Pearson Mulls Additional Shared Service Centers in Bid to Cut Costs

U.K. education company Pearson PLC (PSON.LN) is turning to its back office to find savings, Finance Chief Coram Williams said Tuesday in an interview with CFO Journal. "This is going beyond just standard cost cutting," Mr. Williams said, "we are transforming the back office." Pearson has pledged to deliver annual cumulative savings of around GBP300 million ($395 million) by 2020. Simpler finance and human resources platforms are supposed to deliver some of the savings, as does an overall headcount reduction of around 3,000 employees. Mr. Williams did not disclose how many of those job losses could be allotted to the finance function.

"The real benefit for Pearson is in streamlining processes and simplifying systems," Mr. Williams said. The task is to reduce the amount of finance and sales processing platforms from around 60 to a few or even only one, he said. The company could be moving additional tasks to its shared service centers in Belfast, Northern Ireland, or Manila, Philippines, and set up one or two new shared service centers in the years to come, Mr. Williams said. It currently has around 100 people in each of the shared service centers and also relies on third party providers for some tasks, he added.

Over time, some tasks could be automated or handed over to a robot, he said.

The company continues to operate in a challenging environment, especially in the U.S. higher education segment, its core market. Revenue generated by the U.S. higher education business is forecast to decline by 6% to 7% this year as well as in 2018 and 2019. "I think this level of pressure will continue," Mr. Williams said.

This is due to changing customer choices. Although the amount of courses for which students learn with Pearson material has remained stable at around 24 million, the revenue per customer has shrunk, as more students rent their coursework or buy it secondhand. "Enrollment has held stable, but the value has declined," Mr. Williams said.

Once the U.S. economy starts slowing, enrollment figures will tick up, Mr. Williams said. "At some point, this will have to turn," he said. Pearson typically does well in phases of economic downturn, as professionals try to up their skillset by undergoing additional training.

Improved sales for digital courseware indicate that Pearson's U.S. business is stabilizing, said Nicholas Hyett, an analyst at Hargreaves Lansdown PLC, in a note.

Adjusted operating profit for full year 2017 is forecast to come in between GBP576 million and GBP606 million, slightly higher than the GBP546 million to GBP606 million forecast before. One of the reasons for this is a decline in the tax rate from 21% to 16% after a settlement with tax authorities in one of Pearson's markets. Mr. Williams declined to specify which tax authority Pearson settled with. The 16% is unlikely to be carried forward, Mr. Williams said, but there "might be further benefits down the line".

Net debt stood at GBP1.31 billion at the end of September, marginally down from GBP1.36 billion at the end of September 2016. The figure should go down to GBP800 million by the end of the year, Mr. Williams said. "It is important that we have real financial discipline," he said. Pearson is using some of the proceeds of a part sale of its stake in book publisher Penguin Random House Inc. (RHI.XX) to Bertelsmann SE & Co. KGaA (BRT.YY) to pay down debt.

It also announced a GBP300 million share buyback starting Wednesday, Oct. 18, 2017. This is a welcome step, said Mr. Hyett. (; @Nina_Trentmann)

(END) Dow Jones Newswires

October 17, 2017 11:58 ET (15:58 GMT)