v3.25.4
Financial risk management
 12 Months Ended
Dec. 31, 2025
Statements [Line Items]  
Financial risk management
19. Financial risk management
The Group’s approach to the management of financial risks, together with sensitivity analyses of its financial instruments, is set out below.
Treasury policy
Pearson’s treasury policies set out the Group’s principles for addressing key financial risks including capital risk, liquidity risk, foreign exchange risk and interest rate risk, and sets out measurable targets for each. The Audit Committee receives quarterly reports incorporating compliance with measurable targets and reviews and approves any changes to treasury policies annually.
The treasury function is permitted to use derivatives where their use reduces a risk or allows a transaction to be undertaken more cost effectively. Derivatives permitted include swaps, forwards and collars to manage foreign exchange and interest rate risk, with foreign exchange swap and forward contracts the most commonly executed. Speculative transactions are not permitted.
Capital risk
The Group’s objectives when managing capital are:
 
•   To maintain a strong balance sheet and a solid investment grade rating;
 
•   To continue to invest in the business organically and through acquisitions; and
 
•   To have a sustainable and progressive dividend policy.
At 31 December 2025, the Group and its bonds were rated
BBB
 (stable outlook) with Fitch Ratings Limited and
Baa2
 (stable outlook) with Moody’s Investor Services.
Net debt
The Group’s net debt position is set out below:
 
  All figures in £ millions
   
     2025
    
     2024
  
Cash and cash equivalents
     
333
        543  
Overdrafts
     
–
        –  
Derivative financial instruments
     
13
        (7 ) 
Revolving Credit Facilities
 
 
(297
)
 
 
 
 –
 
 
 
 
 
 
 
 
 
 
Bonds
     
(706
)
      (955 ) 
Investment in finance lease receivable
     
66
 
      83  
Lease liabilities
     
(478
)
      (517 ) 
 
 
  
Net debt
     
(1,069
)
      (853 ) 
Interest and foreign exchange rate management
T
he Group’s principal currency exposure is to the US dollar which represents
67
% of the Group’s sales.
The Group’s long-term debt is primarily held in US dollars to provide a natural hedge of this exposure, which is achieved through issued US dollar debt or converting GBP debt to US dollars using cross-currency swaps, forwards and collars. As at 31 December 2025 the Group’s gross debt is
£1,481
m (2024: £
1,472m
). £1,181m (2024: £1,472m) of debt is held at fixed rates and £300m (2024: £nil) is held at floating rates. 
See note 16 for details of the Group’s hedging programme which addresses interest rate risk and foreign currency risk.
Overseas profits are converted to sterling to satisfy sterling cash outflows such as dividends at the prevailing spot rate at the time of the transaction. To the extent the Group has sufficient sterling, US dollars may be held as dollar cash to provide a natural offset to the Group’s debt or to satisfy future US dollar cash outflows.
The Group does not have significant cross-border foreign exchange transactional exposures.
As at 31 December 2025, the sensitivity of the carrying value of the Group’s financial instruments to fluctuations in interest rates and exchange rates is as follows:
 
  
  
 
 
 
 
 
  
 
 
 
 
 
 
2025
 
  All figures in £ millions
  
Carrying
value
 
 
Impact of 1%
increase in
interest rates
 
  
Impact of 1%
decrease in
interest rates
 
 
Impact of
10%
strengthening
in sterling
 
 
Impact of
10%
weakening
in sterling
 
Investments in listed and unlisted securities
    
125
 
 
 
–
 
 
 
–
 
 
 
(8
)
 
 
 
10
 
Other receivable
    
16
 
 
 
–
 
 
 
–
 
 
 
(1
)
 
 
2
 
Cash and cash equivalents
    
333
 
 
 
–
 
 
 
–
 
 
 
(23
)
 
 
27
 
Derivative financial instruments
    
13
 
 
 
2
 
 
 
(2
)
 
 
41
 
 
 
(56
)
 
Bonds
    
(706
)
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
Other borrowings
    
(775
)
 
 
–
 
 
 
–
 
 
 
16
 
 
 
(19
)
Investment in finance lease receivable
    
66
 
 
 
–
 
 
 
–
 
 
 
(6
)
 
 
7
 
Deferred and contingent consideration
    
(17
)
 
 
–
 
 
 
–
 
 
 
2
 
 
 
(2
)
Other net financial assets
    
465
 
 
 
–
 
 
 
–
 
 
 
(36
)
 
 
45
 
 
 
 
 
 
 
Total
    
(480
)
 
 
2
 
 
 
(2
)
 
 
(15
)
 
 
14
 
 
                              
2024
  
  All figures in £ millions
   
Carrying
value
    
   Impact of 1%
increase in
interest rates
     
   Impact of 1%
decrease in
interest rates
    
Impact of
10%
 strengthening
in sterling
    
Impact of
10%
 weakening
in sterling
  
Investments in unlisted securities
      141       –        –       (10 )      12  
Other receivable
      12       –        –       (1 )      1  
Cash and cash equivalents
      543       –        –       (32 )      40  
Derivative financial instruments
      (7 )      4        (4 )      22       (24 ) 
Bonds
      (955 )      –        –       23       (28 ) 
Other borrowings
      (517 )      –        –       19       (23 ) 
Investment in finance lease receivable
      83       –        –       (8 )      9  
Deferred and contingent consideration
      (22 )      –        –       2       (2 ) 
Other net financial assets
      412       –        –       (32 )      40  
           
Total
      (310 )      4        (4 )      (17 )      25  
The previous table shows the sensitivities of the values of each class of financial instrument to an isolated change in either interest rates or foreign exchange rates. Any options that are out of the money at maturity will not be exercised and this assumption has been factored into the calculation. Other net financial assets comprise trade receivables less trade payables. When calculating the impact of the sensitivity of each class of financial instrument to foreign exchange rates, with the exception of net debt (including cash balances), the Group is mainly exposed to translational risk rather than transactional risk as transactions are mainly carried out in the currency that they are recorded in. The calculation excludes the impact of unhedged intercompany positions. As a result, a significant proportion of the movements shown in the table would impact equity rather than the income statement due to the location and functional currency of the entities in which they arise and the availability of net investment hedging. 
Liquidity and refinancing risk management
The Group regularly reviews the level of cash and debt facilities required to fund its activities. This involves preparing a prudent cash flow forecast for the next three to five years, determining the level of debt facilities required to fund the business, planning for shareholder returns and repayments of maturing debt, and identifying an appropriate amount of headroom to provide a reserve against unexpected outflows.
In June 2025, the Group secured a new three-year, $
800
 million revolving credit facility. This facility can be utilised for general corporate purposes, enhancing our liquidity, and is in addition to the Group’s existing revolving credit facility. At 31 December 2025, the Group had cash of £
0.3
bn (2024: £
0.5
bn),
and outstanding drawings of
 
£
0.3
bn
(2024: £
nil)
on the US dollar denominated revolving credit facility maturing June 2028 and February 2029, but which have options to extend the maturities until
2030, of $1.8
bn (2024: $
1
bn).
The facilities contain interest cover and leverage covenants which the Group has
complied
with for the year ended 31 December 2025. The maturity of the carrying values of the Group’s borrowings and trade payables are set out in notes 18 and 24 respectively.
In May 2025, the Group repaid its
€
300
m
1.375
% Euro notes 2025 and closed out various related derivatives. In 2024, the Group issued a new £
350
m
5.375
% GBP denominated Education Bond.
At the end of 2025, the currency split of the Group’s trade payables was US dollar £
207
m (2024: £
191
m), sterling £
46
m (2024: £
51
m) and other currencies £
28
m (2024: £
31
m). Trade payables are all due within one year (2024: all due within one year).
 
The next table analyses the Group’s bonds and derivative assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. FX derivatives related to net investment hedges are included in this table. Derivatives that are not part of our net investment hedging have been excluded as they are short dated. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest) and as such may differ from the amounts disclosed on the balance sheet. Any cash flows based on a floating rate are calculated using interest rates set at the interest rates prevailing at 31 December of the relevant year. Where this is not possible, floating rates are based on interest rates prevailing at 31 December in the relevant year. 
 
          
Analysed by maturity
          
Analysed by currency
  
  All figures in £ millions
  
Greater
than one
month
and less
than one
year
    
Later
than one
year but
less than
five years
    
Five
years
or more
    
Total
    
USD
    
GBP
    
Other
    
Total
  
At 31 December 2025
                
Bonds
 
 
32
 
 
 
478
 
 
 
425
 
 
 
935
 
 
 
–
 
 
 
935
 
 
 
–
 
 
 
935
 
Rate derivatives – inflows
 
 
(11
)
 
 
 
(39
)
 
 
 
(32
)
 
 
 
(82
)
 
 
 
–
 
 
 
(82
)
 
 
 
–
 
 
 
(82
)
 
Rate derivatives – outflows
 
 
9
 
 
 
32
 
 
 
26
 
 
 
67
 
 
 
–
 
 
 
67
 
 
 
–
 
 
 
67
 
FX forwards – inflows
 
 
(326
)
 
 
–
 
 
 
–
 
 
 
(326
)
 
 
–
 
 
 
(326
)
 
 
–
 
 
 
(326
)
FX forwards – outflows
 
 
324
 
 
 
–
 
 
 
–
 
 
 
324
 
 
 
324
 
 
 
–
 
 
 
–
 
 
 
324
 
 
 
 
 
 
 
 
 
 
Total
  
 
28
 
  
 
471
 
  
 
419
 
  
 
918
 
  
 
324
 
  
 
594
 
  
 
–
 
  
 
918
 
At 31 December 2024
 
 
 
 
 
 
 
 
Bonds
1
     250       –       705       955       –       705       250       955  
Rate derivatives – inflows
     (394 )     (3 )     (17 )     (414 )     (2 )     (163 )     (249 )     (414 ) 
Rate derivatives – outflows
     408       1       3       412       176       235       1       412  
FX forwards – inflows
     (1,034 )     –       –       (1,034 )     –       (1,034 )     –       (1,034 ) 
FX forwards – outflows
     1,049       –       –       1,049       1,049       –       –       1,049  
                 
Total
     279       (2 )      691       968       1,223       (257 )      2       968  
 
1.
The 2024 figures for bonds have been given on a discounted basis for the year ended 31 December 2025. If the same methodology had been applied for the year ended 31 December 2024, the total value of the bonds would be £1,219m, of which £284m is greater than one month and less than one year, £128m later than one year but less than five years, and £807m greater than five years. The currency split is sterling £967m and Euro £252m.
Financial counterparty and credit risk management
F
inancial counterparty and credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and contract assets. Counterparty credit limits, which take published credit rating and other factors into account, are set to cover the Group’s total aggregate exposure to a single financial institution. The limits applicable to published credit rating bands are approved by the Chief Financial Officer within guidelines approved by the Board. Exposures and limits applicable to each financial institution are reviewed on a regular basis.
Cash deposits and derivative transactions are made with approved counterparties up to
pre-agreed
limits. To manage counterparty risk associated with cash and cash equivalents, the Group uses a mixture of money market funds as well as bank deposits. As at 31 December 2025,
91
% (2024:
86
%) of cash and cash equivalents was held with investment grade bank counterparties,
6
% (2024:
12
%) with AAA money market funds and
3
% (2024: 
2
%) with
non-investment
grade bank counterparties.
For trade receivables and contract assets, including
contract assets - unbilled,
the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, risk associated with the industry and country in which customers operate may also influence the credit risk. The credit quality of customers is assessed by taking into account financial position, past experience and other relevant factors. Individual credit limits are set for each customer based on internal ratings. The compliance with credit limits is regularly monitored by the Group. A default on a trade receivable is when the counterparty fails to make contractual payments within the stated payment terms. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery.
The carrying amounts of financial assets, trade receivables and contract assets represent the maximum credit exposure.
Trade receivables and contract assets are subject to impairment using the expected credit loss model. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. See note 22 for further details about trade receivables and contract assets including movements in provisions for bad and doubtful debts.