We are the world’s leading learning company |
Strategic report |
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Governance report |
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Independent auditor’s report to the members of Pearson plc |
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Use this QR code to visit our Pearson plc website where you can find the online version of this report. https://plc.pearson.com/en-GB/ investors/2022-annual-report-accounts | ||
We have a focused strategy for a lifetime of learning |
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Andy Bird, Chief Executive |
“At Pearson, we’re connecting our different products and brands to support people in their learning journey and create real-life impact. We’re forming an exciting lifelong digital learning ecosystem that provides people with affordable learning throughout their lifetime. By increasing our scale and customer reach, investing in new opportunities and expanding the interconnectedness between our divisions, we’re uncovering great things. The possibilities are vast for Pearson as we embrace the future of learning.” |
Annual report and accounts 2022 Pearson plc 3 |
At a glance continued |
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Our interconnected divisions |
Assessment & Qualifications We provide the assessments, qualifications, certifications and licences that enable people to demonstrate their knowledge, skills and aptitude across a lifetime of learning – from school to professional careers. We play an integral role in a host of technology certifications, in areas such as cloud computing and cyber security, that power growth and innovation across the global economy. We deliver numerous medical certification and licensing examinations around the world, giving governments and the public the assurance that their providers have met the standards for care. Exam delivery volumes in the Information Technology sector increased by 12% from 2021 to 2022. Our growth will be fuelled by our unrivalled breadth of offering and global scale across both physical and digital assessment, combined with the growing market need for accreditation and certification in the professional market, more effective formative and summative assessment in the school market, and increased demand and spend across the education landscape in mental health and wellbeing. |
Higher Education We provide around 18 million higher education students every year with vibrant digital content, assessments and enriching experiences, leading to positive learning outcomes. We provide a significant entry point for a lifetime of learning in the Pearson ecosystem. We intend to remain the Higher Education content market leader by deepening our relationships with students beyond instructor and faculty required course materials. By enhancing product features and investments into Pearson+, we enable students to succeed in achieving their goals across disciplines and academic paths. We will drive growth through increasing market share and recapture of the secondary market, particularly through enhancements to our suite of digital products including Pearson+, MyLabs, Mastering and Revel. In addition, we will invest in growth in the large international higher education market and capitalise on increased demand in Inclusive Access. |
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2022 Revenue |
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2022 Highlights |
— Pearson VUE test volumes grew 16% to 19.4m with particularly strong growth in the IT and healthcare segments. VUE also won major contracts across its portfolio and expanded its presence in the US federal market. — Announced the intention to acquire Personnel Decisions Research Institutes (PDRI) which has significant expertise in providing assessment solutions to the US federal government, one of the largest employers in the US with more than 4 million employees. — Clinical Assessment had a strong performance due to good government funding and continued focus on health and wellbeing. — UK and International Qualifications 2022 revenue was driven by the return to full testing and growth in qualifications and assessment contracts internationally. — US Student Assessment had strong revenue growth with a full testing cycle in 2022 and new contract wins. |
— Inclusive Access sales to not-for-profit — A three-fold increase compared to prior year Fall semester in Pearson+ paid subscriptions, expanding our reach through US college bookstores: — Pearson+ paid subscriptions compared to prior year Fall semester up 205% to 406k (2021: 133k) — Pearson+ registered users compared to prior year Fall semester increased 3% to 2.83m (2021: 2.75m) — Launched Pearson+ Channels (with 18 study channels) in Autumn 2022 to help students understand complex concepts and prepare for exams in the toughest college courses, whether they are using a Pearson eTextbook or not. This increases the total addressable market for Pearson+. |
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4 Pearson plc |
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Virtual Learning We offer highly effective online learning for every age and stage of education. Our users can learn where, when, and how they learn best, in a way that is tailored to their needs and propels them forward in their lives and careers. Our vision in Virtual Schools is to provide a holistic, academic, and innovative learning experience to our students, while being a trusted best-in-class partner for our schools and families. We will grow by continuing to focus on the core learning experience, including individualised learning and curriculum transformation, while innovating and adapting to both industry and market changes to stay ahead of the competition. Our career readiness solutions will fuel growth by providing pathways for students beyond high school, be it in the job market or further study. We will also capitalise on increased awareness and openness to virtual learning and the demand for alternative education mediums driven by parents’ new hybrid and remote working schedules. Our Online Program Management (OPM) business is currently under strategic review. |
English Language Learning There are 1.4 billion English language learners across the globe. We have the courseware and assessments to help them achieve their goals, including digital and blended English solutions for educational institutions and the flagship Pearson Test of English, in over 150 countries. Our vision is to become the world’s leading destination for committed learners to build and prove their proficiency in English. We are growing through creating an interconnected suite of personalised products across direct to consumer, institutional, enterprise language learning and assessments, and online language learning through Mondly. This will allow us to expand our addressable market, increase market penetration, and create more repeatable, personal relationships with language learners, capturing more of their lifetime spend. We are also capitalising on a consistent market need for English proficiency in global employment and education, a growing demand for online language learning, and renewed global mobility. |
Workforce Skills We’re building a world where everyone is prepared for the future of work and people are recognised for what they know and what they can do. Our newly launched talent investment platform uses workforce analysis and assessment to realise untapped potential, mobilise talent, and help enterprises and individuals close the workforce skills gap, helping everyone find the right work for them. We will grow by connecting consumers, enterprises, recruiters, and learning partners to a marketplace for verified skills. We can also capitalise on employers’ increasing need to reskill and develop their workforce to protect against shifts in both growing and shrinking markets and in response to the high speed of economic and technology change. We need to respond to and enable the accelerating convergence between previously disconnected parts of the HR technology market, particularly Learning and Development, Recruitment, and Talent Management. |
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— Increased retention rates and Net Promoter Score, now +67, for Virtual Schools, which will drive enrolment growth. — Opened our first virtual school in Virginia focusing on grades 6-10 students, expanding to grades K-10 in 2023.— Helped enact new legislation in Missouri, facilitating easier access to publicly funded virtual learning, leading to a doubling of our virtual school enrolments within that State. |
— Pearson Test of English (PTE) test volumes up 90% and underlying revenue up 72%, particularly driven by border reopenings and gaining market share in India, where investment in our agent network and successful market campaigns have helped to drive growth. — Completed the acquisition of Mondly and entered the Online Self-Study language learning space. See our Strategy in Action for more detail on how Mondly is helping us to grow. — Transformed our institutional business through initiatives such as Pearson English Connected Learning, which creates personalised, connected solutions including courseware, assessment and certification to fast-track learning. — Enhanced our user experience to ensure that our courseware is the most engaging and effective on the market, leveraging our partnerships with major corporations including Disney and the BBC. |
— Acquired Credly, a leading digital credentials business, giving us a strong foothold and user base in the workplace credentials space. — Developed our talent investment platform which provides accurate, real-time access to employee skills. — Integrated Faethm and Credly into the Workforce Skills division, creating single enterprise go-to-market — We launched Skills Accelerator, a suite of peer-supported, project-based learning courses that help people complete business-critical projects while developing future skills. |
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Annual report and accounts 2022 Pearson plc 5 | ||||||||||||
Achieved underlying sales growth of 5% and adjusted operating profit growth of 11% on an underlying basis, ahead of expectations | ||
Acquired Mondly and Credly to support the growth strategy across the Pearson ecosystem | ||
Announced £ 120m | ||
6 Pearson plc |
Launched our people strategy with a focus on engagement and high-performance Launched 18 study channels on Pearson+ Enterprise Learning reaching c.2000 enterprise clients across Workforce Skills and Pearson VUE Completed the disposal international local courseware publishing businesses |
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I believe we are well- positioned to continue to grow profitably and to deliver long-term success, creating value for all our stakeholders. | ||
Omid Kordestani, Chair |
2022 dividend growth 5% |
“What drew me to this fantastic company was the incredible opportunity to be globally consequential and the important role we can play in improving society through lifelong learning.” | |||
Return on capital in 2022 8.7% |
Annual report and accounts 2022 Pearson plc 7 |
Pearson has an opportunity to educate the world and be a good citizen, as a business that acts responsibly and sets the right tone. |
Leading for the future We have a strong performance culture at Pearson, with a high level of execution and operational excellence. We also have a wonderfully diverse Board in terms of both experience and backgrounds. Ensuring we continue to have a diverse set of views and perspectives at Board and leadership level is key to our success. We need different types of leadership and operational talent to execute against our strategy. We will keep monitoring this as Pearson continues to transform so we have the right skill sets for our future, as well as managing succession planning for any upcoming departures. On the Board, we will miss Linda Lorimer, who steps down at Pearson’s upcoming Annual General Meeting (AGM) after serving nearly ten years on the Board. Linda has been an amazing force throughout her tenure, most recently as Chair of our Reputation & Responsibility Committee. At the executive level, we saw new leaders join the leadership team with Marykay Wells being elevated internally to Chief Information Officer. Marykay is working with the Board and leadership team to build a technology strategy that supports a coordinated, cross functional approach to data, content delivery, and product development. Sulaekha (Sue) Kolloru Barger also joined us to become our new Chief Strategy Officer. Since joining, Sue has been focused on driving strategic planning across the company and charting the course for future growth. |
Engagement is fundamental As a Board and leadership team, it is critical we engage frequently with all our stakeholders. We want to ensure that our strategy is clear, that the way we’re operating is well understood, and to identify any gaps in our approach. This enables a constructive and positive relationship and helps us understand the views and perspectives of our stakeholders. It also ensures our team is focused on the right approaches, policies, and activities. This year, we undertook a comprehensive review of Pearson’s executive remuneration framework, with the proposed new Directors’ remuneration policy detailed on page 112. The Remuneration Committee and the Board have spent significant time rigorously reviewing the policy and its implementation to ensure it remains fit for purpose. This review considered Pearson’s renewed strategy, the recent strong performance of the business, and the views and expectations of our shareholders, their advisers, and other stakeholders. I believe the proposed policy is the best way to continue to drive a strong pay for performance culture. It also responds to the needs of the global talent market for digital innovators, whilst remaining mindful of the UK governance environment and the views of our shareholders. Confident in our potential In March, the company announced that the Board had received and rejected, in total, three unsolicited, preliminary, and highly conditional takeover approaches from investment firm Apollo. Under Sidney Taurel as Chair, the Board considered the right response for Pearson and our shareholders. While the Board deliberated the approaches with all due focus and attention, our confidence in the strategy that Andy and the leadership team are pursuing led us to unanimously vote against the approaches. We believe they all significantly undervalued the company and its future prospects. I would like to thank our shareholders for their support for the Board’s position. Outlook We start 2023 in a challenging macro environment, but we have a clear focus on execution. I have every confidence in our ability to deliver as we continue to transform because: 1. The company is confident of its strategy. 2. We have a strong executive team that has been established to execute on that strategy, and 3. The company will be very disciplined in measuring how to achieve success and to deliver results for shareholders. Pearson has an opportunity to educate the world and be a good citizen, as a business that acts responsibly and sets the right tone. We take our duties seriously and drive a level of execution that brings us closer to our promise of lifelong Learning: our ‘North Star’. I believe we are well positioned to continue to grow profitably and to deliver long-term success, creating value for all our stakeholders. Omid Kordestani Chair |
Annual report and accounts 2022 Pearson plc 9 |
Another year of significant strategic, operational and financial progress. | ||
Andy Bird, Chief Executive |
Underlying sales growth in 2022 5% |
“Over the last year, a new Pearson has emerged -streamlined, interconnected, and more agile. This new Pearson is expanding our market opportunities, driving value for our stakeholders and making a positive impact on our world.” | |||
Underlying adjusted operating profit growth in 2022 11% |
10 Pearson plc |
— | Deliver sales and profit growth |
— | Increase our focus on execution, quality, and trust |
— | Embed customer and consumer insights across the company |
— | Scale and grow Pearson+ |
Annual report and accounts 2022 Pearson plc 11 |
In 2022, our products and services reached more than 160 million users around the world. |
12 Pearson plc |
We are driving successful change through targeted investment, acquisitions, and disposals. |
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Sulaekha (Sue) Kolloru Barger, Chief Strategy Officer |
— | We have invested in new capabilities for Pearson+, including Channels functionality. |
— | Expanded the reach of our VUE remote proctoring solution to include an in-country China solution |
— | Workforce Skills launched Skills Accelerator, a suite of peer-supported, project-based learning courses that help people complete business-critical projects while developing future skills |
— | Developed our MondlyWORKS capabilities and go-to-market |
— | Virtual Learning began building an enhanced career readiness solution for K-12 students expected to launch later in 2023 |
— | Recent acquisitions include Credly (Workforce Skills), Mondly (English Language Learning), Navvy (Assessment & Qualifications), and ClutchPrep (Higher Education), and we have signed an agreement to acquire PDRI (Assessment & Qualifications). |
— | We completed the strategic review of our international courseware local publishing business, resulting in successful exits of our Europe, French Canadian, South Africa and Hong Kong local K12 publishing businesses. |
Annual report and accounts 2022 Pearson plc 13 |
Strategy in action |
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Enterprise / Workforce Skills Our opportunity Our ambition is to enable a world where people and organisations can achieve their full potential in the new skills economy. We believe that is no longer just about what you’ve done, but what you can do. Our objective is to provide solutions that help employees thrive and empower employers to maximise the value of their most important asset: their people. The £200bn global Workforce Skills market is comprised of several different sub-markets including employee learning and development, talent management, and pre-hire recruitment services. This market is in the midst of widespread disruption, driven by seismic change in the workplace. The World Economic Forum estimates that over 1 billion people will need reskilling by 2030.Organisations are struggling to navigate this change because they lack a comprehensive understanding of the skills their employees have, or the skills they need, to achieve their commercial goals. And without this understanding, their investments into current learning and development services are not delivering the results that they should be. Progress so far We have built integrated product and engineering teams, re-engineered our product portfolio and tech stack, developed a new product roadmap, launched new products, created a single global sales team and built a state-of-the-art We have reshaped our Workforce Skills portfolio to serve an expanding remit, building on Pearson’s existing strong foundation with Enterprise consumers (c.16% of Group sales). To focus on the needs of our different customer segments, we have organised our |
Workforce Skills division into two parts: Vocational Qualifications and Workforce Solutions. Vocational Qualifications offers high quality vocational qualifications that allow learners to build the knowledge, skills and behaviours they need for career success. Whether it’s a Higher National Diploma in Computing, a BTEC in Health and Social Care, or training as part of the TQ Construction Academy, these provide the skills and qualifications that our economy needs now and in the future. Workforce Solutions is our enterprise and consumer-focused business. It brings together our two recent acquisitions – Credly and Faethm – with our existing portfolio of products and capabilities in GED, Talentlens and Accelerated Pathways. We have moved quickly this year to restructure and integrate these businesses into a single global entity. Workforce Solutions’ portfolio of services has been specifically designed to meet the needs of enterprises and institutional customers, but with a core focus on the needs of the individual consumers upon which the success of any organisation depends. Throughout 2022, we continued to grow our revenue, including our SaaS subscriptions, expanding our customer base by 133%, and accelerating our reach by adding 4.7m new users to our Credly platform. We firmly fit into Pearson’s wider strategy, with products that can interconnect with others across the Pearson ecosystem, supporting and accelerating Pearson’s lifelong learning ambition. For example, we have a library of certified preparation content and courses for IT professionals in Professional Learning and Development which is relevant for learners in the workplace. English is the globally recognised language of business, so we have added English to Faethm’s skills framework, as well as offering Credly badges for Pearson’s range of English assessment products. | |
English Language Learning Our opportunity We operate in a c.£6 billion addressable market, which integrates three key market segments: 1. Institutional English Language Learning: an addressable market of approximately £3 billion. We offer digital and blended courseware solutions to academic institutions, private language schools and enterprises across the globe. 2. Online self-study language learning, an addressable market of c.£2 billion with double-digit growth, which we have entered through our acquisition of Mondly. 3. High Stakes Assessments: an addressable market of c.£900 million. Our flagship product PTE is a verified, secure certification of English proficiency for international migrants and students. A substantial element of our Institutional business is in K-12, which is generally government funded and backed, making it stable in a variety of macro-economic environments. For PTE, we believe that there will be a strong desire for people to invest in their education and to study in our key destination markets. We aim to acquire more new and existing language learners, and capture more of their lifetime spend on language learning, through cross-selling English Language Learning solutions. We are dedicated to growing the business through improving customer experience, which has already been successful in 2022, with a 24% increase in underlying revenue and 33% increase in underlying profit, and with the potential to gain further share over the next few years. |
a. Our institutional business plays an important strategic role. It provides the potential to form relationships with millions of institutional learners as well as corporate learners, and it lends invaluable reputation and credibility in the language space to our entire product portfolio It is also a large lead-generator for our suite of assessment products and Mondly, both of which are complementary products that enhance the student experience. b. Mondly gives us more opportunities to reach more committed learners: a foothold in the fast-growing direct to consumer online language learning market, and the MondlyWORKS platform for enterprise language learning. c. PTE and Mondly give us more direct relationships with consumers, which is strategically important to the division and our ability to cross-sell within Pearson. Progress so far In 2022, we developed the Pearson English Skills Certificate, a new mid-stakes English exam which will complement the PTE to capture more of the English assessments market, and which will launch in 2023. We prioritised aligning Pearson products to the Global Scale of English (GSE), our proprietary scale that allows more granular understanding of English ability, furthermore, working to align Workforce Skills’ Faethm product, laying the ground for future collaboration. Finally, in addition to finding ways to use our institutional content to bolster Mondly material, particularly in the intermediate and advanced levels, we integrated Mondly with Pearson+, welcoming over 10,000 new users through this route. | |
14 Pearson plc |
This allows consumers to prove their language proficiency to employers. The connection between students and work is an obvious collaboration point with Pearson+ and there are fantastic opportunities to connect our services with Pearson VUE, to maximise the value that Pearson can bring to our enterprise customers and consumers. Mike Howells, President, Workforce Skills |
Pearson+ Our opportunity We are a leader in the Higher Education courseware market, with millions of students enrolled in courses using Pearson eTextbooks. We want to leverage this market dynamic in two phases: 1. Shift eTextbook consumption for students directly to Pearson+, and improve monetisation 2. Engage and retain students with relevant and valuable services beyond eTextbooks, and maximise consumer lifetime value Pearson+ is currently monetised through paid access to eTextbooks by students where faculty adopt Pearson content in their courses. Our existing Higher Education business provides a large, efficient customer acquisition funnel for Pearson+. Additional content beyond eTextbooks, such as Pearson+ Channels, will encourage further use of the application. Over time, Pearson+ users can be further monetised through cross-selling other relevant Pearson products and services. Progress so far In 2022, we started to scale users and expand product features. During the fall back-to-school Tim Bozik, Chief Product Officer |
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Spotlight on Credly — Credly is an end-to-end — It adds an established, well-known credentialing service to our workforce analytics, learning & assessment capabilities — It has a network of 3,000 certification and badge issuers — It generates 70,000 new users every week — It has issued more than 50 million credentials |
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Giovanni Giovannelli, President, English Language Learning |
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Spotlight on Mondly — Global language learning app — 100m+ downloads — 446k paid subscriptions — Highly-rated app both on mobile and VR — 41 languages offered, with more than 1,300 possible language pairs (learners can learn a target language from any other language) |
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Annual report and accounts 2022 Pearson plc 15 |
Non-financial measures |
Digital Growth Objective: Drive digital revenue growth |
Digital sales* Underlying Growth in group digital and digital-enabled sales +9% (2021: +9%) |
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Virtual Schools US enrolments 106k (2021: 111k) |
OPM student enrolments 270k (2021: 275k) |
OnVUE volumes 3.0m (2021: 3.0m) |
PTE volume 827k (2021: 436k) |
Higher Education US digital registrations 9.9m (2021: 11.1m a ) | ||||||
Consumer Engagement Objective: Create engaging and personalised consumer experiences |
NPS for Connections Academy +67 (2021: +62) |
NPS for PTE +52 (2021: +56) |
Mondly paid subscriptions 446K (2021: n/a) |
Workforce Skills registered users c 4.7m (2021: n/a) |
Pearson+ registered users b 2.83m (2021: 2.75m) |
Product Effectiveness Objective: Improve the effectiveness of our products to deliver better outcomes |
PTE speed of score return 1.3 days (2021: 1.2 days) |
VUE Test volumes d 19.4m (2021: 16.8m) |
VUE partner retention e 99.9% (2021: 99%) |
Workforce Skills number of enterprise customers f 1,503 (2021 : 645) |
Workforce Skills enterprise customer net retention rate 74% (2021: n/a) |
Higher Education Product usage - text units 4.8m (2021: 5.4m) |
Culture of Engagement and Inclusion Objective: Build an inclusive culture and increase diverse representation |
Employee Engagement Pearson uses the Gallup Q 12 ® surveyto measure engagement, annually 3.96 grand mean on a 5 point Likert scale (2021: n/a) |
Investing in diverse talent The % of responses who agree or strongly agree to Gallup Q 12 ® questions In the last six months, someone at work has talked to me about my progress 67% (2021: n/a) This last year, I have had opportunities at work to learn and grow 72% (2021: n/a) |
Culture of inclusion index The grand mean of 3 Gallup Q 12 ® 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 4.12 grand mean on a 5 point Likert scale (2021: n/a) |
Increasing diverse talent % of people in leadership development and mentoring programmes who are diverse. 75% (2021: n/a) % of people in succession plans for leadership who are diverse |
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Women People of Colour/BAME 52% 26% (2021: 72%) (2021: 24%) |
Sustainability
Strategy |
Progress against achieving net zero carbon by 2030, as measured through percentage carbon reduction |
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Objective: Achieve net zero carbon by 2030 |
Reduction in total tCO 2 in 2022 |
Reduction in total tCO 2 in 2021 |
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33% |
31% |
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vs 2018 g |
vs 2018 g |
a. | 2021 US digital registrations restated from 11.4m to 11.1m due to recategorising 0.3m of registrations from US to International. |
b. | Pearson+ registered users represents the number of unique user accounts added over an academic year. |
c. | Workforce Skills registered users represents the number of net new user accounts on a trailing 12-month basis and includes net new user accounts from Credly pre-acquisition. |
d. | VUE test volumes include GED tests. |
e. | VUE Partner retention is based on revenue mix. |
f. | Workforce Skills number of enterprise customers represent the number of customers at period end. |
g. | Net zero carbon figures have been restated in 2021 to reflect acquisitions, disposals and data improvements. The net zero carbon figures have been assured by an independent third-party, Corporate Citizenship. |
* | Historical figures restated to exclude Wall Street English and US K-12 Courseware (sold in 2018, and 2019 respectively). |
Please find further details on our Strategic KPIs here https://plc.pearson.com |
See how this aligns strategy to management reward: pages 98 & 99 |
18 Pearson plc |
Financial measures |
Sales b |
Adjusted operating profit a |
Net debt a | ||||||
£3,841m |
£456m |
£557m | ||||||
This is our revenue as reported in our income statement. |
A non-GAAP financial measure that enables management to consistently track the underlying operational performance of the Group. |
This is a non-GAAP financial measure and is used by management to assess the Group’s cash position. | ||||||
Adjusted earnings per share a |
Operating profit b |
Basic earnings per share b | ||||||
51.8p |
£271m |
32.8p | ||||||
A non-GAAP financial measure used to evaluate performance. |
This is our operating profit as reported in our income statement. |
A measure of the amount of profit that can be allocated to one share of our common stock. | ||||||
Operating cash flow and cash conversion a |
Net cash generated from operations b |
Dividend per share | ||||||
£401m (88%) |
£527m |
21.5p | ||||||
Operating cash flow is an adjusted measure and is presented in order to align the cash flows with corresponding adjusted operating profit measures. |
This is our net cash generated from operations as reported in our cash flow statement. |
This is the proposed full year dividend. Our dividend policy is to be progressive and sustainable. | ||||||
Total shareholder returns c 57.16% This is a measure of financial performance of shares over time. |
Return on Capital a 8.7% A non-GAAP measure of how efficiently we are generating returns from our asset base. |
a. See page 215 for an explanation of these alternative performance measures. b. Statutory measure. c. Source: Bloomberg. d. Comparative amounts have been restated, see note 1 of the financial statements for further details. Note: See page 215 for full reconciliation of the alternative performance measures to the equivalent statutory measure. |
See how this aligns strategy to management reward: pages 98 & 99 |
Annual report and accounts 2022 Pearson plc 19 |
We saw continuing momentum in 2022, with 5% underlying sales growth and adjusted operating profit of £456 million. | ||
Sally Johnson, Chief Financial Officer |
Financial summary |
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Business performance |
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£ millions |
2022 |
2021 |
Headline growth |
CER growth |
Underlying growth |
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Sales |
3,841 |
3,428 |
12% |
3% |
5% |
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Adjusted operating profit |
456 |
385 |
18% |
6% |
11% |
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Operating cash flow |
401 |
388 |
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Adjusted earnings per share |
51.8p |
34.9p |
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Net debt |
(557) |
(350 |
) |
Statutory results |
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£ millions |
2022 |
2021 |
Headline growth |
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Sales |
3,841 |
3,428 |
12% |
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Operating profit |
271 |
183 |
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Profit for the year |
244 |
178 |
* |
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Cash generated from operations |
527 |
570 |
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Basic earnings per share |
32.8p |
23.5p |
* |
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Dividend per share |
21.5p |
20.5p |
* | Comparative amounts have been restated, see note 1b to the financial statements for further details. |
20 Pearson plc |
Financial expectations |
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Segment | 2022 revenue (£m) |
Margins 2022* |
2023 expectations Revenue |
2023 expectations Margins* |
Underlying revenue 3-year CAGR 2022 to 2025 |
Margins 2025* |
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Assessment & Qualifications |
1,444 |
18% |
Low to mid-single digit |
Increase | Low to mid-single digit |
Increase | ||||||||||||||||||
Virtual Learning |
820 |
9% |
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Virtual Schools | 519 | |
Mid-single digit decline |
|
Increase | Low-single digit | Increase | |||||||||||||||||
OPM |
301 |
– – – – – – – – – – – – Under strategic review – – – – – – – – – – – – | ||||||||||||||||||||||
Higher Education |
898 |
10% |
Low-single digit decline | Increase | |
Low to mid-single digit |
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Increase | ||||||||||||||||
English Language Learning |
321 |
8% |
High-single digit | Increase | High-single digit | Increase | ||||||||||||||||||
Workforce Skills |
204 |
(1)% |
Double-digits | Improve | Greater than 20% | Increase | ||||||||||||||||||
Strategic review |
154 |
10% |
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Group |
3,841 |
12% |
|
Excluding OPM and Strategic review: Low to mid-single digit |
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Mid-teens | |
Mid-single digit |
|
|
Upper end of mid-teens |
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* | Adjusted operating profit margins. |
All figures in £ millions |
2022 |
2021 |
||||||
Operating profit |
271 |
183 |
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Add back: Cost of major restructuring |
150 |
214 |
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Add back: Intangible charges |
56 |
51 |
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Add back: UK pension discretionary increases |
3 |
– |
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Add back: Other net gains and losses |
(24 |
) |
(63) |
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Adjusted operating profit |
456 |
385 |
— | Assessment & Qualifications revenue growth of low to mid-single digit with increased margins. |
— | In Virtual Learning, Virtual Schools revenue to decline by mid-single digit impacted by the COVID-19 cohort unwind in the 2022/23 academic year, as well as the loss of a major school. We expect margins to increase. We remain confident in the long-term performance of this division and will launch Career Academies aimed at supporting teenagers who wish to gain career education and experience. Four Career Academies will operate in the 2023-24 school year in four states and enrolment is underway. OPM continues to be under strategic review. |
— | Higher Education revenue to decline, by low-single digit, with increased margins. |
— | English Language Learning revenue growth of high-single digit with increased margins. |
— | Double-digits revenue growth in Workforce Skills, underpinned by our talent investment platform, with improved margins. |
1. | 2023 consensus on the Pearson website as at 28 th November 2022; median adjusted operating profit of £585m at £:$ 1.14, tax rate 24%. |
£ millions |
2022 |
2021 |
Headline growth |
CER Growth |
Underlying growth |
|||||||||||||||
Sales |
||||||||||||||||||||
Assessment & Qualifications |
1,444 |
1,238± |
17% |
8% |
8% |
|||||||||||||||
Virtual Learning |
820 |
713 |
15% |
4% |
4% |
|||||||||||||||
Higher Education |
898 |
849 |
6% |
(4)% |
(4)% |
|||||||||||||||
English Language Learning |
321 |
238 |
35% |
28% |
24% |
|||||||||||||||
Workforce Skills |
204 |
172 |
19% |
16% |
7% |
|||||||||||||||
Strategic review |
154 |
218± |
(29)% |
(30)% |
(16)% |
|||||||||||||||
Total |
3,841 |
3,428 |
12% |
3% |
5% |
|||||||||||||||
Adjusted operating profit |
||||||||||||||||||||
Assessment & Qualifications |
258 |
219± |
18% |
6% |
6% |
|||||||||||||||
Virtual Learning |
70 |
32 |
119% |
88% |
88% |
|||||||||||||||
Higher Education |
91 |
73 |
25% |
12% |
12% |
|||||||||||||||
English Language Learning |
25 |
15 |
67% |
47% |
33% |
|||||||||||||||
Workforce Skills |
(3) |
27 |
(111)% |
(104)% |
(67)% |
|||||||||||||||
Strategic review |
15 |
19± |
(21)% |
(26)% |
0% |
|||||||||||||||
Total adjusted operating profit |
456 |
385 |
18% |
6% |
11% |
22 Pearson plc |
£ millions |
2022 |
2021 |
||||||
Net interest payable |
(1 |
) |
(57 |
) | ||||
Finance income in respect of retirement benefits |
9 |
4 |
||||||
Fair value remeasurement of investments held at FVTPL |
28 |
20 |
* | |||||
Other net finance costs |
16 |
27 |
||||||
Net finance costs |
52 |
(6 |
)* |
* | Comparative amounts have been restated, see note 1b to the |
financial statements for further details. |
— | The release of tax risk provisions totalling £72m following the expiry of the statute of limitations for certain periods in the US. This release impacts both statutory and adjusted earnings with a £37m credit to adjusted earnings and the remainder only impacting statutory results. |
— | As previously disclosed, the European Commission determined that the United Kingdom controlled foreign company group financing partial exemption partially constituted State Aid. This decision was appealed by the UK Government and other parties. On 8 June 2022, the EU General Court dismissed the appeal. Following the EU General Court’s negative decision, the UK Government and other parties have submitted appeals to the European the Court of Justice. At 31 December 2021, the potential risk associated with this issue was disclosed as a contingent liability, however, following the dismissal of the first appeal the prospects of successfully challenging the European Commission’s decision are now considered to be such that a provision is required. |
— | On that basis a tax provision of £63m plus £5m of associated interest has been recorded. The provision represents an estimate of the expected value which has been calculated by considering a range of possible outcomes and applying a probability to each, resulting in a weighted average outcome. The possible outcomes considered range from no liability through to the full exposure (£105m excluding interest). Due to the large and unusual nature of the provision and the specific one-off nature of the issue, the provision is excluded from adjusted earnings. There is no cash impact in 2022 as a payment on account was made during 2021. The provision of £63m has been offset on the balance sheet against the payments previously made. As the provision is less than the payments made there is a remaining non-current tax receivable of £41m disclosed on the balance sheet. |
Annual report and accounts 2022 Pearson plc 23 |
£ millions |
2022 |
2021 |
||||||
Net cash generated from operations |
527 |
570 |
||||||
Dividends from joint ventures and associates |
1 |
– |
||||||
Net capital expenditure on PPE (including right-of-use assets) and software |
(162 |
) |
(206 |
) | ||||
Add back: costs paid for major restructuring projects |
35 |
24 |
||||||
Operating cash flow |
401 |
388 |
* | Comparative amounts have been restated, see note 1b to the financial statements for further details. |
£ millions |
2022 |
2021 |
||||||
Cash and cash equivalents |
558 |
937 |
||||||
Overdrafts |
(15 |
) |
– |
|||||
Investment in finance leases |
121 |
115 |
||||||
Derivative financial instruments |
(6 |
) |
(2 |
) | ||||
Bonds |
(610 |
) |
(767 |
) | ||||
Lease liabilities |
(605 |
) |
(633 |
) | ||||
Net debt |
(557 |
) |
(350 |
) |
24 Pearson plc |
Annual report and accounts 2022 Pearson plc 25 |
Learning is at a pivotal moment, where it is becoming more fluid and exists inside and outside of formal education. Our purpose – to add life to a lifetime of learning – sits at the heart of everything we do. Our digital-first strategy aims to meet these evolving needs of learners at multiple points in their lives. |
Why we engage |
How we engage |
Outcomes | ||
Our products and services are designed for real-life impact. Consumer engagement helps us to understand their needs and evolve our products to create that impact. |
As more people use digital learning products such as Pearson+ and Mondly we can listen to and learn from consumers, informing our innovation and driving better lifelong learning. For example, we know from our 4.8 million Pearson+ Channels registered users that they have engaged in nearly 2 million minutes of video content and 1 million practice problems. Groups including our Pearson Campus Ambassadors allow us to engage directly with college students about their needs and preferences. Feedback from users of Mondly is helping us refine and improve our AR/VR offering, which ranks highly among Occulus users. Across the company, custom consumer research and insight studies are also playing a greater role in understanding the attitudes of today’s consumer and how people consume learning content, use digital products, and purchase learning materials. |
Understanding how and why our consumers use our products leads to the development of features that make them more engaging and user friendly. As we study the engagement data in Pearson+, we continue to increase our understanding of consumer behaviour and preferences. This is allowing us further evolve Pearson+, exploring new types of content, enhancing features such as Pearson+ Channels, and tailoring other offerings like the student friendly marketing partnerships that launched in 2022. In Mondly, understanding the barriers that consumers face during language learning, particularly the difficulty in accessing in person tutors, led us to pilot a new conversational AI platform to help support learners practice needs. Our consumer-focused products, such as Mondly have features and content that meet the needs of today’s consumer for affordable, accessible, and direct to consumer learning. |
Why we engage |
How we engage |
Outcomes | ||
Educators are a cornerstone of our business and our partners in content creation. Their feedback helps us improve the teaching and learning experience. |
In our US Higher Education business, our Faculty Advisor group feeds back on the needs of educators and students. They also act as ambassadors for our products with existing and potential customers, carrying out regular campus visits and webinars. Our authors, often educators themselves, are increasingly active in reviewing our digital products and product features, such as the development of Pearson+ and Channels. In the UK, after a difficult experience with BTEC results, we have made a particular effort this year to seek input from educators about how we should improve the process for awarding BTECs. |
Our work with educators provides us with unique insights that reflect experiences of both teachers and students. In many cases, feedback from educators leads to concrete change that informs our products and services. This is the case for BTECs, where we are changing specific elements of our awarding process to ensure a smoother experience for students and educators. |
26 Pearson plc |
Why we engage |
How we engage |
Outcomes | ||
We are serving a world where people want to and need to learn in the workplace. We work closely with employers so people can learn as they earn, and employers get the best out of their teams. |
Pearson has a strong foothold in enterprise learning, with more than 2,000 clients. Enterprise learning accounted for about 16% of our revenue in 2022 and provides us with a major touch point with employers that need a well-trained workforce. We engage with employers through our Assessment & Qualifications, Workforce Skills, and English Language Learning divisions. Not only do employers trust us to deliver high-quality products and services, but our strong track record has led to stable long-term relationships, which underpins our business. Long term Pearson VUE relationships with industry organisations in the healthcare and cyber security space help employees advance in their careers and make our world safer with credentialed workers. We also work together to develop our products and services, to create more impact for their teams. For example, as we develop our new talent investment platform, we have tested the technology & key value propositions with several enterprises. Their feedback has been critical in understanding customer challenges, developing product features, and prioritising future product enhancements. |
As we engage with employers, we are seeing growth in newer areas, such as Credly, which awards employees and workers trusted digital credentials and is averaging 70k+ new users a week, driven by the need for reskilling. The IT and healthcare sectors continue to perform well for Pearson VUE. On a more personal level, we are seeing breakthroughs such as 177 Amazon employees who earned their GED with Pearson, proving that the impact of learning is important, no matter the scale. |
Why we engage |
How we engage |
Outcomes | ||
Our investors play an important role in providing us with access to capital to ensure that we can operate and add life to a lifetime of learning for people around the world. |
We have strong and constructive relationships with our key institutional investors, and regularly communicate with them on key issues, at our financial results, our AGM and at investor meetings and conferences. Over 2022, we held 373 meetings with 192 institutions, both virtually and in person. We discuss financial, operational, and strategic matters, including progress against our new direct to consumer, lifelong learning strategy. | Our investors appreciate the time we spend with them to give them updates on our strategy and progress, and we continue to develop how we communicate effectively across a range of formats. In 2022, our dedicated website for investors, www.pearsonplc.com, won a Gold award for the Best Corporate Website - FTSE 100 at the Corporate and Financial Awards. We are constantly updating our disclosures to enhance understanding and transparency of our business. We are evolving our results presentations to make them more interactive and engaging, with heightened use of video, photography, and social assets. |
Annual report and accounts 2022 Pearson plc 27 |
Why we engage |
How we engage |
Outcomes | ||
Governments around the world are charged with implementing policies to expand learning opportunities so their citizens can achieve life goals. As the world’s leading learning company, we use our experience and expertise on issues related to all facets of education, to inform political and educational leaders. |
The economic and employment environment in many countries featuring labour shortages, and a rapidly evolving workforce, has spurred policymakers to develop wide-scale programmes to attract, train and upskill workers. By engaging with policymakers, we work to ensure that learners of all ages have access to high-quality educational opportunities, leading to better prospects for individuals, as well as improved economic outcomes for society. |
Given governments’ need of support, we engaged with governors across the US, outlining data on future skills needs, learning loss, and success of online learning in their regions, to inform policy decisions on areas of focus in education, skills, language training, and recruitment. Outside the US and UK, many more countries and students want access to technical education certifications, English language courses and proficiency. In 2022, we engaged with UK and US embassies in Central and South America and Asia to support countries’ efforts in this area. |
Why we engage |
How we engage |
Outcomes | ||
Pearson’s people are its greatest asset. Our success as a business and our ability to make a positive impact are highly dependent upon our colleagues. Our managers play a pivotal role in driving engagement throughout Pearson, and we are empowering them with new tools and training to support them and their teams. |
In 2022, we launched a new employee engagement survey to better understand our employees’ needs and to benchmark ourselves globally. We also launched a new digital employee experience platform to improve communication across Pearson. We communicate regularly with our managers and leaders through interactive forums and newsletters and hold global town halls and virtual meet-ups available to all colleagues. Our employee engagement network meets regularly with Non-Executive Directors. To read more about the Board’s engagement with employees, see the Governance report on page 53. |
Our people actively engage in feeding back, and in 2022, 72% of colleagues participated in our new engagement survey. An average 2,000-3,000 colleagues join our global town halls live, and more than 34,000 users have already accessed our new digital employee experience platform. We know that employee engagement fuels performance and has a direct impact on customer loyalty, productivity, profitability, and their wellbeing. We’re using our engagement survey results as a baseline to measure engagement at a local level, and to drive change in the areas that matter most to our people. |
Why we engage |
How we engage |
Outcomes | ||
Our suppliers, channel partners, venture partners, and authors play a vital role in helping us execute our business and product strategies, bringing specialised services and expertise to accelerate our work. |
Supplier diversity and responsible procurement are key priorities for the company. This year we added two new supplier portals that provide access to over 1 million diverse accredited suppliers. In Assessment & Qualifications, our mentor-protege programme is designed to help small and minority owned suppliers grow their business inside and outside of Pearson. Pearson provides additional support to enhance their professional development and business growth, so they can improve their competitive position across the marketplace. This helps Pearson improve the diversity of our suppliers and promotes responsible and sustainable procurement practices. Additionally, we continue to add business partners who contribute to the diversity of our workforce. In 2022, those new partners included People of Colour in Tech, a recruitment platform that connects under-represented groups with tech jobs and the Hispanic Association on Corporate Responsibility, which works to advance the inclusion of Hispanics in corporate America. |
Our work with outside partners is one way we’re building a culture that values diversity, environmental stewardship, and social impact, alongside business growth. We have made a public commitment to support diverse accredited suppliers and have grown our 2022 spend in this area. We are also working towards sourcing 100% of our paper ethically. |
28 Pearson plc |
Why we engage |
How we engage |
Outcomes | ||
We strive to make a positive and meaningful impact in the communities in which we operate. Learning opportunities and outcomes are closely linked to the prosperity of local communities and inclusive global development. Our global communities are interested in widening access to education through innovation, and the steps we are taking to have a positive impact on society and the environment. |
In addition to maintaining relationships with key organisations, we participate in multi-stakeholder initiatives to promote lifelong learning opportunities for all and ensure the lasting protection of our planet. Our global volunteering policy enables all our people to take up to five paid volunteer days off to donate their time to what matters most to them and their local communities. |
Learning and acquiring new skills are some of the greatest drivers of positive social mobility. The biggest impact we have on society is by delivering our products and services such as Connections Academy, Accelerated Pathways, GED, and BTECs to name a few. This year, we also responded to the crisis in Ukraine, with Pearson and our employees committing over £1.25 million in humanitarian support and providing additional help to Ukrainians and others affected to continue their education during this conflict. More detail on page 38 on how we invest with purpose. |
— | Learning from our stakeholders (pages 26-29), which outlines: |
— | how we serve and engage with each of our 8 key stakeholder groups, listen to their key concerns and provide our responses |
— | how we have adapted our business to meet their needs |
— | how we have had regard to the need to foster the company’s business relationships with each of the stakeholder groups |
— | Understanding our stakeholders (pages 67-68), which summarises: |
— | how Directors have engaged with employees and shareholders, and had regard to their interests |
— | Sustainability (pages 30-42), which describes: |
— | Initiatives through which we strive to enable more engaging learning experiences, that are accessible to more people, and with a smaller carbon footprint |
— | Our commitment to creating a culture that prioritises human rights, our employees, DE&I, and socially responsible sourcing |
— | How we align with widely accepted ESG reporting frameworks including GRI, SASB and TCFD. For further details on TCFD reporting, please see page 39 |
Section 172 of the Companies Act In summary, as required by Section 172 of the Companies Act 2006, a Director of a company must act in the way they consider, in good faith, would most likely promote the success of the company for the benefit of its shareholders as a whole. In doing this, the Director must have regard, among other matters, to: — the likely consequences of any decisions in the long term, — the interests of the company’s employees, — the need to foster the company’s business relationships with suppliers, customers and others, — the impact of the company’s operations on the community and environment, — the company’s reputation for high standards of business conduct, and — the need to act fairly as between members of the company. |
— | product efficacy |
— | people and culture |
— | reputational risks including data |
— | employee engagement |
— | ESG materiality review |
— | progress with Pearson’s climate transition plans |
— | ESG remuneration metrics |
Annual report and accounts 2022 Pearson plc 31 |
Driving learning for everyone with our products |
32 Pearson plc |
Empowering our people to make a difference |
1. | Employee engagement: |
2. | Investing in talent: |
3. | Diversity, equity, and inclusion: |
Annual report and accounts 2022 Pearson plc 33 |
34 Pearson plc |
— | Employee engagement: by doubling down on our focus on manager development to enable all our managers to operate as coaches with a focus on goals, feedback, and recognition. |
— | Investing in talent: enhancing how we support career development by further resourcing managers to have conversations about progress, learning and growth. We will also continue to test and scale the integration of our commercial solutions (especially digital credentialling) in support of developing the core business, leadership, and technical skills our employees need for the future of work. |
— | Diversity, equity, and inclusion: by further integrating a focus on inclusivity into how we develop our managers and leaders, and linking increases in diverse representation to Executive reward. |
72% of employees agreed or strongly agreed they had access to opportunities to learn and grow over the past six months 2 significant acquisitions (Credly and Mondly) accelerated the acquisition of skills in digital content development, technology, digital sales and marketing |
Annual report and accounts 2022 Pearson plc 35 |
Leading responsibly for a better planet |
• | we increased transparency around what happens to an individual’s data and their choices. This helps us develop our digital products with the confidence that customers can easily exercise control over the use of their personal information. In 2022, we launched a new Privacy Centre for consumers, linked to all our products to a newly developed universal preferences centre. |
• | we also strengthened our internal resources to help drive a culture of data privacy at Pearson. Senior leaders in each of our divisions and corporate functions have been appointed as Privacy Owners. They are accountable for, and direct the activities of, designated Privacy Leads who are responsible for implementing Pearson’s global privacy programme on a day-to-day |
• | as the risk of cyber security breaches continues to grow, we stepped up our engagement programmes with divisional leads on the potential risks from digitalisation to ensure awareness and preparedness. Several parts of our business are already certified to international standards for information security, such as ISO 27001. More detail on our approach to cyber security risk management, including our lines of defence, is in the Principal risks on pages 45-50. |
• | strengthened our data collection regarding safeguarding incidents. |
• | established a set of 10 safeguarding standards, including around social media, live-streaming and user-generated content. |
• | implemented a process for business lines to assess themselves. |
• | progressed our ‘Safety by Design’ programme to engage with product teams to ensure safety against online harms and compliance with standards like the UK Age-Appropriate Design Code is embedded in our products. |
36 Pearson plc |
• | Our carbon footprint in the TCFD Report see page 39. |
• | Our ESG performance table, global emissions see page 223. |
Key actions with our suppliers — Business partners follow our Code of Conduct and Responsible Procurement Policy, and comply with national environmental laws and regulations. — Our net zero strategy goes hand in hand with ethically sourcing materials, and ultimately protecting biodiversity. Our paper and print suppliers are integrated to the Book Chain Project platform, which monitors and tracks actions to protect biodiversity. It analyses the origins of tree fibres to ensure no paper is coming from protected species, and it also tracks the content of chemicals and components in printed materials. Finally, the platform enables us to ensure that international environmental, human rights and safety regulations are followed. — We aim to increase diverse representation of suppliers and spend with underrepresented business owners. In 2022, we spent £46.7 million with diverse-accredited suppliers, representing approx. 2% of total spend. We have provided our purchasing teams with access to two diverse supplier portals: WEConnect and Supplier.io. The databases, taken together, provide access to over 2 million diverse-accredited suppliers. — For the first time in 2022, we asked our key suppliers to participate in an EcoVadis sustainability assessment (or equivalent). We reviewed performance across environmental and human rights areas to ensure that they align to Pearson’s standards. Our key suppliers performed well, with an average score of 57.3/100 (average supplier’s score of 44.9/100). We engaged poorly performing suppliers to implement corrective actions, and they will be reassessed. Our educational environmental material is available to help them progress. — Our own sustainability performance was assessed by EcoVadis, and we scored in the top 11% of our industry, earning a Silver medal. We also received a B score across our CDP (formerly the Carbon Disclosure Project) responses, which includes the areas of climate, forest and water. — We mapped the emissions of our top 50 suppliers assessed by a third party, as described below. |
Annual report and accounts 2022 Pearson plc 37 |
Rankings and recognition
|
||||||||
FTSE 4 Good Index |
Human Rights |
|||||||
Pearson remains a constituent of the FTSE 4 Good Index series. |
Campaign (HRC) Pearson was named to the HRC Corporate Equality Index. |
|||||||
Dow Jones |
Stonewall WEI |
|||||||
Sustainability Indices (DJSI) Pearson is a constituent of the Dow Jones Sustainability Indices (DJSI), and member of the 2022 Sustainability Yearbook. |
Pearson is recognised as a Stonewall Top 100 company for LGBT+ inclusion. For 2022, we ranked 19 th . |
|||||||
Disability: IN |
Clean200 |
|||||||
Pearson was named to DE&I | Among the largest 200 public | |||||||
Index with a 100 score in | companies ranked by clean | |||||||
the US. |
economy revenue. | |||||||
Moody’s ESG Solutions |
MSCI ESG |
|||||||
Robust performance awarded | As of 2022, Pearson received | |||||||
by Moody’s ESG Solutions. | an MSCI ESG rating of AA. | |||||||
Member of Dow Jones Sustainability Indices Powered by the S&P Global CSA |
38 Pearson plc |
— | A steering group (meeting quarterly and including our Chief Financial Officer, Chief Legal Officer and Head of Procurement) which oversees our overall carbon reduction plan and objectives. The outcomes of the committee are subsequently shared with Executive Management. |
— | Working groups (meeting monthly) which oversee our key drivers of carbon reductions both at a central and individual business level, and ensure actions and change are being implemented successfully. |
Annual report and accounts 2022 Pearson plc 39 |
Risks/Opportunities |
Scale of Risk/ Opportunity* |
Pearson actions | ||
Physical risks |
||||
Facility or data centre damage due to flooding and hurricanes |
Time frame – short Likelihood – possible Magnitude of impact - low |
• Shifting services to alternative locations or servers • Employees working from home (although this would cause an increase in office-based risk) • Insurance cover | ||
Wildfire interruptions to in-person testing |
Time frame – medium Likelihood – likely Magnitude of impact – low |
• Shifting tests to alternative locations • Rescheduling tests • Moving to digital on-screen assessments• Insurance cover | ||
Water scarcity: may affect Pearson globally, but Pearson’s consumption levels are small overall |
Time frame – medium Likelihood – likely Magnitude of impact – low |
• Property updates • Consumption levels remaining minimal | ||
Increased paper cost due to adverse weather events |
Time frame – long Likelihood – likely Magnitude of impact – low |
• Short-term pricing changes reflected in operational and strategic plans • Medium-term digital product/services alternatives will be available | ||
Transition risks |
||||
Increased service charges, reflecting building efficiency standards in the US and EU |
Time frame – short Likelihood – likely Magnitude of impact – low |
• Fixed lease agreements in the short-term • Selection criteria well above building efficiency minimal requirements for newly leased properties • Property strategy including reduction of property area, leasing/ sub-leasing and service charging• Flexible working policy | ||
Procurement costs of sustainably-certified paper |
Time frame – medium Likelihood – likely Magnitude of impact – low |
• Paper use reduction based on ongoing digitalisation strategy, and availability of digital alternatives • Improved product design and greater pricing pass-through | ||
Increased EU ETS price burden |
Time frame – medium Likelihood – possible Magnitude of impact – moderate** |
• Digitalisation assumes a lower ETS exposure level • Product design and pricing pass-through from pulp and paper mills | ||
Reputational risks tied to offsetting |
Time frame - long Likelihood - likely Magnitude of impact - low |
• Active plans to reduce the amount of carbon sequestration/ offsets required: https://plc.pearson.com/en-GB/purpose/our-esg-reporting. • Currently developing offsetting strategy centred around portfolio of high quality activities and projects that remove carbon from the atmosphere. • Effective communication plans of net zero progress and sequestration strategy |
40 Pearson plc |
Risks/Opportunities |
Scale of Risk/ Opportunity* |
Pearson actions | ||
Opportunities |
||||
Continuous decarbonisation of Pearson’s products and operations through digitisation, energy efficiency, and flexible working policy |
• Please refer to the Leading Responsibly section on pages 36-38 of this report | |||
Increase in consumer demand for sustainability-related learning content |
• Please refer to the Responsible and sustainable content section on page 32 of this report | |||
* Impact scales: |
||||
Time frame |
Likelihood |
Magnitude of Impact | ||
Short: within 5 years | Possible | Low: below £5m | ||
Medium: between 5 – 10 years | Likely | Moderate: £5m - £20m | ||
Long: more than 10 years | High: £20m or above |
** | Due to the nature of the risk, and the degree of external variables affecting the matter, it is difficult to meaningfully quantify the risk. However, if not managed effectively, costs associated with offsetting carbon emissions which cannot be fully reduced, may lead to decreased margins. |
tCO 2 e |
2021* |
2022 | ||||
Scope 1 |
8,342 |
4,622 | ||||
Scope 2 (location-based) |
22,801 |
29,034 | ||||
Scope 2 (market-based) |
440 |
182 | ||||
Scope 3 |
370,853 |
362,473 | ||||
Total – location-based |
401,995 |
396,128 | ||||
Total – market-based |
379,634 |
367,276 | ||||
Intensity ratio – tCO 2 e/sales(Scopes 1,2 market-based and 3) |
110.7 |
95.6 |
Section |
Section |
Page Reference | ||
Governance |
Board’s oversight of climate-related risks and opportunities |
66, 78-79 | ||
Management’s role in assessing and managing climate-related risks and opportunities |
39 | |||
Strategy |
Climate-related risks and opportunities over the short, medium and long term |
36-41 | ||
Impact of climate-related risks and opportunities |
36-41 | |||
Pearson’s resilience taking into consideration different climate-related scenarios |
39-41 | |||
Risk management |
Processes for identifying and assessing climate-related risks |
30, 39-41, 43-52 | ||
Processes for managing climate-related risks |
36-41, 43-52 | |||
Integration of climate-related risks into the organisation’s overall risk management |
36-41, 43-52 | |||
Metrics and targets |
Metrics used to assess climate-related risks and opportunities |
18, 41, 221-226 | ||
Scope 1, scope 2, and scope 3, greenhouse gas (GHG) emissions |
41,221-226 | |||
Performance against targets |
18, 36-41, 221-226 |
Annual report and accounts 2022 Pearson plc 41 |
Non-financial matter and relevant sections of Annual Report |
Page/Link Reference | |
Business model |
Business model: Pages 16 & 17 | |
Stakeholders: Pages 26 to 29 | ||
ESG-linked remuneration: Page 98 | ||
Environmental matters |
Policies: Addressed in the pages below, with full policies for Pearson Plc available at: | |
Climate |
https://plc.pearson.com/en-GB/corporate-policies | |
Resource use |
Position and performance: Pages 30, 36-41 | |
Risks/opportunities: Pages 36-41 | ||
KPIs: Pages 18, 221-226 | ||
Social and community matters |
Policies: Addressed in the pages below, with full policies for Pearson Plc available at: | |
Driving learning for everyone with our products |
https://plc.pearson.com/en-GB/corporate-policies | |
Social engagement |
Position and performance: Pages 30-38 | |
Risks/opportunities: Pages 30-38, 43-52 | ||
KPIs: Pages 18, 221-226 | ||
Employee matters |
Policies: Addressed in the pages below, with full policies for Pearson Plc available at: | |
Employee engagement |
https://plc.pearson.com/en-GB/corporate-policies | |
Investing in talent |
Position and performance: Pages 30-38 | |
Diversity, equity and inclusion |
Risks/opportunities: Pages 30-38, 43-52 | |
KPIs: Pages 18, 221-226 | ||
Human rights matters |
Policies: Addressed in the pages below, with full policies for Pearson Plc available at: | |
Customer welfare (data privacy, security, and safeguarding) |
https://plc.pearson.com/en-GB/corporate-policies | |
Empowering our people to make a difference |
Position and performance: Pages 30-38 | |
Sustainable procurement |
Risks/opportunities: Pages 30-38, 43-52, 82-83 | |
KPIs: Pages 18, 221-226 | ||
Anti-corruption and bribery matters |
Policies: https://plc.pearson.com/en-GB/corporate-policies | |
Position and performance: Page 82 | ||
Risks/opportunities: Pages 43-52, 82 | ||
KPIs: Page 226 |
— | Pearson Code of Conduct |
— | Pearson Business Partners’ Code of Conduct (Partner Code) |
— | Responsible Procurement Policy; and our Human Rights Statement |
— | Anti-Bribery and Corruption (ABC) Policy; Raising Concerns and Anti-Retaliation Policy |
— | Pearson’s safeguarding principles (include data privacy/security) |
— | Global Content and Editorial Policy; Responsible Advertising Policy |
42 Pearson plc |
Effective risk management is essential to executing our strategy, achieving sustainable shareholder value, protecting our brand, and ensuring good governance. |
Annual report and accounts 2022 Pearson plc 43 |
— | the change in the risk over the last 12 months |
— | movement and outlook for that risk |
— | management actions |
— | the link between the risk and Group strategy |
— | our risk tolerance |
— | examples of the risk |
— | risk ‘contagion’, i.e., the extent to which issues in one area could increase the risk in other areas |
— | assessed risk ‘velocity’, i.e., an indication of the speed at which a risk could materially impact the Group. |
44 Pearson plc |
Accreditation risk | ||
Description |
Termination of accreditation due to policy changes or failure to maintain the accreditation of our courses and assessments by states, countries, and professional associations, reducing their eligibility for funding or attractiveness to learners. | |
Movement and outlook |
The risk is at a moderate to high level, due to a desire to reduce and/or reform standardised testing in the UK, Australia and US, as well as increased global political risk. The outlook is for the risk to remain at a similar level for the foreseeable future. | |
Management actions |
1. Continue to evolve and enhance security, data and governance standards to ensure the Group meets the required standards to be an accredited provider. 2. Complementary acquisitions to support movement into formative assessment. 3. Continue to grow full-service offering, including online proctoring. This helps to ensure the Group has products and services that can cater for customers many needs, especially in the global assessment market. | |
Link to strategy |
Ensuring we can participate in satisfying the growing need for accreditation and certification. | |
Risk tolerance |
Low – Pearson seeks to operate in stable, well-regulated markets with known requirements to be accredited, and then has a low tolerance for taking risks which may jeopardise that accreditation. | |
Examples of risks |
Political and regulatory | |
Risk contagion |
Accreditation risks are likely to have a financial impact but have limited risk of contagion. | |
Risk velocity |
If there were to be major long-term changes in regulation, it is likely that these would occur over a multi-year period. | |
Capability risk | ||
Description |
Inability to meet our contractual obligations or to transform as required by our strategy due to infrastructure or organisational challenges. | |
Movement and outlook |
This risk remains at a moderately high level, due to the execution risk associated with delivering the Group’s strategy and high competition for talent, especially in the technology space. Key initiatives during 2023 include the launch of a new integrated product in workforce, realisation of synergies with our Mondly language learning offering, and the further development of functionality and content on Pearson+. The risk is expected to remain at a similar elevated level for the next 12 months as key new requirements of the strategy are implemented. | |
Management actions |
1. Risk ratings are applied to each system and plans put in place to maintain system uptime, and recovery plans are in place in the event of downtime to allow customers to maintain as much functionality as possible or to get back online as soon as possible. 2. Each division conducts ongoing reviews of its key systems and implements updates and remedies where necessary. 3. Regular patching, activity, employee training and security measures such as multi-factor authentication help to ensure the stability and security of key Group systems. 4. The divisional structure allows decisions to be made by those closest to each market, to speed innovation and responsiveness. 5. The Group tracks employee engagement and has a significant focus on employee learning and development to help retain key talent. Senior management has undertaken leadership capability assessments and changes have been made to enhance capability, including new hires and development training. 6. Acquisitions such as Credly and Mondly have been made to build the Group’s capability in key strategic areas, such as Workforce Skills and direct-to-consumer | |
Link to strategy |
Capability relates to the three priorities to unlock growth: — Consumer-focused and data-led approach— Portfolio and organisational structure — Talent and culture | |
Risk tolerance |
Medium – the Group aims to ensure it has the capability to deliver strategic objectives, requiring strong coordination and planning, but without stifling innovation. | |
Examples of risks |
Business transformation and change Talent IT resilience | |
Risk contagion |
Failures in capability could result in increased reputation and responsibility risk and failures to meet customer expectations. | |
Risk velocity |
Failures of capability could impact within a six-month period. |
Annual report and accounts 2022 Pearson plc 45 |
Competitive marketplace | ||
Description |
Significant changes in our target markets could make those markets less attractive. This could be due to significant changes in demand or in supply which impact the addressable market, market share and margins (e.g., changes in enrolments, insourcing of learning and assessment by customers, open educational resources, a shift from in-person to virtual learning or vice versa or innovations in areas such as generative AI). | |
Movement and outlook |
This risk continues to be significant in our Higher Education business due to declining enrolments and competition from non-mainstream publishers, including open educational resources. In our other divisions, the risk remains moderately high, due to the pace of innovation and increased competition, although market growth provides some mitigation.The risk is expected to remain elevated for the next 12 months, due to the level of competitor activity being observed, as well as continued investment in educational technology. | |
Management actions |
1. The Group’s Assessment & Qualifications and Virtual Learning businesses, as service businesses, have a particular focus on working in partnership with customers, including IP owners, to ensure that their needs are being met, resulting in high retention rates on the long-term contracts in place. 2. The Group invests in emerging and maturing technologies to lead and respond to changes in market dynamics. Examples include online proctoring and digital-first scoring in assessments and qualifications, and virtual reality language learning in Mondly. 3. The Group’s strategy is to address learners wherever they choose to learn, reducing reliance on learners’ choosing particular institutions. Direct to consumer offerings such as Mondly and Pearson+ can be accessed via smartphone by anyone, while the developing Workforce Skills division addresses learners in the workplace. This complements our existing businesses such as Higher Education and US Student Assessment where the Group is introduced to learners through their college or school. 4. Competitive analysis is undertaken to monitor and respond to competitive threats, with decentralised teams able to mobilise quickly to maximise opportunities and manage risk. 5. Subscription product launches, including Pearson+, improve the customer value proposition. | |
Link to strategy |
We have identified three big global opportunities and associated marketplaces: — The rise in online and digital tools for schools and education — The workforce skills gap — The growing need for accreditation and certification | |
Risk tolerance |
Medium – This is a strategic risk associated with successfully selecting attractive global opportunities and seizing them. Pearson seeks to lead the shift to digital ways of learning and consequently to maintain strong market positions. | |
Examples of risks |
— Substitutes — Product differentiation — Consumer learning preferences | |
Risk contagion |
Changes in the competitive marketplace could increase portfolio change. | |
Risk velocity |
The changes in the global learning market over a four-year period are expected to be significant. The pace of these changes is uncertain but could be rapid, especially given the significant disruption and innovation since the spread of COVID-19. |
46 Pearson plc |
Content and channel risk | ||
Description |
Failure to select content and delivery channels to conveniently deliver anticipated learning, resulting in loss of sales. | |
Movement and outlook |
The risk remains at a moderate level. This is due to the increasing commoditisation of content, requiring continuing development of both content and the method of delivery to be able to provide differentiated products and services. The risk is expected to remain at a moderate level for the next 12 months, given the ongoing proliferation of methods for learners to choose for their learning and, the funding still available for educational technology businesses. | |
Management actions |
1. Increasing use of interactivity and multi-channel content, particularly on Pearson+, including by offering podcast content and videos (Pearson+ Channels). 2. Continuing focus on efficacy to ensure that Pearson products and services help the learner achieve better outcomes. 3. Actions to reduce piracy and to manage and enforce intellectual property rights. 4. Investment in acquisitions offering new methods for testing or delivering content. | |
Link to strategy |
Managing content and channel risk helps achieve our offering of high-quality, affordable products which lead to better access and outcomes. | |
Risk tolerance |
Medium – This is a strategic risk and Pearson should be rewarded for successfully developing and delivering products and services that consumers value. Some risk is accepted to ensure the consumer remains at the centre of what we do. | |
Examples of risks |
— Intellectual property protection — Method of delivery — Balance of content creation and content purchased | |
Risk contagion |
Failure to deliver high-quality and engaging products and services may have an impact on reputation and responsibility risks and on meeting customer expectations. | |
Risk velocity |
Due to longer-term contracts or the time required for instructors, or consumers themselves, to learn how to use the new products and services, the impact of changes would have some short-term impact, but is more likely to be fully felt over the longer-term. | |
Customer expectations | ||
Description |
Rising end-user expectations increase the need to offer differentiated value propositions, risking margin pressure to meet these expectations and potential loss of sales if not successful. | |
Movement and outlook |
The risk is still at a moderate level, with an expectation from consumers of an increasingly high-quality and engaging user experience. The outlook is similar for the next 12 months, with expectations rising in line with other industries. | |
Management actions |
Consumer activity is reviewed via a network of Campus Ambassadors, as well as learner surveys, net promoter scores and external reports. Sales teams regularly meet with faculty members, and content and editorial surveys are completed. The group’s direct to consumer offerings of Mondly and Pearson+ provide valuable insights about usage to help keep pace with changing customer expectations. Our service businesses conduct regular reviews with customers to ensure that their expectations are well understood and met and where gaps arise, steps are taken to address these concerns. | |
Link to strategy |
Focus on direct to consumer will help to successfully meet customer expectations. Direct-to-consumer | |
Risk tolerance |
Medium – This is a strategic risk and Pearson should be rewarded for successfully developing and delivering products and services that consumers value. Some risk is accepted to ensure the consumer remains at the centre of what we do. | |
Examples of risks |
— Customer experience — Data architecture and usage — Accessibility | |
Risk contagion |
Failure to produce products and services meeting customer expectations could also impact reputation and responsibility risks. | |
Risk velocity |
Typically, one to three years, as long-term contracts run off. |
Annual report and accounts 2022 Pearson plc 47 |
Portfolio change | ||
Description |
Failure to effectively execute desired or required portfolio changes to promote scale or capability and increase focus on key divisional and geographic markets, due to either execution failures or inability to secure transactions at appropriate valuations. | |
Movement and outlook |
The risk has increased in the last 12 months as the Group has made key strategic acquisitions such as Faethm, Mondly and Credly, which have been integrated within the company, and with the forthcoming acquisition of PDRI due to complete in H1 2023. The risk is expected to remain high in the next 12 months as these transactions are executed and the integration of recent acquisitions continues. | |
Management actions |
1. Investment plans included in strategic plans, aligning requirements with divisional structure. 2. An experienced Corporate Finance team to execute transactions, supported by a dedicated post-deal Operations team who oversee the integration and ensure that the required value is achieved. 3. Pearson Ventures allows Pearson to take stakes in early funding rounds supporting growth through innovation stages that could potentially be leveraged for the wider Group. | |
Link to strategy |
Portfolio and organisational structure to unlock growth. | |
Risk tolerance |
Medium – The Group seeks to balance carefully the opportunity to achieve growth through increasing capability and/or scale with the execution risk of portfolio change. | |
Examples of risks |
— Identification of requirements — Achieving value on acquisitions/disposals — Integration of acquisitions | |
Risk contagion |
Failures in managing portfolio change could impact capability and the ability to meet customer expectations. | |
Risk velocity |
The speed of achieving the full benefits of an acquisition will vary depending on the size and scope of the acquisition, but typically from six months for a simple small acquisition to two years for a larger complex transaction. |
48 Pearson plc |
Reputation & responsibility | ||
Description |
The risk of serious reputational harm through failure to meet obligations to key stakeholders. These include legal and regulatory requirements, the possibility of serious unethical behaviour and serious breaches of customer trust. | |
Movement and outlook |
The Group’s aim is to operate in a highly reputable and responsible manner and so we intend to maintain strong mitigations to reputation and responsibility risks. However, numerous threats exist including from those who seek to do harm to the Group or to its customers, including nation-state actors, organised criminal rings, and ransomware attackers, so constant vigilance is required. The risk is considered to be at a moderate to high level, increased since the last year end due to the general increased proliferation of cyber security and data privacy events and the businesses increasing online presence as well as the complexity of navigating different regional regulatory environments. The Group has continued to implement and follow proposals made by the company’s advisers in relation to a 2018 cyber security incident in connection with its AIMSweb 1.0 software, which resulted in a settlement with the US Securities and Exchange Commission (SEC), including an obligation to pay a civil penalty of $1 million agreed on 16 August 2021. | |
Management actions |
1. Dedicated risk management teams throughout the organisation monitor and respond to key risks. These teams provide regular updates to senior management and report to the Reputation & Responsibility Committee or Audit Committee as relevant. 2. All staff are required to undertake training on educational policy, how to identify cyber threats and data privacy, amongst other topics. 3. The Group makes significant investments to ensure high levels of IT resilience and to ensure it has tools in place to repel cyber threats and safeguard customer information. 4. Cyber security and data privacy are topics which are always reviewed as part of the divisional risk deep dive exercises undertaken and reported to the Audit Committee. This work highlights any issues which have arisen and the relative vulnerability of platforms and software. 5. Strong financial controls are in place which are monitored by the controls steering committee and compliance teams as well as local management. 6. Reviews are undertaken after incidents and significant near misses to allow lessons to be learned and any remedial actions put in place. Internal Audit are asked to provide assurance around remediation actions for key risks in a timely manner. | |
Link to strategy |
Our reputation and commitment to behaving responsibly underpin our strategy to be a trusted partner for consumers, businesses and educators. | |
Risk tolerance |
Low – the Group seeks to be a highly trusted consumer learning brand. Any significant failures could negatively affect our relationship with consumers today and in the future. | |
Examples of risks |
— Compliance with laws and regulations — Cyber security — Data privacy — Safeguarding — Test failure — Use of third parties | |
Risk contagion |
Significant failures in this area could increase Pearson’s capability and accreditation risks and weaken our position in the competitive marketplace. | |
Risk velocity |
Reputational risks could impact within a six-month period. |
Annual report and accounts 2022 Pearson plc 49 |
Risks |
Accountability |
Change since 2021 | ||
Accreditation risk |
||||
Political and regulatory |
Chief Legal Officer and Divisional Presidents |
No | ||
Capability risk |
||||
Business resilience |
Chief Legal Officer and Divisional Presidents |
Yes | ||
Business transformation and change |
Divisional Presidents and Chief Executive Officer |
No | ||
IT resilience |
Divisional Presidents and Chief Information Officer |
No | ||
Safety and corporate security |
Chief Legal Officer and Divisional Presidents |
Yes | ||
Talent |
Divisional Presidents and Chief Human Resources Officer |
No | ||
Competitive marketplace risk |
||||
Consumer learning preferences |
Divisional Presidents |
No | ||
Market pricing |
Divisional Presidents |
No | ||
Product differentiation |
Divisional Presidents |
No | ||
Substitutes |
Divisional Presidents |
No | ||
Content and channel risk |
||||
Effective method of delivery (podcast, video, test, in-person, online) |
Divisional Presidents |
No | ||
Intellectual property protection |
Chief Legal Officer and Divisional Presidents |
No | ||
Products and services – effective investment in own and third-party content |
Divisional Presidents |
No | ||
Balance of content creation vs content purchased |
Divisional Presidents |
No | ||
Customer expectations risk |
||||
Customer experience |
Divisional Presidents |
No | ||
Accessibility |
Divisional Presidents |
No | ||
Customer experience |
Divisional Presidents and Chief Legal Officer |
No | ||
Data architecture and usage |
Chief Data Officer and Divisional Presidents |
No | ||
Portfolio change risk |
||||
Achieving value on acquisitions/disposals |
Chief Financial Officer and Chief Strategy Officer |
No | ||
Identification of requirements |
Chief Executive Officer, Chief Financial Officer and Chief Strategy Officer |
No | ||
Integration of acquisitions |
Chief Financial Officer |
No | ||
Reputation and responsibility risk |
||||
Compliance with laws and regulations |
Chief Legal Officer and Divisional Presidents |
No | ||
Cyber security |
Chief Information Officer |
No | ||
Safeguarding |
Chief Legal Officer and Divisional Presidents |
Yes | ||
Test failure |
Assessment & Qualifications, English Language Learning and Workforce Skills Divisional Presidents |
No | ||
Data privacy |
Chief Legal Officer and Divisional Presidents |
No | ||
Use of third parties |
Chief Financial Officer and Divisional Presidents |
No |
50 Pearson plc |
Classification and change | ||||||
Risks |
Description |
Accountability |
since 2021 | |||
Climate transition |
Costs associated with offsetting carbon emissions which cannot be fully reduced may lead to decreased margins. Expectations around climate change commitments and measurements change on a regular basis. |
Chief Legal Officer and Divisional Presidents |
Emerging risk. No change. | |||
COVID-19 |
The risk of future long-term COVID-19-related |
Chief Executive Officer |
Significant near-term risk. No change. | |||
Inflation |
High global inflation risks increasing the cost of production for Pearson, which the Group may not be able to fully pass on. |
Chief Financial Officer and Divisional Presidents |
Emerging risk. No change. | |||
Recession |
Recession in global markets could put pressure on school, enterprise and consumer budgets, reducing demand for our products and services. This has particular potential to negatively impact our English Language Learning and Workforce Skills divisions, unless disruption in the labour market encourages more people to retrain. Our Higher Education division has historically been counter-cyclical due to the link between unemployment and learning needs, although it is not known whether this will be the case in the future. Our Assessment & Qualifications and Virtual Learning divisions typically benefit from long-term contracts, often with state funding, and so are less likely to be affected in the short term. |
Chief Executive Officer |
New emerging risk. | |||
Supply chain |
Disruption at ports globally and challenges for suppliers may lead to business interruption if not fully planned for and mitigated. |
Chief Financial Officer and Divisional Presidents |
Emerging risk. No change. | |||
Tax |
The outcome of State Aid decisions and a potential risk in Brazil could lead to significant one-off costs or benefits in the near-term. |
Chief Financial Officer |
Significant near-term risk. No change. | |||
War in Ukraine |
This has resulted in sanctions being imposed on Russia by numerous countries, and as a result the Group closed it’s Russian operations during 2022. Pearson’s operations in Ukraine are small and so any related disruption would be expected to have an immaterial impact on Group sales, profits and cash. However, an escalation of the conflict could lead to a material risk if extended beyond those countries. |
Chief Executive Officer |
Emerging risk. No change. |
Annual report and accounts 2022 Pearson plc 51 |
— | Risks associated with potential political and regulatory changes in School Assessments |
— | Risks associated with potential political and regulatory changes in Virtual Schools |
— | Loss of Pearson Test of English recognition in Australia |
— | Additional costs to recruit teachers and students due to market conditions |
— | Capability challenges in sales and technology reduce sales and result in increased costs |
— | Revenue declines in Higher Education due to enrolment and competition pressures |
— | Pearson Test of English declines due to lower immigration |
— | Competition from lower cost proctoring offerings |
— | Additional costs to ensure accessible content |
— | Loss of sales due to poor choice of content and/or channel |
— | Additional costs to provide higher than planned functionality and level of user experience |
— | Failure to achieve anticipated acquisition synergies |
— | Potential cyber and data breaches negatively impacting reputation on an ongoing basis |
— | Potential safeguarding incidents negatively impacting reputation on an ongoing basis |
— | Potential for increased costs and lower sales because of a weak macro environment |
52 Pearson plc |
“A focus on strategic clarity, operational discipline and sustainable success for the benefit of all stakeholders.” |
54 Pearson plc |
Compliance with the UK Corporate Governance Code |
||||
The principles set out in the UK Corporate Governance Code (the ‘Code’) emphasise the value of good corporate governance to the long-term sustainable success of listed companies. The Pearson Board is responsible for ensuring that the Group has in place appropriate frameworks to comply with the Code’s requirements. This governance report and the strategic report set out how Pearson has applied the principles of the Code throughout the year. |
||||
The Board believes that during 2022 the company was in full compliance with all applicable principles and provisions of the Code, save that, as described last year, Pearson is not fully compliant with Provision 36 of the Code on the basis that the shares awarded under the Chief Executive’s co-investment award made in 2020 are subject to a post-vesting holding period until 31 December 2023, rather than the total vesting and holding period of five years or more required by the Code. Further detail is provided in the Directors’ remuneration report. |
Annual report and accounts 2022 Pearson plc 55 |
Pearson Board members bring a wide range of experience, skills and backgrounds which complement our strategy. |
Audit | ||
Nomination & Governance | ||
Reputation & Responsibility | ||
Remuneration | ||
Committee Chair |
Omid Kordestani |
Andy Bird, CBE |
Sally Johnson | ||
Chair |
Chief Executive |
Chief Financial Officer | ||
Aged 59 |
Aged 59 |
Aged 49 | ||
Appointment |
||||
First appointed to the Board 1 March 2022 Chair since 29 April 2022 |
First appointed to the Board 1 May 2020 Chief Executive Officer since 19 October 2020 |
Chief Financial Officer since 24 April 2020 | ||
Skills and experience |
||||
Omid is an international businessman who serves on the boards of Klarna Bank AB and Klarna Holding AB and is a Council Member for Balderton Capital. He was Executive Chair of Twitter, Inc. between October 2015 and May 2020, and a Board Member until October 2022. From August 2014 to August 2015, Omid served as Senior Vice President and Chief Business Officer at Google and previously from May 1999 to April 2009 as Senior Vice President of Global Sales and Business Development. From 1995 to 1999, Omid served as Vice President of Business Development at Netscape Communications Corporation. Prior to joining Netscape Communications Corporation, Omid held positions in business development, product management and marketing at The 3DO Company, Go Corporation and Hewlett-Packard Company. |
Andy has a long and distinguished career spanning over 35 years in the media industry, and he is an accomplished, strategic leader of global consumer content businesses. Most recently, he spent 14 years working for The Walt Disney Company, joining the business as President of Walt Disney International in 2004 before being appointed Chair in 2008. He held this role for a decade, during which time he transformed the organisation into a digital-first, direct to consumer business, focused on serving the diverse needs of customers around the world. In addition, Andy worked to establish the iconic brand in China, through the creation of Disney English, teaching English language to local families through immersive learning experiences. Prior to Disney, Andy worked in a number of senior positions at AOL Time Warner, and spent the earlier part of his career at Piccadilly Radio, Virgin Broadcasting Company, BSB Music Channel, Big & Good Productions, and Unique Broadcasting. |
Sally joined Pearson in 2000 and has held various finance and operations roles across the business, both at a corporate level and within the divisions, including The Penguin Group. She brings to the Board extensive commercial and strategic finance experience as well as expertise in transformation, treasury, tax, risk management, business and financial operations, investor relations and mergers and acquisitions. She has held various senior-level roles across the business, most recently as Deputy CFO of Pearson. Sally is a member of the Institute of Chartered Accountants in England and Wales and trained at PricewaterhouseCoopers. She was also a Trustee for the Pearson Pension Plan from 2012 to 2018. |
56 Pearson plc |
Sherry Coutu, CBE |
Esther Lee |
Linda Lorimer |
Graeme Pitkethly | |||
Non-Executive Director |
Non-Executive Director |
Non-Executive Director |
Non-Executive Director | |||
Aged 59 |
Aged 64 |
Aged 70 |
Aged 56 | |||
Appointment |
||||||
Non-Executive Director since1 May 2019 |
Non-Executive Director since1 February 2022 |
Non-Executive Director since1 July 2013 |
Non-Executive Director since1 May 2019 | |||
Skills and experience |
||||||
Sherry is a seasoned non-executive director with extensive plc experience in the financial services, technology, and education sectors where she has held numerous senior leadership positions, including Chair, Senior Independent Director, and Chief Executive Officer. Prior to her portfolio career, Sherry founded several technology companies and invested in 70 companies and five venture capital firms.Presently, Sherry serves as the Chair of Workfinder, a technology start-up specialising in AI-based recruitment services, and Raspberry Pi, a computer company. Sherry’s previous non-executive director experience includes the London Stock Exchange Group plc, DCMS, Zoopla plc, and RM plc. She has also served on the Advisory Boards of LinkedIn, the National Gallery, the Royal Society, and NESTA. |
Esther brings significant experience to the Pearson Board through her prior executive leadership roles in developing customer strategies to drive growth, global marketing and branding; driving digital transformation; and building high-performance teams. She has a long track record of senior leadership roles working for global consumer-facing brands. Most recently, she served as Executive Vice President – Global Chief Marketing Officer at MetLife Inc. Previously, Esther served as Senior Vice President – Brand Marketing, Advertising and Sponsorships for AT&T, and she has served as CEO of North America and President of Global Brands for Euro RSCG Worldwide. Prior to that, she served for five years as Global Chief Creative Officer for The Coca-Cola Company. Esther is a Board member at The Clorox Company where she chairs the Nomination & Governance Committee. Current notable commitments The Clorox Company (Non-Executive Director) |
Linda is currently a Senior Advisor at the Boston Consulting Group and has spent almost 40 years serving higher education. She retired from Yale in 2016 after 34 years at the university where she served in an array of senior positions, including Vice President for Global and Strategic Initiatives. She oversaw the development of Yale’s online education division and the expansion of Yale’s international programmes and centres. During her tenure, she was responsible for many administrative services, ranging from Yale’s public communications and alumni relations to sustainability, human resources, and the university press. She also served on the boards of several public companies, including as Presiding Director of the McGraw-Hill companies. Linda is a member of the Board of Yale New Haven Hospital, where she chairs the Nomination & Governance committee. She also remains on several consequential advisory committees at Yale University. |
Graeme is the Chief Financial Officer and a Board member of Unilever. He joined Unilever in 2002 and, prior to his appointment as the CFO, was responsible for its UK and Ireland business. He also held a number of senior financial and commercial roles within Unilever and spent the earlier part of his career in senior corporate finance roles in the telecommunications industry. Graeme served as Vice President of Financial Planning and Vice President of Corporate Development at FLAG Telecom and started his career at PricewaterhouseCoopers. Graeme is a Vice Chair of the Task Force on Climate-Related Financial Disclosures, a Member of the Strathclyde University Centre for Sustainable Development and is a Chartered Accountant. Current notable commitments Unilever plc (Chief Financial Officer) |
Annual report and accounts 2022 Pearson plc 57 |
Tim Score |
Annette Thomas |
Lincoln Wallen |
||||
Deputy Chair and Senior Independent Director Aged 62 |
Non-Executive DirectorAged 57 |
Non-Executive Director |
||||
Aged 62 | ||||||
Appointment |
||||||
Non-Executive Directorsince 1 January 2015 Senior Independent Director since 30 April 2021 Deputy Chair since 29 April 2022 |
Non-Executive Directorsince 1 October 2021 |
Non-Executive Directorsince 1 January 2016 |
||||
Skills and experience |
||||||
Tim has extensive experience of the technology sector in both developed and emerging markets, having served for 13 years as CFO of ARM Holdings plc, the world’s leading semiconductor IP company. He is an experienced Non-Executive Director and was appointed as a Non- Executive Director of Bridgepoint Group PLC in 2021, alongside his roles as Chair of The British Land Company plc, a Non-Executive Director of the Football Association, and a Trustee of the National Theatre. Tim has garnered extensive financial and listed company experience during previous and current positions. He served on the board of National Express Group plc from 2005 to 2014, including time as interim Chair and six years as SID. Earlier in his career, Tim held senior finance roles with Rebus Group, William Baird, LucasVarity plc and BTR plc.Current notable commitments The British Land Company plc (Chair), Bridgepoint Group PLC (Non-Executive Director) |
Annette has a 25-year track record in leading global publishing and data analytics businesses, across academic, educational and consumer media verticals. Most recently, she served as CEO of Guardian Media Group, a position she held until June 2021. Prior to this, Annette was CEO of the Web of Science Group at Clarivate Analytics, a data, analytics and software business focused on research and higher education. She has also served as CEO of Macmillan Publishers and led the digital and global transformation of Nature Publishing Group.She currently serves as Senior Advisor to General Atlantic. Her previous non-executive experience includes serving as a Trustee of Yale University, Non-Executive Director at Clarivate Analytics (2017), and as a Board member for Cambridge University Press and Cambridge Assessment (2019-2020). She has also previously acted as an advisor to Creative Commons and Bain Capital. |
Lincoln has extensive experience in the technology and media industries, and is currently CTO of Improbable, a technology start-up supplying next-generation cloud hosting and networking services to the video game industry. Lincoln was CEO of DWA Nova, a software-as-a- Non-Executive Director of the Smith Institute for Industrial Mathematics and Systems Engineering, and Varjo, a manufacturer of augmented, virtual and mixed reality headsets for professionals. His early career involved 20 years of professional IT and mathematics research, including as a Reader in Computer Science at Oxford.Current notable commitments Improbable (Chief Technology Officer) |
58 Pearson plc |
Gender |
Ethnicity 1 | |||
Nationality |
Tenure | |||
Annual report and accounts 2022 Pearson plc 59 |
Key | ||
Internal appointment | ||
External appointment | ||
Tom ap Simon
|
Ali Bebo
|
Tim Bozik
|
Lynne Frank
|
Gio Giovannelli
| ||||
President – Higher Education and Virtual Learning Aged 44 |
Chief Human Resources Officer Aged 54 |
Interim Chief Product Officer and Co- President, Direct to Consumer |
Chief Marketing Officer and Co- President, Direct to Consumer |
President – English Language Learning Aged 50 | ||||
Aged 61 |
Aged 56 |
|||||||
Appointment |
||||||||
Joined Pearson 1 December 2004 Appointed to the PEM 1 April 2021 |
Joined Pearson 13 December 2021 Appointed to the PEM 13 December 2021 |
Joined Pearson 18 May 1998 Appointed to the PEM 23 May 2013 |
Joined Pearson 16 November 2020 Appointed to the PEM 16 November 2020 |
Joined Pearson 1 February 2014 Appointed to the PEM 1 April 2016 | ||||
Skills and experience |
||||||||
Tom has 19 years of international business and finance experience. At Pearson, he has led the Virtual Schools business, worked in finance for the emerging markets businesses and led M&A activity in the US. Previously, he worked in investment banking at RW Baird. Tom holds an MA in Economics and Politics from the University of Edinburgh. |
Ali is a senior executive with over 25 years of experience building culture for transformative business performance across multiple industries. Prior to joining Pearson, she was an officer and CHRO for Hologic, Inc., a global medical technology company. Prior to Hologic, she held various HR leadership roles with the specialty retail company, ANN INC. Ali earned her BA in Political Science from the University of California, Los Angeles. |
Tim has more than 30 years of extensive leadership experience in higher education products and the business of delivering them at Pearson. Tim earned a Bachelor’s Degree from the University of Notre Dame and currently serves on the Board of Directors for the Association of American Publishers. |
Lynne has over 25 years of experience in the media industry. Previously, she has worked in companies such as WarnerMedia, ESPN/Disney and Turner Broadcasting. Lynne holds a degree in economics and business, and a certificate in corporate board governance from the University of California, Los Angeles (UCLA). |
Gio has over 25 years of international business experience, including four CEO roles in Brazil. Previous board roles include BOVESPA-listed Natura and CVC Viagens. Gio graduated from Bocconi University, holds an Economics PhD and is an OPM graduate of Harvard Business School. |
PEM Composition |
||
Gender |
Ethnicity 1 | |
These figures reflect the executive team excluding the Company Secretary. The Chief Executive and Chief Financial Officer have been excluded and are counted in the Board metrics on page 59. For diversity data in the format prescribed by LR 9.8.6R(10), please see page 225. 1. Ethnicity categories are based on the UK’s Office for National Statistics classification. 60 Pearson plc |
Mike Howells
|
Sulaekha ‘Sue’ Kolloru Barger
|
Cinthia Nespoli
|
Art Valentine
|
Marykay Wells
| ||||
President – Workforce Skills Aged 46 |
Chief Strategy Officer Aged 47 |
Chief Legal Officer Aged 42 |
President – Assessment & Qualifications Aged 58 |
Chief Information Officer Aged 60 | ||||
Appointment |
||||||||
Joined Pearson 1 December 2020 Appointed to the PEM 1 December 2020 |
Joined Pearson 16 May 2022 Appointed to the PEM 16 May 2022 |
Joined Pearson 1 February 2014 Appointed to the PEM 21 May 2020 |
Joined Pearson 23 January 2006 Appointed to the PEM 1 February 2022 |
Joined Pearson 14 July 2014 Appointed to the PEM 16 March 2022 | ||||
Skills and experience |
||||||||
Mike has more than 20 years of international business experience. Previously, he has worked in the British diplomatic network and the UK Foreign, Commonwealth and Development Office. Mike holds a Master’s degree in International Law from the University of Nottingham and an Anthropology degree from University College London. |
Sue has more than 20 years of global strategy and corporate experience. Previously, she held engineering roles at technology companies. Sue holds an MBA from The Wharton School at the University of Pennsylvania and a BSc in electrical engineering from the University of Ottawa in Canada. She has served on several non-profit boards and councils focused on diversity and STEM. |
Cinthia has over 19 years of international legal and compliance experience. Previously, she held leadership roles in legal and compliance at multinational companies. Cinthia was admitted to the Brazilian bar in 2004 and earned her law degree from Pontifícia Universidade Católica de Campinas as well as a post-graduate degree in tax law from Pontifícia Universidade Católica de São Paulo. |
Art has more than 30 years of leadership experience in assessments, testing, and technology. Prior to his 16 years at Pearson serving as a senior leader of Pearson VUE and as Managing Director of Pearson Clinical Assessment, Art worked at Promissor, which was acquired by Pearson in 2006. Art earned his MS in Mathematical Science/Computer Science from the University of North Carolina Chapel Hill. |
Marykay has over 30 years of strategic planning and large, global technology transformation experience. Prior to joining Pearson, Marykay had CIO roles at Nortel, Tekelec (acquired by Oracle) and Extreme Networks. Marykay holds a BS degree in Computer Information Science from Clarkson University and is a member of the organising committee for the Accenture Women’s Summit, Salesforce Advisory Board, Google Leadership Advisory, and a member of the Gartner Research Board. |
Nationality |
External/Internal Appointment | |
Annual report and accounts 2022 Pearson plc 61 |
Nomination & Governance Committee |
Reputation & Responsibility Committee |
Audit Committee |
Remuneration Committee | |||||||
Reviews corporate governance matters, including Code compliance and Board evaluation; considers the appointment of new Directors, Board experience and diversity; and reviews Board induction and succession plans as well as wider workforce engagement. |
Oversees our sustainability and ESG framework, including progress towards our sustainable business strategy commitments. Works to assess and advance Pearson’s reputation with stakeholders, including through the areas of branding, culture, employee engagement and values. |
Appraises our financial management and reporting and assesses the integrity of our accounting procedures and financial controls. The Committee also oversees risk, compliance and internal audit. |
Determines the remuneration and benefits of the Executive Directors and oversees remuneration arrangements for the Pearson Executive Management team, as well as monitoring remuneration policies for the wider workforce. | |||||||
Chair |
Chief Executive |
Deputy Chair and Senior Independent Director |
Company Secretary | |||||||
The Chair is primarily responsible for the leadership of the Board and ensuring its effectiveness. They ensure that the Board upholds and promotes the highest standards of corporate governance, setting the Board’s agenda and encouraging open, constructive debate of all agenda items for effective decision-making. They regularly meet the Chief Executive to stay informed and provide advice. They also ensure that shareholders’ views are communicated to the Board. |
The Chief Executive is responsible for the operational management of the business and for the development and implementation of the company’s strategy, as agreed by the Board and management. They are responsible for developing operations, proposals and policies for approval by the Board, they promote Pearson’s culture and standards, and they are one of the key representatives of the company to its external stakeholders. |
The Deputy Chair and Senior Independent Director supports the Chair on Board effectiveness and governance matters. This role includes meeting regularly with the Chair and Chief Executive to discuss specific issues, as well as being available to shareholders generally, should they have concerns that have not been addressed through the normal channels. The Deputy Chair and Senior Independent Director also leads the evaluation of the Chair on behalf of the other Directors. |
The Company Secretary advises on governance matters and compliance with Board procedures. They are responsible, under the direction of the Chair, for ensuring the Board receives accurate, clear and high-quality information, and has adequate time and appropriate resources to function effectively and efficiently. They also support the Chair in delivering the corporate governance agenda, and organise director induction, training programmes and the Board evaluation process. | |||||||
Pearson Executive Management |
Standing Committee |
Authorities and duties |
||||||||
The Pearson Executive Management team consists of the Chief Executive and their senior direct reports. They are the executive leadership group for Pearson and are responsible for delivering Pearson’s strategy under clearly defined accountabilities and in line with agreed governance and processes. |
A Standing Committee of the Board is established to approve certain operational and ordinary course of business items such as banking matters, guarantees and intra-Group transactions. They also make routine approvals relating to employee share plans. Additional authority may be delegated on an ad-hoc |
The authorities and duties of the Board and its Committees, as well as the roles and responsibilities of key individuals on the Board, are clearly set out in writing. These documents are reviewed and approved by the Board on an annual basis and are available on the company’s website (www.pearsonplc.com). |
62 Pearson plc |
The Board is deeply engaged in developing and measuring the company’s long-term strategy, performance, culture and values. We believe that Board members provide a valuable and diverse set of external perspectives and that robust, open debate about significant business issues brings an additional discipline to major decisions. |
— | overall leadership of the company and setting the company’s values and standards, including monitoring culture and diversity, equity and inclusion (DE&I) initiatives |
— | reviewing and determining the company’s strategy, including in relation to environmental, social and governance (ESG) matters, in consultation with management, assessing performance against the strategy and overseeing management’s execution of it |
— | supervising major changes to the company’s corporate, capital, management and control structures |
— | approval of all transactions or financial commitments in excess of the authority limits delegated to the Chief Executive and other executive management — assessment of management performance, Board and executive succession planning and talent pipeline |
— | effective engagement with key stakeholders |
Strategy |
Performance |
Leadership & people |
Governance & risk |
Shareholder engagement | ||||
— Ongoing digital transformation — Direct to consumer strategy — Pearson+ performance — Implementation of Group strategy — Oversight of Four-Year Strategic Plan and approval of 2023 annual operating plan — M&A pipeline and post-acquisition reviews, as well as consideration, approval and regular updates of major transactions — Enterprise and ecosystem strategic update — Data strategy |
— 2021 preliminary results and annual report and accounts — 2022 operating plan performance, including interim results and trading updates — Regular dashboard and milestone reports — Continuing review of forecasts — Final and interim dividend proposals |
— Talent review, pipeline development and succession planning — Culture — DE&I initiatives — Employee Engagement Network engagement and feedback — Employee survey assessments — Purpose, vision, mission and values — Workforce learning and development |
— Legal and regulatory governance compliance — Data privacy and cyber security matters — Board and Committees’ effectiveness evaluation — Regular review and annual confirmation of conflicts of interest — Approval of Committees’ terms of reference — Approval of division of responsibilities between Chair, Deputy Chair and Senior Independent Director, and Chief Executive — Risk management report |
— Investor relations strategy, updates, and share price performance — Shareholder issues and voting — AGM and related shareholder interactions — Feedback from Board member meetings with shareholders — Major shareholders and share register analysis |
Annual report and accounts 2022 Pearson plc 63 |
Scheduled meetings attended |
||||
Chair |
||||
Omid Kordestani 1 |
4/4 |
|||
Sidney Taurel 2 |
3/3 |
|||
Executive Directors |
||||
Andy Bird |
6/6 |
|||
Sally Johnson |
6/6 |
|||
Non-Executive Directors |
||||
Sherry Coutu |
6/6 |
|||
Esther Lee 3 |
5/5 |
|||
Linda Lorimer |
6/6 |
|||
Graeme Pitkethly |
6/6 |
|||
Tim Score |
6/6 |
|||
Annette Thomas |
6/6 |
|||
Lincoln Wallen |
6/6 |
1. | Omid Kordestani joined the Board as a Non-Executive Director on 1 March 2022 and became the Chair on 29 April 2022. |
2. | Sidney Taurel resigned from the Board on 29 April 2022. |
3. | Esther Lee joined the Board on 1 February 2022. |
64 Pearson plc |
The application of our Board and governance processes ensures that our Directors receive accurate, timely and clear information from a range of sources. This allows the Board and Committees to monitor and provide feedback on matters of importance, as well as to make informed decisions in the best interests of the company and its stakeholders. |
Cultural indicator |
How it is overseen |
Board level responsibility | ||
Employee engagement |
The Board ensures engagement through multiple channels, including the new Pearson Engagement Survey in 2022 (the results of which were discussed by the Reputation & Responsibility Committee), our Employee Engagement Network (EEN), and town hall sessions. Read more on page 68. |
|||
Code of conduct and training |
The Audit Committee is briefed on our annual Code of Conduct programme, including development of the code, completion rates, training and certification methods. Certification of the code is mandatory and we achieved a 100% employee completion rate in 2022. We also have mandatory training for all employees on cyber security and data privacy, and targeted training for employees in certain roles, divisions or geographies. |
|||
Compliance, including whistleblowing and investigations |
The Chief Compliance Officer reports to the Audit Committee at every meeting on new and ongoing investigations, including matters raised through our SpeakUp process. The Audit Committee considers the programme’s effectiveness annually, including peer benchmarking. The Audit Committee Chair ensures the Board has visibility of matters of note. The Board is free to request further information to support its oversight. |
|||
Internal audit |
Insights into elements impacting our culture and cultural behaviours are provided where necessary by internal audit to the Audit Committee as part of the findings and recommendations in its reports. |
|||
Health and safety (‘H&S’) |
The Reputation & Responsibility Committee receives an annual H&S report, so Directors can monitor the key strands of our H&S framework, including: oversight of how Pearson is enabled through awareness, competency, resources and guidance to allow for agile and effective management of H&S risk, while also receiving comfort that we have controls for compliance and assurance purposes. |
|||
Remuneration practices and rewarding the workforce |
The Remuneration Committee monitors the wider Employee Reward framework, including incentive target setting for group plans, fair pay analysis, Chief Executive pay ratios and alignment of Directors’ pension contribution to the workforce. It also oversees integration of ESG measures into incentive targets. This suite of activity provides insights into the roles that remuneration and setting performance goals play in promoting the right behaviours, particularly in driving a culture of performance, and how incentives and rewards align with culture. |
|||
Talent attraction and retention |
The Chief Human Resources Officer regularly updates the Remuneration Committee on talent considerations, including trends on recruitment, retention and staff turnover. Talent attraction and retention plays into our ability to execute our strategy, so it is considered in strategic discussions by the Board and executive team. Recognising the importance of our people, Talent is a sub-category of our principal risk, Capability. Read more about our risk management approach starting on page 43. |
Annual report and accounts 2022 Pearson plc 65 |
— | we revised the terms of reference of the RRC to reflect Pearson’s sustainable business strategy and to acknowledge the RRC’s role with respect to the requirements of the external ESG landscape |
— | we formally included employee engagement matters in the RRC’s remit, alongside culture, with a particular emphasis on diversity and high-performance |
— | we further codified the ESG duties of the other Committees, such as the Audit Committee’s role in overseeing the integrity and assurance of ESG data, reporting and metrics, and the Remuneration Committee’s considerations around incorporation of, and performance against, ESG metrics in remuneration decisions |
— | in order to support alignment in approach and information sharing across all Committees, Annette Thomas, Non-Executive Director, was appointed to the Remuneration Committee, in addition to her existing membership of the RRC and Nomination & Governance Committee |
— | we held a dedicated session for the Remuneration Committee on the topic of Pearson’s sustainability strategy, to ensure that it was fully apprised of key matters in this space as it began work on the new Directors’ remuneration policy. The session was led by the Chief Legal Officer and VP – Sustainability, with the Chair of the RRC, Linda Lorimer, also in attendance. |
— | monitoring the performance of Pearson+ and considering the next steps for its expansion, in support of our aims to extend our digital content offering, reach and accessibility |
— | continued oversight of data privacy and cyber security matters by the Audit Committee. This included monitoring management’s implementation of actions that were recommended as part of a review of Pearson’s privacy and security programme, commissioned by the Board in 2021 |
— | discussion and endorsement of talent, culture and employee engagement initiatives, as set out on pages 65-68. |
66 Pearson plc |
A strong understanding of all our stakeholders and their perspectives is integral to our strategic planning and operational delivery. Our Board strategy sessions are informed by the views and needs of our eight stakeholder groups: consumers, educational institutions and educators, employers, business partners and institutions, government and regulators, employees, shareholders, and our communities. |
Shareholder engagement at a glance Over 2022, our Chief Executive, Chief Financial Officer and Divisional Presidents, as well our investor relations team, participated in meetings, conferences, roadshows and events across the world. This concluded with an intensive Q4 roadshow with outreach to over 350 investors and conference participation across the US, Europe and the UK. |
With |
Annual report and accounts 2022 Pearson plc 67 |
68 Pearson plc |
Our Board’s decision-making in action Acquisition of Mondly This case study on our acquisition of Mondly, which was announced in April 2022, illustrates how the Directors considered the various aspects of their statutory duties in making the decisions related to the acquisition and its implications for stakeholders. This case study should be read in conjunction with the Directors’ duties statement on page 29. Mondly offers consumers high-quality learning in English and 40 other languages through its app, website, and its virtual reality and augmented reality products. It delivers language courses for personal and professional learning in a combination of more than 1,300 language pairs alongside enterprise solutions and an award-winning app that helps children learn languages. Mondly was Pearson’s first major acquisition in the English Language Learning (ELL) division since the implementation of the new divisional structure, and is integral to its growth plans. The Board paid particular attention in its decision-making to assessing the strategic rationale, integration plans, and synergies to ensure these were robust, clear and achievable. The Board was of the view that Mondly’s technological capability and user experience, combined with the growing direct to consumer language learning market, could provide an engine for future growth of the ELL division based on a successful platform that was well-regarded in the market and had begun to scale while maintaining profitability. Alongside these considerations, the modularised, application-based nature of Mondly’s products had the potential to integrate with Pearson+. The Board understood that Mondly represented a potential avenue to link together ELL’s assessment capability and world-class content through a new channel, as well as noting potential synergies across the portfolio, such as offering the opportunity to bundle language learning with upskilling and reskilling products through Pearson’s Workforce Skills division. The Board was positive about how these potential synergies could play an important role in Pearson’s continued commitment to serve the lifelong learning needs of people around the world. When considering this acquisition, the Board received detailed updates from management (with input from specialists within the business and external advisers) setting out the strategic rationale, anticipated commercial synergies, due diligence findings, valuation and returns analysis, stakeholder considerations, structuring considerations, risks and detailed post-acquisition integration plans. The Board noted how the broader Pearson organisation could support Mondly in optimising its content for Pearson’s target audience of lifelong learners. This was balanced against key risks, such as the difficulty of profitably scaling a direct to consumer proposition and the cultural and operational challenges of post-acquisition integration. Overall, the Board considered Mondly to be an attractive acquisition opportunity, underpinned by its management, the skills and transformational potential of the Mondly team, and strong market fundamentals. Throughout the decision-making process, the Board considered how the acquisition could accelerate the company’s strategy and how the expertise acquired as a result of the acquisition would benefit Pearson stakeholders, all while ensuring that the acquisition was financially viable. The Board was mindful that this acquisition could promote sustainable economic growth and inclusively support learners in their language learning journey. In its decision-making, the Board considered Pearson’s key stakeholders in the following ways. |
Consumers Our strong direct to consumer ambitions put consumers at the heart of our strategic decisions. Mondly’s mission is to build bridges between people and cultures by making language learning fun and easy through technological innovation. The ambition to bring people together sits at the core of Mondly’s work. Furthermore, it strengthens Pearson’s commitment to its purpose of adding life to a lifetime of learning, offering learners new experiences and powerful ways to immerse them in a new language, including, in the long term, through its AR and VR capabilities. As part of its decision-making, the Board noted the broader appeal of developing transferable skills, including foreign language fluency, which can boost employability and success in life. Communities Mondly presented the opportunity to reach learners of all languages across the world by providing a go-to solution for both adults and children. In the Board’s view, Pearson could play an important role in upscaling content by leveraging its existing capabilities, excellent content, and network of customers and consumers to enhance the Mondly offering. This could benefit learners at all stages of their language learning journey - from beginner to advanced - using different features to make learning fun, engaging and accessible for users from a wide spectrum of socioeconomic circumstances and backgrounds globally.Employees Pearson and Mondly’s communications and HR teams worked closely to form an acquisition communications plan for employees and customers. For example, Pearson employees heard directly from the Chief Executive about how Mondly aligned with the company’s strategy, particularly in the ELL space. The Board viewed people and talent integration as crucial for this acquisition, noting that it was imperative to retain Mondly employees, and to maintain their customer-centric approach. In particular, the Board considered various initiatives to retain the skill set of Mondly employees, acknowledging that some of Pearson’s existing employee base might need to pivot their skill set and approach to support the speed and growth of Mondly and to develop into a multi language learning business. Considering the relatively small size of its team, the Directors were also aware of minimising the strain of integration on Mondly. They were keen to ensure appropriate acquisition speed and to prepare for a multiyear gradual and disciplined approach to reach full integration of Mondly into Pearson, while also remaining mindful of Mondly’s obligations once part of the Pearson group. Employers MondlyWORKS, the language learning solution for businesses offered by Mondly, provided the opportunity for Pearson to strengthen Mondly’s appeal by leveraging existing content and assessment solutions. The Directors also noted that Mondly’s solutions would be a strong addition to Pearson’s existing language learning products for corporate customers. The Board considered MondlyWORKS to be capable of offering commercial synergy opportunities that would benefit employers through sophisticated language learning content. Shareholders In considering the acquisition, the Board paid particular attention to, among other factors, commercial and revenue synergies, integration and employee retention costs, the potential financial returns on investment and the risks involved, the structure of the transaction, and whether the commercial terms of the acquisition were in the interests of shareholders as a whole. The Directors agreed that the acquisition had the potential to be transformative for the ELL division and could gradually strengthen Pearson’s offering in the Workforce Skills area and Pearson+, highlighting the already strong returns profile of Mondly. | |
Annual report and accounts 2022 Pearson plc 69 |
“I welcomed the opportunity to get to know other Directors in advance of my joining the Board and to subsequently meet the executive management. From governance matters to divisional deep-dives, my induction programme included everything necessary to understand the dynamics of the Board and how to effectively contribute to its discussions as a Non-Executive Director.” |
Esther Lee Appointed to the Board on 1 February 2022 |
Induction programme participants |
Meeting purpose | |
Chair, Deputy Chair Designate and Senior Independent Director |
Introductory meetings to cover the company’s governance structure, the Board’s priority areas and ways of working, meeting cadence, and ongoing matters considered by the Board. | |
Chairs and members of the Board’s Committees |
Overview of the responsibilities and composition of the Board’s Committees, their governance, regular attendees and advisers. | |
Executive Directors; Divisional Presidents |
Overview of the strategic priorities of the company and each division, key performance indicators, financial performance and projections, and competitive landscape. | |
Heads of Corporate Functions |
Introductions with leadership team members, covering an overview of their business area(s), subject matter expertise, organisational structure, company culture and values. | |
Company Secretary; legal advisers |
Induction planning, governance framework, Board and Committee matters, duties and responsibilities of a company director, the company’s policies and procedures, and other legal and regulatory considerations. |
70 Pearson plc |
The Board operates a three-yearly evaluation cycle which employs a variety of methodologies to ensure the most effective results. |
Year |
Methodology |
Last undertaken | ||
Questionnaire, tailored to specific needs of the business |
2018 | |||
Internally facilitated interviews, to be led by the Chair, Senior Independent Director and/or Company Secretary as appropriate |
2019, 2021, 2022 | |||
In-depth evaluation, externally facilitated |
2020 |
— | the effectiveness of the organisation and dynamics of the Board, including composition, competencies, diversity, leadership, agendas, meeting cadence, quality of information provided, governance and decision-making |
— | relationships between the Board and senior leaders, and between members of the Board itself, including the remits of and interaction among the respective Committees and with the Board |
— | succession planning and talent pipeline for Executive Directors and other senior leaders |
— | the company’s purpose and the Board’s monitoring of organisational culture, behaviours and employee sentiment |
— | articulation and implementation of strategy |
— | understanding of risks facing the company, including likelihood and mitigation |
— | understanding of stakeholder views, products and markets |
— | oversight of sustainability matters, including DE&I |
Board evaluation process | ||||
The format of the review was agreed by the Chair and Deputy Chair & Senior Independent Director (including in the latter’s capacity as Chair of the Nomination & Governance Committee). | ||||
The scope of the review was finalised by the Chair with support from the Company Secretary. | ||||
The Chair interviewed each of the Directors on a confidential and unattributable basis. | ||||
The output of the evaluation was captured in a report to the Board in December 2022, with the Board then discussing the points raised by the review. | ||||
Progress on the findings of the evaluation will be monitored by the Nomination & Governance Committee throughout 2023. | ||||
— | Directors are highly motivated and there is a strong diversity of talent on the Board, with the Board as a whole considered to be knowledgeable, respectful and fully engaged. |
— | Board members have relevant skills and experience, albeit the Board recognised the importance of paying particular attention to its composition and skill sets in light of expected departures during 2023 and 2024 as certain Directors reach the end of their tenure and as the company’s strategy continues to evolve. The Board acknowledged the strength and variety of contributions made by all, including its longest serving Directors. |
— | Board meetings and discussions are considered to be insightful, with valuable and constructive conversations. The Board is appreciative of the continued efforts by management to deliver focused, succinct meeting papers and materials. |
— | The Board recognised the progress that had been made on strategy, led by the Chief Executive and the refreshed executive team, including the new Chief Strategy Officer. The Board is appreciative of the in-depth conversations that have taken place on Pearson’s strategy and vision, with the important next step being to focus on execution. |
— | The Board appreciates both the openness and transparency of the Chief Executive and the access to, and engagement with, the executive management team. |
— | The Board is supportive of the evolution of the company towards a more performance-oriented culture and looks forward to updates from the Chief Human Resources Officer in this regard. |
— | The Board recognised the work led by the Chief Legal Officer and her team in respect of Pearson’s sustainability strategies, with guidance and oversight from the Reputation & Responsibility Committee. |
Annual report and accounts 2022 Pearson plc 71 |
— | Continued focus on execution of strategy, including clarity on how the Board can best monitor and measure the execution plan while maintaining its distance from operational matters. In particular, the Board identified the importance of ensuring accountability for execution in the next phase of the company’s transformation. |
— | Continued sharing of customer and marketplace insights with the Board, which is seen as particularly important at this time as Pearson evolves on multiple fronts. |
— | Ongoing focus on succession planning and talent review, both at Board and executive level as well as more broadly, to ensure Pearson has both the right skill set to deliver on its strategic vision and a strong pipeline of talent to allow continued execution in the future. |
— | A desire to identify and focus on the elements of sustainability that are particularly relevant and critical for Pearson’s success. |
— | As Pearson continues to grow in the direct to consumer space, an ongoing focus on the importance of the risks inherent in the technology, cyber and online spaces, including information security, safeguarding and reputation. |
— | Following a period of significant acquisition activity, a desire for the Board to focus on post-acquisition integration and evaluation of the performance of acquired businesses. |
— | Ongoing development of the Board’s roadmap for market visits and deep dives to ensure this is aligned with Pearson’s aspirations and international footprint. |
Finding or focus area |
Response or action taken | |
Continued focus on execution of strategy in each of Pearson’s five divisions, including clarity on how the divisions work together and continued optimisation of the more established businesses. |
The Board has considered divisional execution plans as part of its strategy discussions throughout the past year. Inter-divisional synergies also continued to be assessed and discussed, including as part of considering acquisition opportunities. Optimisation of established businesses was also a consideration in the Board’s strategic execution discussions: e.g. the agreement to acquire PDRI, announced in December 2022 and subject to completion in 2023, which augments Pearson’s offering to enterprises and US federal job seekers. | |
Additionally, the Audit Committee has discussed key strategic risks with the Presidents of each of Pearson’s five divisions over the past year as part of a suite of strategic risk deep dives. Read more about the work of the Audit Committee on page 80. | ||
Continued discussions on portfolio, investment prioritisation, capital allocation and other corporate finance matters, in support of delivery of the strategy. |
The Board discussed these topics on a regular basis, with input from divisional leadership and Pearson’s strategy and corporate development teams, resulting in a number of changes to the portfolio as described elsewhere in this report, including Pearson’s acquisition of Mondly (read more about this acquisition on page 69). The Board also determined to undertake a £350m share buyback programme to return capital to shareholders, which was completed in December 2022 (see page 120). | |
Involvement in the selection of KPIs, with the Board having visibility of supporting data to allow evaluation of relevant metrics. |
Strategic KPIs were agreed by the Board in early 2022 and incorporated into the Board’s regular milestone and dashboard report to allow ongoing oversight and evaluation. The Board has subsequently discussed with management the metrics and definitions underpinning certain KPIs and the ways in which these are communicated to stakeholders. | |
Continued sharing of customer insights with the Board to aid understanding of the quality of product, content and services. |
Customer feedback was shared with the Board as part of briefing sessions on developments to the Pearson+ offering. Customer and competitor insights remain an area of particular interest for the Board in 2023. The Reputation & Responsibility Committee also considered the sentiment of different consumer audiences towards the Pearson brand. |
72 Pearson plc |
Finding or focus area |
Response or action taken | |
Ongoing focus on succession planning and talent management, at both senior levels and more broadly, to ensure Pearson has the right skill set to execute its strategy. |
Ali Bebo was appointed as Chief Human Resources Officer in late 2021 and worked with management throughout 2022 in relation to the organisational design, particularly at senior levels, and talent management. This was discussed in detail by the Board at its meeting in December 2022. | |
New appointments at both Board and Executive level in 2022, as described elsewhere in this report, have brought valuable additional skills and experience to the company’s leadership team. Read more about the Executive Management team on page 60. | ||
Refinement of long-range planning in light of the new strategy and business structure. |
Following the appointment of new Chief Strategy Officer, Sulaekha (Sue) Kolloru Barger, in May 2022, the Board has continued its oversight of substantial strategic planning and initiatives. In particular, work has been undertaken to refine Pearson’s strategic planning cadence in alignment with the annual budget cycle. | |
Ensure work to refresh the risk management framework continues, particularly given the increasing importance of information security, data management and privacy, and cyber risks. |
Divisional strategic risk deep dives at the Audit Committee have been well received by Directors and are proving beneficial for management in developing new ways of thinking about risk. Cyber and data-related risks continue to be key topics arising across the work of the Audit Committee, and the addition of the Chief Information Officer as a regular Audit Committee meeting attendee will enhance oversight and monitoring of these areas. Read more about our approach to risk on page 43 and the work of the Audit Committee on page 80. | |
Continue to evolve ways of monitoring the culture and behaviours throughout the organisation, as well as overseeing the implementation of Pearson’s new purpose, mission, vision and values. |
The Board recognises the progress made by the Chief Human Resources Officer in helping to drive a company-wide focus on engagement and development of a performance culture. This has included a new approach to measuring employee engagement, relaunch of a Learning at Work programme, and the successful roll-out of Pearson’s new purpose, mission, vision and values. The Reputation & Responsibility Committee will lead oversight of culture and employee engagement following revisions to its terms of reference in late 2022, further aiding the Board’s oversight of these matters.The Board is mindful that it is particularly important to pay close attention to culture and engagement throughout the year, particularly following a period of strategic and operational transformation. It will, therefore, be attentive to these matters in 2023. Read more about culture and employee engagement on pages 65-68. |
Principal Committee responsibilities Appointments Identifying and nominating candidates for Board vacancies. Balance Ensuring that the Board and its Committees have the appropriate balance of skills, experience, independence, diversity and knowledge to operate effectively. Succession Reviewing the company’s leadership needs with a view to ensuring the continued ability of the organisation to compete in the marketplace. Governance Reviewing and overseeing Pearson’s corporate governance framework, Board evaluation and training plans, and the Board Diversity Policy. |
Committee members |
Meetings attended |
|||
Sherry Coutu |
3/3 |
|||
Omid Kordestani 1 |
2/2 |
|||
Esther Lee 2 |
2/2 |
|||
Tim Score |
3/3 |
|||
Sidney Taurel 3 |
1/1 |
|||
Annette Thomas |
3/3 |
1. | Mr Kordestani was appointed to the Committee on 1 April 2022. |
2. | Ms Lee was appointed to the Committee on 1 April 2022. |
3. | Mr Taurel resigned from the Board and the Committee on 29 April 2022. |
— | operating experience with subscription and/or enterprise SaaS business models, at a scale and complexity commensurate to Pearson |
— | experience developing innovative digital products and/or driving digital business transformation |
— | an active senior finance leader, with a deep understanding of public company governance standards, ideally from a UK listed or global business |
— | capacity to serve on the Audit Committee. |
74 Pearson plc |
Category 1. Accounting and finance 2. Data and cyber security governance 3. Digital and technology 4. Disruption management, including: Talent leadership through change, Marketing and data insights, New business models and innovation 5. Direct to consumer business models (including consumer brand and marketing) |
6. Education and public sector 7. Global markets 8. People/general talent focus, including workforce learning 9. Policy and government relations 10. Prior CEO experience, particularly of multinational businesses 11. Remuneration 12. Scale and complexity 13. Sustainability 14. UK plc governance |
Annual report and accounts 2022 Pearson plc 75 |
Diversity across Pearson |
— | at least 40% female directors |
— | at least two directors from an ethnic minority background |
— | at least one of the Chair, Chief Executive, Deputy Chair and Senior Independent Director or CFO is a woman |
76 Pearson plc |
Objectives |
Progress | |||
We will strive to achieve and maintain a Board composition of: |
As at 31 December 2022: | |||
— at least 40% Directors are women — at least two Directors from an ethnic minority background — at least one of the Chair, Chief Executive, Deputy Chair and Senior Independent Director or CFO is a woman |
50% Directors were women | |||
The Board included three Directors from an ethnic minority background | ||||
One of the Chair, Chief Executive, Deputy Chair and Senior Independent Director or CFO is a woman | ||||
All Board appointments will be made on merit, in the context of the skills and relevant experience that are needed for the Board to oversee Pearson’s strategic development and that reflect the global nature of our business. |
Our Non-Executive Director search process considers a wide range of candidates, including from diverse backgrounds, all of whom were evaluated on the basis of merit. Our most recent search processes resulted in the appointment of Esther Lee and Omid Kordestani, whom the Board believe possess the requisite skills and experience for their roles. | |||
The Board will continue to incorporate a focus on a diverse pipeline in its succession and appointment planning, including to prioritise the use of search firms which adhere to the Voluntary Code of Conduct for Executive Search Firms (the Voluntary Code) when seeking to make Board-level appointments. |
The Committee actively includes diversity in its search criteria for Board appointments, and proactively encourages engaged search firms to include candidates from a range of diverse backgrounds in its candidate lists. Spencer Stuart assist Pearson with search activities, including for the external element of the Non-Executive Director search processes. Spencer Stuart is a signatory to the Voluntary Code. | |||
The Board will continue to adopt best practice, as appropriate, in response to the Parker Review, FTSE Women Leaders Review, FRC Board Director Effectiveness Review, and Financial Conduct Authority requirements. |
The Board is cognisant of the recommendations of the FTSE Women Leaders Review, which has succeeded the Hampton-Alexander Review, and the findings of the FRC Board Diversity and Effectiveness report. The Committee also reflected the new FCA requirements in respect of gender and ethnic diversity in its review of the Board Diversity Policy. | |||
The Board will consider its composition and diversity, and that of its Committees , as part of its consideration of effectiveness in the Board evaluation review process. The Board will also explore expansion of these considerations to cover ethnicity, sexual orientation, disability and socio-economic background characteristics . |
These matters were considered in the 2022 evaluation process. Read more on page 71. | |||
Where appropriate, we will assist with the development and support of initiatives that promote all forms of DE&I in the Board, Pearson Executive Management team and other senior management. |
Six mentees at the Senior Vice President (SVP) level were mentored by six Non-Executive Directors in 2022. 67% of SVP participants were female and/or persons of colour (target at 50%). | |||
We will review and report on our progress in line with the policy and our objectives in the annual report, including providing details of initiatives to promote DE&I in the Board, Pearson Executive Management team and other senior management. |
Objectives that accompany the Board’s Diversity Policy have been updated. The Committee continues to monitor developments on DE&I in the external landscape. | |||
We will continue to make key DE&I information about the Board, senior management and our wider employee population available in the annual report, and aim for ongoing transparency in this area in line with best practice. |
This information is included in the annual report. Read more about DE&I matters in the wider employee population on page 34. |
Target achieved | ||
Target not met |
Annual report and accounts 2022 Pearson plc 77 |
Principal Committee responsibilities Stakeholders: Sustainability and non-financial KPIs: non-financial KPIs linked to the three pillars of the ESG Framework.Culture and employee engagement: Communications and regulatory matters: Branding: Risk: |
Committee members |
Meetings attended |
|||||
Andy Bird |
3/3 |
|||||
Linda Lorimer |
3/3 |
|||||
Graeme Pitkethly |
3/3 |
|||||
Annette Thomas |
3/3 |
|||||
Lincoln Wallen |
3/3 |
— | the Audit Committee will assume responsibility for assurance and integrity of ESG data and metrics |
— | the Remuneration Committee will formally incorporate ESG considerations in remuneration frameworks and decisions |
— | employee engagement will be formally added to this Committee’s remit, alongside culture. We have invited the Chief Human Resources Officer to be a regular attendee at our meetings as a resource on the important topics of employee engagement and culture. |
78 Pearson plc |
— | Driving learning for everyone with our products |
— | Empowering our people to make a difference |
— | Leading responsibly for a better planet |
— | we reviewed an ESG materiality assessment which confirmed that the views of our external stakeholders align well with our internal ambitions. With input from management and external advisers, we noted improvement opportunities for our core business areas to enhance their impact on Pearson’s sustainability ambitions |
— | we revised the Board’s ESG governance framework, as noted on page 66 |
— | we received an update about how the company will be reporting its ESG progress to external regulatory bodies, including the approach for our narrative, non-financial KPI reporting and external data verification, where we work closely with our colleagues on the Audit Committee. We also noted how management plans to evolve our reporting in line with regulatory changes |
— | we reviewed the annual Modern Slavery Statement with management prior to recommending that the Board approve the statement for publication. |
— | with the help of colleagues and external advisers, the Committee conducted a horizon scanning exercise to identify key reputational risks and trends facing Pearson such as critical race theory, social issues and increased scrutiny of branded content platforms. This exercise, which we intend to conduct periodically, helps to ensure that the Committee and our Board is alert to external factors that may impact our business |
— | we reviewed a new framework to guide the company about when it will ordinarily make public statements concerning societal events. Factors that are part of this decision framework include whether the event could have a material impact directly on our business or people and whether the issue is aligned or misaligned with Pearson’s purpose and values |
— | after the US midterm elections and the change in the leadership in the UK, we received a government relations update, which is a periodic topic for the Committee’s agenda. |
— | the Committee is working well with appropriate agendas, papers produced to a good standard, and high-quality discussions |
— | some refreshing of the Committee’s remit was warranted to specify explicitly that employee engagement and the company’s culture are part of the Committee’s remit as well as expanded responsibility for ESG and sustainability. This feedback guided the revisions to the terms of reference review undertaken towards the end of the year |
— | it may be beneficial to provide greater exposure for the Committee to a range of external viewpoints and advice. In direct response to this suggestion, the Committee welcomed external advisers to its ESG deep dive session, where external perspectives were provided on Pearson’s ESG materiality assessment and ambitions. |
Annual report and accounts 2022 Pearson plc 79 |
Principal Committee responsibilities Financial reporting The quality and integrity of Pearson’s financial reporting and statements and related disclosures, including significant reporting judgements. Policy Group financial policies, including accounting policies and practices. External audit External audit, including the appointment, qualification, independence and effectiveness of the external auditor. Internal audit, risk and internal control Risk management systems and the internal control environment, including oversight of the work and effectiveness of the internal audit function. Compliance and governance Legal and regulatory requirements in relation to financial reporting and accounting matters, and oversight of compliance programmes and investigations. |
Committee members |
Meetings attended |
|||||
Linda Lorimer |
4/4 |
|||||
Graeme Pitkethly 1 |
3/4 |
|||||
Tim Score |
4/4 |
|||||
Lincoln Wallen |
4/4 |
1. | Mr Pitkethly was unable to attend one meeting prior to becoming Committee Chair due to a pre-existing commitment. He reviewed the papers and provided his perspectives to the Committee Chair outside the meeting. |
— | important areas such as data privacy, cyber security and business and technology resilience. In addition to continuing to increase in importance at a macro level, these are key factors in the success of Pearson’s digital and consumer-focused strategy |
— | a strong focus on risk, supported by a new programme of business-focused deep dives led by the Divisional Presidents |
— | oversight of accounting treatment relating to portfolio changes, including the strategic review of Pearson’s international courseware local publishing businesses |
— | continued oversight of Pearson’s key judgements and key areas of estimation as described in the financial statements. |
80 Pearson plc |
— | Following up on continuing improvements in the external audit process, as discussed further on page 84. |
— | Monitoring progress of the UK Government’s proposals on audit and corporate governance reform, any impacts on the company’s processes and practices, and consideration of management’s response. |
— | Monitoring emerging developments in non-financial reporting, including proposals from the ISSB, EU and SEC. |
— | Continuing our attention to technology and cyber risk, through an increased frequency of cyber security deep dives and the addition of the Chief Information Officer as a standing attendee at all Committee meetings. |
— | The Committee is considered by Directors and other contributors to be working well with appropriate agendas, papers produced to a good standard and high-quality discussions. |
— | Respondents welcomed the addition of divisional risk deep dives to the Committee’s work plan and noted the importance of dedicating sufficient time to the overview of risk and associated remediation actions. |
— | Respondents recognised that it is important for all parts of the Group’s assurance framework to remain attuned to the changing risk profile of the company, including data and cyber risk. It remains important for the Committee to ensure that it continues to have appropriate levels of support and expertise to assess and manage these areas. |
— | Given the quantum of Pearson’s business in the US, there was a suggestion that at least one meeting per cycle be US-based to allow the Committee in-person access to US management and other stakeholders. We expect to be able to reintroduce this |
element to the Committee’s annual schedule following the relaxation of COVID-19 related travel restrictions. |
— | Responses highlighted the Committee’s role in encouraging collaboration and alignment between the central corporate risk assessment and compliance functions and the work of internal audit. |
— | We assumed responsibility in our terms of reference for matters relating to assurance of ESG metrics. During the year, the Committee considered and approved Pearson’s policy on greenhouse gas emissions re-baselining and restatement. This policy has established guidelines for the recalculation of the base year, as well as restatements, for scope 1, 2 and 3 emissions in the event of significant changes to Pearson’s portfolio. |
— | Recognising the importance of technology and cyber-related matters to Pearson’s business and strategy, we invited the Chief Information Officer to become a standing attendee at the Committee’s meetings. Previously, the Chief Information Officer was invited to attend for specific agenda items. This strengthens the oversight that the Committee has of technology matters and enables timely engagement with the responsible executive whenever technology-related topics arise in our discussions. |
Annual report and accounts 2022 Pearson plc 81 |
— | Pearson’s cyber risk profile, including the status and trend of top threats and response to these threats, with a particular focus on strategic products |
— | Management’s key achievements and focus areas in 2022, which included: simplifying and updating information security policies to support Pearson’s digital strategy; enhancement of identity management capabilities; development of role specific security training; implementation of supplier security risk management; and continued attention to best practices for cloud security |
— | Objectives for the continued enhancement of Pearson’s cyber security infrastructure and governance frameworks, including the key achievements in 2022 and aims for the coming year |
— | Findings of the annual third party assessment of Pearson’s cyber capability maturity, which continues to demonstrate year-on-year |
Audit Committee meeting focus during 2022 | ||||||||
Financial reporting |
Policy |
External audit |
Internal audit, risk and internal control |
Compliance and governance | ||||
— Accounting and technical updates — Impact of legal claims and regulatory issues on financial reporting — Fair, balanced and understandable reporting, going concern and viability statements including supporting analysis — 2021 annual report and accounts: preliminary announcement, financial statements and income statement — Review of interim results and trading updates — Form 20-F and related disclosures, including annual Sarbanes-Oxley Act Section 404 attestation of financial reporting internal controls— Significant issues reporting |
— Accounting matters and Group accounting policies — Treasury Policy and reporting — Tax update — Greenhouse gas emissions - policy for re-baselining and restatement |
— Oversight of external auditor transition and first-year audit by new auditor — Provision of non-audit services by external auditor - policy and regular reporting— Appointment of external auditors — Report on half-year procedures — Confirmation of auditor independence — 2022 external audit plan — Remuneration and engagement letter of external auditors — Review opinion on interim results — Review of the effectiveness of external auditors — EY feedback on internal controls over financial reporting — Receipt of external auditors’ report on annual report, Form 20-F and year-end audit— EY feedback on internal controls over financial reporting |
— Internal audit activity reports and review of key findings — 2022 internal audit plan including resourcing — Assessment of the effectiveness of internal audit function, internal control environment and risk management systems — Risk management including Group’s principal and emerging risks — Strategic risk reviews led by Divisional Presidents — Group-wide risk deep dives on cyber security; data privacy; treasury and insurance; anti-bribery and corruption; and business resilience and crisis management — Controls Centre of Excellence updates, including 2022 work plan |
— Fraud, whistleblowing reports and compliance investigations — Compliance with accounting and audit-related aspects of the UK Corporate Governance Code — Audit Committee and internal audit function terms of reference — Oversight of Group’s schedule of delegated financial authority — Regulatory briefings, including proposals resulting from BEIS consultation on audit and corporate governance reform — Review of minutes of the Verification Committee’s meetings |
Annual report and accounts 2022 Pearson plc 83 |
— | the outcomes of internal audits completed during the year |
— | significant changes in Pearson’s strategy, processes and systems |
— | the wider Pearson risk management and assurance framework which includes other assurance activities by first and second line of defence teams, including enterprise risk management, the Controls Centre of Excellence, divisional and technology assurance teams |
— | work conducted by the external auditor |
— | the organisation’s response to internal audit actions |
— | whether any fundamental or significant actions have not been accepted by management and the consequent risk |
— | whether any limitations have been placed or the scope of internal audit. |
84 Pearson plc |
— | the work they had conducted over revenue, including over contracts in certain of the Group’s businesses in the US and UK that span the year end, where revenue is recognised using an estimated percentage of completion based on costs and judgements in relation to provisions for returns |
— | their work in evaluating management’s goodwill impairment exercise, on a value-in-use |
— | their work in assessing management’s judgements and assumptions regarding the impairment of its right-of-use |
— | their work conducted over the accounting treatment of certain unlisted securities and their procedures performed over the restatement of prior year comparative numbers and the associated control implications in relation to this matter |
— | their procedures performed to audit the material acquisitions and disposals completed in the year in addition to evaluating management’s judgement that the businesses under strategic review do not meet the IFRS 5 criteria to be held for sale at 31 December 2022 |
— | the work performed over the nature and presentation of adjusting items, focusing on subjective judgements and the transparency with which related adjusted measures are presented, and in particular the exclusion of costs related to major restructuring programmes |
— | their work in assessing management’s judgements and assumptions regarding provisions for uncertain tax positions, in particular the provision made in relation to the EU state aid tax matter |
— | the results of their controls testing for Sarbanes-Oxley Act Section 404 reporting purposes and in support of their financial statements audit |
— | the results of their work over the company’s going concern and viability statement reports |
— | their work in relation to information provided by the entity (IPE) disclosures and other material internal control over financial reporting (ICFR) matters |
— | their work in relation to other matters which are not classified as key audit matters, but may give rise to additional disclosure requirements, such as pensions, restructuring and asset capitalisation |
— | the work performed over the carrying value of investments in subsidiaries for the Pearson plc parent company. |
— | half-year review of interim financial statements |
Annual report and accounts 2022 Pearson plc 85 |
Issue |
Action taken by Audit Committee |
Outcome | ||
Goodwill allocation and impairment reviews |
||||
— Pearson carries significant goodwill and other intangible asset balances. As a result of business disposals and an associated change in organisation structure there has been a change in the determination of cash generating units and goodwill has been reallocated. There are significant estimates and assumptions used in the impairment review. Pearson has made significant impairments to goodwill across a variety of its businesses in past years. |
— The Committee considered the impact of acquisitions, disposals and changes in organisation design on the determination of cash generating units and in particular the level at which goodwill is monitored. The Committee reviewed the reallocation of goodwill across the cash generating units including those disposed. — The Committee monitored the Group’s plans and forecasts during the year to determine if there were impairment triggers. The Committee considered the results of the Group’s goodwill impairment reviews which were undertaken in December and refreshed post year end. Key assumptions – including cash flows derived from strategic and operating plans, long-term growth rates and the weighted average cost of capital – were reviewed and challenged. The Committee considered the sensitivities to changes in assumptions and the adequacy of disclosures required by IAS 36 ‘Impairment of Assets’ in relation to the Group’s CGUs. |
— The Committee is satisfied with the determination of cash generating units and the associated goodwill reallocation. — The Committee is satisfied with the annual impairment review with confirmation of sufficient headroom in each of the cash generating units. — The Committee is satisfied with the disclosures relating to goodwill. | ||
Going concern and viability |
||||
— The assessment of the Group’s viability and the appropriateness of the going concern assumption. |
— The Committee reviewed future budgets and cash flow forecasts to understand the Group’s available liquidity and ability to continue as a going concern. The Committee reviewed and challenged the risks identified to the forecasts. The Committee reviewed the outcome of the severe but plausible scenario modelling and stress testing. |
— The Committee is satisfied with the modelling process and the risks identified. In addition, the Committee is satisfied with the stress testing performed and the severe but plausible scenario modelling. The Committee noted that in all scenarios the Group had a high level of liquidity headroom and sufficient headroom against covenant requirements. — The Committee is satisfied with the assessment of the Group’s viability and is satisfied that the Group is a going concern. — The Committee is satisfied with the disclosures related to going concern and viability. | ||
Acquisitions and disposals |
||||
— Pearson disposed of its interests in its international courseware local publishing businesses, disposing of assets in French speaking Canada, Italy, Germany, South Africa and Hong Kong. In addition, Pearson announced a strategic review of its Online Program Management business. — Pearson acquired Credly Inc, increasing its ownership from 19.9% to 100%. — Pearson acquired 100% of ATI STUDIOS A.P.P.S S.R.L (Mondly). |
— The Committee reviewed the accounting for the disposal of the international courseware local publishing businesses with specific focus on consideration, net assets disposed and disposal costs. The Committee also reviewed tax assumptions relating to the disposal transactions. In addition, the Committee reviewed the judgement related to whether the results and cash flows of the disposed businesses should be classified and presented as discontinued operations by reference to the criteria set out in IFRS 5. — The Committee reviewed the status of the strategic review of the Online Program Management businesses and considered this against the IFRS 5 criteria to be classified as held for sale. — The Committee reviewed the accounting for the Credly and Mondly acquisitions with specific focus on the step acquisition accounting for Credly, consideration, net assets acquired including the valuation of intangibles and the recognition of goodwill. The Committee noted the use of third party valuation experts to value the acquired intangible assets. |
— The Committee determined that disposal accounting for the international courseware local publishing businesses had been appropriately recorded. The Committee is satisfied with the judgement that the results and cash flows of the disposed businesses should not be classified and presented as discontinued operations and is also satisfied with the disclosures related to this item. — The Committee also agreed that the IFRS 5 criteria to be classified as held for sale in respect of the Online Program Management businesses had not been met as at 31 December 2022. — The Committee determined that the acquisition accounting for Credly and Mondly had been undertaken appropriately but notes that it remains provisional as at 31 December 2022. |
86 Pearson plc |
Issue |
Action taken by Audit Committee |
Outcome | ||
Revenue recognition |
||||
— Pearson has a number of revenue streams where revenue recognition is complex. For some revenue streams significant judgements and estimates are required in order to determine the amount and timing of revenue recognition. |
— The Committee regularly reviews and challenges revenue recognition practices and the underlying assumptions and estimates. In addition, the Committee has visibility of internal audit findings relating to revenue recognition controls and processes and routinely monitors the views of external auditors on revenue recognition issues. |
— The Committee is satisfied that revenue is being recognised appropriately. | ||
Property asset impairment reviews and classification | ||||
— Pearson holds significant right-of-use right-of-use — In light of the changes in use of Pearson’s property assets from own use to sublet, the classification of property assets has been assessed resulting in recognition of certain assets as investment property in 2022. |
— The Committee monitored the Group’s property strategy during the year to determine if there were impairment triggers. The Committee considered the results of the Group’s property impairment reviews with specific focus on the 80 Strand and Hoboken properties. Key assumptions – including potential rental value, expected sublease durations and terms such as rent free periods – were reviewed and challenged. The Committee considered the adequacy of related disclosures. The Committee noted the input of third party property specialists in determining the key assumptions. — The Committee reviewed the assessment of the property assets against the criteria to be classified as investment property. |
— The Committee is satisfied with the results of the property impairment reviews and the subsequent impairment charges recognised in the income statement. — The Committee is satisfied that the charges relate to a major restructuring programme and so meet the Group’s criteria to be excluded from adjusted performance measures. — The Committee is satisfied with the disclosures relating to property impairments. — The Committee is satisfied with the decision to classify certain property assets as investment property and the disclosures relating to this classification. | ||
Tax |
||||
— Pearson holds provisions in relation to uncertain tax positions. — In 2021, Pearson paid £105m (including interest) in relation to the EU state aid matter and at that time the amount was recognised as an asset as it was expected to be recovered in due course. In 2022, the EU General Court dismissed the appeal made by the UK Government in relation to this matter. As a result of the dismissal, Pearson have concluded that a provision is now required in relation to this issue. — In 2022, Pearson have released tax risk provisions totalling £72m following the expiry of the statute of limitations for certain periods in the US. — Changes to, and the application of, tax legislation continues to be a complex and judgemental area. |
— The Committee considered various developments during the year, including Pearson’s ongoing response to the European Commission’s decision that the UK’s Finance Company Partial Exemption rules constituted state aid (‘EU state aid’). The Committee noted that the EU General Court dismissed the UK Government’s appeal in relation to the EU state aid matter and concur with management that a provision is now required for this item. — The Committee reviewed the release of the tax risk provisions resulting from the expiry of the statute of limitations, including the presentation of these items within adjusted and statutory earnings. |
— The Committee is satisfied with Pearson’s approach to managing the impact of tax legislation changes and agreed with the views of management regarding tax provisioning levels. — The Committee is satisfied with Pearson’s approach to the EU state aid matter including the provision made in relation to amounts paid in 2021 and ongoing disclosure about this matter. — The Committee is satisfied with the release of US tax provisions and the presentation of the items within the income statement. | ||
Investments in unlisted securities |
||||
— Pearson holds investments in unlisted securities. Historically, all of these investments have been classified as fair value through other comprehensive income. On further review of limited life funds the classification for certain funds has been changed to fair value through profit and loss. — The change in classification represents an error in the prior year accounts and prior year comparative numbers have been restated. |
— The Committee considered the classification of certain limited life funds held by Pearson and agreed with the reclassification. — The Committee considered the need for restatement of prior year comparative numbers considering both quantitative and qualitative factors. — The Committee reviewed the disclosures relating to the restatement. — The Committee reviewed the control implications relating to this matter. |
— The Committee agreed with the reclassification of certain unlisted securities. — The Committee agreed with the requirement to restate comparative figures based on quantitative size but reviewed and agreed with management’s determination that the qualitative factors suggest this is not a material item to users of the accounts. — The Committee is satisfied with the accounting treatment in the current year and the disclosures related to the restatement of comparative figures. — The Committee were satisfied that the control deficiency has been remediated. |
Annual report and accounts 2022 Pearson plc 87 |
— | During the year, the Committee undertook a comprehensive review of the Directors’ remuneration policy, which is due for its triennial renewal at the 2023 AGM. Following extensive consultation with shareholders, it was determined that a conventional UK incentive structure would be retained but with modifications to quantum and enhancement of key UK governance features. |
— | The Committee also reviewed the implementation of the Directors’ remuneration policy for 2023, in particular the performance framework, to ensure it appropriately supports delivering Pearson’s forward-looking strategy. |
— | The Committee spent significant time during the year considering the inclusion of strategic and ESG priorities in incentives and benefited from insights provided by Annette Thomas given her key role on Pearson’s Reputation & Responsibility Committee. We will introduce a new ESG metric into the LTIP and remove digital sales from the AIP. |
— | As Committee Chair, I engaged extensively with shareholders and their advisers throughout 2022, and all feedback received was considered by the Committee when finalising the Directors’ remuneration policy and its implementation for 2023. |
— | The Committee considered performance outcomes for 2022. The annual incentive outcome for Executive Directors is 76% of maximum reflecting strong financial and strategic progress delivered in 2022. The long-term incentive granted in 2020 will vest at 58% of maximum considering the profitable growth and shareholder value created over the three-year performance period. |
— | A thorough review was conducted ahead of the release of the second tranche of the co-investment award for the Chief Executive, considering performance underpins, broader company performance, and stakeholders’ experience and it was determined that this tranche should vest in full. |
— | The Committee remains focused on ensuring remuneration policies and practice for all Pearson’s colleagues are consistent with our need to attract and retain the right talent for our digital future, and are appropriately aligned to our forward-looking strategy, our purpose, and our mission, vision, and values. |
— | During the year, I engaged with colleagues on executive pay and wider reward matters through several channels, including the Employee Engagement Network. |
Committee members |
Meetings attended |
|||
Sherry Coutu CBE |
7/7 |
|||
Esther Lee 1 |
6/6 |
|||
Tim Score |
7/7 |
|||
Sidney Taurel 2 |
2/2 |
|||
Annette Thomas 3 |
3/3 |
1. | Esther Lee joined the Remuneration Committee on 1 April 2022. |
2. | Sidney Taurel stepped down from Pearson’s Board and the Remuneration Committee at the AGM on 29 April 2022. |
3. | Annette Thomas joined the Remuneration Committee on 1 August 2022. |
88 Pearson plc |
— | adjust the percentage that pays out under the Annual Incentive Plan (AIP) and Long-Term Incentive Plan (LTIP) for threshold performance to 25% and 20% of maximum, respectively |
— | increase the Policy maximum opportunity level under AIP from 200% to 300% of salary |
— | increase the Policy maximum opportunity level under LTIP from 350% to 450% of salary. |
Annual report and accounts 2022 Pearson plc 89 |
— | Introduction of annual bonus deferral. |
— | Increase in shareholding guidelines |
90 Pearson plc |
Chief Executive Officer and 300% of salary for the Chief Financial Officer, in line with the proposed annual LTIP award levels. |
— | Reduction of LTIP threshold to 20% of maximum. |
— | Re-balancing of LTIP measures. |
Annual report and accounts 2022 Pearson plc 91 |
— | Pearson’s remuneration principles, as set out above, align with our culture |
— | Our forward-looking executive remuneration framework is designed to be simple |
— | Our remuneration framework and outcomes are designed to be aligned with performance |
— | Selected performance measures for the AIP (Annual Incentive Plan) and LTIP (Long-Term Incentive Plan) are key to achieving the Group’s strategic objectives. The Committee reviews performance measures annually to ensure they incentivise appropriate management behaviours and goals |
— | The Committee carries out a robust target-setting process each year, considering Pearson’s strategic plan, as well as analyst consensus to reflect market expectations. This results in stretching, yet achievable, AIP and LTIP targets |
— | Maximum awards under the AIP and LTIP are capped and clearly disclosed in our Directors’ remuneration policy alongside predictions |
— | When determining pay-outs, the Committee considers whether the outcome reflects overall company performance and the experience of stakeholders over the period, including shareholders and colleagues. If not, it has the discretion to adjust outcomes |
— | The Committee is mindful of reputational and other risks two-year LTIP holding period, as well as robust shareholding guidelines, which extend post-employment. |
— | Before signing off the Directors’ remuneration report, the Committee reviews drafts and inputs to clarify engaged extensively with shareholders |
92 Pearson plc |
Key features of the 2020 Directors’ remuneration policy |
Outline of proposed changes for 2023 | |||
Salary |
Base salaries reflect level, role, skills, experience, the competitive market and individual contribution. Base salaries are normally reviewed annually, with any increases normally in line with typical increases awarded to other Group employees. |
No changes to policy | ||
Allowances and benefits |
Reflects the local competitive market and may include travel-related, health-related and risk-related benefits as well as any other benefits provided to the majority of employees. The Committee may introduce other benefits if it is considered appropriate to do so. |
No changes to policy | ||
Retirement benefits |
Employees in the UK, including Executive Directors, are eligible to join the Money Purchase 2003 section of the Pearson Pension Plan. The Committee has discretion to put in place retirement benefit arrangements in line with local market practice. Executive Directors, who opt out of the pension, can receive a cash allowance of up to 16% of base salary, in line with the maximum company contribution as a percentage of salary that UK employees of a similar age are eligible to receive. |
No changes to policy | ||
Annual incentive |
Maximum opportunity of 200% of base salary. Based on the achievement of annual business goals and strategic objectives, with financial metrics accounting for at least 75% of total opportunity. Normally no payout for threshold performance, with 50% payable for on-target performance.Discretion to adjust formulaic outcome where this does not reflect underlying performance. Awards paid fully in cash. Malus and clawback provisions apply. |
Increase in maximum opportunity to 300% of base salary. For 2023, maximum opportunities are: — 300% for the Chief Executive — 200% for the Chief Financial Officer Increase in payout for threshold performance to 25% of maximum. Introduction of bonus deferral where shareholding guidelines have not been met. | ||
Long-term incentive |
Maximum opportunity of 350% of base salary. Based on achievement of targets for earnings per share, a return on measure and relative total shareholder return (weighted equally) over a three-year performance period. Discretion to adjust formulaic outcome where this does not reflect underlying performance. Awards are subject to a post-vesting holding period of two years. Malus and clawback provisions apply. |
Increase in maximum opportunity to 450% of base salary. For 2023, maximum opportunities are: — 450% for the Chief Executive — 300% for the Chief Financial Officer Proportion of award that vests for threshold aligned at 20% across all performance measures. Introduction of ESG into the performance framework. | ||
Shareholding guidelines |
Current in-employment guidelines of:— 300% for the Chief Executive — 200% for the Chief Financial Officer Post-employment shareholding guidelines apply. |
Increase in in-employment guidelines in line with increase LTIP opportunity:— 450% for the Chief Executive — 300% for the Chief Financial Officer |
Annual report and accounts 2022 Pearson plc 93 |
— Executive Director remuneration in UK-listed companies of a similar market capitalisation to Pearson, the FTSE 41 to 100. This comparator group recognises Pearson’s London listing, the fact that Pearson is a member of the FTSE 100, and that UK investors and proxy agencies would likely consider competitiveness of remuneration levels at Pearson in this context primarily. Pearson is currently positioned c.60th in the FTSE 100 (based on a three-month average market capitalisation). Market data for the FTSE 100 as a whole was also considered as an additional reference point given Pearson’s growth in 2022. |
— Executive Director remuneration in US-listed companies of a broadly similar financial size and in a similar sector to Pearson. This comparator group included companies in the broadcasting, interactive media and software sector with similar revenue to Pearson. It considers what Executive Directors are paid in broadly similar US-listed companies, although it does not directly align to Pearson’s talent market. |
— Remuneration in US-listed companies more closely aligned to Pearson’s talent market and strategic ambitions. This comparator group comprised US technology, communications, and consumer discretionary companies, in particular those that are at the forefront of transformative, innovative plays within technology and digital, based on the Nasdaq-100 Index. Recognising, however, that many of these companies were materially larger than Pearson in terms of financial size, rather than considering remuneration levels for the CEO role, the market data considered was for roles reporting into the CEO (primarily heads of business units or Chief Executives of subsidiary businesses) which is analogous to Andy Bird’s previous executive role. This data was only considered in respect of the CEO role at Pearson. |
94 Pearson plc |
Annual report and accounts 2022 Pearson plc 95 |
Adjusted Operating Profit (40%) |
A key financial performance indicator reflecting the underlying operational performance of the Group, and measuring Pearson’s ability to reinvest. | |||||||
Increased weighting for 2023 |
||||||||
Sales (30%) |
A key financial performance indicator and measure of top-line growth. | |||||||
Annual Incentive Plan |
Free Cash Flow (20%) |
A key financial performance indicator reflecting the importance of Free Cash Flow generation to Pearson’s fundamental value, and ensures executives are incentivised to improve cash flow. | ||||||
Replacing operating cash flow for 2023 |
||||||||
Strategic measures (10%) |
Specific objectives and targets selected annually to reflect relevant strategic priorities of the Group at the time. For 2023, this strategic element will focus on Pearson’s ESG priorities, in particular increasing representation of employees from an ethnic minority background at management levels and achieving a step change towards Pearson’s 2030 carbon reduction goal. | |||||||
Reduced weighting for 2023 |
||||||||
Relative TSR (30%) |
Total Shareholder Return (TSR) is a measure of value created for our shareholders. Following a review of the peer group against which TSR is assessed, a hybrid approach will now be used to better reflect Pearson’s strategic ambitions. For 2023, TSR will be measured relative to: — 50% versus FTSE 100 (excluding certain sectors) — 50% versus S&P 500 (excluding certain sectors) Companies within financial services, energy, basic materials, utilities and healthcare sectors will be excluded as these are subject to very different market forces to Pearson and therefore not considered relevant comparators. | |||||||
Changes to TSR peer group for 2023 |
||||||||
Long-term Incentive Plan |
EPS (30%) |
A key financial performance indicator used by management to evaluate performance and by investors to more easily, and consistently, track the underlying operational performance of the Group over time. | ||||||
Return on Capital (30%) |
A key financial performance indicator measuring how efficiently Pearson generates returns from its asset base. This is considered a more appropriate and simpler measure for the business compared to net ROIC, and more consistent with the approach taken by other companies in the market. | |||||||
Replacing net ROIC for 2023 |
||||||||
ESG (10%) |
Pearson is a purpose-driven Company, and everyday actions and behaviours have a strong social impact. Progression of our ESG priorities is integral to long-term sustainable growth of the business. For 2023, the ESG measure will centre on building an inclusive culture and increasing female representation at leadership levels | |||||||
Introduced for 2023 |
||||||||
96 Pearson plc |
Revenue £3,841m 5% underlying adjusted growth on prior year |
Adj. operating profit £456m 11% underlying adjusted growth on prior year |
Operating cash flow £401m 3% growth on prior year |
Adjusted EPS 51.8p 48% growth on prior year |
Net debt £557m 59% increase on prior year due to £350m share buy back |
Dividend per share 21.5p 5% increase on prior year |
— | Significant organic investment, bringing new capabilities |
— | Acquisitions, including Mondly and Credly to support growth across the Pearson ecosystem |
— | Completion of the strategic disposal of Pearson’s International Courseware local publishing businesses |
— | Launch of 18 study channels on Pearson+ |
— | Launch of new people strategy with a focus on engagement and high-performance |
— | Announcement of £120m of cost efficiencies, accelerating improved margin |
Chief Executive |
Chief Financial Officer |
Annual report and accounts 2022 Pearson plc 97 |
Base salary |
Andy Bird – $1,293,750 (3.5% increase) Sally Johnson – £557,225 (4% increase) The salary increase for the Chief Executive is line with the average salary increase awarded to the US workforce and below the average level for the UK workforce. The salary increase for the Chief Financial Officer is in line with the increase for the UK workforce. | |||||||||
Allowances and benefits |
No change for 2023. Executive Directors will continue to receive travel, health, and risk-related benefits. Andy Bird will also receive a contribution towards accommodation costs. | |||||||||
Retirement benefits |
For 2023, both the Chief Executive and Chief Financial Officer will receive a cash allowance of 16% of salary in lieu of pension. This is aligned with the pension provision that UK employees of a similar age are eligible to receive. As described in relation to the Committee’s review of the remuneration policy for 2023, Pearson has retained a UK remuneration framework for Executive Directors which does not reflect US practice in terms of plan design or pay levels. It is therefore considered appropriate that a consistent UK approach is applied with regard to pensions for the CEO. For US employees below Board level, whilst pension arrangements are in line with local practice, Pearson adopts US pay practices more broadly – such as grants of restricted shares in addition to performance shares – which we do not for Executive Directors. | |||||||||
Annual incentive plan |
Maximum opportunities of: — 300% of base salary for the Chief Executive — 200% of base salary for the Chief Financial Officer For 2023, the following balanced mix of financial and strategic measures will be used to determine any pay out, with a third of any bonus paid deferred into shares for two years if an Executive Director has not met their shareholding guideline. |
Adjusted operating profit |
Sales |
Free cash flow |
Strategic measures | |||
40% |
30% |
20% |
10% | |||
Strategic targets are as follows: |
Weighting |
Threshold |
Target |
Maximum | |||||
Invest in diverse pipeline and increase BIPOC/BAME representation at all manager levels | 5% | 2% increase in representation of BIPOC/BAME employees at Manager level and above + maintain overall gender parity as an underpin |
5% increase in representation of BIPOC/BAME employees at Manager level and above | 10% increase in representation of BIPOC/BAME employees at Manager level and above | ||||
Reduce carbon footprint – net annual reduction versus 2022 baseline as step towards 2030 goal | 5% | 1% reduction | 2% reduction | 5% reduction | ||||
As in previous years, we will apply a financial underpin to the strategic measures. We will disclose financial targets in full retrospectively following the end of the performance period. |
98 Pearson plc |
Long-Term Incentive Plan |
Maximum opportunities for Executive Directors are: — 450% of base salary for the Chief Executive — 300% of base salary for the Chief Financial Officer Performance measured over three years, with any shares vesting subject to an additional two-year holding period.For 2023, performance measures and targets are as follows: |
% of total |
Threshold |
Stretch |
Maximum |
Payout at threshold |
Payout at stretch |
Payout at maximum |
||||||||||||||||||||||||||||||||||||||||
Adjusted EPS |
30% | 53.0p | 63.0p | 68.0p | 20% | 65% | 100% | |||||||||||||||||||||||||||||||||||||||
Return on Capital |
30% | 8.5% | 10% | 11.5% | 20% | 65% | 100% | |||||||||||||||||||||||||||||||||||||||
Relative TSR vs. FTSE 100 (excl. certain sectors) |
15% | Median | - | Upper quartile | 20% | - | 100% | |||||||||||||||||||||||||||||||||||||||
Relative TSR vs. S&P 500 (excl. certain sectors) |
15% | Median | - | Upper quartile | 20% | - | 100% | |||||||||||||||||||||||||||||||||||||||
ESG |
10% | |
Improve gender representation at leadership levels overall vs 2022 (VP and above) |
|
|
Achieve gender parity at leadership levels in aggregate (VP and above) |
|
|
Achieve gender parity at all leadership levels (VP and above) |
|
20% | 65% | 100% |
Note 1: 2023 LTIP targets have been set at an USD:GBP exchange rate of 1.21. |
Note 2: Companies within financial services, energy, basic materials, utilities and healthcare sectors will be excluded from both TSR groups. |
Shareholding guidelines |
Shareholding guidelines are: — 450% of salary for the Chief Executive — 300% of salary for the Chief Financial Officer |
Annual report and accounts 2022 Pearson plc 99 |
Base salary |
Set considering economic factors, competitive market rates, roles, skills, experience, and individual performance |
|||||||
Allowances and benefits |
Reflect the local labour market in which colleagues are based. All eligible colleagues (including Executive Directors) can participate in savings-related share acquisition programmes in the UK, US and the rest of the world, and these are not subject to any performance conditions |
|||||||
Retirement benefits |
Reflect local market practice. Pearson colleagues in the UK may participate in the same underlying pension arrangements as the Executive Directors, subject to certain age bands and legacy arrangements |
|||||||
Annual incentives |
Around 11,200 colleagues participate in an Annual Incentive Plan, which is funded based on similar performance measures to the Executive Directors. |
All colleagues |
||||||
Several other colleagues participate in alternative cash-based annual bonuses, such as sales incentive and commission plans, based on performance targets and profit-shares where required for legislative reasons |
Over half of all Pearson employees participate in the annual incentive plan |
|||||||
Long-term |
Senior management participates in a long-term incentive arrangement, with both performance shares and restricted shares, recognising the markets in which we compete for talent. At other levels awards are typically made in restricted shares only. |
All colleagues |
||||||
incentives |
||||||||
Around 4% of all Pearson employees participate in a long-term incentive plan |
||||||||
Approximately 800 colleagues participate in the annual long-term incentive plan grant, who are selected based on their role, performance, and potential; with other awards being made from time to time on an ad-hoc basis to certain roles based on market need. |
||||||||
100 Pearson plc |
Andy Bird $000s |
Sally Johnson £000s |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Base salary |
1,250 |
1,250 |
533 |
521 |
||||||||||||
Allowances and benefits |
448 |
373 |
16 |
16 |
||||||||||||
Retirement benefits |
200 |
200 |
64 |
58 |
||||||||||||
Total fixed pay |
1,898 |
1,823 |
613 |
595 |
||||||||||||
Annual incentives |
1,900 |
1,575 |
692 |
560 |
||||||||||||
Long-term incentives |
– |
– |
1,199 |
– |
||||||||||||
Co-investment award |
4,684 |
3,708 |
– |
– |
||||||||||||
Total variable pay |
6,584 |
5,283 |
1,891 |
560 |
||||||||||||
Total remuneration |
8,482 |
7,106 |
2,504 |
1,155 |
Andy Bird $000s |
Sally Johnson £000s |
|||||||
Travel |
– |
14 |
||||||
Health |
15 |
2 |
||||||
Risk-related |
2 |
– |
||||||
Accommodation |
431 |
– |
Annual report and accounts 2022 Pearson plc 101 |
Performance range |
Payout |
|||||||||||||||||||||||
% of total |
Threshold |
Target |
Maximum |
Actual results |
% of max bonus opportunity |
|||||||||||||||||||
Adjusted operating profit |
30% |
£405m |
£428m |
£520m |
£456m |
20% |
||||||||||||||||||
Sales |
30% |
£3,600m |
£3,725m |
£3,980m |
£3,841m |
22% |
||||||||||||||||||
Operating cash flow |
20% |
£300m |
£315m |
£390m |
£401m |
20% |
||||||||||||||||||
Strategic measures |
20% |
See below |
14% |
|||||||||||||||||||||
100% |
76% |
Strategic priority |
Weighting |
Threshold |
Target |
Maximum |
Outcome |
|||||||||
Digital sales growth |
10% |
Plan less 2% |
Plan |
Plan plus 2% |
Met Plan plus 1.8% (9%) |
|||||||||
Invest in diverse pipeline and increase representation at management levels |
5% |
50% female and ethnic minority representation in leadership development and mentoring programmes + 50% female and 20% ethnic minority representation in leadership succession plans |
Threshold + 5% increase in female and ethnic minority representation at VP level and above |
Threshold + 10% increase in female and ethnic minority representation at VP level and above |
Achieved threshold of more than 5% increase in ethnic minority representation, but less than 5% increase in female representation, at VP level and above (1%) |
|||||||||
Reduce carbon footprint – net annual reduction versus 2021 baseline |
5% |
1% reduction |
2% reduction |
5% reduction |
3.3% net reduction (4%) |
|||||||||
Total |
20% |
14% |
Performance range |
Vesting |
|||||||||||||||||||||||||||||||||||||||
% of total |
Threshold |
Stretch |
Maximum |
Payout at threshold |
Payout at stretch |
Payout at maximum |
Actual |
Percentage achievement |
Percentage of total award |
|||||||||||||||||||||||||||||||
Adjusted EPS |
A third |
44.2p |
51p |
58.3p |
15% |
65% |
100% |
52.8p |
74% |
25% |
||||||||||||||||||||||||||||||
ROIC |
A third |
5.2% |
6.2% |
7.5% |
15% |
65% |
100% |
4.7% |
0% |
0% |
||||||||||||||||||||||||||||||
Relative TSR |
A third |
Median |
- |
Upper quartile |
25% |
- |
100% |
Ranked 10 out of 93 |
100% |
33% |
||||||||||||||||||||||||||||||
100% |
Total |
58% |
102 Pearson plc |
— | an appropriate level of continued progress being made in relation to delivering Pearson’s strategy, including the ongoing transition from print to digital, and |
— | no significant ESG issues occurring, which relate to Andy Bird’s tenure as Chief Executive, and which result in significant reputational damage for Pearson |
— | Pearson’s TSR from the date of the announcement of Andy Bird’s appointment to 31 December 2023 is either (1) positive; or (2) is at median or above when compared to the performance of the FTSE 100 |
Progress in delivering Pearson’s strategy |
Significant strategic progress was made during 2022 in the face of macroeconomic headwinds. This included: — Significant organic investment, bringing new capabilities. For example: invested in new capabilities for Pearson+, including Channels functionality; expanded reach of VUE remote proctoring solution; launched Skills Accelerator, developed MondlyWORKS capabilities to grow our presence in the enterprise language learning market. — Acquisitions to support growth strategy across the Pearson ecosystem. These include Credly, Mondly, Navvy, and ClutchPrep, and Pearson has also signed an agreement to acquire PDRI. — Refinement of Pearson’s portfolio through the completion of the strategic disposal of Pearson’s International Courseware local publishing businesses. — The delivery of £120m of cost efficiencies, accelerating improved margin expectation. — Launch of people strategy with a focus on engagement and high-performance |
Revenue £3,841m 5% underlying adjusted growth on prior year |
Adj. operating profit £456m 11% underlying adjusted growth on prior year |
Operating cash flow £401m 3% growth on prior year |
Adjusted EPS 51.8p 48% growth on prior year |
Net debt £557m 59% increase on prior year due to £350m share buy back |
— | Strong strategic, operational, and financial progress was reflected in Pearson’s share price and value delivered to shareholders. Pearson ended the year as one of the top performers in the FTSE 100, delivering a total shareholder return of 57% in 2022. |
— | Strong financial position has enabled Pearson to grow its dividend (up 5% to 21.5p in 2022), in line with Pearson’s commitment to a progressive and sustainable dividend. The Board also approved a £350m share buyback programme in February 2022 to return capital to shareholders. |
— | Pearson has strong and constructive relationships with its key institutional investors. During 2022, Pearson held 373 meetings with 192 institutions, both virtually and in person. |
Annual report and accounts 2022 Pearson plc 103 |
— | Launch of people strategy with a focus on engagement and high-performance. |
— | Refresh of non-financial KPIs to measure how well Pearson is delivering on its people strategy, and to cover employee engagement, investing in talent, and diversity, equity, and inclusion. |
— | Launch of a new employee engagement survey to better understand employees’ needs and enable Pearson to benchmark itself globally. In addition, Pearson launched a new digital employee experience platform to improve communication across Pearson. Over 70% of colleagues participated in the new engagement survey in 2022, and more than 34,000 users have already accessed the new digital employee experience platform. |
— | Investment in learning, for example, manager upskilling and reskilling to drive engagement and high performance; new acquisitions such as Credly to certify employee skills; development of leaders via McKinsey accelerator programmes; and coaching and Board mentoring opportunities. Over 70% of Pearson’s employees agreed or strongly agreed they had access to opportunities to learn and grow over the past six months. |
— | Expansion of Pearson’s flagship Global Learning at Work week to a monthly series focused on priority skills from the Pearson Capabilities Framework featuring live and on demand sessions with external experts, Pearson authors, Pearson leaders as teachers, and curated learning pathways and team guides to support self-directed learning. |
— | Continued focus on building a culture of inclusion and increasingly diverse representation through inclusive learning experience for employees, and 75% of participants on leadership development and mentoring programs were diverse. |
— | Evolution of Pearson’s Employee Engagement Network, enabling the Board to hear directly from employees and creating additional insight on how to enhance employee satisfaction and engagement levels. |
— | Pearson+ registered users compared to prior year Fall grew to 2.83m (2021: 2.75m) , and there was a three-fold increase compared to prior Fall semester in Pearson+ paid subscriptions to 406k (2021: 133k). Through increased understanding of consumer behaviours and preferences, Pearson continues to evolve Pearson+, exploring new types of content and enhancing features such as Pearson+ Channels, which launched in Autumn 2022. |
— | In English Language Learning, enhancements were made to the user experience to ensure courseware is the most engaging and effective on the market, leveraging our partnerships with major corporations including Disney and the BBC. |
— | In Mondly, development of a new AI virtual tutor to be integrated into the product in 2023 to support where it is difficult for individuals to access in-person tutors. |
— | Reshape of Workforce Skills portfolio to better match the suite of products and services with the different needs of our enterprise customers. |
— | Launch of Skills Accelerator in Workforce Skills – a suite of peer-supported, project-based learning courses – to support people complete business-critical projects while developing future skills. |
— | Pearson opened its first virtual school in Virginia and helped to enact new legislation in Missouri facilitating easier access to publicly funded virtual learning. |
— | Launch of a new Privacy Centre for consumers which will be linked to all our products and a newly developed universal preferences centre. |
— | 70% of content partners are now trained in editorial guidelines released for Pearson’s authors, reviewers, and editors to ensure meaningful, diverse representation in content. |
— | Supplier diversity and responsible procurement are key priorities for Pearson. In 2022, two new supplier portals were added that provide access to over one million diverse accredited suppliers. Pearson progressed towards its goal of increasing spend with diverse-accredited suppliers. |
— | Continued progress towards Pearson’s goal of ethically sourcing 100% of its paper by 2025. Paper and print suppliers are integrated to the Book Chain Project platform which monitors and tracks actions and strategies to protect biodiversity. Pearson has also rationalised its paper suppliers to significantly increase use of responsibly sourced paper from the Forestry Stewardship Council and the Programme for the Endorsement of Forest Certification schemes. |
— | For the first time in 2022, we asked our key suppliers to participate in an EcoVadis sustainability assessment (or equivalent). We reviewed performance across environmental and human rights areas to ensure that they align to Pearson’s standards. Our key suppliers performed well, with an average score of 57.3/100 (average supplier’s score of 44.9/100). |
— | Pearson is working in partnership with other corporates to understand the decarbonisation plans of its top 50 suppliers ahead of developing tailored engagement plans for those suppliers that need support to drive change. |
— | Pearson continues to add business partners who contribute to the diversity of its workforce. In 2022, new partners included People of Colour in Tech and the Hispanic Association on Corporate Responsibility. |
104 Pearson plc |
Director |
Date of award |
Vesting date |
Number of shares |
Face value |
Face value (% of base salary) |
Value for threshold performance (% of maximum) 1 |
Performance period |
|||||||||||||||||||||
Andy Bird |
3 May 2022 |
1 May 2025 |
356,065 |
£2,775,171 |
300% |
18.3% |
1 Jan 22 – 31 Dec 24 |
|||||||||||||||||||||
Sally Johnson |
3 May 2022 |
1 May 2025 |
168,415 |
£1,312,627 |
245% |
18.3% |
1 Jan 22 – 31 Dec 24 |
Adjusted earnings per share (EPS) (one-third) |
Net return on invested capital (ROIC) (one-third) |
Relative total shareholder return (TSR) (one-third) |
||||||||||||||||||||
Vesting schedule (% max) |
Adjusted EPS for FY24 |
Vesting schedule (% max) |
Adjusted net ROIC for FY24 |
Vesting schedule (% max) |
Ranked position vs FTSE 100 |
|||||||||||||||||
15% |
48.0p |
15% |
6.0% |
25% |
Median |
|||||||||||||||||
65% |
55.0p |
65% |
7.0% |
– |
– |
|||||||||||||||||
100% |
64p or above |
100% |
8.0% or above |
100% |
Upper quartile |
Andy Bird $000s |
Sally Johnson £000s |
|||||||
Value of defined benefit |
- |
43 |
||||||
Other allowances in lieu of pension |
200 |
21 |
||||||
Total value in 2022 |
200 |
64 |
||||||
Accrued pension at 31 December 2022 |
- |
64 |
Annual report and accounts 2022 Pearson plc 105 |
Director |
Current shareholding (ordinary shares) at 31 Dec 22 |
Conditional shares subject to performance at 31 Dec 22 |
Conditional shares subject to employment only at 31 Dec 22 |
Total number of ordinary and conditional shares at 31 Dec 22 |
Shareholding guideline for 2022 (% salary) |
Guideline met? |
||||||||||||||||||
Chair |
||||||||||||||||||||||||
Omid Kordestani |
32,096 |
– |
– |
– |
– |
– |
||||||||||||||||||
Sidney Taurel |
242,770 |
– |
– |
– |
– |
– |
||||||||||||||||||
Deputy Chair |
||||||||||||||||||||||||
Tim Score |
67,475 |
– |
– |
– |
– |
– |
||||||||||||||||||
Executive Directors |
||||||||||||||||||||||||
Andy Bird |
591,983 |
1,494,289 |
207,584 |
2,293,856 |
300% |
Yes |
||||||||||||||||||
Sally Johnson |
27,778 |
543,330 |
2,357 |
573,465 |
200% |
n/a (see note 6) |
||||||||||||||||||
Non-Executive Directors |
||||||||||||||||||||||||
Sherry Coutu CBE |
10,567 |
– |
– |
– |
– |
– |
||||||||||||||||||
Esther Lee |
1,497 |
– |
– |
– |
– |
– |
||||||||||||||||||
Linda Lorimer |
18,038 |
– |
– |
– |
– |
– |
||||||||||||||||||
Graeme Pitkethly |
10,477 |
– |
– |
– |
– |
– |
||||||||||||||||||
Annette Thomas |
2,317 |
– |
– |
– |
– |
– |
||||||||||||||||||
Lincoln Wallen |
16,315 |
– |
– |
– |
– |
– |
106 Pearson plc |
2022 |
2021 |
|||||||||||||||||||||||
Director £000s |
||||||||||||||||||||||||
Total fees |
Taxable benefits |
Total |
Total fees |
Taxable benefits |
Total |
|||||||||||||||||||
Omid Kordestani |
417 |
19 |
436 |
– |
– |
– |
||||||||||||||||||
Sidney Taurel |
167 |
13 |
180 |
500 |
– |
500 |
||||||||||||||||||
Sherry Coutu CBE |
100 |
5 |
105 |
92 |
– |
92 |
||||||||||||||||||
Esther Lee |
78 |
7 |
85 |
– |
– |
– |
||||||||||||||||||
Linda Lorimer |
100 |
9 |
109 |
100 |
– |
100 |
||||||||||||||||||
Graeme Pitkethly |
98 |
4 |
102 |
93 |
– |
93 |
||||||||||||||||||
Tim Score |
163 |
3 |
166 |
130 |
– |
130 |
||||||||||||||||||
Annette Thomas |
90 |
6 |
97 |
21 |
– |
21 |
||||||||||||||||||
Lincoln Wallen |
93 |
6 |
99 |
93 |
– |
93 |
||||||||||||||||||
Total |
1,305 |
73 |
1,378 |
1,029 |
– |
1,029 |
Role |
Fees for 2023 |
|||
Chair fee |
£500,000 |
|||
Deputy Chair and Senior Independent Director fee |
£175,000 |
|||
Base fee for Non-Executive Directors |
£70,000 |
Role |
Chair |
Member |
||||||
Audit Committee |
£27,500 |
£15,000 |
||||||
Remuneration Committee |
£27,500 |
£10,000 |
||||||
Nomination & Governance Committee |
£15,000 |
£8,000 |
||||||
Reputation & Responsibility Committee |
£15,000 |
£8,000 |
Annual report and accounts 2022 Pearson plc 107 |
John Fallon |
Andy Bird |
|||||||||||||||||||||||||||||||||||||||||||||
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2020 |
2021 |
2022 |
||||||||||||||||||||||||||||||||||||
Total remuneration (single figure, £000s) |
1,727 |
1,895 |
1,263 |
1,518 |
1,758 |
3,094 |
1,616 |
855 |
334 |
5,167 |
6,856 |
|||||||||||||||||||||||||||||||||||
Annual incentive (% of maximum) |
34% |
51% |
Nil |
24% |
44% |
45% |
Nil |
Nil |
N/A |
63% |
76% |
|||||||||||||||||||||||||||||||||||
Long-term incentive (% of maximum) |
Nil |
Nil |
Nil |
Nil |
Nil |
42% |
33% |
Nil |
N/A |
N/A |
N/A |
108 Pearson plc |
2022 |
2021 |
2020 |
||||||||||||||||||||||||||||||||||
Base salary/fees |
Allowances and benefits |
Annual Incentives |
Base salary/fees |
Allowances and benefits |
Annual Incentives |
Base salary/fees |
Allowances and benefits |
Annual Incentives |
||||||||||||||||||||||||||||
Average employee 1 |
4% |
8% |
16% |
4% |
17% |
38% |
1% |
6% |
9% |
|||||||||||||||||||||||||||
Executive Directors |
||||||||||||||||||||||||||||||||||||
Andy Bird |
0% |
20% |
21% |
0% |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Sally Johnson |
2.5% |
0% |
24% |
1% |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Chair and Non-Executive Directors1 |
||||||||||||||||||||||||||||||||||||
Omid Kordestani |
– |
– |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Sidney Taurel |
0% |
– |
– |
0% |
– |
– |
0% |
95% |
– |
|||||||||||||||||||||||||||
Tim Score |
25% 2 |
– |
– |
13% |
– |
– |
0% |
-20% |
– |
|||||||||||||||||||||||||||
Sherry Coutu CBE |
9% |
– |
– |
5% |
– |
– |
5% |
– |
– |
|||||||||||||||||||||||||||
Esther Lee |
– |
– |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Linda Lorimer |
0% |
– |
– |
1% |
– |
– |
1% |
102% |
– |
|||||||||||||||||||||||||||
Graeme Pitkethly |
5% |
– |
– |
1% |
– |
– |
8% |
– |
– |
|||||||||||||||||||||||||||
Annette Thomas |
7% |
– |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Lincoln Wallen |
0% |
– |
– |
1% |
– |
– |
1% |
-97% |
– |
Headline change |
||||||||||||||||
All figures in £ |
2022 |
2021 |
£ |
% |
||||||||||||
Adjusted operating profit |
456 |
385 |
71 |
18% |
||||||||||||
Dividend per share |
21.5p |
20.5p |
1p |
5% |
||||||||||||
Share buybacks |
353 |
Nil |
- |
- |
||||||||||||
Total wages and salaries |
1,382 |
1,180 |
202 |
17% |
Chief Executive pay ratio |
||||||||||||||
Year |
Method |
25 th percentile |
50 th percentile |
75 th percentile |
||||||||||
2022 |
B: Gender pay gap methodology |
214.3 |
181.3 |
117.2 |
||||||||||
2021 |
B: Gender pay gap methodology |
150.1 |
145.0 |
88.4 |
||||||||||
2020 |
B: Gender pay gap methodology |
42.5 |
31.9 |
19.5 |
||||||||||
2019 |
B: Gender pay gap methodology |
65.9 |
47.2 |
36.0 |
— | We used GB gender pay gap data from April 2022 to identify employees at the 25 th , 50th and 75th percentiles, and analysed data for employees around each quartile figure to ensure there were no anomalies |
Annual report and accounts 2022 Pearson plc 109 |
— | Using the gender pay gap data to identify the quartile employees gives a general representation of the relevant employee population at the year end, and is the most practicable methodology given the timing of the disclosure and determination of remuneration outcomes for the wider workforce. |
— | We compared total remuneration for each employee, calculated with reference to 31 December 2022, compared to the Chief Executive’s single figure (this was converted using a USD:GBP exchange rate of 1.2371 – the average exchange rate for 2022). |
— | For the quartile employees, we calculated total remuneration on a similar basis to the Chief Executive’s single figure. We based base salary, pension and benefits on full-year figures taken from payroll. Annual bonus figures are based on the relevant manager recommendations and relate to performance in 2022. None of the employees at the 25 th , 50th or 75th percentile had share awards vesting in 2022. |
— | Total remuneration figures for the 25 th , 50th and 75th percentile employees are: £31,998, £37,822 and £58,525. The respective base salaries are: £29,500, £30,257 and £50,078. |
— | A significant proportion of the Chief Executive’s pay is linked to performance and, in respect of the LTIP and co-investment award, share price performance. Therefore, the Chief Executive’s pay can vary significantly year-on-year, |
— | The increase in this year’s pay ratio is a result of a higher payout under the AIP for the Chief Executive (76% of maximum compared to 63% of maximum last year) as well as the strong share price performance over the last year which has resulted in a higher valuation of the vesting of the second tranche of the co-investment award. |
— | The median pay ratio is consistent with our wider policies on employee pay, reward and progression. The Committee is focused on ensuring that remuneration for all Pearson colleagues reflects our need to attract and retain the right talent for our digital future. |
Headroom |
2022 |
|||
All Pearson plans |
7.60% |
|||
Executive or discretionary plans |
4.70% |
|||
Shares held in trust |
4.70% |
Role |
Name |
Title | ||
Chair |
Sherry Coutu CBE |
Independent | ||
Non-Executive | ||||
Director | ||||
Members |
Esther Lee |
Independent | ||
Non-Executive | ||||
Director | ||||
Tim Score |
Deputy Chair | |||
Annette Thomas |
Independent | |||
Non-Executive | ||||
Director | ||||
Sidney Taurel (until |
Chair | |||
29 April 2022) |
||||
Internal attendees |
Omid Kordestani |
Chair | ||
Andy Bird |
Chief Executive | |||
Sally Johnson |
Chief Financial Officer | |||
Ali Bebo |
Chief Human | |||
Resources Officer | ||||
Paul Christian |
Senior Vice President, | |||
Reward | ||||
Graeme Baldwin |
Company Secretary | |||
External advisers |
Deloitte LLP |
110 Pearson plc |
— | Reviewed and approved annual and long-term performance and payouts to Executive Directors and senior management for 2021 |
— | Reviewed and approved incentive arrangements for Pearson, and how these will apply to Executive Directors and senior management in 2022 |
— | Reviewed the Directors’ remuneration policy and its implementation ahead of its renewal at the 2023 AGM |
— | Engaged extensively with shareholders following the 2022 AGM and in respect of the Directors’ remuneration policy review. Reviewed and considered all feedback and considered ongoing shareholder engagement strategy |
— | Approved remuneration arrangements for new senior management appointments |
— | Received updates on Pearson’s financial performance and progress against strategic measures. Noted and reviewed the status of in-flight incentives |
— | Received updates on pay and conditions across Pearson, and took these into account when determining executive remuneration |
— | Noted updates on corporate governance, including a review of the 2022 AGM remuneration reporting season, and anticipated areas of focus in 2023 |
— | Reviewed Pearson’s gender and ethnicity pay gap disclosures and noted actions to address the respective gaps |
— | Noted the activity of the Standing Committee on operating Pearson’s equity-based reward programmes and noted Pearson’s use of equity for employee share plans |
Votes cast for |
% of votes cast for |
Votes cast against |
% of votes cast against |
Votes withheld |
||||||||||||||||
Annual report on Remuneration (2022 AGM) |
462,488,192 |
76.53% |
141,832,706 |
23.47% |
3,136,939 |
|||||||||||||||
2020 Remuneration Policy (2020 AGM) |
586,460,258 |
95.12% |
30,106,736 |
4.88% |
219,641 |
|||||||||||||||
Amendment to 2020 Remuneration Policy (2020 GM) |
417,060,992 |
67.22% |
203,423,538 |
32.78% |
370,074 |
Annual report and accounts 2022 Pearson plc 111 |
— | Increase in the maximum opportunity under the Annual Incentive Plan to 300% of base salary. |
— | Increase in the maximum opportunity under the Long-Term Incentive Plan to 450% of salary. |
— | Increase in proportion of the Annual Incentive Plan that is payable for threshold performance to up to 25% of the maximum opportunity. |
— | Introduction of deferral under the Annual Incentive Plan where an Executive Director has not met their shareholding guideline. |
— | Changes to allow for the introduction of strategic measures, e.g. an ESG measure, into the long-term incentive performance framework. |
— | Increase in shareholding guidelines. |
— | Helps to recruit, reward and retain. |
— | Reflects level, role, skills, experience, the competitive market and individual contribution. |
Operation |
Opportunity |
Performance conditions and period | ||
Base salaries are set to provide the appropriate rate of remuneration for the job, taking into account relevant recruitment markets, business sectors and geographic regions. Base salaries are normally reviewed annually taking into account: general economic and market conditions; the level of increases made across the company as a whole; particular circumstances such as changes in role, responsibilities or organisation; the remuneration and level of increases for executives in similar positions in comparable companies in both the UK, US and internationally; and individual performance. |
While there is no maximum salary level or maximum increase that may be offered, salary increases will normally be in line with typical increases awarded to other employees in the Group. However, increases may be above this level, for example, in circumstances including but not limited to: — Where a new Executive Director has been appointed to the Board at a lower than typical market salary to allow for growth in the role then larger increases may be awarded to move salary positioning closer to typical market level as the Executive Director gains experience. — Where an Executive Director has been promoted or has had a change in responsibilities. — Where there has been a significant change in market practice or where there has been a significant change in the size and/or scope of the business |
None, although performance of both the company and the individual are taken into account when determining an appropriate level of base salary increase each year. |
112 Pearson plc |
— | Help to recruit, reward and retain. |
— | Reflect local competitive market. |
Operation |
Opportunity |
Performance conditions and period | ||
Allowances and benefits comprise cash allowances and non-cash benefits which may include:— travel-related benefits (such as car allowance, company car and private use of a driver) — health-related benefits (such as healthcare, health assessment and gym subsidy) and — risk benefits (such as additional life cover and long-term disability insurance that are not covered by the company’s retirement plans). Executive Directors are also eligible to participate in savings-related share acquisition programmes, which are not subject to any performance conditions, on the same terms and to the same value as other employees. Where an Executive Director is required to relocate to perform their role, appropriate one-off or ongoing expatriate/relocation benefits may be provided (e.g., housing, schooling, etc.).The Committee may introduce other benefits if it is considered appropriate to do so, taking into account the individual circumstances, the country of residence of a Director, the benefits available to all employees and the wider external market. |
The cost of the provision of allowances and benefits varies from year to year depending on the cost to Pearson and there is no prescribed maximum limit. However, the Committee monitors annually the overall cost of the benefits provided, to ensure that it remains appropriate. |
Not applicable |
— | Help to recruit, reward and retain. |
— | Recognise long-term commitment to the company. |
Operation |
Opportunity |
Performance conditions and period | ||
Employees in the UK are eligible to join the Money Purchase 2003 section of the Pearson Pension Plan. Executive Directors are eligible to join this plan or receive a cash allowance of equivalent value. UK Executive Directors who are, or become, affected by the lifetime allowance may be provided with appropriate benefits, as an alternative to further accrual of pension benefits such as a cash supplement, in line with the treatment for the employee population. If any Executive Director is from, or works, outside the UK, the Committee retains a discretion to put in place retirement benefit arrangements for that Director in line with local market practice including defined benefit pension arrangements operated by Pearson locally. The maximum value of such arrangement will reflect local market practice at the relevant time. The Committee may also honour all pre-existing retirement benefit obligations, commitments or other entitlements that were entered into by a member of the Pearson Group before that person became a Director, such as participation in the Final Pay section of the Pearson Pension Plan which is now closed to new members. |
Executive Directors are eligible to receive pension contributions or a cash allowance in line with the maximum company contribution as a percentage of salary that UK employees of a similar age are eligible to receive. For UK employees who are over 45, this is currently 16% of base salary. Current Chief Executive Officer: Andy Bird receives a payment in lieu of pension at 16% of base salary in line with the pension provision for UK employees of a similar age. Current Chief Financial Officer: Sally Johnson is a member of the Final Pay section of the Pearson Pension Plan which she joined prior to becoming an Executive Director. Her pension accrual rate is 1/60 th of pensionable salary per annum, restricted to the Plan earnings cap.Sally Johnson has reached the lifetime allowance, and therefore now receives a payment in lieu of pension at 16% of base salary in line with the pension provision for UK employees of a similar age. |
Not applicable |
Annual report and accounts 2022 Pearson plc 113 |
— | Help to recruit, reward and retain. |
— | Motivate the achievement of annual business goals and strategic objectives. |
— | Provide a focus on key financial and non-financial metrics. |
— | Reward individual contribution to the success of the company. |
— | Align to strategy execution priorities. |
Operation |
Opportunity |
Performance conditions and period | ||
Measures and performance targets are typically set by the Committee at the start of the year with payment usually made after year end following the Committee’s assessment of performance relative to targets. Annual incentive plans are discretionary. The Committee reserves the right to adjust payments up or down if it believes that the outcome does not reflect underlying financial or non-financial performance or if such other exceptional factors warrant doing so.Where an Executive Director has not met their shareholding guideline, normally a third of any payment would be deferred into Pearson shares for a period of two years. Participants may receive additional shares representing the gross value of dividends that would have been paid on shares that vest during the vesting period. The Committee may apply malus and/or clawback for a period of five years in certain circumstances, such as financial misstatement, individual misconduct or reputational damage to the company. |
Annual incentives will not exceed 300% of base salary. For 2023, the individual maximum incentive opportunity that will apply for the Chief Executive Officer is 300% of base salary and for the Chief Financial Officer is 200% of base salary. The proportion of the award that is payable for threshold performance may be up to 25% of the maximum opportunity. 50% of the maximum opportunity is payable for on-target levels of performance. |
The Committee has the discretion to select the performance measures and relative weightings from year to year to ensure continuing alignment with strategy and to ensure targets are sufficiently stretching. The Committee sets performance targets for each measure annually. Annual incentives will normally be based on financial and strategic performance targets. Financial metrics will normally account for at least 75% of the total annual opportunity with the remaining portion normally being based on strategic and/or performance against personal objectives. The Committee would intend to consult with shareholders in advance if there was to be a significant change in the weighting of financial and strategic measures. The plan is designed to incentivise and reward underlying performance. Actual results may be adjusted to remove the effect of foreign exchange and portfolio changes (acquisitions and disposals) and other relevant factors that the Committee considers do not reflect the underlying performance of the business in the performance year. Details of performance measures, weightings and targets will be disclosed in the annual remuneration report for the relevant financial year if and to the extent that the Committee deems them not to be commercially sensitive. The performance period is one year. |
114 Pearson plc |
— | Help to recruit, reward and retain. |
— | Drive long-term earnings, share price growth and value creation. |
— | Align the interests of executives and shareholders. |
— | Encourage long-term shareholding and commitment to the company. |
Operation |
Opportunity |
Performance conditions and period | ||
Awards of shares are made on an annual basis, which vest on a sliding scale based on performance against stretching performance targets measured at the end of the three-year performance period. Awards are normally subject to a post-vesting holding period (on an after tax basis) for two years following the end of the performance period. Participants may receive additional shares representing the gross value of dividends that would have been paid on shares that vest during the performance period. The Committee reserves the right to adjust the vesting outcome up or down before they are released if it believes that this does not reflect underlying financial or non-financial performance or if such other exceptional factors warrant doing so. In making such adjustments, the Committee is guided by the principle of aligning shareholder and management interests.The Committee may apply malus and/or clawback for a period of five years in certain circumstances, such as financial misstatement, individual misconduct or reputational damage to the company. |
The maximum award is 450% of base salary in respect of a financial year. |
The Committee will determine the performance measures, weightings and targets governing an award of shares prior to grant to ensure continuing alignment with strategy and to ensure that targets are sufficiently stretching. The Committee establishes a threshold below which no payout is achieved and a maximum at or above which the award pays out in full. The proportion of the award that vests at threshold may be up to 25% of the maximum opportunity. Awards will normally be subject to the achievement of financial targets (e.g., earnings per share and a return measure), shareholder returns (e.g., relative total shareholder return) and strategic objectives (e.g., an environmental, social and/or governance measure). Where strategic objectives are incorporated, financial targets and/or shareholder returns will comprise the majority of the award. The Committee may determine that different measures or weightings may apply for future awards; however, the Committee would intend to consult with shareholders in advance if there was to be a significant change in the weighting of measures or the performance measures used. The performance period is three years. |
— | Align the interests of Executives and shareholders and encourage long-term shareholding and commitment to the company. |
Operation |
Opportunity |
Performance conditions and period | ||
Executive Directors are expected to build up a shareholding in the company. Executive Directors are expected to reach the guideline within five years from the date of appointment. Post-employment shareholding: Executive Directors are expected to retain their shareholding guideline (or actual holding if lower) for two years following stepping down as an Executive Director. This provision does not apply to any shares purchased by the Executive Director. |
The target holding is currently 450% of base salary for the Chief Executive Officer and 300% of base salary for other Executive Directors. |
Not applicable |
Annual report and accounts 2022 Pearson plc 115 |
Annual incentive plan |
For 2023, the Committee identified sales, adjusted operating profit, free cash flow and key strategic measures as being relevant measures of Pearson’s performance against its shorter-term strategic objectives and business priorities. Further details on how these performance measures align to Pearson’s strategy are set out in the remuneration report. | |
Long-term incentive plan |
For 2023 LTIP awards, the Committee has judged the following to be most closely matched to sustained delivery of strategy and alignment with shareholders’ interests: — Adjusted earnings per share (30%) — Return on capital (30%) — Relative total shareholder return (30%) — An Environmental, Social and Governance measure (10%) |
— | before the policy came into effect, if the payment was agreed or made in line with the policy in force at the time or was otherwise approved by shareholders; and |
— | at a time when the recipient was not subject to the policy, provided the Committee does not consider the payment to have been made in consideration of the recipient becoming subject to the policy. |
Chief Executive (Andy Bird) $000 |
Chief Financial Officer (Sally Johnson) £000 |
116 Pearson plc |
Performance scenario |
Elements of remuneration and assumptions | |
Maximum plus 50% share price appreciation |
— Fixed pay — Maximum individual annual incentive (300% of base salary for Chief Executive and 200% of salary for Chief Financial Officer) — Maximum value of 2023 LTIP award (450% for Chief Executive and 300% of salary for Chief Financial Officer) with 50% share price growth assumed | |
Maximum |
— Fixed pay — Maximum individual annual incentive (300% of base salary for Chief Executive and 200% of salary for Chief Financial Officer) — Maximum value of 2023 LTIP award (450% for Chief Executive and 300% of salary for Chief Financial Officer) with no share price growth assumed | |
Target |
— Fixed pay — 50% of the maximum individual annual incentive — 50% of the maximum value of 2023 long-term incentive award with no share price growth assumed | |
Minimum |
— Fixed pay only |
— | Where an individual is relocating in order to take up the role, in which case the company may provide certain benefits such as reasonable relocation expenses, accommodation and assistance with visa applications or other immigration issues and ongoing arrangements such as tax equalisation, annual flights home, schooling and housing allowance. |
— | Where an individual is required to forego compensation to take up the appointment or forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of appointment, the Committee may offer compensatory payments or awards, in such form as the Committee considers appropriate taking into account all relevant factors including where applicable the form of compensation or awards, expected value and vesting time-frame of forfeited opportunities. The Committee would require reasonable evidence of the nature and value of any foregone or forfeited amounts and would, to the extent practicable, ensure any compensation was provided on a like-for-like |
— | Where an individual incurs legal or other professional fees in connection with their appointment as an Executive Director, the Committee retains the discretion to compensate for these. |
Annual report and accounts 2022 Pearson plc 117 |
— | awards will stay in force as if the participant had not ceased employment and shall ordinarily vest on the original vesting date/be released in line with normal time horizons subject to performance conditions. |
— | the number of shares that are released shall be pro-rated for the period of the participant’s service in the vesting period (although the Committee may in its absolute discretion waive or vary the pro-rating). |
Position |
Date of letter / agreement |
Notice period |
Compensation on termination of employment by the company without notice or cause | |||
Chair |
Omid Kordestani, 16 December 2021 |
12 months from the Director; 12 months from the company |
Payment in lieu of notice of 100% of annual fees at the date of termination | |||
Executive Directors |
Andy Bird, 23 August 2020 Sally Johnson, 15 January 2020 |
6 months from the Director; 12 months from the company |
Payment in lieu of notice of 100% of annual salary at the date of termination and the annual cost of pension and all other benefits |
118 Pearson plc |
— | To attract and retain high-calibre individuals, with appropriate experience or industry-relevant skills, by offering market competitive fee levels |
Operation |
Opportunity |
Performance conditions and period | ||
The Chair and Deputy Chair are paid a single fee for all of their responsibilities. The Chair and Deputy Chair fee is set at a level that is competitive considering similar positions in comparable companies. The Non-Executive Directors are paid a basic fee.The Committee Chairs, members of the main Board Committees and, if relevant, the Senior Independent Director are paid an additional fee to reflect their extra responsibilities. Fees for Non-Executive Directors are determined by the full Board having regard to market practice.Additional fees or other payments may be paid to reflect additional responsibilities, roles or contribution, as appropriate. The Chair, Deputy Chair and Non-Executive Directors are not eligible to participate in any annual or long-term incentive, nor are they entitled to any retirement or other employee benefits. Selected benefits may be introduced, if considered appropriate.The company reimburses travel and other business expenses and any tax incurred thereon, if applicable. Normally a minimum of 25% of the Chair’s, Deputy Chair’s and Non-Executive Directors’ basic fee is paid in Pearson shares that they have committed to retain for the period of their directorships. Shares are normally acquired quarterly at the prevailing market price with the individual’s after-tax fee payments. |
Fee levels are reviewed on a periodic basis. The total fees payable to the Non-Executive Directors (excluding the Chair) are subject to the limit set out in the Articles of Association of the company (currently £750,000) and as increased by ordinary resolution from time to time. |
None. |
Annual report and accounts 2022 Pearson plc 119 |
— | Maintaining a strong balance sheet and solid investment-grade credit ratings through an appropriate capital structure |
— | Focused and disciplined approach to investing in the business to accelerate growth opportunities |
— | Delivering shareholder returns through a progressive and sustainable dividend policy |
— | Returning surplus cash to shareholders as and when appropriate through buybacks or special dividends |
Number of voting rights |
Percentage as at date of notification |
|||||||
Cevian Capital II GP Limited |
82,952,354 |
11.16% |
||||||
BlackRock, Inc. 1 |
74,503,339 |
10.32% |
||||||
Ameriprise Financial, Inc. and its group |
41,236,375 |
5.02% |
||||||
Silchester International Investors LLP |
36,341,993 |
<5% |
||||||
Schroders plc |
36,003,705 |
<5% |
||||||
Libyan Investment Authority 2 |
24,431,000 |
3.01% |
1. | Includes 6,864,838 (0.94%) qualifying financial instruments to which voting rights are attached. |
2. | Based on notification to the company dated 7 June 2010. We have not been notified of any change to this holding since that date. Assets belonging to, or owned, held or controlled on 16 September 2011 by the Libyan Investment Authority and located outside Libya on that date, are frozen in accordance with The Libya (Sanctions) (EU Exit) Regulations 2020. |
Number of voting rights |
Percentage as at date of notification |
|||||||
BlackRock, Inc. 3 |
78,810,810 |
11.00% |
3. | Includes 8,847,811 (1.23%) qualifying financial instruments to which voting rights are attached |
120 Pearson plc |
Annual report and accounts 2022 Pearson plc 121 |
(i) | with the written consent of the holders of at least 75% in nominal value of the issued shares of the relevant class or |
(ii) | with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the relevant class. |
122 Pearson plc |
Summary disclosures index |
See more |
|||
Dividend recommendation |
Page 25 |
|||
Financial instruments and financial risk management |
Page 178 |
|||
Important events since year end |
Page 25 |
|||
Future development of the business |
Page 11 |
|||
Research and development activities |
Page 16 |
|||
Employment of disabled persons |
Page 34 |
|||
Employee involvement |
Page 33 |
|||
Greenhouse gas emissions and energy consumption data |
Page 41 |
|||
Statement describing employee engagement |
Page 28 |
|||
Statement describing regard to suppliers, customers and other stakeholders’ interests |
Page 29 |
— | so far as the Director is aware, there is no relevant audit information of which the Group and company’s auditors are unaware. |
— | they have taken all the steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Group and the company’s auditors are aware of that information. |
A P Bird |
G D Pitkethly | |
S L Coutu |
T Score | |
S K M Johnson |
S Taurel – resigned on 29 April 2022 | |
O Kordestani – appointed on 1 March 2022 |
A C Thomas | |
E S Lee – appointed on 1 February 2022 |
L A Wallen | |
L K Lorimer |
Annual report and accounts 2022 Pearson plc 123 |
— | Select suitable accounting policies and then apply them consistently. |
— | State whether applicable UK-adopted international accounting standards and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements. |
— | Make judgements and accounting estimates that are reasonable and prudent. |
— | Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and company will continue in business. |
— | The Group and company financial statements, which have been prepared in accordance with UK-adopted international accounting standards and IFRSs issued by IASB, give a true and fair view of the assets, liabilities and financial position of the Group and company, and of the profit of the Group. |
— | The Strategic report includes a fair review of the development and performance of the business and the position of the Group and company, together with a description of the principal risks and uncertainties that it faces. |
124 Pearson plc |
Independent auditor’s report |
126 |
|||
134 |
||||
Company financial statements |
202 |
Annual report and accounts 2022 Pearson plc 125 |
126 Pearson plc |
Annual report and accounts 2022 Pearson plc 127 |
128 Pearson plc |
Annual report and accounts 2022 Pearson plc 129 |
130 Pearson plc |
Annual report and accounts 2022 Pearson plc 131 |
132 Pearson plc |
Annual report and accounts 2022 Pearson plc 133 |
All figures in £ millions |
Notes |
2022 |
2021 1 |
2020 1 |
||||||||||||
Continuing operations |
||||||||||||||||
Sales |
2,3 |
|||||||||||||||
Cost of goods sold |
4 |
( |
) |
( |
) |
( |
) | |||||||||
Gross profit |
||||||||||||||||
Operating expenses |
4 |
( |
) |
( |
) |
( |
) | |||||||||
Other net gains and losses |
4 |
|||||||||||||||
Share of results of joint ventures and associates |
12 |
|||||||||||||||
Operating profit |
2 |
|||||||||||||||
Finance costs |
6 |
( |
) |
( |
) |
( |
) | |||||||||
Finance income |
6 |
|||||||||||||||
Profit before tax |
||||||||||||||||
Income tax |
7 |
( |
) |
( |
) | |||||||||||
Profit for the year |
||||||||||||||||
Attributable to: |
||||||||||||||||
Equity holders of the company |
||||||||||||||||
Non-controlling interest |
||||||||||||||||
Earnings per share attributable to equity holders of the company during the year |
||||||||||||||||
(expressed in pence per share) |
||||||||||||||||
• basic |
8 |
p |
p |
p |
||||||||||||
• diluted |
8 |
p |
p |
p |
134 Pearson plc |
All figures in £ millions |
Notes |
2022 |
2021 1 |
2020 1 |
||||||||||||
Profit for the year |
||||||||||||||||
Items that may be reclassified to the income statement |
||||||||||||||||
Net exchange differences on translation of foreign operations |
( |
) |
( |
) | ||||||||||||
Currency translation adjustment disposed |
( |
) |
( |
) | ||||||||||||
Attributable tax |
7 |
( |
) | |||||||||||||
Items that are not reclassified to the income statement |
||||||||||||||||
Fair value gain/(loss) on other financial assets |
( |
) | ||||||||||||||
Attributable tax |
7 |
( |
) |
|||||||||||||
Remeasurement of retirement benefit obligations |
25 |
( |
) | |||||||||||||
Attributable tax |
7 |
( |
) |
( |
) |
|||||||||||
Other comprehensive income/(expense) for the year |
29 |
( |
) | |||||||||||||
Total comprehensive income for the year |
||||||||||||||||
Attributable to: |
||||||||||||||||
Equity holders of the company |
||||||||||||||||
Non-controlling interest |
Annual report and accounts 2022 Pearson plc 135 |
All figures in £ millions |
Notes |
2022 |
2021 1 |
|||||||||
Assets |
||||||||||||
Non-current assets |
||||||||||||
Property, plant and equipment |
10 |
|||||||||||
Investment property |
10 |
– |
||||||||||
Intangible assets |
11 |
|||||||||||
Investments in joint ventures and associates |
12 |
|||||||||||
Deferred income tax assets |
13 |
|||||||||||
Financial assets – derivative financial instruments |
16 |
|||||||||||
Retirement benefit assets |
25 |
|||||||||||
Other financial assets |
15 |
|||||||||||
Income tax assets |
||||||||||||
Trade and other receivables |
22 |
|||||||||||
Current assets |
||||||||||||
Intangible assets – product development |
20 |
|||||||||||
Inventories |
21 |
|||||||||||
Trade and other receivables |
22 |
|||||||||||
Financial assets – derivative financial instruments |
16 |
|||||||||||
Income tax assets |
||||||||||||
Cash and cash equivalents (excluding overdrafts) |
17 |
|||||||||||
Assets classified as held for sale |
32 |
|||||||||||
Total assets |
||||||||||||
Liabilities |
||||||||||||
Non-current liabilities |
||||||||||||
Financial liabilities – borrowings |
18 |
( |
) |
( |
) | |||||||
Financial liabilities – derivative financial instruments |
16 |
( |
) |
( |
) | |||||||
Deferred income tax liabilities |
13 |
( |
) |
( |
) | |||||||
Retirement benefit obligations |
25 |
( |
) |
( |
) | |||||||
Provisions for other liabilities and charges |
23 |
( |
) |
( |
) | |||||||
Other liabilities |
24 |
( |
) |
( |
) | |||||||
( |
) |
( |
) |
136 Pearson plc |
All figures in £ millions |
Notes |
2022 |
2021 1 |
|||||||||
Current liabilities |
||||||||||||
Trade and other liabilities |
24 |
( |
) |
( |
) | |||||||
Financial liabilities – borrowings |
18 |
( |
) |
( |
) | |||||||
Financial liabilities – derivative financial instruments |
16 |
( |
) |
( |
) | |||||||
Income tax liabilities |
( |
) |
( |
) | ||||||||
Provisions for other liabilities and charges |
23 |
( |
) |
( |
) | |||||||
( |
) |
( |
) | |||||||||
Liabilities classified as held for sale |
32 |
|||||||||||
Total liabilities |
( |
) |
( |
) | ||||||||
Net assets |
||||||||||||
Equity |
||||||||||||
Share capital |
27 |
|||||||||||
Share premium |
27 |
|||||||||||
Treasury shares |
28 |
( |
) |
( |
) | |||||||
Capital redemption reserve |
||||||||||||
Fair value reserve |
( |
) |
( |
) | ||||||||
Translation reserve |
||||||||||||
Retained earnings |
||||||||||||
Total equity attributable to equity holders of the company |
||||||||||||
Non-controlling interest |
||||||||||||
Total equity |
Annual report and accounts 2022 Pearson plc 137 |
Equity attributable to equity holders of the company |
||||||||||||||||||||||||||||||||||||||||
All figures in £ millions |
Share capital |
Share premium |
Treasury shares |
Capital redemption reserve |
Fair value reserve |
Translation reserve |
Retained earnings |
Total |
Non- controlling interest |
Total equity |
||||||||||||||||||||||||||||||
At 1 January 2022 |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||
Profit for the year |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||
Other comprehensive income/(expense) |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
Total comprehensive income/(expense) |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
Equity-settled transactions |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Taxation on equity-settled transactions |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Issue of ordinary shares under share option schemes |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||||
Buyback of equity |
( |
) |
– |
– |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||||||||||||
Purchase of treasury shares |
– |
– |
( |
) |
– |
– |
– |
( |
) |
– |
( |
) | ||||||||||||||||||||||||||||
Release of treasury shares |
– |
– |
– |
– |
– |
( |
) |
– |
– |
– |
||||||||||||||||||||||||||||||
Transfer of gain on disposal of FVOCI investment |
– |
– |
– |
– |
( |
) |
– |
– |
– |
– |
||||||||||||||||||||||||||||||
Dividends |
– |
– |
– |
– |
– |
– |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
At 31 December 2022 |
( |
) |
( |
) |
Equity attributable to equity holders of the company |
||||||||||||||||||||||||||||||||||||||||
All figures in £ millions |
Share capital |
Share premium |
Treasury shares |
Capital redemption reserve |
Fair value reserve 1 |
Translation reserve |
Retained earnings 1 |
Total |
Non- controlling interest |
Total equity |
||||||||||||||||||||||||||||||
At 1 January 2021 |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||
Profit for the year |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||
Other comprehensive income/(expense) |
– |
– |
– |
– |
( |
) |
– |
|||||||||||||||||||||||||||||||||
Total comprehensive income/(expense) |
– |
– |
– |
– |
( |
) |
||||||||||||||||||||||||||||||||||
Equity-settled transactions |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Issue of ordinary shares under share option schemes |
( |
) |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Buyback of equity |
– |
– |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||||
Purchase of treasury shares |
– |
– |
( |
) |
– |
– |
– |
– |
( |
) |
– |
( |
) | |||||||||||||||||||||||||||
Release of treasury shares |
– |
– |
– |
– |
– |
( |
) |
– |
– |
– |
||||||||||||||||||||||||||||||
Transfer of gain on disposal of FVOCI investment |
– |
– |
– |
– |
( |
) |
– |
– |
– |
– |
||||||||||||||||||||||||||||||
Dividends |
– |
– |
– |
– |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||||||||||||
At 31 December 2021 |
( |
) |
( |
) |
Equity attributable to equity holders of the company |
||||||||||||||||||||||||||||||||||||||||
All figures in £ millions |
Share capital |
Share premium |
Treasury shares |
Capital redemption reserve |
Fair value reserve 1 |
Translation reserve |
Retained earnings 1 |
Total |
Non- controlling interest |
Total equity |
||||||||||||||||||||||||||||||
At 1 January 2020 |
( |
) |
||||||||||||||||||||||||||||||||||||||
Adjustment (see note 1b) |
– |
– |
– |
– |
( |
) |
– |
– |
– |
– |
||||||||||||||||||||||||||||||
At 1 January 2020 (restated) |
( |
) |
||||||||||||||||||||||||||||||||||||||
Profit for the year |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Other comprehensive income/(expense) |
– |
– |
– |
– |
( |
) |
( |
) |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||||||||||
Total comprehensive income/(expense) |
– |
– |
– |
– |
( |
) |
( |
) |
– |
|||||||||||||||||||||||||||||||
Equity-settled transactions |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Issue of ordinary shares under share option schemes |
– |
– |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||
Buyback of equity |
( |
) |
– |
– |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||||||||||||
Purchase of treasury shares |
– |
– |
( |
) |
– |
– |
– |
– |
( |
) |
– |
( |
) | |||||||||||||||||||||||||||
Release of treasury shares |
– |
– |
– |
– |
– |
( |
) |
– |
– |
– |
||||||||||||||||||||||||||||||
Dividends |
– |
– |
– |
– |
– |
– |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
At 31 December 2020 |
( |
) |
( |
) |
1. | Comparative balances have been restated – see Note 1b. |
138 Pearson plc |
All figures in £ millions |
Notes |
2022 |
2021 1 |
2020 1 |
||||||||||||
Cash flows from operating activities |
||||||||||||||||
Profit before tax |
||||||||||||||||
Net finance (costs) / income |
( |
) |
||||||||||||||
Depreciation and impairment - PPE and investment property |
||||||||||||||||
Amortisation and impairment - software |
||||||||||||||||
Amortisation and impairment - acquired intangible assets |
||||||||||||||||
Other net gains and losses |
( |
) |
( |
) |
( |
) | ||||||||||
Product development capital expenditure |
( |
) |
( |
) |
( |
) | ||||||||||
Amortisation and impairment - product development |
||||||||||||||||
Share-based payment costs |
||||||||||||||||
Change in inventories |
( |
) |
||||||||||||||
Change in trade and other receivables |
( |
) |
( |
) | ||||||||||||
Change in trade and other liabilities |
( |
) |
( |
) | ||||||||||||
Change in provisions for other liabilities and charges |
( |
) | ||||||||||||||
Other movements |
( |
) | ||||||||||||||
Net cash generated from operations |
||||||||||||||||
Interest paid |
( |
) |
( |
) |
( |
) | ||||||||||
Tax (paid)/received |
( |
) |
( |
) |
||||||||||||
Net cash generated from operating activities |
||||||||||||||||
Cash flows from investing activities |
||||||||||||||||
Acquisition of subsidiaries, net of cash acquired |
30 |
( |
) |
( |
) |
( |
) | |||||||||
Acquisition of joint ventures and associates |
( |
) |
( |
) |
– |
|||||||||||
Purchase of investments |
( |
) |
( |
) |
( |
) | ||||||||||
Purchase of property, plant and equipment and investment property |
( |
) |
( |
) |
( |
) | ||||||||||
Purchase of intangible assets |
( |
) |
( |
) |
( |
) | ||||||||||
Disposal of subsidiaries, net of cash disposed |
31 |
|||||||||||||||
Proceeds from disposal of joint ventures and associates |
31 |
|||||||||||||||
Proceeds from disposal of investments |
– |
|||||||||||||||
Proceeds from disposal of property, plant and equipment |
– |
– |
||||||||||||||
Lease receivables repaid including disposals |
||||||||||||||||
Loans repaid by related parties |
– |
|||||||||||||||
Interest received |
||||||||||||||||
Dividends from joint ventures and associates |
– |
|||||||||||||||
Net cash generated from/(used in) investing activities |
( |
) |
||||||||||||||
Cash flows from financing activities |
||||||||||||||||
Proceeds from issue of ordinary shares |
27 |
|||||||||||||||
Buyback of equity |
27 |
( |
) |
– |
( |
) | ||||||||||
Purchase of treasury shares |
28 |
( |
) |
( |
) |
( |
) | |||||||||
Proceeds from borrowings |
– |
|||||||||||||||
Repayment of borrowings |
( |
) |
( |
) |
( |
) | ||||||||||
Repayment of lease liabilities |
( |
) |
( |
) |
( |
) | ||||||||||
Dividends paid to company’s shareholders |
9 |
( |
) |
( |
) |
( |
) | |||||||||
Dividends paid to non-controlling interest |
( |
) |
– |
( |
) | |||||||||||
Net cash used in financing activities |
( |
) |
( |
) |
( |
) | ||||||||||
Effects of exchange rate changes on cash and cash equivalents |
( |
) |
( |
) | ||||||||||||
Net (decrease)/increase in cash and cash equivalents |
( |
) |
( |
) |
||||||||||||
Cash and cash equivalents at beginning of year |
||||||||||||||||
Cash and cash equivalents at end of year |
17 |
1. | Comparative balances have been restated – see Note 1b. In addition, the Group has changed the presentation of the consolidated cash flow statement with the aim of simplifying for the reader. The reconciliation to net cash generated from operations is now presented above and certain line items have been aggregated and disaggregated. There has been no change to the classification of cash flows as operating, investing and financing. |
Annual report and accounts 2022 Pearson plc 139 |
— | IFRS 17 ‘Insurance contracts’; |
— | Amendments to IAS 1 and IFRS Practice Statement 2 ‘Disclosure of accounting policies’; |
— | Amendments to IAS 1 ‘Classification of liabilities as current or non-current’ (not yet endorsed); |
— | Amendments to IAS 1 ‘Non-current liabilities with covenants’ (not yet endorsed); |
— | Amendments to IAS 8 ‘Definition of accounting estimates’; |
— | Amendments to IAS 12 ‘Deferred tax related to assets and liabilities arising from a single transaction’; and |
— | Amendments to IFRS 16 ’Lease liability in a sale and leaseback’ (not yet endorsed). |
— | Intangible assets: goodwill and acquired intangible assets |
— | Taxation |
— | Revenue: provisions for returns |
— | Employee benefits: pensions |
— | Property, plant and equipment: right-of-use |
— | Classification as discontinued operations |
140 Pearson plc |
|
Key judgements | |||||
— The application of tax legislation in relation to provisions for uncertain tax positions. See notes 7 and 34. — The allocation of goodwill to the cash-generating units and groups of cash-generating units. See note 11. — Whether the Group will be eligible to receive the surplus associated with the UK Group Pension Plan in recognising a pension asset. See note 25. — The results and cash flows of businesses disposed do not meet the criteria to be classified and presented as discontinued operations. See note 31. |
||||||
|
Key areas of estimation |
|||||
— The recoverability of goodwill balances. Key assumptions used in goodwill impairment testing are discount rates, perpetuity growth rates, forecast sales growth rates and forecast operating profits. See note 11. — The valuation of acquired intangible assets recognised on the acquisition of a business. See notes 11 and 30. — The level of provisions required in relation to uncertain tax positions is complex and each matter is separately assessed. The estimation of future settlement amounts is based on a number of factors including the status of the unresolved matter, clarity of legislation, range of possible outcomes and the statute of limitations. See notes 7 and 34. — The level of provisions required for anticipated returns is estimated based on historical experience, customer buying patterns and retailer behaviours including stock levels. See note 3. — The determination of the pension cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth and longevity. See note 25. — The recoverability of right-of-use |
— | Financial instruments and hedge accounting; and |
— | Translation methodologies. |
Annual report and accounts 2022 Pearson plc 141 |
— | Assets and liabilities are translated at the closing rate at the date of the balance sheet |
— | Income and expenses are translated at average exchange rates |
— | All resulting exchange differences are recognised as a separate component of equity. |
Buildings (freehold): |
||
Buildings (leasehold): |
||
Plant and equipment: |
142 Pearson plc |
Annual report and accounts 2022 Pearson plc 143 |
Typical reason for designation |
Reporting of gains and losses on effective portion of the hedge |
Reporting of gains and losses on disposal | ||
Net investment hedge |
||||
The derivative creates a foreign currency liability which is used to hedge changes in the value of a subsidiary which transacts in that currency. |
Recognised in other comprehensive income. |
On the disposal of foreign operations or subsidiaries, the accumulated value of gains and losses reported in other comprehensive income is transferred to the income statement. | ||
Fair value hedges |
||||
The derivative transforms the interest profile on debt from fixed rate to floating rate. Changes in the value of the debt as a result of changes in interest rates and foreign exchange rates are offset by equal and opposite changes in the value of the derivative. When the Group’s debt is swapped to floating rates, the contracts used are designated as fair value hedges. |
Gains and losses on the derivative are reported in finance income or finance costs. However, an equal and opposite change is made to the carrying value of the debt (a ‘fair value adjustment’) with the benefit/cost reported in finance income or finance costs. The net result should be a zero charge on a perfectly effective hedge. |
If the debt and derivative are disposed of, the value of the derivative and the debt (including the fair value adjustment) are reset to zero. Any resultant gain or loss is recognised in finance income or finance costs. | ||
Non-hedge accounted contracts |
||||
These are not designated as hedging instruments. Typically, these are short-term contracts to convert debt back to fixed rates or foreign exchange contracts where a natural offset exists. |
Recognised in the income statement. No hedge accounting applies. |
144 Pearson plc |
Annual report and accounts 2022 Pearson plc 145 |
146 Pearson plc |
— | The physical and transition risks associated with climate change; and |
— | The actions the Group is taking to meet its carbon reduction and net zero targets. |
— | The impact on the Group’s future cash flows, and the resulting impact that such adjustments to our future cash flows would have on the outcome of the annual impairment testing of our goodwill balances (see note 11 for further details), the recognition of deferred tax assets and our assessment of going concern; |
— | The carrying value of the Group’s assets, in particular the recoverable amounts of inventories, product development assets, intangible assets and property, plant and equipment; and |
— | Any changes to our estimates of the useful economic lives of product development assets, intangible assets and property, plant and equipment. |
Annual report and accounts 2022 Pearson plc 147 |
— | Assessment & Qualifications – Pearson VUE, US Student 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; |
— | 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, TalentLens, Faethm, Credly, Pearson College and Apprenticeships; and |
— | Higher Education – US, Canadian and International Higher Education Courseware businesses. |
2022 |
||||||||||||||||||||||||||||||||||||
English |
Penguin |
|||||||||||||||||||||||||||||||||||
Assessment & |
Virtual |
Language |
Workforce |
Higher |
Strategic |
Random |
||||||||||||||||||||||||||||||
All figures in £ millions |
Notes |
Qualifications |
Learning |
Learning |
Skills |
Education |
Review |
House |
Group |
|||||||||||||||||||||||||||
Sales |
3 |
|||||||||||||||||||||||||||||||||||
Adjusted operating profit |
( |
) |
||||||||||||||||||||||||||||||||||
Cost of major restructuring |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
Intangible charges |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
UK Pension discretionary increases |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||
Other net gains and losses |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||
Operating profit/(loss) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||
Finance costs |
6 |
( |
) | |||||||||||||||||||||||||||||||||
Finance income |
6 |
|||||||||||||||||||||||||||||||||||
Profit before tax |
||||||||||||||||||||||||||||||||||||
Income tax |
7 |
( |
) | |||||||||||||||||||||||||||||||||
Profit for the year |
||||||||||||||||||||||||||||||||||||
Other segment items |
||||||||||||||||||||||||||||||||||||
Share of results of joint ventures and associates |
12 |
( |
) |
( |
) |
|||||||||||||||||||||||||||||||
Depreciation and impairment |
10 |
|||||||||||||||||||||||||||||||||||
Amortisation and impairment |
11, 20 |
148 Pearson plc |
2021 | ||||||||||||||||||||||||||||||||||||
English | Penguin | |||||||||||||||||||||||||||||||||||
Assessment & | Virtual | Language | Workforce | Higher | Strategic | Random | ||||||||||||||||||||||||||||||
All figures in £ millions |
Notes |
Qualifications | Learning | Learning | Skills | Education | Review | House | Group 1 |
|||||||||||||||||||||||||||
Sales |
3 | – | ||||||||||||||||||||||||||||||||||
Adjusted operating profit | – | |||||||||||||||||||||||||||||||||||
Cost of major restructuring | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | – | – | ( |
) | ||||||||||||||||||||||
Intangible charges | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | – | ( |
) | |||||||||||||||||||||
Other net gains and losses | – | – | – | ( |
) | – | – | |||||||||||||||||||||||||||||
Operating profit/(loss) |
( |
) | ( |
) | ( |
) | – | |||||||||||||||||||||||||||||
Finance costs | 6 | ( |
) | |||||||||||||||||||||||||||||||||
Finance income | 6 | |||||||||||||||||||||||||||||||||||
Profit before tax |
||||||||||||||||||||||||||||||||||||
Income tax | 7 | |||||||||||||||||||||||||||||||||||
Profit for the year |
||||||||||||||||||||||||||||||||||||
Other segment items |
||||||||||||||||||||||||||||||||||||
Share of results of joint ventures and associates | 12 | – | ( |
) | ( |
) | – | – | – | |||||||||||||||||||||||||||
Depreciation and impairment | 10 | – | ||||||||||||||||||||||||||||||||||
Amortisation and impairment | 11, 20 | – |
1. |
2020 |
||||||||||||||||||||||||||||||||||||
English |
Penguin |
|||||||||||||||||||||||||||||||||||
Assessment & |
Virtual |
Language |
Workforce |
Higher |
Strategic |
Random |
||||||||||||||||||||||||||||||
All figures in £ millions |
Notes |
Qualifications |
Learning |
Learning |
Skills |
Education |
Review |
House |
Group 1 |
|||||||||||||||||||||||||||
Sales |
3 |
– |
||||||||||||||||||||||||||||||||||
Adjusted operating profit |
||||||||||||||||||||||||||||||||||||
Cost of major restructuring |
– |
– |
– |
– |
– |
– |
– |
– |
||||||||||||||||||||||||||||
Intangible charges |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||||||
Other net gains and losses |
– |
– |
– |
– |
– |
( |
) |
|||||||||||||||||||||||||||||
Operating profit/(loss) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||
Finance costs |
6 |
( |
) | |||||||||||||||||||||||||||||||||
Finance income |
6 |
|||||||||||||||||||||||||||||||||||
Profit before tax |
||||||||||||||||||||||||||||||||||||
Income tax |
7 |
( |
) | |||||||||||||||||||||||||||||||||
Profit for the year |
||||||||||||||||||||||||||||||||||||
Other segment items |
||||||||||||||||||||||||||||||||||||
Share of results of joint ventures and associates |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||||||
Depreciation and impairment |
– |
|||||||||||||||||||||||||||||||||||
Amortisation and impairment |
– |
1. | Comparative balances have been restated to reflect the move between operating segments. |
Annual report and accounts 2022 Pearson plc 149 |
Sales |
Non-current assets |
|||||||||||||||||||||
All figures in £ millions |
2022 |
2021 |
2020 |
2022 |
2021 |
|||||||||||||||||
UK |
||||||||||||||||||||||
Other European countries |
||||||||||||||||||||||
US |
||||||||||||||||||||||
Canada |
||||||||||||||||||||||
Asia Pacific |
||||||||||||||||||||||
Other countries |
||||||||||||||||||||||
Total |
150 Pearson plc |
2022 |
||||||||||||||||||||||||||||
All figures in £ millions |
Assessment & Qualifications |
Virtual Learning |
English Language Learning |
Workforce Skills |
Higher Education |
Strategic Review |
Total |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Total |
2021 |
||||||||||||||||||||||||||||
All figures in £ millions |
Assessment & Qualifications |
Virtual Learning |
English Language Learning |
Workforce Skills |
Higher Education |
Strategic Review |
Total |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
||||||||||||||||||||||||||
Products and services transferred over time |
– |
– |
||||||||||||||||||||||||||
– |
– |
|||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
– |
– |
– |
|||||||||||||||||||||||||
– |
– |
– |
||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
– |
||||||||||||||||||||||||
Products and services transferred over time |
– |
|||||||||||||||||||||||||||
– |
||||||||||||||||||||||||||||
Total |
Annual report and accounts 2022 Pearson plc 151 |
2020 |
||||||||||||||||||||||||||||
All figures in £ millions |
Assessment & Qualifications |
Virtual Learning |
English Language Learning |
Workforce Skills |
Higher Education |
Strategic Review |
Total |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
||||||||||||||||||||||||||
Products and services transferred over time |
– |
– |
||||||||||||||||||||||||||
– |
– |
|||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
– |
– |
– |
|||||||||||||||||||||||||
– |
– |
– |
||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
– |
||||||||||||||||||||||||
Products and services transferred over time |
– |
|||||||||||||||||||||||||||
– |
||||||||||||||||||||||||||||
Total |
Key areas of estimation |
||||||
The level of provisions required for anticipated returns is estimated based on historical experience, customer buying patterns and retailer behaviours including stock levels. |
152 Pearson plc |
Annual report and accounts 2022 Pearson plc 153 |
154 Pearson plc |
2022 |
||||||||||||||||||||||||||||
All figures in £ millions |
Sales |
Deferred income |
Committed sales |
Total remaining transaction price |
2023 |
2024 |
2025 and later |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
||||||||||||||||||||||||||||
Products and services transferred over time – subscriptions |
||||||||||||||||||||||||||||
Products and services transferred over time – other ongoing performance obligations |
||||||||||||||||||||||||||||
Total |
Annual report and accounts 2022 Pearson plc 155 |
2021 |
||||||||||||||||||||||||||||
All figures in £ millions |
Sales |
Deferred income |
Committed sales |
Total remaining transaction price |
2022 |
2023 |
2024 and later |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
– |
||||||||||||||||||||||||
Products and services transferred over time – subscriptions |
– |
– |
||||||||||||||||||||||||||
Products and services transferred over time – other ongoing performance obligations |
– |
– |
||||||||||||||||||||||||||
Total |
2020 |
||||||||||||||||||||||||||||
All figures in £ millions |
Sales |
Deferred income |
Committed sales |
Total remaining transaction price |
2021 |
2022 |
2023 and later |
|||||||||||||||||||||
Courseware |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Assessments |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time |
||||||||||||||||||||||||||||
Services |
||||||||||||||||||||||||||||
Products transferred at a point in time |
– |
– |
– |
|||||||||||||||||||||||||
Products and services transferred over time – subscriptions |
– |
|||||||||||||||||||||||||||
Products and services transferred over time – other ongoing performance obligations |
– |
|||||||||||||||||||||||||||
Total |
156 Pearson plc |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
By function: |
||||||||||||||||
Cost of goods sold |
||||||||||||||||
Operating expenses |
||||||||||||||||
Distribution costs |
||||||||||||||||
Selling, marketing and product development costs |
||||||||||||||||
Administrative and other expenses |
||||||||||||||||
Restructuring costs |
– |
|||||||||||||||
Other income |
( |
) |
( |
) |
( |
) | ||||||||||
Total net operating expenses |
||||||||||||||||
Other net gains and losses |
( |
) |
( |
) |
( |
) | ||||||||||
Total |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
By nature: |
||||||||||||||||
Product costs |
||||||||||||||||
Employee costs |
||||||||||||||||
Depreciation and impairment of non-current assets |
– |
|||||||||||||||
Property and facilities |
||||||||||||||||
Technology and communications |
||||||||||||||||
Professional and outsourced services |
||||||||||||||||
Total restructuring – operating expenses |
Annual report and accounts 2022 Pearson plc 157 |
All figures in £ millions | Notes | 2022 |
2021 | 2020 | ||||||||||||
By nature: |
||||||||||||||||
Royalties expensed | ||||||||||||||||
Other product costs | ||||||||||||||||
Employee benefit expense | 5 | |||||||||||||||
Contract labour | ||||||||||||||||
Employee-related expense | ||||||||||||||||
Promotional costs | ||||||||||||||||
Depreciation and impairment of property, plant and equipment and investment property | 10 | |||||||||||||||
Amortisation and impairment of intangible assets – product development | 20 | |||||||||||||||
Amortisation and impairment of intangible assets – software | 11 | |||||||||||||||
Amortisation and impairment of intangible assets – other | 11 | |||||||||||||||
Property and facilities | ||||||||||||||||
Technology and communications | ||||||||||||||||
Professional and outsourced services | ||||||||||||||||
Other general and administrative costs | ||||||||||||||||
Costs capitalised | ( |
) |
( |
) | ( |
) | ||||||||||
Other net gains and losses | ( |
) |
( |
) | ( |
) | ||||||||||
Other income | ( |
) |
( |
) | ( |
) | ||||||||||
Total |
|
|
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
The audit of parent company and consolidated financial statements |
||||||||||||||||
The audit of the company’s subsidiaries |
||||||||||||||||
Total audit fees |
||||||||||||||||
Audit-related and other assurance services |
– |
– |
||||||||||||||
Other non-audit services |
– |
– |
||||||||||||||
Total other services |
– |
– |
||||||||||||||
Total non-audit services |
– |
– |
||||||||||||||
Total |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act |
||||||||||||||||
Non-audit fees |
– |
– |
||||||||||||||
Total |
158 Pearson plc |
All figures in £ millions |
Notes |
2022 |
2021 |
2020 |
||||||||||||
Employee benefit expense |
||||||||||||||||
Wages and salaries (including termination costs) |
||||||||||||||||
Social security costs |
||||||||||||||||
Share-based payment costs |
26 |
|||||||||||||||
Retirement benefits – defined contribution plans |
25 |
|||||||||||||||
Retirement benefits – defined benefit plans |
25 |
|||||||||||||||
Total |
Average number employed |
2022 |
2021 |
2020 |
|||||||||||||
Employee numbers |
||||||||||||||||
UK |
||||||||||||||||
Other European countries |
||||||||||||||||
US |
||||||||||||||||
Canada |
||||||||||||||||
Asia Pacific |
||||||||||||||||
Other countries |
||||||||||||||||
Total |
All figures in £ millions |
Notes |
2022 |
2021 1 |
2020 1 |
||||||||||||
Interest payable on financial liabilities at amortised cost and associated derivatives |
( |
) |
( |
) |
( |
) | ||||||||||
Interest on lease liabilities |
( |
) |
( |
) |
( |
) | ||||||||||
Net foreign exchange losses |
( |
) | ||||||||||||||
Interest on deferred and contingent consideration |
( |
) |
||||||||||||||
Interest on tax provisions |
( |
) |
( |
) |
( |
) | ||||||||||
Derivatives not in a hedge relationship |
( |
) |
( |
) | ||||||||||||
Finance costs |
( |
) |
( |
) |
( |
) | ||||||||||
Interest receivable on financial assets at amortised cost |
||||||||||||||||
Interest on lease receivables |
||||||||||||||||
Net finance income in respect of retirement benefits |
25 |
|||||||||||||||
Fair value remeasurement of disposal proceeds |
||||||||||||||||
Fair value movements on investments held at fair value |
||||||||||||||||
Net foreign exchange gains |
– |
|||||||||||||||
Interest on tax provisions |
||||||||||||||||
Derivatives not in a hedge relationship |
||||||||||||||||
Finance income |
||||||||||||||||
Net finance income/(costs) |
( |
) |
( |
) |
Annual report and accounts 2022 Pearson plc 159 |
All figures in £ millions |
Notes |
2022 |
2021 1 |
2020 1 |
||||||||||||
Current tax |
||||||||||||||||
Charge in respect of current year |
( |
) |
( |
) |
( |
) | ||||||||||
Adjustments in respect of prior years |
( |
) |
||||||||||||||
Total current tax charge |
( |
) |
( |
) |
( |
) | ||||||||||
Deferred tax |
||||||||||||||||
In respect of temporary differences |
( |
) | ||||||||||||||
Other adjustments in respect of prior years |
( |
) | ||||||||||||||
Total deferred tax credit/(charge) |
13 |
( |
) | |||||||||||||
Total tax (charge)/credit |
( |
) |
( |
) |
1. | Comparative balances have been restated – see Note 1b. |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
Profit before tax |
||||||||||||||||
Tax calculated at UK rate (2022: |
( |
) |
( |
) |
( |
) | ||||||||||
Effect of overseas tax rates |
( |
) |
( |
) |
( |
) | ||||||||||
Effect of UK rate change |
( |
) | ||||||||||||||
Joint venture and associate income reported net of tax |
||||||||||||||||
Intra-group financing benefit |
||||||||||||||||
Net expense not subject to tax |
( |
) |
( |
) |
( |
) | ||||||||||
Gains and losses on sale of businesses not subject to tax |
||||||||||||||||
Unrecognised tax losses |
( |
) | ||||||||||||||
Benefit from changes in local tax law |
||||||||||||||||
Benefit from US accounting method changes |
||||||||||||||||
Movement in provisions for tax uncertainties - current year |
( |
) |
||||||||||||||
Adjustments in respect of prior years - movement in provisions for tax uncertainties |
||||||||||||||||
Adjustments in respect of prior years - other |
||||||||||||||||
Total tax (charge)/credit |
( |
) |
( |
) | ||||||||||||
UK |
( |
) |
||||||||||||||
Overseas |
( |
) |
( |
) |
( |
) | ||||||||||
Total tax (charge)/credit |
( |
) |
( |
) | ||||||||||||
Tax rate reflected in earnings |
( |
1. |
Comparative balances have been restated – see Note 1b. |
Key judgements |
||||||
The application of tax legislation in relation to provisions for uncertain tax positions. |
||||||
Key areas of estimation |
||||||
The level of provisions required in relation to uncertain tax positions is complex and each matter is separately assessed. The estimation of future settlement amounts is based on a number of factors including the status of the unresolved matter, clarity of legislation, range of possible outcomes and the statute of limitations. |
160 Pearson plc port and accounts 2022 |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Net exchange differences on translation of foreign operations |
( |
) | ||||||||||
Fair value gain on other financial assets |
( |
) |
||||||||||
Remeasurement of retirement benefit obligations |
( |
) |
( |
) |
||||||||
( |
) |
( |
) |
( |
) |
1. | Comparative balances have been restated – see Note 1b. |
Annual report and accounts 2022 Pearson plc 161 |
All figures in £ millions | 2022 |
2021 1 |
2020 1 |
|||||||||
Earnings for the year | ||||||||||||
Non-controlling interest |
( |
) |
( |
) | ||||||||
Earnings attributable to equity shareholders |
||||||||||||
Weighted average number of shares (millions) | |
|
||||||||||
Effect of dilutive share options (millions) | ||||||||||||
Weighted average number of shares (millions) for diluted earnings | ||||||||||||
Earnings per share (in pence per share) |
||||||||||||
Basic | ||||||||||||
Diluted |
1. | Comparative balances have been restated – see Note 1b. |
162 Pearson plc |
Annual report and accounts 2022 Pearson plc 163 |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Final paid in respect of prior year |
||||||||||||
Interim paid in respect of current year |
||||||||||||
Right-of-use |
Owned assets |
|||||||||||||||||||||||||||||
All figures in £ millions |
Investment property |
Land and buildings |
Plant and equipment |
Land and buildings |
Plant and equipment |
Assets in the course of construction |
Total |
|||||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||||
At 1 January 2021 |
||||||||||||||||||||||||||||||
Exchange differences |
( |
) |
( |
) | ||||||||||||||||||||||||||
Additions |
||||||||||||||||||||||||||||||
Disposals and retirements |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Reclassifications and transfers |
( |
) |
||||||||||||||||||||||||||||
Transfer to assets classified as held for sale |
( |
) |
( |
) | ||||||||||||||||||||||||||
At 31 December 2021 |
||||||||||||||||||||||||||||||
Exchange differences |
||||||||||||||||||||||||||||||
Additions |
||||||||||||||||||||||||||||||
Transfers to investment property |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||
Disposals of businesses (note 31) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
Disposals and retirements |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Reclassifications and transfers |
( |
) |
||||||||||||||||||||||||||||
Transfer to assets classified as held for sale |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
At 31 December 2022 |
164 Pearson plc |
Right-of-use |
Owned assets | |||||||||||||||||||||||||||||
All figures in £ millions | Investment property |
Land and buildings |
Plant and equipment |
Land and buildings |
Plant and equipment |
Assets in the course of construction |
Total | |||||||||||||||||||||||
Depreciation and impairment |
||||||||||||||||||||||||||||||
At 1 January 2021 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Exchange differences | ( |
) | ( |
) | ||||||||||||||||||||||||||
Charge for the year | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Disposals and retirements | |
|||||||||||||||||||||||||||||
Reclassifications and transfers | ( |
) | ||||||||||||||||||||||||||||
Impairment | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Transfer to assets classified as held for sale | ||||||||||||||||||||||||||||||
At 31 December 2021 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Exchange differences | ( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
Transfers to investment property | ( |
) |
||||||||||||||||||||||||||||
Charge for the year | ( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Disposals of businesses (note 31) | ||||||||||||||||||||||||||||||
Disposals and retirements | ||||||||||||||||||||||||||||||
Reclassifications and transfers | ||||||||||||||||||||||||||||||
Impairment | ( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Transfer to assets classified as held for sale | ||||||||||||||||||||||||||||||
At 31 December 2022 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Carrying amounts |
||||||||||||||||||||||||||||||
At 1 January 2021 | ||||||||||||||||||||||||||||||
At 31 December 2021 | ||||||||||||||||||||||||||||||
At 31 December 2022 |
The recoverability of right-of-use |
||||
Annual report and accounts 2022 Pearson plc 165 |
All figures in £ millions |
Goodwill |
Software |
Acquired customer lists, contracts and relationships |
Acquired trademarks and brands |
Acquired publishing rights |
Other intangibles acquired |
Total |
|||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||
At 1 January 2021 |
||||||||||||||||||||||||||||
Exchange differences |
( |
) |
( |
) |
||||||||||||||||||||||||
Additions – internal development |
– |
– |
– |
– |
– |
|||||||||||||||||||||||
Additions – purchased |
– |
– |
– |
– |
– |
|||||||||||||||||||||||
Disposals and retirements |
– |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||
Acquisition of subsidiary (note 30) |
– |
– |
– |
– |
||||||||||||||||||||||||
Disposal of subsidiary (note 31) |
– |
– |
( |
) |
( |
) |
– |
( |
) |
( |
) | |||||||||||||||||
Transfers |
– |
– |
– |
– |
– |
|||||||||||||||||||||||
At 31 December 2021 |
||||||||||||||||||||||||||||
Exchange differences |
||||||||||||||||||||||||||||
Additions – internal development |
||||||||||||||||||||||||||||
Additions – purchased |
||||||||||||||||||||||||||||
Disposals and retirements |
( |
) |
( |
) | ||||||||||||||||||||||||
Acquisition of subsidiary (note 30) |
||||||||||||||||||||||||||||
Disposal of subsidiary (note 31) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Transfers |
( |
) |
( |
) | ||||||||||||||||||||||||
At 31 December 2022 |
All figures in £ millions |
Goodwill |
Software |
Acquired customer lists, contracts and relationships |
Acquired trademarks and brands |
Acquired publishing rights |
Other intangibles acquired |
Total |
|||||||||||||||||||||
Amortisation and impairment |
||||||||||||||||||||||||||||
At 1 January 2021 |
– |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||
Exchange differences |
– |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||
Charge for the year |
– |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||
Impairment charge |
– |
( |
) |
– |
– |
– |
( |
) | ||||||||||||||||||||
Disposals and retirements |
– |
– |
– |
|||||||||||||||||||||||||
Disposal of subsidiary (note 31) |
– |
– |
– |
|||||||||||||||||||||||||
Transfers |
– |
– |
– |
– |
– |
|||||||||||||||||||||||
At 31 December 2021 |
– |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||
Exchange differences |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Charge for the year |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Impairment charge |
||||||||||||||||||||||||||||
Disposals and retirements |
||||||||||||||||||||||||||||
Disposal of subsidiary (note 31) |
||||||||||||||||||||||||||||
Transfers |
||||||||||||||||||||||||||||
At 31 December 2022 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Carrying amounts |
||||||||||||||||||||||||||||
At 1 January 2021 |
||||||||||||||||||||||||||||
At 31 December 2021 |
||||||||||||||||||||||||||||
At 31 December 2022 |
166 Pearson plc |
2022 |
||||
Useful economic life |
||||
Class of intangible asset |
||||
Acquired customer lists, contracts and relationships |
||||
Acquired trademarks and brands |
||||
Acquired publishing rights |
||||
Other intangibles acquired |
2022 |
||||||||||||||||||||
All figures in £ millions |
One to five years |
Six to ten years |
Eleven to fifteen years |
Sixteen to twenty years |
Total |
|||||||||||||||
Class of intangible asset |
||||||||||||||||||||
Acquired customer lists, contracts and relationships |
||||||||||||||||||||
Acquired trademarks and brands |
||||||||||||||||||||
Acquired publishing rights |
||||||||||||||||||||
Other intangibles acquired |
Annual report and accounts 2022 Pearson plc 167 |
All figures in £ millions |
2022 Goodwill |
|||
Assessment & Qualifications |
||||
Virtual Learning |
||||
English Language Learning |
||||
Workforce Skills |
||||
Higher Education |
||||
Total |
All figures in £ millions |
2021 Goodwill |
|||
Assessment & Qualifications |
||||
Virtual Learning |
||||
English Language Learning |
||||
Workforce Skills |
||||
Higher Education |
||||
Strategic Review (includes the separate CGUs of China, India, South Africa, Canada and Other Strategic Review) |
||||
Total |
168 Pearson plc |
The allocation of goodwill to the cash-generating units and groups of cash-generating units. | ||||
The recoverability of goodwill balances. Key assumptions used in goodwill impairment testing are discount rates, perpetuity growth rates, forecast sales growth rates and forecast operating profits. | ||||
The valuation of acquired intangible assets recognised on the acquisition of a business. See note 30. |
Annual report and accounts 2022 Pearson plc 169 |
Discount rate |
Perpetuity growth rate |
|||||||||||
Assessment & Qualifications |
||||||||||||
Virtual Learning |
||||||||||||
English Language Learning |
||||||||||||
Workforce Skills |
||||||||||||
Higher Education |
All figures in £ millions |
2022 |
2021 |
||||||||||
Associates |
||||||||||||
Total |
All figures in £ millions |
2022 |
2021 |
||||||||||
Associates |
||||||||||||
Total |
All figures in £ millions |
2022 |
2021 |
||||||||||
Deferred income tax assets |
||||||||||||
Deferred income tax liabilities |
( |
) |
( |
) | ||||||||
Net deferred income tax asset/(liability) |
170 Pearson plc |
Gross |
Tax effected |
|||||||||||||||||||||||||||||||
Year ended 31 December 2022 |
UK |
US |
Other |
Total |
UK |
US |
Other |
Total |
||||||||||||||||||||||||
Tax losses expiring: | ||||||||||||||||||||||||||||||||
Within 10 years | ||||||||||||||||||||||||||||||||
Within 10-20 years |
||||||||||||||||||||||||||||||||
Available indefinitely | ||||||||||||||||||||||||||||||||
Total |
Gross |
Tax effected |
|||||||||||||||||||||||||||||||
Year ended 31 December 2021 |
UK |
US |
Other |
Total |
UK |
US |
Other |
Total |
||||||||||||||||||||||||
Tax losses expiring: |
||||||||||||||||||||||||||||||||
Within 10 years |
||||||||||||||||||||||||||||||||
Within 10-20 years |
||||||||||||||||||||||||||||||||
Available indefinitely |
||||||||||||||||||||||||||||||||
Total |
All figures in £ millions |
Trading losses |
Accruals and other provisions |
Retirement benefit obligations |
Deferred revenue |
Goodwill and intangibles |
Interest limitations |
Other |
Total |
||||||||||||||||||||||||
Deferred income tax assets/(liabilities) |
||||||||||||||||||||||||||||||||
At 1 January 2021 |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||
Exchange differences |
– |
( |
) |
– |
– |
( |
) |
– |
( |
) | ||||||||||||||||||||||
Acquisition of subsidiaries |
– |
– |
– |
– |
– |
|||||||||||||||||||||||||||
Income statement benefit/(charge) |
( |
) |
||||||||||||||||||||||||||||||
Tax charge in OCI |
– |
– |
( |
) |
– |
– |
– |
( |
) |
( |
) | |||||||||||||||||||||
At 31 December 2021 |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Exchange differences |
( |
) |
||||||||||||||||||||||||||||||
Acquisitions and disposals of subsidiaries |
– |
– |
– |
( |
) |
– |
( |
) |
( |
) | ||||||||||||||||||||||
Income statement benefit/(charge) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||
Tax charge in OCI / equity |
( |
) |
( |
) | ||||||||||||||||||||||||||||
At 31 December 2022 |
( |
) |
( |
) |
Annual report and accounts 2022 Pearson plc 171 |
2022 |
2021 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value |
Amortised cost |
Fair value |
Amortised cost |
|||||||||||||||||||||||||||||||||||||||||||||||||
All figures in £ millions |
Notes |
Fair value through other comprehensive income |
Fair value through profit and loss |
Fair value – hedging instrument |
Financial assets |
Total carrying value |
Fair value through other comprehensive income 1 |
Fair value through profit and loss 1 |
Fair value – hedging instrument |
Financial assets |
Total carrying value |
|||||||||||||||||||||||||||||||||||||||||
Investments in unlisted securities |
15 |
– |
– |
|||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
17 |
– |
– |
|||||||||||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments |
16 |
– |
– |
|||||||||||||||||||||||||||||||||||||||||||||||||
Trade receivables |
22 |
– |
– |
– |
||||||||||||||||||||||||||||||||||||||||||||||||
Investment in finance lease receivable |
22 |
– |
– |
|||||||||||||||||||||||||||||||||||||||||||||||||
Other receivable |
– |
– |
– |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total financial assets |
1. | Comparative balances have been restated – see Note 1b. |
2022 |
2021 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value |
Amortised cost |
Fair value |
Amortised cost |
|||||||||||||||||||||||||||||||||||||||||||||||||
All figures in £ millions |
Notes |
Fair value through profit and loss |
Fair value – hedging instrument |
Other financial liabilities |
Total carrying value |
Total market value |
Fair value through profit and loss |
Fair value – hedging instrument |
Other financial liabilities |
Total carrying value |
Total market value |
|||||||||||||||||||||||||||||||||||||||||
Derivative financial instruments |
16 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
– |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||
Trade payables |
24 |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||||
Deferred and contingent consideration |
24 |
( |
) |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||||
Other borrowings due within one year |
18 |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||||
Borrowings due after more than one year |
18 |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||||
Total financial liabilities |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
172 Pearson plc |
2022 |
2021 1 |
|||||||||||||||||
All figures in £ millions |
Other receivable |
Investments in unlisted securities |
Total |
Total |
||||||||||||||
At beginning of year |
||||||||||||||||||
Exchange differences |
||||||||||||||||||
Acquisition of investments and other receivable |
||||||||||||||||||
Repayments |
( |
) |
( |
) |
( |
) | ||||||||||||
Disposal of investments |
( |
) |
( |
) |
( |
) | ||||||||||||
Fair value movements - OCI |
||||||||||||||||||
Fair value movements - income statement |
||||||||||||||||||
At end of year |
1. | Comparative balances have been restated – see Note 1b. |
All figures in £ millions |
2022 |
2021 1 |
||||||
At beginning of year |
||||||||
Exchange differences |
||||||||
Acquisition of investments |
||||||||
Disposal of investments |
( |
) |
( |
) | ||||
Fair value movements - OCI |
||||||||
Fair value movements - income statement |
||||||||
At end of year |
1. |
Comparative balances have been restated – see Note 1b. |
Annual report and accounts 2022 Pearson plc 173 |
2022 |
2021 |
|||||||||||||||||||||||||||
All figures in £ millions |
Gross notional amounts |
Assets |
Liabilities |
Gross notional amounts |
Assets |
Liabilities |
||||||||||||||||||||||
Interest rate derivatives – in a fair value hedge relationship |
( |
) |
||||||||||||||||||||||||||
Interest rate derivatives – not in a hedge relationship |
( |
) | ||||||||||||||||||||||||||
Cross-currency rate derivatives – in a hedge relationship |
( |
) |
( |
) | ||||||||||||||||||||||||
FX derivatives – in a hedge relationship |
( |
) |
( |
) | ||||||||||||||||||||||||
FX derivatives – not in a hedge relationship |
( |
) |
( |
) | ||||||||||||||||||||||||
Total |
( |
) |
( |
) | ||||||||||||||||||||||||
Analysed as expiring: |
||||||||||||||||||||||||||||
In less than one year |
( |
) |
( |
) | ||||||||||||||||||||||||
Later than one year and not later than five years |
( |
) |
( |
) | ||||||||||||||||||||||||
Later than five years |
( |
) | ||||||||||||||||||||||||||
Total |
( |
) |
( |
) |
— | Where interest rate and cross-currency interest rate swaps are used to convert fixed rate debt to floating and we expect to receive inflows equal to the fixed rate debt interest, these are classified as fair value hedges |
— | Where derivatives are used to create a future foreign currency exposure to provide protection against currency movements affecting the foreign currency movements of an overseas investment, these are designated as a net investment hedge |
— | All other derivatives are not designated in a hedge relationship. |
Receive Notional |
Receive coupon |
FX rate |
Notional |
Pay coupon | ||||
€ |
GBPEUR: |
£ |
||||||
€ |
GBPUSD: |
£ |
||||||
€ |
GBPUSD: |
£ |
USD Libor + |
174 Pearson plc |
2022 |
||||||||||||
All figures in £ millions |
Carrying amount of hedging instruments |
Change in fair value of hedging instrument used to determine hedge ineffectiveness |
Nominal amounts of hedging instruments |
|||||||||
Derivative financial instruments for interest rate risk |
( |
) |
( |
) |
||||||||
Derivative financial instruments for currency risk |
2021 |
||||||||||||
All figures in £ millions |
Carrying amount of hedging instruments |
Change in fair value of hedging instrument used to determine hedge ineffectiveness |
Nominal amounts of hedging instruments |
|||||||||
Derivative financial instruments for interest rate risk |
( |
) |
||||||||||
Derivative financial instruments for currency risk |
( |
) |
2022 |
||||||||||||||||||||
All figures in £ millions |
Carrying amount of hedged items |
Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount |
Change in fair value of hedged item used to determine hedge ineffectiveness |
Hedge ineffectiveness |
Line item in profit or loss that includes hedge ineffectiveness |
|||||||||||||||
Interest rate risk |
||||||||||||||||||||
Financial liabilities – borrowings |
( |
) |
( |
) |
||||||||||||||||
Currency risk |
||||||||||||||||||||
Financial liabilities – borrowings |
( |
) |
n/a |
( |
) |
2021 |
||||||||||||||||||||
All figures in £ millions |
Carrying amount of hedged items |
Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount |
Change in fair value of hedged item used to determine hedge ineffectiveness |
Hedge ineffectiveness |
Line item in profit or loss that includes hedge ineffectiveness |
|||||||||||||||
Interest rate risk |
||||||||||||||||||||
Financial liabilities – borrowings |
( |
) |
( |
) |
||||||||||||||||
Currency risk |
||||||||||||||||||||
Financial liabilities – borrowings |
( |
) |
n/a |
Annual report and accounts 2022 Pearson plc 175 |
2022 |
||||||||||||||||||||
All figures in £ millions |
Carrying amount of hedging instruments |
Change in value of hedging instrument used to determine hedge ineffectiveness |
Nominal amounts of hedging instruments |
Hedging gains/(losses) recognised in OCI |
Hedge ineffectiveness recognised in profit or loss |
|||||||||||||||
Derivative financial instruments |
( |
) |
( |
) |
( |
) |
||||||||||||||
Financial liabilities – borrowings |
( |
) |
( |
) |
( |
) |
( |
) |
2021 |
||||||||||||||||||||
All figures in £ millions |
Carrying amount of hedging instruments |
Change in value of hedging instrument used to determine hedge ineffectiveness |
Nominal amounts of hedging instruments |
Hedging gains/(losses) recognised in OCI |
Hedge ineffectiveness recognised in profit or loss |
|||||||||||||||
Derivative financial instruments |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||
Financial liabilities – borrowings |
( |
) |
( |
) |
2022 |
|
2021 |
||||||||||||||||||||||||||
All figures in £ millions |
Gross derivative assets |
Gross derivative liabilities |
Net derivative assets/ liabilities |
Gross derivative assets |
Gross derivative liabilities |
Net derivative assets/ liabilities |
||||||||||||||||||||||
Counterparties in an asset position |
( |
) |
( |
) |
||||||||||||||||||||||||
Counterparties in a liability position |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Total as presented in the balance sheet |
( |
) |
( |
) |
( |
) |
( |
) |
176 Pearson plc |
All figures in £ millions |
2022 |
2021 |
||||||
Cash at bank and in hand |
||||||||
Short-term bank deposits |
||||||||
All figures in £ millions |
2022 |
2021 |
||||||
Non-current |
||||||||
€ |
||||||||
Lease liabilities (see note 35) |
||||||||
Current (due within one year or on demand) |
||||||||
Lease liabilities (see note 35) |
||||||||
Overdrafts |
||||||||
Total borrowings |
All figures in £ millions |
2022 |
2021 |
||||||
Between one and two years |
||||||||
Between two and five years |
||||||||
Over five years |
||||||||
2022 |
2021 |
|||||||||||||||||||||||||||
All figures in £ millions |
Effective interest rate |
Carrying value |
Market value |
|
Effective interest rate |
Carrying value |
Market value |
|||||||||||||||||||||
3.75% US dollar notes 2022 |
n/a |
|||||||||||||||||||||||||||
3.25% US dollar notes 2023 |
n/a |
|||||||||||||||||||||||||||
1.375% Euro notes 2025 |
||||||||||||||||||||||||||||
3.75% GBP notes 2030 |
||||||||||||||||||||||||||||
Overdrafts |
n/a |
|||||||||||||||||||||||||||
Annual report and accounts 2022 Pearson plc 177 |
All figures in £ millions |
2022 |
2021 |
||||||
US dollar |
||||||||
Sterling |
||||||||
Euro |
||||||||
Other |
||||||||
— | To maintain a strong balance sheet and a solid investment grade rating; |
— | To continue to invest in the business organically and through acquisitions; and |
— | To have a sustainable and progressive dividend policy. |
All figures in £ millions |
2022 |
2021 |
||||||
Cash and cash equivalents |
||||||||
Overdrafts |
( |
) |
||||||
Derivative financial instruments |
( |
) |
( |
) | ||||
Bonds |
( |
) |
( |
) | ||||
Investment in finance lease receivable |
||||||||
Lease liabilities |
( |
) |
( |
) | ||||
Net debt |
( |
) |
( |
) |
178 Pearson plc |
2022 |
||||||||||||||||||||
All figures in £ millions |
Carrying value |
Impact of 1% increase in interest rates |
Impact of 1% decrease in interest rates |
Impact of 10% strengthening in sterling |
Impact of 10% weakening in sterling |
|||||||||||||||
Investments in unlisted securities |
( |
) |
||||||||||||||||||
Other receivable |
||||||||||||||||||||
Cash and cash equivalents |
( |
) |
||||||||||||||||||
Derivative financial instruments |
( |
) |
( |
) |
( |
) |
||||||||||||||
Bonds |
( |
) |
( |
) |
( |
) | ||||||||||||||
Other borrowings |
( |
) |
( |
) | ||||||||||||||||
Investment in finance lease receivable |
( |
) |
||||||||||||||||||
Deferred and contingent consideration |
( |
) |
( |
) | ||||||||||||||||
Other net financial assets |
( |
) |
||||||||||||||||||
Total |
( |
) |
( |
) |
( |
) |
2021 |
||||||||||||||||||||
All figures in £ millions |
Carrying value |
Impact of 1% increase in interest rates |
Impact of 1% decrease in interest rates |
Impact of 10% strengthening in sterling |
Impact of 10% weakening in sterling |
|||||||||||||||
Investments in unlisted securities |
– |
– |
( |
) |
||||||||||||||||
Other receivable |
– |
– |
( |
) |
||||||||||||||||
Cash and cash equivalents |
– |
– |
( |
) |
||||||||||||||||
Derivative financial instruments |
( |
) |
( |
) |
( |
) |
||||||||||||||
Bonds |
( |
) |
( |
) |
( |
) | ||||||||||||||
Other borrowings |
( |
) |
– |
– |
( |
) | ||||||||||||||
Investment in finance lease receivable |
– |
– |
( |
) |
||||||||||||||||
Other net financial assets |
– |
– |
( |
) |
||||||||||||||||
Total |
( |
) |
( |
) |
Annual report and accounts 2022 Pearson plc 179 |
Analysed by maturity |
Analysed by currency |
|||||||||||||||||||||||||||||||
All figures in £ millions |
Greater than one month and less than one year |
Later than one year but less than five years |
Five years or more |
Total |
USD |
GBP |
Other |
Total |
||||||||||||||||||||||||
At 31 December 2022 |
||||||||||||||||||||||||||||||||
Bonds |
||||||||||||||||||||||||||||||||
Rate derivatives – inflows |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Rate derivatives – outflows |
||||||||||||||||||||||||||||||||
FX forwards – inflows |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
FX forwards – outflows |
||||||||||||||||||||||||||||||||
Total |
( |
) |
||||||||||||||||||||||||||||||
At 31 December 2021 |
||||||||||||||||||||||||||||||||
Bonds |
||||||||||||||||||||||||||||||||
Rate derivatives – inflows |
( |
) |
( |
) |
– |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||
Rate derivatives – outflows |
||||||||||||||||||||||||||||||||
FX forwards – inflows |
( |
) |
– |
– |
( |
) |
– |
( |
) |
– |
( |
) | ||||||||||||||||||||
FX forwards – outflows |
– |
– |
– |
|||||||||||||||||||||||||||||
Total |
180 Pearson plc |
All figures in £ millions |
2022 |
2021 |
||||||
Cost |
||||||||
At 1 January |
||||||||
Exchange differences |
||||||||
Additions |
||||||||
Disposals and retirements |
( |
) |
( |
) | ||||
Disposal of subsidiary (note 31) |
( |
) |
( |
) | ||||
Transfers |
( |
) | ||||||
At 31 December |
||||||||
Amortisation |
||||||||
At 1 January |
( |
) |
( |
) | ||||
Exchange differences |
( |
) |
( |
) | ||||
Charge for the year |
( |
) |
( |
) | ||||
Impairment |
( |
) |
( |
) | ||||
Disposals and retirements |
||||||||
Disposal of subsidiary (note 31) |
||||||||
Transfers |
( |
) | ||||||
At 31 December |
( |
) |
( |
) | ||||
Carrying amounts at 31 December |
All figures in £ millions |
2022 |
2021 |
||||||
Raw materials |
||||||||
Work in progress |
||||||||
Finished goods |
||||||||
Returns asset |
||||||||
Annual report and accounts 2022 Pearson plc 181 |
All figures in £ millions |
2022 |
2021 |
||||||
Current |
||||||||
Trade receivables |
||||||||
Royalty advances |
||||||||
Prepayments |
||||||||
Investment in finance lease receivable |
||||||||
Accrued income |
||||||||
Other receivables |
||||||||
Non-current |
||||||||
Trade receivables |
||||||||
Royalty advances |
||||||||
Prepayments |
||||||||
Investment in finance lease receivable |
||||||||
Accrued income |
||||||||
Interest receivable |
||||||||
Other receivables |
||||||||
All figures in £ millions |
2022 |
2021 |
||||||
At beginning of year |
( |
) |
( |
) | ||||
Exchange differences |
( |
) |
– |
|||||
Income statement movements |
( |
) |
( |
) | ||||
Utilised |
||||||||
Disposal of subsidiary |
– |
|||||||
At end of year |
( |
) |
( |
) |
All figures in £ millions |
2022 |
2021 |
||||||
Within due date and one month past due date |
||||||||
One to three months past due date |
||||||||
Three to six months past due date |
||||||||
Six to nine months past due date |
||||||||
Nine to 12 months past due date |
||||||||
More than 12 months past due date |
||||||||
Gross trade receivables |
182 Pearson plc |
All figures in £ millions |
Property |
Disposals and closures |
Legal and other |
Total |
||||||||||||
At 1 January 2022 |
||||||||||||||||
Exchange differences |
||||||||||||||||
Provisions made during the year |
||||||||||||||||
Provisions reversed during the year |
( |
) |
( |
) |
( |
) | ||||||||||
Provisions used during the year |
( |
) |
( |
) |
( |
) | ||||||||||
Disposal of subsidiary |
( |
) |
( |
) | ||||||||||||
At 31 December 2022 |
2022 |
||||||||||||||||
All figures in £ millions |
Property |
Disposals and closures |
Legal and other |
Total |
||||||||||||
Current |
||||||||||||||||
Non-current |
||||||||||||||||
2021 |
||||||||||||||||
Current |
||||||||||||||||
Non-current |
||||||||||||||||
All figures in £ millions |
2022 |
2021 |
||||||
Current |
||||||||
Trade payables |
||||||||
Sales return liability |
||||||||
Deferred income |
||||||||
Interest payable |
||||||||
Accruals and other liabilities |
||||||||
Non-current |
||||||||
Deferred income |
||||||||
Accruals and other liabilities |
||||||||
Annual report and accounts 2022 Pearson plc 183 |
All figures in % |
Active |
Deferred |
Pensioners |
Total |
||||||||||||
Defined benefit |
||||||||||||||||
Defined contribution |
||||||||||||||||
Total |
Key judgements |
||||||||
Whether the Group will be eligible to receive the surplus associated with the UK Group Pension Plan in recognising a pension asset. |
||||||||
Key areas of estimation |
||||||||
The determination of the pension cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth and longevity. |
||||||||
184 Pearson plc |
2022 |
2021 |
2020 |
||||||||||||||||||||||||||||||||||||||
All figures in % |
UK Group plan |
Other plans |
PRMB |
UK Group plan |
Other plans |
PRMB |
UK Group plan |
Other plans |
PRMB |
|||||||||||||||||||||||||||||||
Inflation |
– |
|||||||||||||||||||||||||||||||||||||||
Rate used to discount plan liabilities |
||||||||||||||||||||||||||||||||||||||||
Expected rate of increase in salaries |
– |
|||||||||||||||||||||||||||||||||||||||
Expected rate of increase for pensions in payment and deferred pensions |
|
– |
– |
– |
– |
|||||||||||||||||||||||||||||||||||
Initial rate of increase in healthcare rate |
– |
– |
– |
– |
||||||||||||||||||||||||||||||||||||
Ultimate rate of increase in healthcare rate |
– |
– |
– |
– |
UK |
US |
|||||||||||||||||||||||||||
All figures in years |
2022 |
2021 |
2020 |
2022 |
2021 |
2020 |
||||||||||||||||||||||
Male |
||||||||||||||||||||||||||||
Female |
UK |
US |
|||||||||||||||||||||||||||
All figures in years |
2022 |
2021 |
2020 |
2022 |
2021 |
2020 |
||||||||||||||||||||||
Male |
||||||||||||||||||||||||||||
Female |
Annual report and accounts 2022 Pearson plc 185 |
2022 |
||||||||||||||||||||||||
All figures in £ millions |
UK Group plan |
Defined benefit other |
Sub-total |
Defined contribution |
PRMB |
Total |
||||||||||||||||||
Current service cost |
||||||||||||||||||||||||
Past service cost |
||||||||||||||||||||||||
Administration expenses |
||||||||||||||||||||||||
Total operating expense |
||||||||||||||||||||||||
Interest on plan assets |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Interest on plan liabilities |
||||||||||||||||||||||||
Net finance (income)/expense |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Net income statement charge |
2021 |
||||||||||||||||||||||||
All figures in £ millions |
UK Group plan |
Defined benefit other |
Sub-total |
Defined contribution |
PRMB |
Total |
||||||||||||||||||
Current service cost |
– |
|||||||||||||||||||||||
Past service cost |
– |
– |
– |
– |
– |
– |
||||||||||||||||||
Administration expenses |
– |
– |
– |
|||||||||||||||||||||
Total operating expense |
– |
|||||||||||||||||||||||
Interest on plan assets |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) | ||||||||||||||
Interest on plan liabilities |
– |
|||||||||||||||||||||||
Net finance (income)/expense |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||
Net income statement charge |
2020 |
||||||||||||||||||||||||
All figures in £ millions |
UK Group plan |
Defined benefit other |
Sub-total |
Defined contribution |
PRMB |
Total |
||||||||||||||||||
Current service cost |
– |
|||||||||||||||||||||||
Past service cost |
– |
– |
– |
|||||||||||||||||||||
Curtailments |
– |
( |
) |
( |
) |
– |
– |
( |
) | |||||||||||||||
Administration expenses |
– |
– |
– |
|||||||||||||||||||||
Total operating expense |
– |
|||||||||||||||||||||||
Interest on plan assets |
( |
) |
( |
) |
( |
) |
– |
– |
( |
) | ||||||||||||||
Interest on plan liabilities |
– |
|||||||||||||||||||||||
Net finance (income)/expense |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||||
Net income statement charge |
186 Pearson plc |
2022 |
2021 |
|||||||||||||||||||||||||||||||||||
All figures in £ millions |
UK Group plan |
Other funded plans |
Other unfunded plans |
Total |
UK Group plan |
Other funded plans |
Other unfunded plans |
Total |
||||||||||||||||||||||||||||
Fair value of plan assets |
– |
|||||||||||||||||||||||||||||||||||
Present value of defined benefit obligation |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Net pension asset/(liability) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Other post-retirement medical benefit obligation |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||
Other pension accruals |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||
Net retirement benefit asset |
||||||||||||||||||||||||||||||||||||
Analysed as: |
||||||||||||||||||||||||||||||||||||
Retirement benefit assets |
||||||||||||||||||||||||||||||||||||
Retirement benefit obligations |
( |
) |
( |
) |
The following gains/(losses) have been recognised in other comprehensive income: |
||||||||||||
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Amounts recognised for defined benefit plans |
( |
) | ||||||||||
Amounts recognised for post-retirement medical benefit plans |
||||||||||||
Total recognised in year |
( |
) |
The fair value of plan assets comprises the following: |
||||||||||||||||||||||||||||
2022 |
2021 |
|||||||||||||||||||||||||||
All figures in % |
UK Group plan |
Other funded plans |
Total |
UK Group plan |
Other funded plans |
Total |
||||||||||||||||||||||
Insurance |
– |
– |
||||||||||||||||||||||||||
Equities |
||||||||||||||||||||||||||||
Fixed interest securities |
||||||||||||||||||||||||||||
Property |
– |
– |
||||||||||||||||||||||||||
Pooled asset investment funds (including LDI) |
– |
– |
||||||||||||||||||||||||||
Other |
– |
– |
The plan assets do not include any of the Group’s own financial instruments, or any property occupied by the Group. The table below further disaggregates the plan assets into those assets which have a quoted market price in an active market and those that do not: |
| |||||||||||||||||||
2022 |
2021 |
|||||||||||||||||||
All figures in % |
Quoted market price |
No quoted market price |
Quoted market price |
No quoted market price |
||||||||||||||||
Insurance |
– |
– |
||||||||||||||||||
Equities |
– |
|||||||||||||||||||
Fixed-interest securities |
– |
– |
||||||||||||||||||
Property |
– |
– |
||||||||||||||||||
Pooled asset investment funds (including LDI) |
– |
– |
||||||||||||||||||
Other |
– |
|||||||||||||||||||
Total |
Annual report and accounts 2022 Pearson plc 187 |
All figures in % |
2022 |
2021 |
||||||
Liquid – call <1 month |
||||||||
Less liquid – call 1–3 months |
– |
|||||||
Illiquid – call >3 months |
2022 |
2021 |
|||||||||||||||||||||||||||
All figures in £ millions |
UK Group plan |
Other plans |
Total |
UK Group plan |
Other plans |
Total |
||||||||||||||||||||||
Fair value of plan assets |
||||||||||||||||||||||||||||
Opening fair value of plan assets |
||||||||||||||||||||||||||||
Recognition of Money Purchase assets |
– |
– |
– |
– |
||||||||||||||||||||||||
Exchange differences |
– |
– |
||||||||||||||||||||||||||
Interest on plan assets |
||||||||||||||||||||||||||||
Return on plan assets excluding interest |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Contributions by employer |
||||||||||||||||||||||||||||
Benefits paid |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Contributions by employees |
– |
|||||||||||||||||||||||||||
Closing fair value of plan assets |
||||||||||||||||||||||||||||
Present value of defined benefit obligation |
||||||||||||||||||||||||||||
Opening defined benefit obligation |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Recognition of Money Purchase liabilities |
– |
– |
– |
( |
) |
– |
( |
) | ||||||||||||||||||||
Exchange differences |
– |
( |
) |
( |
) |
– |
( |
) |
( |
) | ||||||||||||||||||
Disposals |
– |
– |
– |
– |
||||||||||||||||||||||||
Current service cost |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Past service cost |
( |
) |
– |
( |
) |
– |
– |
– |
||||||||||||||||||||
Administration expenses |
( |
) |
– |
( |
) |
( |
) |
– |
( |
) | ||||||||||||||||||
Interest on plan liabilities |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
Actuarial (losses)/gains – experience |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||
Actuarial gains/(losses) – demographic |
– |
( |
) |
– |
( |
) | ||||||||||||||||||||||
Actuarial gains – financial |
||||||||||||||||||||||||||||
Contributions by employees |
( |
) |
– |
( |
) |
( |
) |
– |
( |
) | ||||||||||||||||||
Benefits paid |
||||||||||||||||||||||||||||
Closing defined benefit obligation |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
188 Pearson plc |
Changes in the value of the US PRMB are as follows: |
||||||||
All figures in £ millions |
2022 |
2021 |
||||||
Opening defined benefit obligation |
( |
) |
( |
) | ||||
Exchange differences |
( |
) |
( |
) | ||||
Interest on plan liabilities |
( |
) |
( |
) | ||||
Actuarial gains – experience |
||||||||
Actuarial gains – financial |
||||||||
Benefits paid |
||||||||
Closing defined benefit obligation |
( |
) |
( |
) |
The effect of a one percentage point increase and decrease in the discount rate on the defined benefit obligation and the total pension expense is as follows: |
| |||||||
2022 |
||||||||
All figures in £ millions |
||||||||
Effect: |
||||||||
(Decrease)/increase in defined benefit obligation – UK Group plan |
( |
) |
||||||
(Decrease)/increase in defined benefit obligation – US plan |
( |
) |
The effect of members living one year more or one year less on the defined benefit obligation is as follows: |
| |||||||
2022 |
||||||||
All figures in £ millions |
increase |
decrease |
||||||
Effect: |
||||||||
Increase/(decrease) in defined benefit obligation – UK Group plan |
( |
) | ||||||
Increase/(decrease) in defined benefit obligation – US plan |
( |
) |
Annual report and accounts 2022 Pearson plc 189 |
2022 |
||||||||
All figures in £ millions |
||||||||
Effect: |
||||||||
Increase/(decrease) in defined benefit obligation – UK Group plan |
( |
) | ||||||
Increase/(decrease) in defined benefit obligation – US plan |
The Group recognised the following charges in the income statement in respect of its equity-settled share-based payment plans: |
||||||||||||
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Pearson plans |
The following shares were granted under restricted share arrangements: |
||||||||||||||||
2022 |
2021 |
|||||||||||||||
Number of shares 000s |
Weighted average fair value £ |
Number of shares 000s |
Weighted average fair value £ |
|||||||||||||
Long-Term Incentive Plan |
||||||||||||||||
Management Incentive Plan |
190 Pearson plc |
Number of shares 000s |
Share capital £m |
Share premium £m |
||||||||||
At 1 January 2021 |
||||||||||||
Issue of ordinary shares – share option schemes |
||||||||||||
Purchase of own shares |
– |
– |
– |
|||||||||
At 31 December 2021 |
||||||||||||
Issue of ordinary shares – share option schemes |
– |
|||||||||||
Purchase of own shares |
( |
) |
( |
) |
– |
|||||||
At 31 December 2022 |
Number of shares 000s |
£m |
|||||||
At 1 January 2021 |
||||||||
Purchase of treasury shares |
||||||||
Newly issued treasury shares |
||||||||
Release of treasury shares |
( |
) |
( |
) | ||||
At 31 December 2021 |
||||||||
Purchase of treasury shares |
||||||||
Release of treasury shares |
( |
) |
( |
) | ||||
At 31 December 2022 |
Annual report and accounts 2022 Pearson plc 191 |
2022 |
||||||||||||||||||||||||
Attributable to equity holders of the company |
Non- controlling interest |
|||||||||||||||||||||||
All figures in £ millions |
Fair value reserve |
Translation reserve |
Retained earnings |
Total |
Total |
|||||||||||||||||||
Items that may be reclassified to the income statement |
||||||||||||||||||||||||
Net exchange differences on translation of foreign operations |
– |
– |
||||||||||||||||||||||
Currency translation adjustment disposed |
– |
( |
) |
– |
( |
) |
– |
( |
) | |||||||||||||||
Attributable tax |
– |
– |
– |
|||||||||||||||||||||
Items that are not reclassified to the income statement |
||||||||||||||||||||||||
Fair value gain on other financial assets |
– |
– |
– |
|||||||||||||||||||||
Attributable tax |
– |
– |
– |
|||||||||||||||||||||
Remeasurement of retirement benefit obligations |
– |
– |
– |
|||||||||||||||||||||
Attributable tax |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||
Other comprehensive income/(expense) for the year |
2021 1 |
||||||||||||||||||||||||
Attributable to equity holders of the company |
Non- controlling interest |
|||||||||||||||||||||||
All figures in £ millions |
Fair value reserve |
Translation reserve |
Retained earnings |
Total |
Total |
|||||||||||||||||||
Items that may be reclassified to the income statement |
||||||||||||||||||||||||
Net exchange differences on translation of foreign operations |
– |
( |
) |
– |
( |
) |
– |
( |
) | |||||||||||||||
Currency translation adjustment disposed |
– |
– |
– |
|||||||||||||||||||||
Attributable tax |
– |
– |
– |
|||||||||||||||||||||
Items that are not reclassified to the income statement |
||||||||||||||||||||||||
Fair value gain on other financial assets |
– |
– |
– |
|||||||||||||||||||||
Attributable tax |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||
Remeasurement of retirement benefit obligations |
– |
– |
– |
|||||||||||||||||||||
Attributable tax |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||
Other comprehensive income/(expense) for the year |
( |
) |
– |
2020 1 |
||||||||||||||||||||||||
Attributable to equity holders of the company |
Non- controlling interest |
|||||||||||||||||||||||
All figures in £ millions |
Fair value reserve |
Translation reserve |
Retained earnings |
Total |
Total |
|||||||||||||||||||
Items that may be reclassified to the income statement |
||||||||||||||||||||||||
Net exchange differences on translation of foreign operations |
– |
( |
) |
– |
( |
) |
– |
( |
) | |||||||||||||||
Currency translation adjustment disposed |
– |
( |
) |
– |
( |
) |
– |
( |
) | |||||||||||||||
Attributable tax |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||
Items that are not reclassified to the income statement |
||||||||||||||||||||||||
Fair value gain/(loss) on other financial assets |
( |
) |
– |
– |
( |
) |
– |
( |
) | |||||||||||||||
Attributable tax |
– |
– |
– |
– |
– |
– |
||||||||||||||||||
Remeasurement of retirement benefit obligations |
– |
– |
( |
) |
( |
) |
– |
( |
) | |||||||||||||||
Attributable tax |
– |
– |
– |
|||||||||||||||||||||
Other comprehensive income/(expense) for the year |
( |
) |
( |
) |
( |
) |
( |
) |
– |
( |
) |
192 Pearson plc |
All figures in £ millions |
2022 Credly |
2022 Mondly |
2022 Other |
2022 Total |
2021 Total |
2020 Total |
||||||||||||||||||
Intangible assets |
– |
|||||||||||||||||||||||
Deferred tax asset |
– |
– |
||||||||||||||||||||||
Trade and other receivables |
– |
|||||||||||||||||||||||
Cash and cash equivalents |
– |
– |
||||||||||||||||||||||
Trade and other liabilities |
( |
) |
( |
) |
– |
( |
) |
( |
) |
– |
||||||||||||||
Deferred tax liabilities |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
– |
|||||||||||||
Net assets acquired |
– |
|||||||||||||||||||||||
Goodwill |
– |
|||||||||||||||||||||||
Total |
– |
|||||||||||||||||||||||
Satisfied by: |
||||||||||||||||||||||||
Cash consideration |
– |
|||||||||||||||||||||||
Contingent or deferred consideration |
– |
– |
||||||||||||||||||||||
Fair value of existing investment |
– |
– |
– |
|||||||||||||||||||||
Total consideration |
– |
Annual report and accounts 2022 Pearson plc 193 |
All figures in £ millions |
2022 Total |
2021 Total |
2020 Total |
|||||||||
Cash flow on acquisitions |
||||||||||||
Cash – current year acquisitions |
( |
) |
( |
) |
– |
|||||||
Cash and cash equivalents acquired |
– |
|||||||||||
Deferred payments for prior year acquisitions and other items |
( |
) |
( |
) |
( |
) | ||||||
Acquisition costs paid |
( |
) |
( |
) |
– |
|||||||
Net cash outflow |
( |
) |
( |
) |
( |
) |
194 Pearson plc |
All figures in £ millions |
Notes |
2022 |
2021 |
2020 |
||||||||||||
Disposal of subsidiaries and associates |
||||||||||||||||
Intangible assets, including goodwill |
( |
) |
( |
) |
– |
|||||||||||
Property, plant and equipment |
( |
) |
( |
) |
– |
|||||||||||
Investments in joint ventures and associates |
– |
– |
( |
) | ||||||||||||
Intangible assets – product development |
( |
) |
( |
) |
– |
|||||||||||
Inventories |
( |
) |
( |
) |
– |
|||||||||||
Trade and other receivables |
( |
) |
( |
) |
– |
|||||||||||
Deferred tax |
( |
) |
– |
– |
||||||||||||
Cash and cash equivalents (excluding overdrafts) |
( |
) |
( |
) |
– |
|||||||||||
Provisions for other liabilities and charges |
– |
|||||||||||||||
Retirement benefit obligations |
– |
– |
||||||||||||||
Trade and other liabilities |
– |
|||||||||||||||
Financial liabilities – borrowings |
– |
|||||||||||||||
Net assets disposed |
( |
) |
( |
) |
( |
) | ||||||||||
Cumulative currency translation adjustment |
( |
) |
||||||||||||||
Cash proceeds |
||||||||||||||||
Deferred proceeds |
– |
– |
||||||||||||||
Costs of disposal |
( |
) |
( |
) |
||||||||||||
Gain on disposal |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||||||
Cash flow from disposals |
||||||||||||||||
Proceeds – current year disposals |
||||||||||||||||
Proceeds – prior year disposals |
||||||||||||||||
Cash and cash equivalents disposed |
( |
) |
( |
) |
– |
|||||||||||
Costs and other disposal liabilities paid |
( |
) |
( |
) |
( |
) | ||||||||||
Net cash inflow |
||||||||||||||||
Analysed as: |
||||||||||||||||
Cash inflow from disposal of subsidiaries |
||||||||||||||||
Cash inflow from disposal of joint ventures and associates |
– |
– |
Annual report and accounts 2022 Pearson plc 195 |
All figures in £ millions |
2022 Total |
2021 Total |
||||||
Non-current assets |
||||||||
Property, plant and equipment |
||||||||
Assets classified as held for sale |
||||||||
Net assets classified as held for sale |
196 Pearson plc |
Annual report and accounts 2022 Pearson plc 197 |
All figures in £ millions |
2022 |
2021 |
||||||
Net book amount |
||||||||
Profit/(loss) on sale of property, plant and equipment |
( |
) | ||||||
Proceeds from sale of property, plant and equipment |
All figures in £ millions |
2021 |
Fair value and other movements |
Foreign exchange movements |
Financing cash flows |
Transfer from non-current to current |
New leases/ disposal of leases |
2022 |
|||||||||||||||||||||
Financial liabilities |
||||||||||||||||||||||||||||
Non-current borrowings |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Current borrowings |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Total |
( |
) |
( |
) |
All figures in £ millions |
2020 |
Fair value and other movements |
Foreign exchange movements |
Financing cash flows |
Transfer from non-current to current |
New leases/ disposal of leases |
2021 |
|||||||||||||||||||||
Financial liabilities |
||||||||||||||||||||||||||||
Non-current borrowings |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Current borrowings |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Total |
( |
) |
( |
) |
( |
) |
( |
) |
Key judgements |
||||
— The application of tax legislation in relation to provisions for uncertain tax positions. |
||||
Key areas of estimation |
||||
— The level of provisions required in relation to uncertain tax positions is complex and each matter is separately assessed. The estimation of future settlement amounts is based on a number of factors including the status of the unresolved matter, clarity of legislation, range of possible outcomes and the statute of limitations. |
||||
198 Pearson plc |
All figures in £ millions |
Note |
2022 |
2021 |
2020 |
||||||||||||
Interest on lease liabilities |
( |
) |
( |
) |
( |
) | ||||||||||
Expenses relating to short-term leases |
– |
– |
( |
) | ||||||||||||
Depreciation of right-of-use |
10 |
( |
) |
( |
) |
( |
) | |||||||||
Impairment of right-of-use |
10 |
( |
) |
( |
) |
( |
) |
All figures in £ millions |
2022 |
2021 |
||||||
Less than one year |
||||||||
One to five years |
||||||||
More than five years |
||||||||
Total undiscounted lease liabilities |
||||||||
Lease liabilities included in the balance sheet |
||||||||
Analysed as: |
||||||||
Current |
||||||||
Non-current |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Total cash outflow for leases as a lessee |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Interest on lease receivables |
||||||||||||
Income from subleasing right-of-use |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Total cash inflow for leases as a lessor |
Annual report and accounts 2022 Pearson plc 199 |
All figures in £ millions |
Operating leases |
Finance leases |
2022 Total |
2021 Total |
2020 Total |
|||||||||||||||
Less than one year |
||||||||||||||||||||
One to two years |
||||||||||||||||||||
Two to three years |
||||||||||||||||||||
Three to four years |
||||||||||||||||||||
Four to five years |
||||||||||||||||||||
More than five years |
||||||||||||||||||||
Total undiscounted lease payments receivable |
||||||||||||||||||||
Unearned finance income |
( |
) |
||||||||||||||||||
Net investment in finance lease receivable |
All figures in £ millions |
2022 |
2021 |
2020 |
|||||||||
Short-term employee benefits |
||||||||||||
Retirement benefits |
||||||||||||
Share-based payment costs |
||||||||||||
Total |
200 Pearson plc |
Annual report and accounts 2022 Pearson plc 201 |
202 Pearson plc |
Annual report and accounts 2022 Pearson plc 203 |
204 Pearson plc |
Annual report and accounts 2022 Pearson plc 205 |
206 Pearson plc |
Annual report and accounts 2022 Pearson plc 207 |
208 Pearson plc |
Annual report and accounts 2022 Pearson plc 209 |
210 Pearson plc |
Annual report and accounts 2022 Pearson plc 211 |
212 Pearson plc |
All figures in £ millions |
2022 |
2021 |
2020 |
2019 |
2018 |
|||||||||||||||
Sales: By operating segment |
||||||||||||||||||||
Assessment & Qualifications* |
1,444 |
1,238 |
1,118 |
|||||||||||||||||
Virtual Learning |
820 |
713 |
692 |
|||||||||||||||||
English Language Learning |
321 |
238 |
218 |
|||||||||||||||||
Workforce Skills |
204 |
172 |
163 |
|||||||||||||||||
Higher Education |
898 |
849 |
956 |
|||||||||||||||||
Strategic review* |
154 |
218 |
250 |
|||||||||||||||||
Total sales |
3,841 |
3,428 |
3,397 |
3,869 |
4,129 |
|||||||||||||||
Adjusted operating profit: By operating segment |
||||||||||||||||||||
Assessment & Qualifications* |
258 |
219 |
147 |
|||||||||||||||||
Virtual Learning |
70 |
32 |
29 |
|||||||||||||||||
English Language Learning |
25 |
15 |
1 |
|||||||||||||||||
Workforce Skills |
(3 |
) |
27 |
26 |
||||||||||||||||
Higher Education |
91 |
73 |
93 |
|||||||||||||||||
Strategic review* |
15 |
19 |
16 |
|||||||||||||||||
Penguin Random House |
– |
– |
1 |
|||||||||||||||||
Total adjusted operating profit |
456 |
385 |
313 |
581 |
546 |
|||||||||||||||
Operating margin – continuing |
11.9% |
11.2% |
9.2% |
15.0% |
13.2% |
|||||||||||||||
Adjusted earnings |
||||||||||||||||||||
Total adjusted operating profit |
456 |
385 |
313 |
581 |
546 |
|||||||||||||||
Net finance costs |
(1 |
) |
(57 |
) |
(61 |
) |
(41 |
) |
(24 |
) | ||||||||||
Income tax |
(71 |
) |
(64 |
) |
(35 |
) |
(89 |
) |
27 |
|||||||||||
Non-controlling interest |
(2 |
) |
(1 |
) |
– |
(2 |
) |
(2 |
) | |||||||||||
Adjusted earnings |
382 |
263 |
217 |
449 |
547 |
|||||||||||||||
Weighted average number of shares (millions) |
738.1 |
754.1 |
755.4 |
777.0 |
778.1 |
|||||||||||||||
Adjusted earnings per share |
51.8p |
34.9p |
28.7p |
57.8p |
70.3p |
Annual report and accounts 2022 Pearson plc 213 |
All figures in £ millions | 2022 |
2021 | 2020 | 2019 | 2018 | |||||||||||||||
Cash flow |
||||||||||||||||||||
Operating cash flow | 401 |
388 | 315 | 418 | 513 | |||||||||||||||
Operating cash conversion | 88% |
101% | 101% | 72% | 94% | |||||||||||||||
Net assets | 4,415 |
4,280 | 4,134 | 4,323 | 4,525 | |||||||||||||||
Net debt | 557 |
350 | 463 | 1,016 | 143 | |||||||||||||||
Return on invested capital |
||||||||||||||||||||
Total adjusted operating profit | 456 |
385 | 313 | 581 | 546 | |||||||||||||||
Operating tax paid | (95 |
) |
(60 | ) | (10 | ) | (9 | ) | (43 | ) | ||||||||||
Return |
361 |
325 | 303 | 572 | 503 | |||||||||||||||
Gross basis: |
||||||||||||||||||||
Average invested capital | 10,896 |
9,857 | 10,625 | 11,096 | 10,672 | |||||||||||||||
Return on invested capital | 3.3% |
3.3% | 2.9% | 5.2% | 4.7% | |||||||||||||||
Net basis: |
||||||||||||||||||||
Average invested capital | 7,896 |
7,161 | 7,708 | 8,097 | 7,544 | |||||||||||||||
Return on invested capital | 4.6% |
4.5% | 3.9% | 7.1% | 6.7% | |||||||||||||||
Dividend per share | 21.5p |
20.5p | 19.5p | 19.5p | 18.5p |
214 Pearson plc |
All figures in £ millions |
Assessment & Qualifications |
Virtual Learning |
English Language Learning |
Workforce Skills |
Higher Education |
Strategic Review |
Total |
|||||||||||||||||||||
Statutory sales 2022 |
1,444 |
820 |
321 |
204 |
898 |
154 |
3,841 |
|||||||||||||||||||||
Statutory sales 2021 |
1,238 |
713 |
238 |
172 |
849 |
218 |
3,428 |
|||||||||||||||||||||
Statutory sales increase/(decrease) |
206 |
107 |
83 |
32 |
49 |
(64) |
413 |
|||||||||||||||||||||
Comprising: |
||||||||||||||||||||||||||||
Underlying increase/(decrease) |
95 |
28 |
57 |
12 |
(33 |
) |
(5) |
154 |
||||||||||||||||||||
Portfolio changes |
– |
– |
9 |
15 |
– |
(61) |
(37 |
) | ||||||||||||||||||||
Exchange differences |
111 |
79 |
17 |
5 |
82 |
2 |
296 |
|||||||||||||||||||||
Statutory sales increase/(decrease) |
206 |
107 |
83 |
32 |
49 |
(64) |
413 |
|||||||||||||||||||||
Statutory increase/(decrease) |
17% |
15% |
35% |
19% |
6% |
(29)% |
12% |
|||||||||||||||||||||
Constant exchange rate increase/(decrease) |
8% |
4% |
28% |
16% |
(4)% |
(30)% |
3% |
|||||||||||||||||||||
Underlying increase/(decrease) |
8% |
4% |
24% |
7% |
(4)% |
(16)% |
5% |
Annual report and accounts 2022 Pearson plc 215 |
All figures in £ millions |
2022 |
2021 |
||||||
Operating profit |
271 |
183 |
||||||
Cost of major restructuring |
150 |
214 |
||||||
Other net gains and losses |
(24 |
) |
(63 |
) | ||||
Intangible charges |
56 |
51 |
||||||
UK pension discretionary increase |
3 |
– |
||||||
Adjusted operating profit |
456 |
385 |
All figures in £ millions |
Assessment & Qualifications |
Virtual Learning |
English Language Learning |
Workforce Skills |
Higher Education |
Strategic Review |
Total |
|||||||||||||||||||||
Adjusted operating profit increase/(decrease) |
39 |
38 |
10 |
(30 |
) |
18 |
(4 |
) |
71 |
|||||||||||||||||||
Comprising: |
||||||||||||||||||||||||||||
Underlying increase/(decrease) |
14 |
28 |
5 |
(18 |
) |
9 |
– |
38 |
||||||||||||||||||||
Portfolio changes |
– |
– |
2 |
(10 |
) |
– |
(5 |
) |
(13 |
) | ||||||||||||||||||
Exchange differences |
25 |
10 |
3 |
(2 |
) |
9 |
1 |
46 |
||||||||||||||||||||
Adjusted operating profit increase/(decrease) |
39 |
38 |
10 |
(30 |
) |
18 |
(4 |
) |
71 |
|||||||||||||||||||
Constant exchange rate increase/(decrease) |
6% |
88% |
47% |
(104)% |
12% |
(26)% |
6% |
|||||||||||||||||||||
Underlying increase/(decrease) |
6% |
88% |
33% |
(67)% |
12% |
– |
11% |
216 Pearson plc |
All figures in £ millions |
2022 |
2021 |
||||||
Profit for the year |
244 |
178 |
||||||
Non-controlling interest |
(2 |
) |
(1 |
) | ||||
Cost of major restructuring |
150 |
214 |
||||||
Other net gains and losses |
(24 |
) |
(63 |
) | ||||
Intangible charges |
56 |
51 |
||||||
Other net finance income |
(53 |
) |
(51 |
) | ||||
UK pension discretionary increase |
3 |
– |
||||||
Tax |
8 |
(65 |
) | |||||
Adjusted earnings |
382 |
263 |
||||||
Weighted average number of shares (millions) |
738.1 |
754.1 |
||||||
Adjusted earnings per share |
51.8p |
34.9p |
All figures in £ millions |
2022 Gross |
2021 Gross |
2022 Net |
2021 Net |
||||||||||||
Adjusted operating profit |
456 |
385 |
456 |
385 |
||||||||||||
Operating tax paid |
(95 |
) |
(60 |
) |
(95 |
) |
(60 |
) | ||||||||
Return |
361 |
325 |
361 |
325 |
||||||||||||
Average goodwill |
6,490 |
5,758 |
3,490 |
3,063 |
||||||||||||
Average other non-current intangibles |
2,012 |
1,970 |
2,012 |
1,970 |
||||||||||||
Average intangible assets – product development |
948 |
892 |
948 |
892 |
||||||||||||
Average tangible fixed assets and working capital |
1,446 |
1,237 |
1,446 |
1,237 |
||||||||||||
Average invested capital |
10,896 |
9,857 |
7,896 |
7,162 |
||||||||||||
Return on invested capital |
3.3% |
3.3% |
4.6% |
4.5% |
Annual report and accounts 2022 Pearson plc 217 |
All figures in £ millions |
2022 |
2021 |
||||||
Adjusted operating profit |
456 |
385 |
||||||
Adjusted income tax charge |
(71 |
) |
(64 |
) | ||||
Return |
385 |
321 |
||||||
Net statutory assets |
4,415 |
4,280 |
||||||
Adjustments for: |
||||||||
Net debt |
557 |
350 |
||||||
Retirement benefit assets |
(581 |
) |
(537 |
) | ||||
Other post-retirement medical benefit obligation |
25 |
34 |
||||||
Other non-operating assets |
23 |
(41 |
) | |||||
Capital |
4,439 |
4,086 |
||||||
Return on capital |
8.7% |
7.9% |
All figures in £ millions |
2022 |
2021 |
||||||
Net cash generated from operations |
527 |
570 |
||||||
Dividends from joint ventures and associates |
1 |
– |
||||||
Purchase / disposal of PPE and software |
(133 |
) |
(176 |
) | ||||
Net addition of right-of-use |
(29 |
) |
(30 |
) | ||||
Net costs paid for major restructuring |
35 |
24 |
||||||
Operating cash flow |
401 |
388 |
All figures in £ millions |
2022 |
2021 |
||||||
Adjusted operating profit |
456 |
385 |
||||||
Operating cash flow |
401 |
388 |
||||||
Cash conversion |
88% |
101% |
218 Pearson plc |
All figures in £ millions |
2022 |
2021 |
||||||
Adjusted operating profit |
456 |
385 |
||||||
Depreciation (excluding items included in ‘cost of major restructuring’) |
88 |
100 |
||||||
Amortisation on intangible software assets (excluding items included in ‘cost of major restructuring’) |
123 |
113 |
||||||
Adjusted EBITDA |
667 |
598 |
||||||
Cash and cash equivalents |
558 |
937 |
||||||
Overdrafts |
(15 |
) |
– |
|||||
Investment in finance lease receivable |
121 |
115 |
||||||
Derivative financial instruments |
(6 |
) |
(2 |
) | ||||
Bonds |
(610 |
) |
(767 |
) | ||||
Lease liabilities |
(605 |
) |
(633 |
) | ||||
Net debt |
(557 |
) |
(350 |
) | ||||
Net debt/adjusted EBITDA ratio |
0.8x |
0.6x |
Annual report and accounts 2022 Pearson plc 219 |
Payment Date |
Amount per share |
|||||||
Interim |
20 September 2022 |
6.6 pence |
||||||
Final 1 |
5 May 2023 |
14.9 pence |
1. | Subject to approval by shareholders at the 2023 Annual General Meeting. |
2023 financial calendar |
||||
Ex-dividend date |
23 March 2023 |
|||
Record date |
24 March 2023 |
|||
Last date for dividend reinvestment election |
13 April 2023 |
|||
Annual General Meeting |
28 April 2023 |
|||
Payment date for dividend and share purchase date for dividend reinvestment |
5 May 2023 |
— | Keep any documentation that contains your shareholder reference number in a safe place and shred any unwanted documentation |
— | Inform our registrar, Equiniti, promptly when you change address |
— | Be aware of dividend payment dates and contact the registrar if you do not receive your dividend cheque or, better still, make arrangements to have the dividend paid directly into your bank account |
— | Consider holding your shares electronically in a CREST account via a nominee. |
220 Pearson plc |
Material issues |
GRI |
SASB |
Page/web reference |
Comments/omissions | ||||
Product effectiveness |
GRI 203-2: significant indirect impacts |
Risks, opportunities, and management approach: Pages 30-38 Performance: Page 18 Social Bond Reporting: https://plc.pearson.com/en-GB/investors/debt-investors/social-bond-framework |
||||||
Consumer engagement |
GRI 203-2: significant indirect impacts |
Risks, opportunities, and management approach: Pages 18, 30-38 Performance: Page 18 |
||||||
Digital growth |
GRI 203-2: significant indirect impacts |
Risks, opportunities, and management approach: Pages 30-38 Performance: non-financial KPIs - Page 18 |
||||||
Employee learning and development |
GRI 404-1: average hours of training per year, per employeeGRI 404-2: programmes for upgrading employee skills and transition assistance programmesGRI 404-3: percentage of employees receiving regular performance and career development reviews |
Risks, opportunities, and management approach: Pages 30-38 Performance: Pages 18, 221-226 |
We do not report on average hours of training. In 2022, we launched a new approach to engagement as a driver of growth and retention, including a set of performance measures. 100% of direct employees covered by Gallup survey. | |||||
Employee engagement |
SV-PS-330a.2. SV-PS-330a.3. |
Risks, opportunities, and management approach: Pages 30-36 Performance: Pages 18, 221-226 |
||||||
Inclusion and diversity |
405-1 Diversity of governance bodies and employees |
SV-PS-330a.1. SV-ME-260a.1. SV-ME-260a.2. |
Risks, opportunities, and management approach: Pages 30-36 Performance: Pages 18, 221-226 Social Equity portal: https://www.pearson.com/en-us/social-equity.html |
Annual report and accounts 2022 Pearson plc 221 |
Material issues |
GRI |
SASB |
Page/web reference |
Comments/omissions | ||||
Reducing our environmental impact |
GHG Emission scope 1, 2, 3. Baseline and methodology. Any offsets including type, amount, criteria | Risks, opportunities, and management approach: Pages 30, 36-38 TCFD Report: Pages 39-41 Performance: Pages 18, 36-41, 221-226 |
||||||
Data privacy and cyber security |
GRI 418 -1 Substantiated complaints received concerning breaches of customer privacy, and losses of customer data |
SV-PS-230a.1 SV-PS-230a.2. SV-PS-230a.3. |
The following sections of our report detail: — our approach to data security risks: Pages 43-52 — governance of data privacy, cyber security and technology resilience: Page 82 — approach to customer data and safeguarding and training provided: Pages 30, 36 — consumer-facing privacy center explaining how Pearson uses personal information: https://www.pearson.com/en-us/privacy-center. html |
In the event of a reportable breach, we would disclose information about the incident and commit to contact any affected data subjects in a timely way. In line with regulations, we will disclose material lapses to the relevant regulators. To the extent that any relevant regulator should find fault with our data management and/or data security practices, they will publish their findings/ sanctions. |
Disclosure |
Page/Location |
Comment | ||
2-1 Organisational details |
120, 140, 150 |
|||
2-2 Entities included in the organisation’s sustainability reporting |
209-211 |
|||
2-3 Reporting period, frequency and contact point |
2022 annual report, sustainability@pearson.com | |||
2-4 Restatements of information |
223 |
|||
2-5 External assurance |
https://plc.pearson.com/en-GB/purpose/our-esg-reporting | |||
2-6 Activities, value chain and other business relationships |
16-17 |
|||
2-7 Employees |
224-226 |
|||
2-8 Workers who are not employees |
We do not currently report on workers who are not employees, Most common type of workers are regular employees (19,051) and most common type of work performed is in testing centres, technology, sales, customer services, and prof. development | |||
2-9 Governance structure and composition |
56-66 |
|||
2-10 Nomination and selection of the highest governance body |
74-77 |
|||
2-11 Chair of the highest governance body |
56 |
|||
2-12 Role of the highest governance body in overseeing the management of impacts |
56-66 |
|||
2-13 Delegation of responsibility for managing impacts |
65-66 |
|||
2-14 Role of the highest governance body in sustainability reporting |
66 |
|||
2-15 Conflicts of interest |
59 |
|||
2-16 Communication of critical concerns |
65 |
|||
2-17 Collective knowledge of the highest governance body |
56-59 |
|||
2-18 Evaluation of the performance of the highest governance body |
71-73 |
|||
2-19 Remuneration policies |
92-93 |
|||
2-20 Process to determine remuneration |
88-119 |
|||
2-21 Annual total compensation ratio |
109 |
|||
2-22 Statement on sustainable development strategy |
8 |
|||
2-23 Policy commitments |
42 |
222 Pearson plc |
Disclosure |
Page/Location |
Comment | ||
2-24 Embedding policy commitments |
30-42 |
|||
2-25 Processes to remediate negative impacts |
https://plc.pearson.com/ en-GB/corporate-policies | |||
2-26 Mechanisms for seeking advice and raising concerns |
https://plc.pearson.com/ en-GB/corporate-policies | |||
2-27 Compliance with laws and regulations |
80-87 |
|||
2-28 Membership associations |
38 | We are also members of the Global Business Coalition for Education, and the Corporate Consultive Group of the World Resource Institute (WRI). | ||
2-29 Approach to stakeholder engagement |
26-29 |
|||
2-30 Collective bargaining agreements |
68 | Our Employee Engagement Network (EEN) champion the voice of our employees at board level. Members represent diverse genders, ethnicity groups, geographies, ages and tenures. |
2022 |
2021 |
2018 rebaselined figures |
2018 previously reported |
|||||||||||||
Scope 1 |
4,622 |
8,342 |
12,206 |
12,209 |
||||||||||||
Scope 2 (market-based) |
182 |
440 |
4,583 |
4,583 |
||||||||||||
Scope 2 (location-based) |
29,034 |
22,801 |
40,779 |
41,586 |
||||||||||||
Scope 3 |
362,473 |
370,853 |
531,663 |
410,164 |
||||||||||||
Total - Location-based |
396,128 |
401,995 |
584,648 |
463,959 |
||||||||||||
Total - Market-based |
367,276 |
379,634 |
548,452 |
426,956 |
||||||||||||
Total global scope 1 and 2 (location-based) |
33,656 |
31,143 |
||||||||||||||
Total UK scope 1 and 2 (location-based) |
5,671 |
3,829 |
||||||||||||||
Total global scope 1 and 2 (market-based) |
4,804 |
8,782 |
16,789 |
16,792 |
||||||||||||
Total UK scope 1 and 2 (market-based) |
1,662 |
1,352 |
||||||||||||||
Intensity ratio |
2022 |
2021 |
||||||||||||||
tCO 2 / m£ sales revenue (scope 1, 2 market-based and 3) |
95.6 |
110.7 |
132.8 |
|||||||||||||
Energy |
2022 |
2021 |
||||||||||||||
% electricity from renewable sources |
99% |
99% |
||||||||||||||
Total electricity consumption from renewable sources only (MWh) |
83,523 |
57,120 |
||||||||||||||
Total electricity consumption from non-renewable sources only (MWh) |
957 |
794 |
||||||||||||||
On-site generated electricity (MWh) |
184 |
150 |
||||||||||||||
Total gas consumption (MWh) |
24,170 |
23,985 |
||||||||||||||
Total fuel oil consumption (MWh) |
159 |
48 |
||||||||||||||
Vehicles (MWh) |
347 |
10,437 |
||||||||||||||
Total energy consumption (MWh) |
109,340 |
92,535 |
||||||||||||||
Global (gas, electricity and transport) |
108,997 |
92,336 |
||||||||||||||
UK (gas, electricity and transport) |
29,811 |
17,491 |
Annual report and accounts 2022 Pearson plc 223 |
Resource use |
2022 |
2021 |
||||||||||
Paper used (t) |
24,187 |
29,056 |
||||||||||
% FSC |
33% |
29% |
||||||||||
% PEFC |
20% |
28% |
||||||||||
% SFI |
9% |
|||||||||||
Waste |
2022 |
2021 |
||||||||||
Total waste generated (t) |
1,298* |
875 |
||||||||||
Share of waste recycled in office space |
17.7% |
25.9% |
||||||||||
Water |
2022 |
2021 |
||||||||||
Total water consumption (m 3 ) |
538,556* |
152,702 |
* |
We report estimated water and waste in some of our properties by applying an intensity ratio per sqm based on all actual data available. |
This year, we extended the scope of sites with actual data that are included in 2022 figures. |
Our Employees |
2022 |
2021 |
||||||
Total average number of employees for the year* |
20,438 |
20,744 |
||||||
Employees by geography (Regional Representation) |
20,169 |
21,350 |
||||||
US as of 31 December |
10,694 |
11,670 |
||||||
UK as of 31 December |
3,931 |
3,826 |
||||||
Rest of World as of 31 December |
5,544 |
5,854 |
* |
Total average number of employees is calculated using a Full-time Equivalent (FTE) methodology, as an average across the reporting period. |
Gender diversity breakdown |
2022 |
2021 |
||||||
Total number of permanent, regular employees |
97% |
97% |
||||||
Male |
40% |
40% |
||||||
Female |
59% |
59% |
||||||
Non-binary |
0% |
0% |
||||||
No data |
1% |
1% |
||||||
Total number of temporary, limited term employees |
3% |
3% |
||||||
Male |
32% |
32% |
||||||
Female |
66% |
65% |
||||||
Non-binary |
0% |
0% |
||||||
No data |
2% |
3% |
||||||
Total full-time, regular, employees |
79% |
75% |
||||||
Male |
44% |
44% |
||||||
Female |
55% |
55% |
||||||
Non-binary |
0% |
0% |
||||||
Not Disclosed |
1% |
1% |
||||||
Total part-time, regular, employees |
21% |
21% |
||||||
Male |
27% |
27% |
||||||
Female |
72% |
73% |
||||||
Non-binary |
0% |
0% |
||||||
Not Disclosed |
1% |
1% |
224 Pearson plc |
Board and Executive Team’s gender identity or sex |
Number of board members |
Percentage of the board |
Number of senior positions on the board (CEO, CFO, SID and Chair) |
Number in executive management* |
Percentage of executive management |
|||||||||||||||
Men | 5 | 50 | 3 | 6 | 54.5 | |||||||||||||||
Women | 5 | 50 | 1 | 5 | 45.5 | |||||||||||||||
Other categories | ||||||||||||||||||||
Not specified / prefer not to say |
Board and Executive Team’s ethnic background |
Number of board members |
Percentage of the board |
Number of senior positions on the board (CEO, CFO, SID and Chair) |
Number in executive management* |
Percentage of executive management |
|||||||||||||||
White British or other White |
||||||||||||||||||||
(including minority-white groups) |
7 |
70 |
4 |
8 |
72.73 |
|||||||||||||||
Mixed/Multiple Ethnic Groups |
2 |
20 |
1 |
9.09 |
||||||||||||||||
Asian/Asian British |
1 |
10 |
1 |
9.09 |
||||||||||||||||
Black/African/Caribbean/Black British |
||||||||||||||||||||
Other ethnic group, including Arab |
1 |
9.09 |
||||||||||||||||||
Not specified/ prefer not to say |
Female leadership breakdown |
2022 |
2021 |
||||||
Senior leadership |
41% |
37% |
||||||
VP & Director |
48% |
47% |
||||||
Manager |
51% |
50% |
||||||
Percentage of women in technology roles (IT/engineering) |
31% |
29% |
Employee racial and ethnic diversity breakdown |
2022 |
2021 |
||||||
Total workforce (US and UK) |
32% (US) / 18% (UK) |
31% (US) / 19% (UK) |
||||||
Senior leadership (US and UK) |
19% (US) / 12% (UK) |
20% (US) / 9% (UK) |
||||||
VP and Director (US and UK) |
18% (US) / 13% (UK) |
17% (US) / 13% (UK) |
||||||
Manager (US and UK) |
25% (US) / 14% (UK) |
23% (US) /16% (UK) |
Employee racial and ethnic diversity breakdown - US |
2022 |
2021 |
||||||
% of total workforce |
32% |
31% |
||||||
Asian |
10% |
9% |
||||||
Black or African American |
11% |
10% |
||||||
Hispanic or Latino |
9% |
9% |
||||||
Other |
2% |
3% |
||||||
White |
67% |
69% |
||||||
Not Stated |
1% |
0% |
Employee racial and ethnic diversity breakdown - UK |
2022 |
2021 |
||||||
% of total workforce |
18% |
19% |
||||||
Asian |
10% |
10% |
||||||
Black |
4% |
4% |
||||||
Hispanic or Latino |
0% |
0% |
||||||
Other |
4% |
5% |
||||||
White |
66% |
70% |
||||||
Not Stated |
16% |
11% |
* | As prescribed by LR9.8.6R(10), for the purpose of this disclosure, the Executive Management includes the Company Secretary. |
Annual report and accounts 2022 Pearson plc 225 |
% of total management workforce (US and UK) |
2022 |
2021 |
||||||
Asian |
10% |
10% |
||||||
Black or African American |
4% |
4% |
||||||
Hispanic or Latino |
4% |
3% |
||||||
Other |
2% |
2% |
||||||
White |
77% |
78% |
||||||
Not Stated |
3% |
3% |
Turnover |
2022 |
2021 |
||||||
Turnover rate, total average for the year* |
6,974 /33% |
7,232 /33% |
||||||
Voluntary turnover |
4,658 /22% |
5,062 /23% |
||||||
Involuntary turnover |
2,316 /11% |
2,170 /10% |
*% | calculated using average 2022 H/C of 21,342, not 2022 year end position. |
Turnover by gender |
2022 |
2021 |
||||||
Total female |
4,233 / 20% |
4,512 /20% |
||||||
Total male |
2,659 / 12% |
2,709 /12% |
||||||
Non-binary |
6 / 0% |
- |
||||||
Not disclosed |
76 / 0% |
- |
Turnover by age group |
2022 |
2021 |
||||||
Under 30 years old |
1,720 / 8% |
2,019 / 9% |
||||||
30-50 years old |
3,449 / 16% |
3,428 / 15% |
||||||
Over 50 years old |
1,785 / 8% |
1,764 / 8% |
||||||
No date |
20 / 0% |
21 / 0% |
New hires |
2022 |
2021 |
||||||
Total number and rate of new employee hires (number of hires/average headcount)* |
5,600 / 26% |
5,934 / 27% |
||||||
Total number of new hires - female |
3,378 / 60% |
3,528 / 60% |
||||||
Total number of new hires - male |
2,076 / 37% |
2,261 / 38% |
||||||
Total number of new hires - non binary |
24 / 0% |
0 / 0% |
||||||
Total number of new hires - not disclosed |
122 / 2% |
145 / 2% |
*% | calculated using average 2022 H/C of 21,342, not 2022 year end position. |
New hires by age group |
2022 |
2021 |
||||||
Under 30 years old |
38% |
40% |
||||||
30-50 years old |
44% |
42% |
||||||
Over 50 years old |
17% |
17% |
||||||
No date |
1% |
1% |
Employee engagement measures* |
2022 |
2021 |
||||||
Engagement |
3.96^ |
- |
||||||
Inclusion |
4.12^ |
- |
||||||
Progress |
67% |
- |
||||||
Learning and Growth |
72% |
- |
Governance |
2022 |
2021 |
||||||
Total number of concerns raised & investigated |
92 |
110 |
||||||
Percentage of employees completing code of conduct certification or training |
100% |
100% |
226 Pearson plc |
Reliance on this document |
||||
The intention of this document is to provide information to shareholders and is not designed to be relied upon by any other party or for any other purpose. |
||||
Forward-looking statements |
||||
This document includes forward-looking statements concerning Pearson’s financial condition, business and operations and its strategy, plans and objectives. In particular, all statements that express forecasts, expectations and projections, 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 known and unknown risks and uncertainties because they relate to events and depend on circumstances that may occur in the future. They are based on numerous expectations, assumptions and beliefs regarding Pearson’s present and future business strategies and the environment in which it will operate in the future. There are various factors which could cause Pearson’s actual financial condition, results and development to differ materially from the plans, goals, objectives and expectations expressed or implied by these forward-looking statements, many of which are outside Pearson’s control. These include international, national and local conditions, as well as the impact of competition. They also include other risks detailed from time to time in Pearson’s publicly-filed documents and, in particular, the risk factors set out in this document, which you are advised to read. Any forward-looking statements speak only as of the date they are made and, except as required by law, Pearson gives no undertaking to update any forward-looking statements in this document whether as a result of new information, future developments, changes in its expectations or otherwise. Readers are cautioned not to place undue reliance on such forward-looking statements. |