28th Feb 2014 08:41
LONDON (Alliance News) - Publisher Pearson PLC Friday posted a lower 2013 pretax profit as it was hit by lower margins in North America and an accounting charge for the merger of its Penguin books unit with Random House, and it warned that earnings are set to fall this year due to policy changes in its biggest markets and the strength of sterling.
The Financial Times owner whose main business is publishing educational materials, reported a pretax profit of GBP382 million, down from GBP391 million in 2012, even though revenues in its continuing operations rose to GBP5.07 billion, from GBP4.96 billion.
The company's closely watched adjusted operating before net restructuring charges, which excludes gains and losses on acquisitions and disposals and amortisation and impairments, fell 6% to GBP871 million, while adjusted earnings per share after restructuring charges were 70.1 pence, down from 82.6 pence.
It said it is expecting to report adjusted EPS of between 62p and 67p in 2014 at constant exchange rates, warning that the cyclical and policy-related pressures it is experiencing in its North American market will continue to weigh on revenues and margins.
The North American education market is Pearson's largest. It had previously warned that margins were under pressure in the business, particularly in the fourth quarter, as state budgets came under pressure, meaning lower spending on educational materials and as fewer students enrolled in colleges. It is also investing in new service-based contract provision.
Its UK business has also come under pressure due to recent educational policy changes that have affected qualifications and textbook publishing.
"We are in the middle of what we believe will be a short, but difficult, transition - one that through our combined investment and restructuring programs will drive a leaner, more cash generative, faster growing business from 2015,2 Chief Executive John Fallon said in a statement.
The company is trying to accelerate a push into digital publishing and emerging markets in an attempt to return to growth. It booked GBP176 million of gross restructuring charges in 2013, which it expects to generate GBP60 million of incremental cost savings in 2014. It expects to book about GBP50 million of restructuring charges this year, which will primarily for restructuring in North America and will mostly be booked in the first half of the year.
It reiterated that it will also spend about GBP50 million this year in its digital and service operations and emerging markets as it tries to stimulate growth.
Pearson's 2014 earnings will also hit by its recent asset disposals. It expects the contribution from its Penguin Random House joint venture to be about GBP20 million lower due to currency moves and integration charges, while the recent sale of its Mergermarket business will reduce adjusted operating profit by GBP28 million.
It also joined other British international companies in warning of a hit from the recent rise in sterling. It said that if rates stay where they are, then that will reduce operating profits by GBP50 million compared with 2013, GBP30 million for the strengthening against sterling and GBP20 million for moves against other currencies. Each five cent move in the average dollar-sterling exchange rate has a 1.2 pence impact on full-year EPS, it said.
Despite all the warnings, Pearson raised its 2013 dividend by 7% to 48 pence, which it said reflected its confidence in its prospects. It said it has now raised its dividend above the rate of inflation for 22 consecutive years.
Its Financial Times business improved during the year, with sales up 1% and adjusted operating profit up 17%.
Still, Pearson shares were down 5.7% at 1,014.9 pence early Friday, the biggest decline on the FTSE 100.
By Steve McGrath; [email protected]; @SteveMcGrath1
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