Pearson plc
Q4 2018 Earnings Call Transcript

Published: 22 Feb 2019

[John Fallon:]

Thanks to everyone who've joined us here at the Strand, and all of those who are listening or watching in online. For those of you who are online, I'm John Fallon, Pearson CEO. And my thanks to all of you who've joined us this morning for our 2018 Preliminary Results Presentation. I'm joined by our CFO, Coram Williams, who you'll hear from in a minute and our Chairman, Sidney Taurel and our executive team are also with us this morning. A few headlines, just to set the scene, financial highlights, revenues, adjusted operating profits, earnings per share, all as we reported in our January trading update. Three new points to note today are operating cash flow of £530 million at a cash conversion rate of 94%. Year-end net debt at a £143 million is better than the £200 million that we guided to and obviously lower again than it was a year ago. And the Board is recommending a full year dividend of £0.185, which is a 9% increase on last year. So we're making progress. Underlying profits increased for the first time in several years. We expect to have investment again in our shift to digital. Digital and digitally-enabled revenues now account for 62% of our total sales. We outperformed on our cost savings plan and we are now on track to deliver more than the £330 million in annualized cost savings by the end of this year. We made the heaviest lift last year, both in our ERP, in our enterprise resource planning implementation, and in all of the related digital platforms that are making Pearson a simpler, more efficient, more innovative and more scalable company. We have a lot still to do, but we are increasingly well-placed to help shape the future of education and of lifelong learning for many years to come. So let's have Coram take you through the 2018 results and our guidance for 2019. And then I'll be back to explain why we now feel confident that our revenue should stabilize this year and then start to grow again on a sustainable basis in 2020 and future years beyond. So Coram, over to you.

[Coram Williams:]

Thanks, John. Good morning, everybody. Let's start with a summary of our financial performance. Operating profit is at the upper end of the pre-close view that we shared with you in January. And as John has noted, our cash conversion was in line with our guidance at 94%. Net debt is down to £143 million, principally reflecting that good operating cash flow and the proceeds from disposals which more than offset currency movements, share buybacks and dividend payments. I'll now walk you through the detail in each area. Starting with sales, in North America, underlying sales declined 1%. We delivered significant growth in three of our strategic growth opportunities. Online Program Management was up 9%. Virtual Schools was up 8% and Professional Certification was up 5%. Although these businesses are becoming more important in our mix, the growth in these areas wasn't quite enough to offset fully, declines in three other areas; Firstly, ongoing pressure on our U.S. Higher Education Courseware business, which was down 5% due to continuation of the trends seen all year. Gross sales were lower than expected with continued cautious buying from the channel offset by ongoing improvements in returns. Secondly, modest weakness in school assessment where both PARCC and ACT-Aspire contracts declined a little faster than expected. And thirdly, softness in K12 courseware on weaker open territory activity only partially offset by some growth in adoption states. In Core, revenues were flat. A strong growth continued in the Pearson Test of English, OPM Services in Australia and the UK and Professional Certification. This was offset by weaker performance in UK student assessment and qualifications, driven by declines in AS levels as a result of policy changes and continued disruption in the UK apprenticeship market and higher education. And in growth, sales were up 1% with strong growth in China, modest growth in Brazil and other smaller markets, partially offset by modest declines in South Africa. We continue to move the business steadily towards digital and digitally-enabled markets and business models. As this slide shows, digital and digitally-enabled revenues rose to 62% of sales in 2018 versus 59% in 2017. And we saw growth in OPM, Virtual Schools, computer-based assessment and digital courseware, as well as continued declines in print courseware. Let's turn now to profits our adjusted operating profit is £546 million, slightly ahead of the £540 million to £545 million preliminary range that we gave you in January. You can see underlying profit growth across all our segments, as the benefits of our restructuring program combined with the good performance across our structural growth opportunities more than offset the ongoing pressures from our courseware and school assessment businesses. This slide shows more detail of the drivers on the year-on-year move in profitability. There was a negative impact from trading of £15 million. This was driven by our U.S. Higher Education Courseware business being at the bottom of its expected range together with a weaker than anticipated performance in UK assessment and U.S. K12 courseware. Other operating factors were £22 million and included additional investment in our strategic growth priorities. And we've seen £50 million of inflationary impact on costs. Finally, our restructuring savings of £130 million are ahead of plan due to an increase and acceleration of savings as a result of our recent ERP implementation. I'll give you a little more detail on that in a moment. I turn now to the income statement. The interest charge was slightly better than our guidance of £24 million and significantly lower than last year, primarily due to reduction of gross debt and interest on tax provisions. Our tax rate of positive 5.2% is considerably better than we'd originally expected at the beginning of 2018, but in line with our revised guidance in October. As we said then, the lower tax rate resulted from the expiry of the relevant statutes of limitation and the reassessment of historical tax positions and one-off tax benefits following a review of 2017's U.S. tax reform, the details of which became clearer as 2018 progressed. EPS was £0.703, up on 2017 and headline terms benefiting from those one-offs. Excluding the one-offs, EPS would have been £0.503. Statutory operating profit for the year was £553 million, representing a 23% increase on 2017. This increase is largely due to gains from disposals and reduced intangible charges, which more than offset increased restructuring, lost contribution from disposals and currency impact. Reorganization costs include the net impact of the profit on the sale of One Southwark Bridge completed at the end of last year and offset by an onerous lease provision relating to our other London properties to allow for further consolidation. Statutory EPS at 0.756 is due to lower interest costs, one-off tax benefits and higher operating profit. Moving on to our guidance, this slide summarizes the profit and EPS guidance that we gave you in January. We've updated guidance to show the impact of IFRS 16 for leases which we have adopted for 2019. I'll now take you through all of the guidance in a little bit more detail. This slide shows the operating profit bridge from 2018 to 2019. The base for 2018 is £568 million after adjusting for FX and the incremental impact of the 2018 disposal of Wall Street English. We expect the contribution from trading to be between plus or minus £25 million. This incorporates the expectation of ongoing challenges in U.S. Higher Education Courseware, but also continued growth in the rest of Pearson. At the midpoint of that guidance, revenues stabilized. Other operational factors reduced profit by £33 million with increased investment in our strategic opportunities to further accelerate growth, particularly in OPM and the expectation of a slightly lower contribution from Penguin Random House after a strong end to 2018. Inflation will be a £50 million drag, in line with what we've told you in previous years. The restructuring program that we started in 2017 will generate an additional £130 million of savings in 2019 as we told you in January. Taken together, this leads to underlying profit growth and a guidance range of £590 million to £640 million excluding IFRS 16 and £610 million to £660 million with IFRS 16. As always, this is based on exchange rates at the end of last year. You should note that this bridge includes the contribution of K12 courseware. We announced on Monday of this week the agreed sale of our U.S. K12 courseware business for a consideration of $250 million. As a reminder, we've previously said that K12 generates approximately £11 million of operating profit, but with the adoption of IFRS 15 for the first time this year that increased K12's operating profit to £20 million for 2018. We will update our guidance for 2019 once we close the sale of the business, but you should note that there is seasonality in this business in line with the rest of Pearson with sales and profits weighted towards the second half of the year. Underpinning our guidance and our confidence that we're on a path to return Pearson to growth in 2020, we're expecting a good performance in our strategic growth opportunities, which together account for around 35% of revenues in 2018. Breaking our guidance down by the geographic segments, here are key assumptions. In North America, we expect revenues in Higher Education Courseware to decline nought to minus 5%, and I'll walk you through our usual bridge for this business in a moment. U.S. Student Assessment is taking a little longer to stabilize than we'd hoped as we continue to see reductions in volumes, driven by changes in the PARCC contract. As a result, our guidance incorporates further modest declines in revenue in 2019, although underlying momentum in contract wins is encouraging and there are a number of opportunities in the pipeline for 2020. Offsetting those two elements, we expect good growth in our North American OPM, Virtual School and Professional Certification businesses. In Core, we expect stable revenues. We anticipate continued growth in OPM and Pearson Test of English, stable revenue in our qualifications business, but continued pressure in our courseware business. In growth, we were pleased with performance in 2018 and we expect further growth in 2019 on the back of new product. And here's how we see our prospects for the U.S. Higher Education Courseware business in 2019. This year we expect to see a continuation of the pressures we saw on end demand in 2018. We anticipate ongoing declines in enrollment, impacting our sales by around 2% and modest growth in OER adoptions impacting our sales by up to 1.5%. On print, we see scope for further declines in gross sales and improvements in returns. Print continues to be impacted by the ongoing rise of secondary channels such as rental, but channel inventory has now returned to more normalized levels following the 2016 inventory correction and its after effects. The channel is now optimizing the stock it holds both through reducing purchases and returns. And we expect that to continue in 2019 with the net effect in the range of nought to minus 5. Growth in digital and direct sales provides some offset to the continuing pressures on print. Taken together, this all results in an expected range of nought to minus 5% overall for U.S. Higher Education Courseware in 2019. Returning to our simplification program, this slide shows our expectations for the remainder of the year - remainder of the program, sorry, updated for the good progress we made in 2018 and the fact that we now expect to deliver more than £330 million in total savings across the program. As I said in January, having done the heavy lifting on the ERP in the summer of last year, we've been able to use those new systems to take costs out of our back office more quickly and are on track to deliver future additional savings in areas such as technology, HR and finance. Let's turn now to cash flow and the balance sheet. Our cash conversion at 94% was in line with guidance, although it was lower than the exceptional conversion of 116% in 2017,which benefited from strong Penguin Random House dividends in advance of the transaction and the timing of cash incentive payments. We continue to expect cash conversion to be around 90% in 2019. Restructuring cash outflows will be higher than 2018 as we drive the last major wave of back office changes. As a result, we expect net debt to be a little lower in 2019 than in 2018. We're pleased with the significant progress we've made this year in further strengthening our balance sheet, with net debt down by over £250 million to £143 million reflecting good cash conversion and the proceeds of the disposals of Wall Street English, GED and One Southwark Bridge. The adoption of IFRS 16 in 2019 will impact the presentation of our net debt however as it brings net lease liabilities on to our balance sheet for the first time. This doesn't reflect any fundamental change in economics or overall cash flow, but it does bring the reported balance sheet more closely in line with the way that the credit agencies look at it. This table shows that impact by bridging between net debt before lease liabilities and net debt on an IFRS 16 basis. Under IFRS 16, our adjusted net debt to EBITDA is around 1.1 times at year-end. You should remember however that our working capital outflows peak in the middle of the year, so that ratio would be around two times at the half year. As you know, we're managing our balance sheet in a conservative way right now, reflecting the ongoing transformation in our business and our need to maintain the flexibility to continue to invest for future growth. Clearly, as we complete the transformation, we will keep this under constant review and ensure that we have the appropriate capital structure at that time. Finally, our disciplined capital allocation policy remains unchanged. To remind you, our priorities are; firstly, maintaining a strong balance sheet with a solid investment grade credit rating. Secondly, continuing to invest in the business organically. Thirdly, maintaining a sustainable and progressive dividend. And fourth, returning surplus cash to shareholders where appropriate. And with that, I'll hand back to John.

[John Fallon:]

Thanks, Coram. Stabilizing revenues, which is what we expect to do this year, as you heard in the guidance Coram gave, is an important step in the Pearson recovery, but it's really delivering sustainable top line growth which is what we expect to start to achieve next year which of course what this is really about. And that growth is driven by a vision of Pearson's future, a clear understanding of the capabilities, the competitive edge that will get us there and what we need to be focusing on today to secure that growth. So let me start by walking you through very briefly a single slide that we use internally with our teams to talk about this. We are the world's learning company. Our purpose is to empower people to progress in their lives through learning. We aim to do that by having a direct relationship with tens of millions of learners who we support through a lifetime of learning, helping them link their education to better employment. And as that link becomes both more important and more explicit, we'll be at the heart of a wider ecosystem of partners that are shaping the future of learning. We'll be able to play that role because of the world class capabilities we bring to bear and the ways in which we achieve them to - combine them to achieve better learning outcomes. Our success is of course achieved by highly motivated and talented colleagues all around the world who are inspired by our mission and our purpose and are committed to driving and sustaining the company through what is a major transformation. And we'll get there by focusing on the three things that will enable us to sustain revenues this year and then sustain profitable top line growth thereafter. So one, we're leading as you can see here the digital transformation of our courseware and assessment businesses. These businesses make up 65% of our sales in 2018. And collectively, they declined by 4% last year. As these businesses become ever more digital, revenues in them will start to stabilize. Second, we're investing more in our businesses in structurally growing markets, as you can see here. These businesses make up 35% of our sales today. They grew by 7% last year. And as we invest more, these businesses grow more quickly. And three, making Pearson simpler and more efficient doesn't just cut costs. It also provides a really important platform for future growth, because it enables us to reallocate investment to our growth areas more quickly to innovate, scale and to build our all in important more direct longer term relationship with those tens of millions of learners, who use our products every day. And it's achieving these goals this year that will enable Pearson as a whole to grow the top line next year, and then go on doing that in a sustainable way thereafter. So first priority, let's talk briefly about how we lead in the digital transformation of our three biggest assessment and courseware businesses. American and British school assessment businesses both benefit from our digital testing and scoring platforms, which we can deploy at scale, for example, our leadership in applying machine learning to high stakes assessment. We already use that to score a third of all essay type answers from American School students, is going to be increasingly important. As you heard from Coram, these businesses have both been through prolonged periods of curriculum change. And yes, it has taken us longer to get these businesses back on an even keel than we thought it would, or certainly we would have liked to. But we are now doing so, helped by that digital advantage. And we're also help by a wider trend in lifelong learning, that growing demand for employer-certified and applied career relevant education; so our leadership in BTECs and apprenticeship programs, huge opportunity to grow internationally. So we're working on some very promising initiatives in Thailand, Vietnam and China. So that's another reason to be confident in the future are our assessment businesses. We're also making U.S. Higher Education courseware a more digital, a more direct, a more subscription-based business. 55% of our sales here are now digital, 23% are a direct-to-consumer. Digital rental sales are up 25% and we're tripling the size of our print rental program this year to over 400 titles. 8% of sales are through now our subscription style inclusive access model and in just three years we've scaled this model to almost 700 partner institutions with 1.4 million course enrollments last year, up 40% on 2017. We benefit from a subscription model with 90% plus sell through. It enables us to gain share from our biggest competitor, the secondary market and our own intellectual property and it also reduces non-consumption, boosting our average revenue per enrollment. But crucially students also save money. They gain also from getting immediate access to their course materials. And the institutions gain too because they get better data analytics, greater support around learning outcomes and are also seen to be helping to address the students' desire for greater affordability. Crucially here professor take-up and students sell-through lags institutional adoption. But we do and that's why we really expect inclusive access enrollments to continue to ramp up and grow strongly over the next few years. Revel, our first fully integrated digital product increased subscribers by over 40% last year. New Revel titles, with enhanced assignments options and sophisticated data analytics, things that our customers, professors have told us, they very much desire, means that will be the first products to launch commercially later this year on our new global learning platform. We will also launch our first AI powered math tutor. This is a mobile app that is marketed directly to Calculus students around the world, an addressable market of 2 million learners. It provides step by step feedback instantaneously on handwritten attempts to solve a calculus problem. We also partner with universities on our first AI-powered essay marker, that can adapt to the personal marketing style of any professor. And we expect to bring our new adaptive math product Reel [ph] which is currently being piloted with our customers to commercial launch early next year. So the growing innovative product pipeline signals we're now ready. We're ready to shift our whole higher education product portfolio to a digital first model with frequent releases of content features and updates that are no longer tied to an addition cycle. Print resources will still be available but they'll be available as a rental or as an add-on service. This means better customer choice, simple, affordable, convenient access to our courseware that enables our students to be successful and also gives better insights for instructors to enable better outcomes. And as you all know, a digital first subscription base business is also a much more stable and reliable one. Let's shift gears priority to investing more in our businesses in structurally growing markets. Online Program Management where we partner with universities to provide fully online courses. As you know, is one of our biggest growth opportunities. Sales grew 10% last year, 14% increase in course registrations. We're investing more in this business directly and but also then the wider capabilities that come with making all of peers in digital first also help our OPM businesses to acquire students more efficiently, to improve the learner experience and outcome to maximize the global reach for our university partners. And it also enables us to work with major employers who want to re-skill and retrain their workforce and making this idea of learning and career development and employee benefit, which is becoming increasingly important to global companies. As an early entrance into the OPM market, we're also becoming now increasingly adept at adapting and managing our portfolio of university partners and the courses we offer as contracts come up for renewal. That ensures we get the best possible return on that increased investment that we're putting into this business. And this slide just reminds you of what those returns look like. It shows you what the economic and financial attributes of our OPM business are. Key point here is we're investing more upfront to scale this business more quickly. The more we invest, the more it dilutes earnings in the first few years and the faster it increases revenue and profits in future years. Virtual schools is actually similar business model to OPM. We enroll individual students to learn, based on long term contracts with institutional partners. This is also a structurally growing market, expected to double in size over the next few years. So we're investing more here too. We're accelerating the rates at both which we expand our existing virtual schools and that we open new ones. And as with OPM, as Pearson as a whole becomes more digital first, the more we help this part of Pearson to enroll students more efficiently, to improve learning outcomes and to manage our portfolio of virtual school partnerships more effectively. We're also investing in our professional certification business, which is nearly doubled in size over the last decade, and continues to grow strongly and profitably. For example, the investment we made in our network to support the winning of the U.S. Medical Colleges test is a good example and that in turn is enabling us to grow our existing partnerships and sign new ones providing a good and strong pipeline for the future. And that professional certification network has also been fundamental to the success of the Pearson test of English. We have what we believe is the best test in the market. We've grown very quickly in the last five years, but there's still a lot of room for further growth. So we have recently renewed recognition from the Australian Government. And we're pursuing recognition with governments here in the UK and in Canada, and China as well, as well as building our recognition with American and British universities. As we do so we're now working with a much wider range of partners. And this is a good example of how in exiting our direct delivery businesses in China, which we did last year, we're now able to go after this big growth opportunity of English as a global language in ways that play better to our digital capabilities that we have Pearson wide. And then finally our third priority; a simplier, more efficient company, also creates a platform for growth in three important ways. Three [ph] is one of the things that is enabling us to do what I've been describing throughout this presentation, which is to reallocate costs more quickly from the areas of Pearson that are stable or declining to our faster growing businesses. Secondly, it's what's going to enable us to innovate more quickly and then to scale. And three, this is also crucial to ensuring that we have that more direct relationship with learners that they go from been an anonymous relationship with Pearson to people that we know as individuals. We understand their individual learning needs and profile we understand their development areas, we understand their career aspirations, we understand their learning needs and through that we build with them a relationship where we become their trusted partner through a life of learning. And that's what's going to be very exciting to the growth of this business over the next five to ten years. And it also enables us to combine the benefits of leading the digital transformation of our courseware and assessment businesses and investing in our structural growing markets in new ways. And it sets Pearson growing again, as we accelerate our move to digital in a more sustainably profitable and scalable way, with a more reliable and predictable revenue and cash profile. So that's what we wanted to say by way of introduction. And with that Coram, myself and my colleagues will be very happy to take your questions. Just as we get going, just to remind you who we have with you. I have already mentioned Sidney Taurel. Our Chairman is with us this morning. We also have Tim Bozik, who leads on global products; Kevin Capitani, who's President of Pearson North America, Albert Hitchcock, who's our Chief Technology and Operations Officer; Rod Bristow who leads our core geographies, a new colleague, Deirdre Latour, who now leads our Global Corporate Affairs. We have our General Counsel, Bjarne Tellmann with us; Bob Whelan, who leads our Pearson Assessments business in North America; Anna, who's our Chief HR Officer; we have Jonathan, who leads on Strategy and Gio, who leads on our growth geographies as well. So if we can't answer all your questions with that team, we never will be able to. So let's get going. Let's start here, Sami.

[Sami Kassab:]

Thank you, John. I'm Sami Kassab at Exane. And I have the usual three questions to start with, please. A lot has been discussed on the U.S. Higher Ed Courseware division. Can you spend a few words on the core higher ed courseware division. It's been a perennial drag on the performance of the Group. How do you see the outlook there? Why are you sticking and keeping these assets, and not dispose of it? And perhaps more generally make a comment as to whether you think there are more selective assets that you could dispose of going forward? Secondly, could you please quantify the drag that the increase in the consignment model, the number of titles and the consignment will have in your guidance for U.S. Higher Ed Courseware in '19? And lastly, would you share with us the revenue contribution from OPM within online degree services? And perhaps discuss the mix within online degree services, OPM versus the non-OPM bits?

[John Fallon:]

Okay. All right. Thank you Sami. Rod do you want to go first, so the first question is how we feel about our Higher Ed Courseware businesses in the core geographies and how we feel about them and how they're performing?

[Rod Bristow:]

I think in terms of our Higher Ed Courseware businesses, in core we are benefiting from all of the investments we're making in to digital in the United States. It is true that the - in higher education and in K12 our courseware businesses are - the same kind of challenges that we see everywhere in terms of print and a lot of our revenues is in print. But these businesses make a very strong contribution to Pearson. We saw strong growth in Australia last year, we saw strong growth in Italy and in Australia, in K12 courseware. And these businesses are enabling us to make a contribution to our qualifications business in the case of K12 courseware in the UK and also into, increasingly into our OPM partnership. So we see them as integral to our ability to grow in those structural growth opportunities. And we're doing - we're feeling very confident about the structural growth opportunities in OPM where we grew strongly last year in core markets, in our English assessment business where we grew very strongly and also in our international qualifications with B. Tech. where we're seeing strong international growth. So we're confident about the future and the role that those course web businesses have to play.

[John Fallon:]

Well, I think it's fair to say is, you think about the relationship with King's College, the benefits of some of the global capabilities that we're building out of our North American higher education, business helped to develop that relationship and also the importance of Pearson College, our future plans as well.

[Rod Bristow:]

Absolutely. So in the case of King's College, and indeed with University of Sussex, which is another university partner we have here in the UK, we're working very closely with them to integrate our higher education courseware capabilities, both our content development, our assessment and our technology capabilities. These things are very attractive to our university partners and give us a distinct advantage over our competitors in these markets, enabling us to sign up new partners. For example ESSEC Business School in France, which is one of the big - actually it's the first big OPM partnership signed up on Mainland Europe by anybody. So we are feeling good about that. In terms of Pearson College we set up a small college in the UK just about four, five years ago. We've already attracted a thousand students. And again we have based that on our capabilities that we have in Pearson. We're building out new capabilities that we can bring to our partners on the back of the work that we're doing in Pearson College and the degree awarding powers that we're currently applying for.

[John Fallon:]

Thanks, Rod. And then asking Coram to pick up on the other two questions, let me just make sure I understand question three, because if you look on the in the Appendix page 35 you can see that North American Higher Education services included OPM generated 6% of revenues, and then if you skip on two pages to page 37 you can see that it generated 2% of product contribution. So I think partly answers - my point was the faster we grow it's earnings dilutive in the early years. I think your question is what's - it's not just OPM in there but there's other things. So can we give you bit more of because we still got the legacy of the LD College business in there. So can we give you bit color on that. So I think that's the question there. Sounds like you and Coram understood that question but help me to clarify it and then pick up on the consignment issue as well.

[Sami Kassab:]

And on the selective - sorry John any further selective disposals, we were talking about Coswan [ph] disposals.

[John Fallon:]

Well I think, as you know we constantly ask ourselves, are we the best owner of this asset. But unless we're ready to do something we tend not to sort of talk about it. But I think you can see from where we are and the way we're talking we're pretty comfortable with the portfolio that we've got at the moment. But it's not something that we rest on our laurels. It's something that we keep constantly under review.

[Coram Williams:]

And just to be clear I would never have suggested that I understood the question that you didn't. I just want that to be on the record. And picking up on that one, it's just under £250 million of revenue in the United States which sits in the Higher Ed Online Services Division. The point I think Sami, that you're getting at is that for a while there has been a business called learnings DDA, which we have been retiring. It's a learning management platform that's coming to the end of its life. And that's been a drag on growth. This year that was probably around $10 million to $12 million of a negative impact, but actually that business is now very small, at the end of 2018. So going forwards the majority the vast majority of that £250 million relates to the online program management business. And as we've said, it grew 9% in 2018. In terms of the drag from rental the Higher Ed Courseware bridge on page 16 lays out the moving parts of how we think about Higher Ed and you can see we are highlighting a total bucket around print declines of nought to minus 5. Within that is the impact of the ongoing shift and growth in our rental program. So you're right as we go from a 150 to 400 titles there is a small drag built into that but remember in the second year of having the 150 titles that we introduced last year there's a little bit of an uplift. So it's all built into that guidance and it's covered within that.

[John Fallon:]

Okay thanks, Sami. We'll go next door, we got a mic folks there.

[Katherine Tait:]

Good morning. It's Katherine Tait from Goldman. I was hoping to start on the North America margin like this year-on-year that deteriorated. Is it possible just to breakout the moving parts within that? Obviously we're expecting some cost savings but then also perhaps mix shift towards some of these lower margin businesses like OPM and obviously the other sort of factors involved. And then I supposed linked to that question, as you accelerate the business further towards these higher growth businesses, like OPM can you talk about how you anticipate the margin profile to follow with that? I understand that the OPM business has become a little bit more competitive with new entrants into the market. So are you seeing signs that the student acquisition cost is increasing for example? Thank you.

[John Fallon:]

Okay thanks. Coram do you want to answer both those questions, the financial indications and Kevin you might want to talk a little bit about the way that we are sort of remaking the business and improving the underlying efficiency in OPM. So Coram?

[Coram Williams:]

Remember that in each of our segments we've seen underlying profit growth and that includes North America. The underlying growth is driven by the restructuring benefits, plus the sales growth that we're getting in certain parts. But you're right that in North America there is a shorter margin pressure which John mentioned, and I have mentioned which comes from the investment that we're making in our great opportunities, particularly OPM because OPM is a typically a P&L investment. The other operating factors on the 2018 bridge were £22 million, and the majority of that is the OPM investment that we're making. In terms of the margin profile and indeed the sort of return on OPM investment, in the short-term as we drive enrollments and drive growth, margins do come under pressure because you're having to invest upfront. But the longer term margin profile of that business is strong and the kind of returns that we're generating from the dollars that we're putting in are also strong. So typically an IRR 35% or above. So we feel very good about the returns, but obviously on long-term contracts that take a little while to come through.

[John Fallon:]

Okay. And then Kevin, do you want to talk a little bit about some of the work that we're doing to make sure that we maximize the return and efficiency of the investments that we're making.

[Kevin Capitani:]

Good morning. A reminder for everybody, for the OPM market, the chief competition are two things; one, it's a do it yourself or in-house, and then the second the student acquisition cost which have risen quite a bit, a lot due to Google and LinkedIn and basically the cost of acquisition there for the leads associated with it. So what we found is being the longest in the market with compared to other players is that we are doing a couple of different things for concentrating; one, on the student acquisition cost heavily and how to bring those down with technology investments efficiency data and driving ourselves to better what that looks like. Related to that, we actually are the first in the market to go through what I would call contract re-ups or renegotiations and we started that about 18 - two years ago to 18 months ago and we're coming through the end of that. In that, we've done a couple of different things. We've learned what the demands for the programs are, what the skills of those programs are, who the partners are best to work with and we've rationalized that portfolio quite well about what is most advantageous for what we want to do. That gets into and helps us with student acquisition cost, but it also helps us choose partners and programs are lot better. So we've walked away and moved out of traditional programs that didn't have the qualification or basically the profile that we wanted. And our pipeline related to that is both strong and healthy from the lessons that we've learned there. So you will see us move forward with partnerships and programs that are very attractive, one with student acquisition cost based on our leverage and knowledge. And then two, the partnerships or the schools, the institutions that are progressive, that want to work in those areas. One example you will see is that North Dakota. It sounds kind of strange, but they've just signed up for a nursing program or a couple of programs with us which is a huge advantage in that geography within the U.S. So we're being very precise about that versus let's say five years ago we wouldn't have taken a deal like that. So we're getting much better about student acquisition cost and we're getting much better about the profile of the partners and the programs that we're selecting. And then finally we have a competitive advantage of what I would call first mover with undergraduate. If you look at our work with ASU and Maryville we're really at scale much more than any other players and actually we've proved to a lot of universities that they can't do it themself with those two programs.

[John Fallon:]

Okay. And just to translate that was an American quite well, not a British quite well. So what Kevin means is we do - we're really pleased with the progress we've made in reshaping our portfolios. Thanks Kevin. So if you can hand the microphone behind and we'll take the next question. Thank you.

[Nick Dempsey:]

Yeah, hi. It's Nick Dempsey from Barclays; I've got three as well. So first up Cengage pointing to 69 bps of share gain in 2018, but they're also pointing to the fact that they've pushed their prices on an average quite a lot and therefore gained quite a lot more share on volume. So how do you grow in a market where your closest competitor is very aggressively pushing down price to push up volume? And according to them in 2018 is working in terms of they've still gained some slight revenue share. Second question, I think you said Coram that you'd review your balance sheet situation once your transformation is complete. So are you effectively saying a buyback is off the table until we're sitting here in February 21? And third question, look as though the relationship between enrollments and U.S. unemployment which we used to rely upon has broken down in the last three or four years. So if there is U.S. economic weakness in 2020, God forbid, do you think the enrollments would spike up like last time?

[John Fallon:]

Okay. Let me pick up on the first one and then I'll ask Kevin to chip in, Coram will pick up on the balance sheet and then Tim if you could talk about what - how we feel about the outlook on enrollments. As we said in the press release, our market share last year in MPI data which we talked about before is sort of returns from the top six college publishers in America who is firmly in that 40 to 41 something range. Month by month it goes up a bit, it goes down a bit, it stays solidly in that range. So we are pleased with our competitive performance last year, especially when you remember that we did an ERP implementation that we will not have to do again for many years. And that did bring some quite significant supply chain disruption to some of our biggest customers in parts of the country. And that was at the same time that we're also going through a big sales force reorganization. So I think we feel very comfortable and confident in our competitive performance last year. Kevin, do you want to talk a bit of how we're feeling about how we're competing and how we're feeling about the environment for this year. And then Tim, maybe you could pick up on the enrollment trends and what we're thinking about that.

[Kevin Capitani:]

So again, a couple reminders, about the market in higher Ed, the biggest competition that we have is the secondary market and our use of Pearson product, are the use of Pearson products from the secondary market. So that's been generally what we have to combat. We're going after it in a couple different ways, digital, and what John referred to as digital first. That gets us the ability to be paid every time our content is used. And it cuts into the secondary market. And I can elaborate on that. But we only have so much time. The second is a business model approach. And that business model approach is inclusive access plus pricing that we've done with E-text and let's say print rental that we're talking about. This is a B2B - or B2C approach. Let me step back and say that this market is a B2B2C market, there are three customers that you need to satisfy, the student, the instructor and the institution. If you look at our model approach, from a B2B, we have the inclusive access, John mentioned it earlier, 700 plus institutions and that sell through will only increase. And we're getting better about how we're segmenting the market as well and how we're going to market to support that. The pricing that Cengage Unlimited represents is really just the B2C. And it's not comprehensive with regards to all three customers and what they're looking for. So the confidence level that we have, that we're looking at the market, we're looking at the dynamics of the market. We're looking at access affordability and outcomes. And the three customers that we're serving, we have a far more comprehensive approach and strategy to the market. All of that designed to take back from the secondary market where our product's being used from there is our biggest competition. So I think the pricing dilemma we satisfy multiple different ways. I don't see our competition, meaning those other players, not the secondary market have as comprehensive approach as we do.

[John Fallon:]

And the beauty of that, course is that inclusive access model, we can actually reduce the cost to students but increase our own revenue per enrollment. So that's a win-win lower prices for students but a bigger market for Pearson. Tim, do you want to pick up on the enrollment point?

[Tim Bozik:]

Sure. So I think our enrollment assumption or outlook is reflected in the model Coram had, which is we expect another 2% drag on enrollments due to what we anticipate are both demographics and adult learners. If there's some improvement opportunity in that, that would be a benefit to us. But it's one we're not counting on. What we know from the past is that when the economy tends to turn down, and unemployment goes up, the demand for skilling tends to go up, and enrollments likewise tend to follow. That also tends to lag. So we have a view of what it's likely to be, if the economy changes and changes that then that might change a future outlook on that.

[John Fallon:]

But to be clear, it's not something we're relying on. We're dependent on our own efforts. And Coram do you want to pick up on the on the balance sheet question structure?

[Coram Williams:]

Yeah, sure. We've been very clear we're running our balance sheet in a conservative way. And we're doing that deliberately because we are still working our way through a transformation and that has some degree of operational risk, but we also need the flexibility to be able to invest for future growth, which is what we're currently using our balance sheet for. As we come through that transformation, then we'll keep the balance sheet under review, and we'll make sure we've got the appropriate capital structure. To be clear, I don't think capital structure is binary. It is something that's dynamic and therefore, as we come through that transformation, we will keep it under review. And we'll make sure we have the right balance sheet for the right time.

[John Fallon:]

Thanks, Nick. Where we go in next, further questions, come over here to Chris and then to step back.

[Chris Collett:]

Good morning, it's Chris Collett from Deutsche. Just had few questions. One was just to perhaps take a little bit of issue with the success of your restructuring program. I'm sure you're doing great things internally but just when I look at the percentage change in profits and the absolute contribution in profits has really come to a huge extent from the growth division and I see from the back of the accounts you didn't spend any money of £100 million of restructuring in growth. So just partly what is going on there? Why has that business come back from it was doing £50 million of profits a few years ago went to sort of zero. Now it's bounced all the way back. So what's happening there and really is that the what are some of the drivers? Second, just also you talked about some of the digital products that you're releasing which are very, very impressive. But how do we square that with you talking about digital registrations in North America down 3% and that's including the benefit from Revel. And then lastly, just on professional certification, you talked about an impressive number of contract wins for this year coming, is that something that you really need in order to drive that growth? Do you need to keep winning that number of wins? And also within that IT certification has been weak for you know a couple of years. I think you blame on unemployment or low unemployment, but actually it isn't this really the environment where IT certification should be doing incredibly well.

[John Fallon:]

Okay thanks Chris. Coram, do you want to just sort of set the - what's happening in growth in the context of the overall restructure program. I think as I understood it, that was the first part of the question. And then Gio if you can pick up on a lot of the work that we've been doing in growth and then Tim pick up on the digital product story. And then Bob, share with us our confidence in the future of the Pearson View business. So Coram do you want to just pick up on the general picture first.

[Coram Williams:]

So I don't think you should look at it on a headline basis. Because that's misleading given movements in currency and given changes in portfolio. The key piece to focus on is that every division delivered underlying profit growth and the benefits of the restructuring program was spread broadly amongst them. In terms of growth, I'll let Gio talk to the details. But there has been a significant reshaping of the portfolio and there's been a recovery in a couple of our strong markets. So that's what's driving a lot of the profitability. But Gio, would you like to get some more color?

[Giovanni Giovannelli:]

Yes. Good morning. Thank you for the question. I think we were pleased with the performance in growth, as Coram said. Just to give a little bit of background of what happened over the last couple of years. First, we changed the management team. We now have a team of people that are local, so Chinese, in China and Indian in India, and Brazilian in Brazil, who deeply understand the market, the regulation, the opportunities, are doing a great job at bringing our business forward. And also changing a little bit the culture of the company towards being more entrepreneurial, little bit more risk taking, as it's needed in these markets where things change admittedly faster than in other parts of the business. The second thing we made some bets in some countries. So although our growth in the growth division is the one that you've seen in the numbers. The fact is that the growth is a little bit of mirror of the rest of the company. There are pieces of the business that structurally will grow slower because we already have high market share, such as our business in Hong Kong or in South Africa. But if you strip those out, the growth division is actually underlying basis growing much faster, because we have a lot of opportunities in these emerging markets. I'll give you an example that. In China, we have launched what we call Longman English Plus. We have several decades of presence in China with a very strong brand Longman by Pearson. And we have created an ecosystem whereby we use our books with a unique QR code to attract at zero cost, new learners. These people get on a WeChat platform, they basically log on. We have - we can engage with them and then we have a partnership with Microsoft to do speech recognition to improve their English skills and through that we upsell to them other things such as e-books, AI, Online schools and readers that we've put together in partnership with local partners. And that business is growing actually more than 30% per year. Similarly, in India, we launched a product called Mypedia, which is basically a solution for schools and we've gone from zero to already 700 schools. In just a few years that business is also growing north of 30%. In Brazil, our franchise Wizard business is doing very well, had good growth this year and it's still strong brand market leader. And we have other pockets within the business on which we're really hopeful on. So we are following the rest of the company in the strategy. We have a lot of opportunity I think by continuing to invest and be present in a thoughtful fashion we can do a lot more.

[John Fallon:]

Thanks Gio. That's great. Tim do you want to just unpack what's happening to digital registrations in North America in higher education in North America?

[Tim Bozik:]

So the digital registration trend is broadly what we expected going into last year. We continue to see some downward pressure, particularly in the developmental math area. We - asked an earlier enrollment question, about enrollment upside. That's an area that has continued to see enrollment pressure, because that's generally started by adult learners in community colleges, where we've previously talked about the product. The leading product we have there being at the top of an S curve [ph]. So it's one particular segment for which we have a mature product. And it is due to the declines in that area or due to enrollments one. And two, some curriculum changes and which that course is going from a prerequisite to core requisite. So basically the demand in developmental mathematics is seeing some ongoing pressure, which hasn't yet settled.

[John Fallon:]

It's an area where we have a very high market share.

[Tim Bozik:]

That's there, where we have high share mature product demand is - hasn't yet settled for the enrollments and the curriculum changes. That said that is offset by the ongoing growth by a product like Revel, which again continues to grow at a 40% clip that John mentioned. It's largely in what is still a Greenfield area for digital. It's an area where the courses tend to be in social sciences humanities, courses of 30 to 50 students, not courses of 300 to 1,000. So it's moving that volume with a lot of instructor uptake. We're excited to be launching our first Revel products on the global learning platform for fall. Those proxy as John mentioned, bring some great new improvements for instructors, make it easy to make [ph] assignments on a drop and drag basis, give them actionable insights. So increase the depth of usage and the value of usage in that product set. We'll continue to scale products on the global learning platform in production throughout this year. And next, we're launching some exciting new digital first programs this fall in stem areas programming and Python, other stem areas of high demand. So I think our outlook from a digital product perspective becomes increasingly exciting, innovative, responsive, and we'll give us a competitive edge from a market share perspective.

[John Fallon:]

Thanks, Jim. And Bob, do you want to pick up the - both on the IT certification, but more generally on prospects of Pearson VUE?

[Bob Whelan:]

First of all, thank you for a question about VUE, been waiting a few years for this one. I will tell you from a financial standpoint, excuse me. If we did not win a single contract in 2019, our revenue will still be going up, because of what you exactly what you described. The demand for certifications from our existing clients is way up. There's one exception to it, which is our - which is a high school equivalency exam. That's a little slow because the economy is so strong. People don't necessarily need that. In the IT certification nurses, the [indiscernible] are up. We expect to win new contracts in 2019 but there's typically a six month to two year lag from the time we sign a contract until the time we see the revenue. So we expect 2019 to have some kick in from contracts we won in the past couple years. But our goal is to win a few more contracts in '19 that will set us up for '20 and '21 but if we didn't do anything, revenue would still be up in 2019.

[John Fallon:]

Thanks, Bob. Question there from there and then if we bring the online through as well I'll take some questions from people are listening online as well. But you go ahead.

[Matthew Walker:]

Thanks a lot. Good morning. It is Matthew from CS. Three questions please. The first one is on savings. I mean you did come in the upper end of your guidance range but you did hugely accelerate the savings. I think you did something like 130 when you budgeted for something like 80, so the question is first of all, how did you do that? What exactly where these savings and how were you able to get so much in H2 compare to H1? And then does that mean that the 140 you're budgeting for savings for this year, are you massively under clubbing that again? That's the first question. Second question is on Higher Ed. You got delayed purchasing of digital products which fall in sort of Q1, Q2, et cetera. So would you expect to see because you had a sort of fairly weak fourth quarter, would you expect to see a first half in Higher Ed that was better than the 3% growth you got last year? And then the third one is, I know we are - is it the case? I mean, they obviously taking some share, but it's all the end of probably the sort of more mass market courses, mostly our providers only don't really have that many titles, so they just serve the sort of mass market courses. Are those books more profitable or less profitable on average for the main commercial publishers? Or would you say your niche titles or lower print run titles were more profitable? That's it. Thanks.

[John Fallon:]

Okay. Great. Three questions. So Coram do want to pick up on the first two phases of the savings last year, where the outperformance came from what we're thinking about this year then pick up on the H1, H2 phasing. And then Tim perhaps you just talked a little bit about how we see ourselves performing competitively against where we are and how we see the outlook there?

[Coram Williams:]

Okay so on the savings and as we both mentioned, we went live with probably the single biggest component of the technology change in 2018 with the U.S. ERP going in in the middle of the year, that's a gating question because it then allows us to make significant headcount reductions across our back offices so in terms of HR and finance as we move to shared service centers and as we really leverage the benefits of our platform. So having done that we were then able to go further and faster in those areas than we had originally anticipated. And that's why we got the significant additional savings. I don't want you to think that that means that we are underestimating 2019 however. because the major change has been made and now it's really about making sure that we bed in and go further in those back office savings so the 2019 number is a good number. In terms of the phasing of the business you were right but as we go into the beginning of the year there is a benefit from digital sales from that phasing delay that we've talked about previously. But you also got to remember that there are structural pressures in the higher Ed business. And so you have to take into account both of those. And I'm not going to get you to guiding on that quarter like quarter or not by half basis but just remember the two sides of the coin.

[John Fallon:]

Okay just long term picture upon [0

[Tim Bozik:]

Sure so yes so we are concentrated in the mass market areas which harbor this larger demand we tend to track competition of any sort. I'm going to invite Kevin to talk in a minute about his perspective on the market on OER but we believe we've accounted for the OERs impact in the market model viewed as competitive and again decision makers which Kevin can elaborate on are making decisions in the context of affordability quality and outcomes and we believe we compete effectively on that basis. From the margin characteristics that you talked about what drives margin from a product perspective is scale opportunities. OER is in the areas which are largely platform deliberator enabled. Our view is that our - particularly with our global learning platform we're going to gain an increasing scale benefits not unlike this the platform benefits we talking about from an enterprise perspective that allow us A, to be more customer responsive to needs and innovative but also bring margin opportunities, should bring margin opportunities because we should have scale advantages on a single cloud based efficient reliable platform. But let me turn over to Kevin to give you a little color on the OER from the market place standpoint.

[Kevin Capitani:]

So simply this if you look at the dynamics of the OER decisions we know where they're been made. So they're generally at an institution level at a minimum and often times they're coming from a pressure for a system. So much like a community college system and that is going to go to an OER. The characteristic of that is like an enterprise sale. The discussion is a lot different. So you make it more about price outcomes, analytics associated with those things. Our investment in one CRM system our sales force system allows us actually to pin point where these things are taking place proactively and put a sales strategy against those things. And what we're finding is that OER two years in, 2.5 years in we're getting a lot of win backs in our inclusive access capability to go and describe why price is not the only thing. They need to look at how the adjuncts let's say in a community college system are performing, why departments are performing better than others. And they're looking at three or let's say relatively free materials as not executable on a sustainable fashion. And they want more of a let's say our content and capability at a price that's focused on outcomes at a larger scale. Then you look at an enterprise which I mentioned earlier that decision makers at a higher level. It's not at in the classroom. So the discussion is differently and it's more well-rounded and we can attack it differently based on one, our data that I mentioned earlier two, the trends that are going. And three looking at access, affordability and outcomes comprehensive. What you're going to see is a lot of win backs by us and some of the other partners in the market based on what's really needed at the system level and looking at a comprehensive approach. Our investment again, I'll stress this in technology gives us the ability to pinpoint and be proactive in these things rather than reactive which is really exciting and it's a change in on our go to business model for Pearson.

[John Fallon:]

Thanks, Kevin. Just before coming to Patrick question online from Sarah Simon at Berenberg, what was your assumption for K-12 profits in 2019 group profit guidance given it was expected to be a strong year for adoptions. Coram do you want to answer the specifics of that question, then I might just say something a little bit more about why we think that was a good transaction for us.

[Coram Williams:]

Sure. So we've quantified the 2018 profits of that business at £20 million, you should actually assume that 2019 would be similar. While there is growth in the adoption market, there is cost related to that, that has to go in up front in order to drive those adoptions. So no material movement in that £20 million. As I said, in my script, it is back end weighted So for the moment work on the basis that it's £20 million to adjust for guidance, but obviously, when we close the sale, then we will confirm the number.

[John Fallon:]

And then probably just while we're on the subject, I will just make the broader point as to why I think our ideal team have put together a construct to this transaction that I think is really good from the Pearson's point of view. First of all, from a strategic point of view, just to remind you, American Schools remain hugely important customers for Pearson. But in a digital first strategy, we can serve them better through our assessment, digital schools, digital virtual schools, virtual courseware and through all the products and services that we offer that help the transition from high school into carrier and into college. So still big, big business for us that fits better with our digital first strategy. So strategically, it was the right time for us to exit the business. It was also operationally important that we got out now because otherwise it was going to get in the way of the simplification and efficiency program. Because if you think if we're doing a company-wide ERP implementation, to bring a business on to an ERP that would have been high risk when you knew that strategically you wanted to exit the business, would not have made sense at all. But the third challenge we had was that economically, to Sarah's point we're just about to go through a significant period of adoptions. And so we wanted to make sure we captured the economic value of those forthcoming adoption. So what we've done is come up with a construct that means as exit the business now, which meets our strategic and operational goals, but protects Pearson shareholders by achieving valuations of about 9 to 10 times operating profits, which I think is a reasonable multiple for business of this type. But then if, as we all hope it might do, the business outperforms, because the alarm forcer and the team that lead that our colleagues are great people that put together great product that we've invested in them will share in the upside of that over the next three to seven years. So I think all around strategically, operationally, financially, whilst at first blush. I can understand it was a little bit complicated, I think it's actually a very clever and a very good deal from a Pearson point of view. Okay, Patrick. Patrick, Wellington.

[Patrick Wellington:]

Thank you. It's Patrick Wellington, Morgan Stanley. I have about three questions actually. If you go back to the original trading profit bridge, you started the year saying £10 million to £15 million up and you ended minus £13 million minus to minus £18m and I seem to remember, on the January, mid-January call Coram you said that was down to U.S. K-12 and UK assessment. But actually U.S. K-12 was just performed exactly as expected, did £11 million in 20, which is the original amount, and the core profit went up, so could we could be unpick actually what I'm doing that trading. And then secondly, you give a very nice slide about digitally enabled in print, 62% digitally enabled 38% I'm going to call it print. Do we have a revenue growth rate for those two chunks? Very simple question. And the third one is we've talked a lot about OPM. So when do you think the profits benefit, which year if you had to pick one we would begin to see the upwards curve in the profits benefit from OPM.

[John Fallon:]

Okay, Coram do you want to pick up those on the….

[Coram Williams:]

So as I mentioned both in January and also today, the pieces that were worse than expected were primarily the UK qualifications business. And that's because of pressure in the apprenticeships market largely, but also because AS levels declined faster than we were expecting them to. There was small additional weakness in K12. Although you're right to highlight that, that wasn't as material in the grand scheme of things. And as we've also flagged a little bit of pressure in the U.S. assessment business, particularly as Park declined faster than we anticipated. So you put those pieces together, those are the things that meant that the trading bar was under a little more pressure than we had anticipated at the beginning of the year. In terms of the growth rate of the structural growth opportunities, as John mentioned that 35% of the business is growing at 7%. We've been investing into that part of the business and we would expect that growth rate to accelerate over time, that's the return on investment that we would like to see on those businesses. And in terms of OPM, not sure it's quite right to think of it in terms of which year does it change, because the reality is that the profitability moves over the life of a contract. And therefore, it depends upon the mix of contracts that you have mature versus new. And while we're investment while we're in investment phase, then you would expect the profitability to come under pressure at the beginning. I think Kevin wants to add.

[Kevin Capitani:]

I would just remind or reemphasize a couple of things earlier. We're getting a lot better about the programs via the profitability that we're selecting. And you're seeing our portfolio grow in terms of size, but slim down in terms of concentration. And then secondly, the focus on profitability has to be with running the business more efficiently. And student acquisition is the best example of that. However we going to lessen our costs of student acquisition overtime with investments in technology plus picking different programs we know that are in demand. So that that also contributes on an operational perspective in addition to the contractual elements that Coram determined,

[John Fallon:]

I think, inevitably, you've to phase it, where you've essentially got to trade-off between top line growth and margin contribution. And actually, the higher the profit contribution in the short term, it means that you've got a higher proportion of mature contracts and you've not got a bigger pipeline. And that frankly, was the problem with the position that we got ourselves in two or three years ago. And that's the change that we've had to make. And that's why I'm really pleased with the way with Kevin and Ivan and the team that's come in we've really started to get the growth rate they're going again. And we are very deliberately accepting a dilution in earning, short term to drive long term growth. And that's absolutely the right thing to do for the long term future of this business in what he's one of the biggest growth opportunities we have available to the company. And we're able to do that, of course, back to where we started because of the strength of the balance sheet and the way that we're running the company.

[Patrick Wellington:]

Okay, I suppose the question actually it is quite difficult to get hold of the profit drivers in this business? So do you think when the cost plan runs out in 2021, the profits of the group will go down again, because you'll still be in that investment phase for the growth businesses. And you're still coming through the pressures in the substantial the 38% of the business that's in print. And or will there be another cost plan at that stage?

[Coram Williams:]

So I mean, I think the key to this is the growth of the top line. So OPM is investment mode at the moment. We put, as we mentioned, over £20 million in, in 2018, we put north of £30 million, in 2019. You will see the benefits of that drop through over the next couple of years as those contracts become more mature. The other point to mention is that the other three parts of the strategic growth opportunities so view Pearson test of English and virtual schools have had capital investment in them. And so as they as we benefit from the capital it's been invested there actually get here drop to your profit. So we don't need another cost program in order to sustain underlying profit growth, the acceleration of the top line and the reduction in the size of the course of the assessment businesses that are under pressure will get us there.

[John Fallon:]

Okay. Thank you. Thanks everybody for your questions. Thanks for joining us today, Joe, Tom and Angela with us if you have any other comments to follow up on. Thanks for the ongoing interest in the company and look forward to talking to you again.