Pearson(PSO) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, the company achieved a revenue growth of 4% and a profit increase of 6%, with adjusted EPS rising by 4% to GBP 0.645, reflecting solid trading performance despite currency headwinds [42][44] - The adjusted operating profit margin expanded from 16.9% to 17.2%, driven by operating leverage from sales growth and continued cost savings [42][46] - Free cash flow conversion was strong at 125%, including state aid recovery, and 98% without it, supporting a 5% increase in dividends [42][48] Business Line Data and Key Metrics Changes - Assessments and qualifications delivered solid performance with growth accelerating in H2, particularly in Q4, contributing to a 4% overall growth [44][46] - Virtual learning saw a strong performance, with sales up 18% in H2 and fall enrollments increasing by 13% [44] - Enterprise learning and skills grew by 6%, with a notable 20% growth in enterprise solutions in Q4 [44][46] Market Data and Key Metrics Changes - The English language learning segment maintained revenue levels despite a 15% decline in global market volumes, indicating market share gains [12][44] - The higher education segment showed improved growth, with expectations for further growth in 2026 supported by product and platform innovation [51] Company Strategy and Development Direction - The company is focused on leveraging mega trends such as demographic shifts and AI to drive demand for skilling and validation of skills, positioning itself as a leader in lifelong learning [3][9] - The strategy includes enhancing core businesses while investing in faster-growing segments like early careers and enterprise skilling [11][36] - The company aims to continue embedding AI-driven innovation across its products and services to improve learning experiences [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future, citing strong secular demand driven by ongoing demographic shifts and advancements in AI [3][9] - The company anticipates continued growth in 2026, with a financial profile expected to improve further [2][41] - Management highlighted the importance of trust and verified skills in an AI-driven era, positioning the company to benefit from these trends [8][80] Other Important Information - The company has established nine significant partnerships with leading technology firms, which are expected to contribute to future revenue growth [23][24] - The company is investing in modernizing its higher education platforms, which will lead to a one-off impairment but is expected to generate long-term profit improvements [47][50] Q&A Session Summary Question: Can you provide more detail on the moving parts of A&Q growth in 2026? - Management acknowledged the impact of the New Jersey contract loss and indicated that without it, growth could be higher than the guided 4% [66][68] Question: Is there a strong pipeline for potential new contracts going forward? - Management confirmed a strong pipeline with new contracts in various states and partnerships with major tech companies [69][71] Question: What are the primary risks identified regarding generative AI? - Management noted that while there are risks from free AI tools, Pearson's focus on trusted, validated skills positions it well in the market [78][80] Question: What is driving the significant improvement in virtual learning margins? - Management attributed margin improvements to operating leverage and indicated that this trend is expected to continue [85] Question: How is pricing evolving across the businesses? - Management indicated strong pricing power, allowing the company to retain cost savings without significant pressure to pass them on to clients [85] Question: Why is McGraw Hill growing quickly, and can Pearson bridge the gap? - Management acknowledged McGraw Hill's growth but expressed confidence in Pearson's ability to improve its growth rate through innovation and strategic investments [86]