Operating expenses

12 Months Ended

Dec. 31, 2023

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Operating expenses

4. Operating expenses

All figures in £ millions	2023			2022			2021
By function:
Cost of goods sold		1,839			2,046			1,747
Operating expenses
Distribution costs		47			61			62
Selling, marketing and product development costs		549			564			521
Administrative and other expenses		767			823			802
Restructuring costs		–			150			214
Other income		(41	)		(49	)		(37	)
Total net operating expenses		1,322			1,549			1,562
Other net gains and losses		16			(24	)		(63	)
Total		3,177			3,571			3,246

Other income includes freight income and sublet income. Included in administrative and other expenses are research and efficacy costs of £8m (2022: £10m; 2021: £12m). In 2023, other net gains and losses relate to the gain on the disposal of the POLS business and gains related to the release of accruals and a provision related to historical acquisitions, offset by losses on the disposal of Pearson College and costs related to current and prior year disposals and acquisitions. Other net gains in 2022, largely relate to the gain on the sales of certain businesses (see note 31) and a gain arising on a decrease in the deferred consideration payable on prior year acquisitions, offset by costs related to disposals and acquisitions. In 2021, other net gains and losses largely relate to the sale of interests in

PIHE in South Africa and the school business in Brazil.

In 2023, there are no costs of major restructuring. In 2022, the restructuring costs of £150m mainly related to staff redundancies and impairment of right-of-use property assets. The 2022 charge includes the impact of updated assumptions related to the recoverability of right-of-use assets made in 2021. In 2023, charges of £11m relating to impairments of property assets arising from the impact of updates to assumptions made during the 2022 and 2021 restructuring programmes are included within administrative and other expenses.

All figures in £ millions	Notes		2023			2022			2021
By nature:
Royalties expensed				164			194			185
Other product costs				393			412			353
Employee benefit expense		5		1,467			1,605			1,365
Contract labour				70			73			69
Employee-related expense				60			52			21
Promotional costs				146			268			239
Depreciation and impairment of property, plant and equipment and investment property and assets held for sale		10		90			136			241
Amortisation and impairment of intangible assets – product development		20		284			303			279
Amortisation and impairment of intangible assets – software		11		123			125			117
Amortisation and impairment of intangible assets – other		11		46			54			50
Property and facilities				82			102			124
Technology and communications				215			221			215
Professional and outsourced services				443			501			477
Other general and administrative costs				43			76			58
Costs capitalised				(424	)		(478	)		(447	)
Other net gains and losses				16			(24	)		(63	)
Other income				(41	)		(49	)		(37	)
Total				3,177			3,571			3,246

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

All figures in £ millions	2023		2022		2021
The audit of parent company and consolidated financial statements		8		6		5
The audit of the company’s subsidiaries		2		1		2
Total audit fees*		10		7		7
Audit-related and other assurance services		–		–		–
Other non-audit services		–		–		–
Total other services		–		–		–
Total non-audit services		–		–		–
Total		10		7		7

Reconciliation between audit and non-audit service fees is shown below:

All figures in £ millions	2023		2022		2021
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		10		7		7
Non-audit fees		–		–		–
Total		10		7		7

* Includes fees in connection with the interim review, preliminary announcement and controls audit required under Section 404 of the Sarbanes Oxley Act. In total this amounted to £1m in each of the years presented.