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Pearson reassures on recovery under pressure from Amazon

Christopher Williams
Pearson is attempting to lead a shift to digital courseware in colleges

The education publisher Pearson has insisted it is making progress in its battle to protect its lucrative US college business from an assault by Amazon as it sought to restore investor confidence with a solid trading update.

Pearson is attempting to recover from a torrid period in which its cash cow business selling textbooks and digital course materials to American students has been under serious pressure on two fronts.

US college enrolments have declined amid a strong jobs market and those who do attend are increasingly turning to Amazon to rent used textbooks rather than buy them new.

In its crucial third-quarter update, which reflects back-to-school season, Pearson said US higher education sales were down 3pc on last year. However the fall was not significantly worse than expected and chief executive John Fallon reiterated his forecast of a return to underlying profit growth this year, providing relief to investors who have been repeatedly shocked by Pearson's problems.

Rentals have long been available in the US but when Amazon brought its unrivalled logistics capability to bear on the market, the average number of students to use an individual textbook rose sharply. New book sales suffered as a consequence.

Pearson chief executive John Fallon said there was "still a lot to do"

After a string of profit warnings Pearson has responded by launching its own rental service. It is also attempting to accelerate the shift to digital course materials, which it sells into colleges rather than directly to students.

Overall Pearson sales were flat on last year for the first nine months, as the declines in US higher education were offset by growth in the UK, Australia and Italy. Its "growth" segment of developing markets was down 4pc, which the company blamed on a one-off big contract in South Africa that flattered last year's performance.

Chief executive John Fallon is implementing a third round of cost-cutting and restructuring at Pearson. The company said problems with the installation of new software in the US to replace dozens of old systems inherited in acquisitions had caused sales delays but said the impact would "largely reverse" in the fourth quarter.

Some analysts remain cautious about the company's prospects given the scale of the digital upheaval it faces, and had feared a weaker third quarter.

Pearson shares were trading up more than 2pc on the update, which included a one-off boost to earnings per share as a result of tax benefits including Donald Trump's tax cuts in the US.

Chief financial officer Coram Williams said that more than two thirds of its global business had increased sales. The US college market accounts for a disproportionate share of profits, however.