Pearson was founded in 1844 by Samuel Pearson as S. Pearson and Son, a small building firm in Yorkshire in the North of England. Today Pearson is the world’s leading learning company with 41,041 employees in more than 70 countries. Since the completion of the Penguin Random House merger, Pearson’s operations have focused on education strategy.
In 2014, Pearson implemented a new operating and reporting structure that organizes the publisher’s learning operations into two streams: global lines of business and geographic market categories. The former targets the School, Higher Education and Professional segments and the latter is focused on the North American market, Growth markets and Core markets.
Pearson divested all remaining assets other than education and learning in 2015. The new strategy began with the merger of trade publisher Penguin with Bertelsmann’s Random House, and was followed by the sale of the Financial Times and Pearson’s 50% share of The Economist.
Analysis Key Developments
“2016 has been a difficult year for Pearson shareholders,” stated the company’s chairman, Sidney Taurel, in Pearson’s annual report. The company posted statuary results with a loss for the year after tax of 2.3 billlion, “including an impairment of goodwill of 2.5 billion GBP, reflecting trading pressures in our North American businesses,” according to CFO Coram Williams. Pearson also announced a sharp rise in debt to 1.1 billion GBP (654 million GBP in 2015).
Meanwhile, Pearson’s overall corporate sales increased by 2% to 4.6 million GBP in 2016. Pearson’s adjusted operating profit declined to 635 million GBP—a loss of 12%—and the company’s operating cash flow recorded a plus of 52% for the year 2016. Penguin Random House’s adjusted operating profits for Pearson’s 47% stake in the trade publisher were 129 million GBP for 2016, up 43% in terms of headline growth (23% in underlying growth) from 90 million GBP in 2015.
Revenues of the North America segment rose 1% in headline terms benefiting from a stronger US dollar, but declined 10% in underlying terms due to a significant decline in US higher education courseware, compared with anticipated declines in school assessment. Total sales amounted to 3 billion GBP during 2016. On the contrary adjusted operating profit decreased by 60 million GBP to 420 million GBP.
Revenues of the Core division declined by 1% in headline terms and by 7% at both CER and in underlying terms. Sales slipped from 1.2 billion GBP in 2015 to 803 million GBP in 2016. This was partially offset by strong growth in English assessments in Australia and OPM services in the UK and Australia. Adjusted operating profit declined 51% to 57 million GBP primarily due to lower revenues in UK student assessment.
Revenues grew 8% in headline terms and were flat at CER, reflecting the transfer of some smaller business from Core, an effect that was partially offset by the sale of smaller sub-scale businesses and down 1% in underlying terms. Overall sales rose from 692 million GBP to 768 million GBP in 2016. The segment’s adjusted operating profit increased to 29 million GBP during 2016.
In January 2016 Pearson rebranded to reflect its 100% focus on education. The company is intending to roll out its redesign globally over the next two years.
Also in January 2016 Pearson announced the dismissal of 4,000 employees in mid-2016 in a bid to cut further costs. According to the company, this action will reduce the company’s headcount by 10%. The restructure is expected to cost around 320 million GBP, to generate 250 million GBP savings in 2016 and a further 100 million GBP savings in 2017.
In 2016, Pearson partnered with Kentucky State University (KSU) to launch an e-textbook initiative to improve student success and increase affordability. The partnership led to Pearson digital course materials supporting 85–90% of KSU’s undergraduate courses.
In October 2016 Pearson announced a global education partnership with computing platform IBM Watson Education. The aim is to embed adaptive learning technology to offer a “virtual tutor” that has the ability to engage in “natural” conversation with students to help them with coursework.
In April 2017 Pearson announced its cooperation with the American online textbook rental company Chegg to make its higher education textbooks more affordable to use.
Pearson also discloseda textbook rental deal in April 2017 with the National Association of College Stores subsidiary, indiCo. The joint venture is part of Pearson’s its effort to remake its higher education business.
Digital and services businesses provided 68% of the Pearson’s revenue share in 2016.
According to the company, Pearson’s digital transformation is on track, with more investment than ever before in digital learning product development.
The company plans in the future to launch its own print rental program for courseware and reduce e-book rental prices by up to 50% as it bids to accelerate its shift to digital.