23rd Jan 2014 08:32
LONDON (Alliance News) - Media and education group Pearson PLC Thursday said it faced tough conditions throughout 2013, and expects earnings and profits to be significantly lower than the previous year.
Ahead of its preliminary results scheduled to be released on February 28, the group said trading and its financial performance for the year just ended, was weaker than expected, particularly in North America. Pearson generates approximately 60% of its sales in the US.
For 2013, the group said it is expecting an operating profit of around GBP865 million, before restructuring charges, associated with the Penguin Random House merger and lower underlying margins in North American Higher Education, especially in the fourth quarter. That is significantly lower than the adjusted operating profit of GBP936 million it recorded in 2012.
"Pearson faced tough market conditions throughout 2013 as cyclical, policy-related and structural pressures affected our education publishing and assessment businesses in North America and the UK, our two largest markets. We continued to achieve strong growth in emerging markets, digital learning and new service-based business models," the company said in its trading update.
The group expects adjusted earnings per share for the year of around 83 pence before restructuring charges, in line with its previous guidance. However it said that after net restructuring costs of around GBP130 million for the year, its adjusted earnings per share will be reduced to 70 pence. In 2012 it reported adjusted earnings per share of 84.2 pence.
Chief Executive Officer John Fallon said he expects the challenging trading conditions to continue during 2014.
"This further underlines the importance of the work we started in 2013 to reduce our established cost base and redirect our investment towards our biggest future growth opportunities. We will accelerate this transformation in 2014 and remain confident about our growth prospects in 2015 and beyond," Fallon said.
Pearson said its North American education business was hit by state budget pressures during the year, and profit margins also were set back by planned investments, increase returns provisions, and launch costs related to major multi-year service-based contracts in higher education.
It said its international education business achieved another strong underlying performance in emerging markets, particularly in South Africa and China, although this was offset by weak textbook sales in developed markets and policy changes affecting qualifications and textbook publishing in the UK. Pearson said margins before restructuring charges were similar to 2012.
The group's professional education business generated good sales growth at constant exchange rates, it said, with a strong performance in assessment and training, but again, this was partly offset by softness in publishing.
Pearson said The Financial Times Group produced good profit growth for the year, particularly at the Financial Times. It said digital subscriptions to the FT continued to grow strongly, more than offsetting weak advertising sales and planned reductions in print circulation.
At the end of last year, the group said that its was disposing of its Mergermarket business to BC Partners for GBP382 million. For 2013, the group said that Mergermarket will report revenues and operating profit before central costs of around GBP108 million and GBP28 million, respectively.
Pearson said its Penguin Random House business benefited from a solid fourth-quarter publishing performance.
"As previously disclosed, the accounting treatment for Penguin Random House reduces Pearson's operating profit, but at the EPS level we gain an equivalent benefit through our tax charge. We estimate this effect will be approximately GBP29 million in 2013," the company said Thursday.
The group said its incurred around GBP130 million in net restructuring costs during 2013, having booked GBP170 million in charges, with additional restructuring activity including an added warehouse closure. This offset its GBP40 million in costs savings it achieved during the year.
"In 2014, we will realise further benefits from our 2013 restructuring programme and expense approximately £50m net restructuring charges to accelerate our shift towards the biggest sources of future growth: digital, services and emerging markets education," the group said.
Pearson shares were down 5.2% at 1,230.00 pence per share in early trading Thursday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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