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At guidance exchange rates1
adjusted operating profit of
c.£600m-605m is at the upper end of our October 2017 guidance
range of £576m-£606m. At average effective exchange rates
in 20172
we expect to report adjusted operating
profit around £570m-575m and adjusted earnings per share of
53.5p-54.5p.
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Adjusted earnings per share is above the October
2017 guidance range of 49p-52p reflecting an improved tax rate of
around 11%, due to the further favourable outcome of certain
historical tax issues, and after a net interest charge of
approximately £80m.
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Total underlying revenues declined 2%, in line
with the performance in the nine-months, due to a decline of 4% in
North America partly offset by stabilisation in Core and
Growth.
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Sales in US higher education courseware were down
3% on an underlying basis, in line with the lower end of our
revised guidance range, due to the continuation of trends seen in
the first nine-months combined with cautious buying behaviour from
our channel partners in the fourth
quarter.
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Strong balance sheet with closing net debt at 31
December 2017 now expected to be around £0.5bn (2016:
£1.1bn) due to good cash generation and proceeds from
disposals.
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Returned £153m of capital (repurchasing 22m
shares) to 31 December 2017 via the £300m share buyback
announced on 17 October 2017. The remaining shares will be
repurchased before 26 April 2018.
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We continued to make progress on the
simplification of our portfolio and on our actions to increase
efficiency in 2017:
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o We completed the sales of Global Education (GEDU)
and a 22% stake in Penguin Random House and announced that we had
signed an agreement to sell Wall
Street English (WSE).
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o In late
December Pearson also agreed the sale of our 44.75% equity stake in
our Mexican online university partnership, Utel. The
transaction is expected to close in the first half of 2018, subject
to regulatory approval being obtained.
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o Our efficiency
programme is on track to deliver £300m of annualised cost
savings by 2020. Restructuring costs in 2017 were around £80m,
slightly higher than our guided £70m, reflecting faster
progress made during the year. Total restructuring costs are
expected to be in line with guidance of £300m across
2017-2019, with £90m in 2018.
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During the year we continued to make good progress
with our digital transformation and grew US higher education
digital courseware revenue by approximately
9%.
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We continue to focus on Direct Digital Access,
Pearson's inclusive access offering, signing 210 new institutions
in 2017.
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We've reduced the rental price of 2,000 ebook
titles and have seen revenues rise by 22% during the year.
Furthermore, we have seen success with the start of our print
rental pilot and are now adding more than 90 additional titles in
2018.
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The base for 2018 guidance is our expected 2017
adjusted operating profit of £570m-£575m less the full
year impacts of disposals made in 2017 (£45m) and less
favourable exchange rates at 31 December 20173
(£25m).
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We expect growth from that base and are giving
guidance for 2018 adjusted operating profit of between £520m
and £560m.
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In addition to FX and disposals, this guidance
also reflects the benefits of our restructuring programme and
ongoing challenges in US higher education
courseware.
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In our US higher education courseware business, we
expect revenues to be flat to down mid-single digit percent due to
the similar underlying pressures seen in the last two years from
lower college enrolments, increased use of Open Educational
Resources and attrition from growth in the secondary market driven
by print rental, partially offset by growth in digital revenues,
benefits from our tactical actions and a continued normalisation of
channel returns behaviour.
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This guidance is based on our existing portfolio
as at 31 December 20174
a 2018 net interest charge of
c.£45m, a tax rate of 20% and exchange rates on 31 December
2017. We expect adjusted earnings per share of 49p to
53p.
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Pearson notes the recent signing of the US "Tax
Cuts and Jobs Act" reforming US tax law. The Act includes a
reduction to the federal tax rate but a more restrictive policy in
terms of the deductibility of interest and also the introduction of
a "base erosion and anti-abuse tax
(BEAT)".
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Our preliminary view is that our guidance for our
medium-term group effective tax rate remains unchanged at 20-22%,
based on adjusted operating profit including the taxed contribution
from our stake in Penguin Random
House.
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The US Tax Cuts and Jobs Act will result in a
small, one off deferred tax charge in 2017, which will be excluded
from our adjusted operating profit and adjusted effective tax
rate.
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PEARSON
plc
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Date: 17
January 2018
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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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