Pearson plc

Good morning everyone and welcome to Pearson's 2023 nine-month trading update. Today we'll host a presentation followed by a Q&A session. There will be two ways to submit your questions. If you'd like to ask your question personally, please use the numbers that are displayed on screen. These lines will be open following the presentation. Alternatively, please type your questions into the questions tab at the top right of the screen and we'll address them in turn. And with that, I'll hand over to Andy.

Thanks, Joe, and welcome and good morning, everyone. Thank you for taking the time to join us today. As ever, I'd like to allow for as much time as possible for you to ask questions, so I'll quickly run through the highlights from today's announcement before handing over to Sally. We've continued the positive momentum from the first half of the year and delivered another period of strong performance with a 5% increase in underlying sales. This was driven by particularly strong growth in English language learning and our assessment and qualifications division. We saw solid growth in workforce skills driven by the performance of both vocational qualifications and workforce solutions. In virtual schools, we're seeing positive retention rates and applications for our Connections Academy Career Pathways programme have been encouraging since its launch in June. Our higher education business continues to trade in line with expectations. Now, Sally will go into greater detail on the moving parts of the financials, but some key highlights are that inclusive access sales were up 26% year over year, and we continue to place focus on growing that part of the business. There's been encouraging growth in our platform products and Pearson Plus continues to perform well with around 30% growth in paid subscriptions versus the prior fall semester. As usual, we'll be providing complete metrics for Pearson Plus at our full year results. As a result of this continued sales growth and focus on efficiency and operating margins, we're upgrading our four-year guidance for adjusted operating profit by £20 million to between £570 and £575 million. In September, we launched a beta of generative AI tools in Pearson Plus and Mastering. These features summarise complex topics and offer students learning prompts and practice questions. While we're still in the early stages of the beta, we've been encouraged by what we're seeing. Students who are using the tools are showing strong levels of engagement with the features and we're gaining valuable insights about how students want help with their material and their work. Meanwhile, in English language learning, we've started a beta of several tools that use generative AI for speaking practice. We believe student expectations around AI will only increase and we remain confident that Pearson's in a strong position to benefit from generative AI. I'm also pleased that we've started delivering our trusted Pearson Test of English for student direct stream visas in Canada. And we're ready to deliver PTE for economic immigration visas as soon as we receive a start date from the Canadian authorities. We're excited by the size of the opportunity in Canada and we'll be investing in building our brand awareness in this competitive market. In India, we recently opened one of our largest Pearson VUE testing centres with the capacity to deliver 14,000 tests a month. That's to accommodate the demand for the high-stakes testing, including Pearson Test of English. In assessment and qualifications, the integration of PDRI continues to progress well, with a number of new contract wins for assessment services across the US federal government, including the Department of Homeland Security and the United States Air Force, amongst others. Across the business, we remained focused on the execution on all aspects of our strategy, the delivery of our cost efficiency programme, and on our transformation efforts to build a digital-first and consumer-orientated company. To conclude, we've made excellent progress across Pearson and remain confident about our future growth prospects. We're well positioned for the company's next chapter, bolstered by the amazing talent we have here within the group. Now, I'll hand you over to Sally, who'll talk you through the financials.

Thanks, Andy. And hi, everyone. We continue to see a strong performance in 2023, with revenue growth excluding OPM at 5% year-to-date. We're firmly on track to deliver the full year revenue growth we guided to at the beginning of the year and anticipate being in the upper end of that guidance range. We're also raising our profit guidance, the details of which I will talk through in a minute. The divisional revenue highlights follow the themes we have guided to. Assessments and qualifications revenue grew 8%, driven by an excellent performance in Pearson VUE, particularly in IT and healthcare. There was also good growth across US student assessments, clinical and UK and international qualifications, due to new contract wins, good government funding and price increases. Following the disposal of polls within OPM, our virtual learning underlying growth is reported excluding this part of the business. The virtual learning revenue decrease of 20% is therefore driven by the loss of the ASU contract, which will, as expected, continue to impact growth in Q4. Virtual schools revenue declined 4%, impacted by the loss of the major school. Excluding that, enrolments were up 2%, demonstrating an underlying return to growth following normalisation post-Covid. Whilst this trend for enrolments is positive, as we move into 2024, we should remember the business will be impacted by the loss of a further large school in the 2024-25 academic year. Higher education revenue was down 5%, in line with expectations, driven by pricing mix and the anticipated deferral of revenue into Q4, given the growth of Pearson Plus and platform products. Excluding the revenue recognition phasing impact, revenues declined low single digit, in line with our expectations for the full year. Recently published NSC data suggests Fall 23 enrolments in Pearson's addressable market are up 1%, meaning the impact on enrolments in the year-to-date financials is flat. You may have seen that the NSC headline was growth in enrolments of 2%. The difference between these two data points takes into account undergraduate certificates, a market Pearson is not in, and the weighting of two-year and four-year colleges and freshman students. Clearly, both data sets are hopeful, if not yet a trend. English language learning revenue was up 34%, with Pearson Test of English continuing to perform strongly across most markets. Our institutional business and Mondly also delivered strong growth. Workforce skills revenue grew 8%, with solid performance in both vocational qualifications and workforce solutions. Turning to the group outlook for the remainder of the year. Full year group revenue growth which we have guided to excluding OPM will be at the higher end of the low to mid single digit range we've guided to. Virtual schools and higher education growth is expected to be in line with the guidance we gave at prelims and interims. Assessments and qualifications growth will be mid-single digits. English language learning growth will be at least 25%, and workforce skills growth will be high single digit. We're investing a portion of the English language operating leverage into growth opportunities, and that will continue into 2024 and beyond. We are upgrading our full year adjusted operating profit guidance to 570 to 575 million pounds. This is at the current trending average pound to US dollar FX rate for the full year being 1.24. Previous guidance as published on Buma was £568 million at a dollar pound rate of 1.2, which equates to £552 million at the 1.24. The upgrade to £570 to £575 million of circa £20 million is driven by the expectation that revenue will grow at the higher end of that guided range. We remain on track to deliver £120 million of cost efficiencies in 2023 with group margin to improve to mid-teens. Our tax rate is expected to be in the range of 23 to 24% and the interest charge is expected to be circa £35 million. As usual, we will provide guidance for 2024 with our full year results. Our £300 million share buyback is progressing well and our financial position remains strong. And finally, we look forward to seeing many of you at our investor seminar focused on our assessments and qualifications business on Monday 6th November. The event will be held in person at the New York Stock Exchange and also virtually for those unable to attend in person. And with that, I will hand back to Andy.