Pearson PLC

LSE:PSON

Earnings Call Transcript 2019-Q3

[Operator]

Hello, and welcome to the Pearson's Third Quarter Trading Update Call. [Operator Instructions] And just to remind you, this is being recorded. So today, I am pleased to present John Fallon and Coram Williams. Please, begin.

[John Joseph Fallon, CEO & Executive Director]

Good morning, everybody, John Fallon here with our CFO, Coram Williams. Thank you for joining us at short notice. As you all have seen, back-to-school sales in U.S. Higher Education Courseware, which accounts for around 25% of group sales have been worse than we expected, prompting us to bring forward our 9-month trading update for today. For reasons that Coram will explain in a moment. We now expect sales in our U.S. Higher Education Courseware business to be down around 10% at the end of September, and to be down in the 8% to 12% range for the full year. The rest of the company is performing well, which means that we still expect to stabilize group revenues this year, that's because sales from the other 75% of Pearson in aggregate are expected to be up around 3% at the end of September, meaning the overall group revenues are broadly flat on last year. We are also on track to deliver the planned GBP 330 million in annualized cost savings by the end of the year. And this means that with the help of some additional cost savings, we still expect to make our guidance range for operating profits of GBP 590 million to GBP 640 million for the full year. Although, it is likely to be towards the lower end of that range. Today's news on Higher Education Courseware is difficult, particularly, after 10 quarters in which the market performed in line with our guidance. Yet, this does provide an opportunity to make this a more sustainable and truly digital-first business more quickly. But before I say more about that, let's have Coram talk you through in more detail, what's happened in Higher Education Courseware, where we expect sales to be for the 9 months through to September 30, and the outlook for the rest of the year. Coram?

[Coram Williams, CFO & Executive Director]

Thanks, John, and good morning, everybody. As John said, in July, in U.S. Higher Education Courseware, we were trading in line with our forecast and consistent with our 0% to minus 5% range. Q3 is our key selling season. And we expected sales to be back-half weighted. However, it's now clear that trading is considerably worse than we expected. This is what has happened.We've seen a very significant industry-wide acceleration of print attrition, as channel partners and students turn away from print products more rapidly than anticipated. Some of this volume has ended up in the secondary market, and some of it will -- students don't buy print component at all. Over time, this is good for the market, but it will choke the secondary channel. However, our result in share gain from secondary will take time to flow through. The impact of open education resources and enrollments are broadly consistent with our assumptions at the start of the year. We experienced modest adoption share loss, roughly a percentage point, as a result of a delayed reaction to the supply chain disruptions in Q3, Q4 last year as well as the changes in our sales coverage model this May. We expect to regain this share as we've settled a new sales coverage model and roll out our next wave of digital products.Digital registrations are down slightly on our earlier assumptions due to greater-than-anticipated pressures on developmental maths, the strategic retirement of low-priced digital product prior to the launch of GLP and some impact from the share loss that I just mentioned. However, digital revenues are up modestly as a result of mix.We, therefore, now expect Higher Education Courseware to be around minus 10% of the 9 months and minus 8% to minus 12% for the full year. Last year, the digital print split in U.S. Higher Education Courseware was 55%, 45%. This year, it will be more like 65%, 35%.The rest of the business, as John said, is performing well and in line with our expectations. North America revenues are expected to be down 3% at the end of September, with the 10% decline in Higher Education Courseware, partially offset by Professional Certification, Online Program Management and online blended learning, all of which are up mid- to high single digits. As expected, our school and clinical assessment businesses are down slightly on prior year.Sales in our core geographies are expected to be up 5% at the end of September, helped by strong growth in PTE Academic, OPM, Professional Certification, U.K. Student Assessment & Qualifications as well as the delivery of a new digital assessment contract in Egypt. Growth geographies are expected to be up 3% at the end of September, helped by strong growth in China, South Africa, PTE Academic and Professional Certification, partially offset by declines in revenue from Wizard, our English Language Learning franchise in Brazil.In terms of full year, the upside in Core and Growth offsets the decline in U.S. Higher Education Courseware, and group revenue will be broadly flat. Full year underlying profit is expected to be at the bottom end of the guidance range, reflecting the impact of the decline in the higher-margin U.S. Higher Education Courseware business. Our financial position remains robust, and we continue to expect year-end net debt to be broadly in line with 2018. And with that, I'll hand you back to John.

[John Joseph Fallon, CEO & Executive Director]

Thanks, Coram. In July, I talked about we've been on the cusp of the next phase in the Pearson transformation, where we transition from renewal and recovery to sustainable future growth. What's happened in Higher Education Courseware since then was obviously a setback. But it doesn't change our view of where we want the company to be and how we get there.40% of our revenues are coming from Courseware and Assessment businesses, which, after some years of decline, are stabilizing this year, and as they become ever more digital, will start to grow again. 35% of our revenues are coming from businesses, Professional Certification, Online Program Management, online blended learning, English, which are growing more quickly and from a bigger base. Of course, it's disappointing that the source of our other 25% of revenues, U.S. Higher Education Courseware is going to be down more than we originally guided to. But let's just reflect on what's happened.Sales of college textbooks are in structural decline, that's not news to anybody. We published a survey just last week, in which 70% of all Americans said that they think print textbooks could be obsolete by 2025. We thought print textbook sales will be down around 10% or a little more than that this year, but actually going to be down 20%. That's obviously painful for this year's guidance, but it does also mean that we get into the future state for this business more quickly. We've spent the last 3 years reinventing this business. We've invested in our Global Learning platform, now live, which gives us the capacity to create, connect and sell at scale. In U.S. Higher Education Courseware across our sales, marketing, services and product teams, we've driven around $160 million of cumulative cost savings and reduced nearly 950 roles across our product, marketing and sales functions. We've remade the business for a mobile, learner-centric, outcomes-based and data-driven future. And so the future for this business, even more clearly today, lies in providing highly affordable, convenient, adaptive, digital courseware that enables us to make a direct connection with tens of millions of learners at a key moment in their lives and becomes their trusted partner through a life of learning.We now have the balance sheet, the cost base, the platform, the capabilities and the product pipeline to go after that future very aggressively, and that's what we're going to do. And on that basis, Coram and I will now be very happy to take your questions. So back to you, Hugh.

[Operator]

[Operator Instructions] Okay. So our first question is over to the line of Patrick Wellington at Morgan Stanley.

[Patrick Thomas Wellington]

I'll just ask 2 questions. Could you just talk a bit about your visibility on Q4 in U.S. Higher Education, because the Q4 outturn in the last 3 years has been much worse than the experience of the last 9 -- of the 9 months? So you're minus 30% in U.S. Higher Education in 2016, minus 10% in 2017, minus 11% in 2018. So it's a question on what's your visibility on Q4? And therefore, what is your visibility on your new low end of the range forecast for this year? And second question is about your cost savings. I think you've -- are throwing in sort of GBP 20 million, GBP 25 million of temporary cost savings. Can you confirm that, that's the number? Where do they come from? Do they repeat? Should we keep those in for next year, or should we assume they go back into the cost base? And Coram, I know you say typically that cost cutting is not the way to ultimate victory, but do these events suggest that you need to structurally raise your GBP 330 million cost-saving program?

[John Joseph Fallon, CEO & Executive Director]

Thanks, Patrick. Coram, do you want to pick on both of those points? Then I'll maybe come back and talk about the bigger point Patrick raised at the end.

[Coram Williams, CFO & Executive Director]

Sure. So in terms of visibility of the fourth quarter, clearly, we've had a difficult third quarter, and we are not assuming an improvement in trends. We've recognized that there has been a shift in the timing of sales out of Q4 into the Q1 of each year. And therefore, our range is based on a tough Q4. And the thing I would highlight is that Q4 is becoming, because of the numbers that you highlight, an ever smaller quarter for us in Higher Education. And therefore, it does not have the same level of materiality or impact that Q3 has had.In terms of the cost savings this year. And there are, as you know, temporary cost levers that we can pull, which allow us to protect profit when we've had a shock, as we have. Those are areas like travel and entertainment, hiring, marketing, the sorts of things where a delay of a couple of months does not have a long-term impact on the business, but it does allow us to protect profitability. You do have to assume that those savings will go back into the P&L next year however. In term...

[Patrick Thomas Wellington]

And the scale is GBP 20 million to GBP 25 million, something like that?

[Coram Williams, CFO & Executive Director]

Low tens of million. So you're in the right range, absolutely. In terms of the sort of structural side of the cost savings, I think what's clear is that we have, as John said, delivered a very significant cost-saving program with minimal disruption to the business. If you step back and look at where our back-office functions are in relation to their peers, we have gone from the bottom quartile to close to the top quartile in many of those areas. So we have a much leaner and more efficient back office. I think what that means is that it's unlikely that we will undertake another significant structural round of restructuring. However, the platform that we built in the back office and the platform that we've put in into the front office means that there should be potential for further ongoing efficiency gains. That's typically the experience of companies have -- who've done what we've got or what we've done.

[John Joseph Fallon, CEO & Executive Director]

And just to sort of build on that, just to sort of -- a couple of points, to give an example, we've just launched the first Revel products on the GLP. We will launch all of Revel on the Global Learning Platform for back to school next year. The cost -- the technology cost to us of supporting Revel are significantly less. Many times multiple less in the new world than they were on the old. And that's my point about is now having a platform that we can launch new products far more quickly, much more scale and at much lower cost. The second point I'd make is those GBP 160 million of cost savings that we've taken out of front office of the Higher Education Courseware business are based on the fact that, as we announced in July, we are moving to a new digital-first model. Think of Software-as-a-Service, think rather than new additions -- there's no new additions to physical textbooks, everything moves much more to be updated in real-time and as circumstances change. So as painful as it is to see a 20% decline in textbook sales rather than a 10%. The truth is it's just getting us to the future more quickly because our future is where there are no new print additions. But we are assuming, we built a cost base that prospers in a world where that 65-35 digital to print is going to go at a higher in the digital weighting. The challenge we had is we've not been able to ramp up the innovation in the way we wanted to because we had to deal with the technology deficit first, and that's what the Global Learning Platform is about. That's now done. And that's why you'll see it ramp up new digital product development that will help to get digital growth going over the next couple of years.

[Patrick Thomas Wellington]

But just to confirm, there's no direct incremental revenue effect with the introduction of Revel products on the global, digital platform?Because they're going to be substitution of...

[John Joseph Fallon, CEO & Executive Director]

I think what -- I think as I said at the half year in July, I think through the second half of next year and more into 2021, we will start to see top line benefits from the new digital products coming through. There's lots of new features and enhancements that we're able to provide on Revel on the new platform. AIDA, which is our new AI-inspired, direct-to-consumer product launches in the next few weeks, where we've -- as we've talked about a number of times before, our competitive pressure on the digital front has really been in developmental math, where there's a competitive product that does work, some customers would perceive as having some advantages in more of an emporium model, which is where that market has been going We will launch Rio commercially later next year. So you can take another 6 to 12 months to come through, but you will start to see the top line benefits of that coming through over the next 12 to 18 months.

[Operator]

We now go to the line of Nick Dempsey of Barclays.

[Nicholas Michael Edward Dempsey, Research Analyst]

I've got 3 questions. So the first one, just to get into the GBP 330 million plus of cost savings. Am I right in thinking that most of the actions for that are almost done or will be done in the second half of this year. Therefore, the benefit that we will see year-on-year in 2020 as a flow-through of that. So it won't be easy for you to increase that number when you give us guidance in January. Second question, just on North America Higher Ed Courseware growth next year. Given that you've said print is shrinking fast in the mix, how should we be thinking about whether that could help us in terms of year-on-year growth in 2020? Or do we need to think about some of these trends, these heavy declines continuing in 2020? And then our mix effect starts to help us beyond 2020? And third question, in 2017 and 2018, you saw a cushion for your net sales growth from the lower returns, and that was an easy comp compared to the heavy declines -- heavy change in returns -- increase in returns in 2016. Are you not now just seeing that cushion running out? So you're just feeling the full effect of ongoing gross sales declines.

[John Joseph Fallon, CEO & Executive Director]

Okay. Thanks, Nick. I think 3 questions for Coram. Do you want to?

[Coram Williams, CFO & Executive Director]

So to keep -- yes. Morning, Nick. So in terms of the GBP 330 million cost savings, the run rate going into next year. You're right, that the majority of the actions are being taken this year to secure the remainder of that. Some of those actions are second-half weighted, particularly in some of the back-office functions, as we start to benefit in headcount terms from the systems implementation that we've done. So the run rate will be relatively fixed as we go into next year. The thing I would remind you is that we did say GBP 330 million or more. So we will know when we get to the end of the year, how effective our actions have been. And then we'll give you a full guide on it. In terms of the growth in Higher Ed Courseware, I -- it is -- given what's happened, it is I think too early to give you formal guidance for next year, for obvious reasons. We'll do that in early 2020. However, I think if you step back and you look at what's happened, it's probably sensible to assume that those trends will continue into next year. Now longer term, I think the point you made about when the digital starts to offset the physical. It's been a negative surprise for us at this Q3. But it does bring us closer to that point where the print business has declined in a way that digital growth starts to outweigh and see growth in the business overall. But we are a couple of years away from that.In terms of returns, we have benefited from -- since 2017 from an ongoing reduction in returns levels as a result of working closely with our channel partners to improve the efficiency of the channel. To be clear, this year returns are continuing to trend down. So we get a benefit from the provision, which works on a 3-year basis, but we are also seeing a reduction in actual returns. And the flip side to the painful reduction in physical ordering this year is that you would expect lower returns again next year. So I don't think it's right to assume that, that benefit will stop.

[John Joseph Fallon, CEO & Executive Director]

And then just -- I think just coming back on your -- on the first point, whilst, as we say, I think we are through the major sort of restructuring. We're yet to see I think the full benefit. And that's really going to come through I think second half of next year and into 2021. Because if you think about it, we are betting in a much smaller number of global, scalable platforms. And if you look at other companies that have been through this transition, you get the immediate cost savings as you implement and you can decommission a large numbers of systems, you then have to learn how to run them much more effectively, efficiently, and then you just get on seeing continuous improvement. So we're not going to get that really, I think, any benefit from that in 2020. But I think you will see from 2021, year after year after year of continuous improvement in margin improvement, efficiency savings, just as we get the real benefits of those systems and the scale from them.

[Nicholas Michael Edward Dempsey, Research Analyst]

Can I just sneak another one in there? Given that you have these long-term plans on cost, et cetera. We've seen this before, why bother taking out GBP 25 million of cost on a kind of emergency basis near the end of this year, if it's going to have to go back in next year? Why not take the full GBP 50 million, or whatever it is, hit this year, given that it's going to happen next year anyway.

[Coram Williams, CFO & Executive Director]

I think the point is that there is a structural efficiency program here, which is generating significant savings for us 2017, '18 and '19. And to John's point, lays the foundation for continuous improvement going forward. But also, we have a degree of flexibility in our cost base. And therefore, we can make those changes without having a significant long-term impact on the company. And it allows us to protect the profitability after we've had a difficult third quarter. So it's the flexibility that I think is the key point here.

[John Joseph Fallon, CEO & Executive Director]

Okay, thanks, Nick. Hugh, back to you.

[Operator]

Our next question is over to the line of Katherine Tait at Goldman Sachs.

[Katherine Tait, Associate]

I understand the -- this is lack of visibility that you sort of have on the print side of the business in terms of the evolution over the next couple of years. But I wonder, if we can just talk about the digital side. Clearly, modest growth in the 9-month period, but registrations are still down. Particularly, I guess, in the context of more affordable pricing that you've, obviously, been talking about a lot, and more and more competition in the market from a sort of Cengage Unlimited perspective. Can you just sort of -- if it's -- walk us through exactly how you expect that digital revenue to accelerate over the next couple of years between that sort of registration decline and pricing and mix and all those factors? And then my second question is just on OPM. So you pointed to a good performance at the 9-months period. But conscious that some of your other peers in the market have seen some pressures, particularly from sort of low enrollment growth in previous anticipated, high SG&A and acquisition costs, et cetera. Just keen to hear your latest thoughts on the outside business.

[John Joseph Fallon, CEO & Executive Director]

Thanks, Katherine. So I think the digital story is very much in line with what we talked about at the half year results at the end of July. But we see some short-term pressure on registrations from 2 factors. One, as you know, college enrollments are continuing to decline. And the decline is sharper in developmental education, particularly in math, which as you know, is taught in community colleges across America, and where we have a disproportionately high 70% plus market share. So that's just a drag because there's just far fewer students in an area where we have a high degree of market share. And secondly, ahead of the launch of the Global Learning Platform, we have been retiring a long tail of MyLab & Mastering products that had low use and low economic value. At the same time, we are obviously seeing continuing growth in Revel, helped by the fact that we're now launching the product on the new Global Learning Platform, which is enabling us to allow -- introduce new features and functionality, for example, an authentic assessment capability, first product in Pearson to have that. And we're, obviously, continuing to see growth in eBooks. All that's consistent with what we said at the half year, which is modest decline in registrations, modest growth in revenues.For the next 12 months, we're going to continue to see some pressure from the decline in enrollments in developmental education, and we're going to be continuing to wind down that long tail. But then, as I was saying earlier, as we launch AiDA, as we -- Revel, as we launch Rio, as we bring more MyLab & Mastering products onto Global Learning Platform, which in turn gives us chance to add much more features and functionality. We'd expect to start to see -- digital registration start to grow again. That's the story that we sort of talked about in July. We have good visibility into that. And that's very much in line with what's happened through the back-to-school period than what we expect for next year.On Online Program Management, I think we've always seen this as a market that's growing more in the sort of 8% to 10% per year range, rather than in the 20% range. And so we have built our business around that, and we've funded growth around that. We've deliberately built a broader profile of institutional partners, undergraduates and graduates. You want a number of star national brands, but you also want good regional brands. And you want to be making sure that you're very focused on working on partners in their areas of specialism and where students are looking to take graduate programs will recognize that a graduate degree from that specific university is going to help them to get a job in that particular sphere or get them a promotion. So I think we feel good about our business. We're doing a lot of work to -- as I say, to make sure that we map the right partners to the right opportunities, that we really transform the way that we do enrollment marketing, recruitment and retention. And then -- really then also focus on how we can help our partners to improve the teaching and learning experience and improved experience and improved outcomes for students, because primarily the reason students are doing these courses is because they want a better job and a better career. One of the exciting things on that is one of our -- we're now looking to deploy the Global Learning Platform not just across Higher Ed Courseware but across the wider business. And we have a very exciting partnership in hand with a major university, which would help them to scale their online programs in ways that weren't possible before. So confident about the business, pleased with the way we're going. And I think the way the market is evolving validates the strategy that we've been pursuing for the last few years.

[Operator]

Okay, so we now go to the line of Ian Whittaker of Liberum.

[Ian Richard Whittaker, Head of European Media Research]

Apologies to be on speeds already because I'm late to the call. But a few questions. First of all, obviously, in terms of the U.S. Higher Education guidance, we've gone from quite a sharp sort of turn. So it's a 5% to -- 8% to 12% decline. Sort of -- are there any other parts of your business that you think could be vulnerable to that sort of sudden shift of such a magnitude in terms of your ability to forecast out. Because yes, I think for all of us, if we'd seen, let's say, minus 2 to minus 7, let's say, that would've been a bit more understandable, but such a rapid shift, so that would seem to raise questions about some other parts of the business? Second question is -- and you may have answered this already, just in terms of where you are in terms of U.S. Higher Education Courseware, in terms of market share, maybe just explain that, if you haven't explained it already. And then the third question is just around -- if you look at the group in terms of what you do across the sort of various geographies and also the various product range, it seems as though you've got a much wider spread than your other peers in the education market, they're perhaps a little bit more focused. Do you think there's an argument to say that actually in terms of peers that it's trying to do too much everywhere and that may be sort of some of the portfolio can be churned, because there may be a question, for example, is to really how many synergies you can drive between a English language business in China and the U.S. Higher Education Courseware business. And as maybe one of the issues here that effectively Pearson has been trying to shuffle too many balls at the same time and that perhaps is caused you to sort of lose attention in 1, 2 markets.

[John Joseph Fallon, CEO & Executive Director]

Yes. Thanks, Ian. I think let me -- I think the 3 questions sort of work with each other. So let me sort of try and answer all of them together. I mean, as you saw the -- in aggregate, the 75% of Pearson that's not in U.S., Higher Education Courseware grew 3% in the first 9 months of the year. I think that's the best performance by those businesses probably for the last 6 or 7 years. The Courseware and Assessment businesses outside of the U.S. higher-ed business, which have been through structural changes of their own, are now stabilizing as we work our way through the digital transformation and those structural growth businesses that we've been investing more behind are up 6% through the 9 months and are likely to improve on that through the full year. So I think we have good visibility into the rest of the company. And I think, we're really proud of the progress that we've made and confident that they are on a growth trajectory. On market share specifically, as we said in the press release, we've lost a little bit of share, about 1 point of share. I think that's come for 2 reasons. One of the reasons I mentioned earlier that we're under a little bit of pressure in developmental math from one competitive product. And secondly, I think we have seen the delayed effect of the big supply chain challenges that we had this time last year. There was a lag effect in seeing those come through, primarily because they are in a, sort of, a long tail of small and more print-heavy adoptions, so they don't really get the profile and attention that maybe they should have done, and we really had to dig into to understand that. But the fundamental point I made in July, I still completely stand by, which given the amount of change that we have put this business through in the last 2 years, the competitive performance has actually proved very resilient, and we're going to see the benefit in competitive terms of the pain that we've taken over the last 2 years and how the business performs in the next 3. And then in terms of the breadth of the businesses, I think I just made the point that this is a much more focused business than it was a few years ago that we've really honed down. We got out of our direct delivery businesses in China, so we could focus much more on our Courseware and Assessment capabilities. And I think that you're seeing the benefits of that and the fact that the 75% of the business outside higher-ed courseware grew 3% in the first half of the year. And then the other point I'd make, I come back to it, as painful as it is short term, print textbooks are in structural decline. We thought the decline would be around 10%, is proved to be more like 20% in the period that we've seen just in the last 2 months. And I think there's 3 factors at work. The first is, I think we are seeing growing numbers of students who -- when you buy MyLab & Mastering product, you get an eBook with that. And I think more and more of them are saying, actually, I'm just going to use the eBook rather than complementing it by buying a physical book, that's obviously painful, short term. But actually, it's much more sustainable business long term. So I think that's the first thing that's happened. Secondly, I think the sheer amount of change that we are forcing, the scale of growth and inclusive access, our shift to print rental, the way in which we're marketing and promoted eBook rental, the way we've gone out very aggressively promoting our digital-first strategy in July, I think that has probably had a bigger short-term impact on channel behavior than we could have anticipated. If that so, back to Coram's answer to Nick earlier, we're going to see the benefits of that in much lower returns later. And third, I think we're probably also seeing, and this is harder to spot until you get into sort of the back to school period in the last couple of weeks, I think we're seeing the Compass book stores recognizing where we're going with our digital-first and access and rental-based strategy and responding by trying to drive their own secondary strategies more quickly. So they're trying to push rental more. They're trying to push sales of all their editions and the like. If that is the case, then the fact that this year, we just reduced the new inventory stock going into the secondary channel by over 20%. Well, that hurts this year, but it's going to help this business a lot over the next 3 to 5 years.

[Ian Richard Whittaker, Head of European Media Research]

And if I could just ask a quick follow-up. Just in terms of growing, sort of, acceleration of print going across the digital, so when you look at the market, how much do you think that sort of growing shift is being driven by the Cengage Unlimited product persuading students to actually go with a all-you-can-eat digital model?

[John Joseph Fallon, CEO & Executive Director]

From what everything we can see, it hasn't. As I say, the 2 things that, from a -- we've lost about 1 point of share and we lost it to 2 things; one, we're under some pressure in developmental math; and two, we've actually seen some pressure in, as I said, those smaller print-heavy adoptions as a result of the supply chain. We've not seen any significant impact from Cengage Unlimited on our share at all.

[Operator]

Okay, so we now go to the line of Pierre Ribeyron at Macquarie.

[Giasone Ulisse Salati, Senior Media Analyst]

It's actually Giasone Salati. Can you hear me fine?

[John Joseph Fallon, CEO & Executive Director]

We can hear you, yes, a little quiet but we can hear you.

[Giasone Ulisse Salati, Senior Media Analyst]

First question for Coram. I'm just working through the maths. Previous guidance was 0 to minus 5 for U.S. Higher Ed. Market share loss is about 100 bps, so call it, 2% to 3%. To go from 2.5% midpoint to minus 10%, we have 7.5 percentage points. So we're seeing that the market is worse by a factor of 5%. This is the print attrition and in general, less sales in Digital. If you could confirm those maths. And second, for John, I understand this might be just timing, so what is now your visibility on returning the group to positive organic revenue growth. It's not going to happen in 2019. Can we start thinking about this for 2020, or there is still too little visibility on the U.S. Higher Ed?

[John Joseph Fallon, CEO & Executive Director]

Okay, thanks. Coram. Do you want to pick up this one?

[Coram Williams, CFO & Executive Director]

Sure. Look, I'll give you a sense of the breakdown of it to get to minus 10%. Obviously, we are at the end of the third quarter. So this may move around and would give you a precise set of numbers at the end of the year. But if you think about the way that I described the movements in this business, enrollment and where we are, roughly where we thought they were. We said at beginning of the year, enrollments would be about minus 2 and here we are about minus 1.5. And we said there's modest growth in Digital, assume that's a couple of percentage points. The share of a 100 bps actually doesn't quite translate into 2% because you've got to remember the share is measured at the gross level and there are returns that come off that, so call that 1.5%. And the rest really is all about the print attrition. So it's a very significant component, it's about 7% movement.

[John Joseph Fallon, CEO & Executive Director]

And then I think on your second point, I think we feel very confident in the growth trajectory of the 75% of Pearson that is not in Higher Education Courseware I think for the reasons I've outlined. I think on a longer-term view, this does not change anything about our prospects for this business. We do think there's a sustainable business that we can get growing again over time. The quicker we get through the digital transition, the better. But I think you'll understand, given what we've seen just in the last couple of weeks, we just need to absorb that to take stock before we start trying to give guidance on 2020. So I think -- I appreciate the question. I think we'll return to it early in the new year.

[Giasone Ulisse Salati, Senior Media Analyst]

And Coram, can I just follow-up on the -- I just want to make sure that we are speaking about the overall market for U.S. Higher Ed being 5 percentage points worse than expected at beginning of the year for everybody, that we don't have then a competitor into the year-end saying that they all of a sudden gained those 5 percentage points in terms of share.

[Coram Williams, CFO & Executive Director]

I mean, absolutely. And the thing you've got to remember is that we've got a range for the end of the year, so we can't be completely precise. But the share impact is a modest part of this. So the vast majority of what we're describing in that range is a market movement.

[John Joseph Fallon, CEO & Executive Director]

It's an industry-wide action, not Pearson specific.

[Operator]

So our next question is of the line of Sarah Simon at Berenberg.

[Sarah Simon, Analyst]

I've got a few as well. First one, just quickly, can you remind us of the phasing of the savings in terms of what the incremental number is for this year and next year, on the GBP 330 million?The second one is just back on the revenue, Coram, you've said that returns are continuing to fall. But I'm a bit confused. Because back in July 26 when you reported, you said you were in line. But surely, the bookstores had made their choices by then and they would have had to choose, because the students would have been going back within a month, and they would have had to have ordered. So is this just that you didn't know at the time that the bookstores had ordered less as in it's a communication problem between the U.S. operation and headquarters? Or is it that you're seeing less buying of the books by the end students and therefore you expect returns to increase because that's something doesn't quite make sense there.And then the final point was just on the survey that you put out recently, it kind of talked about a big push towards lifelong learning. And obviously, some of your peers have invested in quite a bit of that. How do you feel you're positioned with regards to lifelong learning, because you still look pretty focused on the traditional undergraduate education regardless of whether it's physical or remote. But do you think you've got enough in the lifelong learning market or do you need to invest there?

[John Joseph Fallon, CEO & Executive Director]

Coram, do you want to pick up the first 2? And I'll pick up on the third.

[Coram Williams, CFO & Executive Director]

Sure. So the incremental benefit this year is GBP 130 million and GBP 55 million or more is what we've said for 2020. In terms of the order patterns, I think it's worth just stepping back. Students go back to school typically from mid-August onwards. And the channel has moved away from significant upfront orders on the back of anticipated demand to a much smoother set of top-up orders which go through the period. And so to be clear, at the end of July, we would not have had significant insight into order patterns. And indeed, one of the things that's happened here is that because the sales are much more back-end weighted in September, because of that shift in both consumer and channel buying behavior, you only get visibility right now. So it's a much later process than you're describing.

[John Joseph Fallon, CEO & Executive Director]

Yes, and then I think Sarah, I think you -- I think we're doing more on the lifelong learning front than perhaps -- as you -- perhaps something recognized. If you look at our Professional Certification business, that's all about providing professional certification to people throughout their careers. If you look at the -- our Online Program Management business, a lot of that is around -- if you look at the big relationship we have with Arizona State University around the undergraduate program, that's working adults who are later phase in life and wanting to get that undergraduate degree because they didn't get first time. Who're looking to reskill or retrain, a lot of the partnerships we have around graduate programs are in the same way. We're seeing big opportunities for BTEC around the world, that's very much driven by this idea of ongoing learning. The big program we're looking at where we work with a university partners to deploy the global learning platform is very much again around how we make lifelong learning to their alumni available. So it's been -- there's a lot more certainly we can do, but it is a -- has been a significant part of our growth over the last few years. It's a big area of organic investment, including, for example, we have a number of early stage of exciting partnership with major employers who are starting to think about education as an employee benefit much in the same way as they think about health in those terms. So a lot more we can do, but actually we've got a good platform from which to do it.

[Operator]

The final question for today is over to the line of Matthew Walker of Crédit Suisse.

[Matthew John Walker, Research Analyst]

I just got a number of questions. The first is, could you just explain a little bit more about the disruption in the sales model that you mentioned and how that's going to be resolved? Second thing is, could you -- you've been talking about a competing maths product, could you be a bit more precise about who is this sort of competing maths product? What are they doing? What's their market share? How are they impacting you? And then finally, on the platform savings that you mentioned, post the actual structural program because of the GLP, how should we think about those? Are those going to incur? You've said in the past that those are not going to incur restructuring charges. But if the ERP system and the GLP means that you can have lower costs, is some of that not people who then incur restructuring charges? And then lastly, back to Nick's point on the emergency cost savings. Like Nick, I don't really see what the point is, that is because it's just basically -- it seems to be -- so you can just comment -- come within the initial guidance range. I don't see what function that really serves. So if you could explain a bit more about that because I didn't understand the explanation.

[John Joseph Fallon, CEO & Executive Director]

Okay. Coram, do you want to pick up on the last of 2 points and then I'll pick up on the first 2.

[Coram Williams, CFO & Executive Director]

Yes, just to pick up on the final one first. I mean, I think I've been clear that we have got flexibility in our cost base. And therefore, actually, it is good financial management to respond to movements in your top line. We think that premier costs, adjusting your cost base and doing so in an agile and flexible way is actually the thing that you'd expect management to be doing. In terms of the savings, the ongoing efficiency benefits, I think, come in several forms. It's, as John mentioned, the front office. So the benefits of something like the Global Learning Platform. But that isn't people related, that's about driving hosting costs and costs of technology down, so that we can deliver units at lower cost and that will flow through the P&L increasingly as we ramp up that particular platform. On the back office, I think one of the things that we've done as a result of the ERP is being able to move people into shared service centers and the offshore and outsourced centers, and that gives us greater flexibility in our cost base because a lot of those are provided by third parties where we are able to move the costs up and down without incurring restructuring charges. So the type of benefit that we're thinking of can flow through the P&L without significant one-off charges. The one-off charges that we've taken lay the foundation for that.

[John Joseph Fallon, CEO & Executive Director]

Okay. Just on the competitive product, well it's a McGraw-Hill product called ALEKS, which is actually a -- an adaptive learning product that is some years, 20 years old. But there are some customers who would see an Emporium Model. So if you're teaching developmental math to a big class of 100 or more students, can see that it has some features that they may welcome over MyMath lab. So that's what it is. But just to be clear, I mean, we're talking about less than half of 1% of share. So it's relatively small in the overall scale of the business. And that's why it's vital that we get to market as soon as possible. Our next-generation MyMathLab product called Rio, which takes adaptive learning much, much further, which meets all the demands that customers are asking for and we think is going to do exceptionally well, when it comes to market later next year. And then in terms of the -- your question about the disruption of the sales model. As I mentioned, we've taken over 900 heads out of the front office of our Higher Education Courseware business across product, marketing, sales and service over the last couple of years. That's partly to bring the cost base in line with the fact that the business is obviously significantly smaller than it was a few years ago but also to get ahead of the digital-first model. Because clearly the way you sell and support and serve customers is very different if you're in much more of a Software-as-a-Service type mode of working at the enterprise level at the sort of C-suite in universities, and also having much more of a direct-to-consumer type business. We have restructured the sales force very deliberately over a 2-year period, that is now complete. Last year, so as not to disrupt the final adoptions, we delayed the changes till July, that then gave us a problem in September when we had the supply chain challenges because the sales reps didn't have the time to get used to their new territories before we got into back to school. This year, we brought it forward. So we did it a month or 2 early, so it meant that by the time we got back to school, everybody was in and comfortable with their new roles and territories. But I think it did have a little bit of effect in the visibility that we had around the adoption data particularly, as I say, in more of those sort of level 2 and level 3 smaller reductions.But the good news is, we're done. There is no need for a further major structural change. We have the sales force, we have the product team, we have the marketing and services aligned with the opportunity just as, as we may see others in the market are about to have to make some of the big changes that we've already done and made. So I think that's going to give us a big competitive advantage in the market over the next year or so.

[Operator]

And may I please pass it back to you for any closing comments at this stage.

[John Joseph Fallon, CEO & Executive Director]

Okay. Well, thank you. Well, as ever, thanks for your interest in the company. Thanks for joining us at a short notice today. Joe, Anjali and Tom, obviously, been on the call with us. And any follow-up questions, please let us know. And we look forward to talking to you. Thank you.

[Operator]

This now concludes the call. Thank you very much for attending, and you can now disconnect your lines.