Pearson, the world’s learning company, is today providing an update on Q1 trading.
Operating performance on track
- Total underlying revenues are up 1%, with growth in North America and Core partially offset by a decline in our Growth segment due to the phasing of sales in our South African school courseware business.
- US higher education courseware revenues grew slightly as lower gross sales were offset by lower returns from the channel. The underlying market pressures in this business continue to impact gross sales as expected. Our guidance for 2018 therefore remains unchanged: we expect net sales in US higher education courseware to be flat to down mid-single digit percent.
- The cost efficiency programme that we presented in August 2017 is on track to deliver £300m1 of annualised cost savings by 2020, with cumulative savings by the end of 2018 of £95m.
- Net debt at the end of the first quarter was down significantly year on year at £0.6bn (2017: £1.1bn). Net debt was higher than December 31st 2017 following the typical seasonal pattern of cash outflow and the completion of our share buyback, partially offset by proceeds received from the disposal of Wall Street English. We continue to expect year end net debt to be in line with 2017.
- We maintain our guidance range for 2018 with operating profit of £520m to £560m, adjusted earnings per share of 49p to 53p and cash conversion in excess of 90%. This is based on our portfolio at 31st December 2017, a net interest charge of £45m, a tax rate of approximately 20%, and exchange rates on 31 December 2017.
- Q1 is our smallest quarter. Pearson’s sales and operating profit are always weighted towards the second half of the calendar year.
- Our US K-12 courseware business remains classified as held-for-sale with negotiations on the disposal progressing.
John Fallon, Chief Executive said:
“We have made a good start to 2018, performing in line with our expectations. We continue to make good progress against our strategic priorities including our digital transformation and we expect to grow underlying profit in 2018.”
Throughout this announcement: growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude both currency movements, portfolio changes and the impact of adopting IFRS 15 in 2018. The latter impact is not material.
1 Based on December 2016 exchange rates. A significant part of costs and savings from the restructuring programme are US Dollar denominated and in other non-Sterling currencies and are therefore subject to exchange rate movements over the implementation timeframe.
In North America, revenues grew 3% in underlying terms with slight growth in US higher education courseware, due to lower returns from the channel, and good growth in Online Program Management (OPM), student assessment, Professional Certification and Connections Virtual Schools, partially offset by expected declines in Learning Studio, a learning management system that is being retired.
In our Core segment (which includes the UK, Australia and Italy), revenues grew 6% in underlying terms, partly helped by phasing, but with good growth in Pearson Test of English and in OPM, where we have recently announced an additional partnership with the University of Sussex to launch a programme of postgraduate online degrees from September 2018.
In our Growth segment (which includes Brazil, China, India and South Africa) revenues were down 12% as good growth in China and in our Wizard English language schools in Brazil were offset by a decline in South Africa school courseware, against the prior year Q1, which benefited from an unusually large order. Excluding South African school courseware, our Growth segment revenues rose 1% in underlying terms in the first quarter.
At Penguin Random House, trading is in line with our expectations.
We will hold a conference call at 8.30am today Friday, 4th May to discuss our first quarter results. A replay will be available soon after on our website www.pearson.com. Our AGM will begin today at 12 noon at IET London, 2 Savoy Place, London WC2R 0BL.
Jo Russell, Tom Waldron, Anjali Kotak
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