Pearson plc Q4 FY2024 earnings call

• Strategic progress: Successfully delivered on three priorities in 2024, including financial performance in line with market expectations, building momentum in the enterprise business through partnership with AWS, and scaling the application of AI across products and services. - Business unit execution: Assessment & Qualifications business unit had a fantastic year with customer retention of 99%, renewal of key contracts, and evolution of products and services. Higher Ed returned to growth with customer - focused sales execution and rapid innovation in products. Virtual Learning opened three new schools, scaled career programs, and made operational improvements. Workforce Skills built momentum in enterprise approach, landed key wins, and turned to profit. English Language Learning continued to execute with strong performance in institutional business and released AI - powered product services. - AI application: Applied AI internally to drive improvements in core operations, such as providing content development tools for authoring and editorial teams, deploying solutions for customer service to reduce interactions, and implementing new career architecture across the company.

In 2024, Assessments and Qualifications delivered a solid performance across each sub - business unit, accelerating growth in H2. Virtual Schools declined 1% due to known school losses but 2024 - 2025 enrollments were up 4% on a same school basis and three new schools were opened. Virtual Learning declined 4% given the final portion of OPM ASU in the first half comp. Higher Ed returned to growth given gains in adoption share, enrollments and pricing, partially offset by mix. English Language Learning delivered a strong 8% performance, driven by Institutional with PTE performing well against a tough market and Workforce Skills grew 6% with a solid performance from both Vocational Qualifications and Workforce Solutions and momentum given recent partnership contracts with ServiceNow, Microsoft and now AWS. In terms of revenue contribution, Assessments and Qualifications, Higher Ed, English Language Learning, Virtual Schools, and Workforce Skills each had their respective contributions to the group's overall revenue.

For 2025, we expect each business unit to grow with group underlying sales growth, adjusted operating profit and tax in line with current market expectations. Underlying free cash flow conversion will be 90% to 100% with an additional assumption of receiving the £100 million state aid repayment this year. Interest will be circa £65 million. Included within this guidance is new investment to support strategy and drive growth, with margin expansion driven by margin on sales growth and operational improvements. Beyond 2025, expect CAGR underlying sales growth at mid - single digits, sustained margin improvement of an average of 40 basis points per annum and strong free cash flow conversion in the region of 90% to 100% on average across the period.

There are areas to improve, such as growth rates in virtual schools, margin in higher ed, and rolling out enterprise account management approach.

Q: Adam Berlin from UBS asked about partnerships with AWS and Microsoft, views on new Trump administration policies affecting the business, and unpacking guidance on English.

A: Omar Abbosh explained the hyperscaler relationships in terms of recruiting engineers, existing and expanding customer relationships, and joint go - to - markets. On Trump administration policies, Art Valentine stated that Pearson is experienced in dealing with different states, PDRI is a small part of the portfolio and in line with administration objectives. On English guidance, Sally Johnson said English will moderate from the 8% growth of last year due to PTE decline from Australian and Canadian elections but is still confident in the medium - term with institutional business growth and product innovations.

Q: Nick Dempsey from Barclays asked about the shape of the year's growth, maintaining growth in Higher Ed's second half, and IA comparison with competitors.

A: Sally Johnson said there is good visibility with detailed budgets. Tom ap Simon mentioned focused sales teams, product value proposition, international growth in Higher Ed, and discussed IA strategy.

Q: Steve Liechti from Deutsche Numis asked about exposure to discretionary or project - type spend relative to subscription and M&A vs share buybacks.

A: Sally Johnson said there are no big exposures like that in the guidance. And the capital allocation policy is focused on investing in the business, dividend, leverage, and the Board decides on return to shareholders with organic growth being the focus but M&A considered when it fits the strategy.

Q: James Tate from Goldman Sachs asked about margin improvement in A&Q and group margin outlook.

A: Sally Johnson said margin improvement in A&Q was driven by sales growth and cost efficiencies with operating leverage between 40% and 60%. Group margin in 2025 is expected to improve with margin improvement of 40 basis points over time due to operating leverage on sales growth, cost efficiencies, and offset by investment.

Q: Sami from BNP Paribas asked about A&Q guidance low to mid - single - digit growth and paid users to Pearson+.

A: Art Valentine said A&Q's low to mid - single - digit growth is based on new contract launches, investment in go - to - market resources for test prep, and focus on formative and interim assessment. Tom ap Simon said Pearson+ is part of the portfolio strategy with integration pieces being worked on and expected to grow over time