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 February 2007
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
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This Report includes the following documents:
1. A press release from Pearson plc announcing 'Final Results'
26 February 2007
PEARSON 2006 PRELIMINARY RESULTS
- Record results. Pearson reports its highest ever operating profits
(adjusted operating profit up 15% to GBP592m), earnings (adjusted eps up
18% to 40.2p) and cash (free cash flow up GBP2m to GBP433m).
- Sustained growth and market share gains. School sales up 6% and Higher
Education sales up 4%, benefiting from leading position in content,
assessment and technology; FT advertising revenues up 9%; Penguin sales up
3% despite tough consumer publishing market.
- Stronger margins and double-digit profit growth in all businesses. Pearson
margin up a percentage point to 13.4%. Education margin up to 14.1% and
profits up 12%; FT Group margin up to 17.3% and profits up 18%; Penguin
margin up to 7.8% and profits up 22%.
- Higher returns. Return on invested capital up to 8.0% (from 6.7% in 2005),
above Pearson's weighted average cost of capital; dividend increased by
8.5% to 29.3p, the largest increase for a decade.
Marjorie Scardino, chief executive, said: "This is another strong set of
results. We have built market-leading businesses and invested consistently in
their content, technology and international expansion. That strategy is paying
off with sustained growth in sales, margins, earnings and returns, and we expect
2007 to be another good year."
Headline Underlying
GBP millions 2006 2005 growth growth
----------------------- -------- -------- ---------- ----------
Business performance
Sales 4,423 4,096 8% 4%
Adjusted operating profit 592 506 17% 15%
Adjusted profit before tax 502 422 19% --
Adjusted earnings per share 40.2p 34.1p 18% --
Operating cash flow 575 570 1% --
Free cash flow 433 431 -- --
Return on invested capital 8.0% 6.7% 1.3 ppts 0.6 ppts
Net debt 1,059 996 (6)% --
Statutory results
Sales 4,137 3,808 9%
Operating profit 540 516 5% --
Profit before tax 466 446 4% --
Basic earnings per share 55.9p 78.2p (29)% --
Basic earnings per share - 54.1p 38.9p 39% --
continuing
Cash generated from operations 621 653 (5)% --
Dividend per share 29.3p 27.0p 8.5% --
Throughout this statement, we refer to business performance measures for total
operations (including Government Solutions) and growth rates on an underlying
basis (ie excluding currency movements and portfolio changes) unless otherwise
stated. The 'business performance' measures are non-GAAP measures and
reconciliations to the equivalent statutory heading under IFRS are included in
notes to the accounts 2, 5, 7,12,14 and 15. Profit measures within business
performance are presented on an adjusted basis to exclude: i) other net gains
and losses arising in connection with the sale of subsidiaries, investments and
associates; ii) amortisation and adjustment of acquired intangible assets; and
iii) short-term fluctuations in the market value of financial instruments (under
IAS39) and other currency movements (under IAS21).
2006 OVERVIEW
Pearson's three key financial measures are adjusted earnings per share, free
cash flow and return on invested capital. In 2006, adjusted EPS and free cash
flow reached record levels, and our return on invested capital increased from
6.7% in 2005 to 8.0%, above our weighted average cost of capital of 7.7%.
Pearson's sales increased by 4% to GBP4.4bn and adjusted operating profit was up
15% to a record GBP592m. All parts of Pearson contributed, with good sales
growth, further margin improvement and double-digit profit increases in each
business. Adjusted earnings per share were 40.2p, up 18%.
Operating cash flow increased by GBP5m to GBP575m and free cash flow by GBP2m to
GBP433m. Cash conversion was strong at 97% of operating profit (even after an
exceptional 113% cash conversion rate in 2005). The ratio of average working
capital to sales at Pearson Education and Penguin improved by 1.1% points to
26.3%.
Statutory results show an increase in operating profit to GBP540m (GBP516m in
2005). Basic earnings per share were 55.9p (compared with 78.2p in 2005, which
included the GBP302m profit on the sale of Recoletos). Net debt rose by GBP63m
to GBP1,059m (from GBP996m in 2005).
During the year, we completed a series of bolt-on acquisitions in Education
(including Promissor, PBM, National Evaluation Systems, PowerSchool and
Chancery) and the FT Group (Quote.com and Mergermarket). Our total investment in
acquisitions in 2006 was GBP363m. Together, these acquisitions contributed
GBP147m of sales and GBP17m of operating profit to our 2006 results (after
integration costs, which are expensed).
In December 2006 we announced the sale of Government Solutions to Veritas
Capital for $560m in cash, $40m in preferred stock and a 10% interest in the
company. In 2006 Government Solutions contributed GBP286m of sales and GBP22m of
operating profit to Pearson. The sale was completed on 15 February 2007. As part
of our plan to reduce our UK pension deficit, we will inject GBP100m of the cash
proceeds from the sale of Government Solutions into our UK pension scheme during
2007.
The board is proposing a dividend increase of 8.5% to 29.3p, the largest
increase for a decade. Subject to shareholder approval, 2006 will be Pearson's
15th straight year of increasing our dividend above the rate of inflation, and
in the past five years alone we have returned approximately GBP1bn ($1.8bn) to
shareholders through the dividend.
2007 OUTLOOK
We expect 2007 to be another good year for Pearson, with continued margin
improvement and growth ahead of our markets. We expect to achieve good
underlying earnings growth, cash conversion ahead of our 80% threshold, and a
further increase in return on invested capital. At this early stage in the year
our outlook is:
- Pearson Education (65% of 2006 sales; 68% of operating profit). We expect
School to achieve underlying sales growth in the 4-6% range; Higher
Education to grow in the 3-5% range; and Professional sales to be broadly
level with 2006. We expect margins to improve again in School and
Professional, and to be stable in Higher Education.
- Penguin (19% of sales; 11% of operating profit) expected to improve margins
further, as its publishing investment and efficiency programmes continue to
bear fruit.
- Financial Times Group (16% of sales; 21% of operating profit) expected to
continue its strong profit growth. At FT Publishing, advertising trends
remain difficult to predict, but we expect our cost measures, integration
actions and revenue diversification to push margins into double digits in
2007. IDC has stated that it expects to achieve revenue growth in the 6-9%
range and net income growth in the high single-digits to low double-digits
(headline growth under US GAAP).
Interest. Our interest charge in 2007 will reflect the receipt of the sale
proceeds from Government Solutions, a GBP100m cash payment into our UK pension
scheme and higher interest rates.
Tax. For 2007, we expect our effective tax rate on adjusted earnings to be in
the 28-30% range (compared with our 2006 rate of 30.9%). Our tax position
benefits from deductions relating to amortisation of goodwill arising on
acquisitions, and from 2007 we will reflect those deductions in adjusted
earnings. The amount of tax paid (GBP59m in 2006) is not affected.
Exchange rates. Pearson generates about two-thirds of its sales in the US and
each five cent change in the average GBP:$ exchange rate for the full year
(which in 2006 was GBP1:$1.84) would have an impact of approximately 1p on
adjusted earnings per share.
Dividends. In recent years, our dividend policy has been to increase the
dividend ahead of the rate of inflation. Looking ahead, the Board expects to
raise the dividend more in line with earnings growth, while building our
dividend cover towards two times earnings.
For more information:
Luke Swanson / Simon Mays-Smith/ Deborah Lincoln + 44 (0) 20 7010 2310
Pearson's results presentation for investors and analysts will be webcast live
today from 09.00 (GMT) and available for replay from 12.00 (GMT) via
www.pearson.com.
We are holding a conference call for US investors at 15.00 (GMT) / 10.00 (EST).
To participate please dial in on +1 718 354 1175 (inside the US) or +44 20 8974
7900 (outside the US), participant code 476378. The call will be available for
replay at www.pearson.com .
Video interviews with Marjorie Scardino and Robin Freestone are available at
www.pearson.com; high resolution photographs are available for the media at
www.newscast.co.uk.
BUSINESS PERFORMANCE
Headline Underlying
GBP millions 2006 2005 growth growth
Sales
School 1,455 1,295 12% 6%
Higher Education 795 779 2% 4%
Professional* 627 589 6% 3%
Pearson Education 2,877 2,663 8% 4%
FT Publishing 366 332 10% 8%
IDC 332 297 12% 4%
FT Group 698 629 11% 6%
Penguin 848 804 5% 3%
Total 4,423 4,096 8% 4%
Adjusted operating profit
School 184 147 25% 17%
Higher Education 161 156 3% 3%
Professional* 60 45 33% 29%
Pearson Education 405 348 16% 12%
FT Publishing 32 21 52% 52%
IDC 89 80 11% 9%
FT Group 121 101 20% 18%
Penguin 66 60 10% 22%
Total 592 509 16% 15%
Recoletos -- (3)
Total 592 506 17% 15%
* includes Government Solutions
SCHOOL
RECORD RESULTS: SALES UP 6%; PROFITS UP 17%; MARGINS UP BY 1.2% PTS TO 12.6%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 1,455 1,295 12% 6%
Adjusted operating profit 184 147 25% 17%
Significant share gains in US School publishing
- Pearson US School publishing up 3%, against an industry decline of 6%
(source: Association of American Publishers), as we benefit from our
sustained investment in new basal programmes and innovative digital
services.
- Pearson takes the leading share of the new adoption market: 30% of the
total market and 33% where we competed. #1 or #2 market share in reading,
maths, science and social studies. Total new adoption opportunity of
approximately $670m in 2006, down from $900m in 2005.
- Innovative digital programme for California takes #1 position and a 43%
market share in elementary social studies. Digital curriculum services
being developed for new adoptions.
- US School new adoption market expected to grow strongly over the next three
years (estimated at $760m in '07; $900m in '08; $950m in '09).
Strong growth and continued share gains in school testing
- US School testing sales up in the high single digits (after 20%+ growth in
2005), benefiting from further contract wins, market share gains and
leadership in onscreen marking, online testing and embedded (formative)
assessment.
- Acquisition of National Evaluation Systems (NES), the leading provider of
customised assessments for teacher certification in the US, with testing
programmes in 16 states including Florida (won in 2006) and California
(renewed in 2006). NES expands our testing capabilities in an attractive
adjacent market.
School technology business broadened
- Acquisition of Chancery and PowerSchool enhances our leading position in
the US Student Information Systems (SIS) market. Integration on track and
good growth prospects as schools upgrade information systems to manage and
report data on student attendance and performance.
- Organic growth and margin improvement continues in digital curriculum
business, Pearson Digital Learning. Continued investment in new generation
digital products to meet demands of school districts for personalised
classroom learning.
- Four product nominations in six categories, more than any other education
company, for the Software and Information Industry Association 'Codie'
awards. The products are: Prosper, a formative assessment tool for
'at-risk' students; Write to Learn, a web-based tool for learning to read
and write; Chancery SMS, a student information system for middle and large
school districts; and California History-Social Studies.
Good growth in international school
- International testing businesses continue to benefit from technology
leadership. In the UK, we have marked over 9 million GCSE, AS and A-Level
scripts on screen. In 2007 we will roll out Results Plus across the UK,
providing students, teachers and parents with online access to
question-level examination performance data.
- In school publishing, UK launch of ActiveTeach technology provides
multimedia resources for maths and science teaching and brings market share
gains. Market-leading school companies in Hong Kong and South Africa
outperform their markets.
- Acquisition of Paravia Bruno Mondadori (PBM), one of Italy's leading
education publishers. Good progress in integrating publishing, sales and
marketing, distribution and back office operations with our existing
Italian business, and in sharing content and technology.
- Successful launch of regional adaptations of English Adventure (with
Disney), our worldwide English Language Training programme for elementary
schools, in Asia and Latin America.
HIGHER EDUCATION
RECORD RESULTS: SALES UP 4%; PROFITS UP 3%; MARGINS UP BY 0.3% PTS TO 20.3%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 795 779 2% 4%
Adjusted operating profit 161 156 3% 3%
Steady growth momentum
- US Higher Education up 4%; ahead of the industry once again.
- Over the past eight years, Pearson US Higher Education has grown at an
average annual rate of 7%, compared to the industry's average growth rate
of 4%.
Rapid growth in online learning and custom publishing
- Approximately 4.5m US college students using one of our online programmes.
Of these, approximately 2.3m (up almost 30% on 2005) register for an online
course on one of our 'MyLab' online homework and assessment programmes.
- 16 subject-specific 'MyLab' online homework and assessment programmes now
available supporting more than 200 titles. Research studies show
significant gains in student success rates and productivity improvements
for institutions.
- Strong market share, student performance and institutional productivity
gains in college maths, supported by MyMathLab.
- In psychology and economics, two of the three largest markets in US higher
education, Pearson publishes successful first edition bestsellers:
Cicarrelli's Psychology together with MyPyschLab and Hubbard's Economics
together with MyEconLab. Cicarrelli's Psychology increases Pearson's market
share by 3% to 25% and is the bestselling launch of a first edition in the
discipline in the past decade.
- Continued strong double digit growth in custom publishing - which builds
customised textbooks and online services around the courses of individual
faculties or professors.
Good progress in international markets
- Good growth in local language publishing programmes. Increasing focus on
custom publishing and technology based assessment services with the MyLab
suite of products.
PROFESSIONAL
RECORD RESULTS: SALES UP 3%; PROFITS UP 29%; MARGINS UP BY 2.0% PTS TO 9.6%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 627 589 6% 3%
Adjusted operating profit 60 45 33% 29%
Note: includes Government Solutions
Professional Testing: rapid organic sales and profit growth
- Professional Testing sales up more than 30% in 2006 (and have doubled over
the past two years). Approximately 4m secure online tests delivered in more
than 5,000 test centres worldwide in 2006.
- Successful start-up of the worldwide Graduate Management Admissions Test.
220,000 examinations delivered in 400 test centres in 96 countries, in
first year of new contract.
- Professional Testing moves from around breakeven in 2005 to profitability
in 2006.
- Successful integration of Promissor, acquired in January 2006. Combination
brings together two leading international professional testing companies
and takes Pearson into new US state and federal regulatory markets.
Professional publishing: further margin improvement
- Technology publishing profits up as further cost actions offset continued
industry weakness.
- Strong performance from Wharton School Publishing and FTPress imprints,
aided by Pearson's global distribution and strong retail relationships. 41
titles published in 2006 including Jerry Porras, Stewart Emery and Mark
Thompson's Success Built To Last (the sequel to Built To Last) and Jeffrey
Gitomer's The Little Red Book of Sales Answers, The Little Gold Book of Yes
Attitude. Three Wall Street Journal business bestsellers, two BusinessWeek
bestsellers and one New York Times bestseller in 2006.
Government Solutions: sale completed in February 2007
- Sale of Government Solutions to Veritas Capital for $560m in cash, $40m in
preferred stock and a 10% interest in the company completed on 15 February
2007.
- Government Solutions contributed GBP286m of sales and GBP22m of operating
profit to Pearson in 2006.
FT PUBLISHING
GOOD SALES MOMENTUM AND SIGNIFICANT PROFIT IMPROVEMENT:
SALES UP 8%; PROFITS UP 52%; MARGINS UP BY 2.4% PTS TO 8.7%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 366 332 10% 8%
Adjusted operating profit 32 21 52% 52%
Continued growth and profit improvement at the Financial Times and FT.com
- FT newspaper and FT.com sales up 8% to GBP238m; GBP9m profit improvement to
GBP11m.
- FT advertising revenues up 9% with rapid growth in online, luxury goods and
corporate finance categories, all up more than 30%.
- FT's worldwide circulation up 1% to 430, 469 (Source: ABC, average for six
months to December 2006). FT.com's paying subscribers up 7% to 90,000 and
December audience up 29% to 4.2m.
- Growing international presence and readership. 47% growth in readership in
the US Mendelsohn Affluent Survey and 26% growth in the Asian Business
Readership Survey. The FT ranked number one European business title in
Europe for the fifteenth time (European Business Readership Survey).
- Continued benefits of international expansion: approximately three-quarters
of the FT's advertising booked in two or more international editions;
almost half of the FT's advertising booked for all four editions worldwide.
- 'New newsroom' creates an integrated multi-media newsroom, improving
commissioning, reporting, editing and production efficiency, and providing
further cost savings.
Sustained progress across FT Publishing
- Acquisition and integration of Mergermarket, an online financial data and
intelligence provider. On a pro forma basis, Mergermarket's revenues grew
80% in 2006, with 90% customer renewals. Margins improving as expected in
spite of significant investment in new products and geographic markets.
- FT Business shows good growth and improves margins driven by strong
performance in events, UK retail finance titles (Investment Adviser,
Financial Adviser) and internationally by The Banker, which celebrated its
80th year. FT Business integrated with the Financial Times early in 2007.
- Les Echos achieves modest circulation (average circulation of 119,117) and
advertising growth in a weak market ahead of the 2007 French presidential
elections; FT Deutschland outperforms the German newspaper market once
again, increasing circulation 2% to 104,000.
- The Economist, in which Pearson owns a 50% stake, increases its circulation
by 9% to 1.2m (for the July-December ABC period).
INTERACTIVE DATA CORPORATION (NYSE:IDC)
RECORD RESULTS: SALES UP 4%; PROFITS UP 9%; MARGINS STABLE AT 26.8%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 332 297 12% 4%
Adjusted operating profit 89 80 11% 9%
Faster organic growth
- FT Interactive Data, IDC's largest business (approximately two-thirds of
IDC revenues), generates strong, consistent growth in North America and
Europe.
- Improving momentum at ComStock and eSignal. Comstock enjoys good new sales
progress with institutional clients and lower cancellation levels. eSignal
produces continued growth in its base of direct subscription terminals.
- Renewal rates for IDC's institutional businesses remain at around 95%.
Continued focus on high value services
- FT Interactive Data's growth driven by sustained demand for fixed income
evaluated pricing services and related reference data. Continues to expand
its market coverage, adding independent valuations of credit default swaps
and other derivative securities
- CMS BondEdge launches fixed income analytical data feed service. Enables
CMS BondEdge to deliver new applications for sophisticated risk measures.
- ComStock real-time services power algorithmic trading applications.
ComStock's highly reliable, low-latency consolidated data-feed service
supports increasingly sophisticated institutional electronic trading
applications.
- IDC divisions unified under the Interactive Data brand to emphasise the
breadth of its comprehensive range of products and services across the
front, middle and back offices of customers.
Further expansion into adjacent markets
- Following the acquisition of IS.Teledata (re-branded Interactive Data
Managed Solutions in July 2006), IDC now provides customised, web-based
financial information systems for retail banking and private client
applications as well as for infomedia portals and online brokers.
- The acquisition of Quote.com in March 2006, which expanded eSignal's suite
of real-time market data platforms and analytics, added two financial
websites. As a result, eSignal is generating strong growth in online
advertising.
- Interactive Data Managed Solutions and Quote.com contribute over $50
million to IDC's 2006 revenue.
PENGUIN
GOOD SALES GROWTH AND SIGNIFICANT PROFIT INCREASE:
SALES UP 3%; PROFITS UP 22%; MARGINS UP BY 0.3% PTS TO 7.8%
Headline Underlying
GBP millions 2006 2005 growth growth
Sales 848 804 5% 3%
Adjusted operating profit 66 60 10% 22%
Record literary success and bestseller performance
- Record number of bestsellers for record number of weeks - Penguin US places
139 books on The New York Times bestseller list, 10 more than in 2005, and
keeps them there for 809 weeks overall, up 119 weeks from 2005; Penguin UK
places 59 titles in the BookScan Top Ten bestseller list, up 5 from 2005,
and keeps them there for 361 weeks, up 42 weeks from 2005.
- Penguin authors win a large number of prestigious literary awards
including: a Pulitzer Prize for Fiction (March by Geraldine Brooks); a
National Book Critics Circle Award (THEM: A Memoir of Parents by Francine
du Plessix Gray); the Michael L. Printz award (Looking for Alaska by John
Green); the Whitbread Book of the Year Award (Matisse the Master by Hilary
Spurling); the Orange Prize for Fiction (On Beauty by Zadie Smith); and the
Man Booker Prize (The Inheritance of Loss by Kiran Desai).
- Penguin UK's focus on fiction rewarded with a substantial increase in
market share, led by Marina Lewycka's A Short History of Tractors in
Ukrainian.
- Penguin US premium paperback format continues to accelerate revenue growth
and improves profitability in the important mass market category. Strong
performance from paperbacks with Penguin authors holding the #1 position on
The New York Times paperback fiction list for a record 22 successive weeks.
Continued focus on quality and efficiency
- Pearson-wide renegotiation of major global paper, print and binding
contracts brings cost savings in 2006 and beyond.
- Integration of Australia and New Zealand warehouses and back office
operations produces further scale benefits.
- Investment in India as a pre-production and design centre for reference
titles.
Strong international growth
- Penguin India, which celebrates its 20th anniversary in 2007, continues its
rapid growth and extends its market leadership. Penguin authors win all the
prizes in India's national book awards: Vikram Chandra in fiction for
Sacred Games, Vikram Seth in non-fiction for Two Lives and Kiran Desai in
readers' choice for The Inheritance of Loss.
- Penguin China continues to acquire rights to between four and six Chinese
titles each year, following acquisition of Jian Rong's Wolf Totem, due to
be published in English in 2008. Penguin enters the Chinese market with the
launch of ten translated Penguin Classic titles in 2007.
- Penguin South Africa grows strongly in 2006 and continues to increase
market share.
Investing in digital to engage consumers
- Strong growth in online revenues and unique visitors to Penguin and DK
websites.
- Penguin leading the market in developing new content creation and
distribution models. In 2006 Penguin won the Revolution Award for Best
Brand Building using Digital Channels and the Neilsen Nibbie for Innovation
in the Book Business for the Penguin Remixed competition and the Penguin
Podcast. These two initiatives have been followed by further campaigns
including the launch of the acclaimed Penguin Blog, Penguin's presence in
Second Life and the recent wiki-novel, A Million Penguins, which hosted
60,000 unique visitors in its first week. DK Travel content made available
on MSN and Rough Guides distributed through mobile phones.
- Subscribers to Penguin and DK opt-in newsletters building rapidly, allowing
Penguin consumers to personalise areas of interest and strengthening
relationship with Penguin brand.
- Jamie Oliver's 'Cookcast' was the first ever live streamed cookery webcast
and one of the most successful webcasts ever in the UK.
Strong 2007 publishing schedule
- Strong list of new titles for 2007 from bestselling and new authors
including Alan Greenspan, Khaled Hosseini, Jamie Oliver, Al Gore, Jeremy
Clarkson, Patricia Cornwell, Marina Lewycka and Naomi Klein.
FINANCIAL REVIEW
Operating profit
Total adjusted operating profit increased by GBP86m or 17% to GBP592m in 2006
from GBP506m in 2005. Adjusted operating profit excludes amortisation and
adjustment of acquired intangibles and other gains and losses on the sale of
subsidiaries, joint ventures, associates and investments that are included
within continuing operations. For the purposes of our adjusted operating profit
we add back the profits from discontinued operations. In 2006 these relate to
the disposal of the Group's interest in Government Solutions and in 2005 to the
disposals of Government Solutions and Recoletos.
Statutory operating profit increased by GBP24m or 5%. This was a lower increase
than seen in the adjusted operating profit due to an increased intangible
amortisation charge and the absence of the Marketwatch profit on disposal
recorded in 2005.
Net finance costs
Net finance costs reported in our adjusted earnings comprise net interest
payable and net finance income relating to pension schemes. Net interest payable
in 2006 was GBP94m, up from GBP77m in 2005. Although we were partly protected by
our fixed rate policy, the strong rise in average US dollar floating interest
rates had an adverse effect. Year on year, average three month LIBOR (weighted
for the Group's borrowings in US dollars, euros and sterling at the year end)
rose by 1.5% to 4.9%. Combining the rate rise with an increase in the Group's
average net debt of GBP40m, the Group's average net interest rate payable rose
by 1.1% to 7.0%. In 2006 the net finance income relating to pension schemes was
an income of GBP4m compared to a cost of GBP7m in the previous year, giving an
overall net finance cost of GBP90m in 2006 compared to GBP84m in 2005.
Taxation
The tax rate on adjusted earnings increased slightly from 30.3% in 2005 to
30.9%. Our overseas profits, which arise mainly in the US, are generally subject
to tax rates which are higher than the UK Corporation Tax rate of 30%. But this
factor was again offset by releases of provisions following further progress in
agreeing our tax affairs with the authorities and reassessment of the provisions
required for uncertain items.
The reported tax charge on a statutory basis of GBP11m represents just over 2%
of reported profits. This low rate was mainly accounted for by two factors.
First, in the light of the announcement of the disposal of Pearson Government
Solutions, we have recognised a deferred tax asset in relation to capital losses
in the US where previously we were not confident that the benefit of the losses
would be realised prior to their expiry. Second, in the light of our trading
performance in 2006 and our strategic plans together with the expected
utilisation of US trading losses in the Government Solutions sale, we have
re-evaluated the likely utilisation of operating losses both in the US and the
UK; this has enabled us to increase the amount of the deferred tax asset carried
forward in respect of such losses. The combined effect of these two factors was
to create a non-recurring credit of GBP127m.
Minority interests
Following the disposal of our 79% holding in Recoletos and the purchase of the
25% minority stake in Edexcel in 2005, our minority interests now comprise
mainly the minority share in IDC. In January 2006 we increased our stake in IDC
to 62%, reducing the minority interest from 39% to 38%.
Dividends
The dividend accounted for in our 2006 financial statements totalling GBP220m,
represents the final dividend (17.0p) in respect of 2005 and the 2006 interim
dividend of 10.5p. We are proposing a final dividend for 2006 of 18.8p, bringing
the total paid and payable in respect of 2006 to 29.3p, an 8.5% increase on
2005. This final 2006 proposed dividend was approved by the board in February
2007, is subject to shareholder approval at the forthcoming AGM and will be
charged against 2007 profits. For 2006, the dividend is covered 1.4 times by
adjusted earnings.
Condensed consolidated income statement
for the year ended 31 December 2006
Unaudited
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions note
----------------------------------- ----- --- ------- -------
Continuing operations
Sales 2 4,137 3,808
Cost of goods sold (1,917) (1,787)
----------------------------------- ----- --- ------- -------
Gross profit 2,220 2,021
Operating expenses (1,704) (1,559)
Other net gains and losses 3 - 40
Share of results of joint ventures and 24 14
associates ----- --- ------- -------
-----------------------------------
Operating profit 2 540 516
Finance costs 4 (133) (132)
Finance income 4 59 62
----------------------------------- ----- --- ------- -------
Profit before tax 5 466 446
Income tax 6 (11) (116)
----------------------------------- ----- --- ------- -------
Profit for the year from continuing 455 330
operations
Discontinued operations
Profit for the year from discontinued 8 14 314
operations
----------------------------------- ----- --- ------- -------
Profit for the year 469 644
Attributable to:
Equity holders of the Company 446 624
Minority interest 23 20
----------------------------------- ----- --- ------- -------
Earnings per share from continuing and discontinued
operations
Basic 7 55.9p 78.2p
Diluted 7 55.8p 78.1p
Earnings per share from continuing operations
Basic 7 54.1p 38.9p
Diluted 7 54.0p 38.8p
The results are presented under IFRS (see note 1).
Condensed consolidated statement of recognised income and expense
for the year ended 31 December 2006
Unaudited
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions note
----------------------------------- ----- --- ------- -------
Net exchange differences on translation of (417) 327
foreign operations
Actuarial gains on defined benefit pension and post
retirement
medical schemes 107 26
Taxation on items charged to equity 12 12
----------------------------------- ----- --- ------- -------
Net (expense) / income recognised directly in (298) 365
equity
Profit for the year 469 644
----------------------------------- ----- --- ------- -------
Total recognised income and expense for the 171 1,009
year
Attributable to:
Equity holders of the Company 13 148 989
Minority interest 23 20
----------------------------------- ----- --- ------- -------
Effect of transition adjustment on adoption of
IAS 39
Attributable to:
Equity holders of the Company - (12)
Condensed consolidated balance sheet
as at 31 December 2006
Unaudited
----------------------------------- ------ --- ------- -------
2006 2005
all figures in GBP millions note
----------------------------------- ------ --- ------- -------
Non-current assets
Property, plant and equipment 348 384
Intangible assets 11 3,581 3,854
Investments in joint ventures and associates 20 36
Deferred income tax assets 417 385
Financial assets - Derivative financial 36 79
instruments
Other financial assets 17 18
Other receivables 124 108
----------------------------------- ------ --- ------- -------
4,543 4,864
Current assets
Intangible assets - pre-publication 402 426
Inventories 354 373
Trade and other receivables 953 1,031
Financial assets - Derivative financial 50 4
instruments
Financial assets - Marketable securities 25 -
Cash and cash equivalents (excluding 592 902
overdrafts) ------ --- ------- -------
-----------------------------------
2,376 2,736
Non-current assets classified as held for 294 -
sale
----------------------------------- ------ --- ------- -------
Total assets 7,213 7,600
Non-current liabilities
Financial liabilities - Borrowings (1,148) (1,703)
Financial liabilities - Derivative financial (19) (22)
instruments
Deferred income tax liabilities (245) (204)
Retirement benefit obligations (250) (389)
Provisions for other liabilities and charges (29) (31)
Other liabilities (162) (151)
----------------------------------- ------ --- ------- -------
(1,853) (2,500)
Current liabilities
Trade and other liabilities (998) (974)
Financial liabilities - Borrowings (595) (256)
Current income tax liabilities (74) (104)
Provisions for other liabilities and charges (23) (33)
----------------------------------- ------ --- ------- -------
(1,690) (1,367)
Liabilities directly associated with non-current assets (26) -
held for sale
----------------------------------- ------ --- ------- -------
Total liabilities (3,569) (3,867)
----------------------------------- ------ --- ------- -------
Net assets 3,644 3,733
Share capital 202 201
Share premium 2,487 2,477
Treasury shares (189) (153)
Reserves 976 1,039
----------------------------------- ------ --- ------- -------
Total equity attributable to equity holders of 3,476 3,564
the Company
Minority interest 168 169
----------------------------------- ------ --- ------- -------
Total equity 13 3,644 3,733
Condensed consolidated cash flow statement
for the year ended 31 December 2006
Unaudited
----------------------------------- ----- ------- -------
2006 2005
all figures in GBP millions note
----------------------------------- ----- ------- -------
Cash flows from operating activities
Cash generated from operations 14 621 653
Interest paid (106) (101)
Tax paid (59) (65)
----------------------------------- ----- ------- -------
Net cash generated from operating activities 456 487
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (363) (246)
Acquisition of joint ventures and associates (4) (7)
Purchase of property, plant and equipment (PPE) (68) (76)
Proceeds from sale of PPE 8 3
Purchase of intangible assets (29) (24)
Purchase of other financial assets - (2)
Disposal of subsidiaries, net of cash disposed 10 376
Disposal of joint ventures and associates - 54
Interest received 24 29
Dividends received from joint ventures and 45 14
associates
----------------------------------- ----- ------- -------
Net cash (used in) / generated from investing (377) 121
activities
Cash flows from financing activities
Proceeds from issue of ordinary shares 11 4
Purchase of treasury shares (36) (21)
Proceeds from borrowings 84 -
Liquid resources acquired (24) -
Repayment of borrowings (145) (79)
Finance lease principal payments (3) (3)
Dividends paid to Company's shareholders (220) (205)
Dividends paid to minority interests (15) (17)
----------------------------------- ----- ------- -------
Net cash used in financing activities (348) (321)
Effects of exchange rate changes on cash and cash (44) 13
equivalents
----------------------------------- ----- ------- -------
Net (decrease) / increase in cash and cash (313) 300
equivalents
Cash and cash equivalents at the beginning of the 844 544
year
----------------------------------- ----- ------- -------
Cash and cash equivalents at the end of the year 531 844
For the purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts repayable on demand. These overdrafts are excluded
from cash and cash equivalents disclosed on the balance sheet.
Notes to the condensed consolidated financial statements
for the year ended 31 December 2006
1. Basis of preparation
The condensed consolidated financial statements have been prepared in accordance
with the Listing Rules of the Financial Services Authority and in accordance
with EU-adopted International Financial Reporting Standards (IFRS) and IFRIC
interpretations.
The condensed consolidated financial statements have also been prepared in
accordance with the accounting policies set out in the 2005 Annual Report and
have been prepared under the historical cost convention as modified by the
revaluation of financial assets and liabilities (including derivative
instruments) at fair value.
The preparation of condensed consolidated financial statements requires the use
of certain critical accounting assumptions. It also requires management to
exercise its judgement in the process of applying the Company's accounting
policies. The areas requiring a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the condensed
consolidated financial statements have been set out in the 2005 Annual Report.
The 2005 Annual Report refers to new standards effective from 1 January 2006.
None of these standards have had a material impact in these financial
statements.
This preliminary announcement does not constitute the Group's full financial
statements for the year ended 31 December 2006, which will be approved by the
Board of Directors and reported on by the auditors in March 2007. Accordingly,
the financial information for 2006 is presented unaudited.
The financial information for the year ended 31 December 2005 has been extracted
from the full financial statements. The Auditors' report on the full financial
statements for the year ended 31 December 2005 was unqualified and did not
contain statements under section 237 (2) of the United Kingdom Companies Act
1985 (regarding the adequacy of accounting records and returns), or under 237
(3) (regarding provision of necessary information and explanations).
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
2. Segment information
The Group is organised into five primary business segments: School, Higher
Education, Penguin, Financial Times Publishing and Interactive Data Corporation
(IDC). Our remaining business group, Professional, brings together a number of
education publishing, testing and services businesses and does not meet the
criteria for classification as a 'segment' under IFRS.
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Sales
School 1,455 1,295
Higher Education 795 779
Professional 341 301
----------------------------------- ------- -------
Pearson Education 2,591 2,375
FT Publishing 366 332
IDC 332 297
----------------------------------- ------- -------
FT Group 698 629
Penguin 848 804
----------------------------------- ------- -------
Total sales - continuing operations 4,137 3,808
Discontinued operations - Government Solutions 286 288
----------------------------------- ------- -------
Adjusted sales 4,423 4,096
Adjusted operating profit
School 184 147
Higher Education 161 156
Professional 38 25
----------------------------------- ------- -------
Pearson Education 383 328
FT Publishing 32 21
IDC 89 80
----------------------------------- ------- -------
FT Group 121 101
Penguin 66 60
----------------------------------- ------- -------
Adjusted operating profit - continuing operations 570 489
Adjusted operating profit - discontinued operations 22 17
----------------------------------- ------- -------
Total adjusted operating profit 592 506
Adjusted operating profit - continuing operations 570 489
Amortisation and adjustment of acquired intangibles (35) (11)
Other gains and losses (including associates) 4 40
Other net finance costs of associates 1 (2)
----------------------------------- ------- -------
Operating profit 540 516
Adjusted sales include sales from discontinued operations held throughout the
current and previous year. In our adjusted operating profit, we have excluded
amortisation of acquired intangibles, other net gains and losses and other net
finance costs of associates. The amortisation and adjustment of acquired
intangibles is not considered to be fully reflective of the underlying
performance of the Group. Other gains and losses represent profits and losses on
the sale of subsidiaries, joint ventures, associates and investments that are
included within continuing operations but which distort the performance for the
year. Other net finance costs of associates are the equivalent of the Company's
own net finance costs that are excluded in adjusted earnings (see note 4).
discontinued operations in 2006 relate to the disposal of the Group's interest
in Government Solutions and in 2005 to both the disposal of Government Solutions
and Recoletos (see note 8).
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
3. Other net gains and losses
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Profit on sale of interest in MarketWatch - 40
----------------------------------- ------- -------
Total other net gains and losses - 40
Other net gains and losses represent profits and losses on the sale of
subsidiaries, joint ventures, associates and investments that are included
within continuing operations.
4. Net finance costs
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ----- --- ------- -------
Net interest payable (94) (77)
Finance income / (costs) re employee benefits 4 (7)
Net foreign exchange gains 19 12
Other (losses) / gains on financial instruments in a
hedging relationship:
- fair value hedges - -
- net investment hedges (2) 3
Other gains / (losses) on financial instruments not in a
hedging relationship:
- amortisation of transitional adjustment on 8 7
bonds
- derivatives (9) (8)
----------------------------------- ----- --- ------- -------
Net finance costs (74) (70)
Finance costs (133) (132)
Finance income 59 62
----------------------------------- ----- --- ------- -------
Net finance costs (74) (70)
Analysed as:
Net interest payable (94) (77)
Finance income / (costs) re employee benefits 4 (7)
----------------------------------- ----- --- ------- -------
Net finance costs reflected in adjusted earnings (90) (84)
Other net finance income 16 14
----------------------------------- ----- --- ------- -------
Net finance costs (74) (70)
Fair value gains and losses on financial instruments are analysed between three
elements: net interest payable, foreign exchange and other gains and losses. For
the purposes of adjusted earnings we have excluded foreign exchange and other
gains and losses as they represent short-term fluctuations in market value and
are subject to significant volatility. These gains and losses may not be
realised in due course as it is normally the intention to hold these instruments
to maturity. The increased volatility has been introduced as a result of
adopting IAS 39 'Financial Instruments: Recognition and Measurement' as at 1
January 2005.
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
5. Profit before tax
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Profit before tax 466 446
Add back: amortisation and adjustment of acquired intangibles 35 11
(see note 2)
Add back: other net gains and losses (including associates) (4) (40)
(see note 2)
Add back: other net finance costs of associates (see note 2) (1) 2
Add back: other net finance income (see note 4) (16) (14)
----------------------------------- ------- -------
Adjusted profit before tax - continuing operations 480 405
Adjusted profit before tax - discontinued operations 22 17
----------------------------------- ------- -------
Total adjusted profit before tax 502 422
6. Income tax
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ----- --- ------- -------
Income tax charge (11) (116)
Add back: tax benefit on amortisation of acquired (10) (4)
intangibles
Add back: tax benefit on other gains and losses (4) (4)
Add back: tax charge on other finance income 5 3
Add back: tax benefit on recognition of tax losses (127) -
-------------------------------------- --- ------- -------
Adjusted income tax charge - continuing (147) (121)
operations
Adjusted income tax charge - discontinued (8) (7)
operations ----- --- ------- -------
-----------------------------------
Total adjusted income tax charge (155) (128)
Tax rate reflected in adjusted earnings 30.9% 30.3%
Included within the income tax charge is an amount of GBP15m (2005: GBP26m)
relating to UK tax. The Group has excluded from its adjusted earnings tax
benefits from the recognition of its capital and trading losses (GBP127m) which,
due to their size and non-recurring nature are not considered to be fully
reflective of the underlying tax rate of the Group.
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
7. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company (earnings) by the weighted average number of
ordinary shares in issue during the period, excluding ordinary shares purchased
by the Company and held as treasury shares. Diluted earnings per share is
calculated by adjusting the weighted average number of ordinary shares to take
account of all dilutive potential ordinary shares and adjusting the profit
attributable if applicable to account for any tax consequences that might arise
from conversion of those shares.
In order to show results from operating activities on a consistent 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.
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ----- --- ------- -------
Earnings 446 624
Adjustments to exclude profit for the year from
discontinued operations:
Profit for the year from discontinued operations (14) (314)
-------------------------------------- --- ------- -------
Earnings - continuing operations 432 310
Earnings 446 624
Adjustments:
Amortisation and adjustment of acquired 35 11
intangibles
Other gains and losses (including associates) (4) (40)
Other net finance (income) / costs of associates (1) 2
Other net finance income (see note 4) (16) (14)
Profit on sale of discontinued operations (see - (306)
note 8)
Taxation on above items (9) (3)
Recognition of tax losses (127) -
Minority interest share of above items (3) (2)
----------------------------------- ----- --- ------- -------
Adjusted earnings 321 272
Weighted average number of shares (millions) 798.4 797.9
Effect of dilutive share options (millions) 1.5 1.1
Weighted average number of shares (millions) for diluted 799.9 799.0
earnings
Earnings per share from continuing and discontinued
operations
Basic 55.9p 78.2p
Diluted 55.8p 78.1p
Earnings per share from continuing operations
Basic 54.1p 38.9p
Diluted 54.0p 38.8p
Adjusted earnings per share 40.2p 34.1p
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
8. Discontinued operations
Discontinued operations in 2006 relate to the sale of Pearson's wholly owned
subsidiary, Government Solutions Inc., on 15 February 2007. The results of
Government Solutions have been included in discontinued operations for both 2005
and 2006. Discontinued operations in 2005 also relate to the sale of Pearson's
79% interest in Recoletos Grupo de Communicacion S.A. The results of Recoletos
were consolidated for the period to 28 February 2005. Any profit or loss on the
disposal of Government Solutions will be included in the 2007 results.
------------------------- ----- --- ------- ------- ------- -------
2006 2005 2005 2005
all figures in GBP Government Government Recoletos Total
millions Solutions Solutions
------------------------- ----- --- ------- ------- ------- -------
Sales 286 288 27 315
Operating profit / (loss) 22 20 (3) 17
Net finance income - - - -
------------------------- ----- --- ------- ------- ------- -------
Profit / (loss) before 22 20 (3) 17
tax
Attributable tax (expense) (8) (8) 1 (7)
/ benefit
Profit on disposal of discontinued - - 306 306
operations before tax
Attributable tax expense - - (2) (2)
------------------------- ----- --- ------- ------- ------- -------
Profit for the year from 14 12 302 314
discontinued operations
9. Dividends
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Amounts recognised as distributions to equity holders in the 220 205
year
The directors are proposing a final dividend of 18.8p per equity share, payable
on 11 May 2007 to shareholders on the register at the close of business on 10
April 2007. This dividend has not been included as a liability as at 31 December
2006. An 18.8p final dividend represents a cash payment of GBP151m (2005: 17.0p
or GBP136m).
10. 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:
----------------------------------- ------- -------
2006 2005
----------------------------------- ------- -------
Average rate for profits 1.84 1.81
Period end rate 1.96 1.72
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
11. Intangible assets
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Goodwill 3,271 3,654
Other intangibles 310 200
----------------------------------- ------- -------
Total intangibles 3,581 3,854
Pearson has made a number of acquisitions in the year to 31 December 2006
including: Mergermarket, a financial information company providing information
to financial institutions, corporations and their advisors; Promissor, a
computerised test provider focused on the regulatory market in the US; National
Evaluation Systems, the leading provider of customised state assessments for
teacher certification in the US and Paravia Bruno Mondadori, one of Italy's
leading educational publishers. Net consideration paid for all acquisitions in
the year to 31 December 2006 was GBP363m and provisional goodwill recognised was
GBP246m. In total the acquisitions made in 2006 contributed an additional
GBP147m of sales and GBP17m of operating profit.
12. Net debt
----------------------------------- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ------- -------
Non current assets
Derivative financial instruments 36 79
Current assets
Derivative financial instruments 50 4
Marketable securities 25 -
Cash and cash equivalents 592 902
Non current liabilities
Borrowings (1,148) (1,703)
Derivative financial instruments (19) (22)
Current liabilities
Borrowings (595) (256)
----------------------------------- ------- -------
Total net debt (1,059) (996)
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
13. Reconciliation of movements in equity
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ----- --- ------- -------
Attributable to equity holders of the Company
Total recognised income and expense for the 148 989
period
Equity settled transactions 25 23
Shares issued 11 4
Cumulative translation adjustment disposed - (14)
Treasury shares purchased (52) (21)
Dividends to equity holders of the Company (220) (205)
-------------------------------------- --- ------- -------
Net movement for the period (88) 776
Attributable to equity holders of the Company at the 3,564 2,800
beginning of the year
Transition adjustment on adoption of IAS 39 - (12)
-------------------------------------- --- ------- -------
Attributable to equity holders of the Company at the end 3,476 3,564
of the year
Minority interests 168 169
-------------------------------------- --- ------- -------
Total equity 3,644 3,733
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
14. Cash flows
----------------------------------- ----- --- ------- -------
2006 2005
all figures in GBP millions
----------------------------------- ----- --- ------- -------
Reconciliation of profit for the period to net cash
generated from operations
Profit for the year 469 644
Income tax 19 125
Depreciation and amortisation charges 135 109
Amortisation of pre-publication 210 192
Investment in pre-publication (213) (222)
Loss on sale of property, plant and equipment 2 -
Net finance costs 74 70
Profit on sale of subsidiaries and associates - (346)
Share of results of joint ventures and (24) (14)
associates
Net foreign exchange (losses) / gains from (37) 39
transactions
Share-based payments 25 23
Inventories (16) (17)
Trade and other receivables (60) (4)
Trade and other liabilities 54 71
Provisions (17) (17)
----------------------------------- ----- --- ------- -------
Net cash generated from operations 621 653
Dividends from joint ventures and associates 45 14
Net purchase of PPE including finance lease (63) (75)
principal payments
Purchase of intangibles (29) (24)
Add back: Cash spent against integration and fair 1 2
value provisions ----- --- ------- -------
-----------------------------------
Operating cash flow 575 570
Operating tax paid (59) (65)
Operating finance charges paid (82) (65)
----------------------------------- ----- --- ------- -------
Operating free cash flow 434 440
Non-operating finance charges paid - (7)
Integration and fair value spend (1) (2)
----------------------------------- ----- --- ------- -------
Total free cash flow 433 431
Dividends paid (including tominorities) (235) (222)
----------------------------------- ----- --- ------- -------
Net movement of funds from operations 198 209
Included in net cash generated from operations is an amount of GBP20m (2005:
GBP16m) relating to discontinued operations.
Operating cash flow, operating free cash flow and total free cash flow have been
disclosed as they are part of Pearson's corporate and operating measures.
Following a review of accounting policies in 2006, the Group has reclassified
investment in pre-publication assets as cash generated from operations. The 2005
number has been reclassified accordingly.
Notes to the condensed consolidated financial statements continued for the year
ended 31 December 2006
15. Adjusted income statement
Income Re-analyse Re-analyse Other Amortisation Other Recognition Adjusted
statement discontinued discontinued gains / adjustment net of tax income
operations - operations - and of acquired finance losses statement
Government Recoletos losses intangibles costs
Solutions
all figures
in GBP
millions
---------------------------------------------------------------------------------------------------------------
2006
---------------------------------------------------------------------------------------------------------------
Sales 4,137 286 - - - - - 4,423
---------------------------------------------------------------------------------------------------------------
Gross profit 2,220 59 - - - - - 2,279
Operating (1,704) (37) - - 35 - - (1,706)
expenses
Other net - - - - - - - -
gains/losses
JVs and 24 - - (4) - (1) - 19
associates
---------------------------------------------------------------------------------------------------------------
Operating 540 22 - (4) 35 (1) - 592
profit
Net finance (74) - - - - (16) - (90)
costs
---------------------------------------------------------------------------------------------------------------
Profit 466 22 - (4) 35 (17) - 502
before tax
Income tax (11) (8) - (4) (10) 5 (127) (155)
---------------------------------------------------------------------------------------------------------------
Profit for 455 14 - (8) 25 (12) (127) 347
the year -
continuing
Profit for 14 (14) - - - - - -
the year -
discontinued
---------------------------------------------------------------------------------------------------------------
Profit for 469 - - (8) 25 (12) (127) 347
the year
Minorities (23) - - - (3) - - (26)
---------------------------------------------------------------------------------------------------------------
Earnings 446 - - (8) 22 (12) (127) 321
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
2005
---------------------------------------------------------------------------------------------------------------
Sales 3,808 288 - - - - - 4,096
---------------------------------------------------------------------------------------------------------------
Gross profit 2,021 53 27 - - - - 2,101
Operating (1,559) (33) (30) - 11 - - (1,611)
expenses
Other net 40 - 306 (346) - - - -
gains/losses
JVs and 14 - - - - 2 - 16
associates
---------------------------------------------------------------------------------------------------------------
Operating 516 20 303 (346) 11 2 - 506
profit
Net finance (70) - - - - (14) - (84)
costs
---------------------------------------------------------------------------------------------------------------
Profit 446 20 303 (346) 11 (12) - 422
before tax
Income tax (116) (8) (1) (2) (4) 3 - (128)
---------------------------------------------------------------------------------------------------------------
Profit for 330 12 302 (348) 7 (9) - 294
the year -
continuing
Profit for 314 (12) (302) - - - - -
the year -
discontinued
---------------------------------------------------------------------------------------------------------------
Profit for 644 - - (348) 7 (9) - 294
the year
Minorities (20) - - - (2) - - (22)
---------------------------------------------------------------------------------------------------------------
Earnings 624 - - (348) 5 (9) - 272
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: 26 February 2007
By: /s/ STEPHEN JONES
-----------------------
Stephen Jones
Deputy Secretary