'Financial Times' records 11% drop in ad revenues

Pearson, the media and publishing company, revealed that the Financial Times newspaper has seen an 11 per cent drop in advertising revenues in the second half of the year and warned a recovery was still some way off.

"At the FT Group, we are planning on the basis that we will not see any recovery in corporate and financial advertising [in 2003]," the company said, warning profits at the division this year would be lower than expected. Shares in the group, which also owns the Penguin and Dorling Kindersley publishing houses, closed down 4 per cent to 633.5p.

The slump in advertising has hit Pearson's FT Group division hard, causing profits to slide to £132m last year, or 17 per cent of group profits, from around £211m in the year 2000, before accounting for its internet businesses.

Pearson said the weaker advertising environment meant FT Group profits in 2002 would be around 20 per cent lower than last year's level. Previously, it had expected a fall of 10-15 per cent. As a result, analysts shaved some £7m off group profit forecasts for this year and Merrill Lynch downgraded the 2003 profit estimate by £20m to £485m.

After spending millions of pounds on its internet businesses, however, it said FT.com, the internet version of the newspaper, would break even in the fourth quarter of the year while total losses at its internet operations would be no more than £35m.

Nevertheless, the company is confident that a solid performance at its main education and training businesses, Pearson Education, combined with the reduced internet losses will offset the effects of the advertising slump. It expects to deliver earnings of 30p a share for the current year, in line with market forecasts and a 40 per cent rise over the previous year.

"This earnings recovery is being driven by strong trading by our US college and consumer publishing businesses, an outstanding year from our government solutions and professional testing businesses, lower internet losses and reduced financing costs," it said.

Pearson Education, which contributed around 64 per cent to profits last year, is expected to grow underlying revenues by at least 5 per cent this year although margins are expected to come under pressure. The Penguin Group, meanwhile, was also trading "in line" with expectations and is expected to grow underlying revenues by at least 3 per cent this year and produce double-digit profit growth.

For 2003, Pearson said it was "confident" of turning out "another year of improved performance" and predicted internet losses would shrink to no more than £20m.