Pearson(US:PSO)2019-02-22 22:06Financial Data and Key Metrics Changes - Operating cash flow reached £530 million with a cash conversion rate of 94% [3] - Year-end net debt decreased to £143 million, better than the guided £200 million [3][7] - Full year dividend increased by 9% to £0.185 [3] - Adjusted operating profit was £546 million, slightly above the preliminary range of £540 million to £545 million [13] Business Line Data and Key Metrics Changes - In North America, underlying sales declined by 1%, with significant growth in Online Program Management (up 9%), Virtual Schools (up 8%), and Professional Certification (up 5%) [8] - Core revenues were flat, with strong growth in Pearson Test of English and OPM Services, offset by weaker performance in UK student assessment [11] - Growth segment sales increased by 1%, driven by strong growth in China and modest growth in Brazil [11][12] Market Data and Key Metrics Changes - Digital and digitally-enabled revenues accounted for 62% of total sales in 2018, up from 59% in 2017 [12] - U.S. Higher Education Courseware business declined by 5% due to ongoing pressures [9][27] - Modest declines were observed in K12 courseware and school assessment [10] Company Strategy and Development Direction - The company is focused on leading the digital transformation of its courseware and assessment businesses, which represent 65% of sales [40] - Investment in structurally growing markets is prioritized, with these businesses accounting for 35% of revenues and growing by 7% [41] - The simplification program aims to create a more efficient company, reallocating costs to faster-growing areas [62] Management's Comments on Operating Environment and Future Outlook - Management expects revenue stabilization in 2019, with sustainable growth anticipated in 2020 and beyond [6][37] - The company is confident in its strategic growth opportunities, which are expected to contribute significantly to future revenues [24] - Management acknowledges ongoing challenges in U.S. Higher Education Courseware but sees potential for growth in other areas [25][27] Other Important Information - The restructuring program is expected to generate an additional £130 million in savings in 2019 [21] - The adoption of IFRS 16 will impact the presentation of net debt, bringing lease liabilities onto the balance sheet [32][33] - The company maintains a disciplined capital allocation policy, prioritizing a strong balance sheet and sustainable dividends [35] Q&A Session All Questions and Answers Question: Outlook for U.S. Higher Ed Courseware division - Management acknowledges challenges but sees strong contributions from digital investments and growth in other markets [70][72] Question: Impact of consignment model on guidance - The shift to a consignment model will have a small drag on guidance, but it is accounted for in the overall projections [83] Question: Revenue contribution from OPM within online degree services - OPM generated 6% of revenues in North American Higher Education services, with strong growth expected [77][82] Question: North America margin deterioration - Margin pressure is attributed to investments in growth opportunities like OPM, which typically require upfront investment [88][90] Question: Competitive pricing strategies - The company is focusing on a comprehensive approach to pricing that addresses the needs of students, instructors, and institutions [110] Question: Enrollment trends in relation to economic conditions - Management expects a 2% drag on enrollments but acknowledges that economic downturns may increase demand for education [112]