We continue to expect revenue to stabilise this year but weaker
than expected trading in our US Higher Education Courseware
business in the key selling season means we now expect adjusted
operating profit to be at the bottom of the guidance range of
£590m to £640m
● At the nine months, we expect group underlying
revenue to be broadly flat with Core markets up 5%, Growth up 3%
and North America down 3%.
Businesses generating 75% of Pearson revenue growing in aggregate
by around 3%
● Strong performance in structural growth businesses
- continued strong growth in Online Program Management (OPM),
Connections Academy, our K12 virtual schools business, Pearson Test
of English Academic (PTE Academic) and Professional Certification
driven by the incremental investment we have made in these
businesses over the past two years.
US Higher Education Courseware (25% of revenue) down by around 10%.
Digital : print split expected to shift from 55% : 45% at the end
of last year to 65% : 35% at the end of this year
● Underlying pressures from lower college enrolments
and use of Open Educational Resources (OER) are all largely as
expected. However, we believe the weaker than expected trading has
been driven by the following factors:
o The
key selling season has seen a significant industry wide
acceleration of print attrition as channel partners and students
turn away from print products more rapidly than
anticipated.
o Modest
(c. one percentage point) adoption share loss likely caused by the
delivery issues due to the implementation of our new Enterprise
Resource Programme (ERP) in H2 last year as well as our sales force
re-organisation. Over time, we expect to re-gain this share
following the roll out of our next wave of digital products on the
Global Learning Platform which launched in September, along with a
sales force which is strategically aligned to our customer
base.
o Digital
revenues are up modestly but registrations are down slightly due to
a continuation of the trends we identified at half year with
greater than anticipated pressure in Developmental Mathematics, the
strategic retirement and deprioritisation of long tail products,
and some impact from loss of market share.
● Our strategy to move to more affordable access
based models such as Inclusive Access, digital products and partner
print rental will result in a more sustainable and predictable
business. Over the last three years, we have moved significantly
more of our business into digital and access based models, we have
transformed our technology platform laying the foundations for our
next generation of digital products and reduced cost substantially
through re-organisation of the sales force and product services and
implementation of a modern ERP system.
Simplification plans on track and strong balance sheet
● We remain on track to deliver in excess of
£330m1 of
annualised cost savings, with the full benefits accruing from the
end of 2019 onwards.
● Our financial position remains robust and we
continue to expect year end net debt to be broadly in line with
2018.
Underlying adjusted operating profit at the bottom of the guidance
range
● We now expect US Higher Education Courseware
revenue to decline between 8% to 12% in 2019, weaker than our
original guidance for a 0% to 5% decline.
● We now expect Pearson to deliver
adjusted operating profit in 2019 at the bottom of the guidance
range of £590m to £640m with trading impact from our US
Higher Education Courseware business offset by good underlying
growth in the rest of the business and temporary additional cost
savings. We expect to deliver adjusted EPS at the bottom of the
guidance range of 57.5p to 63.0p.
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