Pearson expects education demand to insulate against economic headwinds

Pearson has said it expects demand for its courses and textbooks to trump global economic headwinds as a digital turnround at the FTSE 100 group showed signs of bearing fruit, sending its shares up 10 per cent.

The group said on Monday that it expected its full-year margins to reach a mid-teen target next year — two years ahead of schedule — on the back of cost cuts and strong demand for its courses as Covid-related restrictions ease.

Chief executive Andy Bird, a former Disney executive who took over in 2020, has shifted Pearson’s focus from being a traditional textbook publisher to a digital, consumer-focused brand catering for learning opportunities beyond school and college, such as adult reskilling programmes.

Bird said the shift towards adult online education and employee training would help insulate the group from the worst of an economic downturn, as the services are “non-discretionary spending”.

“We are in the business of delivering learning for life, which makes us a resilient and diverse group,” he added.

Pearson shares rose 10 per cent to 835p in London on Monday morning, although this was still below the 870p a share, or £7bn, bid from private equity group Apollo that the board rejected in March.

Bird’s comments came as Pearson reported revenues of £1.8bn for the six months to June 30, up from £1.6bn a year earlier. Pre-tax profit of £148mn was significantly higher than the £9mn reported in the same half last year because of asset disposals and lower restructuring costs. On an underlying basis, pre-tax profit rose 22 per cent year on year to £160mn.

Line chart of price per share (p) showing Pearson rebounds on positive outlook

Sally Johnson, chief financial officer, said Pearson had benefited from the reopening of international borders, resulting in a jump in demand for its English language courses.

“Covid is something that is behind us and we are in a new normal,” said Johnson. “We are resilient in a recessionary environment.”

Pearson, which employs 21,000 people worldwide, said it had identified £100mn of cost savings that would come into effect next year, which included “portfolio, product and content rationalisation, further corporate property reductions and other operating productivities”.

First-half figures were buoyed by strong performances in the company’s assessment and qualifications division as underlying sales rose 16 per cent, with those in its English language unit up 22 per cent. However, underlying sales at Pearson’s higher education unit fell 4 per cent year on year.

Under previous chief executive John Fallon, Pearson sold off stakes in The Economist, the Financial Times and Penguin Random House and issued seven profit warnings in as many years, as it struggled to adapt to the US education market moving online.

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