£m
|
2022
|
2021
|
Headline
growth
|
CER
growth
|
Underlying
growth(1)
|
Business performance
|
|
|
|
|
|
Sales
|
3,841
|
3,428
|
12%
|
3%
|
5%
|
Adjusted
operating profit
|
456
|
385
|
18%
|
6%
|
11%
|
Operating
cash flow
|
401
|
388
|
|
|
|
Adjusted
earnings per share
|
51.8p
|
34.9p
|
|
|
|
Statutory results
|
|
|
|
|
|
Sales
|
3,841
|
3,428
|
|
|
|
Operating
profit
|
271
|
183
|
|
|
|
Profit
for the year
|
244
|
178+
|
|
|
|
Net
cash generated from operations
|
527
|
570
|
|
|
|
Basic
earnings per share
|
32.8p
|
23.5p+
|
|
|
|
Dividend
per share
|
21.5p
|
20.5p
|
|
|
|
Net
debt
|
(557)
|
(350)
|
|
|
|
Return
on Capital
|
8.7%
|
7.9%
|
|
|
|
Operational
review
£m
|
2022
|
2021
|
Headline
growth
|
CER
Growth[1]
|
Underlying
growth[1]
|
Sales
|
|
|
|
|
|
Assessment
& Qualifications
|
1,444
|
1,238±
|
17%
|
8%
|
8%
|
Virtual
Learning
|
820
|
713
|
15%
|
4%
|
4%
|
Higher
Education
|
898
|
849
|
6%
|
(4)%
|
(4)%
|
English
Language Learning
|
321
|
238
|
35%
|
28%
|
24%
|
Workforce
Skills
|
204
|
172
|
19%
|
16%
|
7%
|
Strategic
review
|
154
|
218±
|
(29)%
|
(30)%
|
(16)%
|
Total
|
3,841
|
3,428
|
12%
|
3%
|
5%
|
|
|
|
|
|
|
Adjusted operating profit/loss
|
|
|
|
|
|
Assessment
& Qualifications
|
258
|
219±
|
18%
|
6%
|
6%
|
Virtual
Learning
|
70
|
32
|
119%
|
88%
|
88%
|
Higher
Education
|
91
|
73
|
25%
|
12%
|
12%
|
English
Language Learning
|
25
|
15
|
67%
|
47%
|
33%
|
Workforce
Skills
|
(3)
|
27
|
(111)%
|
(104)%
|
(67)%
|
Strategic
review
|
15
|
19±
|
(21)%
|
(26)%
|
0%
|
Total
|
456
|
385
|
18%
|
6%
|
11%
|
[1]Throughout this
announcement: a) Growth rates are stated on an underlying basis
unless otherwise stated. Underlying growth rates exclude currency
movements, and portfolio changes. b) The 'business performance'
measures are non-GAAP measures and reconciliations to the
equivalent statutory heading under IFRS are included in notes to
the attached condensed consolidated financial statements 2, 3, 4,
5, 7, and 14. Constant exchange rates are calculated by assuming
the average FX in the prior year prevailed through the current
year.
22023 consensus on the Pearson
website as at 28th November 2022; median adjusted operating profit
of £585m at £:$ 1.14, interest £43m, tax rate
24%.
+Comparative amounts have been
revised, see note 1 for further details.
±Comparative amounts have been restated to reflect the move
between operating segments.
Assessment
& Qualifications
In Assessment & Qualifications, sales increased 8% on an
underlying basis and 17% on a headline basis. Adjusted operating
profit increased 6% in underlying terms due to operating leverage
on revenue growth partially offset by inflation and 18% in headline
terms due to this and currency movements.
Pearson VUE sales were flat in underlying terms with
particularly strong growth in the IT and healthcare segments,
offset by the known headwind resulting from the DVSA contract
change, as previously announced in 2021. VUE
test volumes
grew 16% to 19.4m as we still capture volumes across all three DVSA
regions, given we provide the central platform for test delivery.
We retained
all our major contracts that were up for renewal and increased our
contract renewal rate to 99.9% across the
business.
In US Student Assessment, sales increased 17% in underlying terms
due to a combination of the commencement of new contracts, which
were won in 2020 and 2021, a return of volumes with full state
testing commencing post COVID-19, and the addition of new services
to existing contracts.
In Clinical Assessment, sales increased 7% in underlying terms due
to good
government funding and continued focus on health and
wellbeing.
In UK and International Qualifications, sales increased 16% in
underlying terms as exams resumed following COVID-19.
We are pleased with the continued momentum that Assessment &
Qualifications showed in 2022. We're poised to deliver low to
mid-single digit revenue growth and continued strong margins in
2023, with an excellent outlook beyond, with growth initiatives
that will help us to expand the scope of offering and
reach.
Virtual
Learning
In Virtual Learning, sales increased 4% on an underlying basis and
15% on a headline basis. Adjusted operating profit grew 88% in
underlying terms due to operating leverage on revenue growth and
efficiency improvements in Virtual Schools and OPM, more than
offsetting the investment in our Virtual Schools' platform and
teaching costs, and increased 119% in headline terms due to this
and currency movements.
Virtual Schools sales were up 4%, driven by firm retention rates in
the 2021/22 academic year and favourable revenue mix, partially
offset by a 5% decline in enrolments for the 2022/23 academic year
and lower district partnership renewals. We
opened new full-time online partner schools in Colorado, Missouri
and Virginia which partially offset the planned exits of partner
schools in Washington, Colorado, Missouri and one of two schools in
Tennessee. As at December 2022, this brings the 2022/2023 total
number of partner schools to 46 in 31 states.
In OPM, sales were up 4% driven by enrolment growth in our UK and
Australia programs, which were offset by an enrolment decline in
our North America programs.
Virtual Learning had a good performance in 2022 with strong
retention rates in Virtual Schools despite the COVID-19 cohort
unwind. We expect mid-single digit decline in revenue growth for
Virtual Schools in 2023 but remain confident in the long-term
performance of the business, with increased margins, as we launch
Career Academies aimed at supporting teenagers who wish to gain
career and technical education and experience. The
strategic review of OPM continues and we will update the market
once the review is complete.
Higher
Education
In Higher Education, sales
declined 4% for the full year on an underlying basis and increased
6% on a headline basis due to currency
movements. Adjusted
operating profit increased 12% in underlying terms driven primarily
by cost savings, partially offset by trading performance, and
increased 25% in headline terms due to this and currency
movements.
In the US, we saw a
decline in enrolments and a loss of adoptions to non-mainstream
publishers, including open educational resources, partially offset
by improved pricing. There was continued momentum in Inclusive
Access with 9% sales growth to not-for-profit institutions and the
total number of institutions increasing to
1,040. Pearson+
performed well in the Fall semester with 2.83m registered users and
406k paid subscriptions, representing a threefold increase compared
to the prior year Fall semester.
We expect revenue to be down by low-single digit in 2023, with
increased margins. We have made organisational changes to
strengthen our position, including implementing change
in our US Higher Education sales leadership, restructuring the
sales team and developing a new go to market strategy for
2023. We
will also be focusing our investment in four main product
initiatives in 2023: converging and upgrading our courseware
platforms, simplifying our Inclusive Access integration strategies,
building out digital learning experiences, and driving improvements
in stability. This will make us much more commercial and
competitive on a day-to-day basis, enabling us to win and capture
the opportunity in 2023 and beyond.
English
Language Learning
In English Language Learning, sales were up 24% on an underlying
basis and 35% on a headline basis. Adjusted operating profit
increased by 33% in underlying terms due to increased revenue
partially offset by increased investment and increased 67% in
headline terms due to this and currency
movements.
PTE volumes were up 90% driven by border re-openings, as well as
market share gain in India. Within Institutional, there was strong
growth in Latin America and the Middle East, offset by the impact
of government reforms in China.
English Language Learning continues to deliver strong growth and
strategic progress for Pearson more broadly. We expect this
division to deliver high-single digit revenue growth in 2023, with
increased margins. This division is demonstrating growing
interconnectivity with other divisions, which will bring millions
of direct-to-consumer relationships into the broader Pearson
ecosystem.
Workforce
Skills
In Workforce Skills, sales were up 7% on an underlying and 19% on a
headline basis. Adjusted operating profit declined by 67% in
underlying terms due to investment in the business across Faethm,
Credly and our talent investment platform and decreased 111% in
headline terms due to this, currency movements and portfolio
changes.
Revenue growth was driven by growth in BTEC and Apprenticeships,
GED and TalentLens. The Vocational Qualifications business
(previously known as the Performance business) grew by 5% in
underlying terms. The
Workforce Solutions business (previously known as the
Transformation business) grew by 12% in underlying terms. Pearson
has 1,503 enterprise clients in its Workforce Skills portfolio, up
133% on last year, with the acquisition of Credly underpinning this
growth.
We executed well against our plan in 2022, testing our new talent
investment platform with enterprises, whilst demonstrating good
progress in setting up the division for future
growth. In
2023, we will commercially launch this product, which will help
this division achieve double-digits revenue growth and improved
margins, while also being a key driver of growth for Pearson over
time.
Strategic
review
Sales in our international courseware local publishing businesses
under strategic review declined 16% on an underlying basis and were
down 29% on a headline basis for the full year. Following
the announcement of the sale of our international courseware local
publishing businesses in Europe, French speaking Canada, Hong Kong
and South Africa, these financials are no longer included in our
underlying performance measures.
FINANCIAL REVIEW
Operating
result
Sales increased on a headline basis by £413m or 12% from
£3,428m in 2021 to £3,841m in 2022 and adjusted operating
profit increased by £71m or 18% from £385m in 2021 to
£456m in 2022 (for a reconciliation of this measure see note 2
to the condensed consolidated financial statements).
The
headline basis simply compares the reported results for 2022 with
those for 2021. We also present sales and profits on an underlying
basis which exclude the effects of exchange, the effect of
portfolio changes arising from acquisitions and disposals and the
impact of adopting new accounting standards that are not
retrospectively applied. Our portfolio change is calculated by
excluding sales and profits made by businesses disposed in either
2021 or 2022 and by ensuring the contribution from acquisitions is
comparable year on year. Portfolio changes mainly relate to the
disposals of our international courseware local publishing
businesses in Europe, French-speaking Canada, South Africa and Hong
Kong in 2022, the sale of the Sistemas business in Brazil in 2021
and the acquisitions of Credly and Mondly in 2022 and of Faethm in
2021.
On an underlying basis, sales increased by 5% in 2022 compared to
2021 and adjusted operating profit increased by 11%. Currency
movements increased sales by £296m and increased adjusted
operating profit by £46m. Portfolio changes decreased sales by
£37m and decreased adjusted operating profit by £13m.
There were no new accounting standards adopted in 2022 that
impacted sales or operating profits.
Adjusted
operating profit includes the results from discontinued operations
when relevant but excludes charges for intangible amortisation and
impairment, acquisition related costs, gains and losses arising
from disposals, the cost of major restructuring and one off-costs
related to the UK pension scheme. A summary of these adjustments is
included below and in more detail in note 2 to the condensed
consolidated financial statements.
|
|
|
|
All figures in £ millions
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
271
|
183
|
Add
back: Cost of major restructuring
|
|
150
|
214
|
Add
back: Intangible charges
|
|
56
|
51
|
Add
back: UK pension discretionary increases
|
|
3
|
-
|
Add
back: Other net gains and losses
|
|
(24)
|
(63)
|
Adjusted
operating profit
|
|
456
|
385
|
In
August 2022, the Group announced a major restructuring programme to
run in 2022. The programme includes efficiencies in product and
content, support costs, technology and corporate property. The
restructuring costs in 2022 of £150m mainly relate to staff
redundancies and impairment of right of use property assets. In
2021, restructuring costs of £214m mainly related to the
impairment of right of use property assets, the write-down of
product development assets and staff redundancies. The 2022 charge
includes the impact of updated assumptions related to the
recoverability of right-of-use assets made in
2021.
Intangible
amortisation charges in 2022 were £56m compared to a charge of
£51m in 2021. This is due to increased amortisation from
recent acquisitions partially offset by a reduction in amortisation
from intangible assets at the end of their useful life and recent
disposals.
UK
pension discretionary increases in 2022 relate to one-off pension
increases awarded to certain cohorts of pensioners in response to
the cost of living crisis.
Other
net gains and losses in 2022 relate to the gains on the disposal of
our international courseware local publishing businesses in Europe,
French-speaking Canada and Hong Kong and a gain arising on a
decrease in the deferred consideration payable on prior year
acquisitions, offset by a loss on disposal of our international
courseware local publishing businesses in South Africa due to
recycled currency translation adjustments and costs related to
disposals and acquisitions. Other net gains and losses in 2021
largely related to the disposal of PIHE and the disposal of the K12
Sistemas business in Brazil offset by costs related to the
acquisition of Faethm and the wind down of certain strategic review
businesses.
The
reported operating profit of £271m in 2022 compares to a
profit of £183m in 2021. The increase in 2022 was driven by
operating leverage on revenue growth, property cost savings and a
lower restructuring charge, partially offset by inflation and a
reduction in other net gains and losses from business acquisitions
and disposals.
Revision
of prior year comparative figures
Certain prior year comparative figures have been restated to
correct an error in the accounting treatment for investments in
unlisted securities. In
2021, the correction has resulted in an increase in statutory
profit of £18m, comprising finance income of £20m and a
tax charge of £2m. There is an equal and opposite decrease in
other comprehensive income. The impact on both statutory basic and
diluted earnings per share is 2.4p for 2021. On the balance sheet
the revision increases retained earnings with an equal and opposite
decrease in the fair value reserve. There is no impact to any
adjusted measures, net assets, cash flows nor total equity. See
note 1 to the Condensed Consolidated Financial Statements for
further details.
Net
finance
costs
Net interest payable reflected in adjusted earnings in 2022 was
£1m, compared to £57m in 2021. The difference is
primarily due to the release of £35m of interest recorded in
respect of provisions for uncertain tax positions where the related
interest was recognised in this line in the income statement. In
addition, interest charges have reduced due to the reduction in
gross bond debt and increased interest income on cash balances
given interest rate rises.
Net finance income relating to retirement benefits has been
excluded from our adjusted earnings as we believe the income
statement presentation does not reflect the economic substance of
the underlying assets and liabilities. Also included in the net
finance costs (but not in our adjusted measure) are interest costs
relating to acquisition or disposal transactions, fair value
movements on investments classified as fair value through profit
and loss, foreign exchange and other gains and losses on
derivatives. Interest relating to acquisition or disposal
transactions is excluded from adjusted earnings as it is considered
part of the acquisition cost or disposal proceeds rather than being
reflective of the underlying financing costs of the Group. Foreign
exchange, fair value movements and other gains and losses are
excluded from adjusted earnings as they represent short-term
fluctuations in market value and are subject to significant
volatility. Other gains and losses may not be realised in due
course as it is normally the intention to hold the related
instruments to maturity (for more information see note 3 to the
condensed consolidated financial statements). Interest on certain
tax provisions is excluded from our adjusted measure in order to
mirror the treatment of the underlying tax item.
In 2022, the total of these items excluded from adjusted earnings
was income of £53m compared to income of £51m in 2021.
Net finance income in respect of retirement benefits increased from
£4m in 2021 to £9m in 2022 reflecting the comparative
funding position of the plans at the beginning of each year and
higher prevailing discount rates. Interest costs in respect of
deferred and contingent consideration are £5m in 2022 due to
recent acquisitions. In 2022, there were no finance charges
relating to the revaluation of the K12 disposal proceeds compared
to income of £6m in 2021 as the outstanding amount has been
fully repaid. Fair value gains on investments in unlisted
securities are £28m in 2022 compared to £20m in 2021. In
addition, there were similar gains year on year on long-term
interest rate hedges and an interest charge on tax provisions of
£5m has been recognised in 2022 in relation to the State Aid
matter. For a reconciliation of the adjusted measure see note 3 to
the condensed consolidated financial statements.
Taxation
The
reported tax charge on a statutory basis in 2022 was a charge
of £79m (24.5%) compared to a credit of £1m
(0.6%) in 2021. The tax charge for the period has been
impacted principally by two items:
●
The
release of tax risk provisions totalling £72m following the
expiry of the statute of limitations for certain periods in the US.
This release impacts both statutory and adjusted earnings with a
£37m credit to adjusted earnings and the remainder only
impacting statutory results.
●
As
previously disclosed, the European Commission determined that the
United Kingdom controlled foreign company group financing partial
exemption partially constituted State Aid. This decision was
appealed by the UK Government and other parties. On 8 June 2022,
the EU General Court dismissed the appeal. Following the EU General
Court's negative decision, the UK Government and other parties have
submitted appeals to the European Court of Justice. At 31 December
2021, the potential risk associated with this issue was disclosed
as a contingent liability, however, following the dismissal of the
first appeal the prospects of successfully challenging the European
Commission's decision are now considered to be such that a
provision is required.
On
that basis a tax provision of £63m plus £5m of associated
interest has been recorded. The provision represents an estimate of
the expected value which has been calculated by considering a range
of possible outcomes and applying a probability to each, resulting
in a weighted average outcome. The possible outcomes considered
range from no liability through to the full exposure (£105m
excluding interest). Due to the large and unusual nature of the
provision and the specific one-off nature of the issue, the
provision is excluded from adjusted earnings. There is no cash
impact in 2022 as a payment on account was made during 2021. The
provision of £63m has been offset on the balance sheet against
the payments previously made. As the provision is less than the
payments made there is a remaining non-current tax receivable of
£41m disclosed on the balance sheet.
The tax on adjusted earnings in 2022 was a charge of £71m
(£2021: £64m), corresponding to an effective tax rate on
adjusted profit before tax of 15.6% (2021: 19.5%). The decrease in
the effective rate is primarily due to the release of tax risk
provisions following the expiry of the statute of limitations in
the US. For a reconciliation of the adjusted measure see note 5 to
the condensed consolidated financial statements.
In 2022, there was a net tax payment of £109m
(2021: £177m). The overall amount decreased primarily due to
the 2021 payment of £97m related to the ongoing EU Commission
investigation which is non-recurring. Excluding this payment, tax
payments increased primarily due to increased operating profits and
legislative changes in the US.
A net deferred tax asset of £20m is recognised in
2022 compared to a net £17m deferred tax asset in 2021. The
current tax creditor principally consists of provisions for tax
uncertainties. There are contingent liabilities in relation to tax
as outlined in note 15 to the condensed consolidated financial
statements.
Other
comprehensive income
Included in other comprehensive
income are the net exchange differences on translation of foreign
operations. The gain on translation of £330m in 2022 compares
to a loss in 2021 of £6m. The gain in 2022 arises from an
overall strengthening of the currencies to which the Group is
exposed and in particular the relative strength of the US dollar. A
significant proportion of the Group's operations are based in the
US and the US dollar strengthened in 2022 from an opening rate of
£1:$1.35 to a closing rate at the end of 2022 of
£1:$1.21. At the end of 2021, the
US dollar had strengthened from an opening rate of £1:$1.37 to
a closing rate of £1:$1.35. The loss in 2021 was driven by
this movement in the US
dollar, offset by the weakening of other currencies used by the
Group.
Also
included in other comprehensive income in 2022 is an actuarial gain
of £54m in relation to the retirement benefit obligations of
the Group. The gain arises largely from a decrease in liabilities
driven by higher discount rates and changes to demographic
assumptions, partially offset by losses on associated matching
assets and experience losses. The actuarial gain in 2022 of
£54m compares to an actuarial gain in 2021 of
£149m.
Fair
value gains of £18m have been recognised in other
comprehensive income and relate to movements in the value of
investments in unlisted securities held at FVOCI. In 2021, fair
value gains of £4m were recognised.
In
2022, a loss of £5m (2021: £4m gain) was recycled from
the currency translation reserve to the income statement in
relation to businesses disposed.
Cash
flow and working capital
Our
operating cash flow measure is an adjusted measure used to align
cash flows with our adjusted profit measures (see note 14 to the
condensed consolidated financial statements). Operating cash inflow
increased on a headline basis by £13m from £388m in 2021
to £401m in 2022. The increase is largely explained by the
drop-through of increased operating profits offset by unfavourable
working capital movements driven by the timing of the disposals of
the international courseware local publishing businesses and an
increase in capitalised product development.
The
equivalent statutory measure, net cash generated from operations,
was £527m in 2022 compared to £570m in 2021. Compared to
operating cash flow, this measure includes restructuring costs but
does not include regular dividends from associates. It also
excludes capital expenditure on property, plant, equipment and
software, and additions to right of use assets as well as disposal
proceeds from the sale of property, plant, equipment and right of
use assets (including the impacts of transfers to/from investment
in finance lease receivable). In 2022, restructuring cash outflow
was £35m compared to £24m in 2021.
In
2022, there was an overall £394m decrease in cash and cash
equivalents compared to a decrease of £176m in 2021. The
decrease in 2022 is primarily due to payments for acquisitions of
subsidiaries of £228m, repayments of borrowings of £171m,
dividends paid of £157m, share buyback programme of
£353m, other own share purchases of £37m, tax paid of
£109m, capital expenditure of £147m, and repayments of
lease liabilities of £93m. These were offset by the cash
inflow from operations of £527m and proceeds from disposals of
businesses and investments of £350m.
Liquidity
and capital resources
The
Group's net debt increased from £350m at the end of 2021 to
£557m at the end of 2022. The increase is largely due to the
£350m share buyback programme and dividend payments, partially
offset by strong operating cash flow and net proceeds from M&A
activity.
In
May 2022, the Group repaid the remaining $117m (£95m) of its
2022 US dollar bond upon maturity. In December 2022, the Group
repaid the remaining $94m (£76m) of its 2023 US dollar bond.
In May 2021, the Group repaid the remaining €195m
(£167m) of its €500m Euro 1.85% notes.
At 31 December 2022, the Group
had approximately £1.4bn in total liquidity immediately
available from cash and its Revolving Credit Facility maturing
February 2026. In assessing the Group's liquidity and viability,
the Board analysed a variety of downside scenarios including
impacts from macro economic factors and other risks. Even under a
severe downside case where declines in profitability compared to
2022 are modelled in 2023 and 2024, the Group would maintain
comfortable liquidity headroom and sufficient headroom against
covenant requirements during the period under assessment even
before modelling the mitigating effect of actions that management
would take in the event that these downside risks were to
crystallise. In all scenarios it is assumed that the Revolving
Credit Facility is available.
At 31 December 2022, the Group was rated BBB- (stable outlook) with
Fitch and Baa3 (stable outlook) with Moody's.
Post-retirement
benefits
Pearson
operates a variety of pension and post-retirement plans. Our UK
Group pension plan has by far the largest defined benefit section.
We have some smaller defined benefit sections in the US and Canada
but, outside the UK, most of our companies operate defined
contribution plans.
The
charge to profit in respect of worldwide pensions and
post-retirement benefits amounted to £66m in 2022 (2021:
£58m), of which a charge of £75m (2021: £62m) was
reported in operating profit and income of £9m (2021:
£4m) was reported in other net finance costs. In 2022, a
charge of £3m (2021: nil) related to one-off discretionary
pension increases has been excluded from adjusted operating
profit.
The
overall surplus on UK Group pension plans of £537m at the end
of 2021 has increased to a surplus of £573m at the end of
2022. The increase has arisen principally due to the actuarial gain
noted above in the other comprehensive income section. In total,
our worldwide net position in respect of pensions and other
post-retirement benefits increased from a net asset of £471m
at the end of 2021 to a net asset of £520m at the end of
2022.
Businesses
acquired
In
January 2022, the Group acquired 100% of the share capital in
Credly Inc (Credly), having previously held a 19.9% interest in the
company. Total consideration for the acquisition was £149m
comprising upfront cash consideration of £107m, Pearson's
existing interest valued at £31m and £11m of deferred
consideration. The deferred consideration is payable in 2 years.
Additional contingent amounts are also payable in 2024 if certain
revenue and non-financial targets are met, and dependent on
continuing employment, and therefore these additional amounts will
be expensed over the period and are not treated as consideration.
Net assets acquired of £44m were recognised on the Group's
balance sheet including £49m of acquired intangible assets.
Goodwill of £105m was also recognised in relation to the
acquisition.
In
April 2022, the Group acquired 100% of the share capital of ATI
STUDIOS A.P.P.S S.R.L (Mondly). Total consideration for the
acquisition was £135m comprising upfront cash consideration of
£105m, and deferred consideration of £30m. The deferred
consideration is payable over the next two years. In addition, a
further $29.6m (c£24m) of cash and $10m (c£8m) in shares
will be paid over the next four years, dependent on continuing
employment, and therefore will be expensed over the period and are
not treated as consideration. Net assets acquired of £38m were
recognised on the Group's balance sheet including £50m of
acquired intangible assets. Goodwill of £97m was also
recognised in relation to the acquisition.
In
2022, the Group also made two smaller acquisitions for total
consideration of £11m. In December 2022, the Group announced
that it had signed a deal to acquire 100% of Personnel Decisions
Research Institutes, LLC, the transaction has not yet
completed.
The
cash outflow in 2022 relating to acquisitions of subsidiaries was
£228m. In addition, there was a cash outflow relating to the
acquisition of associates of £5m and investments of
£12m.
In
September 2021, the Group completed the acquisition of 100% of the
share capital of Faethm Holdings Pty Limited ('Faethm'), having
already held 9% of the share capital previously. Total
consideration for the acquisition was £65m comprising cash
consideration of £49m, £6m related to the Group's
existing interest in Faethm and £10m of contingent
consideration. Net assets acquired of £27m were recognised on
the Group's balance sheet including £21m of acquired
intangible assets. Goodwill of £38m was also recognised in
relation to the acquisition. Contingent consideration amounts have
been settled during 2022 resulting in the recognition of an
£8m gain in the income statement within other net gains and
losses.
In
2021, the Group also made two smaller acquisitions for total
consideration of £11m and acquired interests in two
associates, Smashcut and Academy of Pop, for total consideration of
£17m.
The
cash outflow in 2021 relating to acquisitions of subsidiaries was
£55m. In addition, there was a cash outflow relating to the
acquisition of associates of £10m and investments of
£4m.
Businesses
disposed
In
March 2021, the Group announced that it was launching a strategic
review of its international courseware local publishing businesses.
In 2022, the Group disposed of its interests in the Canadian
educational publisher (ERPI), Pearson Italia S.p.A, Stark Verlag
GmbH, Austin Education (Hong Kong) Limited, Pearson South Africa
(Pty) Ltd and various other South African companies. Total cash
proceeds received was £287m resulting in a pre-tax gain on
disposal of £42m. All entities disposed of were previously in
the Strategic Review segment. £5m of losses arose from other
immaterial disposals and costs related to the wind-down of certain
businesses. None of the disposed businesses meet the criteria to be
presented as discontinued operations.
In
February 2021, the Group completed the sale of its interests in
PIHE in South Africa resulting in a pre-tax loss of £5m. In
October 2021, the Group completed the sale of its K12 Sistemas
business in Brazil resulting in a pre-tax gain of
£84m.
The
cash inflow in 2022 relating to the disposal of businesses was
£333m mainly relating to the disposals described above and the
receipt of deferred proceeds from the US K12 Courseware sale in
2019. In 2021, the cash inflow from disposals of £83m mainly
related to the disposal of the K12 Sistemas business and the
receipt of deferred proceeds from the US K12 Courseware sale in
2019.
In
addition, proceeds of £17m (2021: £48m) were received in
relation to the disposal of investments.
Dividends
The dividend accounted for in our
2022 financial statements totalling £156m represents the final
dividend in respect of 2021 (14.2p) and the interim dividend for
2022 (6.6p). We are proposing a final dividend for 2022 of
14.9p bringing the total paid and payable in respect of 2022
to 21.5p.
This final 2022 dividend which was approved by the Board in March
2023, is subject to approval at the forthcoming AGM. For 2022, the
dividend is covered 2.4 times
by adjusted earnings.
Share
buyback
On
24 February 2022, the Board approved a £350m share buyback
programme in order to return capital to shareholders. The programme
commenced on 4 April 2022 and completed in December 2022.
Approximately 42.3m shares have been bought back and cancelled at a
cash cost of £353m. The nominal value of the cancelled shares
of £10m has been transferred to the capital redemption
reserve.
CONDENSED
CONSOLIDATED INCOME STATEMENT
for
the year ended 31 December 2022
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
Sales
|
2
|
3,841
|
3,428
|
Cost of
goods sold
|
|
(2,046)
|
(1,747)
|
Gross
profit
|
|
1,795
|
1,681
|
|
|
|
|
Operating
expenses
|
|
(1,549)
|
(1,562)
|
Other
net gains and losses
|
2
|
24
|
63
|
Share
of results of joint ventures and associates
|
|
1
|
1
|
Operating
profit
|
2
|
271
|
183
|
|
|
|
|
Finance
costs
|
3
|
(71)
|
(68)
|
Finance
income
|
3
|
123
|
62
|
Profit
before tax
|
4
|
323
|
177
|
Income
tax
|
5
|
(79)
|
1
|
Profit
for the year
|
|
244
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
242
|
177
|
Non-controlling
interest
|
|
2
|
1
|
|
|
|
|
|
|
|
|
Earnings per
share (in
pence per share)
|
|
|
|
Basic
|
6
|
32.8p
|
23.5p
|
Diluted
|
6
|
32.6p
|
23.3p
|
The
accompanying notes to the condensed consolidated financial
statements form an integral part of the financial
information.
1.
Comparative amounts have been restated, see note 1 for further
details.
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for
the year ended 31 December 2022
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
244
|
178
|
|
|
|
|
Items
that may be reclassified to the income statement
|
|
|
|
Net
exchange differences on translation of foreign
operations
|
|
330
|
(6)
|
Currency
translation adjustment disposed
|
|
(5)
|
4
|
Attributable
tax
|
|
4
|
10
|
|
|
|
|
Items
that are not reclassified to the income statement
|
|
|
|
Fair
value gain on other financial assets
|
|
18
|
4
|
Attributable
tax
|
|
1
|
(1)
|
Remeasurement of
retirement benefit obligations
|
|
54
|
149
|
Attributable
tax
|
|
(12)
|
(61)
|
Other
comprehensive income for the year
|
|
390
|
99
|
|
|
|
|
Total
comprehensive income for the year
|
|
634
|
277
|
|
|
|
|
Attributable
to:
|
|
|
|
Equity
holders of the company
|
|
630
|
276
|
Non-controlling
interest
|
|
4
|
1
|
1.
Comparative amounts have been restated, see note 1 for further
details.
CONDENSED
CONSOLIDATED BALANCE SHEET
as
at 31 December 2022
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
250
|
366
|
Investment
property
|
|
60
|
-
|
Intangible
assets
|
10
|
3,177
|
2,769
|
Investments
in joint ventures and associates
|
|
25
|
24
|
Deferred
income tax assets
|
|
57
|
57
|
Financial
assets - derivative financial instruments
|
|
43
|
30
|
Retirement
benefit assets
|
|
581
|
537
|
Other
financial assets
|
|
133
|
113
|
Income
tax assets
|
|
41
|
97
|
Trade
and other receivables
|
|
139
|
129
|
Non-current assets
|
|
4,506
|
4,122
|
|
|
|
|
Intangible
assets - product development
|
|
975
|
894
|
Inventories
|
|
105
|
98
|
Trade
and other receivables
|
|
1,139
|
1,257
|
Financial
assets - derivative financial instruments
|
|
16
|
2
|
Income
tax assets
|
|
9
|
26
|
Cash
and cash equivalents (excluding overdrafts)
|
|
543
|
937
|
Current assets
|
|
2,787
|
3,214
|
|
|
|
|
Assets
classified as held for sale
|
|
16
|
7
|
Total assets
|
|
7,309
|
7,343
|
|
|
|
|
Financial
liabilities - borrowings
|
|
(1,144)
|
(1,245)
|
Financial
liabilities - derivative financial instruments
|
|
(54)
|
(30)
|
Deferred
income tax liabilities
|
|
(37)
|
(40)
|
Retirement
benefit obligations
|
|
(61)
|
(66)
|
Provisions
for other liabilities and charges
|
|
(14)
|
(7)
|
Other
liabilities
|
|
(120)
|
(95)
|
Non-current liabilities
|
|
(1,430)
|
(1,483)
|
|
|
|
|
Trade
and other liabilities
|
|
(1,254)
|
(1,256)
|
Financial
liabilities - borrowings
|
|
(71)
|
(155)
|
Financial
liabilities - derivative financial instruments
|
|
(11)
|
(4)
|
Income
tax liabilities
|
|
(43)
|
(125)
|
Provisions
for other liabilities and charges
|
|
(85)
|
(40)
|
Current liabilities
|
|
(1,464)
|
(1,580)
|
|
|
|
|
Liabilities
classified as held for sale
|
|
-
|
-
|
Total liabilities
|
|
(2,894)
|
(3,063)
|
|
|
|
|
Net assets
|
|
4,415
|
4,280
|
|
|
|
|
Share
capital
|
|
179
|
189
|
Share
premium
|
|
2,633
|
2,626
|
Treasury
shares
|
|
(15)
|
(12)
|
Reserves
|
|
1,605
|
1,467
|
Total
equity attributable to equity holders of the company
|
|
4,402
|
4,270
|
Non-controlling
interest
|
|
13
|
10
|
Total equity
|
|
4,415
|
4,280
|
The
condensed consolidated financial statements were approved by the
Board on 2 March 2023.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for
the year ended 31 December 2022
|
|
|
|
|
Equity
attributable to equity holders of the company
|
|
|
all figures in £ millions
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation
reserve
|
Retained
earnings
|
Total
|
Non-controlling
interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
At
1 January 2022
|
189
|
2,626
|
(12)
|
18
|
(4)
|
386
|
1,067
|
4,270
|
10
|
4,280
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
242
|
242
|
2
|
244
|
Other
comprehensive income
|
-
|
-
|
-
|
-
|
18
|
323
|
47
|
388
|
2
|
390
|
Total
comprehensive income
|
-
|
-
|
-
|
-
|
18
|
323
|
289
|
630
|
4
|
634
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
38
|
38
|
-
|
38
|
Taxation on
equity-settled transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
3
|
3
|
-
|
3
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(27)
|
-
|
27
|
-
|
-
|
-
|
Issue
of ordinary shares
|
-
|
7
|
-
|
-
|
-
|
-
|
-
|
7
|
-
|
7
|
Buyback
of equity
|
(10)
|
-
|
-
|
10
|
-
|
-
|
(353)
|
(353)
|
-
|
(353)
|
Purchase of
treasury shares
|
-
|
-
|
(37)
|
-
|
-
|
-
|
-
|
(37)
|
-
|
(37)
|
Release
of treasury shares
|
-
|
-
|
34
|
-
|
-
|
-
|
(34)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(156)
|
(156)
|
(1)
|
(157)
|
At
31 December 2022
|
179
|
2,633
|
(15)
|
28
|
(13)
|
709
|
881
|
4,402
|
13
|
4,415
|
2021¹
|
At 1
January 2021
|
188
|
2,620
|
(7)
|
18
|
53
|
388
|
865
|
4,125
|
9
|
4,134
|
Adjustment
|
-
|
-
|
-
|
-
|
(57)
|
-
|
57
|
-
|
-
|
-
|
1
January 2021 restated
|
188
|
2,620
|
(7)
|
18
|
(4)
|
388
|
922
|
4,125
|
9
|
4,134
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
177
|
177
|
1
|
178
|
Other
comprehensive income
|
-
|
-
|
-
|
-
|
4
|
(2)
|
97
|
99
|
-
|
99
|
Total
comprehensive income / (expense)
|
-
|
-
|
-
|
-
|
4
|
(2)
|
274
|
276
|
1
|
277
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
28
|
28
|
-
|
28
|
Transfer of gain on
disposal of FVOCI investment
|
-
|
-
|
-
|
-
|
(4)
|
-
|
4
|
-
|
-
|
-
|
Issue
of ordinary shares
|
1
|
6
|
(1)
|
-
|
-
|
-
|
-
|
6
|
-
|
6
|
Buyback
of equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Purchase of
treasury shares
|
-
|
-
|
(16)
|
-
|
-
|
-
|
-
|
(16)
|
-
|
(16)
|
Release
of treasury shares
|
-
|
-
|
12
|
-
|
-
|
-
|
(12)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(149)
|
(149)
|
-
|
(149)
|
At 31
December 2021
|
189
|
2,626
|
(12)
|
18
|
(4)
|
386
|
1,067
|
4,270
|
10
|
4,280
|
1.
Comparative amounts have been restated, see note 1 for further
details.
CONDENSED
CONSOLIDATED CASH FLOW STATEMENT
for
the year ended 31 December 2022
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Profit
before tax
|
4
|
323
|
177
|
Net
finance (income) / costs
|
3
|
(52)
|
6
|
Depreciation and
impairment - PPE & investment property
|
|
136
|
241
|
Amortisation and
impairment - software
|
|
125
|
117
|
Amortisation and
impairment - acquired intangible assets
|
|
54
|
50
|
Other
net gains and losses
|
|
(24)
|
(63)
|
Product
development capital expenditure
|
|
(357)
|
(287)
|
Product
development amortisation
|
|
303
|
279
|
Share-based payment
costs
|
|
35
|
28
|
Inventories
|
|
(34)
|
22
|
Trade
and other receivables
|
|
33
|
(71)
|
Trade
and other liabilities
|
|
(84)
|
37
|
Provisions for
other liabilities and charges
|
|
50
|
14
|
Other
movements
|
|
19
|
20
|
Net
cash generated from operations
|
|
527
|
570
|
Interest
paid
|
|
(57)
|
(67)
|
Tax
paid
|
|
(109)
|
(177)
|
Net
cash generated from operating activities
|
|
361
|
326
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Acquisition of
subsidiaries, net of cash acquired
|
11
|
(228)
|
(55)
|
Acquisition of
joint ventures and associates
|
11
|
(5)
|
(10)
|
Purchase of
investments
|
|
(12)
|
(4)
|
Purchase of
property, plant and equipment
|
|
(57)
|
(64)
|
Purchase of
intangible assets
|
|
(90)
|
(112)
|
Disposal of
subsidiaries, net of cash disposed
|
12
|
333
|
83
|
Proceeds from sale
of investments
|
12
|
17
|
48
|
Proceeds from sale
of property, plant and equipment
|
|
14
|
-
|
Lease
receivables repaid including disposals
|
|
18
|
21
|
Interest
received
|
|
22
|
13
|
Dividends from
joint ventures and associates
|
|
1
|
-
|
Net
cash generated from / (used in) investing activities
|
|
13
|
(80)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Proceeds from issue
of ordinary shares
|
|
7
|
6
|
Buyback
of equity
|
|
(353)
|
-
|
Purchase of
treasury shares
|
|
(37)
|
(16)
|
Repayment of
borrowings
|
|
(171)
|
(167)
|
Repayment of lease
liabilities
|
|
(93)
|
(88)
|
Dividends paid to
company's shareholders
|
|
(156)
|
(149)
|
Dividends paid to
non-controlling interest
|
|
(1)
|
-
|
Net
cash used in financing activities
|
|
(804)
|
(414)
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
36
|
(8)
|
Net
decrease in cash and cash equivalents
|
|
(394)
|
(176)
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
937
|
1,113
|
Cash
and cash equivalents at end of year
|
|
543
|
937
|
1.Comparative
amounts have been restated, see note 1 for further
details.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for
the year ended 31 December 2022
For
the purposes of the cash flow statement, cash and cash equivalents
are presented net of overdrafts repayable on demand. These
overdrafts are excluded from cash and cash equivalents disclosed on
the balance sheet.
The
Group has changed the presentation of the condensed consolidated
cash flow statement with the aim of simplifying for the reader. The
reconciliation to net cash generated from operations is now
presented with the primary condensed cash flow statement and
certain line items have been aggregated and disaggregated. There
has been no change to the classification of cash flows as
operating, investing and financing. There has been no change to the
definition of the Group's alternative performance measure related
to cash flow as set out in note 14.
1. Basis of preparation
The condensed consolidated financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and in accordance with UK-adopted
International Accounting Standards. The condensed consolidated
financial statements have also been prepared in accordance with the
International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB) as
they apply to annual reporting periods beginning on 1 January 2022.
In respect of accounting standards applicable to the Group, there
is no difference between UK-adopted International Accounting
Standards and IFRSs as issued by the IASB.
The condensed consolidated financial statements have also been
prepared in accordance with the accounting policies set out in the
2021 Annual Report and have been prepared under the historical cost
convention as modified by the revaluation of certain financial
assets and liabilities (including derivative financial instruments)
at fair value.
No new accounting standards were adopted in 2022. New
pronouncements effective from 1 January 2022 have not had a
material impact on the condensed consolidated financial statements.
The 2021 Annual Report refers to new standards that the Group will
adopt in future years but that are not yet effective in 2022. The
Group does not expect these to have a material impact.
In assessing the Group's ability to continue as a going concern for
the period to 30 June 2024, the board analysed a variety of
downside scenarios including a severe but plausible scenario where
the Group is impacted by all principal risks from 2023 adjusted for
probability weighting, as well as reverse stress testing to
identify what would be required to either breach covenants or run
out of liquidity. The severe but plausible scenario modelled a
severe reduction in revenue, profit and operating cash flow
throughout 2023 to 2024.
At 31 December 2022, the Group had available liquidity of
c£1.4bn, comprising central cash balances and its undrawn
$1.19bn Revolving Credit Facility (RCF). In February 2023, the
Group renegotiated its revolving credit facility, reducing the
maximum facility to $1bn. Even under a severe downside case,
the Group would maintain comfortable liquidity headroom and
sufficient headroom against covenant requirements during the period
under assessment even before modelling the mitigating effect of
actions that management would take in the event that these downside
risks were to crystallise.
The directors have concluded that there are no material
uncertainties that cast doubt on the Group's ability to continue as
a going concern and that they have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the assessment period to 30 June 2024. The condensed
consolidated financial statements have therefore been prepared on a
going concern basis.
The preparation of condensed consolidated financial statements
requires the use of certain critical accounting assumptions. It
also requires management to exercise its judgement in the process
of applying the Group's accounting policies. The areas requiring a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the condensed
consolidated financial statements, have been set out in the 2021
Annual Report.
In addition, during 2022, the Group disposed of its interests in
the international courseware local publishing businesses in Europe,
French-speaking Canada, South Africa and Hong Kong. Whether the
associated results and cash flows of the related businesses should
be classified and presented as discontinued operations is a
significant judgement. The Group's judgement is that the results
and cash flows of the
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
1. Basis of preparation continued
related businesses should not be classified and presented as
discontinued operations. The basis of this judgement is that the
businesses disposed do not constitute a separate major line of
business or geographical area of operations. The Group will
continue to operate in the international K12 courseware market and
in all geographical areas where disposals have taken place. All of
the businesses subject to this judgement are within the Strategic
Review segment and represent £126m of sales for the year ended
31 December 2022 out of the total sales in the Strategic Review
segment of £154m. If the Group had concluded that these
businesses represented discontinued operations, their results and
the related gains on disposal would not have been included within
each of the continuing operations income statement lines. Profit
for the period from continuing operations would have been £52m
lower and this amount would have been separately presented as
profit for the period from discontinued operations as a single line
item. Adjusted operating profit would be unchanged.
As set out in the 2021 Annual Report, other areas where assumptions
and estimates are significant include the recoverability of
goodwill balances, the valuation of tax balances, provisions for
returns, the recoverability of right-of-use asset and the valuation
of retirement benefit obligations and assets. In addition, the
Group has assessed the impact of the uncertainty presented by the
volatile macro-economic and geo-political environment on the
condensed consolidated financial statements, specifically
considering the impact on key judgements and significant estimates
along with other areas of increased risk including financial
instruments, hedge accounting and translation methodologies. No
material accounting impacts relating to the areas assessed were
recognised in 2022. The Group has assessed the impacts of climate
change on the Group's financial statements. The assessment did not
identify any material impact on the Group's significant judgements
or estimates, the recoverability of the Group's assets at 31
December 2022 or the assessment of going concern for the period to
June 2024. The Group will continue to monitor these areas of
increased judgement, estimation and risk for material
changes.
The financial information for the year ended 31 December 2021 does
not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The independent
auditors' report on the full financial statements for the year
ended 31 December 2021 was unqualified and did not contain an
emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006.
This preliminary announcement does not constitute the Group's full
financial statements for the year ended 31 December 2022. The
Group's full financial statements will be approved by the Board of
Directors and reported on by the auditors in March
2023. Accordingly, the financial information for 2022 is
presented unaudited in the preliminary
announcement.
Comparative period revisions
Investments in unlisted securities
In 2022, the Group identified an error related to the
classification of certain investments in unlisted securities as
fair value through other comprehensive income rather than fair
value through profit and loss. The investments are held within
other financial assets on the balance sheet. The related accounting
has been corrected in 2022 and comparative 2021 line items have
been corrected to reflect the change in accounting treatment,
although the Group has determined that the error did not have a
material impact on its previously issued consolidated financial
statements. The fair value movements are now recorded within
finance income, rather than within other comprehensive income. All
impacted primary statements and related notes have been
restated.
In 2021, the restatement has resulted in an increase in statutory
profit of £18m, comprising finance income of £20m and a
tax charge of £2m. Other comprehensive income has decreased by
£18m but total comprehensive income is unchanged. The impact
on both statutory and diluted earnings per share is an increase of
2.4p for 2021. The fair value movements in the income statement are
excluded from adjusted earnings, as described in note 3. There is
no impact to any adjusted measures.
Opening retained earnings at 1 January 2021 has increased by
£57m and an equivalent decrease has been recorded to the
opening fair value reserve. Closing retained earnings at 31
December 2021 has increased by £37m and an equivalent decrease
has been recorded to the closing fair value reserve.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
1. Basis of preparation continued
The restatement has no impact on the carrying amount of other
financial assets on the balance sheet and has no impact on reported
net assets, cash flows or total equity. Accordingly, an additional
balance sheet as at 1 January 2021 has not been
presented.
Operating segments
On 8 March 2021, the Group announced a new strategy, which included
a new management structure and operating model. As a result, the
primary operating segments reported to the Group's chief operating
decision-maker, the Pearson Executive Management team, changed from
1 July 2021 to reflect the new Group structure consisting of five
main global business divisions - Virtual Learning, Higher
Education, English Language Learning, Workforce Skills and
Assessments & Qualifications. In addition, the International
Courseware local publishing businesses were under strategic review
and were managed as a separate division, known as Strategic Review.
In 2022, some of the businesses from the Strategic Review division
have been disposed of (see note 12) and the decision was made to
retain the English-speaking Canadian and Australian K12 courseware
businesses. Both of these businesses have been transferred from the
Strategic Review division to Assessment & Qualifications.
Comparative figures for 2021 have been restated to reflect this
move between segments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2022
2. Segment information
The following describes the principal activities of the five main
operating segments:
-
Assessments
& Qualifications - Pearson VUE, US School Assessment, Clinical
Assessment, UK GCSE and A Levels and International academic
qualifications and associated courseware.
-
Virtual
Learning - Virtual Schools and Online Program
Management.
-
English
Language Learning - Pearson Test of English, Institutional
Courseware and English Online Solutions.
-
Workforce
Skills - BTEC, GED, Credly, TalentLens, Faethm, Pearson College and
Apprenticeships.
-
Higher
Education - US, Canadian and International Higher Education
Courseware businesses.
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
Assessments &
Qualifications
|
|
1,444
|
1,238
|
Virtual
Learning
|
|
820
|
713
|
English
Language Learning
|
|
321
|
238
|
Workforce
Skills
|
|
204
|
172
|
Higher
Education
|
|
898
|
849
|
Strategic
Review
|
|
154
|
218
|
Total
sales
|
|
3,841
|
3,428
|
|
|
|
|
Adjusted
operating profit
|
|
|
|
Assessments &
Qualifications
|
|
258
|
219
|
Virtual
Learning
|
|
70
|
32
|
English
Language Learning
|
|
25
|
15
|
Workforce
Skills
|
|
(3)
|
27
|
Higher
Education
|
|
91
|
73
|
Strategic
Review
|
|
15
|
19
|
Total
adjusted operating profit
|
|
456
|
385
|
1.
Comparative amounts have been restated to reflect the move between
operating segments.
There were no material inter-segment sales.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2022
2. Segment information continued
The Group derived revenue from the transfer of goods and services
over time and at a point in time in the following major product
lines:
all figures in £ millions
|
Assessment &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
Total
|
|
|
|
|
|
|
|
|
|
|
2022
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
64
|
-
|
110
|
2
|
302
|
148
|
626
|
Products and
services transferred over time
|
21
|
-
|
25
|
-
|
588
|
6
|
640
|
|
85
|
-
|
135
|
2
|
890
|
154
|
1,266
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
169
|
-
|
5
|
14
|
-
|
-
|
188
|
Products and
services transferred over time
|
1,190
|
-
|
138
|
142
|
-
|
-
|
1,470
|
|
1,359
|
-
|
143
|
156
|
-
|
-
|
1,658
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
29
|
-
|
-
|
-
|
29
|
Products and
services transferred over time
|
-
|
820
|
14
|
46
|
8
|
-
|
888
|
|
-
|
820
|
43
|
46
|
8
|
-
|
917
|
|
|
|
|
|
|
|
|
Total
sales
|
1,444
|
820
|
321
|
204
|
898
|
154
|
3,841
|
2021¹
|
Courseware
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
62
|
-
|
109
|
-
|
283
|
180
|
634
|
Products and
services transferred over time
|
30
|
-
|
26
|
-
|
558
|
17
|
631
|
|
92
|
-
|
135
|
-
|
841
|
197
|
1,265
|
Assessments
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
173
|
-
|
6
|
16
|
-
|
-
|
195
|
Products and
services transferred over time
|
973
|
-
|
72
|
119
|
-
|
-
|
1,164
|
|
1,146
|
-
|
78
|
135
|
-
|
-
|
1,359
|
Services
|
|
|
|
|
|
|
|
Products
transferred at a point in time
|
-
|
-
|
22
|
-
|
-
|
14
|
36
|
Products and
services transferred over time
|
-
|
713
|
3
|
37
|
8
|
7
|
768
|
|
-
|
713
|
25
|
37
|
8
|
21
|
804
|
|
|
|
|
|
|
|
|
Total
sales
|
1,238
|
713
|
238
|
172
|
849
|
218
|
3,428
|
|
|
|
|
|
|
|
|
|
1.
Comparative amounts have been restated to reflect the move between
operating segments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2022
2. Segment information continued
Adjusted
operating profit is one of the Group's key business performance
measures. The measure includes the operating profit from the total
business but excludes intangible charges for amortisation and
impairment, acquisition related costs, gains and losses arising
from disposals, the cost of major restructuring and one-off costs
related to the UK pension scheme.
Cost
of major restructuring - In August 2022, the Group announced a
major restructuring programme to run in 2022. The programme
includes efficiencies in product and content, support costs,
technology and corporate property. The restructuring costs in 2022
of £150m mainly relate to staff redundancies and impairment of
right of use property assets. In 2021, restructuring costs of
£214m mainly related to the impairment of right of use
property assets, the write-down of product development assets and
staff redundancies. The 2022 charge includes the impact of updated
assumptions related to the recoverability of right-of-use assets
made in 2021.
Intangible
charges - These represent charges relating to intangibles acquired
through business combinations. These charges are excluded as they
reflect past acquisition activity and do not necessarily reflect
the current year performance of the Group. Intangible amortisation
charges in 2022 were £56m compared to a charge of £51m in
2021. This is due to increased amortisation from recent
acquisitions partially offset by a reduction in amortisation from
intangible assets at the end of their useful life and recent
disposals.
UK
pension discretionary increases - Charges in 2022 relate to one-off
pension increases awarded to certain cohorts of pensioners in
response to the cost of living crisis.
Other
net gains and losses - These represent profits and losses on the
sale of subsidiaries, joint ventures, associates and other
financial assets and are excluded from adjusted operating profit as
they distort the performance of the Group as reported on a
statutory basis. Other net gains and losses also includes costs
related to business closures and acquisitions. Other net gains and
losses in 2022 relate to the gains on the disposal of our
international courseware local publishing businesses in Europe,
French-speaking Canada and Hong Kong and a gain arising on a
decrease in the deferred consideration payable on prior year
acquisitions, offset by a loss on disposal of our international
courseware local publishing businesses in South Africa due to
recycled currency translation adjustments and costs related to
disposals and acquisitions. Other net gains and losses in 2021
largely related to the disposal of PIHE and the disposal of the K12
Sistemas business in Brazil offset by costs related to the
acquisition of Faethm and the wind down of certain strategic review
businesses.
Adjusted
operating profit should not be regarded as a complete picture of
the Group's financial performance. For example, adjusted operating
profit includes the benefits of major restructuring programmes but
excludes the significant associated costs, and adjusted operating
profit excludes costs related to acquisitions, and the amortisation
of intangibles acquired in business combinations, but does not
exclude the associated revenues. The Group's definition of adjusted
operating profit may not be comparable to other similarly titled
measures reported by other companies.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2022
2. Segment information continued
The
following table reconciles adjusted operating profit to operating
profit for each of our primary segments.
|
Assessments &
Qualifications
|
Virtual
Learning
|
English
Language Learning
|
Workforce
Skills
|
Higher
Education
|
Strategic
Review
|
|
Total
|
|
all figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
Adjusted operating
profit
|
258
|
70
|
25
|
(3)
|
91
|
15
|
|
456
|
|
Cost of
major restructuring
|
(39)
|
(29)
|
(11)
|
(7)
|
(63)
|
(1)
|
|
(150)
|
|
Intangible
charges
|
(14)
|
(21)
|
(6)
|
(12)
|
(3)
|
-
|
|
(56)
|
|
UK
Pension discretionary increases
|
(1)
|
(1)
|
-
|
-
|
(1)
|
-
|
|
(3)
|
|
Other
net gains and losses
|
(2)
|
(2)
|
(11)
|
-
|
-
|
39
|
|
24
|
|
Operating
profit / (loss)
|
202
|
17
|
(3)
|
(22)
|
24
|
53
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
20211
|
|
Adjusted operating
profit
|
219
|
32
|
15
|
27
|
73
|
19
|
|
385
|
|
Cost of
major restructuring
|
(48)
|
(48)
|
(27)
|
(28)
|
(63)
|
-
|
|
(214)
|
|
Intangible
charges
|
(13)
|
(25)
|
(3)
|
(7)
|
(2)
|
(1)
|
|
(51)
|
|
UK
Pension discretionary increases
|
-
|
-
|
-
|
-
|
-
|
-
|
|
-
|
|
Other
net gains and losses
|
-
|
-
|
-
|
(2)
|
-
|
65
|
|
63
|
|
Operating
profit / (loss)
|
158
|
(41)
|
(15)
|
(10)
|
8
|
83
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
Comparative amounts have been restated to reflect the move between
operating segments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
for the year ended 31 December 2022
3. Net finance costs
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Interest payable on
financial liabilities at amortised cost and associated
derivatives
|
|
(32)
|
(30)
|
Interest on lease
liabilities
|
|
(25)
|
(27)
|
Interest on
deferred and contingent consideration
|
|
(5)
|
-
|
Derivatives not in
a hedge relationship
|
|
(2)
|
-
|
Interest on tax
provisions
|
|
(7)
|
(11)
|
Net
finance costs
|
|
(71)
|
(68)
|
|
|
|
|
Interest receivable
on financial assets at amortised cost
|
|
18
|
5
|
Interest on lease
receivables
|
|
5
|
6
|
Net
finance income in respect of retirement benefits
|
|
9
|
4
|
Fair
value re-measurement of disposal proceeds
|
|
-
|
6
|
Fair
value movements on investments held at FVTPL
|
|
28
|
20
|
Net
foreign exchange gains
|
|
1
|
1
|
Derivatives not in
a hedge relationship
|
|
27
|
20
|
Interest on tax
provisions
|
|
35
|
-
|
Net
finance income
|
|
123
|
62
|
|
|
|
|
Analysed
as:
|
|
|
|
Net
interest payable reflected in adjusted earnings
|
|
(1)
|
(57)
|
Other
net finance income
|
|
53
|
51
|
Net
finance income / (costs)
|
|
52
|
(6)
|
1.
Comparative amounts have been restated, see note 1 for further
details.
Net interest payable is the finance cost measure used in
calculating adjusted earnings. Net finance costs classified as
other net finance costs are excluded from the calculation of the
Group's adjusted earnings.
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Net
finance income / (costs)
|
|
52
|
(6)
|
Net
finance income in respect of retirement benefits
|
|
(9)
|
(4)
|
Fair
value re-measurement of disposal proceeds
|
|
-
|
(6)
|
Interest on
deferred and contingent consideration
|
|
5
|
-
|
Fair
value movements on investments held at FVTPL
|
|
(28)
|
(20)
|
Net
foreign exchange gains
|
|
(1)
|
(1)
|
Derivatives not in
a hedge relationship
|
|
(25)
|
(20)
|
Interest on tax
provisions
|
|
5
|
-
|
Net
interest payable reflected in adjusted earnings
|
|
(1)
|
(57)
|
1.
Comparative amounts have been restated, see note 1 for further
details.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
3. Net finance costs continued
Net finance income relating to retirement benefits has been
excluded from our adjusted earnings as we believe the income
statement presentation does not reflect the economic substance of
the underlying assets and liabilities. Also excluded are interest
costs relating to acquisition or disposal transactions, fair value
movements on investments classified as FVTPL, foreign exchange and
other gains and losses on derivatives. Interest relating to
acquisition or disposal transactions is excluded from adjusted
earnings as it is considered part of the acquisition cost or
disposal proceeds rather than being reflective of the underlying
financing costs of the Group.
Foreign exchange, fair value movements and other gains and losses
are excluded from adjusted earnings as they represent short-term
fluctuations in market value and are subject to significant
volatility. Other gains and losses may not be realised in due
course as it is normally the intention to hold the related
instruments to maturity. Interest on certain tax provisions is
excluded from our adjusted measure in order to mirror the treatment
of the underlying tax item.
4. Profit before tax
|
|
|
|
all figures in £ millions
|
note
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Profit
before tax
|
|
323
|
177
|
Cost of
major restructuring
|
2
|
150
|
214
|
Other
net gains and losses
|
2
|
(24)
|
(63)
|
Intangible
charges
|
2
|
56
|
51
|
UK
Pension discretionary increases
|
2
|
3
|
-
|
Other
net finance income
|
3
|
(53)
|
(51)
|
Adjusted
profit before tax
|
|
455
|
328
|
1.
Comparative amounts have been restated, see note 1 for further
details.
5. Income tax
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Profit
before tax
|
|
323
|
177
|
Tax
calculated at UK rate (19%)
|
|
(62)
|
(34)
|
Effect
of overseas tax rate
|
|
(12)
|
(24)
|
Non-deductible
expenses
|
|
(9)
|
(9)
|
Impact
of rate changes
|
|
3
|
25
|
Benefit
from change in tax accounting treatment
|
|
-
|
22
|
Other
tax items
|
|
1
|
21
|
Income
tax (charge) / credit
|
|
(79)
|
1
|
|
|
|
|
Tax
rate reflected in statutory earnings
|
|
24.5%
|
(0.6)%
|
1.
Comparative amounts have been restated, see note 1 for further
details.
The
statutory rate is higher than the standard rate of tax due to
profits arising in countries where the tax rate is higher than the
UK rate together with various expenses that are not deductible for
tax purposes. Also included in the income tax charge is a provision
in relation to the potential State Aid risk (see note 15 for
further details) which is principally offset against the release of
historic provisions for tax risks where the statue of limitations
has now expired.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
5.
Income tax continued
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Income
tax (charge) / benefit
|
|
(79)
|
1
|
Tax
benefit on cost of major restructuring
|
|
(37)
|
(47)
|
Tax
charge on other net gains and losses
|
|
10
|
14
|
Tax
benefit on intangible charges
|
|
(11)
|
(12)
|
Tax
benefit on UK pensions discretionary increase
|
|
(1)
|
-
|
Tax
charge on other net finance costs
|
|
13
|
8
|
Tax
amortisation benefit on goodwill and intangibles
|
|
16
|
8
|
Benefit
from change in tax accounting treatment
|
|
-
|
(11)
|
Tax
benefit on UK tax rate change
|
|
(1)
|
(25)
|
Other
tax items
|
|
19
|
-
|
Adjusted
income tax charge
|
|
(71)
|
(64)
|
|
|
|
|
Tax
rate reflected in adjusted earnings
|
|
15.6%
|
19.5%
|
1.
Comparative amounts have been restated, see note 1 for further
details.
The
adjusted income tax charge excludes the tax benefit or charge on
items excluded from profit before tax (see note 4).
Other
tax items of £19m primarily consists of the release of
non-operating tax risk provisions of £35m following the expiry
of the statute of limitations for certain offset by a provision of
£63m related to the potential State Aid exposure.
The
current 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.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
6. Earnings per share
Basic
earnings per share is calculated by dividing the profit or loss
attributable to equity shareholders of the company (earnings) by
the weighted average number of ordinary shares in issue during the
year, excluding ordinary shares purchased by the company and held
as treasury shares. Diluted earnings per share is calculated by
adjusting the weighted average number of ordinary shares to take
account of all dilutive potential ordinary shares and adjusting the
profit attributable, if applicable, to account for any tax
consequences that might arise from conversion of those
shares.
|
|
|
|
all figures in £ millions
|
|
2022
|
2021¹
|
|
|
|
|
|
|
|
|
Earnings for the
year
|
|
244
|
178
|
Non-controlling
interest
|
|
(2)
|
(1)
|
Earnings
attributable to equity holders
|
|
242
|
177
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (millions)
|
|
738.1
|
754.1
|
Effect
of dilutive share options (millions)
|
|
3.9
|
5.0
|
Weighted average
number of shares (millions) for diluted earnings
|
|
742.0
|
759.1
|
|
|
|
|
|
|
|
|
Earnings per
share (in
pence per share)
|
|
|
|
Basic
|
|
32.8p
|
23.5p
|
Diluted
|
|
32.6p
|
23.3p
|
1.
Comparative amounts have been restated, see note 1 for further
details.
7. Adjusted earnings per share
In order to show results from operating activities on a consistent
basis, an adjusted earnings per share is presented which excludes
certain items as set out below.
Adjusted earnings is a non-GAAP financial measure and is included
as it is a key financial measure used by management to evaluate
performance and allocate resources to business segments. The
measure also enables our investors to more easily, and
consistently, track the underlying operational performance of the
Group and its business segments over time by separating out those
items of income and expenditure relating to acquisition and
disposal transactions, major restructuring programmes and certain
other items that are also not representative of underlying
performance (see notes 2, 3, 4 and 5 for further information and
reconciliation to equivalent statutory measures).
The adjusted earnings per share includes both continuing and
discontinued businesses on an undiluted basis when relevant. The
Group's definition of adjusted earnings per share 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 in the tables below and
in notes 2, 3, 4 and 5.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
7.
Adjusted earnings per share continued
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
UK
Pension discretionary increases
|
Other
finance costs
|
Other
tax items
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
2022
|
Operating
profit
|
2
|
271
|
150
|
(24)
|
56
|
3
|
-
|
-
|
456
|
Net
finance costs
|
3
|
52
|
-
|
-
|
-
|
-
|
(53)
|
-
|
(1)
|
Profit
before tax
|
4
|
323
|
150
|
(24)
|
56
|
3
|
(53)
|
-
|
455
|
Income
tax
|
5
|
(79)
|
(37)
|
10
|
(11)
|
(1)
|
13
|
34
|
(71)
|
Profit
for the year
|
|
244
|
113
|
(14)
|
45
|
2
|
(40)
|
34
|
384
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
Earnings
|
|
242
|
113
|
(14)
|
45
|
2
|
(40)
|
34
|
382
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
738.1
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
742.0
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
51.8p
|
Adjusted
earnings per share (diluted)
|
|
|
|
51.5p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
7.
Adjusted earnings per share continued
all figures in £ millions
|
note
|
Statutory
income statement
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
UK
Pension discretionary increases
|
Other
finance costs
|
Other
tax items
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
2021¹
|
Operating
profit
|
2
|
183
|
214
|
(63)
|
51
|
-
|
-
|
-
|
385
|
Net
finance costs
|
3
|
(6)
|
-
|
-
|
-
|
-
|
(51)
|
-
|
(57)
|
Profit
before tax
|
4
|
177
|
214
|
(63)
|
51
|
-
|
(51)
|
-
|
328
|
Income
tax
|
5
|
1
|
(47)
|
14
|
(12)
|
-
|
8
|
(28)
|
(64)
|
Profit
for the year
|
|
178
|
167
|
(49)
|
39
|
-
|
(43)
|
(28)
|
264
|
Non-controlling
interest
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Earnings
|
|
177
|
167
|
(49)
|
39
|
-
|
(43)
|
(28)
|
263
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares (millions)
|
|
|
|
754.1
|
Weighted
average number of shares (millions) for diluted
earnings
|
|
|
|
759.1
|
|
|
|
|
|
Adjusted
earnings per share (basic)
|
|
|
|
34.9p
|
Adjusted
earnings per share (diluted)
|
|
|
|
34.6p
|
1.
Comparative amounts have been restated, see note 1 for further
details.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
8. Dividends
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Amounts
recognised as distributions to equity shareholders in the
year
|
|
156
|
149
|
The
directors are proposing a final dividend of 14.9p per equity share,
payable on 5 May 2023 to shareholders on the register at the close
of business on 24 March 2023. This final dividend, which will
absorb an estimated £107m of shareholders' funds, has not been
included as a liability as at 31 December 2022.
9. Exchange rates
Pearson
earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant
rates are as follows:
|
|
|
|
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Average
rate for profits
|
|
1.24
|
1.38
|
Year
end rate
|
|
1.21
|
1.35
|
10. Non-current intangible
assets
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,480
|
2,145
|
Other
intangibles
|
|
697
|
624
|
Non-current
intangible assets
|
|
3,177
|
2,769
|
In
2022, business combinations resulted in the recognition of
additional goodwill of £204m and intangible assets of
£110m (see note 11 for further details).
There
were no significant impairments to acquisition related or other
intangibles in 2022 or 2021.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
11. Acquisitions
On
28 January 2022, the Group acquired 100% of the share capital in
Credly Inc (Credly), having previously held a 19.9% interest in the
company. Credly was founded in 2012 in New York and is a digital
credential service provider whose platform enables customers to
design, create, issue and manage digital credentials. It now forms
part of the Workforce Skills division. Total consideration was
£149m comprising upfront cash consideration of £107m,
Pearson's existing interest valued at £31m and £11m of
deferred consideration. The deferred consideration is payable in
two years, with additional amounts being payable if certain revenue
and non-financial targets are met, and dependent on continuing
employment, and therefore these additional amounts will be expensed
over the period and are not treated as consideration. £49m of
intangible assets were recognised, mainly relating to the existing
customer relationships that will be amortised over 20 years, and
technology, which will be amortised over five years.
On
28 April 2022, the Group acquired 100% of the share capital of ATI
STUDIOS A.P.P.S S.R.L (Mondly), a global online learning platform
offering customers learning in English and 40 other languages via
its app, website, virtual reality and augmented reality products.
It now forms part of the English Language Learning division. Total
consideration was £135m comprising upfront cash consideration
of £105m, and deferred consideration of £30m. The
deferred consideration is payable over the next two years with no
performance conditions attached. In addition, a further $29.6m
(c£24m) of cash and $10m (c£8m) in shares will be paid
over the next four years, dependent on continuing employment, and
therefore these additional amounts will be expensed over the period
and are not treated as consideration. £50m of intangible
assets were recognised, the majority of which relates to acquired
technology, and will be amortised over periods upto seven
years.
These
transactions have resulted in the recognition of £202m of
goodwill, which represents the expected growth through new products
and customers, the workforce and know-how acquired and the
anticipated synergies, none of which can be recognised as separate
intangible assets. The goodwill is not deductible for tax
purposes.
In
2022, the Group also made three smaller acquisitions in the period
for total consideration of £11m. In December 2022, the Group
announced that it had signed a deal to acquire 100% of Personnel
Decisions Research Institutes, LLC, the transaction has not yet
completed.
In
September 2021, Pearson completed the acquisition of 100% of the
share capital of Faethm, having already held 9% of the share
capital. Faethm uses artificial intelligence and analytics services
to help governments, companies and workers understand the dynamic
forces shaping the labour market. Faethm now forms part of the
Workforce Skills division. The total consideration for the
transaction was £65m, which included £10m of contingent
consideration, dependent upon meeting certain earnings targets. The
contingent consideration was valued at the net present value of the
Group's best estimate of the amount that will be payable. In 2022,
contingent consideration amounts have been settled resulting in the
recognition of an £8m gain in the income statement within
other net gains and losses.
In
addition, the Group made two additional acquisitions of
subsidiaries for total consideration of £11m in 2021.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
11. Acquisitions continued
Details of the fair values of the assets and liabilities recognised
at the acquisition date and the related consideration is shown in
the table below. Amounts for intangible assets and goodwill are
provisional as management finalise reviews of the asset
valuations.
|
|
|
|
|
|
|
|
all figures in £ millions
|
|
|
2022
Credly
|
2022
Mondly
|
2022
Other
|
2022
Total
|
2021
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
49
|
50
|
11
|
110
|
27
|
Deferred tax assets
|
|
|
7
|
1
|
-
|
8
|
11
|
Trade and other receivables
|
|
|
6
|
2
|
-
|
8
|
2
|
Cash and cash equivalents
|
|
|
12
|
1
|
-
|
13
|
4
|
Trade
and other liabilities
|
|
|
(18)
|
(8)
|
-
|
(26)
|
(5)
|
Deferred tax
liabilities
|
|
|
(12)
|
(8)
|
(2)
|
(22)
|
(6)
|
Net assets acquired
|
|
|
44
|
38
|
9
|
91
|
33
|
Goodwill
|
|
|
105
|
97
|
2
|
204
|
43
|
Total
|
|
|
149
|
135
|
11
|
295
|
76
|
|
|
|
|
|
|
|
|
Satisfied by:
|
|
|
|
|
|
|
|
Cash consideration
|
|
|
107
|
105
|
11
|
223
|
54
|
Deferred and contingent consideration
|
|
|
11
|
30
|
-
|
41
|
16
|
Fair value of existing investment
|
|
|
31
|
-
|
-
|
31
|
6
|
Total consideration
|
|
|
149
|
135
|
11
|
295
|
76
|
|
|
|
|
|
|
|
Cash flow from acquisitions
|
|
|
|
|
|
|
Cash -
current year acquisitions
|
|
|
|
|
(223)
|
(54)
|
Cash
and cash equivalents acquired
|
|
|
|
|
13
|
4
|
Deferred
payments for prior year acquisitions and other items
|
|
|
|
|
(10)
|
(4)
|
Acquisition
costs paid
|
|
|
|
|
|
(8)
|
(1)
|
Net cash outflow
|
|
|
|
|
|
(228)
|
(55)
|
Credly
generated revenues of £13m and a loss after tax of £4m
for the period from acquisition date to 31 December 2022. Mondly
generated revenues of £11m and a profit after tax of £3m
for the period from acquisition date to 31 December 2022. If the
acquisitions had occurred on 1 January 2022, the Group's revenue
would have been £7m higher and the profit after tax would have
been £1m lower.
Total
acquisition-related costs of £20m were recognised in 2022
within other net gains and losses.
In
addition to the cash flows relating to subsidiaries above, the
Group also acquired an associate for cash consideration
of £2m (2021: £10m) and paid a further £3m in
respect of an existing investment in an associate.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
12. Disposals
In
March 2021, the Group announced a strategic review of its
international courseware local publishing businesses. In 2022, the
Group disposed of its interests in the Canadian educational
publisher (ERPI), Pearson Italia S.p.A, Stark Verlag GmbH, Austin
Education (Hong Kong) Limited, Pearson South Africa (Pty) Ltd and
various other South African companies. Total cash consideration
received was £287m resulting in a pre-tax gain on disposal of
£42m. All entities disposed of were previously in the
Strategic Review segment. £5m of losses arose from other
immaterial disposals and costs related to the wind-down of certain
businesses. None of the disposed businesses meet the criteria to be
presented as discontinued operations.
In
February 2021, the Group completed the sale of its interests in
PIHE in South Africa resulting in a pre-tax loss of £5m. In
October 2021, the Group completed the sale of its K12 Sistemas
business in Brazil resulting in a pre-tax gain of £84m. There
were no other business disposals in 2021 and additional losses of
£14m relate to other disposal costs including costs related to
the wind down of certain businesses under strategic review.
Deferred proceeds relating to the K12 sale were received in 2021
and 2022.
|
|
|
|
|
all figures in £ millions
|
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, including goodwill
|
|
|
(77)
|
(3)
|
Property,
plant and equipment
|
|
|
(11)
|
(48)
|
Intangible
assets - product development
|
|
|
(39)
|
(6)
|
Inventories
|
|
|
(33)
|
(2)
|
Trade
and other receivables
|
|
|
(106)
|
(6)
|
Deferred
tax
|
|
|
(12)
|
-
|
Cash
and cash equivalents (excluding overdrafts)
|
|
|
(21)
|
(24)
|
Provisions
for other liabilities and charges
|
|
|
1
|
3
|
Retirement benefit
obligations
|
|
|
2
|
-
|
Trade
and other liabilities
|
|
|
52
|
4
|
Financial
liabilities - borrowings
|
|
|
8
|
67
|
Net assets disposed
|
|
|
(236)
|
(15)
|
|
|
|
|
|
Cumulative
currency translation adjustment
|
|
|
5
|
(4)
|
Cash
proceeds
|
|
|
291
|
108
|
Deferred
proceeds
|
|
|
2
|
-
|
Costs
of disposal
|
|
|
(25)
|
(24)
|
Gain on disposal
|
|
|
37
|
65
|
|
|
|
|
|
Cash flow from disposals
|
|
|
|
|
Proceeds
- current year disposals
|
|
|
291
|
108
|
Proceeds
- prior year disposals
|
|
|
86
|
16
|
Cash
and cash equivalents disposed
|
|
|
(21)
|
(24)
|
Costs
and other disposal liabilities paid
|
|
|
(23)
|
(17)
|
Net cash inflow from disposals
|
|
|
333
|
83
|
In addition to the above, in 2022, proceeds of £17m (2021:
£48m) were received in relation to the disposal of
investments.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
13. Net debt
|
|
|
|
all figures in £ millions
|
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
Derivative
financial instruments
|
|
43
|
30
|
Trade
and other receivables - investment in finance lease
|
|
104
|
100
|
Current
assets
|
|
|
|
Derivative
financial instruments
|
|
16
|
2
|
Trade
and other receivables - investment in finance lease
|
|
17
|
15
|
Cash
and cash equivalents (excluding overdrafts)
|
|
543
|
937
|
Non-current
liabilities
|
|
|
|
Borrowings
|
|
(1,144)
|
(1,245)
|
Derivative
financial instruments
|
|
(54)
|
(30)
|
Current
liabilities
|
|
|
|
Borrowings
|
|
(71)
|
(155)
|
Derivative
financial instruments
|
|
(11)
|
(4)
|
Net
debt
|
|
(557)
|
(350)
|
Included
in borrowings at 31 December 2022 are lease liabilities of
£605m (non-current £534m, current £71m). This
compares to lease liabilities of £633m (non-current
£565m, current £68m) at 31 December 2021. The net lease
liability at 31 December 2022 after including the investment in
finance leases noted above was £484m (2021: £518m). Net
debt excluding net lease liabilities is £73m (2021: net cash
of £168m).
In
May 2022, the Group repaid its $117m (£95m) USD 3.75% notes
upon maturity. In December 2022, the Group repaid its $94m
(£76m) USD 3.25% notes. In May 2021, the Group repaid the
remaining €195m (£167m) of its €500m Euro 1.85%
notes.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
14. Cash flows
Operating
cash flow and free cash flow are non-GAAP measures and have been
disclosed as they are part of the Group's corporate and operating
measures. These measures are presented in order to align the cash
flows with corresponding adjusted profit measures. The table below
reconciles the statutory profit and cash flow measures to the
corresponding adjusted measures.
all figures in £ millions
|
Statutory
measure
|
Cost of
major restructuring
|
Other
net gains and losses
|
Intangible
charges
|
UK
Pension discretionary increases
|
Purchase/
disposal of PPE and software
|
Net
addition of right of use assets
|
Dividends
from joint ventures and associates
|
Adjusted
measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
Operating
profit
|
271
|
150
|
(24)
|
56
|
3
|
-
|
-
|
-
|
456
|
Adjusted operating profit
|
|
Net
cash generated from operations
|
527
|
35
|
-
|
-
|
-
|
(133)
|
(29)
|
1
|
401
|
Operating cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
Operating
profit
|
183
|
214
|
(63)
|
51
|
-
|
-
|
-
|
-
|
385
|
Adjusted operating profit
|
|
Net
cash generated from operations
|
570
|
24
|
-
|
-
|
-
|
(176)
|
(30)
|
-
|
388
|
Operating cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below reconciles operating cash flow to net
debt.
all figures in £ millions
|
note
|
2022
|
2021
|
|
|
|
|
|
|
|
|
Reconciliation
of operating cash flow to closing net debt
|
|
|
|
|
|
|
Operating
cash flow
|
|
401
|
388
|
Tax
paid
|
|
(109)
|
(177)
|
Net
finance costs paid
|
|
(35)
|
(54)
|
Net
cost paid for major restructuring
|
|
(35)
|
(24)
|
Free
cash flow
|
|
222
|
133
|
Dividends paid
(including to non-controlling interest)
|
|
(157)
|
(149)
|
Net
movement of funds from operations
|
|
65
|
(16)
|
Acquisitions and
disposals
|
|
105
|
62
|
Disposal of lease
liabilities
|
|
8
|
67
|
Net
equity transactions
|
|
(383)
|
(10)
|
Other
movements on financial instruments
|
|
(2)
|
10
|
Movement
in net debt
|
|
(207)
|
113
|
Opening
net debt
|
|
(350)
|
(463)
|
Closing
net debt
|
14
|
(557)
|
(350)
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for
the year ended 31 December 2022
15. Contingencies and other
liabilities
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.
On 25 April 2019, the European Commission published the full
decision that the United Kingdom controlled foreign company group
financing partial exemption ('FCPE') partially constitutes State
Aid. This decision was appealed by the UK Government and other
parties. On 8 June 2022 the EU General Court dismissed the appeal
following which it has been concluded that a provision is now
required in relation to this issue. The total exposure in relation
to this issue is calculated to be £105m (excluding interest)
with a provision of £63m now included in the results
representing our estimate of the expected value. Further
information is included in the Financial Review - Taxation. This
issue is specific to periods up to 2018 and is not a continuing
exposure.
The Group is under assessment from the tax authorities in Brazil
challenging the deduction for tax purposes of goodwill amortisation
for the years 2012 to 2017. Similar assessments may be raised for
other years. Potential total exposure (including possible interest
and penalties) could be up to BRL 1,212m (£190m) up to 31
December 2022. Such assessments are common in Brazil. The Group
believes that the likelihood that the tax authorities will
ultimately prevail is low and that the Group's position is strong.
At present, the Group believes no provision is
required.
The Group is also under assessment from the UK tax authorities in
relation to an issue related to the UK's FCPE legislation with the
relevant years being 2019 to 2021. The maximum exposure is
calculated to be £44m with a provision of £13m currently
held in relation to this issue. The provision is calculated
considering a range of possible outcomes and applying a probability
to each, resulting in a weighted average outcome. The possible
outcomes considered range from no liability through to the full
exposure (£44m). This issue is specific to 2019 to 2021 and is
not a continuing exposure.
16. Related parties
In 2021, the Group acquired a 40% interest in Academy of Pop and is
accounting for the investment as an associate. At 31 December 2022,
the Group had a current liability payable to Academy of Pop of
£5m (2021: £7m) which relates to the Group's initial
capital contribution that had not yet been paid as at 31 December
2022. This balance was paid in February 2023.
There were no other material related party transactions in 2022 or
2021 and no guarantees have been provided to related parties in the
year.
17. Events after the balance sheet
date
In February 2023, the Group renegotiated its revolving credit
facility, reducing the maximum facility to $1bn.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
PEARSON
plc
|
|
|
Date: 3
March 2023
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|
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