Pearson’s underlying sales grew 5% to £3.7bn for the full year. Growth was led by Assessment & Qualifications and English Language Learning, with the former benefiting from new contract wins and price increases. Virtual Learning sales fell 20%, largely as a result of previously announced losses of contracts.
Underlying operating profit rose 31% to £573mn. This was driven by sales growth and £120mn of cost cuts, helping the associated margin rise 3.7 percentage points.
Free cash flow improved from £222mn to £387mn. Net debt increased from £557mn to £744mn at year-end.
In 2024, the group expects underlying sales to grow and underlying operating profits to be in line with current market expectations of £615mn.
A final dividend of 15.7p per share has been announced, taking the full-year total to 22.7p, up 5.6%. Pearson intends to extend the current £300mn share buyback programme by a further £200mn.
The shares rose 2.7% following the announcement.
Our view
We continue to think educational specialist Pearson can teach us all a thing or two about resilience. While the wider economy is under pressure, the likes of vocational testing, English Language Learning and broader assessments and qualifications are all being taken up in force, boosting Pearson's top and bottom line.
A laser-like focus on boosting digital areas of the business and reducing exposure to the declining courseware business, means margins are climbing. Wider improvements have been achieved by some well-suited acquisitions, as well as organic growth through its own efforts. These include focusing on direct-to-consumer business and slimming the group's physical footprint.
The successful pivot to digital allows more revenue to drop straight through to profit and crucially, cash flow. This gives Pearson room to pay dividends and return more to shareholders via share buybacks.
Cash flow is being partially hampered by restructuring costs at the moment - while this isn't something we're concerned about right now, it will be important to monitor the efforts to make sure the goal posts aren't moved as this could have an impact on dividends. This is well supported by earnings for now but remember no shareholder returns are ever guaranteed.
Looking to the short-term, times of economic difficulty are often seen in conjunction with people upskilling, which is a structural opportunity for Pearson.
While we're happy Pearson's on the right track, and the turnaround plans are coming good, we're keeping an eye on a couple of points. At the moment the uptick is promising, but they were starting from a very low base because of the pandemic. Much of the group's revenues are still anchored to physical teaching and testing. Demand for physical textbooks has been on the decline for years and that isn't going to reverse.
As the strategic pivot continues, we're mindful that budgets and margin projections can turn at short notice too, particularly in an inflationary environment.
Pearson is putting in a good showing, and we're feeling more positive that it can convince customers to stick with its digital shift. The price-to-earnings ratio is slightly below the ten-year average, which suggests the market isn't overly worried about Pearson's position, but there's work to be done if the group wants to spark a more meaningful reaction from investors.
The Share Research team is ceasing covering of Pearson. This is the last update and house view HL will produce on this stock. You can still find out more about our thoughts on the Financials industry by signing up to our Share Insight email.
Pearson key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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