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
| Metric | 2023 | 2022 |
|---|---|---|
| Sales | £3,674m | £3,841m |
| Statutory operating profit | £498m | £271m |
| Adjusted operating profit | £573m | £456m |
| Profit for the year | £380m | £244m |
| Basic EPS | 53.1p | 32.8p |
| Adjusted EPS | 58.2p | 51.8p |
| 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.