Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the
month of January 2017
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
by check mark whether the Registrant files or will file annual
reports
under
cover of Form 20-F or Form 40-F:
Form
20-F
X
Form 40-F
Indicate
by check mark whether the Registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
18 January 2017
London
Press Release
Pearson January trading update
We expect to deliver operating profit in line with guidance for
2016, despite a further unprecedented decline in Q4 2016 in our
North American higher education courseware business. Our 2016
restructuring program has been delivered in full and the financial
benefits are a little higher than planned.
We are today announcing actions to accelerate our digital
transition in higher education, to manage the print decline, and to
reshape our portfolio. Our guidance for 2017 reflects
continued challenges and uncertainty in the North American higher
education courseware market and we no longer expect to reach our
prior operating profit goal for 2018. The Board intends to
recommend a final dividend of 34p for an overall 2016 dividend of
52p in line with our guidance, but as a result of the factors above
we intend to rebase our dividend from 2017 onwards.
2016 results: we expect to
report adjusted operating profit and adjusted earnings per share of
approximately £630m and 57p, respectively, with revenues down
approximately 8% in underlying terms primarily due to weakness in
North American higher education courseware. We have continued to
manage discretionary cost tightly and are accruing around £55m
less than originally planned for our 2016 staff incentive
programme, enabling us to report within the guidance range we had
previously set.
Other than North American higher education courseware, our
businesses have in aggregate performed in line with expectations.
Online Program Management, virtual schools and professional
certification all continued to grow. As expected US school
courseware was impacted by a smaller market and lower participation
rate, but benefited from share gains in Open Territories. North
American student assessment profits rose slightly despite significant declines in
revenue as we offset the impact of contract losses with cost
reductions and the benefits of a higher weighting to digital
services. In Core, our UK qualifications business is seeing a
stabilisation in exam registrations as expected, and our Growth
markets have returned to profitability.
The North American higher education courseware market was much
weaker than expected. Our net revenues fell 30% during the final
quarter resulting in an unprecedented 18% decline for the full
year. We estimate 2% of this decline was driven by lower
enrolment, particularly in Community College and amongst older
students; 3-4% by an accelerated impact from rental in the
secondary market; and approximately 12% due to an inventory
correction in the channel reflecting the cumulative impact of these
factors in prior years.
2017 actions: Whereas we had
previously anticipated a broadly stable North American higher
education courseware market in 2017, we now assume that many of
these downward pressures will continue. We are the market leader in
US Higher Education and will use that leadership to accelerate our
shift to digital and maximise the value of our stand-alone text
offerings with the following actions:
1.
We are accelerating work to simplify our product technology
platform and enhancing our courseware service capabilities with
£50m of additional investment, which will remove barriers to
faster product innovation,
accelerate our product roadmap by two years and drive faster
adoption of institution-wide Digital Direct Access for Pearson
courseware.
2.
We are increasing our participation in the courseware rental
market, by:
a.
reducing eBook rental prices by up to 50% across 2,000 titles
- making digital rental the best option for price-conscious
students.
b.
launching our own print rental program, piloting with an initial
group of 50 titles made available through Pearson's approved rental
partners, ensuring Pearson is paid more often for the usage of
our
courseware. If successful we will scale this program
rapidly.
Reshaping our portfolio: we are
additionally announcing the following actions to reshape our
portfolio and capital structure:
1.
With the integration of Penguin Random House complete, and with
greater industry-wide stability on digital terms, we intend to
issue an exit notice regarding our 47% stake in Penguin Random
House to our JV
partner Bertelsmann in the contractual window, with a view to
selling our stake or recapitalising the business and extracting a
dividend.
2. We will use proceeds from this action to
maintain a strong balance sheet;
invest in our business; and return excess capital to shareholders
whilst retaining an investment grade credit
rating.
3.
We will propose a final dividend of 34p for an overall 2016
dividend of 52p in line with 2015 and our guidance. For 2017
we intend to rebase our dividend to reflect portfolio changes,
increased investment, and our
2017 earnings guidance.
4.
We will continue to reduce our exposure to large scale direct
delivery services and focus on more scalable online, virtual, and
blended services, across our portfolio.
Outlook: The challenges we have
faced during 2016 mean we begin
2017 with a base level of underlying profitability that is around
£180m lower than we had expected in early 2016. Our
preliminary guidance range is for operating profit in 2017 of
£570m to £630m, driving adjusted earnings per share of
48.5p to 55.5p. This is based on our existing portfolio, a
2017 net interest charge of £74m, a tax rate of 20% and
exchange rates on 31 December 2016.
This
guidance is based on assumptions incorporating further declines in
enrolment and other pressures in the North American higher
education courseware market in 2017. The top of the range implies
that this is offset as the impact of the 2016 inventory correction
at key channel partners partially unwinds resulting in net revenue
growth in our North American higher education courseware business
of approximately 1%. The bottom of our guidance range assumes that
inventory levels continue to fall resulting in a 7% net revenue
decline. The rest of business is expected to perform broadly in
line with trends seen in 2016.
We are
withdrawing our operating profit goal for 2018 reflecting portfolio
changes and challenging and uncertain markets.
Conference call: We will
hold a conference call for analysts at 8.30am on Wednesday, 18
January to present our headline plans. We will provide
further detail on our strategy and our key financial assumptions at
our preliminary results presentation in
February.
Full Year results: Pearson
will report its preliminary results on 24 February
2017.
Pearson's chief executive John Fallon said:
"The education sector is going through an unprecedented period of
change and volatility. We have already taken significant
steps on restructuring, reducing our cost base by £375m last
year.
"However our higher education business declined further and faster
than expected in 2016.
"So we are taking more radical action to accelerate our shift to
digital models, and to keep reshaping our business."
Pearson's chairman Sidney Taurel said:
"We are facing difficult trading conditions in our
largest business as we transition to digital, but as a Board, we
are confident that the plan announced today will allow the company
to navigate these conditions and build on its leading position in
higher education."
Details for 08:30am Analyst and Investor conference
call:
Direct DDI (s) for Participant Connection:
UK Toll Number: +44 (0) 2031394830
UK Toll-Free Number: +44 (0) 8082370030
Participant Pin Code:
22731571#
Audience URL:
http://event.onlineseminarsolutions.com/r.htm?e=1349503&s=1&k=7513634C3144277BB35C4CC21CF7066D
Details for 10:15am Media conference call:
Direct DDI (s) for Participant information:
UK Toll Number: +44 (0) 2031394830
UK Toll-Free Number: +44 (0) 8082370030
Participant PIN code:
42719821#
URL for international dial in
numbers:
http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf
Our strategy
Pearson is the world's learning company, with world-class
capabilities in educational courseware and assessment, based on a
strong portfolio of products and services, powered by learning
technology. We believe that our strategy of combining these
core capabilities with related services that enable our partners to
scale online, reaching more people and ensuring better learning
outcomes, will provide Pearson with a larger market opportunity, a
sharper focus on the fastest-growing education markets and stronger
financial returns.
To focus on this opportunity we have made significant portfolio and
management changes, completed a significant restructuring which
will exceed its objective of £350m of cost savings in 2017,
embarked on a broad-based simplification programme and continued to
invest around £700m per year in our portfolio of products and
services.
This statement contains inside information.
Ends
For more information
T + 44 (0)20 7010 2310
Investors: Tom Waldron
Press: Brendan O'Grady
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.pearson.com/investors). 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.
SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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PEARSON
plc
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Date: 18
January 2017
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By: /s/
NATALIE DALE
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Natalie
Dale
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Deputy
Company Secretary
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