Pearson has made 'good progress' in 2017

Pearson made "good progress" in 2017, slashing its net debt and projecting full-year profits to come in at the top end of its guidance. However, the education giant also warned in its January trading update that it expects revenues to be flat or down in US higher education courseware in 2018 because of continuing underlying pressures. 

Releasing a trading update ahead of its full-year results for 2017, Pearson said on Wednesday (17th January) adjusted operating profit for the full year was set to come in at the upper end of its October 2017 guidance range of £576m-£606m at £600m-£605m. At average effective exchange rates, this would equate to adjusted operating profit between £570m and £575m, while adjusted earning per share would be above its guidance range at between 53.5p and 54.5p.

Total underlying revenues for 2017 declined 2%, led by a drop of 4% in its North American territory, partly offset by stabilisation in its core and growth markets. Sales in US higher education courseware were down 3% on an underlying basis, "due to the continuation of trends seen in the first nine-months combined with cautious buying behaviour" in the fourth quarter. No update was given about the performance of Penguin Random House in the period, for which Pearson owns a 25% stake.

Pearson also revealed it expects to have slashed its net debt, from £1.1bn in 2016 to “around £0.5bn” by the end of 2017, “due to good cash generation and proceeds from disposals”. 

The company continued to cut jobs in 2017, slashing 3,000 in August, in a bid to raise £300m in annualised savings by 2020. It also issued an exit notice for its stake in PRH, culminating in the completed sale of a 22% portion to joint venture partner Bertelsmann last year. The education giant also sold its language training subsidiary Global Education (GEDU) for $80m (£62m) and agreed the sale of English language business Wall Street English for $300m (£225m). In late December it also agreed the sale of a 44.7% stake in Mexican online university partnership Utel, expected to close in the first half of 2018.

Despite this "good progress", Pearson warned it expected revenues in 2018 to be "flat to down mid-single digit percent" in its US higher education courseware business, owing to pressues such as lower college enrolments and the rise in use of Open Educational Resources and print rental, albeit offset by growth in digital revenues.

Pearson's chief executive John Fallon said: “We made good progress in 2017 on the simplification of our portfolio, the strengthening of our balance sheet and delivered results at the top end of guidance. Our restructuring programme is on track and our 2017 performance has set us up well to make further progress against our strategic priorities and grow profit in 2018."

He added in a media conference call: "Morale is very good. People are satisfied that for the first time in some years we have delivered results at the top end of our guidance and the plans we set for ourselves at the start of the year. There is a lot of hard work to do … but I think people feel excited and energised by the digital transformation of the company and to feel they are part of a turnaround."

Shares at the time of reporting, on Wednesday morning, were down 5.54% to 678.60p.