LONDON, Feb. 26 /PRNewswire-FirstCall/ -- With a primary listing on
the London Stock Exchange, we report our financial results in
sterling. We also issue this preliminary results statement in the
US, which shows our reported results in dollars for illustrative
purposes only. Here, in line with our previous US results
announcements, we have re-translated our results into dollars using
the year end sterling:dollar exchange rate of 1 Pound
Sterling:$1.96. * Record results. Pearson reports its highest ever
operating profits (adjusted operating profit up 15% to 592m pounds
($1160m)), earnings (adjusted eps up 18% to 40.2p (78.8 cents)) and
cash (free cash flow up 2m pounds ($4m) to 433m pounds ($849m)). *
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 (57.4 cents), 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." 2006 2006 2005 2005 Headline Underlying
pounds'm $'m pounds'm $'m growth growth Business performance Sales
4,423 8,669 4,096 8,028 8% 4% Adjusted operating profit 592 1,160
506 992 17% 15% Adjusted profit before tax 502 984 422 827 19% --
Adjusted earnings per share 40.2p 78.8cents 34.1p 66.8cents 18% --
Operating cash flow 575 1,127 570 1,117 1% -- Free cash flow 433
849 431 845 -- -- Return on invested capital 8.0% 6.7% 1.3ppts
0.6ppts Net debt 1,059 2,076 996 1,952 (6)% -- Statutory results
Sales 4,137 8,109 3,808 7,464 9% Operating profit 540 1,058 516
1,011 5% -- Profit before tax 466 913 446 874 4% -- Basic earnings
per share 55.9p 109.6cents 78.2p 153.3cents (29)% -- Basic earnings
per share - continuing 54.1p 106.0cents 38.9p 76.2cents 39% -- Cash
generated from operations 621 1,217 653 1,280 (5)% -- Dividend per
share 29.3p 57.4cents 27.0p 52.9cents 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 4.4bn pounds ($8.6bn) and adjusted operating
profit was up 15% to a record 592m pounds ($1,160m). 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 (78.8 cents), up 18%.
Operating cash flow increased by 5m pounds ($10m) to 575m pounds
($1,127m) and free cash flow by 2m pounds ($4m) to 433m pounds
($849m). 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 540m pounds ($1058m) (516m pounds
($1011m) in 2005). Basic earnings per share were 55.9p (109.6
cents) (compared with 78.2p (153.3 cents) in 2005, which included
the 302m pounds ($592m) profit on the sale of Recoletos). Net debt
rose by 63m pounds ($124m) to 1,059m pounds ($2.076m) (from 996m
pounds ($1952m) 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 363m pounds ($711m). Together, these
acquisitions contributed 147m pounds ($288m) of sales and 17m
pounds ($33m) 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 286m pounds
($561m) of sales and 22m pounds ($43m) 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 100m pounds
($196m) 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 (57.4 cents), 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 1bn pounds ($2bn) 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 100m pounds ($196m) 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 (59m
pounds ($116m) in 2006) is not affected. Exchange rates. Pearson
generates about two-thirds of its sales in the US and each five
cent change in the average pounds:$ exchange rate for the full year
(which in 2006 was 1 pound:$1.84) would have an impact of
approximately 1p (2cents) 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
http://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 http://www.pearson.com/ . Video interviews with Marjorie
Scardino and Robin Freestone are available at
http://www.pearson.com/; high resolution photographs are available
for the media at http://www.newscast.co.uk/. For the complete
release including all financial details, please access
http://www.pearson.com/ BUSINESS PERFORMANCE 2006 2006 2005 2005
Headline Underlying pounds'm $'m pounds'm $'m growth growth Sales
School 1,455 2,852 1,295 2,538 12% 6% Higher Education 795 1,558
779 1,527 2% 4% Professional* 627 1,229 589 1,154 6% 3% Pearson
Education 2,877 5,639 2,663 5,219 8% 4% FT Publishing 366 717 332
651 10% 8% IDC 332 651 297 582 12% 4% FT Group 698 1,368 629 1,233
11% 6% Penguin 848 1,662 804 1,576 5% 3% Total 4,423 8,669 4,096
8,028 8% 4% Adjusted operating profit School 184 360 147 288 25%
17% Higher Education 161 316 156 306 3% 3% Professional* 60 118 45
88 33% 29% Pearson Education 405 794 348 682 16% 12% FT Publishing
32 63 21 41 52% 52% IDC 89 174 80 157 11% 9% FT Group 121 237 101
198 20% 18% Penguin 66 129 60 118 10% 22% Total 592 1,160 509 998
16% 15% Recoletos -- (3) (6) Total 592 1,160 506 992 17% 15% *
includes Government Solutions SCHOOL RECORD RESULTS: SALES UP 6%;
PROFITS UP 17%; MARGINS UP BY 1.2% PTS TO 12.6% 2006 2006 2005 2005
Headline Underlying pounds'm $'m pounds'm $'m growth growth Sales
1,455 2,852 1,295 2,538 12% 6% Adjusted operating profit 184 360
147 288 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% pounds millions 2006 2006 2005
2005 Headline Underlying pounds'm $'m pounds'm $'m growth growth
Sales 795 1,558 779 1,527 2% 4% Adjusted operating profit 161 316
156 306 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 MyPsychLab 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% 2006 2006 2005 2005 Headline Underlying
pounds'm $'m pounds'm $'m growth growth Sales 627 1,229 589 1,154
6% 3% Adjusted operating profit 60 118 45 88 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 286m pounds ($561m)of sales and
22m pounds ($43m)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% 2006
2006 2005 2005 Headline Underlying pounds'm $'m pounds'm $'m growth
growth Sales 366 717 332 651 10% 8% Adjusted operating profit 32 63
21 41 52% 52% Continued growth and profit improvement at the
Financial Times and FT.com * FT newspaper and FT.com sales up 8% to
238m pounds ($466m); 9m pounds ($18m) profit improvement to �11m
($22m). * 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% 2006 2006 2005
2005 Headline Underlying pounds'm $'m pounds'm $'m growth growth
Sales 332 651 297 582 12% 4% Adjusted operating profit 89 174 80
157 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% 2006
2006 2005 2005 Headline Underlying pounds'm $'m pounds'm $'m growth
growth Sales 848 1,662 804 1,576 5% 3% Adjusted operating profit 66
129 60 118 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 86m
pounds or 17% to 592m pounds in 2006 from 506m pounds 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 24m pounds 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 94m pounds, up from 77m pounds 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 40m pounds, 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 4m
pounds compared to a cost of 7m pounds in the previous year, giving
an overall net finance cost of 90m pounds in 2006 compared to 84m
pounds 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 �11m 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 127m pounds.
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
220m pounds, 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. DATASOURCE: Pearson plc
CONTACT: Luke Swanson, or Simon Mays-Smith, or Deborah Lincoln, all
for Pearson plc, +44-(0)-20-7010-2310 Web site:
http://www.pearson.com/
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