TIDMPSON
RNS Number : 7496T
Pearson PLC
17 October 2017
17 October 2017
London
Press Release
PEARSON NINE-MONTH TRADING UPDATE (UNAUDITED)
Good progress in the first nine months of the year
Today we are providing our nine-month trading update and
narrowing guidance for 2017 to the upper half of the range. We have
had a good competitive performance year to date, and our plans to
accelerate our digital transformation and simplify the company are
on track.
Revenue growth analysis: first nine months of 2017
Headline CER Underlying
North America 3% (4)% (4)%
Core 1% (3)% (1)%
Growth 11% 2% 3%
Total 4% (3)% (2)%
--------------- --------- ----- -----------
-- Nine-month revenues in line with expectations and consistent
with the upper half of our guidance range
o Sales in the first nine months decreased by 2% in underlying
terms primarily due to expected declines in North America in school
assessment, school and higher education courseware, and the
retirement of Learning Studio.
o Sales in US higher education courseware declined by 1% on an
underlying basis, towards the upper half of our expected range. The
negative impact of lower enrolments and attrition from growth in
the secondary market driven by print rental was partially offset by
the benefit of increased digital revenue and a year on year benefit
from the reduction in returns from last year's unprecedented
levels, helped by the actions we announced at the beginning of the
year.
o Underlying sales in Core and Growth were in line with our
expectations.
-- 2017 adjusted operating profit and EPS guidance narrowed
o Whilst we anticipate the underlying structural pressures in US
higher education courseware will persist in the medium term, the
relative strength of trading in this business is helping our
profits this year. As a result, we now expect Pearson's 2017
operating profits to be in the upper half of the range we set at
the start of the year.
o Our profit performance year to date is benefiting from ongoing
savings from the 2016 restructuring programme and this underpins
our confidence in the full year.
o In addition, we are revising our guidance on taxation as a
result of the favourable outcome of certain historical tax issues
and now expect our 2017 adjusted tax rate to be around 16% as
against our prior expectation of 21%. Finance costs in 2017 are now
expected to be around GBP78m, compared to our prior expectation of
GBP74m, due to the costs of a higher than expected take up of our
debt tender offer. This increases charges in 2017 but will lower
finance costs in 2018, which we now expect to be in the range
GBP40m to GBP45m.
o As such, we now expect 2017 adjusted operating profit and EPS
to be as follows:
Full Year 2017 Guidance* New Guidance Previous
Guidance
----------------------------------
Lower Upper Lower Upper
---------------------------------- -------- -------- -------- --------
Adjusted operating profit GBP576m GBP606m GBP546m GBP606m
(revised for PRH transaction)
Adjusted EPS 51.0p 54.0p 45.5p 52.5p
Adjusted EPS at current exchange
rates 49.0p 52.0p
* Adjusted operating profit excludes the expected
restructuring cost of GBP70m associated with the
GBP300m 2017-2019 cost efficiency programme as announced
on August 4th
based on 31 December 2016 exchange rates
-- Strong balance sheet
o Net debt at the end of September 2017 was GBP1,312m (2016:
GBP1,365m) reflecting good operating cash generation, a lower
interim dividend payment and a modest benefit from the
strengthening of Sterling against the US Dollar, offsetting pension
contributions relating to the 2013 creation of Penguin Random House
and restructuring costs.
o The sale of a 22% stake in Penguin Random House to
Bertelsmann, announced on July 11th, closed on October 5th. We
expect to start to return GBP300m in surplus capital via a share
buyback soon.
o Our UK Pension Plan has used its strong funding position to
purchase two insurance buy-in policies with Legal & General and
Aviva, covering approximately GBP1.2bn (one third) of its total
liabilities. This puts the Plan in an even stronger position and
substantially reduces Pearson's future pension funding risk, at no
further cost to the Company.
-- Simplification, digital transformation and tactical actions on track
o We continue to reshape our portfolio and during the first nine
months of the year we have made good progress with the divestment
of a 22% stake in Penguin Random House and the completion of the
sale of Global Education (GEDU) to Puxin Education.
o US higher education digital courseware revenue grew 11%.
o We continue to focus on institution-wide Direct Digital
Access. We have signed 195 new contracts this year, up 89%,
bringing the total to 477.
o We reduced the rental price of 2,000 eBook titles and have
seen eBook revenues increase more than 20% in the first nine months
of 2017.
o Our print rental pilot has had a successful start, and we have
plans to add a further 100 titles in January.
Pearson's chief executive, John Fallon said:
"We continue to invest in growing market opportunities, gaining
share with our digital transformation, and becoming simpler and
more efficient. With good cash generation and a strong balance
sheet, we are going to return GBP300 million in surplus capital
through a share buyback.
"We expect tough market conditions in our biggest business to
continue over the next couple of years. We're focused on being the
long term winner in digital learning and creating sustainable value
for our shareholders."
Operating highlights for the first nine months of 2017
North America
In the first nine months of 2017, sales declined by 4% in
underlying terms primarily due to expected contract losses in
school assessment, weakness in school and higher education
courseware and the retirement of Learning Studio. This was
partially offset by growth in professional certification, Online
Program Management (OPM) and Connections Education.
In US higher education courseware revenue declined 1% on an
underlying basis due to lower gross sales partially offset by
significantly lower returns and good growth in digital revenues,
which were up 11%.
We estimate that the negative impact of lower enrolment and
impact of print rental in the secondary market have been in line
with our expectations, partially offset by the expected benefit of
a shift to institutional selling and digital subscription. The
impact of adoption losses to Open Educational Resources (OER) is
running slightly below our original assumption. Returns are down
considerably from last year's elevated rates, although they have
not quite reached levels seen prior to the inventory
correction.
Core
In the first nine months of 2017, sales decreased by 1% in
underlying terms. Strong growth in Pearson Test of English and OPM
services in Australia, was more than offset by declines in revenue
at VUE, in UK school assessment and in courseware revenues in
smaller markets in Europe and Africa. At VUE, revenues declined due
to the impact of last year's renegotiated terms for the UK Driving
Theory test for the DVSA. UK school assessment revenues declined
modestly on lower GCE-AS level entries, as a result of a
policy-driven shift to more linear courses, and stabilisation in
vocational qualifications revenue.
Growth
In the first nine months of 2017, sales increased by 3% in
underlying terms. This was primarily due to growth in school
textbooks in South Africa, growth in Wall Street English, China
from new centres, higher sales in China English language courseware
and Pearson Test of English in India. This was partialy offset by
exits in the Middle East and declines in Brazil due to lower
enrolments in our English language learning business, related to
macroeconomic pressures, despite greater stability in our private
sistemas. We completed the sale of Global Education (GEDU) to Puxin
Education on August 16(th) .
Penguin Random House
Penguin Random House performed in line with our expectations,
with revenues down slightly on broadly stable sales of print and
audio books and ongoing modest declines in demand for e-books,
whilst the business benefited from the annualisation of integration
synergies. Performance in the third quarter benefited from
bestsellers from John le Carré, Ken Follett, Sue Grafton, John
Grisham and Jamie Oliver.
We will hold a conference call at 8:30am today, Tuesday 17(th)
October to discuss our third quarter results. A replay will be
available soon after on our website www.pearson.com.
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: 69342445#
Audience URL:
http://event.onlineseminarsolutions.com/r.htm?e=1488354&s=1&k=7C482A8AC3F89D943FE1068D8DA3EFB9
Throughout this statement underlying growth rates exclude the
impact of both currency movements and portfolio changes.
For more information
T + 44 (0)20 7010 2310
Investors: Jo Russell, Tom Waldron, Anjali Kotak
Press: Tom Engel, Tom Steiner
S
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/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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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