Pearson Trading Announcement for 2017 and Outlook for 2018
Full year results at the upper end of guidance, good strategic progress
We will announce full year results on 23 February 2018, but we are
today providing an update on trading to the end of 2017 and guidance for
2018.
Preliminary expectations for full year 2017 results
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Simplification and efficiency
- We continued to make progress on the simplification of our portfolio and on our actions to increase efficiency in 2017:
- 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).
- 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.
- 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.
Digital transformation and tactical actions
- During the year we continued to make good progress with our digital
transformation and grew US higher education digital courseware revenue
by approximately 9%.
- We continue to focus on Direct Digital Access, Pearson’s inclusive access offering, signing 210 new institutions in 2017.
- 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.
2018 outlook
- 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).
- We expect growth from that base and are giving guidance for 2018 adjusted operating profit of between £520m and £560m.
- In addition to FX and disposals, this guidance also reflects the
benefits of our restructuring programme and ongoing challenges in US
higher education courseware.
- 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.
- 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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