Pearson delivered improved earnings in line with expectations for
2005. What were the highlights behind that improvement?
I think it just basically came through from both top-line growth and
profit growth. In terms of top line growth, we were up 9%. We outperformed in
pretty much all our respective markets and that was clearly a big factor behind
the improvement. In terms of profit growth, our profit grew 22% in underlying
terms. That was firstly from that market outperformance, but also from the
efficiencies we have been implementing.
Can you summarise where you are on the financial targets that you set
We had three targets to grow earnings, which I have talked about, cash
and return on invested capital. With cash, we had a phenomenal performance in
2005; our operating cash conversion rate was 113% and that was from a number of
Firstly, there were some one-offs, maybe around 20% of that was from one-offs
that won’t recur next year. The underlying conversion rate was very strong
well ahead of the 80% threshold that we set ourselves.
We kept our capital expenditure in line with depreciation actually below
£100m. We continued to improve the efficiency of our working capital, which will
be five years in a row now where we have improved that.
In terms of return on invested capital, this is what we think is the
long-term target that we have to get to and then beat our cost of capital, which
we currently think is 7.5% to 8%. Last year we grew from 6.2% in 2004 to 6.7%.
If we put the 2005 number in the same foreign exchange rate as 2004, we would
have in fact improved a full percentage point.
You’ve said you are confident about your 2006 performance. Where is
the improved revenue and margin going to come from?
I think we have tried to give quite clear guidance. So, overall, for our
education business we expect the sales growth to carry on in the 3% to 5% range.
We expect the FT Group to carry on growing. Penguin is probably the only area of
our business that we expect sales to be broadly flat.
With the stronger cash position that comes from this performance,
what are your plans for that cash?
When we look at managing Pearson what we do is to try and manage for
long-term value creation for our shareholders.
So what we think are the fundamental building blocks are clearly good
performance. Secondly, making sure that we are investing organically in our
businesses, but clearly investing in ways that generate a return above our cost
For the last few years we have been focusing on bolt-on acquisitions, smaller
acquisitions that really augment and build the competitive leadership positions
that we have.
In addition, we have a very strong dividend policy. We have grown our
dividends now above the rate of inflation for 14 straight years. This year our
dividend will be 27p and that’s a growth of 6% on 2004.
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