Pearson Interim Results For The Six Months To 30th June 2024 (Unaudited)

Solid H1 financial performance; No change to 2024 and 2025 guidance; Beyond 2025, expect to grow at mid-single digits with expanding adjusted operating margins

LONDON--(BUSINESS WIRE)--Pearson (FTSE: PSON.L):

Financial Highlights

£m	H1 2024	H1 2023		£m	H1 2024	H1 2023
Business performance				Statutory results
Sales	1,754	1,879		Sales	1,754	1,879
Adjusted operating profit	250	250		Operating profit	219	219
Operating cash flow	129	79		Profit for the period	158	187
Free cash flow	27	(50)		Net cash generated from operations	185	106
Adjusted earnings per share	25.6p	25.6p		Basic earnings per share	23.1p	26.1p

Highlights

• Underlying Group sales growth¹ of 2%, excluding OPM² and the Strategic Review³ businesses with each segment performing broadly in line with our expectations.
• Underlying adjusted operating profit growth¹ of 4% to £250m.
• Strong free cash flow performance up £77m to £27m.
• £500m share buyback substantially complete and raised interim dividend by 6%, while balance sheet remains robust.
• Remain on track to deliver on FY24 expectations and reiterate guidance out to 2025.
• Beyond 2025, Pearson is positioned to deliver mid-single digit underlying sales CAGR and sustained margin improvement that will equate to an average increase of 40 basis points per annum by continuing to drive performance in the core business, executing synergies and expanding into adjacent markets.

Omar Abbosh, Pearson’s Chief Executive, said:
“Since joining Pearson at the start of the year, I have led a comprehensive review of our business and the markets in which we operate. This process has only reinforced my conviction in the potential of Pearson and the vital role we play in helping people realise the life they imagine through learning. Significant demographic shifts and rapid advances in AI will be important drivers of growth in education and work over the coming years, and this plays to Pearson’s strengths as a trusted provider of learning and assessment services.

We are implementing plans across all of our businesses that will see us deliver better products & services with greater efficiency. We’re also focusing on opportunities to progressively build our presence in materially larger and higher growth markets in which we are well positioned to succeed, with a particular focus on early careers and enterprise skilling.

“Our good strategic and financial performance in the first half of the year sets us up to achieve our guidance for the current year and for 2025, and we expect thereafter to continue to deliver attractive growth with progressive improvements in our margins alongside consistently strong cash generation.”

Underlying sales growth¹ of 2%, excluding OPM² and Strategic Review³ businesses; 1% in aggregate

• Assessment & Qualifications sales grew 2%, with growth across Pearson VUE, Clinical, and UK & International Qualifications partially offset by an expected, small decline in US Student Assessments.
• Virtual Schools sales declined 1%, reflecting the previously announced contract losses for the current academic year. Virtual Learning sales declined 8% mostly attributable to the final portion of the OPM ASU contract in the first half of 2023.
• Higher Education sales were down 2%, in line with our phasing guidance. We are seeing encouraging signs of progress in the business with Spring adoption data indicating small market share gains.
• English Language Learning sales increased 11% due to strong growth in Institutional as well as growth in Mondly, partially offset by a sales decline in PTE given market dynamics. The Argentina FX impact discussed at Q1 has reduced as expected, and will be immaterial in a full year context.
• Workforce Skills sales grew 6%, with strong performances in Vocational Qualifications, GED and Credly.

Adjusted operating profit¹ up 4% on an underlying basis to £250m

• Performance driven by trading alongside net cost phasing and savings, partially offset by inflation and restructuring charges in Higher Education, which were weighted to the first half. First half adjusted profit margin grew to 14% (H1 2023: 13%).
• Headline growth was flat reflecting underlying performance, portfolio changes and currency movements.
• Adjusted earnings per share was flat at 25.6p (H1 2023: 25.6p) with higher net interest costs offset by the reduction in issued shares, both due to the share buyback.

Strong free cash flow with robust balance sheet enabling continued investment and driving increased shareholder returns

• Operating cash flow was again strong, up £50m to £129m (H1 2023: £79m) with good underlying fundamentals, as well as some phasing and FX benefits.
• Free cash flow was also strong, up £77m to £27m (H1 2023: (£50)m) given the operating cash performance and no reorganisation costs this year.
• Our balance sheet remains robust with net debt of £1.2bn (H1 2023: £0.9bn), the year on year increase being due to the £500m share buyback and dividends, partially offset by free cash flow.
• Proposed interim dividend of 7.4p (H1 2023: 7.0p) represents an increase of 6%.
• The previously announced buyback extension to repurchase £200m of shares continued. As at 30^th June 2024 £163m of shares had been repurchased at an average price of 994p per share, representing 81% of the total programme.

Continued operational progress

Operational progress continued across each of our businesses

• In Assessment & Qualifications, Pearson VUE renewed and won a number of key contracts, which will support future growth. Pearson VUE wins included university entrance tests in the UK and the teacher licence contract in Georgia, and it renewed key contracts with the National Council of State Boards of Nursing, the Project Management Institute, and the American Registry of Radiologic Technologists. PDRI also saw good growth, with strong volumes across both the TSA and United States Airforce contracts.
• In Virtual Schools, we have already 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.
• In Higher Education, recent Spring semester market data indicates a small gain in adoption share, while we also saw 3% growth in core text units, 2% growth in US digital subscriptions and Inclusive Access growth of 25%. Pearson+ continued to perform well with 5.0m cumulative registered users and paid subscriptions for the full academic year increasing 18% to 1.1m. We are seeing good engagement with our AI study tools, and are on track to extend to a further c.80 titles for Fall back to school. Pearson will also be launching AI tools for instructors for the Fall 2024 semester in 25 of our best-selling titles across business, math, science, and nursing in the US.
• In English Language Learning, PTE continued to gain market share, despite a market which has declined given tightening of policies around international study and migration across Australia, Canada and the UK. Given these market dynamics, we expect PTE sales to be flat to down for the year. Our market share gains in PTE, and the ramp up for Canada, mean we are well placed for English high stakes testing market growth, which we expect in the medium term given demographic projections.
• In Workforce Skills, Vishaal Gupta joined Pearson on April 15^th to lead the division, and play a critical role in executing our enterprise skills strategy.
• Dave Treat joined Pearson as Chief Technology Officer on 2^nd July 2024. Dave will report to CEO, Omar Abbosh, and work in close partnership with Pearson’s Chief Product and Chief Information Officers. He will lead technology innovation and architecture across the company.
• Ginny Cartwright Ziegler joined Pearson, today, 29 July 2024 as Chief Marketing Officer. Ginny will report to CEO Omar Abbosh and will lead the next generation of our work in marketing, brand and communications. Ginny is succeeding Lynne Frank, who has stepped down from her dual role as Chief Marketing Officer and Co-President, Direct to Consumer.

Positioning Pearson for sustained growth with continued higher margins

Through an extensive examination of the business and the markets in which we operate, we have identified a targeted market expansion opportunity for Pearson and have updated our strategy to drive higher performance in the core business and unlock new synergies

• Pearson is in a strong position today. We are the world’s lifelong learning company, where we are trusted to help individuals realise the life they imagine through learning. Our five businesses have clear lines of accountability and improving financial performance, with particular strength in assessments and verification.
• We are leaders today in a c.$15bn subsegment of the U.S. learning market, and are well positioned to play in a larger, and faster growing c.$80bn addressable market.
• The opportunity for Pearson will be supported by two key secular trends foreseen over the coming years: shifts in demographic trends and the rapid growth in the power of AI. The demographic shift will see the baby boomer generation leave the workforce, resulting in heightened pressure on talent sourcing, and the rapid development of increasingly powerful AI models will significantly change the world of work and skills requirements. Employers will need to find new pools of talent and continuously develop and verify the skills of their workforces to keep pace with and benefit from technology and AI advancements.
• To realise the growth opportunity for Pearson we will:
  • Drive further performance from our existing five core businesses to deliver an improved customer proposition, growth and efficiencies. We have identified a number of technology enabled initiatives, which we expect to unlock tens of millions of savings over the medium term. Initially these savings will be offset by restructuring costs, but as these pay back they will enable us to further invest in growth opportunities.
  • Unlock execution-based synergies across the business units from product & service bundling, a modern approach to software and product development, and a focus on strategic partnerships.
• We will allocate our investment where we see the best opportunities for growth and returns: firstly assessments and verifications; then enterprise skills and early careers.
• We will maintain net debt to EBITDA of around 2x, on average over time, though in the short term we intend to remain below this level to maintain some investment optionality. Our dividend policy is progressive and sustainable. At present, we do not plan to extend our share buyback programme, but are committed to regularly reviewing this.

Outlook

2024 Outlook reaffirmed⁴
Group underlying sales growth, adjusted operating profit and tax outlook for 2024 remain in line with market expectations. As guided, interest will be c.£45m and free cash flow conversion 95-100%.

In terms of divisional guidance and phasing:

• Expect improved growth momentum in the second half of 2024 with the growth of Higher Education and normalised comparators for the assessments businesses.
• In Assessment & Qualifications, we continue to expect low to mid-single digit sales growth for the year, with sales growth weighted to H2.
• In Virtual Schools, we continue to expect sales to decline at a similar rate to 2023, given the previously cited loss of a larger partner school for the 2024/25 academic year. We expect Virtual Schools to return to growth in 2025 and beyond.
• In Higher Education, we remain confident we will return to growth in the second half and for the full year. Growth in digital sales will continue to shift revenue recognition from Q3 to Q4.
• In English Language Learning, we continue to expect high single digit sales growth and growth weighted to the second half given the outstanding performance in the first half of 2023. The growth will be driven mainly by Institutional, with PTE being flat to down.
• In Workforce Skills, we expect to achieve high single digit sales growth.
• Every 1c movement in £:$ rate equates to approximately £5m adjusted operating profit impact.

2025 Outlook
We continue to expect the Group to achieve mid-single digit underlying sales 3-year CAGR from 2022 to 2025, excluding OPM and Strategic Review businesses, and remain on track to achieve our 16-17% adjusted operating profit margin guidance.

Medium Term Outlook
Our future growth and investment focus will lead to mid-single digit underlying sales CAGR. Through continued operational improvements, we also expect to deliver sustained margin improvement that will equate to an average increase of 40 basis points per annum beyond 2025. We will maintain free cash flow conversion in the region of 90-100% on average across the period.

Contacts

Investor Relations	Jo Russell Alex Shore	+44 (0) 7785 451 266 +44 (0) 7720 947 853
	Gemma Terry Brennan Matthews	+44 (0) 7841 363 216 +1 (332) 238-8785
Media Teneo	Ed Cropley	+44 (0) 7492 949 346
Pearson	Laura Ewart	+44 (0) 7798 846 805
Results event	Pearson’s Interim Results presentation will be held today at both 09:30 and 14:00 (BST). If you would like to attend the in-person session at 09:30, please email amy.plavecky@pearson.com. Register to join either session virtually here https://pearson.connectid.cloud/register

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.

KPIs

KPI	Objective	KPI Measure	H1 2024	H1 2023
Digital Growth	Drive digital sales growth	OnVUE volumes	1.2m	1.5m*
		Higher Education US digital subscriptions	4.5m	4.4m+
		PTE volume	546k	606k
Consumer Engagement	Create engaging and personalised consumer experiences	NPS for Connections Academy	+67	+67
		NPS for PTE	+57	+56
		Pearson+ registered users	5.0m	4.7m
		Mondly paid subscriptions	532k	473k
		Workforce Skills registered users	5.4m	5.3m
Product Effectiveness	Improve the effectiveness of our products to deliver better outcomes	PTE speed of score return	1.1 days	1.1 days
		VUE test volumes	10.9m	10.8m*
		VUE partner retention	99.7%	98.0%
		Workforce Skills number of enterprise customers	1,487	1,556
		Higher Education product usage – text units	2.1m	2.0m

*H1 2023 figures have been restated for adjustments made in H2 2023.

+H1 2023 US digital subscriptions restated from 4.5m to 4.4m due to removal of non-paying subscribers.

The above table is a subset of our full list of strategic KPIs, which will be reported on alongside full year results.

For a full list of KPI measure definitions, please refer to: https://plc.pearson.com/en-GB/purpose/our-targets-kpis

Operational review

£m	H1 2024	H1 2023	Headline growth	CER Growth1	Underlying growth1
Sales
Assessment & Qualifications	811	796	2%	4%	2%
Virtual Learning	254	373	(32%)	(31%)	(8%)
Higher Education	358	379	(6%)	(4%)	(2%)
English Language Learning	188	184	2%	11%	11%
Workforce Skills	143	140	2%	3%	6%
Strategic review3	-	7	(100%)	(100%)	(100%)
Total	1,754	1,879	(7%)	(4%)	1%
Total, excluding OPM2 and Strategic Review3					2%
Adjusted operating profit/loss
Assessment & Qualifications	187	174	7%	10%	7%
Virtual Learning	31	47	(34%)	(32%)	(32%)
Higher Education	(1)	(1)	0%	100%	100%
English Language Learning	4	8	(50%)	38%	38%
Workforce Skills	29	21	38%	33%	27%
Strategic review3	-	1	(100%)	(100%)	(100%)
Total	250	250	0%	5%	4%

1	Throughout this announcement: a) Growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude currency movements, and portfolio changes. b) The ‘business performance’ measures are non-GAAP measures and reconciliations to the equivalent statutory heading under IFRS are included in notes to the attached condensed consolidated financial statements 2, 3, 4, 6, 7 and 14. c) Constant exchange rates are calculated by assuming the average FX in the prior period prevailed through the current period.
2	In 2023, we completed the sale of the POLS business and as such have removed from underlying measures throughout. Within this specific measure we exclude our entire OPM business (POLS and ASU) to aid comparison to guidance. As expected, there are no sales in the OPM business in 2024.
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 as at 22nd November 2023; organic CER sales growth of 3.7%, median adjusted operating profit of £621m at £:$ 1.22, tax rate 24%.

Assessment & Qualifications
In Assessment & Qualifications, sales increased 2% on an underlying basis and 2% on a headline basis. Adjusted operating profit increased 7% in underlying terms due to operating leverage on sales growth, and cost phasing and savings partially offset by inflation and 7% in headline terms due to this, PDRI profit and currency movements.

Pearson VUE sales were up 4% in underlying terms driven by favorable mix and value-added services. Test volumes increased versus the same period last year to 10.9m. PDRI also saw good growth with strong volumes.

In US Student Assessment, sales decreased 3% in underlying terms due to reduced scope and phasing of some contracts which will normalise in the second half.

In Clinical Assessment, sales increased 1% in underlying terms supported by pricing, digital product growth and a new product release.

In UK and International Qualifications, sales increased 7% in underlying terms driven by volume, pricing and strong International growth.

Virtual Learning
Virtual Schools sales were down 1% on an underlying basis, given the previously cited loss of a larger partner school in the 2023/24 academic year. In Virtual Learning, sales decreased 8% on an underlying basis mostly attributable to the final portion of the OPM ASU contract in the first half of 2023 and 32% on a headline basis due to currency movements and the disposal of the OPM business. Adjusted operating profit declined 32% in underlying terms, as the prior year comparator benefited from the ASU contract, and decreased 34% in headline terms due to this and currency movements.

Higher Education
In Higher Education, sales declined 2% on an underlying basis, in line with our phasing guidance, and decreased 6% on a headline basis due to this, currency movements and portfolio changes. Adjusted operating profit increased in underlying terms driven by cost savings partially offset by restructuring costs and trading and was flat in headline terms due to this offset by currency movements and portfolio changes.

We also saw a strong performance in K-12 with sales growth of 12%, given strong adoption cycle fundamentals in this market this year.

English Language Learning
In English Language Learning, sales were up 11% on an underlying basis due to strong growth in Institutional (including hyperinflationary pricing in Argentina) as well as growth in Mondly, and 2% on a headline basis due to this offset by currency movements. Adjusted operating profit increased by 38% in underlying terms due to increased operating leverage on sales partially offset by increased investment and decreased 50% in headline terms due to this and currency movements.

PTE volumes were down 10%, due to declines in the English High Stakes testing market due to tightening of policies around international study and migration. PTE has continued to see market share gains, particularly in India and China, while it also continues to benefit in the ramp up for Canada.

Within Institutional, performance was strong, with particularly good growth in Latin America and the Middle East.

Our Online Self-Study business, Mondly, performed well with paid subscriptions increasing 12% versus the prior period driven by new enterprise contracts and DTC users.

Workforce Skills
In Workforce Skills, sales were up 6% on an underlying basis and 2% on a headline basis. Adjusted operating profit increased by 27% in underlying terms due to trading and cost savings and increased 38% in headline terms due to this, currency movements and portfolio changes.

Both the Vocational Qualifications and the Workforce Solutions businesses grew by 6% in underlying terms.

FINANCIAL REVIEW

Operating result
Sales for the six months to 30 June 2024 decreased on a headline basis by £125m or 7% from £1,879m for the six months to 30 June 2023 to £1,754m for the same period in 2024 and adjusted operating profit remained at £250m in the first half of 2024 compared to £250m in the first half of 2023 (for a reconciliation of this measure see note 2 to the condensed consolidated financial statements).

The headline basis simply compares the reported results for the six months to 30 June 2024 with those for the equivalent period in the prior year. We also present sales and profits on an underlying basis which excludes the effects of exchange, the effect of portfolio changes arising from acquisitions and disposals and the impact of adopting new accounting standards that are not retrospectively applied, when relevant. Our portfolio change is calculated by excluding sales and profits made by businesses disposed in 2023 or 2024 and by ensuring the contribution from acquisitions is comparable year on year. For prior year acquisitions, the corresponding pre-acquisition period is excluded from the current year. Portfolio changes mainly relate to the disposals of the Group’s interest in POLS, Pearson College and our international courseware local publishing business in India and businesses within Higher Education in 2023, and the acquisition of PDRI in 2023.

On an underlying basis, sales increased by 1% in the first six months of 2024 compared to the equivalent period in 2023 and adjusted operating profit increased by 4%. Currency movements decreased sales by £45m and adjusted operating profit by £12m, and portfolio changes decreased sales by £93m and increased adjusted operating profit by £1m. There were no new accounting standards adopted in the first half of 2024 that impacted sales or profits.

Adjusted operating profit includes the results from discontinued operations when relevant but excludes charges for acquired intangible amortisation and impairment, acquisition related costs, gains and losses arising from disposals, the cost of major reorganisation, when relevant, property charges and one off-costs related to the UK pension scheme.

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

Read full story here