Forward-looking statements Except for the historical information - - PowerPoint PPT Presentation

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Forward-looking statements Except for the historical information - - PowerPoint PPT Presentation

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


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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,

  • verall market trends, the impact of interest or exchange rates, the availability of financing, anticipated

costs 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.

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SLIDE 2

2016 Half Year Results Presentation

Friday 29 July 2016

Image by Christof van der Walt

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SLIDE 3

H1 headlines

  • Growth & simplification process in-line with our plans
  • Markets, competitive performance and trading in-line with our plans
  • Trading in Q3 and Q4 will, as usual, determine the outcome for the year
  • Reiterating guidance

3

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SLIDE 4

First half summary

£m H1 2016 H1 2015 Headline growth CER growth Continuing sales 1,866 1,997 (7)% (11)% Adjusted operating profit from continuing operations 15 54 (72)% (81)% Adjusted EPS (1.3)p 4.4p n/a Operating cash flow (210) (333) 37% Net debt (1,426) (2,289) 38% Dividend 18p 18p

  • 4
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SLIDE 5

What we learned in H1 2016

  • Competing well in courseware and assessment
  • Benefits of digital investment and innovation coming through
  • Growing strongly in new partnership and service models
  • Simplification and growth plan on track

5

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SLIDE 6

Financial review

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SLIDE 7

Outlook for 2016: key assumptions

  • Stabilisation in US higher education Fall enrolments
  • Moderation in rate of decline in BTEC enrolments
  • Reduced US testing revenues following contract losses announced in 2015
  • Smaller adoption opportunity in US K-12
  • Continued pressure in South Africa on government spending on textbooks

and low enrolments in CTI

  • Macroeconomic pressure in China and Brazil – modest growth driven by

product launches

  • Good growth in online program management in Higher Education and Virtual

Schools

  • Cost pressures driven by incentive compensation, technology dual running

costs, inflation and increased pre-pub amortisation

  • Significant restructuring benefits – minimal disruption to sales seasons

7

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SLIDE 8

Sales movements

(£m)

2015 Organic growthAcquisitions… F/X 2016

2015 2016 Underlying Portfolio FX 1,997 1,866 (129) (88) 86

8

Continuing operations

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SLIDE 9

Deferred revenue, £m

Half-year

8.1% 7.9% 8.1% 9.4% 9.1% 10.1% 11.4% 12.4% 13.7% 14.8% 18.4%

  • 0.05

0.05 0.1 0.15 0.2 100 200 300 400 500 600 700 800 900 1000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 199 191 228 324 356 434 518 583 631 690

9

Continuing operations

797

As % of continuing sales Deferred revenue

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SLIDE 10

Sales

£m 2016 2015 CER growth Underlying growth North America 1,164 1,263 (15)% (9)% Core 370 391 (8)% (6)% Growth 332 343 0% 0% Total sales 1,866 1,997 (11)% (7)%

10

Continuing operations

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SLIDE 11

Profit movements

(£m)

11

(30) 72 (39) (10) (70) 92 15

H1 2015 total adjusted

  • perating

profit Disposals Market conditions Other

  • perational

factors Incentive compensation Cost savings H1 2016 adjusted

  • perating

profit

Total business

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SLIDE 12

Operating profit

£m H1 2016 H1 2015 CER growth Underlying growth North America 2 19 n/a n/a Core (7) 33 n/a n/a Growth (12) (22) 59% 59% PRH 32 24 25% 25% Total continuing 15 54 (81)% (80)% FT Group

  • 18

Total 15 72

Continuing operations

12

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SLIDE 13

Adjusted EPS

£m H1 2016 H1 2015 Headline growth Operating profit (including FT group) 15 72 (79%) Interest (27) (29) 7% Taxation 2 (7) n/a Tax rate 19% 17% Profit after tax (10) 36 n/a Minorities (1)

  • n/a

Adjusted earnings (11) 36 n/a Shares in issue 815.0 813.2 Adjusted EPS (1.3)p 4.4p n/a

13

Total business

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SLIDE 14

Operating and free cash flow

£m H1 2016 H1 2015 var

Operating profit 15 72 (57) Working capital (excl. restructuring) (169) (368) 199

  • of which pre-publication expenditure

(36) (43) 7

  • of which other working capital

(133) (325) 192 Net capital expenditure (113) (97) (16) Depreciation 67 74 (7) Share of operating results of associates (40) (32) (8) Dividends from associates and JVs 24 39 (15) Exchange 2 (6) 8 Other movements 4 (15) 19 Operating cash flow (210) (333) 123 Tax paid (53) (74) 21 Finance charges (18) (17) (1) Restructuring expenditure (55)

  • (55)

Special pension contribution net of tax (72)

  • (72)

Free cash flow (408) (424) 16

14

Total business

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SLIDE 15

Balance sheet

£m H1 2016 H1 2015 Goodwill & intangible assets 5,616 6,059 Tangible fixed assets 339 319 Investment in Joint Ventures and Associates 1,192 1,068 Operating working capital 890 805 Other net liabilities (84) (87) Net assets 7,953 8,164 Shareholders’ funds 6,457 5,398 Pensions (302) (23) Other provisions 103 125 Non-controlling interest 3 6 Deferred tax 266 369 Net debt 1,426 2,289 Capital employed 7,953 8,164

15

Total business

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SLIDE 16

Growth and simplification

CRM

Implementing a single way to manage our customer relationships and transform our sales, marketing and support functions

ERP

Unifying our HR, finance and supply chain systems to provide greater understanding of

  • ur people, our

financials & supplier relationships

Digital Presence

Building a consistent brand and unified digital experience for learners and customers, centered around pearson.com

Content

Building a single way to author, plan & store content – Creating ‘smart’ digital content’ that underpins our shift to personalized learning

Customer Service

Creating a global, digital model for all customer service and support, with new self-help and community support services

Supply Chain

Transforming from our traditional print supply chain to a global digital model – Allowing us to manage physical and digital resources seamlessly

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SLIDE 17

Retirement benefit obligations

£m H1 2016 H1 2015 Balance sheet UK pension scheme asset 446 160 Other pension scheme liabilities (46) (42) Post retirement medical benefit liability (80) (74) Other pension accruals (18) (21) Total 302 23

17

Total business

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SLIDE 18

Currency

18

X% of gross debt in dollars. X% of cash in sterling

  • Depreciation of sterling against other currencies boosts our reported earnings
  • Possible negative impact on our UK business from Brexit
  • If current exchange rates continue to end of year would add about 4p to our

50p to 55p range

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SLIDE 19

2016 guidance

19

Guidance unchanged ‒ H1 2016 affected by phasing in assessment and higher education; impact of disposals; dual IT running costs and incentive compensation accruals ‒ Overall trading in line with the expectations set out in January/February ‒ H2 benefits from simplification programme savings ‒ Guidance unchanged: adjusted earnings per share of 50p to 55p

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SLIDE 20

2016 half year results

Friday 29th July 2016

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SLIDE 21

How we’ll measure our progress

Financial

  • Delivering our guidance for 2016
  • Maintaining progress towards 2018 goals
  • Overall improvement in operating profit, EPS & ROIC

Operational

  • Progress on restructuring: headcount, costs, benefits
  • Delivery of key change programmes

Competitive performance

  • Market share performance in key businesses: NA College/K12, UK

qualifications, US assessments Purpose and impact

  • Delivery of efficacy goals
  • Improved brand awareness and favourability

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The world’s learning company – our strategy

  • World class capabilities in educational courseware and assessment
  • Strong portfolio of products and services, powered by technology
  • Combining these core capabilities with related services, enabling our partners

to scale online, reaching more people and ensuring better learning outcomes

  • A larger market opportunity for Pearson, with a sharper focus on the fastest-

growing education markets and stronger financial returns

  • Real value lies in improving productivity, student completion and

employability

22

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SLIDE 23

Appendices

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SLIDE 24

Reconciliation: statutory to adjusted earnings

Half-year 2016

£m

Statutory Re-analyse discontinued

  • perations

Restructuring Other net gains & losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted earnings

Operating profit

(286) 171 18 112 15

Net finance costs

(20) (7) (27)

Loss before tax

(306) 171 18 112 (7) (12)

Income tax

86 (54) (32) 1 1 2

Loss for the period – continuing

(220) 117 18 80 (6) 1 (10)

Profit for the period – discontinued Loss for the year

(220) 117 18 80 (6) 1 (10)

Non- controlling interest

(1) (1)

Loss

(221) 117 18 80 (6) 1 (11)

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SLIDE 25

Reconciliation: statutory to adjusted earnings

Half-year 2015

£m

Statutory Re-analyse discontinued

  • perations

Other net gains & losses Acquisition costs Intangible charges Other net finance costs Tax amortisation benefit Adjusted earnings

Operating profit

(129) 18 70 113 72

Net finance costs

(3) (26) (29)

Profit before tax

(132) 18 70 113 (26) 43

Income tax

40 (4) (23) (30) 5 5 (7)

Profit for the period - continuing

(92) 14 47 83 (21) 5 36

Profit for the period - discontinued

13 (14) 1

Profit for the year

(79) 47 84 (21) 5 36

Non-controlling interest Earnings

(79) 47 84 (21) 5 36

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Reconciliation: pre-publication costs

£m H1 2016 H1 2015 Opening balance 841 820 Exchange 76 (10) New spend capitalised 164 159 Disposals

  • (53)

Amortisation (136) (113) Closing balance 945 803

Total business

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SLIDE 27

Reconciliation: half-year net debt

£m 2016 2015

Non current assets Derivative financial instruments 200 68 Current assets Derivative financial instruments

  • 52

Marketable securities 31 26 Cash & cash equivalents 980 361 Non current liabilities Borrowings (2,324) (1,923) Derivative financial instruments (190) (122) Current liabilities Borrowings (115) (733) Derivative financial instruments (8) (18) Total net debt (1,426) (2,289)

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There’s so much more to learn

Find out more about us at pearson.com

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