Pearson plc (LON:PSON) has announced its 2022 preliminary results (unaudited).
Andy Bird, Pearson’s Chief Executive, said:
“These results are testament to the strong momentum that we’ve been building operationally and strategically over the past 24 months. For a second consecutive year, our financial performance was ahead of expectations, and we saw progress in our strategic initiatives, which are taking Pearson on a new, exciting journey.
Our portfolio continues to strengthen, with our new Workforce Skills talent investment platform created to leverage the structural growth in our markets and increased need for upskilling and reskilling. This will be a key growth driver for Pearson over the coming years. Our confidence for the future is underpinned by ongoing innovation, alongside our increasing divisional interconnectivity. This is combined with accelerating demand for our digital solutions, a growing consumer-focused proposition and our ability to serve more people across their lifelong learning journeys.”
Underlying sales growth1 of 5%
· Assessment & Qualifications up 8% driven by strong performances in US Student Assessment and UK & International Qualifications as exams resumed, and in Clinical Assessment due to good government funding and continued focus on health and wellbeing. Pearson VUE saw particularly strong growth in the IT and healthcare segments.
· Virtual Learning up 4% driven by firm retention rates in Virtual Schools in the prior academic year (2021/22) and favourable revenue mix. OPM sales were up 4%.
· Higher Education down 4% driven by a decline in enrolments and a loss of adoptions to non-mainstream publishers, including open educational resources, partially offset by improved pricing. Pearson+ increased paid subscriptions to 406k in the Fall semester (Fall 2021:133k).
· English Language Learning up 24% due to increased Pearson Test of English (PTE) volumes, which were up 90%, as global mobility continued to improve with border re-openings and market share gains in India.
· Workforce Skills up 7% with growth driven by BTEC and Apprenticeships, GED and TalentLens.
· Businesses under strategic review down 16%.
Adjusted operating profit1 up 11% on an underlying basis to £456m
· Driven by operating leverage on revenue growth and property cost savings, partially offset by inflation. We continued to invest in growth, including in our new Workforce Skills talent investment platform, supported by the reallocation of costs from other areas of the business.
· Headline growth was 18% reflecting underlying performance, portfolio changes and currency movements.
· Interest and tax charges were lower than normal in 2022, due to the release of tax provisions. This, along with the significant increase in adjusted operating profit and the reduction in issued shares given the share buyback, has driven a 48% increase in adjusted earnings per share of 51.8p (2021: 34.9p). The effective tax rate was 16% (2021: 20%) and the net interest charge was £1m (2021: £57m).
· Operating cash1 inflow increased on a headline basis from £388m in 2021 to £401m in 2022, representing strong cash conversion of 88% despite the impact of the timing of the disposal of our international courseware local publishing businesses.
Strong balance sheet supports continued investment and increased shareholder returns
· Acquisitions of Mondly, Credly and PDRI (subject to close) to support growth strategy across the Pearson ecosystem.
· Year-end net debt of £0.6bn (2021: £0.4bn) with leverage at 0.8x (2021: 0.6x).
· Proposed final dividend of 14.9p (2021: 14.2p) which equates to a full year dividend of 21.5p (2021:20.5p).
· Completed the £350m share buyback with a total of 42.3m shares repurchased in 2022.
· Sales increased 12% to £3,841m (2021: £3,428m) reflecting underlying performance, portfolio changes and currency movements.
· Statutory operating profit was £271m (2021: £183m). The increase in 2022 was driven by operating leverage on revenue growth, property cost savings, and a lower restructuring charge, partially offset by inflation and a reduction in other net gains and losses arising from business acquisitions and disposals.
· Net cash generated from operations of £527m (2021: £570m).
· Statutory earnings per share of 32.8p (2021: 23.5p).
In March 2021, we presented our lifetime of learning strategy. Our priorities continue to centre on building a company that is digital first, puts the consumer at its heart, and delivers high quality learning products at scale to more people than ever before.
We also outlined three reasons why we believe Pearson will win in this new environment:
· We are the world’s leading learning company with a strong brand, an unmatched scope and scale; and have the deep expertise of thousands of employees who deliver high quality, trusted learning solutions every day.
· We have a great foundation of established businesses that are well-managed, cash generative and underpin the company financially.
· We are bringing together the multiple facets of our expertise through a more connected commercial and consumer strategy which will deliver innovative digital learning products to delight our customers.
During 2022, we made strong progress both strategically and operationally as we continued to focus on reshaping our portfolio, growing our digital capabilities, increasing the interconnectivity across Pearson to unlock synergies and implementing change in our Higher Education division to drive future growth.
Accelerating our digital journey
In 2022, we achieved 9% underlying growth in Group digital and digital-enabled sales. The Pearson+ roll out has also continued at pace leading to a threefold increase in paid subscriptions to 406k in the Fall semester (Fall 2021:133k) and registered users growing to 2.83m (Fall 2021: 2.75m). We have continued to invest in the platform launching 18 study channels to grow Pearson+ and widen the total addressable market beyond Higher Education. Our online language learning app Mondly has also been successfully integrated into Pearson+, broadening the appeal further.
Maintaining focus on efficiencies
We remain on track to deliver approximately £120m of cost efficiencies in 2023. The restructure is now complete with confirmed efficiencies in product and content support costs, technology and corporate property, across all divisions but weighted to Higher Education. These efficiencies will help accelerate our improved margin expectation to 2023 from 2025. One-time costs, which are excluded from adjusted operating profit to better highlight underlying performance are £150m. Of this, £85m are incurred in cash, mostly in 2023, with the remaining £65m relating to write offs of predominantly property lease assets.
Implementing change in Higher Education to drive growth
We have implemented change in our US Higher Education sales leadership, restructured the sales team and developed a new go to market strategy for 2023. Investment is focused on modernising our platform products to increase stability and deliver upgraded, best-in-class features that will improve the instructor and student experience. We expect to see the benefits of these changes in 2023 and beyond.
Reshaping the portfolio
Our recent acquisitions and disposals are benefitting the wider Group and increasing Pearson’s interconnectivity:
· The integration of Faethm and Credly is going well and will form part of our new Workforce Skills talent investment platform to be launched in 2023.
· Our acquisition of Mondly also continues to enhance our credentials in the language learning direct to consumer space with paid subscriptions standing at 446k at the end of 2022. Mondly contributes to the transformation of English Language Learning and increases interconnectivity across the Group, including the successful integration of Mondly into Pearson+ in 2022.
· Subject to closing, the acquisition of PDRI will expand Pearson’s services to US federal agencies and grow our presence with large employers.
· Disposal of our international courseware local publishing businesses is now complete. We have decided to retain our Australia and Canada businesses with approximately £30m of revenue retained within our Assessment & Qualifications division.
· Strategic review of OPM is progressing and we will update in due course.
The enterprise learning market is estimated to be worth over £200bn in total and is comprised of several different sub-markets, including enterprise employee benefit, talent management and pre-hire recruitment workforce skills. The scale and growth of these markets is being driven by seismic change in the workplace with organisations hunting for new skills to help them navigate economic disruption, climate change, AI, new technologies and much more. The World Economic Forum estimates that one billion people will need reskilling by 2030.
We have organised our Workforce Skills division into two sectors so that we can harness the growth opportunities in this changing environment.
Firstly, in our Vocational Qualifications business (previously known as our Performance business), we already offer high quality qualifications such as BTECs and Apprenticeships that allow learners to build the knowledge, skills and behaviours they need for career success.
Secondly, our Workforce Solutions business (previously known as our Transformation business), offers a series of interconnected and tailored products and services. These are specifically designed for enterprise and institutional customers, though always with a focus on the needs of the consumer. They utilise capabilities from our two recent acquisitions – Credly and Faethm, as well as existing Pearson products and services such as GED and TalentLens.
We are excited to be launching our new talent investment platform in 2023. We have tested the technology and key value propositions with several enterprises in the second half of 2022. The platform helps enterprises solve their workforce planning, upskilling and recruitment challenges. It connects Faethm’s skills and data science capabilities with Credly’s portable skills profile and credentialed learning for enterprises. We will sell this as a SaaS product with additional professional services, adding new features and capabilities to deepen the insights we can deliver for both enterprises and learners alike.
We expect Workforce Solutions to become the growth engine of Workforce Skills and we see near-term priority growth opportunities in pre-hire recruitment, talent management and learning as an enterprise employee benefit.
· We are confident of further group underlying sales growth of low to mid-single digit, excluding OPM and the strategic review businesses, with adjusted operating profit and tax in line with current market expectations2. Our interest charge is expected to be c.£35m.
· Assessment & Qualifications revenue growth of low to mid-single digit with increased margins.
· In Virtual Learning, Virtual Schools revenue to decline by mid-single digit impacted by the COVID-19 cohort unwind in the 2022/23 academic year, as well as the loss of a major school. We expect margins to increase. We remain confident in the long-term performance of this division and will launch Career Academies aimed at supporting teenagers who wish to gain career education and experience. Four Career Academies will operate in the 2023-24 school year in four states and enrollment is underway. OPM continues to be under strategic review.
· Higher Education revenue to decline, by low-single digit, with increased margins.
· English Language Learning revenue growth of high-single digit with increased margins.
· Double-digits revenue growth in Workforce Skills, underpinned by our new talent investment platform, with improved margins.
· We continue to expect Pearson to achieve mid-single digit underlying revenue 3-year CAGR from 2022 to 2025 and for margins to be mid-teens in the near term, as we invest to drive growth, improving by 2025.