U.S. Markets closed

Education group Pearson hails tipping point after digital transformation

1 / 2

FILE PHOTO: The company logo is displayed outside the Pearson offices in London

FILE PHOTO: The company logo is displayed outside the Pearson offices in London, Britain August 4, 2017. REUTERS/Neil Hall/File Photo

By Kate Holton

LONDON (Reuters) - British education company Pearson expects to grow sales in 2020 after more than five years of declines, calling a tipping point for a company that has been hammered by the sudden shift to digital learning.

Forced to cut thousands of jobs to shrink its cost base while investing in new digital platforms, the world's biggest education provider said it expected sales to stabilise this year before rising in 2020 and beyond.

In 2018 it eked out profit growth by cutting costs but said it now expected investments in new technology platforms to help the group to produce top-line growth.

"We're now at an increasingly exciting tipping point in the company," John Fallon, the chief executive who has had to steer the group through one of the most turbulent periods in its 175-year history, said on Friday.

"This is transforming a primarily analogue business into a digital first business model. It takes time ... it requires a strong balance sheet, a willingness to completely reinvent your cost base and to make tough decisions," Fallon said.

"That's what we've been doing over the last few years."

Shares in the group, which had dropped on Thursday to a four-month low of 814p, jumped 4.5 percent in early trading before falling back to be down 1.2 percent 873 p by 0930, giving it a market value of 6.9 billion pounds.

Analysts at Citi welcomed the forecast of top-line growth but added a note of caution.

"The market will likely be sceptical short term, but this is a move in the right direction given 5 plus years of revenue decline/stagnation," they said.

Liberum analyst Ian Whittaker, who has a Sell recommendation on the stock, said the overall trends remained weak.

Pearson, which has in recent years sold assets including the Financial Times and a 50 percent stake in the Economist to fund a move into ebooks, rental schemes and online courses, said the troubled parts of its portfolio were now shrinking and stabilising, while investment in growth areas was paying off.

Pearson was particularly hurt by American students in higher education buying cheaper second-hand textbooks and digital courseware as opposed to expensive textbooks.

It has found growth in providing online academic programmes and supporting virtual schools, used by home-schooled pupils or those who want to learn subjects not taught at school.

On Friday it said 2018 sales fell 1 percent on an underlying basis to 4.1 billion pounds, while adjusted operating profit rose 8 percent to 546 million pounds.

The group reiterated the 2019 outlook it provided in January.

(Reporting by Kate Holton; Editing by James Davey and David Holmes)