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CORRECTED - Pearson sees tough 2009 for U.S. schools business

(Adds “textbooks” in pargraph 1, corrects paragraph 5 to read, “but said the market would grow in 2010 thanks to curriculum changes in the southern U.S. states...’We are conservatively estimating about $1 billion,’ he said, referring to the size of the so-called adoption market for new textbooks in 2010.” instead of “We are conservatively estimating about $1 billion (in revenue)”. Also adds paragraph 7.

* Pearson says U.S. schools business facing tough 2009 * Better placed for downturn than in 2000 * Scope for margin improvements across businesses

BARCELONA, Nov 19 (Reuters) - British media group Pearson Plc PSON.L is prepared for a tough year ahead for its U.S. school textbooks business but expects the market to bounce back strongly in 2010, its finance chief said on Wednesday.

Pearson, the world’s largest educational publisher and owner of the Financial Times and Penguin Books, said it was better placed to withstand a downturn than in the past.

“We’ve not only reduced Pearson’s overall percentage of advertising revenue to about 5 percent, we’ve diversified the advertiser base,” Chief Financial Officer Robin Freestone said at the Morgan Stanley annual Technology, Media and Telecoms conference in Barcelona.

In 2000, the figure was 11 percent.

“We’re not expecting a great year for the U.S. schools business in 2009,” he said, but said the market would grow in 2010 thanks to curriculum changes in the southern U.S. states.

“We are conservatively estimating about $1 billion,” he said, referring to the size of the so-called adoption market for new textbooks in 2010.

He said: “2009 will be a quieter year in terms of adoptions -- probably about $800 million of adoptions, compared to $880 million this year, and we’ll also be competing for slightly less of the market.”

Freestone said the group was starting to see a greater take-up of electronic books, sparked by the debut of Amazon's AMZN.O Kindle reader.

“We expect downloads of our ebooks to grow fourfold this year, albeit from a very low base,” he said.

MARGIN IMPROVEMENT

Freestone said the group’s growth prospects were strong, and its financial position was more robust than in the downturn following the bursting of the Internet bubble in 2000.

“There is scope for margin improvement in almost all of our businesses,” he said.

Freestone reiterated that Pearson’s dividend should grow in line with earnings, but the company would exercise caution such that the dividend policy would not be hostage to currency volatility.

“What I don’t want to do is jack it up and then find we’ve got a problem in later years,” he said.

He also did not rule out further price increases for the Financial Times, which he said was the sole global newspaper.

“Is 1.80 pounds ($2.71) sufficient? We’ll wait and see,” he said. “Interestingly, when we moved to 1.50 a year ago, we didn’t really see circulation fall off at all.”

"After all, 1.80 is still less than the cost of a cappuccino at Starbucks SBUX.O; we think it's very good value." (Reporting by Georgina Prodhan; Writing by Paul Sandle; Editing by Will Waterman/Greg Mahlich)

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