US education arm boosts Pearson profits
Pearson, the group that includes the Financial Times and Penguin Books, is bucking the publishing trend by raising its dividend following strong performance in 2008.
Overall group revenues grew 8 per cent to £4.81bn last year, adjusted operating profits rose 11 per cent to £762m, and the company raised its dividend for the year by 7 per cent to 33.8p, the company said yesterday.
Despite the advertising downturn buffeting publishers across the world, all Pearson's businesses showed growth in 2008. Penguin profits were up by 4 per cent and the FT Group's by 13 per cent. Pearson Education – the group's largest division – grew by 11 per cent, buoyed by a robust performance in its North American arm. Although US school book sales fell over the year, the decline was offset by higher performance, and the division saw £2bn-worth of sales in 2008 and profits of £303m.
But there are more difficult times ahead, and Pearson is predicting tough trading conditions and flat earnings growth in 2009. Dame Marjorie Scardino, the chief executive of Pearson, said: "We don't expect economic conditions to improve any time soon, but we do expect our company to remain hardy and aggressive."
Alongside the expansion of its education business with the acquisition of the Harcourt US divisions from Reed Elsevier in 2007, Pearson is focusing on digital services and subscriptions to dilute its reliance on ad sales. FT Group – which includes Interactive Data and The Economist, as well as the FT newspaper – now raises 67 per cent of its revenues from digital services, up from just 28 per cent in 2000. Advertising is down to just 25 per cent of the total, from 52 per cent at the start of the decade.
The strategy is paying off. FT Publishing saw sales and profits both rise by 9 per cent, despite the difficult advertising market, and the FT.com website has more than 100,000 subscribers, also 9 per cent higher than last year. But although the FT newspaper maintained its circulation levels, and revenue grew by 16 per cent following price rises totalling 80 per cent in 18 months, it is not immune. Advertising revenues dropped by 3 per cent overall, with a particularly sharp 13 per cent decline in the fourth quarter, and difficult conditions are expected to continue throughout 2009. In an attempt to cut costs, the newspaper has cut 80 jobs in recent weeks, and remaining staff have the option of working a short week or buying extra holiday.
At Penguin, traditional sales continued to grow strongly last year, with double-digit margins and 67 top 10 bestsellers in 2008. The group's ebook sales grew by five times in the US.
"Pearson is justifying its 29 per cent outperformance of the FTSE 100 index over the last year. On the downside, advertising revenues at the FT remain under pressure, while management expects headwinds from the current global economic crisis to remain significant," Keith Bowman, an equity analyst at Hargreaves Lansdown, said.
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