Pearson pays for Penguin books fiasco

PEARSON will report a dramatic fall in profits tomorrow at its Penguin publishing arm, mainly due to the disastrous introduction of flawed distribution systems.

Profits at the division, which includes publisher Dorling Kindersley, are likely to have fallen by more than a third to about £60m in the year to December, from £91m in 2003.

The new distribution system introduced last year failed and Penguin was forced to revert to a manual operation, costing an additional £15m.

Chief executive Anthony Forbes Watson quit Penguin UK this month, though Pearson insisted his departure was unrelated to its systems problems.

Pearson is also likely to report some weakness in book sales in America. Penguin, home to authors including Jane Austen, George Orwell, Marian Keyes and Dave Pelzer, hopes to boost sales with the re-issue in May of modern classics such as Ken Kesey's One Flew Over The Cuckoo's Nest.

Meanwhile, losses at Pearson's flagship newspaper, the Financial Times, should be about £11m, down from £32m in 2003. Revenues are set to remain virtually unchanged at about £205m.

Pearson's strategy for the paper of focusing on international expansion could come under fire.

Analysts at Deutsche Bank have said: 'The international nature of the FT implies a relatively high cost base and a relative lack of scale in any single geography.'

The FT's sales in the UK have plummeted from about 160,000 to 100,000 over the past five years. Advertising revenue edged up just two per cent in the first nine months of last year.

Overall, Pearson is likely to see a fall in profits to about £394m from £410m in 2003, with revenues falling to £3.8bn from £4.05bn in 2003.