Pearson nine-month trading update

Sales in the first nine months decreased by 2% in underlying terms primarily due to expected declines in North America in school assessment, school and higher education courseware, and the retirement of Learning Studio.

Sales in US higher education courseware declined by 1% on an underlying basis, towards the upper half of our expected range. The negative impact of lower enrolments and attrition from growth in the secondary market driven by print rental was partially offset by the benefit of increased digital revenue and a year on year benefit from the reduction in returns from last year’s unprecedented levels, helped by the actions we announced at the beginning of the year.

Underlying sales in Core and Growth were in line with our expectations.

Whilst we anticipate the underlying structural pressures in US higher education courseware will persist in the medium term, the relative strength of trading in this business is helping our profits this year. As a result, we now expect Pearson’s 2017 operating profits to be in the upper half of the range we set at the start of the year.

Our profit performance year to date is benefiting from ongoing savings from the 2016 restructuring programme and this underpins our confidence in the full year.

In addition, we are revising our guidance on taxation as a result of the favourable outcome of certain historical tax issues and now expect our 2017 adjusted tax rate to be around 16% as against our prior expectation of 21%. Finance costs in 2017 are now expected to be around £78m, compared to our prior expectation of £74m, due to the costs of a higher than expected take up of our debt tender offer. This increases charges in 2017 but will lower finance costs in 2018, which we now expect to be in the range £40m to £45m.

Net debt at the end of September 2017 was £1,312m (2016: £1,365m) reflecting good operating cash generation, a lower interim dividend payment and a modest benefit from the strengthening of Sterling against the US Dollar, offsetting pension contributions relating to the 2013 creation of Penguin Random House and restructuring costs.

The sale of a 22% stake in Penguin Random House to Bertelsmann, announced on July 11th, closed on October 5th. We expect to start to return £300m in surplus capital via a share buyback soon.

Our UK Pension Plan has used its strong funding position to purchase two insurance buy-in policies with Legal & General and Aviva, covering approximately £1.2bn (one third) of its total liabilities. This puts the Plan in an even stronger position and substantially reduces Pearson’s future pension funding risk, at no further cost to the Company.
more details at:  https://www.pearson.com/corporate/news/media/news-announcements/2017/10/pearson-nine-month-trading-update–unaudited-.html

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