UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the
month of May 2017
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
by check mark whether the Registrant files or will file annual
reports
under
cover of Form 20-F or Form 40-F:
Form
20-F
X
Form 40-F
Indicate
by check mark whether the Registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
5th May 2017
London
Press Release
PEARSON 2017 Q1 TRADING UPDATE (UNAUDITED)
Pearson,
the world's learning company, is today providing an update on Q1
trading and announcing further initiatives to simplify our company,
improve profitability and focus on the largest opportunities in
global education. Building on our recent simplication actions and
the strategic acceleration of our digital transition, and following
an extensive benchmarking exercise, we plan to reduce Pearson's
cost base exiting 2019 by £300m on an annualised basis. We are
also announcing a strategic review of our K12 courseware publishing
business. These actions will create a more scaleable, more digital
business capable of growth and margin improvement. Key headlines
include:
●
Q1 Trading in line
with guidance provided at our Full Year 2016
results
o Sales in the first three months
increased 6% in underlying terms led by growth in revenues in North
American higher education courseware, professional certification,
Online Program Management (OPM), US K12 courseware, South African
school textbooks and UK student assessment, offset by expected
declines in US student assessment and in Learning Studio, a higher
education learning management system which is being retired; and
declines in Middle East and India due to business
exits.
o
Pearson's sales are always
significantly weighted towards the second half of the calendar
year. As expected, the phasing in our North American higher education courseware
business in 2017 is positive in the first quarter, due to higher
gross sales and lower returns than prior year. The underlying
market pressures we have previously described in this business are
still expected to impact gross sales primarily in the second half.
Our UK student assessment and South African businesses have also
both benefited from positive phasing in Q1, which we expect to
unwind over the rest of the year.
o
Net Debt:
At the end of 2016, Pearson's net debt
was £1.1bn. Our net debt at the end of the first quarter was
unchanged, reflecting strong working capital management and
favourable exchange rate movements offset by a part payment of the
previously announced pension fund liability related to the creation
of PRH in 2013. As announced in February we have completed the
early repayment option on our $550m 6.25% Global Dollar bonds
2018.
● 2017 Outlook
unchanged
o
Our guidance range
remains for operating profit in 2017
of £570m to £630m, adjusted earnings per share of 48.5p
to 55.5p and cash conversion in excess of 90%. This is based on our
existing portfolio, a 2017 net interest charge of £74m, a tax rate of
approximately 20%, and exchange
rates on 31 December 2016.
We will give more detail on the timing
and costs of further restructuring plans at our Interim
results.
o
Outlook for
H1: Q1 revenues benefited from
positive phasing, as predicted, although we expect the majority of
this will unwind in Q2. This is in line with our expectations and
consistent with our unchanged full year operating profit
guidance.
o
Exchange rate
sensitivity: Our guidance for
2017 is based on exchange rates prevailing at 31 December 2016. In
2016 we calculated that a 5c movement in the US Dollar exchange
rate to Sterling would impact Adjusted EPS by around
2p.
● Continuing the simplification
of Pearson
o
Restructuring:
We have removed more than £650m
of cost from Pearson in two significant restructuring programs over
the last four years and simplified the company considerably. Whilst
this has made us a leaner organisation, it has also helped to
create a significant incremental opportunity to reshape further our
entire cost base around our increasingly digital
business.
o
We have engaged in a further rigorous
cost benchmarking process across our business and have
identified a
further significant additional cost saving opportunity,
the largest parts of which are in
general and administrative expenses and in North America. We are
currently undertaking the detailed planning to enable us to deliver
annualised cost savings of £300m by the end of
2019. We will give more detail
on the timing and costs of these plans at our Interim
results.
o
Strategic review of
US K12 courseware publishing: In US schools we address the biggest opportunities
with products and services which combine content and assessment
powered by technology, via our digital virtual school business
Connections Education, our increasingly digital school assessment
business and the use of our higher education courseware in High
School. In contrast, our US K12 courseware
publishing business has seen a
slow pace of digital adoption in basal courseware, high capital
intensity and a challenging competitive and market environment and
as a result we are today announcing that we have initiated a
strategic review of this business.
o
Penguin Random
House: as previously announced,
we have issued an exit notice regarding our 47% stake in Penguin
Random House and are in active negotiations with our JV partner
Bertelsmann with a view to selling our stake or recapitalising the
business and extracting a dividend.
o
Direct
Delivery: We have begun the
previously announced processes to explore a potential partnership
for our English language learning business Wall Street English
(WSE) and the possible sale of our English test preparation
business Global Education (GEDU).
● Digital transformation and
tactical actions on track
o
Our Global Learning
Platform development and Digital
Roadmap are on track to deliver
new digital products with greater personalisation, enhanced
engagement and cognitive tutoring. In Fall 2017 we will launch new
digital courseware products in Business & Economics from
leading authors including Professor Glen Hubbard and will pilot new
innovative courseware in Developmental Math.
o
We have signed 29 new
institution-wide Direct Digital Access
deals in Q1 with a strong and growing
pipeline of new deals.
o
In OPM, we announced a new UK partner in the University
of Leeds, a member of the UK's Russell Group of 24 leading
universities.
o
Implementation of our
partner print
rental program is progressing
well ahead of launch in Fall 2017. We have signed partnership
agreements with Chegg and IndiCo and continue to negotiate with
other key channel partners.
o
We have reduced prices for
eBook rental across 2,000
titles and have seen positive early indications on the impact on
demand, though the majority of our selling season is still ahead of
us.
Pearson's chief executive John Fallon said:
"Though the bulk of our sales come later in the year, our first
quarter trading is encouraging and in line with
expectations.
"We are creating a leaner Pearson, equipped to innovate and win in
digital education. The measures we are announcing today build on
the work completed last year and will allow us to further simplify
our portfolio, reduce costs and accelerate our digital
transformation."
We will hold a conference call at 8.15am today Friday,
5th
May to discuss our first quarter
results. A replay will be available soon after on our
website www.pearson.com. Our AGM will begin at 12 noon. We will
propose an unchanged final dividend of 34p, giving a total dividend
for 2016 of 52p. As already indicated at our Preliminary results in
February, we intend to rebase our dividend in 2017. We will provide
an update on our 2017 dividend policy at our Interim
results.
Q1 TRADING
In North
America, revenues grew 7% due
to good growth in higher education courseware, K12 courseware,
professional certification and OPM, partially offset by the
expected declines in Learning Studio, a learning management system
which is being retired; US student assessment, due to the
annualisation of previously announced contract losses; and
Connections Education where revenues declined slightly as good
growth in enrolment was offset by some virtual school partners
choosing to take some non-core services in-house. We announced the
opening of a new partner school for the 2017-18 school year,
Indiana Connections Career Academy, a full-time online public
career technical school will serve grades 9-11 in its first year of
operation and will expand to serve grade 12 in its second
year.
In our Core markets (which include the UK, Italy and
Australia), revenues grew 10% in underlying terms with continued
growth in Pearson Test of English,OPM and Clinical together with
positive phasing in Q1 student assessment revenues, which will
unwind over the rest of the year.
In our Growth markets (which include Brazil, China, India and
South Africa) revenues were flat as good growth in China and South
Africa was offset by declines in the Middle East and India due to
business exits. In China, we saw good growth in WSE, GEDU and courseware.
In South
Africa, we saw strong growth
due to a rebound in school courseware partly offset by economic
pressure on enrolments at CTI (Pearson Institute of Higher
Education). In Brazil, revenues were flat as growth in our private
sistema brand, COC was offset by economic pressures on the public
sistema school services business.
At Penguin
Random House, profit was level
with last year in line with our expectations for a broadly level
publishing performance.
STRATEGIC OVERVIEW
Pearson is the world's learning company, with world-class
educational content and assessment. Our strategy is to
combine these strengths with new digital capabilities, to create
products and services that are scalable and replicable with
recurring earnings streams, enabling more personalised learning,
more effective teaching and improved learning
outcomes.
Structural pressures in some markets together with cyclical and
transitional issues have led to a challenging operating environment
for Pearson in recent years.
Between 2008 and 2012, Pearson benefitted from two external
factors: rising US Higher Education enrolments and government
actions to emphasise vocational qualifications in UK schools. From
2012 onwards, both of these tailwinds became headwinds as the US
economy started to grow again and enrolments declined, whilst
education policy in the UK reversed, removing vocational
qualifications including Pearson BTECs from school accountability
measures.
At the same time as these cyclical and policy factors were
impacting our businesses, our North American higher education
courseware market was experiencing several structural shifts
creating both opportunities and challenges for the business: a
growing role for digital courseware and institutional selling,
competition from Open Educational Resources and changes in consumer
buying behaviour towards print rental models offered by vendors
such as Chegg and Amazon.com. In 2016 these trends culminated in an
unexpected and unprecedented 14% drop in the US higher education
courseware market.
Our
response to these challenging markets is to remain focused on the
significant long-term opportunity in Education, which is
fundamentally based around digital products and services. We are
doing this in two ways:
1) The strategic acceleration of our digital transition - creating
a significantly more robust digital business.
●
We're investing £700- 750m per
annum, more than ever before, in building better digitally powered
businesses, which offer improved learner outcomes and stronger
financial performance.
●
For example:
o
Our higher education courseware
business is increasingly digital, adaptive and personalised -
driving better learner outcomes at lower unit cost, but with higher
penetration.
o
Our US student assessment business,
built on our global digital testing platform TestNav8 and automated
scoring, achieved a mix of nearly 60% digital vs paper exams in
2016. Tests taken on screen offer efficiency gains and margin
improvement for us and faster more actionable feedback that is more
readily designed into the workflow of teaching for our customers
and their students;
o
Digitally powered services businesses
which use technology to tackle the structural issues in education,
capitalising on our platforms, our scale and our domain knowledge
in areas such as higher education Online Program Management and US
Virtual Schools - embedding Pearson more deeply into the learning
process and increasing value for our partner
institutions.
●
As our business becomes more digital
and moves to unified platforms, it becomes more subscription-based,
more predictable, more scaleable and ultimately higher
margin.
2) The simplification of our portfolio and optimisation of our cost
base
●
Over the last four years we have reshaped our
portfolio, divesting the FT, The Economist, Powerschool and a
number of sub-scale businesses. Earlier this year we announced
processes to partner or sell our China direct delivery businesses
and issued an exitnotice for our 47% stake in Penguin Random House,
which may result in a sale or recapitalisation of the
business. Today we have announced a strategic review of our US K12
courseware business as we continue to simplify our business and
focus on the biggest opportunities in global
education.
●
At the same time we have removed more than £650m of
cost from Pearson in two significant restructuring programs and
simplified the company considerably. Whilst, this has made us a
leaner organisation, it has also helped to create a further
significant incremental opportunity to reshape our entire cost base
around our increasingly digital business.
●
Our recent benchmarking work has shown that the biggest
opportunities are in North America, where we need to adjust our
cost base to the reality of a smaller higher education courseware
business and globally in Human Resources, Finance and Technology
Infrastructure, facilitated by our back office change programme. We
are today sizing that incremental opportunity at £300m on an
annualised basis.
Analyst and investor conference call details
UK Toll Number: +44 (0) 203 139 4830
UK Toll-Free Number: +44 (0) 808 237 0030
Participant Pin Code: 22731571#
Audience URL:
http://event.onlineseminarsolutions.com/r.htm?e=1416351&s=1&k=87F2FC44C0C7D03D36FE3DEF11598293
Throughout this statement underlying growth rates exclude the
impact of both currency movements and portfolio
changes.
This statement contains inside information.
For more information
T + 44 (0)20 7010 2310
Investors: Tom Waldron, Anjali Kotak
Press: Tom Engel, Tom Steiner
Ends
Forward looking statements:
Except for the historical information contained herein, the matters
discussed in this statement include forward-looking statements. In
particular, all statements that express forecasts, expectations and
projections with respect to future matters, including trends in
results of operations, margins, growth rates, overall market
trends, the impact of interest or exchange rates, the availability
of financing, anticipated cost savings and synergies and the
execution of Pearson's strategy, are forward-looking statements. By
their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that will occur in future. They are based on numerous
assumptions regarding Pearson's present and future business
strategies and the environment in which it will operate in the
future. There are a number of factors which could cause actual
results and developments to differ materially from those expressed
or implied by these forward-looking statements, including a number
of factors outside Pearson's control. These include international,
national and local conditions, as well as competition. They also
include other risks detailed from time to time in Pearson's
publicly-filed documents and you are advised to read, in
particular, the risk factors set out in Pearson's latest annual
report and accounts, whichcan be found on its website
(www.pearson.com/investors). Any forward-looking statements speak
only as of the date they are made, and Pearson gives no undertaking
to update forward-looking statements to reflect any changes in its
expectations with regard thereto or any changes to events,
conditions or circumstances on which any such statement is based.
Readers are cautioned not to place undue reliance on such
forward-looking statements.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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PEARSON
plc
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Date: 05
May 2017
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By: /s/
NATALIE DALE
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Natalie
Dale
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Deputy
Company Secretary
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