Company Announcements

Notes

Throughout this announcement: growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude both currency movements and portfolio changes. Unless otherwise stated, growth rates relate to the nine month period. ¹Vuma consensus adjusted operating profit excluding Penguin Random House at 1st June 2020 of £331m at a £:$ rate of $1.25; this equates to £299m at our £:$ guidance rate of $1.32.

Nine-month trading

In Global Online Learning, sales grew 14% with a strong increase in applications seen in Virtual Schools. To meet the surge in demand for virtual schooling, we increased capacity at existing schools. As planned, we opened three new full-time, state-wide partner schools, and combined with two contract exits this takes the total partner schools to 43.

In OPM, we saw strong sales growth driven by our undergraduate and international performance, partially offset by discontinued programs. We are also seeing the benefits of the operational changes made earlier this year, with increased efficiencies in our student recruitment process and student acquisition costs.

In Global Assessment, Pearson VUE testing volumes increased by 8% in the third quarter compared to the third quarter of 2019 driven by growth in the IT segment and online proctoring. Online proctoring test volumes grew significantly from 102,000 at the nine months in 2019 to 1,352,000 in the same period in 2020. Test centres were largely open but operating with reduced capacity due to social distancing, although hours were extended to help meet pent-up demand.

In School and Clinical Assessment, performance was in line with expectations with further modest impact. In addition to the new contract wins and renewals announced in July, we continued to win contracts in the third quarter and have a strong pipeline which will continue to support new contract wins in School Assessment.

In North American Courseware, sales declined 14% with US Higher Education Courseware declining 13%. There has also been continued momentum in Inclusive Access with sales to not-for-profit institutions up 33% on last year.

In International, sales were impacted due to the interruption of Australian immigration and test centre closures impacting PTE in Australia and India, as well as the impact of COVID-19 on courseware purchasing.

For School & HE Courseware, while the majority of schools have now re-opened, budget constraints have led to purchasing delays, as well as fewer purchases. Sales in certain markets, such as South Africa and APAC, remain fourth quarter weighted.

In the UK, qualifications revenue was impacted as expected by the cancellation of exams earlier in the year.

In English, PTE volumes were impacted by the interruption of Australia immigration due to COVID-19, as well as test centre closures in India and Australia. However, we have seen signs of market share gain in China, as our more flexible and digital offering has proven more suitable for the current environment than the traditional paper-based sittings our competitors offer. In addition, our UK SELT contract is now operational. In our franchise business in Brazil and across courseware, we have seen market contraction as a result of the pandemic.

Strong financial position

Pearson has a strong balance sheet and significant financial headroom with immediately available liquidity of c.£1.6bn through committed facilities and cash balances.

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.pearson.com/corporate/investors.html). 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.