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Pearson CFO to go

The group expects profits to fall in 2020, with “heavy declines” in print for US Higher Education Courseware
January 16, 2020

A double-barrelled bad news release from Pearson (PSON) sent shares in the academic publishing group down by around 10 per cent.

IC TIP: Hold at 575p

First, adjusted operating profits for 2020 are expected to land at £500m-£580m – below the prior year, and well below the £620m previously anticipated by analysts at Numis. Second, chief financial officer Coram Williams is to step down from his role later this year – moving to a company based in continental Europe. He will be replaced by his deputy, Sally Johnson. Just last month, we learnt that chief executive John Fallon was heading for the door.

The group met its (lacklustre) guidance for 2019 – with flat underlying revenues, and profits of £590m. By division, revenues for ‘core’ were up 5 per cent. Growth saw a 4 per cent uptick. But the North American business endured a 3 per cent decline. To the last point, US Higher Education Courseware (HEC) – which accounts for almost a quarter of total sales – declined by “just under 12 per cent”, with modest growth in digital failing to stymie an almost 30 per cent contraction in print.

Pearson explained that this performance reflected “rapidly changing market dynamics that are reshaping the industry”; in 2019, it sold 3.7m textbooks to US university students – half the number sold in 2016, and far below the 21m sold 10 years ago.

Guidance for the year ahead includes the group’s 25 per cent stake in Penguin Random House, which – as revealed in December – Pearson has agreed to sell to Bertelsmann for around $675m (£517m). While low-single-digit growth is anticipated for just over three-quarters of the group, US HEC is expected to see ongoing “heavy declines” in print, again offset by some improvement in digital.

Pearson notes that as digital product releases pick up from the end of this year, digital growth will also accelerate. But its shift away from print has – to say the very least – been rocky thus far. It’s hard not to draw a comparison with information and analytics group Relx (REL), which has arguably managed its own transition to the online realm far more smoothly – announcing the disposal of its final print magazine a few weeks ago.