It's hard to simplify complicated things.
But it's usually worth doing.
Simpler things cut cleanly through resistance, moving faster and more
efficiently toward their destination.
Thats what weve been trying to do for the last year at Pearson.
Our approach to simplification - and therefore better returns and long
term value - has been to improve our results; to build world-class businesses;
and to weave them into a web of operations stronger together than apart.
Were making progress.
We promised to generate double-digit earnings growth each year, expecting
that such results, consistently delivered, would double the value of the
Company over the next five years. Double-digit growth was a simple message.
Some critics said we shouldnt have promised it, but most of our
shareholders and employees appreciated the guidance.
We have delivered double-digit growth for 1997. This report records all-time
high sales and profits, and they set the pace for next year. We achieved
these earnings by aiming high on our three performance measures: revenue,
margin and cash. Throughout the Group, we scored strongly in two of these,
revenue growth and margins. Our cash generation was hampered by the improper
accounting in our trade book business.
Part of what drove these good results was some tough management and good
selling in a good market for the Financial Times. Another part was a hard-fought
turnaround in Mindscape. The quick and thorough integration of Putnam
with Penguin yielded rewards, too. A new management team brought disciplines
and excitement to Addison Wesley Longman and set that business up for
great things, while managing to keep it stable. All in all, every business
made progress toward either a broader strategic goal or in financial terms.
While we were working on results, we were also working on our other goal
of building businesses with global franchises or strong market positions.
As a first step, we set about divesting assets that we didnt manage,
that we couldnt achieve a leading position in, or that were worth
more to others than to us. As a consequence, in 1997 we raised £220m in
asset sales, and we added £320m more by the time this report came out.
As a second step, we began investing in some of our strongest global
brands. We spent the first phase of our £100m investment in the Financial
Times, attracting new readers throughout America and Europe. We also improved
the possibilities for the Financial Times brand by bringing its operations
together under one banner.
In television, we took a big step toward building a global franchise.
The acquisition of All American in November made us the worlds largest
independent international producer of television entertainment. Its integration
with Pearson TV was accomplished smoothly and to greater advantage than
we had foreseen.
Our efforts at cross-company sharing of rights and skills began to look
more like real money and less like flights of fancy, too. Addison Wesley
Longman and the Financial Times are joining together to create a management
education business that will be a leader in its field. Penguin and AWL
are pooling their efforts to improve our English Language Teaching businesses
offering both for consumers and for institutions. Our intellectual property
rights committee, drawn from across the Group, has started on ideas that
could create completely new products.
All our successes this year stemmed from a common root. The markets for
our products were buoyant, but that was not the reason we did well. Our
brands showed their power in all kinds of places, but they dont
deserve all the accolades. Our competitors stumbled in critical areas,
but we didnt credit our strengths to their weaknesses. We were successful
because of the people who work in Pearson. We have begun to build a talented
team, 18,000 strong, and they will create the web we believe will bring
our shareholders the greatest value.
To recognise the contribution of people to this business, we re-vamped
our bonus and long term share ownership plans in 1997. We want people
to take home a share of their achievement, and to have a stake in the
Company that puts them in the same shoes as any other shareholder. These
plans will help.
We wont spin our Pearson web overnight. Well do it deliberately
and with a careful eye toward fulfilling our promise of double-digit earnings
growth and a more valuable company. Along the way, we may choose to take
some leaps to gain major market positions. In the end, we will likely
be in fewer businesses than we are now. But in the process, we will be
a stronger, more reliable performer for our shareholders to own, a more
exciting and fulfilling Company for our employees to work in, and a world-class
In general, a simpler, surer company.
Marjorie Scardino, Chief Executive