a1262h
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the
month of March
2020
PEARSON plc
(Exact
name of registrant as specified in its charter)
N/A
(Translation
of registrant's name into English)
80 Strand
London, England WC2R 0RL
44-20-7010-2000
(Address
of principal executive office)
Indicate
by check mark whether the Registrant files or will file annual
reports
under
cover of Form 20-F or Form 40-F:
Form
20-F
X
Form 40-F
Indicate
by check mark whether the Registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes
No X
Pearson COVID-19 and current trading update
As we manage the impact of the COVID-19 (coronavirus) pandemic on
our business, and with the likelihood of prolonged uncertainty, the
Pearson Board has decided it is prudent to pause our share
buyback. As we announce this decision, we are also providing
an update on the impact on trading, along with the measures we are
taking to mitigate these impacts and satisfy the significant uptake
in demand for online learning. These actions are underpinned by our
strong financial position, with significant headroom on liquidity
and scope for further cost savings.
Our priority remains the health and safety of our employees,
learners and customers. Trading to the end of February was in line
with our expectations. Since then, as a result of COVID-19, we are
seeing three major trends in our businesses:
1.
Uncertainty in our businesses that rely on learners and staff being
able to access physical sites, such as Pearson VUE, the Pearson
Test of English, US Student Assessments, Higher Education
institutions in South Africa and, to a lesser extent, UK
qualifications, which will have a negative impact on Pearson
profits. If the crisis broadens, it could also impact our
English franchise business in Brazil. We are making both variable
and discretionary cost savings to partially mitigate these impacts
and are considering further actions.
2.
A significant uplift in the use of our digital products and
services, as we enable our existing courseware and assessment
customers to migrate quickly to online learning and testing. This
will strengthen and deepen these relationships, and should, in
time, accelerate the shift to online learning.
3.
Rapidly growing interest in our Global Online Learning businesses,
focused initially on our virtual school offerings, but
expected also to include fully online university programmes. We
believe that this growing interest should translate into increased
billings later in the year and thereafter, although the scale will
depend in part on how long the disruption to face to face teaching
and learning persists.
Restrictions on access to physical infrastructure
Global Assessment
We are the global leader in developing and delivering high-stakes
tests via the world's most comprehensive network of highly secure
test centres in over 180 countries. As a result of the
outbreak, the majority of Pearson VUE
test centres are closed from now until the middle of
April. We are evaluating local regulations
around re-opening sites to address essential testing
services such as for health care workers. It is
estimated that the financial impact of these closures will be to
reduce 2020 operating profit by approximately £25m to
£35m. If closures last longer than the period announced above,
then we would expect an operating impact of similar scale for each
additional month partially offset by cost actions we would take.
Tests run throughout the year providing time for pent up demand to
strengthen the performance once the test centres are
re-opened. We are also working with clients who are able to take
advantage of our VUE online proctoring offering.
We are the largest provider of educational assessment services for
schools in the US through our US Student Assessment business. With
the acceleration of the spread of COVID-19 across the US we have
seen a number of states and boards deciding to postpone or waive
testing for the academic year. To date, we have seen test
cancellations which impact our 2020 operating profit by around
£15m after mitigating actions. We believe there is risk of
further state test cancellations which could have a similar impact
on profit.
International
In the UK, Pearson offers academic and vocational qualifications
including GCSEs, A Levels and BTECs. The UK Government has closed
UK schools and announced that the high stakes exams which usually
take place in May and June will be cancelled this academic year. We
continue to work closely with the Department for Education, Ofqual
and the other awarding bodies to implement the plan announced by
the UK Government on Friday and support teacher assessment to
ensure students receive the qualifications they deserve. In line
with the agreed approach we will continue to award qualifications
and provide the opportunity to sit exams later in the year and
expect any impact on profits to be modest.
We have seen impacts from closures of schools in China and Italy
but the financial impact is modest, given the size of our
businesses in these countries. The impact to sales of products in
other regions is uncertain, especially given that the period for
which educational institutions may be closed is unclear, and our
sales periods are seasonal.
Uplift in the use of digital products and services
Pearson has continued to make an array of digital learning tools,
services and resources available to students, educators and parents
affected by COVID-19 school, college and university closures. To
find out about more of the things we are doing
click here.
Rapidly growing interest in Global Online Learning
The disruption created by COVID-19 is moving many to investigate
full time digital learning for the first time.
Connections Academy, our Virtual School's business, is seeing
strong increases in application volumes for the current 19/20
school year. For those schools which are still open for
enrollment, we've seen over 2,000 new applications since early
March, compared to around 750 applications for the prior school
year. A number of schools which had closed enrollment are
re-opening. We are seeing many administrators and educators
reach out to discuss large scale solutions for virtual schooling as
well as potential interest from new states which have not
previously considered virtual schooling as a choice for
students.
In Online Program Management, we are confident that our high
quality, well designed programmes will be highly attractive in a
market for online learning that should see stronger growth as a
result of the current crisis.
Cost savings
Following the completion of the 2017-2019 restructuring programme,
Pearson is a more efficient company than ever before. This allows
us to act with agility to ensure our cost base remains appropriate
in challenging trading conditions. We have already identified
actions to reduce operating expenditure and discretionary spend to
partially mitigate the potential impact from COVID-19 and we are
actively exploring further efficiencies. We are also exploring
whether we qualify for governmental relief in key territories, as a
result of the closure of schools and testing centres.
Strong financial position
Pearson has significant financial headroom. We are working to
protect our cash flow and are pro-actively managing our working
capital. At the end of February, the Company had approximately
£1bn in total liquidity immediately available from cash and
our Revolving Credit Facility, and we are looking at all options to
further maximise liquidity. Our balance sheet is strong, we have
low levels of net debt (with leverage of 1.3x net debt/EBITDA post
IFRS 16 at the end of 2019) and significant headroom against our
covenants*.
Given current circumstances, the Board believes it is prudent to
pause our share buyback until further notice. Approximately
£167m million of the £350m share repurchase programme has
been completed to date.
This year's planning was undertaken using exchange rates as at 31
December 2019 with a GBP:USD rate of 1.32. A 5c change to this rate
typically impacts adjusted operating profit by
c.£20m-£25m. The current GBP:USD rate is
1.16.
Summary
While we are experiencing unprecedented times as a result of
COVID-19, we have a diversified business with a presence in
multiple geographies, a strong balance sheet with relatively low
net debt, and we are taking immediate measures to contain our costs
and protect our financial position. In the longer term the growing
interest in digital products and online learning mean Pearson is
well-placed given the investment we have made in this
space.
We will continue to monitor the situation closely and will update
the market further as appropriate. We are taking every step to
secure future value for all our stakeholders.
The Board remains confident of the long term strategy of Pearson
and is encouraged by the growing importance of its global
leadership in online learning.
This announcement contains inside information for the purposes of
Article 7 of EU Regulation 596/2014.
* Pearson's revolving credit facility includes two covenants
testing net debt/EBITDA and interest cover both on a pre IFRS16
basis at a maximum of 4 x net debt / EBITDA and a minimum of 3 x
interest cover.
Contacts
Investor Relations
|
Jo
Russell
Anjali
Kotak
|
07785
451266
07802
890724
|
Media
|
Tom
Steiner
Gemma
Terry
|
07787
415891
07841
363216
|
Brunswick
|
Charles
Pretzlik, Nick Cosgrove, Simone Selzer
|
0207
404 5959
|
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, overall market trends, the impact of interest or
exchange rates, the availability of financing, anticipated cost
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/corporate/investors.html). 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.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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PEARSON
plc
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Date: 23
March 2020
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By: /s/
NATALIE WHITE
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Natalie
White
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Deputy
Company Secretary
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