Pearson Ar 18

Learning
for life
Pearson Annual report
and accounts 2018
Enabling employability,
connecting the education
ecosystem and supporting
lifelong learning.
In this report
Overview Our performance

STRATEGIC REPORT
01 44
02 Key performance indicators 44 Financial review
04 About Pearson 54 Operating performance
08 Chair’s introduction 60 Risk management
10 CEO’s strategic overview 62 Principal risks and uncertainties
18 Our strategy
16 Market trends
18 Our strategy
30 Efficacy
32 Sustainability
77 Governance 133 Financial statements

78 Governance overview 134 Independent auditors’ report to
80 Leadership & effectiveness the members of Pearson plc
96 Accountability 142 Consolidated financial statements
Strategy and performance reporting 106 Engagement 209 Parent company accounts
The strategic report up to and including p76 is formed 110 Remuneration 220 Five-year summary
of three sections: ‘Overview’, ‘Our strategy in action’ and 127 Additional disclosures 222 Financial key performance indicators
‘Our performance’, and was approved for issue by the 226 Glossary of major products
132 Statement of Directors’
Board on 11 March 2019 and signed on its behalf by: responsibilities and services
229 Shareholder information
BC Principal offices worldwide
Coram Williams Chief Financial Officer
Section 1 Overview 01
Education has never been more important. For every individual, at every stage of their
Overview
In an ever-changing and increasingly life, education is the path to opportunity
connected world, many people pursue an and fulfilment. We are here to help keep the
education to get a better job and to build a whole world learning – because wherever
more prosperous life for themselves and learning flourishes, so do people.
their families.
Our strategy see p18
To keep up with the pace of change, we are

all going to need to be lifelong learners,
Our strategy in action

continuously acquiring new knowledge
and skills to stay on top of new technologies
and a rapidly changing world of work.
Our performance
Connections Academy offers Studying an online degree
flexible education for its students powered by Pearson, at Maryville
see p15 University see p6
BTECs provide students

with real-world experience
Governance
see p52
Financial statements
Glossary of major products and services see p226

02 Pearson plc Annual report and accounts 2018
Key performance indicators
Financial measures
Sales £million, underlying change R Adjusted operating profit1 Adjusted earnings per share1
£million, underlying change R pence, headline change R
£4,129m -1% £546m +8% 70.3p +30%

18 4,129 18 546 18 70.3
17 4,513 17 576 17 54.1
16 4,552 16 635 16 58.8
15 4,468 15 723 15 70.3
14 4,540 14 722 14 66.7
Net debt £million, headline change Operating profit/loss2 Basic earnings per share2
£million, headline change pence, headline change
£143m -67% £553m +23% 75.6p +52%

18 143 18 553 18 75.6
17 432 17 451 17 49.9
16 1,092 16 -2,497 16 -286.8
15 654 15 -404 15 101.2
14 1,639 14 348 14 58.1
Operating cash flow and cash Net cash generated from operations2 Dividend per share
conversion1 £million, headline change R £million, headline change pence, headline change
£513m -23% £547m +18% 18.5p +9%

18 513 (94%) 18 547 18 18.5
17 669 (116%) 17 462 17 17
16 663 (104%) 16 522 16 52
15 435 (60%) 15 518 15 52
14 649 (90%) 14 704 14 51
Return on invested capital Return on invested capital Total shareholder returns3 R
(gross basis) %, headline change R (net basis) %, headline change
4.7% +9% 6.7% +8% +30.4% 1 year TSR
18 4.7 18 6.7 +47.1% 3 year TSR

17 4.3 17 6.2
-12.1% 5 year TSR
16 5.0 16 7.2
15 5.8 15 6.3
14 5.6 14 5.7
1 See p46–47 for an explanation of these alternative performance measures.

2 Equivalent statutory measure.
3 Source: Datastream.
Note: Underlying growth rates exclude currency movements, portfolio changes and accounting changes. See p222–225 for full reconciliation of the
alternative performance measures to the equivalent statutory measure and definitions of headline and underlying variances.
R See how we link strategy to management reward on p110.

Overview
Business measures
1 row market share through digital transformation of our

G p20
courseware and assessment businesses R
Digital revenue4 % US Higher Education Courseware Shift from physical to digital test papers
marked for US Assessment %
62%
18 34% 28% 38% 18 55% 45% 18 56% 44%
59% 17 50% 50% 17 55% 45%

17 32% 27% 41%
16 52% 48%
15 45% 55%
Digital Digitally-enabled Non-digital Digital Non-digital Digital Non-digital
4 Excludes WSE, US K12 Courseware and GEDU. WSE was sold in 2018; US K12 Courseware was held for sale in 2018 and we announced the agreement to
sell this business in 2019; and GEDU was sold in 2017
2 Invest in structural growth markets p22
Our performance
Virtual Schools (Connections Academy) Growth Professional Certification (Pearson VUE) Growth
Underlying revenue +8% Underlying revenue +4%

FTE students in continuing partner schools +11% Test volume +4%
Global Online Program Management Growth English Growth
Underlying revenue +10% English Courseware underlying revenue +3%

Enrolments +14% PTE Academic test volume +30%
Governance
3 ecome a simpler, more efficient and
B This strategic priority is captured in more detail p24
in the strategy section on p24.
more sustainable business R
Non-financial measures
Talent and employee engagement p37 Deliver gender diversity 2018 2017
Employees who took part in our 2018 Female Board members 30% 30%
organisational health survey 57%
Female senior managers5 31% 30%

Participating employees who agreed with
our organisational health approach 59% Female employees 62% 61%
UK median gender pay gap 14% 15%
Reduce our carbon footprint p39
5 Two reporting lines from the Chief Executive. p38
Global greenhouse gas emissions
(Metric Tonnes of CO2e) 84,649 -19%
Note: Underlying growth rates exclude currency movements, portfolio changes and accounting changes.
About Pearson
We are the world’s learning company operating

in 70 countries around the world with more
than 24,000 employees, providing a range of
products and services that help people make
progress in their lives through learning.
Where we operate Sales by geography
We operate in 70 markets worldwide, with a focus on those North America £2,784m

below. We report by geography because this is how we deliver Core markets £806m
learning: providing a range of educational products and services
to institutions, governments, professional bodies and individual Growth markets £539m
learners in our key markets around the world to help people
everywhere aim higher and fulfil their true potential.
North America Growth markets

Our largest market including Our growth markets are emerging
all 50 US states and Canada. and developing economies with
investment priorities in Brazil,
Core markets India, South Africa, Hispano-
America, Hong Kong & China
Our international business in and the Middle East.
established and mature education
markets including the UK, Europe,
APAC and North Africa.
What we offer Sales by products and services
We provide content, assessment and digital services to schools, Courseware 49%

colleges and universities, as well as professional and vocational Assessment 33%
education to learners to help increase their skills and
employability prospects. Increasingly, we do this through Services 18%
partnership models where we bring investment, expertise
and scale to help deliver better learning outcomes.
Overview
Our major businesses are focused on two key strategic priorities: See our strategic priorities, p20
Grow market share through digital

1 transformation 2 Invest in structural growth markets
Digitisation enables us to drive improvements in learning Fast growing areas that will be the long-term growth drivers
outcomes. It allows us to build a more sustainable and profitable of Pearson – such as Online Program Management (OPM),
business with a more visible and predictable revenue Virtual Schools, Professional Certification and English
profile, based around access not ownership models. Language Learning.

Higher Education Courseware Online Program Management
Our course content and digital resources help Pearson helps higher education institutions
educators gain better insights on their students launch or expand online degrees, enabling
and unlock learners’ potential. We increasingly them to increase enrolments, support online
sell directly to consumers and to educational learning, boost graduation rates and deliver
institutions enabling our business to become on employability.
more predictable. The shift to digital means See case study, p6
students can come to class better prepared
from day one. This helps drive better learning
experiences and outcomes.
See case study, p55
Our performance
Virtual Schools
Pearson delivers K12 online education to
schools and students across the US and world.
Solutions include the accredited Connections
US Assessment Academy, an online school programme which
is delivered via full time, online public schools.
We partner with US educators and states to
This is an option for families seeking
develop new, personalised ways of learning
personalised learning and a high-quality
through effective, scalable assessments that
alternative to the traditional classroom.
measure 21st century skills and inform
A global online private school, International
instruction for all learners.
Connections Academy, is also available.
See case study, p15
Governance
Professional Certification
We help organisations measure and make
improvements to ensure the success of
employees and learners, helping support
UK Assessment & Qualifications lifelong learning. Test owners and test takers
across the world choose us to help develop,
In the UK, Pearson is a market leading
manage, deliver and grow their computer-
organisation offering academic and vocational
based testing programmes. With some of the
qualifications including GCSEs, A Levels and
industry’s most secure testing environments,
BTECs. We are driving the adoption of AI in
we are a leader in computer-based testing.
assessment to support better learning.

See case study, p52
English
Pearson English language teaching develops
courses, qualifications and learning tools to
make teaching English easier. Our fast-growing
test, Pearson Test of English Academic, is a
leading computer-based test of English for
study abroad and immigration.
See case study, p42
I can work full time as a 19 year old.

I can get my experience way before a lot
of my generation so that’s been a great
opportunity for me.
JORDAN DAVIS Pearson helps institutions expand Global Online Program Management
MARYVILLE UNIVERSITY their educational reach through
Jordan Davis is a sophomore at

effective online program
management solutions. By delivering
£234m
Revenue
Maryville University studying online degree programs or extending
cybersecurity. Like most of his
college-age peers, he also has a job.
the reach of existing online programs,
students like Jordan have the +10%
It can be hard to balance schoolwork opportunity to excel at school Underlying revenue growth
with the demands of a job. and at work. 2 Aligned to strategic priority, p22
Since OPM courses are delivered Pearson currently supports more

online, learners have the freedom and than 40 academic partners and runs
flexibility to learn when and where nearly 350 global programs with
they need to, and faculty members 400,000+ course registrations in 2018,
are able to engage students in courses to give learners more control over
designed with rich content and robust their education and help them get a
learning activities. better job and a better life.
Overview Our strategy in action Our performance Governance Financial statements
07
Section 1 Overview
Chair’s introduction
2018 has been a pivotal year for Pearson

as we returned to underlying profit
growth and laid a firm foundation for
further progress in 2019. Sidney Taurel
Chair
Dear Shareholders, A key tenet of our strategy has been the Focusing on Pearson’s
steady investment in the business to
2018 has been a pivotal year for Pearson. longer-term future
support our digital transformation. This is
The pace of our strategic delivery over the an area the Board has fully supported and, As the Board has become more confident
past year has been strong, improving both in 2018, the business made good progress in progress on implementation against
our operational and financial performance as it lays plans to develop a digital first Pearson’s three immediate strategic
as we returned to underlying adjusted approach built around artificial intelligence goals, it has focused even more on the
operating profit growth for the first time and data analytics – a digitally-enabled company’s longer-term future, evaluating
since 2014. This marks an important offering that will deliver value to customers and planning our long-term strategy, to ensure
milestone for us, with the business meeting faster, while at the same time ensuring we continue to evolve and meet our
strategic expectations and hitting its better outcomes. This will be crucial to strategic vision of delivering lifelong
financial targets. our future competitiveness as well as our learning to customers, leading to increased
While we are still in the midst of a ability to retain and attract the best and employability and work-related skills,
transformation and the environment brightest talent to support our transition as part of a wider ecosystem of delivery
in a key business, US Higher Education to a digital led model. partners and stakeholders.
Courseware, remains challenging, We are continuing to invest in structural As we now look ahead, we expect to build on
a strong performance in our structural growth markets that promote lifelong our performance in 2018 and deliver further
growth opportunities in 2018 largely learning, delivering good growth across profit growth in 2019 and for revenue to
offset the declines we saw in this market. each of these four businesses – Professional stabilise. We remain confident about Pearson’s
Furthermore, we continued to make good Certification, Virtual Schools, Online longer-term prospects and on building
progress with our digital transformation Program Management (OPM) and English shareholder value through the delivery of
increasing digital and digitally-enabled language learning and assessment. profitable growth and strong cash generation,
sales to 62%1. while continuing to invest for the future.
Our simplification programme, which we
I do not underestimate the scale of the embarked upon in 2017, is performing
transformation we are undertaking but ahead of plan as we strive to make Pearson Focused on shareholder returns
believe we delivered real and sustainable an efficient and more focused business. As Chair it is my job to protect and grow
momentum in 2018. Management continues During 2018, we increased and accelerated shareholder value through the prudent
to faithfully execute on our strategy, further our cost savings and now expect to deliver allocation of capital.
simplifying the company, growing our digital total annualised cost savings in excess of
capabilities and investing in structurally £330m by the end of 2019. This is ahead of Pearson’s capital allocation policy remains
growing businesses. Our near-term our original plan of £300m of savings. unchanged: to maintain a strong balance
prospects look increasingly bright and the sheet and a solid investment grade rating,
long-term opportunities remain significant. We also continued the process of simplifying to continue to invest in the business,
the portfolio in 2018, to enable us to focus to have a sustainable and progressive
on the biggest opportunities in education. dividend policy, and to return surplus
Making progress implementing our
We completed the disposal of Wall Street cash to our shareholders where appropriate.
short-to-medium-term strategy English and our stake in Mexican joint
venture, UTEL, in the first half of the year. In recent years, we have navigated through
As a Board, in 2018 we spent considerable
The proceeds of these sales helped a period of significant change – both within
time monitoring our progress on
strengthen our balance sheet further and Pearson and across the industry as a whole.
implementation against Pearson’s three
improve our cash position. We have recently Tight financial and cash management and
immediate strategic goals – growing market
announced the disposal of our US K12 oversight of the business means that, while
share through our digital transformation,
Courseware business, which is a further there is still much to be done, we are now in
investing in structural growth markets,
milestone in our simplification journey. a significantly stronger financial position
and becoming a simpler, more efficient
than we have been for several years. This
and more sustainable business.
You can read more about these financial strength underpins our business
accomplishments in the Chief Executive’s transformation and continuing investment
overview that follows. in the company.
1 Excluding WSE and US K12 Courseware.

Underlying growth rates exclude currency movement portfolio changes and accounting changes.
One year and three year TSR % change Progress over the last three years
Overview
One year Three year
2016 2017 2018
Pearson 30.37
47.15
Adjusted earnings per share1 58.8p 54.1p 70.3p
FTSE 100 -8.73
21.66
-9.47
Dividend per share 52p 17p 18.5p
FTSE All-Share 19.54
FTSE All-Share Media 3.39
11.78
Net debt £1,092m £432m £143m
STOXX 600 Media -1.29
-5.38
In terms of the dividend, when we made learners, community and thought leaders, We saw two changes to the Board over
the hard decision to cut the dividend in and other stakeholders in a variety of ways the course of 2018. In February 2018

2017, we said that we would reset it to be throughout the year. Michael Lynton joined us as a Non-Executive
sustainable and progressive going forward. Director. Meanwhile we said goodbye
During the year my fellow Board members
We have proposed a final 2018 dividend of to Harish Manwani, a Non-Executive
and I visited some of our offices across the
13p, an increase of 8%, equating to a full Director of Pearson since 2013, who retired
Pearson network including in Milan, Italy
year dividend of 18.5p per share. This from the Board at the AGM in May. I thank
and Cape Town, South Africa, to meet and
reflects the Board’s continued confidence Harish for his commitment and contribution
engage with employees and other
in the future growth of the business. to Pearson.
stakeholders, and hold meetings to share
We also completed a £300m share buyback learnings around some of the exciting
in February 2018, following our disposal opportunities coming out of our Core Looking ahead
of a 22% stake in Penguin Random House and Growth markets – for example fast We will continue to transform the business
in October 2017. growing products such as the Pearson through moving our US Higher Education
Test of English Academic.
Our performance
I am pleased to report that our UK pension Courseware business into a more digital and
Plan is in surplus, with a well-run Plan for This continues to be a focus for us in the direct to consumer business, and continue
the benefit of all its members. In early 2019, year ahead. to invest in and develop our long-term
the Plan purchased a further insurance structural growth opportunities. Through
buy-in policy with Legal & General, our simplification programme we will
Talent emerge a simpler, more efficient and
amounting to c.£500m, putting the Plan
in an even stronger position and further I would like to thank all colleagues in the agile company with a cost base that is
reducing our future pension funding risk, business for their efforts in achieving a considered optimal for the size and scale
at no additional cost to Pearson. successful 2018. Our people are key to the of the business.
future of Pearson and as a Board we are
The continued stabilisation of the business, Pearson has proved resilient, we have laid
increasingly focused on ensuring we have
combined with disciplined capital solid foundations for growth and the Board
a corporate culture that is inclusive,
is confident that the management team
Governance
management, helped Pearson to become innovative and meritocratic.
one of the top five FTSE 100 companies in continues to execute faithfully on the
2018 for shareholder returns. My fellow Board members and I are strategy as we look to deliver another
delighted to be able to help support our good performance in the year ahead.
talent pipeline through the introduction
Ongoing focus on We remain confident about Pearson’s
of a new mentoring programme. You can
corporate governance longer-term prospects and on building
read more about our employee engagement
shareholder value through the delivery
Corporate governance remains an and talent initiatives in the Governance
of profitable growth and strong cash
important area of focus for the Board and section which begins on p77.
generation, while continuing to invest for
I enjoyed spending time throughout the year the future.
with many of our shareholders to ensure Board composition
we maintained an open, transparent I look forward to seeing you in the
Our Board benefits from having a wide coming year and thank you for your
dialogue on our strategy and progress.
range of experience, skills and backgrounds ongoing support.
More broadly, our Board members have
spanning business strategy, innovation,
been engaging with employees, educators,
education, digital & technology,
sustainability, international, regulatory
affairs and more.
Governance at Pearson
Sidney Taurel
For more information on corporate Chair
governance visit www.pearson.com/
governance see p77
CEO’s strategic overview
Technology is radically changing the way

we live, work, and learn, and we are only
in the early stages of what is possible.
John Fallon
Chief Executive
Dear Shareholders, Pearson is the world’s learning company. A

nd three, making Pearson simpler and
Our purpose is to empower people to more efficient. This does not just cut costs.
A year of progress progress in their lives through learning, It also provides an important platform for
enabling them to acquire the knowledge future growth because it enables us to
We are making good progress, financially,
and skills to thrive in an ever-changing and reallocate investment to our growth areas
operationally and strategically. Underlying
increasingly connected world. As the link more quickly, innovate at scale, and build a
adjusted operating profit increased by 8%
between education and employment more direct, longer-term relationship with
last year, with a healthy 94% of that profit
becomes both more important and the tens of millions of learners who use
converted into cash. We outperformed on
explicit, we aim to be at the heart of a Pearson products each year.
our cost savings plan and are now on track
wider ecosystem of partners, shaping
to achieve more than £330m in annualised
the future of learning. A digital first approach
cost savings by the end of this year. We
strengthened our balance sheet even We will be able to play that role because of The increasingly digital nature of our
further, allowing us to invest more than the world-class capabilities we bring to bear, courseware and assessment businesses
ever in the digital transformation of our and the ways in which we combine them to can be seen in the work we do with
company. The demand for dynamic, achieve better learning outcomes. We will American schools and universities.
evidence-based, outcome led, digital first get there by focusing on the three things Digital now accounts for 56% of all tests
education products and services is growing that are starting to change the growth we administer in US schools and 55% of our
all the time. So we are investing in the digital dynamic of Pearson: US Higher Education Courseware revenue.
platforms, products and services that help
people make progress in their lives through O
ne, we are leading the digital This digital first approach is driving our
learning – and it is starting to pay off. transformation of our courseware and product innovation and investment.
Our digital and digitally-enabled revenues assessment businesses. These businesses Our Global Learning Platform (GLP) will
now account for 62%1 of our sales and we make up 65% of our sales today. Their accelerate our ability to develop, test, and
expect them to grow steadily over time. collective sales fell by 4% underlying last deliver highly personalised experiences
year as we are at a point in the across all of our products and services,
technological disruption of these eventually becoming a platform for
A strategy for future, businesses where the impact of the decline growth for the whole company.
sustainable growth in analogue sales (from textbooks and
paper and pen testing) is still greater than Revel, our first fully integrated digital
There is, however, a lot still to do. On the
the benefit of growing digital uptake. courseware product, increased subscribers
measure that is the best indicator
We are now close to a tipping point in by over 40% last year. New Revel titles,
of our company’s long-term success –
these businesses, however, where the with enhanced assignment options and
sustainable and profitable growth in like for
momentum shifts. As these businesses sophisticated data analytics, will be the first
like sales – we are not yet where we need to
become increasingly digital first, the rate products to launch commercially later this
be. Underlying sales were down by a further
of decline will gradually lessen before year on the GLP.
one percent last year. What is encouraging,
though, is that we expect revenues to revenues stabilise and, in time, grow again. We will also launch our first Artificial
stabilise this year – an important step in the T
wo, we are investing more in our Intelligence (AI) powered maths tutor, as a
Pearson recovery – before starting to grow businesses in structurally growing markets. mobile app marketed directly to Calculus
again in 2020 and future years. These businesses, all fully digital or students around the world, providing step
digitally-enabled, make up 35% of our sales by step feedback instantaneously on hand
That growth will be driven by our compelling
today and grew 7% underlying last year. written attempts to solve a problem.
vision of Pearson’s future, a clear
understanding of the capabilities – As we invest more, these businesses will
the competitive edge – that will get us grow more quickly and, as they become a
there, and what we need to be focusing bigger part of Pearson, they help the
on today to secure that future. company as a whole to start to grow again.
1 Excluding WSE and US K12 Courseware.

Underlying growth rates exclude currency movement portfolio changes and accounting changes.
We will partner with universities on our first
Overview
AI powered essay marker, that will adapt to Key achievements in 2018
the personal style of any professor. And we
expect to bring a new adaptive maths
product, which we are currently piloting, Adjusted operating profit1 Strong balance sheet, low net debt
to commercial launch early next year.
This growing, innovative product pipeline £546m £143m

signals we are now ready to shift our higher Achieved 2018 adjusted operating profit Net debt down from £432m in 2017
education product portfolio to a digital first in the upper half of our guidance range. as we continue to strengthen our
model, with frequent releases of content, balance sheet, enabling us to navigate
features and updates no longer tied to an 1 See p46–47 for an explanation of a large transformation.
this alternative performance measure
edition cycle.
and p222–225 for full reconciliation

of the numbers to the equivalent
Print resources will be available, but as
statutory measure.
rental or an “add on” service. This means
better customer choice with simple,
affordable and convenient access to the Continuing organic investment Simplification programme ahead
courseware that enables students to be of plan
successful – and all giving better insights
£700m+
for instructors to enable better outcomes.
A digital first, subscription-based business is Continued investment in fastest £130m
also, of course, a much more stable one. growing businesses in order to In year cost savings for 2018 running
build a pipeline to grow revenue ahead of our plan enabling further
Increased investment in our structural over the next few years. investment back into the business.
growth opportunities is also paying off. Total annualised cost savings now
Our performance
Online Program Management, (OPM) our expected to be £330m+.
business helping universities scale online,
increased underlying sales 10% last year,
with global course registrations growing
Pearson’s digital revenue 2018 Percent of sales2
14%. We signed a new OPM contract with
leading European business school ESSEC in
France – the fourth global market we have
Digital 34%
entered in OPM – allowing students to study
AI and big data in an online masters format. Digitally-enabled 28%
Our virtual schools business, Connections Non digital 38%
Academy, grew underlying revenue by 8%.
Governance
Professional Certification grew underlying
revenue by 4% with over 70 new contracts 2 Excludes WSE and US K12 Courseware.
signed during the year.
The Pearson Test of English Academic,

our homegrown test of English aptitude,
increased test volumes by 30% in part
driven by the extension of the Australian
immigration office contract for a further
two years. This has opened up additional
opportunities with governments and
educational institutions that we are
currently exploring. The Pearson Test of

English is also a good example of how,
as we become a simpler and more efficient
company, we are also able to operate much
more globally, sharing innovation more
quickly with customers all over the world.
CEO’s strategic overview
A wider trend in lifelong learning is the Promoting talent and diversity A simpler portfolio
growing demand for employer certified
through a time of great change We have now reached an agreement to sell
and applied, career relevant education.
Our leadership in BTEC and apprenticeship Making an impact matters to the highly our US K12 Courseware business to Nexus
programmes is an interesting opportunity motivated and talented colleagues who, Capital Management. School publishing in
to grow internationally – and we are working inspired by our mission and purpose, America has been an important part of
on some promising initiatives in Thailand, are committed to driving the company Pearson for many years, and what it does
Vietnam and China. through what is, by any definition, a major matters to teachers and students across the
transformation. Many new and talented country. We are pleased to have found new
It is by focusing on these three priorities – employees are joining Pearson, but we owners who are committed to its future,
leading the digital transformation of our also continue to say goodbye to some and we wish it every success. The sale frees
courseware and assessment businesses; long-standing friends and colleagues. us up to focus on the digital first strategy
investing more in our structurally growing As we align our cost base, and bring that will drive our future growth. Through
businesses; and making Pearson simpler everything we do in line with the future our assessment, virtual schools, advanced
and more efficient – that we will set Pearson direction of the company, the scale and pace placement and career education
growing again. As we accelerate our move of change can be disruptive and difficult for businesses, we will still serve schools across
to digital, Pearson also becomes more many colleagues. This makes it all the more America and we will now be better placed
sustainably profitable and scalable, with a important that we are very focused on the to focus on the areas in which we can help
more reliable and predictable revenue and overall health of the organisation, and in students to be successful in their studies
cash profile. fostering a culture that enables people to and future careers.
learn, to grow, and to be able to innovate,
Our commitment through these times of change. Looking ahead
to efficacy and impact To do that, we are focusing on developing Last year, Viscount Blakenham, Pearson’s
Underpinning all of this work is our talent at all levels, and we remain firmly former Chairman and CEO, and the last
commitment to efficacy, to achieving the committed to improving diversity and member of the Pearson family to lead the
very best learning outcomes. Last year, inclusion across the company. For example, company, sadly passed away. Michael was
we became the first education company in as required by UK legislation, we now widely regarded for his staunch defence of
the world to publish externally audited and publish an annual gender pay report editorial independence and freedom of
independently reviewed reports about the covering our UK employees, which reveals a speech, his commitment to international
efficacy of our products. This year, we are median pay gap, in favour of men, of 14%. growth and expansion, and his personal
releasing our second series of reports. The only way to close this gap is to have embodiment of Pearson’s values.
These reports give us confidence that our more women in more senior positions in
In terms of its focus and operations, Pearson
existing products can be used to impact on the company, and we are taking concerted
is now quite different from the company he
outcomes that matter to our customers and actions that we believe will help us to
stepped down from 23 years ago. What has
learners. Our public commitment to efficacy achieve this over time. As a global company,
not changed is our commitment to taking a
is also influencing others in the sector to we think it is important to hold ourselves
long-term view, and creating sustainable
now take up similar work. What is most to account on that basis, so we are planning
value for our shareholders by providing
exciting, though, is how we are applying to publish a company-wide gender pay
important services to our customers in
what we are learning to the next generation report next year.
entrepreneurial and innovative ways.
of digital first products and services that
We continue to make progress. We are
we are launching this year. We are able to Accelerating the move to more accessible,
proud to be recognised on Forbes Best
explicitly connect the outcomes that matter more affordable and better learning is as
Employers for Diversity in 2019 and
most to our customers: evidence-based important as anything that this company
Bloomberg’s Gender Equality Index. We are
content, assessment, and technology, all has taken on in its 175 year history. We are
also proud of the progress and the external
designed to be implemented in ways that confident that our strategy will deliver
recognition of our sustainability work. In
maximise the impact on learning. This long-term sustainable growth, and we
January 2019, we were named as one of the
enables us to shape the future of learning expect to make further progress in 2019.
Global 100 Most Sustainable Corporations
so educators, learners, employers – and
in the World, which ranks large companies Thank you for your ongoing support.
shareholders – all get the best possible
on their performance of reducing carbon
return for the investments we make.
and waste, their gender diversity among
leadership, revenues derived from clean
products and overall sustainability.
John Fallon
Chief Executive
Overview
Executive team

John Fallon Chief Executive Coram Williams Chief Financial Officer Albert Hitchcock Chief Technology
& Operations Officer
Our performance
Anna Vikström Persson Bob Whelan President Pearson Assessments Bjarne Tellmann General Counsel
Chief Human Resources Officer & Chief Legal Officer
Governance
Deirdre Latour Chief Corporate Affairs Officer Giovanni Giovannelli Jonathan Chocqueel-Mangan
President Growth Markets Chief Strategy Officer
Kevin Capitani President North America Rod Bristow President UK & Core Markets Tim Bozik President Global Product
Section 2 Our strategy in action 15
Overview
Online learning is the only way for
me to keep up with school because
I can set the pace for my coursework.
ARUWIN SALEHHUDDIN Connections Academy allows Virtual schools

STUDENT ATHLETE students like Aruwin to pursue their
Aruwin chose Colorado Connections

dreams today, while also preparing
them for the careers they want later.
£288m
Revenue
Academy, a virtual school, because it Connections Academy schools are
offered her the flexibility to pursue
her dream of becoming a professional
tuition-free, online public schools
for students in grades K through 12. +8%
alpine skier. Underlying revenue growth
At Connections, students can work
at their own pace and are supported 2 Aligned to strategic priority, p22
In between practice sessions and
competitions, Aruwin spends time by certified teachers who create
planning for her future. After high personalised learning plans.
school, she hopes to attend Cornell Over 70,000 students in the US take
Our performance
University, with the goal of becoming advantage of this virtual option,
an architect or industrial designer while international students can enroll
after her skiing career. in our online private school. This way
of providing education to even more
learners has been hugely successful
– 93% of parents with enrolled
students say they would recommend
the programme to others.
Governance
Market trends
Technology is changing expectations

and increasing possibilities in education.
The rise of choice Gen-Z needs

tech + teachers
Technology and access means playing a bigger role in their Young people believe in the everything more seamless,
young people today have more own learning, whether it is value of education and efficient, accessible and
choices than ever – and expect choosing what they need to expect their learning intuitive. Teachers have a
it everywhere, even in how pass a course or where they experiences to mimic other vital role to play and now
they learn. While institutions obtain their learning or experiences in their lives that technology is enabling
continue to influence and credentials from. have been enabled by teachers to teach and reach
drive learning, students are technology – making students more effectively.
The Non-traditional
career-driven paths to success
learner
Everything will be affected While traditional learners may A traditional education is not As the future of learning
by the changing nature of continue to gravitate towards always in reach for an evolves, educators are
work in the decades to come. formal educational settings, increasingly diverse student preparing students for a
How learners react to that, there will be a new crop of population, despite the world of work whether or
however, is going to vary multi-generational, driven, inherent belief that one needs not they go to university.
based on context, personality, “Career-Learners” who will an education to be successful.
and background. seek out flexible learning for Many young students struggle
continued success in life. in school or have other barriers
to attending higher education,
and believe that traditional
university is not for them.
Overview
We can take advantage AI and education AI as the solution
I joined Pearson in 2018 as the SVP of Currently, I am working on developing
of AI techniques to Artificial Intelligence (AI) Products and human-centric solutions – this means
create more engaging Solutions. In this role, I make sure we are
taking advantage of advancements in
making learning experiences better
for students and teachers; enabling
teaching and learning

Machine Learning – or AI broadly – lifelong learning through more accessible
to create more engaging teaching and affordable products; and, building
experiences. and learning experiences. better products and solutions using
Pearson’s digital transformation is helping new technologies.
MILENA MARINOVA more people develop the skills they need Many companies don’t have a deep
SVP, ARTIFICIAL INTELLIGENCE (AI) PRODUCT to prosper, and we are well positioned enough understanding of how to use
& SOLUTIONS, SAN FRANCISCO, CA to engage with millions of learners AI to solve the biggest problems they
across the world because of our reach have. It is important to be really clear
and expertise. on the problem in order to identify the
Education has the potential to benefit right approach. In addition, the problem
hugely from digital disruption and must determine which AI algorithms are
advancements in AI. The opportunity used, not the other way around.
Our performance
to utilise AI to improve the learning At Pearson the problem we are trying
experience, and ultimately to better to solve is clear: how to make learning
prepare people for their career in the experiences better through products
future, is an incredibly exciting prospect. and services that deliver increased
engagement and improved outcomes
for more learners around the globe.
Governance
Our strategy
Our mission is to help people make progress in their lives through learning.
Our Vision
is to have a direct relationship with millions of lifelong learners and to link
education to the way people aspire to live and work every day. To do that, we will collaborate
with a wide group of partners to help shape the future of learning.
Our Capabilities
include combining world-class educational content and assessment, powered by services and technology,
to enable more effective teaching and personalised learning at scale. Our capabilities are based on
our deep expertise in how people learn, and we apply them to our three strategic priorities:
Our strategic priorities

1 Grow market share through 2 Invest in structural 3 Become a simpler,
the digital transformation growth opportunities more efficient and more
of our courseware and sustainable business
assessment businesses
Shift from selling Global Learning Online Virtual Eliminate Increase

ownership of our Platform: A cloud- Program Schools duplication standardisation to
content to selling based, scalable Management and speed up reduce costs and
print or digital product platform innovation improve scalability
services
English Language Professional Provide world- Ensure access

Learning & Certifications class customer to quality
Assessment & Licensure experiences that education
improve efficacy for all
and outcomes
Our values are brave, imaginative, decent and accountable
We are the world’s learning company

Overview
Delivering
long-term value
Strategic advantages for all stakeholders
Insights and capabilities Customer experience

Our customers, including learners,
We partner with world-class authors educators, employers, governments
to develop our content and we and more, benefit from a great
take a data-driven approach to consumer experience with consistent
product design, based on proven focus on learning outcomes.
learning science and pedagogy.
Supporting sustainable growth
This enables huge advancements
in rich content, personalised Delivering returns for our
learning and effective analytics. shareholders through a long-term
improvement in top line and bottom
line growth. Over time this helps
increase the share price and maintain
Investing back into our business a progressive, sustainable dividend.
Our performance
Employee engagement
Pearson’s strong balance sheet
Through our transformation we are
underpins the continuing investment
focused on supporting our people,
in our digital transformation and
driving equality and diversity, and
structural growth markets. We are
helping them make progress at
investing record levels to become
Pearson and in their lives.
the winners in digital education.
Strengthen sustainability
Through our sustainability and social
innovation work we are helping
increase access to quality education
for more people around the world and
Global reach and scale
Governance
reducing our environmental footprint.
We have a truly global scale and

focus. We operate in 70 markets
worldwide. Our products and services
benefit from being centrally
developed, globally deployed with
local expertise and capabilities
ensuring success.
Capital allocation To read more about the value

we create for our stakeholders
Maintain a strong balance sheet eturn capital via a sustainable and
R
see p26
Maintain an investment grade credit rating progressive dividend
Invest in our business – we are investing eturn any excess capital via
R
over £700m in our digital future special returns where appropriate
Our business model and strategic priorities
Read more about our

three strategic priorities: 1 Grow market share through
digital transformation
1 Grow market share through

digital transformation US Higher Education Courseware
2 Invest in structural
PERFORMANCE
2018 revenue Percentage of total revenue
growth markets £976m
-5% 1
24%
3 Become a simpler, Digital revenue
more efficient and more
sustainable business. Digital revenue
Digital
2018 55% 45%
Non-digital
2017 50% 50%
40%+
MARKET
Market share
PROGRESS AND PRIORITIES
otal revenue in this segment

T profit and public institutions
declined by 5%1 in 2018 due to served to 617.
a continuation of underlying See p227 for more on IA
market pressures on print % of 2018 revenue in this
8
courseware revenue segment derives from IA,
Digital revenue grew 2% in 2018 equating to roughly 1.4m
ccelerated shift to affordable
A course enrolments
and access initiatives, ransitioning our product
T
including our partner print portfolio from primarily
rental programme, eBooks print-led product experiences
and Inclusive Access to digital first products
In Inclusive Access we signed aunch of Global Learning
L
192 new institutions in 2018, Platform with Revel in 2019
taking the total of not-for
Mastering makes learning personal see p55

BUSINESS MODEL
ontinuing to lead and shape

C reater customer choice
G
the market by moving to with simple, affordable,
digital first model convenient access
bility to deliver a portfolio
A etter data and insights
B
of dynamic evidence-based, for instructors to enable
outcome-led, product better outcomes
experiences
I nvesting heavily in IP
and systems enabling
us to draw on the latest
technology, including AI
and machine learning
1 Underlying revenue growth.

2 Source: MPI.
Overview
US Student Assessment Core Student Assessment
and Qualifications
PERFORMANCE
2018 revenue Percentage of total revenue 2018 revenue Percentage of total revenue
£332m £292m

-4% 1
8% -3% 1
7%
Digital tests v paper tests – 2018 v prior year %
Digital tests v paper tests – 2018 v prior year % BTEC registrations
2018 56 2018 2017
2017 55 922,000 1,009,000

SD
c.$1.2bn c.£0.7bn #1 #2 #1
MARKET
Size of market Size of market Market GCSE and A Vocational

position level market qualifications
Our performance
position market
position
evenue declined moderately

R eyond 2019, we expect the
B Total revenue fell 3%1 in this fter disruption in 2018, 2019
A
in 2018 due to the faster than business to benefit from segment in 2018 will benefit from new product
expected contraction in continued good momentum In UK Assessment revenue fell investment coming through
revenue associated with in subcontractor contract as modest growth in BTEC I dentifying new opportunities
our PARCC and ACT-Aspire wins leveraging our digital Firsts and GCE A-Level was in our Growth markets,
multi-state volume-based leadership and a strong more than offset by declines working on promising
contracts and our disciplined pipeline of opportunities in AS levels, international initiatives in Thailand,
competitive approach in key states GCSEs in the UK and UK Vietnam and China
hese factors will extend
T igital tests now account for
D apprenticeships due to policy
into 2019, where we expect a 56% of all tests administered changes in the schools
Governance
modest decline in revenue igital tests enable a future
D qualifications and the
in this segment of fewer, better tests more apprenticeships market
embedded in the workflow
of teaching
3% of open questions
3
marked by AI
BTECs provide students with real-world experience
see p52
BUSINESS MODEL
e are the largest vendor

W Our strengths include: e serve students,
W Our strengths include:
in the market and we have Investment in innovation teachers, schools and bility to leverage strong
A
led the shift towards digital government through our Intellectual Property
ioneer of digital assessment
P
testing with our best-in-class qualifications business
platform to encourage fewer, rack record of delivery
T
platform TestNav where we are the awarding
better tests at scale
body and own the IP.
rack record of delivery
T ioneering digital assessment
P
at scale platforms
I nvestment in innovation
and new products

2 Source: Pearson estimate.
2 Invest in structural growth markets
Virtual Schools Global Online Program Management

PERFORMANCE
£288m £234m
+8% 1
7% +10% 1
6%
Enrolments (Full Time Equivalent, continuing) Global registrations

2018 2017 2018 2017
73,000 65,000 401,000 352,000
>$1.5bn >5% +10% c.9%

MARKET
2 2 2
Total market size Market growth potential Global OPM market US graduate OPM
growth per annum market growth per annum
ull Time Equivalent students

F trong pipeline – two
S igned 57 programs in the
S ntered new global
E
in continuing partner to five new schools in 2019 year globally market with ESSEC
schools up 11% on last year cale up in existing states;
S lobal course registration
G partnership in France
hree new full time online
T target states with high growth of 14% Pipeline of new partnerships
partner schools opened growth potential rowth in 2019 from
G
for 2018-2019 programs launched in
previous years and 60+
programs to launch in 2019
Connections allows students to learn at their own pace OPM gives students the flexibility they need see p6
see p15
BUSINESS MODEL
A digital business where Our strengths include: The digital promise trong brand and
S
we offer complete services Strong brand of “anywhere, anytime track record
for charter school partners, learning” opens up one of omain knowledge;
D
omain knowledge;
D
support for district our biggest structural growth end-to-end solution, and can
end-to-end solution, and can
programmes and markets: Helping universities leverage further strengths in
further leverage strengths in
blended offerings. scale online. content and assessment
content and assessment
Competitive
Proven partner school model
advantages include:
trong parental satisfaction,
S
nique position to offer
U
good learning outcomes and
services globally across
efficacy results
postgraduate, undergraduate
and short courses

Overview
Professional Certification English
PERFORMANCE
£482m £305m

+4% 1
12% +7% 1
7%
Global test volumes PTE Academic test volume growth

2018 2017 2018
15.2m 14.6m 30%
c.$1.2bn c.1.7bn c.£1bn

MARKET
2 2 2
Size of market Global English Size of market

speakers
Our performance
elivering testing
D ecured extension on
S ecured two year extension
S pportunity to obtain
O
programmes to 450+ DVSA contract to run of Australian immigration recognition for UK,
credential owners the UK theory test office contract Canada and China
ear-term growth from
N immigration/employment
US MCAT; long-term a proven
winner in a growing market
PTE Academic trusted by universities, colleges and Governance

governments see p42
BUSINESS MODEL
From online practice tests Our competitive We are one of the leaders in lobal test centre utilising
G
to high-stakes, proctored strengths include: the global English language VUE network allowing more
exams that require the igital delivery, leading

D learning market. flexibility for time of test
industry’s most secure digital platform Our competitive aster, more accurate
F
testing environments, strengths include: and consistent results –
lexibility and scalability of
F
Pearson VUE is a leader in 95% of scores returned in
testing network: 20,000 igital platform – taking a
D
computer-based testing. five working days
centres worldwide test on a computer, with
roven track record of secure
P consistent test-taking ligned to Pearson’s
A
test administration, reliable conditions and avoids Global Scale of English
and accurate scoring human bias

3 Become a simpler, more efficient and more sustainable business
2017-2020 focus areas

Further simplification Leaner organisations Reduction in number
through shared through reduction of legacy applications,
service centres in headcount data centres and
office locations
Progress in 2018
>900 42 £130m
New US enterprise applications data centre and Incremental cost Supply chain
resource planning decommissioned office closures savings achieved in consolidation
system go-live 2018 as our cost
efficiency programme
runs ahead of plan
Sale of One In 2018, Pearson sold its property at

One Southwark Bridge for £115m. The sale
Southwark Bridge represents further progress in Pearson’s
ongoing simplification strategy and the
Simplification in practice consolidation of its London property
footprint, as Pearson becomes a leaner
and more efficient company.
The education sector is undergoing tremendous
Overview
change – we need to help our customers through
that, rather than add complexity.
MARYKAY WELLS Driving a culture of talent and innovation

SVP & CHIEF INFORMATION OFFICER, Doing all of this requires something
NORTH CAROLINA, USA I’m really passionate about: building
high-performing and innovative teams

As CIO, I’m here to modernise and simplify that are customer focused and as diverse
Pearson’s technology estate to enable as our learners across the globe.
better experiences and outcomes for This is unlocking great potential in our
Pearson’s millions of customers and people, allowing us to test and use
learners globally. advanced technologies like robotics and
The education sector is undergoing artificial intelligence to deliver massive
tremendous change – we need to help efficiencies in processes – whether
our customers through that, rather than internally or in the classroom to free
add complexity. Success rides on us up teachers to spend more time with
striking a healthy balance, allowing the their students and to personalise digital
global platforms we build to be used and learning experiences.
enjoyed worldwide without compromising We’re also making further strides in
either unique regional needs or the ability diversity and inclusion through the launch
Our performance
to personalise learning experiences. of Pearson’s new Women in Technology
Aiding, not impeding, each learner’s program, active participation in UK
progress is our goal. apprentice and US internship schemes,
This means Information Technology can’t and increasing graduate hires.
sit in isolation from the business or at It doesn’t end there. Having built an
arm’s length from customers. We all have environment where we can constructively
a stake in improving learning, so fostering challenge ourselves and each other
the right partnerships and relationships is each day, we can continue to push
embedded in to my team’s DNA. the boundaries on how we can bring
innovation to the learning experience.
Governance
Value created for our stakeholders
Our strategy is driven by the belief that education is evolving

to meet the changing demands of today’s learners. In an
increasingly digital world, we are a driving force behind that change.
This enables us to create long-term sustainable growth for our
investors and all stakeholders of the company.
£130m
Cost efficiency savings in 2018,
enabling the modernisation and digital
transformation of Pearson
1000+
2018 members of
Pearson’s Alumni
Network since launch
in September 2018
89%
Educators surveyed said Pearson
products allow students to study
anywhere, anytime
3400+
Pearson employees across 40 countries
participated in our Innovation
Jam over 64 consecutive hours,
to drive internal innovation
90%
BTEC students who are
employed full time
after graduation
Overview
How we serve and engage Key concerns Our response
Employees
In 2018, we invited all our Three main themes emerge from We are focused on creating a
Our mission-driven
employees to take part in a survey our OHS findings: Our people healthier company, encouraging
employees are key to to get a better understanding want to feel aligned to Pearson’s and enabling more people to
the sustainable success of where we can continue to vision, strategy, culture and progress. We are working to grow
of Pearson. improve. We started several values; they want to be able to and develop talent, drive more
bottom-up innovation deliver with current capabilities diversity, ensure greater
57% of employees took programmes; held town and processes; and they want to employee engagement,
part in our 2018 organisational halls with senior leaders and understand more about Pearson’s drive innovation, support
health survey (OHS) global conversations with our ability to innovate, and adapt to accessibility and inclusion efforts,

CEO. We launched a Pearson change. Our Innovation Jam and improve sharing of best
Alumni network to connect generated ideas around how we practice across the company.
former, present and future can facilitate learning and design
Pearson people. for a “YouTube” generation.
Shareholders
We engage with our investors Our shareholder base has a We have a positive, ongoing
We have a broad range of
on an ongoing basis. We diverse range of views covering dialogue with our shareholder
investors who entrust their communicate with them financial, environmental and base. We aim to deliver
capital with us. regularly, including at our social issues. long-term sustainable value
financial results, our AGM for our investors and all our
625 investor meetings with
Our performance
and at investor meetings and company stakeholders.
344 institutions in 2018 conferences around the globe.
Learners
We regularly talk to and survey Learners have increasing We are matching this
Pearson helps millions
learners to understand how expectations over the value of expectation. For example, we are
of learners across the learning is evolving, observe their education. They expect using predictive analytics to give
world progress throughout changing demographics, experiences both inside and us early alerts to identify where
their lives. attitudes and buying behaviour. outside the classroom that are students are struggling much
We put learner needs at the more rewarding, more engaging earlier in the process and
80% of students surveyed centre of what we do and work to and less time consuming. Digital therefore can help to get
Governance
say our products help them build world-class digital products is a normal, integral part of their them back on track quickly.
get more out of the class and services to deliver amazing day-to-day life and they expect
experiences and improve digital education products to
learning outcomes. meet this expectation.
Educational institutions & educators

We collaborate with educators on In a cost conscious environment, We aim to provide more engaging
We work with teachers,
thought leadership and product educators are focused on ways to connect educators with
instructors and educators development in order to give the delivering high quality their students, accelerated
across all stages next generation of learners the educational experiences that through the move to digital.
of education. tools they need to be successful. set their students on a course to This enables more timely
a better career and life for them feedback on student progress

89% of educators and their families. to help set them up for success.
surveyed said our products We also continue to listen and
allow students to study observe how things are changing
anywhere, anytime in the classroom to adapt to the
next generation of learners.
Read more on our approach to stakeholder engagement in the Governance report, on p93
Value created for our stakeholders
How we serve and engage Key concerns Our response
Employers
Through assessment Industry is looking for education We have listened hard to
Pearson works with
and qualifications, systems to help drive innovation, employers and are designing
employers, trade micro-certification, online tackle the global skills gap and products that meet the needs
associations and industry learning, and professional contribute to long-term of industry head on, whilst
bodies to meet the demands badging, among other solutions, economic growth by ensuring providing learners with the skills
of the workforce and equip we are supporting the efforts learners enter the world of work to succeed in the workforce.
learners with the skills they of industry to prepare workers better prepared to succeed in For example, in the UK our
need to progress and thrive. for the jobs of today and of their careers. new generation BTEC offers
the future. career-focused pathways and a
62% of large UK companies high-quality route into higher
recruited graduates with a education or employment.
BTEC (CBI Skills Survey 2018)
Governments & Regulators

These standards will address Governments are looking for We are committed to building
We partner with
students’ needs, close skills effective approaches to better strong relationships with political
governments (local, state, gaps and meet the demands connect educational institutions and educational leaders. We do
federal, national) to ensure of the workforce. to employer needs, improving not make policy. Instead, we
students have access to student outcomes. share best practices, inform the
Governments and regulators
and can become proficient also set policy to ensure that both policy-making process, and forge
with world-class businesses and consumers are innovative partnerships aimed
learning standards. provided with the most effective at increasing student access,
legislative frameworks that help affordability, and success.
50 US States and a wide drive sustainable growth and
range of global markets in ensure that learners have access
which Pearson works with to affordable education and
government stakeholders training opportunities.
Business partners
We are focused on building We share similar goals and We build relationships with
From technology providers
successful business partnerships priorities with our business world-class partners and
to suppliers, channel across the education partners – from driving business suppliers for the benefit of all our
partners to our authors, ecosystem to ensure joint transformation to developing stakeholders. We believe that
we have a broad range of success and growth. world-class products; enhancing working with partners who share
partners across our customer experience to ensuring our commitments not just to
global business. adherence to data privacy and best-in-class business practices
information security processes; – but also best practice and
25 key global suppliers managing political and international standards for
who help us deliver on our regulatory risk to developing human rights and environmental
commitment to offering talent – and more. We align stewardship strengthens our
world-class business processes, with our business partners and value chain and reduces our
systems and technologies expect them to share our values. business costs and risks.
Communities
We partner with organisations Our communities around the We are investing in important
Educational opportunities
working to improve education world are interested and areas of social innovation where
and outcomes are closely for vulnerable, marginalised engaged in how we are using we can reach learners who need
linked to the prosperity of groups, and those focused on our products, services and it most, such as through
local communities and the impact of business on community investments to Tomorrow’s Markets Incubator
global development. society and the environment. reach the learners who need it and our partnership with Save
We partner to deliver most and the steps we are taking the Children. Read more on this
£5.7m social programmes that strengthen to have a positive impact on in our sustainability section, p35.
contributions in 2018 global education systems. society and the environment.
The best part of my job is
Overview
working directly with learners.
LEAH JEWELL Embracing alternative pathways

MD, CAREER DEVELOPMENT & I decided to pursue an alternative
EMPLOYABILITY. HOBOKEN, NJ certification pathway myself, recently
completing the ‘Entrepreneurship &
I started at Pearson 31 years ago as a Innovation’ certificate programme at
sales representative in higher education. Stanford University. The flexible,
Now, I’m the Managing Director for Career self-paced programme worked for me,

Development & Employability. My team and helped me obtain knowledge and
helps high school, college, and adult skills for my current role as well as
learners prepare for their first job and a possible new jobs. I will also use my
lifetime of learning around the skills experience as a learner in that
needed for the future. environment to help us build out
Career-driven learning services and solutions at Pearson.
The best part of my job is working directly At Pearson, we are helping people
with learners to help them navigate explore, understand, navigate, and
multiple learning pathways, both successfully complete lifelong learning
traditional and non-traditional, and to and up-skilling regardless of their
build skills for future jobs. When I was in pathway. It’s what I’m passionate
school, a degree prepared you for a about and what our employability
Our performance
lifetime career, but people born today team does at Pearson.
will need continuous learning and training
for what could amount to one hundred
years in the workforce based on
estimated life expectancy!
Governance
Efficacy
Efficacy helps build trust Listening to educators

We gathered feedback from educators and
with learners, educators, thought leaders around the world about
instructors and all our the 2018 reports. While our commitment
to efficacy was received positively, we were
company stakeholders. encouraged to find ways of ensuring that
our reports supported changing teaching
and learning practices when using digital
Pearson’s mission is to help people make products. We are responding by focusing
progress in their lives through learning. on exploring examples of implementation in
That’s why efficacy is core to what we do: the research design and including guidance
we are identifying the outcomes that matter about how the findings can be applied in the
reporting materials. In addition, we are
MyPedia India Efficacy
most to learners and educators, designing
products based on evidence of what works working through multiple channels to engage Report Spotlight
to improve those outcomes, measuring the in more, and more fruitful, conversations
with educators about efficacy. MyPedia is a blended teaching and learning
impact the use of our products can have on
solution intended to help teachers improve
learning, and continuously improving. What we are doing next their pedagogy, assessment and digital
In 2013, Pearson made a commitment to Releasing an efficacy report is just one step skills, and to give learners a positive,
engaging experience that improves their
begin reporting, by 2018, on the impact in the process of supporting educators
skills and abilities.
of use of our products on outcomes for and learners to use our products to help
learners. We reached this major milestone improve outcomes that matter to them. In a study conducted with schools across
in April 2018, when we were the first In the last five years, efficacy at Pearson India, research shows that teachers using
MyPedia change their classroom practices
education company to release publicly has evolved from focusing primarily on
over time—for the better.
audited and peer reviewed Efficacy efficacy reporting and implementing
Reports. The reports help build a better outcomes-focused evidence-based product veraged across classrooms, MyPedia
A
understanding of not just what works, design, development and ongoing product teaching quality ratings increased
but how it works and in what context. each quarter from 2017 to 2018 moving
improvement. As part of this broader
from “does not meet standards” to
approach, we are helping make foundational
Our commitment to efficacy is a continuing “meets standards.”
improvements across our content, our
and ongoing process. We are releasing – The percentage of teachers whose
assessments, our technology capabilities
a further series of efficacy reports this year, average MyPedia teaching quality rating
and how our products are implemented.
and will do so annually, staying true to indicated they were “meeting standards”
our efficacy commitment. We are also broadening the range of increased from 50% in the first and
outcomes we are seeking to support. second quarters of 2017 to 67% in
The 2019 efficacy reports include the three the second quarter of 2018.
The 2018 Efficacy Reports focused on
rigorous efficacy research studies that were
course and exam achievement outcomes eacher self-rated confidence in teaching
T
completed across the company over the
because these are some of the outcomes with MyPedia also increased each quarter
last year and also cover one of our most between 2017 and 2018.
that matter most to our customers and
frequently used assessment products.
learners. Going forward, drawing on insights – 18% of teachers were rated “very
The reports highlight how those products
from our customers and learners and from confident” in the first and second
are being used to support learners in their
the Employment in 2030: Future of Skills quarters of 2017, whereas 27% were “very
learning journey.
research we conducted with researchers confident” in the second quarter of 2018.
This includes three product efficacy reports: from the Oxford Martin School and Nesta, These higher observed MyPedia teaching
we are committed to both designing quality ratings are then associated with
1. Revel Psychology in North America,
products for, and evaluating impact on, a better end-of-year student test scores.
2. MyPedia in India, and wider range of outcomes including skills one point increase in the MyPedia
A
to support learners’ career readiness and teaching quality rating is related to a
3. Sistema COC in Brazil. employability prospects. In the process 0.44 standard deviation increase
As well as an assessment product: Pearson helping meet the needs of industry and (i.e., 17 percentile points) in students’
Test of English Academic. government in tackling the skills gap – end-of-year test scores.
a growing global productivity challenge. one point increase in MyPedia teacher
A
impact rating is related to a 0.71 standard
Pearson remains committed to learning
deviation increase (i.e., 26 percentile
and continuously improving our efficacy
points) in students’ end-of-year test scores.
work to help Pearson grow and help more
learners, learn more throughout their lives. DIGITAL CAPABILITIES
Explore more: www.pearson.com/ Real-time data analytics

corporate/efficacy-and-research.html Virtual and augmented reality
Connecting our learning research Leading with outcomes
Overview
We are increasingly taking a ‘backwards
to Pearson’s product design process

design’ approach. That is, we start with
the outcome we are trying to improve,
then apply evidence from the learning
to enhance impact on outcomes. sciences to the design and development
of the product, and then evaluate and
report on the impact of product use on
the outcome we are looking to improve.
DR KRISTEN DICERBO We are working to apply insights from Our goal is to help more learners, learn
VP, LEARNING RESEARCH & DESIGN the learning sciences about how to teach more and in doing so help shape the
and assess those skills consistently across future of learning.
our portfolio, and are designing and Research supporting design
I’ve been at Pearson for seven years.
developing capabilities for our products

As the VP of Learning Research & Design, Efficacy & Research, once a standalone
based on this evidence that can support
I make sure we’re connecting our learning team and programme, has now become a
learners to develop these uniquely
research to the way we design products key capability in our global product
human skills.
in order to impact the outcomes we want organisation. Specialist capabilities in
to achieve. If we take collaboration skills as an outcomes-focused, evidence-based
example, we know that having students product design and development and the
Uniquely human skills
do more group work does not measurement of impact on learning are
In 2017 we embarked on an ambitious automatically improve these skills. now integral parts of our research and
piece of research with the Oxford Martin They need opportunities to practice development, innovation and product
School and Nesta, to map the future of different roles within a group, and receive development process.
work and skills. Our research shows that feedback. We can also structure the
uniquely human skills, such as complex kinds of collaboration activities so they
thinking, and interpersonal capabilities move from simple skills like collective
like collaboration and leadership, will be
Our performance
brainstorming to more advanced skills,
increasingly important in the jobs of the like reaching consensus.
future. What makes us human is what
will make us employable in the future.
Governance
Sustainability
Sustainability is integral to our strategy and fundamental to

achieving our mission to help people make progress in their lives
through learning. Through our 2020 Sustainability Plan, we made a
commitment to embed social and environmental issues across our
business. We recognise the role sustainability plays in driving our
long-term growth and in helping build a better society.
Our 2020 Sustainability Plan drives us to More information on our performance in As part of our risk management process,
find innovative ways to reach new markets each of these areas will be available later company-wide risks are tracked across
by helping learners overcome barriers, in 2019 when we publish our 2018 geographies and functions.
keeping abreast of the changing education Sustainability Report, available at See Our material issues matrix p33.
landscape, and earning the trust of our www.pearson.com/sustainability.
stakeholders. By aligning with the UN Sustainability governance
In this section, we:
Sustainable Development Goals (SDGs),
the Plan ensures we think about business et out the key material issues for
S The Reputation & Responsibility Committee,
success in the context of our wider the company and how these relate a formal committee of the Board, provides
responsibilities as part of the global to our risk management process ongoing oversight, scrutiny and challenge
community. We have prioritised SDG 4 on matters relating to our sustainability
on quality education, SDG 8 on decent utline how sustainability is governed
O strategy and our corporate reputation.
work and economic growth and SDG 10 at Pearson Learn more on p106.
on reducing inequalities. eport on highlights from each of the
R The Pearson Executive oversees
three pillars. implementation of business and
2020 Sustainability Plan sustainability strategy. The Responsible
Three focus areas drive our commitment Our material issues Business Leadership Council drives
implementation of the strategy on behalf
to sustainability: Our 2020 Sustainability Plan is informed by of the Board. It is chaired by our Chief
1. Reach more learners our material issues – those most relevant Corporate Affairs Officer and comprises
to the sustainability of the business. senior leaders from across the business.
2. Shape the future of learning They were identified in consultation with
senior leaders, employees, external experts
3. Be a trusted partner.
and other stakeholders. We have prioritised
nine key issues, which represent both
opportunities for growth as well
as operational risks. We map these
sustainability issues against our
enterprise risk management process.
1 Reach more
learners 2 Shape the future
of learning 3 Be a trusted
partner
Improve access to and affordability uild skills that foster employability

B espect and support our people,
R
of products and services and inclusive economic growth customers, and communities
ollaborate to reach
C romote education for
P Protect our natural environment
underserved learners sustainable development
Build a sustainable supply chain
ngage in multi-stakeholder
E
research, dialogue, and collective
action to solve global challenges
33
Our material issues
Overview
Materiality matrix
HIGH
Learner
The following matrix shows how we Economic Data privacy
expectations
empowerment and security
mapped our material issues, and highlights Academic quality
Competitiveness
the nine that we have prioritised. of digital products
Progression High stakes testing
We will evaluate, refine and talk with
stakeholders about our material issues
on an ongoing basis, in the spirit of 21st century skills
continuous iteration and improvement. Accessibility
Security, health
and safety
Stakeholder concern
Key to material issues Girls’ and women’s

Literacy empowerment Affordability
Nine material issues in our sustainability and equality
Corporate
Education for
plan and reporting sustainable development governance
Lobbying and public
policy GHG emissions and
Corporate functions climate change
Societal issues
Digital infrastructure
Education industry
Environmental issues
Disruptive
distribution models
Degree of control
High Medium Low
Our performance
LOW
LOW Business impact HIGH
Alignment of material issues to principal and other Pearson risks

Annual report 2018 Company-wide
Sustainability Material issues Principal risk risk Business area risk monitoring
Disruptive distribution models 2 YES Global Product

Core
Competitiveness of digital products 2
Growth
Affordability 2 North America
Governance
Learner expectations 2 Environmental, Social & Governance
Academic quality 2
High stakes testing 5 YES Assessment Core
Lobbying and public policy 4 YES Core North America

Growth Assessment
Data privacy and security 11 YES Global Product North America Legal
Core Assessment Tech & Ops
Growth
Digital infrastructure 8 YES Global Product North America Tech & Ops
Security, health and safety 6 7 YES Core Assessment

Growth nvironmental, Social
E
North America & Governance
HR
Accessibility1 – – Assessment Legal nvironmental,
E
Social &
Governance
GHG emissions and climate change – – Environmental, Social & Governance
1 Emerging risk. See Principal risks and uncertainties, p62

Sustainability
Connections Academy, a tuition free,
1
fully-accredited, US-based online public
Reach more school for students in grades K12, offers an
learners inclusive, collaborative learning experience
that meets the unique needs of learners
with a wide variety of backgrounds and
abilities. An alternative to brick-and-mortar
Commitments: public schools, Connections provides a
Improve access to and affordability valuable option for students who are not
of products and services finding success in the traditional classroom.
For example, students with serious health
Collaborate to reach underserved learners issues, who have been bullied, or are
struggling or advanced academically can Supporting
Our continued commitment is to better
address the needs of vulnerable groups
benefit from attending a Connections students with
Academy online school.
through our products, services and Smarthinking tutors
partnerships. We work to identify and Our Inclusive Access model helps college
remove barriers to education so that all students access their materials at a Service: Smarthinking
learners can improve their lives – regardless lower price. In a study we conducted with Morgan
of their income level, the way they learn, Accessibility for Learners State University, instructors teaching
or their background. Reaching more with Disabilities
writing-intensive courses indicated that
learners helps us to innovate and grow our their students’ writing skills, confidence,
Pearson has established a Global and work quality improved as a result
business, and it supports our commitment
Accessibility Steering Group to drive of the interaction with Pearson’s
to quality education for all, decent jobs,
support for people with disabilities Smarthinking tutors.
and equality in line with the UN SDGs.
through the intentional integration of Morgan State is a leading public research
Harnessing the power of new technologies
accessibility standards in product university in Maryland. Many arrive
to bring education and opportunities to
development. We are committing to a with a mix of writing skill strengths and
more people in more places is central to
process of continual improvement to weaknesses. For the courses in the study,
these efforts.
increase the accessibility of both new all students were required to use either
and existing products. Smarthinking or another tutor – the first
Improve access to and affordability time many of them were exposed to
As an employer, we work to ensure that tutoring. The aim was to help all students,
of products and services
appropriate procedures, training and especially those who were behind or
In 2018, we continued to advance our support are in place for people with struggling, feel it is normal to use a tutor
commitment to improve access to and disabilities to ensure fair access to career and empower them to use the resource
affordability of education through our and progression opportunities. One of our for other courses going forward. Students
core business offerings. expressed appreciation for the fast
eight employee resource groups is Pearson
turnaround and expert grammar and
Able – its remit is to improve company
Our corporate education benefit writing assistance provided by
practice for learners and employees. Smarthinking tutors.
programme, Accelerated Pathways
(see p51), leverages tuition assistance Tomorrow’s Markets Incubator Learn more at: go.pearson.com/
funds to help adult learners overcome The Tomorrow’s Markets Incubator PearsonMorganState
challenges to education attainment while develops new products, services, and
positively impacting recruitment and business models for low-income and
retention initiatives. Through this benefit, underserved market segments by engaging
employees have access to coaches and employees in a robust venture innovation
advisors, courses, certificates, degrees, process. The incubator is Pearson’s first step
and an education assistance platform that in reaching this market of more than 4 billion
support skills and career development. people in size and $5 trillion in value.
Education programs are delivered online
and are mobile optimised, so employees
can learn anytime and anywhere.
35
Following a selection process, employee-led Pearson Affordable Learning Fund
Overview
incubator teams receive seed funding and The Pearson Affordable Learning Fund
access to thought leaders and coaches with invests ‘patient capital’ in independently
deep expertise in venture creation for new run, for-profit, education start-ups using
markets. These tools support teams to innovative approaches to improving
innovate commercially sustainable and learning outcomes and increasing access,
socially impactful solutions, as well as at scale.
develop their own professional skills
and capabilities. Social contributions
In 2018 our social contributions comprised
Today, the incubator has a global portfolio
£4.7m in community contributions and
of ventures at different stages of maturity.
£1.0m invested in socially innovative
Teams are selected by an investment
business initiatives. Together this was Core4Stem Volunteering

committee comprising Pearson executives.
equivalent to 1.1% of our pre-tax profits
They must demonstrate a compelling, Every year, the San Antonio Hispanic
for the year. It included:
feasible commercial solution that will Chamber of Commerce hosts its CORE4
improve learner outcomes and deliver STEM event, which brings together more
Social
social impact. contributions than 5,000 middle school students, from
five inner city school districts to celebrate
Every Child Learning (see p35) £1.6m
STEM education and career opportunities.
Collaborate to reach Tomorrow’s Markets Incubator £1.0m (social
In 2018, a group of Pearson volunteers from
underserved learners (see p34) innovation)
the Infrastructure and Operations team in
Camfed Learner Guides £0.1m Assessment hosted a cloud infrastructure
Through partnerships, we are tackling
Project Literacy £1.7m and security simulation at this event, with
some of the biggest education challenges.
the goal of teaching these 7th and 8th grade
Employee Giving £0.7m
Our performance
Every Child Learning students how we deliver technology today.
Employee Volunteering £0.2m
Since 2015, Pearson has been working with The Pearson simulation had students
Programme Management £0.4m deploy and securely host a discreet
Save the Children on “Every Child Learning,”
Total £5.7m application in the “cloud” building basic
a partnership delivering high-quality
coding and platform management skills.
education to Syrian refugees and host
These are the foundation of the skills that
community children in Jordan, and STEM employers need but schools in these
innovating new solutions that improve the districts struggle to find support for
delivery of education in emergency and the programmes that build these skills,
conflict-affected settings. Between 2015 leaving a gap between the skills students
and 2019, Pearson has committed £4.5m. need and the jobs they want.
The project includes “Space Hero” Pearson aims to help fill the gap,
understanding the skills employers need,
Governance
(Batlalfada), a fun and engaging maths
and finding ways to work with schools in
learning app, designed by Pearson in
the district to help students build these
collaboration with refugee and Jordanian
skills. Pearson’s simulation at CORE4 STEM
children, aged 9-12, to strengthen their was so well received that it’s going to be
Through Every Child Learning, we are
maths skills. In 2018, the app, which is scaled across a number of San Antonio
helping Khaled*, 11, to achieve his dream
available to download for free on Google School Districts. This is just one way Pearson
of becoming a dentist
Play, had over 28,000 new users and over is helping to connect the dots between
4,000 weekly average users regularly playing * name changed to protect identity. employers, schools, and students.
the game. It is Pearson’s highest rated app
in the Google Playstore. Space Hero also
supports a broader in-school programme,
led by Save the Children, that focuses
on teacher training, school-community

relations, after-school learning, and
psychosocial support.
In 2019, 19 schools will be implementing the

Every Child Learning programme, with the
aim of impacting over 25,000 children.
Sustainability
The pace of change in education is faster
2 3
than ever before. We envision a future in
Shape the future which learners are equipped with the skills
Be a trusted
of learning they need to build careers and navigate partner
the future of work, and where learning
contributes to more inclusive, equitable
societies and economies.
Commitments: Commitments:
Pearson has focused on guiding students
Build skills that foster employability espect and support our people,
R
toward their career aspirations and
and inclusive economic growth customers and communities
equipping them with crucial workplace skills.
romote education for sustainable
P We help learners prepare to enter specific Protect our natural environment
development careers – delivering vocational training,
providing industry-focused qualifications Build a sustainable supply chain
ngage in multi-stakeholder research,
E and assessments, and teaching skills such
dialogue, and collective action to solve as science, technology, engineering, maths We are committed to being the best partner
global challenges and English. we can be to learners, educators, suppliers,
and communities: living our values through
For example, Pearson Career Success how we do business, treat people, and
(see p55) aims to meet the needs of both protect the environment.
colleges and employers by providing a
digital suite of assessments, learning
Respect human rights
modules and tools that help students
identify career goals and the gaps in Our vision is to respect and promote human
their academic and career skills that rights, including the right to education,
they need to fill. throughout our operations and with
our customers, employees, contractors,
In response to our customers, we have
and supply chain. We have a corporate
developed content, courses, qualifications
responsibility to respect human rights,
and other services that help students
and our approach is guided by the
learn about sustainability. By integrating
Universal Declaration of Human Rights,
sustainability-related content into our
the International Labour Organization’s
products, we can explore new market
declarations on fundamental principles
Education and opportunities while making a direct
and rights at work, the UN Guiding
contribution to the SDGs and inspiring
training for sustainable the next generation to improve their world.
Principles on Business and Human Rights,
and the UN Global Compact Principles.
development We work with a number of authors and
We are a founding signatory to the UN
professors who have made sustainability
Global Compact, and we are a member of
In October 2018, Pearson collaborated part of the materials they create for
the Global Compact’s UK Local Network.
with Business Fights Poverty, Arizona Pearson. We have also developed a number
State University and the UN Principles for of sustainability qualifications, and have We published our first public Human Rights
Responsible Management Education embedded sustainability within BTEC Statement in 2018.
(an initiative of the UN Global Compact)
qualifications across sectors, including
to publish ‘The Role of Business in We have identified priority human rights
engineering, warehouse operations,
Education and Training for Sustainable risks and opportunities related to content,
animal management, science, and IT.
Development’. Based on interviews with learners, partnerships, technology and
educators and companies, the report employees, and developed a roadmap to
shared insights and recommendations for
address them. We also have policies in
business to help people gain the skills and
place for key elements of human rights
knowledge required to meet sustainability
including editorial content, health and
challenges, improve lives, and contribute
to long-term prosperity and wellbeing. safety, safeguarding and data privacy.
For more, see the section on compliance
in Principal Risks on p62.
Our Business Partner Code of Conduct

sets out our requirements of third parties
and, as part of our global approach to
procurement, we include specific obligations
relating to human rights compliance in new
and renewed supplier agreements and we
audit suppliers in high-risk categories.
37
A priority across the value chain is to Respect and progress We had a 57% completion rate. We are in
Overview
ensure our activities are free from slavery, the process of reviewing the results with
our employees
servitude, forced or compulsory labour Executive Management to produce clear,
and human trafficking. A statement on the Our employees are integral to delivering tangible action plans with specific focus
steps taken by Pearson to combat modern Pearson’s mission. Last year, we adopted areas and measurements that will help
slavery was approved by the Board and four key strategies: drive us forward.
can be viewed on the Pearson website
rovide integrated people solutions that
P In October, we hosted an Innovation Jam,
(www.pearson.com).
empower the business to drive results, which was an online, employee-driven
outcomes, growth and employability discussion to openly exchange perspectives
Deliver relevant, appropriate, for learners and ideas to support Pearson’s growth,
and inclusive content stablish Pearson as an employer of choice
E
in line with our five year strategy.
In creating our products, we think for diverse talent across the world

specifically about the culture, background, Support our culture,
ultivate a high-performing global
C
and age of the learners that will access our
workforce that innovates and delivers
mission and values
content. We have implemented a common
dynamic learning experiences Our values – to be brave, imaginative,
Editorial Policy across Pearson to guide
decent and accountable – continue to
product development teams and individuals romote lifelong learning and digital
P
guide us in implementing our strategy.
involved in the content creation process on skills development to create an agile and
They are embedded into our performance
ensuring content is aligned to Pearson’s mobile workforce
assessment, which means all employees
values, and prevent inappropriate content
Pearson continues to manage considerable are evaluated on and rewarded for acting
from being published. The policy is overseen
amounts of change both within the consistently with them.
by a cross-regional and functional steering
business and outside it. Our simplification
committee, chaired by a member of our The Pearson Code of Conduct underpins
programme is ahead of plan due to an
Our performance
executive team, which provides a space for our values by setting out the global ethical,
increase and acceleration of savings
escalation and issue resolution. A network social and environmental standards of
delivered as a result of the recent
of 35 policy champions are responsible behaviour we expect from employees,
implementation of our enterprise resource
for implementation and act as a point of and we have a companion code for
planning system. The difficult but necessary
escalation for queries in our businesses business partners.
changes we have been making will allow
and markets around the world.
us to speed up innovation, provide The Code was reviewed and refreshed in
better customer experiences, eliminate 2018 and included an interactive training
Safeguarding and duplication, and increase scalability in course combined with the certification
protecting learners the long-term. We continue to do all we of the Code. We make sure everyone in
can to support our colleagues through Pearson is aware of the Code and confirms
We continue to view safeguarding as our
this transformation, through regular they understand and will comply with it.
fundamental obligation to learners and a
communication and detailed consultation, In 2018, we achieved our target of 100%
Governance
high priority for Pearson. We have a set of
and providing support for those leaving completion by all employees. The Code is
safeguarding principles and we agreed a
the company. also assigned as part of the on-boarding
new safeguarding strategy for 2018-2020,
process for all new Pearson employees.
which includes a focus on safeguarding in We are investing in talent and succession,
online and digital environments. In addition, helping our leaders and their teams define Many of the areas covered by the Code
we implemented a new set of safeguarding and develop new skills and capabilities, are supported by detailed policies and
metrics. We also completed a gap analysis creating a rich and growing pipeline procedures, including: anti-bribery and
on the safeguarding assurance processes of diverse talent. We work to inform, corruption, health and safety, and
for each business. Safeguarding has been support and equip colleagues to work safeguarding. Learn more about
identified as a principal risk under our collaboratively, and we encourage and these issues in our section on Principal
enterprise risk management system and reward high performance. Risks, p62.
there is more information on p60.
We are also committed to provide a safe We operate a free, independent, confidential

and healthy work environment for our telephone helpline and website available
employees and the learners we serve to anyone who wants to raise a concern.
(see the Principal Risks section on p63 We have a clear non-retaliation policy in
for more detail). place to encourage people to share the
Key performance indicators: issues they have and we gauge how
In 2018, a key focus was innovation and
Safeguarding organisational health. We conducted a
comfortable people are in raising concerns
in our employee engagement survey.
company-wide organisational health survey
100% to 22,000 permanent global employees
of targeted identified actions addressed in 13 languages plus an accessible version.
Sustainability
Foster diversity, equality plan to help our employee resource

A
Key performance indicators: groups at Pearson evolve and mature.
and inclusion
Gender diversity The networks are for women, parents,
Every person is unique whether that be in veterans, Latinos, the LGBT community,
Women in Pearson % terms of age, gender, identity, race, ethnicity, employees across generations, people with
At Board level, 30% of our members were religion, disability, sexual orientation, disabilities and employees of black and/or
female as at the end of 2018. As a founding education, learning style, national origin, African ancestry. A new group launched
member of the 30% Club, we have endorsed personality type as well as across a range of this year that focuses on the Black,
and committed to work towards the target of many other factors. At Pearson, we value a Asian and Minority Ethnic communities
a minimum of 33% representation of women diverse workforce and a workplace which within Pearson.
on the Board by 2020. Below are key gender reflects our learners – the customers we
representation segments over the past serve around the world. By celebrating and Our work on diversity and inclusion
three years:
leveraging diversity, we can better harness continued to gain external marketplace
our collective skills and talents, our recognition. In 2018, Pearson was
2016 2017 2018
imagination and ideas to design and deliver recognised as follows:
Board of Directors 30% 30% 30% 3
the best services and solutions for all amed in the 2018 Forbes list of America’s
N
Senior leadership* 32% 30% 31% 33
learners. Our approach is described in best employers for diversity and inclusion;
All employees 60% 61% 62% 17,065 our Diversity & Inclusion Statement.
* Two reporting lines from the Chief Executive. uccessful in scoring 100% in the
S
In 2018, we appointed a senior global leader 2018 Corporate Equality Index run by
In the UK, the government introduced
to drive this agenda and conducted a the Human Rights Campaign;
regulations designed to help address the
gender pay gap. Pearson has provided
comprehensive review of the diversity and
inclusion practice at Pearson, which resulted ecognised as having one of the top 50
R
information on its gender pay gap in the
in a new diversity framework, governance leading global LGBT Ally Executives by
UK (see go.pearson.com/GenderPayReport)
and has made a commitment to extend our and measurement models, a set of global the FT/OutStanding;
reporting globally by 2020. Our action plan to priorities and a maturity model for evolving warded the Dynamic Mentoring
A
address the gap is global in scope and focuses our employee resource groups into business Organisation of the Year for a second year
on five key areas: resource groups. Highlights include: by the 30% Club and Women Ahead for a
upporting, mentoring, and fostering
S programme led by our employee resource
new Diversity & Inclusion Council led
A
the professional development of high group on gender.
by the CEO to provide strategic oversight
potential women;
and to extend our work into many more
ncouraging the empowerment of women
E markets and countries. The Council Improve health and safety
and the formation of networks;
includes business leaders, allies and
I mproving recruitment and pipeline
Our people work in diverse locations around
advocates, as well as representatives from
practices to enhance senior female the world, including schools, colleges, test
our ten employee resource groups.
representation; centres, offices, data centres, call centres,
set of seven priorities which will guide
A printing sites, warehouses, as well as remote
haping our policies and culture around
S
returning to work and flexible working; and,
our 2019 action plan and major initiatives. working. To be a sustainable company and a
These include a focus on improving gender trusted partner we must ensure the safety
nsuring the consistent engagement of
E
representation at the top two levels of the and wellbeing of our people no matter
executive management and senior leaders
company as well as improving the racial where they are working.
in Diversity and Inclusion initiatives.
diversity for manager roles and above
At the beginning of 2018, we revised our
initially focusing on the United States.
2018-2020 Health and Safety strategy.
Key performance indicators: significantly expanded global network
A This updated strategy included a
Health and safety of Diversity and Inclusion Advocates who significantly revised Global Health and
provide support to advance our practice in Safety Policy and Standards, to which
92% their businesses and geographic locations. 21,194 (87%) of our employees have certified
their understanding of in our learning
of our H&S standards have been fully
implemented around the world. management system. A global network of
nearly 150 “H&S coordinators” also work
96% to ensure the H&S management system is
implemented and maintained in their
of open H&S findings from audits prior to
2018 have been fully resolved. business. H&S has been identified as a
principal risk under our enterprise risk
82 management system and is subject to
regular reporting to the Reputation &
H&S Coordinators were trained and successfully
certified in Institution of Occupational Heath and Responsibility Committee, a Board-level
Safety (IOSH) Managing Safely course in 2018. Committee (see p106).
39
Protect our natural environment

Key performance indicators: Global Greenhouse Gas emissions data
Overview
Greenhouse gas (GHG) emissions is one
of our material sustainability issues and Metric tonnes of CO2e
climate change remains a focus for us Emissions from 2009 2016 2017 2018
as one of the most serious issues facing the Combustion of fuel and operation of facilities
planet. Minimising our environmental (GHG Protocol Scope 1) 44,649 19,093 15,691 13,057
impact is not just the right thing to do;
Electricity (GHG Protocol Scope 2 – location based) 130,395 77,579 61,047 49,920
it helps deliver operational efficiencies.
The supply chain cost of our energy use Electricity (GHG Protocol Scope 2 – market based) 4,583
and business travel accounts for around Emissions relating to air and rail travel, electricity
1% of our spend. This is where we have the transmission, waste and water (GHG Protocol
most control and where we have focused scope 3) 35,262 29,714 27,646 21,672

our efforts to date. Energy cost does not Total – Location based 210,306 126,385 104,384 84,649
feature as a Principal Risk for the company. Total – Market based 39,312
We know that our stakeholders expect good
environmental stewardship, which is why Intensity ratios 2009 2016 2017 2018
GHG emissions was identified as a material
Sales Revenue (£m) 5,624 4,552 4,513 4,129
sustainability issue for the company.
Scope 1 & 2 (location) 175,044 96,672 76,738 62,977
Our Environment Policy provides more
information on our approach. Scope 1 & 2 (market) 17,640
Scope 1 & 2/sales revenue (location) 31.12 21.24 17.00 15.25
We maintained our climate neutral status
for our directly controlled operations – Scope 1 & 2/sales revenue (market) 4.27
a commitment first introduced in 2009. FTE 32,716 30,339 24,322
Our performance
Our strategy is: Scope 1 + 2/FTE 2.95 2.53 2.59
Methodology: We have reported on all of the emission sources required under the Companies Act 2006.
1. Reduction: Through both the These sources fall within our consolidated financial statement. We do not have responsibility for any emission
rationalisation of our portfolio and sources that are not included in our consolidated statement. The method we have used to calculate GHG
energy efficiency, as well as divestments, emissions is the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), using the
location-based scope 2 calculation method, together with the latest emission factors from recognised public
we reduced our energy consumption vs
sources, including, but not limited to, the UK Department for Business Energy & Industrial Strategy, the
our 2009 baseline by 60%. International Energy Agency, the US Energy Information Administration, the US Environmental Protection
Agency and the Intergovernmental Panel on Climate Change. The data in the table above has been
2. Renewables: We maintained our record independently verified by Corporate Citizenship.
of purchasing 100% of the electricity we use
from renewable sources and generate our
We have a policy on the sustainable sourcing Our work is informed by the Task Force on
own renewable electricity at four of our sites
of paper, which resulted in over 86% of the Climate-related Financial Disclosures, and
Governance
(down from five as one site with renewables
paper we purchased in 2018 in the UK being we will use its guidance to improve our
was sold in 2018).
certified to an environmental standard such environmental disclosures.
3. Offset: Since 2009, we have offset the as the Forest Stewardship Council (FSC) or
In 2018, we also started to more accurately
emissions from our energy and fuel Programme for the Endorsement of Forest
understand the wider carbon emissions
consumption and business travel. Certification (PEFC). Pearson is a member
from our supply chain. Going forward we
of industry bodies dedicated to responsible
In 2018 we were recertified against the will continue to work with our suppliers to
forest management. We hold FSC chain
Carbon Trust Standard for our global better understand the sustainability risks
of custody in the UK as does LSC
operations. Pearson was the second ever and opportunities associated with the
Communication, our outsource partner in
organisation to secure the standard, products and services we buy.
North America, allowing books in those
which recognises leadership in measuring, markets to carry the FSC label.
managing and reducing year-on-year
carbon emissions.
We also continue to be certified against

ISO 14001, the environmental management
standard in the UK and Australia. This
standard incorporates both internal and
external audit.
Sustainability
Sustainability rankings
Inclusion in Global 100

most sustainable corporations
(Corporate Knights)
Non-financial information statement

The following table outlines where the key contents requirements of the Non-Financial Statement (as required by sections
414CA and 414CB of the Companies Act 2006) can be found in this document. In addition, our annual sustainability report
(www.pearson.com/sustainability) contains more detail on these topics and follows international reporting frameworks
including the Global Reporting Initiative, UN Global Compact, and UN Sustainable Development Goals.
Reporting requirement Pearson policies and procedures Section of annual report
Environmental matters Environment Policy Protect our natural environment, p39

Paper Purchasing Policy
Employees Code of Conduct Respect and progress our employees, p37
Human Rights Statement Support our culture, mission and values, p38
Raising Concerns and Anti-Retaliation Policy
Global Health and Safety Policy and Standards
Diversity & Inclusion statement
Human rights Human Rights Statement Respect human rights, p36
Editorial Policy Support our culture, mission and values, p37
Modern Slavery Statement Respect and progress our employees, p37
Safeguarding Principles Deliver relevant, appropriate, and inclusive content, p37
Social matters Human Rights Statement Social contributions, p35
Anti-corruption and bribery Code of Conduct Support our culture, mission and values p37
Pearson Anti-Bribery and Corruption (ABC) Policy Risk management, p60
Raising Concerns and Anti-Retaliation Policy Legal and compliance, p74
Policy embedding, due diligence and outcomes Risk management, p60
Sustainability, p32
Description of principal risks and impact of business activity Risk management, p60
Description of business model Strategy, p18
Non-financial key performance indicators Sustainability, p32
Publicly available policies in the list above can be found at: go.pearson.com/OurPolicies
41
It’s critical that we recognise
Overview
the importance of technical and
vocational education.
CINDY RAMPERSAUD
SVP, BTEC & APPRENTICESHIPS
Alternate pathways to education
Education has been a powerful enabler
90%
for change but today is still focused BTEC students who are
on academics – acquiring knowledge employed full time
I have been at Pearson for a little over a
after graduation

year and I oversee our BTECs – specialist in a traditional way where success is
measured by passing exams. ‘Skills’ – (Source: HESA)
work-related qualifications, grounded
62%
in the real world of work and available technical and vocational education
in schools, colleges and universities have often been seen as too alternative
across a range of subjects. a pathway. Large UK companies have
For my own personal journey of learning Yet, these are the skills – soft and hard recruited graduates with a
and discovery – from a student in the skills alike – learners will need for the BTEC (Source: CBI Skills
mid 80’s to a career in the entertainment jobs of tomorrow. It’s critical that we Survey 2018)
industry – across retail, film and music, recognise the importance of technical
to my current role in education – discovery and vocational education, and our
and technology have played a key role. BTECs and Apprenticeship programmes
do just that. They’re helping us keep
The future of jobs
pace with a landscape that now sees
Our performance
As technology transforms big-player technical and vocational education
industries like education, we’re finding as a key driver for growth, increased
that new jobs and careers are surfacing productivity – preparing for the yet
around every corner. The challenge right to be imagined future.
now is how you and I prepare ourselves
To embrace a future that is constantly
and future generations for the world
changing, we need to create a culture that
five, 10 and 20 years out. What is clear
fosters a love of lifelong learning because
to me is that education and a culture of
it’s only through this that we’ll be able to
lifelong learning have a crucial role to
face the changes head-on as we prepare
play in preparing us for that ‘yet to be
for the jobs of tomorrow.
imagined future’.
Governance
A high-stakes, computer-based
English language test trusted
by universities, colleges and
governments around the world.
PTE Academic is a high-stakes, In 2018 the Australian Department PTE Academic
computer based English language of Home Affairs renewed its
test that people take to prove their
English skills for studying abroad
endorsement of PTE Academic
in supporting the Australian visa
£77m
Revenues
and visa applications. programme for a further two years.
“PTE Academic was first approved to The Test has seen 30% volume growth +30%
support Australian visa applications in in 2018 with further growth expected Test volume growth
2014 and has quickly become the test in 2019. PTE Academic is delivered in
of choice for Australian student and hundreds of test centres year round, 2 Aligned to strategic priority, p23
migration visa applicants.” providing learners with the flexibility

DIGITAL CAPABILITIES
they need.
David Barnett Pearson Automated speech recognition
Managing Director, Automated marking and scoring
Asia Pacific
Advanced biometrics
It is accepted at prestigious
institutions including Harvard
Business School, Yale and
the University of Melbourne.
43
Section 3 Our performance
Financial review
We expect to make further progress

in 2019, with adjusted operating profit
between £610m and £660m.1
Coram Williams
Chief Financial Officer
Profit and loss statement Net interest payable was £24m, compared Adjusted earnings per share of 70.3p
to £79m in 2017. The decrease was primarily (2017: 54.1p) included a c.20p one-off
In 2018, sales decreased by £384m in due to a reduction in gross debt achieved tax benefit and a lower finance charge.
headline terms to £4,129m (2017: £4,513m) through the early redemption of bonds in
with portfolio changes reducing sales by 2017. Charges relating to early redemptions
£216m and currency movements decreasing Cash generation
increased finance charges in 2017 but were
revenue by £134m. Stripping out the impact not as significant in 2018. Additionally, there Operating cashflow declined by £156m
of portfolio changes (including the adoption was a reduction in interest on tax provisions from £669m in 2017 to £513m in 2018 in
of new accounting standards) and currency following reassessment of those provisions headline terms. The decrease reflects lower
movements, revenue was down 1% in in 2018. dividends from Penguin Random House,
underlying terms. Revenue in North following our divestment of a 22% stake
America declined 1%, Core was flat The effective tax rate on adjusted earnings in the business in 2017, higher incentive
and Growth up 1%. in 2018 was a credit of 5.2% compared to payments in 2018 relating to 2017
an effective rate charge of 11.1% in 2017. performance and movements in working
The 2018 adjusted operating profit of The decrease in tax rate reflects several capital. The equivalent statutory measure,
£546m (2017: £576m) reflects a £130m one-off benefits in 2018 including provision net cash generated from operations, was
year on year benefit from restructuring, releases due to the expiry of relevant £547m in 2018 compared to £462m in 2017.
offset by £50m of cost inflation, £22m of statutes of limitation and due to the The main reason for the improvement in
other operational factors, £15m negative reassessment of historical positions, cash generated from operations was the
contribution from trading and a £73m as well as a one-off benefit from a absence of special pension contributions in
negative impact from currency movements reassessment of the tax treatment of 2018 which were £227m in 2017.
and portfolio changes. Excluding the impact certain items of income and expenditure.
of currency movements and portfolio
changes (including accounting changes)
underlying adjusted operating profit
grew 8%.
Financial summary
Business performance Statutory results

Under- Under-
Headline CER lying Headline CER lying
£ millions 2018 2017 growth growth growth £ millions 2018 2017 growth growth growth
Sales 4,129 4,513 (9)% (6)% (1)% Sales 4,129 4,513 (9)% (6)% (1)%
Adjusted operating profit 546 576 (5)% (2)% 8% Operating profit 553 451
Operating cash flow 513 669 Profit for the year 590 408
Adjusted earnings per share 70.3p 54.1p Cash generated from
Dividend per share 18.5p 17p operations 547 462
Net debt (143) (432) Basic earnings per share 75.6p 49.9p
a) Growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude both currency movements,
portfolio changes and accounting changes, b) CER refers to Constant Exchange Rates, and c) 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 p222–225.
1 Guidance includes impact of IFRS 16.

Section 3 Our performance 45
Return on invested capital Pension plan Currency movement and
Overview
portfolio changes
On a gross basis, ROIC increased from 4.3% In 2018, our UK Pension Plan completed a
in 2017 to 4.7% in 2018 and from 6.2% in new triennial valuation as at 1 January 2018 Adjusting for currency movement improves
2017 to 6.7% in 2018 on a net basis. The and re-confirmed the Plan as being well profit by £26m. We completed the sale of
movement largely reflects lower invested funded. The Plan has recently used this WSE in March 2018. WSE contributed £42m
capital following disposals and decreased funding position to purchase a further to 2018 revenue and £4m to 2018 adjusted
tax payments which were more than insurance buy-in policy with Legal & operating profit. US K12 Courseware
enough to offset the effect of lower adjusted General, amounting to approximately contributed £364m to 2018 sales and
operating profits primarily due to the £500m. Together with the two policies around £20m to 2018 operating profit.
disposal of a 22% stake in Penguin Random purchased in 2017, around 50% of the Inflation and other operational factors.
House and currency movements. Plan’s total liabilities are now insured.
Our 2019 guidance incorporates cost
This has put the Plan in an even stronger
inflation of c.£50m together with other

Statutory results position and further reduced Pearson’s
operational factors of £33m due to
future pension funding risk, at no additional
Our statutory profit was £553m in 2018 increased investment in our strategic
cost to Pearson.
compared to a profit of £451m in 2017. growth areas and the expectation of a lower
The increase in 2018 is largely due to the contribution from Penguin Random House.
Dividend
increase in gains on disposal and reduced Restructuring benefits
intangible charges which more than In line with our policy, the Board is
We expect incremental in-year benefits
offset increased restructuring charges, the proposing a final dividend of 13p (2017: 12p),
from the 2017-2019 restructuring
lost contribution from businesses disposed an increase of 8%, which results in an
programme of £130m in 2019. Exceptional
of and the impact of currency movements. overall dividend of 18.5p (2017: 17p)
restructuring costs of £150m will continue to
subject to shareholder approval.
be excluded from adjusted operating profit.
Capital allocation
Our performance
Share buyback Interest and tax
Our capital allocation policy remains
We expect a 2019 net interest charge of
unchanged: to maintain a strong balance We launched a £300m share buyback,
c.£30m and a tax rate of 21%.
sheet and a solid investment grade rating, beginning on 18 October 2017 utilising
to continue to invest in the business, to have part of the proceeds from the disposal Currency
a sustainable and progressive dividend of a 22% stake in Penguin Random House. In 2018, Pearson generated approximately
policy, and to return surplus cash to We completed the programme on 64% of its sales in the US, 3% in Greater
our shareholders where appropriate. 16 February 2018. China, 5% in the Eurozone, 3% in Brazil, 3% in
Canada, 3% in Australia, 2% in South Africa
Balance sheet Businesses held for sale and 1% in India and our guidance is based
on exchange rates at 31 December 2018.
Net debt to EBITDA was 0.2x. Net debt Following the decision to sell our US K12
Governance
decreased to £143m (2017: £432m) Courseware business, the assets and We calculate that a 5c move in the US Dollar
reflecting disposal proceeds and operating liabilities of that business were classified exchange rate to Sterling would impact
cash flow, partially offset by the as held for sale on the balance sheet at adjusted EPS by around 2p to 2.5p.
strengthening of the US Dollar relative 31 December 2018. We announced the
IFRS 16
to Sterling, dividend payments and the agreement to sell this business on
share buyback. 18 February 2019. Including IFRS 16, we expect to report
adjusted operating profit of between
In January 2018, the Group repurchased £610m and £660m, a net interest charge
€250m of its €500m Euro 1.875% notes 2019 outlook
of c.£60m and adjusted earnings per
due May 2021 and €200m of its €500m 2018 has been a year of progress for share of 55.5p to 61.0p for 2019.
Euro 1.375% notes due May 2025. Pearson, delivering adjusted operating
Borrowings at 31 December 2018 include profit within our guidance range and
drawings on the Group’s revolving continuing to invest in the digital

credit facility (RCF) of £nil (2017: £nil). transformation and simplification of the
company. We expect to make further
progress in 2019, with adjusted operating
profit between £590m and £640m and
adjusted earnings per share of 56.5p to
62.0p on a pre-IFRS 16 basis. This reflects
our portfolio and exchange rates as at
31 December 2018 and the following factors:
Financial review
Adjusted performance measures In May 2017, we announced a restructuring Other net gains and losses that represent
programme, to run between 2017 and profits and losses on the sale of subsidiaries,
The Group’s adjusted performance 2019, to drive significant cost savings. joint ventures, associates and other financial
measures are non-GAAP financial measures This programme began in the second half assets are excluded from adjusted operating
and are included as they are key financial of 2017 and net costs incurred were £79m profit as it is important to highlight their
measures used by management to evaluate in 2017 and £102m in 2018 and relate to impact on operating profit, as reported, in
performance and allocate resources to delivery of cost efficiencies in our enabling the period in which the disposal transaction
business segments. The measures also functions and US Higher Education takes place in order to understand the
enable investors to more easily, and Courseware business together with further underlying trend in the performance of
consistently, track the underlying operational rationalisation of the property and supplier the Group. Other net gains (before tax) of
performance of the Group and its business portfolio. The restructuring costs in 2018 £230m in 2018 relate to the sale of the Wall
segments over time by separating out those relate predominantly to staff redundancies Street English language teaching business
items of income and expenditure relating to and the net cost of property rationalisation. (WSE), realising a gain of £207m, the disposal
acquisition and disposal transactions, major Included in the property rationalisation in of the equity interest in UTEL, the online
restructuring programmes and certain other 2018 is the impact of the consolidation of University partnership in Mexico, realising a
items that are also not representative of our property footprint in London which gain of £19m, and various other smaller
underlying performance. resulted in a charge for onerous leases of disposal items for a net gain of £4m. Gains
The Group’s definition of adjusted £91m partially offset by profit from the sale of £128m in 2017 largely relate to the sale of
performance measures may not be of property of £81m. The onerous lease the test preparation business in China which
comparable to other similarly titled provisions are the main driver for the overall resulted in a profit on sale of £44m and the
measures reported by other companies. increase in provisions on the balance sheet part sale of the share in PRH which resulted
A reconciliation of the adjusted measures at 31 December 2018. in a profit of £96m.
to their corresponding statutory reported These major restructuring costs are Charges relating to acquired intangibles and
figures is shown in summary below and in analysed below: acquisitions are also excluded from adjusted
more detail on p222–225. operating profit when relevant as these
£ millions 2018 2017
Adjusted operating profit items reflect past acquisition activity and
Adjusting the cost base in do not necessarily reflect the current
Adjusted operating profit includes the
our Higher Education year performance of the Group. In 2018,
operating profit from the total business Courseware business 21 23 intangible charges declined from £166m
including the results of discontinued
Further efficiency in 2017 to £113m in 2018. This decline
operations when relevant. There were no
improvements in enabling reflects the reduction in acquisition
discontinued operations in either 2017 functions through back office activity in recent years.
or 2018. A reconciliation of the statutory change programmes in
measure to the adjusted measure is Human Resources, In 2018, the impact of adjustments arising
shown below: Finance and Technology 48 23 from clarification of guaranteed minimum
Further rationalisation of pension (GMP) equalisation legislation in
£ millions 2018 2017
property and supplier the UK have been excluded from adjusted
Operating profit 553 451 agreements 21 33 operating profit as outlined below in the
Add back: Cost of major Associate restructuring 12 – section on post-retirement benefits.
restructuring 102 79
Total 102 79 As a result of US tax reform at the end of
Add back: Other net (gains) 2017, the reported tax charge in that year
and losses (230) (128)
on a statutory basis included a benefit from
Add back: Intangible charges 113 166 revaluation of deferred tax balances to
Add back: Impact of the reduced federal rate of £5m and a
GMP equalisation 8 – repatriation tax charge of £6m. In addition
Add back: Impact of to the impact on the reported tax charge,
US tax reform on profit the Group’s share of profit from associates
from associate – 8 was adversely impacted by £8m. These
Adjusted operating profit 546 576 adjustments were excluded from adjusted
operating profit and the adjusted tax charge
as they were considered as transition
adjustments that were not expected to
recur in the near future.
Underlying growth rates Adjusted earnings per share In 2018, the total of these net finance cost
Overview
Adjusted earnings includes adjusted items excluded from adjusted earnings
Sales decreased on a headline basis by was a loss of £31m compared to a gain of
operating profit and adjusted finance and
£384m or 9% from £4,513m in 2017 to £49m in 2017. Finance income relating to
tax charges. A reconciliation to the statutory
£4,129m in 2018 and adjusted operating retirement benefits increased from £3m in
profit is shown below:
profit decreased by £30m or 5% from 2017 to £11m in 2018 but this increase was
£576m in 2017 to £546m in 2018. £ millions 2018 2017 more than offset by foreign exchange losses
The headline basis simply compares the Profit for the year 590 408 on unhedged cash and cash equivalents and
reported results for 2018 with the reported other financial instruments that generated
Non-controlling interest (2) (2)
results for 2017. The Group also presents gains in 2017.
Add back: Cost of
sales and profits on an underlying basis The adjusted income tax charge excludes
major restructuring 102 79
which excludes the effects of foreign the tax benefit or charge on items that
Add back: Other net (gains)
exchange, the effect of portfolio changes

and losses (230) (128) are excluded from the profit or loss before
arising from acquisitions and disposals and tax. In addition, the tax benefit from tax
the impact of adopting new accounting Add back: Intangible charges 113 166
deductible goodwill and intangibles is added
standards that are not retrospectively Add back: Other net finance
to the adjusted income tax charge as this
applied. The portfolio change is calculated (income)/costs 31 (49)
benefit more accurately aligns the adjusted
by taking account of the contribution from Add back: Impact of tax charge with the expected rate of cash
acquisitions and by excluding sales and GMP equalisation 8 – tax payments.
profits made by businesses disposed in Add back: Impact of US tax
either 2017 or 2018. In 2017, portfolio reform on profit from associate – 8 Operating cash flow
changes mainly relate to the sale of the test Operating cash flow is presented in order
Tax benefit relating to items
preparation business in China and reduction added back (65) (42) to align the cash flows with corresponding
in the equity interest in PRH. This reduction adjusted operating profit measures.
Adjusted earnings 547 440
Our performance
in equity interest is reflected in the A reconciliation to operating cash flow
reduction in share of results of joint Weighted average number of
from net cash generated from operations,
ventures and associates. In 2018, shares (millions) 778.1 813.4
the equivalent statutory measure,
portfolio changes mainly relate to the sale Adjusted earnings per share 70.3p 54.1p is shown below:
of our Wall Street English language teaching
Net finance costs classified as other net
business. Acquisitions were not significant £ millions 2018 2017
finance costs or income are excluded in
in either 2017 or 2018. Net cash generated from
the calculation of adjusted earnings.
operations 547 462
In 2018, the underlying basis excludes the
Finance income relating to retirement Dividends from joint ventures
impact of IFRS 15 ‘Revenue from Contracts
benefits is excluded as management and associates 67 146
with Customers’. This new standard
believe the presentation does not reflect
was adopted on 1 January 2018 but the Capital expenditure on
the economic substance of the underlying property, plant, equipment
comparative figures for 2017 have not been
Governance
assets and liabilities. Finance costs relating and software (204) (237)
restated. On 1 January 2018, the Group also
to acquisition transactions are also excluded
adopted IFRS 9 ‘Financial Instruments’ but Proceeds from sale of property,
as these relate to future earn outs or plant, equipment and software 128 –
this did not have a material impact on profit
acquisition expenses and are not part of
in 2018. The impact of adopting these Add back: Net (proceeds from)
the underlying financing.
standards is discussed further below and /costs paid on major
in note 1 of the financial statements. Foreign exchange and other gains and restructuring projects (25) 71
losses are also excluded as they represent Add back: Special pension
On an underlying basis, sales decreased by
short-term fluctuations in market value and contribution paid – 227
1% in 2018 compared to 2017 and adjusted
are subject to significant volatility. Other Operating cash flow 513 669
operating profit increased by 8%. Currency
gains and losses may not be realised in due
movements decreased sales by £134m and
course as it is normally the intention to hold
adjusted operating profit by £21m. Portfolio
the related instruments to maturity.

changes decreased sales by £225m and
adjusted operating profit by £61m. The
impact of adopting IFRS 15 on the results
for 2018 was to increase sales by £9m and
adjusted operating profit by £9m.
Financial review
In addition to the dividends received from Other financial information Capital risk
associates above there were dividends from The Group’s objectives when managing
PRH in 2018 of £50m and in 2017 of £312m Net finance costs
capital are:
relating to the recapitalisation of PRH £ millions 2018 2017
following the sale of part of the Group’s o maintain a strong balance sheet and a
T
Net interest payable (24) (79)
interest in the venture. This cash flow is not solid investment grade rating;
Finance income in respect
related to the underlying trading of the To continue to invest in the business;
of retirement benefits 11 3
business and has not been included in the
adjusted operating cash measure. Other net finance o have a sustainable and progressive
T
(costs)/income (42) 46 dividend policy, and;
Major restructuring costs paid in 2017 Net finance costs (55) (30)
included cash flow from both the 2016 o return surplus cash to our shareholders
T
restructuring programme (£44m) and the Net interest payable was £24m, compared where appropriate.
2017-2019 programme (£27m). In 2018, to £79m in 2017. The decrease was primarily
due to a reduction of gross debt achieved The Group is currently rated BBB (negative
restructuring costs paid were offset by
through the early redemption of bonds in outlook) with Standard and Poor’s and
proceeds from the sale of property as part
2017. Charges relating to early redemptions Baa2 (stable outlook) with Moody’s.
of the restructuring programme to give a
net cash inflow from restructuring of £25m. increased finance charges in 2017 but were Net debt
not as significant in 2018. Additionally there
Special pension contributions of £227m in The net debt position of the Group is set
was a reduction in interest on tax provisions
2017 were made as part of the agreements out below.
following reassessment of those provisions
relating to the PRH merger in 2013 (£202m) in 2018. In February 2018, the Group bought £ millions 2018 2017
and the sale of the FT Group in 2015 (£25m). back an aggregate nominal amount of
Cash and cash equivalents 568 645
There were no special pension contributions €450,000,000 of 2021 and 2025 notes.
in 2018. Marketable securities – 8
There was a charge in respect of these
early redemptions however there were Derivative financial instruments 9 –
Return on invested capital (ROIC)
partial year savings as a result which have Bank loans and overdrafts (43) (15)
ROIC is a non-GAAP measure and has
flowed through the income statement in Bonds (672) (1,062)
been disclosed as it is one of Pearson’s key
the period since redemption.
business performance measures. ROIC is Finance lease liabilities (5) (8)
used to track investment returns and to In 2018, the total of other items excluded Net debt (143) (432)
help inform capital allocation decisions from adjusted earnings was a loss of
within the business. Average values for £31m compared to a gain of £49m in 2017. Net debt was reduced during the year
total invested capital are calculated as the Finance income relating to retirement following the sale of property, repayment of
average monthly balance for the year. benefits increased from £3m in 2017 to loans to PRH and proceeds from disposals.
£11m in 2018 reflecting the comparative Bond debt was reduced to £672m from
ROIC is presented on a gross and net basis.
funding position of the plans at the £1.1bn through a combination of debt
The net basis is calculated after removing
beginning of each year. This increase was repayments. The Group holds a portion of
impaired goodwill from the invested capital
more than offset by foreign exchange its debt in US dollars as a natural hedge of
balance. The net approach assumes that
losses on unhedged cash and cash the Group’s largest earnings generating
goodwill that has been impaired is treated in
equivalents and other financial instruments region, North America.
a similar fashion to goodwill disposed as it is
that generated gains in 2017.
no longer being used to generate returns. Despite the low year end balance sheet net
2018 2017 2018 2017
debt, the Group has significant operating
lease liabilities which are not currently
£ millions Gross basis Net basis
included as balance sheet liabilities but are
Adjusted included by the credit rating agencies and
operating
will be included during 2019 as the group
profit 546 576 546 576
adopts IFRS16, increasing net debt by
Operating c£0.7bn. The Group’s cash flow is also
cash tax paid (43) (75) (43) (75) seasonal and so we would typically see
Return 503 501 503 501 higher net debt at the half-year results
Average than at a year-end.
invested
capital 10,672 11,568 7,544 8,126
ROIC 4.7% 4.3% 6.7% 6.2%
Liquidity and funding Also included in other comprehensive The overall surplus on UK pension plans of
Overview
The Group had a strong liquidity position at income in 2018 is an actuarial gain of £545m at the end of 2017 has increased
31 December 2018, with over £500m of cash £25m in relation to the retirement benefit to a surplus of £571m at the end of 2018.
and an undrawn Revolving Credit Facility obligations of the Group and our share of The increase has arisen principally due to
due in 2021 of $1.75bn (at 31 December the retirement benefit obligations of PRH. favourable movements in assumptions
2017, the Group had cash of over £600m The gain arises from the favourable impact used to value the liabilities offsetting
and an undrawn Revolving Credit Facility of changes in the assumptions used to value some decline in asset values.
due in 2021 of $1.75bn). In March 2019, the net assets in the plans and in particular
In total, our worldwide net position
the Group announced the refinancing of the movements in the discount rate. The gain in
in respect of pensions and other post-
Revolving Credit Facility with a new Facility 2018 compares to an actuarial gain in 2017
retirement benefits increased from a net
of $1.19bn due in 2024. of £182m.
asset of £441m at the end of 2017 to a
Taxation Post-retirement benefits net asset of £471m at the end of 2018.

The effective tax rate on adjusted earnings Pearson operates a variety of pension Adoption of new accounting standards
in 2018 was a credit of 5.2% compared to and post-retirement plans. Our UK Group in 2018
an effective rate charge of 11.1% in 2017. pension plan has by far the largest defined
The adoption of IFRS 15 and IFRS 9 has
The decrease in tax rate reflects several benefit section. We have some smaller
impacted both the income statement as
one-off benefits in 2018 including provision defined benefit sections in the US and
described on p47 and has had an impact on
releases due to the expiry of relevant Canada but, outside the UK, most of
certain lines in the balance sheet. Although
statutes of limitation and due to the our companies operate defined
the impact of IFRS 9 was not significant,
reassessment of historical positions contribution plans.
the restatements in relation to IFRS 15 are
(£86m), as well as a one-off benefit from a The charge to profit in respect of worldwide the main reason for increases in 2018 in
reassessment of the tax treatment of certain pensions and retirement benefits amounted balances for inventories, trade and other
items of income and expenditure (£25m). to £56m in 2018 (2017: £72m) of which a receivables, trade and other liabilities
Our performance
The reported tax credit on a statutory basis charge of £67m (2017: £75m) was reported and held for sale assets and liabilities.
in 2018 was £92m (18.5%) compared to a in statutory operating profit and income The full impact of the adoption of both
charge of £13m (3.1%) in 2017. The statutory of £11m (2017: £3m) was reported against standards is outlined in note 1 of the
tax credit in 2018 was primarily due to other net finance costs. The decrease in the financial statements.
the items above, provision releases and operating charge in 2018 is partly explained
Dividends
credits related to previous business by a past service credit of £11m relating to
changes made to the US post-retirement The dividend accounted for in the 2018
disposals (£31m) and tax credits on
medical plan in the year and reduced financial statements totalling £136m
restructuring charges.
administration costs. This credit was represents the final dividend in respect of
Operating tax paid in 2018 was £43m partially offset by a past service charge of 2017 (12.0p) and the interim dividend for
compared to £75m paid in 2017 mainly due £8m relating to guaranteed minimum 2018 (5.5p). The Board are proposing a final
to refunds received in the US. Tax provision pension (GMP) equalisation in the UK. dividend for 2018 of 13.0p bringing the total
Governance
releases were the primary reason for the paid and payable in respect of 2018 to 18.5p.
reduction in current tax liabilities on the The GMP equalisation charge arises from This final 2018 dividend which was approved
balance sheet whilst net deferred tax the ruling in the Lloyds Bank High Court case by the Board in February 2019, is subject to
remained consistent year on year. in October 2018 that provided clarity on approval at the forthcoming AGM and will
how pension plans should equalise GMP be charged against 2019 profits. For 2018,
Other comprehensive income between males and females. The case ruling the dividend is covered 3.8 times by
Included in other comprehensive income results in an income statement charge, adjusted earnings. After excluding the
are the net exchange differences on an additional liability and the potential one-off tax benefit in adjusted earnings of
translation of foreign operations. The gain requirement to make back-payments to c.20p the dividend is covered 2.7 times.
on translation of £90m in 2018 compares pensioners who may have been retired for
to a loss in 2017 of £262m. The gain in 2018 some years. This charge has been excluded
mainly arises from the strength of the from our adjusted earnings as this relates
US dollar. A significant proportion of the to historical circumstances. The charge is

Group’s operations are based in the US and an estimate based on available data and
the US dollar strengthened in 2018 from an revisions to these estimates in future years
opening rate of £1:$1.35 to a closing rate at will be treated as assumption changes and
the end of 2018 of £1:$1.27. At the end of recorded in other comprehensive income
2017, the US dollar had weakened from an rather than the income statement.
opening rate of £1:$1.23 to a closing rate of
£1:$1.35 and this movement was the main
reason for the loss in 2017.
Financial review
Share buyback Acquisitions and disposals Also in February 2019, the UK Group
The share buyback programme announced There were no significant acquisitions in pension plan purchased a further pensioner
in October 2017 was completed on 2018 or 2017. In 2018, the Group disposed of buy-in policy valued at approximately
16 February 2018. In 2017, our brokers the Wall Street English language teaching £500m with Legal & General. As a result of
purchased 21m shares and in 2018 business (WSE), realising a gain of £207m, this latest transaction, 95% of the UK Group
purchased a further 22m shares. Cash and the equity interest in UTEL, the online plan’s pensioner liabilities are now matched
payments for these purchases and related University partnership in Mexico, realising a with buy-in policies which significantly
costs were £149m in 2017 and £153m gain of £19m. Various other smaller disposal reduces longevity risk of the Group. The
in 2018. The shares bought back were items resulted in a net gain of £4m in 2018. buy-in will be accounted for in 2019 and is
cancelled and the nominal value of these In 2017, disposals included the sale of the expected to reduce the retirement benefit
shares was transferred to a capital test preparation business in China (GEDU) asset on the balance sheet but is not
redemption reserve. The nominal value which resulted in a profit on sale of £44m expected to have a material impact on
of shares cancelled under the programme and the sale of a portion of the stake in the income statement.
was £11m. A liability for the share buy-back PRH to the venture partner, Bertelsmann, On 6 March 2019, the Group announced a
payments due in 2018 was recorded in resulting in a reduction in the Group’s tender offer for up to €75m of its €500m
trade and other liabilities on the 2017 interest from 47% to 25% and a profit on 1.875% notes due 2021 of which €250m
balance sheet. sale of £96m. were outstanding at 31 December 2018.
Businesses held for sale Related party transactions In addition, the Group also announced the
refinancing of its bank facility with a new
Following the decision in 2017 to sell both Transactions with related parties are shown
$1.19bn Revolving Credit Facility due to
our Wall Street English language teaching in note 36 of the financial statements.
mature in February 2024.
business and the US K12 Courseware
Post-balance sheet events
business, the assets and liabilities of those
businesses were classified as held for sale On 18 February 2019, the Group announced
on the balance sheet at 31 December 2017. the sale of the US K12 Courseware business
During 2018, the Wall Street business was to Nexus Capital Management LP for
Coram Williams
sold and the US K12 Courseware business headline consideration of $250m comprising
remains on the balance sheet as a held for an initial cash payment of $25m and an
sale asset prior to the disposal announced unconditional vendor note for $225m
in February 2019. expected to be repaid in three to seven
years. Following the repayment of the
Goodwill and intangible assets vendor note, the Group is entitled to 20% of
Amortisation and impairment charges all future cash flows to equity holders and
relating to acquired intangible assets in 20% of net proceeds if the business is sold.
2018 were £113m compared to a charge of The transaction is expected to complete in
£166m in 2017. There were no impairments the first half of 2019.
to goodwill and intangibles in 2018 or
2017 following impairment charges in
preceding years.
We know we already have the
Overview
best people working in our restaurants –
they just need the opportunity to build the
right skills to move up.
ROBERT VALENCIA Three days after he earned his GED,

Accelerated Pathways
ACCELERATED PATHWAYS STUDENT he applied for the Associate Degree

Accelerated Pathways is a corporate
Programme. In December, he completed
his third semester of college, studying 500,000+
business. In 2018, Robert received the The number of corporate client
education benefit, where Pearson partners
GED Testing Service GEDWorks™ National employees who have access to
with companies to strategically align
Award, recognising his drive to overcome educational benefits through
their educational assistance spending to
educational barriers and to pursue a Accelerated Pathways
the talent objectives of the organisation,
better path for himself.
helping to build a workforce that’s
more skilled, more engaged and, most “We know we already have the best
importantly, more prepared for the future people working in our restaurants – they
of work. In 2018, Pearson announced a just need the opportunity to build the
partnership with Brinker International, right skills to move up,” says Rick Badgley,
Inc., owner of Chili’s® Grill & Bar and Chief Administrative Officer. Accelerated
Maggiano’s Little Italy®, to launch Best Pathways leverages resources, such as
Our performance
You EDU™, a Brinker education benefit online and mobile-optimised education
programme that allows all eligible tools, technology and course materials
Team Members to earn Foundational, to support the unique challenges of adult
GED, and associate degrees with full learners, while addressing barriers to
tuition coverage. education – such as cost, time and access.
For Robert Valencia, a 27-year old cook
who’s worked at Chili’s for two years,
it helped him earn his GED credential
and completely altered the path of his
career. One of the first applicants in
Best You EDU™, Robert applied only a few
days after the programme was launched,
Governance
and received his GED a month later.
I’m not just learning for me.

It’s for me and my daughter... she is
the main motivation. I want to show
her she can achieve whatever she wants.
FEVEN ZERAY For Feven, not only did BTEC teach her
BTEC
BTEC – 2018 ADULT LEARNER OF THE YEAR the skills she needed for a career in
Feven Zeray’s ultimate goal is to be an

engineering, but she also learned
valuable employability skills including 1m+
aeronautical engineer. She recently communication and flexibility, which BTEC programmes starting
received top marks in her BTEC Level 3 she has found useful in single handedly each year
raising her daughter while funding herself
41%
Extended Diploma in Electrical
Engineering and is on track and racing to get her dream job. TBC
IMAGE
full throttle towards a career with the Alex Fau Goodwin, Assistant Principal of students using BTEC to enter
Mercedes Formula 1 team. at Trafford College says that success higher education come from
From the start of her course, she faced like Feven’s ‘really does emphasise the lower economic groups
resistance from those who thought it importance of adult education in colleges’.
was too difficult and that a woman Feven is making the most of her education 1 Aligned to strategic priority, p21
couldn’t succeed in engineering. – her latest accolade is winning the

That did not stop Feven from finding coveted Mercedes AMG High Performance
a way to pursue her dream. Powertrains (HPP) Student of the Year
Award, guaranteeing her an interview for
BTECs are career-focused qualifications,
the prestigious Apprenticeship scheme
taught in number of subjects in colleges,
run by HPP who design, develop and
schools and universities throughout the
manufacture the Mercedes-Benz Formula
world. Through BTEC learners acquire the
1 racing engines and hybrid systems.
knowledge and skills they need for career
success. Throughout their course, BTEC Feven is widely regarded as a role model
learners work on a series of tasks set in at Trafford College and continues to prove
real-life scenarios to which they apply to her daughter that learning makes
the knowledge and skills they have anything possible.
learned during their course. BTECs enable
successful progression towards a chosen
career path, whether that’s through further
or higher education, an apprenticeship or
directly into employment.
53
Section 3 Our performance
Operating performance
North America Courseware registrations grew more than 40%. Including

stand-alone eBook registrations, total North
School American digital registrations rose 1% and
Market summary In School Courseware, revenue declined global registrations rose 3%.
mid-single digit percent primarily due to
Our largest market includes all The actions announced in early 2017 to
declines in Open Territory states. This was
50 US states and Canada. promote access over ownership met with
partially offset by growth in Adoption state
revenue on strong performance in Science continued success. Stand-alone eBook
Contribution to Group revenues
in Florida, South Carolina and Tennessee, volumes grew 34% in the US with revenue
67% Elementary Math in Oklahoma and up 25% and our partner print rental
programme has had a successful start with
Elementary Social Studies in California
Sales and South Carolina. 130 titles in the programme in 2018. We plan
to increase the number of titles in the
£2,784m Our new adoption participation rate rose
to 80% from 61% in 2017. We won an
programme to around 400 by fall 2019.
Adjusted operating profit estimated 33% share of adoptions We continue to make good progress with
competed for (38% in 2017) and 26% of our Inclusive Access (Direct Digital Access)
£362m total new adoption expenditure of $509m solutions signing 192 new institutions in
2018, taking the total of not-for-profit and
(29% of $365m in 2017).
Sustainability public institutions served to 617. Including
Higher Education 80 longer-standing contracts with for-profit
200+ In Higher Education Courseware, total US colleges, we now have direct courseware
relationships with nearly 700 institutions.
institutions use the GED College Ready score college enrolments, as reported by the
level, including community colleges, to help National Student Clearinghouse, fell 1.4%, Inclusive Access ensures that students have
students bypass placement tests and with combined two-year public and affordable access to the courseware that
developmental education courses four-year for-profit enrolments declining they need on day one of the course, whilst
4.8%. Enrolment weakness was particularly further shifting our business model in this
Revenue declined 1% in underlying terms, focused on part-time students where segment away from ownership and towards
primarily due to North American Higher enrolment declined 2.9% compared to full subscription. During the year, we delivered
Education Courseware declining 5%, School time enrolment which declined 1.1%. over 1.4m course enrolments with inclusive
Courseware which was down mid-single Net revenue in our US Higher Education access revenues from non-profit and public
digit %, impacted by weak Open Territory Courseware business declined 5% during institutions rising to c.8% of our higher
sales in the second half of the year, the the year. We estimate around 2% of this education courseware revenue as more
continued decline in Learning Studio as we decline was driven by lower enrolment; colleges and faculties see the benefit of
move towards the retirement of the product around 1.5% from the adoption of Open this model.
in 2019 and Student Assessment which Educational Resources (OER); around 2.5%
declined moderately. Offsetting that, from the combined impact of shifts in the Assessment
we saw good growth in Virtual Schools, secondary market, more cautious buying by
Online Program Management (OPM) and Student Assessment
the channel and lower returns; offset by
Professional Certification revenue. c.1% benefit from the shift to digital. In Student Assessment, revenue declined
moderately in 2018 due to the faster than
Adjusted operating profit rose 1% in In 2018, Pearson’s US Higher Education expected contraction in revenue associated
underlying terms, as restructuring savings Courseware market share, as reported by with our PARCC and ACT-Aspire multi-state
offset the impact of lower sales, inflation MPI, was within the c.40-41.5% range seen volume-based contracts and our disciplined
and other operating factors. over the last five years. competitive approach. These factors will
Digital revenue grew 2% benefiting from extend into 2019, where we expect a modest
continued growth in direct sales and decline in revenue in this segment. Beyond
favourable mix. Global digital registrations 2019, we expect the business to benefit
of MyLab and related products were flat. from continued good momentum in
In North America, digital registrations fell subcontractor contract wins leveraging our
3% with good growth in Science, Business digital leadership and a strong pipeline of
& Economics and Revel offset by lower opportunities in key states.
overall enrolment and continued softness
in Developmental Mathematics. Revel
Growth rates are stated on an underlying basis unless otherwise stated. Underlying growth rates exclude currency movements, portfolio changes and accounting changes.
Underlying measures are reconciled to the equivalent statutory measures on p222–225.
During 2018, Pearson successfully renewed
Overview
contracts in Arizona and Kentucky through “As a recent college graduate and applying for
competitive procurements and secured full time jobs for the first time in my life... I am
business with the District of Columbia, New finding it difficult to show potential employers
Jersey, New Mexico, and Maryland under my “soft skills”, my traits outside of my
resume. It means one thing to say I am a team
new contracts with these PARCC states.
player, but I want to show the employers how
We also won new contracts for Utah’s
I earned that trait. Thankfully, Pearson Career
High School Assessments and with the Success allows me to demonstrate my skills
University of Iowa for the delivery of outside of my resume and earn badges such
Iowa’s new assessment system. as critical thinking and teamwork from an
accredited and respected source.”
We delivered 24m standardised online
tests to K12 students, down 5% from 2017. Partnering with Jessica Albright, recent Marketing Bachelor’s

TestNav 8, Pearson’s next-generation online graduate (Spring 2017) and MBA graduate
test platform, supported a peak load of institutions to help (December 2018) at Missouri State University
in Springfield, MO
825,000 tests in a single day and provided students become The Career Success Program is an integrated
99.99% up time. Our AI scoring systems
scored 36m responses to open-ended test career ready solution designed to help learners discover,
develop, and demonstrate the occupational
items, around 33% of the total. Paper based
Product: Career Success Program and personal and social capabilities that are
standardised test volumes fell 9% to 18.5m.
vital for successful 21st century employment
Professional Certification and lifelong success.
In Professional Certification, VUE global test Pearson works with institutions at a variety
volume rose 4% to over 15m. Revenue in of different levels to provide resources and
services to students from the time they enroll
North America was up mid-single digit %,
Our performance
at a university to the time they graduate,
due to growth in medical college admissions 80,000 students
all with the goal of preparing them for the
testing and certification for professional currently enrolled in the career they want. Over the next four years,
bodies, offset by continued declines in Career Success Program over 80,000 students will go through
volumes in the GED High School Equivalency this program.
Test and higher-level IT certifications in an
environment of low unemployment.
We signed over 70 new contracts in 2018

and our renewal rate on existing contracts “Mastering gives students feedback as they
continues to be over 95%. During the year do the work... they have more confidence
we renewed over 80 contracts including the tackling problems, because they’ve had
National Council of State Boards of Nursing experience, and with more experience
Governance
(NCLEX exam), Microsoft and Adobe. comes more confidence.”
Evelyn Landers, Chemistry Lecturer at
Clinical Assessment
Waterford Institute of Technology has used
Clinical Assessment sales declined slightly Mastering Chemistry since 2010. Landers
on an absence of new major product says it has made her teaching more efficient
introductions impacting 2018. Late in Q4 and personalised because students have
we launched a refresh of the Peabody access to personalised learning resources
Picture Vocabulary Test and Expressive Pearson makes that empower them to learn at their
own pace.
Vocabulary Test (PPVT/EVT). Q-interactive,
Pearson’s digital solution for Clinical learning personal Mastering is one of the world’s leading
Assessment administration, saw continued collections of online homework, tutorial,
Product: Mastering and assessment products. It is designed to
strong growth in license sales with sub-test
administrations up more than 37% over improve the results of all higher education
students, one student at a time.
the same period last year.
Pearson partners with 3,700 institutions
annually to provide Mastering to students
all over the world, primarily in North America
Pearson partners with
but also in South America, Europe, Asia,
Australia and Africa.
3,700 institutions
annually to provide
Mastering to students Real-time data analytics
all over the world
Services 2019 outlook Core

Connections Academy US Higher Education Courseware
Connections Academy, our K12 online In US Higher Education Courseware, we Market summary
school business grew revenue 8%. expect revenue to be flat to down 5% on
Our international business in established
Connections Academy served 73,000 Full the continuation of the pressures we saw
and mature education markets.
Time Equivalent (FTE) students through on end demand in 2018 with ongoing
37 continuing full time virtual partner declines in enrolment and modest growth Contribution to Group revenues
schools in 28 states, up 11% on last year. in OER adoptions. For print revenue in this
Total FTE virtual school students declined segment, we see scope for further declines 20%
3% to 75,400 as expected due to contract in gross sales and improvements in returns.
exits at Commonwealth Charter Academy Print continues to be impacted by the Sales
£806m
in Pennsylvania and Florida Virtual School. ongoing rise of secondary channels, such
as rental, but channel inventory has now
Three new full time online, state-wide
returned to more normalised levels
partner schools opened in the 2018-19 Adjusted operating profit
following the 2016 inventory correction
school year in Florida, Michigan, and Ohio.
We anticipate the opening of between
and its after effects. The channel is now
optimising the stock it holds, both through
£57m
two and five new partner schools in the
reducing purchases and returns, and we Sustainability
2019-20 school year.
expect that to continue in 2019. Growth in
The 2018 Connections Academy Parent
Satisfaction Survey continues to show solid
digital and direct sales provides some
offset to the continuing pressures on print.
40%
Students from the lowest four socio-economic
endorsement for the schools with 93% of
Assessment groups (as defined by the UK ONS) on average
families with enrolled students stating they progress to HE in a subject related to their BTEC.
would recommend our virtual schools In Assessment, we expect good growth
to others and 95% agreeing that the in Professional Certification and stable
curriculum is of high quality. revenue in our Clinical Assessment business Revenue was flat in underlying terms
in the US. We expect a modest decline in with growth in Pearson Test of English
Pearson Online Services revenue in North America Student Academic, OPM in the UK and Australia
In Pearson Online Services, revenue Assessment on continued contraction in and Professional Certification offset by
grew 3%, primarily due to growth in OPM, revenue associated with our PARCC and declines in Higher Education and Student
partially offset by a decline in Learning ACT Aspire contracts. Assessment and Qualifications.
Studio revenue as we retire the product Adjusted operating profit increased 10% in
Connections Academy and Online
and as we restructured smaller underlying terms, due to restructuring
Program Management
non-OPM contracts. savings partially offset by inflation.
We expect good growth in revenue and
Online Program Management enrolment at Connections Academy
In OPM, we grew revenue 9% as course and in North America Online Program Courseware
registration grew strongly, up 14% to more Management.
School and Higher Education
than 388,000 on strong growth in programs
Courseware revenue declined moderately.
at key partners including Arizona State
Slight growth in School Courseware was
University Online, Maryville University, Regis
offset by declines in Higher Education
College, Bradley University, Ohio University
Courseware. In Higher Education
and the University of Southern California.
Courseware, revenue was down due
Our overall active program count grew by to market declines in Europe and Asia,
33 to 325. The launch of 46 new programs partially offset by growth in digital sales
were offset by 13 discontinued programs. to institutional partners in the UK
During 2018 we signed 27 multi-year and Australia.
programs, including programs at new
partners the University of North Dakota
and Rider University. We closed nine out
of 15 renewal opportunities and as part
of broader efforts around portfolio
optimisation agreed with our partners to
terminate 23 programs that were not
mutually viable.
Assessment Pearson Test of English Academic the seven programs in Australia up from
Overview
Pearson Test of English Academic saw c.9,300 in 2017. In the UK, we launched
Student Assessment and Qualifications 11 new programs and course registrations
continued strong growth in test volumes
In Student Assessment and Qualifications, and we successfully extended our grew, reaching c.3,000 compared to c.1,400
revenue fell as modest growth in BTEC Firsts agreement with Department of Home in 2017. During the year, we also announced
and GCE A-Level was more than offset by Affairs in Australia for another two years. new partnerships with the University of
declines in AS levels, international GCSEs in Northumbria in the UK, and ESSEC Business
the UK and UK Apprenticeships due to policy Professional Certification School in France.
changes in the schools qualifications and the In Professional Certification, revenue was
apprenticeships market. We successfully up modestly due to the launch of additional 2019 outlook
delivered the National Curriculum Test computer-based exams for an existing
(NCT) for 2018, marking 3.6m scripts, customer in the UK and the MOI, the We expect stable revenue across Core,
up slightly from 2017. We will deliver the French Driving Test. including student qualifications and

NCT again in 2019 before the test transitions assessment, with further revenue growth
to another provider in 2020. in OPM and PTEA, offset by continued
Services declines in our Courseware businesses.
Clinical Assessment
Higher Education Services
Clinical Assessment sales declined primarily
In Higher Education Services, revenue grew
in Australia due to an absence of new major
strongly. Our OPM revenue was up 34%.
product introductions. Q-Interactive,
In Australia, we saw good growth due to
Pearson’s digital solution for Clinical
our successful partnership with Monash
Assessment administration, saw continued
University, and continued success of the
strong growth.
Graduate Diploma in Psychology. We have a
total of c.10,200 course registrations across
Our performance
In the UK, Pearson is the largest awarding
organisation to offer academic and vocational
qualifications, including A levels, GCSEs and
vocational qualifications such as BTECs.
Aswin Nasiketh Vivekanandan (pictured) is a
19 year old student at Tanglin Trust School,
Singapore. In 2018 she received the Pearson
Partnering with the Edexcel Award for the highest mark in Asia for
A-level Chemistry and Physics.
voice of British industry
Governance
Commenting on her award she said:
“I am thrilled to be able to pursue my
CBI & Pearson’s Annual Skills Report
Providing world-class career aspirations thanks to my Pearson
Pearson partners with CBI, the UK’s
premier business organisation, every year qualifications in the UK qualifications.
“I have always had a keen interest in science
to deliver an annual skills report. In 2018,
Product: Pearson Edexcel and passing these two subjects was a
we found:
requirement for me to get a place on the
mployers expect to recruit more
E course. And it worked, as I am now studying
workers but worry there are not enough my chosen option at Imperial College London.
skilled people to fill vacancies
“On graduation, I am looking to explore ways
/5 businesses aim to spend more on
4 to help tackle some of the many problems
training, but the Apprenticeship Levy we face in the world today, like global
has driven a sharp drop in warming and climate change.”
apprenticeship programmes
Many congratulations Aswin – we think you
he number of businesses actively
T will go on to achieve great things!
engaged with schools or colleges is down
by c.10% #1
By helping to gather these insights, Overall market leader with
Pearson is connecting the dots between number two position in
GCSE and A-Level and
students and employers, ensuring learners
number one position in
have the skills they need to excel in their vocational qualifications
career and employers have the people they
need for a rapidly changing workplace.
Growth Revenue grew 1% in underlying terms due to Services

strong growth in China and modest growth
in Brazil and Hispano America partially English Services
Market summary offset by declines in South Africa. In English Services, revenue grew slightly
in our English language school franchise,
Emerging and developing economies Adjusted operating profit increased 97%, Wizard, due to new product launches.
with investment priorities in Brazil, India, £30m, in underlying terms, reflecting higher
South Africa, Hispano-America, Hong Kong revenue in China and Brazil, together with School Services
& China and the Middle East. the benefits of restructuring, partially In School Services, revenue was flat, with
offset by lower revenue in South Africa. declines in student enrolment in our public
Contribution to Group revenues
sistemas business in Brazil offset by price
13% Courseware increases, improved products and better
student retention across our private
Courseware revenue grew slightly,
Sales sistemas. In India, Pearson MyPedia, an
with strong growth in English Language
inside service ‘sistema’ solution for schools,
£539m Courseware in China, partially offset by
declines in School Courseware in South
expanded to over 700 schools with over
200,000 learners.
Adjusted operating profit Africa following a large one-off order in 2017.
Higher Education Services
£59m Assessment In Higher Education services revenue
declined slightly due to business exits in
Sustainability Professional Certification and Pearson
India and slight revenue decline at Pearson
Test of English Academic
28,000 Professional Certification grew well due
Institute of Higher Education (formerly CTI),
our university in South Africa, due to a
New users downloaded our Space Hero to a new ICT infrastructure certification change in mix with total enrolment broadly
app designed in collaboration with refugee contract. Pearson Test of English Academic flat and new student enrolment up 18%.
children in Jordan as part of our Save the saw strong growth in revenue with over
Children partnership. 10% growth in the volume of tests taken in
2019 outlook
India, China and Middle East and moderate
price increases. In our Growth segment, we expect revenue
to continue to increase in 2019 benefiting
from new products and services across
all divisions.
Overview
Pearson Institute of Higher Education In
South Africa offers a range of different
degrees, higher certificate, foundation and
academic support programmes in South Pearson owns 25% of Penguin Random
Africa, with a focus on preparing learners House, the first truly global consumer
for the world of work. book publishing company.
Career outcomes are embedded into
Penguin Random House performed well
the curriculum of each programme and
with underlying revenue growth on
students are provided with the knowledge,
skills and mindset to help them positively
increased audio sales and stable print
change the world. sales, whilst the business benefitted
from international bestseller “Becoming”
Pearson Institute “I gained invaluable skills at PIHE, which
by Michelle Obama, the year’s top-selling

embeds career outcomes I implement in my everyday life. These include
time management, planning, communication
U.S. title, and bestsellers from Bill Clinton
& James Patterson, Jordan Peterson,
into curricula skills and self-care, which is fundamental in
maintaining a balance in life,” says Xia Coetzer, Jamie Oliver, Dr. Seuss, John Grisham,
a PIHE graduate who is now a registered and Lee Child.
Service: Pearson Institute of Higher Education
counsellor at ICAS Southern Africa.
2019 outlook
7000+
In Penguin Random House, we anticipate
Students enrolled at
a normalised publishing performance
Pearson Institute of
Higher Education and expect an annual after-tax
contribution of around £60-65m to
our adjusted operating profit.
Our performance
Pearson takes the best of our ‘Longman
Welcome to English’ curriculum and adds
Microsoft’s AI capabilities to create an app that
personalises English language learning at its
highest possible level. Delivered through
WeChat, which has nearly a billion monthly
users, this app is giving users the opportunity
to learn on their own terms, when and where
they want. It is easy to use, it is specifically
tailored for Chinese users as it ‘listens’ to the
spoken practice exercises, and it is precisely
Governance
tasked to correct common pronunciation
App delivers errors. Learners receive immediate feedback
personalised English and so they are able to keep track of their

progress and remain interested.
language learning “Longman English+ provides extensive English
resources for students and enables them to
Product: Longman English+ practice in various methods. They are able to
learn the content and knowledge in the text
book, as well as improve their speaking skills.
I believe it will provide solid ground for our
students’ future English learning,” says Leo Liu,
a teacher at Zhoushan Greentown Yuhua
International School.
Over 35,000 students use Longman English+

to learn the English language skills they need
to thrive in school and beyond. Ultimately,
Longman English+ is meeting learners where
they already are, making it easy for them to
35,000+ practice English and prepare for their future.
Students use Longman

English+ to learn the English
language skills they need to Automated speech recognition
thrive in school and beyond
Automated marking and scoring
Enterprise risk management
Ensuring effective identification

and management of risk.
Our approach to risk management is Our enterprise risk management (ERM)
summarised in the framework below. framework aligns to international
Our goal is to support Pearson in meeting standards (e.g. COSO and ISO 31000) and
its strategic and operational objectives, aids our continued compliance with the
as described earlier in the Annual Report. Financial Reporting Council’s (FRC)
UK Corporate Governance Code
guidance on risk management, as well
as enabling us to adapt to any required
or desired changes in approach.
Foundations Managing risk

All the elements that make up this framework Our approach to managing risk
come together to provide the foundations for has remained consistent with
successful ERM, and risk management more prior years.
broadly, across Pearson.
Governance and oversight Appetite and tolerance Context

The Audit Committee assists the Board Pearson’s leadership team sets the target Risk context sets the criteria against which
in overseeing our ERM framework. risk appetite for each risk they own (validated risks are identified and assessed, defining
They validate target risk appetite, risk by the Audit Committee and Board). Clarity the external and internal parameters to be
status and mitigation plans, as well as on the degree of risk the Board is willing to taken into account.
verifying the viability statement process. accept determines the most appropriate
The risk management policy, framework and
risk treatment to manage an individual risk.
Roles and responsibilities For example, a legal or compliance risk
supporting guidance set out how to manage
The ERM framework covers the day-to-day risks, such as how to determine probability
has a low target risk appetite. We try to
work on principal and business-level risks. and impact as well as instructions on how
eliminate the risk as much as we can.
For a list of responsibilities of key risk to translate these into an overall risk rating.
Customer experience represents a strategic
stakeholders, see p104 in ‘Governance’. Adaptations of these matrices, tailored for a
opportunity and is therefore likely to have a
specific business area, are in use and align
higher risk appetite, thus we would take
Policy, framework, processes with the policy.
well-informed and well-managed risks
and tools to achieve our goals in some areas. Assessment
Our policy, framework and supporting
guidance set out why risk management Working with third parties At least annually, we facilitate a risk
assessment process through discussions
is important and the minimum standards. The use of third parties, such as suppliers
with leadership, senior management and key
These can be tailored by a business area or partnerships, can create risk. For example,
stakeholders from each business area.
as long as they align with the policy. an interruption to our business operations as
For each risk identified, the probability of it
The process is assessed during the a result of the actions of an external provider
materialising and its potential impact is rated.
annual effectiveness review, covered in may prevent us from meeting our strategic
The adequacy of action plans to address any
more detail on p104 in ‘Governance’. goals or could impact our reputation. In 2018,
remaining control gaps is then assessed.
we built on the third party risk management
policy and activities initiated in previous We do this for both new risks identified
years with continued roll-out of procurement as well as those already being monitored.
processes that help us flag third parties Horizon scanning also takes place
requiring further due diligence. We also throughout the year to aid in the
increased our due diligence on third parties identification of new risks.
in certain areas (see data privacy and
compliance risks on p72 and p74 respectively
for more on this).
Continuous improvement
Overview
At the end of 2014, we reviewed our risk interim, we made use of existing internal mbedding emerging risk processes in line with
E
management maturity against the risk framework, collaboration tools to streamline processes. the FRC’s 2018 revisions to the UK Corporate
setting out and monitoring maturity targets. Governance Code guidance that comes into
One area where we have made good progress
At the start of 2018, we expanded this into a three effect for 2019 reporting
in 2018 is implementing a more robust analysis
year ERM vision, strategy and goals to further
of emerging or new risks, undertaking a eploying a risk tool which will support not just
D
improve risk management across Pearson.
documented gap analysis of Pearson’s risks our risk monitoring across the business, but
Progress and challenges in 2018 against our strategy as well as external risk also improve our ability to undertake more
data and reports plus competitor analysis. thorough risk analysis such as risk trends
As we began to implement our strategy, our
reliance on manual processes quickly became a over time. We have built into the tool’s design
Priorities for 2019
key challenge we needed to overcome. We the criteria we need to further develop our
In 2019, we will continue to implement integrated assurance approach, by bringing
began to design and test an online risk tool in

our three-year risk plan, including: together different sources of assurance
2018 in order to overcome this challenge. In the
information into one place for the first time.
Culture
The ERM framework is also
Context used to promote a risk aware
culture across the organisation,
Our performance
with the aim of integrating risk
management into day-to-day
Assessment decision making.
Monitoring
and review
Reporting identify, analyse,
evaluate
Communication, training, education
and awareness
Our Code of Conduct certification was revised
and implemented in 2018, supporting our
commitment to ethical behaviours across
Treatment
the organisation. We are committed to raising
Governance
awareness among employees
on the importance of better managing
day-to-day risks. In 2018, we regularly
attended leadership and team meetings
Treatment process and key risks. The reports cover
to highlight best practice and conducted
current risk status as well as an update on risk
Once assessed, the most appropriate course specific risk workshops, including targeted
mitigation initiatives and their effectiveness.
of action for each risk is decided, taking efforts on the risks involving programme
Discussions focus on where there is either
into account the size of the gap between its interdependencies.
a) the greatest change in rating or b) the
current risk status against its risk appetite
biggest gap between current rating and the Embedding risk in decision making
target. This can include ‘avoid’ (i.e., not doing
target risk appetite, with the emphasis on All Pearson business functions continued
something); implementing mitigation or
the strength of mitigation plans in place. to maintain their own risk map, with the
contingency plans to change the probability
Risk maps for each business area are also spotlight in 2018 on the further improvement
or reduce the impact of a risk; accepting
included in these reports. of mitigation plans. Business functions

increased risk in order to pursue an
opportunity, or sharing the risk with Risk deep dives also take place at the Audit follow the same framework for identifying,
another party or parties. Committee throughout the year. In 2018, assessing, treating and monitoring risk.
some of the areas covered include business Each identified risk is also assigned a risk
Monitoring and review transformation, anti-bribery and corruption appetite target.
The Board and Audit Committee review (including third party due diligence) and data
ERM risk update reports twice per year at a privacy (including GDPR readiness). You can
minimum. This gives them the opportunity read the details in the Chair of the Audit
to review, challenge and validate the ERM Committee’s letter on p97-98.
Principal risks and uncertainties
The Board of Directors confirms

that throughout 2018 they Principal risks: status and 2018 change
undertook a robust assessment Key
of the principal risks facing Pearson,
Severe
0
in accordance with provision
10 Net risk
C.2.1 of the 2016 UK Corporate 11
Impact (Financial, Reputational, Operational)

Probability and impact
Governance Code. are based on residual
Major
13 5 1 risk, i.e. after taking
3 4 into account controls
Our principal risks 6 8 2
7 already in place and
(as of 31 December 2018) 14
assumed to be
Moderate
9 operating effectively.
Listed in the table and shown on the 12
adjacent risk map are the most significant
risks that may affect Pearson’s future.
Indicates
A longer list of business area and company-
change in 2018
Minor
wide risks is monitored and reviewed

internally throughout the year. The most For more information
material risks are those which have a see principal risks and
higher probability and significant impact
Insignificant
uncertainties tables
on strategy, reputation or operations, p63-75.
or a financial impact greater than £50m,

and are classed as our principal risks.
Rare Unlikely Possible Likely Almost
Due to internal mitigation efforts, treasury certain
Probability
risk reduced in 2018 to the extent that it
now falls below our threshold to be
included as a principal risk. Risks are categorised into four main areas: Executive responsibility
At the time of publication, the UK remains Business transformation Chief Executive Officer
Strategy and change 1
due to leave the EU on 29 March 2019. Given Relating to the goals that are
and change
the scheduled exit date and significant risk aligned with and support our 2 Products and services President, Global Product
of no deal, we have advanced mitigation strategy. This category is the
plans underway. These do not involve most likely to contain ‘opportunity’ 3 Talent Chief Human
risks which are likely to have a Resources Officer
material cost and we will be able to unwind higher risk appetite
those plans without significant disruption 4 Political and Chief Corporate Affairs Officer
or cost if it later becomes appropriate. regulatory risk
Work continued throughout 2018 (led by a Testing failure President, Assessments;
Operational 5
Steering Committee chaired by the CFO) President, UK and Core Markets
Involving people, systems
to identify and mitigate any potential impact and processes 6 Safety and security Chief Human
on our principal risks below, such as Resources Officer
supply chain and operations (covered in 7 Customer experience President, Global Product;
the customer experience risk), tax and Chief Technology and
data privacy, as well as other areas such as Operations Officer
treasury and workforce mobility, particularly 8 Business resilience Chief Financial Officer
in the event of a ‘no deal’ scenario. By virtue
of that analysis and mitigation planning, we 9 Data President, Global Product;
Chief Technology and
continue to believe that Brexit will not have
Operations Officer
a material adverse impact on Pearson as a
whole; in particular we believe we have Financial 10 Tax Chief Financial Officer
plans in place that will largely mitigate Involving financial planning, investments,
against the impact of a ‘no deal’ scenario. budgeting, potential losses of and
exposures to Pearson’s assets
The following principal risks also relate
Information security Chief Technology and
to the material issues considered in the Legal and compliance 11
and data privacy Operations Officer;
2018 Sustainability Report: products Relating to the adherence to
applicable laws and regulations. General Counsel
and services, testing failure, political and
Risks in this category typically 12 Intellectual property General Counsel
regulatory, information security and data
have a very low risk appetite.
privacy, customer experience, and safety 13 Compliance General Counsel
and security. You can read more in the
14 Competition law General Counsel
Sustainability section on p32–40.
Strategy and change
Overview
1 Business Reason for risk rating 2019 outlook and plans
This risk has reduced due to the ongoing Business transformation and change initiatives will
transformation implementation of The Enabling Programme continue to support our strategic goals to accelerate
and change (TEP) in North America in the first half of 2018.
This has reduced our financial risk impact.
our digital transition in higher education, to manage the
print decline, and to reshape our portfolio, as outlined
The accelerated pace and by our Chief Executive on p10-12 and covered in more
However, the scale, volume and accelerated
scope of our transformation detail under our strategy in action on p18-32.
pace of change, combined with the execution
initiatives increase our risk interdependencies, keep this as a high risk going In 2019, we will continue to roll out TEP to other
to execution timelines and into 2019. geographies worldwide. All key programmes
to business adoption of will continue to be closely monitored by the Audit

change. The risk is that The 2017-2019 simplification programme is performing
Committee at each meeting (you can read more about
benefits may not be fully ahead of plan and now expects to deliver increased
their oversight of TEP and the GLP on p97-98).
realised, costs may increase, annualised cost savings in excess of £330m by the
or that our business as end of 2019, ahead of our original plan of £300m. We will continue to use our change and transformation
usual activities are office to drive plans to completion in 2019. Change
Existing controls management expertise and dedicated support have
adversely impacted.
hange and Transformation office
C been put in place across North America, Finance and
ecrease in impact
D The Global Learning Platform (GLP) and The Enabling Human Resources teams.
and probability Programme (TEP) are standing Audit Committee
agenda items
Strategic priorities: Independent assurance regularly undertaken on
row market share
G the key programmes.
1
through digital
Outcome of 2018 activities
Our performance
transformation
In 2018, we continued to invest in the digital
ecome a simpler,
B
3 transformation and simplification of the company:
more efficient and
more sustainable e continued to develop the GLP – described in
W
business more detail under risk 2 – ‘Products and Services’
We implemented the next phase of TEP – primarily
in North America – to progress the simplification of
our business.
The 2017-2019 simplification programme moved into

its implementation phase in 2018, with many initiatives
now complete.
Governance
Strategy and change

2 Products and Reason for risk rating Product and investment portfolio
Progress was made during 2018 in consolidating our
We have made significant progress in managing risks
services around our competition and the product and
key product portfolios. Portfolio investment allocation
decisions were made using an agreed data-driven
investment portfolio in 2018 due to the ongoing
Failure to successfully invest framework and the investment governance criteria
progress we have made in improving our processes
in, develop and deliver (to and process were revised, spanning partnerships,
and strategic investment recommendations.
time and quality) innovative, portfolio strategy and geographies.
market leading global However, due to the importance of product innovation
Competition
products and services that (such as the ongoing development of the Global
In 2018, we scaled the rental access model initiative
will have the biggest impact Learning Platform (GLP) and our investment in
from c.50–c.150 titles in total by the end of
on learners and drive AI research) to achieving Pearson’s strategic priority
the year.
growth, ensuring Pearson: of digital transformation, the impact if this risk
materialises remains high. We also continued initiatives (e.g. pricing, format,
esponds to market
R
policies, marketing, channel) to incentivise customers
needs, as well as threats Competition
to move from print to digital products to help mitigate
from both traditional We have made significant progress understanding
risks arising from the secondhand market and achieve
competitors as well as the competitive and structural threats, especially to
our digital business transformation goals.
disruptive innovation our US Higher Education Courseware business,
and made progress mitigating these. 2018 saw the launch of additional anti-piracy initiatives
ffers products to market
O
(see risk 12, Intellectual Property, which includes
in line with our strategy, We operate in competitive markets with many
piracy, for more on this risk).
at the right price and with competitors across these markets. As the consumption
a deal structure that of educational products and services shifts to digital 2019 outlook and plans
remains competitive. and subscription models, this has the potential to lead
Turning this risk into an opportunity – successfully
to changes in the competitive structure of the markets
This risk was revised and accelerating our shift to digital as well as investing in
in which we operate.
expanded in 2018 following and delivering the right products and services – is as
a risk review against the Existing controls critical to successful business performance in 2019
strategic priorities, as well as we have flagged in previous years. As our Chief
Global product lifecycle process
as a thorough analysis Executive highlights on p10, over time our aim is
Portfolio governance and management
of underlying risk drivers. to transition to a digital first model for our learners,
Audit Committee oversight of the GLP.
The definition has been with print resources available as an ‘add on’ service.
changed as a result. Outcome of 2018 activities
Product Innovation
Product Innovation We will continue to invest in our development of the
No overall change Further investment was made in 2018 in development GLP (focusing on an enhanced Revel platform) and
of the GLP – our single, cloud-based platform to expect to launch in the second half of the year. The GLP
support our learners and enable us to innovate faster will also enable us to better deploy AI and machine
Strategic priorities:
in the future. learning to drive advances in educational technology.
row market share
G
1
through digital The first of our pilots – Rio – went live in September Investment in the development of AI will also continue,
transformation 2018: Pearson used the software to run a number of such as using it to build on existing automated scoring
focus groups and targeted interactions with different capabilities using natural language processing.
Investing in structural
2 schools and instructors during the latter half of 2018.
growth opportunities
Product and investment portfolio
In addition, we are investing in other innovations, such 2019 priorities include improving decision making
as Artificial Intelligence (AI), to ensure that our products effectiveness, for example by implementing a decision
provide leading personalised learning experiences and playbook to support how we make decisions for our
better outcomes. In 2018, we appointed an industry products plus identify gaps in the decision making
expert to lead on the development of our AI products process and how to close them.
and solutions strategy.
Competition
Our aims in 2019 are to significantly increase the
number of US Higher Education Courseware products
in the ‘access first’ or Subscription business model,
as well as continuing our pricing simplification efforts in
order to clarify and simplify our pricing structure for
both sales representatives and customers.
Strategy and change
Overview
3 Talent Reason for risk rating ut greater focus on diversity and inclusion (D&I):
P
we designed our future state diversity framework,
This risk has reduced due to:
Failure to maximise governance and measurement model. We received
Impact of improved financials: Stabilising financial awards for our localised D&I efforts and increased
our talent – Risk that we are
performance has driven an improving outlook for marketplace recognition. You can read more about
unable to attract the talent
employee incentivisation helping raise morale; also our diversity, equality and inclusion activities under
we need and to create the
positive sentiment of strategy approved by the Board Sustainability on p38
conditions in which our
Compensation toolkit enabling managers to Released the organisational health index survey for all
people can perform to
address specific retention risks as needed Pearson employees, the results of which will influence
the best of their ability.
(with Executive approval); primary retention the priority order of the 2019 action planning.
managed through total reward

ecrease in impact
D 2019 outlook and plans
Better data enabling improved decision making
and probability
Leadership development programmes. HR will continue to work with Pearson leaders to
Strategic priorities: increase engagement and organisational health,
Existing controls
row market share
G
acting on the findings from the organisational health
1 etailed monthly reporting of HR data and insights
D survey taken in late 2018. Our aims in 2019 are to:
through digital
transformation to proactively identify and manage risks, including
evelop sustainable total reward programmes
D
turnover (voluntary and involuntary) data as well
Investing in structural aligned to the business strategy
2 as gender diversity at all career grades, with regular
growth opportunities Develop awards and recognition for the workforce
Executive review to identify areas for improvement
and marketplace
Consistent performance, talent and succession
Deliver organisational design and change
3 ecome a simpler,
B management processes
more efficient and management to support business deliverables
Employee policies including the Code of Conduct
more sustainable Upskill the workforce on digital customer channels
Employee engagement forums and action plans
Our performance
business B2B, while continuing to acquire new digital talent
Exit interviews conducted and monitored globally
and expertise
to identify any trends and concerns
Drive sales performance through embedding
‘Pearson U’ learning platform
best practice sales incentive design
External careers website and talent acquisition
Empower managers with greater flexibility to
approach to improve attraction of digital skills
make reward decisions for their teams, underpinned
Wide range of employee benefits.
by greater transparency of our pay practices to
Outcome of 2018 activities our employees
To support our digital transformation, acquisition of Refresh leadership skills, competencies and
digital talent is a high priority. Challenges continue with behaviours and continue leadership
digital hiring but we are seeing some improvement, development programmes
driven by clarity of skillset needed and a targeted Refresh approach to performance management,
compensation guide enabling Pearson to be more adapting more contemporary practices to drive
Governance
competitive. As a result, year over year percentage of high performance
digital hires is up by 37%. We also: Utilise new approach to talent review, assessing all
VPs against required capabilities and culture needed
ocused Leadership development programmes
F Drive internal mobility through increased visibility to
for senior leaders with specific mentoring talent and cross-business development opportunities
programmes for high potential employee (HiPO) Promote enterprise-wide talent management mindset,
women in these roles owned by leadership across all areas. Develop a
Continued targeted learning throughout the mindset for analytical, digital and innovation skills
organisation with ‘Pearson U’ learning platform Deliver refreshed global diversity and inclusion
enhancements, career development workshops, approach, operational plan and measurement model;
manager fundamentals training and emphasis on increase gender diversity, especially in senior
all employees having development goals leadership roles.
Launched the Alumni programme
Strategy and change

4 Political and Reason for risk rating ubmitted responses to enquiries and consultations
S
regarding technical/vocational education and
Despite a slight reduction in our risk exposure in the US
regulatory risk from an educational standpoint, this risk remains high
related issues
Continued to position Pearson in the UK as a leader,
at the time of publication due to the potential for
Changes in policy and/or expert and innovator in T Levels. We were awarded
political instability in the UK arising from the potential
regulations have the the contract to develop, deliver and award two of the
for Brexit ‘no deal’ plus wider uncertainty and instability
potential to impact business first three T Levels.
in the rest of the world.
models and/or decisions
Internationally, we continued our ongoing efforts to
across all markets. Existing controls
position Pearson for PTE Academic accreditation in
Board and Executive oversight China, Canada and the UK, well as pursuing BTEC
No overall change Government relationship teams opportunities in Southeast Asia.
Steering Committee monitoring the UK’s departure
from the EU. 2019 outlook and plans
Pearson will continue to position itself as a leader in the
education space, an innovator in higher education and
In 2018, we continued to build global political and establish the company as a key engine in workforce
regulatory relationships in the US and the UK, development and economic growth. We are also driving
as well as an international political profile in order opportunities to engage directly with other businesses.
to understand future international risks and
proactively mitigate them. In the US, we are likely to see a push to increase
higher education funding from new Democratic
In the US, we worked hard to highlight Pearson’s Governors and State Legislators, as well as a focus on
credentials as an innovator in education and workforce connecting education to jobs. Pearson will continue
readiness, specifically referencing Accelerated to work with Governors and educate officials at the
Pathways, Inclusive Access and workforce credentialing; Federal and State level on Pearson’s expertise in
we maintained fair market access through national and education and workforce.
state partnerships and direct lobbying; and we worked
with the National Governors Association Chair to shape Brexit may cause political instability in the UK arising
his Initiative on developing workforce skills. from the potential for ‘no deal’ plus wider uncertainty
and instability in the rest of the world. Pearson will
In the UK, we continued to monitor actions associated continue to implement its mitigation and contingency
with the UK’s departure from the EU, working with plans in case of a ‘no deal’ (See ‘customer experience’
government to mitigate business risk associated with risk for supply chain specific Brexit mitigation actions).
regulatory changes. We also implemented our own
internal mitigation and contingency plans in the Internally, trade tensions and political uncertainty with
event of a ‘no deal’. rising populism and nationalism could lead to further
protectionist measures. We will continue to position
We also: Pearson with government officials and influencers
esponded to the government’s post-18 funding
R in key markets for PTE Academic accreditation and
review, creating a commission to oversee research BTEC opportunities, as well as widening participation in
into vocational education and lifelong learning international forums and with national government
Continued executing thought leadership work contacts to mitigate regulatory risks.
to establish the role of BTECs in supporting We will continue to monitor legislation around the
learners into work and higher education as an world for major shifts in education policy.
alternative pathway
Operational
Overview
5 Testing failure Reason for risk rating In June 2018, a GCE A Level Maths C4 paper (taken by
50,000 pupils in England) was offered for sale online the
As Pearson is an educational content, assessment and
Failure to deliver tests and night before the exam. This was the same paper that
related services company, successfully managing this
assessments and other was leaked the year before. A police investigation was
risk remains a priority.
related contractual opened, however, the incident was far more limited in
This risk decreased in 2018 due to the continued scope than it was the prior year, due to the additional
requirements because of
migration of all student testing in North America security measures put in place as a result of the
operational or technology
to a secure cloud computing environment – Amazon previous incident. Ultimately, the paper-based nature
issues, resulting in negative
Web Services (AWS). This has resulted in improved of examinations and the scale of the system means
publicity impacting our
availability and stability. that security is heavily reliant on schools to maintain
brand and reputation.
the security of the material. The investigation was

We successfully delivered exams and testing in 2018 to
ecrease in impact
D able to make good progress in identifying the source
a high standard of quality. We experienced minimal
and probability of the leak.
disruption of the ePEN (online marking system).
However, the impact should we experience issues in The IBM security tool implemented by Pearson VUE
Strategic priorities:
our testing platforms or processes keeps this as a risk. started to yield benefits in terms of client adoption and
ecome a simpler,
B positive feedback of the web monitoring. Alongside
3 Existing controls
more efficient and
this, a new third party governance and assurance
more sustainable
We seek to minimise the risk of a breakdown in our process was developed which will continue to be
business
student marking systems with the use of: rolled out in 2019.
Robust quality assurance procedures and controls 2019 outlook and plans
Oversight of contract performance
The drive to continue improvements to availability
Investment in technology, project management and
and stability of testing systems, migrating and retiring
skills development of our people, including software
Our performance
legacy systems will continue in 2019, for example,
security controls, system monitoring, pre-deployment
migrating PTE Academic to AWS and further automating
testing, change controls and the use of root cause
test publishing processes to reduce the risk of human
analysis procedures to learn from incidents and
manual error.
prevent recurrence
Use of AWS in Clinical and Schools In UK qualifications, the potential impact should
IBM counter-fraud tool (Pearson VUE). this risk materialise is potentially higher due to the
fact that:
In North America, SchoolNet plus all Clinical products 1) 2
019 will see the main implementation of the
have now been successfully migrated to AWS. The next ePEN upgrade. We will take into account the
iteration of ePEN (UK and Australia) is also now AWS complexity of our systems, as well as external
hosted. Pearson VUE also began the process of marking contract requirements
moving systems to more stable platforms. 2) We still have a number of reformed qualifications
Governance
Our Functional Skills qualifications were the first to being delivered in 2019 which includes GCE Maths.
go live on the new version of ePEN in the UK (in July) Given the high stakes nature of the UK testing business,
followed by General Qualifications in November. PTE the risk of security breaches remains, either malicious
Academic was also upgraded to stabilise the system. in nature or as a result of error. We are launching a
malpractice review as part of the Joint Council for
Qualifications. This will include question paper
breaches but also cheating allegations more broadly.
Operational
6 Safety and Reason for risk rating The corporate security team led reviews in 16 countries
in 2018, identifying areas for improvement or further
Corporate security risk probability increased, reflecting
security an increase in incidents in 2018 compared to 2017.
adoption of security policy/standards.
The variety and global range of risks/threats we face Health & Safety (H&S)
Risk to the safety and
are undiminished. The impact of an event occurring Due to ongoing implementation of H&S risk mitigation
security of our people and
(and not just externally) could be significant. actions, we have seen a slight reduction in risk in 2018.
learners arising from either
Completed activities include:
the risk of injury and illness; There has been no change in terms of the overall risk
our failure to adequately status for both Health & Safety and Safeguarding. significant revision of our Global H&S policy and
A
protect children and Serious safeguarding incidents may not be frequent standards with animation
learners; or due to but their impact remains high, both to the individual A global round of International IOSH ‘Managing
increasing local and affected as well as to Pearson’s reputation (there Safely’ course
global threats. continues to be a focus on these issues worldwide, The implementation of a business focused and
both in the government and in the media). risk-based health and safety assurance programme:
This risk has been expanded
in our 48 priority locations, implementation of the
to incorporate all risks that Existing controls
global H&S Standards continues to improve.
could impact the safety lobal policies and minimum standards in place
G
and security of our people for Health & Safety, Security and Safeguarding 2019 outlook and plans
and learners into one risk. Global audit and assurance programme In 2019, we will continue to promote the message of
As a result, it now includes: Training and communication (e.g. global animation, prevention as well as reaction.
Corporate security new internal Health & Safety intranet site,
Safeguarding
IOSH Managing Safety Course)
Travel safety We will continue to develop our practice and policy in
Staff Code of Conduct
regards to online Safeguarding: we have appointed an
afeguarding
S Third party risk management policy
external consultant, who is a recognised expert in
and protection. Local Safeguarding coordinators
online Safeguarding, to assist us with our plans.
Everbridge mass notification system
Our plans include:
External travel management and intelligence.
Increase in probability Key Performance Indicators in place (see p37-38 osting a seminar which looks at best practice in online
H
in Sustainability). Safeguarding for internal staff and external partners
Ongoing work on the Safeguarding action plan for the
Pearson Institute of Higher Education in South Africa
Safeguarding Publication and implementation of a sexual
We continue to view Safeguarding as a fundamental harassment policy in Pearson College London
obligation to our learners and a high priority for Ensure that our Safeguarding practice fully reflects
Pearson and as such it also forms part of our the company’s commitment to diversity.
sustainability strategy (see p37 in Sustainability).
We agreed a new Safeguarding strategy for 2018-2020, Corporate security and travel safety
which includes a focus on Safeguarding in online and In 2019, we are forming a combined security and
digital environments. resilience governance group which will oversee
management of this risk. Physical and travel security
In addition, we implemented a new set of Safeguarding reviews of higher risk locations will be ongoing and
metrics, which enable a better analysis of how robust we will continue to refine data specific to our
each business’ Safeguarding is; and we completed a gap Everbridge notification system.
analysis on the Safeguarding assurance processes for
each business. This identified eight areas where we will Health & Safety
strengthen and deepen our assurance processes. Our aims in 2019 are to:
In April 2018, we co-hosted a seminar with the Lucy eliver a real-time, global solution to report,
D
Faithfull Foundation: Creating ‘child safe, child friendly escalate, investigate and action H&S Incidents
organisations.’ It explored the use of Situational Continue our robust business-focused and risk-based
Prevention in addressing abuse in schools. It was well global assurance programme for 2019, which includes
attended with 97% saying they would apply the theory third party vendors where Pearson has outsourced
to their current role. risk activities
Further develop the analysis of Occupational Health
Corporate security and travel safety data in partnership with HR to ensure proactive and
Travel security continues to grow in support of new reactive intervention strategies are aligned.
areas, not limited solely to higher risk locations.
Our Everbridge tool is now live in 21 countries and

we released mandatory training and awareness for
people travelling to high risk locations.
Operational
Overview
7 Customer Reason for risk rating Customer experience
The customer experience is recognised as a key enabler
This risk is crucial to Pearson a) delivering a good
experience service to our customers and b) enabling our digital
and ‘license to operate’ in terms of Pearson’s future
strategy. In 2018, we realigned our priorities and plans
transformation. As a result, we expanded and
Failure of either our current across the business, in readiness to refocus on
redefined the risk to include the end-to-end customer
operations, supply chain or the learner experience in 2019.
journey, whether for print or digital products and
customer support to deliver
services (or a blend of the two). Customer services
an acceptable service level
Customer services have made a lot of progress in
at any point in the This redefined risk remains rated high due to our
terms of reducing this risk in 2018 and managing the
end-to-end journey; or to ongoing transformation efforts which have the
challenges of the TEP deployments in North America
accelerate Pearson’s lifelong potential to impact on the customer experience.

and the UK.
learner strategy
We continued to make further improvements to our
and transformation. Operational stability
product platform stability and execution in 2018 and
We continued to focus in 2018 on performance and
Previously ‘customer digital had good stability throughout both North America
stability across all of our product platforms with
experience,’ this risk has been Back to School periods. This was our best year to
roadmaps underway for stability, the user
redefined and expanded date in terms of up time.
experience (UX) and competitive features across
following a review of the
In the UK, we began the implementation of mitigation all product platforms.
global strategy implications,
and contingency plans to manage a potential ‘no deal’
as well as a thorough analysis 2019 outlook and plans
scenario regarding the UK’s exit from the EU, given the
of the underlying risk drivers
possibility of a ‘no deal’ at the time of publication. Operations and supply chain
undertaken as part of the
In the US, our primary focus is to ensure that we are
H2 2018 risk update process. Existing controls
prepared for the Back to School periods, the first of
As a result, we have expanded eal-time monitoring of systems (for service
R which is in the spring of 2019.
Our performance
the customer experience disruptions) and reporting of operational
and learner experience In the UK, a team has been established that is taking
performance used to identify issues
component of the risk and end to end responsibility for our Learning Services
Release readiness reviews for our major
added operations (including operational delivery. We will continue to implement
product platforms
supply chain) to better reflect our mitigation and contingency plans to prepare for
Programme governance and hypercare
the risks to delivering the possibility of a ‘no deal’ Brexit whilst we monitor
Board oversight of Brexit risk
an optimal end-to-end the outcome.
In the UK, the Audit and Quality team have a secure
customer journey. supplier annual audit programme for suppliers dealing Customer experience
with Pearson confidential material (e.g. exam papers) In 2019, we will focus on learners and modernising
light increase in
S
New structure put in place to prevent fraud and our customer experience for clinical assessments,
impact
incorrect orders to be placed by customers. expanding our efforts to instructors and educators
in 2020 and beyond.
Increase in probability Outcome of 2018 activities
Governance
Operations and supply chain Customer services
Strategic priorities: Our efforts in 2018 were focused primarily on the The focus in North America is preparing for and
UK and North America. The Enabling Programme supporting further TEP implementations in order to
row market share
G
1 (TEP) went live for the first time in North America in minimise customer impacts as we move to new
through digital
transformation May 2018, with ongoing hypercare put in place as a business processes and adopt new technology.
contingency plan to support supply chain stabilisation Operational stability
ecome a simpler,
B
3 during implementation. Our 2019 roadmap for North America Higher Education
more efficient and
more sustainable In the UK, as well as a TEP retrofit deployment, continues to be increasingly focused on security and
business performance of non functional requirements as well
we also completed our move from the UK warehouse
previously shared with Penguin. This was phased as well as third party interoperability.
from the end of 2017 and completed in spring 2018.
In parallel, we also undertook an in depth analysis
into the impact on our supply chain and operations in

the event of a ‘no deal’ Brexit, commencing work on
implementing our mitigation and contingency plans
to address these.
Operational
8 Business Reason for risk rating earson Qualification Services recertified to
P
ISO 22301, Business Continuity Management
The business resilience programme continues
resilience to mature, although Pearson’s global footprint
Developing the approach to digital resilience,
including for the GLP and future digital product.
means there remains a possibility of single
Failure to plan for, recover, Worked with Health & Safety, Facilities Management
events with major impact.
test or prevent incidents and Global Property towards embedding
at any of our businesses Work to improve incident management continues improvements across North America, although
or locations. to see positive improvements. delivery is primarily in 2019
High Impact Event (HIE) awareness and education
Incident management Existing controls
took place across 13 Pearson locations in the second
and technology disaster Policy in place half of the year. This was well received and more are
recovery (DR) plans may Incident management process, including global planned for 2019.
not be comprehensive notification and incident reporting tools
across the enterprise. Resilience Governance Board meetings 2019 outlook and plans
Risk definition has been Incident management and recovery teams In 2019, we will continue to focus on prevention rather
changed to focus on ISO 22301 independent accreditation. than reaction and refine our resilience approach to be
resilience, DR and incident responsive to both current and emerging risks.
management. Corporate
A new Pearson wide resilience policy and incident A combined Security and Resilience Governance
security and travel safety now
management framework was delivered in 2018 Group will form in 2019.
forms part of the expanded
‘Safety and security’ risk. and work continued to improve business resilience Specific focus areas will be to:
and incident management capability across the
organisation, including: etter understand and mitigate risks to supply chain
B
No overall change and vendor management
nnual reviews and further refinement of the
A Continue support to the GLP and TEP programmes
‘Top 40’ and other locations involved in planning, Continue to refine DR planning for legacy systems
testing and response to actual incidents Continue to support Data Centre resilience.
9 Harnessing Reason for risk rating Work is continuing on customer data harmonisation,
definitions and data representation which will also help
This is a new principal risk for 2018 and reflects the
the power of importance of data analytics in education (as outlined
support the ongoing promotion of data governance.
our data by our Chair on p8) such as driving improvements in

learning, improving classroom productivity and making
We began user capability work in the second
half of 2018 which will allow us to begin to retire
New risk: Failure to: learning more affordable and more accessible. legacy systems.
1) Maximise our use of data We continue to evolve our business model so we are Data privacy guidelines (concerning GDPR) were issued
to enhance the quality and able to use our data in ways in which we can better and are being taken into account in our data activities
scope of current products and service the needs of our customers. (see risk 11 which covers our data privacy risk and
services in order to improve
GDPR readiness in more detail).
learning outcomes while Existing controls
managing associated risks. EP with Master Data Management (MDM) now live in
T 2019 outlook and plans
2) Maintain data quality, both the UK and North America We will start work to expand MDM and ERP user
accuracy and integrity to Data governance in place. capabilities to enable decommissioning of legacy
enable informed decision- product data systems (target retirements to start
making and reduce the risk Outcome of 2018 activities
Q4 2019). This is expected to highlight issues in
of non-compliance with One of the outcomes of the work undertaken across data harmonisation that will need to be resolved.
legal and regulatory Pearson in 2018 is that the concept and approach
requirements. to data governance across customer and product is Expanded customer data harmonisation and quality
maturing. Our MDM footprint was expanded as part activities are also being planned for early 2019.
We have previously included
of TEP going live in North America in May 2018 – this We will continue to develop the concept of data
the second component
consolidated North American customer and product governance through defining ownership, policies,
under risk 1, business
data from three existing ERPs with what was already and funding for transactional and reference
transformation and change.
live in the UK. The product data footprint was also data governance.
Strategic priorities: expanded in 2018 to meet the needs of our new rights
and royalties system. Future mitigation plans for this risk will focus on how we
row market share
G
1 collect data, how we use it and the structures we have
through digital
transformation in place to manage associated risks, both regulatory
and reputational.
ecome a simpler,
B
3
more efficient and
more sustainable
business
Financial
Overview
10 Tax Reason for risk rating Outcome of 2018 activities
The risk impact increased in 2018 due to the ongoing In 2018, the Audit Committee reviewed our updated
Legislative change caused potential financial (cash) impact of the announcement tax strategy and approved our second tax report which
by the OECD Base Erosion in November 2017 of the European Commission was published in the second half of the year.
and Profit Shifting (BEPS) opening decision on the UK Controlled Foreign
During 2018 we worked through the implications of
initiative, the UK exit from Companies exemption (see note 34, contingent
the State Aid opening decision, with the support of
the EU, or other domestic liabilities, on p206). We continue to await a
external advisors.
government initiatives, final decision from the investigation.
including in response to the We took appropriate action in response to US tax
We have recorded a significant one off tax benefit
European Commission State reform at the end of 2017.
in 2018 (please see our CFO’s commentary on p44

Aid investigation into the
UK CFC exemption, results
for more on this), however we do not anticipate a 2019 outlook and plans
significant change in the ongoing effective tax
in a significant change to Our focus in 2019 will be the monitoring of (and to react
rate of 21%.
the effective tax rate, cash accordingly to):
tax payments, double Existing controls EU State Aid decisions
taxation and/or negative
Our tax strategy reflects our business strategy and
reputational impact. he implications of the UK’s exit from the EU. The
T
the locations and financing needs of our operations.
ongoing uncertainty does not allow us to confirm the
In common with many companies, we seek to manage
tax implications, although we continue to expect that
Increase in impact our tax affairs to protect value for our shareholders,
there should not be material incremental taxes
in line with our broader fiduciary duties. We do not seek
payable (in either a ‘deal’ or ‘no deal’ scenario).
ecrease in
D to avoid tax by the use of ‘tax havens’ or by transactions
probability that we would not fully disclose to a tax authority. We will continue to assess US tax legislation changes,
We are guided by our taxation principles, which include including guidance issued in December 2018, as well
Our performance
complying with all relevant laws, including claiming as monitoring potential tax law changes globally, and
available tax incentives and exemptions that are implement mitigation plans if required. In addition,
available to all market participants. we will monitor the most recent initiatives in the
BEPS Project.
The CFO is responsible for the tax strategy; the conduct
of our tax affairs and the management of tax risk Media and public scrutiny on tax issues will continue to
are delegated to a global team of tax professionals. be actively monitored by both the Tax and Corporate
The Audit Committee oversees the tax strategy and Affairs teams.
receives a report, including a risk deep dive, on this
topic at least once a year (see p97).
Our published tax report provides our position on tax.
Governance
Legal and compliance

11 Information Reason for risk rating In addition to the work undertaken to prepare for
GDPR, we continued to work to improve the security
Risks concerning cyber-security and data privacy
security and remain high due to complex external factors.
of our critical products, implementing a joint privacy
and security process for new vendors.
data privacy Data privacy risk has reduced slightly due to the work
The information security team worked proactively to
undertaken to remediate risks under the EU’s General
Risk of a data privacy identify and remediate security threats to Pearson.
Data Protection Regulation (GDPR). However, this
incident or other failure to The improvement programme continued, ensuring
mitigation is offset by risks associated with the
comply with data privacy that infrastructure, core platform and product
proliferation of data privacy laws outside of the
regulations and standards, deliveries across Technology (including Cloud and
EU and North America.
and/or a weakness in network transformation, the GLP, Enterprise Core
information security, Existing controls platforms) include security controls and protection
including a failure to Information Security and Data Privacy Offices as fundamental components.
prevent or detect a ISO 27001 controls including strong encryption, The programme to review our top vendor contracts
malicious attack on our patching, monitoring, and access controls from an information security standpoint was
systems, could result in a Privacy impact assessment process implemented in 2018, gaining good traction with
major data privacy or Regular audits different business areas.
confidentiality breach Automated tools
causing damage to the Published policies, processes and guidelines, 2019 outlook and plans
customer experience and global training and awareness including annual With an evolving regulatory landscape, in addition to
our reputational damage, awareness week ongoing GDPR compliance, the Data Privacy Office
a breach of regulations Risk management framework will assess new laws and regulations coming into
and financial loss. Vendor oversight force in a number of jurisdictions and prepare for
Audit Committee risk ‘deep dive’. See p98. their implementation.
No overall change Outcome of 2018 activities The information security team will continue to drive
GDPR regulations came into force across the EU security maturity with the expansion of Vendor Risk
on 25 May 2018. This introduced more onerous Assessments, Multi-Factor Authentication, and
privacy obligations and more stringent penalties pervasive data encryption (and also thus security
for non-compliance. As Pearson operates across compliance to regulatory requirements such as
several EU Member States, Pearson will still need GDPR, PCI, HIPAA and FERPA).
to comply with GDPR even when the UK leaves
the EU. A key focus of our data privacy efforts
in 2018 has been putting plans in place to ensure
that we were appropriately prepared for GDPR.
Overview
12 Intellectual Reason for risk rating Piracy
We increased our focus and awareness around digital
The probability of digital piracy risk has increased
property as online copying and security circumvention have
and print counterfeit, and digital piracy, across
Pearson’s ecosystem, via policies, best practices, and
(including piracy) become increasingly sophisticated and resistant to
available countermeasures.
channel partner reviews – effectively coordinated via
Pearson’s IP Protection Programme.
Failure to adequately Notably, 2018 introduced more sophisticated-
manage, procure, register Print counterfeit via authorised partners was greatly
appearing ‘digital counterfeit’ websites now selling
or protect intellectual reduced in 2018 following successful enforcement
unprotected PDF files of certain Pearson’s titles,
property rights (including against overseas distributors.
using modern and sophisticated ecommerce
trademarks, patents, trade methods. This is a nascent challenge that we are 2019 outlook and plans

secrets and copyright) in now addressing and ‘flat PDFs’ are a small portion
our brands, content and We will continue to streamline our portfolios; procure
of our portfolio and revenues.
technology, may (1) prevent and register expanded rights in our high value IP
us from enforcing our From an IP perspective, increasing our digital business globally, including expanding our patent portfolio;
rights, and (2) enable bad exposes us to more trademark, copyright and patent monitor activities and regulations; and proactively
actors to illegally access and infringement risks. enforce our rights, taking necessary legal action.
duplicate our content (print
Existing controls We are in the process of drafting the broader IP policy
and digital counterfeit, for launch in 2019. This will be accompanied by
digital piracy), which will obust set of policies, copyright clearance standards,
R
additional IP training modules.
reduce our sales and/or procedures and systems in place
erode our revenues. Global trademark monitoring platform In 2019, we will continue to:
Cooperation with trade associations and other
Rights, permissions and Undertake ongoing monthly test buys
educational publishers
royalties have been removed Closely monitor and enforce against marketplace
Our performance
Monitoring of technology and legal advances
from this risk as it has piracy and digital counterfeit sites
Patent programme in place
reduced to the extent it no Explore watermarking to detect sources of
IP protection programme in place
longer meets our threshold digital piracy
Legal department provides ongoing monitoring and
for a principal risk and we Investigate use of vendors to gain better visibility
enforcement of print counterfeit and digital piracy
expect this to remain the and enforcement tools against marketplace piracy
Employee awareness and training, including a site
case going forward. (both print and digital)
to improve best practice around patents
Review product requirements to make
Single rights management system in place for
Pearson products and infrastructure more
Increase in probability UK, US and Canada.
resistant to piracy.
Close cooperation with US higher education channel
partners (e.g. Amazon, Barnes & Noble, Follett) to
prevent print counterfeit.
Governance
A very active patent filing took place to ensure
protection of our rapidly evolving next gen technology
for the GLP (this is expected to continue).
We also recorded key Pearson trademarks with U.S.

Customs and Border Protection (CBP) to enable
CBP’s seizure of suspected counterfeit textbooks.
This recordation has already resulted in several
seizures by CBP.

13 Compliance Reason for risk rating In addition to the two key areas of activity above,
we also:
As a result of the due diligence programme we are
including anti- currently undertaking, it is likely we will uncover onducted fieldwork for ABC assessments as well
C
bribery and more risks. as revising the risk assessment process itself to
make it more efficient and in line with FCPA and
corruption (ABC) Conversely, as a result of the more robust due diligence,
training and awareness currently being undertaken,
UKBA specifications
and sanctions we are less likely to see future risks with a ‘severe’
Undertook gifts and hospitality and travel and
expenses training for North America Higher Education
impact and, where risks appear, we are more likely
Sales, other key North America businesses, plus
Failure to effectively to see effective mitigation strategies and follow up
face-to-face training on ABC in all our geographies
manage risks associated that reduce potential exposure.
Rolled out a gifts and hospitality monitoring tool in
with compliance (global and
Existing controls all of our Growth geographies in 2018
local legislation), including
I nternal policies, procedures and controls including Remediated all items in riskiest markets from
failure to vet third parties,
employee ABC policy certification 2017 risk assessments.
resulting in reputational
harm, ABC liability, or Employee and business partner codes of conduct Ethics whistleblowing hotline reports using a third
sanctions violations. (see also ‘Respect for human rights’’ under party platform have remained steady, with overall
Sustainability on p36) numbers in line with the reports of previous years.
Local Compliance Officers (LCOs) in place Our time to close cases has remained consistent
Increase in probability
Corporate Compliance and Ethics awareness week with 2017 numbers. In addition, we have increased
Audit Committee risk ‘deep dive’. See p98. collaborative reporting with other investigations
Decrease in impact teams within Pearson.
Internal procedures, controls and training continue We also rolled out revised policies for the following
to mature, which are designed to prevent corruption. in 2018:
Pearson’s Code of Conduct was 100% completed in Sanctions
2018. The Code of Conduct includes references to Global Conflicts of Interest
ABC policy and requirements. Pearson’s ABC policy ABC policy and training course, including due diligence,
establishes a consistent set of expectations and that is mandatory for high-risk populations
requirements regarding ABC for all our personnel Raising concerns and anti-retaliation policy,
and business partners to adhere to. plus launched Speak Up campaign.
In 2018, we took lessons learned from our pilot project
2019 outlook and plans
in 2017 and revamped a global approach to our
third party ABC due diligence process. We improved In 2019, we will continue to expand our third party due
contractual provisions, outlined a flow chart as to when diligence programme, implementing the process for all
certain terms should be used, and implemented the new third parties across the UK, USA, Western Europe
due diligence process in all of Growth and most of Core and Canada.
markets. We conducted due diligence on over 2,800 The Code of Conduct is being revised for 2019 with
third party suppliers last year, and have conducted due updates and revisions due to be launched in the spring.
diligence on thousands of third party test centres.
2019 will also see further promotion of the Conflict
of Interest policy; additional checks around sanctions;
additional ABC risk assessments; further consideration
of pan-Pearson fraud issues plus strengthened
investigations processes and reporting with
other teams.
Additionally, we will continue work started in 2018

rolling out our gifts and hospitality tool as well as
exploring the possibility of an automated tool
appropriate for the US market.
Overview
14 Competition law Reason for risk rating Outcome of 2018 activities
The likelihood increased from 2017 due to recent In 2018, we significantly increased our employee
Failure to comply with increased activity by regulators looking into historical training to include videos, with the target of getting
antitrust and competition issues e.g. two recent investigations into Industry every relevant employee certified. The lawyer network
legislation could result in Association practices commenced in South Africa, supported this with one to one communications with
costly legal proceedings following the similar investigation in Spain. every employee attending Industry Association
and/or adversely impact Investigations in South Africa are still ongoing and meetings to ensure that they were risk aware.
our reputation. the authority has yet to evidence that Pearson has
evelopment of e-learning modules and gamified
D
committed significant wrongdoing. A final decision
learning continued
in Spain is still pending.
Increase in probability Plans were developed to track engagement,

However, the impact of the risk has generally gone for example in terms of the number of employees
down. Risks uncovered to date do not carry exposure trained, those undertaking e-learning tests, etc.
Decrease in impact
that is material for Pearson at a group/worldwide level.
While the risk of material issues remains, we believe
2019 outlook and plans
we have mitigated this risk as a result of our better In 2019, we will continue to conduct ongoing training
controls and initiatives. and release e-learning modules.
Existing controls Pearson’s lawyer network actively reviews our

engagement with trade associations and other
Global policy in place
organisations, to ensure that it remains appropriate.
Training and guidance, including live and video training
Regular internal communications
Lawyer network
Additional individual training to employees
Our performance
representing Pearson in Industry
Association meetings.
Governance
Risk assessment of prospects and viability nline Program Management grows,

O At the time of publication, the UK remains
This section should be read together driven by global enrolment in due to leave the EU on 29 March 2019.
with the full viability statement on p127. undergraduate and postgraduate Given the scheduled exit date and
online courses significant risk of no deal, we have advanced
Pearson’s principal risks and our ability to mitigation plans underway. These do not
manage them as outlined above are linked US Assessment revenues stabilise
involve material cost and we will be able to
to our viability as a company. These risks ther strategic priorities, including
O unwind those plans without significant
have therefore been taken into account Virtual Schools and Professional disruption or cost if it later becomes
when preparing the viability statement. Certification show good growth appropriate. As stated in the principal risks
The Board assessed the prospects of the section above on p62-75, we continue to
In assessing the company’s viability for the believe that Brexit will not have a material
company over a three-year period, longer three years to December 2021, the Board
than the minimum 12 months of the annual impact on Pearson as a whole and is not a
analysed a variety of downside scenarios principal risk, therefore the Board did
going concern review. The three-year period including a scenario where the company is
corresponds with Pearson’s strategic not specifically factor it into viability
impacted by all principal risks. The primary statement considerations.
planning process and represents the time modelling overlaid a ‘severe but plausible’
over which the company can reasonably downside scenario onto the base case The Board also stress-tested the impact
predict market dynamics and the likely strategic plan for Pearson, focusing on the on our liquidity of all the principal risks
impact of additions to the product portfolio. impact of the following assumptions and occurring together. Although this is not
The Board discusses the company’s key risks: regarded as a plausible scenario, the test
strategic plan on an annual basis taking showed that the company would still have
ailure to materialise anticipated
F liquid resources subject to a limited number
account of a range of factors including benefits of our 2017-2019 cost
market conditions, the principal risks to of management actions.
efficiency programme
the group above, product and capital The Board’s confirmation of Pearson’s
investment levels as well as available urther declines in enrolments and
F viability for the three years to 2021, based
funding. Pearson’s strategy and business further channel disruption in on this assessment, is included alongside
model are discussed in more detail US Higher Education Courseware the going concern statement on p127.
on p15-42. ailure to accelerate our shift to digital
F
The key assumptions which underpin while successfully investing and
our three year strategic plan to December delivering market leading global
2021 are as follows: products and services
Implementation of our 2017-2019 cost nline Program Management fails to

O
efficiency programme reducing our generate expected revenue growth
annualised cost base exiting 2019 US Assessment revenues fail to stabilise
by c.£330m
ther strategic priorities, including
O
Increased investment in the product Virtual Schools and Professional
technology platform to accelerate the Certification do not achieve modest
shift to digital and enhance courseware growth amid global economic uncertainty
service capabilities and local market pressures
urther declines in enrolments and other
F negative ruling by the European
A
downwards pressures in the US Higher Commission on the controlled foreign
Education Courseware market company group financing partial
S Higher Education Courseware returns
U exemption tax legislation
rates continue to improve as sales become
more direct to consumer
Section 4 Governance 77
Governance
Overview
report

In this section
Governance overview Remuneration
Our performance
78 Letter from the Chair 110 Remuneration overview
114 Remuneration framework
Leadership & effectiveness 116 2018 remuneration report
80 Board of Directors
82 Board governance and activities Additional disclosures
90 Nomination & Governance 127 Report of the Directors
Committee report 132 Statement of Directors’ responsibilities
94 Board evaluation
Accountability
96 Audit Committee report
Governance
104 Risk governance and control
Engagement
106 Reputation & Responsibility
Committee report
108 Engagement
Governance overview
Delivering on our strategic priorities

Chair Pearson has identified three strategic priorities:
Sidney Taurel
To grow market share through digital transformation
To invest in structural growth markets
To become a simpler, more efficient and more sustainable business.
One particular theme arising from our 2017 Board evaluation was
that, as a Board, we planned to spend even more time considering
our long-term strategy during 2018 including to ensure that we
remain aligned on process and deliverables. During the year, Board
In this Governance section members and other senior leaders from across the business
participated in facilitated strategic discussions and, building on this
Leadership & effectiveness p80–95
work, we continued to evolve our strategy through a number of
Accountability p96–105 focused Board sessions during the year. As part of this process,
Engagement p106–109 the Board reviewed and updated the way in which we consider and
Remuneration p110–126 undertake our strategic and financial planning, including helping to
refine Pearson’s five-year strategy (what we will do) and our three-
Additional disclosures p127–131
year plan (how we will do it). As a Board, we have agreed that our
three strategic priorities remain appropriate, and underpin Pearson’s
strategic vision of delivering lifelong learning to customers, leading to
Dear shareholders, increased employability and work-related skills, as part of a wider
As I say elsewhere, 2018 was a pivotal year for Pearson and, as our ecosystem of delivery partners and stakeholders.
operational and financial performance continues to improve, Crucial to successful delivery of our strategy is developing an
the Board can focus more on future prospects for the business. inclusive and innovative culture and attracting and retaining strong,
Throughout the year, we have continued to pay close attention diverse talent. During the year, the Board discussed talent and
to the simplification of our portfolio and investment in our succession planning including consideration of succession plans for
transformation programmes, including The Enabling Programme the Chief Executive, Chief Financial Officer and all members of the
(TEP) and the Global Learning Platform (GLP). We are now in a Pearson Executive. We also considered the wider pool of talent in
position where, in addition to regularly monitoring performance our senior leadership group, and the themes of talent, succession,
and simplification, the Board has turned its attentions towards diversity and inclusion have formed a thread throughout the Board
longer-term strategic opportunities in areas which enjoy structural and Committees’ sessions during the year.
growth, digital transformation and in the lifelong learning sector.
Board meeting focus
As a Board, we continue to organise our work around five major
In addition to our focus on our three strategic priorities, and on the
themes where we believe we can add value: strategy, performance,
talent and culture needed to support them, the Board also visited
leadership and people, governance and risk, and shareholder
Milan, Italy and Cape Town, South Africa, during the year, where we
engagement. We are committed to the highest standards of
held meetings focused on our Core and Growth markets. Our Core
corporate governance and the following pages set out details on
and Growth markets present opportunities for products such as
Board composition, corporate governance arrangements, processes
BTEC and Pearson Test of English Academic, and the visits allowed
and activities during 2018, together with Board Committee reports.
us the chance to engage with a wide range of stakeholders,
A summary of the key items covered by the Board throughout the
including on the subjects of employability and lifelong learning.
year appears on p85, and I have set out below further detail on
our particular areas of focus during 2018. During the year, the Board also monitored progress on the proposed
sale of our US K12 Courseware business, and our Audit Committee
Leadership & effectiveness See full section on p80–95
provided support on the appropriate accounting treatment,
determining that it was correct to continue to treat the business as
In my letter to shareholders at this time last year, I explained that ‘held for sale’ at 31 December 2018. In February 2019, we announced
the Board’s main focus for 2018 would be to pivot towards our that we had reached an agreement to sell this business. We also
longer- term growth opportunities by delivering on Pearson’s three oversaw the conclusion of our sale of the Wall Street English
strategic priorities and to continue to monitor progress against business, which completed in March 2018, and considered financial
our dashboard and key milestones for 2018. I am pleased to report policy in the round – including our balance sheet, our debt and equity
that good progress has been made on all fronts, summarised investors, and working capital requirements – as we discussed the
below, and with further detail given throughout this report. detailed operating plan for 2019.
In addition, we considered the business’s ongoing preparations for

Brexit. The Board is supported in this role by a steering committee
chaired by the Chief Financial Officer, with representatives from
across the UK business and enabling functions. You can read more
about Pearson’s preparations for Brexit on p66.
Section 4 Governance 79
Board changes engage with the wider stakeholder population, including employees,
Overview
Pearson has a fully engaged Board, including a strong Non-Executive customers and partners, both through formal Board events and by
team with a breadth of experience and perspectives. We were way of individual contributions to internal and external initiatives.
pleased to welcome Michael Lynton to the Pearson Board, following The Reputation & Responsibility Committee will lead the Board’s
his appointment as a Non-Executive Director with effect from oversight of Pearson’s stakeholder engagement framework from
1 February 2018. Michael’s experience leading businesses through 2019, as required by the updated UK Corporate Governance Code.
times of digital disruption has further strengthened our capabilities During 2018, Board members engaged with the workforce at
in this area, and Michael is already making a valuable contribution structured talent events as well as through initiatives such as the
to our deliberations as a Board, and to the Audit and Reputation & Pearson Innovation Jam. As a Board, we are delighted to be able to
Responsibility Committees. You can read more about Michael’s help support our talent pipeline through the introduction of a new
induction to the Pearson Board on p89. mentoring programme. You can read more about our employee
During 2018, we also said goodbye to Harish Manwani, a Non- engagement and talent initiatives in the Nomination & Governance

Executive Director of Pearson since 2013, who retired from the Committee’s report, which begins on p90.
Board at the AGM in May 2018. The Board joins me in thanking
Harish for his commitment and contribution to Pearson. Remuneration See full section on p110–126
Board evaluation With the release of the updated UK Corporate Governance Code
The 2018 Board evaluation, which was overseen by our Nomination in July 2018, Elizabeth Corley, who chairs the Remuneration
& Governance Committee, confirmed that we have an effective Committee, has led work to review how Pearson’s remuneration
and well-functioning Board, which has an appropriately balanced policy complies with the code and can more closely align with
agenda, and which has made progress during the year in continuing emerging best practice while remaining simple, transparent and
to develop and articulate Pearson’s strategy. Progress on closely linked to Pearson’s strategy and business performance.
recommendations arising from our annual Board evaluations is This included continuing to engage with investors and shareholders
reported at each Committee meeting until such recommendations as the Committee prepares to review the Directors’ remuneration
Our performance
are completed or embedded to the Committee’s satisfaction. policy in 2019 ahead of a policy vote at the 2020 AGM. Pearson’s
current approach to Executive remuneration is explained in more
Focus on shareholder returns detail in the remuneration section of this report on p110.
The Board continues to pay attention to ensuring an optimal
allocation of capital, and our policy in this regard remains Conclusion
unchanged: to maintain a strong balance sheet and a solid
investment grade credit rating, to continue to invest in the business, I hope this report clearly sets out how your company is run, and
to have a sustainable and progressive dividend policy, and to how we align governance and our Board agenda with the strategic
return surplus cash to our shareholders. In line with this policy, direction of Pearson. We always welcome questions or comments
we completed a £300m share buyback in February 2018 following from shareholders, either via our website (www.pearson.com) or
our disposal of a 22% stake in Penguin Random House in 2017. in person at our AGM.
Details of other actions taken in support of our capital allocation
Governance
policy are set out in my introductory statement on p08.
Accountability See full section on p96–105 Sidney Taurel

As a Board, we are accountable for Pearson’s successes and Chair
addressing its challenges. We aim to communicate to you in a
transparent manner the steps we have taken to ensure that we have UK Corporate Governance Code
a clear oversight of the business and the work we have undertaken
in respect of Pearson’s strategy throughout the year. Our Audit This year, we are reporting against the 2016 edition of the
Committee, led by Tim Score, plays a key role in monitoring and UK Corporate Governance Code (the Code). The Board believes
evaluating our risk management processes, providing independent that during 2018 the company was in full compliance with all
oversight of our external audit and internal control programmes, relevant provisions of the Code, and this Governance Report sets
accounting policies, business transformation projects, such as out how the Code’s principles have been applied throughout
TEP, and in assisting the Board in reporting in a fair, balanced and the year. A detailed account of the provisions of the Code can be
understandable manner to our shareholders. found on the FRC’s website at www.frc.org.uk and we encourage
readers to view our compliance schedule on the company
website at www.pearson.com/governance.
Engagement See full section on p106–109
The Board is mindful of the changes to the corporate governance
In common with most large, public companies, we have a wider range
and reporting landscape introduced during 2018, including the
of stakeholders than just traditional investors, and our Reputation &
publication of a new edition of the UK Corporate Governance
Responsibility Committee monitors our sustainability and social
Code. You can read more about our preparations for the new
impact initiatives, government and public affairs matters, and
landscape on p93.
engagement with the education community. Board members also
Board of Directors
Pearson Board members bring a

Chair Non-Executive Directors
wide range of experience, skills and
backgrounds which complement N A
R N
our strategy. All Board members R
have strong leadership experience

at global businesses and
institutions and, as a group, Sidney Taurel Chair Elizabeth Corley, CBE Non-Executive Director
their experience covers: aged 70, appointed 1 January 2016 aged 62, appointed 1 May 2014
Business strategy and governance Sidney has over 45 years of experience in business Elizabeth has extensive experience in the
and finance, and is currently a Director of IBM financial services industry, having been CEO
Innovation and disruption
Corporation, where he also serves on the directors of Allianz Global Investors, initially for Europe
Education and corporate governance committee. Sidney is an then globally, from 2005 to 2016, and continues
Digital and technology advisory board member at pharmaceutical firm to act as a senior adviser to the firm. She was
Almirall. He was Chief Executive Officer of global previously at Merrill Lynch Investment
Talent, people and culture
pharmaceutical firm Eli Lilly and Company from Managers and Coopers & Lybrand. Elizabeth
Finance and investment 1998 until 2008, Chairman from 1999 until 2008, is a Non-Executive Director of BAE Systems plc
Sustainability and environmental matters and has been Chairman Emeritus since 2009. He and Morgan Stanley Inc. Elizabeth is active in
Marketing, brand and media was also a Director at McGraw Hill Financial, Inc., representing the investment industry and
a role which he held from 1996 until April 2016 and developing standards within it. She currently
overnment, international and
G
at ITT Industries from 1996 to 2001. In 2002, Sidney chairs a Taskforce for the UK government on
regulatory affairs
received three US presidential appointments to: social impact investing. She is a member of
Our Board members’ biographies illustrate the Homeland Security Advisory Council, the the Committee of 200. She was appointed
the contribution each Director makes to the President’s Export Council and the Advisory Commander of the British Empire in the 2015
Board by way of their individual experience. Committee for Trade Policy and Negotiations, New Year Honours for her services to the
and is an officer of the French Legion of Honour. financial sector.
Current notable commitments: Current notable commitments: BAE Systems
IBM Corporation (Non-Executive Director) plc (Non-Executive Director), Morgan Stanley
Inc. (Non-Executive Director)
Executive Directors
A
RR
John Fallon Chief Executive Coram Williams Chief Financial Officer Michael Lynton Non-Executive Director
aged 56, appointed 3 October 2012 aged 45, appointed 1 August 2015 aged 59, appointed 1 February 2018
John became Pearson’s Chief Executive on Coram joined Pearson in 2003 and has held Michael served as CEO of Sony Entertainment
1 January 2013. Since 2008, he had been a number of senior positions including Finance from 2012 until 2017, overseeing Sony’s
responsible for the Company’s education and Operations Director for Pearson’s English global entertainment businesses. He also
businesses outside North America and a language teaching business in Europe, served as Chairman and CEO of Sony Pictures
member of the Pearson management Middle East & Africa, Interim President of Entertainment from 2004. Prior to that, he held
committee. He joined Pearson in 1997 as Pearson Education Italia and Head of Financial senior roles within Time Warner and AOL, and
Director of Communications and was appointed Planning and Analysis for Pearson. In 2008, earlier served as Chairman and CEO of Penguin
President of Pearson Inc. in 2000. In 2003, Coram became CFO of The Penguin Group Group where he extended the Penguin brand to
he was appointed CEO of Pearson’s educational and was latterly appointed CFO of Penguin music and the internet. Michael is Chairman of
publishing businesses for Europe, Middle Random House in 2013, where he oversaw Snap, Inc., and currently serves on the boards
East & Africa. Prior to joining Pearson, the integration of the two businesses. of IEX, Warner Music and Ares Management
John was Director of Corporate Affairs at Coram trained at Arthur Andersen, and Corporation LLC.
Powergen plc and was also a member of the subsequently worked in both the auditing Current notable commitments:
company’s executive committee. Earlier in and consulting practices of the firm. He is a Ares Management Corporation LLC
his career, John held senior public policy and Non-Executive Director and Chairman of the (Non-Executive Director), Snap, Inc. (Chairman)
communications roles in UK local government. audit committee for the Guardian Media Group.
He is an advisory board member of the
Global Business Coalition for Education.
Section 4 Governance/Leadership & effectiveness 81
Overview
A N A
N R RR
RR
Vivienne Cox, CBE Senior Independent Director Josh Lewis Non-Executive Director Linda Lorimer Non-Executive Director
aged 59, appointed 1 January 2012 aged 56, appointed 1 March 2011 aged 66, appointed 1 July 2013
Vivienne has wide experience in energy, natural Josh’s experience spans finance, education Linda has spent almost 40 years serving higher
resources and business innovation. She worked and the development of digital enterprises. education. She retired from Yale in 2016 after
for BP plc for 28 years in global roles including He is founder of Salmon River Capital LLC, 34 years at the university where she served

Executive Vice President and Chief Executive a New York-based private equity/venture capital in an array of senior positions including Vice
of BP’s gas, power and renewables business firm focused on technology-enabled businesses President for Global & Strategic Initiatives. She
and its alternative energy unit. She is Chair in education, financial services and other oversaw the development of Yale’s burgeoning
of the supervisory board of Vallourec S.A., sectors, through which he has taken on the online education division and the expansion of
a leader in the seamless steel pipe markets, role of Non-Executive Director of several Yale’s international programmes and centres.
Non-Executive Director at pharmaceutical enterprises. Over a 25-year career in active, During her tenure, she was responsible for
company GlaxoSmithKline plc and serves as principal investing, he has been involved in a many administrative services, ranging from
Chair of the Rosalind Franklin Institute. She was broad range of successful companies, including Yale’s public communications and alumni
appointed Commander of the British Empire in several pioneering enterprises in the education relations to sustainability, human resources
the 2016 New Year Honours for her services to sector. In addition, he has long been active in and the university press. She also served on the
the economy and sustainability. the non-profit education sector. boards of several public companies, including
Current notable commitments: Current notable commitments: Salmon River as Presiding Director of the McGraw-Hill
companies. Linda is a member of the board of
Our performance
GlaxoSmithKline plc (Non-Executive Director), Capital LLC (Founder & Managing Principal)
Vallourec S.A. (Chair of the supervisory board) Yale New Haven Hospital, where she chairs the
nominating and governance committee.
A A Key to Committees
N RR A Audit
R
N Nomination & Governance
RR Reputation & Responsibility
Governance
R Remuneration
Tim Score Non-Executive Director Lincoln Wallen Non-Executive Director Committee chair
aged 58, appointed 1 January 2015 aged 58, appointed 1 January 2016
Current notable commitments include
Tim has extensive experience of the technology Lincoln has extensive experience in the
other listed company directorships and
sector in both developed and emerging technology and media industries, and is currently full time or executive roles.
markets, having served as Chief Financial CTO of Improbable, a technology start-up
Officer of ARM Holdings plc, the world’s leading supplying next-generation cloud hosting and
semiconductor IP company, for 13 years. networking services to the video game industry.
He is an experienced non-executive director Lincoln was CEO of DWA Nova, a software-as-a-
and currently sits on the boards of The British service company spun out of DreamWorks
Land Company plc and HM Treasury, in addition Animation Studios in Los Angeles, a position he
to being a Trustee of the National Theatre. held until 2017. He worked at DreamWorks
He served on the board of National Express Animation for nine years in a variety of leadership
Group plc from 2005 to 2014, including time as roles including Chief Technology Officer and Head
interim Chairman and six years as the Senior of Animation Technology. He was formerly CTO at
Independent Director. Earlier in his career Electronic Arts Mobile, leading their entry into the
Tim held senior finance roles with Rebus Group, mobile gaming business internationally. Lincoln is
William Baird, LucasVarity plc and BTR plc. a Non-Executive Director of the Smith Institute for
Current notable commitments: The British Industrial Mathematics and Systems Engineering.
Land Company plc (Non-Executive Director His early career involved 20 years of professional
and Chairman-elect) IT and mathematics research, including as a
reader in Computer Science at Oxford.
Current notable commitments:
Improbable (Chief Technology Officer)
Board governance and activities
Board of Directors Chair and Chief Executive There is a defined split of responsibilities
between the Chair and the Chief Executive. The roles and
Composition of the Board As at the date of this report, the Board responsibilities of the Chair and Chief Executive are clearly defined,
consists of the Chair, Sidney Taurel, two Executive Directors: set out in writing and reviewed and agreed by the Board on an
the Chief Executive, John Fallon, and Chief Financial Officer, annual basis. These can be found on the Company website at
Coram Williams, and seven independent Non-Executive Directors. www.pearson.com/governance
During the year, Harish Manwani stepped down from the Board
at the AGM held on 4 May 2018 and Michael Lynton joined the Chair’s significant commitments There were no changes to the
Board on 1 February 2018. Chair’s significant commitments during 2018. However, during
the year, Mr Taurel stepped down as chair of the compensation
committee of IBM Corporation and joined its directors and
corporate governance committee.
Roles and composition of the Board

Role Name Responsibility Gender balance Nationality
Chair Sidney Taurel The Chair is primarily responsible for the leadership of the Board of Board of Directors
and ensuring its effectiveness. He ensures 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. He
regularly meets the Chief Executive to stay informed. He also
ensures that shareholders’ views are communicated to the Board.
Chief John Fallon The Chief Executive is responsible for the operational management
Executive of the business and for the development and implementation of Men 7 British 6
the Company’s strategy as agreed by the Board and management. Women 3 USA 4
He is responsible for developing operational proposals and
policies for approval by the Board, and promotes Pearson’s
culture and standards.
Chief Coram Williams The Chief Financial Officer is responsible for the preparation and
Financial integrity of Pearson’s financial reporting and statements and also
Officer oversees other functional areas including tax, treasury, internal
audit and corporate finance. He supports the Chief Executive in
developing and implementing the strategy of the Company as
agreed by the Board and management.
Senior Vivienne Cox The Senior Independent Director’s role includes meeting regularly
Independent with the Chair and Chief Executive to discuss specific issues,
Director as well as being available to shareholders generally should they
have concerns that have not been addressed through the normal Ethnicity Length of
channels. She also leads the evaluation of the Chair on behalf tenure of
of the other Directors. Non-Executive
Committee Elizabeth Corley The Committee Chairs are responsible for leading the Board Directors
Chairs Vivienne Cox Committees and ensuring their effectiveness. They set the
Linda Lorimer Committees’ agendas, in consultation with management, and
Tim Score report to the Board on Committee proceedings. They lead on
engagement with shareholders regarding matters within the
remit of the Committees, alongside senior management.
Non- Elizabeth Corley The Non-Executive Directors contribute to the development of
Executive Vivienne Cox our strategy and scrutinise and constructively challenge the
Directors Josh Lewis performance of management in the execution of strategy and Mixed 1 Under 3 years 2
Linda Lorimer risk planning. They also engage with various stakeholders of the White 9 3 to 6 years 3
Michael Lynton Company and provide guidance and independent perspective Mixed – White & Over 6 years 2
Tim Score to management. Black Caribbean (1)
White – English/
Lincoln Wallen Welsh/Scottish/
Company Stephen Jones The Company Secretary acts as secretary to the Board and its Northern Irish/
British (6)
Secretary Committees, ensuring compliance with Board procedures and
White – Any other
advising on governance matters. He is responsible, under the White Background (3)
direction of the Chair, for ensuring the Board receives accurate,
timely and clear information. The Company Secretary supports
the Chair in delivery of the corporate governance agenda and
organises Director inductions and ongoing training.
All information correct as at 31 December 2018.
Overview
Governance at Pearson
Board of Directors
Board Committees
Audit Nomination & Governance Remuneration Reputation & Responsibility

Committee Committee Committee Committee

Appraises our financial Reviews corporate governance Determines the remuneration Considers the Company’s impact
management and reporting matters, including Code and benefits of the Executive on society and the communities
and assesses the integrity compliance and Board Directors and oversees in which Pearson operates,
of our accounting procedures evaluation, considers the remuneration arrangements including to ensure that
and financial control. appointment of new Directors, for the Pearson Executive. strategies are in place to
FLOW OF INFORMATION
Board experience and diversity, manage and improve

and reviews Board induction Pearson’s reputation.
and succession plans.
Pearson Executive management (PEM) see p13
Our performance
PEM consists of John Fallon (Chief Executive) and his direct reports. They are the executive leadership
group for Pearson, responsible for delivering Pearson’s strategy under clearly defined
accountabilities and in line with agreed governance and processes.
Chief Executive General Counsel & Chief Legal Officer
Chief Financial Officer President UK & Core Markets
Chief Technology & Operations Officer President Growth Markets
Chief Corporate Affairs Officer President North America
Chief Human Resources Officer President Pearson Assessments
Chief Strategy Officer President Global Product
Governance
Independence of Chair In accordance with the Code, Sidney Taurel independence. The Board has determined that Josh Lewis and
was considered to be independent upon his appointment as Vivienne Cox continue to be independent, taking into account their
Chair on 1 January 2016. valuable contribution to Board discussions and constructive
challenge of management.
Independence of Directors All of the Non-Executive Directors
who served during 2018 were considered by the Board to be Conflicts of interest Under the Companies Act 2006, Directors have
independent for the purposes of the Code. The Board reviews the a statutory duty to avoid conflicts of interest with the Company.
independence of each of the Non-Executive Directors annually. The Company’s Articles of Association allow the Directors to
This includes reviewing their external appointments and any authorise conflicts of interest. The Company has established a
potential conflicts of interest as well as assessing their individual procedure to identify actual and potential conflicts of interest,
circumstances in order to ensure that there are no relationships or including all directorships or other appointments to, or relationships
matters likely to affect their judgement. In addition to this review, with, companies which are not part of the Pearson Group and
each of the Non-Executive Directors is asked annually to complete which could give rise to actual or potential conflicts of interest.
an independence questionnaire to satisfy requirements arising Once notified to the Chair or Company Secretary, such potential
from Pearson’s US listing and, from the beginning of 2019, the new conflicts are considered for authorisation by the Board at its next
UK Corporate Governance Code. scheduled meeting. The relevant Director cannot vote on an
authorisation resolution, or be counted in the quorum, in relation
Josh Lewis and Vivienne Cox have served on the Board for more
to the resolution relating to his/her conflict or potential conflict.
than six years. Accordingly, their performance was subject
The Board reviews any authorisations granted on an annual basis.
to a rigorous review during 2018, including with regard to their
The role and business of the Board Strategic planning
The Board is deeply engaged in developing and measuring the In 2018, following continued improvements in our operational
Company’s long-term strategy, performance, culture and values. and financial performance, the Board was in a position to focus
We believe that it adds a valuable and diverse set of external particularly on strategy and future prospects for the business.
perspectives and that robust, open debate about significant In honing our strategic and financial plans, the Board considered
business issues brings an additional discipline to major decisions. findings from a dedicated workstream involving contributors
from across Pearson which sought to:
A schedule of formal matters reserved for the Board’s
decision and approval is available on our website, at Review the education landscape, present and future state
www.pearson.com/governance
Articulate key conclusions around which to build our strategy
The key responsibilities of the Board include:
Identify the customer problems we are best placed to solve
verall leadership of the Company and setting the Company’s
O
Identify the capabilities we need to utilise and build to deliver
values and standards including monitoring culture
our five-year strategy
etermining the Company’s strategy in consultation with
D
I dentify implications for our business which will drive our future
management, reviewing performance against it and overseeing
investments and planning process.
management execution thereof
Following detailed consideration and discussion of these themes
ajor changes to the Company’s corporate, capital,
M
over a number of focused sessions during the year, the Board
management and control structures
confirmed its strategic priorities, as described on p20–24.
Approval of all transactions or financial commitments in
Standing Committee
excess of the authority limits delegated to the Chief Executive
and other Executive management A Standing Committee of the Board is established to approve
certain operational and ordinary course of business items such
ssessment of management performance and Board and
A as banking matters, guarantees, intra-group transactions and
Executive succession planning. to make routine approvals relating to employee share plans.
The Board receives timely, regular and necessary financial, The Committee has written terms of reference, reviewed
management and other information to fulfil its duties. and approved each year, which clearly set out its authority
Comprehensive meeting papers are circulated to the Board and duties. These can be found on the Company website at
and Committee members at least one week in advance of each www.pearson.com/governance.
meeting and the Board receives a regular dashboard and key
milestones report and regular updates from the Chief Executive
Board meetings
and Chief Financial Officer. In addition to meeting papers, a library
of current and historical corporate information is made available The Board held seven formal meetings in 2018, with discussions and
to Directors electronically to support the Board’s decision-making debates focused on the key strategic issues facing the Company.
process. Directors can obtain independent professional advice, This included a meeting in Milan, Italy, when the Board considered
at the Company’s expense, in the performance of their duties as its Core markets, and a meeting in Cape Town, South Africa, at which
Directors. All Directors have access to the advice and services of Growth markets was the main focus; together with deeper dives into
the Company Secretary. the local business on both trips. Major items covered by the Board
in 2018 are shown in the table opposite. In addition to the formal
meetings, the Board meets in person or by telephone as necessary
to consider matters of a time-sensitive nature.
Milan, Italy At a two-day meeting in Milan in June, the Board and Cape Town, South Africa The Board and the Pearson Executive
Overview
Pearson Executive spent time focused on Pearson’s businesses visited Cape Town in October for a three-day meeting. They were
in our Core markets as well as on the local Italian business. joined by members of senior management from the Growth
They considered the ways in which Pearson aims to innovate the leadership team who provided an overview of the Growth business
delivery of access to high-quality career-focused education, and including country-specific updates and a deeper dive into the
the opportunities to collaborate, challenge and support across the South African learning services and direct delivery businesses.
Core markets. Throughout the meeting the Board engaged with The Board and Executive participated in a range of engagement
the Core leadership team and met with representatives of the opportunities with a variety of Pearson stakeholders, including a
local employee population. The Board also had the opportunity Rapid Prototyping workshop and a customer panel session with the
to observe an example of career-focused education in schools, theme of putting employability at the heart of Pearson’s strategy –
by viewing a robotics class and also participated in a facilitated Read more about the Rapid Prototyping workshop and the Board’s
exercise with the Core leadership team around the theme of how engagement with these stakeholders on p108–109. The Board
Pearson can best drive the opportunity to connect education and also spent some time hearing from each member of the Executive

work, preparing people for lifelong learning and future skills. team about the prospects for and performance of their individual
There were also two stakeholder panel sessions, allowing the business units, or areas of control, before taking some time to
Board to hear directly from customers about the challenges review Pearson’s talent pipeline and in particular how it aligns with
they face in delivering high-quality content, assessment and the organisation’s culture and capabilities. During the meeting, the
qualifications in schools, and from employers and the higher Board also attended a facilitated breakfast meeting with new and
education sector about preparing students for work. emerging local talent and gained a valuable insight into employees’
views on Pearson’s current challenges and opportunities.
Board meeting focus during 2018
Our performance
Strategy
WSE and US K12 Courseware – updates Interactive product demonstrations
Review of Core and Growth markets at offsite meetings Product, technology and operations strategies
Efficiency and simplification initiatives Operating and strategic plan discussions
US Higher Education Courseware
Performance
2017 preliminary results and annual report and accounts Oversight of 2018 operating plan and goals, and preparation for 2019
Interim results and trading updates Final and interim dividend proposals
Governance
Regular dashboard and milestone reports
Leadership & people

Talent and succession planning Chief Human Resources Officer’s first impressions of HR and talent at Pearson
Organisational health including review of Pearson’s culture inner with senior local management and facilitated breakfasts with key talent
D
Chief Executive’s goals at overseas strategy meetings. Read more on employee engagement on p109
Governance & risk

Compliance with UK Corporate Governance Code Approval of division of responsibilities between Chair and Chief Executive
Regular Brexit and Pensions updates Annual review of conflicts of interest
Shareholder activism and defence planning Investor relations updates
Enterprise risk management review Approval of Committee terms of reference

Approval of income statement and going concern and viability Tax update
Board evaluation
Shareholders & engagement

Investor relations strategy and share price performance Focus on forthcoming AGM
Major shareholders and share register analysis Digital advisory network update
Shareholder issues and voting
Culture and values The following table sets out the attendance of the Company’s
Directors at scheduled Board meetings during 2018:
Pearson’s core values – to be brave, imaginative, decent and
Board meetings attended
accountable – go to the heart of our mission to improve learning
outcomes, and the Board and employees are committed to Chair
demonstrating these characteristics throughout their work and Sidney Taurel 7/7
deliberations. During 2018, the focus was to foster a culture of Executive Directors
innovation, organisational health, diversity and inclusion at all John Fallon 7/7
levels and which included engaging with employees from across
Coram Williams 7/7
Pearson through various platforms and events during the year.
Non-Executive Directors
The Board recognises that the Company’s culture is also undergoing
transformation through the simplification of our portfolio and Elizabeth Corley 7/7
investment through structured programmes such as The Enabling Vivienne Cox 7/7
Programme (TEP) and the Global Learning Platform (GLP). The Board Josh Lewis 7/7
monitors the culture of the Company and levels of employee Linda Lorimer 7/7
engagement and advocacy with the assistance of its Reputation & Michael Lynton1 6/6
Responsibility Committee and through regular updates from the
Harish Manwani2 3/3
Chief Human Resources Officer.
Tim Score 7/7
Board attendance Lincoln Wallen 7/7
1 Mr Lynton joined the Board on 1 February 2018.
Directors are expected to attend all Board and Committee meetings
2 Mr Manwani resigned from the Board on 4 May 2018.
but in certain exceptional circumstances, such as due to pre-existing
business or personal commitments, it is recognised that Directors
may be unable to attend. There was full attendance by Directors at
Board and Committee meetings in 2018.
Board in action
Global Learning Platform

Pearson is building a Global Learning Platform (GLP), which is a plan linking it to delivery of the GLP. At its December meeting,
single, cloud-based platform that’s highly scalable and reliable, the Board received a live software demonstration of Rio and
and allows us to innovate faster and support a lifelong learning discussed customer feedback and steps taken to improve
ecosystem for learners. As the GLP is a key customer and learning experiences and better outcomes on the GLP across
learner-facing element of the transformation programme, Pearson. In addition, the SVP AI Products and Solutions, who
it remains an item closely monitored by the Board. The Board joined Pearson this July to lead our newly formed AI Products
continued to receive regular updates throughout the year, and Solutions team, also presented a strategy and roadmap for
which enabled them to monitor the progress of Pearson’s artificial intelligence-based product development to the Board.
delivery of agreed metrics for growing market share through
digital transformation.
At each meeting, the Board was joined by the President of

Global Product and by the Chief Technology and Operations
Officer to review the development of the GLP, including
progress of the Rio Limited Pilot, a new mastery-based
developmental maths product, and Revel, our next-generation
US higher education digital courseware product. At its
meeting in May, the Board reviewed the learnings from the
Digital Advisory Network and considered Pearson’s digital
transformation in the context of building the GLP. Throughout
the year, the Board assessed Pearson’s strategy and three-year
1 Grow market share through digital transformation Link to strategic priorities, see p20
Succession planning As well as Board and Executive management succession, the Board
Overview
also oversees our leadership pipeline. In December, the Board’s
The Board considers oversight of succession planning as one of its discussions on succession planning focused on the executive
prime responsibilities, assisted by the Nomination & Governance pipeline from which the future leaders of Pearson were likely to
Committee. The Company has formal contingency plans in place emerge, both at PEM level and other key roles. Strong successors
for the temporary absence of the Chief Executive for health or have been identified for PEM roles and future considerations have
other reasons. The matter of Chief Executive succession is a been taken into account in identifying successors both immediately
standing item for discussion and review by the Chair and the Board below PEM level and those who would be ready to take up a
annually. Succession planning for the Board and Chair is also PEM-level position in one or two moves. A diverse pipeline of ‘ready
considered annually by the full Board and on an ongoing basis by later’ emerging talent has been identified, and plans are put in place
the Nomination & Governance Committee. There is also discussion to accelerate their path to succession where possible. The Company
and oversight of key positions at Executive management level, also has targeted development programmes for high-potential
including the recent appointment of a new Chief Corporate Affairs talent, mentorship programmes for senior women leaders as well

Officer. In early 2018, Pearson recruited a Chief Strategy Officer as a Managers Fundamentals programme for middle management.
and a new Chief Human Resources Officer. As we continue to
transform the business at Pearson, the new members of the
Executive team had a key role to play in our strategic planning
process and in succession planning and fostering a culture of
diversity and inclusion.
Our performance
Board in action
Online Program Management

Pearson considers Online Program Management (OPM),
virtual schools, professional certification and English language
learning to be among its biggest growth opportunities. In light
of this potential, OPM continued to be a regular reporting item
on the Board’s agenda for 2018. During the year, the Board
Governance
considered Pearson’s prospects in the OPM business, and spent
some time reviewing the business model, some proposed
operational improvements and the existing contract pipeline.
At its meeting in June, the Board conducted a deeper dive into
the global operations strategy of the OPM business, and with
the Executive team also discussed leveraging learnings
more widely. This included a consideration of how Pearson’s
expertise in courseware and assessment could continue to Studying an online degree powered by
support partners in the development and delivery of online Pearson Online Program Management,
at Maryville University see p06
programmes that demonstrate innovation and superior
student learning experiences. OPM was also discussed in
relation to the three-year planning process, with the Board
focusing on the operating model for the business and

considering the impact of the very specific economics
of a typical OPM contract.
2 Invest in structural growth markets Link to strategic priorities, see p22

Directors’ indemnities Board Committees

A qualifying third party indemnity (QTPI), as permitted by the The Board has established four formal Committees: Audit,
Articles and sections 232 and 234 of the Act, has been granted by Nomination & Governance, Remuneration, and Reputation &
the Company to each of its Directors. Under the provisions of the Responsibility. The Chairs and members of these Committees
QTPI, the Company undertakes to indemnify each Director against are appointed by the Board on the recommendation (where
liability to third parties (excluding criminal and regulatory penalties) appropriate) of the Nomination & Governance Committee and
and to pay Directors’ costs as incurred, provided that they are in consultation with each relevant Committee Chair. In addition to
reimbursed to the Company if the Director is found guilty, the court these formal Board Committees, the Standing Committee also
refuses to grant the relief sought or, in an action brought by the operates with Board-level input.
Company, judgement is given against the Director. The indemnity
Learn more about Pearson’s governance structure on p83
has been in force for the financial year ended 31 December 2018
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.
Board in action
Simplification programme
In 2017, we announced plans to reduce Pearson’s cost The Board receives regular updates on the simplification
base by a further £300m exiting 2019. In January 2019, programme through the dashboard and key milestones
we announced that we are saving ahead of that plan, and now report as well as updates from the Chief Executive and
expect to deliver increased annualised cost savings in excess Chief Financial Officer at every Board meeting. At the Board
of £330m by the end of 2019. During the year, the Board had meeting in June, each member of the Executive team provided
an oversight of the planned implementation of finance and an update on their particular function or business units
operations systems throughout our North American business, describing their initiatives, outcomes and efficiencies arising
enabling us to adjust the cost base in our US Higher Education from the simplification programme. The Board believes that
courseware business. The programme also includes the changes arising from the simplification programme will
simplification of our technology architecture which has help Pearson speed up innovation, provide better customer
facilitated the increased use of shared service centres and experiences, eliminate duplication and increase scalability in
automation, enabling us to standardise processes and reduce the long-term.
headcount. This has also enabled us to develop centralised
procurement and reduce our number of office locations.
3 Become a simpler, more efficient and more sustainable business Link to strategic priorities, see p24
More Committee information:
Overview
Audit Committee p96
Nomination & Governance Committee p90
Remuneration Committee p110
Reputation & Responsibility Committee p106
Standing Committee p84
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 shareholder 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 immediately following their sessions, ensuring a good
communication flow while retaining the ability to escalate items
to the full Board’s agenda if appropriate.
Our performance
Directors’ training and induction
All Directors receive training in the form of presentations about ‘‘The bespoke induction programme
the Company’s operations, through Board meetings held at was terrific. It provided me with helpful
operational locations and by encouraging the Directors to visit insights into Pearson with a range of
local facilities and management as and when their schedule topics and meetings with both internal
allows, including if they are travelling to a country or region on stakeholders and company advisers.
non-Pearson business. The Company Secretary and General I found the meetings with division heads
Counsel, in conjunction with Pearson’s advisers, monitor legal particularly useful in developing my
and governance developments and update the Board on such understanding of the drivers of
matters as agreed with the Chair. As part of the Board’s focus Pearson’s businesses. It was extremely important to undertake
Governance
on diversity and inclusion, the Directors received an overview this induction programme, and I’m sure the knowledge I’ve
of the training on unconscious bias which is being delivered to gained through the programme has helped me in making an
employees, and participated in elements of this programme. effective contribution to the Board during my first year.’’
Our Directors can also make use of external courses. Directors Michael Lynton
receive a significant bespoke induction programme and a
range of information about Pearson when they join the Board. The induction included meetings with other Board members,
This includes background information on Pearson and details business area familiarisation with members of the Pearson
of Board procedures, Directors’ responsibilities and various Executive, a briefing on Directors’ duties and sessions with the
governance-related issues, including procedures for dealing SVP Internal Audit, Compliance and Risk, SVP Investor Relations,
in Pearson shares and their legal obligations as Directors. and MD, Pearson Online Learning Services. The Company
The induction also typically includes a series of meetings with Secretary sought Michael’s feedback following completion of
members of the Board, external legal advisers and brokers,
his induction programme. Michael was very positive about the

the Pearson Executive and senior management, presentations benefits of the programme, and suggested a small number of
regarding the business from senior executives and a briefing enhancements based on his own experience. These suggestions
on Pearson’s investor relations programme. will be taken into account by the Nomination & Governance
The induction programme for Michael Lynton, our most recently Committee as it continues to oversee the format of the
appointed Non-Executive Director, took place in 2018. A tailored Non-Executive Director induction.
and bespoke induction programme was designed for him which
aligned with the Board’s focus areas.
Nomination & Governance Committee report
Role and business of the Committee

Committee Chair The Committee monitors the composition and balance of the Board
Vivienne Cox and of its Committees, identifying and recommending to the Board
Members the appointment of new Directors and/or Committee members.
Elizabeth Corley, Vivienne Cox, Josh
The Committee has oversight of the Company’s compliance with,
Lewis, Tim Score and Sidney Taurel
and approach to, all applicable regulation and guidance related to
corporate governance matters.
The Committee also oversees talent and succession plans for

senior roles. The Committee comprises four independent Non-
Executive Directors and the Chair of the Board. The Chief Executive
Committee responsibilities include: and other senior management, including the Chief Human
Resources Officer, attend Committee meetings by invitation.
Appointments
Identifying and nominating candidates for Board vacancies. Areas of focus during 2018
Balance During 2018, the Committee’s areas of focus included oversight
of the annual Board evaluation process, reviewing Committee
Ensuring that the Board and its Committees have the appropriate
membership and Committee remits in order to ensure balanced
balance of skills, experience, independence, diversity and knowledge
remits and composition of all Committees, and reviewing its own
to operate effectively.
terms of reference. The Committee also conducted a benchmarking
Succession exercise in respect of the frequency and duration of Board meetings
and the Committee was satisfied that the Board had sufficient
Reviewing the Company’s leadership needs with a view to
meeting time under the current arrangements.
ensuring the continued ability of the organisation to compete
in the marketplace. At its February meeting, the Committee considered arrangements
for the induction of new Non-Executive Directors, including finalising
Governance Michael Lynton’s induction programme. The Committee also had
Review and oversight of Pearson’s corporate governance framework, oversight of Non-Executive Director succession planning and search
Board evaluation and training plans, and Board diversity policy. activity, and this was a regular agenda item throughout the year.
At its December meeting, the Committee received an update from

Terms of reference
the Chief Human Resources Officer and SVP, Diversity & Inclusion
The Committee has written terms of reference which clearly set out its
about Pearson’s detailed action plan to address the gender pay gap.
authority and duties. These are reviewed annually and can be found on
In addition, the Committee received an update on planned events
the Company website www.pearson.com/governance.
scheduled for 2019 for next-generation female executives, delivering
Committee attendance upon a recommendation by Committee member Elizabeth Corley.
The Board also devoted time to diversity and inclusion initiatives
Attendance by Directors at Nomination & Governance Committee
meetings throughout 2018: across the business – see overleaf for further detail.
Meetings attended The Committee also considered the Company’s corporate
Elizabeth Corley 4/4 governance framework in light of the new UK Corporate Governance
Vivienne Cox 4/4 Code which took effect for Pearson from 1 January 2019. We will
Josh Lewis 4/4 report in accordance with the 2018 Code in the 2019 annual report,
Harish Manwani1 2/2
and you can read more about our preparation for the new UK
Corporate Governance Code on p93.
Tim Score 4/4
Sidney Taurel 4/4
1 Mr Manwani stepped down from the Committee on 4 May 2018.
Board search
Pearson uses a number of leading firms in its Board search activities
and ensures that we retain good relationships with them. Acting on
the results of the 2017 Board evaluation, the Committee has paid
particular attention to Non-Executive Director succession planning,
including for future Committee chairs. Accordingly, during the year,
the Committee undertook a market study for potential search firms
and reviewed the process by which it will select candidates.

Nomination & Governance Committee
Overview
The Committee also agreed upon specific criteria for potential new
Non-Executive Directors, in particular giving consideration to the meeting focus during 2018
skills and experience required in any candidates. Pearson expects
all Non-Executive Directors to demonstrate the highest level of
integrity and credibility, independence of judgement, maturity, Appointments
collegiality, a high interest in education and the commitment to Ongoing search for potential Non-Executive Directors
devote the necessary time.
Taking into account the agreed person specification as well as Balance

diversity in its broadest sense, in 2018 the Committee engaged greement of desired skills and experience of new
A
Russell Reynolds Associates to undertake a search process for new Non-Executive Directors
Non-Executive Directors. In addition to the Non-Executive Director Update on diversity and inclusion initiatives at Pearson

search process, Russell Reynolds Associates undertakes broader
executive search activity for the Group, and is a signatory to the Succession
Voluntary Code of Conduct for Executive Search Firms.
uccession planning and updates on search for
S
Committee evaluation Induction outline for Non-Executive Directors
The Committee undertook an annual evaluation to review its
own performance and effectiveness. The process involved the Governance
distribution of questionnaires to Committee members, as well as Consideration of Board evaluation feedback
key stakeholders, seeking views on matters including Committee Compliance with UK Corporate Governance Code
roles and responsibilities, quality and timeliness of meeting
Oversight of development of the employee engagement network
materials, opportunity for discussion and debate, dialogue with
Our performance
Schedule and length of meetings
management and access to independent advice. Responses were
then evaluated and presented to the Committee at a scheduled Approval of Committee terms of reference
meeting, with key themes being drawn out for discussion.
The Committee was considered to have operated effectively

throughout 2018 with a clear agenda and effective leadership.
In response to the findings of the 2018 evaluation, and as part
of its forward planning for the 2019 agenda, the Committee will
continue to devote time to Board succession planning, including
for Committee Chair positions, and has agreed that its focus on
the requirements of the new UK Corporate Governance Code will
continue to be a priority in 2019. The Company Secretary will ensure
Governance
that meeting frequency and time allocation remains appropriate
to achieve these aims. The Committee has also given consideration
to the processes relating to Non-Executive Director search
activity, which was a particular recommendation arising from its
2018 evaluation.
Committee aims for 2019

We will have a full agenda for 2019, with a particular focus on
implementation of changes to the corporate governance framework
including establishment of the employee engagement network,
Non-Executive Directors’ succession planning activity, Board
diversity and inclusion plan and findings of the Board evaluation.
Vivienne Cox
Chair of Nomination & Governance Committee
Nomination & Governance Committee report
Diversity
The Board embraces the Code’s underlying principles with the Board diversity and inclusion policy, we are committed
regard to Board balance and diversity, including in respect to work towards the recommendations suggested by the
of ethnicity, gender and age. The objectives set out in the Hampton-Alexander Review aimed at having at least
Board’s diversity and inclusion (D&I) policy and our progress 33% female representation on the Board by 2020.
towards these objectives are shown in the table below.
During the year, the Board received an overview of the training
The Committee ensures that the Directors of Pearson
on unconscious bias which is being delivered to employees
demonstrate a broad balance of skills, background and
and participated in elements of this programme. The Board
experience, to support Pearson’s strategic development
received a detailed progress update in December on the
and reflect the global nature of our business. The Committee
Company’s refreshed diversity and inclusion strategic
also ensures that appointments are made on merit and
approach, framework, governance and measurement models
relevant experience, while taking into account the broadest
and 2019 priority areas. The Board also received an update
definition of diversity. In the ongoing Non-Executive Director
on a new internal mentoring scheme, and agreed to join the
search process, emphasis is given to candidates who would
programme whereby each Director is paired with a high-
enhance the overall diversity of the Board.
potential Senior Vice President female leader at Pearson.
The gender diversity of the Board was 30% female This launched at the end of 2018 and runs through 2019.
representation as at 31 December 2018. However, as noted in
Board diversity & inclusion objectives

The Committee has agreed the following objectives to support the Board diversity & inclusion policy:
Objectives Progress
We will strive to maintain a Board composition of:
At least 25% female Directors, with a target of at least 33% female Directors by 2020 25% female Directors achieved.
At least one Director of colour. Board includes one Director who identifies
as Mixed – White & Black Caribbean.
All Board appointments will be made on merit, in the context of the skills and relevant Achieved. Rigorous process used during
experience that are needed for the Board to oversee Pearson’s strategic development recent search for Michael Lynton who has
and that reflect the global nature of our business. relevant experience and skills.
The Board will prioritise use of search firms which adhere to the Voluntary Code of Achieved.
Conduct for Executive Search Firms when seeking to make Board-level appointments.
The Board will continue to adopt best practice, as appropriate, in response to the The recommendations of the Davies Review,
Davies Review, the Hampton Alexander Review and the Parker Review. Hampton Alexander Review and Parker
Review in respect of gender and ethnic
diversity have been noted by the Board.
Where appropriate, we will assist with the development and support of initiatives that promote Board mentoring scheme of senior
all forms of diversity and inclusion in the Board, Pearson Executive and our senior management. leadership talent launched.
Diversity and talent in Executive pipeline

Our Code of Conduct sets out our global standards and women out of ten members (20%) – this excludes the Chief
responsibilities with regard to D&I at all employee levels, including Executive and Chief Financial Officer who are counted in the
the Pearson Executive, and covers many aspects, including Board’s metric. The senior leadership group, comprising the
gender, age, ethnicity, disability and sexual orientation. This is direct reports of the Pearson Executive, had 31% female
underpinned by a global statement on D&I along with country representation as of 31 December 2018.
and business specific policies. A new Global Diversity and
We believe that we have a multi-pronged plan in place to build
Inclusion Council is launching in early 2019 and will be chaired
our pipeline of women in leadership and senior management
by Chief Executive, John Fallon. For more information on the
positions, and the Board and Committee will carefully monitor
Company’s approach to diversity and inclusion, please see
their development, and the development of all key talent.
p38 in the Sustainability section.
Pearson published its first gender pay gap report in Great
We are a founder member of the 30% Club and the Chief Executive Britain in March 2018 and has made a commitment to extend
has also signed a personal commitment to set an aspirational our gender pay reporting globally by 2020. Read more about
target of at least 30% women in Pearson’s senior management our initiatives to address the gender pay gap on p38.
team by 2020. On our Executive team, there are currently two
Overview
Preparation for the new UK Corporate Governance Code
The new UK Corporate Governance Code (the 2018 Code) cultural diversity as well as length of service. The network
applies to Pearson from the 2019 financial year. To ensure is expected to meet twice a year with periodic rotation of
appropriate preparations were made in advance of the employee representatives in order to bring different employee
effective date, the Nomination & Governance Committee perspectives to the group. The network will also provide
received a briefing from the Company Secretary shortly after an opportunity to gain additional insight on how to enhance
the publication of the 2018 Code on key themes and the main employee satisfaction and work effectiveness within Pearson
areas of change. At its next meeting, the Committee considered and help engage and retain high performers. The Committee
a detailed comparative analysis of Pearson’s existing corporate agreed to oversee the governance framework for workforce
governance practices against the 2018 Code. The report engagement on behalf of the Board however, any employee

highlighted areas of particular focus or change between views arising through the network or other means would
the 2016 and 2018 Codes, as well as areas where Pearson remain a matter for the Board as a whole.
was already in compliance with proposed new principles
Pearson’s engagement and communications with broader
and provisions.
stakeholder groups, including customers, suppliers and
The Committee was satisfied that there were no particular communities, sit within the remit of the Reputation &
areas of concern within the 2018 Code and that Pearson’s Responsibility Committee. The Reputation & Responsibility
corporate governance practices were already of a standard Committee therefore agreed to continue to oversee the
to ensure compliance with the majority of the 2018 Code. governance framework for stakeholder engagement within
The Committee then discussed in further detail the specific Pearson as required by the 2018 Code, and agreed a proposal
areas where it believed further steps could be taken to that a detailed stakeholder engagement mapping exercise
ensure a robust response to the 2018 Code. be undertaken with input from Global Corporate Affairs and
Our performance
Marketing. The Reputation & Responsibility Committee will
Stakeholder engagement consider the outputs of this exercise at its first meeting of 2019.
The Committee considered the 2018 Code’s focus on the

Other key items considered
importance of the stakeholder voice in the boardroom, as well
as increased legislative disclosures in this regard for Pearson Other actions arising in connection with the Committee’s
and a number of its UK subsidiaries. preparations for the 2018 Code include:
The Committee noted that Pearson already uses a wide range he Committee is mindful of the 2018 Code’s attention to
T
of mechanisms to engage with employees, including town halls, Directors’ commitments and has agreed a form of internal
global conversations, employee resource groups, employee guidance to be taken into account when considering changes
engagement and organisational health surveys, as well as to a Director’s commitments, or when appointing a new
the Board having the opportunity to engage both formally and Director, as well as formalising the Board approval process
Governance
informally with the workforce during events such as Board site for such matters
visits and talent breakfasts. The Committee agreed that existing
he Senior Independent Director’s duties and
T
mechanisms provide sufficiently effective ways for the Board
responsibilities have been formalised, as suggested by the
to keep a pulse on the organisation and on employees’ views
2018 Code, and are available on the Company website at
on Pearson’s strategy, communications, compensation and
www.pearson.com/governance
benefits, and the senior leadership team overall. However,
in the spirit of the 2018 Code, the Committee reviewed and he Committee agreed that the Remuneration Committee
T
approved a proposal on an additional mechanism – an will be responsible for ensuring compliance with Section 5
Employee Engagement Network – as a means for the Board of the 2018 Code.
to hear directly from employees. The network will include a
Non-Executive Director, an Executive Director, Human We will report in accordance with the 2018 Code in our
Resources Executive, and a group of employees from across 2019 annual report.
Pearson reflecting geographical, generational, operational and

Board evaluation
Board evaluation Individual evaluation

The Board evaluation for 2018 was an internally facilitated process In addition to the evaluation of the Board as a whole, Executive
led by the Nomination & Governance Committee with support Directors are evaluated each year on their overall performance
from the Company Secretary, and conducted by means of a tailored against goals agreed by the Board, and in respect of personal
questionnaire. The Nomination & Governance Committee spent objectives under the Company’s annual incentive plan. These goals
time during 2018 in scoping the evaluation and reviewed the and objectives are linked to certain strategic metrics, including
headlines at its meeting in December 2018. The Committee will efficiency and cost saving initiatives, driving the digital agenda
develop an action plan to address areas for improvement and and growing market opportunities. Progress against each of these
will monitor progress during the year. Key findings included: metrics is reviewed by the Board on a regular basis, as part of
the dashboard of KPIs which we believe to be central to
oard members were supportive of work undertaken during the
B
Pearson’s turnaround.
year in continuing to develop and articulate the strategy, with this
being identified by a number of Directors as a key achievement The Chair meets with each Non-Executive Director individually
upon which the Company would continue to build on a regular basis and, in assessing the contribution of each,
has confirmed that each Director continues to make a significant
he Board’s agenda was felt to be well prioritised with the key
T
contribution to the business and deliberations of the Board.
issues covered to an appropriate level of detail and a good balance
At least once a year, the Chair’s meetings with individual Non-
of strategic, operational, financial and governance matters
Executive Directors include reciprocal feedback on the functioning
he main areas identified by the Board for continued focus during
T of the Board, to augment the collective Board evaluation process.
2019 were leadership development and succession planning, The Non-Executive Directors, led by the Senior Independent
culture, the competitive landscape and customer views. Director, also conduct an annual review of the Chair’s performance,
with the Senior Independent Director providing feedback from
In addition to leading the 2018 process, the Nomination & this review to the Chair.
Governance Committee also gave consideration to the ongoing
evaluation cycle. The Committee agreed that a three-yearly cycle
utilising a variety of methodologies would be appropriate to ensure Committee evaluation
the most effective evaluation outcomes. The planned cycle is: All Committees undertake an annual evaluation process to review
their performance and effectiveness. For 2018, the process was
Year 1 – in-depth evaluation, externally facilitated
facilitated internally by the Chair and Secretary of each Committee
(undertaken in 2017)
through use of a tailored questionnaire, the findings of which were
ear 2 – questionnaire, tailored to specific needs of the business
Y discussed at a subsequent meeting of each Committee. Read more
(undertaken in 2018) on this in the Committees’ reports.
Year 3 – internally facilitated interview, to be led by the Chair,
Senior Independent Director and/or Company Secretary as
appropriate (due in 2019).
A number of actions were taken during the year in response to

findings arising from the 2017 externally facilitated Board evaluation
process. You can read more about progress on these in the table
opposite. The Committee confirmed that these items, as well as
those identified in the 2016 evaluation, had been addressed to
its satisfaction, with recommendations having been put into
practice or a clear action plan identified.
Overview
Progress on findings of 2017 evaluation
Finding Response/Action taken
Ensure ongoing strategic The new Chief Strategy Officer led a process to capture strategic perspectives from all Board
development aligned with business members, as well as senior leaders across Pearson. The outputs from this work formed the basis of
transformation strategy. the five-year strategic plan which was discussed by the Board in July 2018, with detailed follow-up
sessions later in the year. The Board also examined the three-year and one-year plans based on the
five-year vision.
Ensure continued understanding by The Chair and Executive Directors meet with significant shareholders regularly and feed back to
the Board of significant shareholders’ the Board. The Board and Nomination & Governance Committee also receive regular updates on
views to encourage constructive correspondence and other meetings with significant shareholders.
dialogue and clear communication Investor sessions facilitated by Investor Relations allowed shareholders to meet with the President –

of strategy. Global Product, President – North America, and Chief Technology & Operations Officer, to better
understand Pearson’s strategy on our digital transformation and simplification. Investor engagement
will be kept under review with the possibility of further sessions between investors and senior leaders
to be considered during 2019.
Board succession planning should Committee Chair succession is regularly reviewed by the Nomination & Governance Committee,
consider future Committee Chairs, and forms part of the broader Non-Executive Director succession planning process. Specific desired
and other desirable experience in experience is taken into consideration and built into the specifications in any Non-Executive Director
new Board members. search processes.
New Chief Human Resources Officer to Initial observations were discussed by the Board in May 2018, with a follow-up review of progress
continue executive succession planning taking place in October 2018. This is planned to be an annual item for substantial discussion by
and complete a talent review aligned to the Board.
the strategic needs of the business.
Our performance
Ongoing Board education to continue to The competitive landscape formed part of strategy discussions throughout 2018 and will continue
focus on the competitive landscape and to do so. A formal update on the Digital Advisory network was provided to the Board in May 2018,
digital technologies. and informal updates on the work of the network are provided to the Board on a regular basis.
Governance
Audit Committee report
Audit Committee role

Committee Chair The Committee has been established by the Board primarily for the
Tim Score purpose of overseeing the accounting, financial reporting, internal
Members control and risk management processes of the Company and the
Elizabeth Corley, Vivienne Cox, audit of the financial statements of the Company. As a Committee,
Linda Lorimer, Michael Lynton, we are responsible for assisting the Board’s oversight of the quality
Tim Score and Lincoln Wallen and integrity of the Company’s external financial reporting and
statements and the Company’s accounting policies and practices.
Pearson’s SVP Internal Audit, Risk and Compliance has a dual

reporting line to the Chief Financial Officer and to me, and external
auditors have direct access to the Committee to raise any matters
Committee responsibilities include:
of concern and to report on the results of work directed by the
Committee. As Audit Committee Chair, I report to the full Board at
Reporting every Board meeting immediately following a Committee meeting.
The quality and integrity of financial reporting and statements and I also work closely with the Chief Financial Officer and senior
related disclosure. financial management outside the formal meeting schedule to
ensure robust oversight and challenge in relation to financial
Policy control and risk management.
Group policies, including accounting policies and practices.
External audit Audit Committee composition

External audit, including the appointment, qualification, Following his appointment to the Board in February 2018,
independence and performance of the external auditor. Michael Lynton was appointed to the Audit Committee in October
2018. Michael’s experience in leading complex global businesses
Risk & internal control will complement the Committee’s existing skill set, and I look
Compliance with legal and regulatory requirements in relation to forward to working closely with him. Following Michael’s
financial reporting and accounting matters. appointment, the Committee comprises six independent
Non-Executive Directors. As a Committee, we have a good balance
Compliance & governance of skills and knowledge with competence and experience covering
Compliance with legal and regulatory requirements in relation to all aspects of the sectors in which Pearson operates – education,
financial reporting and accounting matters. digital and services – and our key geographic markets.
Terms of reference Fair, balanced and understandable reporting

The Committee has written terms of reference which clearly set out We are mindful of the Code’s provision C.1.1 relating to fair, balanced
its authority and duties. These are reviewed annually and can be found
and understandable reporting and we build sufficient time into
on the Company website www.pearson.com/governance.
our annual report timetable to ensure that the full Board receives
Committee attendance sufficient opportunity to review, consider and comment on the
report as it progresses. Learn more about fair, balanced and
Attendance by Directors at Audit Committee meetings throughout 2018:
understandable reporting on p130
Meetings attended
Elizabeth Corley 4/4

Vivienne Cox 4/4
Risk assessment, assurance and integrity
Linda Lorimer 4/4 A key role of the Committee is to provide oversight and reassurance
Michael Lynton 1
1/1 to the Board with regard to the integrity of the Company’s financial
reporting, internal control policies and procedures for the
Tim Score 4/4
identification, assessment and reporting of risk. During 2018,
Lincoln Wallen 4/4
we conducted a number of deep dives into selected principal risks,
1 Appointed to the Audit Committee on 1 October 2018.
and the key risks on which the Committee focused throughout
the year are set out below. Learn more about principal risks and
uncertainties on p62
Section 4 Governance/Accountability 97
Business transformation The primary area of focus for the Committee in 2018 was
Overview
Ongoing business transformation is one of Pearson’s key risks oversight of the implementation of finance and operations systems
and opportunities, and The Enabling Programme (TEP) is an throughout a substantial part of our North American business.
important operational simplification project covering Pearson’s In particular, the Committee considered the preparatory steps,
key enterprise resource planning technology and processes, progress on system integration and testing, and status of key
including financial, operations and HR systems and processes. readiness milestones in advance of the implementation in May 2018.
The Committee received an update at each meeting from the At its next meeting, the Committee reviewed certain operational
senior management team in charge of the transformation challenges which had arisen following implementation, with a
programme, as well as from PwC who updated the Committee particular focus on customer experience, impact upon workforce
on the work that the external auditors had conducted in respect including customer services teams, and steps being taken to resolve
of testing associated controls. any remaining issues in advance of the back-to-school season.
Lessons learned from this phase of the implementation were then
discussed by the full Board at its next scheduled meeting.

Audit Committee meeting focus during 2018
Reporting
Accounting and technical updates Review of interim results and trading updates
Impact of legal claims and regulatory issues on financial reporting Form 20-F and related disclosures, including annual Sarbanes-Oxley
Our performance
air, balanced and understandable, going concern and
F Act section 404 attestation of financial reporting internal controls
viability statements Significant issues reporting
017 annual report and accounts: preliminary announcement,
2
financial statements and income statement
Policy
Accounting matters and Group accounting policies Treasury policy and strategy
Analysis supporting viability statement Tax strategy, including an update on EU state aid
Annual review and approval of external auditors’ policy
External audit
Governance
Provision of non-audit services by PwC Confirmation of auditor independence
Receipt of external auditors’ report on Form 20-F and year-end audit 2018 external audit plan
Report on half-year procedures Remuneration and engagement letter of external auditors
Reappointment of external auditors Review opinion on interim results
Review of the effectiveness of external auditors
Risk & internal control

Internal audit activity reports and review of key findings Oversight of The Enabling Programme
Enterprise risk management isk deep dives: information and cyber-security; data privacy;
R
2019 internal audit plan treasury; anti-bribery and corruption (ABC); tax; business resilience
Travel and expenses controls Oversight of the programme to develop the Global Learning Platform
ssessment of the effectiveness of internal audit function,

A Controls Centre of Excellence updates
internal control environment and risk management systems ABC third party due diligence programme
Compliance & governance

Fraud, whistleblowing reports and compliance investigations udit Committee, Verification Committee and internal audit
A
Schedule of authorities function terms of reference
ompliance with accounting and audit-related aspects of the

C Audit Committee evaluation
UK Corporate Governance Code
Enhancements to the UK systems were also made during the Anti-bribery and corruption (ABC)
year, following on from lessons learned during the prior UK In a deep dive led by the VP of Global Compliance, the Committee
implementation, and the Committee heard that this ‘retrofit’ had considered the global anti-corruption landscape, including
proceeded smoothly. In addition to the continued finance and legislation and sanctions, and the continued strengthening of
operations system implementation, a new global payroll system Pearson’s Group-wide compliance and ABC framework.
was introduced in the UK with the rest of the world planned for 2019,
deployment of a new royalties, rights and permissions system in During 2018, there was a particular focus on continued
the UK and North America markets commenced during the year, implementation of Pearson’s third party due diligence programme
and will continue in 2019, and the roll-out of a common HR system to ensure robust processes are in place aimed at vetting third
across Pearson was completed. The Committee will continue to parties acting on Pearson’s behalf in high-risk categories to reduce
monitor TEP progress at each meeting during 2019, including reputational, sanctions and ABC risk. Building on a pilot project in
preparations for the next phase of implementation during the year 2017, the Committee reviewed possible options for the next phase
to the remainder of the North America businesses. Learn more of the programme, which would bring all new in-scope third parties
about business transformation and change on p63 into the due diligence process, ensure that any existing high-risk
third parties go through this process, and facilitate the necessary
Data privacy checks for legacy contracts at the time of renewal. The Committee
A key area for the Committee’s focus throughout the year was agreed that the proposed process would appropriately balance the
data privacy, including readiness for, and next steps following, risk profile of certain geographies and contracts with the needs of
the implementation of the General Data Protection Regulation the business and resources available.
(GDPR) in May 2018.
In December 2018, the Committee considered the substantial
In early 2018, the Committee considered the Group’s data privacy progress made on the due diligence programme, noting that
roadmap, with the Deputy General Counsel updating on Pearson’s all of Pearson’s global markets (outside of UK, US and Western
GDPR readiness. Pearson’s data privacy framework was viewed Europe) had been covered, with over 3,400 third parties reviewed.
as solid in respect of governance, consent and processing Various types of remediation efforts occurred as a result of those
arrangements, as well as ensuring vendor compliance at the efforts where necessary, from increased contractual controls to
onboarding stage, supported by new procurement systems termination of a small number of relationships. US, UK and Western
and processes. The Committee encouraged a robust approach Europe, as well as the VUE business, while large and complex
and clear lines of accountability, with a particular focus on large markets, are inherently lower risk from an ABC perspective and
and/or high-risk vendors with existing or legacy contracts. will be covered by the next phase of the programme during 2019.
At the Committee’s mid-year review, the Chief Privacy Officer During the year, the Committee also monitored the investigations
described the actions which had been taken to address the programme conducted through Pearson’s ethics hotline, supported
remaining pre-GDPR implementation items. the annual roll-out of Pearson’s Code of Conduct (from biannual),
completion rates on mandatory code of conduct declarations
At a separate deep dive, the Committee considered the broader
(100% completion in 2018), supported improved procedures and
global landscape on data privacy, noting that many jurisdictions –
associated training on gifts and hospitality reporting in US sales
including in California and markets such as India and Brazil –
teams, and oversaw the strengthening of the ‘tone from the top’
had recently implemented new data privacy laws, or would soon
on ethics and compliance, led by the Chief Executive.
do so. The Committee also received an update on the learnings
from a recent internal review of the privacy programme, and
considered planned next steps on Pearson’s privacy roadmap
as well as processes for incident response and notifiable events.
Members
All of the Audit Committee members are independent having recent and relevant financial experience, and is
Non-Executive Directors and have financial and/or related an Associate Chartered Accountant. He also serves as
business experience due to the senior positions they hold or Audit Committee Chair for The British Land Company plc.
have held in other listed or publicly traded companies and/or The qualifications and relevant experience of the other
similar large organisations. Tim Score, Chair of the Committee Committee members are detailed on p80–81
since April 2015, is the Company’s designated financial expert,
Audit Committee meetings and activities Additional meeting attendees
Overview
In addition to the Committee members, advisers and executives
At every meeting, the Committee considered reports on the
from across the business also attended meetings during the year,
activities of the internal audit and compliance functions, including
as outlined in the table below. This gives the Committee direct
the results of internal audits, risk reviews, project assurance
contact with key leadership. The Chair and Chief Executive each
reviews and fraud and whistleblowing reports. The Committee also
attend at least one meeting per year, and the Chief Executive
monitored the Company’s financial reporting and risk management
also attends for discussion of matters with an operational focus.
procedures, reviewed the services provided by PwC and considered
The Committee also meets regularly in private with the external
any significant legal claims and regulatory issues in the context of
auditors, SVP Internal Audit, Risk and Compliance, and VP
their impact on financial reporting, each on a regular basis.
Internal Audit.
During the year, the Committee also discussed the finance and IT Attendees Meetings attended
controls environment at each meeting, including Sarbanes-Oxley
Chief Financial Officer 4/4
testing and scope, updates on prior year items, and the ongoing

Deputy CFO 4/4
transformation of the Group-wide controls framework which was
extended to a number of Core and Growth markets during 2018. Legal Counsel 4/4
In addition to the risk deep dives described above, the Committee SVP Internal Audit, Risk and Compliance 4/4
also conducted deep dives into business resilience, treasury, SVP Finance, Group Reporting 4/4
tax and information security. In February 2019, the Committee VP Internal Audit 3/4
considered the 2018 annual report and accounts, including the
Committee Secretary 4/4
preliminary results announcement, financial statements,
strategic report and Directors’ report.
Audit Committee training
Learn more about the key activities of the Audit Committee
on p97 The Committee receives technical updates at each meeting,
including on matters such as accounting standards and the audit
Our performance
Internal audit evaluation and governance landscape, as well as specific or personal training
At its July meeting, the Committee considered the findings as appropriate.
of the review of the performance and effectiveness of Pearson’s
Committee members also meet with local management on a
internal audit function, a process which is undertaken annually.
periodic basis, such as when travelling for overseas Board meetings,
This review was conducted by distributing a questionnaire to the
in order to gain a better understanding of how Pearson’s policies
key stakeholders of the internal function – including Committee
are embedded in operations.
members, the lead external audit partner, members of the Pearson
Executive, and senior financial, legal and operational management.
Committee evaluation
The findings indicated an effective internal audit function, with
particular acknowledgement of the function’s efforts in resolving a In 2018, the Committee evaluation was conducted by way of a
number of outstanding actions from previous internal audits, questionnaire which was distributed to key stakeholders including
Governance
which is an ongoing area of focus for the Committee. Committee members, the Chair of the Board, Chief Executive,
Chief Financial Officer, the lead external audit partner, and senior
A specific recommendation arising from the internal audit executives with regular exposure to the Committee.
evaluation was to consider whether there is an appropriate level
of liaison between internal audit and the external auditors, in order The responses illustrated an effective Committee, which uses its
to utilise combined audit efforts effectively. In response to a request time well and has an appropriate focus on the key issues. No areas
from the Committee for more detail in this regard, an analysis of of concern were identified, and the Committee will consider how
financial assurance coverage was undertaken, with inputs from best to implement a small number of suggestions arising from the
internal audit and PwC. The results of this analysis were considered process. These suggestions included:
by the Committee at its December 2018 meeting, and the Invite a wider range of business leaders to Committee meetings,
Committee was satisfied that the level of combined financial enabling the leaders to engage in Board-level discussions, as well
assurance was appropriate. as facilitating a greater understanding of the Committee’s role in
In order to continue to ensure a robust and effective internal audit the wider business
function, the Committee will consider plans for an external quality s progress continues to be made with the implementation of
A
review during 2019 to be facilitated by an independent third party. TEP and transformation of Pearson, consider a review to confirm
that Pearson has maximised the opportunity to strengthen the
control environment and better manage risk.
Progress on findings of 2017 evaluation In considering the appropriate audit tender timetable for Pearson
The responses to the 2017 evaluation, which was externally in light of these requirements, the Committee has also taken
facilitated, found an effective and well-functioning Audit Committee, account of the significant business change being experienced
which uses its time well and has an appropriate focus on the by the Group and is monitoring the extent to which the Group is
key issues. One area highlighted was that succession for the role drawing upon the services of other accounting firms. As previously
of Audit Committee Chair should be borne in mind with future explained to shareholders, and as noted elsewhere within this
Non-Executive Director appointments, although this was not report, a series of programmes is well underway throughout
considered to be immediately pressing. Pearson to implement major simplification and efficiency
improvements across all our enabling functions – particularly
technology, finance, HR – to continue to bring the general and
External audit administrative costs of running Pearson more in line with global
Oversight of external auditors best practice. These include a major transformation programme
The Committee reviews and makes recommendations to the Board – The Enabling Programme (TEP) – which includes the
in respect of the appointment and compensation of the external implementation of new financial systems and changes to our
auditors. This recommendation is made by the Committee after transaction processing and control activities, which launched in
considering the external auditors’ performance during the year, the UK during 2016, and is expected to be rolled out throughout
reviewing external auditor fees, conducting an effectiveness review our businesses by 2021. Pearson is supported in these changes,
and confirming the independence, objectivity, qualifications and such as in project assurance matters and, more broadly,
experience of the external auditors. by external advisers, including accounting firms.
The Committee reviewed the effectiveness and independence of Due to the status of TEP and the involvement of accounting firms
the external auditors during 2018, as it does every year, and remains advising on TEP and other change projects, the Committee is of the
satisfied that the auditors provide effective independent challenge opinion that the level of disruption likely with a change of auditor,
to management. as well as the focus required by finance and management teams
to conduct the tender process thoroughly and effectively, may
The external auditors’ review was conducted by distributing a unduly impact the Group and would not be in the best interests
questionnaire to key audit stakeholders, including members of the of shareholders. The rotation of the lead audit partner at the start of
Audit Committee, Chief Financial Officer, Deputy CFO, SVP Internal 2018 has given us further confidence in the ongoing effectiveness,
Audit, Risk and Compliance, SVP Finance for each business area independence and challenge brought by the external auditor.
and other heads of corporate functions. Overall, responses to the
questionnaire were positive, indicating an effective external audit As noted previously, it is the current expectation of the Committee
process in a year of transition to the new lead audit partner. that an audit tender process would commence in 2022 in order for
the auditor selected as a result of the tender to be appointed for the
The Committee will continue to review the performance of the financial year ending 31 December 2023. It would be our intention
external auditors on an annual basis and will consider their to look to accelerate this timing if feasible and appropriate following
independence and objectivity, taking account of all appropriate the completion of TEP, and we would communicate any change in
guidelines. There are no contractual obligations restricting the our plans to shareholders in advance of any decision. For the
Committee’s choice of external auditors. The external auditors reasons outlined above, the Committee considers this timing to be
are required to rotate the audit partner responsible for the in the best interests of Pearson’s shareholders and will continue to
Pearson audit every five years and, accordingly, a new lead audit monitor this annually in light of the effectiveness and independence
partner, Giles Hannam, rotated onto the Pearson audit from the of the current auditors, as well as considering whether the timing
beginning of 2018. remains appropriate in light of business developments.
Audit tendering and rotation Once the next audit tender occurs, Pearson will adopt a policy
Pearson’s last audit tender was in respect of the 1996 year end, of putting the audit contract out to tender at least every ten years,
and resulted in the appointment of Price Waterhouse as auditors. as required. The Committee will continue to pay close attention to
Developments at an EU level regarding mandatory audit rotation developments in the audit landscape in response to the findings of
for listed companies have changed the UK landscape on audit the CMA’s ongoing statutory audit services market study, and will
tendering and rotation. The Committee has reviewed the timetable factor any resulting changes into its plans for audit tender once the
for tendering and has taken into account relevant regulation and CMA’s recommendations are finalised.
guidance. EU regulations and the ruling by the Competition and
Compliance with the CMA Order
Markets Authority (CMA) impose mandatory tendering and
rotation requirements, with EU rules requiring a new auditor Pearson confirms that it was in compliance with the provisions
to be appointed no later than for the 2024 financial year end. 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 2018.
Review of the external audit heir work in relation to the impact of new accounting standards,
T
Overview
During the year, the Committee discussed the planning, conduct including the adoption of IFRS 9 and 15 from 1 January 2018 and
and conclusions of the external audit as it proceeded. IFRS 16 from 1 January 2019
At its July 2018 meeting, the Committee discussed and approved the heir work in relation to other matters which are not classified
T
external audit plan and reviewed the key risks of misstatement of as key audit matters, but may give rise to additional disclosure
Pearson’s financial statements. The external auditors provided requirements e.g. pensions.
an update at the December 2018 Committee meeting, having The auditors also reported to the Committee the misstatements
concluded that their analysis of significant and elevated risks that they had found in the course of their work, which were
remained the same. insignificant, and the Committee confirmed that there were no
The table on p102–103 sets out the significant issues considered by material items remaining unadjusted in these financial statements.
the Committee together with details of how these items have
Auditors’ independence

been addressed. The Committee discussed these issues with the
auditors at the time of their review of the half-year interim financial In line with best practice, our relationship with PwC is governed
statements in July 2018 and again at the conclusion of their audit by our policy on external auditors, which is reviewed and approved
of the financial statements for the full year in February 2019. annually by the Audit Committee. The policy establishes procedures
to ensure the auditors’ independence is not compromised, as well
All the significant issues were also areas of focus for the auditors.
as defining those non-audit services that PwC may or may not
Learn more in the Independent auditor’s report on p134–141
provide to Pearson. These allowable services are in accordance
In December 2018, the Committee discussed with the auditors with relevant UK and US legislation.
the status of their work, focusing in particular on internal controls
The Audit Committee approves all audit and non-audit services
and Sarbanes-Oxley testing.
provided by PwC. Our policy on the use of the external auditors for
As the auditors concluded their audit, they explained to non-audit services reflects the restriction on the use of pre-approval
the Committee: in the 2016 FRC Guidance on Audit Committees and, accordingly,
Our performance
all non-audit services, irrespective of value, are required to be
The work they had conducted over revenue, including over
approved by the Audit Committee. In particular, we expressly
more complex revenue contracts and judgements in relation
prohibit the provision of certain tax, HR and other services by the
to provisions for returns
external auditor. We review non-audit services on a case-by-case
heir work in evaluating management’s goodwill impairment
T basis, including reviewing the ongoing effectiveness and
exercise, on a fair value less costs to dispose basis, including appropriateness of our policy.
assessing assumptions around sales and operating cash flow
The Audit Committee receives regular reports summarising the
forecasts, long-term growth rates and discount rates
amount of fees paid to the auditors. During 2018, Pearson spent
The work performed over the nature and presentation of £0.4m less on non-audit fees with PwC compared with 2017,
non-trading items, including new property provisions recorded in due to a reduction in billing on controls assurance services. For 2018,
2018, focusing on subjective judgements and the transparency non-audit fees represented 17% of external audit fees (23% in 2017).
Governance
with which related adjusted measures are presented
For all non-audit work in 2018, PwC was selected only after
he work they had done to audit the provisioning levels
T consideration that it was best able to provide the services we
in respect of potential tax exposures and uncertain tax required at a reasonable fee and within the terms of our policy on
positions including the release of brought forward provisions external auditors. Where PwC is selected to provide audit-related
and related disclosures services, we take into account its existing knowledge and experience
of Pearson. Where appropriate, services were tendered prior to a
heir evaluation of the recoverability of investments in digital
T decision being made as to whether to award work to the auditors.
platforms and pre-publication assets
Significant non-audit work performed by PwC during 2018 included:
heir work over the assessment of the US K12 Courseware
T
business meeting the criteria to be held for sale at 31 December Audit-related work in relation to disposal transactions
2018 and completed disposals including WSE, UTEL and
Audit of Pearson’s efficacy programme

One Southwark Bridge
Half-year review of interim financial statements.
he results of their controls testing for Sarbanes-Oxley Act section
T
404 reporting purposes and in support of their financial A full statement of the fees for audit and non-audit services is
statements audit provided in note 4 to the financial statements on p167.
he results of their work over the Company’s going concern and

T
viability statement reports
heir work over finance transformation related to the TEP

T
implementation at US Higher Education and the UK retrofit Tim Score
Chair of Audit Committee
Significant issues considered by the Audit Committee

Issue Action taken by Audit Committee Outcome
Impairment reviews
Pearson carries significant goodwill The Committee considered the results of the Group’s annual Annual impairment review finalised
and other intangible asset balances. goodwill impairment review and the key assumptions which with confirmation of sufficient
There is judgement exercised in the are considered to be the cash flows derived from strategic headroom in each of the CGUs.
identification of cash-generating units and operating plans, long-term growth rates and the weighted
(CGUs) and the process of allocating average cost of capital. The Committee considered the
goodwill to CGUs and aggregate CGUs sensitivities to changes in assumptions and the related
and in the assumptions underlying the disclosures required by IAS 36 ‘Impairment of Assets’ in relation
impairment review. In 2015 and 2016, to the Group’s CGUs noting that they remain sensitive to
Pearson made significant impairments assumption changes after a number of impairments
to goodwill across a variety of in recent years.
its businesses. There were no
impairments recorded in 2017 or 2018.
Leases and IFRS 16

Pearson will adopt IFRS 16 in respect of The Committee monitored progress on the IFRS 16 lease The Committee reviewed and
its lease portfolio in 2019. The Group conversion process, reviewed the transition options taken and approved the transition options
has a significant number of property the quantification of the impact including sensitivities relating taken, discount rates applied and
leases and a number of other low to the selection of appropriate discount rates. The impact of disclosures made.
value vehicle and equipment leases. the change was also considered in the light of banking
The implementation of the standard arrangements and strategic plans.
will result in the recognition, on the
balance sheet, of right of use assets
in respect of these leases and
corresponding lease liabilities.
Revenue recognition and IFRS 15

Pearson has a number of revenue The Committee regularly reviews revenue recognition practices Assumptions underlying revenue
streams where revenue recognition and the underlying assumptions and estimates. In addition, recognition were reviewed and
practices are complex and the Committee has visibility of internal audit findings relating challenged and considered to be
management assumptions and to revenue recognition controls and processes and routinely appropriate. Quantification and
estimates are necessary. The Group monitors the views of external auditors on revenue recognition disclosures relating to IFRS 15
also adopted IFRS 15 ‘Revenue issues. During the year, the Committee continued to monitor the were reviewed and also agreed
from Contracts with Customers’ implementation of IFRS 15 ‘Revenue from Contracts with as appropriate.
during 2018. Customers’. The Committee noted the changes to revenue
streams and the quantification of the impact on the opening
balance sheet and reviewed disclosures made in the Group’s
interim and year-end reporting.
Financial instruments
Pearson adopted IFRS 9 ‘Financial The Committee reviewed the impact of the transition to IFRS 9 and Adjustments relating to IFRS 9 were
Instruments’ in 2018. noted the Group’s new approach to hedge accounting, investment reviewed and disclosure of impact in
valuation and impairment. The Committee reviewed the impact on 2018 was considered appropriate.
the opening balance sheet and in particular the impact on bad debt
provisions and noted that these had been relatively small.
Overview
Issue Action taken by Audit Committee Outcome
Disposal transactions
The Group sold its English language The Committee reviewed the accounting for the disposals of The Committee determined that
teaching business in China, Wall WSE and UTEL and the rationale for held for sale treatment in disposal accounting had been correctly
Street English (WSE) and its equity respect of the US K12 Courseware business. recorded and that the criteria for held
interest in UTEL, the online University for sale treatment in respect of the US
partnership in Mexico, and continued K12 Courseware business had been
to consider offers for its US K12 met as at 31 December 2018 following
Courseware business. continued interest from a number

of bidders.
Pension valuations
Pearson’s UK Pension Plan includes The Committee considered the recent High Court decision about The Committee agreed the
a large defined benefit section. GMP equalisation noting that the new ruling impacted most quantification and appropriate
The valuation of this plan under companies and might result in adverse cost and liability accounting treatment in respect
IAS 19 ‘Employee Benefits’ requires implications. The Committee reviewed the impact in the light of the additional liabilities
significant judgement. In particular, of other companies’ responses to the new development and arising from clarification of
in 2018, the UK Pension Plan with detailed technical accounting and actuarial guidance. GMP equalisation legislation.
considered the impact of the
clarification of pension law in respect
of Guaranteed Minimum Pension
Our performance
(GMP) equalisation.
Restructuring
Pearson announced a new The Committee reviewed progress on the restructuring The Committee confirmed that the
restructuring programme in May 2017 programme and considered the judgements required in accounting and disclosure for the
to run from 2017 until 2019. There are accounting for the costs of redundancy, asset impairment and restructuring programme were
a number of accounting judgements property rationalisation mainly in respect of the Group’s North appropriate and that assumptions
to be made regarding categorisation America operations and enabling functions. In particular, in 2018, underlying onerous lease provisions
and timing of recognition of cost. the Committee reviewed property disposal transactions and were in accordance with the Group’s
the assumptions underlying onerous lease provisions crystallised property strategy.
by the rationalisation of the Company’s property portfolio.
Governance
Tax
The impact of tax legislation changes The Committee was updated on the details of US tax reform The Committee was satisfied with
including US tax reform, EU state during the year, including internal refinancing of the group’s Pearson’s approach to managing the
aid and the trend for increased tax US operations. In September, the outcome of this combined impact of tax legislation changes and
transparency, and provision levels. with provision releases resulted in a significant reduction in the agreed with the views of management
2018 adjusted tax rate, which was reported to the Board. regarding tax provisioning levels.
The Committee reviewed the classification of these credits.
The chair of the Committee approved the second report on
tax strategy issued in October 2018 prior to publication.
Returns
The determination of appropriate The Committee considered returns provisioning for the Assumptions underlying the returns
provisions for product returns US Higher Education courseware business and reviewed the reserve methodology were reviewed
requires a significant amount of methodology for establishing provisions. and agreed as still being appropriate
judgement and in the light of recent in the light of actual returns noted
volatility in returns in the US Higher in 2018.
Education courseware business, the
Committee continued to review
returns data and our policy on
providing for returns.
Risk governance and control
Control environment he internal audit team provides independent assurance on

T
the adequacy of the risk management arrangements in place.
The Board has overall responsibility for Pearson’s systems of The internal audit plan is aligned to identified enterprise-wide
internal control and risk management, which are designed to risks and it presents issues and risks arising from internal audits
manage, and where possible mitigate, the risks facing Pearson, at each Audit Committee meeting.
safeguard assets and provide reasonable, but not absolute,
assurance against material financial misstatement or loss. The involvement of the Board and Audit Committee in the design,
The Board confirms that it has conducted a review of the implementation, identification, monitoring and review of risks
effectiveness of Pearson’s systems of risk management and internal (including setting risk appetite and reviewing how risk is being
control in accordance with provision C.2.3 of the Code and the FRC embedded in our culture) is outlined in more detail in the risk
Guidance on Risk Management, Internal Control and Related management section on p60–76.
Financial and Business Reporting (FRC Guidance). The Board
confirms these systems operated satisfactorily throughout the Financial management and reporting
year and to the date of this report, and no significant failings or
weaknesses were identified in the review process. There is a comprehensive strategic planning, budgeting and
forecasting system with an annual operating plan approved by
The Board has delegated responsibility for monitoring the the Board. Monthly financial information, including trading results,
effectiveness of the Company’s risk management and internal balance sheets, cash flow statements, capital expenditures and
control systems to the Audit Committee. The Audit Committee indebtedness, is reported against the corresponding figures for
oversees a risk-based internal audit programme, including periodic the plan and prior years, with corrective action outlined by the
audits of the risk processes across the organisation. It provides appropriate Senior Executive. Pearson’s senior management meets
assurance on the management of risk (including risk deep dives, regularly with business area management to review their business
as described on p96), and receives reports on the efficiency and and financial performance against plan and forecast. Major risks
effectiveness of internal controls. Each business area maintains relevant to each business area as well as performance against
internal controls and procedures appropriate to its structure, the stated financial and strategic objectives are reviewed in
business environment and risk assessment, while complying these meetings.
with Company-wide policies, standards and guidelines.
There is an ongoing process to monitor the risks and effectiveness
of controls in relation to the financial reporting and consolidation
Internal control and risk management process, including the related information systems. This includes
Our internal controls and risk oversight are monitored and up-to-date Pearson financial policies, formal requirements for
continually improved to ensure their compliance with FRC finance to certify that they have been in compliance with policies
Guidance. Our risk framework, outlining improvements made and that the control environment has been maintained throughout
in 2018, is described more thoroughly in the risk management the year, consolidation reviews and analysis of material variances,
section on p60–76. finance technical reviews, and review and sign-off by senior finance
managers. The Group finance function also monitors and assesses
The Board is ultimately accountable for effective risk management these processes and controls through finance and technology
in Pearson and determines our strategic approach to risk. compliance functions and a Controls Steering Committee
It confirms our enterprise risk management (ERM) framework comprising cross-functional experts.
as well as our enterprise risk appetite targets. Twice yearly it
receives and reviews reports on the status of top enterprise-wide These controls include those over external financial reporting which
risks. It is supported in the following ways: are documented and tested in accordance with the applicable
regulatory requirements, including section 404 of the Sarbanes-
he Audit Committee is responsible for overseeing internal controls
T Oxley Act, which is relevant to our US listing. One key control in this
within Pearson which includes determining the risk appetite area is the Verification Committee, which submits reports to the
(recommended by Pearson Executive management), reviewing Audit Committee. This Committee is chaired by the SVP Internal
and commenting upon key risks and ensuring that risk Audit, Risk and Compliance, and members include the Chief
management is effective Financial Officer and/or their deputy, the Deputy General Counsel,
earson’s Executive and leadership teams are responsible for
P SVP Investor Relations and the Company Secretary as well as senior
identifying and mitigating principal risks members of financial management. The primary responsibility of
this Committee is to review Pearson’s public reporting and
Leaders and managers at all levels in Pearson are responsible disclosures to ensure that information provided to shareholders is
for managing risk in their area of responsibility, including the complete, accurate and compliant with all applicable legislation
identification, assessment and treatment of risk and listing regulations. In addition, our separate Market Disclosure
The Internal Audit, Compliance and Risk team owns the overall Committee is responsible for considering potential inside
risk management framework for the Company and facilitates information and its treatment in accordance with the EU Market
consolidated reporting on risk Abuse Regulation. The effectiveness of key financial controls is
subject to management review and self-certification and
independent evaluation by the external auditors.
Internal audit Treasury management
Overview
The internal audit function is responsible for providing independent The treasury department operates within policies approved by
assurance to management and the Audit Committee on the design the Audit Committee on behalf of the Board, and treasury
and effectiveness of internal controls to mitigate strategic, financial, transactions and procedures are subject to regular internal audit.
operational and compliance risks. The SVP Internal Audit, Risk and Major transactions are authorised outside the department at the
Compliance reports formally to the Chair of the Audit Committee requisite level, and there is an appropriate segregation of duties.
and the Chief Financial Officer, with a reporting line to the General Frequent reports are made to the Chief Financial Officer and regular
Counsel on compliance matters. The VP Internal Audit, responsible reports are prepared for the Audit Committee and the Board.
for the day-to-day operations of internal audit and execution of the The treasury policy is described in more detail in note 19 to the
annual audit plan, also reports formally to the Chair of the Audit financial statements.
Committee and the SVP Internal Audit, Risk and Compliance.
The internal audit mandate and plan are approved annually by the Insurance

Audit Committee. Completion and changes to the plan are also Pearson reviews its risk financing options regularly to determine
reviewed and approved by the Audit Committee throughout the how the Company’s insurable risk exposures are managed and
year. The internal audit plan is aligned to our greatest areas of risk as protected. Pearson purchases comprehensive insurance cover
identified by the ERM process, and the Audit Committee considers and annually reviews coverage, insurers and premium spend,
issues and risks arising from internal audits. Management action ensuring the programme is fit for purpose and cost-effective.
plans to improve internal controls and to mitigate risks, or both, are
agreed with the business area after each audit. Formal management Pearson’s insurance subsidiary, Spear Insurance Company Limited,
self-assessments allow internal audit to monitor business areas’ is used to leverage Pearson’s risk retention capability and to achieve
progress in implementing management action plans agreed as part a balance between retaining insurance risk and transferring it to
of internal audits to resolve any control deficiencies. Progress of external insurers.
management action plans is reported to the Audit Committee at
Our performance
each meeting. Internal audit has a formal collaboration process
in place with the external auditors to ensure efficient coverage of
internal controls. Regular reports on the findings and emerging
themes identified through internal audits are provided to Executive
management and, via the Audit Committee, to the Board.
The SVP Internal Audit, Risk and Compliance oversees compliance

with our Code of Conduct and works with senior legal and HR
personnel to investigate any reported incidents, including ethical,
corruption and fraud allegations. The Audit Committee is provided
with an update of all significant matters received through our
whistleblowing reporting system, together with an annual review
of the effectiveness of this system. The Pearson anti-bribery and
Governance
corruption programme provides the framework to support our
compliance with various anti-bribery and corruption regulations
such as the UK Bribery Act 2010 and the US Foreign Corrupt
Practices Act.
Reputation & Responsibility Committee report
Reputation & Responsibility Committee role

Committee Chair The Committee forms an important part of the Board’s governance
Linda Lorimer structure. It works to advance and assess Pearson’s reputation
Members across the range of its stakeholders and to maximise the Company’s
Vivienne Cox, Linda Lorimer, Michael positive impact on society and the communities where we work
Lynton and Lincoln Wallen and serve.
The Committee’s agenda includes issues and initiatives relating to

the Company’s reputation and its civic responsibilities. These
include those matters that are material to Pearson’s stakeholders
and the Company’s long-term sustainability, as well as review of
incidents that could adversely affect the Company’s reputation.
Committee responsibilities include:
We promote Pearson’s 2020 sustainability plan and assess the
progress in advancing its tenets. The Committee works in alignment
Reputation with the Company’s Responsible Business Leadership Council
Pearson’s reputation among major stakeholders, including which comprises senior leaders from across the business.
governments, investors, employees, customers, learners and
the education community. Read more about our 2020 sustainability plan on p32–40
Risk Changes to the Committee

Oversight of Pearson’s approach to reputational risk, including
ensuring that clear roles have been assigned for management.
Harish Manwani stepped down from the Committee in May 2018,
upon his retirement from the Pearson Board, and I would like to
Sustainability thank him warmly for his service. Michael Lynton, who joined the
Board in February 2018, was appointed to the Reputation &
Oversight of 2020 sustainability plan and performance against
sustainability goals and commitments.
Responsibility Committee on 1 October 2018. Michael brings
valuable experience in leading businesses through times of
Brand & culture digital disruption, and I look forward to working closely with him
on the Committee.
Management of the Pearson brand to ensure that its value and
reputation are maintained and enhanced. Pearson’s approach to
monitoring and supporting the values and desired behaviours that Areas of focus during 2018
form our corporate culture.
The Committee conducts in-depth reviews of issues identified
Ethics as important to the sustainability of our business. These key
sustainability issues, which are monitored by the Committee and
Ethical business standards, including Pearson’s approach to issues
relevant to its reputation as a responsible corporate citizen.
discussed either by the Board or one of its Committees, include:
1. Competitiveness of digital products

Strategy
Strategies, policies and communication plans related to reputation
2. Data privacy and information security
and responsibility issues and the people and processes that are in 3. Security, health and safety
place to manage, anticipate and adapt to them.
4. Corporate governance
Terms of reference 5. Economic empowerment
The Committee has written terms of reference which clearly set out its
authority and duties. These are reviewed annually and can be found on 6. Access to education
the Company website www.pearson.com/governance. 7. Affordability of products/services
Committee attendance 8. 21st-century skills
Attendance by Directors at Reputation & Responsibility Committee
9. Greenhouse gas emissions and climate change.
meetings throughout 2018:
Meetings attended The Committee has an integral role in the oversight of these issues,
Vivienne Cox 3/3 in particular considering the public goals the Company is setting
Linda Lorimer 3/3 to address these issues, and examining their associated
Michael Lynton1 1/1
reputational impacts.
Harish Manwani 2
1/1
Lincoln Wallen 3/3
1 Appointed to the Committee on 1 October 2018.
2 Stepped down from the Committee on 4 May 2018.
Section 4 Governance/Engagement 107
During 2018, the Committee reviewed proposed public Committee aims for 2019
Overview
statements on human rights and modern slavery, as well as
considering Pearson’s broader human rights strategy, both of Over the next year, we will take the lead on behalf of the Board in
which are important to Pearson’s values and delivery of its addressing the stakeholder engagement requirements under the
2020 sustainability plan. new UK Corporate Governance Code. We will continue to explore
Pearson’s material sustainability issues, monitor progress on
During the year, we also examined progress on supplier partnership supply chain responsibility, engage in the development of our
and engagement, in particular studying supply chain risks and next sustainability plan and, with the help of our new Chief
reviewing the work to build strong relationships with our top Corporate Affairs Officer, Deirdre Latour, we will review progress
suppliers. The Committee also took the opportunity to review how on brand strategy.
Pearson’s 2018 efficacy reports were received, and we discussed
future plans for both reporting and continued integration of efficacy
findings into our product development cycle. Read more about

efficacy on p30 Linda Lorimer
Chair of Reputation & Responsibility Committee
In our report to shareholders last year, we noted that, as a
Committee, we would continue to monitor the Pearson culture.
However, due to the importance of these topics, particularly during
times of Company-wide change, it has been agreed that culture
and organisational health will now form part of the remit of the Reputation & Responsibility Committee
full Board. This is also in line with the increased emphasis on
such matters in the new UK Corporate Governance Code which meeting focus during 2018
asks boards as a whole to monitor and set the tone on culture
and engagement. Reputation
Committee evaluation Supplier partnership and engagement
Our performance
Issues and incidents reports
In 2018, the Committee evaluation was conducted by way of a
Project Literacy
questionnaire which was distributed to key stakeholders including
Committee members, the Chief Executive, and senior executives
with regular exposure to the Committee. The key findings were:
Risk
Safeguarding
he Committee has continued its journey towards maturity, with
T
Health and safety
increasing focus on strategically material issues
recommendation to introduce private sessions as part of each

A Sustainability
meeting, in common with Audit and Remuneration Committees,
Sustainability report – highlights and 2030 plan
to enable Committee members to discuss and agree on key issues
Education for sustainable development
to take forward with management
Governance
Climate and environmental strategy
ecognition that the addition of a fourth meeting to the annual
R
Greenhouse gas emissions
calendar will allow greater coverage of issues.
Progress on findings of 2017 evaluation Brand & culture

The responses to the 2017 evaluation, which was externally Brand and insights update
facilitated, highlighted that the Committee was very engaged and Efficacy update and future plans
worked collaboratively and that its agendas were increasingly
aligned with the strategic objectives of the Company. The evaluation Ethics
suggested that there might have been some overlap with the work
Human rights review – implementation strategy
of the Audit Committee. As a result, efficacy, health and safety and
safeguarding now sit within the remit of this Committee rather than Modern Slavery Act statement
being shared with the Audit Committee, and we considered each of

these topics during 2018. Strategy
Social innovation
The Committee’s agendas have been adjusted to allow ‘deeper
dives’ into issues of consequence, and we have introduced a regular
verbal update at the start of each meeting on recent incidents that Governance
may have reputational impact. Committee terms of reference
Committee effectiveness evaluation
takeholder engagement – UK Corporate Governance
S
Code requirements
Engagement
Engaging with shareholders The Non-Executive Directors meet informally with shareholders
both before and after the AGM and respond to shareholder queries
Access to capital is key to the long-term performance of our and requests as necessary. The Chair ensures that the Board is
business. We work to ensure that our investors, analysts and kept informed of investors’ and advisers’ views on strategy and
other investment professionals have a good understanding of corporate governance. At each Board meeting, the Directors
our strategy, performance and purpose. consider commentary from advisers on major shareholders’
Pearson has an extensive programme of communication with positions and Pearson’s share price. In addition, the Nomination &
all of its shareholders – large and small, institutional and private. Governance and Remuneration Committees consider shareholder
views on corporate governance and remuneration matters,
Shareholder outreach In 2018, we continued with our respectively, as required.
shareholder outreach programme, conducting over 600 meetings
in the UK, US, Canada and Continental Europe with over Private investors Institutional investors’ holdings in Pearson account
340 investment institutions. for around 90% of total shares outstanding, but private investors
represent over 91% of the shareholders on our register and we make
Trading updates There are five trading updates each year including a concerted effort to engage with them regularly. Shareholders
the preliminary and interim results which are presented by the who cannot attend the AGM are invited to e-mail questions to the
Chief Executive and Chief Financial Officer. They also attend Chair in advance at chairman-agm@pearson.com
regular meetings throughout the year with investors in the UK
and around the world, tailored to investor requirements, to discuss We encourage our private shareholders to become more informed
the performance of the Company, the Company’s strategy, our investors and have provided a wealth of information on our website
change programme, structural and cyclical changes in our about managing Pearson shareholdings. We also encourage all
markets, and risks and opportunities for the future. shareholders, who have not already done so, to register their
e-mail addresses through our website and with our registrar.
The investor relations team Led by Joanne Russell, SVP Investor & This enables them to receive e-mail alerts when trading updates
Media Relations, the Investor Relations team met with investors and other important announcements are added to our website.
throughout the year, including attending several investor See Shareholder information on p229 or visit our website: www.
conferences, and addressed regular investor and analyst enquiries. pearson.com/corporate/investors/managing-your-shares.html.
Chair and Non-Executive Directors The Chair meets regularly Annual General Meeting Our AGM, on 26 April 2019, is an
with shareholders to understand any issues and concerns they opportunity for all shareholders to meet the Board and to hear
may have. This is in accordance with the Code and consistent presentations about Pearson’s businesses and results.
with the duties of investors under the UK Stewardship Code.
Rapid prototyping
What is rapid prototyping?
Rapid prototyping is a technique used to develop a quality
product, process or outcome through quick experimentation
and iteration. The ultimate goal of rapid prototyping is to speed
up the rate of learning in an organisation. When used well,
rapid prototyping will improve the quality of designs and
reduce the risk of building something that will go unused.
Innovation and engagement

Pearson first introduced this technique to the senior leaders
at the Pearson Leadership Summit in Berkeley, California in
early 2018 to encourage agility and a culture of innovation.
Building on the success of this experience, the Board and The Board thought it was an excellent experience to illustrate
Pearson Executive joined a group of school-age learners during the power of this new way of working and model it for the rest
the Board’s visit to Cape Town to engage in a rapid prototyping of the organisation and found the interaction with students
session with the goal of designing a hypothetical example of a enjoyable and insightful. Read more about the Board’s meeting
digital solution for use in the schools market. By the final day in Cape Town on p85.
of the Cape Town meeting, the Board and Pearson Executive
were able to review the results of the session including a live
demonstration of the application which had been developed
in-house from the group’s prototyping conversations.
Section 4 Governance/Engagement 109
Overview
Engagement in action
Industry & marketplace

The Chair, Sidney Taurel, and Non-Executive Director, Lincoln Wallen, attended the Pearson Leadership Summit in Berkeley, California.
This event brought together senior leaders from across Pearson, who engaged with industry thought leaders and external speakers, and
focused on maximising the opportunities of digital disruption, becoming a lifelong partner to learners and creating a culture of innovation.
During its meeting in South Africa, the Board attended a discussion event on ‘Putting employability at the heart of our strategy’. The event
was hosted by Pearson and attended by external business, policy and thought leaders from the Cape Town area.
Employees

he Board met with local staff and senior management during 2018 visits to Milan and Cape Town. Dinners with senior local management and
T
breakfasts with key talent allowed the Non-Executive Directors to share their experience and expertise with employees as well as allowing the
Directors to better understand employees’ abilities and motivations, helping them to assess the Company’s prospects and plans for succession.
number of the Non-Executive Directors participated in the Pearson Innovation Jam – an online, global collaborative event – for all employees.
A
The event allowed the Directors to have direct engagement with employees on a platform where all participants had an opportunity to share
their thoughts, best practices, and ideas.
Customers
I n Milan, the Board heard from customers about the challenges and opportunities they face with digital teaching and learning in schools and
higher education. The panels discussed the demand for high-quality digital content, assessment and tools, closing the gap between school and
Our performance
workplace, and the need for access to a high-quality career-focused education. This session enabled the Board to understand the customer
context to our schools and higher education strategy and explore the issues posed and how Pearson might be part of the solution.
Governance
Remuneration overview
Dear shareholders,
Committee Chair
Elizabeth Corley Our approach to remuneration is supporting progress
Members against the delivery of company strategy
Elizabeth Corley, Josh Lewis,
Pearson’s purpose is to help people make progress in their lives
Tim Score and Sidney Taurel
through learning. In recent years, the company has focused on
combining content, assessment and technology to deliver
personalised learning at scale. To make progress on this ambitious
agenda requires a strong global management team. Pearson
competes for talent and key skills in a demanding marketplace and
needs to attract and retain high-calibre executives and incentivise
Key features of our remuneration arrangements in
them to deliver results and progress against our strategy, in line
2018 and 2019
with the shareholder experience.
018 has been an important year for Pearson with the business
2 Working within our shareholder approved policy, over the past
meeting strategic expectations and hitting financial targets, while 24 months, the Committee has undertaken a thorough review of
recognising that there is more to do over the coming years. For our Executive Director remuneration and its implementation to
2018, a bonus of 45% of maximum opportunity was achieved. ensure that it supports the execution of strategy while remaining
ong-term incentives for Executive Directors vested for
L consistent with shareholder expectations.
the first time since 2013, reflecting the improving performance
of the business. Overall, 42% of the shares granted under the
2016 LTIP will vest in 2019, subject to a further two-year holding
Strong support at the AGM in 2018
period until 2021. As part of the review, we engaged extensively with our
ase salaries have been increased in line with the wider employee
B shareholders. This process culminated in the publication of our
population. No other changes to our reward framework for 2019. 2017 Remuneration Report, which received a vote of over 99% in
uring 2019, we will review Executive Director remuneration policy,
D favour at the AGM in 2018. The Committee and Board appreciated
including in relation to the application of the 2018 Code, in advance the feedback we received as part of this review and thank you for
of submitting it to shareholders for approval at the 2020 AGM. the support. We will continue to consult with our shareholders as
we review policy during 2019 ahead of submitting it for shareholder
Terms of reference approval at the 2020 AGM.
The Committee’s terms of reference have been updated in
line with the new UK Corporate Governance Code and are We have reduced LTIP awards for 2017, 2018 and 2019
available on the Governance page of the company’s website
www.pearson.com/governance. A summary of the Committee’s In 2017 and 2018, we adopted an approach to remuneration that
responsibilities is shown on p126. is simpler, more transparent and with lower maximum levels of
reward as the business goes through a phase of transformation.
Board Committee attendance We intend to continue this approach for a third year in 2019, with
The following table shows attendance by Directors at Committee the Committee deciding to maintain 2019 Long-Term Incentive Plan
meetings throughout 2018: (LTIP) award levels at the same reduced percentage of salary as in
Remuneration 2017 and 2018: 275% of salary for the CEO and 245% of salary for
Elizabeth Corley 5/5 the CFO.
Josh Lewis 5/5
Tim Score 5/5 We have reviewed performance against
Sidney Taurel 5/5 targets rigorously
In this remuneration section The Committee considered the following factors in assessing the
performance against targets for the annual bonus and LTIP in order
Part 1: Remuneration overview p110
to satisfy itself that the outcomes were a fair reflection of
Part 2: Executive remuneration framework and performance delivered by the Executive team:
implementation in 2019 p114
he Committee reviewed and was satisfied that the performance
T
Part 3: 2018 remuneration report p116
targets set were appropriately stretching
Progress is continuing to make the company leaner and more agile
he pace of strategic delivery has been strong and this is reflected

T
in the share price and the returns delivered to shareholders over
the three-year performance period.
Section 4 Governance/Remuneration 111
As a result, the annual bonuses payable to the CEO and CFO under
Overview
the Annual Incentive Plan (AIP) for 2018 and the 2016 LTIP vesting “Pearson returned to underlying profit
outcome are considered to be fair, reasonable and commensurate
with value delivered to shareholders over the period. growth for the first time since 2014,
while maintaining progress against
How we have rewarded performance and strategic
strategic goals. Payouts reflect that
progress in the annual bonus for 2018
improving performance.”
Pearson made good progress in 2018, improving both operational
and financial performance and returning to underlying adjusted
operating profit growth for the first time since 2014. Continued
How our 2016 LTIP outcome reflects progress achieved
strong progress in simplifying the portfolio puts the company ahead
of plan, with increased and accelerated cost savings and expected In May 2016, the Executive Directors were made awards under the

total annualised cost savings in excess of £330m by the end of 2019 LTIP, which vest based on performance of the business delivered
– ahead of the original plan for £300m of savings. over the three-year period from 2016 to 2018. The target ranges
were set at that time based on the shape of the business in 2016
While the business is still in the midst of a transformation and and taking into account internal and external expectations of
the environment in US Higher Education Courseware remains performance when the awards were made. The targets were
challenging, a strong performance in structural growth considered by the Committee to be appropriately stretching.
opportunities largely offset the declines in this market.
Good progress has also been made on the digital transformation Given the changes in the business since 2016, the Committee has
with digital and digitally-enabled sales increasing to 62% been very thoughtful about how to assess the performance of
of revenues. the business against targets set to ensure that the outcomes
appropriately reflect the principles against which they were
The Board expects the business to build on the 2018 performance originally set and the underlying performance of the business
Our performance
and deliver further profit growth in 2019, and remains confident over the period.
about Pearson’s longer-term prospects and on building shareholder
value through the delivery of profitable growth, strong cash In determining the outcomes, the Committee has made
generation and continued progress in strategic priorities. adjustments in three areas: we have adjusted the targets to remove
the contribution expected at the time for businesses we disposed
The Committee took this progress and performance into account of during 2017 and 2018 to ensure that performance is assessed
when determining the outcomes under the Group incentive plans on a like for like basis; we have made adjustments so that
for 2018. management does not benefit from the share buybacks; and we
uring 2018, the Board again set a demanding plan for the
D have adjusted outcomes so that management does not benefit from
business, taking into account market consensus expectations the changes in effective tax rate which relate to US tax reforms.
at the time The overall outcome is that 42% of the maximum awards will vest.
This is the first time that LTIP awards to Executive Directors have
Governance
he company delivered results in line with this plan on operating
T
profit, cash flow and progress against strategic objectives vested since 2013. Awards are subject to a further two-year holding
period following vesting.
ales in the year did not reach the stretching targets set for the
S
annual incentive plan, in part due to continued challenges in the The LTIP is not limited to Executive Directors with around 1,300
US Higher Education Courseware business Pearson colleagues also benefiting from the vesting of this and
other share awards during the year.
here was no benefit from foreign exchange movements in
T
determining the outcome of the annual bonuses for the year for
the Executive Directors.
Based on performance against targets, in 2018 the CEO and CFO

achieved a bonus outcome of 45% of their maximum opportunities.
The prior year outcome for the CEO was 44% of maximum and
47% for the CFO.
Around 12,500 Pearson colleagues across the business also

participate in an annual incentive arrangement which paid out
based on performance during the year, sharing in success across
the business.
Remuneration overview
Understanding total remuneration for the CEO for 2018 Conclusion

Given the level of performance achieved and the corresponding iscipline and restraint in decisions made against the backdrop of
D
payouts under the AIP and LTIP, the overall reported ‘single figure’ continued progress and delivery
for the total remuneration of John Fallon for 2018 increased to
5% payout under the AIP, reflecting operating profit within
4
£3.142m from £1.758m in 2017. This is primarily as a result of the
guidance range, continued strong cash flow generation and
first payout under the 2016 LTIP for Executive Directors since 2013.
progress against strategic objectives but also sales that did not
Excluding the LTIP payout the ‘single figure’ for John Fallon for
reach the stretching targets set
2018 is 4% lower than for 2017. A detailed breakdown of the single
figure can be found on p116. 2% payout under 2016 LTIP, reflecting good progress but an
4
acknowledgment of work still to do
Looking forward to 2019 – continued progress Base salary increases in line with wider employee population.
and restraint
It is important to the Committee to ensure that remuneration
The base salary for the CEO and CFO will be increased by 2.2% in continues to support the sustained delivery of company strategy
2019 in line with the average increases for UK employees. while rewarding management appropriately in the context of
business performance and shareholder experience.
In the interest of simplicity, reflecting support for our approach to
implementation at last year’s AGM, and after consideration of the Continuing conversations with shareholders have been invaluable.
achievements required in the coming year, the Committee does not I look forward to receiving your support at the AGM and to further
intend to make any changes to how we implement remuneration dialogue as we review Remuneration Policy for Executive Directors
policy for Executive Directors in 2019. We will continue to set in 2019.
appropriate targets for the year under the AIP and these will be
disclosed in the 2019 Directors’ remuneration report.
The Committee will not increase the percentage of salary face

value of long-term incentive awards granted in 2019.
Elizabeth Corley
We will continue to evolve policy for emerging Chair of Remuneration Committee
best practice
11 March 2019
While the Committee considers that we are already well placed
against the revised UK Corporate Governance Code, we will continue
to monitor best practice and adapt our policy to ensure it remains
fit for purpose and aligned with our strategy and shareholders.
The Committee intends to review remuneration policy for Executive
Directors in its entirety in 2019 and this will be put to a shareholder
vote at our 2020 AGM.
Gender pay gap for 2018

Pearson’s Great Britain gender pay gap report for 2018 was
published earlier this month based on data as at 5 April 2018.
Overall, we have seen a slight improvement in the overall median

gender pay gap which has reduced from 15% to 14%.
While some progress has been made, it is clear there is still more
to be done. Since publishing our first report last year, a broader
Diversity & Inclusion action plan has been put in place, which will
keep us focused on tackling this issue in the coming year and
beyond. Further details of this are outlined within Pearson’s
published report.
Overview
The following summarises how current policies and implementation compare against the main provisions of the 2018 Code.
Pension alignment
As part of our review of policy in 2017, we lowered the pension opportunity such that new appointments are eligible to receive
pension contributions of up to 16% of pensionable salary or a cash allowance of up to 16% of salary.
During 2019 we will further review our approach to pension to ensure it remains appropriate in the context of the retirement
provisions provided across the wider workforce.
Holding periods
Our LTIP awards are subject to a two-year holding period following vesting and therefore already comply with this aspect of the

2018 Code.
Post-employment shareholding guidelines

With effect from 2018, Pearson introduced a requirement whereby Executive Directors are required to retain half of the current
guideline for a period of two years post-retirement in respect of shares vested from company incentive plans.
We will continue to monitor market practice and shareholder sentiment in this area to ensure our approach remains appropriate.
Apply judgement and discretion
Our performance
Policy already allows the exercise of discretion to adjust outcomes under incentive frameworks. We have in place the Committee’s
ability to do this and therefore already comply with the Code in this area.
Recovery provisions
Incentive arrangements are already subject to malus and clawback provisions and therefore already comply with the Code in
this area. During 2019, we will review the circumstances in which malus and clawback may be applied to ensure that this continues
to be appropriate.
Wider workforce remuneration
Governance
The Committee already reviews remuneration arrangements for Pearson Executive Management and our terms of reference have
now been amended to include these roles formally within the Committee’s remit. During the year, the Committee took steps to
strengthen further the information provided to the Committee regarding broader workforce remuneration and related policies to
ensure that these are fully taken into account when determining Remuneration Policy and implementation for Executive Directors.
Remuneration framework
Executive remuneration framework and how it will be implemented in 2019
B Base salary see p116 AIP Annual incentive plan see p116, 117, 118
Key features Key features

ixed pay which reflects the level, role, skills, experience,
F otivate the achievement of annual business goals aligned to
M
the competitive market and individual contribution financial and strategic priorities
nder the Policy, base salary increases will not ordinarily exceed
U erformance measures, weightings and targets are set annually
P
10% per annum by the Committee to ensure continued alignment with strategy
alary review takes into account a range of factors, including:
S ach AIP component is independent. For the CEO to achieve the
E
the level of increases made across the company as a whole; maximum overall payout (180%) would require maximum
particular circumstances such as changes in role, responsibilities performance on each individual component and outperformance
or organisation; the remuneration and level of increases for on any one element cannot compensate for others
Executives in similar positions in comparable companies; general erformance metrics linked to strategic priorities are selected to
P
economic and market conditions; and individual performance. support Pearson’s transformation strategy. A payout will only be
2019 implementation made if a minimum level of performance has been achieved under
the financial metrics
Salaries effective 1 April 2019:
tretching performance targets are fully disclosed in the annual
S
John Fallon: £817,400 (+2.2%)
remuneration report following the end of the performance period
Coram Williams: £539,500 (+2.2%)
Malus and clawback provisions apply.
When reviewing salaries, the Committee took into account the level
of increases made across the company as a whole, business and 2019 implementation
individual performance, and general economic and market Maximum opportunity unchanged for 2019:
conditions. The increases awarded to Executive Directors are 180% of base salary for the CEO
in line with the general increase across the UK which was 2.2%.
170% of base salary for the CFO
The CEO’s target bonus is half of the maximum bonus allowed under
A&B Allowances and benefits see p116
policy. However, as a measure to restrict the level of maximum
payouts for the CEO, his payout is capped at 180% of salary.
Key features The CFO’s target bonus is 50% of his maximum opportunity.
llowances and benefits which reflect the local competitive
A For 2019, the following balanced mix of financial and strategic
market and can include travel and health-related benefits measures will be used, which is unchanged from the previous year:
The total value of allowances and benefits for Executive Directors
Adjusted
will not ordinarily exceed 15% of base salary in any year. operating profit Sales Operating cash flow Strategic measures
2019 implementation 40% 20% 20% 20%
No changes for 2019. Targets are considered by the Board to be commercially sensitive
and will be disclosed in the 2019 Directors’ remuneration report.
R Retirement benefits see p116, 121
Key features
urrent Executive Directors are members of the Final Pay section
C
of The Pearson Pension Plan, which is closed to new members.
Additional cash allowances may apply in specific circumstances.
In October 2017, the CEO reached the maximum service accrual
under the Pearson Pension Plan as he had over 20 years of service.
He therefore receives no further service-related benefits under this
Plan but continues to receive a taxable cash supplement of 26% of
base salary in lieu of the previous FURBS arrangement.
ew appointments are eligible to join the Money Purchase section
N
of The Pearson Pension Plan and receive contributions of up to
16% of pensionable salary or may receive a cash allowance of up
to 16% of salary.
2019 implementation
There will be no changes to the pension provision of the existing
Executive Directors.
As noted above, during 2019 we will further review our approach
to pension to ensure that it remains appropriate in the context of
the retirement provisions provided across the wider workforce.
Overview
LTIP Long-term incentive plan see p116, 118, 119 SG Shareholding guidelines see p120
Key features Key features

Drive long-term earnings, share price growth and value creation lign the interests of Executives and shareholders and encourage
A
Align the interests of Executives and shareholders long-term shareholding and commitment to the company
Awards are made annually, and vest based on performance against xecutive Directors are expected to build up a substantial
E
stretching targets measured over a three-year performance period shareholding in the company. The target holding is 300% of
salary for the Chief Executive and 200% of salary for other
An additional two-year holding period applies following vesting
Executive Directors
he Committee will determine the performance measures,
T

xecutive Directors have five years from the date of appointment
E
weightings and targets governing an award prior to grant to
to reach the guideline
ensure continuing alignment with strategy and that targets are
sufficiently stretching In 2017, Pearson introduced a requirement whereby Executive
Directors are required to retain half of the current guideline for a
Malus and clawback provisions apply.
period of two years post-retirement in respect of shares vested
2019 implementation from company incentive plans.
Award levels as a percentage of salary will remain the same as those 2019 implementation
granted in 2017 and 2018:
No changes for 2019.
275% of base salary for the CEO
245% of base salary for the CFO
NEF Non-Executive fees see p122
Performance metrics, weightings and targets:
When setting targets, the Committee took into account the disposal
Key features
Our performance
of Wall Street English, share buyback and the adjustments to tax in
2018, resulting in a 2018 EPS outcome for incentive purposes of 63.1p The Chairman is paid a single fee for all of his responsibilities
and ROIC of 4.7%. These adjustments are explained in further detail The Non-Executive Directors are paid a basic fee. The Chairs
on p118 and p119. The Committee also took into account the sale in and members of the main Board Committees and the Senior
early 2019 of the US K12 Courseware business which contributed Independent Director are paid an additional fee to reflect their
£364m to 2018 sales and around £20m to 2018 operating profit. extra responsibilities
Adjusted EPS (one-third) he Chairman and Non-Executive Directors receive no other pay
T
or benefits, except for reimbursement of expenses, and do not
Vesting schedule (% max) EPS for FY21
participate in incentive plans
15% 65p
minimum of 25% of the Chairman’s and Non-Executive Directors’
A
65% 70p basic fee is paid in shares.
100% 80p 2019 implementation
Governance
ROIC (one-third) There will be no changes to fees for 2019:
Vesting schedule (% max) ROIC for FY21 Role Fees for 2019
15% 5% Chairman of the Board £500,000
65% 6% Base fee for Non-Executive Directors £70,000
100% 9% Additional SID fee £22,000
Relative TSR (one-third) Role Chair Member
Audit Committee £27,500 £15,000

Vesting schedule (% max) Ranked position versus FTSE 100
Remuneration Committee £22,000 £10,000
25% Median
Nomination & Governance
100% Upper quartile
Committee £15,000 £8,000
Note: Straight-line vesting in between points shown, with no vesting for

performance below threshold. Reputation & Responsibility
Committee £13,000 £6,000
Our Remuneration Policy was approved by shareholders at the AGM held on 5 May 2017 (and can be found in the Governance section of our website
Pearson.com/governance). The table above summarises the key elements of the remuneration framework for Directors as set out in our Policy, including how
we intend to implement it in 2019.
2018 remuneration report
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 which have been 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 £6,241m in 2018. These emoluments are included within the
total employee benefit expense in note 5 to the financial statements (p167).
Executive Directors
The remuneration received by Executive Directors in respect of the financial years ended 31 December 2018 and 31 December 2017 is set
out below.
Executive Director ‘single figure’ remuneration

John Fallon Coram Williams
Element of remuneration
£000s 2018 2017 2018 2017
B Base salary 795 780 525 515
A&B Allowances and benefits 43 45 14 39
AIP Annual incentives 644 624 401 412
LTIP Long-term incentives 1,454 0 843 0
R Retirement benefits 206 309 54 52
Total remuneration 3,142 1,758 1,837 1,018
Notes to single figure table

B Base salary AIP Annual incentives
The base salary shown in the single figure table reflects salary paid The 2018 annual bonus for the Executive Directors was based
in the financial year. on a mix of financial (80% weighting) and strategic measures
(20% weighting). Annual bonuses are paid in cash. For more
A&B Allowances and benefits
detail on performance metrics and performance against targets,
The breakdown of benefits is as follows for 2018: see below.
John Coram LTIP Long-term incentives
Fallon Williams
The single figure of remuneration for 2018 includes the vesting of
Travel 41 12
the 2016 LTIP award, which was subject to performance conditions
Healthcare 2 2
assessed to 31 December 2018. For more detail on performance
Travel benefits comprise company car, car allowance, private use metrics and performance against targets, see below. The values of
of a driver and reimbursements of a taxable nature resulting from vested LTIP awards included in the figures for total remuneration
business travel and engagements. Health benefits comprise have been calculated using a three-month average share price to
healthcare, health assessment and gym subsidy. In addition to year end of 904p and do not reflect any dividends accrued on those
the above benefits and allowances, Executive Directors may also shares.
participate in company benefit or policy arrangements that have R Retirement benefits
no taxable value.
Further detail on retirement benefits is set out later in this report.
AIP Executive Directors’ annual incentive payments for 2018*
Overview
The following summarises bonus outcomes, performance targets for 2018 AIP awards and performance
against these targets:
Summary
CEO CFO
Bonus paid % of maximum Bonus paid % of maximum
£643,889 45% £401,376 45%
Overall outcome
Performance range Payout
% of max

bonus
Performance measure % of total Threshold Target Max Actual results opportunity
Adjusted operating profit 40% £518m £543m £598m £546m 58%

Sales 20% £4,200m £4,250m £4,325m £4,129m 0%
Operating cash flow 20% £485m £506m £558m £513m 61%
Strategic measures 20% See below 47%
100% 45%
Note 1: The overall outcome is 45% of maximum (2017: 44% of max for the CEO and 47% of max for the CFO).
Note 2: The CEO’s target bonus is half of the maximum bonus allowed under policy. However, as a measure to restrict
the level of maximum payouts for the CEO, his payout is capped at 180% of salary. The CFO’s target bonus is 50% of his
maximum opportunity.
Our performance
Note 3: The outcomes under all measures have been reviewed by internal audit.
Governance
Performance against strategic measures

The targets (and outcomes) for performance against each of the strategic measures are shown in the table and supporting narrative below.
% of total
Strategic Priority Measure funding Threshold Target Max Outcome
Gain share Growth in digital and 5% 59.8% (+0.5% 60.3% (+1% 60.8% (+1.5% Made significant progress with Pearson’s
through digitally-enabled sales as a on 2017 result) on 2017 result) on 2017 result) digital transformation in 2018 with digital
digital proportion of revenues and digitally-enabled sales increasing to
transformation (excluding WSE and K12 62% of revenues in 2018 vs. 59% in 2017.
Courseware)
Global Learning Platform 5% Critical Critical All milestones Continued to invest in the Global Learning
(GLP) – delivery of key 2018 milestones on milestones and deliverables Platform and innovative product and feature
milestones related to Rio track and key on track pipeline. In 2018, launched pilot versions of
and Revel pilots deliverables new Developmental Math courseware –
on track ‘Rio’ – and will launch multiple Revel titles
with enhanced assignment options and
data analytics on the GLP during 2019.
Growing irtual schools FTE
V 5% No payout Progress in Progress in all Strong performance in structural growth
market enrolment growth below target three areas five areas opportunities with enrolment up 14% in
opportunities Growth ‘Big Bets’ US Online Program Management (revenue
up 10% globally), enrolment up 11% in Virtual
earson VUE contract
P
Schools (revenue up 8% in Connections
wins and renewals
Academy), revenue up 4% in Professional
S OPM partners, programs
U Certification and Pearson Test of English
and enrolment Academic test volume growth of 30%.
English PTE growth
Become The Enabling Programme 5% Critical Critical All milestones Went live with new enterprise software
simpler and (TEP) – linked to key milestones on milestones and deliverables system in the US in May, replacing decades-
more efficient deliverables/milestones track and key on track old technology with a new platform
including (successful) deliverables that reduces risk, accelerates digital
deployment on track transformation, and enables us to become
of Wave 7 Release 1, 2 & 3 even more efficient.
and progress on RoW and As a result of the roll-out, there were some
Release 4 supply chain challenges, but issues were
dealt with quickly. Made good progress.
Taking into account the above assessment of performance, the Committee judged that the overall payout on the strategic element was
47% of maximum.
Executive Directors’ Long-Term Incentive Plan How the Committee has exercised its discretion
award vesting for 2018* The Committee has been very thoughtful about how to assess the
performance of the business against targets set to ensure that the
In May 2016, the Executive Directors were made awards under outcomes appropriately reflect the principles against which targets
the LTIP which vest based on performance of the business delivered were originally set and the underlying performance of the business
over the three-year period from 2016 to 2018. The target ranges over the period. In determining the outcomes, the Committee
were set at that time based on the shape of the business in 2016, has made adjustments in three areas: business disposals, share
and took into account internal and external expectations of buybacks and the reduced effective corporate tax rate for 2018.
performance when the awards were made. The targets were Further details are outlined below.
considered by the Committee to be appropriately stretching.
The overall outcome is 42% of the maximum awards will vest. Share buyback
Overview
This is the first time that LTIP awards have vested for Executive The proceeds of the partial sale of PRH were used to fund the share
Directors since 2013. buyback of £300m. The Committee determined that it was
Business disposals appropriate to remove the positive impact of the buyback on
EPS in 2018 when determining the outcome of the LTIP awards.
Since the targets were set, the Group has made a number of
disposals; GEDU in August 2017, a 22% stake in Penguin Random Corporate tax rate for 2018
House (PRH) in October 2017, and the disposal of Wall Street English The effective corporate tax rate for 2018 is lower than for a number
(WSE) in March 2018. The adjusted earnings per share (EPS) and of years due to a combination of external corporate tax rate
return on invested capital (ROIC) target ranges have been adjusted changes and the conclusion of some long outstanding matters.
to remove the contribution that was anticipated from the The Committee did not believe that management should benefit
businesses which no longer form part of the Pearson Group. from the rate changes which relate to US tax reforms, but should
These adjustments ensure that the performance of the retained receive the benefit of the release of tax provisions which have

portion of the Group is being assessed on a like-for-like basis over been built up over prior years as these reflected prudent
the performance period. The Committee considers this approach financial management.
ensures that the revised targets represent the same degree of
stretch as the original target ranges taking into account the Taking into account the share buyback and the adjustments to
evolving shape of the business. tax, the Committee therefore considered the appropriate EPS
outcome for incentive purposes to be 63.1p and the appropriate
ROIC outcome to be 4.7%. This compares to adjusted EPS of
70.3p and a ROIC of 4.7%.
The adjusted targets and performance against these adjusted targets are as follows:
Performance range Vesting
Our performance
Threshold Maximum Threshold as Maximum as
unadjusted unadjusted adjusted adjusted
Performance measure % of total (25% payout) (100% payout) (25% payout) (100% payout) Actual % achievement % of total award
Adjusted EPS 1/2 61.4p 78.3p 55.3p 73.1p 63.1p 58% 29%
ROIC 1/3 5.5% 6.7% 4.9% 6.3% 4.7% 0% 0%
Upper Upper
Relative TSR 1/6 Median quartile Median quartile 26 out of 78 78% 13%
100% Total 42%
Relative TSR was measured against the constituents of the FTSE World Media Index at the start of the performance period.
The Committee considers that the overall vesting outcome is fair and appropriately reflects the underlying performance during the
relevant period.
Governance
LTIP Long-term incentives awarded in 2018*
The following LTIP awards were granted during the year:
Value for
threshold
Face value performance (% of
Director Date of award Vesting date Number of shares Face value (% of base salary) maximum)* Performance Period
John Fallon 8 May 2018 1 May 2021 246,000 £2,198,256 275% 18% 1 Jan 18–31 Dec 20
Coram Williams 8 May 2018 1 May 2021 145,000 £1,295,720 245% 18% 1 Jan 18–31 Dec 20
* Under the EPS and ROIC element 15% vests for threshold performance, under the TSR element 25% vests for threshold performance. This is the weighted average
of vesting for threshold.
Face value was determined using a share price of 893.60p (previous trading day closing price as at the date of grant).
Any shares vesting based on performance will be subject to an additional two-year holding period to 1 May 2023.
Details of the performance targets for the 2018 long-term incentive awards are set out in the tables below.
Adjusted earnings per share (EPS) (one-third) Return on invested capital (ROIC) (one-third) Relative total shareholder return (TSR) (one-third)
Vesting schedule (% max) Adjusted EPS for FY20 Vesting schedule (% max) Adjusted ROIC for FY20 Vesting schedule (% max) Ranked position vs FTSE 100
15% 65p 15% 5% 25% Median

65% 68p 65% 6% 100% Upper quartile
100% 80p or above 100% 8% or above
Note 1: Straight-line vesting will occur in between the points shown, with no vesting for performance below threshold.
Note 2: Pearson’s total shareholder return performance is measured relative to the constituents of the FTSE 100 Index over the performance period.
SG Directors’ interests in shares and value of shareholdings

Shareholding guidelines
Executive Directors are expected to build up a substantial With effect from 2018, shareholding guidelines for Executive
shareholding in the company in line with the policy of encouraging Directors were extended post-retirement. Executive Directors are
widespread employee share ownership and to align further the required to retain half of the current guideline for a period of two
interests of Executive Directors and shareholders. The target years post-retirement in respect of shares vested from company
holding is 300% of salary for the Chief Executive and 200% of salary incentive plans.
for the other Executive Directors. Shares that count towards these
The shareholding guidelines do not apply to the Chairman and
guidelines include any shares held unencumbered by an Executive
Non-Executive Directors. However, a minimum of 25% of the basic
Director, their spouse and/or dependent children plus any shares
Non-Executive Directors’ fee is paid in Pearson shares that the
vested but held pending release under a share plan. Executive
Non-Executive Directors have committed to retain for the period
Directors have five years from the date of appointment to reach
of their directorships.
the guideline. Once the guideline has been met, it is not retested,
other than when shares are sold.
Directors’ interests*
The share interests of the Directors and their connected persons are as follows:
Current Total number of

shareholding ordinary and
(ordinary shares) Conditional shares conditional shares Guideline
Director at 31 Dec 18 at 31 Dec 18 at 31 Dec 18 (% salary) Guideline met?
Chair
Sidney Taurel 89,422 – – – –
Executive Directors
John Fallon 326,784 995,000 1,321,784 300% Yes
Coram Williams 15,010 582,000 597,010 200% n/a (see note 4)
Elizabeth Corley 13,245 – – – –
Vivienne Cox 6,282 – – – –
Josh Lewis 12,524 – – – –
Linda Lorimer 8,902 – – – –
Michael Lynton 3,488 – – – –
Tim Score 26,489 – – – –
Lincoln Wallen 6,346 – – – –
Note 1: The current value of the Executive Directors’ shareholdings is based on Note 3: Conditional shares means unvested shares which remain subject to
the closing market value of Pearson shares of 841.4p on 1 March 2019 against performance conditions and continuing employment for a pre-defined period.
base salaries at 31 December 2018.
Note 4: Coram Williams has five years from the date of his appointment as an
Note 2: Ordinary shares include both ordinary shares listed on the London Executive Director on 1 August 2015 to reach the shareholding guideline.
Stock Exchange and American Depositary Receipts (ADRs) listed on the New
York Stock Exchange. The figures include both shares and ADRs acquired by Note 5: There have been no changes in the interests of any Director between
individuals under the long-term incentive plan and any legacy share plans 31 December 2018 and 1 March 2019, being the latest practicable date prior
they might have participated in. to the publication of this report.
Movements in Directors’ interests in share awards during 2018*
Overview
Number
of shares Number of
Date Vesting as at shares as at
Plan of award date 1 Jan 2018 Awarded Released Lapsed 31 Dec 2018 Status
John Fallon
LTIP 8 May 2018 1 May 2021 246,000 246,000 Outstanding subject to performance
11 Sep 2017 1 May 2020 366,000 366,000 Outstanding subject to performance
Performance tested to
3 May 2016 3 May 2019 383,000 383,000 31 December 2018 (see Note 3)
749,000 246,000 995,000
Coram Williams

LTIP 8 May 2018 1 May 2021 145,000 145,000 Outstanding subject to performance
11 Sep 2017 1 May 2020 215,000 215,000 Outstanding subject to performance
Performance tested to
3 May 2016 3 May 2019 222,000 222,000 31 December 2018 (see Note 3)
437,000 145,000 582,000
Note 1: Released means where shares have been transferred to participants. Note 3: The performance targets for the 2016 award were partially met and
therefore 42% of this award will vest on 1 May 2019 and the remaining portion
Note 2: TSR is measured relative to the constituents of the FTSE World Media will lapse. Vested shares will be subject to an additional two-year holding period
Index for 2016 LTIP awards. For the LTIP awards granted in 2017 and 2018, to 3 May 2021.
TSR is measured relative to the constituents of the FTSE 100.
Performance targets for outstanding awards under the Long-Term Incentive Plan (LTIP)
The details of outstanding awards and their performance conditions under the Long-Term Incentive Plan (LTIP) as described in the table
Our performance
above is set out in the following table.
Share price
on date Vesting Performance Performance Payout at Payout at
Date of award of award date measures Weighting period threshold maximum
8 May 2018 893.6p 1 May 2021 Relative TSR One-third 1 Jan 2018 to 31 Dec 2020 25% at median 100% at upper quartile
ROIC One-third FY 2020 15% for ROIC of 5% 100% for ROIC of 8%
Adjusted EPS One-third FY 2020 15% for EPS 65p 100% for EPS 80p
11 September 2017 586.0p 1 May 2020 Relative TSR 30% 1 Jan 2017 to 31 Dec 2019 25% at median 100% at upper quartile
ROIC 30% FY 2019 15% for ROIC of 4.5% 100% for ROIC of 7.5%
Adjusted EPS 40% FY 2019 15% for EPS 55p 100% for EPS 75p
Governance
R Executive Directors’ retirement benefits and entitlements*
Details of the Directors’ pension entitlements and pension-related benefits during the year are as follows:
Value of defined benefit Other allowances in Total annual Accrued pension
over the period lieu of pension value in 2018 at 31 Dec 18
Director £000s £000s £000s £000s
John Fallon 206 206 106

Coram Williams 54 54 36
Note 1: The accrued pension at 31 December 2018 is the deferred annual pension Note 3: Other allowances in lieu of pension represent the cash allowances
to which the member would be entitled on ceasing pensionable service paid in lieu of the previous FURBS arrangements.
on 31 December 2018. It relates to the pension payable from the UK Plan.
Normal retirement age is 62. Note 4: Total annual value is the sum of the previous two columns and is
disclosed in the single figure of remuneration table.
Note 2: The value of defined benefit over the period comprises the defined
benefit input value, less inflation, less individual contribution.
Plans
John Fallon – The Pearson Group Pension Plan In addition, he received a taxable and non-pensionable
John attained the maximum service accrual for this benefit when he cash supplement (of 26% of salary) in lieu of the previous
reached 20 years’ service in October 2017. With effect from this date, FURBS arrangement. During 2018, John received the pension
he had accrued a benefit of two-thirds of his final pensionable salary supplement of 26% of salary only. There are no enhanced early
and no further service-related benefits can accrue under the Plan. retirement benefits.
Based on the 2018/2019 earnings cap of £160,800, he will have
Coram Williams – The Pearson Group Pension Plan
accrued a pension of £105,884 per annum at this time. When the
Accrual rate of 1/60th of pensionable salary per annum,
earnings cap under the Plan rules is increased in the future in line
restricted to the Plan earnings cap (£160,800 per annum in
with increases in the UK retail price index, his final salary pension
2018/19), with continuous service with a service gap. There are
benefit will increase accordingly.
no enhanced early retirement benefits.
Chair and Non-Executive Director remuneration*

The remuneration paid to the Chairman and Non-Executive Directors in respect of the financial years ended 31 December 2018 and
31 December 2017 are as follows:
2018 2017
Director
£000s Total fees Taxable benefits Total Total fees Taxable benefits Total
Sidney Taurel 500 11 511 500 12 512

Elizabeth Corley 115 – 115 112 – 112
Vivienne Cox 128 3 131 123 3 126
Josh Lewis 88 4 92 85 59 144
Linda Lorimer 98 4 102 97 5 102
Michael Lynton 69 – 69 – – –
Harish Manwani 29 1 30 81 4 85
Tim Score 116 – 116 113 – 113
Lincoln Wallen 91 5 96 91 6 97
Total 1,234 28 1,262 1,202 89 1,291
Note 1: A minimum of 25% of the Chairman’s and Non-Executive Directors’ basic fee is paid in shares, effective from the 2017 AGM policy approval.
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 which are deemed by HMRC to be taxable in the UK. The amounts in the table above include the grossed-up cost of UK tax to be paid by
the company on behalf of the Directors. Michael Lynton joined the Pearson Board as a Non-Executive Director with effect from 1 February 2018. Harish Manwani
retired from the Board at the AGM in May 2018.
Payments to former Directors* Their contracts are dated 31 December 2012 (John Fallon) and
26 February 2015 (Coram Williams). Non-Executive Directors serve
There were no payments to former Directors in 2018. Pearson under letters of appointment which are renewed annually
and do not have service contracts. The Non-Executive Directors’
Payments for loss of office* letters of appointment do not contain provision for notice periods
or for compensation if their appointments are terminated.
There were no payments for loss of office made to or agreed
for directors in 2018.
Executive Directors’ non-executive directorships
Service contracts Coram Williams is engaged as a non-executive director of Guardian
Media Group plc where he also chairs the audit committee.
The terms and conditions of appointment of our Directors are
He received fees of £39,000 during 2018 in respect of this role.
available for inspection at the company’s registered office during
In accordance with our policy, he is permitted to retain these fees.
normal business hours and at the annual general meeting. The
Executive Directors have notice periods in their service contracts of
12 months from the company and six months from the Executives.
Historical performance and remuneration
Overview
Total shareholder return performance
We set out below Pearson’s total shareholder return (TSR) In accordance with the reporting regulations, this section also
performance relative to the FTSE All-Share index on an annual presents Pearson’s TSR performance alongside the single figure
basis over the ten-year period 1 January 2009 to 31 December 2018. of total remuneration for the CEO over the last nine years and a
This comparison has been chosen because the FTSE All-Share summary of the variable pay outcomes relative to the prevailing
represents the broad market index within which Pearson shares maximum at the time.
are traded. TSR is the measure of the returns that a company has
provided for its shareholders, reflecting share price movements
and assuming reinvestment of dividends (source: Datastream).
Total shareholder return £

Pearson TSR 300
FTSE All-share TSR
250
200
150
100
50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Our performance
CEO remuneration Marjorie Scardino John Fallon
Total remuneration
(single figure, £000s) 6,370 8,466 8,340 5,330 1,727 1,895 1,263 1,518 1,758 3,142
Annual incentive
(% of maximum) 91% 92% 76% 24% 34% 51% Nil 24% 44% 45%
Long-term incentive
(% of maximum) 80% 98% 68% 37% Nil Nil Nil Nil Nil 42%
Annual incentive is the actual annual incentive received by the incumbent Total remuneration is as reflected in the single total figure of
as a percentage of maximum opportunity. remuneration table.
Governance
Long-term incentive is the payout of performance-related restricted shares John Fallon’s total remuneration opportunity is lower than that of the previous
under the LTIP where the year shown is the final year of the performance incumbent. Variable payouts under the Annual and Long-Term Incentive Plans
period for the purposes of calculating the single total figure of remuneration. reflect performance for the relevant periods.
Comparative information
The following information is intended to provide additional context Average employee base salary has increased due to the disposal of
regarding the total remuneration for Executive Directors. businesses which included a significant number of employees in
lower cost locations. Annual incentives for employees were higher
Relative percentage change in remuneration for CEO
in 2017 relative to the CEO whose bonus was reduced to reflect
The following table sets out the change between 2017 and 2018 in shareholder experience at the time.
three elements of remuneration for the CEO, in comparison with the
average for all employees. While the Committee reviews base pay Change in CEO remuneration 2017/18
for the CEO relative to the broader employee population, benefits

Base salary Allowances and benefits Annual incentives
are driven by local practices and eligibility is determined by level
and individual circumstances which do not lend themselves 2% 4% 3%
to comparison. Change in employee remuneration 2017/18
Base salary Allowances and benefits Annual incentives
14% 19% 17%

Relative importance of pay spend The Remuneration Committee in 2018

The Committee considers Directors’ remuneration in the context
Role Name Title
of the company’s allocation and disbursement of resources to
Chair Elizabeth Corley Independent
different stakeholders. In particular, we chose adjusted operating
Josh Lewis Non-Executive Directors
profit because this is a measure of our ability to reinvest in the
company. We include dividends because these constitute an Tim Score
important element of our return to shareholders. Sidney Taurel Chairman of the Board
Change Internal John Fallon Chief Executive
All figures in £ millions 2018 2017 £m % attendees Coram Williams Chief Financial Officer
Adjusted operating profit 546 576 (30) -5% Anna Vikström Persson Chief Human Resources
Dividends & share buy- Officer
backs 136 618 (482) -78% Stuart Nolan SVP, Reward
Total wages and salaries 1,421 1,567 (146) -9% Stephen Jones Company Secretary
Note 1: Adjusted operating profit is as set out in the financial statements. External advisers Deloitte LLP
Note 2: 2017 figure for dividends & share buy-backs includes one-off share Sidney Taurel was a member of the Committee throughout 2018 as
buyback of £300m in 2017.
permitted under the UK Corporate Governance Code.
Note 3: Wages and salaries include continuing operations only and include
Directors. Average employee numbers for continuing operations for 2018
were 24,322 (2017: 30,339). Further details are set out in note 5 to the financial Advisers to the Remuneration Committee
statements on p167.
During 2018, the Remuneration Committee received advice
Note 4: Total wages and salaries would be -7% at constant exchange rates. from independent Remuneration Committee advisers, Deloitte LLP.
Deloitte LLP were appointed by the Committee in July 2017 following
Dilution and use of equity a tender process.
Pearson can use existing shares bought in the market, treasury Deloitte LLP supplied the Committee with advice on current market
shares or newly issued shares to satisfy awards under the trends and developments, incentive plan design and target setting,
company’s various share plans. For restricted stock awards under investor engagement and other general Executive remuneration
the LTIP, the company would normally expect to use existing shares. matters. In respect of their services to the Committee, Deloitte
LLP were paid fees, which were charged on a time spent basis,
There are limits on the amount of new-issue equity we can use.
of £135,900. During the year, separate teams within Deloitte LLP
In any rolling ten-year period, no more than 10% of Pearson equity
also provided Pearson PLC with certain tax and other advisory
will be issued, or be capable of being issued, under all Pearson’s
and consultancy services.
share plans, and no more than 5% of Pearson equity will be issued,
or be capable of being issued, under Executive or discretionary Deloitte LLP are founding members of the Remuneration
plans. The headroom available for all Pearson plans, Executive or Consultants’ Group and adhere to its code of conduct.
discretionary, and shares held in trust is as follows:
The Committee remains satisfied that the advice provided by
Headroom 2018 Deloitte LLP was objective and independent and that the provision
All Pearson plans 8.5% of other services in no way compromised their independence.
Executive or discretionary plans 5.0% It is the view of the Committee that the Deloitte LLP engagement
partner and team that provide remuneration advice to the
Shares held in trust 4.6%
Committee do not have connections with Pearson that may impair
their independence. The Committee reviewed the potential for
conflicts of interest and judged that there were appropriate
safeguards against such conflicts.
Remuneration Committee meeting focus during 2018
Overview
Area of
responsibility Activities
Market Noted Deloitte’s overview of Received a number of updates

the current remuneration and on and considered changes to
governance environment. the corporate governance
environment for executive
compensation in particular
in relation to the new UK
Corporate Governance Code.
Performance Received input from the Audit Noted and reviewed the status Reviewed and approved 2017 Noted report on talent,
Committee, internal audit and of outstanding long-term annual incentive performance retention and voluntary
from management on the incentive awards based on the and payouts for Executive leavers from CHRO.

financial performance of the current view of likely Pearson Directors, Pearson executive
business and progress against financial performance. management, senior leaders
strategic measures. Received and eligible employees.
input from investor relations on
market consensus expectations.
Implementation Reviewed annual salary Reviewed and approved 2018 Approved nil payout under 2015 Noted remuneration packages
increases for Pearson’s individual annual incentive long-term incentive plan awards. for new appointments to the
Executive Directors, opportunities for the Executive Reviewed and approved 2018 Pearson Executive management
Executive management Directors and Pearson long-term incentive awards team and termination
and senior leaders. executive management. for the Executive Directors arrangements for leavers.
Reviewed and approved and Pearson Executive
2018 employee annual management, including the
Our performance
incentive plan targets. quantum of awards and targets.
Noted 2018 long-term incentive
awards for managers.
Governance Noted the activity of the Noted company’s use of equity Conducted an evaluation of the
Standing Committee of for employee share plans. Committee’s performance.
the Board in relation to the
operation of the company’s
equity-based reward
programmes.
Policy Reviewed wider workforce Reviewed and reconfirmed
remuneration and the operation of the Policy
related policies. for 2019 taking into account
Governance
workforce remuneration
and related polices.
Disclosure and Considered feedback from Reviewed and approved 2017 Reviewed 2018 Annual Noted template and outline of
engagement key shareholders and Directors’ remuneration report. General Meeting season, 2018 Directors’ remuneration
governance bodies. Noted shareholder feedback shareholder voting and report and shareholder
on 2017 Directors’ engagement strategy. engagement strategy.
remuneration report. Reviewed 2017 gender pay gap
report, feedback on actions
taken and draft 2018 report.
Terms of reference Committee evaluation

The Committee’s full charter and terms of reference are available Annually, the Committee reviews its own performance, constitution,
on the Governance page of the company’s website. A summary of and charter and terms of reference to ensure it is operating at
the Committee’s responsibilities is set out below. maximum effectiveness and recommends any changes it considers
necessary to the Board for approval. The Committee participated in
The terms of reference have been updated to reflect the provisions
a survey to review its performance and effectiveness in September
of the 2018 Code.
2018, looking at areas such as the clarity of roles and responsibilities,
the composition of the Committee, the use of time, the quality and
Committee responsibilities: timeliness of meeting materials, the opportunity for discussion
and debate, dialogue with management and shareholders and
Determine and Determine and regularly review the remuneration
access to independent advice. The Committee concluded that it
review policy policies for the Executive Directors, the presidents and
other members of the Pearson executive management
continued to operate effectively but should keep looking for
(who report directly to the CEO), and overview the opportunities for greater simplicity and clarity, and that
approach for the senior leadership group. These policies maintaining the high quality of papers continues to be important
include base salary, annual and long-term incentives, for the effectiveness of the Committee.
pension arrangements, any other benefits and
termination of employment. When setting remuneration
Voting on remuneration resolutions
policy the Committee also takes into account
remuneration practices and related policies for The following table summarises the details of votes cast in respect
the wider workforce. of the remuneration resolutions.
Shareholder Ensure the company maintains an appropriate level
engagement of engagement with its shareholders and shareholder % of votes cast
% of votes cast for against Votes withheld
representative bodies in relation to the remuneration
policy and its implementation. Annual remuneration 99.4% 0.6%
votes (2018 AGM) (622,728,372) (4,001,793) 5,547,864
Review and Regularly review the implementation and operation
approve of the remuneration policy and approve the individual 2017 Remuneration 68.8% 31.2%
implementation remuneration and benefits packages of executive Policy vote (2017 AGM) (404,615,934) (183,100,737) 43,738,267
management.
The Directors’ remuneration report has been approved by the
Approve Approve the design of, and determine targets for, any Board on 11 March 2019 and signed on its behalf by:
performance- performance-related pay plans operated by the Group
related plans for Pearson executive management and approve the
total payments to be made under such plans.
Review long- Review the design of the company’s long-term incentive
term plans and other share plans operated by the Group and where
Elizabeth Corley
relevant recommend such plans for approval by the
Chair of Remuneration Committee
Board and shareholders.
Set termination Advise and decide on general and specific arrangements
arrangements in connection with the termination of employment of
executive management.
Review targets Review and approve corporate goals and objectives
relevant to executive management remuneration and
evaluate the Executive Directors’ performance in light
of those goals and objectives.
Determine Delegated responsibility for determining the
Chairman’s remuneration and benefits package of the Chairman of
remuneration the Board.
Appoint Appoint and set the terms of engagement for any
remuneration remuneration consultants who advise the Committee
consultants and monitor the cost of such advice.
Talent, retention Review updates from management on talent,
and gender retention and gender pay gap.
pay gap
Section 4 Governance/Additional disclosures 127
Additional disclosures
Pages 78–131 of this document comprise the Directors’ report Share buyback
Overview
for the year ended 31 December 2018.
In line with our capital allocation priorities, the Board decided to
Set out below is other statutory and regulatory information use part of the proceeds from the transaction regarding our stake in
that Pearson is required to disclose in its Directors’ report. Penguin Random House in 2017 to return £300m of surplus capital
to shareholders, in addition to continuing to invest in our business
Going concern and maintain a strong balance sheet.
The Directors have made an assessment of the Group’s ability We launched a £300m share buyback, beginning on 18 October
to continue as a going concern and consider it appropriate to 2017 and completed the programme on 16 February 2018,
adopt the going concern basis of accounting. repurchasing a total of 42,835,577 shares at an average price
of 700p.
Viability statement

Major shareholders
As set out on p76, the Board has also reviewed the prospects
of Pearson over the three-year period to December 2021 taking Information provided to the Company pursuant to the Financial
account of the Company’s strategic plans, a ‘severe but plausible’ Conduct Authority’s Disclosure and Transparency Rules (DTR) is
downside case and further stress testing based on the principal published on a Regulatory Information Service and on the
risks set out on p62. Company’s website.
Based on the results of these procedures, and considering the As at 31 December 2018, the Company had been notified under
Company’s strong balance sheet, the Directors have a reasonable DTR 5 of the following holders of significant voting rights in
expectation that Pearson will be able to continue in operation and its shares.
meet its liabilities as they fall due over the three-year period ending
Number Percentage
December 2021. Further details of the Group’s liquidity are shown of voting as at date of
in Financial review (see p44–50). rights notification
Our performance
Schroders plc 97,090,310 12.43%
Share capital Silchester International Investors LLP 77,889,093 9.98%
Details of share issues and cancellations are given in note 27 The Goldman Sachs Group, Inc 49,024,780 6.33%
to the financial statements on p201. The Company has a single Lindsell Train Limited 41,393,237 5.03%
class of shares which is divided into ordinary shares of 25p each. Ameriprise Financial, Inc. and its group 41,236,375 5.02%
The ordinary shares are in registered form. As at 31 December Libyan Investment Authority1 24,431,000 3.01%
2018, 781,078,167 ordinary shares were in issue. At the AGM held
on 4 May 2018, the Company was authorised, subject to certain 1 Based on notification to the Company dated 7 June 2010. We have been
notified of no change to this holding since that date. Assets belonging to,
conditions, to acquire up to 78,065,281 ordinary shares by market or owned, held or controlled on 16 September 2011 by the Libyan Investment
purchase. Shareholders will be asked to renew this authority at Authority and located outside Libya on that date, are frozen in accordance
the AGM on 26 April 2019. with Article 5(4) of Regulation 2016/44 of the Council of the European Union.
Governance
Between 31 December 2018 and 11 March 2019, being the latest
practicable date before the publication of this report, the Company
received further notifications under DTR 5, with the most recent
positions being as follows:
Schroders plc disclosed a holding of 11.73%
The Goldman Sachs Group, Inc disclosed a holding of 7.75%.

Annual General Meeting Shareholders can declare a final dividend by passing an ordinary
resolution but the amount of the dividend cannot exceed the
The notice convening the AGM, to be held at 12 noon on amount recommended by the Board. The Board can pay interim
Friday, 26 April 2019 at IET London, 2 Savoy Place, London dividends on any class of shares of the amounts and on the dates
WC2R 0BL, is contained in a circular to shareholders to be and for the periods they decide. In all cases the distributable profits
dated 25 March 2019. of the Company must be sufficient to justify the payment of the
relevant dividend.
Registered auditors
The Board may, if authorised by an ordinary resolution of the
In accordance with section 489 of the Act, a resolution proposing shareholders, offer any shareholder the right to elect to receive
the reappointment of PricewaterhouseCoopers LLP as auditors new ordinary shares, which will be credited as fully paid, instead
to the Company will be proposed at the AGM, at a level of their cash dividend.
of remuneration to be agreed by the Audit Committee.
Any dividend which has not been claimed for 12 years after it
became due for payment will be forfeited and will then belong
Amendment to Articles of Association to the Company, unless the Directors decide otherwise.
Any amendments to the Articles of Association of the Company
If the Company is wound up, the liquidator can, with the sanction
(‘the Articles’) may be made in accordance with the provisions
of a special resolution passed by the shareholders, divide among
of the Act by way of a special resolution.
the shareholders all or any part of the assets of the Company and
he/she can value assets and determine how the division shall be
Rights attaching to shares carried out as between the shareholders or different classes of
shareholders. The liquidator can also, with the same sanction,
The rights attaching to the ordinary shares are defined in the
transfer the whole or any part of the assets to trustees upon
Articles. A shareholder whose name appears on the Company’s
such trusts for the benefit of the shareholders.
register of members can choose whether his/her shares are
evidenced by share certificates (i.e. in certificated form) or held
electronically (i.e. uncertificated form) in CREST (the electronic Voting at general meetings
settlement system in the UK).
Any form of proxy sent by the shareholders to the Company in
Subject to any restrictions below, shareholders may attend relation to any general meeting must be delivered to the Company
any general meeting of the Company and, on a show of hands, (via its registrars), whether in written or electronic form, not less
every shareholder (or his/her representative) who is present at than 48 hours before the time appointed for holding the meeting
a general meeting has one vote on each resolution and, on a poll, or adjourned meeting at which the person named in the
every shareholder (whether an individual or a corporation) present appointment proposes to vote.
in person or by proxy shall have one vote for every 25p of nominal
The Board may decide that a shareholder is not entitled to attend or
share capital held. A resolution put to the vote at a general meeting
vote either personally or by proxy at a general meeting or to exercise
is decided on a show of hands unless before, or on the declaration
any other right conferred by being a shareholder if he/she or any
of the result of, a vote on a show of hands, a poll is demanded.
person with an interest in shares has been sent a notice under
A poll can be demanded by the Chair of the meeting, or by at least
section 793 of the Act (which confers upon public companies the
three shareholders (or their representatives) present in person
power to require information with respect to interests in their voting
and having the right to vote, or by any shareholders (or their
shares) and he/she or any interested person failed to supply the
representatives) present in person having at least 10% of the total
Company with the information requested within 14 days after
voting rights of all shareholders, or by any shareholders (or their
delivery of that notice. The Board may also decide, where the
representatives) present in person holding ordinary shares on
relevant shareholding comprises at least 0.25% of the nominal
which an aggregate sum has been paid up of at least 10% of the total
value of the issued shares of that class, that no dividend is payable
sum paid up on all ordinary shares. At this year’s AGM, voting will
in respect of those default shares and that no transfer of any
again be conducted on a poll, consistent with best practice.
default shares shall be registered.
Pearson operates an employee benefit trust to hold shares, Appointment and replacement of Directors
Overview
pending employees becoming entitled to them under the
Company’s employee share plans. There were 3,224,665 shares The Articles contain the following provisions in relation to Directors:
held as at 31 December 2018. The trust has an independent trustee Directors shall be no less than two in number. Directors may be
which has full discretion in relation to the voting of such shares. appointed by the Company by ordinary resolution or by the Board.
A dividend waiver operates on the shares held in the trust. A Director appointed by the Board shall hold office only until the
Pearson also operates two nominee shareholding arrangements next AGM and shall then be eligible for reappointment, but shall
which hold shares on behalf of employees. There were 2,387,192 not be taken into account in determining the Directors or the
shares held in the Sharestore account and 443,616 shares held in number of Directors who are to retire by rotation at that meeting.
the Global Nominee account as at 31 December 2018. The beneficial The Board may from time to time appoint one or more Directors to
owners of shares held in Sharestore are invited to submit voting hold Executive office with the Company for such period (subject to
instructions online at www.shareview.co.uk and Global Nominee the provisions of the Act) and upon such terms as the Board may
decide and may revoke or terminate any appointment so made.

participants are invited to submit voting instructions by e-mail to
nominee@equiniti.com. If no instructions are given by the beneficial The Articles provide that, at every AGM of the Company, at least
owner by the date specified, the trustees holding these shares will one-third of the Directors shall retire by rotation (or, if their number
not exercise the voting rights. is not a multiple of three, the number nearest to one-third). The first
Directors to retire by rotation shall be those who wish to retire and
Transfer of shares not offer themselves for re-election. Any further Directors so to
retire shall be those of the other Directors subject to retirement
The Board may refuse to register a transfer of a certificated share
by rotation who have been longest in office since they were last
which is not fully paid, provided that the refusal does not prevent
re-elected but, as between persons who became or were last
dealings in shares in the Company from taking place on an open
re-elected on the same day, those to retire shall (unless they
and proper basis. The Board may also refuse to register a transfer
otherwise agree among themselves) be determined by lot.
of a certificated share unless: (i) the instrument of transfer is lodged,
In addition, any Director who would not otherwise be required
Our performance
duly stamped (if stampable), at the registered office of the Company
to retire shall retire by rotation at the third AGM after they
or any other place decided by the Board, and is accompanied by the
were last re-elected.
certificate for the share to which it relates and such other evidence
as the Board may reasonably require to show the right of the Notwithstanding the provisions of the Articles, the Board has
transferor to make the transfer; (ii) it is in respect of only one class resolved that all Directors should offer themselves for re-election
of shares; and (iii) it is in favour of not more than four transferees. annually, in accordance with the UK Corporate Governance Code
(the Code).
Transfers of uncertificated shares must be carried out using
CREST and the Board can refuse to register a transfer of an The Company may by ordinary resolution remove any Director
uncertificated share in accordance with the regulations before the expiration of his/her term of office. In addition, the
governing the operation of CREST. Board may terminate an agreement or arrangement with any
Director for the provision of his/her services to the Company.
Governance
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.
Powers of the Directors Other statutory information

Subject to the Articles, the Act and any directions given by special Other information that is required by the Companies Act 2006
resolution, the business of the Company will be managed by the (the Act) to be included in the Directors’ report, and which is
Board who may exercise all the powers of the Company, including incorporated by reference, can be located as follows:
powers relating to the issue and/or buying back of shares by the
Summary disclosures index See more
Company (subject to any statutory restrictions or restrictions
imposed by shareholders in general meeting). Dividend recommendation p45
Financial instruments and financial risk management p186–189
Significant agreements Important events since year end p50
Future development of the business p10–43
The following significant agreements contain provisions entitling
Research and development activities p30
the counterparties to exercise termination or other rights in the
event of a change of control of the Company: Employment of disabled persons p34
Employee involvement p32–40
At 31 December 2018, the Group had a $1,750m revolving credit
Greenhouse gas emissions p39
facility agreement dated August 2014 which matures in August
2021 between, among others, the Company, Barclays Bank plc With the exception of the dividend waiver described on p128–129
(Agent) and the banks and financial institutions named therein there is no information to be disclosed in accordance with
as lenders (the Facility), under which any such bank may, upon a Listing Rule 9.8.4.
change of control of the Company, require its outstanding advances,
No political donations or contributions were made or expenditure
together with accrued interest and any other amounts payable
incurred by the Company or its subsidiaries during the year.
in respect of such Facility, and its commitments, to be cancelled,
each within 60 days of notification to the banks by the Agent.
Fair, balanced and understandable reporting and
On 19 February 2019, this revolving credit facility was amended
to total $1,190m and the maturing date was extended to February disclosure of information
2024 with the same provisions. For these purposes, a ‘change of As required by the Code, we have established arrangements to
control’ occurs if the Company becomes a subsidiary of any other ensure that all information we report to investors and regulators
company, or one or more persons acting either individually or is fair, balanced and understandable. A process and timetable
in concert obtains control (as defined in section 1124 of the for the production and approval of this year’s report was agreed
Corporation Tax Act 2010) of the Company. by the Board at its meeting in December 2018. The full Board
Shares acquired through the Company’s employee share plans then had the opportunity to review and comment on the report
rank pari passu with shares in issue and have no special rights. as it progressed.
For legal and practical reasons, the rules of these plans set out Representatives from financial reporting, corporate affairs,
the consequences of a change of control of the Company. company secretarial, legal and internal audit, compliance and risk
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, our Verification Committee conducts
a thorough verification of narrative and financial statements.
We also have procedures in place to ensure the timely release of
inside information, through our Market Disclosure Committee.
The Audit Committee is also available to advise the Board on

certain aspects of the report, to enable the Directors to fulfil
their responsibility in this regard. The Directors consider that the
annual report and accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
The Directors also confirm that, for each Director in office at the
Overview
date of this report:
o far as the Director is aware, there is no relevant audit

S
information of which the Group and Company’s auditors
are unaware
hey have taken all the steps that they ought to have taken as
T
Directors in order 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.
Directors in office

The following Directors were in office during the year and up until
the signing of the financial statements:
E P L Corley H Manwani (stepped down 4 May 2018)

V Cox T Score
J J Fallon S Taurel
S J Lewis L Wallen
L K Lorimer C Williams
M M Lynton (appointed 1 February 2018)
The Directors’ report has been approved by the Board on
Our performance
11 March 2019 and signed on its behalf by:
Stephen Jones
Company Secretary
Governance
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities Each of the Directors, whose names and functions are listed on
p80–81, confirms that, to the best of their knowledge:
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law he Group and Company financial statements, which have been
T
and regulation. prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial
Company law requires the Directors to prepare financial statements position and profit of the Group and Company
for each financial year. Under that law, the Directors have prepared
the Group and Company financial statements in accordance with he strategic report contained in the annual report includes a fair
T
International Financial Reporting Standards (IFRSs) as adopted by review of the development and performance of the business and
the European Union. Under company law, the Directors must not the position of the Group and Company, together with a description
approve the financial statements unless they are satisfied that they of the principal risks and uncertainties that they face.
give a true and fair view of the state of affairs of the Group and
This responsibility statement has been approved by the Board
Company and of the profit or loss of the Group for that period.
on 11 March 2019 and signed on its behalf by:
In preparing the financial statements, the Directors are required to:
Select suitable accounting policies and then apply

them consistently
Coram Williams
tate whether applicable IFRSs as adopted by the European
S Chief Financial Officer
Union have been followed for the Group and Company financial
statements, subject to any material departures disclosed and
explained in the financial statements
ake judgements and accounting estimates that are reasonable

M
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 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 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The Directors are also 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 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.
Section 5 Financial statements 133
Financial
Overview
statements

In this section
Consolidated financial statements 187 19 Financial risk management
134 Independent auditor’s report to the 190 20 Intangible assets – pre-publication
members of Pearson plc 190 21 Inventories
142 Consolidated income statement 191 22 Trade and other receivables
143 Consolidated statement of 192 23 Provisions for other liabilities
comprehensive income and charges
144 Consolidated balance sheet 192 24 Trade and other liabilities
146 Consolidated statement of changes 193 25 Retirement benefit and other
Our performance
in equity post-retirement obligations
147 Consolidated cash flow statement 199 26 Share-based payments
201 27 Share capital and share premium
Notes to the consolidated financial statements 201 28 Treasury shares
148 1 Accounting policies 202 29 Other comprehensive income
158 2 Segment information 203 30 Business combinations
161 3 Revenue from contracts with customers 203 31 Disposals
165 4 Operating expenses 204 32 Held for sale
167 5 Employee information 205 33 Cash generated from operations
168 6 Net finance costs 206 34 Contingencies
168 7 Income tax 207 35 Commitments
171 8 Earnings per share 207 36 Related party transactions
Governance
173 9 Dividends 208 37 Events after the balance sheet date
173 10 Property, plant and equipment 208 38 Accounts and audit exemptions
174 11 Intangible assets
178 12 Investments in joint ventures Company financial statements
and associates 209 Company balance sheet
180 13 Deferred income tax 210 Company statement of changes in equity
181 14 Classification of financial instruments 211 Company cash flow statement
183 15 Other financial assets 212 Notes to the company financial statements
183 16 Derivative financial instruments and
hedge accounting 220 Five-year summary
185 17 Cash and cash equivalents
(excluding overdrafts)
222 Financial key performance indicators

186 18 Financial liabilities – borrowings
229 Shareholder information
Independent auditor’s report to the members

of Pearson plc
Report on the audit of the financial statements Our opinion is consistent with our reporting to the Audit Committee.
Opinion
Basis for opinion
In our opinion, Pearson plc’s Group financial statements and parent
company financial statements (the “financial statements”): We conducted our audit in accordance with International Standards
on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
ive a true and fair view of the state of the Group’s and of the
g under ISAs (UK) are further described in the auditors’ responsibilities
parent company’s affairs at 31 December 2018 and of the for the audit of the financial statements section of our report.
Group’s profit and of the Group’s and the parent company’s We believe that the audit evidence we have obtained is sufficient
cash flows for the year then ended; and appropriate to provide a basis for our opinion.
ave been properly prepared in accordance with International
h Independence
Financial Reporting Standards (IFRSs) as adopted by the European
We remained independent of the Group in accordance with the
Union and, as regards the parent company’s financial statements,
ethical requirements that are relevant to our audit of the financial
as applied in accordance with the provisions of the Companies
statements in the UK, which includes the FRC’s Ethical Standard, as
Act 2006; and
applicable to listed public interest entities, and we have fulfilled our
have been prepared in accordance with the requirements of other ethical responsibilities in accordance with these requirements.
the Companies Act 2006 and, as regards the Group financial
To the best of our knowledge and belief, we declare that non-audit
statements, Article 4 of the IAS Regulation.
services prohibited by the FRC’s Ethical Standard were not provided
We have audited the financial statements, included within the to the Group or to the parent company.
Annual Report and Accounts (the “Annual Report”), which comprise:
Other than those disclosed in note 4 to the financial statements, we
the consolidated and company balance sheets at 31 December
have provided no non-audit services to the Group or to the parent
2018; the consolidated income statement and consolidated
company in the period from 1 January 2018 to 31 December 2018.
statement of comprehensive income, the consolidated and
company cash flow statements and the consolidated and company
statements of changes in equity for the year then ended; and the
notes to the consolidated financial statements and notes to the
company financial statements, which include a description of
the significant accounting policies.
Our audit approach Overview

Materiality
verall Group materiality: £25 million (2017: £22 million) based on approximately
O
5% of adjusted profit before tax.
Materiality Overall parent company materiality: £45 million (2017: £20 million) based on
approximately 1% of net assets.
Audit scope
e conducted work in four key territories, being the UK, US, Brazil and Italy.
W
Audit scope
This included full scope audits at three reporting components and specific audit
procedures at a further 20 components. In addition, we obtained an audit opinion on
the financial information reported by the Group’s associate, Penguin Random House.
The territories where we conducted audit procedures, together with work performed
Areas of
focus at corporate functions and at the Group level, accounted for approximately: 69% of
the Group’s revenue; 64% of the Group’s profit before tax; and 63% of the Group’s
adjusted profit before tax.
Areas of focus for the 2018 audit were as follows:

Carrying values of goodwill and intangible assets (Group)
Returns provisioning (Group)
Recoverability of pre-publication assets (Group)
Accounting for major transactions (Group)
Provisions for uncertain tax positions (Group)
Finance transformation (Group)
Risk of fraud in revenue recognition (Group)
Carrying values of investments in subsidiaries (parent company)
The scope of our audit There are inherent limitations in the audit procedures described
Overview
As part of designing our audit, we determined materiality and above and the further removed non-compliance with laws and
assessed the risks of material misstatement in the financial regulations is from the events and transactions reflected in the
statements. In particular, we looked at where the directors made financial statements, the less likely we would become aware of it.
subjective judgements, for example in respect of significant Also, the risk of not detecting a material misstatement due to fraud
accounting estimates that involved making assumptions and is higher than the risk of not detecting one resulting from error,
considering future events that are inherently uncertain. as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations or through collusion.
Capability of the audit in detecting irregularities, including fraud
We did not identify any key audit matters relating to irregularities,
Based on our understanding of the Group and the industry in which
including fraud. As in all of our audits, we addressed the risk of
it operates, we identified that the principal risks of non-compliance
management override of internal controls, including testing journals
with laws and regulations related to the failure to comply with
and evaluating whether there was evidence of bias by the directors
international tax regulations and we considered the extent to

that represented a risk of material misstatement due to fraud,
which non-compliance might have a material effect on the financial
and the risk of fraud in revenue recognition.
statements. We also considered those laws and regulations
that have a direct impact on the financial statements such as
the Companies Act 2006. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls) and
determined that the principal risks were related to posting
inappropriate journal entries, management bias in accounting
for estimates and manipulation of cut-off of shipments at major
warehouse locations. The Group engagement team shared this risk
assessment with the component auditors so that they could include
Our performance
appropriate audit procedures in response to such risks in their
work. Audit procedures performed by the Group engagement team
and/or component auditors included:
Discussions with management, internal audit and the Group’s

legal advisors, including consideration of known or suspected
instances of non-compliance with laws and regulations and fraud;
valuation of the effectiveness of management’s controls designed

E
to prevent and detect irregularities; and
I dentifying and testing significant manual journal entries and

reviewing assumptions and judgements made by management in
making significant accounting estimates.
Governance
Independent auditor’s report to the members of Pearson plc
Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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)
identified by the auditors, including 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, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the key audit matter
Carrying values of goodwill and intangible assets

Refer to note 11 in the Group financial statements. We obtained management’s fair value less costs of disposal impairment model and
The Group recorded goodwill of £2,111m and intangible assets tested and evaluated the reasonableness of key assumptions, including CGU
of £898m at 31 December 2018, including software, acquired identification; operating cash flow forecasts and key inputs into these forecasts;
customer lists, contracts and relationships, acquired the appropriateness of the inclusion of restructuring cost savings; perpetuity growth
trademarks and brands and acquired publishing rights. rates; and discount rates.
The Group recorded an impairment charge of £2,548m in 2016 We tested the mathematical integrity of the forecasts and carrying values in
against the North America CGU. The carrying values of goodwill management’s impairment model and we confirmed that management’s estimate
and intangible assets are dependent on future cash flows of the of each CGU’s recoverable amount is appropriately based on the higher of fair value
underlying CGUs and there is a risk that if management does not less costs of disposal and value-in-use. Our procedures focused on the North America,
achieve these cash flows it could give rise to further impairment Core and Brazil CGUs where there was lower available headroom.
charges. This risk increases in periods when the Group’s trading We agreed the forecast cash flows to board approved budgets, assessed how these
performance and projections do not meet expectations. budgets are compiled and understood key related judgements and estimates,
The impairment reviews performed by management contain a including short-term growth rates, corporate cost allocations and restructuring
number of significant judgements and estimates. Changes in costs and related savings.
these assumptions can result in materially different impairment We deployed valuations experts to assess the perpetuity growth rate and discount
charges or available headroom. rate for each CGU by comparison with third party information, past performance and
relevant risk factors. We also considered management’s estimate of disposal costs
for reasonableness.
We performed our own sensitivity analyses to understand the impact of reasonably
possible changes in key assumptions. We agreed with management’s decision to
provide additional disclosures and sensitivities in note 11 of the consolidated financial
statements in relation to the North America, Core and Brazil CGUs.
Returns provisioning
Refer to notes 1b and 24 in the Group financial statements. We assessed management’s evaluation of market trends and the Group’s responses
The Group has provided £173m for sales returns at 31 December and considered whether management’s methodology and three year averaging
2018. The most significant exposure to potential returns within remained appropriate. We tested the returns provision calculations at 31 December
the Group arises in the US higher education courseware business. 2018 and agreed inputs such as historical sales and returns experience to
Trends in the US market, including the growth of textbook rentals underlying records.
and the availability of free online content, continue to affect this We performed detailed testing over shipment and returns levels around the year-end
business and have the potential to impact returns levels if in particular at major shipping locations in the US and UK and evaluated whether these
shipping practices and arrangements with retailers are not gave rise to an increased risk of future returns. We concluded that management had
managed in response to these trends. adopted methods and reached estimates for future returns that were supportable
Management provides for returns based on past experience by and appropriate.
customer and channel, using a three year average methodology.
Recoverability of pre-publication assets

Refer to notes 20 and 32 in the Group financial statements. We assessed the appropriateness of capitalisation and amortisation policies and
The Group has £817m of pre-publication assets at 31 December selected a sample of costs deferred to the balance sheet as pre-publication assets to
2018 and a further £242m recorded in businesses classified as test their magnitude and appropriateness for capitalisation and the reasonableness
held for sale. Pre-publication assets represent direct costs of amortisation profiles against sales forecasts, including considering the impact of the
incurred in the development of education platforms, programmes transition towards digital products.
and titles prior to their public release. We challenged the carrying value of certain pre-publication assets where products are
Judgement is required to assess the recoverability of the carrying yet to be launched, are less proven or where sales are lower than originally anticipated.
value of these assets. This judgement is further complicated by We assessed forecast cash flows against historical experience and obtained supporting
the transition to digital as the Group invests in new, less proven, evidence for management’s explanations. Where the pre-publication assets formed
inter-linked digital content and platforms. part of a held for sale business, we considered whether the expected disposal proceeds
are expected to exceed the carrying value of those assets.
We found the Group’s policies to be appropriate and consistently applied. While
recoverability of the carrying values of certain assets depends on future sales growth,
we considered the year-end carrying values to be appropriate and supported by
reasonable forecasts.
Overview
Accounting for major transactions
Refer to notes 31 and 32 in the Group financial statements. We obtained and reviewed the sale agreements and evidence of proceeds received
The Group has disposed of Wall Street English and UTEL during for both disposals completed during 2018. We reviewed the contractual agreements to
2018. Pre-tax gains on disposal of £207m and £19m respectively assess the accounting treatment and classification of proceeds and the gains on disposal
have been recorded on these disposals. of both Wall Street English and UTEL. We consider the accounting treatment to be
appropriate and the gains to have been appropriately calculated and disclosed.
Additionally, at 31 December 2018 the US K12 courseware business
remains classified as held for sale. Therefore, assets of £648m We have obtained evidence to support the held for sale determination including board
and liabilities of £573m have been classified as held for sale on approval and evidence in support of a well advanced sales process at 31 December 2018.
the face of the balance sheet. The Group has recorded the net From the evidence we have obtained, including the post year-end announcement that a
held for sale assets at the lower of carrying value and fair value disposal transaction has been agreed and is expected to complete in 2019,
less costs to dispose. No impairments were recorded on we were satisfied that the US K12 courseware business has been appropriately
measured and classified as held for sale at 31 December 2018.

classification of the US K12 courseware business as held for sale.
Provisions for uncertain tax liabilities

Refer to notes 7 and 34 in the Group financial statements. We engaged our tax specialists in support of our audit of tax and obtained an
The Group is subject to several tax regimes due to the understanding of the Group’s tax strategy and risks. We recalculated the Group’s
geographical diversity of its businesses. At 31 December 2018, tax provisions and determined whether the treatments adopted were in line with the
the Group held provisions for uncertain tax positions of £181m. Group’s tax policies and had been applied consistently.
Management is required to exercise significant judgement in We evaluated the key underlying assumptions, particularly in the US and UK.
determining the appropriate amount to provide in respect of In making this evaluation, we considered the status of tax authority audits and
potential tax exposures and uncertain tax positions. The most enquiries. We considered the basis and support in particular for provisions not
significant potential exposures relate to US tax, transfer pricing, subject to tax audit in comparison with our experience for similar situations.
tax on prior year disposals and EU state aid. We evaluated the consistency of management’s approach to establishing or changing
Changes in assumptions about the views that might be taken prior provision estimates and validated that changes in prior provisions reflected a
Our performance
by tax authorities can materially impact the level of provisions change in facts and circumstances during 2018. Where provisions have not been
recorded in the financial statements. established, including for material potential exposures like EU state aid, we evaluated
the basis for management’s judgements, including an assessment of the treatment of
similar exposures at comparable companies.
We noted that the assumptions and judgements required to formulate these provisions
mean that the range of possible outcomes is broad. However, based on the evidence
obtained, we were satisfied that management’s provisioning estimates for uncertain
tax positions were prepared on a consistent basis with the prior year and were
adequately supported.
We also evaluated the disclosures in notes 7 and 34 in relation to uncertain tax
provisions and we were satisfied that the disclosures were consistent with the
underlying positions and with the requirements of IAS 1.
Governance
Finance transformation
The Group is in the midst of a period of significant change with We centrally managed the work performed by component audit teams at Pearson
the continued roll-out of The Enabling Programme (TEP) and the Finance Services and in migrating markets like the US, which consisted of controls and
organisational change resulting from implementing the target substantive testing, and we conducted oversight visits to key sites impacted by the
operating model. The ERP implementation programme continued transformation activities to direct the work performed.
in 2018 with certain US and Canadian businesses going live. We evaluated the design and tested the operating effectiveness of key automated and
This change represents a risk as controls and processes that manual controls both before and after the migration including IT general controls and
have been established and embedded over a number of years controls over the migration of data into the new ERP environment. We also tested
are changed and migrated to the new ERP environment. There is balance sheet reconciliations for migrating entities to identify any migration issues.
an increased risk of break-down in internal control during Where issues were identified, we performed testing of compensating controls and
the transition. we increased the level of transaction testing to address any residual risk.
Risk of fraud in revenue recognition

Refer to notes 1b and 3 in the Group financial statements. Where books are sold together with workbooks that are delivered later or companion
There are two types of complex contracts into which the Group digital materials that are made available online, we assessed the basis for allocation
enters that require significant judgements and estimates, which of the purchase price between each element based on individual contractual
could be subject to either accidental error or deliberate fraud: arrangements and tested the detailed calculations supporting the revenue deferral
calculations. This included validating adjustments for the extent of user take-up of
ultiple element arrangements, such as the sale of physical
M
digital content to underlying support. We found the revenue deferrals to be based on
textbooks accompanied by digital content or supplementary
reasonable estimates of the relative fair value of each element and to be properly and
workbooks, where revenue is recognised for each element as
consistently calculated.
if it were an individual contractual arrangement requiring the
estimation of its relative fair value; For a selection of the larger, more judgemental and more recent long-term contracts,
covering both assessment activities and online delivery of teaching, we reviewed the
Certain long-term contracts that span year-end, where revenue
contracts and assessed the accounting methodologies being applied to calculate the
is recognised using estimated percentage of completion based
proportion of revenue being recognised. We also tested costs incurred to date and
on costs. These include contracts to design, develop and deliver
management’s estimates of forecast costs and revenues by reference to historical
testing and accreditation and contracts to secure students and
experience and current contract status.
support the online delivery of their teaching.
We reviewed revenue recognised around year-end to ensure that it was recognised in
These complex contracts generate material deferred revenue
the right period, focusing on the Group’s major shipping locations.
and accrued income balances and are areas where misstatements
in the underlying assumptions or estimation calculations could In addition, we have performed manual journals testing focusing on unusual or
have a material effect on the financial statements. The accounting unexpected entries to revenue and we have tested the more significant adjustments
for certain of these arrangements has been impacted in 2018 by required on adoption of IFRS 15 for accuracy and completeness.
the adoption of IFRS 15. Our testing showed that revenue recognition practices are in accordance with Group
In addition, there are material shipments around year-end from policies and related accounting standards with appropriate methods for calculating
major distribution locations giving rise to the potential risk of a the revenue recognised.
cut-off error.
Carrying values of investments in subsidiaries

Refer to note 2 in the company financial statements. We evaluated management’s assumption whether any indicators of impairment
The company holds investments in subsidiaries of £6,710m at existed by comparing the carrying values of investments in subsidiaries with their
31 December 2018. net assets at 31 December 2018.
Investments in subsidiaries are accounted for at cost less For the investment in Pearson International Finance Limited where an impairment of
impairment in the company balance sheet. Investments are £57m was recorded, we challenged management on the basis of the impairment
tested for impairment if impairment indicators exist. If such recognised and considered how it had been calculated by reference to the relevant
indicators exist, the recoverable amounts of investments in accounting requirements to conclude on its reasonableness.
subsidiaries are estimated in order to determine the extent For other investments where the net assets were lower than the carrying values but
of the impairment loss, if any. Any such impairment loss is no impairment was recognised, we considered their recoverable value by reference to
recognised in the income statement. the fair value less costs of disposal of the investments compared to their carrying
Impairment indicators were identified in connection with values at 31 December 2018.
certain of the investments in subsidiaries due to the carrying As a result of our work, we agreed with management that the impairment charge was
value of investments exceeding their net assets. As a result, appropriate and that the remaining carrying values of the investments held by the
an impairment loss of £57m was recognised against the carrying company at 31 December 2018 are supportable in the context of the company financial
value of the company’s investment in Pearson International statements taken as a whole.
Finance Limited.
The impairment assessment performed by management was
considered a key audit matter given the size of the underlying
investment carrying values and recognising the significance of
the impairment loss that has been recorded. The assessment
required the application of management judgement, particularly in
determining whether any impairment indicators have arisen that
trigger the need for an impairment assessment and in assessing
whether the carrying value of each investment can be supported
by the recoverable amount.
How we tailored our audit scope Taken together, the components and corporate functions where we
Overview
We tailored the scope of our audit to ensure that we performed conducted audit procedures accounted for approximately 69% of
enough work to be able to give an opinion on the financial the Group’s revenue, 64% of the Group’s statutory profit before tax
statements as a whole, taking into account the structure of the and 63% of the Group’s adjusted profit before tax. This provided
Group and the parent company, the accounting processes and the evidence we needed for our opinion on the consolidated
controls and the industry in which they operate. financial statements taken as a whole. This was before considering
the contribution to our audit evidence from performing audit
The consolidated financial statements are a consolidation of 479 work at the Group level, including disaggregated analytical review
reporting units, each of which is considered to be a component. procedures, which covers certain of the Group’s smaller and lower
We identified three components in the UK, US and Italy that required risk components that were not directly included in our Group
a full scope audit due to their size. Audit procedures over specific audit scope.
financial statement line items were performed at a further 20
components in the UK, US and Brazil to give appropriate audit Materiality

coverage. In addition, we obtained an audit opinion on the financial The scope of our audit was influenced by our application of
information reported by the US component of the Group’s associate, materiality. We set certain quantitative thresholds for materiality.
Penguin Random House. These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and extent of
In establishing the overall approach to the Group audit, we
our audit procedures on the individual financial statement line items
determined the type of work that needed to be performed at
and disclosures and in evaluating the effect of misstatements, both
the components by us, as the Group engagement team, or
individually and in aggregate, on the financial statements as a whole.
component auditors within PwC UK and from other PwC network
firms operating under our instruction. Where the work was Based on our professional judgement, we determined materiality
performed by component auditors, we determined the level of for the financial statements as a whole as follows:
involvement we needed to have in the audit work at those reporting
Parent company financial
units to be able to conclude whether sufficient appropriate audit Group financial statements statements
Our performance
evidence had been obtained as a basis for our opinion on the
Overall £25 million £45 million
consolidated financial statements as a whole. materiality (2017: £22 million). (2017: £20 million).
We performed full scope audits in respect of US Higher Education, How we Approximately 5% of Approximately 1% of
Pearson Education UK, Pearson Italy and Penguin Random House determined it adjusted profit before tax. net assets
US which, in our view, required a full scope audit due to their size. Rationale for Note 8 of the financial We consider net assets to
benchmark statements explains that be an appropriate
We performed specified procedures at 20 components over applied the Group’s principal benchmark for a Group
financial statement line items including revenue, trade and other measure of performance is holding company. Certain
receivables and deferred income, cash, software intangibles, adjusted operating profit account balances were
accruals, provisions for returns, product development and (£546m), which excludes included in scope for the
amortisation, fixed assets and depreciation, cost of sales and one-off gains and losses, Group audit and were
operating expenses. This ensured that sufficient and appropriate costs of major restructuring audited to a materiality
Governance
audit procedures were performed to achieve sufficient coverage and acquired intangible level set below Group
asset amortisation, in order overall materiality.
over these financial statement line items.
to present results from
In addition to instructing and reviewing the reporting from our operating activities on a
component audit teams, we conducted visits to component teams consistent basis. From
in the US (New York and Minneapolis), Italy, Brazil and the UK adjusted operating profit, we
deducted net finance costs.
(Belfast), which included file reviews and attendance at key
meetings with local management. We also had regular dialogue For each component in the scope of our Group audit, we allocated
with component teams throughout the year. a materiality that is less than our overall Group materiality.
The Group consolidation, financial statement disclosures and The range of materiality allocated across components was
corporate functions were audited by the Group audit team. between £3m and £20m.
This included our work over taxation, goodwill and intangible We agreed with the Audit Committee that we would report to
assets, post-retirement benefits and major transactions. them misstatements identified during our audit above £2 million
(2017: £2 million) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Going concern Strategic report and governance report

In accordance with ISAs (UK) we report as follows: In our opinion, based on the work undertaken in the course of the
Reporting obligation Outcome
audit, the information given in the Strategic report and Governance
report for the year ended 31 December 2018 is consistent with the
We are required to report if we have We have nothing material to add
financial statements and has been prepared in accordance with
anything material to add or draw or to draw attention to. However,
attention to in respect of the because not all future events or
applicable legal requirements. (CA06)
directors’ statement in the financial conditions can be predicted, this In light of the knowledge and understanding of the Group and
statements about whether the statement is not a guarantee as to
parent company and their environment obtained in the course of
directors considered it appropriate the Group’s and parent company’s
the audit, we did not identify any material misstatements in the
to adopt the going concern basis of ability to continue as a going concern.
accounting in preparing the financial For example, the terms on which
Strategic report and Governance report. (CA06)
statements and the directors’ the United Kingdom may withdraw The directors’ assessment of the prospects of the Group and of
identification of any material from the European Union, which is
the principal risks that would threaten the solvency or liquidity
uncertainties to the Group’s and the currently due to occur on 29 March
of the Group
parent company’s ability to continue 2019, are not clear and it is difficult
as a going concern over a period of at to evaluate all of the potential We have nothing material to add or draw attention to regarding:
least twelve months from the date of implications on the Group’s trade,
approval of the financial statements. customers, suppliers and the
he directors’ confirmation on p62, p76 and p127 of the Annual
T
wider economy. Report that they have carried out a robust assessment of the
principal risks facing the Group, including those that would
We are required to report if the We have nothing to report.
directors’ statement relating to threaten its business model, future performance, solvency
going concern in accordance with or liquidity;
Listing Rule 9.8.6R(3) is materially The disclosures in the Annual Report that describe those risks
inconsistent with our knowledge and explain how they are being managed or mitigated; and
obtained in the audit. The directors’ explanation on p76 and p127 of the Annual Report as
to how they have assessed the prospects of the Group, over what
Reporting on other information period they have done so and why they consider that period to
be appropriate and their statement as to whether they have a
The other information comprises all of the information in the
reasonable expectation that the Group will be able to continue in
Annual Report other than the financial statements and our auditors’
operation and meet its liabilities as they fall due over the period of
report thereon. The directors are responsible for the other
their assessment, including any related disclosures drawing
information. Our opinion on the financial statements does not
attention to any necessary qualifications or assumptions.
cover the other information and, accordingly, we do not express
an audit opinion or, except to the extent otherwise explicitly stated We have nothing to report having performed a review of the
in this report, any form of assurance thereon. directors’ statement that they have carried out a robust assessment
of the principal risks facing the Group and statement in relation to
In connection with our audit of the financial statements, our
the longer-term viability of the Group. Our review was substantially
responsibility is to read the other information and, in doing so,
less in scope than an audit and only consisted of making inquiries
consider whether the other information is materially inconsistent
and considering the directors’ process supporting their statements;
with the financial statements or our knowledge obtained in the
checking that the statements are in alignment with the relevant
audit, or otherwise appears to be materially misstated. If we identify
provisions of the UK Corporate Governance Code (the “Code”);
an apparent material inconsistency or material misstatement,
and considering whether the statements are consistent with the
we are required to perform procedures to conclude whether there
knowledge and understanding of the Group and parent company
is a material misstatement of the financial statements or a material
and their environment obtained in the course of the audit.
misstatement of the other information. If, based on the work we
(Listing Rules).
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. Other Code provisions
We have nothing to report based on these responsibilities. We have nothing to report in respect of our responsibility to
With respect to the strategic report and governance report, we also report when:
considered whether the disclosures required by the UK Companies he statement given by the directors, on p130, that they consider
T
Act 2006 have been included. the Annual Report taken as a whole to be fair, balanced and
Based on the responsibilities described above and our work understandable, and provides the information necessary
undertaken in the course of the audit, the Companies Act 2006 for the members to assess the Group’s and parent company’s
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct position and performance, business model and strategy is
Authority (FCA) require us also to report certain opinions and materially inconsistent with our knowledge of the Group and
matters as described below (required by ISAs (UK) unless parent company obtained in the course of performing our audit;
otherwise stated).
The section of the Annual Report on p96-103 describing the Use of this report
Overview
work of the Audit Committee does not appropriately address This report, including the opinions, has been prepared for and only
matters communicated by us to the Audit Committee; and for the parent company’s members as a body in accordance with
The directors’ statement relating to the parent company’s Chapter 3 of Part 16 of the Companies Act 2006 and for no other
compliance with the Code does not properly disclose a departure purpose. We do not, in giving these opinions, accept or assume
from a relevant provision of the Code specified, under the responsibility for any other purpose or to any other person to
Listing Rules, for review by the auditors. whom this report is shown or into whose hands it may come save
Directors’ remuneration where expressly agreed by our prior consent in writing.
In our opinion, the part of the Directors’ Remuneration Report

to be audited has been properly prepared in accordance with the Other required reporting
Companies Act 2006. (CA06) Companies Act 2006 exception reporting

Under the Companies Act 2006, we are required to report to you if,
Responsibilities for the financial statements and in our opinion:
the audit
e have not received all the information and explanations we
W
Responsibilities of the directors for the financial statements require for our audit; or
As explained more fully in the statement of directors’ responsibilities Adequate accounting records have not been kept by the parent
set out on p132, the directors are responsible for the preparation of company or returns adequate for our audit have not been received
the financial statements in accordance with the applicable from branches not visited by us; or
framework and for being satisfied that they give a true and fair view. Certain disclosures of directors’ remuneration specified by law
The directors are also responsible for such internal control as they are not made; or
determine is necessary to enable the preparation of financial The parent company financial statements and the part of the
statements that are free from material misstatement, whether Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
Our performance
due to fraud or error.
In preparing the financial statements, the directors are responsible We have no exceptions to report arising from this responsibility.
for assessing the Group’s and the parent company’s ability to Appointment
continue as a going concern, disclosing as applicable, matters
Following the recommendation of the Audit Committee, we were
related to going concern and using the going concern basis of
appointed by the members on 6 February 1996 to audit the
accounting unless the directors either intend to liquidate the Group
financial statements for the year ended 31 December 1996 and
or the parent company or to cease operations, or have no realistic
subsequent financial periods. The period of total uninterrupted
alternative but to do so.
engagement is 23 years, covering the years ended 31 December
Auditors’ responsibilities for the audit of the 1996 to 31 December 2018.
financial statements
Giles Hannam
Our objectives are to obtain reasonable assurance about whether (Senior Statutory Auditor)
Governance
the financial statements as a whole are free from material for and on behalf of PricewaterhouseCoopers LLP
misstatement, whether due to fraud or error, and to issue an Chartered Accountants and Statutory Auditors
auditors’ report that includes our opinion. Reasonable assurance London
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 11 March 2019
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.
A further description of our responsibilities for the audit of

the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms

part of our auditors’ report.
Consolidated income statement

Year ended 31 December 2018
All figures in £ millions Notes 2018 2017
Continuing operations
Sales 2 4,129 4,513
Cost of goods sold 4 (1,943) (2,066)
Gross profit 2,186 2,447
Operating expenses 4 (1,907) (2,202)
Other net gains and losses 4 230 128
Share of results of joint ventures and associates 12 44 78
Operating profit 2 553 451
Finance costs 6 (91) (110)
Finance income 6 36 80
Profit before tax 498 421
Income tax 7 92 (13)
Profit for the year 590 408
Attributable to:
Equity holders of the company 588 406
Non-controlling interest 2 2
Earnings per share attributable to equity holders of the company during the year
(expressed in pence per share)
– basic 8 75.6p 49.9p
– diluted 8 75.5p 49.9p
Consolidated statement of comprehensive income

Overview
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations – Group 91 (158)
Net exchange differences on translation of foreign operations – associates (1) (104)

Currency translation adjustment disposed (4) (51)
Attributable tax 7 (4) 9
Items that are not reclassified to the income statement

Fair value gain on other financial assets 8 13
Attributable tax 7 – (4)

Remeasurement of retirement benefit obligations – Group 25 22 175
Remeasurement of retirement benefit obligations – associates 3 7
Attributable tax 7 9 (42)
Other comprehensive income/(expense) for the year 29 124 (155)

Total comprehensive income for the year 714 253
Attributable to:
Equity holders of the company 712 251
Our performance
Governance
Consolidated balance sheet

As at 31 December 2018
Assets
Non-current assets
Property, plant and equipment 10 237 281
Intangible assets 11 3,009 2,964
Investments in joint ventures and associates 12 392 398
Deferred income tax assets 13 60 95
Financial assets – derivative financial instruments 16 67 140
Retirement benefit assets 25 571 545
Other financial assets 15 93 77
Trade and other receivables 22 100 103
4,529 4,603
Current assets
Intangible assets – pre-publication 20 817 741
Inventories 21 164 148
Trade and other receivables 22 1,178 1,110
Financial assets – derivative financial instruments 16 1 –
Financial assets – marketable securities 14 – 8

Cash and cash equivalents (excluding overdrafts) 17 568 518
2,728 2,525
Assets classified as held for sale 32 648 760
Total assets 7,905 7,888

Liabilities
Non-current liabilities
Financial liabilities – borrowings 18 (674) (1,066)
Financial liabilities – derivative financial instruments 16 (36) (140)
Deferred income tax liabilities 13 (136) (164)
Retirement benefit obligations 25 (100) (104)
Provisions for other liabilities and charges 23 (145) (55)
Other liabilities 24 (155) (133)
(1,246) (1,662)
Consolidated balance sheet continued

Overview
Current liabilities
Trade and other liabilities 24 (1,400) (1,342)
Financial liabilities – borrowings 18 (46) (19)
Financial liabilities – derivative financial instruments 16 (23) –
Current income tax liabilities (72) (231)
Provisions for other liabilities and charges 23 (20) (25)
(1,561) (1,617)
Liabilities classified as held for sale 32 (573) (588)

Total liabilities (3,380) (3,867)
Net assets 4,525 4,021
Equity
Share capital 27 195 200
Share premium 27 2,607 2,602
Treasury shares 28 (33) (61)
Capital redemption reserve 11 5
Fair value reserve 19 13
Translation reserve 678 592
Retained earnings 1,039 662
Our performance
Total equity attributable to equity holders of the company 4,516 4,013
Total equity 4,525 4,021
These financial statements have been approved for issue by the Board of Directors on 11 March 2019 and signed on its behalf by
Coram Williams
Governance
Consolidated statement of changes in equity

Equity attributable to equity holders of the company

Capital Non-
Share Share Treasury redemption Fair value Translation Retained controlling Total
All figures in £ millions capital premium shares reserve reserve reserve earnings Total interest equity
At 1 January 2018 200 2,602 (61) 5 13 592 662 4,013 8 4,021

Adjustment on initial application of
IFRS 15 net of tax (see note 1b) – – – – – – (108) (108) – (108)
Adjustment on initial application of
IFRS 9 net of tax (see note 1c) – – – – – – (10) (10) – (10)
At 1 January 2018 (restated) 200 2,602 (61) 5 13 592 544 3,895 8 3,903
Profit for the year – – – – – – 588 588 2 590
Other comprehensive
income – – – – 8 86 30 124 – 124
Total comprehensive
income – – – – 8 86 618 712 2 714
Equity-settled transactions – – – – – – 37 37 – 37
Tax on equity settled transactions – – – – – – 4 4 – 4
Issue of ordinary shares under

share option schemes 1 5 – – – – – 6 – 6
Buyback of equity (6) – – 6 – – (2) (2) – (2)
Release of treasury shares – – 28 – – – (28) – – –
Transfer of gain on disposal of
FVOCI investment – – – – (2) – 2 – – –
Changes in non-controlling interest – – – – – – – – – –
Dividends – – – – – – (136) (136) (1) (137)
At 31 December 2018 195 2,607 (33) 11 19 678 1,039 4,516 9 4,525

Capital Non-
Share Share Treasury redemption Fair value Translation Retained controlling Total
All figures in £ millions capital premium shares reserve reserve reserve earnings Total interest equity
At 1 January 2017 205 2,597 (79) – – 905 716 4,344 4 4,348

Profit for the year – – – – – – 406 406 2 408
Other comprehensive
income/(expense) – – – – 13 (313) 145 (155) – (155)
Total comprehensive
income/(expense) – – – – 13 (313) 551 251 2 253
Equity-settled transactions – – – – – – 33 33 – 33
Tax on equity settled transactions – – – – – – – – – –
Issue of ordinary shares under

share option schemes – 5 – – – – – 5 – 5
Buyback of equity (5) – – 5 – – (300) (300) – (300)
Release of treasury shares – – 18 – – – (18) – – –
Transfer of gain on disposal of
FVOCI investment – – – – – – – – – –
Changes in non-controlling interest – – – – – – (2) (2) 2 –
Dividends – – – – – – (318) (318) – (318)
At 31 December 2017 200 2,602 (61) 5 13 592 662 4,013 8 4,021
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.
Consolidated cash flow statement

Overview
Cash flows from operating activities
Net cash generated from operations 33 547 462
Interest paid (42) (89)
Tax paid (43) (75)
Net cash generated from operating activities 462 298
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 30 (5) (11)
Purchase of investments (10) (3)
Purchase of property, plant and equipment (70) (82)
Purchase of intangible assets (130) (150)

Disposal of subsidiaries, net of cash disposed 31 83 19
Proceeds from sale of associates 31 18 411
Proceeds from sale of investments 6 –
Proceeds from sale of property, plant and equipment 33 128 –
Proceeds from sale of liquid resources 10 20
Loans repaid by/(advance to) related parties 46 (13)
Investment in liquid resources (2) (18)
Interest received 20 20
Dividends received from joint ventures and associates 117 458
Net cash generated from investing activities 211 651
Our performance
Cash flows from financing activities
Proceeds from issue of ordinary shares 27 6 5
Buyback of equity 27 (153) (149)
Proceeds from borrowings – 2
Repayment of borrowings (441) (1,294)
Finance lease principal payments (4) (5)
Dividends paid to company’s shareholders 9 (136) (318)
Dividends paid to non-controlling interest (1) –
Net cash used in financing activities (729) (1,759)
Effects of exchange rate changes on cash and cash equivalents (49) 16
Governance
Net decrease in cash and cash equivalents (105) (794)
Cash and cash equivalents at beginning of year 630 1,424
Cash and cash equivalents at end of year 17 525 630
Notes to the consolidated financial statements
General information IFRS 16 ‘Leases’, effective for annual reporting periods beginning
on or after 1 January 2019. The Group will apply IFRS 16 on
Pearson plc (the company), its subsidiaries and associates (together 1 January 2019 using the modified retrospective approach.
the Group) are international businesses covering educational Under this approach, the cumulative effect of adopting IFRS 16
courseware, assessments and services, and consumer publishing will be recognised as an adjustment to the opening balance of
through its associate interest in Penguin Random House. retained earnings on 1 January 2019, with no restatement of
The company is a public limited company incorporated and comparative information.
domiciled in England. The address of its registered office is IFRS 16 requires lessees to recognise right-of-use assets and
80 Strand, London WC2R 0RL. lease liabilities on the balance sheet for all applicable leases with
The company has its primary listing on the London Stock Exchange associated depreciation and interest charges recorded in the income
and is also listed on the New York Stock Exchange. statement together with changes to the classification of cash flows.
In addition, IFRS 16 requires an intermediate lessor to assess and
These consolidated financial statements were approved for issue classify subleases as either a finance lease or an operating lease.
by the Board of Directors on 11 March 2019.
The Group has assessed the impact of adopting IFRS 16 with
reference to its existing lease portfolio. The most significant part of
1a. Accounting policies
the portfolio is property leases, amounting to approximately 750,
The principal accounting policies applied in the preparation of these together with a number of low value vehicle and equipment leases.
consolidated financial statements are set out below. The lease liability has been measured at the present value of the
remaining lease payments, discounted using the incremental
Basis of preparation
borrowing rate at transition. The right-of-use asset is measured at
These consolidated financial statements have been prepared on the its carrying amount as if the standard had been applied since the
going concern basis and in accordance with International Financial commencement of the lease, discounted using the incremental
Reporting Standards (IFRS) and IFRS Interpretations Committee borrowing rate at transition. Where data is not available to enable
(IFRS IC) interpretations as adopted by the European Union (EU) this measurement to be made, the right-of-use asset is measured
and with those parts of the Companies Act 2006 applicable to at an amount equal to the lease liability. Transition recognition
companies reporting under IFRS. In respect of the accounting exemptions relating to short-term and low value leases have
standards applicable to the Group; there is no difference between been applied as well as practical expedients taken, where available,
EU-adopted and IASB-adopted IFRS. to simplify the transition process.
These consolidated financial statements have been prepared under Adoption of the new standard will have a material impact on
the historical cost convention as modified by the revaluation of the Group. It is estimated that on transition the lease liability
financial assets and liabilities (including derivative financial to be brought on balance sheet will be around £910m with
instruments) at fair value. the corresponding right-of-use asset valued at around £435m.
These accounting policies have been consistently applied to all years In addition, certain subleases have been reclassified as finance
presented, unless otherwise stated. leases resulting in an additional lease receivable of around
£215m being brought on balance sheet. The net impact on the
1. Interpretations and amendments to published standards balance sheet will be a reduction of net assets of around £100m
effective 2018 The following standards were adopted in 2018: after taking into account existing liabilities relating to onerous
lease provisions and lease incentives. The impact on the income
IFRS 15 Revenue from Contracts with Customers
statement in 2019 is expected to reduce profit before tax by
IFRS 9 Financial Instruments approximately £10m (increasing operating profit by approximately
£20m and increasing net finance costs by approximately £30m);
The impact of the adoption of these new standards is set out in
the operating lease expense recognised under the existing standard
notes 1b and 1c.
(IAS 17) being replaced by depreciation and finance costs and
A number of other new pronouncements are also effective from finance income. There will be no impact on the Group’s cash and
1 January 2018 but they do not have a material impact on the cash equivalents.
consolidated financial statements. Additional disclosure has
In June 2015, the IASB issued an exposure draft ED/2015/5
been given where relevant.
‘Remeasurement on a Plan Amendment, Curtailment or Settlement/
2. Standards, interpretations and amendments to published Availability of a Refund from a Defined benefit Plan (Proposed
standards that are not yet effective New accounting standards and Amendments to IAS 19 and IFRIC 14)’. The proposed amendments
interpretations have been published that are not mandatory for to IFRIC 14, which may have restricted the Group’s ability to
the year ended 31 December 2018. The Group has elected not to recognise a pension asset in respect of pension surpluses in
early-adopt these new standards and interpretations. The Group’s its UK defined benefit plan, are currently on hold with the IASB.
assessment of the impact of these new standards is set out below.
1a. Accounting policies continued IFRS 3 ‘Business Combinations’ has not been applied retrospectively
Overview
to business combinations before the date of transition to IFRS.
Basis of preparation continued
A number of other new standards and amendments to standards Management exercises judgement in determining the classification
and interpretations are effective for annual periods beginning of its investments in its businesses, in line with the following:
after 1 January 2019, and have not been applied in preparing these 2. Subsidiaries Subsidiaries are entities over which the Group has
financial statements. None of these is expected to have a material control. The Group controls an entity when the Group is exposed to,
impact on the consolidated financial statements. or has rights to, variable returns from its involvement with the entity
3. Critical accounting assumptions and judgements The preparation and has the ability to affect those returns through its power over the
of financial statements in conformity with IFRS requires the entity. Subsidiaries are fully consolidated from the date on which
use of certain critical accounting assumptions. It also requires control is transferred to the Group. They are deconsolidated from
management to exercise its judgement in the process of applying the date that control ceases.

the Group’s accounting policies. The areas requiring a higher degree 3. Transactions with non-controlling interests Transactions with
of judgement or complexity, or areas where assumptions and non-controlling interests that do not result in loss of control are
estimates are significant to the consolidated financial statements, accounted for as equity transactions, that is, as transactions with
are discussed in the relevant accounting policies under the following the owners in their capacity as owners. Any surplus or deficit arising
headings and in the notes to the accounts where appropriate: from disposals to a non-controlling interest is recorded in equity.
Intangible assets: Goodwill For purchases from a non-controlling interest, the difference
Intangible assets: Pre-publication assets between consideration paid and the relevant share acquired of
Taxation the carrying value of the subsidiary is recorded in equity.
Revenue recognition including provisions for returns 4. Joint ventures and associates Joint ventures are entities in which
Employee benefits: Pensions the Group holds an interest on a long-term basis and has rights
Provisions: Onerous leases to the net assets through contractually agreed sharing of control.
Our performance
Consolidation Associates are entities over which the Group has significant
influence but not the power to control the financial and operating
1. Business combinations The acquisition method of accounting is
policies, generally accompanying a shareholding of between 20%
used to account for business combinations.
and 50% of the voting rights. Ownership percentage is likely to be
The consideration transferred for the acquisition of a subsidiary the key indicator of investment classification; however, other factors,
is the fair value of the assets transferred, the liabilities incurred such as Board representation, may also affect the accounting
and the equity interest issued by the Group. The consideration classification. Judgement is required to assess all of the qualitative
transferred includes the fair value of any asset or liability resulting and quantitative factors which may indicate that the Group does,
from a contingent consideration arrangement. Acquisition-related or does not, have significant influence over an investment. Penguin
costs are expensed as incurred in the operating expenses line of Random House is the Group’s only material associate – see note 12
the income statement. Identifiable assets acquired and identifiable for further details on the judgements involved in its accounting
liabilities and contingent liabilities assumed in a business classification. Investments in joint ventures and associates are
Governance
combination are measured initially at their fair values at the accounted for by the equity method and are initially recognised
acquisition date. The determination of fair values often requires at the fair value of consideration transferred.
significant judgements and the use of estimates, and, for material
The Group’s share of its joint ventures’ and associates’
acquisitions, the fair value of the acquired intangible assets is
post-acquisition profits or losses is recognised in the income
determined by an independent valuer. The excess of the
statement and its share of post-acquisition movements in
consideration transferred, the amount of any non-controlling
reserves is recognised in reserves.
interest in the acquiree and the acquisition date fair value of any
previous equity interest in the acquiree over the fair value of the The Group’s share of its joint ventures’ and associates’ results is
identifiable net assets acquired is recorded as goodwill (see note 30). recognised as a component of operating profit as these operations
form part of the core publishing business of the Group and are an
See the ‘Intangible assets’ policy for the accounting policy on
integral part of existing wholly-owned businesses. The cumulative
goodwill. If this is less than the fair value of the net assets of the
post-acquisition movements are adjusted against the carrying
subsidiary acquired, in the case of a bargain purchase, the difference

amount of the investment. When the Group’s share of losses in
is recognised directly in the income statement.
a joint venture or associate equals or exceeds its interest in the
On an acquisition-by-acquisition basis, the Group recognises any joint venture or associate, the Group does not recognise further
non-controlling interest in the acquiree either at fair value or at losses unless the Group has incurred obligations or made payments
the non-controlling interest’s proportionate share of the acquiree’s on behalf of the joint venture or associate.
net assets.
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.
1a. Accounting policies continued Property, plant and equipment

Property, plant and equipment are stated at historical cost less
Consolidation continued
depreciation. Cost includes the original purchase price of the asset
5. Contribution of a subsidiary to an associate or joint venture and the costs attributable to bringing the asset to its working
The gain or loss resulting from the contribution or sale of a condition for intended use. Land is not depreciated. Depreciation
subsidiary to an associate or a joint venture is recognised in full. on other assets is calculated using the straight-line method to
Where such transactions do not involve cash consideration, allocate their cost less their residual values over their estimated
significant judgements and estimates are used in determining useful lives as follows:
the fair values of the consideration received.
Buildings (freehold): 20–50 years
Foreign currency translation
Buildings (leasehold): over the period of the lease
1. Functional and presentation currency Items included in the
Plant and equipment: 3–10 years
financial statements of each of the Group’s entities are measured
using the currency of the primary economic environment in which
The assets’ residual values and useful lives are reviewed,
the entity operates (the functional currency). The consolidated
and adjusted if appropriate, at each balance sheet date.
financial statements are presented in sterling, which is the
company’s functional and presentation currency. The carrying value of an asset is written down to its recoverable
amount if the carrying value of the asset is greater than its
2. Transactions and balances Foreign currency transactions are
estimated recoverable amount.
translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains Intangible assets
and losses resulting from the settlement of such transactions and 1. Goodwill For the acquisition of subsidiaries made on or after
from the translation at year-end exchange rates of monetary assets 1 January 2010, goodwill represents the excess of the consideration
and liabilities denominated in foreign currencies are recognised in transferred, the amount of any non-controlling interest in the
the income statement, except when deferred in equity as qualifying acquiree and the acquisition date fair value of any previous equity
net investment hedges. interest in the acquiree over the fair value of the identifiable net
3. Group companies The results and financial position of all Group assets acquired. For the acquisition of subsidiaries made from the
companies that have a functional currency different from the date of transition to IFRS to 31 December 2009, goodwill represents
presentation currency are translated into the presentation the excess of the cost of an acquisition over the fair value of the
currency as follows: Group’s share of the net identifiable assets acquired. Goodwill on
acquisitions of subsidiaries is included in intangible assets. Goodwill
i) A
ssets and liabilities are translated at the closing rate at the date on acquisition of associates and joint ventures represents the excess
of the balance sheet of the cost of an acquisition over the fair value of the Group’s share
ii) Income and expenses are translated at average exchange rates of the net identifiable assets acquired. Goodwill on acquisitions
of associates and joint ventures is included in investments in
iii) A
ll resulting exchange differences are recognised as a separate associates and joint ventures.
component of equity.
Goodwill is tested at least annually for impairment and carried at
On consolidation, exchange differences arising from the translation cost less accumulated impairment losses. An impairment loss is
of the net investment in foreign entities, and of borrowings recognised to the extent that the carrying value of goodwill exceeds
and other currency instruments designated as hedges of such the recoverable amount. The recoverable amount is the higher of
investments, are taken to shareholders’ equity. The Group treats fair value less costs of disposal and value in use. These calculations
specific inter-company loan balances, which are not intended to require the use of estimates in respect of forecast cash flows and
be repaid in the foreseeable future, as part of its net investment. discount rates and significant management judgement in respect
When a foreign operation is sold, such exchange differences are of CGU and cost allocation. A description of the key assumptions
recognised in the income statement as part of the gain or loss and sensitivities is included in note 11. Goodwill is allocated to
on sale. aggregated cash-generating units for the purpose of impairment
testing. The allocation is made to those aggregated cash-generating
The principal overseas currency for the Group is the US dollar.
units that are expected to benefit from the business combination
The average rate for the year against sterling was $1.34
in which the goodwill arose.
(2017: $1.30) and the year-end rate was $1.27 (2017: $1.35).
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 as determined by
an independent valuer. Acquired software is amortised on a
straight-line basis over its estimated useful life of between
three and eight years.
1a. Accounting policies continued They are remeasured at each balance sheet date by using
Overview
market data and the use of established valuation techniques.
Intangible assets continued Any movement in the fair value is immediately recognised in
3. Internally developed software Internal and external costs finance income or finance costs in the income statement.
incurred during the preliminary stage of developing computer Investments in the equity instruments of other entities are
software for internal use are expensed as incurred. Internal and classified and subsequently measured at fair value through
external costs incurred to develop computer software for internal other comprehensive income. Changes in fair value are recorded
use during the application development stage are capitalised if in equity in the fair value reserve via other comprehensive income.
the Group expects economic benefits from the development. On subsequent disposal of the asset, the net fair value gains or
Capitalisation in the application development stage begins once losses are reclassified from the fair value reserve to retained
the Group can reliably measure the expenditure attributable to earnings. Any dividends received from equity investments classified
the software development and has demonstrated its intention as fair value through other comprehensive income are recognised in
to complete and use the software. Internally developed software

the P&L unless they represent a return of capital.
is amortised on a straight-line basis over its estimated useful life
of between three and eight years. Inventories
Inventories are stated at the lower of cost and net realisable value.
4. Acquired intangible assets Acquired intangible assets include
Cost is determined using the weighted average method or an
customer lists, contracts and relationships, trademarks and
approximation thereof, such as the first in first out (FIFO) method.
brands, publishing rights, content, technology and software rights.
The cost of finished goods and work in progress comprises raw
These assets are capitalised on acquisition at cost and included in
materials, direct labour, other direct costs and related production
intangible assets. Intangible assets acquired in material business
overheads. Net realisable value is the estimated selling price in the
combinations are capitalised at their fair value as determined by
ordinary course of business, less estimated costs necessary to make
an independent valuer. Intangible assets are amortised over their
the sale. Provisions are made for slow-moving and obsolete stock.
estimated useful lives of between two and 20 years, using an
amortisation method that reflects the pattern of their consumption. Royalty advances
Our performance
5. Pre-publication assets Pre-publication assets represent direct Advances of royalties to authors are included within trade and other
costs incurred in the development of educational programmes receivables when the advance is paid less any provision required to
and titles prior to their publication. These costs are recognised as adjust the advance to its net realisable value. The realisable value
current intangible assets where the title will generate probable of royalty advances relies on a degree of management estimation in
future economic benefits and costs can be measured reliably. determining the profitability of individual author contracts. If the
estimated realisable value of author contracts is overstated, this
Pre-publication assets are amortised upon publication of the will have an adverse effect on operating profits as these excess
title over estimated economic lives of five years or less, being an amounts will be written off.
estimate of the expected operating lifecycle of the title, with
a higher proportion of the amortisation taken in the earlier years. The recoverability of royalty advances is based upon an annual
detailed management review of the age of the advance, the
The assessment of the useful economic life and the recoverability future sales projections for new authors and prior sales history
Governance
of pre-publication assets involves a significant degree of judgement of repeat authors.
based on historical trends and management estimation of future
potential sales. An incorrect amortisation profile could result in The royalty advance is expensed at the contracted or effective
excess amounts being carried forward as intangible assets that royalty rate as the related revenues are earned. Royalty advances
would otherwise have been written off to the income statement in which will be consumed within one year are held in current assets.
an earlier period. Royalty advances which will be consumed after one year are held
in non-current assets.
Reviews are performed regularly to estimate recoverability of
pre-publication assets. The carrying amount of pre-publication Cash and cash equivalents
assets is set out in note 20. Cash and cash equivalents in the cash flow statement include cash
in hand, deposits held on call with banks, other short-term highly
The investment in pre-publication assets has been disclosed as
liquid investments with original maturities of three months or less,
part of cash generated from operations in the cash flow statement
and bank overdrafts. Bank overdrafts are included in borrowings

(see note 33).
in current liabilities in the balance sheet.
Other financial assets
Short-term deposits and marketable securities with maturities
Other financial assets are non-derivative financial assets classified of greater than three months do not qualify as cash and cash
and measured at estimated fair value. equivalents and are reported as financial assets. Movements on
Marketable securities and cash deposits with maturities of greater these financial assets are classified as cash flows from financing
than three months are classified and subsequently measured at fair activities in the cash flow statement where these amounts are
value through profit and loss. 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.
1a. Accounting policies continued The accounting treatment is summarised as follows:
Share capital Reporting of gains

Typical reason and losses on effective Reporting of gains and
Ordinary shares are classified as equity. for designation portion of the hedge losses on disposal
Net investment hedge

Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, The derivative creates Recognised in other On disposal, the
from the proceeds. a foreign currency comprehensive accumulated value
liability which is used income. of gains and losses
Where any Group company purchases the company’s equity share to hedge changes in the reported in other
capital (treasury shares), the consideration paid, including any value of a subsidiary comprehensive income
directly attributable incremental costs, net of income taxes, is which transacts in is transferred to the
deducted from equity attributable to the company’s equity holders that currency. income statement.
until the shares are cancelled, reissued or disposed of. Where Fair value hedges
such shares are subsequently sold or reissued, any consideration The derivative Gains and losses If the debt and
received, net of any directly attributable transaction costs and transforms the interest on the derivative derivative are disposed
the related income tax effects, is included in equity attributable profile on debt from are reported in finance of, the value of the
to the company’s equity holders. fixed rate to floating rate. income or finance derivative and the debt
Changes in the value of costs. However, an (including the fair value
Ordinary shares purchased under a buyback programme are the debt as a result of equal and opposite adjustment) are reset
cancelled and the nominal value of the shares is transferred changes in interest rates change is made to the to zero. Any resultant
to a capital redemption reserve. are offset by equal and carrying value of the gain or loss is
opposite changes in the debt (a ‘fair value recognised in
Borrowings value of the derivative. adjustment’) with the finance income or
Borrowings are recognised initially at fair value, which is proceeds When the Group’s debt benefit/cost reported finance costs.
is swapped to floating in finance income or
received net of transaction costs incurred. Borrowings are
rates, the contracts used finance costs. The net
subsequently stated at amortised cost with any difference between
are designated as fair result should be a zero
the proceeds (net of transaction costs) and the redemption value
value hedges. charge on a perfectly
being recognised in the income statement over the period of the effective hedge.
borrowings using the effective interest method. Accrued interest is
Non-hedge accounted contracts
included as part of borrowings.
These are not designated No hedge
Where a debt instrument is in a fair value hedging relationship, as hedging instruments. accounting applies.
an adjustment is made to its carrying value in the income statement Typically these are short-
to reflect the hedged risk. term contracts to convert
debt back to fixed rates
Where a debt instrument is in a net investment hedge relationship or foreign exchange
gains and losses on the effective portion of the hedge are contracts where a
recognised in other comprehensive income. natural offset exists.
Derivative financial instruments Taxation

Derivatives are recognised at fair value and remeasured at each Current tax is recognised at the amounts expected to be paid
balance sheet date. The fair value of derivatives is determined by or recovered under the tax rates and laws that have been enacted
using market data and the use of established estimation techniques or substantively enacted at the balance sheet date.
such as discounted cash flow and option valuation models.
Deferred income tax is provided, using the balance sheet liability
For derivatives in a hedge relationship, the currency basis spread method, on temporary differences arising between the tax bases
is excluded from the designation as a hedging instrument and is of assets and liabilities and their carrying amounts. Deferred income
separately accounted for as a cost of hedging, which is recognised tax is determined using tax rates and laws that have been enacted
in equity in a cost of hedging reserve. or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised
Changes in the fair value of derivatives are recognised immediately or the deferred income tax liability is settled.
in finance income or costs. However, derivatives relating to
borrowings and certain foreign exchange contracts are designated Deferred tax assets are recognised to the extent that it is probable
as part of a hedging transaction. 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.
1a. Accounting policies continued Obligations for contributions to defined contribution pension
Overview
plans are recognised as an operating expense in the income
Taxation continued statement as incurred.
Current and deferred tax are recognised in the income statement,
except when the tax relates to items charged or credited directly 2. Other post-retirement obligations The expected costs of post-
to equity or other comprehensive income, in which case the tax retirement medical and life assurance benefits are accrued over
is also recognised in equity or other comprehensive income. the period of employment, using a similar accounting methodology
as for defined benefit pension obligations. The liabilities and costs
The Group is subject to income taxes in numerous jurisdictions. relating to significant other post-retirement obligations are assessed
Significant judgement is required in determining the estimates annually by independent qualified actuaries.
in relation to the worldwide provision for income taxes. There
are many transactions and calculations for which the ultimate tax 3. Share-based payments The fair value of options or shares granted
determination is uncertain during the ordinary course of business. under the Group’s share and option plans is recognised as an
employee expense after taking into account the Group’s best

The Group recognises tax provisions when it is considered probable
that there will be a future outflow of funds to a tax authority. estimate of the number of awards expected to vest. Fair value is
The provisions are based on management’s best judgement of the measured at the date of grant and is spread over the vesting period
application of tax legislation and best estimates of future settlement of the option or share. The fair value of the options granted is
amounts (see note 7). Where the final tax outcome of these matters measured using an option model that is most appropriate to the
is different from the amounts that were initially recorded, such award. The fair value of shares awarded is measured using the
differences will impact the income tax and deferred tax provisions share price at the date of grant unless another method is more
in the period in which such determination is made. appropriate. Any proceeds received are credited to share capital
and share premium when the options are exercised.
Deferred tax assets and liabilities require management judgement
and estimation in determining the amounts to be recognised. Provisions Provisions are recognised if the Group has a present
In particular, when assessing the extent to which deferred tax legal or constructive obligation as a result of past events, it is more
assets should be recognised, significant judgement is used when likely than not that an outflow of resources will be required to settle
Our performance
considering the timing of the recognition and estimation is used to the obligation and the amount can be reliably estimated. Provisions
determine the level of future taxable income together with any are discounted to present value where the effect is material.
future tax planning strategies (see note 13). The Group recognises a provision for deferred consideration.
Employee benefits Where this is contingent on future performance or a future event,
judgement is exercised in establishing the fair value.
1. Pensions The retirement benefit asset and obligation recognised
in the balance sheet represents the net of the present value of the The Group recognises a provision for onerous lease contracts when
defined benefit obligation and the fair value of plan assets at the the expected benefits to be derived from a contract are less than
balance sheet date. The defined benefit obligation is calculated the unavoidable costs of meeting the obligations under the contract.
annually by independent actuaries using the projected unit credit The calculation of onerous lease provisions involves estimates of
method. The present value of the defined benefit obligation is potential sublet income, lease terms including rent free periods,
void periods, lease incentives and running costs.
Governance
determined by discounting estimated future cash flows using
yields on high-quality corporate bonds which have terms to
The provision is based on the present value of future payments for
maturity approximating the terms of the related liability.
surplus leased properties under non-cancellable operating leases,
When the calculation results in a potential asset, the recognition net of estimated sub-leasing income.
of that asset is limited to the asset ceiling – that is the present value
Revenue recognition
of any economic benefits available in the form of refunds from
the plan or a reduction in future contributions. Management uses The Group’s revenue streams are courseware, assessments and
judgement to determine the level of refunds available from the services. Courseware includes curriculum materials provided in
plan in recognising an asset. book form and/or via access to digital content. Assessments
includes test development, processing and scoring services
The determination of the pension cost and defined benefit provided to governments, educational institutions, corporations
obligation of the Group’s defined benefit pension schemes depends and professional bodies. Services includes the operation of schools,
on the selection of certain assumptions, which include the discount colleges and universities, including sistemas in Brazil, as well as the
rate, inflation rate, salary growth and longevity (see note 25). provision of online learning services in partnership with universities
Actuarial gains and losses arising from experience adjustments and and other academic institutions.
changes in actuarial assumptions are charged or credited to equity Revenue is recognised in order to depict the transfer of control
in other comprehensive income in the period in which they arise. of promised goods and services to customers in an amount that
The service cost, representing benefits accruing over the year, is reflects the consideration to which we expect to be entitled in
included in the income statement as an operating cost. Net interest exchange for those goods and services. This process begins with the
is calculated by applying the discount rate to the net defined benefit identification of our contract with a customer, which is generally
obligation and is presented as finance costs or finance income. through a master services agreement, customer purchase order,
or a combination thereof. Within each contract, judgement is
1a. Accounting policies continued The Group has applied IFRS 15 using the cumulative effect method
and therefore comparative information has not been restated and
Revenue recognition continued continues to be reported under IAS 18 and IAS 11. The details of
applied to determine the extent to which activities within the accounting policies under IAS 18 and IAS 11 are disclosed separately
contract represent distinct performance obligations to be delivered if they are different from those under IFRS 15. A description of the
and the total amount of transaction price to which we expect to changes impacting the Group as well as a quantitative impact
be entitled. analysis has been disclosed in note 1b.
The transaction price determined is net of sales taxes, rebates and Additional details on the Group’s revenue streams are also included
discounts, and after eliminating sales within the Group. Where a in note 3.
contract contains multiple performance obligations such as the
Leases
provision of supplementary materials or online access with
textbooks, revenue is allocated on the basis of relative standalone Leases of property, plant and equipment where the Group has
selling prices. Where a contract contains variable consideration substantially all the risks and rewards of ownership are classified as
significant estimation is required to determine the amount to finance leases. Finance leases are capitalised at the commencement
which the Group is expected to be entitled. of the lease at the lower of the fair value of the leased property
and the present value of the minimum lease payments. Each lease
Revenue is recognised on contracts with customers when or as payment is allocated between the liability and finance charges
performance obligations are satisfied which is the period or the to achieve a constant rate on the finance balance outstanding.
point in time where control of goods or services transfer to the The corresponding rental obligations, net of finance charges,
customer. Judgement is applied to determine first whether are included in financial liabilities – borrowings. The interest element
control passes over time and if not, then the point in time at which of the finance cost is charged to the income statement over the
control passes. Where revenue is recognised over time judgement lease period to produce a constant periodic rate of interest on the
is used to determine the method which best depicts the transfer of remaining balance of the liability for each period. The property,
control. Where an input method is used significant estimation is plant and equipment acquired under finance leases are depreciated
required to determine the progress towards delivering the over the shorter of the useful life of the asset or the lease term.
performance obligation.
Leases where a significant portion of the risks and rewards of
Revenue from the sale of books is recognised net of a provision for ownership are retained by the lessor are classified as operating
anticipated returns. This provision is based primarily on historical leases by the lessee. Payments made under operating leases (net of
return rates, customer buying patterns and retailer behaviours any incentives received from the lessor) are charged to the income
including stock levels (see note 22). If these estimates do not reflect statement on a straight-line basis over the period of the lease.
actual returns in future periods then revenues could be understated
or overstated for a particular period. When the provision for returns Dividends
is remeasured at each reporting date to reflect changes in estimates, Final dividends are recorded in the Group’s financial statements
a corresponding adjustment is also recorded to revenue. in the period in which they are approved by the company’s
shareholders. Interim dividends are recorded when paid.
The Group may enter into contracts with another party in addition
to our customer. In making the determination as to whether Discontinued operations
revenue should be recognised on a gross or net basis, the contract A discontinued operation is a component of the Group’s business
with the customer is analysed to understand which party controls that represents a separate major line of business or geographical
the relevant good or service prior to transferring to the customer. area of operations that has been disposed of or meets the criteria
This judgement is informed by facts and circumstances of the to be classified as held for sale.
contract in determining whether the Group has promised to provide
the specified good or service or whether the Group is arranging for Discontinued operations are presented in the income statement
the transfer of the specified good or service, including which party as a separate line and are shown net of tax.
is responsible for fulfilment, has discretion to set the price to the
Assets and liabilities held for sale
customer and is responsible for inventory risk. On certain contracts,
where the Group acts as an agent, only commissions and fees Assets and liabilities are classified as held for sale and stated at the
receivable for services rendered are recognised as revenue. lower of carrying amount and fair value less costs to sell if it is highly
Any third party costs incurred on behalf of the principal that probable that the carrying amount will be recovered principally
are rechargeable under the contractual arrangement are not through a sale transaction rather than through continuing use.
included in revenue. No depreciation is charged in respect of non-current assets
classified as held for sale. Amounts relating to non-current assets
Income from recharges of freight and other activities which are and liabilities held for sale are classified as discontinued operations
incidental to the normal revenue-generating activities is included in the income statement where appropriate.
in other income.
1a. Accounting policies continued Where the Group expects to have no future obligation (based on
Overview
these redemption rates), revenue has historically been recognised
Trade receivables immediately for this portion of the sale. Under IFRS 15, where
Trade receivables are stated at fair value after provision for bad and the Group previously recognised this breakage element on
doubtful debts. Following the adoption of IFRS 9 in 2018, provisions subscriptions, revenue is now recognised evenly over the period
for bad and doubtful debts are based on the expected credit loss of use. Where breakage relates to sales of tests or vouchers,
model. The ‘simplified approach’ is used with the expected loss revenue is now recognised when the underlying tests are delivered.
allowance measured at an amount equal to the lifetime expected This revised treatment in respect of breakage has primarily affected
credit losses. In 2017, trade receivables are also stated after provision the school and higher education businesses in North America and
for anticipated future sales returns (also see Revenue recognition resulted in higher deferred income at adoption on 1 January 2018.
policy and note 1b).
Online Program Management (OPM) marketing: Historically the
OPM business recognised revenue for the pre-semester costs of
1b. Change of accounting policy: IFRS 15

marketing and recruitment as a separate performance obligation
The Group has adopted IFRS 15 ’Revenue from Contracts from course delivery during the semester (i.e. revenue was
with Customers’ at 1 January 2018 and applied the modified recognised in line with the marketing costs incurred). Under IFRS 15,
retrospective approach. Comparatives for 2017 have not been revenue has been recognised on a straight-line basis over the
restated and the cumulative impact of adoption has been semester with no revenue recognised up front for pre-semester
recognised as a decrease to retained earnings with a corresponding recruitment and marketing costs based on management’s
decrease in net assets at 1 January 2018 as follows: judgement under the new standard’s requirements assessing the
start of the Group’s contract and determining the Group’s
2018 performance obligations. This revised treatment of pre-semester
All figures in £ millions 1 January
costs only affects the OPM business in North America and has
Retained earnings
resulted in a lower contract related asset balance at adoption on
Unexercised customer rights (or breakage) (103) 1 January 2018.
Our performance
Online Program Management (OPM) marketing (38)
Administration fees: This relates to non-refundable up front
Administration fees (2)
administration fees charged to customers which do not relate to the
Commissions 1 transfer of a promised good or service to the customer. Rather these
Income tax 34 fees are charged to cover internal costs, such as registration fees
Total impact at 1 January 2018 (108) for testing candidate exams. Historically administration fees have
been recognised in revenue up-front when charged. Under IFRS 15,
Current assets such fees have been deferred and recognised over the period over
which services are provided as they do not relate to a specific
Inventories 12
performance obligation. This revised treatment primarily affects
Trade and other receivables 133
the UK Assessments business and has resulted in higher deferred
Assets classified as held for sale 31 income at adoption on 1 January 2018.
Governance
Commissions: This relates to incremental costs of obtaining
Deferred income tax liabilities 16
customer contracts, such as sales incentive plans or sales
Current liabilities
commissions specifically linked to obtaining new contracts.
Trade and other liabilities (215) Historically such commissions have been charged to the profit
Liabilities classified as held for sale (85) and loss account as incurred. Under IFRS 15, sales commissions
Total impact at 1 January 2018 (108) in respect of customer transactions with an accounting period of
greater than one year have been capitalised and amortised over
IFRS 15 has had an impact on retained earnings in four areas
that accounting period, using practical expedients permissible
as outlined below. There was no net impact on any associate
under the new standard. This revised treatment affects the
investments of the Group.
US Assessments business and resulted in a higher contract
Unexercised customer rights (or breakage): The Group sells rights related asset upon adoption on 1 January 2018.
to future performance to customers which may go unexercised.

While the customer has paid for future performance, usage is at the
customer’s discretion and those rights may expire prior to usage,
or never be used. The Group maintains historical customer data
to understand usage patterns over time (i.e. redemption rates).
1b. Change of accounting policy: IFRS 15 continued

In addition to the changes above, IFRS 15 also requires that the Group’s provision for sales returns is reclassified. This provision was
previously netted off in trade receivables and from 1 January 2018 this is now shown in two parts as a separate sales return liability within
trade and other liabilities and an inventory returns asset within inventory. The effect on transition was to increase trade and other
receivables by £170m, increase trade and other liabilities by £182m and inventory by £12m. In addition, held for sale assets and liabilities
were both increased by £13m. The impact of adoption on the results for 2018 is outlined below.
2018
Amounts pre Transition In period Amounts as
All figures in £ millions IFRS 15 adjustment adjustment reported
Sales 4,120 – 9 4,129

Operating profit 544 – 9 553
Profit before tax 489 – 9 498
Income tax 94 – (2) 92
Profit for the year 583 – 7 590
Other comprehensive income/(expense) for the year 130 – (6) 124
Total comprehensive income for the year 713 – 1 714
Current assets
Inventories 154 12 (2) 164
Trade and other receivables 1,058 133 (13) 1,178
Assets classified as held for sale 630 31 (13) 648
Deferred income tax liabilities (154) 16 2 (136)
Current liabilities
Trade and other liabilities (1,193) (215) 8 (1,400)
Liabilities classified as held for sale (507) (85) 19 (573)
Net assets 4,632 (108) 1 4,525
Had the Group been applying IFRS 15 during 2017, it is estimated that both sales and profit before tax would have been £2m higher for the
full year, with the balance sheet impact at the beginning and end of the year being similar.
1c. Change of accounting policy: IFRS 9
Overview
The Group adopted IFRS 9 ‘Financial Instruments’ at 1 January 2018 and applied the new rules in accordance with the transitional provisions.
Comparatives for 2017 have not been restated. The Group has assessed the impact of adopting IFRS 9 and the only material adjustment is
an increase in the provision for losses against trade debtors which was reflected as an adjustment to retained earnings at 1 January 2018
as shown below.
2018
All figures in £ millions 1 January
Retained earnings
Provision for losses against trade debtors (13)
Income tax 3
Total impact at 1 January 2018 (10)

Non-current assets
Deferred income tax assets 3
Current assets
Trade and other receivables (12)
Assets classified as held for sale (1)
Total impact at 1 January 2018 (10)
The adjustment arises from adoption of the expected credit loss IFRS 9 also introduced a new, simpler hedge accounting model with
model for impairments under IFRS 9. The adoption of this model a principles-based approach designed to align the accounting result
requires the recognition of impairment provisions based on with the economic hedging strategy. The Group previously used fair
Our performance
expected credit losses rather than only incurred credit losses, value hedge relationships to hedge interest rate risk and currency
as is the case under IAS 39. Although there is a transition impact risk on its bond borrowings and also used net investment hedging
from adoption of the new model there was no material impact on relationships to hedge currency re-translation risk on its overseas
profit before tax for 2018. assets. The Group has confirmed that its previous hedge
relationships continue to qualify as hedges under IFRS 9 in 2018.
Under IFRS 9, the Group’s equity financial investments continue
to be recognised at fair value and the Group has elected to take The following table shows the original classification and
the option to recognise all movements in fair value in other measurement categories of financial assets and liabilities under
comprehensive income (FVOCI). Gains or losses realised on the IAS 39 and the new classification and measurement categories
subsequent sale of these financial assets (FVOCI investments) are under IFRS 9 as at 1 January 2018. The effect of adopting IFRS 9
no longer recycled through the profit and loss account, but are on the carrying amounts of financial assets and liabilities relates
instead reclassified from the FVOCI reserve to retained earnings. solely to the new impairment requirements as shown in the
There was one small disposal of these assets during 2018 resulting previous table, all other carrying values remained the same.
Governance
in a reclassification of a £2m gain.
Original classification and measurement under IAS 39 New classification and measurement under IFRS 9
Financial assets
Investments in unlisted securities Available for sale – fair value Fair value through OCI
Cash and cash equivalents Loans and receivables – amortised cost Financial assets at amortised cost
Marketable securities Available for sale – fair value Fair value through profit or loss
Derivative financial instruments used for hedging Derivatives in a hedge relationship – fair value Fair value – hedging instrument
Other derivative financial instruments Held for trading – fair value Fair value through profit or loss
Trade receivables Loans and receivables – amortised cost Financial assets at amortised cost
Financial liabilities
Derivative financial instruments used for hedging Derivatives in a hedge relationship – fair value Fair value – hedging instrument
Other derivative financial instruments Held for trading – fair value Fair value through profit or loss
Trade payables Other liabilities – amortised cost Other financial liabilities – amortised cost
Liability to purchase own shares Other liabilities – amortised cost Other financial liabilities – amortised cost
Bank loans and overdrafts Other liabilities – amortised cost Other financial liabilities – amortised cost
Finance lease liabilities Other liabilities – amortised cost Other financial liabilities – amortised cost
Bonds Other liabilities – amortised cost Other financial liabilities – amortised cost
2. Segment information
The primary segments for management and reporting are geographies as outlined below. In addition, the Group separately discloses
the results from the Penguin Random House associate.
The chief operating decision-maker is the Pearson executive.
North America Courseware, Assessments and Services businesses in the US and Canada.
Core Courseware, Assessments and Services businesses in more mature markets including UK, Europe, Asia Pacific and North Africa.
Growth Courseware, Assessments and Services businesses in emerging markets including Brazil, India, South Africa, Hispano-America,
Hong Kong and China, and the Middle East.
For more detail on the services and products included in each business segment refer to the strategic report.
2018
Penguin
North Random
All figures in £ millions Notes America Core Growth House Corporate Group
Sales 2,784 806 539 – – 4,129

Adjusted operating profit 362 57 59 68 – 546
Cost of major restructuring (78) (16) – (8) – (102)
Intangible charges (72) (8) (19) (14) – (113)
Other net gains and losses 4 – 226 – – 230
UK pension GMP equalisation – (8) – – – (8)
Operating profit 216 25 266 46 – 553
Finance costs 6 (91)
Finance income 6 36
Profit before tax 498
Income tax 7 92
Profit for the year 590
Segment assets 4,366 1,975 536 – 636 7,513
Joint ventures 12 – – – – – –
Associates 12 – 5 – 387 – 392
Total assets 4,366 1,980 536 387 636 7,905
Other segment items

Share of results of joint ventures and associates 12 (4) 1 1 46 – 44
Capital expenditure 10, 11 135 25 36 – – 196
Pre-publication investment 20 234 90 64 – – 388
Depreciation 10 41 12 13 – – 66
Amortisation 11, 20 344 92 89 – – 525
Included in the North America segment above is £60m in pre-publication investment and £67m in amortisation relating to assets held
for sale.
2. Segment information continued
Overview
2017
Penguin
North Random
All figures in £ millions Notes America Core Growth House Corporate Group
Sales 2,929 815 769 – – 4,513

Adjusted operating profit 394 50 38 94 – 576
Cost of major restructuring (60) (11) (8) – – (79)
Intangible charges (89) (12) (37) (28) – (166)
Other net gains and losses (3) – 35 96 – 128
Impact of US tax reform – – – (8) – (8)
Operating profit 242 27 28 154 – 451

Finance costs 6 (110)
Finance income 6 80
Profit before tax 421
Income tax 7 (13)
Profit for the year 408
Segment assets 4,116 1,914 667 – 793 7,490
Joint ventures 12 – – 3 – – 3
Associates 12 4 3 – 388 – 395
Total assets 4,120 1,917 670 388 793 7,888
Other segment items
Our performance
Share of results of joint ventures and associates 12 5 1 1 71 – 78
Capital expenditure 10, 11 162 35 43 – – 240
Pre-publication investment 20 218 84 59 – – 361
Depreciation 10 56 13 21 – – 90
Amortisation 11, 20 348 103 110 – – 561
There were no material inter-segment sales in either 2018 or 2017. resulted in a charge for onerous leases of £91m partially offset
by profit from the sale of property of £81m. The costs of this
For additional detailed information on the calculation of adjusted
restructuring programme are significant enough to exclude from
operating profit as shown in the above tables, see p222-225
the adjusted operating profit measure so as to better highlight the
(Financial key performance indicators).
underlying performance (see note 4).
Governance
Adjusted operating profit is shown in the above tables as it is
Intangible charges These represent charges in respect of intangible
the key financial measure used by management to evaluate the
assets acquired through business combinations and the direct costs
performance of the Group and allocate resources to business
of acquiring those businesses. These charges are excluded as they
segments. The measure also enables investors to more easily,
reflect past acquisition activity and do not necessarily reflect the
and consistently, track the underlying operational performance
current year performance of the Group. Intangible amortisation
of the Group and its business segments over time by separating
charges in 2018 were £113m compared to a charge of £166m in 2017.
out those items of income and expenditure relating to acquisition
and disposal transactions, major restructuring programmes Other net gains and losses These represent profits and losses on
and certain other items that are also not representative of the sale of subsidiaries, joint ventures, associates and other financial
underlying performance, which are explained below and assets and are excluded from adjusted operating profit as they
reconciled in note 8. distort the performance of the Group as reported on a statutory
basis. Other net gains of £230m in 2018 relate to the sale of the
Cost of major restructuring In May 2017, the Group announced a

Wall Street English language teaching business (WSE), realising a
restructuring programme, to run between 2017 and 2019, to drive
gain of £207m, the disposal of the Group’s equity interest in UTEL,
significant cost savings. This programme began in the second
the online University partnership in Mexico, realising a gain of £19m,
half of 2017 and net costs incurred were £79m in 2017 and £102m
and various other smaller disposal items for a net gain of £4m.
in 2018 and relate to delivery of cost efficiencies in the enabling
Other net gains of £128m in 2017 relate to the sale of the test
functions and the US Higher Education Courseware business
preparation business in China which resulted in a profit on sale of
together with further rationalisation of the property and supplier
£44m and the part sale of the Group’s share in Penguin Random
portfolio. The restructuring costs in 2018 relate predominantly to
House which resulted in a profit of £96m and other smaller disposal
staff redundancies and the net cost of property rationalisation.
items for a net loss of £12m (see note 31).
Included in the property rationalisation in 2018 is the impact of the
consolidation of the Group’s property footprint in London which
2. Segment information continued

UK pension GMP equalisation In 2018, also excluded is the impact Segment assets, excluding corporate assets, consist of property,
of adjustments arising from clarification of guaranteed minimum plant and equipment, intangible assets, inventories, receivables,
pension (GMP) equalisation legislation in the UK as this relates to deferred taxation and other financial assets and exclude cash
historical circumstances (see note 25). and cash equivalents and derivative assets. Corporate assets
comprise cash and cash equivalents, marketable securities and
Impact of US tax reform In 2017, as a result of US tax reform, the
derivative financial instruments. Capital expenditure comprises
Group’s share of profit from associates was adversely impacted
additions to property, plant and equipment and software
by £8m. This amount was excluded from adjusted operating profit
(see notes 10 and 11).
as it is considered to be a transition adjustment that is not expected
to recur in the near future. Property, plant and equipment and intangible assets acquired
through business combinations were £nil (2017: £nil) (see note 30).
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.
The Group operates in the following main geographic areas:
Sales Non-current assets
All figures in £ millions 2018 2017 2018 2017
UK 377 384 900 796

Other European countries 246 262 143 128
US 2,627 2,770 2,162 2,247
Canada 126 126 250 240
Asia Pacific 455 643 146 151
Other countries 298 328 137 184
Total 4,129 4,513 3,738 3,746
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 property, plant and equipment, intangible assets, investments in joint ventures and
associates and trade and other receivables.
3. Revenue from contracts with customers
Overview
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 test development, processing and scoring services provided to governments, educational
institutions, corporations and professional bodies. Services includes the operation of schools, colleges and universities, including sistemas
in Brazil as well as the provision of online learning services in partnership with universities and other academic institutions.
2018
North
All figures in £ millions America Core Growth Group
Sales:
Courseware
School Courseware 378 172 127 677

Higher Education Courseware 1,042 87 57 1,186
English Courseware 16 58 102 176
1,436 317 286 2,039
Assessments
School and Higher Education Assessments 332 247 23 602
Clinical Assessments 140 45 – 185
Professional and English Certification 344 150 64 558
816 442 87 1,345
Services
School Services 288 2 47 337
Our performance
Higher Education Services 244 40 29 313
English Services – 5 90 95
532 47 166 745
Total 2,784 806 539 4,129
2017
North
All figures in £ millions America Core Growth Group
Sales:
Governance
Courseware
School Courseware 394 171 139 704
Higher Education Courseware 1,146 93 63 1,302
English Courseware 20 60 102 182
1,560 324 304 2,188
Assessments
School and Higher Education Assessments 355 256 23 634
Clinical Assessments 146 46 – 192
Professional and English Certification 341 138 60 539
842 440 83 1,365
Services
School Services 274 5 54 333
Higher Education Services 253 34 32 319
English Services – 12 296 308
527 51 382 960
Total 2,929 815 769 4,513

3. Revenue from contracts with customers continued

The Group derived revenue for the year to 31 December 2018 from the transfer of goods and services over time and at a point in time in the
following major product lines:
North
All figures in £ millions America Core Growth Total
Courseware
Products transferred at a point in time (sale or return) 718 313 197 1,228
Products transferred at a point in time (other) – – 35 35
Products and services transferred over time 718 4 54 776
1,436 317 286 2,039
Assessments
Products transferred at a point in time 146 65 6 217
Products and services transferred over time 670 377 81 1,128
816 442 87 1,345
Services
Products transferred at a point in time – 26 38 64
Products and services transferred over time 532 21 128 681
532 47 166 745
Total sales 2,784 806 539 4,129
a. Nature of goods and services While payment for these goods and services generally occurs at
The following is a description of the nature of the Group’s the start of these arrangements, the length of time between
performance obligations within contracts with customers broken payment and delivery of the performance obligations is generally
down by revenue stream, along with significant judgements and short-term in nature or the reason for early payment relates to
estimates made within each of those revenue streams. reasons other than financing, including customers securing a
vendor in a longer-term arrangement or the transfer of goods or
Courseware services is at the discretion of the customer. For these reasons
Revenue is generated from customers through the sales of print and the use of the practical expedient on short-term financing,
and digital courseware materials to schools, bookstores, and direct significant financing components are not recognised within
to individual learners. Goods and services may be sold separately Courseware transactions.
or purchased together in bundled packages. The goods and
Revenue from the sale of physical books is recognised at a point
services included in bundled arrangements are considered distinct
in time when control passes. This is generally at the point of
performance obligations, except for where Pearson provides both a
shipment when title passes to the customer, when the Group has a
licence of intellectual property and an on-going hosting service.
present right to payment and the significant risks and rewards of
As the licence of intellectual property is only available with the
ownership have passed to the customer. Revenue from physical
concurrent hosting service, the licence is not treated as a distinct
books sold through the direct print rental method is recognised
performance obligation separate from the hosting service.
over the rental period, as the customer is simultaneously receiving
The transaction price is allocated between distinct performance and consuming the benefits of this rental service through the
obligations on the basis of their relative standalone selling prices. passage of time.
In determining the transaction price, variable consideration exists Revenue from the sale of digital courseware products is recognised
in the form of discounts and anticipated returns. Discounts reduce on a straight-line basis over the subscription period, unless hosted
the transaction price on a given transaction. A provision for by a third party or representative of a downloadable product, in
anticipated returns is made based primarily on historical return which case Pearson has no on-going obligation and recognises
rates, customer buying patterns and retailer behaviours including revenue when control transfers as the customer is granted access
stock levels (see note 22). If these estimates do not reflect actual to the digital product.
returns in future periods then revenues could be understated
Revenue from the sale of ‘off-the-shelf’ software is recognised on
or overstated for a particular period. Variable consideration as
delivery or on installation of the software where that is a condition
described above is determined using the expected value approach.
of the contract. In certain circumstances, where installation is
complex, revenue is recognised when the customer has completed
their acceptance procedures.
3. Revenue from contracts with customers continued As control transfers over time, revenue is recognised based on
Overview
the extent of progress towards completion of the performance
a. Nature of goods and services continued obligation. The selection of the method to measure progress
Assessments towards completion requires judgement and is based on the nature
Revenue is primarily generated from multi-year contractual of the services provided. Revenue is recognised on a percentage
arrangements related to large-scale assessment delivery, such completion basis calculated using the proportion of the total
as contracts to process qualifying tests for individual professions estimated costs incurred to date. Percentage of completion is used
and government departments, and is recognised as performance to recognise the transfer of control of services provided as these
occurs. Under these arrangements, while the agreement spans for services are not provided evenly throughout the testing cycle and
multiple years, the contract duration has been determined to be involve varying degrees of effort during the term.
each testing cycle based on contract structure, including clauses
Losses on contracts are recognised in the period in which the loss
regarding termination. While in some cases the customer may
first becomes foreseeable. Contract losses are determined to be the
have the ability to terminate during the term for convenience,

amount by which estimated total costs of the contract exceed the
significant financial or qualitative barriers exist limiting the
estimated total revenues that will be generated.
potential for such terminations in the middle of a testing cycle.
In Assessments contracts driven primarily by transactions directly
Within each testing cycle, a variety of service activities are
to end users, Pearson’s main obligation to the customer involves
performed such as test administration, delivery, scoring,
test delivery and scoring. Test delivery and scoring are defined as a
reporting, item development, operational services, and programme
single performance obligation delivered over time whether the test
management. While each of these service activities is capable of
is subsequently manually scored or digitally scored on the day of
being distinct, they are not treated as distinct in the context of the
the assessment. Customers may also purchase print and digital
customer contract as Pearson provides an integrated managed
supplemental materials. Print products in this revenue stream are
service offering and these activities are accounted for together as
recognised at a point in time when control passes to the customer
one comprehensive performance obligation.
upon shipment. Recognition of digital revenue will occur based on
Our performance
Within each testing cycle, the transaction price may contain both the extent of Pearson’s on-going hosting obligation.
fixed and variable amounts. Variable consideration within these
Services
transactions primarily relates to expected testing volumes to be
delivered in the cycle. The assumptions, risks and uncertainties Revenue is primarily generated from multi-year contractual
inherent to long-term contract accounting can affect the amounts arrangements related to large-scale educational service delivery
and timing of revenue and related expenses reported. Variable to academic institutions, such as schools and higher education
consideration is measured using the expected value method, universities. Under these arrangements, while an agreement
except where amounts are contingent upon a future event’s may span for multiple years, the contract duration has been
occurrence, such as performance bonuses. Such event-driven determined to be each academic period based on the structure of
contingency payments are measured using the most likely amount contracts, including clauses regarding termination. While in some
approach. To the extent a higher degree of uncertainty exists cases the customer may have the ability to terminate during the
regarding variable consideration, these amounts are excluded term for convenience, significant financial or qualitative barriers
Governance
from the transaction price and expensed when the uncertainty is exist limiting the potential for such terminations in the middle of an
reasonably removed. academic period. The academic period for this customer base is
normally an academic year for schools and a semester for higher
Customer payments are generally defined in the contract through education universities.
a payment schedule, which may require customer acceptance
for services rendered. Pearson has a history of providing Within each academic period, while a variety of services are
satisfactory services which are accepted by the customer. While a provided such as programme development, student acquisition,
delay between rendering of services and payment may exist, education technology and student support services. While each of
payment terms are within 12 months and the Group has elected these services is capable of being distinct, they are not distinct in the
to use the practical expedient available in IFRS 15 and not identify context of the customer contract as Pearson provides an integrated
a significant financing component on these transactions. managed service offering and these activities are accounted for
together as a comprehensive performance obligation.
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.

a. Nature of goods and services continued b. Disaggregation of revenue
Services continued The tables in notes 2 and 3 show revenue from contracts with
Where Services are provided to university customers, volumes and customers disaggregated by operating segment, geography and
transaction price is fixed at the start of the semester. Where Services revenue stream. These disaggregation categories are appropriate as
are provided to School customers, the transaction price may contain they represent the key groupings used in managing and evaluating
both fixed and variable amounts which require estimation during underlying performance of each of the businesses. The categories
the academic period. Estimation is required where consideration is also reflect groups of similar types of transactional characteristics,
based upon average enrolments or other metrics which are not among similar customers, with similar accounting conclusions.
known at the start of the academic year. Variable consideration is c. Contract balances
measured using the expected value method. To the extent a higher
Transactions within the Courseware revenue stream generally entail
degree of uncertainty exists regarding variable consideration, these
customer billings at or near the contract’s inception and accordingly
amounts are excluded from the transaction price and recognised
Courseware deferred income balances are primarily related to
when the uncertainty is reasonably removed.
subscription performance obligations to be delivered over time.
Customer payments are generally defined in the contract as
Transactions within the Assessments and Services revenue streams
occurring shortly after invoicing. Where there is a longer payment
generally entail customer billings over time based on periodic
term offered to a customer through a payment schedule, payment
intervals, progress towards milestones or enrolment census dates.
terms are within 12 months and the Group has elected to use the
As the performance obligations within these arrangements are
practical expedient available in IFRS 15 and not identify a significant
delivered over time, the extent of accrued income or deferred
financing component on these transactions.
income will ultimately depend upon the difference between
Revenue is recognised for Service contracts over time as the revenue recognised and billings to date.
customer is benefiting as performance takes place through a
Refer to note 22 for opening and closing balances of accrued
continuous transfer of control to the customer. This continuous
income. Refer to note 24 for opening and closing balances of
transfer of control to the customer is supported by clauses in
deferred income. Revenue recognised during the period from
the contracts which may allow the customer to terminate for
changes in deferred income was driven primarily by the release
convenience, compensate us for work performed to date,
of revenue over time from digital subscriptions.
and take possession of work in process.
d. Contract costs
As control transfers over time, revenue is recognised based on
the extent of progress towards completion of the performance The Group capitalises incremental costs to obtain contracts with
obligation. The selection of the method to measure progress customers where it is expected these costs will be recoverable.
towards completion requires judgement and is based on the Incremental costs to obtain contracts with customers are
nature of the products or services provided. Within the considered those which would not have been incurred if the
comprehensive service obligation, the timing of services contract had not been obtained. For the Group, these costs relate
occurs relatively evenly over each academic period and as such, primarily to sales commissions. The Group has elected to use the
time elapsed is used to recognise the transfer of control to the practical expedient as allowable by IFRS 15 whereby such costs will
customer on a straight-line basis. be expensed as incurred where the expected amortisation period
is one year or less. Where the amortisation period is greater than
Losses on contracts are recognised in the period in which the loss one year, these costs are amortised over the contract term on a
first becomes foreseeable. Contract losses are determined to be systematic basis consistent with the transfer of the underlying
the amount by which estimated total costs of the contract exceed goods and services within the contract to which these costs relate,
the estimated total revenues that will be generated. which will generally be on a ratable basis. Impairment of capitalised
In cases of optional or add-on purchases, institutions may purchase contract costs was £nil in 2018.
physical goods priced at their standalone value, which are The Group does not recognise any material costs to fulfil contracts
accounted for separately and recognised at the point in time with customers as these types of activities are governed by other
when control passes to the customer upon shipment. accounting standards.
Refer to note 22 for further details of opening and closing balances

of these costs reflected within deferred contract costs.
Overview
e. Remaining transaction price
The below table depicts the remaining transaction price on unsatisfied or partially unsatisfied performance obligations from contracts with
customers as at 31 December 2018.
Total
remaining
Deferred Committed transaction 2021
Sales income sales price 2019 2020 and later
Courseware
Products transferred at a point in time (sale or return) 1,228 1 – 1 1 – –
Products transferred at a point in time (other) 35 – – – – – –
Products and services transferred over time 776 679 8 687 272 131 284

Assessments
Products transferred at a point in time 217 – – – – – –
Products and services transferred over time 1,128 196 402 598 420 173 5
Services
Products transferred at a point in time 64 – – – – – –
Products and services transferred over time – subscriptions 310 17 – 17 13 3 1
Products and services transferred over time – other
ongoing performance obligations 371 19 145 164 162 1 1
Total 4,129 912 555 1,467 868 308 291
Committed sales amounts are equal to the transaction price from contracts with customers excluding those amounts previously recognised
Our performance
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 represented above represent the expected timing of when the remaining transaction price will be recognised as revenue.
4. Operating expenses
All figures in £ millions 2018 2017
By function:
Cost of goods sold 1,943 2,066
Operating expenses
Governance
Distribution costs 88 84
Selling, marketing and product development costs 759 896
Administrative and other expenses 1,039 1,207
Restructuring costs 90 79
Other income (69) (64)
Total net operating expenses 1,907 2,202
Other net gains and losses (230) (128)
Total 3,620 4,140
Included in other income is service fee income from Penguin Random House of £3m (2017: £3m). Included in administrative and other
expenses are research and efficacy costs of £14m (2017: £14m). In addition to the restructuring costs shown above, there were major
restructuring costs in relation to associates of £12m (2017: £nil).

4. Operating expenses continued

An analysis of major restructuring costs is as follows:
By nature:
Product costs 12 15
Employee costs 56 11
Depreciation and amortisation 1 13
Property and facilities (5) 24
Technology and communications 1 2
Professional and outsourced services 9 12
General and administrative costs 16 2
Total restructuring – operating expenses 90 79
Share of associate restructuring 12 –
Total 102 79
The 2017-2019 restructuring programme was announced in May 2017, began in the second half of 2017 and is expected to drive
significant cost savings. The costs of this programme have been excluded from adjusted operating profit so as to better highlight the
underlying performance (see note 8). In 2018, property and facilities costs include gains on the disposal of properties sold as part of the
restructuring programme.
By nature:
Royalties expensed 236 246
Other product costs 516 564
Employee benefit expense 5 1,637 1,805
Contract labour 161 152
Employee-related expense 115 127
Promotional costs 233 229
Depreciation of property, plant and equipment 10 66 90
Amortisation of intangible assets – pre-publication 20 338 338
Amortisation of intangible assets – software 11 88 85
Amortisation of intangible assets – other 11 99 138
Property and facilities 147 202
Technology and communications 192 218
Professional and outsourced services 396 322
Other general and administrative costs 85 140
Costs capitalised to intangible assets (390) (324)
Other income (69) (64)
Total 3,620 4,140
4. Operating expenses continued
Overview
During the year the Group obtained the following services from the Group’s auditors:
The audit of parent company and consolidated financial statements 4 4

The audit of the company’s subsidiaries 2 2
Total audit fees 6 6
Audit-related and other assurance services 1 1
Other non-audit services – 1
Total other services 1 2
Total non-audit services 1 2

Total 7 8
Reconciliation between audit and non-audit service fees is shown below:
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act 6 6
Non-audit fees 1 2
Total 7 8
Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and
subsidiary accounts.
Included in non-audit fees is audit related work in relation to disposal transactions and other assurance work related to the audit of the
Our performance
Group’s efficacy programme.
5. Employee information
Employee benefit expense

Wages and salaries (including termination costs) 1,421 1,567
Social security costs 112 130
Share-based payment costs 26 37 33
Retirement benefits – defined contribution plans 25 56 57
Retirement benefits – defined benefit plans 25 23 19
Governance
Other post-retirement medical benefits 25 (12) (1)
Total 1,637 1,805
The details of the emoluments of the Directors of Pearson plc are shown in the report on Directors’ remuneration.
Average number employed 2018 2017
Employee numbers
North America 14,113 16,295
Core 5,192 5,291
Growth 4,521 8,268
Other 496 485
Total 24,322 30,339

6. Net finance costs

Interest payable on financial liabilities at amortised cost and associated derivatives (42) (99)
Net foreign exchange losses (36) –
Finance costs associated with transactions (1) (6)
Derivatives not in a hedge relationship (7) (5)
Derivatives in a hedge relationship (5) –
Finance costs (91) (110)
Interest receivable on financial assets at amortised cost 18 20
Net finance income in respect of retirement benefits 25 11 3
Net foreign exchange gains – 44
Derivatives not in a hedge relationship 6 12
Derivatives in a hedge relationship 1 1
Finance income 36 80
Net finance costs (55) (30)
Analysed as:
Net interest payable reflected in adjusted earnings (24) (79)
Other net finance income/(costs) (31) 49
Total net finance costs (55) (30)
Included in interest receivable is £1m (2017: £1m) of interest receivable from related parties. There was a net movement of £nil on fair value
hedges in 2018 (2017: £1m), comprising a gain of £4m (2017: gain of £37m) on the underlying bonds, offset by a loss of £4m (2017: loss of
£36m) on the related derivative financial instruments.
For further information on adjusted measures above, see note 8.
7. Income tax
Current tax
Credit/(charge) in respect of current year 92 (121)
Adjustments in respect of prior years 34 (2)
Total current tax credit/(charge) 126 (123)
Deferred tax
In respect of temporary differences (6) 96
Other adjustments in respect of prior years (28) 14
Total deferred tax (charge)/credit 13 (34) 110
Total tax credit/(charge) 92 (13)
The adjustments in respect of prior years in both 2018 and 2017 primarily arise from revising the previous year’s reported tax provision to
reflect the tax returns subsequently filed. This results in a change between deferred and current tax as well as an absolute benefit to the
total tax charge.
7. Income tax continued
Overview
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax rate as follows:

Tax calculated at UK rate (2018: 19%, 2017: 19.25%) (94) (81)
Effect of overseas tax rates (28) 15
Joint venture and associate income reported net of tax 8 15
Intra-group financing benefit 25 26
Movement in provisions for tax uncertainties 111 49
Impact of US tax reform – (1)

Net expense not subject to tax (29) (39)
Benefit from change in US tax accounting treatment 25 –
Gains and losses on sale of businesses not subject to tax 77 8
Utilisation of previously unrecognised tax losses and credits – (1)
Unrecognised tax losses (9) (16)
Adjustments in respect of prior years 6 12
UK 37 (36)
Overseas 55 23
Our performance
Tax rate reflected in earnings (18.5)% 3.1%
Included in net expense not subject to tax are foreign taxes not the potential disallowance of intra-group recharges. The Group is
creditable, the tax impact of share-based payments and other currently under audit in a number of countries, and the timing of
expenses not deductible. any resolution of these audits is uncertain. Of the balance of £181m,
Factors which may affect future tax charges include changes £57m relates to 2014 and earlier and is mostly under audit. In most
in tax legislation, transfer pricing regulations, the level and mix countries tax years up to and including 2014 are now statute barred
of profitability in different countries, and settlements with from examination by tax authorities. Of the remaining balance,
tax authorities. £66m relates to 2015, £29m to 2016, £23m to 2017 and £6m to 2018.
If relevant enquiry windows pass with no audit, management
The movement in provisions for tax uncertainties primarily reflects
believes it is reasonably possible that provision levels will reduce
releases due to the expiry of relevant statutes of limitation and the
by an estimated £50m within the next 12 months. However the tax
reassessment of historical tax positions. The current tax liability of
Governance
authorities may take a different view from management and the
£72m (2017: £231m) includes £181m (2017: £280m) of provisions for
final liability may be greater than provided. For items currently
tax uncertainties principally in respect of a number of issues in the
under audit if tax authorities are successful, liabilities could
US, the UK and China. The issues provided for include the allocation
increase by £25m (2017: £25m).
between territories of proceeds of historical business disposals and
7. Income tax continued

The tax rate reflected in adjusted earnings is calculated as follows:

Adjustments:
Cost of major restructuring 102 79
Intangible charges 113 166
Other net finance costs/(income) 31 (49)
UK pension GMP equalisation 8 –
Impact of US tax reform – 8
Adjusted profit before tax 522 497

Adjustments:
Tax benefit on cost of major restructuring (37) (26)
Tax (benefit)/charge on other net gains and losses (31) 20
Tax benefit on intangible charges (18) (85)
Tax (benefit)/charge on other net finance (income)/costs (6) 9
Tax benefit on UK pension GMP equalisation (2) –
Tax amortisation benefit on goodwill and intangibles 29 39
Adjusted income tax credit/(charge) 27 (55)
Tax rate reflected in adjusted earnings (5.2)% 11.1%
For further information on adjusted measures above, see note 8.
The tax benefit/(charge) recognised in other comprehensive income is as follows:
Net exchange differences on translation of foreign operations (4) 9

Fair value gain on other financial assets – (4)
Remeasurement of retirement benefit obligations 9 (42)
5 (37)
8. Earnings per share
Overview
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the company 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
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.
Earnings for the year 590 408

Earnings attributable to equity holders of the company 588 406
Weighted average number of shares (millions) 778.1 813.4
Effect of dilutive share options (millions) 0.6 0.3
Weighted average number of shares (millions) for diluted earnings 778.7 813.7
Earnings per share
Basic 75.6p 49.9p
Diluted 75.5p 49.9p
Adjusted of the consolidation of the Group’s property footprint in London

For additional detailed information on the calculation of adjusted which resulted in a charge for onerous leases of £91m partially
Our performance
measures, see p222-225 (Financial key performance indicators). offset by profit from the sale of property of £81m. The costs of this
See note 2 for details of specific items excluded from or included restructuring programme are significant enough to exclude from
in adjusted operating profit in 2018 and 2017. the adjusted operating profit measure so as to better highlight the
underlying performance (see note 4).
In order to show results from operating activities on a consistent
basis, an adjusted earnings per share is presented. The Group’s Other net gains and losses These represent profits and losses on
definition of adjusted earnings per share may not be comparable the sale of subsidiaries, joint ventures, associates and other financial
with other similarly titled measures reported by other companies. assets and are excluded from adjusted earnings as they distort the
performance of the Group as reported on a statutory basis.
Adjusted earnings is a non-GAAP (non-statutory) financial measure
and is included as it is a key financial measure used by management Intangible charges These represent charges in respect of intangible
to evaluate the performance of the Group and allocate resources assets acquired through business combinations and the direct costs
of acquiring those businesses. These charges are excluded as they
Governance
to business segments. The measure also enables investors to
more easily, and consistently, track the underlying operational reflect past acquisition activity and do not necessarily reflect the
performance of the Group and its business segments over time current year performance of the Group. Intangible amortisation
by separating out those items of income and expenditure relating charges in 2018 were £113m compared to a charge of £166m in 2017.
to acquisition and disposal transactions, major restructuring Other net finance income/costs These include finance costs
programmes and certain other items that are also not in respect of retirement benefits, finance costs of deferred
representative of underlying performance. consideration and foreign exchange and other gains and losses.
Adjusted earnings per share is calculated as adjusted earnings Finance income relating to retirement benefits is excluded as
divided by the weighted average number of shares in issue on management does not believe that the consolidated income
an undiluted basis. The following items are excluded from or statement presentation under IAS 19 reflects the economic
included in adjusted earnings: substance of the underlying assets and liabilities. Finance costs
associated with transactions are excluded as these relate to future
Cost of major restructuring In May 2017, the Group announced a earn-outs or acquisition expenses and are not part of the underlying
restructuring programme, to run between 2017 and 2019, to drive financing. Foreign exchange and other gains and losses are excluded
significant cost savings. This programme began in the second half as they represent short-term fluctuations in market value and are
of 2017 and net costs incurred were £79m in 2017 and £102m in subject to significant volatility. Other gains and losses may not be
2018 and relate to delivery of cost efficiencies in the enabling realised in due course as it is normally the intention to hold the
functions and the US Higher Education Courseware business related instruments to maturity. In 2018 and 2017, the foreign
together with further rationalisation of the property and supplier exchange gains and losses largely relate to foreign exchange
portfolio. The restructuring costs in 2018 relate predominantly to differences on unhedged US dollar and euro loans, cash and
staff redundancies and the net cost of property rationalisation. cash equivalents.
Included in the property rationalisation in 2018 is the impact
8. Earnings per share continued

Adjusted continued
UK pension GMP equalisation In 2018, also excluded is the impact of adjustments arising from clarification of guaranteed minimum
pension (GMP) equalisation legislation in the UK as this relates to historical circumstances (see note 25).
Impact of US tax reform In 2017, as a result of US tax reform, the Group’s share of profit from associates was adversely impacted by £8m.
This amount was excluded from adjusted earnings as it is considered to be a transition adjustment that is not expected to recur in
the near future.
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. As a result of US tax reform in 2017, the reported tax charge on a statutory basis
includes a benefit from the revaluation of deferred tax balances to the reduced federal rate of £5m and a repatriation tax charge of £6m.
This amount has been excluded from adjusted earnings as it is considered to be a transition adjustment that is not expected to recur in the
near future. 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.
Non-controlling interest Non-controlling interest for the above items is excluded from adjusted earnings.
The following tables reconcile the statutory income statement to the adjusted income statement.
2018
Other net
Statutory Cost of Other net finance UK pension Tax Adjusted
income major gains and Intangible income/ GMP amortisation income
All figures in £ millions statement restructuring losses charges costs equalisation benefit statement
Operating profit 553 102 (230) 113 – 8 – 546

Net finance costs (55) – – – 31 – – (24)
Profit before tax 498 102 (230) 113 31 8 – 522
Income tax 92 (37) (31) (18) (6) (2) 29 27
Profit for the year 590 65 (261) 95 25 6 29 549
Non-controlling interest (2) – – – – – – (2)
Earnings 588 65 (261) 95 25 6 29 547
Weighted average number of shares (millions)
for diluted earnings 778.7 778.7
Earnings per share (basic) 75.6p 70.3p
Earnings per share (diluted) 75.5p 70.2p
2017
Other net
Statutory Cost of Other net finance Tax Adjusted
income major gains and Intangible income/ Impact of US amortisation income
All figures in £ millions statement restructuring losses charges costs tax reform benefit statement
Operating profit 451 79 (128) 166 – 8 – 576

Net finance costs (30) – – – (49) – – (79)
Profit before tax 421 79 (128) 166 (49) 8 – 497
Income tax (13) (26) 20 (85) 9 1 39 (55)
Profit for the year 408 53 (108) 81 (40) 9 39 442
Non-controlling interest (2) – – – – – – (2)
Earnings 406 53 (108) 81 (40) 9 39 440
Weighted average number of shares (millions)
for diluted earnings 813.7 813.7
Earnings per share (basic) 49.9p 54.1p
Earnings per share (diluted) 49.9p 54.1p
9. Dividends
Overview
Final paid in respect of prior year 12.0p (2017: 34.0p) 93 277

Interim paid in respect of current year 5.5p (2017: 5.0p) 43 41
136 318
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2018 of 13.0p per share which will absorb an
estimated £102m of shareholders’ funds. It will be paid on 10 May 2019 to shareholders who are on the register of members on 5 April 2019.
These financial statements do not reflect this dividend.
10. Property, plant and equipment

Assets in
Land and Plant and course of
All figures in £ millions buildings equipment construction Total
Cost
At 1 January 2017 398 560 20 978
Exchange differences (20) (29) (2) (51)
Additions 26 40 24 90
Disposals (13) (34) – (47)
Disposal through business disposal (11) (5) – (16)
Reclassifications 5 8 (13) –
Transfer to intangible assets – (11) – (11)
Transfer to assets classified as held for sale (55) (2) – (57)
Our performance
At 31 December 2017 330 527 29 886
Exchange differences 11 14 1 26
Additions 32 22 12 66
Disposals (75) (97) – (172)
Reclassifications 19 (8) (11) –
Transfer to intangible assets – – (11) (11)
Transfer to intangible assets – pre-publication – – (2) (2)
At 31 December 2018 317 458 18 793
Assets in
Governance
Land and Plant and course of
All figures in £ millions buildings equipment construction Total
Depreciation
At 1 January 2017 (229) (406) – (635)
Exchange differences 12 23 – 35
Charge for the year (35) (55) – (90)
Disposals 9 26 – 35
Disposal through business disposal 6 3 – 9
Transfer to assets classified as held for sale 40 1 – 41
At 31 December 2017 (197) (408) – (605)
Exchange differences (5) (11) – (16)
Charge for the year (20) (46) – (66)

Disposals 34 97 – 131
Reclassifications (7) 7 – –
At 31 December 2018 (195) (361) – (556)
Carrying amounts
At 1 January 2017 169 154 20 343
At 31 December 2017 133 119 29 281
At 31 December 2018 122 97 18 237
10. Property, plant and equipment continued

Depreciation expense of £18m (2017: £23m) has been included in the income statement in cost of goods sold and £48m (2017: £67m)
in operating expenses.
The Group leases certain equipment under a number of finance lease agreements. The net carrying amount of leased plant and
equipment included within property, plant and equipment was £7m (2017: £9m).
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 2017 2,341 798 974 353 211 600 5,277
Exchange differences (148) (46) (74) (26) (6) (50) (350)
Additions – internal development – 133 – – – – 133
Additions – purchased – 17 – – – – 17
Disposals – (23) – – – – (23)
Disposal through business disposal – (4) (9) (19) – (27) (59)
Transfer from property, plant and equipment – 11 – – – – 11
Transfer to assets classified as held for sale (163) (4) (2) (27) (21) (34) (251)
At 31 December 2017 2,030 882 889 281 184 489 4,755
Exchange differences 74 32 39 (2) – 1 144
Additions – internal development – 124 – – – – 124
Additions – purchased – 6 – – – – 6
Disposals – (94) (18) (12) – (33) (157)
Disposal through business disposal – (2) – – – – (2)
Transfer from property, plant and equipment – 11 – – – – 11
Transfer from assets classified as held for sale 7 – – – – – 7
At 31 December 2018 2,111 959 910 267 184 457 4,888
11. Intangible assets continued
Overview
Acquired
customer
lists, Acquired Acquired Other
contracts and trademarks publishing intangibles
All figures in £ millions Goodwill Software relationships and brands rights acquired Total
Amortisation
At 1 January 2017 – (461) (555) (209) (198) (412) (1,835)
Exchange differences – 30 43 13 4 36 126
Charge for the year – (85) (77) (18) (3) (40) (223)
Disposals – 21 – – – – 21
Disposal through business disposal – 2 8 18 – 22 50

Transfer to assets classified as held for sale – – 1 16 19 34 70
At 31 December 2017 – (493) (580) (180) (178) (360) (1,791)
Exchange differences – (23) (26) 1 2 (10) (56)
Charge for the year – (88) (59) (14) (2) (24) (187)
Disposals – 92 18 12 – 33 155
Disposal through business disposal – – – – – – –
At 31 December 2018 – (512) (647) (181) (178) (361) (1,879)
Carrying amounts
At 1 January 2017 2,341 337 419 144 13 188 3,442
At 31 December 2017 2,030 389 309 101 6 129 2,964
Our performance
At 31 December 2018 2,111 447 263 86 6 96 3,009
Goodwill Other intangible assets

The goodwill carrying value of £2,111m relates to acquisitions Other intangibles acquired include content, technology and
completed after 1 January 1998. Prior to 1 January 1998 all software rights.
goodwill was written off to reserves on the date of acquisition.
Intangible assets are valued separately for each acquisition and
For acquisitions completed between 1 January 1998 and
the primary method of valuation used is the discounted cash
31 December 2002, no value was ascribed to intangibles other
flow method. The majority of acquired intangibles are amortised
than goodwill which was amortised over a period of up to 20 years.
using an amortisation profile based on the projected cash flows
On adoption of IFRS on 1 January 2003, the Group chose not to
underlying the acquisition date valuation of the intangible asset,
restate the goodwill balance and at that date the balance was frozen
which generally results in a larger proportion of amortisation being
(i.e. amortisation ceased). If goodwill had been restated, then a
recognised in the early years of the asset’s life. The Group keeps
Governance
significant value would have been ascribed to other intangible
the expected pattern of consumption under review.
assets, which would be subject to amortisation, and the carrying
value of goodwill would be significantly lower. For acquisitions Amortisation of £18m (2017: £17m) is included in the income
completed after 1 January 2003, value has been ascribed to other statement in cost of goods sold and £169m (2017: £206m) in
intangible assets which are amortised. operating expenses.

Other intangible assets continued
The range of useful economic lives for each major class of intangible asset (excluding goodwill and software) is shown below:
2018
Class of intangible asset Useful economic life
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:
2018
One to Six to More than
All figures in £ millions five years ten years ten years Total
Class of intangible asset

Acquired customer lists, contracts and relationships 187 66 10 263
Acquired trademarks and brands 49 27 10 86
Acquired publishing rights 5 1 – 6
Other intangibles acquired 77 19 – 96
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 (including Growth given the recent write down of goodwill). The recoverable amount for each unit exceeds its carrying value,
therefore there is no impairment in 2018. The carrying value of the goodwill in each of the CGUs is summarised below:
North America 930 1,013

Core 701 641
Growth (includes Brazil, China, India and South Africa) – –
Pearson VUE 480 376
Total 2,111 2,030
The recoverable amount of each aggregated CGU is based on fair value less costs of disposal. Goodwill is tested at least annually for
impairment. Other than goodwill there are no intangible assets with indefinite lives. The goodwill is generally denominated in the
currency of the relevant cash flows and therefore the impairment review is not materially sensitive to exchange rate fluctuations.
Overview
Key assumptions The key assumptions used by management in setting the financial
For the purpose of estimating the fair value less costs of disposal budgets for the initial five-year period were as follows:
of the CGUs, management has used an income approach based on Forecast sales growth rates Forecast sales growth rates are
present value techniques. The calculations use cash flow projections based on past experience adjusted for the strategic direction and
based on financial budgets approved by management covering near-term investment priorities within each CGU. Key assumptions
a five-year period, management’s best estimate about future include growth in Online Program Management, Virtual Schools and
developments and market assumptions. The fair value less costs Professional Certification, stabilisation in UK Qualifications and US
of disposal measurement is categorised as Level 3 on the fair value Assessments, and ongoing pressures in the US Higher Education
hierarchy. The key assumptions used by management in the fair Courseware market. The five-year sales forecasts use average
value less costs of disposal calculations were: nominal growth rates between 2% and 3% for mature markets and
between (1)% and 12% for emerging markets with high inflation.

Discount rates The discount rate is based on the risk-free rate
for government bonds, adjusted for a risk premium to reflect the Operating profits Operating profits are forecast based on historical
increased risk in investing in equities. The risk premium adjustment experience of operating margins, adjusted for the impact of changes
is assessed for each specific CGU. The average post-tax discount to product costs and cost-saving initiatives, including the impact of
rates range from 7.9% to 15.8%. Discount rates are lower for those the implementation of our cost efficiency programme.
businesses which operate in more mature markets with low
inflation and higher for those operating in emerging markets Cash conversion Cash conversion is the ratio of operating cash
with higher inflation. flow to operating profit. Management forecasts cash conversion
rates based on historical experience.
Perpetuity growth rates A perpetuity growth rate of 2.0% was
used for cash flows subsequent to the approved budget period for
CGUs operating in mature markets. This perpetuity growth rate is a
conservative rate and is considered to be lower than the long-term
Our performance
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. CGU growth rates between
3.0% and 6.5% were used for cash flows subsequent to the
approved budget period for CGUs operating in emerging markets
with high inflation. These growth rates are also below the long-term
historical growth rates in these markets.
Sensitivities
Impairment testing for the year ended 31 December 2018 has identified the following CGUs, or groups of CGUs, as being sensitive to
changes in assumptions. The table below shows the headroom at 31 December 2018 and the cumulative impact of changes in the
Governance
assumptions used in calculating the fair value.
1% decrease in
Headroom at 31 1% increase in 5% decrease in annual 10% decrease in perpetuity growth
All figures in £ millions December 2018 average discount rate contribution annual contribution rate
Headroom/(impairment)
North America 356 128 27 (301) 167
Core 210 67 84 (42) 83
Brazil 20 (8) 3 (14) (4)
The above analysis is performed at the exchange rates used in the Group’s strategic planning process. CGU contribution excludes fixed costs
and corporate overheads. The goodwill related to the Brazil CGU was fully impaired in prior years, and the intangibles related to the Brazil
CGU are amortised over their useful economic life.
12. Investments in joint ventures and associates

The amounts recognised in the balance sheet are as follows:
Associates 392 395

Joint ventures – 3
Total 392 398
The amounts recognised in the income statement are as follows:
Associates 43 77
Joint ventures 1 1
Total 44 78
Investment in associates
The Group has the following material associates:
Principal place Ownership Nature of Measurement

of business interest relationship method
Penguin Random House Ltd UK/Global 25% See below Equity

Penguin Random House LLC US 25% See below Equity
On 1 July 2013, Penguin Random House was formed, upon the The shareholder agreement includes protective rights for
completion of an agreement between Pearson and Bertelsmann Pearson as the minority shareholder, including rights to dividends.
to merge their respective trade publishing companies, Penguin Management considers ownership percentage, Board composition
and Random House, with the parent companies owning 47% and the additional protective rights, and exercises judgement to
and 53% of the combined business respectively. On 5 October determine that Pearson has significant influence over Penguin
2017, Pearson sold a 22% stake in Penguin Random House to Random House and Bertelsmann has the power to direct the
Bertelsmann, retaining a 25% share. Pearson owns its 25% interest relevant activities and therefore control. Following the transaction
in Penguin Random House via 25% interests in each of the two in 2017 the assessment of significant influence has not changed.
entities listed in the table above. Despite the separate legal Penguin Random House does not have a quoted market price.
structures of the two Penguin Random House entities, Pearson
regards Penguin Random House as one combined global business.
Consequently, Pearson discloses Penguin Random House as one
single operating segment and presents disclosures related to its
interests in Penguin Random House on a combined basis.
12. Investments in joint ventures and associates continued
Overview
Investment in associates continued
The summarised financial information of the material associate is detailed below:
2018 2017
Penguin Penguin
Random Random
All figures in £ millions House House
Assets
Non-current assets 1,043 1,048
Current assets 1,929 1,758
Liabilities

Non-current liabilities (1,104) (859)
Current liabilities (1,546) (1,579)
Net assets 322 368
Sales 2,775 2,693

Other comprehensive income/(expense) 13 (60)
Total comprehensive income 198 111
Our performance
Dividends received from associate in relation to profits 67 146
Re-capitalisation dividends received from associate 50 312
The information above reflects the amounts presented in the financial statements of the associate, adjusted for fair value and similar
adjustments. The tax on Penguin Random House LLC is settled by the partners. For the purposes of clear and consistent presentation,
the tax has been shown in the associate line items in the consolidated income statement and consolidated balance sheet, recording the
Group’s share of profit after tax consistently for the Penguin Random House associates.
A reconciliation of the summarised financial information to the carrying value of the material associate is shown below:
2018 2017
Penguin Penguin
Random Random
Governance
All figures in £ millions House House
Opening net assets 368 1,386

Exchange differences 18 (18)
Other comprehensive income /(expense) 13 (60)
Dividends, net of tax paid (262) (1,167)
Tax adjustments in relation to disposals – 56
Closing net assets 322 368
Share of net assets 80 92
Goodwill 307 296
Carrying value of associate 387 388
Information on other individually immaterial associates is detailed below:
(Loss)/profit for the year (3) 7

Total comprehensive (expense)/income (3) 7
12. Investments in joint ventures and associates continued

Transactions with material associates
From time to time the Group loans funds to Penguin Random House The Group also has a current asset receivable of £17m (2017: £19m)
which are unsecured and interest is calculated based on market from Penguin Random House and a current liability payable of
rates. The amount outstanding at 31 December 2018 was £nil £nil (2017: £3m) arising from the provision of services. Included in
(2017: £46m). The loans are provided under a working capital facility other income (note 4) is £3m (2017: £3m) of service fees. In addition,
and fluctuate during the year. The loan outstanding at 31 December the Group received a further re-capitalisation dividend of £50m in
2017 was repaid in its entirety in January 2018. April 2018, which was triggered by the Group’s decision to sell a
22% stake in Penguin Random House in 2017.
Investment in joint ventures

Information on joint ventures, all of which are individually immaterial, is detailed below:

Total comprehensive income 1 1
13. Deferred income tax

Deferred income tax assets 60 95

Deferred income tax liabilities (136) (164)
Net deferred income tax (76) (69)
Substantially all of the deferred income tax assets are expected to Deferred tax assets of £43m (2017: £75m) have been recognised in
be recovered after more than one year. countries that reported a tax loss in either the current or preceding
year. The majority arises in Brazil in respect of tax deductible
Deferred income tax assets and liabilities shall be offset when there
goodwill. It is considered more likely than not that there will be
is a legally enforceable right to offset current income tax assets
sufficient future taxable profits to realise these assets.
with current income tax liabilities and where the deferred income
taxes relate to the same fiscal authority. At 31 December 2018, The recognition of the deferred income tax assets is supported
the Group has unrecognised deferred income tax assets of £31m by management’s forecasts of the future profitability of the
(2017: £32m) in respect of UK losses, £28m (2017: £18m) in respect relevant countries.
of US losses and approximately £90m (2017: £86m) in respect of
losses in other territories. The UK losses are capital losses. The US
losses relate to state taxes and therefore have expiry periods of
between five and 20 years. Other deferred tax assets of £12m
(2017: £12m) have not been recognised.
13. Deferred income tax continued
Overview
The movement in deferred income tax assets and liabilities during the year is as follows:
Retirement
Trading Returns benefit Deferred Goodwill and
All figures in £ millions losses provisions obligations revenue intangibles Other Total
Deferred income tax assets/(liabilities)

At 1 January 2017 22 35 37 117 (295) 69 (15)
Exchange differences (2) (3) (4) (8) 19 (8) (6)
Income statement (charge)/benefit (11) 6 7 (9) 118 (1) 110
Disposal through business disposal – – – – – (3) (3)
Tax benefit in other comprehensive income – – (84) – – (5) (89)

Transfer to assets/(liabilities) classified as held for sale – (4) – (73) 3 8 (66)
At 31 December 2017 9 34 (44) 27 (155) 60 (69)
Adjustment on initial application of IFRS 15 (see note 1b) – – – 15 – 1 16
Adjustment on initial application of IFRS 9 (see note 1c) – – – – – 3 3
Exchange differences – 1 1 6 (16) (5) (13)
Income statement (charge)/benefit 11 (4) (21) 20 (34) (14) (42)
Disposal through business disposal – – – – – 16 16
Tax charge in other comprehensive income – – 9 – – – 9
Tax charge in equity – – – – – 4 4
At 31 December 2018 20 31 (55) 68 (205) 65 (76)
Our performance
Other deferred income tax items include temporary differences in respect of share-based payments, provisions, depreciation and
royalty advances.
In addition, £98m (2017: £68m asset and £2m liability) of deferred income tax assets are included in assets classified as held for sale with a
charge of £8m in 2018 relating to assets and liabilities held for sale.
14. Classification of financial instruments

The accounting classification of each class of the Group’s financial assets, and their carrying values, is as follows:
2018 2017
Amortised Amortised
Governance
Fair value cost Fair value cost
Fair value – Total Derivatives Derivatives Total
hedging Financial carrying Available held for in hedge Loans and carrying
All figures in £ millions Notes FVOCI FVTPL instrument assets value for sale trading relationship receivables value
Investments in unlisted
securities 15 93 – – – 93 77 – – – 77
Cash and cash equivalents 17 – – – 568 568 – – – 518 518
Cash and cash equivalents –
within assets classified as
held for sale 32 – – – – – – – – 127 127
Marketable securities – – – – – 8 – – – 8
Derivative financial
instruments 16 – 4 64 – 68 – 3 137 – 140
Trade receivables 22 – – – 904 904 – – – 760 760

Trade receivables –
within assets classified
as held for sale – – – 49 49 – – – 22 22
Total financial assets 93 4 64 1,521 1,682 85 3 137 1,427 1,652
The carrying value of the Group’s financial assets is equal to, or approximately equal to, the market value. Following the adoption of IFRS 9 in
2018 the terminology used to describe financial assets has been changed (see note 1c).
14. Classification of financial instruments continued

The accounting classification of each class of the Group’s financial liabilities, together with their carrying values and market values,
is as follows:
2018 2017
Amortised Amortised
Fair value cost Fair value cost
Fair value – Other Total Total Derivatives Derivatives Total Total
hedging financial carrying market held for in hedge Other carrying market
All figures in £ millions Notes FVTPL instrument liabilities value value trading relationship liabilities value value
Derivative financial
instruments 16 – (59) – (59) (59) – (140) – (140) (140)
Trade payables 24 – – (311) (311) (311) – – (265) (265) (265)
Trade payables – within
liabilities classified as held
for sale – – (22) (22) (22) – – (20) (20) (20)
Liability to purchase own
shares 24 – – – – – – – (151) (151) (151)
Bank loans and overdrafts 18 – – (43) (43) (43) – – (15) (15) (15)
Other borrowings due within
one year 18 – – (3) (3) (3) – – (4) (4) (4)
Borrowings due after more
than one year 18 – – (674) (674) (663) – – (1,066) (1,066) (1,070)
Total financial liabilities – (59) (1,053) (1,112) (1,101) – (140) (1,521) (1,661) (1,665)
Following the adoption of IFRS 9 in 2018 the terminology used to describe financial liabilities has been changed (see note 1c).
Fair value measurement

As shown above, the Group’s derivative assets and liabilities, unlisted securities and marketable securities 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.
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).
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 derivative assets valued at £68m (2017: £140m) and derivative liabilities valued at £59m (2017: £140m) are classified as level 2.
The Group’s marketable securities valued at £nil (2017: £8m) are classified as level 2. The Group’s investments in unlisted securities are
valued at £93m (2017: £77m) and are classified as level 3.
The following table analyses the movements in level 3 fair value remeasurements:
2018 2017
Investments Investments
in unlisted in unlisted
All figures in £ millions securities securities
At beginning of year 77 65
Acquisition of investments 13 3
Fair value movements 7 13
Disposal of investments (8) –
At end of year 93 77
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.
15. Other financial assets
Overview
At beginning of year 77 65
Acquisition of investments 13 3
Fair value movements 7 13
Disposal of investments (8) –
Other financial assets comprise unlisted securities of £93m (2017: £77m) that are classified at fair value through other comprehensive
income (FVOCI). 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 the Group considers the classification as FVOCI to be more relevant. None of the
investments are individually significant to the financial statements. In 2018, equities held at a fair value of £8m (2017: £nil) were disposed.
The cumulative gain on disposal was £nil and £2m was recycled from the fair value reserve to retained earnings.
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:
2018 2017
Gross notional Gross notional
All figures in £ millions amounts Assets Liabilities amounts Assets Liabilities
Interest rate derivatives – in a fair value hedge relationship 404 13 – 799 23 –
Our performance
Interest rate derivatives – not in a hedge relationship 362 3 – 429 3 –
Cross-currency rate derivatives – in a hedge relationship 577 51 (35) 1,522 114 (140)
FX forwards and collars – in a hedge relationship 434 – (24) – – –
Other derivatives – not in a hedge relationship 473 1 – – – –
Total 2,250 68 (59) 2,750 140 (140)
Analysed as expiring:
In less than one year 771 1 (23) – – –
Later than one year and not later than five years 795 22 (1) 1,638 65 (95)
Later than five years 684 45 (35) 1,112 75 (45)
Total 2,250 68 (59) 2,750 140 (140)
Governance
The Group’s fixed rate USD debt is held as fixed rate instruments at were held at an average GBP/USD rate of 1.39. These derivatives are
amortised cost. in designated net investment hedging relationships. Outstanding
contracts on the cross currency swaps at 31 December 2018 were
The majority of the Group’s fixed rate euro debt is converted to a
held at an average EUR/GBP rate of 0.79. These derivatives are in
floating rate exposure using interest rate and cross-currency swaps.
designated fair value hedging relationships.
The Group receives interest under its euro debt related swap
contracts to match the interest on the bonds (ranging from a receipt At the end of 2018, the currency split of the mark-to-market values
of 1.375% on its euro 2025 notes to 1.875% on its euro 2021 notes) of rate derivatives, including the exchange of principal on cross
and, in turn, pays either a floating US dollar or sterling variable rates currency rate derivatives, was US dollar £(185)m, sterling (215)m
of GBP Libor + 0.81% and US Libor + 1.36%. and euro £432m (2017: US dollar £(869)m, sterling £12m and
euro £857m).
GBP and USD Interest rate swaps are subsequently used to fix
an element of the interest charge. The all-in rates (including the The Group’s portfolio of rate derivatives is diversified by maturity,
spread above Libor) that the Group pays are between 2.2% and counterparty and type. Natural offsets between transactions within
3.8%. At 31 December 2018, the Group had interest rate swap the portfolio and the designation of certain derivatives as hedges
contracts to fix £361m of debt and a further £256m of outstanding significantly reduce the risk of income statement volatility. The
fixed rate bonds bringing the total fixed rate debt to £617m. sensitivity of the portfolio to changes in market rates is set out in
These pay fixed interest rate derivatives are not in designated note 19.
hedging relationships. Additionally the group uses FX derivatives
including forwards, collars and cross currency swaps to create
synthetic USD debt as a hedge of its USD assets and to achieve
certainty of USD currency conversion rates, in line with the Group’s
FX hedging policy. Outstanding contracts as at 31 December 2018
16. Derivative financial instruments and hedge accounting continued

Fair value hedges A foreign currency exposure arises from foreign exchange
The group uses Interest Rate Swaps and Cross Currency Swaps as fluctuations on translation of the Group’s euro debt into GBP.
Fair value hedges of the Groups euro issued debt. The hedged risk is the risk of changes in the GBPEUR spot rate that
will result in changes in the value of the euro debt when translated
Interest rate exposure arises from movements in the fair value of the into GBP. The hedged items are a portion of the Group’s euro bonds.
Group’s euro debt attributable to movements in euro interest rates. The hedging instruments are floating to floating cross currency
The hedged risk is the change the euro bonds fair value attributable swaps which creates an exposure to euro strengthening against
to interest rate movements. The hedged items are the Group’s euro GBP within the hedge item. The final exchange on the cross currency
bonds which are issued at a fixed rate. The hedging instruments are swap creates an exposure to euro weakening against GBP.
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 cross currency swap match the bonds
there is an expectation that the value of the hedging instrument and
As the critical terms of the interest rate swaps match the bonds such the value of the hedged item move in the opposite direction as a
there is an expectation that the value of the hedging instrument and result of movements in the EURGBP exchange rate. The hedge
the value of the hedged item move in the opposite direction as a ratio is 100%. Sources of hedge ineffectiveness are a reduction or
result of movements in the zero coupon Euribor curve. The hedge modification in the hedged item or a material change in the credit
ratio is 100%. Sources of hedge ineffectiveness are a reduction or risk of swap counterparties.
modification in the hedged item or a material change in the credit
risk of swap counterparties. At December 2018, the Group held the following instruments to
hedge exposures to changes in interest rates and foreign currency
risk associated with borrowings.
Change in fair value of

hedging instrument
Carrying amount of used to determine Nominal amounts of
All figures in £ millions hedging instruments hedge ineffectiveness hedging instruments
Interest rate risk

Financial assets – derivative financial instruments 13 (7) 404
Currency risk
The amounts at the reporting date relating to items designated as hedge items were as follows:
Accumulated amount
of fair value hedge
adjustments on Change in fair value of
the hedged item hedged item used to Line item in profit or
Carrying amount of included in the determine hedge Hedge loss that includes
All figures in £ millions hedged items carrying amount ineffectiveness ineffectiveness hedge ineffectiveness
Interest rate risk

Financial liabilities – borrowings (416) (9) 7 – n/a
Currency risk
Financial liabilities – borrowings (416) n/a (3) – n/a
Hedge of net investment in a foreign operation It is expected that the change in value of each of these items
A foreign currency exposure arises from the translation of the will mirror each other as there is a clear and direct economic
Group’s net investments in its subsidiaries which have USD and euro relationship between the hedge and the hedged item in the
functional currencies. The hedged risk is the risk of changes in the hedge relationship.
GBPUSD and GBPEUR spot rates that will result in changes in the Hedge ineffectiveness would arise if the value of the hedged
value of the group’s net investment in its USD and euro assets when items fell below the value of the hedging instruments however
translated into GBP. The hedged items are a portion of the Group’s this is unlikely as the value of the group’s assets denominated
assets which are denominated in USD and euro. The hedging in USD and euro are significantly greater than the proposed net
instruments are debt and derivative financial instruments, including investment programme.
Cross Currency Swaps, FX Forwards and FX Collars which creates an
exposure to USD and euro weakening against GBP.
16. Derivative financial instruments and hedge accounting continued
Overview
The amounts related to items designated as hedging instruments were as follows:
Change in value of
hedging instrument Nominal amounts Hedging Hedge ineffectiveness
Carrying amount of used to determine of hedging gains/(losses) recognised in
All figures in £ millions hedged instruments hedge ineffectiveness instruments recognised in OCI profit or loss
Financial liabilities – derivative financial instruments (59) (22) 607 (22) –

Financial liabilities – borrowings (256) (10) (256) (10) –
In addition to the above, £15m of hedging losses were recognised in OCI in relation to derivative financial instruments that matured during
the year.
Offsetting arrangements

Derivative financial assets and liabilities subject to offsetting arrangements are as follows:
2018 2017
Gross Gross Net derivative Gross Gross Net derivative
derivative derivative assets/ derivative derivative assets/
All figures in £ millions assets liabilities liabilities assets liabilities liabilities
Counterparties in an asset position 67 (44) 23 103 (78) 25

Counterparties in a liability position 1 (15) (14) 37 (62) (25)
Total as presented in the balance sheet 68 (59) 9 140 (140) –
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. Offset arrangements in respect of cash balances are described in note 17.
Our performance
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 risk to any one counterparty.
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)

Cash at bank and in hand 533 361

Short-term bank deposits 35 157
Governance
568 518
Cash at bank and in hand – within assets classified as held for sale – 127
568 645
Short-term bank deposits are invested with banks and earn interest at the prevailing short-term deposit rates.
At the end of 2018, the currency split of cash and cash equivalents was US dollar 18% (2017: 36%), sterling 30% (2017: 8%), Canadian dollar
14% (2017: 2%), euro 6% (2017: 7%), renminbi 3% (2017: 20%) and other 29% (2017: 27%). At the end of 2017, a significant proportion of the
renminbi cash related to assets held for sale.
Cash and cash equivalents have fair values that approximate to their carrying value due to their short-term nature. Cash and cash
equivalents include the following for the purpose of the cash flow statement:

Cash and cash equivalents – within assets classified as held for sale – 127
Bank overdrafts (43) (15)
525 630
The Group has certain cash pooling arrangements in US dollars, sterling, euro and Canadian dollars where both the company and
the bank have a legal right of offset. Offsetting amounts are presented gross in the balance sheet. Offset arrangements in respect of
derivatives are shown in note 16.
18. Financial liabilities – borrowings

The Group’s current and non-current borrowings are as follows:
Non-current
1.875% euro notes 2021 (nominal amount €250m; 2017 nominal amount €500m) 233 463
3.75% US dollar notes 2022 (nominal amount $117m) 92 85
3.25% US dollar notes 2023 (nominal amount $94m) 74 69
1.375% euro notes 2025 (nominal amount €300m; nominal amount €500m) 273 445
Finance lease liabilities 2 4
674 1,066
Current
Due within one year or on-demand:
Bank loans and overdrafts 43 15
Finance lease liabilities 3 4
46 19
Total borrowings 720 1,085
Included in the non-current borrowings above is £6m of accrued interest (2017: £10m). Included in the current borrowings above is £nil of
accrued interest (2017: £nil).
The maturities of the Group’s non-current borrowings are as follows:
Between one and two years 1 3

Between two and five years 400 549
Over five years 273 514
674 1,066
The carrying amounts and market values of borrowings are as follows:
2018 2017
Effective Carrying Market Effective Carrying Market
All figures in £ millions interest rate value value interest rate value value
Bank loans and overdrafts n/a 43 43 n/a 15 15

1.875% euro notes 2021 2.04% 233 233 2.04% 463 467
3.75% US dollar notes 2022 3.94% 92 91 3.94% 85 87
3.25% US dollar notes 2023 3.36% 74 71 3.36% 69 67
1.375% euro notes 2025 1.44% 273 266 1.44% 445 445
Finance lease liabilities n/a 5 5 n/a 8 8
720 709 1,085 1,089
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:
US dollar 188 172

Sterling 23 1
Euro 506 911
Other 3 1
720 1,085
18. Financial liabilities – borrowings continued
Overview
The Group has $1.75bn (£1.4bn) of undrawn capacity on its committed borrowing facilities as at 31 December 2018 (2017: $1.75bn
(£1.3bn) 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 finance lease obligations, the rights to the leased asset revert to the lessor in the event
of default.
The maturity of the Group’s finance lease obligations is as follows:
Finance lease liabilities – minimum lease payments

Not later than one year 3 4
Later than one year and not later than two years 1 3

Later than two years and not later than three years 1 1
Later than three years and not later than four years – –
Later than four years and not later than five years – –
Later than five years – –
Future finance charges on finance leases – –
Present value of finance lease liabilities 5 8
The present value of the Group’s finance lease obligations is as follows:
Our performance
Later than one year and not later than five years 2 4
Later than five years – –
5 8
The carrying amounts of the Group’s lease obligations approximate their fair value.
19. Financial risk management

The Group’s approach to the management of financial risks together Capital risk
with sensitivity analyses of its financial instruments is set out below. The Group’s objectives when managing capital are:
Treasury policy o maintain a strong balance sheet and a solid investment
T
Governance
Pearson’s treasury policies set out the group’s principles for grade rating;
addressing key financial risks including capital risk, liquidity risk,
To continue to invest in the business;
foreign exchange risk and interest rate risk and sets out measurable
targets for each. The Audit Committee receive quarterly reports To have a sustainable and progressive dividend policy, and;
incorporating compliance with these measurable targets and
review and approve the treasury policies annually. To return surplus cash to our shareholders where appropriate.
The treasury function is permitted to use derivatives where their The Group aims to maintain net debt at a level less than 1.5 times
use reduces a risk or allows a transaction to be undertaken more EBITDA before the adoption of IFRS 16 and less than 2.2 times
cost effectively. Derivatives permitted include swaps, forwards EBITDA after the adoption of IFRS16. This is consistent with a solid
and collars to manage foreign exchange and interest rate risk, with investment grade rating (assuming no material deterioration in
foreign exchange swap and forward contracts the most commonly trading performance) and provides comfortable headroom
executed. Speculative transactions are not permitted. against covenants.
The Group is currently rated BBB (negative outlook) with Standard

and Poor’s and Baa2 (stable outlook) with Moody’s.
19. Financial risk management continued

Net debt
The Group’s net debt position is set out below:

Marketable securities – 8
Derivative financial instruments 9 –
Bank loans and overdrafts (43) (15)
Bonds (672) (1,062)
Finance lease liabilities (5) (8)
Net debt (143) (432)
Interest and foreign exchange rate management Overseas profits are converted to sterling to satisfy sterling cash
The Group’s principal currency exposure is to the US dollar which outflows such as dividends at the prevailing spot rate at the time
represents more than 60% of the Group’s sales. of the transaction. To the extent the Group has sufficient sterling,
US dollars may be held as dollar cash to provide a natural offset
The Group’s long-term debt is primarily held in US dollars to provide to the Group’s debt or to satisfy future US dollar cash outflows.
a natural hedge of this exposure, which is achieved through issued
US dollar debt or converting euro debt to US dollars using cross- The Group does not have significant cross border foreign exchange
currency swaps, forwards and collars. As at 31 December 2018, transactional exposures.
£617m of the Group’s debt is held at fixed rates (2017: £674m), As at 31 December 2018, the sensitivity of the carrying value of the
with £103m held at floating rates (2017: £411m), partially offset Group’s financial instruments to fluctuations in interest rates and
by US dollar cash balances which attract floating rate interest. exchange rates is as follows:
See note 16 for details of the Group’s hedging programme which
addresses interest rate risk and foreign currency risk.
Impact of 1% Impact of 1% Impact of 10% Impact of 10%

Carrying increase in decrease in strengthening weakening in
All figures in £ millions value interest rates interest rates in sterling sterling
Investments in unlisted securities 93 – – (7) 9

Cash and cash equivalents 568 – – (36) 45
Derivative financial instruments 9 (3) 3 1 (1)
Bonds (672) 17 (17) 61 (74)
Other borrowings (48) – – 2 (3)
Other net financial assets 620 – – (51) 62
Total financial instruments 570 14 (14) (30) 38
The table shows the sensitivities of the fair values of each class of Liquidity and re-financing risk management
financial instrument to an isolated change in either interest rates The Group regularly reviews the level of cash and debt facilities
or foreign exchange rates. Other net financial assets comprises required to fund its activities. This involves preparing a prudent
trade receivables less trade payables. A significant proportion cash flow forecast for the next three to five years, determining the
of the movements shown above would impact equity rather than level of debt facilities required to fund the business, planning
the income statement due to the location and functional currency for shareholder returns and repayments of maturing debt, and
of the entities in which they arise and the availability of net identifying an appropriate amount of headroom to provide a
investment hedging. reserve against unexpected outflows.
The Group’s income statement is reported at average rates for the At 31 December 2018, the Group had cash of £0.5bn and an
year while the balance sheet is translated at the year-end closing undrawn US dollar denominated revolving credit facility due 2021
rate. Differences between these rates can distort ratio calculations of $1.75bn (£1.4bn). At 31 December 2017, the Group had cash of
such as debt to EBITDA and interest cover. Adjusted operating profit £0.6bn and an undrawn US dollar denominated revolving credit
translated at year-end closing rates would be £28m higher than the facility due 2021 of $1.75bn (£1.3bn).
reported figure of £546m at £574m. EBITDA translated at year-end
closing rates would be £32m higher than the reported figure of
£698m at £730m.
Overview
The $1.75bn facility contains interest cover and leverage The following table analyses the Group’s bonds and derivative
covenants which the Group has complied with for the year assets and liabilities into relevant maturity groupings based on
ended 31 December 2018. The maturity of the carrying values of the remaining period at the balance sheet date to the contractual
the Group’s borrowings and trade payables are set out in notes 18 maturity date. Short dated derivative instruments have not been
and 24 respectively. included in this table. The amounts disclosed in the table are the
contractual undiscounted cash flows (including interest) and as
At the end of 2018, the currency split of the Group’s trade payables
such may differ from the amounts disclosed on the balance sheet.
was US dollar £178m, sterling £57m and other currencies £98m
(2017: US dollar £137m, sterling £58m and other currencies £90m) .
Trade payables are all due within one year (2017: all due within
one year).

Analysed by maturity Analysed by currency
Greater than Later than
one month one year but
and less than less than five Five years
All figures in £ millions one year years or more Total USD GBP Other Total
At 31 December 2018
Bonds 14 431 277 722 189 – 533 722
Rate derivatives – inflows (20) (288) (343) (651) (40) (167) (444) (651)
Rate derivatives – outflows 23 289 341 653 254 390 9 653
FX forwards – inflows (251) (35) – (286) – (286) – (286)
FX forwards – outflows 275 37 – 312 312 – – 312
Our performance
Total 41 434 275 750 715 (63) 98 750
At 31 December 2017
Bonds 20 601 533 1,154 184 – 970 1,154
Rate derivatives – inflows (38) (975) (684) (1,697) (53) (751) (893) (1,697)
Rate derivatives – outflows 48 1,060 667 1,775 1,003 751 21 1,775
FX forwards – inflows – – – – – – – –
FX forwards – outflows – – – – – – – –
Total 30 686 516 1,232 1,134 – 98 1,232
Financial counterparty and credit risk management For trade receivables and contract assets the Group’s exposure to
Financial counterparty and credit risk arises from cash and cash credit risk is influenced mainly by the individual characteristics of
Governance
equivalents, favourable derivative financial instruments and each customer. However, risk associated with the industry and
deposits with banks and financial institutions, as well as credit country in which customers operate may also influence the credit
exposures to customers, including outstanding receivables. risk. The credit quality of customers is assessed by taking into
account financial position, past experience and other relevant
Counterparty credit limits, which take published credit rating and factors. Individual credit limits are set for each customer based on
other factors into account, are set to cover the Group’s total internal ratings. The compliance with credit limits is regularly
aggregate exposure to a single financial institution. The limits monitored by the Group. A default on a trade receivable is when
applicable to published credit rating bands are approved by the the counterparty fails to make contractual payments within the
Chief Financial Officer within guidelines approved by the Board. stated payment terms. Trade receivables and contract assets are
Exposures and limits applicable to each financial institution are written off when there is no reasonable expectation of recovery.
reviewed on a regular basis. The carrying amounts of financial assets, trade receivables and
Cash deposits and derivative transactions are made with approved contract assets represent the maximum credit exposure.
counterparties up to pre-agreed limits. To manage counterparty Trade receivables and contract assets are subject to impairment
risk associated with cash and cash equivalents, the Group uses a using the expected credit loss model. The Group applies the IFRS 9
mixture of money market funds as well as bank deposits. As at simplified approach to measuring expected credit losses which uses
31 December 2018, 85% of cash and cash equivalents was held with a lifetime expected credit loss allowance for all trade receivables
investment grade bank counterparties, 7% with AAA money market and contract assets. To measure the expected credit losses, trade
funds and 8% held with non-investment grade bank counterparties. receivables and contract assets have been grouped based on
As at 31 December 2018, the Group had a net exposure of £33m shared credit risk characteristics and the days past due. See note
with investment grade counterparties for derivative transactions. 22 for further details about trade receivables and contract assets
including movements in provisions for bad and doubtful debts.
20. Intangible assets – pre-publication

Cost
At beginning of year 1,854 2,417
Additions 328 362
Disposal through business disposal – (1)
Disposals (158) (248)
Transfer from property, plant and equipment 2 –
Transfer to assets classified as held for sale – (508)
At end of year 2,096 1,854
Amortisation
At beginning of year (1,113) (1,393)
Exchange differences (53) 109
Charge for the year (271) (338)
Disposals 158 248
Transfer to assets classified as held for sale – 261
At end of year (1,279) (1,113)
Carrying amounts
Included in the above are pre-publication assets amounting to £577m (2017: £504m) which will be realised in more than one year.
Amortisation is included in the income statement in cost of goods sold.
In addition to the above £242m (2017: £247m) of pre-publication assets are included in assets classified as held for sale (see note 32) with a
charge of £67m and additions of £60m in 2018 relating to assets and liabilities held for sale.
21. Inventories
Raw materials 5 4
Work in progress – 2
Finished goods 149 142
Returns asset 10 –
164 148
The cost of inventories recognised as an expense and included in the income statement in cost of goods sold amounted to £375m
(2017: £324m). In 2018 £39m (2017: £38m) of inventory provisions was charged in the income statement. 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 (see note 1b).
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 2018. The returns asset all relates to finished goods.
22. Trade and other receivables
Overview
Current
Trade receivables 874 739
Royalty advances 5 8
Prepayments 103 82
Deferred contract costs 1 –
Accrued income 2 1
Other receivables 193 280
1,178 1,110
Non-current

Trade receivables 30 21
Royalty advances 21 20
Prepayments 13 15
Deferred contract costs 1 –
Accrued income 10 10
Other receivables 25 37
100 103
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 in 2018. The carrying value of the Group’s trade and other receivables approximates its fair value. Trade receivables
Our performance
are stated net of provisions for bad and doubtful debts. Trade and other receivables includes the impact of adoption of IFRS 15 in 2018
(see note 1b). This impact increased trade and other receivables as a result of the transfer of the sales return liability of £173m to trade and
other liabilities that was previously netted in trade receivables. Comparatives have not been restated.
The movements in the provision for bad and doubtful debts are as follows:
At beginning of year (116) (112)

Adjustment on initial application of IFRS 9 (see note 1c) (12) –
Exchange differences 2 7
Income statement movements (1) (38)
Utilised 31 21
Governance
Disposal through business disposal – 1
Transfer to assets classified as held for sale – 5
At end of year (96) (116)
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 trade receivables is as follows:
Within due date 606 661

Up to three months past due date 172 187
Three to six months past due date 72 48

Six to nine months past due date 16 18
Nine to 12 months past due date 24 13
More than 12 months past due date 14 3
Total trade receivables 904 930
Less: sales return liability – (170)
Net trade receivables 904 760
The Group reviews its bad debt provision at least twice a year following a detailed review of receivable balances and historical payment
profiles. Management believes all the remaining receivable balances are fully recoverable.
23. Provisions for other liabilities and charges

Deferred Disposals Legal
All figures in £ millions consideration Property and closures and other Total
At 1 January 2018 45 3 11 21 80
Exchange differences 2 – – – 2
Charged to income statement – 103 – 3 106
Released to income statement – (2) – (5) (7)
Utilised (5) (2) (5) (3) (15)
Disposal through business disposal – – (1) – (1)
At 31 December 2018 42 102 5 16 165
2018
Analysis of provisions:
Deferred Disposals Legal
All figures in £ millions consideration Property and closures and other Total
Current 6 2 5 7 20
Non-current 36 100 – 9 145
42 102 5 16 165
2017
Current 5 1 11 8 25
Non-current 40 2 – 13 55
45 3 11 21 80
Deferred consideration primarily relates to the formation of a venture in North America in 2011. The provision will be utilised over a number
of years as payments are based on a royalty rate. The provision above represents management’s best estimate of the liability, however,
the maximum that could be payable is £84m. Property provisions predominantly relate to restructuring and onerous leases. The main
provisions relate to the consolidation of London properties and are expected to be utilised from 2020. Uncertainties around property
provisions relate to prevailing market conditions including potential sublet income, lease terms including rent free periods, void periods,
lease incentives and running costs. Disposals and closures include liabilities related to recent disposals and are expected to be utilised in
2019. 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.
24. Trade and other liabilities

Trade payables 311 265

Sales return liability 173 –
Social security and other taxes 16 21
Accruals 397 447
Deferred income 387 322
Interest payable 46 45
Liability to purchase own shares – 151
Other liabilities 225 224
1,555 1,475
Less: non-current portion
Accruals 15 26
Deferred income 66 35
Other liabilities 74 72
155 133
Current portion 1,400 1,342
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. Trade and other liabilities includes the impact of adoption of IFRS 15
in 2018 (see note 1b). This impact increased trade and other liabilities as a result of the transfer of the sales return liability of £173m that was
previously netted in trade receivables and deferred income by £28m at 31 December 2018. Comparatives have not been restated. The
liability to purchase own shares in 2017 relates to a buyback agreement for the purchase of the company’s own shares (see note 27).
25. Retirement benefit and other post-retirement obligations
Overview
Background
The Group operates a number of defined benefit and defined A ruling in the Lloyds Bank High Court case in October 2018 provided
contribution retirement plans throughout the world. clarity on how pension plans should equalise guaranteed minimum
pensions (GMP) between males and females. The case ruling
The largest plan is the Pearson Group Pension Plan (UK Group plan)
resulted in a past service charge in the income statement of £8m
in the UK, which is sectionalised to provide both defined benefit and
and an additional liability of £8m which has been incorporated
defined contribution pension benefits. The defined benefit section
into the valuation of the UK Group plan defined benefit obligation.
was closed to new members from 1 November 2006. The defined
This charge has been excluded from the Group’s adjusted earnings
contribution section, opened in 2003, is open to new and existing
as this relates to historical circumstances (see note 8). The charge
employees. Finally, there is a separate section within the UK Group
is an estimate based on available data and revisions to these
plan set up for auto-enrolment. The defined benefit section of the
estimates in future years will be treated as assumption changes and

UK Group plan is a final salary pension plan which provides benefits
recorded in other comprehensive income rather than the income
to members in the form of a guaranteed level of pension payable
statement.
for life. The level of benefits depends on the length of service and
final pensionable pay. 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 Group Pension
Trustee Limited.
At 31 December 2018, the UK Group plan had approximately 24,000 members, analysed in the following table:
All figures in % Active Deferred Pensioners Total
Defined benefit 1 25 35 61
Our performance
Defined contribution 9 30 – 39
Total 10 55 35 100
The other major defined benefit plans are based in the US. The defined contribution section of the UK Group plan operates a
These are also final salary pension plans which provide benefits Reference Scheme Test (RST) pension underpin for its members.
to members in the form of a guaranteed pension payable for life, Where a member’s fund value is insufficient to purchase the
with the level of benefits dependent on length of service and RST pension upon retirement, the UK Group plan is liable for the
final pensionable pay. The majority of the US plans are funded. shortfall to cover the member’s RST pension. In 2017, the UK Group
plan revised its approach to securing the RST underpin by
The Group also has several post-retirement medical benefit plans
converting a member’s fund value into a pension in the UK Group
(PRMBs), principally in the US. PRMBs are unfunded but are
plan rather than purchasing an annuity with an insurer. A liability
accounted for and valued similarly to defined benefit pension
of £23m (2017: £32m) in respect of the underpin is included in the
Governance
plans. In 2018, changes made to the US PRMB have resulted in a
UK Group plan’s defined benefit obligation, calculated as the present
curtailment gain of £11m being recognised in the income statement.
value of projected payments less the fund value. The UK Group
The defined benefit schemes expose the Group to actuarial risks, plan’s conversion factors are lower than the respective insurer
such as life expectancy, inflation risks, and investment risk including annuity values and this drove a reduction in the underpin liability,
asset volatility and changes in bond yields. The Group is not exposed resulting in an actuarial gain through other comprehensive income
to any unusual, entity-specific or plan-specific risks. and an increase in the surplus at 31 December 2017. From 1 January
2018, members who have sufficient funds to purchase an RST
pension are able 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 does not recognise the assets and liabilities for
members of the defined contribution section of the UK Group plan
whose fund values are expected to be sufficient to purchase an RST

pension without assistance from the UK Group plan. The defined
contribution section of the UK Group plan had gross assets
of £453m at 31 December 2018.
25. Retirement benefit and other post-retirement obligations continued

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.
2018 2017
UK Group Other UK Group Other
All figures in % plan plans PRMB plan plans PRMB
Inflation 3.3 1.6 1.5 3.2 1.6 1.5

Rate used to discount plan liabilities 2.8 4.0 4.1 2.5 3.0 3.0
Expected rate of increase in salaries 3.8 2.9 3.0 3.7 3.0 3.0
Expected rate of increase for pensions in payment and
deferred pensions 2.1 to 5.1 – – 2.1 to 5.1 – –
Initial rate of increase in healthcare rate – – 7.0 – – 6.5
Ultimate rate of increase in healthcare rate – – 5.5 – – 5.0
The UK discount rate is based on corporate bond yields adjusted to reflect the duration of liabilities.
The US discount rate is set by reference to a US bond portfolio matching model.
The inflation rate for the UK Group plan of 3.3% 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% has been used.
The expected rate of increase in salaries has been set at 3.8% for 2018.
For the UK Group plan, the mortality base table assumptions have been updated and are derived from the SAPS S2 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 model is applied for both males and females.
For the US plans, the mortality table (RP – 2018) and 2018 improvement scale (MP – 2018) 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:
UK US
All figures in years 2018 2017 2018 2017
Male 23.8 23.6 20.7 20.8

Female 24.5 25.7 22.7 22.8
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:
UK US
All figures in years 2018 2017 2018 2017
Male 25.4 25.7 22.3 22.5

Female 26.3 27.9 24.2 24.4
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.
Overview
Financial statement information
The amounts recognised in the income statement are as follows:
2018
Defined
UK Group benefit Defined
All figures in £ millions plan other Sub-total contribution PRMB Total
Current service cost 7 2 9 56 (1) 64

Past service cost 8 – 8 – – 8
Curtailments – – – – (11) (11)
Administration expenses 6 – 6 – – 6
Total operating expense 21 2 23 56 (12) 67

Interest on plan assets (82) (5) (87) – – (87)
Interest on plan liabilities 68 6 74 – 2 76
Net finance (income)/expense (14) 1 (13) – 2 (11)
Net income statement charge 7 3 10 56 (10) 56
2017
Defined
UK Group benefit Defined
All figures in £ millions plan other Sub-total contribution PRMB Total
Current service cost 8 1 9 57 (1) 65

Administration expenses 9 1 10 – – 10
Our performance
Total operating expense 17 2 19 57 (1) 75
Interest on plan assets (84) (5) (89) – – (89)
Interest on plan liabilities 77 7 84 – 2 86
Net finance (income)/expense (7) 2 (5) – 2 (3)
Net income statement charge 10 4 14 57 1 72
The amounts recognised in the balance sheet are as follows:
2018 2017
Other Other
UK Group Other funded unfunded UK Group Other funded unfunded
All figures in £ millions plan plans plans Total plan plans plans Total
Governance
Fair value of plan assets 3,240 141 – 3,381 3,337 155 – 3,492
Present value of defined
benefit obligation (2,671) (158) (19) (2,848) (2,792) (161) (20) (2,973)
Net pension asset/(liability) 569 (17) (19) 533 545 (6) (20) 519
Other post-retirement medical
benefit obligation (49) (67)
Other pension accruals (13) (11)
Net retirement benefit asset 471 441
Analysed as:
Retirement benefit assets 571 545
Retirement benefit obligations (100) (104)

Financial statement information continued
The following gains have been recognised in other comprehensive income:
Amounts recognised for defined benefit plans 16 175

Amounts recognised for post-retirement medical benefit plans 6 –
Total recognised in year 22 175
The fair value of plan assets comprises the following:
2018 2017
All figures in % plan funded plans Total plan funded plans Total
Insurance 28 1 29 29 – 29
Equities 1 1 2 1 1 2
Bonds – 2 2 – 3 3
Property 7 – 7 8 – 8
Pooled asset investment funds 44 – 44 44 – 44
Other 16 – 16 14 – 14
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 additional categories and those assets which have a quoted market price in an active market
and those that do not:
2018 2017
Quoted No quoted Quoted No quoted
All figures in % market price market price market price market price
Insurance 29 – 29 –
Non-UK equities – 2 – 2
Fixed-interest securities 2 – 3 –
Property – 7 – 8
Pooled asset investment funds 44 – 44 –
Other – 16 – 14
Total 75 25 76 24
The liquidity profile of the UK Group plan assets is as follows:
All figures in % 2018 2017
Liquid – call <1 month 51 50

Less liquid – call 1–3 months – –
Illiquid – call >3 months 49 50
Overview
Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:
2018 2017
All figures in £ millions plan plans Total plan plans Total
Fair value of plan assets

Opening fair value of plan assets 3,337 155 3,492 3,339 158 3,497
Exchange differences – 4 4 – (8) (8)
Interest on plan assets 82 5 87 84 5 89
Return on plan assets excluding interest (45) (13) (58) (140) 10 (130)

Contributions by employer 6 1 7 234 8 242
Benefits paid (140) (11) (151) (188) (18) (206)
Other – – – 8 – 8
Closing fair value of plan assets 3,240 141 3,381 3,337 155 3,492
Present value of defined benefit obligation
Opening defined benefit obligation (2,792) (181) (2,973) (3,181) (205) (3,386)
Exchange differences – (3) (3) – 13 13
Current service cost (7) (2) (9) (8) (1) (9)
Past service cost (8) – (8) – – –
Administration expenses (6) – (6) (9) (1) (10)
Our performance
Interest on plan liabilities (68) (6) (74) (77) (7) (84)
Actuarial gains/(losses) – experience (49) (2) (51) 126 6 132
Actuarial gains/(losses) – demographic (12) – (12) 133 1 134
Actuarial gains/(losses) – financial 131 6 137 44 (5) 39
Contributions by employee – – – – – –
Other – – – (8) – (8)
Benefits paid 140 11 151 188 18 206
Closing defined benefit obligation (2,671) (177) (2,848) (2,792) (181) (2,973)
The weighted average duration of the defined benefit obligation is 16.1 years for the UK and 7.1 years for the US.
Governance

Changes in the value of the US PRMB are as follows:
Opening defined benefit obligation (67) (77)

Exchange differences (2) 5
Current service cost 1 1
Curtailments 11 –
Interest on plan liabilities (2) (2)
Actuarial gains/(losses) – experience 4 1
Actuarial gains/(losses) – demographic – 1
Actuarial gains/(losses) – financial 2 (2)
Benefits paid 4 6
Closing defined benefit obligation (49) (67)
Funding
The UK Group plan is self-administered with the plan’s assets being In February 2019, the UK Group plan purchased a further pensioner
held independently of the Group in trust. The trustee of the plan buy-in policy valued at approximately £500m with Legal & General.
is required to act in the best interest of the plan’s beneficiaries. This is in addition to the previous buy-in policies with Aviva and
The most recent triennial actuarial valuation for funding purposes Legal & General totalling £1.2bn which were purchased in 2017.
was completed as at 1 January 2018 and this valuation revealed a As a result of this latest transaction, 95% of the UK Group plan’s
technical provisions funding surplus of £163m. The plan expects pensioner liabilities are now matched with buy-in policies.
to be able to provide benefits (in accordance with the plan rules) These transfer significant longevity risk to Aviva and Legal &
with a very low level of reliance on future funding from the Group. General, reducing the pension risks being underwritten by the
Group and providing additional security for members.
Assets of the plan are divided into two elements: matching assets,
which are assets that produce cash flows that can be expected Regular contributions to the plan in respect of the defined benefit
to match the cash flows for a proportion of the membership, sections are estimated to be £3m for 2019.
and include a liability-driven investment mandate (UK bonds,
interest rate/inflation swaps and other derivative instruments),
Pensioner buy-in insurance policies, inflation-linked property and
infrastructure; and return seeking assets, which 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. The plan’s long-term investment strategy allocates
85% to matching assets and 15% to return seeking assets.
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:
2018
All figures in £ millions 1% increase 1% decrease
Effect:
(Decrease)/increase in defined benefit obligation – UK Group plan (386) 522
(Decrease)/increase in defined benefit obligation – US plan (11) 13
Overview
Sensitivities continued
The effect of members living one year more or one year less on the defined benefit obligation is as follows:
2018
One year One year
All figures in £ millions increase decrease
Effect:
Increase/(decrease) in defined benefit obligation – UK Group plan 143 (138)
Increase/(decrease) in defined benefit obligation – US plan 7 (8)
The effect of a half percentage point increase and decrease in the inflation rate is as follows:

2018
All figures in £ millions 0.5% increase 0.5% decrease
Effect:
Increase/(decrease) in defined benefit obligation – UK Group plan 129 (114)
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.
Our performance
26. Share-based payments
The Group recognised the following charges in the income statement in respect of its equity-settled share-based payment plans:
Pearson plans 37 33
The Group operates the following equity-settled employee option Long-Term Incentive Plan The plan was first introduced in 2001,
and share plans: renewed again in 2006 and again in 2011. The plan consists of
restricted shares. The vesting of restricted shares is normally
Worldwide Save for Shares Plan Since 1994, the Group has operated
dependent on continuing service over a three-to five-year period,
a Save-As-You-Earn plan for UK employees. In 1998, the Group
and in the case of executive directors and senior management upon
introduced a Worldwide Save for Shares Plan. Under these plans,
the satisfaction of corporate performance targets over a three-year
Governance
employees can save a portion of their monthly salary over periods
period. These targets may be based on market and/or non-market
of three or five years. At the end of this period, the employee has the
performance criteria. Restricted shares awarded to executive
option to purchase ordinary shares with the accumulated funds at
directors in May 2018 and September 2017 vest dependent on
a purchase price equal to 80% of the market price prevailing at the
relative total shareholder return, return on invested capital and
time of the commencement of the employee’s participation in the
adjusted earnings per share growth. Restricted shares awarded to
plan. Options that are not exercised within six months of the end
senior management in March 2017 vest dependent on adjusted
of the savings period lapse unconditionally.
earnings per share growth. Other restricted shares awarded in
Employee Stock Purchase Plan In 2000, the Group established an 2018 and 2017 vest depending on continuing service over periods
Employee Stock Purchase Plan which allows all employees in the of up to three years.
US to save a portion of their monthly salary over six-month periods.
Management Incentive Plan The plan was introduced in 2017
At the end of the period, the employee has the option to purchase
combining the Group’s Annual Incentive Plan and Long-Term
American Depository Receipts (ADRs) with their accumulated funds
Incentive Plan for senior management. The number of shares to be

at a purchase price equal to 85% of the lower of the market prices
granted to participants is dependent on Group performance in the
prevailing at the beginning or end of the period.
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 Pearson Executive Management upon satisfaction of
non-market based performance criteria as determined by the
Remuneration Committee. Restricted shares awarded as part of
the 2017 Management Incentive Plan were granted in April 2018.
Restricted shares awarded as part of the 2018 Management
Incentive Plan will be granted in April 2019.
26. Share-based payments continued

The number and weighted average exercise prices of share options granted under the Group’s plans are as follows:
2018 2017
Number of share Weighted average Number of share Weighted average

options exercise price options exercise price
000s £ 000s £
Outstanding at beginning of year 2,981 6.84 2,978 8.14

Granted during the year 729 5.80 1,619 5.50
Exercised during the year (70) 6.57 (9) 7.00
Forfeited during the year (668) 7.58 (1,451) 8.04
Expired during the year (244) 8.19 (156) 9.09
Outstanding at end of year 2,728 5.76 2,981 6.84
Options exercisable at end of year 169 11.31 350 8.18
Options were exercised regularly throughout the year. The weighted average share price during the year was £8.45 (2017: £6.71).
Early exercises arising from redundancy, retirement or death are treated as an acceleration of vesting and the Group therefore recognises
in the income statement the amount that otherwise would have been recognised for services received over the remainder of the original
vesting period.
The options outstanding at the end of the year have weighted average remaining contractual lives and exercise prices as follows:
2018 2017
Weighted average Weighted average

Range of exercise prices Number of contractual life Number of contractual life
£ share options 000s Years share options 000s Years
5–10 2,553 2.29 2,697 2.52

>10 175 0.29 284 1.24
2,728 2.16 2,981 2.40
In 2018 and 2017, options were granted under the Worldwide Save for Shares Plan. The weighted average estimated fair value for the
options granted was calculated using a Black–Scholes option pricing model.
The weighted average estimated fair values and the inputs into the Black–Scholes model are as follows:
2018 2017
Weighted average Weighted average
Fair value £1.88 £1.24

Weighted average share price £7.49 £6.83
Weighted average exercise price £5.80 £5.50
Expected volatility 35.78% 34.75%
Expected life 3.7 years 3.7 years
Risk-free rate 0.87% 0.20%
Expected dividend yield 5.21% 7.61%
Forfeiture rate 3.2% 3.2%
The expected volatility is based on the historical volatility of the company’s share price over the previous three to seven years depending on
the vesting term of the options.
The following shares were granted under restricted share arrangements:
2018 2017
Number of Weighted average fair Number of Weighted average fair

shares value shares value
000s £ 000s £
Long-Term Incentive Plan 2,907 7.55 6,453 6.61

Management Incentive Plan 2,035 7.45 – –
26. Share-based payments continued
Overview
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. The number of shares expected to vest is adjusted, based on historical experience,
to account for potential forfeitures. Participants under the plan 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 1 January 2017 822,127 205 2,597

Issue of ordinary shares – share option schemes 923 – 5
Purchase of own shares (20,996) (5) –
At 31 December 2017 802,054 200 2,602
Issue of ordinary shares – share option schemes 864 1 5
At 31 December 2018 781,078 195 2,607
The ordinary shares have a par value of 25p per share (2017: 25p per share). All issued shares are fully paid. All shares have the same rights.
Our performance
The £300m share buyback programme announced in October 2017 was completed on 16 February 2018. In 2017, the Group’s brokers
purchased 21m shares at a value of £153m of which £149m had been cancelled at 31 December 2017. Cash payments of £149m had been
made in respect of the purchases with the outstanding £4m settlement made at the beginning of January 2018. This £4m together with the
remaining value of the buyback programme of £147m was recorded as a liability at 31 December 2017 (see note 24). A further 22m shares
were purchased under the programme in 2018 (see note 37). The shares bought back have been cancelled and the nominal value of these
shares transferred to a capital redemption reserve. The nominal value of shares cancelled at 31 December 2018 was £11m (2017: £5m).
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.
Governance
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.
28. Treasury shares

Pearson plc
Number of
shares
000s £m
At 1 January 2017 7,719 79

Purchase of treasury shares – –
Release of treasury shares (1,725) (18)

At 31 December 2017 5,994 61
Purchase of treasury shares – –
At 31 December 2018 3,225 33
The Group holds Pearson plc shares in trust to satisfy its obligations under its restricted share plans (see note 26). These shares, representing
0.4% (2017: 0.8%) 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 £0.8m (2017: £1.5m). Dividends on treasury shares are waived.
At 31 December 2018, the market value of Pearson plc treasury shares was £30m (2017: £44m).
29. Other comprehensive income

2018
Attributable to equity holders of the company
Non-
Fair value Translation Retained controlling
All figures in £ millions reserve reserve earnings Total interest Total

Net exchange differences on translation of foreign operations – Group – 91 – 91 – 91
Net exchange differences on translation of foreign
operations – associates – (1) – (1) – (1)
Currency translation adjustment disposed – (4) – (4) – (4)
Attributable tax – – (4) (4) – (4)

Fair value gain on other financial assets 8 – – 8 – 8
Attributable tax – – – – – –
Remeasurement of retirement benefit obligations – Group – – 22 22 – 22
Remeasurement of retirement benefit obligations – associates – – 3 3 – 3
Attributable tax – – 9 9 – 9
Other comprehensive income/(expense) for the year 8 86 30 124 – 124
2017
Attributable to equity holders of the company
Non-
Fair value Translation Retained controlling
All figures in £ millions reserve reserve earnings Total interest Total

Net exchange differences on translation of foreign operations – Group – (158) – (158) – (158)
Net exchange differences on translation of
foreign operations – associates – (104) – (104) – (104)
Currency translation adjustment disposed – (51) – (51) – (51)
Attributable tax – – 9 9 – 9

Fair value gain on other financial assets 13 – – 13 – 13
Remeasurement of retirement benefit obligations – Group – – 175 175 – 175
Remeasurement of retirement benefit obligations – associates – – 7 7 – 7
Other comprehensive income/(expense) for the year 13 (313) 145 (155) – (155)
30. Business combinations
Overview
There were no significant acquisitions in 2018 or 2017. There were no material adjustments to prior year acquisitions. The net cash outflow
relating to acquisitions in the year is shown below.
Cash flow on acquisitions

Deferred payments for prior year acquisitions and other items (5) (11)
Net cash outflow (5) (11)
31. Disposals

In March 2018, the Group completed the sale of its Wall Street English language teaching business (WSE) resulting in a pre-tax profit on
sale of £207m. Tax on the disposal is estimated at £6m. WSE was classified as held for sale on the balance sheet at 31 December 2017
(see note 32). In May 2018 the Group disposed of the equity interest in UTEL, the online University partnership in Mexico realising a gain of
£19m before tax of £2m.
2018 2017
All figures in £ millions Notes WSE UTEL Other Total Total
Disposal of subsidiaries and associates

Property, plant and equipment (17) – – (17) (7)
Intangible assets (15) – (2) (17) (9)
Investments in joint ventures and associates – (3) – (3) (352)
Net deferred income tax assets – – – – (3)
Our performance
Intangible assets – pre-publication (8) – – (8) (1)
Inventories (1) – – (1) (2)
Trade and other receivables (30) – – (30) (16)
Current income tax receivable – – – – (5)
Cash and cash equivalents (excluding overdrafts) (119) – – (119) (13)
Net deferred income tax liabilities 16 – – 16 –
Trade and other liabilities 171 – 1 172 34
Provisions for other liabilities and charges 23 – – 1 1 –
Cumulative currency translation adjustment 29 4 – – 4 51
Net (assets)/liabilities disposed 1 (3) – (2) (323)
Governance
Cash received 212 22 9 243 468
Deferred proceeds – – 2 2 –
Fair value of financial asset acquired – – 3 3 –
Costs (6) – (10) (16) (17)
Gain on disposal 207 19 4 230 128
31. Disposals continued

Cash flow from disposals

Cash – current year disposals 243 468
Cash and cash equivalents disposed (119) (13)
Costs and other disposal liabilities paid (23) (25)
Net cash inflow 101 430
Analysed as:
Cash inflow/ from sale of subsidiaries 83 19
Cash inflow from sale of joint ventures and associates 18 411
32. Held for sale

Held for sale assets and liabilities in 2018 relate to the K12 school courseware business in the US (K12). Following the decision in 2017 to sell
both the Wall Street English language teaching business (WSE) and the K12 business, the assets and liabilities of those businesses were
classified as held for sale on the balance sheet at 31 December 2017. During 2018 WSE was sold and the K12 business remains on the
balance sheet as a held for sale asset prior to the disposal announced in February 2019 (see note 37).
2018 2017
All figures in £ millions Notes Total Total
Non-current assets
Property, plant and equipment – 16
Intangible assets 168 181
Deferred income tax assets 98 68
Trade and other receivables 25 27
291 292
Current assets
Intangible assets – pre-publication 242 247
Inventories 55 46
Trade and other receivables 60 48
Cash and cash equivalents (excluding overdrafts) 17 – 127
357 468
Assets classified as held for sale 648 760
Deferred income tax liabilities – (2)
Other liabilities (371) (284)
(371) (286)
Current liabilities
Trade and other liabilities (202) (302)
(202) (302)
Liabilities classified as held for sale (573) (588)
Net assets classified as held for sale 75 172
Goodwill is allocated to the held for sale businesses on a relative fair value basis where these businesses form part of a larger cash
generating unit (CGU). The goodwill allocated to the K12 business was reassessed at 31 December 2018.
33. Cash generated from operations
Overview
Profit 590 408

Adjustments for:
Income tax (92) 13
Depreciation 10 66 90
Amortisation and impairment of acquired intangibles and goodwill 11 99 138
Amortisation of software 11 88 85
Net finance costs 6 55 30
Charges relating to GMP equalisation 8 –
Share of results of joint ventures and associates 12 (44) (78)

Profit on disposal of subsidiaries, associates, investments and fixed assets (315) (116)
Net foreign exchange adjustment from transactions 28 (26)
Share-based payment costs 26 37 33
Pre-publication (37) (35)
Inventories (10) 24
Trade and other receivables (15) 133
Trade and other liabilities 35 6
Retirement benefit obligations (9) (232)
Provisions for other liabilities and charges 63 (11)
Net cash generated from operations 547 462
Our performance
Dividends from joint ventures and associates 117 458
Re-capitalisation dividends from Penguin Random House (50) (312)
Purchase of intangible software assets (130) (150)
Proceeds from sale of property, plant and equipment and intangible software assets 128 –
Special pension contribution – 227
Net (proceeds from) /cost paid re major restructuring (25) 71
Operating cash flow 513 669
Operating tax paid (43) (75)
Governance
Net operating finance costs paid (22) (69)
Operating free cash flow 448 525
Special pension contribution – (227)
Net proceeds from/(cost paid) re major restructuring 25 (71)
Free cash flow 473 227
Dividends paid (including to non-controlling interests) (137) (318)
Net movement of funds from operations 336 (91)
Acquisitions and disposals 92 416
Re-capitalisation dividends from Penguin Random House 50 312
Loans repaid/(advanced) (including to related parties) 46 (13)
New equity 6 5
Buyback of equity (153) (149)
Other movements on financial instruments (6) 14
Net movement of funds 371 494
Exchange movements on net debt (82) 166
Total movement in net debt 289 660
33. Cash generated from operations continued

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.
Operating cash flow, operating free cash flow and total free cash flow are non-GAAP (non-statutory) measures and have been disclosed
and reconciled in the above table as they are commonly used by investors to measure the cash performance of the Group. In the cash flow
statement, proceeds from sale of property, plant and equipment comprise:
Net book amount 41 12

Profit/(loss) on sale of property, plant and equipment 87 (12)
Proceeds from sale of property, plant and equipment 128 –
The movements in the Group’s current and non-current borrowings are as follows:
Foreign Fair value and

Financing exchange other
All figures in £ millions 2017 cash flows movements movements 2018
Financial liabilities
Non-current borrowings 1,066 (441) 10 8 643
Current borrowings 4 (1) 22 – 25
Total 1,070 (442) 32 8 668
Non-current borrowings include bonds, derivative financial instruments and finance leases. Current borrowings include loans repayable
within one year and finance leases, but exclude overdrafts classified within cash and cash equivalents.
34. Contingencies
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 are expected to result in a material gain or loss to the Group.
As previously reported, on 24 November 2017 the European Commission published an opening decision that the United Kingdom controlled
foreign company group financing partial exemption (“FCPE”) constitutes State Aid. No final decision has yet been published, and may
anyway be challenged by the UK tax authorities. The Group has benefited from the FCPE in 2018 and prior years by approximately £116m.
At present the Group believes no provision is required in respect of this issue.
35. Commitments
Overview
At the balance sheet date there were no commitments for capital expenditure contracted for but not yet incurred.
The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have varying terms
and renewal rights. The Group also leases various plant and equipment under operating lease agreements, also with varying terms.
Lease expenditure charged to the income statement was £128m (2017: £178m).
The future aggregate minimum lease payments in respect of operating leases are as follows:


Later than three years and not later than four years 101 100
Later than four years and not later than five years 91 86
Later than five years 595 599
1,175 1,201
In the event that the Group has excess capacity in its leased offices and warehouses it will enter into sub-lease contracts in order to offset
costs. The future aggregate minimum sub-lease payments expected to be received under non-cancellable sub-leases are as follows:

Our performance
Later than three years and not later than four years 39 35
Later than four years and not later than five years 35 33
Later than five years 124 138
334 336
36. Related party transactions

Joint ventures and associates
Amounts advanced to joint ventures and associates during the year and at the balance sheet date are set out in note 12.
Governance
Key management personnel
Key management personnel are deemed to be the members of the Pearson executive (see p13). It is this Committee which had responsibility
for planning, directing and controlling the activities of the Group in 2018. Key management personnel compensation is disclosed below:
All figures in £millions 2018 2017
Short-term employee benefits 6 12

Retirement benefits 1 1
Share-based payment costs 7 2
Total 14 15
There were no other material related party transactions. No guarantees have been provided to related parties.
37. Events after the balance sheet date

On 18 February 2019, the Group announced the sale of the US K12 Legal & General. As a result of this latest transaction, 95% of the UK
courseware business to Nexus Capital Management LP for headline Group plan’s pensioner liabilities are now matched with buy-in
consideration of $250m comprising an initial cash payment of $25m policies which significantly reduces longevity risk of the Group.
and an unconditional vendor note for $225m expected to be repaid The buy-in will be accounted for in 2019 and is expected to reduce
in three to seven years. Following the repayment of the vendor note, the retirement benefit asset on the balance sheet but is not
the Group is entitled to 20% of all future cash flows to equity holders expected to have a material impact on the income statement.
and 20% of net proceeds if the business is sold. The transaction is
On 6 March 2019, the Group announced a tender offer for up to
expected to complete in the first half of 2019.
€75m of its €500m 1.875% notes due 2021 of which €250m were
Also in February 2019, the UK Group pension plan purchased a outstanding at 31 December 2018. In addition, the Group also
further pensioner buy-in policy valued at approximately £500m with announced the refinancing of its bank facility, with a new $1.19bn
Revolving Credit Facility due to mature in February 2024.
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 accounts by virtue of section 479A.
Company number Company number
Aldwych Finance Limited 04720439 Pearson International Finance Limited 02496206

Edexcel Limited 04496750 Pearson Loan Finance No. 3 Limited 05052661
Education Development International plc 03914767 Pearson Loan Finance No. 4 Limited 02635107
Longman Group (Overseas Holdings) Limited 00690236 Pearson Loan Finance Unlimited 05144467
Major123 Limited 05333023 Pearson Management Services Limited 00096263
Pearson Affordable Learning Fund Limited 08038068 Pearson Overseas Holdings Limited 00145205
Pearson Australia Finance Unlimited 05578463 Pearson Pension Trustee Services Limited 10803853
Pearson Books Limited 02512075 Pearson PRH Holdings Limited 08561316
Pearson Brazil Finance Limited 08848874 Pearson Real Estate Holdings Limited 09768242
Pearson Canada Finance Unlimited 05578491 Pearson Services Limited 01341060
Pearson Dollar Finance plc 05111013 Pearson Shared Services Limited 04623186
Pearson Dollar Finance Two Limited 06507766 Pearson Strand Finance Limited 11091691
Pearson Education Holdings Limited 00210859 TQ Catalis Limited 07307943
Pearson Education Investments Limited 08444933 TQ Clapham Limited 07307925
Pearson Education Limited 00872828 TQ Global Limited 07802458
Pearson Funding Four plc 07970304
Company balance sheet

Overview
Assets
Non-current assets
Investments in subsidiaries 2 6,710 6,691
Amounts due from subsidiaries 2,269 3,118
9,046 9,949
Current assets
Amounts due from subsidiaries 361 209
Amounts due from related parties – 46
Current income tax assets 28 –

Cash and cash equivalents (excluding overdrafts) 4 50 119
Financial assets – derivative financial instruments 6 1 –
440 374
Total assets 9,486 10,323
Liabilities
Amounts due to subsidiaries (2,944) (3,530)
Financial liabilities – derivative financial instruments 6 (36) (140)
(2,980) (3,670)
Current liabilities
Our performance
Amounts due to subsidiaries (2,007) (1,739)
Financial liabilities – borrowings 5 (11) (3)
Current income tax liabilities – (4)
Other liabilities (8) (158)
Financial liabilities – derivative financial instruments 6 (23) –
(2,049) (1,904)
Total liabilities (5,029) (5,574)
Net assets 4,457 4,749
Equity
Share capital 7 195 200
Governance
Share premium 7 2,607 2,602
Treasury shares 8 12 (16)
Capital redemption reserve 11 5
Special reserve 447 447
Retained earnings – including loss for the year of £160m (2017: loss of £163m) 1,185 1,511
Total equity attributable to equity holders of the company 4,457 4,749
These financial statements have been approved for issue by the Board of Directors on 11 March 2019 and signed on its behalf by
Coram Williams
Company statement of changes in equity


Capital
Share Share Treasury redemption Special Retained
All figures in £ millions capital premium shares reserve reserve earnings Total
At 1 January 2018 200 2,602 (16) 5 447 1,511 4,749

Loss for the year – – – – – (160) (160)
Issue of ordinary shares under share option schemes* 1 5 – – – – 6
Buyback of equity (6) – – 6 – (2) (2)
Purchase of treasury shares – – – – – – –
Release of treasury shares – – 28 – – (28) –
Dividends – – – – – (136) (136)
At 31 December 2018 195 2,607 12 11 447 1,185 4,457

Capital
Share Share Treasury redemption Special Retained
All figures in £ millions capital premium shares reserve reserve earnings Total
At 1 January 2017 205 2,597 (34) – 447 2,310 5,525

Loss for the year – – – – – (163) (163)
Issue of ordinary shares under share option schemes* – 5 – – – – 5
Buyback of equity (5) – – 5 – (300) (300)
Purchase of treasury shares – – – – – – –
Release of treasury shares – – 18 – – (18) –
Dividends – – – – – (318) (318)
At 31 December 2017 200 2,602 (16) 5 447 1,511 4,749
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.
Included within retained earnings is an amount of £162m (2017: £162m) relating to profit on intra-Group disposals that is not distributable.
* Full details of the share-based payment plans are disclosed in note 26 to the consolidated financial statements.
Company cash flow statement

Overview
Cash flows from operating activities
Net loss (160) (163)
Adjustments for:
Income tax (26) 70
Net finance costs 107 26
Disposals, liquidations and impairment charges 57 790
Amounts due from/(to) subsidiaries 302 (748)
Net cash generated from/(used in) operations 280 (25)
Interest paid (68) (21)
Tax (paid)/received (7) 9

Net cash generated from/(used in) operating activities 205 (37)
Cash flows from investing activities
Loans repaid by/(advanced to) related parties 46 (13)
Interest received 4 7
Net cash received from/(used in) investing activities 50 (6)
Cash flows from financing activities
Proceeds from issue of ordinary shares 7 6 5
Buyback of equity (153) (149)
Repayment of borrowings (44) (243)
Dividends paid to company’s shareholders (136) (318)
Our performance
Net cash used in financing activities (327) (705)
Effects of exchange rate changes on cash and cash equivalents (5) 10
Net decrease in cash and cash equivalents (77) (738)
Cash and cash equivalents at beginning of year 116 854
Cash and cash equivalents at end of year 4 39 116
Governance
Notes to the company financial statements
1. Accounting policies 3. Financial risk management

The financial statements on p209-219 comprise the separate The company’s financial instruments comprise amounts due to/
financial statements of Pearson plc. from subsidiary undertakings, cash and cash equivalents, derivative
financial instruments, current borrowings and in 2017 a liability to
As permitted by section 408 of the Companies Act 2006, only the
purchase own shares (included within other liabilities). Derivative
consolidated income statement and statement of comprehensive
financial instruments are held at fair value, with all other financial
income have been presented.
instruments held at amortised cost, which approximates fair value.
The company has no employees. The company’s approach to the management of financial risks is
consistent with the Group’s treasury policy, as discussed in note 19
The accounting policies applied in the preparation of these company
to the consolidated financial statements. The company believes the
financial statements are the same as those set out in note 1 to the
value of its financial assets to be fully recoverable.
consolidated financial statements with the addition of the following:
The carrying value of the company’s financial instruments is
Investments
exposed to movements in interest rates and foreign currency
Investments in subsidiaries are stated at cost less provision for exchange rates (primarily US dollars). The company estimates that a
impairment, with the exception of certain hedged investments 1% increase in interest rates would result in an £3m decrease in the
that are held in a foreign currency and revalued at each balance carrying value of its financial instruments, with a 1% decrease in
sheet date. interest rates resulting in a £3m increase in their carrying value.
The company also estimates that a 10% strengthening in sterling
Lending to/from subsidiaries is considered to be an operating
would decrease the carrying value of its financial instruments
activity and any movements are classified as cash flows from
by £149m, while a 10% weakening in the value of sterling would
operating activities in the cash flow statement.
increase the carrying value by £184m. These increases and
New accounting standards decreases in carrying value would be recorded through the income
The following standards were adopted in 2018: statement. Sensitivities are calculated using estimation techniques
such as discounted cash flow and option valuation models. Where
IFRS 15 Revenue from Contracts with Customers modelling an interest rate decrease of 1% led to negative interest
IFRS 9 Financial Instruments rates, these points on the yield curve were adjusted to 0%.
Adoption of these standards has not had a material impact on

the company financial statements.
2. Investments in subsidiaries
At beginning of year 6,691 7,441

Subscription for share capital in subsidiaries – 164
Disposals/liquidations – (430)
Impairments (57) (360)
Currency revaluations 76 (124)
At end of year 6,710 6,691
In 2018, impairments relate to the carrying value of intermediate

holding company investments. In 2017, impairments, disposals and
liquidations relate to restructuring of intermediate holding
companies and were largely offset by dividends received.
The recoverability of investments is considered annually and

significant estimation is required to determine the recoverable
amount. Recoverability is based upon financial information related
to the subsidiaries including cash flow projections in conjunction
with the goodwill impairment analysis performed by the Group
(see note 11 of the Group financial statements).
Overview
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.
Analysed by maturity Analysed by currency

Greater than Later than
one month one year but
and less than less than five Five years or
All figures in £ millions one year years more Total USD GBP Other Total
At 31 December 2018
Rate derivatives – inflows (20) (288) (343) (651) (40) (167) (444) (651)
Rate derivatives – outflows 23 289 341 653 254 390 9 653

FX forwards – inflows (251) (35) – (286) – (286) – (286)
FX forwards – outflows 275 37 – 312 312 – – 312
Total 27 3 (2) 28 526 (63) (435) 28
At 31 December 2017
Rate derivatives – inflows (38) (975) (684) (1,697) (53) (751) (893) (1,697)
Rate derivatives – outflows 48 1,060 667 1,775 1,003 751 21 1,775
FX forwards – inflows – – – – – – – –
FX forwards – outflows – – – – – – – –
Total 10 85 (17) 78 950 – (872) 78
All cash flow projections shown above are on an undiscounted basis. It is expected that the change in value of each of these items
Our performance
Any cash flows based on a floating rate are calculated using interest will mirror each other as there is a clear and direct economic
rates as set at the date of the last rate reset. Where this is not relationship between the hedge and the hedged item in the hedge
possible, floating rates are based on interest rates prevailing at relationship. The hedge ratio is 100%. Hedge ineffectiveness would
31 December in the relevant year. All derivative amounts are arise if the value of the hedged items fell below the value of the
shown gross, although the company net settles these amounts hedging instruments however this is unlikely as the value of the
wherever possible. company’s investments denominated in USD are significantly
greater than the proposed fair value hedge programme.
Fair value hedge accounting
A foreign currency exposure arises from foreign exchange The value of the hedged items and the hedging instruments are
fluctuations on translation of the company’s investments in £1.4bn and the change in value during the year which was used to
subsidiaries denominated in USD into GBP. The hedged risk is the assess hedge ineffectiveness was £76m. There was no hedge
risk of changes in the GBPUSD spot rate that will result in changes in ineffectiveness.
Governance
the value of the USD investments when translated into GBP. The Credit risk management
hedged items are a portion of the company’s equity investment in
The company’s main exposure to credit risk relates to lending to
subsidiares denominated in USD. The hedging instruments are a
subsidiaries. Amounts due from subsidiaries are stated net of
portion of the company’s intercompany loans due from subsidiaries
provisions for bad and doubtful debts. The credit risk of each
which are denominated in USD.
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)

Cash at bank and in hand 50 2

Short-term bank deposits – 117
50 119
Short-term bank deposits are invested with banks and earn interest at the prevailing short-term deposit rates. At the end of 2018 the
currency split of cash and cash equivalents was US dollar 0% (2017: 82%), sterling 79% (2017: 17%) and other 21% (2017: 1%).
4. Cash and cash equivalents (excluding overdrafts) 5. Financial liabilities – borrowings

continued All figures in £ millions 2018 2017
Cash and cash equivalents have fair values that approximate their Current
carrying amounts due to their short-term nature. Cash and cash Due within one year or on demand:
equivalents include the following for the purpose of the cash flow Bank loans and overdrafts 11 3
statement:
11 3
All figures in £ millions 2018 2017 Total borrowings 11 3
Current borrowings in both years are classified within cash and cash
Bank overdrafts (11) (3)
equivalents and do not give rise to financing cash flows. The carrying
39 116
amounts of the company’s borrowings is equal to, or approximately
equal to, the market value.
The carrying amounts of the company’s borrowings are

denominated in the following currencies:
US dollar 11 –
Sterling – 3
11 3
6. Derivative financial instruments

The company’s outstanding derivative financial instruments are as follows:
2018 2017
Gross notional Gross notional
All figures in £ millions amounts Assets Liabilities amounts Assets Liabilities
Interest rate derivatives 766 16 1,228 26 –

Cross-currency rate derivatives 577 51 (35) 1,389 114 (140)
FX forwards and collars 434 – (24) – – –
Other derivatives 473 1 – – – –
Total 2,250 68 (59) 2,617 140 (140)
Analysed as expiring:
In less than one year 771 1 (23) – – –
Later than one year and not later than five years 795 22 (1) 1,545 64 (97)
Later than five years 684 45 (35) 1,072 76 (43)
Total 2,250 68 (59) 2,617 140 (140)
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.
7. Share capital and share premium

Number of Share Share
shares capital premium
000s £m £m
At 1 January 2017 822,127 205 2,597

Issue of ordinary shares – share option schemes 923 – 5
At 31 December 2017 802,054 200 2,602
Issue of ordinary shares – share option schemes 864 1 5
At 31 December 2018 781,078 195 2,607
7. Share capital and share premium continued
Overview
The ordinary shares have a par value of 25p per share (2017: 25p per share). All issued shares are fully paid. All shares have the same rights.
The £300m share buyback programme announced in October 2017 was completed on 16 February 2018. In 2017, the Group’s brokers
purchased 21m shares at a value of £153m of which £149m had been cancelled at 31 December 2017. Cash payments of £149m had been
made in respect of the purchases with the outstanding £4m settlement made at the beginning of January 2018. This £4m together with
the remaining value of the buyback programme of £147m was recorded as a liability at 31 December 2017. A further 22m shares were
purchased under the programme in 2018. The shares bought back have been cancelled and the nominal value of these shares transferred
to a capital redemption reserve. The nominal value of shares cancelled at 31 December 2018 was £11m (2017: £5m).
8. Treasury shares
Number of

shares
000s £m
At 1 January 2017 7,719 34

At 31 December 2017 5,994 16
At 31 December 2018 3,225 (12)
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
£0.8m (2017: £1.5m). At 31 December 2018, the market value of the company’s treasury shares was £30m (2017: £44m). The gross book
value of the shares at 31 December 2018 amounts to £33m. This value has been netted off with contributions received from operating
Our performance
companies of £45m, resulting in a net credit value of £12m.
9. Contingencies 11. Related party transactions

There are contingent liabilities that arise in the normal course of Subsidiaries
business in respect of indemnities, warranties and guarantees in The company transacts and has outstanding balances with its
relation to former subsidiaries and in respect of guarantees in subsidiaries. Amounts due from subsidiaries and amounts due to
relation to subsidiaries. In addition, there are contingent liabilities subsidiaries are disclosed on the face of the company balance sheet.
in respect of legal claims. None of these claims are expected to
result in a material gain or loss to the company. These loans are generally unsecured and interest is calculated based
on market rates. The company has interest payable to subsidiaries
for the year of £105m (2017: £122m) and interest receivable from
10. Audit fees
Governance
subsidiaries for the year of £105m (2017: £111m). Management fees
Statutory audit fees relating to the company were £35,000 payable to subsidiaries in respect of centrally provided services
(2017: £35,000). amounted to £59m (2017: £42m). Management fees receivable
from subsidiaries in respect of centrally provided services amounted
to £35m (2017: £69m). Dividends received from subsidiaries were
£nil (2017: £701m).
Associates
Amounts due from related parties, disclosed on the face of the
company balance sheet, relate to loans to Penguin Random House,
an associate of the Group. These loans are unsecured and interest
is calculated based on market rates. The amount outstanding at
31 December 2018 was £nil (2017: £46m). The loans are provided
under a working capital facility and fluctuate during the year.
Key management personnel

Key management personnel are deemed to be the members of
the Pearson executive.
It is this committee which had responsibility for planning,

directing and controlling the activities of the company in 2018.
Key management personnel compensation is disclosed in
note 36 to the consolidated financial statements.
12. 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 2018
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
Country Reg Country Reg Country Reg
Registered company name of Incorp. office Registered company name of Incorp. office Registered company name of Incorp. office
Addison Wesley Longman, Inc. US 3 English Language Learning and US 57 Pearson (Beijing) Management CN 83
Addison-Wesley Educational Publishers Inc. US 4 Instruction System, Inc. Consulting Co., Ltd.
AEL (S) PTE Limited SG 5 Escape Studios Limited* UK 6 Pearson (Guizhou) Education Technology CN 84
Falstaff Holdco Inc. US 4 Co., Ltd.
Aldwych Finance Limited UK 1
Falstaff Inc. US 58 Pearson Affordable Learning Fund Limited UK 1
America’s Choice, LLC US 4
FBH, Inc. US 4 Pearson America LLC US 4
ATI Professional Development LLC US 4
George (Shanghai) Commercial CN 23 Pearson Amsterdam B.V. NL 85
Atkey Finance Limited IE 7
Information Consulting Co., Ltd Pearson Australia Finance Unlimited UK 1
Axis Finance Inc. US 4
Global George I Limited KY 8 Pearson Australia Group Pty Ltd AU 51
Camsaw, Inc. US 4
Global George II limited CN 56 Pearson Australia Holdings Pty Ltd AU 51
CAMSAWUSA, Inc. US 11
Globe Fearon Inc. US 19 Pearson Australia Pty Ltd AU 51
Casapsi Livraria e Editora Ltda BR 12
Guangzhou Crescent Software Co., Ltd CN 64 Pearson Benelux B.V. NL 85
Centro Cultural Americano Franquias e BR 16
Comércio Ltda. Heinemann Education Botswana BW 65 Pearson Books Limited† UK 1
(Publishers) (Proprietary) Limited Pearson Brazil Finance Limited UK 1
Century Consultants Ltd. US 14
Icodeon Limited* UK 6 Pearson Business Services Inc. US 4
Certiport China Holding, LLC US 4
IndiaCan Education Private Limited IN 2 Pearson Canada Assessment Inc CA 86
Certiport, Inc. US 4
Integral 7, Inc. US 4 Pearson Canada Finance Unlimited UK 1
Cogmed Systems AB SE 15
INTELLIPRO, INC. US 14 Pearson Canada Holdings Inc CA 86
Connections Academy of Arkansas, LLC US 18
J M Soluções Exportação e Importação Ltda BR 67 Pearson Canada Inc. CA 86
Connections Academy of Florida, LLC US 22
K12 Learning Services LLC US 4 Pearson Central Europe Spółka z PL 42
Connections Academy of Iowa, LLC US 26
Kagiso Education Pty Ltd* ZA 50 ograniczoną odpowiedzialnością
Connections Academy of Maine, LLC US 30
Knowledge Analysis Technologies, LLC US 20 Pearson College Limited UK 1
Connections Academy of Maryland, LLC US 31
LCCI International Qualifications (Malaysia) MY 68 Pearson DBC Holdings Inc. US 4
Connections Academy of Minnesota, LLC US 32 Sdn. Bhd.* Pearson Desarrollo y Capacitación CL 87
Connections Academy of Missouri, LLC US 33 LCCIEB Training Consultancy., Ltd CN 69 Profesional Chile Limitada
Connections Academy of Nevada, LLC US 34 LessonLab, Inc. US 19 Pearson Deutschland GmbH DE 88
Connections Academy of New Jersey, LLC* US 14 Lignum Oil Company US 4 Pearson Digital Learning Puerto Rico, Inc. PR 82
Connections Academy of New Mexico, LLC US 35 Linx Brasil Distribuidora Ltda. BR 13 Pearson Dollar Finance plc† UK 1
Connections Academy of New York, LLC* US 36 Longman (Malawi) Limited MW 70 Pearson Dollar Finance Two Limited UK 1
Connections Academy of Oregon, LLC US 40 Longman Australasia Pty Ltd AU 71 Pearson Educacion de Chile Limitada CL 87
Connections Academy of Pennsylvania LLC US 41 Longman Group(Overseas Holdings) Limited UK 1 Pearson Educacion de Colombia S A S CO 90
Connections Academy of Tennessee, LLC US 43 Longman Indochina Acquisition, L.L.C. US 4 Pearson Educacion de Mexico, S.A. de C.V. MX 91
Connections Academy of Texas LLC US 44 Longman Kenya Limited KE 72 Pearson Educacion de Panama SA PA 92
Connections Education LLC US 4 Longman Mocambique Ltda MZ 45 Pearson Educacion de Peru S.A. PE 93
Connections Education of Florida, LLC US 22 Longman Romania S.R.L. RO 25 Pearson Educacion SA ES 94
Connections Education, Inc. US 4 Longman Swaziland (Pty) Limited SZ 73 Pearson Education (Singapore) Pte Ltd SG 5
CTI Education Group (Pty) Limited ZA 50 Longman Tanzania Limited* TZ 74 Pearson Education Africa (Pty) Ltd ZA 50
Dominie Press, Inc. US 19 Longman Zambia Educational Publishers ZM 75 Pearson Education Asia Limited CN 56
Dorian Finance Limited IE 7 Pty Ltd Pearson Education Botswana BW 65
Dorling Kindersley Australasia Pty Limited AU 51 Longman Zambia Limited ZM 75 (Proprietary) Limited
EBNT Canada Holdings ULC CA 61 Longman Zimbabwe (Private) Ltd ZW 76 Pearson Education do Brasil S.A BR 63
EBNT Holdings Limited CA 60 Longmaned Ecuador S.A. EC 77 Pearson Education Hellas SA GR 28
EBNT USA Holdings Inc. US 4 Major123 Limited UK 1 Pearson Education Holdings Limited† UK 1
eCollege.com US 4 MeasureUp, LLC US 4 Pearson Education Indochina Limited TH 95
Edexcel Limited† UK 52 Modern Curriculum Inc. US 19 Pearson Education Investments Limited UK 1
Edexcel South Africa Pty Ltd* ZA 50 Multi Treinamento e Editora Ltda BR 17 Pearson Education Korea Limited KR 96
Éditions Du Renouveau Pédagogique Inc. CA 53 National Computer Systems Japan Co. Ltd JP 80 Pearson Education Limited UK 1
Education Development International Plc† UK 1 NCS Information Services Technology CN 81 Pearson Education Namibia (Pty) Limited NA 97
Education Resources (Cyprus) Limited CY 54 (Beijing) Co Ltd Pearson Education Publishing Limited NG 98
Educational Management Group, Inc. US 55 NCS Pearson Pty Ltd AU 51 Pearson Education S.A. UY 99
Embanet ULC CA 47 NCS Pearson Puerto Rico, Inc. PR 82 Pearson Education SA AR 100
Embanet-Compass Knowledge Group Inc. US 22 NCS Pearson, Inc. US 32 Pearson Education South Africa (Pty) Ltd ZA 50
Embankment Finance Limited* UK 6 Ordinate Corporation US 19 Pearson Education South Asia Pte. Ltd. SG 5
Country Reg Country Reg Subsidiary addresses
Overview
Registered company name of Incorp. office Registered company name of Incorp. office
Pearson Education Taiwan Ltd TW 101 Pearson Sweden AB SE 15

The following list includes all Pearson
Pearson Education, Inc. US 4 Pearson VUE Philippines, Inc. PH 111 registered offices worldwide. Please see
Pearson Educational Measurement CA 39 Penguin Capital, LLC US 4 wholly-owned subsidiaries list opposite
Canada, Inc. Phumelela Publishers (Pty) Ltd* ZA 50 for each subsidiary’s registered office code.
Pearson Educational Publishers, LLC US 4 PN Holdings Inc. US 4
Pearson Egitim Cozumleri Tikaret TR 102 Registered office address
ProctorCam, Inc. US 110
Limited Sirketi 1 80 Strand, London, WC2R 0RL, England
PT Efficient English Services ID 89
Pearson Falstaff (Holdings) Inc. US 4 2 4th Floor Software Block, Elnet Software City, TS 140
Reading Property Holdings LLC US 79
Pearson Falstaff Holdco LLC US 4 Block 2 & 9, Rajiv Gandhi Salai, Taramani, Chennai,
Rebus Planning Associates, Inc. US 10 TN, 600113, India
Pearson France FR 103
Reston Publishing Company, Inc. US 4 3 C T Corporation System, 155 Federal St., Suite 700,
Pearson Funding Five plc† UK 1
Rycade Capital Corporation US 4 Boston, MA, 02110, United States
Pearson Funding Four plc† UK 1
Shanghai AWL Education Software Ltd CN 78 4 The Corporation Trust Company, Corporation Trust

Pearson Funding Two Limited*† UK 6 Center, 1209 Orange Street, Wilmington, New Castle,
Silver Burdett Ginn Inc. US 4
Pearson Holdings Inc. US 4 DE, 19801, United States
Skylight Training and Publishing Inc. US 55
Pearson Holdings Southern Africa ZA 50 5 9, #13-05/06, North Buona Vista Drive,
(Pty) Limited Smarthinking, Inc. US 4 The Metropolis Tower One, 138588, Singapore
Pearson in Practice Holdings Limited* UK 6 Sound Holdings Inc. US 4 6 Acre House, 11-15 William Road, London,
Spear Insurance Company Limited† BM 48 NW1 3ER, England
Pearson in Practice Skills Based UK 6
Learning Limited* Stark Verlag GmbH DE 88 7 1st Floor Riverview House, 21/23 City Quay,
Dublin, D02FP21, Ireland
Pearson in Practice Technology Limited* UK 6 Sunnykey International Holdings VG 29
Limited (BVI) 8 Maples Corporate Services Limited P.O. Box 309,
Pearson India Education Services IN 2
Ugland House, South Church Street, George Town,
Private Limited The Financial Times (I) Pvt Ltd IN 24
Grand Cayman, KY1-1104, Cayman Islands
Pearson India Support Services IN 2 The Learning Edge International pty Ltd AU 71
9 3F, Building R2 China Merchants Tower, No.118 Jianguo
Private Limited The Waite Group Inc US 19 Road, Chaoyang District, Beijing, China
Pearson Institute of Higher Education ZA 50 TQ Catalis Limited UK 1 10 The Corporation Company, 40600 Ann Arbor Rd
Pearson International Finance Limited† UK 1 TQ Clapham Limited UK 1 E Suite 201, Plymouth, MI, 48170, United States
Our performance
Pearson Investment Holdings, Inc. US 4 TQ Education and Training Limited UK 1 11 The Corporation Trust Company, 2405 York Road, Suite
Pearson IOKI Spółka z ograniczoną PL 104 201, Lutherville Timonium, MD, 21093, United States
TQ Education and Training Limited SA 59
odpowiedzialnością 12 No 15000, Francisco Matarazzo Avenue, Cj. 51 –
TQ Global Limited UK 1
Pearson Italia S.p.A IT 105 Bloco 1 – Edificio New York, City of São Paulo,
TQ Group Limited UK 1 São Paulo, 05001-100, Brazil
Pearson Japan KK JP 106
TQ Holdings Limited UK 1 13 Comendador Aladino Selmi Avenue, 4630, Galpão 1,
Pearson Lanka (Private) Limited LK 107
Trio Parent Holdings LLC US 4 Sala 1, Parque Cidade Campinas, City of Campinas,
Pearson Learning China (HK) Limited CN 56 São Paulo 13069-036, Brazil
US Learning Services LLC US 4
Pearson Lesotho (Pty) Ltd LS 66 14 820, Bear Tavern Road, West Trenton, Mercer,
USLS Holdings LLC US 4
Pearson Loan Finance No. 3 Limited UK 1 NJ, 08628, United States
Vue Testing Services Israel Ltd IL 49
Pearson Loan Finance No. 4 Limited UK 1 15 Gustavslundsvägen 137, 167 51 Bromma,
Vue Testing Services Korea Limited KR 38 Stockholm, Sweden
Pearson Loan Finance No.2 Unlimited* UK 6
Wall Street Institute Kft. HU 27 16 Comendador Aladino Selmi Avenue, 4630, Galpão 1,
Pearson Loan Finance Unlimited UK 1
Williams Education GmbH DE 88 Sala 3, Parque Cidade Campinas, City of Campinas,
Pearson Longman Uganda Limited UG 108 São Paulo 13069-036, Brazil
Governance
Pearson Malaysia Sdn. Bhd. MY 62 * In liquidation 17 Comendador Aladino Selmi Avenue, 4630, Galpão 1, e2,
Pearson Management Services Limited† UK 1 Sala 10, Parque Cidade Campinas, City of Campinas,
† Directly owned by Pearson plc São Paulo 13069-036, Brazil
Pearson Management Services PH 109
Philippines Inc. 18 The Corporation Company, 124 West Capitol Avenue,
Suite 1900, Little Rock, AR, 72201, United States
Pearson Maryland Inc. US 11
19 C T Corporation System, 818 West Seventh Street,
Pearson Netherlands B.V. NL 85
Suite 930, Los Angeles, CA, 90017, United States
Pearson Netherlands Holdings B.V. NL 85
20 The Corporation Company, 7700 E Arapahoe Rd
Pearson Nominees Limited† UK 1 Suite 220, Centennial, CO, 80112-1268, United States
Pearson Online Tutoring LLC US 4 21 Edificio Ochoa 500 Calle de la Tanoa, Suite 401,
Pearson Overseas Holdings Limited† UK 1 San Juan, Puerto Rico 00901-1969
Pearson PEM P.R., Inc. PR 21 22 1200, South Pine Island Road, Plantation, FL, 33324,
United States
Pearson Pension Nominees Limited UK 1
23 Room 1658, Suites 1604-06, 16/F, 588 Dalian Road,
Pearson Pension Property Fund Limited UK 1
Yangpu District, Shanghai, China
Pearson Pension Trustee Limited UK 1
24 Plot No. 3, Bharti Colony Vikas Marg, New Dehli,

Pearson Pension Trustee Services Limited† UK 1 DL 110092, India
Pearson PRH Holdings Limited UK 1 25 Sector de Bucarest 2, calle C.A., Rosett1, n.17,
Pearson Professional Assessments Limited UK 1 oficina 009RESCO-WORK03, Romania
Pearson Real Estate Holdings Inc. US 4 26 C T Corporation System, 400 E Court Ave,
Des Moines, IA, 50309, United States
Pearson Real Estate Holdings Limited† UK 1
27 Hermina út 17. 8th floor, Budapest, 1146, Hungary
Pearson Schweiz AG CH 37
28 21, Amfitheas Avenue, Paleo Faliro Athens,
Pearson Services Limited† UK 1 17564, Greece
Pearson Shared Services Limited† UK 1 29 Commerce House, Wickhams Cay 1, P.O. Box 3140,
Pearson Strand Finance Limited† UK 1 Road Town, Tortola, British Virgin Islands
30 C T Corporation System, 128 State St #3, Augusta,
ME, 04330, United States
Registered office address Registered office address Registered office address
31 7 St. Paul Street, Suite 1660, Baltimore, MD, 21202, 60 44 Chipman Hill, Suite 1000, Saint Jon, NB, 85 Gatwickstraat 1, Amsterdam, 1043 GK, Netherlands
United States E2L 4S6, Canada 86 26 Prince Andrew Place, Don Mills, Toronto, ON,
32 C T Corporation System Inc., 1010 Dale Street North, 61 Suite 2600, Three Bentall Centre, P.O. Box 49314, M3C 2T8, Canada
St Paul, MN, 55117-5603, United States 595 Burrard Street, Vancouver, BC, V7X 1L3, Canada 87 Oficina N°117, edificio Casa Colorada, calle Merced
33 120, South Central Avenue, Clayton, MO, 63105, 62 Unit 30-01, Level 30, Tower A, Vertical Business Suite, N°838-A Santiago Centro, Santiago, Chile
United States Avenue 3, Bangsar South, No 8, Jalan Kerinchi, 88 2, Lilienthalstrasse, Hallbergmoos, 85399, Germany
34 The Corporation Trust Company of Nevada, 59200 Kuala Lumpur, Malaysia
89 30th Floor, Ratu Plaza Office Tower, Jl. Jend. Sudirman
701 S Carson St, Suite 200, Carson City, NV, 89701, 63 Comendador Aladino Selmi Avenue, 4630, Kav 9, Jakarta, 10270, Indonesia
United States Galpão 1, Mezanino, Sala 5, Parque Cidade Campinas,
City of Campinas,São Paulo, 13069-036, Brazil 90 Carrera 7 Nro 156 – 68, Piso 26, Bogota, Colombia
35 C T Corporation System, 206 S Coronado Ave,
Espanola, NM, 87532-2792, United States 64 Suite 1201 (site: self-made No. 1219), No. 85 Huacheng 91 Calle Antonio Dovali jaime #70, Torre B, Piso 6,
Avenue, Tianhe District, Guangzhou, China Col. Zedec ed Plaza Santa Fe, del. Álvaro Obregon,
36 CT Corporation, 111 Eighth Avenue, New York, Ciudad de Mexico, CP 01210, Mexico
NY 10011, United States 65 Plot 50371, Fairground Office Park, Gaborone, Botswana
92 Punta Pacifica, Torres de las Americas,
37 Chollerstrasse 37, 6300 Zug, Switzerland 66 C/o Du Preez, LIebetrau & Co, 252 Kingsway, Torre A Piso 15 Ofic. 1517, Panama, 0832-0588, Panama
38 21, Mugyo-ro Jung-gu, Seoul, Republic of Korea Next to USA Embassy, Maseru, Lesotho
93 Cal. Los Halcones, no. 275, Urb. Limatombo, Lima, Perú
39 199 Bay Street, Commerce Court West, Suite 2800, 67 João Scarparo Netto Avenue, 84, Bloco B,
Ground Floor, Sala 44, Ed Unique Village Offices, 94 28, Ribera del Loira, Madrid, 28042, Spain
Toronto, ON, M5L1A9, Canada
Loteamento Center Santa Genebra, City of Campinas, 95 87/1 Capital Tower Building, All Seasons Place unit
40 C T Corporation System, 780 Commercial St SE Ste 100, São Paulo, 13080-655, Brazil 1604 – 6 16th floor, Wireless Road, Lumpini,
Salem, OR, 97301, United States Pathumwan, Bangkok, Thailand
68 Unit 621, 6th Floor, Block A, Kelana Centre Point.
41 C T Corporation System, 116 Pine Street, Suite 320, No 3, Jalan SS7/9, Kelana Jaya 47301 Petaling Jaya, 96 6F Kwanjeong Building, 35, Cheonggyecheon-Ro,
Harrisburg, Dauphin, PA, 17101, United States Selangor Darul Ehsan, Malaysia Jongno-gu, Seoul, 03188, Republic of Korea
42 Ulica Szamocka 8 01-748, Warszawa, Poland 69 Room 305, Building 2, 6555 Shangchuan Road, 97 Unit 7 Kingland Park, 98 Nickel Street, Prosperita,
43 C T Corporation System, 800 S Gay St, Suite 2021, Pudong District, Shanghai, China Windhoek, Namibia
Knoxville, TN, 37929-9710, United States 70 Parkway House, Hannover Avenue, Blantyre, Malawi 98 8, Secretariat Road, Obafemi Awolowo Way,
44 CT Corporation System, 1999 Bryan Street, 71 707 Collins Street, Docklands, Melbourne, VIC, Alausa, Ikeja, Lagos State, Nigeria
Suite 900, Dallas, TX, 75201, United States 3008, Australia 99 Juan Benito Blanco 780 – Plaza Business Center
45 Numero 776, Avenida 24 de Julho, Maputo, Mozambique 72 Queensway House, Kaunda Street, Nairobi, Kenya Montevideo, Uruguay
46 C T Corporation System, 4701 Cox Road, Suite 285, 73 Robinson Bertram, 3rd Floor, Sokhzmlilio Bldg, 100 Humboldt 1509 piso 6 (C1414CTM), Ciudad Autonoma
Glen Allen, Henrico, VA, 23060-0000, United States Mbabane, Swaziland de Buenos Aires, Argentina
47 3500, 855 – 2nd Street, S.W., Calgary, AB, 74 P O Box 45, IPS Building, Maktaba Street, 101 No 219, Room D, 11F, Sec 3, Beixin Road, New Taipei City,
T2P 4K7, Canada Dar es Salaam, Tanzania Xindian District, 23143, Taiwan
48 Thistle House, 4 Burnaby Street, Hamilton, 75 Mlungushi Conference Centre, Centre Annex, 102 Barbaros Bulvarı. No:149, Dr. Orhan Birman İş Merkezi
HM11, Bermuda Great East Road, Lusaka, Zambia Kat:3, Gayrettepe Beşiktaş, Istanbul, 34349, Turkey
49 Derech Ben Gurion 2, BSR Building 9th Floor, 76 Stand 1515, Cnr Tourle Road/Harare Drive, 103 3-15, Immeuble Terra Nova II, Rue Henri Rol Tanguy,
Ramat Gan, 52573, Israel Ardbennie, Harare, Zimbabwe Montreuil, 93100, France
50 Auto Atlantic, 4th Floor, Corner Hertzog Boulevard 77 Andalucía y cordero E12-35. Edificio CYEDE 104 Ulica Jana Henryka Dąbrowskiego 77A 60-529,
and Heerengracht, Cape Town, 8001, South Africa piso 1, Oficina 11, Sector “La Floresta”, Quito, Poznań, Poland
51 707 Collins Street, Docklands, Melbourne, VIC, Pichincha, Ecuador 105 16, Corso Trapani, Turin, 10100, Italy
3008, Australia 78 Suite 302-9,Block 3, No. 333 Weining Road, 106 1-5-15, Kanda-Sarugakucho, Chiyoda-ku, Tokyo, Japan
52 190, High Holborn, London, WC1V 7BH, England Changning District, Shanghai, China 107 Orion City, Irgel Building #752, Colombo, 09, Sri Lanka
53 1611, Boul. Cremazie Est, 10th Floor, Montréal, PQ, 79 C/O Pearson Education, 501 Boylston St, Boston, 108 Plot 8, Berkley Road, Old Kampala, Uganda
H2M 2P2, Canada MA, 02116, United States
109 7/F North Tower, Rockwell Business Center COR.
54 195, Archbishop Makarios III Avenue, Neocleous House, 80 Teikoku Hotel Tower 18F, 1-1-1 Uchi Saiwai-Cho, Sheridan & United Street, Brgy. Highway Hills,
Limassol, 3030, Cyprus Chiyoda-ku, Tokyo, Japan Mandaluyong, Philippines
55 Illinois Corporation Service Company, 700 S 2nd Street, 81 Suite 1201, Tower 2, No. 36 North Third Ring East Road, 110 National Registered Agents, inc., 160 Greentree
Springfield, IL, 62703, United States Dongcheng District, Beijing, China Dr Ste 101, Dover, Kent, DE, 19904, United States
56 28/F, 1063 King’s Road, Quarry Bay, Hong Kong 82 268 Munoz Rivera Avenue, Suite 1400, San Juan, 111 27/F Trident Tower, 312 Sen. Gil Puyat Avenue,
57 C/o Corporation Service Company, 251 Little Falls Drive, 00918, Puerto Rico Makati City, Metro Manila, Philippines
Wilmington, Delaware, 19808, United States 83 Suite 1208, 12/F, Tower 2, No. 36 North Third Ring
58 111, 13th Floor, Eighth Avenue, New York, NY, 10011, East Road, Dongcheng District, Beijing, China
United States 84 Suites 3-28 (2:3), Shi Guang Jun Yuan, No. 89 Hubin Road,
59 King Fahad Road, Olaya, Riyadh, 58774, 11515, Goden Sun Technology Industrial Park, High Technical &
Saudi Arabia Industrial Development District, Guiyang City, Guizhou
Province, China
Partly-owned subsidiaries Partly-owned subsidiaries & associated
Overview
Country % Reg
undertakings company addresses
Registered company Name of Incorp. Owned office
Registered office address
Certiport China Co Ltd CN 50.69 1
1 Suite 1804, No.99 Huichuan Road, Changning District,
Educational Publishers LLP UK 85 2 Shanghai City, China
GED Domains LLC US 70 3 2 80 Strand, London, WC2R 0RL, England
GED Testing Service LLC US 70 4 3 C T Corporation System, 4701 Cox Road, Suite 285,
Heinemann Publishers (Pty) Ltd SA 75 5 Glen Allen, Henrico, VA, 23060-0000, United States
Maskew Miller Longman SA 75 5 4 The Corporation Trust Company, Corporation Trust
(Pty) Limited Center, 1209 Orange Street, Wilmington, New Castle,
Pearson Education Achievement SA 97.3 5 DE, 19801, United States
Solutions (RF) (Pty) Limited 5 Auto Atlantic, 4th Floor, Corner Hertzog Boulevard
Pearson South Africa (Pty) Ltd SA 75 5 and Heerengracht, Cape Town, 8001, South Africa
6 C/o Corporation Service Company, 251, Little Falls Drive,
Associated undertakings Wilmington, Delaware, 19808, United States

7 16 Paschimi Marg, Vasant Vihar, New Delhi, DL, India
Country % Reg
Registered company Name of Incorp. Owned office 8 Office 201, Parktown Quarter, Corner 3rd & 7th Avenue,
Parktown North, Johannesburg, 2193. South Africa
ACT Aspire LLC US 50 6
9 P.O. Box No. 6320, 32038 Hawalli, Kuwait City, Kuwait
Avanti Learning Centres IN 23.27 7
10 Campbells Corporate Services Limited, Floor 4,
Private Limited‡
Willow House, Cricket Square, Grand Cayman,
eAdvance Proprietary Limited‡ ZA 35.11 8 KY1-9010, Cayman Islands
Institute for Private Education KU 49.02 9 11 3A Dev Regency II, First Main Road, Gandhinagar,
& Training KSCC* Adyar, Chennai, TN, India
Karadi Path learning IN 24.91 11 12 2nd Floor OTS Building, off Accra-Winneba Road, Kasoa
Company Private Limited‡ second, Kasoa P.O. Box WJ973, Weija, Accra. Ghana
Learn Capital Special US 99.59 16 13 Suite 216, No. 127-1 Zhongguancun North Street,
Opportunities Fund I, L.P.‡ Haidian District, Beijing, China
Learn Capital Venture US 72.93 16 14 10a Hussein Wassef St, Midan Missaha, Dokki Giza,
Our performance
Partners II, L.P.‡ 12311, Egypt
Learn Capital Venture KY 99.00 10 15 Unit No. 404, New Udyog Mandir 2, Mogul Lane,
Partners IIIA, L.P.‡ Mahim(West), Mumbai, MH, 400016, India
Learn Capital Venture Partners, L.P.‡ US 99.15 16 16 Incorporating Services, Ltd. 3500 S Dupont Way,
Omega Schools Franchise Limited GH 49.05 12 Dover, Kent DE, 19901 United States
Peking University Pearson (Beijing) CN 45 13 17 28/F, 1063 King’s Road, Quarry Bay, Hong Kong
Cultural Development Co., Ltd
Penguin Random House Limited UK 25 2
Penguin Random House LLC US 25 6
Tenyi Education Company Limited CN 49 17
The Egyptian International EG 49 14
Publishing Company-Longman
Zaya Learning Labs Private Limited‡ IN 20 15
* In liquidation
Governance
‡ Accounted for as an ‘Other financial asset’ within
non-current assets
Five-year summary
All figures in £ millions 2014 2015 2016 2017 2018
Sales: By geography
North America 2,906 2,940 2,981 2,929 2,784
Core 910 815 803 815 806
Growth 724 713 768 769 539
Continuing 4,540 4,468 4,552 4,513 4,129
Discontinued 343 312 – – –
Total sales 4,883 4,780 4,552 4,513 4,129
Adjusted operating profit: By geography

North America 444 480 420 394 362
Core 122 105 57 50 57
Growth 32 (3) 29 38 59
Penguin Random House 69 90 129 94 68
Continuing 667 672 635 576 546
Discontinued 55 51 – – –
Total adjusted operating profit 722 723 635 576 546
Operating margin – continuing 14.7% 15.0% 13.9% 12.8% 13.2%
Adjusted earnings
Net finance costs (64) (46) (59) (79) (24)
Income tax (118) (105) (95) (55) 27
Non-controlling interest 1 – (2) (2) (2)
Adjusted earnings 541 572 479 440 547
Weighted average number of shares (millions) 810.9 813.3 814.8 813.4 778.1
Adjusted earnings per share 66.7p 70.3p 58.8p 54.1p 70.3p
Prior periods have not been restated to reflect the adoption of IFRS 15 and IFRS 9 in 2018.
Overview
Cash flow
Operating cash flow 649 435 663 669 513
Operating cash conversion 90% 60% 104% 116% 94%
Operating free cash flow 413 255 549 525 448
Operating free cash flow per share 50.9p 31.4p 67.4p 64.5p 57.6p
Free cash flow 413 152 310 227 473
Free cash flow per share 50.9p 18.7p 38.0p 27.9p 60.8p
Net assets 5,985 6,418 4,348 4,021 4,525

Net debt 1,639 654 1,092 432 143
Return on invested capital

Operating tax paid (163) (129) (63) (75) (43)
Return 559 594 572 501 503
Gross basis:
Average invested capital 9,900 10,317 11,464 11,568 10,672
Return on invested capital 5.6% 5.8% 5.0% 4.3% 4.7%
Our performance
Net basis:
Average invested capital 9,835 9,422 7,906 8,126 7,544
Return on invested capital 5.7% 6.3% 7.2% 6.2% 6.7%
Dividend per share 51.0p 52.0p 52.0p 17.0p 18.5p
Governance
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 p44-50 , are shown within the key performance indicators on p2 of the annual report and shown in
notes 2 and 8 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
and allocate resources to business segments. 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 below.
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 contribution (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 contribution 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.
North
All figures in £ millions America Core Growth Total
Statutory sales 2018 2,784 806 539 4,129

Statutory sales 2017 2,929 815 769 4,513
Statutory sales decrease (145) (9) (230) (384)
Comprising:
Underlying (decrease)/increase (43) 3 6 (34)
Portfolio changes including the impact of adopting new accounting standards (IFRS 15 see note 1b) (11) (7) (198) (216)
Exchange differences (91) (5) (38) (134)
Statutory sales decrease (145) (9) (230) (384)
Statutory decrease (5)% (1)% (30)% (9)%
Constant exchange rate decrease (2)% – (25)% (6)%
Underlying (decrease)/increase (1)% – 1% (1)%
Adjusted operating profit
Overview
Adjusted operating profit excludes the cost of major restructuring; other net gains and losses on the sale of subsidiaries, joint ventures,
associates and other financial assets; intangible charges, including impairment, relating only to goodwill and intangible assets acquired
through business combinations and the direct costs of acquiring those businesses; the impact of UK pension GMP equalisation in 2018;
and the impact of US tax reform in 2017. 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.
For acquisitions made in the prior year the additional contribution 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.
Operating profit 553 451

Adjusted operating profit 546 576
Our performance
North
All figures in £ millions America Core Growth PRH Total
Adjusted operating profit (decrease)/increase (32) 7 21 (26) (30)

Comprising:
Underlying increase 2 5 30 6 43
Portfolio changes including the impact of adopting new accounting standards (IFRS 15
see note 1b) (16) (1) (2) (33) (52)
Exchange differences (18) 3 (7) 1 (21)
Adjusted operating profit (decrease)/increase (32) 7 21 (26) (30)
Governance
Constant exchange rate (decrease)/increase (4)% 8% 74% (29)% (2)%
Underlying increase 1% 10% 97% 10% 8%
Adjusted earnings per share

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 allocate resources to business segments and by investors to more
easily, and consistently, track the underlying operational performance of the Group over time. Adjusted earnings per share is calculated as
adjusted earnings divided by the weighted average number of shares in issue on an undiluted basis.
The following items are excluded from adjusted earnings:
Cost of major restructuring In May 2017, the Group announced a restructuring programme to run between 2017 and 2019 to drive significant
cost savings. The costs of this restructuring programme are significant enough to exclude from the adjusted operating profit measure so as
to better highlight the underlying performance (see note 4).
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 earnings as they distort the performance of the Group as reported on a statutory basis.
Intangible charges These represent charges in respect of intangible assets acquired through business combinations and the direct costs
of acquiring those businesses. These charges are excluded as they reflect past acquisition activity and do not necessarily reflect the current
year performance of the Group.
Financial key performance indicators
Other net finance income/costs These include finance costs in respect of retirement benefits, finance costs of deferred consideration and
foreign exchange and other gains and losses. Finance income relating to retirement benefits are 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.
UK pension GMP equalisation In 2018 the impact of adjustments arising from clarification of guaranteed minimum pension (GMP)
equalisation legislation in the UK, as outlined in note 25 of the notes to the consolidated financial statements, has also been excluded as
this relates to historical circumstances.
Impact of US tax reform In 2017, as a result of US tax reform, the Group’s share of profit from associates was adversely impacted by £8m.
This amount has been excluded from adjusted earnings as it is considered to be a transition adjustment that is not expected to recur in
the near future.
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.

Other net finance income/(costs) 31 (49)
Tax (65) (42)
Adjusted earnings 547 440

Adjusted earnings per share 70.3p 54.1p
Return on invested capital

Return on invested capital (ROIC) is included as a non-GAAP measure as it is used by management and investors to track investment returns
and 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.
2018 2017 2018 2017

All figures in £ millions Gross Gross Net Net
Adjusted operating profit 546 576 546 576

Operating tax paid (43) (75) (43) (75)
Return 503 501 503 501
Average goodwill 6,675 7,236 3,547 3,794
Average other non-current intangibles 2,438 2,606 2,438 2,606

Average intangible assets – pre-publication 999 995 999 995
Average tangible fixed assets and working capital 560 731 560 731
Average invested capital 10,672 11,568 7,544 8,126
Return on invested capital 4.7% 4.3% 6.7% 6.2%
Operating cash flow
Overview
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 and intangible software assets; plus proceeds from the sale of property,
plant and equipment and intangible software assets; less finance lease principal payments; plus special pension contributions paid; and
plus cost 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.
Net cash generated from operations 547 462

Dividends from joint ventures and associates 117 458
Re-capitalisation dividends from Penguin Random House (50) (312)

Purchase of intangible software assets (130) (150)
Proceeds from sale of property, plant and equipment and intangible software assets 128 –
Special pension contribution – 227
Net (proceeds from)/ cost paid re major restructuring (25) 71
For information, 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 underlying cash generation by the Group.
Our performance

Cash conversion 94% 116%
For information, operating cash flow, operating free cash flow and total free cash flow, which are non-GAAP measures, are disclosed and
reconciled in note 33 of the notes to the consolidated financial statements as they are commonly used by investors to measure the cash
performance of the Group.
Net debt and earnings before interest, tax, depreciation and amortisation (EBITDA)
Governance
For information, the net debt/EBITDA ratio is shown as a non-GAAP measure as it is commonly used by investors to measure balance sheet
strength. EBITDA is calculated as adjusted operating profit less depreciation on property, plant and equipment and less amortisation on
intangible software assets.

Depreciation (excluding items included in ‘cost of major restructuring’) 66 80
Amortisation on intangible software assets (excluding items included in ‘cost of major restructuring’) 87 82
EBITDA 699 738
Marketable securities – 8
Derivative financial instruments 9 –

Bank loans and overdrafts (43) (15)
Bonds (672) (1,062)
Finance lease liabilities (5) (8)
Total (143) (559)
Cash and cash equivalents classified as held for sale – 127
Net debt (143) (432)
Net debt/EBITDA ratio 0.2x 0.6x
Glossary of major products and services
AcceleratED pathways: a corporate education TEC Level 1/Level 2 Firsts: BTEC Firsts allow
B The Clinical Assessment portfolio also offers a
benefit, where Pearson partners with companies level 2 learners to develop knowledge and range of assessments serving a diverse audience
to improve employee development by focusing understanding by applying their learning of professionals including Psychologists, Speech
on the educational needs of a specific business and skills in real-life scenarios. Combined with Language Pathologists, Occupational Therapists
and its people, helping to strategically align other qualifications, they enable learners to and more. These professionals rely on leading
educational assistance spending to the talent progress to further study, an apprenticeship, measures like the Wechsler Scales of Intelligence,
objectives of the organisation. or into employment. which assess an individual’s cognitive strengths
and weaknesses or the Minnesota Multiphasic
ACCUPLACER®/MyFoundationsLab®: TEC Level 1/Level 2 Tech Awards: studied
B Personality Inventory (MMPI), a world renowned
this all-in-one diagnostics and intervention alongside GCSE, BTEC Tech Awards provide a measure of psychopathology and personality.
programme combines The College Board’s great introduction to a professional sector
assessment programme with Pearson’s proven where students learn transferable skills Other examples of our Clinical products include:
online intervention solution. It identifies the they’ll use if they progress to further study,
areas where a student needs work and then
ehaviour Assessment System for Children:
B
and in their future career.
a comprehensive set of rating scales and forms
takes a personalised learning path that helps
TEC Level 2 Technicals: designed in
B to help children thrive in their school and home
them work on their individual skills deficit.
collaboration with employers and industry environments through effective behaviour
Last year alone, Pearson delivered 9.2M tests
professionals, BTEC Level 2 Technicals provide assessment. BASC provides a complete picture
on the ACCUPLACER® platform.
career-focused, applied courses for post-16 of child and adolescent behaviour. School and
Artificial intelligence (AI): describes machines level 2 learners in a specialist occupational area. clinical psychologists have depended on
that can sense and interact with environments They support progression to an apprenticeship, BASC for more than 20 years.
in a perception-planning-action cycle, or with to further technical study, or into the workplace.
other machines, without explicit programming. oldman-Fristoe Test of Articulation-Third
G
This is typically accomplished through Machine TEC Level 3 Nationals: allow level 3 learners
B Edition (GFTA-3): a systematic means of
Learning (ML) which is the development, and to apply their learning in real-life scenarios to assessing an individual’s ability to pronounce
application of algorithms that improve their develop the specialist knowledge and skills they different speech sounds of Standard American
performance (inference) at some task based need to progress towards their chosen career English in order to diagnose different disorders
on experience (training). Pearson takes a path, whether that is through further or higher which can inhibit an individual’s articulation.
human-centric perspective of AI that considers education, an apprenticeship or directly into It provides information about an individual’s
the entire learning ecosystem when developing the workplace. speech sound ability by sampling both
AI capabilities including ethics, privacy, spontaneous and imitative sound production
TEC Higher Nationals: available at levels 4
B in single words and connected speech.
appropriate uses and user needs.
and 5, BTEC Higher Nationals are internationally
Bug Club: a core reading programme for recognised, career-focused higher education Connections Academy: The Connections
4-11 year olds, which has everything needed courses which are the same level as the first and Academy online school programme for grades
to deliver the 2014 UK primary curriculum and second years of a degree course. Co-designed K12 is a comprehensive collection of online
includes over 590 finely levelled titles, available with employers and representing the most learning products and school support services
in print and eBook format and a unique online up-to-date professional standards, they for online public schools across the US, most of
learning platform with in-built assessment. support learners to develop the real-world which carry the Connections Academy name.
knowledge, skills and behaviours needed In addition, International Connections Academy
BTEC: taught in colleges, schools and university is a private online school for grades K12 and
to succeed, allowing them to move on to
throughout the world, a BTEC gives learners of serves students worldwide.
complete degree and progress in their
all levels and ages the knowledge and skills they
chosen career path. Digitally–enabled learning: learning that
need for career success, now and into the future.
The unique experience BTEC learners get of Clinical Assessment: our Clinical Assessment is enabled through digital media, tools
having to apply the knowledge and skills they’ve business provides assessments to help or technology.
learned to real-life scenarios means more professionals improve lives by providing Edexcel GCSE/A level: AS and A levels –
employers and learners are choosing BTEC. valuable information that can identify and sometimes called General Certificates of
manage an individual learner’s strengths and Education (GCE) or Advanced levels – are
weaknesses and learning barriers. For example, normally studied after level 2 in a BTEC or GCSEs.
AimsWeb Plus provides universal screening, They mainly involve studying the theory of a
benchmarking, and progress monitoring subject, combined with some investigative work,
assessments to give educators the reliable and are usually studied full time over two years
data they need to improve students’ maths at school or college. AS and A levels are at level 3
and reading skills. on the National Qualifications Framework.
Glossary of Pearson products and services 227
English Benchmark: a motivating English test for Intelligent Essay Assessor (IEA): a suite of Partner Print Rental: a partnership with campus
Overview
young learners aged 6-13, which proves students’ capabilities for evaluating written responses for bookstores and other online retailers that offer a
English abilities to parents, monitors learning both content and quality of writing. IEA can score “rent only” option of high-demand print products
progress, and ensures teaching targets the right and provide immediate feedback on different at a lower cost to students.
skills. English Benchmark measures students’ types of written responses, both essay length
Pearson Affordable Learning Fund (PALF):
speaking, listening, reading, and writing skills, and short answer, across a variety of content
invests ‘patient capital’ in independently run,
through fun and interactive tablet-based subject areas including English Language Arts,
for-profit, education start-ups using innovative
activities, and uses AI-based automated scoring science, social studies, and text-based maths.
approaches to improving learner outcomes and
to provide immediate detailed reports for
Learning Catalytics: a web-based and interactive increasing access at scale. By investing in new
teachers and parents that include students’
student response tool, accessible via educational ventures, Pearson helps to increase
strengths, suggestions for improvement, and
smartphones, tablets, and laptops, which the quality of education for millions of learners,
recommended activities to improve their skills.
encourages team-based learning and allows identify what’s next in the world’s largest
ePen: an assessment scoring tool with various students to take part in a variety of interactive growth markets, and generate attractive

features designed for use by a variety of tasks and thinking. financial returns.
education stakeholders, including Education
Longman English+: an app that provides Pearson College London: a not-for-profit,
Agency officials, educators, independent
personalised English language learning for alternative degree provider, offering a
contractors, and Pearson employees.
learners in China. university education that’s powered by
GED: GED Testing Service is a joint venture industry experience.
MyLab/Mastering: reaching over 10 million
between Pearson and the American Council
learners globally, MyLab/Mastering is a collection Pearson Institute of Higher Education: Pearson
on Education, and is part of a programme which
of online homework, tutorial, and assessment Institute of Higher Education (Pty) Ltd. (formerly
measures proficiency in language arts, maths,
products designed for personalised learning Midrand Graduate Institute and CTI Education
science and social studies. It allows learners to
experiences that engage students and improve Group) is registered with the Department of
obtain their high school equivalency credential,
their academic performance. These teaching Higher Education and Training as a private higher
be placed in college courses, and even earn
and learning platforms empower instructors to education institution under the Higher Education
college credit. In addition to the actual GED
reach every student. For example, in a study Act, 101, of 1997. We have 12 campuses across
test, Pearson VUE also offers a suite of products
Our performance
conducted at five higher education institutions South Africa. Our campuses engage in a range
and services to help people prepare for this
in the US, it was found an increase of 18 attempts of employability initiatives in order to enhance
assessment, including GED Ready, a predictive
on MyLab Math homework was associated with students success in the workplace. We have over
practice test that provides learners with a
a fivefold increase in the probability of passing a 8000 students and over 35 different nationalities
detailed score report, which outlines areas
Developmental Math course. on our campuses. We have over 25 qualifications
of strength and those that need more attention
and programmes across a range of faculties,
and gives learners the tools they need to MePro: a complete, blended service solution
all equipping students with the skills they need
be successful. for English language learning, which provides a
in the workplace. We use an optimal combination
personalised learning experience through
Global Learning Platform (GLP): ultimately of technology-enhanced and traditional learning
courseware & assessment linked to the Global
Pearson’s single product platform that will methods, as well as practical application,
Scale of English (GSE), remediation and stretch
leverage best-in-class technology to deliver to prepare students for the technology-driven
content for personalised learning, professional
the future generation of global digital learning and fast-changing work environment of the
development for teachers and a parent app.
experiences. The GLP is not a product, but it will 21st century. Producing employable graduates
Governance
change the way we design and deliver products, MyPedia: an integrated learning programme is a priority for Pearson Institute.
providing a modern, reliable consumer grade which aims to transform how education is
Pearson Test of English Academic
experience across all devices in all geographies. delivered in schools by bringing together all
(PTE Academic): is an English language test
Products built on GLP will deliver improved learning and teaching tools – including publishing
that enables people to prove their English
outcomes and provide a user-centered, globally resources, digital content and assessments – to
skills when applying to study in English or to
consistent, locally optimised, learning experience help improve foundational skills in literacy and
migrate to Australia or New Zealand. The test
for our customers. numeracy in pre-primary to grade 8 children.
is completed on a computer in a secure test
Inclusive Access: provides all US college students Online Program Management (OPM): centre and measures the candidate’s speaking,
with equal and affordable access to course a market in which Pearson is a provider by listening, reading, and writing skills. Unlike
materials by their first day of class eliminating partnering with colleges and universities around competitor tests, PTE Academic uses AI-based
key hurdles to their academic success. Inclusive the world to bring their degrees and short automated scoring to provide a more accurate
Access can also provide institutions a valuable courses online, helping students gain skills for and reliable result with most test takers receiving
tool to help increase retention by lowering the the changing world of work. Pearson provides scores within two days during 2018.
withdraw and fail rates caused by the lack of the upfront capital and infrastructure that
students preparedness. By utilising Inclusive institutions need, as well as providing services
Access institutions can drive down the overall such as student enrolment and retention,
cost of attendance for students by realising course design and development, and market
savings in using digital course materials rather research and insights.
than new print materials.
Glossary of major products and services
Pearson VUE: Pearson VUE is a comprehensive overall retention. Karen Reilly, Campus Dean In the US Higher Education landscape,
computer-based testing company that develops of Learning Support at Valencia College, said we partner and provide products and
and delivers millions of certification and that “The results of our analysis show that services to a diverse array of educational
licensure exams each year for the most highly Smarthinking is an important component in institutions including:
regarded exam owners in every industry from our overall academic support programme; it is
academia and admissions to IT and healthcare. essential that students have access to tutoring
ommunity College: sometimes called junior
C
colleges, are two-year schools that provide
Pearson VUE is the global leader in exam assistance after hours and on weekends –
affordable postsecondary education as a
development and psychometric services, whenever a learning moment is happening.”
pathway to a four-year degree.
programme management tools and services,
Speak Out: part of our English Language
and diverse delivery options, including online rivate Not For Profit: a private foundation that
P
Teaching product portfolio, Speak Out is an
proctoring and anywhere proctoring, as well is engaged in social or public benefit activities
English language course that includes video
as a network of 20,000 highly secure global and is registered as such with the IRS. It derives
content from the BBC to engage students and
test centres. its revenue from a small group of donors
make teaching easier by exposing students to a
Q-Interactive: a digital system for administering wide array of words and accents, familiarising without any intention of earning income for
and scoring tests in a one-on-one setting students with English as it is spoken. By watching its owners. All the profits and donations
between an examiner and examinee. Testing many such videos, students learn proper of a not-for-profit organisation are used in
takes place on two iPads with an app called pronunciation, expand their vocabulary bank operating the organisation as per its objectives
Assess. The simplicity of the system improves and reinforce their English-language confidence. (i.e., charity or public service).
accuracy and speed in providing real-time Year Public Universities: a university
4
TestNav: an innovative online test delivery
scoring and allows for greater flexibility. offering a Bachelor’s degree that is
platform that is part of Pearson’s comprehensive
Remote proctoring: in our Pearson VUE assessment solution. TestNav delivers millions predominantly funded by public means
business, remote proctoring is when a proctor of secure, high-stakes state and national tests through a national or subnational government,
and a test-taker are not physically located in the in K12 schools every year. Secure, scalable, as opposed to private universities.
same room. In most cases, the person takes their and reliable, TestNav provides engaging and
or-Profit Universities: a university that
F
entire exam on a computer while the proctor interactive testing to students who learn and
is owned and run by a private organisation
watches through an online video camera. play in a digital environment.
or corporation.
Revel: replaces traditional texts with an engaging The Enabling Programme (TEP): one of
US School Assessment Business: helps young
learning experience that prepares students Pearson’s largest business transformation
children and students reach their educational
for class. It presents an affordable, seamless projects. Its aim is to make us a simpler
aspirations through meaningful feedback.
blend of author-created digital text, media, and organisation, with globally consistent ways
Testing plays an integral role in determining
assessment based on learning science. Students of working across HR, finance, procurement,
educator and student success, and we are the
can read, practice, and study anywhere, anytime, supply chain, and rights and royalties.
largest provider of educational assessment
and on any device. With assignment and tracking
Top Notch: part of our English Language services in the US. We partner with departments
tools, Revel also allows instructors to gauge
Teaching product portfolio, Top Notch is a of education and educators to develop new
student understanding and engagement with
communicative English course that prepares and personalised ways of learning through
the material inside and outside the classroom,
students to communicate in English with an effective, scalable assessments that measure
empowering them to spend class time on
emphasis on cultural fluency that enables 21st century skills and inform instruction
meaningful instruction. For example, each
students to navigate the social, travel and throughout the school year. Examples of the
additional five hours a student spent on Revel
business situations that they will encounter tests we support include:
Psychology readings was associated with an
in their lives. Top Notch makes English
increase of 2.19 (±1.10) percentage points on AT: an entrance exam used by most colleges
S
unforgettable through the right input of
unit exams. and universities to make admissions decisions.
language, intensive practice, and systematic
It is a multiple-choice, pencil-and-paper test
Sistemas: a complete package of products and recycling using a diverse array of speakers
with the purpose to measure a high school
services for private and public K12 schools in around the world who have a wide range of
student’s readiness for college, and provide
Brazil. With a single price per student, we provide native and non-native accents.
colleges with one common data point that
courseware, educational assistance, professional
Wiz.me: an English language learning app can be used to compare all applicants.
development, management consulting, and
within Wizard schools that gives students the
marketing support, as well as digital content. ational Assessment of Educational
N
opportunity to continue to learn and practice
Progress (NAEP): The National Assessment
Smarthinking: expert online tutoring and their skills outside the classroom.
of Educational Progress (NAEP) is the largest
writing review that gives students 24x7 access to
Wizard: a franchise of language-learning schools nationally representative and continuing
academic help from live professional educators
that offers eight different language courses assessment of what America’s students know
and uses a proven, problem-solving approach
and uses the international certification, TOEIC, and can do in various subject areas.
to help students learn, gain confidence,
as a teaching mode. TOEIC is the Test of English
and handle future assignments on their own. CT: The ACT® test is the nation’s most popular
A
for International Communication (TOEIC®),
Complementing Pearson content and technology college entrance exam accepted and valued by
an examination for international communication,
solutions, Smarthinking’s human delivered all universities and colleges in the United States.
which measures the English proficiency of a
services have 30 years of experience improving
foreigner in everyday situations, and especially
student performance, course persistence, and
in situations related to the job market.
Shareholder information
Pearson ordinary shares are listed on the London Stock Exchange Dividend reinvestment plan (DRIP)
Overview
and on the New York Stock Exchange in the form of American
Depositary Receipts. 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*.
Corporate website
The investors’ section of our corporate website Individual Savings Accounts (ISAs)
www.pearson.com/corporate/investors.html
provides a wealth of information for shareholders. It is also Equiniti offers ISAs in Pearson shares. For more information,
possible to sign up to receive e-mail alerts for reports and please go to www.shareview.co.uk/dealing or call customer
press releases relating to Pearson at www.pearson.com/ services on 0345 300 0430*.
corporate/news/media/email-alert-signup.html
Share dealing facilities

Shareholder information online
Equiniti offers telephone and internet services for dealing in Pearson
Shareholder information can be found on our website shares. For further information, please contact their telephone
www.pearson.com/corporate/investors.html dealing helpline on 03456 037 037* or, for online dealing, log on
to www.shareview.co.uk/dealing. You will need your shareholder
Our registrar, Equiniti, also provides a range of shareholder
reference number as shown on your share certificate.
information online. You can check your holding and find
practical help on transferring shares or updating your details at A postal dealing service is also available through Equiniti.
www.shareview.co.uk. For more information, please contact Please telephone 0371 384 2248* for details or log on to
our registrar, Equiniti, Aspect House, Spencer Road, Lancing, www.shareview.co.uk to download a form.
West Sussex, BN99 6DA. Telephone 0371 384 2233* or,
* Lines open 8.30 am to 5.30 pm Monday to Friday (excluding UK public holidays).
for those shareholders with hearing difficulties, textphone
number 0371 384 2255*. ShareGift
Our performance
Shareholders with small holdings of shares, whose value makes
Information about the Pearson share price them uneconomic to sell, may wish to donate them to ShareGift,
The company’s share price can be found on our website at the share donation charity (registered charity number 1052686).
www.pearson.com/corporate/. It also appears in the financial Further information about ShareGift and the charities it
columns of the national press. has supported may be obtained from their website,
www.ShareGift.org, or by contacting them at ShareGift,
PO Box 72253, London, SW1P 9LQ.
2018 dividends
Payment date Amount per share American Depositary Receipts (ADRs)
Interim 14 September 2018 5.5 pence
Pearson’s ADRs are listed on the New York Stock Exchange and
Governance
Final1 10 May 2019 13 pence traded under the symbol PSO. Each ADR represents one ordinary
1 Subject to approval by shareholders at the Annual General Meeting. share. For enquiries regarding registered ADR holder accounts
and dividends, please contact Bank of New York Mellon,
2019 financial calendar Shareholder Correspondence (ADR), PO Box 505000, Louisville,
KY 40233-5000, telephone 1 (866) 259 2289 (toll free within
Ex-dividend date 4 April the US) or 001 201 680 6825 (outside the US). Alternatively,
Record date 5 April you may e-mail shrrelations@cpushareownerservices.com
Last date for dividend reinvestment election 16 April
Voting rights for registered ADR holders can be exercised through
Annual General Meeting 26 April Bank of New York Mellon, and for beneficial ADR holders (and/or
Payment date for dividend and share purchase date for nominee accounts) through your US brokerage institution. Pearson
dividend reinvestment 10 May will file with the Securities and Exchange Commission a Form 20-F.
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 tax
voucher sent to the shareholder’s registered address. Equiniti can
be contacted for information on 0371 384 2043*.
Shareholder information
Share register fraud: protecting your investment Tips on protecting your shares
Pearson does not contact its shareholders directly to provide eep any documentation that contains your shareholder reference
K
recommendations or investment advice and neither does it number in a safe place and shred any unwanted documentation
appoint third parties to do so. As required by law, our shareholder
Inform our registrar, Equiniti, promptly when you change address
register is available for public inspection but we cannot control
the use of information obtained by persons inspecting the register. e aware of dividend payment dates and contact the registrar
B
Please treat any approaches purporting to originate from if you do not receive your dividend cheque or, better still,
Pearson with caution. make arrangements to have the dividend paid directly into
your bank account
For more information, please log on to our website at
www.pearson.com/corporate/investors/managing-your-shares/ onsider holding your shares electronically in a CREST account
C
share-register-fraud.html via a nominee.
Reliance on this document Designed and produced by Friend www.friendstudio.com
The intention of this document is to provide information to shareholders and is Print: Pureprint Group
not designed to be relied upon by any other party or for any other purpose. Photographs
Forward-looking statements Front cover,p23, p34, p42 and 43: Pearson College
This document includes forward-looking statements concerning Pearson’s financial p1 and p17: Alex Rumford
condition, business and operations and its strategy, plans and objectives. In p35: Ahmad Muhsen/Save the Children
particular, all statements that express forecasts, expectations and projections, p41: Jo Moon Price
including trends in results of operations, margins, growth rates, overall market p55: Patrice Jones
trends, the impact of interest or exchange rates, the availability of financing,
anticipated cost savings and synergies and the execution of Pearson’s strategy, As part of its offsetting commitments Pearson has offset the carbon dioxide
are forward-looking statements. generated by the production of this report and associated documents.
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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. They also include other risks 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. Readers
are cautioned not to place undue reliance on such forward-looking statements.
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@pearson
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Learning

Overview Our performance

77 Governance 133 Financial statements

96 Accountability 142 Consolidated financial statements

To keep up with the pace of change, we are

Our strategy in action

BTECs provide students

Glossary of major products and services see p226

Key performance indicators

£4,129m -1% £546m +8% 70.3p +30%

£143m -67% £553m +23% 75.6p +52%

£513m -23% £547m +18% 18.5p +9%

Return on invested capital Return on invested capital Total shareholder returns3 R

(gross basis) %, headline change R (net basis) %, headline change

4.7% +9% 6.7% +8% +30.4% 1 year TSR

18 4.7 18 6.7 +47.1% 3 year TSR

1 See p46–47 for an explanation of these alternative performance measures.

R See how we link strategy to management reward on p110.

1  row market share through digital transformation of our

courseware and assessment businesses R

18 34% 28% 38% 18 55% 45% 18 56% 44%

59% 17 50% 50% 17 55% 45%

Our strategy in action

Digital Digitally-enabled Non-digital Digital Non-digital Digital Non-digital

2 Invest in structural growth markets p22

Underlying revenue +8% Underlying revenue +4%

Global Online Program Management Growth English Growth

Underlying revenue +10% English Courseware underlying revenue +3%

Female senior managers5 31% 30%

We are the world’s learning company operating

Where we operate Sales by geography

We operate in 70 markets worldwide, with a focus on those North America £2,784m

North America Growth markets

What we offer Sales by products and services

We provide content, assessment and digital services to schools, Courseware 49%

Grow market share through digital

Our strategy in action

assessment to support better learning.

I can work full time as a 19 year old.

Jordan Davis is a sophomore at

Since OPM courses are delivered Pearson currently supports more

2018 has been a pivotal year for Pearson

1 Excluding WSE and US K12 Courseware.

Our strategy in action

CEO’s strategic overview

Technology is radically changing the way

Dear Shareholders, Pearson is the world’s learning company. A

1 Excluding WSE and US K12 Courseware.

We will partner with universities on our first

This growing, innovative product pipeline £546m £143m

Our strategy in action

Our virtual schools business, Connections Non digital 38%

Academy, grew underlying revenue by 8%.

The Pearson Test of English Academic,

currently exploring. The Pearson Test of

CEO’s strategic overview

Our strategy in action

Our strategy in action

Aruwin chose Colorado Connections

Technology is changing expectations

R See how we link strategy to management reward on p110.

1 row market share through digital transformation of our

otal revenue in this segment

ontinuing to lead and shape

evenue declined moderately

e are the largest vendor

ull Time Equivalent students

exams that require the igital delivery, leading

Improve access to and affordability uild skills that foster employability