24th Jul 2015 09:23
LONDON (Alliance News) - Pearson PLC was one of the biggest gainers in the FTSE 100 Friday as it reiterated its outlook for 2015 and posted a widened pretax loss for the first half of 2015, a day after it announced the sale of the Financial Times.
Pearson shares were trading up 2.0% at 1,259.00 pence Friday mid-morning, the third best blue-chip performer behind Vodafone Group PLC and Anglo American PLC.
The business and education publisher agreed Thursday to sell the FT Group, which includes Financial Times newspaper, to Japanese media group Nikkei Inc for GBP844 million in cash, as it moves to focus on its education businesses. The deal doesn't include the sale of property at One Southwark Bridge in London - the home of the FT newspaper - nor Pearson's 50% stake in the Economist Group, which publishes the Economist magazine.
The sale is subject to a number of regulatory approvals and is expected to close during the fourth quarter of 2015.
Pearson reiterated Friday its expectations for adjusted earnings per share of between 75 pence and 80p in 2015 - assuming the ownership of PowerSchool and the FT Group for the entirety of 2015. Pearson sold the PowerSchool business for USD350 million in June, and said that including this sale, its guidance its reduced by around 1p, and cautioned that if current exchange rates persist it will reduce earnings per share of around 2 p.
Pearson posted a pretax loss of GBP115 million for the half year to end-June, widened from a pretax loss of GBP36 million a year before, as a rise in sales to GBP2.16 billion from GBP2.05 billion was offset by higher cost of goods sold and operating expenses. The company also recorded a GBP70 million impairment related to the PowerSchool sale.
It posted adjusted earnings per share, excluding the sale of its Mergermarket business, of 4.4 pence, down from 4.7 pence a year before.
Pearson proposed an interim dividend of 18p per share, up 5.9% from 17.0p a year before.
Pearson owns a 47% share of book publishing company Penguin Random House. It said that Penguin Random House performed well in the first half, driven by sales of 'The Girl on the Train' and 'Grey'.
As with its stake in the Economist, Pearson's interest in Penguin Random House has come under scrutiny following the announcement of the FT sale. Chief Executive Officer John Fallon would not comment on the stake in the Economist in a call with journalists on Thursday, but noted that Pearson's stake in both the Economist and Penguin Random House is as a shareholder and that Pearson is not involved in the management of either.
The company said that due to seasonal bias in some of its business, it makes a higher proportion of its sales and a majority of its profits in the second half, during which the North American school year begins.
In North America, which is Pearson's largest market, it expects to see growth in online higher education services and VUE product, with more stable college enrolments and a slower new edition year. It expects trading conditions to stabilise in the UK, growth in inside services to broadly offset declines in courseware in Australia, and sustained share in Italy following share gains in 2014.
In its growth markets, Pearson said it expects good growth in China, a better year for its sistemas business and good growth in its English language learning franchises in Brazil. It expects modest declines in school courseware and lower enrolments in higher education in South Africa.
It expects the Financial Times "to continue to benefit from, and invest in, its digital transition."
"Overall, we're competing well, enabling us to reaffirm our full-year guidance and increase the interim dividend. The new education products and services we're developing which will enable far more people of all ages to discover the joy of learning and progress in their careers. We believe the returns on the significant investments we are making to achieve this goal will be substantial for students, society and our shareholders," said Chief Executive John Fallon in a statement.
Despite reiterating its guidance for the full year, Liberum analyst Ian Whittaker expects a profit warning on the horizon for Pearson, and said there seemed to be a reluctance in Pearson's results to address key issues it is facing, highlighting in particular mounting issues around US schools' testing and worsening in the outlook for the for-profits US higher education space.
The announcement of the sale of the Financial Times after press speculation over a sale earlier in the week after a report from Bloomberg. That speculation heated up Thursday after Reuters reported that Pearson would announce a sale "imminently", and whilst the front-runner was largely speculated to be German publisher Axel Springer, Nikkei also was reported to have had talks with Pearson, and ultimately emerged as the buyer.
On a call with journalists on Thursday, Pearson CEO Fallon suggested the company had reached an "inflection point in media", and whilst education and journalism were "both great things", they are not the same thing. It was felt that it was the time to find the Financial Times a new home, he said.
When questioned over concerns about maintaining editorial integrity after the sale, Chief Executive Officer of the Financial Times John Ridding told journalists that the issue had been central when considering the deal, but cited Nikkei's track record and cultural ethos, saying he was "absolutely confident" Nikkei would "walk the talk on editorial independence".
At a press conference on Friday, Nikkei Chairman Tsuneo Kita said that Nikkei had approached top Pearson management several times in past years about buying the FT. Kita also emphasised that Nikkei feels a great responsibility to grow the Financial Times brand, and that the Financial Times would not change as a result of the acquisition.
Numis analyst Gareth Davies said the sale was at a "good price", and Nomura suggested it was a "high price, and reflects trophy asset status for the FT."
Nikkei took a minority stake in Financial Times columnist Tyler Brûlé's global affairs magazine Monocle in September last year, a deal which valued Monocle at around USD115 million.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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