Pearson down 5% in first quarter amid Covid-19 disruption

Pearson has reported it will pay its final dividend for 2019 to investors and is not furloughing any staff, despite a 5% fall in global revenues for the first quarter as a result of Covid-19.

The company emphasised it is in a “strong” financial position, with relatively low net debt and high liquidity of £800m. However it also plans £50m in savings for 2021 through further "corporate cost efficiencies", the majority through continuing to modernise its technology processes but also with a small headcount reduction across the business (less than 1%); Pearson told The Bookseller the pre-planned redundancies were going to be made earlier but the pandemic forced the company to push this back.

C.e.o. John Fallon and the company’s new chief finance officer Sally Johnson are both taking voluntary pay cuts (25% and 20%, respectively), the proceeds of which will go to charities engaged in Covid-19 related activities. No other staff salaries have been reduced due to the pandemic.

In line with the results set out in the company’s Covid-19 update on 23rd March, underlying revenues for the first quarter to the end of March are down 5%. Although it reported “good growth” in Global Online Learning (up 6%), this was offset by “expected” declines in its other segments. Broadly attributed to physical test centre and school closures, Global Assessment revenues declined 3%, International revenues declined 10%, and North American Courseware revenue also declined 10%.

Perason reported a healthy balance sheet, with “relatively low” net debt (£1.4bn, increased from £1.2bn at the same point in 2019, impacted in part by the paused share buyback), “significant” liquidity of around £800m, enhanced having received £530m after the quarter’s end on the completion of the sale of its remaining stake in Penguin Random House. The company said it had identified actions it can take with regards to discretionary spend to partially mitigate the impact of Covid-19, and it confirmed it can achieve a further £50m in structural cost savings in 2021.

Citing “a wider responsibility to society”, Pearson’s outgoing c.e.o. John Fallon said the company would not be “taking advantage of government money by furloughing staff”; rather it is currently “redeploying” staff throughout the business to where they’re most needed. He also said it would still provide 2019’s dividend, recognising its shareholders are “essentially pensioners” who rely on it for income.

The company has also been making digital products and services available for free globally during pandemic, and announced the launch of "UK Learns", an online portal of free, digital, skills-based courses "to help re-skill and broaden employability prospects for employees who have been impacted by Covid-19".

Fallon said: “For the last few years we have been working our way through what is a very challenging time but I believe in time will be a very rewarding digital transformation. When you are going through a change of this scale, it is vital that you have a strong balance sheet, low levels of net debt and high levels of liquidity, so you have the financial strength to make the right long-term decisions for the company, and that’s what we’ve done.

“None of us have seen a global pandemic of this scale but, when it comes, it helps to have that balance sheet strength. It means that we can do what’s right for our customers, in our case providing free digital courseware and services worth more than £25m. It means that, although we have more than 1,000 staff, who can’t currently do their regular jobs, we can choose not to furlough but to redeploy them across the business, leaving public money to those companies who don’t have our financial strength and don’t have that option. And it means we can pay our final dividend for 2019. Our shareholders are ultimately pensioners, they rely on the dividend to support their standard of living and, in times like these, when many companies aren’t in a position to pay, it is even more important that companies like Pearson that do have that balance sheet strength do pay the dividend.”

He added: “I'd like to thank my colleagues, and our customers and partners, for the speed and spirit with which we're working together to achieve this goal. In that spirit, we will launch next month UK Learns, a richly curated portfolio of employment enhancing short courses personalised to meet the needs of the furloughed and the unemployed.

“When the threat of the pandemic eventually eases, it will be even clearer that the future of learning is increasingly digital. Through the crisis, we are continuing to invest in the platform, products and services that will make the next generation of digital learning a reality.”

The company’s a.g.m. takes place this afternoon, where Johnson, previously deputy chief finance officer, will formally be appointed chief finance officer, and Andy Bird, former Chairman of Walt Disney International, will be joining the Pearson Board as an independent non-executive director.

Fallon confirmed that he is still planning to retire at the end of this year, although the recruitment for his successor has been “slightly complicated” by the pandemic.