Pearson interims

An international media and education company, providing educational materials, technologies, assessments and related services to teachers and students.  Owner of The Financial Times and part owner (47%) of Penguin Random House.  I have a holding in my income portfolio (epic code: PSON).

 

Pearson announced their interim results today and it is still very much work-in-progress with £43m of restructuring charges.  Sales were up 2% at constant exchange rates to £2.0bn and adjusted operating profit of £73m for continuing operations compared to £96m last year.  There was a reported operating loss of £(37)m compared to an operating profit of £8m last year.

 

Adjusted EPS was 4.7p down from 9.9p last year, reported EPS was a loss of (3.2)p for continuing businesses compared to a loss of (0.5)p last year. The dividend has been raised by 6.3% to 17p.

 

There was a free cash outflow in the period of £(345)m compared to an outflow of £370)m last year.  Net debt increased to £2.1bn from £1.5bn at the year-end.

 

Management reiterated their guidance given earlier in the year - based on 28 February 2014 exchange rates, they still expect to report adjusted EPS of between 62p and 67p in 2014.  Obviously continued Sterling strength especially against the US$ will adversely impact the actual outcome.

 

Pearson have taken substantial restructuring charges both last year and this - £176m for the whole of last year and they expect to make £50m this year.  They do expect to achieve £60m savings this year, but of course there is the £50m of restructuring costs and £50m of additional investment in digital, services and emerging markets to accelerate growth.  Next year we should see the benefit of these changes and investments come through, with a much smaller level of restructuring costs.  Management also believe that cyclical pressures will begin to ease from 2015 as curriculum change is implemented in the US and UK and US college enrolments stabilise and, in due course, return to growth.

 

With a 4.7% yield, good dividend growth and expectations of a return to growth in profits and FCF next year - I continue to hold.