First-half profit leap for PRH, but Pearson drops

Penguin Random House had global profit of £32m in the first half of 2016 compared with £24m in the first half of 2015, displaying underlying growth of 25% and headline growth of 33%, according to Pearson's half-year results. Constant exchange rate (CER) growth came in at 25%.

Pearson commented on PRH's "solid performance", with the business benefiting from hits including the UK-originated The Girl on the Train which accounted for more than 1.1 million print and e-books sold during the six month period in the UK, and an additional 800,00 in the US in all formats. Jojo Moyes' Me Before You, and its sequel After You together sold over 2.4 million copies across print and digital in the US and 1.2 million in the UK.

Pearson said the business was beginning to reap the "integration benefits" of the merged PRH but added: "We anticipate that additional benefits from the ongoing integration of the business will be broadly offset by reduced demand for e-books, following industry-wide terms changes in 2015".

Nielsen Bookscan's TCM figures for the first 26 weeks of 2016 put PRH UK’s sales at £144.3m, a 6.7% rise versus the same period in 2015. That was below the overall print market rise of 9.3%. PRH retained its market share at 22.4% of all UK print book sales. PRH UK gave its first half 2016 digital volume figures were put at just under 5.9 million e-books sold, a drop of 16.7% year on year.

PRH's global first-half performance was revealed as Pearson said its own overall £800m target for 2018 remains “unchanged”, despite falling profits and sales 7% down for the first half of 2016.

Pearson reported sales of £1,866m, down 7% in underlying terms in comparison to 2015, due to "expected declines" in assessment revenues weighted towards the first half of the year and "the phasing of both gross sales and returns in North American Higher Education courseware".

Its headline sales, which also dropped 7%, by £131m, benefited from the strength of the dollar against the pound - increasing sales for Pearson by £86m and operating profits by £5m - but this was offset by weaker "key emerging" market currencies. Revenues at constant exchange rates declined 11%, reflecting underlying revenue declines, a change of revenue model at Connections Education and the disposal of PowerSchool.

Total adjusted operating profit from continuing operations fell £39m to £15m (2015: £54m), a decline of 80%, which Pearson said again was “in line with our expectations”. The lower revenues, incentive compensation accruals and dual IT running costs that it contributed to the result were “partly offset” by initial savings from its "simplification programme” - involving 500 job cuts in the UK - and by the “integration benefits” it was beginning to reap from Penguin’s merger with Random House.

Pearson said both its simplification and growth programme were “on track”, reporting “good progress” in reducing its headcount: 3,450 full time employees have been notified of exit, out of the total 4,000 jobs worldwide it intends to cut. Projected costs and savings it intends to make from the process are unchanged, expecting to incur restructuring costs of £320m in 2016, but to generate annualised savings of £350m (£250m in 2016, and a further £100m in 2017).

While Pearson remains resolute in its 2018's £800m operating profit target, it expects to report adjusted operating profit for 2016, before restructuring costs, of between £580m and £620m, owing to "loss of operating profit from disposals made in 2015, ongoing challenging conditions in our largest markets, the reinstatement of the employee incentive pool and other operational factors".

Pearson’s chief executive John Fallon said:"We are making good progress on the programme of work we began in January to simplify the company and return to growth, and we are performing well against the financial, operational and educational milestones we set out in February.

“It is still relatively early in the year, and we have two big trading quarters in education ahead of us. Nonetheless we are trading in line with our 2016 expectations, and making progress toward our target of £800m or more of operating profit by 2018."