Pearson share price: 2016 operating profit slightly better than January guidance

on Feb 24, 2017
Updated: Oct 21, 2019

Pearson (LON:PSON) has updated investors on its full-year performance this morning.

**Highlights from the company statement:**
· 2016 operating profit and eps slightly better than January 2017 guidance. Strong 2016 cash conversion
o Sales of £4,552m declined 8% in underlying terms. Good growth in Pearson VUE, US Virtual Schools Online Program Management and Wall Street English in China was more than offset by expected declines in US and UK student assessment and US school courseware, and a much worse than expected decline in North American higher education courseware, as detailed in our 18 January trading statement.

o Deferred revenue was broadly level in underlying terms and is now 18% of our revenues (2015: 16.5%).
o Adjusted operating profit of £635m was down 21% in underlying terms due to weaker revenues, the partial reinstatement of incentives and other operational factors, partially offset by cost savings from the restructuring plan announced in January 2016, a larger contribution from Penguin Random House, helped in part by modest one-off benefits from the integration programme, and a return to profit in our Growth segment.

o Adjusted earnings per share fell 16% to 58.8p reflecting weaker operating results, higher interest and a higher tax rate of 16.5%, offset by the strength of the US Dollar and other currencies against Sterling.
o Operating cash flow increased 52% benefitting from tight working capital control, lower cash incentive payments and the weakness of Sterling. Our cash conversion increased to 104% (2015: 60%).
o Net debt increased to £1,092m (2015: £654m) reflecting the strengthening of the US Dollar relative to Sterling and restructuring costs.
o Digital & services revenues now make up 68% of our total revenues (2015: 65%). We have made good progress in simplifying our technology platforms and seen strong growth in key digital products Revel, iLit, Q-Interactive, Connections Education and global wins in Online Program Management.

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· 2016 statutory results and goodwill impairment: Statutory loss for the year of £2,335m included an impairment of goodwill of £2,548m. This impairment charge is consistent with the challenging market conditions which we disclosed in January, and which resulted in an outlook for profit which is approximately £180m lower than previously anticipated.

· 2016 restructuring program: Our 2016 restructuring program was delivered in full, reducing our cost base exiting 2016 by £425m at a cost of £338m. Adjusting for the impact of currency our plan delivered slightly higher benefits at a slightly lower cost than planned.

· 2017 guidance, strategic actions to accelerate digital, simplify the portfolio and preserve financial flexibility
o 2017 outlook in line with 18 January trading statement: Our guidance range is for operating profit in 2017 of £570m to £630m, adjusted earnings per share of 48.5p to 55.5p and cash conversion in excess of 90%. This is based on our existing portfolio, a 2017 net interest charge of £74m, a tax rate of approximately 20%, and exchange rates on 31 December 2016.
o Trading in early 2017: Our early trading is in line with expectations. The phasing in our North American higher education courseware business in 2017 will show a benefit from returns normalising in the first half, whilst the underlying market pressures we have described will impact gross sales primarily in the second half.
As of 07:21 GMT, Friday, 24 February, Pearson plc share price is 638.28p.


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