#1Pearson's 2020 Full Year Results & Strategy Update KE#23 We are Pearson plc Our purpose is to help everyone achieve their potential through learning Global experts in learning We enable tens of millions of learners per year across the world to maximise their success Home to the best talent 20,000+ employees working towards achieving our purpose Financials Revenue £3.4bn Adjusted operating profit £313m Global scale The leading learning company offering end to end learning solutions around the world Presence in almost 200 markets#3Global learning opportunity The global learning market is vast - at around £5 trillion today and only 3% digital 4.4% CAGR 2010 A 2015 A 2018 A 2025 E 2030 E Lifelong learning Corporate 75%+ Formal primary, secondary and tertiary education market MARKET SIZE £7tn Expected size of the learning market by 2030 2nd Largest component of GDP in most countries +1bn We expect over a billion more learners to have moved through formal education by 2030#45 The fundamental growth drivers of the learning market are robust 000 Accelerating adoption of digitally-enabled learning across all lifelong learning journeys Increased attention on employee training, upskilling, and reskilling to meet evolving labour market needs, often with government-led initiatives ㅁ Emerging trend of people looking for alternative credentials 000⁰00 0 0 0 Parents spending more on education and an increase in available direct to consumer services#56 Three market opportunities The rise in online and digital learning tools for schools and education The workforce skills gap The growing need for accreditation and certification#67 Three priorities to unlock growth Consumer focused & data-led approach Portfolio & organisational structure ☆ Talent & culture#78 Repositioning Pearson for growth to seize the global opportunity The rise in online and digital tools for schools and education Virtual Learning Three Market Opportunities Higher Education The workforce skills gap Five Businesses To Drive Growth English Language Learning The growing need for accreditation and certification Direct to Consumer Workforce Skills Assessment & Qualifications Enabling sustainable growth, driving shareholder value and contributing to a more equitable world#89 Guiding principles to benchmark success (3 TO Consumer at the centre of everything we do High quality, affordable products leading to better access and outcomes V 1 Only in businesses that will drive growth, scale, profitability and shareholder value Entrepreneurial culture, diverse talent and effective technology 0 L 0 O O 0 Speed and agility#910 Outcomes Enabling sustainable growth Driving shareholder value Contributing to a more equitable world#1011 Our sustainability goals are aligned with our strategy Learning for a better life, a better world Product Learning for Everyone Learning for a Better World Sustainable Business Plan 2030 Planet Leading Responsibly People#1112 Sustainability focus areas for Pearson Achieving long-term Science Based Targets and becoming net carbon zero by 2030 Having 100% of our paper products FSC certified Designing digital products for energy efficiency Working exclusively with suppliers who respect human rights Committing to diverse representation at management level Enhancing our sustainability reporting: Implementing TCFD recommendations Integrating SASB sustainable reporting standards ● ● ● We will develop further targets across the sustainability strategy in 2021 FEEDBACK#1213 Our competitive advantage The integration of our intellectual property, content, products and assessment tools is a continuous flywheel that makes each part of our business more valuable. IP ASSESSMENT CONTENT PRODUCTS R GADMAP TO PRODUCT LAUNCH ** Mes#1314 Five business divisions VIRTUAL LEARNING HIGHER EDUCATION ENGLISH LANGUAGE LEARNING WORKFORCE SKILLS mw ASSESSMENT & QUALIFICATIONS#1415 Virtual Learning Virtual Schools £1.5bn US market 29 out of 34 US states with virtual schooling that we have a presence in 400k US virtual school enrolment in 2019 £0.4bn Revenue in 2020 17% Market share 29% Growth in 2020#1516 Virtual Learning Online Program Management (OPM) £2.8bn Global market today £7bn Global market by 2025 £0.3bn Revenue in 2020 20% Enrollment growth in 2020, exc. discontinued programs#1617 Higher Education £4-5bn US market 70% Pearson US digital revenue £0.8bn US revenue in 2020 12m Pearson units sold £0.9bn Global revenue in 2020 14m Secondary market (units) to recapture 50082#1718 New college study app We're creating a highly engaging college study app that enables us to build a meaningful relationship with millions of students. It will help us to: Accelerate recapture of the secondary market through a competitively priced, flexible multi-tiered subscription service 0 0 Shift consumer purchasing preference to our own platform 0000000 Create new partner opportunities to ensure broad distribution and activation, building upon the excellent relationships we currently enjoy with our colleges and faculty Help us to foster a lifelong relationship with our consumers with plans to expand the product globally#1819 English Language Learning 1.5bn Adults learning English £5bn Market size* *Pearson estimate £0.2bn Revenue in 2020 £7.3bn Market size by 2025* ATAZ AFRE HIZER#1920 Workforce Skills 70% US employers believe college graduates lacking core skills £100bn US market 30% Jobs at risk of automation by 2030 £0.1bn Revenue in 2020 £280bn Market in 2019#2021 Assessment & Qualifications £25bn Global market Every 2 seconds Test delivered by us somewhere in the world 5% Market growth per year 20k+ test centres In 200 countries £1.1bn Revenue in 2020 13m Tests delivered, despite COVID-19#2122 New organisational structure VIRTUAL LEARNING HIGHER EDUCATION ENGLISH LANGUAGE LEARNING DIRECT TO CONSUMER WORKFORCE SKILLS CORPORATE SUPPORT FUNCTIONS ASSESSMENT & QUALIFICATIONS#2223 Our new KPIs DIGITAL GROWTH CONSUMER ENGAGEMENT INVESTING IN TALENT PRODUCT EFFECTIVENESS INCLUSION & DIVERSITY BUSINESS DIVISION PERFORMANCE SUSTAINABILITY STRATEGY#23Financial review & outlook#2425 2020 financial highlights Resilience despite COVID-19 challenges ● ● ● Resilient sales in light of COVID-19 challenges Profit performance in line with post COVID- 19 expectations Strong cash conversion Strong balance sheet and good liquidity Dividend maintained Well positioned to accelerate post pandemic Revenue £3,397m Down 10% underlying Operating cash flow £315m (2019: £418m) Full year dividend 19.5p (2019: 19.5p) Adjusted operating profit £313m (2019: £581m) Adjusted earnings per share 28.7p (2019: 57.8p) Net debt £463m (2019: £1,016m)#2526 Sales £m Global Online Learning Global Assessment North American Courseware International Total sales * CER: constant exchange rates 2020 697 892 894 914 3,397 2019 586 1,031 1,091 1,161 3,869 CER* growth 19% (14%) (18%) (18%) (11%) Underlying growth 18% (14%) (13%) (19%) (10%)#2627 Segmental contribution £m Global Online Learning Global Assessment North American Courseware International Enabling Functions* Total adjusted operating profit excl. PRH Penguin Random House Total adjusted operating profit inc. PRH 2020 99 245 190 182 (404) 312 1 313 * Functions such as enterprise technology, finance, HR, other corporate functions 2019 84 351 231 299 (449) 516 65 581 2020 margin 14% 27% 21% 20% 9% 9% 2019 margin 14% 34% 21% 26% 13% 15%#2728 Cash and balance sheet Operating cash flow Cash conversion% Net Debt Liquidity Net debt: adj. EBITDA Dividend 2020 £315m 101% £463m c.£1.9bn 0.8x 19.5p 2019 £418m 72% £1,016m c.£1.1bn 1.3x 19.5p#2829 New reporting structure ● ● Global Online Learning Assessments North American Courseware International Each division will have full responsibility for its overhead, product development and operations. All costs fully incorporated. in divisions International Courseware local publishing businesses under review 2020 revenue: I Virtual Learning £0.7bn OPM Virtual Schools Higher Education £0.9bn US Higher Education Courseware Canadian Higher Education Courseware International Higher Education Courseware English Language Learning £0.2bn Pearson Test of English Institutional Courseware English Online Solutions Direct to Consumer Workforce Skills £0.1bn BTEC Pearson College Apprenticeships I Assessment & Qualifications £1.1bn Pearson VUE US Student Assessment Clinical Assessment UK GCSE and A-level International academic qualifications#2930 2021 guidance Revenue Adjusted operating profit Tax Interest Cash 2021 Growth with recovery post-COVID-19 In line with market expectations 18-22% c.£65m Strong cash conversion#3031 2021 assumptions Segment Virtual Learning Higher Education Assessment & Qualifications Workforce Skills English Language Learning Businesses under review 2021 revenue assumptions Virtual schools - Growth. H1 benefits from 20/21 school year enrolment increase, 21/22 enrolments broadly flat as 'COVID-19 cohort' partially returns to bricks and mortar schooling OPM is also expected to grow. Lower sales decline than 2020 with mix pricing pressure partially offset by further secondary market recapture and enrolment recovery Fall back to school not restricted by COVID-19 Growth COVID-19 impact in Q1 with local lockdowns and curfews, Q2 schools return to classroom, lockdowns slowly lifted with social distancing measures maintained US high stakes exams resume UK high stakes exams awarding through teacher assessment. Growth Strong demand for vocational training and upskilling and re-skilling Slow recovery for the full year as COVID-19 impact on migration and mobility continues in H1 Lockdowns expected to end in H1 with recovery in H2 to normal operations Recovery in International Courseware 2020 margin vs Pearson average VS OPM < > ^ || ||#3132 Longer term revenue and margin assumptions Segment Virtual Learning Higher Education Assessment & Qualifications Workforce Skills English Language Learning Market 5-year CAGR US virtual learning market high single digit Stabilisation Professional Certification low to mid-single digit US Student Assessment and Clinical flat Market growth mid to high- single digit Mid to high-single digit L/term growth Strong growth Recapture of secondary market, International growth Low to moderate Strong At least in line with market growth L/term margin 个 个 = || || =#3233 Business & operational reorganisation Property Strategic reorganisation P&L Costs 2021 £130m £40m - 70m £170-200m Incremental Cash Costs 2021 £10m £40m - 70m £50-80m Future Benefits 2022 £10-20m annually Predominantly reinvested Write off of assets relating to corporate properties no longer needed given changes in ways of working. Related depreciation and cash (on-costs) benefits in future years. Costs related to reorganisation of business.#3334 Capital allocation priorities Invest in the business Capex and product development for organic growth Strong balance sheet Investment grade credit rating Value enhancing acquisitions Focused and disciplined approach Dividends Progressive and sustainable Surplus cash returns Buybacks or special dividends as and when appropriate#34PO Appendix P M#3536 NAC, GA, GOL - sales detail £m US K12 US HECW & Other Canada North American Courseware School Assessment Clinical Assessment Pearson VUE Global Assessment Virtual Schools OPM Global Online Learning 2020 809 85 894 255 146 491 892 413 284 697 2019 53 930 108 1,091 309 175 547 1,031 319 267 586 Underlying growth (12)% (20)% (13)% (18)% (17)% (10)% (14)% 29% 5% 18%#3637 International - sales detail £m School Courseware HE Courseware English Courseware Courseware School & HE Assessment Clinical Assessments Pearson Test of English Assessment School Services HE Services English Services Services Total sales 2020 247 105 132 484 218 48 61 327 29 50 24 103 914 2019 287 125 163 575 290 52 91 433 48 54 51 153 1,161 Underlying growth (11)% (14)% (21)% (14)% (25)% (8)% (32)% (24)% (17)% (2)% (39)% (19)% (19)%#3738 Adjusted EPS £m Adjusted operating profit Interest Taxation Effective tax rate Profit after tax Non controlling interest Adjusted earnings Weighted average number of shares (m) Adjusted EPS 2020 313 (61) (35) 13.7% 217 217 755.4 28.7p 2019 581 (41) (89) 16.5% 451 (2) 449 777.0 57.8p#3839 Statutory P&L £m Adjusted operating profit Amortisation of intangibles Other net gains and losses Restructuring cost Operating profit Net interest payable Other net finance costs Profit before tax Taxation Profit for the year Basic EPS 2020 313 (80) 178 411 (61) 4 354 (44) 310 41.0p 2019 581 (163) 16 (159) 275 (41) (2) 232 34 266 34.0p#3940 Balance sheet £m Goodwill intangible assets Tangible fixed assets Associates & JVs Capitalised Product Development (Pre-Pub) Deferred revenue Traditional working capital Deferred tax Pensions Other provisions Other net assets (liabilities) Net debt Held For Sale Net Assets Shareholders' funds Minorities Total Equity 2020 Incl Held For Sale 2,742 563 6 905 (356) 402 (30) 325 (33) 73 (463) 4,134 4,125 9 4,134 2020 Held for Sale (48) 3 (4) 50 (1) 2020 2019 Reported Incl Held For Sale 2,742 515 6 905 (353) 398 (30) 325 (33) 73 (413) (1) 4,134 4,125 9 4,134 2,900 618 404 870 (360) 419 11 337 (65) 205 (1,016) 4,323 4,313 10 4,323 2019 Held for Sale (397) 397 2019 Reported 2,900 618 7 870 (360) 419 11 337 (65) 205 (1,016) 397 4,323 4,313 10 4,323#4041 Reconciliation: statutory to adjusted earnings 2020 Other net gains and losses £m Operating profit Net finance costs Profit before tax Income tax Profit for the year Minority interest Earnings Statutory 411 (57) 354 (44) 310 310 Restructuring (178) (178) 3 (175) (175) Intangible charges 80 (80) (22) 58 58 Other net finance costs (4) (4) Tax amortisation benefit 24 24 24 41 Adjusted earnings 313 (61) 252 (35) 217 217#4142 Reconciliation: statutory to adjusted earnings 2019 £m Operating profit Net finance costs Profit before tax Income tax Profit for the year Minority interest Earnings Statutory 275 (43) 232 34 266 (2) 264 Restructuring 159 159 (35) 124 124 Other net gains and losses (16) (16) (68) (84) (84) Intangible charges 163 163 (48) 115 115 Other net finance costs 2 2 2 2 Tax amortisation benefit 28 28 28 Adjusted earnings 581 (41) 540 (89) 451 (2) 449#4243 Reconciliation: pre-publication costs £m Opening balance Exchange New spend capitalised. Acquisitions/disposals/transfers (net) Amortisation Restructuring charge Closing balance *Including businesses held for sale 2020 870 (3) 323 (5) (280) 905 2019 1,059 (19) 318 (217) (268) (3) 870#4344 Reconciliation: year end net debt £m Non current assets Derivative financial instruments Trade and other receivables - investment in finance lease Current assets Derivative financial instruments Trade and other receivables - investment in finance lease Cash & cash equivalents Non current liabilities Borrowings Derivative financial instruments Current liabilities Borrowings Derivative financial instruments Net debt 2020 45 112 18 18 1,116 (1,463) (40) (257) (12) (463) 2019 29 171 25 25 437 (1,572) (24) (92) (15) (1,016)#4445 Cash flow £m Adjusted operating profit Change in working capital (ex Pre-Pub) Product Development (Pre-Pub) capitalisation. Product Development (Pre-Pub) amortisation Net CapEx (inc right-of-use assets) Depreciation Share based payments Share of operating results of associates Dividends from associates Other movements Exchange Operating cash flow Cash conversion % Restructuring costs paid Net cash interest paid Cash tax received / (paid) Free cash flow 2020 313 9 (323) 280 (177) 237 29 (5) 4 (5) (47) 315 101% (38) (50) 2 229 2019 581 (108) (318) 268 (236) 229 25 (68) 64 10 (29) 418 72% (111) (64) (30) 213#4546 US Higher Education Courseware college units Net units Print Bundles MyLab, Mastering, Revel Rental eText Total 2020 (m) 1.5 0.7 6.3 0.2 3.7 12.4 2019 (m) 2.4 1.3 5.7 0.1 2.8 12.3