Pearson PLC (LON:PSON), today announced interim results for the six months to 30th June 2018 (unaudited)
Highlights
Revenue up 2% in underlying terms
· North America up 3%, Core up 2% and Growth down 4%.
· Revenue increased primarily due to US Higher Education Courseware, Online Program Management (OPM), Connections Academy, Professional Certification and Pearson Test of English Academic (PTEA), partially offset by the expected declines in Learning Studio and the expected decline in sales in our South Africa School Courseware business due to a large order in the first half 2017.
· As in previous years, Pearson’s sales are weighted towards the second half of the year.
Adjusted operating profit up 46% in underlying terms, good growth in EPS
· Reflecting sales growth and savings from the 2017-2019 restructuring programme, partially offset by cost inflation and other operational factors.
Strong balance sheet with net debt of £775m (H1 2017: £1,633m)
· Reflecting proceeds from disposals and operating cash flow, partially offset by the share buyback.
· Net debt increased from £432m at the end of 2017 to £775m at the end of June 2018 in line with typical seasonality of the business.
· Interim dividend 5.5p (2017: 5p).
Statutory results
· Statutory operating profit of £233m (2017: £16m) with the year on year improvement driven by the profit on disposal of Wall Street English (WSE) and Utel.
· Statutory EPS 24.1p (2017: (2.1)p) with the year on year improvement due to lower interest cost and the profit on disposal of WSE and Utel.
Simplification plans on track
· Cost savings of £40m delivered in the first half, decommissioned over 200 applications and started the implementation of our new Enterprise Resource Planning (ERP) software system in the US.
· US K12 courseware business continues to be held for sale.
Underlying FY 2018 guidance unchanged
· US Higher Education Courseware revenue grew modestly in the first half helped by lower returns, as expected. However, in line with our full year guidance for this segment, we continue to expect a decline in net sales in the second half as gross sales continue to be impacted by ongoing underlying market pressures.
· We expect Pearson to deliver underlying profit growth in 2018.
Pearson LTD, John Fallon, Chief Executive said:
“Although there is still much to do, we have had a good first half and continued to make progress against our strategic priorities. We are driving ahead in digital learning, helping more people develop the skills they need to prosper in a fast changing world.”
Progress on our strategic priorities
During the first half of 2018 we continued to make progress on our strategic priorities of digital transformation, investing in structural growth and simplification, making us a leaner and more agile business.
Grow market share through digital transformation
· Global digital registrations of MyLab and related digital courseware products rose 1% (H1 2017: a decline of 1%).
· In North America, MyLab and related digital courseware registrations declined 1% (H1 2017: a decline of 2%). Registrations of Revel, our integrated, digital-first courseware platform, grew 65% in the first half of 2018 (H1 2017: 50%) to over 275,000, equating to more than 530,000 over the last 12 months. Including standalone eBooks North American digital registrations rose 4% in the first half.
· North American Higher Education Courseware digital revenue grew modestly.
· We signed more than 100 new institutions to Inclusive Access, where the delivery of courseware on the first day of the course is integrated with college systems, in the first half, taking the total to over 600 institutions.
· We now have 130 titles available in our partner print rental programme and we plan to double that again next year adding a further 150 titles.
· We are launching pilot versions of new developmental math courseware on the Global Learning Platform (GLP) in the second half of this year and an enhanced Revel platform based on the GLP in 2019.
· US Student Assessments saw 1% growth in the volume of digital tests in the first half, extended contracts in Kentucky and Arizona and was awarded new contracts in Utah and Iowa.
Invest in structural growth markets
· We saw good enrolment growth in OPM, where we partner with universities to take their teaching online, and in Connections Academy our K12 virtual school business, with strong pipelines underpinning revenue growth in both businesses.
· In Professional Certification, the launch of a contract to administer medical college admissions tests contributed to revenue growth, we renewed 42 existing contracts, signed 45 new agreements and five contracts were not renewed. Pearson’s Professional Certification business, VUE, partners with more than 500 credential owners across the globe.
· Pearson Test of English Academic (PTEA) grew global test volumes by 41%.
Become simpler andmore efficient
· We completed the sale of WSE in March 2018.
· Our US K12 Courseware business continues to be held for sale.
· Under the three-year transformation programme announced in May 2017 to further simplify the business, we are on track to deliver incremental cost savings of £300m per annum, with the full benefits accruing from the end of 2019 onwards1.
· In the first half of the year, we achieved cost savings of £40m, decommissioned over 200 applications, closed seven data centres and seven offices and started the implementation of our new ERP system in the US.
· During the second half of the year we expect to deliver further incremental savings of £40m, £105m in 2019 and £100m in 2020. Restructuring costs in the first half were £24m.
2018 outlook
Our guidance for the full year remains unchanged. We continue to expect net sales of our US Higher Education Courseware to be flat to down mid-single digit for the full year driven by ongoing underlying market pressures. We continue to expect Pearson to deliver underlying profit growth in 2018.
We expect to report an adjusted operating profit of between £520m and £560m and adjusted earnings per share of 49p to 53p in 2018 based on our portfolio2 and exchange rates prevailing on 31st December 2017.
We expect net debt to be in line with full year 2017.
We calculate that a 5c move in the US Dollar exchange rate to Sterling would impact adjusted EPS by around 2p to 2.5p.
