Annual report and accounts 2023

Strategic progress.

Sustainable profitable growth.

Use this QR code to visit our Pearson plc website

where you can find the online version of this report.

https://plc.pearson.com/en-

GB/investors/2023-annual-

report-accounts

We are the

world’s

leading

learning

company

Strategic report

At a glance 2

Chair’s note 3

Chief Executive’s review 6

Divisional overviews 8

2023 highlights 11

Strategic priorities 12

Divisional spotlights 14

Stakeholder engagement 16

Business model 22

Key performance indicators 24

Financial review 26

Sustainability 34

ESG data 49

Risk 56

Governance report

Corporate governance 66

Directors’ remuneration report 107

Additional disclosures 131

Financial statements

Independent auditor’s report to the members

of Pearson plc

137

Consolidated financial statements 146

Company financial statements 208

Other information

Five-year summary 219

Financial key performance indicators 221

Additional information for

US listing purposes

227

Shareholder information 247

The strategic report, up to and including page 65, was

approved for issue by the Board on 13 March 2024

and signed on its behalf by:

Sally Johnson Chief Financial Officer

Pearson is a strong company with excellent

market potential, people committed to our

mission, and a purpose that can genuinely

help communities.

Omar Abbosh Chief Executive

Strategic progress.

Sustainable profitable

growth.

At a glance

Read more on Sustainability on page 34

Our sustainable business pillars

Driving learning for everyone

with our products

Empowering our people

to make a difference

Leading responsibly for

a better planet

Corporate overview

At Pearson, we know few things matter to the

world more than education. That’s why we’re

all working together to support people on their

learning journey, wherever that path takes them.

We’re on a journey too, building a company that

puts learners at the heart of everything we do.

The future of learning is vibrant, high quality

learning experiences that help everyone realise

the life they imagine. 2023 has been a critical

year in Pearson’s progress toward achieving our

vision. A changing global economy, a need for

new and different skills within communities, and

new technology like generative AI challenged

the education space. Our resilience and ability

to capitalise on changing market dynamics

reinforced confidence in our strategy, our

people, and the strength of our underlying

business. As we look ahead to 2024, we remain

committed to our goal of delivering long-term

profitable growth, while we evolve our strategy

to seize emerging opportunities and accelerate

our digital expansion.

This Annual Report showcases strong 2023

growth, driven by our five divisions and our

continued efforts to create interconnectivity

between them. By delivering excellent financial

results, driving a culture of performance, and

leaning into new technology, like generative

AI, we’re making progress every day toward a

future of sustainable, profitable growth for 2024

and beyond.

Our purpose

To add life to a lifetime

of learning.

Our vision

We want everyone to realise the life they

imagine through learning.

Our mission

Create vibrant and enriching learning

experiences designed for real-life impact.

Annual report and accounts 2023 Pearson plc 2

Strategic report

Our reshaped portfolio is

more focused, we are firmly

established as a digital-

first learning company and

technology is opening up

exciting opportunities that

will drive growth for many

years to come.

Omid Kordestani Chair

2023 full year dividend growth

Return on capital in 2023

10.3%

Chair’s note

Overview

I am delighted to report that Pearson colleagues around the

world have delivered another strong performance in 2023.

It has been a transformational year for the business, further

testament to the strategy we launched three years ago that

has fundamentally repositioned Pearson so that we can serve

ever more people through their lifelong learning journey.

Our reshaped portfolio is more focused, we are firmly

established as a digital-first learning company and technology

is opening up exciting opportunities that will drive growth for

many years to come.

Our culture has evolved significantly so that there is now a far

greater sense of accountability across the global business and

an increased focus on execution and delivery. There is also more

interconnectivity across our divisions with growing collaboration

underpinned by a shared belief in the important role Pearson

plays in improving society through learning.

Financial and operational highlights

For a third consecutive year, Pearson has delivered a strong

financial performance with sales of £3,674m (£3,841m in 2022),

representing 5% growth on an underlying basis, excluding the

OPM and Strategic Review businesses. Statutory operating profit

was £498m (£271m in 2022), or £573m on an adjusted basis, up

31% versus 2022. This was supported by our ongoing work to

streamline the business and make it more efficient. During the

year we successfully delivered £120m of cost savings, improving

adjusted operating profit margin to 16%.

Pearson has continued to generate strong free cash flow

enabling us to maintain a robust financial position whilst also

supporting ongoing investment in the business. This is fuelling

Pearson’s evolution, particularly in digital and generative AI which

are changing the way that people learn for good.

Our strong cash generation enables us to deliver returns

for shareholders, with a £300m share buyback programme

commenced in 2023 supplementing our progressive ordinary

dividend. We have also announced that we will be extending

this programme by £200m in 2024. Reflecting the strong

performance in 2023 and its confidence in the outlook for the

business, the Board is recommending a 6% increase in the final

dividend for afull year dividend of 22.7 pence per share.

This will be paid on 3 May 2024 to shareholders on the register

on 22 March 2024.

Annual report and accounts 2023 Pearson plc 3

Strategic report

Chair’s note continued

CEO succession

In September, we announced that Andy Bird would be retiring

from his role as our Chief Executive. On behalf of the Board

and all the Group’s stakeholders, I would like to thank Andy

for his outstanding leadership, and his implementation of the

ambitious vision and strategy that have successfully transitioned

Pearson into the business we are today. During his tenure,

adjusted operating profit has increased from £313m to £573m,

and shareholders have benefited from a total 3-year return of

53%. Andy has accelerated our digital proposition and capability

so that 82% of our portfolio today is digital or digitally-enabled.

The launch of Pearson+ in July 2021 has been an important

contributor, bringing us meaningfully closer to consumers and

the platform had grown to around 5m registered users by the

end of the full calendar year.

AI has been part of Pearson’s DNA for many years, and under

Andy’s stewardship, we have leveraged advances in generative

AI to enhance the value of our content with plans to make it

available to millions more students across key titles in the year

ahead. Having also put in place a strong management team,

Andy leaves Pearson well-placed for the future.

Following a thorough selection process, which you can read

more about on pages 83 and 91 respectively, the Board was

delighted to appoint Omar Abbosh to succeed Andy. Omar is an

inspirational, dynamic and growth-orientated leader with deep

commercial, technology and operational expertise focused on

delivering high-quality services and products across diverse

markets and customer sets. He has extensive experience in

creating and executing strategies to enable companies to

harness technology and succeed in a world of disruptive change.

He shares our values and our ambition and has a strong track

record of execution. Omar joined us in January 2024 and the

Board and I are enjoying working with him as we accelerate our

strategy and continue to deliver value for all our stakeholders.

Learning for impact

With our purpose of adding life to a lifetime of learning, we are

focused on delivering Learning for Impact. We take a considered

approach to the adoption of technologies such as generative

AI that have enormous potential but also entail new risks, and

we are committed to the highest standards of data privacy and

security. We empower our people to make a difference, making

further progress on employee engagement in the year as we

continue to invest in talent and drive a culture of belonging

that aims for increasingly diverse representation throughout

the company. We recognise our responsibility to reduce our

environmental impact, and are on track to meet our target of

halving our carbon emissions by 2030, having made excellent

progress to date, with a reduction of 16% vs 2022. This is the

product of many different initiatives across our operations and

supply chain, with significant benefits coming from our strategy

to become increasingly digital, reducing the footprint and

impacts of our print operations.

The Board

We have a strong, diverse and highly experienced Board which

continues to offer valuable perspective, insight and leadership.

There were some changes to the Board during the year due to

retirement, giving us the opportunity to welcome new talent and

fresh thinking.

In June, we were delighted to welcome two new Non-Executive

Directors, Alison Dolan and Alex Hardiman. Alison has been

Chief Financial Officer at Rightmove plc since 2020 and brings

extensive commercial and operational finance experience,

specifically in digital businesses. Alex currently serves as The New

York Times’ Chief Product Officer and was previously at Facebook

where she served as Head of News Products.

Tim Score, Deputy Chair and Senior Independent Director, will

step down from the Board at the AGM in April 2024 following

a nine year tenure. His vast experience has been enormously

valuable to Pearson and I would like to thank him hugely for

the significant contribution that he has made to the business.

I am pleased that Graeme Pitkethly will be taking over the role

as Deputy Chair and Senior Independent Director once Tim has

stepped down.

Annual report and accounts 2023 Pearson plc 4

Strategic report

Our robust financial

position and strong

cash generation enable

investment to strengthen

our platform for the

future while also funding

attractive distributions

to shareholders.

Governance

Through my face-to-face meetings with investors during the past

year, I have heard first-hand views on a range of topics including

strategy, succession, corporate governance, remuneration,

environmental and social issues, as well as operational and

financial performance. We have taken all their feedback and

again sought to enhance our disclosures in this Annual Report.

I look forward to hearing how we can continue to improve.

We have engaged extensively over the past year on

remuneration with shareholders and their advisors, and

executive remuneration remains a key area of focus for both

the Board and the Remuneration Committee. The directors’

remuneration policy that was approved at last year’s AGM seeks

to ensure that we can attract and retain the talent required to

drive Pearson’s success; that our executives are appropriately

incentivised to achieve stretching targets; and that the structure

of such incentives best aligns with the interests of shareholders

and supports the delivery of long-term, sustainable returns. It’s

important to underline that incentives will only be realised in full

if stretching annual and longer-term performance targets are

met. Sherry Coutu CBE, Chair of the Remuneration Committee,

sets out our approach on pages 107-109.

Outlook

Our strong performance in 2023 underpins our confidence that

we have the right strategy in place to drive continued sustainable

growth. Our robust financial position and strong cash generation

enable investment to strengthen our platform for the future

while also funding attractive distributions to shareholders. We

are excited about the experience and expertise that Omar brings

to Pearson. Pearson is well-placed to make good progress in the

year ahead and beyond.

Omid Kordestani Chair

Total 1-year

shareholder return

Annual report and accounts 2023 Pearson plc 5

Strategic report

Chief Executive’s review

Pearson is

well positioned

today, with

a stable platform

for continued

growth.

Omar Abbosh Chief Executive

Sales

£3,674m

(2022: £3,841m) headline decrease of 4%

Underlying sales growth increase

5%*

Statutory operating profit

£498m

increase year on year of 84%

Adjusted operating profit in 2023

£573m

increase year on year of 31%

on an underlying basis

Dear Shareholders,

I want to start by sharing how delighted I am to join this very

special company alongside this talented and passionate group

of Pearson employees.

I’m pleased to report another year of strong financial

performance with underlying sales growth of 5% and adjusted

operating profit of £573m, up 31% compared to 2022. We have

also improved the adjusted operating profit margin by 4% to

16%. This has been driven by our strong execution and the

combination of our unique capabilities in assessment, content,

and services, all of which stand us in good stead going forward.

Delivering for Growth

These results reflect exciting progress across the business

and especially strong financial performance in Assessment

& Qualifications and English Language Learning. Further,

our commitment to cost efficiencies delivered £120m in savings

for the Group. Our careful stewardship of shareholder funds

means we launched a share buyback of £300m in 2023 and

announced an extension of this by a further £200m in 2024.

Our strong balance sheet and excellent cash flows help us

invest in opportunities to drive growth and create further

value for our stakeholders.

Several strategic achievements in 2023

also laid the foundation for our future:

— In Assessment & Qualifications, we saw strong performance

in Pearson VUE, particularly in the IT and healthcare sectors.

We completed the acquisition of PDRI, a trusted provider

of workforce assessment services. In this business, we are

already seeing promising revenue generation and new

contracts with the US federal government.

— In English Language Learning, we won recognition for the

Pearson Test of English in Canada for student and economic

migration visas. With English as the gateway to employment

and study in Canada, this opens a significant new business

opportunity for us. In partnership with Pearson VUE, we

opened our largest test centre, to help serve the growing PTE

market in India. We also launched workplace specific content

as well as other enhanced features in Mondly.

* Taking portfolio adjustments and FX into account and excluding the OPM and Strategic Review businesses.

Annual report and accounts 2023 Pearson plc 6

Strategic report

— Generative AI was a major focal point in Higher Education as

we began the beta of our AI tools in Mastering and Pearson+.

With over 60,000 AI conversations in Mastering Chemistry

alone, we are helping students learn the most complex

concepts. The positive student reaction to the tools led us to

expand the beta for 2024. What’s more, Pearson+ passed the

milestone of one million paid subscriptions this calendar year.

All of this taken together with improved platform stability and

improvements in our sales teams, meant Pearson’s Higher

Education division increased platform sales while making

significant strides in its overall digital consumer experiences.

— Within our Workforce Skills business, we evolved from a

unified product approach to building a powerful technology

stack that has enabled us to expose the core capabilities as

modular offerings that can be tailored to our customers. This

is just one element underpinning the solid sales figures we

saw in 2023.

— Virtual Learning launched a new Connections Academy

Career Pathways programme in five schools to offer students

high school, university, and career credentials through an

innovative tri-credit approach. We plan to roll out the initiative

to more schools in 2024.

— Finally, in a major step toward the simplification of our

portfolio, we completed the sale of our Pearson Online

Learning Services business in June.

This progress could not have happened without the leadership

of Andy Bird. He paved the way for us, and I’d like to thank him

for laying the groundwork for our bright days ahead.

Looking Forward with Confidence

Since I joined Pearson, I’ve become even more confident

about the reasons I came here.

First, it’s clear to me that Pearson is a strong, stable company

with many growth options. Second, we have a purpose that is

unmatched and a genuine ability to help people on their learning

journey which, quite literally, changes lives. Finally, our world is

also at an inflection point with AI. The next decade will centre

on the application of AI in business, in communities, and in our

individual lives.

The opportunities to use AI

as a tool for better learning,

while driving growth in

our business are immense.

With our vast, high quality

data sets and our trusted

IP, we are well positioned

to lead on creating value

from AI in the future.

The opportunities to use AI as a tool for better learning, while

driving growth in our business are immense. With our vast, high

quality data sets and our trusted IP, we are well positioned to

lead on creating value from AI in the future.

It’s against this backdrop that I’m setting three strategic priorities

for 2024. Firstly, we will deliver on our 2024 guidance with an

intense focus on organic growth, execution, and the needs of

our customers. Secondly, we are sharpening our focus on the

enterprise market. This is a large and still forming market, with

no dominant player and presents good opportunity for us.

Thirdly, we’re optimistic about the possibilities that AI brings. We

are increasing the energy by which we infuse our products and

services with AI solutions that delight and support customers

and consumers.

A Future Built on Our Strengths

At Pearson we do three things. We create and curate world class

learning and assessment content. We distribute this content

digitally and through physical materials to millions of users

globally. And we help individuals, employers and institutions build

and verify skills.

These activities are made possible by our unique strengths,

such as our long term and diverse customer relationships; the

global size and scale of our Pearson VUE business; the depth

and quality of our content in textbooks, assessments, videos, and

exams; our network of trusted authors; the differentiated Global

Scale of English; our deep expertise in learning science; and

above all, our trusted and well-respected brand.

These strengths are a testament to the wonderful people of

Pearson, and I want to thank them for their contribution to our

success in 2023. I am excited for their partnership as we evolve

our company to meet the diverse needs of learners around

the world.

I believe Pearson is that rare type of company with an ability

to deliver sustainable growth alongside a purpose that is

meaningful to millions of people.

There is much more to come from Pearson.

Omar Abbosh Chief Executive

Free cash flow in 2023

£387m

Annual report and accounts 2023 Pearson plc 7

Strategic report

Sales

£616m

Sales

£1,559m

Divisional overviews

The Assessment & Qualifications division comprises four

business units: Pearson VUE, Clinical Assessment, US Student

Assessment, and UK & International School Qualifications.

Pearson VUE excels as a global leader in scaled testing services,

serving numerous industry sectors with its extensive test centre

network and flexible delivery options. This line of business

meets the critical need for workforce reskilling and professional

certification, underpinning professional development at various

stages. In Clinical Assessment, Pearson provides high-quality,

research-backed assessment products for mental health and

learning evaluations, serving professionals in healthcare

and education.

Pearson's US Student Assessment specialises in customised

large-scale testing programmes for US K-12 education, focusing

on state-specific criteria and enhancing education standards.

Internationally, Pearson offers globally recognised UK curriculum

based qualifications such as GCSEs and A-levels, as well as

courseware for English speaking regions throughout the world,

supporting foundational student progression worldwide. These

qualifications, coupled with Pearson's content expertise and

scale of delivery, make it a key player in shaping global education

standards and student futures.

In 2023, the division demonstrated strong financial performance,

growth, and overall customer retention. 2024 will focus on

maintaining strong competitive positions through contract

renewals and new wins, while scaling value chain and adjacent

market opportunities.

Select plans include VUE moving further up the technology

certification value chain, UK & International Qualifications

capitalising on the growing demand for international education

and Clinical Assessment building out its international portfolio

and creating new digitally-enabled business subscription models.

Following the sale of the Pearson Online Learning Services

business in the first half of 2023 and the loss of the ASU contract,

the Virtual Learning business now works with customers in

three ways: Partner Schools (c.95% sales), District Partnerships

(c.3% sales), and Pearson Online Academy (c.2% sales).

The Partner Schools business provides tailored Virtual School

solutions to public K-12 districts in the US, combining Pearson's

courseware, instructional services, and support for high-quality,

flexible online learning. Although providing much smaller

revenue contribution, the District Partnerships channel

offers customisable virtual education solutions for K-12

districts, focusing on smaller student cohorts with a more

disaggregated approach than Partner Schools, ensuring

access to quality, adaptable remote learning for various needs.

We also offer Pearson Online Academy, which while small,

extends similar services to Partner Schools but as a private,

globally accessible option.

Virtual Learning launched a new Connections Academy Career

Pathways programme in five schools for middle and high school

students, where we are offering a tri-credit approach to career-

readiness courses in partnership with Coursera and Acadeum,

amongst others. We saw encouraging enrolment trends in these

schools and are planning to roll the initiative out to additional

schools in 2024 to drive future growth.

Assessments sit at the heart

of the value we bring to

customers. Our ability to

deliver in large volumes,

in multiple languages, and

across countries all over the

world, makes us a trusted

provider of choice.

Art Valentine President – Assessment

& Qualifications

Assessment & Qualifications Virtual Learning

Annual report and accounts 2023 Pearson plc 8

Strategic report

Our vision is to become the world’s leading destination for

committed learners to build and prove their proficiency in

English, offering comprehensive English learning and assessment

solutions, including the Pearson Test of English (PTE). Catering

to a wide range of learners, including those in workplaces,

schools (via institutional courseware and the Wizard platform),

and individuals (through Mondly), Pearson provides diverse

avenues for English proficiency. Central to Pearson's approach

is the blend of leading pedagogical expertise in English language

education with advanced technology. This strategy is geared

towards delivering personalised, scalable English language

learning for anyone seeking to use English for their personal or

professional goals.

English Language Learning expanded partnerships and grew

the PTE business in 2023, administering over 1 million tests. The

2024 strategy includes scaling the PTE business in Canada and

growing corporate assessment and study offerings, leveraging

technological advancements.

Pearson is the market leader in providing world-class learning

experiences in the post-secondary market. Renowned as a

market leader in both eText and courseware products, including

MyLabs, Mastering, Pearson+ and Revel, Pearson caters to

millions of students worldwide.

Pearson’s goal is to scale teaching excellence, enhance learner

outcomes, and to support faculty in their workflows. Pearson’s

strength lies in its relationship with authors, its proprietary

educational technology platforms, and deep understanding of

learning science, all of which are evolving with the AI landscape.

Pearson’s close relationships with instructors and faculty,

who play a key role in adopting course materials, contribute

significantly to its competitive edge.

In 2023, Pearson was the first major higher education publisher

to integrate generative AI study tools into its propriety academic

content. It also grew Pearson+ subscriptions, adding over 1

million eTextbook subscriptions during the calendar year. In the

upcoming year, the focus is on scaling AI-enhanced offerings and

continuing to deliver outstanding value for learners and faculty

with significant product upgrades.

Sales

£855m

Sales

£415m

Higher Education

English Language Learning

What learners are demanding

is evolving. We are listening

to these changing needs and

expectations, and enhancing

our products to help students

succeed in their learning goals.

Tom ap Simon President – Higher Education

and Virtual Learning

Annual report and accounts 2023 Pearson plc 9

Strategic report

The Workforce Skills division at Pearson includes both Vocational

Qualifications (VQ) and Workforce Solutions. Pearson VQ

is a global leader in career-focused qualifications, offering

programmes that are rooted in real-world work scenarios.

These qualifications enable hundreds of thousands of students,

apprentices, and workers in the UK and globally to develop

and apply knowledge, skills, and behaviours essential for

employability. One in five working-age individuals in the UK

holds a BTEC from Pearson, and its vocational qualifications are

increasingly adopted by global ministries of education to advance

skills reform.

Pearson Workforce Solutions addresses the evolving needs

of businesses for skilled talent in a rapidly changing economy.

Workforce Solutions assists companies in understanding and

bridging their skills gaps, fostering genuine skills development

aligned with commercial objectives. Pearson's corporate and

employee solutions are modular and interconnected by a

common skills framework, supporting organisations at various

stages of their skills transformation journey and optimising their

existing tools for maximum impact.

2023 saw us deliver a solid performance, with our qualifications

performing well in institutional and corporate markets, and

Workforce Solutions continuing to acquire new customers

and expand existing relationships. The 2024 agenda includes

driving market share gains, expanding addressable markets, and

developing upskilling and reskilling solutions through

key partnerships.

Sales

£220m

Workforce Skills

Divisional overviews continued

Annual report and accounts 2023 Pearson plc 10

Strategic report

2023 highlights

A year of strategic and

operational progress

The success of Pearson+

is proof we’re delivering on

our commitment to give

students the vibrant and

enriching learning

experiences they deserve.

Lynne Frank Chief Marketing Officer and Co-

President, Direct to Consumer

Passed milestone

of 1m cumulative

paid subscriptions

for Pearson+

Read more on page 31

* Taking portfolio adjustments and FX into account and excluding the OPM and

Strategic Review businesses

Underlying sales growth

increase of

Adjusted operating profit

£573m

increase year on year of 31%

on an underlying basis

Statutory operating profit

£498m

increase year on year of 84%

Annual report and accounts 2023 Pearson plc 11

Strategic report

Strategic priorities

An integrated strategy

Our corporate strategy is grounded in three primary objectives – 1) to deliver sustainable, profitable sales growth, 2) to focus on

execution, quality, and trust across the business, and 3) to delight our customers and be obsessed with meeting their expectations. We

will achieve these objectives through our continued dedicated commitment to building trusted relationships with consumers throughout

their lifelong learning journey via an ecosystem of interconnected solutions.

Realising this vision will require us to remain focused on increasing our scale and reach by investing in and deepening our institutional, enterprise, government, and direct to consumer relationships. We will

continue to capitalise on synergies across our businesses and lean into our competitive strengths, most notably as a global leader in trusted learning content and assessments.

We believe that by enabling consumers with best-in-class, integrated tools for learning, along with the assessments and credentials to demonstrate their knowledge and skills, we will create lasting value for

our customers, learners, and other stakeholders, whilst delivering outsized growth for our investors.

Strategic Priority #1: Pearson’s commitment to sustainable and profitable revenue growth yielded important achievements across its divisions, underlining the company’s market-leading capabilities

and strategic execution. Looking to 2024, Pearson’s strategic focus remains steadfast on continuing to deliver profitable revenue growth, with each division poised to expand its market impact through

targeted initiatives.

Strategic priority Progress in FY23 Objectives for FY24

    

Deliver

sustainable

and

profitable

revenue

growth

Acquired PDRI in March 2023, leading to major federal contract wins with the TSA and

US Air Force

Scale value chain and adjacent market opportunities across sub-divisions, with a

continued drive to grow within the federal market by providing secure and scalable

testing services tailored to the government workforce

Invested in product improvements and implemented new sales teams and processes,

in addition to achieving a profitability increase of 3% driven by cost savings

Pilot innovative courseware pricing models to drive competitiveness in the growing

Open Educational Resources (OER) and Do-It-Yourself (DIY) market segments, whilst

continuing to drive international market growth with targeted investments in the Higher

Education sector

Grew PTE volumes c.50% to over 1m tests administered and earned recognition for the

Student Direct Stream and Migration in Canada

Further scale the PTE business and continue to gain market share in Canada, as well as

expand the corporate offerings for assessment and study by leveraging the flexibility of

the Mondly and Versant (mid-stakes assessment) platforms

Launched and enrolled over 1k students in an innovative career readiness offering

Transform the enrolment funnel to bring down the lead-to-enrolment time to 1-2

weeks, a c.75% reduction, aiming to improve student acquisition and retention

Expanded workforce reach to 66 of the Fortune 500 companies, achieving a growth rate

of 11%

Invest in skills intelligence, credentialing, and assessment solutions, and evolve

corporate solutions from single to multi-product sales

Grew the Pearson+ platform to around 5m registered users by end of calendar year

2023 and passed the milestone of 1m cumulative paid subscriptions for the same

calendar year

Drive Pearson+ growth by expanding distribution and further scaling

Channels subscriptions

Key

Assessment & Qualifications

Higher Education

Virtual Learning

English Language Learning

Workforce Skills

Direct to consumer offering

HE EL DC

Annual report and accounts 2023 Pearson plc 12

Strategic report

Strategic Priority #2: Pearson’s focus on execution, quality, and trust across its business divisions led to significant achievements, reinforcing its position as a leader in educational services and products.

Looking forward, Pearson is set to further strengthen this commitment across all business divisions, with a clear focus on innovation and strategic development.

Strategic priority Progress in FY23 Objectives for FY24



   

Focus on

execution,

quality, and

trust across

the business

Launched the Pearson Assessment for Learning Suite - a complementary set of services for

US school districts

Invest in product and platform development to improve and expand go-to-market efforts

in 2024

Retained the market-leading position within the Higher Education space driven by

reaffirming commitment to sales leadership and enhancing execution capability

Continue to develop innovative AI features and product enhancements

Launched an enhanced e-commerce journey and fortified relationships with key PTE

regional partners

Invest in digital platforms and experiences, and utilise the Mondly platform as a versatile

tool for trialling technology capabilities and propositions

Reduced marketing cost per enrolment by approximately 25% over the last year, significantly

improving operational efficiency

Target development of an additional 15 career programmes, up from five last year, and

scale to new schools and states

Improved performance in qualification result delivery within Vocational Qualifications

ensuring learners had their results when needed

Prioritise technology based strategic projects, such as leveraging AI in quality assurance

within the enterprise qualifications businesses

Enhanced Pearson+ from primarily an e-reading platform to a more robust educational

resource by introducing Channels, delivering tutorial video content and practice problems

Expand course offerings available on the Channels platform, building on the 23 college

courses supported in 2023

Strategic Priority #3: Pearson’s dedication to delighting customers and providing exceptional educational experiences was evident across all divisions. Looking ahead, the divisions will continue to drive

this strategic initiative, ensuring that customer satisfaction remains at the forefront of the company’s operations.



   

Delight our

customers

and be

obsessed

with meeting

their

expectations

Improved standards of customer care across the A&Q businesses, with examples including

shifting from a regional to global approach model, in addition to VUE opening its largest

company-owned test centre in Chandigarh, India, with capacity to deliver 14k high-stakes

tests per month

Expand VUE value chain capabilities into learning and test prep for the technology

certification segment, and release major flagship revisions for the Clinical Assessment sub-

division that maintain brand promise but meet current market needs

Piloted and launched AI-enhanced eText and Mastering titles, incorporating cutting-edge

technology

Increase the selection of AI-enhanced titles and invest in the channels component of

Pearson+ with diverse formats, including integrated videos

Improved the e-commerce journey for PTE, making it easier for customers to access and

purchase products, enhancing the overall user experience and improving the NPS score

from 52 to 55

Implement more advanced Mondly content and expand reach to institutional and

enterprise customers by harnessing synergies with the wider ELL portfolio

Created c.370k custom assessments since the start of the 2023/24 school year, exceeding

the initial target by more than 20x, enabling teachers to further improve the student learning

experience and maintain a strong NPS score of +67

Improve overall customer satisfaction by integrating content directly onto the Virtual

Learning platform, in addition to driving operational improvements and expanding

programme offerings

Streamlined operations and implemented an improved go-to-market strategy for strategic

accounts, utilising an integrated, team-selling approach to capitalise on strong traction with

government entities and large organisations for Workforce Solutions

Develop customised solutions and professional services that align with enterprise

requirements, and launch the Official GED App by Summer 2024

Invested in AI and introduced AI-generated content summarisation, explanations, and

practice quizzes to enhance the user experience within Pearson+

Leverage the interconnectedness of Pearson+ with Higher Education’s courseware to

enhance personalisation and trial career-focused propositions

Key

Assessment & Qualifications Higher EducationVirtual Learning English Language LearningWorkforce Skills Direct to consumer offering

WS VL HE EL DC

Annual report and accounts 2023 Pearson plc 13

Strategic report

Divisional spotlights

Assessment & Qualifications

Spotlight on Clinical Assessment: Business model innovation enabled

by digital capability, driving growth and customer satisfaction in K-12

Special Education

Opportunity

Our Clinical Assessment business represents one of the four

sub-divisions within Assessment & Qualifications. We have been a

longstanding leader in special education assessment, catering to

the requirements of psychologists, educators, speech pathologists,

and other professionals that support the special learning needs of

students. Throughout our interactions, we always aim to match the

evolving needs of the important customers we serve with our gold-

standard products and state-of-the-art capabilities. Our portfolio of

intellectual property drives much of our competitive advantage as we

offer hundreds of products to the market to support a broad array

of needs.

Meeting the growing mental health and learning support needs

of student populations has become increasingly complex, making

resource planning for physical assessment products difficult at best.

With our Digital Assessment Library for Schools (DALS) offering,

we leverage our expertise and digital innovation to remove the

guesswork from resource planning.

Progress so far

In 2017 we launched DALS, a subscription offering that provides

unlimited access to an industry-leading set of testing instruments.

Our Special Education customers are no longer forced to commit to

specific evaluation products and diagnostic needs of an unknown

student population and are freed from having to anticipate inventory

and its cost implications during the budget season. Our customers

are excited by the cost-predictability. But more importantly, the

access to a broader set of instruments allows our professionals

to tailor evaluations to the unique needs of individual students,

improving responsible and efficacious use of Individualised Education

Plan (IEP) funding.

Since its inception, DALS has quickly become the preferred model for

Special Education, which is outlined by its exceptional growth. In fact,

other clinical assessment publishers have recognised the importance

of DALS and we have begun offering optional DALS upgrades that can

include competitor products.

DALS has achieved year-over-year growth of 23% and a five-year

CAGR at nearly 80%, supported by exceptional renewal rates. It is

now being used by districts servicing 25% of IEPs currently in place

across the country. In 2023, we signed deals with some of the largest

and most influential school districts in the US, including Chicago

Public Schools, Miami-Dade, and Los Angeles Unified School District.

These deals represent a strong endorsement of the value and quality

of this offering, and we are honoured to be a trusted partner.

As we look ahead to 2024 and beyond, we are excited to expand the

subscription model to new regions and markets, and are currently in

the process of exploring expansion into the healthcare and private

practice segments. In addition to this, we plan to introduce new

features and functionalities that will further differentiate our offering

from the competition. Some of the highlights include:

— Expanding DALS in Canada, Australia, and the UK, where we

have already introduced the model in 2023 and received positive

feedback from customers. We will continue to market and

promote DALS in these regions, as well as explore opportunities in

other international markets.

— Launching the Digital Assessment Library for University & College

Counselling Centres, a new segment that has a high demand

for mental health assessments and interventions, especially in

the wake of the COVID-19 pandemic. We have partnered with

Titanium Schedule, a leading software provider for counselling

centres, to integrate our offering into their platform and reach

their existing customer base.

— Adding new and revised assessments to the DALS portfolio, as

well as complementary assessments from other test publishers,

such as the MHS Education Library. This will ensure that our

DALS customers have access to the most up-to-date and

comprehensive selection of digital assessments available.

The Digital Assessment Library has been an important evolutionary

step for Pearson, reinforcing our leadership by facilitating a

virtuous cycle of innovation, customer feedback, and continuous

improvement, as we leverage our digital platforms and data to

enhance our products and services. We are confident that our

offering will continue to drive growth and customer satisfaction for

our business in 2024 and beyond.

The benefits of

targeted investment,

reshaping the

portfolio, and delivering

on strategy are

reflected in our strong

financial performance.

Sue Kolloru Chief Strategy Officer

Annual report and accounts 2023 Pearson plc 14

Strategic report

English Language Learning

Spotlight on PTE, part of our high-stakes

assessments business

Opportunity

Our business is centred on three key

components which represent a c.£6bn

addressable market:

— High Stakes Assessments: an addressable

market upwards of £900m. Our flagship

product PTE is a verified, secure

certification of English proficiency for

international migrants and students.

— Institutional English Language Learning:

an addressable market of c.£3bn. We

offer digital and blended courseware

solutions to academic institutions, private

language schools and enterprises across

the globe.

— Online Direct to Consumer: an

addressable market of c.£2bn, which we

have entered through our acquisition

of Mondly.

Progress so far

Our high-stakes assessments business

saw strong volume growth of c.50% in

2023, driven by market share gains in key

countries like India. The past year has also

seen our PTE product earn key approval for

the Student Direct Stream and Migration

in Canada; these notable recognitions

underscore the impact and extensive reach

that our initiatives have had within the

broader language learning sphere.

Our achievements in the broader high-stakes

assessments space have been underpinned

by a holistic comprehension of the

challenges faced by test takers coupled with

a commitment to solving their pain points.

A key driver of our success lies in creating

a better end-to-end experience for the test

taker, from booking their test, preparing

for it, and taking it in one sitting in our

highly secure and convenient VUE

test centres, to receiving their score in

industry-leading return times, with bias

and stress removed from the scoring

process. Strategic collaborations with

local partners in key markets have proven

instrumental in scaling our operations and

driving sales. Concurrently, our impactful

hyper-local marketing campaigns have

effectively heightened awareness of our

distinctive offerings, further solidifying

our market position.

We enter 2024 in a strong position,

continuing the momentum from the prior

year. We are poised to continue investing

in our high-stakes assessment ecosystem,

encompassing advancements in assessment

technology, strategic partnerships, and

test security and integrity. These initiatives

are strategically aligned to elevate the

overall customer experience, fostering

increased market share gains. In addition,

our commitment extends to the expansion

and scaling of assessments within our

portfolio, including our Versant suite of tests.

These endeavours reflect our dedication

to sustained growth and excellence in the

dynamic landscape of mid- and high-stakes

assessments. With our combination of

technological capability and deep learning

expertise, we will continue to bring real value

to the language learning market.

Pearson+

Spotlight on the development of our

Channels feature alongside user growth

and monetisation

Opportunity

We are a frontrunner in the Higher Education

courseware market, with our influence

underscored by the millions of students

currently enrolled in courses utilising

Pearson eTextbooks.

Capitalising on this robust market position,

our initiatives are outlined in two phases

over the forthcoming year:

1. Shift eTextbook consumption directly to

Pearson+ and improve monetisation

2. Engage and retain students with

relevant and valuable services beyond

eTextbooks, to improve average revenue

per user, and ultimately consumer

lifetime value

Pearson+ is currently monetised through

paid access to eTextbooks by students

after the faculty adopts content in their

courses. Our existing Higher Education

business provides a large, efficient customer

acquisition funnel for Pearson+. Study

features, such as Pearson+ Channels, will

encourage further use of the application

beyond the eTextbook. Over time, Pearson+

users can be further monetised through

cross-selling other relevant Pearson

products and services, such as Mondly.

Progress so far

Over 2023 we made significant progress

advancing our Pearson+ strategy. Most

notably, we added and enhanced what

students want, including beta AI study

features in three titles, improved search,

simpler e-commerce, and an overall better

user experience.

By further developing Channels with video

content and practice questions this year,

Pearson+ is an increasingly valuable study

tool for students in 23 college courses,

including courses that do not require

Pearson eTextbooks. To provide increased

access, we have also bundled together

Pearson+ eTextbooks and Channels in an

affordable “Study and Exam Prep Pack”.

For the first time, we saw Pearson+ reach

1m paid subscriptions in a calendar year,

with the total number of Pearson+ registered

users reaching around 5m by the end of the

2023 calendar year, validating the platforms

appeal and effectiveness in meeting the

diverse needs of our audience.

Looking ahead to 2024, we aim to drive

continued growth by expanding our

distribution. Additionally, we plan to

capitalise on the synergies between

Pearson+ and Higher Education’s

courseware, in particular the combined

platform capabilities, and use this as a

springboard to optimise personalisation

and diversify our course offerings. As we

continue to expand our reach and enhance

the value proposition of Pearson+, these

initiatives serve as a testament to our

commitment to innovation and our ability to

deliver products and services that resonate

with our user base.

Annual report and accounts 2023 Pearson plc 15

Strategic report

Stakeholder engagement

Learning from our stakeholders

Finally, we are making a concerted effort to push consumer

insights further into the company, through newsletters, employee

learning sessions, and other resources. This helps us cultivate an

‘outside-in’ approach to understand the people who buy and use

our products and services and generates greater awareness of

the culture and trends impacting our business.

Outcome of engagement

Understanding our consumers allows us to be more effective

in the design and creation of products, along with go-to-market

strategies and ongoing implementation.

Consumer feedback has been particularly critical as Pearson

rolled out its beta of generative AI features in Pearson+ and

Mastering. Student feedback early in the design process was

clear in telling us that students wanted AI features that helped

them obtain better grades. Designers were able to focus on

the features that would be most effective in doing that. By the

end of the Autumn 2023 semester, 75% of those using the AI

study tools ranked them as helpful or very helpful. In Pearson+

and Mastering, product managers have been acting on other

user feedback to improve AI experiences in real time, including

adjusting tonality to meet student prompts and incorporating

positive language to encourage students to succeed. Together,

the feedback before and during the beta will lead to the expansion

of AI study in at least 40 more Mastering and MyLab titles.

Consumers

Why and how we engage

With our efforts to engage more deeply with consumers, Pearson

is bringing to life its commitment to put the consumer at the

heart of everything we do. This helps us more fully understand

how consumers use our products, perceive the company, and

feel about the trends driving learning in a digital era.

We research and engage with consumers holistically, by studying

how they use our products, how they think, and the culture that

shapes their behaviour. This includes conducting consumer focus

groups and ethnographic research, trend and sentiment analysis,

and competitive analysis.

In some specific cases, this also includes surveying consumers

directly via our products. This kind of engagement recently has

been used in Pearson+ and in Mastering to gauge user opinions

on the effectiveness of our new generative AI study tools. In

those cases, students were asked if they believe that the tools

were helpful in their studies and how likely they were to use

them again. Product teams for both products have also been

engaging indirectly with consumers by analysing layers of student

usage data and testing enhancements based on that.

As learning evolves into something more fluid and more necessary across our lifetime, the needs of learners are changing too. Our ability

to meet them at this pivotal moment, depends in part on our ability to engage with and mobilise a diverse group of stakeholders. We are

building a company that is digital-first and puts the consumer at the heart of all we do.

Building strong relationships inside and outside Pearson means we can make an impact on the people and communities we serve. In return, all of these stakeholders - consumers, employees, shareholders,

educators, employers, business partners, and government - can make a positive impact on our business. This year, more than ever, we’ve seen a renewed effort to partner with stakeholders to respond to the

needs of people as they move through different life stages.

We all benefit when a cross-section of stakeholders collaborate and come together to meet the needs of learners and to help to drive growth for the company.

Annual report and accounts 2023 Pearson plc 16

Strategic report

Educational institutions

and educators

Why and how we engage

Educators are a cornerstone of our business and they maintain a

close relationship with learners. Our engagement with educators

helps to improve the teaching and learning experience, and often

provides them with valuable professional development and gives

Pearson insights on the needs of learners at all levels.

In our Virtual Schools business, part of our Virtual Learning

division, our annual teacher and school leader conferences bring

together teachers, school staff, and Pearson teams to attend

sessions facilitated by experts from across the learning and

education industry.

In our US Student Assessment business, we hold working

sessions with educator committees in customer states as

assessments are being developed.

In our Higher Education business, we employ a full-time team of

active faculty advisors dedicated to supporting instructors in the

setup and use of our products. Our Higher Education business

has also conducted two surveys with faculty this year, measuring

and tracking educator sentiment on the use of generative AI in

learning. The division runs an ongoing, weekly AI webinar series

to serve as professional development opportunities for faculty,

awarding them a Credly badge for their participation.

In the UK, we brought together the perspectives of over 6,000

educators and 1,000 students to create and release the second

Pearson School Report. The report takes an in-depth look at life

in schools and how educators are pioneering change. It shares

their invaluable insights on challenges, opportunities, diversity,

equity and inclusion, plus sustainability and digital innovation.

The report has reached a vast audience through accompanying

media articles, free support and events.

Outcome of engagement

All of our educator engagement leads to a better understanding

of how products are used in market and also raises the profile

of Pearson in this important customer segment. Through our

engagement, we build trust with educators and we help them see

us as a true partner in their work.

Many of our more than 2,000 Pearson authors are also educators,

along with being experts in their fields. They give us valuable

insights about how their own students use our products. And, they

help us test new ways of using digital tools in the courseware

they author.

Across the board, our work with educators contributes directly

to the quality of our products. Specifically, our engagement with

educator committees at the US state level ensures that our US

school assessments are aligned to state standards and free

of bias.

Our Virtual Schools’ conferences ensure that educators learn

from one another in peer-to-peer engagement, tailoring

solutions and exploring learnings that support the needs

of students.

In our Higher Education business, our faculty engagement

provides ongoing feedback on new AI product features such as

generative AI and helps us understand how to best tailor those

features to the needs of faculty and students, helping both

become more effective users of AI.

The Pearson Schools report is another example of how listening

to and engaging with educators builds trust and visibility with this

important customer group.

Annual report and accounts 2023 Pearson plc 17

Strategic report

Business partners

Why and how we engage

Working with partners who share our commitment to doing

business responsibly strengthens our supply chain relationships

and reduces risk. This helps Pearson improve our product

offerings and make progress on our climate and diversity

commitments.

We continue to analyse the carbon performance of our major

suppliers. We have also introduced new language in all of our

supplier contracts, ensuring they have provisions for increasing

carbon maturity and increased visibility of emissions reporting.

We also engaged directly with a targeted pool of higher carbon

impact suppliers, whose contracts don’t yet include sustainability

requirements. This is an effort to make them aware that

alignment with our carbon targets is now a differentiating factor

in our sourcing strategy.

In 2023 we spent £47.2m with diverse-owned suppliers (owners

of businesses from historically underrepresented groups) and we

are on track to meet our goal of spending £500m with diverse-

owned suppliers by 2030.

Outcome of engagement

These actions are having a direct impact on how we execute

our procurement strategies and help grow our reputation as a

responsible business.

By collaborating with partners across our supply chain, we can

prioritise decarbonisation efforts where they can make the

biggest difference and demonstrate community level benefits of

supply chain decarbonisation efforts.

Pearson’s sustainable procurement maturity score, assessed by

EcoVadis, improved from good to advanced, outperforming the

EcoVadis customer average across all industries.

Stakeholder engagement continued

Employers

Why and how we engage

Employers have always been a key stakeholder for Pearson

and they are becoming even more important as the need for

reskilling grows in our changing economy and jobs are being

increasingly augmented by AI and other technology. Throughout

our businesses, ongoing consultation and conversation with

employers helps shape our offerings, with an eye toward the

growth of our enterprise business. In addition, Pearson can

provide useful insights and information that help employers

understand the wider labour market and build important

customer relationships.

Our Workforce Skills division works with employers to design

solutions that fit their unique place in the labour market and

help learners progress in their career goals. In our Vocational

Qualification business, Pearson’s BTEC qualifications are

designed with relevant sector experts and employers, to ensure

they cover the most relevant content. When expanding our

Esports BTECs into Higher Nationals, we worked closely with the

British Esports Federation to ensure that the qualifications offer

students progression to entry-level jobs in the sector. We also

created a bespoke BTEC qualification for opticians, specifically at

the request of, and in consultation with, one of the UK’s largest

eyeglasses and contact lens retailers.

We also provide employers with data and thought leadership

which helps them shape their decisions and helps to raise the

profile of Pearson as a leader in workforce and career learning.

In 2023, Pearson VUE completed its third Value of IT Certification

report, which surveyed IT hiring managers and people managers

in the US and India to understand their views on certification

trends in the workplace. Not only does the research help inform

the work of Pearson VUE, but it is also shared with employers so

they can see the larger picture of the IT industry. The Pearson

Skills Outlook, a thought leadership series that uses Faethm data

to forecast skills trends, became an important outreach and

engagement tool across the company with employers.

The Skills Outlook reports help with lead generation and also

provides data and information to employers and HR managers

looking to better understand today’s most in demand skills.

English Language Learning also fielded a large piece of research

in 2023, to be released in the coming year, that looks at the

habits of English learners in five countries and how employers

can better support them in the workplace.

Outcome of engagement

Engagement with employers helps us create offerings that

meet the needs of more technology driven labour markets

and appeal to large enterprise customers. By doing that, we

further expand our presence in the growing workforce learning

market. Specifically, feedback from enterprise customers is

helping us refine our offering and go-to-market approach-

including cross divisional sales to support the needs of these

large accounts. For example, we identified a need for talent

development assessments to support employees at a large

telecommunications company. The team successfully matched a

package of Pearson TalentLens, a Workforce Skills product, with

our Versant language learning, an English Language Learning

product, to meet the customer’s needs.

Annual report and accounts 2023 Pearson plc 18

Strategic report

Government and regulators

Why and how we engage

Government policymakers across the world are charged

with implementing policies to grow and sustain productive

economies, ensuring that individuals have the educational

and skill-development opportunities to achieve their life goals.

Pearson acts as an important partner with governments, schools,

colleges, universities, and the business sector to help achieve

those economic and educational goals within the countries

in which we operate. Governments everywhere are focused

on how to position themselves for the future of work, to take

advantage of advancements in technology to provide residents

with the requisite high-quality education and training to meet

the needs of a rapidly evolving workforce. Increasingly, the rise

of AI in society and in the labour market challenges governments

to devise sound policies to take advantage of opportunities

and mitigate against risks to the labour force. Pearson is

well positioned to share its expertise and knowledge with

governments as they look to enact policies to regulate AI in

their countries.

Given governments’ need of support as economies face labour

shortages, particularly in high-demand sectors, and students

and workers seek accelerated learning opportunities and skill

development, we engage, through meetings and presentations

with elected and appointed government officials, discussing

key concepts including skills-based hiring, certifications, and

apprenticeships vital to their region.

Outcome of engagement

Our engagement helps inform policy decisions and share

best practices on areas of focus for education, training,

and recruitment. Many countries and students are looking

to undertake English Language courses and proficiency

assessments. Accordingly, we share our expertise and work with

government leaders in key markets as they develop policies

and programmes to meet this demand. In addition, AI, digital

transformation, and energy transition are topics which countries

from all regions are prioritising when developing policy and

allocating investments on education and skills.

Communities

Why and how we engage

Pearson increases access to education around the world,

ensuring our products and services enable more people to learn

and develop new skills through a lifetime of learning. Learning

is a key factor in empowering individuals and communities,

improving social and economic outcomes, and creating a more

equitable and sustainable world.

In addition to maintaining relationships with key organisations,

we participate in multi-stakeholder initiatives to promote lifelong

learning opportunities for all and ensure the lasting protection of

our planet.

This year, we launched a skills-based social impact initiative for

our employees, that focuses on learning, mobilising and building

community. As part of the initiative, we evolved our volunteering

policy to five days for causes aligned to our purpose and values,

and award a Credly volunteering badge to recognise the skills

learned while serving our communities.

Outcome of engagement

We strive to make a positive and meaningful impact in the

communities in which we operate.

To support that, we gave over £477k in humanitarian aid support.

Additionally, our employees have given over 20,000 volunteer

hours and supported 55 causes. You can find more detail on

Learning for Impact on pages 34-43.

Annual report and accounts 2023 Pearson plc 19

Strategic report

Stakeholder engagement continued

Employees

Why and how we engage

Pearson’s greatest asset is its people. Our business success and

ability to positively impact society heavily rely on our colleagues.

We also know that managers account for as much as 70% of the

variance in employee team engagement. That’s why we continue

empowering our managers with ongoing tools and training

to support them and their teams, which is pivotal in driving

engagement throughout Pearson.

At the enterprise level, we regularly communicated with our

people through interactive forums, town halls, newsletters, and

regular storytelling.

Outcome of engagement

Throughout 2023, we encouraged managers to hold regular

one-to-one meetings with their direct reports. Additionally, 82%

of employees actively participated in our engagement survey

with a GrandMean score of 4.09 on a 5-point Likert scale. This

is up from 72%.and 3.96 respectively in 2022 and is considered

‘meaningful’ improvement by Gallup.

Investors / shareholders

Why and how we engage

Our shareholders play an important role in both the monitoring

and safeguarding of the governance of our company and in

providing access to capital. Some are also employees who have a

critical role to play in the continued success of our business.

We have strong and constructive relationships with our

key institutional investors and shareholders and regularly

communicate with them on key issues, including at our financial

results, our AGM and at investor meetings and conferences. We

held 505 meetings with 272 institutions over the course of 2023,

both virtually and in person. We discussed financial, operational

and strategic matters.

Outcome of engagement

Our investors appreciate the time we spend with them to give

them updates on our strategy and progress, and we continue to

develop how we communicate effectively across a range

of formats.

Our 2023 AGM was held as a hybrid (combined physical and

electronic) meeting, enabling shareholders, should they so wish,

to participate in the AGM, ask questions and vote on resolutions

via a live webcast without being physically present at the AGM.

The physical element of the meeting was held, for the first time,

at our 80 Strand office in London.

We are incredibly proud

of the diverse talent we

have within Pearson and

believe that highly engaged

employees act as a powerful

driver for the business.

We will continue to invest

in our people, in attracting

new talent, and in seeking

ways to create a culture

of belonging.

Ali Bebo Chief Human Resources Officer

Annual report and accounts 2023 Pearson plc 20

Strategic report

Section 172 of the Companies Act

In summary, as required by Section 172 of the

Companies Act 2006, a Director of a company must act

in the way they consider, in good faith, would most likely

promote the success of the company for the benefit of

its shareholders as a whole. In doing this, the Director

must have regard, among other matters, to:

— the likely consequences of any decisions in the

long term,

— the interests of the company’s employees,

— the need to foster the company’s business

relationships with suppliers, customers and others,

— the impact of the company’s operations on the

community and environment,

— the company’s reputation for high standards of

business conduct, and

— the need to act fairly as between members of

the company.

Directors’ duties statement

In accordance with Section 172 of the Companies Act

2006 (see box to the right), the Directors fulfil their duties

to promote the success of the company through a well-

established governance framework. Typically, in large and

complex businesses such as Pearson, this framework

includes delegation of day-to-day decision-making to

employees of the Group.

This governance framework, summarised throughout this

document, is far more than a simple delegation of financial

authority, and includes the values and behaviours expected

of our employees and business partners, including the

standards to which they must adhere; how we engage

with stakeholders, including understanding and taking

into account their views and concerns; and how the Board

ensures that we have a robust system of control and

assurance processes in place.

In this annual report, we provide examples of how the

Directors promote the success of Pearson while taking into

account the consequences of decisions in the long-term,

building relationships with stakeholders (including our

eight key stakeholder groups, as mentioned previously),

and ensuring that business is conducted ethically and

responsibly.

While there are many parts of this annual report which

illustrate how the Directors do this, with the support of the

wider business, the following sections in particular

are relevant:

— Learning from our stakeholders (pages 16-20),

which outlines:

— how we serve and engage with each of our eight key

stakeholder groups, listen to their key concerns and

provide our responses

— how we have adapted our business to meet

their needs

— how we have had regard to the need to foster the

company’s business relationships with each of the

stakeholder groups

— Understanding our stakeholders (pages 81-83),

which summarises:

— how Directors have engaged with employees and

shareholders, and had regard to their interests

— Sustainability (pages 34-55), which describes:

— Initiatives through which we strive to enable more

engaging learning experiences, that are accessible to

more people, and with a smaller carbon footprint

— Our commitment to creating a culture that prioritises

human rights, our employees, DEI, and socially

responsible sourcing

— How we align with widely accepted ESG reporting

frameworks including GRI, SASB and TCFD. For further

details on TCFD reporting, please see page 44

A continued understanding of the key issues affecting

stakeholders is an integral part of the Board’s decision-

making process. The insights that the Board gains through

its engagement mechanisms form an important part of the

context for all the Board’s discussions and decision-making

processes. For an insight into how the Board has considered

the interests of various stakeholders in its decision-making,

and what matters the Directors considered when balancing

various stakeholder perspectives, please see our case study

on the Chief Executive appointment process on page 83.

Annual report and accounts 2023 Pearson plc 21

Strategic report

Business model

Creating value

Our foundations Pearson

supports

learners

throughout

their learning

journey

Committed people and partners

Our talented employees and fantastic partners share Pearson’s values and commitment to

education. Our relationships with governments, customers, non-governmental organisations

(NGOs) and other global organisations help us to amplify our positive impact on learners around

the world.

R&D and product innovation

Our product team, with expertise in learning science, is committed to creating learning products

which offer a great user experience and improved learning outcomes. Through ongoing

innovation and Research and Development (R&D), we develop and incorporate the most advanced

technologies, including generative AI, into our products and services.

Financial assets

Our shareholders entrust us with their capital in order to invest on their behalf for the long term.

Our physical footprint

Our products and services are available in most countries and territories around the world. At the

same time we are progressing in simplifying our property portfolio and strengthening our digital

and flexible ways of working.

Data and insight

Through the effective and responsible use of data we are able to know our customers better and

serve them more effectively. We are further building our capabilities in data analytics and AI such

as those acquired through Faethm, which enable us to use data insights to help identify skill gaps

and provide compelling solutions to workforce challenges.

Assessment

& Qualifications

Workforce

Skills

Virtual

Learning

Higher

Education

English Language

Learning

Illustrative

learner

journey

VL (Virtual Schools)

Attend virtual K-12 school

WFS (GED)

Pass GED to gain high school

equivalency diploma

ELL (Pearson Test of English)

Apply for student visa using

Pearson Test of English to prove

English proficiency

WFS (TalentLens)

Take ‘fit-to-role’ test as part of

job application

ELL (Mondly by Pearson,

Workplace English)

Refine language skills tailored to

IT industry

WFS (Credly)

Leverage new IT badge to

demonstrate skills proficiency and

enhance career prospects

HE (Courseware / Pearson+)

Access eTexts and college level

materials through AI-enhanced P+

and MyLab and Mastering

homework platform

WFS (Faethm)

Through employer, identify skills gaps

and develop a learning plan to upskill

and access future opportunities

A&Q (VUE)

Upskill, take practice tests and exams

to obtain credentials in profession

(e.g. tech)

Strong market fundamentals

We are well-placed to benefit from structural tailwinds in the global learning market including

three big market opportunities:

Online and digital

tools for schools

and education

Solutions to evaluate

and address workforce

skills gaps

Academic and

professional skills

accreditation

and certification

1 2 3

Annual report and accounts 2023 Pearson plc 22

Strategic report

Partners and support functions

Technology is enabling consumers to learn virtually and in a more personalised

and effective manner. This means we can improve accessibility to education,

reach a larger market at a lower cost and be at the forefront of the evolving

learning marketplace.This enables us to reach our ambition to be the leading,

trusted provider of educational tools and services, and enhance learning

outcomes globally.

Direct to Consumer

Through initiatives across divisions we are expanding our offerings which go

directly to consumers. This is in addition to our existing models whereby we reach

the consumer via an educational institution, employer or other partner.

For example, we are scaling Pearson+, our digital learning service in Higher

Education, expanding features such as Channels, to provide learners with tutorial

videos and practice questions. We are also growing our Direct to Consumer

language learning platform Mondly and introducing even more advanced AI

features. Both of these services will be an important customer acquisition tool

underpinning our direct to consumer offerings across the Group.

Consumers

We empower learners across the globe with high-quality,

trusted learning products and services.

Educators

We work with educators, from teachers to institutions,

across all stages of education to support their learners in

achieving their goals.

Employers

We partner with employers to empower their employees

to learn and succeed in the future of work.

Business partners

We nurture long-term collaboration with our business

partners to create shared value, building on our deep

relationships and mutual trust.

Governments

We partner with local, federal and national government

bodies around the world to develop learning solutions.

Communities

We prize our role in shaping the future of education and

its impact on society, and strive to meet the expectations

that accompany this responsibility.

Employees

We unlock the potential of our human capital by investing

in our people’s growth and providing opportunities to

learn and progress.

Shareholders

We strive to deliver long-term value creation for

our shareholders.

How we create long-term stakeholder value

Sustainability

As a learning company, creating a more sustainable world is part of everything we do. Starting with the millions of

users who already trust our products, we want to help more people create a better life for themselves and a better

world for society. We recognise our responsibility to reduce our environmental impact and are making progress on

our Climate Action Plan (see page 42). Our sustainability strategy is shaped by our stakeholders, and in line with the

outcomes of our 2022 materiality assessment (see page 34).

Measuring progress

We measure our progress against five non-financial KPIs:

Digital Growth

Consumer Engagement

Product Effectiveness

Culture of Engagement & Inclusion

Sustainability Strategy

We’ve made real progress building

a tech strategy that supports a

cross-functional approach to

data, content delivery and

product development.

MaryKay Wells

Chief Information Officer

Annual report and accounts 2023 Pearson plc 23

Strategic report

Key performance indicators

Monitoring progress

Non-financial measures

Digital: 44%

Digital-enabled: 35%

Total digital: 79%

Digital: 43%

Digital-enabled: 31%

Total digital: 74%

Digital: 45%

Digital-enabled: 28%

Total digital: 73%

Digital: 36%

Digital-enabled: 30%

Total digital: 66%

Non-digital: 21%

Non-digital: 26%

Non-digital: 27%

Non-digital: 34%

Digital: 40% Digital-enabled: 42%

Total digital: 82%

Non-digital: 18%

Digital sales*

Underlying growth in group digital and digital-enabled sales

+3%

(2022: +9%)

+8%

**Excluding OPM and

Strategic Review

Partner Schools

US enrolments

100k

(2022: 105k)

OnVUE volumes

2.7m

(2022: 3.0m)

PTE volume

1,231k

(2022: 827k)

Higher Education US

digital registrations

9.8m

(2022: 9.9m)

Consumer

Engagement

Objective: Create

engaging and

personalised consumer

experiences

NPS for Connections

Academy

+67

(2022: +67)

NPS for PTE

+55

(2022: +52)

Mondly paid subscriptions

432k

(2022: 446k)

Workforce Skills new

registered users

5.3m

(2022: 4.7m)

Pearson+ registered users

3.03m

(2022: 2.83m)

Product

Effectiveness

Objective: Improve the

effectiveness of our

products to deliver

better outcomes

PTE speed of score return

1.0 days

(2022: 1.3 days)

VUE Test volumes

20.7m

(2022: 19.4m)

VUE partner retention

94%

(2022: 99.9%)

Workforce Skills number

of enterprise customers

1,547

(2022: 1,503)

Workforce Skills enterprise

customer net retention rate

66%

(2022: 74%)

Higher Education Product

usage - text units

4.5m

(2022: 4.8m)

a. Measure definition has changed to number of government-funded student enrolments at partner schools within the US as of 30

September. Excludes private-pay students at Pearson Online Academy and district partnerships.

This is more closely aligned to business processes.

b. VUE test volumes include PTE and GED tests but sales for each of these tests are reflected in the English Language Learning and Workforce Skills divisions respectively. PDRI test volumes are not currently included in this metric.

c. Previously reported ’Increasing diverse talent’ metrics retired and new strategic remuneration measures incorporated.

d. The net emissions reduction figures have been assured by an independent third-party, SLR Consulting Ltd. % reduction in total tCO

e above is calculated using a location-based methodology. Within the 2023 number, 4% is due to portfolio changes. These will be removed

following the normal rebasing exercise in 2024.

* Historical figures restated to exclude US K-12 Courseware (sold in 2019).

Please find further details on our Strategic KPIs here https://plc.pearson.com/en-GB/company/our-targets-kpis

Culture of Engagement & Inclusion

Objective: Build an inclusive culture and increase diverse representation

Employee

Engagement

Pearson

uses the

Gallup Q

12®

survey

to measure

engagement,

annually

4.09

grand mean

on a 5 point

Likert scale

(2022: 3.96)

Investing in diverse

talent

The % of responses

who agree or

strongly agree

to Gallup Q

12®

survey questions

In the last six

months, someone

at work has talked

to me about

my progress

73%

(2022: 67%)

This last year, I have

had opportunities

at work to learn

and grow

76%

(2022: 72%)

Culture of inclusion index

The grand mean of

3 Gallup Q

12®

survey

questions

— At work, I am treated

with respect

— My company

is committed

to building the

strengths of

each employee

— If I raised a concern

about ethics and

integrity, I am

confident my

employer would do

what is right

4.21

grand mean on a 5

point Likert scale

(2022: 4.12)

Increasing diverse talent

Objective: Increase BIPOC/

BAME representation at all

manager levels and maintain

overall gender parity

Representation

of BIPOC/BAME

employees at

Manager level

and above

22.0%

(2022: 20.7%)

Global %

of female

employees

59.1%

(2022: 59.0%)

Sustainability Strategy

Objective: Achieve net zero carbon by2030

Reduction in total tCO

e in 2023

16%

vs 2022

Reduction in total tCO

e in 2022

vs 2021

Digital Growth

Objective: Drive digital revenue growth

Progress against achieving

net zero carbon by 2030, as

measured through percentage

carbon reduction

See how this aligns strategy to management reward: page 112

Annual report and accounts 2023 Pearson plc 24

Strategic report

Financial measures

Adjusted operating

profit

£573m

A non-GAAP financial

measure that enables

management to consistently

track the underlying

operational performance of

the Group.

Sales

£3,674m

This is our revenue as

reported in our

income statement.

Basic earnings

per share

53.1p

A measure of the amount

of profit that can be

allocated to one share

of our common stock.

Net cash generated

from operations

£682m

This is our net cash

generated from operations

as reported in our cash

flow statement.

Dividend per share

22.7p

This is the proposed full year

dividend. Our dividend policy

is to be progressive

and sustainable.

Operating cash flow

and cash conversion

£587m

Operating cash flow is an

adjusted measure and

is presented in order to

align the cash flows with

corresponding adjusted

operating profit measures.

Total shareholder

returns

+5.39%

This is a measure of financial

performance of shares

over time.

Return on Capital

10.3%

A non-GAAP measure of how

efficiently we are generating

returns from our asset base.

a. See pages 221-226 for an

explanation and reconciliation

of these alternative

performance measures

and non-GAAP measures.

b. Statutory measure.

c. Source: Bloomberg.

d. Comparatives were restated

in 2022

Note: See pages 221-226 for full

reconciliation of the alternative

performance measures to the

equivalent statutory measure.

See how this aligns strategy

to management reward:

page 112

23 £3,674m

£3,841m

£3,428m

£3,397m

£3,869m

23 £573m

£456m

£385m

£313m

£581m

Net debt

£744m

This is a non-GAAP financial

measure and is used by

management to assess the

Group’s cash position.

23 £744m

£557m

£350m

£463m

£1,016m

Adjusted earnings

per share

58.2p

A non-GAAP financial

measure used to

evaluate performance.

23 58.2p

51.8p

34.9p

28.7p

57.8p

Operating profit

£498m

This is our operating

profit as reported in our

income statement.

23 £498m

£271m

£183m

£411m

£275m

23 53.1p

32.8p

23.5p

43.7p

34.0p

23 587m (102%)

£401m (88%)

£388m (101%)

£315m (101%)

£418m (72%)

23 £682m

£527m

£570m

£450m

£480m

23 22.7p

21.5p

20.5p

19.5p

5 year

3 year

1 year +5.39%

+53.09%

+17.64%

23 10.3%

8.7%

7.9%

Annual report and accounts 2023 Pearson plc 25

Strategic report

We’ve delivered another strong set of results

in 2023. This continued progress underpins our

confidence that we’re set for another good year

in 2024 and on track to meet our 2025 objectives.

Sally Johnson Chief Financial Officer

Financial review

Financial Summary

£m 2023 2022

Business performance

Sales 3,674 3,841

Adjusted operating profit 573 456

Operating cash flow 587 401

Free cash flow 387 222

Adjusted earnings per share 58.2p 51.8p

£m 2023 2022

Statutory results

Sales 3,674 3,841

Operating profit 498 271

Profit for the year 380 244

Net cash generated from operations 682 527

Basic earnings per share 53.1p 32.8p

Throughout this section: a) Growth rates are on an underlying basis unless otherwise stated. Underlying growth rates exclude currency

movements and portfolio changes; b) The ‘business performance’ measures are non-GAAP measures, and reconciliations to the

equivalent statutory heading under IFRS are included in the financial key performance indicators section on pages 221-226;

c) Constant exchange rates are calculated by assuming the average FX in the prior year prevailed through the current year.

Annual report and accounts 2023 Pearson plc 26

Strategic report

Group Financial Expectations

2024 expectations

Underlying sales

3-year CAGR

2022 to 2025*

2025 Margin

expectations**

Sales growth

Adjusted

operating profit

Tax Interest

Expect to be in line with

current market expectations

c.24% c.£45m*** Mid-single digits 16-17%

* Excluding the OPM and Strategic Review businesses.

** Adjusted operating profit margins.

*** Our interest charge will be c.£45m given our £300m share buyback and its extension by a further £200m.

NB: 2024 consensus on the Pearson website: underlying sales growth 3.7%, adjusted operating profit of £621m at £:$ 1.22, effective tax rate c.24%. For

reference, each 1c move in USD FX rate equates to c.£5m of adjusted operating profit.

Operating results

On a headline basis, sales decreased by £167m or 4% from £3,841m in 2022 to £3,674m in 2023 and reported operating profit

increased by £227m from £271m in 2022 to £498m in 2023. In addition, adjusted operating profit increased by £117m or 26% from

£456m in 2022 to £573m in 2023 (for a reconciliation of this measure see page 28 and note 2 to the consolidated financial statements).

The increase in reported operating profit in 2023 is mainly due to increased trading profits and a reduction in the costs of major

restructuring, partially offset by a net loss related to acquisitions and disposals compared to a net gain in 2022.

The headline basis simply compares the reported results for 2023 with those for 2022. We also present sales and adjusted operating

profit on an underlying basis which exclude the effects of exchange, the effect of portfolio changes arising from acquisitions and

disposals and the impact of adopting new accounting standards that are not retrospectively applied. Our portfolio change is calculated

by excluding sales and profits made by businesses disposed in either 2022 or 2023 and by ensuring the contribution from acquisitions

is comparable year on year. Portfolio changes mainly relate to the disposals of the Group’s interests in POLS, Pearson College, our

international courseware local publishing business in India and businesses within Higher Education in 2023, the disposal of our

international courseware local publishing businesses in Europe, French-speaking Canada, South Africa and Hong Kong in 2022, the

acquisition of PDRI in 2023 and the acquisitions of Credly and Mondly in 2022.

On an underlying basis, sales increased by 5%, excluding OPM and Strategic Review, and by 1% in aggregate, in 2023 compared to 2022

and adjusted operating profit increased by 31%. Currency movements decreased sales by £33m and decreased adjusted operating

profit by £10m. Portfolio changes decreased sales by £175m and decreased adjusted operating profit by £8m. There were no new

accounting standards adopted in 2023 that impacted sales or statutory or adjusted operating profits.

2024 outlook

We expect Group underlying sales growth, adjusted

operating profit and tax will be in line with current market

expectations. Our interest charge will be c.£45m given

our ongoing £300m share buyback and extension by a

further £200m.

— In Assessment & Qualifications we expect sales growth of

low to mid-single digit.

— In Virtual Schools we expect sales to decline at a similar

rate to 2023, given the previously cited loss of a larger

partner school for the 2024/25 academic year. We are

pleased to have secured two new schools in the States

impacting the 2023/24 and 2024/25 academic years and

therefore expect the division to return to growth

beyond 2024.

— In Higher Education we expect to return to sales growth.

— In English Language Learning we continue to expect high

single digit sales growth.

— In Workforce Skills we expect to achieve high single digit

sales growth.

— We expect a free cash flow conversion of 95-100%.

2025 ambition

We continue to expect the Group to achieve mid-single

digit underlying sales 3-year CAGR from 2022 to 2025,

excluding OPM and Strategic Review businesses, and remain

on track to achieve our 16-17% adjusted operating profit

margin guidance.

Annual report and accounts 2023 Pearson plc 27

Strategic report

All figures in £ millions 2023 2022

Operating profit 498 271

Add back: Cost of major restructuring - 150

Add back: Property charges 11 -

Add back: Intangible charges 48 56

Add back: UK pension discretionary increases - 3

Add back: Other net gains and losses 16 (24)

Adjusted operating profit 573 456

Adjusted operating profit includes the results from discontinued operations when relevant but

excludes charges for intangible amortisation and impairment, acquisition related costs, gains and

losses arising from disposals, the cost of major restructuring, certain property charges and one-off

costs related to the UK pension scheme. A summary of these adjustments is included below and in

more detail in note 2 to the consolidated financial statements.

In 2023, there are no costs of major restructuring. Property charges of £11m relate to impairments

of property assets arising from the impact of updates in 2023 to assumptions initially made during

the 2022 and 2021 restructuring programmes. In 2022, restructuring costs of £150m mainly related

to staff redundancies and impairment of right-of-use property assets including the impact of

updated assumptions related to the recoverability of right-of-use assets made in 2021.

Intangible amortisation charges in 2023 were £48m compared to a charge of £56m in 2022. This is

due to decreased amortisation from recent disposals partially offset by additional amortisation from

recent acquisitions.

UK pension discretionary increases in 2022 related to one-off pension increases awarded to certain

cohorts of pensioners in response to the cost of living crisis.

Other net gains and losses in 2023 relate largely to the gain on disposal of the POLS business and

gains on the releases of accruals and a provision related to previous acquisitions and disposals,

partially offset by losses on the disposal of Pearson College and costs related to current and prior

year disposals and acquisitions. Other net gains and losses in 2022 largely related to the gain on

disposal of the international courseware local publishing business in French-speaking Canada and a

gain arising on a decrease in the deferred consideration payable on prior year acquisitions, offset by

costs related to disposals and acquisitions.

Divisional Results

£m 2023 2022

Headline

growth

CER

Growth

Underlying

growth

Sales

Assessment & Qualifications 1,559 1,444 8% 9% 7%

Virtual Learning 616 820 (25)% (24)% (20)%

Higher Education 855 898 (5)% (4)% (3)%

English Language Learning 415 321 29% 32% 30%

Workforce Skills 220 204 8% 8% 11%

Strategic Review 9 154 (94)% (94)% (74)%

Total 3,674 3,841 (4)% (3)% 1%

Total, excluding OPM

and Strategic Review

Adjusted operating

profit/loss

Assessment & Qualifications 350 258 36% 36% 33%

Virtual Learning 76 70 9% 9% (17)%

Higher Education 110 91 21% 22% 20%

English Language Learning 47 25 88% 116% 112%

Workforce Skills (8) (3) (167)% (167)% (400)%

Strategic Review (2) 15 (113)% (107)% 94%

Total 573 456 26% 28% 31%

Assessment & Qualifications

In Assessment & Qualifications, sales increased 8% on a headline basis and 7% on an underlying

basis. Adjusted operating profit increased 33% in underlying terms due to operating leverage on

sales growth and margin and opex cost efficiencies, partially offset by inflation and 36% in headline

terms due to this, portfolio changes and currency movements.

Pearson VUE sales were up 10% in underlying terms with particularly strong growth in the IT and

healthcare segments, alongside the commencement of new contracts. VUE test volumes grew 6% to

20.7m. We maintained our high contract renewal track record, reporting a rate of 93.6% across the

business for 2023.

In US Student Assessment, sales increased 4% in underlying terms driven by the commencement of

new contracts following new business wins.

In Clinical Assessment, sales increased 5% in underlying terms supported by pricing, good

government funding and continued focus on health and wellbeing.

In UK and International Qualifications, sales increased 6% in underlying terms driven by price

increases and good international growth.

Financial review continued

We have completed the sale of the POLS business and as such have removed from underlying measures

throughout. Within this specific measure we exclude our entire OPM business (POLS and ASU) to aid

comparison to guidance.

Strategic Review is sales in international courseware local publishing businesses being wound down.

There will be no sales or profits reported in the division going forwards.

Annual report and accounts 2023 Pearson plc 28

Strategic report

Virtual Learning

In Virtual Learning, sales decreased 25% on a headline basis and 20% on an underlying basis,

primarily due to the expected decrease in our OPM business. Adjusted operating profit decreased

17% in underlying terms due to trading performance partially offset by cost efficiencies and

increased 9% in headline terms due to this and portfolio changes.

Sales in our OPM business were down 87% on an underlying basis, as expected, following the

wind down of the ASU contract. Pearson Online Learning Services sales are no longer included in

underlying measures following the completion of the disposal in the first half of the year.

Virtual Schools sales were down 2%, driven by lower enrolments and lower district partnership

renewals, partially offset by good retention rates, improvements in funding and growth associated

with the launch of our Connections Academy Career Pathways. Enrolments for the 2023/24

academic year were down 5% due to the previously cited loss of a larger partner school. Excluding

the impact of this school, enrolments were up 1%.

Higher Education

In Higher Education, sales decreased 5% on a headline basis due to trading, currency movements

and portfolio changes, and declined 3% for the full year on an underlying basis, in line with

expectations. Adjusted operating profit increased 20% in underlying terms driven primarily by cost

efficiencies, partially offset by trading performance and inflation, and increased 21% in headline

terms due to this, currency movements and portfolio changes.

In the US, sales declines were driven by the loss of adoptions to non-mainstream publishers in

the first half of the year, as well as pricing mix. There was strong growth in Inclusive Access with

22% sales growth to not-for-profit institutions and the total number of institutions increasing to

c1,250. We delivered 2% growth in platform units in 2023 enabled by changes we have made to our

sales team and go to market strategy with the support of increasing platform stability. Pearson+

performed well in the Fall semester with 3.03m registered users and 516k paid subscriptions,

representing 27% growth compared to the prior year Fall semester. Pearson+ passed the milestone

of 1 million cumulative paid subscriptions for the calendar year.

English Language Learning

In English Language Learning, sales were up 29% on a headline basis and 30% on an underlying

basis. Adjusted operating profit increased by 112% in underlying terms due to sales growth partially

offset by increased investment in brand awareness and testing capacity and inflation, and was up

88% in headline terms due to this and currency movements.

PTE volumes were up 49% supported by favourable migration policy in Australia as well as market

share gain in India. Our Institutional business performed well, with strong performance across Latin

America and Middle East markets. Our Mondly business also contributed to growth with an increase

in consumer billings.

Workforce Skills

In Workforce Skills, sales were up 8% on a headline basis and 11% on an underlying basis. Adjusted

operating profit declined by £8m in underlying terms due to investment in the business across our

Workforce Solutions product suite partially offset by trading and decreased £5m in headline terms

due to this and portfolio changes.

Sales growth was driven by solid performances in both the Vocational Qualifications and Workforce

Solutions businesses. The Vocational Qualifications business grew by 10% in underlying terms. The

Workforce Solutions business grew by 13% in underlying terms. Pearson has 1,547 enterprise clients

in its Workforce Skills portfolio, up 3% on last year.

Strategic Review

Sales in our international courseware local publishing businesses under strategic review were down

94% on a headline basis for the full year and declined 74% on an underlying basis. Operations in

these businesses have now been wound down in line with our previous communications. There will

be no sales or profits reported in this division going forwards.

Net Finance Costs

Net finance costs increased on a headline basis from a net income of £52m in 2022 to a net cost of

£5m in 2023. The increase is primarily due to the release, in 2022, of £35m of interest recorded in

respect of provisions for uncertain tax positions, a reduction in gains arising from mark to market

movements on investments and derivatives, partially offset by additional finance income in respect of

retirement benefits.

Net interest payable reflected in adjusted earnings in 2023 was £33m, compared to £1m in 2022.

The difference is primarily due to the items noted above. In addition, in 2023, there were increased

interest costs related to the drawdown during the year of the revolving credit facility, partially offset

by reduced bond interest due to the bond repayments made in 2022.

Net finance income in respect of retirement benefits has been excluded from our adjusted earnings

as we believe the income statement presentation does not reflect the economic substance of the

underlying assets and liabilities. Also included in the net finance costs (but not in our adjusted

measure) are interest costs relating to acquisition or disposal transactions, fair value movements

on investments classified as fair value through profit and loss, foreign exchange and other gains

and losses on derivatives. Interest relating to acquisition or disposal transactions is excluded

from adjusted earnings as it is considered part of the acquisition cost or disposal proceeds rather

than being reflective of the underlying financing costs of the Group. Foreign exchange, fair value

movements and other gains and losses are excluded from adjusted earnings as they represent

short-term fluctuations in market value and are subject to significant volatility. Other gains and losses

may not be realised in due course as it is normally the intention to hold the related instruments to

maturity (for more information see the financial key performance indicators section on pages 221–

226). Interest on certain tax provisions is excluded from our adjusted measure in order to mirror the

treatment of the underlying tax item.

Annual report and accounts 2023 Pearson plc 29

Strategic report

In 2023, the total of these items excluded from adjusted earnings was income of £28m compared to

income of £53m in 2022. Net finance income in respect of retirement benefits increased from £9m

in 2022 to £26m in 2023 reflecting the comparative funding position of the plans at the beginning of

each year and there were higher prevailing discount rates. Interest costs in respect of deferred and

contingent consideration are £4m in 2023 compared to £5m in 2022, these costs relate to recent

acquisitions. Fair value gains on investments in unlisted securities are £13m in 2023 compared to

£28m in 2022. In addition, there were losses year on year on long-term interest rate hedges and an

interest charge on tax provisions of £5m was recognised in 2022 in relation to the EU State

Aid matter.

all figures in £ millions 2023 2022

Net interest payable (33) (1)

Finance income in respect of retirement benefits 26 9

Fair value movements on investments held at FVTPL 13 28

Other net finance costs (11) 16

Net finance costs (5) 52

Taxation

The reported tax charge on a statutory basis in 2023 was £113m (23.0%) compared to a £79m

charge (24.5%) in 2022.

The tax on adjusted earnings in 2023 was a charge of £124m (2022: £71m), corresponding to an

adjusted effective tax rate on adjusted profit before tax of 23.0% (2022: 15.6%). The increase in the

effective rate from prior year is primarily due to the release of tax provisions following the expiry of

the statute of limitations in the US driving a lower tax rate in 2022 which is not recurring in 2023. For

a reconciliation of the adjusted measure see financial key performance indicators section on pages

221–226.

In 2023, there was a net tax payment of £97m (2022: £109m). The overall amount decreased

primarily as a result of one-off disposal events in 2022 that are not recurring in 2023.

A net deferred tax liability of £11m is recognised in 2023 compared to a net £20m deferred tax asset

in 2022. The overall amount decreased mainly due to the acquisition of PDRI during the year and

ongoing utilisation of tax losses.

The current tax creditor principally consists of provisions for tax uncertainties. See note 34 to the

consolidated financial statements for details of other uncertain tax positions.

Earnings per share

Basic earnings per share is 53.1p in 2023 compared to 32.8p in 2022. The increase in 2023 is mainly

due to increased operating profits and a decrease in the number of shares following the share buy

back, partially offset by increased interest and tax charges.

Adjusted earnings includes adjusted operating profit and adjusted finance and tax charges. The

reconciling items between the statutory inputs to earnings per share and the adjusted inputs are

discussed in the previous sections.

Adjusted earnings per share is 58.2p in 2023 compared to 51.8p in 2022 reflecting adjusted

operating profit growth, normalisation of tax and interest charges and the reduction in issued shares

as a result of share buybacks.

Other comprehensive income

Included in other comprehensive income are the net exchange differences on translation of foreign

operations. The loss on translation of £177m in 2023 compares to a gain in 2022 of £330m. The

loss in 2023 arises from an overall weakening of the currencies to which the Group is exposed and

in particular the US dollar. A significant proportion of the Group’s operations are based in the US

and the US dollar weakened in 2023 from an opening rate of £1:$1.21 to a closing rate at the end

of 2023 of £1:$1.27. At the end of 2022, the US dollar had strengthened from an opening rate of

£1:$1.35 to a closing rate of £1:$1.21. The gain in 2022 was driven by this movement in the US dollar.

Also included in other comprehensive income in 2023 is an actuarial loss of £85m in relation to the

retirement benefit obligations of the Group. The loss arises largely from returns on assets below the

discount rate and changes in actuarial assumptions including the discount rate and inflation. The

actuarial loss in 2023 of £85m compares to an actuarial gain in 2022 of £54m.

Fair value gains of £1m (2022: £18m) have been recognised in other comprehensive income and

relate to movements in the value of investments in unlisted securities held at FVOCI.

In 2023, a gain of £122m was recycled from the currency translation reserve to the income

statement in relation to the disposal of the POLS business. In 2022, a gain of £5m was recycled from

the currency translation reserve to the income statement in relation to various businesses disposed.

Financial review continued

Annual report and accounts 2023 Pearson plc 30

Strategic report

Cash flow and working capital

Net cash generated from operations, was £682m in 2023 compared to £527m in 2022. The increase

is largely explained by the drop-through of increased trading profits, good cash collections and the

impact of disposals, partially offset by increased restructuring cash outflows.

Our operating cash flow measure is an adjusted measure used to align cash flows with our adjusted

profit measures. Compared to net cash generated from operations, this measure excludes

restructuring costs and acquisition costs but includes regular dividends from associates. It also

includes capital expenditure on property, plant, equipment and software, and additions to right-of-

use assets as well as disposal proceeds from the sale of property, plant, equipment and right-of-use

assets (including the impacts of transfers to/from investment in finance lease receivable). In 2023,

restructuring cash outflow was £63m compared to £35m in 2022.

Operating cash inflow increased on a headline basis by £186m from £401m in 2022 to £587m in

2023. The increase is largely explained by the drop-through of increased trading profits, good cash

collections and reduced investment spend in Higher Education connected to the 2022 efficiency

programme, as well as the impact of disposals.

In 2023, there was an overall £234m decrease in cash and cash equivalents compared to a

decrease of £394m in 2022. The decrease in 2023 is primarily due to payments for acquisitions of

subsidiaries of £171m, dividends paid of £154m, share buyback programme of £186m, other own

share purchases of £35m, tax paid of £97m, capital expenditure of £126m, and repayments of lease

liabilities of £84m. These were offset by the cash inflow from operations of £682m.

all figures in £ millions 2023 2022

Net cash generated from operations 682 527

Dividends from joint ventures and associates - 1

Purchase / disposal of PPE and software (121) (133)

Net addition of right-of-use assets (41) (29)

Net costs paid for major restructuring 63 35

Other net gains and losses 4 -

Operating cash flow 587 401

Tax paid (97) (109)

Net finance costs paid (40) (35)

Net cost paid for major restructuring (63) (35)

Free cash flow 387 222

Liquidity and capital resources

The Group’s net debt increased from £557m at the end of 2022 to £744m at the end of 2023.

The increase is largely due to the share buyback programme, cash outflows on acquisitions and

disposals, dividend payments and tax payments, partially offset by strong operating cash flow.

The Group’s borrowings fluctuate by season due to the effect of the school year on working capital

requirements. Assuming no share buyback prorammes, acquisitions or disposals, the maximum level

of net debt normally occurs in the third quarter, and the minimum level of net debt normally occurs

in December.

In May 2022, the Group repaid the remaining $117m (£95m) of its 2022 US dollar bond upon

maturity. In December 2022, the Group repaid the remaining $94m (£76m) of its 2023

US dollar bond.

At 31 December 2023, the Group had approximately £1.0bn in total liquidity immediately available

from cash and its Revolving Credit Facility maturing February 2027. In assessing the Group’s liquidity

and viability, the Board analysed a variety of downside scenarios including a severe but plausible

downside scenario where the Group is impacted by a combination of all principal risks, as well as

reverse stress testing to identify what would be required to either breach covenants or run out

of liquidity. The Group would maintain comfortable liquidity headroom and sufficient headroom

against covenant requirements during the period under assessment in the severe but plausible

scenario, even before modelling the mitigating effect of actions that management would take in the

event that these downside risks were to crystallise. In all scenarios it is assumed that the Revolving

Credit Facility is available and that the €300m bond with a maturity due within the going concern

assessment period is refinanced ahead of time with a £250m bond or bank facility.

At 31 December 2023, the Group was rated BBB- (positive outlook) with Fitch and Baa3 (stable

outlook) with Moody’s.

Net debt

all figures in £ millions 2023 2022

Cash and cash equivalents (excluding overdrafts) 312 558

Overdrafts (3) (15)

Investment in finance lease 100 121

Derivative financial instruments 5 (6)

Bonds (611) (610)

Lease liabilities (547) (605)

Net debt (744) (557)

Annual report and accounts 2023 Pearson plc 31

Strategic report

Post-retirement benefits

Pearson operates a variety of pension and post-retirement plans. The UK Group pension plan has by

far the largest defined benefit section. The Group has some smaller defined benefit sections in the

US and Canada but, outside the UK, most of the companies operate defined contribution plans.

The charge to profit in respect of worldwide pensions and post-retirement benefits amounted to

£45m in 2023 (2022: £66m), of which a charge of £71m (2022: £75m) was reported in operating

profit and income of £26m (2022: £9m) was reported in other net finance costs. In 2022, a charge

of £3m related to one-off discretionary pension increases has been excluded from adjusted

operating profit.

The overall surplus on UK Group pension plans of £574m at the end of 2022 has decreased to a

surplus of £491m at the end of 2023. The decrease has arisen principally due to the actuarial loss

noted above in the other comprehensive income section. In total, the worldwide net position in

respect of pensions and other post-retirement benefits decreased from a net asset of £520m at the

end of 2022 to a net asset of £455m at the end of 2023.

Businesses acquired

In March 2023, the Group completed the acquisition of 100% of the share capital of Personnel

Decisions Research Institutes, LLC (‘PDRI’) for cash consideration of £152m ($187m). There is no

contingent or deferred consideration. Net assets acquired of £91m were recognised on the Group’s

balance sheet including £117m of acquired intangible assets. Goodwill of £61m was also recognised

in relation to the acquisition.

The cash outflow in 2023 relating to acquisitions of subsidiaries was £171m plus £4m of acquisition

costs. In addition, there were cash outflows relating to the acquisition of associates of £5m and

investments of £8m.

The cash outflow in 2022 relating to acquisitions of subsidiaries was £228m arising primarily

from the acquisitions of Credly and Mondly. In addition, there were cash outflows relating to the

acquisition of associates of £5m and investments of £12m.

Businesses disposed

In 2023, the Group disposed of its interests in its POLS businesses in the US, UK, Australia and India.

The business disposed excludes Pearson’s contract with ASU. The consideration to be received is

deferred and comprises a 27.5% share of positive adjusted EBITDA in each calendar year for

6 years and 27.5% of the proceeds received by the purchaser in relation to any future monetisation

event. The consideration has been valued at £12m and a pre-tax gain on disposal of £13m has

been recognised.

In addition, £19m of losses arose from the disposals of Pearson College and the international

courseware local publishing business in India, £12m of costs related to previous disposals were

recognised and a gain of £9m has been recognised in relation to the release of a provision related to

a historical disposal.

Financial review continued

Annual report and accounts 2023 Pearson plc 32

Strategic report

In 2023, the cash outflow from the disposal of businesses of £38m mainly relates to the disposals

described above. In 2022, the cash inflow from disposals of £333m mainly related to the disposal

of the Group’s international courseware local publishing businesses and the receipt of deferred

proceeds from the US K12 Courseware sale in 2019.

In addition, proceeds of £7m (2022: £17m) were received in relation to the disposal of investments.

Dividends

The dividend accounted for in our 2023 financial statements totalling £155m represents the final

dividend in respect of 2022 (14.9p) and the interim dividend for 2023 (7.0p). We are proposing

a final dividend for 2023 of 15.7p bringing the total paid and payable in respect of 2023 to 22.7p.

This final 2023 dividend which was approved by the Board in February 2024, is subject to approval

at the forthcoming AGM. For 2023, the dividend is covered 2.6 times by adjusted earnings.

Share buyback

On 28 April 2023, the Group announced its intention to commence a £300m share buyback

programme in order to return capital to shareholders. The programme commenced on

21 September 2023. At 31 December 2023, approximately 20m shares had been bought back

at a cash cost of £186m. The liability for the remainder of the £300m programme plus related

costs has been accounted for in 2023. The nominal value of the cancelled shares of £5m has

been transferred to the capital redemption reserve.

The £300m share buy back programme completed on 7 March 2024 with a total of 32m shares

repurchased across the programme. We intend to extend our share buy back programme

by £200m.

Climate change

The Group has assessed the impacts of climate change on the Group’s financial statements. The

assessment did not identify any material impact on the Group’s significant judgements or estimates,

the recoverability of the Group’s assets at 31 December 2023 or the assessment of going concern

for the period to June 2025.

Conclusion

We delivered another strong set of financial results, exceeding financial expectations in 2023

and achieving cost savings of £120m. We are on track to meet expectations in 2024 and remain

committed to our targets out to 2025. We have a strong balance sheet, providing optionality, and are

extending our share buy-back programme by £200m. Free cash flow has improved and we expect

95-100% conversion in 2024.

My colleagues across finance have once again helped the business successfully respond to

opportunities and challenges that have arisen, through appropriate financial control, critical insights

and value creation. I would like to thank them for their hard work and commitment throughout

the year.

We have a strong balance sheet

providing optionality and are

extending our share buyback by

£200m. We have improved our

free cash flow and expect 95-100%

conversion in 2024.

Sally Johnson Chief Financial Officer

Annual report and accounts 2023 Pearson plc 33

Strategic report

Sustainability

Why sustainability matters

to Pearson

Learning spurs human progression. It’s the greatest force for

change in our world, and helping people gain knowledge and

skills is, inherently, a way to improve our planet and

our communities.

We recognise that Pearson can play a unique role in increasing

access to education around our world. Not only can we reach

learners at scale throughout their lifetime, but we also strive for

all learning experiences to be high quality, vibrant and enriching,

with greater representation. Our approach is learner-led,

Learning for Impact framework

Our Learning for Impact framework, published in 2021, outlines

our commitment to leading sustainably across three pillars:

— Driving learning for everyone with our products

— Empowering our people to make a difference

— Leading responsibly for a better planet

Our strategy is shaped by our stakeholders. Our 2022 materiality

assessment incorporated a view of Pearson’s most significant

impacts on people and the environment as well as the most

material sustainability risks and opportunities for the company.

The findings highlighted the importance of assessing and

developing the skills of learners and colleagues, protecting our

users’ data, and our role in driving positive change through

climate action. For more information see: https://plc.pearson.

com/en-GB/purpose/our-esg-reporting.

Our Learning for Impact framework is underpinned by Pearson’s

robust corporate governance, strong culture, and effective

policies to ensure we achieve our ambitions.

The metrics used to track our performance against this

framework are also our corporate non-financial KPIs as shown on

page 24 of this report.

Learning for Impact

Our approach is learner-led,

developed responsibly.

Cinthia Nespoli Chief Legal Officer and

Executive Leader for Sustainability

This illustrates the connection between our corporate

strategy and our mission to create learning experiences for

real-life impact.

The Board reviews our non-financial KPIs regularly, and these are

also linked to remuneration.

Additionally, we maintain positive results in rankings

and ratings, including Moody’s, MSCI, Sustainalytics, Dow Jones

Sustainability Indices (DJSI), and others.

A strong governance structure

Pearson has a strong governance structure that supports

our sustainability strategy. Our Reputation & Responsibility

Committee (RRC) is a standing Board Committee, and it works

alongside other Board Committees to oversee a range of

environmental and social impact topics, including climate-related

risks and opportunities. Read more about our governance

approach on page 66. We will continue to evolve how we govern

sustainability matters, to ensure our structures remain fit for

purpose in this fast-moving landscape.

The RRC circulates its conclusions and minutes to the Board, and

the Committee Chair is responsible for ensuring action points

are followed up. In 2023, the RRC approved the introduction of

a new sustainability data platform and received an update on

sustainability regulation from its legal counsel. Priorities for 2024

include submission of our net zero long-term targets to 2050

to the Science Based Targets initiative (SBTi) for validation, the

publication of a standalone climate transition plan in line with the

Disclosure Framework of the UK Transition Plan Taskforce which

expands on our existing Climate Action Plan, and overseeing

the development of Learning for Impact initiatives and thought

leadership, as well as strengthening the way we embed social

impact in data. For more information see page 94.

Outlook

For the coming year, our priorities are to continue with our

decarbonisation journey including energy efficiency and paper

procurement, evolve our skills-based volunteering programme,

and undergo a double materiality assessment to further define

our sustainability strategy alongside our corporate strategy.

More information on Directors’ remuneration reporting

requirements can be found on page 107, and a link to our

Directors’ Remuneration Policy can be found in our non-financial

and sustainability information statement on page 55.

Annual report and accounts 2023 Pearson plc 34

Strategic report

Measuring progress on commitments

Our purpose — Add life to a lifetime of learning

Learning for Impact pillars

Driving learning for

everyone with our products

Empowering our people

to make a difference

Leading responsibly for

a better planet

Achieved through:

consumer engagement* product effectiveness*

digital growth* affordability and access

data privacy, cyber security, and safeguarding

responsible and sustainable content

Achieved through:

culture of engagement and inclusion*

Achieved through:

reducing our environmental impact*

investing with purpose

2023 progress 2023 progress 2023 progress

— Continued to increase access to learning through the ethical

use of technology. Regularly update and improve our data

privacy and security systems.

— Maintained our focus on employee engagement and made

progress on our commitment to build a more diverse pipeline

of talent

— Advanced our Climate Action Plan by reducing our carbon

emissions, and increased the use of 100% renewable

electricity consumption

Read more on page 36 Read more on page 39 Read more on page 42

Robust governance, a strong culture and effective policies

The Sustainable Development Goals

(SDGs) linked to our ESG framework:

MSCI ESG

Maintained a rating of AA.

Dow Jones Sustainability

Indices (DJSI)

Included in both the DJSI World

and DJSI Europe Indices.

Moody’s ESG Solutions

Award above sector average

score performance.

FTSE 4 Good Index

Remain a constituent of the

FTSE 4 Good Index Series.

Sustainalytics

Received a negligible risk

ranking and are ranked #1 in

our industry.

* See our non-financial KPI section page 24 for more on how these link to our strategy.

Rankings and Recognition

Annual report and accounts 2023 Pearson plc 35

Strategic report

New technologies are shaping the way that students of all ages

are learning and accessing information - and we believe that

those technologies can have a positive impact on teaching and

learning, and how we serve our customers. Digital product

growth and the responsible application of technology also have

the capacity to reach more learners. During the year, our Group

digital and digital-enabled sales grew by 8%, excluding the OPM

and Strategic Review businesses.

Our differentiator in this space is the combination of deep

subject matter expertise, teaching experience, and learning

science knowledge that our authors, faculty, and content creators

bring to the table. The structures, methods, and pedagogy

behind our intellectual property make it unique. We also have

proprietary content and data that we leverage to create rich

learning experiences.

Access powered by technology

We have been using our deep experience with AI for many years,

and embedding AI technology across key products in a way that

enhances the teaching and learning experience and improves lives.

In 2023, we focused on developing beta versions of generative

AI tools in select higher education Pearson+ eTextbooks that

will support the learning process. This includes being able to

summarise eTextbook content and generate practice quiz

questions. In MyLab and Mastering, we are developing tools

that provide practice questions that support teaching by guiding

students through complex problems, moving them towards

mastery of challenging concepts in a personalised way.

Driving learning for everyone

with our Products

Sustainability continued

Pearson Test of English (PTE)

What is the societal opportunity?

There is a consistent need for English proficiency in global

employment and education, a growing demand for online

language learning, and renewed global mobility.

How does PTE help solve this?

For many, learning English unlocks access to better quality

education and employment. PTE helps people learn and

prove their English proficiency, which enables them to

make progress in their lives, whether through study, work

opportunities or migration.

What is our unique learning design?

PTE is the first completely computer-based English test,

although we take a human approach to automated scoring.

We use sophisticated algorithms based on tens of thousands

of real-world data points to score each test. This allows us

to match the expertise and accuracy of a human examiner,

but with the precision, consistency, and objectivity that only

machine learning can achieve. We’ve done extensive research

to ensure the validity, reliability and fairness of the test.

What’s the impact?

More than 1m tests were administered in 2023. These tests

allow test takers to study, work, or migrate, including taking

part in academic courses with language requirements,

applying for jobs with specific language requirements,

and migrating to certain countries that have language

requirements. The NPS score for 2023 is +55.

Learning English is vital in

today’s global economy.

With education now a

lifelong pursuit, language

skills are essential for both

academic success, career

advancement and achieving

the life you imagine.

Gio Giovannelli President –

English Language Learning

We believe that finding ways to safely introduce generative AI

tools needs to involve regulation, training, policies and support

for everyone. We need to ensure that when we use these tools

they are truthful, reliable, safe, fair and can be trusted for the

purpose we set. When thoughtfully developed and implemented,

generative AI can have a positive impact on students and

teachers. Its improvement over time can only benefit teaching,

learning and assessment. You can learn more about how we’re

approaching AI to safeguard learners here: https://plc.pearson.

com/en-GB/news-and-insights/blogs/bringing-ai-life-empowering-

students-their-learning-journey

We acknowledge that it’s our responsibility to tap our global

expertise to inform policymakers around technology and

education, as we all work to develop products that improve the

lives of learners globally. Details on our approach are outlined

in our Global Government Relations Policy, and our Code of

Conduct references political activity guidance for employees and

business partners. Both of these policies can be found here:

https://plc.pearson.com/en-GB/corporate-policies, along with our

list of trade associations.

Annual report and accounts 2023 Pearson plc 36

Strategic report

Pearson and Forage are teaming up to

offer innovative virtual job simulations

to millions of US college students who

use MyLab and Pearson+. This first-of-its-

kind partnership is one more way we’re

helping to bridge the gap between the

college classroom and the workplace.

Forage job simulations allow students to

gain skills and explore careers while they

study, helping level the playing field for

students who are not able to obtain an

internship or gain access to certain

career fields.

Generative AI has opened up some exciting

opportunities in product development. With our unique

IP and extraordinary talent, we want to build AI tools

that help students learn and help teachers teach.

Tony Prentice Chief Product Officer and

Co-President, Direct to Consumer

Responsible and sustainable content

Learning for sustainability equips learners with the confidence,

values, knowledge, attitudes, capabilities, and skills that will

enable us to contribute effectively to building socially just,

sustainable, and equitable communities.

This year, we have delivered learning and credentialing to our

corporate customers, and we recognise the crucial role they play

in the achievement of sustainable goals.

For example, we are partnering with the IFRS Foundation, a

public interest organisation established to develop unified

and globally accepted accounting and sustainability disclosure

standards. Working with the IFRS, Pearson has accredited

thousands of professionals worldwide in the Fundamentals of

Sustainability Accounting (FSA) Credential®.

Similarly, Credly partners with many other corporate

organisations to issue a number of badges that recognise

an understanding of current sustainability trends including

the application of sustainability strategy within organisations,

sustainable finance, regulatory policies, as well as the tools

needed to achieve impact on a global stage.

Editorial guidelines

We are committed to content that is grounded in fact, inclusive

and free from discrimination, and is ethical and adheres to

legal requirements. The Global Content Policy is at the heart

of how we act on this commitment and provides clear and

consistent guidance for our content contributors. It applies to all

Pearson-owned content, whoever creates it, in any format. The

Policy goes through a periodic review process designed to help

content contributors keep pace with the latest developments

in educational concepts, terminology, laws and regulations,

technology, and best practices in diversity, equity and inclusion.

Annual report and accounts 2023 Pearson plc 37

Strategic report

Sustainability continued

Designing accessibility requirements into our products

and services

We strive to incorporate accessible thinking into everything we

do, from ensuring accessibility is woven into our culture and

training, to innovating and using technology to design and deliver

our products.

The work of Pearson’s Braille Services team provides an example

of our commitment to creating learning experiences that build

a more inclusive world. The team – some of whom themselves

went through school using Braille – work to ensure that blind

and visually impaired students have the best experiences

possible to learn and succeed. They meticulously transcribe

assessments into Braille, examining test questions to determine

how they need to be modified. In addition to textual content,

they consider how to transcribe any charts, graphs and images

into tactile graphics, thinking critically, for example, about the

elements of a map that might be essential to answer a question

without compromising the integrity of what it might be assessing.

Additionally, our GCSE English 2.0 and Level 2 Ext. Maths Cert

qualifications have been designed to be accessible. Our focus is

always to ensure that onscreen assessments are accessible.

We also provide all colleagues with training on our updated and

strengthened data privacy and cyber security principles and

processes and conduct monthly phishing exercises designed

to educate employees to recognise malicious web links or

attachments. We have created a product development playbook

which will help us adhere to high standards of data management,

and a consistently considered approach to the adoption and

expansion of AI in our products and services.

Data privacy and cyber security

In addition to ensuring our products are effective, we are

committed to ensuring the personal data we hold on individuals

worldwide remains safe and secure, and we continuously update

and improve our standards of data management. In 2023, we

evolved our security strategy to align to the NIST Cyber Security

Framework (an industry-recognised framework of cyber security

standards, guidelines and best practices) built around five

key principles: Identify, Protect, Detect, Respond and Recover.

We have also started the process of aligning our data privacy

programme to the NIST Privacy Framework both for consistency

and to ensure that the business can effectively gauge its

practices against a respected external framework which will also

be recognised by external stakeholders.

The governance structure originally created to support the

data protection programme has been expanded into a wider

framework for trust and safety at Pearson. Business leads are

able to leverage holistic, real-time metrics that include data

privacy, end-of-life hardware, phishing failure rates, vulnerability

management, and audit compliance to prioritise and take actions

that lower our risk. Our clear system of escalation gives senior

management greater awareness and oversight of key areas and

activities, and better visibility over managing data privacy and

security risks.

Annual report and accounts 2023 Pearson plc 38

Strategic report

Our values

Our values begin with ‘we’ because they apply to all of

us. They help guide how we show up every day for our

customers, each other, and the communities we serve.

1. We ask ‘why’?

We challenge the status quo by challenging ourselves.

2. We ask ‘what if’?

We spark curiosity to innovate new possibilities

for everyone.

3. We earn trust.

We build credibility by acting with integrity every day.

4. We deliver quality.

We hold our customers and consumers in the highest

regard, and our work to the highest standards.

5. We make our mark.

We execute with speed and agility to leave a lasting

impact on everyone we serve.

Employee engagement

We continued to prioritise employee engagement across our

business, and we made progress in our mean scores for all 12

questions in the engagement survey conducted on our behalf

by Gallup. We also made a meaningful overall improvement,

with our engagement GrandMean score increasing to 4.09 out

of 5 (from 3.96 in 2022). As a result, we now rank in the 70

percentile in Gallup’s global company database for engagement.

We have 10 employee and business resource groups (ERGs)

- voluntary, employee-led groups that aim to foster a diverse,

inclusive and equitable workplace culture for Pearson employees.

The ERGs support leadership to champion inclusive efforts and

promote collaboration and community between all Pearson

employees. More information on each group is provided on

the Careers section of our website here: https://plc.pearson.

com/en-GB/careers/diversity-equity-inclusion. This year, as part

of the Stonewall Workplace Equality Index, the UK chapter of

our Spectrum ERG received a ‘High Commendation’ award in

recognition of its work to make real, impactful change in support

of LGBT+ colleagues, customers, and students as well as our

suppliers and partners.

In 2023, we launched a skills-based volunteering initiative for

our people, that focuses on learning, mobilising, and building

community. As part of the launch, we refreshed our volunteering

policy to five days aligned to our purpose and values. We also

launched a Credly by Pearson volunteering credential series,

which recognises the impact that our employees make in their

communities. Our employees around the world have participated

in events at home, in the office, and on the road. To date,

employees have completed over 20,000 hours of volunteering.

Empowering our People to make a difference

We recognise that our success and our ability to have a real-life

impact on the world is highly dependent upon our colleagues.

Our goal is to be a world class place to work, offering an inclusive

environment where everyone can leverage their strengths to

drive high performance.

Our people strategy has three focus areas:

1. Employee engagement: driving better employee engagement

and high performance.

2. Investing in talent: providing continuous learning, growth,

and progress for our people.

3. Diversity, equity, and inclusion: driving a culture of belonging

and aiming for increasingly diverse representation

throughout the company.

These areas are reflected in our non-financial KPIs on page 24,

which highlight the progress we made in 2023 on delivering on

our people strategy. Key human resources policies, including our

human rights statement and modern slavery statement, can be

found here: https://plc.pearson.com/en-GB/corporate-policies

Annual report and accounts 2023 Pearson plc 39

Strategic report

Diversity, equity and inclusion

We fully integrated a focus on inclusion into our manager

development and continued to offer a learning experience to all

employees designed to promote an inclusive culture. Training

uptake was high at 92%, and feedback showed that it was highly

effective in conveying the benefits to Pearson and catalysing

individual action. As a result of its impact, this programme was

recognised at the Women in Technology Excellence Awards UK

as the best Diversity and Inclusion initiative 2023.

We continued our commitment to build a more diverse pipeline

of talent via Board mentoring, coaching from Hult Ashridge

Business School, the McKinsey Management Accelerator

Programme and McKinsey Executive Management Programme.

This year, we have seen some improvements in both female

representation and in under-represented people of colour in the

US and UK.

More detailed information can be found on our performance

section on page 49.

We have aligned metrics focusing on and incentivising

increased diversity in our executive remuneration. Female

representation at Board level has improved with the additions

of Alison Dolan and Alex Hardiman, counterbalancing Linda

Lorimer’s retirement. Our Board diversity reporting can be found

on page 53 and our gender pay gap reporting can be found on

page 41.

We also maintained the level of diverse representation on our

Executive Management team. Notably we have maintained our

position of having surpassed the FTSE Women Leaders Review

target for 40% of leadership roles (defined as the Executive

Committee and their direct reports) to be filled by women, well

ahead of the end of 2025 deadline. This includes a 50:50 gender

split on the Pearson Executive Management team.

Sustainability continued

Investing in talent

We see upskilling managers as a priority because of the critical

role they play in engaging our employees. In addition to offering

new managers a formal development programme, over 700

existing employees participated in our Coaching for Performance

series community, which focuses on developing our managers as

coaches. 96% of attendees reported identifying an opportunity

to use the skills they learned with their teams. We also measured

our progress using Gallup’s Coaching Index, which combines

two questions from our database to assess the extent to which

managers exhibit key coaching behaviours. Our coaching index

score has improved to 3.95 from 3.75 in 2022 (out of 5) and this

will again be a primary focus for us in 2024.

We also continued to enhance our workforce by bringing in new

colleagues with critical skills that support our strategy. These

skills included software development, sales and customer service.

We also continued to offer alternative routes into Pearson such

as internships and apprenticeships.

Our commitment to employee development is reflected in the

increase in the percentage of employees who agree or strongly

agree in the Gallup engagement survey that they have ‘had

opportunities to learn and grow’. This rose to 76% from 72%

in 2022. Our approach to employee learning is underpinned

by our capabilities framework. We are continuing to evolve this

using Faethm, our proprietary AI. Employees use the capabilities

framework to plan their own learning journeys aligned to the

skills needed to drive the company strategy and equip them for

the future of work.

We organised a global summit for 100 leaders to align

on strategy and performance priorities and respond to

developments in consumer culture and generative AI.

Following this in-person event, we looked at input from

employees via the engagement survey about their learning and

skills needs. We combined this needs assessment with content

from the summit to produce 31 live, virtual, learning sessions

via our global Learning at Work series for all employees. This

series leveraged Pearson authors as well as Pearson leaders

as teachers.

In addition, we launched a new learning experience platform

that integrates third-party content libraries, Pearson commercial

content, bespoke learning content on a range of topics aligned

to current priorities (e.g. generative AI), and digital credentials

employees have earned a credential from Credly by Pearson.

Other Pearson commercial learning opportunities include

our direct to consumer apps, Pearson+ and Mondly, and

joint offerings with commercial partners, including Pearson

eTextbooks via VitalSource, Golden Personality Profiler,

Accelerated Pathways and Apprenticeships. These are all offered

to employees free of charge. We offer reimbursement to US

employees for tuition costs up to 18 credits, provided their

education programme is related to a job or skills needed within

Pearson. Tuition costs are reimbursed after pupils successfully

complete a course with a grade C or above, or equivalent mark.

Annual report and accounts 2023 Pearson plc 40

Strategic report

In March 2023, the Parker Review Committee launched a new

ethnic diversity target for FTSE 350 companies. All FTSE 350

companies were asked to set a percentage target for senior

management positions that will be occupied by ethnic minority

executives by December 2027 and to report on the target

annually. Currently, 18% of our Executive Management and the

senior leaders that report directly into them (SVPs and VPs) have

self-identified as ethnically diverse – this includes only US and UK

employees. We have set a global target of 20% ethnic diversity

for the Executive Management team and the senior leaders that

report directly into them (SVPs and VPs) by 2027.

The combined percentage of under-represented people of

colour in the US and UK, at all levels, is 28%, a 0.1% decrease

versus 2022, primarily due to the divestment of our POLS

business. Investing in increasing recruitment of under-

represented people of colour at all career levels, and of women

at senior levels, will continue to be a focus area in 2024.

We also give full and fair consideration to all applicants and

support the continued employment of disabled persons, having

regard to their aptitudes and abilities, and making reasonable

adjustments to address individual needs. Recruitment,

promotion, and training are conducted on the basis of merit,

against objective criteria that avoid discrimination. We are also

proud that ‘Disability:IN’ (https://disabilityin.org/what-we-do/

disability-equality-index/2023companies/) recognised Pearson as

a Best Place to Work on its 2023 Disability Equality Index.

Workforce engagement

Our workforce includes regular and limited-term employees,

(full-time and part-time), casual/seasonal employees (primarily

for scoring), and contingent workers (individual contractors,

consultancy workers, and agency workers). We follow local labour

and human rights regulations, including works councils, in each

jurisdiction in which we operate.

Most of our workforce is in the UK and US, and we communicate

with our employees in several ways. They hear regularly from

their divisional leaders and the CEO through virtual and

in-person town halls. They also have access to regular

CEOupdates through the corporate intranet.

Employees receive news on the company’s share price via

the corporate intranet, and through regular communications

and town halls with the CEO and their respective business

leaders. You can learn more about how the Board engages with

employees on pages 82, and our Employee Resources Groups

on page 39.

In 2023, our Group employee turnover was 34% (16% voluntary

/ 18% involuntary). At a Pearson-wide level, this is in line with

expectations and broadly comparable to the previous two

years. However, as we continue to make progress with our

three focus areas, our voluntary turnover is reducing, with the

in-year increase in involuntary turnover largely due to strategic

divestitures and sales, most notably Pearson Online Learning

Services and Pearson College London.

Reward, benefits and wellbeing

At Pearson, our reward, benefits and wellbeing proposition

stands in support of our ambition to become the destination for

the world’s best talent, able to attract and retain talent to execute

our digital-first strategy. To ensure this is the case, we make a

significant investment in our people by offering a holistic Total

Reward package, underpinned by our guiding pay principles.

These principles ensure that our people know that there is a

consistent approach to how pay and benefits are managed

and understood at Pearson – no matter where they are, with

consistent and robust reward structures and clear guidelines

for determining and rewarding individuals’ contributions. We are

committed to providing fair and equitable pay and benefits for

our employees across the world.

Our commitment to pay equity was the guiding force behind the

decision to publish Pearson’s first Fair Pay Report and ethnicity

pay gap data on a voluntary basis in April 2023. This is initially

focused on the UK from a data perspective, but the report aims

to tell a more holistic story of the ways that we lead on diversity

and honour our commitments as an inclusive employer. We are

committed to greater transparency and want this to be a reason

the best talent joins, and stays at, Pearson. We released our 2023

Fair Pay Report as part of our transparency efforts, and plan to

continue making this analysis available on an annual basis.

We evaluate our benefit programmes annually to ensure they

are meeting the needs of a diverse range of demographics and

life stages. In 2023, we added several benefits for our employees

in the UK in an effort to align with our commitment to inclusivity.

These new benefits include: (i) a Mental Health Pathway which

provides assessment, support and, if necessary, referrals to the

appropriate clinical setting with either outpatient or inpatient

treatment under the care of a treating mental health specialist,

(ii) menopause support including expert guidance from trained

health professionals, (iii) gender affirmation services to support

a patient’s journey from assessment pre-surgery up to and

including gender confirmation surgery, and (iv) fertility and family

planning services that reimburses members up to £20,000 for

the costs of a wide range of fertility treatments.

In addition, we have continued to strengthen our strong culture

of employee share ownership. Over 1 in 4 of our employees

now choose to save to purchase Pearson shares via our

savings-related employee share plans (‘Save For Shares’ and the

‘Employee Stock Purchase Plan’). This enables them to become

shareholders and owners of Pearson, and share in the value they

help to create.

Health and safety

Our employee health and safety KPIs are reflected in the nine

standards in our policy here: https://plc.pearson.com/en-GB/

careers/diversity-equity-inclusion, and performance on those

standards is reported to the Board’s Reputation & Responsibility

Committee (RRC). Our strategy has been modelled against

ISO 45001 standards and other relevant regional and national

standards, and our 80 Strand headquarters holds ISO 45001

certification. Over the past year, our health and safety approach

has evolved in line with our risk profile and strategic business

changes, with our Protective Services team reporting on its

activities to the Reputation & Responsibility Committee.

Annual report and accounts 2023 Pearson plc 41

Strategic report

We recognise our responsibility to reduce our environmental

impact and are making progress on key commitments, aided by

our transition from one of the world’s largest print publishers

to becoming a digital-first organisation. We are making

progress on our Climate Action Plan and our response to the

TCFD recommendations can be found on page 44. Our latest

materiality assessment, conducted in 2022, ensures our areas of

environmental focus align with our stakeholders’ concerns.

Climate Action Plan

In 2018, we set ambitious carbon targets which include a

reduction commitment approved under the Science Based

Targets Initiative to reduce scope 1, 2 and 3 emissions by 50% by

2030 against a 2018 baseline; and another target of becoming a

net zero company by 2030.

Central to our decarbonisation strategy is our shift towards a

more environmentally beneficial product portfolio. Our Climate

Action Plan is underpinned by three main areas of work:

— Achieving a decrease in the overall quantity of paper

purchased and increasing the share of ethically

sourced material.

— Increased the use of 100% renewable electricity consumption,

while reducing reliance on renewable energy certificates to

achieve this target.

— Engaging with our suppliers in the climate transition.

Environmental impact targets are assigned to the business

divisions and central functions, with progress reviewed internally

on a quarterly basis and validated by an external third party once

a year. Our headquarters, as well as three major sites in the UK,

are also ISO 14001:2015 certified.

We believe that the most meaningful and important contribution

that Pearson can make to society’s journey to net zero is by

focusing on reducing our absolute emissions as described in the

following sections.

We will also continuously review our long-term decarbonisation

plans and net zero targets to ensure they remain aligned with

global best practice, the latest climate science, and reflect

continual improvements in our data quality. That’s why this year

we are considering options for revising the company’s long-term

science-based targets.

Emissions reduction

Pearson achieved a 16.3% reduction during 2023 compared to

2022, which led to a 44% reduction of our GHG emissions overall

(vs a market-based target of 50% reduction in 2030 against a

2018 baseline).

Our progress was ahead of expectations, partly due to portfolio

changes below our rebaselining threshold (5%), and the knock on

effect of cost reductions reflected in our carbon accounting.

These reductions also highlight the work that we have been

building to achieve better data quality across the business. In

2024, we will continue to prioritise data accuracy and plan to

rebaseline our figures as we bring on board a new data collection

system, as detailed on page 43.

In 2023, actual emission reductions were driven by an

accelerating demand for our digital solutions; and operational

efficiencies in our properties, workforce, and paper-related

purchasing, including transport and distribution.

Resource use

Responsible environmental stewardship helps to create a

healthy and sustainable planet for our learners and all of society.

Our biggest direct impacts are carbon emissions from our

use of energy, so we need to ensure we manage our own

operations responsibly.

Energy

Improving the energy efficiency of our buildings is a key

component of our Climate Action Plan. In 2023, we began a

programme of decommissioning utility-intensive buildings –

with a reduction in our physical footprint of 8% – and have

implemented ESG guidelines on the selection of new buildings.

Since 2016, over 100% of our electricity has been purchased

through green tariffs, onsite generation, or renewable energy

certificates (RECs).

Next year, we are seeking to reduce our use of RECs as pricing

has been volatile and they do not necessarily support the

development of new renewable capacity. While they will continue

to have a role to play – for example where we do not expect to

be long-term occupiers of a building – we will focus our efforts

on reducing energy consumption and driving procurement from

sustainable and renewable sources.

As we continue to invest in technology and innovation, renewable

energy technology will be increasingly important for us. We are

committed to designing our products and services to be as

eco-friendly as possible, as this has a direct influence on the

emissions generated in our own operations.

This year, we assessed the carbon footprint of our English

Language Learning app, Mondly, to better understand the

environmental impact of our digital products. Our findings

confirmed what we had already suspected – that emissions from

digital products such as Mondly are much lower than traditional

print language learning books.

Most of Mondly’s use-phase emissions come from the

consumption of energy from end-user devices, which is difficult

for us to control. Therefore, we will need to establish the correct

partnerships to drive change as an industry going forward.

However, another significant portion of emissions are held in

data centres used by Mondly. This is an area where we can

have more direct influence. For example, during the year, we

streamlined the number of data centres we use, including closing

six, opening two new more efficient centres, and optimising two.

We are also moving to cloud-based data centres that provide

more efficiency on resource use, where possible.

Waste and water

As reported last year, we saw a sharp upward trend during

2022 in total water and waste consumption partly due to the

estimation methodology used. Even though our office-based

operations have a limited impact on water use and waste, we

continue to focus on data improvements by using more accurate

methodologies of calculation for estimations.

Next year, we are planning a water risk assessment and the

continued certification of our largest offices. For example, the

Berger Tower, one of Pearson’s main Indian offices has been

certified LEED Platinum which is the highest rating and awarded

only to the best-in-class properties in terms of sustainability

management.

Leading responsibly for a better planet

Sustainability continued

Annual report and accounts 2023 Pearson plc 42

Strategic report

In terms of our indirect impacts, we are increasing our

investment in print-on-demand services, instead of holding

paper-based inventory. This helps us to reduce the risk of

out of date content and enables us to become more efficient

in managing our waste resources. As well as this drive to be

‘inventory free’, we are also promoting the expansion of print

service agreements to expand local printing and avoid the

environmental impacts of shipping product to different locations.

As a result, we have achieved a reduction of approximately 15m

book miles.

We are also prioritising a reduction in goods we transport by

air. By consolidating orders (regrouping orders from different

locations into single shipments) and shifting to an ocean-freight-

first strategy, we have reduced the quantity of goods shipped

by air. Next year, we will intensify our efforts alongside our key

logistics partners.

We are also exploring options to shift to sustainable fuel for our

ocean freight.

Building sustainable supply chains

In 2023 we purchased over £1.4bn of goods and services.

Around 80% of our global spend is represented by 190 large-

scale suppliers. We believe in doing business with partners who

share our commitment to human rights and the environment

— strengthening our supply chain through shared values

and commitments such as carbon reduction and diverse

representation. We conduct detailed analysis of our larger

suppliers through a third-party sustainability ratings platform

(EcoVadis) as well as our own maturity criteria for carbon

reduction and diversity practices based on publicly available data.

Supplier engagement

The great majority of our GHG emissions come from our indirect

emissions that occur in upstream and downstream activities,

which represent over 95% of our total market-based emissions.

Our Global Procurement team has resources dedicated to

developing our ethical and sustainable procurement practices.

Working with and providing education to our business divisions,

they have implemented an end-to-end process to engage

suppliers in assessment, growth and accountability to accelerate

our decarbonisation journey.

This year, we have updated our Responsible Procurement policy

to further strengthen the minimum standards we expect of our

suppliers and third parties. We continue to review and update

our ways of working to embed carbon maturity considerations

into every stage of the supplier lifecycle from sourcing through to

ongoing governance, and we seek diverse perspectives to enrich

Pearson’s products and services.

Paper sourcing and nature-related impacts

While we have a growing technology-enabled supply chain

reflecting our increasing shift to digital, some of our customers

still require traditional paper-based products, and will continue

to do so for the foreseeable future. Therefore, we continue to

manage the use of paper and print production to minimise any

potentially negative environmental impacts further down our

supply chain.

During 2023, our overall paper consumption decreased (2023:

22,859 tonnes; 2022: 24,187 tonnes), due to our digitalisation

strategy. We are also maintaining our commitment to source

100% of our paper from ethically certified papers. This year, we

sourced 69% (2022: 62%) of our paper from certified sources

(FSC, PEFC and SFI).

In addition to purchasing ethically sourced papers, which put an

emphasis on banning deforestation, enhancing biodiversity and

protecting nature, we maintain strong due diligence procedures

in our direct supply chain, as this is a key component in how we

manage nature-related risks.

We rate suppliers as medium or high-risk based on a Book Chain

tool designed specifically to help companies identify labour and

environmental risks in the supply chain. We use Book Chain’s

Forest Sourcing and Chemicals & Materials tools to reduce the

likelihood of purchasing paper from sources associated with

endangered species, reduce our exposure to deforestation and

ensure our suppliers are complying with safety legislation. The

audits are carried out by third-party auditors and shared via the

Book Chain platform. In 2024, we will conduct a third-party audit

of nature-related risks to include our wider supply chain, beyond

paper sourcing.

Strengthening data and reporting

Following a rigorous and comprehensive selection process,

we will implement a new data management system in 2024.

The internationally recognised, best-in-class, integrated

platform covers emissions tracking and reporting, and we

expect that the adoption of the system will provide us with

significantly enhanced visibility and a more accurate view of our

footprint. This is supported by the system’s ownership of the

CEDA multi-regional input-output (MIRO) database of emissions

factors, which covers over 95% of global emissions. It will also

support our emission-reduction initiatives within our operations

and along our value chain.

Annual report and accounts 2023 Pearson plc 43

Strategic report

Task Force on Climate-related Financial Disclosures

Below we set out our climate-related financial disclosures

consistent with the four Task Force on Climate-related Financial

Disclosures (TCFD) recommendations, and 11 recommended

disclosures in the 2017 report ‘Recommendations of the Task

Force on Climate-related Financial Disclosures’, together with

its subsequent annex and implementation guidelines. The

statement includes the climate-related financial disclosures

required by section 414CB (A1) and (2A) of the Companies Act

2006. Additional information on climate-related issues (beyond

the recommended TCFD disclosures)” can be can be found

in other parts of this document. Where this is the case, it is

referenced within the relevant paragraphs.

Governance

Board oversight

The Board continues to have ultimate oversight of Pearson’s

climate change strategy and achievement of our targets.

Day-to-day responsibility for Pearson’s environmental, social

and governance issues is delegated to the Board’s Reputation &

Responsibility Committee (RRC). The RRC receives updates

on emissions on a regular basis and met four times

in 2023 to develop plans for delivering and embedding the

Learning for Impact strategy across the Group (including the

climate strategy), monitor and track progress against plans,

support management, Group leadership and functions on

sustainability-related matters, and discuss recommendations

for the wider Board.

As a group, the RRC brings a deep understanding of climate

and sustainability. For information on the Board’s composition

and skills profile please see page 68. Pearson’s other Board

Committees work alongside the RRC on several ESG topics,

for example, the link between climate and remuneration

and reporting compliance and audit. Read more about our

governance structure and approach, including our organisational

structure on climate governance on page 94.

Strategy management and implementation

The role of assessing and managing climate-related risks

and opportunities is a shared responsibility across Pearson.

Our Chief Legal Officer is the Executive sponsor of our ESG

strategy and chairs the environmental steering group, which

includes our Chief Financial Officer and Chief Strategy Officer.

She also participates in the RRC. The steering group meets

quarterly and directs the implementation of our overall carbon

reduction plan, oversees climate-related risks and opportunities

and communicates objectives to the rest of the Executive

Management team.

Each business division and corporate function has appointed

senior representatives to lead sustainability actions and ensure

that risks and opportunities are embedded into their planning

and divisional oversight. The sustainability team meets quarterly

with the management of divisions and corporate functions to

provide expertise and guidance on the implementation of carbon

reduction activities both at a central and individual business

unit level. The sustainability team also holds responsibility

for monitoring and reporting on our goals and representing

the company in wider partnerships aimed at achieving

transformational change.

Throughout the business, Pearson has subject matter expertise

that touches on various areas of our climate-related agenda. For

example, our Responsible Procurement team engages with our

suppliers on a regular basis and ensures relevant policies and

procedures exist to enable a transition to a green economy.

Strategy and risk management

Identified risks and management approach

Last year, we commissioned the specialist consultancy ERM to

undertake a climate risk assessment to identify and quantify

the potential impacts of climate change risks and opportunities

on our businesses, strategy and financial planning. The process

undertaken included assessing the materiality of climate-related

risks; identifying the range of scenarios described in the following

sections; evaluating business impacts and shortlisting the most

meaningful risks accordingly, and finally, identifying Pearson’s

management responses and mitigation actions to each of the key

risks identified.

In order to prioritise the nine key risks identified, we took an

evidence-based approach, drawing on climate scenarios and

Pearson’s financial data, to assess their materiality, likelihood

and velocity.

This year, we refreshed ERM’s assessment internally, updating

for changes in the sustainability strategy and refreshing the risks

through discussions with management, and leadership. The

conclusion of this exercise was that the risks remain consistent

with last year. The various climate risks identified are integrated

into the organisation’s overall risk management processes,

dependent on the nature of the risk. For example, physical risks

are integrated into business continuity planning by the central

workplace team, costs and availability of paper by the centralised

procurement team, and other transition risks such as changes

in regulations are managed by regulatory alert systems held in

the Legal function. Managing wider stakeholder expectations and

stakeholder engagement is managed by the sustainability team

and respective communications team, whether it is internal

or external.

The Group has assessed the impact of climate change on the

Group’s financial statements, including our commitment to

achieve net zero by 2030, and the actions the Group intends to

take to achieve those targets. The assessment did not identify

any material impact on the Group’s significant judgements or

estimates as at 31 December 2023, or the assessment of going

concern for the period to June 2025 and the Group’s viability

over the next five years.

Sustainability continued

Annual report and accounts 2023 Pearson plc 44

Strategic report

Risk description Scale Pearson mitigation actions

Physical risks

Facility damage due to acute hazards:

Two of the assets included in the physical risk screening have relevant

exposure to acute hazards.

— Melbourne has present day exposure to a flood; and

— Manila experiences a hurricane once every three years on average, with a

maximum observed wind speed of 127mph.

Time frame – short

Likelihood – possible

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions – low

We have insurance policies in place that would

cover the costs of structural damage and some

lost revenue. Therefore, the impact is expected

to be minimal.

Wildfire interruption to Assessment & Qualifications:

Wildfire is the physical climate hazard that has the potential to trigger

widespread disruptions to transportation and facility accessibility.

The Assessment & Qualifications business unit is not fully digitised and

relies on physical locations for instruction and examinations. Under a

pessimistic warming scenario, wildfire risk may increase across the US,

Canada and Australia.

Time frame – medium

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

We have insurance policies in place that

would cover the costs of structural damage.

Therefore, the impact is expected to be

partially mitigated.

Increased water scarcity:

According to data from WRI Aqueduct, Pearson has a relatively low number

of properties with exposure to water scarcity across its portfolio of

operating locations.

Time frame – medium

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

We expect water usage to remain minimal,

and any increased costs or consumption

will be offset by property upgrades (e.g. taps

automatically switching off).

Increased paper costs:

The global paper market is inherently exposed to physical risk, such as

exposure to potential increased destruction from thunderstorms, wildfires,

hurricanes and flooding. These events can also cause logistical disruptions

that further impact the paper market. Accordingly, paper costs may increase.

Time frame – long

Likelihood – likely

Magnitude of impact before any mitigation action – moderate

Magnitude of impact with mitigation actions - low

In the short-term pricing changes will be

reflected in operational and strategic plans. In

the medium term we expect digital product/

services alternatives to be widely available.

Increased use of cloud services:

Data centres require ever-increasing quantities of electricity and water to

cool their systems. As Pearson increases its reliance on digitisation, exposure

to the physical risks of data centres owned by cloud service providers may

materialise in the form of increased costs to use their services, should they

face increased costs to run and cool their systems.

Time frame – short

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

Mitigation actions would include shifting

services to alternative locations or servers.

Any incremental increase in costs would be

reflected in operational and strategic plans.

* Impact scales:

Time frame

Short: within 5 years

Medium: between 5 – 10 years

Long: more than 10 years

Magnitude of impact

Low: below £5m

Moderate: £5m - £20m

High: £20m or above

Annual report and accounts 2023 Pearson plc 45

Strategic report

Risk description Scale Pearson mitigation actions

Transition risks

Building efficiency standards:

Building efficiency and performance standards are becoming more stringent

across the globe and are being imposed by regulation potentially increasing

costs of occupied space.

Time frame – short

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

Our property strategy is continuously updated,

and our selection criteria for newly leased

properties is well above building efficiency

minimal requirements.

Procurement of sustainably-certified paper:

Prices and supply chain shortages may continue affecting the procurement of

sustainably-certified paper.

Time frame – short

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

We expect a reduction of paper use based

on our ongoing digitalisation strategy and

availability of digital alternatives. Impact will

also be decreased through improved product

design and appropriate pricing strategies.

Therefore, the impact is expected to be

minimal.

Increased cost in EU ETS certificates for paper mills in Italy, Sweden,

Germany and Belgium:

As a result of the Paris Climate Agreement and the resulting Nationally

Determined Contributions (NDCs) framework, there will be an increase in cost

of EU Emissions Trading System (ETS) certificates as more EU countries work

to meet their decarbonisation commitments. This is due to the limited supply

of, and growing demand for, ETS certificates.

Time frame – medium

Likelihood – likely

Magnitude of impact before any mitigation action – low

Magnitude of impact with mitigation actions - low

The risk of impact is decreased through

digitalisation, which assumes a lower ETS

exposure level through product design.

Reputational risk of having a non-SBTi approved “net zero” target

What it means to reach ‘net zero carbon’ continues to evolve and concerns

have been raised that companies claiming carbon neutral status are

simply buying carbon credits, rather than taking concrete steps towards

minimising their own carbon footprint. As a result, companies are revisiting

their net zero target.

Time frame – medium

Likelihood - possible

Magnitude of impact before any mitigation action – moderate

Magnitude of impact with mitigation actions - low

We will continue to focus on our own

decarbonisation actions in alignment with the

latest globally recognised standards. Pearson

will submit a net zero long-term target to 2050

to the Science Based Targets Initiative (SBTi) for

validation to mitigate this risk.

* Impact scales:

Time frame

Short: within 5 years

Medium: between 5 – 10 years

Long: more than 10 years

Magnitude of impact

Low: below £5m

Moderate: £5m - £20m

High: £20m or above

Sustainability continued

Annual report and accounts 2023 Pearson plc 46

Strategic report

Opportunities

Pearson’s strategy focuses on empowering individuals and

communities by acquiring and credentialing skills across all

life stages. Last year, our products and services impacted the

lives of around 160 million global users, and we now have

1547 enterprise learning clients in Workforce Skills. Learning

encourages action, promotes collaboration, supports innovation,

and facilitates data-driven decisions for adopting more

sustainable practices.

Urgent, beyond value chain mitigation activities are essential

in the achievement of societal climate goals. By the very

nature of our purpose, Pearson has an opportunity to provide

the learning, credentialing and tools needed for a more

sustainable future. However, measuring the impact that

learning has on a global sustainability transformation is not a

straightforward endeavour and one that requires continuous

improvement in data and technology.

Nonetheless, the continuous decarbonisation of Pearson’s

products and operations through digitisation, energy

efficiency, and flexible working continue to put us on the

right path to achieving our long-term climate goals.

Resilience to climate change

Our climate risk analysis ran across multiple time periods up to

2050, to help us assess the speed of impact on our business

model of various scenarios, and to reflect the critical future

dates for reducing carbon emissions. The articulation of short-,

medium, and long-term time horizons aligns with our goals and

processes. The short-term horizon reflects our risk forecasting

process, including our going concern and viability statements.

The medium-term horizon to 2030 alludes to the date of our

reduction targets, and the long-term horizon marks societal goals

of achieving carbon neutrality by 2050.

The physical risk of Pearson’s business was assessed using both

the RCP 2.6 scenario (low GHG emissions that keep the world

below 2°C warming by 2100, aligned to current commitments

under the Paris Climate Agreement), and the RCP 7 scenario

(high GHG emissions with average warming greater than 3°C

by 2100). Our financial quantification above was based on the

pessimistic scenario such as RCP 7 and IEA Beyond 2°C.

Six physical assets were assessed for exposure to material

physical risk. These were chosen because they represent a

sample of assets providing a range of critical Pearson services

that, if disrupted, could result in delivery failures caused or

aggravated by climate physical risks. Each physical hazard was

mapped on a materiality matrix and changes in materiality from

2023 to 2050 were projected.

The analysis concluded that Pearson’s business is moderately

vulnerable to climate change from physical risks in the medium

and long-term. The main areas of exposure are climate change-

driven extreme heat and water scarcity which may affect the

operations of cloud-based data centres that play a central role in

our business strategy. Some of Pearson’s physical locations, such

as testing centres, are also moderately vulnerable to wildfires or

flooding that could impact normal business operations. However,

we have business contingency plans in place, including insurance,

to reduce our potential financial exposure to such impacts.

The transition risk of Pearson’s business was also assessed,

using four scenarios from the IEA’s World Energy Outlook 2021,

(WEO-2021). The analysis concluded that Pearson is minimally

vulnerable to transition risk in the 2030 time frame, but risk

increases for longer time horizons across all risk categories.

The main transition risks include the reputational risk associated

with having a net zero target which is reliant on offsetting

unabated emissions, and the increasing cost of ethically sourced

paper. The transition risks identified in the table on page 46,

are largely mitigated by the opportunities also identified in the

analysis. They include the further digitisation of our business,

developing climate-related educational content and services, and

adopting more ambitious reduction plans.

Impacts of climate-related risks and opportunities

The Board of Directors has undertaken a robust assessment

of the current risks facing Pearson as disclosed in the risk

section on pages 56-65 of this report. This assessment identifies

principal risks, as well as several emerging risks and risks which,

while more modest, could have a significant near-term impact.

The corporate risk register reflects the following conclusions:

— Climate change overall does not represent a principal risk

for Pearson. The financial impact of the aggregate climate-

change-related risks and opportunities individually and in

aggregate are well below the threshold for an item to be

considered a principal risk.

— The physical and transition risk assessment highlighted no

significant material risks arising from climate change in the

short term (within the next five years).

— There were no substantial transition risks in the short term.

However, in the medium term, the key risk is the reputational

risk associated with maintaining a net zero target to 2030. We

are mitigating this by realigning our long term targets with

updated guidance produced by the SBTi.

— On physical risks, there are no material short-term substantial

risks identified once the impact of mitigating activities is

taken into account. In the medium to longer term, the most

significant physical risk is water scarcity. In addition, whilst

certain sites were identified with exposure to impacts from

wildfire such as on closure of VUE test centres, or storms, the

impact of these is currently expected to be mitigated through

insurance policies and business continuity insurance.

In making this assessment, we considered the actions needed to

achieve our commitments, as well as the strategic and financial

impact of potential risks and opportunities. We concluded that

these did not have a material impact on the carrying value of any

assets and liabilities as of 31 December 2023, as we explain in

further detail in note 1c to the financial statements.

Strategic outlook

Our business model places the consumer at the heart of

everything we do, and we are integrating our products to create

a learning ecosystem that reaches our consumers across all of

their life stages. As we build out our digital learning capabilities,

we will continue to shift away from physical paper-based

products and services, in turn accelerating our decarbonisation

trajectory. In addition, we continue to reduce our property

footprint which also contributes to reducing our risk exposure

to physical and transitional risks, and we expect these trends to

continue. This year, we will be conducting a refreshed materiality

review in preparedness for climate-related reporting regulations.

This analysis will be closely integrated into broader corporate

strategy work and decision making.

By the end of 2023, we had achieved a reduction of 44% in our

Group emissions across our Scopes 1-3 (market-based) against

our 2018 baseline, putting us on track to achieve our 2030 target

of a reduction of at least 50%.

Annual report and accounts 2023 Pearson plc 47

Strategic report

We believe that the most meaningful and important contribution

that Pearson can make to society’s journey to net zero is by

focusing on reducing our absolute emissions, both in our own

activities and along our value chain, with scope 3 emissions

accounting for more than 95% of our total. Last year, we

published our Climate Action Plan, and we are currently

advancing our plans to do this beyond 2030 – mapping out the

carbon reduction actions that the business will need to take as

wider society does the same, in the context of developments in

and the evolution of carbon offset markets and in line with the

latest science-based guidance.

Metrics and targets

Our primary target is to reduce our absolute scope 1, 2 and

3 carbon emissions by 50% by 2030 (validated by the Science

Based Targets initiative) using a 2018 baseline. We have made

good progress this year, achieving a 44% reduction in emissions

since 2018.

Climate-related metrics

In addition to carbon reduction targets, Pearson has business-

relevant non-financial KPIs that address the climate-related risks

and opportunities discussed throughout this report, namely:

Metric

category Metrics Pages

GHG

emissions

Sustainability strategy

Progress against achieving net

zero carbon by 2030, as measured

through percentage carbon

reduction

42-43

Strategy Digital growth 24

Governance Remuneration

ESG weighting of 10% into LTIP

107

Our full set of environmental data and methodology for

calculations can be found in the ESG performance tables on

pages 48-55, and categories of scope 3 emissions included in

our targets are also detailed in our independent assurance

statement, see https://plc.pearson.com/en-GB/sustainability/

our-esg-reporting. Our emissions data is calculated following the

GHG Protocol Corporate Accounting and Reporting Standard and

can be summarised as follows:

Our emissions data

tCO

e 2023 2022

Scope 1 4,661* 4,622

Scope 2 location-based 14,052 29,034

Scope 2 market-based 14 182

Scope 3 302,572 362,473

Total location-based 321,285 396,128

Total market-based 307,247 367,276

Intensity ratio –

tCO

e/sales

(Scopes 1,2 market-based

and 3) 83.6 95.6

* Small increase in Scope 1 emissions primarily driven by an increase in activity for

company vehicles in the US.

Table of contents

Section Section

Page

Reference

Governance Board’s oversight of

climate-related risks

and opportunities

44-48

Management’s role in

assessing and managing

climate-related risks

and opportunities

Strategy Climate-related risks and

opportunities over the short,

medium and long term

44-48

Impact of climate-related risks

and opportunities

Pearson’s resilience taking

into consideration different

climate-related scenarios

Risk

management

Processes for identifying

and assessing climate-

related risks

Processes for managing

climate-related risks

Integration of climate-related

risks into the organisation’s

overall risk management

Metrics and

targets

Metrics used to assess

climate-related risks

and opportunities

Scope 1, scope 2, and scope

3 GHG emissions

Performance against targets 48

Sustainability continued

Annual report and accounts 2023 Pearson plc 48

Strategic report

About our reporting

This report provides a summary of Pearson’s sustainable business strategy and our environmental, social, and governance (ESG) performance for the calendar year ended 31 December 2023. The Board’s Reputation &

Responsibility Committee has reviewed the reported information, including the list of material topics on page 94.

Global Reporting Initiative (GRI)

Our report is in accordance with the GRI standards, using the GRI 1: Foundation 2021 guidance. There is no relevant GRI sector standard for our industry.

Sustainability Accounting Standards Board (SASB)

We continue to report in line with the SASB’s standards to provide industry-based insights into the most relevant sustainability-related risks and opportunities for the media, and professional services sectors.

UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDGs)

We were proud to participate in the Early Adopter Programme of the UN Global Communication on Progress (CoP) designed to add value and streamline sustainability reporting for all participating companies

of the UNGC. Our CoP is publicly available on our participant profile at: https://unglobalcompact.org/what-is-gc/participants/7319-Pearson-plc

Lifelong learning and education have an important role to play in achieving all the UN SDGs, but we focus our efforts on those where we have the greatest impact. Our priority SDGs are: 4 quality education, 8

decent work and economic growth, and 10 reducing inequalities.

ESG material issues reporting against GRI and SASB

Material issues GRI SASB Page/web reference Comments/omissions

Product

effectiveness

GRI 203-2: significant indirect impacts Risks, opportunities, and management approach: Pages 34-38

Performance: non-financial KPIs Page 24

Consumer

engagement

GRI 203-2: significant indirect impacts Risks, opportunities, and management approach: Pages 34-38, 16-17

Performance: non-financial KPIs Page 24

Digital growth GRI 203-2: significant indirect impacts Risks, opportunities, and management approach: Pages 34-38

Performance: non-financial KPIs - Page 24

Employee

learning and

development

GRI 404-1: average hours of training per

year, per employee

GRI 404-2: programmes for upgrading

employee skills and transition assistance

programmes

GRI 404-3: percentage of employees

receiving regular performance and

career development reviews

Risks, opportunities, and management approach: Pages 39-41

Performance: Pages 24, 39-41

We do not report

on average hours

of training, or % of

employees receiving

reviews. 100% of direct

employees are covered

by the Gallup survey.

Our performance

ESG data

Annual report and accounts 2023 Pearson plc 49

Strategic report

ESG data continued

Material issues GRI SASB Page/web reference Comments/omissions

Employee

engagement

SV-PS-330a.2. (1) voluntary and

(2) involuntary turnover rate

for employees

SV-PS-330a.3.

employee engagement %

Risks, opportunities, and management approach: Pages 39-41

Performance: Page 34

Inclusion and

diversity

405-1 Diversity of governance

bodies and employees

SV-PS-330a.1. & SV-ME-260a.1.

percentage of gender and racial/

ethnic group representation for:

(1) Executive Management

(2) professionals

(3) all other employees

SV-ME-260a.2. description of

policies and procedures to ensure

pluralism in news media content

Risks, opportunities, and management approach: Pages 40-41

Performance: Pages 24, 39-40

Social Equity portal: https://www.pearson.com/content/global-store/sites/

en-us/social-equity.html

Reducing our

environmental

impact

GHG Emission scope 1, 2, 3.

Baseline and methodology.

Anyoffsets including type,

amount,criteria

Risks, opportunities, and management approach: Pages 35, 42-43

TCFD Report: Pages 44-48

Performance: Pages 24, 42-43

Data privacy

and cyber

security

GRI 418 -1 Substantiated

complaints received concerning

breaches of customer privacy and

losses of customer data

SV-PS-230a.1description of

approach to identifying and

addressing data security risks

SV-PS-230a.2. description of

policies and practices relating to

collection, usage, and retention of

customer information

SV-PS-230a.3.

number of data breaches

percentage involving

customers' confidential business

information or personally

identifiable information

number of customers affected

The following sections of our report detail:

— our approach to data security risks: Page 100

— governance of data privacy, cyber security and technology resilience:

Page 96

— approach to customer data and safeguarding and training provided:

Pages 34, 38

— consumer-facing privacy centre explaining how Pearson uses personal

information: https://www.pearson.com/en-gb/privacy-center.html

In the event of a reportable breach, we

would disclose information about the

incident and commit to contact any

affected data subjects in a timely way.

In line with regulations, we will disclose

material lapses to the relevant regulators.

To the extent that any relevant

regulator should find fault with our

data management and/or data security

practices, they will publish their

findings/sanctions.

Journalistic

integrity &

sponsorship

identification

SV-ME-270a.3 Description of

approach for ensuring

journalistic integrity of news

programming related to: (1)

truthfulness, accuracy, objectivity,

fairness, and accountability, (2)

independence of content and/

or transparency of potential bias,

and (3) protection of privacy and

limitation of harm

— Business Partner Global Content Policy, on page 94

Annual report and accounts 2023 Pearson plc 50

Strategic report

GRI General Disclosures Index

Disclosure Page/Location Comment

2-1 Organisational details 68, 72,74

2-2 Entities included in the organisation’s

sustainability reporting

94-96

2-3 Reporting period, frequency and

contact point

2023 annual report, sustainability@

pearson.com

2-4 Restatements of information 81

2-5 External assurance https://plc.pearson.com/en-GB/

purpose/our-esg-reporting

2-6 Activities, value chain and other

business relationships

2-7 Employees 53-54

2-8 Workers who are not employees We do not currently report on

workers who are not employees.

Most common type of workers are

regular employees (17,128) and

most common type of work

performed is in testing centres,

technology, sales, customer services,

and professional development

2-9 Governance structure and composition 66-80

2-10 Nomination and selection of the

highest governance body

88-90

2-11 Chair of the highest governance body 66

2-12 Role of the highest governance body

in overseeing the management of impacts

68-80

2-13 Delegation of responsibility for

managing impacts

2-14 Role of the highest governance body

in sustainability reporting

94-96

Disclosure Page/Location Comment

2-15 Conflicts of interest 76

2-16 Communication of critical concerns 94

2-17 Collective knowledge of the highest

governance body

74-77

2-18 Evaluation of the performance of the

highest governance body

85-87

2-19 Remuneration policies 107-135

2-20 Process to determine remuneration 110

2-21 Annual total compensation ratio 110

2-22 Statement on sustainable

development strategy

2-23 Policy commitments 16

2-24 Embedding policy commitments 16-20

2-25 Processes to remediate

negative impacts

94 https://plc.pearson.com/en-GB/

corporate-policies

2-26 Mechanisms for seeking advice and

raising concerns

94 https://plc.pearson.com/en-GB/

corporate-policies

2-27 Compliance with laws and regulations 94

2-28 Membership associations 92 We are also members of the Global

Business Coalition for Education,

and the Corporate Consultative

Group of the World Resource

Institute (WRI).

2-29 Approach to stakeholder engagement 16-20

2-30 Collective bargaining agreements 134 Board members engage with

employees on a regular basis.

Annual report and accounts 2023 Pearson plc 51

Strategic report

ESG data continued

Intensity ratio 2023 2022

tCO

/ m £ sales revenue (scope 1, 2 market-based and 3) 83.6 95.6

Energy 2023 2022

% electricity from renewable sources 100% 99%

Total electricity consumption from renewable sources only (MWh) 36,321 83,523

Total electricity consumption from non-renewable sources only (MWh) 0 957

On-site generated electricity (MWh) 177 184

Total gas consumption (MWh) 18,309 24,170

Total fuel oil consumption (MWh) 49 159

Vehicles (MWh) 4,693** 347

Total energy consumption (MWh) 59,372 109,340

Global (gas, electricity and transport) 59,323 108,997

UK (gas, electricity and transport) 11,519 29,811

Resource use 2023 2022

Paper used (t) 22,859 24,187

% FSC 50% 33%

% PEFC 6% 20%

% SFI 13% 9%

Waste 2023 2022

Total waste generated (t) 680*** 1,298

Share of waste recycled in office space 23.9% 17.7%

Water 2023 2022

Total water consumption (m

) 84,857*** 538,556

** An increase in activity for company vehicles in the US is included in this year’s figures.

*** We report estimated water and waste in some of our properties by applying an intensity ratio per sqm based on all actual data

available. This year, the intensity ratio per sqm for waste generated and water consumption was much lower than 2022.

ESG performance tables

Environment

Methodology: We follow the requirements from the GHG Protocol Corporate Accounting and

Reporting Standard (revised edition) to calculate our emissions.

For scope 2, we use the dual reporting methodology (location and market-based approach), together

with some of the latest emission factors from recognised public sources, including, butnot limitedto,

the UK Department for Business, Energy and Industrial Strategy, the International Energy Agency,

the US Energy Information Administration, the US Environmental Protection Agency, and the

Intergovernmental Panel on Climate Change (IPCC). Energy use includes gas and electricity

consumption in MWh and vehicle fuel use converted from mileage into MWh using BEIS conversion

factors. We are also using the latest global warming potential from the IPCC’s Sixth Assessment Report.

An independent third party has verified and provided limited assurance of our energy

consumption; scope 1, 2 and 3 GHG emissions; and renewable electricity claims, as well as

our social KPIs. See SLR Consulting assurance statement here: https://plc.pearson.com/en-GB/

sustainability/our-esg-reporting

Greenhouse gas (GHG) (carbon dioxide equivalent) emissions overview (metric tons CO

2023 2022

Scope 1 4,661 4,622

Scope 2 (market-based

) 14* 182

Scope 2 (location-based

) 14,052 29,034

Scope 3 302,572 362,473

Total - location-based 321,285 396,128

Total - market-based 307,247 367,276

Total global scope 1 and 2 (location-based) 18,713 33,656

Total UK scope 1 and 2 (location-based) 2,280 5,671

Total global scope 1 and 2 (market-based) 4,675 4,804

Total UK scope 1 and 2 (market-based) 821 1,662

1. The market-based approach reflects emissions from electricity purposefully chosen.

It derives emission factors from a contract for the sale and purchase of energy.

2. The location-based approach reflects the average emissions intensity of grids on which energy

consumption occurs.

* We purchase renewable electricity in countries of consumption. For American Samoa, Bangladesh, Kenya, Republic of Korea,

Northern Marina Islands and Romania, Pearson was not able to purchase country-specific Energy Attribute Certificates and we

had to buy from neighbouring countries/regions such as United States, India, Uganda, China and Poland. However, this represents

only 0.1% of Pearson total electricity consumption.

Annual report and accounts 2023 Pearson plc 52

Strategic report

Board and Executive Management team's

gender identity or sex

Number

of Board

members

Percentage

of the

Board

Number of senior

positions on the

Board (CEO, CFO,

SID and Chair)

Number in

Executive

Management*

Percentage

of Executive

Management

Men 5 45.5 3 6 54.5

Women 6 54.5 1 5 45.5

Other categories

Not specified / prefer not to say

Board and Executive Management team's

ethnic background

Number

of Board

members

Percentage

of the

Board

Number of senior

positions on the

Board (CEO, CFO,

SID and Chair)

Number in

Executive

Management*

Percentage

of Executive

Management

White British or other White

(including minority-white groups) 8 73 4 8 73

Mixed/Multiple Ethnic Groups 2 18 1 9

Asian/Asian British 1 9 1 9

Black/African/Caribbean/Black

British

Other ethnic group, including

Arab 1 9

Not specified/ prefer not to say

* Prepared in accordance with UK Listing Rule 9.8.6R(10) as at 31 December 2023. As prescribed by this rule and for the purpose of

this disclosure, the Executive Management includes the Company Secretary. The data contained in the tables above was collected

as part of the annual declaration process, whereby the Board and the Executive Management team received declaration forms for

self-completion. The declaration forms included, for all individuals whose data is being reported, the same questions relating to

ethnicity and gender. The data is used for statistical reporting purposes and is provided with consent.

Female leadership breakdown 2023 2022

Senior leadership 47% 41%

VP and Director 47% 48%

Manager 51% 51%

Percentage of women in technology roles (IT/engineering) 30% 31%

Employee racial and ethnic diversity breakdown 2023 2022

Total workforce (US and UK) 32% (US) / 17% (UK) 32% (US) / 18% (UK)

Senior leadership (US and UK) 15% (US) / 14% (UK) 19% (US) / 12% (UK)

VP and Director (US and UK) 18% (US) / 16% (UK) 18% (US) / 13% (UK)

Manager (US and UK) 27% (US) / 18% (UK) 25% (US) / 14% (UK)

Social

All employee figures, with the exception of total average number of employees (as noted below) are

based on employee volumes as at 31 December 2023.

Our employees 2023 2022

Total average number of employees for the year

†

18,360 20,438

Employees by geography (regional representation) 17,612 20,169

US as of 31 December 9,241 10,694

UK as of 31 December 3,359 3,931

Rest of world as of 31 December 5,012 5,544

† Total average number of employees is calculated using a Full-time Equivalent (FTE) methodology, as an average across the

reporting period. Seasonal/temporary staff are excluded from calculation.

Gender diversity breakdown 2023 2022

Total number of permanent, regular employees 97% 97%

Male 40% 40%

Female 59% 59%

Non-binary 0% 0%

No data 1% 1%

Total number of temporary, limited-term employees 3% 3%

Male 36% 32%

Female 63% 66%

Non-binary 0% 0%

No data 1% 2%

Total full-time, regular employees 79% 79%

Male 44% 44%

Female 56% 55%

Non-binary 0% 0%

Not disclosed 1% 1%

Total part-time, regular employees 21% 21%

Male 27% 27%

Female 72% 72%

Non-binary 0% 0%

Not disclosed 1% 1%

Annual report and accounts 2023 Pearson plc 53

Strategic report

ESG data continued

Employee racial and ethnic diversity breakdown - US 2023 2022

% of total workforce 32% 32%

Asian 11% 10%

Black or African American 11% 11%

Hispanic or Latino 9% 9%

Other 2% 2%

White 68% 67%

Not stated 0% 1%

Employee racial and ethnic diversity breakdown - UK 2023 2022

% of total workforce 17% 18%

Asian 10% 10%

Black 4% 4%

Hispanic or Latino 0% 0%

Other 4% 4%

White 64% 66%

Not stated 18% 16%

% of total management workforce (US and UK) 2023 2022

Asian 12% 10%

Black or African American 4% 4%

Hispanic or Latino 4% 4%

Other 2% 2%

White 76% 77%

Not stated 2% 3%

Turnover 2023 2022

Turnover rate, total average for the year

6,446 / 34% 6,974 / 33%

Voluntary turnover 3,037 / 16% 4,658 / 22%

Involuntary turnover 3,409 / 18% 2,316 / 11%

% calculated using average 2023 H/C of 18,360, not 2023 year-end position.

Turnover by gender 2023 2022

Total female 3,840 / 20% 4,233 / 20%

Total male 2,475 / 13 % 2,659 / 12%

Non-binary 21 / 0% 6 / 0%

Not disclosed 110 / 1% 76 / 0%

Turnover by age group 2023 2022

Under 30 years old 1,693 / 9% 1,720 / 8%

30-50 years old 3,324 / 18% 3,449 / 16%

Over 50 years old 1,414 / 7% 1,785 / 8%

No date 15 / 0% 20 / 0%

New hires 2023 2022

Total number and rate of new employee hires (number of hires/

average headcount)

3,770 / 20% 5,600 / 26%

Total number of new hires - female 2,289 / 61% 3,378 / 60%

Total number of new hires - male 1,374 / 36% 2,076 / 37%

Total number of new hires - non-binary 19 / 1% 24 / 0%

Total number of new hires - not-disclosed 88 / 2% 122 / 2%

% calculated using average 2023 H/C of 18,360, not 2023 year-end position.

New hires by age group 2023 2022

Under 30 years old 38% 38%

30-50 years old 44% 44%

Over 50 years old 18% 17%

No date 0% 1%

Employee engagement measures

2023 2022

Engagement 4.09^ 3.96^

Inclusion 4.21^ 4.12^

Progress 73% 67%

Learning and growth 76% 72%

Volunteering hours 20,694 n/a

Sourced from Gallup Access. Propriety data.

^ GrandMean on a five-point Likert scale.

BTEC International Registrations 2023 2022

65,033

37,994

Governance 2023 2022

Total number of concerns raised and investigated 92 92

Percentage of employees completing code of conduct certification

or training 100% 100%

Increase due to partnership with the Ministry of Education in Jordan to offer BTEC qualifications in public schools.

Annual report and accounts 2023 Pearson plc 54

Strategic report

Non-financial and sustainability information statement

In accordance with Sections 414CA and 414CB of the Companies Act 2006, which outline requirements for non-financial reporting, the table below signposts to content in this strategic report, relevant to the

management, performance and position of the company, and the impact of our activities in specific non-financial areas.

Non-financial matter and relevant

sections of Annual Report Page/link reference

Business model Business model: Page 22

Stakeholders: Page 16

ESG-linked remuneration: Page 113

Environmental matters

Climate

Resource use

Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies

Position and performance: Pages 42-43

Risks/opportunities: Pages 45

KPIs: Pages 24

Climate-related financial disclosure as defined in section 414CA(2a) Companies Act 2006’: Governance – (a) on page 40; Strategy – (d), (e) and (f) on

pages 41-43; Risk management – (b) and (c) on page 42; Metrics and Targets – (g) and (h) on page 48.

Social and community matters

Driving learning for everyone with our product

Social engagement

Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies

Position and performance: Pages 39-41

Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf

KPIs: Page 24

Employee matters

Employee engagement

Investing in talent

Diversity, equity and inclusion

Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies

Position and performance: Pages 39-41

Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf

KPIs: Page 24

Human rights matters

Customer welfare (data privacy, security, and

safeguarding)

Empowering our people to make a difference

Sustainable procurement

Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies

Position and performance: Page 39

Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf

KPIs: Page 24

Anti-corruption and bribery matters Policies: https://plc.pearson.com/en-GB/corporate-policies

Position and performance: Page 99

Risks/opportunities: Pages 100-101

KPIs: Page 24

Pearson has a wide range of policies that underpin our sustainability commitments, including:

— Pearson Code of Conduct

— Pearson Business Partners’ Code of Conduct (Partner Code)

— Responsible Procurement Policy; and our Modern Slavery and Human Rights Statement

— Anti-Bribery and Corruption (ABC) Policy; Raising Concerns and Anti-Retaliation Policy

— Pearson’s safeguarding principles (include data privacy/security)

— Global Content Policy

The implementation of these policies are discussed throughout the report and on our website.

Annual report and accounts 2023 Pearson plc 55

Strategic report

Risk management

The internal

audit function

(Assurance)

The internal

audit function

is responsible

for providing

independent

assurance to

management and

the Audit Committee

on the design and

effectiveness of

internal controls, to

mitigate strategic,

financial, operational

and compliance risks.

Risk

Effective risk management is essential to executing our strategy, achieving sustainable shareholder value, protecting our brand,

and ensuring good governance.

The table below sets out the Group’s governance structure for risk management.

— Provides oversight and assurance to the Board concerning the integrity of the

company’s procedures for identifying, assessing, managing, and reporting on risk

— Monitors and evaluates the Group’s compliance and risk management

processes and control programmes

— Conducts targeted reviews of key risks

— Approves the Group risk management framework

— Approves internal audit plans

— Considers the Group’s impact on the communities in which Pearson operates,

including ensuring that risk management processes are in place to manage

relevant risks

— Comprises the CEO, CFO, and other senior leaders as shown on page 68

— Accountable for ensuring that risks are mitigated in line with risk appetite

— Responsible for the execution of the Group’s strategy

— Responsible for reviewing and approving the principal risks, mitigation plans

and controls

— Reports to the Audit Committee on risks where required

Plc Board (oversight)

Audit Committee (oversight)

Reputation & Responsibility Committee (oversight)

Pearson Executive Management (PEM) (identification, assessment,

and mitigation)

— Responsible for the Group’s strategy

— Ultimately responsible for reviewing management’s assessment of the

Group’s principal risks

— Approves the annual budget and long-range financial plans

— Determines risk appetite in line with the Group’s strategy

— Senior leadership is responsible for monitoring, mitigating, and reporting on risk

— Risk committees within each division assess the principal risks and implement

further sub-committees as appropriate for division-specific exposures

— Functional heads work in conjunction with group technical experts to monitor

and manage significant Group risks. These experts provide operational

support, guidance, policy, and advice

— Dedicated teams providing guidance, review, and assurance over key

operational and financial risks including finance, legal, and compliance

— Personnel across the company are trained in relevant risk management to

identify, assess, mitigate and escalate risks

Enterprise Risk Management function (identification, assessment,

and mitigation)

Senior leadership (identification, assessment, and mitigation)

Technical specialists (identification, assessment, and mitigation)

Risk management experts (identification, mitigation, and assurance)

Pearson Personnel (identification, assessment, and mitigation)

— Prepares the Group risk management framework

— Maintains the Group risk register and the list of principal risks

— Reviews risks with divisions to assess and monitor risk exposures

— Prepares a consolidated risk view for the Executive Management

— Provides oversight over Group risk management activity

— Reports to the Audit Committee on risks

Annual report and accounts 2023 Pearson plc 56

Strategic report

Risk oversight

Risks are managed by members of the Pearson Executive

Management team (PEM), either on a divisional basis or by

function (as set out in the accountability for principal risks section

on page 63).

Risk owners conduct regular risk reviews with their leadership

teams, consulting others where appropriate, including technical

specialists, either within their division or operating in one

of the centres of expertise. Risk reports are shared with key

stakeholders, including the Enterprise Risk Management team,

and are discussed at PEM team meetings.

The Audit Committee has the delegated responsibility for

reviewing the effectiveness of the Group’s procedures for the

identification, assessment, management, and reporting of risk.

Each division is expected to present an overview of its risk register to

the Audit Committee at least annually and to provide an annual deep

dive on key risks, supported by central risk team experts as required.

Deep dive sessions are also held with enterprise-wide functions such as

tax, treasury and cyber security.

The Audit Committee uses these deep dive sessions to

understand the rigour of management’s risk scanning and to

challenge any judgements being made in response to risks.

The internal audit team provides independent assurance to the

Audit Committee on the design and effectiveness of internal

processes, to mitigate strategic, financial, operational and

compliance risks. Internal audit plans are aligned to the principal

risks but also consider other key risk areas and other assurances

available. Plans are agreed in advance with the PEM team and

the Audit Committee.

Risk environment

The Group operates in markets in learning, content, assessment and

qualifications where it has held leading positions over several years

and where the businesses and markets have progressively become

more digital.

Factors affecting the markets in which the Group operates include

the Group’s position as an accredited provider of high-stakes tests,

organisational capability, competitive dynamics, learner preferences,

delivery methods including the growing adoption of AI tools and the

reputation of companies operating in the market. The Group seeks

to maximise the opportunities from changing market conditions

while balancing its expansion with appropriate monitoring and

understanding of associated risks.

Further information on the Group’s divisions and key markets can be

found in the strategy section on pages 12-21.

Risk identification and monitoring

Our risk identification processes follow a dual approach. Firstly,

we take a top-down view which considers strategic risks relevant

across the whole of Pearson. Secondly, we take a bottom-up

approach at a divisional or functional level, to identify and

assess a complete list of each business unit’s risks, with key risks

highlighted in management reporting and in each division’s long-

range plan.

Detailed interviews are conducted throughout the year with each

division to assist with risk assessment and management. Risks

are then ranked according to their likely impact as principal risks,

significant near-term risks, emerging risks, or other risks.

Classification as principal risks, significant

near-term risks, and emerging risks

We define our principal risks as those which could have a

significant and ongoing effect on the Group’s valuation by

reducing the demand for, or profitability of, its products and

services. This assessment considers multiple dynamics including

the duration, velocity, and size of the potential impact. Effective

management of these risks is essential to executing our

strategy, achieving sustainable shareholder value, maintaining

our reputation, and ensuring good governance. However, they

do not comprise all the risks associated with our business, and

are not set out in priority order. Additional risks not known to

management, or currently deemed to be less material, may also

have an adverse effect on our business.

Significant near-term risks are risks which could have a significant

near-term cash impact or affect the Group’s short-term results,

but would not be expected to have a significant ongoing effect on

company valuation.

Emerging risks are risks which we believe are well mitigated in

the short term but may represent a significant future opportunity

or threat. These include company-specific risks and risks affecting

the macro economy.

Principal risks

The Board of Directors has undertaken a robust assessment of

the current risks facing Pearson, in accordance with Provision 28

of the 2018 UK Corporate Governance Code. This assessment

identified the following principal risks, as well as a number of

emerging risks and risks which while more modest could have a

significant near-term impact. For each of our principal risks, the

tables below identifies:

— the change in the risk over the last 12 months

— the movement and outlook for that risk

— management actions

— the link between the risk and Group strategy

— our risk tolerance

— examples of the risk

— risk ‘contagion’, i.e. the extent to which issues in one area

could increase the risk in other areas

— the assessed risk ‘velocity’, i.e. an indication of the speed at

which a risk could materially impact the Group.

Annual report and accounts 2023 Pearson plc 57

Strategic report

Accreditation risk

Description

Termination or modification of accreditation due to policy changes or failure

to maintain the accreditation of our courses and assessments by states,

countries, and professional associations, reducing their eligibility for funding or

attractiveness to learners. Awarding bodies may also require modification of

tests to continue to receive accreditation which may reduce the convenience

to learners or increase the cost of delivery.

Movement

and outlook

The risk has increased to a high level, from moderate-high, due to an uncertain

political environment with upcoming elections in the UK and US and upcoming

contract renewals in a number of assessments businesses during 2024.

During the year the Group achieved accreditation to deliver the Pearson

Test of English in Canada for study and migration. BTEC results season was

successfully executed. The risk is expected to remain at an elevated level for

the foreseeable future.

Management

actions

1. Focus on creating a culture where learners and awarding bodies can

depend on Pearson and know that we will meet their standards. We

recognise our obligations, particularly in the testing space, to ensure

prompt and accurate exam grading, and take actions accordingly.

2. Continuing the evolution and enhancement of security, data and

governance standards to ensure the Group continues to meet and exceed

the required standards to be an accredited provider.

3. Broadening the range of services offered and the range of stakeholders.

During the year, Pearson Test of English won recognition for Canadian

Student Direct Stream and economic migration visa applications and

the Group acquired PDRI which provides recruitment assessment for

Federal employees.

4. Continue to grow full-service offering, including online proctoring. This

helps to ensure the Group has offerings that can cater for customers’

many needs, especially in the global assessment market.

5. Focus on flawless or near flawless execution of marking and delivering

assessment results.

Link to

strategy

Ensuring we can participate in satisfying the growing need for accreditation

and certification.

Risk

tolerance

Low – Pearson seeks to operate in stable, well-regulated markets with known

requirements to be accredited, and then has a low tolerance for taking risks

which may jeopardise that accreditation.

Examples of

risks

Political and regulatory.

Risk

contagion

Accreditation risks are likely to have a financial impact but have limited risk

of contagion.

Risk velocity

Changes in regulation or loss of contracts could occur within a 12

month period.

Artificial Intelligence, Content and Channel risks

Description

The risk that Pearson’s intellectual property is harder to protect as a result of

increased content generation through artificial intelligence and that Pearson’s

content and method of delivery (channel) is, or is perceived to be, insufficiently

differentiated in terms of outcomes or learner experience. This could lead to

lost sales and a significant decline in the market value of Pearson.

Movement

and outlook

The risk has increased from a moderate to a moderate-high level. The Group is

demonstrating capability in leveraging improvements in AI but the accelerating

pace of change increases the risk.

The risk is expected to remain at a similar level for the next 12 months, as

more companies bring new products and services to market. The Group is

also anticipating revenue growth from a number of new products, including

Channels, which have not yet been proven on a large scale.

Management

actions

1. Use of AI in both developing content and delivering outcomes, such as the

successful beta launch of AI study tools in Higher Education and use of

large language models in English Language Learning.

2. Increasing use of interactivity and multi-channel content, particularly on Pearson+,

including by offering podcast content and videos (Pearson+ Channels).

3. Launch of content offerings in Pearson VUE to aid test takers in their

test preparation.

4. Deployment of new curriculum materials in Virtual Schools and launch of the

Connections Academy Career Pathways programme.

5. Actions to reduce piracy and to manage and enforce intellectual property rights

including legal enforcement where appropriate.

6. Investment in acquisitions offering new methods for testing or delivering content.

Link to

strategy

Managing AI, content and channel risk helps achieve our offering of high-

quality, affordable products which lead to better access and outcomes,

protecting revenue.

Risk

tolerance

Medium – This is a strategic risk and Pearson should be rewarded for

successfully developing and delivering products and services that consumers

value. Some risk is accepted to ensure the consumer remains at the centre of

what we do.

Examples of

risks

— Intellectual property protection

— Method of delivery

— Balance of content creation and content purchased

Risk

contagion

Failure to deliver high-quality and engaging products and services may

have an impact on reputation and responsibility risks and on meeting

customer expectations.

Risk velocity

Significant short-term impacts are possible but due to longer-term contracts or the

time required for instructors, or consumers themselves, to learn how to use the

new products and services, it is more likely that the impact will be felt over years.

Risk continued

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Strategic report

Capability risk

Description Inability to meet our contractual obligations or to transform as required by our

strategy due to infrastructure, systems or organisational challenges.

Movement

and outlook

The risk continues to be rated at moderate. The Group has successfully

executed its cost efficiency programme resulting in a lower cost base, albeit

ongoing maintenance of cost levels needs constant and rigorous monitoring

and control. The Group’s financial plan assumes that costs will be successfully

managed in all divisions, despite the lower cost base.

Further improvements have been made in data and cyber governance and

resilience during the year. The Group is undergoing a migration process

that will enhance its system resilience and reduce the risk of outages. The

migration involves moving key servers to the cloud or to a new consolidated

US site, with the major remaining work streams expected to be completed

during 2024. Agility has been demonstrated in the use of new technology such

as the use of generative AI. Capability remains a foundational requirement to

continue to meet the Group’s objectives, with greater risk where the Group is

entering new markets, such as Workforce Skills, which has experienced some

delivery challenges.

Management

actions

1. Risk ratings are applied to each system and plans put in place to maintain

system up time. Recovery plans are in place in the event of downtime to

allow customers to maintain as much functionality as possible or to get

back online as soon as possible.

2. Regular patching, activity, employee training and security measures such

as multi-factor authentication help to ensure the stability and security of

key Group systems.

3. Migration of servers for platform products to the cloud to

enhance resilience.

4. Enhanced agility, notably in how the Group has been able to develop and

deploy beta tests of products using large language models.

Management

actions

continued

5. Dedicated resources to focus on testing and developing AI products and

to understand evolving market capabilities.

6. Supply chain planning to ensure that the Group is able to respond should

a key customer or supplier fail.

7. Enhanced focus on developing products to serve new markets and user

groups and cross-selling between divisions.

8. Employee engagement monitoring and learning development programmes

to help retain key talent. Senior management has undertaken leadership

capability assessments and changes have been made to enhance

capability, including new hires and development training.

9. Acquisitions such as Faethm and Mondly have been made to build the

Group’s capability in key strategic areas, such as AI and direct to consumer

language learning.

10. The Group regularly reviews its cost base to ensure its competitiveness

and identify operations for efficiencies.

Link to

strategy

Capability relates to the three priorities to unlock growth:

— Consumer-focused and technology-enhanced approach

— Portfolio and organisational structure

— Talent and culture

Risk

tolerance

Medium – the Group aims to ensure it has the capability to deliver strategic

objectives, requiring strong coordination and planning, but without

stifling innovation.

Examples of

risks

— Business resilience

— Business transformation and change

— IT resilience

— Safety and corporate security

— Talent

Risk

contagion

Failures in capability could result in increased reputation and responsibility risk

and failures to meet customer expectations.

Risk velocity

Failures of capability could impact within a six-month period.

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Strategic report

Competitive marketplace

Description

Significant changes in our target markets could make those markets less

attractive. This could be due to significant changes in demand or in supply

which impact the addressable market, market share and margins (e.g. changes

in enrolments, in-sourcing of learning and assessment by customers, open

educational resources, a shift from in-person to virtual learning or vice versa,

or innovations in areas such as generative AI).

Movement

and outlook

The risk has remained at a moderate-high level.

The largest risk to the Group relates to the large value of customer contracts

scheduled for renewal during 2024, particularly in US Student Assessment.

Pearson’s Virtual Schools business faces revenue headwinds following the

termination of one of its major customers and with another due to terminate

in the fall of 2024. Both have decided to operate services in-house.

In Higher Education, the courseware market includes channel partners who

operate at low margins, as well as competition from various sources including,

open education resources and new entrants. The Group faces a risk of

financial loss should a channel partner fail with balances outstanding to

the Group. Market share loss in Higher Education stabilised during 2023.

Channels was launched as an additional paid product potentially offering a

new revenue stream.

The risk is expected to remain elevated for the next 12 months, due to the

level of competitor activity being observed, as well as continued investment in

educational technology.

Management

actions

1. The Group’s Assessment & Qualifications and Virtual Learning businesses,

as service businesses, have a particular focus on working in partnership

with customers, including IP owners, to ensure that their needs are being

met, resulting in high retention rates on the long-term contracts in place.

2. A significant proportion of the Group’s revenue comes from governments

or bodies funded by governments (for example, schools and colleges)

where higher retention rates are typically observed, provided accreditation

and customer expectations risks are well managed (see Accreditation for

further information).

3. The strategy in Higher Education has been focused on reducing reliance

on channel partners and the opportunity for secondary resale by providing

digital solutions.

Management

actions

continued

4. The Group invests in emerging and evolving technologies to lead and respond to

changes in market dynamics. Examples include the launch of AI products using

large language models in Higher Education in beta and use of AI in workforce.

5. The Group’s strategy is to address learners wherever they choose to learn,

reducing reliance on learners’ choosing particular types of institution.

Direct to consumer offerings such as Mondly and Pearson+ can be

accessed via smartphone by anyone, and VUE’s international test centre

network (also used by Pearson Test of English) allows test takers to sit

exams close to home. This complements our existing businesses such

as Higher Education and US Student Assessment where the Group is

introduced to learners through their college or school.

6. Competitive analysis is undertaken to monitor and respond to competitive

threats, with decentralised teams able to mobilise quickly to maximise

opportunities and manage risk.

Link to

strategy

We have identified three big global opportunities and associated marketplaces:

— Technology disruption in education

— The workforce skills gap

— The growing need for accreditation and certification

Risk

tolerance

Medium – This is a strategic risk associated with successfully selecting

attractive global opportunities and seizing them. Pearson seeks to lead

the shift to digital ways of learning and consequently to maintain strong market

positions.

Examples of

risks

— Substitutes

— Market pricing

— Product differentiation

— Consumer learning preferences

Risk

contagion

Changes in the competitive marketplace could increase portfolio change.

Risk

velocity

Changes are to be expected in the global learning market over the Group’s five-

year planning horizon, but the timing and pace of such changes is uncertain.

Pearson’s Assessment & Qualifications and Virtual Schools businesses benefit

from long-term contracts, which reduce the potential velocity in these divisions

in particular.

Risk continued

Annual report and accounts 2023 Pearson plc 60

Strategic report

Customer expectations

Description

Rising end-user expectations increase the need to offer differentiated value

propositions, risking margin pressure to meet these expectations and

potential loss of sales if not successful.

Movement

and outlook

The risk has remained at a moderate level. While the risk is well managed

within many of our businesses, as demonstrated by strong NPS scores

and retention rates, cost pressures and a changing technology landscape

are leading to changes in customer expectations. Evidence of higher

customer expectations has been observed in the direct to consumer

market, particularly for Mondly, where the cost of acquiring and retaining

new learners is high, leading to some re-balancing towards offering language

tuition for enterprises. Concerns about identity verification and the risk of

cheating have resulted in some increase in demand for in-person testing in

our VUE and PTE businesses.

In Workforce Skills, feedback from customers led to a re-focus on modular

solutions rather than a fully integrated platform as previously envisaged.

The outlook is expected to be similar for the next 12 months.

Management

actions

1. Monitoring and targeting strong NPS scores, responding to

customer feedback.

2. The Group’s direct to consumer offerings of Mondly and Pearson+ provide

valuable insights about usage.

3. Our service businesses conduct regular reviews with customers to ensure

that their expectations are well understood and met and where gaps arise,

steps are taken to address these concerns.

Link to

strategy

Focus on delighting our customers and meeting their expectations.

Risk

tolerance

Medium – This is a strategic risk and Pearson should be rewarded for

successfully developing and delivering products and services that consumers

value. Some risk is accepted to ensure the consumer remains at the centre of

what we do.

Examples of

risks

— Customer experience

— Data architecture and usage

— Accessibility

Risk

contagion

Failure to produce products and services meeting customer expectations

could also impact reputation and responsibility risks.

Risk velocity

Typically, one to three years, as long-term contracts run off.

Portfolio change

Description

Failure to effectively execute desired or required portfolio changes to promote

scale or capability and increase focus on key divisional and geographic

markets, due to either execution failures or inability to secure transactions at

appropriate valuations.

Movement

and outlook

The risk has reduced to moderate-low as recent acquisitions are largely

integrated and disposals have been successfully executed.

The risk level will remain at a similar level until further portfolio activity

is undertaken.

Management

actions

1. Investment plans included in strategic plans, aligning requirements with

divisional structure.

2. Disposal of the Pearson Online Learning Services business, helping to

focus the group on future growth opportunities.

3. Acquisition of PDRI, significantly expanding Pearson’s services to the US

federal government.

4. An experienced Corporate Finance team to execute transactions,

supported by a dedicated post-deal Operations team.

5. Pearson Ventures allows Pearson to take stakes in companies in early

funding rounds supporting growth through innovation.

Link to

strategy

Portfolio and organisational structure to unlock growth.

Risk

tolerance

Medium – The Group seeks to balance carefully the opportunity to achieve

growth through increasing capability and/or scale with the execution risk of

portfolio change.

Examples of

risks

— Identification of requirements

— Achieving value on acquisitions/disposals

— Integration of acquisitions

Risk

contagion

Failures in managing portfolio change could impact capability and the ability to

meet customer expectations.

Risk velocity

The speed of achieving the full benefits of an acquisition will vary depending

on the size and scope of the acquisition, but typically from six months for a

simple small acquisition to two years for a larger complex transaction.

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Strategic report

Reputation & responsibility

Description

The risk of serious reputational harm through failure to meet obligations

to key stakeholders. These include legal and regulatory requirements,

the possibility of serious unethical behaviour and serious breaches of

customer trust.

Movement

and outlook

The risk remains at a moderate to high level, due to high ongoing cyber

security threats and reputational risks, including data privacy and

biometric risks, and the complexity of navigating different regional

regulatory environments.

The Group’s aim is to operate in a highly reputable and responsible

manner and so we intend to maintain strong mitigations to reputation and

responsibility risks. However, numerous threats exist including from those

who seek to do harm to the Group or to its customers, including nation-state

actors, organised criminal rings, and ransomware attackers, so constant

vigilance is required.

Management

actions

1. Dedicated risk management teams throughout the organisation monitor

and respond to key risks. These teams provide regular updates to senior

management and report to the Reputation & Responsibility Committee or

Audit Committee as relevant.

2. Mandatory training for all staff covers key reputational risks including cyber

and data risks.

3. Insurance cover, where available, supports the Group financially in the

event of major incidents.

4. The Group makes significant investments to ensure high levels of IT

resilience, including migrating systems to the cloud. Tools are in place to

repel cyber threats and safeguard customer information.

Management

actions

continued

5. Cyber security and data privacy are topics which are always reviewed as

part of the divisional risk deep dive exercises undertaken and reported to

the Audit Committee. This work highlights any issues which have arisen

and the relative vulnerability of platforms and software.

6. Strong financial controls are in place which are monitored by the controls

steering committee and compliance teams as well as local management.

7. Reviews are undertaken after incidents and significant near misses to

allow lessons to be learned and any remedial actions put in place. Internal

Audit are asked to provide assurance around remediation actions for key

risks in a timely manner.

Link to

strategy

Our reputation and commitment to behaving responsibly underpin our

strategy to be a trusted partner for consumers, businesses and educators.

Risk

tolerance

Low – the Group seeks to be a highly trusted consumer learning brand. Any

significant failures could negatively affect our relationship with consumers

today and in the future.

Examples

of risks

— Compliance with laws and regulations

— Cyber security

— Data privacy

— Safeguarding

— Test failure

— Use of third parties

Risk

contagion

Significant failures in this area could increase Pearson’s capability and

accreditation risks and weaken our position in the competitive marketplace.

Risk velocity

Reputational risks could have a significant impact in a short period in the event

of a significant issue.

Risk continued

Annual report and accounts 2023 Pearson plc 62

Strategic report

Risks Accountability Change since 2022

Accreditation risk

Political and regulatory Chief Legal Officer and

Divisional Presidents

Artificial Intelligence, Content and Channel risk

Effective method of delivery (podcast,

video, test, in-person, online)

Chief Product Officer and

Divisional Presidents

Yes

Intellectual property protection Chief Legal Officer and

Divisional Presidents

Products and services –

effective investment in own and

third-party content

Chief Product Officer and

Divisional Presidents

Yes

Balance of content creation vs

content purchased

Chief Product Officer and

Divisional Presidents

Yes

Capability risk

Business resilience Chief Legal Officer and

Divisional Presidents

Business transformation and change Chief Executive Officer and

Divisional Presidents

IT resilience Chief Information Officer and

Divisional Presidents

Safety and corporate security Chief Legal Officer and

Divisional Presidents

Talent Chief Human

Resources Officer and

Divisional Presidents

Competitive marketplace risk

Consumer learning preferences Divisional Presidents No

Market pricing Divisional Presidents No

Product differentiation Divisional Presidents No

Substitutes Divisional Presidents No

Accountability for principal risks

For each of our principal risks (shown in bold), the table below lists the accountable senior executive(s) for each sub-risk. Since 2022, the Group has created a new position of Chief Product Officer, which has

led to the changes in accountability marked in the table below.

Risks Accountability Change since 2022

Customer expectations risk

Customer experience Chief Product Officer and

Divisional Presidents

Yes

Accessibility Chief Human Resources

Officer, Chief Product Officer

and Divisional Presidents

Yes

Data architecture and usage Chief Information Officer,

Chief Strategy Officer and

Divisional Presidents

Yes

Portfolio change risk

Achieving value on acquisitions/disposals Chief Financial Officer and

Chief Strategy Officer

Identification of requirements Chief Executive Officer, Chief

Financial Officer and Chief

Strategy Officer

Integration of acquisitions Chief Financial Officer No

Reputation and responsibility risk

Compliance with laws and regulations Chief Legal Officer and

Divisional Presidents

Cyber security Chief Information Officer No

Safeguarding Chief Legal Officer and

Divisional Presidents

Test failure Assessment & Qualifications,

English Language Learning

and Workforce Skills

Divisional Presidents

Data privacy Chief Legal Officer and

Divisional Presidents

Use of third parties Chief Financial Officer and

Divisional Presidents

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Strategic report

Significant near-term and emerging risks

The main near-term and emerging risks are shown in the table below, which also notes accountabilities and where the risk represents a change since

the previous year.

Risks Description Accountability Classification and

change since 2022

Climate transition

Risks relating to sustainability and climate are outlined in pages 45-46. Expectations around

climate change commitments and measurements change on a regular basis.

Chief Legal Officer and

Divisional Presidents

Emerging risk.

No change.

Inflation & interest rates

High global inflation risks increasing the cost of production for Pearson, which the Group may

not be able to fully pass on. High interest rates also increase the risk of the failure of a key

customer or supplier, although the Group has a well-diversified customer and supplier base.

The Group has a significant proportion of its debt held at fixed interest rates, but faces the risk

of increased costs when refinancing.

Chief Financial Officer and

Divisional Presidents

Significant near-term risk.

Previously classified as

emerging but reclassified due

to ongoing elevated inflation

and interest rates.

Recession

Recession in global markets could put pressure on school, enterprise and consumer budgets,

reducing demand for our products and services. This has particular potential to negatively

impact our English Language Learning and Workforce Skills divisions, unless disruption in the

labour market encourages more people to retrain. Historically, demand for certain Pearson

businesses, such as Higher Education, has been counter-cyclical, but there is no guarantee this

will continue to be the case.

Chief Executive Officer Emerging risk.

No change.

Supply chain

Disruption at ports globally and challenges for suppliers due to war or economic stress may

lead to business interruption if not fully planned for and mitigated.

Chief Financial Officer and

Divisional Presidents

Significant near-terms risk.

Previously classified as an

emerging risk but reclassified

due to ongoing disruption.

Tax

The outcome of tax decisions relating to prior year transactions in Brazil could lead to

significant cash costs. The UK/EU State Aid case has been partially provided for and the

potential liability paid, but there is potential for near-term change.

Chief Financial Officer Significant near-term risk.

No change.

Sanctions and geopolitics

High levels of geopolitical volatility has led to the increased use of sanctions, which could inhibit

the Group’s ability to trade (as happened with our small business in Russia) or if inadvertently

breached could lead to fines, penalties and actions against officers.

The company also has offices in Israel which could be affected by the ongoing conflict in

the region.

Chief Executive Officer,

Chief Legal Officer

Significant near-term risk.

Previously classified as an

emerging risk but reclassified

due to ongoing disruption.

Risk continued

Annual report and accounts 2023 Pearson plc 64

Strategic report

Corporate planning process

The board assessed the prospects of the company using the company’s five-year plan, reviewing

going concern over the period to 30 June 2025 and viability to 31 December 2028. The five-year

period corresponds with Pearson’s strategic planning process which is discussed by the board at

least annually and represents the time over which the company can reasonably predict market

dynamics and the impact of additions to the product portfolio.

The strategic plan takes account of a range of factors including market conditions, the likely impact

of principal risks to the Group, product and capital investment levels, as well as available funding.

Pearson’s strategy and business model is discussed in more detail on pages 12-23.

Viability assessment approach and outputs

Base case five-year plan

In considering the long term prospects of the company, the five-year plan was used as the base case

model for assessment. Sales, profits and cash are forecast to grow in the base case. The company’s

subsidiary Pearson Funding plc has a debt maturity of €300m due within the going concern

assessment period and it is assumed that this is refinanced ahead of time with a £250m bond or

bank facility.

Severe but plausible downside model

In considering the viability of the Company, a severe but plausible model was prepared based on

the base case adjusted for the probability weighted impact of all principal risks as well as other

significant risks. The net impact of the risks modelled was to reduce adjusted operating profit by

around 40% in each year.

At 31 December 2023, the group had available liquidity of £1bn comprising central cash balances

and its undrawn $1bn Revolving Credit Facility (RCF) which matures in February 2027. The RCF can

be extended by a further year in December 2024, extending the maturity to February 2028. It is

assumed that the facility is then refinanced for the same value to beyond December 2028.

Under the severe but plausible downside case, the company would maintain comfortable liquidity

headroom and sufficient headroom against covenant requirements during the period under

assessment. That is, even before modelling the mitigating effect of actions that management would

take if these downside risks were to crystalise. Such measures could include discretionary cost

cutting measures, reducing dividends and reducing investment.

Reverse stress tests

Two reverse stress tests were modelled to determine the reduction in profit versus the plan that

would be required to exhaust liquidity.

In the case of the going concern assessment, the profit reduction needed before 30 June 2025

was calculated. The model showed that operating losses were required in both 2024 and 2025 to

exhaust liquidity.

For viability, the profit reduction and consequent reduction in cashflow needed to exhaust liquidity

in 2028 was calculated, requiring cumulative losses of £300m more than identified in the severe but

plausible downside case.

In each case, the downside required to exhaust liquidity significantly exceeded the downside in the

severe but plausible scenario, even before allowing for any mitigation.

Conclusion

Based on the results of these procedures, and considering the company’s strong balance sheet, the

Directors have a reasonable expectation that Pearson will be able to continue in operation and to

meet its liabilities as they fall due over the five-year period ending 31 December 2028. Further details

of the Group’s liquidity are shown in the “Financial Review” on pages 26-33.

Below are the inputs included in the severe but plausible scenario:

Accreditation Risk

— Loss of accreditation for Pearson Test of English in a major market

— Risks associated with potential political and regulatory changes in US Student Assessment and UK

& International Qualifications

— Risks associated with potential political and regulatory changes in Virtual Schools

Capability Risk

— Capability challenges in sales and technology reduce sales and result in increased costs

— Additional costs to recruit teachers and students due to market conditions

Competitive Marketplace

— Revenue declines in Higher Education due to enrolment and competition pressures

— Loss of Virtual Schools due to insourcing

— Impact of major distributor failing/bankruptcy

AI, Content and Channel Risk

— Loss of sales due to AI-related risks and poor choice of content and/or channel

Customer Expectations

— Additional costs to provide higher than planned functionality and levels of user experience

— Challenges achieving customer expectations in Workforce Skills

— Failure to achieve desired growth in Channels revenue

Portfolio Change

— Failure to achieve anticipated acquisition synergies

Reputation and Responsibility

— Potential cyber and data breaches negatively impacting reputation on an ongoing basis

— Potential safeguarding incidents negatively impacting reputation on an ongoing basis

Recession and inflation

— Potential for increased costs and lower sales because of a weak macro environment

Risk assessment of prospects and viability

Annual report and accounts 2023 Pearson plc 65

Strategic report

Chair’s letter

Dear shareholders,

It is a pleasure to introduce our Governance Report for 2023.

During the year, we have continued to accelerate our strategic

goals, in which the Board and its Committees have played a

critical role. This was also an exciting year with the appointment

of a new Chief Executive and two independent Non-Executive

Directors joining the Board, which you can read more about

throughout this report.

Strategy and performance

The Board has continued to be heavily engaged with the

management team in overseeing the continued implementation

of our growth strategy, with a particular focus on embedding

operational discipline around the business divisions.

The Board also continued to reshape and refine Pearson’s

portfolio in support of our strategy through both acquisitions

and divestitures. In 2023, we completed the sale of Pearson

Online Learning Services (POLS), the international Online

Program Management business, to conclude the strategic review

of the business announced in 2022, demonstrating further

progress in reshaping Pearson's portfolio towards future growth

opportunities, centred around lifelong learning.

Further, we completed our acquisition of PDRI, a trusted provider

of workforce assessment services with significant expertise in

providing assessment solutions to the US federal government,

one of the largest employers in the US. PDRI has built a strong

reputation for delivering quality talent assessments, including

tailored assessments to support hiring practices for US federal

government agencies. The acquisition of PDRI has expanded

Pearson’s portfolio, accelerated our strategy to capture new

market opportunities and grown our presence with large

employers in the US. We are now fully focused on executing

against the growth opportunity ahead and there is significant

opportunity to learn from each other to further improve

our products and reach more customers with our proven

assessment and talent solutions.

The Board continued to pay close attention to maintaining

a strong financial position, which enabled us to increase the

dividend again in 2023, in line with our progressive dividend

policy. We were also able to launch a £300m share buyback

programme to return capital to shareholders, in line with our

capital allocation priorities and disciplined approach to capital

allocation, which enables Pearson to create sustainable, long-

term value for every stakeholder. We have also announced an

extension of our share buyback programme by £200m.

As part of monitoring execution and performance, the Board

regularly receives a dashboard that allows Directors to monitor

progress on Pearson’s financial and strategic priorities,

supported by agreed indicators and milestones identified as key

measures of performance. You can read more about those KPIs

on page 25 of this annual report.

The Board’s oversight of performance and risk is underpinned by

the excellent work of our Audit Committee, which you can read

more about on pages 97-106, including a number of strategic

risk deep dives and a continued focus on data privacy and cyber

security, as well as overseeing our financial controls and internal

audit programmes, together with the delivery of the external

audit plan.

Sustainability, stakeholder engagement

and culture

As the world’s leading learning company, Pearson recognises its

enormous potential to make a positive impact on people and the

planet, as outlined in our sustainability framework, which you can

learn more about on page 35. The Reputation & Responsibility

Committee has primary responsibility for monitoring and

inputting into Pearson’s sustainability strategy and initiatives

on behalf of the Board, with more on this described in the

Committee’s report starting on page 94.

Understanding the views and priorities of all our stakeholders is

key to running a successful, sustainable company that meets the

needs of learners, educators, governments and employers. You

can read more about the Board’s engagement activities in the

Understanding our stakeholders section on page 81.

During the year, the Board held engagement sessions with

employees in London and Hoboken to hear employee views.

Read more about this engagement, and plans for Board

engagement with the workforce in 2024, on page 82. Promoting

a diverse and inclusive workforce environment throughout

Pearson remains a Board priority and relevant KPIs form part

of the regular dashboard reviewed by the Board. We have

continued our progress on improving our workforce diversity, but

we always recognise there is more to be done.

The Board is focused

on strategic progress,

operational discipline

and sustainable

success for the benefit

of all stakeholders.

Omid Kordestani Chair

Annual report and accounts 2023 Pearson plc 66

Governance

Talent development and succession planning are also ongoing

themes in the work of the Board and its Committees. The

Board has continued to work with Ali Bebo, Pearson’s Chief

Human Resources Officer, to assess our culture and employee

engagement levels, through analysing (both through the work

of the Reputation & Responsibility Committee and as a full

Board) the results of the engagement survey and annual deep

dives into succession and the talent pipeline. The Board is also

supporting the Executive Management team to drive a culture

of performance and accountability throughout the organisation,

which is covered in more detail on page 39.

Board composition, succession

and evaluation

We have a fully engaged Board, with diverse backgrounds,

perspectives and skill sets, whose range of expertise includes

digital and direct to consumer strategy and business models,

sustainability, education and workforce learning, and

leadership of global, complex organisations through periods

of transformation and disruption, as well as financial acumen.

You can read more about the Board’s skills and experience

on page 90.

A key area for the Board’s attention in 2023 was the selection

process for Pearson’s new Chief Executive, following Andy Bird’s

indication to the Board of his intention to retire. This was a

thorough and considered process in which all Board members

participated and, as a Board, we are delighted to have appointed

Omar Abbosh as Chief Executive. You can read more about

the Board’s decision-making and selection processes for the

appointment on pages 83 and 91 respectively. On behalf of the

Board, I would like to thank Andy for his outstanding leadership

over the last three years, during which he implemented an

ambitious strategy, successfully transitioned Pearson into a more

consumer-focused business, orientated around lifelong learning,

and delivered consistently strong financial performance. We send

Andy our very best wishes for the future.

We also appointed two new independent Non-Executive

Directors to the Board during 2023, further enhancing the skill

set and diversity of our Board, as you can see on page 71. We

will continue to monitor the Board’s composition to ensure

we maintain the range of skills, experience and perspectives

needed to support the company’s strategy and complement our

succession planning.

On behalf of all Directors, I extend our deepest gratitude to

Tim Score who, after serving for nine years on the Board, will

step down at the AGM in April 2024. During his tenure, Tim

has held several key roles on the Board, including as Deputy

Chair, Senior Independent Director and Chair of both the Audit

Committee and Nomination & Governance Committee, as well

as a member of the Remuneration Committee. Tim has been a

stable and knowledgeable voice on the Board, during periods of

transformation and restructure. Every one of us on the Board

will greatly miss Tim’s wise counsel, warmth and commitment to

the company. We send Tim our very best wishes for the future. I

am delighted that Graeme Pitkethly has agreed to succeed Tim

as Deputy Chair and Senior Independent Director, alongside his

existing key role as Chair of the Audit Committee – the company

and I are fortunate to have such an outstanding colleague

stepping into Tim’s shoes in that role.

Alison Dolan and Alex Hardiman joined the Board as

independent Non-Executive Directors in June 2023, both bringing

significant leadership experience in high-profile and respected

digital brands, along with deep expertise in digital and consumer

products. They have each already made strong contributions

to the Board and as members of the Audit Committee, and for

Alex as a member of the Reputation & Responsibility Committee.

More detail on their induction processes can be found on

page 84.

The Board is fully engaged in planning for future succession

needs, and closely monitors the evolution of skill sets needed

to drive the company forward. More detail about the Board’s

succession planning can be found in the Nomination &

Governance Committee report on pages 88-93.

The annual Board evaluation process in 2023 was externally

facilitated by Manchester Square Partners, in accordance with

our three-year evaluation cycle. The results demonstrate that

our Board is collaborative, while providing constructive challenge

and independent judgement, and operates a robust governance

approach that will support Pearson in continuing to drive

strategic progress. Good progress has also been made on the

recommendations from the 2022 review. You can read more

about the 2023 evaluation, and how the Board implemented

recommendations from the previous evaluation, on

pages 85-87.

Compliance with the UK Corporate

Governance Code

The principles set out in the UK Corporate Governance

Code (the ‘Code’) emphasise the value of good

corporate governance to the long-term sustainable

success of listed companies. The Pearson Board is

responsible for ensuring that the Group has in place

appropriate frameworks to comply with the Code’s

requirements. This governance report and the strategic

report set out how Pearson has applied the principles

of the Code throughout the year.

The Board believes that during 2023 the company was

in full compliance with all applicable principles and

provisions of the Code, save that, as described last

year, Pearson is not fully compliant with Provision 36 of

the Code on the basis that the shares awarded under

the previous Chief Executive’s co-investment award

made in 2020, and approved by shareholders at the

time, were subject to a post-vesting holding period

until 31 December 2023, rather than the total vesting

and holding period of five years or more required by

the Code. Further detail is provided in the Directors’

remuneration report on pages 108 and 119.

Conclusion

I hope this Report explains clearly to you how Pearson is run

and how we align governance and our Board agenda with

our strategic direction. Shareholders are always welcome to

put their questions or feedback to us, either via our website

(www.pearsonplc.com) or at our AGM. Once again this year,

shareholders will be able to join us and vote at our AGM either

in person or virtually. Details will be included in the forthcoming

AGM notice.

It only remains for me to thank our shareholders for their

continued support and interest in this fantastic company. I look

forward to maintaining our stakeholders’ confidence as we seek

to capture Pearson’s enormous growth potential as a lifelong

digital partner for learners everywhere.

Omid Kordestani Chair

Annual report and accounts 2023 Pearson plc 67

Governance

All Board members have strong

leadership experience at global

businesses and institutions.

Our Board members’ biographies

illustrate the contribution each Director

makes to the Board by way of their

individual experience.

Key to Committees

Audit

Nomination & Governance

Reputation & Responsibility

Remuneration

Committee Chair

Current notable commitments reflect

other listed company directorships and

full-time or executive roles.

Omid Kordestani

First appointed to the Board

1 March 2022

Chair since 29 April 2022

Chief Financial Officer

since 24 April 2020

Appointment

Board of Directors

Leading the way

Omar has a career spanning more than 30 years driving

growth and transformation for leading multinational

companies. He comes to Pearson with a background

steeped in technology and innovation, and with a deep

understanding of how to shape and execute successful

strategies in a world of disruption.

Most recently, Omar was the President of Microsoft

Industry Solutions with responsibility for driving sales,

service, and solutions across Microsoft’s largest customers.

While there he led industry and technical business units,

including strategy, engineering, partnering, and sales

teams that shaped product roadmaps and strategic

campaigns. Prior to Microsoft, Omar spent three decades

at Accenture where he helped to orchestrate the

company’s digital transformation and where he led a large

and highly successful business unit. He served in numerous

senior leadership roles at Accenture, including Chief

Strategy Officer and ultimately as Chief Executive of the

global Communications, Technology and Media business.

Omar also serves as a non-executive board member for

Zuora, Inc., an enterprise SaaS company. He holds a

degree in electronic engineering and information

sciences from the University of Cambridge and a master’s

degree in business administration from INSEAD.

Current notable commitments

Zuora, Inc. (Non-Executive Director)

Omid is an international businessman who serves on the

boards of Klarna Bank AB and Klarna Holding AB and is a

Council Member for Balderton Capital. He was Executive

Chair of Twitter, Inc. between October 2015 and May

2020, and a Board Member until October 2022. From

August 2014 to August 2015, Omid served as Senior Vice

President and Chief Business Officer at Google and

previously from May 1999 to April 2009 as Senior Vice

President of Global Sales and Business Development.

From 1995 to 1999, Omid served as Vice President of

Business Development at Netscape Communications

Corporation. Prior to joining Netscape Communications

Corporation, Omid held positions in business

development, product management and marketing

at The 3DOCompany, Go Corporation and Hewlett-

Packard Company.

Chief Executive Officer

since 8 January 2024

Omar Abbosh Sally Johnson

Sally joined Pearson in 2000 and has held various finance

and operations roles across the business, both at a

corporate level and within the divisions, including The

Penguin Group. She brings to the Board extensive

commercial and strategic finance experience, as well as

expertise in transformation, treasury, tax, risk

management, business and financial operations, investor

relations and mergers and acquisitions. She has held

various senior-level roles across the business, most

recently as Deputy CFO of Pearson.

Sally is a Non-Executive Director of Rentokil Initial plc and

Chair of its Audit Committee, a member of the Institute of

Chartered Accountants in England and Wales and trained

at PricewaterhouseCoopers. She was also a Trustee for

the Pearson Pension Plan from 2012 to 2018.

Current notable commitments

Rentokil Initial plc (Non-Executive Director)

Skills and experience

Chair

Age: 60

Chief Financial Officer

Age: 50

Chief Executive

Age: 57

Annual report and accounts 2023 Pearson plc 68

Governance

Sherry Coutu, CBE

Non-Executive Director

since 1 May 2019

Non-Executive Director

since 1 June 2023

Non-Executive Director

since 1 February 2022

Appointment

Alison is the Chief Financial Officer of Rightmove plc, a

position she has held since September 2020. She brings to

the Board extensive commercial and operational finance

experience, specifically in digital businesses. Prior to

Rightmove, she held several senior financial positions at

Sky plc, including Group Treasurer, Director of Finance

and was the Deputy Managing Director at Sky Business.

She later moved to News UK to serve as the Chief

Strategy Officer at the forefront of the business's

digital transformation.

Current notable commitments

Rightmove plc (Chief Financial Officer)

Sherry is an experienced non-executive director, having

held numerous senior leadership positions, including

Chair, Senior Independent Director, and Chief Executive

Officer in the financial services, technology, and

education sectors.

Presently, Sherry also Chairs the Remuneration

Committee at Raspberry Pi, the world’s largest

single-board computer company and Founders4Schools,

the UK’s largest transition-to-work charity.

Sherry is an experienced non-executive director which

includes the London Stock Exchange Group plc, DCMS,

Zoopla plc, RM plc, The Scaleup Institute, Cambridge

University Press and Cambridge Assessment (2006-2019).

She has also previously acted as an advisor to LinkedIn,

the National Gallery, the Royal Society, and NESTA.

Prior to her portfolio career, Sherry founded several

technology companies and invested in 70 tech start-up

companies and five venture capital firms.

Non-Executive Director

since 1 June 2023

Alison Dolan Alex Hardiman Esther Lee

With more than 15 years of experience in media and

technology, Alex brings deep expertise in consumer

product strategy and growth, scaling subscription and

digital advertising businesses, and high-quality

journalism and content.

Alex currently serves as The New York Times’ Chief

Product Officer where she oversees the company’s News,

Cooking, Games and Audio products that power its digital

business. She also leads The Times’s enterprise-wide

approach to generative AI. Alex previously spent a decade

at The New York Times in several leadership roles before

leaving for Facebook in 2016 where she served as Head of

News Products, overseeing news experiences for

Facebook consumers and publishers. Alex also spent time

at The Atlantic as their Chief Business and Product Officer

where she relaunched the company’s consumer offerings

and subscription model.

Current notable commitments

The New York Times (Chief Product Officer)

Esther brings significant experience to the Pearson

Board through her prior executive management roles in

developing customer strategies to drive growth, global

marketing and branding, driving digital transformation and

building high-performance teams.

She has a long track record of senior leadership roles

working for global consumer-facing brands. Most

recently, she served as Executive Vice President - Global

Chief Marketing Officer at MetLife Inc. Previously, Esther

served as Senior Vice President - Brand Marketing,

Advertising and Sponsorships for AT&T, and she has

served as CEO of North America and President of Global

Brands for Euro RSCG Worldwide. Prior to that, she served

for five years as Global Chief Creative Officer for The

Coca-Cola Company.

Esther is a Board member at The Clorox Company where

she chairs the Nomination & Governance Committee and

is a Non-Executive Director of Experian plc.

Current notable commitments

The Clorox Company (Non-Executive Director)

Experian plc (Non-Executive Director)

Skills and experience

Non-Executive Director

Age: 60

Non-Executive Director

Age: 42

Non-Executive Director

Age: 65

Non-Executive Director

Age: 54

Annual report and accounts 2023 Pearson plc 69

Governance

Board of Directors continued

Graeme Pitkethly

Non-Executive Director

since 1 May 2019

Non-Executive Director

since 1 October 2021

Non-Executive Director

since 1 January 2016

Appointment

Tim has extensive experience of the technology sector in

both developed and emerging markets, having served for

13 years as CFO of ARM Holdings plc, the world’s leading

semiconductor IP company. He is an experienced

Non-Executive Director and was appointed as a

Non-Executive Director of Bridgepoint Group PLC in 2021,

alongside his roles as Chair of The British Land Company

plc, a Non-Executive Director of the Football Association,

and a Trustee of the National Theatre. Tim has garnered

extensive financial and listed company experience during

previous and current positions. He served on the board of

National Express Group plc from 2005 to 2014, including

time as interim Chair and six years as SID. Earlier in

hiscareer, Tim held senior finance roles with Rebus

Group, William Baird, LucasVarity plc and BTR plc.

Current notable commitments

The British Land Company plc (Chair)

Bridgepoint Group PLC (Non-Executive Director)

Graeme was Chief Financial Officer and a Board member

of Unilever plc until December 2023. He joined Unilever in

2002 and, prior to his appointment as the CFO, was

responsible for its UK and Ireland business. He also held a

number of senior financial and commercial roles within

Unilever and spent the earlier part of his career in senior

corporate finance roles in the telecommunications

industry. Graeme served as Vice President of Financial

Planning and Vice President of Corporate Development at

FLAG Telecom and started his career at

PricewaterhouseCoopers.

Graeme is a Vice Chair of the Task Force on Climate-

related Financial Disclosures, a Member of the Strathclyde

University Centre for Sustainable Development and is a

Chartered Accountant.

Non-Executive Director since 1 January 2015

Senior Independent Director since 30 April 2021

Deputy Chair since 29 April 2022

Tim Score Annette Thomas Lincoln Wallen

Annette has a 25-year track record in leading global

publishing and data analytics businesses, across

academic, educational, and consumer media verticals.

Most recently, she served as CEO of Guardian Media

Group, a position she held until June 2021. Prior to this,

Annette was CEO of the Web of Science Group at Clarivate

Analytics, a data, analytics, and software business

focused on research and higher education. She has also

served as CEO of Macmillan Publishers and led the digital

and global transformation of Nature Publishing Group.

She is a Non-Executive Director of Schroders plc and

currently serves as Senior Advisor to General Atlantic. Her

previous non-executive experience includes serving as a

Trustee of Yale University, Non-Executive Director at

Clarivate Analytics (2017), and as a board member for

Cambridge University Press and Cambridge Assessment

(2019-2020). She has also previously acted as an advisor

to Creative Commons and Bain Capital.

Current notable commitments

Schroders plc (Non-Executive Director)

Lincoln has extensive experience in the technology and

media industries, and is a Non-Executive Director of

Improbable MV, which governs the MSquared Network of

web2 and web3 services.

He was previously CTO of Improbable Worlds, a

technology start-up supplying cloud hosting, networking

and technology services to the video game industry.

Lincoln was CEO of DWA Nova, a Software-as-a-Service

spin-out of DreamWorks Animation Studios in Los

Angeles, a position he held until 2017. He worked at

DreamWorks Animation for nine years in a variety of

leadership roles including CTO and Head of Animation

Technology. He was formerly CTO at Electronic Arts

Mobile, leading their entry into the mobile gaming

business internationally. Lincoln is a Non-Executive

Director of the Smith Institute for Industrial Mathematics

and Systems Engineering, and Varjo, a manufacturer of

XR/VR headsets for professional markets. His early career

involved 20 years of IT and mathematics research,

including as a Reader in Computer Science at Oxford.

Lincoln holds a PhD in AI.

Skills and experience

Non-Executive Director

Age: 57

Non-Executive Director

Age: 58

Non-Executive Director

Age: 63

Deputy Chair and Senior Independent Director

Age: 63

Annual report and accounts 2023 Pearson plc 70

Governance

Board composition

Gender

Female Male

Nationality

American American/British British IrishCanadian

12 1

Ethnicity

Asian/Asian British Mixed/Multiple ethnic groups White

821

Ethnicity categories are based on the UK’s Office for National Statistics

classification.

Tenure

Under 3 years 3-6 years Over 6 years

245

This data reflects Directors in office as at 31 December 2023.

To learn more about Board diversity, please see page 92. For

diversity data in the format prescribed by LR 9.8.6R(10), please

see page 53.

Independence of Directors

All of the Non-Executive Directors who served during 2023 were

considered by the Board to be independent for the purposes of

the UK Corporate Governance Code (the Code) and the listing

standards of the New York Stock Exchange (NYSE). The Board

reviews the independence of each of the Non-Executive Directors

annually. This includes reviewing their external appointments

and any potential conflicts of interest, as well as assessing their

individual circumstances in order to ensure that there are no

relationships or matters likely to affect their judgement. In

addition to this review, each of the Non-Executive Directors

is asked to provide confirmation of their independence on an

annual basis as defined by the NYSE listing rules and the Code.

In January 2025, Mr Wallen will reach nine years’ service on

the Pearson Board. Upon or in anticipation of attainment

of nine years’ service by any Non-Executive Director, the

Board undertakes an assessment to satisfy itself as to the

continuing independence of that Director. The Nomination &

Governance Committee gave particular consideration to Mr

Wallen’s independence in February 2024, ahead of proposing to

shareholders that he be re-appointed for a further year at the

forthcoming Annual General Meeting, recognising that he will

reach nine years’ service during the coming year, if re-elected.

In doing so, the Committee assessed the degree of objective

judgement and constructive challenge demonstrated by Mr

Wallen, and confirmed that his skills, experience and knowledge

contribute to productive Board discussions. Accordingly, the

Board is satisfied that Mr Wallen remains independent, and

that he continues to provide constructive challenge and hold

management to account.

In accordance with the Code, Omid Kordestani was considered to

be independent upon his appointment as Chair on 29 April 2022.

Tim Score will be retiring from the Board at the 2024 AGM

and will not be seeking re-election. In 2023, the Committee

assessed Mr Score’s independence, having regard to, among

other factors, the Financial Reporting Council’s Guidance on

Board Effectiveness, and concluded that Mr Score remained

independent. In assessment of his own independence,

undertaken in January 2024 to address the requirements of the

NYSE and the Code, Mr Score did not declare any matters which

may cause his independence to be questioned.

The Directors can obtain independent professional advice, at

the company’s expense, in the performance of their duties. All

Directors have access to the advice and services of the Company

Secretary, whose appointment and removal is a matter reserved

for the full Board.

Annual report and accounts 2023 Pearson plc 71

Governance

Key to Committees

Internal appointment

External appointment

Pearson Executive Management (PEM)

Appointment

Skills and experience

Joined Pearson 1 December 2020

Appointed to the PEM

1 December 2020

Mike Howells

After 3 years’ service, Mike is stepping

away from his role as President of

Workforce Skills in 2024. Mike has

more than 20 years of international

business experience. Prior to joining

Pearson, he held senior leadership

roles in the British Diplomatic Service

and worked in international law.

Mike holds a Master's degree

in International Law from the

University of Nottingham and an

Anthropology Degree from University

College London.

President – Workforce Skills

Age: 47

Ali is a seasoned C-suite executive

with over 25 years of experience

building culture for transformative

business performance across

multiple industries. Prior to joining

Pearson, she was an executive officer

and CHRO for Hologic, Inc., a global

medical technology company. Prior to

Hologic, she held various HR

leadership roles with the speciality

retail company, ANN INC.

Joined Pearson 13 December 2021

Appointed to the PEM

13 December 2021

Ali Bebo

Chief Human Resources Officer

Age: 55

Sue has more than 20 years of global

strategy and corporate experience.

Previously, she held engineering roles

at technology companies. Sue holds

an MBA from The Wharton School at

the University of Pennsylvania and a

BSc in electrical engineering from the

University of Ottawa in Canada. She

has served on several non-profit

boards and councils focused on

diversity and STEM.

Joined Pearson 16 May 2022

Appointed to the PEM

16 May 2022

Sulaekha ‘Sue’ Kolloru

Barger

Chief Strategy Officer

Age: 48

Joined Pearson 16 November 2020

Appointed to the PEM

16 November 2020

Lynne Frank

Lynne has over 25 years of experience

in the global media industry.

Previously, she has worked in

companies such as WarnerMedia,

ESPN/Disney and Turner

Broadcasting. She holds a degree in

economics and business, and a

certificate in corporate board

governance from the University of

California, Los Angeles (UCLA).

Chief Marketing Officer and

Co-President, Direct to Consumer

Age: 57

Joined Pearson 1 February 2014

Appointed to the PEM

1 April 2016

Gio Giovannelli

Gio has over 25 years of international

business experience, including four

CEO roles in Brazil. Previous board

roles include BOVESPA-listed Natura

and CVC Viagens. Gio graduated from

Bocconi University, holds an

Economics PhD andis an OPM

graduate of Harvard Business School.

President – English Language

Learning

Age: 51

These figures reflect the Executive Management team excluding the

Company Secretary. The Chief Executive and Chief Financial Officer have

been excluded and are counted in the Board metrics on page 71.

For diversity data in the format prescribed by LR 9.8.6R(10), please

see page 53.

PEM composition

Ethnicity

Gender

Female Men

Asian/Asian British Mixed/Multiple

ethnic groups

Other ethnic

groups

White

711 1

1. Ethnicity categories are based on the UK’s Office for National

Statistics classification.

Annual report and accounts 2023 Pearson plc 72

Governance

Appointment

Skills and experience

Joined Pearson 1 December 2004

Appointed to the PEM

1 April 2021

Tom ap Simon

Tom has 20 years of international

business and finance experience.

At Pearson, he has led the Virtual

Schools business, worked in

finance for theemerging markets

businesses and led M&A activity

in the US. Previously, he worked

in investment banking at

RW Baird. Tom holds an MAin

Economics and Politics from the

University of Edinburgh.

President – Higher Education and

Virtual Learning

Age: 45

Joined Pearson 1 May 2023

Appointed to the PEM

1 May 2023

Tony Prentice

Tony has more than 25 years of

experience in consumer-led product

management in companies, including

SEMA4, American Express, and

Starbucks. He brings extensive

expertise in strategic product

development, and consumer

marketing. He holds an MBA from

Columbia Business School and a

BS in Mechanical Engineering from

Cornell University.

Chief Product Officer and

Co-President, Direct to Consumer

Age: 51

Joined Pearson 1 February 2014

Appointed to the PEM

21 May 2020

Cinthia Nespoli

Cinthia has over 20 years of

international legal andcompliance

experience. Previously, she

heldleadership roles in legal and

compliance atmultinational

companies. Cinthia was admittedto

the Brazilian bar in 2004 and earned

her law degree from Pontifícia

Universidade Católica de Campinas

as well as a post-graduate degreein

tax law from Pontifícia Universidade

Católica deSão Paulo.

Chief Legal Officer

Age: 43

Joined Pearson 23 January 2006

Appointed to the PEM

1 February 2022

Art Valentine

Art has more than 30 years of

leadership experience in

assessments, testing, and technology.

Prior to his 16 years at Pearson

serving as a senior leader of Pearson

VUE andasManaging Director of

Pearson Clinical Assessment, Art

worked at global technology

organisations, including Accenture,

and Promissor, which wasacquired

by Pearson in 2006. Art earned his BS

in Mathematical Science/Computer

Science from the University of North

Carolina Chapel Hill.

President – Assessment &

Qualifications

Age: 59

Joined Pearson 14 July 2014

Appointed to the PEM

16 March 2022

Marykay Wells

Marykay has over 30 years of

strategic planning and large, global

technology transformation

experience. Prior to joining Pearson,

Marykay had CIO roles at Nortel,

Tekelec (acquired by Oracle) and

Extreme Networks. Marykay holds a

BS degree in Computer Information

Science from Clarkson University and

is a member the Salesforce CIO

Advisory Board, MGT Board of

Directors, and is a Board Member of

the non-profit Rewriting the Code

(advancing Women in Tech).

Chief Information Officer

Age: 61

External/Internal AppointmentNationality

BritishAmerican CanadianItalian/Brazilian

Internal External

Annual report and accounts 2023 Pearson plc 73

Governance

Division of responsibilities

The Board

The Board has established four formal Committees. The Committees focus on their own areas of expertise, enabling the Board meetings to focus on strategy, performance, leadership and people, governance

and risk, and stakeholder engagement, thereby making the best use of the Board’s time together as a whole. The Committee Chairs report to the full Board at each Board meeting following their sessions,

ensuring a good communication flow while retaining the ability to escalate items to the full Board’s agenda, if appropriate.

Nomination & Governance

Committee

Reviews corporate governance matters, including

Code compliance and Board evaluation; considers

the appointment of new Directors, Board

experience and diversity; and reviews Board

induction and succession plans as well as Board

engagement with the wider workforce.

Reputation & Responsibility

Committee

Oversees our sustainability framework, including

progress towards our sustainable business

strategy commitments. Works to assess and

advance Pearson’s reputation with stakeholders,

including through the areas of branding, culture,

employee engagement and values.

Audit Committee

Appraises our financial management and reporting

and assesses the integrity of our accounting

procedures and financial controls. The Committee

also oversees risk, compliance and internal audit.

Remuneration Committee

Determines the remuneration and benefits of the

Executive Directors and oversees remuneration

arrangements for the Pearson Executive

Management team, as well as monitoring

remuneration policies for the wider workforce.

Chair

The Chair is primarily responsible for the

leadership of the Board and ensuring its

effectiveness. They ensure that the Board upholds

and promotes the highest standards of corporate

governance, setting the Board’s agenda and

encouraging open, constructive debate of all

agenda items for effective decision-making.

They regularly meet the Chief Executive to stay

informed and provide advice. They also ensure

that shareholders’ views are communicated

to the Board.

Chief Executive

The Chief Executive is responsible for the

operational management of the business and for

the development andimplementation of the

company’s strategy, as agreedby the Board and

management. They are responsible for developing

operations, proposals and policies for approval by

the Board, they promote Pearson’s culture and

standards, and they are one of the key

representatives of the company to its

external stakeholders.

Deputy Chair and Senior

Independent Director

The Deputy Chair and SeniorIndependent

Director supports the Chair on Board

effectiveness and governance matters. This role

includes meeting regularly with the Chair and Chief

Executive to discuss specific issues, as wellas

being available to shareholders generally, should

they have concerns that have not been addressed

through the normal channels. The Deputy Chair

and Senior Independent Director also leads the

evaluation of the Chair on behalf of the

otherDirectors.

Company Secretary

The Company Secretary advises on governance

matters and compliance with Board procedures.

They are responsible, under the direction of the

Chair, for ensuring the Board receives accurate,

clear and high-quality information, and has

adequate time and appropriate resources to

function effectively and efficiently. Theyalso

support the Chair indelivering the corporate

governance agenda, and organise director

induction, training programmes and the Board

evaluation process.

Standing Committee

A Standing Committee of the Board is

established to approve certain operational

and ordinary course of business items such

asbanking matters, guarantees and

intra-Group transactions. They also make

routine approvals relating to employee share

plans. Additional authority may be delegated

on an ad hoc basis, e.g. to approve and

conclude corporate transactions.

Pearson Executive

Management

The Pearson Executive Management team

consists ofthe Chief Executive and their

senior direct reports. They are the

executive management group for Pearson

and are responsible for delivering Pearson’s

strategy under clearly defined

accountabilities and in line withagreed

governance and processes.

Authorities and duties

The authorities and duties of theBoard and

its Committees, as well as the roles and

responsibilities of key individuals on the

Board, are clearly set out in writing.

These documents are reviewed and

approved by the Board on an annual basis

and are available on the company’s website

(www.pearsonplc.com).

Annual report and accounts 2023 Pearson plc 74

Governance

Board activities

The role and business of the Board

The key responsibilities of the Board include:

— overall leadership of the company and setting the company’s

values and standards, including monitoring culture and

diversity, equity and inclusion (DEI) initiatives

— reviewing and determining the company’s strategy, including

in relation to sustainability matters, in consultation with

management, assessing performance against the strategy and

overseeing management’s execution of it

— supervising major changes to the company’s corporate,

capital, management and control structures

— approval of all transactions or financial commitments in

excess of the authority limits delegated to the Chief Executive

and other Executive Management

— assessment of management performance, Board and

executive succession planning and talent pipeline

— effective engagement with key stakeholders

Strategic planning and decision making

The Board spends considerable time assessing whether any

proposed action aligns with the strategy and future direction of

the business, while taking into consideration sustainability and

impact on our stakeholders. In addition, the Board regularly

holds strategy discussions, whether in relation to the specific

strategies of Pearson’s five business divisions or the vision and

wider strategy of the company as a whole, both of which enhance

the Board’s decision-making in shaping the company’s strategic

and financial plans.

The Board and Committees receive timely, regular and necessary

financial, management and other information to discharge their

duties. Comprehensive papers are circulated to Board and

Committee members approximately one week in advance of

each meeting.

The Board receives a regular performance dashboard and

key milestones report, together with updates from the Chief

Executive and Chief Financial Officer. In addition to meeting

papers, a library of current and historical corporate information

is made available to Directors to support the Board’s decision-

making process. For items that require significant consideration

and review in advance of a decision, such as the portfolio

changes during 2023, the Board’s discussions can take place over

a number of sessions.

The Directors recognise their duties towards the shareholders

and other stakeholders as set out in Section 172 of the

Companies Act 2006, and a continued understanding of the key

issues affecting stakeholders is an integral part of the Board’s

decision-making process. You can read more on pages 81-83

about how the Board engages with stakeholders and takes their

views into account when making decisions.

Portfolio changes

The Board receives regular updates on portfolio and corporate

finance activities throughout the year, including regular updates

on live transactions (disposals, acquisitions and corporate

joint venture activity) and outputs of periodic portfolio reviews.

These updates can take the form of presenting key summaries

of information in Board packs, or oral updates on key matters.

These discussions are typically led by executive and divisional

management, supported by the Corporate Development

team and, where necessary, external advisers. Subsequently,

once portfolio transactions have closed, the Board is also kept

informed of the integration or transition progress, including

post-acquisition reviews conducted to assess transaction success

and any learnings to be taken for future projects. In 2023, such

portfolio updates included the disposal of the Pearson Online

Learning Services (POLS) business and the completion of the

acquisition of PDRI, as well as a review of potential pipeline

opportunities.

The Board is deeply engaged in developing and measuring the company’s long-term strategy, performance, culture and values. We believe

that Board members provide a valuable and diverse set of external perspectives and that robust, open debate about significant business

issues brings an additional discipline to major decisions.

Board meetings

The Board held six scheduled meetings in 2023, with discussions

and debates focusing on the ongoing development and

execution of the company’s markets, customer and people

strategies, as well as other strategic drivers for the company,

including the developments in generative AI, more detail on

which can be found on page 78. Major items covered by the

Board in 2023 are shown in the table on page 76. In addition

to its scheduled meetings, the Board convenes as necessary to

consider matters of a time-sensitive nature. In 2023, the Board

also held several additional discussions regarding the Chief

Executive recruitment process.

Reflecting on the level and quality of engagement by the Board

in 2023, the Board is satisfied that each Director contributed to

Board discussions and demonstrated sufficient commitment

to be able to meet their responsibilities. As shown in the table

on page 77, each of the Non-Executive Directors attended all

scheduled Board meetings during 2023, with the exception of

Graeme Pitkethly who was unable to attend the meeting in April

due to a pre-existing commitment. In addition, the Nomination &

Governance Committee confirmed in its annual assessment that

each Director demonstrates the requisite level of commitment

and contribution in accordance with Principle H and Provision 18

of the Code.

Annual report and accounts 2023 Pearson plc 75

Governance

Board attendance

Directors are expected to attend all Board and Committee

meetings, but in certain circumstances, such as pre-existing

business or personal commitments, it is recognised that

Directors may be unable to attend. In these circumstances, the

Directors receive relevant papers and, wherever possible, will

communicate any comments and observations in advance of the

meeting for raising as appropriate during the meeting. They are

updated on any developments after the meeting by the Chair of

the Board or Committee, as appropriate.

Individuals’ attendance at Board and Committee meetings is

considered as part of the formal review of their performance.

There was a high level of attendance by the Directors at Board

and Committee meetings in 2023, as shown in the table on page

77 and in the Committee reports that follow.

Directors’ commitments and conflicts

of interest

Under the Companies Act 2006, the Directors have a statutory

duty to avoid conflicts of interest with the company. The

company’s Articles of Association allow the Directors to authorise

conflicts of interest. The company has an established procedure

to identify actual and potential conflicts of interest, including

all directorships or other appointments to, or relationships

with, companies that are not part of the Pearson Group and

which could give rise to actual or potential conflicts of interest.

Additionally, in response to Provision 15 of the UK Corporate

Governance Code, Pearson has developed internal guidance to

be taken into account when considering changes to a Director’s

commitments, or when appointing a new Director, as well as

formalising the Board approval process for such matters.

Once notified to the company, any potential conflicts and

commitments are considered for authorisation by the Board

at its next scheduled meeting or, where necessary in the

interests of timeliness, by a committee comprising the Chair, the

Deputy Chair & Senior Independent Director and the Company

Secretary. In particular, the Board or committee considers the

type of role, expected time commitment and any impact this

may have on the Director’s duties to Pearson, as well as any

relationships between Pearson and the external organisation.

The interested Director is not permitted to vote on, or be

counted in the quorum for, any resolution relating to their

proposed commitments, conflict or potential conflict.

The Board reviews any authorisations previously granted

on an annual basis.

Board activities continued

Board meeting focus 2023

Strategy Performance

Leadership and

people Governance and risk

Shareholder

engagement

— Ongoing digital transformation

— Enterprise ecosystem and direct to

consumer growth opportunities

and strategies

— AI strategy

— Strategy implementation

— Oversight of Five-Year Strategic Plan and

approval of 2024 annual operating plan

— M&A pipeline and post-acquisition

reviews, as well as consideration,

approval and regular updates of major

transactions

— Product updates and demos, including

Pearson+ Channels and Workforce Skills

— Data strategy

— Approving 2022 preliminary results and annual report

and accounts

— Approving 2023 performance expectations and

guidance to the market

— Approving the 2023 interim results and Q1 and Q3

trading statements

— Monitoring 2023 operating plan performance

— Regular dashboard and milestone reports

— Strategic and non-financial KPIs reviews

— Continuing review of forecasts

— Final and interim dividend approvals and other capital

allocation considerations, including share buyback

— Business unit and corporate function operational

deep dives

— Talent review, pipeline

development and

succession planning,

including overseeing

Chief Executive

succession process

— Culture

— DEI initiatives

— Employee engagement

sessions with Board

— Employee engagement

survey assessments

— Legal, regulatory and

governance matters

— Data privacy and cyber security matters

— Board and Committees’

effectiveness evaluation

— Regular review and annual confirmation

of Directors’ commitments and/or

potential conflicts of interest

— Approval of Committees’ terms

of reference

— Risk management report

— Investor relations

strategy, updates,

and share price

performance

— Shareholder issues

and voting

— AGM and related

shareholder interactions

— Feedback from Board

member meetings with

shareholders

— Major shareholders and

share register analysis

Annual report and accounts 2023 Pearson plc 76

Governance

When making new appointments in 2023, the Board considered

other demands on the proposed Directors’ time. The Board

considered Alison Dolan’s existing commitment as Executive

Director and Chief Financial Officer of Rightmove plc, a UK-

listed online real-estate portal, and Alex Hardiman’s existing

commitment as Chief Product Officer for The New York Times, as

part of their appointment process. The Board agreed that Alison

and Alex’s existing commitments would not have a negative

impact on their ability to contribute to Pearson.

Omar Abbosh’s existing commitments were considered as part

of his appointment process. The Board was of the opinion that

Omar’s additional notable commitment as a Board member of

Zuora, Inc. was acceptable. The Board noted that the Higher

Education division of the company has an existing relationship

with Zuora, Inc. but this was deemed to be non-material in terms

of Omar’s role as Chief Executive. The Board also concluded

that Omar’s existing commitments would not prevent him from

giving the time and attention that his role as the Chief Executive

would require.

On 1 April 2023, Sally Johnson was appointed to the Board of

Rentokil Initial plc as a Non-Executive Director and took on the

role of Chair of its Audit Committee on 10 May 2023. When

considering this new commitment, the Board assessed any

potential conflicts of interest and the time commitment required,

as well as taking into consideration the requirements under

Provision 15 of the UK Corporate Governance Code. The Board

agreed that Sally’s new commitment would not have a negative

impact on her role as Chief Financial Officer of Pearson.

The Board believes that the experience gained by Directors

through their other commitments brings valuable perspectives to

the Pearson Board.

Scheduled meetings attended

Chair

Omid Kordestani 6/6

Executive Directors

Andy Bird 6/6

Sally Johnson 6/6

Non-Executive Directors

Sherry Coutu 6/6

Alison Dolan

3/3

Alex Hardiman

3/3

Esther Lee 6/6

Linda Lorimer

3/3

Graeme Pitkethly

5/6

Tim Score 6/6

Annette Thomas 6/6

Lincoln Wallen 6/6

1. Alison Dolan and Alex Hardiman joined the Board on 1 June 2023.

2. Linda Lorimer retired from the Board on 28 April 2023.

3. Graeme Pitkethly was unable to attend the Board meeting on 27 April

2023 due to a pre-existing commitment. He reviewed the papers and

provided his perspectives to the Chair prior to the meeting.

Annual report and accounts 2023 Pearson plc 77

Governance

AI plays an important role across Pearson’s product portfolio.

For instance, large language models within Workforce Skills

which develop proprietary predictive algorithms designed to

assess trends in demand for skills and occupations globally

and recommend career and learning pathways for consumers,

enterprises and governments. Within English Language Learning

there are AI-based open response assessments. We have

also recently brought to market a generative AI tool within our

Pearson+ service, which you can read more about on page 15,

which enables users to automatically summarise the content of

Channels videos into simple bullet points. Additional generative

AI study tools designed to help students better learn and

understand challenging subjects launched in the latter part of

2023. Opportunities to consider how we can continue to leverage

innovative AI technology to drive further efficiency and generate

additional cost savings are also being explored.

As generative AI develops, we expect it to create significant

positive opportunities for Pearson, due to our unrivalled depth of

content and data. Learners and educators place enormous trust

in us so we have a responsibility to be thoughtful and considered

in how we use this technology, whilst continuing to move at pace

to enhance our products with the customer in mind.

During the past year, the Board, the Audit Committee, the

Reputation & Responsibility Committee and the Executive

Management team have been focused on keeping informed

on AI developments both within Pearson and in the wider

market, considering both opportunities and implications of the

technology for Pearson.

The Board regularly receives updates on AI capabilities and

developments within the business, particularly as part of the

divisional deep dives. Such deep dives included the integration

of AI into Mondly’s capabilities as part of the English Language

Learning division, and how greater harnessing of AI and machine

learning technologies could impact the Higher Education division.

In May 2023, Pearson provided an update to the market and

external stakeholders on the generative AI enhancements in

products across its portfolio.

How the Board is kept informed

These enhancements, when combined with Pearson's

unparalleled collection of high-quality proprietary intellectual

property assets, further strengthen the Company's position

as a digital-first learning company focused on delivering an

unmatched experience for the consumer across their lifetime

of learning. The Board was updated on the progress against our

generative AI strategy announced in May 2023, which further

embeds AI technology across key products throughout our

portfolio in a way that enhances the teaching and learning experience.

The Board is actively focused on the significant opportunities across the

company and the work to embed generative AI across a number of key

products within Workforce Skills, Mastering and MyLab, Pearson+ and

English Language Learning.

The Board was updated on considerations around the

development of AI technology, including discussing the

company’s IP protection strategies with management. The Board

also discussed the impact of wider market statements regarding

the potential effects and opportunities of generative AI, and

management conducted a number of meetings with investors

and analysts on the impact the acceleration of generative AI

technology could have for the company.

The Board was also frequently updated on the specific initiatives,

priorities and opportunities of AI, in terms of product capabilities,

potential application for companies and workforces, and internal

back-office efficiencies leveraging AI technology for content and

process engineering, and Common ID – the development of

singular customer profiles and log-in capabilities.

In addition to considering AI through specific lenses, in July 2023,

the Board conducted an enterprise-wide strategic deep dive into

AI, including: its use in PTE scoring in the English Language Learning

division; its use in Faethm’s skill ontology analysis; VUE’s deployment of

AI technology as part of its security capabilities; and Higher Education’s

use of AI in content creation, in partnership with authors.

The Audit Committee was provided with updates on AI

workstreams within the legal and government relations

function, as well as ongoing work being undertaken to

understand potential risks and opportunities relating to IP rights

enforcement, including by monitoring the landscape in other

sectors and having careful regard for Pearson’s future strategy

and business model.

The application of our Board and governance processes ensures that our Directors receive accurate, timely and clear information from a

range of sources. This allows the Board and Committees to monitor and provide feedback on matters of importance, as well as to make

informed decisions in the best interests of the company and its stakeholders.

The Audit Committee considered the risks associated with

generative AI, and reviewed its status as part of the risk

management update and Group risk review. In particular, as part

of the Audit Committee’s strategic risk sessions:

— The Assessment & Qualifications deep dive included an

overview of risks associated with AI and the competitive

marketplace, as well as perspectives on the use of AI in the

Assessment & Qualifications business, drawing a distinction

between the AI techniques that had been in use for some

time and the recent developments in generative AI, where

possibilities were still being assessed.

— The Higher Education deep dive included an overview of

Pearson’s capabilities relating to AI in personalisation of

materials and consideration of Pearson’s thinking regarding

IP, licensing and royalties in an AI-powered environment.

Across multiple sessions, the Reputation & Responsibility

Committee considered the AI landscape from a regulatory, policy

and media perspective, including:

— Conducting a government relations deep dive, which

highlighted the significant amount of regulatory and policy

focus on this topic. Alongside this, the Committee noted

the programme of engagement with government offices

and participation in notable forums and events to share the

company’s perspectives in this field.

— Considering Pearson’s positioning and engagement strategy

in terms of corporate voice on AI-related matters, with more

work to be done on this.

The Reputation & Responsibility Committee also discussed AI

as part of its session on online trust and safeguarding. Overall,

the Committee noted AI as a potential reputational risk and

agreed that it should therefore continue to be a matter for the

Committee’s attention.

You can read more about how we manage AI from a risk

perspective on page 56.

Annual report and accounts 2023 Pearson plc 78

Governance

Talent and culture

Ensuring that we have both a talented, engaged workforce that is focused on delivering our strategy and an inclusive organisational culture that enables and encourages that delivery is critical to Pearson’s

success. During the past year, the Board and Executive Management team have continued to lead our focus on making sure Pearson offers a culture and environment that is inclusive and high-performing,

and in which our people can leverage their strengths. We track Group-wide progress through our ‘Culture of engagement and inclusion’ non-financial KPI (see page 24 for more details on our KPIs). Pearson’s

purpose, vision, mission and values (set out on page 2) are key to developing our culture to support our strategic vision, particularly in driving a culture of performance.

The Board monitors culture and organisational health, together with its Committees, and receives regular updates from the Chief Executive and Chief Human Resources Officer. In addition to tracking culture

as a non-financial KPI, the Board monitors other Group-wide initiatives that underpin our culture, including employee engagement, the code of conduct programme, compliance, health & safety and talent

attraction and retention (see table below for further information).

The Reputation & Responsibility Committee’s remit includes oversight of culture and employee engagement, increasing the Board-level focus on these matters. The Chief Human Resources Officer is a

frequent attendee at Board meetings, as well as a standing attendee at the Reputation & Responsibility, Remuneration, and Nomination & Governance Committees. Their attendance and contributions,

together with the Board’s own direct engagement with the workforce, ensure that our Directors are attuned to our culture and employee-related considerations through multiple lenses, including in strategic

decision-making (see our case study on page 83), and in conducting their business more broadly.

During the year, the Reputation & Responsibility Committee conducted a deep dive into the results of Pearson’s employee engagement survey, to establish the trends and actions that needed to be taken to

improve engagement with employees, with the key themes and indicators also discussed with the full Board. The Board also has a particular focus on the current and future leaders of Pearson, including our

talent pipeline for leadership and other pivotal roles, and we conducted our annual deep dive into talent and succession planning in December 2023. Read more on page 89.

Cultural

indicator How it is overseen

Board level

responsibility

Employee

engagement

The Board ensures engagement through multiple channels, including the employee engagement survey (the results of which were discussed by the Reputation

& Responsibility Committee and the Board), town hall sessions and in-person engagement events, such as the face-to-face listening sessions with employees in

London and Hoboken. Read more on page 82.

Board

Code of

conduct and

training

The Audit Committee is briefed on our annual Code of Conduct programme, including development of the code, completion rates, training and certification

methods. Certification of the code is mandatory and we achieved a 100% employee completion rate in 2023. We also have mandatory training for all employees on

cyber security and data privacy, with targeted training for employees in certain roles, divisions or geographies.

Compliance,

including

whistleblowing

and

investigations

The Chief Compliance Officer reports to the Audit Committee at every meeting on new and ongoing investigations, including matters raised through our SpeakUp

process. The Audit Committee considers the programme’s effectiveness annually, including periodic peer benchmarking. The Audit Committee Chair ensures the

Board has visibility on matters of note. The Board is free to request further information to support its oversight.

Internal audit Insights into elements impacting our culture and cultural behaviours are provided where necessary by internal audit to the Audit Committee as part of the findings

and recommendations in its reports.

Health and

safety (‘H&S’)

The Reputation & Responsibility Committee receives an annual H&S report, so Directors can monitor the key strands of our H&S framework, including oversight

of how Pearson is enabled through awareness, competency, resources and guidance to allow for agile and effective management of H&S risk, while also receiving

comfort that we have controls for compliance and assurance purposes.

Remuneration

practices and

rewarding the

workforce

The Remuneration Committee monitors the wider Employee Reward framework, including incentive target setting for Group plans, fair pay analysis, Chief Executive

pay ratios and alignment of Directors’ pension contributions to the workforce. It also oversees integration of sustainability measures into incentive targets. This suite

of activity provides insights into the roles that remuneration and setting performance goals play in promoting the right behaviours, particularly in driving a culture of

performance, and how incentives and rewards align with culture.

Talent

attraction and

retention

The Chief Human Resources Officer regularly updates the Remuneration Committee on talent considerations, including trends on recruitment, retention and

staff turnover. Talent attraction and retention plays into our ability to execute our strategy, so it is considered in strategic discussions by the Board and Executive

Management team. Recognising the importance of our people, Talent is a sub-category of our Capability principal risk. Read more about our risk management

approach starting on page 56.

Annual report and accounts 2023 Pearson plc 79

Governance

Sustainability

Pearson has a strong governance structure through which the Board and its Committees monitor and oversee the company’s sustainable business framework.

The company’s sustainable business framework includes three pillars: driving learning for everyone

with our products, empowering our people to make a difference, and leading responsibly for a better

planet. These pillars represent the areas where Pearson can make the biggest positive impact and

where our responsibilities lie towards communities and the environment.

The Reputation & Responsibility Committee leads the Board’s oversight of sustainability matters,

however, given the breadth of topics that feed into our sustainable business pillars, as well as the

increasingly complex external landscape around these matters, the other Committees each have a

role to play in supporting the Board’s oversight of sustainability.

Indicative sustainability duties falling within remits of Board Committees

Board

Reputation & Responsibility Committee Audit Committee

— Overseeing sustainability strategy including

targets and public commitments

— Monitoring progress towards non-financial

KPIs linked to the products, people and

planet pillars

— Sustainability regulatory landscape and

external reporting

Remuneration Committee Nomination & Governance Committee

— Integrity and assurance of sustainability

data, reporting and metrics

— Strategic risk management

— Compliance elements of ‘governance’

strand of sustainability

— Considerations relating to incorporation

of sustainability metrics within

remuneration frameworks

— Performance against sustainability metrics

to support remuneration decisions

— Ensuring requisite strength of sustainability

expertise on Board

— Corporate governance elements

of sustainability

The graphic above illustrates how the Committees work together to support the Board in overseeing

sustainability at Pearson.

You can read more on the sustainability matters covered during 2023 throughout this Governance

Report, in particular in the Reputation & Responsibility Committee’s report on pages 94-96.

How the Board is kept informed continued

Annual report and accounts 2023 Pearson plc 80

Governance

As required by the UK Corporate Governance Code,

the Board ensures Pearson engages effectively

with, and encourages participation from, its key

stakeholders. The Board maintains its oversight

through a variety of direct and indirect mechanisms,

and the Reputation & Responsibility Committee

monitors our stakeholder engagement framework.

The Board recognises that stakeholder views

are integral to decision-making and setting the

company’s strategy. More information on Pearson’s

key stakeholders, including the outcomes of our

engagement throughout 2023, is in the strategic

report on pages 16-20. Further information on how

the Directors discharge their duties under Section 172

of the Companies Act 2006 is on page 21.

Understanding our stakeholders

Engagement in 2023

Throughout the year, the Board ensured that it was kept

informed of stakeholder views, concerns, and commentary

through a variety of engagement methods. These included

in-person and virtual meetings, reports and presentations at

Board or Committee meetings, feedback from members of the

Executive Management team and other employee groups, and

interactions with different functions, teams and advisers, both

inside and outside Pearson. The use of digital technology allowed

for broader engagement, helping to ensure that stakeholders

retained a voice within the Boardroom.

A key factor in any decision-making is listening to and considering

the interests of stakeholders. We have set out below examples

of the key employee and shareholder engagement activities

undertaken by the Board and by individual Directors over 2023.

A detailed review of the Chief Executive recruitment process,

and how it relates to our stakeholders and Pearson’s long-term

success, is on page 83.

Shareholders

Shareholders are a key consideration in the Board’s decision-

making. We have continued our focus on driving shareholder

engagement through in-person meetings and events, while also

using digital technology to reach a wider base of shareholders.

The Board is committed to fostering shareholder engagement

by making it easier for all types of shareholder to attend annual

general meetings (AGMs), recognising that they represent

an opportunity for shareholders to interact with the Board

and share their views, concerns, and feedback. Following the

success of our first hybrid AGM in 2022, we held a hybrid AGM

in 2023 for the first time at our 80 Strand office in London, with

shareholders able to attend the meeting, vote and ask questions

of the Board either in-person or virtually.

We believe that the hybrid approach enables a broader cross-

section of our shareholders to participate in general meetings

and will therefore be holding a hybrid AGM in 2024 and look

forward to welcoming our shareholders. Further details will be

shared in our notice of the 2024 AGM.

The Board ensured a continued shareholder dialogue

throughout the year. We undertook an extensive engagement

exercise on our remuneration arrangements and proposed

Directors’ remuneration policy prior to our 2023 AGM. Further, in

accordance with the UK Corporate Governance Code, following

a significant minority vote against our Directors’ remuneration

policy at our 2023 AGM, a subsequent engagement exercise with

shareholders was conducted and reported back to the market on

the major themes of the feedback received. Further information

on the Directors’ remuneration policy, and shareholder

engagement prior to and after our 2023 AGM, is on page 108.

The Board also receives updates and analysis on shareholder

sentiment from Pearson’s corporate brokers, as part of a

regular investor relations update and when considering certain

corporate matters.

Over

500

meetings

Over

270

institutions

with

A strong understanding of all our stakeholders and their perspectives is integral to our strategic planning and operational delivery. Our

Board strategy sessions are informed by the views and needs of our eight stakeholder groups: consumers, educational institutions and

educators, employers, business partners and institutions, government and regulators, employees, shareholders, and our communities.

Shareholder engagement at a glance

Over 2023, our Chief Executive, Chief Financial Officer and Divisional Presidents, as well our investor relations team, participated

in meetings, conferences, roadshows and events across the world. This included a seminar at the New York Stock Exchange

on the Assessment & Qualifications business, conference participation across the US, Europe and the UK and concluded with

a Q4 roadshow.

Annual report and accounts 2023 Pearson plc 81

Governance

Employees

The Reputation & Responsibility Committee leads on employee

engagement on behalf of the Board. The Board recognises

that our employees are one of our most important assets and

are integral to our business and is committed to continuing to

strengthen their voice. Examples of how the Board engaged with

employees in 2023 to ensure that they are listened to, supported

and rewarded, are illustrated below.

Board and employee engagement

The central role of the Board is to support and oversee Pearson’s

long-term strategy. As part of that, it is vital that the Board

engages with employees, to strengthen the employee voice in

the boardroom. During the year, the Board evolved its approach

to employee engagement to include a wider programme of

engagement activities with employees, including in-person,

structured listening sessions, which complemented existing

executive employee engagement and expanded opportunities

for direct engagement by Non-Executive Directors. During

the year, the Board held two structured, face-to-face listening

sessions with employees in London and Hoboken, facilitating

meaningful interactions between Board members and various

groups of employees. The invitations to attend both events were

open to all employees based in the 80 Strand and Hoboken

offices, with approximately 40-50 employees attending in each

location. The sessions were held informally over breakfast, with

Board members sharing tables with small groups of employees

to hear their thoughts, feedback and questions. Board members

engaged on a variety of topics, including the appointment of the

new Chief Executive, the shape of Pearson and our strategy going

forward. Both events were received very positively by employees

and the Board spent time after both sessions sharing their

feedback and discussing what they had heard from employees.

Omid Kordestani also engaged in a virtual fireside chat with a

global audience of Pearson leaders, fostering an open dialogue

and sharing perspectives across the organisation.

Looking ahead, the Board intends to hold similar events,

including in-person and structured listening sessions, as well

as virtual events, in 2024 to ensure we continue to be inclusive,

authentic and representative of our diverse employee base.

Town halls

Throughout 2023, the Chief Executive, Chief Financial Officer and

the Executive Management team held virtual town hall meetings,

which Pearson employees were invited to attend and given

the opportunity to ask questions. These discussions took place

at significant points in the year, such as following key financial

results announcements.

Surveys

During 2023, we conducted a further Pearson employee

engagement survey, following the launch of a refreshed

approach in 2022. We heard from c. 13,600 employees, with

an overall response rate of 82% compared with 72% in 2022.

The Reputation & Responsibility Committee received a detailed

update on the survey results, including additional insights on the

culture of inclusion, coaching effectiveness, and opportunities to

increase engagement, which were also discussed at Board level.

Further information on the outcomes of the Pearson employee

engagement survey is on page 39.

Understanding our stakeholders continued

This is a golden chance for

professionals like me to

bridge the gap with our top

decision-makers.

Mrunal Bhagat a UK schools

marketing executive

(Attended the London engagement event)

I had such an insightful

conversation with Lincoln

Wallen about the hiring

process of our new CEO, and

what Omar will hopefully

bring to Pearson when he

joins us.

Emma Devlin UK BTEC & apprentices senior

marketing executive

(Attended the London engagement event)

The board members

genuinely seemed interested

in hearing from employees

on the front line, I never had

this type of opportunity in

previous companies.

Nichol DeGruccio a Pearson VUE real

estate administrator, based in New Jersey

(Attended the Hoboken engagement event)

Annual report and accounts 2023 Pearson plc 82

Governance

Consumers

When the profile of the desired candidate and the role specification

were developed for the Chief Executive recruitment process, the Board

took into account the key skills and attributes that would be needed

to expand upon and accelerate Pearson’s digital transformation and

continue Pearson’s commitment to its purpose of adding life to a

lifetime of learning, offering our consumers and learners new and

exciting ways of learning. Omar has extensive experience in driving

service and solutions for customers and delivering high-quality services

and products. He is passionate about learning and education, having

worked across many sectors in his career.

Communities

We strive to make a positive and meaningful impact in the

communities in which we operate and the Board considered this

in assessment of the candidates, to ensure that the successful

candidate was aligned with the importance of this to Pearson

and in driving this forward. Omar is a dynamic and innovative

leader, who has the skills to ensure we continue to widen access

to education in our global communities through innovation. He is

a highly mission-driven and people-centric leader.

Employees

As part of the extensive selection process, the Board was focused

on ensuring that the chosen candidate aligned with Pearson’s

values and ambition, that they saw Pearson’s employees as the

company’s greatest asset driving our success and ability

to make a positive impact. The Board sought a candidate who

was a strong cultural fit with Pearson, with the ability to effect

and accelerate change. Omar is an inspirational, dynamic

and growth-oriented leader, who the Board believes will help

drive the future success of the business. He has strong people

engagement skills and his personal values are very much aligned

with those of Pearson.

Employers

The Board was cognisant of the importance of Pearson’s

relationship with employers and the trust they have in Pearson

to deliver high-quality products and services, which has fostered

stable long-term relationships which underpin our business.

The Board agreed that the candidate would need to have highly

successful experience in leading a large, high-performing,

purpose-driven international business, with experience in brand

building and a passion for education. Omar has deep commercial

and operational expertise focused on delivering high-quality

services and products across diverse markets and customer sets.

His most recent position as President of Microsoft’s Industry

Solutions business, together with his experience on the board

of NYSE-listed, enterprise SaaS company, Zuora, Inc., mean

that he is ideally positioned to understand the diverse needs of

employers that Pearson seeks to serve through its products

and services.

Shareholders

In considering the candidates, the Board paid particular attention to

ensuring the successful candidate had sufficient depth of experience to

continue to build on our strategy across our global markets and deliver

long-term value, thereby promoting the success of the company for the

benefit of its members. Omar has a wealth of experience with global

enterprises, deep expertise in digital transformations and a proven

track record of delivering growth and value creation. Following the

announcement of Omar’s appointment, Omid Kordestani engaged with

a number of our key shareholders.

The Board is confident in Omar’s ability to deliver on strategy and

execution, which ultimately will be for the benefit of all our stakeholders

and is delighted to have secured such an outstanding candidate as

Chief Executive of Pearson.

Our Board’s decision-making in action

This case study on the Chief Executive appointment process illustrates how the Directors considered the various aspects of their statutory

duties in making the decisions related to Omar Abbosh’s appointment and the implications for stakeholders. This case study should be

read in conjunction with the Directors’ duties statement on page 21 and the Nomination & Governance Committee report on pages 88-93.

In its decision-making, the Board considered Pearson’s key stakeholders in the following ways:

Annual report and accounts 2023 Pearson plc 83

Governance

On joining the Board, each Director completes a bespoke

induction programme that is guided by the Chair or Deputy Chair

and Senior Independent Director, supported by the Company

Secretary, and overseen by the Nomination & Governance

Committee. Every programme builds on the particular skill

set, attributes, and background of the joining Director, their

interests in Board or Committee roles, and the company’s

recommendations.

In addition to background information on the company, every

induction covers a range of topics, including Board procedures,

recent operational performance and strategic direction of the

company, purpose and values, key areas of the business, as well

as directors’ duties and responsibilities. The Directors also cover

various governance-related issues and their legal obligations,

including procedures for dealing in Pearson shares.

Each induction typically includes a series of meetings with

the members of the Board, the Executive Management team,

external advisers and brokers, and other senior management.

Directors receive a walk-through of the business from senior

executives and a briefing on Pearson’s investor relations

programme. A newly appointed Director will have met some, if

not all, fellow Board members as part of the original search and

appointment process, but additional meetings may nevertheless

occur with the same Board members as part of a rich and

thorough induction.

Directors’ induction

I received a detailed

induction, including

divisional deep dives and

tailored meetings with

colleagues, which helped me

better understand Pearson’s

priorities and enabled me

to engage and contribute at

Board meetings effectively

from the start of my tenure

as a Non-Executive Director.

Alex Hardiman

Appointed to the Board on 1 June 2023

Inductions for Alison Dolan and Alex

Hardiman

Alison Dolan and Alex Hardiman joined the Board as

Non-Executive Directors on 1 June 2023. As part of their

onboarding arrangements, Alison and Alex received

comprehensive and engaging induction programmes that

included a series of meetings.

In addition to meeting the Chair, Chief Executive and Chief Financial

Officer, Alison and Alex met with each of the Executive Management

team members, key representatives of our corporate functions, and

our brokers. Both induction programmes also included one-to-one

meetings with each of their fellow Non-Executive Directors and a

comprehensive introduction to the activities of each of the Board’s

Committees, including their objectives and priorities and, as they have

both joined the Audit Committee, they met with the company’s audit

partner. Alison and Alex also held meetings with the company’s legal

advisers to discuss directors’ duties, corporate governance and external

reporting, among other topics.

Induction programme participants Meeting purpose

Chair, Deputy Chair and Senior

Independent Director

Introductory meetings to cover the company’s governance structure, the Board’s priority areas

and ways of working, meeting cadence, and ongoing matters considered by the Board.

Chairs and members of the

Board’s Committees

Overview of the responsibilities and composition of the Board’s Committees, their governance,

regular attendees and advisers.

Executive Directors;

Divisional Presidents

Overview of the strategic priorities of the company and each division, key performance

indicators, financial performance and projections, and competitive landscape.

Heads of Corporate Functions Introductions with leadership team members, covering an overview of their business area(s),

subject matter expertise, organisational structure, company culture and values.

Company Secretary;

legal advisers

Induction planning, governance framework, Board and Committee matters, duties and

responsibilities of a company director, the company’s policies and procedures, and other legal

and regulatory considerations.

Annual report and accounts 2023 Pearson plc 84

Governance

Board evaluation

Following internally facilitated reviews in 2021, led by the

Senior Independent Director, and in 2022, led by the Chair, in

accordance with the three-year evaluation cycle, the 2023 review

was externally facilitated.

Typical three-yearly

evaluation cycle

Year Methodology Last undertaken

Questionnaire, tailored to specific needs

of the business

2018

Internally facilitated interviews, to be led

by the Chair, Senior Independent Director

and/or Company Secretary as appropriate

2019, 2021,

2022

In-depth evaluation, externally facilitated 2020, 2023

Approach and methodology

The 2023 evaluation was carried out by Manchester Square

Partners, which operates as an independent advisory

firm. Manchester Square Partners was selected following

consideration by the Nomination & Governance Committee of

various providers and the potential scope of the evaluation.

Manchester Square Partners has no other connections to the

company or individual Directors beyond this process.

The review was conducted through a series of one-to-one

conversations with each Director and anchored in a set of

questions shared with Directors in advance. One-to-one

meetings were also held with each member of the Executive

Management team and selected other senior executives. The

review process also included observation by the evaluator of a

full set of Board and Committee meetings, including the private

sessions. The one-to-ones were conducted in a ‘free-format’ style,

to allow organic discussions and to provide ample opportunity

for Directors and executives to raise matters of importance.

Discussion areas included matters that are relevant to Pearson

in particular, as well as those items laid down in the Code and

associated guidance, including:

— the effectiveness of the organisation and dynamics of the

Board, including composition, leadership, agendas, meeting

cadence, quality of information provided, governance and

decision-making

— relationships between the Board and senior leaders, and

between members of the Board itself, including the remits of

and interaction among the respective Committees and with

the Board

— articulation and implementation of strategy

— succession planning and talent pipeline for Executive

Directors and other senior leaders

— understanding of risks facing the company, including

likelihood and mitigation

— understanding of stakeholder views, products and markets

— the Board’s monitoring of organisational culture, behaviours

and employee sentiment

In reporting back to the Board, Manchester Square Partners

opined that, based on their experience of evaluating the

effectiveness of boards in a variety of industries, including

many FTSE 100 companies, the Pearson Board operates highly

effectively. It was found to be well chaired and comprised of

high-quality Non-Executive Directors who provide an appropriate

balance of challenge and support to the Executive Directors and

management team.

The Chair discussed the report with the evaluator and

subsequently the Board reviewed the detailed findings from the

report with the evaluator at its meeting in February 2024. The

Board will develop an action plan to address recommendations

and areas for improvement and the Nomination & Governance

Committee will monitor progress during the year.

The Board operates a three-yearly evaluation cycle which employs a variety of methodologies to ensure the most effective results.

Board evaluation process

The format of the review was agreed by the

Deputy Chair & Senior Independent Director

(including in their capacity as Chair of the

Nomination & Governance Committee).

The scope of the review was finalised by the

Deputy Chair & Senior Independent Director

with support from the Company Secretary.

Manchester Square Partners interviewed

each of the Directors on a confidential

and unattributable basis, as well as the

Executive Management team and other

senior executives.

Manchester Square Partners observed the

Board and Committee meetings held in

December 2023.

The output of the evaluation was captured in

a report to the Board in February 2024, with

the Board then discussing the points raised

by the review.

Progress on the findings of the evaluation

will be monitored by the Nomination &

Governance Committee throughout 2024.

Annual report and accounts 2023 Pearson plc 85

Governance

There was unanimous agreement that the Chair leads the Board

in an effective manner, fulfilling Principle F of the Code. The

Directors agreed that he demonstrates objective judgement,

promotes a culture of openness and debate, and facilitates

constructive Board relations and the effective contribution of all

Non-Executive Directors. This, in turn, supports Non-Executive

Directors in fulfilling the requirements of Principle H of the Code

in providing constructive challenge and strategic guidance,

offering specialist advice and holding management to account.

The main areas identified by the Board for particular focus during

2024 were:

— Continuing to evolve Pearson’s strategic direction, building on

the optionality that has been created through recent work on

the strategy and vision.

— Ongoing focus on succession planning, talent review and the

culture of the company, at executive level as well as more

broadly, to ensure Pearson has engaged employees with a

performance mindset and the right skillset to deliver on the

company’s strategic vision, together with a strong pipeline of

talent to allow continued execution in the future.

— Continued focus on the Board having the right mix of skills

and experience as the company continues to transform

and evolve, and ensuring strong stakeholder relationships

are maintained.

— Continued development of customer and marketplace

insights shared with the Board, to help increase the Board’s

understanding as these areas evolve.

— Ongoing development of the Board’s meeting and agenda

roadmap to ensure the topics are aligned with Pearson’s

strategic goals and given adequate discussion time.

— Ensure there continue to be formal and informal channels for

feedback between the Chair and the Directors, especially at a

time of transition in senior Board roles.

In addition to the annual evaluation exercise, the Chair meets

regularly with the Non-Executive Directors and these sessions

include reciprocal feedback on the functioning of the Board.

Individual evaluation

In addition to the evaluation of the Board as a whole, Executive

Directors are evaluated each year on their overall performance

against goals agreed by the Board, and in respect of strategic

measures under the company’s annual incentive plan. These

goals are linked to the key financial and strategic objectives of the

company. Progress against each of these metrics is reviewed by

the Board on a regular basis, as part of a dashboard of KPIs.

The Chair engages with individual Non-Executive Directors on

their performance and contributions, and encourages open

channels of communication with Directors on an ongoing basis.

In the Board’s opinion, these ongoing lines of communication,

combined with a Group-wide culture which allows and

encourages feedback at any time, provide the most effective

means for evaluation. In assessing the contribution of each Non-

Executive Director, the Chair, with the support of the Nomination

& Governance Committee, has confirmed that each continues to

make a significant contribution to the business and deliberations

of the Board. The Non-Executive Directors also conduct an

annual review of the Chair’s performance, with the Deputy Chair

& Senior Independent Director leading this review and providing

feedback to the Chair.

Committee evaluation

All Committees undertake an annual evaluation process to review

their performance and effectiveness. For 2023, the Committee

evaluation process was facilitated externally by Manchester

Square Partners, as part of the broader Board evaluation

process. Read more in the Committee reports on the pages

that follow.

Board evaluation continued

Key findings included:

— Directors are highly engaged and diligent, with a broad range

of relevant business experience. The Board acknowledged the

skills and valuable contribution of the newly appointed Non-

Executive Directors and the opportunity for Graeme Pitkethly,

in his new role as Deputy Chair and Senior Independent

Director, to focus on maintaining strong engagement with UK

shareholders. The Board further acknowledged the strength

and diversity of contributions made by all, particularly from

external experiences.

— Board meetings and discussions are considered to be

dynamic, focused and relevant, with the Board as a whole

considered to be collegial and respectful, with an open

dialogue, while providing an appropriate amount of challenge

to management. The Board is appreciative of the continued

efforts by management to deliver focused, succinct meeting

papers and materials.

— The Board recognised the progress that had been made and

improved financial performance, and recognised that the new

Chief Executive, Omar Abbosh, would have an important role

to play in building out the strategy further.

— The Board acknowledged the quality of the Chief Executive

recruitment process, while the two new Non-Executive

Directors commended the induction process.

— Board members have relevant skills and experience, albeit

the Board recognised the importance of focusing on

succession planning and talent development at the Executive

Management and senior leadership level.

— Directors would appreciate deeper dives at Board level on

major customer relationships and the competitive landscape,

recognising the challenges of the separation between the

main buyers of Pearson’s products and services and the

end users.

— The Board welcomed the opportunity to reintroduce in-

person employee engagement events to its calendar which

involved the full Board and recognised the continued need

to focus on ensuring an engaged workforce and healthy

culture generally.

— The Board appreciates the access to, and engagement with,

the Executive Management team.

— Positive feedback was noted on the performance and

effectiveness of the Committees.

Annual report and accounts 2023 Pearson plc 86

Governance

Progress on findings of previous evaluation

A number of actions were taken during the year in response to findings from the 2022 Board

evaluation process, as set out below. The Board has confirmed that these items were addressed to

its satisfaction, with recommendations having been put into practice or a clear action plan identified

for each to be taken forward in 2024.

Finding or focus area Response or action taken

Continued focus on

execution of strategy,

including clarity on how

the Board can best

monitor and measure

the execution plan while

maintaining its distance from

operational matters.

The Board has reviewed strategic KPI metrics and processes

during the year, in order to better align them with Pearson’s

strategic narrative and demonstrate our strategic progress more

succinctly. Additionally, the Board discussed strategy as a regular

item at Board meetings, with more focused sessions taking place

at the July and October Board meetings.

Ensure accountability

for execution in the

next phase of the

company’s transformation.

The Board received operational plan presentations from the

Divisional Presidents and also discussed financial dashboard

reports at every Board meeting, in order to monitor performance

and drive accountability.

Focus on post-acquisition

integration and evaluation

of the performance of the

acquired businesses.

The Board conducted a post-acquisition review of Faethm and

Credly in December 2022 and will conduct a review of Mondly

and PDRI in April 2024, to consider the performance of these

acquisitions and how they have integrated commercially,

financially and operationally. These reviews also include

considerations for changes in approach to M&A going forward

and lessons learnt.

Ongoing development

of roadmap for market

visits and deep dives to

ensure alignment with

Group’s aspirations and

international footprint.

Divisional deep dives were integrated into the Board agenda

throughout 2023. The December 2023 Board meeting took place

in Hoboken, New Jersey, and was an opportunity for the full Board

to visit the office and meet with employees. There is an action plan

in place to take such engagement further forward in 2024.

Continued sharing of

customer and marketplace

insights with the Board.

Customer and marketplace insights shared as part of divisional

updates, and deep dives and product demos such as the one held

on Pearson+ Channels. There is an action plan in place to take this

further forward in 2024.

Finding or focus area Response or action taken

Ongoing focus on

succession planning and

talent review at Board and

executive level, as well as

more broadly.

The Nomination & Governance Committee has reviewed the

composition of the Board and its Committees throughout 2023,

including as part of the appointment of two Non-Executive

Directors in June 2023 and ongoing considerations for upcoming

retirements in coming years, as well as focus on the recruitment of

a new Chief Executive.

The Board conducted a review of succession and talent at

executive level at the December 2023 Board meeting.

Continue to pay close

attention to culture and

engagement in 2023.

There is an ongoing initiative throughout the organisation to

evolve ways of monitoring culture and behaviours. Culture and

employee engagement now sit within the remit of the Reputation

& Responsibility Committee and the Chief Human Resources

Officer attends all meetings. The Reputation & Responsibility

Committee reviewed the results of the employee engagement

survey on behalf of the Board and its perspectives were then

discussed by the full Board.

Focus on the importance

of the risks inherent in

the technology, cyber and

online spaces, including

information security,

safeguarding and reputation.

The Audit Committee conducts regular deep dives on technology

resilience, data privacy and information and cyber security,

and the Chief Information Officer is a regular attendee of Audit

Committee meetings. There is attention to these themes through

the work of Internal Audit, which the Audit Committee discusses.

The Reputation & Responsibility Committee received a report

on online safeguarding in April 2023. The full Board undertook a

Technology deep dive session with the Chief Information Officer

in 2023.

Identify and focus on the

elements of sustainability

that are particularly

relevant and critical for

Pearson’s success.

The Reputation & Responsibility Committee reviewed investor

perceptions on sustainability and agreed a strategy and action

plan for 2023. The Reputation & Responsibility Committee

received updates on progress throughout 2023.

Annual report and accounts 2023 Pearson plc 87

Governance

Principal Committee responsibilities

Appointments

Identifying and nominating candidates for Board vacancies.

Balance

Ensuring that the Board and its Committees have the appropriate

balance of skills, experience, independence, diversity and knowledge to

operate effectively.

Succession

Reviewing the company’s leadership needs with a view to ensuring the

continued ability of the organisation to compete in the marketplace.

Governance

Reviewing and overseeing Pearson’s corporate governance framework,

Board evaluation and training plans, and the Board Diversity Policy.

Role and composition of the Committee

The Committee monitors the composition and balance of the

Board and of its Committees, identifying and recommending to

the Board the appointment of new Directors and/or Committee

members. The Committee has oversight of the company’s

compliance with, and approach to, all applicable regulation

and guidance related to corporate governance matters. The

Committee is also available to support the Board as needed in

relation to talent and succession plans for senior roles.

The Committee currently has five members including me as

Chair. The Chief Executive, Chief Financial Officer and other

senior management, including the Chief Human Resources

Officer, attend Committee meetings by invitation.

As Committee Chair, I am available to engage with any

shareholders who would like to discuss the work of the

Committee and look forward to taking any shareholder questions

at our forthcoming AGM in April 2024.

After serving nine years on the Board, I will be stepping down

at the AGM in April 2024, therefore this will be my last report as

Chair of the Nomination & Governance Committee. It has been

a privilege to serve as Chair of the Committee and I would like

to extend my thanks to my fellow Committee members for their

input and commitment, particularly during the process to select

a new Chief Executive. I am delighted that Omid Kordestani will

succeed me as Chair of the Committee. Further to this, Graeme

Pitkethly has agreed to succeed me as Deputy Chair and Senior

Independent Director, alongside his existing key role as Chair of

the Audit Committee – the company is fortunate to have such an

outstanding colleague stepping into this role.

Nomination & Governance Committee report

Tim Score Committee Chair

Terms of reference

The Committee has written terms of reference which clearly set out its

authority and duties. These are reviewed annually and can be found in

the Governance section of our website (www.pearsonplc.com).

Committee members and attendance

Attendance by Directors at scheduled Nomination & Governance

Committee meetings throughout 2023:

Committee members

Meetings

attended

Sherry Coutu 3/3

Omid Kordestani

1/3

Esther Lee 3/3

Tim Score 3/3

Annette Thomas 3/3

1. Mr Kordestani was unable to attend the meetings held in March and July 2023

due to pre-existing commitments. He reviewed the papers and provided his

perspectives to the Committee Chair outside the meetings.

Annual report and accounts 2023 Pearson plc 88

Governance

Board succession planning, skills

and expertise

A key element of the Committee’s remit is to lead the process for

Board appointments in line with appropriate succession plans.

The matter of Chief Executive succession is a regular item for

discussion and reviewed by the Board on an annual basis. The

company also has contingency plans in place for the temporary

absence of the Chief Executive for health or other reasons. You

can read more about the Chief Executive succession process

that took place in 2023 on page 91. Succession planning for the

Board as a whole is considered at least annually by the full Board,

and on an ongoing basis by the Committee.

As part of the Committee’s regular succession planning activity,

all Board members are asked periodically to complete a self-

assessment of the skills and experience which they believe

they each bring to the Board. The assessment focuses on

those categories of skills and experience which are relevant to

Pearson’s strategy, business model and particular organisational

characteristics. When mapped against expected retirement

dates, the assessment helps the Committee to identify the areas

where it may need to focus any future search activity.

The results of the most recent assessment (shown on page 90)

demonstrate that Pearson has a strong spread of skills across

all areas identified as being of particular importance. Pearson

expects all Non-Executive Directors to demonstrate the highest

level of integrity and credibility, independence of judgement,

maturity, collegiality and also a commitment to devote the

necessary time to the company’s business.

Board search processes and appointments

The Committee has been very active over the past year in relation

to Board search activity, conducting search processes resulting

in the appointment of two new independent Non-Executive

Directors, Alison Dolan and Alex Hardiman, and supporting the

Board in the selection of a new Chief Executive, Omar Abbosh.

Before commencing the Non-Executive Director search process,

the Committee considered the recent and anticipated Board

retirements and the impact of these on the overall skills and

expertise on the Board.

These were mapped against the key areas of strategic

importance to the business to ensure our Board has the

appropriate balance of skills and experience to deliver our

strategy, while also taking diversity considerations into account.

The Committee agreed that it was particularly interested to

identify two candidates, each with specific skills and expertise to

complement the Board. The first category focused on established

finance leaders, with a deep understanding of public company

governance standards, ideally from a UK-listed business, who

had capacity to serve on the Audit Committee. The second

category focused on individuals with operating experience

with subscription and/or enterprise SaaS business models, at

a scale and complexity commensurate to Pearson, experience

developing innovative digital products and/or driving digital

business transformation and direct to consumer business

engagement skills.

Taking into account the agreed specifications, the Committee

engaged Spencer Stuart to undertake the search process. In line

with the objectives of the Board’s Diversity Policy, the Committee

asked Spencer Stuart to ensure that the lists of candidates

reflected diversity of gender, ethnicity, geography and age as well

as diversity in its broadest sense. You can read more about the

Board Diversity Policy and diversity across Pearson on pages 92-

93. I worked closely with Spencer Stuart to develop the candidate

lists, with the Committee then considering the candidate profiles

in detail, including their current commitments, skills and previous

experience. I met with all shortlisted candidates and provided

my feedback to the Committee. A number of other Board

members met with the preferred candidates, following which the

Committee made its recommendation to the Board. The search

processes culminated in the appointments of Alison Dolan and

Alex Hardiman as Non-Executive Directors with effect from 1

June 2023. You can read about their induction on page 84.

In addition to the Non-Executive Director and Chief Executive

search processes, Spencer Stuart also undertakes broader

executive search activity for the Group and is a signatory to the

Voluntary Code of Conduct for Executive Search Firms. Spencer

Stuart has no connection with Pearson or members of the Board

beyond its expertise in board and executive search.

Executive succession planning

Succession planning for key positions at Executive Management

level is primarily overseen by the full Board, with support

provided by the Committee in respect of particular initiatives.

The Executive Management team has a key role to play in our

strategic planning process, in the ongoing development of our

talent pipeline and in fostering the culture and values required

to continue to deliver on our strategy. Following a review of

talent and succession planning in December 2022, particularly

the executive pipeline from which the future leaders of Pearson

were likely to emerge, in December 2023 the Board held a

discussion on the current Executive Management team and

requirements to support the new Chief Executive in executing

the next stage of the company’s strategy. The company also has

targeted development programmes for high-potential talent

and mentorship programmes for diverse leaders, as well as

development programmes for junior and middle management.

Other areas of focus during 2023

The Committee oversees the company’s compliance with the

UK Corporate Governance Code and reviews a status tracker to

enable it to consider the appropriateness and maturity of various

elements of our governance framework and to monitor any areas

of qualified or non-compliance. Learn more about Pearson’s

compliance with the Code on page 67.

Other areas of focus for the Committee during the year included:

oversight of the composition of the Board’s Committees,

assessment of the independence of Tim Score prior to making

a recommendation for his re-election at the 2023 AGM

(recognising his length of service on the Board), Board diversity

reporting and the approval of a new target for ethnic diversity in

senior management to be achieved by December 2027, and the

annual review of the contribution of each Director to the Board.

Nomination & Governance Committee report continued

Annual report and accounts 2023 Pearson plc 89

Governance

Committee evaluation

The Committee undertakes an annual evaluation process to

review its performance and effectiveness. For 2023, feedback

relating to the Committee was sought from Directors as part of

the wider Board evaluation led by Manchester Square Partners.

Topics covered included the effectiveness and dynamics of

the Committee, oversight of key areas within the Committee’s

remit, the quality of papers and meeting discussions, and the

relationships between the Committee and management.

The findings of the effectiveness review process for 2023

indicated that the Committee is considered to be working well

with appropriate agendas, papers produced to a good standard

and high-quality discussions. Positive feedback was noted on

the handling of the Chief Executive and Non-Executive Director

recruitment processes. You can read more about the Board

evaluation process on page 85.

Committee aims for 2024

The Committee’s priorities for the coming year will be to ensure a

smooth Chief Executive transition and the successful onboarding

and induction of Omar Abbosh. The past year has required the

Committee to be particularly focused on Board search activity

and so, in 2024, we will look to focus on other areas of our

governance framework, including monitoring progress against

the latest Board evaluation findings, overseeing management’s

response to the revised UK Corporate Governance Code, and

working with our HR colleagues to focus on diversity.

Tim Score Chair of Nomination &

Governance Committee

Skills matrix

This matrix represents the number of Directors with core or supplemental capability in areas that are relevant to Pearson’s strategy,

business model and organisational characteristics. A core capability is one of the strongest areas of a Director’s skill and expertise,

where they bring considerable value to Board discussions. A supplemental capability is an area where the Director is competent or has

experience, but is not one of the primary skills or attributes that they bring to the Pearson Board.

Category

1. Accounting and finance

2. Corporate strategic development (including value creation

and M&A)

3. Digital and technology (including data and cyber security

governance and AI)

4. Disruption management (including talent leadership through

change, marketing and data insights, new business models

and innovation)

5. Direct to consumer business models (including consumer

brand, sales and marketing)

6. Education and public sector

7. Global markets

8. Listed company governance & regulation (particularly UK)

9. People / general talent focus (including workforce learning)

10. Policy and government relations

11. Prior CEO experience, particularly of

multinational businesses

12. Remuneration

13. Scale and complexity

14. Sustainability

Core capability Supplemental capability

4 5

10 1

6 5

8 3

7 4

4 3

6 4

4 2

Annual report and accounts 2023 Pearson plc 90

Governance

The search process resulted in the appointment of Omar

Abbosh, who became Pearson’s Chief Executive on

8 January 2024.

Spencer Stuart met with each member of the Board individually

to seek their input into the profile of the desired candidate and

to refine the role specification. The Directors agreed that the key

attributes they were seeking in proposed candidates included:

— Passionate, results-oriented, collaborative, and mission-driven

leader who can build on the current Pearson strategy and

deliver value to Pearson’s shareholders over the medium

and long term

— Highly successful experience in leading a large, complex

international business

— Extensive experience in one or multiple of the following

sectors: enterprise technology, media, consumer or other

tangential sectors with technology/digital as the core of

the business

— Demonstrated track record of successfully developing and

leading the commercialisation and go-to-market strategies

within a business to deliver results and growth

— Proven global leader who can win in multiple markets, drive

results and act strategically

— An agent of change who can communicate a mission and

vision, inspiring hearts and minds to align stakeholders

and bring the mission/vision to bear and a cultural fit with

Pearson’s values

— Experience of delivering high-quality products and services for

both enterprises and consumers

— Strong reputation, integrity, independent thinker

The Board also made clear to Spencer Stuart that diversity,

including gender and ethnicity, was an important consideration in

the candidate search process.

The Board considered 43 candidates over the course of the

process, of which 16 were women and 12 were from an ethnic

minority background. As this progressed, the longlist of 43 was

refined to a group of eight individuals (including three women

and two individuals from an ethnic minority background), each

of whom met with the working group of the Board. In the final

stage of the process, Omid Kordestani and Tim Score, as well as

a number of other Board members, met on both one-to-one and

panel bases with each of the three shortlisted individuals. Each

shortlisted individual was also invited to present to the full Board

on their strategic vision for Pearson and to address questions

from all Board members. The final shortlist included one woman

and one individual from an ethnic minority background.

As a result of the comprehensive selection process, the Board

identified Omar Abbosh as its preferred candidate for the role

of Chief Executive. Once appropriate checks and referencing

had been completed, the Board was satisfied that Mr Abbosh

met and exceeded the selection criteria and approved the

appointment of Mr Abbosh as Chief Executive, who took up the

role on 8 January 2024.

The Board is pleased to welcome Omar, who has deep

commercial, technology and operational expertise focused on

delivering high-quality services and products across diverse

markets and customer sets, with extensive experience in creating

and executing strategies to enable companies to harness

technology and succeed in a world of disruptive change.

Appointment of Chief Executive

During 2023, the Board commenced a search process for a new Chief Executive, following notice from Andy Bird of his intention to retire

from the Pearson Board, applying the ongoing succession planning processes which are regularly reviewed by the Board. The Chief

Executive search process was led by the Chair of the Board, Omid Kordestani, and a working group of the Committee was appointed to

manage the process, which was reviewed several times by the full Board. Spencer Stuart was selected by the Board to support the Chief

Executive succession activity.

Omar shares our values and our ambition and has a strong

track record of execution. His expertise will help to further

accelerate our strategy and continue to deliver value for all

our stakeholders.

Andy Bird did not take part in the search and selection process

save that he participated, firstly, in the initial individual scoping

sessions with Spencer Stuart in terms of what the specification

should focus on as the ideal future leader of Pearson and,

secondly, in the final decision to appoint Omar, with this

resolution being passed unanimously by the Board.

On behalf of the Board and Pearson colleagues, the Committee

would like to thank Andy for his outstanding leadership during

his time as Chief Executive. During his tenure, Andy implemented

an ambitious vision and strategy, successfully transitioned

Pearson into a more consumer-focused business and drove

cultural and organisational change while delivering strong

financial performance.

Annual report and accounts 2023 Pearson plc 91

Governance

Diversity across Pearson

Over the past few years, we have been on an intentional journey

to redefine what diversity, equity, and inclusion (DEI) mean at

Pearson and to take action. We have reshaped our policies,

practices, and principles around DEI and created a long-term

strategy focusing on recruitment and promotion, retention,

inclusive culture, and social impact.

Our ambition is to be an inclusive and high-performing place to

work where everyone can leverage their unique strengths. That’s

why our people strategy has DEI as one of our three pillars with

the aim of creating a culture of belonging and increasing diverse

representation throughout the company. As part of the Pearson

employee engagement survey, we have a culture of inclusion

index to benchmark and measure against three principles:

employees are treated with respect, managers value employees

for their strengths, and our leaders do what is right.

In addition, Pearson’s Code of Conduct in relation to ethical

practices takes account of gender, age, race, ethnicity, disability,

and sexual orientation, and applies to all employee levels,

including the Executive Management team. It is underpinned

by a global statement on DEI, along with country and business-

specific policies. Standards are set consistently worldwide – both

internally and externally – as part of our efforts to make Pearson

a great place to work.

Together, our goal is to drive the transformation of learning,

making it more diverse, equitable, and inclusive. It is a continuous

combination of intentional bottom-up and top-down leadership

across all levels of the company to foster a culture where

everyone feels a sense of belonging.

Board diversity

We believe that Board diversity makes us a better and more

sustainable business, contributing to high performance,

enhanced commercial results, and an inclusive leadership

culture. Research indicates that high-performing boards provide

an increased competitive advantage and wider perspectives,

while the needs for greater inclusion and diversity continue to

influence global trends.

We are determined that, as a Board, we must be representative

of our employee base and wider society, including the countries

in which we operate.

The Board embraces the UK Corporate Governance Code’s

underlying principles with regard to Board balance and diversity,

including in respect of ethnicity, gender and age. The objectives

set out in the Board’s Diversity Policy and our progress towards

these are shown in the table on page 93.

The Nomination & Governance Committee ensures that

the Directors of Pearson demonstrate a broad balance of

skills, background and experience, to support our strategic

development and reflect the global nature of our business.

It requires appointments to be made on merit and relevant

experience, while taking into account the broadest definition of

diversity. In any Non-Executive Director search processes, the

Nomination & Governance Committee encourages the retained

search firms to place an emphasis on putting forward candidates

who would enhance the overall diversity of the Board.

In light of recent changes to the UK Listing Rules put forward

by the Financial Conduct Authority (FCA), the Nomination &

Governance Committee updated the objectives that support

the Board Diversity Policy, and which underpin Pearson’s

commitment to creating a more equitable and inclusive

company. The objectives now include the following:

— at least 40% female directors

— at least two directors from an ethnic minority background

— at least one of the Chair, Chief Executive, Deputy Chair and

Senior Independent Director or CFO is a woman

We also expanded our objectives to confirm that the Board will

consider its own diversity, and that of its Committees, as part of

the annual effectiveness review processes. Further, the Board

will explore expanding its diversity considerations to include

characteristics such as sexual orientation, disability and socio-

economic background.

The Nomination & Governance Committee adopts a principles-

based approach to diversity on the Board’s Committees. It is

recognised that it is not necessarily practical to set meaningful

metrics or targets for diverse membership of Committees due

to the notably smaller membership of each of the Committees

compared to the size of the Board. Accordingly, our principles-

based approach endorses the importance of bringing diverse

perspectives to all areas of the Board and Committees’ work.

As an example of this principles-based approach in practice, as

part of its regular Committee succession planning activity, the

Nomination & Governance Committee considers the gender

and ethnic balance on each Committee when assessing its

composition and future needs.

As at 31 December 2023, 55% of Directors were women

(2022: 50%), exceeding the target of 40% women’s

representation by the end of 2025, as recommended by

the FTSE Women Leaders Review.

We are also satisfied that, ahead of the target implementation

date, we are compliant with the new FCA requirements stating

that boards should have at least one woman in the Chair, Chief

Executive, Senior Independent Director or Chief Financial Officer

role, and that at least one member of the Board should be from

an ethnic minority background, among other targets.

During its evaluation process conducted in 2023, the Board

considered the effectiveness of the organisation and dynamics

of the Board, including in respect of diversity. The results and

feedback provided by the evaluation indicated that the Directors

believe the Board’s diversity is strong. The Board recognised

the increasing importance of DEI and acknowledged the

progress being made. It noted that it would explore expanding

its considerations to wider forms of diversity, such as sexual

orientation, disability, age, and socio-economic background,

when making new appointment decisions.

Diversity and talent at executive level

Five members of our Executive Management team of 10,

excluding the Chief Executive and Chief Financial Officer who

are counted in the Board’s metric, are women (50%) (2022:

50%). Including the Chief Executive and Chief Financial Officer,

this ratio stays at 50% (six women out of 12 members) (2022:

50%). As of 31 December 2023, the group comprising the

senior management team (as specified by the UK Corporate

Governance Code, i.e. the Executive Management team and

the Company Secretary) and the Executive Management team’s

direct reports contained 45 women, representing 47% of that

group (2022: 50%). In response to the Parker Review’s new

requirement for listed companies to set an ethnic diversity target

in respect of senior management positions, the Committee

approved a target of 20% of Pearson’s senior management

positions to be occupied by ethnic minority individuals

by December 2027. As at 31 December 2023, the senior

management team, as defined above, contained 17 individuals

who identify as minority ethnic, representing 20% of that

group, who have provided the company with ethnicity data.

For diversity data in the format prescribed by LR 9.8.6R(10),

please see page 53.

Nomination & Governance Committee report continued

Annual report and accounts 2023 Pearson plc 92

Governance

Board diversity objectives

The Nomination & Governance Committee monitors progress on the company’s DEI framework,

governance and measurement models, and priority areas. As part of this, the Nomination &

Governance Committee reviewed and updated the objectives which underpin the Board Diversity

Policy. The objectives in place during 2023 and Pearson’s performance against them are set

out below:

Objectives Progress

We will strive to achieve and maintain a

Board composition of:

— at least 40% Directors are women

— at least two Directors are from an ethnic

minority background

— at least one of the Chair, Chief Executive,

Deputy Chair and Senior Independent

Director or CFO is a woman

As at 31 December 2023:

54.5% Directors were women

The Board included three Directors from an

ethnic minority background

One of the Chair, Chief Executive, Deputy

Chair and Senior Independent Director or

CFO is a woman

All Board appointments will be made

on merit, in the context of the skills and

relevant experience that are needed for

the Board to oversee Pearson’s strategic

development and that reflect the global

nature of our business.

Our most recent Board search processes

considered a wide range of candidates,

including from diverse backgrounds, all of

whom were evaluated on the basis of merit.

The search processes resulted in the

appointment of Omar Abbosh, Alison Dolan

and Alex Hardiman, whom the Board believes

possess the requisite skills and experience for

their roles.

The Board will continue to incorporate

a focus on a diverse pipeline in its

succession and appointment planning,

including to prioritise the use of search

firms which adhere to the Voluntary Code

of Conduct for Executive Search Firms (the

Voluntary Code) when seeking to make

Board-level appointments.

The Committee actively includes diversity in its

search criteria for Board appointments, and

proactively encourages engaged search firms

to include candidates from a range of diverse

backgrounds in its candidate lists.

Spencer Stuart assists Pearson with search

activities, including for the recent Chief

Executive and Non-Executive Director search

processes. Spencer Stuart is a signatory to the

Voluntary Code.

Objectives Progress

The Board will continue to adopt best

practice, as appropriate, in response

to the Parker Review, FTSE Women

Leaders Review, FRC Board Director

Effectiveness Review, and Financial

Conduct Authority requirements.

The Board is cognisant of the recommendations

of the FTSE Women Leaders Review and Parker

Review. The new FCA requirements in respect of

gender and ethnic diversity are also reflected in

the Board Diversity Policy.

The Board will consider its composition

and diversity, and that of its Committees, as

part of its consideration of effectiveness in

the Board evaluation review process. The

Board will also explore expansion of these

considerations to cover ethnicity, sexual

orientation, disability and socio-economic

background characteristics.

These matters were considered in the 2023

evaluation process. Read more on pages 85-86.

Where appropriate, we will assist with the

development and support of initiatives

that promote all forms of DEI in the Board,

Pearson Executive Management team and

other senior management.

A mentoring programme where six mentees

at the Senior Vice President (SVP) level were

mentored by six Non-Executive Directors

concluded in June 2023. 67% of SVP participants

were female and/or persons of colour (target

at 50%). The intention is for a new cohort to be

identified for 2024.

We will review and report on our progress

in line with the policy and our objectives in

the annual report, including providing details

of initiatives to promote DEI in the Board,

Pearson Executive Management team and

other senior management.

Objectives that accompany the Board’s Diversity

Policy have been monitored. The Committee

continues to monitor developments on DEI in

the external landscape.

We will continue to make key DEI information

about the Board, senior management and

our wider employee population available

in the annual report, and aim for ongoing

transparency in this area in line with

best practice.

This information is included in the annual

report. Read more about DEI matters in the

wider employee population on page 40.

Key

Target achieved

Target not met

Annual report and accounts 2023 Pearson plc 93

Governance

Terms of reference

The Committee has written terms of reference that clearly

set out its authority and duties. These are reviewed annually

and can be found in the Governance section of our website

(www.pearsonplc.com).

Committee members and attendance

Attendance by Directors at scheduled Reputation &

Responsibility Committee meetings throughout 2023:

Committee members

Meetings

attended

Andy Bird

4/4

Alex Hardiman

2/2

Linda Lorimer

1/1

Graeme Pitkethly 4/4

Annette Thomas 4/4

Lincoln Wallen 4/4

1. Mr Bird stepped down from the Committee with effect from

7 January 2024.

2. Ms Hardiman was appointed to the Committee with effect from

1 August 2023.

3. Ms Lorimer stepped down from the Committee with effect from

28 April 2023.

Reputation & Responsibility Committee report

Principal Committee responsibilities

Stakeholders: Monitoring reputational issues that could significantly

affect Pearson’s reputation with stakeholders, including consumers,

employees, shareholders, educational institutions and educators,

employers, governments and regulators, communities and

business partners.

Sustainability and associated non-financial KPIs: Overseeing

Pearson’s sustainability framework including: targets and public

commitments; regulatory landscape, reporting and ratings;

sustainability due diligence in our supply chains and business

partnerships; and assisting the Board in monitoring progress towards

the non-financial KPIs linked to the three pillars of the Learning for

Impact strategy.

Culture and employee engagement: Assisting the Board in

monitoring Pearson’s approach to employee engagement and the

company’s culture, which stresses diversity and high performance.

Communications and regulatory matters: Overseeing Pearson’s

communications, strategies, policies and plans related to reputational

issues and the people, processes and policies that are in place to

manage them.

Branding: Overseeing the way in which the company’s brands are

managed and promoted to ensure that their value and the company’s

reputation are maintained and enhanced.

Risk: Monitoring Pearson’s approach to the reputation aspects of the

risk register and ensuring that clear roles have been assigned for the

management of these, including in relation to the company’s material

sustainability risks and opportunities.

Annette Thomas Committee Chair

Annual report and accounts 2023 Pearson plc 94

Governance

Reputation & Responsibility

Committee role

I am pleased to present my first report as Chair of the Reputation

& Responsibility Committee following my appointment to the

role on 28 April 2023. I offer my sincere thanks on behalf of

the Committee to my predecessor, Linda Lorimer, for her

considerable contributions during her six years as Committee

Chair. I also extend my thanks to Andy Bird who served as a

member of the Committee until his retirement as Chief Executive

in January 2024. We look forward to welcoming Omar Abbosh as

a regular attendee at the Committee’s meetings in the future.

The Committee works to assess and advance Pearson’s

reputation across the range of its stakeholders and to maximise

the company’s positive impact on the communities in which we

work and serve.

We are the main governance body for sustainability at Pearson,

providing important oversight of our sustainability framework;

this includes climate change considerations. As part of this role,

we promote and oversee Pearson’s Learning for Impact strategy

and assess progress against its commitments. We also monitor

branding, employee engagement, culture and values, and provide

ongoing oversight and scrutiny across all reputational matters.

The full Board is kept abreast of the Committee’s work through

reports I make following each of our sessions. These reports

include highlighting any material discussion points or areas

of concern and offering specific recommendations for the

Board’s action.

As Committee Chair, I am available at any time to engage

with any shareholders who would like to discuss the work of

the Committee, and particularly look forward to taking any

shareholder questions at our forthcoming AGM in April 2024.

Committee composition and attendees

The Committee currently has four members, including me as

Chair. During the year, the Committee was pleased to welcome

Alex Hardiman as a new member. Together, Committee

members bring a range of expertise across key areas of our

remit, including sustainability, product, stakeholder management,

people and talent, and policy and government relations. You can

read more about the Committee members’ skills and experience

on pages 68-70.

In addition, we benefit from the regular attendance of senior

executives whose work is central to the remit of the Committee.

These include the Chief Legal Officer, who is the executive leader

responsible for the development, monitoring and execution of

Pearson’s sustainability strategy; the Chief Marketing Officer and Co-

President of Direct to Consumer; the Chief Human Resources Officer;

SVP – Investor Relations; and SVP – Corporate Communications.

Sustainability activities in 2023

Throughout the year, the Committee paid particular attention to

the continued evolution of our sustainability strategy, including

how it aligns to our greatest areas of opportunity and challenge

as a business, and how to communicate its tenets to all our

stakeholders in a clear and impactful way.

As described in greater detail in our sustainability report starting

on page 34, our Learning for Impact strategy comprises three

pillars that align with the interests of stakeholders and represent

the areas where we can make the biggest positive impact:

— Driving learning for everyone with our products

— Empowering our people to make a difference

— Leading responsibly for a better planet

These areas are also materially influential in helping Pearson

succeed as a business. The pillars have a clear, natural fit

to our non-financial KPIs, reflecting the common goal of

alignment between our corporate and sustainability strategy.

The sustainability strategy is supported by Pearson’s robust

corporate governance, strong corporate culture and a range of

effective policies to ensure we achieve our ambitions.

The Committee receives regular updates from management

on progress against the priorities of the sustainability strategy

and initiatives that support its delivery. Over the past year, key

activities of the Committee in relation to our three Learning for

Impact pillars included the following:

Driving learning for everyone with our products

In the course of the year, we reviewed and provided input to the

latest edition of the Global Content Policy, which provides a set

of underpinning principles for Pearson employees and business

partners alike on producing evidence and fact-based content

which aligns with Pearson’s purpose and values.

We also discussed with management their focus on successful

delivery of the 2023 BTEC results, reflecting on changes to

operations, enhanced ways of working with customers and

proactive stakeholder engagement following challenges in the

previous year’s results season. Additionally, we undertook our

annual safeguarding review, which had a particular focus on

online trust and safety in our digital products and services in

light of rapid change in the technology and legislative landscape

affecting these areas.

At each meeting, the Committee receives a report on recent

incidents and issues that could have an impact on the company’s

reputation, including those relating to our products and business

partners. We consider Pearson’s responses to coverage on

social media and in traditional media, including paying particular

attention to our protocols for responding to questions about our

content, the integrity with which we handle such situations, and

any lessons learned.

Empowering our people to make a difference

Following a refreshed approach to employee engagement

introduced the previous year, during 2023 we conducted a deep

dive with the Chief Human Resources Officer into the findings

of our latest employee survey, recognising the importance of

engagement as a driver of performance. It was pleasing to note

the meaningful improvement in key metrics compared with 2022

and we endorsed a particular focus on upskilling managers and

leaders. The Committee and Board alike will continue to monitor

progress in this area, focusing on growth, performance and agility

in our workforce, supported by a culture of diversity and trust.

Given world events, the Committee received an update from

management on the status of Pearson’s business operations

in Israel and the Middle East, with a particular focus on our

employees. We also conducted our annual review of health and

safety across the company.

Leading responsibly for a better planet

In the past year, the Committee has monitored Pearson’s climate

related initiatives, including:

— Considering options for revising the company’s long-term

science-based targets. Based upon clear analysis from

management covering feasibility, cost and external impact,

the Committee unanimously agreed to support adoption of a

new target which will now be taken forward for validation by

SBTi and, once obtained, for formal Board approval.

Annual report and accounts 2023 Pearson plc 95

Governance

— Approving the first iteration of Pearson’s Climate Action Plan,

being a high-level plan that sets out the actions that will

help Pearson meet its decarbonisation targets and lays the

foundation for successful longer-term carbon transition

— Receiving updates on progress in relation to emissions

reduction, resource use, building sustainable supply chains

and strengthening our data and reporting capabilities, the last

being of increasing importance given developments in the

regulatory and legislative landscape across many jurisdictions

in which Pearson operates.

Sustainability governance and policies

The three pillars of our Learning for Impact strategy are

underpinned by robust governance, a strong culture and

effective policies. In this regard, during the year:

— We received an update from external legal advisers on

developments in the global regulatory and legislative

landscape, including the EU’s Corporate Sustainability

Reporting Directive, the recommendations of the UK’s

Transition Plan Taskforce and developments in other markets

in which Pearson operates, including the US. As part of this

session, we considered how this important topic would

be communicated to key internal stakeholders, noting the

importance of a robust organisational infrastructure

relating to data gathering, reporting and disclosure, and we

supported the introduction of a dedicated sustainability data

reporting platform

— We reviewed insights gathered from an investor sustainability

perception study together with the latest analyst rankings

and ratings of Pearson’s sustainability performance and

credentials and a snapshot of areas for improvement. We

considered how this information could support our external

sustainability communications and action plans, in particular

demonstrating the inherent social impact of certain Pearson

products and services to support our investment case

— We reviewed the annual Modern Slavery Statement with

management prior to recommending that the Board approve

the statement for publication

You can read more about our overall Board framework for

sustainability governance, including the related work of other

Committees, on page 80.

Other areas of focus during 2023

In addition to the work relating to the three pillars of our

Learning for Impact strategy, we spent time considering a

broader range of matters relating to Pearson’s reputation and

key stakeholders, including the following:

— At every meeting during the year, we considered updates

from our global government relations and policy team,

recognising the importance of governments as both a

customer and regulator of many of our products and services

— We discussed the strategy, engagement approach, risks and

opportunities relating to data privacy and content, being two

of the current major policy issues of significance to Pearson

— Looking ahead to the elections in both the UK and US, we

reviewed a snapshot of the key learning, education and skills

related issues for the major political parties and considered

Pearson’s approach to policy and engagement on these topics

— A significant theme in the Committee’s work during the past

year has related to the risks and opportunities presented by

developments in AI, particularly generative AI, including policy

and regulatory developments in that space. You can read

more about the work of the Committee relating to AI as part

of the case study on page 78

— The brand team shared with the Committee that, having reset

Pearson’s purpose, vision, mission and values in 2022, they

were now beginning work on developing an evolved brand

strategy, architecture and visual identity for the company

You can read more about stakeholder engagement at Pearson,

including with governments and regulators, on page 16.

Committee evaluation

The Committee undertakes an annual evaluation to review

its performance and effectiveness. In 2023, the Committee

evaluation process was conducted as part of the externally

facilitated Board effectiveness review, led by Manchester Square

Partners. The process included:

— one-to-one interviews conducted by the independent

reviewer with each of the Committee members, all

other members of the Board and the Pearson Executive

Management team

— observation of a full Committee meeting, including the private

sessions, by the independent reviewer

— assessment of a sample of meeting papers

— discussion of the reviewer’s findings and recommendations

You can read about the Board effectiveness review in more detail

on pages 85-87.

Topics covered included the effectiveness and dynamics of the

Committee, the Committee’s oversight of key areas within its

remit, the quality of papers and meeting discussions, and the

relationships between the Committee and management. The

findings of the independent reviewer noted that the Committee

was functioning well and has an appropriate level of focus on

the key topics within its remit including attention to external

stakeholders, matters relating to content in our products, and

management of reputational risk factors.

The matters identified during the previous year’s evaluation

process have been addressed to the Committee’s satisfaction

during the year and adopted into our ongoing practices

where appropriate.

Committee aims for 2024

Our priorities for the coming year include:

— Monitoring progress towards SBTi validation of our intended

net-zero long-term targets beyond 2030

— Approval of a standalone climate transition plan in line with

the disclosure framework of the UK Transition Plan Taskforce

— Reviewing the process and outputs of a double materiality

assessment which will be undertaken by management to

further define our sustainability strategy alongside our

corporate strategy.

We will also continue our close attention to employee

engagement and Pearson’s social impact initiatives, undertake

a horizon scanning exercise in respect of emerging risks and

trends in the external landscape, and remain attentive to the

fast-moving topic of generative AI, including regulatory, legislative

and stakeholder perspectives.

Annette Thomas Chair of Reputation &

Responsibility Committee

Reputation & Responsibility Committee report continued

Annual report and accounts 2023 Pearson plc 96

Governance

Terms of reference

The Committee has written terms of reference which clearly

set out its authority and duties. These are reviewed annually

and can be found in the Governance section of our website

(www.pearsonplc.com).

Committee members and attendance

Attendance by Directors at scheduled Audit Committee meetings

throughout 2023:

Committee members

Meetings

attended

Alison Dolan

1/1

Alex Hardiman

1/1

Linda Lorimer

2/2

Graeme Pitkethly 4/4

Tim Score 4/4

Lincoln Wallen 4/4

1. Ms Dolan was appointed to the Committee with effect from

1 August 2023.

2. Ms Hardiman was appointed to the Committee with effect from

1 December 2023.

3. Ms Lorimer stepped down from the Committee with effect from

28 April 2023.

Audit Committee report

Principal Committee responsibilities

Financial reporting

The quality and integrity of Pearson’s financial reporting and statements

and related disclosures, including significant reporting judgements.

Policy

Group financial policies, including accounting and treasury policies

and practices.

External audit

External audit, including the appointment, qualification, independence

and effectiveness of the external auditor.

Internal audit, risk and internal control

Risk management systems and the internal control environment,

including oversight of the work and effectiveness of the internal

audit function.

Compliance and governance

Legal and regulatory requirements in relation to financial reporting

and accounting matters, and oversight of compliance programmes

and investigations.

Graeme Pitkethly Committee Chair

Annual report and accounts 2023 Pearson plc 97

Governance

Audit Committee report continued

Audit Committee role and composition

The Committee has been established by the Board primarily for

the purpose of overseeing the accounting, financial reporting,

internal control and risk management processes of the company

and the external audit of the Group’s financial statements. As a

Committee, we are responsible for assisting the Board’s oversight

of the quality and integrity of the company’s external financial

reporting and statements, and the company’s accounting policies

and practices, and we work to create a culture – both within the

Committee’s work and Pearson more broadly – which recognises

the work of, and encourages challenge by, the external auditor.

As at the date of this report, the Committee comprises five

independent Non-Executive Directors, as more particularly

set out on page 99. On behalf of the Committee, I offer my

sincere thanks to Linda Lorimer, who stepped down from the

Pearson Board in April 2023, for her significant contributions to

the Committee’s work during her tenure. During the year, the

Committee was pleased to welcome two new members – Alison

Dolan and Alex Hardiman – who are already making valuable

contributions and bringing fresh perspectives across many areas

of the Committee’s remit. You can read more about Alison and

Alex’s skills and experience in their biographies on pages 68-70.

Pearson’s Vice President – Internal Audit has a dual reporting

line to the Chief Financial Officer and to me, and both she and

the external auditors have direct access to the Committee to

raise any matters of concern and to report on the results of

work directed by the Committee. As Audit Committee Chair, I

ensure that the full Board is kept abreast of the business of the

Committee in a timely manner, including highlighting any areas

of concern or specific recommendations. I also work closely with

the Chief Financial Officer and senior financial, risk, legal and

internal audit personnel outside the formal meeting schedule

to ensure robust oversight and challenge in relation to financial

control, compliance, investigations, and risk management.

As Committee Chair, I am available to engage with any

shareholders who would like to discuss the work of the

Committee, including the scope or effectiveness of the external

audit. There were no requests from shareholders during the year

for any specific matters to be covered in the audit. I look forward

to taking any shareholder questions at our forthcoming AGM in

April 2024.

Audit Committee meetings and activities

At every meeting, the Committee considers reports on the

activities of the internal audit and compliance functions, including

the results of internal audits, project assurance reviews and fraud

and whistleblowing reports. We also monitor the company’s

financial reporting and risk management procedures, discuss

the Group’s control environment, review the work undertaken

by the external auditors and consider any significant legal claims

and regulatory issues in the context of their impact on financial

reporting, each on a regular basis.

Other prominent themes in the Committee’s work throughout

2023 included:

— oversight of delivery of the audit action plan, a programme

of work that sought to deliver on recommendations arising

during the previous year’s review of effectiveness of the

external auditors. On behalf of the Committee, I extend my

thanks to management and Pearson colleagues for their

commitment to the successful delivery of this programme

working collaboratively with the external auditors. You can

read more on page 103

— continued attention to the application of Pearson’s accounting

policies, key judgements and key areas of estimation as

described in the financial statements

— oversight of the accounting treatment relating to portfolio

changes, including the acquisition of Personnel Decisions

Research Institutes, LLC (PDRI) and disposal of Pearson Online

Learning Services (POLS)

— important areas such as data privacy, cyber security and

business and technology resilience, as well as generative AI.

In addition to their importance at a macro level, these are key

factors in the success of Pearson’s strategy and in ensuring

we maintain trusted relationships with stakeholders

— focus on emerging developments in the regulatory landscape,

including new or anticipated requirements relating to fraud

prevention and internal assurance and control frameworks

The Committee also receives technical updates at each meeting,

including on matters such as accounting standards and the audit

and governance landscape, and members are able to request

specific or personal training as appropriate.

You can view the key activities of the Committee and read more

about our work in these areas on the pages that follow.

The Committee’s focus areas for 2024 will include:

— Responding to the requirements of the recently published

FRC minimum standard for audit committees, including

reviewing our methodology for the oversight and assessment

of external auditor effectiveness (read more on page 103)

— Following the publication of the revised UK Corporate

Governance Code in January 2024, we will consider any

impacts on Pearson’s processes and practices relating to

risk management and internal control and will ensure the

company is ready for implementation of the new requirement

with effect from the 2026 financial year

— Working closely with our colleagues on the Reputation &

Responsibility Committee to remain abreast of developments

in non-financial reporting, including in the UK, EU and US,

and to provide any necessary input to Pearson’s evolving

sustainability assurance frameworks

Additional meeting attendees

The Chief Financial Officer, Deputy Chief Financial Officer,

Chief Legal Officer, Chief Information Officer, other executives

and senior managers from across the business also attended

meetings during the year, either as regular invitees of the

Committee or to discuss particular items of business.

This direct contact with key leadership augments the

Committee’s understanding of the issues facing the business

as well as helping to develop Pearson’s talent pipeline through

facilitation of Board-level engagement opportunities for those

leaders and managers. We also meet regularly in private with the

external auditors and with the Vice President – Internal Audit.

In addition to the Committee’s formal meeting schedule, I

meet as needed with the external auditors, Chief Financial

Officer, Deputy Chief Financial Officer, Chief Legal Officer, Chief

Compliance Officer and Senior Vice President – Treasury, Risk

and Insurance in order to keep abreast of all relevant matters

within the Committee’s remit.

Committee evaluation

The Committee undertakes an annual evaluation process

to review its performance and effectiveness. In 2023, the

Committee evaluation process was conducted as part of

the externally facilitated Board effectiveness review, led by

Manchester Square Partners.

Annual report and accounts 2023 Pearson plc 98

Governance

The process included:

— one-to-one interviews conducted by the independent

reviewer with each of the Committee members, all other

members of the Board, the Pearson Executive Management

team, the Deputy Chief Financial Officer and the Vice

President – Internal Audit

— observation of a full Committee meeting, including the private

sessions, by the independent reviewer

— assessment of a sample of meeting papers

— discussion of the reviewer’s findings and recommendations

You can read about the Board effectiveness review in more detail

on pages 85-87.

Topics covered included the effectiveness and dynamics of the

Committee, the Committee’s oversight of key areas within its remit,

the quality of papers and meeting discussions, and the relationships

between the Committee and management. The findings of the

independent reviewer included the following key points:

— The Committee is considered to be operating to a high level of

performance with appropriate agendas, papers produced to a

good standard and high-quality discussions

— The composition of the Committee is appropriate and includes

the necessary skills, including three members who are current or

former Chief Financial Officers of listed companies

— The Committee has a broad remit and a substantial workload

but is considered to run very effectively with high levels of

engagement by members and benefits from the attendance

of relevant Executive Management

Reflecting the findings of the previous year’s evaluation, the

Committee was pleased to hold its December 2023 meeting

in Pearson’s office in Hoboken, New Jersey, allowing in-person

access to US-based management and employees. We have also

continued our focus on the risk management aspects of the

Committee’s remit and have benefited from insightful reports

by, and discussions with, management across many elements

of the company’s principal and emerging risks, seeing clear

alignment with the work and recommendations of the internal

audit function.

Fair, balanced and

understandable reporting

In response to the Code’s Principle N, the Committee considered

whether the 2023 Annual Report is fair, balanced and

understandable. In making this assessment, we considered the

following areas:

— The process for preparing the report, including the

contributors, the internal review process, and how feedback is

addressed throughout the process

— The business review narratives presented for each

business area

— The discussion of reported and underlying results throughout

the report

The Committee was satisfied that, taken as a whole, the Annual

Report is fair, balanced and understandable. We reported this

conclusion to the Board.

Learn more about fair, balanced and understandable reporting

on page 134.

Financial reporting and policies

In February 2024, the Committee considered the 2023 preliminary

results announcement and annual report and accounts, including

the financial statements, strategic report and Directors’ report.

The significant issues considered by the Committee relating to the

2023 financial statements are set out on pages 105-106.

Risk assessment, assurance and integrity

A key role of the Committee is to provide oversight and support to the

Board with regard to the integrity of the company’s procedures for the

identification, assessment, management and reporting of risk. In fulfilling

its remit, the Committee remains mindful that effective risk management

is essential to executing Pearson’s strategy, achieving sustainable

shareholder value, protecting the brand and ensuring good governance.

During 2023, the Committee had oversight of management’s

approach towards risk identification and monitoring. Pearson’s

enterprise risk management programme has evolved in line

with the structure of the business, which is managed through

five global operating divisions supported by enterprise-wide

corporate functions. Through a series of business-focused risk

deep dives, the President of each operating division provides an

overview of its risk register to the Committee at least annually

and leads a session on the key risks facing their particular

division. The process is supported by central risk team experts

as required, providing the Committee with a clear and consistent

framework within which to evaluate the strategic and business

risks to the company, based upon the principal, emerging and

significant near-term risk categories described on pages 57-65.

The Committee uses these deep dive sessions to understand

the rigour of management’s risk scanning and to challenge

judgements being made in response to risks. The Committee

considers that Pearson’s enterprise risk management approach

is robust and proportionate, and facilitates a culture of

accountability and ownership among business leaders. The

divisional risk deep dives provide a strategic and increasingly

data-driven lens to the risk management process that is valued

by the Committee and management alike.

At least twice a year, the Committee considers a Group-wide risk

management report which highlights risk trends and themes that exist

at an enterprise-wide level. This is further supported by a number of

deep dives which the Committee conducts with selected enterprise-

wide functions including data privacy, cyber security, tax, treasury, anti-

bribery and corruption, and business resilience. You can read more on

some of these themes elsewhere in this report.

Members

As at the date of this report, the Committee comprises

five independent Non-Executive Directors, all of whom

have financial and/or related business experience due to

the senior positions they hold or have held in other listed

or publicly traded companies and/or large organisations.

The Committee possesses a good balance of skills and

knowledge with competence and experience covering

all aspects of the sectors in which Pearson operates and

the company’s key markets. Each member is ‘financially

literate’ for the purposes of the NYSE listing standards.

Graeme Pitkethly, Chair of the Committee since

August 2022, is the Committee’s designated financial

expert within the meaning of the applicable rules and

regulations of the SEC, having recent and relevant

financial experience as required by the Code, and is a

Chartered Accountant. From 2015 to 2023, Graeme

was Chief Financial Officer of Unilever plc and serves as

Vice-Chair of the Financial Stability Board’s Task Force on

Climate-related Financial Disclosures (TCFD). Graeme’s

full biography is on page 70.

The qualifications and relevant experience of the other

Committee members are detailed on pages 68-70. You

can read more on page 71 about the process through

which the Board assesses the independence of Non-

Executive Directors.

Annual report and accounts 2023 Pearson plc 99

Governance

Audit Committee report continued

Additionally, during 2023, the Committee reviewed and endorsed

a new enterprise risk framework document which brings together

Pearson’s existing principles, processes and methodology for risk

management and aims to further embed such activity and practice

within the organisation.

Data privacy, cyber security and

technology resilience

Prudent management of data privacy, cyber security and

Pearson’s technology estate are fundamental to our success

and to building and maintaining trust with our customers. The

Committee oversees these matters on behalf of the Board from

a risk and assurance perspective and monitors the maturity

of Pearson’s associated governance frameworks. It does this

through regular deep dives, as well as through oversight of the

risk-based internal audit programme, in which these topics are

key areas of focus. We recognise the interlinked nature of these

topics and typically invite the senior leaders for each area to

Audit Committee meeting focus during 2023

Financial reporting

Policy and

finance

operations External audit

Internal audit, risk and

internal control

Compliance

and governance

— Accounting and technical updates

— Impact of legal claims and regulatory

issues on financial reporting

— Fair, balanced and

understandable reporting

— Going concern and viability

statements including

supporting analysis

— Annual report and accounts:

preliminary announcement, financial

statements and income statement

— Review of interim results and

trading updates

— Form 20-F and related disclosures,

including annual Sarbanes-Oxley Act

Section 404 attestation of financial

reporting internal controls

— Significant issues reporting

— Accounting

matters and

Group accounting

policies

— Treasury Policy

and reporting

— Tax update

— Update on global

deployment of

ERP system

— Oversight of audit action plan (see page 103)

— Provision of non-audit services by external

auditor – approval of policy and regular reporting

— Re-appointment of external auditors

— Report on half-year review procedures

— Confirmation of auditor independence

— 2023 external audit plan

— Remuneration and engagement letter of

external auditors

— Interim review report on H1 2023

— Review of the effectiveness of external auditors

— EY feedback on internal controls over financial

reporting (ICFR)

— Receipt of external auditors’ report on annual

report and Form 20-F

— Internal audit activity reports and review of

key findings

— 2023 and 2024 internal audit plans

including resourcing

— Assessment of the effectiveness of internal

audit function, internal control environment

and risk management systems

— Risk management including Group’s

principal and emerging risks

— Strategic risk reviews led by

Divisional Presidents

— Group-wide risk deep dives on cyber

security; technology resilience; data privacy;

treasury and insurance; and

business resilience and crisis management

— Controls Centre of Excellence updates,

including on ICFR and 2023 work plan

— Fraud, whistleblowing reports

and compliance investigations

— Anti-bribery and corruption and

sanctions programmes

— Compliance with accounting

and audit-related aspects of the

UK Corporate Governance Code

— Audit Committee and

internal audit function

terms of reference

— Oversight of Group’s schedule

of delegated financial authority

— Regulatory briefings, including

monitoring FRC proposals

on audit and corporate

governance reform

— Review of minutes

of the Verification

Committee’s meetings

participate in all strands of these discussions, providing holistic

perspectives on the important and complex themes.

During the year, the Committee:

— considered developments in the global regulatory landscape

and trends in enforcement actions, focusing on the

importance of transparency and controls around the use of

personal information, together with an elevated scrutiny of

artificial intelligence which is increasingly used by businesses

to provide customers with a personalised experience

— discussed the ways in which Pearson’s privacy programme

helps to monitor and manage these risks, including through

provision of specialist guidance to the business in ensuring

compliant product design

— noted the expansion of the data privacy governance

framework into a broader programme governing customer

trust and safety, with cyber security and online harms now

managed under the umbrella of this newly expanded Trust &

Safety governance framework

— noted the introduction of data privacy compliance reports

for Pearson’s core products and services that enable the

business to take a proactive approach to addressing key risks

— considered the progress that continues to be made through

implementing security processes, leveraging industry-leading

tools and modernising the technology estate, as well as

investing in defences against increasingly sophisticated

threats and building a culture of security

— endorsed the adoption of the NIST cyber security framework,

which will provide the Committee and management with clear

visibility into the current status of Pearson’s cyber security

programme and areas of improvement. The framework is

underpinned by industry-leading standards and facilitates

Pearson’s compliance with FedRAMP requirements in

delivering certain US federal commitments

Annual report and accounts 2023 Pearson plc 100

Governance

Internal audit

The internal audit function is responsible for providing

independent assurance to management and the Committee

on the design and effectiveness of internal controls to mitigate

strategic, financial, operational and compliance risks. The Vice

President – Internal Audit reports jointly to the Chair of the

Committee and the Chief Financial Officer and is responsible for

the day-to-day operations of internal audit and execution of the

annual internal audit plan.

The internal audit mandate is approved annually by the

Committee. The audit plan and any changes thereto are also

reviewed and approved by the Committee throughout the

year, and the Committee is attentive to the resourcing of the

internal audit function. The internal audit plan is aligned to

Pearson’s greatest areas of risk, as identified by the enterprise

risk management process, and the Committee considers issues

and risks arising from internal audits. Management action plans

to improve internal controls and to mitigate risks are agreed with

the business area after each audit. Internal audit has a robust

process in place for the implementation of audit actions, which

also includes review and testing of evidence to corroborate

action implementation. Progress of management action plans

is reported to the Committee at each meeting. Internal audit

has a formal collaboration process in place with the external

auditors to ensure efficient sharing of insights and outcomes.

Opportunities for reliance by the external auditor on internal

audit outcomes are limited due to strict rules set by the external

regulator. Regular reports on the findings and emerging themes

identified through internal audits are provided to Executive

Management and, via the Committee, to the Board.

In 2023, internal audit carried out engagements across Pearson’s

business units and corporate functions, as well as Group-wide

thematic audits, covering most of the principal risks. The audit

plan changes throughout the year based on changes in Pearson’s

risk profile. Key themes in 2023 related to information security

and data privacy, cyber security, assessment of integration

progress and controls in recently acquired businesses,

safeguarding, accessibility, payroll, and regulatory compliance.

Compliance, fraud and whistleblowing

The Associate General Counsel (AGC) – Employment, Ethics &

Compliance oversees compliance with our Code of Conduct

and works with senior legal, HR and other relevant personnel to

investigate any reported incidents, including ethical, corruption

and fraud allegations. The Committee receives an update at each

meeting on all significant investigations as well as reviewing data

regarding matters raised through our whistleblowing reporting

system. If applicable, any findings of the external auditors with

respect to a particular matter are also considered as part of

these discussions. The Committee may also meet in private if

required with the AGC – Employment, Ethics & Compliance. On

behalf of the Board, the Committee considers an annual review

of the effectiveness of the whistleblowing system including

through benchmarking against peers and by monitoring

progress against previous years’ findings. The Committee Chair’s

regular reports to the Board include a review of investigations or

whistleblowing matters of note.

The Pearson anti-bribery and corruption (ABC) and sanctions

compliance programmes provide the framework to support our

compliance with various regulations such as the UK Bribery Act

2010 and the US Foreign Corrupt Practices Act. The Committee

uses this framework to conduct a deep dive into the ABC and

sanctions compliance programmes on an annual basis. Pearson

and the Committee continue to work to identify areas to

further enhance its practices and protocols. In 2023, in addition

to its regular review of compliance and employee relations

investigations, we noted the continued enhancements made to

the overall compliance programme, including:

— development of a new fraud policy, based upon a guiding

principle of ‘zero tolerance’ towards any form of fraud. The

Committee has approved this policy, which has a broad

applicability across all Pearson businesses, employees and

wider workforce, and business partners

— ongoing training for staff, including ethical decision-making

and anti-trust modules for applicable employees and

sanctions refresher training for Pearson’s network of local

compliance officers

— action taken by the legal and HR teams to establish processes

tying compliance to remuneration, responding to a new

requirement from the US Department of Justice

— implementation of a new platform and provider for our ethics

and whistleblowing hotline, PearsonEthics.com

Internal audit evaluation

At its December 2023 meeting, the Committee considered the

findings of the review of the performance, effectiveness and

independence of Pearson’s internal audit function, a process

which is undertaken annually. The 2023 review was conducted

by distributing a questionnaire to the key stakeholders of the

internal audit function – including Committee members, the lead

external audit partner, members of the Executive Management

team, and senior financial, legal and operational management.

The evaluation process sought views on an anonymised basis

on the internal audit function’s work programme, resource

levels, skills and expertise, and ways of working. Based on the

findings of the 2023 review, the Committee is of the opinion

that the quality, experience and expertise of the internal audit

function is appropriate for the business. The Committee further

believes that the internal audit function operates with an

appropriate degree of independence and has the ability to raise

matters with the Committee without management present. The

Committee recognised the findings of the review which noted

that the internal audit function continues to engage proactively

and constructively with management, providing assurance

over key risks impacting the business and identifying related

areas for improvement. The Committee will remain attentive to

ensuring the internal audit function has access to the necessary

skills, capabilities and knowledge to conduct specialist audits,

supplementing its own resource, and that the function continues

to consider Pearson’s risk appetite and tolerance as part of their

audit activities.

The Committee will ensure that an independent third-party

assessment of the effectiveness and processes of the internal

audit function is conducted at least once every five years, in

line with the requirements of the Institute of Internal Auditors’

International Standards for the Professional Practice of Internal

Auditing. The most recent such assessment was undertaken in

2019 and it is therefore expected that the next such assessment

will be undertaken during 2024.

Annual report and accounts 2023 Pearson plc 101

Governance

External audit

The Committee is responsible for overseeing and assessing

Pearson’s external audit and its auditors. Ernst & Young LLP (EY)

was first appointed as Pearson’s external auditor by shareholders

at the AGM in April 2022, replacing PricewaterhouseCoopers LLP

following a tender process. Pearson’s 2023 audit was the second

undertaken by both EY and Ben Marles as lead audit partner.

As required by regulation, Pearson will put the external audit

contract out to tender at least every ten years, with the next

tender being in respect of the 2032 financial year at the latest.

The decision to undertake such a process will be a matter for

the Committee.

Pearson confirms that it was in compliance with the provisions

of The Statutory Audit Services for Large Companies Market

Investigation (Mandatory Use of Competitive Tender Processes

and Audit Committee Responsibilities) Order 2014 during the

financial year ended 31 December 2023.

The Committee reviews and makes recommendations to the

Board in respect of the appointment and compensation of

the external auditors. These recommendations are typically

made by the Committee after considering the external auditors’

performance during the year, reviewing external auditor fees,

conducting an effectiveness review, considering the annual

report on audit quality of the external audit firm and confirming

the independence, objectivity, qualifications and experience of

the external auditors.

In conducting its 2023 review of the effectiveness of the external

auditors and making its recommendation to re-appoint EY for

2024, the Committee had regard to factors such as those set

out in the FRC’s guidelines entitled ‘Audit Quality Practice Aid

for Audit Committees’. In particular, the Committee considered

its own observations and interactions with the external auditors,

the quality of the audit, the auditors’ independence, the

programme of work conducted by the auditors and their reports

on that work.

Audit Committee report continued

Internal control and risk management

The Board has overall responsibility for Pearson’s systems of

internal control and risk management, which are designed to

manage, and where possible mitigate, the risks facing Pearson,

as well as to safeguard assets and provide reasonable, but not

absolute, assurance against material financial misstatement or

loss. The Board agrees risk management requirements and,

in assessing the effectiveness of the risk management effort,

reviews a range of inputs as described elsewhere in this report.

The Board can and does challenge the reporting it receives and

will request further information as needed to make

its assessment.

The Committee monitors the effectiveness of the company’s

risk management and internal control systems on behalf of

the Board. The Committee oversees a risk-based internal

audit programme, including periodic audits of the risk

processes across the organisation. It provides assurance

on the management of risk (including via risk deep dives, as

described on page 99), and receives reports at each meeting on

the effectiveness and efficiency of internal controls with input

from the Deputy Chief Financial Officer and external auditor. In

2023, Internal Audit provided assurance over several principal

risk areas, most notably information security and data privacy,

safeguarding, cybersecurity and integration of acquisitions.

Each business area maintains internal controls and procedures

appropriate to its structure, business environment and risk

assessment, while complying with company-wide policies,

standards and guidelines. The financial controls and associated

procedures are monitored and certified through the Group-wide

Controls Centre of Excellence and are subject to testing as part

of both the internal and external audit processes.

The Controls Centre of Excellence team took a number of steps

in 2023 to further enhance Pearson’s control environment as

part of the audit action plan. This included a refreshed training

programme for control owners across the business to establish

consistent standards and protocols for ‘information provided

by the entity’ (IPE), being the evidence that underpins control

operation, which was well-received by employees. You can read

more about the audit action plan on page 103.

The Committee, acting on behalf of the Board, confirms that it

has conducted and continues throughout the year to review

the effectiveness of Pearson’s systems of risk management and

internal control in accordance with Provision 29 of the Code and

the FRC Guidance on Risk Management, Internal Control and

Related Financial and Business Reporting (‘FRC Guidance’). In

making its assessment as to the effectiveness of these systems

for 2023, the Committee had regard to an assurance opinion

from the internal audit function. Factors considered in this

process included:

— the outcomes of internal audits completed during the year

— significant changes in Pearson’s strategy, processes

and systems

— the wider Pearson risk management and assurance

framework which includes other assurance activities by first

and second line of defence teams, including enterprise risk

management, the Controls Centre of Excellence, divisional

and technology assurance teams

— work conducted by the external auditor

— the organisation’s response to internal audit actions

— whether any fundamental or significant actions have not been

accepted by management and the consequent risk

— whether any limitations have been placed on the scope of

internal audit work or remit

The Committee reviewed the detail underpinning these factors

as part of the 2023 year-end process. The Committee also

reviewed all internal financial control deficiencies identified

during the year and noted that the majority were remediated

during 2023. The impact of any unremediated deficiencies

on the financial statements was considered. Following these

reviews, the Committee confirmed that Pearson’s systems of

risk management and internal control operated satisfactorily

throughout the year.

The Board is ultimately accountable for effective risk

management in Pearson and determines our strategic approach

to risk. It confirms our enterprise risk management framework

as well as our risk appetite targets. The involvement of the Board

and Committee in the design, implementation, identification,

monitoring and review of risks (including setting risk appetite and

reviewing how risk is being embedded in our culture) is outlined

in more detail in the Risk management section on pages 57-65.

Annual report and accounts 2023 Pearson plc 102

Governance

The review was conducted by distributing a questionnaire to key

audit stakeholders, including members of the Committee and key

management who interact with the external auditors on a regular

basis, including the Chief Financial Officer, Deputy Chief Financial

Officer, Senior Vice President – Treasury, Risk and Insurance, Vice

President – Internal Audit, Senior Vice President – Finance for

each business division, and other heads of corporate functions.

The process sought views on an anonymised basis on many

aspects of EY’s work and interactions with the company, as well

as their mindset, skills and knowledge. In the second year of EY’s

tenure as Pearson’s external auditor, there was an additional

focus on the effectiveness with which EY uses technology in

its audit and review processes, and the extent to which EY has

successfully delivered on the expectations and commitments set

through the tender and selection process.

In considering the independence of the external auditor, the

Committee has regard to, among other things, EY’s challenge

to management, the degree to which the external auditors

demonstrate professional scepticism, integrity and judgement in

their work, the amount of time passed since a rotation of audit

partner and the volume of non-audit work that the external

auditor undertakes (details of which can be found on page 104).

The responses to the evaluation indicated that the external audit

partners and staff exhibit professional scepticism in their work

and are robust in dealing with issues identified during the audit.

Overall, having reviewed the effectiveness and independence

of the external auditors during 2023, including taking into

account the enhancements delivered through the audit action

plan (described further below) and discussing the results of the

questionnaire in a private session with the Chief Financial Officer

and Deputy Chief Financial Officer, the Committee concluded

that the auditors demonstrate independence and objectivity in

their work and agreed to recommend the re-appointment of EY

for 2024.

The Committee monitors the independence and objectivity of

the external auditors on an ongoing basis and will continue to

formally evaluate their overall performance and effectiveness

and the quality of the external audit on an annual basis, taking

account of all appropriate guidelines.

Audit action plan

As described in last year’s report, with 2022 having been a year of

transition for the external auditor, a number of opportunities for

incremental improvement were identified as a result of the 2022

effectiveness review. These primarily related to ways of working

between the Pearson and EY teams. In early 2023, following the

conclusion of the previous year’s audit, Pearson and EY, led by the

Deputy Chief Financial Officer and lead audit partner respectively,

developed a joint action plan in response to the recommendations.

The Committee oversaw implementation of this action plan

throughout 2023 and was satisfied that all workstreams had either

been successfully completed during the year or were on target for

completion in early 2024. The Committee will remain attentive to

the areas of focus considered by the plan during the coming year,

to ensure any agreed enhancements become embedded into

‘business as usual' practices. Additionally, we will continue to look

at opportunities for an efficient and effective audit and ways of

working with EY to support on this.

FRC Minimum Standard

In May 2023, the FRC introduced the ‘Audit Committees

and the External Audit: Minimum Standard’ (the ‘FRC

Minimum Standard’ or ‘Standard’), which currently

operates on a ‘comply or explain’ basis.

Following the introduction of the FRC Minimum

Standard, the Committee updated its Terms of

Reference to reflect the new requirements. In order

to achieve full compliance with the FRC Minimum

Standard, we intend to refresh the external audit

effectiveness review methodology ahead of our 2024

process to ensure the factors described in provisions

15 to 23 of the Standard are considered in our

assessment of the external auditors.

Review of the external audit

During the year, the Committee discussed the planning, conduct

and conclusions of the external audit as it proceeded.

At its July 2023 meeting, the Committee discussed and approved

the external audit plan and reviewed EY’s assessment of risks of

material misstatement of Pearson’s financial statements.

The external auditors provided an update to the risk assessment

at the December 2023 Committee meeting, explaining to the

Committee that they had reduced their risk assessment in

respect of goodwill impairment due to the level of headroom

in the CGUs. At the February 2024 Committee meeting, the

external auditors’ risk assessment was further updated including

the refinement of the significant risk in respect of the valuation

of acquired intangibles to certain specific intangible assets, the

removal of a significant risk in relation to School Assessments

revenue recognition and the reduction in risk level over the

useful economic lives of product development and internally

developed software assets. These risks were then confirmed as

final at the conclusion of their audit of the financial statements in

February 2024.

The table on pages 105-106 sets out the significant issues

considered by the Committee together with details of how these

items have been addressed. The Committee discussed these

issues with the auditors throughout the 2023 audit process.

In December 2023, the Committee discussed with the auditors

the status of their work, focusing in particular on internal controls

and Sarbanes-Oxley testing.

As the auditors concluded their audit, they explained to

the Committee:

— the work they had conducted over revenue and in particular

the specific risk of fraud in revenue recognition. This included

work over contracts in certain of the Group’s businesses

in the US and UK that span the year end, where revenue is

recognised using an estimated percentage of completion

based on costs, work over manual adjustments to revenue

and work over modifications to certain contracts in the OPM

business. In addition, they explained their use of data analytics

to cover entire populations of data with procedures such as

correlating revenue with receivable and cash entries

— their work in evaluating management’s goodwill impairment

exercise, on a value-in-use basis, including assessing

assumptions around operating cash flow forecasts, perpetuity

growth rates and discount rates

Annual report and accounts 2023 Pearson plc 103

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Audit Committee report continued

— their work in assessing management’s judgements and

assumptions regarding the impairment of its right-of-use

assets and whether property assets should be classified as

investment property

— their procedures performed to audit the material acquisition

in the year and specifically their work over the valuation of

the acquired intangible assets. Their work focussed on the

valuations of certain specific acquired intangibles and their

procedures included the use of EY valuation specialists.

In addition, they reported on their work over disposals

completed in the year including evaluating management’s

judgement that the POLS businesses should not be classified

and presented as a discontinued operation

— the work performed over the nature and presentation of

adjusting items, focusing on subjective judgements and the

transparency and prominence with which related adjusted

measures are presented

— their work in assessing management’s judgements and

assumptions regarding provisions for uncertain tax positions,

in particular the provision made in relation to the EU state aid

tax matter

— the results of their controls testing for Sarbanes-Oxley

Act Section 404 reporting purposes and in particular their

findings in relation to information provided by the entity

(IPE), controls over key IT systems and other relevant internal

control over financial reporting (ICFR) matters

— their work to address the specific pervasive risk of

management override of controls including their view on

the potential sources or indicators of bias and override of

controls and their response to those indicators including

procedures such as review of Board and Committee minutes,

journal entry testing, review of non-routine transactions and

the use of data analytics

— the results of their work over the company’s going concern

assessment and viability statement

— their work in relation to other matters which are not classified

as key audit matters, but which are considered important

financial reporting matters, key areas of judgement or

estimation, or which may give rise to additional disclosure

requirements. This includes retirement benefit obligations

and asset capitalisation

The auditors also reported to the Committee the unadjusted

misstatements that they had found in the course of their work, which

were immaterial, and the Committee confirmed that there were no

material items remaining unadjusted in these financial statements.

Auditors’ independence

In line with best practice, our relationship with EY is governed

by our policy on external auditors, which is typically reviewed

and approved annually by the Committee. The policy establishes

procedures to ensure that the auditors’ independence is not

compromised, as well as defining those non-audit services

that external auditors may or may not provide to Pearson.

Any allowable services are in accordance with relevant UK and

US legislation and auditor standards. The policy applies to all

Pearson businesses globally, including associate companies. The

policy applies to all audit firms used by Pearson including those

undertaking statutory audits only. In the event of a change in

the Group auditor, it also applies to the outgoing firm until they

have discharged their Group audit responsibilities and for any

periods in which they are required to be independent in order to

undertake any specific audit responsibilities.

The Committee approves all audit and non-audit services

provided by external auditors. Our policy on the use of the

external auditors for non-audit services that was in operation

during 2023 complied with the FRC’s Revised Ethical Standard

published in December 2019. The standard applies restrictions

on certain non-audit services and applies a cap on the level of

permitted non-audit services fees which can be billed in any

year. The policy also reflects the restriction on the use of pre-

approval in the 2016 FRC Guidance on Audit Committees and,

accordingly, all non-audit services, except those considered to be

“clearly trivial”, are required to be approved by the Committee.

In particular, we expressly prohibit the provision of certain tax,

HR and other services by the external auditor. The policy also

complies with all relevant SEC independence rules. We review

non-audit services on a case-by-case basis, including reviewing

the ongoing effectiveness and appropriateness of our policy.

Non-audit services below a value of £25,000 are defined as

"clearly trivial" from a materiality perspective and can be pre-

approved following review on a case-by-case basis by the Group

finance team. Any such pre-approved services are presented for

noting by the Committee at its next meeting.

The Committee receives regular reports summarising the

amount of fees paid to the auditors. During 2023, Pearson spent

a similar amount on non-audit fees when compared with 2022.

For 2023, non-audit fees represented 2% of external audit fees

(1% in 2022).

For all non-audit work in 2023, EY was selected only after

consideration that it was best able to provide the services we

required at a reasonable fee and within the terms of our policy

on external auditors. Where EY is selected to provide audit-

related services, we take into account its existing knowledge and

experience of Pearson. Where appropriate, services are tendered

prior to a decision being made as to whether to award work to

the auditors.

Significant non-audit work performed by EY during

2023 included:

— half-year review of interim financial statements

— audit-type procedures of a stub period in respect of a

subsidiary entity in order to satisfy local requirements in

advance of a cross-border merger

A full statement of the fees for audit and non-audit services is

provided in note 4 to the financial statements on page 170.

Graeme Pitkethly Chair of Audit Committee

Annual report and accounts 2023 Pearson plc 104

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Significant issues considered by the Audit Committee

Issue Action taken by Audit Committee Outcome

Going concern and viability

— The assessment of the Group’s

viability and the appropriateness of

the going concern assumption.

— The Committee reviewed future budgets and cash flow forecasts to understand the Group’s available

liquidity and ability to continue as a going concern. The Committee reviewed and challenged the risks

to the forecasts identified. The Committee reviewed the outcome of the severe but plausible scenario

modelling and stress testing.

— The Committee is satisfied with the modelling process and the

risks identified. In addition, the Committee is satisfied with the

stress testing performed and the severe but plausible scenario

modelling. The Committee noted that in all scenarios the Group had

a high level of liquidity headroom and sufficient headroom against

covenant requirements.

— The Committee is satisfied with the adequacy of the Group’s viability

and is satisfied that the Group is a going concern.

— The Committee is satisfied with the disclosures related to going

concern and viability.

Acquisitions and disposals

— Pearson acquired 100% of

Personnel Decisions Research

Institutes, LLC (PDRI).

— Pearson disposed of its Pearson

Online Learning Services (POLS)

businesses in the US, UK, Australia

and India.

— The Committee reviewed the accounting for the PDRI acquisition with specific focus on consideration,

net assets acquired including the valuation of intangibles and the recognition of goodwill. The

Committee noted the use of third-party valuation experts to value the acquired intangible assets and

the controls performed over all aspects of the acquisition accounting, including but not limited to, the

review of assumptions used by the third–party valuation experts.

— The Committee reviewed the accounting for the disposal of the POLS businesses with specific

focus on consideration, net assets disposed and disposal costs. The Committee also reviewed

tax assumptions relating to the disposal transactions. In addition, the Committee reviewed the

judgement related to whether the results and cash flows of the disposed businesses should be

classified and presented as discontinued operations by reference to the criteria set out in IFRS 5.

— The Committee determined that the acquisition accounting for

PDRI had been undertaken appropriately but notes that it remains

provisional as at 31 December 2023.

— The Committee determined that disposal accounting for the POLS

businesses had been appropriately recorded. The Committee is

satisfied with the judgement that the results and cash flows of the

disposed businesses should not be classified and presented as

discontinued operations and is also satisfied with the disclosures

related to this item.

Revenue recognition

— Pearson has a number of

revenue streams where revenue

recognition is complex. For some

revenue streams judgements and

estimates are required in order to

determine the amount and timing

of revenue recognition.

— The Committee regularly reviews and challenges revenue recognition practices and the underlying

assumptions and estimates. In addition, the Committee has visibility of the internal control

framework over revenue and the results of the monitoring and certification work performed by the

Controls Centre of Excellence over those controls. In addition, the Committee has visibility of internal

audit findings relating to revenue recognition controls and processes. The Committee routinely

monitors the views of the external auditor on revenue recognition issues. This includes review of

their data analytics testing of revenue and understanding any exceptions that do not follow the

expected process path as well as testing of one off or judgemental items.

— The Committee is satisfied that revenue is being

recognised appropriately.

Annual report and accounts 2023 Pearson plc 105

Governance

Issue Action taken by Audit Committee Outcome

Recoverability of non-current assets

— Pearson holds significant non-current assets including right-

of-use assets (in relation to leased properties); property,

plant and equipment; goodwill and intangible assets.

— There are significant estimates and assumptions used in

the impairment reviews.

— In addition, assumptions made in previous years, regarding

the ability to sublet right-of-use assets and sell owned

assets, have been revisited.

— The Committee monitored the Group’s property strategy during the

year to determine if there were impairment triggers. The Committee

considered the results of the Group’s property impairment reviews with

specific focus on the 80 Strand property and the properties classified

as held for sale. Updates to key assumptions – including those arising

from subleases signed in 2023 – were reviewed and challenged.

The Committee considered the adequacy of related disclosures.

The Committee noted the input of third-party property specialists in

determining the key assumptions.

— The Committee monitored the Group’s plans and forecasts during the

year to determine if there were impairment triggers. The Committee

considered the results of the Group’s goodwill impairment reviews

which were undertaken in December and refreshed post year end.

Key assumptions – including cash flows derived from strategic and

operating plans, long-term growth rates and the weighted average cost

of capital – were reviewed and challenged. The Committee considered

the sensitivities to changes in assumptions and the adequacy of

disclosures required by IAS 36 ‘Impairment of Assets’. The Committee

considered management’s view that the recoverability of goodwill is no

longer an area of significant estimation.

— The Committee is satisfied with the results of the property impairment

reviews and the subsequent impairment charges recognised in the

income statement.

— The Committee is satisfied that the property impairment charges relate

to updates to assumptions made during the 2021 and 2022 major

restructuring programmes and so meet the Group’s criteria to be

excluded from adjusted performance measures.

— The Committee is satisfied with the results of the annual goodwill

impairment review.

— The Committee is satisfied with the disclosures relating to non-current

asset impairments and concurs with management’s view that the

recoverability of goodwill is no longer an area of significant estimation.

Tax

— Pearson holds provisions in relation to uncertain

tax positions.

— In 2021, Pearson paid £105m (including interest) in relation

to the EU state aid matter and at that time the amount was

recognised as an asset as it was expected to be recovered

in due course. In 2022, the EU General Court dismissed

the appeal made by the UK Government in relation to this

matter, with Pearson establishing a provision of £63m in

2022 representing an estimate of the expected exposure.

— Changes to, and the application of, tax legislation continues

to be a complex and judgemental area.

— The Committee considered various developments during the year,

including Pearson’s ongoing response to the European Commission’s

decision that the UK’s Finance Company Partial Exemption rules

constituted state aid (‘EU state aid’), ongoing tax audits and the

appropriateness of the associated provisions.

— The Committee also considered the impact of changes in tax

legislation, including ‘Pillar 2’ of BEPS 2.0 now effective for Pearson

from 1 January 2024.

— The Committee is satisfied with Pearson’s approach to the EU state

aid matter including reconfirming the ongoing appropriateness of the

provision made in 2022 in relation to amounts paid in 2021 and ongoing

disclosure about this matter.

— The Committee is satisfied with Pearson’s approach to managing

the impact of tax legislation changes and agreed with the views of

management regarding tax provisioning levels.

— The Committee is satisfied with the disclosures relating to the expected

impact of Pillar 2.

Audit Committee report continued

Annual report and accounts 2023 Pearson plc 106

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Directors’ Remuneration Report

Key messages from the Remuneration Committee

— The Directors’ Remuneration Policy approved by shareholders at the

2023 AGM was instrumental in allowing Pearson to successfully recruit

our new Chief Executive, Omar Abbosh, a highly regarded global

leader. Omar’s remuneration arrangements are consistent with the

Remuneration Policy.

— As part of our long-standing commitment to an ongoing and transparent

dialogue with shareholders and their advisers, we undertook an

extensive engagement exercise both prior to and following the 2023

AGM. Shareholder input is very important to the Committee when

developing remuneration proposals and arrangements.

— The Committee considered performance outcomes for 2023. The annual

incentive outcome for Executive Directors is 85% of maximum reflecting

another year of strong financial and strategic progress in 2023. The long-

term incentive granted in 2021 will vest at 85% of maximum considering

the earnings growth and value created for shareholders over the three-

year performance period.

— A thorough review was conducted ahead of the release of the third and

final tranche of the co-investment award for the previous Chief Executive,

considering performance underpins, TSR and broader company

performance, and stakeholders’ experience and it was determined that

this tranche should vest in full.

— Consistent with historical and best practice, the Committee also reviewed

the implementation of the Directors’ Remuneration Policy for 2024,

in particular the performance framework, to ensure it appropriately

supports delivering on Pearson’s forward-looking strategy. No changes

to metrics will be made for 2024, although the carbon metric will switch

from the AIP to the LTIP to reflect the long-term nature of the goal.

— The Committee remains focused on ensuring remuneration policies

and practice for all Pearson’s colleagues are consistent with our need to

attract and retain the right talent for the Company’s digital future, and

are appropriately aligned to Pearson’s forward-looking strategy, purpose,

and mission, vision, and values.

— There was no payment for loss of office upon Andy Bird’s retirement

from the Company and the Committee determined that Andy would be

treated as a ‘good leaver’ in respect of his outstanding awards under the

LTIP, in accordance with the Policy and LTIP rules.

Terms of reference

The Committee’s terms of reference are in line with the 2018 UK Corporate

Governance Code and are available on the Governance page of the

Company website at pearsonplc.com (a summary of the Committee’s

responsibilities is on page 129).

Sherry Coutu CBE

Chair of Remuneration Committee

Board Committee attendance

There were five scheduled meetings of the Remuneration

Committee in 2023. Attendance by Directors was as follows:

Committee members

Meetings

attended

Sherry Coutu CBE 5/5

Esther Lee 5/5

Tim Score 5/5

Annette Thomas 5/5

Dear Shareholder

On behalf of the Board, I am pleased to present the 2023

Directors’ Remuneration Report.

For a third consecutive year, Pearson has delivered a strong

financial performance. Underlying Group sales increased by

5%, and Group adjusted operating profit was up 31% versus

2022. This was supported by the ongoing work to streamline

the business and make it more efficient, with delivery of £120m

of cost savings helping to drive an improvement in adjusted

operating profit margin to 16%.

Pearson has continued to generate strong free cash flow

enabling the Company to maintain a robust financial position

whilst also supporting ongoing investment in the business.

This is fuelling Pearson’s evolution, particularly in digital and

generative AI which are changing the way that people learn for

good. Strong cash generation has enabled the delivery of returns

for shareholders, with a £300m share buyback programme

supplementing a progressive ordinary dividend. The Board have

also announced our intention to extend the share buyback

programme by £200m. Reflecting the strong performance in

2023 and its confidence in the outlook for the business, the

Board is recommending a 6% increase in the final dividend for a

full year dividend of 22.7 pence per share.

Additionally, Pearson has seen change in the Executive Directors

with the appointment of a new Chief Executive, Omar Abbosh,

who joined on 8 January 2024 and the retirement of Andy Bird,

who stepped down from his role as Chief Executive, but remains

with the Company until 31 March 2024 to ensure a smooth

transition. We will also welcome Alison Dolan, Non-Executive

Director, to the Committee from 1 April 2024.

Annual report and accounts 2023 Pearson plc 107

Governance

Directors’ Remuneration Report continued

Shareholder engagement

While the Committee very much appreciated the support shown

by the majority of shareholders, it was naturally disappointing

that a significant minority of shareholders voted against the 2023

Directors’ Remuneration Policy.

In advance of the 2023 AGM, the Committee had conducted

an extensive consultation process, receiving feedback from,

or directly engaging with, approximately 55% of Pearson’s

ownership as well as the key proxy advisers.

There was an understanding of the challenges faced by Pearson

and the need for a Policy that adequately acts as an attraction,

retention, and incentivisation tool for global talent, particularly in

the US which represents the majority of the Company’s business,

and growth prospects. We acknowledge that these challenges

are not unique to Pearson and have in the last year, been widely

raised and discussed by a range of stakeholders. That said,

our engagement exercise highlighted that the extent of the

increases to variable incentive opportunities in both the annual

and long-term incentive plans was principally too much for some

shareholders to support.

Following the outcome at the AGM and given Pearson’s

commitment to an ongoing and transparent dialogue with

shareholders and their advisers, a further engagement exercise

was initiated to provide the opportunity for shareholders to

offer any additional views on Pearson’s executive remuneration

arrangements following the AGM vote. We received a relatively

small number of responses, often welcoming the offer to engage

again, but noting that there was no requirement given the

extensive consultation prior to the AGM, as referred to above.

While understanding and acknowledging the diverse views of our

shareholders, the Committee continues to believe that the Policy

is necessary for remaining competitive in the global talent market

and driving sustainable, profitable growth. This was reaffirmed

by the Board’s appointment of Omar Abbosh as the Company’s

new Chief Executive. Omar is a highly regarded global leader with

over 30 years of experience in enterprise technology and joined

Pearson from Microsoft, one of the world’s largest multinational

technology companies.

Pearson remains committed to a constructive and positive

relationship with all its shareholders and their advisers and will

continue to engage widely as appropriate going forward.

Incentive outcomes for 2023

2023 AIP

The strong financial and strategic progress delivered in 2023

resulted in a formulaic AIP outcome for Executive Directors of

85% of maximum, with outperformance against the stretching

targets for Adjusted Operating Profit, Sales and Free Cash Flow.

Overall, the Committee was satisfied that the formulaic outcome

was reflective of the performance achieved.

2021 LTIP

The LTIP granted in 2021 will vest in 2024 at 85% of maximum,

principally reflecting EPS performance above the upper end

of the stretching range and exceptional upper quartile TSR

performance over the three-year performance period. The

shares vesting will remain subject to a two-year holding period.

Further details are set out on page 120.

Final tranche of Andy Bird’s co-investment award

The third and final tranche of the one-off co-investment

award granted to Andy Bird, vested following 31 December

2023. Similar to the first two tranches, vesting was subject to

achievement of performance underpins linked to strategic

progress and there being no significant ESG issues resulting

in significant reputational damage. The third tranche was also

subject to an additional TSR underpin.

The Committee undertook a rigorous assessment of the relevant

performance underpins as well as a holistic review of broader

Pearson performance and the experience of all stakeholders.

In its assessment, the Committee followed the framework

developed and disclosed in prior years. Pearson’s TSR over

the period was 76%, resulting in the creation of over £3bn of

shareholder value over the period and significantly in excess of

the required threshold. Pearson’s TSR was ranked 21 out of 92,

above the upper quartile (71.8%) TSR of the FTSE 100. As such,

the Committee determined that the third tranche of the award

would vest in full and detailed disclosure of the Committee’s

deliberations in this regard is set out on pages 121 and 122.

Leadership changes

Appointment of Omar Abbosh, new Chief Executive

Omar Abbosh was appointed as Chief Executive on 8 January

2024. Omar has a deep understanding of the dynamic business

and technology landscape having helped to shape and execute

successful strategies in a world of disruption. This positions him

very well to build on the foundations that have been laid over the

last few years and lead Pearson through its continued journey as

a digital-first consumer-focused lifelong learning company. The

Committee looks forward to working with Omar as we accelerate

our strategy and continue to deliver value for all

our stakeholders.

Omar’s remuneration arrangements are consistent with the

remuneration policy approved by shareholders at the 2023 AGM.

The principal elements are as follows:

— An annual base salary of £1,000,000;

— An annual cash allowance of 16% of base salary in lieu of

pension; in line with the maximum available company pension

contribution for UK employees of a similar age;

— Participation in Pearson's performance based Annual

Incentive Plan (AIP) from 2024, with a maximum annual

opportunity of 300% of base salary and a target bonus equal

to 50% of the maximum opportunity, prorated to reflect his

service during the bonus year;

— From 2024, participation in the performance-based Pearson

Long Term Incentive Plan with an annual face value of 450%

of base salary and based on stretching performance targets

(as set out in this report for 2024);

— In addition, Pearson will compensate Omar for remuneration

he forfeited as a result of resigning from his previous role

at Microsoft on a like-for-like basis in accordance with our

Remuneration Policy. It will consist of a cash payment in

lieu of his forfeited annual bonus expected to be £249,050

covering the 6 months between the end of his prior

employer’s financial year end and the beginning of his

eligibility for Pearson’s AIP in 2024; an award of 1,391,718

Pearson restricted shares which are of equivalent value to

the forfeited Microsoft shares and which will vest annually

in three equal tranches. This share award has a value of

approximately £13.1m based on the three-month average

share price and FX leading up to the start of his employment

Annual report and accounts 2023 Pearson plc 108

Governance

in January 2024. The Committee acknowledges the relative

size of the buy-out award in the context of the UK market,

but notes that it is equivalent to the value Omar would have

received had he continued in his previous role at Microsoft,

which is reflective of the quantum of remuneration packages,

(particularly long-term equity) for global leaders of the calibre

of Omar in companies in our key talent markets. Additionally,

the restricted share award creates immediate alignment with

shareholders and fulfils Omar’s shareholding guidelines from

the outset.

— Subject to the shareholding guideline under which he is

expected to maintain a holding of at least 450% of salary, and

to retain that level (or his actual holding if lower) for two years

following stepping down as an Executive Director.

Further information on these arrangements can be found

on page 112.

Retirement of Andy Bird

Andy Bird announced his intention to retire from the role of Chief

Executive on 20 September 2023. He stepped down as Chief

Executive and as a Pearson Board member on 7 January 2024

and will leave Pearson on 31 March 2024. There was no payment

for loss of office. The Committee determined that Andy would be

treated as a ‘good leaver’ in respect of his outstanding awards

under the LTIP and treatment of the awards was in accordance

with the relevant plan rules. Andy will not receive any LTIP award

in respect of 2024, but is eligible for a pro-rated award under

the AIP for the period to 31 March 2024, whilst he remains in

employment. In line with the Policy, Andy will also be required to

meet his shareholding guideline of 450% of base salary for two

years following stepping down as an Executive Director. Further

details of remuneration arrangements in respect of Andy’s

retirement can be found on page 123.

Looking forward to 2024

Salaries for 2024

There was no increase to Andy Bird’s base salary before his

retirement in March 2024. The Committee reviewed the salary

of Sally Johnson and approved an increase of 3% bringing her

salary to £574,000 for 2024. This increase was in line with the

3% increase for the wider UK workforce. Omar Abbosh’s salary

remains fixed at £1,000,000 until 2025.

Performance framework

Consistent with prior years, the Committee undertakes an annual

review of the performance framework to ensure it continues to

align with the forward-looking strategy. Overall, the Committee

considered that the performance framework principles remain

appropriate, with the only change for 2024 being to move the

carbon reduction metric, aligned to Pearson’s 2030 carbon

reduction goals, from the AIP to the LTIP to reflect the long-term

nature of the goal.

Target-setting for 2024

One of Pearson’s remuneration principles, which apply across the

whole organisation, centres on pay for performance, and this is

actively considered by the Committee when determining targets.

For 2024, in line with established practice, a robust target-setting

process has been followed considering Pearson’s strategic plan

as well as other relevant factors such as analyst consensus, to

reflect market expectations.

The Committee has a strong focus on pay for performance

and a robust track record of setting stretching targets, as

demonstrated by the targets set in recent years and subsequent

incentive outcomes. The approach taken this year is no different.

Disclosure of the 2024 LTIP targets is on page 112. For both

EPS and ROC, the stretch of the performance ranges has been

increased compared to last year’s awards. For maximum vesting,

performance must be well in excess of current market guidance,

with shareholder returns in the upper quartile against both the

FTSE 100 and the S&P 500. As in previous years, we will disclose

financial targets for the 2024 AIP in full retrospectively following

the end of the performance period.

Remuneration across Pearson

Pearson’s remuneration principles are consistent across the

organisation and are designed to support our culture, and to

make Pearson an employer of choice, able to attract and retain

talent to execute our digital-first strategy. Remuneration across

the workforce is designed to reflect the role, skills, experience,

and performance of any relevant individual as well as local market

practice. Many of the features of our Directors’ Remuneration

Policy apply more broadly, for example, over half of all Pearson

employees (c.10,300 employees) participated in the Annual

Incentive Plan during 2023 which was funded based on similar

performance measures as those used for Executive Directors - and

it was pleasing to note that this was funded at the highest level in a

number of years, reflecting a strong performance by the Company.

Similarly, all eligible colleagues (including Executive Directors) can

participate in savings-related share acquisition programmes that

are not subject to any performance conditions. Over 1 in 4 of our

employees save to purchase discounted Pearson shares via our

employee share plans, thereby becoming potential owners of the

business and benefiting from the value they help to create for

all Pearson shareholders. It was particularly pleasing that at the

most recent maturity of our ‘Save For Shares’ plan in August 2023

the average gain for a participant was £5,700.

To align with Pearson’s diversity, equity and inclusion (DEI)

and global benefits strategies, Pearson expanded healthcare

coverage for Pearson colleagues in the UK in 2023 to include

more inclusive benefits such as menopause support, fertility and

family planning services, and gender affirmation services.

The Committee receives regular updates on talent matters

and wider workforce considerations and actively considers the

approach to reward throughout the organisation when determining

executive remuneration. In addition, the Committee closely reviews

relevant pay ratios and pay gaps and supports efforts to make

progress against these metrics. In 2023, Pearson published its first

Fair Pay report which contained the gender pay gap and ethnicity

pay gap in Great Britain, the latter of which Pearson voluntarily

disclosed for the first time. While Pearson currently has initiatives

and strategies in place to support competitive, equitable and

inclusive pay and benefits, the Company is committed to delivering

greater pay transparency in the future.

Pearson is committed to a transparent and positive relationship

with all its stakeholders and will continue to engage widely as

appropriate going forward. I would like to thank shareholders for

their continued support at the 2024 AGM in relation to our 2023

Directors’ remuneration report.

Sherry Coutu CBE

Chair of Remuneration Committee

Annual report and accounts 2023 Pearson plc 109

Governance

Maximum

opportunity

Actual %

of maximum

40%

32% 25% 20%

30% 20% 10%

Adjusted operating proﬁt Sales

Free cash ﬂow

Strategic measures

Maximum

opportunity

Actual %

of maximum

33%

33% 33%

18% 33%

Adjusted EPS ROIC Relative TSR

Pearson’s Remuneration Framework - 2023 ‘At A Glance’

Base salaries

(from 1 April 2023)

2023 annual incentive plan payout

(85% of maximum)

Fixed remuneration AIP

LTIP Co-investment Plan

CEO

CFO

$14 032

£2 913

$000 for CEO; £000 for CFO

2023 single figure

2021 long-term incentive plan payout

(85% of maximum)

Final tranche of co-investment award

CEO (Andy Bird) - $1,293,750 CFO - £557,225

After Committee assessment of performance

underpins (including TSR), it was determined the final

tranche would vest in full.

Directors’ remuneration report

Strategic progress. Sustainable profitable growth.

Strategic highlights

— Acquired PDRI to drive additional growth in our biggest business: Assessments and Qualifications.

— Delivered a £120m cost savings programme, accelerating group margin expansion to 16%.

— Launched beta version generative AI tools in Mastering and MyLab.

— Strong cash performance with free cash flow of £387m and launched a £300m share buyback.

— Passed milestone of 1m cumulative paid subscriptions for Pearson+.

Revenue

£3,674m

5% underlying growth

(excl OPM & Strategic

Review)

Adj. operating

profit

£573m

31% underlying

growth on prior year

Free cash flow

£387m

74% growth on

prior year

Adjusted EPS

58.2p

12% growth on

prior year

Return on

Capital

10.3%

+1.6% on

prior year

Dividend per

22.7p

6% increase on

prior year

Annual report and accounts 2023 Pearson plc 110

Governance

Summary of our Directors’ Remuneration Policy

The table below provides a summary of our Directors’ Remuneration Policy. The full Directors’ Remuneration Policy, as approved at the 2023 AGM, is available on the Governance page of the company’s

website at https://plc.pearson.com/sites/pearson-corp/files/pearson/our-company/Governance/governance-downloads/remuneration-policy-2023.pdf

Base salary

— Base salaries reflect level, role, skills, experience, the competitive market and individual contribution.

— Base salaries are normally reviewed annually, with any increases normally in line with typical increases awarded to other Group employees.

Allowances and

benefits

— Reflects the local competitive market and may include travel-related, health-related and risk-related benefits as well as any other benefits provided to the majority

of employees.

— The Committee may introduce other benefits if it is considered appropriate to do so.

Retirement benefits

— Employees in the UK, including Executive Directors, are eligible to join the Money Purchase 2003 Section of the Pearson Pension Plan.

— The Committee has discretion to put in place retirement benefit arrangements in line with local market practice.

— Executive Directors, who opt out of the pension, can receive a cash allowance of up to 16% of base salary, in line with the maximum company contribution as a

percentage of salary that UK employees of a similar age are eligible to receive.

Annual incentive plan

— Maximum opportunity of 300% of salary.

— Based on the achievement of annual business goals and strategic objectives, with financial metrics accounting for at least 75% of total opportunity.

— Payout of 25% of maximum for threshold performance with 50% payable for on-target performance.

— Discretion to adjust formulaic outcome where this does not reflect underlying performance.

— Awards paid fully in cash except where shareholding guidelines have not been met where a bonus deferral applies.

— Malus and clawback provisions apply.

Long term incentive

plan

— Maximum opportunity of 450% of base salary.

— Based on the achievement of financial targets (e.g., earnings per share and a return measure), shareholder returns (e.g., relative total shareholder return) and strategic

objectives (e.g., an environmental, social and/or governance measure).

— Payout of 20% of maximum for threshold performance with 65% payable for on-target performance.

— Discretion to adjust formulaic outcome where this does not reflect underlying performance.

— Awards are subject to a post-vesting holding period of two years.

— Malus and clawback provisions apply.

Shareholding

guidelines

— Current in-employment guidelines of:

— 450% for the Chief Executive

— 300% for the Chief Financial Officer

— Post-employment shareholding guidelines apply.

Chair and NED fees

— To attract and retain high-calibre individuals, with appropriate or industry-relevant skills, by offering market-competitive fee levels.

— The Chair and Deputy Chair are paid a single fee for all responsibilities.

— The Non-Executive Directors are paid a basic fee, with Committee Chairs, members of the main Board Committees, and, if relevant, the Senior Independent Director

paid an additional fee to reflect their extra responsibilities.

— The Chair, Deputy Chair, and Non-Executive Directors receive no other pay or benefits, except for reimbursement of expenses and do not participate in incentive plans.

— A minimum of 25% of the Chair, Deputy Chair, and Non-Executive Directors’ basic fee is paid in shares.

Annual report and accounts 2023 Pearson plc 111

Governance

Omar

Abbosh

CEO

Sally

Johnson

CFO

Purpose and link to

strategy

Base salary

£1,000,000 £574,000 Recognise market value of

role and individual’s skills,

experience and performance

to ensure the business can

attract and retain talent.

Allowances

and benefits

Travel, health and

risk benefits

Provide employment benefits

to ensure overall package is

market competitive to attract

and retain high calibre talent.

Retirement

benefits

16% of salary in lieu

of pension

Provide competitive

retirement benefits to ensure

overall package is market

competitive to attract and

retain high calibre talent.

Annual

incentive

plan

Target/

maximum

opportunity

(% of salary)

150%/300% 100%/200% Drive and reward annual

performance on both

financial and non-financial

metrics in order to deliver

sustainable growth in

shareholder value.

Deferral into shares if

shareholding guidelines

are not met increases

alignment with long-term

shareholder interests.

Performance

condition

See table overleaf

Deferral if

shareholding

guidelines

not met

One-third into shares for two

years

Long-term

incentive

plan

Grant (% of

salary)

450% 300% Direct financial measures

that drive our financial

ambitions for the Company

and measures linked to

our key long-term strategic

priorities aligned to the long-

term interests of

our shareholders.

Performance

condition

See table overleaf

Vesting Three-year performance

conditions, with two year

post-vesting holding period

Shareholding

guidelines

% of salary 450% 300% Provide long-term alignment

with shareholder interests.

Post-

employment

shareholding

guidelines

450% for two

years

300% for two

years

Provides continuing

alignment with shareholder

interests following the

end of an Executive

Directors’ tenure.

Performance measures and targets for 2024

Annual incentive plan performance measures are outlined below. As in previous years, we will apply

a financial underpin to the strategic measures. We will disclose financial targets in full retrospectively

following the end of the performance period.

Adjusted operating profit Sales Free cash flow Strategic measures

40% 30% 20% 10%

Weighting Threshold Target Maximum

Invest in diverse

pipeline and increase

BIPOC/BAME

representation at all

manager levels

10%

2% increase in

representation of BIPOC/

BAME employees at

Manager level and above

+ maintain overall gender

parity as an underpin

5% increase in

representation

of BIPOC/BAME

employees at

Manager level

and above

10% increase in

representation

of BIPOC/BAME

employees at

Manager level

and above

Long-term incentive plan performance measures and targets for 2024 are as follows:

% of total Threshold Maximum

Payout at

threshold

Payout at

maximum

Adjusted EPS 30% 63p 82p 20% 100%

Return on

Capital 30% 10.3% 13% 20% 100%

Relative TSR 30% Median Upper quartile 20% 100%

ESG - Gender

Diversity

Improve gender

representation at

leadership levels

overall vs 2023

(VP and above)

Achieve gender

parity at leadership

levels in aggregate

(VP and above) 20%

100%

ESG - Carbon

reduction 5% 4% reduction vs 2023 13% reduction vs 2023 20% 100%

Note 1: Vesting is on a straight-line basis between Threshold and Maximum

Note 2: 2024 LTIP targets have been set at an USD:GBP exchange rate of 1.27.

Note 3: Relative TSR will be assessed half against the FTSE100 and half against the S&P500,

Companies within financial services, energy, basic materials, utilities and healthcare sectors will be

excluded from both TSR groups.

Note 4: The carbon reduction targets are based on the long-term trajectory required to meet

(Threshold) or substantially exceed (Maximum) our 2030 carbon reduction ambitions. Performance

will be measured from a baseline of 2023, therefore requiring incremental performance to that

delivered to date.

Implementation of the remuneration policy in 2024 - At a Glance

Annual report and accounts 2023 Pearson plc 112

Governance

Alignment of performance framework to Pearson’s strategy

Sustainable profitable growth

Revenue: Mid-single digit (three-year CAGR 2022-2025)

Adjusted operating margins (2025): 16-17%

Free Cash Flow conversion (2024): 95-100%

Return on capital

Financial objectives

Digital sales: Drive digital revenue growth

Consumer engagement: Create engaging and personalised

customer experiences

Product effectiveness: Improve the effectiveness of our

products to deliver better outcomes

Culture of engagement and inclusion: Build an inclusive

culture and increase diverse representation

Sustainability strategy: Achieve 50% reduction in absolute

Scope 1,2 & 3 carbon emissions by 2030

Strategic objectives

Total shareholder return (TSR)

Sales

Adjusted EPS

Adjusted Operating Profit

Free Cash Flow

Return on Capital

Sales

Various KPIs including diversity

and employee engagement

Reduction in tCO

2024 AIP 2024 LTIP

Annual report and accounts 2023 Pearson plc 113

Governance

Remuneration principles

Pearson’s remuneration principles govern pay for the whole organisation. We have developed remuneration arrangements for our Executive Directors with these principles in mind.

Aligned to longer-term

strategy

Reward is linked to achieving

Pearson’s longer-term strategy,

growth, and sustainability

Pay for performance

Remuneration framework

and outcomes are aligned

with performance

Market competitive

Pay levels are market

competitive, based on role,

grade, and contribution, and

ensure individuals are fairly

rewarded in line with the market

Targeted differentiation

We operate targeted

differentiation of reward across

our employees, linked to talent

and performance management

Tailored

Our approach to reward is tailored

in certain circumstances to

address a specific market/business

need, and is consistent with our

underlying reward philosophy

One part of the employee

value proposition

Remuneration is one part of

our broader employee value

proposition – and not the only

reason to work for Pearson

Our Directors’ Remuneration Policy and its implementation

supports our Company purpose of adding life to a lifetime of

learning, our strategy and ultimately the delivery of long-term

sustainable value for all stakeholders, including our shareholders.

In developing the Directors’ Remuneration Policy, the Committee

had due regard to the principles outlined within the UK

Corporate Governance Code.

— Pearson’s remuneration principles, as set out above, align

with our culture and position us as an employer of choice,

so we can continue to attract and retain the right talent, and

support our digital future. We recognise that remuneration is

only one part of Pearson’s employee value proposition

— Our executive remuneration framework is designed to

be simple, with total remuneration made up of fixed and

performance-linked elements, supporting different

strategic objectives

— Our remuneration framework and outcomes are designed to

be aligned with performance:

— Selected performance measures for the AIP (Annual

Incentive Plan) and LTIP (Long Term Incentive Plan) are

key to achieving the Group’s strategic objectives. The

Committee reviews performance measures annually

to ensure they incentivise appropriate management

behaviours and goals

— The Committee carries out a robust target-setting process

each year, considering Pearson’s strategic plan, as well

as analyst consensus to reflect market expectations. This

results in stretching, yet achievable, AIP and LTIP targets

— Maximum awards under the AIP and LTIP are capped and

clearly disclosed in our Directors’ Remuneration Policy

alongside predictions of how the Directors’ Remuneration

Policy may apply in various performance scenarios

— When determining pay-outs, the Committee considers

whether the outcome reflects overall company

performance and the experience of stakeholders over the

period, including shareholders and colleagues. If not, it has

the discretion to adjust outcomes

— The Committee is mindful of reputational and other risks

when implementing the Directors’ Remuneration Policy and

determining outcomes for Executive Directors and senior

management. Pearson has safeguards in place, such as malus

and clawback provisions and a two-year LTIP holding period,

as well as robust shareholding guidelines, which extend

post-employment.

— Before signing off the Directors’ Remuneration Report,

the Committee reviews drafts and inputs to clarify our

disclosures. The Committee engaged extensively with

shareholders on the current Directors’ Remuneration Policy

to ensure they fully understood the rationale for change, and

to give them the opportunity to feed into the decision-making

process and inform final conclusions.

Discretion framework

Formulaic outcome considering

performance versus existing

targets and underpins

Is this consistent with overall

Company performance?

Is this consistent with the wider

stakeholder experience?

Are there any significant culture,

ESG or operational issues

to be considered?

Are there any one-off or

exceptional events to be taken

into consideration?

Are outcomes appropriate

or should an adjustment be

considered?

When determining performance outcomes, the Remuneration Committee has the ability to adjust payments up or down if it believes that the outcome does not reflect

underlying financial or non-financial performance or if such other exceptional factors warrant doing so. In making this determination the Remuneration Committee applies

the following framework.

Directors’ remuneration report continued

Annual report and accounts 2023 Pearson plc 114

Governance

Based on the publicly disclosed geographic revenue segment which covers the US or Americas as a proportion of

disclosed Group revenue. Data for Pearson are based on the year ending 31 December 2023. Data is shown for

the FTSE 100 excluding investment trusts, and were sourced from Datastream and published annual reports as at

January 2024.

Additionally, more than half of Pearson’s employees are based in the US and two-thirds of the

Pearson Executive Management (PEM) are also based in the US, with several joining us from US-

based companies.

Market reference points

Given that Pearson is a UK-listed company, but has significant operations in the US and draws

significantly on talent from the US, the Remuneration Committee considered remuneration levels at

comparable companies in both the UK and US when determining the 2023 Directors’ Remuneration

Policy and its implementation. The Committee also considers remuneration levels at both public

and privately-owned or held companies, but notes that market data for private companies is more

limited. The approach to market data was to consider multiple different reference points, including

those described below, to provide a rounded view of overall positioning against the market. This

approach has evolved over time in line with Pearson’s strategic evolution to appropriately reflect

the different global talent needed for Pearson’s growth ambitions and execution of our digital-first

strategy. The Committee has not sought to follow any specific market reference and is

mindful of the balance between needing to ensure remuneration packages are sufficiently

attractive in the US, a primary and fiercely competitive talent market, and maintaining a

UK market-aligned remuneration framework.

Market context for remuneration at Pearson

Pearson has more US exposure than almost all of the UK market with c.70% of revenues

from the US.

Proportion of Revenue from US geographic segment (FTSE 100)

40%

50%

60%

70%

10%

20%

30%

80%

FTSE 100 (excl. Pearson and Inv. Trusts) Pearson

Data as of 31 December 2023

Directors

and above

Executives

All employees

52% 19% 29%

67% 17%17%

59% 21% 20%

US UK Rest of World

— Executive Director remuneration in

UK-listed companies of a similar market

capitalisation to Pearson, the FTSE 41 to

100. This comparator group recognises

Pearson’s London listing, the fact that

Pearson is a member of the FTSE 100,

and that UK investors and proxy agencies

would likely consider competitiveness of

remuneration levels at Pearson in this

context primarily. Market data for the

FTSE 100 as a whole was also considered

as an additional reference point given the

growth in Pearson’s market capitalisation

in recent years.

— Executive Director remuneration in

US-listed companies of a broadly similar

financial size and in a similar sector

to Pearson. This comparator group

included companies in the broadcasting,

interactive media and software sector

with similar revenue to Pearson. It

considers what Executive Directors

are paid in broadly similar US-listed

companies, although it does not directly

align to Pearson’s talent market.

— Remuneration in US-listed companies more closely aligned to Pearson’s talent market and

strategic ambitions. This comparator group comprised US technology, communications,

and consumer discretionary companies, in particular those that are at the forefront of

transformative, innovative plays within technology and digital, based on the Nasdaq-100

Index. Recognising, however, that many of these companies were materially larger than

Pearson in terms of financial size, rather than considering remuneration levels for the CEO

role, the market data considered was for roles reporting into the CEO (primarily heads of

business units or Chief Executives of subsidiary businesses) which is analogous to Omar

Abbosh and Andy Bird’s previous executive roles. This data was only considered in respect of

the CEO role at Pearson.

The Committee is mindful of the views of many investors in relation to setting executive pay

solely based on market data as well as views on using international peer groups. The Committee

therefore wanted to take a balanced and thoughtful approach which incorporates the views of

all key stakeholders.

Annual report and accounts 2023 Pearson plc 115

Governance

Chief Executive Officer Chief Financial Officer

UK positioning US positioning UK positioning US positioning

Salary

Towards the top end of UK practice

Within US market competitive range

for CEO roles

Within UK market competitive range Within US market competitive range

Annual bonus opportunity

For CEO roles, the market data illustrated that annual bonus opportunity levels in the US were around double opportunity levels in the UK. The same picture is not

however true for other executive roles, where annual bonus opportunity in the US is more closely aligned to, although still marginally higher than, UK levels.

Towards the top end of UK practice Within US market competitive range Within UK market competitive range Within US market competitive range

LTIP opportunity

Long-term incentive opportunity is the key driver in the difference between UK and US remuneration levels. Opportunity levels in the US are many multiples

of UK levels. For CEO roles in US-listed companies in a similar sector and of a similar financial size to Pearson, many receive long-term incentives with a target

opportunity greater than 1000% of salary.

Towards the top end of UK practice

Substantially below

US levels

Towards the top end of UK practice Substantially below US levels

Conclusions

The market data highlighted the stark difference in pay practices between the UK and US, and the Remuneration Committee applied careful judgement when considering how remuneration at Pearson should

be positioned taking into account the various reference points as well as the views of shareholders.

The Committee determined, with input from shareholders, that the incentive framework at Pearson for Executive Directors should continue to align to typical UK practice, and as such incentives remain fully

performance-linked, which is not typically the case in the US market where often a significant proportion of the long-term equity award is delivered in restricted stock with no performance conditions and over

shorter time horizons. In addition, annual bonus deferral and additional holding periods on LTIP awards are uncommon in the US market.

Overall, while it is acknowledged that the 2023 Directors’ remuneration policy positions Pearson towards the top-end of the UK market, the Committee has not sought to match US quantum levels or market

practice in terms of incentive design or the overall remuneration framework.

That the approach taken in the 2023 Policy is necessary for remaining competitive in the global talent market was reaffirmed by the Board’s appointment of Omar Abbosh as the Company’s new

Chief Executive Officer. Omar is a highly regarded global leader with over 30 years of experience in enterprise technology and joined Pearson from Microsoft, one of the world’s largest multinational

technology companies.

Pay positioning

Overall, the intention of the Committee was to ensure a package for the Chief Executive which was competitive considering Pearson’s primary talent market. While it is acknowledged the package for the Chief

Executive is towards the top end of market practice from a UK perspective, it is within the broad range of pay received by executives below CEO level at relevant US-listed companies.

Directors’ Remuneration Report continued

Annual report and accounts 2023 Pearson plc 116

Governance

Workforce remuneration at Pearson

The Committee takes seriously its responsibilities concerning the oversight of remuneration policies and practices for the wider organisation. Our remuneration principles as set out on page 114 are

consistent for all our colleagues, and applied depending on business need, level, and geography.

The key difference in our executive remuneration, compared to the approach to remuneration across our workforce, is that remuneration for our Executive Directors is more heavily weighted towards variable

pay and linked to delivering strategic objectives.

Approach to remuneration across Pearson

Base salary Set considering economic factors, competitive market rates, roles, skills, experience, and individual performance.

Allowances

and

benefits

Reflect the local labour market in which colleagues are based and may include healthcare and wellbeing benefits. Aligned with Pearson’s diversity, equity and inclusion (DEI) policies we

actively review to ensure our benefits are inclusive (e.g., menopause support, fertility and family planning services, and gender affirmation services provided to colleagues in the UK).

Retirement

benefits

Reflect local market practice.

Pearson colleagues in the UK may participate in the same underlying pension arrangements as the Executive Directors, subject to certain age bands and legacy arrangements. The main

contribution plan (Money Purchase 2003) allows employees to pay in between 3% and 8% of their basic salary, depending on their age. Pearson then contributes double that amount,

paying in between 6% and 16% of salary.

Annual

incentives

Over half of all Pearson employees, around 10,300 colleagues, participate in an Annual Incentive Plan, which is funded based on similar performance measures to the Executive Directors.

Several other colleagues (c. 2,000) participate in alternative cash-based annual bonuses, such as sales incentive and commission plans, based on performance targets and profit-shares

where required for legislative reasons.

incentives

We believe in the importance of aligning the interests of management and our shareholders by delivering a significant proportion of total remuneration in the form of share incentives.

Approximately 750 colleagues (c.4% of all employees) participate in the annual long-term incentive plan grant, selected based on their role, performance, and potential; with other awards

being made from time to time on an ad-hoc basis to certain roles based on market need.

Awards for our Executive Directors are made solely in the form of performance shares. However, our SVPs and Executive Leadership team have an equal mix of both performance shares

(subject to the same performance conditions as the Executive Directors) and restricted shares, recognising prevailing practice in the markets in which we compete for talent. At other levels,

awards are typically made in restricted shares only.

Executive Directors

Executive

Leadership Team

SVPs

VPs and Directors

100% performance shares

100% restricted shares

50% performance shares 50% restricted shares

In addition to our long-term incentive plan, all colleagues have the opportunity to become shareholders and owners of the Company and share in the value they help to create through

participation in savings-related share acquisition programmes. Under our ‘Save For Shares’ plan and Employee Stock Purchase Plan, employees can buy Pearson shares at a discount (20%

discount for ‘Save For Shares’ and a 15% discount for the ‘Employee Stock Purchase Plan’, in line with the maximum discounts permitted by HMRC and the IRS respectively).

Over 1 in 4 of our employees currently save to purchase Pearson shares via our employee share plans, contributing to a strong culture of share ownership.

Annual report and accounts 2023 Pearson plc 117

Governance

During the year, the Committee received reports from the Chief Executive and Chief Human Resources Officer on pay and conditions across Pearson, and on the recruitment and retention experience. We

took these into account when determining Executive remuneration. We have established channels in place to inform our colleagues and help them understand how executive remuneration and wider pay

policies are aligned. Further detail on Pearson’s approach to employee engagement is provided on page 41.

Views and sentiment expressed by colleagues around matters relating to reward and culture are taken into consideration by the Remuneration Committee when determining pay for senior management. In

order to give more colleagues the opportunity to meet the Board, including the members of the Remuneration Committee, a number of "Breakfast with the Board" sessions were conducted with employees

in both the UK and the US. This gave a wider group of employees the chance to talk with Board members about their roles, and to express their opinions on a wide range of topics. See page 82 for more on

how the Board engages with employees.

The Committee also considers Pearson’s gender pay gap and ethnicity pay gap in Great Britain (the latter of which Pearson voluntarily disclosed for the first time in 2023), as well as Pearson’s CEO pay ratio.

Pearson continues to review and update its policies and practices relating to the hiring, retention, and development of women, as well as other diverse talent groups, to ensure equal opportunities for all its

people. Some initiatives include creating strategic partnerships with organisations that focus recruiting efforts on under-represented talent, rolling out training programmes for recruiters and hiring managers

focused on specific diversity topics, and reviewing and challenging job requirements which require a formal higher education qualification in order to create a greater level of accessibility and equity to all

candidates. Building an inclusive culture and increasing diverse representation is one of Pearson’s six strategic pillars, and reflective of the Company’s commitments in this area diversity targets were included

in both the AIP and LTIP for Executive Directors for 2023. Further details can be found within our 2023 fair pay report which was published in December 2023.

Sharing In Success

Pearson’s remuneration principles are consistent across the organisation and are designed to support our culture, and to make Pearson an employer of choice, able to attract and retain talent

to execute our digital-first strategy. Many of the features of our Directors’ remuneration policy apply more broadly, and we believe that all our people should have the opportunity to benefit

when the Company does well. In particular:

— 2023 was a year of strong performance for the business and this was reflected in the highest level of funding under the Annual Incentive Plan in many years. As noted on page 117, over half

of all Pearson employees (c.10,300 employees) benefitted from participating in an AIP during 2023.

— Similarly, all eligible colleagues, including Executive Directors, can participate in savings-related share acquisition programmes that are not subject to any performance conditions. Over

1in4 of our employees save to purchase discounted Pearson shares via our employee share plans. At the most recent maturity of our ‘Save For Shares’ plan in 2023, the average gain for

aparticipant was £5,700 reflecting a near doubling between the option exercise price and the Pearson share price on the date of maturity – allowing those who participated to benefit from

the shareholder value they have helped to create over the previous three years.

Directors’ remuneration report continued

Annual report and accounts 2023 Pearson plc 118

Governance

Remuneration report for 2023

Certain parts of this report have been audited, as required by the

Large and Medium-sized Companies and Groups (Accounts and

Reports) Regulations 2008 as amended. Those tables subject to

audit are marked with an asterisk.

Single total figure of remuneration and

prior year comparison*

Total aggregate emoluments for Executive and Non-Executive

Directors were £15,597k in 2023. These emoluments are

included within the total employee benefit expense (in Note 5 to

the financial statements page 170).

Executive Director

‘single figure’ remuneration

The remuneration received by Executive Directors for the

financial years ended 31 December 2023 and 31 December 2022

is set out below.

Overall, the Committee considers that the Remuneration Policy

operated as intended during 2023.

Executive Director

‘single figure’ remuneration*

Andy Bird

$000s

Sally Johnson

£000s

2023 2022 2023 2022

Base salary 1,282 1,250 552 533

Allowances and benefits 466 448 16 16

Retirement benefits 205 200 88 64

Total fixed pay 1,953 1,898 656 613

Annual incentives 3,299 1,900 947 692

Long-term incentives 3,482 – 1,310 1,043

Co-investment award 5,298 4,684 – –

Total variable pay 12,079 6,584 2,257 1,735

Total remuneration 14,032 8,482 2,913 2,348

Notes to single figure table*

Base salary

The base salary shown in the single figure table reflects salary

paid in the financial year as a Pearson Executive Director. Andy

Bird was paid in USD, and Sally Johnson is paid in GBP.

Allowances and benefits

The breakdown of benefits is as follows for 2023:

Andy Bird

$000s

Sally Johnson

£000s

Travel – 14

Health 15 2

Risk-related 2 –

Accommodation 449 –

Travel benefits comprise car allowance and reimbursements of a

taxable nature resulting from business travel and engagements.

Health benefits comprise healthcare, health assessment and

dental care. Risk-related benefits comprise life and other

insurance policies. Accommodation benefits for Andy Bird relate

to a contribution towards the rental costs of an apartment in

New York used for business purposes. This cost was capped at

$240,000 per year ($20,000 per month) prior to any taxes due.

In addition to these allowances and benefits, Executive Directors

may also participate in company benefit or policy arrangements

that have no taxable value and/or are available to all other

colleagues in the same location. Sally Johnson’s life cover is

arranged under an excepted policy on a similar basis to other

employees who are affected by the lifetime allowance and have

opted out of The Pearson Pension Plan.

Retirement benefits

Further detail on retirement benefits is on page 123.

Annual incentives

The 2023 AIP for the Executive Directors was based on a mix of

financial (90% weighting) and strategic measures (10% weighting).

The 2023 AIP resulted in an 85% of maximum payment for both

Andy Bird and Sally Johnson. Bonus is calculated using salary at

31 December 2023, in line with how bonuses are calculated for

all participants.

More detail on performance metrics and performance against

targets in 2023 is on page 120.

Long-term incentives

The 2021 LTIP award was subject to performance conditions

assessed to 31 December 2023. Performance targets were

partially met resulting in the award vesting at 85% of maximum.

The 2021 LTIP awards for Andy Bird and Sally Johnson were

granted on 4 May 2021, based on a share price of 826.7p (five-

day average to 4 May 2021). The value of the 2021 LTIP included

in the single-figure table is based on a three-month average

ADR / share price to 31 December 2023 of $11.63 / 937.0p. The

LTIP values include dividend equivalent amounts of $196,795

and £76,141 for Andy Bird and Sally Johnson respectively. The

proportion of the 2021 LTIP attributable to share price growth

is $98,009 for Andy Bird and £145,245 for Sally Johnson. The

Remuneration Committee did not exercise discretion in respect

of this share price appreciation. For further details see page 120.

The value of the 2020 LTIP reported in last year’s report for Sally

Johnson (£1,199k) was an estimate based on the three-month

average share price to 31 December 2022 (939.4p). The actual

value of the 2020 LTIP, on the 2 May 2023 vesting date was

£1,043k (based on a closing share price of 754p).

Co-investment award

The third and final tranche of the one-off investment award,

granted to Andy Bird to secure his appointment (with

shareholder EGM approval), was subject to performance

underpins assessed to 31 December 2023. It was determined the

third tranche of the award would vest in full. The value disclosed,

which includes an additional amount equal to the value of

dividends payable on the shares vesting, is calculated using the

ADR share price at the date of vesting (30 Jan 2024) of $12.19.

The award was originally granted over Ordinary Shares based on

a share price of 590.2p (with the USD value at award calculated

using a USD:GBP exchange rate of 1.365), and so $1,666k of the

above figure is attributable to share price growth. An additional

$386k of the value is attributable to dividend equivalent shares.

The award has been satisfied using market-purchased ADRs and

ADRs retained after tax must be held until 31 December 2025.

For further details see pages 121-122.

Annual report and accounts 2023 Pearson plc 119

Governance

Executive Directors’ annual incentive payments for 2023*

Andy Bird and Sally Johnson were eligible to participate in the 2023 AIP. The following table

summarises the performance targets (presented on a consistent basis to the actual results,

considering portfolio and currency movements) and performance against these targets, which

resulted in an 85% of maximum payout.

Overall outcome

Performance range Payout

% of total Threshold Target Maximum Actual results

% of max bonus

opportunity

Adjusted operating profit 40% £520m £525m £605m £573m 32%

Sales 30% £3,395m £3,520m £3,760m £3,674m 25%

Free cash flow 20% £300m £305m £345m £387m 20%

Strategic measures 10% See below 8%

100% 85%

Performance against strategic measures

The targets and outcomes for performance against each of the strategic measures are shown in the

table below.

Strategic priority Weighting Threshold Target Maximum Outcome

Invest in

diverse pipeline

and increase

BIPOC/BAME

representation

at all manager

levels

5% 2% increase in

representation

of BIPOC/BAME

employees at

Manager level and

above + maintain

overall gender parity

as an underpin

5% increase in

representation

of BIPOC/BAME

employees at

Manager level

and above

10%

increase in

representation

of BIPOC/BAME

employees at

Manager level

and above

Achieved 6.4%

increase &

maintained

overall gender

parity

Reduce carbon

footprint – net

annual reduction

versus 2022

baseline toward

2030 goal

5% 1% reduction 2% reduction 5% reduction Achieved an

8% reduction

Total 10% 8%

Note 1: Internal Audit provided an independent assessment of the result for the Committee.

Note 2: As disclosed on page 42, Pearson achieved carbon reduction of 16.3% during 2023. For the purpose of

assessing AIP performance, the Committee made a discretionary adjustment to this figure to account for factors

which did not reflect underlying performance, such as portfolio changes.

Executive Directors’ Long-Term Incentive Plan award vesting for 2023*

In May 2021, Andy Bird and Sally Johnson were granted an LTIP award. This award is due to vest

based on performance the business delivered over the three-year period from 2021 to 2023.

The targets and performance against these targets are as follows:

Performance range Vesting

% of

total Threshold Stretch Maximum

Payout at

threshold

Payout

stretch

Payout at

maximum Actual

Percentage

achievement

Percentage

of total

award

Adjusted

EPS

third 43.9p 50.5p 57.6p 15% 65% 100% 57.7p 100% 33.3%

Net ROIC

third 5.4% 6.3% 7.3% 15% 65% 100% 6.1% 55% 18.4%

Relative

TSR

third Median -

Upper

quartile 25% - 100%

Ranked

16 out

of 93 100% 33.3%

100% Total 85%

Relative TSR was measured against the constituents of the FTSE 100 at the start of the performance period.

In determining the vesting outcome, the Committee carefully considered the portfolio changes over the last

three years and made modest adjustments to reflect the impact of these, in particular the divestment of various

businesses under strategic review during the performance period – the adjusted targets and adjusted results are

presented in the table above. The Committee considers such adjustments appropriate to ensure performance is

measured on a like-for-like basis and reflect the principles against which the original targets were set as these did

not consider the impact of the portfolio changes.

Overall, 85% of this award will vest on 1 May 2024, and its value is included in the single figure table

on page 119. Shares vesting are subject to an additional two-year holding period to 1 May 2026.

Co-investment award*

To secure the appointment of Andy Bird as Chief Executive, the Committee designed a one-off co-

investment award. The conditions of this award were that Andy Bird purchased Pearson ordinary

shares equal to 300% of his base salary and held all of these shares until 31 December 2023. The

co-investment award vests in three equal annual tranches, with shares vesting subject to a holding

period until 31 December 2023.

The vesting of each tranche of the award was subject to these performance underpins:

— an appropriate level of continued progress being made in relation to delivering Pearson’s

strategy, including the ongoing transition from print to digital, and

— no significant ESG issues occurring, which relate to Andy Bird’s tenure as Chief Executive, and

which result in significant reputational damage for Pearson

In addition, the vesting of the final tranche of the award was subject to the following TSR underpin:

— Pearson’s TSR from the date of the announcement of Andy Bird’s appointment to 31 December 2023 is

either (1) positive; or (2) is at median or above when compared to the performance of the FTSE 100

— If one or more of the underpins are not achieved, then the Committee will consider whether, and to what

extent, a discretionary reduction in the number of shares vesting is required.

Directors’ remuneration report continued

Annual report and accounts 2023 Pearson plc 120

Governance

TSR Underpin

Pearson’s TSR from the date of the announcement of Andy’s appointment to 31 December 2023 was 76.0%, resulting in the creation of

over £3bn of shareholder value over the period. This compares to a median FTSE 100 TSR of 32.4%, and was therefore significantly in

excess of both required thresholds for vesting (noting that only exceeding one threshold was required). Pearson’s TSR was ranked 21

out of 92, in excess of the upper quartile (71.8%) TSR of the FTSE 100.

Consideration of broader performance and stakeholder experience

Robust financial performance

Revenue

£3,674m

5% underlying

adjusted growth on

prior year (excl OPM &

Strategic Review)

Adj. operating

profit

£573m

31% underlying

growth on prior year

Free cash flow

£387m

74% growth

on prior year

Adjusted EPS

58.2p

12% growth

on prior year

Return on

Capital

10.3%

1.6% improvement on

prior year

Wider stakeholder experience

Source: Refinitiv Datastream

Shareholders

— Strong financial position has enabled Pearson to grow its dividend (up 6% to 22.7p in 2023), in line with Pearson’s commitment

to a progressive and sustainable dividend.

— Pearson commenced a £300 million share buyback programme to return capital to shareholders in Q3 2023, We have also

announced our intention to extend our share buyback programme by £200m.

— Pearson has strong and constructive relationships with its key institutional investors. During 2023, Pearson held 505 meetings

with 272 institutions, both virtually and in person.

Assessment of performance underpins

The third tranche of the co-investment award vested as soon as

practical following 31 December 2023. The Committee undertook

a rigorous assessment of the relevant performance underpins,

reviewed broader Pearson performance, and evaluated the

experience of all stakeholders. The Committee followed the

framework disclosed in the 2020 Remuneration Report.

In 2023, there have been no ESG issues which, in the opinion of

the Committee, have resulted in significant reputational damage.

Progress

delivering

Pearson’s

strategy

Significant strategic progress was made

during 2023 which included:

— Completed the acquisition of Personnel

Decisions Research Institutes (‘PDRI’) in

support of the growth strategy, building on

the previous acquisitions of Credly, Mondly

and Faethm.

— Continued to refine the portfolio through

the completion of the strategic disposal of

Pearson’s interest in the POLS businesses

in the US, UK, Australia and India, as well as

the disposal of Pearson College London.

— Reorganised salesforce in Higher Education

to increase adoption retention rates and

generate new wins.

— Further progressed Pearson’s Generative AI

strategy including the launch of additional

generative AI study tools in Pearson +

and Mastering.

— Delivered a £120m cost savings

programme, accelerating group margin

expansion to 16%.

— Passed milestone of 1m cumulative paid

subscriptions for Pearson+.

76.0%

32.4%

Pearson

FTSE 100 (Median)

0% 10% 20% 30% 40% 50% 60% 60% 80%

Annual report and accounts 2023 Pearson plc 121

Governance

Employees

— Over 80% of colleagues participated in the enhanced

employee engagement survey, a 10 percentage point

increase over last year. Our engagement grand mean

increased to 4.09 out of 5 (up from 3.96 in 2022) and

as a result, we are now ranked in the 70

percentile in

Gallup’s global company database for engagement.

— Over 700 existing employees participated in the Coaching

for Performance series which focused on developing

managers as coaches. Pearson’s coaching index score

improved from 3.75 out of 5 in 2022 to 3.95 in 2023.

— Pearson launched a new learning experience platform

that integrates third party content libraries, Pearson

commercial content, bespoke learning content on a

range of topics (e.g. generative AI), and digital credentials

employees have earned a credential from Credly

by Pearson.

— Pearson’s UK benefits offerings were expanded to be

more inclusive including support and medical cover

for those seeking gender affirmation care, menopause

support, and support for those expanding their families

whether through birth, surrogacy, or adoption.

— There was improvement in female representation at Vice

President level and above (44%) and Pearson continued

to maintain its position of having surpassed the FTSE

Women Leaders Review target for 40% of leadership

roles (defined as the executive committee and their

direct reports) to be filled by women, well ahead of the

end of 2025 deadline.

Customers

— In Assessment & Qualifications, Pearson VUE launched

the delivery of the Next Generation NCLEX Nurse

licensure exam in the US and PDRI launched a full suite

of hiring assessment programmes for the Transportation

Security Administration (TSA). VUE also successfully

opened its largest company-owned test center in

Chandigarh, India, with capacity to deliver 14,000 tests

per month.

— In Virtual Learning, Pearson launched a new Connections

Academy Career Pathways programme for middle and

high school students to offer a tri-credit approach to

career-readiness courses in partnership with Coursera

and Acadeum, amongst others.

— In Higher Education, momentum continued for Pearson+

as registered users grew to around 5m by the end of

2023 and Pearson+ passed the milestone of 1 million

cumulative paid subscriptions for the calendar year.

A generative AI tool was brought to market within the

Pearson+ service to enable users to automatically

summarise the content of Channels videos into simple

bullet points as well as generate explanations and

practice quizzes

— Workforce Skills registered users grew to 5.3 million,

and there was an increase in the number of enterprise

customers to 1,547. Pearson signed a contract with the

Jordanian Ministry of Education to partner on the reform

of Jordan’s technical and vocational education and

training provision in schools with over 50,000 learners

expected to take these courses over the next three years.

— In English Language Learning, Pearson won recognition

for the Pearson Test of English (PTE) for Canadian

Student Direct Stream and economic migration visa

applications. The Canadian market is the largest of the

three key markets which Pearson has recognition to

operate in. PTE also grew volumes by c. 50% to pass the

milestone of over 1 million tests administered per year.

Suppliers & Business Partners

— Supplier Diversity and Responsible Procurement

continued to be key priorities for Pearson in 2023. All

employees have access to a diverse supplier portal to

provide access to over one million diverse suppliers and

we spent £47.2m in the area in 2023.

— Pearson is continuing its transition to ethically sourced

papers with 69% of paper used in 2023 being certified

(FSC / PEFC / SFI) and expects 100% of papers to be

ethically sourced by end 2025. Pearson is also continuing

to consolidate its printer base reducing its approved

vendor count to 60 vendors from approximately 120

vendors at the beginning of 2023 whilst also working to

have all approved vendors signed up to the Book Chain

Project to develop better understanding and mitigation

of potential labour and environmental risks within both

the paper and manufacturing supply chain.

— Pearson continued to encourage key suppliers to

participate in an EcoVadis sustainability assessment (or

equivalent) in 2023. Our key suppliers performed well,

with an average score of 57.6/100 ("Good"), a 0.3 point

increase year-over-year. Among suppliers who have

completed a reassessment cycle, 69% of them showed

improvement averaging +3.5 points.

— Pearson has made great progress in assessing and

benchmarking the carbon maturity of its key, high impact

suppliers. Results of this assessment are shared with

suppliers as part of the ongoing governance process and

suppliers are asked to provide insight into their plans

to increase carbon maturity over time. A full review of

its end to end supplier lifecycle management processes

was completed and updates were made to ensure that

carbon maturity is considered at every stage and higher

maturity suppliers are selected wherever possible.

Taking all the above into account, the Committee has determined that the third and final tranche of the co-investment award will vest in full.

Directors’ remuneration report continued

Annual report and accounts 2023 Pearson plc 122

Governance

Long-term incentives awarded in 2023*

The following LTIP awards were granted during the year:

Director

Date

of award

Vesting

date

Number

of shares

Face

value

Face value

(% of base

salary)

Value for

threshold

performance

(% of

maximum)

Performance

period

Andy Bird 2 May 2023 1 May 2026 545,529 $5,821,885 450% 20%

1 Jan 23 –

31 Dec 25

Sally

Johnson 2 May 2023 1 May 2026 194,345 £1,671,678 300% 20%

1 Jan 23 –

31 Dec 25

Face value for Andy Bird’s award was determined using a share price of $10.672 and for Sally

Johnson's award using a share price of 860.16p. In both cases this represented the five-day average

up to and including 28 April 2023, which is same approach used for the wider employee population.

For 2023, performance measures and targets are as follows:

% of

total Threshold Stretch Maximum

Payout at

threshold

Payout at

stretch

Payout at

maximum

Adjusted EPS 30% 53.0p 63.0p 68.0p 20% 65% 100%

Return on Capital 30% 8.5% 10% 11.5% 20% 65% 100%

Relative TSR vs.

FTSE 100 (excl.

certain sectors)

15% Median – Upper

quartile

20% – 100%

Relative TSR vs.

S&P 500 (excl.

certain sectors)

15% Median – Upper

quartile

20% – 100%

ESG 10% Improve gender

representation

at leadership

levels overall

vs 2022

(VP and above)

Achieve

gender parity

at leadership

levels in

aggregate (VP

and above)

Achieve

gender

parity at all

leadership

levels (VP

and above)

20% 65% 100%

Note 1: 2023 LTIP targets have been set at an USD:GBP exchange rate of 1.21.

Note 2: Companies within financial services, energy, basic materials, utilities and healthcare sectors will be excluded

from both TSR groups.

The Committee reserves the right to adjust pay-outs up or down before they are released, if it

believes the vesting outcome does not reflect underlying financial or non-financial performance, or

for other exceptional factors. In making any adjustments, the Committee are guided by the principle

of aligning shareholder and management interests.

Any shares vesting based on performance to 31 December 2025 will be subject to an additional two-

year holding period to 1 May 2028.

Executive Directors’ retirement benefits and entitlements*

Details of the Executive Directors’ pension entitlements and pension-related benefits in 2023

are as follows:

Andy Bird

$000s

Sally Johnson

£000s

Value of defined benefit - -

Other allowances in lieu of pension 205 88

Total value in 2023 205 88

Accrued pension at 31 December 2023 - 66

Note 1: The value of defined benefit reflects the change in value over the period, less inflation.

Note 2: Other allowances in lieu of pension represent the cash allowances paid.

Note 3: Total value is the sum of the previous two rows and is disclosed in the single figure of remuneration table.

Note 4: The accrued pension at 31 December 2023 is the deferred pension at 30 September 2022 (the date

accrual for the pension ceased) revalued to 31 December 2023 in line with the Plan rules. It relates to the pension

payable from the UK Plan. Normal retirement age is 62.

Payment in Lieu of Pension

Omar Abbosh receives a payment in lieu of pension at 16% of his base salary, in line with the

pension provision for UK employees of a similar age.

Andy Bird, until his retirement, received a payment in lieu of pension at 16% of his base salary,

in line with the pension provision for UK employees of a similar age.

Beginning 1 October 2022, Sally Johnson began receiving payments in lieu of pension at 16% of her

base salary, in line with the pension provision for UK employees of a similar age. Prior to October

2022, Sally Johnson was a member of the Final Pay section of the Pearson Pension Plan, where the

pension accrual rate was 1/60

of pensionable salary per annum, restricted to the Plan’s

earnings cap.

Remuneration arrangements in respect of Andy Bird’s retirement

Andy Bird stepped down as Chief Executive and as a Director of Pearson plc on 7 January 2024

and will retire on 31 March 2024.

— On ceasing to be employed by Pearson, and in accordance with the terms of his contract

of employment, there will be no payment for loss of office.

— Andy remains eligible for a pro-rated award under the AIP for the period to 31 March 2024

whilst he remains in employment. The award will be based on Pearson Group performance

for 2024.

— Andy did not receive any LTIP award in respect of 2024.

Annual report and accounts 2023 Pearson plc 123

Governance

— Andy was treated as a good leaver in respect of his outstanding awards under the LTIP and

treatment of the awards was in accordance with the relevant plan rules (including malus

and clawback provisions). His LTIP awards granted in 2021, 2022, and 2023 will vest on the

original vesting dates subject to the achievement of the applicable performance conditions

as determined by the Remuneration Committee following completion of the relevant

performance periods. His 2022 and 2023 LTIP awards will also be subject to time pro-rating

based on the relevant performance periods. As described on page 120, the 2021 LTIP will vest

in May 2024.

— As described on page 120 the third and final tranche of his co-investment award granted in

connection with his initial employment by the Company vested in full.

— In line with the Directors’ remuneration policy, Andy is required to retain Pearson shares with

a value of 450% of his base salary for a period of two years from 7 January 2024. This guideline

does not apply to shares purchased by Andy.

— Andy can elect for continued medical, dental and vision insurance coverage through the

Company’s plans under COBRA for 18 months following his retirement and the Company

will pay premiums to continue this coverage for 12 months following his retirement. Andy

will be reimbursed for reasonable costs necessarily incurred in connection with his tax

return preparation for the 2024 calendar year. He will also be reimbursed for reasonable

attorneys’ fees necessarily incurred related to his review and consideration of his retirement

arrangements. Andy will also be paid all accrued, unused paid time off upon his retirement.

Payments to former Directors*

There were no payments to former Directors in 2023.

Payments for loss of office*

All payments made to Andy Bird in connection with his retirement as Chief Executive are set out

above. There were no additional payments for loss of office made to or agreed for Directors in 2023.

Directors’ interests in shares and value of shareholdings*

Shareholding guidelines

Executive Directors are expected to build up a substantial shareholding in Pearson, in line with our

policy of encouraging widespread employee share ownership, and to align the interests of Executive

Directors and shareholders.

Following the significant increases introduced by the last Remuneration Policy, the current

shareholding guideline is 450% of base salary for the Chief Executive and 300% of base salary for the

Chief Financial Officer.

Shares that count towards these guidelines include any shares held unencumbered by an Executive

Director, their spouse and/or dependent children, plus any shares vested but held pending release

under a share plan, and any shares unvested but not subject to future performance conditions (on a

net of tax basis). Executive Directors have five years from their date of appointment to the Board to

reach the guideline. Once the guideline is met, it is not re-tested, other than when shares are sold.

As part of the year-end process, the Committee assessed the level of shareholding against the

guideline in accordance with our shareholding policy. Based on shares beneficially held and shares

due to vest from LTIP awards having met the performance targets (on a net-of-tax basis), it was

confirmed that the guideline was met for Andy Bird and Sally Johnson.

Executive Directors are expected to retain their current guideline (or actual shareholding if lower) for

two years following stepping down as an Executive Director. This guideline does not apply to shares

purchased by the Director.

The shareholding guidelines do not apply to the Chair, Deputy Chair and Senior Independent

Director and Non-Executive Directors. However, a minimum of 25% of the Chair, Deputy Chair and

Senior Independent Director and Non-Executive Directors’ basic fee is paid in Pearson shares,

which the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors have

committed to retain for the period of their directorships.

Directors’ interests

The share interests of the Directors and their connected persons are:

Director

Current

shareholding

(ordinary

shares) at 31

Dec 23

Conditional

shares subject

to performance

at 31 Dec 23

Conditional

shares subject

to employment

only at 31

Dec 23

Total number

of ordinary and

conditional

shares at 31

Dec 23

Chair

Omid Kordestani 65,059 – – –

Deputy Chair

Tim Score 78,735 – – –

Executive Directors

Andy Bird 586,437 1,636,864 424,131 2,647,432

Sally Johnson 103,260 517,675 – 620,935

Non-Executive Directors

Sherry Coutu CBE 14,987 – – –

Alison Dolan 671 – – –

Alex Hardiman 930 – – –

Esther Lee 3,639 – – –

Graeme Pitkethly 11,467 – – –

Annette Thomas 4,192 – – –

Lincoln Wallen 18,664 – – –

Note 1: Share interests are shown as at 31 December 2023.

Note 2: Ordinary shares include both ordinary shares listed on the London Stock Exchange and American

Depositary Receipts (ADRs) listed on the New York Stock Exchange. The figures include both shares and ADRs

acquired by individuals under the LTIP and any other share plans in which they might have participated.

Note 3: Conditional shares subject to performance means unvested shares, which are subject to

performance conditions and/or performance underpins and continuing employment for a pre-defined period.

This includes the LTIP awards granted in 2021, 2022, and 2023 and, in respect of Andy Bird, the third tranche of his

co-investment award.

Directors’ Remuneration Report continued

Annual report and accounts 2023 Pearson plc 124

Governance

Note 4: Conditional shares subject to employment only means unvested shares, which are subject to a

holding period and continued employment. For Andy Bird this includes the first and second tranches of his

co-investment award.

Note 5: There have been no other changes in the interests of any Director between 31 December 2023 and 13

March 2024, being the latest practicable date prior to the publication of this report.

Chair, Deputy Chair and Senior Independent Director and

Non-Executive Director remuneration*

Remuneration in 2023

The remuneration paid to the Chair, Deputy Chair and Senior Independent Director and Non-

Executive Directors for the financial years ended 31 December 2023 and 31 December 2022 is set

out below.

Director

£000s

2023 2022

Total fees

Taxable

benefits Total Total fees Taxable benefits Total

Omid Kordestani 500 34 534 417 19 436

Tim Score 175 5 180 163 3 166

Sherry Coutu CBE 106 11 116 100 5 105

Alison Dolan 47 - 47 – – –

Alex Hardiman 45 8 54 – – –

Esther Lee 88 16 104 78 7 85

Linda Lorimer 33 15 48 100 9 109

Graeme Pitkethly 105 5 110 98 4 102

Annette Thomas 101 12 113 90 6 97

Lincoln Wallen 93 15 108 93 6 99

Total 1,294 121 1,415 1,139 59 1,198

Note 1: A minimum of 25% of the Chair, Deputy Chair and Senior Independent Director and Non-Executive

Directors’ basic fee is paid in shares.

Note 2: Taxable benefits refer to travel, accommodation and subsistence expenses incurred while attending

Board meetings during the period that were paid or reimbursed by the company, and which HMRC deems taxable

in the UK.

Note 3: Omid Kordestani joined the Pearson Board with effect from 1 March 2022. He became Chair on

29 April 2022.

Note 4: Alison Dolan and Alex Hardiman joined the Pearson Board with effect from 1 June 2023.

Note 5: Linda Lorimer stepped down from the Pearson Board on 28 April 2023.

Note 6: Some figures and subtotals add up to different amounts than the totals due to rounding.

Service contracts

Terms and conditions of our Directors’ appointment are available for inspection at our registered

office during normal business hours and at the AGM. So that appropriate arrangements can be

made for shareholders wishing to inspect documents, we request that shareholders contact the

Company Secretary by email at companysecretary@pearson.com in advance of any visit to ensure

that access can be arranged.

The Executive Directors have notice periods in their service contracts of 12 months from the

company and six months from the Executives.

The Deputy Chair and Senior Independent Director and Non-Executive Directors serve Pearson

under letters of appointment, which are renewed annually and do not have service contracts. The

Deputy Chair and Senior Independent Director and Non-Executive Directors’ letters of appointment

do not contain provision for notice periods or for compensation if their appointments are

terminated. The Chair’s appointment may be terminated on 12 months’ notice.

Executive Directors’ Non-Executive directorships

Our current Executive Directors hold the following external commitments: Omar Abbosh is a Non-

Executive Director of Zuora Inc. and Sally Johnson is a Non-Executive Director of Rentokil Initial plc

and Chair of its Audit Committee.

Annual report and accounts 2023 Pearson plc 125

Governance

John Fallon Andy Bird

2014 2015 2016 2017 2018 2019 2020 2020 2021 2022 2023

Total

remuneration

(single figure,

£000s) 1,895 1,263 1,518 1,758 3,094 1,616 855 334 5,167 6,856 11,269

Annual

incentive (%

of maximum) 51% Nil 24% 44% 45% Nil Nil N/A 63% 76% 85%

Long-term

incentive (%

of maximum) Nil Nil Nil Nil 42% 33% Nil N/A N/A N/A 85%

Note 1: Total remuneration is as reflected in the single total figure of remuneration table. The 2021, 2022,

and 2023 figures for Andy Bird include vesting of the first, second, and third tranches of the co-investment

award, respectively.

Note 2: Annual incentive is the actual annual incentive received by the incumbent as a percentage of

maximum opportunity.

Note 3: Long-term incentive is the payout of performance-related share awards where the year shown is the final

year of the performance period for the purposes of calculating the single total figure of remuneration.

Note 4: The single figure remuneration for Andy Bird in 2022 and 2023 have been converted using a USD:GBP

exchange rate of 1.24 (average exchange rate for 2022) and 1.25 (average exchange rate for 2023).

Source: Refinitiv Datastream

Historical performance and remuneration

Total shareholder return performance

Set out below is Pearson’s total shareholder return (TSR) performance, relative to the FTSE

All-Share index, on an annual basis over the 10-year period 1 January 2014 to 31 December 2023.

We chose this comparison because the FTSE All-Share represents the broad market index within

which Pearson shares are traded. TSR is a measure of returns a company provides for shareholders,

reflecting share price movements and assuming reinvestment of dividends.

Alongside this a summary of the single figure of total remuneration for the Chief Executive over the

last 10 years is provided, and a summary of the variable pay outcomes relative to the prevailing

maximum at the time.

Directors’ remuneration report continued

100

120

140

160

180

Pearson TSR FTSE All Share TSR

20232013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual report and accounts 2023 Pearson plc 126

Governance

Comparative information

The following information provides additional context regarding Directors’ total remuneration.

Relative percentage change in remuneration of Directors and employees

The following table sets out the year-on-year percentage change in base salary/fees, allowances and benefits and annual incentives in respect of all Directors during the year, compared to the average

percentage change for all employees of Pearson. The figures for all Directors are calculated based on remuneration received in the relevant year as set out in the tables on page 119 and page 125. For base

salary/fees, we have annualised part-year figures for this disclosure. Part-year allowances and benefits are not annualised and are excluded from the table.

While the Committee reviews base pay for the Executive Directors relative to Pearson’s broader employee population, local practices drive our approach to benefits, and we determine eligibility depending on

level and individual circumstances, which do not lend themselves to comparison.

2023 2022 2021 2020

Base

salary/fees

Allowances

and benefits

Annual

Incentives

Base

salary/fees

Allowances

and benefits

Annual

Incentives

Base

salary/fees

Allowances

and benefits

Annual

Incentives

Base

salary/fees

Allowances

and benefits

Annual

Incentives

Average employee

2% 6% 22% 4% 8% 16% 4% 17% 38% 1% 6% 9%

Executive Directors

Andy Bird 3% 4% 74% 0% 20% 21% 0% – – – – –

Sally Johnson 4% 1% 37% 2.5% 0% 24% 1% – – – – –

Chair and Non-Executive Directors

Omid Kordestani 0% 78% – – – – – – – – – –

Tim Score 7% 73% – 25%

– – 13% – – 0% -20% –

Sherry Coutu CBE 6% 119% – 9% – – 5% – – 5% – –

Alison Dolan – – – – – – – – –

Alex Hardiman – – – – – – – – –

Esther Lee 3% 122% – – – – – – – – – –

Linda Lorimer 3% 66% – 0% – – 1% – – 1% 102% –

Graeme Pitkethly 8% 23% – 5% – – 1% – – 8% – –

Annette Thomas 12% 102% – 7% – – – – – – – –

Lincoln Wallen 0% 154% – 0% – – 1% – – 1% -97% –

Note 1: The average employee pay figure is impacted by changes in headcount (18,360 employees for 2023 vs 20,438 in 2022). Actual merit increase budgets for 2023 were 4% in the UK and 3.5% in the US.

Note 2: Changes in NED fees during the year are a result of changes in Committee Chairs and membership. Allowances and benefits for the Chair and Non-Executive Directors refer to travel, accommodation and subsistence expenses

incurred while attending Board meetings that were paid or reimbursed by the company, and which HMRC deems taxable in the UK. In 2020 and 2021 the impact of the coronavirus pandemic meant that there were very few in person

Board meetings, and as such the benefits figures for these years were negligible. This also meant that for 2022 there is no comparative percentage, as the value in the prior year was zero.

Note 3: Increase due to Tim Score taking over as Deputy Chair in April 2022

Annual report and accounts 2023 Pearson plc 127

Governance

Relative importance of pay spend

The Committee considers Directors’ remuneration in the context

of the company’s allocation and disbursement of resources

to different stakeholders. Adjusted operating profit measures

Pearson’s ability to reinvest, and dividends are an important

element of our return to shareholders.

All figures in £ 2023 2022

Headline change

£ %

Adjusted operating profit

573 456 117 26%

Dividends 155 156 -1 -1%

Dividend per share 22.7p 21.5p 1.2p 6%

Share buybacks

186 353 -167 -47%

Total wages and salaries

1,252 1,382 -130 -9%

Note 1: Adjusted operating profit is as set out in the financial statements.

Note 2: The Board approved a £300m share buyback programme in

September 2023 with an extension of £200m announced 1 March 2024.

Note 3: Wages and salaries include continuing operations only and include

Directors. Average employee numbers for continuing operations for 2023

were 18,360 (2022:20,438 ), hence the year-on-year negative movement

in overall spend. Further details are set out in Note 5 to the financial

statements on page 170.

Chief Executive to employee pay ratio

The table below illustrates the ratio of Chief Executive to

employee pay for 2023. We use the single total figure of

remuneration (as disclosed on page 119), compared to the full-

time equivalent total reward of employees whose pay is ranked

at the 25

, 50

and 75

percentiles (as identified by the gender

pay gap methodology) in Great Britain’s (GB) workforce.

Year Method

Chief Executive pay ratio

25th

percentile

50th

percentile

75th

percentile

2023

B: Gender pay gap

methodology 304.0 209.9 148.5

2022

B: Gender pay gap

methodology 214.3 181.3 117.2

2021

B: Gender pay gap

methodology 150.1 145.0 88.4

2020

B: Gender pay gap

methodology 42.5 31.9 19.5

2019

B: Gender pay gap

methodology 65.9 47.2 36.0

— We used GB gender pay gap data from April 2023 to identify

employees at the 25

, 50

and 75

percentiles, and analysed

data for employees around each quartile figure to ensure

there were no anomalies

— Using the gender pay gap data to identify the employees

at each pay quartile gives a general representation of the

relevant employee population at the year end, and is the most

practicable methodology given the timing of the disclosure

and determination of remuneration outcomes for the

wider workforce.

— We compared total remuneration for each employee,

calculated with reference to 31 December 2023, compared to

the Chief Executive’s single figure (this was converted using a

USD:GBP exchange rate of 1.25 – the average exchange rate

for 2023).

— For the employees at each pay quartile, we calculated total

remuneration on a similar basis to the Chief Executive’s

single figure. We based base salary, pension and benefits on

full-year figures taken from payroll. Annual bonus figures are

based on the relevant manager recommendations and relate

to performance in 2022. None of the employees at the 25

or 75

percentile had share awards vesting in 2023.

— Total remuneration figures for the 25

, 50

and 75

percentile employees are: £37,066, £53,685 and £75,912. The

respective base salaries are: £33,280, £45,054 and £59,650.

— A significant proportion of the Chief Executive’s pay is linked

to performance and, in respect of the LTIP and co-investment

award, share price performance. Therefore, the Chief

Executive’s pay can vary significantly year-on-year, based on

company performance.

— The increase in this year’s pay ratio is a result of a higher

payout under the AIP for the Chief Executive (85% of

maximum compared to 76% of maximum last year) as well as

the vesting of the 2021 LTIP, which was the first LTIP award

granted to Andy Bird following his appointment as CEO

in 2021.

— The median pay ratio is consistent with our wider policies

on employee pay, reward and progression. The Committee

is focused on ensuring that remuneration for all Pearson

colleagues reflects our need to attract and retain the right

talent for our digital future.

Dilution and use of equity

We can use existing shares bought in the market, treasury shares

or newly issued shares, to satisfy awards under our various

share plans. For restricted stock awards under the LTIP, we

would expect to use market-purchased shares. There are limits

on the amount of new-issue equity we can use. In any rolling

10-year period, no more than 10% of Pearson equity will be

issued, or be capable of being issued, under all Pearson’s share

plans, and no more than 5% of Pearson equity will be issued,

or be capable of being issued, under Executive or discretionary

plans. The headroom available for all Pearson plans, Executive or

discretionary, and shares held in trust is as follows:

Headroom 2023

All Pearson plans 7.6%

Executive or discretionary plans 4.6%

Shares held in trust 4.7%

Directors’ Remuneration Report continued

Annual report and accounts 2023 Pearson plc 128

Governance

The Remuneration Committee in 2023

Role Name Title

Chair Sherry Coutu CBE Independent Non-Executive Director

Members Esther Lee Independent Non-Executive Director

Tim Score Deputy Chair and SID

Annette Thomas Independent Non-Executive Director

Internal attendees Omid Kordestani Chair

Andy Bird Chief Executive

Sally Johnson Chief Financial Officer

Ali Bebo Chief Human Resources Officer

Paul Christian Senior Vice President, Reward

Graeme Baldwin Company Secretary

External advisers Deloitte LLP (to September 2023)

Alvarez & Marsal (appointed in

October 2023)

Advisers to the Remuneration Committee

During most of 2023, the Remuneration Committee received independent advice from Deloitte LLP.

Deloitte LLP was appointed by the Committee in July 2017, following a competitive tender process.

It has advised the Committee on market trends and developments, incentive plan design and target

setting, investor engagement and other general executive remuneration matters. For provision of

these services in 2023, Deloitte LLP were paid fees of £131,500, based on time spent. During the

year, separate teams at Deloitte LLP also provided Pearson with certain tax and other advisory and

consultancy services. Deloitte LLP is a founding member of the Remuneration Consultants’ Group

and adheres to its Code of Conduct.

In the summer of 2023, the Committee undertook a formal tender process, the outcome of which

resulted in Alvarez & Marsal being appointed as the independent Remuneration Committee advisers

in October 2023. Alvarez & Marsal supplied the Committee with advice on current market trends

and developments, incentive plan design and target setting, investor engagement and other general

executive remuneration matters. For provision of these services in 2023, Alvarez & Marsal were

paid fees of £25,250, based on time spent. Alvarez & Marsal does not provide any other services to

Pearson. Alvarez & Marsal is a member of the Remuneration Consultants’ Group and adheres to its

Code of Conduct.

The Committee is satisfied that advice provided by both Deloitte LLP and Alvarez & Marsal was

objective and independent, and that the provision of other services in no way compromised its

independence. The Committee believes that the engagement partners and teams from both Deloitte

LLP and Alvarez & Marsal do not have any connections with Pearson or its Directors that may impair

its independence. The Committee reviewed the potential for conflicts of interest and believes there

are appropriate safeguards against such conflicts.

Terms of reference

The Committee’s full charter and terms of reference are available on the Governance page of our

website. A summary of the Committee’s responsibilities is below.

The terms of reference reflect the provisions of the 2018 Code.

Committee responsibilities

Determine and review policy

Determine and regularly review the remuneration policies for the Executive Directors, Presidents,

and other members of Pearson’s Executive Management who report directly to the Chief Executive.

These policies include base salary, annual and long-term incentives, pension arrangements, any

other benefits, and termination of employment. When setting remuneration policy, the Committee

considers remuneration practices and related policies for all employees

Shareholder engagement

Ensure Pearson engages with its shareholders and shareholder representative bodies on the

remuneration policy and its implementation

Review and approve implementation

Regularly review the implementation and operation of the remuneration policy, and approve the

individual remuneration and benefits packages of Pearson’s Executive Management team, including

Executive Directors

Approve performance-related plans

Approve the design of, and determine targets for, any performance-related pay plans operated by

the Group for Pearson’s Executive Management team, and approve total payments to be made

under such plans

Set termination arrangements

Advise and decide on general and specific remuneration arrangements in connection with the

termination of employment of Pearson’s Executive Management team, including Executive Directors

Determine Chair’s remuneration

Delegated responsibility for determining the Chair’s remuneration and benefits package

Appoint remuneration consultants

Appoint and set the terms of engagement for any remuneration consultants who advise the

Committee, and monitor the cost of such advice

Talent, retention, and gender pay gap

Review updates from management on talent, retention, and gender pay gap

Workforce remuneration

Have oversight of workforce remuneration, policies, and practice for the wider organisation

Annual report and accounts 2023 Pearson plc 129

Governance

Voting on remuneration resolutions

The following table summarises votes cast for remuneration resolutions:

Votes cast for

% of votes

cast for Votes cast against

% of votes

cast against

Votes

withheld

Directors’ Remuneration Policy (2023 AGM) 299,899,081 53.63% 259,251,476 46.37% 223,851

Annual report on Remuneration (2023 AGM) 484,017,430 86.85% 73,300,461 13.15% 2,056,516

Remuneration Committee meeting focus

during 2023

During the year the Committee undertook the following activities:

— Reviewed and approved annual and long-term performance

and payouts to Executive Directors and senior management

for 2022

— Reviewed and approved incentive arrangements for Pearson,

and how these will apply to Executive Directors and senior

management in 2023

— Approved the 2022 Directors’ Remuneration Report

— Engaged extensively with shareholders in advance of and following

the 2023 AGM to understand the views of shareholders in respect

of the 2023 Directors’ remuneration policy (further detail on this

was included in the Chair letter on page 108)

— Reviewed and considered all feedback received from shareholder

engagement exercises as part of the Committee’s discussions and

considered ongoing shareholder engagement strategy

— Determined remuneration arrangements for the appointment

of a new Chief Executive

— Approved remuneration arrangements in respect of Andy

Bird’s retirement

— Received updates on Pearson’s financial performance and

progress against strategic measures. Noted and reviewed the

status of in-flight incentives

— Received updates on pay and conditions across

Pearson, and took these into account when determining

executive remuneration

— Noted updates on corporate governance, including a review

of the 2023 AGM remuneration reporting season, and

anticipated areas of focus in 2024

— Reviewed Pearson’s UK gender and ethnicity pay gap

disclosures and noted actions to address the respective gaps

— Noted the activity of the Standing Committee on operating

Pearson’s equity-based reward programmes and noted

Pearson’s use of equity for employee share plans

— Undertook a formal competitive tender process to select an

independent adviser to the Committee, the outcome of which

resulted in Alvarez & Marsal being appointed in October 2023

— Evaluated the Remuneration Committee and the Committee’s

Terms of Reference

Committee evaluation

Annually, the Committee reviews its performance, constitution,

charter, and terms of reference and recommends any changes

it considers necessary to the Board for approval. For 2023,

feedback relating to the Committee was sought from Directors

and certain other stakeholders as part of the wider Board

evaluation led by Manchester Square Partners.

Overall, the Committee was considered to be working well with

appropriate agendas, papers produced to a good standard and

high-quality discussions. There was acknowledgment of the

challenges faced by the Committee in 2023 in respect of its work

relating to the new Directors' Remuneration Policy, in needing

remuneration arrangements that act as an attraction, retention,

and incentivisation tool for global talent (particularly in the US

where North America represents the majority of our business),

whilst being sensitive to the views of our diverse shareholder

base. The Committee was deemed to have managed these

issues with a high level of rigour and balance, including extensive

engagement with shareholders, and ensuring an appropriate

level of focus on the metrics and KPIs that would incentivise the

delivery of the Company’s strategy.

In 2024, the Committee will continue to focus on ensuring

remuneration arrangements for senior management and the

wider workforce continue to support the attraction and retention

of key talent as well as the delivery of Pearson’s strategy. The

Committee continually assesses how its activities support and

enable Pearson’s progress.

The Directors’ remuneration report has been approved by the

Board on 13 March 2024 and signed on its behalf by:

Sherry Coutu, CBE

Chair of Remuneration Committee

Directors’ Remuneration Report continued

Annual report and accounts 2023 Pearson plc 130

Governance

Additional disclosures

Pages 66-136 of this document comprise the Directors’ report for

the year ended 31 December 2023.

Set out below is other statutory and regulatory information that

Pearson is required to disclose in its Directors’ report.

Going Concern

The Directors have confirmed that there are no material

uncertainties that cast doubt on the Group’s going concern

status and that they have a reasonable expectation that the

Group has adequate resources to continue in operational

existence beyond 30June 2025. The consolidated financial

statements have therefore been prepared on a going

concern basis.

Further details on the procedures undertaken may be found on

page160.

Viability statement

The Board assessed the prospects of the company using the

company’s long-range plan. Viability was assessed by considering

downside scenarios. Basedon the result of these procedures

and considering the company’s strong balance sheet, the

Directors have a reasonable expectation that Pearson will be

able to continue in operation and to meet its liabilities as they fall

due over the five-year period ending 31 December 2028. Further

details may be found on page 65.

Share capital

Details of share issues and cancellations are given in note 27 to

the financial statements on page 198. The company has a single

class of shares which is divided into ordinary shares of 25p each.

The ordinary shares are in registered form. As at 31 December

2023, 697,298,680 ordinary shares were in issue. At the AGM

held on 28 April 2023, the company was authorised, subject to

certain conditions, to acquire up to 71,612,324 ordinary shares

by market purchase and to issue up to 477,415,494 ordinary

shares. Shareholders will be asked to renew these authorities,

subject to revised caps, at the AGM on 26 April 2024.

As at 8 March 2024, 2,381 record holders with registered

addresses in the United States held 29,631,529 ADRs which

represented 4.32% of the company’s outstanding ordinary

shares. Some of these ADRs are held by nominees and so these

numbers may not accurately represent the number of shares

beneficially owned in the United States.

Share buyback

On 28 April 2023, the company announced its intention to

commence a share buyback programme during 2023, which was

subsequently launched on 21 September 2023 and completed

on 7 March 2024. Under the programme, approximately 32m

shares were bought back and cancelled at a cost of £300m.

The nominal value of these shares, approximately £8m, was

transferred to the capital redemption reserve.

On 1 March 2024, the company announced its intention to

launch a £200m share buyback programme during 2024, which

commenced on 8 March 2024 and is anticipated to end on or

before 8 August 2024. The repurchased shares will be cancelled

and the nominal value of the shares will be transferred to the

capital redemption reserve.

The Board believes that the company’s strategic priorities,

combined with the disciplined approach to capital allocation,

will enable Pearson to create sustainable, long-term value for

every stakeholder.

We have set out clear capital allocation priorities as follows:

— Maintaining a strong balance sheet and solid investment-

grade credit ratings through an appropriate capital structure

— Focused and disciplined approach to investing in the business

to accelerate growth opportunities

— Delivering shareholder returns through a progressive and

sustainable dividend policy

— Returning surplus cash to shareholders as and when

appropriate through buybacks or special dividends

Major shareholders

Information provided to the company pursuant to the Financial

Conduct Authority’s Disclosure Guidance and Transparency Rules

(DTR) is published on a Regulatory Information Service and on

the company’s website.

As at 31 December 2023, the company had been notified under

DTR 5 of the following holders of significant voting rights in its

shares.

Number

of voting rights

Percentage

as at date of

notification

Cevian Capital II GP Limited 85,202,977 12.02%

BlackRock, Inc.

69,580,016 9.69%

Ameriprise Financial, Inc. and

its group 41,236,375 5.02%

Silchester International Investors

LLP

36,341,993 <5%

Artemis Investment

Management LLP 35,207,368 5%

Libyan Investment Authority

24,431,000 3.01%

1. Includes 10,034,738 (1.38%) qualifying financial instruments to which voting rights

are attached.

2. Investor has dropped below the reportable threshold, therefore they are no longer

required to disclose their holding under DTR 5.

3. Based on notification to the company dated 7 June 2010. We have not been notified

of any change to this holding since that date. Assets belonging to, or owned, held or

controlled on 16 September 2011 by the Libyan Investment Authority and located

outside Libya on that date, are frozen in accordance with The Libya (Sanctions) (EU

Exit) Regulations 2020.

Annual report and accounts 2023 Pearson plc 131

Governance

Additional disclosures continued

Annual general meeting

The notice convening the AGM, to be held at 10:30am on Friday,

26 April 2024 at 80 Strand, London WC2R 0RL, is contained in a

circular to shareholders to be dated 22 March 2024.

Registered auditors

In accordance with section 489 of the Companies Act 2006 (the

Act), a resolution proposing the re-appointment of Ernst & Young

LLP as auditors to the company will be proposed at the AGM, at a

level of remuneration to be agreed by the Audit Committee.

Amendment to Articles of Association

Any amendments to the Articles of Association of the company

(the Articles) may be made in accordance with the provisions of

the Act by way of a special resolution.

Rights attaching to shares

The rights attaching to the ordinary shares are defined in the

Articles. A shareholder whose name appears on the company’s

evidenced by share certificates (i.e. in certificated form) or held

electronically (i.e. uncertificated form) in CREST (the electronic

settlement system in the UK).

Subject to any restrictions below, shareholders may attend

any general meeting of the company and, on a show of hands,

every shareholder (or his/her representative) who is present at

a general meeting has one vote on each resolution and, on a

poll, every shareholder (whether an individual or a corporation)

present in person or by proxy shall have one vote for every

25p of nominal share capital held. A resolution put to the vote

at a general meeting held partly by means of electronic facility

or facilities shall, unless the chair of the meeting determines

that it shall be decided on a show of hands, be decided on a

poll. Subject to this, at any general meeting, a resolution put to

the vote at the meeting shall be decided on a show of hands,

unless before, or on the declaration of the result of, a vote on a

show of hands, a poll is demanded. A poll can be demanded by

the chair of the meeting, or by at least three shareholders (or

their representatives) present in person and having the right to

vote, or by any shareholders (or their representatives) present

in person having at least 10% of the total voting rights of all

shareholders, or by any shareholders (or their representatives)

present in person holding ordinary shares on which an aggregate

sum has been paid up of at least 10% of the total sum paid up

on all ordinary shares. At this year’s AGM, voting will again be

conducted on a poll, consistent with best practice.

Shareholders can declare a final dividend by passing an ordinary

resolution but the amount of the dividend cannot exceed

the amount recommended by the Board. The Board can pay

interim dividends on any class of shares of the amounts and

on the dates and for the periods they decide. In all cases, the

distributable profits of the company must be sufficient to justify

the payment of the relevant dividend.

The Board may, if authorised by an ordinary resolution of the

shareholders, offer any shareholder the right to elect to receive

new ordinary shares, which will be credited as fully paid, instead

of their cash dividend.

Any dividend which has not been claimed for eight years after it

became due for payment will be forfeited and will then belong to

the company, unless the Directors decide otherwise.

If the company is wound up, the liquidator can, with the sanction

of a special resolution passed by the shareholders, divide among

the shareholders in specie all or any part of the assets of the

company and can value assets and determine how the division

shall be carried out as between the shareholders or different

classes of shareholders.

The liquidator can also, with the same sanction, transfer the

whole or any part of the assets to trustees upon such trusts for

the benefit of the shareholders.

Voting at general meetings

Any form of proxy sent by the shareholders to the company

in relation to any general meeting must be delivered to the

company (via its registrars), whether in written or electronic form,

not less than 48 hours before the time appointed for holding the

meeting or adjourned meeting at which the person named in the

appointment proposes to vote.

The Board may decide that a shareholder is not entitled to

attend or vote either personally or by proxy at a general meeting

or to exercise any other right conferred by being a shareholder

if they or any person with an interest in shares has been sent a

notice under section 793 of the Act (which confers upon public

companies the power to require information with respect to

interests in their voting shares) and they or any interested

person failed to supply the company with the information

requested within 14 days after delivery of that notice.

The Board may also decide, where the relevant shareholding

comprises at least 0.25% of the nominal value of the issued

shares of that class, that no dividend is payable in respect of

those default shares and that no transfer of any default shares

shall be registered unless the shareholder is not themself in

default as regards supplying the information requested and the

transfer, when presented for registration, is accompanied by a

certificate from the shareholder in such form as the Board of

Directors may require to the effect that after due and careful

inquiry, the shareholder is satisfied that no person in default

is interested in any of the ordinary shares which are being

transferred, or the transfer is an approved transfer as defined in

the Articles, or the registration of the transfer is required by the

Uncertificated Securities Regulations 2001.

Pearson operates an employee benefit trust to hold shares,

pending employees becoming entitled to them under the

company’s employee share plans. There were 2,160,045 shares

held as at 31 December 2023. The trust has an independent

trustee which has full discretion in relation to the voting of

such shares. A dividend waiver operates on the shares held

in the trust.

Pearson also operates nominee shareholding arrangements

which hold shares on behalf of employees. As at 31 December

2023, there were 2,214,425 shares held in the Sharestore

account administered by Equiniti Limited (Equiniti). The beneficial

owners of shares held in Sharestore are invited to submit voting

instructions online at www.shareview.co.uk. If no instructions are

given by the beneficial owner by the date specified, the trustees

holding these shares will not exercise the voting rights.

As at 31 December 2023, there were 2,949,951 shares held

in the Computershare Share Plan Account (SPA), which

is administered by Computershare Investor Services plc

(Computershare). Beneficial holders of shares held in the

Computershare Share Plan Account (SPA) are invited to

submit voting instructions online at www.equateplus.com. If

no instructions are given by the beneficial owner by the date

specified, the nominee holding these shares will not exercise the

voting rights.

Annual report and accounts 2023 Pearson plc 132

Governance

Transfer of shares

The Board may refuse to register a transfer of a certificated

share which is not fully paid, provided that the refusal does not

prevent dealings in shares in the company from taking place on

an open and proper basis. The Board may also refuse to register

a transfer of a certificated share unless: (i) the instrument of

transfer is lodged, duly stamped (if stampable) or duly certified or

otherwise shown to the satisfaction of the Board to be exempt

from stamp duty, at the registered office of the company or

any other place decided by the Board, and is accompanied by

the certificate for the share to which it relates and such other

evidence as the Board may reasonably require to show the right

of the transferor to make the transfer; (ii) it is in respect of only

one class of shares; and (iii) it is in favour of not more than

four transferees.

Transfers of uncertificated shares must be carried out using

CREST and the Board can refuse to register a transfer of an

uncertificated share in accordance with the regulations governing

the operation of CREST.

Variation of rights

If at any time the capital of the company is divided into different

classes of shares, the special rights attaching to any class may be

varied or revoked either:

(i) with the written consent of the holders of at least 75% in

nominal value of the issued shares of the relevant class or

(ii) with the sanction of a special resolution passed at a

separate general meeting of the holders of the shares of the

relevant class.

Without prejudice to any special rights previously conferred on

the holders of any existing shares or class of shares, any share

may be issued with such preferred, deferred or other special

rights, or such restrictions, whether in regard to dividend, voting,

return of capital or otherwise as the company may from time to

time by ordinary resolution determine.

Appointment and replacement

of Directors

The Articles contain the following provisions in relation

to Directors.

Directors shall be no less than two in number. Directors may be

appointed by the company by ordinary resolution or by

the Board.

A Director appointed by the Board shall hold office only until the

next AGM and shall then be eligible for re-appointment.

The Board may from time to time appoint one or more Directors

to hold Executive office with the company for such period

(subject to the provisions of the Act) and upon such terms as the

Board may decide and may revoke or terminate any appointment

so made.

The Articles provide that, at every AGM of the company, every

Director shall retire from office and, unless not willing to act, be

eligible for re-appointment.

If a Director is not re-appointed, they shall, subject to the Articles,

retain office until the meeting appoints someone in their place,

or, if it does not do so, until the end of the meeting, or, if the

meeting is adjourned, the end of the adjourned meeting. Where

a Director has been appointed after notice of the annual general

meeting has been given, that Director shall retire at the next

annual general meeting of which notice is first given after his or

her appointment as Director.

If there is an insufficient number of appointed or re-appointed

Directors at any of the company’s annual general meetings

thus rendering the Board inquorate, all Directors shall be

automatically re-appointed only for the purposes of filling

vacancies and convening general meetings of the company

and to perform such duties as are appropriate to maintain the

company as a going concern and to enable it to comply with its

legal and regulatory obligations. The Directors are required to

convene a further general meeting of the company as soon as

reasonably practicable to allow new Directors to be appointed,

and such Directors who were not appointed at the original

general meeting shall subsequently retire.

The company may by ordinary resolution remove any Director

before the expiration of their term of office. In addition, the

Board may terminate an agreement or arrangement with any

Director for the provision of their services to the company.

Powers of the Directors

Subject to the Articles, the Act and any directions given by special

resolution, the business of the company will be managed by the

Board who may exercise all the powers of the company, including

powers relating to the issue and/or buying back of shares by the

company (subject to authorisation, and any statutory restrictions

or restrictions imposed by shareholders in a general meeting).

Directors’ indemnities

A qualifying third-party indemnity (QTPI), as permitted by the

Articles and sections 232 and 234 of the Act, has been granted

by the company to each of its Directors. Under the provisions of

the QTPI, the company undertakes to indemnify each Director

against liability to third parties (excluding criminal and regulatory

penalties) and to pay Directors’ costs as incurred, provided that

they are reimbursed to the company if the Director is found

guilty, the court refuses to grant the relief sought or, in an action

brought by the company, judgement is given against the Director.

The indemnity has been in force for the financial year ended

31 December 2023 and is currently in force. The company has

purchased and maintains Directors’ and Officers’ insurance cover

against certain legal liabilities and costs for claims in connection

with any act or omission by such Directors and Officers in the

execution of their duties.

Annual report and accounts 2023 Pearson plc 133

Governance

Additional disclosures continued

Significant agreements

The following significant agreements contain provisions entitling

the counterparties to exercise termination or other rights in the

event of a change of control of the company.

As at 31 December 2023, the Group’s principal bank facility, the

$1bn Revolving Credit Facility (RCF) agreement, allowed that upon

a change of control of the company, any participating bank may

require its outstanding advances, together with accrued interest

and any other amounts payable in respect of such facility,

and its commitments, to be cancelled, each within 60 days of

notification to the banks by the agent. The facility was undrawn

at year end. The Group’s outstanding fixed rate notes (see note

18 Borrowings for more information) also contain a provision

requiring that, in the event of a change of control which leads to

a downgrade in credit rating below Baa3 (Moody’s) or BBB- (Fitch

Ratings), the company is required to make an offer to investors to

repurchase outstanding instruments at par plus accrued interest,

which investors are not obliged to accept.

For these purposes, a ‘change of control’ occurs if the company

becomes a subsidiary of any other company, or one or more

persons acting either individually or in concert obtains control (as

defined in section 1124 of the Corporation Tax Act 2010) of the

company.

Shares acquired through the company’s employee share plans

rank pari passu with shares in issue and have no special rights.

For legal and practical reasons, the rules of these plans set out

the consequences of a change of control of the company.

Other statutory information

Other information that is required by the Act and by the Large

and Medium-sized Companies and Groups (Accounts and

Reports) Regulations 2008 (as amended) to be included in the

Directors’ report, and which is incorporated by reference, can be

located as follows:

Summary disclosures index See more

Dividend recommendation Page 33

Financial instruments and financial risk

management

Page 186

Important events since year end Page 206

Future development of the business Pages 6-7

Research and development activities Page 22

Employment of disabled persons Page 41

Employee involvement Page 39

Greenhouse gas emissions and energy

consumption data

Page 52

Statement describing employee engagement Page 20

Statement describing regard to suppliers,

customers and other stakeholders’ interests

Page 21

With the exception of the dividend waiver described on page 132

there is no information to be disclosed in accordance with Listing

Rule 9.8.4.

No political donations or contributions were made or

expenditure incurred by the company or its subsidiaries during

the year.

Our disclosures are consistent with the recommendations of the

Task Force on Climate-related Financial Disclosures (TCFD) and

are set out on pages 44-48.

Fair, balanced and understandable

reporting and disclosure of information

As required by the UK Corporate Governance Code, we have

established arrangements to ensure that all information

we report to investors and regulators is fair, balanced and

understandable. In making its assessment, the Board pays

particular attention to a set of criteria recommended by the

Financial Reporting Council, including the use of straightforward

language, focus on content that is important to investors, and

exclusion of irrelevant information.

A process and timetable for the production and approval of

this year’s annual report and accounts was agreed by the

Board at its meeting in December 2023. The full Board then

had the opportunity to review and comment on the report as it

progressed.

The Audit Committee is available to advise the Board on certain

aspects of the annual report and accounts, to enable the

Directors to fulfil their responsibility in this regard. In particular,

for 2023, the Audit Committee considered a report evidencing

how the fair, balanced and understandable criteria were satisfied

throughout the annual report and accounts.

Following their review, and taking into account a recommendation

by the Audit Committee, the Directors consider that the annual

report and accounts, taken as a whole, are fair, balanced and

understandable and provide the information necessary for

shareholders to assess the company’s position, performance,

business model and strategy.

Representatives from Financial Reporting, Strategy, Investor

Relations, Corporate Affairs, Sustainability, Company Secretarial,

Legal, Internal Audit, Risk, HR and Reward teams are involved

in the preparation and review of the annual report to ensure a

cohesive and balanced approach and, as with all of our financial

reporting, a thorough verification of narrative and financial

statements is conducted. We also have procedures in place to

ensure the timely release of inside information, through our

Market Disclosure Committee.

Annual report and accounts 2023 Pearson plc 134

Governance

The Directors also confirm that, for each Director in office at the

date of this report:

— so far as the Director is aware, there is no relevant audit

information of which the Group and company’s auditors

are unaware

— they have taken all the steps that they ought to have taken

as Directors to make themselves aware of any relevant

audit information and to establish that the Group and the

company’s auditors are aware of that information

Streamlined Energy and Carbon

Reporting (SECR)

In line with the requirements set out in the UK Government’s

guidance on Streamlined Energy and Carbon Reporting, the

following data points representing Pearson’s energy use and

associated GHG emissions from electricity and fuel, can be found

on page 52 in the Sustainability section of this report:

— Annual global GHG emissions from activities for which the

company is responsible, including combustion of fuel and

operation of any facility, and the annual emissions from the

purchase of electricity, heat, steam or cooling by the company

for its own use

— Underlying global energy use

— Energy use and GHG emissions figures from previous year

— Emissions intensity ratio

— Energy efficiency measures taken throughout the year

Our performance metrics have been calculated with reference

to the Greenhouse Gas Protocol, and externally verified. The

external verification statement can be found here: https://plc.

pearson.com/en-GB/sustainability/our-esg-reporting.

Directors in office

The following Directors were in office during the year and up to

the date of approval of these financial statements:

O P Abbosh – appointed on 8

January 2024

E S Lee

A P Bird – resigned on 7 January

2024

LK Lorimer – retired on 28

April 2023

S L Coutu G D Pitkethly

A Dolan – appointed on 1 June

2023

T Score

A Hardiman – appointed on 1

June 2023

A C Thomas

S K M Johnson L A Wallen

O Kordestani

The Directors’ report has been approved by the Board on

13 March 2024 and signed on its behalf by:

Graeme Baldwin Company Secretary

Annual report and accounts 2023 Pearson plc 135

Governance

Statement of Directors’ responsibilities

The Directors are responsible for preparing the annual report

and accounts and the financial statements in accordance with

applicable law and regulation.

Company law requires the Directors to prepare financial

statements for each financial year. Under that law, the Directors

have prepared the Group and company financial statements in

accordance with UK-adopted international accounting standards.

In preparing the Group and company financial statements, the

Directors have also elected to comply with IFRS Accounting

Standards as issued by the International Accounting Standards

Board (IFRS Accounting Standards as issued by IASB).

Under company law, the Directors must not approve the financial

statements unless they are satisfied that they give a true and

fair view of the state of affairs of the Group and company and of

the profit or loss of the Group for that period. In preparing the

financial statements, the Directors are required to:

— Select suitable accounting policies and then apply

them consistently.

— State whether applicable UK-adopted international accounting

standards and IFRS Accounting Standards as issued by IASB

have been followed, subject to any material departures

disclosed and explained in the financial statements.

— Make judgements and accounting estimates that are

reasonable and prudent.

— Prepare the financial statements on the going concern basis

unless it is inappropriate to presume that the Group and

company will continue in business.

The Directors are responsible for safeguarding the assets of the

Group and company and hence for taking reasonable steps for

the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Group and

company’s transactions, and disclose with reasonable accuracy

at any time the financial position of the Group and company and

enable them to ensure that the financial statements and the

Directors’ remuneration report comply with the Companies

Act 2006.

The Directors are responsible for the maintenance and integrity

of the company’s website. Legislation in the United Kingdom

governing the preparation and dissemination of financial

statements may differ from legislation in other jurisdictions.

Directors’ confirmations

Each of the Directors, whose names and functions are listed

in the Governance report, confirms that, to the best of

their knowledge:

— The Group and company financial statements, which have

been prepared in accordance with UK-adopted international

accounting standards and IFRS Accounting Standards as

issued by IASB, give a true and fair view of the assets, liabilities

and financial position of the Group and company, and of the

profit of the Group.

— The Strategic report includes a fair review of the development

and performance of the business and the position of the

Group and company, together with a description of the

principal risks and uncertainties that it faces.

This responsibility statement has been approved by the Board on

13March 2024 and signed on its behalf by:

Sally Johnson Chief Financial Officer

Statement of Directors’ responsibilities in respect of the financial statements

Annual report and accounts 2023 Pearson plc 136

Financial statements

Independent Auditor’s Report to the members of Pearson plc

Opinion

In our opinion:

— Pearson plc’s group financial statements and parent company

financial statements (the “financial statements”) give a true

and fair view of the state of the group’s and of the parent

company’s affairs as at 31 December 2023 and of the group’s

profit for the year then ended;

— the group financial statements have been properly prepared

in accordance with UK adopted international accounting

standards and IFRS accounting standards as issued by the

International Accounting Standards Board (IASB);

— the parent company financial statements have been properly

prepared in accordance with UK adopted international

accounting standards and IFRS accounting standards as

issued by the International Accounting Standards Board (IASB)

as applied in accordance with section 408 of the Companies

Act 2006; and

— the financial statements have been prepared in accordance

with the requirements of the Companies Act 2006.

We have audited the financial statements of Pearson plc (the

‘parent company’) and its subsidiaries (the ‘group’) for the year

ended 31 December 2023 which comprise:

Group Parent company

Consolidated income

statement for the year ended

31 December 2023

Balance sheet as at 31

December 2023

Consolidated statement of

comprehensive income for the

year ended 31 December 2023

Statement of changes in

equity for the year ended 31

December 2023

Consolidated balance sheet as

at 31 December 2023

Cash flow statement for the

year ended 31 December 2023

Consolidated statement of

changes in equity for the year

ended 31 December 2023

Related notes 1 to 11 to the

financial statements, including

material accounting policy

information

Consolidated cash flow

statement for the year ended

31 December 2023

Related notes 1 to 38 to

the financial statements,

including material accounting

policy information

The financial reporting framework that has been applied in

their preparation is applicable law, UK adopted international

accounting standards and IFRS accounting standards as issued

by the IASB and as regards the parent company financial

statements, as applied in accordance with section 408 of the

Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our

responsibilities under those standards are further described

in the Auditor’s responsibilities for the audit of the financial

statements section of our report. We believe that the audit

evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

Independence

We are independent of the group and parent in accordance

with the ethical requirements that are relevant to our audit of

the financial statements in the UK, including the FRC’s Ethical

Standard as applied to listed public interest entities, and we

have fulfilled our other ethical responsibilities in accordance with

these requirements.

The non-audit services prohibited by the FRC’s Ethical Standard

were not provided to the group or the parent company and we

remain independent of the group and the parent company in

conducting the audit.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that

the directors’ use of the going concern basis of accounting in

the preparation of the financial statements is appropriate. Our

evaluation of the directors’ assessment of the group and parent

company’s ability to continue to adopt the going concern basis of

accounting included:

— In conjunction with our walkthrough of the Group’s financial

statement close process, we confirmed our understanding

of management’s going concern assessment process to

understand and challenge the key assumptions made

in their assessment.

— We assessed the appropriateness of the duration of the

going concern assessment period to 30 June 2025 and

considered the existence of any significant events or

conditions beyond this period based on our procedures

on the Group’s long-range plan and knowledge arising from

other areas of the audit.

— We agreed the 31 December 2023 cash and debt balances

included in the going concern assessment to the Group’s year

end balances.

— We read the group’s debt agreements to confirm availability

and to understand the covenant requirements and

reperformed management’s covenant compliance test to

check that no covenants have been breached during the year

to 31 December 2023. We have also tested management’s

forecast covenant compliance test to check that there is no

forecast covenant breach in either the base or severe but

plausible downside case scenarios during the going concern

assessment period covering the period to 30 June 2025.

— For debt amounts that are repayable within the going concern

assessment period we have understood the assumptions that

management has made in respect of refinancing.

— We checked the logic and arithmetical integrity of

management’s going concern model that includes the cash

forecasts for the going concern assessment period to

30 June 2025.

— We challenged the appropriateness of the assumptions used

to calculate the cash forecasts under base and plausible

downside case scenarios, including whether the downside

scenarios were sufficiently severe, by reference to historical

forecasting accuracy and comparison to sector benchmarks

and other evidence obtained during the audit, such as

audit procedures on the long range plans which underpin

management’s goodwill impairment assessments.

— We evaluated the key assumptions by searching for contrary

evidence to challenge these assumptions, including third

party sector forecasts and analyst expectations. Further, we

validated that these assumptions were consistent with the

budget approved by Pearson’s Board.

— We considered the mitigating actions that are within the

control of the Group and evaluated the Group’s ability to

control these outflows if required.

Annual report and accounts 2023 Pearson plc 137

Financial statements

Independent Auditor’s Report continued

— We considered the Group’s reverse stress testing to identify

the magnitude of decline in revenue and operating profit that

would lead to the Group utilising all liquidity or breaching a

covenant during the going concern assessment period and

we have challenged the likelihood of such a decline.

— We reviewed the Group’s going concern disclosures included

in the Annual Report, in note 1(b) to the financial statements,

to assess that they were accurate and in conformity with the

reporting standards.

We observe that in management’s base case and severe but

plausible downside scenarios, there is headroom without taking

the benefit of any identified mitigations.

Based on the work we have performed, we have not identified

any material uncertainties relating to events or conditions

that, individually or collectively, may cast significant doubt on

the group and parent company’s ability to continue as a going

concern for a period to 30 June 2025.

In relation to the group and parent company’s reporting on how

they have applied the UK Corporate Governance Code, we have

nothing material to add or draw attention to in relation to the

directors’ statement in the financial statements about whether

the directors considered it appropriate to adopt the going

concern basis of accounting.

Our responsibilities and the responsibilities of the directors

with respect to going concern are described in the relevant

sections of this report. However, because not all future events or

conditions can be predicted, this statement is not a guarantee as

to the group’s ability to continue as a going concern.

Overview of our audit approach

Audit scope — We performed an audit of the

complete financial information of 5

components and audit procedures

on specific balances for a further 6

components. We also performed

specified audit procedures on specific

balances for a further 2 components.

— The components where we performed

full or specific audit procedures

accounted for 82% of adjusted Profit

before tax, 83% of Revenue and 89%

of Total assets.

Key audit matters — Fraud risks in revenue recognition

— Valuation of acquired intangible assets

— Uncertain tax provision for EU State

Aid case

Materiality — Overall group materiality of £24.6m

which represents 5% of adjusted Profit

before tax.

An overview of the scope of the parent

company and group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and

our allocation of performance materiality determine our audit

scope for each company within the Group. Taken together,

this enables us to form an opinion on the consolidated

financial statements. We take into account size, risk profile,

the organisation of the group and effectiveness of group-wide

controls, changes in the business environment, the potential

impact of climate change and other factors such as recent

Internal Audit results when assessing the level of work to be

performed at each company.

The Group operates finance shared service centres in Belfast

and Manila, the outputs of which are included in the financial

information of the reporting components they service and

therefore they are not separate reporting components. Each

of the service centres is subject to specified risk-focused audit

procedures, predominantly the testing of transaction processing

and controls testing.

Additional procedures are performed at the scoped components

to address the audit risks not covered by the work performed

over the shared service centres, or where the scoped

components are not served by the shared service centres.

In assessing the risk of material misstatement to the Group

financial statements, and to ensure we had adequate

quantitative coverage of significant accounts in the financial

statements, of the 497 reporting components of the Group, we

selected 13 components covering entities within the UK, US and

Australia, which represent the principal business units within

the Group.

Of the 13 components selected, we performed an audit of the

complete financial information of 5 components (“full scope

components”) which were selected based on their size or risk

characteristics, including the parent company; Pearson plc. For 6

components (“specific scope components”), we performed audit

procedures on specific accounts within that component that

we considered had the potential for the greatest impact on the

significant accounts in the financial statements either because of

the size of these accounts or their risk profile.

For an additional 2 components (“specified procedures

components”), we performed certain audit procedures on

specific accounts within that component that we considered had

the potential for the greatest impact on the significant accounts

in the financial statements, either because of the size of these

accounts or their risk profile. These procedures were undertaken

by separate component audit teams under the primary audit

team’s direction.

The reporting components where we performed audit

procedures accounted for 82% (2022: 85%) of the Group’s

adjusted Profit before tax, 83% (2022: 89%) of the Group’s

Revenue and 89% (2022: 95%) of the Group’s Total assets. For

the current year, the full scope components contributed 56%

(2022: 71%) of the Group’s adjusted Profit before tax, 72%

(2022: 73%) of the Group’s Revenue and 83% (2022: 88%) of the

Group’s Total assets. The specific scope components contributed

25% (2022: 14%) of the Group’s adjusted Profit before tax, 11%

(2022:16%) of the Group’s Revenue and 6% (2022: 7%) of the

Group’s Total assets. The audit scope of these components

may not have included testing of all significant accounts of

the component but will have contributed to the coverage of

significant accounts tested for the Group. We also instructed 2

locations to perform specified procedures over certain balances,

including aspects of revenue recognition.

Annual report and accounts 2023 Pearson plc 138

Financial statements

Of the remaining 484 components that together represent 18%

of the Group’s adjusted Profit before tax, none are individually

greater than 3% of the Group’s adjusted Profit before tax. For

these components, we performed other procedures, including

testing certain management review controls, analytical review,

testing of consolidation journals and intercompany eliminations

to respond to any potential risks of material misstatement to the

Group financial statements.

Involvement with component teams

In establishing our overall approach to the Group audit, we

determined the type of work that needed to be undertaken

at each of the components by us, as the primary audit

engagement team, or by component auditors from other EY

global network firms operating under our instruction. The audit

procedures performed at the finance shared service centres

were performed by the primary team with assistance from the

Philippines member firm. Due to the financial shared service

environment described earlier, of the 5 full scope components,

audit procedures were performed on all of these directly by the

primary audit team, with assistance from our US component

team. Of the 6 specific scope components, audit procedures

were performed on 5 of these directly by the primary audit

team, with assistance from our US component team. For the

1 specific scope component, where the work was performed

by component auditors, we determined the appropriate level

of involvement to enable us to determine that sufficient audit

evidence had been obtained as a basis for our opinion on the

Group as a whole.

The Group audit team continued to follow a programme of

planned visits that has been designed to ensure that each full

or specific scope component was visited by either the Senior

Statutory Auditor, or other senior members of the Group

audit team. During the current year’s audit cycle, visits were

undertaken by the primary audit team to the component team in

the US and the Manila shared service centre team. These visits

involved discussing the audit approach with the component

team and any issues arising from their work, meeting with local

management, attending planning and progress meetings and

reviewing relevant audit working papers on risk areas.

The primary team interacted regularly with the component

teams where appropriate during various stages of the audit,

reviewed relevant working papers and were responsible for the

scope and direction of the audit process. Close meetings for

full, specific, and specified procedures components (excluding

those performed by the primary audit team) were held via video

conference in January and February 2024 and were attended

by the Senior Statutory Auditor and/or other members of the

primary audit team. This, together with the additional procedures

performed at Group level, gave us appropriate evidence for our

opinion on the Group financial statements.

Climate change

Stakeholders are increasingly interested in how climate change

will impact Pearson. The Group has determined that the

most significant future impacts from climate change on their

operations will be from physical risks in the medium and long

term. These are explained on pages 44-48 in the required Task

Force for Climate related Financial Disclosures. They have also

explained their climate commitments on pages 42-43. All of

these disclosures form part of the “Other information,” rather

than the audited financial statements. Our procedures on these

unaudited disclosures therefore consisted solely of considering

whether they are materially inconsistent with the financial

statements or our knowledge obtained in the course of the audit

or otherwise appear to be materially misstated, in line with our

responsibilities on “Other information”.

In planning and performing our audit we assessed the potential

impacts of climate change on the Group’s business and any

consequential material impact on its financial statements.

The Group has explained in the Basis of Preparation note the

key areas of the financial statements that may be impacted

by climate change and the Group concluded there is no

material financial statement impact from climate change.

These disclosures also explain where governmental and

societal responses to climate change risks are still developing,

and where the degree of certainty of these changes means

that they cannot be taken into account when determining

impairment assessments under the requirements of UK-

adopted International accounting standards and IFRS accounting

standards as issued by the International Accounting Standards

Board (IASB).

Our audit effort in considering the impact of climate change

on the financial statements was focused on evaluating

management’s assessment of the impact of physical and

transition climate risk, their climate commitments, the

effects of material climate risks disclosed on pages 45-46

and whether these have been appropriately reflected in

asset values where these are impacted by future cash flows

and associated sensitivity disclosures, this primarily being

impairment assessments following the requirements of UK-

adopted international accounting standards and IFRS accounting

standards as issued by the International Accounting Standards

Board (IASB). As part of this evaluation, we performed our own

risk assessment, supported by our climate change internal

specialists, to determine the risks of material misstatement in the

financial statements from climate change which needed to be

considered in our audit.

We also challenged the Directors’ considerations of climate

change risks in their assessment of going concern and viability

and associated disclosures. Where considerations of climate

change were relevant to our assessment of going concern, these

are described above.

Based on our work we have not identified the impact of climate

change on the financial statements to be a key audit matter or to

impact a key audit matter.

Annual report and accounts 2023 Pearson plc 139

Financial statements

Independent Auditor’s Report continued

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks

of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and

directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate

opinion on these matters.

Risk Our response to the risk

Key observations

communicated to the

Audit Committee

Fraud risk in revenue recognition (revenues

of £3,674 million, 2022 £3,841 million)

Refer to the Audit Committee’s Report (page 105);

Accounting policies (page 158; and note 3 of the

Consolidated Financial Statements (page 163)

Given revenue is a key performance indicator, both

in communication of the Group’s results and for

management incentives, we have identified a risk of

management override of controls through topside

manual journal entries to revenue.

We obtained an understanding of and evaluated the design and tested the operating effectiveness of controls over

the Group’s material revenue processes.

We performed testing over revenue recognition in 5 full scope components, 6 specific scope components and 2

specified procedures components.

The audit of topside manual journals included central testing of the consolidation and close-process adjustments,

testing any that had an entry against revenue and obtaining supporting evidence.

Where relevant, we have understood each significant revenue stream in each full, specific and specified procedure

location. Where a process is automated, we have performed testing over all manual journals recorded against

revenue. Where a process has more manual intervention, we performed testing during the year and placed

increased focus over testing manual adjustments at year end and obtained supporting evidence.

The testing was performed in combination by the component teams and the Group audit team.

Revenue for the year to 31

December 2023 has been

recognised appropriately and

based on our procedures

performed, we have not identified

any inappropriate revenue

journal entries.

Annual report and accounts 2023 Pearson plc 140

Financial statements

Risk Our response to the risk

Key observations

communicated to the

Audit Committee

Valuation of acquired intangible assets

(£117 million, 2022 £110 million)

Refer to the Audit Committee Report (page 105);

Accounting policies (page153); and Note 30 of the

Consolidated Financial Statements (page 201).

During the year, Pearson made one significant

acquisition: Personnel Decisions Research

Institutes, LLC (‘PDRI’) for cash consideration of

£152 million.

The valuation of acquired intangible assets

requires specialised skills since it involves

complex judgement due to the estimation

uncertainty and the application of valuation

techniques built, in part, on assumptions around

the future performance of the acquired business.

Changes in certain of these assumptions can have

a material effect on the valuation of acquired

intangible assets.

We focused our procedures on the most significant

elements of the valuation, namely the software as a

service (‘SaaS’) customer contracts and technology

intangible assets, with an aggregate value of £97

million. The most significant assumption that is

most sensitive for the valuation of these assets was

revenue growth rates.

Our audit of the fair values of the acquired intangible assets was performed by the Group audit team, with

specified procedures performed by a non-EY audit team over certain Prospective Financial Information (“PFI”) used

in the valuation model.

We reviewed the underlying sale and purchase agreements and tested the consideration for the acquisition.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the

Group’s process to identify and value intangible assets, including their use of an external valuation specialist.

We assessed the independence and expertise of management’s external valuation specialist.

We assessed the valuation methodologies applied by management, with the assistance of EY valuation specialists,

to validate that they were appropriate.

We focused our testing of the PFI included in the valuation calculation on the significant assumption that is most

sensitive to the valuation, namely revenue growth rates.

We challenged these assumptions by comparison to historical performance, underlying contractual terms and

corroborating the rationale for any future growth. We instructed a non-EY audit team to test details of revenue for

FY23 to underlying contracts and related approved funding by US governmental agencies for 2024.

We evaluated the adequacy of the business combination disclosures to the requirements in IFRS 3.

Based on our procedures

performed the valuation of

the acquired PDRI intangibles

is acceptable and the methodology

used is in accordance with

IFRS 3 Business Combinations.

We agree that the disclosures

in Note 30 of the consolidated

financial statements provide

the detail required by IFRS 3

and appropriately reflect the

level of estimation.

Annual report and accounts 2023 Pearson plc 141

Financial statements

Independent Auditor’s Report continued

Risk Our response to the risk

Key observations

communicated to the

Audit Committee

Uncertain tax position for EU State Aid case

(£63 million, 2022 £63 million)

Refer to the Audit Committee Report (page 106);

Accounting policies (page 157); and Notes 7 and 34

of the Consolidated Financial Statements (pages 171

and 204).

Pearson has recorded a provision for the uncertain

tax position related to the EU State Aid case. The

provision was recorded as a tax expense in 2022

against a non-current receivable in respect of a

payment on account made to the UK tax authority.

Auditing the Group’s recorded £63 million

provision at 31 December 2023 required significant

auditor judgement in assessing management’s

expectations of the outcome of matters as there is

a significant range of possible outcomes between

£nil and the maximum exposure of £105 million

and therefore a risk of material misstatement.

Our audit of the uncertain tax position was performed by the Group audit team.

We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over

the Group’s tax process over uncertain tax positions.

We reviewed management’s analysis of developments, including recent decisions in other EU case law, which they

prepared with support from third party advisors.

We challenged whether an update to the provision was required by involving EY tax specialists to assess these

developments and any potential impact on the amount recorded by the Group at 31 December 2023.

We reviewed correspondence with management’s specialist, assessed their independence and expertise, and held

a virtual meeting with them to discuss the scope of their work and their considerations on the matter.

We tested management’s calculation of the provision as part of our prior year audit procedures and assessed

the appropriateness of the methodology used against the requirements of IFRIC 23. We considered the

appropriateness of the potential outcomes included in the calculation and the probabilities assigned to each

outcome.

We challenged the probabilities by seeking the input of an EY specialist in State Aid matters.

We assessed the adequacy of the disclosures in notes 7 and 34 of the Annual Report.

Based on our procedures

performed, the current status of

proceedings and the opinion of

the Group’s external legal counsel,

we conclude that management’s

provision is acceptable and the

methodology used is in line with the

requirements of IFRIC 23.

We agree that disclosures set out in

Notes 7 and 34 of the consolidated

financial statements provides

adequate explanation of the nature

of the liability and the level of

uncertainty in the amount provided.

In our prior year auditor’s report, the ‘Fraud risk in revenue recognition’ key audit matter also included a fraud risk in respect of manipulation of the rate of completion for contracts that span the year end.

Based on the knowledge gained in our first year audit and the updated risk assessment as part of the 2023 audit, we no longer consider that this risk area of the audit constitutes a key audit matter.

Annual report and accounts 2023 Pearson plc 142

Financial statements

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of

identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could

reasonably be expected to influence the economic decisions of the users of the financial statements.

Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £24.6 million (2022: £20.9 million), which is 5% (2022:

5%) of adjusted Profit before tax. We believe that adjusted Profit before tax is the appropriate basis

since it is earnings-based and excludes certain non-recurring items.

We determined materiality for the Parent Company to be £44 million (2022: £44 million), which is 1%

(2022: 1%) of net assets.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to

reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected

misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control

environment, our judgement was that performance materiality was 50% (2022: 50%) of our planning

materiality, namely £12.3 million (2022: £10.5 million). We have set performance materiality at this

percentage to reduce to an appropriately low level the probability that the aggregate of uncorrected

and corrected misstatements exceeds materiality.

Audit work at component locations for the purpose of obtaining audit coverage over significant

financial statement accounts is undertaken based on a percentage of total performance materiality.

The performance materiality set for each component is based on the relative scale and risk of

the component to the Group as a whole and our assessment of the risk of misstatement at that

component. In the current year, the range of performance materiality allocated to components was

£2.4 million to £6.3 million (2022: £1.8 million to £5.0 million).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences

in excess of £1.2 million (2022: £1.05 million), which is set at 5% of planning materiality, as well as

differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality

discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report set out on pages

1 to 135, other than the financial statements and our auditor’s report thereon. The directors are

responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the

extent otherwise explicitly stated in this report, we do not express any form of assurance

conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other

information is materially inconsistent with the financial statements or our knowledge obtained in

the course of the audit, or otherwise appears to be materially misstated. If we identify such material

inconsistencies or apparent material misstatements, we are required to determine whether this

gives rise to a material misstatement in the financial statements themselves. If, based on the work

we have performed, we conclude that there is a material misstatement of the other information, we

are required to report that fact.

We have nothing to report in this regard.

During the course of our audit, we reassessed initial materiality and updated it for actual 2023 results,

which resulted in a small increase to £24.6m.

Starting basis

Adjustments

Materiality

— Profit before tax - £493 million

— Add: £11 million property charges and £16 million

other net gains and losses

— Less: £28 million other net finance income

— Adjusted profit before tax £492 million (materiality basis)

— Materiality of £24.6 million (5% of materiality basis)

Annual report and accounts 2023 Pearson plc 143

Financial statements

Independent Auditor’s Report continued

Opinions on other matters

prescribed by the Companies

Act 2006

In our opinion, the part of the directors’ remuneration report to

be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of

the audit:

— the information given in the strategic report and the directors’

report for the financial year for which the financial statements

are prepared is consistent with the financial statements; and

— the strategic report and the directors’ report have been

prepared in accordance with applicable legal requirements.

Matters on which we are required to

report by exception

In the light of the knowledge and understanding of the group and

the parent company and its environment obtained in the course

of the audit, we have not identified material misstatements in the

strategic report or the directors’ report.

We have nothing to report in respect of the following matters in

relation to which the Companies Act 2006 requires us to report

to you if, in our opinion:

— adequate accounting records have not been kept by the

parent company, or returns adequate for our audit have not

been received from branches not visited by us; or

— the parent company financial statements and the part of

the Directors’ Remuneration Report to be audited are not in

agreement with the accounting records and returns; or

— certain disclosures of directors’ remuneration specified by law

are not made; or

— we have not received all the information and explanations we

require for our audit

Corporate Governance Statement

We have reviewed the directors’ statement in relation to going

concern, longer-term viability and that part of the Corporate

Governance Statement relating to the group and company’s

compliance with the provisions of the UK Corporate Governance

Code specified for our review by the Listing Rules.

Based on the work undertaken as part of our audit, we have

concluded that each of the following elements of the Corporate

Governance Statement is materially consistent with the financial

statements or our knowledge obtained during the audit:

— Directors’ statement with regards to the appropriateness

of adopting the going concern basis of accounting and any

material uncertainties identified set out on page 160;

— Directors’ explanation as to its assessment of the company’s

prospects, the period this assessment covers and why the

period is appropriate set out on page 65;

— Director’s statement on whether it has a reasonable

expectation that the group will be able to continue in

operation and meets its liabilities set out on page 65;

— Directors’ statement on fair, balanced and understandable set

out on page 134;

— Board’s confirmation that it has carried out a robust

assessment of the emerging and principal risks set out on

page 57;

— The section of the annual report that describes the review

of effectiveness of risk management and internal control

systems set out on page 102; and;

— The section describing the work of the audit committee set

out on page 100.

Responsibilities of directors

As explained more fully in the directors’ responsibilities

statement set out on page 136, the directors are responsible

for the preparation of the financial statements and for being

satisfied that they give a true and fair view, and for such internal

control as the directors determine is necessary to enable the

preparation of financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are

responsible for assessing the group and parent company’s ability

to continue as a going concern, disclosing, as applicable, matters

related to going concern and using the going concern basis of

accounting unless the directors either intend to liquidate the

group or the parent company or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of

the financial statements

Our objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free from

material misstatement, whether due to fraud or error, and to

issue an auditor’s report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with ISAs (UK) will always

detect a material misstatement when it exists. Misstatements

can arise from fraud or error and are considered material

if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on

the basis of these financial statements.

Annual report and accounts 2023 Pearson plc 144

Financial statements

Explanation as to what extent the audit was considered

capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance

with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect irregularities, including

fraud. The risk of not detecting a material misstatement due

to fraud is higher than the risk of not detecting one resulting

from error, as fraud may involve deliberate concealment by, for

example, forgery or intentional misrepresentations, or through

collusion. The extent to which our procedures are capable of

detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and

detection of fraud rests with both those charged with governance

of the company and management.

— We obtained an understanding of the legal and regulatory

frameworks that are applicable to the group and determined

that the most significant frameworks which are directly

relevant to specific assertions in the financial statements are

those that relate to the reporting framework (UK-adopted

International Accounting Standards, IFRS accounting

standards as issued by the International Accounting

Standards Board (IASB), the Companies Act 2006 and the UK

Corporate Governance Code) and the relevant tax laws and

regulations in the countries in which the Group operates.

— We understood how Pearson plc is complying with those

frameworks by making enquiries of management, Internal

Audit, those responsible for legal and compliance procedures

and the Company Secretary. We corroborated our enquiries

through reading of Board minutes and papers provided to

the Audit Committee and observation in Audit Committee

meetings, as well as consideration of the results of our audit

procedures across the Group.

— We assessed the susceptibility of the Group’s financial

statements to material misstatement, including how

fraud might occur and met with finance and operational

management from various parts of the business to

understand where they considered there was susceptibility

to fraud. We also considered performance targets and their

potential to influence management to manage earnings or

influence the perception of analysts. We have determined

that there is a fraud risk with aspects of revenue recognition.

We considered the policies, processes and controls that

the Group has established to address the risks identified,

including the design of controls over each significant revenue

stream. We also considered the controls that the Group has

that otherwise prevent, deter and detect fraud, and how

senior management monitors those controls.

— Based on this understanding we designed our audit

procedures to identify non-compliance with such laws and

regulations including providing specific instructions to full

scope and specific scope component teams and where

necessary, using our forensic and other relevant specialists.

Our procedures included reading any correspondence with

regulators, making enquiries of management's specialists,

and journal entry testing, with a focus on manual journal

entries, consolidation journals and journal entries indicating

large or unusual transactions using data analytics. We based

this testing on our understanding of the business, enquiries

of management, including internal audit and other advisors,

the company secretary and reading relevant reports.

We performed specific searches derived from forensic

investigations experience and leveraged our data analytics

platform in performing our testing. We have also reviewed

the whistleblowing reports issued during the year. We also

used EY’s Document Authenticity Tool to analyse certain

electronic documents used as audit evidence to identify

characteristics of documents that can be indicators of

alteration or inauthenticity.

A further description of our responsibilities for the audit

of the financial statements is located on the Financial

Reporting Council’s website at https://www.frc.org.uk/

auditorsresponsibilities. This description forms part of

our auditor’s report.

Other matters we are required to address

— Following the recommendation from the Audit Committee,

we were appointed by the company at its Annual General

Meeting on 29 April 2022 to audit the financial statements

for the year ending 31 December 2022 and subsequent

financial periods.

— The period of total uninterrupted engagement including

previous renewals and reappointments is two years, covering

the years ended 31 December 2022 to 31 December 2023.

— The audit opinion is consistent with the additional report to

the audit committee.

Use of our report

This report is made solely to the company’s members, as a body,

in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might

state to the company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose.

To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the company and

the company’s members as a body, for our audit work, for this

report, or for the opinions we have formed.

Ben Marles (Senior statutory auditor)

for and on behalf of Ernst & Young LLP,

Statutory Auditor

London

13 March 2024

Annual report and accounts 2023 Pearson plc 145

Financial statements

Consolidated income statement

Year ended 31 December 2023

		All figures in £ millions Notes 2023	2022	2021
Continuing operations
Sales	2,3	3,674	3,841	3,428
Cost of goods sold	4	(1,839)	(2,046)	(1,747)
Gross profit		1,835	1,795	1,681
Operating expenses	4	(1,322)	(1,549)	(1,562)
Other net gains and losses	4	(16)	24	63
Share of results of joint ventures and associates	12	1	1	1
Operating profit	2	498	271	183
Finance costs	6	(81)	(71)	(68)
Finance income	6	76	123	62
Profit before tax		493	323	177
Income tax	7	(113)	(79)	1
Profit for the year		380	244	178
Attributable to:
Equity holders of the company		378	242	177
Non-controlling interest		2	2	1
Earnings per share attributable to equity holders of the company during the year
(expressed in pence per share)
—basic	8	53.1p	32.8p	23.5p
—diluted	8	52.7p	32.6p	23.3p

Annual report and accounts 2023 Pearson plc 146

Financial statements

Consolidated statement of comprehensive income

Year ended 31 December 2023

		All figures in £ millions Notes 2023	2022	2021
Profit for the year		380	244	178
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations		(177)	330	(6)
Currency translation adjustment disposed	31	(122)	(5)	4
Attributable tax	7	–	4	10
Items that are not reclassified to the income statement
Fair value gains on other financial assets		1	18	4
Attributable tax	7	–	1	(1)
Remeasurement of retirement benefit obligations	25	(85)	54	149
Attributable tax	7	20	(12)	(61)
Other comprehensive (expense)/income for the year	29	(363)	390	99
Total comprehensive income for the year		17	634	277
Attributable to:
Equity holders of the company		16	630	276
Non-controlling interest		1	4	1

Annual report and accounts 2023 Pearson plc 147

Financial statements

Consolidated balance sheet

As at 31 December 2023

		All figures in £ millions Notes 2023	2022
Assets
Non-current assets
Property, plant and equipment	10	217	250
Investment property	10	79	60
Intangible assets	11	3,091	3,177
Investments in joint ventures and associates	12	22	25
Deferred income tax assets	13	35	57
Financial assets – derivative financial instruments	16	32	43
Retirement benefit assets	25	499	581
Other financial assets	15	143	133
Income tax assets	7	41	41
Trade and other receivables	22	135	139
		4,294	4,506
Current assets
Intangible assets – product development	20	947	975
Inventories	21	91	105
Trade and other receivables	22	1,050	1,139
Financial assets – derivative financial instruments	16	16	16
Income tax assets		15	9
Cash and cash equivalents (excluding overdrafts)	17	312	558
		2,431	2,802
Assets classified as held for sale	32	2	16
Total assets		6,727	7,324
Liabilities
Non-current liabilities
Financial liabilities – borrowings	18	(1,094)	(1,144)
Financial liabilities – derivative financial instruments	16	(38)	(54)
Deferred income tax liabilities	13	(46)	(37)
Retirement benefit obligations	25	(44)	(61)
Provisions for other liabilities and charges	23	(15)	(14)
Other liabilities	24	(98)	(120)
		(1,335)	(1,430)

		All figures in £ millions Notes 2023	2022
Current liabilities
Trade and other liabilities	24	(1,275)	(1,254)
Financial liabilities – borrowings	18	(67)	(86)
Financial liabilities – derivative financial instruments	16	(5)	(11)
Income tax liabilities	7	(32)	(43)
Provisions for other liabilities and charges	23	(25)	(85)
		(1,404)	(1,479)
Liabilities classified as held for sale	32	–	–
Total liabilities		(2,739)	(2,909)
Net assets		3,988	4,415
Equity
Share capital	27	174	179
Share premium	27	2,642	2,633
Treasury shares	28	(19)	(15)
Capital redemption reserve		33	28
Fair value reserve		(12)	(13)
Translation reserve		411	709
Retained earnings		745	881
Total equity attributable to equity holders of the company		3,974	4,402
Non-controlling interest		14	13
Total equity		3,988	4,415

These financial statements have been approved for issue by the Board of Directors on

13 March 2024 and signed on its behalf by

Sally Johnson

Chief Financial Officer

Pearson plc

Registered number: 00053723

Annual report and accounts 2023 Pearson plc 148

Financial statements

Consolidated statement of changes in equity

Year ended 31 December 2023

All figures in £ millions

							Equity attributable to equity holders of the company
				Capital	Fair				Non-
	Share	Share	Treasury	redemption	value	Translation	Retained		controlling	Total
	capital	premium	shares	reserve	reserve	reserve	earnings	Total	interest	equity
At 1 January 2023	179	2,633	(15)	28	(13)	709	881	4,402	13	4,415
Profit for the year	–	–	–	–	–	–	378	378	2	380
Other comprehensive income/(expense)	–	–	–	–	1	(298)	(65)	(362)	(1)	(363)
Total comprehensive income/(expense)	–	–	–	–	1	(298)	313	16	1	17
Equity-settled transactions	–	–	–	–	–	–	40	40	–	40
Taxation on equity-settled transactions	–	–	–	–	–	–	1	1	–	1
Issue of ordinary shares under share option schemes	–	9	–	–	–	–	–	9	–	9
Buyback of equity	(5)	–	–	5	–	–	(304)	(304)	–	(304)
Purchase of treasury shares	–	–	(35)	–	–	–	–	(35)	–	(35)
Release of treasury shares	–	–	31	–	–	–	(31)	–	–	–
Transfer of gain on disposal of FVOCI investment	–	–	–	–	–	–	–	–	–	–
Dividends	–	–	–	–	–	–	(155)	(155)	–	(155)
At 31 December 2023	174	2,642	(19)	33	(12)	411	745	3,974	14	3,988

All figures in £ millions

							Equity attributable to equity holders of the company
				Capital					Non-
	Share	Share	Treasury	redemption	Fair value	Translation	Retained		controlling	Total
	capital	premium	shares	reserve	reserve	reserve	earnings	Total	interest	equity
At 1 January 2022	189	2,626	(12)	18	(4)	386	1,067	4,270	10	4,280
Profit for the year	–	–	–	–	–	–	242	242	2	244
Other comprehensive income/(expense)	–	–	–	–	18	323	47	388	2	390
Total comprehensive income/(expense)	–	–	–	–	18	323	289	630	4	634
Equity-settled transactions	–	–	–	–	–	–	38	38	–	38
Taxation on equity-settled transactions	–	–	–	–	–	–	3	3	–	3
Issue of ordinary shares under share option schemes	–	7	–	–	–	–	–	7	–	7
Buyback of equity	(10)	–	–	10	–	–	(353)	(353)	–	(353)
Purchase of treasury shares	–	–	(37)	–	–	–	–	(37)	–	(37)
Release of treasury shares	–	–	34	–	–	–	(34)	–	–	–
Transfer of gain on disposal of FVOCI investment	–	–	–	–	(27)	–	27	–	–	–
Dividends	–	–	–	–	–	–	(156)	(156)	(1)	(157)
At 31 December 2022	179	2,633	(15)	28	(13)	709	881	4,402	13	4,415

Annual report and accounts 2023 Pearson plc 149

Financial statements

All figures in £ millions

							Equity attributable to equity holders of the company
				Capital					Non-
	Share	Share	Treasury	redemption	Fair value	Translation	Retained		controlling	Total
	capital	premium	shares	reserve	reserve	reserve	earnings	Total	interest	equity
At 1 January 2021	188	2,620	(7)	18	(4)	388	922	4,125	9	4,134
Profit for the year	–	–	–	–	–	–	177	177	1	178
Other comprehensive income/(expense)	–	–	–	–	4	(2)	97	99	–	99
Total comprehensive income/(expense)	–	–	–	–	4	(2)	274	276	1	277
Equity-settled transactions	–	–	–	–	–	–	28	28	–	28
Issue of ordinary shares under share option schemes	1	6	(1)	–	–	–	–	6	–	6
Buyback of equity	–	–	–	–	–	–	–	–	–	–
Purchase of treasury shares	–	–	(16)	–	–	–	–	(16)	–	(16)
Release of treasury shares	–	–	12	–	–	–	(12)	–	–	–
Transfer of gain on disposal of FVOCI investment	–	–	–	–	(4)	–	4	–	–	–
Dividends	–	–	–	–	–	–	(149)	(149)	–	(149)
At 31 December 2021	189	2,626	(12)	18	(4)	386	1,067	4,270	10	4,280

Consolidated statement of changes in equity continued

Year ended 31 December 2023

Annual report and accounts 2023 Pearson plc 150

Financial statements

Consolidated cash flow statement

Year ended 31 December 2023

		All figures in £ millions Notes 2023	2022	2021
Cash flows from operating activities
Profit before tax		493	323	177
Net finance costs/(income)		5	(52)	6
Depreciation and impairment – PPE, investment
property and assets held for sale		90	136	241
Amortisation and impairment – software		123	125	117
Amortisation and impairment – acquired
intangible assets		46	54	50
Other net gains and losses		13	(24)	(63)
Product development capital expenditure		(300)	(357)	(287)
Amortisation and impairment – product development		284	303	279
Share-based payment costs		40	35	28
Change in inventories		9	(34)	22
Change in trade and other receivables		(24)	33	(71)
Change in trade and other liabilities		(20)	(84)	37
Change in provisions for other liabilities and charges		(61)	50	14
Other movements		(16)	19	20
Net cash generated from operations		682	527	570
Interest paid		(60)	(57)	(67)
Tax paid		(97)	(109)	(177)
Net cash generated from operating activities		525	361	326
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired	30	(171)	(228)	(55)
Acquisition of joint ventures and associates		(5)	(5)	(10)
Purchase of investments		(8)	(12)	(4)
Purchase of property, plant and equipment and investment property		(30)	(57)	(64)
Purchase of intangible assets		(96)	(90)	(112)
Disposal of subsidiaries, net of cash disposed	31	(38)	333	83
Proceeds from disposal of investments		7	17	48
Proceeds from disposal of property, plant
and equipment		5	14	–
Lease receivables repaid including disposals		15	18	21
Interest received		20	22	13
Dividends from joint ventures and associates		–	1	–
Net cash (used in)/generated from investing activities		(301)	13	(80)

		All figures in £ millions Notes 2023	2022	2021
Cash flows from financing activities
Proceeds from issue of ordinary shares	27	9	7	6
Buyback of equity	27	(186)	(353)	–
Purchase of treasury shares	28	(35)	(37)	(16)
Proceeds from borrowings		285	–	–
Repayment of borrowings		(285)	(171)	(167)
Repayment of lease liabilities		(84)	(93)	(88)
Dividends paid to company’s shareholders	9	(154)	(156)	(149)
Dividends paid to non-controlling interest		–	(1)	–
Net cash used in financing activities		(450)	(804)	(414)
Effects of exchange rate changes on cash and cash equivalents		(8)	36	(8)
Net decrease in cash and cash equivalents		(234)	(394)	(176)
Cash and cash equivalents at beginning of year		543	937	1,113
Cash and cash equivalents at end of year	17	309	543	937

Annual report and accounts 2023 Pearson plc 151

Financial statements

General information

Pearson plc (‘the company’), its subsidiaries and associates (together ‘the Group’) are international

businesses covering educational courseware, assessments and services.

The company is a public limited company incorporated in England and Wales and domiciled in the

United Kingdom. The address of its registered office is 80 Strand, London WC2R 0RL.

The company has its primary listing on the London Stock Exchange and is also listed on the New

York Stock Exchange.

These consolidated financial statements were approved for issue by the Board of Directors on

13 March 2024.

1a. Accounting policies

The material accounting policies applied in the preparation of these consolidated financial

statements are set out below.

Basis of preparation

These consolidated financial statements have been prepared on the going concern basis (see

note 1b) and in accordance with the Disclosure and Transparency Rules of the Financial Conduct

Authority and in accordance with UK-adopted International Accounting Standards and with the

requirements of the Companies Act 2006. On 31 December 2020, IFRS Accounting Standards as

adopted by the European Union at that date was brought into UK law and became UK-adopted

International Accounting Standards (IASs), with future changes being subject to endorsement by the

UK Endorsement Board. The Group transitioned to UK-adopted IASs on 1 January 2021. This change

constituted a change in accounting framework. However, there was no impact on recognition,

measurement or disclosure as a result of the change in framework. The consolidated financial

statements have also been prepared in accordance with IFRS Accounting Standards as issued by the

International Accounting Standards Board (IASB).

These consolidated financial statements have been prepared under the historical cost convention

as modified by the revaluation of financial assets and liabilities (including derivative financial

instruments) at fair value.

These accounting policies have been consistently applied to all years presented, unless

otherwise stated.

1. Interpretations and amendments to published standards effective 2023 – The Group

adopted IFRS 17 ‘Insurance Contracts’ for the first time in 2023, but it has not had a material impact

on the consolidated financial statements. No other new standards were adopted in 2023.

A number of other new pronouncements are effective from 1 January 2023 but they do not have

a material impact on the consolidated financial statements. Additional disclosure has been given

where relevant.

2. Standards, interpretations and amendments to published standards that are not yet

effective – The following new accounting standards and amendments to new accounting standards

have been issued but are not yet effective and unless otherwise indicated, have been endorsed:

— Amendments to IAS 1 ‘Classification of liabilities as current or non-current’;

— Amendments to IAS 1 ‘Non-current liabilities with covenants’;

— Amendments to IFRS 16 ’Lease liability in a sale and leaseback’;

— Amendments to IAS 7 and IFRS 7 ‘Supplier finance arrangements’; and

— Amendments to IAS 21 ’Lack of exchangeability’ (not yet endorsed).

The Group is currently assessing the impact of the above changes, but they are not expected to

have a material impact. The Group does not plan to early adopt any of the above new accounting

standards or amendments. The Group has not adopted any other standard, amendment or

interpretation that has been issued but is not yet effective.

3. Critical accounting assumptions and judgements – The preparation of financial statements

in conformity with IFRS requires the use of certain critical accounting assumptions and estimates.

It also requires management to exercise its judgement in the process of applying the Group’s

accounting policies.

All assumptions and estimates constitute management’s best judgement at the date of the financial

statements, however, in the future, actual experience may deviate from these estimates and

assumptions.

The areas requiring a higher degree of judgement or complexity, or areas where assumptions and

estimates have a significant risk of resulting in material adjustments to the carrying value of assets

and liabilities within the consolidated financial statements are:

— Intangible assets: acquired intangible assets

— Taxation

— Employee benefits: pensions

— Property, plant and equipment: right-of-use assets

— Classification as discontinued operations

The key judgements and key areas of estimation are set out below, as well as in the relevant

accounting policies and in the notes to the accounts where appropriate.

Notes to the consolidated financial statements

Annual report and accounts 2023 Pearson plc 152

Financial statements

The Group has assessed the impact of the uncertainty presented by the volatile macro-economic

and geo-political environment on the financial statements, specifically considering the impact on key

judgements and significant estimates along with other areas of increased risk as follows:

— Financial instruments and hedge accounting; and

— Translation methodologies.

No material accounting impacts relating to the areas assessed above were recognised in the year.

The Group will continue to monitor these areas of increased judgement, estimation and risk.

Key judgements

— The application of tax legislation in relation to provisions for uncertain tax positions. See

notes 7 and 34.

— The Group is eligible to receive the surplus associated with the UK Group Pension Plan in

recognising a pension asset. See note 25.

— The results and cash flows of businesses disposed do not meet the criteria to be classified

and presented as discontinued operations. See note 31.

Key areas of estimation

— The valuation of acquired intangible assets recognised on the acquisition of a business. The

valuation is based on a number of assumptions, including estimations of future business

performance. See notes 11 and 30.

— The level of provisions required in relation to uncertain tax positions is complex and each

matter is separately assessed. The estimation of future settlement amounts is based on a

number of factors including the status of the unresolved matter, clarity of legislation, range

of possible outcomes and the statute of limitations. See notes 7 and 34.

— The determination of the pension cost and defined benefit obligation of the Group’s

defined benefit pension schemes depends on the selection of certain assumptions, which

include the discount rate, inflation rate, salary growth and longevity. See note 25.

— The recoverability of right-of-use assets and in particular assumptions related to the ability

to sublease vacant leased assets in the future. See note 10.

Consolidation

1. Business combinations – The acquisition method of accounting is used to account for

business combinations.

The consideration transferred for the acquisition of a subsidiary is the fair value of the assets

transferred, the liabilities incurred and the equity interest issued by the Group. The consideration

transferred includes the fair value of any asset or liability resulting from a contingent consideration

arrangement. Acquisition-related costs are expensed as incurred in the operating expenses line of

the income statement. Identifiable assets acquired and identifiable liabilities and contingent liabilities

assumed in a business combination are measured initially at their fair values at the acquisition date.

The determination of fair values often requires significant judgements and the use of estimates,

and, for material acquisitions, the fair value of the acquired intangible assets is determined by an

independent valuer. The excess of the consideration transferred, the amount of any non-controlling

interest in the acquiree and the acquisition date fair value of any previous equity interest in the

acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill (note 30).

See the ‘Intangible assets’ policy for the accounting policy on goodwill. If this is less than the fair

value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is

recognised directly in the income statement.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the

acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s

net assets.

IFRS 3 ‘Business Combinations’ has not been applied retrospectively to business combinations

before the date of transition to IFRS.

Management exercises judgement in determining the classification of its investments in its

businesses, in line with the following:

2. Subsidiaries – Subsidiaries are entities over which the Group has control. The Group controls

an entity when the Group is exposed to, or has rights to, variable returns from its involvement with

the entity and has the ability to affect those returns through its power over the entity. Subsidiaries

are fully consolidated from the date on which control is transferred to the Group. They are

deconsolidated from the date that control ceases.

3. Transactions with non-controlling interests – Transactions with non-controlling interests

that do not result in loss of control are accounted for as equity transactions, that is, as transactions

with the owners in their capacity as owners. Any surplus or deficit arising from disposals to a

non-controlling interest is recorded in equity. For purchases from a non-controlling interest, the

difference between consideration paid and the relevant share acquired of the carrying value of the

subsidiary is recorded in equity.

Annual report and accounts 2023 Pearson plc 153

Financial statements

1a. Accounting policies continued

Consolidation continued

4. Joint ventures and associates – Joint ventures are entities in which the Group holds an interest

on a long-term basis and has rights to the net assets through contractually agreed sharing of

control. Associates are entities over which the Group has significant influence but not the power to

control the financial and operating policies, generally accompanying a shareholding of between 20%

and 50% of the voting rights. Ownership percentage is likely to be the key indicator of investment

classification; however, other factors, such as Board representation, may also affect the accounting

classification. Judgement is required to assess all of the qualitative and quantitative factors which

may indicate that the Group does, or does not, have significant influence over an investment.

Investments in joint ventures and associates are accounted for by the equity method and are initially

recognised at the fair value of consideration transferred.

The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised

in the income statement and its share of post-acquisition movements in reserves is recognised

in reserves.

The Group’s share of its joint ventures’ and associates’ results is recognised as a component of

operating profit as these operations form part of the core business of the Group and are an integral

part of existing wholly-owned businesses. The cumulative post-acquisition movements are adjusted

against the carrying amount of the investment. When the Group’s share of losses in a joint venture

or associate equals or exceeds its interest in the joint venture or associate, the Group does not

recognise further losses unless the Group has incurred obligations or made payments on behalf of

the joint venture or associate.

Unrealised gains and losses on transactions between the Group and its joint ventures and associates

are eliminated to the extent of the Group’s interest in these entities.

5. Contribution of a subsidiary to an associate or joint venture – The gain or loss resulting

from the contribution or sale of a subsidiary to an associate or a joint venture is recognised in full.

Where such transactions do not involve cash consideration, significant judgements and estimates

are used in determining the fair values of the consideration received.

Foreign currency translation

1. Functional and presentation currency – Items included in the financial statements of each of

the Group’s entities are measured using the currency of the primary economic environment in which

the entity operates (the functional currency). The consolidated financial statements are presented in

sterling, which is the company’s functional and presentation currency.

2. Transactions and balances – Foreign currency transactions are translated into the functional

currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange

gains and losses resulting from the settlement of such transactions and from the translation at

year-end exchange rates of monetary assets and liabilities denominated in foreign currencies

are recognised in the income statement, except when deferred in equity as qualifying net

investment hedges.

3. Group companies – The results and financial position of all Group companies that have a

functional currency different from the presentation currency are translated into the presentation

currency as follows:

— Assets and liabilities are translated at the closing rate at the date of the balance sheet;

— Income and expenses are translated at average exchange rates; and

— All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in

foreign entities, and of borrowings and other currency instruments designated as hedges of such

investments, are taken to shareholders’ equity. The Group treats specific inter-company loan

balances, which are not intended to be repaid in the foreseeable future, as part of its net investment.

When a foreign operation is sold, such exchange differences are recognised in the income statement

as part of the gain or loss on sale.

The principal overseas currency for the Group is the US dollar. The average rate for the year

against sterling was $1.25 (2022: $1.24; 2021: $1.38) and the year-end rate was $1.27 (2022: $1.21;

2021: $1.35).

Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Cost includes the

original purchase price of the asset and the costs attributable to bringing the asset to its working

condition for intended use. Land is not depreciated. Depreciation on other assets is calculated using

the straight-line method to allocate their cost less their residual values over their estimated useful

lives as follows:

Buildings (freehold): 20–50 years

Buildings (leasehold): over the period of the lease

Plant and equipment: 3–10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance

sheet date.

The carrying value of an asset is written down to its recoverable amount if the carrying value of the

asset is greater than its estimated recoverable amount.

Investment property

Properties that are no longer occupied by the Group and which are held for operating lease

rental are classified as investment property. Investment property assets are carried at cost less

accumulated depreciation and any recognised impairment in value. The depreciation policies for

investment property are consistent with those described for property, plant and equipment.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 154

Financial statements

4. Acquired intangible assets – Acquired intangible assets include customer lists, contracts and

relationships, trademarks and brands, publishing rights, content, technology and software rights.

These assets are capitalised on acquisition at cost and included in intangible assets. Intangible assets

acquired in material business combinations are capitalised at their fair value as determined with

the support of a third-party specialist. The valuation of these assets are a key source of estimation

uncertainty. Intangible assets are amortised over their estimated useful lives of between two and

twenty years, using an amortisation method that reflects the pattern of their consumption. The

assets are assessed for impairment triggers on an annual basis or when triggering events occur.

5. Product development assets – Product development assets represent direct costs incurred

in the development of educational programmes and titles prior to their publication. These costs

are recognised as current intangible assets where the title will generate probable future economic

benefits and costs can be measured reliably.

Product development assets relating to content are amortised upon publication of the title over

estimated economic lives of seven years or less, being an estimate of the expected operating

lifecycle of the title, with a higher proportion of the amortisation taken in the earlier years. Product

development assets relating to product platforms are amortised over ten years or less, being an

estimate of the expected useful life.

The assessment of the useful economic life and the recoverability of product development assets

involves judgement and is based on historical trends and management estimation of future

potential sales.

Product development assets are assessed for impairment triggers on an annual basis or when

triggering events occur. The carrying amount of product development assets is set out in note 20.

The investment in product development assets has been disclosed as part of net cash generated

from operating activities in the cash flow statement.

Other financial assets

Other financial assets are non-derivative financial assets classified and measured at estimated

fair value.

Marketable securities and cash deposits with maturities of greater than three months are classified

and subsequently measured at fair value through profit and loss (FVTPL). They are remeasured at

each balance sheet date by using market data and the use of established valuation techniques.

Any movement in the fair value is immediately recognised in finance income or finance costs in

the income statement.

Intangible assets

1. Goodwill – For the acquisition of subsidiaries made on or after 1 January 2010, goodwill

represents the excess of the consideration transferred, the amount of any non-controlling interest in

the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over

the fair value of the identifiable net assets acquired. For the acquisition of subsidiaries made from

the date of transition to IFRS to 31 December 2009, goodwill represents the excess of the cost of an

acquisition over the fair value of the Group’s share of the net identifiable assets acquired. Goodwill

on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates

and joint ventures represents the excess of the cost of an acquisition over the fair value of the

Group’s share of the net identifiable assets acquired.

Goodwill on acquisitions of associates and joint ventures is included in investments in associates and

joint ventures.

Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment

losses. An impairment loss is recognised to the extent that the carrying value of goodwill exceeds

the recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and

value in use. These calculations require the use of estimates in respect of forecast cash flows and

discount rates and management judgement in respect of cash-generating unit (CGU) and

cost allocation.

Goodwill is allocated to aggregated CGUs for the purpose of impairment testing. The allocation is

made to those aggregated CGUs that are expected to benefit from the business combination in

which the goodwill arose. Where there are changes to CGUs, goodwill is reallocated to the new CGUs

and aggregation of CGUs using a relative value method.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the

entity sold.

2. Acquired software – Software separately acquired for internal use is capitalised at cost. Software

acquired in material business combinations is capitalised at its fair value, with the valuation being

determined with the support of a third-party specialist. The assets are assessed for impairment

triggers on an annual basis or when triggering events occur. Acquired software is amortised on a

straight-line basis over its estimated useful life of between three and eight years.

3. Internally developed software – Internal and external costs incurred during the preliminary

stage of developing computer software for internal use are expensed as incurred. Internal and

external costs incurred to develop computer software for internal use during the application

development stage are capitalised if the Group expects economic benefits from the development.

Capitalisation in the application development stage begins once the Group can reliably measure

the expenditure attributable to the software development and has demonstrated its intention to

complete and use the software. Internally developed software is amortised on a straight-line basis

over its estimated useful life of between three and ten years. The assets are assessed for impairment

triggers on an annual basis or when triggering events occur.

Annual report and accounts 2023 Pearson plc 155

Financial statements

1a. Accounting policies continued

Other financial assets continued

Investments in the equity instruments of other entities are classified and subsequently measured at

fair value through other comprehensive income (FVOCI) where the investment meets the definition

of equity from the perspective of the issuer. Changes in fair value are recorded in equity in the fair

value reserve via other comprehensive income. On subsequent disposal of the asset, the net fair

value gains or losses are reclassified from the fair value reserve to retained earnings. Any dividends

received from equity investments classified as FVOCI are recognised in the income statement unless

they represent a return of capital.

Investments in funds which have a limited life and those investment which do not meet the criteria

to be classified as FVOCI are classified and subsequently measured at fair value through profit and

loss (FVTPL). Changes in fair value are included within finance income or finance costs within the

income statement.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

weighted average method or an approximation thereof, such as the first in first out (FIFO) method.

The cost of finished goods and work in progress comprises raw materials, direct labour, other direct

costs and related production overheads. Net realisable value is the estimated selling price in the

ordinary course of business, less estimated costs necessary to make the sale. Provisions are made

for slow-moving and obsolete stock.

Royalty advances

Advances of royalties to authors are included within trade and other receivables when the advance is

paid less any provision required to adjust the advance to its net realisable value. The realisable value

of royalty advances relies on a degree of management estimation in determining the profitability of

individual author contracts. If the estimated realisable value of author contracts is overstated, this

will have an adverse effect on operating profits as these excess amounts will be written off.

The recoverability of royalty advances is based upon an annual detailed management review

of the age of the advance, the future sales projections for new authors and prior sales history of

repeat authors.

The royalty advance is expensed at the contracted or effective royalty rate as the related revenues

are earned. Royalty advances which will be consumed within one year are held in current assets.

Royalty advances which will be consumed after one year are held in non-current assets.

Cash and cash equivalents

Cash and cash equivalents in the cash flow statement include cash in hand, deposits held on call with

banks, other short-term highly liquid investments with original maturities of three months or less,

and bank overdrafts. Bank overdrafts are included in borrowings in current liabilities in the

balance sheet.

Short-term deposits and marketable securities with maturities of greater than three months do

not qualify as cash and cash equivalents and are reported as financial assets. Movements on these

financial assets are classified as cash flows from financing activities in the cash flow statement where

these amounts are used to offset the borrowings of the Group or as cash flows from investing

activities where these amounts are held to generate an investment return.

Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a

deduction, net of tax, from the proceeds.

Where any Group company purchases the company’s equity share capital (treasury shares), the

consideration paid, including any directly attributable incremental costs, net of income taxes, is

deducted from equity attributable to the company’s equity holders until the shares are cancelled,

reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration

received, net of any directly attributable transaction costs and the related income tax effects, is

included in equity attributable to the company’s equity holders.

Ordinary shares purchased under a buyback programme are cancelled and the nominal value of the

shares is transferred to a capital redemption reserve.

Borrowings

Borrowings are recognised initially at fair value, which is proceeds received net of transaction costs

incurred. Borrowings are subsequently stated at amortised cost with any difference between the

proceeds (net of transaction costs) and the redemption value being recognised in the income

statement over the period of the borrowings using the effective interest method. Accrued interest is

included as part of borrowings.

Where a debt instrument is in a fair value hedging relationship, an adjustment is made to its carrying

value in the income statement to reflect the hedged risk.

Where a debt instrument is in a net investment hedge relationship, gains and losses on the effective

portion of the hedge are recognised in other comprehensive income.

Derivative financial instruments

Derivatives are recognised at fair value and remeasured at each balance sheet date. The fair value

of derivatives is determined by using market data and the use of established estimation techniques

such as discounted cash flow and option valuation models.

For derivatives in a hedge relationship, the currency basis spread is excluded from the designation

as a hedging instrument.

Changes in the fair value of derivatives are recognised immediately in finance income or costs.

However, derivatives relating to borrowings and certain foreign exchange contracts are designated

as part of a hedging transaction.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 156

Financial statements

The accounting treatment is summarised as follows:

Typical reason for designation

Reporting of gains

and losses on effective

portion of the hedge

Reporting of gains and losses on

disposal

Net investment hedge

The derivative creates a foreign

currency liability which is used

to hedge changes in the value of

a subsidiary which transacts in

that currency.

Recognised in other

comprehensive income.

On the disposal of foreign

operations or subsidiaries,

the accumulated value of

gains and losses reported

in other comprehensive

income is transferred to the

income statement.

Fair value hedges

The derivative transforms the

interest profile on debt from

fixed rate to floating rate.

Changes in the value of the debt

as a result of changes in interest

rates and foreign exchange

rates are offset by equal and

opposite changes in the value of

the derivative. When the Group’s

debt is swapped to floating

rates, the contracts used are

designated as fair value hedges.

Gains and losses on the

derivative are reported in

finance income or finance

costs. However, an equal and

opposite change is made to

the carrying value of the debt

(a ‘fair value adjustment’) with

the benefit/cost reported in

finance income or finance

costs. The net result should be

a zero charge on a perfectly

effective hedge.

If the debt and derivative are

disposed of, the value of the

derivative and the debt (including

the fair value adjustment) are

reset to zero. Any resultant gain

or loss is recognised in finance

income or finance costs.

Non-hedge accounted contracts

These are not designated as

hedging instruments. Typically,

these are short-term contracts

to convert debt back to fixed

rates or foreign exchange

contracts where a natural

offset exists.

Recognised in the income

statement. No hedge

accounting applies.

Taxation

Current tax is recognised at the amounts expected to be paid or recovered under the tax rates and

laws that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided, using the balance sheet liability method, on temporary differences

arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income

tax is determined using tax rates and laws that have been enacted or substantively enacted by the

balance sheet date and are expected to apply when the related deferred tax asset is realised or the

deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilised.

Deferred income tax is provided in respect of the undistributed earnings of subsidiaries, associates

and joint ventures other than where it is intended that those undistributed earnings will not be

remitted in the foreseeable future.

Current and deferred tax are recognised in the income statement, except when the tax relates to

items charged or credited directly to equity or other comprehensive income, in which case the tax

is also recognised in equity or other comprehensive income. The Group has applied the exception

under IAS 12 to recognising and disclosing information about deferred tax assets and liabilities

related to Pillar Two income taxes.

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required

in determining the estimates in relation to the worldwide provision for income taxes. There are

many transactions and calculations for which the ultimate tax determination is uncertain during

the ordinary course of business. The Group recognises tax provisions when it is considered

probable that there will be a future outflow of funds to a tax authority. The provisions are based

on management’s best judgement of the application of tax legislation and best estimates of future

settlement amounts (see note 7). Where the final tax outcome of these matters is different from the

amounts that were initially recorded, such differences will impact the income tax and deferred tax

provisions in the period in which such determination is made.

Deferred tax assets and liabilities require management judgement and estimation in determining

the amounts to be recognised. In particular, when assessing the extent to which deferred tax assets

should be recognised, significant judgement is used when considering the timing of the recognition

and estimation is used to determine the level of future taxable income together with any future tax

planning strategies (see note 13).

Annual report and accounts 2023 Pearson plc 157

Financial statements

1a. Accounting policies continued

Employee benefits

1. Pensions – The retirement benefit asset and obligation recognised in the balance sheet represent

the net of the present value of the defined benefit obligation and the fair value of plan assets at the

balance sheet date. The defined benefit obligation is calculated annually by independent actuaries

using the projected unit credit method. The present value of the defined benefit obligation is

determined by discounting estimated future cash flows using yields on high-quality corporate bonds

which have terms to maturity approximating the terms of the related liability.

When the calculation results in a potential asset, the recognition of that asset is limited to the asset

ceiling – that is the present value of any economic benefits available in the form of refunds from the

plan or a reduction in future contributions. Management uses judgement to determine the level of

refunds available from the plan in recognising an asset.

The determination of the pension cost and defined benefit obligation of the Group’s defined benefit

pension schemes depends on the selection of certain assumptions, which include the discount rate,

inflation rate, salary growth and longevity (see note 25).

Actuarial gains and losses arising from experience adjustments and changes in actuarial

assumptions are charged or credited to equity in other comprehensive income in the period in

which they arise. The service cost, representing benefits accruing over the year, is included in the

income statement as an operating cost. Net interest is calculated by applying the discount rate to the

net defined benefit obligation and is presented as finance costs or finance income.

Obligations for contributions to defined contribution pension plans are recognised as an operating

expense in the income statement as incurred.

2. Other post-retirement obligations – The expected costs of post-retirement medical and

life assurance benefits are accrued over the period of employment, using a similar accounting

methodology as for defined benefit pension obligations. The liabilities and costs relating to significant

other post-retirement obligations are assessed annually by independent qualified actuaries.

3. Share-based payments – The fair value of options or shares granted under the Group’s share

and option plans is recognised as an employee expense after taking into account the Group’s best

estimate of the number of awards expected to vest. Fair value is measured at the date of grant

and is spread over the vesting period of the option or share. The fair value of the options granted

is measured using an option model that is most appropriate to the award. The fair value of shares

awarded is measured using the share price at the date of grant unless another method is more

appropriate. Any proceeds received are credited to share capital and share premium when the

options are exercised.

Provisions

Provisions are recognised if the Group has a present legal or constructive obligation as a result

of past events; it is more likely than not that an outflow of resources will be required to settle the

obligation and the amount can be reliably estimated. Provisions are discounted to present value

where the effect is material.

Revenue recognition

The Group’s revenue streams are courseware, assessments and services. Courseware includes

curriculum materials provided in book form and/or via access to digital content. Assessments

includes test development, processing and scoring services provided to governments, educational

institutions, corporations and professional bodies. Services includes the operation of schools,

colleges and universities, as well as the provision of online learning services in partnership with

universities and other academic institutions.

Revenue is recognised in order to depict the transfer of control of promised goods and services

to customers in an amount that reflects the consideration to which we expect to be entitled in

exchange for those goods and services. This process begins with the identification of our contract

with a customer, which is generally through a master services agreement, customer purchase order,

or a combination thereof. Within each contract, judgement is applied to determine the extent to

which activities within the contract represent distinct performance obligations to be delivered and

the total amount of transaction price to which we expect to be entitled.

The transaction price determined is net of sales taxes, rebates and discounts, and after eliminating

sales within the Group. Where a contract contains multiple performance obligations such as the

provision of supplementary materials or online access with textbooks, revenue is allocated on

the basis of relative standalone selling prices. Where a contract contains variable consideration,

significant estimation is required to determine the amount to which the Group is expected to

be entitled.

Revenue is recognised on contracts with customers when or as performance obligations are

satisfied, which is the period or the point in time where control of goods or services transfers to

the customer. Judgement is applied to determine first whether control passes over time and if not,

then the point in time at which control passes. Where revenue is recognised over time, judgement

is used to determine the method which best depicts the transfer of control. Where an input

method is used, significant estimation is required to determine the progress towards delivering

the performance obligation.

If a contract with a customer is modified (change of scope, price or both), management uses

judgement to determine whether changes to existing rights and obligations should be accounted

for as a separate contract or as an adjustment to the existing contracts. Adjustments to existing

contracts are either accounted for prospectively or through a cumulative catch up adjustment.

Revenue from the sale of books is recognised net of a provision for anticipated returns. This

provision is based primarily on historical return rates, customer buying patterns and retailer

behaviours including stock levels. If these estimates do not reflect actual returns in future periods

then revenue could be understated or overstated for a particular period. When the provision for

returns is remeasured at each reporting date to reflect changes in estimates, a corresponding

adjustment is also recorded to revenue.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 158

Financial statements

The Group may enter into contracts with another party in addition to our customer. In making the

determination as to whether revenue should be recognised on a gross or net basis, the contract

with the customer is analysed to understand which party controls the relevant good or service

prior to transferring to the customer. This judgement is informed by facts and circumstances of the

contract in determining whether the Group has promised to provide the specified good or service

or whether the Group is arranging for the transfer of the specified good or service, including which

party is responsible for fulfilment, has discretion to set the price to the customer and is responsible

for inventory risk. On certain contracts, where the Group acts as an agent, only commissions and

fees receivable for services rendered are recognised as revenue. Any third-party costs incurred on

behalf of the principal that are rechargeable under the contractual arrangement are not included

in revenue.

Income from recharges of freight and other activities which are incidental to the normal revenue-

generating activities is included in other income.

Additional details on the Group’s revenue streams are also included in note 3.

Leases

1. The Group as a lessee – The Group assesses whether a contract is or contains a lease at the

inception of the contract. A contract is, or contains, a lease, if the contract conveys the right to

control the use of an identified asset for a period of time in exchange for consideration. The Group

recognises a right-of-use asset and a lease liability at the lease commencement date with respect to

all lease arrangements except for short-term leases (leases with a lease term of 12 months or less)

and leases of low-value assets. For these leases, the lease payments are recognised as an operating

expense on a straight-line basis over the term of the lease.

The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability

plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less

any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-

line method from the commencement date to the earlier of the end of the useful life of the asset

or the end of the lease term. The Group applies IAS 36 to determine whether a right-of-use asset is

impaired. The lease liability is initially measured at the present value of the lease payments that are

not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that

rate cannot be readily determined, the incremental borrowing rate. The lease liability is measured at

amortised cost using the effective interest method. It is remeasured when there is a change in future

lease payments arising from a change in an index or a rate or a change in the Group’s assessment of

whether it will exercise an extension or termination option. When the lease liability is remeasured, a

corresponding adjustment is made to the right-of-use asset.

Management uses judgement to determine the lease term where extension and termination options

are available within the lease.

2. The Group as a lessor – When the Group is an intermediate lessor, the head lease and sublease

are accounted for as two separate contracts. The head lease is accounted for as per the lessee policy

above. The sublease is classified as a finance lease or operating lease by reference to the right-of-use

asset arising from the head lease. Where the lease transfers substantially all the risks and rewards

of ownership to the lessee, the contract is classified as a finance lease; all other leases are classified

as operating leases. Rental income from operating leases is recognised on a straight-line basis over

the term of the relevant lease. Amounts due from lessees under finance subleases are recognised as

receivables at the amount of the Group’s net investment in the leases discounted using the interest

rate implicit in the lease or, if that rate cannot be readily determined, the discount rate used in the

head lease.

Dividends

Final dividends are recorded in the Group’s financial statements in the period in which they are

approved by the company’s shareholders. Interim dividends are recorded when paid.

Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate major

line of business or geographical area of operations that has been disposed of or meets the criteria to

be classified as held for sale.

When applicable, discontinued operations are presented in the income statement as a separate line

and are shown net of tax.

Assets and liabilities held for sale

Assets and liabilities are classified as held for sale and stated at the lower of carrying amount and fair

value less costs to sell if it is highly probable that the carrying amount will be recovered principally

through a sale transaction rather than through continuing use. No depreciation is charged in respect

of non-current assets classified as held for sale. Amounts relating to non-current assets and liabilities

held for sale are classified as discontinued operations in the income statement where appropriate.

Trade receivables

Trade receivables are stated at fair value after provision for bad and doubtful debts. Provisions for

bad and doubtful debts are based on the expected credit loss model. The ‘simplified approach’ is

used with the expected loss allowance measured at an amount equal to the lifetime expected credit

losses. A provision for anticipated future sales returns is included within trade and other liabilities

(also see Revenue recognition policy).

Annual report and accounts 2023 Pearson plc 159

Financial statements

1b. Going concern

In assessing the Group’s ability to continue as a going concern for the period to 30 June 2025, the

Board reviewed management’s five-year plan, which was used as the base case. The review included

available liquidity throughout the period and headroom against the Group’s two main covenants,

which require net debt to EBITDA to be a maximum of four times and interest cover to be at least

three times.

At 31 December 2023, the Group had available liquidity of c.£1bn, comprising central cash balances

and its undrawn $1bn Revolving Credit Facility (RCF). The company's subsidiary Pearson Funding plc

has a debt maturity of €300m due within the going concern assessment period and it is assumed

that this is refinanced ahead of time with a £250m bond or bank facility. In both the base case and

severe but plausible scenario, the business has sufficient liquidity to repay this amount and does

not rely on this refinancing in order to remain a going concern. Significant liquidity and covenant

headroom was observed throughout the assessment period in this base model.

A severe but plausible scenario was analysed, where the Group is impacted by all principal risks

in both 2024 and 2025, adjusted for probability weighting as well as other significant risks. For this

and other downside scenarios tested, the net impact of the risks modelled was to reduce adjusted

operating profit by around 40% in each year. Even under a severe downside case, the company

would maintain comfortable liquidity headroom and sufficient headroom against covenant

requirements during the period under assessment. That is, even before modelling the mitigating

effect of actions that management would take if these downside risks were to crystalise.

A reverse stress test was performed to identify the reduction in profit required to exhaust liquidity

at 30 June 2025. The model showed that operating losses were required in both 2024 and 2025 to

exhaust liquidity.

The Directors have confirmed that there are no material uncertainties that cast doubt on the Group’s

going concern status and that they have a reasonable expectation that the Group has adequate

resources to continue in operational existence beyond 30 June 2025. The consolidated financial

statements have therefore been prepared on a going concern basis.

1c. Climate change

The Group has assessed the impacts of climate change on the Group’s financial statements,

including our commitment to reducing our absolute scope 1, 2 and 3 carbon emissions by 50% by

2030, and the actions the Group intends to take to achieve those targets. The assessment did not

identify any material impact on the Group’s significant judgements or estimates at 31 December

2023, or the assessment of going concern for the period to June 2025 and the Group’s viability over

the next five years. Specifically, we have considered the following areas:

— The physical and transition risks associated with climate change; and

— The actions the Group is taking to meet its carbon reduction and net zero targets.

As a result, the Group has assessed the impacts of climate change on the financial statements, and

in particular, on the following areas:

— The impact on the Group’s future cash flows, and the resulting impact that such adjustments

to our future cash flows would have on the outcome of the annual impairment testing of our

goodwill balances (see note 11 for further details), the recognition of deferred tax assets and our

assessment of going concern;

— The carrying value of the Group’s assets, in particular the recoverable amounts of inventories,

product development assets, intangible assets and property, plant and equipment; and

— Any changes to our estimates of the useful economic lives of product development assets,

intangible assets and property, plant and equipment.

2. Segment information

There are five main global business divisions, which are each considered separate operating

segments for management and reporting purposes, as these are reported separately to the Group’s

chief operating decision-maker, the Pearson Executive Management team. These five divisions are

Assessment & Qualifications, Virtual Learning, English Language Learning, Higher Education and

Workforce Skills. In addition, the International Courseware local publishing businesses, which were

under strategic review, were being managed as a separate division, known as Strategic Review. In

2022, some of the businesses from the Strategic Review division were disposed of (see note 31).

The following describes the principal activities of the five main operating segments:

— Assessment & Qualifications – Pearson VUE, US School Assessment, Clinical Assessment, UK

GCSE and A Levels and International academic qualifications and associated courseware including

the English-speaking Canadian and Australian K-12 businesses, and PDRI;

— Virtual Learning – Virtual Schools and Online Program Management;

— English Language Learning – Pearson Test of English, Institutional Courseware and English

Online Solutions;

— Workforce Skills – BTEC, GED, TalentLens, Faethm, Credly, Pearson College and Apprenticeships;

and

— Higher Education – US, Canadian and International Higher Education Courseware businesses.

The Pearson Executive Management team evaluates and allocates resources to operating segments,

and evaluates the performance of each of its operating segments on the basis of adjusted operating

profit, which is considered to be the segment measure.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 160

Financial statements

All figures in £ millions
Sales	2023	2022	2021
Assessment & Qualifications	1,559	1,444	1,238
Virtual Learning	616	820	713
English Language Learning	415	321	238
Workforce Skills	220	204	172
Higher Education	855	898	849
Strategic Review	9	154	218
Total sales	3,674	3,841	3,428

All figures in £ millions
Adjusted operating profit	2023	2022	2021
Assessment & Qualifications	350	258	219
Virtual Learning	76	70	32
English Language Learning	47	25	15
Workforce Skills	(8)	(3)	27
Higher Education	110	91	73
Strategic Review	(2)	15	19
Total adjusted operating profit	573	456	385

A reconciliation of the operating segments’ measure of profit to profit for the year is provided below:

		2023	2022	2021
Adjusted operating profit		573	456	385
Cost of major restructuring		–	(150)	(214)
Property charges		(11)	–	–
Intangible charges		(48)	(56)	(51)
UK pension discretionary increases		–	(3)	–
Other net gains and losses		(16)	24	63
Operating profit		498	271	183
Finance costs	6	(81)	(71)	(68)
Finance income	6	76	123	62
Profit before tax		493	323	177
Income tax	7	(113)	(79)	1
Profit for the year		380	244	178

There were no material inter-segment sales in either 2023, 2022 or 2021.

Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the total segment result is equal to the Group operating profit.

Annual report and accounts 2023 Pearson plc 161

Financial statements

2. Segment information continued

Adjusted operating profit is shown in the above tables as it is the key financial measure used by management to evaluate the performance of the Group. The measure also enables investors to more easily,

and consistently, track the underlying operational performance of the Group and its business segments over time by separating out those items of income and expenditure relating to acquisition and disposal

transactions, certain property charges, major restructuring programmes and certain other items that are also not representative of underlying performance, which are explained below and reconciled within

this note.

Cost of major restructuring – In 2023, there are no costs of major restructuring. In 2022, the restructuring costs of £150m mainly related to staff redundancies and impairment of right of use property assets.

The 2022 charge includes the impact of updated assumptions related to the recoverability of right-of-use assets made in 2021. In 2021, restructuring costs of £214m mainly related to the impairment of right-

of-use property assets, the write-down of product development assets and staff redundancies. The costs of these restructuring programmes are significant enough to exclude from the adjusted operating

profit measure so as to better highlight the underlying performance (see note 4).

Property charges – Charges of £11m relate to impairments of property assets arising from the impact of updates in 2023 to assumptions initially made during the 2022 and 2021 restructuring programmes.

Intangible charges – These represent charges relating to intangibles acquired through business combinations. These charges are excluded as they reflect past acquisition activity and do not necessarily reflect

the current year performance of the Group. Intangible amortisation charges in 2023 were £48m compared to a charge of £56m in 2022. This is due to decreased amortisation from disposals partially offset by

additional amortisation from recent acquisitions. In 2021, intangible charges were £51m. In all three years, there were no impairment charges.

Other net gains and losses – These represent profits and losses on the sale of subsidiaries, joint ventures, associates and other financial assets and are excluded from adjusted operating profit as they distort

the performance of the Group as reported on a statutory basis. Other net gains and losses also includes costs related to business closures and acquisitions. Other net gains and losses in 2023 relate to the

gain on the disposal of the POLS business and gains related to the release of accruals and a provision related to historical acquisitions, offset by losses on the disposal of Pearson College and costs related to

current and prior year disposals and acquisitions. In 2022, they related to the gains on the disposal of our international courseware local publishing businesses in Europe, French-speaking Canada and Hong

Kong and a gain arising on a decrease in the deferred consideration payable on prior year acquisitions, offset by a loss on disposal of our international courseware local publishing businesses in South Africa

due to recycling of currency translation adjustments and costs related to disposals and acquisitions. Other net gains and losses in 2021 largely related to the disposal of PIHE and the disposal of the K12

Sistemas business in Brazil offset by costs related to the acquisition of Faethm and the wind down of certain strategic review businesses.

UK pension discretionary increases – Charges in 2022 relate to one-off pension increases awarded to certain cohorts of pensioners in response to the cost of living crisis.

Adjusted operating profit should not be regarded as a complete picture of the Group’s financial performance. For example, adjusted operating profit includes the benefits of major restructuring programmes

but excludes the significant associated costs, and adjusted operating profit excludes costs related to acquisitions, and the amortisation of intangibles acquired in business combinations, but does not exclude

the associated revenue. The Group’s definition of adjusted operating profit may not be comparable to other similarly titled measures reported by other companies.

The Group operates in the following main geographic areas:

All figures in £ millions

			Sales		Non-current assets
	2023	2022	2021	2023	2022
UK	450	424	355	518	527
Other European countries	130	192	249	179	192
US	2,504	2,668	2,182	2,320	2,333
Canada	83	110	111	186	243
Asia Pacific	386	290	359	186	200
Other countries	121	157	172	20	17
Total	3,674	3,841	3,428	3,409	3,512

Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received. The geographical split of non-current assets is based

on the subsidiary’s country of domicile. This is not materially different to the location of the assets. Non-current assets comprise investment property, property, plant and equipment, intangible assets and

investments in joint ventures and associates.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 162

Financial statements

3. Revenue from contracts with customers

The following tables analyse the Group’s revenue streams. Courseware includes curriculum materials provided in book form and/or via access to digital content. Assessments includes integrated test

development, processing and scoring services provided to governments, educational institutions, corporations and professional bodies. Services includes the operation of schools, colleges and universities, as

well as the provision of online learning services in partnership with universities and other academic institutions.

The Group derived revenue from the transfer of goods and services over time and at a point in time in the following major product lines:

							2023
			English
	Assessment &	Virtual	Language	Workforce	Higher	Strategic
All figures in £ millions	Qualifications	Learning	Learning	Skills	Education	Review	Total
Courseware
Products transferred at a point in time	57	–	135	2	254	9	457
Products and services transferred over time	20	–	15	–	595	–	630
	77	–	150	2	849	9	1,087
Assessments
Products transferred at a point in time	198	–	5	5	–	–	208
Products and services transferred over time	1,284	–	204	170	–	–	1,658
	1,482	–	209	175	–	–	1,866
Services
Products transferred at a point in time	–	–	35	–	–	–	35
Products and services transferred over time	–	616	21	43	6	–	686
	–	616	56	43	6	–	721
Total	1,559	616	415	220	855	9	3,674

All figures in £ millions

							2022
			English
	Assessment &	Virtual	Language	Workforce	Higher	Strategic
	Qualifications	Learning	Learning	Skills	Education	Review	Total
Courseware
Products transferred at a point in time	64	–	110	2	302	148	626
Products and services transferred over time	21	–	25	–	588	6	640
	85	–	135	2	890	154	1,266
Assessments
Products transferred at a point in time	169	–	5	14	–	–	188
Products and services transferred over time	1,190	–	138	142	–	–	1,470
	1,359	–	143	156	–	–	1,658
Services
Products transferred at a point in time	–	–	29	–	–	–	29
Products and services transferred over time	–	820	14	46	8	–	888
	–	820	43	46	8	–	917
Total	1,444	820	321	204	898	154	3,841

Annual report and accounts 2023 Pearson plc 163

Financial statements

3. Revenue from contracts with customers continued

All figures in £ millions

							2021
			English
	Assessment &	Virtual	Language	Workforce	Higher	Strategic
	Qualifications	Learning	Learning	Skills	Education	Review	Total
Courseware
Products transferred at a point in time	62	–	109	–	283	180	634
Products and services transferred over time	30	–	26	–	558	17	631
	92	–	135	–	841	197	1,265
Assessments
Products transferred at a point in time	173	–	6	16	–	–	195
Products and services transferred over time	973	–	72	119	–	–	1,164
	1,146	–	78	135	–	–	1,359
Services
Products transferred at a point in time	–	–	22	–	–	14	36
Products and services transferred over time	–	713	3	37	8	7	768
	–	713	25	37	8	21	804
Total	1,238	713	238	172	849	218	3,428

a. Nature of goods and services

The following is a description of the nature of the Group’s performance obligations within contracts

with customers broken down by revenue stream, along with significant judgements and estimates

made within each of those revenue streams.

Courseware

Revenue is generated from customers through the sales of print and digital courseware materials to

schools, bookstores and direct to individual learners. Goods and services may be sold separately or

purchased together in bundled packages. The goods and services included in bundled arrangements

are considered distinct performance obligations, except for where Pearson provides both a licence

of intellectual property and an ongoing hosting service. As the licence of intellectual property is only

available with the concurrent hosting service, the licence is not treated as a distinct performance

obligation separate from the hosting service.

The transaction price is allocated between distinct performance obligations on the basis of their

relative standalone selling prices.

In determining the transaction price, variable consideration exists in the form of discounts and

anticipated returns. Discounts reduce the transaction price on a given transaction. A provision for

anticipated returns is made based primarily on historical return rates, customer buying patterns

and retailer behaviours including stock levels. If these estimates do not reflect actual returns in

future periods then revenue could be understated or overstated for a particular period. Variable

consideration as described above is determined using the expected value approach. The sales

return liability at the end of 2023 was £31m (2022: £53m; 2021: £83m).

While payment for these goods and services generally occurs at the start of these arrangements,

the length of time between payment and delivery of the performance obligations is generally short-

term in nature or the reason for early payment relates to reasons other than financing, including

customers securing a vendor in a longer-term arrangement or the transfer of goods or services is at

the discretion of the customer. For these reasons and the use of the practical expedient on short-

term financing, significant financing components are not recognised within Courseware transactions.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 164

Financial statements

Revenue from the sale of physical books is recognised at a point in time when control passes. This is

generally at the point of shipment when title passes to the customer, when the Group has a present

right to payment and the significant risks and rewards of ownership have passed to the customer.

Revenue from physical books sold through the direct print rental method is recognised over the

rental period, as the customer is simultaneously receiving and consuming the benefits of this rental

service through the passage of time.

Revenue from the sale of digital courseware products is recognised on a straight-line basis over the

subscription period, unless hosted by a third party or representative of a downloadable product, in

which case Pearson has no ongoing obligation and recognises revenue when control transfers as the

customer is granted access to the digital product.

Revenue from the sale of ‘off-the-shelf’ software is recognised on delivery or on installation of the

software where that is a condition of the contract. In certain circumstances, where installation is

complex, revenue is recognised when the customer has completed their acceptance procedures.

Assessments

Revenue is primarily generated from multi-year contractual arrangements related to large-scale

assessment delivery, such as contracts to process qualifying tests for individual professions and

government departments, and is recognised as performance occurs. Under these arrangements,

while the agreement spans multiple years, the contract duration has been determined to be each

testing cycle based on contract structure, including clauses regarding termination.

While in some cases the customer may have the ability to terminate during the term for convenience,

significant financial or qualitative barriers exist limiting the potential for such terminations in the

middle of a testing cycle.

Within each testing cycle, a variety of service activities are performed such as test administration,

delivery, scoring, reporting, item development, operational services and programme management.

These services are not treated as distinct in the context of the customer contract as Pearson

provides an integrated managed service offering and these activities are accounted for together as

one comprehensive performance obligation.

Within each testing cycle, the transaction price may contain both fixed and variable amounts.

Variable consideration within these transactions primarily relates to expected testing volumes to

be delivered in the cycle. The assumptions, risks and uncertainties inherent to long-term contract

accounting can affect the amounts and timing of revenue and related expenses reported. Variable

consideration is measured using the expected value method, except where amounts are contingent

upon a future event’s occurrence, such as performance bonuses. Such event-driven contingency

payments are measured using the most likely amount approach. In estimating and constraining

variable consideration, historical experience, current trends and local market conditions are

considered. To the extent that a higher degree of uncertainty exists regarding variable consideration,

these amounts are excluded from the transaction price and recognised when the uncertainty is

reasonably removed.

Customer payments are generally defined in the contract through a payment schedule, which may

require customer acceptance for services rendered. Pearson has a history of providing satisfactory

services which are accepted by the customer. While a delay between rendering of services and

payment may exist, payment terms are within 12 months and the Group has elected to use the

practical expedient available in IFRS 15 ‘Revenue from Contracts with Customers’ and not identify a

significant financing component on these transactions.

Revenue is recognised for Assessment contracts over time as the customer is benefiting as

performance takes place through a continuous transfer of control to the customer. This continuous

transfer of control to the customer is supported by clauses in the contracts which may allow the

customer to terminate for convenience, compensate us for work performed to date, and take

possession of work in process.

As control transfers over time, revenue is recognised based on the extent of progress towards

completion of the performance obligation. The selection of the method to measure progress

towards completion requires judgement and is based on the nature of the services provided.

Revenue is recognised on a percentage of costs basis, calculated using the proportion of the total

estimated costs incurred to date. The proportion of estimated costs incurred to date is primarily

based on historical cost analysis for similar groups of contracts, with regular true-ups to contract

costs throughout the contract period. Percentage of completion is used to recognise the transfer of

control of services provided as these services are not provided evenly throughout the testing cycle

and involve varying degrees of effort during the contract term.

Losses on contracts are recognised in the period in which the loss first becomes foreseeable.

Contract losses are determined to be the amount by which estimated total costs of the contract

exceed the estimated total revenue that will be generated.

In Assessments contracts driven primarily by transactions directly to end users, Pearson’s main

obligation to the customer involves test delivery and scoring. Test delivery and scoring are defined

as a single performance obligation delivered over time whether the test is subsequently manually

scored or digitally scored on the day of the assessment. Customers may also purchase print and

digital supplemental materials. Print products in this revenue stream are recognised at a point in

time when control passes to the customer upon shipment. Recognition of digital revenue will occur

based on the extent of Pearson’s ongoing hosting obligation.

Annual report and accounts 2023 Pearson plc 165

Financial statements

3. Revenue from contracts with customers continued

Services

Revenue is primarily generated from multi-year contractual arrangements related to large-scale

educational service delivery to academic institutions, such as schools and higher education

universities. Under these arrangements, while an agreement may span multiple years, the contract

duration has been determined to be each academic period based on the structure of contracts,

including clauses regarding termination. While in some cases the customer may have the ability

to terminate during the term for convenience, significant financial or qualitative barriers exist

limiting the potential for such terminations in the middle of an academic period. The academic

period for this customer base is normally an academic year for schools and a semester for higher

education universities.

Within each academic period, a variety of services are provided such as programme development,

student acquisition, education technology and student support services. These services are not

distinct in the context of the customer contract as Pearson provides an integrated managed service

offering and these activities are accounted for together as a comprehensive performance obligation.

Where Services are provided to university customers, volume and transaction price are fixed at the

start of the semester. Where Services are provided to school customers, the transaction price may

contain both fixed and variable amounts which require estimation during the academic period.

Estimation is required where consideration is based upon average enrolments or other metrics

which are not known at the start of the academic year. Variable consideration is measured using

the expected value method. Historical experience, current trends, local circumstances and customer-

specific funding formulas are considered in estimating and constraining variable consideration.

To the extent that a higher degree of uncertainty exists regarding variable consideration, these

amounts are excluded from the transaction price and recognised when the uncertainty is

reasonably removed.

Customer payments are generally defined in the contract as occurring shortly after invoicing. Where

there is a longer payment term offered to a customer through a payment schedule, payment terms

are within 12 months and the Group has elected to use the practical expedient available in IFRS 15

and not identify a significant financing component on these transactions.

Revenue is recognised for Service contracts over time as the customer is benefiting as performance

takes place through a continuous transfer of control to the customer. This continuous transfer of

control to the customer is supported by clauses in the contracts which may allow the customer to

terminate for convenience, compensate for work performed to date, and take possession of work

in process.

As control transfers over time, revenue is recognised based on the extent of progress towards

completion of the performance obligation. The selection of the method to measure progress

towards completion requires judgement and is based on the nature of the products or services

provided. Within the comprehensive service obligation, the timing of services occurs relatively evenly

over each academic period and, as such, time elapsed is used to recognise the transfer of control to

the customer on a straight-line basis.

Losses on contracts are recognised in the period in which the loss first becomes foreseeable.

Contract losses are determined to be the amount by which estimated total costs of the contract

exceed the estimated total revenue that will be generated.

In cases of optional or add-on purchases, institutions may purchase physical goods priced at their

standalone value, which are accounted for separately and recognised at the point in time when

control passes to the customer upon shipment.

b. Disaggregation of revenue

The tables in notes 2 and 3 show revenue from contracts with customers disaggregated by operating

segment, geography and revenue stream. These disaggregation categories are appropriate as they

represent the key groupings used in managing and evaluating underlying performance of each of the

businesses. The categories also reflect groups of similar types of transactional characteristics, among

similar customers, with similar accounting conclusions.

c. Contract balances

Transactions within the Courseware revenue stream generally entail customer billings at or near the

contract’s inception and accordingly Courseware deferred income balances are primarily related to

subscription performance obligations to be delivered over time.

Transactions within the Assessments and Services revenue streams generally entail customer billings

over time based on periodic intervals, progress towards milestones or enrolment census dates.

As the performance obligations within these arrangements are delivered over time, the extent of

accrued income or deferred income will ultimately depend upon the difference between revenue

recognised and billings to date.

Refer to note 22 for opening and closing balances of accrued income. Refer to note 24 for opening

and closing balances of deferred income. Revenue recognised during the period from changes in

deferred income was driven primarily by the release of revenue over time from digital subscriptions.

d. Contract costs

The Group capitalises incremental costs to obtain contracts with customers where it is expected

these costs will be recoverable. Incremental costs to obtain contracts with customers are considered

those which would not have been incurred if the contract had not been obtained. For the Group,

these costs relate primarily to sales commissions. The Group has elected to use the practical

expedient as allowable by IFRS 15 whereby such costs will be expensed as incurred where the

expected amortisation period is one year or less. Where the amortisation period is greater than one

year, these costs are amortised over the contract term on a systematic basis consistent with the

transfer of the underlying goods and services within the contract to which these costs relate, which

will generally be on a rateable basis.

The Group does not recognise any material costs to fulfil contracts with customers as these types of

activities are governed by other accounting standards.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 166

Financial statements

e. Remaining transaction price

The below table depicts the remaining transaction price on unsatisfied or partially unsatisfied performance obligations from contracts with customers.

All figures in £ millions

							2023
				Total
				remaining
		Deferred	Committed	transaction			2026
	Sales	income	sales	price	2024	2025	and later
Courseware
Products transferred at a point in time	457	–	–	–	–	–	–
Products and services transferred over time	630	78	–	78	38	15	25
Assessments
Products transferred at a point in time	208	1	–	1	1	–	–
Products and services transferred over time	1,658	261	332	593	496	94	3
Services
Products transferred at a point in time	35	–	–	–	–	–	–
Products and services transferred over time – subscriptions	660	12	–	12	11	1	–
Products and services transferred over time – other	26	16	234	250	250	–	–
Total	3,674	368	566	934	796	110	28

All figures in £ millions

							2022
				Total
				remaining
		Deferred	Committed	transaction			2025
	Sales	income	sales	price	2023	2024	and later
Courseware
Products transferred at a point in time	626	1	–	1	1	–	–
Products and services transferred over time	640	95	–	95	56	14	25
Assessments
Products transferred at a point in time	188	–	–	–	–	–	–
Products and services transferred over time	1,470	262	472	734	524	206	4
Services
Products transferred at a point in time	29	–	–	–	–	–	–
Products and services transferred over time – subscriptions	351	20	7	27	27	–	–
Products and services transferred over time – other	537	22	225	247	247	–	–
Total	3,841	400	704	1,104	855	220	29

Annual report and accounts 2023 Pearson plc 167

Financial statements

3. Revenue from contracts with customers continued

e. Remaining transaction price continued

All figures in £ millions

							2021
				Total
				remaining
		Deferred	Committed	transaction			2024
	Sales	income	sales	price	2022	2023	and later
Courseware
Products transferred at a point in time	634	1	–	1	1	–	–
Products and services transferred over time	631	93	–	93	60	11	22
Assessments
Products transferred at a point in time	195	–	–	–	–	–	–
Products and services transferred over time	1,164	255	442	697	503	191	3
Services
Products transferred at a point in time	36	–	–	–	–	–	–
Products and services transferred over time – subscriptions	290	13	10	23	23	–	–
Products and services transferred over time – other	478	24	220	244	244	–	–
Total	3,428	386	672	1,058	831	202	25

Committed sales amounts are equal to the transaction price from contracts with customers, excluding those amounts previously recognised as revenue and amounts currently recognised in deferred

income. The total of committed sales and deferred income is equal to the remaining transaction price. Time bands stated above represent the expected timing of when the remaining transaction price will be

recognised as revenue.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 168

Financial statements

4. Operating expenses

	All figures in £ millions 2023	2022	2021
By function:
Cost of goods sold	1,839	2,046	1,747
Operating expenses
Distribution costs	47	61	62
Selling, marketing and product development costs	549	564	521
Administrative and other expenses	767	823	802
Restructuring costs	–	150	214
Other income	(41)	(49)	(37)
Total net operating expenses	1,322	1,549	1,562
Other net gains and losses	16	(24)	(63)
Total	3,177	3,571	3,246

Other income includes freight income and sublet income. Included in administrative and other

expenses are research and efficacy costs of £8m (2022: £10m; 2021: £12m). In 2023, other net gains

and losses relate to the gain on the disposal of the POLS business and gains related to the release of

accruals and a provision related to historical acquisitions, offset by losses on the disposal of Pearson

College and costs related to current and prior year disposals and acquisitions. Other net gains in

2022, largely relate to the gain on the sales of certain businesses (see note 31) and a gain arising on

a decrease in the deferred consideration payable on prior year acquisitions, offset by costs related to

disposals and acquisitions. In 2021, other net gains and losses largely relate to the sale of interests in

PIHE in South Africa and the school business in Brazil.

In 2023, there are no costs of major restructuring. In 2022, the restructuring costs of £150m mainly

related to staff redundancies and impairment of right-of-use property assets. The 2022 charge

includes the impact of updated assumptions related to the recoverability of right-of-use assets made

in 2021. In 2023, charges of £11m relating to impairments of property assets arising from the impact

of updates to assumptions made during the 2022 and 2021 restructuring programmes are included

within administrative and other expenses.

		All figures in £ millions Notes 2023	2022	2021
By nature:
Royalties expensed		164	194	185
Other product costs		393	412	353
Employee benefit expense	5	1,467	1,605	1,365
Contract labour		70	73	69
Employee-related expense		60	52	21
Promotional costs		146	268	239
Depreciation and impairment of property, plant
and equipment and investment property and assets held for sale	10	90	136	241
Amortisation and impairment of intangible assets – product development	20	284	303	279
Amortisation and impairment of intangible assets – software	11	123	125	117
Amortisation and impairment of intangible assets – other	11	46	54	50
Property and facilities		82	102	124
Technology and communications		215	221	215
Professional and outsourced services		443	501	477
Other general and administrative costs		43	76	58
Costs capitalised		(424)	(478)	(447)
Other net gains and losses		16	(24)	(63)
Other income		(41)	(49)	(37)
Total		3,177	3,571	3,246

Annual report and accounts 2023 Pearson plc 169

Financial statements

4. Operating expenses continued

During the year the Group obtained the following services from the Group’s auditors, which changed

to EY in 2022 and was PwC in 2021:

	All figures in £ millions 2023	2022	2021
The audit of parent company and consolidated financial
statements	8	6	5
The audit of the company’s subsidiaries	2	1	2
Total audit fees*	10	7	7
Audit-related and other assurance services	–	–	–
Other non-audit services	–	–	–
Total other services	–	–	–
Total non-audit services	–	–	–
Total	10	7	7

Reconciliation between audit and non-audit service fees is shown below:

	All figures in £ millions 2023	2022	2021
Group audit fees including fees for attestation under section
404 of the Sarbanes-Oxley Act	10	7	7
Non-audit fees	–	–	–
Total	10	7	7

* Includes fees in connection with the interim review, preliminary announcement and controls audit required under Section 404 of

the Sarbanes Oxley Act. In total this amounted to £1m in each of the years presented.

5. Employee information

		All figures in £ millions Notes 2023	2022	2021
Employee benefit expense
Wages and salaries (including termination costs)		1,252	1,382	1,180
Social security costs		107	113	95
Share-based payment costs	26	37	35	28
Retirement benefits – defined contribution plans	25	45	46	37
Retirement benefits – defined benefit plans	25	26	29	25
Total		1,467	1,605	1,365

An additional £3m of share-based payment costs (2022: £3m; 2021: £nil) in respect of remuneration

for post-acquisition services for recent acquisitions is included in other net gains and losses in the

income statement.

The details of the emoluments of the Directors of Pearson plc are shown in the report on Directors’

remuneration.

	Average number employed 2023	2022	2021
Employee numbers
UK	3,045	3,244	3,395
Other European countries	633	809	878
US	10,125	11,357	11,757
Canada	398	522	593
Asia Pacific	3,257	3,369	2,738
Other countries	902	1,137	1,383
Total	18,360	20,438	20,744

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 170

Financial statements

6. Net finance costs

		All figures in £ millions Notes 2023	2022	2021
Interest payable on financial liabilities at
amortised cost and associated derivatives		(34)	(32)	(30)
Interest on lease liabilities	35	(23)	(25)	(27)
Interest on deferred and contingent
consideration		(4)	(5)	–
Interest on provisions for uncertain tax positions		–	(7)	(11)
Fair value movement on derivatives		(20)	(2)	–
Finance costs		(81)	(71)	(68)
Interest receivable on financial assets at amortised cost		16	18	5
Interest on lease receivables	35	4	5	6
Net finance income in respect of retirement
benefits	25	26	9	4
Fair value remeasurement of disposal proceeds		–	–	6
Fair value movements on investments held at fair value	15	13	28	20
Net foreign exchange gains		3	1	1
Interest on provisions for uncertain tax positions		4	35	–
Fair value movement on derivatives		10	27	20
Finance income		76	123	62
Net finance (costs)/income		(5)	52	(6)

Net movement in the fair value of hedges is further explained in note 16. Derivatives not in a hedge

relationship include fair value movements in the interest rate and cross-currency interest rate swaps.

7. Income tax

		All figures in £ millions Notes 2023	2022	2021
Current tax
Charge in respect of current year		(105)	(127)	(103)
Adjustments in respect of prior years		20	18	(12)
Total current tax charge		(85)	(109)	(115)
Deferred tax
In respect of temporary differences		(11)	29	103
Other adjustments in respect of prior years		(17)	1	13
Total deferred tax (charge)/credit	13	(28)	30	116
Total tax (charge)/credit		(113)	(79)	1

Annual report and accounts 2023 Pearson plc 171

Financial statements

7. Income tax continued

The adjustments in respect of prior years in 2023 and 2021 primarily arise from revising the previous

year’s reported tax provision to reflect the tax returns subsequently filed, whilst in 2022, the

difference is primarily due to movements in provisions for tax uncertainties. This results in a change

between deferred and current tax as well as an absolute benefit to the total tax charge. The tax on

the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax

rate as follows:

	All figures in £ millions 2023	2022	2021
Profit before tax	493	323	177
Tax calculated at UK rate (2023: 23.5%; 2022: 19%; 2021:
19%)	(116)	(62)	(34)
Effect of overseas tax rates	(1)	(12)	(24)
Effect of UK rate change	(1)	3	25
Intra-group financing benefit	–	–	7
Net expense not subject to tax	(3)	(9)	(9)
Gains and losses on sale of businesses not subject to tax	5	2	4
Unrecognised tax losses	1	3	9
Benefit from changes in local tax law	–	–	11
Benefit from US accounting method changes	–	–	11
Movement in provisions for tax uncertainties – current year	(2)	(23)	–
Adjustments in respect of prior years – movement in provisions for tax uncertainties	1	13	–
Adjustments in respect of prior years – other	3	6	1
Total tax (charge)/credit	(113)	(79)	1
UK	(54)	(41)	27
Overseas	(59)	(38)	(26)
Total tax (charge)/credit	(113)	(79)	1
Tax rate reflected in earnings	23.0%	24.5%	(0.6)%

Key judgements

— The application of tax legislation in relation to provisions for uncertain tax positions.

Key areas of estimation

— The level of provisions required in relation to uncertain tax positions is complex and each

matter is separately assessed. The estimation of future settlement amounts is based on a

number of factors including the status of the unresolved matter, clarity of legislation, range

of possible outcomes and the statute of limitations.

Included in net expense not subject to tax are foreign taxes not creditable, the tax impact of share-

based payments and other expenses not deductible.

Factors which may affect future tax charges include changes in tax legislation, transfer

pricing regulations, the level and mix of profitability in different countries, and settlements

with tax authorities.

UK legislation in relation to Pillar Two was substantively enacted on 20 June 2023 and was effective

from 1 January 2024. The Group is in scope of this legislation and has performed an assessment

of the Group’s potential exposure to Pillar Two income taxes. The assessment of the potential

exposure to Pillar Two income taxes is based on the most recent financial information available for

the constituent entities in the Group. Based on the assessment, the Pillar Two effective tax rates in

most of the jurisdictions in which the Group operates are above 15%. However, there are a limited

number of jurisdictions where the transitional safe harbour relief does not apply and the Pillar

Two effective tax rate is close to 15%. The Group does not expect a material exposure to Pillar Two

income taxes in those jurisdictions.

The movement in provisions for tax uncertainties primarily reflects releases due to the expiry of

relevant statutes of limitation, settlement of certain audits and reassessment of existing exposures

based on currently available information and tax authority correspondence. The current tax liability

of £32m (2022: £43m; 2021: £125m) includes £27m (2022: £28m; 2021: £104m) of provisions for tax

uncertainties principally in respect of several matters in the US and the UK.

The Group is currently under audit in several countries, and the timing of any resolution of these

audits is uncertain. In most countries, tax years up to and including 2018 are now statute barred

from examination by tax authorities, however, a balance of £1m relates to certain remaining open

issues. Of the remaining £26m balance, £12m relates to 2019, £4m to 2020, £4m to 2021, £3m to

2022 and £3m to 2023. The tax authorities may take a different view from management and the final

liability may be greater or lower than provided.

The matters provided for include a provision of £63m related to the potential EU State Aid exposure

and the potential disallowance of intra-group charges. In relation to the potential EU State Aid

exposure, a payment was made in 2022 in relation to the maximum potential exposure with the

provision of £63m offset against this resulting in a £41m non-current tax debtor.

Refer to note 34 for details of other uncertain tax positions.

The tax benefit/(charge) recognised in other comprehensive income is as follows:

	All figures in £ millions 2023	2022	2021
Net exchange differences on translation of
foreign operations	–	4	10
Fair value gains on other financial assets	–	1	(1)
Remeasurement of retirement benefit obligations	20	(12)	(61)
	20	(7)	(52)

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 172

Financial statements

8. Earnings per share

Basic earnings per share is calculated by dividing the profit or loss attributable to equity

shareholders of the company (earnings) by the weighted average number of ordinary shares in issue

during the year, excluding ordinary shares purchased by the company and held as treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary

shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if

applicable, to account for any tax consequences that might arise from conversion of those shares.

Certain contingently issuable shares vested on 31 December 2023 and 31 December 2022 but have

not yet been issued, these shares are considered dilutive but do not materially impact basic EPS.

	All figures in £ millions 2023	2022	2021
Earnings for the year	380	244	178
Non-controlling interest	(2)	(2)	(1)
Earnings attributable to equity shareholders	378	242	177
Weighted average number of shares (millions)	711.5	738.1	754.1
Effect of dilutive share options (millions)	5.8	3.9	5.0
Weighted average number of shares (millions) for diluted
earnings	717.3	742.0	759.1
Earnings per share (in pence per share)
Basic	53.1p	32.8p	23.5p
Diluted	52.7p	32.6p	23.3p

9. Dividends

	All figures in £ millions 2023	2022	2021
Final paid in respect of prior year 14.9p (2022: 14.2p; 2021:
13.5p)	106	107	102
Interim paid in respect of current year 7.0p (2022: 6.6p;
2021: 6.3p)	49	49	47
	155	156	149

The Directors are proposing a final dividend in respect of the financial year ended 31 December

2023 of 15.7p per equity share which will absorb an estimated £107m of shareholders’ funds. It will

be paid on 3 May 2024 to shareholders who are on the register of members on 22 March 2024.

These financial statements do not reflect this dividend as a liability.

10. Property, plant and equipment and investment property

All figures in £ millions

Investment

property

			Right-of-use assets			Owned assets
						Assets in
		Land and	Plant and	Land and	Plant and	the course of
		buildings	equipment	buildings	equipment	construction	Total
Cost
At 1 January 2022	–	465	5	226	250	29	975
Exchange differences	–	30	–	18	23	–	71
Additions	22	33	1	4	8	33	101
Transfers to investment property	174	(141)	–	(32)	(1)	–	–
Disposals of businesses
(see note 31)	–	(10)	–	(1)	(8)	–	(19)
Disposals and retirements	(6)	(23)	(1)	(5)	(39)	–	(74)
Reclassifications and transfers	–	–	–	13	27	(40)	–
Transfer to assets
classified as held for sale	–	–	–	(45)	(3)	–	(48)
At 31 December 2022	190	354	5	178	257	22	1,006
Exchange differences	–	(14)	–	(9)	(11)	(1)	(35)
Additions	24	26	1	–	6	24	81
Transfers to investment property	–	–	–	–	–	–	–
Disposals of businesses
(note 31)	–	–	–	(4)	(3)	(2)	(9)
Disposals and retirements	–	(29)	(1)	(10)	(36)	–	(76)
Reclassifications and transfers	–	–	–	10	24	(34)	–
Transfer to assets
classified as held for sale	–	–	–	–	–	–	–
At 31 December 2023	214	337	5	165	237	9	967

Annual report and accounts 2023 Pearson plc 173

Financial statements

10. Property, plant and equipment and investment property

continued

All figures in £ millions

Investment

property

			Right-of-use assets			Owned assets
						Assets in
		Land and	Plant and	Land and	Plant and	the course of
		buildings	equipment	buildings	equipment	construction	Total
Depreciation and impairment
At 1 January 2022	–	(269)	(5)	(136)	(199)	–	(609)
Exchange differences	–	(17)	–	(14)	(18)	–	(49)
Transfers to investment property	(105)	101	–	3	1	–	–
Charge for the year	(6)	(44)	(1)	(13)	(26)	–	(90)
Disposals of businesses
(note 31)	–	2	–	1	5	–	8
Disposals and retirements	–	13	1	5	39	–	58
Reclassifications
and transfers	–	–	–	–	–	–	–
Impairment	(19)	(15)	–	(9)	(3)	–	(46)
Transfer to assets
classified as held for sale	–	–	–	30	2	–	32
At 31 December 2022	(130)	(229)	(5)	(133)	(199)	–	(696)
Exchange differences	–	12	–	6	10	–	28
Charge for the year	(5)	(38)	(1)	(10)	(25)	–	(79)
Disposals of businesses
(note 31)	–	–	–	2	2	–	4
Disposals and retirements	–	28	1	10	35	–	74
Reclassifications
and transfers	–	–	–	–	–	–	–
Impairment	–	(2)	–	–	–	–	(2)
Transfer to assets
classified as held for sale	–	–	–	–	–	–	–
At 31 December 2023	(135)	(229)	(5)	(125)	(177)	–	(671)
Carrying amounts
At 1 January 2022	–	196	–	90	51	29	366
At 31 December 2022	60	125	–	45	58	22	310
At 31 December 2023	79	108	–	40	60	9	296

Key areas of estimation

— The recoverability of right-of-use assets and in particular assumptions related to the ability

to sublease vacant leased assets in the future.

Depreciation expense of £40m (2022: £45m; 2021: £40m) has been included in the income

statement in cost of goods sold and £39m (2022: £45m; 2021: £55m) in operating expenses. The

impairment charge of £2m (2022: £46m; 2021: £146m) has been included within operating expenses

within the income statement.

Property, plant and equipment (including investment property) assets are assessed for impairment

triggers annually or when triggering events occur. In 2022 and 2021, as part of a major restructuring

programme, the Group continued to simplify its property portfolio, reducing the overall office space

required. All property related assets were assessed for impairment as a result of this triggering event

and impairment charges of £46m in 2022 and £141m in 2021 recognised within costs of major

restructuring (see note 4 for details). In 2023, there were impairment charges of £11m in respect of

property assets including £9m in relation to property assets which are classified as assets held for

sale. The recoverability of certain of the Group’s right-of-use assets is now based on the Group’s ability

to sublease vacant space. This involves the use of assumptions related to future subleases including

the achievable rent, lease start dates, lease incentives such as rent free periods and the discount rate

applied. Should the future sublease outcomes be more or less favourable than the assumptions used

by management this could result in additional impairment charges or reversals of impairment charges.

In 2023, total additions to right-of-use-assets are £42m (2022: £49m) including £15m (2022: £15m)

in respect of investment property.

Investment property

Buildings, or portions of buildings, that are no longer occupied by the Group and are held for

operating lease rental are classified as investment property. Investment property includes both,

right-of-use assets and owned assets. The Group recognised rental income of £6m (2022: £3m; 2021

£nil) in relation to properties classified as investment property. Investment property is measured

using the cost model. As a result of recent impairments, the fair value of investment property is

equal to the carrying value. The fair value of investment property has been determined using a

discounted cash flow model. The valuation model is internally generated but uses inputs from

external, independent property valuers, having appropriate recognised professional qualifications

and recent experience in the location and category of the property being valued. The valuations

require the application of judgement and involve the use of known inputs for existing contracted

subleases as well as assumptions related to future potential subleases including the achievable

rent, lease start dates, lease incentives such as rent free periods and the discount rate applied.

The fair value measurement of investment properties has been classified as level 3 within the fair

value hierarchy based on the inputs and valuation technique used. Should the future sublease

outcomes be more or less favourable than the assumptions used by management this could result

in additional impairment charges or reversals of impairment charges.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 174

Financial statements

11. Intangible assets

			Acquired
			customer lists,	Acquired	Acquired	Other
			contracts and	trademarks	publishing	intangibles
	All figures in £ millions Goodwill	Software	relationships	and brands	rights	acquired	Total
Cost
At 1 January 2022	2,145	1,087	741	168	97	321	4,559
Exchange differences	206	83	80	20	5	44	438
Additions – internal
development	–	86	–	–	–	–	86
Additions – purchased	–	4	–	–	–	–	4
Disposals and retirements	–	(131)	–	–	–	–	(131)
Acquisition of subsidiary (note 30)	204	–	37	6	1	66	314
Disposal of businesses
(note 31)	(75)	(9)	(20)	(8)	–	(1)	(113)
Transfers	–	(5)	–	–	–	–	(5)
At 31 December 2022	2,480	1,115	838	186	103	430	5,152
Exchange differences	(107)	(40)	(42)	(5)	(3)	(12)	(209)
Additions – internal
development	–	96	–	–	–	–	96
Additions – purchased	–	–	–	–	–	–	–
Disposals and retirements	–	(18)	–	(1)	–	(3)	(22)
Acquisition of subsidiary (note 30)	61	–	82	6	–	29	178
Disposal of businesses
(note 31)	–	(15)	(298)	(2)	–	–	(315)
Transfers	–	(1)	–	–	–	–	(1)
At 31 December 2023	2,434	1,137	580	184	100	444	4,879

			Acquired
			customer lists,	Acquired	Acquired	Other
			contracts and	trademarks	publishing	intangibles
	All figures in £ millions Goodwill	Software	relationships	and brands	rights	acquired	Total
Amortisation and impairment
At 1 January 2022	–	(657)	(620)	(138)	(96)	(279)	(1,790)
Exchange differences	–	(49)	(65)	(16)	(5)	(37)	(172)
Charge for the year	–	(125)	(33)	(8)	–	(13)	(179)
Disposals and retirements	–	130	–	–	–	–	130
Disposal of businesses
(note 31)	–	8	20	7	–	1	36
Transfers	–	–	–	–	–	–	–
At 31 December 2022	–	(693)	(698)	(155)	(101)	(328)	(1,975)
Exchange differences	–	24	31	4	3	9	71
Charge for the year	–	(123)	(19)	(7)	(1)	(19)	(169)
Disposals and retirements	–	18	–	1	–	3	22
Disposal of businesses
(note 31)	–	8	252	2	–	–	262
Transfers	–	1	–	–	–	–	1
At 31 December 2023	–	(765)	(434)	(155)	(99)	(335)	(1,788)
Carrying amounts
At 1 January 2022	2,145	430	121	30	1	42	2,769
At 31 December 2022	2,480	422	140	31	2	102	3,177
At 31 December 2023	2,434	372	146	29	1	109	3,091

Annual report and accounts 2023 Pearson plc 175

Financial statements

11. Intangible assets continued

Goodwill

The goodwill carrying value of £2,434m (2022: £2,480m) relates to acquisitions completed after

1 January 1998. Prior to 1 January 1998, all goodwill was written off to reserves on the date

of acquisition. For acquisitions completed between 1 January 1998 and 31 December 2002,

no value was ascribed to intangibles other than goodwill which was amortised over a period

of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the

goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill

had been restated, then a significant value would have been ascribed to other intangible assets,

which would be subject to amortisation, and the carrying value of goodwill would be significantly

lower. For acquisitions completed after 1 January 2003, value has been ascribed to other intangible

assets which are amortised.

Software and acquired intangible assets

Acquired intangible assets are valued separately for each acquisition. For material business

combinations, the valuation is determined with the support of a third-party specialist. The primary

method of valuation used is the discounted cash flow method. Acquired intangibles are amortised

either on a straight line basis or using an amortisation profile based on the projected cash flows

underlying the acquisition date valuation of the intangible asset, which generally results in a larger

proportion of amortisation being recognised in the early years of the asset’s life, depending

on the individual asset. The Group keeps the expected pattern of consumption under review. Other

intangibles acquired includes technology.

Amortisation of £37m (2022: £32m; 2021: £25m) is included in the income statement in cost of

goods sold and £132m (2022: £147m; 2021: £138m) in operating expenses. Impairment charges of

£nil (2022: nil; 2021: £4m) are included in operating expenses within the income statement.

The range of useful economic lives for each major class of intangible asset (excluding goodwill and

software) is shown below:

	At 31 December 2023
	Useful economic life
Class of intangible asset
Acquired customer lists, contracts and relationships	3-20 years
Acquired trademarks and brands	2-20 years
Acquired publishing rights	5-20 years
Other intangibles acquired	2-20 years

The expected amortisation profile of acquired intangible assets is shown below:

					At 31 December 2023
	One to	Six to	Eleven to	Sixteen to
All figures in £ millions	five years	ten years	fifteen years	twenty years	Total
Class of intangible asset
Acquired customer lists, contracts
and relationships	71	41	28	6	146
Acquired trademarks and brands	22	7	–	–	29
Acquired publishing rights	1	–	–	–	1
Other intangibles acquired	84	17	8	–	109

Impairment tests for cash-generating units (CGUs) containing goodwill

Impairment tests have been carried out where appropriate as described below. Goodwill was

allocated to CGUs, or an aggregation of CGUs, where goodwill could not be reasonably allocated to

individual business units. Impairment reviews were conducted on these CGUs as summarised below:

	2023	2022
All figures in £ millions	Goodwill	Goodwill
Assessment & Qualifications	1,355	1,361
Virtual Learning	419	443
English Language Learning	255	259
Workforce Skills	337	348
Higher Education	68	69
Total	2,434	2,480

Goodwill is tested at least annually for impairment. The recoverable amount of each aggregated

CGU is based on the higher of value in use and fair value less costs of disposal. The impairment

assessment is based on value in use. Other than goodwill there are no intangible assets with

indefinite lives. No impairments of goodwill were recorded in 2023 or 2022.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 176

Financial statements

Key areas of estimation

— The valuation of acquired intangible assets recognised on the acquisition of a business.

The valuation is based on a number of assumptions, including estimations of future

business performance. See note 30.

Determination of CGUs and reallocation of goodwill

Pearson identifies its CGUs based on its operating model and how data is collected and

reviewed for management reporting and strategic planning purposes in accordance with IAS

36 ‘Impairment of Assets’. The CGUs and CGU aggregations reflect the level at which goodwill is

monitored by management.

In 2022, the separate CGUs of China, South Africa and Canada were disposed. The goodwill related

to the Strategic Review CGU was reallocated between businesses disposed and businesses retained.

All of the goodwill related to businesses retained was transferred to the Assessment & Qualifications

CGU aggregation.

In 2023, business disposals resulted in the disposal of £53m of intangible assets (see note 31 for

further details). A relative value method was used to allocate goodwill to the disposed business in

the Virtual Learning CGU aggregation. The result of this was that no goodwill was allocated to the

disposed business.

Key assumptions

For the purpose of estimating the value in use of the CGUs, management has used an income

approach based on present value techniques. The calculations for all CGUs use cash flow projections

based on financial budgets approved by management covering a five-year period.

The key assumptions used by management in the value in use calculations were:

Discount rates – The discount rates are based on the Group’s weighted average cost of capital,

where the cost of equity is calculated based on the risk-free rate of government bonds, adjusted

for a risk premium to reflect the increased risk in investing in equities. Where CGUs cover multiple

territories, a blended risk-free rate is used. Base discount rates were assessed as reflecting

underlying economic conditions, and so no further risk premiums were considered necessary. The

average pre-tax discount rates range from 10.4% to 13.0% (2022: pre-tax 11.6% to 12.0%).

Perpetuity growth rates – The perpetuity growth rates are based on inflation trends. A perpetuity

growth rate of 2% (2022: 2%) was used for cash flows subsequent to the approved budget period for

CGUs operating primarily in mature markets. This perpetuity growth rate is a conservative rate and

is considered to be lower than the long-term historical growth rates of the underlying territories in

which the CGU operates and the long-term growth rate prospects of the sectors in which the CGU

operates. A blended growth rate of 3.5% (2022: 3.5%) was used for cash flows subsequent to the

approved budget period for English Language Learning which has a higher exposure to emerging

markets with higher inflation. This geographically blended growth rate is generally in line with the

long-term historical growth rates in those markets.

The key assumptions used by management in setting the financial budgets were as follows:

Forecast sales growth rates – Forecast sales growth rates are based on past experience adjusted

for the strategic direction and near-term investment priorities within each CGU. Key assumptions

include growth in English Language Learning and Workforce Skills – due to product-led share

gains and contribution from new acquisitions, recovery in Higher Education, growth in Virtual

Learning – albeit impacted by school churn in Virtual Schools in the short term, and steady growth

in Assessments and Qualifications. The sales forecasts use average nominal growth rates of low-mid

single digits for mature businesses in mature markets and double digit growth where there has been

significant organic and/or inorganic investment.

Operating profits – Operating profits are forecast based on historical experience of operating

margins, adjusted for the impact of changes to product costs, strategic developments and new

business cases to the extent they have been formally approved prior to the balance sheet date.

Management applies judgement in allocating corporate costs on a reasonable and consistent basis

in order to determine operating profit at a CGU level.

Management have considered the impact of climate change risks (including physical and transition

risks and the costs associated with achieving the Group's net zero commitment) and are satisfied

that any related costs will not materially impact the Group’s profit forecasts or impairment

judgements at 31 December 2023.

Annual report and accounts 2023 Pearson plc 177

Financial statements

11. Intangible assets continued

Key assumptions continued

The table below shows the key assumptions used by management in the value in use calculations.

		2023		2022
		Perpetuity		Perpetuity
	Discount rate	growth rate	Discount rate	growth rate
Assessment & Qualifications	10.8%	2.0%	12.0%	2.0%
Virtual Learning	11.0%	2.0%	11.9%	2.0%
English Language Learning	13.0%	3.5%	11.8%	3.5%
Workforce Skills	10.4%	2.0%	11.6%	2.0%
Higher Education	10.7%	2.0%	12.0%	2.0%

Sensitivities

Impairment testing for the year ended 31 December 2023 did not find any of the CGUs to be

sensitive to reasonably possible changes in key assumptions.

12. Investments in joint ventures and associates

The amounts recognised in the balance sheet are as follows:

	All figures in £ millions 2023	2022
Associates	22	25
Total	22	25

The amounts recognised in the income statement are as follows:

	All figures in £ millions 2023	2022
Associates	1	1
Total	1	1

The Group has no material associates or joint ventures. The largest associate is a 49% interest in The

Egyptian International Publishing Company-Longman, which had a carrying value of £13m as at 31

December 2023 (2022: £9m).

Other than the £5m payment in respect of Academy of Pop disclosed in note 36, there were no

material transactions with associates or joint ventures during 2023 or 2022.

13. Deferred income tax

	All figures in £ millions 2023	2022
Deferred income tax assets	35	57
Deferred income tax liabilities	(46)	(37)
Net deferred income tax (liability)/asset	(11)	20

Substantially all of the deferred income tax assets are expected to be recovered after more

than one year. The net deferred income tax liability of £11m (2022: deferred tax asset of £20m;

2021: deferred tax asset of £17m) includes £23m (2022: £19m; 2021: £nil) of provisions for tax

uncertainties principally in respect of several matters in the US and the UK.

Deferred income tax assets and liabilities shall be offset when there is a legally enforceable right to

offset current income tax assets with current income tax liabilities and where the deferred income

taxes relate to the same fiscal authority.

At 31 December 2023, the Group has gross tax losses for which no deferred tax asset is recognised

of £1,029m (2022: £547m). The expiry date and key geographic split of these losses is set out in the

following table.

Year ended

31 December 2023

		Gross					Tax effected
	UK	US	Other	Total	UK	US	Other	Total
Tax losses expiring:
Within 10 years	–	437	34	471	–	91	9	100
Within 10-20 years	–	143	–	143	–	7	–	7
Available indefinitely	168	48	199	415	42	2	65	109
Total	168	628	233	1,029	42	100	74	216

Year ended

31 December 2022

		Gross					Tax effected
	UK	US	Other	Total	UK	US	Other	Total
Tax losses expiring:
Within 10 years	–	3	30	33	–	–	10	10
Within 10-20 years	–	104	–	104	–	5	–	5
Available indefinitely	166	30	214	410	41	2	68	111
Total	166	137	244	547	41	7	78	126

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 178

Financial statements

The increase in unrecognised tax losses in the US is principally due to the crystallisation of

a capital loss on disposal during the year which has not been recognised for tax purposes.

Other unrecognised tax losses includes £155m gross (2022: £140m) and £53m tax effected

(2022: £48m) relating to Brazil.

Other gross deductible temporary differences for which no deferred tax asset is recognised total

£201m (2022: £218m). This includes £196m (2022: £193m) in respect of interest limitations. The

amount of temporary differences associated with subsidiaries for which no deferred tax has been

provided totals £268m (2022: £275m).

Deferred income tax assets of £18m (2022: £14m) have been recognised in countries that reported

a tax loss in either the current or preceding year. This primarily arises in respect of tax losses in

Brazil, India and Australia. It is considered more likely than not that there will be sufficient future

taxable profits to realise these assets.

The recognition of the deferred income tax assets is supported by management’s forecasts of the

future profitability of the relevant countries. In some cases deferred income tax assets are forecast

to be recovered through taxable profits over a period that exceeds five years. Management consider

these forecasts are sufficiently reliable to support the recovery of the assets. Where there are

insufficient forecasts of future profits, deferred income tax assets have not been recognised.

The movement in deferred income tax assets and liabilities during the year is as follows:

All figures in £ millions

		Accruals	Retirement		Goodwill
	Trading	and other	benefit	Deferred	and	Interest
	losses	provisions	obligations	revenue	intangibles	limitations	Other	Total
Deferred income tax
assets/(liabilities)
At 1 January 2022	82	64	(108)	52	(178)	55	50	17
Exchange differences	–	7	2	6	(21)	6	4	4
Acquisitions
and disposals of subsidiaries	7	–	–	–	(21)	–	(12)	(26)
Income statement
benefit/(charge)	37	(4)	(9)	5	14	(6)	(7)	30
Tax charge in OCI/
equity	4	–	(12)	–	–	–	3	(5)
At 31 December 2022	130	67	(127)	63	(206)	55	38	20
Exchange differences	(1)	(3)	(1)	(3)	9	(2)	1	–
Acquisitions
and disposals of subsidiaries	(3)	6	–	–	(26)	–	–	(23)
Income statement
benefit/(charge)	(25)	(11)	(6)	(17)	71	(19)	(21)	(28)
Tax charge in OCI/
equity	–	–	20	–	–	–	–	20
At 31 December 2023	101	59	(114)	43	(152)	34	18	(11)

Other deferred income tax items include temporary differences in respect of right-of-use assets

(deferred tax asset of £54m, with an offsetting deferred tax liability of £42m), and accelerated capital

allowances of £11m.

Annual report and accounts 2023 Pearson plc 179

Financial statements

14. Classification of financial instruments

The accounting classification of each class of the Group’s financial assets, and their carrying values, is as follows:

All figures in £ millions Notes

						2023					2022
				Fair value	Amortised cost				Fair value	Amortised cost
		Fair value					Fair value
		through other	Fair value	Fair value		Total	through other	Fair value	Fair value		Total
		comprehensive	through profit	– hedging	Financial	carrying	comprehensive	through profit	– hedging		carrying
		income	and loss	instrument	assets	value	income	and loss	instrument	Financial assets	value
Investments in unlisted securities	15	23	120	–	–	143	24	109	–	–	133
Cash and cash equivalents	17	–	31	–	281	312	–	40	–	518	558
Derivative financial instruments	16	–	1	47	–	48	–	5	54	–	59
Trade receivables	22	–	–	–	695	695	–	–	–	825	825
Investment in finance lease receivable	22	–	–	–	100	100	–	–	–	121	121
Other receivable		–	–	–	12	12	–	–	–	3	3
Total financial assets		23	152	47	1,088	1,310	24	154	54	1,467	1,699

The carrying value of the Group’s financial assets is equal to, or approximately equal to, the market value. The other receivable relates to the deferred consideration receivable on the disposal of POLS.

The accounting classification of each class of the Group’s financial liabilities, together with their carrying values and market values, is as follows:

All figures in £ millions Notes

						2023					2022
				Amortised
			Fair value	cost				Fair value	Amortised cost
		Fair value	Fair value	Other		Total	Fair value	Fair value	Other	Total	Total
		through profit	– hedging	financial	Total	market	through profit	– hedging	financial	carrying	market
		and loss	instrument	liabilities	carrying value	value	and loss	instrument	liabilities	value	value
Derivative financial instruments	16	(7)	(36)	–	(43)	(43)	(2)	(63)	–	(65)	(65)
Trade payables	24	–	–	(317)	(317)	(317)	–	–	(348)	(348)	(348)
Deferred and contingent consideration	24	(57)	–	–	(57)	(57)	(79)	–	–	(79)	(79)
Borrowings due within one year	18	–	–	(67)	(67)	(67)	–	–	(86)	(86)	(86)
Borrowings due after more than one year	18	–	–	(1,094)	(1,094)	(1,062)	–	–	(1,144)	(1,144)	(1,096)
Total financial liabilities		(64)	(36)	(1,478)	(1,578)	(1,546)	(81)	(63)	(1,578)	(1,722)	(1,674)

The market value of leases approximates their book value.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 180

Financial statements

Fair value measurement

As shown above, the Group’s derivative assets and liabilities, unlisted securities, marketable

securities and deferred and contingent consideration are held at fair value. Financial instruments

that are measured subsequently to initial recognition at fair value are grouped into levels 1 to 3,

based on the degree to which the fair value is observable, as follows:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets

for identical assets or liabilities. The Group’s bonds valued at £611m (2022: £610m) and money

market funds of £31m (2022: £40m) included within cash and cash equivalents are classified as

level 1.

Level 2 fair value measurements are those derived from inputs, other than quoted prices included

within level 1, that are observable for the asset or liability, either directly (as prices) or indirectly

(derived from prices). The Group’s derivative assets valued at £48m (2022: £59m) and derivative

liabilities valued at £43m (2022: £65m) are classified as level 2.

Level 3 fair value measurements are those derived from valuation techniques that include inputs

for the asset or liability that are not based on observable market data (unobservable inputs). The

Group’s investments in unlisted securities are valued at £143m (2022: £133m), deferred and

contingent consideration of £57m (2022: £79m) and the other receivable of £12m (2022: £3m) are

classified as level 3.

The movements in fair values of level 3 financial assets measured at fair value, are shown in the

table below:

All figures in £ millions

			2023	2022
		Investments
	Other	in unlisted
	receivable	securities	Total	Total
At 1 January	3	133	136	200
Exchange differences	–	(5)	(5)	10
Acquisition of investments and other receivable	12	8	20	19
Repayments	(3)	–	(3)	(92)
Disposal of investments	–	(7)	(7)	(48)
Fair value movements – OCI	–	1	1	18
Fair value movements – income statement	–	13	13	29
At 31 December	12	143	155	136

The fair value of the investments in unlisted securities is determined by reference to the financial

performance of the underlying asset, recent funding rounds and amounts realised on the sale of

similar assets.

The other receivable relates to £12m (2022: £nil) in respect of the contingent consideration

receivable for the sale of the POLS business, which comprises a 27.5% share of positive adjusted

EBITDA in each calendar year for six years and 27.5% of the proceeds received by the purchaser

in relation to any future monetisation event. The valuation of the deferred consideration has been

determined on the basis of a discounted cash flow model, and valued by a third-party specialist.

The key inputs into the discounted cash flow model are the estimates of adjusted EBITDA for the

next 6 years and the estimate of the valuation of the business thereafter. Reasonably possible

changes in assumptions for the inputs into the model would not have a material impact on the

carrying value of the contingent consideration, and therefore sensitivities have not been disclosed.

The deferred consideration payable in respect of prior year acquisitions is measured as the

net present value of the expected cash flows. The movement in the fair value of the deferred

consideration payable is shown in the table below:

	All figures in £ millions 2023	2022
At 1 January	(79)	(44)
Exchange differences	3	(7)
Acquisitions	–	(42)
Fair value movements – income statement	(4)	4
Repayments	23	10
At 31 December	(57)	(79)

15. Other financial assets

	All figures in £ millions 2023	2022
At 1 January	133	113
Exchange differences	(5)	9
Acquisition of investments	8	12
Disposal of investments	(7)	(48)
Fair value movements – OCI	1	18
Fair value movements – income statement	13	29
At 31 December	143	133

Other financial assets are unlisted securities of £143m (2022: £133m), of which £23m (2022:

£24m) are classified at fair value through other comprehensive income (FVOCI), with the remaining

£120m (2022: £109m) mainly relating to investments in funds, being required to be held at fair

value through profit and loss (FVTPL). The assets, which are not held for trading, relate to the

Group’s interests in new and innovative educational ventures across the world. These are strategic

investments and where permitted, the Group made the election to classify such investments as

FVOCI on initial recognition of the assets. None of the investments are individually significant to the

financial statements and therefore sensitivities have not been provided.

During the year, the Group disposed of investments that were classified as FVOCI for £3m (2022:

£31m). In 2022, these disposals predominantly related to the Group’s investment in Credly, where

the Group acquired the remainder of the share capital and so the investment was treated as

disposed as the company is now fully consolidated. The cumulative loss on disposal was £2m (2022:

£23m gain).

Annual report and accounts 2023 Pearson plc 181

Financial statements

The Group’s treasury policies only allow derivatives to be traded where the objective is risk

mitigation. These are then designated for hedge accounting using the following criteria:

— Where interest rate and cross-currency interest rate swaps are used to convert fixed rate debt to

floating and we expect to receive inflows equal to the fixed rate debt interest, these are classified

as fair value hedges;

— Where derivatives are used to create a future foreign currency exposure to provide protection

against currency movements affecting the foreign currency movements of an overseas

investment, these are designated as a net investment hedge;

— All other derivatives are not designated in a hedge relationship.

The Group’s fixed rate GBP debt is held as fixed rate instruments at amortised cost.

The Group uses a combination of interest rate and cross-currency swaps to convert its €300m debt.

Receive Notional	Receive coupon	FX rate	Notional	Pay coupon
€100m	1.375%	GBPEUR: 1.1295	£87m	3.51%
€181m	1.375%	GBPUSD: 1.206	£157m	3.402%
				USD Libor
€19m	1.375%	GBPUSD: 1.206	£16m	+1.36%

To create the synthetic debt positions outlined above, the Group converts €100m to £87m at a rate

of 3.51% this is not in a hedge relationship. The remaining €200m of its EUR fixed debt is swapped to

EUR floating debt via interest rate swap contracts that are in a designated fair value hedge. The EUR

floating debt is then converted to GBP floating debt via cross-currency swap contracts that are in a

designated fair value hedge. The GBP floating debt is then converted to USD floating debt through

cross-currency swap contracts that are in a designated net investment hedging relationship. £157m

of the EUR debt is finally converted to USD fixed debt via interest rate swap contracts that are not in

a hedge relationship.

16. Derivative financial instruments and hedge accounting

The Group’s approach to the management of financial risks is set out in note 19. The Group’s

outstanding derivative financial instruments are as follows:

All figures in £ millions

			2023			2022
	Gross			Gross
	notional			notional
	amounts	Assets	Liabilities	amounts	Assets	Liabilities
Interest rate derivatives – in a fair value hedge relationship	174	–	(5)	177	–	(11)
Interest rate derivatives – not in a hedge relationship	356	14	(1)	260	19	–
Cross-currency rate derivatives
– in a hedge relationship	352	26	(31)	83	34	(43)
Cross-currency rate derivatives
– not in a hedge relationship	87	–	(1)	–	–	–
FX derivatives – in a hedge
relationship	420	7	–	355	1	(9)
FX derivatives – not in a hedge
relationship	526	1	(5)	573	5	(2)
Total	1,915	48	(43)	1,448	59	(65)
Analysed as expiring:
In less than one year	1,047	16	(5)	1,028	16	(11)
Later than one year and not later than five years	868	32	(38)	420	43	(54)
Total	1,915	48	(43)	1,448	59	(65)

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 182

Financial statements

A foreign currency exposure arises from foreign exchange fluctuations on translation of the Group’s

euro debt into GBP. The hedged risk is the risk of changes in the GBP:EUR spot rate that will result

in changes in the value of the euro debt when translated into GBP. The hedged items are a portion

of the Group’s euro bonds. The hedging instruments are floating to floating cross-currency swaps

which mitigates an exposure to the effect of euro strengthening against GBP within the hedge item.

As the critical terms of the cross-currency swap match the bonds, there is an expectation that

the value of the hedging instrument and the value of the hedged item move in the opposite

direction as a result of movements in the EUR:GBP exchange rate. Potential sources of hedge

ineffectiveness are a reduction or modification in the hedged item or a material change in the credit

risk of swap counterparties.

The Group held the following instruments to hedge exposures to changes in interest rates and

foreign currency risk associated with borrowings:

All figures in £ millions

			2023
		Change in fair
	Carrying	value of hedging	Nominal
	amount of	instrument used to	amounts
	hedging	determine hedge	of hedging
	instruments	ineffectiveness	instruments
Derivative financial instruments for interest rate risk	(6)	5	174
Derivative financial instruments for currency risk	26	(7)	174

All figures in £ millions

2022

		Change in fair
	Carrying	value of hedging	Nominal
	amount of	instrument used to	amounts
	hedging	determine hedge	of hedging
	instruments	ineffectiveness	instruments
Derivative financial instruments for interest rate risk	(11)	(16)	177
Derivative financial instruments for currency risk	33	9	266

Additionally, the Group uses FX derivatives including forwards, collars, cross-currency swaps and

swaptions to create synthetic USD debt as a hedge of its USD assets and to achieve reasonable

certainty of USD currency conversion rates, in line with the Group’s FX hedging policy. As at

31 December 2023, the Group held FX outrights with a notional of $280m at an average rate of

GBP:USD rate of 1.25.

The Group’s portfolio of derivatives is diversified by maturity, counterparty and type. Natural offsets

between transactions within the portfolio and the designation of certain derivatives as hedges

significantly reduce the risk of income statement volatility. The sensitivity of the portfolio to changes

in market rates is set out in note 19.

In 2021, the Group transitioned GBP exposures from GBP LIBOR to SONIA. In 2022, for USD

exposures the Group transitioned its RCF from USD LIBOR to SOFR. The Group’s risk management

strategy has not changed as a result of IBOR Reform and it is considered to be immaterial to the

financial statements.

Fair value hedges

The Group uses interest rate swaps and cross-currency swaps as fair value hedges of the Group’s

euro issued debt.

Interest rate exposure arises from movements in the fair value of the Group’s euro debt attributable

to movements in euro interest rates. The hedged risk is the change in the euro bonds fair value

attributable to interest rate movements. The hedged items are the Group’s euro bonds which are

issued at a fixed rate. The hedging instruments are fixed to floating euro interest rate swaps where

the Group receives fixed interest payments and pays three-month Euribor.

As the critical terms of the interest rate swaps match the bonds, there is an expectation that the

value of the hedging instrument and the value of the hedged item will move equally in the opposite

direction as a result of movements in the zero coupon Euribor curve. Potential sources of hedge

ineffectiveness would be material changes in the credit risk of swap counterparties or a reduction or

modification in the hedge item.

Annual report and accounts 2023 Pearson plc 183

Financial statements

Hedge ineffectiveness would arise if the value of the hedged items fell below the value of the hedging

instruments; however, this is unlikely as the value of the Group’s assets denominated in USD is

significantly greater than the proposed net investment programme.

The amounts related to items designated as hedging instruments were as follows:

All figures in £ millions

2023

		Change in
	Carrying	value of hedging	Nominal	Hedging	Hedge
	amount of	instrument used to	amounts	gains/(losses)	ineffectiveness
	hedging	determine hedge	of hedging	recognised	recognised in
	instruments	ineffectiveness	instruments	in OCI	profit or loss
Derivative financial
instruments	(24)	26	599	26	–
Financial liabilities –
borrowings	–	–	–	–	–

All figures in £ millions

2022

		Change in
	Carrying	value of hedging	Nominal	Hedging	Hedge
	amount of	instrument used to	amounts	gains/(losses)	ineffectiveness
	hedging	determine hedge	of hedging	recognised	recognised in
	instruments	ineffectiveness	instruments	in OCI	profit or loss
Derivative financial
instruments	(50)	(31)	172	(31)	–
Financial liabilities –
borrowings	(89)	(5)	(88)	(5)	–

Included in the translation reserve is a cost of hedging reserve relating to the time value of FX

collars which is not separately disclosed due to materiality. The value of that reserve will decrease

over the life of the hedge transaction. The balance as at 1 January and 31 December 2023 was £nil

(2022: £1m). During the year £nil (2022: £2m) of hedging gains were recycled to the profit and loss.

16. Derivative financial instruments and hedge accounting

continued

The amounts at the reporting date relating to items designated as hedge items were as follows:

All figures in £ millions

					2023
		Accumulated
		amount of fair	Change in
		value hedge	fair value
		adjustments	of hedged		Line item
		on the hedged	item used to		in profit or
	Carrying	item included	determine		loss that
	amount of	in the carrying	hedge	Hedge	includes hedge
	hedged items	amount	ineffectiveness	ineffectiveness	ineffectiveness
Interest rate risk					Finance
Financial liabilities – borrowings	(169)	6	5	1	costs
Currency risk
Financial liabilities – borrowings	(169)	n/a	5	–	n/a

All figures in £ millions

2022

		Accumulated
		amount of fair
		value hedge	Change in
		adjustments	fair value
		on	of hedged		Line item
		the hedged	item used to		in profit or
	Carrying	item included	determine		loss that
	amount of	in the carrying	hedge	Hedge	includes hedge
	hedged items	amount	ineffectiveness	ineffectiveness	ineffectiveness
Interest rate risk					Finance
Financial liabilities – borrowings	(167)	11	15	(1)	costs
Currency risk
Financial liabilities – borrowings	(167)	n/a	(14)	–	n/a

Hedge of net investment in a foreign operation

A foreign currency exposure arises from the translation of the Group’s net investments in its

subsidiaries. The hedged risk is the risk of changes in the currency spot rate (eg GBP:USD) that

will result in changes in the value of the Group's net investment in its overseas subsidiaries when

translated into GBP. The hedged items are a portion of the Group's assets which are denominated

in USD. The hedging instruments are debt and derivative financial instruments, including cross-

currency swaps, FX forwards and FX collars, which mitigates an exposure to the effect of a weakening

USD on the hedged item against GBP. It is expected that the change in value of each of these items

will mirror each other as there is a clear and direct economic relationship between the hedging

instrument and the hedged item in the hedge relationship.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 184

Financial statements

Short-term bank deposits are invested with banks and earn interest at the prevailing short-term

deposit rates.

At the end of 2023, the currency split of cash and cash equivalents was US dollar 16% (2022: 31%),

sterling 11% (2022: 6%), and other 73% (2022: 63%).

Cash and cash equivalents have fair values that approximate to their carrying value due to their

short-term nature.

The Group has certain cash pooling arrangements in US dollars, sterling and Canadian dollars where

both the company and the bank have a legal right of offset. The company presents these amounts

net in the balance sheet where legal right of offset exists and the company has the intention to settle

net if required. As at 31 December 2023, £23m (2022: £5m) of financial liabilities were presented net

within financial assets.

18. Financial liabilities – borrowings

The Group’s current and non-current borrowings are as follows:

	All figures in £ millions 2023	2022
Non-current
1.375% Euro notes 2025 (nominal amount €300m)	257	257
3.75% GBP notes 2030 (nominal amount £350m)	354	353
Lease liabilities (see note 35)	483	534
	1,094	1,144
Current (due within one year or on demand)
Lease liabilities (see note 35)	64	71
Overdrafts	3	15
	67	86
Total borrowings	1,161	1,230

Included in the non-current borrowings above is £10m of accrued interest (2022: £10m). No accrued

interest is included in the current borrowings above (2022: £nil). The maturities of the Group’s non-

current borrowings are as follows:

	All figures in £ millions 2023	2022
Between one and two years	70	72
Between two and five years	419	442
Over five years	605	630
	1,094	1,144

Offsetting arrangements with derivative counterparties

All of the Group’s derivative financial instruments are subject to enforceable netting arrangements

with individual counterparties, allowing net settlement in the event of default of either party.

Derivative financial assets and liabilities subject to offsetting arrangements are as follows:

All figures in £ millions

			2023			2022
			Net			Net
	Gross	Gross	derivative	Gross	Gross	derivative
	derivative	derivative	assets/	derivative	derivative	assets/
	assets	liabilities	liabilities	assets	liabilities	liabilities
Counterparties in an asset position	26	(14)	12	30	(17)	13
Counterparties in a liability position	22	(29)	(7)	29	(48)	(19)
Total as presented
in the balance
sheet	48	(43)	5	59	(65)	(6)

Offset arrangements in respect of cash balances are described in note 17.

Counterparty exposure from all derivatives is managed, together with that from deposits and bank

account balances, within credit limits that reflect published credit ratings and by reference to other

market measures (e.g. market prices for credit default swaps) to ensure that there is no significant

exposure to any one counterparty’s credit risk.

The Group has no material embedded derivatives that are required to be separately accounted for

in accordance with IFRS 9 ‘Financial Instruments’.

17. Cash and cash equivalents (excluding overdrafts)

	All figures in £ millions 2023	2022
Cash at bank and in hand	312	269
Short-term bank deposits	–	289
Cash and cash equivalents	312	558

	All figures in £ millions 2023	2022
Cash and cash equivalents	312	558
Bank overdrafts	(3)	(15)
Cash and cash equivalents in the cash flow statement	309	543

Annual report and accounts 2023 Pearson plc 185

Financial statements

19. Financial risk management

The Group’s approach to the management of financial risks together with sensitivity analyses of its

financial instruments is set out below.

Treasury policy

Pearson’s treasury policies set out the Group’s principles for addressing key financial risks including

capital risk, liquidity risk, foreign exchange risk and interest rate risk, and sets out measurable targets

for each. The Audit Committee receives quarterly reports incorporating compliance with measurable

targets and reviews and approves any changes to treasury policies annually.

The treasury function is permitted to use derivatives where their use reduces a risk or allows a

transaction to be undertaken more cost effectively. Derivatives permitted include swaps, forwards

and collars to manage foreign exchange and interest rate risk, with foreign exchange swap and

forward contracts the most commonly executed. Speculative transactions are not permitted.

Capital risk

The Group’s objectives when managing capital are:

— To maintain a strong balance sheet and a solid investment grade rating;

— To continue to invest in the business organically and through acquisitions; and

— To have a sustainable and progressive dividend policy.

At 31 December 2023 the Group and its bonds were rated BBB- (stable outlook) with Fitch Ratings

Limited and Baa3 (stable outlook) with Moody’s Investor Services.

Net debt

The Group’s net debt position is set out below:

	All figures in £ millions 2023	2022
Cash and cash equivalents	312	558
Overdrafts	(3)	(15)
Derivative financial instruments	5	(6)
Bonds	(611)	(610)
Investment in finance lease receivable	100	121
Lease liabilities	(547)	(605)
Net debt	(744)	(557)

18. Financial liabilities – borrowings continued

The carrying amounts and market values of borrowings are as follows:

All figures in £ millions

			2023			2022
	Effective	Carrying	Market	Effective	Carrying	Market
	interest rate	value	value	interest rate	value	value
1.375% Euro notes
2025	1.44%	257	252	1.44%	257	252
3.75% GBP notes
2030	3.93%	354	327	3.93%	353	310
Overdrafts	n/a	3	3	n/a	15	15
		614	582		625	577

The market values stated above are based on clean market prices at the year end or, where these

are not available, on the quoted market prices of comparable debt issued by other companies. The

effective interest rates above relate to the underlying debt instruments.

The carrying amounts of the Group’s borrowings before the effect of derivatives (see notes 16 and

19 for further information on the impact of derivatives) are denominated in the following currencies:

	All figures in £ millions 2023	2022
US dollar	217	276
Sterling	667	672
Euro	261	262
Other	16	20
	1,161	1,230

The Group had $1bn (£0.8bn) of undrawn capacity on its committed borrowing facilities as at

31 December 2023 (2022: $1.19bn (£0.9bn) undrawn). In addition, there are a number of short-

term facilities that are utilised in the normal course of business. All of the Group’s borrowings are

unsecured. In respect of lease obligations, the rights to the leased asset revert to the lessor in the

event of default.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 186

Financial statements

Interest and foreign exchange rate management

The Group’s principal currency exposure is to the US dollar which represents 68% of the

Group’s sales.

The Group’s long-term debt is primarily held in US dollars to provide a natural hedge of this

exposure, which is achieved through issued US dollar debt or converting euro debt to US dollars

using cross-currency swaps, forwards and collars. As at 31 December 2023 and 2022, the Group’s

debt of £1,161m (2022: £1,230m) is all held at fixed rates.

See note 16 for details of the Group’s hedging programme which addresses interest rate risk and

foreign currency risk.

Overseas profits are converted to sterling to satisfy sterling cash outflows such as dividends at the

prevailing spot rate at the time of the transaction. To the extent the Group has sufficient sterling,

US dollars may be held as dollar cash to provide a natural offset to the Group’s debt or to satisfy

future US dollar cash outflows.

The Group does not have significant cross-border foreign exchange transactional exposures.

As at 31 December 2023, the sensitivity of the carrying value of the Group’s financial instruments to

fluctuations in interest rates and exchange rates is as follows:

All figures in £ millions

					2023
		Impact of	Impact of		Impact
		1% increase	1% decrease	Impact of 10%	of 10%
	Carrying	in interest	in interest	strengthening	weakening in
	value	rates	rates	in sterling	sterling
Investments in unlisted securities	143	–	–	(10)	12
Other receivable	12	–	–	(1)	1
Cash and cash equivalents	312	–	–	(24)	30
Derivative financial instruments	5	15	(15)	(5)	19
Bonds	(611)	2	(2)	24	(29)
Other borrowings	(550)	–	–	21	(26)
Investment in finance lease
receivable	100	–	–	(9)	11
Deferred and contingent
consideration	(57)	–	–	3	(4)
Other net financial assets	378	–	–	(31)	38
Total	(268)	17	(17)	(32)	52

All figures in £ millions

					2022
		Impact of 1%	Impact of 1%	Impact of 10%	Impact of 10%
	Carrying	increase in	decrease in	strengthening	weakening in
	value	interest rates	interest rates	in sterling	sterling
Investments in unlisted securities	133	–	–	(10)	12
Other receivable	3	–	–	–	–
Cash and cash equivalents	558	–	–	(25)	31
Derivative financial instruments	(6)	7	(6)	(10)	12
Bonds	(610)	4	(4)	24	(30)
Other borrowings	(620)	–	–	26	(32)
Investment in finance lease
receivable	121	–	–	(11)	13
Deferred and contingent
consideration	(79)	–	–	4	(5)
Other net financial assets	477	–	–	(38)	47
Total	(23)	11	(10)	(40)	48

The table above shows the sensitivities of the fair values of each class of financial instrument to

an isolated change in either interest rates or foreign exchange rates. Other net financial assets

comprise trade receivables less trade payables. A significant proportion of the movements shown

above would impact equity rather than the income statement due to the location and functional

currency of the entities in which they arise and the availability of net investment hedging.

Liquidity and refinancing risk management

The Group regularly reviews the level of cash and debt facilities required to fund its activities. This

involves preparing a prudent cash flow forecast for the next three to five years, determining the level

of debt facilities required to fund the business, planning for shareholder returns and repayments

of maturing debt, and identifying an appropriate amount of headroom to provide a reserve against

unexpected outflows.

At 31 December 2023, the Group had cash of £0.3bn (2022: £0.5bn) and no outstanding drawings

(2022: £nil) on the US dollar denominated revolving credit facility due 2026 of $1bn (2022: $1.19bn).

The $1bn facility contains interest cover and leverage covenants which the Group has complied with

for the year ended 31 December 2023. The maturity of the carrying values of the Group’s borrowings

and trade payables are set out in notes 18 and 24 respectively.

At the end of 2023, the currency split of the Group’s trade payables was US dollar £228m (2022:

£234m), sterling £64m (2022: £71m) and other currencies £25m (2022: £43m). Trade payables are all

due within one year (2022: all due within one year) .

Annual report and accounts 2023 Pearson plc 187

Financial statements

19. Financial risk management continued

The table below analyses the Group’s bonds and derivative assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.

Short dated derivative instruments have not been included in this table. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest) and as such may differ from the

amounts disclosed on the balance sheet.

Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not possible, floating rates are based on interest rates prevailing at 31 December

in the relevant year.

Financial counterparty and credit risk management

Financial counterparty and credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to

customers, including outstanding receivables. Counterparty credit limits, which take published credit rating and other factors into account, are set to cover the Group’s total aggregate exposure to a single

financial institution. The limits applicable to published credit rating bands are approved by the Chief Financial Officer within guidelines approved by the Board. Exposures and limits applicable to each financial

institution are reviewed on a regular basis.

All figures in £ millions

			Analysed by maturity			Analysed by currency
	Greater than one	Later than one
	month and less	year but less	Five years
	than one year	than five years	or more	Total	USD	GBP	Other	Total
At 31 December 2023
Bonds	–	257	354	611	–	354	257	611
Rate derivatives – inflows	(13)	(262)	–	(275)	(6)	(9)	(260)	(275)
Rate derivatives – outflows	5	268	–	273	178	89	6	273
FX forwards – inflows	(428)	–	–	(428)	–	(428)	–	(428)
FX forwards – outflows	421	–	–	421	421	–	–	421
Total	(15)	263	354	602	593	6	3	602
At 31 December 2022
Bonds	–	342	389	731	–	455	276	731
Rate derivatives – inflows	(11)	(471)	–	(482)	(24)	(170)	(288)	(482)
Rate derivatives – outflows	1	490	–	491	224	255	12	491
FX forwards – inflows	(304)	–	–	(304)	–	(304)	–	(304)
FX forwards – outflows	313	–	–	313	–	313	–	313
Total	(1)	361	389	749	200	549	–	749

Cash deposits and derivative transactions are made with approved counterparties up to pre-agreed limits. To manage counterparty risk associated with cash and cash equivalents, the Group uses a mixture

of money market funds as well as bank deposits. As at 31 December 2023, 75% (2022: 77%) of cash and cash equivalents was held with investment grade bank counterparties, 10% (2022: 8%) with AAA money

market funds and 15% (2022: 15%) with non-investment grade bank counterparties.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 188

Financial statements

For trade receivables and contract assets, the Group’s exposure to credit risk is influenced mainly

by the individual characteristics of each customer. However, risk associated with the industry

and country in which customers operate may also influence the credit risk. The credit quality of

customers is assessed by taking into account financial position, past experience and other relevant

factors. Individual credit limits are set for each customer based on internal ratings. The compliance

with credit limits is regularly monitored by the Group. A default on a trade receivable is when the

counterparty fails to make contractual payments within the stated payment terms. Trade receivables

and contract assets are written off when there is no reasonable expectation of recovery.

The carrying amounts of financial assets, trade receivables and contract assets represent the

maximum credit exposure.

Trade receivables and contract assets are subject to impairment using the expected credit loss

model. The Group applies the IFRS 9 simplified approach to measuring expected credit losses

which uses a lifetime expected credit loss allowance for all trade receivables and contract assets. To

measure the expected credit losses, trade receivables and contract assets have been grouped based

on shared credit risk characteristics and the days past due. See note 22 for further details about

trade receivables and contract assets including movements in provisions for bad and doubtful debts.

20. Intangible assets – product development

	All figures in £ millions 2023	2022
Cost
At 1 January	2,918	2,698
Exchange differences	(121)	235
Additions	300	357
Disposals and retirements	(550)	(191)
Disposal of businesses (note 31)	(29)	(186)
Transfers	(1)	5
At 31 December	2,517	2,918
Amortisation
At 1 January	(1,943)	(1,804)
Exchange differences	92	(174)
Charge for the year	(280)	(288)
Impairment	(4)	(15)
Disposals and retirements	550	191
Disposal of businesses (note 31)	14	147
Transfers	1	–
At 31 December	(1,570)	(1,943)
Carrying amounts at 31 December	947	975

Product development assets are amortised over their estimated useful economic lives. Product

development assets relating to content are amortised over seven years or less, being an estimate of

the expected operating lifecycle of the title, with a higher proportion of the amortisation taken in the

earlier years. Product development assets relating to product platforms are amortised over ten years

or less. Amortisation is included in the income statement in cost of goods sold.

Product development assets are assessed for impairment triggers on an annual basis or when

triggering events occur. In 2023, of the £4m (2022: £15m) impairment charges, £nil (2022: £13m;

2021: £14m) have been recognised as a result of asset write-offs related to the major restructuring

programme. The full annual impairment test showed that there is adequate headroom across all

product development assets and accordingly no further impairment charges were recognised in

2023 (2022: £nil; 2021: £nil).

21. Inventories

	All figures in £ millions 2023	2022
Raw materials	4	5
Work in progress	1	2
Finished goods	81	93
Returns asset	5	5
	91	105

The cost of inventories recognised as an expense and included in the income statement in cost of

goods sold amounted to £155m (2022: £166m; 2021: £171m) including £19m (2022: £16m; 2021:

£22m) of inventory provisions. None of the inventory is pledged as security. Included within the

inventory balance is the estimation of the right to receive goods from contracts with customers via

returns. The value of the returns asset is measured at the carrying amount of the assets at the time

of sale aligned to the Group’s normal inventory valuation methodology less any expected costs to

recover the asset and any expected reduction in value. Impairment charges against the inventory

returns asset are £nil in 2023 (2022: £nil; 2021: £nil). The returns asset all relates to finished goods.

The obsolescence provision takes account of the Group’s digital-first strategy and the increasing shift

towards print on demand. The year-on-year reduction in inventories is due to increased provisions

for obsolescence and a reduction in the production of inventory due to the Group’s digital-first

strategy and the increasing shift towards print on demand.

Annual report and accounts 2023 Pearson plc 189

Financial statements

22. Trade and other receivables

	All figures in £ millions 2023	2022
Current
Trade receivables	694	824
Royalty advances	1	1
Prepayments	233	200
Investment in finance lease receivable	18	17
Accrued income	13	15
Other receivables	91	82
	1,050	1,139
Non-current
Trade receivables	1	1
Royalty advances	4	5
Prepayments	8	12
Investment in finance lease receivable	82	104
Accrued income	2	2
Interest receivable	3	3
Other receivables	35	12
	135	139

Accrued income represents contract assets which are unbilled amounts generally resulting from

assessments and services revenue streams where revenue to be recognised over time has been

recognised in excess of customer billings to date. Impairment charges on accrued income assets are

£nil (2022: £nil). The carrying value of the Group’s trade and other receivables approximates its fair

value. Trade receivables are stated net of provisions for bad and doubtful debts.

The movements in the provision for bad and doubtful debts are as follows:

	All figures in £ millions 2023	2022
At 1 January	(69)	(63)
Exchange differences	2	(3)
Income statement movements	3	(18)
Utilised	9	12
Disposal of businesses	4	3
At 31 December	(51)	(69)

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large

number of customers, who are internationally dispersed.

The ageing of the Group’s gross trade receivables is as follows:

	All figures in £ millions 2023	2022
Within due date and one month past due date	564	663
One to three months past due date	83	118
Three to six months past due date	25	25
Six to nine months past due date	12	14
Nine to 12 months past due date	8	14
More than 12 months past due date	54	60
Gross trade receivables	746	894

The Group reviews its bad debt provision at least twice a year following a detailed review of

receivable balances, historical payment profiles, and assessment of relevant forward-looking risk

factors including macroeconomic trends. Management believes all the remaining receivable balances

are fully recoverable.

The decrease in trade receivables held by the Group is driven by current year disposals.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 190

Financial statements

23. Provisions for other liabilities and charges

		Legal
	All figures in £ millions Property	and other	Total
At 1 January 2023	22	77	99
Exchange differences	–	(4)	(4)
Provisions made during the year	6	12	18
Provisions reversed during the year	(4)	(9)	(13)
Provisions used during the year	–	(60)	(60)
At 31 December 2023	24	16	40

Analysis of provisions:

All figures in £ millions

			2023
		Legal
	Property	and other	Total
Current	11	14	25
Non-current	13	2	15
	24	16	40

			2022
Current	9	76	85
Non-current	13	1	14
	22	77	99

Property provisions made in 2023 and 2022 relate to the simplification of the Group’s property

portfolio (see note 4) and dilapidations.

Legal and other includes legal claims, contract disputes and potential contract losses with the

provisions utilised as the cases are settled. Also included in legal and other are other restructuring

provisions that are generally utilised within one year.

The year on year decrease in provisions is mainly due to the utilisation of restructuring provisions in

the year.

24. Trade and other liabilities

	All figures in £ millions 2023	2022
Current
Trade payables	317	348
Sales return liability	31	53
Deferred income	295	340
Interest payable	4	10
Accruals and other liabilities	628	503
	1,275	1,254
Non-current
Deferred income	73	60
Accruals and other liabilities	25	60
	98	120

The carrying value of the Group’s trade and other liabilities approximates its fair value. The deferred

income balance comprises contract liabilities in respect of advance payments in assessment, testing

and training businesses; subscription income in school and college businesses; and obligations to

deliver digital content in future periods. The increase in trade and other liabilities held by the Group

is driven by the liability recorded for the remainder of the Share buyback scheme offset against

disposals, differences in deferred income due to timing, and utilisation of accruals from the 2022

restructuring programme.

Annual report and accounts 2023 Pearson plc 191

Financial statements

Key judgements

— Whether the Group will be eligible to receive the surplus associated with the UK Group

Pension Plan in recognising a pension asset.

Key areas of estimation

— The determination of the pension cost and defined benefit obligation of the Group’s

defined benefit pension schemes depends on the selection of certain assumptions, which

include the discount rate, inflation rate, salary growth and longevity.

25. Retirement benefit and other post-retirement obligations

Background

The Group operates a number of defined benefit and defined contribution retirement plans

throughout the world.

The largest plan is the Pearson Pension Plan (UK Group plan) in the UK, which is sectionalised to

provide both defined benefit and defined contribution pension benefits. The defined benefit section

was largely closed to new members from 1 November 2006. The defined contribution section,

opened in 2003, is open to new and existing employees. Finally, there is a separate section within the

UK Group plan set up for auto-enrolment.

The defined benefit section of the UK Group plan is a final salary pension plan which provides

benefits to members in the form of a guaranteed level of pension payable for life. The level of

benefits depends on the length of service and final pensionable pay.

The defined contribution section of the UK Group plan operates a Reference Scheme Test (RST)

pension underpin for its members. Where a member’s fund value is insufficient to purchase the RST

pension upon retirement, the UK Group plan is liable for the shortfall to cover the member’s RST

pension. In addition, in recent years, the scheme rules were amended to enable members who have

sufficient funds to purchase an RST pension the ability to convert their fund value into a pension in

the UK Group plan as an alternative to purchasing an annuity with an insurer. The Group recognises

any assets and liabilities relating to these features of the defined contribution section as part of

the overall UK Group plan obligation. The Group also recognises the assets and liabilities for all

members of the defined contribution section of the UK Group plan, accounting for the whole defined

contribution section as a defined benefit scheme under IAS 19 ‘Employee Benefits’ as there is a risk

the underpin will require the Group to pay further contributions to the scheme.

The UK Group plan is funded with benefit payments from trustee-administered funds. The UK Group

plan is administered in accordance with the Trust Deed and Rules in the interests of its beneficiaries

by Pearson Pension Trustee Limited.

At 31 December 2023, the UK Group plan had approximately 26,300 members, analysed in the

following table:

	All figures in % Active	Deferred	Pensioners	Total
Defined benefit	–	15	33	48
Defined contribution	10	42	–	52
Total	10	57	33	100

The other major defined benefit plans are based in the US. These are also final salary pension plans

which provide benefits to members in the form of a guaranteed pension payable for life, with the

level of benefits dependent on length of service and final pensionable pay. The majority of the US

plans are fully funded.

The Group also has several post-retirement medical benefit plans (PRMBs), principally in the US.

PRMBs are unfunded but are accounted for and valued similarly to defined benefit pension plans.

The defined benefit schemes expose the Group to actuarial risks, such as life expectancy, inflation

risks and investment risk including asset volatility and changes in bond yields. The Group is not

exposed to any unusual, entity-specific or plan-specific risks.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 192

Financial statements

Assumptions

The principal assumptions used for the UK Group plan and the US PRMB are shown below.

Weighted average assumptions have been shown for the other plans, which primarily relate to

US pension plans.

All figures in %

			2023			2022			2021
	UK
	Group	Other		UK Group	Other		UK Group	Other
	plan	plans	PRMB	plan	plans	PRMB	plan	plans	PRMB
Inflation	3.0	2.0	–	3.4	2.0	–	3.3	1.4	–
Rate used to discount plan
liabilities	4.6	4.9	5.0	4.9	5.3	5.3	1.9	2.8	2.6
Expected rate
of increase in salaries	3.5	2.5	–	3.9	2.9	–	3.8	2.7	–
Expected rate
of increase
for pensions
in payment
and deferred	1.75 to			1.95 to			2.35 to
pensions	5.10	–	–	5.20	–	–	5.10	–	–
Initial rate of increase in healthcare rate	–	–	6.5	–	–	6.5	–	–	6.3
Ultimate rate
of increase in healthcare rate	–	–	5.0	–	–	5.0	–	–	5.0

The UK discount rate is based on corporate bond yields adjusted to reflect the duration of liabilities.

The inflation rate for the UK Group plan of 3.0% (2022: 3.4%) reflects the RPI rate. In line with

changes to legislation in 2010, certain benefits have been calculated with reference to CPI as the

inflationary measure and in these instances a rate of 2.3% (2022: 2.7%) has been used. The CPI

rate is determined as a weighted average deduction from the RPI rate, and allows for the expected

change to the formula for calculating RPI to be in line with CPIH from 2030 onwards.

For the UK Group plan, the mortality base table assumptions are derived from the SAPS S3 for males

and females, adjusted to reflect the observed experience of the plan, with CMI model improvement

factors. A 1.5% long-term rate improvement on the CMI 2022 model is applied for both males and

females, with a weighting to 2022 mortality experience in the CMI model of 40% to reflect current

trends in life expectancy. Life expectancy remains uncertain following the COVID-19 pandemic which

had wide-ranging direct and indirect impacts.

For the US plans, a mortality table (Pri – 2012) and 2021 improvement scale (MP – 2021) with

generational projection for male and female annuitants has been adopted.

Using the above tables, the remaining average life expectancy in years of a pensioner retiring at age

65 on the balance sheet date for the UK Group plan and US plans is as follows:

All figures in years

			UK			US
	2023	2022	2021	2023	2022	2021
Male	21.8	22.5	22.6	20.7	20.6	20.5
Female	24.1	24.7	24.8	22.6	22.6	22.5

The remaining average life expectancy in years of a pensioner retiring at age 65, 20 years after the

balance sheet date, for the UK and US Group plans is as follows:

All figures in years

		UK			US
	2023	2022	2021	2023	2022	2021
Male	23.4	24.1	24.2	22.2	22.1	22.0
Female	25.8	26.4	26.5	24.1	24.0	23.9

Although the Group anticipates that plan surpluses will be utilised during the life of the plan to

address member benefits, the Group recognises its pension surplus in full in respect of the UK

Group plan on the basis that it is management’s judgement that there are no substantive restrictions

on the return of residual plan assets in the event of a winding up of the plan after all member

obligations have been met.

Annual report and accounts 2023 Pearson plc 193

Financial statements

25. Retirement benefit and other post-retirement obligations

continued

Financial statement information

The amounts recognised in the income statement are as follows:

All figures in £ millions

						2023
		Defined
	UK Group	benefit		Defined
	plan	other	Sub-total	contribution	PRMB	Total
Current service cost	16	2	18	45	–	63
Past service cost	–	–	–	–	–	–
Settlements	–	–	–	–	–	–
Administration expenses	8	–	8	–	–	8
Total operating expense	24	2	26	45	–	71
Interest on plan assets	(148)	(5)	(153)	–	–	(153)
Interest on plan liabilities	121	6	127	–	–	127
Net finance (income)/
expense	(27)	1	(26)	–	–	(26)
Net income statement
charge	(3)	3	–	45	–	45

All figures in £ millions

						2022
		Defined
	UK Group	benefit		Defined
	plan	other	Sub-total	contribution	PRMB	Total
Current service cost	17	2	19	46	–	65
Past service cost	3	–	3	–	–	3
Settlements	–	–	–	–	–	–
Administration expenses	7	–	7	–	–	7
Total operating expense	27	2	29	46	–	75
Interest on plan assets	(77)	(3)	(80)	–	–	(80)
Interest on plan liabilities	67	3	70	–	1	71
Net finance (income)/
expense	(10)	–	(10)	–	1	(9)
Net income statement
charge	17	2	19	46	1	66

All figures in £ millions

						2021
		Defined
	UK Group	benefit		Defined
	plan	other	Sub-total	contribution	PRMB	Total
Current service cost	17	2	19	37	–	56
Past service cost	–	–	–	–	–	–
Settlements	–	–	–	–	–	–
Administration expenses	6	–	6	–	–	6
Total operating
expense	23	2	25	37	–	62
Interest on plan assets	(55)	(2)	(57)	–	–	(57)
Interest on plan liabilities	49	3	52	–	1	53
Net finance (income)/
expense	(6)	1	(5)	–	1	(4)
Net income statement
charge	17	3	20	37	1	58

The amounts recognised in the balance sheet are as follows:

All figures in £ millions

				2023				2022
		Other	Other			Other	Other
	UK Group	funded	unfunded		UK Group	funded	unfunded
	plan	plans	plans	Total	plan	plans	plans	Total
Fair value of plan assets	3,060	107	–	3,167	3,088	104	–	3,192
Present value of defined
benefit obligation	(2,569)	(99)	(15)	(2,683)	(2,514)	(106)	(17)	(2,637)
Net pension asset/
(liability)	491	8	(15)	484	574	(2)	(17)	555
Other post-retirement
medical benefit obligation				(21)				(25)
Other pension accruals				(8)				(10)
Net retirement benefit
asset				455				520
Analysed as:
Retirement benefit assets				499				581
Retirement benefit
obligations				(44)				(61)

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 194

Financial statements

The following gains/(losses) have been recognised in other comprehensive income:

	All figures in £ millions 2023	2022	2021
Amounts recognised for defined benefit plans	(86)	44	145
Amounts recognised for post-retirement medical benefit
plans	1	10	4
Total recognised in year	(85)	54	149

The fair value of plan assets comprises the following:

All figures in %

			2023			2022
	UK Group	Other		UK Group	Other
	plan	funded plans	Total	plan	funded plans	Total
Insurance	33	–	33	33	–	33
Equities	15	1	16	14	1	15
Fixed interest
securities	6	2	8	5	2	7
Property	5	–	5	6	–	6
Pooled asset
investment funds
(including LDI)	24	–	24	23	–	23
Infrastructure	11	–	11	11	–	11
Cash and cash
equivalents	1	–	1	3	–	3
Other	2	–	2	2	–	2

The plan assets do not include any of the Group’s own financial instruments, or any property

occupied by the Group. The table below further disaggregates the plan assets into those assets

which have a quoted market price in an active market and those that do not:

All figures in %

		2023		2022
	Quoted	No quoted	Quoted	No quoted
	market price	market price	market price	market price
Insurance	–	33	–	33
Equities	16	–	15	–
Fixed-interest securities	8	–	7	–
Property	–	5	–	6
Pooled asset investment funds (including LDI)	24	–	23	–
Infrastructure	–	11	–	11
Cash and cash equivalents	–	1	–	3
Other	–	2	–	2
Total	48	52	45	55

The liquidity profile of the UK Group plan assets is as follows:

	All figures in % 2023	2022
Liquid – call <1 month	48	47
Less liquid – call 1–3 months	2	2
Illiquid – call >3 months	50	51

Annual report and accounts 2023 Pearson plc 195

Financial statements

25. Retirement benefit and other post-retirement obligations

continued

Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:

All figures in £ millions

			2023			2022
	UK Group	Other		UK Group	Other
	plan	plans	Total	plan	plans	Total
Fair value of plan assets
Opening fair value of plan assets	3,088	104	3,192	4,125	120	4,245
Recognition of Money Purchase assets	–	–	–	–	–	–
Exchange differences	–	(6)	(6)	–	12	12
Interest on plan assets	148	5	153	77	3	80
Return on plan assets excluding interest	(48)	5	(43)	(1,000)	(18)	(1,018)
Contributions by employer	–	15	15	15	2	17
Contributions by employees	7	–	7	7	–	7
Benefits paid	(135)	(14)	(149)	(136)	(15)	(151)
Settlements	–	(2)	(2)	–	–	–
Closing fair value of plan assets	3,060	107	3,167	3,088	104	3,192
Present value of defined benefit
obligation
Opening defined benefit obligation	(2,514)	(123)	(2,637)	(3,588)	(143)	(3,731)
Recognition of Money Purchase liabilities	–	–	–	–	–	–
Exchange differences	–	6	6	–	(14)	(14)
Disposals	–	–	–	–	1	1
Current service cost	(16)	(2)	(18)	(17)	(2)	(19)
Past service cost	–	–	–	(3)	–	(3)
Administration expenses	(8)	–	(8)	(7)	–	(7)
Interest on plan liabilities	(121)	(6)	(127)	(67)	(3)	(70)
Actuarial losses – experience	(61)	(2)	(63)	(25)	(2)	(27)
Actuarial gains – demographic	52	–	52	14	–	14
Actuarial (losses)/gains – financial	(29)	(3)	(32)	1,050	25	1,075
Contributions by employees	(7)	–	(7)	(7)	–	(7)
Benefits paid	135	14	149	136	15	151
Settlements	–	2	2	–	–	–
Closing defined benefit obligation	(2,569)	(114)	(2,683)	(2,514)	(123)	(2,637)

The weighted average duration of the defined benefit obligation is 12 years for the UK and six years

for the US.

Changes in the value of the US PRMB are as follows:

	All figures in £ millions 2023	2022
Opening defined benefit obligation	(25)	(34)
Exchange differences	1	(3)
Interest on plan liabilities	–	(1)
Actuarial gains – experience	2	5
Actuarial (losses)/gains – financial	(1)	5
Benefits paid	2	3
Closing defined benefit obligation	(21)	(25)

Funding

The UK Group plan is self-administered with the plan’s assets being held independently of the

Group in trust. The trustee of the UK Group plan is required to act in the best interest of the plan’s

beneficiaries. The most recent triennial actuarial valuation for funding purposes was completed as at

1 January 2021 and this valuation revealed a technical provision funding surplus of £160m. The UK

Group plan expects to be able to provide benefits (in accordance with the plan rules) with a very low

level of reliance on future funding from the Group.

Assets of the final salary section of the UK Group plan are divided into two main elements: liability

matching assets and return seeking assets. The UK Group plan’s investment strategy for the final

salary section allocates approximately 95% to matching assets and 5% to return-seeking assets.

Liability matching assets are assets that produce cash flows that can be expected to match the cash

flows for a proportion of the membership, and include a liability-driven investment mandate (LDI)

for which a Qualifying Investor Alternative Investment Fund (QIAIF) was established, managed by

a subsidiary of Legal & General Investment Management. The QIAIF invests in UK bonds, interest

rate/inflation swaps and other derivative instruments in order to reduce interest rate and inflation

risks using accurate cash flow matching and risk control. Other liability matching assets include

pensioner buy-in insurance policies, bonds and inflation-linked property and infrastructure.

Following the purchase of buy-in policies with Legal & General and Aviva in 2017 and 2019, 95% of

the UK Group plan’s pensioner liabilities were matched with buy-in policies. These transfer significant

longevity risk to Aviva and Legal & General, reducing the pension risks being underwritten by the

Group and providing additional security for members.

Return-seeking assets are assets invested with a longer-term horizon to generate the returns

needed to provide the remaining expected cash flows for the beneficiaries, and include diversified

growth funds, property and alternative asset classes.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 196

Financial statements

26. Share-based payments

The Group recognised the following charges in the income statement in respect of its equity-settled

share-based payment plans:

	All figures in £ millions 2023	2022	2021
Pearson plans	40	38	28

The Group operates the following equity-settled employee option and share plans:

Worldwide Save for Shares Plan – The Group has a Worldwide Save for Shares Plan. Under this plan,

employees can save a portion of their monthly salary over a period of three years. At the end of this

period, the employee has the option to purchase ordinary shares with the accumulated funds at a

purchase price equal to 80% of the market price prevailing at the time of the commencement of the

employee’s participation in the plan. Options that are not exercised within six months of the end of

the savings period lapse unconditionally.

Employee Stock Purchase Plan – In 2000, the Group established an Employee Stock Purchase

Plan which allows all employees in the US to save a portion of their monthly salary over six-month

periods. At the end of the period, the employee has the option to purchase American Depositary

Receipts (ADRs) with their accumulated funds at a purchase price equal to 85% of the lower of the

market prices prevailing at the beginning or end of the period.

Long-Term Incentive Plan – The plan was first introduced in 2001 and from time to time the plan

rules are renewed. The plan consists of restricted shares. The vesting of restricted shares is normally

dependent on continuing service over a three to five-year period, and in the case of Executive

Directors and senior management upon the satisfaction of corporate performance targets over a

three-year period. These targets may be based on market and/or non-market performance criteria.

Restricted shares awarded to Executive Directors in May 2022 and May 2021 vest dependent on

relative total shareholder return (FTSE 100), net return on invested capital and adjusted earnings per

share, and the May 2023 awards vest based on relative total shareholder return (FTSE 100 and S&P

500, excluding certain sectors), return on capital, adjusted earnings per share and an ESG measure.

These awards are in addition to the 2020 co-investment award for Andy Bird, vesting in three equal

tranches based on market and non-market performance underpins. The applicable market condition

for the vesting of the final tranche is on relative total shareholder return (FTSE 100). Other restricted

shares awarded in 2023, 2022 and 2021 generally vest depending on continuing service over periods

of up to five years. Included within the total share-based payments charge in 2023 was £3m (2022:

£3m; 2021: £nil) in respect of remuneration for post-acquisition services for recent acquisitions,

which was included within other net gains and losses in the income statement.

Recent economic and geopolitical uncertainty has increased volatility in the valuation of certain

assets, in particular the LDI and insurance contracts. However, these movements are offset by

equivalent movements in the defined benefit obligation. The UK Group plan divides its assets

between a number of investment managers and across different types of assets, as such there is no

significant concentration of risk.

Regular employer contributions to the UK Group plan in respect of the defined benefit sections are

estimated to be £nil for 2024.

Sensitivities

The effect of a one percentage point increase and decrease in the discount rate on the defined

benefit obligation and the total pension expense is as follows:

All figures in £ millions

		2023
	1% increase	1% decrease
Effect:
(Decrease)/increase in defined benefit obligation – UK Group plan	(203)	251
(Decrease)/increase in defined benefit obligation – US plan	(5)	5

The effect of members living one year more or one year less on the defined benefit obligation is as

follows:

All figures in £ millions

		2023
	One year	One year
	increase	decrease
Effect:
Increase/(decrease) in defined benefit obligation – UK Group plan	58	(58)
Increase/(decrease) in defined benefit obligation – US plan	2	(2)

The effect of a half percentage point increase and decrease in the inflation rate is as follows:

All figures in £ millions

		2023
	0.5% increase	0.5% decrease
Effect:
Increase/(decrease) in defined benefit obligation – UK Group plan	61	(58)
Increase/(decrease) in defined benefit obligation – US plan	–	–

The above sensitivity analyses are based on a change in an assumption while holding all other

assumptions constant, although in practice this is unlikely to occur and changes in some

assumptions may be correlated. When calculating these sensitivities, the same method has been

applied to calculate the defined benefit obligation as has been applied when calculating the liability

recognised in the balance sheet. This methodology is the same as prior periods.

Annual report and accounts 2023 Pearson plc 197

Financial statements

26. Share-based payments continued

Management Incentive Plan – The plan was introduced in 2017 combining the Group’s Annual

Incentive Plan and Long-Term Incentive Plan for senior management. The number of shares to be

granted to participants is dependent on Group performance in the calendar year preceding the date

of grant (on the same basis as the Annual Incentive Plan). Subsequently, the shares vest dependent

on continuing service over a three-year period, and additionally, in the case of the Pearson Executive

Management team, upon satisfaction of non-market based performance criteria as determined by

the Remuneration Committee. In 2021 this scheme was replaced by the Long-Term Incentive Plan

for senior management.

The following shares were granted under restricted share arrangements:

		2023		2022
	Number of	Weighted average	Number of	Weighted average
	shares	fair value	shares	fair value
	000s	£	000s	£
Long-Term
Incentive Plan	5,572	6.99	7,584	7.61

In 2023, £23m (2022: £26m) of shares vested across the Worldwide Save for Shares Plan, the Long-

Term Incentive Plan and the Management Incentive Plan.

The fair value of shares granted under the Long-Term Incentive Plan and the Management Incentive

Plan that vest unconditionally is determined using the share price at the date of grant. Participants

under the plans are entitled to dividends during the vesting period and therefore the share price is

not discounted.

Restricted shares with a market performance condition were valued by an independent actuary

using a Monte Carlo model. Restricted shares with a non-market performance condition were fair

valued based on the share price at the date of grant. Non-market performance conditions are taken

into consideration by adjusting the number of shares expected to vest based on the most likely

outcome of the relevant performance criteria.

27. Share capital and share premium

	Number of	Share	Share
	shares	capital	premium
	000s	£m	£m
At 31 December 2021	756,802	189	2,626
Issue of ordinary shares – share option schemes	1,199	–	7
Buyback of equity	(42,268)	(10)	–
At 31 December 2022	715,733	179	2,633
Issue of ordinary shares – share option schemes	1,809	–	9
Buyback of equity	(20,243)	(5)	–
At 31 December 2023	697,299	174	2,642

The ordinary shares have a par value of 25p per share (2022: 25p per share). All issued shares are

fully paid. All shareholders are entitled to receive dividends and vote at general meetings of the

company. All shares have the same rights.

On 20 September 2023, the Board approved a £300m share buyback programme in order to

return capital to shareholders. During the year, approximately 20m shares were bought back and

cancelled at a cost of £186m. The nominal value of these shares, £5m, was transferred to the capital

redemption reserve, and the remainder of the purchase price is recorded within retained earnings.

At 31 December 2023, a liability of £118m remained for those shares contracted to be repurchased

but where the repurchases were still outstanding and associated costs.

On 24 February 2022, the Board approved a £350m share buyback programme in order to

return capital to shareholders. During 2022, approximately 42m shares were bought back and

cancelled at a cost of £353m. The nominal value of these shares, £10m, was transferred to the

capital redemption reserve, and the remainder of the purchase price was recorded within

retained earnings.

The Group manages its capital to ensure that entities in the Group will be able to continue as a going

concern while maximising the return to shareholders through the optimisation of the debt and

equity balance.

The capital structure of the Group consists of debt (see note 18), cash and cash equivalents (see

note 17) and equity attributable to equity holders of the parent, comprising issued capital, reserves

and retained earnings.

The Group reviews its capital structure on a regular basis and will balance its overall capital structure

through payments of dividends, new share issues as well as the issue of new debt or the redemption

of existing debt in line with the financial risk policies outlined in note 19.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 198

Financial statements

28. Treasury shares

	Number of
	shares
	000s	£m
At 31 December 2021	1,571	12
Purchase of treasury shares	4,513	37
Release of treasury shares	(4,220)	(34)
At 31 December 2022	1,864	15
Purchase of treasury shares	3,991	35
Release of treasury shares	(3,695)	(31)
At 31 December 2023	2,160	19

The Group holds Pearson plc shares in trust to satisfy its obligations under its restricted share plans (see note 26). These shares, representing 0.3% (2022: 0.3%) of called-up share capital, are treated as

treasury shares for accounting purposes and have a par value of 25p per share.

The nominal value of Pearson plc treasury shares amounts to £0.5m (2022: £0.5m). Dividends on treasury shares are waived.

At 31 December 2023, the market value of Pearson plc treasury shares was £21m (2022: £18m). The gross book value of the shares at 31 December 2023 amounts to £19m (2022: £15m).

29. Other comprehensive income

All figures in £ millions

						2023
				Attributable to equity holders of the company
					Non-
	Fair value	Translation	Retained		controlling
	reserve	reserve	earnings	Total	interest	Total
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations	–	(176)	–	(176)	(1)	(177)
Currency translation adjustment disposed	–	(122)	–	(122)	–	(122)
Attributable tax	–	–	–	–	–	–
Items that are not reclassified to the income statement
Fair value gain on other financial assets	1	–	–	1	–	1
Attributable tax	–	–	–	–	–	–
Remeasurement of retirement benefit obligations	–	–	(85)	(85)	–	(85)
Attributable tax	–	–	20	20	–	20
Other comprehensive income/(expense) for the year	1	(298)	(65)	(362)	(1)	(363)

Annual report and accounts 2023 Pearson plc 199

Financial statements

29. Other comprehensive income continued

All figures in £ millions

						2022
		Attributable to equity holders of the company
					Non-
	Fair value	Translation	Retained		controlling
	reserve	reserve	earnings	Total	interest	Total
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations	–	328	–	328	2	330
Currency translation adjustment disposed	–	(5)	–	(5)	–	(5)
Attributable tax	–	–	4	4	–	4
Items that are not reclassified to the income statement
Fair value gain on other financial assets	18	–	–	18	–	18
Attributable tax	–	–	1	1	–	1
Remeasurement of retirement benefit obligations	–	–	54	54	–	54
Attributable tax	–	–	(12)	(12)	–	(12)
Other comprehensive income/(expense) for the year	18	323	47	388	2	390

All figures in £ millions

						2021
		Attributable to equity holders of the company
					Non-
	Fair value	Translation	Retained		controlling
	reserve	reserve	earnings	Total	interest	Total
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations	–	(6)	–	(6)	–	(6)
Currency translation adjustment disposed	–	4	–	4	–	4
Attributable tax	–	–	10	10	–	10
Items that are not reclassified to the income statement
Fair value gain/(loss) on other financial assets	4	–	–	4	–	4
Attributable tax	–	–	(1)	(1)	–	(1)
Remeasurement of retirement benefit obligations	–	–	149	149	–	149
Attributable tax	–	–	(61)	(61)	–	(61)
Other comprehensive income/(expense) for the year	4	(2)	97	99	–	99

The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The fair value reserve arises on revaluation of other financial assets. The translation

reserve includes exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 200

Financial statements

30. Business combinations

On 22 March 2023, the Group acquired 100% of the share capital of Personnel Decisions Research

Institutes, LLC (PDRI) for cash consideration of £152m ($187m). PDRI is a provider of workforce

assessment services and has significant expertise in providing recruitment assessment solutions to

the US federal government. It forms part of the Assessment & Qualifications division. There is no

contingent or deferred consideration. Net assets acquired of £91m were recognised on the Group’s

balance sheet including £117m of acquired intangible assets.

This transaction has resulted in the recognition of £61m of goodwill, which represents the expected

growth of the business, the workforce and know-how acquired and the anticipated synergies, none

of which can be recognised as separate intangible assets. The goodwill is not deductible for tax

purposes.

Intangible assets of £117m have been recognised in respect of PDRI, the majority of which relates

to SAAS customer contracts and technology, which will be amortised over periods of up to 15 years.

The valuations of these assets were carried out with the support of a third-party specialist, and were

based on discounted cash flow models. The key assumptions that feed into the valuations are the

cash flow forecasts, revenue projections from existing customers, forecasted profit margins and

discount rates.

On 28 January 2022, the Group acquired 100% of the share capital in Credly Inc (Credly), having

previously held a 19.9% interest in the company. Credly is a digital credential service provider whose

platform enables customers to design, create, issue and manage digital credentials. It forms part of

the Workforce Skills division. Total consideration was £149m comprising upfront cash consideration

of £107m, Pearson’s existing interest valued at £31m and £11m of deferred consideration. The

deferred consideration is payable two years from the acquisition date.

On 28 April 2022, the Group acquired 100% of the share capital of ATI STUDIOS A.P.P.S S.R.L

(Mondly), a global online learning platform offering customers learning in English and 40 other

languages via its app, website, virtual reality and augmented reality products. It forms part of the

English Language Learning division. Total consideration was £135m comprising upfront cash

consideration of £105m, and deferred consideration of £30m. The deferred consideration is payable

over two years from the acquisition date, with no performance conditions attached. In addition, a

further $29.6m (c.£24m) of cash and $10m (c.£8m) in shares will be paid over four years from the

acquisition date, dependent on continuing employment, and therefore these additional amounts are

being expensed over the period and are not treated as consideration.

In 2022, these transactions resulted in the recognition of £202m of goodwill, which represented

the expected growth through new products and customers, the workforce and know-how acquired

and the anticipated synergies, none of which can be recognised as separate intangible assets. The

goodwill is not deductible for tax purposes.

Intangible assets of £99m were recognised in respect of Credly and Mondly. The valuations of these

assets were carried out with the support of third-party specialists, and were based on discounted

cash flow models. The key assumptions that feed into the valuations were the cash flow forecasts,

revenue projections from existing customers, forecasted profit margins and discount rates.

For Credly, £49m of intangible assets were recognised, mainly relating to the existing customer

relationships that are being amortised over 20 years, and technology which are being amortised over

five years. For Mondly, £50m of intangible assets were recognised, the majority of which relates to

acquired technology, and are being amortised over periods up to seven years.

In 2022, the Group also made three smaller acquisitions in the period for total consideration

of £11m.

In September 2021, Pearson completed the acquisition of 100% of the share capital of Faethm

Holdings Pty Limited (Faethm), having already held 9% of the share capital previously. Faethm uses

artificial intelligence and analytics services to help governments, companies and workers understand

the dynamic forces shaping the labour market. Faethm forms part of the Workforce Skills division.

The total consideration for the transaction was £65m, which included £10m of contingent

consideration, which has since been settled in 2022.

In addition, in 2021, the Group made two additional acquisitions of subsidiaries for total

consideration of £11m. In both cases, the Group acquired 100% of the share capital of the

respective entities. Opinion Interactive LLC (also known as Spotlight Education) was acquired in

February 2021. MZ Development Inc. was acquired in July 2021. Both form part of the Assessment &

Qualifications division.

The Group also made additional investments in associates, which are detailed in note 12, and are

not included below.

Details of the fair values of the assets and liabilities recognised at the acquisition date and the

related consideration is shown in the table below.

Key areas of estimation

The valuation of acquired intangible assets recognised on the acquisition of a business.

The valuation is based on a number of assumptions, including estimations of future

business performance.

Annual report and accounts 2023 Pearson plc 201

Financial statements

30. Business combinations continued

All figures in £ millions

	2023	2022	2021
	Total	Total	Total
Intangible assets	117	110	27
Deferred tax asset	–	8	11
Trade and other receivables	8	8	2
Cash and cash equivalents	4	13	4
Trade and other liabilities	(7)	(26)	(5)
Deferred tax liabilities	(31)	(22)	(6)
Net assets acquired	91	91	33
Goodwill	61	204	43
Total	152	295	76
Satisfied by:
Cash consideration	152	223	54
Contingent or deferred consideration	–	41	16
Fair value of existing investment	–	31	6
Total consideration	152	295	76

PDRI generated revenue of £24m and a profit after tax of £4m for the period from the acquisition

date to 31 December 2023. If the acquisitions had occurred on 1 January 2023, the Group’s revenue

would have been £7m higher and the profit after tax would have been £1m higher.

Total acquisition related costs of £12m (2022: £20m) were recognised within other net gains and

losses. There were also gains of £5m (2022: £8m) arising on decreases in the deferred consideration

payable on prior year acquisitions.

The net cash outflows related to the acquisitions are set out in the table below. In addition to

the current year acquisitions, the other net cash outflows on acquisition of subsidiaries relate to

deferred payments for prior year acquisitions.

All figures in £ millions

	2023	2022	2021
	Total	Total	Total
Cash flow on acquisitions
Cash – current year acquisitions	(152)	(223)	(54)
Cash and cash equivalents acquired	4	13	4
Deferred payments for prior year acquisitions and other items	(23)	(18)	(5)
Net cash outflow	(171)	(228)	(55)

31. Disposals and business closures

On 30 June 2023, the Group disposed of its interests in its POLS businesses in the US, UK, Australia

and India. The businesses disposed excludes Pearson’s contract with ASU. The consideration to

be received is deferred and comprises a 27.5% share of positive adjusted EBITDA in each calendar

year for six years and 27.5% of the proceeds received by the purchaser in relation to any future

monetisation event. The consideration has been valued at £12m and a pre-tax gain on disposal of

£13m has been recognised. In addition, a gain of £9m has been recognised which arises from the

release of a provision related to a historical disposal, £19m of losses arose from the disposals of

Pearson College and the international courseware local publishing business in India and £12m of

costs related to previous disposals were recognised.

Whether the associated results and cash flows of the POLS businesses should be classified and

presented as discontinued operations is a significant judgement. The Group's judgement is that

the results and cash flows of the related businesses should not be classified and presented as

discontinued operations on the basis that the businesses disposed do not constitute a separate

major line of business or geographical area of operations, and the cash flows related to one of the

large contracts within the business are being retained.

Key judgements

— The results and cash flows of businesses disposed do not meet the criteria to be classified

and presented as discontinued operations.

The POLS business is within the Virtual Learning segment and represents £93m of sales for the

year ended 31 December 2023 out of the total sales in the Virtual Learning segment of £616m. If

the Group had concluded that this business represented discontinued operations, its results and

the related gain on disposal would not have been included within each of the continuing operations

income statement lines. Profit for the period from continuing operations would have been £10m

lower and this amount would have been separately presented as profit for the period.

In 2022, the Group disposed of its interests in the Canadian educational publisher (ERPI), Pearson

Italia S.p.A, Stark Verlag GmbH, Austin Education (Hong Kong) Limited, Pearson South Africa (Pty) Ltd

and various other South African companies. Total cash consideration received was £287m resulting

in a pre-tax gain on disposal of £42m. All entities disposed of were previously in the Strategic Review

segment. £5m of losses arose from other immaterial disposals and costs related to the wind-down

of certain businesses.

In February 2021, the Group completed the sale of its interests in the Pearson Institute of Higher

Education (PIHE) in South Africa resulting in a pre-tax loss of £5m. In October 2021, the sale of the

Group’s interests in K12 Sistemas in Brazil was also completed for consideration of £108m, resulting

in a gain on sale of £84m. There were no other business disposals in 2021 and additional losses of

£14m relate to other disposal costs including costs related to the wind-down of certain businesses

under strategic review.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 202

Financial statements

Deferred proceeds relating to the K12 sale were received in 2022 and 2021 (see note 14). None of

the 2022 or 2021 disposals met the criteria to be considered a discontinued operation on the basis

that they did not represent major lines of business or geographical areas of operations.

The table below shows a summary of the assets and liabilities disposed of:

	All figures in £ millions 2023	2022	2021
Disposal of subsidiaries and associates
Intangible assets, including goodwill	(53)	(77)	(3)
Property, plant and equipment	(5)	(11)	(48)
Intangible assets – product development	(15)	(39)	(6)
Inventories	(1)	(33)	(2)
Trade and other receivables	(65)	(106)	(6)
Deferred tax	8	(12)	–
Current tax (receivable)/payable	(2)	–	–
Cash and cash equivalents (excluding overdrafts)	(12)	(21)	(24)
Provisions for other liabilities and charges	–	1	3
Retirement benefit obligations	–	2	–
Trade and other liabilities	31	52	4
Financial liabilities – borrowings	–	8	67
Net assets disposed	(114)	(236)	(15)
Cumulative currency translation adjustment	122	5	(4)
Cash proceeds	1	291	108
Deferred proceeds	12	2	–
Costs of disposal	(30)	(25)	(24)
(Loss)/gain on disposal	(9)	37	65

	All figures in £ millions 2023	2022	2021
Cash flow from disposals
Proceeds – current year disposals	1	291	108
Proceeds – prior year disposals	–	86	16
Cash and cash equivalents disposed	(12)	(21)	(24)
Costs and other disposal liabilities paid	(27)	(23)	(17)
Net cash (outflow)/inflow	(38)	333	83

32. Held for sale

At 31 December 2023, the Group has classified two properties (2022: three), with a total carrying

value of £2m (2022: £16m), as held for sale.

33. Additional cash flow information

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

	All figures in £ millions 2023	2022
Net book amount	6	9
(Loss)/profit on sale of property, plant and equipment	(1)	5
Proceeds from sale of property, plant and equipment	5	14

The movements in the Group’s current and non-current borrowings are as follows:

All figures in £ millions 2022

					Transfer
		Fair value	Foreign		from non-	New leases/
		and other	exchange	Financing	current to	disposal of
		movements	movements	cash flows	current	leases	2023
Financial liabilities
Non-current
borrowings	1,155	(2)	(15)	–	(80)	42	1,100
Current borrowings	66	10	(18)	(84)	80	(1)	53
Total	1,221	8	(33)	(84)	–	41	1,153

All figures in £ millions 2021

					Transfer
		Fair value	Foreign		from non-	New leases/
		and other	exchange	Financing	current to	disposal of
		movements	movements	cash flows	current	leases	2022
Financial liabilities
Non-current
borrowings	1,245	(14)	61	(76)	(92)	31	1,155
Current borrowings	157	(10)	16	(188)	92	(1)	66
Total	1,402	(24)	77	(264)	–	30	1,221

Non-current borrowings include bonds, derivative financial instruments and leases. Current

borrowings include loans repayable within one year, derivative financial instruments and leases, but

exclude overdrafts classified within cash and cash equivalents.

Annual report and accounts 2023 Pearson plc 203

Financial statements

34. Contingencies, tax uncertainties and commitments

Key judgements

— The application of tax legislation in relation to provisions for uncertain tax positions.

Key areas of estimation

— The level of provisions required in relation to uncertain tax positions is complex and each

matter is separately assessed. The estimation of future settlement amounts is based on a

number of factors including the status of the unresolved matter, clarity of legislation, range

of possible outcomes and the statute of limitations.

There are contingent Group liabilities that arise in the normal course of business in respect

of indemnities, warranties and guarantees in relation to former subsidiaries and in respect of

guarantees in relation to subsidiaries, joint ventures and associates. In addition, there are contingent

liabilities of the Group in respect of unsettled or disputed tax liabilities, legal claims, contract

disputes, royalties, copyright fees, permissions and other rights. None of these claims is expected to

result in a material gain or loss to the Group.

On 25 April 2019, the European Commission published the full decision that the United Kingdom

controlled foreign company group financing partial exemption (‘FCPE’) partially constitutes State

Aid. This decision was appealed by the UK Government and other parties. On 8 June 2022 the

EU General Court dismissed the appeal, however, this decision was further appealed by the UK

Government and other parties, with the subsequent hearing having taken place on 10 January

2024 (outcome pending). The total exposure is calculated to be £105m (excluding interest) with

a provision of £63m held in relation to this issue. The remaining tax receivable is disclosed as a

non-current asset on the balance sheet. The provision is calculated considering a range of possible

outcomes and applying a probability to each, resulting in a weighted average outcome. The possible

outcomes considered range from no liability through to the full exposure (£105m). This issue is

specific to periods up to 2018 and is not a continuing exposure.

The Group is under assessment from the tax authorities in Brazil challenging the deduction for tax

purposes of goodwill amortisation for the years 2012 to 2020. Similar assessments may be raised

for other years. Potential total exposure (including possible interest and penalties) could be up to

BRL 1,294m (£209m) up to 31 December 2023, with additional potential exposure of BRL 24m (£4m)

in relation to deductions expected to be taken in future periods. Such assessments are common in

Brazil. The Group believes that the likelihood that the tax authorities will ultimately prevail is low and

that the Group’s position is strong. At present, the Group believes no provision is required.

The Group is also under assessment from the UK tax authorities with the relevant years being 2019

to 2021. The maximum exposure is calculated to be £43m, with a provision of £21m currently held

in relation to this assessment. The provision is calculated considering a range of possible outcomes

and applying a probability to each, resulting in a weighted average outcome. The possible outcomes

considered range from no liability through to the full exposure (£43m). The point being assessed is

specific to 2019 to 2021 and is not a continuing exposure.

At the balance sheet date there were no commitments for capital expenditure contracted for but not

yet incurred. Commitments in respect of leases are shown in note 35.

35. Leases

The Group’s lease portfolio consists of approximately 710 property leases, mainly offices and test

centres, together with a number of vehicle and equipment leases. The Group has elected not to

recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12

months or less and leases of low-value assets. The Group recognises the lease payments associated

with these leases as an expense on a straight-line basis over the lease term.

As a lessee:

The amounts recognised in the income statement are as follows:

		All figures in £ millions Note 2023	2022	2021
Interest on lease liabilities		(23)	(25)	(27)
Expenses relating to short-term leases		–	–	–
Depreciation of right-of-use assets	10	(39)	(45)	(49)
Impairment of right-of-use assets	10	(2)	(34)	(119)

Lease liabilities are included within financial liabilities – borrowings in the balance sheet, see note 18.

The maturities of the Group’s lease liabilities are as follows:

	All figures in £ millions 2023	2022
Less than one year	84	94
One to five years	286	320
More than five years	301	332
Total undiscounted lease liabilities	671	746
Lease liabilities included in the balance sheet	547	605
Analysed as:
Current	64	71
Non-current	483	534

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 204

Financial statements

The amounts recognised in the cash flow statement are as follows:

	All figures in £ millions 2023	2022	2021
Total cash outflow for leases as a lessee	107	118	115

At the balance sheet date commitments for capital leases contracted for but not yet incurred were

£8m (2022: £5m). Extension and termination options and variable lease payments are not significant

within the lease portfolio. Short-term leases to which the Group is committed at the balance sheet

date are similar to the portfolio of short-term leases to which the short-term lease expense is

disclosed above.

As a lessor:

In the event that the Group has excess capacity in its leased offices and warehouses, the Group

subleases some of its properties under operating and finance leases.

The amounts recognised in the income statement are as follows:

	All figures in £ millions 2023	2022	2021
Interest on lease receivables	4	5	6
Income from subleasing right-of-use assets
(within other income)	6	4	2

The amounts recognised in the cash flow statement are as follows:

	All figures in £ millions 2023	2022	2021
Total cash inflow for leases as a lessor	19	23	27

The following table sets out the maturity analysis of lease payments receivable for subleases

classified as operating leases, showing the undiscounted lease payments to be received after the

reporting date, and subleases classified as finance leases showing the undiscounted lease payments

to be received after the reporting date and the net investment in the finance lease receivable. During

the year, the investment in finance lease receivable decreased by £21m (2022: increased £6m),

primarily due to payments received.

	Operating	Finance	2023	2022	2021
All figures in £ millions	leases	leases	Total	Total	Total
Less than one year	10	21	31	24	21
One to two years	10	23	33	28	18
Two to three years	11	23	34	28	20
Three to four years	11	23	34	28	21
Four to five years	11	16	27	29	20
More than five years	48	6	54	44	41
Total undiscounted lease
payments receivable	101	112	213	181	141
Unearned finance income		(12)
Net investment in finance
lease receivable		100

Annual report and accounts 2023 Pearson plc 205

Financial statements

36. Related party transactions

Joint ventures and associates

At 31 December 2022, the Group had a current liability payable to Academy of Pop of £5m (2021:

£7m), which related to the Group’s initial capital contribution that had not yet been paid as at 31

December 2022. This balance was paid in early 2023.

Key management personnel

Key management personnel are deemed to be the members of the Pearson Executive Management

team (see pages 72-73). It is this Committee which had responsibility for planning, directing and

controlling the activities of the Group in 2023. Key management personnel compensation is

disclosed below:

	All figures in £ millions 2023	2022	2021
Short-term employee benefits	9	7	6
Retirement benefits	1	1	1
Share-based payment costs	11	9	8
Total	21	17	15

Short-term employee benefits and retirement benefits exclude Executive Directors which are shown

on page 119 of the Directors Remuneration Report.

There were no other material related party transactions. No guarantees have been provided to

related parties.

37. Events after the balance sheet date

On 29 February 2024, the Board approved an extension to the share buyback programme of £200m.

Notes to the consolidated financial statements continued

Annual report and accounts 2023 Pearson plc 206

Financial statements

38. Accounts and audit exemptions

The Pearson plc subsidiary companies listed below are exempt from the requirements of the Companies Act 2006 relating to the audit of individual financial statements by virtue of section 479A.

Company number

Aldwych Finance Limited 04720439

Education Development International plc 03914767

Faethm Limited 11842984

Longman Group (Overseas Holdings) Limited 00690236

Pearson Australia Finance Unlimited 05578463

Pearson Canada Finance Unlimited 05578491

Pearson Dollar Finance Limited 05111013

Pearson Dollar Finance Two Limited 06507766

Pearson Education Holdings Limited 00210859

Pearson Education Investments Limited 08444933

Pearson Education Limited 00872828

Pearson International Finance Limited 02496206

Pearson Loan Finance No. 3 Limited 05052661

Pearson Loan Finance No. 5 Limited

12017252

Company number

Pearson Loan Finance No. 6 Limited 12030662

Pearson Loan Finance Unlimited 05144467

Pearson Management Services Limited 00096263

Pearson Nominees Limited 00672908

Pearson Overseas Holdings Limited 00145205

Pearson Pension Nominees Limited 10809680

Pearson Pension Trustee Services Limited 10803853

Pearson Professional Assessments Limited 04904325

Pearson Strand Limited 08561316

Pearson Services Limited 01341060

Pearson Shared Services Limited 04623186

Pearson Strand Finance Limited 11091691

PVNT Limited 08038068

TQ Global Limited 07802458

Annual report and accounts 2023 Pearson plc 207

Financial statements

Company balance sheet

As at 31 December 2023

All figures in £ millions Notes 2023 2022

Assets

Non-current assets

Investments in subsidiaries 2 6,702 6,738

Amounts due from subsidiaries 2,074 1,667

Deferred income tax assets 35 44

Financial assets – derivative financial instruments 5 32 43

8,843 8,492

Current assets

Amounts due from subsidiaries 277 526

Current income tax assets 22 4

Cash and cash equivalents (excluding overdrafts) 4 5 240

Financial assets – derivative financial instruments 5 15 16

Other assets 1 1

320 787

Total assets 9,163 9,279

Liabilities

Non-current liabilities

Amounts due to subsidiaries (3,287) (3,380)

Financial liabilities – derivative financial instruments 5 (38) (54)

(3,325) (3,434)

Current liabilities

Amounts due to subsidiaries (1,240) (1,383)

Other liabilities (121) (1)

Financial liabilities – derivative financial instruments 5 (5) (11)

(1,366) (1,395)

Total liabilities (4,691) (4,829)

Net assets 4,472 4,450

All figures in £ millions Notes 2023 2022

Equity

Share capital 6 174 179

Share premium 6 2,642 2,633

Treasury shares 7 (19) (15)

Capital redemption reserve 33 28

Special reserve 447 447

Retained earnings – including profit for the year of £467m

(2022: £499m) 1,195 1,178

Total equity attributable to equity holders of the

company 4,472 4,450

These financial statements have been approved for issue by the Board of Directors on 13 March

2024 and signed on its behalf by

Sally Johnson

Chief Financial Officer

Annual report and accounts 2023 Pearson plc 208

Financial statements

Company statement of changes in equity

Year ended 31 December 2023

All figures in £ millions

Equity attributable to equity holders of the company

capital

premium

Treasury

Capital

redemption

reserve

Special

reserve

Retained

earnings Total

At 1 January 2023 179 2,633 (15) 28 447 1,178 4,450

Profit for the year – – – – – 467 467

Equity-settled transactions

– – – – – 40 40

Issue of ordinary shares under share option schemes

– 9 – – – – 9

Purchase of treasury shares – – (35) – – – (35)

Release of treasury shares – – 31 – – (31) –

Buyback of equity (5) – – 5 – (304) (304)

Dividends – – – – – (155) (155)

At 31 December 2023 174 2,642 (19) 33 447 1,195 4,472

All figures in £ millions

Equity attributable to equity holders of the company

capital

premium

Treasury

Capital

redemption

reserve

Special

reserve

Retained

earnings Total

At 1 January 2022 189 2,626 (12) 18 447 1,184 4,452

Profit for the year – – – – – 499 499

Equity-settled transactions

– – – – – 38 38

Issue of ordinary shares under share option schemes

– 7 – – – – 7

Purchase of treasury shares – – (37) – – – (37)

Release of treasury shares – – 34 – – (34) –

Buyback of equity (10) – – 10 – (353) (353)

Dividends – – – – – (156) (156)

At 31 December 2022 179 2,633 (15) 28 447 1,178 4,450

The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The special reserve represents the cumulative effect of cancellation of the company’s

share premium account.

1. Full details of the share-based payment plans are disclosed in note 26 to the consolidated financial statements.

Annual report and accounts 2023 Pearson plc 209

Financial statements

Company cash flow statement

Year ended 31 December 2023

All figures in £ millions Notes 2023 2022

Cash flows from operating activities

Net profit 467 499

Adjustments for:

Income tax 6 (15)

Net finance costs (10) 48

Share-based payment costs 40 38

Impairment (reversals)/charges (40) 5

Amounts due to subsidiaries (301) (97)

Net cash generated from operations 162 478

Interest paid (14) (44)

Tax (paid)/received (15) 4

Net cash generated from operating activities 133 438

Cash flows from financing activities

Proceeds from issue of ordinary shares 6 9 7

Buyback of equity (186) (353)

Purchase of treasury shares (35) (37)

Proceeds from borrowings 285 –

Repayment of borrowings (285) –

Dividends paid to company’s shareholders (154) (156)

Net cash used in financing activities (366) (539)

Effects of exchange rate changes on cash and cash equivalents (2) 31

Net decrease in cash and cash equivalents (235) (70)

Cash and cash equivalents at beginning of year 240 310

Cash and cash equivalents at end of year 4 5 240

Annual report and accounts 2023 Pearson plc 210

Financial statements

Notes to the company financial statements

1. Accounting policies

The financial statements on pages 208-218 comprise the separate financial statements of Pearson plc.

These company financial statements have been prepared on the going concern basis and in accordance with

UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006. The

company financial statements have also been prepared in accordance with IFRS Accounting Standards as

issued by the International Accounting Standards Board (IASB).

The company financial statements have been prepared under the historical cost convention as modified by

the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value.

As permitted by section 408 of the Companies Act 2006, the company income statement and statement of

comprehensive income have not been presented.

The company has no employees (2022: nil).

The basis of preparation and accounting policies applied in the preparation of these company financial

statements are the same as those set out in note 1a to the consolidated financial statements with the addition

of the following:

Investments

Investments in subsidiaries are stated at cost less provision for impairment, with the exception of certain

hedged investments that are held in a foreign currency and revalued at each balance sheet date.

Lending to/from subsidiaries is considered to be an operating activity and any movements are classified as

cash flows from operating activities in the cash flow statement.

Amounts owed by subsidiaries

Amounts owed by subsidiaries generally mature within five years, but can be called upon on short notice, or

are repayable on demand. Amounts owed by subsidiaries are classified as current if they mature within one

year of the balance sheet date or if the company intends to call the loan within one year of the balance sheet

date. All other amounts are classified as non-current. The company has assessed and concluded that these

loans will be fully recovered. Therefore credit losses are considered to be immaterial.

Parent company guarantees

The Company has guaranteed the repayment of bonds and certain other liabilities due by subsidiary

undertakings primarily to third parties. Such guarantees are accounted for by the Company under IFRS 9.

They are initially measured at fair value. Subsequently, they are measured at the higher of (i) the amount

initially recognised less the cumulative amount of revenue recognised in accordance with IFRS 15, and (ii) the

expected credit losses under IFRS 9. The Company has also entered into performance guarantees whereby

in respect of contracts entered into by subsidiary undertakings, the Company will settle any claims for non-

performance under the contract in the event that the subsidiary does not perform its responsibilities under

the contract, and it does not pay out any amounts due to the third party in the event of non-performance.

Such performance guarantees are accounted for as loan commitments under IFRS 9.

New accounting standards

The Group adopted IFRS 17 ‘Insurance Contracts’ for the first time in 2023. No other new standards were

adopted in 2023. A number of other new pronouncements are effective from 1 January 2023 but they do not

have a material impact on the company financial statements.

Going concern

In assessing the Company’s ability to continue as a going concern for the period to 30 June 2025, the Board

reviewed management’s five-year plan, which was used as the base case.

The review included available liquidity throughout the period and headroom against the Group’s two main

covenants, which require net debt to EBITDA to be a maximum of four times and interest cover to be at least

three times.

At 31 December 2023, the Group had available liquidity of c.£1bn, comprising central cash balances and

its undrawn $1bn Revolving Credit Facility (RCF). The company's subsidiary Pearson Funding plc has a debt

maturity of €300m due within the going concern assessment period and it is assumed that this is refinanced

ahead of time with a £250m bond or bank facility. In both the base case and severe but plausible scenario, the

business has sufficient liquidity to repay this amount and does not rely on this refinancing in order to remain a

going concern. Significant liquidity and covenant headroom was observed throughout the assessment period

in this base model.

A severe but plausible scenario was analysed, where the Group is impacted by all principal risks in both 2024

and 2025, adjusted for probability weighting as well as other significant risks. For this and other downside

scenarios tested, the net impact of the risks modelled was to reduce adjusted operating profit by around

40% in each year. Even under a severe downside case, the company would maintain comfortable liquidity

headroom and sufficient headroom against covenant requirements during the period under assessment.

That is, even before modelling the mitigating effect of actions that management would take if these downside

risks were to crystalise.

A reverse stress test was performed to identify the reduction in profit required to cease to be a going concern

at or before 30 June 2025. The model showed that operating losses were required in both 2024 and 2025

to breach covenants and in turn to exhaust liquidity. This significantly exceeded the severe but plausible

downside scenario. The Directors consider this reverse stress test scenario to be remote.

The Directors have confirmed that there are no material uncertainties that cast doubt on the Company’s going

concern status and that they have a reasonable expectation that the Company has adequate resources to

continue in operational existence beyond 30June 2025. The Company financial statements have therefore

been prepared on a going concern basis.

2. Investments in subsidiaries

All figures in £ millions 2023 2022

At beginning of year 6,738 6,632

Distributions – (49)

Impairment reversal 40 –

Currency revaluations (76) 155

At end of year 6,702 6,738

Annual report and accounts 2023 Pearson plc 211

Financial statements

Notes to the company financial statements continued

2. Investments in subsidiaries continued

There were no impairments in 2023 or 2022. The recoverability of investments is tested annually for impairment in accordance with IAS 36 ‘Impairment of Assets’. The carrying value is compared to the asset’s recoverable amount

which is generally assessed on a value in use basis. Significant estimation is required to determine the recoverable amount. The value in use of the assets is calculated using a discounted cash flow methodology using financial

information related to the subsidiaries including cash flow projections in conjunction with the goodwill impairment analysis performed by the Group. The key assumptions used in the cash flow projections are discount rates,

perpetuity growth rates, forecast sales growth rates and forecast operating profits. See note 11 of the consolidated financial statements for further details.

3. Financial risk management

The company’s financial instruments comprise amounts due to/from subsidiary undertakings, cash and cash equivalents, derivative financial instruments and current borrowings. Derivative financial

instruments are held at fair value, with all other financial instruments held at amortised cost, which approximates fair value. The company’s approach to the management of financial risks is consistent with the

Group’s treasury policy, as discussed in note 19 to the consolidated financial statements. The company believes the value of its financial assets to be fully recoverable.

The carrying value of the company’s financial instruments is exposed to movements in interest rates and foreign currency exchange rates (primarily US dollars). The company estimates that a 1% increase in

interest rates would result in a £11m increase (2022: £7m increase) in the carrying value of its financial instruments, with a 1% decrease in interest rates resulting in a £10m decrease (2022: £6m decrease)

in their carrying value. The company also estimates that a 10% strengthening in sterling would decrease the carrying value of its financial instruments by £40m (2022: £136m), while a 10% weakening in the

value of sterling would increase the carrying value by £48m (2022: £153m). These increases and decreases in carrying value would be recorded through the income statement. Sensitivities are calculated

using estimation techniques such as discounted cash flow and option valuation models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were

adjusted to 0%.

The following table analyses the company’s derivative assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.

The amounts disclosed in the table are the contractual undiscounted cash flows (including interest) and as such may differ from the amounts disclosed on the balance sheet.

All figures in £ millions

Analysed by maturity

Total

Analysed by currency

Total

Greater than

one month

and less than

one year

Later than

one year but

less than

five years

Five years

or more USD GBP Other

At 31 December 2023

Rate derivatives – inflows (13) (262) – (275) (6) (9) (260) (275)

Rate derivatives – outflows 5 268 – 273 178 89 6 273

FX forwards – inflows (428) – – (428) – (428) – (428)

FX forwards – outflows 421 – – 421 421 – – 421

Total (15) 6 – (9) 593 (348) (254) (9)

At 31 December 2022

Rate derivatives – inflows (11) (471) – (482) (24) (170) (288) (482)

Rate derivatives – outflows 1 490 – 491 224 255 12 491

FX forwards – inflows (304) – – (304) – (304) – (304)

FX forwards – outflows 313 – – 313 – 313 – 313

Total (1) 19 – 18 200 94 (276) 18

All cash flow projections shown above are on an undiscounted basis. Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not

possible, floating rates are based on interest rates prevailing at 31 December in the relevant year. All derivative amounts are shown gross, although the company net settles these amounts wherever possible.

Annual report and accounts 2023 Pearson plc 212

Financial statements

Fair value hedge accounting

A foreign currency exposure arises from foreign exchange fluctuations on translation of the

company’s investments in subsidiaries denominated in USD into GBP. The hedged risk is the risk of

changes in the GBP:USD spot rate that will result in changes in the value of the USD investments

when translated into GBP. The hedged items are a portion of the company’s equity investment

in subsidiaries denominated in USD. The hedging instruments are a portion of the company’s

intercompany loans due from subsidiaries which are denominated in USD.

It is expected that the change in value of each of these items will offset each other as there is a clear

and direct economic relationship between the hedge and the hedged item in the hedge relationship.

Hedge ineffectiveness would arise if the value of the hedged items fell below the value of the hedging

instruments; however, this is unlikely as the value of the company’s investments denominated in USD

is significantly greater than the proposed fair value hedge programme.

The value of the hedged items and the hedging instruments is £1.4bn (2022: £1.4bn) and the change

in value during the year which was used to assess hedge ineffectiveness was £77m (2022: £155m).

There was no hedge ineffectiveness.

Cash flows from the €300m EUR 2025 bond are received by the company from its subsidiary

creating a foreign currency exposure upon the translation from EUR to GBP.Changes in the

GBP:EUR spot rate will result in changes to the value of amounts due from subsidiaries when

translated into GBP.The hedged item is €100m of this amount due from subsidiaries denominated

in EUR. The hedging instrument is a €100m 2025 cross-currency swap.It is expected that the change

in value of these items will move in the opposite directions as a result of movements in the EUR:GBP

exchange rate.

Credit risk management

The company’s main exposure to credit risk relates to lending to subsidiaries. Amounts due

from subsidiaries are stated net of provisions for bad and doubtful debts. The credit risk of each

subsidiary is influenced by the industry and country in which they operate; however, the company

considers the credit risk of subsidiaries to be low as it has visibility of, and the ability to influence,

their cash flows.

4. Cash and cash equivalents (excluding overdrafts)

All figures in £ millions 2023 2022

Cash at bank and in hand 5 240

5 240

At the end of 2023, the currency split of cash and cash equivalents was US dollar 0% (2022: 79%),

sterling 44% (2022: 18%) and other 56% (2022: 3%). Cash and cash equivalents have fair values that

approximate their carrying amounts due to their short-term nature.

5. Derivative financial instruments

The company’s outstanding derivative financial instruments are as follows:

All figures in £ millions

2023 2022

Gross

notional

amounts Assets Liabilities

Gross

notional

amounts Assets Liabilities

Interest rate derivatives 430 14 (6) 437 19 (11)

Cross-currency rate derivatives 439 26 (32) 83 34 (43)

FX derivatives 894 7 (5) 916 6 (11)

Total 1,763 47 (43) 1,436 59 (65)

Analysed as expiring:

In less than one year 995 15 (5) 1,016 16 (11)

Later than one year and not

later than five years 768 32 (38) 420 43 (54)

Total 1,763 47 (43) 1,436 59 (65)

The carrying value of the above derivative financial instruments equals their fair value. Derivatives

are categorised as level 2 on the fair value hierarchy.Fair values are determined by using

market data and the use of established estimation techniques such as discounted cash flow and

optionvaluationmodels.

6. Share capital and share premium

Number of

000s

capital

£m

premium

£m

At 31 December 2021 756,802 189 2,626

Issue of ordinary shares – share option schemes 1,199 – 7

Buyback of equity (42,268) (10) –

At 31 December 2022 715,733 179 2,633

Issue of ordinary shares – share option schemes 1,809 – 9

Buyback of equity (20,243) (5) –

At 31 December 2023 697,299 174 2,642

The ordinary shares have a par value of 25p per share (2022: 25p per share). All issued shares are

fully paid. All shareholders are entitled to receive dividends and vote at general meetings of the

company. All shares have the same rights.

Annual report and accounts 2023 Pearson plc 213

Financial statements

Notes to the company financial statements continued

6. Share capital and share premium continued

On 20 September 2023, the Board approved a £300m share buyback programme in order to

return capital to shareholders. During the year, approximately 20m shares were bought back and

cancelled atacost of £186m. The nominal value of these shares, £5m, was transferred to the capital

redemption reserve, and the remainder of the purchase price is recorded within retained earnings.

At 31 December 2023, a liability of £118m remained for those shares contracted to be repurchased

but where the repurchases were still outstanding and associated costs.

On 24 February 2022, the Board approved a £350m share buyback programme in order to

return capital to shareholders. During 2022, approximately 42m shares were bought back and

cancelled at a cost of £353m. The nominal value of these shares, £10m, was transferred to the

capital redemption reserve, and the remainder of the purchase price was recorded within

retained earnings.

7. Treasury shares

Number of

000s £m

At 31 December 2021 1,571 12

Purchase of treasury shares 4,513 37

Release of treasury shares (4,220) (34)

At 31 December 2022 1,864 15

Purchase of treasury shares 3,991 35

Release of treasury shares (3,695) (31)

At 31 December 2023 2,160 19

The company holds its own shares in trust to satisfy its obligations under its restricted share plans.

These shares are treated as treasury shares for accounting purposes and have a par value of 25p

per share.

The nominal value of the company’s treasury shares amounts to £0.5m (2022: £0.5m). Dividends on

treasury shares are waived.

At 31 December 2023, the market value of the company’s treasury shares was £21m (2022: £18m).

The gross book value of the shares at 31 December2023 amounts to £19m (2022: £15m).

8. Contingencies

There are contingent liabilities that arise in the normal course of business in respect of indemnities,

warranties and guarantees in relation to former subsidiaries and in respect of guarantees in relation

to subsidiaries. The total value of guarantees made by the company in relation to its subsidiaries

is£912m (2022: £889m). In addition, there are contingent liabilities in respect of legal claims. None

of these claims is expected to result in a material gain or loss to the company.

9. Audit fees

Statutory audit fees relating to the company were £40,700 (2022: £38,037).

10. Related party transactions

Subsidiaries

The company transacts and has outstanding balances with its subsidiaries. Amounts due

from subsidiaries and amounts due to subsidiaries are disclosed on the face of the company

balance sheet.

These loans are generally unsecured and interest is calculated based on market rates. The

company has interest payable to subsidiaries for the year of£188m (2022: £137m) and interest and

guarantee fees receivable from subsidiaries for the year of £189m (2022: £105m). Management fees

payable tosubsidiaries in respect of centrally provided services amounted to £17m (2022: £16m).

Management fees receivable from subsidiaries in respect ofcentrally provided services amounted

to £31m (2022: £34m). Dividends received from subsidiaries were £448m (2022: £605m), which

includes £nil (2022: £49m) of returns of capital distributed by subsidiaries.

Associates

There were no related party transactions with associates in 2023 or 2022.

Key management personnel

Key management personnel are deemed to be the members of the Pearson Executive

Management team.

It is this Committee which had responsibility for planning, directing and controlling the activities

of the company in 2023. Key management personnel compensation is disclosed in note 36 to the

consolidated financial statements.

Annual report and accounts 2023 Pearson plc 214

Financial statements

11. Group companies

In accordance with section 409 of the Companies Act 2006, a full list of subsidiaries, partnerships, associates, joint ventures and joint arrangements, the country of incorporation, the registered address and

the effective percentage of equity owned, as at 31 December 2023, is disclosed below. Unless otherwise stated, the shares are all indirectly held by Pearson plc. Unless otherwise stated, all wholly-owned and

partly-owned subsidiaries are included in the consolidation and all associated undertakings are included in the Group’s financial statements using the equity method of accounting. Principal Group companies

are identified in bold.

Wholly-owned subsidiaries

Registered company name

Country

ofIncorp.

Reg

office

Addison Wesley Longman, Inc. US 3

Addison-Wesley Educational Publishers Inc. US 4

AEL (S) PTE Limited SG 73

Aldwych Finance Limited UK 1

ATI Professional Development LLC US 4

ATI Studios A.P.P.S. SRL RO 78

Atkey Finance Limited* IE 7

Camsaw, Inc. US 4

CAMSAWUSA, Inc. US 11

Centro Cultural Americano Franquias e Comércio Ltda. BR 15

Century Consultants Ltd. US 13

Certiport China Holding, LLC US 4

Certiport, Inc. US 4

Clutch Learning, Inc. US 4

Cogmed Systems AB SE 14

Connections Academy of Florida, LLC US 20

Connections Academy of Iowa, LLC US 24

Connections Academy of Maine, LLC US 28

Connections Academy of Maryland, LLC US 29

Connections Academy of Nevada, LLC US 31

Connections Academy of New Mexico, LLC US 32

Connections Academy of Oregon, LLC US 37

Connections Academy of Pennsylvania LLC US 38

Connections Academy of Tennessee, LLC US 40

Connections Academy of Texas LLC US 41

Connections Education LLC US 4

Connections Education of Florida, LLC US 20

Connections Education, Inc. US 4

Credly, Inc. US 4

Dominie Press, Inc. US 17

Dorian Finance Limited IE 7

Registered company name

Country

ofIncorp.

Reg

office

eCollege.com US 4

Edexcel Limited

†

* UK 50

Education Development International Plc

†

UK 1

Education Resources (Cyprus) Limited CY 51

Educational Management Group, Inc. US 52

English Language Learning and Instruction System, Inc. US 54

Faethm Holdings Pty. Limited AU 48

Faethm IP Pty. Limited AU 48

Faethm Ltd UK 1

Faethm Pty. Limited AU 48

Faethm USA LLC US 6

Falstaff Holdco Inc. US 4

Falstaff Inc. US 55

FBH, Inc. US 4

George (Shanghai) Commercial Information Consulting Co., Ltd CN 21

Globe Fearon Inc. US 17

Heinemann Educational Botswana (Publishers) Proprietary Limited BW 8

IndiaCan Education Private Limited IN 2

Integral 7, Inc. US 4

INTELLIPRO, INC. US 13

Knowledge Analysis Technologies, LLC US 18

LCCIEB Training Consultancy., Ltd CN 64

LessonLab, Inc. US 17

Lignum Oil Company US 4

LION SG PTE. LTD.

SG 23

Longman (Malawi) Limited MW 65

Longman Group(Overseas Holdings) Limited UK 1

Longman Indochina Acquisition, L.L.C. US 4

Longman Tanzania Limited

TZ 68

Longman Zambia Educational Publishers Pty Ltd ZM 69

Longman Zimbabwe (Private) Ltd ZW 47

Longmaned Ecuador S.A. EC 71

Registered company name

Country

ofIncorp.

Reg

office

Lumerit Education, LLC US 41

Major123 Limited* UK 50

MeasureUp of Delaware, LLC US 4

Modern Curriculum Inc. US 17

Multi Treinamento e Editora Ltda BR 60

MZ Development Inc. US 4

National Computer Systems Japan Co. Ltd JP 74

Navvy Education, LLC US 22

NCS Information Technology Services (Beijing) Co Ltd CN 75

NCS Pearson Pty Ltd AU 48

NCS Pearson Puerto Rico, Inc. PR 76

NCS Pearson, Inc. US 30

Opinion Interactive LLC US 16

Ordinate Corporation US 17

Pearson (Beijing) Management Consulting Co., Ltd. CN 77

Pearson America LLC US 4

Pearson Amsterdam B.V. NL 79

Pearson Australia Finance Unlimited UK 1

Pearson Australia Group Pty Ltd AU 48

Pearson Australia Holdings Pty Ltd AU 48

Pearson Benelux B.V. NL 79

Pearson Books Limited

†*

UK 50

Pearson Brazil Finance Limited

UK 50

Pearson Business Services Inc. US 4

Pearson Canada Assessment Inc. CA 80

Pearson Canada Finance Unlimited UK 1

Pearson Canada Holdings Inc. CA 80

Pearson Canada Inc. CA 80

Pearson Central Europe Spółka z ograniczoną odpowiedzialnością PL 39

Pearson DBC Holdings Inc. US 4

Pearson Desarrollo y Capacitación Profesional Chile Limitada CL 81

Pearson Deutschland GmbH DE 82

Annual report and accounts 2023 Pearson plc 215

Financial statements

Notes to the company financial statements continued

Registered company name

Country

ofIncorp.

Reg

office

Pearson Digital Learning Puerto Rico, Inc. PR 76

Pearson Dollar Finance Limited

†

UK 1

Pearson Dollar Finance Two Limited UK 1

Pearson Educacion de Chile Limitada CL 81

Pearson Educacion de Colombia S.A.S. CO 84

Pearson Educacion de Mexico, S.A. de C.V. MX 85

Pearson Educacion de Panama SA PA 86

Pearson Educacion de Peru S.A. PE 87

Pearson Educacion SA ES 88

Pearson Education Africa (Pty) Ltd ZA 47

Pearson Education Asia Limited HK 53

Pearson Education Botswana (Proprietary) Limited BW 8

Pearson Education do Brasil Ltda BR 60

Pearson Education Hellas SA GR 26

Pearson Education Holdings Limited

†

UK 1

Pearson Education Indochina Limited TH 89

Pearson Education Investments Limited UK 1

Pearson Education Korea Limited KR 90

Pearson Education Limited UK 1

Pearson Education Namibia (Pty) Limited NA 58

Pearson Education Publishing Limited NG 44

Pearson Education S.A. UY 5

Pearson Education SA AR 67

Pearson Education South Africa (Pty) Ltd ZA 47

Pearson Education South Asia Pte. Ltd. SG 73

Pearson Education Taiwan Ltd TW 9

Pearson Education, Inc. US 4

Pearson Educational Measurement Canada, Inc. CA 36

Pearson Educational Publishers, LLC US 4

Pearson Egitim Cozumleri Tikaret Limited Sirketi TR 61

Pearson Falstaff (Holdings) Inc. US 4

Pearson Falstaff Holdco LLC US 4

Pearson Federal Holding Company, LLC US 4

Pearson France FR 70

Pearson Funding Four Limited

†*

UK 50

Pearson Funding plc

†

UK 1

Pearson Holdings Inc. US 4

Registered company name

Country

ofIncorp.

Reg

office

Pearson Holdings Southern Africa (Pty) Limited ZA 47

Pearson Hungary LLC

HU 25

Pearson India Education Services Private Limited IN 2

Pearson International Finance Limited

†

UK 1

Pearson Investment Holdings, Inc. US 4

Pearson Israel (P.I.) Ltd IL 66

Pearson Japan KK JP 49

Pearson Lanka (Private) Limited LK 63

Pearson Lanka Support Services (Private) Limited LK 12

Pearson Lesotho (Pty) Ltd LS 62

Pearson Loan Finance No. 3 Limited UK 1

Pearson Loan Finance No. 4 Limited

UK 50

Pearson Loan Finance No. 5 Limited UK 1

Pearson Loan Finance No. 6 Limited UK 1

Pearson Loan Finance Unlimited UK 1

Pearson Longman Uganda Limited UG 43

Pearson Malaysia Sdn. Bhd. MY 59

Pearson Management Services Limited

†

UK 1

Pearson Management Services Philippines Inc. PH 33

Pearson Maryland, Inc. US 11

Pearson Moçambique, Limitada MZ 42

Pearson Netherlands B.V. NL 79

Pearson Netherlands Holdings B.V. NL 79

Pearson Nominees Limited

†

UK 1

Pearson Online Tutoring LLC US 4

Pearson Overseas Holdings Limited

†

UK 1

Pearson PEM P.R., Inc. PR 19

Pearson Phoenix Pty Ltd AU 48

Pearson Professional Assessments Limited UK 1

Pearson Real Estate Holdings Inc. US 4

Pearson Real Estate Holdings Limited

†*

UK 50

Pearson Regional Headquarters Arabia SA 57

Pearson Schweiz AG CH 34

Pearson Services Limited

†

UK 1

Pearson Shared Services Limited

†

UK 1

Pearson Strand Finance Limited

†

UK 1

Pearson Strand Limited UK 1

Registered company name

Country

ofIncorp.

Reg

office

Pearson Sweden AB SE 14

Pearson VUE Europe B.V. NL 79

Pearson VUE Philippines, Inc. PH 27

Penguin Capital, LLC US 4

Personnel Decisions Research Institutes, LLC US 30

PN Holdings Inc. US 4

ProctorCam, Inc. US 4

PT Efficient English Services ID 83

PVNT Limited UK 1

Reading Property Holdings LLC US 3

Rebus Planning Associates, Inc. US 10

Reston Publishing Company, Inc. US 4

Rycade Capital Corporation US 4

Shanghai AWL Education Software Ltd

CN 72

Silver Burdett Ginn Inc. US 4

Skylight Training and Publishing Inc. US 52

Smarthinking, Inc. US 4

Sound Holdings Inc. US 4

Sparrow Phoenix Pty Ltd AU 48

Spear Insurance Company Limited

†

BM 45

The Waite Group, Inc. US 17

TQ Catalis Limited

UK 50

TQ Clapham Limited

UK 50

TQ Education and Training Limited UK 1

TQ Education and Training Limited SA 56

TQ Global Limited UK 1

TQ Group Limited UK 1

TQ Holdings Limited UK 1

VUE Testing Services Israel Ltd IL 46

VUE Testing Services Korea Limited KR 35

Williams Education GmbH DE 82

* In liquidation.

† Directly owned by Pearson plc.

11. Group companies continued

Annual report and accounts 2023 Pearson plc 216

Financial statements

Subsidiary addresses

The following list includes all Pearson registered offices worldwide.

Registered office address

1 80 Strand, London, WC2R 0RL, England

2 Featherlite, ‘The Address’, 5th Floor, Survey No 203/10B, 200 Ft MMRD Road, Zamin,

Pallavaram, Chennai, TN 600044, India

3 C T Corporation System, 155 Federal St., Suite 700, Boston, MA, 02110, United States

4 The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,

Wilmington, New Castle, DE, 19801, United States

5 Juan Benito Blanco 780 – Plaza Business Center, Montevideo, Uruguay

6 340 Halsa Dr, Chattahoochee Hills, GA, GA 30268, United States

7 1

Floor The Liffey Trust Centre, 117-126 Sheriff Street Upper, Dublin 1, Ireland

8 Dps Consulting Services Proprietary Limited, Plot 54513, Unit 6a, Courtyard, Village,

Gaborone, Botswana

9 10F, No 209, Sec. 1, Civic Blvd., Datong District, Taipei City, 10351, Taiwan

(ProvinceofChina)

10 The Corporation Company, 40600 Ann Arbor Rd, E Suite 201, Plymouth, MI, 48170,

United States

11 The Corporation Trust Incorporated, Suite 201, 2405 York Road, Lutherville Timonium,

MD, 21093, United States

12 #1, 3, 5

Floor, East Tower, World Trade Centre, Echelon Square, Colombo, O1,

SriLanka

13 820, Bear Tavern Road, West Trenton, Mercer, NJ, 08628, United States

14 Gustavslundsvägen 137, 167 51 Bromma, Stockholm, Sweden

15 Avenida Francisco Matarazzo nº 1400 Edifício Milano – 7º andar, Conjunto 72 – Sala 25

de Março – Agua Branca, São Paulo, 05001 903, Brazil

16 105 E Street #2A, Davis, CA, CA 95616, United States

17 C T Corporation System, 330 N Brand Blvd., Glendale, CA, 91203-2336

18 The Corporation Company, 7700 E Arapahoe Rd, Suite 220, Centennial, CO, 80112-

1268, United States

19 500, 401, Calle de la Tanca Edificio Ochoa, San Juan, 00901-1969, Puerto Rico

20 C T Corporation System, 1200, South Pine Island Road, Plantation, FL, 33324,

UnitedStates

21 Suite A7b, 3/F, No. 586 Longchang Road, Yangpu District, Shanghai, China

22 CT Corportion System, 289 S Culver St, Lawrenceville, GA, 30046-4805, United States

23 Kroll Pte. Limited, One Raffles Place, Tower 2, #10-62, Singapore, 048616, Singapore

24 C T Corporation System, 400 E Court Ave, Des Moines, IA, 50309, United States

25 22 B, 13 em, Népfürdő utca, Budapest, 1138, Hungary

26 4 Zalogou Str., 15343 Agia Paraskevi, Athens, Greece

27 27/F Trident Tower, 312 Sen. Gil Puyat Avenue, Makati City, Metro Manila, Philippines

28 C T Corporation System, 100 Second Avenue, Augusta, ME, 04330, United States

29 CSC - Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore,

MD, 21202, United States

30 C T Corporation System Inc., 1010 Dale Street North, St Paul, MN, 55117-5603,

UnitedStates

31 The Corporation Trust Company of Nevada, 701 S Carson St, Suite 200, Carson City,

NV, 89701, United States

Registered office address

32 C T Corporation System, 206 S Coronado Ave, Espanola, NM, 87532-2792,

UnitedStates

33 7/F North Tower, Rockwell Business Center COR. Sheridan & United Street, Brgy.

Highway Hills, Mandaluyong, Philippines

34 10 Gewerbestrasse, Cham, 6330, Switzerland

35 21, Mugyo-ro Jung-gu, Seoul, Republic of Korea

36 199 Bay Street, Commerce Court West, Suite 2800, Toronto, ON, M5L1A9, Canada

37 C T Corporation System, 780 Commercial Street SE, STE 100, Salem, OR, OR 97301,

United States

38 C T Corporation System, 600 N. 2

Street, Suite 401, Harrisburg, PA, 17101-1071,

United States

39 Ulica Szamocka 8 01-748, Warszawa, Poland

40 C T Corporation System, 300 Montvue Rd, Knoxville, TN, 37919-5546, United States

41 CT Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX, 75201, United States

42 Numero 776, Avenida 24 de Julho, Maputo, Mozambique

43 Plot 8, Berkley Road, Old Kampala, Uganda

44 8, Secretariat Road, Obafemi Awolowo Way, Alausa, Ikeja, Lagos State, Nigeria

45 Power House, 7 Par-la-ville Road, PO Box 1826, Hamilton, HM 11, Bermuda

46 Derech Ben Gurion 2, BSR Building 9

Floor, Ramat Gan, 52573, Israel

47 Auto Atlantic, 4

Floor, Corner Hertzog Boulevard and Heerengracht, Cape Town, 8001,

South Africa

48 459-471 Church Street, Richmond, Melbourne, VIC, 3121, Australia

49 11F Kanda Square, 2-2-1 Kanda-Nishikicho, Chiyoda-ku, Tokyo, 101-0054, Japan

50 Kroll Advisory Ltd., The Shard, 32 London Bridge Street, London, SE1 9SG, England

51 195, Archbishop Makarios III Avenue, Neocleous House, Limassol, 3030, Cyprus

52 Illinois Corporation Service Company, 700 S 2

Street, Springfield, IL, 62703,

UnitedStates

53 18/F, 1063 King’s Road, Quarry Bay, Hong Kong

54 251, Little Falls Drive, Corporation Service Company, Wilmington, DE, 19808,

UnitedStates

55 C T Corporation System, 28 Liberty Street, New York, NY, 10005, United States

56 King Fayad Road, Olaya, Riyadh, 58774, 11515, Saudi Arabia

57 Al Tawuniyya Towers, King Fahd Road, North Block, 2nd floor, Riyadh, Saudi Arabia

58 Unit 7 Kingland Park, 98 Nickel Street, Prosperita, Windhoek, Namibia

59 Unit 30-01, Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No 8,

Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia

60 Avenida José Luiz Mazzali, nº 450, Sala H, Setor Módulo 03B, GLP Louveira I, Santo

Antônio, Louveira, SP, CEP 13.290-000, Brazil

61 Nida Kule Kozyatagi, Kozyatagi Mahallesi, Degirmen Sokak No:18 Kat:6 D:15, Kadikoy,

Istanbul, 34742, Turkey

62 1st Floor Christie House, Orpen Road, Maseru, Lesotho

Registered office address

63 MAGA ONE-Level 22, No. 200, Nawala Road, Narahenpita, Colombo 05, 11222,

SriLanka

64 Room 305, Building 2, 6555 Shangchuan Road, Pudong District, Shanghai, China

65 AMG Global, Global House, Kristwick, Masauko Chipembere Highway, Blantyre, Malawi

66 Meitar Law Offices, 16 Abba Hillel Rd., Ramat Gan, 5250608, Israel

67 498, Libertador Ave, City of Buenos Aires, 3rd floor, Buenos Aires, Argentina

68 P O Box 45, IPS Building, Maktaba Street, Dar es Salaam, Tanzania

69 Plot 1281, Lungwebungu Road, Rhodes Park, Lusaka, Zambia

70 8 Rue des Pirogues de Bercy, 75012 Paris, France

71 Andalucía y cordero E12-35. Edificio CYEDE piso 1, Oficina 11, Sector “La Floresta”,

Quito, Pichincha, Ecuador

72 Suite 302-9,Block 3, No. 333 Weining Road, Changning District, Shanghai, China

73 3 Temasek Avenue, #21-23 Centennial Tower, 039190, Singapore

74 Shiodome City Center 18F, 1-5-2, Higashi Shimbashi, Minato-Ku, Tokyo,

105-7118, Japan

75 Suite 1201, Tower 2, No. 36 North Third Ring East Road, Dongcheng District,

Beijing,China

76 268 Munoz Rivera Avenue, Suite 1400, San Juan, 00918, Puerto Rico

77 Room 902, Tower W2, Oriental Plaza, No. 1 East Chang’an Street, Dongcheng District,

Beijing, 11, 100738, China

78 Str. Politehnicii 3, Braşov, 500019, Romania

79 Kabelweg 37, Amsterdam, 1014 BA, Netherlands

80 357 Bay Street, 3rd Floor, Toronto, ON, M5H 4A6, Canada

81 Oficina N°117, edificio Casa Colorada, calle Merced N°838-A Santiago Centro,

Santiago,Chile

82 c/o Pearson Deutschland GmbH, St.-Martin-Str. 82, Munich, 81541, Germany

83 30th Floor, Ratu Plaza Office Tower, Jl. Jend. Sudirman Kav 9, Jakarta, 10270, Indonesia

84 Carrera 7 Nro 156 – 68, Piso 26, Bogota, Colombia

85 Calle Antonio Dovali jaime #70, Torre B, Piso 6, Col. Zedec ed Plaza Santa Fe, del. Álvaro

Obregon, Ciudad de Mexico, CP 01210, Mexico

86 Punta Pacifica, Torres de las Americas, Torre A Piso 15 Ofic. 1517, Panama,

0832-0588, Panama

87 Cal. Los Halcones, no. 275, Urb. Limatombo, Lima, Perú

88 85, Paseo de la Castellana, Planta 8, Madrid, 28046, Spain

89 87/1 Capital Tower Building, All Seasons Place unit 1604 – 6 16th floor, Wireless Road,

Lumpini, Pathumwan, Bangkok, Thailand

90 #512, 5th Floor, 12, Mapo-daero 10-gil, Mapo-gu, Seoul, Republic of Korea

Annual report and accounts 2023 Pearson plc 217

Financial statements

11. Group companies continued

Partly-owned subsidiaries

Registered company Name

Country

ofIncorp. % Owned Reg office

Certiport China Co Ltd CN 50.69 1

Educational Publishers LLP UK 85 2

GED Domains LLC US 70 3

GED Testing Service LLC US 70 4

Pearson Education Achievement Solutions (RF) (Pty) Limited ZA 97.3 5

Pearson Pension Nominees Limited UK 50 2

Pearson Pension Property Fund Limited UK 50 2

Pearson Pension Trustee Limited UK 50 2

Pearson Pension Trustee Services Limited UK 50 2

Associated undertakings

Registered company Name

Country

ofIncorp. % Owned Reg office

Academy of Pop LLC US 40 6

Learn Capital Special Opportunities Fund I, L.P.

‡

US 99.59 8

Learn Capital Venture Partners II, L.P.

‡

US 72.93 8

Learn Capital Venture Partners IIIA, L.P.

‡

KY 99 9

Learn Capital Venture Partners, L.P.

‡

US 99.15 8

Peking University Pearson (Beijing) Cultural Development Co., Ltd CN 45 10

Prepona Sistemas de Testagem e Avaliação S.A. BR 22.2 7

Pui Man Publishing Limited CN 49 11

Smashcut, Inc. US 25.93 12

The Egyptian International Publishing Company-Longman EG 49 13

* In liquidation.

‡ Accounted for as an ‘Other financial asset’ within non-current assets.

Partly-owned subsidiaries and associated undertakings company

addresses

Registered office address

1 Suite 1804, No.99 Huichuan Road, Changning District, Shanghai City, China

2 80 Strand, London, WC2R 0RL, England

3 C T Corporation System, 4701 Cox Road, Suite 285, Glen Allen, Henrico, VA, 23060-0000, United States

4 The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, DE, 19801, United States

5 Auto Atlantic, 4th Floor, Corner Hertzog Boulevard and Heerengracht, Cape Town, 8001, South Africa

6 251, Little Falls Drive, Corporation Service Company, Wilmington, DE, 19808, UnitedStates

7 SIS 1107A1112, 35 Rua Pedro Lessa, Centro, Rio de Janeiro, RJ, 20030-030, Brazil

8 Incorporating Services, Ltd. 3500 S Dupont Way, Dover, Kent, DE, United States

9 Campbells Corporate Services Limited, Floor 4, Willow House, Cricket Square, GrandCayman, KY1-9010, Cayman Islands

10 Suite 216, No. 127-1 Zhongguancun North Street, Haidian District, Beijing, China

11 Rua de Pequim No. 230–246 17-L, Macau Finance Centre, Macau

12 C/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808, United States

13 9 Rashdan St., Messaha Square, Dokki, Giza City, Egypt

Notes to the company financial statements continued

Annual report and accounts 2023 Pearson plc 218

Financial statements

Five-year summary

All figures in £ millions 2023 2022 2021 2020 2019

Sales: By operating segment

Assessment & Qualifications 1,559 1,444 1,238 1,118

Virtual Learning 616 820 713 692

English Language Learning 415 321 238 218

Workforce Skills 220 204 172 163

Higher Education 855 898 849 956

Strategic review 9 154 218 250

Total sales 3,674 3,841 3,428 3,397 3,869

Adjusted operating profit: By operating segment

Assessment & Qualifications 350 258 219 147

Virtual Learning 76 70 32 29

English Language Learning 47 25 15 1

Workforce Skills (8) (3) 27 26

Higher Education 110 91 73 93

Strategic review (2) 15 19 16

Penguin Random House – – – 1

Total adjusted operating profit 573 456 385 313 581

Operating margin – continuing 15.6% 11.9% 11.2% 9.2% 15.0%

Adjusted earnings

Total adjusted operating profit 573 456 385 313 581

Net finance costs (33) (1) (57) (61) (41)

Income tax (124) (71) (64) (35) (89)

Non-controlling interest (2) (2) (1) – (2)

Adjusted earnings 414 382 263 217 449

Weighted average number of shares (millions) 711.5 738.1 754.1 755.4 777.0

Adjusted earnings per share 58.2p 51.8p 34.9p 28.7p 57.8p

Sales and adjusted operating profit for periods prior to 2020 have not been restated to reflect the new organisational structure including the transfer of retained English-speaking Canadian and Australian K12

Courseware businesses from Strategic review to the Assessment & Qualifications division.

Annual report and accounts 2023 Pearson plc 219

Other information (unaudited)

All figures in £ millions 2023 2022 2021 2020 2019

Cash flow

Operating cash flow 587 401 388 315 418

Operating cash conversion 102% 88% 101% 101% 72%

Free cash flow 387 222 133 229 213

Free cash flow per share 54.4p 30.0p 17.6p 30.3p 27.4p

Net assets 3,988 4,415 4,280 4,134 4,323

Net debt 744 557 350 463 1,016

Return on invested capital

Total adjusted operating profit 573 456 385 313 581

Operating tax paid (96) (95) (60) (10) (9)

Return 477 361 325 303 572

Gross basis:

Average invested capital 10,546 10,896 9,857 10,625 11,096

Return on invested capital 4.5% 3.3% 3.3% 2.9% 5.2%

Net basis:

Average invested capital 7,711 7,896 7,161 7,708 8,097

Return on invested capital 6.2% 4.6% 4.5% 3.9% 7.1%

Return on capital*

Total adjusted operating profit 573 456 385 313

Adjusted income tax charge (124) (71) (64) (35)

Return 449 385 321 278

Capital 4,380 4,439 4,086 4,196

Return on capital 10.3% 8.7% 7.9% 6.6%

Dividend per share 22.7p 21.5p 20.5p 19.5p 19.5p

* Return on capital was not a metric in 2019 and therefore has not been presented.

Five-year summary continued

Annual report and accounts 2023 Pearson plc 220

Other information (unaudited)

Financial key performance indicators

The following tables and narrative provide further analysis of the financial key performance

indicators which are described in the financial review of the annual report on pages 26-33, shown

within the key performance indicators on page 25 of the annual report and shown in note 2 of the

notes to the consolidated financial statements.

Adjusted performance measures

The annual report and accounts reports results and performance on a headline basis which

compares the reported results both on a statutory and ona non-GAAP (non-statutory) basis.

The Group’s adjusted performance measures are non-GAAP (non-statutory) financial measures

and are also included in the annual report as they are key financial measures used by management

to evaluate performance. The measures also enable investors to more easily, and consistently,

track the underlying operational performance of the Group and its business segments by

separating out those items of income and expenditure relating to acquisition and disposal

transactions, major restructuring programmes and certain other items that are also not

representative of underlying performance.

The Group’s definition of adjusted performance measures may not be comparable to other similarly

titled measures reported by other companies. Areconciliation of the adjusted measures to their

corresponding statutory measures is shown within this section.

Sales

Underlying sales movements exclude the effect of exchange, the impact of portfolio changes arising

from acquisitions and disposals and the impact ofadopting new accounting standards that are not

retrospectively applied. Portfolio changes are calculated by taking account of the additional sales

(atconstant exchange rates) from acquisitions made in both the current year and the prior year. For

acquisitions made in the prior year, the additional sales excluded is calculated as the sales made in

the period of the current year that corresponds to the pre-acquisition period in the prior year. Sales

made by businesses disposed in either the current year or the prior year are also excluded. Constant

exchange rates are calculated by assuming the average exchange rates in the prior year prevailed

throughout the current year. These non-GAAP measures enable management and investors to track

more easily, and consistently, the underlying sales performance of the Group.

All figures in £ millions

Assessment &

Qualifications

Virtual

Learning

English

Language

Learning

Workforce

Skills

Higher

Education

Strategic

Review Total

Statutory sales 2023 1,559 616 415 220 855 9 3,674

Statutory sales 2022 1,444 820 321 204 898 154 3,841

Statutory sales

increase/(decrease) 115 (204) 94 16 (43) (145) (167)

Comprising:

Exchange differences (11) (4) (10) (1) (7) – (33)

Portfolio changes 24 (65) 7 (5) (5) (131) (175)

Underlying increase/

(decrease) 102 (135) 97 22 (31) (14) 41

Remove OPM and

Strategic Review from

underlying – 124 – – – 14 138

Underlying increase/

(decrease) excluding

OPM and Strategic

Review 102 (11) 97 22 (31) – 179

Statutory sales

increase/(decrease) 8% (25)% 29% 8% (5)% (94)% (4)%

Constant exchange rate

increase/(decrease) 9% (24)% 32% 8% (4)% (94)% (3)%

Underlying increase/

(decrease) 7% (20)% 30% 11% (3)% (74)% 1%

Underlying increase/

(decrease) excluding

OPM and Strategic

Review 7% (2)% 30% 11% (3)% – 5%

Adjusted operating profit

Adjusted operating profit excludes the cost of major restructuring, certain property charges, other

net gains and losses on the sale or closure of subsidiaries, joint ventures, associates and other

financial assets, and intangible charges, including impairment, relating only to goodwill and intangible

assets acquired through business combinations or relating to associates. Other net gains and losses

also includes costs related to business closures and acquisitions. Further details are given below

under ‘Adjusted earnings per share’. Underlying adjusted operating profit movements exclude the

effect of exchange, the impact of portfolio changes arising from acquisitions and disposals and the

impact of adopting new accounting standards that are not retrospectively applied. Portfolio changes

are calculated by taking account of the additional contribution (at constant exchange rates) from

acquisitions made in both the current year and the prior year.

Annual report and accounts 2023 Pearson plc 221

Other information (unaudited)

Adjusted operating profit continued

For acquisitions made in the prior year the additional contribution excluded is calculated as the

operating profit made in the period of the current year that corresponds to the pre-acquisition

period in the prior year. Operating profit made by businesses disposed in either the current year

or the prior year is also excluded. Constant exchange rates are calculated by assuming the average

exchange rates in the prior year prevailed throughout the current year. This non-GAAP measure

enables management and investors to track more easily, and consistently, the underlying operating

profit performance of the Group.

All figures in £ millions 2023 2022 2021

Operating profit 498 271 183

Cost of major restructuring – 150 214

Property charges 11 – –

Other net gains and losses 16 (24) (63)

Intangible charges 48 56 51

UK pension discretionary increase – 3 –

Adjusted operating profit 573 456 385

All figures in £ millions

Assessment &

Qualifications

Virtual

Learning

English

Language

Learning

Workforce

Skills

Higher

Education

Strategic

Review Total

Adjusted operating

profit increase/

(decrease) 92 6 22 (5) 19 (17) 117

Comprising:

Exchange differences (1) – (7) – (1) (1) (10)

Portfolio changes 8 22 1 3 3 (45) (8)

Underlying

increase/(decrease) 85 (16) 28 (8) 17 29 135

Constant exchange

rate increase/

(decrease) 36% 9% 116% (167)% 22% (107)% 28%

Underlying

increase/(decrease) 33% (17)% 112% (400)% 20% 94% 31%

Adjusted operating profit translated at year-end closing rates would be £10m lower (2022: £9m

higher) than the reported figure of £573m (2022: £456m) at £563m (2022: £465m).

Adjusted earnings

Adjusted earnings includes adjusted operating profit and adjusted finance and tax charges. Adjusted

earnings is included as a non-GAAP measure as it is used by management to evaluate performance

and by investors to more easily, and consistently, track the underlying operational performance of

the Group over time.

All figures in £ millions 2023 2022 2021

Profit for the year 380 244 178

Non-controlling interest (2) (2) (1)

Cost of major restructuring – 150 214

Property charges 11 – –

Other net gains and losses 16 (24) (63)

Intangible charges 48 56 51

UK pension discretionary increase – 3 –

Other net finance income (28) (53) (51)

Income tax (11) 8 (65)

Adjusted earnings 414 382 263

The following items are excluded from adjusted earnings:

Cost of major restructuring – In 2023, there are no costs of major restructuring. In 2022, the

restructuring costs of £150m mainly related to staff redundancies and impairment of right of use

property assets. The 2022 charge includes the impact of updated assumptions related to the

recoverability of right-of-use assets made in 2021. In 2021, restructuring costs of £214m mainly

related to the impairment of right-of-use property assets, the write-down of product development

assets and staff redundancies. The costs of these restructuring programmes are significant enough

to exclude from the adjusted operating profit measure so as to better highlight the underlying

performance (see note 4).

Property charges – Charges of £11m relate to impairments of property assets arising from the

impact of updates in 2023 to assumptions initially made during the 2022 and 2021 restructuring

programmes.

Other net gains and losses – These represent profits and losses on the sale of subsidiaries, joint

ventures, associates and other financial assets and are excluded from adjusted operating profit

as they distort the performance of the Group as reported on a statutory basis. Other net gains

and losses also includes costs related to business closures and acquisitions. Other net gains and

losses in 2023 relate largely to the gain on disposal of the POLS business and gains relating to the

releases of accruals and a provision related to previous acquisitions and disposals, partially offset by

losses on the disposal of Pearson College and costs related to current and prior year disposals and

acquisitions.

Financial key performance indicators continued

Annual report and accounts 2023 Pearson plc 222

Other information (unaudited)

In 2022, they related to the gains on the disposal of our international courseware local publishing

businesses in Europe, French-speaking Canada and Hong Kong and a gain arising on a decrease

in the deferred consideration payable on prior year acquisitions, offset by a loss on disposal of our

international courseware local publishing businesses in South Africa due to recycling of currency

translation adjustments and costs related to disposals and acquisitions. Other net gains and

losses in 2021 largely related to the disposal of PIHE and the disposal of the K12 Sistemas business

in Brazil offset by costs related to the acquisition of Faethm and the wind down of certain strategic

review businesses.

Intangible charges – These represent charges in respect of intangible assets acquired through

business combinations or relating to associates. Thesecharges are excluded as they reflect past

acquisition activity and do not necessarily reflect the current year performance of the Group.

Intangible amortisation charges in 2023 were £48m compared to a charge of £56m in 2022. This

is due to decreased amortisation from recent disposals partially offset by additional amortisation

from recent acquisitions. In 2021, intangible charges were £51m. In all three years, there were no

impairment charges.

UK pension discretionary increases – Charges in 2022 relate to one-off pension increases awarded

to certain cohorts of pensioners in response to the cost of living crisis.

Other net finance income/costs – These include finance costs in respect of retirement benefits,

finance costs of deferred consideration, fair value movements in relation to financial assets held at

fair value through profit and loss and foreign exchange and other gains and losses. Finance income

relating to retirement benefits is excluded as management does not believe that the consolidated

income statement presentation under IAS 19 reflects the economic substance of the underlying

assets and liabilities. Finance costs relating to acquisition transactions are excluded as these relate

to future earn-outs or acquisition expenses and are not part of the underlying financing. Foreign

exchange and other gains and losses are excluded as they represent short-term fluctuations in

market value and are subject to significant volatility. Other gains and losses may not be realised in

due course as it is normally the intention to hold the related instruments to maturity.

All figures in £ millions 2023 2022 2021

Net finance (costs)/income (5) 52 (6)

Net finance income in respect of retirement benefits (26) (9) (4)

Fair value remeasurement of disposal proceeds – – (6)

Interest on deferred and contingent consideration 4 5 –

Fair value movements on investments (13) (28) (20)

Net foreign exchange gains (3) (1) (1)

Fair value movement on derivatives 10 (25) (20)

Interest on provisions for uncertain tax positions – 5 –

Net interest payable in adjusted earnings (33) (1) (57)

Tax – Tax on the above items is excluded from adjusted earnings. Where relevant the Group also

excludes the benefit from recognising previously unrecognised pre-acquisition and capital losses.

The tax benefit from tax deductible goodwill and intangibles is added to the adjusted income tax

charge as this benefit more accurately aligns the adjusted tax charge with the expected rate of cash

tax payments.

The tax rate reflected in adjusted earnings is calculated as follows:

All figures in £ millions 2023 2022 2021

Profit before tax 493 323 177

Adjustments:

Cost of major restructuring – 150 214

Property charges 11 – –

Other net gains and losses 16 (24) (63)

Intangible charges 48 56 51

UK Pension discretionary increases – 3 –

Other net finance income (28) (53) (51)

Adjusted profit before tax 540 455 328

Total tax (charge)/credit (113) (79) 1

Adjustments:

Tax on cost of major restructuring – (37) (47)

Tax on property charges (3) – –

Tax on other net gains and losses (10) 10 14

Tax on intangible charges (11) (11) (12)

Tax on UK pensions discretionary increases – (1) –

Tax on other net finance costs 7 13 8

Tax on goodwill and intangibles 4 16 8

Benefit from changes in local tax law – – (11)

Tax benefit on UK tax rate change 1 (1) (25)

Other tax items 1 19 –

Adjusted tax charge (124) (71) (64)

Tax rate reflected in adjusted earnings 23.0% 15.6% 19.5%

Annual report and accounts 2023 Pearson plc 223

Other information (unaudited)

Adjusted earnings per share

Adjusted earnings per share is calculated as adjusted earnings divided by the weighted average number of shares in issue on an undiluted basis.

all figures in £ millions 2023 2022 2021

Adjusted operating profit 573 456 385

Adjusted net finance costs (33) (1) (57)

Adjusted profit before tax 540 455 328

Adjusted income tax (124) (71) (64)

Adjusted profit for the year 416 384 264

Non-controlling interest (2) (2) (1)

Adjusted earnings 414 382 263

Weighted average number of shares (millions) 711.5 738.1 754.1

Weighted average number of shares (millions) for diluted earnings 717.3 742.0 759.1

Adjusted earnings per share (basic) 58.2p 51.8p 34.9p

Adjusted earnings per share (diluted) 57.7p 51.5p 34.6p

Financial key performance indicators continued

Annual report and accounts 2023 Pearson plc 224

Other information (unaudited)

Return on invested capital

Return on invested capital (ROIC) is included as a non-GAAP measure as it is used by management to

help inform capital allocation decisions within the business. ROIC is calculated as adjusted operating

profit less operating cash tax paid expressed as a percentage of average invested capital. Invested

capital includes the original unamortised goodwill and intangibles. Average values for total invested

capital are calculated as the average monthly balance for the year. ROIC is also presented on a net

basis after removing impaired goodwill from the invested capital balance. The net approach assumes

that goodwill which has been impaired is treated consistently to goodwill disposed as it is no longer

being used to generate returns.

All figures in £ millions

2023

Gross

2022

Gross

2023

Net

2022

Net

Adjusted operating profit 573 456 573 456

Operating tax paid (96) (95) (96) (95)

Return 477 361 477 361

Average goodwill 6,365 6,490 3,530 3,490

Average other non-current intangibles 1,826 2,012 1,826 2,012

Average intangible assets – product development 967 948 967 948

Average tangible fixed assets and working capital 1,388 1,446 1,388 1,446

Average invested capital 10,546 10,896 7,711 7,896

Return on invested capital 4.5% 3.3% 6.2% 4.6%

Return on capital

Return on capital (ROC) is included as a non-GAAP measure of how efficiently we are generating

returns from our asset base. ROC is calculated as adjusted operating profit less adjusted income

tax as a proportion of capital, where capital adjusts net statutory assets for net debt, retirement

benefit assets, other post-retirement medical obligations and other non-operating items. The other

non-operating items in 2023 include the liability recorded for the remainder of the share buyback

scheme. These adjustments to net statutory assets have been made to better reflect the asset base

that generates returns.

All figures in £ millions 2023 2022

Adjusted operating profit 573 456

Adjusted income tax charge (124) (71)

Return 449 385

Net statutory assets 3,988 4,415

Adjustments for:

Net debt 744 557

Retirement benefit assets (499) (581)

Other post-retirement medical benefit obligation 21 25

Other non-operating assets 126 23

Capital 4,380 4,439

Return on capital 10.3% 8.7%

Operating cash flow

Operating cash flow is calculated as net cash generated from operations before the impact of items

excluded from the adjusted income statement plus dividends from joint ventures and associates

(less the re-capitalisation dividends from Penguin Random House); less capital expenditure on

property, plant and equipment (including additions to right-of-use assets) and intangible software

assets; plus proceeds from the sale of property, plant and equipment (including the impacts of

transfers to/from investment in finance lease receivable) and intangible software assets; plus special

pension contributions paid; and plus costs of major restructuring paid. Operating cash flow is

included as a non-GAAP measure in order to align the cash flows with the corresponding adjusted

operating profit measures.

All figures in £ millions 2023 2022

Net cash generated from operations 682 527

Dividends from joint ventures and associates – 1

Purchase/disposal of PPE and software (121) (133)

Net addition of right-of-use assets (41) (29)

Net costs paid for major restructuring 63 35

Other net gains and losses 4 –

Operating cash flow 587 401

Annual report and accounts 2023 Pearson plc 225

Other information (unaudited)

Operating cash flow continued

Cash conversion, calculated as operating cash flow as a percentage of adjusted operating profit, is

also shown as a non-GAAP measure as this is used by management and investors to measure cash

generation by the Group.

All figures in £ millions 2023 2022

Adjusted operating profit 573 456

Operating cash flow 587 401

Cash conversion 102% 88%

Operating cash flow, operating free cash flow and total free cash flow, which are non-GAAP

measures, are commonly used by investors to measure the cash performance of the Group.

The table below reconciles operating cash flow to net debt:

All figures in £ millions 2023 2022 2021

Operating cash flow 587 401 388

Tax paid (97) (109) (177)

Net finance costs paid (40) (35) (54)

Net costs paid for major restructuring (63) (35) (24)

Free cash flow 387 222 133

Dividends paid (including to non-controlling interests) (154) (157) (149)

Net movement of funds from operations 233 65 (16)

Acquisitions and disposals (219) 105 62

Disposal of lease liabilities – 8 67

Net equity transactions (212) (383) (10)

Other movements on financial instruments 11 (2) 10

Movement in net debt (187) (207) 113

Opening net debt (557) (350) (463)

Closing net debt (744) (557) (350)

Net cash generated from operations is translated at an exchange rate approximating the rate at

the dateof cash flow. The difference between this rate and the average rate used to translate profit

gives riseto a currency adjustment in the reconciliation between net profit and net cash generated

from operations. Thisadjustment reflects the timing difference between recognition of profit and the

related cash receipts or payments.

Net debt and adjusted earnings before interest, tax, depreciation

and amortisation (EBITDA)

For information, the net debt/adjusted EBITDA ratio is shown as a non-GAAP measure as it is

commonly used by investors to measure balance sheet strength. Adjusted EBITDA is calculated as

adjusted operating profit less depreciation on property, plant and equipment, and amortisation on

intangible software assets.

All figures in £ millions 2023 2022

Adjusted operating profit 573 456

Depreciation (excluding items included in ‘cost of major restructuring’ and

‘property charges’) 79 88

Amortisation on intangible software assets (excluding items included in

‘cost of major restructuring’) 123 123

Adjusted EBITDA 775 667

Cash and cash equivalents 312 558

Overdrafts (3) (15)

Investment in finance lease receivable 100 121

Derivative financial instruments 5 (6)

Bonds (611) (610)

Lease liabilities (547) (605)

Net debt (744) (557)

Net debt/adjusted EBITDA ratio 1.0x 0.8x

Adjusted EBITDA translated at year-end closing rates would be £13m lower (2022: £12m higher) than

the reported figure of £775m (2022: £667m) at £762m (2022: £679m).

Financial key performance indicators continued

Annual report and accounts 2023 Pearson plc 226

Other information (unaudited)

Additional information for US listing purposes

Cross Reference Table:

Item Form 20-F Caption Location in this Document

Page

Reference

Item 1 Identity of Directors, Senior

Management and Advisers

Not applicable n/a

Item 2 Offer Statistics and Expected

Timetable

Not applicable n/a

Item 3 Key Information

B. Capitalisation and indebtedness Not applicable n/a

C. Reasons for the offer and use

of proceeds

Not applicable n/a

D. Risk factors Additional Information: Risk factors

Strategic Report: Risk management

229-235

56-65

Item 4 Information on the Company

A. History and development

of the Company

Strategic Report: At a Glance

History of the Company

Shareholder Information

Strategic Review: Financial Review

Note 18: Borrowings

Note 19: Financial Risk Management

Note 30: Business Combinations

Note 31: Disposals and

Business Closures

Note 35: Leases

235

247-248

26-33

185-186

186-189

201-202

202-203

204-205

B. Business overview Strategic Report

Note 2: Segmental Information

Additional Information: Certain

additional information on the Company

2-65

160-162

235-237

C. Organisational structure Parent Company Note 11 215-218

D. Property, plant and equipment Note 10: Property, plant and

Equipment and Investment Property

Additional Information: Property, plant

and equipment

Strategic Report: Sustainability

Additional Information: Risk Factors

173-174

236-237

34-48

229-235

Item 4A Unresolved staff comments None n/a

Item 5 Operating and Financial

Review and Prospects

Item Form 20-F Caption Location in this Document

Page

Reference

A. Operating results Additional Information: Operating and

Financial Review

Strategic Report: Key performance

indicators

Strategic Report: Financial review

Strategic Report: Risk (including

Viability Statement)

Financial Statements

237

24-25

26-33

56-65

146-218

B. Liquidity and capital resources Strategic Report: Financial review

Note 16: Derivatives and

Hedge Accounting

Note 18: Borrowings

Note 19: Financial Risk Management

Note 35: Leases

26-33

182-185

185-186

186-189

204-205

C. Research and development,

patents and licenses etc

Not applicable n/a

D. Trend information Strategic Report: Key performance

indicators

Strategic Report: Financial review

24-25

26-33

E. Critical Accounting Estimates Note 1: Accounting Policies 152-160

Item 6 Directors, Senior Management

and Employees

A. Directors and senior

management

Corporate Governance: Board

of Directors

Corporate Governance: Pearson

Executive Management

68-71

72-73

B. Compensation Directors’ Remuneration Report 107-130

C. Board practices Corporate Governance: Board

of Directors

Directors’ Remuneration Report

Corporate Governance: Audit

Committee report

68-71

107-130

97-106

D. Employees Note 5: Employee Information 170

E. Share ownership Directors’ Remuneration Report

Note 26: Share Based Payments

107-130

197-198

F. Disclosure of a registrant’s

action to search erroneously

awarded compensation

None n/a

Item 7 Major Shareholders and

Related Party Transactions

Annual report and accounts 2023 Pearson plc 227Annual report and accounts 2023 Pearson plc 227

Other information (unaudited)

Item Form 20-F Caption Location in this Document

Page

Reference

A. Major shareholders Additional Disclosures 131

B. Related party transactions Note 12: Investments in Joint Ventures

and Associates

Note 36: Related Party Transactions

178

206

C. Interests of experts

and counsel

Not applicable n/a

Item 8 Financial Information

A. Consolidated statements and

other financial information

Financial Statements 146-218

B. Significant changes None n/a

C. Interests of experts

and counsel

Not applicable n/a

Item 9 The Offer and Listing

A. Offer and listing details Additional Information: The Offer

and Listing

237

B. Plan of distribution Not applicable n/a

C. Markets Additional Information: The Offer

and Listing

237

D. Selling shareholders Not applicable n/a

E. Dilution Not applicable n/a

F. Expenses of the issue Not applicable n/a

Item 10 Additional Information

A. Share capital Not applicable n/a

B. Articles of association Additional Information: Articles

of Association

237-243

C. Material contracts Additional Information:

Material Contracts

241

D. Exchange controls Additional Information:

Exchange Controls

241

E. Taxation Additional Information: Tax

Considerations

241-243

F. Dividends and paying agents Not applicable n/a

G. Statement by experts Not applicable n/a

H. Documents on display Additional Information: Documents

on Display

243

I. Subsidiary information Parent company Note 11:

Group Companies

215-218

J. Annual report to

Security Holders

Not applicable n/a

Item Form 20-F Caption Location in this Document

Page

Reference

Item 11 Quantitative and Qualitative

Disclosures about Market Risk

Note 19: Financial Risk Management

Note 14: Classification of

Financial Instruments

Note 16: Derivative Financial

Instruments and Hedge Accounting

186-189

180-181

182-185

Item 12 Description of Securities other

than Equity Securities

A. Description of debt securities Not applicable n/a

B. Description of warrants

and rights

Not applicable n/a

C. Description of other securities Not applicable n/a

D. American Depository Shares Additional Information: Description of

Securities Other than Equity Securities

243-244

D.1 Name of depositary

and address of principal

executive office

Not applicable n/a

D.2 Title of ADRs and brief

description of provisions

Not applicable n/a

D. 3 Depositary fees and charges Additional Information: Description of

Securities Other than Equity Securities

243-244

D. 4 Depositary payments Additional Information: Description of

Securities Other than Equity Securities

243-244

Item 13 Defaults, Dividend Arrearages

and Delinquencies

Not applicable n/a

Item 14 Material Modifications to the

Rights of Security Holders and

Use of Proceeds

Not applicable n/a

Item 15 Controls and Procedures Additional Information: Controls and

Procedures

244-245

Item 16 Reserved

A. Audit Committee Financial

Expert

Additional Information: Audit

Committee Financial Expert

244

B. Code of Ethics Additional Information: Code of Ethics 244

C. Principal Accountant Fees

and Services

Additional Information: Principal

Accountant Fees and Services

Note 4: Operating Expenses

169-170

D. Exemptions from The Listing

Standards for Audit Committees

Not applicable n/a

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 228 Annual report and accounts 2023 Pearson plc 228

Other information (unaudited)

Item Form 20-F Caption Location in this Document

Page

Reference

E. Purchases of Equity

Securities by the Issuer

and Affiliated Purchasers

Additional Information: Purchases of

Equity Securities by the Issuer and

Affiliated Purchases

245

F. Change in Registrants

Certifying Accountant

Not applicable n/a

G. Corporate Governance Additional Information: Corporate

Governance

66-135

H. Mine Safety Disclosures Not applicable n/a

I. Disclosure regarding foreign

jurisdiction that prevent

inspections

Not applicable n/a

J. Insider Trading Policies Not applicable n/a

K. Cybersecurity Additional Information: Cybersecurity;

Strategic Report: Data privacy and

cyber security

245-246

38, 50

Item 17 Financial Statements Not applicable n/a

Item 18 Financial Statements Financial Statements 146-218

Item 19 Exhibits Refer to Exhibits list immediately

following the signature page for this

document as filed with the SEC

n/a

Risk Factors

You should carefully consider the risk factors described below, as well as the other information

included in the rest of this document. The Group’s business, financial condition or results from

operations could be materially adversely affected by any or all of these risks, or by other risks that it

presently cannot identify. Any forward-looking statements are made subject to the Forward-Looking

Statement section located on page 249.

Risks relating to accreditation

Changes in government policy and/or regulations have the potential to affect the Group’s business model

and/or decisions across all markets.

The Group’s educational services and assessment businesses may be adversely affected by

changes in government funding resulting from trends that are beyond the Group’s direct control,

such as general economic conditions, changes in government educational funding, programs,

policy decisions, legislation and/or changes in the procurement process, or the Group’s failure

to successfully deliver previous contracts. These may also include decisions to suspend, require

amendments to or permanently cancel high stakes testing impacting our assessments or Pearson

Test of English businesses.

During 2023, Pearson Test of English won recognition for Canadian Student Direct Stream and

economic migration visa applications and acquired PDRI which provides recruitment assessment

for Federal employees.

During 2024, the Group faces an above average value of contracts due for renewal, which the

Group’s financial plan assumes will be successful. These are particularly concentrated in US School

Assessments, with any loss reducing the value of sales and profits.

The results and potential growth of the Group’s US educational services and assessment businesses

are dependent on the level of federal and state educational funding, which in turn is dependent on

the robustness of state finances and the level of funding allocated to educational programmes. State,

local and municipal education funding pressures remain, competition from low price and disruptive

new business models continues and open source is promoted to keep costs down for customers.

The current challenging environment could impact the Group’s ability to collect customer-related

debt. State and local government leadership changes and resultant shifts in education policy can

also affect the funding available for educational expenditure, which include the impact of educational

reform. Similarly, changes in the government procurement process for textbooks, learning material

and student tests, and vocational training programmes can also affect the Group’s markets. Political

pressure on testing, changes in curricula, delays in the timing of the adoptions and changes in the

student testing process can all affect these programmes and therefore the size of the market in

any given year. Any of the foregoing could adversely impact the results and potential growth of

the Group’s US educational services and assessment businesses.

Annual report and accounts 2023 Pearson plc 229Annual report and accounts 2023 Pearson plc 229

Other information (unaudited)

The Group has businesses in a variety of geographies globally and faces uncertain international

environments and regulatory changes.

The Group faces risks of government limiting the ability of non-local companies to compete and/or

limiting repatriation of profits. Operating in a variety of geographies also exposes the Group to tariffs

or other regulatory restrictions. Political, regulatory, economic, currency, reputational, corporate

governance and compliance risks (including fraud, sanctions, bribery and corruption) as well as

unmanaged expansion are all factors which could limit returns on investments made in these

markets and limit the ability to reinvest funds or distribute them to shareholders.

Sanctions against certain economies, entities and/or individuals may be levied which could result in

the Group needing to withdraw from a market. Any regulatory inquiry or investigations in relation

to sanctions could be costly, require a significant amount of management’s time and attention,

adversely impact the Group’s reputation, or lead to litigation and financial impacts.

Risks relating to Artificial Intelligence, Content & Channel

The Group could face additional cost and diversion of personnel (i) to meet any new regulation or law

applicable to its use of Artificial Intelligence (AI) in its products and services and/or (ii) to protect any of

its intellectual property developed using AI.

The Group has a history of utilising AI in its products and services and incorporation will only

increase as AI technologies (including, generative AI) continue to develop. For example, 2023 saw

the successful beta launch of AI study tools in Higher Education and use of large language models

in English Language Learning. Our ability to do this successfully depends in part on the public

willingness to use AI in the learning sector. If the content that AI applications assist us in producing

are or are perceived or alleged to be deficient or inaccurate, our reputation may be adversely

affected, and/or the effectiveness of the Group’s products may be undermined.

2023 also saw the deployment of new curriculum materials in Virtual Schools and launch of

Connections Academy Career Pathways programme. In Pearson VUE new offerings were launched to

aid test preparation and in Higher Education, a trial of Channels video content as a separate product

began. Each of these have shown promising signs in testing and so have anticipated revenue but

failure to maintain the positive momentum would result in lower revenue and profit.

In addition, if our competitors incorporate AI into their products more quickly or more successfully

than us, our ability to compete effectively could be impaired.

This increasing interest in AI globally by governments and regulators brings a level of regulatory

uncertainty which may increase costs and liabilities in a manner that is beyond the Group’s control

and could result in conflicting legal requirements, potentially further increasing costs and/or

adversely impacting the Group’s ability to operate.

In addition, the Group faces uncertainty with regard to protection under law or regulation afforded

to its intellectual property developed (in whole or in part) with the use of AI (or software including

any AI).

If the Group fails to successfully invest in and deliver the right products and services and to respond

to government concerns and/or competitive threats, its sales and profits could be adversely impacted.

A common trend facing all the Group’s businesses is the digitisation of content and proliferation of

distribution channels, either over the internet, or via other electronic means, replacing traditional

print formats. The digital migration has led to changes in consumers’ perception of value and the

publisher’s position between consumers, retailers and authors, and has required the Group to

make changes in product and content distribution.

A proliferation of available supply routes for content in addition to buying or subscribing to Pearson

content, means that the Group is not guaranteed to be rewarded for its investment in developing

and distributing this content. Alternatives such as second hand and rental copies, open educational

resources, online discounters, file sharing and use of pirated copies all offer either lower or no

financial returns to the Group.

Where the purchaser is a school or institution, they will typically use educational funding to purchase

our materials or assessments. However, there are multiple competing demands for educational funds

and there is no guarantee that new courseware or testing or training programs will be funded, or

that the Group will win or retain this business.

If the Group does not adapt rapidly to these changes, it may lose business to ‘faster’ and more ‘agile’

competitors, who increasingly are non-traditional competitors, making their identification all the

more difficult. The Group may be required to invest significant resources to further adapt to the

changing competitive environment, which requires continued development of both content and

the method of delivery to be able to provide differentiated products and services, and can result

in competitive disadvantage and missed opportunity for revenue and growth.

An example of this is where the Group’s products and services may potentially face competition from

those developed by non-traditional competitors using advanced Generative AI tools. Generative AI

in particular offers new ways of creating content which could disrupt the sectors in which the Group

focuses and failure to adapt could in future lead to adverse impact for its businesses.

Failure to use the Group’s data effectively to enhance the quality and scope of current products and

services in order to improve learning outcomes could adversely affect the Group’s business.

The Group seeks to maximise data to enhance the quality and scope of current products and

services to improve learning outcomes while managing associated risks. The Group’s ability to

continue to do so may be subject to factors beyond the Group’s control. In addition, the lack of

availability of timely, complete and accurate data limits informed decision-making and increases

the risk of non-compliance with legal, regulatory and reporting requirements. Business change

and transformation success is dependent on migration of a significant number of datasets and

our inability to effectively accomplish this could adversely affect the Group’s results.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 230 Annual report and accounts 2023 Pearson plc 230

Other information (unaudited)

If the Group does not adequately protect its intellectual property and proprietary rights, its competitive

position and results may be adversely affected and its ability to grow restricted.

Some of the Group’s products and services comprise intellectual property delivered through a

variety of print and digital media, online software applications and platforms. The Group relies

on trademark, patent, copyright and other intellectual property laws to establish and protect its

proprietary rights in these products and services. Reference is made to the section above regarding

the risk of the evolving AI regulatory framework globally and the applicability and interpretation of

the existing legal protection of intellectual property. The Group also faces uncertainty on its ability

to adequately protect its content from its unauthorised use in training Large Language Models.

Failure, or an inability, to adequately manage, procure, register or protect intellectual property

rights (including trademarks, patents, trade secrets and copyright) in the Group’s brands, content

and technology, may (1) prevent the Group from enforcing its rights, and (2) increase the risk that

bad actors will infringe the Group’s content rights (print and digital counterfeit, digital piracy), which

may reduce sales and/or erode sales.

The Group’s intellectual property rights (IPR) in brands and content — historically its core assets

— are generally well established in key markets. As technology and digital delivery of content

have become an increasingly critical component of the Group’s business strategy, the Group has

grown its patent portfolio to expand its protection of high value technology in the US and key

international markets.

Online copying and security circumvention have become increasingly sophisticated and resistant

to available countermeasures. Advancements in technology, including advancements in generative

AI technology, have made unauthorised copying and wide dissemination of unlicensed content

more accessible. At the same time, detection of unauthorised use of our intellectual property and

enforcement of our intellectual property rights has become more challenging, in part due to the

increasing volume and sophistication of attempts at unauthorised use of our intellectual property

through the use of generative AI. Notably, in recent years ‘digital counterfeit’ websites have offered

or attempted to offer unprotected PDF files of many of Pearson’s titles, at scale, using modern and

sophisticated ecommerce methods, with a professional or legitimate appearance. From an IPR

perspective, increasing the Group’s digital business continues to expose it to evolving trademark,

The Group’s forward-looking IPR strategy includes efforts to maintain a broad footprint of intellectual

property rights in key markets outside the US. However, the Group also conducts business in other

countries where its intellectual property protection efforts have been limited or where legal protection

for intellectual property may be uncertain and these limitations could affect future growth.

Where the Group has registered or otherwise established its IPR, it cannot guarantee that such

rights will provide competitive advantages due to: the challenges and costs of monitoring and

enforcement in jurisdictions where competition may be intense; the limited and/or ineffective IPR

protection and enforcement mechanisms available to it in many countries; the potential that its IPR

may lapse, be invalidated, circumvented, challenged, or abandoned, or that it may otherwise lose the

ability to assert its intellectual property rights against others. The loss or diminution in value of these

proprietary rights or the Group’s intellectual property could have a material adverse effect on the

Group’s business and financial performance.

Risks relating to Capability

The Group’s strategy involves significant change, including moving into new markets. This increases the

risk of failure to realise anticipated benefits or of costs being higher than anticipated, or that the Group’s

business as usual activities are adversely impacted.

The Group’s strategy aims, among other things, to achieve significant growth in markets in which

Pearson has less experience, including enterprise sales of content, direct-to-consumer language

learning and increasing direct-to-consumer sales. During the year, the Group has successfully

executed its cost efficiency programme resulting in a lower cost base, albeit ongoing maintenance of

cost levels needs constant and rigorous monitoring and control. The Group’s financial plan assumes

that costs will be successfully managed in all divisions, despite the lower cost base but should this

not be possible, the Group is likely to report lower than anticipated profits.

Challenges were also experienced in the Workforce division in successful delivery of products and

sales capability on time during the year and similar challenges in the future would result in lower

than anticipated sales and profits.

If the Group fails to attract, retain and develop appropriately skilled employees, it may limit its ability to

achieve its strategic and operational goals and its business may be harmed.

The Group’s success depends on the skill, experience and engagement of its employees. Their

expertise has allowed the Group to demonstrate agility, notably in how the Group has been able to

develop and deploy beta tests of products using large language models (including, in the areas of AI

and machine learning). Training and development of staff is a focus area for managers throughout

the organisation, but there is no guarantee that workers will continue to have the required skills

prospectively.

The Group has a key dependency on the Chief Executive and certain other key employees. If it

is unable to attract, retain and develop sufficiently experienced and capable staff, especially in

technology, product development, sales and leadership, its business and financial results may suffer.

When talented employees leave, the Group may have difficulty replacing those skills, and its business

may suffer. There can be no assurance that the Group will be able to successfully attract and retain

the skills that it needs.

All the Group’s businesses depend on Information Technology (IT) systems and technological change.

Failure to maintain and support customer facing services, systems, and platforms, including addressing

quality issues and execution on time of new products and enhancements, could negatively impact the

Group’s sales and reputation.

Annual report and accounts 2023 Pearson plc 231Annual report and accounts 2023 Pearson plc 231

Other information (unaudited)

All the Group’s businesses, to a greater or lesser extent, are dependent on IT. It either provides

software and/or internet services to its customers or uses complex IT systems and products to

support its business activities, including customer-facing systems, back-office processing and

infrastructure. The Group migrated several key data centres to the cloud during the year, increasing

resilience. Nevertheless, the Group faces several technological risks associated with software

product development (including risks associated with the use of AI in the Group’s products and

services) and service delivery, information technology security (including viruses and cyber-attacks),

e-commerce, enterprise resource planning system implementation and upgrades. Although plans

and procedures are in place to reduce such risks, and further progress was made during 2023 in this

area, from time to time the Group has experienced verifiable attacks on its systems by unauthorised

parties. To date, such attacks have not resulted in any material damage, but the Group’s businesses

could be adversely affected if its systems and infrastructure experience a significant failure or

interruption.

Operational disruption to its business, including that caused by third-party providers, a major disaster

and/or external threats, could restrict the Group’s ability to supply products and services to its customers.

Across all its businesses, the Group manages complex operational and logistical arrangements

including distribution centres, data centres, and educational and office facilities, as well as

relationships with third-party print sites. It has also outsourced some support functions, including

elements of information technology, warehousing and logistics to third-party providers. The failure

of third parties to whom it has outsourced business functions could adversely affect its reputation or

financial condition. Failure to recover from a major disaster, (e.g., fire, flood, etc.) at a key facility and/

or a major failure of a key facility, such as a data centre outage or the disruption of supply from a key

third-party vendor or partner (e.g. due to bankruptcy) could restrict the Group’s ability to service its

customers and meet the terms of its contractual relationships with both government agencies and

commercial customers. Penalty clauses and/or the failure to retain these contracts at the end of

the contract term could adversely impact future revenues and/or operations.

Risks Related to the Competitive Marketplace

Global economy and cyclical market factors may adversely impact the Group’s financial performance.

With continued pressure and uncertainty in worldwide economies, particularly in Pearson’s major

markets in the US and UK, there is a risk of a weakening in trading conditions, which could adversely

impact the Group’s future financial performance. The effect of continued deterioration or lack of

recovery in the global economy will vary across different businesses and will depend on the depth,

length and severity of any economic downturn. The education market can be affected by cyclical

factors which, although they can have a positive impact for some of the Group’s businesses, could

for others lead to a reduction in demand for the Group’s products and services.

Increased competitive pressure or reduced demand due to changing consumer learning preferences

may adversely impact the Group’s financial performance and reduce the expected return on investment.

The Group faces a number of large value contract renewals, each representing up to 5% of Group

revenue, during 2024 and the long-range plan assumes that these are successfully retained. The loss

of any of these contracts would lead to lower sales and profits in the future unless replaced by other

contract wins.

The Group competes in a highly competitive market that is subject to rapid change in some areas.

The Group faces competitive threats both from large media players and from smaller businesses,

online and mobile portals and operators in the digital arena that provide alternative sources of

content. Alternative distribution channels, such as digital format, the internet, online retailers and

growing delivery platforms, pose both threats and opportunities to traditional publishing business

models, potentially impacting both sales volumes and pricing. In addition, new competitive entrants,

increased price competition or shifts in learners away from educational institutions (as seen

previously in reduced Higher Education enrolments) may lead to lower profitability and cash flow

performance. The level of competition is placing financial strain on some of Higher Education’s

channel partners and the failure of one of these companies would risk the loss of any outstanding

debtor balances.

Enhanced product offerings and improvements in sales capability have led to a stabilisation of

market share in the Higher Education market, but there is no guarantee that these measures will

be sufficient in the future to prevent loss of revenue and profit.

Pearson Virtual School faces revenue headwinds following the termination of one of its major

customers and with another due to terminate in the fall of 2024. Both have decided to operate

services in-house. Consequently, there are risks to achieving the profit plan and further contract

losses would increase this risk.

The Group’s investment in new markets may deliver returns that are lower than anticipated.

The Group has invested in and has plans to continue to invest in new markets such as workforce and

direct-to-consumer learning experiences of which the Group has less experience and faces a variety

of competition to be successful. Failure to achieve our planned outcomes may lead to lower than

expected sales and profitability.

A significant deterioration in the Group’s profitability and/or cash flows caused by prolonged economic

instability or recession could reduce its liquidity and/or impair its financial ratios and trigger a need to

raise additional funds from the capital markets and/or renegotiate its banking covenants.

To the extent that worldwide economic conditions materially deteriorate, the Group’s sales,

profitability and cash flows could be significantly reduced as customers could be unable to purchase

products and services in the expected quantities and/or pay for them within normal agreed terms.

Disruption in capital markets or potential concerns about the Group’s credit rating, for instance

manifested in downgrades or negative outlooks by the credit rating agencies, may mean that this

capital may not be available on favourable terms or may not be available at all.

Risks Related to Customer Expectations

Failure to meet our customers’ rapidly changing expectations in our products and services and not

being able to anticipate new customer demands could result in reduced market share, profitability and

brand erosion.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 232 Annual report and accounts 2023 Pearson plc 232

Other information (unaudited)

We continue to adjust our business model to keep a pace with the increasing end user demands.

The Group may not be able to adapt, change and succeed in a rapidly changing and uncertain

environment resulting in competitive disadvantage, higher cost and brand erosion. This could result

from failing to identify changes in learner preferences or in failing to create products and services

which meet these revised expectations.

With the direct-to-consumer strategic focus and the launch of new products we risk that the

customer experience expectations are not met with regard to how the products and services

are delivered e.g. quality and timeliness, impacting the customer’s brand loyalty and propensity

to purchase; resulting in customer complaints, less favourable social media sentiment, bad reviews,

low recommendations, and/or customer attrition.

Evidence of higher customer expectations has been observed in the direct to consumer market,

particularly for Mondly, where the cost of acquiring and retaining new learners is high, leading

to some re-balancing towards offering language tuition for enterprises. In Workforce, feedback

from customers led to a re-focus on modular solutions rather than a fully integrated platform as

previously envisaged. Should customer acquisition or the cost of acquiring and retaining customers

continue to be elevated, this could lead to lower profitability than anticipated if it is not possible

to mitigate.

There is also the risk that our technology and data dependent products and services do not meet

accessibility requirements in respect of customers’ and prospective customers’ ability to access

the products and services, and this could result in increased costs, restrictions and/or fines.

Risks Related to the Group’s Portfolio of Businesses

The Group’s failure to generate anticipated sales growth, synergies and/or cost savings from acquisitions,

mergers and other business combinations, could lead to goodwill and intangible asset impairments.

The Group periodically acquires and disposes of businesses to achieve its strategic objectives and

will continue to consider both as means to pursue its strategic priorities. During the year, the Group

completed the disposal of Pearson Online Services and acquired PDRI, which expanded the Group’s

services to the US federal government.

Acquisitions may involve significant risks and uncertainties, including difficulties in integrating

acquired businesses to realise anticipated sales growth, synergies and/or cost savings; diversion of

management attention from other business concerns or resources; and diversion of resources that

are needed in other parts of our business. If these risks are not managed, acquisitions could result

in goodwill and intangible asset impairments.

Divestitures also involve risks and uncertainties that could adversely affect our business, results of

operations and financial condition including, among others, the inability to find potential buyers on

favourable terms, disruption to our business and/or diversion of management attention from other

business concerns, loss of key employees and possible retention of certain liabilities related to the

divested business.

Risks Related to the Group’s Responsibility & Reputation

The Group’s business depends on a strong brand, and any failure to maintain, protect and enhance its

brand would hurt its ability to retain or expand its business.

Protecting the Pearson brand is critical to maintaining and expanding the Group’s business and

will depend largely on its ability to maintain its customers’ trust in its solutions and in the quality

and integrity of its products and services, including how it protects the data and privacy of customers

and users. If the Group does not successfully maintain a strong brand, its business could be harmed.

Beyond protection, strengthening the Pearson brand will enable the Group to more effectively

engage with governments, administrators, teachers, learners and influencers.

Security breaches involving our information technology systems could harm our ability to run our business

and expose us to potential liability and loss of revenue.

Failure to prevent or detect a malicious attack on the Group’s systems has in the past and could

in future result in loss of system availability, breach of confidentiality, integrity and/or availability

of sensitive information. Such incidents have in the past resulted, and could in future result, in

damage to the customer experience and the Group’s reputation and in financial loss. In particular,

the Group has experienced, and may continue to experience in the future, an unauthorised

disclosure of personal information despite best efforts to prevent it. This has also occurred and

may again in the future as a result of a failure of IT controls to protect such data, principally due

to software malfunctions.

Information security and cyber risk are continually evolving and comprise many complex external

drivers: increasing customer demand to demonstrate a strong security posture, external compliance

requirements, ongoing digital revolution, increasing use of the cloud, greater volumes of data and

increasingly sophisticated attack strategies. Across its businesses, the Group holds large volumes

of personal data including that of employees, customers, students and citizens, and other highly

sensitive business critical data such as financial data, internal sensitive information, and intellectual

property. Despite its implementation of security measures, threat actors of all types, including

individuals, criminal organisations and state sponsored operatives, have from time to time gained

access, and may in the future gain access to the Group’s data through unauthorised means in

order to misappropriate such information for fraudulent or other purposes.

Any perceived or actual unauthorised disclosure of personal data or confidential information, whether

through a breach of the Group’s network or a third-party partner with whom we share data or access

to our network by an unauthorised party, employee theft, misuse or error or otherwise, could harm

the Group’s reputation, impair its ability to attract and retain its customers, impair business and

operations, or subject the Group to regulatory investigations and/or to claims or litigation arising

from damages suffered by individuals and customers, and thereby harm its business and operational

results. Failure to adequately protect personal data and confidential information has in the past

led, or could potentially lead to, respectively, regulatory penalties, litigation costs and damages,

significant remediation costs, reputational damage, cancellation of some existing contracts and/or

difficulty in competing for future business, among other things. In addition, the Group could incur

significant costs in complying with the relevant laws and regulations regarding the protection of

personal data and confidential information against unauthorised disclosure, payments due to

cyber extortion or to responding to regulatory investigations into such matters.

Annual report and accounts 2023 Pearson plc 233Annual report and accounts 2023 Pearson plc 233

Other information (unaudited)

Changes to data privacy legislation must also be monitored and acted upon to ensure the Group

remains in compliance across different markets.

Data protection legislation continues to be adopted by countries in which the Group has a presence

and/or customers and enforcement is focusing upon transparency and customer choice in addition to

data breaches, which reflects the increased sophistication of customers on data protection matters.

Failure to provide the appropriate level of transparency and control in the Group’s products could

increase the regulatory, commercial and/or reputational risks that the Group faces with any or all

of its various stakeholders.

A control breakdown or service failure in the Group’s testing businesses could result in financial loss and

reputational damage.

The Group’s testing businesses, including those in Assessment & Qualifications, Workforce and

English Language Learning involve complex contractual relationships with both government agencies

and commercial customers for the provision of various testing services. The Group’s financial results,

growth prospects and/or reputation may be adversely affected if these contracts and relationships

are poorly managed or face increased competitive pressures.

There are inherent risks associated with the Group’s testing businesses, both in the US and the

UK. A service failure caused by a breakdown in testing and assessment processes could lead to a

mis-grading of student tests and/or late delivery of test results to students and their schools. During

2022, the Group suffered negative publicity because of failures to deliver certain BTEC qualification

results in a timely manner. Performance was improved in 2023, but failures to meet expected service

standards have in the past and/or could in future leave the Group subject to regulatory sanctions

(including fines), legal claims, penalty charges under contracts, non-renewal of contracts and/or the

suspension or withdrawal of its accreditation to conduct tests. A late delivery of qualification results

could result in a potentially significant regulatory fine in addition to the contractual penalties. It is

also possible that any such events described above would result in adverse publicity, which may

affect the Group’s ability to retain existing contracts and/or obtain new customers.

Risks associated with identity verification could lead to financial losses.

The Group is required to take measures to validate the identity of learners, especially those

completing assessments. In certain jurisdictions, companies have faced legal claims for the collection

of or use of information obtained, particularly in relation to biometric information. The Group takes

reasonable steps to protect learners and obey legal requirements but there is no guarantee that

these will be sufficient to protect the Group from any and all potential issues, which could result in

potential fines and penalties for the Group, especially if not covered by the Group’s insurance cover.

Failure to adequately protect learners could result in significant harm to one or more learners.

Incidents have occurred and may in future occur where learners may not have been, or may not be,

adequately protected. For example, where the Group has direct learner contact via online learning,

or in its test centres. While the Group has made further progress during the year, the range and

frequency of threats remains high. These incidents can cause harm to learners, which is something

the Group takes extremely seriously, and could also have a negative financial, legal and reputational

impact to the business.

Failure to effectively manage risks associated with compliance with global and local anti-bribery and

corruption (ABC) legislation could result in costly legal investigations and/or adversely impact the

Group’s reputation.

The Group is committed to an effective compliance programme in keeping with changing regulatory

expectations, and it is also committed to conducting business in a legal and ethical manner in

compliance with local and international statutory requirements and standards applicable to its

business. Despite those commitments, there is a risk that the Group’s management, employees or

representatives may take actions that violate applicable laws and regulations including regarding

accurate keeping of books and records or prohibiting the making of improper payments for the

purposes of obtaining or keeping business, including laws such as the US Foreign Corrupt Practices

Act or the UK Bribery Act. Any regulatory inquiry or investigations could be costly, require a significant

amount of management’s time and attention, adversely impact the Group’s reputation, or lead to

litigation and financial impacts.

Failure to comply with antitrust and competition legislation and/or legal or regulatory proceedings could

result in substantial financial cost and/or adversely impact the Group’s reputation.

The Group is subject to global and local antitrust and competition law and although it is

committed to conducting business in compliance with local and international laws, there is a risk

that management, employees or representatives may act in a way that violates applicable antitrust

or competition laws. Further, the Group and its subsidiaries are and may be in the future subject to

legal and regulatory proceedings in the countries in which the Group operates. These proceedings

could result in greater scrutiny of the Group’s operations in other countries for anti-competitive

behaviour and, in the worst case, incur a substantial financial cost. This would also have an adverse

impact on the Group’s reputation.

Failure to adequately protect the health, safety and well-being of the Group’s employees, learners and other

stakeholders could adversely impact the Group’s reputation, profitability and future growth.

Although the Group has invested in global health and safety procedures and controls to safeguard

the health, safety and wellbeing of its employees and other stakeholders, accidents or incidents could

still occur due to unforeseen risks, causing injury or harm to individuals and impacting the Group’s

business operations. This has the potential to lead to criminal and civil litigation, business disruption

leading to operational loss, reduction in profitability and impact on the Group’s reputation.

Failure to ensure security for the Group’s staff, learners, assets and reputation, due to increasing numbers

of and variety of local and global threats.

Pearson is a global business with locations in diverse, sometimes high-risk, locations worldwide.

Although it has protective measures in place to secure its staff, learners and assets, the Group could

still be impacted by external threats, such as localised incidents, terrorist attacks, strikes or extreme

weather. Future occurrences could cause harm to individuals and/or disrupt business operations.

These have the potential to lead to operational loss, a reduction in profitability and impact on the

Group’s global reputation.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 234 Annual report and accounts 2023 Pearson plc 234

Other information (unaudited)

Other Significant Near-term and Emerging Risks

Environmental, social and governance risks including Climate Transition may adversely impact the

Group’s business.

The Group considers environmental, social and governance (ESG) risks no differently to the way it

manages any other business risk. Expectations around climate commitments and measurements

change on a regular basis. A failure to comply with relevant standards, or other ESG-related laws

or regulations, whether in the UK or elsewhere, could adversely affect the Group’s reputation and

have a negative impact on its relations with employees, customers and/or business partners. Costs

associated with climate-transition which cannot be fully managed by decarbonisation activities may

lead to decreased margins. However, the Group has assessed the impact of climate change on

the Group’s financial statements, including our long-term net zero commitment, and the actions

the Group intends to take to achieve those targets. The assessment did not identify any material

impact on the Group’s significant judgments or estimates at 31 December 2023, or the assessment

of going concern for the period to June 2025 and the Group’s viability over the next five years.

Financial markets disruption – A lack of sufficient capital resources could adversely impact the Group’s

ability to operate.

Financial crises impact financial markets periodically, which could result in bank failures and loss

of capital for the Group, or an inability to access debt capital markets as planned. The Group has a

€300m bond maturity in 2025 and if it were unable to raise finance to replace it, it may be required

to delay investment, negatively impacting the Group’s growth prospects.

Inflation – High levels of global inflation could increase costs and adversely impact the Group’s profits and

financial performance.

High ongoing global inflation factors have increased and could further increase the cost of

production for Pearson, particularly through wage inflation. There is no guarantee that we can

increase prices or reduce cost for products and services that can mitigate the effects of inflation,

which could lead to reduced earnings and ability to invest in future growth.

Geopolitical conflict – Conflict could affect Pearson’s operations.

Pearson has staff and offices globally, which could be impacted by conflict or blockades as a result of

geopolitical issues. Notably, Pearson has offices in Israel which support Pearson’s digital products, which

if affected by conflict could negatively impact the pace of innovation or the quality of Pearson’s products.

Certain additional information on the Company

Information on the Company

Pearson was incorporated and registered in 1897 under the laws of England and Wales as a

limited company and re-registered under the UK Companies Act as a public limited company in

1981. The Group conducts its operations primarily through its subsidiaries and other affiliates. Its

principal executive offices are located at 80 Strand, London WC2R 0RL, United Kingdom (telephone:

+44 20 7010 2000) and its website address is https://plc.pearson.com/. The Company is registered in

England and Wales under the company number 00053723. The SEC maintains an Internet site that

contains reports, proxy and information statements, and other information regarding issuers that file

electronically with the SEC. The address of that site is http://www.sec.gov.

Operating cycles

The Group determines a normal operating cycle separately for each entity/cash generating unit with

distinct economic characteristics. The ‘normal operating cycle’ for each of the Group’s businesses

is primarily based on the expected period over which content or services will generate cash flows.

The Higher Education courseware market is primarily driven by an adoption cycle, with colleges and

professors typically refreshing their courses and selecting revised programs on a regular basis, often

in line with the release of new content or new technology offerings. The Company renews its product

development assets to reflect new content and capabilities which enhance the attractiveness of its

offering to both educators and learners.

Analysis of historical data shows that the typical life cycle of Higher Education content is up to five

years but varies by product. In addition to content, the Group also develops technology platforms

for products and the life cycle for these platforms can be in excess of the five years cycle for content.

Again, the operating cycle for content and platforms mirrors the market cycle.

Historically for a major content refresh a development phase of typically 12 to 18 months for Higher

Education precedes the period during which the Company receives and delivers against orders for

the products it has developed for the programme.

The operating cycles in respect of the Group’s professional and clinical content are more specialised

in nature as they relate to educational or heavy reference products released into smaller markets

(e.g. the financial training and IT sectors). Nevertheless, in these markets, there is still a regular

cycle of product renewal, in line with demand which management monitor. Typically, the life cycle

is five years for Professional content and seven years for Clinical content. Elsewhere in the Group,

operating cycles are typically less than one year.

Competition

The Group’s businesses operate in highly competitive markets. The Group faces competitive

threats both from large media players and from smaller businesses, online and mobile portals and

operators in the digital arena that provide alternative sources of content. Alternative distribution

channels, e.g. digital format, the internet, online retailers, growing delivery platforms (e.g. e-readers

or tablets), pose both threats and opportunities to traditional publishing business models, potentially

impacting both sales volumes and pricing.

In Assessment & Qualifications, the Group competes with other companies offering test development

and administration including Cambium, Data Recognition Corp (DRC), Educational Testing Service

(ETS), and NWEA, and others. The Professional Certification business competes with Prometric

globally and a number of other smaller players in local markets. The Clinical Assessment business

competes with MHS and WPS. The UK and International qualifications business competes with AQA,

Cambridge Assessment and OCR in general qualifications, as well as a number of smaller players.

In Virtual Learning, the Group competes with companies such as Stride in virtual schools and 2U

Inc. in Online Program Management until the point of disposal, alongside smaller niche players that

specialise in a particular academic discipline or focus on a learning technology.

Annual report and accounts 2023 Pearson plc 235Annual report and accounts 2023 Pearson plc 235

Other information (unaudited)

In Institutional English Language Learning, the Group competes with Oxford University Press,

Macmillan and other publishers. In High Stakes Assessments, Pearson Test of English Academic

competes with alternative tests including iELTS and TOEFL. In the online language learning market,

the Group competes with Duolingo, Babbel and Busuu, as well as a number of smaller players.

In Workforce Skills, the vocational qualifications business competes with City and Guilds globally

alongside smaller niche and local market providers, our assessments businesses compete with HiSET

in high school equivalency and SHL in skills and ability testing, and our enterprise data, technology

and learning businesses compete with Learning platforms such as Guild, credential platforms such

as Accredible, talent management platforms such as Eightfold.ai, and data services such as Emsi.

In Higher Education, the Group competes with other publishers and creators of educational

materials and services. These companies include publishers such as Cengage Learning and

McGraw-Hill Education, as well as non-mainstream publishers.

Competition is based on the ability to deliver quality products and services that address the specified

curriculum needs and appeal to the student, organisations, school boards, educators, employers

and government officials making purchasing decisions.

Intellectual property

The Group’s principal intellectual property assets consist of its:

— trademarks and other rights via its brands (including corporate and business unit brands and

imprints, as well as product and service brands);

— copyrights for its textbook and related educational content and software code; and

— patents and trade secrets related to the innovative methods deployed in its key technologies.

The Group believes it has taken reasonable legal steps to protect its key brands in its major markets

and copyright in its content and has taken appropriate steps to develop a comprehensive patent

programme to ensure appropriate protection of emerging inventions that are critical to its new

business strategies.

Licenses, patents and contracts

The Group is not dependent upon any particular licenses, patents or new manufacturing processes

that are material to its business or profitability. Notwithstanding the foregoing, the Group’s

education business is dependent upon licensed rights since most textbooks and digital learning

tools include content and/or software that is licensed to it by third parties (or assigned subject to

royalty arrangements). In addition, some software products in various business lines rely upon

patents licensed from third parties.

The Group is not materially dependent upon any particular contracts with suppliers or customers,

including contracts of an industrial, commercial or financial nature. The Group’s revenue is

diversified, no individual customer comprised more than 5% of revenue in 2023.

Raw materials

Paper remains the principal raw material used by the Group although its use is declining given

the shift to digital products. The Group purchases most of its paper through its global outsourcing

partner LSC Communications located in the United States. The Group has not experienced and does

not anticipate difficulty in obtaining adequate supplies of paper for its operations, with sourcing

available from numerous suppliers. While local prices fluctuate depending upon local market

conditions, the Group has not experienced extensive volatility in fulfilling paper requirements. In the

event of a sharp increase in paper prices, the Group has a number of alternatives to minimise the

impact on its operating margins, including modifying the grades of paper used in production and

price adjustments.

Government regulation

The manufacture of certain products in various markets is subject to governmental regulation

relating to the discharge of materials into the environment. Operations are also subject to the

risks and uncertainties attendant to doing business in numerous countries. Some of the countries

in which the Group conducts these operations maintain controls on the repatriation of earnings

and capital and restrict the means available for hedging potential currency fluctuation risks.

The operations that are affected by these controls, however, are not material. Accordingly, these

controls have not significantly affected the Group’s international operations. Regulatory authorities

may have enforcement powers that could have an impact. The Group believes, however, that in light

of the nature of its business the risk of these sanctions does not represent a material threat.

Legal proceedings

The Group and its subsidiaries are from time to time the subject of legal proceedings incidental

to the nature of its and their operations. These may include private litigation or arbitrations,

governmental proceedings and investigations by regulatory bodies.

Property, plant and equipment

The Group’s headquarters are located at leasehold premises in London, England. As at 31 December

2023, it owned or leased approximately 700 properties, including approximately 527 testing/teaching

centres in over 57 countries worldwide, the majority of which are located in the United Kingdom and

the United States. The other properties owned and leased by the Group consist mainly of offices and

distribution centres. In some cases properties leased by the Group are then sublet to third parties.

The vast majority of printing is carried out by third-party suppliers. The Group operates a small digital

print operation as part of its Pearson Assessment & Testing businesses which provides short-run

and print-on-demand products, typically custom client applications.

The Group owns the following principal properties at 31 December 2023:

General use of property Location Area in square feet

Office Iowa City, Iowa, USA* 312,760

Warehouse/office Cedar Rapids, Iowa, USA 205,000

Testing Owatonna, Minnesota, USA 128,000

Warehouse/office Hadley, Massachusetts, USA* 85,570

* Properties are recorded as held for sale at 31 December 2023.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 236 Annual report and accounts 2023 Pearson plc 236

Other information (unaudited)

The Group leased the following principal properties at 31 December 2023:

General use of property Location Area in square feet

Office Hudson, New York, USA* 313,285

Office Westminster, London, UK* 289,355

Office Hoboken, New Jersey, USA* 216,273

Office Bloomington, Minnesota, USA* 147,159

Warehouse/office Cedar Rapids, Iowa, USA* 119,682

* Properties have either been fully or partially sublet or are being marketed for sublet.

Off-balance sheet arrangements

The Group does not have any off-balance sheet arrangements, as defined by the SEC for the

purposes of the Form 20-F, that have or are reasonably likely to have a material current or future

effect on the Group’s financial position or results of operations.

Operating and financial review

The financial review for the year ended 31 December 2023 compared to the year ended

31 December 2022 can be found on pages 26-33 of the Strategic Report. The financial review for

the year ended 31 December 2022 compared to the year ended 31 December 2021 can be found

on pages 20-25 of our 2022 Annual Report and Accounts on Form 20-F filed with the United States

Securities and Exchange Commission on 31 March 2023.

Directors, senior management and employees

Board Practices

As at 28 February 2024, the Group’s Board comprises the Chair, two Executive Directors and eight

Non-Executive Directors. The Articles of Association (as defined below) provide that all the Directors

at the date of the notice convening the Annual General Meeting (‘AGM’) shall retire from office at

the meeting. A retiring Director shall, if willing to act, be eligible for re-appointment. If they are not

re-appointed, they shall retain office until the meeting appoints someone in their place, or if it does

not do so, until the end of the meeting or, if the meeting is adjourned, the end of the adjourned

meeting. The Articles of Association also provide that every Director appointed by the Board be

subject to re-appointment by shareholders at the next AGM following their appointment.

Tim Score will be retiring from the Board upon the conclusion of the Company’s AGM on 26 April

2024. Upon Tim Score’s retirement, Graeme Pitkethly will be appointed as Deputy Chair and Senior

Independent Director. All of the Directors, save Tim Score, will offer themselves for re-election at the

forthcoming AGM on 26 April 2024.

Pearson is listed on the New York Stock Exchange (‘NYSE’). As a listed non-US issuer, the Group is

not required to comply with some of the NYSE’s corporate governance rules, but must disclose on its

website any significant ways in which its corporate governance practices differ from those followed

by US companies under the NYSE listing standards. At this time, the Group believes that it is in

compliance in all material respects with all the NYSE rules except that the Nomination & Governance

Committee is not composed entirely of independent Directors as the Chair, who is not considered

independent under NYSE rules, is a member of this Committee in addition to independent Directors.

Employees

Through its subsidiaries, the Group has entered into collective bargaining agreements with

employees in various locations. The Group’s management has no reason to believe that it would

not be able to renegotiate any such agreements on satisfactory terms. The Group encourages

employees to contribute actively to the business in the context of their particular job roles and

believes that the relations with its employees are generally good.

Significant changes

Other than those events described in note 37 in the consolidated financial statements, and seasonal

fluctuations in borrowings, there has been no significant change to the Group’s financial condition or

results of operations since 31 December 2023. The Group’s borrowings fluctuate by season due to

the effect of the school year on working capital requirements. Assuming no acquisitions or disposals,

the maximum level of net debt normally occurs in the third quarter, and the minimum level of net

debt normally occurs in December.

The offer and listing

The principal trading market for the Group’s ordinary shares is the London Stock Exchange which

trade under the symbol ‘PSON’. Its ordinary shares also trade in the United States in the form of

ADSs evidenced by ADRs under a sponsored ADR facility with The Bank of New York Mellon, as

depositary. The Group established this facility in March 1995 and most recently amended it in

August 2014 in connection with its New York Stock Exchange listing. Each ADS represents one

ordinary share.

The ADSs trade on the New York Stock Exchange under the symbol ‘PSO’.

Articles of association

The Group summarises below the material provisions of its articles of association, as amended (the

‘Articles of Association’), which have been filed as an exhibit to its annual report on Form 20-F for the

year ended 31 December 2023. The summary below is qualified entirely by reference to the Articles

of Association. In conformity with the UK Companies Act 2006 (the Act), the Group has multiple

business objectives and purposes and is authorised to do such things as the Board may consider

fit to further its interests or incidental or conducive to the attainment of its objectives and purposes.

Directors’ powers

The Group’s business shall be managed by the Board of Directors and the Board may exercise all

such of its powers as are not required by law or by the Articles of Association or by any directions

given by the Company by special resolution, to be exercised in a general meeting.

Annual report and accounts 2023 Pearson plc 237Annual report and accounts 2023 Pearson plc 237

Other information (unaudited)

Interested Directors

For the purposes of section 175 of the Act, the Board may authorise any matter proposed to it which

would, if not so authorised, involve a breach of duty by a Director under that section, including,

without limitation, any matter which relates to a situation in which a Director has, or can have,

an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such

authorisation will be effective only if:

a. any requirement as to quorum at the meeting at which the matter is considered is met without

counting the Director in question or any other interested Director; and

b. the matter was agreed to without their voting or would have been agreed to if their votes had

not been counted.

The Board may (whether at the time of the giving of the authorisation or subsequently) make any

such authorisation subject to any limits or conditions it expressly imposes but such authorisation

is otherwise given to the fullest extent permitted. The Board may vary or terminate any such

authorisation at any time.

Provided that he or she has disclosed to the Board the nature and extent of his or her interest (or

else that the Director is not aware of the interest or not aware of the transaction or arrangement in

question, or else that the interest cannot be reasonably regarded to give rise to a conflict of interest),

a Director notwithstanding his or her office:

a. may be a party to, or otherwise interested in, any transaction or arrangement with the Company

or in which the Company is otherwise (directly or indirectly) interested;

b. (may act by himself or herself or his or her firm in a professional capacity for the Company

(otherwise than as auditor) and he or she or his or her firm shall be entitled to remuneration

for professional services as if he or she were not a Director;

c. may be a Director or other officer of, or employed by, or a party to a transaction or arrangement

with, or otherwise interested in, any body corporate in which the Company is otherwise (directly

or indirectly) interested.

A Director shall not, by reason of his or her office, be accountable to the Company for any

remuneration or other benefit which he or she derives from any office or employment or from

any transaction or arrangement or from any interest in any body corporate:

a. the acceptance, entry into or existence of which has been approved by the Board

(subject, in any such case, to any limits or conditions to which such approval was subject); or

b. which he or she is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) above;

nor shall the receipt of any such remuneration or other benefit constitute a breach of his or her

duty under section 176 of the Act.

A Director shall be under no duty to the Company with respect to any information which he or

she obtains or has obtained otherwise than as a Director of the Company and in respect of which

he or she owes a duty of confidentiality to another person. However, to the extent that his or her

relationship with that other person gives rise to a conflict of interest or possible conflict of interest,

the preceding sentence only applies if the existence of such relationship has been approved by the

Board. In such circumstances, the Director shall not be in breach of the general duties he or she

owes to the Company by virtue of sections 171 to 177 of the Act because he or she fails:

a. to disclose any such information to the Board or to any Director or other officer or employee of

the Company; and/or

b. to use or apply any such information in performing his or her duties as a Director of

the Company.

Where the existence of a Director’s relationship with another person has been approved by the

Board and his or her relationship with that person gives rise to a conflict of interest or possible

conflict of interest, the Director shall not be in breach of the general duties he or she owes to the

Company by virtue of sections 171 to 177 of the Act because he or she:

a. absents himself or herself from meetings of the Board at which any matter relating to the

conflict of interest or possible conflict of interest will or may be discussed or from the discussion

of any such matter at a meeting or otherwise; and/or

b. makes arrangements not to receive documents and information relating to any matter which

gives rise to the conflict of interest or possible conflict of interest sent or supplied by the

Company and/or for such documents and information to be received and read by a professional

adviser, for so long as he or she reasonably believes such conflict of interest or possible conflict

of interest subsists.

Except as stated below, a Director shall not vote in respect of any contract or arrangement or any

other proposal whatsoever in which he or she has an interest which is, to his or her knowledge, a

material interest, otherwise than by virtue of his or her interests in shares or debentures or other

securities of or otherwise in or through the Company. A Director shall not be counted in the quorum

at a meeting of the Board in relation to any resolution on which he or she is debarred from voting.

Notwithstanding the foregoing, a Director will be entitled to vote, and be counted in the quorum, on

any resolution concerning any of the following matters:

— the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred

by him or her or by any other person at the request of or for the benefit of the Company or any

of its subsidiaries;

— the giving of any guarantee, security or indemnity to a third party in respect of a debt or

obligation of the Company or any of its subsidiaries for which he himself or she herself has

assumed responsibility in whole or in part and whether alone or jointly with others under a

guarantee or indemnity or by the giving of security;

— any proposal relating to the Company or any of its subsidiary undertakings where it is offering

securities in which offer a Director is or may be entitled to participate as a holder of securities

or in the underwriting or sub-underwriting of which a Director is to participate;

— any proposal relating to another Company in which he or she and any persons connected with

him or her do not to his or her knowledge hold an interest in shares (as that term is used in

sections 820 to 825 of the Act) representing one percent or more of either any class of the

equity share capital, or the voting rights, in such Company;

— any proposal relating to an arrangement for the benefit of the employees of the Company or

any of its subsidiary undertakings which does not award him or her any privilege or benefit not

generally awarded to the employees to whom such arrangement relates; and

— any proposal concerning insurance that the Company proposes to maintain or purchase for

the benefit of Directors or for the benefit of persons, including Directors.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 238 Annual report and accounts 2023 Pearson plc 238

Other information (unaudited)

Where proposals are under consideration concerning the appointment of two or more Directors to

offices or employment with us or any Company in which the Group is interested, these proposals

may be divided and considered separately and each of these Directors, if not prohibited from voting

under the provisions of the eighth paragraph before this one, will be entitled to vote and be counted

in the quorum with respect to each resolution except that concerning his or her own appointment.

Retirement and re-appointment of Directors

At every AGM, all the Directors at the date of the notice convening the AGM shall retire from

office. A retiring Director shall, if willing to act, be eligible for re-appointment. If he or she is not

re-appointed, he or she shall retain office until the meeting appoints someone in his or her place,

or if it does not do so, until of the end of the meeting, or until the end of the adjourned meeting if

the meeting is adjourned.

Where a Director has been reappointed after notice of the AGM has been given, that Director

shall retire at the next AGM of which notice is first given after his or her appointment as Director.

If there is an insufficient number of appointed or re-appointed Directors at any of the Company’s

AGM thus rendering the Board inquorate, all Directors shall be automatically re-appointed only for

the purposes of filling vacancies and convening general meetings of the Company and to perform

such duties as are appropriate to maintain the Company as a going concern and to enable it to

comply with its legal and regulatory obligations. The Directors are required to convene a further

general meeting of the Company as soon as reasonably practicable to allow new Directors to

be appointed, and such Directors who were not appointed at the original general meeting shall

subsequently retire.

Borrowing powers

The Board of Directors may exercise all powers to borrow money and to mortgage or charge the

Group’s undertaking, property and uncalled capital and to issue debentures and other securities,

whether outright or as collateral security for any of its or any third party’s debts, liabilities or

obligations. The Board of Directors must restrict the borrowings in order to secure that the

aggregate amount of undischarged monies borrowed by the Group (and any of its subsidiaries),

but excluding any intra-group debts, shall not at any time (without the previous sanction of the

Company in the form of an ordinary resolution) exceed a sum equal to twice the aggregate of

the adjusted capital and reserves.

Other provisions relating to Directors

Under the Articles of Association, Directors are paid out of the Group’s funds for their services as it

may from time to time determine by ordinary resolution and, in the case of Non-Executive Directors,

up to an aggregate of £1,000,000 per year or such other amounts as resolved by the shareholders

at a general meeting. Any Director who is not an Executive Director and who performs special

services which in the opinion of the Board are outside the scope of the ordinary duties of a Director,

may be paid such extra remuneration by way of additional fee, salary, commission or otherwise as

the Board may determine in accordance with the Group’s remuneration policy. Under the Articles

of Association, Directors currently are not required to hold any share qualification. However, the

remuneration policy mandates a shareholding guideline for Executive Directors which they are

expected to build towards over a specified period.

General meetings

Pursuant to the Act, the Company must hold an AGM (within six months beginning with the day

following its accounting reference date) at a place and time determined by the Board. The following

matters are usually considered at an AGM:

— approval of final dividend;

— consideration of the Company’s annual accounts together with associated reports of the Board of

Directors and auditors;

— appointment or re-appointment of Directors;

— appointment or re-appointment of the auditors, and authorisation for the Audit Committee to

determine and fix the remuneration of the auditors; and

— renewal, limitation, extension, variation or grant of any authority to the Board in relation to the

allotment and repurchase of securities.

The Board may call a general meeting whenever it thinks fit. If at any time there are not within the

United Kingdom sufficient Directors capable of acting to form a quorum, any Director or any two

members may convene a general meeting in the same manner as nearly as possible as that in

which meetings may be convened by the Board.

No business shall be dealt with at any general meeting unless a quorum is present when the meeting

proceeds to business. Three members present in person or by proxy and entitled to vote shall be a

quorum for all purposes. A corporation being a member shall be deemed to be personally present

if represented by its duly authorised representative.

If a quorum for a meeting convened at the request of shareholders is not present within 15 minutes

of the appointed time (or if during a meeting such a quorum ceases to be present), the meeting

will be dissolved. In any other case, the general meeting will be adjourned to such time and with

such means of attendance and participation as the Chair of the meeting may determine. If at that

rescheduled meeting a quorum is not present within fifteen minutes from the time appointed for

holding the meeting, the shareholders present in person or by proxy will be a quorum. The Chair or,

in his or her absence, the Deputy Chair or any other Director nominated by the Board, will preside

as Chair at every general meeting. If no Director is present at the general meeting or no Director

consents to act as Chair, the shareholders present shall elect one of their number to be Chair of

the meeting.

The Board may resolve to enable persons entitled to attend and participate in a general meeting

to do so by simultaneous attendance and participation by means of electronic facility or facilities

and determine the means, or all different means, of attendance and participation used in relation

to a general meeting. The members present in person or by proxy by means of electronic facility

or facilities shall be counted in the quorum for, and entitled to participate in the general meeting in

question. That meeting shall be duly constituted and its proceedings valid if the Chair of the meeting

is satisfied that adequate facilities are available throughout the meeting to ensure that members

attending the meeting by all means (including by means of electronic facility or facilities) are able to:

a. participate in the business for which the meeting has been convened;

b. hear all persons who speak at the meeting; and

c. be heard by all persons present at the meeting.

Annual report and accounts 2023 Pearson plc 239Annual report and accounts 2023 Pearson plc 239

Other information (unaudited)

A member seeking to be present in person or by proxy at a general meeting by means of electronic

facility or facilities is responsible for ensuring they have access to and can use the facility or facilities.

The meeting shall be duly constituted and its proceedings valid notwithstanding the inability of the

member to gain access to use the facility or facilities, or the loss of access to or use of the facility or

facilities during the meeting.

Share certificates

Every person whose name is entered as a member in the Company’s Register of Members shall

be entitled to one certificate in respect of each class of shares held (the law regarding this does

not apply to stock exchange nominees). Subject to the terms of issue of the shares, certificates

are issued following allotment or receipt of the relevant transfer by the Group’s registrar, Equiniti,

Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom.

Share capital

Any share may be issued with such preferred, deferred or other special rights or other restrictions

as may be determined by way of a shareholders’ vote in a general meeting. Subject to the Act, any

shares may be issued which are to be redeemed or are liable to be redeemed at the option of the

Company or the shareholders.

There are no provisions in the Articles of Association which discriminate against any existing or

prospective shareholder as a result of such shareholder owning a substantial number of shares.

Subject to the terms of the shares which have been issued, the Directors may from time to time

make calls upon the shareholders in respect of any moneys unpaid on their shares, provided that

(subject to the terms of the shares so issued) no call on any share shall be payable at less than 14

clear days from the last call. The Directors may, if they see fit, receive from any shareholder willing

to advance the same, all and any part of the moneys uncalled and unpaid upon any shares held by

him or her.

Changes in capital

The Group may, from time to time by ordinary resolution subject to the Act:

— consolidate and divide all or any of its share capital into shares of a larger nominal amount

than its existing shares; or

— sub-divide all of or any of its existing shares into shares of smaller nominal amounts.

The Group may, from time to time, increase its share capital by allotting new shares in accordance

with the prescribed threshold authorised by shareholders at the last AGM and subject to the

consents and procedures required by the Act. The Group may also, by special resolution, reduce

its share capital.

Voting rights

Every holder of ordinary shares present in person or by proxy at a meeting of shareholders has one

vote on a vote taken by a show of hands. On a poll, every holder of ordinary shares who is present

in person or by proxy has one vote for every 25 pence of nominal share capital (being one ordinary

share) of which he or she is the holder. Voting at any meeting of shareholders is usually on a poll

rather than by show of hands. Voting on a poll is more transparent and equitable because it includes

the votes of all shareholders, including those cast by proxies, rather than just the votes of those

shareholders who attend the meeting. A poll may be also demanded by:

— the Chair of the meeting;

— at least three shareholders present in person or by proxy and entitled to vote;

— any shareholder or shareholders present in person or by proxy representing not less than

one-tenth of the total voting rights of all shareholders having the right to vote at the meeting; or

— any shareholder or shareholders present in person or by proxy holding shares conferring a right

to vote at the meeting being shares on which the aggregate sum paid up is equal to not less than

one-tenth of the total sum paid up on all shares conferring that right.

Dividends

Holders of ordinary shares are entitled to receive dividends out of Group profits that are available by law

for distribution, as the Group may declare by ordinary resolution, subject to the terms of issue thereof.

However, no dividends may be declared in excess of an amount recommended by the Board of

Directors. The Board may pay interim dividends on the shares of any class as it deems fit. It may

invest or otherwise use all dividends left unclaimed for six months after having been declared

for its benefit, until claimed. All dividends unclaimed for a period of eight years after having been

declared will be forfeited and revert to the Group.

The Directors may, with the sanction of an ordinary resolution of the shareholders, offer any holders

of ordinary shares the right to elect to receive ordinary shares credited as fully paid, in whole or in

part, instead of cash in respect of such dividend.

The Directors may deduct from any dividend payable to any shareholder all sums of money (if any) presently

payable by that shareholder to the Group on account of calls or otherwise in relation to its shares.

Dividends may be paid by such method or combination of methods as the Board, in its absolute discretion,

may decide. Different methods of payment may apply to different holders or groups of holders.

Liquidation rights

In the event of the Group’s liquidation, after payment of all liabilities, its remaining assets would

be used to repay the holders of ordinary shares the amount they paid for their ordinary shares.

Any balance would be divided among the holders of ordinary shares in proportion to the nominal

amount of the ordinary shares held by them.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 240 Annual report and accounts 2023 Pearson plc 240

Other information (unaudited)

Other provisions of the Articles of Association

Whenever the Group’s capital is divided into different classes of shares, the special rights attached

to any class may, unless otherwise provided by the terms of the issue of the shares of that class, be

varied or abrogated, either with the written consent of the holders of 75% of the issued shares of the

class (excluding any issued as treasury shares) or with the sanction of a special resolution passed at

a separate meeting of these holders. Conditions set out in the Articles of Association with respect

to the variation of rights are subject to the provisions of the Act. In the event that a shareholder or

other person appearing to the Board of Directors to be interested in ordinary shares fails to comply

with a notice requiring him or her to provide information with respect to their interest in voting

shares pursuant to section 793 of the Act, the Board may serve that shareholder with a notice of

default. After service of a default notice, that shareholder shall not be entitled to attend or vote at

any general meeting or at a separate meeting of holders of a class of shares or on a poll until he or

she has complied in full with the Group’s information request.

If the shares described in the default notice represent at least 25% of 1% in nominal value of the issued

ordinary shares, then the default notice may additionally direct that in respect of those shares:

— the Group will not pay dividends (or issue shares in lieu of dividends); and

— the Group will not register transfers of shares unless (i) the shareholder is not themself in default

as regards supplying the information requested and the transfer, when presented for registration,

is accompanied by a certificate from the shareholder in such form as the Board of Directors may

require to the effect that after due and careful inquiry, the shareholder is satisfied that no person

in default is interested in any of the ordinary shares which are being transferred; (ii) the transfer

is an approved transfer, as defined in the Articles of Association; or (iii) the registration of the

transfer is required by the Uncertificated Securities Regulations 2001.

No provision of the Articles of Association expressly governs the ordinary share ownership

threshold above which shareholder ownership must be disclosed. Under the Disclosure Guidance

and Transparency Rules of the Financial Conduct Authority, any person who acquires, either alone

or, in specified circumstances, with others an interest in the Company’s voting share capital equal

to or in excess of 3% comes under an obligation to disclose prescribed particulars to the Company

in respect of those ordinary shares. A disclosure obligation also arises where a person’s notifiable

interests fall below 3%, or where, at or above 3%, the percentage of the Company’s voting share

capital in which a person has a notifiable interest reaches, exceeds or falls below 3%, 4%, 5%, 6%,

7%, 8%, 9%, 10%, and each 1% threshold thereafter up to 100%.

Limitations affecting holders of ordinary shares or ADSs

Under English law and Articles of Association, persons who are neither UK residents nor UK nationals

may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.

With respect to the items discussed above, applicable UK law is not materially different from

applicable US law.

Material contracts

The Group is not currently party to any contracts outside the ordinary course of business, other

than the Trust Deed entered into in 2020 with respect to £350.0 million aggregate principal amount

of 3.750% guaranteed notes due 2030, in each case, issued by a subsidiary and guaranteed by

Pearson, which is filed as Exhibit 2.2 of this report.

Executive employment contracts

The Group has entered into agreements with each of its Executive Directors pursuant to which

such Executive Director is employed by the Group. These agreements describe the duties of such

Executive Director and the compensation to be paid by us.

It is the Group’s policy that it may terminate the Executive Directors’ service agreements by giving

no more than 12 months’ notice. As an alternative, the Group may at its discretion pay in lieu of

that notice. Payment-in-lieu of notice may be made in equal monthly installments from the date of

termination to the end of any unexpired notice period. In the case of Executive Directors, payment-

in-lieu of notice in installments may also be subject to mitigation and reduced taking into account

earnings from alternative employment. For Executive Directors, pay in lieu of notice comprises 100%

of the annual salary at the date of termination and the annual cost to the Company of providing

pension and all other benefits. The Group may, depending on the circumstances of the termination,

determine that it will not pay the Director in lieu of notice and may instead terminate a Director’s

contract in breach and make a damages payment, taking into account as appropriate the Director’s

ability to mitigate their loss.

Exchange controls

There are no UK Government laws, decrees, regulations or other legislation which restrict or which

may affect the import or export of capital, including the availability of cash and cash equivalents for

use by us or the remittance of dividends, interest or other payments to non-resident holders of the

Group’s securities, except as otherwise described under ‘Tax Considerations’ below.

Tax considerations

The following is a discussion of the material US federal income tax considerations and UK tax

considerations arising from the acquisition, ownership and disposition of ordinary shares and

ADSs by a US holder. A US holder is:

— an individual citizen or resident of the US, or

— a corporation created or organised in or under the laws of the US or any of its political

subdivisions, or

— an estate or trust the income of which is subject to US federal income taxation regardless of

its source.

This discussion deals only with ordinary shares and ADSs that are held as capital assets by a US

holder, and does not address tax considerations applicable to US holders that may be subject to

special tax rules, such as:

— dealers or traders in securities or currencies,

— financial institutions or other US holders that treat income in respect of the ordinary shares or

ADSs as financial services income,

— insurance companies,

— tax-exempt entities,

— persons acquiring shares or ADSs in connection with employment,

— US holders that hold the ordinary shares or ADSs as a part of a straddle or conversion transaction

or other arrangement involving more than one position,

Annual report and accounts 2023 Pearson plc 241Annual report and accounts 2023 Pearson plc 241

Other information (unaudited)

— US holders that own, or are deemed for US tax purposes to own, 10% or more of the total

combined voting power of all classes of the Group’s voting stock,

— US holders that have a principal place of business or ‘tax home’ outside the United States, or

— US holders whose ‘functional currency’ is not the US dollar.

For US federal income tax purposes, holders of ADSs will be treated as the owners of the ordinary

shares represented by those ADSs. In practice, HM Revenue & Customs (HMRC) will also regard

holders of ADSs as the beneficial owners of the ordinary shares represented by those ADSs,

although case law has cast some doubt on this. The discussion below assumes that HMRC’s

position is followed.

In addition, the following discussion assumes that The Bank of New York Mellon will perform its

obligations as depositary in accordance with the terms of the depositary agreement and any

related agreements.

Because US and UK tax consequences may differ from one holder to the next, the discussion set

out below does not purport to describe all of the tax considerations that may be relevant to you

and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the

US federal, state and local, UK and other, including foreign, tax consequences of investing in the

ordinary shares or ADSs. Except where otherwise indicated, the statements of US and UK tax law

set out below are based on the laws, interpretations and tax authority practice in force or applicable

as of 28 February 2024 and are subject to any changes occurring after that date, possibly with

retroactive effect.

UK income taxation of distributions

The UK does not impose dividend withholding tax on dividends paid by the Company.

A US holder that is not resident in the UK for UK tax purposes and does not carry on a trade,

profession or vocation in the UK through a branch or agency (or in the case of a company a

permanent establishment) to which the ordinary shares or ADSs are attributable will not generally

be liable to pay UK tax on dividends paid by the Company.

US income taxation of distributions

Distributions that the Group makes with respect to the ordinary shares or ADSs, other than

distributions in liquidation and distributions in redemption of stock that are treated as exchanges,

will be taxed to US holders as ordinary dividend income to the extent that the distributions do not

exceed the Group’s current and accumulated earnings and profits. The amount of any distribution

will equal the amount of the cash distribution. Distributions, if any, in excess of the Group’s current

and accumulated earnings and profits will constitute a non-taxable return of capital to a US holder

and will be applied against and reduce the US holder’s tax basis in its ordinary shares or ADSs. To

the extent that these distributions exceed the tax basis of the US holder in its ordinary shares or

ADSs, the excess generally will be treated as capital gain.

Dividends that the Group pays will not be eligible for the dividends received deduction generally

allowed to US corporations under Section 243 of the Code.

In the case of distributions in pounds sterling, the amount of the distributions generally will equal

the US dollar value of the pounds sterling distributed, determined by reference to the spot currency

exchange rate on the date of receipt of the distribution by the US holder in the case of shares or

by The Bank of New York Mellon in the case of ADSs, regardless of whether the US holder reports

income on a cash basis or an accrual basis. The US holder will realise separate foreign currency gain

or loss only to the extent that this gain or loss arises on the actual disposition of pounds sterling

received. For US holders claiming tax credits on a cash basis, taxes withheld from the distribution are

translated into US dollars at the spot rate on the date of the distribution; for US holders claiming tax

credits on an accrual basis, taxes withheld from the distribution are translated into US dollars at the

average rate for the taxable year.

A distribution by the Company to non-corporate shareholders will be taxed as net capital gain at a

maximum rate of 20%, provided certain holding periods are met, to the extent such distribution is

treated as a dividend under US federal income tax principles. In addition, a 3.8% Medicare tax will

generally be imposed on the net investment income, which generally would include distributions

treated as dividends under US federal income tax principles, of non-corporate taxpayers whose

adjusted gross income exceeds a threshold amount.

UK taxation of capital gains

A US holder that is not resident in the UK for UK tax purposes and does not carry on a trade,

profession or vocation in the UK through a branch or agency (or in the case of a company a

permanent establishment) to which the ordinary shares or ADSs are attributable will not generally

be liable for UK taxation on capital gains or eligible for relief for allowable losses, realised on the

sale or other disposal of the ordinary shares or ADSs.

A US holder who is an individual who has been resident for tax purposes in the UK but who ceases

to be so resident or becomes regarded as resident outside the UK for the purposes of any double

tax treaty (‘Treaty Non-resident’) and continues to not be resident in the UK, or continues to be

Treaty Non-resident, for a period of five years or less and who disposes of his ordinary shares or

ADSs during that period may also be liable on his return to the UK to UK tax on capital gains, subject

to any available exemption or relief, even though he or she is not resident in the UK, or is Treaty

Non-resident, at the time of the disposal.

US income taxation of capital gains

Upon a sale or exchange of ordinary shares or ADSs to a person other than Pearson, a US holder will

recognise gain or loss in an amount equal to the difference between the amount realised on the sale

or exchange and the US holder’s adjusted tax basis in the ordinary shares or ADSs. Any gain or loss

recognised will be capital gain or loss and will be long-term capital gain or loss if the US holder has

held the ordinary shares or ADSs for more than one year. Long-term capital gain of a non-corporate

US holder is generally taxed at a maximum rate of 20%. In addition, a 3.8% Medicare tax will generally

be imposed on the net investment income, which generally would include capital gains, of non-

corporate taxpayers whose adjusted gross income exceeds a threshold amount.

Gain or loss realised by a US holder on the sale or exchange of ordinary shares or ADSs generally will

be treated as US-source gain or loss for US foreign tax credit purposes.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 242 Annual report and accounts 2023 Pearson plc 242

Other information (unaudited)

Estate and gift tax

The current Estate and Gift Tax Convention (referred to in this paragraph as the ‘Convention’),

between the US and the UK generally relieves from UK inheritance tax (the equivalent of US estate

and gift tax) the transfer of ordinary shares or of ADSs where the transferor is domiciled in the US

for the purposes of the Convention. This relief will not apply if the ordinary shares or ADSs are part

of the business property of an individual’s permanent establishment in the UK or pertain to the fixed

base in the UK of a person providing independent personal services. If no relief is given under the

Convention, inheritance tax may be charged on death and also on the amount by which the value of

an individual’s estate is reduced as a result of any transfer made by way of gift or other gratuitous

or undervalue transfer, in general within seven years of death, and in certain other circumstances.

In the unusual case where ordinary shares or ADSs are subject to both UK inheritance tax and US

estate or gift tax, the Convention generally provides for tax paid in the UK to be credited against tax

payable in the US or for tax paid in the US to be credited against tax payable in the UK based on

priority rules set forth in the Convention.

Stamp duty

No stamp duty or stamp duty reserve tax (SDRT) will generally be payable in the UK on the purchase

or transfer of an ADS, provided that the ADS, and any separate instrument or written agreement

of transfer, remain at all times outside the UK and that the instrument or written agreement of

transfer is not executed in the UK. Subject to the following paragraph, UK legislation does however

provide for SDRT or (in the case of transfers) stamp duty to be chargeable at the rate of 1.5% of the

amount or value of the consideration or, in some circumstances, the value of the ordinary shares

(rounded up to the next multiple of £5 in the case of stamp duty), where ordinary shares are issued

or transferred to a person whose business is or includes issuing depositary receipts, or to a nominee

or agent for such a person, or issued or transferred to a person whose business is or includes the

provision of clearance services or to a nominee or agent for such a person.

Following certain EU litigation, HM Revenue & Customs (HMRC) accepted that it would no longer

seek to apply the 1.5% SDRT charge when new shares are issued to a clearance service or depositary

receipt system (or transferred into a clearance service or depositary receipt system, where such

transfer is integral to the raising of capital by the company concerned) on the basis that the charge

was not compatible with EU law. Following the UK’s departure from the EU, such pre-existing EU

law rights, recognised in litigation, were preserved as a domestic law matter following the end of

the implementation period on 31 December 2020 pursuant to provisions of the UK European Union

(Withdrawal) Act 2018. In addition, however, on 29 June 2023 the Retained EU Law (Revocation

and Reform) Act was enacted which had the effect that such pre-existing EU law rights, recognised

in litigation, would by default (that is, absent the exercise of a regulation-making power to restate

or reproduce such rights in domestic law) cease to be recognised after 31 December 2023. The

Finance Act 2024, which received Royal Assent on 22 February 2024, makes provision to ensure

it continues to be the case, notwithstanding the effect of the Retained EU Law (Revocation and

Reform) Act 2023, that stamp duty or SDRT of 1.5% is not payable in relation to (i) issues of shares

into depositary receipt systems and clearance services and (ii) transfers of shares into a depositary

receipt system or clearance service, where such transfer is integral to the raising of new capital by

the company concerned.

The Finance Act 2024 also includes an additional exemption for ‘qualifying listing arrangements’

where shares are transferred (without a change in beneficial ownership) in connection with the

listing of such shares on a ‘recognised stock exchange’. Specific professional advice should be

sought before paying the 1.5% SDRT or stamp duty charge in any circumstances.

A transfer for value of the underlying ordinary shares will generally be subject to either stamp duty

or SDRT, normally at the rate of 0.5% of the amount or value of the consideration (rounded up to

the next multiple of £5 in the case of stamp duty). A transfer of ordinary shares from a nominee to

its beneficial owner, including the transfer of underlying ordinary shares from the Depositary to an

ADS holder, under which no beneficial interest passes will not be subject to stamp duty or SDRT.

Close company status

The Group believes that the close company provisions of the UK Corporation Tax Act 2010 do not

apply to it.

Documents on display

Copies of the Group’s Memorandum and Articles of Association are filed as exhibits to its Annual

Report on Form 20-F for the year ended 31 December 2023. We also file reports and other

information with the SEC. These materials, including this Annual Report and the accompanying

exhibits are available on the Investors page of the Company’s website (pearsonplc.com). In addition,

shareholders may request a copy of certain documents referred to in this Annual Report by writing

to us at the following address: Pearson plc, c/o the Company Secretary, 80 Strand, London WC2R 0RL.

Description of Securities Other than Equity Securities

American Depository Shares

The Group’s ordinary shares trade in the form of ADSs evidenced by ADRs under a sponsored ADR

facility with The Bank of New York Mellon, as depositary. Each ADS represents one ordinary share.

The principal executive office of The Bank of New York Mellon is located at 240 Greenwich Street,

New York, NY 10286.

Fees paid by ADR holders

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing

shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them.

The depositary collects fees for making distributions to investors by deducting those fees from the

amounts distributed or by selling a portion of distributable property to pay the fees. The depositary

may collect its annual fee for depositary services by deductions from cash distributions or by directly

billing investors or by charging the book-entry system accounts of participants acting for them. The

depositary may generally refuse to provide fee-attracting services until its fees for those services

are paid.

Annual report and accounts 2023 Pearson plc 243Annual report and accounts 2023 Pearson plc 243

Other information (unaudited)

The following table summarises various fees currently charged by The Bank of New York Mellon:

Person depositing or withdrawing shares must pay to

the depositary: For:

$5.00 (or less) per 100 ADSs (or portion of 100

ADSs)

— Issuance of ADSs, including issuances

resulting from a distribution of shares or rights

or other property

— Cancelation of ADSs for the purpose

of withdrawal, including if the deposit

agreement terminates

$.05 (or less) per ADS — Any cash distribution to ADS

registered holders

A fee equivalent to the fee that would be

payable if securities distributed had been

shares and the shares had been deposited

for issuance of ADSs

— Distribution of securities by the

depositary to ADS registered holders

of deposited securities

$.05 (or less) per ADS per calendar year — Depositary services

Registration of transfer fees — Transfer and registration of shares on the

share register to or from the name of the

depositary or its agent when shares are

deposited or withdrawn

Expenses of the depositary — Cable, telex and facsimile transmissions (when

expressly provided in the deposit agreement)

— Converting foreign currency to US dollars

Taxes and other governmental charges the

depositary or the custodian have to pay on

any ADS or share underlying an ADS, for

example, stock transfer taxes, stamp duty

or withholding taxes

— As necessary

Any charges incurred by the depositary or its

agents for servicing the deposited securities

— As necessary

Fees incurred in past annual period and fees to be paid in the future

The Depositary reimburses the Company for certain expenses it incurs in relation to the ADS

programme. The Depositary also pays the standard out-of-pocket maintenance costs for the

registered ADSs, which consist of the expenses for the mailing and printing of proxy materials,

distributing dividend checks, electronic filing of US federal tax information, mailing required tax

forms, stationery, postage, facsimile and telephone calls. It also reimburses the Company for certain

investor relationship programs or special investor relations promotional activities. There are limits

on the amount of expenses for which the Depositary will reimburse the Company, but the amount of

reimbursement is not necessarily tied to the amount of fees the Depositary collects from investors.

The Company received $50,000 as reimbursement from the Depositary for 2023.

Controls and Procedures

Disclosure controls and procedures

An evaluation of the effectiveness of the Group’s disclosure controls and procedures as

of 31 December 2023 was carried out by management, under the supervision and with the

participation of the Chief Executive Officer and Chief Financial Officer. Based on that evaluation,

the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure

controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange

Act of 1934, as amended) were effective as at 31 December 2023 at a reasonable assurance level.

A controls system, no matter how well designed and operated, cannot provide absolute assurance

to achieve its objectives.

Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over

financial reporting for the Company. Internal control over financial reporting is a process designed

by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer, or persons

performing similar functions, and effected by the Company’s board of directors, management and

other personnel to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. Management has assessed the effectiveness of internal control

over financial reporting as of 31 December 2023 based on the framework in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission (‘COSO’). Based on this evaluation, management has concluded that the Company’s

internal control over financial reporting was effective as of 31 December 2023 based on criteria

in Internal Control — Integrated Framework (2013) issued by the COSO.

Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness

of the Company’s internal control over financial reporting as of 31 December 2023, as stated in

their report.

Change in internal control over financial reporting

During the period covered by this Annual Report on Form 20-F, there have been no significant

changes in our internal control over financial reporting during the year ended 31 December 2023

that have materially affected, or are reasonably likely to materially affect, the Company’s internal

control over financial reporting.

Audit Committee financial expert

The members of the Board of Directors of Pearson plc have determined that Graeme Pitkethly

is an Audit Committee financial expert within the meaning of the applicable rules and regulations

of the SEC.

Code of Ethics

Pearson has adopted a code of ethics (the Pearson code of conduct) which applies to all

employees including the Chief Executive Officer and Chief Financial Officer and other senior financial

management. This code of ethics is available on the Group’s website (www.pearson.com/corporate/

code-of-conduct.html). The information on this website is not incorporated by reference into

this report.

Additional information for US listing purposes continued

Annual report and accounts 2023 Pearson plc 244 Annual report and accounts 2023 Pearson plc 244

Other information (unaudited)

Principal accountant fees and services

In line with best practice, the Group’s relationship with Ernst & Young LLP (EY) is governed by its

external auditor policy, which is reviewed and approved annually by the Audit Committee. The policy

establishes procedures to ensure the auditors’ independence is not compromised as well as defining

those non-audit services that EY may or may not provide to Pearson. These allowable services are in

accordance with relevant UK and US legislation.

The Audit Committee approves all audit and non-audit services provided by EY, unless clearly trivial.

Where appropriate, services will be tendered prior to awarding this work to the auditor.

No fees were incurred in relation to taxation, including tax compliance, tax advice and tax planning.

Purchases of equity securities by the issuer and affiliated purchases

Period

Total number

of shares

purchased

Average price

paid per share

Total number

of units

purchased

as part of publicly

announced plans

or programs

Approximate

maximum value

of shares that

may yet be

purchased under

the plans or

programs

1 April 2022 – 30 April 2022 11,176,349 £ 7.77 9,885,524 £ 275m

1 May 2022 – 31 May 2022 4,518,993 £ 7.55 4,518,993 £ 241m

1 June 2022 – 30 June 2022 7,203,444 £ 7.52 5,363,132 £ 201m

1 July 2022 – 31 July 2022 2,897,074 £ 7.57 2,897,074 £ 179m

1 August 2022 – 31 August 2022 2,567,366 £ 8.75 2,567,366 £ 156m

1 September 2022 – 30 September 2022 5,496,817 £ 8.91 5,496,817 £ 107m

1 October 2022 – 31 October 2022 6,315,733 £ 9.03 6,315,733 £ 50m

1 November 2022 – 30 November 2022 3,017,726 £ 9.72 3,017,726 £ 21m

1 December 2022 – 31 December 2022 3,587,362 £ 9.46 2,205,695 n/a

1 March 2023 – 31 March 2023 1,757,098 £8.54 – £301m

1 May 2023 – 31 May 2023 1,191,462 £8.39 – £301m

1 September 2023 – 30 September 2023 2,459,066 £8.69 2,459,066 £280m

1 October 2023 – 31 October 2023 11,239,824 £9.03 11,239,824 £178m

1 November 2023 – 30 November 2023 3,108,579 £9.48 3,108,579 £149m

1 December 2023 – 31 December 2023 4,479,186 £9.44 3,436,047 £117m

On 20 September 2023, the Board approved a £300m share buyback programme in order to

return capital to shareholders. During the year, approximately 20m shares were bought back and

cancelled atacost of £185m. The nominal value of these shares, £5m, was transferred to the capital

redemption reserve, and the remainder of the purchase price is recorded within retained earnings.

A further £117m was accrued for those amounts committed but not yet repurchased.

On 24 February 2022, the Board approved a £350m share buyback programme in order to return

capital to shareholders. During the year, all of the shares were bought back and cancelled at a cost

of £353m. The nominal value of these shares, £10m, was transferred to the capital redemption

reserve, and the remainder of the cost is recorded within retained earnings. In 2021, no shares

were bought back.

All purchases were made in open-market transactions in London in accordance with applicable law.

Pearson did not structure such purchases to fall within the safe harbor provisions of the U.S. SEC’s

Rule 10b-18.

Change in registrants certifying accountant

Not applicable.

Cybersecurity

We believe cybersecurity is of critical importance to our success. We are susceptible to a number

of significant, persistent and evolving cybersecurity threats, including those common to most

industries as well as those we face as a worldwide learning company with principal operations in

the education, assessment and certifications markets. The Group holds large volumes of personal

data on individuals worldwide, including that of employees, customers, students, teachers and

learners in the workforce, as well as other highly sensitive business critical data such as financial

data, internal sensitive information, and intellectual property. Despite our implementation of security

measures, threat actors of all types, including individuals, criminal organisations and state sponsored

operatives, have from time to time gained access, and may in the future gain access to the Group’s

data through unauthorised means in order to misappropriate such information for fraudulent or

other purposes. Failure to prevent or detect a malicious attack on the Group’s systems has in the

past and could in future result in loss of system availability, breach of confidentiality, integrity and/

or availability of sensitive information, and damage to the customer experience and the Group’s

reputation and financial loss. Accordingly, we continuously evaluate the impact of cybersecurity

threats, and are committed to the highest standards of data management and these will naturally

evolve with our business as we continue our digital transformation.

Annual report and accounts 2023 Pearson plc 245Annual report and accounts 2023 Pearson plc 245

Other information (unaudited)

Pearson’s Executive team has overall responsibility for data privacy and security. Our reporting and

risk management structure feeds upwards from individual businesses to Board level. Under the

oversight of our Board of Directors, and the Audit Committee, our management has established

comprehensive processes for identifying, assessing and managing material risks from cybersecurity

threats, and these processes are integrated into our overall enterprise risk management programme.

We have established lines of accountability and reporting procedures designed to enable senior

management executives and divisional privacy owners to have greater visibility over managing

data privacy and security risks. Our approach is proactive and adaptive, featuring regular security

assessments, third-party audits and continuous improvement of our cybersecurity infrastructure.

We also provide all colleagues with training on our updated and strengthened data privacy and cyber

security principles and processes. We work to align our practices with industry best practices and

regulatory standards. Our processes include detailed response procedures to be followed in the

event of a cybersecurity incident, which outline steps to be followed from detection to assessment

and escalation to notification and recovery, including internal notifications to management, the

Audit Committee and the Board, as appropriate.

The Audit Committee of our Board is primarily responsible for oversight of risks, including those from

cybersecurity threats, and is currently chaired by a Director with functional expertise in cybersecurity

matters. Members of management, including our Chief Information Officer provide the Executive

Team and the Trust & Safety committees that have been established with updates on cybersecurity

risk matters on a quarterly basis and more frequently if circumstances dictate. In these updates,

members of the committees are apprised of cybersecurity incidents that are deemed to have had a

moderate or higher impact even if immaterial to us. In addition, the committees review and actively

discusses with management and among themselves the risks related to cybersecurity and critical

systems in order to provide input on the appropriate level of risk for our Company and reviews

management’s strategies for adequately mitigating and managing the identified risks.

The Audit Committee and management regularly update our full Board with respect to

cybersecurity matters.

Our Chief Information Officer is primarily responsible for managing material risks from cybersecurity

threats, and is supported by a dedicated team of internal cybersecurity specialists. Our current

Chief Information Officer has been in that position for eight years and has extensive information

technology experience from that role and past work experience, and many of our internal team hold

cybersecurity certifications such as Certified Information Systems Security Professional or Certified

Information Security Manager. We also engage specialised cybersecurity consultants and leverage

third-party expertise to bolster our cybersecurity defences.

Additional information for US listing purposes continued

In addition, our third-party vendors and service providers play a role in our cybersecurity. These

third parties are integral to our operations but pose cybersecurity challenges due to their access

to our data and our reliance for various aspects of our operations, including our supply chain.

We have developed a third-party vendor risk management programme to assess and manage

the risks associated with third-party partnerships, particularly in data security and cybersecurity.

We conduct due diligence before onboarding new vendors and maintain ongoing evaluations to

ensure compliance with our security standards.

As of the date of this report, no cybersecurity incidents have had, either individually or in the

aggregate, a material adverse effect on our business, financial condition or results of operations.

Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in

preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.

While we maintain cyber risk insurance, the costs relating to certain kinds of security incidents could

be substantial, and our insurance may not be sufficient to cover all losses related to any future

incidents involving our data or systems.

See ‘Risk Factors’ on pages 229-235 for a discussion of cybersecurity risks that may materially

impact us.

Annual report and accounts 2023 Pearson plc 246 Annual report and accounts 2023 Pearson plc 246

Other information (unaudited)

Shareholder information

Pearson ordinary shares are listed on the London Stock Exchange and on the New York Stock

Exchange in the form of American Depositary Receipts.

Corporate website

The investors’ section of our corporate website www.pearsonplc.com/investors provides a wealth

of information for shareholders. It is also possible to sign up to receive email alerts for reports and

press releases relating to Pearson at www.pearsonplc.com.

Shareholder information online

Shareholder information can be found on our website at www.pearsonplc.com/investors.

Our registrar, Equiniti, also provides a range of shareholder information online. You can

check your holding and find practical help on transferring shares or updating your details at

www.shareview.co.uk. For more information, please contact our registrar, Equiniti, Aspect House,

Spencer Road, Lancing, West Sussex, BN99 6DA. Telephone 0371 384 2043* or, for those

shareholders with hearing difficulties, text phone number 0371 384 2255*.

Information about the Pearson share price

The company’s share price can be found on our website at www.pearsonplc.com/investors/

performance/share-price-dividend. It also appears in the financial columns of the national press.

2023 dividends

Payment Date Amount per share

Interim 18 September 2023 7.0 pence

Final

3 May 2024 15.7 pence

1. Subject to approval by shareholders at the 2024 Annual General Meeting.

2024 financial calendar

Ex-dividend date 21 March 2024

Record date 22 March 2024

Last date for dividend reinvestment election 12 April 2024

Annual General Meeting 26 April 2024

Payment date for dividend and share purchase date for dividend reinvestment 3 May 2024

Payment of dividends to mandated accounts

Should you elect to have your dividends paid through BACS, this can be done directly into a bank or

building society account, with the dividend confirmation voucher sent to the shareholder’s registered

address. Equiniti can be contacted for information on 0371 384 2043*.

Dividend reinvestment plan (DRIP)

The DRIP gives shareholders the right to buy the company’s shares on the London stock market with

their cash dividend. For further information, please contact Equiniti on 0371 384 2268*.

Individual Savings Accounts (ISAs)

Equiniti offers a Flexible Stocks and Shares ISA. For more information,please visit www.eqi.co.uk

or call customer services on0345 070 0720*.

Share dealing facilities

Equiniti offers telephone and internet services for dealing in Pearson shares. For further information,

please contact their telephone dealing helpline on 0345 603 7037* or, for online dealing, log on

towww.shareview.co.uk/dealing. You will need your shareholder reference number as shown on

your share certificate.

A postal dealing service is also available through Equiniti. Pleasetelephone 0371 384 2248* for

details or log on to www.shareview.co.uk to download a form.

ShareGift

Shareholders with small holdings of shares, whose value makes them uneconomic to sell, may wish

to donate them to ShareGift, the share donation charity (registered charity number 1052686).

Further information about ShareGift and the charities it has supported may be obtained from their

website, www.ShareGift.org, or by contacting them at ShareGift, PO Box 72253, London, SW1P9LQ.

American Depositary Receipts (ADRs)

Pearson’s ADRs are listed on the New York Stock Exchange andtraded under the symbol PSO.

Each ADR represents one ordinary share. For enquiries regarding registered ADR holder accounts

anddividends, please contact BNY Mellon Shareowner Services, POBox 43006, Providence, RI

02940-3078, telephone 1(866)2592289 (toll free within the US) or 001 201 680 6825 (outside the

US). Alternatively, you may email shrrelations@cpushareownerservices.com.

Voting rights for registered ADR holders can be exercised through Bank of New York Mellon, and for

beneficial ADR holders (and/or nominee accounts) through your US brokerage institution. Pearson

will file with the Securities and Exchange Commission a Form 20-F.

*Lines open 8.30 am to 5.30 pm Monday to Friday (excluding UK public holidays).

Shareholder Information

Annual report and accounts 2023 Pearson plc 247

Other information (unaudited)

Shareholder Information continued

Share register fraud: protecting your investment

Pearson does not contact its shareholders directly to provide recommendations or investment

advice and neither does it appoint third parties to do so. As required by law, our shareholder

persons inspecting the register. Please treat any approaches purporting to originate from Pearson

with caution.

For more information, please log on to our website at www.pearsonplc.com/en-GB/investors/

shareholders/shares-shareholding

Tips on protecting your shares

— Keep any documentation that contains your shareholder reference number in a safe place and

shred any unwanted documentation

— Inform our registrar, Equiniti, promptly when you change address

— Be aware of dividend payment dates and contact the registrar if you do not receive your dividend

cheque or, better still, make arrangements to have the dividend paid directly into your

bank account

— Consider holding your shares electronically in a CREST account via a nominee.

Annual report and accounts 2023 Pearson plc 248

Other information (unaudited)

Reliance on this document

The intention of this document is to provide information to shareholders and is not designed to be

relied upon by any other party or for any other purpose.

Forward-looking statements

This document includes forward-looking statements concerning Pearson’s financial condition,

business and operations and its strategy, plans and objectives. Readers are cautioned not to

place undue reliance on such forward-looking statements. In some cases, you can identify

forward-looking statements by terms such as “may”, “will”, “should”, “expect”, “intend”, “plan”,

“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or

other comparable terminology.

By their nature, forward-looking statements involve known and unknown risks and uncertainties and

other factors that may cause Pearson or its industry’s actual results, levels of activity, performance

or achievements to be materially different from any future results, levels of activity, performance or

achievements expressed or implied by the forward-looking statements. This is because they relate

to events and depend on circumstances that may occur in the future. They are based on numerous

expectations, assumptions and beliefs regarding Pearson’s present and future business strategies

and the environment in which it will operate in the future. Pearson believes that the expectations

reflected in the forward-looking statements are reasonable, although it cannot guarantee future

results, levels of activity, performance or achievements.

There are various factors which could cause Pearson’s actual financial condition, results and

development to differ materially from the plans, goals, objectives and expectations expressed or

implied by these forward-looking statements, many of which are outside Pearson’s control.

These include international, national and local conditions, as well as the impact of competition.

Such risks and other risks and uncertainties are detailed from time to time in Pearson’s

publicly-filed documents and, in particular, the risk factors set out in this document, which

you are advised to read.

Any forward-looking statements speak only as of the date they are made and, except as

required by law, Pearson gives no undertaking to update any forward-looking statements in

this document whether as a result of new information, future developments, changes in its

expectations or otherwise.

Finally, as an example, all statements that express forecasts, expectations and projections, 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. The forward-looking statements,

specifically the margin target, financial expectations, 2024 outlook and 2025 ambition information,

included on page 27 of this document have been prepared by, and is the responsibility of, Pearson’s

management. Ernst & Young LLP has not audited, reviewed, examined, compiled nor applied agreed-

upon procedures with respect to these forward-looking statements and, accordingly, Ernst & Young

LLP does not express an opinion or any other form of assurance with respect thereto.

This Report is printed on Edixion Off set which has been independently

certified according to the rules of the Forest Stewardship Council

(FSC

Printed in the UK by Pureprint, a CarbonNeutral

company.

Both manufacturing paper mill and the printer are registered to the

Environmental Management System ISO 14001:2004 and are Forest

Stewardship Council

(FSC) chain-of-custody certified.

Consultancy and design by Black Sun Global.

www.blacksun-global.com

Annual report and accounts 2023 Pearson plc 249

Principal offices

80 Strand,

London WC2R 0RL, UK

T +44 (0)20 7010 2000

221 River Street,

Hoboken, NJ 07030, USA

T +1 201 236 7000

Pearson plc

Registered number 53723 (England)

Pearson plc Annual report and accounts 2023