REG - Pearson PLC - Pearson 2023 Preliminary Results
01/03/2024 07:00
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RNS Number : 0655F Pearson PLC 01 March 2024
Pearson 2023 Preliminary Results (Unaudited)
1(st) March 2024 Another year of financial outperformance. Positive outlook with a stable
platform for continued growth
Financial Highlights
£m 2023 2022 £m 2023 2022
Business performance Statutory results
Sales 3,674 3,841 Sales 3,674 3,841
Adjusted operating profit 573 456 Operating profit 498 271
Operating cash flow 587 401 Profit for the year 380 244
Free cash flow 387 222 Net cash generated from operations 682 527
Adjusted earnings per share 58.2p 51.8p Basic earnings per share 53.1p 32.8p
Highlights
· Underlying Group sales growth(1) of 5%, excluding OPM(2) and the Strategic
Review(3) businesses.
· Group adjusted operating profit of £573m, up 31% on an underlying basis
compared to 2022 with significant expansion in adjusted operating profit
margin from 11.9% to 15.6%, underpinned by sales growth and execution of
£120m cost efficiency programme.
· Operating cash conversion of 102% driving 74% headline increase in free cash
flow.
· Proposed final dividend of 15.7p, resulting in full year dividend up 6% to
22.7p.
· Clear capital allocation priorities underpinning £300m share buyback launched
last September and today announcing intention to extend share buyback
programme by £200m.
· Positive outlook for 2024 and 2025 in line with expectations and Group
guidance unchanged. Free cash flow expected to further improve next year due
to lower restructuring cash costs.
Omar Abbosh, Pearson's Chief Executive, said:
"2023 was another year of strong operational and financial performance, with
results surpassing initial expectations once again, driven by our Assessment
& Qualifications and English Language Learning businesses. Our
consistently strong cash generation has sustained investment to support our
future growth and deliver ongoing value for shareholders.
"Pearson is a strong company with excellent market potential, people committed
to our mission, and a purpose that genuinely helps communities. My
conversations with our customers, our people and our investors have confirmed
that and more. Pearson is well positioned today, providing a stable platform
for continued growth that can benefit from the inflection point we see with
the development of AI. I am optimistic about the opportunities this
advancement in technology brings, underpinned by our trusted brand, large high
quality data sets and strong capabilities in assessment, content and services.
We have an exciting future ahead of us."
2024 priorities
· We will deliver on current 2024 market expectations(4) for Group underlying
sales growth and adjusted operating profit given the strength of our core
businesses, alongside a disciplined focus on organic growth, customer
expectations and execution.
· The range and quality of products across our business supplying the vast
Enterprise market presents a large and still forming opportunity, which we
plan to maximise.
· We will continue to infuse our products and services with a wide range of AI
solutions and capabilities to ensure we lead on innovation for our end
consumers.
· We will provide a business and strategic update at our interim results in
July.
Underlying sales growth(1) of 5%, excluding OPM(2) and Strategic Review(3)
businesses; 1% in aggregate
· Assessment & Qualifications sales were up 7% largely driven by a strong
performance in Pearson VUE with good progress in IT and healthcare alongside
the commencement of new contracts. There was also good growth across US
Student Assessments, Clinical and UK & International Qualifications, due
to new contract wins, good government funding and price increases.
· Virtual Learning sales decreased 20%, primarily due to an expected 87%
decrease in the Online Program Management (OPM) business resulting from the
previously announced ASU contract loss. Virtual Schools sales declined 2%,
with enrolments for the 2023/24 academic year lower due to the previously
announced loss of a larger partner school.
· Higher Education sales were down 3%, in line with expectations, driven by loss
of adoptions to non-mainstream publishers in the first half of the year, as
well as pricing mix. Pearson+ continued to perform well, passing the milestone
of 1 million cumulative paid subscriptions for the calendar year.
· English Language Learning sales increased 30% with all three segments
contributing to this growth. Pearson Test of English (PTE) was the outstanding
contributor, delivering volume growth of 49% against a backdrop of favourable
migration policy in Australia and market share gains in India.
· Workforce Skills sales grew 11% for the full year, with a solid performance in
both Vocational Qualifications and Workforce Solutions.
Adjusted operating profit(1) up 31% on an underlying basis to £573m
· Performance driven by sales growth and execution of the £120m cost efficiency
programme, partially offset by investment and inflation. Adjusted operating
profit margin rose to 15.6% (2022: 11.9%).
· Headline growth was 26% reflecting business performance along with portfolio
changes and currency movements.
· Adjusted earnings per share grew to 58.2p (2022: 51.8p) reflecting adjusted
operating profit growth, normalisation of tax and interest charges and the
reduction in issued shares as a result of share buybacks.
Cash performance
· Operating cash(1) inflow increased on a headline basis from £401m in 2022 to
£587m in 2023, representing excellent cash conversion of 102%. This increase
is reflective of the trading performance of the business, good cash
collections and reduced product development in Higher Education connected to
the cost efficiency programme.
· Our excellent cash conversion drove an increase in free cash flow from £222m
in 2022 to £387m in 2023, a free cash flow conversion of 93%(5). 2023
included £63m of cash restructuring costs in relation to the cost efficiency
programme.
Strong balance sheet supports continued organic and inorganic investment
alongside increased shareholder returns
· We completed the acquisition of PDRI, significantly expanding Pearson's
services to the US federal government as well as growing our presence with
large employers.
· Year-end net debt of £0.7bn (2022: £0.6bn) with net debt / adjusted EBITDA
ratio at 1.0x (2022: 0.8x).
· Return on capital was 10.3% (2022: 8.7%).
· Proposed final dividend of 15.7p (2022: 14.9p) which equates to a full year
dividend of 22.7p (2022: 21.5p).
· The previously announced buyback to repurchase £300m of shares continued. As
at 28(th) February 2024 £288m of shares had been repurchased at an average
price of 928p per share, representing 96% of the total programme.
· Given the strength of our free cash flow in 2023 we intend to extend our share
buyback programme by £200m.
Statutory results
· Sales decreased 4% to £3,674m (2022: £3,841m) reflecting business
performance, portfolio changes and currency movements.
· Statutory operating profit was £498m (2022: £271m). The increase in 2023 was
driven by increased trading profits and a reduction in the costs of major
restructuring, partially offset by a net loss related to acquisitions and
disposals compared to a net gain in 2022.
· Net cash generated from operations of £682m (2022: £527m).
· Statutory earnings per share of 53.1p (2022: 32.8p).
Continued strategic and operational progress across the business
Advancing future growth drivers and building strong digital offerings
· In Assessment & Qualifications we won a number of VUE contracts that
commenced in 2023 and maintained our high customer renewal rates. Within our
UK & International Qualifications business we leveraged our technology
capabilities to extend our onscreen exams offering with the roll out of GCSE
Computer Science and International GCSEs in English Language and Literature.
Within Clinical Assessment our high quality, trusted portfolio of intellectual
property continued to be a source of competitive advantage, helping to drive
growth in our Digital Assessment Library for Schools (DALS) product. We won
subscription contracts with Chicago Public Schools and Miami Dade County
School District.
· In Virtual Schools we launched a new Connections Academy Career Pathways
programme in five schools for middle and high school students, where we are
offering a tri-credit approach to career-readiness courses in partnership with
Coursera and Acadeum, amongst others. We saw encouraging enrolment trends in
these schools and are planning to roll the initiative out to an additional 15
schools in 2024 to drive future growth. We are pleased to have secured two new
schools in the States impacting the 2023/24 and 2024/25 academic years.
· In Higher Education we made significant strides in converging our platforms to
enhance stability and deliver upgraded, best-in-class features to improve our
customer experience. Stability was much improved in the Fall semester with up
time improving to 99.8% for our platform products. We also improved our
technology support, leading to improved NPS scores amongst faculty during the
peak Fall season. Within our product suite we introduced 6 new iLabs to take
our total to 21. Generative AI study tools designed to help students better
learn and understand challenging subjects were launched in beta within select
titles for Pearson+ and Mastering for Fall back-to-school. We're encouraged by
how students are engaging with these tools, with over 60,000 AI conversations
taking place in Pearson's Tro Chemistry Mastering eText alone and 75% of users
saying the tools were 'helpful' or 'very helpful'. We have already expanded
the beta to 12 additional MyLab and Mastering titles with at least 40 math,
science, business and nursing titles to follow by Fall semester 2024. We
delivered 2% growth in platform units in 2023. Pearson+ continued to grow,
passing the milestone of 1 million cumulative paid subscriptions to reach
1,048k for the calendar year and we continued to build out our supplementary
learning Channels offering, with 19 study channels now live. The changes we
have made to our sales team and go to market strategy are delivering early
signs of success including a number of takeaway adoptions in the Fall back to
school selling period. We believe these changes set us up well for continued
progress in 2024.
· In English Language Learning, we have seen a strong increase in the number of
users on our digital platforms. Coupled with investment in new digital
content, including video and audio, and the strength of the Global Scale of
English, we are confident that we are delivering engaging learning experiences
while enabling teachers to better understand and meet the needs of their
learners. In our Mondly enterprise focused business, we are launching Mondly
by Pearson Workplace English, which benefits from workplace-specific content,
leveraging our institutional courseware portfolio, and enhanced features.
Coupled with investment in our Versant suite of tests, this strengthens our
offering in the Corporate language learning space.
· Within our Workforce Solutions business we evolved our offering from a unified
product approach, building a powerful technology stack that has enabled us to
break down core Faethm capabilities into modular application programming
interfaces. We are seeing contract wins across digital credentialing and
strategic workforce planning solutions with the likes of Cleveland Clinic and
ServiceNow.
Expanding our reach in new and adjacent markets
· In Assessment & Qualifications we acquired PDRI, a trusted provider of
workforce assessment services. PDRI launched a full suite of hiring assessment
programmes for the Transportation Security Administration and also won
multi-year contracts with a number of other US federal agencies, including the
US Air Force, Drug Enforcement Administration, Bureau of Alcohol, Tobacco,
Firearms and Explosives, and Department of Homeland Security. Within VUE we
expect to derive future growth from moving further up the technology
certification value chain and we saw encouraging signs in this market in 2023.
Within Clinical Assessment we made further progress in pursuing our strategy
to partner with clinical pharmaceutical companies, winning a contract to
deliver assessments to aid determining the effectiveness of a drug used in the
treatment of Alzheimer's disease. Our UK & International Qualifications
business delivered good international growth in 2023. We see further
opportunity for growth internationally across our Assessment &
Qualifications businesses into 2024 and beyond.
· In English Language Learning we won recognition for the Pearson Test of
English for Canadian Student Direct Stream and economic immigration visa
applications. This grants access to the full potential of the Canadian market,
which is the largest of the three key markets which Pearson now has
recognition to operate in. We launched PTE for Canadian Student Direct Stream
visa applications in the second half of 2023 and opened bookings for PTE for
Canadian economic immigration visa applications in February 2024. We continue
to invest in building our brand awareness and testing capacity in the PTE
market. We opened one of our largest company-owned Pearson VUE testing centres
in Chandigarh, India. With the ability to deliver more than 14,000 tests per
month, including PTE, this marks another step forward in the important Indian
market, where based on the estimated market size we have seen market share
gains throughout 2023.
· In our Vocational Qualifications business we signed a contract with the
Jordanian Ministry of Education to partner on the reform of Jordan's technical
and vocational education and training provision in schools with over 50,000
learners expected to take these courses over the next three years.
International expansion will be an important growth driver for our Vocational
Qualifications business going forwards.
Delivering efficiencies and reshaping the portfolio
· We delivered £120m of cost efficiencies in 2023 across product and content
support costs, technology and corporate property.
· Cost efficiencies supported adjusted operating profit margin improvement from
11.9% in 2022 to 15.6% in 2023.
· We disposed of our Pearson Online Learning Services (POLS) business, further
focusing Pearson's portfolio towards future growth opportunities.
Outlook
2024 outlook
· We expect Group underlying sales growth, adjusted operating profit and tax
will be in line with current market expectations(4). Our interest charge will
be c.£45m given our ongoing £300m share buyback and intended extension by a
further £200m.
· Every 1c movement in £:$ rate will equate to approximately £5m adjusted
operating profit impact.
· In Assessment & Qualifications we expect sales growth of low to mid-single
digit.
· In Virtual Schools we expect sales to decline at a similar rate to 2023, given
the previously cited loss of a larger partner school for the 2024/25 academic
year. We are pleased to have secured two new schools in the States impacting
the 2023/24 and 2024/25 academic years and therefore expect the division to
return to growth beyond 2024.
· In Higher Education we expect to return to sales growth.
· In English Language Learning we continue to expect high single digit sales
growth.
· In Workforce Skills we expect to achieve high single digit sales growth.
· We expect a free cash flow conversion of 95-100%.
2025 ambition
· We continue to expect the Group to achieve mid-single digit underlying sales
3-year CAGR from 2022 to 2025, excluding OPM and Strategic Review businesses,
and remain on track to achieve our 16-17% adjusted operating profit margin
guidance.
Executive changes
We are excited about the growth opportunity across the enterprise learning
market and working with organisations to address the challenges of building an
adaptable workforce that is augmented by AI. Reflecting on our partnerships
and capabilities, we are confident we can build on our existing products and
services in the enterprise market to drive higher growth longer term.
Pearson announces the appointment of Vishaal Gupta as the new President of
Workforce Skills.
Vishaal currently serves as a Senior Managing Director with Accenture. Vishaal
is an enterprise sales leader who leads a team that originates and closes
large and complex deals, particularly in the areas of Technology
Transformation and Strategic Managed Services. Vishaal has over 29 years'
experience working in technology driven companies.
Mike Howells, President of Workforce Skills, will be leaving Pearson in March.
Mike has led the evolution of our Workforce Skills division for the last three
years, overseeing the development of our enterprise solutions business and
further extending the international presence of our Vocational Qualifications
business. We thank him for his contribution.
Contacts
Investor Relations Jo Russell +44 (0) 7785 451 266
James Caddy +44 (0) 7825 948 218
Gemma Terry +44 (0) 7841 363 216
Brennan Matthews +1 (332) 238-8785
Media
Teneo Charles Armitstead +44 (0) 7703 330 269
Pearson Laura Ewart +44 (0) 7798 846 805
Results event Pearson's prelim results presentation today at 08:30 (GMT). Register to
receive log in details: https://pearson.connectid.cloud/register
(https://pearson.connectid.cloud/register)
About Pearson
At Pearson, our purpose is simple: to add life to a lifetime of learning. We
believe that every learning opportunity is a chance for a personal
breakthrough. That's why our Pearson employees are committed to creating
vibrant and enriching learning experiences designed for real-life impact. We
are the world's leading learning company, serving customers with digital
content, assessments, qualifications, and data. For us, learning isn't just
what we do. It's who we are. Visit us at pearsonplc.com
Notes
Forward looking statements: Except for the historical information contained
herein, the matters discussed in this statement include forward-looking
statements. In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the impact of
interest or exchange rates, the availability of financing, anticipated cost
savings and synergies and the execution of Pearson's strategy, are
forward-looking statements. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on
circumstances that will occur in future. They are based on numerous
assumptions regarding Pearson's present and future business strategies and the
environment in which it will operate in the future. There are a number of
factors which could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements, including
a number of factors outside Pearson's control. These include international,
national and local conditions, as well as competition. They also include other
risks detailed from time to time in Pearson's publicly-filed documents and you
are advised to read, in particular, the risk factors set out in Pearson's
latest annual report and accounts, which can be found on its website
(www.pearsonplc.com). Any forward-looking statements speak only as of the date
they are made, and Pearson gives no undertaking to update forward-looking
statements to reflect any changes in its expectations with regard thereto or
any changes to events, conditions or circumstances on which any such statement
is based. Readers are cautioned not to place undue reliance on such
forward-looking statements.
Operational review
£m 2023 2022 Headline CER Underlying
growth growth(1) growth(1)
Sales
Assessment & Qualifications 1,559 1,444 8% 9% 7%
Virtual Learning 616 820 (25)% (24)% (20)%
Higher Education 855 898 (5)% (4)% (3)%
English Language Learning 415 321 29% 32% 30%
Workforce Skills 220 204 8% 8% 11%
Strategic Review 9 154 (94)% (94)% (74)%
Total 3,674 3,841 (4)% (3)% 1%
Total, excluding OPM(2) and Strategic Review(3) 5%
Adjusted operating profit/loss
Assessment & Qualifications 350 258 36% 36% 33%
Virtual Learning 76 70 9% 9% (17)%
Higher Education 110 91 21% 22% 20%
English Language Learning 47 25 88% 116% 112%
Workforce Skills (8) (3) (167)% (167)% (400)%
Strategic Review (2) 15 (113)% (107)% 94%
Total 573 456 26% 28% 31%
(1)Throughout this announcement: a) Growth rates are stated on an underlying
basis unless otherwise stated. Underlying growth rates exclude currency
movements, and portfolio changes. b) The 'business performance' measures are
non-GAAP measures and reconciliations to the equivalent statutory heading
under IFRS are included in notes to the attached condensed consolidated
financial statements 2, 3, 4, 6, and 13. c) Constant exchange rates are
calculated by assuming the average FX in the prior year prevailed through the
current year.
(2)We have completed the sale of the POLS business and as such have removed
from underlying measures throughout. Within this specific measure we exclude
our entire OPM business (POLS and ASU) to aid comparison to guidance.
(3)Strategic Review is sales in international courseware local publishing
businesses being wound down. There will be no sales or profits reported in
this division going forwards.
(4)2024 consensus on the Pearson website; underlying sales growth 3.7%,
adjusted operating profit of £621m at £:$ 1.22, tax rate 24%.
(5)Free cash flow conversion calculated as free cash flow divided by adjusted
earnings.
(6)VUE test volumes include PTE and GED tests but sales for each of these
tests are reflected in the English Language Learning and Workforce Skills
divisions respectively. PDRI test volumes are not currently included in this
metric.
Assessment & Qualifications
In Assessment & Qualifications, sales increased 7% on an underlying basis
and 8% on a headline basis. Adjusted operating profit increased 33% in
underlying terms due to operating leverage on sales growth and margin and opex
cost efficiencies, partially offset by inflation and 36% in headline terms due
to this, portfolio changes and currency movements.
Pearson VUE sales were up 10% in underlying terms with particularly strong
growth in the IT and healthcare segments, alongside the commencement of new
contracts. VUE test volumes(6) grew 6% to 20.7m. We maintained our high
contract renewal track record, reporting a rate of 93.6% across the business
for 2023.
In US Student Assessment, sales increased 4% in underlying terms driven by the
commencement of new contracts following new business wins.
In Clinical Assessment, sales increased 5% in underlying terms supported by
pricing, good government funding and continued focus on health and wellbeing.
In UK and International Qualifications, sales increased 6% in underlying terms
driven by price increases and good international growth.
We are pleased with the continued momentum that Assessment &
Qualifications showed in 2023. We're poised to deliver low to mid-single digit
sales growth and continued strong margins in 2024, with an excellent outlook
beyond, with growth initiatives that will help us to expand the scope of
offering and reach.
Virtual Learning
In Virtual Learning, sales decreased 20% on an underlying basis and 25% on a
headline basis, primarily due to the expected decrease in our OPM business.
Adjusted operating profit decreased 17% in underlying terms due to trading
performance partially offset by cost efficiencies and increased 9% in headline
terms due to this and portfolio changes.
Sales in our OPM business were down 87% on an underlying basis, as expected,
following the wind down of the ASU contract. Pearson Online Learning Services
sales are no longer included in underlying measures following the completion
of the disposal in the first half of the year.
Virtual Schools sales were down 2%, driven by lower enrolments and lower
district partnership renewals, partially offset by good retention rates,
improvements in funding and growth associated with the launch of our
Connections Academy Career Pathways. Enrolments for the 2023/24 academic year
were down 5% due to the previously cited loss of a larger partner school.
Excluding the impact of this school, enrolments were up 1%.
We are pleased to have secured two new schools in the States impacting the
2023/24 and 2024/25 academic years. We expect enrolments to be lower for the
2024/25 academic year, due to the loss of a major school in that period and
for annual sales to decline at a similar level to 2023. We remain confident in
the long-term growth of the business as we roll out additional Career
Academies aimed at supporting teenagers who wish to gain career and technical
education and experience.
Higher Education
In Higher Education, sales declined 3% for the full year on an underlying
basis, in line with expectations, and decreased 5% on a headline basis due to
currency movements and portfolio changes. Adjusted operating profit increased
20% in underlying terms driven primarily by cost efficiencies, partially
offset by trading performance and inflation, and increased 21% in headline
terms due to this, currency movements and portfolio changes.
In the US, sales declines were driven by the loss of adoptions to
non-mainstream publishers in the first half of the year, as well as pricing
mix. There was strong growth in Inclusive Access with 22% sales growth to
not-for-profit institutions and the total number of institutions increasing to
c.1,250. We delivered 2% growth in platform units in 2023 enabled by changes
we have made to our sales team and go to market strategy with the support of
increasing platform stability. Pearson+ performed well in the Fall semester
with 3.03m registered users and 516k paid subscriptions, representing 27%
growth compared to the prior year Fall semester. Pearson+ passed the milestone
of 1 million cumulative paid subscriptions for the calendar year.
We expect a return to sales growth in 2024, with increased margins as the
organisational changes and focused investments we have made to strengthen our
competitive position begin to bear fruit. Further cost savings will be
partially offset in 2024 by above the line restructuring charges.
English Language Learning
In English Language Learning, sales were up 30% on an underlying basis and 29%
on a headline basis. Adjusted operating profit increased by 112% in underlying
terms due to sales growth partially offset by increased investment in brand
awareness and testing capacity and inflation, and was up 88% in headline terms
due to this and currency movements.
PTE volumes were up 49% supported by favourable migration policy in Australia
as well as market share gain in India. Our Institutional business performed
well, with strong performance across Latin America and Middle East markets.
Our Mondly business also contributed to growth with an increase in consumer
billings.
English Language Learning continues to deliver strong growth and strategic
progress for Pearson. We expect this division to deliver more normalised
high-single digit sales growth in 2024.
Workforce Skills
In Workforce Skills, sales were up 11% on an underlying basis and 8% on a
headline basis. Adjusted operating profit declined by £8m in underlying terms
due to investment in the business across our Workforce Solutions product suite
partially offset by trading and decreased £5m in headline terms due to this
and portfolio changes.
Sales growth was driven by solid performances in both the Vocational
Qualifications and Workforce Solutions businesses. The Vocational
Qualifications business grew by 10% in underlying terms. The Workforce
Solutions business grew by 13% in underlying terms. Pearson has 1,547
enterprise clients in its Workforce Skills portfolio, up 3% on last year.
We focused our efforts on pivoting towards delivering more modular,
personalised offerings to our clients in 2023, leveraging our powerful
technology stack. In 2024, we intend to capitalise on the positive signs we
are seeing in our customer pipeline and will be targeting high single digit
sales growth.
Strategic Review
Sales in our international courseware local publishing businesses under
strategic review declined 74% on an underlying basis and were down 94% on a
headline basis for the full year. Operations in these businesses have now been
wound down in line with our previous communications. There will be no sales or
profits reported in this division going forwards.
KPIs
KPI Objective KPI Measure 2023 Actual 2022 Actual
Digital Growth Drive digital sales growth Underlying growth in Group digital and digital-enabled sales 8%* 9%
Virtual Schools US enrolments** 100k 105k
OnVUE volumes 2.7m 3.0m
Higher Education US digital registrations 9.8m 9.9m
PTE volume 1,231k 827k
Consumer Engagement Create engaging and personalised consumer experiences NPS for Connections Academy +67 +67
NPS for PTE +55 +52
Pearson+ registered users 3.03m 2.83m
Mondly paid subscriptions 432k 446k
Workforce Skills new registered users 5.3m 4.7m
Product Effectiveness Improve the effectiveness of our products to deliver better outcomes PTE speed of score return 1.0 days 1.3 days
VUE test volumes 20.7m 19.4m
VUE Partner retention 93.6% 99.9%
Workforce Skills number of enterprise customers 1,547 1,503
Workforce Skills enterprise customer net retention rate 66% 74%
Higher Education product usage - text units 4.5m 4.8m
Culture of Engagement & Inclusion Build a culture of engagement and inclusion where diverse talent is heard, Employee engagement 4.09 GrandMean on a 5 point Likert scale 3.96 GrandMean on a 5 point Likert scale
invested in and valued for their strengths and skills
Pearson uses the GallupQ(12) survey to measure engagement, annually
Investing in diverse talent In the last six months, someone at work has talked to me about my progress = In the last six months, someone at work has talked to me about my progress =
73% 67%
The % of responses who agree or strongly agree to Gallup Q(12) survey
questions.
This last year, I have had opportunities at work to learn and grow = 76% This last year, I have had opportunities at work to learn and grow = 72%
Culture of Inclusion Index 4.21 GrandMean 4.12 GrandMean
on a 5 point Likert scale on a 5 point Likert scale
The GrandMean 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
Increasing diverse talent*** Representation of BIPOC/BAME employees at Manager level and above = 22.0% Representation of BIPOC/BAME employees at Manager level and above = 20.7%
Objective: Increase BIPOC / BAME representation at all manager levels and
maintain overall gender parity
Global % of female employees = 59.1% Global % of female employees = 59.0%
Sustainability Strategy Achieve net zero carbon by 2030 Progress against achieving net zero carbon by 2030, as measured through 16% reduction vs 2022 3% reduction vs 2021
percentage carbon reduction****
* Excluding OPM and Strategic Review businesses.
** Measure definition has changed to number of government-funded student
enrolments at partner schools within the US as of 30 September. Excludes
private-pay students at Pearson Online Academy and district partnerships. This
is more closely aligned to business processes.
*** Previously reported 'Increasing diverse talent' metrics retired and new
strategic remuneration measures incorporated.
**** The net emissions reduction figures have been assured by an independent
third-party, SLR Consulting Ltd. Corporate Citizenship % reduction in total
tCO2e above is calculated using a location-based methodology. Within the 2023
number, 4% is due to portfolio changes. These will be removed following the
normal rebasing exercise in 2024.
For a full list of KPI measure definitions, please refer to:
https://plc.pearson.com/en-GB/company/our-targets-kpis
(https://plc.pearson.com/en-GB/company/our-targets-kpis)
FINANCIAL REVIEW
Operating result
Sales decreased on a headline basis by £167m or 4% from £3,841m in 2022 to
£3,674m in 2023 and adjusted operating profit increased by £117m or 26% from
£456m in 2022 to £573m in 2023 (for a reconciliation of this measure see
note 2 to the condensed consolidated financial statements).
The headline basis simply compares the reported results for 2023 with those
for 2022. We also present sales and profits on an underlying basis which
exclude the effects of exchange, the effect of portfolio changes arising from
acquisitions and disposals and the impact of adopting new accounting standards
that are not retrospectively applied. Our portfolio change is calculated by
excluding sales and profits made by businesses disposed in either 2022 or 2023
and by ensuring the contribution from acquisitions is comparable year on year.
Portfolio changes mainly relate to the disposals of the Group's interests in
POLS, Pearson College, our international courseware local publishing business
in India and businesses within Higher Education in 2023, the disposal of our
international courseware local publishing businesses in Europe,
French-speaking Canada, South Africa and Hong Kong in 2022, the acquisition of
PDRI in 2023 and the acquisitions of Credly and Mondly in 2022.
On an underlying basis, sales increased by 1% in 2023 compared to 2022 and
adjusted operating profit increased by 31%. Currency movements decreased sales
by £33m and decreased adjusted operating profit by £10m. Portfolio changes
decreased sales by £175m and decreased adjusted operating profit by £8m. On
an underlying basis, excluding OPM and Strategic Review, sales increased by 5%
in 2023 compared to 2022.
There were no new accounting standards adopted in 2023 that impacted sales or
statutory or adjusted operating profits.
Adjusted operating profit includes the results from discontinued operations
when relevant but excludes charges for intangible amortisation and impairment,
acquisition related costs, gains and losses arising from disposals, the cost
of major restructuring, certain property charges and one-off costs related to
the UK pension scheme. A summary of these adjustments is included below and in
more detail in note 2 to the condensed consolidated financial statements.
All figures in £ millions 2023 2022
Operating profit 498 271
Add back: Cost of major restructuring - 150
Add back: Property charges 11 -
Add back: Intangible charges 48 56
Add back: UK pension discretionary increases - 3
Add back: Other net gains and losses 16 (24)
Adjusted operating profit 573 456
In 2023, there are no costs of major restructuring. Property charges of £11m
relate to impairments of property assets arising from the impact of updates in
2023 to assumptions initially made during the 2022 and 2021 restructuring
programmes. In 2022, restructuring costs of £150m mainly related to staff
redundancies and impairment of right-of-use property assets including the
impact of updated assumptions related to the recoverability of right-of-use
assets made in 2021.
Intangible amortisation charges in 2023 were £48m compared to a charge of
£56m in 2022. This is due to decreased amortisation from recent disposals
partially offset by additional amortisation from recent acquisitions.
UK pension discretionary increases in 2022 related to one-off pension
increases awarded to certain cohorts of pensioners in response to the cost of
living crisis.
Other net gains and losses in 2023 relate largely to the gain on disposal of
the POLS business and gains on the releases of accruals and a provision
related to previous acquisitions and disposals, partially offset by losses on
the disposal of Pearson College and costs related to current and prior year
disposals and acquisitions. Other net gains and losses in 2022 largely related
to the gain on disposal of the international courseware local publishing
business in French-speaking Canada and a gain arising on a decrease in the
deferred consideration payable on prior year acquisitions, offset by costs
related to disposals and acquisitions.
The reported operating profit of £498m in 2023 compares to an operating
profit of £271m in 2022. The increase in 2023 is mainly due to increased
trading profits and a reduction in the costs of major restructuring, partially
offset by a net loss related to acquisitions and disposals compared to a net
gain in 2022.
Net finance costs
Net finance costs increased on a headline basis from a net income of £52m in
2022 to a net cost of £5m in 2023. The increase is primarily due to the
release, in 2022, of £35m of interest recorded in respect of provisions for
uncertain tax positions, a reduction in gains arising from mark to market
movements on investments and derivatives, partially offset by additional
finance income in respect of retirement benefits.
Net interest payable reflected in adjusted earnings in 2023 was £33m,
compared to £1m in 2022. The difference is primarily due to the items noted
above. In addition, in 2023, there were increased interest costs related to
the drawdown during the year of the revolving credit facility, partially
offset by reduced bond interest due to the bond repayments made in 2022.
Net finance income in respect of retirement benefits has been excluded from
our adjusted earnings as we believe the income statement presentation does not
reflect the economic substance of the underlying assets and liabilities. Also
included in the net finance costs (but not in our adjusted measure) are
interest costs relating to acquisition or disposal transactions, fair value
movements on investments classified as fair value through profit and loss,
foreign exchange and other gains and losses on derivatives. Interest relating
to acquisition or disposal transactions is excluded from adjusted earnings as
it is considered part of the acquisition cost or disposal proceeds rather than
being reflective of the underlying financing costs of the Group. Foreign
exchange, fair value movements and other gains and losses are excluded from
adjusted earnings as they represent short-term fluctuations in market value
and are subject to significant volatility. Other gains and losses may not be
realised in due course as it is normally the intention to hold the related
instruments to maturity (for more information see note 3 to the condensed
consolidated financial statements). Interest on certain tax provisions is
excluded from our adjusted measure in order to mirror the treatment of the
underlying tax item.
In 2023, the total of these items excluded from adjusted earnings was income
of £28m compared to income of £53m in 2022. Net finance income in respect of
retirement benefits increased from £9m in 2022 to £26m in 2023 reflecting
the comparative funding position of the plans at the beginning of each year
and the higher prevailing discount rates. Interest costs in respect of
deferred and contingent consideration are £4m in 2023 compared to £5m in
2022, these costs relate to recent acquisitions. Fair value gains on
investments in unlisted securities are £13m in 2023 compared to £28m in
2022. In addition, there were losses year on year on long-term interest rate
hedges and an interest charge on tax provisions of £5m was recognised in 2022
in relation to the EU State Aid matter. For a reconciliation of the adjusted
measure see note 3 to the condensed consolidated financial statements.
Taxation
The reported tax charge on a statutory basis in 2023 was £113m
(23.0%) compared to a £79m charge (24.5%) in 2022.
The tax on adjusted earnings in 2023 was a charge of £124m (2022: £71m),
corresponding to an adjusted effective tax rate on adjusted profit before tax
of 23.0% (2022: 15.6%). The increase in the effective rate from prior year is
primarily due to the release of tax provisions following the expiry of the
statute of limitations in the US driving a lower tax rate in 2022 which is not
recurring in 2023. For a reconciliation of the adjusted measure see note 4 to
the condensed consolidated financial statements.
In 2023, there was a net tax payment of £97m (2022: £109m). The overall
amount decreased primarily as a result of one-off disposal events in 2022 that
are not recurring in 2023.
A net deferred tax liability of £11m is recognised in 2023 compared to a
net £20m deferred tax asset in 2022. The overall amount decreased mainly due
to the acquisition of PDRI during the year and ongoing utilisation of tax
losses.
The current tax creditor principally consists of provisions for tax
uncertainties. Refer to note 14 to the condensed consolidated financial
statements for details of other uncertain tax positions.
Other comprehensive income
Included in other comprehensive income are the net exchange differences on
translation of foreign operations. The loss on translation of £177m in 2023
compares to a gain in 2022 of £330m. The loss in 2023 arises from an overall
weakening of the currencies to which the Group is exposed and in particular
the US dollar. A significant proportion of the Group's operations are based in
the US and the US dollar weakened in 2023 from an opening rate of £1:$1.21 to
a closing rate at the end of 2023 of £1:$1.27. At the end of 2022, the US
dollar had strengthened from an opening rate of £1:$1.35 to a closing rate of
£1:$1.21. The gain in 2022 was driven by this movement in the US dollar.
Also included in other comprehensive income in 2023 is an actuarial loss of
£85m in relation to the retirement benefit obligations of the Group. The loss
arises largely from returns on assets below the discount rate and changes in
actuarial assumptions including the discount rate and inflation. The actuarial
loss in 2023 of £85m compares to an actuarial gain in 2022 of £54m.
Fair value gains of £1m (2022: £18m) have been recognised in other
comprehensive income and relate to movements in the value of investments in
unlisted securities held at FVOCI.
In 2023, a gain of £122m was recycled from the currency translation reserve
to the income statement in relation to the disposal of the POLS business. In
2022, a gain of £5m was recycled from the currency translation reserve to the
income statement in relation to various businesses disposed.
Cash flow and working capital
Our operating cash flow measure is an adjusted measure used to align cash
flows with our adjusted profit measures (see note 13 to the condensed
consolidated financial statements). Operating cash inflow increased on a
headline basis by £186m from £401m in 2022 to £587m in 2023. The increase
is largely explained by the drop-through of increased trading profits, good
cash collections and reduced investment spend in Higher Education connected to
the 2022 efficiency programme, as well as the impact of disposals.
The equivalent statutory measure, net cash generated from operations, was
£682m in 2023 compared to £527m in 2022. Compared to operating cash flow,
this measure includes restructuring costs and acquisition costs but does not
include regular dividends from associates. It also excludes capital
expenditure on property, plant, equipment and software, and additions to
right-of-use assets as well as disposal proceeds from the sale of property,
plant, equipment and right-of-use assets (including the impacts of transfers
to/from investment in finance lease receivable). In 2023, restructuring cash
outflow was £63m compared to £35m in 2022.
In 2023, there was an overall £234m decrease in cash and cash equivalents
compared to a decrease of £394m in 2022. The decrease in 2023 is primarily
due to payments for acquisitions of subsidiaries of £171m, dividends paid of
£154m, share buyback programme of £186m, other own share purchases of £35m,
tax paid of £97m, capital expenditure of £126m, and repayments of lease
liabilities of £84m. These were offset by the cash inflow from operations of
£682m.
Liquidity and capital resources
The Group's net debt increased from £557m at the end of 2022 to £744m at the
end of 2023. The increase is largely due to the share buyback programme, cash
outflows on acquisitions and disposals, dividend payments and tax payments,
partially offset by strong operating cash flow. Refer to note 12 to the
condensed consolidated financial statements for details of the composition of
net debt.
In May 2022, the Group repaid the remaining $117m (£95m) of its 2022 US
dollar bond upon maturity. In December 2022, the Group repaid the remaining
$94m (£76m) of its 2023 US dollar bond.
At 31 December 2023, the Group had approximately £1.0bn in total liquidity
immediately available from cash and its Revolving Credit Facility maturing
February 2027. In assessing the Group's liquidity and viability, the Board
analysed a variety of downside scenarios including a severe but plausible
downside scenario where the Group is impacted by a combination of all
principal risks, as well as reverse stress testing to identify what would be
required to either breach covenants or run out of liquidity. The Group would
maintain comfortable liquidity headroom and sufficient headroom against
covenant requirements during the period under assessment in the severe but
plausible scenario, even before modelling the mitigating effect of actions
that management would take in the event that these downside risks were to
crystallise. In all scenarios it is assumed that the Revolving Credit Facility
is available and that the €300m bond with a maturity due within the going
concern assessment period is refinanced ahead of time with a £250m bond or
bank facility.
At 31 December 2023, the Group was rated BBB- (positive outlook) with Fitch
and Baa3 (stable outlook) with Moody's.
Post-retirement benefits
Pearson operates a variety of pension and post-retirement plans. The UK Group
pension plan has by far the largest defined benefit section. The Group has
some smaller defined benefit sections in the US and Canada but, outside the
UK, most of the companies operate defined contribution plans.
The charge to profit in respect of worldwide pensions and post-retirement
benefits amounted to £45m in 2023 (2022: £66m), of which a charge of £71m
(2022: £75m) was reported in operating profit and income of £26m (2022:
£9m) was reported in other net finance costs. In 2022, a charge of £3m
related to one-off discretionary pension increases has been excluded from
adjusted operating profit.
The overall surplus on UK Group pension plans of £574m at the end of 2022 has
decreased to a surplus of £491m at the end of 2023. The decrease has arisen
principally due to the actuarial loss noted above in the other comprehensive
income section. In total, the worldwide net position in respect of pensions
and other post-retirement benefits decreased from a net asset of £520m at the
end of 2022 to a net asset of £455m at the end of 2023.
Businesses acquired
In March 2023, the Group completed the acquisition of 100% of the share
capital of Personnel Decisions Research Institutes, LLC ('PDRI') for cash
consideration of £152m ($187m). There is no contingent or deferred
consideration. Net assets acquired of £91m were recognised on the Group's
balance sheet including £117m of acquired intangible assets. Goodwill of
£61m was also recognised in relation to the acquisition.
The cash outflow in 2023 relating to acquisitions of subsidiaries was £171m
plus £4m of acquisition costs. In addition, there were cash outflows relating
to the acquisition of associates of £5m and investments of £8m.
The cash outflow in 2022 relating to acquisitions of subsidiaries was £228m
arising primarily from the acquisitions of Credly and Mondly. In addition,
there were cash outflows relating to the acquisition of associates of £5m and
investments of £12m.
Businesses disposed
In 2023, the Group disposed of its interests in its POLS businesses in the US,
UK, Australia and India. The business disposed excludes Pearson's contract
with ASU. The consideration to be received is deferred and comprises a 27.5%
share of positive adjusted EBITDA in each calendar year for 6 years and 27.5%
of the proceeds received by the purchaser in relation to any future
monetisation event. The consideration has been valued at £12m and a pre-tax
gain on disposal of £13m has been recognised.
In addition, £19m of losses arose from the disposals of Pearson College and
the international courseware local publishing business in India, £12m of
costs related to previous disposals were recognised and a gain of £9m has
been recognised in relation to the release of a provision related to a
historical disposal.
In 2023, the cash outflow from the disposal of businesses of £38m mainly
relates to the disposals described above. In 2022, the cash inflow from
disposals of £333m mainly related to the disposal of the Group's
international courseware local publishing businesses and the receipt of
deferred proceeds from the US K12 Courseware sale in 2019.
In addition, proceeds of £7m (2022: £17m) were received in relation to the
disposal of investments.
Dividends
The dividend accounted for in our 2023 financial statements totalling £155m
represents the final dividend in respect of 2022 (14.9p) and the interim
dividend for 2023 (7.0p). We are proposing a final dividend for 2023 of
15.7p bringing the total paid and payable in respect of 2023 to 22.7p. This
final 2023 dividend which was approved by the Board in February 2024, is
subject to approval at the forthcoming AGM. For 2023, the dividend is covered
2.6 times by adjusted earnings.
The final dividend will be paid on 3 May 2024 to shareholders who are on the
register of members at close of business on 22 March 2024 (the Record Date).
Shareholders may elect to reinvest their dividend in the Dividend Reinvestment
Plan (DRIP). The last date for receipt of DRIP elections and revocations
will be 12 April 2024. A Dividend Reinvestment Plan (DRIP) is provided by
Equiniti Financial Services Limited. The DRIP enables the Company's
shareholders to elect to have their cash dividend payments used to purchase
the Company's shares. More information can be found at
www.shareview.co.uk/info/drip
Share buyback
On 28 April 2023, the Group announced its intention to commence a £300m share
buyback programme in order to return capital to shareholders. The programme
commenced on 21 September 2023. At 31 December 2023, approximately 20m shares
had been bought back at a cash cost of £186m. The liability for the remainder
of the £300m programme plus related costs has been accounted for in 2023. The
nominal value of the cancelled shares of £5m has been transferred to the
capital redemption reserve.
The £300m share buyback programme has continued in 2024 and as at 28 February
2024, £288m of shares had been repurchased, representing 96% of the total
programme. We intend to extend this share buyback programme by £200m.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2023
all figures in £ millions (unaudited) note 2023 2022
Continuing operations
Sales 2 3,674 3,841
Cost of goods sold (1,839) (2,046)
Gross profit 1,835 1,795
Operating expenses (1,322) (1,549)
Other net gains and losses 2 (16) 24
Share of results of joint ventures and associates 1 1
Operating profit 2 498 271
Finance costs 3 (81) (71)
Finance income 3 76 123
Profit before tax 493 323
Income tax 4 (113) (79)
Profit for the year 380 244
Attributable to:
Equity holders of the company 378 242
Non-controlling interest 2 2
Earnings per share (in pence per share)
Basic 5 53.1p 32.8p
Diluted 5 52.7p 32.6p
The accompanying notes to the condensed consolidated financial statements form
an integral part of the financial information.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2023
all figures in £ millions (unaudited) 2023 2022
Profit for the year 380 244
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations (177) 330
Currency translation adjustment disposed (122) (5)
Attributable tax - 4
Items that are not reclassified to the income statement
Fair value gain on other financial assets 1 18
Attributable tax - 1
Remeasurement of retirement benefit obligations (85) 54
Attributable tax 20 (12)
Other comprehensive (expense) / income for the year (363) 390
Total comprehensive income for the year 17 634
Attributable to:
Equity holders of the company 16 630
Non-controlling interest 1 4
CONDENSED CONSOLIDATED BALANCE SHEET
as at 31 December 2023
all figures in £ millions (unaudited) note 2023 2022
Property, plant and equipment 217 250
Investment property 79 60
Intangible assets 9 3,091 3,177
Investments in joint ventures and associates 22 25
Deferred income tax assets 35 57
Financial assets - derivative financial instruments 32 43
Retirement benefit assets 499 581
Other financial assets 143 133
Income tax assets 41 41
Trade and other receivables 135 139
Non-current assets 4,294 4,506
Intangible assets - product development 947 975
Inventories 91 105
Trade and other receivables 1,050 1,139
Financial assets - derivative financial instruments 16 16
Income tax assets 15 9
Cash and cash equivalents (excluding overdrafts) 312 558
Current assets 2,431 2,802
Assets classified as held for sale 2 16
Total assets 6,727 7,324
Financial liabilities - borrowings (1,094) (1,144)
Financial liabilities - derivative financial instruments (38) (54)
Deferred income tax liabilities (46) (37)
Retirement benefit obligations (44) (61)
Provisions for other liabilities and charges (15) (14)
Other liabilities (98) (120)
Non-current liabilities (1,335) (1,430)
Trade and other liabilities (1,275) (1,254)
Financial liabilities - borrowings (67) (86)
Financial liabilities - derivative financial instruments (5) (11)
Income tax liabilities (32) (43)
Provisions for other liabilities and charges (25) (85)
Current liabilities (1,404) (1,479)
Liabilities classified as held for sale - -
Total liabilities (2,739) (2,909)
Net assets 3,988 4,415
Share capital 174 179
Share premium 2,642 2,633
Treasury shares (19) (15)
Reserves 1,177 1,605
Total equity attributable to equity holders of the company 3,974 4,402
Non-controlling interest 14 13
Total equity 3,988 4,415
The condensed consolidated financial statements were approved by the Board on
29 February 2024.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2023
Equity attributable to equity holders of the company
all figures in £ millions (unaudited) Share capital Share premium Treasury shares Capital redemption reserve Fair value reserve Translation reserve Retained earnings Total Non-controlling interest Total equity
2023
At 1 January 2023 179 2,633 (15) 28 (13) 709 881 4,402 13 4,415
Profit for the year - - - - - - 378 378 2 380
Other comprehensive (expense) / income - - - - 1 (298) (65) (362) (1) (363)
Total comprehensive (expense) / income - - - - 1 (298) 313 16 1 17
Equity-settled transactions - - - - - - 40 40 - 40
Taxation on equity-settled transactions - - - - - - 1 1 - 1
Transfer of gain on disposal of FVOCI investment - - - - - - - - - -
Issue of ordinary shares - 9 - - - - - 9 - 9
Buyback of equity (5) - - 5 - - (304) (304) - (304)
Purchase of treasury shares - - (35) - - - - (35) - (35)
Release of treasury shares - - 31 - - - (31) - - -
Dividends - - - - - - (155) (155) - (155)
At 31 December 2023 174 2,642 (19) 33 (12) 411 745 3,974 14 3,988
2022
At 1 January 2022 189 2,626 (12) 18 (4) 386 1,067 4,270 10 4,280
Profit for the year - - - - - - 242 242 2 244
Other comprehensive income - - - - 18 323 47 388 2 390
Total comprehensive income - - - - 18 323 289 630 4 634
Equity-settled transactions - - - - - - 38 38 - 38
Taxation on equity-settled transactions - - - - - - 3 3 - 3
Transfer of gain on disposal of FVOCI investment - - - - (27) - 27 - - -
Issue of ordinary shares - 7 - - - - - 7 - 7
Buyback of equity (10) - - 10 - - (353) (353) - (353)
Purchase of treasury shares - - (37) - - - - (37) - (37)
Release of treasury shares - - 34 - - - (34) - - -
Dividends - - - - - - (156) (156) (1) (157)
At 31 December 2022 179 2,633 (15) 28 (13) 709 881 4,402 13 4,415
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2023
all figures in £ millions (unaudited) note 2023 2022
Cash flows from operating activities
Profit before tax 493 323
Net finance costs / (income) 3 5 (52)
Depreciation & impairment - PPE, investment property & assets held for 90 136
sale
Amortisation and impairment - software 123 125
Amortisation and impairment - acquired intangible assets 46 54
Other net gains and losses 13 (24)
Product development capital expenditure (300) (357)
Product development amortisation 284 303
Share-based payment costs 40 35
Change in inventories 9 (34)
Change in trade and other receivables (24) 33
Change in trade and other liabilities (20) (84)
Change in provisions for other liabilities and charges (61) 50
Other movements (16) 19
Net cash generated from operations 682 527
Interest paid (60) (57)
Tax paid (97) (109)
Net cash generated from operating activities 525 361
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 10 (171) (228)
Acquisition of joint ventures and associates 10 (5) (5)
Purchase of investments (8) (12)
Purchase of property, plant and equipment (30) (57)
Purchase of intangible assets (96) (90)
Disposal of subsidiaries, net of cash disposed 11 (38) 333
Proceeds from sale of investments 11 7 17
Proceeds from sale of property, plant and equipment 5 14
Lease receivables repaid including disposals 15 18
Interest received 20 22
Dividends from joint ventures and associates - 1
Net cash (used in) / generated from investing activities (301) 13
Cash flows from financing activities
Proceeds from issue of ordinary shares 9 7
Buyback of equity (186) (353)
Purchase of treasury shares (35) (37)
Proceeds from borrowings 285 -
Repayment of borrowings (285) (171)
Repayment of lease liabilities (84) (93)
Dividends paid to company's shareholders (154) (156)
Dividends paid to non-controlling interest - (1)
Net cash used in financing activities (450) (804)
Effects of exchange rate changes on cash and cash equivalents (8) 36
Net decrease in cash and cash equivalents (234) (394)
Cash and cash equivalents at beginning of year 543 937
Cash and cash equivalents at end of year 309 543
For the purposes of the cash flow statement, cash and cash equivalents are
presented net of overdrafts repayable on demand.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
1. Basis of preparation
The condensed consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with UK-adopted International Accounting
Standards. The condensed consolidated financial statements have also been
prepared in accordance with IFRS Accounting Standards as issued by the
International Accounting Standards Board (IASB).
The condensed consolidated financial statements have been prepared under the
historical cost convention as modified by the revaluation of certain financial
assets and liabilities (including derivative financial instruments) at fair
value. They have also been prepared in accordance with the accounting policies
set out in the 2022 Annual Report. In addition, the Group has applied the
exception under IAS 12 to recognising and disclosing information about
deferred tax assets and liabilities related to Pillar Two income taxes.
The Group adopted IFRS 17 'Insurance Contracts' for the first time in 2023,
but it has not had a material impact on the condensed consolidated financial
statements. There are no other changes to accounting standards that have a
material impact on the condensed consolidated financial statements for the
year ended 31 December 2023.
In assessing the Group's ability to continue as a going concern for the period
to 30 June 2025, the Board analysed a variety of downside scenarios including
a severe but plausible scenario where the Group is impacted by all principal
risks from 2023 adjusted for probability weighting, as well as reverse stress
testing to identify what would be required to either breach covenants or run
out of liquidity. The severe but plausible scenario modelled a severe
reduction in revenue, profit and operating cash flow throughout 2024 to 2025.
At 31 December 2023, the Group had available liquidity of c£1.0bn, comprising
central cash balances and its undrawn $1bn Revolving Credit Facility (RCF),
which matures in February 2027. Under a severe downside case, the Group would
still maintain comfortable liquidity headroom and sufficient headroom against
covenant requirements during the period under assessment, even before
modelling the mitigating effect of actions that management would take in the
event that these downside risks were to crystallise.
The Directors have concluded that there are no material uncertainties that
cast doubt on the Group's ability to continue as a going concern and that they
have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the assessment period to 30 June 2025.
The condensed consolidated financial statements have therefore been prepared
on a going concern basis.
The preparation of condensed consolidated financial statements requires the
use of certain critical accounting assumptions. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas requiring a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the condensed
consolidated financial statements, have been set out in the 2022 Annual
Report. In 2023, the allocation of goodwill to the cash-generating units and
groups of cash-generating units is no longer considered to be a key judgement,
and the recoverability of goodwill balances and the level of provisions for
anticipated returns are no longer considered to be key areas of estimation.
In addition, on 30 June 2023, the Group disposed of its interests in its POLS
businesses in the US, UK, Australia and India. Whether the associated results
and cash flows of the related businesses should be classified and presented as
discontinued operations is a significant judgement. The Group's judgement is
that the results and cash flows of the related businesses should not be
classified and presented as discontinued operations on the basis that the
businesses disposed do not constitute a separate major line of business or
geographical area of operations, and the cashflows related to one of the large
contracts within the business are being retained. The POLS business is within
the Virtual Learning segment and represents £93m of sales for the year ended
31 December 2023 out of the total sales in the Virtual Learning segment of
£616m. If the Group had concluded that this business represented discontinued
operations, its results and the related gain on disposal would not have been
included within each of the continuing operations income statement lines.
Profit for the period from continuing operations would have been £10m lower
and this amount would have been separately presented as profit for the period
from discontinued operations as a single line item. Adjusted operating profit
would be unchanged.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
1. Basis of preparation continued
The Group has also assessed the impact of the uncertainty presented by the
volatile macro-economic and geo-political environment on the condensed
consolidated financial statements, specifically considering the impact on key
judgements and significant estimates along with other areas of increased risk
including financial instruments, hedge accounting and translation
methodologies. No material accounting impacts relating to the areas assessed
were recognised in 2023. The Group has assessed the impacts of climate change
on the Group's financial statements. The assessment did not identify any
material impact on the Group's significant judgements or estimates, the
recoverability of the Group's assets at 31 December 2023 or the assessment of
going concern for the period to 30 June 2025. The Group will continue to
monitor these areas of increased judgement, estimation and risk for material
changes.
The financial information for the year ended 31 December 2022 does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The independent auditors' report on the full financial
statements for the year ended 31 December 2022 was unqualified and did not
contain an emphasis of matter paragraph or any statement under section 498 of
the Companies Act 2006.
This preliminary announcement does not constitute the Group's full financial
statements for the year ended 31 December 2023. The Group's full financial
statements will be approved by the Board of Directors and reported on by the
auditors in March 2024. Accordingly, the financial information for 2023 is
presented unaudited in the preliminary announcement.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the year
ended 31 December 2023
2. Segment information
The following describes the principal activities of the five main operating
segments:
- Assessments & Qualifications - Pearson VUE, US School
Assessment, Clinical Assessment, UK GCSE and A Levels and International
academic qualifications and associated courseware including the
English-speaking Canadian and Australian K-12 businesses, and PDRI.
- Virtual Learning - Virtual Schools and Online Program Management.
- English Language Learning - Pearson Test of English, Institutional
Courseware and English Online Solutions.
- Workforce Skills - BTEC, GED, Credly, TalentLens, Faethm, Pearson
College and Apprenticeships.
- Higher Education - US, Canadian and International Higher Education
Courseware businesses.
all figures in £ millions 2023 2022
Sales
Assessments & Qualifications 1,559 1,444
Virtual Learning 616 820
English Language Learning 415 321
Workforce Skills 220 204
Higher Education 855 898
Strategic Review 9 154
Total sales 3,674 3,841
Adjusted operating profit
Assessments & Qualifications 350 258
Virtual Learning 76 70
English Language Learning 47 25
Workforce Skills (8) (3)
Higher Education 110 91
Strategic Review (2) 15
Total adjusted operating profit 573 456
There were no material inter-segment sales.
The following table reconciles the Group's measure of segmental performance,
adjusted operating profit, to statutory operating profit:
all figures in £ millions 2023 2022
Adjusted operating profit 573 456
Cost of major restructuring - (150)
Property charges (11) -
Intangible charges (48) (56)
UK Pension discretionary increases - (3)
Other net gains and losses (16) 24
Operating profit 498 271
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the year
ended 31 December 2023
2. Segment information continued
Adjusted operating profit is one of the Group's key business performance
measures. The measure includes the operating profit from the total business
but excludes intangible charges for amortisation and impairment, acquisition
related costs, gains and losses arising from disposals, property charges, the
cost of major restructuring and one-off costs related to the UK pension
scheme.
Cost of major restructuring - In 2023, there are no costs of major
restructuring. In 2022, the restructuring costs of £150m mainly related to
staff redundancies and impairment of right of use property assets. The 2022
charge includes the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021.
Property charges - Charges of £11m relate to impairments of property assets
arising from the impact of updates in 2023 to assumptions initially made
during the 2022 and 2021 restructuring programmes.
Intangible charges - These represent charges relating to intangibles acquired
through business combinations. These charges are excluded as they reflect past
acquisition activity and do not necessarily reflect the current year
performance of the Group. Intangible amortisation charges in 2023 were £48m
compared to a charge of £56m in 2022. This is due to decreased amortisation
from recent disposals partially offset by additional amortisation from recent
acquisitions.
UK pension discretionary increases - Charges in 2022 relate to one-off pension
increases awarded to certain cohorts of pensioners in response to the cost of
living crisis.
Other net gains and losses - These represent profits and losses on the sale of
subsidiaries, joint ventures, associates and other financial assets and are
excluded from adjusted operating profit as they distort the performance of the
Group as reported on a statutory basis. Other net gains and losses also
includes costs related to business closures and acquisitions. Other net gains
and losses in 2023 relate largely to the gain on disposal of the POLS business
and gains relating to the releases of accruals and a provision related to
previous acquisitions and disposals, partially offset by losses on the
disposal of Pearson College and costs related to current and prior year
disposals and acquisitions. In 2022, they related to the gains on the disposal
of our international courseware local publishing businesses in Europe,
French-speaking Canada and Hong Kong and a gain arising on a decrease in the
deferred consideration payable on prior year acquisitions, offset by a loss on
disposal of our international courseware local publishing businesses in South
Africa due to recycling of currency translation adjustments and costs related
to disposals and acquisitions.
Adjusted operating profit should not be regarded as a complete picture of the
Group's financial performance. For example, adjusted operating profit includes
the benefits of major restructuring programmes but excludes the significant
associated costs, and adjusted operating profit excludes costs related to
acquisitions, and the amortisation of intangibles acquired in business
combinations, but does not exclude the associated revenues. The Group's
definition of adjusted operating profit may not be comparable to other
similarly titled measures reported by other companies.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the year
ended 31 December 2023
3. Net finance costs
all figures in £ millions 2023 2022
Interest payable on financial liabilities at amortised cost and associated (34) (32)
derivatives
Interest on lease liabilities (23) (25)
Interest on deferred and contingent consideration (4) (5)
Fair value movements on derivatives (20) (2)
Interest on provisions for uncertain tax positions - (7)
Finance costs (81) (71)
Interest receivable on financial assets at amortised cost 16 18
Interest on lease receivables 4 5
Net finance income in respect of retirement benefits 26 9
Fair value movements on investments held at FVTPL 13 28
Net foreign exchange gains 3 1
Fair value movements on derivatives 10 27
Interest on provisions for uncertain tax positions 4 35
Finance income 76 123
Analysed as:
Net interest payable reflected in adjusted earnings (33) (1)
Other net finance income 28 53
Net finance (costs) / income (5) 52
Net interest payable is the finance cost measure used in calculating adjusted
earnings. Net finance costs classified as other net finance costs are excluded
from the calculation of the Group's adjusted earnings.
all figures in £ millions 2023 2022
Net finance (costs) / income (5) 52
Net finance income in respect of retirement benefits (26) (9)
Interest on deferred and contingent consideration 4 5
Fair value movements on investments held at FVTPL (13) (28)
Net foreign exchange gains (3) (1)
Fair value movements on derivatives 10 (25)
Interest on provisions for uncertain tax positions - 5
Net interest payable reflected in adjusted earnings (33) (1)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
3. Net finance costs continued
Net finance income relating to retirement benefits has been excluded from our
adjusted earnings as we believe the income statement presentation does not
reflect the economic substance of the underlying assets and liabilities. Also
excluded are interest costs relating to acquisition or disposal transactions,
fair value movements on investments classified as FVTPL, foreign exchange and
other gains and losses on derivatives. Interest relating to acquisition or
disposal transactions is excluded from adjusted earnings as it is considered
part of the acquisition cost or disposal proceeds rather than being reflective
of the underlying financing costs of the Group.
Foreign exchange, fair value movements and other gains and losses are excluded
from adjusted earnings as they represent short-term fluctuations in market
value and are subject to significant volatility. Other gains and losses may
not be realised in due course as it is normally the intention to hold the
related instruments to maturity. Interest on certain tax provisions is
excluded from our adjusted measure in order to mirror the treatment of the
underlying tax item.
4. Income tax
all figures in £ millions 2023 2022
Profit before tax 493 323
Tax calculated at UK rate of 23.5% (2022:19%) (116) (62)
Effect of overseas tax rate (1) (12)
Non-deductible expenses (6) (9)
Impact of rate changes (1) 3
Other tax items 11 1
Income tax charge (113) (79)
Tax rate reflected in statutory earnings 23.0% 24.5%
The statutory rate is broadly in line with the standard rate of tax. Other tax
items of £11m consists primarily of a £5m gain on sale of business not
subject to tax and £3m of adjustments in respect of prior years.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
4. Income tax continued
all figures in £ millions 2023 2022
Income tax charge (113) (79)
Tax on cost of major restructuring - (37)
Tax on property charges (3) -
Tax on other net gains and losses (10) 10
Tax on intangible charges (11) (11)
Tax on UK pension discretionary increase - (1)
Tax on other net finance costs 7 13
Tax on goodwill and intangibles 4 16
Tax on UK tax rate change 1 (1)
Other tax items 1 19
Adjusted income tax charge (124) (71)
Adjusted profit before tax 540 455
Tax rate reflected in adjusted earnings 23.0% 15.6%
The adjusted income tax charge excludes the tax benefit or charge on items
excluded from profit before tax (see notes 2, 3 and 6).
The current tax benefit from tax deductible goodwill and intangibles is added
to the adjusted income tax charge as this benefit more accurately aligns the
adjusted tax charge with the expected rate of cash tax payments.
UK legislation in relation to Pillar Two was substantively enacted on 20 June
2023 and is effective from 1 January 2024. The Group is in scope of this
legislation and has performed an assessment of the Group's potential exposure
to Pillar Two income taxes. The assessment of the potential exposure to Pillar
Two income taxes is based on the most recent financial information available
for the constituent entities in the Group. Based on the assessment, the Pillar
Two effective tax rates in most of the jurisdictions in which the Group
operates are above 15%. However, there are a limited number of jurisdictions
where the transitional safe harbour relief does not apply and the Pillar Two
effective tax rate is close to 15%. The Group does not expect a material
exposure to Pillar Two income taxes in those jurisdictions.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
5. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss
attributable to equity shareholders of the company (earnings) by the weighted
average number of ordinary shares in issue during the year, excluding ordinary
shares purchased by the company and held as treasury shares. Diluted earnings
per share is calculated by adjusting the weighted average number of ordinary
shares to take account of all dilutive potential ordinary shares and adjusting
the profit attributable, if applicable, to account for any tax consequences
that might arise from conversion of those shares.
all figures in £ millions 2023 2022
Earnings for the year 380 244
Non-controlling interest (2) (2)
Earnings attributable to equity holders 378 242
Weighted average number of shares (millions) 711.5 738.1
Effect of dilutive share options (millions) 5.8 3.9
Weighted average number of shares (millions) for diluted earnings 717.3 742.0
Earnings per share (in pence per share)
Basic 53.1p 32.8p
Diluted 52.7p 32.6p
6. Adjusted earnings per share
In order to show results from operating activities on a consistent basis, an
adjusted earnings per share is presented which excludes certain items as set
out below.
Adjusted earnings is a non-GAAP financial measure and is included as it is a
key financial measure used by management to evaluate performance and allocate
resources to business segments. The measure also enables our investors to more
easily, and consistently, track the underlying operational performance of the
Group and its business segments over time by separating out those items of
income and expenditure relating to acquisition and disposal transactions,
major restructuring programmes and certain other items that are also not
representative of underlying performance (see notes 2, 3 and 4 for further
information and reconciliation to equivalent statutory measures).
The adjusted earnings per share includes both continuing and discontinued
businesses on an undiluted basis when relevant. The Group's definition of
adjusted earnings per share may not be comparable to other similarly titled
measures reported by other companies. A reconciliation of the adjusted
measures to their corresponding statutory measures is shown in the tables
below and in notes 2, 3 and 4.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
6. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Cost of major restructuring Other net gains and losses Intangible charges UK pension discretionary increases Other finance costs Other tax items Adjusted income statement
Property charges
2023
Operating profit 2 498 - 11 16 48 - - - 573
Net finance costs 3 (5) - - - - - (28) - (33)
Profit before tax 493 - 11 16 48 - (28) - 540
Income tax 4 (113) - (3) (10) (11) 7 6 (124)
-
Profit for the year 380 - 8 6 37 - (21) 6 416
Non-controlling interest (2) - - - - - - - (2)
Earnings 378 - 8 6 37 - (21) 6 414
Weighted average number of shares (millions) 711.5
Weighted average number of shares (millions) for diluted earnings 717.3
Adjusted earnings per share (basic) 58.2p
Adjusted earnings per share (diluted) 57.7p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
6. Adjusted earnings per share continued
all figures in £ millions note Statutory income statement Cost of major restructuring Other net gains and losses Intangible charges UK pension discretionary increases Other finance costs Other tax items Adjusted income statement
Property charges
2022
Operating profit 2 271 150 - (24) 56 3 - - 456
Net finance costs 3 52 - - - - - (53) - (1)
Profit before tax 323 150 - (24) 56 3 (53) - 455
Income tax 4 (79) (37) - 10 (11) (1) 13 34 (71)
Profit for the year 244 113 - (14) 45 2 (40) 34 384
Non-controlling interest (2) - - - - - - - (2)
Earnings 242 113 - (14) 45 2 (40) 34 382
Weighted average number of shares (millions) 738.1
Weighted average number of shares (millions) for diluted earnings 742.0
Adjusted earnings per share (basic) 51.8p
Adjusted earnings per share (diluted) 51.5p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
7. Dividends
all figures in £ millions 2023 2022
Amounts recognised as distributions to equity shareholders in the year 155 156
The Directors are proposing a final dividend of 15.7p per equity share,
payable on 3 May 2024 to shareholders on the register at the close of business
on 22 March 2024. This final dividend, which will absorb an estimated £107m
of shareholders' funds, has not been included as a liability as at 31 December
2023.
8. Exchange rates
Pearson earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar. The relevant rates are as
follows:
2023 2022
Average rate for profits 1.25 1.24
Year end rate 1.27 1.21
9. Non-current intangible assets
all figures in £ millions 2023 2022
Goodwill 2,434 2,480
Other intangibles 657 697
Non-current intangible assets 3,091 3,177
Business combinations resulted in the recognition of additional goodwill of
£61m (2022: £204m) and intangible assets of £117m (2022: £110m) (see note
10 for further details).
There were no significant impairments to acquisition related or other
intangibles in 2023 or 2022.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
10. Acquisitions
On 22 March 2023, the Group acquired 100% of the share capital of Personnel
Decisions Research Institutes, LLC ('PDRI') for cash consideration of £152m
($187m). PDRI is a provider of workforce assessment services and has
significant expertise in providing recruitment assessment solutions to the US
federal government. It forms part of the Assessment & Qualifications
division. There is no contingent or deferred consideration. Net assets
acquired of £91m were recognised on the Group's balance sheet including
£117m of acquired intangible assets mainly relating to customer relationships
and contracts, and technology that will be amortised over periods up to 15
years.
This transaction has resulted in the recognition of £61m of goodwill, which
represents the expected growth of the business, the workforce and know-how
acquired and the anticipated synergies, none of which can be recognised as
separate intangible assets. The goodwill is not deductible for tax purposes.
On 28 January 2022, the Group acquired 100% of the share capital of Credly Inc
(Credly), having previously held a 19.9% interest in the company. Total
consideration was £149m comprising upfront cash consideration of £107m,
Pearson's existing interest valued at £31m and £11m of deferred
consideration. The deferred consideration is payable two years from the
acquisition date. £49m of intangible assets were recognised, mainly relating
to the existing customer relationships that will be amortised over 20 years,
and technology, which will be amortised over five years.
On 28 April 2022, the Group acquired 100% of the share capital of ATI STUDIOS
A.P.P.S S.R.L (Mondly). It now forms part of the English Language Learning
division. Total consideration was £135m comprising upfront cash consideration
of £105m, and deferred consideration of £30m. The deferred consideration is
payable over two years from the acquisition date with no performance
conditions attached. In addition, a further $29.6m (c£24m) of cash and $10m
(c£8m) in shares will be paid over the four years from the acquisition date,
dependent on continuing employment, and therefore these additional amounts
will be expensed over the period and are not treated as consideration. £50m
of intangible assets were recognised, the majority of which relates to
acquired technology, and will be amortised over periods upto seven years.
In 2022, the Group also made three smaller acquisitions in the period for
total consideration of £11m.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
10. Acquisitions continued
Details of the fair values of the assets and liabilities recognised at the
acquisition date and the related consideration is shown in the table below.
Amounts for intangible assets and goodwill are provisional as management
finalise reviews of the asset valuations.
all figures in £ millions 2023 2022
Intangible assets 117 110
Deferred tax assets - 8
Trade and other receivables 8 8
Cash and cash equivalents 4 13
Trade and other liabilities (7) (26)
Deferred tax liabilities (31) (22)
Net assets acquired 91 91
Goodwill 61 204
Total 152 295
Satisfied by:
Cash consideration 152 223
Deferred and contingent consideration - 41
Fair value of existing investment - 31
Total consideration 152 295
Cash flow from acquisitions
Cash - current year acquisitions (152) (223)
Cash and cash equivalents acquired 4 13
Deferred payments for prior year acquisitions and other items (23) (18)
Net cash outflow (171) (228)
PDRI generated revenues of £24m and a profit after tax of £4m for the period
from acquisition date to 31 December 2023. If the acquisition had occurred on
1 January 2023, the Group's revenue would have been £7m higher and the profit
after tax would have been £1m higher.
Total acquisition-related costs of £12m (2022: £20m) were recognised within
other net gains and losses. There were also gains of £5m (2022: £8m) arising
on decreases in the deferred consideration payable on prior year acquisitions.
In addition to the cash flows relating to subsidiaries above, the Group paid a
further £5m (2022: £3m) in respect of an existing investment in an
associate, and in 2022, also acquired an associate for cash
consideration of £2m.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
11. Disposals
On 30 June 2023, the Group disposed of its interests in its POLS businesses in
the US, UK, Australia and India. The business disposed excludes Pearson's
contract with ASU. The consideration to be received is deferred and comprises
a 27.5% share of positive adjusted EBITDA in each calendar year for 6 years
and 27.5% of the proceeds received by the purchaser in relation to any future
monetisation event. The consideration has been valued at £12m and a pre-tax
gain on disposal of £13m has been recognised. In addition, a gain of £9m has
been recognised which arises from the release of a provision related to a
historical disposal, £19m of losses arose from the disposals of Pearson
College and the international courseware local publishing business in India
and £12m of costs related to previous disposals were recognised.
In 2022, the Group disposed of its interests in the Canadian educational
publisher (ERPI), Pearson Italia S.p.A, Stark Verlag GmbH, Austin Education
(Hong Kong) Limited, Pearson South Africa (Pty) Ltd and various other South
African companies. Total cash consideration received was £287m resulting in a
pre-tax gain on disposal of £42m. All entities disposed of were previously in
the Strategic Review segment. £5m of losses arose from other immaterial
disposals and costs related to the wind-down of certain businesses. None of
the disposed businesses meet the criteria to be presented as discontinued
operations.
all figures in £ millions 2023 2022
Intangible assets, including goodwill (53) (77)
Property, plant and equipment (5) (11)
Intangible assets - product development (15) (39)
Inventories (1) (33)
Trade and other receivables (65) (106)
Deferred tax 8 (12)
Current tax (receivable) / payable (2) 7
Cash and cash equivalents (excluding overdrafts) (12) (21)
Provisions for other liabilities and charges - 1
Retirement benefit obligations - 2
Trade and other liabilities 31 45
Financial liabilities - borrowings - 8
Net assets disposed (114) (236)
Cumulative currency translation adjustment 122 5
Cash proceeds 1 291
Deferred proceeds 12 2
Costs of disposal (30) (25)
(Loss) / gain on disposal (9) 37
Cash flow from disposals
Proceeds - current year disposals 1 291
Proceeds - prior year disposals - 86
Cash and cash equivalents disposed (12) (21)
Costs and other disposal liabilities paid (27) (23)
Net cash (outflow) / inflow from disposals (38) 333
In addition to the above, deferred proceeds relating to the K12 sale were
received in 2022, and in 2023, proceeds of £7m (2022: £17m) were received in
relation to the disposal of investments.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
12. Net debt
all figures in £ millions 2023 2022
Non-current assets
Derivative financial instruments 32 43
Trade and other receivables - investment in finance lease 82 104
Current assets
Derivative financial instruments 16 16
Trade and other receivables - investment in finance lease 18 17
Cash and cash equivalents (excluding overdrafts) 312 558
Non-current liabilities
Borrowings (1,094) (1,144)
Derivative financial instruments (38) (54)
Current liabilities
Borrowings (including overdrafts) (67) (86)
Derivative financial instruments (5) (11)
Net debt (744) (557)
Included in borrowings at 31 December 2023 are lease liabilities of £547m
(non-current £483m, current £64m). This compares to lease liabilities of
£605m (non-current £534m, current £71m) at 31 December 2022. The net lease
liability at 31 December 2023 after including the investment in finance leases
noted above was £447m (2022: £484m). Net debt excluding net lease
liabilities is £297m (2022: £73m).
In May 2022, the Group repaid its $117m (£95m) USD 3.75% notes upon maturity.
In December 2022, the Group repaid its $94m (£76m) USD 3.25% notes.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
13. Cash flows
Operating cash flow and free cash flow are non-GAAP measures and have been
disclosed as they are part of the Group's corporate and operating measures.
These measures are presented in order to align the cash flows with
corresponding adjusted profit measures. The table below reconciles the
statutory profit and cash flow measures to the corresponding adjusted
measures.
all figures in £ millions Statutory measure Cost of major restructuring Property charges Other net gains and losses Intangible charges UK pension discretionary increases Purchase/ disposal of PPE and software Net addition of right-of-use assets Dividends from joint ventures & associates Adjusted measure
2023
Operating 498 - 11 16 48 - - - - 573 Adjusted operating profit
profit
Net cash generated from operations 682 63 - 4 - - (121) (41) - 587 Operating cash flow
2022
Operating 271 150 - (24) 56 3 - - - 456 Adjusted operating profit
profit
Net cash generated from operations 527 35 - - - - (133) (29) 1 401 Operating cash flow
The table below reconciles operating cash flow to net debt.
all figures in £ millions note 2023 2022
Reconciliation of operating cash flow to closing net debt
Operating cash flow 587 401
Tax paid (97) (109)
Net finance costs paid (40) (35)
Net cost paid for major restructuring (63) (35)
Free cash flow 387 222
Dividends paid (including to non-controlling interest) (154) (157)
Net movement of funds from operations 233 65
Acquisitions and disposals (219) 105
Disposal of lease liabilities - 8
Net equity transactions (212) (383)
Other movements on financial instruments 11 (2)
Movement in net debt (187) (207)
Opening net debt (557) (350)
Closing net debt 12 (744) (557)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2023
14. Contingencies and other liabilities
There are contingent Group liabilities that arise in the normal course of
business in respect of indemnities, warranties and guarantees in relation to
former subsidiaries and in respect of guarantees in relation to subsidiaries,
joint ventures and associates. In addition, there are contingent liabilities
of the Group in respect of unsettled or disputed tax liabilities, legal
claims, contract disputes, royalties, copyright fees, permissions and other
rights. None of these claims are expected to result in a material gain or loss
to the Group.
On 25 April 2019, the European Commission published the full decision that the
United Kingdom controlled foreign company group financing partial exemption
('FCPE') partially constitutes State Aid. This decision was appealed by the UK
Government and other parties. On 8 June 2022 the EU General Court dismissed
the appeal, however, this decision was further appealed by the UK Government
and other parties, with the subsequent hearing having taken place on 10
January 2024 (outcome pending). The total exposure is calculated to be £105m
(excluding interest) with a provision of £63m held in relation to this issue.
The remaining tax receivable is disclosed as a non-current asset on the
balance sheet. The provision is calculated considering a range of possible
outcomes and applying a probability to each, resulting in a weighted average
outcome. The possible outcomes considered range from no liability through to
the full exposure (£105m). This issue is specific to periods up to 2018 and
is not a continuing exposure.
The Group is under assessment from the tax authorities in Brazil challenging
the deduction for tax purposes of goodwill amortisation for the years 2012 to
2020. Similar assessments may be raised for other years. Potential total
exposure (including possible interest and penalties) could be up to BRL 1,294m
(£209m) up to 31 December 2023, with additional potential exposure of BRL 24m
(£4m) in relation to deductions expected to be taken in future periods. Such
assessments are common in Brazil. The Group believes that the likelihood that
the tax authorities will ultimately prevail is low and that the Group's
position is strong. At present, the Group believes no provision is required.
The Group is also under assessment from the UK tax authorities with the
relevant years being 2019 to 2021. The maximum exposure is calculated to be
£43m with a provision of £21m currently held in respect of this assessment.
The provision is calculated considering a range of possible outcomes and
applying a probability to each, resulting in a weighted average outcome. The
possible outcomes considered range from no liability through to the full
exposure (£43m). The point being assessed is specific to 2019 to 2021 and is
not a continuing exposure.
15. Related parties
At 31 December 2022, the Group had a current liability payable to Academy of
Pop of £5m, which related to the Group's initial capital contribution that
had not yet been paid. This balance was paid in early 2023.
There were no other material related party transactions in 2023 or 2022.
16. Events after the balance sheet date
On 29 February 2024, the Board approved an extension to the share buyback
programme of £200m.
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