Education and publishing group Pearson slashes jobs and dividend as it battles on with restructuring

 
Lucy White
Workers prepare a Penguin book publisher
Pearson is planning to sell down its stake in book publisher Penguin Random House (Source: Getty)

Pearson, the education publishing and assessment service which formerly owned the Financial Times and The Economist, has chopped 3,000 full-time jobs in an effort to make efficiency savings.

The business is aiming to save around £70m next year, £130m in 2019 and £100m in 2020, while the headcount reduction will have a "particular focus on managerial positions, centralisation of procurement and the reduction of office locations".

Pearson has also reduced its dividend by a massive 72 per cent to 5p, after it noted that net debt increased over the first half of this year "principally due to the operating cash outflow and pension and dividend payments".

The figures

Revenue grew over the first half of 2017 by 10 per cent to £2.05bn, as adjusted operating profit ramped up by 613 per cent to £107m. According to Pearson, the growth was due to the implementation of its restructuring plan and the strength of the US dollar against sterling.

Adjusted earnings per share grew from negative 1.3p to positive 5.6p. Net debt rose £207m to £1,633m, with £89m of that increase partly due to strength of the dollar against sterling and partly due to a pension contribution of £162m relating to the 2013 creation of Penguin Random House.

Read more: Pearson fails to make the grade as shares fall 30 per cent after firm cuts forecast

Why it's interesting

Pearson has been undertaking a portfolio transformation over the last four years, selling the FT Group, PowerSchool and a number of sub-scale businesses as it aims to improve its focus on global education.

The company has also been trying to sell down its stake in book publisher Penguin Random House, which it helped to form when it merged its Penguin with Bertelsmann's Random House in 2013. It will sell around 22 per cent of its stake back to Bertelsmann.

Pearson today announced it had launched a tender to repurchase its $500m 3.75 per cent US dollar notes maturing in 2022 and its $500m 3.25 per cent US dollar notes maturing in 2023. It plans to redeem the $300m 4.625 per cent June 2018 bond following the completion of the Penguin Random House transaction, which is expected to close in September.

After that, it will also commence a £300m share buyback.

But not everyone was convinced by Pearson's plans. “Management frequently refer to the business as in a phase of 'transformation'. But, in my mind, transformation is a positive word, and there is nothing transformational or positive in this business," said Neil Campling, head of global TMT research for Northern Trust Capital Markets.

We see Pearson as a perpetual restructuring story, with no reliability in execution, dividend cuts, no growth and selling quality, profitable assets. That is our view. And we are sticking to it.

Read more: Pearson shares rise as it flogs a 22 per cent stake in Penguin

What Pearson said

"Our guidance for the full year is unchanged, with underlying market pressures still expected to impact gross sales in the second half," said the company in its report.

Chief executive John Fallon added: "Pearson has had a solid first half. We are making good progress on our strategic priorities and our guidance for 2017 remains unchanged. We are focused on maximising performance through the critical second half.

"Strong cash generation, prudent management of our balance sheet and implementation of our transformation plans are positioning us to be the winner in digital education, and create long-term sustainable value for our shareholders."

Read more: Sales at former FT publisher fall, but expectations steady thanks to reduced cost base

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