Pearson reported that total revenue from its book publishing divisions—Pearson Education and the Penguin Group—rose 5% in 2002, to £3.59 billion ($5.68 billion), with operating profits up 16.7%, to £413 million ($652 million).
Total revenue at Penguin rose 2%, to £838 million ($1.32 billion), with operating profit up 9%, to £87 million ($137 million); excluding changes in currency rates, revenue was up 5% and profits 11%. Penguin Group chairman John Makinson called the results "a very strong performance," especially in light of several distractions that took place in the year, including the implementation of an SAP operating system in the U.S. and upgrading its education infrastructure in the U.K. Penguin took a £10-million hit to profits to account for implementation of SAP, which has now largely been concluded. The entire group also benefited from the promised turnaround at Dorling Kindersley, where sales increased 8% and profits rose by £15 million.
David Shanks, CEO of Penguin USA, said the year unfolded just as planned in the U.S.—a slow first half of the year followed by a strong final six months. While the sales gain in the U.S. was driven by an exceptionally strong frontlist that included a record number of books hitting the top spot on the New York Times bestsellers list, it was an aggressive promotion of the company's backlist that allowed Penguin to overcome the slow holiday season, Shanks said. Shanks told PW all major units within Penguin USA "hit their numbers."
Shanks said that despite a number of favorable developments at Penguin, he expects 2003 "to be a big challenge not just for us but for the entire industry." Business for the first two months of the year has been slow, and Shanks is concerned about what effects a war with Iraq will have on consumers' book buying habits.
If the economy does improve, Shanks said Penguin is well positioned to capture its share of business. The company's newest major imprints, Portfolio and Gotham, will be fully online this year. Shanks said he expects the second half of the year to once again be stronger than the first, driven by new releases from Tom Clancy, Patricia Cornwell and Amy Tan. A pleasant surprise could come from Oprah Winfrey's new Traveling with the Classics book club. With Penguin's long list of Penguin Classics, Shanks observed that "we're in a perfect position" to take advantage of the new club. While Shanks doubts the classics club will produce the kinds of number's Winfrey's old club did, he said, "Any book Oprah recommends can only benefit publishers. If anyone can turn people onto the classics, it's Oprah."
Makinson said Pearson remains bullish on trade publishing, adding that the increased collaboration between different subsidiaries envisioned when he took over as chairman last year is occurring. He cited the new signing of Madonna to a five-book children's contract as one example. He also said Ann Godoff "will be talking to London" and seeing how her new imprint can work with the U.K.'s Allen Lane imprint. Makinson had no comment on Pearson's reported interest in acquiring a piece of AOL Time Warner Books Group. He said, "Penguin's different pieces fit together very well," although he added that if Pearson wanted to make an acquisition, "we have the financial resources to do so."
Education Sales up 6%
Revenue at Pearson Education rose 6%, to £2.76 billion ($4.35 billion), and operating profits increased 19%, to £326 million ($515 million). The division's profits were helped by a £52 million reduction in Internet losses, offset by a £20 million charge for upgrading its back offices and a £11 million increase in pension contribution.
In the division's biggest unit, school publishing, sales fell 9%, to £1.15 billion, and profits dropped 16%, to £140 million. In the U.S. school group, sales fell 6% due to fewer adoption opportunities and Pearson's decision to participate in only a limited number of adoptions. Testing sales rose 3%. Sales in its school software business fell 12%, although losses were cut because of increased use of outsourcing. In the school group's international business, solid gains were reported in Hong Kong, Singapore, Japan and Spain. Strong growth in English Language Teaching sales in Europe and Asia was partially offset by some weakness in the U.S. and Latin America.
The higher education group reported a sales increase of 7% in the year, to £775 million, and operating profits rose 12%, to £142 million. In the U.S., sales in the higher education division increased 14%. Among the reasons cited for the gains was a successful integration of online services into its print products that helped to take share from the used book market and a 50% increase in its custom publishing business.
Sales in the professional group jumped 41%, to £784 million, although profits rose only 1%, to £81 million. The group comprises the testing firm NCS Pearson and the company's computer book operations. The sales gain was driven entirely by NCS, as revenue at Pearson's computer book arm fell 12% with margins also declining.
Looking at prospects for 2003, the company said it expects sales and profits to improve in its school division, while the outlook for the higher education unit is to gain share in a growing market.