: the pearson goals :

In 1997, determined to make Pearson perform better more consistently, we set the target of achieving annual double-digit growth in adjusted earnings per share. We also set three measures against which we would gauge our progress: underlying sales growth; trading margins; and the proportion of operating profits that we convert into cash. We track the performance of each business against these measures and gear bonus payments to them. This simple approach is working.
In 1999, we performed strongly on all counts.

Adjusted earnings per share increased by 27% to 53.3p per share, excluding our new internet enterprises. Taking account of internet enterprises, adjusted earnings increased to 48.5p per share, a 15% increase and our third successive year of double-digit growth in adjusted earnings per share. This result was helped by a lower tax rate, but reflects real earnings progress.

On a like-for-like basis, sales (excluding portfolio changes and movements in exchange rates) increased by 7.3%, the biggest underlying increase in sales that we have achieved for many years.

The proportion of sales turned into operating profit (excluding profits from associates and passive investments) was, excluding internet enterprises, 15.2%, up from 13.1% in 1998. Including internet enterprises, the margin improved to 14%.

In 1999, 92% of our operating profits were received as cash. This compares to a cash conversion rate of 101% in 1998, when we benefited from a number of non-recurring cash items and timing variances which, as we reported last year, we did not expect to be repeated in 1999. This year, we had set ourselves a cash conversion target of at least 80%. Our success in beating that target so comfortably is a tribute to the work all our businesses did to improve cash flow, particularly Pearson Education, which generated significant cash from the acquired Simon & Schuster businesses.

In addition to the performance measures which form the basis for bonus awards, we focus on a var-iety of financial indicators which help us to chart our course and, when necessary, correct it. EBITDA (earnings before interest, tax, depreciation and amortisation) is a close proxy for cash flow and is increasingly used as a basis for valuing media companies such as Pearson. This table shows the growth in EBITDA, before exceptional items and internet enterprises. It is significant that the company’s EBITDA, calculated before or after internet enterprises, exceeded $1bn for the first time.

Free cash flow is another highly relevant measure since it defines the capacity of the company to reinvest in the business and fund dividends to shareholders. Free cash flow per share showed a slight reduction from the exceptional levels of 1998, due to an increase in the tax relating to non-operating items, but remains at a very healthy level.