PEARSON PLC annual report, Q4 FY2023

Pearson plc — 2023 Form 20-F summary

Business context and reporting period

Annual report for the fiscal year ended December 31, 2023, filed March 14, 2024. The filing reports full-year results; it does not provide a clear standalone Q4 financial summary. Pearson is a global learning company operating in Assessment & Qualifications, Virtual Learning, Higher Education, English Language Learning and Workforce Skills. Financial statements are prepared under IFRS as issued by the IASB.

Financial performance and position

Metric20232022
Sales£3,674m£3,841m
Statutory operating profit£498m£271m
Adjusted operating profit£573m£456m
Profit for the year£380m£244m
Basic EPS53.1p32.8p
Adjusted EPS58.2p51.8p
Net cash generated from operations£682m£527m
Free cash flow£387m£222m
Net debt£744m£557m
  • Underlying sales grew 5% excluding OPM and Strategic Review businesses; including those businesses, underlying growth was 1%. Reported sales fell 4%, reflecting portfolio changes and currency movements.
  • Adjusted operating profit rose 26% on a reported comparison and 31% on an underlying basis. Adjusted operating margin was 16%; the filing gives 15.6% as the 2023 continuing operating margin in its five-year summary.
  • Statutory tax expense was £113m (23.0%); tax on adjusted earnings was £124m, an adjusted effective rate of 23.0%.
  • At year-end Pearson reported approximately £1.0bn of available liquidity, including cash and an undrawn $1bn revolving credit facility. It reported investment-grade ratings of BBB- from Fitch and Baa3 from Moody’s.
  • The proposed full-year dividend was 22.7p per share, up 6%; the 15.7p final dividend was subject to shareholder approval. A £300m buyback completed on March 7, 2024, and a further £200m programme commenced March 8, 2024.

Material changes and business developments

  • Assessment & Qualifications sales rose 7% underlying and adjusted profit rose 33% underlying, with strength in Pearson VUE, including IT and healthcare testing.
  • English Language Learning sales rose 30% underlying; Pearson Test of English volumes increased about 49% to more than 1m tests.
  • Workforce Skills sales rose 11% underlying, but adjusted operating loss widened to £8m from £3m as Pearson invested in the business.
  • Higher Education sales fell 3% underlying, while adjusted profit rose 20%, mainly from cost efficiencies. Virtual Learning sales fell 20% underlying, reflecting the expected decline in Online Program Management and school enrolments.
  • Pearson acquired US federal workforce-assessment provider PDRI for £152m cash. It completed the disposal of Pearson Online Learning Services businesses; the ASU contract was retained but is winding down. International courseware businesses under strategic review were wound down.
  • Pearson reported £120m of cost savings. Digital and digital-enabled sales grew 8%, excluding OPM and Strategic Review; Pearson+ reached about 5m registered users and more than 1m cumulative paid subscriptions during the calendar year.

Outlook, risks and unusual items

  • For 2024, management expected underlying sales growth, adjusted operating profit and tax to be in line with market expectations, and free-cash-flow conversion of 95–100%. Division outlook included low-to-mid-single-digit growth in Assessment & Qualifications, high-single-digit growth in English Language Learning and Workforce Skills, and a return to growth in Higher Education. Virtual Learning sales were expected to decline at a similar rate to 2023, with growth anticipated beyond 2024.
  • Pearson remained on track for its 2025 ambition of mid-single-digit underlying sales CAGR from 2022 to 2025, excluding OPM and Strategic Review, and a 16–17% adjusted operating margin.
  • Management identified elevated risks from major contract renewals, especially in US Student Assessment; customer insourcing and school contract losses; competition and changing learning preferences; AI-related disruption and intellectual-property protection; cybersecurity, privacy and safeguarding; and inflation, interest rates, supply-chain disruption and geopolitics.
  • The EU State Aid matter carries a £63m provision against a stated £105m exposure, excluding interest; an appeal outcome was pending. In Brazil, potential tax exposure was stated as up to BRL 1,294m (£209m) through 2023, with no provision recorded because management considered the likelihood of the tax authorities prevailing to be low. The filing also notes other tax uncertainties.
  • Adjusted results exclude specified items. 2023 included £11m of property impairments and £48m of intangible charges; 2022 included £150m of major restructuring costs. The PDRI acquisition accounting remained provisional at year-end. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
  • Omar Abbosh became CEO on January 8, 2024, succeeding Andy Bird, who stepped down as CEO and director. The company also disclosed shareholder opposition to its 2023 remuneration policy: 46.37% of votes cast were against it.

Important facts for investors to verify

  • How 2024 guidance is tracking, particularly the large US assessment contract renewals and Virtual Learning customer losses.
  • Whether growth in PTE, Pearson+, AI-enabled products and Workforce Skills converts into sustained revenue and profit, rather than requiring higher acquisition or investment costs.
  • Cash generation and liquidity after the £200m buyback, dividend payments, acquisitions and the 2025 €300m bond maturity; verify refinancing plans and covenant headroom.
  • Developments in the EU State Aid appeal, the Brazil tax assessments and other uncertain tax positions.
  • Performance against the 2025 sales-growth and margin ambitions, including the distinction between statutory results and management’s adjusted and underlying measures.