Pearson plc (LON:PSON) has announced its 2024 Preliminary Results (unaudited).
| Confident in outlook building on year of good financial and strategic delivery. Further progress on AI and Enterprise priorities with new strategic partnership with AWS. Strong cash generation and financial position support launch of new £350m share buyback. |
Financial Highlights
| £m | 2024 | vs 2023 | £m | 2024 | 2023 | |
| Business performance | Statutory results | |||||
| Sales (growth ex. OPM3 and Strategic Review4) | 3,552 | +3%1 | Sales | 3,552 | 3,674 | |
| Adjusted operating profit | 600 | +10%1 | Operating profit | 541 | 498 | |
| Operating cash flow | 662 | +£75m | Profit for the year | 435 | 380 | |
| Free cash flow | 490 | +£103m | Net cash generated from operations | 811 | 682 | |
| Adjusted earnings per share | 62.1p | +7%2 | Basic earnings per share | 64.5p | 53.1p |
Highlights
| · | Underlying Group sales growth1 of 3%, excluding OPM3 and the Strategic Review4 businesses. | ||
| · | Group adjusted operating profit of £600m, up 10% underlying1 with 130bps margin expansion from 15.6% to 16.9%, underpinned by sales growth and cost efficiencies. | ||
| · | Free cash flow of £490m representing free cash flow conversion of 117%5. | ||
| · | Full year dividend per share up 6% to 24.0p. Announcing intention to commence a £350m share buyback. | ||
| · | Positive outlook for 2025 in line with market expectations6. Reiterating medium term guidance for mid-single digit underlying sales growth CAGR and sustained margin improvement that will equate to an average increase of 40 basis points per annum. | ||
| · | Accelerated roll out of AI across our product offering – remains a key priority in 2025. | ||
| · | Further Enterprise momentum with new strategic partnership with AWS | ||
| o | Extending the commercial relationship between Pearson VUE and AWS; | ||
| o | Expansion of AWS Cloud infrastructure and AI capabilities to further enhance and scale our learning products and services; and | ||
| o | Collaboration on joint go-to market activities to drive growth across a range of learning experiences. | ||
Omar Abbosh, Pearson’s Chief Executive, said:
“2024 was another year of delivery and strategic progress for Pearson. The application of innovative technologies, like AI, in our learning experiences, alongside a sharper focus on how we go to market, is building good momentum across our businesses.
“We also continue to focus on expanding our presence in the highly attractive Enterprise skills market at a time where Pearson can play an important role in helping bridge the critical skills gap that impacts the economy, workforce and individuals. Today’s strategic partnership with AWS is another example of how in joining forces with significant industry players we can reach more learners and provide them with the tools they need to succeed.
“We are pleased to announce our intention to commence a £350m share buyback programme. This initiative underscores our strong cash position and confidence in Pearson’s future. We are well set up to deliver our financial guidance, allowing for further investment and attractive returns for shareholders.”
2025 priorities
| · | Deliver on 2025 market expectations6 for underlying Group sales growth, adjusted operating profit and cash flow; |
| · | Continue to lead on the application of innovative technologies, like GenAI, in our learning and assessment experience platforms; and |
| · | Grow Pearson’s business across the Enterprise customer segment. |
2024 Financial Performance
Underlying sales growth1 of 3%, excluding OPM3 and Strategic Review4 businesses; 2% in aggregate
| · | Assessment & Qualifications delivered a solid performance across all sub business units, with sales up 3% for the full year and accelerating in the second half of 2024. |
| · | Virtual Schools sales decreased 1%, due to the previously announced partner school losses, 2024/25 academic year enrolments were up 4% on a same school basis and we also opened 3 new schools. Virtual Learning sales declined 4% attributable to the final portion of the OPM ASU contract in the first half of 2023. |
| · | Higher Education returned to growth with sales increasing 1% driven by continued gains in adoption share, enrolments, and pricing, partially offset by mix impacts. |
| · | English Language Learning delivered a strong performance with sales growth of 8%, driven by Institutional, with Pearson Test of English (PTE) performing well against a tough market backdrop. |
| · | Workforce Skills sales grew 6%, with a solid performance in both Vocational Qualifications and Workforce Solutions. |
Adjusted operating profit1 up 10% on an underlying basis to £600m
| · | Underlying performance driven by sales growth and cost efficiencies, partially offset by investment and inflation. Adjusted operating profit margin rose to 16.9% (2023: 15.6%). |
| · | Headline adjusted operating profit growth was 5% reflecting business performance partially offset by currency movements and some portfolio changes. |
| · | Adjusted net finance costs increased to £45m (2023: £33m). The effective tax rate on adjusted profit before tax increased to 24.4% (2023: 23.0%). |
| · | Adjusted earnings per share increased 7% to 62.1p (2023: 58.2p) reflecting adjusted operating profit growth and the reduction in issued shares as a result of share buybacks, partially offset by increased interest and tax. |
Excellent cash performance
| · | Operating cash1 inflow increased on a headline basis from £587m in 2023 to £662m in 2024, representing excellent cash conversion of 110%. This increase is reflective of the trading performance of the business and favourable working capital movements. |
| · | This operating cash performance and a reduction in below the line reorganisation costs drove an increase in free cash flow from £387m in 2023 to £490m in 2024, a free cash flow conversion of 117%5. |
Strong balance sheet supporting continued investment and shareholder returns
| · | Year-end net debt of £0.9bn (2023: £0.7bn), with free cash flow more than offset by dividends and share buybacks. Net debt / adjusted EBITDA ratio of 1.1x (2023: 1.0x). |
| · | Proposed final dividend of 16.6p (2023: 15.7p) which equates to a full year dividend of 24.0p (2023: 22.7p) an increase of 6% compared to 2023. |
| · | In 2024 we completed a £500m share buyback which commenced in September 2023, reducing our share count by 7%. Consistent with our capital allocation framework and strong free cash flow we are announcing our intention to commence a £350m share buyback. |
| · | Issued a £350m Education Bond providing long term financing for the business. |
| · | Both Moody’s and Fitch upgraded Pearson’s long-term issuer ratings, moving the outlook to stable. |
| · | Return on capital was 10.4% (2023: 10.3%) with earnings increase counterbalanced by FX changes. |
Statutory results
| · | Sales decreased 3% on a headline basis to £3,552m (2023: £3,674m) with currency movements and portfolio changes offsetting underlying business performance. |
| · | Statutory operating profit increased 9% to £541m (2023: £498m) driven by increased trading profits, a reduction in property and intangible amortisation charges, a lower year on year net loss from acquisitions and disposals, partially offset by one off UK discretionary pension charges. |
| · | Net cash generated from operations of £811m (2023: £682m). |
| · | Statutory earnings per share of 64.5p (2023: 53.1p). |
Driving performance in the core business, infusing AI into our products and services and sharpening focus on the Enterprise market
| · | In Assessment & Qualifications we continued to demonstrate good financial performance and strong customer renewals. Pearson VUE is making progress in expanding its test prep offering through building out the Pearson Skilling Suite and expanding its go to market capabilities in this area. We also secured several meaningful new enterprise customer contracts and renewals relevant to the Pearson VUE business including ServiceNow, Microsoft and AWS. US Student Assessment performed well, securing key customer renewals and expanding formative testing in Arizona and North Dakota. In UK & International Qualifications we developed new AI features within our Exam Practice Assistant to support GCSE students preparing for their exams. In Clinical Assessment we successfully launched the 5th edition of Wechsler Adult Intelligence Scale and expanded our Digital Assessment Library for Schools (DALS) platform subscription model. |
| · | In Virtual Schools we opened 3 new schools and scaled our career and college readiness programmes to 24 schools in 2024. We also piloted a new enrolment portal, doubling the speed for enrolment, helping to drive underlying enrolment growth on a same school basis. We have also embedded AI study tools into our content to provide high school students with step-by-step assistance – leveraging technology piloted in Higher Education. For teachers, we’ve launched AI-generated custom assessments, halving the time it takes teachers to create an assessment. |
| · | In Higher Education we were pleased to return to growth, and grew adoption share in US Higher Education, aided by AI study tools for students and AI MyLab and Mastering instruction tools for educators. A recent survey in the US found that Higher Education students using Pearson AI study tools are 4x more likely to engage in active and efficient studying, while educators see new opportunities to enhance instruction. We have also rolled out our AI study tools into global editions of leading higher education titles to enable access for our International students. We have been successful in scaling and monetising our Channels product. In October 2024, we began to directly sell our K-12 proprietary Advanced Placement (AP®), Dual Enrolment and Career and Technical Education (CTE) materials. Investing in a dedicated in-house sales team will enable us to expand and strengthen customer relationships with US school administrators going forward as the demand for college and career readiness programmes grows. |
| · | In English Language Learning, we launched PTE Core, our newest test designed to meet Canada’s specific migration needs, expanded our Wizard business in Brazil driven by its online business and new government partnerships, and developed two new AI products. Smart Lesson Generator, formerly named Teaching Pal, leverages Pearson’s trusted IP with generative AI to simplify educators’ work and save them time by creating customised lesson content and activities. Our AI powered Digital Language Tutor is specifically designed to help businesses improve English proficiency at scale and unlock employee potential. The AI tutor offers highly realistic, personalised training, underpinned by trusted learning science, and builds on a successful pilot programme conducted with corporate clients. |
| · | Our Workforce Skills business delivered a solid performance and we continued to acquire new customers and expand existing relationships, landing major collaborations and partnerships. We announced a multi-year deal with ServiceNow to supercharge workforce development and employee experiences in the age of AI. We also expanded our partnership with Degreed which will integrate Faethm data sets into Degreed’s platform, offering real-time insights into the most relevant skills across industries, allowing companies to benchmark skills, identify gaps, and prioritise key areas for upskilling. This year we have announced further strategic partnerships with Microsoft and AWS including joint go-to-market initiatives including AI upskilling. Credly crossed the 100 million unique badge milestone, with credentials representing the acquisition of skills that are critical for the future workforce, especially as AI reshapes job roles and industry standards. We launched GED & Me, the GED Testing Service Mobile App, which achieved circa 100,000 downloads in its first 6 months, with users completing the GED programme at a 10% higher rate compared to those not on the app. |
Outlook
Evolution of Workforce Skills
| · | From January this year, Workforce Skills became Enterprise Learning and Skills, bringing together Pearson’s enterprise sales capabilities globally (excluding those of Pearson VUE). In addition, sub-unit Workforce Solutions became Enterprise Solutions. Vishaal Gupta will continue to lead this part of the business. |
| · | The enterprise focused business within Higher Education (IT Pro) has been transferred into Enterprise Learning and Skills from January this year. This business generated £45m of revenue and £19m of adjusted operating profit in 2024. |
2025 guidance
| Sales | Group | In line with current market expectations6. |
| Assessment & Qualifications | Sales to grow low to mid-single digit. Growth will be H2 weighted with new and renewed contracts and the test prep business building during the year. | |
| Virtual Learning | To return to growth in H2 and the full year driven by enrolment increases, partially from new school openings, for the 25/26 academic year. Sales to decline in H1 given the final impact of previous school losses and the timing of funding in the previous year. | |
| Higher Education | Sales growth in 2025 will be higher than in 2024 as we build on the successful results of our sales team transformation and product innovations, particularly using AI. Growth will be relatively stable throughout the year. | |
| English Language Learning | Sales growth will moderate given the likely impacts of elections on immigration rates in 2025 affecting our PTE business. Given the growth profile of English Language Learning in 2024 we expect Q1 2025 to decline, with growth increasing in each quarter thereafter. We remain confident in the medium term outlook given demographic projections. | |
| Enterprise Learning and Skills | Sales to grow high single digit with Vocational Qualifications seeing solid growth and the addition of several new contracts for Enterprise Solutions. Growth will increase quarter on quarter. | |
| Group Profit | Adjusted Operating Profit | In line with current market expectations6. |
| Interest | Adjusted net finance costs of c.£65m reflecting the impact of the Education Bond and our intention to commence a £350m share buyback. | |
| Tax rate | We expect the effective tax rate on adjusted profit before tax to be between 24% and 25%. | |
| Cash flow | We expect a free cash flow conversion5 of 90-100% plus the anticipated £0.1bn State Aid repayment in 2025. | |
| FX | Every 1c movement in GBP:USD rate equates to approximately £5m adjusted operating profit impact. | |
Medium term outlook unchanged
| · | Beyond 2025, Pearson is positioned to deliver a mid-single digit underlying sales growth CAGR, sustained margin improvement that will equate to an average increase of 40 basis points per annum and strong free cash conversion5, in the region of 90% to 100%, on average, across the period. |
Financial Calendar
| · | 2025 Q1 Trading Update will be announced on 2 May 2025. |
Executive change
Pearson announces the appointment of Sharon Hague, currently Managing Director of our US Student Assessment and UK & International Qualifications businesses, as the new President of English Language Learning, effective March 2025. Sharon will become a member of the Pearson Executive Leadership team, reporting to CEO Omar Abbosh.
Gio Giovannelli, current President of English Language Learning, has decided to leave Pearson following a thorough transition. Gio has been instrumental in driving strong financial and operational performance, including accelerated revenue growth in our English Language Learning business unit. We thank him for his contribution.
