Penguin profits slump, but ebook revenues rise 33%

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This article titled “Penguin profits slump, but ebook revenues rise 33%” was written by Mark Sweney, for guardian.co.uk on Friday 27th July 2012 07.15 UTC

Profits at book publisher Penguin slumped by almost 50% in the first six months, thanks in part to the runaway global success of EL James’s Fifty Shades of Grey, which is published by rival Vintage Books.

Sales at Penguin fell 4% to m and adjusted operating profit fell 48% to m, with parent company Pearson blaming a number of factors – including the runaway success of rival titles Fifty Shades of Grey and The Hunger Games.

“They have distorted the overall books market, Fifty Shades of Grey has sold more than 30m copies,” said Marjorie Scardino, chief executive of Pearson. “The US is the only place we are down, those big best sellers really did take a lot of air out of the market.”

Penguin US published 132 bestsellers in the first half of 2012, compared to 157 in the same period last year, while the UK operation matched its strong performance in the first six months of 2011 with 49 bestsellers.

Popular UK titles came from authors including Gok Wan, Rachel Khoo, Antony Beevor and Jojo Moyes.

Penguin, which also blamed a lighter publishing schedule and continued pressure in the book market, boosted ebook revenues by 33%. Ebook revenues now account for 19% of Penguin’s total revenues.

Scardino said that although the rate of ebooks growth was slowing, Pearson did not have a view on what level digital book revenues would plateau at in the Penguin business.

In 2009 ebooks were just 2% of Penguin’s total revenues, in 2010 that grew to 6%, then 12% last year.

The publisher expects a better performance in the second half with a new titles from well-known authors including Ken Follett, Jamie Oliver, Pippa Middleton and Jeremy Clarkson.

FT Group, which publishes the Financial Times newspaper, boosted sales by 6% to m and adjusted profits by 5% to m.

Pearson said that digital subscriptions rose by 31% year-on-year in the first half, to more than 300,000, as registered users of its online product rose 29% to 4.8m.

There are 2.7 million FT Web App users. Mobile devices now account for 25% of traffic on FT.com.

Across print and online, the FT said its total paid circulation stood at 599,000, up 2% year-on-year. Advertising revenues declined, although the rate of the fall was not disclosed.

At Economist Group, in which Pearson owns a 50% stake, print and digital circulation grew 5% to 1.62m as at 31 March.

Pearson, which also owns extensive educational and professional training businesses, saw overall pre-tax profits fall 28% to m in a mixed bag of results in the first half.

Total revenues rose 7% to bn.

“We began 2012 planning for a challenging external environment and our caution was well-placed: conditions have been tough in the early part of this year and, for a couple of parts of Pearson, tougher than expected,” Scardino said.

“But that’s precisely when our planning for structural change and our investments in growth markets show their power. We’ve kept up the pace of transformation, and continued our shift towards digital and services businesses, which this year for the first time will yield the majority of Pearson’s revenues.”

Pearson reported adjusted operating profit of m, down 10% year-on-year, which missed analyst consensus of m.

The company raised the interim dividend raised by 7% to 15p a share.

Analysts point out that Pearson’s business is historically weighted to the second half of the year and the skew is even more pronounced than usual in Friday’s first half results due to the sale of FTSE International which completed at the end of last year.

Pearson said the sale of the business reduced operating profit in the first half by m.

Scardino said that Pearson as a whole would pass the milestone this year of more than half of revenues coming from digital and services compared to traditional publishing.

“We still publish a lot of books, the FT on paper etcetera, but it is a milestone for the business,” she said. “We are not really withdrawing the FT from print, it is just our customers are choosing digital. There is still a lot of print around.”

She said that despite the first half performance, the company remained on track to report record sales and profits for the full year.

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