Hello, welcome to the Pearson Q3 trading update analyst call. All participants will be in listening mode, and afterwards there'll be a question and answer session. Just to remind you, this is being recorded. Today I'm pleased to present John Fallon, CEO, and Sally Johnson, CFO. Please begin.
Thanks, Hugh. Good morning, everybody. Welcome to today's Q3 trading update call. I hope you're all keeping safe and well. As you heard, it's John Fallon here. I'm here at our office in Holborn, and I'm here at a safe social distance with Sally Johnson, our CFO. Joining us remotely is our Chair, Sidney Taurel. As you can see from this morning's update, trends have improved in Q3.
We've laid them out by division and by quarter in the statement. As we and the world manage to learn how we manage our way through a global pandemic, and we are trading broadly in line with expectations. Before Sally Johnson takes you through the details, three quick headlines from me.
First, in an extraordinary year, I'm impressed with just how well my 22,500 colleagues around the world are stepping up to help our customers, schools and colleges, universities, employers, and our learners as they work through some very challenging times. Whether they work in Global online learning, up 32% in Q3 as the world embraces virtual schools and online universities, or whether it's colleagues working international, which is down 26% in Q3
As travel restrictions reduce demand and make it more difficult for international students to take the Pearson Test of English, as schools remain closed in some countries, and as we see the economic impact of COVID-19 affecting government and parental budgets in countries such as South Africa and Brazil. Across those two extremes, our colleagues are giving it everything. We've not furloughed staff. We've not cut investment. We've moved quickly to support blended and on hybrid learning.
We've been there from day one every day for our customers, our learners, and our communities. They've noticed. They've appreciated it. We're going to emerge stronger from the pandemic as a result. Second, our competitive performance is strong. For example, major course adoptions regained in higher education courseware, a sustained winning streak of new contracts in school assessments, strong enrollment growth in virtual schools and online universities.
Third, we're starting to see the benefits of all the hard work we've done in recent years to lay the foundations and build the platform by which Pearson emerges as the winner in digital learning by focusing on the three things that really matter to learners, outcomes, affordability, and the experience. I'll be back to say a little bit more about that in a moment. First, let's hear from Sally Johnson.
Good morning. John Fallon has given you the headlines. I'll walk through revenue performance for each division. Global Online Learning revenue grew strongly at 14%. In virtual schools, we saw a 41% increase in enrollments for the 2021 academic year following the strong application growth we shared at the half year. We significantly increased capacity in existing schools, as well as bringing online our three new schools to meet this surge in demand.
In OPM, course enrollments declined 10% due to discontinued programs but grew 17% if those programs are excluded. We're also starting to see the benefits of operational changes we made earlier this year with improved conversion rates and cost per lead. Global Assessment revenue declined by 19%, an improvement from the 27% decline we shared at the half year. Testing centers continue to operate in a socially distant fashion, as they're likely to for some time.
Pent-up demand is being met with testing volumes up 8% in Q3. U.S. student assessment and clinical assessment are in line with expectations as schools have reopened. North American courseware revenue declined by 14% due to the continuation of trends seen in U.S. higher education courseware in 2019, namely continued unbundling of packages and the ongoing shift from print to digital, as well as the COVID-19 impact on enrollments and in Canada.
Digital KPIs are promising, with digital registrations, including eText growing 9% and strong inclusive access growth. Our international markets have been more challenging. While Q3 showed an improving picture compared to Q2, the COVID-19 lockdown position in some of our major markets has intensified. Year to date, revenue has declined by 24% due to a number of factors.
Firstly, we've seen a reduction in PTE volumes, which have been affected by the interruption of Australian immigration, as well as test center closures in Australia and India. We've seen pressure on enrollments in the Australian English franchise business, and there have been purchasing delays and budget constraints in our courseware markets. Offsetting this, we've seen market share gains in China.
Our more flexible digital PTE offering has proven more suitable for the current environment than the traditional paper-based sittings our competitors offer. We're in a strong financial position with low net debt and strong liquidity. At the end of the nine months, we had GBP 1.6 billion of immediately available liquidity through committed facilities and cash balances. After nine months, Pearson is on track to deliver an outturn broadly in line with market expectations. However, because of the pandemic, there is larger than usual uncertainty surrounding the fourth quarter, particularly in international. With that, I'll hand back to John Fallon.
Thanks, Sally Johnson. In education, as in every other sector, the global pandemic is proving to be a great accelerant. You can see that in the data points we're reporting today, which bear repeating and emphasizing. Global online learning revenue up 14% year to date, up 32% in Q3. Virtual schools, 61% growth in new starts, 21% growth in returning enrollments, 41% growth in overall enrollments, 17% in online degree enrollments excluding discontinued programs.
A 13 times increase in online proctoring volumes to over 1.35 million. In our international markets, digital courseware subscriptions are up 34%. North America higher ed digital courseware up 9% year to date, up 12% in Q3. These are big increases, and I could go on. The future of learning was already digital, but COVID-19 is giving it a great big shove forward.
Whilst you can see other companies who are posting decent growth in any one of these areas, Pearson is the only company that is working across such a wide range of digitally-fueled growth opportunities, we're the only company that is posting such strong and consistent digital growth over so many different areas of learning.
More than that, we're leading the way on the three things that in the digital world learners care most about. They are acting more and more like consumers as they do so. First, our absolute focus on achieving better learning outcomes. For example, the work we're doing to improve outcomes, particularly in areas like math and science, is what enables us to expand our virtual schools massively, as you just heard, without compromising quality or outcomes. Second, our commitment to affordability, enabled by the fact that we're now a much simpler and much more efficient digital business.
For example, on the base of our Q3 results, we expect the weighted average price per unit of our U.S. college courseware to fall by around 9% this year and to be over 20% lower in real terms than three years ago, as we shift to a fully digital subscription-based model. This year, we're selling around 30% fewer package and print-only units, higher priced, but which then go on to feed the secondary market, and 9% more digital platform and eText, lower priced but with no secondary value.
This year, we expect to sell just over two million print units, including packages into our core markets, compared to seven million just three years ago and over 15 million in 2012, the year before I became CEO. As a result, we're just now starting to see the first real signs of secondary recapture.
There are at least 10 million Pearson units of secondary consumption each year. Every one million units recaptured by an eText is worth around $40 million more if we can recapture on one of our new platform offerings. By offering better value to students and with new, more engaging, and more outcomes-enhancing products enabled by the Pearson Learning Platform, we're now very well priced and very well placed competitively to go after this market and get this part of Pearson growing again.
Third, our ability now to offer a brilliant digital consumer-grade user experience direct to the learner. For example, in Global online learning, we're already benefiting this year in terms of cost per lead, conversion rates, lifetime value by the work we've invested and the things we've done to modernize, digitize, and personalize enrollment marketing and recruitment and ongoing learner engagement.
We're now launching a reimagined pearson.com as a one-stop gateway for all our businesses. Growing capability to go direct to learner. As an example, sales of our own enhanced eText doubled during this last back to school, and we now sell them direct to learners through pearson.com.
Through pearson.com, we're also launching a direct-to-learner vertical aimed at IT professionals and drawing on all the fantastic resources and assessment and connections and partnerships that we have in technology, and Pathways that builds on the success of UK Learns and deploys a powerful and proprietary recommendation engine so that with one application, a learner can explore multiple programs drawn from a wide range of learning partners. This has the potential, it's early stages, but it has the potential to disrupt and transform the online program management industry as we know it today.
These are all examples of our ability to offer highly engaging learning direct to consumers through the Pearson platform, personalized to their specific needs. They combine our three driving principles, fantastic user experience, enabling a clear outcome for learners, and offering great value in ways that enable us to grow by engaging directly with learners, enhancing the lifetime value of that learning both for them.
Excuse me, and for Pearson itself. I'm sure that Andy Bird, my successor, will have much more to say about these exciting new opportunities. Driving all this is a simpler, more efficient, modernized Pearson, now able to innovate and scale more quickly, bringing the next generation of digital learning products to market, while remaining focused on efficiencies and operational performance, all underpinned, as you heard from Sally Johnson, by a very strong balance sheet.
I'd like to thank all of you on this call and all our other friends and colleagues in the investment community for your interest in this very special company. The last few years have been hard for our shareholders and everyone involved. We have stayed true to our purpose, to empower people to progress in their lives through learning, which I believe is fundamental to the future wellbeing of our societies and our communities.
I'm confident all our stakeholders will see the benefit of our hard work, and that focus on outcomes, affordability, and the experience in the years ahead. The future of learning is digital. It's just taken a big leap forward, and as you can see from these trends, Pearson will play a very, very big part in it. Before we go to questions, I think our Chair, Sidney Taurel, would like to say a few words, so I'll hand over to you, Sidney.
Thank you, John Fallon. Good morning, everybody. Today marks John's last trading update as chief executive, and he will, as you know, be stepping down at the end of this week and remaining with the company as an advisor until the end of the year. I wanted to take this opportunity to thank John Fallon, both personally and on behalf of the board, for his commitment and dedication to Pearson.
John has a career spanning 23 loyal years of service for the company, the last eight of which he has served as chief executive. Under his leadership, he has tirelessly and resolutely navigated Pearson to a challenging digital transformation and has successfully laid the foundations for the future growth of the company. He will be missed by us all. Thank you. Now I will hand it over to our host for Q&A.
Thanks, Sidney Taurel. Hugh, just before we do, I should just also thank Sidney Taurel. I know how committed he is to Pearson. I know how hard he works for the company, and I know he shares my confidence and optimism in the great opportunities that lie ahead. Thanks, Sidney Taurel. Hugh, now back to you.
Thank you. Ladies and gentlemen, if you're here already and you want to ask a question, please press star, then two on your phone keypad now to enter the queue, and after I announce you just ask that question. Our first question is over the line of Nick Dempsey at Barclays. Please go ahead, Nick Dempsey . Your line is now open.
Yeah, good morning, guys. I've got two questions. First of all, when looking at progress in North American courseware, there's still a pretty strong structural drag in Q3 between an enrollment decline, which we don't exactly know yet, and the revenue growth you've delivered. These things don't change fast.
Should we still be expecting a decent structural drag in 2021 to offset what might be a small bounce back in enrollments in 2021? How should we think about that given all of the moving parts you talked about today? My second question, in 2019, I think it was clear at this point that you were going to, and then you did make a string of Q4 savings that you described as unsustainable to hit the operating profit number. Are you putting those costs back in during Q4 2020? If not, will you have to put them back in in Q4 2021?
Okay. Thanks, Nick Dempsey. Sally Johnson, why don't you take the second of those questions, and then I'll perhaps pick up on the outlook for higher ed in the years ahead.
Sure. If we look across this year, obviously, given the situation that we've been in from a macro point of view, I think I've talked about the fact that we've been making GBP 10 million worth, approximately, of savings each month to offset the revenue decline. We've got the transformation savings this year coming through of GBP 60 million as well, and then the GBP 50 million worth of cost savings going into next year. I'm not sure it's really relevant to be talking about Q4 this year compared to Q4 last year. We're still making those ongoing savings to offset the revenue.
Okay. Thanks, Sally Johnson. On your first question, Nick Dempsey. I think clearly we'll see what happens with enrollments. On the basis of the National Student Clearinghouse data that we've seen so far, looks to us as if we're looking at probably an enrollment decline this year of around 5%. From what we're hearing from channel partners and from universities, I think it may be a little worse than that. I think assuming a 5% decline in enrollment this year, when normally we'd be looking at a 1%-2% decline, and that potentially turning at some point. I think that's how I'd think about enrollments. We clearly got an improving competitive position.
You can see that in the comments I made about we've regained some of the adoption, the 1% or so of adoption use that we lost, not got all of it back yet, but well on the track to doing that. We've got all the disruption behind us. We've got the cost base and the sales force in the shape that we want. We had a fantastic back to school. They were back in the field very quickly, so we've got real momentum there.
Obviously that momentum is helped significantly by the new products and services that we've got coming on the Pearson Learning Platform. OER and non-consumption remains a factor, and it will do, but we are competing well there. We feel confident that there's nothing changed from what we've told you previously.
I think it all comes down to when does the work that we're doing to deliberately accelerate the shift from bundled packages and print only get offset by our recapture from secondary? I think the reality is, we had, just as I mentioned, just over two million units of combined package and print. There's still a little way to go, but we're clearly now significantly closer to the tipping point than we were a year ago when we were at three and a half, or three years ago when we were at seven. Whether that happens or 2021 or 2022, I don't think any of us can call.
Clearly, we're getting to a point where the structural challenges start to work in our favor because of the work we've done to really focus on getting the weighted average price of our products down so that we can compete very effectively with secondary, and we shift everybody to digital products for which there is no secondary market. I think that's broadly how I would think about it. Okay?
Thank you, Nick Dempsey.
Okay, our next question is over the line of Katherine Tait at Goldman Sachs. Please go ahead, Katherine. Your line is now open.
Morning, everyone. A few questions from me. Firstly, on virtual schools, obviously it's been a phenomenal year for enrollments and registrations. Just wondering what your sort of outlook is in terms of how sustainable that absolute level is going forward. Would you expect to sort of see that come down into next year in the occasion of obviously trends normalizing, or sort of a broader ability to attend school physically normalizing? That's my first question.
Second question, you very helpfully gave some commentary around average weighted price per unit, in U.S. higher ed. Can you give us an absolute dollar number for that? Also, just help us understand how that compares to, I think, the $80 average price you gave us before for digital courseware previously, and just, yeah, help us understand the sort of dynamics there.
Finally, just on Q4, are you expecting U.S. higher ed to trend in a similar way to Q3? Do we continue to get that shift out to Q1 from the sort of higher proportion of digital? How should we think about both sort of print and digital trends for Q4 in U.S. higher ed? Thanks very much.
Thanks, Katherine Tait. Sally Johnson, do you want to take the first and third of those virtual schools and the Q4 to Q1 shift, and then I'll deal with the question around the weighted average price.
Yeah. In terms of Q4 for U.S. higher ed, Q4, just because of the way the school year lands with spring back to school tends to be more of a print quarter. We're expecting to see the trends that we've seen previously, which is from a net revenue point of view, the same trends as you see in the nine months, with gross sales being down more than that, but offset by increased deferred revenue coming out of the nine months from the digital trends that we've seen. In terms of virtual schools, you're right, a brilliant performance and that strong enrollment performance for the 2021 school year, so for the last half of this year and into the first half of next year.
I think it's fair to say that if you look out to the long-term opportunity for virtual schools, it was already a strongly growing business. I think what's happened with COVID-19 has helped recognition of online schooling, with parents in particular, and therefore, the situation we found ourselves in will be net positive as you look out into the medium term. For sure, when we come to the 2021, 2022 school year, there is bound to be an element of a COVID-19 cohort in there, in terms of next year.
Thanks, Sally Johnson. On your second point, Katherine Tait, the price points, the foundation of our digital-first strategy are sticking. Around $40 for an eText, around $60 for print rental, sort of $75-$80 for a platform product. Depends on the precise mix between Revel and MyLab and Mastering because they're slightly different price points. Broadly speaking, that's it.
The good news is those prices are holding. The reason the weighted average price is coming down is we are essentially selling significantly fewer bundles, which would cost around $120. They are shifting from bundles to the $80 platform price. We are shifting $80 print textbook purchases to $40 eTexts. The faster we do that, the more obviously we hurt our revenues short-term.
Clearly, we are now essentially starving the secondary market of supply, the units, the volumes that we're losing on those higher priced products have been more than made up by actually higher volumes on lower price. You can see that over time, that's the process by which you recapture the secondary market. When I said we saw a little bit of benefit, I mean by the fact that in a units point of view, we're now selling more units of the lower priced products than we're losing units of the higher priced products.
That's the first early indicator of secondary recapture. We'll obviously only see the economic and financial benefit, as I say, when we reach that tipping point. That should be some time in the next couple of years, but precisely when depends on how quickly that other two million we flush out of the system. It's a very encouraging story and shows you why this business should soon start to grow again.
Perfect. Thanks very much.
Okay. Our next question is over to the line of Sami Kassab of Exane BNP Paribas. Please go ahead.
Thank you. Good morning, John Fallon.
Good morning, Sally Johnson.
Hi, Sami Kassab.
A few questions, please. At the interim, you had disclosed that application growth to virtual schools was 61%. You now reported 41% enrollment growth. Can you please explain the difference? Is that a capacity constraint that didn't enable you to absorb all the applications?
Sami Kassab, I think if you heard me, I said that we've a 61% growth in new enrollments, and then you've got a 21% growth in continuing students. That's what leads you to the 40% number. That 60% growth in new applications did lead to a 60% growth in new enrollments. It did come through.
Very good. Thank you, John Fallon. Secondly, can you disclose and comment on the underlying revenue performance of the Advanced Placement courseware business within higher ed courseware? How is it performing? It's more of a print product. Historically, it was stable. We had fewer AP exams this year, so any discussion around that, please, would be helpful.
Lastly, can you remind me, please, of the strategic interest of owning school courseware assets across the world? You've sold the U.S., you've sold Japan, you've sold Singapore. Why keep Italy and Canada and South Africa? They're still Hong Kong. Can you discuss the idea of having all those school courseware outside of the U.S., please, John Fallon? Thank you.
I'll probably take both those, Sally Johnson. Chipping on AP. I think I'm right on Advanced Placement to say that it's down a little bit this year because of the fact that for the reasons that you implied, because obviously the K-12 publishing business has been very badly hit, as you've probably seen from the results of other companies.
Actually, AP held up relatively well, and it held up well partly because we have a very strong digital offering in AP, because you've got MyLab Mastering Revel courses. I think it was down more than the overall performance of higher ed courseware where business were held relatively well in the circumstances. On school courseware, I think we've been pretty pragmatic about these businesses around the world. If you look in places like Italy, South Africa, Hong Kong, Australia, these are good, strong, profitable businesses.
They consume relatively little capital or investment, and they are a good source of profit and cash. As we've shown, for example, with the disposal of the K-12 publishing business in the U.S., we take a pretty pragmatic, hard-headed view of it. If we think there's a better owner than us, then I'm sure that that's something Sally Johnson and my successor will keep a very close eye on. Okay. Thanks, Sami.
Okay. We now go to the line of Adam Berlin at UBS. Please go ahead, Adam. Your line is now open.
Good morning, John Fallon and Sally Johnson. Thanks for taking the questions. Just a couple from me. Firstly, just want to clarify your comments in the 2020 outlook, where you're saying that you think consensus is broadly in the right place. Are those numbers any different from what you said at H1? Because obviously the exchange rates have moved. Are you saying anything different to what you were saying at the end of H1?
If so, where has performance been weaker than you expected? That's the first question. The second question is around the adoption share gains you mentioned, John Fallon. Are those just the kind of up and downs you get with trading and some days you win, some days you lose? Is that a more structural trend emerging from a superior set of digital courseware products that your competitors don't have, and therefore we should expect you to continue to gain adoption share through the medium term? That's the second question.
Okay.
And then-
Time, Sally Johnson.
just one more.
Sorry, go on.
Just one more, sorry. Is there any risk that when college bookstores open in Q4, there's lots of books sitting on shelves, and you get a big set of returns that you're not expecting of print books in Q4 because lots of them have been closed this year?
Okay. Sally Johnson, why don't you pick up on questions one and three. I'll deal with the second question.
Yeah, of course. On the 2020 outlook, no, it's exactly as we said at H1. We're in line with delivering the consensus that we recorded on VUMA at that time, you'll remember. From an FX point of view, obviously, FX moved throughout the year. If you take our results and you look at them in local currency and you translate them, FX just moves in line with that. At the point in the half year, the U.S. dollar FX rate was 1.25.
The average rate September year to date is 1.26. Remains to be seen what happens with the dollar rate over the next quarter, but you'd expect it to be around about that range. It was 1.3 this morning. Maybe it trends a little bit higher than that. What we're saying about the underlying business is exactly the same as we said at the half year, recognizing that there is some uncertainty in Q4, compared to where we'd normally be.
Okay.
The last question about college bookstores. Yes, they're closed, but they have staff in the shops, and we are in close contact with them about the level of stock that they have. Therefore, we are on top of the returns profile as we enter into Q4.
I think, Sally Johnson, also the fact that we've seen yet another big analog to digital shift just means they're sat with a lot more stock. They took a lot more stock in the first place, which should also give us greater reassurance. Adam Berlin, on your second point, I've seen quite a lot written around market share and the like, let's deal with this a bit more broadly.
There's two ways to think about our share in the higher ed courseware business. The first, in the way that you've just described it, which is adoption share. Of all the courses taken in universities and colleges across the country, across America, that could use Pearson courseware, how many actually do? Our adoption share has traditionally been around about 35%.
As we've discussed previously, we lost about a point or so of share in 2019 because of the supply chain challenges we'd had as we completely remade the cost base, compounded by the fact that we halved our sales force as we moved to a digital-first strategy. As I signaled, we have gained back most, if not all of that share. I think that is a result of what you've said. It's just we're back on our game. The team are focused. We're organized. We're going after it. As I say, I think we should gain back the rest of that point or so over the next 6 to 12 months.
Beyond that, as we launch the new products on the Pearson Learning Platform, as I've signaled, I think they give us a real competitive advantage, both from a pricing point of view and in terms of features and functionality, which I think our competitors will struggle to match. I will leave Andy Bird and Sally Johnson to make predictions about what that means, but certainly it puts us in a very strong competitive position from an adoption point of view.
The second way to think about share is from a revenue perspective, and that's what this MPI data measures, which is it looks at the collective sales of the major six publishers in the industry. Traditionally, our 35% share of use has translated into 40% share of revenue. That's because we are overweight in our share of use in the STEM subjects, science, technology, engineering and math.
Those are subjects where the textbooks cost more, and people are more likely to use a package product, MyLab or Mastering bundled with a textbook. As we do what I described earlier, as we move to a digital-first strategy to go after the secondary market, we are cannibalizing those sales more quickly.
Because we have a higher share than the industry as a whole, that has a bigger impact short term on our revenues. Okay? The way I look at it is, frankly, if it expands the market, makes the addressable market bigger, clearly a 35% share of a $4 billion market is better than a 40% share of a $3 billion market. It's the right thing to do for the long term, even if it hurts our MPI share short term.
However, once we get through the other side of that one-time impact of the cannibalization, because we do have a higher share in STEM, and because those are students that are more dependent on platform products, we should then get a bigger benefit than the rest of the industry, helped also by the fact that we should also see gains in terms of adoption use.
I've answered the question a bit more broadly than you asked it, Adam Berlin, but I think there's been some confusion about share of adoption and share of revenue, and the second is directly affected by the digital-first strategy, which hurts our revenue short term, but expands our addressable market and makes for better business over the longer term. I hope that's clear, and I hope that clarifies the position.
Thank you very much.
Thanks, Adam Berlin.
We now go to the line of Thomas Singlehurst at Citi. Please go ahead, Thomas, your line is now open.
Good morning. Firstly, just to say thank you, John Fallon, for all the hard work and all the best for what comes next. It's fair to say it's been a bit of a rocky ride, but you've always been very cheerful and upbeat and willing to share your views and perspectives in a very open way. That's very much appreciated. I had a couple of questions as well as saying congrats.
The first one was on that data point you gave about $40 million of revenue per one million units of recapture in the secondary market. I was just wondering whether we should think about that as a sort of gross revenue opportunity, and are you sort of saying there's a GBP 400 million revenue opportunity in your mind longer term from that sort of recapture process? That was the first question. Second one was on School assessments.
Obviously, that's slightly dragging on what was otherwise a very decent rebound in the VUE testing business. I'm just wondering what the risk is around exams being canceled or delayed for next year as well might be, and how we should think about that relative to the school assessment wing you talked about.
Very finally, just wondering whether you could talk a little bit about the nature of the uncertainty on the outlook for international. I think the market tends to get a bit scared when you use the word broadly with respect to the outlook and guidance. What are the major puts and takes in terms of things that we should look out for in international in particular for the Q4 that could go wrong? Thank you.
Thanks, Thomas Singlehurst, and thank you for your kind words. Let me deal with one and two, and then Sally Johnson will pick up on the third. I'm sort of smiling wryly because clearly, as an outgoing CEO, I could make all sorts of reckless commitments on behalf of my successors that I will not make. The point I was just making is that clearly there's a significant opportunity to expand the addressable market, and I was simply doing a bit of math, which is, if we can sustain a $40 eText price, then if you regain a million units that are currently going to rental of a secondhand textbook, and you can translate that into the download and subscription of an eText, then that would be worth $40 million.
To be clear, we think there are 10 million units of Pearson product each year that are consumed in the secondary market. That's the math. To repeat what I've said earlier, we still got just over two million units going into the secondary market, so there's still a little while yet before you will start to see that turn. Clearly, when it does, there's a significant opportunity, and when we get to that point, I'm sure Andy Bird and Sally Johnson will share with you how we're thinking about it at that time. I hope that's clear on the first point. On the second point around school assessment, yes, that's a risk. I think two data points.
One, the federal government in the U.S. has made it clear that the waiver around high-stakes tests for accountability purposes was a one-year waiver. Everything that we've seen of the education platform of the, if we had a Biden administration or a Trump administration, the Biden administration is clearly very focused on accountability standards.
All the evidence tells us that the best way to ensure educational progress, particularly for minority communities, is to have a proper system of accountability. I think we'll continue to see the shift to fewer, better, smarter assessments. I think they will want to do everything they can to ensure that assessments do happen in the U.S. next year. You all saw the nightly news through August as I did.
I think the lesson in the U.K. around GCSEs and A Levels, what that tells us is, if exams don't take place, you have a real problem that is very unfair to somebody. I think we can be pretty sure that every possible effort is going to be made to ensure that exams take place in some form or another next year. As you've heard, they're going to be three weeks later. We're slimming down the curriculum. We're also working closely, and we'll have a very major role to play in working with schools and colleges to moderate the more rigorous mock exams.
No one can say precisely how it will turn out, but whatever system there is for assessing and progressing students next year in the U.K., I think you can be pretty sure we're going to have meaningful work to do for which we will get paid. Sally Johnson, do you want to pick up on the outlook for the balance of the year, particularly around the international?
Sure. I think it's sensible to be cautious given the times that we are living in. About a third of the international division's profits come in Q4. To give you some flavor, the particular parts of the world that that relates to would be South African courseware and Asia. I guess what's different this year to other years is, we have line of sight to the orders that we're expecting in Q4.
Whilst that would give me certainty in usual times, given commitments from governments, for example, I think people are making real-time decisions, and it's always possible that education budgets are transferred to healthcare in the short term, and I need to recognize that uncertainty.
Okay. Thanks, Sally Johnson.
Thank you.
Thanks, Thomas Singlehurst. Where are we going to go next, Hugh?
We're going to Matthew Walker at Credit Suisse. Please go ahead. Your line is now open.
Thanks a lot, John. Can you hear me?
Yeah. Hi, Matthew Walker. How are you?
I'm good. Thanks for taking the questions. The first question is going back to your secondary recapture opportunity, which was about 10 million Pearson units, and it was the sort of GBP 400 million that Thomas Singlehurst threw out there. That's only about 13% of a roughly GBP 3 billion secondary market. Maybe you could explain that in terms of the value of likely recapture over the long term.
The second question is on the enabling costs. I was just wondering if you could give us a feel, or Sally Johnson could give us a feel for how those would be in absolute terms for 2020 compared to the roughly 450 that you did in 2019. Just on enrollments for next year, obviously none of us really know what's going to happen, but community colleges are down quite heavily this year, even though unemployment has spiked a lot.
Given that and given Pathways and the lack of jobs that people fund themselves to go to college with, is there a risk that basically the high unemployment doesn't see the same correlation as we saw, in terms of going back to college, as we saw in 2010?
Okay. Sally Johnson, do you want to pick up on the second question, and I'll deal with one and three?
Yeah, sure. In terms of enabling costs, I think the way to look at it is the GBP 60 million worth of savings that we're making this year as the last part of the three-year transformation program. A large proportion of those would be in enabling functions. Looking through to next year, a fairly sizable proportion of the GBP 50 million of savings next year would also relate to enabling functions.
Okay. Thanks, Sally Johnson. On your first point, Matthew Walker, you could be right. I think that the number of units in the secondary market could be much bigger than 10. I don't know about you, a GBP 400 million opportunity seems plenty big enough to me to be getting on with for now. We'll sort of worry about the fact that it may be bigger at a later date.
I think the clear point is there's a very significant opportunity there. On your third point around college enrollments, I would contrast what we've seen, because I think your cross-reference to the Pathways is an interesting one. What we saw in virtual schools, parents moving really quickly. We very quickly saw a big increase in applications to virtual schools.
Those parents are also the same people who would be looking about potentially enrolling in community college or going and doing a sort of undergraduate degree at Arizona State University or Maryville or Aligning. What was interesting is it took longer for that growth in enrollment and interest in the higher education sector to come through. I think you can think about that.
If you're a parent, your immediate priority is to sort my child out, and then I'll worry about myself at a slightly later date. I think that's what's happening, and I think we might see community college enrollments go much deeper into the end of the year this year and into next year.
I think there's just natural behavior by middle-class parents, which is sort the kids out first, get greater clarity about my own employment status. Have I got a job? Am I furloughed? Am I being taken back on? It will take a bit longer to feed through. I think you'll see it, but I think it'll take longer to come through. Okay. Hope that helps.
Okay. Thanks, John Fallon. Thank you very much.
Okay. Hugh, where are we going next?
Final question. We only got time for one more question, that's over to the line of Patrick Wellington at Morgan Stanley. Please go ahead, Patrick.
Yes. Morning, everybody. Hope you can hear me. Three questions. Talk about selling a million-
We're struggling to hear you, Patrick Wellington.
Sorry. Two million units in higher education in this year. How many of those still to be sold in the fourth quarter? My second question is, can you talk a bit about 2021 or the potential implications for in Australia roll forward into 2021? What's your at? Are we just talking about different, of course, were sold in places like South Africa, potentially were there.
Patrick Wellington, I'm sorry. Patrick Wellington, we're really struggling to hear you. I got the first of those three.
I think the first was how many of the two million would come in Q4, around about 20%.
Yeah. I think we got, by projecting forward, and that's why I gave you, I said it'll be around two million units . Obviously, in Q4, we both get sort of forward orders from bookstores ahead of January, but you also get significant returns. I was giving you the net number. I think we feel pretty confident that it will be. That's why I said it'll be around GBP 2 or a bit more than GBP 2. It'll be that sort of level. Can you try your second question one more time, and we'll see if we can hear it.
I'll try the second one, which is the impact into 2021 of business, i.e., are courseware, issued deferrals or is it a size? What we do expect to happen to the Pearson Test of English business if, for instance, Australia isn't having a big immigration program into next year? What are the potential 2021 effects of some of the things that have gone on there?
I think just to capture, I think the question is, to what extent has the deferred in test taken in the Pearson VUE and Pearson Test of English business just sort of a lost forever, or will they come back in 2021? Does that sound like the question?
I think so.
Well, that's the question we'll answer. Sally Johnson, do you want to take that?
Yeah. For VUE, as I said, registrations in Q3 up strongly. That's starting to move through that pent-up demand. The same will happen in Q4. As we exit the year, I'm anticipating that VUE will then be back in a sort of pre-COVID-19 revenue track. They will be down for 2020 from a revenue perspective. Those revenues will be revenues that will be gone.
The examples of why in that, if you were going to take a GED test in 2020, you probably aren't going to take it in 2021. If you were going to take it in 2021, you still will. There were some of our partners who decided to waive testing temporarily for things like GMAT, so if you were going to go and take an MBA.
Okay. Patrick Wellington, do you want to have one last go at your third question? We'll see if we can pick it up.
John Fallon, I'm going to abandon the third question. I'm going to say thank you very much for all you've done over the years. You're a thoroughly decent guy. You're very sincere. You've never shied from taking away hard questions from Ian Whittaker, from me, and anybody else, so well done for that, and thanks for everything.
That's pretty loud and clear.
Oh, well. Thank you, Patrick Wellington, and I appreciate it and appreciate your ongoing interest in the company. As I said, the thing I'm most envious of Andy Bird of is that he's going to discover for the first time what a very special company this is, and it's also made special by the passion and commitment of all the people who follow it. I think you've stuck with us because you recognize what we do is important, and that there's a great opportunity here if we can just unlock it, and that's what I'm very confident the team is going to do. Thanks, Patrick Wellington. Thanks to all of you, and good luck for the future. Thanks now. Goodbye.
This now concludes today's call. Thank you all very much for attending, and you can now disconnect your lines.