Published: Fri, January 20, 2017
Economy | By Melissa Porter

EXTRA: Pearson Scraps Profit Target Amid Shift To Textbook Rental

Company's net revenue in the USA higher-education courseware segment revenue dropped 30% during the last quarter of 2016, resulting in an 18% drop for the full year.

Pearson was down 26% to 595.92 pence, easily the worst performer in the FTSE 100.

The company's forward guidance suggests it will struggle to match last year's performance with operating profit seen in the range of £570-£630mln. Net revenue fell 30% year-on-year, and revenue for the business for the full year was down 18%.

Pearson's problems are rooted in the North American higher education market, where it endured a "further unprecedented decline" in activity in the fourth-quarter. Pearson estimated about 2.0% of this decline was due to lower enrolment, particularly in community colleges, with about 3% to 4% of the decline from the impact of students renting books rather than purchasing.

Pearson will invest £50m in the new ventures, which will "accelerate our product roadmap by two years", it said.

In a statement, Pearson said they still expected to hit the profit guidance given for 2016, despite an 8 percent fall in revenue.

Fallon said the company now aims to build digital revenue at its US higher-education division to 75 percent by 2020 from 50 percent currently, by working with more institutions to sign up large blocks of students and cutting electronic book-rental prices by 20 percent to 50 percent. The board has asked Fallon and his team to move ahead with their new plan to build a more sustainable and growing digital business faster, he said. "We have already taken significant steps in restructuring, reducing our cost base by £375 million previous year".

But the pressures on the North American higher education courseware business have forced the group to rebase its expectations for 2017, on the assumption these woes will not abate. It will also launch its own print rental programme, ensuring it gets paid more often for the use of its textbooks.

Penguin Random House is the world's largest book publisher, with titles ranging from Fifty Shades of Grey and The Girl on the Train, to Nigella Lawson and Jamie Oliver's recipe books. The cut in the dividend this year will bring to an end nearly 25 years of annual increases. Pearson is expected to make operating profit of £630mln, giving earnings per share of 57p for 2016. Pearson withdrew their profit guidance for 2018 due to the weak results.

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