Pearson hit by 41 per cent fall in profits at Penguin

A Dramatic change in American reading habits contributed to a 41 per cent fall in profits at Penguin, the publishing house owned by the media group Pearson, which announced annual results yesterday including a rebound in the fortunes of the Financial Times and growth at its core education publishing business.

Pearson also announced that its chairman, Lord Stevenson, will retire later this year. His departure will end an eight-year partnership at the helm of the company alongside Dame Marjorie Scardino, the group's chief executive, who was appointed in January 1997 just four months before Lord Stevenson took up the chairmanship.

Pearson shares fell 2.15 per cent yesterday to 638p - the same price as when Lord Stevenson became chairman in May 1997. Overall, Pearson reported a 3 per cent rise in sales in 2004 to £3.9bn, ignoring the impact of a weakening dollar, while operating profit was up 5 per cent to £455m.

Its core business of education publishing saw sales up 4 per cent to £2.4bn and operating profits up 5 per cent at £293m.

However, Penguin was beset by numerous problems during the year, including distribution headaches in the UK and the impact of a weakening dollar. It was also taken by surprise by changes in American mass-market, book-buying habits.

The book publisher's sales fell from £840m to £786m, while operating profits fell from £91m to £54m. The weakening dollar hit Penguin's profits by £14m and adjusting for this, underlying operating profits were down 24 per cent. Demand for mass-market fiction in the US fell 13 per cent in the second half of last year, including a 33 per cent decline in December. Dame Marjorie said this reflected growing demand for "premium paperbacks" - typically sold at $9.99 (£5.20) - that were more legible, printed on higher-quality paper and with more distinctive cover designs than mass-market books retailing in airports and supermarkets at $7.99 or less.

The FT Group, which includes the Financial Times, saw a 69 per cent increase in operating profit to £86m, while underlying sales at the business newspaper division rose 3 per cent to £587m. The FT itself recorded a loss of £9m but it made a profit in the fourth quarter of the year. In 2003, the paper made a loss of £32m.