16 ★ FT Weekend 22 February/23 February 2020
M A R K D I ST E FA N O
Educational publisher Pearson has
revealed the extent of the downturn in
its US textbooks business as it attempts
to show it has reached “the bottom of
the valley”.
Revenue from its US textbook business
fell 12 per cent last year, print revenue
was down 30 per cent and sales from
bundles to university students plunged
45 per cent.
The company said campus book-
stores were buying fewer textbooks, as
students switched to ebooks.
Pearson shares dropped almost 5 per
cent to 556p, a more than 10-year low,
on the news.
John Fallon, outgoing chief executive,
said: “The future of learning will be
increasingly digital and we have built,
by revenue, by far the world’s leading
digital learning company.” Mr Fallon
added Pearson was selling 20m books a
year when he became chief in 2013. This
year, it expects to sell 2m.
“We are approaching the bottom of
the valley in higher education course-
ware,” he said. “It will provide a head-
wind as it did in 2019, there will be a
smaller financial hit the year after.”
Citi analyst Thomas Singlehurst said:
“One of the reasons Pearson as a share is
in the doghouse is because of course-
ware... The impression is that this
area of the business is poisoning the
well, or in danger of poisoning the well.”
The company reported a 6 per cent
rise in adjusted operating profit to
£581m for 2019, in line with guidance
issued to the market last month.
The results come after a painful few
years for the company, having sold off
Penguin, the Financial Times and a
stake in The Economist during Mr Fal-
lon’s tenure.
Mr Fallon also warned there would be
a limited “short-term commercial
impact” from the coronavirus outbreak,
with closures of schools, universities
and testing centres, possibly making a
dent in the company’s 3 per cent of
annual sales from China.
“The online capabilities, the online
partnerships we’ve formed with some
online Chinese technology compa-
nies... while people are at home, we
can ensure that they can carry on learn-
ing,” Mr Fallon said. “We are not looking
to make a short-term commercial
advantage from that.”
Pearson’s top two executives are pre-
paring to stand down. In December last
year, Mr Fallon announced his depar-
ture after seven years in the job.
A month later, chief financial officer
Coram Williams, touted as a successor
to Mr Fallon, said he would also leave.
Sally Johnson, deputy chief financial
officer, will replace Mr Williams.Pearson’s US revenue hit as
students switch to ebooks
M A R K D I ST E FA N OWHSmith will resume sales of the Daily
Telegraph at its train station shops
after a deal to end a stand-off with the
newspaper over shrinking margins.This week, the retailer banned the Tele-
graph from its shelves at more than 120
stores, after the newspaper raised its
cover price without increasing the pro-
portion that goes to shops handling
sales.
The price of the Daily Telegraph rose
from £2 to £2.50 this month, but the
share retailers were paid from each sale
was fixed at 43p until this August. It
meant margins on sales fall from about
21.5 per cent to 17 per cent for busi-
nesses such as WHSmith.
WHSmith initially retaliated by
ordering stores around the country to
put the Telegraph in the magazine sec-
tion, before removing them from sale at
railway station stores altogether this
week.
After talks to resolve the dispute,
WHSmith and the Telegraph published
a joint statement, which suggested the
companies had come to an unspecified
commercial arrangement.
“The Telegraph will return to its usual
position on newsstands in all branches
of WHSmith from this weekend,” read
the statement.
“The Telegraph and WHSmith lookforward to working together with activ-
ity which supports the Telegraph’s sub-
scription strategy.”
Some newspaper executives
expressed surprise at the spat because
WHSmith had previously played a key
role in the Telegraph’s distribution
strategy.
In a controversial arrangement that
ended last year, WHSmith offered cus-
tomers a free bottle of water with their
Telegraph newspaper.
For distributors, newspaper revenueshave been shrinking for years as circula-
tion has fallen away.
Telegraph print circulation has fallen
3 4 per cent from 484,000 to 317,
copies a day since 2017.
This year, Telegraph chief executive
Nick Hugh announced the newspaper
group would withdraw from publishing
audited circulation figures.
Mr Hugh said the monthly figures did
not “accurately reflect” the success of
the business. The Telegraph’s newspa-
per circulation will be internally audited
and shared only with advertisers.Daily Telegraph reaches peace
agreement with WHSmith
N E I L H U M E
N AT U R A L R E S O U R C E S E D I TO ROdey Asset Management, the London-
based hedge, fund has converted its
derivative position in Sirius Minerals
into shares in its push for an improved
takeover offer.Sirius, which has been struggling to
finance a fertiliser mine in North York-
shire, has recommended a bid from
Anglo American that values the com-
pany at £405m excluding debt.
Odey said it would vote against the
5.5p a share cash offer unless it is
declared final. It claims Anglo can afford
to pay more without undermining its
investment case and said it would back a
bid at 7p or above.
Sirius has said there is no alternative
to the Anglo offer and that the company
is likely to be placed into administra-
tion, threatening the future of the
project and thousands of jobs in the
local area, if the takeover fails.
Its Yorkshire project involves sinking
two 1.5km-deep shafts to access a
deposit of polyhalite, a mineral that can
be used as fertiliser, and building a
37km tunnel to take the material to a
port on Teesside.
Odey said yesterday it had swapped
contract for difference derivatives into
underlying shares and now owned
a 1.3 per cent stake in Sirius.Anglo has structured its takeover
offer for Sirius as a “scheme of arrange-
ment”, which means it needs to clear
two thresholds at a meeting on March 3
in London. These are 75 per cent of
those present and voting by value, and
also a majority by number.
Of those two thresholds, it is the sec-
ond that could prove to be the biggest
obstacle to Anglo. Sirius is reckoned to
have 85,000 small shareholders,
although that figure has never been
independently verified.
“There is a real risk that high volume
of individual members attending the
meeting will not satisfy the majority in
the ultimate number test. The prospect
of another bidder entering the race is
slim, so the picture, unfortunately,
looks pretty bleak,” said Charles Bond,
head of natural resources at Gowling
WLG, the law firm.
A movement to scupper the deal has
been brewing among Sirius’s retail
shareholder base which feel the offer is
too low, even though they run the risk of
losing all their investment if the takeo-
ver is blocked.
Shares in Sirius were trading at 25p
two years ago.
It is also not clear how Sirius’s big
institutional investors, which include
Jupiter Asset Management, will vote, or
if they might join forces with Odey and
push for a higher offer.Odey pushes for improved
Sirius Minerals takeover offer
The Telegraph’s print
circulation has fallen 34%
from 484,000 to 317,copies a day since 2017
News round-up
COMPANIES
DA N I E L T H O M A S
One of the oldest property companies in
the FTSE 250 is to be taken private by
the Freshwater family, its largest share-
holder, after years of criticism for poor
corporate governance.
Daejan Holdings, the only company
on the main market that has resisted
calls to bring women on to its board, said
yesterday that it had agreed to a £1.3bn
takeover.
The Freshwater family are using
Centremanor, a related company, to
carry out the deal, which values each
share at £80.50 or a 58 per cent pre-
mium to the average price over the past
six months.
The offer is significantly less than the
company’s net asset value of £119.85 per
share, however.
Daejan has been criticised repeatedly
for never having had a woman on its
board, and for failing to engage with
shareholders over such concerns.
In the past, a spokesperson for the
company has been reported as saying
there would be difficulties in appointing
women to the board because of theFreshwater family’s strict Orthodox
Jewish beliefs.
Freshwater already owns 79 per cent
of Daejan. Benzion Freshwater, whose
father built the company’s property
portfolio in the 1950s, is the longest
serving director in the FTSE 350.
He has been a director of the board
since 1971, and chairman of the groupsince 1980. He is also chief executive,
which has led to proxy advisers — who
give guidance to investors on how to
vote at annual meetings — urging share-
holders to remove him from the board.
Mr Freshwater, also a director of Cen-
tremanor, said: “Daejan has not issued
any further shares since flotation in
1959 and... the Freshwater Group
does not believe that it will offer any of
its shares for sale in the future, meaning
there is no possibility of a successful
third party offer for Daejan emerging.”
Rothschild is advising the Freshwater
Group and Lazard is advising the inde-
pendent Daejan director.
Paul Mumford, fund manager at Cav-endish Asset Management, who has
been a shareholder in Daejan since 1988,
said that he was disappointed that the
offer was below the company’s net asset
value. But he added that the low level of
liquidity in the shares “makes this a rea-
sonable price”. Shares in Daejan rose
55 per cent to £80.20 yesterday.
Daejan is one of the oldest listed prop-
erty companies, founded originally to
acquire plantation businesses in the
Dutch East Indies in the 1930s. After
these were occupied or destroyed in the
second world war, it became a listed
shell company used by Benzion Fresh-
water’s father for his growing property
portfolio in the 1950s.Property
Longstanding operator Daejan to be taken private
Family-owned group has
been repeatedly criticised
on corporate governance
N I KO U A S GA R I A N D A N TO N I A C U N DY
From popcorn producers to cloth and
cardboard box makers, manufacturers
in Britain are reassessing their depend-
ence on overseas markets as they face
the threat of post-Brexit tariffs.
Japanese carmaker Nissan has drawn
up plans to pull out of mainland Europe
and step up operations at its plant in
Sunderland if Brexit leads to tariffs on
exports. But for other manufacturers in
the UK, this course may prove to be
almost impossible.
The problem for many UK-based
groups is their dependence on the sourc-
ing or imports of goods from abroad to
make their products and the need to sell
to overseas markets to bring in enough
revenue to survive.
Stephen Phipson, head of Make UK,
which represents the interests of British
manufacturers, said the industry relies
on a global supply chain that means it is
difficult for large companies to source
materials solely from inside the UK.
It would also be difficult to ignore
overseas markets, even if tariffs were
imposed, as some products would
always be made abroad. “There is no
way we are going to be competitive in
consumer electronics against China,”
Mr Phipson said.
In the clothing industry, for example,
more than 90 per cent of goods bought
by consumers are imported, according
to the UK Fashion & Textile Association,
an industry body that organises confer-
ences for British designers and manu-
facturers.
“We don’t have a spinning industry, so
we have to import our raw materials,”
said Adam Mansell, head of UKFT. For
UK manufacturers to shake off their
reliance on foreign markets, it would
require “a significant investment in
infrastructure”, Mr Mansell added.
Even quintessentially British compa-
nies, such as textile manufacturer AW
Hainsworth, which produced the red
cloth worn by British soldiers in the Bat-
tle of Waterloo and is still used by the
Queen’s Guard outside Buckingham Pal-
ace, rely on overseas markets.
Adam Hainsworth, director of the
Yorkshire-based group that bears his
name, said it makes sense for the com-
pany to sell about half the material it
produces overseas.
The group, founded in 1783, sells its
material for use in pianos, firefighter
uniforms and snooker tables to Asian
and European customers. “We supply
half the world’s pianos with cloth,” Mr
Hainsworth said.
The company’s imports of yarn to
make the cloth also come from abroad
as textile manufacturers that once per-
meated Britain’s northern cities have
mostly shifted production to south-eastAsia where labour costs are considera-
bly lower.
“We get what we can within the
UK but a lot of the time that’s limited
by the market itself. We would obvi-
ously always favour UK suppliers, but
there isn’t the supply. It’s impossible,
really, to source from the UK,” Mr
Hainsworth said.
Businesses such as Joe & Seph’s, a
gourmet popcorn company, moved
some suppliers to the UK after the
Brexit vote in 2016.
About 80 per cent of the company’s
ingredients and packaging are now
sourced from the UK, up from about 60
per cent before the referendum.
“Those few months afterwards, we
did move a few suppliers that we didn’t
yet source in the UK. Some of the pack-aging was previously sourced from sup-
pliers in the Netherlands and Asia, and a
lot of that’s come to the UK,” said co-
founder Adam Sopher.
“The driver was the exchange rate
movement, the fact buying British has
become really important to consumers
and the potential impact of tariffs,”
he added.
But the raw ingredients, such as
vanilla and corn, have to be imported
because of Britain’s climate, which is
unsuitable for growing the crops and
produce needed.
Indeed, about half of the UK’s food is
imported, with nearly 30 per cent com-
ing from the EU, according to govern-
ment figures.
Manufacturers in the steel and chemi-
cals industries also rely on raw materi-
als imported from overseas.
British Steel and Tata Steel produce
the alloy from blast furnaces using a
mixture of iron ore and coking coal,
typically imported from Brazil and
Australia.
Stephen Elliott, chief executive of theChemical Industries Association, a
trade body said: “The isolationist
approach doesn’t work for us. I can’t
think of a member company who isn’t
exporting at least 50 or 60 per cent of its
production.”
Even British companies that could
source materials from the UK choose
not to.
DS Smith, Britain’s biggest cardboard
box maker, could buy some of the starch
needed to produce paper for its prod-
ucts domestically, but the company
instead imports from abroad because
the UK is a small part of its market and it
is cheaper to do so.
Clothmaker Mr Hainsworth said: “At
the end of the day, it’s supply and
demand economics. People will follow
the dollar, or the pound.”Industrials.Supply chains
Manufacturers on their guard over looming post-Brexit tariffs
Uncertainty over future trade
terms forces groups to rethink
reliance on overseas suppliers
Attention:
AW Hainsworth,
which supplies
red cloth for the
Queen’s Guard,
is among the
import-reliant
groups putting
tariffs firmly in
their sights
Oli Scarff/Getty Images‘We get what we can
within the UK but a lot of
the time that’s limitedby the market itself ’
Britain’s negotiations with the EU on
trade are due to start in March.
The UK wants a Canada-style free
trade agreement but the EU is
opposed to anything that it says might
unfairly undercut businesses in the
bloc to the advantage of the UK.
It means Britain’s hopes of a tariff-
free, quota-free deal on trade with the
EU may be fanciful, or at least it will
have to make some compromises.
The EU trade deal with Canada does
not fully eliminate quota and tariff
restrictions on some goods.
The EU has said Britain cannot
compare itself with Canada because of
its closer proximity to the region and
its much larger trading relationship.Deal talks
London
looks to
Canada
modelTheoffer is significantly less than
the company’s net asset value‘Daejan has not issued
any further shares
since flotation in 1959’Benzion FreshwaterFEBRUARY 22 2020 Section:Companies Time: 21/2/2020 - 18: 43 User: john.hayes Page Name: CONEWS4, Part,Page,Edition: LON, 16, 1