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Pearson’s bosses have defended the company’s digital strategy as the firm’s AGM was met by protesting teachers and shareholders frustrated by a lack of return on their investments.
The company revealed its first quarter results last Friday, with underlying revenue of 2%. It hopes to stabilise its business this year and return to growth in 2020 following years of turmoil that saw it make a series of profit warnings.
Pearson is now undergoing a change in focus, ditching parts of its business in recent years including selling off part of its Penguin Random House stake, its US K-12 courseware business and the Financial Times, as it transitions into a more streamlined, digital-first company.
But its AGM on Friday 26th April saw a protest outside by teachers who claimed their jobs were under threat from the company’s increasing interest in AI. Inside London’s Institution of Engineering and Technology, although some shareholders praised the company’s leadership following difficult times, others hit out at its direction and the way it had “sold its family silver”.
Complaining the rush to digital provided a “major strategic risk”, one complained: “Given the underperformance of the board over so many years and the fact that you’re paying yourself quite lucratively you arguably ought to do something quite quickly about it. When are you actually going to perform and fulfil your basic objective of fulfilling in ethical fashion a sustained, positive total shareholder return?”
Another shareholder, who at first congratulated the company on slashing its debt levels, said: “I hope the board keeps in mind that to bring this debt down over the past 20 years this company has sold its family silver, sold some of the best businesses in the world and sold the most fantastic assets whose values are today many multiples of what we sold it for, whereas our share price is just a fraction of what it was 20 years ago.”
Chairman Sidney Taurel assured shareholders the results would “come over time”. He told them: “The company has been focusing on education. I think shareholders, typically, want companies to be the best owners of the businesses they run and when you have a conglomerated diversified company you have assets that don’t have synergy so we were not necessarily the best owner of some of the assets we decided to dispose of. That allows us to focus completely on our corporate strategy which we are doing with the results you are seeing.”
Alongside simplifying the business, Pearson has made a string of further cost savings, with £130m set to be cut this year and around 1,500 job expected to go.
One shareholder, to scattered applause, pointed out: “Compared to 2014 the workforce has been halved by Pearson, the buildings, as we know, a lot have been sold off, there’s been aspects of the company sold off including £96m profit from the sale of Penguin Random House, debt’s been reduced by 90%.
“A lot of people here would like to know, will payouts to your shareholders reflect the improvement because we’re seeing our share dividend cut yet the board’s doing rather well, the overheads have been reduced, the debt has been reduced but we’re not seeing any improvement in our return. When will that happen please?”
Another investor demanded: “I’ve been a shareholder for 10 or 12 years and I’ve never reached the price I bought she shares for. And if we’re suffering why doesn’t the board suffer a bit as well?”
C.e.o. John Fallon, who was paid £3.1m last year including bonuses, told the meeting: “The reality is this industry like every other sector of modern life is in this shift from analogue to digital and yes it is painful and it is difficult and you do have years where revenue declines or profits decline as you make the shift. But when you get through the other side of this transition you actually have a much better quality business and a business that’s set for the ages.”
He was also asked by a teachers union representative about the controversy over using AI products in schools and higher education. Using the example of the firm's new AI-assisted essay marker, Fallon said: “This is the machine in support of the teacher, this is the AI as IA, as an intelligent assistant to the teacher, but the teacher remains firmly in control. We’re absolutely clear on this, technology does not displace the teacher, it empowers the teacher, helps and supports.”
The firm, now marking its 175th anniversary, was reinventing itself as a “platform based company built around communications and connectivity”, Fallon said. He added the company aimed to lead the digital transformation of courseware assessment, investing in growing educational technology markets and by making the company simpler and more efficient, allowing it to start growing again next year.
“We want to be a company that not only adapts to a changing market but shapes the future of education through investing in technology, driving innovation and becoming a trusted partner for learners through a life of learning.
“We expect revenues to stabilise this year with further growth in underlying profit and we’re now in increasingly good shape to get the top line of Pearson growing again in 2020 and sustain that good growth thereafter.”