Pearson’s 2025 numbers: steady growth, strong cash, buyback in full swing
Pearson has posted a solid set of unaudited 2025 prelims and is guiding to more of the same in 2026. Underlying sales rose 4% and adjusted operating profit was up 6% with margin nudging to 17.2%. Cash generation remained a real strength and management is confident enough to push ahead with another £350m buyback on top of last year’s £350m.
Quick jargon buster: “Underlying” strips out currency and portfolio changes to show like-for-like growth. “Headline” includes everything. “Adjusted operating profit” excludes certain one-offs like acquisition-related amortisation and major restructuring to give a cleaner view of ongoing performance. “Free cash flow conversion” is free cash flow divided by adjusted earnings.
Key figures investors will care about
| Metric | 2025 | 2024 | Comment |
|---|---|---|---|
| Sales | £3,577m | £3,552m | +4% underlying, +1% headline |
| Adjusted operating profit | £614m | £600m | +6% underlying, margin 17.2% |
| Statutory operating profit | £507m | £541m | Hit by FX and an £87m product development impairment |
| Free cash flow | £527m | £490m | Conversion 125% including State Aid tax refund |
| Adjusted EPS | 64.5p | 62.1p | +4% headline, +9% at constant FX |
| Dividend | 25.2p | 24.0p | Up 5%; proposed final 17.4p |
| Net debt | £1.1bn | £0.9bn | 1.3x net debt/adjusted EBITDA |
| Share buyback | £350m (2025 completed) | — | Share count down 5%; new £350m started Jan 2026 |
What drove performance across the portfolio
- Assessment & Qualifications: Sales +4% underlying. UK & International Qualifications strong at +9%; Clinical Assessment +8%. US Student Assessment +2%. Some headwinds in PDRI and one state contract loss offset elsewhere. Adjusted operating profit +1% underlying to £361m.
- Virtual Learning: The standout. Sales +8% underlying, with H2 up 18% on enrolment momentum. Enrolments for 2025/26 Fall were +13%. Adjusted operating profit +29% underlying to £81m.
- Higher Education: Sales +2% underlying. US core courseware benefited from pricing and enrolments; Inclusive Access up 19%; US digital subscriptions +2%. International remained soft. Adjusted operating profit flat underlying at £93m.
- English Language Learning: +1% underlying sales. PTE held up well despite tighter migration policies, with market share gains. Adjusted operating profit +16% underlying to £50m.
- Enterprise Learning & Skills: +6% underlying sales with improved Enterprise Solutions momentum and solid Vocational Qualifications. Adjusted operating profit +40% underlying to £29m.
Cash, dividends and buybacks: returns still flowing
Operating cash conversion was 93% despite higher working capital from a busy Q4 and increased investment. Free cash flow rose 8% to £527m, helped by a £0.1bn State Aid tax recovery. Even excluding that, conversion was 98%, at the top end of guidance. The balance sheet remains comfortable with net debt at £1.1bn, leverage at 1.3x and around £1.3bn of immediate liquidity, including a new three-year, $800m revolving credit facility.
Shareholder returns are front and centre: a 5% dividend increase to 25.2p, a completed £350m buyback in 2025 (cutting the share count by 5%), and a fresh £350m buyback underway since January 2026. Return on capital improved to 11.3% from 10.5%.
AI in action, not just in slideware
Pearson leaned into AI right across the estate. In Virtual Learning, teacher AI tools reportedly halved the time to create custom assessments. In Higher Education, internal research showed repeat users of AI study tools were 24 times more likely to become active readers. English Language Learning launched Communications Coach, an AI-based workplace tool integrated into Microsoft 365. The theme is consistent: AI to improve outcomes and educator productivity, while protecting Pearson’s core strength in assessments and validation.
2026 guidance: what to plug into your model
- Group underlying sales: mid-single digit growth.
- Adjusted operating profit: £640m-£685m at year-end 2025 FX (£:$ 1.35), including the knock-on from the 2025 product development impairment, which also lowers amortisation in 2026.
- Free cash flow conversion: 90%-100%.
- Adjusted net finance costs: circa £80m, reflecting funding costs for the new £350m buyback.
- Effective tax rate on adjusted profit: circa 25%.
- FX sensitivity: every 1c move in £:$ is about £5m on adjusted operating profit. Average £:$ for 2025 was 1.32 and period end 1.35.
Divisional colour for 2026
- Assessment & Qualifications: Low to mid-single digit growth. Expect a Q1 dip from the New Jersey loss and PDRI, with growth resuming thereafter on new contracts.
- Virtual Learning: Stronger than 2025, especially H1, as the full-year benefit of higher enrolments lands.
- Higher Education: Faster growth than 2025, helped by product and platform innovation, pricing and Inclusive Access, plus improvement in the K12 channel.
- English Language Learning: Higher growth than 2025 with PTE returning to growth, but Q4 weighted as usual.
- Enterprise Learning & Skills: Ongoing growth from Vocational Qualifications and strategic enterprise accounts.
Medium term, Pearson reiterates a mid-single digit underlying sales CAGR, average margin expansion of about 40bps per year and free cash flow conversion of 90%-100% across the period.
One-offs and strategy notes worth flagging
- £87m non-cash impairment of legacy product development assets from courseware platform convergence. Management expects this to drive about £15m per annum adjusted operating profit improvement on average over the next 6 years in Higher Education.
- State Aid tax matter resolved with a £97m refund plus £17m interest received in 2025, boosting free cash flow.
- eDynamic Learning acquired for £168m to build out Early Careers and CTE content. Initial 2025 contribution was £10m of revenue and a £1m loss after tax, reflecting purchase price adjustments and integration stage.
- Share count dropped meaningfully in 2025, supporting EPS, with further reduction underway in 2026 as the new buyback progresses.
Management change: CFO handover
Sally Johnson will step down as Group CFO later in 2026. Simon Robson, currently CFO at Sky, joins on 30 March 2026 and becomes Group CFO and Executive Director on 8 May 2026. It is a heavyweight hire with deep media and tech finance experience. Execution risk around transition always exists, but the overlap period should help ensure continuity.
Why this matters for investors
- Positives: Underlying growth across all major units, expanding margin, robust cash generation, and clear capital return via a progressive dividend and back-to-back £350m buybacks. AI capability is translating into measurable productivity and engagement gains, a differentiator in assessments and courseware.
- Constructive guidance: £640m-£685m adjusted operating profit, mid-single digit sales growth and 90%-100% cash conversion give a credible 2026 roadmap. Medium-term targets are reiterated.
- Watch-outs: Q1 will be softer in Assessment & Qualifications due to the New Jersey contract loss and PDRI headwinds. FX remains a swing factor given the stronger pound. Adjusted net finance costs step up to about £80m with the new buyback. Cash conversion will normalise from 125% to 90%-100% without the exceptional tax receipt.
- Bottom line view: This is a tidy, confidence-building update. Pearson is leaning on its scale advantages in testing, a sturdier Virtual Learning engine, and real AI-led product enhancements. If execution holds and FX behaves, 2026 should deliver another year of steady compounding with meaningful cash returns to shareholders.
