Pearson : 2022 AGM Transcript

Pearson AGM 2022

Friday, 29th April 2022

Introduction Sidney Taurel Chair, Pearson

Welcome

Good morning, everyone, and welcome on behalf of the Pearson Board to the Annual Meeting of our shareholders. There is a quorum present and we can start the meeting. I am Sidney Taurel, the Chair of Pearson.

The company appreciates that, over the last two years, the way we have conducted our meetings has changed due to circumstances beyond our control. We welcomed shareholder support in resolving to amend our Articles of Association to allow us to hold a hybrid meeting today, a combined physical and electronic shareholder meeting.

We believe this hybrid arrangement will enable a broader cross-section of our shareholders to participate in our general meeting today, and going forward, and are therefore committed to fostering such shareholder engagement.

Shareholders joining us virtually through the Lumi platform will be able to participate in the meeting by watching us live on the webcast and will be able to vote on the resolutions and to ask their questions, if they wish to do so.

When we get to the formal part of the meeting there will be an opportunity for shareholders to ask questions, whether that be shareholders attending in person via the Lumi platform, or dialling in via phone. Shareholders on the Lumi platform can also submit questions at any point during the presentation using the message icon at the top of their screen. We will endeavour to ensure that any questions that do not get answered today will be addressed on our website, as soon as it is practicable after the AGM.

The Pearson Board

So joining me today are: Our Chair Designate, Omid Kordestani and deputy Chair Designate, Tim Score, who also serves as Chair of our Audit Committee; Our Chief Executive, Andy Bird, and Chief Financial Officer, Sally Johnson. And our non-executive directors: Sherry Coutu, Chair of our Remuneration Committee; Linda Lorimer, Chair of our Reputation and Responsibility Committee; Graeme Pitkethly, Annette Thomas and Lincoln Wallen.

I regret to say that our new Board director, Esther Lee, has been unable to travel today due to being unwell. We hope she feels better soon. And I understand that she is watching and listening to us right now.

I refer you to the information on the Notice of Annual General Meeting for more details on the impressive backgrounds of our directors. All in attendance will be available to answer questions, if required.

New Pearson - Focused on Lifelong Learning

Now Pearson Board is confident that the direct to consumer, lifelong learning strategy set out by Management in March 2021 will create sustainable, long-term value for Pearson stakeholders.

The world is changing and the definition of learning is expanding, meaning that all of us are learning all the time. Since becoming Chief Executive, Andy has reorganised and refocusedPearson to capitalise on this new wave of learning, creating a new organisational structure and dedicated direct to consumer team that successfully launched Pearson+ in July 2021.

In addition, the leaders of all five Pearson divisions have created strong individual strategies to deliver on Andy's vision. Critically, this growing momentum is reflected in our strong 2021 financial performance, which we will hear more about in a moment.

So Pearson is now a digital first business, with vibrant, high-quality products and an interconnected commercial and consumer strategy. It is clear that the progress being seen across the business supports Pearson's outlook for further growth in 2022 and beyond. There is much work still underway, but all of this together represents an exciting future for Pearson.

Let us now go into a little more detail on financial performance.

2021 Financial Highlights

Group performance ahead of expectations

As you will see from the slide, we delivered a strong Group performance in 2021, with 8% underlying sales growth and adjusted operating profit of £385 million, up 33% and ahead of market expectations. Underpinning this, we have a clear and rigorous capital allocation policy and a robust balance sheet, with significant headroom.

Our strong financial position has enabled us to make bolt-on acquisitions such as Faethm and Credly, to help drive our strategy and future growth. And we have announced today the acquisition of Mondly, which Andy will talk about in more detail shortly.

Given our solid results, and our confidence in the outlook, the Board has proposed a 5% increase in the dividend to 20.5p. We were also able to commence the first tranche of our £350 million share buyback, first announced at our prelims in February and we started that on 4th April.

Now turning to our Q1 2022 trading, I am pleased to note that we have had a good start to the year. Our performance is in line with expectations with Group revenue up 7% at this early stage in the year. In fact, it is a little bit ahead of expectations. And looking ahead, the Board remains confident about Pearson's 2022 progress. We expect revenue growth and adjusted operating profit to be in line with current market expectations.

Introducing our New Chair and Deputy Chair

Finally, following the announcement in April 2021 of my intention to retire, a thorough process was conducted to appoint a successor, led by our Senior Independent Director, Tim Score. This culminated in the announcement in December of Omid Kordestani as new Chair designate. As part of this process, Tim was elevated to Deputy Chair designate.

Omid brings significant experience of leading and advising some of the world's best-known consumer technology brands, including Netscape, Google and Twitter, which will further Pearson's ambition to accelerate its digital, lifelong learning strategy.

Equally, I am delighted that Tim will support Omid as Deputy Chair. His wealth of experience in UK plc, combined with Omid's deep tech knowledge makes them a formidable team.

I believe that this, together with the wider succession work undertaken by the Board this past year, will help accelerate progress in delivering on our strategy, whilst being reflective of our strong commitment to good governance.

I'd particularly like to welcome Annette and Esther to the Board. experience and insights to the company.

Both bring valuableNow on a personal note, it has truly been a privilege to serve as Chair and to oversee Pearson's transformation over the past six years. I am confident that this great company is well positioned to succeed.

During most of this period, whilst facing a challenging market environment, we have:

• • Further focused the business;

• • Reduced our cost base;

• • Invested in technology to transform both our back office support and our customer-facing efforts; and

• • Strengthened our balance sheet.

Following a return to profitable, sustainable growth in 2021, I am confident that this great company is now well-positioned to succeed with a clear strategy in place and an outstanding, diverse Board and management team to implement it.

I am delighted to welcome Omid as my successor as he joins the Board at a very exciting time, congratulate Tim upon his elevation to Deputy Chair, and wish both of them and the whole company every success going forward.

Thank you for your continued support.

And with that, I will turn it over to Andy.

Overview

Andy Bird CEO, Pearson

Our purpose, vision, mission

Thank you, Sidney. Good morning, everyone. And for those of you watching online, good morning and thank you for joining us.

I would like to start by adding my gratitude and thanks to Sidney for his diligence, dedication and commitment as Chair of Pearson. On behalf of everyone at Pearson, including all our employees, I wish you all the very best in your retirement.

I would also like to echo Sidney's comments on welcoming Omid, Annette and Esther on to the Board and congratulating Tim on to his elevation to Deputy Chair. As Sidney was just mentioning, Omid has been a driving force behind the growth of a number of world-changing tech companies. I am thrilled that he will now be bringing that expertise to Pearson, enhancing our strategic direction and growth potential, and personally I cannot wait to start working with Omid.

I am also delighted that Tim will support Omid as Deputy Chair. At the beginning of today's presentation, you saw our employees proudly sharing our new company purpose: to add life to a lifetime of learning. We have defined Pearson's purpose to meet this moment in our world, where learning is becoming more fluid and exists both inside and outside of formal education.

The employees you just saw represented today, along with the tens of thousands of others around the world, are relentlessly focused on fulfilling this purpose and executing on our strategy.

Divisional Performance

Against this backdrop, we had a great year in 2021, making strong financial, strategic and operational progress. Let us take a closer look at 2021's performance and underlying growth drivers across our five divisions.

Assessment & Qualifications

Starting with Assessment & Qualifications. This is Pearson's largest business, which provides the assessments that enable people to demonstrate their knowledge and skills across a lifetime of learning. We had an excellent year in 2021 growing sales and profit significantly, and this division is poised to continue as a source of strength and stability for the company.

The business is based on long-term contracts, with high renewal rates, which span multiple sectors and multiple geographies, allowing us to grow and weather any macro changes in the market. With almost 17 million assessments delivered by Pearson VUE through over 20,000 test centres in more than 200 countries, the breadth of our business is a major advantage.

And the continued demand for upskilling and reskilling will increase our market opportunity and allow us to integrate our products to support growth in other parts of the business, particularly in Workforce Skills & English Language Learning.

Virtual Learning

Our Virtual Learning division meets today's learning trends, where online and hybrid learning have become the norm and the lines between high school, higher education and workforce education are blurring. Because of that, we are well positioned for continued growth.

Our Virtual Schools business has benefited from an increasing awareness of and acceptance of online learning, which has been accelerated by the pandemic, even as we gradually return to normal in the post-pandemic world. We estimate that the overall US virtual schooling population still represents only a small fraction of the US K-12 students today at approximately 1.5% or $3.5 billion in terms of market size. So there is significant room for growth.

Our focus is to increase penetration in existing and new states to take advantage of this opportunity.

English Language Learning

Our vision in English Language Learning is to be the world's leading destination for committed learners to build and prove their English proficiency. With 1.5 billion people currently learning English, there is a big opportunity to grow in the institutional, assessment and direct to consumer spaces, and we are well positioned to capitalise on this.

Our ELL division grew its revenues in 2021 by 17% to £238 million. We have well established businesses with solid market shares, plenty of room for growth, and the ability to contribute to the success of other Pearson divisions.