Pearson PLC (PSO) 2022 Q2 法說會逐字稿

Good morning, everyone, and welcome to Pearson's 2022 Interim Results. (Operator Instructions).

(presentation)

Good morning, everyone, and welcome to our interim results presentation. I'm here with our CFO, Sally Johnson, who I'll hand over to shortly, but let me start with a quick overview of the highlights.

In the first half of this year, we continue to gain momentum both strategically and operationally. We're making exciting progress to deliver and evolve our lifelong learning ecosystem to an expanding consumer base. Following our reorganization, we're now a more interconnected, streamlined and agile organization and can recognize efficiencies and take advantage of opportunities in ways that just weren't possible in the past.

All of this is reflected in a strong first half performance, with sales growth of 6%, adjusted operating profit growth up 22%, and we're reaffirming our full year expectations. More importantly, what we've accomplished so far gives us a real platform for change. Our new operating model has enabled us to identify at least GBP 100 million of further efficiencies, which we will deliver next year and the years beyond. We'll achieve this whilst continuing to allocate significant investment to drive growth.

As a result of these efficiencies, we'll deliver our improved mid-teens margin target in 2023, which is 2 years earlier than originally expected. We're refocusing and developing our portfolio to meet a significant opportunity serving consumers who are increasingly turning to their employer for education as well as with employers who want to get the best out of their people by educating them further.

We're seeing evidence of this broadening enterprise learning market with the over 50,000 new users joining Credly each week and the ongoing growth in VUE clients, in the IT and professional sectors.

It's important to remember the Pearson already serves the enterprise learning market in several of its divisions, and that we're well positioned to see continued growth in this sector. We're also driving successful change through targeted investment, acquisitions and disposals. This includes the recent acquisitions in Workforce Skills and English Language Learning to expand our presence in these high-growth areas as well as the near completion of the sale of our international courseware local publishing businesses. And today, we've announced that we're launching a strategic review of our online program management business.

I also want to share today that Tim Bozik, President of Higher Education Division, will be retiring after nearly 40 years at Pearson. I want to thank Tim for his leadership and the significant contribution that he's made to our business.

Tom ap Simon will become President of Higher Education in addition to his role as President of Virtual Learning. Tom brings a proven track record in growing Pearson businesses along with an excellent understanding of the higher education landscape.

We're making all of this progress despite the macro headwinds, which demonstrates the benefits of being a well-diversified business, and the fundamental lifelong need to learn, a trend that we expect to continue. There's clear evidence that our strategy is working and allowing us to move at an even greater pace to deliver results for consumers and shareholders alike.

I'll come back with some detail on key aspects of our growth strategy shortly, but now over to Sally for more on the financials.

Thanks, Andy, and hi, everyone. We've delivered a strong first half performance, with group underlying revenue up 6% and adjusted operating profit growing 22%, driven by our Assessments and Qualifications and English Language Learning divisions. Virtual Learning saw a strong performance in virtual schools, but disappointing enrollments in OPM and HE and workforce were in line with expectations.

Earnings per share increased by 12p to 22.5p due to the adjusted operating profit growth and the release of a number of tax-related provisions, which we told you about at Q1. Our balance sheet remains robust despite M&A and our recent share buyback and continued investment in the business. This combined with our strong results and confidence in future performance has led us to increase our interim dividend by 5% to 6.6p.

Importantly, we're on track for the full year and well positioned to drive sustainable growth. As we integrate our new operating model, we now believe we can realize further synergies and efficiencies, meaning the mid-teens margin we expected in 2025 will be achieved in 2023. I'll come on to this a bit more later.

Looking at revenue by division. Assessments and Qualifications revenue grew 16%, driven by an excellent performance in U.S. Student Assessment and U.K. and International Qualifications as exam timetables returned to normal. We saw a better-than-expected performance in Clinical Assessment due to ongoing interest in health and well-being as well as government funding.

Virtual Learning revenue grew 3%, with a good performance in Virtual Schools, reflecting robust retention rates, partially offset by weak spring enrollments in OPM. English Language Learning revenue grew 22%, with a strong performance in Pearson Test of English. Mondly is performing well, and its addition to the group gives us access to the fast-growing D2C market as well as offering significant synergies.

Workforce Skills' revenue grew 6% with continued growth in BTEC, GED and TalentLens with recent acquisitions, Faethm and Credly, growing strongly. And Higher Education revenue was down 4%, in line with our expectations, reflecting a continuation of the decline we saw in U.S. fall '21 enrollments into the last part of the academic year.

Turning to profits. Group adjusted operating profit grew GBP 33 million to GBP 160 million, driven by the operating leverage on sales growth, FX and property savings, partially offset by inflation, portfolio investment and the phasing of costs last year. Margin improved from 8% to 9%.

At a divisional level, in Assessments and Qualifications and English Language Learning margins improved, driven by their operating leverage on revenue growth. Workforce margins reduced due to investment in particular, in our new suite of integrated workforce services, which we expect to launch in the first half of next year. And Higher Ed margins reduced slightly due to the impact of revenue declines.

Virtual Learning margins were low, albeit stable at 4% due to the lower margins in the OPM business, where revenues haven't grown as expected due to low enrollments. Sales growth in Virtual Schools was offset by investment in platform, curriculum and customer care support.

Last year, we committed to reporting on the KPIs, which measure and track our strategic progress. While not are all relevant at the half year point here, you can see those that are. We delivered strong growth in the total number of VUE tests, reflecting ongoing growth in the IT and professional sectors and recovery in DVSA.

OnVue tests declined slightly as customers chose to return to physical center testing, although virtual still remains popular in the IT sector, and it's important that we can offer customers both options. Pearson Test of English volumes grew well, in particular, in India, where we also benefited from the implementation of our partner portal as well as improved global mobility.

The mix shift to India did, however, impact NPS scores as they are traditionally lower in this market. We maintained our industry-leading score return times, which give us an important edge in the market. And as Andy will discuss further later, we are also delighted to see the ongoing growth in Pearson+, where we have now reached 4.5 million registered users.

U.S. Higher Education registrations are down largely due to enrollments, and we've also added the new baseline for the new workforce KPIs. Virtual Schools' enrollments don't close until the end of September, but applications for the '22, '23 academic year, which is an early indicator, are tracking well.

Cash performance for Pearson is historically skewed towards the second half, but in H1 '22, we've continued the precedent set last year with a positive cash flow of GBP 9 million. This is in line with 2021 despite higher operating profit as receivables were higher given the strong H1 revenue growth. These receivables will be collected in H2.

Our balance sheet remains robust with net debt at the end of June of GBP 810 million. The increase from GBP 646 million last year is largely due to dividends and the share buyback as well as tax and interest more than offsetting strong operating cash flows. Cash flows from M&A were broadly net neutral given there was a mix of acquisitions and disposals.

We continue to make progress with the strategic review of our international courseware local publishing businesses and recently announced the sale of our K-12 businesses in Italy and Germany and the completion of the sale of ERPI in Canada.

After thorough consideration of the strategic value of the Canadian and Australian K-12 courseware businesses, we have determined it's in stakeholders' best interest to retain them. We are confident Pearson is the right home for these businesses as there are synergies with our A&Q division, which is where they'll be reported going forward. We'll share updates on the remaining elements of these businesses as relevant, but likely in the coming months.

The impact of these disposals on adjusted operating profit won't be confirmed until completion dates are known. But given the H2 weighting of these businesses, we estimate that it will be between GBP 15 million and GBP 20 million. There's also likely to be a modest impact to operating cash conversion with an offset in the transaction working capital adjustments.

We're also launching a strategic review of our OPM business as we evaluate its ability to integrate with the rest of the group and our broader Workforce Skill strategy. We will continue to maintain our strong relationships with global institutional partners to ensure that we provide the best learning experiences to students.

Moving to the outlook for 2022 and our reiteration that we're on track to meet group expectations. Our assumptions are broadly consistent with those outlined at the full year. However, we see upside potential in English Language Learning, Virtual Schools and Clinical Assessments, given their strong first half performance and likely increased pressure on enrollments in OPM and Higher Ed.

Growth in Pearson+ subscriptions will lead to a phasing shift in HE revenue recognition from Q3 to Q4. And as a reminder, we expect an interest charge of GBP 10 million to GBP 15 million and effective tax rate of 15% to 17%, reflecting that statute of limitations tax impacts that have been booked in H1.

Given the recent movement in exchange rates, I thought it would be helpful to remind you that every $0.01 movement in the dollar equates to broadly GBP 3 million of adjusted operating profit.

Given the macroeconomic environment, we've had questions from many stakeholders about the market dynamics we have in each of our segments with an eye to potential impact of a recessionary environment. I'll leave you to go through the detail, but in high-level terms, it's important to appreciate that the business is well diversified in terms of learner and geographical markets; many of our contracts are long term and with local or national government entities; and much of our spend on products and services is nondiscretionary and noncyclical.

In 2021, we set about reorganizing the business into 5 global business divisions, giving each division full responsibility for its overhead, ensuring impairment and accountability to help accelerate growth going forward. As we integrate this new operating model, we can realize further synergies and efficiencies. And as a result, we will deliver at least GBP 100 million of further efficiencies next year.

These efficiencies will be derived from rightsizing the cost base as we implement the new strategy and portfolio, rationalizing product and content; and further realizing corporate property reductions, together with other operating enhancements. We are being proactive and choosing to do this while continuing to allocate significant investment in areas of the business that will drive growth.

These efficiencies mean that 2025 mid-teens margin target will be achieved in 2023. I expect onetime costs of around GBP 120 million with approximately half being cash related. The cash costs will be incurred across the end of this year and into next. And the noncash costs are expected to be write-offs, such as property lease assets. This will not only lead to a more agile and efficient operating model, but will also drive value for shareholders.

So in summary, we've had a strong first half performance; we're on track to deliver on the full year expectations; and we're making excellent financial and strategic progress.

And with that, I'll hand back to Andy.

Thanks, Sally. Pearson's evolution is moving with pace from a matrixed holding company to the Pearson of today, supported by the structure I outlined just over 12 months ago. We're now focused on integrating our businesses and products to form a more interconnected lifelong learning platform. The result of that will be a unique and powerful digital learning ecosystem, one that uses our unrivaled ability to diagnose skills gaps, help people learn, verify their skills and mobilize their talent as only Pearson can.

We're working to get on -- get to know our consumer and build a portfolio of products that meet the new demand they're placing on learning. In 2021 alone, our products and services reached more than 140 million users around the world. Over 15 million of these relationships were direct and monetized. This means we have a large existing market of consumers who can move between our products as their learning needs evolve.

Knowing this, it's incumbent upon us to make every interaction with these consumers more meaningful. That's exactly what we're trying to do as we move from discrete to connected applications across the business, which you can see on this slide. This highlights our focus on execution and delivery. Now there are lots of examples here of our products and services working together, notably the integration of Mondly with Pearson+ and Credly.

Now for some further detail on Pearson+. We've always said that Pearson+ for Higher Education was just the starting point of a broader consumer offering. We're in an even stronger position to achieve that ambition and to further monetize the platform with the enhancements we are launching this fall.

We're seeing strong momentum with Pearson+, and I'm pleased to report that registered users have increased from 2.7 million and now stand at 4.5 million for the academic year. Cumulative paid subscriptions are up from 133,000 to 329,000. That's especially encouraging when you consider that spring is traditionally a lower enrollment period.

For our first academic year, Pearson+ was only available directly through Pearson e-commerce. Now for this falls back to school in the United States, we're also integrating Pearson+ into the existing Higher Education purchasing channels. In addition, within our existing market of textbook consumers, we're seeing increased uptake of Pearson+. In the first half of the year, we've seen Pearson+ units increasing as a proportion of total tax units from 5.7% in H2 2021 to 14.4% in the first half of the year.

As Pearson+ develops, we're gaining much more insight into how students use the platform, which is helping us to iterate and further enhance the product. We're encouraged by the increasing levels of engagement with Pearson+. On average, each user access the platform nearly 14x in H1, with a session length of over 23 minutes. That's better and longer usage than we saw in 2021 during our first semester in market. And remember, that's in addition to the time student spend on MyLab and Mastering.

While mobile is an important platform, web usage is outpacing that. In fact, 83% of users prefer the bigger screen experience of a laptop. So it's important to note that downloads only tell one part of the Pearson+ story. Ultimately, this growing engaged user base will help us recognize potential cross-selling opportunities outside of Higher Education. It's why we need to keep building on the original Pearson+ foundation. Now until now, Pearson+ was only relevant to students who were assigned a Pearson textbook. Now with the addition of the Channels feature Pearson+ is set to become a great learnings tool for any student who wants extra study help, whether at college or work.

As you can see from the video on the screen, Channels is now out of the pilot stage and ready for back-to-school. We've assembled thousands of high-quality learning videos and practice problems designed to help students understand complex topics. You can explore Channels for yourself by visiting channels.pearson.com. For this early release, Channels will be available free to any user with or without a subscription.

We'll turn Channels into a paid feature sometime in the near future. With the Channels feature, our ambitions to integrate Mondly and the expansion into our existing Higher Education purchasing channels were growing the addressable market for Pearson+ beyond college.

So to recap, as we move into the second half of 2022, we'll continue our progress against the 4 priorities I laid out earlier this year. We are delivering sales and profit growth. We're focusing on execution, quality and trust. We're embedding customer and consumer insights across the company. And finally, we're evolving and scaling Pearson+. We're seeing clear operational and financial benefits from being a more integrated, holistic company, and we're well positioned to accelerate our growth to deliver increased value to shareholders.

A very different Pearson is beginning to take shape. One that is more diversified, more resilient and better tailored to serving a changing consumer. More importantly, Pearson is now better positioned to deliver sustainable growth.

With that, Sally and I are happy to take your questions. Jo, over to you.

(Operator Instructions). And with that, we'll take a couple of questions from the floor. So we will start with Tom Singlehurst. Three questions, Andy and Sally. I'll read the first two out. Via the cost optimization program, you appear to be bringing forward your mid-teens margin target for the group. At a divisional level, should we expect the benefit to be focused on Higher Ed?

And secondly, would it be fair to compare the 329,000 paying Pearson subs with the GBP 3.6 million e-book sold in 2021, i.e., a 10% mix shift to Pearson+ from one-off e-book sales, how far and how fast will this mix shift go?

First one, should I take that one?

Yes.

Yes. So you're right. So that 2025 mid-teens margin that we gave you is now 2023. And broadly speaking, the divisional breakdown that we gave you at that point in time holds for 2023 other than probably for the workforce division, where, as you know, we've put increased investment in this year, and that will be the same next year as well as we're building out that division for growth in the future. I think in terms of the efficiencies that we're looking at, yes, there probably is a weighting towards higher education from a divisional perspective.

And to your second question, Tom, I think you are seeing a couple of shifts here. The first is that, as you say, the shift amongst the eText units within the Pearson Universe, what interests me is how much we're seeing a recapture of that secondary market start to happen. It's only 2 semesters in, as we've said. And we -- as I also commented upon, Pearson+ up to now is only available through Pearson e-commerce.

I think what's going to be very interesting as we go back to school for fall '23 is to see the impact Pearson+ has once we now put it into existing distribution channels, like campus bookstores. So this back-to-school will be the first time that you'll be able to get Pearson+ in a campus bookstore in the U.S., for example, alongside many of the other traditional distribution sources.

So I think there, you're going to see a much even bigger shift into sort of users and paid users independent from the bundling with Mastering and MyLabs.

Thanks, Andy and Sally. Just a third question from Tom. You're clearly factoring in a worse enrollment picture for 2022 in Higher Ed than you were earlier in the year. But are you assuming the rate of decline is as bad as 2021 or worse? How do you factor in the range of outcomes in your operational planning to avoid negative earnings surprises?

Thanks for the question, Tom. So at the beginning of the year, we talked about Higher Ed enrollments being slightly down. I think that's probably optimistic now, and they could be down as far as they were last year. But because of the diversity of our business, we are maintaining guidance because we've got upside in other parts of the business.

So in particular, in English Language Learning, in Virtual Schools, we're seeing really great retention rates and those application rates that we're seeing at the moment going well as well and in Clinical Assessment. So we are reaffirming the guidance that we made at the beginning of the year.

And I'd just add that hopefully as well as that diversification, you're seeing that means a less of a reliance on the Higher Education business and on enrollments in U.S. Higher Education. And we'd rather plan for the downside and be pleasantly surprised if there is -- if indeed there is an upside. But as Sally was saying, I hope you get a sense we're really, really well-run set of businesses, a great credit to the executive team, who run those businesses and keep delivering and exceeding expectations as a result -- as it relates to our results in sales and underlying profit.

Next question comes from James Tate from Goldman Sachs. First question, do you announce further efficiencies identified and to be delivered in 2023? Are these all incremental rather than efficiencies being brought forward? And can you give an update on where 2025 margins are expected to be? We'll do another 1 out of the 3. You expected potentially increased pressure on enrollments in Higher Ed and OPM. What do you think about the countercyclicality of enrollments in a weaker macro environment? Or is the historical relationship no longer relevant?

You take one, I'll take 2.

Yes, very good. So yes, these are incremental savings. So if you've got a 2023 forecast, then you'll want to add GBP 100 million for those efficiencies to that. In terms of 2025, obviously, that guidance still very much holds, but I think it's probably fair to say that given the revenue growth that we're expecting, there'll be operating leverage on those and potential for further margin improvements.

Having said that, I'm going to take the second question, Jo, I can't remember what it is...

Enrollment.

Enrollment, yes. Enrollments, enrollments, enrollments. I think it's really, really interesting to see what is going to happen. Traditionally, a recession has been countercyclical in terms of more people wanting to go back into Higher Education. I think there's a couple of interesting things going on here. Firstly, there's many people who have yet to finish their college degrees because they were impacted by the pandemic. So there's an enrollment issue there. Potentially, we'll see some students coming back to college to finish their degrees that were interrupted. But there's no doubt that there's also those that are finding Higher Education as it were within the workforce.

And as we've seen and as Sally has alluded to, we're now positioned to sort of take that enrollment question somewhat off the table. Whether you go and study through institutional learning or whether you're studying through enterprise learning, we sort of got both of those covered, and you're seeing that uptick as we said in Pearson VUE in terms of the amount of work, particularly in the IT and tech sector, coming through.

That's really important because I think one thing that has fundamentally changed is the need for employers to include learning as a benefit to engage and retain employees. Employees have signaled very loudly to us that they expect in addition to salary and benefits in terms of health care that learning is a really important part of how they value a company and how an employer can retain. So I think there is -- that is a permanent shift, and we are well placed to take advantage in both sides.

Third question from James, a bit more of an opportunity to talk about Pearson+. You talked about 4.5 million registered Pearson+ users. Could you please indicate how many active users you currently have and how these have trended?

Yes. The 4.5 million users are the amount of users we have at the end of this academic year. And what's really interesting, and I mentioned a couple of stats around a number of times of engagement and the length of that engagement. And that's in addition to what a student is normally doing with a Mastering or MyLabs. To use another analogy in the TV world, if you think of every session that a student was engaging is like a half-hour TV program. We were getting 4.5 million users watching a 14-episode series over the first half of this year, really, really powerful levels of engagement. And we're seeing the usage happen throughout the semester.

So it's hard to say at any one particular time. We know exactly any period of time, how many people are watching. The way to think about it is how they are using Pearson+ over the course of a whole semester. That's really how you get to measure rather than a specific period in time.

Thank you. I think we're now going to go to the operator for some calls via conference call.

(Operator Instructions). We have the first question on the phone lines from Nick Dempsey of Barclays.

I've got 3 questions. I've put some on the webcast as well. So please to ignore those. But yes, first of all, U.S. Higher Ed guidance. I think Tom was trying to ask whether -- I guess, previously, your guidance for organic growth for the year was better than minus 5%. And could it now be a bit worse than minus 5% with enrollments being a bit worse than you had hoped?

Second question. So we really are stacking GBP 100 million of savings on to operating profit in 2023 because previously when Pearson has announced savings targets, sometimes that target has ended up really being a mixture of savings and investment, and you haven't been sensible to stack it on. So in this case, things have changed. We really are saying back GBP 100 million on top of your operating profit in 2023 and move on.

And the third question, just on Virtual Schools. Are we now past the point where the COVID cohort, if you like, can wash out worse than hoped for and surprise us negatively? Have we moved past that point? Because people definitely ask me, when are all those people that signed up only because the physical schools were closed, are going to wash out of that number?

Perfect. Why don't you start, Sally.

And you can add. So thanks for clarifying Tom's question for me, Nick. I mean, obviously, it depends where enrollments are, but we're reaffirming that HE guidance that we will be down, but by less than last year, given what we're thinking is going to happen with enrollments, which is not down a little bit. It's down by more than that.

In terms of the GBP 100 million worth of efficiencies, yes, you saw me nodding while you were asking the questions. You add that to next year. We are constantly capital reallocating in terms of investment around the business, matching that investment to where we see the greatest returns and where it's going to drive growth. But in terms of this GBP 100 million, yes, you add it to whatever you had for next year.

And Virtual Schools grown 6% in the first part of the year. That has to do with really great retention rates. I think we are now at a point where people are really seeing the benefits that home schooling can bring to a family. I think some of the new ways of working and those sorts of things have also had an impact to it. So yes, I think we're past that point now.

I mean, all I'd add on the GBP 100 million is if you read closely, we say at least GBP 100 million in efficiencies. And so these aren't just cost savings. This is about how we run the company as a result of becoming a more performance-oriented culture, as a result of us becoming more agile in terms of us being able to utilize our technology, investing against new products, creating a much more interconnected organization.

All of these things mean that we can actually run the business more efficiently. Therefore, with confidence say you can take the $100 million and just put it into your models going forward. And we will still have more than enough to invest behind the new products and innovations that we're continuing to build as we build the digital learning ecosystem. I hope that helps.

We now have the next question from Omar Sheikh of Morgan Stanley.

Omar Sheikh from Morgan Stanley. So I've got 3 questions as well. So maybe the first one, Sally. Just in the context of what Andy just said on efficiencies, could we just clarify that when we say efficiencies, we mean lower costs, that would be kind of helpful just to clarify that. And then on the numbers, I mean we're -- you're flagging savings for next year in the middle of, kind of close to the middle of 2022. Is there any chance that you might see some cost savings this year in particular, in Higher Ed, I mean the guide for margin this year is margin stabilization. So is there's maybe a little bit of pressure on enrollment? Is there scope perhaps for some cost savings in Higher Ed in '22? So that's kind of a long first question.

Secondly, on the OPM review. Could you maybe just talk about what -- how enrollment actually trended in H1? So what you saw in the first half on the enrollment side. And really what drove the decision to put that up for strategic review? Was it the enrollment trends? Was it ASU? Was it something else?

And then finally, maybe one for Andy. We talked about the enterprise learning market in the past, you talked about it again today. Coursera highlighted some potential weakness in their EMEA business. I don't know whether you can maybe talk about trends that you're seeing there, whether you expect there to be any impact from a slowdown, maybe corporates deciding to maybe spend a bit less in this area, that would be helpful as well.

So I'll take the first 2, including the very long first question. So yes, efficiencies, cost savings, it will be a reduction in our cost base. But being clear, we're being proactive and we're choosing to do this. And in terms of this year, I'm really focused on those GBP 100 million next year and setting ourselves up for that. It's possible that means that we'll make some savings this year, but to be completely clear, I'm not assuming those savings in order to make my guidance for this year. Guidance is reiterated no matter what.

And then OPM enrollments, you can see from our KPIs, they were down 1%, sales down 2%. So the enrollments impacting revenue. And the strategic review, I mean, I think you've called out 2 particular things. I think it's sensible to look at the business when something happens and assess its strategic fit with the rest of the business, and that's what we're going to do.

And then to your third question -- by the way, where did the rule of 3 always come from? The third question around workforce trends. I mean we are seeing the opposite in terms of what we're -- the areas we're focused on around, particularly tech, IT sector and also in North America, very, very tight labor market. You're seeing that reflected at a couple of points we gave, increase in VUE, tests, and Credly, which we mentioned, getting 50,000 new certifications every week. They've grown to over 27 million registered users themselves.

So we're seeing that trend continue. We're also developing, and we alluded to in our prepared remarks, our Workforce Skills business. And I think we may come back to you later this year with some more details about how we're creating a truly unique and differentiated product in this space, which I'm very, very excited about, which will fit into the digital learning ecosystem that we outlined a little earlier. But for a number of reasons, not least sort of commercial reasons, we don't want to get too far ahead of that. That's something that you can look forward to learning more about in the second half of this year.

We now have a question from Sami Kassab of BNP Paribas.

I would break with a rule of 3 and have only 2 for you this morning, 2 topics to address actually. The first one is on underlying growth expectation for A&Q in H2. Do you expect VUE to return to growth in H2? And do you think that school assessment will be in double-digit decline, reflecting phasing?

And the second topic is on Inclusive Access and the Higher Ed division. 7% revenue growth in Inclusive Access that has slow down quite a bit versus the double digit historically. So would you expect penetration of Inclusive Access to reach a structural cap at around 20% to 30%? Or do you think growth can reaccelerate in the Inclusive Access business? And overall, would you reaffirm the guidance that Higher Ed can return to revenue growth next year or in the coming years? Or is your assessment of the growth potential, perhaps more subdued at this stage?

I'll take the first one. Yes. So in terms of A&Q in H2, we did talk about at the prelims, the fact that the sales, frankly, were likely to be weighted to the first part of the year, and that's what we've seen. So growth is likely to be broadly flat in the back part of the year because of that tougher comparative because of the way testing happened last year. So testing last year happened in the fall and then getting ready for the next year, where it's returned to spring testing this year.

VUE was down in the first half. I repeat the guidance that I gave for the full year for VUE, which is broadly flat. That was to do with the DVSA contract. That impact is in the first half of the year, which is why you see that minus 3%. So yes, a little bit of growth to get back to flat for the full year, but that's a great business, the VUE business, and it will return to growth from next year onwards.

And then school assessment phasing, that's the spring and fall testing, so it back into spring in the first part of this year, which is driving that growth in school assessment this year.

And Inclusive Access, Sami, I think -- a couple of comments on there. I think we're not near the top or the cap, as you say. I think we'll see growth rates return or increase from where they are at the moment. And the other interesting aspect is, Inclusive Access is another potential distribution channel for Pearson+. So one should start to think about Pearson+ in that context as well.

I'm really, really excited about the opportunities to really accelerate the growth of Pearson+ just within the college environment with some of the features that we're adding, the Channels feature, for example, now makes Pearson+ addressable to any U.S. college student, not just those that are studying a Pearson textbook.

And for the first time, as I mentioned previously, you're able -- you will be able to access it through the traditional distribution routes, [VitalSource, RedShelf], campus bookstores, et cetera. And Inclusive Access will be a future distribution potential channel for Pearson+. So very excited on that front.

And Higher Ed return to growth? I absolutely think so. Yes, I'm absolutely -- we are committed to growing that business and returning it to growth. We're actually also thinking about how you define Higher Ed going forward. If you think about largely our Higher Ed business has been focused on institution. And there's an increase in sort of further education as it were in enterprise, you can expect to hear more about that from us in the future and maybe that will tie in with a little with what we may be doing in Workforce Skills, a little tease.

We now have Matthew Walker of Credit Suisse.

The first one is, I guess, about margins. I guess it's maybe not entirely a coincidence that margins in Higher Ed have been pointed out. The margin ambition in Higher Ed maybe (inaudible) thinking it could be quite a lot higher. How do you think about the mid-teens target in Higher Ed now? Has that moved up significantly as a result of what you've announced today?

The second question is in Workforce Skills. I think the profits were going to be roughly 0 because of investment in '22. Is it 0 for '23 as well? And how do you see the cadence of profits in Workforce Skills?

And then lastly, on the -- Pearson+ has obviously had a bit of a leg up, which is good to see. How are you defining the cumulative subs? Is that basically anyone who's ever been a subscriber? Or does it relate to people who are actively paying as of now?

I'll take first. So margins in the mid-teens for Higher Ed. Yes, so we will be getting there next year. And yes, there is opportunity to improve on that. Workforce Skills, you're right, profit neutral in 2022. I'm not going to guide on 2023 right now. I'll do that later in the year. But what I was trying to point out was that you couldn't take the mid-teens margin for workforce that we had in 2025 for next year as an assumption because we will be investing in 2023 as well.

Pearson+ cumulative subs?

Yes. So the -- both the registered users numbers and the cumulative paid subscriber numbers are taken over the full academic year. And so that 329,000 number that we quoted is as of at the end of June, I believe, it was June 30. I think this is (inaudible) or maybe...

We go on academic year.

Yes, partly through July. Yes. So that's how you should look at those. And as I said earlier, the usage is very much tied to what a student is doing in a particular semester, but they sign up at the $9.99 or the $14.99 for a minimum of 4 months. So that takes that paid user as it were through the whole of the semester. So that number is the cumulative number as of the end of this academic year.

We now have next question from Adam Berlin of UBS.

I've got 2 questions left. First question, just on Workforce Skills. There was a comment in the release from this morning that you're up to nearly 1,400 enterprise clients and Workforce Skills, up 168% year-on-year. I just wanted to understand who those 1,400 clients are? Are those mostly pre-existing clients from the businesses you bought or from the products you already had? Is that what you're referring to there? Or are some of them kind of brand-new clients where you put together a new proposition to help teach their employees some new kind of platform that you've actually sold a package into? And how many of those are in the 1,400? Is that the right way to think about it or not?

And then my second question was about Clinical Assessment. At the beginning of the year, you guided for that to be a slight decline for the full year, but then it grew 14% in the first half. Can you just say a little bit more about what's happened in Clinical Assessment? Why has the growth been so strong? Are there any one-offs in there? Or is this kind of growth rate sustainable for Clinical Assessment going forward?

So in Workforce Skills, part of those 1,400 are coming from clients we have retained through acquisition, through Credly, through Faethm, primarily. But there's also been new clients that we have added as we have started to go to market.

We've spent the last 12 months, Mike Howells and the team, doing a couple of things. Firstly, talking to a lot of those enterprise clients, roughly about 350 of them to get input from their CHROs and the CEOs. In fact, Mike and I were seeing the CEO of a FTSE 100 company last week about this very challenge that they have understood the need for learning skills, to be a provider of learning skills at work. And they've been frankly disappointed with the return on investment of the current suppliers of those skills and courses and are looking for an alternative solution.

And with the combination of the diagnostic skills that we bring through Faethm, through then the ability to provide learning and assessment and then credentialing, we can create a sort of end-to-end solution. So we've been doing a lot of work turning that into a product. We're trialing that at the moment with a couple of large institutions to make sure that it works very well.

And as I said earlier, we -- you can expect us to sort of give a bit more detail as to exactly what we're going to be doing, which is going to be very unique. It's going to be very identifiable and ownable by Pearson. It's going to be a new take on sort of Higher Education learning, as it were in the enterprise space. You should hear more about that probably towards the end of this year, if not definitely early in the new year.

And Clinical Assessments growth. We had a really, really good year in Clinical last year. And so we thought that we had a difficult comp for this year, and it turns out because of the strength of this business, we've actually seen further growth, and we think that's coming from 2 areas. First of all, an interest in kind of well-being in general and people just really interested in getting these diagnoses as well as government funding, which has supported the revenue growth. I'm not sure it's going to be 14% when we look at the full year, but it's certainly going to be a really strong growth for the division.

Andy, Sally, we've got time for one more question, so we'll take it through online, comes from Sarah Simon from Berenberg. 3 questions. We'll start the first one. I appreciate that revenue recognition on a subscription business is different to upfront sales. But how can 379,000 paid subscriptions really skew the revenue recognition, given how much students you sell materials to?

Second question. If I signed up for a 4-month period for Pearson+ and then signed up for another 4 months this term, does that count as 2 subscriptions? There's 1 more, but I will come back to that.

Okay. I will do the first one. You do the second one. So I'm pointing out this revenue recognition piece so that it doesn't come to as a surprise to anyone come Q3. Obviously, it's dependent on the number of Pearson+ subscribers, and I'm not going to talk to that until we get there. But when we get to Q3, if it's a material amount, I want to make sure that you're aware of it.

And just to be clear in terms of what's happening, if you buy an eBook, that's a point of sale, sale and you get the $40 for it straightaway. If you purchased Pearson+ over a number of months, let's say it's the 4 months that you're in that semester, it's going to go over the Q3, Q4 period. So it would be, say, August and September and then October and November. So some of the revenue will come in Q4, but I'll be able to update your point the sort of dollar impact of that when we get there.

And then to your second question, Sarah. Clearly, amongst the different information we're getting is your user ID. So if you were to come into semester 1, we would know it was sarah@berenberg.com or whatever. And we're able to capture there. And then we would capture a second time if you came back and were also subscribing in the second semester. And we would capture the individual using the service over the 2 semesters versus, say, if I came in and just used it over 1 semester and Sally came in and used it over the second semester. So we're able to capture the number of individual users and also the number of semesters that they are utilizing the service.

And final question, which is from Sarah. Will you be selling Pearson+ via Amazon? And have you got deals with the 2 big bookstore operators?

I think we can say the answer is yes and yes, if you mean Follett and Barnes & Noble.

Excellent. And back over to you, Andy, to wrap up.

Well, thank you very much for joining Sally and I this morning. Thank you for your questions. As always, Jo and the team are available for follow-ups as are Sally and I, and should you have any other specific questions, if this is something that we haven't answered, I'm sure we'll get to it.

Thanks again for your interest in the company. I hope you realize that the Pearson you see evolving today is very, very different from the company of even 18 months ago. Very excited about our future prospects, and let's see how the second half of the year turns out. Enjoy the rest of your summer.

Thanks so much you all.