Pearson rallies despite profit warning, as investors welcome restructuring

Pearson rallied despite warning over profits and saying it will hold its dividend, as investors welcomed the company’s new restructuring programme.

The education publisher said it now expects to report adjusted operating profit of approximately £720m and earnings per share of between 69p and 70p for 2015.

This is below forecasts and down from the group’s previous guidance of around the bottom end of 70p to 75p.

For 2016, it expects to report operating profit and adjusted EPS before the costs of restructuring of £580m to £620m and 50p to 55p, respectively.

Pearson said this reflects the loss of operating profit from disposals made in 2015, ongoing challenging conditions in its largest markets, the reinstatement of the employee incentive pool and other operational factors.

Pearson said it would carry out a £320m restructuring this year, which it expects to generate annualised savings of around £350m, with approximately £250m of savings in 2016 and a further £100m of savings in 2017.

The programme will lead to 4,000 job cuts, or around 10% of its workforce and the company said it plans to complete the majority of the restructuring plan by the half year and all of if by the end of the year.

Chief executive John Fallon said: "Our competitive performance during the last three years has been strong, but the cyclical and policy related challenges in our biggest markets have been more pronounced and persisted for longer than anticipated.

“Faced with these challenges, we are today announcing decisive plans to further integrate the business and reduce the cost base, rationalise our product development and focus on fewer, bigger opportunities."

Pearson plans to hold its dividend at the 2015 level while it rebuilds cover.

“After a long time and a lot of pain for shareholders, Pearson is finally taking measures to get their house back in order,” said Manoj Ladwa, head of trading at TJM Partners.

“Although never pleasant, job cuts and restructuring the business will put the company on a firmer footing. Going forward, the market will look for the board to boost revenue, especially after recent asset sales.”

At 0911 GMT, Pearson shares were up 8% to 710p.