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16th
January 2020
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Pearson, the world’s learning company, is today providing an
update on full year 2019 trading and giving preliminary guidance
for 2020. Full year results will be announced on
21st
February 2020.
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Guidance met with underlying revenue
flat and adjusted operating profit of
c.£590m1
at guidance exchange
rates.
● Underlying
revenue in Core was up 5%, Growth up 4% offset by 3% decline in
North America.
● Adjusted earnings
per share of 57.5p – 59.0p1 reflecting one-off
tax benefits and a lower finance charge as disclosed in
Pearson’s half year trading update.
Businesses generating 76% of revenue grew 4% in
aggregate.
● Strong performance
in structural growth opportunities, up 8% overall.
● Connections up 6%
and global Online Program Management (OPM) up 10% due to good
enrolment growth, Professional Certification (VUE) up 10% due to
strong test volumes and ramp up of new contracts, and Pearson Test
of English Academic (PTE-Academic) up 17% due to strong test
volumes.
● The majority of
wider courseware and assessment businesses stabilised.
US Higher Education Courseware (24% of revenue) declined by just
under 12%. Digital:print split now at 63%:37% (2018: 55%:45%) with
modest growth in digital revenue.
● The weaker
performance was driven by the following factors:
o Unbundling of print
and digital products for digital only formats as students are
increasingly relying on the embedded eBook within platform based
MyLab and Mastering products. Sales of bundle units declined 45%
during 2019.
o Campus bookstores
are buying less physical inventory due to changing student
behaviour with over 50% of learners now preferring an eBook to a
physical text. This is shown in good eBook growth.
o Modest adoption
share loss caused by the delivery issues due to the implementation
of the new Enterprise Resource Planning (ERP) system in H2 2018, as
well as sales force re-organisation.
● Building on the
successful launch of the Global Learning Platform (GLP) in 2019,
bringing the next generation of products on to the platform. By the
end of 2020 all 300+ Revel titles will be live on GLP, enhancing
the faculty and student experience.
● Launching a
direct-to-learner version of the Pearson eBook in 2020, with
enhanced features such as an improved, learning design-informed
reading experience and AI-driven text-to-speech through Amazon
Polly.
Simplification on track.
● Efficiency
programme delivered incremental cost savings of
£130m.
● Delivered
annualised savings of £335m at the end of 2019.
● Announced
sale of remaining 25% stake in Penguin Random House on 18th
December 2019, transaction expected to close in H1 2020.
Balance sheet remains strong.
● Maintained a strong
balance sheet with closing net debt at 31 December 2019 expected to
be modestly higher than 2018 on a post IFRS 16 basis.
● £350m share
buyback is expected to commence today.
2020 outlook.
● Expect to deliver
2020 adjusted operating profit of between £500m to
£580m2 including the 25%
stake in Penguin Random House.
● Expect the 76% of
the business to sustain a growth rate of low single digits in
aggregate. Expect continued growth in OPM, Connections,
Professional Certification and PTE-Academic; although this will be
off a tough comparative given the exceptional performance this year
and a stabilisation across the balance of the Courseware and
Assessment
businesses.
● Expect trends seen
in 2019 in US Higher Education Courseware to continue with heavy
declines in print partially offset by modest growth in digital as
more products are added to the GLP. As product releases accelerate
from the end of 2020 onwards, digital growth will also
accelerate.
● Incremental
restructuring benefits of £60m as plan comes to an
end.
This guidance is based on existing portfolio and exchange rates as
at 31st
December 2018 for comparability. We
expect a net interest charge of c.£50m, a tax rate of c.19%
and adjusted earnings per share of 46.5p to
55.0p2
(excluding the impact of the share
buyback).
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John Fallon, Chief Executive said:
“We have secured flat revenue this year and delivered
operating profit within the guidance range, with much weaker sales
in US Higher Education Courseware offset by a strong performance in
the broader 76% of Pearson.
“Pearson is now a simpler, more efficient company, with
strong financial foundations. This enables us to continue to invest
in digital innovation and platform-based products. The future of
learning will be increasingly digital and consumer defined.
Experience, outcomes and affordability will all matter and while
there is still much to do we are well placed to benefit from these
trends to achieve future, sustainable growth.”
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2019
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Underlying
growth
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Sales
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North
America
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(3)%
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Core
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5%
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Growth
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4%
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Total
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0%
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2019 trading update
In
North America, underlying
revenue declined 3% due to a weaker performance in US Higher
Education Courseware, partially offset by strong growth in
Connections, OPM and VUE.
US
Higher Education Courseware was down just under 12% for the year
with print declining close to 30% partially offset by modest growth
in digital. This reflects rapidly changing market dynamics that are
reshaping the industry, as illustrated by the fact that
in 2019 we sold 3.7 million textbooks
to students at US universities, compared to 7.4 million in 2016 and
21 million a decade ago.
In 2019
the weaker performance was driven by a number of
factors:
● Unbundling of
premium priced print and digital products for digital only formats
as students are increasingly relying solely on the embedded eBook
within platform based MyLab and Mastering products. Sales of bundle
units declined 45% during 2019.
● Campus bookstores
are buying less physical inventory due to changing student
behaviour with over 50% of learners now preferring an eBook to a
physical text. This is shown in good eBook growth.
● Both these trends
provide more affordable options for students giving them less
reason to turn to the secondary market and over time will
increasingly create a more predictable, visible revenue
stream.
● Modest adoption
share loss caused by the delivery issues due to the implementation
of the new ERP system in H2 2018 as well as sales force
re-organisation.
● We remain confident
that we will re-gain this share over time as we build traction from
the rollout of our next wave of digital products on the Global
Learning Platform which launched in September.
● The recent
acquisition of Smart Sparrow, a small ed-tech company which will
accelerate Pearson’s ability to produce more engaging,
interactive and personalised content for learners, including
eBooks.
● Digital revenue
grew modestly but registrations were, as expected, down slightly
due to greater than anticipated pressures in Developmental Maths,
the strategic retirement of long tail products, and some impact
from loss of share.
In US
Higher Education Courseware, we continued to grow our
direct-to-institution (Inclusive Access) channel with enrolments
increasing to 1.8m and this now makes up 9% of US Higher Education
Courseware revenue, at non-profit and public
institutions.
Continued
strong growth in Connections and OPM was driven by enrolment
growth. OPM will be further strengthened by the recent acquisition
of Lumerit, an ed-tech company that helps address college degree
completion and affordability issues, which was our first
acquisition in five years. Pearson VUE also delivered a strong
performance driven by new contracts and higher test
volumes.
In
Core (which includes the UK,
Australia and Italy), underlying revenue grew 5% due to strong
growth in UK Student Assessment and Qualifications, PTE-Academic,
OPM, Professional Certification and the delivery of a new digital
assessment contract in Egypt. In PTE-Academic we recently announced
the win of the UK Secure English Language Test (SELT) contract with
the UK Home Office which we expect to drive future
growth.
In
Growth (which includes
Brazil, China, India and South Africa) underlying revenue grew 4%
with strong performances in China, Middle East and Brazil and
modest growth in India partially offset by declines in Higher
Education Courseware and Higher Education Services in South
Africa.
Penguin Random House has performed in line with our
expectations.
Notes
Throughout
this announcement: growth rates are stated on an underlying basis
unless otherwise stated. Underlying growth rates exclude both
currency movements and portfolio changes.
1 Based on December 2018 exchange rates. At 2019 average
exchange rates the reported adjusted operating profit is
c.£580m and EPS 56.5p – 58.0p.
2 Based on December 2018 exchange rates of 1.27 $ to £.
At December 2019 exchange rates of 1.32 $ to £ guidance would
be £475m-£555m with EPS of 44.0p –
52.5p.
This
announcement contains inside information.
Analyst and investor conference call details
We will hold a conference call at 08.30am today,
16th
January to discuss this trading
update. A replay will be available soon after on our website
www.pearson.com
Contacts
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Investor Relations
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Jo
Russell, Anjali Kotak
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+44
(0) 207 010 2310
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Media
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Tom
Steiner, Gemma Terry
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+44
(0) 207 010 2310
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Brunswick
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Charles
Pretzlik, Nick Cosgrove, Simone Selzer
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+44
(0) 207 404 5959
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Webcast details
URL for international dial in numbers
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Analyst
and investor conference call details: United Kingdom Toll-Free:
08003589473
United
Kingdom Toll: +44 3333000804
PIN:
65042193#
Audience URL: https://event.on24.com/wcc/r/2151424/37F8B7B8C6643D70030B072D528F9F54
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
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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, which can be
found on its website (www.pearson.com/corporate/investors.html).
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.
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PEARSON
plc
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Date: 16
January 2020
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By: /s/
NATALIE WHITE
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------------------------------------
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Natalie
White
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Deputy
Company Secretary
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