Pearson is the world’s leading educational company, with 40,000 employees in 80 countries. After the completion of the Penguin Random House merger, Pearson continues to focus on education and still holds the Financial Times Group (not included in this ranking). Pearson’s largest businesses include North American Education, International Education and Professional Education.
Key Company Developments in 2013 & 1st Half Year 2014
In 2013, the first full year under new CEO John Fallon, Pearson faced challenges in many of the largest and most established textbook markets. Pearson’s core strategy has shifted to concentrate on emerging markets, digital and services businesses, where market conditions continue to be strong.
Revenue declined to 5.18 billion GBP in 2013 from 6.12 billion GBP in 2012, with profits at 736 million GBP compared to 936 million GBP. Pearson issued two profit warnings, in which the education company cited the accounting impact of the Penguin Random House merger and weaker sales in the US and the UK. Fallon expects the decline to continue.
While North American Business sales rose from 2.66 billion GBP to 2.78 billion GBP, the operating profit fell from 536 million GBP to 406m million GBP. Growth in digital and service businesses was offset by adverse effects stemming from the US budget policy, the national Common Core educational initiative and lower enrolments affecting higher education services.
The International Education revenue was stable at 1.54 billion GBP, compared to 1.57 billion GBP in 2012. Operating profit declines from 214 million GBP in 2012 to 140 million GBP. Growth in emerging markets, particularly in South Africa and China, was offset by weak textbook sales in developed markets, currency weakness against sterling, and the exit from certain publishing businesses primarily in Australia, Japan, Germany, France and the UK.
Revenue increased in the Professional division from 390 million GBP to 410 million GBP with a rising profit from 37 million GBP to 57 million GBP, due to success from testing and training products.
After the Penguin Random House merger in July 2013 (Bertelsmann owns 53% and Pearson owns 47%), the company achieved a solid half-year publishing performance in 2013 and met expectations for the Christmas season. The merger resulted in a 23 million GBP reduction in the operating income with an equal tax benefit. Penguin Random House enjoyed a “good” first quarter performance in 2014, strengthened by more than 40 number one bestsellers across the world. Pearson reported earnings of 78 million GBP from Penguin, a figure that includes Penguin earnings in the first half of 2013 (28 million GBP) plus another six months of its profit share of PRH .
The North America division accounts for 54% of business, the International division makes up 30%, and the Professional and the Financial Times Group each account for 8%.
Ownership, Mergers & Acquisition, Internal Organization
In May 2013, Pearson announced a new organization structure and the appointment of a new leadership team to take effect on January 1, 2014. Pearson is now organized around three global divisions—School, Higher Education and Professional—and three geographic market categories—North America, Growth and Core. The changes are designed to accelerate Pearson’s push into digital learning, education services, digital products and emerging markets. While US Higher Education textbook volumes have declined by more than 20% in recent years, digital registrations and sales in emerging markets have both doubled over the same period. Revenues in emerging markets rose from 235 million GBP in 2007 to 819 million GBP in 2013. In the same period, revenues in digital services and products grew from 1.13 billion GBP to 3.02 billion GBP. Pearson announced to spend 150 million GBP this year to push into fast-growing regions and digital services.
Pearson closed its New Zealand educational business at the end of August 2013, as the business model was “no longer appropriate” according to David Barnett, chief executive of Pearson Australia and New Zealand.
Pearson sold its Mergermarket news service for 382 million GBP to BC Partners, a London-based private-equity firm, which earlier this year purchased German academic publisher Springer Science & Business Media. Proceeds were used to fund the purchases of Brazilian company Grupo Multi.
The merger of Penguin Random House, which Pearson has a 47% stake in, creates economic value for Pearson, but the move to associate accounting reduces the reported operating profit in 2013 and 2014. Associate and joint ventures include Vedomosti in Russia and a 50% stake in The Economist Group.
Pearson employs 1,800 people in the Brazil, where it bought Grupo Multi, an English-language training company that provides training to 800,000 students in more than 2,600 private language schools. “Brazilians's appetite for learning English as a global language of business and trade shows every sign of continuing to grow rapidly as Brazil becomes a global player in commerce, travel and a host of other industries,” according to Fallon. Brazil’s English-language training market is estimated to be worth 2 billion GBP, with a total of 2.8 million students ranging in age from child to adult. Pearson appointed former Grupo Multi CEO Giovanni Giovannelli as managing director for Brazil, and describes the country as a key part of its global education strategy. Other Brazillian acquisitions in the last four years include four Sistema brands—COC, Dom Bosco, Pueri Domus and NAME—as well as Casa do Psicologo, focused on clinical assessment. Pearson also has a 45% stake in Companhia das Letras, which posted strong revenue growth driven by an expanded publishing program.
Pearson has built up a significant portfolio in India within a short amount of time. Last year, Pearson announced the buyout of Educomp’s shares in IndiaCan, one of India’s leading vocational training companies established in 2009 with an impressive portfolio of services delivered through an extensive network of nationwide delivery centers. Pearson also acquired TutorVista, a Bangalore based educational service company.
In China, Pearson’s domestic publishing program continued to grow with bestsellers such as My Life by Li Na.
With 60% of corporate revenues derived from digital and services, the pro forma e-book share of Penguin Random House global revenue is 20%. E-book growth for Penguin continued at a slower rate, while Random House e-book sales declined significantly due to lower sales of the Fifty Shades trilogy.
Digital innovations included the launch of Bookscout, an app created with Facebook that enables sharing personalized reading recommendations among friends and online communities.
Pearson partners with three Boston-based organizations working in education technology, including the entrepreneurship campus Exponential TechSpace, educational program provider LearnLaunch and edtech accelerator LearnLaunchX.
Bestselling Authors & Titles
Penguin Random House had 480 New York Times bestsellers in the U.S. last year while the combined company had 102 BookScan bestsellers in the U.K.
Pearson Education accounts for 76% (+1%) of the earnings and 84% (+4%) of the operating profit in 2012, Penguin for 17 % (-1%) of revenues and 11 % (-1%) of profits, and the Financial Times is stable at 7% of revenues and 8 % (-3%) of profits. 59% of revenues were earned in North America in 2012 (and 74% of profits, plus 7%), 22% of revenues (and 12% of profits, minus 9% ) came from Europe, and 13% of revenues (and 7% of profits) from Asia. While overall revenues of 6.11 billion GBP in 2012 were up 5%, operating profits were down 1% against 2011. Return on investment was stable at 9.1%. Despite strong sales, earnings and cash were lower than the previous year. For first quarter 2013, Pearson reported that results are in line with their expectations, with Penguin seeing “a good start to the year." Sales rose by 3% for the three months ending March 31st 2013, to 1.2 billion GBP.
Ownership, Mergers & Acquisition, Internal Organization
John Fallon became Pearson’s chief executive on January 1, 2013, succeeding Marjorie Scardino. Fallon spent four years as head of Pearson's international education division. A new leadership team was appointed in May 2013, and Pearson’s portfolio will be structured with three global divisions (School, Higher Education and Professional) and three geographic market categories (North America, Growth and Core). The changes will take effect on January 1, 2014. Restructuring costs will amount to approximately 150 million GBP in 2013.
The merger of Penguin with Bertelsmann’s Random House made headlines worldwide, as the combination makes for the world’s largest consumer publishing company. Pearson holds 47% of the combined organization. The merger is expected to be completed in the second half of 2013. It has already been approved in the US, Australia, New Zealand, the EU and Canada. With the consent of the Chinese trade ministry in early June 2013, Random House and Penguin have the green light for their merger. The fusion is expected to be finished at the end of July 2013.
In July 2012, Pearson acquired self-publishing vendor Author Solutions for $116 million from Bertram Capital. It is one of the largest self-publishing ventures in the world and “will provide Penguin with 'scalable' data and expertise on self-publishing,” according to Penguin CEO John Makinson. The acquisition builds on Penguin’s launch last year of Book Country, a self-publishing service. In February 2013, Penguin India launched Patridge, a new self-publishing imprint, in partnership with Author Solutions.
At the end of 2012, Pearson announced an investment of $89.5 million in Nook Media, which gives the publisher a 5% stake in the company. Pearson is the third investor along with Barnes & Noble, whose stake slipped to 78.2%, and Microsoft, which holds 16.8%.
In March 2013, Pearson’s employees in the English language teaching and language testing departments were told to expect layoffs. The entire ELT sales team at Pearson is affected. “The market is changing and to succeed we need to focus on a different set of capabilities. With this in mind, we have made the difficult decision to reorganise how we work, which will sadly mean the loss of a number of employees,” a Pearson spokesperson said. The announcement was made just a few days after Oxford University Press made public their consulting with ELT department staff.
Pearson’s push toward online educational services resulted in modest revenue growth for its North American education business, with services and digital learning revenues continuing to "grow rapidly" in 2012. In November 2012, North American Education acquired EmbanetCompass for 650 million USD. The company provides online learning solutions for universities. "The acquisition of EmbanetCompass extends Pearson's investment in two areas where we see great opportunities for growth and impact—online education and educational services," according to Will Ethridge, CEO of Pearson North America.
High-growth emerging markets such as China/Hong Kong, India, Africa, Central and Latin America, and the Middle East cover 1.24 million GBP of overall revenues.
Pearson’s efforts in digital learning, education services and emerging markets come together in India, where the company joined a public-private partnership with the Central Board of Secondary Education to set up a research center and develop a school-based evaluation system. Pearson’s role will extend to developing material for teacher training to promote clearer understanding of new policies in examination reform and evaluation, especially continuous and comprehensive evaluation.
For the first time in Pearson’s history the digital and services business account for half of corporate revenues, or 3 billion GBP. New chief executive John Fallon announces to accelerate the shift from print to digital. At the trade arm of Penguin, eBook revenues accounted for 17% of Penguin revenues worldwide in 2012, up from 12% in 2011, and almost 30% in the US (20% in 2011).
In May, Penguin agreed to pay 75 million USD to settle allegations brought in the class-action e-book price fixing case. Last year Pearson settled for 40 million USD with the Department of Justice. The settlement must be approved by the US court. Penguin will pay more than the other publishers accused in the case (Macmillan 20 million USD, Simon & Schuster 18 million USD, Hachette 32 million USD, and HarperCollins 20 million USD).The deal left Apple alone at the defense table for the long-awaited price-fixing trial in June. The alleged conspiring publishers were accused of “negotiations for the launch of the Apple iBookstore, and the near simultaneous switch to the agency model in 2010, which attorneys argue was coordinated by publishers and Apple in an effort to counter Amazon’s dominant position in the e-book business.”
Penguin UK CEO Tom Weldon expected at least 15% of Penguin's profit this year to come from its Penguin Ventures program, dedicated to exploring new IP opportunities in children's publishing: "It is a shift in business strategy about how and where we are going to make money in children's. In the past, we have been buying book format rights, now what we are doing is increasing in the children's area broader property rights, so we can do TV, animations, apps, games, and virtual products." The publisher is partnering with various companies beyond publishing, including BBC, Nickelodeon, and The Gap clothing store. "We make stories and create brands," said Penguin Children's managing director Francesca Dow, using Disney's approach to explain the publisher's focus on building "brand ecosystems"—"thinking beyond the book" to create brands with merchandise, television programmes, films and web/digital identities, as well as books. Additionally, the publisher said it will use the Penguin brand on "all teen books going forward."
Bestselling Authors & Titles
In 2012, Penguin represented ninety Top Ten bestsellers in the U.K., an increase of 78 in 2011. Strong non-fiction titles came from Jamie Oliver (15 Minute Meals), Daniel Kahneman (Thinking, Fast and Slow), and the Dorling Kindersley's Mary Berry’s Complete Cookbook, which sold more than one million copies worldwiede.
In the US, 255 New York Times bestsellers were published, including No Easy Day, the autobiography of Navy Seal Mark Owen, Sylvia Day’s erotic fiction Bared to You, which also joined the top segment in the U.K., and new titles from veteran bestselling authors such as Ken Follett, Nora Roberts, Tom Clancy and Harlan Coben.