Pearson (PSON) H1 2024 earnings summary

Executive summary

• Delivered strong H1 2024 performance with underlying sales up 2% and adjusted operating profit up 4% to £250m; free cash flow increased by £77m year-over-year to £27m.

• Strategic focus on leveraging AI, expanding into higher-growth market adjacencies, and driving operational improvements for sustained growth.

• Confident in achieving mid-single-digit CAGR in underlying sales and sustained margin improvement of 40bps per annum beyond 2025.

• Capital allocation prioritizes assessments, verifications, enterprise skills, and early careers, with disciplined M&A as a growth lever.

• New CTO and CMO appointments to drive technology and marketing innovation.

Financial highlights

• H1 2024 revenue £1,754m, up 2% underlying; adjusted operating profit £250m, up 4% underlying; adjusted EPS 25.6p, flat year-over-year.

• Free cash flow £27m, up £77m from last year; operating cash flow £129m, up £50m.

• Net debt at £1,177m, up from £744m at 2023 year-end, mainly due to £500m share buyback and dividends.

• Interim dividend increased 6% to 7.4p.

• £163m of £200m buyback extension completed by June 2024.

Outlook and guidance

• 2024 and 2025 guidance reaffirmed: mid-single-digit underlying sales CAGR, margin growth of 40bps per annum beyond 2025.

• Free cash flow conversion expected to remain strong at 90%-100% on average.

• No plans to extend share buyback; progressive and sustainable dividend policy maintained.

• H2 2024 expected to see improved growth momentum, especially in Higher Education and Assessments.

• 2024 consensus: underlying sales growth 3.7%, adjusted operating profit £621m, margin c.24%.