Will the Good Times Last at Pearson?

Under CEO Scardino, the publisher of textbooks and the Financial Times posts 2007 profit growth of 14%, but challenges lie ahead

Few people expected Marjorie Scardino to last this long. When she was appointed chief executive of Pearson more than 11 years ago, the news sent the company's share price into a downward spiral. "The market was looking for a hard-hitting, well-known character, and they didn't get one," harrumphed one analyst, by way of explanation.

The first woman to take the helm of a FTSE 100 company was a former journalist who had grown up in Texarkana, Texas, racing horses around oil barrels at rodeos. More prescient observers noted that she had, for almost five years, headed the Economist Group, half-owned by Pearson, and presided over the rise of The Economist, which had enjoyed a 78 per cent sales growth in little over three years.

The rise of The Economist continues, as does Dame Marjorie's tenure at Pearson. Yesterday she announced that, in spite of its exposure to the American economic downturn, the company's performance for 2007 was better than market expectations, with adjusted operating profit up by 14 per cent to £634m, and underlying sales growth of 6 per cent.

"This is another record set of results and an excellent performance from every part of Pearson," said Dame Marjorie in a statement. "We continue to shape Pearson into a more digital, more international and more efficient company, and those changes make us confident that 2008 will be another good year."

As analysts digested the results, the principal murmurings of doubt concerned fears that American students, colleges and state education officials might be less inclined in 2008 to spend money on the text books which are a major part of Pearson's business.

Pearson admitted this sector would be flat in 2008 but Dame Marjorie later went out of her way to point out that the company was multi-faceted and insulated from cyclical change. Pearson Education, she said, does not just supply school books but is also at the forefront of testing students and compiling data on the workings of the education system. Furthermore, it has a £1bn education business outside of the US.

Dame Marjorie, 61, has steadily grown Pearson's global media business with a strategy based on three watchwords: digital, diverse and international. At the heart of the empire is the Financial Times, which during Dame Marjorie's time at Pearson has been the subject of continuous rumour that it will be put up for sale. Such speculation was encouraged by the last advertising downturn of 2000, which saw the FT's profits wiped out. Since then Pearson has rebuilt the paper into a highly profitable multi-media offering, incorporating FT.com. The print edition has enjoyed increased circulation (up 2.2 per cent) and critical acclaim, winning the What the Papers Say award for newspaper of the year in 2007. FT Publishing, which includes the newspaper and other specialist titles, made a profit of £56m, compared to £27m the previous year.

Whereas in 2000 the FT Group depended on advertising for more than 50 per cent of its revenues, the modern business, which includes niche digital intelligence offerings such as Mergermarket and Money-Media, now makes less than 30 per cent of its money from this source, reducing its exposure to a slump.

Other media companies have switched focus to sophisticated online services, notably the Anglo-Dutch company Reed Elsevier, which offloaded some of its business-to-business titles, such as Farmers Weekly. The FT Group recently sold the national titles FT Deutschland and Les Echos to concentrate on the FT's global ambitions.

Rupert Murdoch had been at the top of the list of parties supposedly interested in prising the FT from Dame Marjorie but the biggest media mogul now represents a different threat as the new owner of the rival Wall Street Journal, which he is expected to re-position in an attempt to make it the undisputed global leader.

Dame Marjorie yesterday played down the threat, suggesting the Journal was one of many competitors. "We see ourselves not as having one major rival ... we are a niche paper, we are more international and we think that niche strategy is a more resilient strategy and different from the Journal," she told Cantos.com.

When she started in her role, Dame Marjorie could never have imagined that her company's profits might be enhanced by an internet-based interview or "Webinar" conducted by Oprah Winfrey about a single book. But tonight some 500,000 people in 125 countries will form the online audience for a conversation between the chat show host and the author Eckhart Tolle.

Penguin, an important component of Pearson, published Tolle's book A New Earth, Awakening to Your Life's Purpose in 2005, selling a relatively modest 500,000 copies until Winfrey endorsed the title a month ago, since when a further four million have been bought. Other key Penguin authors include Alan Greenspan, Khaled Hosseini and Jamie Oliver. Despite gloomy predictions in the print media, Dame Marjorie expects Penguin to enjoy double digit margins in 2008, partly by taking advantage of digital production opportunities.

Dame Marjorie might be one of the most prominent women in the City but she is still a private individual, wary of her public image. When she briefly returned home to Texas after landing the Pearson job, she professed herself "so hurt" by locals who suggested she had affected an English accent, though she retains her American vowels a decade later.

And yesterday, as she attempted to put across her message that "I do have quite a lot of confidence" for the year ahead, she could not escape questioning over rumours that she is looking to move on. Not at all, she said; she was "excited" her digital and international strategy was "taking hold" and there was still "a lot to accomplish".

Even after more than 11 years in the Pearson saddle, the one time young rodeo rider still can't convince everyone that she has her hands firmly on the reins.

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