By Simon Zekaria
LONDON-- Pearson PLC is increasingly confident of the company's
prospects despite enduring a difficult 2014.
The U.K. publisher on Friday said it expects sales this year,
excluding acquisitions and disposals, to increase for the first
time in five years amid a recovery of its core education markets,
including the U.S. The company has also completed a two-year
restructuring plan which has hit Pearson's earnings but saved the
business hundreds of millions of dollars.
"Last year was every bit as tough as we thought it would be,"
said Chief Executive John Fallon.
Pearson, which publishes the salmon-colored Financial Times
newspaper, said its 2014 net profit fell to GBP470 million ($724
million) from GBP538 million the prior year. Adjusted operating
profit, before restructuring charges, fell 5% to GBP720 million, in
line with company forecasts. Sales fell 4% to GBP4.87 billion, in
line with market forecasts, with North America revenues down
3%.
Still, Mr. Fallon said he is confident about the company's
prospects, which generates about 60% of its sales in North America
and three-quarters of its revenue from education.
"It feels like we have now passed a tipping point," he said.
"This year we expect to grow again very healthily and we expect to
sustain that growth in future years."
It expects to report adjusted earnings per share of between 75
pence and 80 pence in 2015, up from 66.7 pence this year. Pearson
has proposed a fiscal-year dividend of 51 pence a share, up 6% from
a year earlier.
At 1234 GMT, Pearson shares were up 1.9% to 1,422 pence.
Analysts at Numis Securities said the results are in line with
expectations and noted the company sees the benefits of its
overhaul coming through.
Mr. Fallon said policy and curriculum changes in the U.S. and
the U.K. education systems had made life difficult for Pearson in
recent years, but those markets are set to recover.
"We are starting to feel more optimistic about life in the
U.S.," said Mr. Fallon, noting that college enrollment increases in
the early years of a recession before declining as the economy
recovers and job seekers enter the market.
"The cyclical and policy related factors that have held us back
in the U.S. over the last couple of years are easing. They will
stabilize this year and then will start to improve in 2016."
Amid flagging Western education markets, the company is
bolstering its global presence with language schools across
high-growth international economies such as China and South Africa,
where learning among the middle class is booming.
And the company's core services are increasingly online. Ten
years ago, two-thirds of what Pearson made and sold was in print,
but now the same proportion of its business is a digital service,
such as running English language courses online. In 2014, 11
million students in the U.S. took the company's tests on mobile
phones, tablets or laptops.
The FT grew its circulation by 10% year-over-year to almost
720,000 across print and online. Digital subscriptions rose 21% to
almost 504,000--70% of the FT's total paying audience.
"The shift to digital is more than offsetting the structural
declines in print content and advertising," Mr. Fallon said.
For the Economist Group, in which Pearson has a noncontrolling
50% share, currency effects hit performance, but the circulation of
the Economist magazine remains "robust" at 1.6 million, Pearson
said.
"We are happy with our stake in the Economist at this time, and
it delivers a good economic return to Pearson, but clearly it
doesn't command the same sort of synergies with the rest of Pearson
that the FT does because we don't control it and so we can't engage
it in our strategy in the way that we would like," Mr. Fallon said
in an interview.
Asked whether Pearson would like to take control of the
Economist Group, which is now controlled by several family and
individual shareholders, Mr. Fallon said, "I don't think that
opportunity presents itself."
News Corp, which owns Dow Jones & Co., publisher of The Wall
Street Journal, competes with Pearson's book publishing,
business-news and education divisions.
The London-based group also appointed Coram Williams, chief
financial officer of book publisher Penguin Random House--a joint
venture in which Pearson has a 47% stake--as its new CFO. Mr.
Williams will start the role on Aug. 1, replacing Robin Freestone,
whose departure was announced last year.
Pearson declined to comment on reports that its longstanding
chairman, Glen Moreno, is set to leave toward the end of this year
after a decade in the role. "Glen very much remains the chairman of
Pearson," Mr. Fallon said.
Write to Simon Zekaria at simon.zekaria@wsj.com
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