Pearson plc

interim results and strategic 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 main presentation. Alternatively, please type your questions into the questions tab at the top right of the screen and we'll address them in turn at the end. And with that, I'll hand over to Omar.

Thank you Jo. Ladies and gentlemen, thank you for joining us today for our interim results and strategy update. I've been really looking forward to spending this time with you. We have a busy session. I'm going to kick us off today by sharing my early impressions on the business, and then I'm going to hand over to Sally to break down our interim results that many of you will have already seen in our R&S this morning. Next, I'll share with you our strategy update and what it means for our business going forward. Sally will then highlight what this means for all of you financially, and then we'll move to Q&A. For the first part of the conversation, it's just Sally and me, and then for the Q&A, I've asked some of our wonderful team to join us here, many of whom you've met before, Art Valentine, Gio Giovinelli, Tom App-Simon, Tony Prentice, Sue Coleroo, and our new face, Vishal Gupta. Okay, since I last saw you for prelims in March, I've continued my listening and learning journey. I've had the pleasure of meeting hundreds and hundreds of our people, dozens of our customers, including following our sellers around with their customers. I met about 20 investors, a wide range of partners, and with our Pearson executive team, we've conducted about 20 town halls around the world. Also starting in early March through June, we ran a process with about 65 of our top leaders. to look at every single aspect of our business. We brought this group together physically and covered all the topics that you would expect. Market, competition, customers, operations and more. We organized the group into action teams addressing core business performance and growth, people and culture, data, AI and product and strategic partnerships. I have to tell you that the journey so far has been very exciting. I've learned a lot and I continue to learn each day and working with this team has been thoroughly enjoyable. Let me share a few perspectives with you on our business today. As I told you in March, Pearson does three things really well. We create and curate high-quality content in the form of learning materials and assessments. This ranges from assessment materials for surgery and nursing exams to author-driven content in Pearson Plus. We distribute this content primarily through digital systems such as the Vue testing system or the Pearson Connexus platform for virtual schools. And we build and verify skills through assessments like CertiPort and PDRI, capabilities like Fathom for skill design and diagnosis, and Credly for credentialing. So, as you can see, Pearson offers a very diverse array of products across multiple learning and education segments, and this gives our business resilience and a range of options for future growth. Also, I've learned that under the hood, we have two distinct business models. The first is B2B services, for example, Vue, Virtual Schools, Pearson School Qualifications. And the second is the software business model, for example, higher ed courseware or clinical assessments or monthly. I find that thinking about the business in this way really helps us see many areas of value creation upside. So let me share three observations about our business. Firstly, we have five strong businesses, each with clear lines of accountability and each on a growth trajectory. I've kicked the tires on sales, sales operations, cost structure, processes, technology systems, skills and capabilities. And I can confirm, as I told you in March, that Pearson is a solid business on a solid foundation that provides a platform with many good strategic options. As we look forward to understand future opportunity, we see that assessments and qualifications is a great operation. It is well run. It is highly trusted by customers, it scales well, and it's trusted in the most high-stakes situations. Virtual Schools has lots of potential as one of just two national players. Again, it performs an invaluable service, it is trusted, and is back on a growth footing after a couple of lost customers in past years. English Language Learning. This is an entrepreneurial team. And notwithstanding the ups and downs of market trends, for example in PTE, the team under GEO has responded extremely well by diving into hybrid institutional opportunities because they're on the detail, they're very focused on execution and getting results. Workforce skills, as you know, consists of two parts. The traditional strength in vocational qualifications in GED, the US high school diploma equivalent, there and it performs very well from a growth and a margin perspective. In the last couple of years the company invested heavily in solutions given the clear upside potential in the worlds of skills and certifications. This is an area of focus for us and is why we have Vishal Gupta who's landed very well, thank you Vishal, focused on beefing up the go-to-market capability as we scale that offering. It's no secret that the Achilles heel of Pearson for the last 10 years has been U.S. higher ed. Many of the issues were exogenous, secondary market, open educational resources, piracy, and enrollment swings. But some were of our own making. For example, with product stability, sales team focus, and innovation in the core product. On the external factors, we see a significant reduction in the impact today. And on the internal factors, higher ed is competitive again. This is why we're confident for return to growth this year for the first time since 2014. I'm happy with our portfolio as it stands. Pearson is a unique company in a class of its own, delivering strong profitability, great cash flow conversion, and is diversified across customer segments and services. In fact, We're the only B2B services company serving the full breadth of K-12 and higher ed institutions and students, governments, employers and employees across a wide range of learning and education services. Each of our assets has a purpose in making us the natural home for learning and education. Secondly, Pearson is a trusted business. As I spoke to our customers, ranging from enterprise leaders to professional associations, to higher ed leaders, to school leaders, to franchise owners, I heard over and over what people value in Pearson. Firstly, this is our people and culture. They're collegiate, customer responsive, and care deeply about helping learners around the world. In other words, they're strongly mission-driven, and our customers feel this. Next is our domain industry knowledge. As I mentioned, Pearson is the home of learning and education. We're connected deeply to networks of authors, institutions, educators, policy makers, students, companies, startups, and more. All in the space of learning and education. And these networks have resulted in several petabytes of data, high quality leading edge content and learning assessments, and a deep insight into how people learn. We also hear all the time from our customers that we are the gold standard. We're trusted by governments, professional organizations, educational institutions, and companies to set standards and then carry those standards for them. Finally, about two-thirds of Pearson's business is pure assessments. Think of VUE, VTech, Clinical, GED, Pearson Test of English, Versant. While the remaining one-third is products and services with assessments embedded. This means that our core business is assessments and verification, which is increasingly important in a world of AI. Because in a world of AI, anyone can make out, they know almost anything. But at some point, we need to demonstrate skills and learning. And this is where assessments are so important. In March, we set out our strategic priorities for the year. We said that we will hit consensus numbers for 2024, that we would focus on the workforce opportunity, and that we'll drive AI through our products and services. And we see AI as a tool that accelerates value and growth for Pearson. I'm happy to say that we're on track to meet our commitments for 2024. And Sally will take you through our Interims Update now, where you'll see a little bit more detail on these numbers. After Sally does this, I'll get into the strategy update where I'll expand further on workforce and AI. Over to you, Sally.

Thanks, Omar. And hi, everyone. We've delivered another good performance in the first half with underlying sales excluding OPM up 2% and adjusted operating profits up 4% to £250 million. Earnings per share were flat at 25.6p, with higher net interest costs, offset by the impact of the reduced share count, both predominantly due to the share buyback. Operating cash performance was again strong, up £50 million from last year, with good underlying fundamentals, as well as some phasing and FX benefits. Free cash flow was also strong, up 77 million pounds given that operating cash performance and below the line reorganisation costs have now fallen away. Our balance sheet remains robust with net debt at June 2024 of 1.2 billion pounds 0.3 billion pounds more than last year given the 500 million pound share buyback and dividends which were partially offset by strong free cash flow. Reflecting our strong performance and our confidence in the outlook, we're proposing a 6% increase in the interim dividend to 7.4p. Touching on the key elements of divisional sales performance, Assessments and qualifications grew 2%, with growth across VUE, clinical and UK and international qualifications, partially offset by an expected small decline in US student assessments. VUE renewed and won a number of key contracts, all of which support future pipeline growth. We're also pleased with the growth in PDRI, where we saw strong volumes across the TSA and United States Air Force contracts. We continue to expect low to mid single digit sales growth in ANQ for the full year. In virtual learning, sales decreased 8%, most of which is attributable to the final portion of the OPM ASU contract in H1 last year. Virtual schools was down 1%, reflecting the previously announced contract losses for the current academic year. We've already announced the opening of three new schools this year and a further 19 career programmes. And we continue to expect virtual school sales to decline at a similar rate to 2023 in 2024 and for the division to return to growth in 2025. Higher education sales were down 2% in line with our expectations, and there are encouraging signs of progress in HE, with spring market adoption data indicating small share gains. In H1, we saw 3% growth in core text units, 2% growth in US digital subscriptions, 25% growth in inclusive access, and K12 growth of 12% given the strong adoption cycle fundamentals in that market this year. Pearson Plus performed well with 5 million registered users and 1.1 million paid subscriptions for the 23-24 academic year, the latter representing 18% growth. So, we continue to be confident that higher education will return to growth in the second half and for the full year. We are, of course, keeping a close eye on the faster student aid situation, given the uncertainty it creates around enrolments, but we currently expect any impact to be immaterial. Lastly, on higher ed, the usual reminder of the impact on digital growth, shifting rev rec from Q3 to Q4. English language learning grew 11% with strong growth in institutional and mondly, partially offsetting a sales decline in PTE. We've continued to gain market share in PTE despite a market which has declined given the tightening of migration and international study in H1. The Argentina FX impact discussed at Q1 has faded as expected and will be immaterial in a fuel year context. Given the current market dynamics for PTE, we expect sales to be flatter down this year, offset by strong growth in other English language learning elements, such that we continue to expect high single-digit sales growth for the division as a whole. Our market share gains in PTE and the ramp up for Canada mean we are well-placed for English high-stakes testing market growth, which we expect in the medium term, given demographic projections. Workforce skills boost 6%, with strong performances in vocational qualifications, GED and Credly, driven by strong renewals. Turning to profit. Group-adjusted operating profit was up 4% to £250 million, with the trading performance alongside net cost phasing and savings partially offset by inflation and restructuring charges in higher education. These were always expected to be weighted to the first half. Divisionally, profits improved, with the exception of virtual learning, given that highlighted impact of OPM on H1 profit in 2023. We remain on track to meet the group sales, profit, tax, and interest expectations I laid out at prelims. And as a reminder, every one cent movement in the FX rate equates to five million pounds of adjusted operating profit. So, in summary, H1, we've seen sales growth. A 4% increase in profit and a £77 million increase in free cash flow. And we remain on track for the full year guidance. At which point, I will hand back to Omar for our strategic update.