Wednesday, January 17, 2018

Pearson Trading Announcement for 2017 and Outlook for 2018

From their market press release:

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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