The Business Review
The Financial Times Group
In 1997, the businesses of Pearsons Information division, now classified as the Financial Times Group, achieved aggregate sales of £676.3m and operating profits of £107m, a 21% increase on 1996. In March 1998, we restructured our Information division to create a more integrated set of businesses, built around the reputation of the Financial Times as one of the strongest information brands in the world. This new approach to the management of the business is reflected in the segmental analysis shown below. The principal change from previous years is the creation of Financial Times branded businesses. This incorporates our electronic information interests (formerly FT Information), our professional publishing interests (formerly Pearson Professional) and the on-line publishing activities of the FT newspaper. The 1996 results have been restated on the new basis and we have also shown the impact on profit of entities which were sold in 1997 and in the first three months of 1998.
Financial Times Newspaper
The operating profits of the Financial Times newspaper more than doubled to £34.8m. It benefited from record circulation and buoyant advertising revenues, which increased by 15% in 1997, and it also continued to reduce the size and increase the variability of the cost base, lessening the exposure to any downturn in advertising expenditure.
We invested £16m in the international expansion of the Financial Times, the first tranche of a new £100m investment programme. The FT achieved record sales in 1997 with the December ABC audit confirming circulation growth of 13.9% over the December 1996 figures. Daily copy sales in December reached 342,000, of which 47% were sold overseas, boosting circulation revenues by 10%. Circulation of the US edition of the newspaper increased by 32% to over 47,000.
The new-look Weekend FT, launched in March, was the UKs fastest-growing Saturday newspaper and its monthly supplement 'How to Spend It was named 'Best Colour Supplement of the Year in the Newspaper Design Awards.
FT Branded Businesses
1997 was a year of transition for the former FT Information and Pearson Professional businesses. We now have a much tighter focus on businesses which provide corporate customers with information and analysis in chosen specialist areas (energy, finance, telecommunications and the media). In addition, the FT Group publishes information on management development and furnishes investment managers with high-quality, daily data on equities and financial instruments. By the end of this year, even more of this news, information and analysis will be delivered in on-line interactive formats.
At the same time, the asset management data business centred in the US continued to show strong growth. The company also had a successful year in Asia. Profits from FT branded businesses were lower than in 1996 principally because of a higher level of investment in new products and platforms, together with an ambitious programme to reduce fixed costs. Revenue investment in our electronic publishing interests will continue in 1998.
As part of the Group restructuring, Pearson Professional was disbanded on 31 December 1997. Churchill Livingstone was sold for £55m in August. FT Law & Tax businesses were sold for £70m in March 1998.
Despite the strength of sterling against the French franc, Les Echos turned a loss of £1.3m in 1996 into an operating profit of £8.8m in 1997, on the back of strong advertising and circulation growth. 1996 profits were depressed by the closure of Argent, a personal finance magazine, which incurred losses of £5.6m.
Overall, the Les Echos Group increased sales by over 10% in local currency, with advertising growth particularly strong in the business division. Les Echos continues to be by far the most profitable French business newspaper. Enjeux, the monthly business magazine, increased revenues by 12% and the medical division, despite the postponement of education reforms which would have boosted trading activity, benefited from tight cost controls.
In Spanish pesetas, Recoletos increased sales by 4% and operating profits by 10%. However, the strength of sterling meant that this translated into an operating profit of £30.4m, down on £33.4m for the previous year.
Marca, the leading Spanish sports newspaper, faced increased competition from both national and regional rivals. Circulation declined by 9% in the course of the year, although the impact on revenue was mitigated towards the end of the year by a 14% cover price increase. Other Recoletos titles performed strongly with Expansion, the nations leading business daily, boosting its circulation by 26%.
In September 1997 Recoletos entered into an agreement with Telefónica, the Spanish telecommunications group, to promote joint investment by the two companies in media opportunities in Spain and Latin America. Under the terms of the agreement, Telefónica undertook to subscribe for a 20% interest in Recoletos at a price of Pts23.1bn (£90m), while Recoletos agreed to pay Pts11.54bn (£45m) to subscribe for a 10% stake in Antenna 3, the Spanish commercial television channel. The transaction was completed in March 1998.
The Economist (50%)
The Economist had another record year, with the portion of profits allocated to Pearson increasing to £14.4m, ahead of the previous record of £12.1m for 1996. Average circulation for The Economist newspaper, responsible for half the profits of The Economist Group, edged further ahead to 644,391 from 640,385 in 1996.
In February 1997, Pearson acquired a 50% stake in Business Day and Financial Mail, the leading daily and weekly financial and business publications in South Africa.