Publisher Pearson has revealed new cost-cutting measures in a trading update ahead of its annual general meeting (AGM) today, sending its shares up 15 per cent.
The education company, which has struggled amid a downturn in key markets, said it will reduce its cost base by £300m a year by the end of 2019. It also announced a strategic review of its US K12 school courseware publishing business.
Shares in the FTSE 100 company were up 12.16 per cent to 738p at the time of publishing.
The "rigorous" cost benchmarking process comes after the company issued five profit warnings over four years. Pearson said so far it has removed more than £650m in cost from two restructuring programmes over the last four years.
The group said it will give detail on the timing and costs of its new cost-cutting plans at its interim results.
Executive pay under the microscope
The publisher is also in the spotlight as investors are tipped to oppose chief executive John Fallon's pay rise at the firm's AGM today.
The group gave Fallon a 20 per cent pay increase for 2016, to £1.5m, despite the company’s £2.6bn loss. Advisers on voting at shareholder meetings, Institutional Shareholder Services and Glass Lewis, have encouraged clients to reject Pearson’s remuneration report.
Trading in line with expectations
In its update, Pearson said trading in the first quarter was in line with guidance as sales increased six per cent and net debt was steady at £1.1bn.
The group's 2017 outlook remains unchanged, with guidance for operating profit of £570m to £630m for the year based on its existing portfolio.
Fallon said: "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."
What the analysts said
Nicholas Hyett, equity analyst at Hargreaves Lansdown said: “You’ve got to hand it to Pearson chief executive John Fallon, he doesn’t do things by halves. Every quarter it seems that another part of the staid publishing house he inherited is laid on the block in the drive to move the group into the digital age – this time it’s the turn of the K12 US courseware business."
However, Pearson’s current strategy remains a higher risk bet on the group’s ability to seize market share in the emerging digital education space. Even then, with plenty of free resources already available online, questions remain about whether the group will be able to make that market share profitable.
Roddy Davidson, analyst at Shore Capital, said: "Although we see long-term growth in global learning spend as a potentially attractive opportunity for Pearson, we remain cautious on near term trading prospects and on the challenges involved in negotiating the substantial organisational and cultural change required to realign itself to a digital future.
"This morning’s update provides a degree of comfort on trading (in that it is not a warning), but another raft or reorganisation and repositioning provides further evidence of the complexity of this change process and the strategic review of K12."
Davidson forecasts a sharp decline in earnings per share during the current year (48p from 59p in 2016) followed by minimal growth over the next two years.