Pearson 2016 half-year results

Pearson is trading in-line with the expectations set in February and is reiterating 2016 guidance which remains based on our current portfolio of businesses and exchange rates on 31 December 2015. Our growth and simplification plan is on-track and our 2018 goals are unchanged. If current exchange rates persist until the end of 2016 the earnings per share guidance range will increase by approximately 4p.
Trading in-line with our expectations:
Sales of £1,866m declined 7% in underlying terms primarily due to the expected declines in assessment revenues in the US and UK, which are weighted towards the first half of the year, but also the phasing of both gross sales and returns in North American Higher Education courseware.
Revenues declined 11% at constant exchange rates, reflecting underlying revenue declines, the impact of a change in revenue model at Connections Education which now records revenue for services charged at cost on a net basis, and the disposal of PowerSchool. Headline sales decreased 7% with the benefit from the strength of the US Dollar against Sterling partly offset by the weakness of key emerging market currencies.
Deferred revenues grew 5% in underlying terms.
Adjusted operating profit of £15m is in-line with our expectations and down £39m when compared to H1 2015 reflecting lower revenues, incentive compensation accruals and dual IT running costs, partly offset by initial savings from our simplification programme and phasing of integration benefits at Penguin Random House.
Adjusted loss per share of (1.3)p (H1 2015: adjusted earning per share 4.4p) reflected the lower adjusted operating profit and interest charges.
Net debt fell by £863m to £1,426m (H1 2015: £2,289m) with the proceeds from disposals partly offset by the impact of the depreciation of Sterling against the US Dollar on the Sterling value of our Dollar denominated debt.
Dividend held level at 18p, in-line with previous guidance, reflecting the Board’s confidence in the medium term outlook.

Simplification and growth plan on-track: We have made good progress in delivering the simplification and change programmes that we announced on 21 January (http://pear.sn/10EPp5). Approximately 3,450 of the targeted reduction in headcount of 4,000 Full Time Equivalent (FTE) employees have been notified of exit. Key changes include the creation of a global product organisation, further simplification of back office functions such as technology and finance, and the scaling down of some of our direct delivery businesses. Our global ERP implementation is on-track with HR and Finance systems going live in the UK in May and July, respectively. We still expect to incur restructuring costs of approximately £320m in 2016 and to generate annualised savings of approximately £350m, with approximately £250m of these savings in 2016 and a further £100m in 2017. Our investments in new digital products and services, including our New Student Experience for Wall Street English and our first online degree partnership in the UK, are building Pearson’s future growth potential.

Statutory results reflect the costs of implementing the plan: Our statutory results showed a loss from continuing operations of £286m (£129m loss in 2015) primarily reflecting lower adjusted operating profit and the impact of restructuring charges.

2016 outlook reiterated: Many of the factors outlined in our full year guidance in February have proportionately a much greater impact on our first half results given the heavy weighting of our profits and cash flow to the second half of the year. These factors become proportionately much less significant during the larger second half of the year when, in addition, we will also benefit from most of the savings from the simplification programme. In 2016, we continue to expect to report adjusted operating profit and adjusted earnings per share before the costs of restructuring of between £580m and £620m and between 50p and 55p, respectively, with the in-year benefits from restructuring offset by the loss of operating profit from disposals made in 2015, ongoing challenging conditions in our largest markets, the reinstatement of the employee incentive pool and other operational factors. This guidance remains based on our current portfolio of businesses and exchange rates on 31 December 2015. If current exchange rates persist until the end of 2016 the earnings per share guidance range will increase by approximately 4p.
more at:  https://www.pearson.com/news/announcements/2016/july/pearson-2016-half-year-results.html

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