Education group Pearson on Monday announced somewhat mixed results and financial guidance, saying it now expects that operating profits and earnings per share (EPS) this year - before restructuring costs are deducted and including Penguin for the full year - will only be flat versus 2012.

That comes as the company seeks to re-accelerate its transition towards digital and emerging markets.

This is against the backdrop of deep changes in many aspects of its operating environment, with continuing structural change in education funding, retail channels, consumer behaviour and content business models.

One element of upside according to the firm, however, is the "considerable growth opportunity in education driven by rapidly-growing global middle class," which contrasts sharply with the generally weak market condition in the developed world and for print publishing businesses.

The company's new Chief Executive Officer, John Fallon, highlighted the fact that: "Pearson has a sound, successful strategy. Now we are significantly accelerating its implementation.

"Trading conditions are tough and structural changes mean many of our traditional publishing activities are under pressure. But the underlying demand for effective education remains immensely powerful and our developing world and digital services businesses have real scale and momentum," he explained.

Full year sales rose by 5.0% at constant exchange rates to £6.1bn - roughly 1.0% below the consensus forecast - while the firm's unaudited and preliminary (adjusted) results for 2012 improved by 1.0% when compared with the previous year, rising to £936m.

The company also announced that it would incur in an additional net £50m in restructuring costs (£150m gross and £100m in savings) in 2013. Positively, the firm expects a further new £100m in savings in 2014, but these will be reinvested in organic development of fast-growing education markets and categories and further restructuring.

Exchange rate effects may provide an off-set


However, for some analysts such as those at Investec, the resulting faster growth and stronger cash generation, in 2015, "feels some way off right now."

Nevertheless, the broker noted that exchange rate movements constitute a potential offset/positive given 60% of sales now come from the US - "if we marked to market, this would imply 2.2p on estimated fiscal year 2013 pro forma earnings per share i.e. +2.5%."

Cash generated from operations fell by 15% last year, to £916m (in part reflecting longer debtor days), while net debt rose by 84% to £918m, well ahead of some analysts' forecasts. On this last point however the multinational called attention to its currently low net debt/EBITDA ratio of 0.9 times and its formidable 'interest cover' of 18.7 times.

International education revenues race ahead

Pearson reported that North American Education revenues were up 2.0% in a year when US School and Higher Education publishing revenues declined by 10% for the industry as a whole.

International Education revenues were up 13% with emerging market revenues up 25%.

FT Group revenues rose 4.0% with the Financial Times' total paid print and online circulation up to 602,000. Worth noting, digital subscriptions exceeded print circulation for the first time.

Penguin revenues increased 1.0%, with strong publishing performance and eBooks now 17% of sales.

The dividend was increased by 7.0% to 45p, 'in-line' with expectations.

Shares of the education group finished the day 3.7% lower at 1,171p. For today at least they managed to stay above technical support at 1,160p and on very heavy trading volumes.




MF

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