Pearson restructure to hit 500 UK jobs

Pearson is set to axe 500 jobs in the UK as part of its restructure this year, The Bookseller understands.

The educational publisher announced it was set to slash 4,000 jobs - the equivalent of 10% of its workforce - in a bid to save costs in a trading update this morning. At the same time the company issued a profit warning.

Pearson said it has been forced to take "immediate and decisive action" following a "rigorous bottom-up review of Pearson’s markets" in a bid to get the company "growing again”.

It is too early to confirm which departments will be hit by the job losses, Pearson said, but staff at Penguin Random House will not be affected.

While the company expects adjusted operating profit to be "approximately £720m" in 2015, in 2016 it expects that to drop to between £580m and £620m. However, profit should have recovered to "at or above" £800m by 2018, Pearson said.

John Fallon, Pearson's chief executive, has blamed "cyclical and policy related challenges" persisting for longer than he anticipated for the situation, which has had a "more pronounced" impact on profits than expected.

While Pearson shares have jumped 15% following news of the restructure today, analysts have mixed views on the move. 

Analyst Claudio Aspesi at Sanford Berstein told The Bookseller that the benefits of the restructure would not only come in the form of savings but result in "better decisions" and operations. "I think investors are very pleased with the knowledge that Pearson will operate a leaner business," he said. "You get the benefit of lowers costs, but you also get the benefit of faster investor quality of information, better decisions, etc. With these moves, if they’re done properly, you don’t just get a company that operates better; it should be a more competitive company in the marketplace in lots of ways."

However, not all analysts are convinced. Jonathan Helliwell at Panmure Gordon & Co said he had "mixed feelings" about what he called "radical action" from the company to get the group into better financial shape. While Pearson has blamed poor performance on underestimated "cyclical factors", he said that this might not be "the whole picture". 

"It doesn't really answer the question whether something is structurally changing in the way that students are using college textbooks," Helliwell said.  "They're taking fairly radical action to try and get the group into better financial shape so they can continue paying the dividend. But behind that it's pretty clear that the combination of structural and regulatory pressures they've been feeling in the business, worse than expected, remain very strong." 

Aspesi added that Pearson's projected £800m profit target in 2018 was "a long time away", while Helliwell said it was "ambitious". 

"I think they've got good visibility in the short term, because the short term is driven by big cost savings," said Helliwell. "But to hit the 2018 number a lot of things have to happen. Pearson is hoping it'll be in a position to deliver top line growth by then but that's the least visible bit of the whole picture really. It hasn't done that in quite a while. There are a lot of structural pressures on its business it doesn't really think are happening."

Meanwhile Kate Worlock, vice president and lead analyst at Outsell (UK) Ltd said she wasn't "alone" in being "surprised" at Pearson's news.

"The market feeling has been that the reorganisation was done and dusted and that the train was fully back on the tracks," she said. "Apparently that's not the case. I think Pearson missed early opportunities to highlight the cyclicality of education markets, and is scrambling to rectify that now. As a company sitting on a $1bn war chest following the FT disposal, the news of a headcount reduction is surprising: this seems to me to be the time for Pearson to be focusing strongly on execution, not doing more reorganisational work."

Pearson also restructured in February 2013, resulting in the loss of 3,000 jobs.

It sold the FT in July to the Japanese Nikkei Inc for £844m, followed by the shedding of its stake in the Economist in August 2015 for £469m, as part of its strategy to focus 100% on education; as reflected by the company's rebrand this month.