Portfolio

Pearson says profit will fall in 2020

By Sean Farrell

Date: Friday 21 Feb 2020

Pearson says profit will fall in 2020

(Sharecast News) - Pearson said it expected profit to fall in 2020 after the education publisher posted a 6% increase in profit for 2019.
Adjusted operating profit for the year to the end of December rose to £581m from £546m a year earlier as underlying revenue was unchanged at £3.9bn. Unadjusted operating profit halved to £275m from £553m as sales fell 6% to £260m.

Pearson forecast adjusted operating profit between £410m and £490m for 2020 excluding the contribution from its 25% stake in Penguin Random House. It said the sale of the business would have a £65m impact on profit.

The FTSE 100 company's shares fell 3.4% to 564p at 09:30 GMT. The shares have fallen 13% in 2020.

Pearson said 2019 unadjusted operating profit fell because of reduced gains on disposals and higher intangible and restructuring charges. Unadjusted sales dropped because the company disposed of businesses.

Pearson is carrying out a major restructuring programme to cut costs, shift to digital publishing and focus entirely on education. Chief Executive John Fallon announced his retirement in December three months after the company issued a profit warning.

In 2019 underlying sales at the North American division, Pearson's biggest business, fell 3% to £2.5bn as US higher education courseware sales dropped 12%. Sales rose 5% at its core division to £838m and 4% to £497m in growth markets leaving total adjusted sales flat.

The company said it expected US higher education to continue losing sales in 2020 with heavy print declines partly offset by new digital products. Other businesses will have low single-digit sales.

Fallon said: "With 76% of the company already growing strongly, and all parts of Pearson profitable, we are a simpler and more efficient company ... As we benefit from further efficiencies from the investments we have made and deploy our strong balance sheet, Pearson is now well placed, in time, to grow in a profitable and sustainable way."

Fallon has run Pearson for seven years in which he has sold non-core but prestigious assets such as the Financial Times and its Penguin Random House stake. He will leave when his successor has been appointed.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Fallon's decision to shift from textbooks to digital products had proved correct as sales of physical books tumbled in the US but that it had lost market share because people were reluctant to pay top prices for ebooks.

There is light at the end of the tunnel though. As North American courseware shrinks, its impact on group numbers will also diminish and the growing digital and assessment services will become the driving force behind performance. The incoming management team will be relieved about that.

"We see Pearson as a textbook example of the risks incumbents face from digital disruption," Hyett said. "There is light at the end of the tunnel though. As North American courseware shrinks, its impact on group numbers will also diminish and the growing digital and assessment services will become the driving force behind performance. The incoming management team will be relieved about that."





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