Pearson 2019 Preliminary Results (Unaudited)

Underlying revenue flat year on year
• Core grew 5% and Growth 4%, offset by 3% decline in North America.
• Growth of 4% in the businesses excluding US Higher Education Courseware offset by declines in US Higher Education Courseware of 12%.

Adjusted operating profit up 6%
• Adjusted operating profit of £581m for 2019 (2018: £546m).
• Adjusted earnings per share of 57.8p (2018: 70.3p) reflecting an effective tax rate charge of 16.5% in 2019 compared to a credit of 5.2% in 2018.

Strong balance sheet
• Closing net debt at 31 December 2019 of £1,016m (2018: £809m on post-IFRS 16 basis) resulting in net debt to adjusted EBITDA of 1.3x (post-IFRS 16).
• Operating cash flow decreased by £95m with a conversion rate of 72% largely due to timing of disposals, incentive payments and working capital movements.
• The Board proposes a final dividend of 13.5p (2018: 13p), an increase of 4%, which equates to a full year dividend of 19.5p (2018: 18.5p).

Statutory results
• Sales decreased by 6%, or £260m, in headline terms. This was primarily due to portfolio changes reducing sales by £347m partially offset by currency movements increasing revenue by £97m.
• Statutory operating profit was £275m (2018: £553m). The decrease is largely due to the reduced gains on disposals together with increased intangible and restructuring charges which more than offset the increase in adjusted operating profit.
• Statutory EPS of 34.0p (2018: 75.6p) with the decrease due to a lower statutory operating profit, a lower tax benefit following one-off benefits in 2018 and higher net interest payable following the adoption of IFRS 16.

Digital transformation and simplification programme
• Further progress on Pearson’s digital transformation with revenue split 36% digital (2018: 34%), 30% digitally-enabled (2018: 28%) and 34% non-digital (2018: 38%).
• Efficiency programme delivered incremental cost savings of £130m in 2019. Annualised savings of £335m at the end of 2019. Pearson’s simplification programme enables ongoing efficiencies over time.
• Sale of remaining 25% stake in Penguin Random House announced on 18th December 2019. Transaction expected to close in H1 2020.
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