Pearson expects to report revenue dip, but profit growth, for 2018

Pearson expects to report revenue dip, but profit growth, for 2018

Pearson has reported making “good financial and strategic progress in 2018”, despite a small revenue fall during the year, saying in its January trading update that it expects to have halved net debt in 2018 and to deliver underlying profit growth of 8% at £540-£545m. The company hailed it “an important milestone”, representing its first increase in profit in underlying terms since 2015.

Final full year results will be announced next month.

Following reports of flat revenue in its nine-month trading update, total 2018 underlying revenues were down 1% year-on-year, according to the new update, with revenues in North America down 1%, Core flat, and Growth up 1%. Declines persisted in US Higher Education Courseware, down 5%, and US K12 courseware, but the rest of the company partially took up the slack by growing in aggregate at over 1%. Reporting “strong growth” and “real momentum” in its growth opportunity areas, 2018 saw OPM revenue growth of 9%, Virtual Schools revenues up 8%, Pearson Test of English Academic test volumes up 30% and Professional Certification revenues up 4%. Despite the “expected” declines in its US Higher Education courseware business, in terms of progressing in its digital transformation it also reported “a decisive shift” for hitting 55% digital revenues in US HECW in 2018 versus 50% the year before.

“The logic of this guidance is that revenue should stabilise this year and grow thereafter,” said c.f.o. Coram Williams. “We are in good shape: a strong healthy balance sheet, with low levels of net debt gives us the confidence to navigate our digital transformation and underpins our continued investment. We are investing in building the digital platforms that will allow people to learn and prosper through their lives - that is the future of Person that will enable us to deliver long-term sustainable growth for our shareholders.”

C.e.o. John Fallon commented: “We have made good progress in 2018, returning Pearson to underlying profit growth. We are also building a platform to enable Pearson to achieve its full digital potential, empowering more people around the world to learn the knowledge and skills to flourish in the changing world of work. There is much still to do, but we are increasingly confident in Pearson’s potential to grow and prosper.”

Pearson said its simplification programme is ahead of plan due to an increase in acceleration of savings as a result of its recent ERP (enterprise resource planning) implementation, involving the cutting of 3,000 jobs, which it called “a difficult but necessary change that will allow us to speed up innovation, provide a better customer experience, eliminate duplication and scale more quickly”. The business now expects to deliver increased annualised cost savings in excess of £330m by the end of 2019, whereas its original plan had been for £300m in savings. It also reported its balance sheet to be “in great shape” with closing net debt as of 31st December 2018 expected to be around £200m versus £432m in 2017.

Looking ahead to the end of 2019, although predicting further declines in US Higher Education (zero or down 5%), it forecast continued profit growth for the business overall, providing guidance adjusted operating profit will come in at between £590m and £640m.