Pearson 2020 Q1 Trading Update (Unaudited)

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.

Q1 Trading

Global Assessment

In Pearson VUE, underlying revenue declined modestly as a result of the COVID-19 outbreak leading to the closure of test centres. We estimate that the financial impact of these closures is on average £20m to £30m to operating profit for each month the centres remain closed.

We continue to evaluate local regulations, opening sites with limited capacity to enable social distancing, to address essential testing services for health care workers. We expect to open test centres in a phased approach and as tests run throughout the year this provides time for pent up demand to be partially realised in the second half of the year. In addition, we are working with clients who are able to take advantage of our VUE Online Proctoring offering.

In Student Assessment, revenue was slightly favourable as a result of early Spring testing. However, a number of states and boards have decided to postpone or waive testing for the academic year and test cancellations to date will impact our 2020 operating profit by around £20m after mitigating actions. We continue to believe there could be further state test cancellations which could modestly impact on operating profit further.

In Clinical Assessment revenue declined modestly as a result of school closures. To partially mitigate this, we have launched a website which enables the remote use of some of our products.

Global Online Learning

In Connections Academy, our Virtual Schools business, revenue grew strongly due to growth in enrolments and new school openings. We have seen a surge in applications in March compared to 2019 as many explore full time digital learning for the first time. Pearson is well placed to benefit from the increased interest in and appetite for online learning. We are seeing many administrators and educators reach out to discuss large scale solutions for virtual schooling as well as potential interest from new states which have not previously considered virtual schooling as a choice for students.

In Online Program Management, revenue grew slightly. As detailed in our full year results, we have deliberately slowed the rate of growth in this business in order to transition to a new operating model. With growing demand from universities to support online learning and unemployment rising rapidly, we are planning to launch a range of initiatives that provide learners with high quality, flexible and affordable options to acquire new skills and knowledge that will enhance their employability.

International

In International, revenue declined 10% as a result of school and test centre closures having an impact on courseware sales and the Pearson Test of English.

In the UK the decline in courseware was mainly due to a strong comparative as a result of phasing in 2019. With regard to the UK government's decision to cancel exams due to be sat in May and June, we continue to work closely with the Department for Education, Ofqual and the other awarding bodies to award qualifications and expect any impact on profits to be modest.

We expect to see impact from site closures in our Higher Education institution in South Africa, our franchise and sistema businesses in Brazil and the Pearson Test of English across the region. The impact to courseware is uncertain, especially given that the period for which educational institutions may be closed is unclear, and our sales periods are seasonal.

Pearson has continued to make an array of digital learning tools, services and resources available to students, educators and parents. In the UK, hundreds of thousands of teachers, schools, colleges, parents and learners have accessed our free online resources. In Italy and China combined, we have had over 1.2 million teachers and students access our online platforms, with thousands of interactive lessons.

North American Courseware

North American Courseware declined 10% due to the expected continuation of trends seen in US Higher Education in 2019, including further expected declines in print revenue, and a small impact from the closure of campus based book stores which we expect to continue in the second quarter due to the ongoing pandemic. Product returns are trending lower, in line with our expectations. We also saw a weaker performance in courseware in Canada as a result of school closures.

Q1 is a small quarter and this year has seen less of a benefit from print sales in Q4 shifting to digital sales in Q1 given the extensive decline of print in 2019.

To support colleges and institutions to transition to virtual teaching we have made Pearson eText and digital learning tools available for free and are providing a wide range of related services and support.

Mitigating actions

We have identified actions to reduce discretionary spend to partially mitigate the potential impact of COVID-19, while ensuring that Pearson is still well placed to benefit as the macroeconomic landscape recovers.

The accrual of our 2020 Annual Incentive Plan moves in line with the performance of the business.

Audit tender

In our 2019 Annual Report, we stated that the audit committee had agreed to proceed with an audit tender during 2020, with a view to changing audit firm for the financial year ending 31^st December 2021. Owing to the current environment and noting guidance from the Financial Reporting Council (FRC), the audit committee has decided it prudent to postpone the audit tender until further notice.

Analyst call

We will hold a conference call for analysts at 8.45am today Friday, 24^th April to discuss our first quarter results. A replay will be available soon after on our website www.pearson.com. Our AGM will be held today at 12 noon attended only by the minimum necessary quorum of shareholders.

Contacts

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.