29th Apr 2016 14:14
LONDON (Alliance News) - Pearson PLC on Friday said trading in the first quarter met its expectations and it affirmed its 2016 earnings guidance, but sales dipped once more as the education materials publisher continues to work through its massive restructuring programme.
Pearson has set itself on a path to narrow its focus and simplify its operations, with all its energies directed towards its education arm. This shift was set into motion in 2015 with the high-profile sale of the Financial Times newspaper to Japan's Nikkei Inc and by the sale of Pearson's stake in The Economist Group, publisher of The Economist magazine.
In January, the restructuring went a step further as Pearson said it will trim about a tenth of its global workforce. Pearson is targeting GBP250.0 million in annual costs savings in 2016 and a further GBP100.0 million the following year.
But the plans will come at a cost. Pearson expects the restructuring to rack up a GBP320.0 million bill this year from redundancy payments and other costs, which will more than halve its operating profit.
Pearson said on Friday it had made progress on its restructuring programme, with nearly half the planned job reductions notified and the rest due to be cut in the second half. It also maintained its guidance on the annual savings the changes will achieve.
Pearson said trading in the first quarter to the end of March met its expectations. Underlying sales fell 4.0%, primarily due to anticipated weakness in assessments revenue in the UK and the US, which are weighted to the first half.
In constant currencies, revenue fell 9.0% year-on-year, reflecting the aforementioned problems in assessments and a change in the revenue model for its Connections Education business.
The group affirmed its expectations on its operating profit and adjusted earnings outlook for the full year following the quarter. It reiterated earnings will be heavily weighted to the second half, particularly given the tough year-earlier comparatives when its results included the FT, The Economist and PowerSchool, the K12 student information systems provider Pearson that also offloaded last year.
"Pearson has had a solid start to the year, in line with our expectations. We are making good progress on our simplification plan and in our work to have a bigger impact on student learning, which will in turn support our future growth," said Chief Executive John Fallon.
Pearson shares were down 1.2% to 805.00 pence.
North American revenue fell modestly on an underlying basis in the quarter, Pearson said. Learning Studio, Pearson's platform to create online courses, struggled as the group retired its learning management system, while growth at Pearson VUE, its online testing and assessment unit, was more than offset by declines in school assessments related to contracts lost in 2015.
Pearson Connections, which operates online or 'virtual' public schools in the US, saw revenue grow, with four new full-time state-wide virtual public schools now enrolling students for the 2016-17 academic year. Pearson Online Services was boosted by good course enrolment growth in existing programmes and by the launch of new programmes on behalf of Hofstra University and University of California.
For Pearson's growth markets, which includes China, South Africa, India and Brazil, revenue fell modestly in the quarter. Pearson reported good growth for its China English Language Learning business and a stabilisation in the South African school text book market. This was offset, however, by economic problems in Brazil and by Pearson withdrawing from a deal to run three Colleges of Excellence in Saudi Arabia.
Core market revenue fell in the quarter, Pearson said, driven by expected falls in vocational course registrations in the UK and lower courseware revenue. This was partially offset by good growth in English assessments and managed services in its Australian unit.
Penguin Random House, Pearson's book publishing joint venture with Germany's Bertelsmann AG, had a solid first quarter, helped by strong performances for its bestselling titles and net integration benefits. This was partly offset by reduced demand for e-books, Pearson said.
Sales for Penguin Random House benefited from good performances by 'Girl on the Train' by Paula Hawkins, 'Foolproof Cooking' by Mary Berry and 'The Name of God is Mercy' by Pope Francis.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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