Pearson encouraged by 'good first half' but reports sales fall for PRH

Pearson encouraged by 'good first half' but reports sales fall for PRH

Pearson has reinforced guidance that it expects to return to underlying profit growth in 2018 after posting underlying revenue growth of 2% and adjusted operating profit up 46% year-on-year for the first half of 2018. However it reported Penguin Random House - in which Pearson still has a 25% stake - saw sales fall in the first half owing to "softer fiction print sales and lower e-book sales", only "partially offset by rising audio sales".

According to Pearson's first half report, Penguin Random House saw "revenues down on an underlying basis year on year", although figures were not disclosed. However Pearson said the business did benefit from major bestsellers by Bill Clinton and James Patterson, Jordan Peterson, Lee Child, R J Palacio and Dr Seuss. Pearson's stake in PRH contributed £22m to the education company's adjusted operating profit, down 4% in underlying terms, and down 52% in headline terms primarily due to the disposal of Pearson's 22% stake in the business to Bertelsmann in October 2017. 

First-half TCM figures from Nielsen BookScan put Penguin Random House UK sales in the UK at £137.8m, down 1.6% on the same period last year.

Pearson's own headline sales dropped 9%, from £2,047m in the first half of 2017 to £1,865m in the first six months 2018 (to 30th June), but were up 2% on an underlying basis. Underlying revenue in Pearson's largest market, North America, rose 3%, while Core increased 2% and Growth fell 4%. North American Higher Education Courseware digital revenue grew "modestly" in the first half, helped by lower returns, Pearson said, but forecast a decline in net sales in the second half "as gross sales continue to be impacted by ongoing underlying market pressures". 

Going into "selling season", and with Pearson’s sales weighted towards the second half of the year, pressure points for Pearson continue to include lower student enrolments and shifts in the US market towards textbook rental, an area that Pearson is moving into more.

Pearson's adjusted operating profit was flat at £107m on this time last year, but up 46% in underlying terms, attributed to sales growth and savings from its 2017-2019 restructuring programme. Statutory operating profit came in at £233m, up from £16m in the first half of 2017.

Pearson restated its guidance for 2018, outlined also in its first quarter results, that it expects adjusted operating profit of between £520m and £560m and adjusted earnings per share of 49p to 53p. Its simplification plans are said to be "on track", having delivered cost savings of £40m delivered in the first half of 2017 and forecasting £300m savings by end of 2019.

If profit does rise, it will be for the first time in six years. Challenges in the US education market resulted in a £2.6bn pre-tax loss for 2016 and forced Pearson to slash thousands of jobs in a bid to make the company "leaner" and "more agile".

Recent highlights for Pearson during the first half of 2018 include the appointment of a head of AI to lead its R&D team, agreeing its fifth UK online degree partnership with Northumbria University, and extending its US student assessment contracts in Kentucky and Arizona while also being awarded new contracts in Utah and Iowa.

No update was offered on its US K12 courseware business, which continues to be held for sale.

John Fallon, chief executive, said: “Although there is still much to do, we have had a good first half and continued to make progress against our strategic priorities. We are driving ahead in digital learning, helping more people develop the skills they need to prosper in a fast changing world.”