Pearson’s CFO Is Sell-Side’s Top For 2011
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Pearson’s CFO Is Sell-Side’s Top For 2011


Out of all the positive 2010 performance figures recently announced for media and education company Pearson, CFO Robin Freestone is most proud of the company’s exceptional cash position. Freestone, according to sell-side analysts, is the best CFO in European media for 2011.

Out of all the positive 2010 performance figures recently announced for media and education company Pearson, CFO Robin Freestone is most proud of the company’s exceptional cash position.

London-based Pearson’s operating cash flow was up 16 percent to £1.06 billion, with the company converting 113 percent of its operating profit into cash. Indeed, since Freestone took over as group CFO five years ago, operating cash flow has increased by a similar annual rate. Not surprisingly, Freestone walked away with the prize for top CFO in a media company at Institutional Investor’s All Europe Executive Team awards.

Freestone attributes his success as CFO to having “tightened up a lot on the budget process.” He adds, “Our net debt is low, and we are under-leveraged at the moment.”

He has tried to instill a culture that values continued, long-term investment, while also aiming for the high annual profits seen last year. “It’s an integrated process between a strategic plan -- what will it take over the next three-to-four years to get to point ‘x’ ? -- and an annual plan,” Freestone explains.

Freestone admits that, even by Pearson’s standards, 2010 was a “unique year, with all sets of numbers going in the right direction.” Adjusted operating profit was up 21 percent to £857 million, while adjusted earnings per-share rose 19 percent to 77.5 pence. Dividend growth accelerated 9 percent to 38.7 pence per-share, what Freestone called “the fastest dividend growth in about 14 years.”

But, perhaps more significantly, all three of the company’s diverse business lines experienced double digit operating profit growth. The Penguin book business rose 10 percent; the Education arm increased by 13 percent; and the esteemed Financial Times Group (which includes the Financial Times newspaper and a 50 percent stake in the Economist magazine) experienced a profit surge of 54 percent.

What unites all three branches of Pearson, Freestone says, is a “desire to be a powerhouse in education around the globe.” The group defines ‘education’ broadly, arguing that all of its products -- from the Financial Times to Penguin’s reprints of classic literature to tools that help teachers integrate technology in the classroom -- contribute to a culture of learning. It is a culture that is informed by an executive philosophy that Freestone calls, “brave, imaginative, and decent.” Brave and imaginative in that Pearson’s business model is innovative, and decent, Freestone explains, in “recognizing it [an idea] might not always work.”

Pearson’s education business is considered the largest in the world. At the moment, Freestone says, the company’s key competitive advantage is that it has a strong business in North America, in addition to being active in the rest of the global market. “It’s unusual to have both,” Freestone notes.

The Education division has evolved from selling text books and other tools for teachers, to providing interactive online coaching systems that can compile a “formative assessment” of a student’s progress in a given academic subject. Digital, Freestone says, is relatively easy. It’s the interactive component of online products that is more challenging. As such, the group has worked with experts at the Massachusetts Institute of Technology to develop digitally interactive tools that “allow you to assess whether students are learning or not.”

The business is also actively expanding outside its core US and UK markets to emerging frontiers. In doing so, Freestone says, Pearson is “getting more into the direct delivery of education.” Over the past year, the company acquired a private education business in Brazil -- one that provides learning systems to primary and secondary schools, while also offering undergraduate and graduate courses to one of the largest education markets in the world -- and bought a tutoring business in India. And, as of last year, Pearson’s Education division now owns 12 university campuses in South Africa.

Growth in the Penguin and Financial Times Group sectors, Freestone says, was a direct result of more forcefully “accelerating into the digital arena.” Penguin’s growth was boosted by a surge in e-book purchases, which accounted for 6 percent of its 2010 turnover. Though, Freestone admits, that this number was certainly aided by a market flooded with i-pads and other such tablets. Meanwhile, subscriptions for, the website of the Financial Times, were up a record 50 percent. The newspaper has been one of a few news outlets that has maintained an online ‘pay wall’ for a good chunk of its content--and found that readers are, in fact, willing to pay for it.

Fittingly, the digitization of products is just one (mighty) tool for Pearson, useful only in-so-far as it drives efficiency. As Freestone -- who is already looking to increased sales, margins, and earnings for 2011 -- says, “We are agnostic as to how content is delivered.”


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