Pearson Plc · LSE:PSON
Pearson — FY2020 Earnings Presentation
46 slides from Pearson's earnings presentation, March 2021
Slide 1: Forward-looking statements
Forward-looking statements Except for the historical information contained herein, the matters They also include other risks detailed from time to time in Pearson's discussed in this statement include forward-looking statements. In publicly-filed documents and you are advised to read, in particular,
Slide 2: Pearson's 2020 Full Year Results & Strategy Update
Pearson’s 2020 Full Year Results & Strategy Update
Slide 3: We are Pearson plc
We are Pearson plc Our purpose is to help everyone achieve their potential through learning Global experts Home to the Financials Global scale in learning best talent Revenue The leading learning We enable tens company offering of millions 20,000+ employees £3.4bn end to end of learners working towa
Slide 4: Global learning opportunity
Global learning opportunity The global learning market is vast - at around £5 trillion today £7tn and only 3% digital Expected size of the learning market by 2030 Lifelong learning 4.4% CAGR Corporate 2nd MARKET SIZE Largest component 75%+ of GDP Formal in most countries primary, secondary and +1bn
Slide 5: The fundamental growth drivers of the learning market are robust
The fundamental growth drivers of the learning market are robust Accelerating Increased attention Emerging trend Parents spending adoption on employee of people looking more on education of digitally-enabled training, upskilling, for alternative and an increase learning across all and reskilling to
Slide 6: Three market opportunities
Three market opportunities The rise in online The workforce The growing need and digital learning tools skills gap for accreditation for schools and certification and education 6
Slide 7: Three priorities to unlock growth
Three priorities to unlock growth Consumer focused Portfolio & organisational Talent & culture & data-led approach structure 7
Slide 8: Repositioning Pearson for growth to seize the global opportunity
Repositioning Pearson for growth to seize the global opportunity Three Market Opportunities The rise in online and digital tools The workforce The growing need for schools and education skills gap for accreditation and certification Five Businesses To Drive Growth English Virtual Higher Workforce As
Slide 9: Guiding principles to benchmark success
Guiding principles to benchmark success Consumer High quality, Only Entrepreneurial Speed at the centre affordable in businesses culture, diverse and agility of everything products leading that will drive talent we do to better access growth, scale, and effective and outcomes profitability and techn
Slide 10: Outcomes
Outcomes Enabling Driving Contributing sustainable growth shareholder value to a more equitable world 10
Slide 11: Our sustainability goals are aligned with our strategy
Our sustainability goals are aligned with our strategy Learning for a better life, a better world Sustainable Business Plan 2030 11
Slide 12: Sustainability focus areas for Pearson
Sustainability focus areas for Pearson • Achieving long-term Science Based Targets and becoming net carbon zero by 2030 • Having 100% of our paper products FSC certified • Designing digital products for energy efficiency • Working exclusively with suppliers who respect human rights • Committing to d
Slide 13: Our competitive advantage
Our competitive advantage The integration of our intellectual property, content, products and assessment tools is a continuous flywheel that makes each part of our business more valuable. 13
Slide 14: Five business divisions
Five business divisions ENGLISH VIRTUAL HIGHER WORKFORCE ASSESSMENT & LANGUAGE LEARNING EDUCATION SKILLS QUALIFICATIONS LEARNING 14 1
Slide 15: Virtual Learning: Virtual Schools
Virtual Learning Virtual Schools £1.5bn 400k 17% US market US virtual school Market share enrolment in 2019 29 out of 34 £0.4bn 29% US states with Revenue in 2020 Growth in 2020 virtual schooling that we have a presence in 15
Slide 16: Virtual Learning: Online Program Management (OPM)
Virtual Learning Online Program Management (OPM) £2.8bn £0.3bn Global market Revenue in 2020 today £7bn 20% Global market Enrollment growth by 2025 in 2020, exc. discontinued programs 16
Slide 17: Higher Education
Higher Education £4-5bn £0.8bn £0.9bn US market US revenue Global revenue in 2020 in 2020 70% 12m 14m Pearson US digital Pearson units sold Secondary revenue market (units) to recapture 17
Slide 18: New college study app
New college study app We’re creating a highly engaging college study app that enables us to build a meaningful relationship with millions of students. It will help us to: Accelerate recapture Shift consumer Create new partner Help us to foster of the secondary purchasing preference opportunities to
Slide 19: English Language Learning
English Language Learning 1.5bn £0.2bn Adults learning Revenue in 2020 English £5bn £7.3bn Market size* Market size by 2025* 19
Slide 20: Workforce Skills
Workforce Skills 70% 30% £280bn US employers Jobs at risk Market in 2019 believe college of automation graduates lacking by 2030 core skills £100bn £0.1bn US market Revenue in 2020 20
Slide 21: Assessment & Qualifications
Assessment & Qualifications £25bn 5% £1.1bn Global market Market growth Revenue in 2020 per year Every 2 seconds 20k+ test centres 13m Test delivered In 200 countries Tests delivered, by us somewhere despite COVID-19 in the world 21
Slide 22: New organisational structure
New organisational structure ENGLISH VIRTUAL HIGHER WORKFORCE ASSESSMENT & LANGUAGE LEARNING EDUCATION SKILLS QUALIFICATIONS LEARNING DIRECT TO CONSUMER CORPORATE SUPPORT FUNCTIONS 22
Slide 23: Our new KPIs
Our new KPIs DIGITAL CONSUMER PRODUCT BUSINESS DIVISION GROWTH ENGAGEMENT EFFECTIVENESS PERFORMANCE INCLUSION & SUSTAINABILITY INVESTING IN TALENT DIVERSITY STRATEGY 23
Slide 24: Financial review & outlook
Financial review & outlook
Slide 25: 2020 financial highlights
Revenue Adjusted operating profit 2020 financial highlights Resilience despite COVID-19 challenges £3,397m £313m Down 10% underlying (2019: £581m) • Resilient sales in light of COVID-19 challenges Operating cash flow Adjusted earnings • Profit performance in line with post COVID- per share £315m 28.
Slide 26: Sales
Sales £m 2020 2019 CER* growth Underlying growth Global Online Learning 697 586 19% 18% Global Assessment 892 1,031 (14%) (14%) North American Courseware 894 1,091 (18%) (13%) International 914 1,161 (18%) (19%) Total sales 3,397 3,869 (11%) (10%) * CER: constant exchange rates 26
Slide 27: Segmental contribution
Segmental contribution £m 2020 2019 2020 margin 2019 margin Global Online Learning 99 84 14% 14% Global Assessment 245 351 27% 34% North American Courseware 190 231 21% 21% International 182 299 20% 26% Enabling Functions* (404) (449) Total adjusted operating profit excl. PRH 312 516 9% 13% Penguin
Slide 28: Cash and balance sheet
Cash and balance sheet 2020 2019 Operating cash flow £315m £418m Cash conversion % 101% 72% Net Debt £463m £1,016m Liquidity c.£1.9bn c.£1.1bn Net debt: adj. EBITDA 0.8x 1.3x Dividend 19.5p 19.5p 28
Slide 29: New reporting structure
New reporting structure English Virtual Higher Workforce Assessment & Language Learning Education Skills Qualifications Global Online Learning Learning Assessments 2020 revenue: £0.7bn £0.9bn £0.2bn £0.1bn £1.1bn North American Courseware International OPM US Higher Pearson Test BTEC Pearson VUE Edu
Slide 30: 2021 guidance
2021 guidance 2021 Revenue Growth with recovery post-COVID-19 Adjusted operating profit In line with market expectations Tax 18-22% Interest c.£65m Cash Strong cash conversion 30
Slide 31: 2021 assumptions
2021 assumptions Segment 2021 revenue assumptions 2020 margin vs Pearson average Virtual Learning Virtual schools - Growth. H1 benefits from 20/21 school year enrolment increase, VS 21/22 enrolments broadly flat as 'COVID-19 cohort' partially returns to bricks and mortar schooling OPM OPM is also ex
Slide 32: Longer term revenue and margin assumptions
Longer term revenue and margin assumptions Segment Market 5-year CAGR L/term growth L/term margin Virtual Learning US virtual learning market high Strong growth single digit Higher Education Stabilisation Recapture of secondary market, International growth Assessment & Professional Certification low
Slide 33: Business & operational reorganisation
Business & operational reorganisation Incremental P&L Costs 2021 Future Benefits 2022 Cash Costs 2021 Property £130m £10m £10-20m annually Write off of assets relating to corporate properties no longer needed given changes in ways of working. Related depreciation and cash (on-costs) benefits in futu
Slide 34: Capital allocation priorities
Capital allocation priorities Strong balance sheet Investment grade credit rating Invest Value enhancing Surplus in the business acquisitions Dividends cash returns Capex and product Focused Progressive Buybacks development and disciplined and sustainable or special dividends for organic growth appr
Slide 35: Appendix
Appendix
Slide 36: NAC, GA, GOL – sales detail
NAC, GA, GOL – sales detail £m 2020 2019 Underlying growth US K12 - 53 - US HECW & Other 809 930 (12)% Canada 85 108 (20)% North American Courseware 894 1,091 (13)% School Assessment 255 309 (18)% Clinical Assessment 146 175 (17)% Pearson VUE 491 547 (10)% Global Assessment 892 1,031 (14)% Virtual S
Slide 37: International – sales detail
International – sales detail £m 2020 2019 Underlying growth School Courseware 247 287 (11)% HE Courseware 105 125 (14)% English Courseware 132 163 (21)% Courseware 484 575 (14)% School & HE Assessment 218 290 (25)% Clinical Assessments 48 52 (8)% Pearson Test of English 61 91 (32)% Assessment 327 43
Slide 38: Adjusted EPS
Adjusted EPS £m 2020 2019 Adjusted operating profit 313 581 Interest (61) (41) Taxation (35) (89) Effective tax rate 13.7% 16.5% Profit after tax 217 451 Non controlling interest - (2) Adjusted earnings 217 449 Weighted average number of shares (m) 755.4 777.0 Adjusted EPS 28.7p 57.8p 38
Slide 39: Statutory P&L
Statutory P&L £m 2020 2019 Adjusted operating profit 313 581 Amortisation of intangibles (80) (163) Other net gains and losses 178 16 Restructuring cost - (159) Operating profit 411 275 Net interest payable (61) (41) Other net finance costs 4 (2) Profit before tax 354 232 Taxation (44) 34 Profit for
Slide 40: Balance sheet
Balance sheet 2020 2020 2020 2019 2019 2019 £m Incl Held For Sale Held for Sale Reported Incl Held For Sale Held for Sale Reported Goodwill / intangible assets 2,742 - 2,742 2,900 - 2,900 Tangible fixed assets 563 (48) 515 618 - 618 Associates & JVs 6 - 6 404 (397) 7 Capitalised Product Development
Slide 41: Reconciliation: statutory to adjusted earnings 2020
Reconciliation: statutory to adjusted earnings 2020 41 Other net Other net Tax Intangible Adjusted £m Statutory Restructuring gains and finance amortisation charges earnings losses costs benefit Operating profit 411 - (178) 80 - - 313 Net finance costs (57) - - - (4) - (61) Profit before tax 354 - (
Slide 42: Reconciliation: statutory to adjusted earnings 2019
Reconciliation: statutory to adjusted earnings 2019 Other net Other net Tax Intangible Adjusted £m Statutory Restructuring gains and finance amortisation charges earnings losses costs benefit Operating profit 275 159 (16) 163 - - 581 Net finance costs (43) - - - 2 - (41) Profit before tax 232 159 (1
Slide 43: Reconciliation: pre-publication costs
Reconciliation: pre-publication costs 43 £m 2020 2019 Opening balance 870 1,059 Exchange (3) (19) New spend capitalised 323 318 Acquisitions/disposals/transfers (net) (5) (217) Amortisation (280) (268) Restructuring charge - (3) Closing balance 905 870 *Including businesses held for sale 43
Slide 44: Reconciliation: year end net debt
Reconciliation: year end net debt 44 £m 2020 2019 Non current assets Derivative financial instruments 45 29 Trade and other receivables – investment in finance lease 112 171 Current assets Derivative financial instruments 18 25 Trade and other receivables – investment in finance lease 18 25 Cash & c
Slide 45: Cash flow
Cash flow £m 2020 2019 Adjusted operating profit 313 581 Change in working capital (ex Pre-Pub) 9 (108) Product Development (Pre-Pub) capitalisation (323) (318) Product Development (Pre-Pub) amortisation 280 268 Net CapEx (inc right-of-use assets) (177) (236) Depreciation 237 229 Share based payment
Slide 46: US Higher Education Courseware college units
US Higher Education Courseware college units Net units 2020 (m) 2019 (m) Print 1.5 2.4 Bundles 0.7 1.3 MyLab, Mastering, Revel 6.3 5.7 Rental 0.2 0.1 eText 3.7 2.8 Total 12.4 12.3 46