REG - Pearson PLC - Pearson Q1 2025 Trading Update

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RNS Number : 1499H  Pearson PLC  02 May 2025

Pearson Q1 2025 Trading Update (Unaudited)
 2(nd) May 2025  Pearson on track to deliver 2025 guidance(1) with expected Q1 result and
                 momentum building for the second half

Highlights
 ·             Underlying Group sales up 1%, with growth expected to accelerate in the second
               half of the year
 ·             All business units performing in line with expectations; strong start for
               Higher Education with underlying sales up 6%
 ·             Good progress against our 2025 strategic priorities, including:
               o                                         Expanding professional learning capabilities with our new Pearson Skilling
                                                         Suite (link here
                                                         (https://plc.pearson.com/en-GB/news-and-insights/news/pearson-expands-professional-learning-capabilities-new-skilling-partner)
                                                         )
               o                                         Continuing to lead on the application of innovative technologies, with the
                                                         launch of an AI-powered Smart Lesson Generator (link here
                                                         (https://plc.pearson.com/en-GB/news-and-insights/news/pearson-launches-smart-lesson-generator-ai-powered-innovation-transform)
                                                         )
               o                                         New contract wins in Enterprise Learning & Skills; including with UK
                                                         Ministry of Defence (link here
                                                         (https://plc.pearson.com/en-GB/news-and-insights/news/pearson-becomes-armys-largest-apprenticeship-provider)
                                                         )
               o                                         Launch of redefined Pearson brand to embrace the future of learning (link here
                                                         (https://plc.pearson.com/en-GB/news-and-insights/news/pearson-redefines-its-brand-embrace-future-learning)
                                                         )
 ·             £350m share buyback programme launched and progressing; £0.1bn State Aid
               recovery received in full

 

Omar Abbosh, Pearson's Chief Executive, said:

"We continue to make good progress against our strategy, supporting our medium
term growth outlook. We are confident of delivering on our expectations for
the year given our clear path to achieving stronger growth in the second half,
whilst we recognise the heightened uncertainties around the global economy.

Financial and operating performance in our smallest quarter was in line with
our plans and we continue to build AI enhanced offerings across the business
and make progress on our Enterprise initiatives."

Underlying Group sales growth of 1% in Q1 2025
 ·             Assessment & Qualifications sales were up 1%. Pearson VUE declined
               slightly, with growth expected to be weighted to H2 driven by the timing of
               new contracts and the test prep business building during the year, supported
               by the recent launch of the Pearson Skilling Suite programme. Clinical
               Assessment grew due to the continued traction of our products in the market,
               with further new product releases planned this year, and digital product
               growth. US Student Assessment saw a small decline due to changes in programme
               services and timing of delivery. UK & International Qualifications sales
               benefitted from International growth.
 ·             Virtual Learning sales decreased 4%, in line with guidance, reflecting the
               impact of previous partner school losses and timing of funding upsides in the
               prior period. 2024/25 academic year enrolments increased by 5% in the Spring
               semester on a same school basis, with positive retention trends.
 ·             Higher Education sales were up 6% benefitting from the continued innovation
               and roll out of AI study tools for students and educators and the ongoing
               successful monetisation of the Channels product. In the quarter, there was
               growth of 22% in Inclusive Access and 4% in US digital subscriptions. In our
               International business, 25 AI translated titles were made available for Spring
               semester courses, expanding the reach of Pearson learning experiences faster
               and more efficiently.
 ·             English Language Learning sales decreased 6%, in line with guidance.
               Institutional declined due to a strong comparator period in Q1 2024, and we
               expect performance to improve in Q2 and beyond. Pearson Test of English (PTE)
               performed well against a tough market backdrop and despite a decline in
               volumes we grew the business. We continue to lead on the application of
               innovative technologies with the recent launch of AI-powered Smart Lesson
               Generator and Digital Language Tutor.
 ·             Enterprise Learning & Skills sales were up 1%. Vocational Qualifications
               delivered a solid performance with new contract wins supporting pipeline
               growth, including apprenticeship courses with the UK Ministry of Defence and T
               Levels in Health and Science. Enterprise Solutions announced strategic
               partnerships with Microsoft and AWS in the quarter as we build momentum in our
               Enterprise approach and related sales capability.

On track to achieve 2025 guidance and medium term outlook unchanged
 ·             We expect sales growth and adjusted operating profit in line with market
               expectations(1) for 2025. We expect low single-digit sales growth in H1 with
               stronger growth in H2. We outline our previously issued 2025 guidance later in
               this release.
 ·             Beyond 2025, Pearson is positioned to deliver a mid-single digit underlying
               sales growth CAGR, sustained margin improvement that will equate to an average
               increase of 40 basis points per annum and strong free cash conversion(2), in
               the region of 90% to 100%, on average, across the period.

Strong financial position

 ·             Pearson's financial position remains strong, with low leverage and strong
               liquidity.
 ·             The £0.1bn previously paid in relation to State Aid was recovered in full
               during Q1 2025.
 ·             In March 2025 we commenced our £350m share buyback programme, with £65m
               purchased up to 30(th) April 2025.

Executive Change

 ·             Dave Treat, Pearson's Chief Technology Officer, has assumed leadership of the
               company's digital and technology operation alongside his current architectural
               and innovation responsibilities, effective 7(th) April 2025. Dave joined
               Pearson last July and will play a crucial role in scaling Pearson's AI
               offerings, bolstering our innovation pipeline, and driving collaboration
               across different business units.
 ·             Marykay Wells, who led the Digital and Technology team as Chief Information
               Officer, decided to leave Pearson, effective 4(th) April 2025. We want to
               thank Marykay for her work on our technology foundations and capabilities.

Financial summary
 Sales                             Q1 2025

                                   Underlying growth
 Assessment & Qualifications       1%
 Virtual Learning                  (4)%
 Higher Education                  6%
 English Language Learning         (6)%
 Enterprise Learning & Skills      1%
 Total                             1%

 

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

 

 

2025 guidance summary

 

 Underlying Sales growth  Group                             In line with market expectations(1). We expect low single-digit sales growth
                                                            in H1 with stronger growth in H2.
                          Assessment & Qualifications       Sales to grow low to mid-single digit. Growth will be H2 weighted with new and
                                                            renewed contracts and the test prep business building during the year.
                          Virtual Learning                  Sales to decline in H1 given the final impact of previous school losses and
                                                            the timing of funding in the previous year. Return to growth in H2 and the
                                                            full year driven by enrolment increases, partially from new school openings,
                                                            for the 25/26 academic year.
                          Higher Education                  Sales growth in 2025 will be higher than in 2024 as we build on the successful
                                                            results of our sales team transformation and product innovations, particularly
                                                            using AI. Growth will be relatively stable throughout the year.
                          English Language Learning         Sales growth will moderate given the likely impacts of elections on
                                                            immigration rates in 2025 affecting our PTE business, which is expected to
                                                            decline in the year. Q1 declined in line with expectations and we expect
                                                            growth to increase each quarter thereafter. We remain confident in the medium
                                                            term outlook given demographic projections.
                          Enterprise Learning & Skills      Sales to grow high single digit with Vocational Qualifications seeing solid
                                                            growth and the addition of several new contracts for Enterprise Solutions.
                                                            Growth will increase quarter on quarter.
 Group Profit             Adjusted Operating Profit         In line with market expectations(1).
                          Interest                          Adjusted net finance costs of c.£65m reflecting the impact of the Education
                                                            Bond and £350m share buyback programme which commenced in March.
                          Tax rate                          We expect the effective tax rate on adjusted profit before tax to be between
                                                            24% and 25%.
 Cash flow                                                  We expect a free cash flow conversion(2) of 90-100% plus the £0.1bn State Aid
                                                            repayment which was received in full during Q1 2025.
 FX                                                         Every 1c movement in GBP:USD rate equates to approximately £5m adjusted
                                                            operating profit impact.

 

(1)2025 consensus on the Pearson website dated 27(th) January 2025; underlying
sales growth 4.4%, adjusted operating profit of £656m at £:$ 1.23.  The
average £:$ rate for Q1 2025 was 1.27, which if held for the full year would
imply an updated adjusted operating profit consensus of c.£636m, applying the
FX guidance stated above.

(2)Free cash flow conversion calculated as free cash flow divided by adjusted
earnings.

Contacts
 Investor Relations  Alex Shore          +44 (0) 7720 947 853

                     Steph Crinnegan     +44 (0) 7780 555 351
                     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

 

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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