Pearson's Fallon: 'tough restructuring starting to bear fruit'

Pearson's Fallon: 'tough restructuring starting to bear fruit'

Pearson has given a "competitive performance" in the last six months, but the impact of US and UK curriculum changes on business was "greater than expected", the company has  said.

In the half year from February to July 2014, sales at the academic and educational publisher rose 2% to £2bn, primarily due to growth in digital sales, services, and sales to emerging markets.

Announcing the results this morning (25th July), Pearson's chief executive John Fallon said: "The impact of the changes to GCSEs and A-levels have been a little greater than we expected." However, he said the company's market share in the UK - its second biggest market - was "strong and growing" and that the disruption the curriculum change has caused should flatten out by 2015-16.

Since the government's department of education under the leadership of former education secretary Michael Gove changed the school league table system to take into account only the first result of a GCSE or A-level exam a pupil took, the number of exams pupils sit has decreased. Because pupils can take exams in March and June, Fallon said the change equated to an 80% drop in core business in the first half of the year of which the UK accounted for half.

In the US, "college enrolments are declining but the rate of decline is decreasing," Fallon said. "Across the US the impact of major curriculum change continues to remain slow and uneven so we are still waiting for funding and policy to align."

Pearson reported a 41% drop in profit to £73m in the last six months compared with the same period last year, attributed to increased net restructuring charges, which equated to £43m in 2014 and £29m in 2013, currency movements and the impact on margins of the phasing of revenues into the second half of 2014.

However, Fallon warned that that first half performance would not reflect the full year results and said that by the end of the year, Pearson would have significantly altered its cost base from two years ago, halving its warehouse costs as an example.

He added: "We are now almost through with the tough restructuring programme we began last year." He added: "The quick, urgent action we started immediately in January last year is now starting to bear fruit."

However, Fallon revealed that by the end of this year, the company would have lost around 4,000 jobs since it began its major restructuring last year - which equates to 10% of its total global workforce. These roles have mainly been lost in its lower growth markets.

Fallon attributed this huge drop in jobs to the industry's transition from print to digital. However, he added: "It is important to say we do still see a very prominent role for our textbooks buying operations for many years to come."  He also revealed the company had created 900 new jobs.

The company will now concentrate on its digital services and investing in its English language learning - a growth area in countries like Brazil and China. "There is a huge appetite for English learning in Brazil," Fallon said.

The company still anticipates approximately £50m net restructuring for 2014 to continue to reshape its publishing businesses and £50m organic investment in structural growth opportunities in digital, services and emerging markets.

However Fallon said the company would return to "normalised level of restructuring" from 2015 and beyond.

Of Penguin Random House, Fallon said the company's integration was "going extremely well." He mentioned John Green's The Fault in Our Stars as being a "publishing phenomenon", helped by the film. He also said PRH was "maximising economies of business" through the merger.