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Financial Highlights

Financial Highlights
  2005   2004 Headline
Growth %
Underlying
Growth %
  £M $M   £M $M
Business performance
Sales - continuing 4,096 7,045   3,696 6,357 11 9
Adjusted operating profit -
continuing
509 875   400 688 27 22
Adjusted profit before tax 422 726   350 602 21 23
Adjusted earnings per share 34.1p 58.7¢   27.5p 47.3¢ 24 24
Operating cash flow 570 980   418 719 36 -
Free cash flow 431 741   284 488 52 -
Return on invested capital 6.7%     6.2%   - 1.0% pts
Net Debt 996 1,713   1,221 2,100 18 -
Statutory results
Operating profit 536 922   404 695 33 -
Profit before tax 466 802   325 559 43 -
Basic earnings per share 78.2p 134.5¢   32.9p 56.6¢ 138 -
Basic earnings per share -
continuing
40.4p 69.5¢   30.8p 53.0¢ 31 -
Cash flow from operations 875 1,505   705 1,213 24 -
Dividend per share 27.0p 46.4¢   25.4p 43.7¢ 6 -

The profit measures within business performance above 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 of acquired intangible assets; and iii) short-term fluctuations in the market value of financial instruments (under IAS 39) and other currency movements (under IAS 21). Growth rates are on an underlying basis, excluding the impact of currency movements and portfolio changes. The underlying growth in the return on invested capital represents the constant currency growth.

Sales: Total 4,096M $7,045M

Sales

by Sector:
School: (32%) 1,295m $2,227m;
Penguin: (20%) 804m $1,383m;
Higher Education: (19%) 779m $1,340m;
FT Group: (15%) 629m $1,082m;
Professional: (14%) 589m $1,013m;

by Geography:
North America: (66%) 2,717m $4,673m;
Europe: (24%) 963m $1,656m;
Asia Pacific: (7%) 300m $516m;
Rest of the World: (3%) 116m $200m;

Adjusted operating profit: Total 509m $875m

Adjusted operating profit

by Sector:
Higher Education: (30%) 156m $269m;
School: (29%) 147m $253m;
FT Group: (20%) 101m $174m;
Penguin: (12%) 60m $102m;
Professional: (9%) 45m $77m;

by Geography:
North America: (85%) 431m $741m;
Asia Pacific: (7%) 37m $64m;
Europe: (5%) 24m $41m;
Rest of the World: (3%) 17m $29m;

*Includes IDC.

Throughout this review (unless otherwise stated):

1. Growth rates are on an underlying basis, excluding the impact of currency movements and portfolio changes. In 2005, currency movements increased sales on a continuing business basis by 46m and profits by 12m, while portfolio changes increased sales by 29m and profits by 9m.

2. Profit measures 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 of acquired intangible assets; and iii) short-term fluctuations in the market value of financial instruments (under IAS 39) and other currency movements (under IAS 21).

3. The 'business performance' measures, which Pearson uses alongside other measures to track performance are non-GAAP measures for both US and UK reporting. Pearson uses these measures because we consider them to be most useful for tracking underlying business performance. Reconciliations of operating profit, adjusted earnings per share and operating free cash flow to the equivalent statutory heading under IFRS are included in notes 2, 9 and 29 of the governance and financial statements.

4. Dollar comparative figures have been translated at the year end rate of $1.72: 1 sterling for illustrative purposes only.

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