REG - Pearson PLC - Final Results <Origin Href="QuoteRef">PSON.L</Origin> - Part 3
23/02/2018 07:11
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3,429
Average: other non-current intangibles 2,606 2,481 2,606 2,481
Average: intangible assets - pre-publication 995 926 995 926
Average: tangible fixed assets and working capital 731 1,070 731 1,070
Average: total invested capital 11,568 11,464 8,126 7,906
ROIC 4.3% 5.0% 6.2% 7.2%
ROIC is a non-GAAP measure and has been disclosed as it is part of Pearson's
key performance indicators. ROIC is used to track investment returns and to
help inform capital allocation decisions within the business. Average values
for total invested capital are calculated as the average monthly balance for
the year.
For the first time in 2017 we have presented ROIC on a net basis after
removing impaired goodwill from the invested capital balance. The net approach
assumes that goodwill which has been impaired is treated in a similar fashion
to goodwill disposed as it is no longer being used to generate returns.
19. Contingencies
There are contingent Group liabilities that arise in the normal course of
business in respect of indemnities, warranties and guarantees in relation to
former subsidiaries and in respect of guarantees in relation to subsidiaries,
joint ventures and associates. In addition there are contingent liabilities of
the Group in respect of legal claims, contract disputes, royalties, copyright
fees, permissions and other rights. None of these claims are expected to
result in a material gain or loss to the Group.
On 24 November 2017 the European Commission published an opening decision that
the United Kingdom controlled foreign company group financing partial
exemption ("FCPE") constitutes State Aid. No final decision has yet been
published, and may anyway be challenged by the UK tax authorities. The Group
has benefited from the FCPE in 2017 and prior periods by approximately £90m.
At present the Group believes no provision is required in respect of this
issue.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
20. Related parties
At 31 December 2017 the Group had loans to Penguin Random House (PRH) of £46m
(2016: £33m) which were unsecured with interest calculated based on market
rates. The loans are provided under a working capital facility and fluctuate
during the year.
At 31 December 2017, the Group also had a current asset receivable from PRH of
£19m (2016: £21m) and a current liability payable of £3m (2016: £nil)
arising from the provision of services. Service fee income from PRH was £3m
in 2017 (2016: £4m).
During the year the Group received dividends of £458m (2016: £131m) from PRH
including £312m in relation to the re-capitalisation of the venture following
Pearson's disposal of part of its share. At 31 December 2017 the Group had a
dividend receivable from PRH of £49m (2016: £nil) which was also due in
respect of re-capitalisation.
Apart from transactions with the Group's associates and joint ventures noted
above, there were no other material related party transactions and no
guarantees have been provided to related parties in the year.
21. Events after the balance sheet date
During January 2018, Pearson successfully executed market tenders to
repurchase €250m of its €500m Euro 1.875% Notes due May 2021 and €200m
of its €500m Euro 1.375% Notes due May 2025.
On 16 February 2018, Pearson completed its £300m share buyback programme. In
aggregate between 18 October 2017 and 16 February 2018, Pearson repurchased
42,835,577 shares, including 21,839,676 repurchased since 31 December 2017 at
a cost of £151m.
This information is provided by RNS
The company news service from the London Stock Exchange
exits. We signed 45 multi-year programs in 2017 renewed 19 programs and launched 14 new programs at partners including Maryville University, Duquesne University and Ohio University. During the year we also agreed the termination of nine programs that were
not mutually viable and did not renew a further six programs. Brinker International, Inc. (NYSE: EAT), one of the world's leading casual dining restaurant companies and owner of Chili's Grill & Bar and Maggiano's Little Italy, with over 1,600 owned,
operated and franchised restaurant locations, partnered with Pearson to launch a comprehensive employer-education program Best You EDU that provides free educational opportunities to Brinker employees including foundational, GED and Associate Degree
programs.
2018 Outlook In US higher education courseware, we expect revenues to be flat to down mid-single digit percent as similar pressures seen in the last two years continue with lower college enrolments, increased use of OER and attrition from growth in the secondary market
driven by print rental, are partially offset by growth in digital revenues, benefits from our actions to promote access over ownership and a continued normalisation of channel returns behaviour. Evidence of a marginally slower rate of decline in US
student enrolment together with slightly lower than expected attrition from OER in 2017, mean that we are now planning for an underlying decline in demand of around 6% in US higher education courseware, slightly improved from our prior range of 6% to 7%.
We expect stable testing revenues in North Americastudent assessment as new contracts offset a continued contraction in revenue associated with our PARCC contract. Connections Education is expected to grow modestly as new partner school openings and good
growth in enrolment is partially offset by in-sourcing of non-core services by some partners and contract exits. North American Online Program Management is expected to see modest growth in revenue as investment in new programs begin to ramp up.
Professional certification is expected to grow revenues in the mid-single digits benefiting from new contracts, including our nationwide contract with the AAMC.
Core (18% of revenues)
Revenues grew 1% in headline terms, were down 1% at CER and flat on underlying terms, primarily due to growth in OPM in the UK and Australia and growth in Pearson Test of English offset by declines in school, higher education, English courseware and student assessment and qualifications. Adjusted operating profit declined 14%, or £8m, in underlying terms due to revenue mix, investment in new products and services and business exits, partially offset by restructuring savings.
Courseware Courseware revenues declined moderately. In school, revenues declined in Australia, due to market contraction in the primary sector partly offset by slight growth in secondary, and declines in smaller markets in Europe and Africa. In higher education,
revenues were down slightly due to declines in smaller markets, whilst in Australia and the UK an increase in direct to institution sales and a further shift to digital offset declines in traditional textbook sales. In English, there were declines in
smaller markets.
Assessment In student assessment and qualifications, revenues declined mid-single digits primarily due to lower AS level, iGCSE and Apprenticeship volumes as a result of policy changes. BTEC revenues also declined modestly as revenues recognised in 2017 lagged the
greater stability we have seen in registrations and billed revenue in the year. We successfully delivered the National Curriculum Test for 2017, marking 3.5m scripts, up slightly from 2016. Clinical assessment grew strongly with revenues benefiting from
strong growth in the new editions of the Wechsler Intelligence Scale for Children (WISC-V) and the Clinical Evaluation of Language Fundamentals (CELF-5). Pearson Test of English (PTE) saw continued strong growth in test volumes, which rose 84% from 2016,
driven primarily by its use to support visa applications to the Australian Department of Immigration and Border Protection and good growth in New Zealand. In Professional certification, revenues were flat as the impact of last year's renegotiated terms of
the UK Driving Theory test for the DVSA was offset by growth from new and existing contracts.
Services In higher education services, revenues grew strongly. Our OPM revenues were up 33%. In Australia, we saw good growth due to our successful partnership with Monash University, and continued success of the Graduate Diploma in Psychology. We have a total of
c.9,300 course registrations across the seven programs in Australia up from c.6,900 in 2016. In the UK, we launched five new programs in addition to the two launched in 2016. UK course registrations grew, reaching c.1,400 compared to c.370 in 2016.
Englishservices grew, with strong growth in WSE Italy, due to the opening of new centres in 2015 and 2016, partially offset by declines in Japan.
2018 Outlook In Core, we are expecting modest growth driven by our recent investments in student assessment and qualifications, where we are offering new products and services of considerably greater value, along with continued growth in PTE and OPM with 10 new program
launches in the UK, and growth in existing programs in Australia.
Growth (17% of revenues)
Revenues were flat in both headline and underlying terms due to growth in China, school courseware in South Africa and Pearson Test of English, offset by declines in higher education services primarily due to lower enrolment at CTI and business disposals in India, and declines in Brazil. Revenues were down 4% at CER due to the disposal of GEDU. Adjusted operating profit increased 3% in underlying terms, reflecting the higher revenues in China, South Africa school courseware and PTE in India, together with the benefits of restructuring, partially offset by lower revenues in Brazil.
Courseware Courseware revenues grew moderately, due to strong growth in school textbook sales in South Africa and English language courseware in China, partially offset by weakness in Brazil.
Services In English services, growth in Wall Street English in China, due to new centre openings, was offset by declines in Brazil due to macroeconomic pressures. In school services, revenue fell, with student enrolment in our sistemas business in Brazil falling
14% primarily due to NAME, our public sistema, where we took the strategic decision to exit two thirds of our contracts with municipalities due to unattractive economic prospects, together with a reduction in student enrolments in our Dom Bosco private
sistema due to challenging economic conditions. In India, Pearson MyPedia, an inside service 'sistema' solution for schools, expanded to over 500 schools with approximately 157,000 learners. In higher education services, revenues declined sharply due to a
14% fall in total student enrolment at CTI our university in South Africa driven by the cumulative impact of economic factors in recent years, partially offset by improved new student enrolments in 2017, together with business exits in India.
Assessment Professional Certification grew strongly. Pearson Test of English saw over 30% growth in the volume of tests taken in India.
2018 Outlook In our growth markets we expect a modest increase in revenues, with growth in China in ELT products, PTE and in South Africa due to improving enrolments in CTI partially offset by declines in school courseware after a strong 2017. In Brazil, we expect
revenue to increase modestly from growth in Wizard and school sistemas, partially offset by declines in government contracts. In India, we expect PTE and MyPedia to continue growing.
Penguin Random House
Following the disposal of a 22% stake on 5 October 2017 Pearson owns 25% of Penguin Random House, the first truly global consumer book publishing company. Penguin Random House performed in line with our expectations with revenues up slightly on a headline and underlying basis year on year on rising audio sales, broadly stable print sales, and modest ongoing declines in demand for e-books, whilst the business benefitted from bestsellers by Dan Brown, R.J. Palacio, John Grisham, Jamie Oliver, and Dr. Seuss.
2018 Outlook In Penguin Random House, we anticipate a broadly level publishing performance and expect an annual after-tax contribution of around £60-65m to our adjusted operating profit.
FINANCIAL REVIEW
Operating result
Sales decreased on a headline basis by £39m or 1% from £4,552m in 2016 to
£4,513m in 2017 and adjusted operating profit decreased by £59m or 9% from
£635m in 2016 to £576m in 2017 (for a reconciliation of this measure see note
2 to the condensed financial statements).
The headline basis compares the reported results. We also present sales and
profits on an underlying basis which exclude the effects of exchange and the
effect of portfolio changes arising from acquisitions and disposals. Our
portfolio change is calculated by taking account of the contribution from
acquisitions and by excluding sales and profits made by businesses disposed in
either 2016 or 2017. Portfolio changes mainly relate to the closure of our
English language schools in Germany and the sale of the Pearson English
Business Solutions business in North America during 2016 and the sale of our
test preparation business in China and reduction in our equity interest in PRH
in 2017. Acquisitions were not significant in either 2016 or 2017.
On an underlying basis, sales decreased by 2% in 2017 compared to 2016 and
adjusted operating profit
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