Pearson announces further cost cuts ahead of agm

Pearson has posted a 6% increase in first quarter underlying sales, in spite of the challenges it has been facing in the US education market. Ahead of its annual general meeting the troubled group has also outlined fresh plans to cuts costs, its goal to make annualised savings of £300m by the end of 2019, and has announced a "strategic review" of its US school courseware publishing business. The company also said it was in "active negotiations" over the sale of its 47% stake in Penguin Random House—it announced its intention to withdraw from the business in January.

Pearson attributed the 6% revenue uplift for the first three months to an increase in revenues in North American higher education courseware, professional certification, Online Program Management (OPM), US K12 courseware, South African school textbooks and UK student assessment, offset by the "expected" declines in US student assessement and in the Middle East and India as the result of business exits. 

The first quarter is a relatively light trading period for Pearson compared with later in the year, as Pearson's c.e.o. John Fallon noted, but commenting on the results he said they were "encouraging" and "in line with expectations". The second half of the year could be tougher, Pearson forewarning that "underlying market pressures" are "still expected to impact gross sales primarily in the second half". Pearson's outlook for 2017 remains unchanged, expecting operating profit between £570m and £630m and adjusted earnings per share of 48.5p to 55.5p. 

The first quarter uplift and plans for further restructure follow a string of profit warnings - five since 2012 - culminating in its biggest ever loss in 2016 of £2.5bn while shares slumped to a seven-year low. Pearson's newly announced cost-cutting drive builds on savings of around £650m it has made over the past four years, last year putting into motion plans to slash the company's global headcount by 10% as part of a restructure to generate £250m savings in 2016 and a further £100m savings in 2017. It is now readying to dispose of its 47% stake in Penguin Random House. Commenting on this, Pearson's chief financial officer Coram Williams said Pearson was in "active negotations" with Bertelsmann.

Fallon confirmed that the further initiatives to "simplify" Pearson would result in job losses, but he stressed other jobs would also be created, for example it is starting work on a new global finance hub in Belfast next week that will create a "significant" number of jobs, he said. The restructure will target infrastructure in areas of finance, HR and tech. 

The "strategic review" of its US K12 schools business meanwhile could result in its disposal, Fallon confirmed, but Pearson is also keen to look at joint ventures and other strategic alliances as possibilities. The reason for the review is that the business is growing at a slower pace and needs more investment. Fallon said Pearson would be "one of the most efficent companies around" by 2019, the measures "all part of efforts to ensure Pearson emerges a stronger, simpler company".

But in spite of the need to cut costs, its c.e.o. received a 20% boost to his total pay packet to £1.5m; in addition to his base salary, which remained broadly flat at £780,000, he received an annual performance bonus of £343,000. While Fallon has said he intends to reinvest his bonus in shares in Pearson, something he defended this morning in a conference call was "the right thing to do", the bump in pay has been contentious, including among staff, many of whom in senior management were subject to a general pay freeze in 2016. He said this morning, "I don't decide what c.e.o.s get paid but I did decide the right thing to do was to invest in shares of Peason." His reason was to make sure he was "aligned with shareholders".

Pearson's "digital transformation" is on track, according to Pearson, investing "more than ever before" in product development at a cost of £750m to ensure it emerges a winner in digital learning. In the first three months of 2017, it signed 29 new institution-wide Direct Digital Access deals, promising "a strong and growing pipeline of new deals”; in OPM, it announced a new UK partner in the University of Leeds; and it has begun implementation of its partner print rental program, announcing partnerships with Chegg and with indiCo, as well as reducing prices for e-book rental across 2,000 titles.

Fallon, chief executive, said: "Though the bulk of our sales come later in the year, our first quarter trading is encouraging and in line with expectations. We are creating a leaner Pearson, equipped to innovate and win in digital education. The measures we are announcing today build on the work completed last year and will allow us to further simplify our portfolio, reduce costs and accelerate our digital transformation."

Pearson’s first quarter trading update takes place hours ahead of its annual general meeting with shareholders this afternoon (5th May). The a.g.m is being held at IET London, outside which Global Justice Now, a democratic social organisation campaigning for "a more just and equal world", has been planning a protest against the company. The organisation, which has also previously spoken out against betting on food prices by banks and the controversial TTIP trade deal, says it is is protesting Pearson because of its testing business and its support of private schools in the global south, which it believes "exploits some of the world’s poorest and most vulnerable families", arguing the schools use "unqualified" staff, who use "culturally un-sensitive scripted lessons, in unsuitable facilities".

Online meanwhile, the hashtag #TellPearson is being used by supporters of both Global Justice Now and the National Union of Teachers. Kevin Courtney, NUT's general secretary, yesterday evening (4th May) held an "international Twitter Storm" against Pearson, in his words, "to keep the pressure on the company for them to cease promoting standardised testing and low cost, for profit schooling in the global south".