Welcome to the Pearson Q1 Trading Update analyst call. Throughout the call, participants will be in a listen-only mode, and afterwards there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present John Fallon, CEO, and Sally Johnson, Deputy CFO. Please begin the meeting.
Good morning, everyone. As you just heard, John Fallon here. Thanks for joining us this morning, and I hope you're all keeping safe and well. I am joined, at a safe distance, of course, by Sally Johnson, who will formally succeed Coram Williams as our new Chief Financial Officer after today's AGM. I'd like to take this last opportunity to thank Coram for all that she's contributed to Pearson in various guises over the last 18 years, and to welcome Sally to her new role as she steps up from deputy CFO. I know she's going to make, indeed is already making, as we work our way through these extraordinary times, a great CFO. This is our regular Q1 trading update, so let me start with the headlines, which Sally will walk you through in more detail shortly.
As a direct result of COVID-19, our sales through the end of March, which would otherwise have been broadly flat, are down 5%. We are performing in line with the framework we set out on March the 23rd, and we are reducing costs in the businesses most affected to help offset some of the impact. Whilst this may be our regular Q1 trading update, these are, of course, quite irregular times. We are, as you would expect, doing all we can to safeguard the health and wellbeing of our employees, learners, and customers. As we deal with the pandemic, Pearson is in a strong financial position with a healthy balance sheet, low net debt, and good liquidity. That financial strength means that the board is recommending the payment to shareholders of the final dividend for 2019.
Now, financial strength also enables us to deploy all our people and resources to support our communities as the world's learning moves online at an unprecedented speed and scale. We are redeploying, not furloughing, colleagues who can't currently do their regular job to where we see the biggest customer needs and opportunities. I'm very impressed with the speed and spirit with which Pearson's colleagues, working with our customers and partners, have rallied to the cause. To share just a few of the many examples, obviously, this all started back in January in China and then moved on to Italy and across those two countries. We now have over 1.2 million teachers and students who've been using our online platforms containing thousands of interactive lessons. Since then, we provided 45,000 hours of online tutoring to American college students, enabled 100,000 school students to access virtual schooling.
We've seen 350 parents in the U.K. turning to The Maths Factor to help them with their kids' math schoolwork. In the first two weeks since its launch, our Global Online Learning Hub has already been used over 500,000 times, and that's scaling by the day. We have seen a surge in March in applications for our Connections Academy, our virtual schools network, compared to 2019. I could give many other examples, but just to quantify, we have now provided somewhere in excess of GBP 25 million worth of courseware and services for free to support our customers and our communities as they respond to this unprecedented challenge. We're also moving quickly to scale up new platforms and products. For example, there are millions of people here in the U.K. and worldwide that have been impacted by the pandemic with potentially huge implications for the jobs market.
That's why today we are announcing plans to launch UK Learns, a portal with a richly curated portfolio of employment-enhancing short courses personalized to meet the needs of the furloughed and the unemployed. When the threat of the pandemic eventually eases, it will be even clearer that the future of learning is increasingly digital. As well as I've described scrambling quickly to support our customers and communities through the crisis, we're also continuing to invest for the longer term in the platform, the products, and the services that will help make the next generation of digital learning a reality. We're making good progress against the exciting roadmap of new digital products and services that we shared with you in February. Also looking beyond the pandemic, we do see further opportunities to make Pearson a simpler and more efficient company, bringing further significant cost savings next year.
Sally will talk you through that in more detail, as well as giving you a more thorough update of our Q1 trading, and then we'll both be happy to answer your questions. Sally, over to you.
Thank you, John. As John said, March results are in line with the framework we set out in our COVID-19 update on the 23rd of March. Underlying revenue is down 5% in the quarter, with good growth in Global Online Learning offset by expected declines in our other segments. Covering each segment briefly. Firstly, Global Online Learning revenue grew 6%, driven by good growth in enrollments in our virtual schools. online blended learning is likely to be the most material short-term commercial beneficiary of the increased interest in online learning, with a surge in applications in March compared to 2019, as many explore full-time digital learning for the first time. In online program management, revenue grew slightly. As I said at our full-year results, we have deliberately slowed the rate of growth in OPM in order to transition to a new operating model.
Global Assessment revenue declined 3% due to the closure of testing centers since mid-March in our Professional Certification business, along with a decline in Clinical Assessment given school closures offset by growth in Student Assessment. We estimate that the financial impact of professional test center closures will be to reduced operating profit on average by approximately GBP 20 million-GBP 30 million for each month the centers remain closed. As tests run throughout the year, this provides time for pent-up demand to be partially realized in the latter part of the year. Any ongoing social distancing will also impact it. In Student Assessment, revenue was slightly favorable. A number of states and boards have waived testing for this year, which will impact our 2020 operating profit by around GBP 20 million after mitigating actions.
We continue to believe there could be further state test cancellations, which would further impact on operating profit modestly. In international, revenue declined 10% as a result of school and test center closures impacting courseware sales and the Pearson Test of English. There was also a phasing impact on courseware sales in the U.K. We expect to see a modest impact on profit due to the cancellation of GCSE, A-Level, and BTEC testing following the announcement made by the U.K. government. The full-year impact on international courseware is uncertain, especially given that the period for which education institutions may be closed is unclear, and our sales periods are seasonal. We expect some impact from physical site closures in our higher education institution in South Africa and our franchise and systemic businesses in Brazil.
North American courseware declined 10% due to the expected continuation of trends seen in U.S. higher education in 2019, as well as a decline in courseware in Canada as a result of school closures. U.S. higher education was down slightly less than 10%. Print revenue declined as expected. Returns are in line with expectations. There is a small impact from the closure of campus-based bookstore as a result of COVID-19, which we expect to continue into the second quarter due to the escalation of the pandemic. Q1 continues to be a small quarter, and this year has seen less benefit from physical sales in Q4 shifting to digital sales in Q1, given the extensive decline of print in 2019.
To partially mitigate the impact of COVID-19 on operating profit, we have identified actions to reduce discretionary spend this year, whilst ensuring that Pearson is still well-placed to benefit as the macroeconomic landscape recovers. On a longer-term basis, the progress we have made on our simplification and digital transformation has enabled us to identify a further GBP 50 million of cost savings, which will benefit profit from 2021 onwards. We have a strong financial position with low net debt and strong liquidity. At the end of March, we had GBP 800 million of immediately available liquidity. After quarter end, we received GBP 530 million as we completed the sale of our remaining stake in Penguin Random House, and we have recently secured material new lines of credit to enhance our existing revolving credit facility.
The board also took the decision to pause the share buyback that we initiated earlier this year as a prudent measure given the current pandemic. These actions, alongside a short-term moderate negative impact to the business, enables us to navigate both the COVID-19 pandemic and to continue to drive our digital transformation. With that, I'll hand back to John.
Thanks, Sally. Before we take your questions, a quick reminder, like many of the listed companies and for reasons you well understand, we have changed the format of our Annual General Meeting today, and we're proceeding with the minimum necessary quorum of shareholders in order to pass the resolutions. In addition to Sally being appointed the Chief Financial Officer today, also very pleased that as you may have seen the announcement yesterday, Andy Bird, the former Chairman of Walt Disney International, will join us as an Independent Non-Executive Director on May the 1st. Andy brings a huge amount of highly relevant experience and a real passion for education to what is already a strong and engaged board. Just to recap very quickly on the headlines, financial performance was in line with expectations to the end of February, with COVID-19 impacting our businesses in March.
We have a strong balance sheet and ample liquidity. We're managing the business very actively in these highly uncertain times. Cutting costs and conserving cash in those that aren't able to operate as normal, and redeploying and scaling up in the areas of growing demand. As you heard from Sally, looking ahead to 2021, we will deliver a further GBP 50 million of annualized cost savings and launch the next generation of digital learning products that post the pandemic should be in even greater demand. With that, Sally and I will be very happy to take your questions.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw that question, you may do so by pressing zero two to cancel. There'll be a brief pause while questions are being registered. Our first question comes from Katherine Tait from Goldman Sachs. Please go ahead. Your line is now open.
Good morning, everybody. Thanks for taking my questions. Maybe I could just ask on the OPM side. I appreciate that this is a business that you are sort of looking at the business model and how it can sort of shift to make it more profitable going forward. I guess my question is now really the right time to be, I guess, doing that sort of more internal process of looking inwards when there's so much demand externally from universities to make this emergency sort of very drastic shift online. Is this really the right time to be taking the foot off the gas in terms of engaging with those universities? Is there a sort of longer-term risk that you perhaps need to share, given that we're facing such an unprecedented point in time where these universities are looking to shift online?
Just keen to understand a little bit more there. My second question is just from virtual schools and whether or not the sort of boost that you're seeing at the moment is related to the sort of longer-term programs that my understanding was that your virtual schools product was very much for students that were looking to homeschool sort of on a more permanent basis. Do you expect that this sort of near-term boost will phase out or come out once the lockdowns and things like that normalize? Is this a sort of more structural shift that we should expect kind of to shift going forward?
Finally, perhaps just on the shape of the group, obviously, those sort of two digital areas that you sort of alluded to that are going to continue to benefit from this shift to digital that's being accelerated by the current situation we find ourselves in. Those two businesses made up about 15% of revenue last year. Is that too little? How are you thinking about scaling up those businesses, or are you still pretty happy with the overall shape and footprint of the business? Thank you.
Thanks, Katherine. Well, I'll deal with the first and the third of those questions, and Sally will pick up on the one around virtual schools. I mean, first of all, on the shape of the portfolio. Yes, we are happy with the shape of the portfolio. We have a strong balance sheet, ample liquidity, plenty of scope to invest organically. That's what we're doing in both those businesses, and that's the way that we'll continue to do so. In terms of your first question, I think we should sort of separate two things. First of all, we were and are actively managing our portfolio of university partnerships. We are bringing some relationships to an end so we can focus on others where we see the opportunity for a bigger and more strategic engagement.
That's what you see in the revenue performance in Q1 and what you will see for the rest of the year. That's entirely consistent with the guidance we gave back in January. We're doing that so we can build a more profitable, more sustainable, faster-growing business, and that's reflected in the guidance we've given you for these businesses in the medium term. I didn't think I'd left you in any doubt. Just to be clear, we are deploying all the power of Pearson to help every university and partner who wants it to help to scale online. We have the scale and competitive edge to do that in a way nobody else can because we can bring our online partnership skills to bear. We can bring all our digital courseware to bear. As you heard, we're offering all of our online tutoring capabilities.
We are all in with our university partners, and I have to tell you, they are very welcoming, very supportive, and this has just unleashed a whole amount of energy, creativity, spirit of partnership and collaboration, both within the company and externally, which I am very proud of. If I didn't communicate that as clearly as I should, please do not be on any doubt now. Thanks, Katherine. Sally will pick up on the virtual schools point.
Hi, Katherine. Yeah. As you say, we've seen a huge increase in interest in our virtual school business. Where we've received applications and enrollments for the 2019-2020 year, where we've been able to take them. Of course, looking forward, that interest in applications needs to turn into enrollments for the 2020-2021 year. I think we'll see people exploring this for the first time and realizing it's something that can work for them. I think the most important point to note is that the availability of these sorts of schools on a state-by-state basis. I think you probably know there are some states which don't have virtual schooling as things stand at the moment.
I think states are now looking at the possibilities of virtual schooling, probably wanting to prepare themselves should such an event happen again into the future, and therefore more open to virtual schooling, and therefore the possibility opens up to a greater number of students in those states to engage in virtual learning, probably for the first time.
Thanks, Sally. Thanks, Katherine. Where are we going next?
Our next question comes from Tom Singlehurst from Citi. Please go ahead. Your line is now open.
Good morning. It's Tom here from Citi. Thanks for doing the call and taking questions. three, if it's okay. Firstly, on the testing. Obviously from an economic perspective, it sounds like getting the testing businesses back up and running as quickly as possible is the primary driver. I just wonder whether you can give us a sense of geographic shape. If lockdown comes to an end in the U.S. and the U.K., does that mean the business largely is back to normal? Can you try and quantify which are the important markets to get back up and running? That was the first question. Second question was on higher ed course, where I appreciate we won't really know until September, but one of the concerns that has really taken hold is that universities will be under pressure, in particular in the U.S.
A lot of investors, I think, are looking at that through the lens of risk, falling enrollments, and then less people buying courseware. Can you talk about some of the puts and takes there? Can you quantify the number of international students and whether that's a particular risk variable for you? Can you also talk about the interplay between public universities and the for-profit and community college channels? The final question is the buyback you've taken out. What is the trigger for putting it back in? Thank you.
Okay. Thanks, Tom. Sally, do you want to pick up on the first and third of those questions? They're one around testing and the other around the buyback, and then I'll answer the question around the higher ed courseware.
Yeah, sure. For testing, I think you're probably picking up particularly on our professional testing centers. Obviously, we had to close those in the middle of March. There's going to be a phased return to those centers across the world with different timings. For example, in China, centers are starting to open back up now. I think we've mentioned, we do have some centers that have opened back up in the U.S. in order to certify health workers. We're looking at opening some centers back in the U.K., for example, for the DVSA driving theory and for ambulance workers. I think there'll be a phased return over time. One thing that we do know is there is a pent-up demand. We hear that from our customers every day.
People are really keen to take the certification and tests for the things that they've been studying for some time. We will manage those centers to make sure that we protect people, both our staff and the people coming in to take tests. We will also make sure we open those test centers for extended periods of time so that we can help our learners to take the qualifications that they so much want to. On the share buyback, I think we were clear this was a pause to share buyback, and once the situation becomes clearer and the outcome to the year becomes clearer, we will look to that decision and restarting the share buyback at that point.
Thanks, Sally. Just expanding on the first question on testing, to use you to make a broader point. What times like this do is really sort of unleash speed, innovation, creativity. For example, I think as Sally mentioned, we have the best part of 200 professional testing centers in the U.S. back open now to provide the ability to get thousands of healthcare workers into the front line very quickly. The benefit of doing that, of course, more widely, as well as the societal benefit, is we're learning as to how you can operate those centers effectively in a social distancing environment. That will help us as the lockdown eases. Likewise, something we've been worried about pushing on for years, which is how we do remote proctoring.
We've seen a 350% increase in use, and we've redeployed a lot of our test center administrators from working in center to acting as remote proctors. There's a lot of opportunity here, and we're learning a lot, so we can respond quickly to what is going to be obviously a highly uncertain and rapidly changing situation. On your higher ed courseware point, yes, I think clearly there is a concern about what will happen with enrollments around international students. I think it's fair to say that the universities that have the highest number of international students are not the ones that tend to be our biggest customers. If you remember, most of our revenue comes from two-year community colleges, two and four-year for-profit colleges, and obviously four-year public universities. They tend to have much larger numbers of students who live locally.
I think what we're seeing, we're talking every day to large numbers of college presidents and working out how we can best help them. I think what you're seeing is that most of them are planning on the basis that there'll probably be some sort of hybrid for back to school in the fall. There'll be some students, perhaps who live locally, who are on campus. They're probably doing their lab sessions where you can do social distancing. They're probably doing tutorials, which you can manage through social distancing, but they're not going to be sat in 500 or 1,000 seater lecture halls. Frankly, they don't need to, because using our digital courseware and a lot of other capabilities, that part of the learning process can be done remotely and safely in a virtual environment.
I think clearly, it's a very uncertain set of circumstances, but I hope that gives you a bit of a feel for how it will play out. I think as important is to think about 2020, is to think about 2021, because this is an incredible opportunity for us to build much deeper and more strategic partnerships. What's interesting is, actually this is where Inclusive Access comes into its own, because we built enterprise-level partnerships with universities around making textbooks into digital courseware, enable them to access it at better prices. That provides an opportunity to expand that relationship in a much more strategic way. Yes, there will be short-term challenges, but I think it will be something of a hybrid for back to school.
The better the job we do of supporting our customers now, the better it will be for us in 2021 and beyond.
Thanks, John. Very clear. Thank you.
Our next question comes from Matthew Walker from Credit Suisse. Please go ahead. Your line is now open.
Thank you very much, and good morning, everyone.
Hi, Matthew.
Good morning. First of all, could you say just for Q2, how many test centers do you have in total? What percentage will be closed in Q2, do you think? For the rest of them, what do you think the utilization level will be? Maybe give us a bit more color about the business model there. Is it based on the absolute numbers of tests taken, and are some tests more valuable to you than others? That would be helpful. Then, maybe one for Sally. On the discretionary savings in 2020, how much mitigation of the foreign international profits can you do through cost savings in 2020? Then one last one for John, which is, obviously you said you're deliberately slowing the OPM, transitioning to a new model. Can you remind us what is the new model for OPM? Why are you slowing it?
I know, for example, that or I thought, for example, that one thing you wanted to get from your OPM partners was the ability to use student leads that you generated from one partner to, if they didn't take up that partnership, to use them for other partners. Some people are okay with that, some people aren't. What are the other elements of the transition to the new model, and how long until the growth recovers to the level, 10% or whatever, that we would normally expect in OPM?
Yeah. Sally, do you want to pick up on the second question?
Yeah, sure. The discretionary cost savings that we have in place across various things, some costs relatively easy. No one's spending any money on T&E at the moment. We're obviously focusing, whilst we're not furloughing staff, we're making sure that we're focusing and redeploying people, which means that recruitment isn't as high as it would have been in other circumstances. With things like marketing spend, with such pent-up demand across the piece, there probably isn't the ROI on marketing spend that we would normally see. That enables us to just take very sensible decisions around our cost base. International courseware and how that might play out over the next few months, given the varying dates that schools would return to school anyway and the impact of the pandemic is uncertain, but we're working to offset as much of that with cost savings as we possibly can.
Okay. On your first question, Matthew, I think we have something like 22,000 professional testing centers that we either operate directly or we operate with partners around the world. As you can imagine, it's quite hard to answer your question without having a detailed view of how global lockdown and social distancing will be eased on a country-by-country basis. I think what I can say is, if you think that if you are operating a center using social distancing, then let's say you've got 10 seats in the center when you reopen, you've essentially halved the capacity of the center. That's sort of how we are thinking about it. We have the job of meeting the demands of large numbers of customers who want to see the ability for their candidates and students to take the test.
If you halve the capacity of the network, this is where the sort of innovation and the testing comes in. If those centers are normally open for 8- 10 hours a day, can we work with our partners and the test takers that we open the test for more hours a day? Can we complement those tests with much greater use of online proctoring? In some cases, can we work with our testing partners to shorten a test? If there's a professional test that often might take as long as nine hours, does the regulatory body feel that for a certain period of time, actually, if we could shorten that test to five hours, we can still be confident of establishing the level of competence that they can then safely practice.
There's not an easy answer to the question, but I hope that gives you a sense of the way that we're thinking about it and how we're trying to stand up as much capacity as we can as quickly as we can. On the OPM, let's just be clear here. All that we've done really is, there are a relatively small number of legacy contracts with universities where we may have been just running one program for them. Frankly, that's not the way to build a strategic relationship. Really what we're trying to build is more enterprise-type relationships of the sort that we have with Arizona State University, or Maryville, or that we're developing with King's College here in London, or a sort of a deeper relationship that at least approaches a whole business school or a whole suite of programs.
That's a much more effective way for us to operate, and frankly, it's a much more effective way for the university to operate. Some other examples of transitioning to the new model, UK Learns, that we are launching in the next few weeks, actually is built on a pathways framework that we've developed in our U.S. business. How this essentially works is, we bring together something like, for the launch of this program, 200 courses, some of them from within Pearson, others generated by a range of partners. The learner has three choices: they can browse, they can search, or they personalize. They come in and say, "I have these career history and skills. I'm interested in these potential career paths or new jobs.
I have this amount of time that I can study, and I have this amount of money that I could spend. It then curates, and personalizes, and advises, and then directs them to the relevant partner. Another example is all of our first-year introductory courses at American universities that we built on the back of our major introductory textbooks. We have built purely digital courses, self-paced, which are regulated by regional accrediting bodies in America. You can see, for example, how a university struggling with this challenge of, are students going to be on campus, or are they going to start to study the first year virtually, can integrate that into their offering.
We've also taken some of the fantastic courses that exist in edX, huge wealth and range, and curated them in a way that is much more accessible and usable, and that too can be bundled with a university's own offerings and partnerships. This is a much, much richer, higher value business, which is what the old world of OPM, where essentially we were identifying, recruiting, and enrolling students on behalf of the university. That's still an important role. In the spirit of the world's learning company, there's a huge amount more value that we can add, and that's the way that we are building and repositioning the company. That's why after a pause this year, I think in the guidance we gave you in February, we talked about the medium-term outlook.
You will start to see the growth of the business accelerate from next year and then onwards. Okay. Matthew, I'll pass to you.
Yeah. Thanks. Okay. Thank you.
Our next question comes from Nick Dempsey from Barclays. Please go ahead. Your line is now open.
Good morning, guys. I've got three left. First of all, can you comment on the kind of share you might have lost in North American courseware, particularly in January? Back on the 12th of February, Cengage was predicting flattish growth for calendar Q1 2020. They'd already seen January, which is a clearly important month. I appreciate what you're saying about campus bookstores in March, it seems a bit unlikely that that would be able to massively change their expectation for that quarter. Yeah, if you could talk about how you've done versus them in Q1. Second question, the GBP 50 million of savings that you're flagging for 2021 on a structural basis, when we're forecasting for 2021, how much should we think about just adding GBP 50 million to operating profit because those savings weren't there before?
To what extent are those going to be eaten up by elements of investment or costs coming back from the 2020 savings? Yeah, how much should we think about on a net basis when we're forecasting? The third question, just in terms of U.S. Student Assessment, I think you talked about 50% of that business being supporting the providers of the SAT and ACT tests, and you were talking about that as fairly resilient because they get taken through the year. Now, as lockdown kind of persists, could we expect some negative impacts for those businesses and therefore the knock on for you as a provider?
Okay. Sally will take the second and third one, and then I'll come back and pick up on the first one. Just before I do, there's a little bit of a crack on the line. What percentage of our school assessment revenues do you think came from ACT? Yeah.
I thought it was somewhere just shy of 50%, I think someone might have said before, but I'm guessing a little bit.
Yeah. I think it's significantly lower than that, but I'll let Sally pick up on the school assessment and the cost savings point, and then I'll come and talk about our competitive performance in higher ed.
Thank you. Hi. The GBP 50 million of savings, that is a program that we were working on in February and into March, before the pandemic took place. We decided to put that on pause in the circumstances and given the uncertainty, we are picking up and implementing, taking those actions now through the rest of the year. If you had a model for 2021, those GBP 50 million of savings are on top of that model. The savings that we are making this year are on discretionary costs and are to protect profit in this year. I would look at those two things differently. On U.S. Student Assessment, the revenues that we see across the year are broadly in three buckets.
First of all, the work that we did in the first part of the year, which have been billed as billable, given the progress that we've made for our partners across that time frame. Actually, the work that we do and bill at the back end of the year is for next year's testing. It's a proportion of that that is then impacted by people deciding to either defer or not to take tests. I think as we've said, we see from the decisions that are already made, a GBP 20 million impact to profit for 2020. Then a risk of further impacts, those are pretty modest in turn. I think we talked about GBP 15 million plus a possible extra GBP 15 million in our COVID relief. I think you'd probably get to the same place today. It's just some of those are now more certain.
Okay. Thanks, Sally. Nick, on the first question you asked. End of April brings us to the end of the spring back to school season, which is the sort of second semester, really that pretty much flows through from the decisions that colleges made for the fall back to school. I think what we told you back at the start of the year, that as a result of the major changes that we've been making in the business and the disruption that brought in its way, we thought that we'd lost about a point and a point to a point and a half of course adoptions, I think that will have flowed through to the spring adoption season as well. The good news is that we are now through the supply chain challenges that were still flowing through, are now done.
We have seen actual returns fall significantly in the first quarter of the year, carrying on into April as we said in our opening comments. Our new sales force model is going very well. If you remember, we've got a smaller sales force than we had previously, generalists, so they sell across the whole of the portfolio. The early indications is we are performing well, and we would certainly expect to at least stabilize our competitive performance for fall back to school. You never know, maybe we might actually start to claw back some share, but it's far too early to say that yet.
The other point I would make is that clearly, with our balance sheet financial strength, we're not having to cut the salaries of our sales force, and we're not facing major disruption, as people have to, in the years ahead, do the things that we've already done. We've taken it on the chin. We took the pain of losing a bit of share, but that's behind us now. We're in better shape. I think over time, you'll see the competitive performance improve again. Thanks, Nick.
Thank you. Cheers.
Where should we go next?
Our next question comes from the line of Adam Berlin from UBS. Please go ahead. Your line is now open.
Thanks. Good morning, everyone. I have three questions from me. The first question is, if we were in a scenario where domestic U.S. students decided significantly to postpone starting university in September because they're worried about getting the virus on campus, when would you get visibility if that was happening and that trend was emerging? The second question is about U.K. Assessments. I just wanted to understand what you're saying about the U.K. Assessment business. I think your original trading statement said it wouldn't be too affected. I think that Sally, you made the point this morning that you thought actually you would see some impact. Can you just explain a little bit more what's happening with U.K. Assessments? Are you being paid for these kind of virtual exams, and how that's working?
The third kind of more of a longer-term question about schools' courseware outside the U.S. Clearly, lots of school students are now experimenting with different forms of online learning. What's your strategy in that area? If schools switched from textbooks to these more varied online ways of learning on iPads, how are you positioned for that, and what impact could that have on your business longer term? Thanks.
Okay. Thanks a lot. I will take the first and the third, and I think see if Sally wants to add anything on the second question. I think we said quite consistently that there would be a modest impact from U.K. qualifications, and that remains the case, but Sally may want to add something to that. On the third question around the international courseware, I think it's what I said earlier. I think what we'll see is the pandemic will accelerate trends that are already underway, but I don't think it will fundamentally change things out of all recognition. What we're seeing in those international markets is that gradually over time, print is moving to digital, and we are doing a very good job of leading that transition, and we tend to perform better in the shift.
It's also important to note that textbook price points are much, much lower in our international school, higher ed, and ELT businesses than they were 10 years ago in U.S. college publishing. There's not the same sort of economic threat to us in the shift from analog to digital in the international world. Actually, there tends to be more of an opportunity because it enables us to build deeper relationships, and you've seen that, for example, in China. The government was very keen to see non-stop learning, I think was the phrase, that there should be no interruption just because the schools were closed. We formed a major work with a startup there called NamiBox and Microsoft, and the three of us have moved quickly to put together a new business model that has got a lot of support and traction.
We made it available to free in the short term, but I think it's proved very valuable, and I think in time we'll be able to charge for it. I think that's a proxy for what you're seeing in markets around the world. In terms of enrollments, I think the sort of national clearing house data that you see tends to be a sort of lagging rather than a leading indicator. You will start to get it. We obviously have a extensive network, we have relationships with over a million faculty. We have very good strategic relationships with many university presidents. We have our authors on campuses across America. We have a very sort of good insight and feel, and as you would expect, we are constantly calibrating and will reflect this intelligence as we work through the year.
I think the framework that we've given you enables you to get a feel for that, and obviously, we'll update through the year as we go. As I say, I think there are a lot of things can change, but I think the working assumption would be wise to assume that there will certainly be significantly fewer international students, but most universities will be working very hard to try to ensure that their courses start on time, but with a mixture of face-to-face and purely online learning. We'll see how that one falls over the next few months.
I'll pick up on.
Yeah, sorry.
To be clear, the financial impact on this for us this year will be modest. What is happening is obviously kids aren't taking GCSE and A-Level exams this year, but they will still get a qualification, so a grade for each of the exams that they are registered for, and that is through teacher assessment. We are here to support those teachers in making that assessment, gathering those marks, and then the statistical analysis that we take on top of that to make sure that kids get the qualification they deserve and that is fair, and we will be making that award. There are some ancillary products around that. For example, revision guides. I think probably most kids aren't going to be revising for the exams that they are going to be taking. The financial impact of that is very modest.
Okay. Thank you. Thank you. How are we doing? Any more?
We have our last question from Patrick Wellington from Morgan Stanley. Please go ahead. Your line is now open.
Yes, morning, everybody. Amazingly, still got three questions. The first one actually is on going back to Matthew's question about the OPM model. You bought EmbanetCompass in 2013. We had a big reshaping of the business or the contracts within the business. I think it was in 2018. There were a lot of contracts came to an end. There was a sort of hiatus at that point while a lot of new contracts were re-signed. There was some quite bullish talk about how the growth was going to pick up at that point. Now we're getting a further reshaping of the business in 2020. Throughout this period, the business has been barely profitable. How confident can we be that we've actually got a stable model going forward in OPM? That's the first question. Second one is just about online.
John, you gave an interview to Reuters in which you talked about the amount of activity that was going on in online and everything that was happening. You also said it would have very little short-term profits or financial impact, revenue impact. I'm kind of confused as to why. This is the moment when everybody wants your products. Why don't you charge for them? In that context, also, if you could give us an update on Connections, where I think in the March statement, there were 2,000 additional enrollments, which actually seem to me quite small in the context of what's going on. Maybe you can put that in context or maybe update the number. Thirdly, one for Sally. In this new environment, I'm still getting to grips with the GBP 449 million of enabling costs and what they truly are.
Are they fixed costs or are they quasi fixed costs? What's in them? If we look at that GBP 50 million of cost savings that Nick was talking about earlier, is that going to be GBP 50 million off the GBP 449 million, or is it going to be in the divisions? How do we model that number?
Okay. Sally, do you want to pick up on the Thanks, Patrick? Good morning. Do you want to pick up on the last of those, Sally? Then I'll pick up on the other two.
Sure. Those central costs, we call them enabling functions. They are services that support the whole of our business. They would include enterprise technology costs, finance, HR, legal, all of those sorts of things. We support each of the businesses, which is why we show them centrally. There is an element of salary cost depreciation in there, which whilst they're fixed in the short term, obviously, we've demonstrated those are things that we look at on an ongoing basis. Around about half of those costs would be sort of salary depreciation costs, around about half of those costs would be more sort of very short-term, flexible in nature. The GBP 15 million of the 2021 savings, I think you can assume that will predominantly come out of that cost base.
Okay. Thanks, Sally. Then, picking up on your other two questions, Patrick. I think Online Program Management has been, frankly, a challenge for Pearson and for every other player in the space, because what's clear is that, if you take any sort of medium-term view of the world, you are going to see more learners wanting to learn fully online, and that's the biggest growth opportunity that universities have ahead of them. Frankly, finding a way to be sure that you can scale that business in a sustainably profitable way, like the early years of many nascent industries, it's not always clear. You're clear on that there's a big growth opportunity, but you're not necessarily clear as to what the best business model will be. We had to sort of work away and iterate and test.
I think we now have a model, for the reasons I described earlier in answer to the question, I think it was to Matthew, why we believe we're now there and why should you have confidence on it. Because, we look at relationships we have with people like Arizona State University, with people like King's, with people like Maryville University, the relationship we're building with Northeastern University up in Boston, and those are sustainable, mutually profitable relationships. If we can do more and scale more of those, that gives us confidence that we will, over time, have a business that works and will scale. Just to broaden the question out a little bit, we are about to go into a significant global recession. In every recession since the Second World War, when unemployment goes up, college enrollments go up.
I think that will hold true again this time. I think it will happen in a very different way. I think this time, learners are going to want to be doing shorter courses. They're going to be doing more flexible, stackable credentials. They're going to want to do things that are much more directly related to jobs. They're going to want to do it at much more affordable prices. They're going to want to do it online, and they're going to expect fantastic experiences and great outcomes. This is where actually, finally, something that I've wanted to see for the last 10 years, which is actually our online program management business and our coursework business, rather than operating on parallel tracks, have the opportunity to converge. That opportunity now exists, and that's what we're going to take.
Patrick, you and I have known each other for a long time, and I think you would expect of a company like Pearson, when we face the sort of crisis that we faced in middle of March, my first instinct is not, how do I make money? My first instinct is, how do I help my customers? That's what this company has done, and I'm proud of the fact that we've responded in that way. Actually, I do think that will be the best way to make money longer term, because customers will remember how you behaved when they needed your help. By behaving in the way that we are, that's the best way of building a faster-growing, more profitable business longer term. The other key point is, we are learning so much because suddenly we have millions more people using our digital products.
You heard me say, we're actually giving a lot of it away with products worth more than GBP 25 million in sales so far. What we're getting in return is huge amounts of data, insight, feedback, and that's going to make us a better company with better products, and that will make for a better business longer term.
John, are you sure the customers won't learn that the product is effectively free, like so many things that people want to have online, they want it for free? Will they learn from this process that actually your product is free?
To give you an example. In our higher education business where we had customers that were in the middle of courses and where they had students that, for example, were using printed textbooks, and they needed to transition online quickly, we provided those e-texts and that digital courseware for free. You might find in the same college, three weeks later, it's a new semester and a new course started, there we didn't provide those products for free because we said, well, you can buy the digital courseware from the get-go rather than buy the print product. We're not doing it in a thoughtless, reckless way. We've been very considered about it, and I think it will, for the reasons I've said, provide that opportunity longer term.
Thank you. Is 2,000 extra enrollments at Connections a big number?
Sorry, I didn't answer that question. The bigger opportunity, so Connections Academy is a virtual school. If you think that on the whole, people start at the start of the new school year, so the big opportunity here is not people transitioning in the dog days of the old academic year, it's the decisions that people make for August and September. What we are seeing is very big increase. We're in the middle of our marketing campaign now for the August back to school, and we're seeing very significant increase in lead generation.
When I mentioned earlier that we are redeploying people across the company, one of the places we are redeploying people to is that virtual schools business, because the one area where we would expect faster growth than we previously expected, if things pan out as we expect, is in virtual schools, and we're adding more capacity. To Sally's point, there are states that previously, for political reasons, were not interested, wouldn't accept virtual schools, that are now reconsidering and rethinking. We're also opening up some interesting international opportunities. We're launching a virtual school here in the U.K. We have a partnership with Harrow School Online that we are scaling up, and there's also some interesting opportunities in places like the Middle East.
I think our online school business is an area where we would very much expect to see good growth for the rest of the year.
Great. Thank you.
Okay. Thank you very much. Oh, we have one last question, apparently.
We do, from the line of Sami Kassab from Exane BNP Paribas. Please go ahead. Your line is now open.
Hi, Sami.
Good morning, John. I have two questions, please. The first one, the U.S. has 30 million more unemployed. We know the historical relationship between the job market and the enrollment market. Given the discussions you're having with universities, John, how do you see the U.S. college enrollment trends developing into next year? Would you surprise to see a jump in college enrollment? Secondly, you've referred to your Brazilian language school business, the South African higher ed business, the system as high-margin business. You said there would be an impact, but you didn't quantify the impact. Would you want to elaborate on that, please? Thank you.
Okay. Sally, do you want to pick up on that second question, and then I'll answer the first one.
I think these are areas where it is difficult to quantify the impact as things stand because the progression of what's going to happen is unclear at the moment. We are doing everything we can to keep learners learning in an online environment. In some places, that's more difficult than others. I think we'll see how things progress in those countries and a quantification will be a possibility later in the year.
On your first point, Sami, clearly, very hard to know. Are we looking at a U-shaped recovery, a V-shaped recovery? Who knows what unemployment will look like in six months, in a year's time. I certainly think that if there is high unemployment, I would expect that to feed into higher enrollments in 2021, not in 2020. To the point I made earlier, I think it will show itself in different ways than it did, for example, in the late 2000s.
I think whilst there will be growing demand, there'll be greater propensity to shorter courses, things that are much more directly related to employment and a much greater use of fully online digital courses, which, back to my answer to Patrick's question, is all the more reason why we're working so hard to get a sustainable business model in OPM.
Thank you, John.
Okay.
Thank you.
Thanks, Sami. Thanks to everyone for your ongoing interest in the company. Joe and Angela have been on the call today, and if you've follow-up questions for them in the course of today, please let us know. For now, thanks and catch up again soon.
Thank you.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.