Pearson 2022 Nine Month Trading Update  (Unaudited)

Highlights

Andy Bird, Pearson's Chief Executive, said:

"This has been another good quarter for Pearson and I am pleased with the continuing momentum the business is demonstrating through our sharp focus on delivery. We are executing well on our plan for accelerated margin improvement.

"We believe Pearson is well positioned for the future, and we are confident of being able to navigate the challenging macroeconomic environment. We are making strong progress in creating a digital learning ecosystem which can serve many more people across their lifetime of learning. This will lead to better outcomes for our learners and also deliver value for our shareholders and wider stakeholders."

Underlying sales growth of 7%

Share buyback

2022 outlook reaffirmed*

Financial summary

Throughout this announcement growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude currency movements and portfolio changes.

*2022 consensus on the Pearson website as at full year 2021; median adjusted operating profit of £416m at £:$ 1.37. For reference, each 5c move in USD FX rate equates to approximately £15m of adjusted operating profit. The disposal of our strategic review businesses impacts adjusted operating profit by c.£15m in 2022.

Assessment & Qualifications

Assessment & Qualifications sales increased 12%.

In Professional Certification (VUE) sales were down 3% predominantly due to the DVSA contract change.

Clinical Assessment performed well with sales up 9% due to an ongoing focus on mental health and wellbeing combined with government funding driving demand for core products and digital solutions.

US Student Assessment sales grew 32% due to the full resumption of exams across US states.

In UK & International Qualifications, sales grew 35% due to the return of exams following COVID-19 disruption.

We expect Assessment & Qualifications to deliver good revenue growth this year but there will be a tougher comparison in Q4 given the phasing in 2021 due to COVID-19. We expect VUE to return to growth in Q4 as the impact of the DVSA contract loss unwinds.

Virtual Learning

In Virtual Learning, sales increased 5%.

In Virtual Schools, sales increased by 6% reflecting firm retention rates relating to the 2021/22 academic year and favourable revenue mix partially offset by a small decline in enrolments for the 2022/23 academic year, as the COVID-19 cohort fully unwinds, along with lower district partnership renewals.

In Online Program Management, sales increased by 3% with growth in the UK and Australia partially offset by declines in North America due to lower enrolments. We will update in due course on the ongoing strategic review of our OPM business.

Higher Education

Higher Education sales were down 4% with US Higher Education Courseware sales declining 4%, consistent with our expectations. Early market data for the back to school period shows enrolments to be down in line with our assumption at the beginning of the year. We also believe there may have been a loss of market monetisation due to an increase in non-consumption. As previously highlighted, growth in Pearson+ subscriptions means that there has also been a shift in revenue recognition from Q3 to Q4. These impacts have been partially offset by improved pricing.

Pearson+ is performing very well with robust growth versus prior year Fall semester. 17 study channels are live and engagement to date has been encouraging.

English Language Learning

In English Language Learning, sales increased 28% with continued strong growth in Pearson Test of English volumes for tests taken in India and Australia, and for tests taken by UK bound people as global mobility continues to improve with border re-openings, as well as a limited-time extension of post-study visa applications in Australia. We also gained market share in India. We expect to have a strong year overall, although there will be a tougher comparison in Q4 as borders started to reopen at the end of last year and the impact of the post-study visa extension in Australia reduces.

English Courseware revenue was up 4% driven by international growth across all regions offset by the ongoing impact of the government reforms in China.

Mondly performance was encouraging, benefitting from access to the high growth direct to consumer language learning market. It is on track with our expectations, contributing to the transformation of English Language Learning, as well as increasing interconnectivity across the Group with its recent integration on Pearson+.

Workforce Skills

Workforce Skills sales grew 9%. Sales in our Performance business, which includes BTEC and Apprenticeships, grew well. Sales in our Transformation business, which includes Credly and Faethm, as well as GED and TalentLens, grew strongly. Our Transformation business is the foundation of our new enterprise and professional consumer strategy on which we are building our integrated suite of workforce skills solutions for enterprises.

Strategic Review

Sales in our international courseware local publishing businesses under strategic review grew 20%. We have now concluded the sales of our international courseware local publishing businesses in Europe, French-speaking Canada and Hong Kong. This means these businesses, which were showing a decline at the half year, are no longer included in underlying sales growth. The completion of the sale of our South Africa business is expected in Q4. The impact of these disposals on our adjusted operating profit will be c.£15m in 2022 and just under £25m for 2023. Operating cashflow for these businesses is weighted to Q4 and the timing of completions will impact operating cash conversion in 2022. The retained English-speaking Canadian and Australian K12 Courseware businesses are now shown within Assessment & Qualifications.

Strong financial position

Pearson's financial position remains robust, with low net debt and strong liquidity.

Contacts

Notes

Forward looking statements: Except for the historical information contained herein, the matters discussed in this statement include forward-looking statements. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing, anticipated cost savings and synergies and the execution of Pearson's strategy, are forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in future. They are based on numerous assumptions regarding Pearson's present and future business strategies and the environment in which it will operate in the future. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including a number of factors outside Pearson's control. These include international, national and local conditions, as well as competition. They also include other risks detailed from time to time in Pearson's publicly-filed documents and you are advised to read, in particular, the risk factors set out in Pearson's latest annual report and accounts, which can be found on its website (www.pearsonplc.com). Any forward-looking statements speak only as of the date they are made, and Pearson gives no undertaking to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes to events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on such forward-looking statements.