Mark Sweney 

Pearson reports 72% rise in profits

Ebook revenue growth helps push Pearson to pre-tax profit of £1bn for 2011. By Mark Sweney
  
  

Pearson has reported a 72% surge in pre-tax profits to £1.15bn for 2011, with ebook sales at Penguin more than doubling and profits at FT Group, home to the Financial Times, up by about a quarter.

Pearson, which beat its own recently increased forecast of 85p earnings per share with an analyst pleasing 86.5p, said that on an adjusted basis total operating profits grew by 10% to £942m.

Total revenues across the group, which includes book publisher Penguin and educational holdings, grew 4% to £5.9bn. Within this total digital revenues grew 18% to £2bn to account for a third of all sales.

FT Group, home of the Financial Times, grew revenues 6%, or 7% on an underlying basis, to £427m. Adjusted operating profit was up 27%, or 17% on an underlying basis, to £76m.

FT digital subscriptions were up 29% to 267,000, about 44% of total paid circulation.

As of the end of 2011 the number of digital subscribers in the US exceeded the number of print subscribers for the first time.

Pearson said that digital and services now accounts for 47% of total FT Group revenues.

Pearson admitted that advertising was "generally weak and volatile with poor visibility".

Advertising has shrunk from 59% of FT Group revenues in 2007 to 42% in 2011.

On a conference call with journalists Marjorie Scardino, the chief executive of Pearson, was asked about her view on the future of regulation in the newspaper market.

She said that it was clear that something has to be done and believed that some form of combination of legal and self regulation would be best to govern the newspaper industry.

"Self regulation is going to have to be independent and populated by people who truly understand journalism," she said, adding that she believed that the Leveson inquiry into media ethics and standards was a pretty thorough process.

Penguin reported a revenue decline of 1%, although on an underlying basis growth was 1%, to £1.05bn. Adjusted operating profits grew 5%, or 8% on an underlying basis, to £111m.

Penguin also reported a massive increase in digital book sales, up 106% year-on-year, with ebooks accounting for 12% of total revenues and 20% in the US market.

In 2010, ebooks accounted for 6% of total Penguin revenues.

Ebooks accounted for 12% of Penguin revenues worldwide in 2011 – up from 6% in 2010 – which are expected to increase significantly again this year. Big Penguin sellers were cookbooks by celebrity chef Jamie Oliver and Kathryn Stockett's The Help.

Pearson raised its dividend by 9% to 42p.

"The external environment provides a testing backdrop for these results, and all our industries face some degree of turbulence," Scardino said.

"But our strategy and long-term planning for change have helped us to another good year to add to our record of persistent out-performance."

Pearson's North American Education division saw revenues decline by 2% to £2.58bn, a 1% decline on an underlying basis. Adjusted operating profits grew 5% to £493m, 8% on an underlying basis.

The International Education operation grew revenues by 15%, or 4% on an underlying basis, to £1.4bn. Adjusted operating profit rose 15% to £196m, a 2% rise on an underlying basis.

Pearson's pre-tax profit bonanza was partly boosted by the £412m profit on the £428m sale of its 50% stake in FTSE International to the London Stock Exchange last year.

The company said it had headroom of about £1bn to make acquisitions.

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