Pearson to pump pounds 150m into `FT'

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The Independent Online
Pearson, the media and leisure conglomerate under new management, yesterday unveiled plans to spend up to pounds 150m on its flagship Financial Times newspaper over the next five years as it reported sharply lower profits due to the recent discovery of improper accounting at its Penguin book publishing subsidiary in the US.

Richard Lambert, currently the longest-serving national newspaper editor, is moving to New York for a year from July to oversee editorial developments for the Financial Times in the US. Andrew Gowers, deputy editor, becomes acting editor.

There was disappointment in the City yesterday, however, that Marjorie Scardino, chief executive, did not unveil the widely expected restructuring of Pearson and the company's shares closed 17.5p down at 756.5p.

"It's going to be an evolution, not a revolution around here," she said. "This may sound like motherhood and apple pie but ... we are going to act like a group not like an investment portfolio.

"Whatever else we do we are going to work hard to improve the financial performance of this group," she continued. "As time goes on we may change the business we're in, too, as we work toward being the first in a few important markets. But we won't be selling things just to be tidy."

Ms Scardino was speaking after Pearson reported an 8 per cent increase in 1996 pre-tax profits before exceptional items to pounds 281m. But operating profits including one-off items fell from pounds 260m to pounds 181m following a pounds 100m charge taken against Penguin.

The problems at Penguin were uncovered in January and relate to unauthorised discounts given by a middle-ranking back office employee, Christina Galatro, to customers in return for early payments.

John Makinson, finance director, said Pearson believed the irregularities were the work of "one rogue employee", adding there was no firm evidence of collusion. Her superior had been suspended as a precaution pending the outcome of an investigation by accountants Price Waterhouse.

The FT is targeting the US as part of plans to invest up to pounds 100m over the next five years to increase the paper's circulation overseas. A further pounds 50m could be spent on promoting the FT and on enhancing production in other Pearson information companies, many of which carry the FT brand.

"We aim to achieve heroic circulation and heroic profit," Ms Scardino said.

North America accounts for only 35,000 of total daily FT sales overseas of 130,000. Total circulation for the paper, including the UK, is about 300,000.

Analysts welcomed Ms Scardino's decision to focus on the FT. "She's going back to what she knows, it's something she understands," one broker said. Ms Scardino ran The Economist, 50 per cent-owned by Pearson, before becoming chief executive.

Ms Scardino also quashed speculation that its television business, which includes Thames Television and Grundy, makers of Neighbours, was about to be sold to a pounds 500m management buyout team led by Greg Dyke.

She declined to identify Pearson's activities, raising speculation that Lazards, the 50 per cent-owned merchant bank, or even Madame Tussaud, the waxworks tourist attraction, may be up for sale. However, Ms Scardino confirmed recent reports in The Independent that residual stakes in pay-TV broadcaster BSkyB and SES, the Luxembourg-based Astra satellite owner, were up for sale.

Pressure for root-and-branch change at Pearson has increased since the disastrous, pounds 313m acquisition in 1994 of Mindscape, the US computer software developer, where losses last year reached pounds 45m.

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