Pearson sales and profit in line with expectations for the full year

digital learning

Pearson plc (LON:PSON), the world’s leading learning company, has provided an update on full year 2020 trading. Full year results will be announced on 5th March 2021.

Key highlights for the 12 months:

  • Group sales declined by 10% and we expect to report adjusted operating profit in the range of £310m-£315m at an average USD:GBP exchange rate of 1.28; with portfolio changes, inflation and the trading impact of COVID-19 partially offset by restructuring savings.
  • The challenging impact of COVID-19 has been felt most acutely across International and Global Assessment due to test centre and school closures, exam cancellations, reduced global mobility and international economic pressure on spending. It has accelerated demand for digital learning and performance in Global Online Learning has been strong. US Higher Education Courseware has performed in line with expectations, despite COVID-19.
  • Global Online Learning sales grew 18% due to strong enrolments in new and existing schools in Virtual Schools and good sales growth in Online Program Management (OPM), with growth in continuing programs partially offset by discontinued programs.
  • Global Assessment sales declined 14%, reflecting the impact of test centre closures during the lockdowns in H1 in Professional Certification, with pent up demand in the second half partly moderated by Q4 lockdowns. Cancellation of Spring testing impacted US Student Assessment and school closures impacted US Clinical Assessment.
  • North American Courseware declined 13% with US Higher Education Courseware revenue down 12%, with good growth in digital registrations and eBooks and a further decline of higher priced package and print sales. At the end of 2020, over 70% of US Higher Education Courseware revenue was digital.
  • International declined 19% due to school and test centre closures and the continuing impact of COVID-19 on public and private spending on courseware and assessments.

Cost management

Pearson achieved incremental in year benefits of £60m associated with the 2017-2019 restructuring plan, and we remain on track to create the further £50m of cost efficiencies for full year 2021.

Strong balance sheet

Pearson retains significant financial headroom with net debt of c.£0.5bn and immediately available liquidity of c.£1.9bn through committed facilities and cash balances.

Andy Bird, Chief Executive said:

“I am very proud of the way that our employees across the world have come together – in an incredibly challenging year – to support one another, our customers and the broader communities in which we operate. My priority remains keeping our employees and customers safe as global lockdowns and tighter restrictions persist.

“Despite facing significant uncertainty, our teams have been laser-focused on closing out 2020, enabling us to report sales and profit for 2020 in line with expectations. Uncertainty remains in the near term as a result of the ongoing pandemic, with further lockdowns, exam cancellations and reduced global mobility. However, I am excited about our future given the shift to online learning and the huge opportunity to help more people develop the skills they need.

“At the end of 2020, we made several key hires to accelerate our digital growth and, looking ahead, we start the year with momentum, pace and confidence. Our broader goal is to become a more consumer-focused company, targeting the incredible opportunity that exists to have a direct relationship with millions of lifelong learners. We look forward to sharing more details at our Preliminary Results in March.”

Financial summary

Underlying growth for 2020 
Sales 
Global Online Learning18%
Global Assessment(14)%
North American Courseware(13)%
International(19)%
Total (10)%
Underlying growth by quarter 2020Q1Q2Q3Q4
Sales    
Global Online Learning6%3%32%30%
Global Assessment(3)%(45)%(3)%3%
North American Courseware(10)%(18)%(15)%(8)%
International(10)%(31)%(26)%0%
Total (5)%(28)%(10)%4%

Notes

Throughout this announcement: growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude both currency movements and portfolio changes. Unless otherwise stated, growth rates relate to the twelve-month period.

2020 trading update

In Global Online Learning, sales grew 18% for the full year. Virtual Schools performed strongly driven by 43% enrolment growth in new and existing schools for the 2020/2021 academic year. We opened three new full-time, state-wide partner schools, and combined with two contract exits this takes the total partner schools to 43.

In OPM, we saw good sales growth with a strong performance in undergraduate and international, partially offset by discontinued programs. We also saw the benefits of the operational changes made earlier this year, with increased efficiencies in our student recruitment process and student acquisition costs. Underlying course enrolments (excluding discontinued programs) grew 20% and total course enrolments declined 7%. We are delivering 470 programs across 34 partners globally.

In Global Assessment, sales declined 14% for the full year. Sales declined at Pearson VUE reflecting the impact of the test centre closures in H1, partially offset by growth in IT and online proctoring. Testing volumes for the full year were down 22% to 12.9m. Pent up demand in H2 was partially moderated by further lockdowns in Q4 and continued social distancing, leading to increased costs. Online Proctoring continued to see strong growth with volumes growing significantly from 0.2m at the end of 2019 to 2.1m at the end of 2020. In School and Clinical Assessment, performance was in line with expectations with further modest impact of COVID-19 in H2.

In North American Courseware, sales declined 13% for the full year. In US Higher Education Courseware sales declined 12% with total unit sales increasing slightly and digital registrations including eBooks growing 9%. In Canada, courseware sales were down significantly due to school and bookstore closures, with a strong performance in Q4 as purchases shifted to digital.

Affordability continues to play a major part in students’ decision making and the unbundling of premium priced print and digital products for digital only formats continued. This reflects the rapidly changing market dynamics of the industry with 2.2m textbooks sold into US Higher Education colleges in 2020, compared with 3.7m in 2019. Sales of standalone eBook units into colleges grew 33% to 3.7m units, showing signs of secondary market recapture.

There has also been continued momentum in Inclusive Access with sales to not-for-profit institutions up 29% on last year representing 13% of US Higher Education Courseware revenue.

In International, sales were down 19% at the full year due to the interruption of Australian immigration and test centre closures impacting PTE with volumes down 36% compared to 2019, as well as the impact of COVID-19 on courseware purchasing.

For School & HE Courseware, budget constraints and school closures have led to fewer purchases. South Africa school courseware sales were down slightly, with purchases pushed later into Q4 compared to Q3 2019. In the UK, qualifications revenue was impacted, as expected, by the cancellation of exams in 2020, as well as the end of the NCT contract. In our franchise business in Brazil and across courseware, we have seen market contraction as a result of the pandemic.

Simplification

On 1 April 2020, Pearson completed the sale of its remaining 25% in Penguin Random House for £531m to Bertelsmann SE & Co KGaA.

In relation to the disposal of US K12 Courseware in 2019, Pearson sold its 20% variable Earn-Out right for $57m during 2020.

On 9 November 2020, Pearson announced the disposal of its interest in Pearson Institute of Higher Education (PIHE) in South Africa to a consortium of Stellenbosch Graduate Institute (SGI) and EXEO Capital, which is expected to close in H1 2021.

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