Publishing group Pearson has warned that a sustained decline in advertising revenues will push full-year profits at its flagship Financial Times newspaper sharply lower.

The company said in a trading update that profits at the FT, excluding internet operations, were set to fall by a steeper than expected 20%.

Pearson blamed a "severe corporate advertising recession", and said it was operating on the assumption that ad revenues would remain depressed for the foreseeable future.

"At the FT group, we are planning on the basis that we will not see any recovery in corporate and financial advertising," the company said.

Ray of light

Pearson tried to alleviate the gloom by forecasting that overall profits would come in 40% up on the year, buoyed by a strong performance from its education publishing division.

But investors focused on the bleak advertising outlook, marking Pearson shares 4% lower to 633.5p.

Shares in other media firms, including advertising giant WPP and magazine publisher Emap, fell lower in sympathy.

"The earnings guidance was pretty much in line, but the disappointment was on the FT Group," said Paul Richards at Numis Securities.

Advertising troubles

For the past two years commercial broadcasters and publishers have been struggling in the face of the most protracted downturn in advertising spending on record.

The slump followed an unprecedented boom in ad sales during the late 1990s, fuelled largely by cash-rich dot.coms and technology firms which have now mostly disappeared.

Some media firms have held out the prospect of a recovery, with British broadcasters Granada and Carlton last month reporting an increase in ad sales in the second half of the financial year.

There was more encouraging news on Thursday from newspaper group Trinity Mirror, owner of the Daily Mirror, which said ad revenues looked set to edge slightly higher in December.

Internet losses trimmed

But the FT, which depends on advertising by the severely depressed financial services and technology sectors, is not sharing in the recovery.

Other financial publishers, including Dow Jones, owner of the Wall Street Journal, have also been hit by a particularly steep fall-off in advertising revenues.

Pearson said the FT's finances would be helped by an improved performance at its internet arm, FT.com, which is on track to narrow its full year losses to "no more than �35m ($22.4m)."

FT.com is expected to break even in the final three months of the year, the company said.