Pearson predicts profit fall for 2020 as c.f.o. announces departure

Pearson has announced flat underlying revenues and an adjusted operating profit for 2019 of around £590m, right at the bottom of its guidance range, and expects a fall to between £500m and £580m next year. C.f.o. Coram Williams is also following c.e.o. John Fallon out the door, to be replaced by his deputy, Sally Johnson.

Today's Q4 trading update comes after a month after the company announced that Fallon would be retiring this year and it would also be selling its 25% stake in PRH to the trade publisher's co-owner Bertelsmann. That sale is expected to be completed over "the next few months". Pearson added that PRH had performed "in line with our expectations" during 2019.

Pearson took a hit again this year from a 12% decline in its US Higher Education Courseware business, far higher than the expected 5% drop. Fallon acknowledged the company's move from analogue to digital had proved “pretty bumpy and hard” as students dumped print and moved to e-books at a faster rate than predicted.

"We're likely to see similar headwinds in 2020, although from a smaller base," he said, pointing out 21 million US college textbooks were sold by the firm in 2010 compared to just 4 million last year.

Businesses accounting for 76% of the company grew 4%, including a 10% rise in its global Online Program Management due to "good enrolment growth", Professional Certification was up 10% due to strong test volumes and ramp up of new contracts, and Pearson Test of English Academic was also up 17% due to strong test volumes. The majority of wider courseware and assessment businesses stabilised.

The firm saw a 5% rise in its Core sector, which includes the UK, Australia and Italy, and 4% in Growth, including Brazil, China and India, though these were offset by the 3% US decline. Full year results will be announced on 21st February.

Fallon said: "We have secured flat revenue this year and delivered operating profit within the guidance range, with much weaker sales in US Higher Education Courseware offset by a strong performance in the broader 76% of Pearson. Pearson is now a simpler, more efficient company, with strong financial foundations. This enables us to continue to invest in digital innovation and platform-based products.

"The future of learning will be increasingly digital and consumer defined. Experience, outcomes and affordability will all matter and while there is still much to do we are well placed to benefit from these trends to achieve future, sustainable growth."

Meanwhile, Williams will leave the company later this year to take on "a comparable role at a company based in Continental Europe". Johnson, who has been with the firm since 2000, will take over. She became deputy c.f.o. in 2017 and has also held finance positions at Penguin UK.

Williams said: "Pearson is a special company, blending market leading positions with a wider social purpose and unique culture. I’ve loved my time working here, and I am proud of the progress the company has made over the last few years. Pearson is in a strong financial position and we have laid the foundations to achieve future long term sustainable growth. I am now looking forward to ensuring a seamless transition to my successor, Sally Johnson, and I am confident of Sally’s ability to lead Pearson through the next phase."

Commenting on the succession, Sidney Taurel, chair of Pearson, said: "Sally is exceptionally well qualified to be the new c.f.o. of Pearson. She has a deep understanding of the company and the markets we operate in and will be a strong addition to the Board bringing a focused analytical and commercial perspective. On behalf of the board, I would like to thank Coram for his significant contribution to Pearson. He has played a fundamental role of the company’s achievements over the last five years. We wish him all the best in his new role."

Fallon would not give a date for his own departure, saying he would stay for a transitional period after his successor was appointed and adding there were some "very strong" candidates from both inside the company and externally.