Pearson 2023 Preliminary
Results (Unaudited)
1st March
2024
|
Another year of financial outperformance. Positive outlook
with a stable platform for continued growth
|
Financial Highlights
£m
|
2023
|
2022
|
|
£m
|
2023
|
2022
|
Business performance
|
|
|
|
Statutory
results
|
|
|
Sales
|
3,674
|
3,841
|
|
Sales
|
3,674
|
3,841
|
Adjusted operating
profit
|
573
|
456
|
|
Operating
profit
|
498
|
271
|
Operating cash flow
|
587
|
401
|
|
Profit
for the year
|
380
|
244
|
Free cash flow
|
387
|
222
|
|
Net cash
generated from operations
|
682
|
527
|
Adjusted earnings per
share
|
58.2p
|
51.8p
|
|
Basic
earnings per share
|
53.1p
|
32.8p
|
Highlights
·
|
Underlying Group sales growth1
of 5%, excluding
OPM2 and the Strategic
Review3
businesses.
|
·
|
Group adjusted operating profit of £573m, up 31% on an
underlying basis compared to 2022 with significant expansion in
adjusted operating profit margin from 11.9% to 15.6%, underpinned
by sales growth and execution of £120m cost efficiency
programme.
|
·
|
Operating cash conversion of 102% driving 74% headline
increase in free cash flow.
|
·
|
Proposed final dividend of 15.7p, resulting in full year
dividend up 6% to 22.7p.
|
·
|
Clear capital allocation priorities underpinning £300m share
buyback launched last September and today announcing intention to
extend share buyback programme by £200m.
|
·
|
Positive outlook for 2024 and 2025 in line with expectations
and Group guidance unchanged. Free cash flow expected to further
improve next year due to lower restructuring cash
costs.
|
Omar Abbosh, Pearson's Chief
Executive, said:
"2023 was another year of strong
operational and financial performance, with results surpassing
initial expectations once again, driven by our Assessment &
Qualifications and English Language Learning businesses. Our
consistently strong cash generation has sustained investment to
support our future growth and deliver ongoing value for
shareholders.
"Pearson is a strong company with
excellent market potential, people committed to our mission, and a
purpose that genuinely helps communities. My conversations with our
customers, our people and our investors have confirmed that and
more. Pearson is well positioned today, providing a stable platform
for continued growth that can benefit from the inflection point we
see with the development of AI. I am optimistic about the
opportunities this advancement in technology brings, underpinned by
our trusted brand, large high quality data sets and strong
capabilities in assessment, content and services. We have an
exciting future ahead of us."
2024 priorities
·
|
We will deliver on current 2024
market expectations4
for Group underlying
sales growth and adjusted operating profit given the strength of
our core businesses, alongside a disciplined focus on organic
growth, customer expectations and execution.
|
·
|
The range and quality of products
across our business supplying the vast Enterprise market presents a
large and still forming opportunity, which we plan to
maximise.
|
·
|
We will continue to infuse our
products and services with a wide range of AI solutions and
capabilities to ensure we lead on innovation for our end
consumers.
|
·
|
We will provide a business and
strategic update at our interim results in July.
|
Underlying sales growth1 of 5%, excluding
OPM2 and Strategic Review3 businesses; 1% in
aggregate
·
|
Assessment & Qualifications
sales were up 7% largely driven by a strong performance in Pearson
VUE with good progress in IT and healthcare alongside the
commencement of new contracts. There was also good growth across US
Student Assessments, Clinical and UK & International
Qualifications, due to new contract wins, good government funding
and price increases.
|
·
|
Virtual Learning sales decreased
20%, primarily due to an expected 87% decrease in the Online
Program Management (OPM) business resulting from the previously
announced ASU contract loss. Virtual Schools sales declined 2%,
with enrolments for the 2023/24 academic year lower due to the
previously announced loss of a larger partner school.
|
·
|
Higher Education sales were down
3%, in line with expectations, driven by loss of adoptions to
non-mainstream publishers in the first half of the year, as well as
pricing mix. Pearson+ continued to perform well, passing the
milestone of 1 million cumulative paid subscriptions for the
calendar year.
|
·
|
English Language Learning sales
increased 30% with all three segments contributing to this growth.
Pearson Test of English (PTE) was the outstanding contributor,
delivering volume growth of 49% against a backdrop of favourable
migration policy in Australia and market share gains in
India.
|
·
|
Workforce Skills sales grew 11%
for the full year, with a solid performance in both Vocational
Qualifications and Workforce Solutions.
|
Adjusted operating profit1
up 31% on an
underlying basis to £573m
·
|
Performance driven by sales growth
and execution of the £120m cost efficiency programme, partially
offset by investment and inflation. Adjusted operating profit
margin rose to 15.6% (2022: 11.9%).
|
·
|
Headline growth was 26% reflecting
business performance along with portfolio changes and currency
movements.
|
·
|
Adjusted earnings per share grew
to 58.2p (2022: 51.8p) reflecting adjusted operating profit growth,
normalisation of tax and interest charges and the reduction in
issued shares as a result of share buybacks.
|
Cash performance
·
|
Operating
cash1 inflow increased on a headline basis from £401m in 2022 to
£587m in 2023, representing excellent cash conversion of 102%. This
increase is reflective of the trading performance of the business,
good cash collections and reduced product development in Higher
Education connected to the cost efficiency programme.
|
·
|
Our excellent cash conversion
drove an increase in free cash flow from £222m in 2022 to £387m in
2023, a free cash flow conversion of 93%5. 2023 included £63m of cash
restructuring costs in relation to the cost efficiency
programme.
|
Strong balance sheet supports continued organic and inorganic
investment alongside increased shareholder
returns
·
|
We completed the acquisition of
PDRI, significantly expanding Pearson's services to the US federal
government as well as growing our presence with large
employers.
|
·
|
Year-end net debt of £0.7bn (2022:
£0.6bn) with net debt / adjusted EBITDA ratio at 1.0x (2022:
0.8x).
|
·
|
Return on capital was 10.3% (2022:
8.7%).
|
·
|
Proposed final dividend of 15.7p
(2022: 14.9p) which equates to a full year dividend of 22.7p (2022:
21.5p).
|
·
|
The previously announced buyback
to repurchase £300m of shares continued. As at 28th
February 2024 £288m of shares had been repurchased at an average
price of 928p per share, representing 96% of the total
programme.
|
·
|
Given the strength of our free
cash flow in 2023 we intend to extend our share buyback programme
by £200m.
|
Statutory results
·
|
Sales decreased 4% to £3,674m
(2022: £3,841m) reflecting business performance, portfolio changes
and currency movements.
|
·
|
Statutory operating profit was
£498m (2022: £271m). The increase in 2023 was driven by increased
trading profits and a reduction in the costs of major
restructuring, partially offset by a net loss related to
acquisitions and disposals compared to a net gain in
2022.
|
·
|
Net cash generated from operations
of £682m (2022: £527m).
|
·
|
Statutory earnings per share of
53.1p (2022: 32.8p).
|
Continued strategic and
operational progress across the business
Advancing future growth drivers and building strong digital
offerings
·
|
In Assessment & Qualifications
we won a number of VUE contracts that commenced in 2023 and
maintained our high customer renewal rates. Within our UK &
International Qualifications business we leveraged our technology
capabilities to extend our onscreen exams offering with the roll
out of GCSE Computer Science and International GCSEs in English
Language and Literature. Within Clinical Assessment our high
quality, trusted portfolio of intellectual property continued to be
a source of competitive advantage, helping to drive growth in our
Digital Assessment Library for Schools (DALS) product. We won
subscription contracts with Chicago Public Schools and Miami Dade
County School District.
|
·
|
In Virtual Schools we launched a
new Connections Academy Career Pathways programme in five schools
for middle and high school students, where we are offering a
tri-credit approach to career-readiness courses in partnership with
Coursera and Acadeum, amongst others. We saw encouraging enrolment
trends in these schools and are planning to roll the initiative out
to an additional 15 schools in 2024 to drive future growth. We are
pleased to have secured two new schools in the States impacting the
2023/24 and 2024/25 academic years.
|
·
|
In Higher Education we made
significant strides in converging our platforms to enhance
stability and deliver upgraded, best-in-class features to improve
our customer experience. Stability was much improved in the Fall
semester with up time improving to 99.8% for our platform products.
We also improved our technology support, leading to improved NPS
scores amongst faculty during the peak Fall season. Within our
product suite we introduced 6 new iLabs to take our total to 21.
Generative AI study tools designed to help students better learn
and understand challenging subjects were launched in beta within
select titles for Pearson+ and Mastering for Fall back-to-school.
We're encouraged by how students are engaging with these tools,
with over 60,000 AI conversations taking place in Pearson's Tro
Chemistry Mastering eText alone and 75% of users saying the tools
were 'helpful' or 'very helpful'. We have already expanded the beta
to 12 additional MyLab and Mastering titles with at least 40 math,
science, business and nursing titles to follow by Fall semester
2024. We delivered 2% growth in platform units in 2023. Pearson+
continued to grow, passing the milestone of 1 million cumulative
paid subscriptions to reach 1,048k for the calendar year and we
continued to build out our supplementary learning Channels
offering, with 19 study channels now live. The changes we have made
to our sales team and go to market strategy are delivering early
signs of success including a number of takeaway adoptions in the
Fall back to school selling period. We believe these changes set us
up well for continued progress in 2024.
|
·
|
In English Language Learning, we
have seen a strong increase in the number of users on our digital
platforms. Coupled with investment in new digital content,
including video and audio, and the strength of the Global Scale of
English, we are confident that we are delivering engaging learning
experiences while enabling teachers to better understand and meet
the needs of their learners. In our Mondly enterprise focused
business, we are launching Mondly by Pearson Workplace English,
which benefits from workplace-specific content, leveraging our
institutional courseware portfolio, and enhanced features. Coupled
with investment in our Versant suite of tests, this strengthens our
offering in the Corporate language learning space.
|
·
|
Within our Workforce Solutions
business we evolved our offering from a unified product approach,
building a powerful technology stack that has enabled us to break
down core Faethm capabilities into modular application programming
interfaces. We are seeing contract wins across digital
credentialing and strategic workforce planning solutions with the
likes of Cleveland Clinic and ServiceNow.
|
Expanding our reach in new and adjacent
markets
·
|
In Assessment & Qualifications
we acquired PDRI, a trusted provider of workforce assessment
services. PDRI launched a full suite of hiring assessment
programmes for the Transportation Security Administration and also
won multi-year contracts with a number of other US federal
agencies, including the US Air Force, Drug Enforcement
Administration, Bureau of Alcohol, Tobacco, Firearms and
Explosives, and Department of Homeland Security. Within VUE we
expect to derive future growth from moving further up the
technology certification value chain and we saw encouraging signs
in this market in 2023. Within Clinical Assessment we made further
progress in pursuing our strategy to partner with clinical
pharmaceutical companies, winning a contract to deliver assessments
to aid determining the effectiveness of a drug used in the
treatment of Alzheimer's disease. Our UK & International
Qualifications business delivered good international growth in
2023. We see further opportunity for growth internationally across
our Assessment & Qualifications businesses into 2024 and
beyond.
|
·
|
In English Language Learning we
won recognition for the Pearson Test of English for Canadian
Student Direct Stream and economic immigration visa applications.
This grants access to the full potential of the Canadian market,
which is the largest of the three key markets which Pearson now has
recognition to operate in. We launched PTE for Canadian Student
Direct Stream visa applications in the second half of 2023 and
opened bookings for PTE for Canadian economic immigration visa
applications in February 2024. We continue to invest in building
our brand awareness and testing capacity in the PTE market. We
opened one of our largest company-owned Pearson VUE testing centres
in Chandigarh, India. With the ability to deliver more than 14,000
tests per month, including PTE, this marks another step forward in
the important Indian market, where based on the estimated market
size we have seen market share gains throughout 2023.
|
·
|
In our Vocational Qualifications
business we signed a contract with the Jordanian Ministry of
Education to partner on the reform of Jordan's technical and
vocational education and training provision in schools with over
50,000 learners expected to take these courses over the next three
years. International expansion will be an important growth driver
for our Vocational Qualifications business going
forwards.
|
Delivering efficiencies and reshaping the
portfolio
·
|
We delivered £120m of cost
efficiencies in 2023 across product and content support costs,
technology and corporate property.
|
·
|
Cost efficiencies supported
adjusted operating profit margin improvement from 11.9% in 2022 to
15.6% in 2023.
|
·
|
We disposed of our Pearson Online
Learning Services (POLS) business, further focusing Pearson's
portfolio towards future growth opportunities.
|
Outlook
2024 outlook
·
|
We expect Group underlying sales
growth, adjusted operating profit and tax will be in line with
current market expectations4. Our interest charge will be
c.£45m given our ongoing £300m share buyback and intended extension
by a further £200m.
|
·
|
Every 1c movement in £:$ rate will
equate to approximately £5m adjusted operating profit
impact.
|
·
|
In Assessment & Qualifications
we expect sales growth of low to mid-single digit.
|
·
|
In Virtual Schools we expect sales
to decline at a similar rate to 2023, given the previously cited
loss of a larger partner school for the 2024/25 academic year. We
are pleased to have secured two new schools in the States impacting
the 2023/24 and 2024/25 academic years and therefore expect the
division to return to growth beyond 2024.
|
·
|
In Higher Education we expect to
return to sales growth.
|
·
|
In English Language Learning we
continue to expect high single digit sales growth.
|
·
|
In Workforce Skills we expect to
achieve high single digit sales growth.
|
·
|
We expect a free cash flow
conversion of 95-100%.
|
2025 ambition
·
|
We continue to expect the Group to
achieve mid-single digit underlying sales 3-year CAGR from 2022 to
2025, excluding OPM and Strategic Review businesses, and remain on
track to achieve our 16-17% adjusted operating profit margin
guidance.
|
Executive changes
We are excited about the growth
opportunity across the enterprise learning market and working with
organisations to address the challenges of building an adaptable
workforce that is augmented by AI. Reflecting on our partnerships
and capabilities, we are confident we can build on our existing
products and services in the enterprise market to drive higher
growth longer term.
Pearson announces the appointment of Vishaal Gupta as the new
President of Workforce Skills.
Vishaal currently serves as a
Senior Managing Director with Accenture. Vishaal is an enterprise
sales leader who leads a team that originates and closes large and
complex deals, particularly in the areas of Technology
Transformation and Strategic Managed Services. Vishaal has over 29
years' experience working in technology driven
companies.
Mike Howells, President of Workforce Skills,
will be leaving Pearson in March. Mike has led
the evolution of our Workforce Skills division for the last three
years, overseeing the development of our enterprise solutions
business and further extending the international presence of our
Vocational Qualifications business. We thank him for his
contribution.
Contacts
Investor Relations
|
Jo Russell
James Caddy
|
+44 (0) 7785 451
266
+44 (0) 7825 948
218
|
|
Gemma Terry
Brennan Matthews
|
+44 (0) 7841 363
216
+1 (332) 238-8785
|
Media
Teneo
Pearson
|
Charles Armitstead
Laura Ewart
|
+44 (0) 7703 330
269
+44 (0) 7798 846
805
|
Results event
|
Pearson's prelim results
presentation today at 08:30 (GMT). Register to receive log in
details: https://pearson.connectid.cloud/register
|
|
About Pearson
At Pearson, our purpose is simple:
to add life to a lifetime of learning. We believe that every
learning opportunity is a chance for a personal breakthrough.
That's why our Pearson employees are committed to creating vibrant
and enriching learning experiences designed for real-life impact.
We are the world's leading learning company, serving customers with
digital content, assessments, qualifications, and data. For us,
learning isn't just what we do. It's who we are. Visit us at
pearsonplc.com
Notes
Forward looking statements: Except for the historical information contained herein, the
matters discussed in this statement include forward-looking
statements. In particular, all statements that express forecasts,
expectations and projections with respect to future matters,
including trends in results of operations, margins, growth rates,
overall market trends, the impact of interest or exchange rates,
the availability of financing, anticipated cost savings and
synergies and the execution of Pearson's strategy, are
forward-looking statements. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that will occur in future. They
are based on numerous assumptions regarding Pearson's present and
future business strategies and the environment in which it will
operate in the future. There are a number of factors which could
cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements,
including a number of factors outside Pearson's control. These
include international, national and local conditions, as well as
competition. They also include other risks detailed from time to
time in Pearson's publicly-filed documents and you are advised to
read, in particular, the risk factors set out in Pearson's latest
annual report and accounts, which can be found on its website
(www.pearsonplc.com). Any forward-looking
statements speak only as of the date they are made, and Pearson
gives no undertaking to update forward-looking statements to
reflect any changes in its expectations with regard thereto or any
changes to events, conditions or circumstances on which any such
statement is based. Readers are cautioned not to place undue
reliance on such forward-looking statements.
Operational review
£m
|
2023
|
2022
|
Headline
growth
|
CER
growth1
|
Underlying
growth1
|
Sales
|
|
|
|
|
|
Assessment &
Qualifications
|
1,559
|
1,444
|
8%
|
9%
|
7%
|
Virtual Learning
|
616
|
820
|
(25)%
|
(24)%
|
(20)%
|
Higher Education
|
855
|
898
|
(5)%
|
(4)%
|
(3)%
|
English Language
Learning
|
415
|
321
|
29%
|
32%
|
30%
|
Workforce Skills
|
220
|
204
|
8%
|
8%
|
11%
|
Strategic Review
|
9
|
154
|
(94)%
|
(94)%
|
(74)%
|
Total
|
3,674
|
3,841
|
(4)%
|
(3)%
|
1%
|
Total, excluding OPM2
and Strategic
Review3
|
|
|
|
|
5%
|
|
|
|
|
|
|
Adjusted operating profit/loss
|
|
|
|
|
|
Assessment &
Qualifications
|
350
|
258
|
36%
|
36%
|
33%
|
Virtual Learning
|
76
|
70
|
9%
|
9%
|
(17)%
|
Higher Education
|
110
|
91
|
21%
|
22%
|
20%
|
English Language
Learning
|
47
|
25
|
88%
|
116%
|
112%
|
Workforce Skills
|
(8)
|
(3)
|
(167)%
|
(167)%
|
(400)%
|
Strategic Review
|
(2)
|
15
|
(113)%
|
(107)%
|
94%
|
Total
|
573
|
456
|
26%
|
28%
|
31%
|
1Throughout 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, 6, and 13. c) Constant exchange rates are
calculated by assuming the average FX in the prior year prevailed
through the current year.
2We have completed the sale of the POLS business and as such
have removed from underlying measures throughout. Within this
specific measure we exclude our entire OPM business (POLS and ASU)
to aid comparison to guidance.
3Strategic Review is sales in international courseware local
publishing businesses being wound down. There will be no sales or profits reported in this division
going forwards.
42024 consensus on the Pearson website; underlying sales
growth 3.7%, adjusted operating profit of £621m at £:$ 1.22, tax
rate 24%.
5Free cash flow conversion calculated as free cash flow
divided by adjusted earnings.
6VUE test volumes include PTE and GED tests but sales for each
of these tests are reflected in the English Language Learning and
Workforce Skills divisions respectively. PDRI test volumes are not
currently included in this metric.
Assessment &
Qualifications
In Assessment &
Qualifications, sales increased 7% on an underlying basis and 8% on
a headline basis. Adjusted operating profit increased 33% in
underlying terms due to operating leverage on sales growth and
margin and opex cost efficiencies, partially offset by inflation
and 36% in headline terms due to this, portfolio changes and
currency movements.
Pearson VUE sales were up 10% in
underlying terms with particularly strong growth in the IT and
healthcare segments, alongside the commencement of new contracts.
VUE test volumes6
grew 6% to 20.7m. We maintained our high contract
renewal track record, reporting a rate of 93.6% across the business
for 2023.
In US Student Assessment, sales
increased 4% in underlying terms driven by the commencement of new
contracts following new business wins.
In Clinical Assessment, sales
increased 5% in underlying terms supported by pricing,
good government funding and continued focus on
health and wellbeing.
In UK and International
Qualifications, sales increased 6% in underlying terms driven by
price increases and good international growth.
We are pleased with the continued
momentum that Assessment & Qualifications showed in 2023. We're
poised to deliver low to mid-single digit sales growth and
continued strong margins in 2024, 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
decreased 20% on an underlying basis and 25% on a headline basis,
primarily due to the expected decrease in our OPM business.
Adjusted operating profit decreased 17% in underlying terms due to
trading performance partially offset by cost efficiencies and
increased 9% in headline terms due to this and portfolio
changes.
Sales in our OPM business were down
87% on an underlying basis, as expected, following the wind down of
the ASU contract. Pearson Online Learning Services sales are no
longer included in underlying measures following the completion of
the disposal in the first half of the year.
Virtual Schools sales were down 2%,
driven by lower enrolments and lower district partnership renewals,
partially offset by good retention rates, improvements in funding
and growth associated with the launch of our Connections Academy
Career Pathways. Enrolments for the 2023/24 academic year were down
5% due to the previously cited loss of a larger partner school.
Excluding the impact of this school, enrolments were up
1%.
We are pleased to have secured two
new schools in the States impacting the 2023/24 and 2024/25
academic years. We expect enrolments to be lower for the 2024/25
academic year, due to the loss of a major school in that period and
for annual sales to decline at a similar level to 2023. We remain
confident in the long-term growth of the business as we roll out
additional Career Academies aimed at supporting teenagers who wish
to gain career and technical education and experience.
Higher Education
In Higher Education, sales declined 3% for the full year
on an underlying basis, in line with expectations, and decreased 5%
on a headline basis due to currency movements and portfolio
changes. Adjusted operating profit
increased 20% in underlying terms driven primarily by cost
efficiencies, partially offset by trading performance and
inflation, and increased 21% in headline terms due to this,
currency movements and portfolio changes.
In the US, sales declines were
driven by the loss of adoptions to non-mainstream publishers in the
first half of the year, as well as pricing mix. There was strong growth in Inclusive Access with 22% sales
growth to not-for-profit institutions and the total number of
institutions increasing to c.1,250.
We delivered 2% growth in platform units in 2023
enabled by changes we have made to our
sales team and go to market strategy with the support of increasing
platform stability. Pearson+ performed
well in the Fall semester with 3.03m registered users and 516k paid
subscriptions, representing 27% growth compared to the prior year
Fall semester. Pearson+ passed the milestone of 1 million
cumulative paid subscriptions for the calendar year.
We expect a return to sales growth
in 2024, with increased margins as the organisational changes and
focused investments we have made to strengthen our competitive
position begin to bear fruit. Further cost savings will be
partially offset in 2024 by above the line restructuring
charges.
English Language
Learning
In English Language Learning,
sales were up 30% on an underlying basis and 29% on a headline
basis. Adjusted operating profit increased by 112% in underlying
terms due to sales growth partially offset by increased investment
in brand awareness and testing capacity and inflation, and was up
88% in headline terms due to this and currency
movements.
PTE volumes were up 49% supported
by favourable migration policy in Australia as well as market share
gain in India. Our Institutional business performed well, with
strong performance across Latin America and Middle East markets.
Our Mondly business also contributed to growth with an increase in
consumer billings.
English Language Learning continues
to deliver strong growth and strategic progress for Pearson. We
expect this division to deliver more normalised high-single digit
sales growth in 2024.
Workforce Skills
In Workforce Skills, sales were up
11% on an underlying basis and 8% on a headline basis. Adjusted
operating profit declined by £8m in underlying terms due to
investment in the business across our Workforce Solutions product
suite partially offset by trading and decreased £5m in headline
terms due to this and portfolio changes.
Sales growth was driven by solid
performances in both the Vocational Qualifications and Workforce
Solutions businesses. The Vocational
Qualifications business grew by 10% in underlying
terms. The
Workforce Solutions business grew by 13% in underlying terms.
Pearson has 1,547 enterprise clients in its Workforce Skills
portfolio, up 3% on last year.
We focused our efforts on pivoting
towards delivering more modular, personalised offerings to our
clients in 2023, leveraging our powerful technology stack. In 2024,
we intend to capitalise on the positive signs we are seeing in our
customer pipeline and will be targeting high single digit sales
growth.
Strategic Review
Sales in our international
courseware local publishing businesses under strategic review
declined 74% on an underlying basis and were down 94% on a headline
basis for the full year. Operations in these businesses have now
been wound down in line with our previous communications. There
will be no sales or profits reported in this division going
forwards.
KPIs
KPI
|
Objective
|
KPI
Measure
|
2023
Actual
|
2022
Actual
|
Digital Growth
|
Drive digital sales
growth
|
Underlying growth in Group digital
and digital-enabled sales
|
8%*
|
9%
|
Virtual Schools US
enrolments**
|
100k
|
105k
|
OnVUE volumes
|
2.7m
|
3.0m
|
Higher Education US digital
registrations
|
9.8m
|
9.9m
|
PTE volume
|
1,231k
|
827k
|
Consumer Engagement
|
Create engaging and personalised
consumer experiences
|
NPS for Connections
Academy
|
+67
|
+67
|
NPS for PTE
|
+55
|
+52
|
Pearson+ registered users
|
3.03m
|
2.83m
|
Mondly paid subscriptions
|
432k
|
446k
|
Workforce Skills new registered
users
|
5.3m
|
4.7m
|
Product Effectiveness
|
Improve the effectiveness of our
products to deliver better outcomes
|
PTE speed of score return
|
1.0
days
|
1.3
days
|
VUE test volumes
|
20.7m
|
19.4m
|
VUE Partner retention
|
93.6%
|
99.9%
|
Workforce Skills number of
enterprise customers
|
1,547
|
1,503
|
Workforce Skills enterprise customer
net retention rate
|
66%
|
74%
|
Higher Education product usage -
text units
|
4.5m
|
4.8m
|
Culture of Engagement & Inclusion
|
Build a culture of engagement and
inclusion where diverse talent is heard, invested in and valued for
their strengths and skills
|
Employee engagement
Pearson uses the GallupQ12 survey to measure
engagement, annually
|
4.09
GrandMean on a 5 point Likert scale
|
3.96
GrandMean on a 5 point Likert scale
|
Investing in diverse
talent
The % of responses who agree or strongly agree to Gallup
Q12 survey questions.
|
In the
last six months, someone at work has talked to me about my progress
= 73%
|
In the
last six months, someone at work has talked to me about my progress
= 67%
|
This
last year, I have had opportunities at work to learn and grow =
76%
|
This
last year, I have had opportunities at work to learn and grow =
72%
|
Culture of Inclusion
Index
The GrandMean of 3 Gallup Q12 survey
questions:
-
At work, I am treated with respect
-
My company is committed to building the strengths of each
employee
-
If I raised a concern about ethics and integrity, I am confident my
employer would do what is right
|
4.21
GrandMean
on a 5
point Likert scale
|
4.12
GrandMean
on a 5
point Likert scale
|
Increasing diverse
talent***
Objective: Increase BIPOC / BAME representation at all
manager levels and maintain overall gender parity
|
Representation of BIPOC/BAME employees at Manager level and
above = 22.0%
|
Representation of BIPOC/BAME employees at Manager level and
above = 20.7%
|
Global %
of female employees = 59.1%
|
Global %
of female employees = 59.0%
|
Sustainability Strategy
|
Achieve net zero carbon by
2030
|
Progress against achieving net zero
carbon by 2030, as measured through percentage carbon
reduction****
|
16%
reduction vs 2022
|
3%
reduction vs 2021
|
* Excluding OPM and Strategic
Review businesses.
** Measure definition has changed
to number of government-funded student enrolments at partner
schools within the US as of 30 September. Excludes private-pay
students at Pearson Online Academy and district partnerships. This
is more closely aligned to business processes.
*** Previously reported
'Increasing diverse talent' metrics retired and new strategic
remuneration measures incorporated.
**** The net emissions reduction
figures have been assured by an independent third-party, SLR
Consulting Ltd. Corporate Citizenship % reduction in total tCO2e
above is calculated using a location-based methodology. Within the
2023 number, 4% is due to portfolio changes. These will be removed
following the normal rebasing exercise in 2024.
For a full list of KPI measure
definitions, please refer to: https://plc.pearson.com/en-GB/company/our-targets-kpis
FINANCIAL REVIEW
Operating result
Sales decreased on a headline
basis by £167m or 4% from £3,841m in 2022 to £3,674m in 2023 and
adjusted operating profit increased by £117m or 26% from £456m in
2022 to £573m in 2023 (for a reconciliation of this measure see
note 2 to the condensed consolidated financial
statements).
The headline basis simply compares
the reported results for 2023 with those for 2022. 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 2022 or 2023 and by ensuring the
contribution from acquisitions is comparable year on year.
Portfolio changes mainly relate to the disposals of the Group's
interests in POLS, Pearson College, our international courseware
local publishing business in India and businesses within Higher
Education in 2023, the disposal of our international courseware
local publishing businesses in Europe, French-speaking Canada,
South Africa and Hong Kong in 2022, the acquisition of PDRI in 2023
and the acquisitions of Credly and Mondly in 2022.
On an underlying basis, sales
increased by 1% in 2023 compared to 2022 and adjusted operating
profit increased by 31%. Currency movements decreased sales by £33m
and decreased adjusted operating profit by £10m. Portfolio changes
decreased sales by £175m and decreased adjusted operating profit by
£8m. On an underlying basis, excluding OPM and Strategic Review,
sales increased by 5% in 2023 compared to 2022.
There were no new accounting
standards adopted in 2023 that impacted sales or statutory or
adjusted 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, certain property charges 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
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Operating profit
|
|
498
|
271
|
Add back: Cost of major
restructuring
|
|
-
|
150
|
Add back: Property
charges
|
|
11
|
-
|
Add back: Intangible
charges
|
|
48
|
56
|
Add back: UK pension discretionary
increases
|
|
-
|
3
|
Add back: Other net gains and
losses
|
|
16
|
(24)
|
Adjusted operating profit
|
|
573
|
456
|
In 2023, there are no costs of
major restructuring. Property charges of £11m relate to impairments
of property assets arising from the impact of updates in 2023 to
assumptions initially made during the 2022 and 2021 restructuring
programmes. In 2022, restructuring costs of £150m mainly related to
staff redundancies and impairment of right-of-use property assets
including the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021.
Intangible amortisation charges in
2023 were £48m compared to a charge of £56m in 2022. This is due to
decreased amortisation from recent disposals partially offset by
additional amortisation from recent acquisitions.
UK pension discretionary increases
in 2022 related 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 2023
relate largely to the gain on disposal of the POLS business and
gains on the releases of accruals and a provision related to
previous acquisitions and disposals, partially offset by losses on
the disposal of Pearson College and costs related to current and
prior year disposals and acquisitions. Other net gains and losses
in 2022 largely related to the gain on disposal of the
international courseware local publishing business in
French-speaking Canada and a gain arising on a decrease in the
deferred consideration payable on prior year acquisitions, offset
by costs related to disposals and acquisitions.
The reported operating profit of
£498m in 2023 compares to an operating profit of £271m in 2022. The
increase in 2023 is mainly due to increased trading profits and a
reduction in the costs of major restructuring, partially offset by
a net loss related to acquisitions and disposals compared to a net
gain in 2022.
Net finance
costs
Net finance costs increased on a
headline basis from a net income of £52m in 2022 to a net cost of
£5m in 2023. The increase is primarily due to the release, in 2022,
of £35m of interest recorded in respect of provisions for uncertain
tax positions, a reduction in gains arising from mark to market
movements on investments and derivatives, partially offset by
additional finance income in respect of retirement
benefits.
Net interest payable reflected in
adjusted earnings in 2023 was £33m, compared to £1m in 2022. The
difference is primarily due to the items noted above. In addition,
in 2023, there were increased interest costs related to the
drawdown during the year of the revolving credit facility,
partially offset by reduced bond interest due to the bond
repayments made in 2022.
Net finance income in respect of
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 2023, the total of these items
excluded from adjusted earnings was income of £28m compared to
income of £53m in 2022. Net finance income in respect of retirement
benefits increased from £9m in 2022 to £26m in 2023 reflecting the
comparative funding position of the plans at the beginning of each
year and the higher prevailing discount rates. Interest costs in
respect of deferred and contingent consideration are £4m in 2023
compared to £5m in 2022, these costs relate to recent acquisitions.
Fair value gains on investments in unlisted securities are £13m in
2023 compared to £28m in 2022. In addition, there were losses year
on year on long-term interest rate hedges and an interest charge on
tax provisions of £5m was recognised in 2022 in relation to the EU
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 2023 was £113m (23.0%) compared to a £79m
charge (24.5%) in 2022.
The tax on adjusted earnings in
2023 was a charge of £124m (2022: £71m), corresponding to an
adjusted effective tax rate on adjusted profit before tax of 23.0%
(2022: 15.6%). The increase in the effective rate from prior year
is primarily due to the release of tax provisions following the
expiry of the statute of limitations in the US driving a lower tax
rate in 2022 which is not recurring in 2023. For a reconciliation
of the adjusted measure see note 4 to the condensed consolidated
financial statements.
In 2023, there was a net tax
payment of £97m (2022: £109m). The overall
amount decreased primarily as a result of one-off disposal events
in 2022 that are not recurring in 2023.
A net deferred tax liability
of £11m is recognised in 2023 compared to a net £20m
deferred tax asset in 2022. The overall amount decreased mainly due
to the acquisition of PDRI during the year and ongoing utilisation
of tax losses.
The current tax creditor
principally consists of provisions for tax uncertainties. Refer to
note 14 to the condensed consolidated financial statements for
details of other uncertain tax positions.
Other comprehensive
income
Included in other comprehensive
income are the net exchange differences on translation of foreign
operations. The loss on translation of £177m in 2023 compares to a
gain in 2022 of £330m. The loss in 2023 arises from an overall
weakening of the currencies to which the Group is exposed and in
particular the US dollar. A significant proportion of the Group's
operations are based in the US and the US dollar weakened in 2023
from an opening rate of £1:$1.21 to a closing rate at the end of
2023 of £1:$1.27. At the end of 2022, the US dollar had
strengthened from an opening rate of £1:$1.35 to a closing rate of
£1:$1.21. The gain in 2022 was driven by this movement in the US
dollar.
Also included in other
comprehensive income in 2023 is an actuarial loss of £85m in
relation to the retirement benefit obligations of the Group. The
loss arises largely from returns on assets below the discount rate
and changes in actuarial assumptions including the discount
rate and inflation. The actuarial loss in 2023 of £85m compares to
an actuarial gain in 2022 of £54m.
Fair value gains of £1m (2022:
£18m) have been recognised in other comprehensive income and relate
to movements in the value of investments in unlisted securities
held at FVOCI.
In 2023, a gain of £122m was
recycled from the currency translation reserve to the income
statement in relation to the disposal of the POLS business. In
2022, a gain of £5m was recycled from the currency translation
reserve to the income statement in relation to various 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 13 to the condensed consolidated
financial statements). Operating cash inflow increased on a
headline basis by £186m from £401m in 2022 to £587m in 2023. The
increase is largely explained by the drop-through of increased
trading profits, good cash collections and reduced investment spend
in Higher Education connected to the 2022 efficiency programme, as
well as the impact of disposals.
The equivalent statutory measure,
net cash generated from operations, was £682m in 2023 compared to
£527m in 2022. Compared to operating cash flow, this measure
includes restructuring costs and acquisition 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 2023, restructuring cash outflow was £63m
compared to £35m in 2022.
In 2023, there was an overall
£234m decrease in cash and cash equivalents compared to a decrease
of £394m in 2022. The decrease in 2023 is primarily due to payments
for acquisitions of subsidiaries of £171m, dividends paid of £154m,
share buyback programme of £186m, other own share purchases of
£35m, tax paid of £97m, capital expenditure of £126m, and
repayments of lease liabilities of £84m. These were offset by the
cash inflow from operations of £682m.
Liquidity and capital
resources
The Group's net debt increased
from £557m at the end of 2022 to £744m at the end of 2023. The
increase is largely due to the share buyback programme, cash
outflows on acquisitions and disposals, dividend payments and tax
payments, partially offset by strong operating cash flow. Refer to
note 12 to the condensed consolidated financial statements for
details of the composition of net debt.
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.
At 31 December 2023, the Group had
approximately £1.0bn in total liquidity immediately available from
cash and its Revolving Credit Facility maturing February 2027. In
assessing the Group's liquidity and viability, the Board analysed a
variety of downside scenarios including a severe but plausible
downside scenario where the Group is impacted by a combination of
all principal risks, as well as reverse stress testing to identify
what would be required to either breach covenants or run out of
liquidity. The Group would maintain comfortable liquidity headroom
and sufficient headroom against covenant requirements during the
period under assessment in the severe but plausible scenario, 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 and that the €300m bond with a
maturity due within the going concern assessment period is
refinanced ahead of time with a £250m bond or bank facility.
At 31 December 2023, the Group was
rated BBB- (positive outlook) with Fitch and Baa3 (stable outlook)
with Moody's.
Post-retirement
benefits
Pearson operates a variety of
pension and post-retirement plans. The UK Group pension plan has by
far the largest defined benefit section. The Group has some smaller
defined benefit sections in the US and Canada but, outside the UK,
most of the companies operate defined contribution
plans.
The charge to profit in respect of
worldwide pensions and post-retirement benefits amounted to £45m in
2023 (2022: £66m), of which a charge of £71m (2022: £75m) was
reported in operating profit and income of £26m (2022: £9m) was
reported in other net finance costs. In 2022, a charge of £3m
related to one-off discretionary pension increases has been
excluded from adjusted operating profit.
The overall surplus on UK Group
pension plans of £574m at the end of 2022 has decreased to a
surplus of £491m at the end of 2023. The decrease has arisen
principally due to the actuarial loss noted above in the other
comprehensive income section. In total, the worldwide net position
in respect of pensions and other post-retirement benefits decreased
from a net asset of £520m at the end of 2022 to a net asset of
£455m at the end of 2023.
Businesses acquired
In March 2023, the Group completed
the acquisition of 100% of the share capital of Personnel Decisions
Research Institutes, LLC ('PDRI') for cash consideration of £152m
($187m). There is no contingent or deferred consideration. Net
assets acquired of £91m were recognised on the Group's balance
sheet including £117m of acquired intangible assets. Goodwill of
£61m was also recognised in relation to the acquisition.
The cash outflow in 2023 relating
to acquisitions of subsidiaries was £171m plus £4m of acquisition
costs. In addition, there were cash outflows relating to the
acquisition of associates of £5m and investments of £8m.
The cash outflow in 2022 relating
to acquisitions of subsidiaries was £228m arising primarily from
the acquisitions of Credly and Mondly. In addition, there were cash
outflows relating to the acquisition of associates of £5m and
investments of £12m.
Businesses disposed
In 2023, the Group disposed of its
interests in its POLS businesses in the US, UK, Australia and
India. The business disposed excludes Pearson's contract with ASU.
The consideration to be received is deferred and comprises a 27.5%
share of positive adjusted EBITDA in each calendar year for 6 years
and 27.5% of the proceeds received by the purchaser in relation to
any future monetisation event. The consideration has been valued at
£12m and a pre-tax gain on disposal of £13m has been
recognised.
In addition, £19m of losses arose
from the disposals of Pearson College and the international
courseware local publishing business in India, £12m of costs
related to previous disposals were recognised and a gain of £9m has
been recognised in relation to the release of a provision related
to a historical disposal.
In 2023, the cash outflow from the
disposal of businesses of £38m mainly relates to the disposals
described above. In 2022, the cash inflow from disposals of £333m
mainly related to the disposal of the Group's international
courseware local publishing businesses and the receipt of deferred
proceeds from the US K12 Courseware sale in 2019.
In addition, proceeds of £7m
(2022: £17m) were received in relation to the disposal of
investments.
Dividends
The dividend accounted for in our
2023 financial statements totalling £155m represents the final
dividend in respect of 2022 (14.9p) and the interim dividend for
2023 (7.0p). We are proposing a final dividend for 2023 of
15.7p bringing the total paid and payable in respect of 2023
to 22.7p. This
final 2023 dividend which was approved by the Board in February
2024, is subject to approval at the forthcoming AGM. For 2023, the
dividend is covered 2.6 times by adjusted earnings.
The final dividend will be paid on
3 May 2024 to shareholders who are on the register of members at
close of business on 22 March 2024 (the Record Date). Shareholders
may elect to reinvest their dividend in the Dividend Reinvestment
Plan (DRIP). The last date for receipt of DRIP elections and
revocations will be 12 April 2024. A Dividend Reinvestment Plan
(DRIP) is provided by Equiniti Financial Services Limited. The DRIP
enables the Company's shareholders to elect to have their cash
dividend payments used to purchase the Company's shares. More
information can be found at
www.shareview.co.uk/info/drip
Share buyback
On 28 April 2023, the Group
announced its intention to commence a £300m share buyback programme
in order to return capital to shareholders. The programme commenced
on 21 September 2023. At 31 December 2023, approximately 20m shares
had been bought back at a cash cost of £186m. The liability for the
remainder of the £300m programme plus related costs has been
accounted for in 2023. The nominal value of the cancelled shares of
£5m has been transferred to the capital redemption
reserve.
The £300m share buyback programme
has continued in 2024 and as at 28 February 2024, £288m of shares
had been repurchased, representing 96% of the total
programme. We intend to extend this share buyback programme by
£200m.
CONDENSED CONSOLIDATED INCOME
STATEMENT
for the year ended 31 December
2023
|
|
|
|
all figures in £ millions (unaudited)
|
note
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
Sales
|
2
|
3,674
|
3,841
|
Cost of goods sold
|
|
(1,839)
|
(2,046)
|
Gross profit
|
|
1,835
|
1,795
|
|
|
|
|
Operating expenses
|
|
(1,322)
|
(1,549)
|
Other net gains and
losses
|
2
|
(16)
|
24
|
Share of results of joint ventures
and associates
|
|
1
|
1
|
Operating profit
|
2
|
498
|
271
|
|
|
|
|
Finance costs
|
3
|
(81)
|
(71)
|
Finance income
|
3
|
76
|
123
|
Profit before tax
|
|
493
|
323
|
Income tax
|
4
|
(113)
|
(79)
|
Profit for the year
|
|
380
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
Equity holders of the
company
|
|
378
|
242
|
Non-controlling
interest
|
|
2
|
2
|
|
|
|
|
|
|
|
|
Earnings per share (in pence
per share)
|
|
|
|
Basic
|
5
|
53.1p
|
32.8p
|
Diluted
|
5
|
52.7p
|
32.6p
|
The accompanying notes to the
condensed consolidated financial statements form an integral part
of the financial information.
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
for the year ended 31 December
2023
|
|
|
|
all figures in £ millions (unaudited)
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
380
|
244
|
|
|
|
|
Items that may be reclassified to the income
statement
|
|
|
|
Net exchange differences on
translation of foreign operations
|
|
(177)
|
330
|
Currency translation adjustment
disposed
|
|
(122)
|
(5)
|
Attributable tax
|
|
-
|
4
|
|
|
|
|
Items that are not reclassified to the income
statement
|
|
|
|
Fair value gain on other financial
assets
|
|
1
|
18
|
Attributable tax
|
|
-
|
1
|
Remeasurement of retirement
benefit obligations
|
|
(85)
|
54
|
Attributable tax
|
|
20
|
(12)
|
Other comprehensive (expense) / income for the
year
|
|
(363)
|
390
|
|
|
|
|
Total comprehensive income for the year
|
|
17
|
634
|
|
|
|
|
Attributable to:
|
|
|
|
Equity holders of the
company
|
|
16
|
630
|
Non-controlling
interest
|
|
1
|
4
|
CONDENSED CONSOLIDATED BALANCE
SHEET
as at 31 December 2023
|
|
|
|
all figures in £ millions (unaudited)
|
note
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
217
|
250
|
Investment property
|
|
79
|
60
|
Intangible assets
|
9
|
3,091
|
3,177
|
Investments in joint ventures and
associates
|
|
22
|
25
|
Deferred income tax
assets
|
|
35
|
57
|
Financial assets - derivative
financial instruments
|
|
32
|
43
|
Retirement benefit
assets
|
|
499
|
581
|
Other financial assets
|
|
143
|
133
|
Income tax assets
|
|
41
|
41
|
Trade and other
receivables
|
|
135
|
139
|
Non-current assets
|
|
4,294
|
4,506
|
|
|
|
|
Intangible assets - product
development
|
|
947
|
975
|
Inventories
|
|
91
|
105
|
Trade and other
receivables
|
|
1,050
|
1,139
|
Financial assets - derivative
financial instruments
|
|
16
|
16
|
Income tax assets
|
|
15
|
9
|
Cash and cash equivalents
(excluding overdrafts)
|
|
312
|
558
|
Current assets
|
|
2,431
|
2,802
|
|
|
|
|
Assets classified as held for
sale
|
|
2
|
16
|
Total assets
|
|
6,727
|
7,324
|
|
|
|
|
Financial liabilities -
borrowings
|
|
(1,094)
|
(1,144)
|
Financial liabilities - derivative
financial instruments
|
|
(38)
|
(54)
|
Deferred income tax
liabilities
|
|
(46)
|
(37)
|
Retirement benefit
obligations
|
|
(44)
|
(61)
|
Provisions for other liabilities
and charges
|
|
(15)
|
(14)
|
Other liabilities
|
|
(98)
|
(120)
|
Non-current liabilities
|
|
(1,335)
|
(1,430)
|
|
|
|
|
Trade and other
liabilities
|
|
(1,275)
|
(1,254)
|
Financial liabilities -
borrowings
|
|
(67)
|
(86)
|
Financial liabilities - derivative
financial instruments
|
|
(5)
|
(11)
|
Income tax liabilities
|
|
(32)
|
(43)
|
Provisions for other liabilities
and charges
|
|
(25)
|
(85)
|
Current liabilities
|
|
(1,404)
|
(1,479)
|
|
|
|
|
Liabilities classified as held for
sale
|
|
-
|
-
|
Total liabilities
|
|
(2,739)
|
(2,909)
|
|
|
|
|
Net assets
|
|
3,988
|
4,415
|
|
|
|
|
Share capital
|
|
174
|
179
|
Share premium
|
|
2,642
|
2,633
|
Treasury shares
|
|
(19)
|
(15)
|
Reserves
|
|
1,177
|
1,605
|
Total equity attributable to
equity holders of the company
|
|
3,974
|
4,402
|
Non-controlling
interest
|
|
14
|
13
|
Total equity
|
|
3,988
|
4,415
|
The condensed consolidated
financial statements were approved by the Board on 29 February
2024.
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 December
2023
|
|
|
|
|
Equity
attributable to equity holders of the company
|
|
|
all figures in £ millions (unaudited)
|
Share
capital
|
Share
premium
|
Treasury
shares
|
Capital
redemption reserve
|
Fair
value reserve
|
Translation reserve
|
Retained
earnings
|
Total
|
Non-controlling interest
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
At 1 January 2023
|
179
|
2,633
|
(15)
|
28
|
(13)
|
709
|
881
|
4,402
|
13
|
4,415
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
378
|
378
|
2
|
380
|
Other comprehensive (expense) /
income
|
-
|
-
|
-
|
-
|
1
|
(298)
|
(65)
|
(362)
|
(1)
|
(363)
|
Total comprehensive (expense) /
income
|
-
|
-
|
-
|
-
|
1
|
(298)
|
313
|
16
|
1
|
17
|
Equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
40
|
40
|
-
|
40
|
Taxation on equity-settled
transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
-
|
1
|
Transfer of gain on disposal of
FVOCI investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Issue of ordinary
shares
|
-
|
9
|
-
|
-
|
-
|
-
|
-
|
9
|
-
|
9
|
Buyback of equity
|
(5)
|
-
|
-
|
5
|
-
|
-
|
(304)
|
(304)
|
-
|
(304)
|
Purchase of treasury
shares
|
-
|
-
|
(35)
|
-
|
-
|
-
|
-
|
(35)
|
-
|
(35)
|
Release of treasury
shares
|
-
|
-
|
31
|
-
|
-
|
-
|
(31)
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
(155)
|
(155)
|
-
|
(155)
|
At 31 December 2023
|
174
|
2,642
|
(19)
|
33
|
(12)
|
411
|
745
|
3,974
|
14
|
3,988
|
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
|
CONDENSED CONSOLIDATED CASH FLOW
STATEMENT
for the year ended 31 December
2023
|
|
|
|
all figures in £ millions (unaudited)
|
note
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Profit before tax
|
|
493
|
323
|
Net finance costs /
(income)
|
3
|
5
|
(52)
|
Depreciation & impairment -
PPE, investment property & assets held for sale
|
|
90
|
136
|
Amortisation and impairment -
software
|
|
123
|
125
|
Amortisation and impairment -
acquired intangible assets
|
|
46
|
54
|
Other net gains and
losses
|
|
13
|
(24)
|
Product development capital
expenditure
|
|
(300)
|
(357)
|
Product development
amortisation
|
|
284
|
303
|
Share-based payment
costs
|
|
40
|
35
|
Change in inventories
|
|
9
|
(34)
|
Change in trade and other
receivables
|
|
(24)
|
33
|
Change in trade and other
liabilities
|
|
(20)
|
(84)
|
Change in provisions for other
liabilities and charges
|
|
(61)
|
50
|
Other movements
|
|
(16)
|
19
|
Net cash generated from
operations
|
|
682
|
527
|
Interest paid
|
|
(60)
|
(57)
|
Tax paid
|
|
(97)
|
(109)
|
Net cash generated from operating
activities
|
|
525
|
361
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Acquisition of subsidiaries, net
of cash acquired
|
10
|
(171)
|
(228)
|
Acquisition of joint ventures and
associates
|
10
|
(5)
|
(5)
|
Purchase of investments
|
|
(8)
|
(12)
|
Purchase of property, plant and
equipment
|
|
(30)
|
(57)
|
Purchase of intangible
assets
|
|
(96)
|
(90)
|
Disposal of subsidiaries, net of
cash disposed
|
11
|
(38)
|
333
|
Proceeds from sale of
investments
|
11
|
7
|
17
|
Proceeds from sale of property,
plant and equipment
|
|
5
|
14
|
Lease receivables repaid including
disposals
|
|
15
|
18
|
Interest received
|
|
20
|
22
|
Dividends from joint ventures and
associates
|
|
-
|
1
|
Net cash (used in) / generated from investing
activities
|
|
(301)
|
13
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Proceeds from issue of ordinary
shares
|
|
9
|
7
|
Buyback of equity
|
|
(186)
|
(353)
|
Purchase of treasury
shares
|
|
(35)
|
(37)
|
Proceeds from
borrowings
|
|
285
|
-
|
Repayment of borrowings
|
|
(285)
|
(171)
|
Repayment of lease
liabilities
|
|
(84)
|
(93)
|
Dividends paid to company's
shareholders
|
|
(154)
|
(156)
|
Dividends paid to non-controlling
interest
|
|
-
|
(1)
|
Net cash used in financing activities
|
|
(450)
|
(804)
|
Effects of exchange rate changes
on cash and cash equivalents
|
|
(8)
|
36
|
Net decrease in cash and cash equivalents
|
|
(234)
|
(394)
|
|
|
|
|
Cash and cash equivalents at
beginning of year
|
|
543
|
937
|
Cash and cash equivalents at end of year
|
|
309
|
543
|
For the purposes of the cash flow
statement, cash and cash equivalents are presented net of
overdrafts repayable on demand.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
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 IFRS
Accounting Standards as issued by the International Accounting
Standards Board (IASB).
The condensed consolidated
financial statements 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. They have also been prepared in accordance with the
accounting policies set out in the 2022 Annual Report. In addition,
the Group has applied the exception under IAS 12 to recognising and
disclosing information about deferred tax assets and liabilities
related to Pillar Two income taxes.
The Group adopted IFRS 17
'Insurance Contracts' for the first time in 2023, but it has not
had a material impact on the condensed consolidated financial
statements. There are no other changes to accounting standards that
have a material impact on the condensed consolidated financial
statements for the year ended 31 December 2023.
In assessing the Group's ability
to continue as a going concern for the period to 30 June
2025, 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 2024 to
2025.
At 31 December 2023, the Group had
available liquidity of c£1.0bn, comprising central cash balances
and its undrawn $1bn Revolving Credit Facility (RCF), which matures
in February 2027. Under a severe downside case, the Group
would still 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 2025. 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 2022 Annual Report. In 2023, the
allocation of goodwill to the cash-generating units and groups of
cash-generating units is no longer considered to be a key
judgement, and the recoverability of goodwill balances and the
level of provisions for anticipated returns are no longer
considered to be key areas of estimation.
In addition, on 30 June 2023, the
Group disposed of its interests in its POLS businesses in the US,
UK, Australia and India. 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 related
businesses should not be classified and presented as discontinued
operations on the basis that the businesses disposed do not
constitute a separate major line of business or geographical area
of operations, and the cashflows related to one of the large
contracts within the business are being retained. The POLS business
is within the Virtual Learning segment and represents £93m of sales
for the year ended 31 December 2023 out of the total sales in the
Virtual Learning segment of £616m. If the Group had concluded that
this business represented discontinued operations, its results and
the related gain 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 £10m
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.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
1. Basis of preparation
continued
The Group has also 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 2023. 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 2023 or the assessment of
going concern for the period to 30 June 2025. 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 2022 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 2022 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 2023. The Group's full financial statements will
be approved by the Board of Directors and reported on by the
auditors in March 2024. Accordingly, the financial information
for 2023 is presented unaudited in the preliminary
announcement.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS for the year
ended 31 December 2023
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 including the English-speaking
Canadian and Australian K-12 businesses, and PDRI.
-
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
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
Assessments &
Qualifications
|
|
1,559
|
1,444
|
Virtual Learning
|
|
616
|
820
|
English Language
Learning
|
|
415
|
321
|
Workforce Skills
|
|
220
|
204
|
Higher Education
|
|
855
|
898
|
Strategic Review
|
|
9
|
154
|
Total sales
|
|
3,674
|
3,841
|
|
|
|
|
Adjusted operating profit
|
|
|
|
Assessments &
Qualifications
|
|
350
|
258
|
Virtual Learning
|
|
76
|
70
|
English Language
Learning
|
|
47
|
25
|
Workforce Skills
|
|
(8)
|
(3)
|
Higher Education
|
|
110
|
91
|
Strategic Review
|
|
(2)
|
15
|
Total adjusted operating profit
|
|
573
|
456
|
There were no material
inter-segment sales.
The following table reconciles the
Group's measure of segmental performance, adjusted operating
profit, to statutory operating profit:
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
573
|
456
|
Cost of major
restructuring
|
|
-
|
(150)
|
Property charges
|
|
(11)
|
-
|
Intangible charges
|
|
(48)
|
(56)
|
UK Pension discretionary
increases
|
|
-
|
(3)
|
Other net gains and
losses
|
|
(16)
|
24
|
Operating profit
|
|
498
|
271
|
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS for the year
ended 31 December 2023
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, property
charges, the cost of major restructuring and one-off costs related
to the UK pension scheme.
Cost of major restructuring - In
2023, there are no costs of major restructuring. In 2022, the
restructuring costs of £150m mainly related to staff redundancies
and impairment of right of use property assets. The 2022 charge
includes the impact of updated assumptions related to the
recoverability of right-of-use assets made in
2021.
Property charges - Charges of £11m
relate to impairments of property assets arising from the impact of
updates in 2023 to assumptions initially made during the 2022 and
2021 restructuring programmes.
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
2023 were £48m compared to a charge of £56m in 2022. This is due to
decreased amortisation from recent disposals partially offset by
additional amortisation from recent acquisitions.
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 2023 relate largely to
the gain on disposal of the POLS business and gains relating to the
releases of accruals and a provision related to previous
acquisitions and disposals, partially offset by losses on the
disposal of Pearson College and costs related to current and prior
year disposals and acquisitions. In 2022, they related 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 recycling of currency translation adjustments and
costs related to disposals and acquisitions.
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 2023
3. Net finance
costs
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Interest payable on financial
liabilities at amortised cost and associated derivatives
|
|
(34)
|
(32)
|
Interest on lease
liabilities
|
|
(23)
|
(25)
|
Interest on deferred and
contingent consideration
|
|
(4)
|
(5)
|
Fair value movements on
derivatives
|
|
(20)
|
(2)
|
Interest on provisions for
uncertain tax positions
|
|
-
|
(7)
|
Finance costs
|
|
(81)
|
(71)
|
|
|
|
|
Interest receivable on financial
assets at amortised cost
|
|
16
|
18
|
Interest on lease
receivables
|
|
4
|
5
|
Net finance income in respect of
retirement benefits
|
|
26
|
9
|
Fair value movements on
investments held at FVTPL
|
|
13
|
28
|
Net foreign exchange
gains
|
|
3
|
1
|
Fair value movements on
derivatives
|
|
10
|
27
|
Interest on provisions for
uncertain tax positions
|
|
4
|
35
|
Finance income
|
|
76
|
123
|
|
|
|
|
Analysed as:
|
|
|
|
Net interest payable reflected in
adjusted earnings
|
|
(33)
|
(1)
|
Other net finance
income
|
|
28
|
53
|
Net finance (costs) / income
|
|
(5)
|
52
|
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
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Net finance (costs) /
income
|
|
(5)
|
52
|
Net finance income in respect of
retirement benefits
|
|
(26)
|
(9)
|
Interest on deferred and
contingent consideration
|
|
4
|
5
|
Fair value movements on
investments held at FVTPL
|
|
(13)
|
(28)
|
Net foreign exchange
gains
|
|
(3)
|
(1)
|
Fair value movements on
derivatives
|
|
10
|
(25)
|
Interest on provisions for
uncertain tax positions
|
|
-
|
5
|
Net interest payable reflected in adjusted
earnings
|
|
(33)
|
(1)
|
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
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. Income tax
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
493
|
323
|
Tax calculated at UK rate of 23.5%
(2022:19%)
|
|
(116)
|
(62)
|
Effect of overseas tax
rate
|
|
(1)
|
(12)
|
Non-deductible expenses
|
|
(6)
|
(9)
|
Impact of rate changes
|
|
(1)
|
3
|
Other tax items
|
|
11
|
1
|
Income tax charge
|
|
(113)
|
(79)
|
|
|
|
|
Tax rate reflected in statutory
earnings
|
|
23.0%
|
24.5%
|
The statutory rate is broadly in
line with the standard rate of tax. Other tax items of £11m
consists primarily of a £5m gain on sale of business not subject to
tax and £3m of adjustments in respect of prior years.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
4. Income tax
continued
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Income tax charge
|
|
(113)
|
(79)
|
Tax on cost of major
restructuring
|
|
-
|
(37)
|
Tax on property charges
|
|
(3)
|
-
|
Tax on other net gains and
losses
|
|
(10)
|
10
|
Tax on intangible
charges
|
|
(11)
|
(11)
|
Tax on UK pension discretionary
increase
|
|
-
|
(1)
|
Tax on other net finance
costs
|
|
7
|
13
|
Tax on goodwill and
intangibles
|
|
4
|
16
|
Tax on UK tax rate
change
|
|
1
|
(1)
|
Other tax items
|
|
1
|
19
|
Adjusted income tax charge
|
|
(124)
|
(71)
|
|
|
|
|
Adjusted profit before
tax
|
|
540
|
455
|
|
|
|
|
Tax rate reflected in adjusted
earnings
|
|
23.0%
|
15.6%
|
The adjusted income tax charge
excludes the tax benefit or charge on items excluded from profit
before tax (see notes 2, 3 and 6).
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.
UK legislation in relation to
Pillar Two was substantively enacted on 20 June 2023 and is
effective from 1 January 2024. The Group is in scope of this
legislation and has performed an assessment of the Group's
potential exposure to Pillar Two income taxes. The assessment of
the potential exposure to Pillar Two income taxes is based on the
most recent financial information available for the constituent
entities in the Group. Based on the assessment, the Pillar Two
effective tax rates in most of the jurisdictions in which the Group
operates are above 15%. However, there are a limited number of
jurisdictions where the transitional safe harbour relief does not
apply and the Pillar Two effective tax rate is close to 15%. The
Group does not expect a material exposure to Pillar Two income
taxes in those jurisdictions.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
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
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Earnings for the year
|
|
380
|
244
|
Non-controlling
interest
|
|
(2)
|
(2)
|
Earnings attributable to equity holders
|
|
378
|
242
|
|
|
|
|
|
|
|
|
Weighted average number of shares
(millions)
|
|
711.5
|
738.1
|
Effect of dilutive share options
(millions)
|
|
5.8
|
3.9
|
Weighted average number of shares
(millions) for diluted earnings
|
|
717.3
|
742.0
|
|
|
|
|
|
|
|
|
Earnings per share (in pence
per share)
|
|
|
|
Basic
|
|
53.1p
|
32.8p
|
Diluted
|
|
52.7p
|
32.6p
|
6. 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 and 4 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 and 4.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
6. Adjusted earnings per
share continued
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory income statement
|
Cost of
major restructuring
|
Property
charges
|
Other
net gains and losses
|
Intangible charges
|
UK
pension discretionary increases
|
Other
finance costs
|
Other
tax items
|
Adjusted
income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
Operating profit
|
2
|
498
|
-
|
11
|
16
|
48
|
-
|
-
|
-
|
573
|
Net finance costs
|
3
|
(5)
|
-
|
-
|
-
|
-
|
-
|
(28)
|
-
|
(33)
|
Profit before tax
|
|
493
|
-
|
11
|
16
|
48
|
-
|
(28)
|
-
|
540
|
Income tax
|
4
|
(113)
|
-
|
(3)
|
(10)
|
(11)
|
-
|
7
|
6
|
(124)
|
Profit for the year
|
|
380
|
-
|
8
|
6
|
37
|
-
|
(21)
|
6
|
416
|
Non-controlling
interest
|
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
Earnings
|
|
378
|
-
|
8
|
6
|
37
|
-
|
(21)
|
6
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
(millions)
|
|
|
|
711.5
|
|
Weighted average number of shares
(millions) for diluted earnings
|
|
|
|
717.3
|
|
|
|
|
|
|
|
Adjusted earnings per share
(basic)
|
|
|
|
58.2p
|
|
Adjusted earnings per share
(diluted)
|
|
|
|
57.7p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
6. Adjusted earnings per
share continued
|
|
|
|
|
|
|
|
|
|
|
all figures in £ millions
|
note
|
Statutory income statement
|
Cost of
major restructuring
|
Property
charges
|
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
|
|
323
|
150
|
-
|
(24)
|
56
|
3
|
(53)
|
-
|
455
|
Income tax
|
4
|
(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
2023
7. Dividends
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Amounts recognised as
distributions to equity shareholders in the year
|
|
155
|
156
|
The Directors are proposing a
final dividend of 15.7p per equity share, payable on 3 May 2024 to
shareholders on the register at the close of business on 22 March
2024. This final dividend, which will absorb an estimated £107m of
shareholders' funds, has not been included as a liability as at 31
December 2023.
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:
|
|
|
|
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Average rate for
profits
|
|
1.25
|
1.24
|
Year end rate
|
|
1.27
|
1.21
|
9. Non-current intangible
assets
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,434
|
2,480
|
Other intangibles
|
|
657
|
697
|
Non-current intangible assets
|
|
3,091
|
3,177
|
Business combinations resulted in
the recognition of additional goodwill of £61m (2022: £204m) and
intangible assets of £117m (2022: £110m) (see note 10 for further
details).
There were no significant
impairments to acquisition related or other intangibles in 2023 or
2022.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
On 22 March 2023, the Group
acquired 100% of the share capital of Personnel Decisions Research
Institutes, LLC ('PDRI') for cash consideration of £152m ($187m).
PDRI is a provider of workforce assessment services and has
significant expertise in providing recruitment assessment solutions
to the US federal government. It forms part of the Assessment &
Qualifications division. There is no contingent or deferred
consideration. Net assets acquired of £91m were recognised on the
Group's balance sheet including £117m of acquired intangible assets
mainly relating to customer relationships and contracts, and
technology that will be amortised over periods up to 15
years.
This transaction has resulted in
the recognition of £61m of goodwill, which represents the expected
growth of the business, 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.
On 28 January 2022, the Group
acquired 100% of the share capital of Credly Inc (Credly), having
previously held a 19.9% interest in the company. 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 two
years from the acquisition date. £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). 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 two years from the
acquisition date 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 four years from the acquisition date,
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.
In 2022, the Group also made three
smaller acquisitions in the period for total consideration of
£11m.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
10. 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
|
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
117
|
110
|
Deferred tax
assets
|
|
|
-
|
8
|
Trade and other
receivables
|
|
|
8
|
8
|
Cash and cash
equivalents
|
|
|
4
|
13
|
Trade and other
liabilities
|
|
|
(7)
|
(26)
|
Deferred tax
liabilities
|
|
|
(31)
|
(22)
|
Net assets acquired
|
|
|
91
|
91
|
Goodwill
|
|
|
61
|
204
|
Total
|
|
|
152
|
295
|
|
|
|
|
|
Satisfied by:
|
|
|
|
|
Cash
consideration
|
|
|
152
|
223
|
Deferred and contingent
consideration
|
|
|
-
|
41
|
Fair value of existing
investment
|
|
|
-
|
31
|
Total consideration
|
|
|
152
|
295
|
|
|
|
|
Cash flow from acquisitions
|
|
|
|
Cash - current year
acquisitions
|
|
(152)
|
(223)
|
Cash and cash equivalents
acquired
|
|
4
|
13
|
Deferred payments for prior year
acquisitions and other items
|
|
(23)
|
(18)
|
Net cash outflow
|
|
|
(171)
|
(228)
|
PDRI generated revenues of £24m
and a profit after tax of £4m for the period from acquisition date
to 31 December 2023. If the acquisition had occurred on 1 January
2023, the Group's revenue would have been £7m higher and the profit
after tax would have been £1m higher.
Total acquisition-related costs of
£12m (2022: £20m) were recognised within other net gains and
losses. There were also gains of £5m (2022: £8m) arising on
decreases in the deferred consideration payable on prior year
acquisitions.
In addition to the cash flows
relating to subsidiaries above, the Group paid a further £5m (2022:
£3m) in respect of an existing investment in an associate, and in
2022, also acquired an associate for cash
consideration of £2m.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
On 30 June 2023, the Group
disposed of its interests in its POLS businesses in the US, UK,
Australia and India. The business disposed excludes Pearson's
contract with ASU. The consideration to be received is deferred and
comprises a 27.5% share of positive adjusted EBITDA in each
calendar year for 6 years and 27.5% of the proceeds received by the
purchaser in relation to any future monetisation event. The
consideration has been valued at £12m and a pre-tax gain on
disposal of £13m has been recognised. In addition, a gain of £9m
has been recognised which arises from the release of a provision
related to a historical disposal, £19m of losses arose from the
disposals of Pearson College and the international courseware local
publishing business in India and £12m of costs related to previous
disposals were recognised.
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.
|
|
|
|
|
all figures in £ millions
|
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, including
goodwill
|
|
|
(53)
|
(77)
|
Property, plant and
equipment
|
|
|
(5)
|
(11)
|
Intangible assets - product
development
|
|
|
(15)
|
(39)
|
Inventories
|
|
|
(1)
|
(33)
|
Trade and other
receivables
|
|
|
(65)
|
(106)
|
Deferred tax
|
|
|
8
|
(12)
|
Current tax (receivable) /
payable
|
|
|
(2)
|
7
|
Cash and cash equivalents
(excluding overdrafts)
|
|
|
(12)
|
(21)
|
Provisions for other liabilities
and charges
|
|
|
-
|
1
|
Retirement benefit
obligations
|
|
|
-
|
2
|
Trade and other
liabilities
|
|
|
31
|
45
|
Financial liabilities -
borrowings
|
|
|
-
|
8
|
Net assets disposed
|
|
|
(114)
|
(236)
|
|
|
|
|
|
Cumulative currency translation
adjustment
|
|
|
122
|
5
|
Cash proceeds
|
|
|
1
|
291
|
Deferred proceeds
|
|
|
12
|
2
|
Costs of disposal
|
|
|
(30)
|
(25)
|
(Loss) / gain on disposal
|
|
|
(9)
|
37
|
|
|
|
|
|
Cash flow from disposals
|
|
|
|
|
Proceeds - current year
disposals
|
|
|
1
|
291
|
Proceeds - prior year
disposals
|
|
|
-
|
86
|
Cash and cash equivalents
disposed
|
|
|
(12)
|
(21)
|
Costs and other disposal
liabilities paid
|
|
|
(27)
|
(23)
|
Net cash (outflow) / inflow from disposals
|
|
|
(38)
|
333
|
In addition to the above, deferred
proceeds relating to the K12 sale were received in 2022, and in
2023, proceeds of £7m (2022: £17m) were received in relation to the
disposal of investments.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
12. Net debt
|
|
|
|
all figures in £ millions
|
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
Derivative financial
instruments
|
|
32
|
43
|
Trade and other receivables -
investment in finance lease
|
|
82
|
104
|
Current assets
|
|
|
|
Derivative financial
instruments
|
|
16
|
16
|
Trade and other receivables -
investment in finance lease
|
|
18
|
17
|
Cash and cash equivalents
(excluding overdrafts)
|
|
312
|
558
|
Non-current liabilities
|
|
|
|
Borrowings
|
|
(1,094)
|
(1,144)
|
Derivative financial
instruments
|
|
(38)
|
(54)
|
Current liabilities
|
|
|
|
Borrowings (including
overdrafts)
|
|
(67)
|
(86)
|
Derivative financial
instruments
|
|
(5)
|
(11)
|
Net debt
|
|
(744)
|
(557)
|
Included in borrowings at 31
December 2023 are lease liabilities of £547m (non-current £483m,
current £64m). This compares to lease liabilities of £605m
(non-current £534m, current £71m) at 31 December 2022. The net
lease liability at 31 December 2023 after including the investment
in finance leases noted above was £447m (2022: £484m). Net debt
excluding net lease liabilities is £297m (2022: £73m).
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.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
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
|
Property
charges
|
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 & associates
|
Adjusted
measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
Operating
profit
|
498
|
-
|
11
|
16
|
48
|
-
|
-
|
-
|
-
|
573
|
Adjusted operating profit
|
Net cash generated from operations
|
682
|
63
|
-
|
4
|
-
|
-
|
(121)
|
(41)
|
-
|
587
|
Operating cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The table below reconciles
operating cash flow to net debt.
all figures in £ millions
|
note
|
2023
|
2022
|
|
|
|
|
|
|
|
|
Reconciliation of operating cash flow to closing net
debt
|
|
|
|
|
|
|
Operating cash flow
|
|
587
|
401
|
Tax paid
|
|
(97)
|
(109)
|
Net finance costs paid
|
|
(40)
|
(35)
|
Net cost paid for major
restructuring
|
|
(63)
|
(35)
|
Free cash flow
|
|
387
|
222
|
Dividends paid (including to
non-controlling interest)
|
|
(154)
|
(157)
|
Net movement of funds from operations
|
|
233
|
65
|
Acquisitions and
disposals
|
|
(219)
|
105
|
Disposal of lease
liabilities
|
|
-
|
8
|
Net equity transactions
|
|
(212)
|
(383)
|
Other movements on financial
instruments
|
|
11
|
(2)
|
Movement in net debt
|
|
(187)
|
(207)
|
Opening net debt
|
|
(557)
|
(350)
|
Closing net debt
|
12
|
(744)
|
(557)
|
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December
2023
14. 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, however, this decision was
further appealed by the UK Government and other parties, with the
subsequent hearing having taken place on 10 January 2024 (outcome
pending). The total exposure is calculated to be £105m (excluding
interest) with a provision of £63m held in relation to this issue.
The remaining tax receivable is disclosed as a non-current asset on
the balance sheet. 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 (£105m). 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 2020.
Similar assessments may be raised for other years. Potential total
exposure (including possible interest and penalties) could be up to
BRL 1,294m (£209m) up to 31 December 2023, with additional
potential exposure of BRL 24m (£4m) in relation to deductions
expected to be taken in future periods. 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 with the relevant years being 2019 to
2021. The maximum exposure is calculated to be £43m with a
provision of £21m currently held in respect of this assessment. 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 (£43m). The point being assessed is
specific to 2019 to 2021 and is not a continuing
exposure.
At 31 December 2022, the Group had
a current liability payable to Academy of Pop of £5m, which related
to the Group's initial capital contribution that had not yet been
paid. This balance was paid in early 2023.
There were no other material
related party transactions in 2023 or 2022.
16. Events after the balance sheet
date
On 29 February 2024, the Board
approved an extension to the share buyback programme of
£200m.