Pearson, the international media group, has shrugged off a dire advertising market to post half-year profits ahead of expectations, driven by a robust performance at its international education business.
Shares in Pearson, which owns Penguin books, soared by 73p to 679p yesterday, making it the FTSE 100's biggest riser, after said it expected full-year adjusted earnings per share to be "at or above" the 2008 level of 57.7p a share.
While underlying profit growth at FT Publishing, which includes the Financial Times, tumbled by 40 per cent, the group's education business – its main profit driver – traded ahead of expectations, delivering 5 per cent sales growth at constant currency over the half-year.
The group has substantially shifted its reliance away from advertising to focus on education and services, such as professional examination testing, and Pearson's chief executive, Dame Marjorie Scardino, struck up upbeat tone yesterday. She said: "The transformation we've been pursuing for a decade – from 'publishing' company to content, technology and services company – is paying off." She added: "Market conditions are tough and may stay that way; but we are confident that we will perform well this year and next."
For the half-year to the end of June, Pearson's pre-tax profits rose by 13 per cent to £62m. The group makes the bulk of its profits in the second half of the year, driven by spending on educational materials, as schools and universities start their new year. Over the six-month period, the group's international education division delivered underlying sales growth up 10 per cent to £446m.
Robin Freestone, finance director at Pearson, said that in North America the group was benefiting from the tough economy, particularly in the US, which is pushing more people back to college and university. North American education division grew sales by 1 per cent at constant exchange rates to £943m. Mr Freestone cited the "strength of our higher education business of selling books and digital products into US universities and colleges. You are seeing more students of 18 years old going to, or back to, college because of the tough job market."
Alex DeGroote, analyst at Panmure Gordon, said: "Ordinarily, H2 performance is most meaningful to full-year outcome due to the phasing of the education school year. Against a tough backdrop, however, Pearson talks of a 'stronger business performance offsetting negative currency impact'."
However, in the UK, underlying sales at FT Publishing, which includes the FT newspaper, tumbled by 40 per cent to £14m, hit by the fall in advertising in the financial and corporate sectors.
Mr Freestone said the global advertising market was down by between 20 and 40 per cent. He added: "The market is well down, but we are doing better than the market decline. Print advertising is bad, but online advertising is strong."
Pearson's group revenues were flat at £2.4bn, but adjusted operating profit jumped by 21 per cent to £158m. Pearson said it did not expect the advertising cycle to turn "any time soon", but said it expected its products to remain in demand and its subscription businesses to remain resilient.
The group has benefited from raising the cover price of the FT from £1 to £2 over the past two years. But the FT's circulation globally fell by 6 per cent to 421,429 over the half-year, as the financial crisis took its toll.