Pearson to miss target as 'worst slump in decade' hits advertising

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The Independent Online

Pearson, the publisher of the Financial Times, yesterday warned it had been hit by the worst advertising downturn in a decade. The company, which also owns Penguin books and a large educational publishing and testing business, said it would miss its double-digit earnings growth target this year.

"We have three good businesses which are outperforming competitors but one of them [the FT Group] has a problem.... It is our firm assumption that advertising-related businesses will not pick up in 2002," said Marjorie Scardino, the chief executive of Pearson, reporting interim results.

The company said profits at FT Group, which includes Pearson's interests in European newspaper titles, would be some 15 per cent lower than in 2000. Separately the European TV group RTL, in which Pearson owns a 22 per cent stake, warned it expects 2001 earnings before interest, tax and amortisation to be 10 to 15 per cent below the 555m euros (£340m) it made last year because of the poor advertising market.

Meg Geldens, an analyst at the broker Merrill Lynch, downgraded her 2001 Pearson forecast by 10 per cent, which she said should "now reflect a full recession scenario in FT and RTL".

Advertising volumes at the FT turned down sharply in May and June this year, by 20 to 30 per cent, but Pearson said the situation had bottomed out and advertising was expected to be 20 per cent lower for the whole of 2001. A cost-cutting programme has started at the newspaper, with the loss of about 110 employees this year, through a hiring freeze and "natural attrition".

For the Pearson group, pre-tax profit at continuing operations came in at £5m for the half year to 30 June after internet investments but before exceptional items and goodwill. That compared to a £4m loss for the period last year.

Ms Scardino said the company was less exposed to the advertising downturn than some of its peers. Overall some 30 per cent of Pearson's operating profit comes from advertising-related businesses.

"The FT's full year figures will be down on 2000, which was a record, but they will better than 1999. That will make it [2000] the second best year in its history," she said.

Earlier this month, Dow Jones, publisher of the rival Wall Street Journal, reported second-quarter profits had collapsed by half, as advertising revenue fell 35 per cent.

Analysts said they were reassured by the more positive news on Pearson's other businesses and the group's shares closed up 5 per cent yesterday at 1,087p. Underlying sales in the education division climbed 8 per cent, while Penguin's underlying revenues were 7 per cent higher.

Simon Baker, an analyst at SG Securities, said the advertising downturn was more severe than expected but added: "The market is willing to look through the advertising issue and is focusing on education."