REG - Pearson PLC - Pearson 2024 Nine Month Trading Update

PearsonAnnouncement

29/10/2024 07:00

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RNS Number : 9455J  Pearson PLC  29 October 2024

Pearson 2024 Nine Month Trading Update (Unaudited)

 29(th) October 2024  Continued progress on 2024 priorities with good financial and operational
                      performance; all divisions delivered underlying sales growth in Q3; on track
                      to meet full year expectations.

 

 

Highlights

 ·         Advancing our 2024 strategic priorities:
           o                                        Progressing in Enterprise: signed a new meaningful multi-year enterprise deal
                                                    with ServiceNow and expanded our partnership with Degreed.
           o                                        Scaling AI across our products and services: double-digit year-over-year
                                                    billings growth in Higher Education products with AI study tools, and
                                                    developing English Language Learning Teaching Pal to create customised lesson
                                                    content and activities.
 ·         Underlying Group sales growth(1): up 5% in Q3, resulting in 3% growth for the
           nine-month period, excluding OPM(2) and Strategic Review(3) businesses.
 ·         Delivered a comprehensive performance: all divisions grew in Q3, including
           Higher Education.
 ·         On track to meet full-year expectations.

 

Omar Abbosh, Pearson's Chief Executive, said:

"Pearson is delivering on the three priorities for 2024 that I identified at
the start of the year. First, our focus on operational and financial
performance has driven growth across all divisions this quarter and we are on
track to meet full-year expectations. Second, we are accelerating our AI
capabilities across the business and starting to see the commercial benefit.
Third, expanded enterprise relationships with companies such as ServiceNow
demonstrate progress on our intention to expand in workforce learning."

 

Underlying sales growth(1) of 3% for the nine months, 5% for Q3, excluding
OPM(2) and Strategic Review(3) businesses; 2% in aggregate for the nine months

 ·         Assessment & Qualifications sales were up 3% for the nine-month period,
           with growth accelerating in Q3, as expected, and all businesses contributing
           to growth.
 ·         Virtual Learning sales were up 4% for Q3 due to 4% growth in Virtual Schools,
           with 2024/25 academic enrolments up 4% on a same school basis. Virtual
           Learning sales declined 4% for the nine-month period attributable to the final
           portion of the OPM ASU contract in the first half of 2023.
 ·         Higher Education returned to growth in Q3 with sales up 4% and is on track to
           grow for the full year, driven by the operational and business changes
           implemented over the past 18 months. Higher Education sales were flat for the
           nine-month period.
 ·         English Language Learning sales were up 7% for the nine-month period driven by
           a strong performance in Institutional. In Q3, sales were up 2% with some
           Institutional sales moving to Q4.
 ·         Workforce Skills sales were up 6% for the nine-month period and also for Q3,
           with solid performances in both Vocational Qualifications and Workforce
           Solutions.

 

Strong financial position

 ·         Pearson's financial position remains robust, with a strong balance sheet.
 ·         Moody's recently upgraded Pearson's long-term issuer rating to Baa2 and moved
           the outlook to stable
 ·         We completed our £500m share buyback with 7% of shares bought back.
 ·         We issued a £350m Educational Bond.
 ·         The UK government and other parties have successfully appealed against the
           2019 European Commission decision that the UK controlled foreign company group
           financing partial exemption partially constitutes State Aid. This means that
           the £105m previously paid in relation to this will be recovered at some point
           in the future and we will release the related £63m tax provision in 2024,
           with the impact of the provision release captured outside of adjusted
           earnings.

 

2024 outlook - full year guidance reaffirmed

 ·         Group underlying sales growth, adjusted operating profit, interest and tax
           outlook for 2024 remain in line with market expectations(4). As guided, free
           cash flow conversion is expected to be 95-100%.
 ·         We expect interest to be in line with guidance of c.£45m with recovery of
           interest on the State Aid payment offset by increased interest given our
           recent bond issue.

 

 

Financial summary

Underlying growth for the third quarter and nine months ended 30th September
2024 compared to the equivalent period in 2023.

 

 Sales                                            Q3      Nine months
 Assessment & Qualifications                      6%      3%
 Virtual Learning                                 4%      (4)%
 Higher Education                                 4%      0%
 English Language Learning                        2%      7%
 Workforce Skills                                 6%      6%
 Strategic Review                                 (100)%  (100)%
 Total                                            4%      2%
 Total, excluding OPM(2) and Strategic Review(3)  5%      3%

 

(1)Throughout this announcement growth rates are stated on an underlying basis
unless otherwise stated. Underlying growth rates exclude currency movements,
and portfolio changes.

(2)We completed the sale of the Pearson Online Learning Services (POLS)
business in June 2023 and as such have removed it from underlying measures
throughout. Within this specific measure we exclude our entire OPM business
(POLS and ASU) to aid comparison to guidance.

(3)Strategic Review is sales in international courseware local publishing
businesses which have been wound down. As expected, there are no sales in
these businesses in 2024.

(4)2024 consensus on the Pearson website dated 30(th) August 2024; adjusted
operating profit of £598m at £:$ 1.27. Based on the strengthening of the
£:$ rate, our average rate for profits through the first 9 months of 2024 is
1.28. As a reminder, every 1c movement in £:$ rate will equate to
approximately £5m adjusted operating profit impact.

 

Assessment & Qualifications

In Assessment & Qualifications, sales growth accelerated in Q3 to 6%, with
the business unit up 3% for the nine-month period.

 

Pearson VUE sales were up 3% for the nine-month period driven by favorable mix
and value-added services, with PDRI seeing good growth. We have launched a new
Generative AI Foundations certification, to be delivered on Pearson VUE's
online testing platform (OnVUE) and in physical test centres. This certificate
will equip professionals and students with the essential skills needed to work
with these technologies.

 

In US Student Assessment, sales were up 1% for the nine-month period as
phasing normalised.

 

In Clinical Assessment, sales were up 3% for the nine-month period, due to
pricing, digital product growth and successful new product launches.

 

In UK and International Qualifications, sales were up 7% for the nine-month
period largely driven by volume, pricing and International growth.

 

We continue to expect low to mid-single digit sales growth for the full year.

 

Virtual Learning

In Virtual Learning, sales were up 4% for Q3 due to 4% growth in Virtual
Schools with 2024/25 academic enrolments up 4% on a same school basis. Virtual
Learning sales declined 4% for the nine-month period attributable to the final
portion of the OPM ASU contract in the first half of 2023.

 

In Virtual Schools, we previously announced the opening of 3 new schools this
year and a further 19 career programmes. This brings our total number of
schools to 40, with 24 career programmes, across 30 states for the 2024/25
academic year. Students now have access to expanded college and early career
readiness offerings, including through credentials via Credly, and college
cost savings via new partnerships with institutions like Southern New
Hampshire University.

 

We have also embedded AI study tools into our Virtual Schools content so that
when high school students struggle with quizzes and practice tests, they can
receive step-by-step help to walk them through tough material.

 

Full year expectations for Virtual Schools remain unchanged with sales
expected to be down a similar rate to 2023 reflecting the previously announced
school losses. As a reminder, Q4 performance will be impacted by the catch up
in funding that we saw in Q4 last year.

 

Higher Education

In Higher Education, sales grew 4% in Q3 and were flat for the nine-month
period, in line with expectations.

 

In US Higher Education, Q3 sales growth was driven by gains in adoption share,
enrolments and pricing partially offset by mix impacts and revenue deferral.
In the nine-month period, there was 3% growth in US digital subscriptions and
Inclusive Access growth of 24%.

 

We continue to see good engagement with our AI study tools with over 5 million
student interactions in the nine-month period to September following the roll
out of our AI study tools. We extended the AI study tools to more than 90
titles for Fall Back to School. This has helped to drive double-digit billings
growth year-over-year in products with AI study tools.

 

On 1st October 2024, Pearson began to directly distribute our proprietary
Advanced Placement (AP®), Dual Enrollment, and Career and Technical Education
(CTE) materials into states and school districts, which were previously
distributed by a third party. The dedicated sales team that Pearson has
invested in will enable us to expand and strengthen customer relationships
with US school administrators as the demand for college and career readiness
programmes grows.

 

We continue to expect sales growth for the full year.

 

English Language Learning

In English Language Learning, sales increased 2% for Q3 and 7% for the
nine-month period.

 

Institutional performance continued to be strong for the nine-month period,
with particularly good growth in LATAM and Middle East markets, albeit sales
were down in Q3 due to phasing shifts to Q4.

 

We are infusing AI into our English Language Learning division with the
development of Teaching Pal, an AI-powered tool designed to simplify
educators' work by creating customised lesson content and activities,
leveraging our trusted IP.

 

We continue to expect high-single digit sales growth for the full year.

 

Workforce Skills

In Workforce Skills, sales increased 6% for Q3 and the nine-month period.

 

There was solid performance in both the Vocational Qualifications and
Workforce Solutions businesses.

 

Pearson has many of the assets that enterprises need to address their problems
in talent planning, talent sourcing and talent development, and through
bundling our existing products we can unlock synergies across the company. We
have recently signed a meaningful multi-year deal with ServiceNow. The first
phase is aimed at reshaping how their employees and professional communities
develop and verify critical skills and drive productivity in the era of AI,
using Pearson's research, insights and Credly capabilities.

 

We are also expanding our partnership with Degreed through
integrating Faethm data sets into Degreed's platform, offering real-time
insights into the most relevant skills across industries, allowing companies
to benchmark skills, identify gaps, and prioritise key areas for upskilling.

 

 

Contacts

 Investor Relations  Jo Russell                                                                       +44 (0) 7785 451 266

                     Alex Shore                                                                       +44 (0) 7720 947 853

                     Gemma Terry                                                                      +44 (0) 7841 363 216
                     Brennan Matthews                                                                 +1 (332) 238 8785
 Media

 Teneo               Ed Cropley                                                                       +44 (0) 7492 949 346

 Pearson             Laura Ewart                                                                      +44 (0) 7798 846 805
 Virtual event       Pearson's 2024 nine month trading update is taking place today at 08:30 (GMT).
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About Pearson

At Pearson, our purpose is simple: to help people realise the life they
imagine through learning. We believe that every learning opportunity is a
chance for a personal breakthrough. That's why our Pearson employees are
committed to creating vibrant and enriching learning experiences designed for
real-life impact. We are the world's lifelong learning company, serving
customers with digital content, assessments, qualifications, and data. For us,
learning isn't just what we do. It's who we are. Visit us at pearsonplc.com.

 

Notes

Forward looking statements: Except for the historical information contained
herein, the matters discussed in this statement include forward-looking
statements. In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the impact of
interest or exchange rates, the availability of financing, anticipated cost
savings and synergies and the execution of Pearson's strategy, are
forward-looking statements. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on
circumstances that will occur in future. They are based on numerous
assumptions regarding Pearson's present and future business strategies and the
environment in which it will operate in the future. There are a number of
factors which could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements, including
a number of factors outside Pearson's control. These include international,
national and local conditions, as well as competition. They also include other
risks detailed from time to time in Pearson's publicly-filed documents and you
are advised to read, in particular, the risk factors set out in Pearson's
latest annual report and accounts, which can be found on its website
(www.pearsonplc.com). Any forward-looking statements speak only as of the date
they are made, and Pearson gives no undertaking to update forward-looking
statements to reflect any changes in its expectations with regard thereto or
any changes to events, conditions or circumstances on which any such statement
is based. Readers are cautioned not to place undue reliance on such
forward-looking statements.

 

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