Prix Madonna

3 March 2003

Gloomy investors have switched focus from the publisher’s ailing FT newspapers to a decline in its much larger school business. But what about its stronger businesses, its dramatic deleveraging, and its generous dividend? Is it time to get positive about Pearson yet?

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Pearson has announced a narrowing of its losses to £25m in 2002, compared to £436m the year before. Stripping out goodwill writedowns, intetgration costs, and nonoperating items, the publishing group increased operating profit by 16%. Adjusted earnings per share, the group's preferred measure of its own performance, were up 42% although eps have fallen an average of 0.6% a year since 1997, when chief executive Marjorie Scardino made a celebrated promise to increase them in double digits each year.

Earnings were down at the FT Group and in Schools publishing, but showed strong growth in higher education, professional, and consumer publishing (Penguin). Cash conversion was 92%, which together with a £900m receipt from the sale of Pearson's stake in RTL allowed the group to reduce its debts by nearly £1bn, to £1.4bn. Pearson will pay a total 2002 dividend of 23.4p a share, up 5% on 2001, for a dividend yield of 4.7%.

On the morning of 3 March, Pearson's shares were trading at 496p, about 35% down on a year previously.

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