It pays to think big,
as long as you pay attention to the details.
1998 was one of the best years in Pearson’s history. Looking at the big
picture, in virtually every country trends continued to move in the direction
of our businesses – the focus on public education; the rise of the English
language; the shift of power from sellers to customers, who can increasingly
design for themselves the information packages they want. We put our money
on these trends, reshaping Pearson into four related businesses with commanding
market positions, and the results so far have been rewarding.
To prepare the way, we sold almost £1bn of our assets, many of them fine
businesses in their own right that were simply worth more to others. We
regretted, for instance, the need to part with The Tussauds Group, a business
that had added to both Pearson’s charm and its bottom line for the last
But these disposals created room for us to complete the largest acquisition
in Pearson’s history, paying £2.9bn for the Simon & Schuster businesses.
This tripled the size of Pearson Education and jumped us to the front
of the expanding worldwide education market, a business that will produce
healthy growth and profits for many years. But profits are not our only
goal. As a result of this acquisition, Pearson Education now has emerged
as the world’s leading supplier of the tools for education.
Education hasn’t been the only business in which we’ve achieved the scale
we need to succeed. As we’ve slimmed down, we’ve built up quite a bit
of muscle. In two years, the FT Group has increased its profits by 33%
while doubling the investment in its future growth. Penguin and Pearson
Television are both half as big again as they were two years ago.
Attending to the details counts for just as much as size, of course.
Big ideas and market scale are no good if we don’t turn them into profits,
make our shareholders wealthy and create a company that will last. In
1998 we made progress on all counts. We promised to deliver double-digit
growth in earnings and we did. In the process, the value of the company
– measured by the share price – grew strongly.
The operating success in 1998 was not accidental. We had promised the
year before that we would concentrate on running things better, on making
better products and on taking better advantage of the brands and assets
we have. We did, and the progress has been encouraging.
In the Financial Times Group we made headway through international and
electronic expansion. The initial instalments of our £100m commitment
to invest in the FT over the last two years have begun to help the newspaper
grow faster. In the US, for instance, the circulation grew from 32,000
at the beginning of 1997 to 70,000 at the end of 1998. Money spent on
our electronic information services also began to produce results. FT.com
expanded its service and reach and is now one of the most visited business
websites in the world. Meanwhile, cost reductions and economies of scale
around the FT Group further helped improve margins.
At Penguin, we continued to take advantage of the revolution in book
publishing. As we built up our pipeline of great books of tomorrow, we
also continued to strengthen the business, making our production and distribution
more efficient by improving information systems. In the process, we reduced
the number of unsold books returned by retailers in the US to a level
not achieved by Penguin for many years. We also made real progress in
our UK business and set up a stronger global footing to launch us into
For Pearson Television, its integration with All American Communications
now complete, the story was better margins and more new products. One
of the new shows, First Wave, will be seen in 1999 in some 30 countries
around the world. Our game shows are back on US television, too (though
our biggest, The Price is Right, never went away). And we are making new
serial dramas in Germany, Sweden, Hungary and Finland. As a result, less
than 40% of our television business is now in the UK.
But our success in acquiring the Simon & Schuster education business
drew the most attention last year. The deal didn’t close until the very
end of the year, but Addison Wesley Longman’s results are evidence that
people didn’t stop working while they were waiting. Both our school and
our higher education businesses began to take off. We were hit hard by
inclement economic weather in Asia, but we worked to make sure lost sales
didn’t translate into lost profits.
All these efforts, large and small, in 1998 created wealth for Pearson’s
shareholders, a group that increasingly includes Pearson’s staff. Over
the last 18 months we’ve given everyone – in all 53 countries in which
we have offices – the chance to save to buy shares in Pearson. About a
third of us (myself included) have now taken that opportunity. In addition,
this year for the first time the Company-wide bonus plan paid 15 shares,
plus a small cash award, to each qualifying employee. We welcome these
colleagues to the growing ranks of Pearson employee-owners.
All around the Company, people are inventing ways to enter new markets,
win new readers, sign new authors, commission new programmes and seize
the potential of new media. In the process, we are creating a more durable,
exciting Pearson for tomorrow with compromising today.