Specialist
Former Chief Strategy Officer at Pearson plc
Agenda
- Assessment volume growth trends and post-coronavirus recovery for Pearson (NYSE: PSO, LON: PSON)
- Assessment pricing trends and profitability drivers
- Cost drivers, including test centre overheads
- Computer-based share of assessment, margin outlook
- Growth outlook for Pearson’s North American courseware business
Questions
1.
How siloed are the segments and divisions that Pearson operates in, such as higher ed, English language learning, workforce skills and obviously assessment and qualifications? Is it more of a cosmetic vs a practical distinction within the business itself?
2.
You mentioned that English language was a strong asset that was not immediately obvious because of the international umbrella that it fell under. Why do you like that segment? The operating profit, or the adjusted operating profit, that Pearson reports for English language is not particularly exciting. It was loss-making on USD 89m worth of revenue in H1 2021.
3.
You mentioned the assessment and qualifications segment specifically was largely being driven by the US. Is that still the case in the contribution to overall revenue?
4.
You historically had global learning, or global online learning, global assessment, North America and international, as the different line items. How large is the UK as a combined global assessments business relative to the US?
5.
How fragmented is the professional qualifications segment? How diverse is that revenue base?
6.
How does contracting work in the professional sphere? Is Pearson agreeing with the company a certain price per assessment, or is it a broader framework, where the company operates within bands?
7.
What’s the cost base like in the assessments business? There is a physical network of assessment centres and then there’s a slightly variable element in the invigilation and the marking. How does that cost base scale as volume of assessment ramps in the US?
8.
What is the ratio of students, or whoever’s sitting an exam, to proctors? In a remote environment, do you need a higher ratio of proctors to candidates?
9.
Is the vast majority of the assessment capacity side provided by third parties and brought online in a variable basis?
10.
What’s the variable cost per assessment for a third-party provider? Is it a percentage of the entry fee, or is it a standard flat fee regardless of the test?
11.
How do you expect the fully loaded cost per assessment to evolve in the future? There is physical testing, physical testing where Pearson is managing the centre, physical testing where it is a third party managing the centre, and then remote proctoring, all of which I assume have different cost profiles. How do you assess that aspect or element of the P&L evolving?
12.
How competitive or contentious are renewals with big corporates or renewals for big examinations if it is the industry body? You mentioned it was priced on a per-assessment basis. What gains are these companies trying to get in either passing on lower fees to their students and their employees, or just lowering the cost for themselves and keeping that in their P&L? Either way, do they come to the renewal table asking for lower pricing every time?
13.
How frequently is Pearson responsible for the content of the exam given the volume of tests that Pearson’s administering?
14.
How much spare marking capacity is there in those types of large markets that drive a considerable portion of volume through the assessment infrastructure? How easy would it be for a government to move that volume to another provider? Are there any other providers that are operating at the scale of Pearson on the marking or assessment side?
15.
What was the normal organic growth pre-coronavirus that you’d expect from the assessments and qualifications business? Pearson has started reporting it now, and obviously the comparable is H1 2020, which I assume wasn’t particularly representative of the historic trends.
16.
Assessments and qualifications stand out from the other segments as being significantly more profitable. Margin-wise it is about 17% in H1 2021, which is well above all of the other segments. How do you expect margin expansion to progress within this segment, given some of the challenges around the margin profile, at least of assessments?
17.
How easy or difficult is it to acquire new qualifications or develop new qualifications or acquire new clients?
18.
Do you think Pearson will be a leader in remote proctoring? Do you think there will be a more competitive environment where there are more players competing for the volumes? Do you think Pearson’s market share of physical assessments will carry over to remote assessments, or will that be a more competitive environment where volume is perhaps more fragmented across different providers?
19.
Hypothetically, in five years’ time, do you think it’s reasonable to expect 25% of assessments to be proctored remotely?
20.
I want to get your thoughts around some of the content courseware aspects of the business. Pearson Classroom’s obviously something it has spoken about. Do you think that addresses some of the issues, particularly around secondary market recapture? Is that strategically a sensible thing for Pearson to be pursuing or not?
21.
How much of it is push vs pull, regarding getting teachers to use the content and then the students will follow vs creating an offering that’s more student-focused, which leads the faculty and the teachers to make decisions that are perhaps more beneficial?
22.
Is there a catalyst for the North American courseware business turning around for Pearson? What should the company do with that asset in the next five years or beyond?
23.
Is it a fundamental difference in strategic vision, or is it a case where the asset has been under-invested, so it hasn’t been able to develop the resources it is talking about to migrate MyLab and Mastering to the Global Learning Platform and so on?
Gain access to Premium Content
Submit your details to access up to 5 Forum Transcripts or to request a complimentary one week trial.
The information, material and content contained in this transcript (“Content”) is for information purposes only and does not constitute advice of any type or a trade recommendation and should not form the basis of any investment decision.This transcript has been edited by Third Bridge for ease of reading. Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability for the Contentor for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge. Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification, reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, transferring or selling any Content is strictly prohibited