* 2016 results slightly better than expected
* Shares up 5 percent
(Adds comment by CEO, share price reaction, background)
By Kate Holton
LONDON, Feb 24 Pearson earned some
respite from the turmoil weighing on its business on Friday, the
education services giant saying trading had not deteriorated
further and that its balance sheet was in better shape than
feared, despite a big headline loss.
The company, which has issued five profit warnings in four
years after students in the United States started renting rather
than buying text books, reported underlying operating profits,
debt and cash flow all slightly better than expected.
However the scale of the long-term challenge as more of its
services also go online was reflected in a 2.6 billion-pound
($3.26 billion) pretax loss for 2016 that stemmed from a
writedown on the value of the North American business.
"We face another couple of years of difficult, painful
change but we're very optimistic about the five-year outlook for
this business," Chief Executive John Fallon said.
Pearson's share price was up 6 percent at 685 pence by 1145
GMT, still well below the price level of 808p at which the
shares were trading before a profit warning sent the shares
plunging 30 percent on Jan. 18.
Analysts at Citi said the results should provide some relief
to a company that had been a prime target for short sellers. The
group also got a boost from one of its top five shareholders,
Lindsell Train, which said ahead of the announcement that it
would stick with the firm while it converts to a digital future.
"We are keen to maintain and add to our holding in the
company to take advantage of the digital transformation of
educational coursework," it said.
"We will do so more aggressively when we have more
confidence that cash flows are building value and balance sheet
strength to support these changes is no longer in any doubt."
Employing 35,000 people, Pearson provides everything from
textbooks to school testing, college courses and online degrees
across the United States, its biggest market, Britain, South
Africa, Brazil, China and elsewhere.
In 2015 the group sold the Financial Times and its stake in
the Economist to focus on the once stable business of education,
but in the last year it has been hit by the same shift to the
Internet that shook up recorded music and newspapers and has now
caught up with the classroom.
The 173-year-old firm has announced plans to move more
aggressively into ebooks by slashing prices and will launch a
print rental programme.
Last month it put a price on the market change, cutting its
2017 profit forecast, scrapping its 2018 target and warning it
would cut the dividend in 2017, the first cut in more than 20
years. The payout for 2016 was maintained at 52 pence, as
promised last month.
In its full-year results published on Friday the company
said adjusted operating profit fell 21 percent to 635 million
pounds, slightly ahead of January's target, due to tight cost
Net debt increased to 1.1 billion pounds, from 654 million
pounds the year before, but its operating cash flow jumped.
The group declined to put a price on another cost saving
plan - to the disappointment of some analysts - but said it
would align its costs with the size of its markets in future.
Pearson also said it planned to sell its English language
learning business GEDU and was looking for a partner to invest
in its Wall Street English (WSE) unit. It has already announced
a plan to sell its 47 percent stake in the Penguin Random House
($1 = 0.7969 pounds)
(Reporting by Kate Holton; Editing by Paul Sandle, Greg