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Intangible assets
 12 Months Ended
Dec. 31, 2023
Text block [abstract]  
Intangible assets
11. Intangible assets
 
                  
 
Acquired
                              
                customer lists,     Acquired     Acquired     Other        
                contracts and     trademarks     publishing     intangibles        
All figures in £ millions   Goodwill     Software     relationships     and brands     rights     acquired     Total  
Cost
              
At 1 January 2022     2,145       1,087       741       168       97       321       4,559  
Exchange differences     206       83       80       20       5       44       438  
Additions – internal development     –       86       –       –       –       –       86  
Additions – purchased     –       4       –       –       –       –       4  
Disposals and retirements     –       (131 )      –       –       –       –       (131 ) 
Acquisition of subsidiary (note 30)     204       –       37       6       1       66       314  
Disposal of businesses (note 31)     (75 )      (9 )      (20 )      (8 )      –       (1 )      (113 ) 
Transfers     –       (5 )      –       –       –       –       (5 ) 
At 31 December 2022
  
 
2,480
 
  
 
1,115
 
  
 
838
 
  
 
186
 
  
 
103
 
  
 
430
 
  
 
5,152
 
Exchange differences  
 
(107
) 
  
 
(40
) 
  
 
(42
) 
  
 
(5
) 
  
 
(3
) 
  
 
(12
) 
  
 
(209
) 
Additions – internal development  
 
–
 
  
 
96
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
96
 
Additions – purchased  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Disposals and retirements  
 
–
 
  
 
(18
) 
  
 
–
 
  
 
(1
) 
  
 
–
 
  
 
(3
) 
  
 
(22
) 
Acquisition of subsidiary (note 30)  
 
61
 
  
 
–
 
  
 
82
 
  
 
6
 
  
 
–
 
  
 
29
 
  
 
178
 
Disposal of businesses (note 31)  
 
–
 
  
 
(15
) 
  
 
(298
) 
  
 
(2
) 
  
 
–
 
  
 
–
 
  
 
(315
) 
Transfers  
 
–
 
  
 
(1
) 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(1
) 
At 31 December 2023
  
 
2,434
 
  
 
1,137
 
  
 
580
 
  
 
184
 
  
 
100
 
  
 
444
 
  
 
4,879
 
                  
 
Acquired
                              
                customer lists,     Acquired     Acquired     Other        
                contracts and     trademarks     publishing     intangibles        
All figures in £ millions   Goodwill     Software     relationships     and brands     rights     acquired     Total  
Amortisation and impairment
              
At 1 January 2022     –       (657 )      (620 )      (138 )      (96 )      (279 )      (1,790 ) 
Exchange differences     –       (49 )      (65 )      (16 )      (5 )      (37 )      (172 ) 
Charge for the year     –       (125 )      (33 )      (8 )      –       (13 )      (179 ) 
Disposals and retirements     –       130       –       –       –       –       130  
Disposal of businesses (note 31)     –       8       20       7       –       1       36  
Transfers     –       –       –       –       –       –       –  
At 31 December 2022
  
 
–
 
  
 
(693
) 
  
 
(698
) 
  
 
(155
) 
  
 
(101
) 
  
 
(328
) 
  
 
(1,975
) 
Exchange differences  
 
–
 
  
 
24
 
  
 
31
 
  
 
4
 
  
 
3
 
  
 
9
 
  
 
71
 
Charge for the year  
 
–
 
  
 
(123
) 
  
 
(19
) 
  
 
(7
) 
  
 
(1
) 
  
 
(19
) 
  
 
(169
) 
Disposals and retirements  
 
–
 
  
 
18
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
3
 
  
 
22
 
Disposal of businesses (note 31)  
 
–
 
  
 
8
 
  
 
252
 
  
 
2
 
  
 
–
 
  
 
–
 
  
 
262
 
Transfers  
 
–
 
  
 
1
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1
 
At 31 December 2023
  
 
–
 
  
 
(765
) 
  
 
(434
) 
  
 
(155
) 
  
 
(99
) 
  
 
(335
) 
  
 
(1,788
) 
Carrying amounts
              
At 1 January 2022     2,145       430       121       30       1       42       2,769  
At 31 December 2022     2,480       422       140       31       2       102       3,177  
At 31 December 2023
  
 
2,434
 
  
 
372
 
  
 
146
 
  
 
29
 
  
 
1
 
  
 
109
 
  
 
3,091
 
 
Goodwill
The goodwill carrying value of £2,434m (2022: £2,480m) relates to acquisitions completed after 1 January 1998. Prior to 1 January 1998, all goodwill was written off to reserves on the date of acquisition. For acquisitions completed between 1 January 1998 and 31 December 2002, no value was ascribed to intangibles other than goodwill which was amortised over a period of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill had been restated, then a significant value would have been ascribed to other intangible assets, which would be subject to amortisation, and the carrying value of goodwill would be significantly lower. For acquisitions completed after 1 January 2003, value has been ascribed to other intangible assets which are amortised.
Software and acquired intangible assets
Acquired intangible assets are valued separately for each acquisition. For material business combinations, the valuation is determined with the support of a third-party specialist. The primary method of valuation used is the discounted cash flow method. Acquired intangibles are amortised either on a straight line basis or using an amortisation profile based on the projected cash flows underlying the acquisition date valuation of the intangible asset, which generally results in a larger proportion of amortisation being recognised in the early years of the asset’s life, depending on the individual asset. The Group keeps the expected pattern of consumption under review. Other intangibles acquired includes technology.
Amortisation of £37m (2022: £32m; 2021: £25m) is included in the income statement in cost of goods sold and £132m (2022: £147m; 2021: £138m) in operating expenses. Impairment charges of £nil (2022: nil; 2021: £4m) are included in operating expenses within the income statement.
The range of useful economic lives for each major class of intangible asset (excluding goodwill and software) is shown below:
 
     
 
At 31 December 2023 
 
Useful economic life 
 
  
Class of intangible asset
   
Acquired customer lists, contracts and relationships
   
 
3-20 years 
 
Acquired trademarks and brands
   
 
2-20
years 
 
Acquired publishing rights
   
 
5-20
years 
 
Other intangibles acquired
   
 
2-20
years 
 
The expected amortisation profile of acquired intangible assets is shown below:
 
                             
 
At 31 December 2023
  
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   
 
71
 
   
 
41
 
   
 
28
 
   
 
6
 
   
 
    146
 
Acquired trademarks and brands
   
 
22
 
   
 
7
 
   
 
–
 
   
 
–
 
   
 
29
 
Acquired publishing rights
   
 
1
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
1
 
Other intangibles acquired
   
 
84
 
   
 
17
 
   
 
8
 
   
 
–
 
   
 
109
 
Impairment tests for cash-generating units (CGUs) containing goodwill
Impairment tests have been carried out where appropriate as described below. Goodwill was allocated to CGUs, or an aggregation of CGUs, where goodwill could not be reasonably allocated to individual business units. Impairment reviews were conducted on these CGUs as summarised below:
 
All figures in £ millions   
 
2023
  Goodwill
 
     
 
2022
  Goodwill
 
  
Assessment & Qualifications
   
 
1,355
 
      1,361  
Virtual Learning
   
 
419
 
      443  
English Language Learning
   
 
255
 
      259  
Workforce Skills
   
 
337
 
      348  
Higher Education
   
 
68
 
      69  
Total
   
 
2,434
 
      2,480  
Goodwill is tested at least annually for impairment. The recoverable amount of each aggregated CGU is based on the higher of value in use and fair value less costs of disposal. The impairment assessment is based on value in use. Other than goodwill there are no intangible assets with indefinite lives. No impairments of goodwill were recorded in 2023 or 2022.
 
       
    
LOGO  Key areas of estimation
     
 
—  The valuation of acquired intangible assets recognised on the acquisition of a business. The valuation is based on a number of assumptions, including estimations of future business performance. See note 30.
 
  
Determination of CGUs and reallocation of goodwill
Pearson identifies its CGUs based on its operating model and how data is collected and reviewed for management reporting and strategic planning purposes in accordance with IAS 36 ‘Impairment of Assets’. The CGUs and CGU aggregations reflect the level at which goodwill is monitored by management.
In 2022, the separate CGUs of China, South Africa and Canada were disposed. The goodwill related to the Strategic Review CGU was reallocated between businesses disposed and businesses retained. All of the goodwill related to businesses retained was transferred to the Assessment & Qualifications CGU aggregation.
In 2023, business disposals resulted in the disposal of £53m of intangible assets (see note 31 for further details). A relative value method was used to allocate goodwill to the disposed business in the Virtual Learning CGU aggregation. The result of this was that no goodwill was allocated to the disposed business.
Key assumptions
For the purpose of estimating the value in use of the CGUs, management has used an income approach based on present value techniques. The calculations for all CGUs use cash flow projections based on financial budgets approved by management covering a five-year period.
The key assumptions used by management in the value in use calculations were:
Discount rates
– The discount rates are based on the Group’s weighted average cost of capital, where the cost of equity is calculated based on the risk-free rate of government bonds, adjusted for a risk premium to reflect the increased risk in investing in equities. Where CGUs cover multiple territories, a blended risk-free rate is used. Base discount rates were assessed as reflecting underlying economic conditions, and so no further risk premiums were considered necessary. The average
pre-tax
discount rates range from 10.4% to 13.0% (2022:
pre-tax
11.6% to 12.0%).
Perpetuity growth rates
– The perpetuity growth rates are based on inflation trends. A perpetuity growth rate of 2% (2022: 2%) was used for cash flows subsequent to the approved budget period for CGUs operating primarily in mature markets. This perpetuity growth rate is a conservative rate and is considered to be lower than the long-term historical growth rates of the underlying territories in which the CGU operates and the long-term growth rate prospects of the sectors in which the CGU operates. A blended growth rate of 3.5% (2022: 3.5%) was used for cash flows subsequent to the approved budget period for English Language Learning which has a higher exposure to emerging markets with higher inflation. This geographically blended growth rate is generally in line with the long-term historical growth rates in those markets.
The key assumptions used by management in setting the financial budgets were as follows:
Forecast sales growth rates
– Forecast sales growth rates are based on past experience adjusted for the strategic direction and near-term investment priorities within each CGU. Key assumptions include growth in English Language Learning and Workforce Skills – due to
product-led
share gains and contribution from new acquisitions, recovery in Higher Education, growth in Virtual Learning – albeit impacted by school churn in Virtual Schools in the short term, and steady growth in Assessments and Qualifications. The sales forecasts use average nominal growth rates of
low-mid
single digits for mature businesses in mature markets and double digit growth where there has been significant organic and/or inorganic investment.
Operating profits
– Operating profits are forecast based on historical experience of operating margins, adjusted for the impact of changes to product costs, strategic developments and new business cases to the extent they have been formally approved prior to the balance sheet date. Management applies judgement in allocating corporate costs on a reasonable and consistent basis in order to determine operating profit at a CGU level.
Management have considered the impact of climate change risks (including physical and transition risks and the costs associated with achieving the Group’s net zero commitment) and are satisfied that any related costs will not materially impact the Group’s profit forecasts or impairment judgements at 31 December 2023.
 
Key assumptions continued
The table below shows the key assumptions used by management in the value in use calculations.
 
             
 
2023
             
 
2022 
  
     
 Discount rate
 
     
Perpetuity
 growth rate
 
     
 Discount rate
 
     
Perpetuity 
 growth rate 
 
  
Assessment & Qualifications
   
 
10.8%
 
   
 
2.0%
 
      12.0%        2.0%   
Virtual Learning
   
 
11.0%
 
   
 
2.0%
 
      11.9%        2.0%   
English Language Learning
   
 
13.0%
 
   
 
3.5%
 
      11.8%        3.5%   
Workforce Skills
   
 
10.4%
 
   
 
2.0%
 
      11.6%        2.0%   
Higher Education   
 
10.7%
 
   
 
2.0%
 
      12.0%        2.0%   
Sensitivities
Impairment testing for the year ended 31 December 2023 did not find any of the CGUs to be sensitive to reasonably possible changes in key assumptions.