Operating expenses

12 Months Ended

Dec. 31, 2022

4. Operating expenses



All figures in £ millions	2022			2021			2020

By function:

Cost of goods sold		2,046			1,747			1,767

Operating expenses

Distribution costs		61			62			59

Selling, marketing and product development costs		564			521			572

Administrative and other expenses		823			802			816

Restructuring costs		150			214			–

Other income		(49	)		(37	)		(45	)

Total net operating expenses		1,549			1,562			1,402

Other net gains and losses		(24	)		(63	)		(178	)

Total		3,571			3,246			2,991

Other income includes freight income and sublet income. Included in administrative and other expenses are research and efficacy costs of £10m (2021: £12m; 2020: £11m). Other net gains in 2022, largely relate to the gain on the sales of certain businesses (see note 31) and a gain arising on a decrease in the deferred consideration payable on prior year acquisitions, offset by costs related to disposals and acquisitions. In 2021, other net gains and losses largely relate to the sale of interests in PIHE in South Africa and the school business in Brazil. In 2020, other net gains and losses largely relate to the sale of the remaining interest in Pearson Random House (£180m gain).

In August 2022, the Group announced a major restructuring programme to run in 2022. The programme includes efficiencies in product and content, support costs, technology and corporate property. The restructuring costs in 2022 of £150m mainly relate to severance and impairment of

right-of-use

property assets. In March 2021, the Group announced a major restructuring programme to run in 2021, principally comprising the reorganisation of the Group into five global business divisions and the simplification of the Group’s property portfolio. An analysis of major restructuring costs are as follows:



All figures in £ millions	2022		2021		2020

By nature:

Product costs		11		19		–

Employee costs		73		32		–

Depreciation and impairment of non-current assets		51		145		–

Property and facilities		7		11		–

Technology and communications		1		3		–

Professional and outsourced services		7		4		–

Total restructuring – operating expenses		150		214		–



All figures in £ millions	Notes		2022			2021			2020

By nature:

Royalties expensed				194			185			191

Other product costs				412			353			349

Employee benefit expense		5		1,605			1,365			1,337

Contract labour				73			69			67

Employee-related expense				52			21			30

Promotional costs				268			239			233

Depreciation and impairment of property, plant and equipment and investment property		10		136			241			125

Amortisation and impairment of intangible assets – product development		20		303			279			280

Amortisation and impairment of intangible assets – software		11		125			117			112

Amortisation and impairment of intangible assets – other		11		54			50			80

Property and facilities				102			124			85

Technology and communications				221			215			216

Professional and outsourced services				501			477			498

Other general and administrative costs				76			58			71

Costs capitalised				(478	)		(447	)		(460	)

Other net gains and losses				(24	)		(63	)		(178	)

Other income				(49	)		(37	)		(45	)

Total				3,571			3,246			2,991

During the year the Group obtained the following services from the Group’s auditors, which changed to EY in 2022 and was PwC in 2021 and 2020:



All figures in £ millions	2022		2021		2020

The audit of parent company and consolidated financial statements		6		5		5

The audit of the company’s subsidiaries		1		2		2

Total audit fees		7		7		7

Audit-related and other assurance services		–		–		–

Other non-audit services		–		–		–

Total other services		–		–		–

Total non-audit services		–		–		–

Total		7		7		7

Reconciliation between audit and

non-audit

service fees is shown below:



All figures in £ millions	2022		2021		2020

Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		7		7		7

Non-audit fees		–		–		–

Total		7		7		7

Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and subsidiary accounts.