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Pearson Education

Sales:
05 2,663M / $4,580M;
04 2,323M / $3,996M;
03 2,422M / $4,166M;

Adjusted operating profit:
05 348M / $599M;
04 277M / $476M;
03 292M / $502M;
School
  2005
£m
2004
£m
Headline
growth
%
Underlying
growth
%
Sales 1,295 1,087 19 16
Adjusted operating profit 147 108 36 29

Record results in 2005: Sales up 16% to almost 1.3bn; Profits up 29% to 147m.

Rapid growth in US School publishing, testing and technology

  • Pearson's US School publishing business grew 12%, ahead of industry growth of 10.5% (source: Association of American Publishers).
  • New adoption market share of 33% where Pearson competed (and 24% of the total new adoption market); leading positions in maths, science, literature and foreign languages.
  • School testing sales up more than 20%, benefiting from significant market share gains and first year of mandatory state testing under No Child Left Behind.
  • Strong performance in school software, with good sales and profit growth in curriculum and school administration services.

Good progress in international school markets

  • High single-digit growth in international school publishing. Worldwide English Language Teaching business benefiting from strong demand for English language learning and investments in new products, including English Adventure (with Disney) for the primary school market, Sky for secondary schools, Total English for adult learners, and Intelligent Business (with The Economist) for the business market.
  • Strong growth in international school testing. Four million UK GCSE, AS and A-Level scripts marked on screen; first year of running UK National Curriculum tests completed successfully; new contract for national school testing pilot in Australia.

Significant efficiency gains and margin improvement

  • School margins up by 1.5% points to 11.4% with efficiency gains in central costs, production, distribution and software development.

Continued investment for future growth

  • US School new adoption market expected to grow strongly 2007 - 09 (estimated at $620m in 2006; $800m in 2007; $900m in 2008; $1bn in 2009).
  • Steady investment in School publishing: Pearson publishing major new basal curriculum programmes for reading, science and social studies, the three largest adoption disciplines in 2006.
  • Healthy outlook in school testing underpinned by 2005 contract wins with a lifetime value of $700m (including Texas, Virginia, Michigan and Minnesota).
  • AGS Publishing, acquired in July 2005, performing ahead of expectations as special needs market grows rapidly and integration is on track.
  • Acquisition of Co-nect in December 2005 and creation of Pearson Achievement Solutions targets growing market for teacher professional development and integrated school solutions.
Higher education
  2005
£m
2004
£m
Headline
growth
%
Underlying
growth
%
Sales 779 729 7 5
Adjusted operating profit 156 129 21 19

Record results in 2005: Sales up 5% to 779m; Profits up 19% to 156m.

Above-market growth and significant margin improvement

  • US Higher education business up 6%, ahead of industry growth of 5% (source: Association of American Publishers).
  • Pearson's US Higher education business has grown faster than the industry for seven straight years.
  • Higher education margins up by 2.3% points to 20%. Good margin improvement in US and International publishing, boosted by shared services across US and international units and saving in central costs; technology, production and manufacturing.

Strong publishing performance

  • Continued growth from market-leading authors in key academic disciplines including biology (Campbell & Reece), chemistry (Brown & LeMay), sociology (Macionis), marketing (Kotler & Keller), maths (Tobey & Slater), developmental maths (Martin-Gay) and English composition (Faigley's Penguin Handbook).
  • Rapid expansion in career and workforce education sector, with major publishing initiatives gaining share in allied health, criminal justice, paralegal, homeland security and hospitality.

Rapid growth in online learning and custom publishing

  • Approximately 3.6 million US college students studying through one of our online programmes, an increase of 20% on 2004.
  • MyMathLab, Pearson's innovative online homework and assessment programme, increases unit sales by almost 50% to 1.1 million, with student registrations 47% higher. Usage increases by 60%, with students completing and submitting 11 million assignments online. Research by colleges using MyMathLab demonstrates significant improvements in student achievement.
  • 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

  • 4% sales growth in Higher education publishing outside the US. International businesses benefit from local adaptation of global authors, including Campbell and Kotler, and introduction of custom publishing and online learning capabilities into new markets in Asia and the Middle East.

Continued investment for future growth

  • 2006 expected to be a record year for first editions, with major new titles in statistics, algebra, psychology, economics, health and writing.
  • Launch of online homework and assessment programmes in new curriculum areas including economics, psychology and developmental writing.
  • Creation of Custom Media Solutions Group, extending highly successful customised print publishing model to online curriculum and course management programmes.
Professional
  2005
£m
2004
£m
Headline
growth
%
Underlying
growth
%
Sales 589 507 16 15
Adjusted operating profit 45 40 13 13

Sales up 15% to 589m; Profits up 13% to 45m.

Professional testing: rapid organic growth; Promissor acquisition opens new markets

  • Professional testing sales up more than 40%, benefiting from successful start-up of major new contracts including the Driving Standards Agency, National Association of Securities Dealers and the Graduate Management Admissions Council.
  • Acquisition of Promissor in January 2006 brings together two leading international professional testing companies and takes Pearson into new US state and federal regulatory markets.

Government Solutions: sales up 38% and $1bn of new long-term contracts

  • Sales up a further 38%, helped by new contracts with the US Department of Education, the Centers for Medicare and Medicaid Services and the London Borough of Southwark. Margins a little lower, resulting from new contract start-up costs.
  • More than $1 billion of new, long-tem contract wins for customers including the US Department of Education, Department of Commerce and the University of California.

Professional publishing: margins maintained despite further declines in technology markets

  • Worldwide sales of technology-related books 7% lower with continued weakness in professional markets partly offset by consumer technology publishing.
  • Pearson maintains leading market share and single-digit margins through further cost actions; sees stronger schedule of new software releases in professional and consumer technology markets in 2006.
  • Good growth in business publishing imprints including Wharton School Publishing and Financial Times Prentice Hall. Strong 2006 business list includes new books from NY Times bestselling authors Bernard Lewis, Jeffrey Gitomer, Ken Blanchard and Oren Harari.

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