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17th October
2018
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Pearson,
the world's learning company, is today providing an update on
trading in the first nine months of 2018.
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Highlights
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On track to meet full year expectations
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Total revenues were flat year on year
with declines in US Higher Education Courseware offset by the rest
of the company growing in aggregate.
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2018
adjusted operating profit guidance remains unchanged, reiterating
underlying profit growth.
Continued progress in our structural growth
opportunities
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Online Program Management (OPM) saw
good growth in revenue with global course registrations up
13%.
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Connections Academy, our K12 virtual
schools business, saw good growth in revenue and a new partner
school was approved for the 2019/20 school year.
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In English, Pearson Test of English
Academic (PTE Academic) grew test volume by 34%.
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Professional Certification revenues grew
well.
US Higher Education Courseware down, in line with
guidance
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Revenue declined 3% with lower gross
sales, partially offset by digital sales growth and better
returns.
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During the quarter, revenues were
modestly impacted by delivery delays related to the implementation
of our new enterprise software systems in the US. We expect this
timing effect to largely reverse in the fourth
quarter.
Simplification plans on track
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We remain on track to deliver
£300m1 of annualised
cost savings, with the full benefits accruing from the end of 2019
onwards.
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US K12 Courseware business remains as
held-for-sale.
Underlying profit guidance unchanged, strong balance
sheet
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We continue to expect Pearson to
deliver adjusted operating profit in 2018 in the range of
£520m to £560m.
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As a result of one-off tax benefits and
a resulting lower finance charge we now expect 2018 adjusted EPS to
be in the range of 68p to 72p.
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We
continue to expect year end net debt to be in line with
2017.
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John Fallon, Chief Executive said:
"We are
on track to return to underlying profit growth and, with a strong
balance sheet, are set up well for the future. We are picking up
the pace in our growth opportunities, performing well competitively
and making good progress in our digital transformation. There's a
lot still to do but we are increasingly excited about the
opportunity to help learners acquire the knowledge and skills to
succeed in a fast changing world."
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Underlying
growth
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Sales
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North
America
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0%
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Core
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2%
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Growth
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(4)%
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Total
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0%
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Notes
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.
1Based 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.
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Nine-month trading
In North
America, revenue was flat in the first nine months of 2018
with declines in School and Higher Education Courseware and
expected declines in Learning Studio offset by growth in OPM due to
higher enrolments, growth in Connections Academy and growth in
Professional Certification, where we benefitted from the launch of
a contract to administer medical college admissions
tests.
In US
Higher Education Courseware revenue declined 3% with lower gross
sales, partially offset by digital sales growth and better
returns. During the quarter, revenues were modestly impacted
by delivery delays related to the implementation of our new
enterprise software systems in the US. We expect this timing effect
to largely reverse in the fourth quarter. Even with this timing
effect, our market share remains within the range of 40% to
41.5%.
We have
added another 155 institutions to our Inclusive Access (IA) program
in the first nine months of 2018, taking our total to over 650. IA
grew strongly and is now 7% of Higher Education Courseware revenue.
We have commenced the testing of our new developmental math product
with a pilot expected to launch next year.
In
our Core segment
(which includes the UK, Australia and Italy), revenue increased 2%
due to strong growth in PTE Academic, OPM services in Australia and
the UK, and Professional Certification. This was partially offset
by declines in revenue in UK Student Assessment and
Qualifications, and UK School and Higher Education
Courseware.
UK Student Assessment and Qualifications revenues fell due
to declines in BTEC Nationals, expected declines in AS levels
as a result of policy changes, and weakness in the UK
Apprenticeship market due to market disruption following the
introduction of the Levy in 2017, which is expected to continue for
the rest of 2018.
In
our Growth segment
(which includes Brazil, China, India and South Africa) revenue fell
4% primarily due to the expected decline in sales in South Africa
School Courseware due to a large order in the first half of 2017,
partially offset by growth in English Courseware in China.
Excluding South Africa School Courseware, underlying sales in our
Growth segment grew 1%.
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Penguin Random House is performing in line with our
expectations.
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Financial position
Our
financial position is strong. Our net debt at the end of September
2018 was £620m, (2017: £1,312m.) We continue to expect
year end net debt to be in line with 2017. Going forward we aim to
continue to maintain a solid investment grade credit rating by
targeting net debt to EBITDA of less than 1.5x.
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Tax guidance
We
previously expected our 2018 adjusted effective tax rate to be 20%.
We are today revising that expectation to a credit of 5%-7%
reflecting several one-off benefits in 2018: provision releases
following the expiry of the relevant statutes of limitation and the
reassessment of historical tax positions and one-off benefits
following a review of US tax reform, the details of which have
become clearer as the year has progressed. Finance costs in 2018
are expected to be c.£30m, compared to our prior expectations
of c.£45m, due to the one-off release of interest accrued
relating to these tax provisions. The impact of these changes
increases the EPS we expect to report in 2018 by 19p. The majority
of these benefits are non-cash. Our expectation for our medium-term
group effective tax rate remains unchanged at 20%-22%.
We will hold a conference call at 8.30am today Wednesday, 17th
October to discuss our Q3 trading update. A replay will be
available soon after on our website www.pearson.com/corporate.
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Contacts
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Investor Relations
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Jo
Russell, Tom Waldron, Anjali Kotak
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+44 (0)
207 010 2310
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Media
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Tom
Steiner
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+44 (0)
207 010 2310
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Brunswick
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Charles
Pretzlik, Nick Cosgrove, Simone Selzer
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+44 (0)
207 404 5959
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Webcast details
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Analyst and investor conference call details:
United Kingdom Toll-Free: 08003589473
United Kingdom Toll: +44 3333000804
PIN: 17300618#
URL for international dial in numbers:
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Audience URL:
https://event.on24.com/wcc/r/1858704-1/3BEC88BAD3D1805F2BE44AA0113DE60C
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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/corporate/investors.html).
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.
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PEARSON
plc
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Date: 17
October 2018
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By: /s/
NATALIE WHITE
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------------------------------------
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Natalie
White
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Deputy
Company Secretary
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