Pearson 2020 Full Year Results and Strategy Update

Monday, 8th March 2021

Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

Introduction Andy Bird Chief Executive, Pearson plc We are Pearson plc Hi, everyone. I am Andy Bird, Pearson’s Chief Executive. Thank you for joining us today. As we have all experienced, the world has changed and the world of learning has changed. We are witnessing a significant shift in what, how and where we learn. And today, I am going to lay out our strategy for Pearson to embrace this change and grow our business. A number of us have met already, and I am looking forward to speaking with, and hopefully, even meeting more of you in the coming weeks and months.

Pearson has long understood the value that learning brings to people’s lives. How critical it is in helping them progress and achieve their goals. Learning is one of the most powerful forces for change in the world. We believe that everyone should have the opportunity to learn because learning transforms lives and societies. Our purpose of Pearson is to help everyone achieve their potential through learning.

We believe that Pearson’s talent and content should reflect the diversity of the markets we serve, ensuring we create the best products with the greatest impact for the greatest number of people in the world. We believe that Pearson must have a positive impact on our customers’ lives, on the communities that we serve, and on the world of learning globally.

Simply put, we intend Pearson to be the world’s pre-eminent learning company, delivering the world’s most valuable learning products to more people than ever before. This is simultaneously good for our business and good for the world, because when we demonstrate the power of learning, we grow our business and transform lives.

Since joining Pearson, I have immersed myself in all conceivable aspects of the business. No stone has been left unturned. These insights have shaped the strategy that I am announcing today. I have also discovered how much progress has been made over the last five years. Our transition to a digitally-enabled company is mostly complete and we have strong foundations from which we can now grow.

The most important thing I would like you to take away from today are the five reasons that Pearson is going to prosper. Our market has never been bigger. The learning market is vast and growing. And 2020 was the catalyst for individuals and organisations to change how they see the need to learn and how to learn.

We can grow our existing businesses. Pearson has great assets and the investments we have made in our technology will enable us to grow our existing businesses. We can also reach more people than ever. We will build direct relationships with the existing and new consumers and support them through their entire lifetime of learning. The business sector is a huge new growth opportunity. We will help companies address the persistent skills gaps and massive shifts in the workforce that they face, opening up a huge new market for us.

And finally, we have a unique competitive advantage. We have unrivalled expertise in learning. No one else can offer the combination of the highest quality content, the best digital products and delivery and the world-leading assessment capability that the market and our consumers demand. So that is an amazing position to be in. www.global-lingo.com 2 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

• A huge and growing market;

• Growth in our core businesses;

• Expansion to new customers for their entire lifetime; and

• The vast global business sector to go after with a competitive advantage no one else has.

So let me explain our vision for how we will unlock all of that potential and return to growth, and why I am so optimistic about our future. I am going to outline my guiding principles for leading this company into that future. I will also talk about our focus and our strategic priorities, our culture, our portfolio and our new organisational structure.

Global learning opportunity The global learning market is vast at around £5 trillion today, growing to over £7 trillion by 2030. Formal primary, secondary and tertiary education is 75% of that market, and we will remain the significant majority. We expect over a billion more learners to have moved through formula education by 2030, a growing global middle class and longer careers are also driving lifelong and non-academic learning, particularly re- and upskilling, a trend that has been accelerated over the past year.

This all adds up to a huge momentum in our industry and a great opportunity for Pearson to innovate and scale to meet the growing and changing demands of learners globally.

The most interesting thing about that extraordinary £5 trillion learning market, it is currently only 3% digital and that is a huge opportunity for us to grow our business and with a highly attractive digital business model. What learners demand is evolving?

COVID-19 has accelerated the trend to digital first in every part of our lives. There has been massive disruption to the world’s workforce and to education. Governments and businesses need their people to learn new skills and adapt. Learning is the key to that change and to the new opportunities it creates.

How we learn is also changing driven by technology and new consumer habits. Consumers now focus on quality, accessibility and the return on their time. They want to track and prove what they have learned and to realise its value in their careers and their lives. We only need to look how consumer habits have changed in other industries. We no longer buy CDs. We listen to Spotify. We no longer buy DVDs. We watch Netflix. And we no longer go to a fitness studio. We take a peloton class.

The fundamental growth drivers of the learning market are robust So the business of learning is changing, more direct-to-consumer, less formal, and more skill- based. And technology enhanced and accelerated by the rollout of 5G will enable more accessible, affordable, engaging and effective learning experiences everywhere.

As a result, the market for learning is changing rapidly. Parents, learners, students, employers, institutions and educators are all now our customers. The gap between employment and learning is narrowing. Employers are becoming the universities of the future.

This does not mean that we will be abandoning our traditional markets in education or our deep relationships with institutions. Those markets and institutions themselves are changing www.global-lingo.com 3 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 to meet the needs of their consumers and they are doing so in partnership with us. We believe in the power of education, of measuring efficacy and outcomes to deliver real learning and we will work closely with faculty and institutions to ensure that Pearson always provides the most relevant and dynamic learning experiences to students.

Three market opportunities But to grow, we must also go where our consumers want to go. We must partner with them as they embark on a lifetime of learning that prepares for a rapidly changing world. In this changing world of learning, I see three big global opportunities for Pearson:

• The rise in online and digital tools for schools and education;

• The workforce skills gap; and

• The growing need for accreditation and certification.

As you will hear, these represent a balance between profitable markets, where Pearson has a leading position, and new markets, where we believe we have the capabilities to grow rapidly. We are in a strong position to seize those opportunities. And here is why I believe we will be successful.

Guiding principles to benchmark success First, the value of our recent investments can now be realised. We have spent the last several years in a challenging transition, developing our technology, particularly the Pearson Learning Platform and re-imagining our businesses.

The Pearson Learning Platform is cloud-native, thanks to our partnership with AWS and others, and is built on the latest cutting-edge technology. It allows us to deliver personalised engaging learning experiences on a global scale. We have fantastic feedback from our learners and faculty on PLP-based products.

In short, students learn better with our new platform and products. I believe that developing the PLP was the right decision for Pearson, and I am confident that we can now say we are truly a digitally-enabled company, but I am also clear that we need to move much faster and to capitalise on our technology’s potential to drive growth across the company.

Second, we are the global experts in learning. Nobody else has the breadth and depth of experience, expertise and relationships across the entire lifelong learning spectrum. We enabled tens of millions of learners per year across the world from schools to the universities, to the workplace. They consume our content. They follow our courses, sit our assessments, and are awarded our qualifications.

Third, with the home for the best talent from our amazing passionate and dedicated employees to our brilliant authors. We will ensure that our talent reflects the diversity of our customers and we will provide the best environment, tools and support for our people to learn and thrive.

Fourth, we are the only company who can offer end-to-end solutions at global scale from identifying a person’s learning needs and helping them to achieve them to assessing their performance and granting credentials. Our customers can benefit from this virtuous circle multiple times throughout their life, as their learning and their career paths evolve.

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Fifth, we have a competitive advantage in the integration of our intellectual property, content, products and assessment tools. A continuous flywheel that makes each part of our business more valuable. I am going to touch on this more later with our workforce initiatives, where we can apply our expertise from across the company into this new space.

And finally, I am encouraged by Pearson’s agility during the pandemic. The company responded rapidly to the needs of learners, schools and governments around the world, such as through:

• The launch of our UK learns portal;

• Scaling up our online test services; and

• Enrolling dozens of new school districts and tens of thousands of new students into our Virtual Schools.

The six strengths that I have just outlined are the roots of our future success. But we need to be honest and transparent about where we need to change, do new things and to do them well.

Repositioning Pearson for growth to seize the global opportunity So in just a moment, I will share the details of the five business divisions that are the foundation for the long-term growth of the company:

• Virtual Learning;

• Higher Education;

• English Language Learning;

• Workforce Skills; and

• Assessment and Qualifications.

All of which will be supported by our new direct-to-consumer division.

Later in the presentation, I will also share new KPIs with a focus on the consumer and shareholder value. Then Sally will talk about our 2020 results and look forward to 2021.

Guiding principles to benchmark success So now I want to explain the four guiding principles I use to lead this company into its next and most exciting chapter.

• We will put the consumer at the centre of everything we do, providing them with the highest quality and best value products.

• We will only be in businesses that can drive growth, scale, profitability and shareholder value.

• We will have the capabilities to deliver, including an entrepreneurial culture, diverse talent and effective technology.

• And finally, we will move with speed and agility. So Pearson will develop the highest quality products and services, utilising our technology and talented employees to drive innovation, excellence and quality in everything we do.

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Virtual Learning To explain how we will do that in practice, let us take a look at the first of our five business divisions, Virtual Learning. We have a leading position in this segment today in the United States.

COVID has accelerated online learning and created a consumer trend that is not going away. Our polling suggests that 5% of K-12 parents now think virtual education is a viable permanent option for their children, compared with just 1% pre-COVID. I know that many of you had a variety of home-schooling experiences, but please do not make the mistake of equating our dedicated virtual schools to the home-schooling driven by the pandemic. Take a look at some of Pearson’s virtual school students.

[VIDEO]

Virtual K-12 schooling is a £1.5 billion market in the United States alone and we saw market growth of high-single digits pre-COVID. In 2019, the total US virtual school enrolment was around 400,000 students, which represents only 1% of the entire K-12 population. We think the total addressable market will grow as more school districts retain online schooling post- COVID, and as more parents opt for virtual schooling permanently.

We have a 17% share of that market and are present in 29 of the 34 states that currently allow virtual public schools. Last year, our virtual schools revenue was approximately £400 million following significant growth of 29% driven by COVID. In an increasingly global employment market in which parents want the greatest opportunities for their children, we see growing international demand for online UK and US curriculum schools, just as we have seen growth in global demand for online UK and US Higher Education.

We have recently launched the Pearson Online Academy, which provides a globally available UK curriculum to complement our US curriculum offering. So you can study in the UK or US curriculum anywhere in the world. Our online schools technology platform is a customisable solution, which other countries and state education systems can use to provide their own curriculum online.

Our Online Programme Management business has also continued to perform well. You should look at our OPM business through three dimensions:

• Expanding our OPM relationships with higher education institutions to be broader in scope;

• Leveraging our world-class in-house digital marketing agency across the other parts of the business; and

• Accelerating our Pearson Pathway strategy to grow our presence in lifelong learning.

The global OPM market at £2.8 billion today is growing at 20% CAGR, as consumers increasingly turn to online course solutions and is expected to be over £7 billion by 2025. Excluding discontinued programmes, our OPM enrolments were up at 20% in 2020, and our current revenue is £300 million.

We expect to continue to grow our OPM business as the investment in our pathways platform drives improved conversion rates and cost per lead. Our competitive advantage in virtual learning is our end-to-end capability to provide: www.global-lingo.com 6 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

• High-quality curriculum;

• Technology and services;

• Deep expertise in delivering online teaching and learning; and

• Established partnership model, trusted brands and the ability to enrol students at scale.

Higher Education Turning now to the second of our business divisions, Higher Education. We believe that the future of learning and the US higher education courseware business will be digitally-driven. As in other areas of their digital lives, higher ed students will demand:

• A world-class user experience;

• Measurable outcomes; and

• Affordability.

Let us hear from some of them now.

[VIDEO]

Today, the market in the United States for higher ed courseware is between £4 billion and £5 billion. We are the leading player in this market with revenues of just over £800 million in the US and over £900 million globally. We have created partnerships with thousands of leading authors across multiple subjects with a very strong focus on STEM.

We are accelerating our move to digital at over 70% already, and we have an opportunity to recapture the secondary market in Pearson textbooks, which today, represents about 14 million units. I have already stressed the need to engage more directly with our consumers, along with maintaining our relationships with faculty.

We need to understand what, where and how learners are consuming. We need to create relationships with them to help them succeed as they move through higher education and into employment. If we do that, if we become the trusted partner to millions of students, we will be able to engage with them for the rest of their lives. It is the reason that I created the new direct-to-consumer division within Pearson.

Currently, we estimate that 10 million US students are engaged with Pearson higher education products. Imagine, if we were able to create a direct relationship with those students throughout the four years at college and then maintain that relationship for the next 30 to 40 years of their working lives.

As they grow older and become parents themselves, they continue on their learning path or simultaneously introducing their own children to Pearson products. The number of connected students compounds each year as they graduate and a new intake enters college.

Over time, these relationships will be a powerful growth engine for the company. The Pearson learning platform and the products we are developing on it will enable us to create these lifelong learning relationships.

We know that digital growth will be driven by new products and business models and by richer and more engaging learning experiences. We are enhancing Pearson eText, Virtual www.global-lingo.com 7 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

Labs, MyLab, Revel and Mastering, products that will deliver learning experiences that are learner-centred, outcome-focused, beautiful and interactive. Let us take a brief look at those products now.

[VIDEO]

When you hear the term eText, you may think, as I did, that is something akin to reading a book on a Kindle. As you have just seen, it is a far more encompassing, immersive and interactive video and graphic experience. Furthermore, it is a more engaging product for learners and faculty.

New college study app To create that initial direct relationship with higher ed students, we are going to launch a new college study app in the autumn of this year. This new app will enable us to accelerate, recapture of the secondary market for textbooks through a competitively-priced, flexible and tiered service. We are also going to roll out this college study app globally.

Our study app will create new partner opportunities to ensure broad distribution and activation, building upon the excellent relationships we currently enjoy with our colleges and faculty. And most importantly, it will help us to foster a lifelong relationship with our consumers. Our ambition is that this app will become a desired and required tool for students beyond just the textbook.

Now for commercial reasons, I would not get into many more details today. But you will hear much more in the summer about both the product and how it will help enable us to accelerate our return to growth in higher ed courseware.

English Language Learning The third business I want to talk about is English Language Learning. We aspire to become the world’s leading brand for people who need to learn or improve their English. Our engaging, personalised learning experiences help people understand what they need to learn and achieve goals that are important to them, whether that is a better paying job, a study abroad opportunity, a path toward immigration, or the desire to participate in a global talent and learning market that is increasingly online and English speaking.

We also help employers and educational institutions to fast-track the English learning of employees and students. Let us hear from some of them now.

[VIDEO]

Over 1.5 billion adults are learning English today. Our current revenue across our assessment, courseware and direct-to-consumer offerings is modest at £230 million, in a market worth approximately £5 billion today, and which we will estimate will grow to £7.3 billion by 2025.

There is a significant opportunity in English across many markets in Asia. By creating a specific division to focus globally on English language learning, we believe our products and technology will drive the business growth above-market rate to its fullest potential.

We will also create an important new entry point for consumers into the Pearson ecosystem globally. There are several reasons why I am confident that we will succeed. We own the global scale of English, a leading global measurement standard, which enables people to www.global-lingo.com 8 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 gauge and track their progress. The Pearson Test of English is highly regarded as one of the world’s best assessment products. It is a digital test with AI scoring that gives a fast, accurate, secure and unbiased result. And it leverages the global footprint of our VUE test centres.

Our certification of proficiency is a trusted brand for entry into higher education and a gateway to immigration recognised by the regulators in the main receiving countries. We own and will continue to produce world-class content tailored to the needs of learners across the world and at each life stage.

We also own the URL, english.com. Now, previously if you typed english.com, you were redirected to pearson.com. Now we are rebuilding english.com into a more compelling gateway for English language learning, creating yet another opportunity to engage with our consumers directly. We can also bundle English with workforce upskilling and reskilling products. And we are able to localise the content so it is relevant to learners wherever they are. And we will partner with big brands, as we have with Disney and the BBC, to create unique learning experiences.

Now this is a business I am very excited about. In today’s global talent and learning market, more people than ever want to learn English. We have the best end-to-end solution, which will be global, digital and consumer-focused. English reinforces our other offerings in schools, university and the workplace. And our English learners will have easy access to the products that are offered by Pearson’s other four verticals to achieve their full potential in life.

Workforce Skills Now moving on to what I think is one of the biggest long-term opportunities for Pearson, workforce skills. Did you know that 70% of US employers believe college graduates have insufficient competency in core skills, and that 30% of jobs today are at risk of automation by the 2030s? The unstoppable global trend of remote working is driving a growing need for new digital and management skills.

In the UK, 40% of students now attend vocational college compared with 35% who attend an academic sixth-form. The world of work is changing faster than most workers are evolving. This phenomenon is creating a huge need for upskilling and reskilling of employees. The global workforce learning market was over £280 billion in 2019. In the US alone, it is over £100 billion.

Currently, Pearson only has a nascent presence in this sector, and our revenues are modest at just over £100 million. Now we are not attempting to create a MOOC, but rather to build upon our traditional strengths and apply those to the workplace. So in many ways, you should think of our workforce skills business as a new distribution channel as much as a source of new products.

Now, it is a highly competitive market, and we will need to earn the right to play there. But I believe that we can. I say this with confidence, because I know from the exciting discussions that we have already had with leading global employers that there is a need for the capabilities that Pearson can bring, particularly in assessment.

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Employers spend vast sums on addressing their skills gaps, but it is often unclear what the return on that investment is. The problem is stubbornly persistent and it is growing. Our vision is to be a leader in high quality learning and assessment that:

• Supports career progression;

• Helps people unlock their talent; and

• Drives growth for our customers businesses.

My priority will be forging partnerships with corporations and other learning providers that apply our deep expertise in learning, design and assessment to create learning solutions that truly meet employers and employees needs.

I wanted to try and capture the opportunity that lies ahead for us. So I ask Andy Jassy, CEO of AWS, and soon to be CEO of Amazon, to highlight the opportunity for corporations as they migrate to the cloud, and to explain a little about our current partnership and where he sees the potential for that to grow.

Opportunity for Corporations

Andy Jassy CEO, AWS I am Andy Jassy. I am the CEO of AWS, and it is great to spend a few minutes with you here today. Our partnership with Pearson is really strategic and important to the team and me. And it is pretty remarkable what we have accomplished together.

In AWS, one of the activities we spent a lot of time on is helping companies transform themselves. And there are a lot of companies who talk about transformation, but not all of them succeed. Fortunately for us, Pearson really gets it and you have been a great partner, and you have really transformed a lot and made a ton of progress.

Look at just the $5 million that you recently took out of your cost structure in a year just by doing things like moving from older guard, legacy databases like Oracle to Amazon Aurora, or taking big monolithic architectures, and thoughtfully re-architecting them into micro services or even take all the audio books you do, to be able to not have to hire that expensive talent to do the reading and instead use our text to speech machine learning service and PALI to be able to do those audio books is a game-changer in terms of what you can do, how quickly and at what cost.

And yet, I would argue we are still at the very beginning of what is possible. I mean, I can think of so many examples, but even a simple example, which is what I was talking about earlier, where I was saying so many companies need individuals train and so many individuals who want to participate in the economies that are really flourishing right now with technology and cloud computing being one of them. The collaboration that we are doing together on training people for cloud computing, where you have partnered with AWS Educate, and we have built together this Business and Technology Education Council, or BTEC Higher Nationals, which is an internationally recognised higher education set of qualifications that are delivered at colleges and universities in 50 different countries around the world.

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This type of training for cloud computing, which is where the economy is headed right now, where a lot of opportunities are, enables so many people to participate in a way that they were not able to participate before.

And that is one of many things that we can do together. So, the partnership has been, I think, very successful so far. It is early days with regard to what you can do on top of the platform and the businesses and capabilities that you are going to build. And it is also early days with regard to the ways that we can partner together to enable a lot of people to get the type of learning and training that you are so good at and that people so badly need.

So thank you for letting me spend a few minutes with you. And thank you for the partnership.

Overview

Andy Bird Chief Executive, Pearson plc Our partnership with AWS has been fantastic. And as Andy just stated, we are only scratching the surface of what is possible.

We also already have great relationships with many other corporations, such as Cognizant, Microsoft, Accenture, and Salesforce. Every conversation we are currently having is opening new opportunities for growth and fills me with confidence that this is going to be a meaningful business for Pearson going forward.

Now, we will have to develop the talent and the products that we need. And this would not happen overnight, but we are going to act with speed. We will build upon our existing assets in our portfolio and harness examples of innovation in learning design and experiences such as Accelerated Pathways, and Escape Studios.

We can leverage our skills across other parts of the portfolio, like assessments and certification, English language and virtual schools, as well as businesses like BTEC, an end-to- end Pearson product with a strong global brand in vocational skills, which is already present in 61 markets around the world with over one million registrations this year.

Now, I would like to introduce you to a few of our students that perfectly illustrate the power of workforce.

[VIDEO]

So you are going to see us transform our traditional assets and capabilities in formal education and apply them to the enterprise market. You should expect us to form a suite of new partnerships that will bring the most effective learning solutions to employers and employees. And I will be keeping you updated on our plans throughout the year.

I am excited by the growth opportunities in this area. And I hope that you can see that we have the foundations to be successful in this potentially enormous market for Pearson.

Assessment & Qualifications And finally, I want to talk about our Assessment & Qualifications business. In many ways, this is the crown jewel in Pearson’s ecosystem. Assessments is a £25 billion market globally, www.global-lingo.com 11 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 growing at 5% per year. Our business is already worth about £1.1 billion in revenue. Everything that we do across the company has the potential to lead to some form of assessment, qualification or certification.

Assessments are powerful tools that will only increase in importance as people upskill and reskill more often in their lives. Assessment and qualification is the critical point at which learners realise the value of what they have learned. It is literally how to turn learning into earning.

In 2019, Pearson delivered a professional test every two seconds somewhere in the world, that is, 16.5 million certifications in over 20,000 test centres in almost 200 countries. In 2020, in spite of the disruption of COVID, we still delivered 13 million tests. In the US alone, the market for Assessment & Certification is £10 billion.

Our US schools assessment business continues to win new contracts and maintains a strong market position. Pearson VUE develops, manages and delivers computer-based testing programmes for nearly every industry. We provide technology certification exams in the academic, career and technical educational space. We believe that we both have the reach and decades of trust to provide learners globally with their certification needs for lifelong learning across every major vertical.

Our clinical assessment business has the world’s foremost professional diagnostic tools used in psychology, health and education, where we are the market leader. And, as I just mentioned, we can adapt our other clinical assessment tools to help employers assess workforce readiness, the need for secure online testing and digital accreditation is accelerating rapidly.

Our investment in our remote, an online proctoring service enabled tenfold growth in 2020 to 2.1 million assessments. We can help learners prove that they have the skills and knowledge they need to advance their careers anywhere in the world.

This is another example of our global and digital approach and another key access point for us to build a direct relationship with our consumers. I know that many of you will have questions about how we will achieve this vision for the company and what you should expect to see from us in the coming months.

As I mentioned previously, my priority this year will be to put the building blocks in place for success, and there are several components to that.

New organisational structure Firstly, we will be making some changes to our organisational structure. Pearson has for too long had an internal structure that our shareholders have found hard to understand, and which has undermined our focus on product development and growth. We will move away from a large centralised organisational structure with now each business carrying full responsibility for its overhead, product development and operations, except in a few limited areas where it is not cost-effective or rational to do so.

While we will no longer be reporting international as a separate P&L, we will maintain our local expertise in market where relevant. Our new direct-to-consumer division will support digital product development across all five businesses and lead on direct-to-consumer products. We will be appointing a new Chief Data Officer to ensure that Pearson maintains www.global-lingo.com 12 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 safeguards of our consumer data, whilst also working with our customers to develop products tailored to their needs.

I am confident that this structure and these new capabilities will help us to release the untapped value and potential within the company.

Our new KPIs Second, we will be reviewing our portfolio. Pearson has made good progress in rationalising its portfolio over recent years, but there is still some way to go. We will therefore streamline our portfolio to focus on the priorities of our five new businesses, and on our mission to become a globally scalable digital company.

• We will ensure that any disposals, termination of current products and new acquisitions support the strategic focus of the company;

• Maintain the health of our balance sheet; and

• Deliver the best return for our shareholders.

We are currently conducting a review of our portfolio as a result of this new direction, which Sally will tell you more about in a moment.

Third, we will evolve Pearson’s culture, talent and skills to release our employees’ potential based around the four key themes of:

• Putting the consumer at the centre of everything we do;

• Embracing diversity and inclusion;

• Collaborating across businesses and territories as one global company; and

• Increasing our speed, agility and focus on quality.

We will reimagine our internal communications and employee engagement so that everyone understands not only where we are going, but also so that they can feel part of that vision and are capable of delivering it.

We intend to maximise the value of Pearson’s own human capital by giving our people as many opportunities to learn as possible. I want Pearson to be the world’s pre-eminent learning company both internally and externally. We will be reviewing the company’s vision, mission and values, and we will make the results of that public later this year.

Finally, I know it is important for our partners, our consumers and you, the investment community, to have a better an easier way to learn about Pearson. I am pleased to say that today Pearson is launching a new stand-alone website at pearsonplc.com. This new corporate gateway will allow our investors, shareholders, media and employees to browse information about our company in one place.

Our current website, pearson.com, will therefore become our single consumer gateway, creating a globally consistent but locally relevant experience that serves our consumers’ needs and accelerates our growth.

The pearson.com global gateway will begin its rollout to a limited number of countries in 2021, and more broadly, in 2022. Five years from now we will be a different company than

www.global-lingo.com 13 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 today. The foundations I have laid out will deliver a business that will be 100% digital, with a strong direct-to-consumer focus and greatly scaled in terms of revenue.

Now, I am going to hand over to Sally for a review of our financial performance in 2020 and an understanding of how our new organisation and business structure will be reflected in 2021 and beyond. And then I will be back to wrap up before Q&A. Over to you Sally.

Financial Review & Outlook

Sally Johnson CFO, Pearson plc 2020 financial highlights

Resilience despite COVID-19 challenges Thanks, Andy, and hi, everyone. 2020 was a challenging year for society many businesses, Pearson included. That said, we delivered revenues and profits in line with expectations. And we also saw favourable performance in cash, where working capital performance was strong, a particularly pleasing outcome given market conditions.

Net debt at the end of the year was £0.5 billion, a small cash positive position on a pre-leases basis. This was due to the strong operating cash performance and proceeds from the PRH disposal being partially offset by the share buyback in early 2020. Given the strength of our balance sheet and confidence in our outlook, the Board are proposing maintaining the 2020 dividend in line with 2019 at 19.5p.

Revenue performance in 2020 with minus 10%, in line with expectations, but significantly impacted by COVID, particularly in our International and Assessments divisions. US Courseware revenues were in line with pre-COVID expectations, despite greater than anticipated enrolment declines. And Global Online Learning grew strongly, driven by accelerated recognition of online learning, particularly in virtual schools, taking each division in turn.

Sales International revenues declined 19% with COVID-related pressure in Pearson Test of English due to test centre closures and closed borders, as well as courseware declines due to reductions in school and state expenditures. UK exam cancellations and the expected end of the NCT contract also impacted revenue, although the profit impact was modest.

Assessments’ revenues declined 14% due to COVID-related pressure. Test centre closures and social distancing impacted VUE. US high stakes exam cancellations affected school assessment and school closures impacted clinical. North America courseware revenue declined 13%, with US higher education courseware declining 12% and Canada affected by COVID, school and institution closures, and reduced international students.

US higher education courseware units were up slightly, but revenue was down due to the anticipated pricing pressure from a change in mix from print and bundles to platform and eTexts.

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Global Online Learning revenue grew 18% with virtual schools up 29%, driven by an increase in 2021 school year enrolments at 43%. We also launched a new sales channel in virtual schools, offering our teaching platform to US school districts. Online Program Management revenues grew 5%, driven by international growth and enrolments on continuing US programmes, offset by expected discontinued US programmes.

Segmental contribution Turning to profit. At a Group level, profits declined due to the impact of COVID-related trading, expected inflation and the impact of the disposal of PRH, partially offset by further reorganisation cost savings.

In Assessments, the COVID-related revenue decline dropped through to profit at a high margin. This was due to the difficulty in eliminating fixed costs during lockdowns and the impact of social distancing. International profits were also impacted by COVID-related trading declines at a normal operating leverage.

In Global Online Learning, the impact of revenue growth was partially offset by margin pressure from discontinued programmes and virtual schools investments. The virtual schools investments in curriculum, enrolment processes and the teaching platform have supported this year’s strong revenue growth.

In North American Courseware, trading impacts were partially offset by transformation cost savings and enabling functions costs reduced due to the transformation cost savings as we continue to focus on cost efficiency.

Cash and balance sheet Cash performance was strong, with operating cash conversion over 100%. We improved on the 2019 cash conversion of 72% through:

• Tight inventory management;

• Ongoing focus on working capital management;

• Strong collections; and

• Reduced CapEx.

Net debt at the end of the year was £0.5 billion, and we maintained approximately £1.9 billion of liquidity. We used the strong sustainability credentials our company purpose provides to secure £350 million of debt to the issue of our social bond in June 2020.

Given the strength of our balance sheet and confidence in our outlook, the Board are proposing maintaining the 2020 dividend in line with 2019 at 19.5p.

As you can see from the 2020 performance, Pearson continues to be a highly cash generative business with high conversion rates. As the business continues its transition to digital, working capital requirements such as inventory and receivables reduced, which gives me confidence that we can sustain a 90% or better cash conversion.

Our strong balance sheet and cash generation put Pearson in a position of strength, as we execute our strategy, focusing on:

• Growth;

www.global-lingo.com 15 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

• Profitability; and

• Driving shareholder value.

New reporting structure Critically, we will continue to be disciplined in our investments and rigorous in our focus on return on investment, and have implemented enhanced organic investment processes and controls during the year, including:

• Ensuring all investment plans, both maintain or improve profitability; and

• Generate returns over time in excess of WACC.

Internally, we now monitor businesses on balance sheet calculated ROIC and we will share this measure at a group level alongside gross ROIC going forwards.

As Andy outlined, from 2021, Pearson will be structured across five global business divisions, with each business having full responsibility:

• For its overhead;

• Product development; and

• Operations to ensure empowerment and accountability.

We will enhance our disclosure utilising this structure in 2021, with all costs fully incorporated in these divisions to give an improved view of underlying profitability. We will share 2020 half and full year comparatives on this basis at interims in July.

The new structure aligns our disclosure with how we will manage and grow the business, which will help us demonstrate operational execution and momentum and build from the structure we had in place throughout 2020 as follows:

• Virtual learning is materially the same as global online learning.

• Higher education builds from North American Courseware, comprising US and Canada higher education courseware, and now adding international global higher education products.

• Assessments & Qualifications adds UK and international qualifications and international clinical assessments to the Assessments division.

• Our Workforce Skills division comprises businesses such as BTEC and Pearson College, previously predominantly within International.

• The International division is disbanded with its businesses moving to the new English language learning division, as well as Higher Education, Workforce Skills and Assessments & Qualifications, as I previously described.

As Andy outlined, we are planning to streamline our portfolio to focus on the priorities in these five new divisions. And as such, we are conducting a strategic review of our International Courseware local publishing businesses, including Canada. Our South African University business, Pearson Institute of Higher Education left the Group in February. Our immediate focus is on reorganising the business efficiently and effectively, streamlining the business for growth and conducting a strategic review.

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2021 guidance Turning to 2021. We expect the Group’s revenue to grow, as economy start to reopen following vaccine rollouts and adjusted operating profit to be in line with current market expectations. Tax will be between 18% and 22% and interest will be around £65 million.

2021 assumptions Before walking through this in more detail, both for 2021 and the longer term, I should outline our planning assumptions about the macro environment. As you will be aware, the majority of our markets have ongoing impacts from COVID throughout Q1 2021, with schools closed in many jurisdictions and lockdowns impacting test centres.

However, given the global rollout of vaccines, we are currently planning on the basis that schools and test centres will reopen in a socially distanced fashion during March, and that normal operations will resume in the second half of 2021, including borders reopening. We expect students to set US high stakes exams in 2021 and that UK GCSE and A-level decision announced in January, will impact us financially in a similar way to 2020.

In 2021, we therefore anticipate a year-on-year growth in overall revenue, driven by the following attributes in each division.

Virtual Learning In Virtual Learning, growth is driven by virtual schools 2021 academic year enrolment, which impacts revenues in the first half of the year. We expect enrolments for the 2021-2022 academic year to be broadly flat, with the COVID cohort somewhat returning to bricks and mortar schools, offset by underlying growth and waiting lists. OPM is also expected to grow.

Assessments & Qualifications Assessments & Qualifications’ revenues grow as lockdowns and social distancing eases, allowing test centres to operate normally. US high stakes exams resume and clinical tests are taken as schools reopen.

English Language Learning English language learning revenues recover slowly, as schools and borders reopen.

Higher Education Higher education revenues declined but by less than seen in recent years, as the pricing pressure from the change in mix from print and bundles to platform and eTexts is somewhat offset by recapture of the secondary market and enrolment recovery.

Workforce Skills Workforce skills revenues will grow, given the strong fundamentals of the business and investments we have made into digital and direct-to-consumer opportunities.

Phasing across 2021 will also be impacted by current conditions. We expect Q1 sales to be behind a challenging 2020 comparative, given COVID impacts did not commence until March last year, other than in China. Presuming COVID unwinds, as I have outlined, anticipated growth will come through in Q2 and Q3. Although we should remember that some test centre pent-up demand was delivered in Q3 and Q4 in 2020.

www.global-lingo.com 17 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

Longer term revenue and margin assumptions Looking out to the longer-term horizon, our new strategy will bring good growth and improved profitability. For divisional revenues, we expect Virtual Learning, English and Workforce to be strong revenue growth businesses. Higher Education has a large medium- term revenue opportunity, as our digital-first strategy enables us to recapture the secondary market, after which there is likely to be a more moderate growth. Assessments & Qualifications will continue to be a business delivering low-single-digit growth at great margins.

In terms of long-term margins, we will maintain margins in Assessments & Qualifications, Workforce Skills and English, while they are already at or better than the Pearson average. Higher Education margins will be improved through maximising the benefit of a transition to digital business, and OPM margins will be improved by improving cost per lead and conversion rates through our pathway strategy.

Business & operational reorganisation The reorganisation to our five global business divisions will incur costs, predominantly severance related. The cost savings from this reorganisation will be used to reinvest in capabilities to support future growth, such as strategic data management and building out the opportunities we see for our Workforce Skills division.

We will also take this opportunity to restructure our corporate offices, building on a significant shift in ways of working experienced during lockdowns. We will occupy a significantly smaller corporate office square footage that will ensure these spaces are:

• Technology-enabled; and

• Support collaboration and creativity, attracting the best talent enabled to perform at the highest level.

This means we will write-off a significant proportion of our current lease assets, renegotiating contracts with landlords or subletting unneeded space, and thereby reducing costs by £10 million in 2022, rising to £20 million in later years. We will exclude these reorganisation costs from adjusted operating profit, so as to better highlight underlying performance.

We will continue to be a cost-efficient company. As we have shared before, our enabling function cost base now benchmarks well, allowing us to distribute responsibility for a proportion of these capabilities across our divisions, driving impairment and accountability.

We will maintain central shared services where this makes economic sense. For example in enterprise technology and back-office finance, that will allocate these costs to divisions based on usage. Across the business, we will continuously review and improve our efficiency and cost effectiveness and manage any stranded costs, as well as improving divisional profitability in the areas I have previously discussed.

Capital allocation priorities Our capital allocation policy remains unchanged to:

• Maintain a healthy balance sheet;

• Invest in the business both organically and inorganically;

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• Pay a progressive and sustainable dividend; and

• Return any remaining funds to shareholders.

Given the opportunities for growth we have outlined, we see potential to invest further in the business, both organically and inorganically. We will always be disciplined and focused on the returns investments make.

Despite the drop in profits in 2020, driven by COVID-19, we have demonstrated our commitment to the dividend, maintaining it in line with 2019. At this point, we believe maintaining a very strong balance sheet is appropriate. As such, we are not planning to reinitiate the buyback. We will keep our balance sheet strength and potential for surplus cash returns under review, but we do not see this in the immediate horizon.

Now, I will pass back to Andy, who will wrap up before Q&A. Andy?

Conclusion

Andy Bird Chief Executive, Pearson plc Summary Thanks Sally. I hope everyone can see that 2020 was a strong year for us under exceptional and difficult circumstances, and that our existing assets, strong balance sheet, new organisational structure and new priorities put us in a strong position to grow. That is the foundation for our new strategy. As we move through the year, I will reveal more about what we are planning and how we will achieve our goals for this company.

In the short-term, we will:

• Move rapidly to put in place the changes to our organisation;

• Hire world class talent;

• Create exciting partnerships;

• Review our portfolio; and

• Strengthen our employee culture.

We will launch our new college app for the autumn term. And I will keep you updated as our strategy for the future develops based around the priorities that I have outlined today.

The last piece of this puzzle will be our new key performance indicators. We will retain the same set of financial KPIs as we have today, with the addition of balance sheet calculated ROIC to maintain our focus on:

• Growth;

• Profitability;

• Cash generation.

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Our business and non-financial KPIs will change to reflect the pivot to our new growth strategy, and we will focus on some of the most important ingredients that I have outlined today.

Our new business KPIs will be:

• Digital growth;

• Consumer engagement;

• Product effectiveness; and

• We will also report leading indicators against our five new business divisions.

Our new non-financial KPIs will focus on:

• Investing in our talent;

• Building an inclusive culture and improving diverse representation; and

• Accelerating our sustainability strategy.

Under each of our non-financial KPIs, we will:

• Be developing new strategies with clear performance metrics to drive delivery;

• Report on an overall progress against them as part of our new KPI framework for the company.

As the first of these, I am announcing today, the launch of our new Sustainable Business Plan 2030, which you will be able to find out much more about in our Annual Report. Within that, our new headline, Target and KPI, we will be achieving net zero carbon emissions by 2030.

Pearson is already a leader on sustainability amongst our peers. And this new announcement builds on our commitment in 2019 to reduce our total value chain emissions by 50% by 2030. Some of these KPIs will require us to develop new monitoring tools, but they are the right choices.

Together, they will allow us to measure, but more importantly, drive and incentivise performance against our new strategy. They will help us to have:

• The most capable workforce;

• Develop the best products; and

• Have the greatest impact on our consumer’s lives.

And above all, they are the key ingredients of our future growth and of ensuring that we meet our purpose of helping everyone in the world to achieve their potential through learning.

I hope that you will agree with me that this is an exciting future ahead for us. The time for learning is now. The time for Pearson is now.

Thank you. Sally and I are looking forward to your questions.

www.global-lingo.com 20 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

Q&A

Adam Berlin (UBS): Andy, can you talk about how you are planning to grow your Workforce Skills business from £0.1 billion in 2020? Will this require M&A? And what kind of assets would you help you achieve this? And Sally, in your guidance for higher education, what have you seen for US Higher Education courseware print units and digital revenue growth?

Andy Bird: Good morning, everyone. Thanks for joining us. And as you have just seen in my presentation, we already have a vast array of assets within the company that are suitable for the Workplace Skills division that we are announcing today. The market itself in 2019, for Workplace Skills, was about £280 billion, and 70% of employees, when polled, said that their employees lacked some of the core skills that they required when entering the workplace.

So I think the way to look at our Workplace Skills division is, firstly, how we redeploy the existing assets we had. You saw examples of BTEC in there. You saw the excellent relationship we already have with AWS and the opportunities we could do more.

Remember AWS, as an example, have pledged to have 29 million learners learn their cloud- based programming by 2025. And so we see that just being an enormous momentum within the industry for many of the skills that Pearson already possesses in the conversations that I have been having with CEOs of interested companies, our Assessments & Qualifications business has really been something that they look to so that employers can actually use our assessment tools to assess their employees to make sure they get the right sort of training and learning experience.

And so you are going to see us really focus on this. I think in the past, Workforce Skills has not been a primary focus for the company. But we believe we have many of those assets that are applicable to that space. I have mentioned a few of them. And, of course, we have a healthy balance sheet. And as with any of the divisions, as we go forward, if we think is appropriate M&A acquisition opportunity, then we will look at it closely.

Sally, for part two?

Sally Johnson: Sure. Thanks for the question, Adam. So looking to US Higher Ed courseware in 2021, I am guiding to a decline, but less of one than we have seen in recent years. And that is due to those print units that you refer to. So we are going to see, as we saw in 2020, people moving from print and bundles to platform and eText, and that has a pricing pressure inbuilt in it.

But that is going to be offset by good digital growth and recapture the secondary market. And as we look out to the future, it is that digital growth and that capture of the secondary market that is going to drive us forward.

Sami Kassab (Exane BNP Paribas): Three questions. Sally, can you comment on the regulatory environment and any potential adverse change we should be aware of, in particular with OPM BTEC virtual schools? And what impact do you expect from the BTEC funding review in the UK?

Sally Johnson: Thanks for your question, Sami. So, given the business that we are in, it is quite natural that people and governments are interested in what we do. That is an important part of society and government’s role and something that we welcome. So BTEC,

www.global-lingo.com 21 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 as you say, very important from an apprenticeship point of view. That is something that the UK government in particular are picking up on, as we come out of the pandemic and give people the skills that they need.

There has been more interested in virtual learning across the pieces as people have recognised that that is an opportunity, which they probably did not recognise necessarily before, and of course, the important role we play in virtual learning and higher education.

I think what is important is the purpose that Pearson has and how that drives our sustainability going forward, because at the end of the day, both governments and Pearson are really interested in the outcomes that we can provide for our students.

Sami Kassab: When do you expect the US Higher Education to return to positive growth? And is the strategic review of International Courseware involving both school and higher ed courseware or school only?

Sally Johnson: So for US Higher Ed, as I said in 2021, we see a decline but less of one than we have seen in previous years, driven by that mix shift, but offset by strong digital growth and recapture of the secondary market. And then in terms of our strategic review of our International Courseware, local publishing, that is predominantly a school’s business, but there are small elements of Higher Ed and English in there as well.

Patrick Wellington (Morgan Stanley): Again, North Higher Education, similar to Sami’s. Do you expect to achieve organic revenue growth in 2022, which I think you have pretty much covered? Do you expect the Group to achieve positive organic revenue growth in 2022?

Sally Johnson: Yes, I do think I have covered the opportunity for growth in US Higher Education, and the fact that we do see a really strong opportunity and recapturing the secondary market and in digital growth. And obviously in 2021, we are guiding to revenue growth, obviously off a difficult 2020. Looking forward to 2022, yes, I see revenue growth there as well as we concentrate on those five verticals that we have called out, the revenue growth opportunities, and as we see US Higher Education with digital growth and recapture the secondary market.

Tom Singlehurst (Citigroup): Four questions. Probably for Sally, but also maybe Andy wants to chip in too. First question, you were guiding ROIC in revenues of 2021. But with the new divisional guidance signalling growth in all divisions save higher ed over five years, should we assume Pearson is permanently back to positive organic growth?

Sally Johnson: Do you want to start that one off, Andy? And I will pick up on the financial side?

Andy Bird: Sure. Thanks for the question, Tom. Yes is the short answer. As you have seen, over the last hour or so, the five divisions, each have the opportunity not only to drive growth amongst themselves, but each division has the opportunity to enhance the growth prospects of the other divisions. As I thought about this new structure, I thought about having those two well-established divisions in Assessments & Qualifications and Higher Ed that generates a lot of cash and have real growth prospects in off themselves.

As Sally mentioned, with the launch of the college app, we are going to see an acceleration in the recognition of the secondary market in the United States Higher Ed Courseware business, www.global-lingo.com 22 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 so now there is 14 million units and that I think is going to be very helpful to us. And then you balance those two larger divisions with the three smaller divisions today in revenue terms, but with much higher growth prospects as we move forward.

Sally Johnson: Then obviously from a financial perspective, expecting growth from next year and into the future, and also in profitability improvement. As I called out, we expect to see profitability improve, driven by two particular divisions. So OPM, where it is below average Pearson profitability at the moment, but also US Higher Education as that becomes a fully digital business, we believe we can improve profitability as well.

Tom Singlehurst: To use the old Pearson framing, what would the other operational factors have been in 2021. And then the investments in the new direct-to-consumer offerings in Higher Ed seemed quite meaningful, how much of a drag is this on operating profit short- term?

Sally Johnson: So in terms of other operating factors in 2021, we do see other operating factors in the year of about £50 million to £60 million. That is predominantly two things, some investment going into some of those businesses that we have talked about and also bonuses returning to a more normalised level. Can you repeat the second question for me?

Tom Singlehurst: The second part of the question, the investments of the new DTC offerings in Higher Ed seem quite meaningful. How much of a drive will this be on operating profit short-term?

Sally Johnson: So, in 2021, the guidance that I have given includes investments in our focus areas, particularly that app that we have talked about for back-to-school fall 2021. So we have reallocated resources toward that app. And that includes both enhanced investment in our products and making that a real consumer grade product that attracts students directly to Pearson, so that we have a direct relationship with them that we can keep then and into the longer term.

And also the marketing needed to help people recognise that they come to Pearson for that product. That is all around helping us to recapture the secondary market that we have talked about.

Tom Singlehurst: There is no buyback for now. But as and when you sell the local publishing businesses, will you revisit one-off shareholder returns?

Sally Johnson: Thanks for the question again, Tom. So as a reminder, our capital allocation policy is to maintain a strong balance sheet, to invest in the business both organically and inorganically. And that is something with these five verticals and the growth that we see that we see opportunity to invest into the future, maintaining a progressive and sustainable dividend. I think we have shown the commitment to that this year. And then we will look at return.

So we will keep that under review, the returns element, as well as the other important elements of our capital allocation policy into the future. But right now, we are concentrating on the strength of that balance sheet, particularly in the times of uncertainty that we are working through, but also the investment opportunities we have for the business.

Nick Dempsey (Barclays): Sally, the first two are for you. And then the next two are a combination of Andy and you. So let us start with the first one. There are clearly www.global-lingo.com 23 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 uncertainties in 2021. But you are guiding to a single operating profit number, £377 million, in 2021 when you normally give us a range. To capture the range of possibilities, what kind of range would you put around that number?

Sally Johnson: Sure. So yes, I am guiding that I am comfortable with market expectations. But, of course, around any number, there is a range. And I would point to the range that we had around guidance last year, which was plus or minus £40 million, which feels like a reasonable range around that number.

Nick Dempsey: Second question. You do not seem to be expecting positive revenue growth at all in Higher Education going forward. But you do expect margin to be higher in the long- term than they were in 2019. To achieve that, do you think that the need to spend more on restructuring that division over those years?

Sally Johnson: So I think we are pointing to revenue opportunities in the US Higher Education courseware, in particular, sorry to repeat myself, recapture of the secondary market. Once we have recaptured the secondary market, and that is a substantial opportunity, then growth might become more moderate. So there is revenue opportunity. That, of course, is part of that profitability improvement. But as we become a fully digital business, that also brings margin opportunities with it as well.

Nick Dempsey: The third question is around Assessments & Qualifications. When looking at the five-year market CAGR for Assessments & Qualifications, the first two years of those five years are likely to grow better than mid-single-digit, which means that the kind of low-single- digit that you expect for the market implies that assessment qualifications cannot really grow in the following three years. Are there specific issues you see there, or is there some conservatism?

Sally Johnson: So I think we are giving a cross year view of the opportunities within Assessments. Assessments is a really important part of our business. So I am not giving guidance over specific years. There are obviously opportunities in terms of bringing on new partnerships with different states, as well as growing the other various businesses within there as well. So the view capabilities we have in certifications, as well as our clinical business.

So I do not think it is a year-on-year thing. It is more of a steady over time. But Assessments is really important for us as a division, but it is also really important in terms of the end-to-end product that we have across the business, so whether that is Pearson Test of English within our English business or the opportunities to reinforce learning within Workforce, we think the capabilities we have in Assessments are important across all of our divisions as well.

Nick Dempsey: And the final question. Andy, I do not know if you want to give a bit more colour on this before then handing over to Sally. In areas like English Language Learning and Work Skills, you have some pretty formidable competitors like Duolingo and Babbel, and then a wide range of training companies. For consumers to choose your offerings, would not you need to ramp up your marketing spend more in line with those competitors? I do not see any discussion of marketing costs in the presentation today.

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Andy Bird: Well, I was quite enjoying Sally having all the limelight after the last hour or so, so it makes a welcome break. But thanks for the question, Nick. I think the world is going in two ways. There is a real split. We are seeing it in many sectors between the sort of commoditisation and mass and a flight to quality. And we very much look at the flight to quality side of the business.

And so in English Language Learning space, as you referenced, there are many well- established companies I do not think you are going to see us going necessarily directly head- to-head with some of those. Sally just reference Pearson Test of English in relation to our Assessments & Qualifications division. I mean, that is really high stakes stuff. That is getting your opportunity for you and your family to get a new job to immigrate to a new country.

You can imagine, as we are in discussions with multinational corporations, as they are hiring, in some instances, hundreds of thousands of employees from around the world in a single year, which is a particular instance of a conversation I was having recently; their need to improve the English Language Learning skills of their employees, so that they are able to learn and train at a faster rate.

So you are going to see us, again, lean into some of the great competencies that have carried us well in the educational space and expand it beyond into this lifetime of learning space. And along with that, I am ambitious for Pearson to become the pre-eminent learning company in the world. And to do that, we are going to rely a lot on our brands and a lot on the trust that people have to deliver those exciting, engaging experiences of the highest quality. There is a lot of different products and services out there. I want largely part of the reasoning to separate pearson.com and make it a solely consumer focus portal, so it can start to become the home for all the great products and services we are offering.

One of my first appointments was to bring Lynne Frank into the company, as Chief Marketing Officer. And Lynne brings vast amounts of skill in her prior roles. And her and the team who have been sitting down, working around not just the Pearson brand but the other brands we have, Longman brand, for example, is very strong in China.

And so you are going to see us have a focus and spend appropriately, but also leverage our relationships and partnerships with third parties to build on the already high brand awareness that we have globally around the world.

So, I said in the presentation, we have reached tens of millions of learners around the world every year. In fact, in 2019, we reached over 100 million learners around the world. You think of the Assessments business, as I referenced, every two seconds someone is taking a Pearson VUE assessment somewhere in the world. So as we start to look at our business through a consumer lens, which was not primarily the focus of the company previously. As we start to do that, and we start to, as it were, join the dots between the different businesses so we create this flywheel effect where one business can really help enhance the others.

As we start to build a consumer relationship, whether it be a college or whether it be that you are starting your career, and we can build on that relationship over the next 30 or 40 years of your career, and lifetime, these become very powerful marketing tools in of themselves. And so you are going to see us spend on digital marketing that Sally mentioned it earlier.

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We have a relatively healthy cost base. How we will allocate some of those existing costs is something that both Sally and I and the divisional heads are taking a hard look at. I do not know if you need to want to add anything there, Sally?

Sally Johnson: Well, I will just say that marketing is a key capability for us. It is something where we have expertise. It is an element of our P&L and our profitability at the moment, particularly in Virtual Learning. And as I said, we have allocated marketing funds to the launch of our new app for [inaudible].

Andy Bird: Yeah. I would just add, by the way, if I may. I mentioned in the presentation, within our OPM business, I think we have one of the world’s leading digital marketing agencies in-house that is being focused to-date largely on our OPM business. But the skills that that team possess and the knowledge that that team possesses in the area of digital marketing has a great deal of potential to be utilised in other parts of the company. And so, as Sally alluded to, there is a lot of marketing spend already embedded within our current cost structure.

Matt Walker (Credit Suisse): Sally, what is your 2021 and 2022 Higher Ed enrolment expectation? And are you saying Higher Ed revenue will be stable for the next five years?

Sally Johnson: Thanks very much for the question. So in terms of enrolments, I think, given what happened last year, so let us reflect on 2020, we saw about a 4% decrease in enrolments, but I think around 13% decrease in first year students. So we are expecting that that probably is an indication of some deferrals. And therefore, as we look into 2021, there is likely to be a pickup in enrolments. It is going to be relatively small. That is, of course, assuming that the COVID assumptions I outlined in the presentation come to bear, i.e., that people go back to school in a normal way come this fall.

And then out into the future, I think we see a return to what we have seen across the medium-term history, in that enrolments will decline at a small rate over the longer term.

Sarah Simon (Berenberg): Two questions. Sally, first one for you. And then probably Andy and Sally for the second one. When you talk about recapturing the secondary market, how can we measure this? Your print units fell by 1.5 million, but eBooks increased by only 0.54?

And the second question, is it right to think about 2021 as laying the groundwork, but 2022 is when we start to see the results, i.e., is not 2021 really a representative year?

Sally Johnson: Thanks for the questions, Sarah. So, first of all, in terms of recap for the secondary market, I think the important thing for us to be watching is the overall units. And in 2020, for the first time in a lot of years, we saw a very small unit increase. And we will be watching out for that into the future.

When you refer just to text units or just the platform units, you need to remember that our platform sales actually have a free text in there. So you actually need to look at the full units. Can you repeat that second question for me?

Sarah Simon: Yes. Is it right to think about 2021 as laying the groundwork, but 2022 is when we start to see the results?

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Sally Johnson: Sure. I mean, obviously 2021 is a really important recovery year for us. We see revenue growth coming off a difficult 2020 base, but also profit growth. And that will lay foundations for the future growth from 2022 onwards. Is there anything do you want to add to that, Andy?

Andy Bird: No, I think that is right. I mean, we have had the opportunity within the pandemic to assess the business. And the opportunity since joining the company as CEO in October, of course, I had the good fortune of being on the Board earlier this year. So I have had a great deal of time to think about the right direction.

And a lot of what we are announcing is today we have already started work upon. I have alluded to some of those things. And so I do think you are going to see us rebound in 2021 from the challenges we had in 2020, that provide a really solid foundation for growth there forward.

Silvia Cuneo (Deutsche Bank): You mentioned that currently the digital penetration of the education market is only about 3%. Andy, can you please talk about where you see this growing to? And what share you aim Pearson to get to, let us say, in five years from now?

Andy Bird: Well, good morning as well, and thank you for your kind words. I am not going to get into specific market share in terms of where I think we are going to be in the future. But I do think you can take a look at what has happened in the past. I referenced the move from CDs to Spotify, from DVDs to Netflix. You are seeing consumers in many, many different sectors, the learning sector being no different, to really embracing a different way of working.

And, as I said in the presentation, I envisage the company to be 100% digital or digitally- enabled within the next five years. And so a lot of what we are doing now and the formation of the direct-to-consumer unit is really focused around driving behind that and moving us forward. And so in some respects, one could argue in five years’ time, the company is going to be digitally focused, what our share of that extremely large market will be? I hope, we will continue to have a significant share.

Part of the thinking around the five divisions, these are five areas of business where we have earned the right to play, and where I believe we have the right assets and capabilities to win. And so as we look at each of those divisions individually, and then as we start to bring them together, I think that is where you are going to see an opportunity for us to continue growing.

Sally Johnson: And an interesting recent statistic. I mean, our digital growth, as a global company in 2021, was really quite large. So 10% growth of digital learning, as people came online, obviously a lot of that, in that virtual learning arena that we have talked about before. Only 27% of our business is now print. That has reduced a lot over recent years.

Andy Bird: And then as we get the secondary print market coming back in the US, that increases that percentage even further as well.

Silvia Cuneo: Andy, probably one for you. What risks or barriers do you see in rolling out your plans for becoming a direct-to-consumer business?

Andy Bird: Well, as with anything, the risk is in execution, but I have the greatest faith and I have had the privilege of taking a look behind the scenes as it were in terms of some of the product that is in development, and I am very, very excited to be able to share it later in the www.global-lingo.com 27 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 year, particularly around the college app, but some many of the other initiatives we are starting on english.com, I mentioned is another very, very good example.

And so, I believe we have to be laser-focused around the consumer and their needs, and we need to provide the highest quality content, products and services. We want to make sure that bar is super, super high, and the team are really focused on that.

And then I would just remind you around the notion that we are not starting from a zero base here. I talked about the US college cohort of around ten million students with two million entering and two million leaving that ecosystem every year, the over 100 million learners that we engage with our products in 2019.

As we start to think about a coherent direct-to-consumer approach and how we start to manage the businesses in a more coherent fashion, and we create compelling product that really engages learners, it is interesting with them. You saw the examples of Revel and Mastering and MyLab. We have got survey results back that demonstrate that learners are increasing their scores by 5 points on average when they use those products, because they are more engaging. And when you create more engaging and immersive products, people learn more effectively. And so your outcomes, so your scores go up.

And so I am very confident about the quality of the products that we are going to utilise. I am not arrogant enough and the team is not arrogant enough to say that we do not have to be focused on producing exactly the very greatest product that we can. But I blend that with the fact that we are not starting from zero base here.

Speaker: Please, can you discuss how you intend to grow your OPM business? And how your offering differs from competitors like 2U and Coursera?

Andy Bird: Maybe I will kick off, Luke[?]. Thank you for the question. As I said in the presentation, I think you have got to look at our current OPM business in three dimensions.

The first is, we are in very active and progressive discussions with our partners, our university partners, college partners about it, how we can expand the relationship, because institutions, just like everyone else, are looking to expand their offerings. And you only need to look at some of the phenomenal initiatives that President Crow and the team at ASU are undertaking, as an example, of the way that they are starting to think and the way that potentially we can partner with them. So I think the first part is to think about how we expand our relationships with our current partners.

As I alluded to earlier, the second part is then thinking about our digital marketing assets that have been focused primarily on OPM and the ability to leverage those more broadly across the company.

And then finally, as we look at our Pathways Initiative, and as we look at our AcceleratED Pathways, which is a product that is focused primarily or solely on the Workforce area, I think you are going to see a lot of opportunities. So we are going to not necessarily be replicating exactly what our peers are doing, but thinking more expansively, more broadly, about creating long-lasting growth and a lifetime of learning.

Sally Johnson: I guess I will just add to that that we see strong growth in OPM and a profitability opportunity, as we drive down the cost of acquisition and drive-up conversion.

www.global-lingo.com 28 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021

Andy Bird: Well, thank you very, very much as I say for your time with us today. And the video will be posted on our corporate website for you to watch. I know if any of you have any more questions, please reach out to Jo and the team. I look forward to engaging with you and with Sally over the coming days and weeks.

So thanks for your interest in Pearson. Have a good rest of your day, and Happy International Women’s Day as well.

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