and sharpened its focus on creating a world leading financial and business information brand. * Pearson Television increased profits by 11%, with strong performances by its European production business and Channel 5, and stepped up the online development of its shows and formats. * The Penguin Group increased underlying profits by 23%, with a strong list of best-selling authors, and capitalised on new technology to improve margins. Marjorie Scardino, chief executive of Pearson, said: 'These are a fine set of results. Financially, we are performing very well with good growth in revenues and margins and a strong cash performance. Strategically, we are making the networked world an integral part of our future. In a world mesmerised by technology, we try to focus on how we can use it to transport our rich content and great brands in ways that make life easier, simpler, faster and more personal for our growing bands of customers.' ENQUIRIES: +44 171 411 2310 Marjorie Scardino, chief executive John Makinson, finance director John Fallon, communications director INTERNET ENTERPRISES We are stepping up investment in developing Internet enterprises, which capitalise on the power of our brands and content and generate new and distinct revenue streams. In 1999, the net costs of developing these enterprises was £39m. In January, we raised £250m, through the issue of new equity, to finance the next stages of their development. New developments include: * We are announcing today a series of agreements that will accelerate the development of our education network, a new online consumer portal scheduled for launch later this year. Pearson and American Online, Inc., have reached a preliminary agreement to serve as a framework for developing a relationship. It is envisaged that the relationship would establish Pearson's education network as the preferred supplier of educational content and online learning tools with AOL providing carriage for Pearson's education network on the AOL service and other America Online Inc., brands. The two companies will also investigate opportunities to collaborate on the development of a curriculum architecture and a range of select education tools. * Pearson has also announced today the first of a number of strategic alliances with, and equity investments in, leading Internet educational companies which will further strengthen the development of its education network. The alliances are with SCORE! Learning Inc., Copernicus Education Gateway and Blackboard Inc. More details are set out in a separate statement * FT.com, now transformed into an international business portal, will launch its first major US marketing campaign later this month. Last year, FT.com trebled both revenues and traffic and we expect it to sustain that level of growth * We expect to launch FTMarketWatch.com, our joint venture with MarketWatch.com, operator of America's leading finance website and the 36th most visited site in the world, in June. We also plan to launch a French language personal finance website, modelled on FTYourMoney.com, our new UK personal finance website, by the autumn. These projects form part of our strategy of building a comprehensive network of leading European and U.S. business and financial news, private investor and personal finance websites. * FT Knowledge, our management education business, is forming a new venture with The Wharton School of the University of Pennsylvania, one of the most prestigious business schools in the world, to offer programs in eBusiness which will be delivered and supported on line. SHARE LISTING Later this year, we plan to seek a listing of our ordinary shares on the New York Stock Exchange (NYSE). Over half our employees are based in the United States and a listing will enhance our ability to offer them equity participation in our company. BUSINESS REVIEW In 1999, pre tax profits, before goodwill, exceptional and non operating items, increased by 15% to £402 million. Operating profits increased to £549m and we generated related operating cash flow of £506 million. Underlying sales growth, which represents the year-on-year increase in sales, after portfolio changes and movements in exchange rates, was 7.3%. The trading margin, excluding profits from associates and passive investments was, 15.2%. Post Internet enterprises, it was 14%. PEARSON EDUCATION £m Proforma Year to Year to % 31 Dec 1999 31 Dec change 1998 Sales US School 586 537 +9% US Higher Education & Professional 666 593 +12% International 446 423 +5% Discontinued 8 22 - ================= Pearson Education Sales 1,706 1,575 +8% FT Knowledge 19 - ================= 1,725 1,575 Operating profit/(loss) Pearson Education 265 99* FT Knowledge (8) - ================= 257 99 Internet Enterprises (3) - * Actual Pearson Education, formed in November 1998 through the acquisition of the Simon & Schuster education business and its merger with Addison Wesley Longman, performed very strongly in its full year of operation. Sales increased to £1.706 billion, an underlying increase of 9.4%, taking account of currency and disposals, on pro forma sales in 1998. Operating profits increased to £265m. The US School business had an excellent year, with our best selling math and social studies programmes leading the way. They gained substantial market share, creating a platform which will drive strong backlist sales in future years. We stepped up investment in our market leading range of electronic learning tools and in new reading, literature and science programmes, ahead of state adoptions starting this year. In early results, these programmes are scoring major sales in both adoption states and open territories. Our US Higher Education and Professional Publishing business also had a great year. We enhanced our leadership of the US college publishing market and invested more in signing new authors and creating successful first editions. We also increased investment in developing text/web and online course management programmes that create more interactive learning, enabling us to build closer relations with professors and students. Our professional and technology publishing operations, buoyed by a strong publishing programme and surging interest in technology and e-commerce, also delivered double digit revenue growth. Our International business increased sales by 5% to £446m. We moved swiftly to transform the extensive international networks of both AWL and Simon & Schuster into a single cohesive force, building up our local publishing presence and strengthening our distribution and marketing networks. In print and online, we continued to expand our leading English language teaching business as the number of people around the world who want to learn English grows rapidly by the day. In the latter part of the year, we capitalised on the first signs of sustained economic recovery in emerging Asian and Latin American markets. The full integration of the Addison Wesley Longman and Simon & Schuster businesses is on track and we are in good shape to deliver the planned $130m of annual integration savings by the end of 2000. FT Knowledge, our newly formed management education business, made losses of £8m as it invested rapidly in expanding its scale and scope to capitalise on the explosive growth of on- line learning and the burgeoning demand for business qualifications. Last month, we announced an agreement with the University of Michigan Business School, one of the leading providers of executive education in America, to offer on-line executive management courses. We also set up a joint venture with Regents' College, a leading US 'virtual university', to accredit a wide range of FT Knowledge business and computing programmes. Today, we are announcing a new venture with The Wharton School of the University of Pennsylvania, one of the most prestigious business schools in the world, to offer programmes in eBusiness which will be delivered and supported on line. FINANCIAL TIMES GROUP £m Year to Year to % 31 Dec 1999 31 Dec change 1998 Sales 687 683 Operating profit / (loss) FT Newspaper 56 42 +33% FT Interactive Data 31 22 +41% FT Business 1 1 Les Echos 18 10 +80% Recoletos 34 30 +13% Associates 12 15 -20% Discontinued businesses* (2) (2) ================ 150 118 +27% Internet Enterprises (36) - * Businesses discontinued include the newsletter operations of FT Business, the medical publishing business of Les Echos and FT Profile We increased substantially the revenues and profits of our business newspapers - and invested heavily in their electronic and international expansion. We have transformed the prospects of FTID, our specialist financial information business, through the acquisition of the Thomson Financial Securities Management business (TFSM) and the subsequent merger with the Data Broadcasting Corporation (DBC.) As we sharpened our focus on the goal of creating the world's leading business and financial information brand, we disposed of a number of marginal businesses. Stripping out the impact of these exceptional factors, underlying revenue growth was 13%. Operating profits increased 27% to £150m. Our business newspapers had an excellent year, increasing circulation and advertising yields and working together on a number of new pan-European projects. The Financial Times newspaper increased profits by 33% to £56 million. Average daily sales increased to 440,381 by December, up 14% year on year. Advertising revenues increased by 19%. Les Echos increased its circulation by 7% to a record 143,000 and advertising revenues increased by 41%. Expansion increased advertising revenues by 44% and grew its circulation to a new high of 59,700. Financial Times Deutschland, our new German language business newspaper, launched two weeks ago in a joint venture with Gruner + Jahr, the German publishing group, is running well ahead of its initial circulation and advertising targets. Our integrated network of finance and business websites grew rapidly during the year, trebling advertising and e-commerce revenues. FT.com is attracting new users rapidly, with over one million unique monthly visitors and 22 million monthly page views. Later this month, with FT.com now transformed into a global business portal, we will launch the site's first major US marketing campaign. During the year, lesechos.fr and expansiondirecto.com both more than doubled traffic and are firmly established as the leading business and financial news websites in France and Spain. In its first three months of operation, FTYourMoney.com is already establishing itself as the UK's leading personal finance website and is ahead of its revenue and traffic growth targets. We plan to launch French, Spanish and German language personal finance sites, modelled on FTYourMoney, over the coming months. FTMarketWatch.com, our pan European joint venture with MarketWatch.com (in which we control an indirect 32% stake), operator of CBS.MarketWatch.com, America's leading finance website, will launch in June. We plan to launch French, German and Spanish versions of the site over the next year. In the US, CBS.MarketWatch.com attracted 6.9m unique monthly visitors in the last quarter of the year and is now the 36th most visited website in the world. FT Interactive Data delivered another year of double-digit growth and, through its acquisition of TFSM and subsequent merger with DBC, is now able to develop a much wider range of Internet delivered products to every sector of the global money management community. At FT Business, we have now sold the loss-making newsletters and management operations, enabling us to focus on market leading positions in specialist energy and finance titles and research products. Recoletos increased underlying sales by 7%. Profits increased by 13% to £34m. In addition to the strong performance of Expansion, profits were boosted by a 20% increase in advertising revenues at Marca, Europe's leading sports newspaper. It retained its strong leadership of the Spanish sports newspaper market and transformed its website, marca.es, into Spain's leading sports portal. El Mundo, the leading Spanish daily newspaper in which Recoletos owns a 30% stake, increased circulation and advertising revenues and built its own online presence. Its success means Recoletos owns, or has a stake in, three of Spain's ten most popular websites. The profits contribution from Associates reflects our share of the start up costs of Financial Times Deutschland. The Economist Group, in which we have a 50% stake, had another record year, with The Economist newspaper increasing average weekly circulation by 4% to 723,000. Across the group, it continued to focus on developing its global media brands and increase investment in the electronic delivery of its products and services. Business Day and Financial Mail, the South African finance and business publisher, in which we also own a 50% stake, grew advertising revenues to record levels. PEARSON TELEVISION £m Year to Year to % 31 Dec 1999 31 Dec change 1998 Sales 355 343 +3% Operating profit / (loss) Pearson TV 74 71 +4% Channel 5 (7) (14) +50% BSkyB 1 4 =============== 68 61 +11% In 1999, Pearson Television increased sales by 3%. Profits increased by 11% to £68m, boosted by the strong growth of our joint venture with the broadcaster, CLT-UFA, in Germany and lower start up losses from Channel 5. Our serial dramas delivered big peak time audiences across Europe and new productions from our library of game show formats proved a big hit worldwide. Our game shows won new audiences in Spain, Portugal, Mexico, Germany, Finland and Poland and the new version of Family Feud was the highest rated new game show in syndication in the US. And our programmes are finding big on-line audiences. The online version of Family Feud is proving to be a big draw for Uproar.com, the online entertainment site, in which we own an 8% stake. Uproar.com is generating 106 million page views from 3.6 million unique monthly users with visitors spending an average of 17 minutes per day on the site. We increased investment in new shows and formats, focusing on situation comedies and television animation, and made a number of acquisitions that strengthened our local television production businesses. Our share of Channel 5's start up losses, after amortisation and start up costs, fell to £7m from £14m in the previous year. Channel 5 was the only UK terrestrial channel to increase its overall audience share, achieving an average all-channel viewing share among adults of 5.3%. In February 2000, we increased our Channel 5 stake from 24% to 29%, reflecting our satisfaction in its performance to date, and our confidence in its future. PENGUIN £m Year to Year to % 31 Dec 1999 31 Dec 1998 change Sales 565 523 +8% Operating profit 65 48 +35% Penguin's underlying sales increased by 5% with underlying profits up by 23%. Our success was built on the back of increased investment in new and established best-selling authors, a concerted campaign to maximise the value of our ever popular back-list titles and sustained efforts to put the supply side of our business on a stronger commercial footing. Increased investment in building a stronger list of top authors was rewarded with Penguin Putnam titles spending a record 262 weeks on the New York Times bestseller lists. In the UK, we nearly doubled our number of books in The Guardian Top 100 Bestsellers of 1999, taking the largest share of the Christmas market. We expanded Penguin's global reach, acquiring world publishing rights to a growing family of bestselling authors. We continued to capitalise on the potential of television and movie tie-ins in all territories. In the UK we invested in the Penguin brand, with a highly successful marketing campaign and in the US the acquisition of Avery Publishing allowed us to move into a market-leading position in the burgeoning healthcare and nutrition market, with strong on-line potential. We expanded the online and cross media potential of our stories, titles and imprints through out the world. Penguin is forming numerous internet alliances and is building online communities around our Classics and Rough Guides websites. Our worldwide internet sales doubled during the year and now account for over 5% of total sales in the US. We were the first major publisher to release a new title in electronic format ahead of its hard copy launch. Additionally, we are now employing printing on demand technology for select backlist titles. There are several projects currently being developed with Pearson Television including children's animation and Penguin has linked up with Pearson Education to develop a global Penguin branded educational programme - known as Penguin Readers. And we continued to improve the economics of our business, with the rationalisation of our US warehousing and distribution systems, and the successful integration of Ladybird in the UK, both helping to improve margins. LAZARD £m Year to Year to % 31 Dec 1999 31 Dec 1998 change Attributable profit 48 42 +14% Income from the three Lazards houses was a record £48m. The sale of our stake in the three houses, announced last June, was completed on Friday 3rd March. OUTLOOK All our business operations have made a strong start to the year and are in good shape to deliver further growth in revenues and margins. We continue to step up our investment in developing the Internet enterprises that will secure Pearson's longer term growth. Consolidated Profit and Loss Account For the year ended 31 December 1999 Operating Other Operating Other Activities items Total activities items Total Note £m £m £m £m £m £m _____________________________________________________________________________ Sales Continuing operations 3,304 - 3,304 2,251 - 2,251 Acquisitions 28 - 28 - - - _____________________________________________________________________________ 3,332 - 3,332 2,251 - 2,251 Discontinued operations - - - 144 - 144 _____________________________________________________________________________ Total sales 2 3,332 - 3,332 2,395 - 2,395 Cost of sales (1,414) (10) (1,424) (1,127) (49) (1,176) _____________________________________________________________________________ Gross profit 1,918 (10) 1,908 1,268 (49) 1,219 Net operating expenses - before goodwill amortisation (1,441) (90) (1,531) (930) (78) (1,008) Net operating expenses - goodwill amortisation (130) - (130) (12) - (12) _____________________________________________________________________________ Net operating expenses (1,571) (90) (1,661) (942) (78) (1,020) Operating profit Continuing operations - group 350 (100) 250 303 (127) 176 Acquisitions - group (3) - (3) - - - _____________________________________________________________________________ 347 (100) 247 303 (127) 176 Discontinued operations - group - - - 23 - 23 _____________________________________________________________________________ Total operating profit - group 347 (100) 247 326 (127) 199 _____________________________________________________________________________ Share of operating profit of associates: Continuing operations 24 - 24 11 - 11 Acquisitions - after goodwill amortisation of £1m (1) - (1) - - - _____________________________________________________________________________ 23 - 23 11 - 11 Discontinued operations 48 - 48 40 - 40 _____________________________________________________________________________ Total share of operating profit of associates 2 71 - 71 51 - 51 _____________________________________________________________________________ _____________________________________________________________________________ Total operating profit analysed between: Operating profit before internet enterprises and goodwill amortisation 2 588 (100) 488 389 (127) 262 Internet (39) - (39) - - - enterprises Goodwill amortisation (131) - (131) (12) - (12) _____________________________________________________________________________ _____________________________________________________________________________ Total operating profit 2 418 (100) 318 377 (127) 250 _____________________________________________________________________________ Continuing operations: Profit on sale of fixed assets and investments 3 352 142 (Loss)/profit on sale of businesses and associates 4 (44) 50 Discontinued operations: Profit on sale of businesses and associates 4 - 215 _____________________________________________________________________________ 308 407 Continuing operations: Profit on sale of businesses and associates by an associate 1 11 _____________________________________________________________________________ Profit before interest 627 668 Net interest payable - group (145) (36) Net interest payable - associates (2) (3) _____________________________________________________________________________ Total net interest payable (147) (39) _____________________________________________________________________________ Profit before taxation 480 629 Taxation 6 (180) (188) _____________________________________________________________________________ Profit after taxation 300 441 Equity minority interests (6) (4) _____________________________________________________________________________ Profit for the financial year 294 437 Dividends on equity shares 7 (138) (126) _____________________________________________________________________________ Profit retained 156 311 _____________________________________________________________________________ Adjusted earnings per equity share pre internet enterprises 5 53.3p 42.0p Adjusted earnings per equity share post internet enterprises 5 48.5p 42.0p Earnings per equity share 5 48.2p 74.1p Diluted earnings per equity share 5 47.5p 73.3p Dividends per equity share 7 22.5p 21.0p _____________________________________________________________________________ Consolidated Balance Sheet as at 31 December 1999 _________________________________________________________________________ 1999 1998 Note £m £m _________________________________________________________________________ Fixed assets Intangible assets 2,457 2,330 Tangible assets 405 435 Investments: Associates 234 145 Other 99 168 _________________________________________________________________________ 3,195 3,078 _________________________________________________________________________ Current assets Stocks 691 614 Debtors 1,132 1,127 Investments 4 153 Cash at bank and in hand 328 345 _________________________________________________________________________ 2,155 2,239 Creditors - amounts falling due within one year Short term borrowing (47) (72) Other creditors (1,441) (1,282) _________________________________________________________________________ (1,488) (1,354) _________________________________________________________________________ Net current assets 667 885 _________________________________________________________________________ Total assets less current liabilities 3,862 3,963 Creditors - amounts falling due after more than one year Medium and long term borrowing (2,276) (2,552) Other creditors (32) (54) _________________________________________________________________________ (2,308) (2,606) Provisions for liabilities and charges Deferred taxation (21) (20) Other provisions for liabilities and (206) (253) charges _________________________________________________________________________ Net assets 1,327 1,084 _________________________________________________________________________ Capital and reserves Called up share capital 153 152 Share premium account 517 498 Revaluation reserve - 1 Other reserves - 1 _________________________________________________________________________ Profit and loss account 651 396 _________________________________________________________________________ Equity shareholders' funds 9 1,321 1,048 Equity minority interests 6 36 _________________________________________________________________________ 1,327 1,084 _________________________________________________________________________ Net debt comprises Cash at bank and in hand 328 345 Short term borrowing (47) (72) Medium and long term borrowing (2,276) (2,552) _________________________________________________________________________ (1,995) (2,279) _________________________________________________________________________ Statement of Total Recognised Gains and Losses for the year ended 31 December 1999 __________________________________________________________________________ 1999 1998 __________________________________________________________________________ £m £m Profit for the financial year 294 437 Other net gains and losses recognised in reserves: Currency translation differences 36 (8) __________________________________________________________________________ Total recognised gains relating to the year 330 429 __________________________________________________________________________ Reconciliation of Movements in Equity Shareholders' Funds for the year ended 31 December 1999 __________________________________________________________________________ 1999 1998 £m £m __________________________________________________________________________ Profit for the financial year 294 437 Dividends on equity shares (138) (126) __________________________________________________________________________ 156 311 Other net recognised gains/(losses) relating to the year (see above) 36 (8) Goodwill arising on prior year acquisitions - (16) Goodwill written back 63 262 Shares issued 18 347 __________________________________________________________________________ Net movement for the year 273 896 Equity shareholders' funds at beginning of the year 1,048 152 __________________________________________________________________________ Equity shareholders' funds at end of the year 1,321 1,048 __________________________________________________________________________ Operating Cash Flow, Net Movement of Funds from Operations and Change in Net Debt for the year ended 31 December 1999 The following analysis summarises the group's main cash flows and is in the format used by management to monitor the cash flow of the Group. The main difference between this format and the FRS 1 cash flow format is that operating cash flow, a key measure, is calculated after the deduction of capital expenditure. In addition, internet enterprises and Simon & Schuster integration costs are reported separately on one line in this analysis. _________________________________________________________________________ 1999 1998 £m £m _________________________________________________________________________ Operating profit 318 250 Add: Simon & Schuster integration costs and year 2000 compliance costs 100 127 add: internet enterprises 39 - add: goodwill amortisation 131 12 _________________________________________________________________________ 588 389 Retained by partnerships and other associates (28) 2 _________________________________________________________________________ 560 391 Working capital (increase)/decrease (7) 40 Net expenditure on tangible fixed assets (capital expenditure less disposals) (81) (113) Depreciation 81 66 Other movements (13) 8 _________________________________________________________________________ Operating cash flow before effect of S&S integration costs and internet enterprises 540 392 Cash effect of S&S integration costs (110) (23) Cash effect of internet enterprises (34) - _________________________________________________________________________ Operating cash flow 396 369 Interest (146) (57) Taxation (156) (80) Dividends (133) (116) _________________________________________________________________________ Net movement of funds from operations (39) 116 Acquisition of businesses and investments (327) (3,004) Sale of businesses and investments 677 983 Sale of tangible fixed assets (excluded from operating profit) 12 1 New equity 18 344 Other (including non operating provisions) (8) (7) _________________________________________________________________________ Net movement of funds 333 (1,567) Net debt at beginning of the year (2,279) (707) Exchange differences on net debt (49) (5) _________________________________________________________________________ Net debt at end of the year (1,995) (2,279) _________________________________________________________________________ 1999 results The preliminary results for the year ended 31 December 1999 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The 1998 accounts carry an unqualified audit report and have been so delivered. The 1999 Annual Report and Directors' Report and Accounts will be posted to shareholders on 4 April 2000. Dividend The directors recommend a final dividend of 13.9p per share, payable on 2 June 2000 to shareholders on the register at the close of business on 17 March 2000. 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 12 May 2000. Notes to the 1999 Results for the year ended 31 December 1999 1. Basis of preparation ______________________________________________________________________________ The results for the year ended 31 December 1999 have been prepared in accordance with the accounting policies set out in the 1998 Annual Report except that FRS12 'Provisions, Contingent Liabilities and Contingent Assets' has been adopted. 2. Sector Analysis ______________________________________________________________________________ ________________________________________________________________________ 1999 1998 £m £m ________________________________________________________________________ --- Operating profit --- --- Operating profit --- Before After Before After internet internet internet internet enterprises,enterprises enterprises,enterprise goodwill goodwill goodwill goodwill and other and other and other and other Sales items items Sales items items Business sectors FT Group 687 150 103 683 118 114 Pearson Education 1,725 257 36 702 99 (34) The Penguin Group 565 65 64 523 48 46 Pearson Television 355 68 67 343 61 61 ________________________________________________________________________ Continuing operations 3,332 540 270 2,251 326 187 Discontinued operations - 48 48 144 63 63 ________________________________________________________________________ 3,332 588 318 2,395 389 250 ________________________________________________________________________ Geographical markets supplied United Kingdom 544 46 (4) 497 38 35 Continental Europe 518 110 103 461 109 106 North America 1,990 340 134 1,078 157 30 Asia Pacific 200 29 23 161 16 11 Rest of World 80 15 14 54 6 5 ________________________________________________________________________ Continuing operations 3,332 540 270 2,251 326 187 Discontinued operations - 48 48 144 63 63 ________________________________________________________________________ 3,332 588 318 2,395 389 250 ________________________________________________________________________ The above table shows sales and operating profit analysed by the destination to which products and services are supplied. In 1999 'other items' comprises exceptional items of £95m (1998: £120m) and Year 2000 compliance costs of £5m (1998: £7m). Exceptional items comprise integration costs following the acquisition of Simon & Schuster in 1998. These all relate to the Pearson Education business sector. The results of Simon & Schuster are included within the Pearson Education business sector and mainly within North America. The results of internet enterprises, the group's discrete internet operations, are included within FT Group £36m and within Pearson Education £3m. Discontinued operations arising in 1999 relate to the withdrawal of the Group from the banking business following its disposal of Lazard on 3 March 2000. Discontinued operations arising in 1998 relate to the withdrawal of the Group from the consumer software business following its disposal of Mindscape Inc. in March 1998, the withdrawal of the Group from the consumer magazine business following its disposal of Pearson New Entertainment in April 1998 and the withdrawal of the Group from the visitor attractions business following its disposal of The Tussauds Group in October 1998. Included in the analysis of operating profit above are the following amounts in respect of associates: 1999 1998 £m £m ______________________________________________________________________ FT Group 14 15 Pearson Education 6 4 Pearson Television 3 (8) ______________________________________________________________________ Continuing operations 23 11 Discontinued operations - Lazard 48 40 ______________________________________________________________________ 71 51 ______________________________________________________________________ 3. Profit on sale of fixed assets and investments 1999 1998 £m £m ______________________________________________________________________ Profit on disposal of interest in BSB Holdings Ltd 348 - Profit on sale of investment in Societe Europeenne des Satellites - 133 Profit on sale of investment in Flextech plc - 27 Loss on sale of Simon & Schuster related fixed assets (3) (6) Net profit/(loss) on sale of other investments and property interests 7 (12) ______________________________________________________________________ Continuing operations 352 142 ______________________________________________________________________ Taxation (93) (40) ______________________________________________________________________ 4. Loss/(profit) on sale of businesses and associates ______________________________________________________________________ 1999 1998 £m £m ______________________________________________________________________ Loss on sale of Extel research products business (19) - Profit on sale of Law & Tax publishing business - 61 Profit on sale of 20 per cent of Recoletos - 34 Loss on sale of Register group - (20) Loss on closure of Simon & Schuster businesses (12) (10) Net loss on sale of other businesses and associates (13) (15) ______________________________________________________________________ Continuing operations (44) 50 ______________________________________________________________________ Profit on sale of The Tussauds Group - 157 Profit on sale of Pearson New Entertainment - 41 Profit on sale of Port Aventura SA - 28 Loss on sale of Mindscape Inc. - (11) ______________________________________________________________________ Discontinued operations - 215 ______________________________________________________________________ Taxation 5 (63) ______________________________________________________________________ 5. Earnings and adjusted earnings per equity share ______________________________________________________________________________ In order to show results from operating activities on a comparable basis two adjusted earnings per equity share are presented. Firstly an adjusted earnings per share is presented which excludes profits or losses on the sale of fixed assets and investments, businesses and associates (see notes 3 and 4), Year 2000 compliance costs and integration costs in respect of the acquisition of Simon & Schuster. Goodwill amortisation has also been excluded from the adjusted earnings calculation following the prospective implementation of FRS10 'Goodwill and Intangible Assets' in 1998. Due to a significant level of expenditure in 1999 on new internet enterprises, a second adjusted earnings per equity share is presented in which the results of these are also excluded from earnings. 1999 1998 £m £m ______________________________________________________________________ Earnings 294 437 Less: (Profit) on sale of fixed assets and investments: continuing operations (352) (142) Loss/(profit) on sale of businesses and associates: continuing operations 44 (50) (Profit) on sale of businesses and associates: discontinued operations - (215) (Profit) on sale of businesses and associates by an associate: continuing operations (1) (11) Add: Internet enterprises 39 - Goodwill amortisation 131 12 Simon & Schuster integration costs 95 120 Year 2000 compliance costs 5 7 Taxation on above items 70 90 ______________________________________________________________________ Adjusted earnings before internet enterprises 325 248 ______________________________________________________________________ Internet enterprises (39) - Taxation on internet enterprises 10 - ______________________________________________________________________ Adjusted earnings after internet enterprises 296 248 ______________________________________________________________________ Earnings 294 437 Taxation on the conversion of ordinary shares (1) (1) ______________________________________________________________________ Diluted earnings 293 436 ______________________________________________________________________ Weighted average number of equity shares (millions) - for earnings and adjusted earnings 610.2 589.8 Effect of dilutive share options 7.0 5.1 ______________________________________________________________________ Weighted average number of equity shares (millions) - for diluted earnings 617.2 594.9 ______________________________________________________________________ Adjusted earnings per equity share before internet enterprises 53.3p 42.0p Adjusted earnings per equity share after internet enterprises 48.5p 42.0p Earnings per equity share 48.2p 74.1p Diluted earnings per equity share 47.5p 73.3p ______________________________________________________________________ 6. Taxation _____________________________________________________________________________ The tax rate provided in the profit and loss account is analysed as follows: ______________________________________________________________________ 1999 1998 per cent per cent ______________________________________________________________________ United Kingdom tax rate 30.2 31.0 Effect of utilisation of tax losses in the USA (7.7) (2.7) ______________________________________________________________________ Other items 2.5 (0.3) ______________________________________________________________________ Tax rate reflected in adjusted earnings 25.0 28.0 Effect of profits/(losses) excluded from adjusted earnings 12.5 1.9 ______________________________________________________________________ Tax rate reflected in earnings 37.5 29.9 ______________________________________________________________________ Taxation is analysed as: ______________________________________________________________________ 1999 1998 £m £m ______________________________________________________________________ Parent and subsidiaries 165 175 Associates 15 13 ______________________________________________________________________ 180 188 ______________________________________________________________________ The Group continues to have substantial tax losses available in the USA which are not recognised in the accounts. Following the acquisition of Simon & Schuster at the end of 1998, US profits are higher in 1999 than in 1998 but are still more than offset by the available losses so reducing the group tax rate reflected in adjusted earnings. As in 1998, relief has not been taken for the Simon & Schuster integration costs to the extent that they arose in the US, hence increasing the effective rate reflected in earnings. 7. Dividends ______________________________________________________________________________ 1999 1999 1998 1998 Pence Pence per per share £m share £m ______________________________________________________________________ Interim paid 8.6 53 8.0 47 Final proposed 13.9 85 13.0 79 ______________________________________________________________________ Dividends for the year 22.5 138 21.0 126 ______________________________________________________________________ 8. Exchange rates ______________________________________________________________________________ Pearson earns a significant proportion of its sales and profits in overseas currencies, the most prominent being the US dollar. The relevant rates are as follows: _______________________________________________________________ ---- £ VERSUS us$ ---- _______________________________________________________________ 1999 1998 _______________________________________________________________ Average for operating profits 1.61 1.66 Period end rate 1.61 1.66 _______________________________________________________________ The weakening of sterling on an average basis in 1999 has had a beneficial impact on sales and profits. It is estimated that if the 1998 average rates had prevailed in 1999 then sales would have been lower by £30m and operating profit lower by £5m. 9. Equity shareholders' funds ______________________________________________________________________________ Share Share Revaluat Other Profit Total capital premium ion reserves and loss reserve account £m £m £m £m £m £m __________________________________________________________________________ At 31 December 1998 152 498 1 1 396 1,048 Exchange differences - - (1) (1) 38 36 Shares issued 1 - - - - 1 Premium on issue of shares - 19 - - (2) 17 Goodwill written back - - - - 63 63 __________________________________________________________________________ Profit retained for the year - - - - 156 156 __________________________________________________________________________ At 31 December 1999 153 517 - - 651 1,321 __________________________________________________________________________ Goodwill written back comprises goodwill written back on the disposal of businesses and associates of £63m. 10. Post balance sheet events ______________________________________________________________________________ On 26 January 2000 Pearson placed 11,500,000 ordinary shares to raise approximately £250m, after expenses, to fund its existing and new internet related businesses and on 1 February 2000 Pearson issued Eur 650,000,000 Bonds due 2007, the proceeds of which were used to repay existing bank debt. On 15 February 2000 Pearson increased its economic interest in Channel 5 Television Group Ltd, the UK terrestrial broadcaster, from 24 per cent to 29.25 per cent at a cost of £51m. On 29 February 2000 the merger of Pearson's asset valuation business with the Data Broadcasting Corporation, announced in November 1999, was completed. On 3 March 2000 the sale of Pearson's interests in the three Lazard houses, announced in June 1999, was completed.

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