Company Restructuring: Pearson Revealed £320m Restructuring Plan Which Involves 4,000 Jobs Cut
British publishing company Pearson Education has revealed that it would follow a £320m restructuring plan after cutting earnings forecasts for 2015 and 2016. The plan will involve cutting out 4,000 jobs, which is 10 percent of its workforce.
In recent years, Pearson already announced that its earnings have been decreasing due to a slowdown in its U.S markets and unpredictable emerging market demand. On July 2015, the company already sold one of its business line Financial Times newspaper and decided to focus on education publishing. Pearson, which has been the world's biggest education publisher also sold its stake in The Economist last year to cut cost.
The restructuring plan the company revealed will also focus on textbook business and U.S testing operations. That move would consequently cut 4,000 jobs. The plan stated that its restructuring cost of £320 will be sustained this year, with savings of £350 by the end of 2017. Furthermore, the company said that the changes it was making to simplify the business and reduce costs would enable the publishing company to deliver much earnings growth in 2018.
According to Financial Times, on Thursday Pearson warned that its adjusted earnings for last year would fall below guidance given in October, and also below analysts' expectations. They reported the earnings to be between 69p and 70p per share. The company's profit would fall even further this year to between 50p and 55p a share. This would mark their lowest since 2007. Also, Pearson's shares were up 8 percent in early trading, previously closed at their lowest point since mid-2009.
The Telegraph also noted that challenging market conditions also contributed to the company's profit fall. Pearson's chief executive John Fallon said that challenging markets had persisted for longer than they have anticipated. "Faced with these challenges, we are today announcing decisive plans to further integrate the business and reduce the cost base, rationalize our product development and focus on fewer, bigger opportunities."
With that statement, Fallon is referring to the company's focus in education publishing, which is also seeing challenges in its own market. According to Reuters, fewer students are enrolling in further education in the U.S because of rising employment levels. Meanwhile, other governments, particularly in emerging markets, have spent less on education than initially expected. Also, it's a growing trend that students hire their textbooks instead of buying them.
Amid the challenges Pearson is facing, analysts noted that the 2018 forecast earnings growth was stronger than expected. However, it should also be noted that there were also other risks in delivering the company's long-term plan.