PSO

Good morning, everyone, and welcome to Pearson's 2026 Q1 trading update. We will begin with a brief update on our first quarter performance, followed by an open Q&A session. If you would like to ask a question, press star one. To withdraw your question, press star two. For operator assistance, press star zero. With that, I'll hand over to Omar.

Thank you, Alex. Good morning, everyone, and thank you for joining us today. I'm here in London with our CFO, Sally Johnson. Many of you will already have seen our Q1 results announcement this morning. I'll just pick out a few key points and then we'll open it up for Q&A. First, we're encouraged by the good start to 2026, reporting revenue growth of 4%, and pleased with the momentum that we're seeing in our business, driven by continued strong execution from all our teams. We remain confident in achieving our guidance for 2026, and we reconfirm our medium-term outlook. Looking at performance by business unit.

Assessment & Qualifications declined 1% as we had expected, and this is on track to return to growth in Q2 and beyond, supported by new business such as the Standards and Testing Agency in the U.K. and recently extended or awarded contracts, including ACCA and Google Cloud. Virtual Learning delivered another standout result with 21% revenue growth, driven by another excellent enrollment performance, which accelerated from the fall semester. We're further encouraged by preliminary market share data, which indicates that we're gaining share in the market. Higher Education delivered 2% growth with another solid performance in our U.S. core courseware business, which continues to deliver sustained growth. We expect Higher Education revenue growth for the year to be higher than 2025, with improvements in the K-12 channel and international markets.

English Language Learning was up 2%, reflecting growth in the institutional business, driven by China and our enterprise offerings. We continue to expect PTE to return to growth this year, driven by share gains in pricing, although the market remains pressured, including in the Middle East, which I'll touch on in a moment. Lastly, enterprise learning and skills grew 8%, supported by good growth in vocational qualifications and continued momentum in enterprise solutions. The strength of our Q1 results illustrates the message we gave at the prelims. Pearson is successful thanks to our unique characteristics and enduring competitive strengths. You'll remember that about 90% of our profit comes from operationally complex, interconnected, hybrid, physical and digital services, which comprise assessments, virtual schools, and print. These demand uncompromising quality levels and trust.

The remaining approximately 10% of profit comes from primarily digital courseware, where we're deeply integrated in the critical workflows that decision-makers use to perform their roles. We're seeing the benefits of these characteristics and strengths in our Q1 performance, and they underpin our confidence in delivering attractive long-term growth. Second, we've made good strategic progress against the priorities we set out for 2026. Let me share a couple of examples. We continue to expand our AI learning and skilling programs through the launch of our Foundations of AI course for U.S. school teachers. Together with Adobe, we launched the first professional certification for Adobe Firefly. These reflect our opportunity in helping learners and workers upskill in the AI era.

In enterprise skilling, our teams have been further developing the strategic relationships across our nine partners, including recently with Salesforce, as reflected in our Q1 result. We are just at the beginning of what we can achieve with these partners. We're working with these companies that are amongst the world's leading technology players to shape the approach, tools, and solutions for reskilling in the AI era. This is why they have committed hundreds of millions of dollars of incremental revenues up to 2030 to Pearson. We're using Pearson's proprietary content, data, and assessment capabilities with their scale to serve their skilling needs, those of their partner ecosystems, and those of their customers. Communication Coach, developed alongside Microsoft, is just one example in this area. Third, we wanted to acknowledge the conflict in the Middle East.

Our first priority is and always will be the safety of our people, and we're committed to doing everything we can to support them. This region, including near adjacent countries such as Turkey and Pakistan, represents approximately 2% of our revenues, mainly across A&Q and ELL. We do not expect the conflict to impact full-year group growth in any meaningful way. Our teams are dealing with operational considerations, such as the announced changes to school exam delivery this year, where we're leveraging well-established contingency arrangements to support schools and students. We are seeing early signs of possible disruption to the migration and study abroad market relevant for our PTE business. However, both of these factors are small in the context of Pearson's overall performance, and thanks to our very resilient business model, we remain confident in our 2026 guidance.

Lastly, as you know, this is our wonderful and lovely Sally's last set of results. I wanted to say thank you again. What a fantastic partner she is and a friend she's been to me and the whole Pearson executive team. Sally has been working very closely with Simon Robson, our new CFO, to ensure a very smooth transition. We look forward to introducing you to Simon at our interim results this summer. With that, Sally and I are pleased to answer your questions.

Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw from the queue, please press star two. Our first question is from Ciarán Donnelly with Citi. Please go ahead.

Thanks a million.

Hi, Ciarán.

Thanks a million, guys, for the presentation, or the comments. Just on A&Q, could you just remind us of the dynamics going into Q2 around any impact from the New Jersey contract loss, PDRI, and just trying to help us understand the return to growth comments in Q2 within A&Q. Just in Virtual Learning, those enrollment, growth numbers are very strong versus some peers that have reported, recently. Can you just help us understand any dynamics around the enrollment growth trends in there? Thanks.

Sure.

I think this is both mine, aren't they? Thanks, Ciarán. A&Q in Q1, you will remember, has the comp for PDRI because the federal impact happened in Q2 last year. Q1 hadn't got that, so that's part of the dynamic in Q1 along with New Jersey. The New Jersey impact is across Q1 and Q2, so it's still relevant in Q2, but the PDRI piece isn't so relevant in Q2. Then we have growth coming from the underlying businesses, but also some new contracts that we've had. The new contracts like Salesforce and ServiceNow that started in the second half of last year. Also in our qualifications business, we have our NCT contract, so that is the delivery of exams for primary school kids in the U.K.

Of course, if you've got primary school kids in the U.K., you will know that they take those exams in the summer term. That will also be part of the growth that we see in A&Q for Q2. Very confident in A&Q growth in Q2. Virtual learning enrollments are up 15% for Pearson. I know one of our competitors reported earlier with a lower enrollment number. There are some specific dynamics in their business that I will let you go and look at that are relevant to them. I'm not gonna necessarily talk to a competitor's numbers, but really good performance in virtual learning. It's the dynamics there are, you know, a market with a tailwind.

The kind of drive for parental choice is meaning that people are turning to the Virtual Learning environment. We've been really pleased with what we've been doing in terms of our enrollment processes and improvements there, as well as how we have driven marketing. I think one thing that is worth pointing out is that we talked about 13% for fall back to school. The 15% is demonstrating that we've actually added enrollments in year, which has been partly a factor of how we've done our marketing this year in terms of when we put marketing spend into the funnel. Really pleased with Virtual Learning.

Thanks a million and best luck in the new role, Sally.

Thanks, Ciarán.

Thank you. Next question is from James Tate with Goldman Sachs. Please go ahead.

Morning, James.

Good morning.

Hey, James.

Morning, Omar. Sally. Yeah, it's James from Goldman. Three questions, please. I guess firstly, just on the U.S. student assessment business in A&Q. You recently won or expanded contracts in Maryland and Wyoming. Do these have a financial benefit in calendar 2026 or is this delivery in the first half of 2027? I guess, are there any other upcoming tenders you'd flag either to win or retain over the next few quarters? Secondly, on ELS, we're now, you know, a third of the way through the year. Do you have any more visibility on growth for the division this year? Do you expect to see an acceleration from the 8% in Q1, given the current product roadmaps from some of the new partnerships?

Lastly, on capital allocation, the accelerated share buybacks due to be completed by the end of May, I think, and leverage remains below the two times maximum you've outlined. How should we think about the scope to increase this through the rest of 2026 and the timing for such a decision? Thank you.

Should I take the first one and the third one?

Go for it.

Oh, you can take the second one.

Sure.

U.S. student assessment, yes, we've got the New Jersey impact in Q1 and Q2. You're quite right. We renewed many contracts last year. I think 38-

38.

was the number that we talked about at prelims. We'd also talked about the extension of the Maryland contract and the win in Wyoming. Both of those come through a small amount in the second half of 2026. Also, there'll be the upside in 2027 as well when we have a full year. I guess the answer to your question there, James, is both. In terms of other tenders, it's very, very normal for there to be an RFP cycle in this business. There are tenders that are coming up. I'd remind you of our track record in terms of our retention rate. 96% last year, and that included New Jersey. Lots of confidence in our ability to retain those contracts going forward.

On the share buyback, obviously, we're amidst the share buyback at the moment, so there's no capital allocation for the board to be making a decision on. At the point that we then get into a next cycle where that decision is made, we will apply our capital allocation policy, which I think is quite clear to people from a go-forward basis.

Perfect. Let me just pick up the ELS comments, James. I mean, obviously, we're not sort of giving segmental guidance by quarter for each of these VUs. But we feel very good about where ELS is. I mean, the performance in Q1 was strong in virtual and vocational qualifications which, as you probably know, always has a, is biased somewhat to H1. That one has performed very well. We're very good with how it's tracking for the year. Enterprise Solutions, which is where a lot of our enterprise partnerships are inked, is trending in a very good way. The, the way those contracts are designed, they're all, let's say, five-year contracts, and they ramp over time, is essentially how they work.

What our teams are doing is working alongside our partners to, of course, figure out, like, where do we apply, you know, very helpful engineering resources in terms of transforming and improving Pearson's business? How do we bring Pearson solutions and skilling capabilities into their business to help their people? Importantly, how do we work together on joint go-to-markets? The most obvious vector of activity in the short term that we're seeing is the tech companies asking for help in skilling their salespeople on their own AI because the tech is moving so quickly, and that's providing a area of growth. Importantly also for their partner organizations. I mean, to give you a sense, an organization like IBM will have something like 30,000 partner organizations around it that help them implement their tech with their end customers.

Those partners also need help in skilling with the new tech that's coming out of IBM. You have the actual end customers who also need help with using that AI in the most effective way. Obviously, in order for these companies to derive ROI on their investments in the tech that they're building, they need their customers to be using it effectively. That's where our teams are working together on shaping the products and services to meet that need, and that's why we're very confident in the future growth in that business.

Very clear. Thank you. Thanks, Sally Johnson. All the best for the future.

Thanks, James.

Thank you. Our next question is from Steve Liechti from Deutsche Numis. Please go ahead.

Morning, Steve.

Yeah. Morning. Just a couple of phasing questions, actually. First of all, just going back to Virtual Learning. It looks to me as though the second quarter comp is still relatively easy when we look back at next year, and then it gets more difficult in the second half. Is it fair to assume that the second quarter growth rate can be at a similar rate to the first quarter and then it starts slowing down? Is that the kind of way to think about it? That's the first question. I think I heard you refer in vocational, I know it's first half weighted, but there was some phasing benefit in the first quarter. Can you just clarify whether I was correct on that? Thanks.

Yeah, I'll take both of those. Hi, Steve. On Virtual Learning, you're quite right. The comp for Q2 is easy, in inverted commas the way the one in Q1 was because you think about this business semester by semester. Q1 and Q2 generally would look very similar, and actually H1 would look very similar to H2 of the previous year 'cause the enrollments effectively that you're getting are mostly for that school year. The one thing I would point out is that we've highlighted that we got a small amount of funding upside in Q1, which we would normally get in Q2. Whilst the growth in Q2 will be very good for Virtual Schools, it won't be quite as high as it was in Q1.

The way I would encourage you to think about it is that H1 will look very much like H2 last year. I think H2 last year we told you was 18%. Then on vocational, yes, I mean, it's really small in pound terms, but we have had a very small phasing benefit in vocational in Q1 that normalizes in Q2. It's really small from a GBP 1 million point of view.

Perfect. Thank you so much.

Thanks, Steve.

Thank you. As a final reminder, for any last questions, please press star one on your telephone keypad or star two to remove your question from the queue. Okay. [crosstalk] Looks like there are no further questions.

Great. Looks like the update was comprehensive, so we've covered questions quite quickly. Thank you very much everybody for your interest in Pearson. With that, goodbye.

Thank you, everyone, and thank you, Sally Johnson.

Thank you. This concludes today's conference call, and you may now disconnect your lines.

Good morning, everyone, and welcome to Pearson's 2025 Full Year Results. Today's session will consist of a presentation followed by a Q&A. [Operator Instructions] And with that, I'll hand over to Omar.

Thank you, Alex. I've been looking forward to seeing you all. Welcome, and thank you for joining. We appreciate you being with us. Let me begin with the three things I want you to take away from today's presentation. First, we continue to be very excited for the future of Pearson, thanks to mega trends driving strong secular demand for exactly what Pearson offers and because of Pearson's unique characteristics and enduring competitive strengths. Second, 2025 was another good year of financial delivery and significant strategic progress. Third, we will continue to make progress on our strategy in 2026 with a financial profile that improves further on 2025. I will outline our business progress before handing over to Sally to provide an overview of our financial results for 2025 and expectations for 2026. And then we'll move to Q&A with Aarti, Tom, Sharon, Vishaal, Anthony alongside Sally and me. For those of you in person, we have a series of product demos focused on our most recent releases that will be available after the main presentation just out there. Let me now tell you why I'm confident for the future of Pearson and why we are positioned to succeed. Two factors provide the foundation for our confidence. The first is that mega trends will continue to drive strong secular demand for exactly what Pearson offers. We've spoken before about the ongoing demographic shifts and the advance of AI. These mega trends are already driving major demand for skilling and the validation of skills. How do I know this? Because we have valuable revenue commitments from 9 of the world's leading technology and services companies for exactly these services. And these trends will continue to reconfigure whole industries, occupations and educational systems. Enterprises will need to upskill workforces at pace to keep up with rapid technology changes and institutions will need to provide alternative skilling pathways for vocational and career and technical education. Pearson as the world's lifelong learning company is perfectly positioned to benefit from this massive wave of human skilling over the next several years. Second, we will succeed due to Pearson's unique characteristics and enduring competitive strengths. I feel the need to elaborate. Over 80% of Pearson's profit comes from assessments and virtual schools. These businesses are driven by human-led services where complex interconnected physical and digital workflows enable large-scale delivery in highly regulated markets. Our services must meet a very high bar for accreditation authorities and regulators, meaning that strength and operational delivery matters. And together, our services act as verification infrastructure for companies, industry associations, states and government agencies. Examples of workflows include physical and biometric security, supply chain with secure custody of assessments materials and incident response, statistical proof of maintaining standards alongside capacity management to enable millions of tests to be taken through our network of 20,000 secure physical facilities. Even in today's AI world, some countries or customers are not ready for digital at any scale. So there will continue to be need for print-based products for the foreseeable future. That means that about 90% of Pearson's profit stream is coming from operationally complex, interconnected hybrid physical and digital services alongside print, all demanding uncompromising quality levels and trust. The remaining 10% approximately comes from -- the remaining 10% about -- of our profits come from primarily digital courseware. For example, in higher ed, here, we're deeply integrated in the critical workflows that decision-makers use to perform their roles. These customer relationships have been nurtured over many years built on a foundation of quality, and that comes with high switching costs. We love seeing the progress that AI labs and others are making in the tools that can benefit learners. And as you know, we're embedding much of their progress directly into our offerings, but our products are not just learning content. They're designed to manage a course end-to-end and are tightly integrated with the learning management and student information systems at the university level as well as the course curriculum and assessments at the individual professor level. These characteristics are very unique and are supported by enduring competitive strengths. Specifically, our unique deeply embedded position in the learning ecosystem gives us petabytes of proprietary data that we use to improve learning experiences and outcomes. We have data from billions of student engagements and submissions and hundreds of thousands of instances of instructive feedback occurring on our platforms every year, and that allows us to build ever more effective products. Pearson holds leading positions across almost all our businesses. This leadership provides scale economics and strong operating leverage at an individual business level and a breadth of offerings that is unmatched globally. The diversity makes the business model robust. And our trust underpins all of these strengths. This has been gained through a long track record of operational excellence in our large-scale services businesses and through our quality IP, expertise in how people learn and how to deliver evidence of learning outcomes with formal education institutions. Trust is valuable and plays to our unique strengths because the closer you are to the teacher and the learner, the more trust you need to operate. And trust in verified skills is even more important in an AI era. Taking a step back, what does this all add up to? The mega trends of demographics and AI will continue to be major demand drivers for skilling and the validation of skills and Pearson as the world's lifelong learning company is perfectly positioned to benefit. Our unique characteristics of trust, infrastructure level quality, operational strength and breadth of services that are embedded deep in the learning ecosystems, alongside our investments in AI-driven innovation delivers strong durable cash flows and profitability. And our deep and enduring competitive advantages provide us a unique platform for future growth. You'll remember that we set out three priorities in 2025, and I'm pleased to say that we successfully delivered on all of them. Thank you to the focus of our people, on our customers and on execution. First, we have again delivered a financial performance in line with expectations with revenue growth increasing 4%, profit up 6% and strong free cash flow, demonstrating the attractiveness of Pearson's business model. Second, we continue to embed AI-based innovation across our products and services, allowing us to deliver more engaging, personalized learning experiences. Importantly, we're seeing continued tangible improvements in both learner engagement and outcomes. And third, we're making great progress on enterprise. Our new go-to-market strategy is delivering results, and we see clear financial momentum with a growing revenue backlog now totaling hundreds of millions of dollars of incremental sales to 2030. This means the enterprise business is on a journey towards delivering meaningful shareholder value, underpinning an acceleration in our growth over the medium term. You'll remember our strategy outline, our why, what and how that we first shared in 2024, and that framework continues to guide us. We're motivated by our purpose to help people realize the life they imagine through learning. We'll show a video at the end of our presentation, which is part of a series highlighting the real-life impact learning has on real people, playing directly into the unique role of Pearson in the world. Next, our what. It remains clear. We're the global leader in assessments and verification. That is our core. And we're implementing our strategy to drive performance in our core businesses, realizing execution synergies while also investing in the faster-growing segments of early careers and enterprise skilling. And finally, our how consists of our internal capital allocation process, prioritizing innovation to deliver better learning outcomes and embedding a high-performance culture top to bottom. Let me share some details on our progress in 2025, starting with driving performance in our core businesses. Here, our progress and execution focus gives us confidence that each business unit is on a clear path to improved growth, benefiting from strengthening our sales muscles and developing our product road maps to be ever more competitive. First, assessment and qualification growth increased in 2025, thanks to our team's clear focus on executing for our customers. Clinical Assessment and our Qualifications business performed strongly, benefiting from digital growth and international expansion. Pearson Professional Assessments secured scope extensions and new awards with enterprises such as Google, ACCA and others that we have won and will communicate in the year ahead, which will contribute to faster future growth. U.S. Student Assessment made progress, unlocking adjacent market growth through our partnership with McGraw Hill, and we expect continued momentum in 2026 with ongoing growth in enterprise, international markets and new product innovation. Second, English Language Learning, Sharon and the team continue to execute strongly with customer wins in key institutional markets, for example, in Latin America and market share gain in PTE, where we maintained our revenue level even while global market volumes declined by about 15%. We will build on the momentum in upskilling enterprise talent with English skills and drive further market share gains contributing to higher growth in 2026. Next, in higher education, we delivered faster growth in 2025 despite the K-12 transition and trading conditions in international markets. We progressed our early career strategy, operationalizing our direct K-12 sales team to take advantage of the fast-growing career readiness opportunity. Our core U.S. Higher Education business performed solidly with continued strength in inclusive access. And at the same time, we see value upside as we know we can do better, especially in channel execution to improve inclusive access growth and accelerating platform convergence and simplification in 2026. Now turning to Enterprise Learning and skills. Vishaal and the team continue to lay the foundations for growth, building our global enterprise sales team, securing a series of long-term meaningful strategic relationships with blue-chip names, and I'm going to say a bit more about that in a few minutes. And then finally, Virtual Learning had a standout year. We're now seeing the benefits of the execution improvements that we told you about this time last year, including our new enrollment portal and targeted marketing investments to capture strong demand. We've enhanced our early careers offering with new industry partnerships, which are now embedded across the entire school network. And we're excited about the potential for this business in 2026 and beyond. We are a leader and gaining share in a market that has strong demand plus opportunities to add capacity to our school network. And we can drive further business unit-specific improvements with execution synergies driving value to Pearson as a whole. We're driving synergies across our business units, supported by AI-enabled cost optimization opportunities and ongoing process improvements while enabling faster product innovation. These synergies are providing additional capacity to invest in the business, supporting future growth. In 2025, we generated about 200 basis points of margin through cost savings. which, of course, we are reinvesting. Expect us to continue to optimize our business, enabling ongoing investment and margin progression within our P&L envelope. Let me give you a little update on our progress across our key synergy areas. First, we've consolidated our suppliers and deepened our relationships with a smaller number of key partners to create customer impact, drive efficiencies and grow our businesses. Our latest partnership with Salesforce provides all of these benefits. We've deepened our sales intelligence capabilities at an optimized cost while supporting Salesforce's own reskilling priorities with our suite of enterprise products. Second, we are improving our operational systems, leveraging new AI technologies to provide better customer service, faster routes to market and improved data capabilities to support our decision-making. Teams using our AI content development tools saw content editing time reduced by at least 40%, translation costs reduced by nearly 1/3 and content alignment costs down by 1/4. Our AI customer services agents handled over 130,000 customer interactions, delivering an approximately 40% reduction in volumes where our agents have been deployed. And we'll unlock further value as we move from these pilot stages to wider internal scale and develop new workflows with agentic technologies. Through our newly established revenue operations function, we now have a single standardized sales pipeline across Pearson and a simplified sales incentive framework, improving forecast visibility and sales disciplines. Now turning to brand. If you went online to look for all the Pearson properties and assets and products, you would have been met with this kind of brand soup. We are creating a more unified Pearson presence, allowing for a simplified and intuitive product portfolio, enabling easier selling and purchasing and, in my opinion, an improved signal-to-noise ratio. You will have seen this in the new Pearson branding that we launched last year as well as through our product portfolio, for instance, Pearson Learn and Pearson Career Ready. Finally, we're making progress on implementing a modern software development approach. These Pearson-wide set of tools and methods maximize the value of our sector-leading product and technology cash spend, which totaled approximately GBP 1 billion last year, which means we're investing in innovation for the future while building on our core competitive strengths. Through our efforts, we're accelerating the rate of innovation across the company, leveraging shared capabilities to embed best-in-class AI-enabled tools and functionality across the business units, supporting their market position. As usage of our AI tools scale among end users, we continue to demonstrate clear benefits, including for educators who are freeing up time to spend on teaching and for students who are actually improving their learning outcomes. Let's now show the breadth of our AI offering in higher education and how we're improving student outcomes. [Presentation]

And what this highlights is not just the pace at which we're innovating, but how deeply embedded AI now is in our capabilities to improve outcomes. Let me shift now to sharing our progress on our two medium-term growth vectors, starting with enterprise skilling. When I speak to CEOs, the message is consistent. AI is shortening the half-life of skills, and there is no positive outcome with AI transformation to be achieved without real investment in human learning. Therefore, there's increased urgency around reskilling, closing productivity gaps and preparing for the AI-driven reconfiguration of jobs. The scale of change is moving enterprises away from traditional learning and development approaches with discrete tools that show little or no ROI and towards partners who can co-develop learning experiences and connect skills, data and talent intelligence into a unified ecosystem. The strengths of Pearson play into this opportunity, and we're making good progress unlocking it. Our newly established go-to-market approach has led to 9 important partnerships that you can see on the slide. The common thread across each of these logos is that these enterprises matter in the future of technology. They have large workforces with significant reskilling needs, and they share our conviction about the importance of skills in the AI era. And they chose Pearson because we're the world's lifelong learning company. Let me remind you of the scope of these long-term partnerships and then go on to tell you why these deals matter. First, they commit our partners to being Pearson customers. We've created significant sales opportunities already, such as the integration of our learning products to support Amazon's workforce development, English Language Assessments for TCS, certifications at scale for Google through Pearson Professional Assessments, Credly as a key credentialing partner to Microsoft's new skilling platform and sales skilling through a combination of assessments and personalized content for IBM and Cognizant. And there are clear parts and commitments with each partner to do more. Second, Pearson is also a customer of their engineering skills and services, for instance, through the deployment of AI tools for content generation or the use of Azure and Bedrock capabilities in our AI-enabled products. And third, we're engaging in the joint innovation and go-to-market activity that unlocks new opportunities for instance through complementary solution models and access to industries or geographies. Examples of progress here, including partnering with HCLTech on a skilling initiative for a major U.S. retailer and embedding our enterprise product suite and assessments and learning content in the Deloitte Academy, which is Deloitte's comprehensive skills transformation offer that they offer to their clients globally. Microsoft was a key strategic partnership early on, and we've made significant progress in 2025. We're excited by the innovation alongside them, very excited. We now offer personalized adaptive learning experiences directly in the flow of work. Let's introduce you to communications approach. Please roll the video. [Presentation]

We're just at the start of what we can do with our partners as we combine Pearson's proprietary content, data and assessment capabilities with their scale, enterprise selling and reach. Our enterprise business will contribute meaningful shareholder value over the medium term, and we're pleased by the progress so far. I know I have a finance audience in the room. So from a financial perspective, the contracts we signed in 2025 lock in revenues of hundreds of millions of dollars with existing customers, and they add incremental cumulative revenue commitments to Pearson of hundreds of millions of dollars through to 2030, with value being realized in AMQ, ELL and ELS. Now let's turn to our second growth vector, early careers. In an AI-driven economy, concerns are particularly acute around entry-level roles. That makes job-ready and vocationally aligned skills more important than ever. We estimate the early careers market is about a $6 billion opportunity in the U.S. alone. It is fragmented with no clear winner and has been underserved historically, presenting a clear adjacent opportunity for Pearson given our strengths. We had an early presence through our career offerings within virtual schools and relevant IP in higher education and career-ready certifications in Certiport. We're augmenting these areas with significant investment. For example, we improved our channel access through a direct Salesforce to deepen and expand our relationships with U.S. school administrators. And we expanded our capabilities through the acquisition of eDynamic Learning, North America's largest provider of digital career and technical education. So by optimizing our model across these areas, we're driving new growth here and are energized by the progress in unlocking this attractive adjacent market. I now want to shift gears a little and come back briefly to the topic of power metrics. These are a small number of metrics of leading indicators that we want to report to you on a go-forward basis. We chose these metrics because they signal clearly the future health of the business, and we want also Pearson's people to be laser-focused on these as part of their incentives as well. First, our renewals metric. The renewal rate was strong at 96%, reflecting the competitive strength of our businesses. While Pearson Professional Assessment continued to drive near perfect retention, the metric was impacted by New Jersey and U.S. student assessment, although we were successful in another 38 competitive renewals in that business. And our renewals metric will be supported by our second growth metric, which shows the average annual new contract value signed across our core large-scale assessment businesses. In 2025, our metric was GBP 33 million, benefiting from large wins such as Google with Pearson Professional Assessment and our formative assessments contract with McGraw Hill. And given contracts in this space are long term in nature, you should think of this metric as cumulative over a 3- to 5-year period. Lastly, we extended our major customer metric to 49 in 2025, reflecting both new customer wins and expansion within existing relationships, demonstrating our momentum in enterprise. As you can see, we have now made a lot of progress in our business while delivering on our commitments, which will contribute to an even stronger 2026. Our unique business model, continued progress against our strategy, plus our strong focus on execution means that we're guiding to a further improved financial profile in 2026. This builds on our track record of financial progression and meeting market expectations each year since COVID. I'd like to now hand over to the wonderful Sally to break down in more detail our financial performance for '25 and the financial outlook for '26.

Thanks, Omar, and good morning, everybody. 2025 delivered another year of good financial performance. Sales grew 4% with a 6% increase in underlying profit and margin expansion from 16.9% to 17.2% despite currency headwinds. Adjusted EPS increased 4% to 64.5p, reflecting that solid trading performance and a reduced share count from the share buyback, partially offset by higher interest costs. It's worth noting that EPS grew 9% at constant FX rates. Cash performance continues to be strong with free cash flow conversion of 125%, including the state aid recovery, 98% without. This strong performance, combined with our balance sheet strength, supports a 5% increase in the dividend. We also recently commenced a further GBP 350 million share buyback, demonstrating proactive capital allocation to drive incremental shareholder value. Before we get into the detail, we've updated the slide we shared last year, demonstrating historical financial progression for 2025 data. We have a track record of consistent progress with underlying sales, profit, free cash and return on capital growth. This demonstrates the momentum in the business and underpins our confidence in both our 2026 outlook, which I'll come to in a minute, and our medium-term guidance. But first, a recap on our 2025 sales performance with group underlying growth of 4%. By business unit, Assessments and Qualifications delivered a solid performance with growth accelerating in H2, particularly in Q4 and all sub-business units contributing to that growth of 4%. Virtual Learning delivered a strong performance, particularly in H2 when sales were up 18%. Fall enrollments were up 13%, supported by enhancements to our enrollment platform, improved retention, the rollout of our career academies, targeted marketing and strong underlying market growth. Higher Ed growth improved as expected versus 2024. Our core U.S. Higher Ed business delivered a solid performance with anticipated offsets from K-12 and international, both of which are expected to improve in 2026. English Language Learning continued to grow, driven by institutional, while PTE was flat year-on-year, outperforming a challenging market. And Enterprise Learning and Skills grew 6% with another solid performance from Vocational Qualifications and momentum in Enterprise Solutions, who grew 20% in Q4. Group adjusted operating profit grew 6% on an underlying basis to GBP 614 million. This was driven by operating leverage from sales growth and continued cost savings, partially offset by investment and inflation. FX also impacted the headline movement. Adjusted operating profit margin increased to 17.2%. Again, by business unit, Assessments & Qualifications margins remained at 23% with margin benefits from sales growth offset by investment, inflation and currency movements. Virtual Learning margins increased to 16%, driven by operating leverage on strong sales growth. Higher Ed margins remained flat as sales growth was offset by investment, inflation and currency movements. English Language Learning margins also remained flat with cost savings offset by inflation and currency movements. And Enterprise Learning and Skills margins increased to 10%, driven by margin on sales growth. Statutory profit declined 6%, predominantly due to a noncash one-off impairment relating to our Higher Ed platforms, partially offset by vacant property provision reversals following sublets in 80 Strand and Hoboken. As Omar mentioned, in 2026, we plan to accelerate the conversions of our Higher Ed platforms to streamline and modernize our courseware offering and reduce support costs. A consequence of this is an impairment of GBP 87 million in some of our assets, which is one-off and noncash in nature. This write-off now generates a mechanical circa GBP 15 million per annum profit improvement in Higher Ed on average over the next 6 years. Free cash flow increased by 8% with a conversion of 125% due to the recovery of state aid taxes. Conversion, excluding that state aid recovery was still a strong 98%. Operating cash conversion was 93% with an increase in working capital in the year given high Q4 sales growth and slightly increased investment. Our balance sheet remains strong with a leverage at a comfortable 1.3x at the end of the year, below our medium-term cap of 2x EBITDA, maintaining optionality to make value-enhancing investments and/or shareholder returns. Net debt at the end of the year was GBP 1.1 billion, a GBP 0.2 billion year-on-year increase with free cash flow more than offset by the share buyback and acquisition of eDynamic Learning and dividends. Return on capital increased 80 basis points to 11.3%, more than 250 basis points ahead of post-tax WACC. Turning to guidance for 2026 and beyond. As we've previously guided, in the medium term, you can expect mid-single-digit CAGR underlying sales growth, sustained margin improvement, equaling an average of 40 basis points per annum and strong free cash conversion in the region of 90% to 100% on average across the period. As you've heard from Omar, we have strong confidence in our ability to deliver in 2026. And therefore, we're laying out specific guidance. At a group level, you can expect mid-single-digit sales growth and adjusted operating profit in the range of GBP 640 million to GBP 685 million at FX rates as at the end of 2025. The mechanical improvement driven by that 2025 impairment I discussed earlier is included in this range, and free cash conversion will be 90% to 100%. The effective tax rate will be circa 25% and interest will be circa GBP 80 million following the commencement of our further GBP 350 million share buyback. Included within this guidance is new investment to support our strategy and drive growth, including higher-than-average transformation costs, which are weighted to H1. This investment is more than offset by the margin on sales growth and operational improvements, which drive the group's margin expansion and our GBP 0.01 equaling GBP 5 million FX profit guide still stands. On a business unit basis, A&Q will grow low to mid-single digit, driven by new contracts, products and pricing. Virtual Learning will grow even more strongly than in 2025, given a full year of enrollment growth. Higher Education will grow more than 2025, supported by continued product and platform innovation, pricing and inclusive access in U.S. core as well as improvement in the K-12 channel. English growth will be higher than in 2025 with PTE returning to growth, market share gains and pricing. And Enterprise Learning and Skills growth will be driven by a solid performance in BQ and strategic account growth in Enterprise Solutions. In terms of phasing growth is again H2 weighted, but not as markedly as in 2025. At a business unit level, A&Q will decline in Q1 given the loss of the New Jersey contract and PDRI headwinds, but will then turn to growth in subsequent quarters, supported by new business and recently awarded contracts. Virtual Learning will see strong growth, particularly in H1. English growth will again be Q4 weighted given the seasonality of the business and HE and ELS growth is expected to be relatively steady. Our disciplined capital allocation policy remains the same with a focus on maintaining a strong balance sheet, investing both organically and inorganically, paying a progressive and sustainable dividend and then returning surplus cash to shareholders. The slide you see now illustrates how consistently we've applied this policy over the past 6 years. We continue to invest behind the business with meaningful organic cash investment during the year alongside inorganic investment through the $225 million acquisition of eDynamic Learning. Since 2020, we have returned GBP 1.4 billion to shareholders through share buybacks with a further GBP 350 million program commenced in January, underpinned by another year of strong cash performance in 2025 and our confidence in 2026 and beyond. Going forward, we will continue to apply this disciplined approach. And through our strong cash generation, we'll continue to invest behind opportunities to drive further growth and create long-term value for all our stakeholders. And with that, I'll hand back to Omar.

Thank you, Sally. Okay. So let me wrap up with a quick look at our 2026 priorities. These are simply an evolution of what we focused on in 2025. Firstly, once again, we will deliver on our financial targets. Second, we will continue to lead in the application of innovative technologies, including AI across our products and services. And third, we will deliver against our core business and enterprise power metrics. As I said at the beginning, there are three takeaways from today. First, we continue to be very excited about the future of Pearson because of these mega trends driving strong secular demand for exactly what Pearson offers and because of Pearson's unique characteristics and enduring competitive strengths. Second, we successfully met our goals in 2025, demonstrating another good year of financial delivery and significant strategic progress, thanks to our rigorous focus on execution. And finally, you can count on us to do even better in 2026. Now let me say a few words about Sally Johnson. I want to congratulate Sally on her fantastic 26-year career at Pearson and the wonderful contributions she has made throughout her journey and for being a wonderful fantastic partner. I am also going to be very excited to introduce you to Simon Robson, previously Group CFO at Sky in the coming months. Now let us play a little video that I mentioned earlier before Sally and I and the team here take your questions. We're going to hear from Savannah. She is a real Pearson Connections Academy graduate, who outlines in her own words the life she's realizing through learning, which plays directly into the unique role of Pearson in the world. Please roll the video. [Presentation]

Neuroscience at NYU, pretty cool.

Alex?

It's James Tate from Goldman Sachs. I've got three questions, please. I guess, firstly, please, could you provide a bit more detail on the moving parts of A&Q growth in 2026? If you didn't have the New Jersey contract loss and PDRI was, say, stable, then would it be fair to assume the division would grow more mid- to high single digits, around 6% rather than the 4% you've broadly guided to? Is that the right way to think about it? And you've also announced a number of contract wins over the last year with major tech companies in professional assessments. Does there still remain a strong pipeline for potential new contracts going forward? Secondly, on EOS, your guidance for 2026, I think, is somewhat vague in terms of you're clearly growing the number of large blue-chip logos you're working with in Enterprise Solutions. Should this not lead to improved revenue growth this year versus '25? Or are there some other dynamics offsetting this that we should be aware of? And thirdly, I guess, Omar, building on your comments about the significant opportunities from generative AI for Pearson, what are the primary risks that you identify? For example, do you see any risk from evolving student learning behaviors impacting demand for Pearson's courseware content in Higher Ed?

Great. Thank you. This is just a very light collection there, James. We appreciate that. We appreciate that very much. I'm sure the other analysts are like Damn, and I wanted that question. But anyway, it's good. So I think on the A&Q dynamics and what's going on under the hood. I mean maybe, Sally, like say a little bit about how you think about the numbers, and now particularly James is asking ex PDRI, ex New Jersey, and maybe add a little bit to what you're seeing, the overall landscape of how that business is performing.

Yes. So I'm going to start and then I'll pass over to Aarti. So low to mid for A&Q in 2026, and you've called out the right pieces. So yes, you can see the impact of New Jersey from a retention point of view. I've called that out because it impacts Q1, and I want you to be ahead of Q1. But then through the rest of the quarters of the year, we bought new contracts online. You heard of Omar calling out the number of them. So we've got a new contracts in Maryville. We've got a new contract in other states. We've got a new contract with Google in Pearson Professional Assessment. And we've got some new contracts that we can't talk to you about yet because we haven't got the contracts signed, but which we've been verbally awarded. Alongside new products that we're bringing online, pricing and all those sorts of things as well. So we've got really good confidence in the A&Q performance for the year. To your point, I haven't done the math on what you say, but quite clearly, without the PBRI piece with the federal funding and without that New Jersey piece, then yes, it would be better than low to mid.

Art, do you want to just comment a little bit on how you're thinking about the business shape overall?

Yes, absolutely. And good to see you, James. And as Sally said, those two factors are real, particularly in the early part of the year in the course of New Jersey. But contract performance in the two large contract services business, Professional Assessments and School continues to be very strong. We won a competitive bid for Maryland. We won a competitive bid for Wyoming. We renewed close to 40 other competitive bids. We'll see the impact in 2026 of the full year of running the Salesforce and ServiceNow certification programs within the Professional Assessment business. Omar announced the extension of ACCA. That chartered accountants in the U.K. for those not familiar, that starts to show up in '26. In our U.K. and international qualifications business, we're launching the Standards and Testing Agency primary school testing contract in '26. We came online with that in '25, but this is the first full year of implementation. We'll be delivering primary school examinations in 16,500 schools in the U.K. And our clinical assessment business continues to deliver strong digital innovation into the market. That business has performed well over the last few years. I encourage you to stay for the product demos afterwards, and you'll see some examples of more innovation that we're bringing to market, and that gives us confidence in strong performance in that business. So overall, we feel great about A&Q.

That's the summary. We feel great about A&Q. On the second question, Sally, I'm going to ask you to say like one word about why our growth guidance was slightly like thin. And then I'm going to ask Vishaal if he's sitting on his hunches having signed 9 deals and he's not building pipeline for the future. But over to you, Sally.

Yes. So really confident in ELS growth. But I think we know right now, it's one of the smaller divisions. It's not going to be for long because I know how competitive, apart from anything else, Vishaal is. And that just means that a few million pounds can make a couple of percentage points difference. And therefore, it didn't really seem to make sense when we're looking at it quarter-by-quarter to be too specific. But the BQ part of the business, we'll see solid growth. And I talked about that Enterprise Solutions part of the business and that 20% growth in Q4, it's relatively small now. But if it keeps growing at that rate, it's not going to be relatively small for very long.

So Vishaal, you're not going to do any more selling and like are we done now with...

Yes. So just to put a little bit more color to Sally's comments. So we have two businesses within ELS. VQ, we continue to be seeing a lot of robustness in that business. So part of that business or a large part of that business is very U.K.-centric, where we have the BTEC brand. We are also winning a lot of new contracts in the vocational space. So that continues to be driving growth. We are also expanding internationally to countries like Uzbekistan, Pakistan, Jordan and so on. And what is most exciting about that business, we also offer what we call as apprenticeship services. So a bunch of customers, we won a contract we announced last year with the British Army, which we are executing to now. We have something going on with NHS and more coming on -- coming up in Middle East that we will announce shortly. So that part of the business is doing relatively well. The other piece, which I'm even more excited about is Enterprise Solutions, where you saw those 9 partnerships that we have signed. So my team is singularly focused on execution as we speak. There are many things that we need to put in place to get all of the revenue in all the way from putting together the right product co-innovation road maps with these partners to having the right go-to-market motions and working with them, and these are very big tech players, as you know, working with them globally across all of the regions that they operate in. So a lot to focus on. But in terms of momentum, we are getting into 2026 with much, much more momentum than we had last year as we got into 2025.

Thank you, Vishaal. So James, let me say a couple of things about the AI risk point. I mean, so this one, obviously, we could spend a long time talking about it. I think the market looks and says, "Hey, if I have a digital format product where the product is purely digital and if the user is the buyer, then what happens if someone puts out an AI tool that is free, like what's that going to do to that market? And I think indeed, that is problematic for some people. The thing is Pearson doesn't do that. The only bit of Pearson that you could say like a little bit -- had a bit of that and it was Mondly. Mondly, we pivoted that a year ago to be a pure institutional and enterprise package. It's like where it's going. That's where all our spend and delivery is going. Pearson is actually -- you get a different outcome from AI. What -- when people are generating AI content at a rate of not, and there's an amazing amount of slop landing them in Internet. When you have deep fakes happening on the Internet and you have false identities on the Internet, we're seeing a giant flight to safety. People want trusted authoritative sources. They want verified identities. They want validated skills. I mean, as you know, James, today, it's tough for kids graduating or trying to get a job. They fire off 10,000 CVs with a bot and they're screening resumes at the other end by a bot. You've got bots with the bots. So the construct of how resume thing works is not really working. Companies are more and more saying, "Show me that you have a validated skill." That is what Pearson does. So actually, like I said, the AI thing is a giant tailwind for us. And I think whether we like it or not, and you all are much clever on this than I am. But when investors look -- particularly when it's sort of passive investing happening in bundles and Pearson is like wrapped up in media or wrapped up in EdTech, and we are not that. So I think Laura is next. Next to you, Susie.

Three questions, please. First one is on the virtual learning margin. So it has improved significantly year-on-year. I understand it's coming mostly from operating leverage. Is there anything else that's driving the margin expansion? And is it reasonable to assume that it's going to continue expanding at the same pace? Second question is on pricing. So you said you're generating a lot of efficiencies, thanks to AI. I'm curious to hear how are your conversations with clients? Do they expect you to pass on some of these savings? Or is your pricing power very strong, which means that you don't have to give away any of these cost savings that you're realizing? And if you could comment on how is pricing evolving across your business, that would be really helpful. And then lastly, on the Higher Ed business, one of your peers, McGraw Hill is growing very fast. Why do you think they're growing so quickly? And do you think you can bridge the gap to their growth rate? And Sally, all the best for the next step in your career.

Thank you, Laura. So on the Virtual Schools margin, I'm going to ask Tom to just say something there about what is it that you think has driven the success so far? And also, what are you thinking is -- how we're thinking about this going forward?

Yes, sure. So I mean, I think from a virtual schools perspective, last year, we obviously saw great growth driven by helping people like Savannah, which was lovely to see in that video. I think fundamentally, the margin characteristics of that business are great. The one thing you have to bear in mind is when you grow as quickly as we did last year, you have some teacher vacancies because you're struggling to recruit teachers. It's obviously kind of hard to recruit teachers in Q4 of the year. So I think you should expect to see sort of continued margin expansion driven by the top line leverage. But just recognize we may need to catch up and think a little bit differently about teacher hiring because fundamentally, I think we are seeing a very different opportunity in that space, which we're excited about. We just need to make sure we transform how we manage the business to support the ongoing demand.

And there was also that extra marketing spend that we put in to drive that growth as well. That's all covered in that margin movement too.

That was fully absorbed, yes. I mean, Laura, on pricing, I mean, I'll say like the headline is no. I mean, so Pearson, as you'd expect, is constantly investing in getting more efficient and more effective and more productive, and we will continue to do that. But that doesn't mean customers run around and say, "Hey, we've got to give us some of that savings." And the reason is very simple, and this is the point that I'm trying to make about the business model that I was talking about with James earlier. Pearson is one of two or three companies in the world that can do what we do because it's very hard to deliver that level of operational excellence in driving and assessing standards. And so that's where our gross margins come from. And so the short answer is no. Now having said that, are we going to be complacent? Of course, not. Some of the RevOps things that I spoke about earlier is actually giving us much more fidelity and visibility into our own selling rates, pricing rates, discounting rates. And we're getting more control of that, which I think will allow us to get a bit more value upside. And Tom and the team did some great work in the IA space a little bit in that space recently, and I expect that to continue. So -- but the short answer is no, we're not having to negotiate prices at the moment. And then on Higher Ed, McGrow Hill, I mean, I love you asking that because, of course, you're pointing to our upside. There's nothing that they're doing that we cannot do. And Pearson is coming from a place where perhaps we were not so well organized a few years ago. And under Tom and the team's leadership, we're in a much better place that business is growing. And I think we should aspire to continue to drive performance because McGraw is a great company. We love them, and we can learn as well. So over here and then over here.

It's Ciaran Donnelly from Citi. Two on enterprise and then one more. Just on your comments on the backlog in enterprise, could you just give us a sense of what it would have looked like 12 months ago, just to get a sense of how it's grown over the year in the context of the enterprise agreements you've signed? And then I guess, just on those partnerships, I'm just trying to get an understanding of pricing framework. Just in the context, I know there's a debate around AI displacement and unemployment levels. And I guess just in the context of potentially higher unemployment, how that would affect that business if pricing is based on headcount-led metrics? And then just on the medium-term plan and the average 40 basis point margin improvement per annum. Could you give us a sense of what's the contribution from, I guess, operating leverage and cost efficiencies just around your comments in terms of you've reinvested the cost efficiencies you've delivered over the last couple of years?

Yes. So if I go back a year ago, Ciaran, in the enterprise business and particularly looking -- I mean, so I'm not talking about vocational qualifications. I'm talking about just the small enterprise solutions thing that as Sally said, small numbers can make a difference. That business had already some partnerships. Other bits of Pearson like Pearson View, for example, would have had relationship with Microsoft and AWS, for example. And so when we looked at that, we were like, okay, how do we ensure that these customers are long-run customers for the business. That's part one. And secondly, how do we ensure meaningful growth upside. And that's what these contracts do. They lock in hundreds of millions of future revenues of pre-existing contracts and put us in a place where those companies want to invest in us and innovating to build the next generation of products, and we added incremental hundreds of millions on top of that, not just with those two, but all the others. And so that is a big difference from where we were a year ago. But like I said, the difference spreads out across ELS and ELL and A&Q because when we set up the enterprise sales team, you'll remember me saying this is Pearson had a lot of what the market in enterprise needed. It just didn't sell to it. So we've created a single sales team to address that enterprise opportunity and Vishaal's team bring all of Pearson, and that's what you're seeing in the outcome there. In terms of the pricing framework and the unemployment question, I'm not going to pretend to have a crystal ball on like the future of employment and AI impact. I think -- I do think there is some hysteria coming out of Silicon Valley because of actually how powerful 5.3 Codex and 4.6 Opus are, et cetera, on things like software engineering. So the software engineers are being very noisy about it, I think, for a good reason. And so that raises a lot of questions. In the past, when you get these sorts of dislocations, you end up with people needing skills, needing new skills. And that's the demand that we're seeing. So actually, the tech companies are coming to us for skilling their people like their sellers on their AI, and they're coming to us to come and skill their customers on their new products because in order to justify the hundreds of billions of CapEx, you need people to use the product. And in order for them to use the products, they need to know how to use the products. And that's what we're being asked to help with. So that's the big drive that we're seeing today. And I think Sally would say, in the past when there were sort of downturns in the economy and so on, Pearson has also had an element of it that is countercyclical and shows up and helps people in those moments.

On the specific financial question you're asking, though, from a pricing point of view, it's not based on headcount with these partnerships. It's on hard commits and dollars.

Yes. I mean, Sally you've excellent point. Sally. I mean so when I say the hundreds of millions, I mean, Sally and I talked about like how are we going to explain this to the market because it's a bit involved because it's across several years and it's across the different business units. But as Sally said, that is legally contracted revenue backlog. That's what that is. And then on the last point that you're asking about the medium-term 40 bps, how we're thinking about that vis-a-vis operating leverage. So Sally?

I think I've talked before about the kind of the three components, operating leverage on our mid-single-digit sales growth. And then we've talked about tens of millions of pounds of cost savings. Actually, last year, that was the 200 basis points that Omar referred to. So that gives you an idea of the scale that we're talking about. If you do the math on that, you get to a lot more than 40 basis points. And then we're reinvesting part of that back into the business in order to drive that future growth. So I think from a scale perspective, you can take the 200 basis points, you can apply the mid-single digits to the top line. And then the balancing figure to get that to 40 basis points is investment. And you'll see that, that's a significant number because we're driving for future growth. We're innovating with our partners to bring new products to the market, and it's really exciting.

So first of all, digging back into A&Q in Q1. So you saw 8% organic in Q4. I think if the whole of the New Jersey loss landed in Q1, that would be something like a 6-point drag. So that would still leave you in positive territory. PDRI was already declining in Q4. So were there one-off benefits helping you in Q4? Or is there something else worse in Q1 to get us down to negative? Also digging into Laura's question on Higher Ed a little bit more, Cengage was 10% up in U.S. Higher Ed and 25% McGraw Hill teens. Both of them say they won share of adoptions. They're also much bigger in Inclusive Access and growing faster in Inclusive Access. So this has been the case for a couple of years now. So what's going to make this turnaround and need to catch up when it isn't really happening so far? And a third question, can you talk about what kind of enrollment growth for fall 2026 you're baking into your thinking on higher education?

Yes. I mean, Nick, I love seeing you. I'm so happy you're here, and I'm excited about the day when you don't ask me tons of questions about Higher Ed. But anyway, we will get into that because I mean it like it's 10% of our operating profit with the English part as well. So I mean, the other 80%, 90% is the rest. I just want to remind everyone. But we're going to absolutely answer those things. So on AMQ, was there anything funny going on in Q4, Sally, that gave us a one-off kicker in AMQ that we should be talking about?

No. I mean, of course, we're not a business where you can just go steady, steady, steady, because it's not a volume play. We've got these large long-term contracts and the revenue recognition is based on when you're delivering against those contracts. And if your exam falls in one quarter rather than another, it can mean that things move around. All that's going on in Q1 is the New Jersey contract and then the comp from PDRI is a tricky comp. In Q2, the comp gets easier for PDRI and then we bring these new contracts online. And then we've got the new contracts that we had in Q4 also helping that growth. So just simple as that.

Yes. Thank you. I'm going to say a couple of words about -- my thesis about the Cengage thing. And then Tom, maybe you'll pile on and also talk about enrollment. So I mean, I'm a simple person, Nick. There's only two things that matter. Like do you have a good product and can you sell it? Pearson historically -- and I'm going back years, like perhaps we didn't pay enough attention to those two things well enough in the Higher Ed space. That's why on the product side, we're busy converging our platforms into a single modern tech stack and that Tony and his team are doing a wonderful job on that. So the product, I would say, was lagging, and now it's advancing really quickly. The feature functionality is incredibly rich and professors love our stuff. And some of the underlying tech stack was a bit older and like we're dealing with that. And so that's some of what you've heard about. On the sales side, again, Tom and the team have modernized that, and I actually am very happy with how that performs. But perhaps we were a bit slow on the uptake on inclusive access. So I think we closed out the year at something like 44% of our revenues are in that space. I think the top -- the front run is at 60%. So for me, it's just all upside, like we know what to do. But Tom, if you can comment on that and then please, a little bit on the enrollments as well.

Yes, sure. So I mean, I think the old market share question is a chestnut that we're kind of expecting. It's very simple. We think about adoption market share and so we're not particularly focused on NPI for a couple of reasons. One, it only measures half the market. So you can miss kind of important things like OER and what's happening there. Two, it doesn't really measure what professors are actually doing on an underlying basis in terms of adoptions. So actually, we're focused on adoption share. And last year, we were up. This year, we were flat. And we'll tell you when we're up and we'll tell you when we're down and we'll tell you when we're flat. So we're kind of fairly straightforward there. I think on Inclusive Access, as Omar touched on, there's more we can do. So we've been very focused on being more aggressive with our Inclusive Access strategy for 2026. We're looking forward to seeing how that plays out in the fall. And then I think we've also been fairly candid about some of the product areas of friction in the past, right? So when I think I joined, we had 170 different ways to integrate with an LMS. That's kind of difficult to manage if you're a sales team or if you're a customer support team. And so we've simplified that down to less than 10, and we're continuing to push on things like that. They make a difference to the professor experience, which is why we've had some of those points of friction and challenge with things like inclusive access, but there's been a lot of focus there. And then on enrollments, I think for the year, we're broadly flat. We're expecting it to be up in the first half and slightly down in the second half. So if you put all of that together, that's how we get there. So that's kind of our thinking there. And actually, just to add, I think from a product perspective, when you saw the AI in those demos earlier, that AI is out there in our sellers' hands today and it's winning new business and it's taking market share. And we're incredibly excited about our product lineup because I think the work that Tony and the team have done has been fantastic in terms of really putting leading-edge AI into our products, and that's resonating with faculty and students. And I think what people care most about is that proximity to the faculty and how we're helping students learn and you saw some beautiful statistics there about increases in active reading, learning. With your faculty, that's kind of what -- that's kind of music to your ears.

I mean the thing I'm just connecting a couple of dots of some of what you're saying is not long ago, people said, "Oh, EdTech is going to kill companies like Pearson." And then -- and also "OER is going to kill companies like Pearson." Those things flatline for reasons that are not always extremely evident. OER is peer-reviewed high-quality content generated by a professor and put out for free. But it needs to be maintained, aligned to the curriculum, aligned to the assessments. It needs to be integrated with all of the LMSs and SISs, all these things. And so that's too much for a typical professor to just do, so it doesn't happen. And so the institutions -- particularly in this world of AI where a lot of nonsense is getting published, they come back to the trusted authorities and the people that they believe in and trust and that's groups like Pearson. So I think we're in good shape. Anyone else?

We've got one question on the line. If there's no other questions [indiscernible].

Sure.

[Operator Instructions] First question is from Steve Liechti of Deutsche Numis.

I've got a couple. Just on A&Q, can you remind us or scale the size of the big client pause that you had in the first half of last year? And remind us, was that in the first quarter or the second quarter? And is that meaningful to sort of the numbers the way that they sort of flow through in the in the quarters? That's the first question. Second question is on Enterprise Learning, I know you referred to it as being small within the mix previously. Can you just give us a rough figure or remind us within that ELS overall revenue of EUR 282 million, what that number is that would be Enterprise Learning, just to help us scale that. And you commented about the 20% growth in the fourth quarter of last year. Just how good is your line of sight to that -- to equate to that 20% through to the current year, i.e., have you got the line of sight to say 20% looks realistic for 2026?

Okay. Thank you very much, Steve. I appreciate that. So on A&Q, I think people will remember, we had a bit of a snafu with a Middle Eastern customer around payment terms that ended up causing a pause and then a subsequent reengagement. So do you want to comment on the materiality of that in the quarter?

Yes. So that contract was still running for most of Q1. It was Q2 when it paused and it went back online in Q3.

Okay. So it won't have a relevant flow for Q1, Q2, is what you're?

It won't for Q1. It won't for Q2. [indiscernible] subsequently.

And then on ELS, do we segment out the ES component?

No, we don't, but it's kind of 10%, 20% would be the way to think about it.

There you go, Steve. You've got a clue there. And then in terms of the 20% growth rate, I mean, the -- we've been careful with guiding because what I'm saying -- I think what we're saying to you, Steve, is the future revenues around ES and the other components where the enterprise deals are covering, we see the -- if you like, say, the annual flow of contracts that as previously committed. The exact amount of revenue that you're going to recognize in a given quarter, a little bit depends on the product flow that happens. And so we are not being too direct about that at this point. But -- so I think I'm very proud of what Vishaal and the team have done because they basically built a team that did not exist just over a year ago, engage with these customers and have engaged these deep multiyear, quite profound relationships, which will benefit them and benefit us. But the exact way it flows quarter-to-quarter in terms of revenue growth, we're not probably going to talk about at this point.

We have no further questions on the phone line. So I'd like to hand back to the room.

Yes, we've got one question from Alex at AlphaValue. Can you elaborate on the product impairment? How many platforms did you have before the convergence? And how -- and was it related to past acquisitions?

Okay. Tony, over to you.

Yes. So it's specifically within the Higher Ed segment, and we had 4 courseware platforms, which we're converging down to 1 so that we have better efficiency. And you can see in the video, the AI study tools then work great across the one platform. And then we have a high degree of confidence that we then have the right setup moving forward from a product perspective as well as the way it's played out in the P&L.

Perfect. Thank you, Tony. And Alex, thanks for the question. Mr. Shore, does that cover us?

That covers us.

Okay. Well, ladies and gentlemen, thank you. Thank you for being with us and giving us your time. We appreciate it. We appreciate your interest in Pearson. Do not miss the chance to go across to the innovation studio and see some of these products and play with them and get a sense of what Pearson is building. I mean I love the chart that we showed about the rate of innovation increases we're releasing more and more products each year. You can expect that of this company going forward. Over to you. Thanks. See you soon.

Good morning, everyone, and welcome to Pearson's 2025 Interim Results. Today, we will host a presentation followed by a Q&A session. [Operator Instructions] And with that, I'll hand over to Omar.

Thank you, Alex. Good morning. It's a pleasure to be with you again today, I've been looking forward to it. As well as hearing from Sally and me, we'll be joined later today by our colleagues, Art, Tom, Vishaal, Sharon and Tony for Q&A. Now we're very aware that the external world has changed significantly since our prelims in February. So I wanted to first provide a view of the market dynamics that are relevant for our business and our perspective on these. I'll then move on to an update of the strategic and operational progress that we've made so far this year before handing over to Sally, who will give you an overview of our interim financial results. And then we'll open up, as usual, for your questions. But before we get going, let me first outline the key takeaways. Firstly, our strategy remains unchanged and is now well established across the organization. The 2 seismic trends of demographics and AI that we outlined this time last year are playing out exactly as expected. And in a world where AI is decreasing the half-life of skills, we have a vital role to play in shaping the future of learning. We're building medium-term growth engines for the company, for example, by gaining momentum in our Enterprise business, while in parallel innovating to ensure our products and services continue to lead the way in the world of learning. Secondly, our execution is going to plan, and I'll share some proof points with you today. And thirdly, when you put together our strategic clarity and the progress we're making with our execution focus, it only strengthens my conviction in Pearson's medium-term trajectory. And we're also on track to deliver a full year financial performance in line with the expectations we set out in February with phasing playing out precisely as anticipated. I now want to step back for a moment and consider the environment we're operating in. You all know very well it's been evolving quickly, offering both opportunities and market dynamics to address. I'd like to highlight 2 overarching points. Firstly, each of these dynamics influences only a small segment of our business, and we understand them deeply, which is a source of strategic advantage. And secondly, our diversified portfolio means that we benefit from market growth overall while being resilient to subsegment trends. So I'd like to start with the U.S. federal government. Our only material direct exposure is through PDRI, which faces some near-term pressure from hiring freezes, which we expect to continue into the second half of the year. However, PDRI's focus on merit-based hiring aligns exactly with the goals of the new administration and its long-term relationship with the Office of Personnel Management positions us well for future opportunities. With the Department of Ed, our core offerings are well aligned with the administration's priorities on outcomes and accountability, and we're ready to support mandates to upskill and develop a future-ready and AI-embedded workforce. While some disruption cannot be ruled out as changes are implemented, we've seen no meaningful impact on our businesses so far and we are prepared to move quickly to take advantage of emerging opportunities. For a bit of context, federal funding accounts for a relatively small proportion of total funding for K-12 and Higher Ed, and the latter includes grants for research universities where Pearson's exposure is small. On migration, the market backdrop is materially unchanged and is baked into our PTE guidance for the year. The medium-term outlook for PTE and ELL as a whole is undiminished, supported by demographics and our team's strong operational track record of taking market share. Beyond ELL, international mobility has minimal impact, including in the U.S., where less than 2% of university students are international. So overall, we remain resilient and are well positioned to take advantage of potential opportunities. So now I want to move back to our strategic framework that I shared with you last July, which hopefully you're familiar with, and that includes our why, our what and our how. First, our purpose has never been more relevant. Every day we see people advancing their lives through learning, demonstrating the power of education and skill development. Yet at the system level, our recent research highlights the huge costs of persistent and widespread skill gaps at key career and learning transition points. These have a very real economic impact, totaling over $1 trillion a year in the U.S. and GBP 96 billion a year in the U.K. This represents a massive opportunity to ensure that learning keeps pace with the rapidly changing demands of the workforce and supports economic growth. Second, our what. We are a global leader in assessments and verification and we're implementing our strategy to drive performance in our core businesses, realizing execution synergies, expanding into larger and faster-growing adjacent markets and building scale in our medium-term growth vectors of early careers and enterprise skilling. I look forward to telling you more about our progress against all of these shortly. Finally, our how underpins our strategic priorities, focusing our internal capital allocation process on higher growth opportunities, unlocking innovation to deliver better learning outcomes and more efficiently and embedding a high-performance culture top to bottom through the organization. I'm pleased with the progress we've made over the last 18 months. And as you know, this is a process of continuous improvement. These factors together drive the medium-term guidance I outlined this time last year, which we reiterate today. Let me turn now to our ongoing strategic and operational progress against our 4 priority growth areas, starting with driving performance in our core business. All 5 business units have demonstrated core performance improvements, executing upon the focus areas we outlined at full year results. And that reflects a combination of strong commercial execution and excellent progress in developing and launching innovative new products and services. In Assessments & Qualifications, we see continued execution focus through customer wins and renewals across VUE and US Student Assessment, expanding our customer set in clinical with the first statewide adoption of our digital offering and further international expansion for UK & International Qualifications. We're on track to launch new VUE customers, ServiceNow, the Association of Social Work Boards and last month launched Salesforce, all of which will support faster growth in H2. From a product point of view, We've successfully launched a Pearson Skilling Suite and introduced further AI enhancements in US Student Assessment with the write-up platform. In Higher Education, we're building upon the successful monetization last fall of our Study Prep Tool, previously called Channels, with an expansion into international markets. We continue to introduce innovative technologies in our products, including our new go deeper functionality in our AI study tools, which we developed using nearly 130,000 student queries. Our research continues to show that our AI study tools are helping students with their learning, including the development of new cognitive skills and higher order outcomes, in particular when AI capabilities are built directly into the flow of study. In Virtual Learning, spring saw positive enrollment and retention trends, and we completed the rollout of our new enrollment platform and improved our new student acquisition capabilities. Career academies will be fully embedded across the whole network for fall back to school, and we're on track to open 2 new schools in H2 for a total of 42 by year-end. These factors support sales in H2 and a platform for accelerated growth over the medium term. In Enterprise Learning & Skills, Vishaal and team continued to build momentum with their enterprise approach as we strengthen our global enterprise sales teams and have landed new wins with HCLTech and Google Cloud. These wins, coupled with pipeline activity, strengthened the conviction we have in the growth potential for our Enterprise opportunity. Vocational Qualifications continued to demonstrate strong execution with international growth in BTEC and new contract wins, including apprenticeship courses with the U.K. Ministry of Defense and T levels in Health and Science. And finally, in English Language Learning, PTE continued to show strong operational performance, and we're further advancing our offerings through our new Pearson English Express Test while expanding our relationships with governments and institutions around the world. We've also won institutional clients in LatAm, building upon recent strength in the region. Meanwhile, for educators, we've launched our Smart Lesson Generator that draws from Pearson's massive array of English content and will cut down the hours that teachers take to plan lessons, freeing them up to concentrate on coaching students in the classroom. I'd like now to take a moment to step back and discuss our progress in the foundational operational improvements we are making in the business. Firstly, we're transforming our revenue operations capabilities under the direction of our recently appointed Chief Business Officer, Naseem Tuffaha. This is a set of processes and systems that will over time give us improved visibility and leverage on the activities that drive revenue growth from targeting through to enabling and incentivizing sales teams. By using data to better make prioritization decisions, we will develop a stronger, more resilient commercial engine and one that can quickly and effectively scale and deliver results in our competitive markets. Secondly, we're now taking a modern marketing approach under our Chief Marketing Officer, Ginny Ziegler, where we expect to see near-term improvements in output and cost efficiencies in activities such as branding, social media and events. And thirdly, as we discussed before, we're focusing on driving a performance culture, a foundational aspect of which is bringing clarity to our performance expectations across every single role in the company. To this end, we've reduced what were 1,600 roles down to 140 roles, enabling a circa 80% reduction in the number of job families and job categories, facilitating better performance management. In addition, through our focus on continued improvement, we have reduced head count year-over-year, optimizing our spans and layers, resulting in quicker and more effective communication and decision-making across the organization. And finally, AI-driven simplification is progressing at pace as well. For example, we have reached over 40,000 customer interactions with an AI-powered service agent since its very recent launch. And AI content development tools have cut translation times from 18 months to less than 3, accelerating speed to market internationally. This progress adds to my confidence in our medium-term guidance for faster growth and margin improvement. Let me turn now to our progress on unlocking synergies across the businesses. You will recall we identified three buckets of execution synergies and we've made significant progress already, starting with product and service bundling. Our new brand facilitates the simplification of our product estate helping customers navigate our offerings more effectively, enabling increased bundling opportunities. We're also starting to lead with Pearson research grounded in real-world experience which will improve our share of voice on key topics facing the future of education and learning. Secondly, we've improved product discovery and development under Tony Prentice's leadership. We've implemented a single product management tool company-wide and migrated over 600 projects. This now gives us a real-time holistic view of product development, enabling better prioritization and ROI tracking. And lastly, on strategic partnerships. We now clearly distinguish between transactional vendors through to strategic relationships, unlocking new value. And we've made progress against two key categories. I've talked to you before about our new relationships with Microsoft and AWS, and I'm pleased to confirm we've now added a third with Google Cloud. These are long-term strategic partnerships where we could enable revenue growth alongside cloud transformation and unique go-to-market and innovation opportunities. We're working with our partners' amazing strengths across Enterprise, Higher Ed and K-12. And these partnerships are developing as planned and we're starting to see commercial benefit. For example, Amazon has selected us for the integration of our learning products to support their workforce development. We will bring you further updates across these relationships as we progress. We've taken a similar approach to optimizing professional and technology services. We're consolidating from many dozen vendors down to a select group of service partners, unlocking cost savings and also ensuring better outcomes through a deeper 360-degree partner relationship where they are invested in our success, of course, opening up balance of trade opportunities as well as joint go-to- market activities. I'm pleased to announce our first services partnership with HCLTech, a leader in tech transformation services and a company of over 200,000 people, who we're supporting in their own upskilling journey. So look out for more announcements in the coming months. Now moving on to how we're expanding in targeted markets. As I mentioned earlier, we've established a new internal capital allocation process that allocates investment dollars towards faster-growth segments. As I shared last year, we're targeting growth in near adjacent markets, where we have a smaller presence today and believe we're well placed to take advantage of a larger $80 billion- plus market opportunity that grows at a faster rate than our existing core markets. One example is our recently announced partnership with McGraw Hill, which will unlock go-to-market opportunities in the formative assessment space. Another is how we've operationalized our district K-12 sales team in Higher Ed, onboarding over 70 sales professionals to take advantage of strong growth trends that we see in college and career readiness programs. And finally, we've successfully launched our test prep capabilities in Pearson VUE that we expect to contribute to growth in H2. We're also redirecting investment into innovation. Through Dave Treat and his teams, we're investing in relationships that promote and scale AI and immersive learning partnering with third-parties like Meta, Google XR and Vu Technologies to explore what the future of learning may look like. We have created a dedicated research and innovation space here in 80 Strand where we showcase our latest product solutions to partners, investors and other stakeholders. These investments help shape future products and keep Pearson focused on customer-driven innovation. Finally, I want to share an update on our progress with our medium-term growth vectors. In Early Careers, we help people develop job-ready skills as they transition from school or university. We have businesses that are relevant in this theme already today, think of virtual schools and its career offerings, Certiport from Pearson VUE and our nascent career and college readiness, K-12 offering in Higher Ed. Now to these offerings, we've now added eDynamic Learning as a core pillar of our Early Careers strategy. We bought eDynamic Learning into the Pearson team because it's a leader in career and technical education and has a track record of delivering excellent strong growth and profitability. The integration of its capabilities with our scale creates a powerful engine to deliver job-ready skills for the next generation of workers at the exact moment AI is transforming their career paths. Turning to enterprise skilling. I've spent time engaging with many CEOs, and I hear a common theme: leaders are grappling with how to better understand the actual skills of their people in a world where skill signals are opaque, and at the same time, we're seeing a declining half-life of skills. This makes it pretty difficult to lead people on a learning path that is fit for a future workplace that must make heavy use of AI technologies. The Pearson's story and our ability to assess and verify human skills resonates with these CEOs. Now on the back of this diagnosis, the opportunity for Pearson lies in helping enterprises build the capabilities they need for talent planning, talent sourcing and talent development in the AI era. We're actively addressing these needs, and we will continue to give you updates on this in due course. Now before I hand over to Sally for a deeper look at our first half financials, let me summarize. You'll have picked up from our discussion today that there is a lot of progress underway at Pearson, and I'm really pleased with what we've achieved over the past 18 months. It positions us well for the current year and our medium-term outlook. And I look forward to updating you in the future on further progress as we continue to build a better business and deliver improved learning outcomes for more learners. Sally, over to you.

Thank you, Omar. And good morning, everybody. We have delivered another solid performance in the first half with sales up 2% on an underlying basis, in line with the guidance that we set out at prelims in February. Adjusted operating profit was also up 2% underlying to GBP 242 million. Adjusted earnings per share were down to 24.5p, with the positive underlying trading performance and a reduction in share count due to the share buyback more than offset by FX headwinds. Our balance sheet remained strong, driven by another good cash performance, enabling continued investment in the business as well as increased shareholder returns with the $225 million acquisition of eDynamic Learning and the GBP 350 million share buyback, which is expected to complete in H2. Reflecting our performance and confidence in the outlook, we're proposing a 5% increase in our interim dividend to 7.8p. At the beginning of the year, we announced that Workforce Skills would evolve to become Enterprise Learning & Skills, incorporating our IT Pro business, which was previously in Higher Ed. The comparative figures for H1 2024 have therefore been restated to reflect the modest financial transfers between segments, resulting in a GBP 22 million sales and GBP 6 million profit moving from Higher Ed to Enterprise Learning & skills. The full year impact of this is now expected to be GBP 45 million of sales and GBP 12 million of profit. Walking through the key elements of business unit sales performance. Assessments and qualification sales grew 2% with strong growth in Clinical Assessments and UK & International Qualifications, partially offset by declines in Pearson VUE and US Student Assessment. The VUE decline is due to the pause in a contract delivered in 2024 and recommencing in H2 2025 and headwinds in PDRI. Virtual school sales declined 1%, as expected, due to the final portion of the impact of the previous school losses. Enrollments for the 2024-'25 academic year increased 5% in the spring semester on a same-school basis and grew 7% including new school openings. We have also seen favorable retention trends in the first half. Higher Education sales grew 4% with IA growth of 21% and 3% growth in U.S. digital subscriptions. We continue to see good monetization of our Study Prep Tool formerly known as Channels and ongoing engagement with our AI study tools. English Language Learning declined 3%, in line with our expectations with our Institutional business impacted by a strong comp period in H1 last year. And Pearson Test of English was flat performing, well against a tough market backdrop. Enterprise Learning & Skills grew 4% with another solid performance from Vocational Qualifications and Enterprise Solutions building momentum during the period. Turning to profit. Group adjusted operating profit grew 2% on an underlying basis, driven by operating leverage on that sales growth, partially offset by inflation. For each business unit, Assessments & Qualification margins reduced to 21% due to the margin on sales growth being more than offset by prior year cost phasing and inflation. Virtual Learning margins increased to 16%, driven by cost phasing, partially offset by trading declines. Higher Ed and Enterprise Learning & Skills both saw margin improvement driven by sales growth. And English Language Learning margins were adversely impacted by sales phasing. Free cash flow was again strong, up GBP 129 million from last year to GBP 156 million, given similar operating cash performance with good working capital management offsetting the impact of FX and the receipt of the state aid recovery. The state aid amount is GBP 97 million on the tax line and GBP 17 million on the interest line. Net debt has decreased by GBP 0.2 billion from June 2024 to GBP 1 billion actually at June 2025 driven by free cash flow partially offset by dividends and that share buyback. Turning to the outlook for the remainder of the year. We are where we expected to be at the half year point, and we're on track to deliver on the expectations we set out at prelims in February. Let me walk you through this by business unit as a reminder. Assessments & Qualifications will grow low to mid-single digits in 2025. Growth will be H2 weighted, in particular to Q4, due to new and renewed contracts, including Salesforce, which launched last month, as well as the build of our new test prep business. Virtual Learning will return to growth in H2 and for the full year, driven by enrollment increases partially from new school openings for the 2025-2026 academic year. The previously announced school losses will cease to be a headwind in H2. Higher Education growth in 2025 will be higher than in 2024 as we build on the successful results of our sales team transformation and product innovations, particularly using AI. English Language Learning full year growth will moderate versus the 8% delivered in 2024 due to the PTE business, which is expected to decline in H2. The business unit growth will be H2 weighted, in particular, to Q4. Enterprise Learning & Skills will grow high single digit in 2025 with Vocational Qualifications seeing solid growth and the addition of those new contracts for Enterprise Solutions, which you've heard about. Growth will increase quarter-on-quarter in H2, supported by those recent customer announcements and pipeline activity. Turning to profit. Market expectations at the beginning of the year for adjusted operating profit were GBP 656 million at an FX rate of GBP 1.23. Subsequently, of course, there's been a significant move in the U.S. dollar rate, so I thought it would be helpful to remind you that every $0.01 movement in the dollar equates to approximately GBP 5 million of adjusted operating profit. Now I'm not going to try to forecast FX rates, but if we take the actual average FX rate for H1, which is $1.31 and assume the recent spot rate of $1.32 for the rest of the year, then the average FX rate for the full year would be about $1.32. So that would mean a $0.09 movement of FX, which reduces adjusted operating profit by GBP 45 million down to GBP 611 million, which is about where consensus is at the moment. The announced acquisition of eDynamic Learning has recently closed with consideration paid of $225 million at a 13x adjusted EBITDA. We do not expect this to have a material impact to 2025 group guidance, given near-term integration costs and the acquisition accounting for deferred revenue, which impacts the first 18 month sales recognized. eDynamic Learning has a highly attractive financial profile with strong margins and cash flow and a track record of delivering good growth. We expect this acquisition to be supportive of our medium-term guidance. In terms of interest and tax, we continue to guide to circa GBP 65 million of interest costs with a 90% to 100% free cash flow conversion plus that state aid payment. Our tax guidance is unchanged at between 24% and 25% ETR. So in summary, we're pleased with the performance we've delivered in H1, which is in line with expectations. We remain on track to deliver our 2025 outlook with known business unit dynamics in place to support stronger growth in H2. And we finished the first half of the year in a strong financial position, driven by another excellent cash performance supporting continued investment in the business as well as increased shareholder returns. And with that, I'll hand back to Omar.

Thank you, Sally. So as you've heard, firstly, our strategy remains the same and is now well established across the organization, and this is driving demand for what we do. I believe Pearson has a vital role to play in shaping the future of learning, especially in a world of AI-driven transformation. Secondly, we're executing well against our strategy, including core operational improvements, with progress to unlock our medium- term growth vectors. And thirdly, our strategic clarity and our execution focus strengthen my conviction in Pearson's medium-term trajectory and that we are on track to deliver on our 2025 priorities. With that, Sally and I, along with Art, Tom, Vishaal, Sharon and Tony will be happy to take your questions. Operator, over to you.

[Operator Instructions] Our first question today comes from James Tate with Goldman Sachs.

it's James Tate from Goldman Sachs. I've got two questions, please. I think, firstly, on VUE's new and renewed contracts, I know you talked about them having a greater contribution to growth in Q4, but you mentioned ServiceNow and a couple of others already online. Are these all operating and performing in line with your prior expectations? And as we start to think more of that 2026, is it fair to assume that VUE should grow at least mid-single digits as it gets almost a full year benefit from a lot of these new deals. And I guess, secondly, you've highlighted some of the new GenAI products rolled out across the portfolio. Could you also provide some more detail on what you see as the opportunity from the technology to drive cost efficiencies across the business? Have these progressed so far? And are there certain divisions where you see greater potential?

Thank you very much, James. Appreciate your questions. So as you know, we're probably not going to offer too much guidance on '26 at this point, but I'll let Art talk to you about VUE and what he's seeing with the contracts around ServiceNow, Salesforce and the others. Over to you, Art.

On VUE, in particular, Omar mentioned three specific contracts. Salesforce launched last month. ServiceNow and the Association of Social Work Boards are launching later in this year. And all of those contracts as well as the VUE testing contract portfolio, in general, is performing according to expectations. So launch efforts as well as our view as to what the volumes that are going to run through those contracts is absolutely in line with what our expectations are and reflected in the guidance that Sally has given.

Thank you, Art. On GenAI, let me say something about the customer-facing products and then perhaps I'll ask Sally to comment on how we see it playing out in terms of our core operations. So I'm particularly excited about the fact that we are getting more and more evidence, including in the last few months from 2 million students in the U.S., that when we apply AI correctly in the flow of study, you get higher order outcomes in terms of people's reasoning. So I think there are more and more studies that have happened and that we'll see more of that when you use AI as a teleportation device that moves you from here to the answer, you actually don't learn. But when you use AI as a map to take you through the different stages to get to the endpoint, you really do learn and that's our approach. And the work that Tony and the team have been doing across our product set is just really excellent in that space. But to your question on cost efficiencies in our operations, I'll ask Sally to comment.

Yes, of course. So one of the things that's really special about Pearson is that not only can we have AI usage for our customers and our products, but obviously, we have the benefits that other companies do in terms of generating cost efficiencies across our business. The things that Omar called out for things like content generation, which we're using AI in, now that can be around actually just creation of content or a really nice example would be translation so that we can get our products, for example, in international higher education into languages that just weren't cost-effective before, and we can get them to market in a faster way as well. So it's great for our top line and our customers and also for our cost base as well. Another example is customer services, where we're putting AI capabilities, and again, helps from a cost point of view, but also helps to make our customer experience more effective as well. So there's lots of examples of where we're using it across the front office and the back office, generating cost savings, making the experience, improve for our customers as well and helping the top line.

Our next question comes from Luke Holbrook with Morgan Stanley.

I've got -- my main question centers around the Q3 and Q4 weighting for this year again because you're guiding to 4.4% revenue growth for 2025, we've seen 2% in H1. And I guess with the Q4 weighting, you're looking at 7% potential growth, maybe even a little bit higher than that. But could you just walk us through with what -- some of what you've discussed today around Virtual School contracts launching, Salesforce contracts, other partnerships, VUE contract recommencing. Can you just help us bridge, in a financial context, how we get to that and what's underpinned into Q4? And then I've just got a follow-up.

Sure. Why don't I take that one and then we'll take your follow-up. So your math is right in terms of the number you're quoting for the second half, first of all. And then it's known things that we've known about from the start of the year in each of the business units, it's slightly different between the business units. So in A&Q and VUE, in particular, and in ELS, it's about those contracts that you've heard Omar and Art talk about and those coming online. In answer to James' question on VUE, just to point out, it might not be obvious to folks who are deep in the business, it does take a while once we're awarded a contract for that to transition sometimes from a previous provider to us. So that's why it feels like we maybe announced some of these a while ago, but they're only coming online now, just in case that's not clear. Then in Virtual Schools, you'll remember, for the '24-'25 school year, we were impacted by the loss of that California school. That is now passed. And so we're now thinking about the '25-'26 academic year, which is what impacts H2 revenue, and that will be driven by enrollment growth and we won't have that lost school issue anymore. And then last but not least, English Language Learning, where we had a tough comp in the first half of the year, which isn't reflected in the second half of the year.

Understood. And just my second question would just be on the Higher Ed. We saw a step down in growth into Q2, noticing your enrollments look relatively good in that quarter. Just what's the delta on the step down? Or is that just a law of small numbers on the quarterly phasing?

You want to take that?

I mean, a small number is a piece of it, but let's throw it over to Tom.

Yes. James (sic) [ Luke ], thanks for the question. So a couple of things really happened. Firstly, the core Higher Education business continued and was exactly where we were expecting it to be for the half year. What's really happened is that some of that deceleration you've seen in the second quarter is somewhat of a function of what we were expecting to see in the college and career readiness business this year. It's been a smaller adoption cycle. Then secondly, we've obviously been getting our new go-to-market team up and running. And as you can appreciate, bringing [ 70 ] new people on board and establishing all those relationships is inevitably going to have a few teething problems, which is why we were clear with where we would be from that point of view. And then the third thing I would say was that there have been some delays in terms of some of the federal government spending for about $7 billion that would go out of the states. Now that doesn't have any impact on the money that we receive from the states from a college and career readiness perspective, but it did make [ superintendent ] just delayed purchasing a little bit. So we feel good about where we are from a K-12 perspective. We feel pleased with the overall performance in Higher Education. And we feel confident about the full year guidance.

Thank you, Tom, and thanks for being up in the middle of the night.

Our next question comes from Nick Dempsey with Barclays.

I've got three. So the first one, just on Pearson VUE. Can you give us any information -- more information on the contract that was paused? Why was it paused and exactly when does that come back in? And is it common for large contracts that can move the needle on that subdivision to be paused like that? Second question, in English Language Learning, if we're expecting PTE to still decline for this year, it feels like you need a really strong growth in the institutional business in the second half. How much of that can you already see coming through? And how much of it is kind of a hope in terms of the sales that you achieved from September? And then thirdly, on Higher Education, are you still expecting full 2025 enrollments to be flattish, as I think you said before? And if so, I guess, you're going to need to see growth from other factors coming through. So is that going to be more weighting to Inclusive Access, more price? Or how should we think about that?

Thank you very much, Nick. So on VUE, I mean, I'm going to ask Art to make a quick comment. But I think I can say that this is a very specific individual situation, not something you should expect to see repeated. But over to you, Art.

It's absolutely the case, Omar. It is an international partner. The pause on the contract commenced in the back half of 2024. We are confident in the resumption later this year. And as Omar said, the circumstances are very specific to this customer and not something related to the product or service offering, and thus, it is in fact something that we do not -- that is unusual.

For Sharon, how are you feeling about institutional in the back half? I mean, Nick's asking us if we're just being a bit hopeful here.

Thanks for the question, Nick. So a couple of things to just mention. Obviously, the second half of the year weighting for English as a whole, but particularly for institutional, it's not a new feature of this business. Of course, it's driven very heavily by the academic year cycles and the fact that we have a particularly strong business in Latin America. So we're performing as we expected for the first half of the year. And feeling good about growth in our institutional business in the second half of the year where we expect to see that growth being driven by the business in LatAm, where we're expecting share gains and a strong focus on government deals. And we're very, very focused on the execution plan and working closely with a number of governments across the world to land those deals. So we're performing as we expect right now, and looking forward to strong performance in institutional for the second half of the year.

Thank you, Sharon. And then, Tom, on Higher Ed, the weighting of enrollment and what else that might assume about the shape of the business in the second half?

Yes, sure. So it's obviously a dangerous game to be playing in terms of getting enrollments at the end of July, given back to school is just around the corner, so I'll stay well clear of that. But I would say that we feel good about where we're seeing growth coming from in terms of pricing. You've seen the IA mix up 21% in the first half of the year. So we're pleased about that in terms of the growth in IA year-over-year. And then lastly, some of the work we've been doing on Study Prep will help support us in the second half of the year as we're excited about the rollout of those products. So that's some of the key drivers, which we feel confident about getting into the back half of the year.

Thanks, Tom.

Can I just have a very quick follow-up. I think you talked before about flattish enrollment in fall '25 being what you were using when you were thinking about the year. I know you don't want to guess those. Is that still your base case for your planning, Tom?

Yes. Yes, it is.

Our next question comes from Adam Berlin with UBS.

A few questions for me. The first question is just on higher ed following on from the last question. Can you talk about adoption share performance during the recent sales cycle? Did you win more share than last year? That's the first question. Second question is can you talk a little bit about this eDynamics business you bought? Can you just be clear exactly what it does? Which business unit will we go into? How much revenue? How fast is it growing? Obviously, we want to put it into our models for next year. So any more information you can provide would be very helpful. And then my third question is if you deliver what you're saying you're going to deliver, you're going to have this high single-digit growth in H2. Is that going to -- it feels to me that the drivers of that should all continue into H1 and 2026. Any reasons why that wouldn't be a fair assumption?

Okay. I'm going to start with Tom. Just a couple of points on eDynamics and then, Tom, you can pick up on the adoption share topic and also maybe get a bit more into exactly what eDynamic does. So I'm really happy with the deal that we've done here. I think we've been very disciplined on not just the financial terms of the transaction, which Sally outlined some of earlier, but actually on really tight strategic alignment. I mean, this company is a company that we've been working with for many years. We know that 1 plus 1 equals 3 in this case because we've trialed it for real with customers. And so I feel very happy about it being a strong addition to our Early Careers strategy. And so it's going to be run by Tom and his team in Higher Ed and so he can talk to you a little bit more about the content of what it is. So Tom, can you pick up first on the adoption share thing and then back on eDynamics, please?

Yes, sure. So from an adoption share perspective in the first half of the year, we increased our share slightly this spring compared to fall last year. And as you know, Nick, the -- sorry, Adam, it's obviously 4:15 in the morning, so I need a little bit more coffee. So in that context, we're obviously very focused on our fall adoption share. As you know, our sales team has got a good degree of understanding of what's going on in the market at this stage. They've made their final sort of forecast as it were based on all the selling that they've done. And so we're feeling good about where we are in that construct. And then from an eDynamics perspective, the way to think about it really is if you are a middle school or predominantly a high school kid in the U.S. and you are looking for a CTE program, they sell a broad portfolio of content into those schools. So for example, you want to be a journalist, if you want to learn more about business, for example, if you want to do an early course in coding, that's the sort of the courses and the courseware that it provides. And that's incredibly important because what we're seeing is that the worlds of work and high school are blurring. We see that as you think about sort of growth continuing in the U.S. from a higher education perspective, high school is becoming increasingly important. And we see really good evidence that people who have done CTE courses in high school, a, those high schools have better graduation rates overall. So it's good from an academic outcomes perspective in terms of efficacy. And secondly, more of those students are more likely to go on to 2-year or 4-year colleges. And so that's why we think this is really important strategically because it is an extension of what we do, a high-quality outstanding content. And we think we can bring a lot to the eDynamics team in terms of the -- me and the team have built in terms of this business, and we're delighted to be acquiring them and moving forward.

Thanks, Tom. And Sally, do you want to pick up the last question?

Yes. Why don't I pick up the specifics on the end of that one and then your one about H2. In case it wasn't obvious, given that Tom answered the EDL question from a business unit perspective, it's going to be going into Higher Ed. From a growth perspective, you can think of it as being alongside some of our higher growth business units. And then I gave you the 13x EBITDA multiple so that you can work back to the EBITDA number. The [ DA ] bit, of course, is relevant for this business. And I do need to think about the acquisition accounting for deferred revenue, which will impact 2026. And then in terms of thinking about H2 and the exit rate into next year, I'm not going to guide on 2026 at this point, but all the things that we're talking about in terms of these new customer contracts coming online, of course, are going to be customer contracts that move into next year. The comp things are not quite so relevant for next year, but Virtual Schools and that '25-'26 academic year, obviously relevant for the first half of '26 as well.

Thanks, Sally.

Sorry, Sally. eDynamics margin, is that broadly in line with the group or...

Yes, they've got great margins -- nice margins.

At this time, we have no further questions from the telephone lines. And so I'll hand over to you, Alex, to read the written questions.

So Steve, I think we've answered your questions already, but obviously come back to me if that's not the case. And then, Sami, again, we've answered some of them, but I'll pose the remaining one. Do you expect to sustain double-digit organic revenue growth in Clinical Assessment and UK Qualifications in H2?

So actually, I'm really happy with how the launch of the new products in Clinical have been faring in the market. But so, Art, do you want to comment a little bit on how you would like to guide Sami on his question on PSQ and Clinical?

Would love to. I don't believe we're giving sub-BU guidance for H2 on the call, but very happy to comment on the trading characteristics of both of those business units. Omar teed it up very nicely with Clinical. Strong product releases have carried over into this year. And a headline for that business continues to be very, very strong digital adoption. You will have seen in the notes that the State of Tennessee has adopted our digital library subscription, which was a very, very nice win for us. And upcoming in the second half, we have product releases that we're very, very happy about, most notably the Wechsler Memory Scale and the Delis-Kaplan Executive Functioning System, 2 products that we expect good performance out of. And then in the UK & International Quals business, strong volume performance throughout the year. Very, very good international growth. We expect those trends to continue throughout the second half, and they're absolutely part of the story around us reaffirming our guidance for the full year.

Any further questions?

Just one quick confirmation from Sami. What is the share of IA in your U.S. Higher Ed business?

Over to you, Tom. Do we break that one out? The share of IA?

Well, I mean, we said last year, it was mid-30%. So that's a good starting point. And then obviously, we disclosed it was up 21% for the first half and we've disclosed the overall Higher Education growth rate, so you can probably extrapolate from there. But we're pleased with our IA growth rate in the first half. And really, we think what we're really about is meeting the customer where they are. And so there was a glorious win we recently had at the University of Indiana in anatomy and physiology. And actually, it was a wonderful opportunity to reinvent what was, by and large, a print adoption into a digital IA courseware adoption where they've been using a print book of ours and one of our competitors' digital products, but they haven't really been using the digital product properly at all. And once we were able to walk the faculty member through the fabulous quality of the mastering platform that we have as well as his real love for our product, that actually secured the adoption and that turned a sort of a $2,000 print adoption into a sort of $100,000-plus adoption more broadly, which is just a beautiful example of our sales team really getting close to the customer, understanding what the customer needs are. And that was something that we used IA for because it was able to bring pricing down for the students. And it's just a really good example of one of our sales reps listening to the customer, understanding what they need, being clear about their pedagogical desires and understandings and providing a great solution to the faculty and the students at really good pricing.

Great. Thanks, Tom. Alex?

I see a bit of piecemeal question answering here, but I'll let you off. So 2 more, both for A&Q. Do you expect US Student Assessment will revert to growth in H2? And then also, how should we think about the scale and impact of VUE test prep in '25 and '26?

Okay. Those are both for you, Art. So the first one is around do we expect US Student Assessments to go back to growth in H2?

Yes, we do. Again, the results of -- our expectations for each sub-BU are baked into that overall H2 guidance. But specific to US School Assessment, in H1, we had the impact of some delivery timings that in the second half will contribute very positively to the overall picture. So good outlook there. On the test prep business in the second half of '25, complemented by the launch of the Pearson Skilling Program, which we announced earlier this year, that business is continuing to scale. Our go-to-market hires are getting placed out in the field and continuing to deliver. And we do expect to see results from that in H2, which, again, are part of the story around the overall second half guidance.

Thank, you, Art. Okay, so I think that's it in terms of questions. So all of you online who joined us today, thank you so much for being with us. We appreciate you and look forward to talking to you next. Thank you.

Thank you.