Good morning, everyone, and welcome to Pearson's half year twenty twenty one results. Today, we will host a presentation followed by q and a. Please can use the chat function on the platform to input your questions during the presentation. And with that, we'll start the presentation.
The real goal of learning isn't knowledge. It's change. When we learn, we create new pathways, new circumstances, new futures for ourselves and for others. Pearson is the world's leading learning company. But what we really make, the thing we are most proud of, is change.
For over fifty years, we have been transforming lives through education, helping tens of millions of people all over the world reach their full potential. And yet, we are lifelong learners ourselves, Forever evolving to meet the moment with our history to ground us and our creativity to inspire us, we're reinventing everything we do from paper to pixels, from physical to virtual. We're making learning more personal, more equitable, more powerful. There's never been a better time to learn, and we are. We are the change we believe in.
We are
learning.
Good morning, everyone, and thank you for joining us today for our twenty twenty one interim results. I hope you enjoyed the video. And as you've heard me say before, Pearson is a company with a true purpose. We exist to help everyone achieve their potential through learning. We want to deliver the world's best learning products to more people than ever before.
And as we unlock the value of learning, we'll grow our business and, at the same time, transform lives. Joining me today are Sally Johnson, our Chief Financial Officer and Mike Chudi, Head of User Experience Design. We're going to run you through the highlights of the first half and then spend some time focusing on the first of our direct to consumer learning products, our college learning app, which we are launching today. And then Sally and I will be very happy to take your questions. Overall, Pearson has made significant progress since my strategy update in March.
Back then, I spoke of my priorities for the business over the coming year. I outlined the need to move with pace, focus and agility in order to put in place the building blocks for success. And I'm pleased to say that we're doing exactly that. We're moving quickly, and we're building momentum. We're focused on execution, and we're focused on quality.
And we're making progress financially, strategically and operationally. From a financial perspective, Pearson has delivered a good performance in the first half of twenty twenty one. This reflects the ongoing benefits of increased enrollment in online learning, together with a strong rebound this year and encouraging momentum in the underlying business as we start to see the benefits of the revised strategy that we introduced in March. We've delivered revenue growth of 17% and an adjusted operating profit of GBP 127,000,000. Sally will talk in more detail on the numbers later in the presentation, but the key points are that we're on track for 2021 and that going forward, we believe that we're increasingly well positioned for sustainable long term growth.
Now let's take a closer look at our strategic and operational progress. In March, I outlined my strategy to get Pearson growing again. Five months later, I'm pleased to say that we're making excellent progress in each of the areas I've prioritized. We have substantially completed the group's reorganization into five focused businesses, with each carrying full responsibility for its overhead, product development and operations. Strong leadership teams have also been appointed for all of these businesses to drive them forward, and we've taken significant steps to reinvigorate our culture with Pearson becoming a more diverse and inclusive organization and a more action oriented group, one that's focused on execution and delivery.
We're also further strengthening our commitment to transparency and accountability with the introduction of new business and operational KPIs today. More on those shortly. The strategic review of our international Courseware local publishing businesses is a complex process across some 50 countries, and that is now largely complete. And whilst these are fundamentally good businesses, they do not fit with our vision of being a globally scalable digital company. Our new direct to consumer division is already hard at work supporting the rapid creation of digital products.
Today, we're announcing the launch of an exciting new product, Pearson plus an important step in taking Pearson directly to the consumer. I'll come back to this in a time. So overall, we're making great progress, driven by an overarching objective to evolve and adopt the four key themes that I laid out in March. Those were putting the consumer at the center of everything we do, embracing diversity and inclusion, collaborating across businesses and territories as one global company and increasing our speed, agility with a focus on quality. Across Pearson, momentum is building with all five of our business divisions showing good operational and strategic progress in the first half of the year.
Some highlights include: Within higher education, we've continued to make good progress with initiatives that will make us a more sustainable, predictable digital business, including today's launch of Pearson plus In English language learning, we're talking to corporations who require help enabling their workforces to reach professional grade English. Pearson offers the capabilities to do to deliver end to end solutions, and we're well advanced in creating a model to drive profitable growth and scalability. In our workforce division, we're deliberately treating this as a start up, really creating an entrepreneurial culture so that we can move very quickly. We've been having some very interesting conversations with large corporations about what we can, should and will offer, an aim to convert some of these conversations into partnerships later this year. So in summary, it's been a period of intense activity and progress across all aspects of the business, and we go into the second half of the year with real momentum.
And now over to you, Sally.
Thanks, Andy, and hi, everyone. We've delivered a good first half performance, with sales growing 17%, driven by a recovery from last year's COVID impact as well as a strong performance in virtual schools. You'll remember that I said in h '1 would be the last time we'd report under this divisional format. Going forward, we'll report under our five new global business divisions. Given each division now has full responsibility for its overhead to ensure empowerment and accountability, we'll report fully loaded P and Ls, which will also provide you with an improved view of underlying profitability at each of our businesses.
We've shared the 2020 and twenty twenty one half and full year financials on this basis in the appendix. Now walking through the details for the first half, global online learning revenue grew 25% with virtual schools up 43% driven by those strong enrollments for the 2021 academic year as well as growth in U. S. District partnerships. Online program management revenue grew modestly with strong underlying growth offset by discontinued programs, the impact of which finishes this year.
Global Assessment revenue grew 34% with growth across all divisions following the closure of test centers and schools as well as exam cancellations in Q2 last year. View and clinical revenues in h one twenty one were up on 2019 with school assessments revenues not yet fully recovered. North American courseware revenue grew 2% driven by strong recovery in Canada, which more than offset the 2% decline in US higher education courseware. We're all aware that this business is seasonally weighted to H2, but in H1, we saw the trends we expected with a decline in Print and Package, partially offset by digital growth. Total units were up in the first half, indicating recapture of the secondary market.
International revenue increased by 8% driven by COVID recovery. However, recovery here is slower because these markets are still managing some significant pandemic disruptions. Moving on to profit. At a group level, the operating leverage from the sales upside, cost and margin savings and favorable timing was slightly offset by inflation and FX. And at a divisional level, Global Online Learning profit grew significantly with the margin on the revenue upside and improved profitability in OPM more than offsetting continued virtual schools investment and the impact of discontinued programs.
Global Assessment also grew profit significantly, given the rebound of revenues at a strong margin. North American Courseware and International underlying profits grew by thirty three percent and forty nine percent, respectively, due to the operating leverage on the revenue growth as well as some cost savings. And in Enabling functions, costs reduced due to transformation cost savings as we continue to co focus on cost efficiency. Turning to cash and the balance sheet. Cash performance was strong in the first half with a positive operating cash flow of £10,000,000 That cash flow improvement was due to the higher operating profit but also tight inventory management, strong collections and lower CapEx.
Net debt at the June was GBP 600,000,000.0, a GBP 300,000,000.0 improvement since this time last year, given strong operating cash and disposal proceeds offset by dividends and tax. Given our confidence in the outlook, recovery in earnings and the strength of our cash flows and balance sheet, the Board is declaring an interim dividend of 6.3p, a 5% increase on last year. Moving to the outlook for the rest of the year. Whilst we're mindful of the continuing uncertain conditions, our revenue expectations for the second half remain broadly consistent with those I outlined in March. Namely, in virtual learning, we expect virtual schools enrollments to be broadly flat for the twenty twenty one-twenty twenty two academic year and that discontinued programs in OPM will offset underlying growth.
In higher education, we continue to expect revenue decline, but by less than seen in recent years. Pricing pressure from the change in mix from print and bundles to platform and eText will be somewhat offset by recapture of the secondary market and enrollment recovery. The revenue impact of Pearson plus will be modest this year as we gain traction and gain consumer interest. International markets are reopening more slowly than previously expected, and continued pressure on migration and mobility impacting recovery in English Language Learning and in PT in particular, following further lockdowns in our key market Australia, where borders are now expected to remain closed until 2022. Workforce skills revenue will grow given the strong fundamentals of business and the investments we've made.
And in assessments and qualifications, there'll be growth in The US student assessment with some of those exams shifting from spring to fall, offset by a weaker performance in Professional Certification after a strong H2 twenty twenty performance when we benefited from that pent up demand. As mentioned at our full year results, we're planning on investing an additional 50,000,000 to £60,000,000 in the business this year, including spend on Pearson plus and that spend is H2 weighted. Bringing all this together, we continue to expect to deliver adjusted operating profit for the year in line with market expectations. And with that, I'll pass back to Andy, who's going to talk a bit more about our strategic progress. Andy?
Thanks, Sally. The strategy that I announced in March was all about ensuring that we're set up to capitalize on the three big growth opportunities that I've identified for Pearson. The pandemic has only served to accelerate these opportunities as highlighted by the adjustments that we've all made to adapt to a more digital and hybrid way of working and learning. These three opportunities will not only benefit Pearson, but most importantly, will benefit our consumers as we'll be able to build direct relationships with them to help them to unlock their potential throughout a lifetime of learning. As I said in March, to help drive our transformation, we need a robust set of stretching nonfinancial KPIs to measure and track our strategic progress.
Together with our financial metrics, they will allow us to measure, but more importantly, drive and incentivize performance against our new strategy. The first three KPIs you can see are all about tracking the success of our products, how effective they are and how we engage with consumers. And also, as you'd expect, given our purpose, we're committed to supporting our employees in their development, building an inclusive culture with diverse talent as well as our previously announced goal of being net carbon zero by 02/1930. We'll update on progress against all of these metrics as we go through the year. Looking ahead to the second half of the year and beyond, we'll be focusing on three main areas where we see the most attractive opportunities for growth.
In workforce skills, I mentioned earlier that we're in advanced discussions with several large corporates in the B2B space. We're now looking to convert those into partnerships. We'll continue to invest in our capabilities in English language learning, particularly in the high growth online area, where there's a real tailwind behind the sector as more people realize the possibilities and the benefits of learning online. And we'll continue to scale our direct to consumer capabilities, building on the launch of Pearson plus This is a clear priority for Pearson as we aim to be at the vanguard of digital learning, producing the best learning products for more people all over the world. As we mentioned in March, we've been working on something new that's going to become Pearson's flagship higher education product.
Today, we're launching our new college learning app, Pearson plus into the market in time for return to school. We're delivering this exciting new service through an app, and we're very proud of what we've created. But it's far more than just an app. It's a new learning service delivery model, and we're confident that it's going to be a major step forward for our consumers and for Pearson. Together with Revel, MyLab, and Mastering, Pearson plus is poised to help us drive both consumer and revenue growth for Pearson.
Now I know you're anxious to hear more details about all three, and I'm excited also to introduce our new fall product line to you. So to do that, I thought I'd take us all back to school so you can understand these products through the eyes of our consumers, our students, and see just how transformational they will be for those students and for Pearson. Hi. I'm Andy Bird, that. You'll see our brand new interactive science labs as well as the improvements we've made to the student and faculty experience at Rebel, one of our cornerstone higher education products.
Finally, I'm excited to give you a first look at our new learning app, which will change the way college students access and experience their content from Pearson. Even though many college students are thrilled to head back to a physical campus, they also want to keep the elements of digital learning that make their lives easier and their studying more productive. To share some of those insights, I'd like to introduce you to Ashanta Lokege, our Chief Product Officer and CoPresident of Direct to Consumer.
Thanks, Andy. Before the pandemic, students were telling us that they prefer the experience, convenience, and affordability of digital learning. That's why high quality interactive experiences have become the driving force behind our product development. Now we are expanding our mastering product to include Pearson Interactive Labs, a virtual science experience that replicates a lab environment. The pandemic created more value for this kind of product, but we believe interactive labs will become an important part of the teaching and learning process well into the future.
In fact, science instructors have been asking for this kind of high quality interactive experience so students can be better prepared for research inside a physical lab and do research on their own. Our interactive labs familiarize students with the concepts, equipment, techniques and safety protocols used in a physical lab. So when students do move into a lab like this one, they can start learning quickly and efficiently. If students can do research in person, interactive labs also serve as quality replacement for the experience Let's take a closer look now
In these interactive labs, you're not constrained by the cost of the equipment or the walls of a classroom.
It's really important that students understand the process of science. I've never seen that more importantly than over the past year. Everyone has experience with science in their everyday lives. Being able to connect that to the labs is going to help the students engage and also retain the information.
Data is everywhere, and no matter what field the students go into, from teaching to marketing to being a baseball coach, they're going to be making graphs and interpreting data. It's best to build that skill now in an online lab interface where they can make mistakes and practice for the working world. The process of science inherently involves making mistakes. This makes the process realistic.
This fall will have several interactive labs available for introductory biology courses covering topics like photosynthesis and genetics. Additional labs will premiere in 2022 and beyond. Those will help students understand subjects that are relevant and important in the world today, like vaccine development, the human immune system, and climate change. We're also developing labs in microbiology, anatomy, and physiology to support students pursuing health care degrees. Interactive Labs is a beautiful and engaging tool.
We are confident that faculty will value its impact on learning, and students will love to use it, furthering Pearson's position as a leader in science content. Back to you, Andy.
Thanks, Ashanta. Next up, I'd like to reintroduce you to Revel, one of our cornerstone higher education products. This interactive learning app delivers proven results to help students succeed. To give us a closer look, I'll hand it over now to the president of our higher education division, Tim Bozic.
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I like the dashboard because at a glance, I can see their performance collectively, and I can use that information to address some things in my correspondences with my students. I use what I've assigned and the feedback I'm getting from them to inform my next steps. I use the tools that Pearson Rebel has to offer. In particular, I use the quizzes and the essays. I assign those quizzes before the day of my lecture,
and so I have more people who've actually read the material. I have a more engaged and lively conversation within my class.
I'm also excited that Pearson has now developed an app geared more toward the instructor side of the courses. I'm constantly on the go. I need something quick that's going to allow me to check-in on the progress of my students. Excited opportunity grow our are
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Expert authors and eText, our products help us engage with 10,000,000 our U. S. College students every year. But as Andy will explain, we're taking our consumer engagement even further.
That's right, Tim. In March, we told you we're working on a new learning app for back to school. Well, today is game day. And now I'm excited to give you the first look at the most affordable, flexible, student friendly eText option on the market, Pearson plus. Pearson plus looks and feels like the services students use to watch movies or listen to music.
We chose the name Pearson plus for a reason. It combines the strength of our authors and brand reputation for academic excellence with a dazzling new user experience. We've created a premier learning destination for college students, one we know they'll find indispensable. But we're not stopping there. Pearson plus is set to become our flagship higher education learning product, starting with more than 1,500 of our ebook titles.
Over time, Pearson plus will grow with even more features and content that students need and enjoy. As it expands, so will our community of users, driving further opportunities and growth for the company. Like all of us, students want engaging content, but they're also telling us they want an easy way to find their course materials, a simple user experience, and straightforward pricing. Pearson plus delivers all of that. Now I'd like to pass it to Lynne Frank, Chief Marketing Officer and Co President of Direct to Consumer, to explain more about how we developed Pearson plus Thanks,
Andy. We are proud to say that Pearson plus was developed for students by students. Working together with our developers, students were the driving force behind building the user experience. From virtual discussions to focus groups and product testing, they let us know which functions and features were the most important to them, such as audiobooks and advanced note taking. A few weeks ago, we gathered a group of those students to show them what they helped create.
And who better to tell you all about it than the students themselves?
In your pocket? In your bag? Right. It's right there? Yeah.
It's right there.
That's what we need, man.
I was involved in a focus group where they were beginning to get this started, and they were asking us questions about it as students, like, what would our input be on it?
I think it's great that Pearson, you know, wants to hear the voice of their greatest customer, and that's the student. You know?
I feel like the setup is very intuitive too because you know what you're looking for.
Yeah.
You don't have to really struggle to find it.
Yeah. I was looking into it, and I think it was, like, 1,500 textbooks or something like that. And I feel like it's gonna be convenient in so many classes too because, like, every title's there. So there's no excuse that we wouldn't be using it. The fact that I just have it all right here and I can just access it, amazing.
Like, honestly.
I love that this app is so seamless. Like, it works perfectly on my phone and on your computer.
Man, I just found that you can
even sync between the two.
If your laptop dies, you can just hop right on your phone and continue working on whatever you need to go. So, honestly, one of my favorite things about the app is the fact that it has offline access. We like to go out and go have a picnic and have a little study day and stuff like that. And so a lot of the times, I have to use my hotspot or use someone's Wi Fi from their car. So this is great because then you don't have to use up your phone battery.
You can have your textbook offline, and then you can just go ahead and do whatever you want. You know? Hey.
Can we check out the audio version of this?
Yeah. I'll play it.
Let's see. Some of the most dramatic effects I've perceived And
that's cool.
It's way better than the robot everyone's here.
For honestly, we can work out and really listen to the audiobook if you really wanted to. You just study on and you work out. I
really like being able to change the colors of the highlights and then sort by the colors. Because for me, I'll highlight and be like, okay. Yellow is what the professor said. Green is what I don't understand. You can customize it to how you need it.
Let's see what we got next here. Okay. Study anytime. Create custom flashcards. There we go.
Custom flashcards and practice them on your own schedule.
Yeah. And the flashcards are already embedded into the textbook, so you don't actually have to spend even more time of your studying, making the flashcards. You just go straight into learning. I probably spend, what, $50.60 dollars per textbook usually and then have to deal with carrying it around everywhere. And now here I have about, like, 1,500 titles for $14.99 a month, whereas I would have been spending so much money in the past.
It is clutch. You know saying? Guys, I really love that this is, like, a pay as you go subscription service.
Right? It's like you can, like, choose whatever works for you.
And you don't have to pay for more than what you need.
The thing about Pearson plus is it's all in one place for us.
It it really brings, like, learning to life.
And you're saving my paper.
Yeah. You can't do that. That sounds like a plus to me, honestly.
Pearson plus.
Imagine if Pearson Plus had some kind of, like, social aspect or collaboration. Building study group.
If you have, like, little breakout rooms or something. Put the discussion post, like, within that same chapter.
Maybe a personal study assistant.
I need reminders. Like, oh, don't get to study the flash drive that you don't know.
Being something to tell you, hey. You've at this for an hour. Maybe take a little break. You'll learn better.
You know? Pearson, are you taking any notes? With
that, I'm gonna be able to maximize my time, like, moving forward for sure using Pearson plus It
saves me all of that studying, all of that time when I get home. I can spend time with my family. Pearson plus really has created and opened a new door for learning.
We're really excited by Pearson plus and its potential to increase access to high quality, affordable learning content. Combined with its ease of use, Pearson plus will deliver value to students in a way that few other learning products have. We also know this generation of students believes in building a better world. So we're confident they'll appreciate the smaller carbon footprint that ebooks offer. But that's just the beginning for Pearson plus Our
direct relationship with student consumers will allow us to understand more about their needs and preferences. We're going to learn from them. Those insights will give us exciting opportunities to enhance the product features and build additional content. As we do that, we will create value for students and growth for Pearson.
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That brings us to one of the biggest reasons Pearson plus is different from other study apps on the market, its budget friendly subscription plan. With Pearson plus we're fundamentally changing the way college students access textbooks. For the first time, we're bringing ebooks in line with how students buy and experience the rest of their content by giving them more control over how they purchase their learning materials. No more time wasted in checkout lines or scouring the Internet for the best deal. Now students can choose between two simple pricing tiers based on what they need.
If they need just one ebook, they can pay $9.99 each month. Or if they need two or more books, they can purchase our multi tier with access to our entire e book library for $14.99 each month. Subscriptions will come with a four month commitment. Unlike other textbook subscription services, students aren't tied to plans that give them more than they need, and they can pay as they go so they don't have a large upfront cost at the beginning of the semester. Students gain time, money and simplicity.
As you've seen, Pearson is changing digital learning with new products like Interactive Labs and Pearson plus combined with leading learning apps like Ravel, MyLabs and Mastering. We can support better teaching and better learning, driving improved outcomes for students. And we can do that while building relationships with them and delivering growth for Pearson. For us, this means more than changing do that. We're to do Thank you, and please join us for the Q and A.
I hope you enjoyed the video, which gives you a real sense of our ambition. We want to build long term relationships with consumers, accelerate the recapture of sales from the secondary market, create opportunities to expand into international markets and also develop new partnerships. And all of this is just the beginning. We're going to have that Q and A in a moment, but I thought, first of all, I'd invite Mike Chudi, our Head of User Experience Design and someone who's helped lead the development of Pearson plus, to give us a quick demo of the app. Mike?
Thanks, Andy. I'm really excited to show you all the Pearson plus application. In all my years of working for companies like eBay, WebMD, Intuit, and Apple, I've never seen a team work so hard with such focus to deliver such an amazing product in such a little time. Let me click in, and let's take a tour. So our user's going to put in their username and password, and then they're gonna go through the first time experience.
We're gonna tell them how they can listen to this anywhere. They can study anytime, and it's all here. This is our promise all in one place. We come to the home page, and the first thing they see are the textbooks that brought them here in the first place. So they have the Campbell biology.
They have offers, and this is smart thinking. This is the Pearson tutorial service, as well as the bundle d text that comes with mastery in MyLabs. And then here's our mascot, Mojo, that was the project code name. I'm gonna add another textbook, and we bring up the entire Pearson catalog all in the palm of your hand. Type in economics, and up comes all the economic textbooks we have.
In this case, our user's looking for economics today. She clicks on it, adds it to her list, and here it is. It's really that simple. Let me take you on a tour of the textbook itself. So I'm gonna click into the read, and here I have the ability to navigate back home, bookmark the page, and I have a toolbar.
I'm gonna hide the toolbar for now, and let's click into the body of the text. Now the student can highlight, add notes, and then be able to save those notes and use them for another time. I'm gonna click on the toolbar, and here is the scrubber feature. This allows the student to quickly jump to different sections. She might wanna bookmark that section and then navigate back, and we remember her position.
I'm now gonna move to the table of contents. In the table of contents, can jump to any of those sections. I can also see all my bookmarks in one place as well as any recently visited sites. Here, I have a very powerful search tool. Many eText products today only search on the body of the text.
We search on everything. We search on your notes, your highlights, any media that we've captured, images in the textbook, as well as the content and key terms. Another powerful feature and one most requested by our students in our research is audio. They listen to their textbooks as they commute to school, or walking from one class to another. Here, you can minimize it and listen to it while you look at the text, or you can hide it altogether.
Here is our notebook section. We aggregate all the notes you may have taken as you read all in one place. You can sort and filter by chapters, and you can also sort and filter by colors. We know students like to color code their highlighted text. And then you can also export to PDF so you can study in whatever format you'd like.
And then here is our study section. We allow students or enable students to create their own flashcards. We also auto generate, practice questions as well as key terms that you can quiz yourself on. I'm gonna quickly click into the practice flashcards, and here I can just flip, and then I get my results. I can choose the practice again, or I can focus on the ones that I got incorrectly.
We'll navigate back. And then the last piece is the text settings. This allows us or the user to really change the formatting, increase font size, move from a sans serif to a serif, move to sepia or dark tone. This provides a lot of powerful accessibility benefit to the students, and we'll be continuing to invest in accessibility over the long term of this product. Now I'm gonna go back to the home page.
This is just the beginning. We're really excited. The future is really laid out. We have an amazing road map coming up. Can't tell you about that.
But this is going to be a product that we continue to invest in, and we're gonna treat it like a proper consumer product that people want to use, not that the people have to use. So I'm gonna hand it back over to you, Andy.
Thanks a lot, Mike. So in summary, we're making great progress. We've rapidly implemented the group's reorganization into five focused businesses. Our strong leadership team is now in place and helping me to evolve our culture across Pearson. We're further strengthening our commitment to transparency and accountability with the introduction of our new business and operational KPIs today.
The strategic review of our international courseware local publishing businesses is now largely complete. And finally, we've made strong progress with our direct to consumer strategy with the launch of Pearson plus today. And with all of that, Sally and I will now be very happy to take your questions. Over to you, Joe.