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Pearson shares plunge after profit warning

Shares in Pearson plunged more than 20% in morning trading after the education publisher warned on profits and said it was planning to sell its publishing unit Penguin Random House.

The former owner of the Financial Times said underlying profitability is around £180 million lower than previously expected following an "unprecedented" decline in North American operations.

It expects operating profit in 2017 of between £570 million and £630 million.

The group added that it intends to issue an exit notice regarding its 47% stake in Penguin Random House to its joint venture partner Bertelsmann, with a view to "selling our stake or recapitalising the business and extracting a dividend".

Pearson's shares took a hammering as result, falling 24% to 614.5p.

Chief executive John Fallon said: "The education sector is going through an unprecedented period of change and volatility. We have already taken significant steps on restructuring, reducing our cost base by £375 million last year.

"However our higher education business declined further and faster than expected in 2016. So we are taking more radical action to accelerate our shift to digital models, and to keep reshaping our business."

Last year Pearson announced that it would cut the equivalent of 4,000 full-time staff across the business as part of an efficiency drive. The programme is meant to deliver annual cost savings of around £350 million.

George Salmon, equity analyst at Hargreaves Lansdown, said: " With the group fearing that textbooks and other educational equipment would enter terminal decline, Pearson took the bold step of changing tack. The group pinned its hopes on online and virtual courseware, and in 2015 sold off assets such as the Financial Times and Economist newspapers to generate the cash to hold the dividend steady through the transition.

"Those sales don't look too smart now. By pressing on and selling its final media asset, publishers Penguin Random House, chief executive John Fallon is seriously testing investors' faith that it'll be all right in the end."

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