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Edited Transcript of PSON.L earnings conference call or presentation 27-Jul-18 7:30am GMT

Half Year 2018 Pearson PLC Earnings Call

London Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Pearson PLC earnings conference call or presentation Friday, July 27, 2018 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Coram Williams

Pearson plc - CFO & Executive Director

* John Joseph Fallon

Pearson plc - CEO & Executive Director

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Conference Call Participants

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* Christopher Anton Giles Collett

Deutsche Bank AG, Research Division - Research Analyst

* Giasone Ulisse Salati

Macquarie Research - Senior Media Analyst

* Ian Richard Whittaker

Liberum Capital Limited, Research Division - Head of European Media Research

* Katherine Tait

Goldman Sachs Group Inc., Research Division - Associate

* Matthew John Walker

Crédit Suisse AG, Research Division - Research Analyst

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

* Thomas A Singlehurst

Citigroup Inc, Research Division - Director and Head of European Media Research

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Presentation

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Operator [1]

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Hello, and welcome to the Pearson Half-Year Results 2018 Conference. (Operator Instructions) Just to remind you, the call is being recorded. Today, I'm pleased to present our hosts, John Fallon, CEO; and Coram Williams, CFO. Gentlemen, please begin.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [2]

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Good morning, everybody. John Fallon here with Coram Williams, our CFO. Thank you for joining us today for our half-year results presentation. As we say every year on this call, our business is second half weighted and our key selling season still lies ahead of us. That said, as you can see from the financial headlines, our encouraging start to the year has continued into the second quarter. For the half year, underlying sales are up 2%, in line with our expectations and reflecting a good competitive performance across the business. Underlying profits are up 46% as we continue to run the business more efficiently.

Operating cash flow reflects the typical build of working capital ahead of our key selling season. But to be clear, we're still guiding to 90% plus cash conversion for the full year. The balance sheet is in good shape, with net debt halved from this time last year, a 10% increase in the interim dividend. It's in line with our commitment, after cutting it last year, through a sustainable and progressive dividend policy. And our guidance for the full year is unchanged.

So let's have Coram take you through the financials and the outlook for the rest of the year. And then I'll be back to give you a very brief update on strategy, leaving plenty of time for your questions. Coram, over to you.

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Coram Williams, Pearson plc - CFO & Executive Director [3]

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Thank you, John, and good morning, everyone. John has already taken you through the headlines and given our customary reminder that our first half is less significant than our second. So I will start by looking at each of the geographies in more detail.

In North America, revenues rose 3%. Growth in U.S. Higher Education courseware, OPM, Connections Academy, School Assessments and professional certification, was partially offset by modest declines in K-12 courseware and by the planned decline in revenue in Learning Studio as we retire this product. U.S. Higher Education courseware traded the way we expected, with net revenues growing modestly in H1. The expected benefits of lower returns were proportionately higher than the impact of lower gross sales, driving a positive phasing benefit in the first half. We expect this phasing benefit to unwind in the second half. Gross sales will continue to be impacted by underlying market pressure, but while returns will continue to be down, the benefit will be proportionally smaller in the larger second half of our selling season. As a result, we continue to expect Higher Education courseware to be flat to down 5% for the full year.

In Core, revenues rose 2%, primarily due to strong growth in Pearson Test of English and OPM in the U.K. and Australia and the Clinical Assessment. This was partially offset by a weaker performance in student assessment and qualifications and in courseware.

In Growth, revenues fell 4% in underlying terms, primarily due to the expected decline in sales in South Africa school courseware, where we benefited from an unusually large order in H1 2017, as well as the phasing of revenue in the Middle East. This was partially offset by growth in English courseware in China and Mexico, our Sistemas in Brazil and in MyPedia in India. Excluding South Africa school courseware, our Growth segment revenue was up 1% in underlying terms at the half year.

Turning to operating profit. We had a steady performance across the business that is consistent with our expectations and full year guidance. As you can see from this bridge, restructuring savings and improved trading, helped by phasing, have more than offset other operational factors and inflation. As a result, operating profit grew 46% in underlying terms after adjusting foreign exchange, portfolio adjustments and a GBP 6 million IFRS 15 benefit in H1.

All of our guidance for 2018 remains unchanged and this slide is a reminder of the profit and EPS guidance that we gave you in our full year results in February. The sale of Wall Street English in March reduced the expected adjusted operating profit from our portfolio at the start of the year by around GBP 6 million, but we've chosen to absorb that within the guidance range. FX continues to move around. It was a little above our guidance range in H1 but is below it current rate. As a reminder, every $0.05 move in the U.S. dollar exchange rate to Sterling impacts EPS by 2p to 2.5p. Finally, our U.S. K-12 courseware business continues to be held for sale and is still included in our guidance.

Operating cash is always an outflow at the half year, reflecting our normal seasonal increase in working capital. In the first half of 2018, we've seen a larger outflow than last year. This was driven by 3 factors of roughly equal size, each of which we expected. Firstly, higher cash payments in H1 2018 reflecting the higher 2017 staff annual incentive. Secondly, a lower contribution from Penguin Random House dividends, reflecting efforts in 2017 to sweep cash out of the business prior to the transaction. Thirdly, adverse working capital, largely driven by weaker gross sales in Higher Education courseware at the end of 2017, leading to lower collections early in 2018. On this basis, we're still on track for an overall cash conversion for the full year above 90% and in line with our guidance. Free cash flow has improved, due to the absence of last year's special pension payments relating to the Penguin Random House merger in 2013.

Our net debt is down GBP 858 million over the 12 months since June 2017, reflecting our desire to maintain a strong balance sheet. Inflows from operating cash flow and disposal proceeds more than offset the outflow related to the share buyback.

Moving on to our simplification program. We've made good progress on the program in the first half of the year, moving more roles to shared services for finance, HR and technology, decommissioning over 200 applications and closing 7 data centers as well as 7 offices. As you saw on the bridge on a previous slide, we delivered an additional GBP 40 million of savings in the first half as a result. We also started the implementation of our new ERP system in the U.S., with the first phase going live in May. Any major system implementation is complicated, but the rollout has gone relatively smoothly so far and we're pleased with progress.

Looking further ahead, we're on track to deliver the full GBP 300 million of savings in 2020, while obviously, the precise impact will depend on how exchange rates play out over the life of the program.

And with that, I will hand back to John.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [4]

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Thanks. Coram has just given you an update on one of our 3 key priorities, the work that we're doing to make Pearson a simpler and more efficient company, and which you've heard is very much on track. So let me just pick up briefly on the other 2.

The digital transformation of our courseware and assessment businesses is going well. In U.S. Higher Education, our focus on affordable choice and better outcomes is driving a growing shift in revenues from print to digital and direct-to-student and direct-to-institution, and you'll see further progress on all fronts, more Inclusive Access deals, more print rental-only titles, more eBook sales, an exciting fall product lineup and a strong road map that takes us through into 2019. The shift to digital also continues in U.S. school assessment, as we stabilize the business and win new contracts. In Core assessment and qualifications, the widely reported challenges affecting all players in U.K. apprenticeships has slowed us down, but improving BTEC Firsts registration, new products and general qualifications also bode well for the future. Here, too, we're leading in digital innovation. And we're picking up the pace in our structural growth businesses, with Connections, OPM, professional certification, English, all growing strongly in the first half of the year. We have strong pipelines and good momentum across all 4 of those areas.

So we've had a good first half performance and our guidance for the full year remains unchanged. We continue to simplify the company and make it more efficient, strong cash generation, prudent management of our balance sheet, are enabling us to continue to invest in our product, technology and transformation, ensuring that we emerge as the winner in digital learning. This in turn enables us to offer lifelong learning opportunities that are convenient, relevant and can tangibly improve people's lives. That ambition enables us to continue to retain and attract the very best talent and as we make good progress in realizing it, it also makes us increasingly well-placed to generate sustainable long-term value to our shareholders, our customers and the wider stakeholders who depend on us.

And with that, Coram and I will be very happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Chris Collett of Deutsche Bank.

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Christopher Anton Giles Collett, Deutsche Bank AG, Research Division - Research Analyst [2]

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Just had a couple. First of all was just to dive into within the U.S., could you give us an update on the sale of the K-12 business? Just wondering if we -- should we read anything into the fact that it is taking a long time to complete? Second also in the U.S. was just about professional certification. You said there that the revenues grew modestly, but I think back at the prelims, you had sort of expected growth there in the mid-single digit. So I'm just wondering if there had been a change. And then thirdly, within Core, I know you'd said that you're expecting growth driven by some of the assessments that you were making in the student assessment businesses. It just sounds like perhaps that's not coming through in the way in which you had thought. Is that correct?

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John Joseph Fallon, Pearson plc - CEO & Executive Director [3]

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Okay, thank you, Chris. So on the first question, we are continuing to hold the K-12 business for sale at the half year. So that clearly signals that we do expect to proceed with a disposal. Clearly beyond that, you wouldn't expect me to make any comment until we've got something to announce. On the third issue, in the Core markets, I think as I signaled, and as I think have been well-chronicled in the business press and elsewhere, the U.K. -- the changes that the government has made in the U.K. apprenticeship regime has brought more disruption, particularly for small and medium-size employers than expected. And that's brought some short-term resistance for us and every other player in the market. So that is not quite as strong as we hoped at the -- back at the start of the year. But in balance, the Pearson Test of English in Australia is doing even better. So those 2 factors sort of even each other out in Core. And clearly, I think everybody expects the challenges in the apprenticeship market in the U.K. to be short term, because clearly, with everything else that's going on, the need to have a good, high-quality apprenticeship regime is in everybody's interest. Coram, do you want to pick up on the professional certification point?

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Coram Williams, Pearson plc - CFO & Executive Director [4]

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Sure. Thanks, John, and thanks, Chris. The -- in professional certification in North America, we benefited in the first half from the Medical College Admission Test that we won at the end of last year. There's a little bit of pressure in our IT certification business, which is largely driven by the strength of the economy. Always more difficult to take tests when the economy is strong. But actually stepping back, as we said in the press release, we renewed 42 contracts and signed 45 new agreements. So we're feeling pretty good about where that business stands in the first half and that's the reason we're reiterating guidance.

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Operator [5]

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Our next question comes from the line of Tom Singlehurst at Citi.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [6]

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Tom here from Citigroup. A handful of questions. Firstly, within Higher Ed courseware, still obviously, a lot to do for the full year in terms of the key sales period. I guess by now, the sort of adoption period would have been largely completed. Could you just give us some sort of qualitative commentary on the performance in the adoption of Higher Ed courseware, any signs of significant market share shift and prospects as a result of Cengage Unlimited? That was the first question. Second question, just more broadly again in terms of the guidance outlook, I don't think you ever formalized it, but just a sort of inference of your commentary earlier in the year was excluding Higher Ed courseware, which is expected to be down, somewhere between 0 and minus 5, the balance of the business would be showing growth for the full year. And I just wanted to see whether you're still confident in that. And then very finally, Connections Education, clearly, a bunch of new schools coming onto the platform, but also a couple falling off. I was just wondering whether you could talk about what the factors are that lead to you sort of either just moving away from sort of contracts, or losing them or indeed, closing the schools down. Just more detail, that will be all very useful.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [7]

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Thanks, Tom. So I'll pick up the first point and then Coram will deal with the other 2. You're right. The adoption decisions for back to school in the fall are now virtually all made. We track every adoption that we compete for in every campus across the country. We are pleased with our competitive performance. We've done well. We've done at least as well as the previous year, and probably nudged a little bit better. I think that tells us a couple of things. It tells us that the impact of OER is in line with the guidance and expectations that we've been shaping over the last couple of years. And it also tells us that our Inclusive Access offering, you'll see in the press release that we signed up a further 100 institutions in the first half of the year and deepened the relationship with the 500 we already have. The Inclusive Access remains, we believe, a highly competitive and compelling offer, because it offers affordable choice and better outcomes and it meets the needs of students, yes, but faculty and institutional leaders as well. So feeling confident about our competitive performance. And Coram, do you want to pick up on the guidance for the non-Higher Ed courseware business and how we're thinking about Connections?

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Coram Williams, Pearson plc - CFO & Executive Director [8]

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Yes, of course. Tom, the -- so in the balance of the business, I think we did say in the full year results presentation and again in Q1 that we were expecting the other 70% of our revenue to grow in aggregate. That doesn't mean that every single part of it will grow, but that overall in aggregate at the end of the full year we'd expect to see that. That -- we have actually seen that growth in aggregate in the first half. So that's encouraging. And if you remember, the guidance was driven off the back of growth in Connections, in OPM, stability in our student assessment business and growth in Core and Growth. And we're seeing all of that in underlying terms. So that's the reason we reiterated all of our guidance and clearly, that is implicit within it. On Connections, you're right that there has been a contract exit in the first half. That's Louisiana, which we have flagged and was expected, and there are a couple of others coming in the second half. But on the other hand, we're signing up new schools. There are 3 that we've announced over the first half. And enrollment growth is actually up 3% at the first half. So -- driving revenue growth. So this is a contract business. Contracts do come and go, that's the nature of it, but we're feeling confident that we'll deliver revenue growth on the full year.

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Operator [9]

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Our next question comes from the line of Nick Dempsey from Barclays.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [10]

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Nick Dempsey from Barclays. So 1 question, please. So you're talking about your new platform for delivering products in Higher Ed. I want to try and understand how that works in terms of developing new products, showing them to faculty, getting them to adopt those programs and then eventually sort of getting them sold. Because as far as I can see, Revel took a bit longer than you'd originally hoped to be delivering good growth and getting out there in the market. So when you're saying that you've invested in your platform and you're looking at some, a few pilots. I think you'd talked about a math one and an update to Revel coming at the end of this year. Do you have to show them to professors in the adoption season next year, get them interested, but then they don't yet adopt them, and then in 2020, they finally are persuaded to adopt them? Maybe you can talk about how long it takes to get those new types of integrated digital products into the market.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [11]

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Yes, so good question, Nick. So it is true that [Rio], which is our developmental math pilot, we actually just completed the quality assurance testing on it in the last couple of weeks. It's looking fantastic. We're really pleased with it. We will start to get it in the hands of faculty and students, but to be clear, it is at this stage a limited pilot. Developmental math is a very important and highly complex area for people to teach. So we're not likely to see any significant revenues from Rio for probably the next 18 months. That's why in tandem with the Rio pilot, we have launching now, significant upgrades to Revel, including the first virtual tutors launching in tandem with IBM Watson. We have significant further upgrades to the MyLab and Mastering programs with better navigation, analytics, Early Alerts that started well last year, expanding now to every product. We significantly enhanced the eText experience, which we think now makes the eBook rental a hugely attractive offer, because while it's not as immersive and interactive as a MyLab and Mastering, it's much, much better than a pure e-book. We've significantly enhanced our channel partner integration, which makes Inclusive Access third-party integration much earlier. So what I think that gives you a sense is there's been a real cultural change in how we do product across Pearson over the last few years. It's now much more agile, it's much more iterative, it's much more rapid prototyping, get products in the market, develop them. Revel is a great example of that. When we first launched it in early 2014, it was early stage, the -- we got customers to use it. They gave us feedback, they helped us develop it and now it's proving incredibly popular and it's by far the best mobile app you'll find on the market. So that's happening, alongside what the global learning platform does, as we talked about before, enables us to take all of the legacy platforms and systems that we're running our digital products on at the moment, creates a cloud-based micro services environment that will then enable us to take product -- those products to scale much more quickly and much more reliably and have a much more direct relationship with students, both whilst they're in college, and as they engage in a life of learning. So the global learning platform, yes, it's going to be a couple of years before it gets to scale, but don't underestimate the great innovation in product and iterations that we're bringing to market now.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [12]

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So maybe just to quickly follow up, John. So you're saying Revel was in a pilot stage in 2014 and it's kind of only really contributing interestingly now in terms of revenues. So why will what you're piloting now help in 2020, the year when you're hoping for North America Higher Ed courseware to improve?

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John Joseph Fallon, Pearson plc - CEO & Executive Director [13]

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So the -- if you remember, because Revel is the first in a new generation of integrated digital products. If you remember, that enables us to start a new S curve, so the strategy that I described does 2 things. In the areas where we already have a high degree of penetration, which is primarily in the STEM subjects and the more quantitative social sciences, things like accounting, business economics and the like, we already have high penetration, but it's in a blended model. So students are often buying a supplemental digital product alongside a physical textbook. Those list of features and functionality that I described you enable us to enhance the value we get from the digital registrations we already have, because it shifts more value from print to digital, whilst at the same time, Revel enables us to create, as I say, a new S-curve, because it takes us into subjects like sociology, psychology and the like, where up until now we haven't had a compelling digital offering. And by the way, no one else has a digital offering anywhere near as good as Revel. We've seen great growth in Revel year-to-date. And Revel will be the first product that we launch commercially at scale on the global learning platform, which we will do next spring for fall next year, and that then will obviously really enable us to ramp up the Revel growth more quickly. So it's a dual strategy: Enhance the digital revenue from the registrations we already have; and enhance digital registrations by opening up that new S curve. That's how it works.

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Operator [14]

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Our next question comes from the line of Ian Whittaker of Liberum.

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Ian Richard Whittaker, Liberum Capital Limited, Research Division - Head of European Media Research [15]

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Just a few questions, please. First of all, just in terms of your guidance on net debt, sort of year-end, been the same as '17. I think consensus was expecting maybe around a GBP 100 million decline and you pointed out the fact that CapEx in '18 should be slightly lower than '17. So could you just walk us through the facts of why net debt maybe is not coming down as much as we would have expected? I guess, the second thing is just in terms of following on from Chris's question on K-12. You still expect to sell that business, but as Chris pointed out, it's been a long time now. I mean, at what stage should we, if you haven't sold it, should actually you sort of take that off the for sale assets list? I mean, sort of, is there a possibility this asset could still be listed as for sale when we get to the year-end results? Normally with this type of sale, it should be concluded quicker than maybe it has been. And I guess, the third question is more of a general one. U.S. Higher Education has always been talked about as a countercyclical business. But you made the comments about IT as well. Your IT professional certification business as well has been impacted by the strong economy. So just in terms of your general business, so the U.S. economy is obviously going very well at the moment. Are there any other areas that you would highlight within there that you would see as necessarily countercyclical, maybe getting impacted by a stronger economy?

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John Joseph Fallon, Pearson plc - CEO & Executive Director [16]

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Okay. Thanks, Ian. Coram, do you want to take the first question around net debt? And then I'll deal with the other 2.

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Coram Williams, Pearson plc - CFO & Executive Director [17]

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Sure. If we look at our consensus on [VUE] here, and I think you'll see that the net debt is showing at GBP 384 million and last year, we were at GBP 432 million. So they're both roughly around the 400 mark. We're very pleased with where we stand on net debt at the half year. We are very significantly down on this time last year, which is in line with our policy of maintaining a very strong balance sheet. In terms of the second half, our cash flows are very second half weighted. We are still guiding to 90% plus cash conversion and in fact, everything we've seen in the first half is consistent with that. The one thing you do have to remember is that we will have some restructuring cash outflows in the second half, but that is all built into our guidance. We're pleased with where we're at, and we're definitely maintaining that net debt guidance, yes.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [18]

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On your second point, Ian, it's held for sale because we expect to sell it and over the years in selling businesses, the one thing I've learned is never give a running commentary and when there's something to announce, we will announce it. So you'll understand that hopefully why we're taking that view. I think in terms of your question around countercyclicality, I think we've picked up the main themes. I think the other point I would make is the strength of the U.S. economy is also sort of helping us in a couple of ways. I think if you look at an exciting new development we've got within our own loan program management business, we've launched this initiative called AcceleratED, and our first big partnership there is with Brinker International, who are a major hospitality chain across America. As the jobs market tightens, actually focus on upskilling, upgrading employees, focusing more on training and development. I think this is going to become a big issue over the next few years, as more and more employers worry about automation and how the workforce is changing. So there's a cyclical growth opportunity here as we think more broadly about our capabilities. And actually, as frankly, perhaps people focus less on university and community college as the exclusive places where they get education and training, and look more to getting trained in the workforce and through other means. So I think there's a -- that's an exciting opportunity for us. Coram, I don't know if there's anything you'd add to that on the IT certification front?

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Coram Williams, Pearson plc - CFO & Executive Director [19]

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Look, I think the point I was trying to make about VUE is that there are plenty of other parts of it that are growing and we're feeling good about the full year prospects of it. So I've highlighted IT on the basis that it's one of the moving parts, but it's not a major one.

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Operator [20]

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Our next question comes from the line of Katherine Tait of Goldman Sachs.

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Katherine Tait, Goldman Sachs Group Inc., Research Division - Associate [21]

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A couple of questions for me. Firstly, in the appendix, you give a very helpful split by channel for U.S. Higher Ed, which shows 20% from direct-to-consumer, 7% from institutional. Can you give us a sense of how this has changed versus 3 years ago? And also, perhaps a sense of your future ambitions in terms of where those 2 segments in particular get to? And also, I noticed on the same chart that it talks about 15% coming from e-tailers and other retailers. Does that imply that Amazon sales of your textbooks actually are only about 15% of the total? It would be really helpful to know. And then on your guidance for flat to mid-single digit declines in organic growth for U.S. Higher Education, can you just give us a sense of how that -- how you expect that to sort of come through in terms of pricing growth versus volume declines, et cetera? Just looking to get an understanding of the moving parts there.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [22]

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Okay, Coram, do you want to pick that up ?

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Coram Williams, Pearson plc - CFO & Executive Director [23]

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Sure. Let me start with the appendix. I mean, I think, Katherine, all of the points that you're making are important ones in terms of our strategy. As you know, we're moving more direct, we're moving more digital and we're moving more towards access-based models. On that basis, then you would expect the levels of direct digital sales, of institutional sales to rise. We haven't put targets on them, for obvious reasons, because these are -- there are plenty of factors within the market that drive it, as well as our own actions. But you would have seen progress over the last couple of years and you will continue to see progress. In terms of the size of Amazon in our business, we have said, I think in the past, that the largest single channel actually is our own direct digital sales, followed by Amazon, Barnes & Noble and Follett. Those are the other big distributors, but the single biggest channel is our own direct digital sales. In terms of the Higher Ed guidance, in North America, we are -- everything we've seen so far is consistent with the framework that we have outlined in terms of the pressures coming through enrollment, open education resources and the secondary market, offset by digital growth. And obviously, in the first half, we've seen good digital growth, and we will expect to continue to see decent digital growth in the second half.

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Operator [24]

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Our next question comes from the line of Giasone Salati of Macquarie.

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Giasone Ulisse Salati, Macquarie Research - Senior Media Analyst [25]

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Just 1 question on the print-only program. It's been now nearly 24 months since we launched the first 49 titles pilot. Can you update us on the economics? Where do you think in the publication cycle we can now hit breakeven and when we start making more revenues? And then can you give us an estimate for what you expect in terms of net impact from this program for the rest of 2018 and maybe '19, given that we're doubling the number of titles in 2019?

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John Joseph Fallon, Pearson plc - CEO & Executive Director [26]

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Thanks. Coram, will take on that one.

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Coram Williams, Pearson plc - CFO & Executive Director [27]

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Yes, so I think we've been clear on what we think is the economic impact of rental, and that is that it is economically neutral over the life of a rental. Clearly, there's a timing effect here, because as you move from selling, monetizing an owned copy upfront to a series of rentals, then that has an impact on revenues in the first year, a little bit less in the second and you tend to catch up by the time you get to the end of the edition cycle in the third year. There's nothing that we're seeing so far that changes our views on that. And just to remind you, we're not undertaking this program for financial benefit. We're undertaking it because it gives us visibility and control over a part of the channel that has been challenging for us. So that's the view on the rental piece. And over the coming year, the rental pressures are built into the way in which we're describing the market and the underlying pressures.

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Operator [28]

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Our next question comes from the line of Matthew Walker of Credit Suisse.

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Matthew John Walker, Crédit Suisse AG, Research Division - Research Analyst [29]

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Just a few questions, please. The first is, I think on the Q1 call, you talked about your market share in Higher Ed being between, I think it was 40 and 41. If could just say whether that's still the case after the adoption season? The second thing is on DDA, you've added another 100 institutions. I was just wondering could you maybe describe to us what's happening on DDA in terms of pricing? Obviously, lots of other people are doing DDA as well. What's happening to average pricing on DDA? That will be helpful. And then lastly, if you could -- actually, a couple of things, really. One was, could you give us a sort of revenue growth figure for MyLabs and Mastering? I didn't find -- maybe I missed it. I think last year, registrations were down, but revenues were modestly up because of Early Alerts. So if we could just get an update on revenue growth in MyLabs and Mastering. And finally, you talked about modest digital growth, I think, in the first half, at that modest growth in Higher Ed overall. So could you just explain for us -- I understand that the digital mix is higher in the first half, could you just go through that and explain why and how that changes through the year? And what that implies in the first half about how print is performing and why?

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John Joseph Fallon, Pearson plc - CEO & Executive Director [30]

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Okay. Thanks, Matthew. I'll pick up on the first and then Coram will pick up on your other 3 points. Just on the market share, just a reminder, Pearson and the other 5 leading players in U.S. Higher Education courseware submit our updates through a third party and we get back how we're performing against the industry as a whole. For both year-to-date and the 12, rolling 12 months till the end of June, we actually ticked a little over, to 41%. So we're sort of slightly above that range. I wouldn't get to excited about that because it can move around from one month to the next. And to be clear, if you're looking for an indicator of adoptions, that doesn't really give you -- because clearly, it's a trailing indicator not a leading indicator. So I think our view would still be, that for the year as a whole, we'd expect to be somewhere in that 40% to 41% range. Coram, do you want to pick up on the other part?

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Coram Williams, Pearson plc - CFO & Executive Director [31]

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Sure, I think there are 3 points. I think the first one is around DDA pricing, the second one about MyLab revenue growth and the third about the phasing in Higher Ed. Let's take those in turn. In terms of DDA pricing, there's not been any price deflation in terms of our Inclusive Access deals. The way that we price them is to make them attractive for both faculty and students, and there are a mix revenue models. But the key point of Inclusive Access is that by putting together a deal for an entire faculty or an institution, it drives the number of enrollments in which our courseware is being used, and that in turn has a beneficial impact on revenues. In terms of the MyLabs, I think we have flagged that whilst registrations in North America were down just slightly, at 1%, actually, revenues were up and that comes from 2 things. Firstly, there's a mix effect, because we're selling more standalone digital product, which is helpful. And secondly, we've added, as John described, some features to our MyLabs and Mastering and that's allowed us, in a couple of areas, to just make modest price increases. So we're pleased with the revenue growth there. In terms of the phasing in North American Higher Ed, the key point isn't so much the phasing of digital and physical, the key point is the phasing of the returns benefit versus the gross sales pressure. So the first half is a light sales half, but it has a significant portion of returns which come back. That means that, that disproportionately benefits us in the first half. In the second half, where there's a bigger sales season, we see more of the effect of the underlying market pressures that we've described. To be clear, everything is consistent with the way that we've described it, but you do have a phasing benefit that unwinds in that business in the second half.

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Operator [32]

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And that was the final question in the queue. So I'll hand back to our speakers for the closing comments.

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John Joseph Fallon, Pearson plc - CEO & Executive Director [33]

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Okay, again, thanks for your interest in the company. I know this is a very busy week in reporting terms, so we appreciate your time. Gio, Tom and Anjali have been on the call with us and around for the rest of the day, if they can help with any questions, otherwise, thanks for your interest and look forward to talking to you later in the year.

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Operator [34]

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Ladies and gentlemen, this concludes the conference. Thank you very much for attending. You may now disconnect.