Pearson slide to test CEO Fallon

John Fallon needs to show he has a plan to navigate Pearson through the sinking sands of its main markets when the world’s biggest education company reports full-year results. Investors are calling on the board to review Fallon’s role as CE and its structure.

CEO John Fallon needs to show he has a plan to navigate Pearson through the sinking sands of its main markets when the world’s biggest education company reports full-year results.

Shareholders, reeling from Pearson’s latest profit warning, are calling on the board to review both Fallon’s role as CEO and its overall structure.

A warning in January, sparked by US students opting to rent textbooks at lower prices rather than buy them, sent shares in the 173-year-old British firm down 30% in a day.

Fallon’s fifth such warning during his four-year tenure will mean a dividend cut for the first time in more than two decades and has damaged his credibility with analysts and investors, who are awaiting Pearson’s full-year results on Friday.

But while some question Fallon’s ability to see the scale of the challenge ahead and are now urging action, there is little consensus on what Pearson, which sold the Financial Times and a stake in The Economist magazine in 2015, should do next.

Pearson has focused on the once stable business of education and grown strongly since the turn of the century, but has been hit by the same digital shift that has shaken up music and newspapers and has now caught up with the classroom.

Fallon has said that he accepts responsibility for failing to predict the changes in the market, but also says his job now is to prepare Pearson for the move to digital.

The group has said it will move more aggressively into e-books by slashing prices and will launch a print rental programme, which analysts note will dent its finances.

MATERIALLY SMALLER

“This is going to become a materially smaller industry,” said analyst Sarah Simon at Berenberg Bank.

Pearson shares have risen 19% since the January warning on hopes of a further costcutting drive but, having cut about 8,000 jobs in recent years, it will have to avoid damaging its sales capability.

Analysts at Barclays have warned that previous costcutting drives have merely worked to counter falling revenue and higher investment needs and have not driven meaningful growth.