|
22 February 2019
|
Good progress against strategic priorities, adjusted operating
profit in the upper half of the guidance range, efficiency
programme ahead of plan.
|
|
Highlights
|
Revenue down 1% in underlying terms
● Total
underlying revenue down 1% year on year, with declines in US Higher
Education Courseware of 5% and in US K12 Courseware largely offset
by the rest of the business growing in aggregate at over
1%.
● Strong
performance in our structural growth opportunities with revenue up
10% in Global Online Program Management, 8% in Connections Academy,
4% in Professional Certification (VUE) and Pearson Test of English
Academic (PTEA) test volume growth of
30%.
● Revenue
in North America declined 1%, Core was flat and Growth up
1%.
Adjusted operating profit up 8% in underlying terms
● Adjusted
operating profit of £546m for 2018, in the in the upper half
of the guidance range of £520m to £560m.
● Adjusted
earnings per share of 70.3p including a c.20p one-off tax benefit
and a lower finance charge as indicated in Pearson’s Q3
trading update.
Strong balance sheet
● Closing
net debt at 31 December 2018 of £143m (2017:
£432m).
● Strong
operating cash flow with cash conversion at 94% (2017:
116%).
● The
Board proposes a final dividend of 13p (2017: 12p), an increase of
8%, which equates to a full year dividend of 18.5p (2017:
17p).
Statutory results
● Sales
decreased by 9%, £384m, in headline terms primarily due to
portfolio changes reducing sales by £216m and currency
movements decreasing revenue by £134m.
● Statutory
operating profit for the year was £553m (2017: £451m)
with the increase primarily due to profit on disposals of Wall
Street English (WSE) and UTEL.
● Statutory
EPS of 75.6p (2017: 49.9p) with the increase due to higher profit
and one-off tax benefits.
Simplification on track, efficiency programme ahead of
plan
● Cost
efficiency programme ahead of plan in 2018 with incremental cost
savings of £130m and exceptional restructuring
costs1
of £102m.
● At
31 December 2018 US K12 Courseware was held for sale. We announced
an agreement to sell this business on 18 February
2019.
|
|
John Fallon, Chief Executive said:
"We
made good progress last year. We increased underlying profits,
outperformed our cost savings plan and invested in the digital
platforms that are making us a simpler, more efficient and
innovative company. We are increasingly well placed to guide our
customers through a lifetime of learning and help our partners
shape the future of education. We have a lot still to do, but we
expect company wide sales to stabilise this year, and grow again in
2020 and beyond."
|
|
|
Financial Summary
|
|
|
|||||
|
£m
|
2018
|
2017
|
Headline
growth
|
CER
growth
|
Underlying
growth
|
||
|
Business performance
|
|
|
|
|
|
||
|
Sales
|
4,129
|
4,513
|
(9)%
|
(6)%
|
(1)%
|
||
|
Adjusted
operating profit
|
546
|
576
|
(5)%
|
(2)%
|
8%
|
||
|
Operating
cash flow
|
513
|
669
|
|
|
|
||
|
Adjusted
earnings per share
|
70.3p
|
54.1p
|
|
|
|
||
|
Dividend
per share
|
18.5p
|
17p
|
|
|
|
||
|
Net
debt
|
(143)
|
(432)
|
|
|
|
||
|
Statutory results
|
|
|
|
|
|
||
|
Sales
|
4,129
|
4,513
|
(9)%
|
(6)%
|
(1)%
|
||
|
Operating
profit
|
553
|
451
|
|
|
|
||
|
Profit
for the year
|
590
|
408
|
|
|
|
||
|
Cash
generated from operations
|
547
|
462
|
|
|
|
||
|
Basic
earnings per share
|
75.6p
|
49.9p
|
|
|
|
||
|
Progress on our strategic priorities
During 2018 we made good progress on our strategic priorities as we
become a leaner, more agile and more sustainable
business.
|
|
|
*Excluding WSE and US K12
CoursewareGrow market share
through digital transformation
|
Digital transformation progressing to plan
● We
made further progress with Pearson’s digital transformation
in 2018 with revenue split 34% digital (2017: 32%), 28% digitally
enabled (2017: 27%) and 38% non-digital (2017: 41%).
● US
Higher Education Courseware digital revenue grew by 2% to become
55% of our revenue in this business, although growth was again more
than offset by the anticipated continuation of underlying market
pressures on print courseware revenue.
● Direct
to consumer sales grew 8% to account for 23% of revenue in US
Higher Education Courseware.
● We
continue to focus on Inclusive Access (Direct Digital Access)
solutions, signing 192 new institutions in 2018 taking the total to
nearly 700. We delivered over 1.4m course enrolments at non-profit
and public institutions in this way, accounting
for c.8% of US Higher Education Courseware
revenue.
● US
Higher Education Courseware eBook revenue grew at more than 20% for
the second year. We continue to expand our partner print rental
programme and expect to have c.400 titles in the programme in the
second half of 2019.
● We
have continued to invest in the Global Learning Platform (GLP) and
our innovative product and feature pipeline. We have launched pilot
versions of new Developmental Math courseware and will launch
multiple Revel titles with enhanced
assignment options and data
analytics on the GLP during 2019.
● US
Student Assessment saw testing volume declines, but continues to
shift towards digital tests, which now account for 56% of all tests
administered and provide a better, more effective customer
experience leveraging the efficiency of Pearson’s
digital
platform.
|
|
Invest in structural growth markets
+14% Global
OPM course
registrations
3 New Connections Academy partner schools
opened
+4% VUE
test
volumes
+30% PTE
Academic test
volumes
|
Continuing strong performance in structural growth
opportunities
● Online
Program Management (OPM), Connections Academy virtual schools,
Professional Certification (VUE) and English are significant growth
opportunities. We continue to invest in these structurally growing
markets which drive
recurring
revenue streams, and account
for c.35% of Pearson’s 2018 revenue (excluding WSE and US K12
Courseware).
● OPM
saw 14% growth in global course registrations and global revenue
growth of 10%.
● Connections
Academy grew revenue 8%.
● In
English, Pearson Test of English Academic grew test volumes by
30%.
● In
Professional Certification revenue grew 4%, with over 70 new
contracts signed during the year.
● Revenue
in Global English Courseware grew 3%, with strong growth in
China.
|
|
Become simpler and more efficient
£330m+
Cost efficiency opportunity
|
Simplification on track, cost savings ahead of plan
● Cost
efficiency programme ahead of plan in 2018 with incremental cost
savings of £130m and exceptional restructuring
costs1
of £102m.
● We
now expect to deliver increased annualised cost
savings1
in excess of £330m by the end of
2019. One-off restructuring costs will rise with this to
c.£330m. This is ahead of the original plan of £300m in
savings and costs.
● We
expect to achieve a further £130m of incremental cost savings
in 2019 taking the cumulative savings to £275m by the end of
2019 leaving £55m or more of further savings in 2020 as the
annualised benefit of the programme flows through.
Restructuring costs in 2019
are expected to be £150m as the programme is
completed.
● We
completed the sale of Wall Street English (WSE).
● During
2018 we sold our property at One Southwark Bridge for £115m.
The profits on disposal were offset by a charge for onerous leases
relating to Pearson’s property footprint in
London.
● At
31 December 2018 US K12 Courseware was held for sale. We announced
the agreement to sell this business on 18 February
2019.
|
|
2019 Outlook
|
In
2019, Pearson expects to report adjusted operating profit of
between £590m and £640m and adjusted earnings per share
of 56.5p to 62.0p (including our US K12 Courseware
business).
This guidance is pre-IFRS 162
based on existing portfolio and
exchange rates as at 31 December 2018. Expect a net interest charge
of c.£30m and a tax rate of 21%.
Including IFRS 16 Pearson expects to report adjusted operating
profit of between £610m and £660m, a net interest charge
of c.£60m and adjusted earnings per share of 55.5p to 61.0p
for 2019.
|
|
Investor Relations
|
Jo
Russell, Tom Waldron, Anjali Kotak
|
+44
(0) 207 010 2310
|
|
|
Media
|
Tom
Steiner
|
+44
(0) 207 010 2310
|
|
|
Brunswick
|
Charles
Pretzlik, Nick Cosgrove, Simone Selzer
|
+44
(0) 207 404 5959
|
|
|
Webcast details
|
Pearson’s
results presentation for investors and analysts will be webcast
live today from 0900 (GMT) via www.pearson.com/corporate.
|
||
|
Notes
1 Based on December 2018 exchange rates, a significant part
of costs and savings from the restructuring programme are US Dollar
denominated and in other non-Sterling currencies and are therefore
subject to exchange rate movements over the implementation
timeframe.
2IFRS 16 –
Leases is the new accounting standard which will replace IAS
17 and is applicable for financial years commencing on or after 1
January 2019, and hence will first apply to the Group for its
financial year ending 31 December 2019.
The
standard will result in the operating lease expense being replaced
by finance costs and depreciation which will reflect the
corresponding lease liabilities and right of use assets which will
now be recognised on the balance sheet.
|
|
||
|
Financial Overview
|
Profit & loss statement. In 2018, sales decreased by
£384m in headline terms to £4,129m (2017: £4,513m)
with portfolio changes reducing sales by £216m and currency
movements decreasing revenue by £134m. Stripping out the
impact of portfolio (including the adoption of new accounting
standards) and currency movements, revenue was down 1% in
underlying terms. Revenue in North America declined 1%, Core was
flat and Growth up 1%.
The
2018 adjusted operating profit of £546m (2017: £576m)
reflects a £130m year on year benefit from restructuring,
offset by £50m of cost inflation, £22m of other
operational factors, £15m negative contribution from trading
and a £73m negative impact from FX and portfolio changes.
Excluding the impact of FX and portfolio changes, underlying
adjusted operating profit grew 8%.
Net
interest payable was £24m, compared to £79m in 2017. The
decrease was primarily due to a reduction in gross debt achieved
through the early redemption of bonds in 2017. Charges relating to
early redemptions increased finance charges in 2017 but were not as
significant in 2018. Additionally, there was a reduction in
interest on tax provisions following reassessment of those
provisions in 2018.
The
effective tax rate on adjusted earnings in 2018 was a credit of
5.2% compared to an effective rate charge of 11.1% in 2017. The
decrease in tax rate reflects several one-off benefits in 2018
including provision releases due to the expiry of relevant statutes
of limitation and due to the reassessment of historical positions,
as well as a one-off benefit from a reassessment of the tax
treatment of certain items of income and expenditure.
Adjusted
earnings per share of 70.3p (2017: 54.1p) (including a c.20p
one-off tax benefit and a lower finance charge as indicated in
Pearson’s Q3 trading update).
Cash generation. Operating cashflow declined by £156m
from £669m in 2017 to £513m in 2018 in headline terms.
The decrease reflects lower dividends from Penguin Random House,
following our divestment of a 22% stake in the business in 2017,
higher incentive payments in 2018 relating to 2017 performance and
movements in working capital. The equivalent statutory measure, net
cash generated from operations, was £547m in 2018 compared to
£462m in 2017. The main reason for the improvement in cash
generated from operations was the absence of special pension
contributions in 2018 which were £227m in 2017.
Return on invested capital. On a gross basis ROIC increased
from 4.3% in 2017 to 4.7% in 2018 and from 6.2% in 2017 to 6.7% in
2018 on a net basis. The movement largely reflects lower invested
capital following disposals and decreased tax payments which were
more than enough to offset the effect of lower reported profits
primarily due to the disposal of a 22% stake in Penguin Random
House and currency movements.
Statutory results. Our statutory profit was £553m in
2018 compared to a profit of £451m in 2017. The increase in
2018 is largely due to the increase in gains on disposal and
reduced intangible charges which more than offset increased
restructuring, the lost contribution from businesses disposed of
and the impact of currency movements.
Capital allocation. Our capital allocation policy remains
unchanged: to maintain a strong balance sheet and a solid
investment grade rating, to continue to invest in the business, to
have a sustainable and progressive dividend policy, and to return
surplus cash to our shareholders.
Balance sheet. Net debt to EBITDA was 0.2x (or c.1.1x on an
IFRS 16 lease adjusted basis). Net debt decreased to £143m
(2017: £432m) reflecting disposal proceeds and operating cash
flow, partially offset by the strengthening of the US Dollar
relative to Sterling, dividend payments and the share
buyback.
In
January 2018, the Group repurchased €250m of its €500m
Euro 1.875% notes due May 2021 and €200m of its €500m
Euro 1.375% notes due May 2025. Borrowings at 31 December 2018
include drawings on the Group’s revolving credit facility
(RCF) of £nil (2017: £nil).
Pension plan. In 2018 our UK Pension Plan completed a
new triennial valuation as at 1 January 2018 and re-confirmed the
Plan as being well funded. The Plan has recently used this
funding position to purchase a further insurance buy-in policy with
Legal & General, amounting to approximately £500m.
Together with the two policies purchased in 2017, around 50% of the
Plan's total liabilities are now insured. This has put the Plan in
an even stronger position and further reduced Pearson's future
pension funding risk, at no additional cost to
Pearson.
Dividend. In line with our policy, the Board is proposing a
final dividend of 13p (2017: 12p), an increase of 8%, which results
in an overall dividend of 18.5p (2017: 17p) subject to shareholder
approval.
Share buyback. We launched a £300m share buyback,
beginning on 18 October 2017 utilising part of the proceeds from
the disposal of a 22% stake in Penguin Random House. We completed
the programme on 16 February 2018.
Businesses held for sale. Following the decision to sell our
US K12 Courseware business, the assets and liabilities of that
business were classified as held for sale on the balance sheet at
31 December 2018. We announced the
agreement to sell this business on 18 February
2019.
|
|
2019 Outlook
|
2018
has been a year of progress for Pearson, delivering adjusted
operating profit within our guidance range and continuing to invest
in the digital transformation and simplification of the company. We
expect to make further progress in 2019, with underlying adjusted
operating profit between £590m2 and £640m and
adjusted earnings per share of 56.5p to 62.0p. This reflects our
portfolio and exchange rates as at 31 December 2018 and the
following factors:
Currency movement and portfolio changes. Adjusting for
currency movement improves profit by £26m. We completed the
sale of WSE in March 2018. WSE contributed £42m to 2018
revenue and £4m to 2018 adjusted operating profit. US K12
Courseware contributed £364m to 2018 sales and around
£20m to 2018 operating profit.
Inflation and other operational factors. Our 2019 guidance
incorporates cost inflation of c.£50m together with other
operational factors of £33m due to increased investment in our
strategic growth areas and the expectation of a lower contribution
from Penguin Random House.
Restructuring benefits. We expect incremental in-year
benefits from the 2017-2019 restructuring programme of £130m
in 2019. Exceptional restructuring costs of £150m will
continue to be excluded from adjusted operating
profit.
Interest & tax. We expect a 2019 net interest charge of
c.£30m and a tax rate of 21%.
Currency. In 2018,
Pearson generated approximately 64% of its sales in the US, 3% in
Greater China, 5% in the Eurozone, 3% in Brazil, 3% in Canada, 3%
in Australia, 2% in South Africa and 1% in India and our guidance
is based on exchange rates at 31 December 2018.
We
calculate that a 5c move in the US Dollar exchange rate to Sterling
would impact adjusted EPS by around 2p to 2.5p.
Including IFRS 16 we expect to report adjusted operating profit of
between £610m and £660m, a net interest charge of
c.£60m and adjusted earnings per share of 55.5p to 61.0p for
2019.
|
|
£ millions
|
2018
|
2017
|
Headline
growth
|
CER
growth
|
Underlying
growth
|
|
Sales
|
|
|
|
|
|
|
North
America
|
2,784
|
2,929
|
(5)%
|
(2)%
|
(1)%
|
|
Core
|
806
|
815
|
(1)%
|
0%
|
0%
|
|
Growth
|
539
|
769
|
(30)%
|
(25)%
|
1%
|
|
Total sales
|
4,129
|
4,513
|
(9)%
|
(6)%
|
(1)%
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
|
North
America
|
362
|
394
|
(8)%
|
(4)%
|
1%
|
|
Core
|
57
|
50
|
14%
|
8%
|
10%
|
|
Growth
|
59
|
38
|
55%
|
74%
|
97%
|
|
Penguin
Random House
|
68
|
94
|
(28)%
|
(29)%
|
10%
|
|
Total adjusted operating profit
|
546
|
576
|
(5)%
|
(2)%
|
8%
|
|
North America (67% of revenue)
|
|
|
Revenue
declined 1% in underlying terms, primarily due to North American
Higher Education Courseware declining 5%, School Courseware which
was down mid-single digit %, impacted by weak Open Territory sales
in the second half of the year, the continued decline in Learning
Studio as we move towards the retirement of the product in 2019 and
Student Assessment which declined moderately. Offsetting that, we
saw good growth in Virtual Schools, Online Program Management (OPM)
and Professional Certification revenue.
Adjusted
operating profit rose 1% in underlying terms, as restructuring
savings offset the impact of lower sales, inflation and other
operating factors.
|
|
|
Courseware
|
In
School Courseware, revenue
declined mid-single digit % primarily due to declines in Open
Territory states. This was partially offset by growth in Adoption
state revenue on strong performance in Science in Florida, South
Carolina and Tennessee, Elementary Math in Oklahoma and Elementary
Social Studies in California and South Carolina.
Our new
adoption participation rate rose to 80% from 61% in 2017. We won an
estimated 33% share of adoptions competed for (38% in 2017) and 26%
of total new adoption expenditure of $509m (29% of $365m in
2017).
In
Higher Education Courseware,
total US college enrolments, as reported by the National Student
Clearinghouse, fell 1.4%, with combined two-year public and
four-year for-profit enrolments declining 4.8%. Enrolment weakness
was particularly focused on part-time students where enrolment
declined 2.9% compared to full-time enrolment which declined
1.1%.
Net
revenue in our US Higher Education
Courseware business declined 5% during the year. We estimate
around 2% of this decline was driven by lower enrolment; around
1.5% from the adoption of Open Educational Resources (OER); around
2.5% from the combined impact of shifts in the secondary market,
more cautious buying by the channel and lower returns; offset by
c.1% benefit from the shift to digital.
In
2018, Pearson’s US Higher Education Courseware market share,
as reported by MPI, was within the c.40-41.5% range seen over the
last five years.
Digital
revenue grew 2% benefiting from continued growth in direct sales
and favourable mix. Global digital registrations of MyLab and
related products were flat. In North America, digital registrations
fell 3% with good growth in Science, Business & Economics and
Revel offset by lower overall enrolment and continued softness in
Developmental Mathematics. Revel registrations grew more than 40%.
Including stand-alone eBook registrations, total North American
digital registrations rose 1% and global registrations rose
3%.
The
actions announced in early 2017 to promote access over ownership
met with continued success. Stand-alone eBook volumes grew 34% in
the US with revenue up 25% and our partner print rental programme
has had a successful start with 130 titles in the programme in
2018. We plan to increase the number of titles in the programme to
around 400 by fall 2019.
We
continue to make good progress with our Inclusive Access (Direct
Digital Access) solutions signing 192 new institutions in 2018,
taking the total of not-for-profit and public institutions served
to 617. Including 80 longer-standing contracts with for-profit
colleges, we now have direct courseware relationships with nearly
700 institutions.
Inclusive
Access ensures that students have affordable access to the
courseware that they need on day one of the course, whilst further
shifting our business model in this segment away from ownership and
towards subscription. During the year, we delivered over 1.4m
course enrolments with inclusive access revenues from non-profit
and public institutions rising to c.8% of our higher education
courseware revenue as more colleges and faculties see the benefit
of this model.
|
|
Assessment
|
In
Student Assessment, revenue
declined moderately in 2018 due to the faster than expected
contraction in revenue associated with our PARCC and ACT-Aspire
multi-state volume-based contracts and our disciplined competitive
approach. These factors will extend into 2019, where we expect a
modest decline in revenue in this segment. Beyond 2019, we expect
the business to benefit from continued good momentum in
subcontractor contract wins leveraging our digital leadership and a
strong pipeline of opportunities in key states.
During
2018, Pearson successfully renewed contracts in Arizona and
Kentucky through competitive procurements and secured business with
the District of Columbia, New Jersey, New Mexico, and Maryland
under new contracts with these PARCC states. We also won new
contracts for Utah’s High School Assessments and with the
University of Iowa for the delivery of Iowa’s new assessment
system.
We
delivered 24m standardised online tests to K12 students, down 5%
from 2017. TestNav 8, Pearson’s next-generation online test
platform, supported a peak load of 825,000 tests in a single day
and provided 99.99% up time. Our AI scoring systems scored 36m
responses to open-ended test items, around 33% of the total. Paper
based standardised test volumes fell 9% to 18.5m.
In
Professional Certification,
VUE global test volume rose 4% to over 15m. Revenue in North
America was up mid-single digit %, due to growth in medical college
admissions testing and certification for professional bodies,
offset by continued declines in volumes in the GED High School
Equivalency Test and higher-level IT certifications in an
environment of low unemployment.
We
signed over 70 new contracts in 2018 and our renewal rate on
existing contracts continues to be over 95%. During the year we
renewed over 80 contracts including the National Council of State
Boards of Nursing (NCLEX exam), Microsoft and Adobe.
Clinical Assessment sales declined slightly on an absence of
new major product introductions impacting 2018. Late in Q4 we
launched a refresh of the Peabody Picture Vocabulary Test and
Expressive Vocabulary Test (PPVT/EVT). Q-interactive, Pearson's
digital solution for Clinical Assessment administration, saw
continued strong growth in license sales with sub-test
administrations up more than 37% over the same period last
year.
|
|
Services
|
Connections Academy, our K12 online school business grew
revenue 8%. Connections Academy served 73,000 Full Time Equivalent
(FTE) students through 37 continuing full-time virtual partner
schools in 28 states, up 11% on last year. Total FTE virtual school
students declined 3% to 75,400 as expected due to contract exits at
Commonwealth Charter Academy in Pennsylvania and Florida Virtual
School.
Three
new full-time online, state-wide partner schools opened in the
2018-19 school year in Florida, Michigan, and Ohio. We anticipate
the opening of between two and five new partner schools in the
2019-20 school year.
The
2018 Connections Academy Parent Satisfaction Survey continues to
show solid endorsement for the schools with 93% of families with
enrolled students stating they would recommend our virtual schools
to others and 95% agreeing that the curriculum is of high
quality.
In
Pearson Online Services,
revenue grew 3%, primarily due to growth in OPM, partially offset
by a decline in Learning Studio revenue as we retire the product
and as we restructured smaller non-OPM
contracts.
In
OPM, we grew revenue 9% as
course registration grew strongly, up 14% to more than 388,000 on
strong growth in programs at key partners including Arizona State
University Online, Maryville University, Regis College, Bradley
University, Ohio University and the University of Southern
California.
Our
overall active program count grew by 33 to 325. The launch of 46
new programs were offset by 13 discontinued programs. During 2018
we signed 27 multi-year programs, including programs at new
partners the University of North Dakota and Rider University. We
closed nine out of 15 renewal opportunities and as part of broader
efforts around portfolio optimisation agreed with our partners to
terminate 23 programs that were not mutually
viable.
|
|
2019 Outlook
|
In US
Higher Education Courseware, we expect revenue to be flat to down
5% on the continuation of the pressures we saw on end demand in
2018 with ongoing declines in enrolment and modest growth in OER
adoptions. For print revenue in this segment, we see scope for
further declines in gross sales and improvements in
returns. Print continues to be impacted by the ongoing rise of
secondary channels, such as rental, but channel inventory has now
returned to more normalised levels following the 2016 inventory
correction and its after effects. The channel is now
optimising the stock it holds, both through reducing purchases and
returns, and we expect that to continue in 2019. Growth in digital
and direct sales provides some offset to the continuing pressures
on print.
In
Assessment, we expect good growth in Professional Certification and
stable revenue in our Clinical Assessment business in the US. We
expect a modest decline in revenue in North America Student
Assessment on continued contraction in revenue associated with our
PARCC and ACT Aspire contracts.
We
expect good growth in revenue and enrolment at Connections Academy
and in North America Online Program Management.
|
|
Core (20% of revenue)
|
|
|
Revenue
was flat in underlying terms with growth in Pearson Test of English
Academic, OPM in the UK and Australia and Professional
Certification offset by declines in Higher Education and Student
Assessment and Qualifications.
Adjusted
operating profit increased 10% in underlying terms, due to
restructuring savings partially offset by inflation.
|
|
|
Courseware
|
Courseware
revenue declined moderately. Slight growth in School Courseware was offset by declines
in Higher Education
Courseware. In Higher Education Courseware, revenue was
down due to market declines in Europe and Asia, partially offset by
growth in digital sales to institutional partners in the UK and
Australia.
|
|
Assessment
|
In
Student Assessment and
Qualifications, revenue fell as modest growth in BTEC Firsts
and GCE A-Level was more than offset by declines in AS levels,
international GCSEs in the UK and UK Apprenticeships due to
policy changes in the schools qualifications and the
apprenticeships market. We successfully delivered the National
Curriculum Test (NCT) for 2018, marking 3.6m scripts, up slightly
from 2017. We will deliver the NCT again in 2019 before the test
transitions to another provider in 2020.
Clinical Assessment sales declined primarily in Australia
due to an absence of new major product introductions.
Q-Interactive, Pearson's digital solution for Clinical Assessment
administration, saw continued strong growth.
Pearson Test of English Academic saw continued strong growth
in test volumes and we successfully extended our agreement with
Department of Home Affairs in Australia for another two
years.
In
Professional Certification,
revenue was up modestly due to the launch of additional
computer-based exams for an existing customer in the UK and the
MOI, the French Driving Test.
|
|
Services
|
In
Higher Education Services,
revenue grew strongly. Our OPM revenue was up 34%. 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.10,200 course registrations across
the seven programs in Australia up from c.9,300 in 2017. In the UK,
we launched 11 new programs and course registrations grew, reaching
c.3,000 compared to c.1,400 in 2017. During the year, we also
announced new partnerships with the University of Northumbria in
the UK, and ESSEC Business School in France.
|
|
2019 Outlook
|
We
expect stable revenue across Core, including student qualifications
and assessment, with further revenue growth in OPM and PTEA, offset
by continued declines in our courseware businesses.
|
|
Growth (13% of revenue)
|
|
|
Revenue
grew 1% in underlying terms due to strong growth in China and
modest growth in Brazil and Hispano America partially offset by
declines in South Africa.
Adjusted
operating profit increased 97%, £30m, in underlying terms,
reflecting higher revenue in China and Brazil, together with the
benefits of restructuring, partially offset by lower revenue in
South Africa.
|
|
|
Courseware
|
Courseware
revenue grew slightly, with strong growth in English Language Courseware in China,
partially offset by declines in School Courseware in South Africa
following a large one-off order in 2017.
|
|
Assessment
|
Professional Certification grew well due to a
new ICT infrastructure
certification contract. Pearson
Test of English Academic saw strong growth in revenue with
over 10% growth in the volume of tests taken in India, China and
Middle East and moderate price increases.
|
|
Services
|
In
English Services, revenue grew slightly in our
English language school franchise, Wizard, due to new product
launches.
In
School Services, revenue was flat, with
declines in student enrolment in our public sistemas business in
Brazil offset by price increases, improved products and better
student retention across our private sistemas. In India, Pearson
MyPedia, an inside service ‘sistema’ solution for
schools, expanded to over 700 schools with over 200,000
learners.
In
Higher Education services
revenue declined slightly due to business exits in India and slight
revenue decline at Pearson Institute of Higher Education (formerly
CTI), our university in South Africa, due to a change in mix with
total enrolment broadly flat and new student enrolment up
18%.
|
|
2019 Outlook
|
In our
Growth segment, we expect revenue to continue to increase in 2019
benefiting from new products and services across all
divisions.
|
|
Penguin Random House
|
|
|
Pearson
owns 25% of Penguin Random
House, the first truly global consumer book publishing
company.
Penguin Random House performed solidly with underlying
revenue growth on increased audio sales and stable print sales,
whilst the business benefitted from international bestseller
“Becoming” by Michelle Obama, the year’s
top-selling U.S. title, and bestsellers from Bill Clinton &
James Patterson, Jordan Peterson, Jamie Oliver, Dr.Seuss, John
Grisham, and Lee Child.
|
|
|
2019 Outlook
|
In
Penguin Random House, we
anticipate a normalised publishing performance and expect an annual
after-tax contribution of around £60-65m to our adjusted
operating profit.
|
|
|
|
|
|
all figures in £ millions
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
553
|
451
|
|
Add
back: Cost of major restructuring
|
102
|
79
|
|
Add
back: Intangible charges
|
113
|
166
|
|
Add
back: Other net gains and losses
|
(230)
|
(128)
|
|
Add
back: UK pension GMP equalisation
|
8
|
-
|
|
Add
back: Impact of US tax reform
|
-
|
8
|
|
Adjusted
operating profit
|
546
|
576
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
Sales
|
2
|
4,129
|
4,513
|
|
Cost of
goods sold
|
|
(1,943)
|
(2,066)
|
|
Gross
profit
|
|
2,186
|
2,447
|
|
|
|
|
|
|
Operating
expenses
|
|
(1,907)
|
(2,202)
|
|
Other
net gains and losses
|
2
|
230
|
128
|
|
Share
of results of joint ventures and associates
|
|
44
|
78
|
|
Operating
profit
|
2
|
553
|
451
|
|
|
|
|
|
|
Finance
costs
|
3
|
(91)
|
(110)
|
|
Finance
income
|
3
|
36
|
80
|
|
Profit
before tax
|
4
|
498
|
421
|
|
Income
tax
|
5
|
92
|
(13)
|
|
Profit
for the year
|
|
590
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
588
|
406
|
|
Non-controlling
interest
|
|
2
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in pence per
share)
|
|
|
|
|
Basic
|
6
|
75.6p
|
49.9p
|
|
Diluted
|
6
|
75.5p
|
49.9p
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
590
|
408
|
|
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
|
Net
exchange differences on translation of foreign operations –
Group
|
|
91
|
(158)
|
|
Net
exchange differences on translation of foreign operations –
associates
|
|
(1)
|
(104)
|
|
Currency
translation adjustment disposed
|
|
(4)
|
(51)
|
|
Attributable
tax
|
|
(4)
|
9
|
|
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
|
Fair
value gain on other financial assets
|
|
8
|
13
|
|
Attributable
tax
|
|
-
|
(4)
|
|
|
|
|
|
|
Remeasurement of
retirement benefit obligations – Group
|
|
22
|
175
|
|
Remeasurement of
retirement benefit obligations – associates
|
|
3
|
7
|
|
Attributable
tax
|
|
9
|
(42)
|
|
Other
comprehensive income / (expense) for the year
|
|
124
|
(155)
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
714
|
253
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
Equity
holders of the company
|
|
712
|
251
|
|
Non-controlling
interest
|
|
2
|
2
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
237
|
281
|
|
Intangible
assets
|
11
|
3,009
|
2,964
|
|
Investments in
joint ventures and associates
|
|
392
|
398
|
|
Deferred income tax
assets
|
|
60
|
95
|
|
Financial assets
– derivative financial instruments
|
|
67
|
140
|
|
Retirement benefit
assets
|
|
571
|
545
|
|
Other financial
assets
|
|
93
|
77
|
|
Trade and other
receivables
|
|
100
|
103
|
|
Non-current
assets
|
|
4,529
|
4,603
|
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
817
|
741
|
|
Inventories
|
|
164
|
148
|
|
Trade and other
receivables
|
|
1,178
|
1,110
|
|
Financial assets
– derivative financial instruments
|
|
1
|
-
|
|
Financial assets
– marketable securities
|
|
-
|
8
|
|
Cash and cash
equivalents (excluding overdrafts)
|
|
568
|
518
|
|
Current
assets
|
|
2,728
|
2,525
|
|
|
|
|
|
|
Assets classified
as held for sale
|
10
|
648
|
760
|
|
Total
assets
|
|
7,905
|
7,888
|
|
|
|
|
|
|
Financial
liabilities – borrowings
|
|
(674)
|
(1,066)
|
|
Financial
liabilities – derivative financial instruments
|
|
(36)
|
(140)
|
|
Deferred income tax
liabilities
|
|
(136)
|
(164)
|
|
Retirement benefit
obligations
|
|
(100)
|
(104)
|
|
Provisions for
other liabilities and charges
|
|
(145)
|
(55)
|
|
Other
liabilities
|
12
|
(155)
|
(133)
|
|
Non-current
liabilities
|
|
(1,246)
|
(1,662)
|
|
|
|
|
|
|
Trade and other
liabilities
|
12
|
(1,400)
|
(1,342)
|
|
Financial
liabilities – borrowings
|
|
(46)
|
(19)
|
|
Financial
liabilities – derivative financial instruments
|
|
(23)
|
-
|
|
Current income tax
liabilities
|
|
(72)
|
(231)
|
|
Provisions for
other liabilities and charges
|
|
(20)
|
(25)
|
|
Current
liabilities
|
|
(1,561)
|
(1,617)
|
|
|
|
|
|
|
Liabilities
classified as held for sale
|
10
|
(573)
|
(588)
|
|
Total
liabilities
|
|
(3,380)
|
(3,867)
|
|
|
|
|
|
|
Net
assets
|
|
4,525
|
4,021
|
|
|
|
|
|
|
Share
capital
|
|
195
|
200
|
|
Share
premium
|
|
2,607
|
2,602
|
|
Treasury
shares
|
|
(33)
|
(61)
|
|
Reserves
|
|
1,747
|
1,272
|
|
Total equity
attributable to equity holders of the company
|
|
4,516
|
4,013
|
|
Non-controlling
interest
|
|
9
|
8
|
|
Total
equity
|
|
4,525
|
4,021
|
|
|
|
|
|
|||||||
|
|
Equity
attributable to equity holders of the company
|
|
|
|||||||
|
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
||||||||||
|
At
1 January 2018
|
200
|
2,602
|
(61)
|
5
|
13
|
592
|
662
|
4,013
|
8
|
4,021
|
|
Adjustment on
initial application of IFRS 15 net of tax – (see note
1b)
|
-
|
-
|
-
|
-
|
-
|
-
|
(108)
|
(108)
|
-
|
(108)
|
|
Adjustment on
initial application of IFRS 9 net of tax – (see note
1c)
|
-
|
-
|
-
|
-
|
-
|
-
|
(10)
|
(10)
|
-
|
(10)
|
|
At
1 January 2018 (restated)
|
200
|
2,602
|
(61)
|
5
|
13
|
592
|
544
|
3,895
|
8
|
3,903
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
588
|
588
|
2
|
590
|
|
Other
comprehensive income
|
-
|
-
|
-
|
-
|
8
|
86
|
30
|
124
|
-
|
124
|
|
Total
comprehensive income
|
-
|
-
|
-
|
-
|
8
|
86
|
618
|
712
|
2
|
714
|
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
37
|
37
|
-
|
37
|
|
Tax on
equity settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
4
|
4
|
-
|
4
|
|
Issue
of ordinary shares under share option schemes
|
1
|
5
|
-
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
|
Buyback
of equity
|
(6)
|
-
|
-
|
6
|
-
|
-
|
(2)
|
(2)
|
-
|
(2)
|
|
Release
of treasury shares
|
-
|
-
|
28
|
-
|
-
|
-
|
(28)
|
-
|
-
|
-
|
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(2)
|
-
|
2
|
-
|
-
|
-
|
|
Changes
in non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(136)
|
(136)
|
(1)
|
(137)
|
|
At
31 December 2018
|
195
|
2,607
|
(33)
|
11
|
19
|
678
|
1,039
|
4,516
|
9
|
4,525
|
|
|
|
|
|
|||||||||
|
|
Equity
attributable to equity holders of the company
|
|
|
|||||||||
|
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
|
2017
|
||||||||||||
|
At 1
January 2017
|
205
|
2,597
|
(79)
|
-
|
-
|
905
|
716
|
4,344
|
4
|
4,348
|
|
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
406
|
406
|
2
|
408
|
|
|
|
Other
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
13
|
(313)
|
145
|
(155)
|
-
|
(155)
|
|
|
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
13
|
(313)
|
551
|
251
|
2
|
253
|
|
|
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
33
|
33
|
-
|
33
|
|
|
|
Tax on
equity settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
Issue
of ordinary shares under share option schemes
|
-
|
5
|
-
|
-
|
-
|
-
|
-
|
5
|
-
|
5
|
|
|
|
Buyback
of equity
|
(5)
|
-
|
-
|
5
|
-
|
-
|
(300)
|
(300)
|
-
|
(300)
|
|
|
|
Release
of treasury shares
|
-
|
-
|
18
|
-
|
-
|
-
|
(18)
|
-
|
-
|
-
|
|
|
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
Changes
in non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
2
|
-
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(318)
|
(318)
|
-
|
(318)
|
|
|
|
At 31
December 2017
|
200
|
2,602
|
(61)
|
5
|
13
|
592
|
662
|
4,013
|
8
|
4,021
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
Net
cash generated from operations
|
17
|
547
|
462
|
|
Interest
paid
|
|
(42)
|
(89)
|
|
Tax
paid
|
|
(43)
|
(75)
|
|
Net
cash generated from operating activities
|
|
462
|
298
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
13
|
(5)
|
(11)
|
|
Purchase of
investments
|
|
(10)
|
(3)
|
|
Purchase of
property, plant and equipment
|
|
(70)
|
(82)
|
|
Purchase of
intangible assets
|
|
(130)
|
(150)
|
|
Disposal of
subsidiaries, net of cash disposed
|
14
|
83
|
19
|
|
Proceeds from sale
of joint ventures and associates
|
14
|
18
|
411
|
|
Proceeds from sale
of investments
|
|
6
|
-
|
|
Proceeds from sale
of property, plant and equipment
|
|
128
|
-
|
|
Proceeds from sale
of liquid resources
|
|
10
|
20
|
|
Loans
repaid by / (advanced to) related parties
|
|
46
|
(13)
|
|
Investment in
liquid resources
|
|
(2)
|
(18)
|
|
Interest
received
|
|
20
|
20
|
|
Dividends received
from joint ventures and associates
|
|
117
|
458
|
|
Net
cash generated from investing activities
|
|
211
|
651
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
6
|
5
|
|
|
Buyback
of equity
|
|
(153)
|
(149)
|
|
Proceeds from
borrowings
|
|
-
|
2
|
|
Repayment of
borrowings
|
|
(441)
|
(1,294)
|
|
Finance
lease principal payments
|
|
(4)
|
(5)
|
|
Dividends paid to
company’s shareholders
|
|
(136)
|
(318)
|
|
Dividends paid to
non-controlling interest
|
|
(1)
|
-
|
|
Net
cash used in financing activities
|
|
(729)
|
(1,759)
|
|
|
|
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
(49)
|
16
|
|
Net
decrease in cash and cash equivalents
|
|
(105)
|
(794)
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
630
|
1,424
|
|
Cash
and cash equivalents at end of year
|
|
525
|
630
|
|
|
|
|
|
|
all figures in £ millions
|
|
|
2018
|
|
|
|
|
1
January
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
Unexercised
customer rights (or breakage)
|
|
|
(103)
|
|
Online
Program Management (OPM) marketing
|
|
|
(38)
|
|
Administration
fees
|
|
|
(2)
|
|
Commissions
|
|
|
1
|
|
Income
tax
|
|
|
34
|
|
Total
impact at 1 January 2018
|
|
|
(108)
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
Inventories
|
|
|
12
|
|
Trade
and other receivables
|
|
|
133
|
|
Assets
classified as held for sale
|
|
|
31
|
|
Non-current
liabilities
|
|
|
|
|
Deferred income tax
liabilities
|
|
|
16
|
|
Current
liabilities
|
|
|
|
|
Trade
and other liabilities
|
|
|
(215)
|
|
Liabilities
classified as held for sale
|
|
|
(85)
|
|
Total
impact at 1 January 2018
|
|
|
(108)
|
|
|
|
|
|
|
|
all figures in £ millions
|
2018
|
|||
|
|
Amounts
pre IFRS 15
|
Transition
adjustment
|
In
period adjustment
|
Amounts
as reported
|
|
|
|
|
|
|
|
Sales
|
4,120
|
-
|
9
|
4,129
|
|
Operating
profit
|
544
|
-
|
9
|
553
|
|
Profit
before tax
|
489
|
-
|
9
|
498
|
|
Income
tax
|
94
|
-
|
(2)
|
92
|
|
Profit
for the year
|
583
|
-
|
7
|
590
|
|
Other
comprehensive income / (expense) for the year
|
130
|
-
|
(6)
|
124
|
|
Total
comprehensive income for the year
|
713
|
-
|
1
|
714
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Inventories
|
154
|
12
|
(2)
|
164
|
|
Trade
and other receivables
|
1,058
|
133
|
(13)
|
1,178
|
|
Assets
classified as held for sale
|
630
|
31
|
(13)
|
648
|
|
Non-current
liabilities
|
|
|
|
|
|
Deferred income tax
liabilities
|
(154)
|
16
|
2
|
(136)
|
|
Current
liabilities
|
|
|
|
|
|
Trade
and other liabilities
|
(1,193)
|
(215)
|
8
|
(1,400)
|
|
Liabilities
classified as held for sale
|
(507)
|
(85)
|
19
|
(573)
|
|
|
|
|
|
|
|
Net
assets
|
4,632
|
(108)
|
1
|
4,525
|
|
|
|
|
|
|
all figures in £ millions
|
|
|
2018
|
|
|
|
|
1
January
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
Provision for
losses against trade debtors
|
|
|
(13)
|
|
Income
tax
|
|
|
3
|
|
Total
impact at 1 January 2018
|
|
|
(10)
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Deferred income tax
assets
|
|
|
3
|
|
Current
assets
|
|
|
|
|
Trade
and other receivables
|
|
|
(12)
|
|
Assets
classified as held for sale
|
|
|
(1)
|
|
Total
impact at 1 January 2018
|
|
|
(10)
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Sales
by geography
|
|
|
|
|
North
America
|
|
2,784
|
2,929
|
|
Core
|
|
806
|
815
|
|
Growth
|
|
539
|
769
|
|
Total
sales
|
|
4,129
|
4,513
|
|
|
|
|
|
|
Adjusted
operating profit by geography
|
|
|
|
|
North
America
|
|
362
|
394
|
|
Core
|
|
57
|
50
|
|
Growth
|
|
59
|
38
|
|
PRH
|
|
68
|
94
|
|
Total
adjusted operating profit
|
|
546
|
576
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
North
|
Core
|
Growth
|
Total
|
|
|
|
America
|
|
|
|
|
|
|
|
|
|
|
|
Courseware
|
|
|
|
|
|
|
Products
transferred at a point in time (sale or return)
|
|
718
|
313
|
197
|
1,228
|
|
Products
transferred at a point in time (other)
|
|
-
|
-
|
35
|
35
|
|
Products and
services transferred over time
|
|
718
|
4
|
54
|
776
|
|
|
|
1,436
|
317
|
286
|
2,039
|
|
|
|
|
|
|
|
|
Assessments
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
146
|
65
|
6
|
217
|
|
Products and
services transferred over time
|
|
670
|
377
|
81
|
1,128
|
|
|
|
816
|
442
|
87
|
1,345
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
Products
transferred at a point in time
|
|
-
|
26
|
38
|
64
|
|
Products and
services transferred over time
|
|
532
|
21
|
128
|
681
|
|
|
|
532
|
47
|
166
|
745
|
|
|
|
|
|
|
|
|
Total
sales
|
|
2,784
|
806
|
539
|
4,129
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
North
America
|
Core
|
Growth
|
PRH
|
Total
|
|
|
|
|
|
|
|
|
2018
|
|||||
|
Adjusted operating
profit
|
362
|
57
|
59
|
68
|
546
|
|
Cost of
major restructuring
|
(78)
|
(16)
|
-
|
(8)
|
(102)
|
|
Intangible
charges
|
(72)
|
(8)
|
(19)
|
(14)
|
(113)
|
|
Other
net gains and losses
|
4
|
-
|
226
|
-
|
230
|
|
UK
pension GMP equalisation
|
-
|
(8)
|
-
|
-
|
(8)
|
|
Impact
of US tax reform
|
-
|
-
|
-
|
-
|
-
|
|
Operating
profit
|
216
|
25
|
266
|
46
|
553
|
|
|
|
|
|
|
|
|
2017
|
|||||
|
Adjusted operating
profit
|
394
|
50
|
38
|
94
|
576
|
|
Cost of
major restructuring
|
(60)
|
(11)
|
(8)
|
-
|
(79)
|
|
Intangible
charges
|
(89)
|
(12)
|
(37)
|
(28)
|
(166)
|
|
Other
net gains and losses
|
(3)
|
-
|
35
|
96
|
128
|
|
UK
pension GMP equalisation
|
-
|
-
|
-
|
-
|
-
|
|
Impact
of US tax reform
|
-
|
-
|
-
|
(8)
|
(8)
|
|
Operating
profit
|
242
|
27
|
28
|
154
|
451
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest payable
|
|
(24)
|
(79)
|
|
Net
finance income in respect of retirement benefits
|
|
11
|
3
|
|
Finance
costs associated with transactions
|
|
(1)
|
(6)
|
|
Net
foreign exchange (losses) / gains
|
|
(36)
|
44
|
|
Derivatives in a
hedge relationship
|
|
(4)
|
1
|
|
Derivatives not in
a hedge relationship
|
|
(1)
|
7
|
|
Net
finance costs
|
|
(55)
|
(30)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Finance
costs
|
|
(91)
|
(110)
|
|
Finance
income
|
|
36
|
80
|
|
Net
finance costs
|
|
(55)
|
(30)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Net
interest payable reflected in adjusted earnings
|
|
(24)
|
(79)
|
|
Other
net finance (costs) / income
|
|
(31)
|
49
|
|
Net
finance costs
|
|
(55)
|
(30)
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Profit
before tax
|
|
498
|
421
|
|
Cost of
major restructuring
|
2
|
102
|
79
|
|
Other
net gains and losses
|
2
|
(230)
|
(128)
|
|
Intangible
charges
|
2
|
113
|
166
|
|
Other
net finance costs / (income)
|
3
|
31
|
(49)
|
|
UK
pension GMP equalisation
|
2
|
8
|
-
|
|
Impact
of US tax reform
|
2
|
-
|
8
|
|
Adjusted
profit before tax
|
|
522
|
497
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit / (charge)
|
|
92
|
(13)
|
|
Tax
benefit on cost of major restructuring
|
|
(37)
|
(26)
|
|
Tax
(benefit) / charge on other net gains and losses
|
|
(31)
|
20
|
|
Tax
benefit on intangible charges
|
|
(18)
|
(85)
|
|
Tax
(benefit) / charge on other net finance costs / income
|
|
(6)
|
9
|
|
Tax
benefit on UK pension GMP equalisation
|
|
(2)
|
-
|
|
Impact
of US tax reform added back
|
|
-
|
1
|
|
Tax
amortisation benefit on goodwill and intangibles
|
|
29
|
39
|
|
Adjusted
income tax benefit / (charge)
|
|
27
|
(55)
|
|
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
(18.5)%
|
3.1%
|
|
Tax
rate reflected in adjusted earnings
|
|
(5.2)%
|
11.1%
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for the
year
|
|
590
|
408
|
|
Non-controlling
interest
|
|
(2)
|
(2)
|
|
Earnings
attributable to equity shareholders
|
|
588
|
406
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
778.1
|
813.4
|
|
Effect
of dilutive share options (millions)
|
|
0.6
|
0.3
|
|
Weighted average
number of shares (millions) for diluted earnings
|
|
778.7
|
813.7
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
Basic
|
|
75.6p
|
49.9p
|
|
Diluted
|
|
75.5p
|
49.9p
|
|
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of GMP equalisation
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|||||||||
|
Operating
profit
|
2
|
553
|
102
|
(230)
|
113
|
-
|
8
|
-
|
546
|
|
Net
finance costs
|
3
|
(55)
|
-
|
-
|
-
|
31
|
-
|
-
|
(24)
|
|
Profit
before tax
|
4
|
498
|
102
|
(230)
|
113
|
31
|
8
|
-
|
522
|
|
Income
tax
|
5
|
92
|
(37)
|
(31)
|
(18)
|
(6)
|
(2)
|
29
|
27
|
|
Profit
for the year
|
|
590
|
65
|
(261)
|
95
|
25
|
6
|
29
|
549
|
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
|
Earnings
|
|
588
|
65
|
(261)
|
95
|
25
|
6
|
29
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
778.1
|
|||||
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
778.7
|
|||||
|
|
|
|
|
|
|||||
|
Adjusted earnings per share (basic)
|
|
|
|
70.3p
|
|||||
|
Adjusted
earnings per share (diluted)
|
|
|
|
70.2p
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
Other
net finance costs
|
Impact
of US tax reform
|
Tax
amortisation benefit
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|||||||||
|
Operating
profit
|
2
|
451
|
79
|
(128)
|
166
|
-
|
8
|
-
|
576
|
|
Net
finance costs
|
3
|
(30)
|
-
|
-
|
-
|
(49)
|
-
|
-
|
(79)
|
|
Profit
before tax
|
4
|
421
|
79
|
(128)
|
166
|
(49)
|
8
|
-
|
497
|
|
Income
tax
|
5
|
(13)
|
(26)
|
20
|
(85)
|
9
|
1
|
39
|
(55)
|
|
Profit
for the year
|
|
408
|
53
|
(108)
|
81
|
(40)
|
9
|
39
|
442
|
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
|
Earnings
|
|
406
|
53
|
(108)
|
81
|
(40)
|
9
|
39
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
813.4
|
|||||
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
813.7
|
|||||
|
|
|
|
|
|
|||||
|
Adjusted
earnings per share (basic)
|
|
|
|
54.1p
|
|||||
|
Adjusted
earnings per share (diluted)
|
|
|
|
54.1p
|
|||||
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
|
136
|
318
|
|
|
|
|
|
|
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Average
rate for profits
|
|
1.34
|
1.30
|
|
Year
end rate
|
|
1.27
|
1.35
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
-
|
16
|
|
Intangible
assets
|
|
168
|
181
|
|
Deferred income tax
assets
|
|
98
|
68
|
|
Trade
and other receivables
|
|
25
|
27
|
|
Non-current
assets
|
|
291
|
292
|
|
|
|
|
|
|
Intangible assets
– pre-publication
|
|
242
|
247
|
|
Inventories
|
|
55
|
46
|
|
Trade
and other receivables
|
|
60
|
48
|
|
Cash
and cash equivalents (excluding overdrafts)
|
|
-
|
127
|
|
Current
assets
|
|
357
|
468
|
|
|
|
|
|
|
Total
assets
|
|
648
|
760
|
|
|
|
|
|
|
Deferred income tax
liabilities
|
|
-
|
(2)
|
|
Other
liabilities
|
|
(371)
|
(284)
|
|
Non-current
liabilities
|
|
(371)
|
(286)
|
|
|
|
|
|
|
Trade
and other liabilities
|
|
(202)
|
(302)
|
|
Current
liabilities
|
|
(202)
|
(302)
|
|
|
|
|
|
|
Total
liabilities
|
|
(573)
|
(588)
|
|
|
|
|
|
|
Net
assets
|
|
75
|
172
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,111
|
2,030
|
|
Other
intangibles
|
|
898
|
934
|
|
Non-current
intangible assets
|
|
3,009
|
2,964
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
(311)
|
(265)
|
|
Sales
return liability
|
|
(173)
|
-
|
|
Accruals
|
|
(397)
|
(447)
|
|
Deferred
income
|
|
(387)
|
(322)
|
|
Other
liabilities
|
|
(287)
|
(441)
|
|
Trade
and other liabilities
|
|
(1,555)
|
(1,475)
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
Trade
and other liabilities – current
|
|
(1,400)
|
(1,342)
|
|
Other
liabilities – non-current
|
|
(155)
|
(133)
|
|
Total
trade and other liabilities
|
|
(1,555)
|
(1,475)
|
|
|
|
|
all figures in £ millions
|
Total
|
|
|
|
|
|
|
|
Cash
– Current year acquisitions
|
-
|
|
Deferred payments
for prior year acquisitions and other items
|
(5)
|
|
Net
cash outflow on acquisitions
|
(5)
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
WSE
|
UTEL
|
Other
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
(17)
|
-
|
-
|
(17)
|
|
Intangible
assets
|
|
(15)
|
-
|
(2)
|
(17)
|
|
Investments in
joint ventures and associates
|
|
-
|
(3)
|
-
|
(3)
|
|
Intangible assets
– pre-publication
|
|
(8)
|
-
|
-
|
(8)
|
|
Inventories
|
|
(1)
|
-
|
-
|
(1)
|
|
Trade and other
receivables
|
|
(30)
|
-
|
-
|
(30)
|
|
Cash and cash
equivalents (excluding overdrafts)
|
|
(119)
|
-
|
-
|
(119)
|
|
Net deferred income
tax liabilities
|
|
16
|
-
|
-
|
16
|
|
Trade
and other liabilities
|
|
171
|
-
|
1
|
172
|
|
Provisions for
other liabilities and charges
|
|
-
|
-
|
1
|
1
|
|
Cumulative
translation adjustment
|
|
4
|
-
|
-
|
4
|
|
Net
(assets) / liabilities disposed
|
|
1
|
(3)
|
-
|
(2)
|
|
|
|
|
|
|
|
|
Cash
proceeds
|
|
212
|
22
|
9
|
243
|
|
Deferred
proceeds
|
|
-
|
-
|
2
|
2
|
|
Fair value of
financial asset acquired
|
|
-
|
-
|
3
|
3
|
|
Costs of
disposal
|
|
(6)
|
-
|
(10)
|
(16)
|
|
Gain
on disposal
|
|
207
|
19
|
4
|
230
|
|
|
|
|
|
|
|
|
Cash
flow from disposals
|
|
|
|
|
|
|
Proceeds –
current year disposals
|
|
212
|
22
|
9
|
243
|
|
Cash and cash
equivalents disposed
|
|
(119)
|
-
|
-
|
(119)
|
|
Costs and other
disposal liabilities paid
|
|
(4)
|
-
|
(19)
|
(23)
|
|
Net
cash inflow / (outflow) from disposals
|
|
89
|
22
|
(10)
|
101
|
|
|
|
|
|
|
|
|
Analysed
as:
|
|
|
|
|
|
|
Disposal of
subsidiaries, net of cash disposed
|
|
89
|
-
|
(6)
|
83
|
|
Proceeds from sale
of joint ventures and associates
|
|
-
|
22
|
(4)
|
18
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
67
|
140
|
|
Current
assets
|
|
|
|
|
Derivative
financial instruments
|
|
1
|
-
|
|
Marketable
securities
|
|
-
|
8
|
|
Cash
and cash equivalents (excluding overdrafts)
|
|
568
|
518
|
|
Non-current
liabilities
|
|
|
|
|
Borrowings
|
|
(674)
|
(1,066)
|
|
Derivative
financial instruments
|
|
(36)
|
(140)
|
|
Current
liabilities
|
|
|
|
|
Borrowings
|
|
(46)
|
(19)
|
|
Derivative
financial instruments
|
|
(23)
|
-
|
|
Total
|
|
(143)
|
(559)
|
|
Cash
and cash equivalents classified as held for sale
|
|
-
|
127
|
|
Net
debt
|
|
(143)
|
(432)
|
|
|
|
|
|
|
EBITDA
(excluding restructuring)
|
|
|
|
|
Adjusted operating
profit
|
2
|
546
|
576
|
|
Depreciation
|
|
66
|
80
|
|
Software
amortisation
|
|
87
|
82
|
|
EBITDA
|
|
699
|
738
|
|
|
|
|
|
|
Net
debt / EBITDA ratio
|
|
0.2x
|
0.6x
|
|
|
---------Level
2---------
|
-----Level
3------
|
|
|||
|
all figures in £ millions
|
Available for sale
assets
|
Derivatives
|
Other
assets
|
FVOCI
investments / Available for sale assets
|
Other
liabilities
|
Total
fair value
|
|
2018
|
||||||
|
|
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
-
|
93
|
-
|
93
|
|
Marketable
securities
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Derivative
financial instruments
|
-
|
68
|
-
|
-
|
-
|
68
|
|
Total
financial assets held at fair value
|
-
|
68
|
-
|
93
|
-
|
161
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(59)
|
-
|
-
|
-
|
(59)
|
|
Total
financial liabilities held at fair value
|
-
|
(59)
|
-
|
-
|
-
|
(59)
|
|
|
|
|
|
|
|
|
|
2017
|
||||||
|
|
|
|
|
|
|
|
|
Investments in
unlisted securities
|
-
|
-
|
-
|
77
|
-
|
77
|
|
Marketable
securities
|
8
|
-
|
-
|
-
|
-
|
8
|
|
Derivative
financial instruments
|
-
|
140
|
-
|
-
|
-
|
140
|
|
Total
financial assets held at fair value
|
8
|
140
|
-
|
77
|
-
|
225
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
-
|
(140)
|
-
|
-
|
-
|
(140)
|
|
Total
financial liabilities held at fair value
|
-
|
(140)
|
-
|
-
|
-
|
(140)
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in unlisted securities
|
|
|
|
|
At
beginning of year
|
|
77
|
65
|
|
Exchange
differences
|
|
3
|
(4)
|
|
Additions
|
|
13
|
3
|
|
Fair
value movements
|
|
8
|
13
|
|
Disposals
|
|
(8)
|
-
|
|
At
end of year
|
|
93
|
77
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of profit for the year to net cash generated from
operations
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
590
|
408
|
|
Income
tax
|
|
(92)
|
13
|
|
Depreciation,
amortisation and impairment charges
|
|
253
|
313
|
|
Net
profit on disposal of businesses
|
|
(230)
|
(128)
|
|
Charges
relating to GMP equalisation
|
|
8
|
-
|
|
Net
(profit) / loss on disposal of fixed assets
|
|
(85)
|
12
|
|
Net
finance costs
|
|
55
|
30
|
|
Share
of results of joint ventures and associates
|
|
(44)
|
(78)
|
|
Net
foreign exchange adjustment
|
|
28
|
(26)
|
|
Share-based payment
costs
|
|
37
|
33
|
|
Pre-publication
|
|
(37)
|
(35)
|
|
Inventories
|
|
(10)
|
24
|
|
Trade
and other receivables
|
|
(15)
|
133
|
|
Trade
and other liabilities
|
|
35
|
6
|
|
Retirement benefit
obligations
|
|
(9)
|
(232)
|
|
Provisions for
other liabilities and charges
|
|
63
|
(11)
|
|
Net
cash generated from operations
|
|
547
|
462
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of net cash generated from operations to closing net
debt
|
|
|
|
|
|
|
|
|
|
Net
cash generated from operations
|
|
547
|
462
|
|
Dividends from
joint ventures and associates
|
|
117
|
458
|
|
Less:
re-capitalisation dividends from PRH
|
|
(50)
|
(312)
|
|
Purchase of PPE
including finance lease principal payments
|
|
(74)
|
(87)
|
|
Proceeds from sale
of PPE
|
|
128
|
-
|
|
Purchase of
intangible assets
|
|
(130)
|
(150)
|
|
Add
back: net (proceeds from) / cost paid re major
restructuring
|
|
(25)
|
71
|
|
Add
back: special pension contribution
|
|
-
|
227
|
|
Operating
cash flow
|
|
513
|
669
|
|
Operating tax
paid
|
|
(43)
|
(75)
|
|
Net
operating finance costs paid
|
|
(22)
|
(69)
|
|
Operating
free cash flow
|
|
448
|
525
|
|
Net
proceeds from / (cost paid) re major restructuring
|
|
25
|
(71)
|
|
Special
pension contribution
|
|
-
|
(227)
|
|
Free
cash flow
|
|
473
|
227
|
|
Dividends paid
(including to non-controlling interest)
|
|
(137)
|
(318)
|
|
Net
movement of funds from operations
|
|
336
|
(91)
|
|
Acquisitions and
disposals
|
|
92
|
416
|
|
Re-capitalisation
dividends from PRH
|
|
50
|
312
|
|
Loans
repaid / (advanced)
|
|
46
|
(13)
|
|
New
equity
|
|
6
|
5
|
|
Buyback
of equity
|
|
(153)
|
(149)
|
|
Other
movements on financial instruments
|
|
(6)
|
14
|
|
Net
movement of funds
|
|
371
|
494
|
|
Exchange movements
on net debt
|
|
(82)
|
166
|
|
Movement
in net debt
|
|
289
|
660
|
|
Opening
net debt
|
|
(432)
|
(1,092)
|
|
Closing
net debt
|
15
|
(143)
|
(432)
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Gross
|
Net
|
Net
|
|
|
|
|
|
|
|
|
Adjusted operating
profit
|
|
546
|
576
|
546
|
576
|
|
Less:
operating tax paid
|
|
(43)
|
(75)
|
(43)
|
(75)
|
|
Return
|
|
503
|
501
|
503
|
501
|
|
|
|
|
|
|
|
|
Average:
goodwill
|
|
6,675
|
7,236
|
3,547
|
3,794
|
|
Average: other
non-current intangibles
|
|
2,438
|
2,606
|
2,438
|
2,606
|
|
Average: intangible
assets – pre-publication
|
|
999
|
995
|
999
|
995
|
|
Average: tangible
fixed assets and working capital
|
|
560
|
731
|
560
|
731
|
|
Average:
total invested capital
|
|
10,672
|
11,568
|
7,544
|
8,126
|
|
|
|
|
|
|
|
|
ROIC
|
|
4.7%
|
4.3%
|
6.7%
|
6.2%
|
|
|
PEARSON
plc
|
|
|
|
|
Date: 22nd
February 2019
|
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
|
|
------------------------------------
|
|
|
Natalie
White
|
|
|
Deputy
Company Secretary
|