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Pearson 2020 Full Year

Results and Strategy Update

Monday, 8th March 2021

Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 2

Introduction

Andy Bird

Chief Executive, Pearson plc

We are Pearson plc

Hi, everyone. I am Andy Bird, Pearsons 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 peoples 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 Pearsons 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 worlds pre-eminent learning company, delivering the worlds 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. Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 3

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 worlds 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 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 4 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 technologys 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 persons 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. Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 5 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 Pearsons 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. Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 6

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 Pearsons 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: Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 7

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 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 8 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 worlds 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 Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 9 gauge and track their progress. The Pearson Test of English is highly regarded as one of the

worlds 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 todays 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 Pearsons 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. Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 10 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. Pearson 2020 Full Year Results and Strategy Update Monday, 8th March 2021 www.global-lingo.com 11 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 andquotesdbs_dbs17.pdfusesText_23

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