Strategic progress.
Sustainable profitable growth.
Annual report and accounts 2023
We are the
world’s
leading
learning
company
Strategic report
At a glance
Chair’s note
Chief Executive’s review
Divisional overviews
2023 highlights
Strategic priorities
Divisional spotlights
Stakeholder engagement
Business model
Key performance indicators
Financial review
Sustainability
ESG data
Risk
2
3
6
8
11
12
14
16
22
24
26
34
49
56
Governance report
Corporate governance
Directors’ remuneration report
Additional disclosures
Financial statements
Independent auditor’s report to the members
of Pearson plc
Consolidated financial statements
Company financial statements
Other information
Five-year summary
Financial key performance indicators
Additional information for
US listing purposes
Shareholder information
66
107
131
137
146
208
219
221
227
247
The strategic report, up to and including page 65, was
approved for issue by the Board on 13 March 2024
and signed on its behalf by:
Sally Johnson Chief Financial Officer
Use this QR code to visit our Pearson plc website
where you can find the online version of this report.
https://plc.pearson.com/en-
GB/investors/2023-annual-
report-accounts
Strategic progress.
Sustainable profitable
growth.
Pearson is a strong company with excellent
market potential, people committed to our
mission, and a purpose that can genuinely
help communities.
Omar Abbosh Chief Executive
At a glance
Corporate overview
At Pearson, we know few things matter to the
world more than education. That’s why we’re
all working together to support people on their
learning journey, wherever that path takes them.
We’re on a journey too, building a company that
puts learners at the heart of everything we do.
The future of learning is vibrant, high quality
learning experiences that help everyone realise
the life they imagine. 2023 has been a critical
year in Pearson’s progress toward achieving our
vision. A changing global economy, a need for
new and different skills within communities, and
new technology like generative AI challenged
Our sustainable business pillars
the education space. Our resilience and ability
to capitalise on changing market dynamics
reinforced confidence in our strategy, our
people, and the strength of our underlying
business. As we look ahead to 2024, we remain
committed to our goal of delivering long-term
profitable growth, while we evolve our strategy
to seize emerging opportunities and accelerate
our digital expansion.
This Annual Report showcases strong 2023
growth, driven by our five divisions and our
continued efforts to create interconnectivity
between them. By delivering excellent financial
results, driving a culture of performance, and
leaning into new technology, like generative
AI, we’re making progress every day toward a
future of sustainable, profitable growth for 2024
and beyond.
Our purpose
To add life to a lifetime
of learning.
Our vision
We want everyone to realise the life they
imagine through learning.
Our mission
Create vibrant and enriching learning
experiences designed for real-life impact.
Driving learning for everyone
with our products
Empowering our people
to make a difference
Leading responsibly for
a better planet
Read more on Sustainability on page 34
Annual report and accounts 2023 Pearson plc 2
Strategic report Chair’s note
Our reshaped portfolio is
more focused, we are firmly
established as a digital-
first learning company and
technology is opening up
exciting opportunities that
will drive growth for many
years to come.
Omid Kordestani Chair
2023 full year dividend growth
6%
Return on capital in 2023
10.3%
Overview
I am delighted to report that Pearson colleagues around the
world have delivered another strong performance in 2023.
It has been a transformational year for the business, further
testament to the strategy we launched three years ago that
has fundamentally repositioned Pearson so that we can serve
ever more people through their lifelong learning journey.
Our reshaped portfolio is more focused, we are firmly
established as a digital-first learning company and technology
is opening up exciting opportunities that will drive growth for
many years to come.
Our culture has evolved significantly so that there is now a far
greater sense of accountability across the global business and
an increased focus on execution and delivery. There is also more
interconnectivity across our divisions with growing collaboration
underpinned by a shared belief in the important role Pearson
plays in improving society through learning.
Financial and operational highlights
For a third consecutive year, Pearson has delivered a strong
financial performance with sales of £3,674m (£3,841m in 2022),
representing 5% growth on an underlying basis, excluding the
OPM and Strategic Review businesses. Statutory operating profit
was £498m (£271m in 2022), or £573m on an adjusted basis, up
31% versus 2022. This was supported by our ongoing work to
streamline the business and make it more efficient. During the
year we successfully delivered £120m of cost savings, improving
adjusted operating profit margin to 16%.
Pearson has continued to generate strong free cash flow
enabling us to maintain a robust financial position whilst also
supporting ongoing investment in the business. This is fuelling
Pearson’s evolution, particularly in digital and generative AI which
are changing the way that people learn for good.
Our strong cash generation enables us to deliver returns
for shareholders, with a £300m share buyback programme
commenced in 2023 supplementing our progressive ordinary
dividend. We have also announced that we will be extending
this programme by £200m in 2024. Reflecting the strong
performance in 2023 and its confidence in the outlook for the
business, the Board is recommending a 6% increase in the final
dividend for a full year dividend of 22.7 pence per share.
This will be paid on 3 May 2024 to shareholders on the register
on 22 March 2024.
Annual report and accounts 2023 Pearson plc 3
Strategic report Chair’s note continued
Learning for impact
With our purpose of adding life to a lifetime of learning, we are
focused on delivering Learning for Impact. We take a considered
approach to the adoption of technologies such as generative
AI that have enormous potential but also entail new risks, and
we are committed to the highest standards of data privacy and
security. We empower our people to make a difference, making
further progress on employee engagement in the year as we
continue to invest in talent and drive a culture of belonging
that aims for increasingly diverse representation throughout
the company. We recognise our responsibility to reduce our
environmental impact, and are on track to meet our target of
halving our carbon emissions by 2030, having made excellent
progress to date, with a reduction of 16% vs 2022. This is the
product of many different initiatives across our operations and
supply chain, with significant benefits coming from our strategy
to become increasingly digital, reducing the footprint and
impacts of our print operations.
The Board
We have a strong, diverse and highly experienced Board which
continues to offer valuable perspective, insight and leadership.
There were some changes to the Board during the year due to
retirement, giving us the opportunity to welcome new talent and
fresh thinking.
In June, we were delighted to welcome two new Non-Executive
Directors, Alison Dolan and Alex Hardiman. Alison has been
Chief Financial Officer at Rightmove plc since 2020 and brings
extensive commercial and operational finance experience,
specifically in digital businesses. Alex currently serves as The New
York Times’ Chief Product Officer and was previously at Facebook
where she served as Head of News Products.
Tim Score, Deputy Chair and Senior Independent Director, will
step down from the Board at the AGM in April 2024 following
a nine year tenure. His vast experience has been enormously
valuable to Pearson and I would like to thank him hugely for
the significant contribution that he has made to the business.
I am pleased that Graeme Pitkethly will be taking over the role
as Deputy Chair and Senior Independent Director once Tim has
stepped down.
Annual report and accounts 2023 Pearson plc 4
CEO succession
In September, we announced that Andy Bird would be retiring
from his role as our Chief Executive. On behalf of the Board
and all the Group’s stakeholders, I would like to thank Andy
for his outstanding leadership, and his implementation of the
ambitious vision and strategy that have successfully transitioned
Pearson into the business we are today. During his tenure,
adjusted operating profit has increased from £313m to £573m,
and shareholders have benefited from a total 3-year return of
53%. Andy has accelerated our digital proposition and capability
so that 82% of our portfolio today is digital or digitally-enabled.
The launch of Pearson+ in July 2021 has been an important
contributor, bringing us meaningfully closer to consumers and
the platform had grown to around 5m registered users by the
end of the full calendar year.
AI has been part of Pearson’s DNA for many years, and under
Andy’s stewardship, we have leveraged advances in generative
AI to enhance the value of our content with plans to make it
available to millions more students across key titles in the year
ahead. Having also put in place a strong management team,
Andy leaves Pearson well-placed for the future.
Following a thorough selection process, which you can read
more about on pages 83 and 91 respectively, the Board was
delighted to appoint Omar Abbosh to succeed Andy. Omar is an
inspirational, dynamic and growth-orientated leader with deep
commercial, technology and operational expertise focused on
delivering high-quality services and products across diverse
markets and customer sets. He has extensive experience in
creating and executing strategies to enable companies to
harness technology and succeed in a world of disruptive change.
He shares our values and our ambition and has a strong track
record of execution. Omar joined us in January 2024 and the
Board and I are enjoying working with him as we accelerate our
strategy and continue to deliver value for all our stakeholders.
Strategic report Total 1-year
shareholder return
5%
Our robust financial
position and strong
cash generation enable
investment to strengthen
our platform for the
future while also funding
attractive distributions
to shareholders.
Governance
Through my face-to-face meetings with investors during the past
year, I have heard first-hand views on a range of topics including
strategy, succession, corporate governance, remuneration,
environmental and social issues, as well as operational and
financial performance. We have taken all their feedback and
again sought to enhance our disclosures in this Annual Report.
I look forward to hearing how we can continue to improve.
We have engaged extensively over the past year on
remuneration with shareholders and their advisors, and
executive remuneration remains a key area of focus for both
the Board and the Remuneration Committee. The directors’
remuneration policy that was approved at last year’s AGM seeks
to ensure that we can attract and retain the talent required to
drive Pearson’s success; that our executives are appropriately
incentivised to achieve stretching targets; and that the structure
of such incentives best aligns with the interests of shareholders
and supports the delivery of long-term, sustainable returns. It’s
important to underline that incentives will only be realised in full
if stretching annual and longer-term performance targets are
met. Sherry Coutu CBE, Chair of the Remuneration Committee,
sets out our approach on pages 107-109.
Outlook
Our strong performance in 2023 underpins our confidence that
we have the right strategy in place to drive continued sustainable
growth. Our robust financial position and strong cash generation
enable investment to strengthen our platform for the future
while also funding attractive distributions to shareholders. We
are excited about the experience and expertise that Omar brings
to Pearson. Pearson is well-placed to make good progress in the
year ahead and beyond.
Omid Kordestani Chair
Annual report and accounts 2023 Pearson plc 5
Strategic report Chief Executive’s review
Pearson is
well positioned
today, with
a stable platform
for continued
growth.
Omar Abbosh Chief Executive
Sales
£3,674m
(2022: £3,841m) headline decrease of 4%
Statutory operating profit
£498m
increase year on year of 84%
Underlying sales growth increase
Adjusted operating profit in 2023
5%*
£573m
increase year on year of 31%
on an underlying basis
Dear Shareholders,
I want to start by sharing how delighted I am to join this very
special company alongside this talented and passionate group
of Pearson employees.
I’m pleased to report another year of strong financial
performance with underlying sales growth of 5% and adjusted
operating profit of £573m, up 31% compared to 2022. We have
also improved the adjusted operating profit margin by 4% to
16%. This has been driven by our strong execution and the
combination of our unique capabilities in assessment, content,
and services, all of which stand us in good stead going forward.
Delivering for Growth
These results reflect exciting progress across the business
and especially strong financial performance in Assessment
& Qualifications and English Language Learning. Further,
our commitment to cost efficiencies delivered £120m in savings
for the Group. Our careful stewardship of shareholder funds
means we launched a share buyback of £300m in 2023 and
announced an extension of this by a further £200m in 2024.
Our strong balance sheet and excellent cash flows help us
invest in opportunities to drive growth and create further
value for our stakeholders.
Several strategic achievements in 2023
also laid the foundation for our future:
— In Assessment & Qualifications, we saw strong performance
in Pearson VUE, particularly in the IT and healthcare sectors.
We completed the acquisition of PDRI, a trusted provider
of workforce assessment services. In this business, we are
already seeing promising revenue generation and new
contracts with the US federal government.
— In English Language Learning, we won recognition for the
Pearson Test of English in Canada for student and economic
migration visas. With English as the gateway to employment
and study in Canada, this opens a significant new business
opportunity for us. In partnership with Pearson VUE, we
opened our largest test centre, to help serve the growing PTE
market in India. We also launched workplace specific content
as well as other enhanced features in Mondly.
* Taking portfolio adjustments and FX into account and excluding the OPM and Strategic Review businesses.
Annual report and accounts 2023 Pearson plc 6
Strategic report — Generative AI was a major focal point in Higher Education as
we began the beta of our AI tools in Mastering and Pearson+.
With over 60,000 AI conversations in Mastering Chemistry
alone, we are helping students learn the most complex
concepts. The positive student reaction to the tools led us to
expand the beta for 2024. What’s more, Pearson+ passed the
milestone of one million paid subscriptions this calendar year.
All of this taken together with improved platform stability and
improvements in our sales teams, meant Pearson’s Higher
Education division increased platform sales while making
significant strides in its overall digital consumer experiences.
— Within our Workforce Skills business, we evolved from a
unified product approach to building a powerful technology
stack that has enabled us to expose the core capabilities as
modular offerings that can be tailored to our customers. This
is just one element underpinning the solid sales figures we
saw in 2023.
— Virtual Learning launched a new Connections Academy
Career Pathways programme in five schools to offer students
high school, university, and career credentials through an
innovative tri-credit approach. We plan to roll out the initiative
to more schools in 2024.
— Finally, in a major step toward the simplification of our
portfolio, we completed the sale of our Pearson Online
Learning Services business in June.
This progress could not have happened without the leadership
of Andy Bird. He paved the way for us, and I’d like to thank him
for laying the groundwork for our bright days ahead.
Looking Forward with Confidence
Since I joined Pearson, I’ve become even more confident
about the reasons I came here.
First, it’s clear to me that Pearson is a strong, stable company
with many growth options. Second, we have a purpose that is
unmatched and a genuine ability to help people on their learning
journey which, quite literally, changes lives. Finally, our world is
also at an inflection point with AI. The next decade will centre
on the application of AI in business, in communities, and in our
individual lives.
The opportunities to use AI as a tool for better learning, while
driving growth in our business are immense. With our vast, high
quality data sets and our trusted IP, we are well positioned to
lead on creating value from AI in the future.
It’s against this backdrop that I’m setting three strategic priorities
for 2024. Firstly, we will deliver on our 2024 guidance with an
intense focus on organic growth, execution, and the needs of
our customers. Secondly, we are sharpening our focus on the
enterprise market. This is a large and still forming market, with
no dominant player and presents good opportunity for us.
Thirdly, we’re optimistic about the possibilities that AI brings. We
are increasing the energy by which we infuse our products and
services with AI solutions that delight and support customers
and consumers.
A Future Built on Our Strengths
At Pearson we do three things. We create and curate world class
learning and assessment content. We distribute this content
digitally and through physical materials to millions of users
globally. And we help individuals, employers and institutions build
and verify skills.
These activities are made possible by our unique strengths,
such as our long term and diverse customer relationships; the
global size and scale of our Pearson VUE business; the depth
and quality of our content in textbooks, assessments, videos, and
exams; our network of trusted authors; the differentiated Global
Scale of English; our deep expertise in learning science; and
above all, our trusted and well-respected brand.
These strengths are a testament to the wonderful people of
Pearson, and I want to thank them for their contribution to our
success in 2023. I am excited for their partnership as we evolve
our company to meet the diverse needs of learners around
the world.
I believe Pearson is that rare type of company with an ability
to deliver sustainable growth alongside a purpose that is
meaningful to millions of people.
There is much more to come from Pearson.
Omar Abbosh Chief Executive
The opportunities to use AI
as a tool for better learning,
while driving growth in
our business are immense.
With our vast, high quality
data sets and our trusted
IP, we are well positioned
to lead on creating value
from AI in the future.
Free cash flow in 2023
£387m
Annual report and accounts 2023 Pearson plc 7
Strategic report Divisional overviews
Assessment & Qualifications
Virtual Learning
Sales
£1,559m
Sales
£616m
Following the sale of the Pearson Online Learning Services
business in the first half of 2023 and the loss of the ASU contract,
the Virtual Learning business now works with customers in
three ways: Partner Schools (c.95% sales), District Partnerships
(c.3% sales), and Pearson Online Academy (c.2% sales).
The Partner Schools business provides tailored Virtual School
solutions to public K-12 districts in the US, combining Pearson's
courseware, instructional services, and support for high-quality,
flexible online learning. Although providing much smaller
revenue contribution, the District Partnerships channel
offers customisable virtual education solutions for K-12
districts, focusing on smaller student cohorts with a more
disaggregated approach than Partner Schools, ensuring
access to quality, adaptable remote learning for various needs.
We also offer Pearson Online Academy, which while small,
extends similar services to Partner Schools but as a private,
globally accessible option.
Virtual Learning 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 additional
schools in 2024 to drive future growth.
The Assessment & Qualifications division comprises four
business units: Pearson VUE, Clinical Assessment, US Student
Assessment, and UK & International School Qualifications.
Pearson VUE excels as a global leader in scaled testing services,
serving numerous industry sectors with its extensive test centre
network and flexible delivery options. This line of business
meets the critical need for workforce reskilling and professional
certification, underpinning professional development at various
stages. In Clinical Assessment, Pearson provides high-quality,
research-backed assessment products for mental health and
learning evaluations, serving professionals in healthcare
and education.
Pearson's US Student Assessment specialises in customised
large-scale testing programmes for US K-12 education, focusing
on state-specific criteria and enhancing education standards.
Internationally, Pearson offers globally recognised UK curriculum
based qualifications such as GCSEs and A-levels, as well as
courseware for English speaking regions throughout the world,
supporting foundational student progression worldwide. These
qualifications, coupled with Pearson's content expertise and
scale of delivery, make it a key player in shaping global education
standards and student futures.
In 2023, the division demonstrated strong financial performance,
growth, and overall customer retention. 2024 will focus on
maintaining strong competitive positions through contract
renewals and new wins, while scaling value chain and adjacent
market opportunities.
Select plans include VUE moving further up the technology
certification value chain, UK & International Qualifications
capitalising on the growing demand for international education
and Clinical Assessment building out its international portfolio
and creating new digitally-enabled business subscription models.
Assessments sit at the heart
of the value we bring to
customers. Our ability to
deliver in large volumes,
in multiple languages, and
across countries all over the
world, makes us a trusted
provider of choice.
Art Valentine President – Assessment
& Qualifications
Annual report and accounts 2023 Pearson plc 8
Strategic report Higher Education
English Language Learning
Sales
£855m
Sales
£415m
Pearson is the market leader in providing world-class learning
experiences in the post-secondary market. Renowned as a
market leader in both eText and courseware products, including
MyLabs, Mastering, Pearson+ and Revel, Pearson caters to
millions of students worldwide.
Pearson’s goal is to scale teaching excellence, enhance learner
outcomes, and to support faculty in their workflows. Pearson’s
strength lies in its relationship with authors, its proprietary
educational technology platforms, and deep understanding of
learning science, all of which are evolving with the AI landscape.
Pearson’s close relationships with instructors and faculty,
who play a key role in adopting course materials, contribute
significantly to its competitive edge.
In 2023, Pearson was the first major higher education publisher
to integrate generative AI study tools into its propriety academic
content. It also grew Pearson+ subscriptions, adding over 1
million eTextbook subscriptions during the calendar year. In the
upcoming year, the focus is on scaling AI-enhanced offerings and
continuing to deliver outstanding value for learners and faculty
with significant product upgrades.
Our vision is to become the world’s leading destination for
committed learners to build and prove their proficiency in
English, offering comprehensive English learning and assessment
solutions, including the Pearson Test of English (PTE). Catering
to a wide range of learners, including those in workplaces,
schools (via institutional courseware and the Wizard platform),
and individuals (through Mondly), Pearson provides diverse
avenues for English proficiency. Central to Pearson's approach
is the blend of leading pedagogical expertise in English language
education with advanced technology. This strategy is geared
towards delivering personalised, scalable English language
learning for anyone seeking to use English for their personal or
professional goals.
English Language Learning expanded partnerships and grew
the PTE business in 2023, administering over 1 million tests. The
2024 strategy includes scaling the PTE business in Canada and
growing corporate assessment and study offerings, leveraging
technological advancements.
What learners are demanding
is evolving. We are listening
to these changing needs and
expectations, and enhancing
our products to help students
succeed in their learning goals.
Tom ap Simon President – Higher Education
and Virtual Learning
Annual report and accounts 2023 Pearson plc 9
Strategic report Divisional overviews continued
Workforce Skills
Sales
£220m
The Workforce Skills division at Pearson includes both Vocational
Qualifications (VQ) and Workforce Solutions. Pearson VQ
is a global leader in career-focused qualifications, offering
programmes that are rooted in real-world work scenarios.
These qualifications enable hundreds of thousands of students,
apprentices, and workers in the UK and globally to develop
and apply knowledge, skills, and behaviours essential for
employability. One in five working-age individuals in the UK
holds a BTEC from Pearson, and its vocational qualifications are
increasingly adopted by global ministries of education to advance
skills reform.
Pearson Workforce Solutions addresses the evolving needs
of businesses for skilled talent in a rapidly changing economy.
Workforce Solutions assists companies in understanding and
bridging their skills gaps, fostering genuine skills development
aligned with commercial objectives. Pearson's corporate and
employee solutions are modular and interconnected by a
common skills framework, supporting organisations at various
stages of their skills transformation journey and optimising their
existing tools for maximum impact.
2023 saw us deliver a solid performance, with our qualifications
performing well in institutional and corporate markets, and
Workforce Solutions continuing to acquire new customers
and expand existing relationships. The 2024 agenda includes
driving market share gains, expanding addressable markets, and
developing upskilling and reskilling solutions through
key partnerships.
Annual report and accounts 2023 Pearson plc 10
Strategic report 2023 highlights
A year of strategic and
operational progress
Sales
£3,674m
(2022: £3,841m) headline
decrease of 4%
Underlying sales growth
increase of
5%*
Statutory operating profit
£498m
increase year on year of 84%
Adjusted operating profit
£573m
increase year on year of 31%
on an underlying basis
* Taking portfolio adjustments and FX into account and excluding the OPM and
Strategic Review businesses
Acquired PDRI
to drive additional
growth in our biggest
business: Assessment
& Qualifications
Read more on page 32
Delivered £120m cost
savings, accelerating
Group adjusted
operating profit margin
expansion to 16%
Read more on page 3
Launched beta versions
of generative AI tools
in Mastering and MyLab
and Pearson+
Read more on page 9
Strong cash
performance, with free
cash flow of £387m,
and launched a £300m
share buyback
Read more on page 31
The success of Pearson+
is proof we’re delivering on
our commitment to give
students the vibrant and
enriching learning
experiences they deserve.
Lynne Frank Chief Marketing Officer and Co-
President, Direct to Consumer
Passed milestone
of 1m cumulative
paid subscriptions
for Pearson+
Read more on page 15
Annual report and accounts 2023 Pearson plc 11
Strategic report Strategic priorities
An integrated strategy
Key
AQ
Assessment & Qualifications
WS
Workforce Skills
VL
Virtual Learning
HE
Higher Education
EL
English Language Learning
DC
Direct to consumer offering
Our corporate strategy is grounded in three primary objectives – 1) to deliver sustainable, profitable sales growth, 2) to focus on
execution, quality, and trust across the business, and 3) to delight our customers and be obsessed with meeting their expectations. We
will achieve these objectives through our continued dedicated commitment to building trusted relationships with consumers throughout
their lifelong learning journey via an ecosystem of interconnected solutions.
Realising this vision will require us to remain focused on increasing our scale and reach by investing in and deepening our institutional, enterprise, government, and direct to consumer relationships. We will
continue to capitalise on synergies across our businesses and lean into our competitive strengths, most notably as a global leader in trusted learning content and assessments.
We believe that by enabling consumers with best-in-class, integrated tools for learning, along with the assessments and credentials to demonstrate their knowledge and skills, we will create lasting value for
our customers, learners, and other stakeholders, whilst delivering outsized growth for our investors.
Strategic Priority #1: Pearson’s commitment to sustainable and profitable revenue growth yielded important achievements across its divisions, underlining the company’s market-leading capabilities
and strategic execution. Looking to 2024, Pearson’s strategic focus remains steadfast on continuing to deliver profitable revenue growth, with each division poised to expand its market impact through
targeted initiatives.
Strategic priority
Progress in FY23
Objectives for FY24
AQ Acquired PDRI in March 2023, leading to major federal contract wins with the TSA and
AQ Scale value chain and adjacent market opportunities across sub-divisions, with a
US Air Force
HE
Invested in product improvements and implemented new sales teams and processes,
in addition to achieving a profitability increase of 3% driven by cost savings
Deliver
sustainable
and
profitable
revenue
growth
EL Grew PTE volumes c.50% to over 1m tests administered and earned recognition for the
Student Direct Stream and Migration in Canada
VL Launched and enrolled over 1k students in an innovative career readiness offering
continued drive to grow within the federal market by providing secure and scalable
testing services tailored to the government workforce
HE Pilot innovative courseware pricing models to drive competitiveness in the growing
Open Educational Resources (OER) and Do-It-Yourself (DIY) market segments, whilst
continuing to drive international market growth with targeted investments in the Higher
Education sector
EL Further scale the PTE business and continue to gain market share in Canada, as well as
expand the corporate offerings for assessment and study by leveraging the flexibility of
the Mondly and Versant (mid-stakes assessment) platforms
VL Transform the enrolment funnel to bring down the lead-to-enrolment time to 1-2
weeks, a c.75% reduction, aiming to improve student acquisition and retention
WS Expanded workforce reach to 66 of the Fortune 500 companies, achieving a growth rate
WS
of 11%
Invest in skills intelligence, credentialing, and assessment solutions, and evolve
corporate solutions from single to multi-product sales
DC Grew the Pearson+ platform to around 5m registered users by end of calendar year
2023 and passed the milestone of 1m cumulative paid subscriptions for the same
calendar year
DC Drive Pearson+ growth by expanding distribution and further scaling
Channels subscriptions
Annual report and accounts 2023 Pearson plc 12
Strategic report
Key
AQ
Assessment & Qualifications
WS
Workforce Skills
VL
Virtual Learning
HE
Higher Education
EL
English Language Learning
DC
Direct to consumer offering
Strategic Priority #2: Pearson’s focus on execution, quality, and trust across its business divisions led to significant achievements, reinforcing its position as a leader in educational services and products.
Looking forward, Pearson is set to further strengthen this commitment across all business divisions, with a clear focus on innovation and strategic development.
Strategic priority
Progress in FY23
Objectives for FY24
AQ Launched the Pearson Assessment for Learning Suite - a complementary set of services for
AQ Invest in product and platform development to improve and expand go-to-market efforts
US school districts
in 2024
Focus on
execution,
quality, and
trust across
the business
HE Retained the market-leading position within the Higher Education space driven by
reaffirming commitment to sales leadership and enhancing execution capability
HE Continue to develop innovative AI features and product enhancements
EL Launched an enhanced e-commerce journey and fortified relationships with key PTE
regional partners
EL
Invest in digital platforms and experiences, and utilise the Mondly platform as a versatile
tool for trialling technology capabilities and propositions
VL Reduced marketing cost per enrolment by approximately 25% over the last year, significantly
VL Target development of an additional 15 career programmes, up from five last year, and
improving operational efficiency
scale to new schools and states
WS
Improved performance in qualification result delivery within Vocational Qualifications
ensuring learners had their results when needed
WS Prioritise technology based strategic projects, such as leveraging AI in quality assurance
within the enterprise qualifications businesses
DC Enhanced Pearson+ from primarily an e-reading platform to a more robust educational
DC Expand course offerings available on the Channels platform, building on the 23 college
resource by introducing Channels, delivering tutorial video content and practice problems
courses supported in 2023
Strategic Priority #3: Pearson’s dedication to delighting customers and providing exceptional educational experiences was evident across all divisions. Looking ahead, the divisions will continue to drive
this strategic initiative, ensuring that customer satisfaction remains at the forefront of the company’s operations.
Delight our
customers
and be
obsessed
with meeting
their
expectations
AQ Improved standards of customer care across the A&Q businesses, with examples including
shifting from a regional to global approach model, in addition to VUE opening its largest
company-owned test centre in Chandigarh, India, with capacity to deliver 14k high-stakes
tests per month
HE Piloted and launched AI-enhanced eText and Mastering titles, incorporating cutting-edge
technology
EL
Improved the e-commerce journey for PTE, making it easier for customers to access and
purchase products, enhancing the overall user experience and improving the NPS score
from 52 to 55
AQ Expand VUE value chain capabilities into learning and test prep for the technology
certification segment, and release major flagship revisions for the Clinical Assessment sub-
division that maintain brand promise but meet current market needs
HE
EL
Increase the selection of AI-enhanced titles and invest in the channels component of
Pearson+ with diverse formats, including integrated videos
Implement more advanced Mondly content and expand reach to institutional and
enterprise customers by harnessing synergies with the wider ELL portfolio
VL Created c.370k custom assessments since the start of the 2023/24 school year, exceeding
VL
the initial target by more than 20x, enabling teachers to further improve the student learning
experience and maintain a strong NPS score of +67
Improve overall customer satisfaction by integrating content directly onto the Virtual
Learning platform, in addition to driving operational improvements and expanding
programme offerings
WS Streamlined operations and implemented an improved go-to-market strategy for strategic
accounts, utilising an integrated, team-selling approach to capitalise on strong traction with
government entities and large organisations for Workforce Solutions
WS Develop customised solutions and professional services that align with enterprise
requirements, and launch the Official GED App by Summer 2024
DC
Invested in AI and introduced AI-generated content summarisation, explanations, and
practice quizzes to enhance the user experience within Pearson+
DC Leverage the interconnectedness of Pearson+ with Higher Education’s courseware to
enhance personalisation and trial career-focused propositions
Annual report and accounts 2023 Pearson plc 13
Strategic report
Divisional spotlights
Assessment & Qualifications
Spotlight on Clinical Assessment: Business model innovation enabled
by digital capability, driving growth and customer satisfaction in K-12
Special Education
Opportunity
Our Clinical Assessment business represents one of the four
sub-divisions within Assessment & Qualifications. We have been a
longstanding leader in special education assessment, catering to
the requirements of psychologists, educators, speech pathologists,
and other professionals that support the special learning needs of
students. Throughout our interactions, we always aim to match the
evolving needs of the important customers we serve with our gold-
standard products and state-of-the-art capabilities. Our portfolio of
intellectual property drives much of our competitive advantage as we
offer hundreds of products to the market to support a broad array
of needs.
Meeting the growing mental health and learning support needs
of student populations has become increasingly complex, making
resource planning for physical assessment products difficult at best.
With our Digital Assessment Library for Schools (DALS) offering,
we leverage our expertise and digital innovation to remove the
guesswork from resource planning.
Progress so far
In 2017 we launched DALS, a subscription offering that provides
unlimited access to an industry-leading set of testing instruments.
Our Special Education customers are no longer forced to commit to
specific evaluation products and diagnostic needs of an unknown
student population and are freed from having to anticipate inventory
and its cost implications during the budget season. Our customers
are excited by the cost-predictability. But more importantly, the
access to a broader set of instruments allows our professionals
to tailor evaluations to the unique needs of individual students,
improving responsible and efficacious use of Individualised Education
Plan (IEP) funding.
Since its inception, DALS has quickly become the preferred model for
Special Education, which is outlined by its exceptional growth. In fact,
other clinical assessment publishers have recognised the importance
of DALS and we have begun offering optional DALS upgrades that can
include competitor products.
DALS has achieved year-over-year growth of 23% and a five-year
CAGR at nearly 80%, supported by exceptional renewal rates. It is
now being used by districts servicing 25% of IEPs currently in place
across the country. In 2023, we signed deals with some of the largest
and most influential school districts in the US, including Chicago
Public Schools, Miami-Dade, and Los Angeles Unified School District.
These deals represent a strong endorsement of the value and quality
of this offering, and we are honoured to be a trusted partner.
As we look ahead to 2024 and beyond, we are excited to expand the
subscription model to new regions and markets, and are currently in
the process of exploring expansion into the healthcare and private
practice segments. In addition to this, we plan to introduce new
features and functionalities that will further differentiate our offering
from the competition. Some of the highlights include:
— Expanding DALS in Canada, Australia, and the UK, where we
have already introduced the model in 2023 and received positive
feedback from customers. We will continue to market and
promote DALS in these regions, as well as explore opportunities in
other international markets.
— Launching the Digital Assessment Library for University & College
Counselling Centres, a new segment that has a high demand
for mental health assessments and interventions, especially in
the wake of the COVID-19 pandemic. We have partnered with
Titanium Schedule, a leading software provider for counselling
centres, to integrate our offering into their platform and reach
their existing customer base.
— Adding new and revised assessments to the DALS portfolio, as
well as complementary assessments from other test publishers,
such as the MHS Education Library. This will ensure that our
DALS customers have access to the most up-to-date and
comprehensive selection of digital assessments available.
The Digital Assessment Library has been an important evolutionary
step for Pearson, reinforcing our leadership by facilitating a
virtuous cycle of innovation, customer feedback, and continuous
improvement, as we leverage our digital platforms and data to
enhance our products and services. We are confident that our
offering will continue to drive growth and customer satisfaction for
our business in 2024 and beyond.
The benefits of
targeted investment,
reshaping the
portfolio, and delivering
on strategy are
reflected in our strong
financial performance.
Sue Kolloru Chief Strategy Officer
Annual report and accounts 2023 Pearson plc 14
Strategic report English Language Learning
Spotlight on PTE, part of our high-stakes
assessments business
Opportunity
Our business is centred on three key
components which represent a c.£6bn
addressable market:
— High Stakes Assessments: an addressable
market upwards of £900m. Our flagship
product PTE is a verified, secure
certification of English proficiency for
international migrants and students.
— Institutional English Language Learning:
an addressable market of c.£3bn. We
offer digital and blended courseware
solutions to academic institutions, private
language schools and enterprises across
the globe.
— Online Direct to Consumer: an
addressable market of c.£2bn, which we
have entered through our acquisition
of Mondly.
Progress so far
Our high-stakes assessments business
saw strong volume growth of c.50% in
2023, driven by market share gains in key
countries like India. The past year has also
seen our PTE product earn key approval for
the Student Direct Stream and Migration
in Canada; these notable recognitions
underscore the impact and extensive reach
that our initiatives have had within the
broader language learning sphere.
Our achievements in the broader high-stakes
assessments space have been underpinned
by a holistic comprehension of the
challenges faced by test takers coupled with
a commitment to solving their pain points.
A key driver of our success lies in creating
a better end-to-end experience for the test
taker, from booking their test, preparing
for it, and taking it in one sitting in our
highly secure and convenient VUE
test centres, to receiving their score in
industry-leading return times, with bias
and stress removed from the scoring
process. Strategic collaborations with
local partners in key markets have proven
instrumental in scaling our operations and
driving sales. Concurrently, our impactful
hyper-local marketing campaigns have
effectively heightened awareness of our
distinctive offerings, further solidifying
our market position.
We enter 2024 in a strong position,
continuing the momentum from the prior
year. We are poised to continue investing
in our high-stakes assessment ecosystem,
encompassing advancements in assessment
technology, strategic partnerships, and
test security and integrity. These initiatives
are strategically aligned to elevate the
overall customer experience, fostering
increased market share gains. In addition,
our commitment extends to the expansion
and scaling of assessments within our
portfolio, including our Versant suite of tests.
These endeavours reflect our dedication
to sustained growth and excellence in the
dynamic landscape of mid- and high-stakes
assessments. With our combination of
technological capability and deep learning
expertise, we will continue to bring real value
to the language learning market.
Pearson+
Spotlight on the development of our
Channels feature alongside user growth
and monetisation
Opportunity
We are a frontrunner in the Higher Education
courseware market, with our influence
underscored by the millions of students
currently enrolled in courses utilising
Pearson eTextbooks.
Capitalising on this robust market position,
our initiatives are outlined in two phases
over the forthcoming year:
1. Shift eTextbook consumption directly to
Pearson+ and improve monetisation
2. Engage and retain students with
relevant and valuable services beyond
eTextbooks, to improve average revenue
per user, and ultimately consumer
lifetime value
Pearson+ is currently monetised through
paid access to eTextbooks by students
after the faculty adopts content in their
courses. Our existing Higher Education
business provides a large, efficient customer
acquisition funnel for Pearson+. Study
features, such as Pearson+ Channels, will
encourage further use of the application
beyond the eTextbook. Over time, Pearson+
users can be further monetised through
cross-selling other relevant Pearson
products and services, such as Mondly.
Progress so far
Over 2023 we made significant progress
advancing our Pearson+ strategy. Most
notably, we added and enhanced what
students want, including beta AI study
features in three titles, improved search,
simpler e-commerce, and an overall better
user experience.
By further developing Channels with video
content and practice questions this year,
Pearson+ is an increasingly valuable study
tool for students in 23 college courses,
including courses that do not require
Pearson eTextbooks. To provide increased
access, we have also bundled together
Pearson+ eTextbooks and Channels in an
affordable “Study and Exam Prep Pack”.
For the first time, we saw Pearson+ reach
1m paid subscriptions in a calendar year,
with the total number of Pearson+ registered
users reaching around 5m by the end of the
2023 calendar year, validating the platforms
appeal and effectiveness in meeting the
diverse needs of our audience.
Looking ahead to 2024, we aim to drive
continued growth by expanding our
distribution. Additionally, we plan to
capitalise on the synergies between
Pearson+ and Higher Education’s
courseware, in particular the combined
platform capabilities, and use this as a
springboard to optimise personalisation
and diversify our course offerings. As we
continue to expand our reach and enhance
the value proposition of Pearson+, these
initiatives serve as a testament to our
commitment to innovation and our ability to
deliver products and services that resonate
with our user base.
Annual report and accounts 2023 Pearson plc 15
Strategic report Stakeholder engagement
Learning from our stakeholders
As learning evolves into something more fluid and more necessary across our lifetime, the needs of learners are changing too. Our ability
to meet them at this pivotal moment, depends in part on our ability to engage with and mobilise a diverse group of stakeholders. We are
building a company that is digital-first and puts the consumer at the heart of all we do.
Building strong relationships inside and outside Pearson means we can make an impact on the people and communities we serve. In return, all of these stakeholders - consumers, employees, shareholders,
educators, employers, business partners, and government - can make a positive impact on our business. This year, more than ever, we’ve seen a renewed effort to partner with stakeholders to respond to the
needs of people as they move through different life stages.
We all benefit when a cross-section of stakeholders collaborate and come together to meet the needs of learners and to help to drive growth for the company.
Consumers
Why and how we engage
With our efforts to engage more deeply with consumers, Pearson
is bringing to life its commitment to put the consumer at the
heart of everything we do. This helps us more fully understand
how consumers use our products, perceive the company, and
feel about the trends driving learning in a digital era.
We research and engage with consumers holistically, by studying
how they use our products, how they think, and the culture that
shapes their behaviour. This includes conducting consumer focus
groups and ethnographic research, trend and sentiment analysis,
and competitive analysis.
In some specific cases, this also includes surveying consumers
directly via our products. This kind of engagement recently has
been used in Pearson+ and in Mastering to gauge user opinions
on the effectiveness of our new generative AI study tools. In
those cases, students were asked if they believe that the tools
were helpful in their studies and how likely they were to use
them again. Product teams for both products have also been
engaging indirectly with consumers by analysing layers of student
usage data and testing enhancements based on that.
Finally, we are making a concerted effort to push consumer
insights further into the company, through newsletters, employee
learning sessions, and other resources. This helps us cultivate an
‘outside-in’ approach to understand the people who buy and use
our products and services and generates greater awareness of
the culture and trends impacting our business.
Outcome of engagement
Understanding our consumers allows us to be more effective
in the design and creation of products, along with go-to-market
strategies and ongoing implementation.
Consumer feedback has been particularly critical as Pearson
rolled out its beta of generative AI features in Pearson+ and
Mastering. Student feedback early in the design process was
clear in telling us that students wanted AI features that helped
them obtain better grades. Designers were able to focus on
the features that would be most effective in doing that. By the
end of the Autumn 2023 semester, 75% of those using the AI
study tools ranked them as helpful or very helpful. In Pearson+
and Mastering, product managers have been acting on other
user feedback to improve AI experiences in real time, including
adjusting tonality to meet student prompts and incorporating
positive language to encourage students to succeed. Together,
the feedback before and during the beta will lead to the expansion
of AI study in at least 40 more Mastering and MyLab titles.
Annual report and accounts 2023 Pearson plc 16
Strategic report Educational institutions
and educators
Why and how we engage
Educators are a cornerstone of our business and they maintain a
close relationship with learners. Our engagement with educators
helps to improve the teaching and learning experience, and often
provides them with valuable professional development and gives
Pearson insights on the needs of learners at all levels.
In our Virtual Schools business, part of our Virtual Learning
division, our annual teacher and school leader conferences bring
together teachers, school staff, and Pearson teams to attend
sessions facilitated by experts from across the learning and
education industry.
In our US Student Assessment business, we hold working
sessions with educator committees in customer states as
assessments are being developed.
In our Higher Education business, we employ a full-time team of
active faculty advisors dedicated to supporting instructors in the
setup and use of our products. Our Higher Education business
has also conducted two surveys with faculty this year, measuring
and tracking educator sentiment on the use of generative AI in
learning. The division runs an ongoing, weekly AI webinar series
to serve as professional development opportunities for faculty,
awarding them a Credly badge for their participation.
In the UK, we brought together the perspectives of over 6,000
educators and 1,000 students to create and release the second
Pearson School Report. The report takes an in-depth look at life
in schools and how educators are pioneering change. It shares
their invaluable insights on challenges, opportunities, diversity,
equity and inclusion, plus sustainability and digital innovation.
The report has reached a vast audience through accompanying
media articles, free support and events.
Outcome of engagement
All of our educator engagement leads to a better understanding
of how products are used in market and also raises the profile
of Pearson in this important customer segment. Through our
engagement, we build trust with educators and we help them see
us as a true partner in their work.
Many of our more than 2,000 Pearson authors are also educators,
along with being experts in their fields. They give us valuable
insights about how their own students use our products. And, they
help us test new ways of using digital tools in the courseware
they author.
Across the board, our work with educators contributes directly
to the quality of our products. Specifically, our engagement with
educator committees at the US state level ensures that our US
school assessments are aligned to state standards and free
of bias.
Our Virtual Schools’ conferences ensure that educators learn
from one another in peer-to-peer engagement, tailoring
solutions and exploring learnings that support the needs
of students.
In our Higher Education business, our faculty engagement
provides ongoing feedback on new AI product features such as
generative AI and helps us understand how to best tailor those
features to the needs of faculty and students, helping both
become more effective users of AI.
The Pearson Schools report is another example of how listening
to and engaging with educators builds trust and visibility with this
important customer group.
Annual report and accounts 2023 Pearson plc 17
Strategic report Stakeholder engagement continued
The Skills Outlook reports help with lead generation and also
provides data and information to employers and HR managers
looking to better understand today’s most in demand skills.
English Language Learning also fielded a large piece of research
in 2023, to be released in the coming year, that looks at the
habits of English learners in five countries and how employers
can better support them in the workplace.
Outcome of engagement
Engagement with employers helps us create offerings that
meet the needs of more technology driven labour markets
and appeal to large enterprise customers. By doing that, we
further expand our presence in the growing workforce learning
market. Specifically, feedback from enterprise customers is
helping us refine our offering and go-to-market approach-
including cross divisional sales to support the needs of these
large accounts. For example, we identified a need for talent
development assessments to support employees at a large
telecommunications company. The team successfully matched a
package of Pearson TalentLens, a Workforce Skills product, with
our Versant language learning, an English Language Learning
product, to meet the customer’s needs.
Employers
Why and how we engage
Employers have always been a key stakeholder for Pearson
and they are becoming even more important as the need for
reskilling grows in our changing economy and jobs are being
increasingly augmented by AI and other technology. Throughout
our businesses, ongoing consultation and conversation with
employers helps shape our offerings, with an eye toward the
growth of our enterprise business. In addition, Pearson can
provide useful insights and information that help employers
understand the wider labour market and build important
customer relationships.
Our Workforce Skills division works with employers to design
solutions that fit their unique place in the labour market and
help learners progress in their career goals. In our Vocational
Qualification business, Pearson’s BTEC qualifications are
designed with relevant sector experts and employers, to ensure
they cover the most relevant content. When expanding our
Esports BTECs into Higher Nationals, we worked closely with the
British Esports Federation to ensure that the qualifications offer
students progression to entry-level jobs in the sector. We also
created a bespoke BTEC qualification for opticians, specifically at
the request of, and in consultation with, one of the UK’s largest
eyeglasses and contact lens retailers.
We also provide employers with data and thought leadership
which helps them shape their decisions and helps to raise the
profile of Pearson as a leader in workforce and career learning.
In 2023, Pearson VUE completed its third Value of IT Certification
report, which surveyed IT hiring managers and people managers
in the US and India to understand their views on certification
trends in the workplace. Not only does the research help inform
the work of Pearson VUE, but it is also shared with employers so
they can see the larger picture of the IT industry. The Pearson
Skills Outlook, a thought leadership series that uses Faethm data
to forecast skills trends, became an important outreach and
engagement tool across the company with employers.
Business partners
Why and how we engage
Working with partners who share our commitment to doing
business responsibly strengthens our supply chain relationships
and reduces risk. This helps Pearson improve our product
offerings and make progress on our climate and diversity
commitments.
We continue to analyse the carbon performance of our major
suppliers. We have also introduced new language in all of our
supplier contracts, ensuring they have provisions for increasing
carbon maturity and increased visibility of emissions reporting.
We also engaged directly with a targeted pool of higher carbon
impact suppliers, whose contracts don’t yet include sustainability
requirements. This is an effort to make them aware that
alignment with our carbon targets is now a differentiating factor
in our sourcing strategy.
In 2023 we spent £47.2m with diverse-owned suppliers (owners
of businesses from historically underrepresented groups) and we
are on track to meet our goal of spending £500m with diverse-
owned suppliers by 2030.
Outcome of engagement
These actions are having a direct impact on how we execute
our procurement strategies and help grow our reputation as a
responsible business.
By collaborating with partners across our supply chain, we can
prioritise decarbonisation efforts where they can make the
biggest difference and demonstrate community level benefits of
supply chain decarbonisation efforts.
Pearson’s sustainable procurement maturity score, assessed by
EcoVadis, improved from good to advanced, outperforming the
EcoVadis customer average across all industries.
Annual report and accounts 2023 Pearson plc 18
Strategic report Government and regulators
Communities
Why and how we engage
Pearson increases access to education around the world,
ensuring our products and services enable more people to learn
and develop new skills through a lifetime of learning. Learning
is a key factor in empowering individuals and communities,
improving social and economic outcomes, and creating a more
equitable and sustainable world.
In addition to maintaining relationships with key organisations,
we participate in multi-stakeholder initiatives to promote lifelong
learning opportunities for all and ensure the lasting protection of
our planet.
This year, we launched a skills-based social impact initiative for
our employees, that focuses on learning, mobilising and building
community. As part of the initiative, we evolved our volunteering
policy to five days for causes aligned to our purpose and values,
and award a Credly volunteering badge to recognise the skills
learned while serving our communities.
Outcome of engagement
We strive to make a positive and meaningful impact in the
communities in which we operate.
To support that, we gave over £477k in humanitarian aid support.
Additionally, our employees have given over 20,000 volunteer
hours and supported 55 causes. You can find more detail on
Learning for Impact on pages 34-43.
Why and how we engage
Government policymakers across the world are charged
with implementing policies to grow and sustain productive
economies, ensuring that individuals have the educational
and skill-development opportunities to achieve their life goals.
Pearson acts as an important partner with governments, schools,
colleges, universities, and the business sector to help achieve
those economic and educational goals within the countries
in which we operate. Governments everywhere are focused
on how to position themselves for the future of work, to take
advantage of advancements in technology to provide residents
with the requisite high-quality education and training to meet
the needs of a rapidly evolving workforce. Increasingly, the rise
of AI in society and in the labour market challenges governments
to devise sound policies to take advantage of opportunities
and mitigate against risks to the labour force. Pearson is
well positioned to share its expertise and knowledge with
governments as they look to enact policies to regulate AI in
their countries.
Given governments’ need of support as economies face labour
shortages, particularly in high-demand sectors, and students
and workers seek accelerated learning opportunities and skill
development, we engage, through meetings and presentations
with elected and appointed government officials, discussing
key concepts including skills-based hiring, certifications, and
apprenticeships vital to their region.
Outcome of engagement
Our engagement helps inform policy decisions and share
best practices on areas of focus for education, training,
and recruitment. Many countries and students are looking
to undertake English Language courses and proficiency
assessments. Accordingly, we share our expertise and work with
government leaders in key markets as they develop policies
and programmes to meet this demand. In addition, AI, digital
transformation, and energy transition are topics which countries
from all regions are prioritising when developing policy and
allocating investments on education and skills.
Annual report and accounts 2023 Pearson plc 19
Strategic report Stakeholder engagement continued
Employees
Investors / shareholders
Why and how we engage
Pearson’s greatest asset is its people. Our business success and
ability to positively impact society heavily rely on our colleagues.
We also know that managers account for as much as 70% of the
variance in employee team engagement. That’s why we continue
empowering our managers with ongoing tools and training
to support them and their teams, which is pivotal in driving
engagement throughout Pearson.
At the enterprise level, we regularly communicated with our
people through interactive forums, town halls, newsletters, and
regular storytelling.
Outcome of engagement
Throughout 2023, we encouraged managers to hold regular
one-to-one meetings with their direct reports. Additionally, 82%
of employees actively participated in our engagement survey
with a GrandMean score of 4.09 on a 5-point Likert scale. This
is up from 72%.and 3.96 respectively in 2022 and is considered
‘meaningful’ improvement by Gallup.
We are incredibly proud
of the diverse talent we
have within Pearson and
believe that highly engaged
employees act as a powerful
driver for the business.
We will continue to invest
in our people, in attracting
new talent, and in seeking
ways to create a culture
of belonging.
Ali Bebo Chief Human Resources Officer
Why and how we engage
Our shareholders play an important role in both the monitoring
and safeguarding of the governance of our company and in
providing access to capital. Some are also employees who have a
critical role to play in the continued success of our business.
We have strong and constructive relationships with our
key institutional investors and shareholders and regularly
communicate with them on key issues, including at our financial
results, our AGM and at investor meetings and conferences. We
held 505 meetings with 272 institutions over the course of 2023,
both virtually and in person. We discussed financial, operational
and strategic matters.
Outcome of engagement
Our investors appreciate the time we spend with them to give
them updates on our strategy and progress, and we continue to
develop how we communicate effectively across a range
of formats.
Our 2023 AGM was held as a hybrid (combined physical and
electronic) meeting, enabling shareholders, should they so wish,
to participate in the AGM, ask questions and vote on resolutions
via a live webcast without being physically present at the AGM.
The physical element of the meeting was held, for the first time,
at our 80 Strand office in London.
Annual report and accounts 2023 Pearson plc 20
Strategic report — how we have had regard to the need to foster the
company’s business relationships with each of the
stakeholder groups
— Understanding our stakeholders (pages 81-83),
which summarises:
— how Directors have engaged with employees and
shareholders, and had regard to their interests
Section 172 of the Companies Act
In summary, as required by Section 172 of the
Companies Act 2006, a Director of a company must act
in the way they consider, in good faith, would most likely
promote the success of the company for the benefit of
its shareholders as a whole. In doing this, the Director
must have regard, among other matters, to:
— Sustainability (pages 34-55), which describes:
— the likely consequences of any decisions in the
long term,
— the interests of the company’s employees,
— the need to foster the company’s business
relationships with suppliers, customers and others,
— the impact of the company’s operations on the
community and environment,
— the company’s reputation for high standards of
business conduct, and
— the need to act fairly as between members of
the company.
— Initiatives through which we strive to enable more
engaging learning experiences, that are accessible to
more people, and with a smaller carbon footprint
— Our commitment to creating a culture that prioritises
human rights, our employees, DEI, and socially
responsible sourcing
— How we align with widely accepted ESG reporting
frameworks including GRI, SASB and TCFD. For further
details on TCFD reporting, please see page 44
A continued understanding of the key issues affecting
stakeholders is an integral part of the Board’s decision-
making process. The insights that the Board gains through
its engagement mechanisms form an important part of the
context for all the Board’s discussions and decision-making
processes. For an insight into how the Board has considered
the interests of various stakeholders in its decision-making,
and what matters the Directors considered when balancing
various stakeholder perspectives, please see our case study
on the Chief Executive appointment process on page 83.
Directors’ duties statement
In accordance with Section 172 of the Companies Act
2006 (see box to the right), the Directors fulfil their duties
to promote the success of the company through a well-
established governance framework. Typically, in large and
complex businesses such as Pearson, this framework
includes delegation of day-to-day decision-making to
employees of the Group.
This governance framework, summarised throughout this
document, is far more than a simple delegation of financial
authority, and includes the values and behaviours expected
of our employees and business partners, including the
standards to which they must adhere; how we engage
with stakeholders, including understanding and taking
into account their views and concerns; and how the Board
ensures that we have a robust system of control and
assurance processes in place.
In this annual report, we provide examples of how the
Directors promote the success of Pearson while taking into
account the consequences of decisions in the long-term,
building relationships with stakeholders (including our
eight key stakeholder groups, as mentioned previously),
and ensuring that business is conducted ethically and
responsibly.
While there are many parts of this annual report which
illustrate how the Directors do this, with the support of the
wider business, the following sections in particular
are relevant:
— Learning from our stakeholders (pages 16-20),
which outlines:
— how we serve and engage with each of our eight key
stakeholder groups, listen to their key concerns and
provide our responses
— how we have adapted our business to meet
their needs
Annual report and accounts 2023 Pearson plc 21
Strategic report Business model
Creating value
Our foundations
Committed people and partners
Our talented employees and fantastic partners share Pearson’s values and commitment to
education. Our relationships with governments, customers, non-governmental organisations
(NGOs) and other global organisations help us to amplify our positive impact on learners around
the world.
R&D and product innovation
Our product team, with expertise in learning science, is committed to creating learning products
which offer a great user experience and improved learning outcomes. Through ongoing
innovation and Research and Development (R&D), we develop and incorporate the most advanced
technologies, including generative AI, into our products and services.
Financial assets
Our shareholders entrust us with their capital in order to invest on their behalf for the long term.
Our physical footprint
Our products and services are available in most countries and territories around the world. At the
same time we are progressing in simplifying our property portfolio and strengthening our digital
and flexible ways of working.
Data and insight
Through the effective and responsible use of data we are able to know our customers better and
serve them more effectively. We are further building our capabilities in data analytics and AI such
as those acquired through Faethm, which enable us to use data insights to help identify skill gaps
and provide compelling solutions to workforce challenges.
Strong market fundamentals
We are well-placed to benefit from structural tailwinds in the global learning market including
three big market opportunities:
1
2
3
Online and digital
tools for schools
and education
Solutions to evaluate
and address workforce
skills gaps
Academic and
professional skills
accreditation
and certification
Workforce
Skills
Virtual
Learning
Assessment
& Qualifications
Higher
Education
Illustrative
learner
journey
English Language
Learning
Pearson
supports
learners
throughout
their learning
journey
WFS (GED)
Pass GED to gain high school
equivalency diploma
HE (Courseware / Pearson+)
Access eTexts and college level
materials through AI-enhanced P+
and MyLab and Mastering
homework platform
WFS (Faethm)
Through employer, identify skills gaps
and develop a learning plan to upskill
and access future opportunities
A&Q (VUE)
Upskill, take practice tests and exams
to obtain credentials in profession
(e.g. tech)
VL (Virtual Schools)
Attend virtual K-12 school
ELL (Pearson Test of English)
Apply for student visa using
Pearson Test of English to prove
English proficiency
WFS (TalentLens)
Take ‘fit-to-role’ test as part of
job application
ELL (Mondly by Pearson,
Workplace English)
Refine language skills tailored to
IT industry
WFS (Credly)
Leverage new IT badge to
demonstrate skills proficiency and
enhance career prospects
Annual report and accounts 2023 Pearson plc 22
Strategic report Direct to Consumer
Through initiatives across divisions we are expanding our offerings which go
directly to consumers. This is in addition to our existing models whereby we reach
the consumer via an educational institution, employer or other partner.
For example, we are scaling Pearson+, our digital learning service in Higher
Education, expanding features such as Channels, to provide learners with tutorial
videos and practice questions. We are also growing our Direct to Consumer
language learning platform Mondly and introducing even more advanced AI
features. Both of these services will be an important customer acquisition tool
underpinning our direct to consumer offerings across the Group.
Partners and support functions
Technology is enabling consumers to learn virtually and in a more personalised
and effective manner. This means we can improve accessibility to education,
reach a larger market at a lower cost and be at the forefront of the evolving
learning marketplace. This enables us to reach our ambition to be the leading,
trusted provider of educational tools and services, and enhance learning
outcomes globally.
We’ve made real progress building
a tech strategy that supports a
cross-functional approach to
data, content delivery and
product development.
MaryKay Wells
Chief Information Officer
How we create long-term stakeholder value
Consumers
We empower learners across the globe with high-quality,
trusted learning products and services.
Governments
We partner with local, federal and national government
bodies around the world to develop learning solutions.
Educators
We work with educators, from teachers to institutions,
across all stages of education to support their learners in
achieving their goals.
Communities
We prize our role in shaping the future of education and
its impact on society, and strive to meet the expectations
that accompany this responsibility.
Employers
We partner with employers to empower their employees
to learn and succeed in the future of work.
Business partners
We nurture long-term collaboration with our business
partners to create shared value, building on our deep
relationships and mutual trust.
Employees
We unlock the potential of our human capital by investing
in our people’s growth and providing opportunities to
learn and progress.
Shareholders
We strive to deliver long-term value creation for
our shareholders.
Sustainability
As a learning company, creating a more sustainable world is part of everything we do. Starting with the millions of
users who already trust our products, we want to help more people create a better life for themselves and a better
world for society. We recognise our responsibility to reduce our environmental impact and are making progress on
our Climate Action Plan (see page 42). Our sustainability strategy is shaped by our stakeholders, and in line with the
outcomes of our 2022 materiality assessment (see page 34).
Measuring progress
We measure our progress against five non-financial KPIs:
Digital Growth
Consumer Engagement
Product Effectiveness
Culture of Engagement & Inclusion
Sustainability Strategy
Annual report and accounts 2023 Pearson plc 23
Strategic report Key performance indicators
Monitoring progress
Non-financial measures
Digital Growth
Objective: Drive digital revenue growth
Digital sales*
Underlying growth in group digital and digital-enabled sales
+3%
(2022: +9%)
23
Digital: 40%
Total digital: 82%
22
Digital: 44%
Total digital: 79%
21
Digital: 43%
Total digital: 74%
20
Digital: 45%
Total digital: 73%
19
Digital: 36%
Total digital: 66%
+8%**
**Excluding OPM and
Strategic Review
Digital-enabled: 42%
Digital-enabled: 35%
Digital-enabled: 31%
Digital-enabled: 28%
Non-digital: 18%
Non-digital: 21%
Non-digital: 26%
Non-digital: 27%
Partner Schools
US enrolmentsa
PTE volume
Higher Education US
digital registrations
100k
(2022: 105k)
1,231k
(2022: 827k)
9.8m
(2022: 9.9m)
OnVUE volumes
2.7m
(2022: 3.0m)
Consumer
Engagement
Product
Effectiveness
Objective: Create
engaging and
personalised consumer
experiences
Objective: Improve the
effectiveness of our
products to deliver
better outcomes
NPS for Connections
Academy
PTE speed of score return
+67
(2022: +67)
NPS for PTE
+55
(2022: +52)
Mondly paid subscriptions
432k
(2022: 446k)
5.3m
(2022: 4.7m)
Pearson+ registered users
1.0 days
(2022: 1.3 days)
VUE Test volumesb
20.7m
(2022: 19.4m)
VUE partner retention
94%
(2022: 99.9%)
Workforce Skills number
of enterprise customers
1,547
(2022: 1,503)
Workforce Skills enterprise
customer net retention rate
Culture of Engagement & Inclusion
Objective: Build an inclusive culture and increase diverse representation
Employee
Engagement
Investing in diverse
talent
Pearson
uses the
Gallup Q12®
survey
to measure
engagement,
annually
4.09
grand mean
on a 5 point
Likert scale
(2022: 3.96)
The % of responses
who agree or
strongly agree
to Gallup Q12®
survey questions
In the last six
months, someone
at work has talked
to me about
my progress
73%
(2022: 67%)
This last year, I have
had opportunities
at work to learn
and grow
76%
(2022: 72%)
Culture of inclusion index
Increasing diverse talentc
Objective: Increase BIPOC/
BAME representation at all
manager levels and maintain
overall gender parity
R
Representation
of BIPOC/BAME
employees at
Manager level
and above
22.0%
(2022: 20.7%)
Global %
of female
employees
59.1%
(2022: 59.0%)
The grand mean of
3 Gallup Q12® survey
questions
— At work, I am treated
with respect
— My company
is committed
to building the
strengths of
each employee
— If I raised a concern
about ethics and
integrity, I am
confident my
employer would do
what is right
4.21
grand mean on a 5
point Likert scale
(2022: 4.12)
3.03m
(2022: 2.83m)
66%
(2022: 74%)
Sustainability Strategy
Objective: Achieve net zero carbon by 2030
Higher Education Product
usage - text units
4.5m
(2022: 4.8m)
Reduction in total tCO2e in 2023
Reduction in total tCO2e in 2022
16%
vs 2022d
3%
vs 2021d
R
Progress against achieving
net zero carbon by 2030, as
measured through percentage
carbon reduction
Digital-enabled: 30%
Non-digital: 34%
Workforce Skills new
registered users
a.
b.
c.
d.
Measure definition has changed to number of government-funded student enrolments at partner schools within the US as of 30th September. Excludes private-pay students at Pearson Online Academy and district partnerships.
This is more closely aligned to business processes.
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.
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. % 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.
*
Historical figures restated to exclude US K-12 Courseware (sold in 2019).
Please find further details on our Strategic KPIs here https://plc.pearson.com/en-GB/company/our-targets-kpis
R
See how this aligns strategy to management reward: page 112
Annual report and accounts 2023 Pearson plc 24
Strategic report
Financial measures
Salesb
R
Adjusted operating
profita
R
Operating profitb
Net debta
Adjusted earnings
per sharea
R
Basic earnings
per shareb
£3,674m
£573m
£498m
£744m
58.2p
53.1p
23
22
21
20
19
£3,674m
£3,841m
£3,428m
£3,397m
£3,869m
23
22
21
20
19
£573m
£456m
£385m
£313m
£581m
23
22
21
20
19
£498m
£271m
£183m
£411m
£275m
23
22
21
20
19
£744m
£557m
£350m
£463m
£1,016m
23
22
21
20
19
34.9p
28.7p
58.2p
51.8p
57.8p
23
22
21
20
19
53.1p
32.8p
23.5pd
43.7pd
34.0p
This is our revenue as
reported in our
income statement.
A non-GAAP financial
measure that enables
management to consistently
track the underlying
operational performance of
the Group.
This is our operating
profit as reported in our
income statement.
This is a non-GAAP financial
measure and is used by
management to assess the
Group’s cash position.
A non-GAAP financial
measure used to
evaluate performance.
A measure of the amount
of profit that can be
allocated to one share
of our common stock.
Operating cash flow
and cash conversiona
R
Net cash generated
from operationsb
Dividend per share
£587m
£682m
22.7p
23
22
21
20
19
587m (102%)
£401m (88%)
£388m (101%)
£315m (101%)
£418m (72%)
23
22
21
20
19
£682m
£527m
£570m
£450m
£480m
23
22
21
20
19
22.7p
21.5p
20.5p
19.5p
19.5p
Total shareholder
returnsc
+5.39%
R
Return on Capitala
10.3%
1 year
3 year
5 year
+5.39%
+53.09%
+17.64%
23
22
21
8.7%
7.9%
R
a. See pages 221-226 for an
explanation and reconciliation
of these alternative
performance measures
and non-GAAP measures.
b. Statutory measure.
10.3%
c. Source: Bloomberg.
This is our net cash
generated from operations
as reported in our cash
flow statement.
This is the proposed full year
dividend. Our dividend policy
is to be progressive
and sustainable.
This is a measure of financial
performance of shares
over time.
A non-GAAP measure of how
efficiently we are generating
returns from our asset base.
Operating cash flow is an
adjusted measure and
is presented in order to
align the cash flows with
corresponding adjusted
operating profit measures.
.
d. Comparatives were restated
in 2022
Note: See pages 221-226 for full
reconciliation of the alternative
performance measures to the
equivalent statutory measure.
R
See how this aligns strategy
to management reward:
page 112
Annual report and accounts 2023 Pearson plc 25
Strategic report Financial review
We’ve delivered another strong set of results
in 2023. This continued progress underpins our
confidence that we’re set for another good year
in 2024 and on track to meet our 2025 objectives.
Sally Johnson Chief Financial Officer
Financial Summary
£m
2023
2022
£m
2023
2022
Business performance
Sales
Adjusted operating profit
Operating cash flow
Free cash flow
Adjusted earnings per share
3,674
573
587
387
58.2p
3,841
456
401
222
51.8p
Statutory results
Sales
Operating profit
Profit for the year
Net cash generated from operations
Basic earnings per share
3,674
498
380
682
53.1p
3,841
271
244
527
32.8p
Throughout this section: a) Growth rates are 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 the financial key performance indicators section on pages 221-226;
c) Constant exchange rates are calculated by assuming the average FX in the prior year prevailed through the current year.
Annual report and accounts 2023 Pearson plc 26
Strategic report Group Financial Expectations
2024 expectations
Sales growth
Adjusted
operating profit
Tax
Interest
Underlying sales
3-year CAGR
2022 to 2025*
2025 Margin
expectations**
Expect to be in line with
current market expectations
c.24%
c.£45m***
Mid-single digits
16-17%
*
Excluding the OPM and Strategic Review businesses.
** Adjusted operating profit margins.
*** Our interest charge will be c.£45m given our £300m share buyback and its extension by a further £200m.
NB: 2024 consensus on the Pearson website: underlying sales growth 3.7%, adjusted operating profit of £621m at £:$ 1.22, effective tax rate c.24%. For
reference, each 1c move in USD FX rate equates to c.£5m of adjusted operating profit.
Operating results
On a headline basis, sales decreased by £167m or 4% from £3,841m in 2022 to £3,674m in 2023 and reported operating profit
increased by £227m from £271m in 2022 to £498m in 2023. In addition, adjusted operating profit increased by £117m or 26% from
£456m in 2022 to £573m in 2023 (for a reconciliation of this measure see page 28 and note 2 to the consolidated financial statements).
The increase in reported operating profit 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.
The headline basis simply compares the reported results for 2023 with those for 2022. We also present sales and adjusted operating
profit 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 5%, excluding OPM and Strategic Review, and by 1% in aggregate, 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. There were no new
accounting standards adopted in 2023 that impacted sales or statutory or adjusted operating profits.
2024 outlook
We expect Group underlying sales growth, adjusted
operating profit and tax will be in line with current market
expectations. Our interest charge will be c.£45m given
our ongoing £300m share buyback and extension by a
further £200m.
— 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.
Annual report and accounts 2023 Pearson plc 27
Strategic report Financial review continued
All figures in £ millions
Operating profit
Add back: Cost of major restructuring
Add back: Property charges
Add back: Intangible charges
Add back: UK pension discretionary increases
Add back: Other net gains and losses
Adjusted operating profit
2023
498
-
11
48
-
16
573
2022
271
150
-
56
3
(24)
456
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 consolidated financial statements.
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.
Divisional Results
£m
2023
2022
Headline
growth
CER
Growth
Underlying
growth
Sales
Assessment & Qualifications
Virtual Learning
Higher Education
English Language Learning
Workforce Skills
Strategic Review
Total
Total, excluding OPM1
and Strategic Review2
Adjusted operating
profit/loss
Assessment & Qualifications
Virtual Learning
Higher Education
English Language Learning
Workforce Skills
Strategic Review
Total
1,559
616
855
415
220
9
3,674
350
76
110
47
(8)
(2)
573
1,444
820
898
321
204
154
3,841
258
70
91
25
(3)
15
456
8%
(25)%
(5)%
29%
8%
(94)%
(4)%
36%
9%
21%
88%
(167)%
(113)%
26%
9%
(24)%
(4)%
32%
8%
(94)%
(3)%
36%
9%
22%
116%
(167)%
(107)%
28%
7%
(20)%
(3)%
30%
11%
(74)%
1%
5%
33%
(17)%
20%
112%
(400)%
94%
31%
Assessment & Qualifications
In Assessment & Qualifications, sales increased 8% on a headline basis and 7% on an underlying
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 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.
1. 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.
2. Strategic Review is sales in international courseware local publishing businesses being wound down.
There will be no sales or profits reported in the division going forwards.
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.
Annual report and accounts 2023 Pearson plc 28
Strategic report Virtual Learning
Workforce Skills
In Virtual Learning, sales decreased 25% on a headline basis and 20% on an underlying 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.
In Workforce Skills, sales were up 8% on a headline basis and 11% on an underlying 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 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%.
Higher Education
In Higher Education, sales decreased 5% on a headline basis due to trading, currency movements
and portfolio changes, and declined 3% for the full year on an underlying basis, in line with
expectations. 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
c1,250. 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.
English Language Learning
In English Language Learning, sales were up 29% on a headline basis and 30% on an underlying
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.
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.
Strategic Review
Sales in our international courseware local publishing businesses under strategic review were down
94% on a headline basis for the full year and declined 74% on an underlying basis. 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.
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 the financial key performance indicators section on pages 221–
226). Interest on certain tax provisions is excluded from our adjusted measure in order to mirror the
treatment of the underlying tax item.
Annual report and accounts 2023 Pearson plc 29
Strategic report Financial review continued
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 there were 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.
all figures in £ millions
Net interest payable
Finance income in respect of retirement benefits
Fair value movements on investments held at FVTPL
Other net finance costs
Net finance costs
Taxation
2023
(33)
26
13
(11)
(5)
2022
(1)
9
28
16
52
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 financial key performance indicators section on pages
221–226.
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. See note 34 to the
consolidated financial statements for details of other uncertain tax positions.
Earnings per share
Basic earnings per share is 53.1p in 2023 compared to 32.8p in 2022. The increase in 2023 is mainly
due to increased operating profits and a decrease in the number of shares following the share buy
back, partially offset by increased interest and tax charges.
Adjusted earnings includes adjusted operating profit and adjusted finance and tax charges. The
reconciling items between the statutory inputs to earnings per share and the adjusted inputs are
discussed in the previous sections.
Adjusted earnings per share is 58.2p in 2023 compared to 51.8p in 2022 reflecting adjusted
operating profit growth, normalisation of tax and interest charges and the reduction in issued shares
as a result of share buybacks.
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.
Annual report and accounts 2023 Pearson plc 30
Strategic report Cash flow and working capital
Liquidity and capital resources
Net cash generated from operations, was £682m in 2023 compared to £527m in 2022. The increase
is largely explained by the drop-through of increased trading profits, good cash collections and the
impact of disposals, partially offset by increased restructuring cash outflows.
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.
Our operating cash flow measure is an adjusted measure used to align cash flows with our adjusted
profit measures. Compared to net cash generated from operations, this measure excludes
restructuring costs and acquisition costs but includes regular dividends from associates. It also
includes 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.
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.
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.
all figures in £ millions
Net cash generated from operations
Dividends from joint ventures and associates
Purchase / disposal of PPE and software
Net addition of right-of-use assets
Net costs paid for major restructuring
Other net gains and losses
Operating cash flow
Tax paid
Net finance costs paid
Net cost paid for major restructuring
Free cash flow
2023
682
-
(121)
(41)
63
4
587
(97)
(40)
(63)
387
2022
527
1
(133)
(29)
35
-
401
(109)
(35)
(35)
222
The Group’s borrowings fluctuate by season due to the effect of the school year on working capital
requirements. Assuming no share buyback prorammes, acquisitions or disposals, the maximum level
of net debt normally occurs in the third quarter, and the minimum level of net debt normally occurs
in December.
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.
Net debt
all figures in £ millions
Cash and cash equivalents (excluding overdrafts)
Overdrafts
Investment in finance lease
Derivative financial instruments
Bonds
Lease liabilities
Net debt
2023
312
(3)
100
5
(611)
(547)
(744)
2022
558
(15)
121
(6)
(610)
(605)
(557)
Annual report and accounts 2023 Pearson plc 31
Strategic report Financial review continued
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.
Annual report and accounts 2023 Pearson plc 32
Strategic report 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.
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 buy back programme completed on 7 March 2024 with a total of 32m shares
repurchased across the programme. We intend to extend our share buy back programme
by £200m.
Climate change
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 June 2025.
Conclusion
We delivered another strong set of financial results, exceeding financial expectations in 2023
and achieving cost savings of £120m. We are on track to meet expectations in 2024 and remain
committed to our targets out to 2025. We have a strong balance sheet, providing optionality, and are
extending our share buy-back programme by £200m. Free cash flow has improved and we expect
95-100% conversion in 2024.
My colleagues across finance have once again helped the business successfully respond to
opportunities and challenges that have arisen, through appropriate financial control, critical insights
and value creation. I would like to thank them for their hard work and commitment throughout
the year.
We have a strong balance sheet
providing optionality and are
extending our share buyback by
£200m. We have improved our
free cash flow and expect 95-100%
conversion in 2024.
Sally Johnson Chief Financial Officer
Annual report and accounts 2023 Pearson plc 33
Strategic report Sustainability
Learning for Impact
Why sustainability matters
to Pearson
Learning spurs human progression. It’s the greatest force for
change in our world, and helping people gain knowledge and
skills is, inherently, a way to improve our planet and
our communities.
We recognise that Pearson can play a unique role in increasing
access to education around our world. Not only can we reach
learners at scale throughout their lifetime, but we also strive for
all learning experiences to be high quality, vibrant and enriching,
with greater representation. Our approach is learner-led,
powered by technology and developed responsibly.
Learning for Impact framework
Our Learning for Impact framework, published in 2021, outlines
our commitment to leading sustainably across three pillars:
— Driving learning for everyone with our products
— Empowering our people to make a difference
— Leading responsibly for a better planet
Our strategy is shaped by our stakeholders. Our 2022 materiality
assessment incorporated a view of Pearson’s most significant
impacts on people and the environment as well as the most
material sustainability risks and opportunities for the company.
The findings highlighted the importance of assessing and
developing the skills of learners and colleagues, protecting our
users’ data, and our role in driving positive change through
climate action. For more information see: https://plc.pearson.
com/en-GB/purpose/our-esg-reporting.
Our Learning for Impact framework is underpinned by Pearson’s
robust corporate governance, strong culture, and effective
policies to ensure we achieve our ambitions.
The metrics used to track our performance against this
framework are also our corporate non-financial KPIs as shown on
page 24 of this report.
This illustrates the connection between our corporate
strategy and our mission to create learning experiences for
real-life impact.
The Board reviews our non-financial KPIs regularly, and these are
also linked to remuneration.
Additionally, we maintain positive results in rankings
and ratings, including Moody’s, MSCI, Sustainalytics, Dow Jones
Sustainability Indices (DJSI), and others.
A strong governance structure
Pearson has a strong governance structure that supports
our sustainability strategy. Our Reputation & Responsibility
Committee (RRC) is a standing Board Committee, and it works
alongside other Board Committees to oversee a range of
environmental and social impact topics, including climate-related
risks and opportunities. Read more about our governance
approach on page 66. We will continue to evolve how we govern
sustainability matters, to ensure our structures remain fit for
purpose in this fast-moving landscape.
The RRC circulates its conclusions and minutes to the Board, and
the Committee Chair is responsible for ensuring action points
are followed up. In 2023, the RRC approved the introduction of
a new sustainability data platform and received an update on
sustainability regulation from its legal counsel. Priorities for 2024
include submission of our net zero long-term targets to 2050
to the Science Based Targets initiative (SBTi) for validation, the
publication of a standalone climate transition plan in line with the
Disclosure Framework of the UK Transition Plan Taskforce which
expands on our existing Climate Action Plan, and overseeing
the development of Learning for Impact initiatives and thought
leadership, as well as strengthening the way we embed social
impact in data. For more information see page 94.
Our approach is learner-led,
powered by technology and
developed responsibly.
Cinthia Nespoli Chief Legal Officer and
Executive Leader for Sustainability
Outlook
For the coming year, our priorities are to continue with our
decarbonisation journey including energy efficiency and paper
procurement, evolve our skills-based volunteering programme,
and undergo a double materiality assessment to further define
our sustainability strategy alongside our corporate strategy.
More information on Directors’ remuneration reporting
requirements can be found on page 107, and a link to our
Directors’ Remuneration Policy can be found in our non-financial
and sustainability information statement on page 55.
Annual report and accounts 2023 Pearson plc 34
Strategic report Measuring progress on commitments
Our purpose — Add life to a lifetime of learning
Learning for Impact pillars
1
2
3
Driving learning for
everyone with our products
Empowering our people
to make a difference
Leading responsibly for
a better planet
Achieved through:
Achieved through:
Achieved through:
consumer engagement* product effectiveness*
culture of engagement and inclusion*
reducing our environmental impact*
digital growth* affordability and access
data privacy, cyber security, and safeguarding
responsible and sustainable content
investing with purpose
2023 progress
2023 progress
2023 progress
— Continued to increase access to learning through the ethical
use of technology. Regularly update and improve our data
privacy and security systems.
— Maintained our focus on employee engagement and made
progress on our commitment to build a more diverse pipeline
of talent
— Advanced our Climate Action Plan by reducing our carbon
emissions, and increased the use of 100% renewable
electricity consumption
Read more on page 36
Read more on page 39
Read more on page 42
Robust governance, a strong culture and effective policies
* See our non-financial KPI section page 24 for more on how these link to our strategy.
Rankings and Recognition
The Sustainable Development Goals
(SDGs) linked to our ESG framework:
Sustainalytics
Received a negligible risk
ranking and are ranked #1 in
our industry.
FTSE 4 Good Index
Remain a constituent of the
FTSE 4 Good Index Series.
Dow Jones Sustainability
Indices (DJSI)
Included in both the DJSI World
and DJSI Europe Indices.
Moody’s ESG Solutions
Award above sector average
score performance.
MSCI ESG
Maintained a rating of AA.
Annual report and accounts 2023 Pearson plc 35
Strategic report Sustainability continued
Driving learning for everyone
with our Products
We believe that finding ways to safely introduce generative AI
tools needs to involve regulation, training, policies and support
for everyone. We need to ensure that when we use these tools
they are truthful, reliable, safe, fair and can be trusted for the
purpose we set. When thoughtfully developed and implemented,
generative AI can have a positive impact on students and
teachers. Its improvement over time can only benefit teaching,
learning and assessment. You can learn more about how we’re
approaching AI to safeguard learners here: https://plc.pearson.
com/en-GB/news-and-insights/blogs/bringing-ai-life-empowering-
students-their-learning-journey
We acknowledge that it’s our responsibility to tap our global
expertise to inform policymakers around technology and
education, as we all work to develop products that improve the
lives of learners globally. Details on our approach are outlined
in our Global Government Relations Policy, and our Code of
Conduct references political activity guidance for employees and
business partners. Both of these policies can be found here:
https://plc.pearson.com/en-GB/corporate-policies, along with our
list of trade associations.
New technologies are shaping the way that students of all ages
are learning and accessing information - and we believe that
those technologies can have a positive impact on teaching and
learning, and how we serve our customers. Digital product
growth and the responsible application of technology also have
the capacity to reach more learners. During the year, our Group
digital and digital-enabled sales grew by 8%, excluding the OPM
and Strategic Review businesses.
Our differentiator in this space is the combination of deep
subject matter expertise, teaching experience, and learning
science knowledge that our authors, faculty, and content creators
bring to the table. The structures, methods, and pedagogy
behind our intellectual property make it unique. We also have
proprietary content and data that we leverage to create rich
learning experiences.
Access powered by technology
We have been using our deep experience with AI for many years,
and embedding AI technology across key products in a way that
enhances the teaching and learning experience and improves lives.
In 2023, we focused on developing beta versions of generative
AI tools in select higher education Pearson+ eTextbooks that
will support the learning process. This includes being able to
summarise eTextbook content and generate practice quiz
questions. In MyLab and Mastering, we are developing tools
that provide practice questions that support teaching by guiding
students through complex problems, moving them towards
mastery of challenging concepts in a personalised way.
Pearson Test of English (PTE)
What is the societal opportunity?
There is a consistent need for English proficiency in global
employment and education, a growing demand for online
language learning, and renewed global mobility.
How does PTE help solve this?
For many, learning English unlocks access to better quality
education and employment. PTE helps people learn and
prove their English proficiency, which enables them to
make progress in their lives, whether through study, work
opportunities or migration.
What is our unique learning design?
PTE is the first completely computer-based English test,
although we take a human approach to automated scoring.
We use sophisticated algorithms based on tens of thousands
of real-world data points to score each test. This allows us
to match the expertise and accuracy of a human examiner,
but with the precision, consistency, and objectivity that only
machine learning can achieve. We’ve done extensive research
to ensure the validity, reliability and fairness of the test.
What’s the impact?
More than 1m tests were administered in 2023. These tests
allow test takers to study, work, or migrate, including taking
part in academic courses with language requirements,
applying for jobs with specific language requirements,
and migrating to certain countries that have language
requirements. The NPS score for 2023 is +55.
Learning English is vital in
today’s global economy.
With education now a
lifelong pursuit, language
skills are essential for both
academic success, career
advancement and achieving
the life you imagine.
Gio Giovannelli President –
English Language Learning
Annual report and accounts 2023 Pearson plc 36
Strategic report Pearson and Forage are teaming up to
offer innovative virtual job simulations
to millions of US college students who
use MyLab and Pearson+. This first-of-its-
kind partnership is one more way we’re
helping to bridge the gap between the
college classroom and the workplace.
Forage job simulations allow students to
gain skills and explore careers while they
study, helping level the playing field for
students who are not able to obtain an
internship or gain access to certain
career fields.
For example, we are partnering with the IFRS Foundation, a
public interest organisation established to develop unified
and globally accepted accounting and sustainability disclosure
standards. Working with the IFRS, Pearson has accredited
thousands of professionals worldwide in the Fundamentals of
Sustainability Accounting (FSA) Credential®.
Similarly, Credly partners with many other corporate
organisations to issue a number of badges that recognise
an understanding of current sustainability trends including
the application of sustainability strategy within organisations,
sustainable finance, regulatory policies, as well as the tools
needed to achieve impact on a global stage.
Editorial guidelines
We are committed to content that is grounded in fact, inclusive
and free from discrimination, and is ethical and adheres to
legal requirements. The Global Content Policy is at the heart
of how we act on this commitment and provides clear and
consistent guidance for our content contributors. It applies to all
Pearson-owned content, whoever creates it, in any format. The
Policy goes through a periodic review process designed to help
content contributors keep pace with the latest developments
in educational concepts, terminology, laws and regulations,
technology, and best practices in diversity, equity and inclusion.
Responsible and sustainable content
Learning for sustainability equips learners with the confidence,
values, knowledge, attitudes, capabilities, and skills that will
enable us to contribute effectively to building socially just,
sustainable, and equitable communities.
This year, we have delivered learning and credentialing to our
corporate customers, and we recognise the crucial role they play
in the achievement of sustainable goals.
Generative AI has opened up some exciting
opportunities in product development. With our unique
IP and extraordinary talent, we want to build AI tools
that help students learn and help teachers teach.
Tony Prentice Chief Product Officer and
Co-President, Direct to Consumer
Annual report and accounts 2023 Pearson plc 37
Strategic report We also provide all colleagues with training on our updated and
strengthened data privacy and cyber security principles and
processes and conduct monthly phishing exercises designed
to educate employees to recognise malicious web links or
attachments. We have created a product development playbook
which will help us adhere to high standards of data management,
and a consistently considered approach to the adoption and
expansion of AI in our products and services.
Sustainability continued
Designing accessibility requirements into our products
and services
We strive to incorporate accessible thinking into everything we
do, from ensuring accessibility is woven into our culture and
training, to innovating and using technology to design and deliver
our products.
The work of Pearson’s Braille Services team provides an example
of our commitment to creating learning experiences that build
a more inclusive world. The team – some of whom themselves
went through school using Braille – work to ensure that blind
and visually impaired students have the best experiences
possible to learn and succeed. They meticulously transcribe
assessments into Braille, examining test questions to determine
how they need to be modified. In addition to textual content,
they consider how to transcribe any charts, graphs and images
into tactile graphics, thinking critically, for example, about the
elements of a map that might be essential to answer a question
without compromising the integrity of what it might be assessing.
Additionally, our GCSE English 2.0 and Level 2 Ext. Maths Cert
qualifications have been designed to be accessible. Our focus is
always to ensure that onscreen assessments are accessible.
Data privacy and cyber security
In addition to ensuring our products are effective, we are
committed to ensuring the personal data we hold on individuals
worldwide remains safe and secure, and we continuously update
and improve our standards of data management. In 2023, we
evolved our security strategy to align to the NIST Cyber Security
Framework (an industry-recognised framework of cyber security
standards, guidelines and best practices) built around five
key principles: Identify, Protect, Detect, Respond and Recover.
We have also started the process of aligning our data privacy
programme to the NIST Privacy Framework both for consistency
and to ensure that the business can effectively gauge its
practices against a respected external framework which will also
be recognised by external stakeholders.
The governance structure originally created to support the
data protection programme has been expanded into a wider
framework for trust and safety at Pearson. Business leads are
able to leverage holistic, real-time metrics that include data
privacy, end-of-life hardware, phishing failure rates, vulnerability
management, and audit compliance to prioritise and take actions
that lower our risk. Our clear system of escalation gives senior
management greater awareness and oversight of key areas and
activities, and better visibility over managing data privacy and
security risks.
Annual report and accounts 2023 Pearson plc 38
Strategic report Empowering our People to make a difference
We recognise that our success and our ability to have a real-life
impact on the world is highly dependent upon our colleagues.
Our goal is to be a world class place to work, offering an inclusive
environment where everyone can leverage their strengths to
drive high performance.
Our people strategy has three focus areas:
1. Employee engagement: driving better employee engagement
and high performance.
2.
Investing in talent: providing continuous learning, growth,
and progress for our people.
3. Diversity, equity, and inclusion: driving a culture of belonging
and aiming for increasingly diverse representation
throughout the company.
These areas are reflected in our non-financial KPIs on page 24,
which highlight the progress we made in 2023 on delivering on
our people strategy. Key human resources policies, including our
human rights statement and modern slavery statement, can be
found here: https://plc.pearson.com/en-GB/corporate-policies
Our values
Our values begin with ‘we’ because they apply to all of
us. They help guide how we show up every day for our
customers, each other, and the communities we serve.
1. We ask ‘why’?
We challenge the status quo by challenging ourselves.
2. We ask ‘what if’?
We spark curiosity to innovate new possibilities
for everyone.
3. We earn trust.
We build credibility by acting with integrity every day.
4. We deliver quality.
We hold our customers and consumers in the highest
regard, and our work to the highest standards.
5. We make our mark.
We execute with speed and agility to leave a lasting
impact on everyone we serve.
Employee engagement
We continued to prioritise employee engagement across our
business, and we made progress in our mean scores for all 12
questions in the engagement survey conducted on our behalf
by Gallup. We also made a meaningful overall improvement,
with our engagement GrandMean score increasing to 4.09 out
of 5 (from 3.96 in 2022). As a result, we now rank in the 70th
percentile in Gallup’s global company database for engagement.
We have 10 employee and business resource groups (ERGs)
- voluntary, employee-led groups that aim to foster a diverse,
inclusive and equitable workplace culture for Pearson employees.
The ERGs support leadership to champion inclusive efforts and
promote collaboration and community between all Pearson
employees. More information on each group is provided on
the Careers section of our website here: https://plc.pearson.
com/en-GB/careers/diversity-equity-inclusion. This year, as part
of the Stonewall Workplace Equality Index, the UK chapter of
our Spectrum ERG received a ‘High Commendation’ award in
recognition of its work to make real, impactful change in support
of LGBT+ colleagues, customers, and students as well as our
suppliers and partners.
In 2023, we launched a skills-based volunteering initiative for
our people, that focuses on learning, mobilising, and building
community. As part of the launch, we refreshed our volunteering
policy to five days aligned to our purpose and values. We also
launched a Credly by Pearson volunteering credential series,
which recognises the impact that our employees make in their
communities. Our employees around the world have participated
in events at home, in the office, and on the road. To date,
employees have completed over 20,000 hours of volunteering.
Annual report and accounts 2023 Pearson plc 39
Strategic report Sustainability continued
Investing in talent
We see upskilling managers as a priority because of the critical
role they play in engaging our employees. In addition to offering
new managers a formal development programme, over 700
existing employees participated in our Coaching for Performance
series community, which focuses on developing our managers as
coaches. 96% of attendees reported identifying an opportunity
to use the skills they learned with their teams. We also measured
our progress using Gallup’s Coaching Index, which combines
two questions from our database to assess the extent to which
managers exhibit key coaching behaviours. Our coaching index
score has improved to 3.95 from 3.75 in 2022 (out of 5) and this
will again be a primary focus for us in 2024.
We also continued to enhance our workforce by bringing in new
colleagues with critical skills that support our strategy. These
skills included software development, sales and customer service.
We also continued to offer alternative routes into Pearson such
as internships and apprenticeships.
Our commitment to employee development is reflected in the
increase in the percentage of employees who agree or strongly
agree in the Gallup engagement survey that they have ‘had
opportunities to learn and grow’. This rose to 76% from 72%
in 2022. Our approach to employee learning is underpinned
by our capabilities framework. We are continuing to evolve this
using Faethm, our proprietary AI. Employees use the capabilities
framework to plan their own learning journeys aligned to the
skills needed to drive the company strategy and equip them for
the future of work.
We organised a global summit for 100 leaders to align
on strategy and performance priorities and respond to
developments in consumer culture and generative AI.
Following this in-person event, we looked at input from
employees via the engagement survey about their learning and
skills needs. We combined this needs assessment with content
from the summit to produce 31 live, virtual, learning sessions
via our global Learning at Work series for all employees. This
series leveraged Pearson authors as well as Pearson leaders
as teachers.
In addition, we launched a new learning experience platform
that integrates third-party content libraries, Pearson commercial
content, bespoke learning content on a range of topics aligned
to current priorities (e.g. generative AI), and digital credentials
powered by Credly by Pearson. To date, 16,100 Pearson
employees have earned a credential from Credly by Pearson.
Other Pearson commercial learning opportunities include
our direct to consumer apps, Pearson+ and Mondly, and
joint offerings with commercial partners, including Pearson
eTextbooks via VitalSource, Golden Personality Profiler,
Accelerated Pathways and Apprenticeships. These are all offered
to employees free of charge. We offer reimbursement to US
employees for tuition costs up to 18 credits, provided their
education programme is related to a job or skills needed within
Pearson. Tuition costs are reimbursed after pupils successfully
complete a course with a grade C or above, or equivalent mark.
Diversity, equity and inclusion
We fully integrated a focus on inclusion into our manager
development and continued to offer a learning experience to all
employees designed to promote an inclusive culture. Training
uptake was high at 92%, and feedback showed that it was highly
effective in conveying the benefits to Pearson and catalysing
individual action. As a result of its impact, this programme was
recognised at the Women in Technology Excellence Awards UK
as the best Diversity and Inclusion initiative 2023.
We continued our commitment to build a more diverse pipeline
of talent via Board mentoring, coaching from Hult Ashridge
Business School, the McKinsey Management Accelerator
Programme and McKinsey Executive Management Programme.
This year, we have seen some improvements in both female
representation and in under-represented people of colour in the
US and UK.
More detailed information can be found on our performance
section on page 49.
We have aligned metrics focusing on and incentivising
increased diversity in our executive remuneration. Female
representation at Board level has improved with the additions
of Alison Dolan and Alex Hardiman, counterbalancing Linda
Lorimer’s retirement. Our Board diversity reporting can be found
on page 53 and our gender pay gap reporting can be found on
page 41.
We also maintained the level of diverse representation on our
Executive Management team. Notably we have maintained our
position of having surpassed the FTSE Women Leaders Review
target for 40% of leadership roles (defined as the Executive
Committee and their direct reports) to be filled by women, well
ahead of the end of 2025 deadline. This includes a 50:50 gender
split on the Pearson Executive Management team.
Annual report and accounts 2023 Pearson plc 40
Strategic report In March 2023, the Parker Review Committee launched a new
ethnic diversity target for FTSE 350 companies. All FTSE 350
companies were asked to set a percentage target for senior
management positions that will be occupied by ethnic minority
executives by December 2027 and to report on the target
annually. Currently, 18% of our Executive Management and the
senior leaders that report directly into them (SVPs and VPs) have
self-identified as ethnically diverse – this includes only US and UK
employees. We have set a global target of 20% ethnic diversity
for the Executive Management team and the senior leaders that
report directly into them (SVPs and VPs) by 2027.
The combined percentage of under-represented people of
colour in the US and UK, at all levels, is 28%, a 0.1% decrease
versus 2022, primarily due to the divestment of our POLS
business. Investing in increasing recruitment of under-
represented people of colour at all career levels, and of women
at senior levels, will continue to be a focus area in 2024.
We also give full and fair consideration to all applicants and
support the continued employment of disabled persons, having
regard to their aptitudes and abilities, and making reasonable
adjustments to address individual needs. Recruitment,
promotion, and training are conducted on the basis of merit,
against objective criteria that avoid discrimination. We are also
proud that ‘Disability:IN’ (https://disabilityin.org/what-we-do/
disability-equality-index/2023companies/) recognised Pearson as
a Best Place to Work on its 2023 Disability Equality Index.
Workforce engagement
Our workforce includes regular and limited-term employees,
(full-time and part-time), casual/seasonal employees (primarily
for scoring), and contingent workers (individual contractors,
consultancy workers, and agency workers). We follow local labour
and human rights regulations, including works councils, in each
jurisdiction in which we operate.
Most of our workforce is in the UK and US, and we communicate
with our employees in several ways. They hear regularly from
their divisional leaders and the CEO through virtual and
in-person town halls. They also have access to regular
CEO updates through the corporate intranet.
Employees receive news on the company’s share price via
the corporate intranet, and through regular communications
and town halls with the CEO and their respective business
leaders. You can learn more about how the Board engages with
employees on pages 82, and our Employee Resources Groups
on page 39.
In 2023, our Group employee turnover was 34% (16% voluntary
/ 18% involuntary). At a Pearson-wide level, this is in line with
expectations and broadly comparable to the previous two
years. However, as we continue to make progress with our
three focus areas, our voluntary turnover is reducing, with the
in-year increase in involuntary turnover largely due to strategic
divestitures and sales, most notably Pearson Online Learning
Services and Pearson College London.
Reward, benefits and wellbeing
At Pearson, our reward, benefits and wellbeing proposition
stands in support of our ambition to become the destination for
the world’s best talent, able to attract and retain talent to execute
our digital-first strategy. To ensure this is the case, we make a
significant investment in our people by offering a holistic Total
Reward package, underpinned by our guiding pay principles.
These principles ensure that our people know that there is a
consistent approach to how pay and benefits are managed
and understood at Pearson – no matter where they are, with
consistent and robust reward structures and clear guidelines
for determining and rewarding individuals’ contributions. We are
committed to providing fair and equitable pay and benefits for
our employees across the world.
Our commitment to pay equity was the guiding force behind the
decision to publish Pearson’s first Fair Pay Report and ethnicity
pay gap data on a voluntary basis in April 2023. This is initially
focused on the UK from a data perspective, but the report aims
to tell a more holistic story of the ways that we lead on diversity
and honour our commitments as an inclusive employer. We are
committed to greater transparency and want this to be a reason
the best talent joins, and stays at, Pearson. We released our 2023
Fair Pay Report as part of our transparency efforts, and plan to
continue making this analysis available on an annual basis.
We evaluate our benefit programmes annually to ensure they
are meeting the needs of a diverse range of demographics and
life stages. In 2023, we added several benefits for our employees
in the UK in an effort to align with our commitment to inclusivity.
These new benefits include: (i) a Mental Health Pathway which
provides assessment, support and, if necessary, referrals to the
appropriate clinical setting with either outpatient or inpatient
treatment under the care of a treating mental health specialist,
(ii) menopause support including expert guidance from trained
health professionals, (iii) gender affirmation services to support
a patient’s journey from assessment pre-surgery up to and
including gender confirmation surgery, and (iv) fertility and family
planning services that reimburses members up to £20,000 for
the costs of a wide range of fertility treatments.
In addition, we have continued to strengthen our strong culture
of employee share ownership. Over 1 in 4 of our employees
now choose to save to purchase Pearson shares via our
savings-related employee share plans (‘Save For Shares’ and the
‘Employee Stock Purchase Plan’). This enables them to become
shareholders and owners of Pearson, and share in the value they
help to create.
Health and safety
Our employee health and safety KPIs are reflected in the nine
standards in our policy here: https://plc.pearson.com/en-GB/
careers/diversity-equity-inclusion, and performance on those
standards is reported to the Board’s Reputation & Responsibility
Committee (RRC). Our strategy has been modelled against
ISO 45001 standards and other relevant regional and national
standards, and our 80 Strand headquarters holds ISO 45001
certification. Over the past year, our health and safety approach
has evolved in line with our risk profile and strategic business
changes, with our Protective Services team reporting on its
activities to the Reputation & Responsibility Committee.
Annual report and accounts 2023 Pearson plc 41
Strategic report Sustainability continued
Leading responsibly for a better planet
We recognise our responsibility to reduce our environmental
impact and are making progress on key commitments, aided by
our transition from one of the world’s largest print publishers
to becoming a digital-first organisation. We are making
progress on our Climate Action Plan and our response to the
TCFD recommendations can be found on page 44. Our latest
materiality assessment, conducted in 2022, ensures our areas of
environmental focus align with our stakeholders’ concerns.
Climate Action Plan
In 2018, we set ambitious carbon targets which include a
reduction commitment approved under the Science Based
Targets Initiative to reduce scope 1, 2 and 3 emissions by 50% by
2030 against a 2018 baseline; and another target of becoming a
net zero company by 2030.
Central to our decarbonisation strategy is our shift towards a
more environmentally beneficial product portfolio. Our Climate
Action Plan is underpinned by three main areas of work:
— Achieving a decrease in the overall quantity of paper
purchased and increasing the share of ethically
sourced material.
— Increased the use of 100% renewable electricity consumption,
while reducing reliance on renewable energy certificates to
achieve this target.
— Engaging with our suppliers in the climate transition.
Environmental impact targets are assigned to the business
divisions and central functions, with progress reviewed internally
on a quarterly basis and validated by an external third party once
a year. Our headquarters, as well as three major sites in the UK,
are also ISO 14001:2015 certified.
We believe that the most meaningful and important contribution
that Pearson can make to society’s journey to net zero is by
focusing on reducing our absolute emissions as described in the
following sections.
We will also continuously review our long-term decarbonisation
plans and net zero targets to ensure they remain aligned with
global best practice, the latest climate science, and reflect
continual improvements in our data quality. That’s why this year
we are considering options for revising the company’s long-term
science-based targets.
Emissions reduction
Pearson achieved a 16.3% reduction during 2023 compared to
2022, which led to a 44% reduction of our GHG emissions overall
(vs a market-based target of 50% reduction in 2030 against a
2018 baseline).
Our progress was ahead of expectations, partly due to portfolio
changes below our rebaselining threshold (5%), and the knock on
effect of cost reductions reflected in our carbon accounting.
These reductions also highlight the work that we have been
building to achieve better data quality across the business. In
2024, we will continue to prioritise data accuracy and plan to
rebaseline our figures as we bring on board a new data collection
system, as detailed on page 43.
In 2023, actual emission reductions were driven by an
accelerating demand for our digital solutions; and operational
efficiencies in our properties, workforce, and paper-related
purchasing, including transport and distribution.
Resource use
Responsible environmental stewardship helps to create a
healthy and sustainable planet for our learners and all of society.
Our biggest direct impacts are carbon emissions from our
use of energy, so we need to ensure we manage our own
operations responsibly.
Energy
Improving the energy efficiency of our buildings is a key
component of our Climate Action Plan. In 2023, we began a
programme of decommissioning utility-intensive buildings –
with a reduction in our physical footprint of 8% – and have
implemented ESG guidelines on the selection of new buildings.
Since 2016, over 100% of our electricity has been purchased
through green tariffs, onsite generation, or renewable energy
certificates (RECs).
Next year, we are seeking to reduce our use of RECs as pricing
has been volatile and they do not necessarily support the
development of new renewable capacity. While they will continue
to have a role to play – for example where we do not expect to
be long-term occupiers of a building – we will focus our efforts
on reducing energy consumption and driving procurement from
sustainable and renewable sources.
As we continue to invest in technology and innovation, renewable
energy technology will be increasingly important for us. We are
committed to designing our products and services to be as
eco-friendly as possible, as this has a direct influence on the
emissions generated in our own operations.
This year, we assessed the carbon footprint of our English
Language Learning app, Mondly, to better understand the
environmental impact of our digital products. Our findings
confirmed what we had already suspected – that emissions from
digital products such as Mondly are much lower than traditional
print language learning books.
Most of Mondly’s use-phase emissions come from the
consumption of energy from end-user devices, which is difficult
for us to control. Therefore, we will need to establish the correct
partnerships to drive change as an industry going forward.
However, another significant portion of emissions are held in
data centres used by Mondly. This is an area where we can
have more direct influence. For example, during the year, we
streamlined the number of data centres we use, including closing
six, opening two new more efficient centres, and optimising two.
We are also moving to cloud-based data centres that provide
more efficiency on resource use, where possible.
Waste and water
As reported last year, we saw a sharp upward trend during
2022 in total water and waste consumption partly due to the
estimation methodology used. Even though our office-based
operations have a limited impact on water use and waste, we
continue to focus on data improvements by using more accurate
methodologies of calculation for estimations.
Next year, we are planning a water risk assessment and the
continued certification of our largest offices. For example, the
Berger Tower, one of Pearson’s main Indian offices has been
certified LEED Platinum which is the highest rating and awarded
only to the best-in-class properties in terms of sustainability
management.
Annual report and accounts 2023 Pearson plc 42
Strategic report In terms of our indirect impacts, we are increasing our
investment in print-on-demand services, instead of holding
paper-based inventory. This helps us to reduce the risk of
out of date content and enables us to become more efficient
in managing our waste resources. As well as this drive to be
‘inventory free’, we are also promoting the expansion of print
service agreements to expand local printing and avoid the
environmental impacts of shipping product to different locations.
As a result, we have achieved a reduction of approximately 15m
book miles.
We are also prioritising a reduction in goods we transport by
air. By consolidating orders (regrouping orders from different
locations into single shipments) and shifting to an ocean-freight-
first strategy, we have reduced the quantity of goods shipped
by air. Next year, we will intensify our efforts alongside our key
logistics partners.
We are also exploring options to shift to sustainable fuel for our
ocean freight.
Building sustainable supply chains
In 2023 we purchased over £1.4bn of goods and services.
Around 80% of our global spend is represented by 190 large-
scale suppliers. We believe in doing business with partners who
share our commitment to human rights and the environment
— strengthening our supply chain through shared values
and commitments such as carbon reduction and diverse
representation. We conduct detailed analysis of our larger
suppliers through a third-party sustainability ratings platform
(EcoVadis) as well as our own maturity criteria for carbon
reduction and diversity practices based on publicly available data.
Supplier engagement
The great majority of our GHG emissions come from our indirect
emissions that occur in upstream and downstream activities,
which represent over 95% of our total market-based emissions.
Our Global Procurement team has resources dedicated to
developing our ethical and sustainable procurement practices.
Working with and providing education to our business divisions,
they have implemented an end-to-end process to engage
suppliers in assessment, growth and accountability to accelerate
our decarbonisation journey.
This year, we have updated our Responsible Procurement policy
to further strengthen the minimum standards we expect of our
suppliers and third parties. We continue to review and update
our ways of working to embed carbon maturity considerations
into every stage of the supplier lifecycle from sourcing through to
ongoing governance, and we seek diverse perspectives to enrich
Pearson’s products and services.
Paper sourcing and nature-related impacts
While we have a growing technology-enabled supply chain
reflecting our increasing shift to digital, some of our customers
still require traditional paper-based products, and will continue
to do so for the foreseeable future. Therefore, we continue to
manage the use of paper and print production to minimise any
potentially negative environmental impacts further down our
supply chain.
During 2023, our overall paper consumption decreased (2023:
22,859 tonnes; 2022: 24,187 tonnes), due to our digitalisation
strategy. We are also maintaining our commitment to source
100% of our paper from ethically certified papers. This year, we
sourced 69% (2022: 62%) of our paper from certified sources
(FSC, PEFC and SFI).
In addition to purchasing ethically sourced papers, which put an
emphasis on banning deforestation, enhancing biodiversity and
protecting nature, we maintain strong due diligence procedures
in our direct supply chain, as this is a key component in how we
manage nature-related risks.
We rate suppliers as medium or high-risk based on a Book Chain
tool designed specifically to help companies identify labour and
environmental risks in the supply chain. We use Book Chain’s
Forest Sourcing and Chemicals & Materials tools to reduce the
likelihood of purchasing paper from sources associated with
endangered species, reduce our exposure to deforestation and
ensure our suppliers are complying with safety legislation. The
audits are carried out by third-party auditors and shared via the
Book Chain platform. In 2024, we will conduct a third-party audit
of nature-related risks to include our wider supply chain, beyond
paper sourcing.
Strengthening data and reporting
Following a rigorous and comprehensive selection process,
we will implement a new data management system in 2024.
The internationally recognised, best-in-class, integrated
platform covers emissions tracking and reporting, and we
expect that the adoption of the system will provide us with
significantly enhanced visibility and a more accurate view of our
footprint. This is supported by the system’s ownership of the
CEDA multi-regional input-output (MIRO) database of emissions
factors, which covers over 95% of global emissions. It will also
support our emission-reduction initiatives within our operations
and along our value chain.
Annual report and accounts 2023 Pearson plc 43
Strategic report Sustainability continued
Task Force on Climate-related Financial Disclosures
Below we set out our climate-related financial disclosures
consistent with the four Task Force on Climate-related Financial
Disclosures (TCFD) recommendations, and 11 recommended
disclosures in the 2017 report ‘Recommendations of the Task
Force on Climate-related Financial Disclosures’, together with
its subsequent annex and implementation guidelines. The
statement includes the climate-related financial disclosures
required by section 414CB (A1) and (2A) of the Companies Act
2006. Additional information on climate-related issues (beyond
the recommended TCFD disclosures)” can be can be found
in other parts of this document. Where this is the case, it is
referenced within the relevant paragraphs.
Governance
Board oversight
The Board continues to have ultimate oversight of Pearson’s
climate change strategy and achievement of our targets.
Day-to-day responsibility for Pearson’s environmental, social
and governance issues is delegated to the Board’s Reputation &
Responsibility Committee (RRC). The RRC receives updates
on emissions on a regular basis and met four times
in 2023 to develop plans for delivering and embedding the
Learning for Impact strategy across the Group (including the
climate strategy), monitor and track progress against plans,
support management, Group leadership and functions on
sustainability-related matters, and discuss recommendations
for the wider Board.
As a group, the RRC brings a deep understanding of climate
and sustainability. For information on the Board’s composition
and skills profile please see page 68. Pearson’s other Board
Committees work alongside the RRC on several ESG topics,
for example, the link between climate and remuneration
and reporting compliance and audit. Read more about our
governance structure and approach, including our organisational
structure on climate governance on page 94.
Strategy management and implementation
The role of assessing and managing climate-related risks
and opportunities is a shared responsibility across Pearson.
Our Chief Legal Officer is the Executive sponsor of our ESG
strategy and chairs the environmental steering group, which
includes our Chief Financial Officer and Chief Strategy Officer.
She also participates in the RRC. The steering group meets
quarterly and directs the implementation of our overall carbon
reduction plan, oversees climate-related risks and opportunities
and communicates objectives to the rest of the Executive
Management team.
Each business division and corporate function has appointed
senior representatives to lead sustainability actions and ensure
that risks and opportunities are embedded into their planning
and divisional oversight. The sustainability team meets quarterly
with the management of divisions and corporate functions to
provide expertise and guidance on the implementation of carbon
reduction activities both at a central and individual business
unit level. The sustainability team also holds responsibility
for monitoring and reporting on our goals and representing
the company in wider partnerships aimed at achieving
transformational change.
Throughout the business, Pearson has subject matter expertise
that touches on various areas of our climate-related agenda. For
example, our Responsible Procurement team engages with our
suppliers on a regular basis and ensures relevant policies and
procedures exist to enable a transition to a green economy.
Strategy and risk management
Identified risks and management approach
Last year, we commissioned the specialist consultancy ERM to
undertake a climate risk assessment to identify and quantify
the potential impacts of climate change risks and opportunities
on our businesses, strategy and financial planning. The process
undertaken included assessing the materiality of climate-related
risks; identifying the range of scenarios described in the following
sections; evaluating business impacts and shortlisting the most
meaningful risks accordingly, and finally, identifying Pearson’s
management responses and mitigation actions to each of the key
risks identified.
In order to prioritise the nine key risks identified, we took an
evidence-based approach, drawing on climate scenarios and
Pearson’s financial data, to assess their materiality, likelihood
and velocity.
This year, we refreshed ERM’s assessment internally, updating
for changes in the sustainability strategy and refreshing the risks
through discussions with management, and leadership. The
conclusion of this exercise was that the risks remain consistent
with last year. The various climate risks identified are integrated
into the organisation’s overall risk management processes,
dependent on the nature of the risk. For example, physical risks
are integrated into business continuity planning by the central
workplace team, costs and availability of paper by the centralised
procurement team, and other transition risks such as changes
in regulations are managed by regulatory alert systems held in
the Legal function. Managing wider stakeholder expectations and
stakeholder engagement is managed by the sustainability team
and respective communications team, whether it is internal
or external.
The Group has assessed the impact of climate change on the
Group’s financial statements, including our commitment to
achieve net zero by 2030, and the actions the Group intends to
take to achieve those targets. The assessment did not identify
any material impact on the Group’s significant judgements or
estimates as at 31 December 2023, or the assessment of going
concern for the period to June 2025 and the Group’s viability
over the next five years.
Annual report and accounts 2023 Pearson plc 44
Strategic report Risk description
Physical risks
Facility damage due to acute hazards:
Two of the assets included in the physical risk screening have relevant
exposure to acute hazards.
— Melbourne has present day exposure to a flood; and
— Manila experiences a hurricane once every three years on average, with a
maximum observed wind speed of 127mph.
Wildfire interruption to Assessment & Qualifications:
Wildfire is the physical climate hazard that has the potential to trigger
widespread disruptions to transportation and facility accessibility.
The Assessment & Qualifications business unit is not fully digitised and
relies on physical locations for instruction and examinations. Under a
pessimistic warming scenario, wildfire risk may increase across the US,
Canada and Australia.
Increased water scarcity:
According to data from WRI Aqueduct, Pearson has a relatively low number
of properties with exposure to water scarcity across its portfolio of
operating locations.
Increased paper costs:
The global paper market is inherently exposed to physical risk, such as
exposure to potential increased destruction from thunderstorms, wildfires,
hurricanes and flooding. These events can also cause logistical disruptions
that further impact the paper market. Accordingly, paper costs may increase.
Increased use of cloud services:
Data centres require ever-increasing quantities of electricity and water to
cool their systems. As Pearson increases its reliance on digitisation, exposure
to the physical risks of data centres owned by cloud service providers may
materialise in the form of increased costs to use their services, should they
face increased costs to run and cool their systems.
* Impact scales:
Time frame
Short: within 5 years
Medium: between 5 – 10 years
Long: more than 10 years
Magnitude of impact
Low: below £5m
Moderate: £5m - £20m
High: £20m or above
Scale
Pearson mitigation actions
Time frame – short
Likelihood – possible
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions – low
We have insurance policies in place that would
cover the costs of structural damage and some
lost revenue. Therefore, the impact is expected
to be minimal.
Time frame – medium
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
We have insurance policies in place that
would cover the costs of structural damage.
Therefore, the impact is expected to be
partially mitigated.
Time frame – medium
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
Time frame – long
Likelihood – likely
Magnitude of impact before any mitigation action – moderate
Magnitude of impact with mitigation actions - low
Time frame – short
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
We expect water usage to remain minimal,
and any increased costs or consumption
will be offset by property upgrades (e.g. taps
automatically switching off).
In the short-term pricing changes will be
reflected in operational and strategic plans. In
the medium term we expect digital product/
services alternatives to be widely available.
Mitigation actions would include shifting
services to alternative locations or servers.
Any incremental increase in costs would be
reflected in operational and strategic plans.
Annual report and accounts 2023 Pearson plc 45
Strategic report Sustainability continued
Risk description
Transition risks
Scale
Pearson mitigation actions
Building efficiency standards:
Building efficiency and performance standards are becoming more stringent
across the globe and are being imposed by regulation potentially increasing
costs of occupied space.
Procurement of sustainably-certified paper:
Prices and supply chain shortages may continue affecting the procurement of
sustainably-certified paper.
Time frame – short
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
Time frame – short
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
Our property strategy is continuously updated,
and our selection criteria for newly leased
properties is well above building efficiency
minimal requirements.
We expect a reduction of paper use based
on our ongoing digitalisation strategy and
availability of digital alternatives. Impact will
also be decreased through improved product
design and appropriate pricing strategies.
Therefore, the impact is expected to be
minimal.
The risk of impact is decreased through
digitalisation, which assumes a lower ETS
exposure level through product design.
Increased cost in EU ETS certificates for paper mills in Italy, Sweden,
Germany and Belgium:
As a result of the Paris Climate Agreement and the resulting Nationally
Determined Contributions (NDCs) framework, there will be an increase in cost
of EU Emissions Trading System (ETS) certificates as more EU countries work
to meet their decarbonisation commitments. This is due to the limited supply
of, and growing demand for, ETS certificates.
Reputational risk of having a non-SBTi approved “net zero” target
What it means to reach ‘net zero carbon’ continues to evolve and concerns
have been raised that companies claiming carbon neutral status are
simply buying carbon credits, rather than taking concrete steps towards
minimising their own carbon footprint. As a result, companies are revisiting
their net zero target.
* Impact scales:
Time frame
Short: within 5 years
Medium: between 5 – 10 years
Long: more than 10 years
Magnitude of impact
Low: below £5m
Moderate: £5m - £20m
High: £20m or above
Time frame – medium
Likelihood – likely
Magnitude of impact before any mitigation action – low
Magnitude of impact with mitigation actions - low
Time frame – medium
Likelihood - possible
Magnitude of impact before any mitigation action – moderate
Magnitude of impact with mitigation actions - low
We will continue to focus on our own
decarbonisation actions in alignment with the
latest globally recognised standards. Pearson
will submit a net zero long-term target to 2050
to the Science Based Targets Initiative (SBTi) for
validation to mitigate this risk.
Annual report and accounts 2023 Pearson plc 46
Strategic report Opportunities
Pearson’s strategy focuses on empowering individuals and
communities by acquiring and credentialing skills across all
life stages. Last year, our products and services impacted the
lives of around 160 million global users, and we now have
1547 enterprise learning clients in Workforce Skills. Learning
encourages action, promotes collaboration, supports innovation,
and facilitates data-driven decisions for adopting more
sustainable practices.
Urgent, beyond value chain mitigation activities are essential
in the achievement of societal climate goals. By the very
nature of our purpose, Pearson has an opportunity to provide
the learning, credentialing and tools needed for a more
sustainable future. However, measuring the impact that
learning has on a global sustainability transformation is not a
straightforward endeavour and one that requires continuous
improvement in data and technology.
Nonetheless, the continuous decarbonisation of Pearson’s
products and operations through digitisation, energy
efficiency, and flexible working continue to put us on the
right path to achieving our long-term climate goals.
Resilience to climate change
Our climate risk analysis ran across multiple time periods up to
2050, to help us assess the speed of impact on our business
model of various scenarios, and to reflect the critical future
dates for reducing carbon emissions. The articulation of short-,
medium, and long-term time horizons aligns with our goals and
processes. The short-term horizon reflects our risk forecasting
process, including our going concern and viability statements.
The medium-term horizon to 2030 alludes to the date of our
reduction targets, and the long-term horizon marks societal goals
of achieving carbon neutrality by 2050.
The physical risk of Pearson’s business was assessed using both
the RCP 2.6 scenario (low GHG emissions that keep the world
below 2°C warming by 2100, aligned to current commitments
under the Paris Climate Agreement), and the RCP 7 scenario
(high GHG emissions with average warming greater than 3°C
by 2100). Our financial quantification above was based on the
pessimistic scenario such as RCP 7 and IEA Beyond 2°C.
Six physical assets were assessed for exposure to material
physical risk. These were chosen because they represent a
sample of assets providing a range of critical Pearson services
that, if disrupted, could result in delivery failures caused or
aggravated by climate physical risks. Each physical hazard was
mapped on a materiality matrix and changes in materiality from
2023 to 2050 were projected.
The analysis concluded that Pearson’s business is moderately
vulnerable to climate change from physical risks in the medium
and long-term. The main areas of exposure are climate change-
driven extreme heat and water scarcity which may affect the
operations of cloud-based data centres that play a central role in
our business strategy. Some of Pearson’s physical locations, such
as testing centres, are also moderately vulnerable to wildfires or
flooding that could impact normal business operations. However,
we have business contingency plans in place, including insurance,
to reduce our potential financial exposure to such impacts.
The transition risk of Pearson’s business was also assessed,
using four scenarios from the IEA’s World Energy Outlook 2021,
(WEO-2021). The analysis concluded that Pearson is minimally
vulnerable to transition risk in the 2030 time frame, but risk
increases for longer time horizons across all risk categories.
The main transition risks include the reputational risk associated
with having a net zero target which is reliant on offsetting
unabated emissions, and the increasing cost of ethically sourced
paper. The transition risks identified in the table on page 46,
are largely mitigated by the opportunities also identified in the
analysis. They include the further digitisation of our business,
developing climate-related educational content and services, and
adopting more ambitious reduction plans.
Impacts of climate-related risks and opportunities
The Board of Directors has undertaken a robust assessment
of the current risks facing Pearson as disclosed in the risk
section on pages 56-65 of this report. This assessment identifies
principal risks, as well as several emerging risks and risks which,
while more modest, could have a significant near-term impact.
The corporate risk register reflects the following conclusions:
— Climate change overall does not represent a principal risk
for Pearson. The financial impact of the aggregate climate-
change-related risks and opportunities individually and in
aggregate are well below the threshold for an item to be
considered a principal risk.
— The physical and transition risk assessment highlighted no
significant material risks arising from climate change in the
short term (within the next five years).
— There were no substantial transition risks in the short term.
However, in the medium term, the key risk is the reputational
risk associated with maintaining a net zero target to 2030. We
are mitigating this by realigning our long term targets with
updated guidance produced by the SBTi.
— On physical risks, there are no material short-term substantial
risks identified once the impact of mitigating activities is
taken into account. In the medium to longer term, the most
significant physical risk is water scarcity. In addition, whilst
certain sites were identified with exposure to impacts from
wildfire such as on closure of VUE test centres, or storms, the
impact of these is currently expected to be mitigated through
insurance policies and business continuity insurance.
In making this assessment, we considered the actions needed to
achieve our commitments, as well as the strategic and financial
impact of potential risks and opportunities. We concluded that
these did not have a material impact on the carrying value of any
assets and liabilities as of 31 December 2023, as we explain in
further detail in note 1c to the financial statements.
Strategic outlook
Our business model places the consumer at the heart of
everything we do, and we are integrating our products to create
a learning ecosystem that reaches our consumers across all of
their life stages. As we build out our digital learning capabilities,
we will continue to shift away from physical paper-based
products and services, in turn accelerating our decarbonisation
trajectory. In addition, we continue to reduce our property
footprint which also contributes to reducing our risk exposure
to physical and transitional risks, and we expect these trends to
continue. This year, we will be conducting a refreshed materiality
review in preparedness for climate-related reporting regulations.
This analysis will be closely integrated into broader corporate
strategy work and decision making.
By the end of 2023, we had achieved a reduction of 44% in our
Group emissions across our Scopes 1-3 (market-based) against
our 2018 baseline, putting us on track to achieve our 2030 target
of a reduction of at least 50%.
Annual report and accounts 2023 Pearson plc 47
Strategic report Sustainability continued
We believe that the most meaningful and important contribution
that Pearson can make to society’s journey to net zero is by
focusing on reducing our absolute emissions, both in our own
activities and along our value chain, with scope 3 emissions
accounting for more than 95% of our total. Last year, we
published our Climate Action Plan, and we are currently
advancing our plans to do this beyond 2030 – mapping out the
carbon reduction actions that the business will need to take as
wider society does the same, in the context of developments in
and the evolution of carbon offset markets and in line with the
latest science-based guidance.
Metrics and targets
Our primary target is to reduce our absolute scope 1, 2 and
3 carbon emissions by 50% by 2030 (validated by the Science
Based Targets initiative) using a 2018 baseline. We have made
good progress this year, achieving a 44% reduction in emissions
since 2018.
Climate-related metrics
In addition to carbon reduction targets, Pearson has business-
relevant non-financial KPIs that address the climate-related risks
and opportunities discussed throughout this report, namely:
Metric
category Metrics
GHG
emissions
Strategy
Governance
Sustainability strategy
Progress against achieving net
zero carbon by 2030, as measured
through percentage carbon
reduction
Digital growth
Remuneration
ESG weighting of 10% into LTIP
Pages
42-43
24
107
Our full set of environmental data and methodology for
calculations can be found in the ESG performance tables on
pages 48-55, and categories of scope 3 emissions included in
our targets are also detailed in our independent assurance
statement, see https://plc.pearson.com/en-GB/sustainability/
our-esg-reporting. Our emissions data is calculated following the
GHG Protocol Corporate Accounting and Reporting Standard and
can be summarised as follows:
Our emissions data
tCO2e
Scope 1
Scope 2 location-based
Scope 2 market-based
Scope 3
Total location-based
Total market-based
Intensity ratio –
tCO2e/sales
(Scopes 1,2 market-based
and 3)
2023
2022
4,661*
14,052
14
302,572
321,285
307,247
4,622
29,034
182
362,473
396,128
367,276
83.6
95.6
* Small increase in Scope 1 emissions primarily driven by an increase in activity for
company vehicles in the US.
Table of contents
Section
Section
Governance
Strategy
Risk
management
Metrics and
targets
Board’s oversight of
climate-related risks
and opportunities
Management’s role in
assessing and managing
climate-related risks
and opportunities
Climate-related risks and
opportunities over the short,
medium and long term
Impact of climate-related risks
and opportunities
Pearson’s resilience taking
into consideration different
climate-related scenarios
Processes for identifying
and assessing climate-
related risks
Processes for managing
climate-related risks
Integration of climate-related
risks into the organisation’s
overall risk management
Metrics used to assess
climate-related risks
and opportunities
Scope 1, scope 2, and scope
3 GHG emissions
Performance against targets
Page
Reference
44-48
44
44-48
47
47
44
44
44
48
48
48
Annual report and accounts 2023 Pearson plc 48
Strategic report ESG data
Our performance
About our reporting
This report provides a summary of Pearson’s sustainable business strategy and our environmental, social, and governance (ESG) performance for the calendar year ended 31 December 2023. The Board’s Reputation &
Responsibility Committee has reviewed the reported information, including the list of material topics on page 94.
Global Reporting Initiative (GRI)
Our report is in accordance with the GRI standards, using the GRI 1: Foundation 2021 guidance. There is no relevant GRI sector standard for our industry.
Sustainability Accounting Standards Board (SASB)
We continue to report in line with the SASB’s standards to provide industry-based insights into the most relevant sustainability-related risks and opportunities for the media, and professional services sectors.
UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDGs)
We were proud to participate in the Early Adopter Programme of the UN Global Communication on Progress (CoP) designed to add value and streamline sustainability reporting for all participating companies
of the UNGC. Our CoP is publicly available on our participant profile at: https://unglobalcompact.org/what-is-gc/participants/7319-Pearson-plc
Lifelong learning and education have an important role to play in achieving all the UN SDGs, but we focus our efforts on those where we have the greatest impact. Our priority SDGs are: 4 quality education, 8
decent work and economic growth, and 10 reducing inequalities.
ESG material issues reporting against GRI and SASB
Material issues
GRI
SASB
Page/web reference
Comments/omissions
Product
effectiveness
Consumer
engagement
GRI 203-2: significant indirect impacts
GRI 203-2: significant indirect impacts
Digital growth GRI 203-2: significant indirect impacts
Employee
learning and
development
GRI 404-1: average hours of training per
year, per employee
GRI 404-2: programmes for upgrading
employee skills and transition assistance
programmes
GRI 404-3: percentage of employees
receiving regular performance and
career development reviews
Risks, opportunities, and management approach: Pages 34-38
Performance: non-financial KPIs Page 24
Risks, opportunities, and management approach: Pages 34-38, 16-17
Performance: non-financial KPIs Page 24
Risks, opportunities, and management approach: Pages 34-38
Performance: non-financial KPIs - Page 24
Risks, opportunities, and management approach: Pages 39-41
Performance: Pages 24, 39-41
We do not report
on average hours
of training, or % of
employees receiving
reviews. 100% of direct
employees are covered
by the Gallup survey.
Annual report and accounts 2023 Pearson plc 49
Strategic report
ESG data continued
Material issues
GRI
SASB
Page/web reference
Comments/omissions
Employee
engagement
Inclusion and
diversity
405-1 Diversity of governance
bodies and employees
Reducing our
environmental
impact
GHG Emission scope 1, 2, 3.
Baseline and methodology.
Any offsets including type,
amount, criteria
Data privacy
and cyber
security
GRI 418 -1 Substantiated
complaints received concerning
breaches of customer privacy and
losses of customer data
Journalistic
integrity &
sponsorship
identification
SV-PS-330a.2. (1) voluntary and
(2) involuntary turnover rate
for employees
SV-PS-330a.3.
employee engagement %
SV-PS-330a.1. & SV-ME-260a.1.
percentage of gender and racial/
ethnic group representation for:
(1) Executive Management
(2) professionals
(3) all other employees
SV-ME-260a.2. description of
policies and procedures to ensure
pluralism in news media content
SV-PS-230a.1description of
approach to identifying and
addressing data security risks
SV-PS-230a.2. description of
policies and practices relating to
collection, usage, and retention of
customer information
SV-PS-230a.3.
number of data breaches
percentage involving
customers' confidential business
information or personally
identifiable information
number of customers affected
SV-ME-270a.3 Description of
approach for ensuring
journalistic integrity of news
programming related to: (1)
truthfulness, accuracy, objectivity,
fairness, and accountability, (2)
independence of content and/
or transparency of potential bias,
and (3) protection of privacy and
limitation of harm
Risks, opportunities, and management approach: Pages 39-41
Performance: Page 34
Risks, opportunities, and management approach: Pages 40-41
Performance: Pages 24, 39-40
Social Equity portal: https://www.pearson.com/content/global-store/sites/
en-us/social-equity.html
Risks, opportunities, and management approach: Pages 35, 42-43
TCFD Report: Pages 44-48
Performance: Pages 24, 42-43
The following sections of our report detail:
— our approach to data security risks: Page 100
— governance of data privacy, cyber security and technology resilience:
Page 96
— approach to customer data and safeguarding and training provided:
Pages 34, 38
— consumer-facing privacy centre explaining how Pearson uses personal
information: https://www.pearson.com/en-gb/privacy-center.html
In the event of a reportable breach, we
would disclose information about the
incident and commit to contact any
affected data subjects in a timely way.
In line with regulations, we will disclose
material lapses to the relevant regulators.
To the extent that any relevant
regulator should find fault with our
data management and/or data security
practices, they will publish their
findings/sanctions.
— Business Partner Global Content Policy, on page 94
Annual report and accounts 2023 Pearson plc 50
Strategic report
GRI General Disclosures Index
Disclosure
Page/Location
Comment
2-1 Organisational details
2-2 Entities included in the organisation’s
sustainability reporting
68, 72,74
94-96
2023 annual report, sustainability@
pearson.com
https://plc.pearson.com/en-GB/
purpose/our-esg-reporting
We do not currently report on
workers who are not employees.
Most common type of workers are
regular employees (17,128) and
most common type of work
performed is in testing centres,
technology, sales, customer services,
and professional development
2-3 Reporting period, frequency and
contact point
2-4 Restatements of information
2-5 External assurance
2-6 Activities, value chain and other
business relationships
2-7 Employees
2-8 Workers who are not employees
81
11
53-54
2-9 Governance structure and composition
66-80
2-10 Nomination and selection of the
highest governance body
88-90
2-11 Chair of the highest governance body
66
2-12 Role of the highest governance body
in overseeing the management of impacts
2-13 Delegation of responsibility for
managing impacts
2-14 Role of the highest governance body
in sustainability reporting
68-80
80
94-96
Disclosure
Page/Location
Comment
2-15 Conflicts of interest
2-16 Communication of critical concerns
2-17 Collective knowledge of the highest
governance body
2-18 Evaluation of the performance of the
highest governance body
76
94
74-77
85-87
2-19 Remuneration policies
107-135
2-20 Process to determine remuneration
2-21 Annual total compensation ratio
2-22 Statement on sustainable
development strategy
2-23 Policy commitments
2-24 Embedding policy commitments
2-25 Processes to remediate
negative impacts
2-26 Mechanisms for seeking advice and
raising concerns
2-27 Compliance with laws and regulations
2-28 Membership associations
110
110
34
16
16-20
94
94
94
92
2-29 Approach to stakeholder engagement
16-20
2-30 Collective bargaining agreements
134
https://plc.pearson.com/en-GB/
corporate-policies
https://plc.pearson.com/en-GB/
corporate-policies
We are also members of the Global
Business Coalition for Education,
and the Corporate Consultative
Group of the World Resource
Institute (WRI).
Board members engage with
employees on a regular basis.
Annual report and accounts 2023 Pearson plc 51
Strategic report ESG data continued
ESG performance tables
Environment
Methodology: We follow the requirements from the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition) to calculate our emissions.
For scope 2, we use the dual reporting methodology (location and market-based approach), together
with some of the latest emission factors from recognised public sources, including, but not limited to,
the UK Department for Business, Energy and Industrial Strategy, the International Energy Agency,
the US Energy Information Administration, the US Environmental Protection Agency, and the
Intergovernmental Panel on Climate Change (IPCC). Energy use includes gas and electricity
consumption in MWh and vehicle fuel use converted from mileage into MWh using BEIS conversion
factors. We are also using the latest global warming potential from the IPCC’s Sixth Assessment Report.
An independent third party has verified and provided limited assurance of our energy
consumption; scope 1, 2 and 3 GHG emissions; and renewable electricity claims, as well as
our social KPIs. See SLR Consulting assurance statement here: https://plc.pearson.com/en-GB/
sustainability/our-esg-reporting
Greenhouse gas (GHG) (carbon dioxide equivalent) emissions overview (metric tons CO2e)
Scope 1
Scope 2 (market-based 1)
Scope 2 (location-based 2)
Scope 3
Total - location-based
Total - market-based
Total global scope 1 and 2 (location-based)
Total UK scope 1 and 2 (location-based)
Total global scope 1 and 2 (market-based)
Total UK scope 1 and 2 (market-based)
2023
2022
4,661
14*
14,052
302,572
321,285
307,247
18,713
2,280
4,675
821
4,622
182
29,034
362,473
396,128
367,276
33,656
5,671
4,804
1,662
Intensity ratio
tCO2/ m £ sales revenue (scope 1, 2 market-based and 3)
Energy
% electricity from renewable sources
Total electricity consumption from renewable sources only (MWh)
Total electricity consumption from non-renewable sources only (MWh)
On-site generated electricity (MWh)
Total gas consumption (MWh)
Total fuel oil consumption (MWh)
Vehicles (MWh)
Total energy consumption (MWh)
Global (gas, electricity and transport)
UK (gas, electricity and transport)
Resource use
Paper used (t)
% FSC
% PEFC
% SFI
Waste
Total waste generated (t)
Share of waste recycled in office space
Water
Total water consumption (m3)
2023
83.6
2022
95.6
2023
2022
100%
36,321
0
177
18,309
49
4,693**
59,372
59,323
11,519
99%
83,523
957
184
24,170
159
347
109,340
108,997
29,811
2023
2022
22,859
50%
6%
13%
2023
680***
23.9%
24,187
33%
20%
9%
2022
1,298
17.7%
2023
2022
84,857***
538,556
1. The market-based approach reflects emissions from electricity purposefully chosen.
It derives emission factors from a contract for the sale and purchase of energy.
** An increase in activity for company vehicles in the US is included in this year’s figures.
2. The location-based approach reflects the average emissions intensity of grids on which energy
*** We report estimated water and waste in some of our properties by applying an intensity ratio per sqm based on all actual data
consumption occurs.
available. This year, the intensity ratio per sqm for waste generated and water consumption was much lower than 2022.
* We purchase renewable electricity in countries of consumption. For American Samoa, Bangladesh, Kenya, Republic of Korea,
Northern Marina Islands and Romania, Pearson was not able to purchase country-specific Energy Attribute Certificates and we
had to buy from neighbouring countries/regions such as United States, India, Uganda, China and Poland. However, this represents
only 0.1% of Pearson total electricity consumption.
Annual report and accounts 2023 Pearson plc 52
Strategic report Social
All employee figures, with the exception of total average number of employees (as noted below) are
based on employee volumes as at 31 December 2023.
Our employees
Total average number of employees for the year†
2023
2022
18,360
20,438
Employees by geography (regional representation)
US as of 31 December
UK as of 31 December
Rest of world as of 31 December
† Total average number of employees is calculated using a Full-time Equivalent (FTE) methodology, as an average across the
17,612
9,241
3,359
5,012
20,169
10,694
3,931
5,544
reporting period. Seasonal/temporary staff are excluded from calculation.
Gender diversity breakdown
Total number of permanent, regular employees
Male
Female
Non-binary
No data
Total number of temporary, limited-term employees
Male
Female
Non-binary
No data
Total full-time, regular employees
Male
Female
Non-binary
Not disclosed
Total part-time, regular employees
Male
Female
Non-binary
Not disclosed
2023
97%
40%
59%
0%
1%
3%
36%
63%
0%
1%
79%
44%
56%
0%
1%
21%
27%
72%
0%
1%
2022
97%
40%
59%
0%
1%
3%
32%
66%
0%
2%
79%
44%
55%
0%
1%
21%
27%
72%
0%
1%
Board and Executive Management team's
gender identity or sex
Men
Women
Other categories
Not specified / prefer not to say
Board and Executive Management team's
ethnic background
White British or other White
(including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black
British
Other ethnic group, including
Arab
Not specified/ prefer not to say
Number
of Board
members
Percentage
of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Management*
Percentage
of Executive
Management
5
6
45.5
54.5
3
1
6
5
54.5
45.5
Number
of Board
members
Percentage
of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
Executive
Management*
Percentage
of Executive
Management
8
2
1
73
18
9
4
8
1
1
1
73
9
9
9
*
Prepared in accordance with UK Listing Rule 9.8.6R(10) as at 31 December 2023. As prescribed by this rule and for the purpose of
this disclosure, the Executive Management includes the Company Secretary. The data contained in the tables above was collected
as part of the annual declaration process, whereby the Board and the Executive Management team received declaration forms for
self-completion. The declaration forms included, for all individuals whose data is being reported, the same questions relating to
ethnicity and gender. The data is used for statistical reporting purposes and is provided with consent.
Female leadership breakdown
Senior leadership
VP and Director
Manager
Percentage of women in technology roles (IT/engineering)
.
Employee racial and ethnic diversity breakdown
2023
2023
47%
47%
51%
30%
2022
41%
48%
51%
31%
2022
Total workforce (US and UK)
Senior leadership (US and UK)
VP and Director (US and UK)
Manager (US and UK)
32% (US) / 17% (UK)
15% (US) / 14% (UK)
18% (US) / 16% (UK)
27% (US) / 18% (UK)
32% (US) / 18% (UK)
19% (US) / 12% (UK)
18% (US) / 13% (UK)
25% (US) / 14% (UK)
Annual report and accounts 2023 Pearson plc 53
Strategic report ESG data continued
Employee racial and ethnic diversity breakdown - US
% of total workforce
Asian
Black or African American
Hispanic or Latino
Other
White
Not stated
Employee racial and ethnic diversity breakdown - UK
% of total workforce
Asian
Black
Hispanic or Latino
Other
White
Not stated
% of total management workforce (US and UK)
Asian
Black or African American
Hispanic or Latino
Other
White
Not stated
Turnover
Turnover rate, total average for the year1
Voluntary turnover
Involuntary turnover
1.
% calculated using average 2023 H/C of 18,360, not 2023 year-end position.
Turnover by gender
Total female
Total male
Non-binary
Not disclosed
2023
32%
11%
11%
9%
2%
68%
0%
2023
17%
10%
4%
0%
4%
64%
18%
2023
12%
4%
4%
2%
76%
2%
2022
32%
10%
11%
9%
2%
67%
1%
2022
18%
10%
4%
0%
4%
66%
16%
2022
10%
4%
4%
2%
77%
3%
2023
2022
6,446 / 34% 6,974 / 33%
3,037 / 16% 4,658 / 22%
3,409 / 18% 2,316 / 11%
2023
2022
3,840 / 20% 4,233 / 20%
2,475 / 13 % 2,659 / 12%
6 / 0%
76 / 0%
21 / 0%
110 / 1%
Turnover by age group
Under 30 years old
30-50 years old
Over 50 years old
No date
New hires
Total number and rate of new employee hires (number of hires/
average headcount)2
Total number of new hires - female
Total number of new hires - male
Total number of new hires - non-binary
Total number of new hires - not-disclosed
2.
% calculated using average 2023 H/C of 18,360, not 2023 year-end position.
New hires by age group
Under 30 years old
30-50 years old
Over 50 years old
No date
Employee engagement measures3
Engagement
Inclusion
Progress
Learning and growth
Volunteering hours
3.
Sourced from Gallup Access. Propriety data.
^ GrandMean on a five-point Likert scale.
BTEC International Registrations
Governance
Total number of concerns raised and investigated
Percentage of employees completing code of conduct certification
or training
2023
2022
1,693 / 9% 1,720 / 8%
3,324 / 18% 3,449 / 16%
1,414 / 7% 1,785 / 8%
20 / 0%
15 / 0%
2023
2022
3,770 / 20% 5,600 / 26%
2,289 / 61% 3,378 / 60%
1,374 / 36% 2,076 / 37%
24 / 0%
122 / 2%
19 / 1%
88 / 2%
2023
38%
44%
18%
0%
2023
4.09^
4.21^
73%
76%
20,694
2022
38%
44%
17%
1%
2022
3.96^
4.12^
67%
72%
n/a
2023
2022
65,0334
37,994
2023
92
2022
92
100%
100%
4.
Increase due to partnership with the Ministry of Education in Jordan to offer BTEC qualifications in public schools.
Annual report and accounts 2023 Pearson plc 54
Strategic report Non-financial and sustainability information statement
In accordance with Sections 414CA and 414CB of the Companies Act 2006, which outline requirements for non-financial reporting, the table below signposts to content in this strategic report, relevant to the
management, performance and position of the company, and the impact of our activities in specific non-financial areas.
Non-financial matter and relevant
sections of Annual Report
Business model
Page/link reference
Business model: Page 22
Stakeholders: Page 16
ESG-linked remuneration: Page 113
Environmental matters
Climate
Resource use
Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 42-43
Risks/opportunities: Pages 45
KPIs: Pages 24
Climate-related financial disclosure as defined in section 414CA(2a) Companies Act 2006’: Governance – (a) on page 40; Strategy – (d), (e) and (f) on
pages 41-43; Risk management – (b) and (c) on page 42; Metrics and Targets – (g) and (h) on page 48.
Social and community matters
Driving learning for everyone with our product
Social engagement
Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 39-41
Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf
KPIs: Page 24
Employee matters
Employee engagement
Investing in talent
Diversity, equity and inclusion
Human rights matters
Customer welfare (data privacy, security, and
safeguarding)
Empowering our people to make a difference
Sustainable procurement
Anti-corruption and bribery matters
Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 39-41
Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf
KPIs: Page 24
Policies: Addressed in the following pages, with full policies for Pearson Plc available at: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Page 39
Risks/opportunities: https://plc.pearson.com/sites/pearson-corp/files/pearson/esgmateriality2023-14-04.pdf
KPIs: Page 24
Policies: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Page 99
Risks/opportunities: Pages 100-101
KPIs: Page 24
Pearson has a wide range of policies that underpin our sustainability commitments, including:
— Pearson Code of Conduct
— Pearson Business Partners’ Code of Conduct (Partner Code)
— Responsible Procurement Policy; and our Modern Slavery and Human Rights Statement
— Anti-Bribery and Corruption (ABC) Policy; Raising Concerns and Anti-Retaliation Policy
— Pearson’s safeguarding principles (include data privacy/security)
— Global Content Policy
The implementation of these policies are discussed throughout the report and on our website.
Annual report and accounts 2023 Pearson plc 55
Strategic report Risk
Risk management
Effective risk management is essential to executing our strategy, achieving sustainable shareholder value, protecting our brand,
and ensuring good governance.
The table below sets out the Group’s governance structure for risk management.
Plc Board (oversight)
— Responsible for the Group’s strategy
— Ultimately responsible for reviewing management’s assessment of the
Group’s principal risks
— Approves the annual budget and long-range financial plans
— Determines risk appetite in line with the Group’s strategy
Audit Committee (oversight)
— Provides oversight and assurance to the Board concerning the integrity of the
company’s procedures for identifying, assessing, managing, and reporting on risk
— Monitors and evaluates the Group’s compliance and risk management
processes and control programmes
— Conducts targeted reviews of key risks
— Approves the Group risk management framework
— Approves internal audit plans
Reputation & Responsibility Committee (oversight)
— Considers the Group’s impact on the communities in which Pearson operates,
including ensuring that risk management processes are in place to manage
relevant risks
Pearson Executive Management (PEM) (identification, assessment,
and mitigation)
— Comprises the CEO, CFO, and other senior leaders as shown on page 68
— Accountable for ensuring that risks are mitigated in line with risk appetite
— Responsible for the execution of the Group’s strategy
— Responsible for reviewing and approving the principal risks, mitigation plans
and controls
— Reports to the Audit Committee on risks where required
The internal
audit function
(Assurance)
The internal
audit function
is responsible
for providing
independent
assurance to
management and
the Audit Committee
on the design and
effectiveness of
internal controls, to
mitigate strategic,
financial, operational
and compliance risks.
Enterprise Risk Management function (identification, assessment,
and mitigation)
— Prepares the Group risk management framework
— Maintains the Group risk register and the list of principal risks
— Reviews risks with divisions to assess and monitor risk exposures
— Prepares a consolidated risk view for the Executive Management
— Provides oversight over Group risk management activity
— Reports to the Audit Committee on risks
Senior leadership (identification, assessment, and mitigation)
— Senior leadership is responsible for monitoring, mitigating, and reporting on risk
— Risk committees within each division assess the principal risks and implement
further sub-committees as appropriate for division-specific exposures
Technical specialists (identification, assessment, and mitigation)
— Functional heads work in conjunction with group technical experts to monitor
and manage significant Group risks. These experts provide operational
support, guidance, policy, and advice
Risk management experts (identification, mitigation, and assurance)
— Dedicated teams providing guidance, review, and assurance over key
operational and financial risks including finance, legal, and compliance
Pearson Personnel (identification, assessment, and mitigation)
— Personnel across the company are trained in relevant risk management to
identify, assess, mitigate and escalate risks
Annual report and accounts 2023 Pearson plc 56
Strategic report Risk oversight
Risks are managed by members of the Pearson Executive
Management team (PEM), either on a divisional basis or by
function (as set out in the accountability for principal risks section
on page 63).
Risk owners conduct regular risk reviews with their leadership
teams, consulting others where appropriate, including technical
specialists, either within their division or operating in one
of the centres of expertise. Risk reports are shared with key
stakeholders, including the Enterprise Risk Management team,
and are discussed at PEM team meetings.
The Audit Committee has the delegated responsibility for
reviewing the effectiveness of the Group’s procedures for the
identification, assessment, management, and reporting of risk.
Each division is expected to present an overview of its risk register to
the Audit Committee at least annually and to provide an annual deep
dive on key risks, supported by central risk team experts as required.
Deep dive sessions are also held with enterprise-wide functions such as
tax, treasury and cyber security.
The Audit Committee uses these deep dive sessions to
understand the rigour of management’s risk scanning and to
challenge any judgements being made in response to risks.
The internal audit team provides independent assurance to the
Audit Committee on the design and effectiveness of internal
processes, to mitigate strategic, financial, operational and
compliance risks. Internal audit plans are aligned to the principal
risks but also consider other key risk areas and other assurances
available. Plans are agreed in advance with the PEM team and
the Audit Committee.
Risk environment
The Group operates in markets in learning, content, assessment and
qualifications where it has held leading positions over several years
and where the businesses and markets have progressively become
more digital.
Factors affecting the markets in which the Group operates include
the Group’s position as an accredited provider of high-stakes tests,
organisational capability, competitive dynamics, learner preferences,
delivery methods including the growing adoption of AI tools and the
reputation of companies operating in the market. The Group seeks
to maximise the opportunities from changing market conditions
while balancing its expansion with appropriate monitoring and
understanding of associated risks.
Significant near-term risks are risks which could have a significant
near-term cash impact or affect the Group’s short-term results,
but would not be expected to have a significant ongoing effect on
company valuation.
Emerging risks are risks which we believe are well mitigated in
the short term but may represent a significant future opportunity
or threat. These include company-specific risks and risks affecting
the macro economy.
Further information on the Group’s divisions and key markets can be
found in the strategy section on pages 12-21.
Principal risks
The Board of Directors has undertaken a robust assessment of
the current risks facing Pearson, in accordance with Provision 28
of the 2018 UK Corporate Governance Code. This assessment
identified the following principal risks, as well as a number of
emerging risks and risks which while more modest could have a
significant near-term impact. For each of our principal risks, the
tables below identifies:
— the change in the risk over the last 12 months
— the movement and outlook for that risk
— management actions
— the link between the risk and Group strategy
— our risk tolerance
— examples of the risk
— risk ‘contagion’, i.e. the extent to which issues in one area
could increase the risk in other areas
— the assessed risk ‘velocity’, i.e. an indication of the speed at
which a risk could materially impact the Group.
Risk identification and monitoring
Our risk identification processes follow a dual approach. Firstly,
we take a top-down view which considers strategic risks relevant
across the whole of Pearson. Secondly, we take a bottom-up
approach at a divisional or functional level, to identify and
assess a complete list of each business unit’s risks, with key risks
highlighted in management reporting and in each division’s long-
range plan.
Detailed interviews are conducted throughout the year with each
division to assist with risk assessment and management. Risks
are then ranked according to their likely impact as principal risks,
significant near-term risks, emerging risks, or other risks.
Classification as principal risks, significant
near-term risks, and emerging risks
We define our principal risks as those which could have a
significant and ongoing effect on the Group’s valuation by
reducing the demand for, or profitability of, its products and
services. This assessment considers multiple dynamics including
the duration, velocity, and size of the potential impact. Effective
management of these risks is essential to executing our
strategy, achieving sustainable shareholder value, maintaining
our reputation, and ensuring good governance. However, they
do not comprise all the risks associated with our business, and
are not set out in priority order. Additional risks not known to
management, or currently deemed to be less material, may also
have an adverse effect on our business.
Annual report and accounts 2023 Pearson plc 57
Strategic report Risk continued
Accreditation risk
Description
Movement
and outlook
Termination or modification of accreditation due to policy changes or failure
to maintain the accreditation of our courses and assessments by states,
countries, and professional associations, reducing their eligibility for funding or
attractiveness to learners. Awarding bodies may also require modification of
tests to continue to receive accreditation which may reduce the convenience
to learners or increase the cost of delivery.
The risk has increased to a high level, from moderate-high, due to an uncertain
political environment with upcoming elections in the UK and US and upcoming
contract renewals in a number of assessments businesses during 2024.
During the year the Group achieved accreditation to deliver the Pearson
Test of English in Canada for study and migration. BTEC results season was
successfully executed. The risk is expected to remain at an elevated level for
the foreseeable future.
Management
actions
1. Focus on creating a culture where learners and awarding bodies can
depend on Pearson and know that we will meet their standards. We
recognise our obligations, particularly in the testing space, to ensure
prompt and accurate exam grading, and take actions accordingly.
Artificial Intelligence, Content and Channel risks
Description
The risk that Pearson’s intellectual property is harder to protect as a result of
increased content generation through artificial intelligence and that Pearson’s
content and method of delivery (channel) is, or is perceived to be, insufficiently
differentiated in terms of outcomes or learner experience. This could lead to
lost sales and a significant decline in the market value of Pearson.
Movement
and outlook
The risk has increased from a moderate to a moderate-high level. The Group is
demonstrating capability in leveraging improvements in AI but the accelerating
pace of change increases the risk.
The risk is expected to remain at a similar level for the next 12 months, as
more companies bring new products and services to market. The Group is
also anticipating revenue growth from a number of new products, including
Channels, which have not yet been proven on a large scale.
Management
actions
1. Use of AI in both developing content and delivering outcomes, such as the
successful beta launch of AI study tools in Higher Education and use of
large language models in English Language Learning.
2. Continuing the evolution and enhancement of security, data and
governance standards to ensure the Group continues to meet and exceed
the required standards to be an accredited provider.
3. Broadening the range of services offered and the range of stakeholders.
During the year, Pearson Test of English won recognition for Canadian
Student Direct Stream and economic migration visa applications and
the Group acquired PDRI which provides recruitment assessment for
Federal employees.
4. Continue to grow full-service offering, including online proctoring. This
helps to ensure the Group has offerings that can cater for customers’
many needs, especially in the global assessment market.
5. Focus on flawless or near flawless execution of marking and delivering
assessment results.
Ensuring we can participate in satisfying the growing need for accreditation
and certification.
Link to
strategy
Risk
tolerance
2.
Increasing use of interactivity and multi-channel content, particularly on Pearson+,
including by offering podcast content and videos (Pearson+ Channels).
3. Launch of content offerings in Pearson VUE to aid test takers in their
test preparation.
4. Deployment of new curriculum materials in Virtual Schools and launch of the
Connections Academy Career Pathways programme.
5. Actions to reduce piracy and to manage and enforce intellectual property rights
including legal enforcement where appropriate.
6.
Investment in acquisitions offering new methods for testing or delivering content.
Managing AI, content and channel risk helps achieve our offering of high-
quality, affordable products which lead to better access and outcomes,
protecting revenue.
Medium – This is a strategic risk and Pearson should be rewarded for
successfully developing and delivering products and services that consumers
value. Some risk is accepted to ensure the consumer remains at the centre of
what we do.
Link to
strategy
Risk
tolerance
Examples of
risks
Risk
contagion
Low – Pearson seeks to operate in stable, well-regulated markets with known
requirements to be accredited, and then has a low tolerance for taking risks
which may jeopardise that accreditation.
Examples of
risks
— Intellectual property protection
— Method of delivery
— Balance of content creation and content purchased
Political and regulatory.
Accreditation risks are likely to have a financial impact but have limited risk
of contagion.
Risk velocity Changes in regulation or loss of contracts could occur within a 12
month period.
Risk
contagion
Failure to deliver high-quality and engaging products and services may
have an impact on reputation and responsibility risks and on meeting
customer expectations.
Risk velocity Significant short-term impacts are possible but due to longer-term contracts or the
time required for instructors, or consumers themselves, to learn how to use the
new products and services, it is more likely that the impact will be felt over years.
Annual report and accounts 2023 Pearson plc 58
Strategic report Capability risk
Description
Inability to meet our contractual obligations or to transform as required by our
strategy due to infrastructure, systems or organisational challenges.
Management
actions
continued
5. Dedicated resources to focus on testing and developing AI products and
to understand evolving market capabilities.
6. Supply chain planning to ensure that the Group is able to respond should
a key customer or supplier fail.
Movement
and outlook
The risk continues to be rated at moderate. The Group has successfully
executed its cost efficiency programme resulting in a lower cost base, albeit
ongoing maintenance of cost levels needs constant and rigorous monitoring
and control. The Group’s financial plan assumes that costs will be successfully
managed in all divisions, despite the lower cost base.
Further improvements have been made in data and cyber governance and
resilience during the year. The Group is undergoing a migration process
that will enhance its system resilience and reduce the risk of outages. The
migration involves moving key servers to the cloud or to a new consolidated
US site, with the major remaining work streams expected to be completed
during 2024. Agility has been demonstrated in the use of new technology such
as the use of generative AI. Capability remains a foundational requirement to
continue to meet the Group’s objectives, with greater risk where the Group is
entering new markets, such as Workforce Skills, which has experienced some
delivery challenges.
Management
actions
1. Risk ratings are applied to each system and plans put in place to maintain
system up time. Recovery plans are in place in the event of downtime to
allow customers to maintain as much functionality as possible or to get
back online as soon as possible.
7. Enhanced focus on developing products to serve new markets and user
groups and cross-selling between divisions.
8. Employee engagement monitoring and learning development programmes
to help retain key talent. Senior management has undertaken leadership
capability assessments and changes have been made to enhance
capability, including new hires and development training.
9. Acquisitions such as Faethm and Mondly have been made to build the
Group’s capability in key strategic areas, such as AI and direct to consumer
language learning.
10. The Group regularly reviews its cost base to ensure its competitiveness
and identify operations for efficiencies.
Link to
strategy
Capability relates to the three priorities to unlock growth:
— Consumer-focused and technology-enhanced approach
— Portfolio and organisational structure
— Talent and culture
Risk
tolerance
Medium – the Group aims to ensure it has the capability to deliver strategic
objectives, requiring strong coordination and planning, but without
stifling innovation.
2. Regular patching, activity, employee training and security measures such
as multi-factor authentication help to ensure the stability and security of
key Group systems.
Examples of
risks
3. Migration of servers for platform products to the cloud to
enhance resilience.
— Business resilience
— Business transformation and change
— IT resilience
— Safety and corporate security
— Talent
4. Enhanced agility, notably in how the Group has been able to develop and
deploy beta tests of products using large language models.
Risk
contagion
Failures in capability could result in increased reputation and responsibility risk
and failures to meet customer expectations.
Risk velocity Failures of capability could impact within a six-month period.
Annual report and accounts 2023 Pearson plc 59
Strategic report Risk continued
Competitive marketplace
Description
Movement
and outlook
Significant changes in our target markets could make those markets less
attractive. This could be due to significant changes in demand or in supply
which impact the addressable market, market share and margins (e.g. changes
in enrolments, in-sourcing of learning and assessment by customers, open
educational resources, a shift from in-person to virtual learning or vice versa,
or innovations in areas such as generative AI).
The risk has remained at a moderate-high level.
The largest risk to the Group relates to the large value of customer contracts
scheduled for renewal during 2024, particularly in US Student Assessment.
Pearson’s Virtual Schools business faces revenue headwinds following the
termination of one of its major customers and with another due to terminate
in the fall of 2024. Both have decided to operate services in-house.
In Higher Education, the courseware market includes channel partners who
operate at low margins, as well as competition from various sources including,
open education resources and new entrants. The Group faces a risk of
financial loss should a channel partner fail with balances outstanding to
the Group. Market share loss in Higher Education stabilised during 2023.
Channels was launched as an additional paid product potentially offering a
new revenue stream.
The risk is expected to remain elevated for the next 12 months, due to the
level of competitor activity being observed, as well as continued investment in
educational technology.
Examples of
risks
Management
actions
1. The Group’s Assessment & Qualifications and Virtual Learning businesses,
as service businesses, have a particular focus on working in partnership
with customers, including IP owners, to ensure that their needs are being
met, resulting in high retention rates on the long-term contracts in place.
2. A significant proportion of the Group’s revenue comes from governments
or bodies funded by governments (for example, schools and colleges)
where higher retention rates are typically observed, provided accreditation
and customer expectations risks are well managed (see Accreditation for
further information).
3. The strategy in Higher Education has been focused on reducing reliance
on channel partners and the opportunity for secondary resale by providing
digital solutions.
Management
actions
continued
4. The Group invests in emerging and evolving technologies to lead and respond to
changes in market dynamics. Examples include the launch of AI products using
large language models in Higher Education in beta and use of AI in workforce.
5. The Group’s strategy is to address learners wherever they choose to learn,
reducing reliance on learners’ choosing particular types of institution.
Direct to consumer offerings such as Mondly and Pearson+ can be
accessed via smartphone by anyone, and VUE’s international test centre
network (also used by Pearson Test of English) allows test takers to sit
exams close to home. This complements our existing businesses such
as Higher Education and US Student Assessment where the Group is
introduced to learners through their college or school.
6. Competitive analysis is undertaken to monitor and respond to competitive
threats, with decentralised teams able to mobilise quickly to maximise
opportunities and manage risk.
We have identified three big global opportunities and associated marketplaces:
— Technology disruption in education
— The workforce skills gap
— The growing need for accreditation and certification
Medium – This is a strategic risk associated with successfully selecting
attractive global opportunities and seizing them. Pearson seeks to lead
the shift to digital ways of learning and consequently to maintain strong market
positions.
— Substitutes
— Market pricing
— Product differentiation
— Consumer learning preferences
Link to
strategy
Risk
tolerance
Risk
contagion
Risk
velocity
Changes in the competitive marketplace could increase portfolio change.
Changes are to be expected in the global learning market over the Group’s five-
year planning horizon, but the timing and pace of such changes is uncertain.
Pearson’s Assessment & Qualifications and Virtual Schools businesses benefit
from long-term contracts, which reduce the potential velocity in these divisions
in particular.
Annual report and accounts 2023 Pearson plc 60
Strategic report Customer expectations
Portfolio change
Description
Movement
and outlook
Rising end-user expectations increase the need to offer differentiated value
propositions, risking margin pressure to meet these expectations and
potential loss of sales if not successful.
The risk has remained at a moderate level. While the risk is well managed
within many of our businesses, as demonstrated by strong NPS scores
and retention rates, cost pressures and a changing technology landscape
are leading to changes in customer expectations. Evidence of higher
customer expectations has been observed in the direct to consumer
market, particularly for Mondly, where the cost of acquiring and retaining
new learners is high, leading to some re-balancing towards offering language
tuition for enterprises. Concerns about identity verification and the risk of
cheating have resulted in some increase in demand for in-person testing in
our VUE and PTE businesses.
In Workforce Skills, feedback from customers led to a re-focus on modular
solutions rather than a fully integrated platform as previously envisaged.
Management
actions
The outlook is expected to be similar for the next 12 months.
1. Monitoring and targeting strong NPS scores, responding to
customer feedback.
2. The Group’s direct to consumer offerings of Mondly and Pearson+ provide
valuable insights about usage.
3. Our service businesses conduct regular reviews with customers to ensure
that their expectations are well understood and met and where gaps arise,
steps are taken to address these concerns.
Focus on delighting our customers and meeting their expectations.
Link to
strategy
Risk
tolerance
Link to
strategy
Risk
tolerance
Medium – This is a strategic risk and Pearson should be rewarded for
successfully developing and delivering products and services that consumers
value. Some risk is accepted to ensure the consumer remains at the centre of
what we do.
Examples of
risks
— Customer experience
— Data architecture and usage
— Accessibility
Risk
contagion
Failure to produce products and services meeting customer expectations
could also impact reputation and responsibility risks.
Risk velocity Typically, one to three years, as long-term contracts run off.
Description
Failure to effectively execute desired or required portfolio changes to promote
scale or capability and increase focus on key divisional and geographic
markets, due to either execution failures or inability to secure transactions at
appropriate valuations.
Movement
and outlook
The risk has reduced to moderate-low as recent acquisitions are largely
integrated and disposals have been successfully executed.
The risk level will remain at a similar level until further portfolio activity
is undertaken.
Management
actions
1.
Investment plans included in strategic plans, aligning requirements with
divisional structure.
2. Disposal of the Pearson Online Learning Services business, helping to
focus the group on future growth opportunities.
3. Acquisition of PDRI, significantly expanding Pearson’s services to the US
federal government.
4. An experienced Corporate Finance team to execute transactions,
supported by a dedicated post-deal Operations team.
5. Pearson Ventures allows Pearson to take stakes in companies in early
funding rounds supporting growth through innovation.
Portfolio and organisational structure to unlock growth.
Medium – The Group seeks to balance carefully the opportunity to achieve
growth through increasing capability and/or scale with the execution risk of
portfolio change.
Examples of
risks
— Identification of requirements
— Achieving value on acquisitions/disposals
— Integration of acquisitions
Risk
contagion
Failures in managing portfolio change could impact capability and the ability to
meet customer expectations.
Risk velocity The speed of achieving the full benefits of an acquisition will vary depending
on the size and scope of the acquisition, but typically from six months for a
simple small acquisition to two years for a larger complex transaction.
Annual report and accounts 2023 Pearson plc 61
Strategic report Risk continued
Reputation & responsibility
Description
The risk of serious reputational harm through failure to meet obligations
to key stakeholders. These include legal and regulatory requirements,
the possibility of serious unethical behaviour and serious breaches of
customer trust.
Movement
and outlook
The risk remains at a moderate to high level, due to high ongoing cyber
security threats and reputational risks, including data privacy and
biometric risks, and the complexity of navigating different regional
regulatory environments.
The Group’s aim is to operate in a highly reputable and responsible
manner and so we intend to maintain strong mitigations to reputation and
responsibility risks. However, numerous threats exist including from those
who seek to do harm to the Group or to its customers, including nation-state
actors, organised criminal rings, and ransomware attackers, so constant
vigilance is required.
Management
actions
1. Dedicated risk management teams throughout the organisation monitor
and respond to key risks. These teams provide regular updates to senior
management and report to the Reputation & Responsibility Committee or
Audit Committee as relevant.
Link to
strategy
Risk
tolerance
Examples
of risks
2. Mandatory training for all staff covers key reputational risks including cyber
and data risks.
3.
Insurance cover, where available, supports the Group financially in the
event of major incidents.
4. The Group makes significant investments to ensure high levels of IT
resilience, including migrating systems to the cloud. Tools are in place to
repel cyber threats and safeguard customer information.
Management
actions
continued
5. Cyber security and data privacy are topics which are always reviewed as
part of the divisional risk deep dive exercises undertaken and reported to
the Audit Committee. This work highlights any issues which have arisen
and the relative vulnerability of platforms and software.
6. Strong financial controls are in place which are monitored by the controls
steering committee and compliance teams as well as local management.
7. Reviews are undertaken after incidents and significant near misses to
allow lessons to be learned and any remedial actions put in place. Internal
Audit are asked to provide assurance around remediation actions for key
risks in a timely manner.
Our reputation and commitment to behaving responsibly underpin our
strategy to be a trusted partner for consumers, businesses and educators.
Low – the Group seeks to be a highly trusted consumer learning brand. Any
significant failures could negatively affect our relationship with consumers
today and in the future.
— Compliance with laws and regulations
— Cyber security
— Data privacy
— Safeguarding
— Test failure
— Use of third parties
Risk
contagion
Significant failures in this area could increase Pearson’s capability and
accreditation risks and weaken our position in the competitive marketplace.
Risk velocity Reputational risks could have a significant impact in a short period in the event
of a significant issue.
Annual report and accounts 2023 Pearson plc 62
Strategic report Accountability for principal risks
For each of our principal risks (shown in bold), the table below lists the accountable senior executive(s) for each sub-risk. Since 2022, the Group has created a new position of Chief Product Officer, which has
led to the changes in accountability marked in the table below.
Accountability
Change since 2022
Risks
Accountability
Change since 2022
Risks
Accreditation risk
Political and regulatory
Chief Legal Officer and
Divisional Presidents
Artificial Intelligence, Content and Channel risk
Effective method of delivery (podcast,
video, test, in-person, online)
Chief Product Officer and
Divisional Presidents
Intellectual property protection
Products and services –
effective investment in own and
third-party content
Chief Legal Officer and
Divisional Presidents
Chief Product Officer and
Divisional Presidents
Balance of content creation vs
content purchased
Chief Product Officer and
Divisional Presidents
Capability risk
Business resilience
Business transformation and change
IT resilience
Safety and corporate security
Talent
Chief Legal Officer and
Divisional Presidents
Chief Executive Officer and
Divisional Presidents
Chief Information Officer and
Divisional Presidents
Chief Legal Officer and
Divisional Presidents
Chief Human
Resources Officer and
Divisional Presidents
Competitive marketplace risk
Consumer learning preferences
Divisional Presidents
Market pricing
Product differentiation
Substitutes
Divisional Presidents
Divisional Presidents
Divisional Presidents
No
Yes
No
Yes
Yes
No
No
No
No
No
No
No
No
No
Customer expectations risk
Customer experience
Accessibility
Data architecture and usage
Portfolio change risk
Chief Product Officer and
Divisional Presidents
Chief Human Resources
Officer, Chief Product Officer
and Divisional Presidents
Chief Information Officer,
Chief Strategy Officer and
Divisional Presidents
Yes
Yes
Yes
Achieving value on acquisitions/disposals Chief Financial Officer and
No
Identification of requirements
Chief Strategy Officer
Chief Executive Officer, Chief
Financial Officer and Chief
Strategy Officer
Integration of acquisitions
Chief Financial Officer
Reputation and responsibility risk
Compliance with laws and regulations
Cyber security
Safeguarding
Test failure
Data privacy
Use of third parties
Chief Legal Officer and
Divisional Presidents
Chief Information Officer
Chief Legal Officer and
Divisional Presidents
Assessment & Qualifications,
English Language Learning
and Workforce Skills
Divisional Presidents
Chief Legal Officer and
Divisional Presidents
Chief Financial Officer and
Divisional Presidents
No
No
No
No
No
No
No
No
Annual report and accounts 2023 Pearson plc 63
Strategic report Risk continued
Significant near-term and emerging risks
The main near-term and emerging risks are shown in the table below, which also notes accountabilities and where the risk represents a change since
the previous year.
Risks
Description
Accountability
Classification and
change since 2022
Climate transition
Inflation & interest rates
Recession
Risks relating to sustainability and climate are outlined in pages 45-46. Expectations around
climate change commitments and measurements change on a regular basis.
Chief Legal Officer and
Divisional Presidents
Emerging risk.
No change.
High global inflation risks increasing the cost of production for Pearson, which the Group may
not be able to fully pass on. High interest rates also increase the risk of the failure of a key
customer or supplier, although the Group has a well-diversified customer and supplier base.
The Group has a significant proportion of its debt held at fixed interest rates, but faces the risk
of increased costs when refinancing.
Recession in global markets could put pressure on school, enterprise and consumer budgets,
reducing demand for our products and services. This has particular potential to negatively
impact our English Language Learning and Workforce Skills divisions, unless disruption in the
labour market encourages more people to retrain. Historically, demand for certain Pearson
businesses, such as Higher Education, has been counter-cyclical, but there is no guarantee this
will continue to be the case.
Chief Financial Officer and
Divisional Presidents
Significant near-term risk.
Previously classified as
emerging but reclassified due
to ongoing elevated inflation
and interest rates.
Chief Executive Officer
Emerging risk.
No change.
Supply chain
Disruption at ports globally and challenges for suppliers due to war or economic stress may
lead to business interruption if not fully planned for and mitigated.
Chief Financial Officer and
Divisional Presidents
Tax
Sanctions and geopolitics
The outcome of tax decisions relating to prior year transactions in Brazil could lead to
significant cash costs. The UK/EU State Aid case has been partially provided for and the
potential liability paid, but there is potential for near-term change.
Chief Financial Officer
High levels of geopolitical volatility has led to the increased use of sanctions, which could inhibit
the Group’s ability to trade (as happened with our small business in Russia) or if inadvertently
breached could lead to fines, penalties and actions against officers.
Chief Executive Officer,
Chief Legal Officer
The company also has offices in Israel which could be affected by the ongoing conflict in
the region.
Significant near-terms risk.
Previously classified as an
emerging risk but reclassified
due to ongoing disruption.
Significant near-term risk.
No change.
Significant near-term risk.
Previously classified as an
emerging risk but reclassified
due to ongoing disruption.
Annual report and accounts 2023 Pearson plc 64
Strategic report Risk assessment of prospects and viability
Corporate planning process
The board assessed the prospects of the company using the company’s five-year plan, reviewing
going concern over the period to 30 June 2025 and viability to 31 December 2028. The five-year
period corresponds with Pearson’s strategic planning process which is discussed by the board at
least annually and represents the time over which the company can reasonably predict market
dynamics and the impact of additions to the product portfolio.
The strategic plan takes account of a range of factors including market conditions, the likely impact
of principal risks to the Group, product and capital investment levels, as well as available funding.
Pearson’s strategy and business model is discussed in more detail on pages 12-23.
Viability assessment approach and outputs
Base case five-year plan
In considering the long term prospects of the company, the five-year plan was used as the base case
model for assessment. Sales, profits and cash are forecast to grow in the base case. The company’s
subsidiary Pearson Funding plc has a debt maturity of €300m due within the going concern
assessment period and it is assumed that this is refinanced ahead of time with a £250m bond or
bank facility.
Severe but plausible downside model
In considering the viability of the Company, a severe but plausible model was prepared based on
the base case adjusted for the probability weighted impact of all principal risks as well as other
significant risks. The net impact of the risks modelled was to reduce adjusted operating profit by
around 40% in each year.
At 31 December 2023, the group had available liquidity of £1bn comprising central cash balances
and its undrawn $1bn Revolving Credit Facility (RCF) which matures in February 2027. The RCF can
be extended by a further year in December 2024, extending the maturity to February 2028. It is
assumed that the facility is then refinanced for the same value to beyond December 2028.
Under the severe but plausible downside case, the company would maintain comfortable liquidity
headroom and sufficient headroom against covenant requirements during the period under
assessment. That is, even before modelling the mitigating effect of actions that management would
take if these downside risks were to crystalise. Such measures could include discretionary cost
cutting measures, reducing dividends and reducing investment.
Reverse stress tests
Two reverse stress tests were modelled to determine the reduction in profit versus the plan that
would be required to exhaust liquidity.
In the case of the going concern assessment, the profit reduction needed before 30 June 2025
was calculated. The model showed that operating losses were required in both 2024 and 2025 to
exhaust liquidity.
For viability, the profit reduction and consequent reduction in cashflow needed to exhaust liquidity
in 2028 was calculated, requiring cumulative losses of £300m more than identified in the severe but
plausible downside case.
In each case, the downside required to exhaust liquidity significantly exceeded the downside in the
severe but plausible scenario, even before allowing for any mitigation.
Conclusion
Based on the results of these procedures, and considering the company’s strong balance sheet, the
Directors have a reasonable expectation that Pearson will be able to continue in operation and to
meet its liabilities as they fall due over the five-year period ending 31 December 2028. Further details
of the Group’s liquidity are shown in the “Financial Review” on pages 26-33.
Below are the inputs included in the severe but plausible scenario:
Accreditation Risk
— Loss of accreditation for Pearson Test of English in a major market
— Risks associated with potential political and regulatory changes in US Student Assessment and UK
& International Qualifications
— Risks associated with potential political and regulatory changes in Virtual Schools
Capability Risk
— Capability challenges in sales and technology reduce sales and result in increased costs
— Additional costs to recruit teachers and students due to market conditions
Competitive Marketplace
— Revenue declines in Higher Education due to enrolment and competition pressures
— Loss of Virtual Schools due to insourcing
— Impact of major distributor failing/bankruptcy
AI, Content and Channel Risk
— Loss of sales due to AI-related risks and poor choice of content and/or channel
Customer Expectations
— Additional costs to provide higher than planned functionality and levels of user experience
— Challenges achieving customer expectations in Workforce Skills
— Failure to achieve desired growth in Channels revenue
Portfolio Change
— Failure to achieve anticipated acquisition synergies
Reputation and Responsibility
— Potential cyber and data breaches negatively impacting reputation on an ongoing basis
— Potential safeguarding incidents negatively impacting reputation on an ongoing basis
Recession and inflation
— Potential for increased costs and lower sales because of a weak macro environment
Annual report and accounts 2023 Pearson plc 65
Strategic report Chair’s letter
The Board is focused
on strategic progress,
operational discipline
and sustainable
success for the benefit
of all stakeholders.
Omid Kordestani Chair
Dear shareholders,
It is a pleasure to introduce our Governance Report for 2023.
During the year, we have continued to accelerate our strategic
goals, in which the Board and its Committees have played a
critical role. This was also an exciting year with the appointment
of a new Chief Executive and two independent Non-Executive
Directors joining the Board, which you can read more about
throughout this report.
Strategy and performance
The Board has continued to be heavily engaged with the
management team in overseeing the continued implementation
of our growth strategy, with a particular focus on embedding
operational discipline around the business divisions.
The Board also continued to reshape and refine Pearson’s
portfolio in support of our strategy through both acquisitions
and divestitures. In 2023, we completed the sale of Pearson
Online Learning Services (POLS), the international Online
Program Management business, to conclude the strategic review
of the business announced in 2022, demonstrating further
progress in reshaping Pearson's portfolio towards future growth
opportunities, centred around lifelong learning.
Further, we completed our acquisition of PDRI, a trusted provider
of workforce assessment services with significant expertise in
providing assessment solutions to the US federal government,
one of the largest employers in the US. PDRI has built a strong
reputation for delivering quality talent assessments, including
tailored assessments to support hiring practices for US federal
government agencies. The acquisition of PDRI has expanded
Pearson’s portfolio, accelerated our strategy to capture new
market opportunities and grown our presence with large
employers in the US. We are now fully focused on executing
against the growth opportunity ahead and there is significant
opportunity to learn from each other to further improve
our products and reach more customers with our proven
assessment and talent solutions.
The Board continued to pay close attention to maintaining
a strong financial position, which enabled us to increase the
dividend again in 2023, in line with our progressive dividend
policy. We were also able to launch a £300m share buyback
programme to return capital to shareholders, in line with our
capital allocation priorities and disciplined approach to capital
allocation, which enables Pearson to create sustainable, long-
term value for every stakeholder. We have also announced an
extension of our share buyback programme by £200m.
As part of monitoring execution and performance, the Board
regularly receives a dashboard that allows Directors to monitor
progress on Pearson’s financial and strategic priorities,
supported by agreed indicators and milestones identified as key
measures of performance. You can read more about those KPIs
on page 25 of this annual report.
The Board’s oversight of performance and risk is underpinned by
the excellent work of our Audit Committee, which you can read
more about on pages 97-106, including a number of strategic
risk deep dives and a continued focus on data privacy and cyber
security, as well as overseeing our financial controls and internal
audit programmes, together with the delivery of the external
audit plan.
Sustainability, stakeholder engagement
and culture
As the world’s leading learning company, Pearson recognises its
enormous potential to make a positive impact on people and the
planet, as outlined in our sustainability framework, which you can
learn more about on page 35. The Reputation & Responsibility
Committee has primary responsibility for monitoring and
inputting into Pearson’s sustainability strategy and initiatives
on behalf of the Board, with more on this described in the
Committee’s report starting on page 94.
Understanding the views and priorities of all our stakeholders is
key to running a successful, sustainable company that meets the
needs of learners, educators, governments and employers. You
can read more about the Board’s engagement activities in the
Understanding our stakeholders section on page 81.
During the year, the Board held engagement sessions with
employees in London and Hoboken to hear employee views.
Read more about this engagement, and plans for Board
engagement with the workforce in 2024, on page 82. Promoting
a diverse and inclusive workforce environment throughout
Pearson remains a Board priority and relevant KPIs form part
of the regular dashboard reviewed by the Board. We have
continued our progress on improving our workforce diversity, but
we always recognise there is more to be done.
Annual report and accounts 2023 Pearson plc 66
Governance Talent development and succession planning are also ongoing
themes in the work of the Board and its Committees. The
Board has continued to work with Ali Bebo, Pearson’s Chief
Human Resources Officer, to assess our culture and employee
engagement levels, through analysing (both through the work
of the Reputation & Responsibility Committee and as a full
Board) the results of the engagement survey and annual deep
dives into succession and the talent pipeline. The Board is also
supporting the Executive Management team to drive a culture
of performance and accountability throughout the organisation,
which is covered in more detail on page 39.
Board composition, succession
and evaluation
We have a fully engaged Board, with diverse backgrounds,
perspectives and skill sets, whose range of expertise includes
digital and direct to consumer strategy and business models,
sustainability, education and workforce learning, and
leadership of global, complex organisations through periods
of transformation and disruption, as well as financial acumen.
You can read more about the Board’s skills and experience
on page 90.
A key area for the Board’s attention in 2023 was the selection
process for Pearson’s new Chief Executive, following Andy Bird’s
indication to the Board of his intention to retire. This was a
thorough and considered process in which all Board members
participated and, as a Board, we are delighted to have appointed
Omar Abbosh as Chief Executive. You can read more about
the Board’s decision-making and selection processes for the
appointment on pages 83 and 91 respectively. On behalf of the
Board, I would like to thank Andy for his outstanding leadership
over the last three years, during which he implemented an
ambitious strategy, successfully transitioned Pearson into a more
consumer-focused business, orientated around lifelong learning,
and delivered consistently strong financial performance. We send
Andy our very best wishes for the future.
We also appointed two new independent Non-Executive
Directors to the Board during 2023, further enhancing the skill
set and diversity of our Board, as you can see on page 71. We
will continue to monitor the Board’s composition to ensure
we maintain the range of skills, experience and perspectives
needed to support the company’s strategy and complement our
succession planning.
On behalf of all Directors, I extend our deepest gratitude to
Tim Score who, after serving for nine years on the Board, will
step down at the AGM in April 2024. During his tenure, Tim
has held several key roles on the Board, including as Deputy
Chair, Senior Independent Director and Chair of both the Audit
Committee and Nomination & Governance Committee, as well
as a member of the Remuneration Committee. Tim has been a
stable and knowledgeable voice on the Board, during periods of
transformation and restructure. Every one of us on the Board
will greatly miss Tim’s wise counsel, warmth and commitment to
the company. We send Tim our very best wishes for the future. I
am delighted that Graeme Pitkethly has agreed to succeed Tim
as Deputy Chair and Senior Independent Director, alongside his
existing key role as Chair of the Audit Committee – the company
and I are fortunate to have such an outstanding colleague
stepping into Tim’s shoes in that role.
Alison Dolan and Alex Hardiman joined the Board as
independent Non-Executive Directors in June 2023, both bringing
significant leadership experience in high-profile and respected
digital brands, along with deep expertise in digital and consumer
products. They have each already made strong contributions
to the Board and as members of the Audit Committee, and for
Alex as a member of the Reputation & Responsibility Committee.
More detail on their induction processes can be found on
page 84.
The Board is fully engaged in planning for future succession
needs, and closely monitors the evolution of skill sets needed
to drive the company forward. More detail about the Board’s
succession planning can be found in the Nomination &
Governance Committee report on pages 88-93.
The annual Board evaluation process in 2023 was externally
facilitated by Manchester Square Partners, in accordance with
our three-year evaluation cycle. The results demonstrate that
our Board is collaborative, while providing constructive challenge
and independent judgement, and operates a robust governance
approach that will support Pearson in continuing to drive
strategic progress. Good progress has also been made on the
recommendations from the 2022 review. You can read more
about the 2023 evaluation, and how the Board implemented
recommendations from the previous evaluation, on
pages 85-87.
Conclusion
I hope this Report explains clearly to you how Pearson is run
and how we align governance and our Board agenda with
our strategic direction. Shareholders are always welcome to
put their questions or feedback to us, either via our website
(www.pearsonplc.com) or at our AGM. Once again this year,
shareholders will be able to join us and vote at our AGM either
in person or virtually. Details will be included in the forthcoming
AGM notice.
It only remains for me to thank our shareholders for their
continued support and interest in this fantastic company. I look
forward to maintaining our stakeholders’ confidence as we seek
to capture Pearson’s enormous growth potential as a lifelong
digital partner for learners everywhere.
Omid Kordestani Chair
Compliance with the UK Corporate
Governance Code
The principles set out in the UK Corporate Governance
Code (the ‘Code’) emphasise the value of good
corporate governance to the long-term sustainable
success of listed companies. The Pearson Board is
responsible for ensuring that the Group has in place
appropriate frameworks to comply with the Code’s
requirements. This governance report and the strategic
report set out how Pearson has applied the principles
of the Code throughout the year.
The Board believes that during 2023 the company was
in full compliance with all applicable principles and
provisions of the Code, save that, as described last
year, Pearson is not fully compliant with Provision 36 of
the Code on the basis that the shares awarded under
the previous Chief Executive’s co-investment award
made in 2020, and approved by shareholders at the
time, were subject to a post-vesting holding period
until 31 December 2023, rather than the total vesting
and holding period of five years or more required by
the Code. Further detail is provided in the Directors’
remuneration report on pages 108 and 119.
Annual report and accounts 2023 Pearson plc 67
Governance Board of Directors
Leading the way
All Board members have strong
leadership experience at global
businesses and institutions.
Our Board members’ biographies
illustrate the contribution each Director
makes to the Board by way of their
individual experience.
Key to Committees
A Audit
NG Nomination & Governance
RR Reputation & Responsibility
R Remuneration
Committee Chair
Current notable commitments reflect
other listed company directorships and
full-time or executive roles.
NG
Omid Kordestani
Chair
Age: 60
Appointment
First appointed to the Board
1 March 2022
Chair since 29 April 2022
Skills and experience
Omid is an international businessman who serves on the
boards of Klarna Bank AB and Klarna Holding AB and is a
Council Member for Balderton Capital. He was Executive
Chair of Twitter, Inc. between October 2015 and May
2020, and a Board Member until October 2022. From
August 2014 to August 2015, Omid served as Senior Vice
President and Chief Business Officer at Google and
previously from May 1999 to April 2009 as Senior Vice
President of Global Sales and Business Development.
From 1995 to 1999, Omid served as Vice President of
Business Development at Netscape Communications
Corporation. Prior to joining Netscape Communications
Corporation, Omid held positions in business
development, product management and marketing
at The 3DOCompany, Go Corporation and Hewlett-
Packard Company.
Omar Abbosh
Chief Executive
Age: 57
Sally Johnson
Chief Financial Officer
Age: 50
Chief Executive Officer
since 8 January 2024
Chief Financial Officer
since 24 April 2020
Sally joined Pearson in 2000 and has held various finance
and operations roles across the business, both at a
corporate level and within the divisions, including The
Penguin Group. She brings to the Board extensive
commercial and strategic finance experience, as well as
expertise in transformation, treasury, tax, risk
management, business and financial operations, investor
relations and mergers and acquisitions. She has held
various senior-level roles across the business, most
recently as Deputy CFO of Pearson.
Sally is a Non-Executive Director of Rentokil Initial plc and
Chair of its Audit Committee, a member of the Institute of
Chartered Accountants in England and Wales and trained
at PricewaterhouseCoopers. She was also a Trustee for
the Pearson Pension Plan from 2012 to 2018.
Current notable commitments
Rentokil Initial plc (Non-Executive Director)
Omar has a career spanning more than 30 years driving
growth and transformation for leading multinational
companies. He comes to Pearson with a background
steeped in technology and innovation, and with a deep
understanding of how to shape and execute successful
strategies in a world of disruption.
Most recently, Omar was the President of Microsoft
Industry Solutions with responsibility for driving sales,
service, and solutions across Microsoft’s largest customers.
While there he led industry and technical business units,
including strategy, engineering, partnering, and sales
teams that shaped product roadmaps and strategic
campaigns. Prior to Microsoft, Omar spent three decades
at Accenture where he helped to orchestrate the
company’s digital transformation and where he led a large
and highly successful business unit. He served in numerous
senior leadership roles at Accenture, including Chief
Strategy Officer and ultimately as Chief Executive of the
global Communications, Technology and Media business.
Omar also serves as a non-executive board member for
Zuora, Inc., an enterprise SaaS company. He holds a
degree in electronic engineering and information
sciences from the University of Cambridge and a master’s
degree in business administration from INSEAD.
Current notable commitments
Zuora, Inc. (Non-Executive Director)
Annual report and accounts 2023 Pearson plc 68
Governance R NG
A
A
RR
R NG
Sherry Coutu, CBE
Non-Executive Director
Age: 60
Appointment
Non-Executive Director
since 1 May 2019
Skills and experience
Sherry is an experienced non-executive director, having
held numerous senior leadership positions, including
Chair, Senior Independent Director, and Chief Executive
Officer in the financial services, technology, and
education sectors.
Presently, Sherry also Chairs the Remuneration
Committee at Raspberry Pi, the world’s largest
single-board computer company and Founders4Schools,
the UK’s largest transition-to-work charity.
Sherry is an experienced non-executive director which
includes the London Stock Exchange Group plc, DCMS,
Zoopla plc, RM plc, The Scaleup Institute, Cambridge
University Press and Cambridge Assessment (2006-2019).
She has also previously acted as an advisor to LinkedIn,
the National Gallery, the Royal Society, and NESTA.
Prior to her portfolio career, Sherry founded several
technology companies and invested in 70 tech start-up
companies and five venture capital firms.
Alison Dolan
Non-Executive Director
Age: 54
Alex Hardiman
Non-Executive Director
Age: 42
Esther Lee
Non-Executive Director
Age: 65
Non-Executive Director
since 1 June 2023
Non-Executive Director
since 1 June 2023
Non-Executive Director
since 1 February 2022
Alison is the Chief Financial Officer of Rightmove plc, a
position she has held since September 2020. She brings to
the Board extensive commercial and operational finance
experience, specifically in digital businesses. Prior to
Rightmove, she held several senior financial positions at
Sky plc, including Group Treasurer, Director of Finance
and was the Deputy Managing Director at Sky Business.
She later moved to News UK to serve as the Chief
Strategy Officer at the forefront of the business's
digital transformation.
Current notable commitments
Rightmove plc (Chief Financial Officer)
With more than 15 years of experience in media and
technology, Alex brings deep expertise in consumer
product strategy and growth, scaling subscription and
digital advertising businesses, and high-quality
journalism and content.
Alex currently serves as The New York Times’ Chief
Product Officer where she oversees the company’s News,
Cooking, Games and Audio products that power its digital
business. She also leads The Times’s enterprise-wide
approach to generative AI. Alex previously spent a decade
at The New York Times in several leadership roles before
leaving for Facebook in 2016 where she served as Head of
News Products, overseeing news experiences for
Facebook consumers and publishers. Alex also spent time
at The Atlantic as their Chief Business and Product Officer
where she relaunched the company’s consumer offerings
and subscription model.
Current notable commitments
Esther brings significant experience to the Pearson
Board through her prior executive management roles in
developing customer strategies to drive growth, global
marketing and branding, driving digital transformation and
building high-performance teams.
She has a long track record of senior leadership roles
working for global consumer-facing brands. Most
recently, she served as Executive Vice President - Global
Chief Marketing Officer at MetLife Inc. Previously, Esther
served as Senior Vice President - Brand Marketing,
Advertising and Sponsorships for AT&T, and she has
served as CEO of North America and President of Global
Brands for Euro RSCG Worldwide. Prior to that, she served
for five years as Global Chief Creative Officer for The
Coca-Cola Company.
Esther is a Board member at The Clorox Company where
she chairs the Nomination & Governance Committee and
is a Non-Executive Director of Experian plc.
The New York Times (Chief Product Officer)
Current notable commitments
The Clorox Company (Non-Executive Director)
Experian plc (Non-Executive Director)
Annual report and accounts 2023 Pearson plc 69
Governance Board of Directors continued
NG
A
A
R
RR
NG
R
A
RR
R
NG
A
RR
Graeme Pitkethly
Non-Executive Director
Age: 57
Appointment
Non-Executive Director
since 1 May 2019
Skills and experience
Graeme was Chief Financial Officer and a Board member
of Unilever plc until December 2023. He joined Unilever in
2002 and, prior to his appointment as the CFO, was
responsible for its UK and Ireland business. He also held a
number of senior financial and commercial roles within
Unilever and spent the earlier part of his career in senior
corporate finance roles in the telecommunications
industry. Graeme served as Vice President of Financial
Planning and Vice President of Corporate Development at
FLAG Telecom and started his career at
PricewaterhouseCoopers.
Graeme is a Vice Chair of the Task Force on Climate-
related Financial Disclosures, a Member of the Strathclyde
University Centre for Sustainable Development and is a
Chartered Accountant.
Tim Score
Deputy Chair and Senior Independent Director
Age: 63
Annette Thomas
Non-Executive Director
Age: 58
Lincoln Wallen
Non-Executive Director
Age: 63
Non-Executive Director since 1 January 2015
Senior Independent Director since 30 April 2021
Deputy Chair since 29 April 2022
Non-Executive Director
since 1 October 2021
Non-Executive Director
since 1 January 2016
Tim has extensive experience of the technology sector in
both developed and emerging markets, having served for
13 years as CFO of ARM Holdings plc, the world’s leading
semiconductor IP company. He is an experienced
Non-Executive Director and was appointed as a
Non-Executive Director of Bridgepoint Group PLC in 2021,
alongside his roles as Chair of The British Land Company
plc, a Non-Executive Director of the Football Association,
and a Trustee of the National Theatre. Tim has garnered
extensive financial and listed company experience during
previous and current positions. He served on the board of
National Express Group plc from 2005 to 2014, including
time as interim Chair and six years as SID. Earlier in
his career, Tim held senior finance roles with Rebus
Group, William Baird, LucasVarity plc and BTR plc.
Current notable commitments
The British Land Company plc (Chair)
Bridgepoint Group PLC (Non-Executive Director)
Annette has a 25-year track record in leading global
publishing and data analytics businesses, across
academic, educational, and consumer media verticals.
Most recently, she served as CEO of Guardian Media
Group, a position she held until June 2021. Prior to this,
Annette was CEO of the Web of Science Group at Clarivate
Analytics, a data, analytics, and software business
focused on research and higher education. She has also
served as CEO of Macmillan Publishers and led the digital
and global transformation of Nature Publishing Group.
She is a Non-Executive Director of Schroders plc and
currently serves as Senior Advisor to General Atlantic. Her
previous non-executive experience includes serving as a
Trustee of Yale University, Non-Executive Director at
Clarivate Analytics (2017), and as a board member for
Cambridge University Press and Cambridge Assessment
(2019-2020). She has also previously acted as an advisor
to Creative Commons and Bain Capital.
Current notable commitments
Schroders plc (Non-Executive Director)
Lincoln has extensive experience in the technology and
media industries, and is a Non-Executive Director of
Improbable MV, which governs the MSquared Network of
web2 and web3 services.
He was previously CTO of Improbable Worlds, a
technology start-up supplying cloud hosting, networking
and technology services to the video game industry.
Lincoln was CEO of DWA Nova, a Software-as-a-Service
spin-out of DreamWorks Animation Studios in Los
Angeles, a position he held until 2017. He worked at
DreamWorks Animation for nine years in a variety of
leadership roles including CTO and Head of Animation
Technology. He was formerly CTO at Electronic Arts
Mobile, leading their entry into the mobile gaming
business internationally. Lincoln is a Non-Executive
Director of the Smith Institute for Industrial Mathematics
and Systems Engineering, and Varjo, a manufacturer of
XR/VR headsets for professional markets. His early career
involved 20 years of IT and mathematics research,
including as a Reader in Computer Science at Oxford.
Lincoln holds a PhD in AI.
Annual report and accounts 2023 Pearson plc 70
Governance Board composition
Gender
Female
Male
6
5
Nationality
American
Ethnicity1
3
American/British
2
British
4
Canadian
1
1
Irish
1
Asian/Asian British Mixed/Multiple ethnic groups White
8
2
1.
Ethnicity categories are based on the UK’s Office for National Statistics
classification.
Tenure
Under 3 years
3-6 years
5
4
Over 6 years
2
This data reflects Directors in office as at 31 December 2023.
To learn more about Board diversity, please see page 92. For
diversity data in the format prescribed by LR 9.8.6R(10), please
see page 53.
Independence of Directors
All of the Non-Executive Directors who served during 2023 were
considered by the Board to be independent for the purposes of
the UK Corporate Governance Code (the Code) and the listing
standards of the New York Stock Exchange (NYSE). The Board
reviews the independence of each of the Non-Executive Directors
annually. This includes reviewing their external appointments
and any potential conflicts of interest, as well as assessing their
individual circumstances in order to ensure that there are no
relationships or matters likely to affect their judgement. In
addition to this review, each of the Non-Executive Directors
is asked to provide confirmation of their independence on an
annual basis as defined by the NYSE listing rules and the Code.
In January 2025, Mr Wallen will reach nine years’ service on
the Pearson Board. Upon or in anticipation of attainment
of nine years’ service by any Non-Executive Director, the
Board undertakes an assessment to satisfy itself as to the
continuing independence of that Director. The Nomination &
Governance Committee gave particular consideration to Mr
Wallen’s independence in February 2024, ahead of proposing to
shareholders that he be re-appointed for a further year at the
forthcoming Annual General Meeting, recognising that he will
reach nine years’ service during the coming year, if re-elected.
In doing so, the Committee assessed the degree of objective
judgement and constructive challenge demonstrated by Mr
Wallen, and confirmed that his skills, experience and knowledge
contribute to productive Board discussions. Accordingly, the
Board is satisfied that Mr Wallen remains independent, and
that he continues to provide constructive challenge and hold
management to account.
In accordance with the Code, Omid Kordestani was considered to
be independent upon his appointment as Chair on 29 April 2022.
Tim Score will be retiring from the Board at the 2024 AGM
and will not be seeking re-election. In 2023, the Committee
assessed Mr Score’s independence, having regard to, among
other factors, the Financial Reporting Council’s Guidance on
Board Effectiveness, and concluded that Mr Score remained
independent. In assessment of his own independence,
undertaken in January 2024 to address the requirements of the
NYSE and the Code, Mr Score did not declare any matters which
may cause his independence to be questioned.
The Directors can obtain independent professional advice, at
the company’s expense, in the performance of their duties. All
Directors have access to the advice and services of the Company
Secretary, whose appointment and removal is a matter reserved
for the full Board.
Annual report and accounts 2023 Pearson plc 71
Governance Pearson Executive Management (PEM)
Key to Committees
Internal appointment
External appointment
Ali Bebo
Lynne Frank
Gio Giovannelli
Mike Howells
Sulaekha ‘Sue’ Kolloru
Barger
Chief Human Resources Officer
Age: 55
Chief Marketing Officer and
Co-President, Direct to Consumer
Age: 57
President – English Language
Learning
Age: 51
President – Workforce Skills
Age: 47
Chief Strategy Officer
Age: 48
Appointment
Joined Pearson 13 December 2021
Joined Pearson 16 November 2020
Joined Pearson 1 February 2014
Joined Pearson 1 December 2020
Joined Pearson 16 May 2022
Appointed to the PEM
13 December 2021
Appointed to the PEM
16 November 2020
Appointed to the PEM
1 April 2016
Appointed to the PEM
1 December 2020
Appointed to the PEM
16 May 2022
Skills and experience
Ali is a seasoned C-suite executive
with over 25 years of experience
building culture for transformative
business performance across
multiple industries. Prior to joining
Pearson, she was an executive officer
and CHRO for Hologic, Inc., a global
medical technology company. Prior to
Hologic, she held various HR
leadership roles with the speciality
retail company, ANN INC.
Lynne has over 25 years of experience
in the global media industry.
Previously, she has worked in
companies such as WarnerMedia,
ESPN/Disney and Turner
Broadcasting. She holds a degree in
economics and business, and a
certificate in corporate board
governance from the University of
California, Los Angeles (UCLA).
Gio has over 25 years of international
business experience, including four
CEO roles in Brazil. Previous board
roles include BOVESPA-listed Natura
and CVC Viagens. Gio graduated from
Bocconi University, holds an
Economics PhD and is an OPM
graduate of Harvard Business School.
After 3 years’ service, Mike is stepping
away from his role as President of
Workforce Skills in 2024. Mike has
more than 20 years of international
business experience. Prior to joining
Pearson, he held senior leadership
roles in the British Diplomatic Service
and worked in international law.
Mike holds a Master's degree
in International Law from the
University of Nottingham and an
Anthropology Degree from University
College London.
Sue has more than 20 years of global
strategy and corporate experience.
Previously, she held engineering roles
at technology companies. Sue holds
an MBA from The Wharton School at
the University of Pennsylvania and a
BSc in electrical engineering from the
University of Ottawa in Canada. She
has served on several non-profit
boards and councils focused on
diversity and STEM.
PEM composition
Gender
Female
Men
5
5
1
1
1
Ethnicity1
Asian/Asian British Mixed/Multiple
ethnic groups
Other ethnic
groups
1. Ethnicity categories are based on the UK’s Office for National
Statistics classification.
7
White
These figures reflect the Executive Management team excluding the
Company Secretary. The Chief Executive and Chief Financial Officer have
been excluded and are counted in the Board metrics on page 71.
For diversity data in the format prescribed by LR 9.8.6R(10), please
see page 53.
Annual report and accounts 2023 Pearson plc 72
Governance Cinthia Nespoli
Tony Prentice
Tom ap Simon
Art Valentine
Marykay Wells
Chief Legal Officer
Age: 43
Appointment
Chief Product Officer and
Co-President, Direct to Consumer
Age: 51
President – Higher Education and
Virtual Learning
Age: 45
President – Assessment &
Qualifications
Age: 59
Chief Information Officer
Age: 61
Joined Pearson 1 February 2014
Joined Pearson 1 May 2023
Joined Pearson 1 December 2004
Joined Pearson 23 January 2006
Joined Pearson 14 July 2014
Appointed to the PEM
21 May 2020
Appointed to the PEM
1 May 2023
Appointed to the PEM
1 April 2021
Appointed to the PEM
1 February 2022
Appointed to the PEM
16 March 2022
Skills and experience
Cinthia has over 20 years of
international legal and compliance
experience. Previously, she
held leadership roles in legal and
compliance at multinational
companies. Cinthia was admitted to
the Brazilian bar in 2004 and earned
her law degree from Pontifícia
Universidade Católica de Campinas
as well as a post-graduate degree in
tax law from Pontifícia Universidade
Católica de São Paulo.
Tony has more than 25 years of
experience in consumer-led product
management in companies, including
SEMA4, American Express, and
Starbucks. He brings extensive
expertise in strategic product
development, and consumer
marketing. He holds an MBA from
Columbia Business School and a
BS in Mechanical Engineering from
Cornell University.
Tom has 20 years of international
business and finance experience.
At Pearson, he has led the Virtual
Schools business, worked in
finance for the emerging markets
businesses and led M&A activity
in the US. Previously, he worked
in investment banking at
RW Baird. Tom holds an MA in
Economics and Politics from the
University of Edinburgh.
Art has more than 30 years of
leadership experience in
assessments, testing, and technology.
Prior to his 16 years at Pearson
serving as a senior leader of Pearson
VUE and as Managing Director of
Pearson Clinical Assessment, Art
worked at global technology
organisations, including Accenture,
and Promissor, which was acquired
by Pearson in 2006. Art earned his BS
in Mathematical Science/Computer
Science from the University of North
Carolina Chapel Hill.
Marykay has over 30 years of
strategic planning and large, global
technology transformation
experience. Prior to joining Pearson,
Marykay had CIO roles at Nortel,
Tekelec (acquired by Oracle) and
Extreme Networks. Marykay holds a
BS degree in Computer Information
Science from Clarkson University and
is a member the Salesforce CIO
Advisory Board, MGT Board of
Directors, and is a Board Member of
the non-profit Rewriting the Code
(advancing Women in Tech).
Nationality
External/Internal Appointment
American
British
Italian/Brazilian
Canadian
Internal
External
5
2
2
1
5
5
Annual report and accounts 2023 Pearson plc 73
Governance Division of responsibilities
The Board
The Board has established four formal Committees. The Committees focus on their own areas of expertise, enabling the Board meetings to focus on strategy, performance, leadership and people, governance
and risk, and stakeholder engagement, thereby making the best use of the Board’s time together as a whole. The Committee Chairs report to the full Board at each Board meeting following their sessions,
ensuring a good communication flow while retaining the ability to escalate items to the full Board’s agenda, if appropriate.
Nomination & Governance
Committee
Reviews corporate governance matters, including
Code compliance and Board evaluation; considers
the appointment of new Directors, Board
experience and diversity; and reviews Board
induction and succession plans as well as Board
engagement with the wider workforce.
Reputation & Responsibility
Committee
Oversees our sustainability framework, including
progress towards our sustainable business
strategy commitments. Works to assess and
advance Pearson’s reputation with stakeholders,
including through the areas of branding, culture,
employee engagement and values.
Audit Committee
Remuneration Committee
Appraises our financial management and reporting
and assesses the integrity of our accounting
procedures and financial controls. The Committee
also oversees risk, compliance and internal audit.
Determines the remuneration and benefits of the
Executive Directors and oversees remuneration
arrangements for the Pearson Executive
Management team, as well as monitoring
remuneration policies for the wider workforce.
Chair
Chief Executive
The Chair is primarily responsible for the
leadership of the Board and ensuring its
effectiveness. They ensure that the Board upholds
and promotes the highest standards of corporate
governance, setting the Board’s agenda and
encouraging open, constructive debate of all
agenda items for effective decision-making.
They regularly meet the Chief Executive to stay
informed and provide advice. They also ensure
that shareholders’ views are communicated
to the Board.
The Chief Executive is responsible for the
operational management of the business and for
the development and implementation of the
company’s strategy, as agreed by the Board and
management. They are responsible for developing
operations, proposals and policies for approval by
the Board, they promote Pearson’s culture and
standards, and they are one of the key
representatives of the company to its
external stakeholders.
Deputy Chair and Senior
Independent Director
The Deputy Chair and Senior Independent
Director supports the Chair on Board
effectiveness and governance matters. This role
includes meeting regularly with the Chair and Chief
Executive to discuss specific issues, as well as
being available to shareholders generally, should
they have concerns that have not been addressed
through the normal channels. The Deputy Chair
and Senior Independent Director also leads the
evaluation of the Chair on behalf of the
other Directors.
Company Secretary
The Company Secretary advises on governance
matters and compliance with Board procedures.
They are responsible, under the direction of the
Chair, for ensuring the Board receives accurate,
clear and high-quality information, and has
adequate time and appropriate resources to
function effectively and efficiently. They also
support the Chair in delivering the corporate
governance agenda, and organise director
induction, training programmes and the Board
evaluation process.
Pearson Executive
Management
The Pearson Executive Management team
consists of the Chief Executive and their
senior direct reports. They are the
executive management group for Pearson
and are responsible for delivering Pearson’s
strategy under clearly defined
accountabilities and in line with agreed
governance and processes.
Standing Committee
Authorities and duties
A Standing Committee of the Board is
established to approve certain operational
and ordinary course of business items such
as banking matters, guarantees and
intra-Group transactions. They also make
routine approvals relating to employee share
plans. Additional authority may be delegated
on an ad hoc basis, e.g. to approve and
conclude corporate transactions.
The authorities and duties of the Board and
its Committees, as well as the roles and
responsibilities of key individuals on the
Board, are clearly set out in writing.
These documents are reviewed and
approved by the Board on an annual basis
and are available on the company’s website
(www.pearsonplc.com).
Annual report and accounts 2023 Pearson plc 74
Governance Board activities
The Board is deeply engaged in developing and measuring the company’s long-term strategy, performance, culture and values. We believe
that Board members provide a valuable and diverse set of external perspectives and that robust, open debate about significant business
issues brings an additional discipline to major decisions.
The role and business of the Board
The key responsibilities of the Board include:
— overall leadership of the company and setting the company’s
values and standards, including monitoring culture and
diversity, equity and inclusion (DEI) initiatives
— reviewing and determining the company’s strategy, including
in relation to sustainability matters, in consultation with
management, assessing performance against the strategy and
overseeing management’s execution of it
— supervising major changes to the company’s corporate,
capital, management and control structures
— approval of all transactions or financial commitments in
excess of the authority limits delegated to the Chief Executive
and other Executive Management
— assessment of management performance, Board and
executive succession planning and talent pipeline
— effective engagement with key stakeholders
Strategic planning and decision making
The Board spends considerable time assessing whether any
proposed action aligns with the strategy and future direction of
the business, while taking into consideration sustainability and
impact on our stakeholders. In addition, the Board regularly
holds strategy discussions, whether in relation to the specific
strategies of Pearson’s five business divisions or the vision and
wider strategy of the company as a whole, both of which enhance
the Board’s decision-making in shaping the company’s strategic
and financial plans.
The Board and Committees receive timely, regular and necessary
financial, management and other information to discharge their
duties. Comprehensive papers are circulated to Board and
Committee members approximately one week in advance of
each meeting.
The Board receives a regular performance dashboard and
key milestones report, together with updates from the Chief
Executive and Chief Financial Officer. In addition to meeting
papers, a library of current and historical corporate information
is made available to Directors to support the Board’s decision-
making process. For items that require significant consideration
and review in advance of a decision, such as the portfolio
changes during 2023, the Board’s discussions can take place over
a number of sessions.
The Directors recognise their duties towards the shareholders
and other stakeholders as set out in Section 172 of the
Companies Act 2006, and a continued understanding of the key
issues affecting stakeholders is an integral part of the Board’s
decision-making process. You can read more on pages 81-83
about how the Board engages with stakeholders and takes their
views into account when making decisions.
Portfolio changes
The Board receives regular updates on portfolio and corporate
finance activities throughout the year, including regular updates
on live transactions (disposals, acquisitions and corporate
joint venture activity) and outputs of periodic portfolio reviews.
These updates can take the form of presenting key summaries
of information in Board packs, or oral updates on key matters.
These discussions are typically led by executive and divisional
management, supported by the Corporate Development
team and, where necessary, external advisers. Subsequently,
once portfolio transactions have closed, the Board is also kept
informed of the integration or transition progress, including
post-acquisition reviews conducted to assess transaction success
and any learnings to be taken for future projects. In 2023, such
portfolio updates included the disposal of the Pearson Online
Learning Services (POLS) business and the completion of the
acquisition of PDRI, as well as a review of potential pipeline
opportunities.
Board meetings
The Board held six scheduled meetings in 2023, with discussions
and debates focusing on the ongoing development and
execution of the company’s markets, customer and people
strategies, as well as other strategic drivers for the company,
including the developments in generative AI, more detail on
which can be found on page 78. Major items covered by the
Board in 2023 are shown in the table on page 76. In addition
to its scheduled meetings, the Board convenes as necessary to
consider matters of a time-sensitive nature. In 2023, the Board
also held several additional discussions regarding the Chief
Executive recruitment process.
Reflecting on the level and quality of engagement by the Board
in 2023, the Board is satisfied that each Director contributed to
Board discussions and demonstrated sufficient commitment
to be able to meet their responsibilities. As shown in the table
on page 77, each of the Non-Executive Directors attended all
scheduled Board meetings during 2023, with the exception of
Graeme Pitkethly who was unable to attend the meeting in April
due to a pre-existing commitment. In addition, the Nomination &
Governance Committee confirmed in its annual assessment that
each Director demonstrates the requisite level of commitment
and contribution in accordance with Principle H and Provision 18
of the Code.
Annual report and accounts 2023 Pearson plc 75
Governance Board activities continued
Board attendance
Directors are expected to attend all Board and Committee
meetings, but in certain circumstances, such as pre-existing
business or personal commitments, it is recognised that
Directors may be unable to attend. In these circumstances, the
Directors receive relevant papers and, wherever possible, will
communicate any comments and observations in advance of the
meeting for raising as appropriate during the meeting. They are
updated on any developments after the meeting by the Chair of
the Board or Committee, as appropriate.
Individuals’ attendance at Board and Committee meetings is
considered as part of the formal review of their performance.
There was a high level of attendance by the Directors at Board
and Committee meetings in 2023, as shown in the table on page
77 and in the Committee reports that follow.
Directors’ commitments and conflicts
of interest
Under the Companies Act 2006, the Directors have a statutory
duty to avoid conflicts of interest with the company. The
company’s Articles of Association allow the Directors to authorise
conflicts of interest. The company has an established procedure
to identify actual and potential conflicts of interest, including
all directorships or other appointments to, or relationships
with, companies that are not part of the Pearson Group and
which could give rise to actual or potential conflicts of interest.
Additionally, in response to Provision 15 of the UK Corporate
Governance Code, Pearson has developed internal guidance to
be taken into account when considering changes to a Director’s
commitments, or when appointing a new Director, as well as
formalising the Board approval process for such matters.
Once notified to the company, any potential conflicts and
commitments are considered for authorisation by the Board
at its next scheduled meeting or, where necessary in the
interests of timeliness, by a committee comprising the Chair, the
Deputy Chair & Senior Independent Director and the Company
Secretary. In particular, the Board or committee considers the
type of role, expected time commitment and any impact this
may have on the Director’s duties to Pearson, as well as any
relationships between Pearson and the external organisation.
The interested Director is not permitted to vote on, or be
counted in the quorum for, any resolution relating to their
proposed commitments, conflict or potential conflict.
The Board reviews any authorisations previously granted
on an annual basis.
Board meeting focus 2023
Strategy
Performance
— Ongoing digital transformation
— Approving 2022 preliminary results and annual report
— Enterprise ecosystem and direct to
consumer growth opportunities
and strategies
— AI strategy
— Strategy implementation
— Oversight of Five-Year Strategic Plan and
approval of 2024 annual operating plan
— M&A pipeline and post-acquisition
reviews, as well as consideration,
approval and regular updates of major
transactions
— Product updates and demos, including
Pearson+ Channels and Workforce Skills
— Data strategy
and accounts
— Approving 2023 performance expectations and
guidance to the market
— Approving the 2023 interim results and Q1 and Q3
trading statements
— Monitoring 2023 operating plan performance
— Regular dashboard and milestone reports
— Strategic and non-financial KPIs reviews
— Continuing review of forecasts
— Final and interim dividend approvals and other capital
allocation considerations, including share buyback
— Business unit and corporate function operational
deep dives
Leadership and
people
— Talent review, pipeline
development and
succession planning,
including overseeing
Chief Executive
succession process
— Culture
— DEI initiatives
— Employee engagement
sessions with Board
— Employee engagement
survey assessments
Governance and risk
— Legal, regulatory and
governance matters
— Data privacy and cyber security matters
— Board and Committees’
effectiveness evaluation
— Regular review and annual confirmation
of Directors’ commitments and/or
potential conflicts of interest
— Approval of Committees’ terms
of reference
— Risk management report
Shareholder
engagement
— Investor relations
strategy, updates,
and share price
performance
— Shareholder issues
and voting
— AGM and related
shareholder interactions
— Feedback from Board
member meetings with
shareholders
— Major shareholders and
share register analysis
Annual report and accounts 2023 Pearson plc 76
Governance When making new appointments in 2023, the Board considered
other demands on the proposed Directors’ time. The Board
considered Alison Dolan’s existing commitment as Executive
Director and Chief Financial Officer of Rightmove plc, a UK-
listed online real-estate portal, and Alex Hardiman’s existing
commitment as Chief Product Officer for The New York Times, as
part of their appointment process. The Board agreed that Alison
and Alex’s existing commitments would not have a negative
impact on their ability to contribute to Pearson.
Omar Abbosh’s existing commitments were considered as part
of his appointment process. The Board was of the opinion that
Omar’s additional notable commitment as a Board member of
Zuora, Inc. was acceptable. The Board noted that the Higher
Education division of the company has an existing relationship
with Zuora, Inc. but this was deemed to be non-material in terms
of Omar’s role as Chief Executive. The Board also concluded
that Omar’s existing commitments would not prevent him from
giving the time and attention that his role as the Chief Executive
would require.
On 1 April 2023, Sally Johnson was appointed to the Board of
Rentokil Initial plc as a Non-Executive Director and took on the
role of Chair of its Audit Committee on 10 May 2023. When
considering this new commitment, the Board assessed any
potential conflicts of interest and the time commitment required,
as well as taking into consideration the requirements under
Provision 15 of the UK Corporate Governance Code. The Board
agreed that Sally’s new commitment would not have a negative
impact on her role as Chief Financial Officer of Pearson.
The Board believes that the experience gained by Directors
through their other commitments brings valuable perspectives to
the Pearson Board.
Chair
Omid Kordestani
Executive Directors
Andy Bird
Sally Johnson
Non-Executive Directors
Sherry Coutu
Alison Dolan1
Alex Hardiman1
Esther Lee
Linda Lorimer2
Graeme Pitkethly3
Tim Score
Annette Thomas
Lincoln Wallen
Scheduled meetings attended
6/6
6/6
6/6
6/6
3/3
3/3
6/6
3/3
5/6
6/6
6/6
6/6
1. Alison Dolan and Alex Hardiman joined the Board on 1 June 2023.
2. Linda Lorimer retired from the Board on 28 April 2023.
3. Graeme Pitkethly was unable to attend the Board meeting on 27 April
2023 due to a pre-existing commitment. He reviewed the papers and
provided his perspectives to the Chair prior to the meeting.
Annual report and accounts 2023 Pearson plc 77
Governance How the Board is kept informed
The application of our Board and governance processes ensures that our Directors receive accurate, timely and clear information from a
range of sources. This allows the Board and Committees to monitor and provide feedback on matters of importance, as well as to make
informed decisions in the best interests of the company and its stakeholders.
AI
AI plays an important role across Pearson’s product portfolio.
For instance, large language models within Workforce Skills
which develop proprietary predictive algorithms designed to
assess trends in demand for skills and occupations globally
and recommend career and learning pathways for consumers,
enterprises and governments. Within English Language Learning
there are AI-based open response assessments. We have
also recently brought to market a generative AI tool within our
Pearson+ service, which you can read more about on page 15,
which enables users to automatically summarise the content of
Channels videos into simple bullet points. Additional generative
AI study tools designed to help students better learn and
understand challenging subjects launched in the latter part of
2023. Opportunities to consider how we can continue to leverage
innovative AI technology to drive further efficiency and generate
additional cost savings are also being explored.
As generative AI develops, we expect it to create significant
positive opportunities for Pearson, due to our unrivalled depth of
content and data. Learners and educators place enormous trust
in us so we have a responsibility to be thoughtful and considered
in how we use this technology, whilst continuing to move at pace
to enhance our products with the customer in mind.
During the past year, the Board, the Audit Committee, the
Reputation & Responsibility Committee and the Executive
Management team have been focused on keeping informed
on AI developments both within Pearson and in the wider
market, considering both opportunities and implications of the
technology for Pearson.
The Board regularly receives updates on AI capabilities and
developments within the business, particularly as part of the
divisional deep dives. Such deep dives included the integration
of AI into Mondly’s capabilities as part of the English Language
Learning division, and how greater harnessing of AI and machine
learning technologies could impact the Higher Education division.
In May 2023, Pearson provided an update to the market and
external stakeholders on the generative AI enhancements in
products across its portfolio.
These enhancements, when combined with Pearson's
unparalleled collection of high-quality proprietary intellectual
property assets, further strengthen the Company's position
as a digital-first learning company focused on delivering an
unmatched experience for the consumer across their lifetime
of learning. The Board was updated on the progress against our
generative AI strategy announced in May 2023, which further
embeds AI technology across key products throughout our
portfolio in a way that enhances the teaching and learning experience.
The Board is actively focused on the significant opportunities across the
company and the work to embed generative AI across a number of key
products within Workforce Skills, Mastering and MyLab, Pearson+ and
English Language Learning.
The Board was updated on considerations around the
development of AI technology, including discussing the
company’s IP protection strategies with management. The Board
also discussed the impact of wider market statements regarding
the potential effects and opportunities of generative AI, and
management conducted a number of meetings with investors
and analysts on the impact the acceleration of generative AI
technology could have for the company.
The Board was also frequently updated on the specific initiatives,
priorities and opportunities of AI, in terms of product capabilities,
potential application for companies and workforces, and internal
back-office efficiencies leveraging AI technology for content and
process engineering, and Common ID – the development of
singular customer profiles and log-in capabilities.
In addition to considering AI through specific lenses, in July 2023,
the Board conducted an enterprise-wide strategic deep dive into
AI, including: its use in PTE scoring in the English Language Learning
division; its use in Faethm’s skill ontology analysis; VUE’s deployment of
AI technology as part of its security capabilities; and Higher Education’s
use of AI in content creation, in partnership with authors.
The Audit Committee was provided with updates on AI
workstreams within the legal and government relations
function, as well as ongoing work being undertaken to
understand potential risks and opportunities relating to IP rights
enforcement, including by monitoring the landscape in other
sectors and having careful regard for Pearson’s future strategy
and business model.
The Audit Committee considered the risks associated with
generative AI, and reviewed its status as part of the risk
management update and Group risk review. In particular, as part
of the Audit Committee’s strategic risk sessions:
— The Assessment & Qualifications deep dive included an
overview of risks associated with AI and the competitive
marketplace, as well as perspectives on the use of AI in the
Assessment & Qualifications business, drawing a distinction
between the AI techniques that had been in use for some
time and the recent developments in generative AI, where
possibilities were still being assessed.
— The Higher Education deep dive included an overview of
Pearson’s capabilities relating to AI in personalisation of
materials and consideration of Pearson’s thinking regarding
IP, licensing and royalties in an AI-powered environment.
Across multiple sessions, the Reputation & Responsibility
Committee considered the AI landscape from a regulatory, policy
and media perspective, including:
— Conducting a government relations deep dive, which
highlighted the significant amount of regulatory and policy
focus on this topic. Alongside this, the Committee noted
the programme of engagement with government offices
and participation in notable forums and events to share the
company’s perspectives in this field.
— Considering Pearson’s positioning and engagement strategy
in terms of corporate voice on AI-related matters, with more
work to be done on this.
The Reputation & Responsibility Committee also discussed AI
as part of its session on online trust and safeguarding. Overall,
the Committee noted AI as a potential reputational risk and
agreed that it should therefore continue to be a matter for the
Committee’s attention.
You can read more about how we manage AI from a risk
perspective on page 56.
Annual report and accounts 2023 Pearson plc 78
Governance Talent and culture
Ensuring that we have both a talented, engaged workforce that is focused on delivering our strategy and an inclusive organisational culture that enables and encourages that delivery is critical to Pearson’s
success. During the past year, the Board and Executive Management team have continued to lead our focus on making sure Pearson offers a culture and environment that is inclusive and high-performing,
and in which our people can leverage their strengths. We track Group-wide progress through our ‘Culture of engagement and inclusion’ non-financial KPI (see page 24 for more details on our KPIs). Pearson’s
purpose, vision, mission and values (set out on page 2) are key to developing our culture to support our strategic vision, particularly in driving a culture of performance.
The Board monitors culture and organisational health, together with its Committees, and receives regular updates from the Chief Executive and Chief Human Resources Officer. In addition to tracking culture
as a non-financial KPI, the Board monitors other Group-wide initiatives that underpin our culture, including employee engagement, the code of conduct programme, compliance, health & safety and talent
attraction and retention (see table below for further information).
The Reputation & Responsibility Committee’s remit includes oversight of culture and employee engagement, increasing the Board-level focus on these matters. The Chief Human Resources Officer is a
frequent attendee at Board meetings, as well as a standing attendee at the Reputation & Responsibility, Remuneration, and Nomination & Governance Committees. Their attendance and contributions,
together with the Board’s own direct engagement with the workforce, ensure that our Directors are attuned to our culture and employee-related considerations through multiple lenses, including in strategic
decision-making (see our case study on page 83), and in conducting their business more broadly.
During the year, the Reputation & Responsibility Committee conducted a deep dive into the results of Pearson’s employee engagement survey, to establish the trends and actions that needed to be taken to
improve engagement with employees, with the key themes and indicators also discussed with the full Board. The Board also has a particular focus on the current and future leaders of Pearson, including our
talent pipeline for leadership and other pivotal roles, and we conducted our annual deep dive into talent and succession planning in December 2023. Read more on page 89.
Cultural
indicator
Employee
engagement
Code of
conduct and
training
Compliance,
including
whistleblowing
and
investigations
Internal audit
Health and
safety (‘H&S’)
Remuneration
practices and
rewarding the
workforce
Talent
attraction and
retention
How it is overseen
Board level
responsibility
The Board ensures engagement through multiple channels, including the employee engagement survey (the results of which were discussed by the Reputation
& Responsibility Committee and the Board), town hall sessions and in-person engagement events, such as the face-to-face listening sessions with employees in
London and Hoboken. Read more on page 82.
RR
Board
The Audit Committee is briefed on our annual Code of Conduct programme, including development of the code, completion rates, training and certification
methods. Certification of the code is mandatory and we achieved a 100% employee completion rate in 2023. We also have mandatory training for all employees on
cyber security and data privacy, with targeted training for employees in certain roles, divisions or geographies.
The Chief Compliance Officer reports to the Audit Committee at every meeting on new and ongoing investigations, including matters raised through our SpeakUp
process. The Audit Committee considers the programme’s effectiveness annually, including periodic peer benchmarking. The Audit Committee Chair ensures the
Board has visibility on matters of note. The Board is free to request further information to support its oversight.
Insights into elements impacting our culture and cultural behaviours are provided where necessary by internal audit to the Audit Committee as part of the findings
and recommendations in its reports.
The Reputation & Responsibility Committee receives an annual H&S report, so Directors can monitor the key strands of our H&S framework, including oversight
of how Pearson is enabled through awareness, competency, resources and guidance to allow for agile and effective management of H&S risk, while also receiving
comfort that we have controls for compliance and assurance purposes.
The Remuneration Committee monitors the wider Employee Reward framework, including incentive target setting for Group plans, fair pay analysis, Chief Executive
pay ratios and alignment of Directors’ pension contributions to the workforce. It also oversees integration of sustainability measures into incentive targets. This suite
of activity provides insights into the roles that remuneration and setting performance goals play in promoting the right behaviours, particularly in driving a culture of
performance, and how incentives and rewards align with culture.
The Chief Human Resources Officer regularly updates the Remuneration Committee on talent considerations, including trends on recruitment, retention and
staff turnover. Talent attraction and retention plays into our ability to execute our strategy, so it is considered in strategic discussions by the Board and Executive
Management team. Recognising the importance of our people, Talent is a sub-category of our Capability principal risk. Read more about our risk management
approach starting on page 56.
A
A
A
RR
R
R
Annual report and accounts 2023 Pearson plc 79
Governance How the Board is kept informed continued
Sustainability
Pearson has a strong governance structure through which the Board and its Committees monitor and oversee the company’s sustainable business framework.
Indicative sustainability duties falling within remits of Board Committees
Board
Reputation & Responsibility Committee
Audit Committee
Remuneration Committee
Nomination & Governance Committee
— Overseeing sustainability strategy including
— Integrity and assurance of sustainability
— Considerations relating to incorporation
— Ensuring requisite strength of sustainability
targets and public commitments
data, reporting and metrics
— Monitoring progress towards non-financial
KPIs linked to the products, people and
planet pillars
— Sustainability regulatory landscape and
external reporting
— Strategic risk management
— Compliance elements of ‘governance’
strand of sustainability
of sustainability metrics within
remuneration frameworks
expertise on Board
— Corporate governance elements
— Performance against sustainability metrics
of sustainability
to support remuneration decisions
The company’s sustainable business framework includes three pillars: driving learning for everyone
with our products, empowering our people to make a difference, and leading responsibly for a better
planet. These pillars represent the areas where Pearson can make the biggest positive impact and
where our responsibilities lie towards communities and the environment.
The graphic above illustrates how the Committees work together to support the Board in overseeing
sustainability at Pearson.
You can read more on the sustainability matters covered during 2023 throughout this Governance
Report, in particular in the Reputation & Responsibility Committee’s report on pages 94-96.
The Reputation & Responsibility Committee leads the Board’s oversight of sustainability matters,
however, given the breadth of topics that feed into our sustainable business pillars, as well as the
increasingly complex external landscape around these matters, the other Committees each have a
role to play in supporting the Board’s oversight of sustainability.
Annual report and accounts 2023 Pearson plc 80
Governance Understanding our stakeholders
A strong understanding of all our stakeholders and their perspectives is integral to our strategic planning and operational delivery. Our
Board strategy sessions are informed by the views and needs of our eight stakeholder groups: consumers, educational institutions and
educators, employers, business partners and institutions, government and regulators, employees, shareholders, and our communities.
As required by the UK Corporate Governance Code,
the Board ensures Pearson engages effectively
with, and encourages participation from, its key
stakeholders. The Board maintains its oversight
through a variety of direct and indirect mechanisms,
and the Reputation & Responsibility Committee
monitors our stakeholder engagement framework.
The Board recognises that stakeholder views
are integral to decision-making and setting the
company’s strategy. More information on Pearson’s
key stakeholders, including the outcomes of our
engagement throughout 2023, is in the strategic
report on pages 16-20. Further information on how
the Directors discharge their duties under Section 172
of the Companies Act 2006 is on page 21.
Engagement in 2023
Throughout the year, the Board ensured that it was kept
informed of stakeholder views, concerns, and commentary
through a variety of engagement methods. These included
in-person and virtual meetings, reports and presentations at
Board or Committee meetings, feedback from members of the
Executive Management team and other employee groups, and
interactions with different functions, teams and advisers, both
inside and outside Pearson. The use of digital technology allowed
for broader engagement, helping to ensure that stakeholders
retained a voice within the Boardroom.
A key factor in any decision-making is listening to and considering
the interests of stakeholders. We have set out below examples
of the key employee and shareholder engagement activities
undertaken by the Board and by individual Directors over 2023.
A detailed review of the Chief Executive recruitment process,
and how it relates to our stakeholders and Pearson’s long-term
success, is on page 83.
Shareholders
Shareholders are a key consideration in the Board’s decision-
making. We have continued our focus on driving shareholder
engagement through in-person meetings and events, while also
using digital technology to reach a wider base of shareholders.
The Board is committed to fostering shareholder engagement
by making it easier for all types of shareholder to attend annual
general meetings (AGMs), recognising that they represent
an opportunity for shareholders to interact with the Board
and share their views, concerns, and feedback. Following the
success of our first hybrid AGM in 2022, we held a hybrid AGM
in 2023 for the first time at our 80 Strand office in London, with
shareholders able to attend the meeting, vote and ask questions
of the Board either in-person or virtually.
We believe that the hybrid approach enables a broader cross-
section of our shareholders to participate in general meetings
and will therefore be holding a hybrid AGM in 2024 and look
forward to welcoming our shareholders. Further details will be
shared in our notice of the 2024 AGM.
The Board ensured a continued shareholder dialogue
throughout the year. We undertook an extensive engagement
exercise on our remuneration arrangements and proposed
Directors’ remuneration policy prior to our 2023 AGM. Further, in
accordance with the UK Corporate Governance Code, following
a significant minority vote against our Directors’ remuneration
policy at our 2023 AGM, a subsequent engagement exercise with
shareholders was conducted and reported back to the market on
the major themes of the feedback received. Further information
on the Directors’ remuneration policy, and shareholder
engagement prior to and after our 2023 AGM, is on page 108.
The Board also receives updates and analysis on shareholder
sentiment from Pearson’s corporate brokers, as part of a
regular investor relations update and when considering certain
corporate matters.
Shareholder engagement at a glance
Over 2023, our Chief Executive, Chief Financial Officer and Divisional Presidents, as well our investor relations team, participated
in meetings, conferences, roadshows and events across the world. This included a seminar at the New York Stock Exchange
on the Assessment & Qualifications business, conference participation across the US, Europe and the UK and concluded with
a Q4 roadshow.
Over
500
meetings
with
Over
270
institutions
Annual report and accounts 2023 Pearson plc 81
Governance Understanding our stakeholders continued
Employees
The Reputation & Responsibility Committee leads on employee
engagement on behalf of the Board. The Board recognises
that our employees are one of our most important assets and
are integral to our business and is committed to continuing to
strengthen their voice. Examples of how the Board engaged with
employees in 2023 to ensure that they are listened to, supported
and rewarded, are illustrated below.
Board and employee engagement
The central role of the Board is to support and oversee Pearson’s
long-term strategy. As part of that, it is vital that the Board
engages with employees, to strengthen the employee voice in
the boardroom. During the year, the Board evolved its approach
to employee engagement to include a wider programme of
engagement activities with employees, including in-person,
structured listening sessions, which complemented existing
executive employee engagement and expanded opportunities
for direct engagement by Non-Executive Directors. During
the year, the Board held two structured, face-to-face listening
sessions with employees in London and Hoboken, facilitating
meaningful interactions between Board members and various
This is a golden chance for
professionals like me to
bridge the gap with our top
decision-makers.
Mrunal Bhagat a UK schools
marketing executive
(Attended the London engagement event)
groups of employees. The invitations to attend both events were
open to all employees based in the 80 Strand and Hoboken
offices, with approximately 40-50 employees attending in each
location. The sessions were held informally over breakfast, with
Board members sharing tables with small groups of employees
to hear their thoughts, feedback and questions. Board members
engaged on a variety of topics, including the appointment of the
new Chief Executive, the shape of Pearson and our strategy going
forward. Both events were received very positively by employees
and the Board spent time after both sessions sharing their
feedback and discussing what they had heard from employees.
Omid Kordestani also engaged in a virtual fireside chat with a
global audience of Pearson leaders, fostering an open dialogue
and sharing perspectives across the organisation.
Looking ahead, the Board intends to hold similar events,
including in-person and structured listening sessions, as well
as virtual events, in 2024 to ensure we continue to be inclusive,
authentic and representative of our diverse employee base.
Town halls
Throughout 2023, the Chief Executive, Chief Financial Officer and
the Executive Management team held virtual town hall meetings,
which Pearson employees were invited to attend and given
the opportunity to ask questions. These discussions took place
at significant points in the year, such as following key financial
results announcements.
Surveys
During 2023, we conducted a further Pearson employee
engagement survey, following the launch of a refreshed
approach in 2022. We heard from c. 13,600 employees, with
an overall response rate of 82% compared with 72% in 2022.
The Reputation & Responsibility Committee received a detailed
update on the survey results, including additional insights on the
culture of inclusion, coaching effectiveness, and opportunities to
increase engagement, which were also discussed at Board level.
Further information on the outcomes of the Pearson employee
engagement survey is on page 39.
I had such an insightful
conversation with Lincoln
Wallen about the hiring
process of our new CEO, and
what Omar will hopefully
bring to Pearson when he
joins us.
Emma Devlin UK BTEC & apprentices senior
marketing executive
(Attended the London engagement event)
The board members
genuinely seemed interested
in hearing from employees
on the front line, I never had
this type of opportunity in
previous companies.
Nichol DeGruccio a Pearson VUE real
estate administrator, based in New Jersey
(Attended the Hoboken engagement event)
Annual report and accounts 2023 Pearson plc 82
Governance Our Board’s decision-making in action
This case study on the Chief Executive appointment process illustrates how the Directors considered the various aspects of their statutory
duties in making the decisions related to Omar Abbosh’s appointment and the implications for stakeholders. This case study should be
read in conjunction with the Directors’ duties statement on page 21 and the Nomination & Governance Committee report on pages 88-93.
In its decision-making, the Board considered Pearson’s key stakeholders in the following ways:
Consumers
Employees
Shareholders
When the profile of the desired candidate and the role specification
were developed for the Chief Executive recruitment process, the Board
took into account the key skills and attributes that would be needed
to expand upon and accelerate Pearson’s digital transformation and
continue Pearson’s commitment to its purpose of adding life to a
lifetime of learning, offering our consumers and learners new and
exciting ways of learning. Omar has extensive experience in driving
service and solutions for customers and delivering high-quality services
and products. He is passionate about learning and education, having
worked across many sectors in his career.
Communities
We strive to make a positive and meaningful impact in the
communities in which we operate and the Board considered this
in assessment of the candidates, to ensure that the successful
candidate was aligned with the importance of this to Pearson
and in driving this forward. Omar is a dynamic and innovative
leader, who has the skills to ensure we continue to widen access
to education in our global communities through innovation. He is
a highly mission-driven and people-centric leader.
As part of the extensive selection process, the Board was focused
on ensuring that the chosen candidate aligned with Pearson’s
values and ambition, that they saw Pearson’s employees as the
company’s greatest asset driving our success and ability
to make a positive impact. The Board sought a candidate who
was a strong cultural fit with Pearson, with the ability to effect
and accelerate change. Omar is an inspirational, dynamic
and growth-oriented leader, who the Board believes will help
drive the future success of the business. He has strong people
engagement skills and his personal values are very much aligned
with those of Pearson.
Employers
The Board was cognisant of the importance of Pearson’s
relationship with employers and the trust they have in Pearson
to deliver high-quality products and services, which has fostered
stable long-term relationships which underpin our business.
The Board agreed that the candidate would need to have highly
successful experience in leading a large, high-performing,
purpose-driven international business, with experience in brand
building and a passion for education. Omar has deep commercial
and operational expertise focused on delivering high-quality
services and products across diverse markets and customer sets.
His most recent position as President of Microsoft’s Industry
Solutions business, together with his experience on the board
of NYSE-listed, enterprise SaaS company, Zuora, Inc., mean
that he is ideally positioned to understand the diverse needs of
employers that Pearson seeks to serve through its products
and services.
In considering the candidates, the Board paid particular attention to
ensuring the successful candidate had sufficient depth of experience to
continue to build on our strategy across our global markets and deliver
long-term value, thereby promoting the success of the company for the
benefit of its members. Omar has a wealth of experience with global
enterprises, deep expertise in digital transformations and a proven
track record of delivering growth and value creation. Following the
announcement of Omar’s appointment, Omid Kordestani engaged with
a number of our key shareholders.
The Board is confident in Omar’s ability to deliver on strategy and
execution, which ultimately will be for the benefit of all our stakeholders
and is delighted to have secured such an outstanding candidate as
Chief Executive of Pearson.
Annual report and accounts 2023 Pearson plc 83
Governance Directors’ induction
I received a detailed
induction, including
divisional deep dives and
tailored meetings with
colleagues, which helped me
better understand Pearson’s
priorities and enabled me
to engage and contribute at
Board meetings effectively
from the start of my tenure
as a Non-Executive Director.
Alex Hardiman
Appointed to the Board on 1 June 2023
On joining the Board, each Director completes a bespoke
induction programme that is guided by the Chair or Deputy Chair
and Senior Independent Director, supported by the Company
Secretary, and overseen by the Nomination & Governance
Committee. Every programme builds on the particular skill
set, attributes, and background of the joining Director, their
interests in Board or Committee roles, and the company’s
recommendations.
Inductions for Alison Dolan and Alex
Hardiman
Alison Dolan and Alex Hardiman joined the Board as
Non-Executive Directors on 1 June 2023. As part of their
onboarding arrangements, Alison and Alex received
comprehensive and engaging induction programmes that
included a series of meetings.
In addition to meeting the Chair, Chief Executive and Chief Financial
Officer, Alison and Alex met with each of the Executive Management
team members, key representatives of our corporate functions, and
our brokers. Both induction programmes also included one-to-one
meetings with each of their fellow Non-Executive Directors and a
comprehensive introduction to the activities of each of the Board’s
Committees, including their objectives and priorities and, as they have
both joined the Audit Committee, they met with the company’s audit
partner. Alison and Alex also held meetings with the company’s legal
advisers to discuss directors’ duties, corporate governance and external
reporting, among other topics.
In addition to background information on the company, every
induction covers a range of topics, including Board procedures,
recent operational performance and strategic direction of the
company, purpose and values, key areas of the business, as well
as directors’ duties and responsibilities. The Directors also cover
various governance-related issues and their legal obligations,
including procedures for dealing in Pearson shares.
Each induction typically includes a series of meetings with
the members of the Board, the Executive Management team,
external advisers and brokers, and other senior management.
Directors receive a walk-through of the business from senior
executives and a briefing on Pearson’s investor relations
programme. A newly appointed Director will have met some, if
not all, fellow Board members as part of the original search and
appointment process, but additional meetings may nevertheless
occur with the same Board members as part of a rich and
thorough induction.
Induction programme participants
Meeting purpose
Chair, Deputy Chair and Senior
Independent Director
Chairs and members of the
Board’s Committees
Executive Directors;
Divisional Presidents
Heads of Corporate Functions
Company Secretary;
legal advisers
Introductory meetings to cover the company’s governance structure, the Board’s priority areas
and ways of working, meeting cadence, and ongoing matters considered by the Board.
Overview of the responsibilities and composition of the Board’s Committees, their governance,
regular attendees and advisers.
Overview of the strategic priorities of the company and each division, key performance
indicators, financial performance and projections, and competitive landscape.
Introductions with leadership team members, covering an overview of their business area(s),
subject matter expertise, organisational structure, company culture and values.
Induction planning, governance framework, Board and Committee matters, duties and
responsibilities of a company director, the company’s policies and procedures, and other legal
and regulatory considerations.
Annual report and accounts 2023 Pearson plc 84
Governance Board evaluation
The Board operates a three-yearly evaluation cycle which employs a variety of methodologies to ensure the most effective results.
Following internally facilitated reviews in 2021, led by the
Senior Independent Director, and in 2022, led by the Chair, in
accordance with the three-year evaluation cycle, the 2023 review
was externally facilitated.
Typical three-yearly
evaluation cycle
Year
Methodology
Last undertaken
Questionnaire, tailored to specific needs
of the business
2018
Discussion areas included matters that are relevant to Pearson
in particular, as well as those items laid down in the Code and
associated guidance, including:
— the effectiveness of the organisation and dynamics of the
Board, including composition, leadership, agendas, meeting
cadence, quality of information provided, governance and
decision-making
— relationships between the Board and senior leaders, and
between members of the Board itself, including the remits of
and interaction among the respective Committees and with
the Board
Internally facilitated interviews, to be led
by the Chair, Senior Independent Director
and/or Company Secretary as appropriate
In-depth evaluation, externally facilitated
2019, 2021,
— articulation and implementation of strategy
2022
2020, 2023
— succession planning and talent pipeline for Executive
Directors and other senior leaders
— understanding of risks facing the company, including
1
2
3
Approach and methodology
The 2023 evaluation was carried out by Manchester Square
Partners, which operates as an independent advisory
firm. Manchester Square Partners was selected following
consideration by the Nomination & Governance Committee of
various providers and the potential scope of the evaluation.
Manchester Square Partners has no other connections to the
company or individual Directors beyond this process.
The review was conducted through a series of one-to-one
conversations with each Director and anchored in a set of
questions shared with Directors in advance. One-to-one
meetings were also held with each member of the Executive
Management team and selected other senior executives. The
review process also included observation by the evaluator of a
full set of Board and Committee meetings, including the private
sessions. The one-to-ones were conducted in a ‘free-format’ style,
to allow organic discussions and to provide ample opportunity
for Directors and executives to raise matters of importance.
likelihood and mitigation
— understanding of stakeholder views, products and markets
— the Board’s monitoring of organisational culture, behaviours
and employee sentiment
In reporting back to the Board, Manchester Square Partners
opined that, based on their experience of evaluating the
effectiveness of boards in a variety of industries, including
many FTSE 100 companies, the Pearson Board operates highly
effectively. It was found to be well chaired and comprised of
high-quality Non-Executive Directors who provide an appropriate
balance of challenge and support to the Executive Directors and
management team.
The Chair discussed the report with the evaluator and
subsequently the Board reviewed the detailed findings from the
report with the evaluator at its meeting in February 2024. The
Board will develop an action plan to address recommendations
and areas for improvement and the Nomination & Governance
Committee will monitor progress during the year.
Board evaluation process
The format of the review was agreed by the
Deputy Chair & Senior Independent Director
(including in their capacity as Chair of the
Nomination & Governance Committee).
The scope of the review was finalised by the
Deputy Chair & Senior Independent Director
with support from the Company Secretary.
Manchester Square Partners interviewed
each of the Directors on a confidential
and unattributable basis, as well as the
Executive Management team and other
senior executives.
Manchester Square Partners observed the
Board and Committee meetings held in
December 2023.
The output of the evaluation was captured in
a report to the Board in February 2024, with
the Board then discussing the points raised
by the review.
Progress on the findings of the evaluation
will be monitored by the Nomination &
Governance Committee throughout 2024.
Annual report and accounts 2023 Pearson plc 85
Governance Board evaluation continued
Key findings included:
— Directors are highly engaged and diligent, with a broad range
of relevant business experience. The Board acknowledged the
skills and valuable contribution of the newly appointed Non-
Executive Directors and the opportunity for Graeme Pitkethly,
in his new role as Deputy Chair and Senior Independent
Director, to focus on maintaining strong engagement with UK
shareholders. The Board further acknowledged the strength
and diversity of contributions made by all, particularly from
external experiences.
— Board meetings and discussions are considered to be
dynamic, focused and relevant, with the Board as a whole
considered to be collegial and respectful, with an open
dialogue, while providing an appropriate amount of challenge
to management. The Board is appreciative of the continued
efforts by management to deliver focused, succinct meeting
papers and materials.
— The Board recognised the progress that had been made and
improved financial performance, and recognised that the new
Chief Executive, Omar Abbosh, would have an important role
to play in building out the strategy further.
— The Board acknowledged the quality of the Chief Executive
recruitment process, while the two new Non-Executive
Directors commended the induction process.
— Board members have relevant skills and experience, albeit
the Board recognised the importance of focusing on
succession planning and talent development at the Executive
Management and senior leadership level.
— Directors would appreciate deeper dives at Board level on
major customer relationships and the competitive landscape,
recognising the challenges of the separation between the
main buyers of Pearson’s products and services and the
end users.
— The Board welcomed the opportunity to reintroduce in-
person employee engagement events to its calendar which
involved the full Board and recognised the continued need
to focus on ensuring an engaged workforce and healthy
culture generally.
— The Board appreciates the access to, and engagement with,
the Executive Management team.
— Positive feedback was noted on the performance and
effectiveness of the Committees.
There was unanimous agreement that the Chair leads the Board
in an effective manner, fulfilling Principle F of the Code. The
Directors agreed that he demonstrates objective judgement,
promotes a culture of openness and debate, and facilitates
constructive Board relations and the effective contribution of all
Non-Executive Directors. This, in turn, supports Non-Executive
Directors in fulfilling the requirements of Principle H of the Code
in providing constructive challenge and strategic guidance,
offering specialist advice and holding management to account.
The main areas identified by the Board for particular focus during
2024 were:
— Continuing to evolve Pearson’s strategic direction, building on
the optionality that has been created through recent work on
the strategy and vision.
— Ongoing focus on succession planning, talent review and the
culture of the company, at executive level as well as more
broadly, to ensure Pearson has engaged employees with a
performance mindset and the right skillset to deliver on the
company’s strategic vision, together with a strong pipeline of
talent to allow continued execution in the future.
— Continued focus on the Board having the right mix of skills
and experience as the company continues to transform
and evolve, and ensuring strong stakeholder relationships
are maintained.
— Continued development of customer and marketplace
insights shared with the Board, to help increase the Board’s
understanding as these areas evolve.
— Ongoing development of the Board’s meeting and agenda
roadmap to ensure the topics are aligned with Pearson’s
strategic goals and given adequate discussion time.
— Ensure there continue to be formal and informal channels for
feedback between the Chair and the Directors, especially at a
time of transition in senior Board roles.
In addition to the annual evaluation exercise, the Chair meets
regularly with the Non-Executive Directors and these sessions
include reciprocal feedback on the functioning of the Board.
Individual evaluation
In addition to the evaluation of the Board as a whole, Executive
Directors are evaluated each year on their overall performance
against goals agreed by the Board, and in respect of strategic
measures under the company’s annual incentive plan. These
goals are linked to the key financial and strategic objectives of the
company. Progress against each of these metrics is reviewed by
the Board on a regular basis, as part of a dashboard of KPIs.
The Chair engages with individual Non-Executive Directors on
their performance and contributions, and encourages open
channels of communication with Directors on an ongoing basis.
In the Board’s opinion, these ongoing lines of communication,
combined with a Group-wide culture which allows and
encourages feedback at any time, provide the most effective
means for evaluation. In assessing the contribution of each Non-
Executive Director, the Chair, with the support of the Nomination
& Governance Committee, has confirmed that each continues to
make a significant contribution to the business and deliberations
of the Board. The Non-Executive Directors also conduct an
annual review of the Chair’s performance, with the Deputy Chair
& Senior Independent Director leading this review and providing
feedback to the Chair.
Committee evaluation
All Committees undertake an annual evaluation process to review
their performance and effectiveness. For 2023, the Committee
evaluation process was facilitated externally by Manchester
Square Partners, as part of the broader Board evaluation
process. Read more in the Committee reports on the pages
that follow.
Annual report and accounts 2023 Pearson plc 86
Governance Progress on findings of previous evaluation
A number of actions were taken during the year in response to findings from the 2022 Board
evaluation process, as set out below. The Board has confirmed that these items were addressed to
its satisfaction, with recommendations having been put into practice or a clear action plan identified
for each to be taken forward in 2024.
Finding or focus area Response or action taken
Finding or focus area Response or action taken
Ongoing focus on
succession planning and
talent review at Board and
executive level, as well as
more broadly.
The Nomination & Governance Committee has reviewed the
composition of the Board and its Committees throughout 2023,
including as part of the appointment of two Non-Executive
Directors in June 2023 and ongoing considerations for upcoming
retirements in coming years, as well as focus on the recruitment of
a new Chief Executive.
Continued focus on
execution of strategy,
including clarity on how
the Board can best
monitor and measure
the execution plan while
maintaining its distance from
operational matters.
Ensure accountability
for execution in the
next phase of the
company’s transformation.
Focus on post-acquisition
integration and evaluation
of the performance of the
acquired businesses.
Ongoing development
of roadmap for market
visits and deep dives to
ensure alignment with
Group’s aspirations and
international footprint.
Continued sharing of
customer and marketplace
insights with the Board.
The Board has reviewed strategic KPI metrics and processes
during the year, in order to better align them with Pearson’s
strategic narrative and demonstrate our strategic progress more
succinctly. Additionally, the Board discussed strategy as a regular
item at Board meetings, with more focused sessions taking place
at the July and October Board meetings.
Continue to pay close
attention to culture and
engagement in 2023.
The Board received operational plan presentations from the
Divisional Presidents and also discussed financial dashboard
reports at every Board meeting, in order to monitor performance
and drive accountability.
The Board conducted a post-acquisition review of Faethm and
Credly in December 2022 and will conduct a review of Mondly
and PDRI in April 2024, to consider the performance of these
acquisitions and how they have integrated commercially,
financially and operationally. These reviews also include
considerations for changes in approach to M&A going forward
and lessons learnt.
Divisional deep dives were integrated into the Board agenda
throughout 2023. The December 2023 Board meeting took place
in Hoboken, New Jersey, and was an opportunity for the full Board
to visit the office and meet with employees. There is an action plan
in place to take such engagement further forward in 2024.
Customer and marketplace insights shared as part of divisional
updates, and deep dives and product demos such as the one held
on Pearson+ Channels. There is an action plan in place to take this
further forward in 2024.
Focus on the importance
of the risks inherent in
the technology, cyber and
online spaces, including
information security,
safeguarding and reputation.
Identify and focus on the
elements of sustainability
that are particularly
relevant and critical for
Pearson’s success.
The Board conducted a review of succession and talent at
executive level at the December 2023 Board meeting.
There is an ongoing initiative throughout the organisation to
evolve ways of monitoring culture and behaviours. Culture and
employee engagement now sit within the remit of the Reputation
& Responsibility Committee and the Chief Human Resources
Officer attends all meetings. The Reputation & Responsibility
Committee reviewed the results of the employee engagement
survey on behalf of the Board and its perspectives were then
discussed by the full Board.
The Audit Committee conducts regular deep dives on technology
resilience, data privacy and information and cyber security,
and the Chief Information Officer is a regular attendee of Audit
Committee meetings. There is attention to these themes through
the work of Internal Audit, which the Audit Committee discusses.
The Reputation & Responsibility Committee received a report
on online safeguarding in April 2023. The full Board undertook a
Technology deep dive session with the Chief Information Officer
in 2023.
The Reputation & Responsibility Committee reviewed investor
perceptions on sustainability and agreed a strategy and action
plan for 2023. The Reputation & Responsibility Committee
received updates on progress throughout 2023.
Annual report and accounts 2023 Pearson plc 87
Governance Nomination & Governance Committee report
Tim Score Committee Chair
Principal Committee responsibilities
Role and composition of the Committee
The Committee monitors the composition and balance of the
Board and of its Committees, identifying and recommending to
the Board the appointment of new Directors and/or Committee
members. The Committee has oversight of the company’s
compliance with, and approach to, all applicable regulation
and guidance related to corporate governance matters. The
Committee is also available to support the Board as needed in
relation to talent and succession plans for senior roles.
The Committee currently has five members including me as
Chair. The Chief Executive, Chief Financial Officer and other
senior management, including the Chief Human Resources
Officer, attend Committee meetings by invitation.
As Committee Chair, I am available to engage with any
shareholders who would like to discuss the work of the
Committee and look forward to taking any shareholder questions
at our forthcoming AGM in April 2024.
After serving nine years on the Board, I will be stepping down
at the AGM in April 2024, therefore this will be my last report as
Chair of the Nomination & Governance Committee. It has been
a privilege to serve as Chair of the Committee and I would like
to extend my thanks to my fellow Committee members for their
input and commitment, particularly during the process to select
a new Chief Executive. I am delighted that Omid Kordestani will
succeed me as Chair of the Committee. Further to this, Graeme
Pitkethly has agreed to succeed me as Deputy Chair and Senior
Independent Director, alongside his existing key role as Chair of
the Audit Committee – the company is fortunate to have such an
outstanding colleague stepping into this role.
Appointments
Identifying and nominating candidates for Board vacancies.
Balance
Ensuring that the Board and its Committees have the appropriate
balance of skills, experience, independence, diversity and knowledge to
operate effectively.
Succession
Reviewing the company’s leadership needs with a view to ensuring the
continued ability of the organisation to compete in the marketplace.
Governance
Reviewing and overseeing Pearson’s corporate governance framework,
Board evaluation and training plans, and the Board Diversity Policy.
Terms of reference
The Committee has written terms of reference which clearly set out its
authority and duties. These are reviewed annually and can be found in
the Governance section of our website (www.pearsonplc.com).
Committee members and attendance
Attendance by Directors at scheduled Nomination & Governance
Committee meetings throughout 2023:
Committee members
Meetings
attended
Sherry Coutu
Omid Kordestani1
Esther Lee
Tim Score
Annette Thomas
3/3
1/3
3/3
3/3
3/3
1. Mr Kordestani was unable to attend the meetings held in March and July 2023
due to pre-existing commitments. He reviewed the papers and provided his
perspectives to the Committee Chair outside the meetings.
Annual report and accounts 2023 Pearson plc 88
Governance Nomination & Governance Committee report continued
Board succession planning, skills
and expertise
A key element of the Committee’s remit is to lead the process for
Board appointments in line with appropriate succession plans.
The matter of Chief Executive succession is a regular item for
discussion and reviewed by the Board on an annual basis. The
company also has contingency plans in place for the temporary
absence of the Chief Executive for health or other reasons. You
can read more about the Chief Executive succession process
that took place in 2023 on page 91. Succession planning for the
Board as a whole is considered at least annually by the full Board,
and on an ongoing basis by the Committee.
As part of the Committee’s regular succession planning activity,
all Board members are asked periodically to complete a self-
assessment of the skills and experience which they believe
they each bring to the Board. The assessment focuses on
those categories of skills and experience which are relevant to
Pearson’s strategy, business model and particular organisational
characteristics. When mapped against expected retirement
dates, the assessment helps the Committee to identify the areas
where it may need to focus any future search activity.
The results of the most recent assessment (shown on page 90)
demonstrate that Pearson has a strong spread of skills across
all areas identified as being of particular importance. Pearson
expects all Non-Executive Directors to demonstrate the highest
level of integrity and credibility, independence of judgement,
maturity, collegiality and also a commitment to devote the
necessary time to the company’s business.
Board search processes and appointments
The Committee has been very active over the past year in relation
to Board search activity, conducting search processes resulting
in the appointment of two new independent Non-Executive
Directors, Alison Dolan and Alex Hardiman, and supporting the
Board in the selection of a new Chief Executive, Omar Abbosh.
Before commencing the Non-Executive Director search process,
the Committee considered the recent and anticipated Board
retirements and the impact of these on the overall skills and
expertise on the Board.
These were mapped against the key areas of strategic
importance to the business to ensure our Board has the
appropriate balance of skills and experience to deliver our
strategy, while also taking diversity considerations into account.
The Committee agreed that it was particularly interested to
identify two candidates, each with specific skills and expertise to
complement the Board. The first category focused on established
finance leaders, with a deep understanding of public company
governance standards, ideally from a UK-listed business, who
had capacity to serve on the Audit Committee. The second
category focused on individuals with operating experience
with subscription and/or enterprise SaaS business models, at
a scale and complexity commensurate to Pearson, experience
developing innovative digital products and/or driving digital
business transformation and direct to consumer business
engagement skills.
Taking into account the agreed specifications, the Committee
engaged Spencer Stuart to undertake the search process. In line
with the objectives of the Board’s Diversity Policy, the Committee
asked Spencer Stuart to ensure that the lists of candidates
reflected diversity of gender, ethnicity, geography and age as well
as diversity in its broadest sense. You can read more about the
Board Diversity Policy and diversity across Pearson on pages 92-
93. I worked closely with Spencer Stuart to develop the candidate
lists, with the Committee then considering the candidate profiles
in detail, including their current commitments, skills and previous
experience. I met with all shortlisted candidates and provided
my feedback to the Committee. A number of other Board
members met with the preferred candidates, following which the
Committee made its recommendation to the Board. The search
processes culminated in the appointments of Alison Dolan and
Alex Hardiman as Non-Executive Directors with effect from 1
June 2023. You can read about their induction on page 84.
In addition to the Non-Executive Director and Chief Executive
search processes, Spencer Stuart also undertakes broader
executive search activity for the Group and is a signatory to the
Voluntary Code of Conduct for Executive Search Firms. Spencer
Stuart has no connection with Pearson or members of the Board
beyond its expertise in board and executive search.
Executive succession planning
Succession planning for key positions at Executive Management
level is primarily overseen by the full Board, with support
provided by the Committee in respect of particular initiatives.
The Executive Management team has a key role to play in our
strategic planning process, in the ongoing development of our
talent pipeline and in fostering the culture and values required
to continue to deliver on our strategy. Following a review of
talent and succession planning in December 2022, particularly
the executive pipeline from which the future leaders of Pearson
were likely to emerge, in December 2023 the Board held a
discussion on the current Executive Management team and
requirements to support the new Chief Executive in executing
the next stage of the company’s strategy. The company also has
targeted development programmes for high-potential talent
and mentorship programmes for diverse leaders, as well as
development programmes for junior and middle management.
Other areas of focus during 2023
The Committee oversees the company’s compliance with the
UK Corporate Governance Code and reviews a status tracker to
enable it to consider the appropriateness and maturity of various
elements of our governance framework and to monitor any areas
of qualified or non-compliance. Learn more about Pearson’s
compliance with the Code on page 67.
Other areas of focus for the Committee during the year included:
oversight of the composition of the Board’s Committees,
assessment of the independence of Tim Score prior to making
a recommendation for his re-election at the 2023 AGM
(recognising his length of service on the Board), Board diversity
reporting and the approval of a new target for ethnic diversity in
senior management to be achieved by December 2027, and the
annual review of the contribution of each Director to the Board.
Annual report and accounts 2023 Pearson plc 89
Governance Committee evaluation
Committee aims for 2024
The Committee undertakes an annual evaluation process to
review its performance and effectiveness. For 2023, feedback
relating to the Committee was sought from Directors as part of
the wider Board evaluation led by Manchester Square Partners.
Topics covered included the effectiveness and dynamics of
the Committee, oversight of key areas within the Committee’s
remit, the quality of papers and meeting discussions, and the
relationships between the Committee and management.
The findings of the effectiveness review process for 2023
indicated that the Committee is considered to be working well
with appropriate agendas, papers produced to a good standard
and high-quality discussions. Positive feedback was noted on
the handling of the Chief Executive and Non-Executive Director
recruitment processes. You can read more about the Board
evaluation process on page 85.
The Committee’s priorities for the coming year will be to ensure a
smooth Chief Executive transition and the successful onboarding
and induction of Omar Abbosh. The past year has required the
Committee to be particularly focused on Board search activity
and so, in 2024, we will look to focus on other areas of our
governance framework, including monitoring progress against
the latest Board evaluation findings, overseeing management’s
response to the revised UK Corporate Governance Code, and
working with our HR colleagues to focus on diversity.
Tim Score Chair of Nomination &
Governance Committee
Skills matrix
This matrix represents the number of Directors with core or supplemental capability in areas that are relevant to Pearson’s strategy,
business model and organisational characteristics. A core capability is one of the strongest areas of a Director’s skill and expertise,
where they bring considerable value to Board discussions. A supplemental capability is an area where the Director is competent or has
experience, but is not one of the primary skills or attributes that they bring to the Pearson Board.
Category
1. Accounting and finance
2. Corporate strategic development (including value creation
7. Global markets
8.
Listed company governance & regulation (particularly UK)
9. People / general talent focus (including workforce learning)
and M&A)
10. Policy and government relations
3. Digital and technology (including data and cyber security
11. Prior CEO experience, particularly of
governance and AI)
multinational businesses
4. Disruption management (including talent leadership through
12. Remuneration
change, marketing and data insights, new business models
and innovation)
5. Direct to consumer business models (including consumer
13. Scale and complexity
14. Sustainability
brand, sales and marketing)
6. Education and public sector
1
2
3
4
5
6
7
8
9
10
11
12
13
14
1
1
2
4
4
4
6
6
6
2
7
3
6
8
8
8
5
10
2
4
4
8
9
1
5
3
4
3
Core capability
Supplemental capability
Annual report and accounts 2023 Pearson plc 90
Governance Appointment of Chief Executive
During 2023, the Board commenced a search process for a new Chief Executive, following notice from Andy Bird of his intention to retire
from the Pearson Board, applying the ongoing succession planning processes which are regularly reviewed by the Board. The Chief
Executive search process was led by the Chair of the Board, Omid Kordestani, and a working group of the Committee was appointed to
manage the process, which was reviewed several times by the full Board. Spencer Stuart was selected by the Board to support the Chief
Executive succession activity.
The search process resulted in the appointment of Omar
Abbosh, who became Pearson’s Chief Executive on
8 January 2024.
The Board also made clear to Spencer Stuart that diversity,
including gender and ethnicity, was an important consideration in
the candidate search process.
Spencer Stuart met with each member of the Board individually
to seek their input into the profile of the desired candidate and
to refine the role specification. The Directors agreed that the key
attributes they were seeking in proposed candidates included:
— Passionate, results-oriented, collaborative, and mission-driven
leader who can build on the current Pearson strategy and
deliver value to Pearson’s shareholders over the medium
and long term
— Highly successful experience in leading a large, complex
international business
— Extensive experience in one or multiple of the following
sectors: enterprise technology, media, consumer or other
tangential sectors with technology/digital as the core of
the business
— Demonstrated track record of successfully developing and
leading the commercialisation and go-to-market strategies
within a business to deliver results and growth
— Proven global leader who can win in multiple markets, drive
results and act strategically
— An agent of change who can communicate a mission and
vision, inspiring hearts and minds to align stakeholders
and bring the mission/vision to bear and a cultural fit with
Pearson’s values
— Experience of delivering high-quality products and services for
both enterprises and consumers
— Strong reputation, integrity, independent thinker
The Board considered 43 candidates over the course of the
process, of which 16 were women and 12 were from an ethnic
minority background. As this progressed, the longlist of 43 was
refined to a group of eight individuals (including three women
and two individuals from an ethnic minority background), each
of whom met with the working group of the Board. In the final
stage of the process, Omid Kordestani and Tim Score, as well as
a number of other Board members, met on both one-to-one and
panel bases with each of the three shortlisted individuals. Each
shortlisted individual was also invited to present to the full Board
on their strategic vision for Pearson and to address questions
from all Board members. The final shortlist included one woman
and one individual from an ethnic minority background.
As a result of the comprehensive selection process, the Board
identified Omar Abbosh as its preferred candidate for the role
of Chief Executive. Once appropriate checks and referencing
had been completed, the Board was satisfied that Mr Abbosh
met and exceeded the selection criteria and approved the
appointment of Mr Abbosh as Chief Executive, who took up the
role on 8 January 2024.
The Board is pleased to welcome Omar, who has deep
commercial, technology and operational expertise focused on
delivering high-quality services and products across diverse
markets and customer sets, with extensive experience in creating
and executing strategies to enable companies to harness
technology and succeed in a world of disruptive change.
Omar shares our values and our ambition and has a strong
track record of execution. His expertise will help to further
accelerate our strategy and continue to deliver value for all
our stakeholders.
Andy Bird did not take part in the search and selection process
save that he participated, firstly, in the initial individual scoping
sessions with Spencer Stuart in terms of what the specification
should focus on as the ideal future leader of Pearson and,
secondly, in the final decision to appoint Omar, with this
resolution being passed unanimously by the Board.
On behalf of the Board and Pearson colleagues, the Committee
would like to thank Andy for his outstanding leadership during
his time as Chief Executive. During his tenure, Andy implemented
an ambitious vision and strategy, successfully transitioned
Pearson into a more consumer-focused business and drove
cultural and organisational change while delivering strong
financial performance.
Annual report and accounts 2023 Pearson plc 91
Governance Nomination & Governance Committee report continued
Diversity across Pearson
Over the past few years, we have been on an intentional journey
to redefine what diversity, equity, and inclusion (DEI) mean at
Pearson and to take action. We have reshaped our policies,
practices, and principles around DEI and created a long-term
strategy focusing on recruitment and promotion, retention,
inclusive culture, and social impact.
Our ambition is to be an inclusive and high-performing place to
work where everyone can leverage their unique strengths. That’s
why our people strategy has DEI as one of our three pillars with
the aim of creating a culture of belonging and increasing diverse
representation throughout the company. As part of the Pearson
employee engagement survey, we have a culture of inclusion
index to benchmark and measure against three principles:
employees are treated with respect, managers value employees
for their strengths, and our leaders do what is right.
In addition, Pearson’s Code of Conduct in relation to ethical
practices takes account of gender, age, race, ethnicity, disability,
and sexual orientation, and applies to all employee levels,
including the Executive Management team. It is underpinned
by a global statement on DEI, along with country and business-
specific policies. Standards are set consistently worldwide – both
internally and externally – as part of our efforts to make Pearson
a great place to work.
Together, our goal is to drive the transformation of learning,
making it more diverse, equitable, and inclusive. It is a continuous
combination of intentional bottom-up and top-down leadership
across all levels of the company to foster a culture where
everyone feels a sense of belonging.
Board diversity
We believe that Board diversity makes us a better and more
sustainable business, contributing to high performance,
enhanced commercial results, and an inclusive leadership
culture. Research indicates that high-performing boards provide
an increased competitive advantage and wider perspectives,
while the needs for greater inclusion and diversity continue to
influence global trends.
We are determined that, as a Board, we must be representative
of our employee base and wider society, including the countries
in which we operate.
The Board embraces the UK Corporate Governance Code’s
underlying principles with regard to Board balance and diversity,
including in respect of ethnicity, gender and age. The objectives
set out in the Board’s Diversity Policy and our progress towards
these are shown in the table on page 93.
The Nomination & Governance Committee ensures that
the Directors of Pearson demonstrate a broad balance of
skills, background and experience, to support our strategic
development and reflect the global nature of our business.
It requires appointments to be made on merit and relevant
experience, while taking into account the broadest definition of
diversity. In any Non-Executive Director search processes, the
Nomination & Governance Committee encourages the retained
search firms to place an emphasis on putting forward candidates
who would enhance the overall diversity of the Board.
In light of recent changes to the UK Listing Rules put forward
by the Financial Conduct Authority (FCA), the Nomination &
Governance Committee updated the objectives that support
the Board Diversity Policy, and which underpin Pearson’s
commitment to creating a more equitable and inclusive
company. The objectives now include the following:
— at least 40% female directors
— at least two directors from an ethnic minority background
— at least one of the Chair, Chief Executive, Deputy Chair and
Senior Independent Director or CFO is a woman
We also expanded our objectives to confirm that the Board will
consider its own diversity, and that of its Committees, as part of
the annual effectiveness review processes. Further, the Board
will explore expanding its diversity considerations to include
characteristics such as sexual orientation, disability and socio-
economic background.
The Nomination & Governance Committee adopts a principles-
based approach to diversity on the Board’s Committees. It is
recognised that it is not necessarily practical to set meaningful
metrics or targets for diverse membership of Committees due
to the notably smaller membership of each of the Committees
compared to the size of the Board. Accordingly, our principles-
based approach endorses the importance of bringing diverse
perspectives to all areas of the Board and Committees’ work.
As an example of this principles-based approach in practice, as
part of its regular Committee succession planning activity, the
Nomination & Governance Committee considers the gender
and ethnic balance on each Committee when assessing its
composition and future needs.
As at 31 December 2023, 55% of Directors were women
(2022: 50%), exceeding the target of 40% women’s
representation by the end of 2025, as recommended by
the FTSE Women Leaders Review.
We are also satisfied that, ahead of the target implementation
date, we are compliant with the new FCA requirements stating
that boards should have at least one woman in the Chair, Chief
Executive, Senior Independent Director or Chief Financial Officer
role, and that at least one member of the Board should be from
an ethnic minority background, among other targets.
During its evaluation process conducted in 2023, the Board
considered the effectiveness of the organisation and dynamics
of the Board, including in respect of diversity. The results and
feedback provided by the evaluation indicated that the Directors
believe the Board’s diversity is strong. The Board recognised
the increasing importance of DEI and acknowledged the
progress being made. It noted that it would explore expanding
its considerations to wider forms of diversity, such as sexual
orientation, disability, age, and socio-economic background,
when making new appointment decisions.
Diversity and talent at executive level
Five members of our Executive Management team of 10,
excluding the Chief Executive and Chief Financial Officer who
are counted in the Board’s metric, are women (50%) (2022:
50%). Including the Chief Executive and Chief Financial Officer,
this ratio stays at 50% (six women out of 12 members) (2022:
50%). As of 31 December 2023, the group comprising the
senior management team (as specified by the UK Corporate
Governance Code, i.e. the Executive Management team and
the Company Secretary) and the Executive Management team’s
direct reports contained 45 women, representing 47% of that
group (2022: 50%). In response to the Parker Review’s new
requirement for listed companies to set an ethnic diversity target
in respect of senior management positions, the Committee
approved a target of 20% of Pearson’s senior management
positions to be occupied by ethnic minority individuals
by December 2027. As at 31 December 2023, the senior
management team, as defined above, contained 17 individuals
who identify as minority ethnic, representing 20% of that
group, who have provided the company with ethnicity data.
For diversity data in the format prescribed by LR 9.8.6R(10),
please see page 53.
Annual report and accounts 2023 Pearson plc 92
Governance Board diversity objectives
The Nomination & Governance Committee monitors progress on the company’s DEI framework,
governance and measurement models, and priority areas. As part of this, the Nomination &
Governance Committee reviewed and updated the objectives which underpin the Board Diversity
Policy. The objectives in place during 2023 and Pearson’s performance against them are set
out below:
Objectives
Progress
We will strive to achieve and maintain a
Board composition of:
— at least 40% Directors are women
As at 31 December 2023:
54.5% Directors were women
The Board included three Directors from an
— at least two Directors are from an ethnic
ethnic minority background
minority background
— at least one of the Chair, Chief Executive,
Deputy Chair and Senior Independent
Director or CFO is a woman
All Board appointments will be made
on merit, in the context of the skills and
relevant experience that are needed for
the Board to oversee Pearson’s strategic
development and that reflect the global
nature of our business.
The Board will continue to incorporate
a focus on a diverse pipeline in its
succession and appointment planning,
including to prioritise the use of search
firms which adhere to the Voluntary Code
of Conduct for Executive Search Firms (the
Voluntary Code) when seeking to make
Board-level appointments.
One of the Chair, Chief Executive, Deputy
Chair and Senior Independent Director or
CFO is a woman
Our most recent Board search processes
considered a wide range of candidates,
including from diverse backgrounds, all of
whom were evaluated on the basis of merit.
The search processes resulted in the
appointment of Omar Abbosh, Alison Dolan
and Alex Hardiman, whom the Board believes
possess the requisite skills and experience for
their roles.
The Committee actively includes diversity in its
search criteria for Board appointments, and
proactively encourages engaged search firms
to include candidates from a range of diverse
backgrounds in its candidate lists.
Spencer Stuart assists Pearson with search
activities, including for the recent Chief
Executive and Non-Executive Director search
processes. Spencer Stuart is a signatory to the
Voluntary Code.
Objectives
Progress
The Board will continue to adopt best
practice, as appropriate, in response
to the Parker Review, FTSE Women
Leaders Review, FRC Board Director
Effectiveness Review, and Financial
Conduct Authority requirements.
The Board will consider its composition
and diversity, and that of its Committees, as
part of its consideration of effectiveness in
the Board evaluation review process. The
Board will also explore expansion of these
considerations to cover ethnicity, sexual
orientation, disability and socio-economic
background characteristics.
Where appropriate, we will assist with the
development and support of initiatives
that promote all forms of DEI in the Board,
Pearson Executive Management team and
other senior management.
We will review and report on our progress
in line with the policy and our objectives in
the annual report, including providing details
of initiatives to promote DEI in the Board,
Pearson Executive Management team and
other senior management.
We will continue to make key DEI information
about the Board, senior management and
our wider employee population available
in the annual report, and aim for ongoing
transparency in this area in line with
best practice.
The Board is cognisant of the recommendations
of the FTSE Women Leaders Review and Parker
Review. The new FCA requirements in respect of
gender and ethnic diversity are also reflected in
the Board Diversity Policy.
These matters were considered in the 2023
evaluation process. Read more on pages 85-86.
A mentoring programme where six mentees
at the Senior Vice President (SVP) level were
mentored by six Non-Executive Directors
concluded in June 2023. 67% of SVP participants
were female and/or persons of colour (target
at 50%). The intention is for a new cohort to be
identified for 2024.
Objectives that accompany the Board’s Diversity
Policy have been monitored. The Committee
continues to monitor developments on DEI in
the external landscape.
This information is included in the annual
report. Read more about DEI matters in the
wider employee population on page 40.
Key
Target achieved
Target not met
Annual report and accounts 2023 Pearson plc 93
Governance Reputation & Responsibility Committee report
Annette Thomas Committee Chair
Principal Committee responsibilities
Terms of reference
Stakeholders: Monitoring reputational issues that could significantly
affect Pearson’s reputation with stakeholders, including consumers,
employees, shareholders, educational institutions and educators,
employers, governments and regulators, communities and
business partners.
Sustainability and associated non-financial KPIs: Overseeing
Pearson’s sustainability framework including: targets and public
commitments; regulatory landscape, reporting and ratings;
sustainability due diligence in our supply chains and business
partnerships; and assisting the Board in monitoring progress towards
the non-financial KPIs linked to the three pillars of the Learning for
Impact strategy.
Culture and employee engagement: Assisting the Board in
monitoring Pearson’s approach to employee engagement and the
company’s culture, which stresses diversity and high performance.
Communications and regulatory matters: Overseeing Pearson’s
communications, strategies, policies and plans related to reputational
issues and the people, processes and policies that are in place to
manage them.
Branding: Overseeing the way in which the company’s brands are
managed and promoted to ensure that their value and the company’s
reputation are maintained and enhanced.
Risk: Monitoring Pearson’s approach to the reputation aspects of the
risk register and ensuring that clear roles have been assigned for the
management of these, including in relation to the company’s material
sustainability risks and opportunities.
The Committee has written terms of reference that clearly
set out its authority and duties. These are reviewed annually
and can be found in the Governance section of our website
(www.pearsonplc.com).
Committee members and attendance
Attendance by Directors at scheduled Reputation &
Responsibility Committee meetings throughout 2023:
Committee members
Meetings
attended
Andy Bird1
Alex Hardiman2
Linda Lorimer3
Graeme Pitkethly
Annette Thomas
Lincoln Wallen
4/4
2/2
1/1
4/4
4/4
4/4
1. Mr Bird stepped down from the Committee with effect from
7 January 2024.
2. Ms Hardiman was appointed to the Committee with effect from
1 August 2023.
3. Ms Lorimer stepped down from the Committee with effect from
28 April 2023.
Annual report and accounts 2023 Pearson plc 94
Governance Reputation & Responsibility
Committee role
I am pleased to present my first report as Chair of the Reputation
& Responsibility Committee following my appointment to the
role on 28 April 2023. I offer my sincere thanks on behalf of
the Committee to my predecessor, Linda Lorimer, for her
considerable contributions during her six years as Committee
Chair. I also extend my thanks to Andy Bird who served as a
member of the Committee until his retirement as Chief Executive
in January 2024. We look forward to welcoming Omar Abbosh as
a regular attendee at the Committee’s meetings in the future.
The Committee works to assess and advance Pearson’s
reputation across the range of its stakeholders and to maximise
the company’s positive impact on the communities in which we
work and serve.
We are the main governance body for sustainability at Pearson,
providing important oversight of our sustainability framework;
this includes climate change considerations. As part of this role,
we promote and oversee Pearson’s Learning for Impact strategy
and assess progress against its commitments. We also monitor
branding, employee engagement, culture and values, and provide
ongoing oversight and scrutiny across all reputational matters.
The full Board is kept abreast of the Committee’s work through
reports I make following each of our sessions. These reports
include highlighting any material discussion points or areas
of concern and offering specific recommendations for the
Board’s action.
As Committee Chair, I am available at any time to engage
with any shareholders who would like to discuss the work of
the Committee, and particularly look forward to taking any
shareholder questions at our forthcoming AGM in April 2024.
Committee composition and attendees
The Committee currently has four members, including me as
Chair. During the year, the Committee was pleased to welcome
Alex Hardiman as a new member. Together, Committee
members bring a range of expertise across key areas of our
remit, including sustainability, product, stakeholder management,
people and talent, and policy and government relations. You can
read more about the Committee members’ skills and experience
on pages 68-70.
In addition, we benefit from the regular attendance of senior
executives whose work is central to the remit of the Committee.
These include the Chief Legal Officer, who is the executive leader
responsible for the development, monitoring and execution of
Pearson’s sustainability strategy; the Chief Marketing Officer and Co-
President of Direct to Consumer; the Chief Human Resources Officer;
SVP – Investor Relations; and SVP – Corporate Communications.
operations, enhanced ways of working with customers and
proactive stakeholder engagement following challenges in the
previous year’s results season. Additionally, we undertook our
annual safeguarding review, which had a particular focus on
online trust and safety in our digital products and services in
light of rapid change in the technology and legislative landscape
affecting these areas.
Sustainability activities in 2023
Throughout the year, the Committee paid particular attention to
the continued evolution of our sustainability strategy, including
how it aligns to our greatest areas of opportunity and challenge
as a business, and how to communicate its tenets to all our
stakeholders in a clear and impactful way.
As described in greater detail in our sustainability report starting
on page 34, our Learning for Impact strategy comprises three
pillars that align with the interests of stakeholders and represent
the areas where we can make the biggest positive impact:
— Driving learning for everyone with our products
— Empowering our people to make a difference
— Leading responsibly for a better planet
These areas are also materially influential in helping Pearson
succeed as a business. The pillars have a clear, natural fit
to our non-financial KPIs, reflecting the common goal of
alignment between our corporate and sustainability strategy.
The sustainability strategy is supported by Pearson’s robust
corporate governance, strong corporate culture and a range of
effective policies to ensure we achieve our ambitions.
The Committee receives regular updates from management
on progress against the priorities of the sustainability strategy
and initiatives that support its delivery. Over the past year, key
activities of the Committee in relation to our three Learning for
Impact pillars included the following:
Driving learning for everyone with our products
In the course of the year, we reviewed and provided input to the
latest edition of the Global Content Policy, which provides a set
of underpinning principles for Pearson employees and business
partners alike on producing evidence and fact-based content
which aligns with Pearson’s purpose and values.
We also discussed with management their focus on successful
delivery of the 2023 BTEC results, reflecting on changes to
At each meeting, the Committee receives a report on recent
incidents and issues that could have an impact on the company’s
reputation, including those relating to our products and business
partners. We consider Pearson’s responses to coverage on
social media and in traditional media, including paying particular
attention to our protocols for responding to questions about our
content, the integrity with which we handle such situations, and
any lessons learned.
Empowering our people to make a difference
Following a refreshed approach to employee engagement
introduced the previous year, during 2023 we conducted a deep
dive with the Chief Human Resources Officer into the findings
of our latest employee survey, recognising the importance of
engagement as a driver of performance. It was pleasing to note
the meaningful improvement in key metrics compared with 2022
and we endorsed a particular focus on upskilling managers and
leaders. The Committee and Board alike will continue to monitor
progress in this area, focusing on growth, performance and agility
in our workforce, supported by a culture of diversity and trust.
Given world events, the Committee received an update from
management on the status of Pearson’s business operations
in Israel and the Middle East, with a particular focus on our
employees. We also conducted our annual review of health and
safety across the company.
Leading responsibly for a better planet
In the past year, the Committee has monitored Pearson’s climate
related initiatives, including:
— Considering options for revising the company’s long-term
science-based targets. Based upon clear analysis from
management covering feasibility, cost and external impact,
the Committee unanimously agreed to support adoption of a
new target which will now be taken forward for validation by
SBTi and, once obtained, for formal Board approval.
Annual report and accounts 2023 Pearson plc 95
Governance Reputation & Responsibility Committee report continued
— Approving the first iteration of Pearson’s Climate Action Plan,
being a high-level plan that sets out the actions that will
help Pearson meet its decarbonisation targets and lays the
foundation for successful longer-term carbon transition
— Receiving updates on progress in relation to emissions
reduction, resource use, building sustainable supply chains
and strengthening our data and reporting capabilities, the last
being of increasing importance given developments in the
regulatory and legislative landscape across many jurisdictions
in which Pearson operates.
Sustainability governance and policies
The three pillars of our Learning for Impact strategy are
underpinned by robust governance, a strong culture and
effective policies. In this regard, during the year:
— We received an update from external legal advisers on
developments in the global regulatory and legislative
landscape, including the EU’s Corporate Sustainability
Reporting Directive, the recommendations of the UK’s
Transition Plan Taskforce and developments in other markets
in which Pearson operates, including the US. As part of this
session, we considered how this important topic would
be communicated to key internal stakeholders, noting the
importance of a robust organisational infrastructure
relating to data gathering, reporting and disclosure, and we
supported the introduction of a dedicated sustainability data
reporting platform
— We reviewed insights gathered from an investor sustainability
perception study together with the latest analyst rankings
and ratings of Pearson’s sustainability performance and
credentials and a snapshot of areas for improvement. We
considered how this information could support our external
sustainability communications and action plans, in particular
demonstrating the inherent social impact of certain Pearson
products and services to support our investment case
— We reviewed the annual Modern Slavery Statement with
management prior to recommending that the Board approve
the statement for publication
You can read more about our overall Board framework for
sustainability governance, including the related work of other
Committees, on page 80.
Other areas of focus during 2023
— discussion of the reviewer’s findings and recommendations
In addition to the work relating to the three pillars of our
Learning for Impact strategy, we spent time considering a
broader range of matters relating to Pearson’s reputation and
key stakeholders, including the following:
— At every meeting during the year, we considered updates
from our global government relations and policy team,
recognising the importance of governments as both a
customer and regulator of many of our products and services
— We discussed the strategy, engagement approach, risks and
opportunities relating to data privacy and content, being two
of the current major policy issues of significance to Pearson
— Looking ahead to the elections in both the UK and US, we
reviewed a snapshot of the key learning, education and skills
related issues for the major political parties and considered
Pearson’s approach to policy and engagement on these topics
— A significant theme in the Committee’s work during the past
year has related to the risks and opportunities presented by
developments in AI, particularly generative AI, including policy
and regulatory developments in that space. You can read
more about the work of the Committee relating to AI as part
of the case study on page 78
— The brand team shared with the Committee that, having reset
Pearson’s purpose, vision, mission and values in 2022, they
were now beginning work on developing an evolved brand
strategy, architecture and visual identity for the company
You can read more about stakeholder engagement at Pearson,
including with governments and regulators, on page 16.
Committee evaluation
The Committee undertakes an annual evaluation to review
its performance and effectiveness. In 2023, the Committee
evaluation process was conducted as part of the externally
facilitated Board effectiveness review, led by Manchester Square
Partners. The process included:
— one-to-one interviews conducted by the independent
reviewer with each of the Committee members, all
other members of the Board and the Pearson Executive
Management team
— observation of a full Committee meeting, including the private
sessions, by the independent reviewer
— assessment of a sample of meeting papers
You can read about the Board effectiveness review in more detail
on pages 85-87.
Topics covered included the effectiveness and dynamics of the
Committee, the Committee’s oversight of key areas within its
remit, the quality of papers and meeting discussions, and the
relationships between the Committee and management. The
findings of the independent reviewer noted that the Committee
was functioning well and has an appropriate level of focus on
the key topics within its remit including attention to external
stakeholders, matters relating to content in our products, and
management of reputational risk factors.
The matters identified during the previous year’s evaluation
process have been addressed to the Committee’s satisfaction
during the year and adopted into our ongoing practices
where appropriate.
Committee aims for 2024
Our priorities for the coming year include:
— Monitoring progress towards SBTi validation of our intended
net-zero long-term targets beyond 2030
— Approval of a standalone climate transition plan in line with
the disclosure framework of the UK Transition Plan Taskforce
— Reviewing the process and outputs of a double materiality
assessment which will be undertaken by management to
further define our sustainability strategy alongside our
corporate strategy.
We will also continue our close attention to employee
engagement and Pearson’s social impact initiatives, undertake
a horizon scanning exercise in respect of emerging risks and
trends in the external landscape, and remain attentive to the
fast-moving topic of generative AI, including regulatory, legislative
and stakeholder perspectives.
Annette Thomas Chair of Reputation &
Responsibility Committee
Annual report and accounts 2023 Pearson plc 96
Governance Audit Committee report
Graeme Pitkethly Committee Chair
Principal Committee responsibilities
Terms of reference
Financial reporting
The quality and integrity of Pearson’s financial reporting and statements
and related disclosures, including significant reporting judgements.
Policy
Group financial policies, including accounting and treasury policies
and practices.
External audit
External audit, including the appointment, qualification, independence
and effectiveness of the external auditor.
Internal audit, risk and internal control
Risk management systems and the internal control environment,
including oversight of the work and effectiveness of the internal
audit function.
Compliance and governance
Legal and regulatory requirements in relation to financial reporting
and accounting matters, and oversight of compliance programmes
and investigations.
The Committee has written terms of reference which clearly
set out its authority and duties. These are reviewed annually
and can be found in the Governance section of our website
(www.pearsonplc.com).
Committee members and attendance
Attendance by Directors at scheduled Audit Committee meetings
throughout 2023:
Committee members
Meetings
attended
Alison Dolan1
Alex Hardiman2
Linda Lorimer3
Graeme Pitkethly
Tim Score
Lincoln Wallen
1/1
1/1
2/2
4/4
4/4
4/4
1. Ms Dolan was appointed to the Committee with effect from
1 August 2023.
2. Ms Hardiman was appointed to the Committee with effect from
1 December 2023.
3. Ms Lorimer stepped down from the Committee with effect from
28 April 2023.
Annual report and accounts 2023 Pearson plc 97
Governance Audit Committee report continued
Audit Committee role and composition
Audit Committee meetings and activities
The Committee’s focus areas for 2024 will include:
The Committee has been established by the Board primarily for
the purpose of overseeing the accounting, financial reporting,
internal control and risk management processes of the company
and the external audit of the Group’s financial statements. As a
Committee, we are responsible for assisting the Board’s oversight
of the quality and integrity of the company’s external financial
reporting and statements, and the company’s accounting policies
and practices, and we work to create a culture – both within the
Committee’s work and Pearson more broadly – which recognises
the work of, and encourages challenge by, the external auditor.
As at the date of this report, the Committee comprises five
independent Non-Executive Directors, as more particularly
set out on page 99. On behalf of the Committee, I offer my
sincere thanks to Linda Lorimer, who stepped down from the
Pearson Board in April 2023, for her significant contributions to
the Committee’s work during her tenure. During the year, the
Committee was pleased to welcome two new members – Alison
Dolan and Alex Hardiman – who are already making valuable
contributions and bringing fresh perspectives across many areas
of the Committee’s remit. You can read more about Alison and
Alex’s skills and experience in their biographies on pages 68-70.
Pearson’s Vice President – Internal Audit has a dual reporting
line to the Chief Financial Officer and to me, and both she and
the external auditors have direct access to the Committee to
raise any matters of concern and to report on the results of
work directed by the Committee. As Audit Committee Chair, I
ensure that the full Board is kept abreast of the business of the
Committee in a timely manner, including highlighting any areas
of concern or specific recommendations. I also work closely with
the Chief Financial Officer and senior financial, risk, legal and
internal audit personnel outside the formal meeting schedule
to ensure robust oversight and challenge in relation to financial
control, compliance, investigations, and risk management.
As Committee Chair, I am available to engage with any
shareholders who would like to discuss the work of the
Committee, including the scope or effectiveness of the external
audit. There were no requests from shareholders during the year
for any specific matters to be covered in the audit. I look forward
to taking any shareholder questions at our forthcoming AGM in
April 2024.
At every meeting, the Committee considers reports on the
activities of the internal audit and compliance functions, including
the results of internal audits, project assurance reviews and fraud
and whistleblowing reports. We also monitor the company’s
financial reporting and risk management procedures, discuss
the Group’s control environment, review the work undertaken
by the external auditors and consider any significant legal claims
and regulatory issues in the context of their impact on financial
reporting, each on a regular basis.
Other prominent themes in the Committee’s work throughout
2023 included:
— oversight of delivery of the audit action plan, a programme
of work that sought to deliver on recommendations arising
during the previous year’s review of effectiveness of the
external auditors. On behalf of the Committee, I extend my
thanks to management and Pearson colleagues for their
commitment to the successful delivery of this programme
working collaboratively with the external auditors. You can
read more on page 103
— continued attention to the application of Pearson’s accounting
policies, key judgements and key areas of estimation as
described in the financial statements
— oversight of the accounting treatment relating to portfolio
changes, including the acquisition of Personnel Decisions
Research Institutes, LLC (PDRI) and disposal of Pearson Online
Learning Services (POLS)
— important areas such as data privacy, cyber security and
business and technology resilience, as well as generative AI.
In addition to their importance at a macro level, these are key
factors in the success of Pearson’s strategy and in ensuring
we maintain trusted relationships with stakeholders
— focus on emerging developments in the regulatory landscape,
including new or anticipated requirements relating to fraud
prevention and internal assurance and control frameworks
The Committee also receives technical updates at each meeting,
including on matters such as accounting standards and the audit
and governance landscape, and members are able to request
specific or personal training as appropriate.
You can view the key activities of the Committee and read more
about our work in these areas on the pages that follow.
— Responding to the requirements of the recently published
FRC minimum standard for audit committees, including
reviewing our methodology for the oversight and assessment
of external auditor effectiveness (read more on page 103)
— Following the publication of the revised UK Corporate
Governance Code in January 2024, we will consider any
impacts on Pearson’s processes and practices relating to
risk management and internal control and will ensure the
company is ready for implementation of the new requirement
with effect from the 2026 financial year
— Working closely with our colleagues on the Reputation &
Responsibility Committee to remain abreast of developments
in non-financial reporting, including in the UK, EU and US,
and to provide any necessary input to Pearson’s evolving
sustainability assurance frameworks
Additional meeting attendees
The Chief Financial Officer, Deputy Chief Financial Officer,
Chief Legal Officer, Chief Information Officer, other executives
and senior managers from across the business also attended
meetings during the year, either as regular invitees of the
Committee or to discuss particular items of business.
This direct contact with key leadership augments the
Committee’s understanding of the issues facing the business
as well as helping to develop Pearson’s talent pipeline through
facilitation of Board-level engagement opportunities for those
leaders and managers. We also meet regularly in private with the
external auditors and with the Vice President – Internal Audit.
In addition to the Committee’s formal meeting schedule, I
meet as needed with the external auditors, Chief Financial
Officer, Deputy Chief Financial Officer, Chief Legal Officer, Chief
Compliance Officer and Senior Vice President – Treasury, Risk
and Insurance in order to keep abreast of all relevant matters
within the Committee’s remit.
Committee evaluation
The Committee undertakes an annual evaluation process
to review its performance and effectiveness. In 2023, the
Committee evaluation process was conducted as part of
the externally facilitated Board effectiveness review, led by
Manchester Square Partners.
Annual report and accounts 2023 Pearson plc 98
Governance The process included:
— one-to-one interviews conducted by the independent
reviewer with each of the Committee members, all other
members of the Board, the Pearson Executive Management
team, the Deputy Chief Financial Officer and the Vice
President – Internal Audit
— observation of a full Committee meeting, including the private
sessions, by the independent reviewer
— assessment of a sample of meeting papers
— discussion of the reviewer’s findings and recommendations
You can read about the Board effectiveness review in more detail
on pages 85-87.
Members
As at the date of this report, the Committee comprises
five independent Non-Executive Directors, all of whom
have financial and/or related business experience due to
the senior positions they hold or have held in other listed
or publicly traded companies and/or large organisations.
The Committee possesses a good balance of skills and
knowledge with competence and experience covering
all aspects of the sectors in which Pearson operates and
the company’s key markets. Each member is ‘financially
literate’ for the purposes of the NYSE listing standards.
Graeme Pitkethly, Chair of the Committee since
August 2022, is the Committee’s designated financial
expert within the meaning of the applicable rules and
regulations of the SEC, having recent and relevant
financial experience as required by the Code, and is a
Chartered Accountant. From 2015 to 2023, Graeme
was Chief Financial Officer of Unilever plc and serves as
Vice-Chair of the Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD). Graeme’s
full biography is on page 70.
The qualifications and relevant experience of the other
Committee members are detailed on pages 68-70. You
can read more on page 71 about the process through
which the Board assesses the independence of Non-
Executive Directors.
Topics covered included the effectiveness and dynamics of the
Committee, the Committee’s oversight of key areas within its remit,
the quality of papers and meeting discussions, and the relationships
between the Committee and management. The findings of the
independent reviewer included the following key points:
— The Committee is considered to be operating to a high level of
performance with appropriate agendas, papers produced to a
good standard and high-quality discussions
— The composition of the Committee is appropriate and includes
the necessary skills, including three members who are current or
former Chief Financial Officers of listed companies
— The Committee has a broad remit and a substantial workload
but is considered to run very effectively with high levels of
engagement by members and benefits from the attendance
of relevant Executive Management
Reflecting the findings of the previous year’s evaluation, the
Committee was pleased to hold its December 2023 meeting
in Pearson’s office in Hoboken, New Jersey, allowing in-person
access to US-based management and employees. We have also
continued our focus on the risk management aspects of the
Committee’s remit and have benefited from insightful reports
by, and discussions with, management across many elements
of the company’s principal and emerging risks, seeing clear
alignment with the work and recommendations of the internal
audit function.
Fair, balanced and
understandable reporting
In response to the Code’s Principle N, the Committee considered
whether the 2023 Annual Report is fair, balanced and
understandable. In making this assessment, we considered the
following areas:
— The process for preparing the report, including the
contributors, the internal review process, and how feedback is
addressed throughout the process
— The business review narratives presented for each
business area
— The discussion of reported and underlying results throughout
the report
The Committee was satisfied that, taken as a whole, the Annual
Report is fair, balanced and understandable. We reported this
conclusion to the Board.
Learn more about fair, balanced and understandable reporting
on page 134.
Financial reporting and policies
In February 2024, the Committee considered the 2023 preliminary
results announcement and annual report and accounts, including
the financial statements, strategic report and Directors’ report.
The significant issues considered by the Committee relating to the
2023 financial statements are set out on pages 105-106.
Risk assessment, assurance and integrity
A key role of the Committee is to provide oversight and support to the
Board with regard to the integrity of the company’s procedures for the
identification, assessment, management and reporting of risk. In fulfilling
its remit, the Committee remains mindful that effective risk management
is essential to executing Pearson’s strategy, achieving sustainable
shareholder value, protecting the brand and ensuring good governance.
During 2023, the Committee had oversight of management’s
approach towards risk identification and monitoring. Pearson’s
enterprise risk management programme has evolved in line
with the structure of the business, which is managed through
five global operating divisions supported by enterprise-wide
corporate functions. Through a series of business-focused risk
deep dives, the President of each operating division provides an
overview of its risk register to the Committee at least annually
and leads a session on the key risks facing their particular
division. The process is supported by central risk team experts
as required, providing the Committee with a clear and consistent
framework within which to evaluate the strategic and business
risks to the company, based upon the principal, emerging and
significant near-term risk categories described on pages 57-65.
The Committee uses these deep dive sessions to understand
the rigour of management’s risk scanning and to challenge
judgements being made in response to risks. The Committee
considers that Pearson’s enterprise risk management approach
is robust and proportionate, and facilitates a culture of
accountability and ownership among business leaders. The
divisional risk deep dives provide a strategic and increasingly
data-driven lens to the risk management process that is valued
by the Committee and management alike.
At least twice a year, the Committee considers a Group-wide risk
management report which highlights risk trends and themes that exist
at an enterprise-wide level. This is further supported by a number of
deep dives which the Committee conducts with selected enterprise-
wide functions including data privacy, cyber security, tax, treasury, anti-
bribery and corruption, and business resilience. You can read more on
some of these themes elsewhere in this report.
Annual report and accounts 2023 Pearson plc 99
Governance Audit Committee report continued
Additionally, during 2023, the Committee reviewed and endorsed
a new enterprise risk framework document which brings together
Pearson’s existing principles, processes and methodology for risk
management and aims to further embed such activity and practice
within the organisation.
Data privacy, cyber security and
technology resilience
Prudent management of data privacy, cyber security and
Pearson’s technology estate are fundamental to our success
and to building and maintaining trust with our customers. The
Committee oversees these matters on behalf of the Board from
a risk and assurance perspective and monitors the maturity
of Pearson’s associated governance frameworks. It does this
through regular deep dives, as well as through oversight of the
risk-based internal audit programme, in which these topics are
key areas of focus. We recognise the interlinked nature of these
topics and typically invite the senior leaders for each area to
Audit Committee meeting focus during 2023
participate in all strands of these discussions, providing holistic
perspectives on the important and complex themes.
During the year, the Committee:
— considered developments in the global regulatory landscape
and trends in enforcement actions, focusing on the
importance of transparency and controls around the use of
personal information, together with an elevated scrutiny of
artificial intelligence which is increasingly used by businesses
to provide customers with a personalised experience
— discussed the ways in which Pearson’s privacy programme
helps to monitor and manage these risks, including through
provision of specialist guidance to the business in ensuring
compliant product design
— noted the expansion of the data privacy governance
framework into a broader programme governing customer
trust and safety, with cyber security and online harms now
managed under the umbrella of this newly expanded Trust &
Safety governance framework
— noted the introduction of data privacy compliance reports
for Pearson’s core products and services that enable the
business to take a proactive approach to addressing key risks
— considered the progress that continues to be made through
implementing security processes, leveraging industry-leading
tools and modernising the technology estate, as well as
investing in defences against increasingly sophisticated
threats and building a culture of security
— endorsed the adoption of the NIST cyber security framework,
which will provide the Committee and management with clear
visibility into the current status of Pearson’s cyber security
programme and areas of improvement. The framework is
underpinned by industry-leading standards and facilitates
Pearson’s compliance with FedRAMP requirements in
delivering certain US federal commitments
Policy and
finance
operations
— Accounting
matters and
Group accounting
policies
— Treasury Policy
and reporting
— Tax update
— Update on global
deployment of
ERP system
Financial reporting
— Accounting and technical updates
— Impact of legal claims and regulatory
issues on financial reporting
— Fair, balanced and
understandable reporting
— Going concern and viability
statements including
supporting analysis
— Annual report and accounts:
preliminary announcement, financial
statements and income statement
— Review of interim results and
trading updates
— Form 20-F and related disclosures,
including annual Sarbanes-Oxley Act
Section 404 attestation of financial
reporting internal controls
— Significant issues reporting
External audit
Internal audit, risk and
internal control
Compliance
and governance
— Oversight of audit action plan (see page 103)
— Internal audit activity reports and review of
— Provision of non-audit services by external
key findings
— Fraud, whistleblowing reports
and compliance investigations
auditor – approval of policy and regular reporting
— 2023 and 2024 internal audit plans
— Anti-bribery and corruption and
— Re-appointment of external auditors
— Report on half-year review procedures
— Confirmation of auditor independence
— 2023 external audit plan
— Remuneration and engagement letter of
external auditors
— Interim review report on H1 2023
including resourcing
sanctions programmes
— Assessment of the effectiveness of internal
audit function, internal control environment
and risk management systems
— Compliance with accounting
and audit-related aspects of the
UK Corporate Governance Code
— Risk management including Group’s
principal and emerging risks
— Strategic risk reviews led by
Divisional Presidents
— Review of the effectiveness of external auditors
— Group-wide risk deep dives on cyber
— EY feedback on internal controls over financial
reporting (ICFR)
— Receipt of external auditors’ report on annual
report and Form 20-F
security; technology resilience; data privacy;
treasury and insurance; and
business resilience and crisis management
— Controls Centre of Excellence updates,
including on ICFR and 2023 work plan
— Audit Committee and
internal audit function
terms of reference
— Oversight of Group’s schedule
of delegated financial authority
— Regulatory briefings, including
monitoring FRC proposals
on audit and corporate
governance reform
— Review of minutes
of the Verification
Committee’s meetings
Annual report and accounts 2023 Pearson plc 100
Governance Compliance, fraud and whistleblowing
Internal audit
The Associate General Counsel (AGC) – Employment, Ethics &
Compliance oversees compliance with our Code of Conduct
and works with senior legal, HR and other relevant personnel to
investigate any reported incidents, including ethical, corruption
and fraud allegations. The Committee receives an update at each
meeting on all significant investigations as well as reviewing data
regarding matters raised through our whistleblowing reporting
system. If applicable, any findings of the external auditors with
respect to a particular matter are also considered as part of
these discussions. The Committee may also meet in private if
required with the AGC – Employment, Ethics & Compliance. On
behalf of the Board, the Committee considers an annual review
of the effectiveness of the whistleblowing system including
through benchmarking against peers and by monitoring
progress against previous years’ findings. The Committee Chair’s
regular reports to the Board include a review of investigations or
whistleblowing matters of note.
The Pearson anti-bribery and corruption (ABC) and sanctions
compliance programmes provide the framework to support our
compliance with various regulations such as the UK Bribery Act
2010 and the US Foreign Corrupt Practices Act. The Committee
uses this framework to conduct a deep dive into the ABC and
sanctions compliance programmes on an annual basis. Pearson
and the Committee continue to work to identify areas to
further enhance its practices and protocols. In 2023, in addition
to its regular review of compliance and employee relations
investigations, we noted the continued enhancements made to
the overall compliance programme, including:
— development of a new fraud policy, based upon a guiding
principle of ‘zero tolerance’ towards any form of fraud. The
Committee has approved this policy, which has a broad
applicability across all Pearson businesses, employees and
wider workforce, and business partners
— ongoing training for staff, including ethical decision-making
and anti-trust modules for applicable employees and
sanctions refresher training for Pearson’s network of local
compliance officers
— action taken by the legal and HR teams to establish processes
tying compliance to remuneration, responding to a new
requirement from the US Department of Justice
— implementation of a new platform and provider for our ethics
and whistleblowing hotline, PearsonEthics.com
The internal audit function is responsible for providing
independent assurance to management and the Committee
on the design and effectiveness of internal controls to mitigate
strategic, financial, operational and compliance risks. The Vice
President – Internal Audit reports jointly to the Chair of the
Committee and the Chief Financial Officer and is responsible for
the day-to-day operations of internal audit and execution of the
annual internal audit plan.
The internal audit mandate is approved annually by the
Committee. The audit plan and any changes thereto are also
reviewed and approved by the Committee throughout the
year, and the Committee is attentive to the resourcing of the
internal audit function. The internal audit plan is aligned to
Pearson’s greatest areas of risk, as identified by the enterprise
risk management process, and the Committee considers issues
and risks arising from internal audits. Management action plans
to improve internal controls and to mitigate risks are agreed with
the business area after each audit. Internal audit has a robust
process in place for the implementation of audit actions, which
also includes review and testing of evidence to corroborate
action implementation. Progress of management action plans
is reported to the Committee at each meeting. Internal audit
has a formal collaboration process in place with the external
auditors to ensure efficient sharing of insights and outcomes.
Opportunities for reliance by the external auditor on internal
audit outcomes are limited due to strict rules set by the external
regulator. Regular reports on the findings and emerging themes
identified through internal audits are provided to Executive
Management and, via the Committee, to the Board.
In 2023, internal audit carried out engagements across Pearson’s
business units and corporate functions, as well as Group-wide
thematic audits, covering most of the principal risks. The audit
plan changes throughout the year based on changes in Pearson’s
risk profile. Key themes in 2023 related to information security
and data privacy, cyber security, assessment of integration
progress and controls in recently acquired businesses,
safeguarding, accessibility, payroll, and regulatory compliance.
Internal audit evaluation
At its December 2023 meeting, the Committee considered the
findings of the review of the performance, effectiveness and
independence of Pearson’s internal audit function, a process
which is undertaken annually. The 2023 review was conducted
by distributing a questionnaire to the key stakeholders of the
internal audit function – including Committee members, the lead
external audit partner, members of the Executive Management
team, and senior financial, legal and operational management.
The evaluation process sought views on an anonymised basis
on the internal audit function’s work programme, resource
levels, skills and expertise, and ways of working. Based on the
findings of the 2023 review, the Committee is of the opinion
that the quality, experience and expertise of the internal audit
function is appropriate for the business. The Committee further
believes that the internal audit function operates with an
appropriate degree of independence and has the ability to raise
matters with the Committee without management present. The
Committee recognised the findings of the review which noted
that the internal audit function continues to engage proactively
and constructively with management, providing assurance
over key risks impacting the business and identifying related
areas for improvement. The Committee will remain attentive to
ensuring the internal audit function has access to the necessary
skills, capabilities and knowledge to conduct specialist audits,
supplementing its own resource, and that the function continues
to consider Pearson’s risk appetite and tolerance as part of their
audit activities.
The Committee will ensure that an independent third-party
assessment of the effectiveness and processes of the internal
audit function is conducted at least once every five years, in
line with the requirements of the Institute of Internal Auditors’
International Standards for the Professional Practice of Internal
Auditing. The most recent such assessment was undertaken in
2019 and it is therefore expected that the next such assessment
will be undertaken during 2024.
Annual report and accounts 2023 Pearson plc 101
Governance Audit Committee report continued
Internal control and risk management
The Board has overall responsibility for Pearson’s systems of
internal control and risk management, which are designed to
manage, and where possible mitigate, the risks facing Pearson,
as well as to safeguard assets and provide reasonable, but not
absolute, assurance against material financial misstatement or
loss. The Board agrees risk management requirements and,
in assessing the effectiveness of the risk management effort,
reviews a range of inputs as described elsewhere in this report.
The Board can and does challenge the reporting it receives and
will request further information as needed to make
its assessment.
The Committee monitors the effectiveness of the company’s
risk management and internal control systems on behalf of
the Board. The Committee oversees a risk-based internal
audit programme, including periodic audits of the risk
processes across the organisation. It provides assurance
on the management of risk (including via risk deep dives, as
described on page 99), and receives reports at each meeting on
the effectiveness and efficiency of internal controls with input
from the Deputy Chief Financial Officer and external auditor. In
2023, Internal Audit provided assurance over several principal
risk areas, most notably information security and data privacy,
safeguarding, cybersecurity and integration of acquisitions.
Each business area maintains internal controls and procedures
appropriate to its structure, business environment and risk
assessment, while complying with company-wide policies,
standards and guidelines. The financial controls and associated
procedures are monitored and certified through the Group-wide
Controls Centre of Excellence and are subject to testing as part
of both the internal and external audit processes.
The Controls Centre of Excellence team took a number of steps
in 2023 to further enhance Pearson’s control environment as
part of the audit action plan. This included a refreshed training
programme for control owners across the business to establish
consistent standards and protocols for ‘information provided
by the entity’ (IPE), being the evidence that underpins control
operation, which was well-received by employees. You can read
more about the audit action plan on page 103.
The Committee, acting on behalf of the Board, confirms that it
has conducted and continues throughout the year to review
the effectiveness of Pearson’s systems of risk management and
internal control in accordance with Provision 29 of the Code and
the FRC Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting (‘FRC Guidance’). In
making its assessment as to the effectiveness of these systems
for 2023, the Committee had regard to an assurance opinion
from the internal audit function. Factors considered in this
process included:
— the outcomes of internal audits completed during the year
— significant changes in Pearson’s strategy, processes
and systems
— the wider Pearson risk management and assurance
framework which includes other assurance activities by first
and second line of defence teams, including enterprise risk
management, the Controls Centre of Excellence, divisional
and technology assurance teams
— work conducted by the external auditor
— the organisation’s response to internal audit actions
— whether any fundamental or significant actions have not been
accepted by management and the consequent risk
— whether any limitations have been placed on the scope of
internal audit work or remit
The Committee reviewed the detail underpinning these factors
as part of the 2023 year-end process. The Committee also
reviewed all internal financial control deficiencies identified
during the year and noted that the majority were remediated
during 2023. The impact of any unremediated deficiencies
on the financial statements was considered. Following these
reviews, the Committee confirmed that Pearson’s systems of
risk management and internal control operated satisfactorily
throughout the year.
The Board is ultimately accountable for effective risk
management in Pearson and determines our strategic approach
to risk. It confirms our enterprise risk management framework
as well as our risk appetite targets. The involvement of the Board
and Committee in the design, implementation, identification,
monitoring and review of risks (including setting risk appetite and
reviewing how risk is being embedded in our culture) is outlined
in more detail in the Risk management section on pages 57-65.
External audit
The Committee is responsible for overseeing and assessing
Pearson’s external audit and its auditors. Ernst & Young LLP (EY)
was first appointed as Pearson’s external auditor by shareholders
at the AGM in April 2022, replacing PricewaterhouseCoopers LLP
following a tender process. Pearson’s 2023 audit was the second
undertaken by both EY and Ben Marles as lead audit partner.
As required by regulation, Pearson will put the external audit
contract out to tender at least every ten years, with the next
tender being in respect of the 2032 financial year at the latest.
The decision to undertake such a process will be a matter for
the Committee.
Pearson confirms that it was in compliance with the provisions
of The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 during the
financial year ended 31 December 2023.
The Committee reviews and makes recommendations to the
Board in respect of the appointment and compensation of
the external auditors. These recommendations are typically
made by the Committee after considering the external auditors’
performance during the year, reviewing external auditor fees,
conducting an effectiveness review, considering the annual
report on audit quality of the external audit firm and confirming
the independence, objectivity, qualifications and experience of
the external auditors.
In conducting its 2023 review of the effectiveness of the external
auditors and making its recommendation to re-appoint EY for
2024, the Committee had regard to factors such as those set
out in the FRC’s guidelines entitled ‘Audit Quality Practice Aid
for Audit Committees’. In particular, the Committee considered
its own observations and interactions with the external auditors,
the quality of the audit, the auditors’ independence, the
programme of work conducted by the auditors and their reports
on that work.
Annual report and accounts 2023 Pearson plc 102
Governance The review was conducted by distributing a questionnaire to key
audit stakeholders, including members of the Committee and key
management who interact with the external auditors on a regular
basis, including the Chief Financial Officer, Deputy Chief Financial
Officer, Senior Vice President – Treasury, Risk and Insurance, Vice
President – Internal Audit, Senior Vice President – Finance for
each business division, and other heads of corporate functions.
The process sought views on an anonymised basis on many
aspects of EY’s work and interactions with the company, as well
as their mindset, skills and knowledge. In the second year of EY’s
tenure as Pearson’s external auditor, there was an additional
focus on the effectiveness with which EY uses technology in
its audit and review processes, and the extent to which EY has
successfully delivered on the expectations and commitments set
through the tender and selection process.
In considering the independence of the external auditor, the
Committee has regard to, among other things, EY’s challenge
to management, the degree to which the external auditors
demonstrate professional scepticism, integrity and judgement in
their work, the amount of time passed since a rotation of audit
partner and the volume of non-audit work that the external
auditor undertakes (details of which can be found on page 104).
The responses to the evaluation indicated that the external audit
partners and staff exhibit professional scepticism in their work
and are robust in dealing with issues identified during the audit.
Overall, having reviewed the effectiveness and independence
of the external auditors during 2023, including taking into
account the enhancements delivered through the audit action
plan (described further below) and discussing the results of the
questionnaire in a private session with the Chief Financial Officer
and Deputy Chief Financial Officer, the Committee concluded
that the auditors demonstrate independence and objectivity in
their work and agreed to recommend the re-appointment of EY
for 2024.
The Committee monitors the independence and objectivity of
the external auditors on an ongoing basis and will continue to
formally evaluate their overall performance and effectiveness
and the quality of the external audit on an annual basis, taking
account of all appropriate guidelines.
Audit action plan
As described in last year’s report, with 2022 having been a year of
transition for the external auditor, a number of opportunities for
incremental improvement were identified as a result of the 2022
effectiveness review. These primarily related to ways of working
between the Pearson and EY teams. In early 2023, following the
conclusion of the previous year’s audit, Pearson and EY, led by the
Deputy Chief Financial Officer and lead audit partner respectively,
developed a joint action plan in response to the recommendations.
The Committee oversaw implementation of this action plan
throughout 2023 and was satisfied that all workstreams had either
been successfully completed during the year or were on target for
completion in early 2024. The Committee will remain attentive to
the areas of focus considered by the plan during the coming year,
to ensure any agreed enhancements become embedded into
‘business as usual' practices. Additionally, we will continue to look
at opportunities for an efficient and effective audit and ways of
working with EY to support on this.
FRC Minimum Standard
In May 2023, the FRC introduced the ‘Audit Committees
and the External Audit: Minimum Standard’ (the ‘FRC
Minimum Standard’ or ‘Standard’), which currently
operates on a ‘comply or explain’ basis.
Following the introduction of the FRC Minimum
Standard, the Committee updated its Terms of
Reference to reflect the new requirements. In order
to achieve full compliance with the FRC Minimum
Standard, we intend to refresh the external audit
effectiveness review methodology ahead of our 2024
process to ensure the factors described in provisions
15 to 23 of the Standard are considered in our
assessment of the external auditors.
Review of the external audit
During the year, the Committee discussed the planning, conduct
and conclusions of the external audit as it proceeded.
At its July 2023 meeting, the Committee discussed and approved
the external audit plan and reviewed EY’s assessment of risks of
material misstatement of Pearson’s financial statements.
The external auditors provided an update to the risk assessment
at the December 2023 Committee meeting, explaining to the
Committee that they had reduced their risk assessment in
respect of goodwill impairment due to the level of headroom
in the CGUs. At the February 2024 Committee meeting, the
external auditors’ risk assessment was further updated including
the refinement of the significant risk in respect of the valuation
of acquired intangibles to certain specific intangible assets, the
removal of a significant risk in relation to School Assessments
revenue recognition and the reduction in risk level over the
useful economic lives of product development and internally
developed software assets. These risks were then confirmed as
final at the conclusion of their audit of the financial statements in
February 2024.
The table on pages 105-106 sets out the significant issues
considered by the Committee together with details of how these
items have been addressed. The Committee discussed these
issues with the auditors throughout the 2023 audit process.
In December 2023, the Committee discussed with the auditors
the status of their work, focusing in particular on internal controls
and Sarbanes-Oxley testing.
As the auditors concluded their audit, they explained to
the Committee:
— the work they had conducted over revenue and in particular
the specific risk of fraud in revenue recognition. This included
work over contracts in certain of the Group’s businesses
in the US and UK that span the year end, where revenue is
recognised using an estimated percentage of completion
based on costs, work over manual adjustments to revenue
and work over modifications to certain contracts in the OPM
business. In addition, they explained their use of data analytics
to cover entire populations of data with procedures such as
correlating revenue with receivable and cash entries
— their work in evaluating management’s goodwill impairment
exercise, on a value-in-use basis, including assessing
assumptions around operating cash flow forecasts, perpetuity
growth rates and discount rates
Annual report and accounts 2023 Pearson plc 103
Governance Audit Committee report continued
— their work in assessing management’s judgements and
assumptions regarding the impairment of its right-of-use
assets and whether property assets should be classified as
investment property
The auditors also reported to the Committee the unadjusted
misstatements that they had found in the course of their work, which
were immaterial, and the Committee confirmed that there were no
material items remaining unadjusted in these financial statements.
— their procedures performed to audit the material acquisition
in the year and specifically their work over the valuation of
the acquired intangible assets. Their work focussed on the
valuations of certain specific acquired intangibles and their
procedures included the use of EY valuation specialists.
In addition, they reported on their work over disposals
completed in the year including evaluating management’s
judgement that the POLS businesses should not be classified
and presented as a discontinued operation
— the work performed over the nature and presentation of
adjusting items, focusing on subjective judgements and the
transparency and prominence with which related adjusted
measures are presented
— their work in assessing management’s judgements and
assumptions regarding provisions for uncertain tax positions,
in particular the provision made in relation to the EU state aid
tax matter
— the results of their controls testing for Sarbanes-Oxley
Act Section 404 reporting purposes and in particular their
findings in relation to information provided by the entity
(IPE), controls over key IT systems and other relevant internal
control over financial reporting (ICFR) matters
— their work to address the specific pervasive risk of
management override of controls including their view on
the potential sources or indicators of bias and override of
controls and their response to those indicators including
procedures such as review of Board and Committee minutes,
journal entry testing, review of non-routine transactions and
the use of data analytics
— the results of their work over the company’s going concern
assessment and viability statement
— their work in relation to other matters which are not classified
as key audit matters, but which are considered important
financial reporting matters, key areas of judgement or
estimation, or which may give rise to additional disclosure
requirements. This includes retirement benefit obligations
and asset capitalisation
Auditors’ independence
In line with best practice, our relationship with EY is governed
by our policy on external auditors, which is typically reviewed
and approved annually by the Committee. The policy establishes
procedures to ensure that the auditors’ independence is not
compromised, as well as defining those non-audit services
that external auditors may or may not provide to Pearson.
Any allowable services are in accordance with relevant UK and
US legislation and auditor standards. The policy applies to all
Pearson businesses globally, including associate companies. The
policy applies to all audit firms used by Pearson including those
undertaking statutory audits only. In the event of a change in
the Group auditor, it also applies to the outgoing firm until they
have discharged their Group audit responsibilities and for any
periods in which they are required to be independent in order to
undertake any specific audit responsibilities.
The Committee approves all audit and non-audit services
provided by external auditors. Our policy on the use of the
external auditors for non-audit services that was in operation
during 2023 complied with the FRC’s Revised Ethical Standard
published in December 2019. The standard applies restrictions
on certain non-audit services and applies a cap on the level of
permitted non-audit services fees which can be billed in any
year. The policy also reflects the restriction on the use of pre-
approval in the 2016 FRC Guidance on Audit Committees and,
accordingly, all non-audit services, except those considered to be
“clearly trivial”, are required to be approved by the Committee.
In particular, we expressly prohibit the provision of certain tax,
HR and other services by the external auditor. The policy also
complies with all relevant SEC independence rules. We review
non-audit services on a case-by-case basis, including reviewing
the ongoing effectiveness and appropriateness of our policy.
Non-audit services below a value of £25,000 are defined as
"clearly trivial" from a materiality perspective and can be pre-
approved following review on a case-by-case basis by the Group
finance team. Any such pre-approved services are presented for
noting by the Committee at its next meeting.
The Committee receives regular reports summarising the
amount of fees paid to the auditors. During 2023, Pearson spent
a similar amount on non-audit fees when compared with 2022.
For 2023, non-audit fees represented 2% of external audit fees
(1% in 2022).
For all non-audit work in 2023, EY was selected only after
consideration that it was best able to provide the services we
required at a reasonable fee and within the terms of our policy
on external auditors. Where EY is selected to provide audit-
related services, we take into account its existing knowledge and
experience of Pearson. Where appropriate, services are tendered
prior to a decision being made as to whether to award work to
the auditors.
Significant non-audit work performed by EY during
2023 included:
— half-year review of interim financial statements
— audit-type procedures of a stub period in respect of a
subsidiary entity in order to satisfy local requirements in
advance of a cross-border merger
A full statement of the fees for audit and non-audit services is
provided in note 4 to the financial statements on page 170.
Graeme Pitkethly Chair of Audit Committee
Annual report and accounts 2023 Pearson plc 104
Governance Significant issues considered by the Audit Committee
Issue
Action taken by Audit Committee
Outcome
Going concern and viability
— The assessment of the Group’s
viability and the appropriateness of
the going concern assumption.
— The Committee reviewed future budgets and cash flow forecasts to understand the Group’s available
liquidity and ability to continue as a going concern. The Committee reviewed and challenged the risks
to the forecasts identified. The Committee reviewed the outcome of the severe but plausible scenario
modelling and stress testing.
— The Committee is satisfied with the modelling process and the
risks identified. In addition, the Committee is satisfied with the
stress testing performed and the severe but plausible scenario
modelling. The Committee noted that in all scenarios the Group had
a high level of liquidity headroom and sufficient headroom against
covenant requirements.
— The Committee is satisfied with the adequacy of the Group’s viability
and is satisfied that the Group is a going concern.
— The Committee is satisfied with the disclosures related to going
concern and viability.
Acquisitions and disposals
— Pearson acquired 100% of
— The Committee reviewed the accounting for the PDRI acquisition with specific focus on consideration,
— The Committee determined that the acquisition accounting for
Personnel Decisions Research
Institutes, LLC (PDRI).
— Pearson disposed of its Pearson
Online Learning Services (POLS)
businesses in the US, UK, Australia
and India.
net assets acquired including the valuation of intangibles and the recognition of goodwill. The
Committee noted the use of third-party valuation experts to value the acquired intangible assets and
the controls performed over all aspects of the acquisition accounting, including but not limited to, the
review of assumptions used by the third–party valuation experts.
— The Committee reviewed the accounting for the disposal of the POLS businesses with specific
focus on consideration, net assets disposed and disposal costs. The Committee also reviewed
tax assumptions relating to the disposal transactions. In addition, the Committee reviewed the
judgement related to whether the results and cash flows of the disposed businesses should be
classified and presented as discontinued operations by reference to the criteria set out in IFRS 5.
PDRI had been undertaken appropriately but notes that it remains
provisional as at 31 December 2023.
— The Committee determined that disposal accounting for the POLS
businesses had been appropriately recorded. The Committee is
satisfied with the judgement that the results and cash flows of the
disposed businesses should not be classified and presented as
discontinued operations and is also satisfied with the disclosures
related to this item.
Revenue recognition
— Pearson has a number of
— The Committee regularly reviews and challenges revenue recognition practices and the underlying
— The Committee is satisfied that revenue is being
revenue streams where revenue
recognition is complex. For some
revenue streams judgements and
estimates are required in order to
determine the amount and timing
of revenue recognition.
assumptions and estimates. In addition, the Committee has visibility of the internal control
framework over revenue and the results of the monitoring and certification work performed by the
Controls Centre of Excellence over those controls. In addition, the Committee has visibility of internal
audit findings relating to revenue recognition controls and processes. The Committee routinely
monitors the views of the external auditor on revenue recognition issues. This includes review of
their data analytics testing of revenue and understanding any exceptions that do not follow the
expected process path as well as testing of one off or judgemental items.
recognised appropriately.
Annual report and accounts 2023 Pearson plc 105
Governance Audit Committee report continued
Issue
Action taken by Audit Committee
Outcome
Recoverability of non-current assets
— Pearson holds significant non-current assets including right-
of-use assets (in relation to leased properties); property,
plant and equipment; goodwill and intangible assets.
— There are significant estimates and assumptions used in
the impairment reviews.
— In addition, assumptions made in previous years, regarding
the ability to sublet right-of-use assets and sell owned
assets, have been revisited.
— The Committee monitored the Group’s property strategy during the
year to determine if there were impairment triggers. The Committee
considered the results of the Group’s property impairment reviews with
specific focus on the 80 Strand property and the properties classified
as held for sale. Updates to key assumptions – including those arising
from subleases signed in 2023 – were reviewed and challenged.
The Committee considered the adequacy of related disclosures.
The Committee noted the input of third-party property specialists in
determining the key assumptions.
— The Committee monitored the Group’s plans and forecasts during the
year to determine if there were impairment triggers. The Committee
considered the results of the Group’s goodwill impairment reviews
which were undertaken in December and refreshed post year end.
Key assumptions – including cash flows derived from strategic and
operating plans, long-term growth rates and the weighted average cost
of capital – were reviewed and challenged. The Committee considered
the sensitivities to changes in assumptions and the adequacy of
disclosures required by IAS 36 ‘Impairment of Assets’. The Committee
considered management’s view that the recoverability of goodwill is no
longer an area of significant estimation.
— The Committee is satisfied with the results of the property impairment
reviews and the subsequent impairment charges recognised in the
income statement.
— The Committee is satisfied that the property impairment charges relate
to updates to assumptions made during the 2021 and 2022 major
restructuring programmes and so meet the Group’s criteria to be
excluded from adjusted performance measures.
— The Committee is satisfied with the results of the annual goodwill
impairment review.
— The Committee is satisfied with the disclosures relating to non-current
asset impairments and concurs with management’s view that the
recoverability of goodwill is no longer an area of significant estimation.
Tax
— Pearson holds provisions in relation to uncertain
— The Committee considered various developments during the year,
— The Committee is satisfied with Pearson’s approach to the EU state
tax positions.
— In 2021, Pearson paid £105m (including interest) in relation
to the EU state aid matter and at that time the amount was
recognised as an asset as it was expected to be recovered
in due course. In 2022, the EU General Court dismissed
the appeal made by the UK Government in relation to this
matter, with Pearson establishing a provision of £63m in
2022 representing an estimate of the expected exposure.
— Changes to, and the application of, tax legislation continues
to be a complex and judgemental area.
including Pearson’s ongoing response to the European Commission’s
decision that the UK’s Finance Company Partial Exemption rules
constituted state aid (‘EU state aid’), ongoing tax audits and the
appropriateness of the associated provisions.
— The Committee also considered the impact of changes in tax
legislation, including ‘Pillar 2’ of BEPS 2.0 now effective for Pearson
from 1 January 2024.
aid matter including reconfirming the ongoing appropriateness of the
provision made in 2022 in relation to amounts paid in 2021 and ongoing
disclosure about this matter.
— The Committee is satisfied with Pearson’s approach to managing
the impact of tax legislation changes and agreed with the views of
management regarding tax provisioning levels.
— The Committee is satisfied with the disclosures relating to the expected
impact of Pillar 2.
Annual report and accounts 2023 Pearson plc 106
Governance Directors’ Remuneration Report
Sherry Coutu CBE
Chair of Remuneration Committee
Key messages from the Remuneration Committee
Board Committee attendance
— The Directors’ Remuneration Policy approved by shareholders at the
2023 AGM was instrumental in allowing Pearson to successfully recruit
our new Chief Executive, Omar Abbosh, a highly regarded global
leader. Omar’s remuneration arrangements are consistent with the
Remuneration Policy.
— As part of our long-standing commitment to an ongoing and transparent
dialogue with shareholders and their advisers, we undertook an
extensive engagement exercise both prior to and following the 2023
AGM. Shareholder input is very important to the Committee when
developing remuneration proposals and arrangements.
— The Committee considered performance outcomes for 2023. The annual
incentive outcome for Executive Directors is 85% of maximum reflecting
another year of strong financial and strategic progress in 2023. The long-
term incentive granted in 2021 will vest at 85% of maximum considering
the earnings growth and value created for shareholders over the three-
year performance period.
— A thorough review was conducted ahead of the release of the third and
final tranche of the co-investment award for the previous Chief Executive,
considering performance underpins, TSR and broader company
performance, and stakeholders’ experience and it was determined that
this tranche should vest in full.
— Consistent with historical and best practice, the Committee also reviewed
the implementation of the Directors’ Remuneration Policy for 2024,
in particular the performance framework, to ensure it appropriately
supports delivering on Pearson’s forward-looking strategy. No changes
to metrics will be made for 2024, although the carbon metric will switch
from the AIP to the LTIP to reflect the long-term nature of the goal.
— The Committee remains focused on ensuring remuneration policies
and practice for all Pearson’s colleagues are consistent with our need to
attract and retain the right talent for the Company’s digital future, and
are appropriately aligned to Pearson’s forward-looking strategy, purpose,
and mission, vision, and values.
— There was no payment for loss of office upon Andy Bird’s retirement
from the Company and the Committee determined that Andy would be
treated as a ‘good leaver’ in respect of his outstanding awards under the
LTIP, in accordance with the Policy and LTIP rules.
Terms of reference
The Committee’s terms of reference are in line with the 2018 UK Corporate
Governance Code and are available on the Governance page of the
Company website at pearsonplc.com (a summary of the Committee’s
responsibilities is on page 129).
There were five scheduled meetings of the Remuneration
Committee in 2023. Attendance by Directors was as follows:
Committee members
Meetings
attended
Sherry Coutu CBE
Esther Lee
Tim Score
Annette Thomas
5/5
5/5
5/5
5/5
Dear Shareholder
On behalf of the Board, I am pleased to present the 2023
Directors’ Remuneration Report.
For a third consecutive year, Pearson has delivered a strong
financial performance. Underlying Group sales increased by
5%, and Group adjusted operating profit was up 31% versus
2022. This was supported by the ongoing work to streamline
the business and make it more efficient, with delivery of £120m
of cost savings helping to drive an improvement in adjusted
operating profit margin to 16%.
Pearson has continued to generate strong free cash flow
enabling the Company to maintain a robust financial position
whilst also supporting ongoing investment in the business.
This is fuelling Pearson’s evolution, particularly in digital and
generative AI which are changing the way that people learn for
good. Strong cash generation has enabled the delivery of returns
for shareholders, with a £300m share buyback programme
supplementing a progressive ordinary dividend. The Board have
also announced our intention to extend the share buyback
programme by £200m. Reflecting the strong performance in
2023 and its confidence in the outlook for the business, the
Board is recommending a 6% increase in the final dividend for a
full year dividend of 22.7 pence per share.
Additionally, Pearson has seen change in the Executive Directors
with the appointment of a new Chief Executive, Omar Abbosh,
who joined on 8 January 2024 and the retirement of Andy Bird,
who stepped down from his role as Chief Executive, but remains
with the Company until 31 March 2024 to ensure a smooth
transition. We will also welcome Alison Dolan, Non-Executive
Director, to the Committee from 1 April 2024.
Annual report and accounts 2023 Pearson plc 107
Governance Directors’ Remuneration Report continued
Shareholder engagement
While the Committee very much appreciated the support shown
by the majority of shareholders, it was naturally disappointing
that a significant minority of shareholders voted against the 2023
Directors’ Remuneration Policy.
In advance of the 2023 AGM, the Committee had conducted
an extensive consultation process, receiving feedback from,
or directly engaging with, approximately 55% of Pearson’s
ownership as well as the key proxy advisers.
There was an understanding of the challenges faced by Pearson
and the need for a Policy that adequately acts as an attraction,
retention, and incentivisation tool for global talent, particularly in
the US which represents the majority of the Company’s business,
and growth prospects. We acknowledge that these challenges
are not unique to Pearson and have in the last year, been widely
raised and discussed by a range of stakeholders. That said,
our engagement exercise highlighted that the extent of the
increases to variable incentive opportunities in both the annual
and long-term incentive plans was principally too much for some
shareholders to support.
Following the outcome at the AGM and given Pearson’s
commitment to an ongoing and transparent dialogue with
shareholders and their advisers, a further engagement exercise
was initiated to provide the opportunity for shareholders to
offer any additional views on Pearson’s executive remuneration
arrangements following the AGM vote. We received a relatively
small number of responses, often welcoming the offer to engage
again, but noting that there was no requirement given the
extensive consultation prior to the AGM, as referred to above.
While understanding and acknowledging the diverse views of our
shareholders, the Committee continues to believe that the Policy
is necessary for remaining competitive in the global talent market
and driving sustainable, profitable growth. This was reaffirmed
by the Board’s appointment of Omar Abbosh as the Company’s
new Chief Executive. Omar is a highly regarded global leader with
over 30 years of experience in enterprise technology and joined
Pearson from Microsoft, one of the world’s largest multinational
technology companies.
Pearson remains committed to a constructive and positive
relationship with all its shareholders and their advisers and will
continue to engage widely as appropriate going forward.
Incentive outcomes for 2023
2023 AIP
The strong financial and strategic progress delivered in 2023
resulted in a formulaic AIP outcome for Executive Directors of
85% of maximum, with outperformance against the stretching
targets for Adjusted Operating Profit, Sales and Free Cash Flow.
Overall, the Committee was satisfied that the formulaic outcome
was reflective of the performance achieved.
2021 LTIP
The LTIP granted in 2021 will vest in 2024 at 85% of maximum,
principally reflecting EPS performance above the upper end
of the stretching range and exceptional upper quartile TSR
performance over the three-year performance period. The
shares vesting will remain subject to a two-year holding period.
Further details are set out on page 120.
Final tranche of Andy Bird’s co-investment award
The third and final tranche of the one-off co-investment
award granted to Andy Bird, vested following 31 December
2023. Similar to the first two tranches, vesting was subject to
achievement of performance underpins linked to strategic
progress and there being no significant ESG issues resulting
in significant reputational damage. The third tranche was also
subject to an additional TSR underpin.
The Committee undertook a rigorous assessment of the relevant
performance underpins as well as a holistic review of broader
Pearson performance and the experience of all stakeholders.
In its assessment, the Committee followed the framework
developed and disclosed in prior years. Pearson’s TSR over
the period was 76%, resulting in the creation of over £3bn of
shareholder value over the period and significantly in excess of
the required threshold. Pearson’s TSR was ranked 21 out of 92,
above the upper quartile (71.8%) TSR of the FTSE 100. As such,
the Committee determined that the third tranche of the award
would vest in full and detailed disclosure of the Committee’s
deliberations in this regard is set out on pages 121 and 122.
Leadership changes
Appointment of Omar Abbosh, new Chief Executive
Omar Abbosh was appointed as Chief Executive on 8 January
2024. Omar has a deep understanding of the dynamic business
and technology landscape having helped to shape and execute
successful strategies in a world of disruption. This positions him
very well to build on the foundations that have been laid over the
last few years and lead Pearson through its continued journey as
a digital-first consumer-focused lifelong learning company. The
Committee looks forward to working with Omar as we accelerate
our strategy and continue to deliver value for all
our stakeholders.
Omar’s remuneration arrangements are consistent with the
remuneration policy approved by shareholders at the 2023 AGM.
The principal elements are as follows:
— An annual base salary of £1,000,000;
— An annual cash allowance of 16% of base salary in lieu of
pension; in line with the maximum available company pension
contribution for UK employees of a similar age;
— Participation in Pearson's performance based Annual
Incentive Plan (AIP) from 2024, with a maximum annual
opportunity of 300% of base salary and a target bonus equal
to 50% of the maximum opportunity, prorated to reflect his
service during the bonus year;
— From 2024, participation in the performance-based Pearson
Long Term Incentive Plan with an annual face value of 450%
of base salary and based on stretching performance targets
(as set out in this report for 2024);
— In addition, Pearson will compensate Omar for remuneration
he forfeited as a result of resigning from his previous role
at Microsoft on a like-for-like basis in accordance with our
Remuneration Policy. It will consist of a cash payment in
lieu of his forfeited annual bonus expected to be £249,050
covering the 6 months between the end of his prior
employer’s financial year end and the beginning of his
eligibility for Pearson’s AIP in 2024; an award of 1,391,718
Pearson restricted shares which are of equivalent value to
the forfeited Microsoft shares and which will vest annually
in three equal tranches. This share award has a value of
approximately £13.1m based on the three-month average
share price and FX leading up to the start of his employment
Annual report and accounts 2023 Pearson plc 108
Governance in January 2024. The Committee acknowledges the relative
size of the buy-out award in the context of the UK market,
but notes that it is equivalent to the value Omar would have
received had he continued in his previous role at Microsoft,
which is reflective of the quantum of remuneration packages,
(particularly long-term equity) for global leaders of the calibre
of Omar in companies in our key talent markets. Additionally,
the restricted share award creates immediate alignment with
shareholders and fulfils Omar’s shareholding guidelines from
the outset.
Performance framework
Consistent with prior years, the Committee undertakes an annual
review of the performance framework to ensure it continues to
align with the forward-looking strategy. Overall, the Committee
considered that the performance framework principles remain
appropriate, with the only change for 2024 being to move the
carbon reduction metric, aligned to Pearson’s 2030 carbon
reduction goals, from the AIP to the LTIP to reflect the long-term
nature of the goal.
— Subject to the shareholding guideline under which he is
Target-setting for 2024
expected to maintain a holding of at least 450% of salary, and
to retain that level (or his actual holding if lower) for two years
following stepping down as an Executive Director.
Further information on these arrangements can be found
on page 112.
Retirement of Andy Bird
Andy Bird announced his intention to retire from the role of Chief
Executive on 20 September 2023. He stepped down as Chief
Executive and as a Pearson Board member on 7 January 2024
and will leave Pearson on 31 March 2024. There was no payment
for loss of office. The Committee determined that Andy would be
treated as a ‘good leaver’ in respect of his outstanding awards
under the LTIP and treatment of the awards was in accordance
with the relevant plan rules. Andy will not receive any LTIP award
in respect of 2024, but is eligible for a pro-rated award under
the AIP for the period to 31 March 2024, whilst he remains in
employment. In line with the Policy, Andy will also be required to
meet his shareholding guideline of 450% of base salary for two
years following stepping down as an Executive Director. Further
details of remuneration arrangements in respect of Andy’s
retirement can be found on page 123.
Looking forward to 2024
Salaries for 2024
There was no increase to Andy Bird’s base salary before his
retirement in March 2024. The Committee reviewed the salary
of Sally Johnson and approved an increase of 3% bringing her
salary to £574,000 for 2024. This increase was in line with the
3% increase for the wider UK workforce. Omar Abbosh’s salary
remains fixed at £1,000,000 until 2025.
One of Pearson’s remuneration principles, which apply across the
whole organisation, centres on pay for performance, and this is
actively considered by the Committee when determining targets.
For 2024, in line with established practice, a robust target-setting
process has been followed considering Pearson’s strategic plan
as well as other relevant factors such as analyst consensus, to
reflect market expectations.
The Committee has a strong focus on pay for performance
and a robust track record of setting stretching targets, as
demonstrated by the targets set in recent years and subsequent
incentive outcomes. The approach taken this year is no different.
Disclosure of the 2024 LTIP targets is on page 112. For both
EPS and ROC, the stretch of the performance ranges has been
increased compared to last year’s awards. For maximum vesting,
performance must be well in excess of current market guidance,
with shareholder returns in the upper quartile against both the
FTSE 100 and the S&P 500. As in previous years, we will disclose
financial targets for the 2024 AIP in full retrospectively following
the end of the performance period.
Remuneration across Pearson
Pearson’s remuneration principles are consistent across the
organisation and are designed to support our culture, and to
make Pearson an employer of choice, able to attract and retain
talent to execute our digital-first strategy. Remuneration across
the workforce is designed to reflect the role, skills, experience,
and performance of any relevant individual as well as local market
practice. Many of the features of our Directors’ Remuneration
Policy apply more broadly, for example, over half of all Pearson
employees (c.10,300 employees) participated in the Annual
Incentive Plan during 2023 which was funded based on similar
performance measures as those used for Executive Directors - and
it was pleasing to note that this was funded at the highest level in a
number of years, reflecting a strong performance by the Company.
Similarly, all eligible colleagues (including Executive Directors) can
participate in savings-related share acquisition programmes that
are not subject to any performance conditions. Over 1 in 4 of our
employees save to purchase discounted Pearson shares via our
employee share plans, thereby becoming potential owners of the
business and benefiting from the value they help to create for
all Pearson shareholders. It was particularly pleasing that at the
most recent maturity of our ‘Save For Shares’ plan in August 2023
the average gain for a participant was £5,700.
To align with Pearson’s diversity, equity and inclusion (DEI)
and global benefits strategies, Pearson expanded healthcare
coverage for Pearson colleagues in the UK in 2023 to include
more inclusive benefits such as menopause support, fertility and
family planning services, and gender affirmation services.
The Committee receives regular updates on talent matters
and wider workforce considerations and actively considers the
approach to reward throughout the organisation when determining
executive remuneration. In addition, the Committee closely reviews
relevant pay ratios and pay gaps and supports efforts to make
progress against these metrics. In 2023, Pearson published its first
Fair Pay report which contained the gender pay gap and ethnicity
pay gap in Great Britain, the latter of which Pearson voluntarily
disclosed for the first time. While Pearson currently has initiatives
and strategies in place to support competitive, equitable and
inclusive pay and benefits, the Company is committed to delivering
greater pay transparency in the future.
Pearson is committed to a transparent and positive relationship
with all its stakeholders and will continue to engage widely as
appropriate going forward. I would like to thank shareholders for
their continued support at the 2024 AGM in relation to our 2023
Directors’ remuneration report.
Sherry Coutu CBE
Chair of Remuneration Committee
Annual report and accounts 2023 Pearson plc 109
Governance Directors’ remuneration report
Pearson’s Remuneration Framework - 2023 ‘At A Glance’
Base salaries (from 1 April 2023)
2021 long-term incentive plan payout
(85% of maximum)
2023 single figure
CEO (Andy Bird) - $1,293,750
CFO - £557,225
2023 annual incentive plan payout
(85% of maximum)
Maximum
opportunity
Actual %
of maximum
40%
30%
20% 10%
32%
25%
20% 8%
Adjusted operating profit
Sales
Free cash flow
Strategic measures
Maximum
opportunity
Actual %
of maximum
33%
33%
33%
33%
18%
33%
CFO
£2 913
CEO
$14 032
Adjusted EPS
ROIC
Relative TSR
LTIP
Co-investment Plan
Fixed remuneration
AIP
Final tranche of co-investment award
$000 for CEO; £000 for CFO
After Committee assessment of performance
underpins (including TSR), it was determined the final
tranche would vest in full.
Strategic progress. Sustainable profitable growth.
Revenue
Adj. operating
profit
Free cash flow
Adjusted EPS
£3,674m
£573m
£387m
58.2p
5% underlying growth
(excl OPM & Strategic
Review)
31% underlying
growth on prior year
74% growth on
prior year
12% growth on
prior year
Return on
Capital
Dividend per
share
10.3%
+1.6% on
prior year
22.7p
6% increase on
prior year
Strategic highlights
— Acquired PDRI to drive additional growth in our biggest business: Assessments and Qualifications.
— Delivered a £120m cost savings programme, accelerating group margin expansion to 16%.
— Launched beta version generative AI tools in Mastering and MyLab.
— Strong cash performance with free cash flow of £387m and launched a £300m share buyback.
— Passed milestone of 1m cumulative paid subscriptions for Pearson+.
Annual report and accounts 2023 Pearson plc 110
Governance Summary of our Directors’ Remuneration Policy
The table below provides a summary of our Directors’ Remuneration Policy. The full Directors’ Remuneration Policy, as approved at the 2023 AGM, is available on the Governance page of the company’s
website at https://plc.pearson.com/sites/pearson-corp/files/pearson/our-company/Governance/governance-downloads/remuneration-policy-2023.pdf
Base salary
Allowances and
benefits
— Base salaries reflect level, role, skills, experience, the competitive market and individual contribution.
— Base salaries are normally reviewed annually, with any increases normally in line with typical increases awarded to other Group employees.
— Reflects the local competitive market and may include travel-related, health-related and risk-related benefits as well as any other benefits provided to the majority
of employees.
— The Committee may introduce other benefits if it is considered appropriate to do so.
Retirement benefits
— Employees in the UK, including Executive Directors, are eligible to join the Money Purchase 2003 Section of the Pearson Pension Plan.
— The Committee has discretion to put in place retirement benefit arrangements in line with local market practice.
— Executive Directors, who opt out of the pension, can receive a cash allowance of up to 16% of base salary, in line with the maximum company contribution as a
percentage of salary that UK employees of a similar age are eligible to receive.
Annual incentive plan
— Maximum opportunity of 300% of salary.
— Based on the achievement of annual business goals and strategic objectives, with financial metrics accounting for at least 75% of total opportunity.
— Payout of 25% of maximum for threshold performance with 50% payable for on-target performance.
— Discretion to adjust formulaic outcome where this does not reflect underlying performance.
— Awards paid fully in cash except where shareholding guidelines have not been met where a bonus deferral applies.
Long term incentive
plan
— Malus and clawback provisions apply.
— Maximum opportunity of 450% of base salary.
— Based on the achievement of financial targets (e.g., earnings per share and a return measure), shareholder returns (e.g., relative total shareholder return) and strategic
objectives (e.g., an environmental, social and/or governance measure).
— Payout of 20% of maximum for threshold performance with 65% payable for on-target performance.
— Discretion to adjust formulaic outcome where this does not reflect underlying performance.
— Awards are subject to a post-vesting holding period of two years.
Shareholding
guidelines
— Malus and clawback provisions apply.
— Current in-employment guidelines of:
— 450% for the Chief Executive
— 300% for the Chief Financial Officer
— Post-employment shareholding guidelines apply.
Chair and NED fees
— To attract and retain high-calibre individuals, with appropriate or industry-relevant skills, by offering market-competitive fee levels.
— The Chair and Deputy Chair are paid a single fee for all responsibilities.
— The Non-Executive Directors are paid a basic fee, with Committee Chairs, members of the main Board Committees, and, if relevant, the Senior Independent Director
paid an additional fee to reflect their extra responsibilities.
— The Chair, Deputy Chair, and Non-Executive Directors receive no other pay or benefits, except for reimbursement of expenses and do not participate in incentive plans.
— A minimum of 25% of the Chair, Deputy Chair, and Non-Executive Directors’ basic fee is paid in shares.
Annual report and accounts 2023 Pearson plc 111
Governance Implementation of the remuneration policy in 2024 - At a Glance
Omar
Abbosh
Sally
Johnson
CEO
CFO
Performance measures and targets for 2024
Purpose and link to
strategy
Annual incentive plan performance measures are outlined below. As in previous years, we will apply
a financial underpin to the strategic measures. We will disclose financial targets in full retrospectively
following the end of the performance period.
Base salary
£1,000,000
Allowances
and benefits
Retirement
benefits
Annual
incentive
plan
Long-term
incentive
plan
Target/
maximum
opportunity
(% of salary)
Performance
condition
Deferral if
shareholding
guidelines
not met
Grant (% of
salary)
Performance
condition
Vesting
Travel, health and
risk benefits
16% of salary in lieu
of pension
£574,000
Recognise market value of
role and individual’s skills,
experience and performance
to ensure the business can
attract and retain talent.
Provide employment benefits
to ensure overall package is
market competitive to attract
and retain high calibre talent.
Provide competitive
retirement benefits to ensure
overall package is market
competitive to attract and
retain high calibre talent.
100%/200% Drive and reward annual
150%/300%
See table overleaf
One-third into shares for two
years
450%
300%
See table overleaf
Three-year performance
conditions, with two year
post-vesting holding period
performance on both
financial and non-financial
metrics in order to deliver
sustainable growth in
shareholder value.
Deferral into shares if
shareholding guidelines
are not met increases
alignment with long-term
shareholder interests.
Direct financial measures
that drive our financial
ambitions for the Company
and measures linked to
our key long-term strategic
priorities aligned to the long-
term interests of
our shareholders.
Provide long-term alignment
with shareholder interests.
Provides continuing
alignment with shareholder
interests following the
end of an Executive
Directors’ tenure.
Adjusted operating profit
40%
Sales
30%
Free cash flow
Strategic measures
20%
10%
Weighting
Threshold
Target
Maximum
Invest in diverse
pipeline and increase
BIPOC/BAME
representation at all
manager levels
10%
2% increase in
representation of BIPOC/
BAME employees at
Manager level and above
+ maintain overall gender
parity as an underpin
5% increase in
representation
of BIPOC/BAME
employees at
Manager level
and above
10% increase in
representation
of BIPOC/BAME
employees at
Manager level
and above
Long-term incentive plan performance measures and targets for 2024 are as follows:
Adjusted EPS
Return on
Capital
Relative TSR
ESG - Gender
Diversity
ESG - Carbon
reduction
% of total
Threshold
30%
30%
30%
5%
63p
10.3%
Median
Improve gender
representation at
leadership levels
overall vs 2023
(VP and above)
Maximum
82p
13%
Upper quartile
Achieve gender
parity at leadership
levels in aggregate
(VP and above)
5% 4% reduction vs 2023 13% reduction vs 2023
Payout at
threshold
Payout at
maximum
20%
20%
20%
20%
20%
100%
100%
100%
100%
100%
Note 1: Vesting is on a straight-line basis between Threshold and Maximum
Note 2: 2024 LTIP targets have been set at an USD:GBP exchange rate of 1.27.
Note 3: Relative TSR will be assessed half against the FTSE100 and half against the S&P500,
Companies within financial services, energy, basic materials, utilities and healthcare sectors will be
excluded from both TSR groups.
Note 4: The carbon reduction targets are based on the long-term trajectory required to meet
(Threshold) or substantially exceed (Maximum) our 2030 carbon reduction ambitions. Performance
will be measured from a baseline of 2023, therefore requiring incremental performance to that
delivered to date.
Annual report and accounts 2023 Pearson plc 112
Shareholding
guidelines
% of salary
450%
300%
450% for two
years
300% for two
years
Post-
employment
shareholding
guidelines
Governance Alignment of performance framework to Pearson’s strategy
2024 AIP
2024 LTIP
Sustainable profitable growth
1
Total shareholder return (TSR)
Revenue: Mid-single digit (three-year CAGR 2022-2025)
Adjusted operating margins (2025): 16-17%
2
3
4
Sales
Adjusted EPS
Adjusted Operating Profit
Free Cash Flow conversion (2024): 95-100%
5
Free Cash Flow
Return on capital
6
Return on Capital
Digital sales: Drive digital revenue growth
1
Sales
Consumer engagement: Create engaging and personalised
customer experiences
Product effectiveness: Improve the effectiveness of our
products to deliver better outcomes
2
Sales
3
Sales
Culture of engagement and inclusion: Build an inclusive
culture and increase diverse representation
4
Various KPIs including diversity
and employee engagement
Sustainability strategy: Achieve 50% reduction in absolute
Scope 1,2 & 3 carbon emissions by 2030
5
Reduction in tCO2
s
e
v
i
t
c
e
j
b
o
l
a
i
c
n
a
n
i
F
s
e
v
i
t
c
e
j
b
o
c
i
g
e
t
a
r
t
S
Annual report and accounts 2023 Pearson plc 113
Governance
Directors’ remuneration report continued
Remuneration principles
Pearson’s remuneration principles govern pay for the whole organisation. We have developed remuneration arrangements for our Executive Directors with these principles in mind.
1
2
3
4
5
6
Aligned to longer-term
strategy
Pay for performance
Market competitive
Targeted differentiation
Tailored
Reward is linked to achieving
Pearson’s longer-term strategy,
growth, and sustainability
Remuneration framework
and outcomes are aligned
with performance
Pay levels are market
competitive, based on role,
grade, and contribution, and
ensure individuals are fairly
rewarded in line with the market
We operate targeted
differentiation of reward across
our employees, linked to talent
and performance management
Our approach to reward is tailored
in certain circumstances to
address a specific market/business
need, and is consistent with our
underlying reward philosophy
One part of the employee
value proposition
Remuneration is one part of
our broader employee value
proposition – and not the only
reason to work for Pearson
Our Directors’ Remuneration Policy and its implementation
supports our Company purpose of adding life to a lifetime of
learning, our strategy and ultimately the delivery of long-term
sustainable value for all stakeholders, including our shareholders.
In developing the Directors’ Remuneration Policy, the Committee
had due regard to the principles outlined within the UK
Corporate Governance Code.
— Pearson’s remuneration principles, as set out above, align
with our culture and position us as an employer of choice,
so we can continue to attract and retain the right talent, and
support our digital future. We recognise that remuneration is
only one part of Pearson’s employee value proposition
— Our executive remuneration framework is designed to
be simple, with total remuneration made up of fixed and
performance-linked elements, supporting different
strategic objectives
— Our remuneration framework and outcomes are designed to
be aligned with performance:
— Selected performance measures for the AIP (Annual
Incentive Plan) and LTIP (Long Term Incentive Plan) are
key to achieving the Group’s strategic objectives. The
Committee reviews performance measures annually
to ensure they incentivise appropriate management
behaviours and goals
— The Committee carries out a robust target-setting process
each year, considering Pearson’s strategic plan, as well
as analyst consensus to reflect market expectations. This
results in stretching, yet achievable, AIP and LTIP targets
— Maximum awards under the AIP and LTIP are capped and
clearly disclosed in our Directors’ Remuneration Policy
alongside predictions of how the Directors’ Remuneration
Policy may apply in various performance scenarios
— When determining pay-outs, the Committee considers
whether the outcome reflects overall company
performance and the experience of stakeholders over the
period, including shareholders and colleagues. If not, it has
the discretion to adjust outcomes
— The Committee is mindful of reputational and other risks
when implementing the Directors’ Remuneration Policy and
determining outcomes for Executive Directors and senior
management. Pearson has safeguards in place, such as malus
and clawback provisions and a two-year LTIP holding period,
as well as robust shareholding guidelines, which extend
post-employment.
— Before signing off the Directors’ Remuneration Report,
the Committee reviews drafts and inputs to clarify our
disclosures. The Committee engaged extensively with
shareholders on the current Directors’ Remuneration Policy
to ensure they fully understood the rationale for change, and
to give them the opportunity to feed into the decision-making
process and inform final conclusions.
Discretion framework
When determining performance outcomes, the Remuneration Committee has the ability to adjust payments up or down if it believes that the outcome does not reflect
underlying financial or non-financial performance or if such other exceptional factors warrant doing so. In making this determination the Remuneration Committee applies
the following framework.
Formulaic outcome considering
performance versus existing
targets and underpins
Is this consistent with the wider
stakeholder experience?
Are there any one-off or
exceptional events to be taken
into consideration?
Is this consistent with overall
Company performance?
Are there any significant culture,
ESG or operational issues
to be considered?
Are outcomes appropriate
or should an adjustment be
considered?
Annual report and accounts 2023 Pearson plc 114
Governance Market context for remuneration at Pearson
Pearson has more US exposure than almost all of the UK market with c.70% of revenues
from the US.
Proportion of Revenue from US geographic segment (FTSE 100)
80%
70%
60%
50%
40%
30%
20%
10%
0%
FTSE 100 (excl. Pearson and Inv. Trusts)
Pearson
Based on the publicly disclosed geographic revenue segment which covers the US or Americas as a proportion of
disclosed Group revenue. Data for Pearson are based on the year ending 31 December 2023. Data is shown for
the FTSE 100 excluding investment trusts, and were sourced from Datastream and published annual reports as at
January 2024.
Additionally, more than half of Pearson’s employees are based in the US and two-thirds of the
Pearson Executive Management (PEM) are also based in the US, with several joining us from US-
based companies.
Data as of 31 December 2023
All employees
52%
19%
29%
Directors
and above
Executives
59%
21%
20%
67%
17%
17%
US
UK
Rest of World
Market reference points
Given that Pearson is a UK-listed company, but has significant operations in the US and draws
significantly on talent from the US, the Remuneration Committee considered remuneration levels at
comparable companies in both the UK and US when determining the 2023 Directors’ Remuneration
Policy and its implementation. The Committee also considers remuneration levels at both public
and privately-owned or held companies, but notes that market data for private companies is more
limited. The approach to market data was to consider multiple different reference points, including
those described below, to provide a rounded view of overall positioning against the market. This
approach has evolved over time in line with Pearson’s strategic evolution to appropriately reflect
the different global talent needed for Pearson’s growth ambitions and execution of our digital-first
strategy. The Committee has not sought to follow any specific market reference and is
mindful of the balance between needing to ensure remuneration packages are sufficiently
attractive in the US, a primary and fiercely competitive talent market, and maintaining a
UK market-aligned remuneration framework.
— Executive Director remuneration in
— Executive Director remuneration in
UK-listed companies of a similar market
capitalisation to Pearson, the FTSE 41 to
100. This comparator group recognises
Pearson’s London listing, the fact that
Pearson is a member of the FTSE 100,
and that UK investors and proxy agencies
would likely consider competitiveness of
remuneration levels at Pearson in this
context primarily. Market data for the
FTSE 100 as a whole was also considered
as an additional reference point given the
growth in Pearson’s market capitalisation
in recent years.
US-listed companies of a broadly similar
financial size and in a similar sector
to Pearson. This comparator group
included companies in the broadcasting,
interactive media and software sector
with similar revenue to Pearson. It
considers what Executive Directors
are paid in broadly similar US-listed
companies, although it does not directly
align to Pearson’s talent market.
— Remuneration in US-listed companies more closely aligned to Pearson’s talent market and
strategic ambitions. This comparator group comprised US technology, communications,
and consumer discretionary companies, in particular those that are at the forefront of
transformative, innovative plays within technology and digital, based on the Nasdaq-100
Index. Recognising, however, that many of these companies were materially larger than
Pearson in terms of financial size, rather than considering remuneration levels for the CEO
role, the market data considered was for roles reporting into the CEO (primarily heads of
business units or Chief Executives of subsidiary businesses) which is analogous to Omar
Abbosh and Andy Bird’s previous executive roles. This data was only considered in respect of
the CEO role at Pearson.
The Committee is mindful of the views of many investors in relation to setting executive pay
solely based on market data as well as views on using international peer groups. The Committee
therefore wanted to take a balanced and thoughtful approach which incorporates the views of
all key stakeholders.
Annual report and accounts 2023 Pearson plc 115
Governance Directors’ Remuneration Report continued
Pay positioning
Overall, the intention of the Committee was to ensure a package for the Chief Executive which was competitive considering Pearson’s primary talent market. While it is acknowledged the package for the Chief
Executive is towards the top end of market practice from a UK perspective, it is within the broad range of pay received by executives below CEO level at relevant US-listed companies.
Chief Executive Officer
Chief Financial Officer
UK positioning
US positioning
UK positioning
US positioning
Salary
Towards the top end of UK practice
Within US market competitive range
for CEO roles
Within UK market competitive range
Within US market competitive range
Annual bonus opportunity
For CEO roles, the market data illustrated that annual bonus opportunity levels in the US were around double opportunity levels in the UK. The same picture is not
however true for other executive roles, where annual bonus opportunity in the US is more closely aligned to, although still marginally higher than, UK levels.
Towards the top end of UK practice
Within US market competitive range
Within UK market competitive range
Within US market competitive range
Long-term incentive opportunity is the key driver in the difference between UK and US remuneration levels. Opportunity levels in the US are many multiples
of UK levels. For CEO roles in US-listed companies in a similar sector and of a similar financial size to Pearson, many receive long-term incentives with a target
opportunity greater than 1000% of salary.
Towards the top end of UK practice
Substantially below
US levels
Towards the top end of UK practice
Substantially below US levels
LTIP opportunity
Conclusions
The market data highlighted the stark difference in pay practices between the UK and US, and the Remuneration Committee applied careful judgement when considering how remuneration at Pearson should
be positioned taking into account the various reference points as well as the views of shareholders.
The Committee determined, with input from shareholders, that the incentive framework at Pearson for Executive Directors should continue to align to typical UK practice, and as such incentives remain fully
performance-linked, which is not typically the case in the US market where often a significant proportion of the long-term equity award is delivered in restricted stock with no performance conditions and over
shorter time horizons. In addition, annual bonus deferral and additional holding periods on LTIP awards are uncommon in the US market.
Overall, while it is acknowledged that the 2023 Directors’ remuneration policy positions Pearson towards the top-end of the UK market, the Committee has not sought to match US quantum levels or market
practice in terms of incentive design or the overall remuneration framework.
That the approach taken in the 2023 Policy is necessary for remaining competitive in the global talent market was reaffirmed by the Board’s appointment of Omar Abbosh as the Company’s new
Chief Executive Officer. Omar is a highly regarded global leader with over 30 years of experience in enterprise technology and joined Pearson from Microsoft, one of the world’s largest multinational
technology companies.
Annual report and accounts 2023 Pearson plc 116
Governance Workforce remuneration at Pearson
The Committee takes seriously its responsibilities concerning the oversight of remuneration policies and practices for the wider organisation. Our remuneration principles as set out on page 114 are
consistent for all our colleagues, and applied depending on business need, level, and geography.
The key difference in our executive remuneration, compared to the approach to remuneration across our workforce, is that remuneration for our Executive Directors is more heavily weighted towards variable
pay and linked to delivering strategic objectives.
Approach to remuneration across Pearson
Base salary Set considering economic factors, competitive market rates, roles, skills, experience, and individual performance.
Allowances
and
benefits
Retirement
benefits
Annual
incentives
Share
incentives
Reflect the local labour market in which colleagues are based and may include healthcare and wellbeing benefits. Aligned with Pearson’s diversity, equity and inclusion (DEI) policies we
actively review to ensure our benefits are inclusive (e.g., menopause support, fertility and family planning services, and gender affirmation services provided to colleagues in the UK).
Reflect local market practice.
Pearson colleagues in the UK may participate in the same underlying pension arrangements as the Executive Directors, subject to certain age bands and legacy arrangements. The main
contribution plan (Money Purchase 2003) allows employees to pay in between 3% and 8% of their basic salary, depending on their age. Pearson then contributes double that amount,
paying in between 6% and 16% of salary.
Over half of all Pearson employees, around 10,300 colleagues, participate in an Annual Incentive Plan, which is funded based on similar performance measures to the Executive Directors.
Several other colleagues (c. 2,000) participate in alternative cash-based annual bonuses, such as sales incentive and commission plans, based on performance targets and profit-shares
where required for legislative reasons.
We believe in the importance of aligning the interests of management and our shareholders by delivering a significant proportion of total remuneration in the form of share incentives.
Approximately 750 colleagues (c.4% of all employees) participate in the annual long-term incentive plan grant, selected based on their role, performance, and potential; with other awards
being made from time to time on an ad-hoc basis to certain roles based on market need.
Awards for our Executive Directors are made solely in the form of performance shares. However, our SVPs and Executive Leadership team have an equal mix of both performance shares
(subject to the same performance conditions as the Executive Directors) and restricted shares, recognising prevailing practice in the markets in which we compete for talent. At other levels,
awards are typically made in restricted shares only.
Executive Directors
Executive
Leadership Team
100% performance shares
50% performance shares
50% restricted shares
SVPs
50% performance shares
50% restricted shares
VPs and Directors
100% restricted shares
In addition to our long-term incentive plan, all colleagues have the opportunity to become shareholders and owners of the Company and share in the value they help to create through
participation in savings-related share acquisition programmes. Under our ‘Save For Shares’ plan and Employee Stock Purchase Plan, employees can buy Pearson shares at a discount (20%
discount for ‘Save For Shares’ and a 15% discount for the ‘Employee Stock Purchase Plan’, in line with the maximum discounts permitted by HMRC and the IRS respectively).
Over 1 in 4 of our employees currently save to purchase Pearson shares via our employee share plans, contributing to a strong culture of share ownership.
Annual report and accounts 2023 Pearson plc 117
Governance Directors’ remuneration report continued
During the year, the Committee received reports from the Chief Executive and Chief Human Resources Officer on pay and conditions across Pearson, and on the recruitment and retention experience. We
took these into account when determining Executive remuneration. We have established channels in place to inform our colleagues and help them understand how executive remuneration and wider pay
policies are aligned. Further detail on Pearson’s approach to employee engagement is provided on page 41.
Views and sentiment expressed by colleagues around matters relating to reward and culture are taken into consideration by the Remuneration Committee when determining pay for senior management. In
order to give more colleagues the opportunity to meet the Board, including the members of the Remuneration Committee, a number of "Breakfast with the Board" sessions were conducted with employees
in both the UK and the US. This gave a wider group of employees the chance to talk with Board members about their roles, and to express their opinions on a wide range of topics. See page 82 for more on
how the Board engages with employees.
The Committee also considers Pearson’s gender pay gap and ethnicity pay gap in Great Britain (the latter of which Pearson voluntarily disclosed for the first time in 2023), as well as Pearson’s CEO pay ratio.
Pearson continues to review and update its policies and practices relating to the hiring, retention, and development of women, as well as other diverse talent groups, to ensure equal opportunities for all its
people. Some initiatives include creating strategic partnerships with organisations that focus recruiting efforts on under-represented talent, rolling out training programmes for recruiters and hiring managers
focused on specific diversity topics, and reviewing and challenging job requirements which require a formal higher education qualification in order to create a greater level of accessibility and equity to all
candidates. Building an inclusive culture and increasing diverse representation is one of Pearson’s six strategic pillars, and reflective of the Company’s commitments in this area diversity targets were included
in both the AIP and LTIP for Executive Directors for 2023. Further details can be found within our 2023 fair pay report which was published in December 2023.
Sharing In Success
Pearson’s remuneration principles are consistent across the organisation and are designed to support our culture, and to make Pearson an employer of choice, able to attract and retain talent
to execute our digital-first strategy. Many of the features of our Directors’ remuneration policy apply more broadly, and we believe that all our people should have the opportunity to benefit
when the Company does well. In particular:
— 2023 was a year of strong performance for the business and this was reflected in the highest level of funding under the Annual Incentive Plan in many years. As noted on page 117, over half
of all Pearson employees (c.10,300 employees) benefitted from participating in an AIP during 2023.
— Similarly, all eligible colleagues, including Executive Directors, can participate in savings-related share acquisition programmes that are not subject to any performance conditions. Over
1 in 4 of our employees save to purchase discounted Pearson shares via our employee share plans. At the most recent maturity of our ‘Save For Shares’ plan in 2023, the average gain for
a participant was £5,700 reflecting a near doubling between the option exercise price and the Pearson share price on the date of maturity – allowing those who participated to benefit from
the shareholder value they have helped to create over the previous three years.
Annual report and accounts 2023 Pearson plc 118
Governance Remuneration report for 2023
Certain parts of this report have been audited, as required by the
Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 as amended. Those tables subject to
audit are marked with an asterisk.
Single total figure of remuneration and
prior year comparison*
Total aggregate emoluments for Executive and Non-Executive
Directors were £15,597k in 2023. These emoluments are
included within the total employee benefit expense (in Note 5 to
the financial statements page 170).
Executive Director
‘single figure’ remuneration
The remuneration received by Executive Directors for the
financial years ended 31 December 2023 and 31 December 2022
is set out below.
Overall, the Committee considers that the Remuneration Policy
operated as intended during 2023.
Executive Director
‘single figure’ remuneration*
Andy Bird
$000s
Sally Johnson
£000s
2023
2022
2023
2022
Base salary
Allowances and benefits
Retirement benefits
Total fixed pay
Annual incentives
Long-term incentives
Co-investment award
Total variable pay
Total remuneration
1,282
466
205
1,953
3,299
3,482
5,298
12,079
14,032
1,250
448
200
1,898
1,900
–
4,684
6,584
8,482
552
16
88
656
947
1,310
–
2,257
2,913
533
16
64
613
692
1,043
–
1,735
2,348
Notes to single figure table*
Base salary
The base salary shown in the single figure table reflects salary
paid in the financial year as a Pearson Executive Director. Andy
Bird was paid in USD, and Sally Johnson is paid in GBP.
Allowances and benefits
The breakdown of benefits is as follows for 2023:
Travel
Health
Risk-related
Accommodation
Andy Bird
$000s
Sally Johnson
£000s
–
15
2
449
14
2
–
–
Travel benefits comprise car allowance and reimbursements of a
taxable nature resulting from business travel and engagements.
Health benefits comprise healthcare, health assessment and
dental care. Risk-related benefits comprise life and other
insurance policies. Accommodation benefits for Andy Bird relate
to a contribution towards the rental costs of an apartment in
New York used for business purposes. This cost was capped at
$240,000 per year ($20,000 per month) prior to any taxes due.
In addition to these allowances and benefits, Executive Directors
may also participate in company benefit or policy arrangements
that have no taxable value and/or are available to all other
colleagues in the same location. Sally Johnson’s life cover is
arranged under an excepted policy on a similar basis to other
employees who are affected by the lifetime allowance and have
opted out of The Pearson Pension Plan.
Retirement benefits
Further detail on retirement benefits is on page 123.
Annual incentives
The 2023 AIP for the Executive Directors was based on a mix of
financial (90% weighting) and strategic measures (10% weighting).
The 2023 AIP resulted in an 85% of maximum payment for both
Andy Bird and Sally Johnson. Bonus is calculated using salary at
31 December 2023, in line with how bonuses are calculated for
all participants.
More detail on performance metrics and performance against
targets in 2023 is on page 120.
Long-term incentives
The 2021 LTIP award was subject to performance conditions
assessed to 31 December 2023. Performance targets were
partially met resulting in the award vesting at 85% of maximum.
The 2021 LTIP awards for Andy Bird and Sally Johnson were
granted on 4 May 2021, based on a share price of 826.7p (five-
day average to 4 May 2021). The value of the 2021 LTIP included
in the single-figure table is based on a three-month average
ADR / share price to 31 December 2023 of $11.63 / 937.0p. The
LTIP values include dividend equivalent amounts of $196,795
and £76,141 for Andy Bird and Sally Johnson respectively. The
proportion of the 2021 LTIP attributable to share price growth
is $98,009 for Andy Bird and £145,245 for Sally Johnson. The
Remuneration Committee did not exercise discretion in respect
of this share price appreciation. For further details see page 120.
The value of the 2020 LTIP reported in last year’s report for Sally
Johnson (£1,199k) was an estimate based on the three-month
average share price to 31 December 2022 (939.4p). The actual
value of the 2020 LTIP, on the 2 May 2023 vesting date was
£1,043k (based on a closing share price of 754p).
Co-investment award
The third and final tranche of the one-off investment award,
granted to Andy Bird to secure his appointment (with
shareholder EGM approval), was subject to performance
underpins assessed to 31 December 2023. It was determined the
third tranche of the award would vest in full. The value disclosed,
which includes an additional amount equal to the value of
dividends payable on the shares vesting, is calculated using the
ADR share price at the date of vesting (30 Jan 2024) of $12.19.
The award was originally granted over Ordinary Shares based on
a share price of 590.2p (with the USD value at award calculated
using a USD:GBP exchange rate of 1.365), and so $1,666k of the
above figure is attributable to share price growth. An additional
$386k of the value is attributable to dividend equivalent shares.
The award has been satisfied using market-purchased ADRs and
ADRs retained after tax must be held until 31 December 2025.
For further details see pages 121-122.
Annual report and accounts 2023 Pearson plc 119
Governance Directors’ remuneration report continued
Executive Directors’ annual incentive payments for 2023*
Andy Bird and Sally Johnson were eligible to participate in the 2023 AIP. The following table
summarises the performance targets (presented on a consistent basis to the actual results,
considering portfolio and currency movements) and performance against these targets, which
resulted in an 85% of maximum payout.
Executive Directors’ Long-Term Incentive Plan award vesting for 2023*
In May 2021, Andy Bird and Sally Johnson were granted an LTIP award. This award is due to vest
based on performance the business delivered over the three-year period from 2021 to 2023.
The targets and performance against these targets are as follows:
Overall outcome
Adjusted operating profit
Sales
Free cash flow
Strategic measures
Performance range
% of total
Threshold
Target Maximum Actual results
£520m
£525m
£605m
40%
£573m
30% £3,395m £3,520m £3,760m £3,674m
20%
£387m
10%
100%
£345m
See below
£305m
£300m
Payout
% of max bonus
opportunity
32%
25%
20%
8%
85%
Adjusted
EPS
Net ROIC
Relative
TSR
A
third
A
third
A
% of
total Threshold Stretch Maximum
Payout at
threshold
Payout
at
stretch
Payout at
maximum
Actual
Percentage
achievement
Performance range
Vesting
Percentage
of total
award
43.9p 50.5p
57.6p
15% 65%
100% 57.7p
100%
33.3%
5.4% 6.3%
7.3%
15% 65%
100%
third Median
100%
Upper
quartile
-
25%
-
100%
6.1%
Ranked
16 out
of 93
55%
18.4%
100%
Total
33.3%
85%
Performance against strategic measures
The targets and outcomes for performance against each of the strategic measures are shown in the
table below.
Strategic priority
Weighting Threshold
Target
Maximum
Outcome
Invest in
diverse pipeline
and increase
BIPOC/BAME
representation
at all manager
levels
Reduce carbon
footprint – net
annual reduction
versus 2022
baseline toward
2030 goal
Total
5% 2% increase in
representation
of BIPOC/BAME
employees at
Manager level and
above + maintain
overall gender parity
as an underpin
5% increase in
representation
of BIPOC/BAME
employees at
Manager level
and above
10%
increase in
representation
of BIPOC/BAME
employees at
Manager level
and above
Achieved 6.4%
increase &
maintained
overall gender
parity
5% 1% reduction
2% reduction
5% reduction
Achieved an
8% reduction2
10%
8%
Note 1: Internal Audit provided an independent assessment of the result for the Committee.
Note 2: As disclosed on page 42, Pearson achieved carbon reduction of 16.3% during 2023. For the purpose of
assessing AIP performance, the Committee made a discretionary adjustment to this figure to account for factors
which did not reflect underlying performance, such as portfolio changes.
Relative TSR was measured against the constituents of the FTSE 100 at the start of the performance period.
In determining the vesting outcome, the Committee carefully considered the portfolio changes over the last
three years and made modest adjustments to reflect the impact of these, in particular the divestment of various
businesses under strategic review during the performance period – the adjusted targets and adjusted results are
presented in the table above. The Committee considers such adjustments appropriate to ensure performance is
measured on a like-for-like basis and reflect the principles against which the original targets were set as these did
not consider the impact of the portfolio changes.
Overall, 85% of this award will vest on 1 May 2024, and its value is included in the single figure table
on page 119. Shares vesting are subject to an additional two-year holding period to 1 May 2026.
Co-investment award*
To secure the appointment of Andy Bird as Chief Executive, the Committee designed a one-off co-
investment award. The conditions of this award were that Andy Bird purchased Pearson ordinary
shares equal to 300% of his base salary and held all of these shares until 31 December 2023. The
co-investment award vests in three equal annual tranches, with shares vesting subject to a holding
period until 31 December 2023.
The vesting of each tranche of the award was subject to these performance underpins:
— an appropriate level of continued progress being made in relation to delivering Pearson’s
strategy, including the ongoing transition from print to digital, and
— no significant ESG issues occurring, which relate to Andy Bird’s tenure as Chief Executive, and
which result in significant reputational damage for Pearson
In addition, the vesting of the final tranche of the award was subject to the following TSR underpin:
— Pearson’s TSR from the date of the announcement of Andy Bird’s appointment to 31 December 2023 is
either (1) positive; or (2) is at median or above when compared to the performance of the FTSE 100
— If one or more of the underpins are not achieved, then the Committee will consider whether, and to what
extent, a discretionary reduction in the number of shares vesting is required.
Annual report and accounts 2023 Pearson plc 120
Governance Assessment of performance underpins
TSR Underpin
The third tranche of the co-investment award vested as soon as
practical following 31 December 2023. The Committee undertook
a rigorous assessment of the relevant performance underpins,
reviewed broader Pearson performance, and evaluated the
experience of all stakeholders. The Committee followed the
framework disclosed in the 2020 Remuneration Report.
In 2023, there have been no ESG issues which, in the opinion of
the Committee, have resulted in significant reputational damage.
Pearson’s TSR from the date of the announcement of Andy’s appointment to 31 December 2023 was 76.0%, resulting in the creation of
over £3bn of shareholder value over the period. This compares to a median FTSE 100 TSR of 32.4%, and was therefore significantly in
excess of both required thresholds for vesting (noting that only exceeding one threshold was required). Pearson’s TSR was ranked 21
out of 92, in excess of the upper quartile (71.8%) TSR of the FTSE 100.
Pearson
76.0%
Progress
in
delivering
Pearson’s
strategy
Significant strategic progress was made
during 2023 which included:
— Completed the acquisition of Personnel
Decisions Research Institutes (‘PDRI’) in
support of the growth strategy, building on
the previous acquisitions of Credly, Mondly
and Faethm.
— Continued to refine the portfolio through
the completion of the strategic disposal of
Pearson’s interest in the POLS businesses
in the US, UK, Australia and India, as well as
the disposal of Pearson College London.
— Reorganised salesforce in Higher Education
to increase adoption retention rates and
generate new wins.
— Further progressed Pearson’s Generative AI
strategy including the launch of additional
generative AI study tools in Pearson +
and Mastering.
— Delivered a £120m cost savings
programme, accelerating group margin
expansion to 16%.
— Passed milestone of 1m cumulative paid
subscriptions for Pearson+.
FTSE 100 (Median)
32.4%
Source: Refinitiv Datastream
0%
10%
20%
30%
40%
50%
60%
60%
80%
Consideration of broader performance and stakeholder experience
Robust financial performance
Revenue
Adj. operating
profit
£3,674m
£573m
5% underlying
adjusted growth on
prior year (excl OPM &
Strategic Review)
31% underlying
growth on prior year
Wider stakeholder experience
Shareholders
Free cash flow
Adjusted EPS
£387m
74% growth
on prior year
58.2p
12% growth
on prior year
Return on
Capital
10.3%
1.6% improvement on
prior year
— Strong financial position has enabled Pearson to grow its dividend (up 6% to 22.7p in 2023), in line with Pearson’s commitment
to a progressive and sustainable dividend.
— Pearson commenced a £300 million share buyback programme to return capital to shareholders in Q3 2023, We have also
announced our intention to extend our share buyback programme by £200m.
— Pearson has strong and constructive relationships with its key institutional investors. During 2023, Pearson held 505 meetings
with 272 institutions, both virtually and in person.
Annual report and accounts 2023 Pearson plc 121
Governance Directors’ remuneration report continued
Employees
Customers
Suppliers & Business Partners
— Over 80% of colleagues participated in the enhanced
employee engagement survey, a 10 percentage point
increase over last year. Our engagement grand mean
increased to 4.09 out of 5 (up from 3.96 in 2022) and
as a result, we are now ranked in the 70th percentile in
Gallup’s global company database for engagement.
— Over 700 existing employees participated in the Coaching
for Performance series which focused on developing
managers as coaches. Pearson’s coaching index score
improved from 3.75 out of 5 in 2022 to 3.95 in 2023.
— Pearson launched a new learning experience platform
that integrates third party content libraries, Pearson
commercial content, bespoke learning content on a
range of topics (e.g. generative AI), and digital credentials
powered by Credly by Pearson. To date, 16.1k Pearson
employees have earned a credential from Credly
by Pearson.
— Pearson’s UK benefits offerings were expanded to be
more inclusive including support and medical cover
for those seeking gender affirmation care, menopause
support, and support for those expanding their families
whether through birth, surrogacy, or adoption.
— There was improvement in female representation at Vice
President level and above (44%) and Pearson continued
to maintain its position of having surpassed the FTSE
Women Leaders Review target for 40% of leadership
roles (defined as the executive committee and their
direct reports) to be filled by women, well ahead of the
end of 2025 deadline.
— In Assessment & Qualifications, Pearson VUE launched
— Supplier Diversity and Responsible Procurement
the delivery of the Next Generation NCLEX Nurse
licensure exam in the US and PDRI launched a full suite
of hiring assessment programmes for the Transportation
Security Administration (TSA). VUE also successfully
opened its largest company-owned test center in
Chandigarh, India, with capacity to deliver 14,000 tests
per month.
— In Virtual Learning, Pearson launched a new Connections
Academy Career Pathways programme for middle and
high school students to offer a tri-credit approach to
career-readiness courses in partnership with Coursera
and Acadeum, amongst others.
— In Higher Education, momentum continued for Pearson+
as registered users grew to around 5m by the end of
2023 and Pearson+ passed the milestone of 1 million
cumulative paid subscriptions for the calendar year.
A generative AI tool was brought to market within the
Pearson+ service to enable users to automatically
summarise the content of Channels videos into simple
bullet points as well as generate explanations and
practice quizzes
— Workforce Skills registered users grew to 5.3 million,
and there was an increase in the number of enterprise
customers to 1,547. Pearson 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.
— In English Language Learning, Pearson won recognition
for the Pearson Test of English (PTE) for Canadian
Student Direct Stream and economic migration visa
applications. The Canadian market is the largest of the
three key markets which Pearson has recognition to
operate in. PTE also grew volumes by c. 50% to pass the
milestone of over 1 million tests administered per year.
continued to be key priorities for Pearson in 2023. All
employees have access to a diverse supplier portal to
provide access to over one million diverse suppliers and
we spent £47.2m in the area in 2023.
— Pearson is continuing its transition to ethically sourced
papers with 69% of paper used in 2023 being certified
(FSC / PEFC / SFI) and expects 100% of papers to be
ethically sourced by end 2025. Pearson is also continuing
to consolidate its printer base reducing its approved
vendor count to 60 vendors from approximately 120
vendors at the beginning of 2023 whilst also working to
have all approved vendors signed up to the Book Chain
Project to develop better understanding and mitigation
of potential labour and environmental risks within both
the paper and manufacturing supply chain.
— Pearson continued to encourage key suppliers to
participate in an EcoVadis sustainability assessment (or
equivalent) in 2023. Our key suppliers performed well,
with an average score of 57.6/100 ("Good"), a 0.3 point
increase year-over-year. Among suppliers who have
completed a reassessment cycle, 69% of them showed
improvement averaging +3.5 points.
— Pearson has made great progress in assessing and
benchmarking the carbon maturity of its key, high impact
suppliers. Results of this assessment are shared with
suppliers as part of the ongoing governance process and
suppliers are asked to provide insight into their plans
to increase carbon maturity over time. A full review of
its end to end supplier lifecycle management processes
was completed and updates were made to ensure that
carbon maturity is considered at every stage and higher
maturity suppliers are selected wherever possible.
Taking all the above into account, the Committee has determined that the third and final tranche of the co-investment award will vest in full.
Annual report and accounts 2023 Pearson plc 122
Governance Long-term incentives awarded in 2023*
The following LTIP awards were granted during the year:
Executive Directors’ retirement benefits and entitlements*
Details of the Executive Directors’ pension entitlements and pension-related benefits in 2023
are as follows:
Director
Date
of award
Vesting
date
Number
of shares
Face
value
Face value
(% of base
salary)
Value for
threshold
performance
(% of
maximum)1
Andy Bird 2 May 2023 1 May 2026
Sally
Johnson
2 May 2023 1 May 2026
545,529 $5,821,885
450%
194,345 £1,671,678
300%
20%
20%
Performance
period
1 Jan 23 –
31 Dec 25
1 Jan 23 –
31 Dec 25
Value of defined benefit
Other allowances in lieu of pension
Total value in 2023
Accrued pension at 31 December 2023
Andy Bird
$000s
Sally Johnson
£000s
-
205
205
-
-
88
88
66
Face value for Andy Bird’s award was determined using a share price of $10.672 and for Sally
Johnson's award using a share price of 860.16p. In both cases this represented the five-day average
up to and including 28 April 2023, which is same approach used for the wider employee population.
For 2023, performance measures and targets are as follows:
Adjusted EPS
Return on Capital
Relative TSR vs.
FTSE 100 (excl.
certain sectors)
Relative TSR vs.
S&P 500 (excl.
certain sectors)
ESG
% of
total
30%
30%
15%
Threshold
53.0p
8.5%
Median
Stretch
Maximum
Payout at
threshold
Payout at
stretch
Payout at
maximum
63.0p
10%
–
68.0p
11.5%
Upper
quartile
20%
20%
20%
65% 100%
65% 100%
100%
–
15%
Median
–
Upper
quartile
20%
–
100%
10% Improve gender
representation
at leadership
levels overall
vs 2022
(VP and above)
Achieve
gender parity
at leadership
levels in
aggregate (VP
and above)
Achieve
gender
parity at all
leadership
levels (VP
and above)
20%
65% 100%
Note 1: 2023 LTIP targets have been set at an USD:GBP exchange rate of 1.21.
Note 2: Companies within financial services, energy, basic materials, utilities and healthcare sectors will be excluded
from both TSR groups.
The Committee reserves the right to adjust pay-outs up or down before they are released, if it
believes the vesting outcome does not reflect underlying financial or non-financial performance, or
for other exceptional factors. In making any adjustments, the Committee are guided by the principle
of aligning shareholder and management interests.
Any shares vesting based on performance to 31 December 2025 will be subject to an additional two-
year holding period to 1 May 2028.
Note 1: The value of defined benefit reflects the change in value over the period, less inflation.
Note 2: Other allowances in lieu of pension represent the cash allowances paid.
Note 3: Total value is the sum of the previous two rows and is disclosed in the single figure of remuneration table.
Note 4: The accrued pension at 31 December 2023 is the deferred pension at 30 September 2022 (the date
accrual for the pension ceased) revalued to 31 December 2023 in line with the Plan rules. It relates to the pension
payable from the UK Plan. Normal retirement age is 62.
Payment in Lieu of Pension
Omar Abbosh receives a payment in lieu of pension at 16% of his base salary, in line with the
pension provision for UK employees of a similar age.
Andy Bird, until his retirement, received a payment in lieu of pension at 16% of his base salary,
in line with the pension provision for UK employees of a similar age.
Beginning 1 October 2022, Sally Johnson began receiving payments in lieu of pension at 16% of her
base salary, in line with the pension provision for UK employees of a similar age. Prior to October
2022, Sally Johnson was a member of the Final Pay section of the Pearson Pension Plan, where the
pension accrual rate was 1/60th of pensionable salary per annum, restricted to the Plan’s
earnings cap.
Remuneration arrangements in respect of Andy Bird’s retirement
Andy Bird stepped down as Chief Executive and as a Director of Pearson plc on 7 January 2024
and will retire on 31 March 2024.
— On ceasing to be employed by Pearson, and in accordance with the terms of his contract
of employment, there will be no payment for loss of office.
— Andy remains eligible for a pro-rated award under the AIP for the period to 31 March 2024
whilst he remains in employment. The award will be based on Pearson Group performance
for 2024.
— Andy did not receive any LTIP award in respect of 2024.
Annual report and accounts 2023 Pearson plc 123
Governance Directors’ Remuneration Report continued
— Andy was treated as a good leaver in respect of his outstanding awards under the LTIP and
treatment of the awards was in accordance with the relevant plan rules (including malus
and clawback provisions). His LTIP awards granted in 2021, 2022, and 2023 will vest on the
original vesting dates subject to the achievement of the applicable performance conditions
as determined by the Remuneration Committee following completion of the relevant
performance periods. His 2022 and 2023 LTIP awards will also be subject to time pro-rating
based on the relevant performance periods. As described on page 120, the 2021 LTIP will vest
in May 2024.
— As described on page 120 the third and final tranche of his co-investment award granted in
connection with his initial employment by the Company vested in full.
— In line with the Directors’ remuneration policy, Andy is required to retain Pearson shares with
a value of 450% of his base salary for a period of two years from 7 January 2024. This guideline
does not apply to shares purchased by Andy.
— Andy can elect for continued medical, dental and vision insurance coverage through the
Company’s plans under COBRA for 18 months following his retirement and the Company
will pay premiums to continue this coverage for 12 months following his retirement. Andy
will be reimbursed for reasonable costs necessarily incurred in connection with his tax
return preparation for the 2024 calendar year. He will also be reimbursed for reasonable
attorneys’ fees necessarily incurred related to his review and consideration of his retirement
arrangements. Andy will also be paid all accrued, unused paid time off upon his retirement.
Payments to former Directors*
There were no payments to former Directors in 2023.
Payments for loss of office*
All payments made to Andy Bird in connection with his retirement as Chief Executive are set out
above. There were no additional payments for loss of office made to or agreed for Directors in 2023.
Directors’ interests in shares and value of shareholdings*
Shareholding guidelines
Executive Directors are expected to build up a substantial shareholding in Pearson, in line with our
policy of encouraging widespread employee share ownership, and to align the interests of Executive
Directors and shareholders.
Following the significant increases introduced by the last Remuneration Policy, the current
shareholding guideline is 450% of base salary for the Chief Executive and 300% of base salary for the
Chief Financial Officer.
Shares that count towards these guidelines include any shares held unencumbered by an Executive
Director, their spouse and/or dependent children, plus any shares vested but held pending release
under a share plan, and any shares unvested but not subject to future performance conditions (on a
net of tax basis). Executive Directors have five years from their date of appointment to the Board to
reach the guideline. Once the guideline is met, it is not re-tested, other than when shares are sold.
As part of the year-end process, the Committee assessed the level of shareholding against the
guideline in accordance with our shareholding policy. Based on shares beneficially held and shares
due to vest from LTIP awards having met the performance targets (on a net-of-tax basis), it was
confirmed that the guideline was met for Andy Bird and Sally Johnson.
Executive Directors are expected to retain their current guideline (or actual shareholding if lower) for
two years following stepping down as an Executive Director. This guideline does not apply to shares
purchased by the Director.
The shareholding guidelines do not apply to the Chair, Deputy Chair and Senior Independent
Director and Non-Executive Directors. However, a minimum of 25% of the Chair, Deputy Chair and
Senior Independent Director and Non-Executive Directors’ basic fee is paid in Pearson shares,
which the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors have
committed to retain for the period of their directorships.
Directors’ interests
The share interests of the Directors and their connected persons are:
Director
Chair
Omid Kordestani
Deputy Chair
Tim Score
Executive Directors
Andy Bird
Sally Johnson
Non-Executive Directors
Sherry Coutu CBE
Alison Dolan
Alex Hardiman
Esther Lee
Graeme Pitkethly
Annette Thomas
Lincoln Wallen
Current
shareholding
(ordinary
shares) at 31
Dec 23
Conditional
shares subject
to performance
at 31 Dec 23
Conditional
shares subject
to employment
only at 31
Dec 23
Total number
of ordinary and
conditional
shares at 31
Dec 23
65,059
78,735
–
–
–
–
–
–
586,437
103,260
1,636,864
517,675
424,131
–
2,647,432
620,935
14,987
671
930
3,639
11,467
4,192
18,664
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Note 1: Share interests are shown as at 31 December 2023.
Note 2: Ordinary shares include both ordinary shares listed on the London Stock Exchange and American
Depositary Receipts (ADRs) listed on the New York Stock Exchange. The figures include both shares and ADRs
acquired by individuals under the LTIP and any other share plans in which they might have participated.
Note 3: Conditional shares subject to performance means unvested shares, which are subject to
performance conditions and/or performance underpins and continuing employment for a pre-defined period.
This includes the LTIP awards granted in 2021, 2022, and 2023 and, in respect of Andy Bird, the third tranche of his
co-investment award.
Annual report and accounts 2023 Pearson plc 124
Governance Service contracts
Terms and conditions of our Directors’ appointment are available for inspection at our registered
office during normal business hours and at the AGM. So that appropriate arrangements can be
made for shareholders wishing to inspect documents, we request that shareholders contact the
Company Secretary by email at companysecretary@pearson.com in advance of any visit to ensure
that access can be arranged.
The Executive Directors have notice periods in their service contracts of 12 months from the
company and six months from the Executives.
The Deputy Chair and Senior Independent Director and Non-Executive Directors serve Pearson
under letters of appointment, which are renewed annually and do not have service contracts. The
Deputy Chair and Senior Independent Director and Non-Executive Directors’ letters of appointment
do not contain provision for notice periods or for compensation if their appointments are
terminated. The Chair’s appointment may be terminated on 12 months’ notice.
Executive Directors’ Non-Executive directorships
Our current Executive Directors hold the following external commitments: Omar Abbosh is a Non-
Executive Director of Zuora Inc. and Sally Johnson is a Non-Executive Director of Rentokil Initial plc
and Chair of its Audit Committee.
Note 4: Conditional shares subject to employment only means unvested shares, which are subject to a
holding period and continued employment. For Andy Bird this includes the first and second tranches of his
co-investment award.
Note 5: There have been no other changes in the interests of any Director between 31 December 2023 and 13
March 2024, being the latest practicable date prior to the publication of this report.
Chair, Deputy Chair and Senior Independent Director and
Non-Executive Director remuneration*
Remuneration in 2023
The remuneration paid to the Chair, Deputy Chair and Senior Independent Director and Non-
Executive Directors for the financial years ended 31 December 2023 and 31 December 2022 is set
out below.
Director
£000s
Omid Kordestani
Tim Score
Sherry Coutu CBE
Alison Dolan
Alex Hardiman
Esther Lee
Linda Lorimer
Graeme Pitkethly
Annette Thomas
Lincoln Wallen
Total
Total fees
Taxable
benefits
500
175
106
47
45
88
33
105
101
93
1,294
34
5
11
-
8
16
15
5
12
15
121
2023
Total
534
180
116
47
54
104
48
110
113
108
1,415
Total fees Taxable benefits
417
163
100
–
–
78
100
98
90
93
1,139
19
3
5
–
–
7
9
4
6
6
59
2022
Total
436
166
105
–
–
85
109
102
97
99
1,198
Note 1: A minimum of 25% of the Chair, Deputy Chair and Senior Independent Director and Non-Executive
Directors’ basic fee is paid in shares.
Note 2: Taxable benefits refer to travel, accommodation and subsistence expenses incurred while attending
Board meetings during the period that were paid or reimbursed by the company, and which HMRC deems taxable
in the UK.
Note 3: Omid Kordestani joined the Pearson Board with effect from 1 March 2022. He became Chair on
29 April 2022.
Note 4: Alison Dolan and Alex Hardiman joined the Pearson Board with effect from 1 June 2023.
Note 5: Linda Lorimer stepped down from the Pearson Board on 28 April 2023.
Note 6: Some figures and subtotals add up to different amounts than the totals due to rounding.
Annual report and accounts 2023 Pearson plc 125
Governance Directors’ remuneration report continued
Historical performance and remuneration
Total shareholder return performance
Set out below is Pearson’s total shareholder return (TSR) performance, relative to the FTSE
All-Share index, on an annual basis over the 10-year period 1 January 2014 to 31 December 2023.
We chose this comparison because the FTSE All-Share represents the broad market index within
which Pearson shares are traded. TSR is a measure of returns a company provides for shareholders,
reflecting share price movements and assuming reinvestment of dividends.
Alongside this a summary of the single figure of total remuneration for the Chief Executive over the
last 10 years is provided, and a summary of the variable pay outcomes relative to the prevailing
maximum at the time.
180
160
140
120
100
80
60
40
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Pearson TSR
FTSE All Share TSR
Source: Refinitiv Datastream
2014
2015
2016
2017
2018
2019
2020
2020
2021
2022
2023
John Fallon
Andy Bird
Total
remuneration
(single figure,
£000s)
Annual
incentive (%
of maximum)
Long-term
incentive (%
of maximum)
1,895 1,263 1,518 1,758 3,094 1,616
855
334 5,167 6,856 11,269
51%
Nil
24% 44% 45%
Nil
Nil
N/A
63% 76%
85%
Nil
Nil
Nil
Nil
42% 33%
Nil
N/A
N/A
N/A
85%
Note 1: Total remuneration is as reflected in the single total figure of remuneration table. The 2021, 2022,
and 2023 figures for Andy Bird include vesting of the first, second, and third tranches of the co-investment
award, respectively.
Note 2: Annual incentive is the actual annual incentive received by the incumbent as a percentage of
maximum opportunity.
Note 3: Long-term incentive is the payout of performance-related share awards where the year shown is the final
year of the performance period for the purposes of calculating the single total figure of remuneration.
Note 4: The single figure remuneration for Andy Bird in 2022 and 2023 have been converted using a USD:GBP
exchange rate of 1.24 (average exchange rate for 2022) and 1.25 (average exchange rate for 2023).
Annual report and accounts 2023 Pearson plc 126
Governance Comparative information
The following information provides additional context regarding Directors’ total remuneration.
Relative percentage change in remuneration of Directors and employees
The following table sets out the year-on-year percentage change in base salary/fees, allowances and benefits and annual incentives in respect of all Directors during the year, compared to the average
percentage change for all employees of Pearson. The figures for all Directors are calculated based on remuneration received in the relevant year as set out in the tables on page 119 and page 125. For base
salary/fees, we have annualised part-year figures for this disclosure. Part-year allowances and benefits are not annualised and are excluded from the table.
While the Committee reviews base pay for the Executive Directors relative to Pearson’s broader employee population, local practices drive our approach to benefits, and we determine eligibility depending on
level and individual circumstances, which do not lend themselves to comparison.
Base
salary/fees
Allowances
and benefits
Annual
Incentives
Base
salary/fees
Allowances
and benefits
Annual
Incentives
Base
salary/fees
Allowances
and benefits
2023
2022
2%
Average employee1
Executive Directors
Andy Bird
3%
Sally Johnson
4%
Chair and Non-Executive Directors2
Omid Kordestani
0%
Tim Score
7%
Sherry Coutu CBE
6%
–
Alison Dolan
–
Alex Hardiman
Esther Lee
3%
Linda Lorimer
3%
Graeme Pitkethly
8%
Annette Thomas
12%
Lincoln Wallen
0%
6%
4%
1%
78%
73%
119%
–
–
122%
66%
23%
102%
154%
22%
74%
37%
–
–
–
–
–
–
–
–
–
–
4%
0%
2.5%
–
25%3
9%
–
–
–
0%
5%
7%
0%
8%
20%
0%
–
–
–
–
–
–
–
–
–
–
16%
21%
24%
–
–
–
–
–
–
–
–
–
–
4%
0%
1%
–
13%
5%
–
–
–
1%
1%
–
1%
17%
–
–
–
–
–
–
–
–
–
–
–
–
2021
Annual
Incentives
38%
–
–
–
–
–
–
–
–
–
–
–
–
Base
salary/fees
Allowances
and benefits
1%
–
–
–
0%
5%
–
1%
8%
–
1%
6%
–
–
–
-20%
–
–
102%
–
–
-97%
2020
Annual
Incentives
9%
–
–
–
–
–
–
–
–
–
–
Note 1: The average employee pay figure is impacted by changes in headcount (18,360 employees for 2023 vs 20,438 in 2022). Actual merit increase budgets for 2023 were 4% in the UK and 3.5% in the US.
Note 2: Changes in NED fees during the year are a result of changes in Committee Chairs and membership. Allowances and benefits for the Chair and Non-Executive Directors refer to travel, accommodation and subsistence expenses
incurred while attending Board meetings that were paid or reimbursed by the company, and which HMRC deems taxable in the UK. In 2020 and 2021 the impact of the coronavirus pandemic meant that there were very few in person
Board meetings, and as such the benefits figures for these years were negligible. This also meant that for 2022 there is no comparative percentage, as the value in the prior year was zero.
Note 3: Increase due to Tim Score taking over as Deputy Chair in April 2022
Annual report and accounts 2023 Pearson plc 127
Governance Directors’ Remuneration Report continued
Relative importance of pay spend
The Committee considers Directors’ remuneration in the context
of the company’s allocation and disbursement of resources
to different stakeholders. Adjusted operating profit measures
Pearson’s ability to reinvest, and dividends are an important
element of our return to shareholders.
All figures in £
2023
2022
Adjusted operating profit1
Dividends
Dividend per share
Share buybacks2
Total wages and salaries3
573
155
22.7p
186
1,252
456
156
21.5p
353
1,382
Headline change
£
117
-1
1.2p
-167
-130
%
26%
-1%
6%
-47%
-9%
Note 1: Adjusted operating profit is as set out in the financial statements.
Note 2: The Board approved a £300m share buyback programme in
September 2023 with an extension of £200m announced 1 March 2024.
Note 3: Wages and salaries include continuing operations only and include
Directors. Average employee numbers for continuing operations for 2023
were 18,360 (2022:20,438 ), hence the year-on-year negative movement
in overall spend. Further details are set out in Note 5 to the financial
statements on page 170.
Chief Executive to employee pay ratio
The table below illustrates the ratio of Chief Executive to
employee pay for 2023. We use the single total figure of
remuneration (as disclosed on page 119), compared to the full-
time equivalent total reward of employees whose pay is ranked
at the 25th, 50th and 75th percentiles (as identified by the gender
pay gap methodology) in Great Britain’s (GB) workforce.
Year
Method
B: Gender pay gap
methodology
B: Gender pay gap
methodology
B: Gender pay gap
methodology
B: Gender pay gap
methodology
B: Gender pay gap
methodology
2023
2022
2021
2020
2019
Chief Executive pay ratio
25th
percentile
50th
percentile
75th
percentile
304.0
209.9
148.5
214.3
181.3
117.2
150.1
145.0
88.4
42.5
31.9
19.5
65.9
47.2
36.0
— We used GB gender pay gap data from April 2023 to identify
employees at the 25th, 50th and 75th percentiles, and analysed
data for employees around each quartile figure to ensure
there were no anomalies
— Using the gender pay gap data to identify the employees
at each pay quartile gives a general representation of the
relevant employee population at the year end, and is the most
practicable methodology given the timing of the disclosure
and determination of remuneration outcomes for the
wider workforce.
— We compared total remuneration for each employee,
calculated with reference to 31 December 2023, compared to
the Chief Executive’s single figure (this was converted using a
USD:GBP exchange rate of 1.25 – the average exchange rate
for 2023).
— For the employees at each pay quartile, we calculated total
remuneration on a similar basis to the Chief Executive’s
single figure. We based base salary, pension and benefits on
full-year figures taken from payroll. Annual bonus figures are
based on the relevant manager recommendations and relate
to performance in 2022. None of the employees at the 25th,
50th or 75th percentile had share awards vesting in 2023.
— Total remuneration figures for the 25th, 50th and 75th
percentile employees are: £37,066, £53,685 and £75,912. The
respective base salaries are: £33,280, £45,054 and £59,650.
— A significant proportion of the Chief Executive’s pay is linked
to performance and, in respect of the LTIP and co-investment
award, share price performance. Therefore, the Chief
Executive’s pay can vary significantly year-on-year, based on
company performance.
— The increase in this year’s pay ratio is a result of a higher
payout under the AIP for the Chief Executive (85% of
maximum compared to 76% of maximum last year) as well as
the vesting of the 2021 LTIP, which was the first LTIP award
granted to Andy Bird following his appointment as CEO
in 2021.
— The median pay ratio is consistent with our wider policies
on employee pay, reward and progression. The Committee
is focused on ensuring that remuneration for all Pearson
colleagues reflects our need to attract and retain the right
talent for our digital future.
Dilution and use of equity
We can use existing shares bought in the market, treasury shares
or newly issued shares, to satisfy awards under our various
share plans. For restricted stock awards under the LTIP, we
would expect to use market-purchased shares. There are limits
on the amount of new-issue equity we can use. In any rolling
10-year period, no more than 10% of Pearson equity will be
issued, or be capable of being issued, under all Pearson’s share
plans, and no more than 5% of Pearson equity will be issued,
or be capable of being issued, under Executive or discretionary
plans. The headroom available for all Pearson plans, Executive or
discretionary, and shares held in trust is as follows:
Headroom
All Pearson plans
Executive or discretionary plans
Shares held in trust
2023
7.6%
4.6%
4.7%
Annual report and accounts 2023 Pearson plc 128
Governance The Remuneration Committee in 2023
Terms of reference
Role
Chair
Name
Title
Sherry Coutu CBE
Independent Non-Executive Director
The Committee’s full charter and terms of reference are available on the Governance page of our
website. A summary of the Committee’s responsibilities is below.
Members
Esther Lee
Tim Score
Annette Thomas
Internal attendees Omid Kordestani
Andy Bird
Sally Johnson
Ali Bebo
Paul Christian
Graeme Baldwin
Deloitte LLP (to September 2023)
Alvarez & Marsal (appointed in
October 2023)
External advisers
Independent Non-Executive Director
Deputy Chair and SID
Independent Non-Executive Director
Chair
Chief Executive
Chief Financial Officer
Chief Human Resources Officer
Senior Vice President, Reward
Company Secretary
Advisers to the Remuneration Committee
During most of 2023, the Remuneration Committee received independent advice from Deloitte LLP.
Deloitte LLP was appointed by the Committee in July 2017, following a competitive tender process.
It has advised the Committee on market trends and developments, incentive plan design and target
setting, investor engagement and other general executive remuneration matters. For provision of
these services in 2023, Deloitte LLP were paid fees of £131,500, based on time spent. During the
year, separate teams at Deloitte LLP also provided Pearson with certain tax and other advisory and
consultancy services. Deloitte LLP is a founding member of the Remuneration Consultants’ Group
and adheres to its Code of Conduct.
In the summer of 2023, the Committee undertook a formal tender process, the outcome of which
resulted in Alvarez & Marsal being appointed as the independent Remuneration Committee advisers
in October 2023. Alvarez & Marsal supplied the Committee with advice on current market trends
and developments, incentive plan design and target setting, investor engagement and other general
executive remuneration matters. For provision of these services in 2023, Alvarez & Marsal were
paid fees of £25,250, based on time spent. Alvarez & Marsal does not provide any other services to
Pearson. Alvarez & Marsal is a member of the Remuneration Consultants’ Group and adheres to its
Code of Conduct.
The Committee is satisfied that advice provided by both Deloitte LLP and Alvarez & Marsal was
objective and independent, and that the provision of other services in no way compromised its
independence. The Committee believes that the engagement partners and teams from both Deloitte
LLP and Alvarez & Marsal do not have any connections with Pearson or its Directors that may impair
its independence. The Committee reviewed the potential for conflicts of interest and believes there
are appropriate safeguards against such conflicts.
The terms of reference reflect the provisions of the 2018 Code.
Committee responsibilities
Determine and review policy
Determine and regularly review the remuneration policies for the Executive Directors, Presidents,
and other members of Pearson’s Executive Management who report directly to the Chief Executive.
These policies include base salary, annual and long-term incentives, pension arrangements, any
other benefits, and termination of employment. When setting remuneration policy, the Committee
considers remuneration practices and related policies for all employees
Shareholder engagement
Ensure Pearson engages with its shareholders and shareholder representative bodies on the
remuneration policy and its implementation
Review and approve implementation
Regularly review the implementation and operation of the remuneration policy, and approve the
individual remuneration and benefits packages of Pearson’s Executive Management team, including
Executive Directors
Approve performance-related plans
Approve the design of, and determine targets for, any performance-related pay plans operated by
the Group for Pearson’s Executive Management team, and approve total payments to be made
under such plans
Set termination arrangements
Advise and decide on general and specific remuneration arrangements in connection with the
termination of employment of Pearson’s Executive Management team, including Executive Directors
Determine Chair’s remuneration
Delegated responsibility for determining the Chair’s remuneration and benefits package
Appoint remuneration consultants
Appoint and set the terms of engagement for any remuneration consultants who advise the
Committee, and monitor the cost of such advice
Talent, retention, and gender pay gap
Review updates from management on talent, retention, and gender pay gap
Workforce remuneration
Have oversight of workforce remuneration, policies, and practice for the wider organisation
Annual report and accounts 2023 Pearson plc 129
Governance Directors’ Remuneration Report continued
Remuneration Committee meeting focus
during 2023
— Received updates on pay and conditions across
Pearson, and took these into account when determining
executive remuneration
During the year the Committee undertook the following activities:
— Noted updates on corporate governance, including a review
— Reviewed and approved annual and long-term performance
and payouts to Executive Directors and senior management
for 2022
— Reviewed and approved incentive arrangements for Pearson,
and how these will apply to Executive Directors and senior
management in 2023
— Approved the 2022 Directors’ Remuneration Report
— Engaged extensively with shareholders in advance of and following
the 2023 AGM to understand the views of shareholders in respect
of the 2023 Directors’ remuneration policy (further detail on this
was included in the Chair letter on page 108)
— Reviewed and considered all feedback received from shareholder
engagement exercises as part of the Committee’s discussions and
considered ongoing shareholder engagement strategy
— Determined remuneration arrangements for the appointment
of a new Chief Executive
— Approved remuneration arrangements in respect of Andy
Bird’s retirement
— Received updates on Pearson’s financial performance and
progress against strategic measures. Noted and reviewed the
status of in-flight incentives
of the 2023 AGM remuneration reporting season, and
anticipated areas of focus in 2024
— Reviewed Pearson’s UK gender and ethnicity pay gap
disclosures and noted actions to address the respective gaps
— Noted the activity of the Standing Committee on operating
Pearson’s equity-based reward programmes and noted
Pearson’s use of equity for employee share plans
— Undertook a formal competitive tender process to select an
independent adviser to the Committee, the outcome of which
resulted in Alvarez & Marsal being appointed in October 2023
— Evaluated the Remuneration Committee and the Committee’s
Terms of Reference
Committee evaluation
Annually, the Committee reviews its performance, constitution,
charter, and terms of reference and recommends any changes
it considers necessary to the Board for approval. For 2023,
feedback relating to the Committee was sought from Directors
and certain other stakeholders as part of the wider Board
evaluation led by Manchester Square Partners.
Overall, the Committee was considered to be working well with
appropriate agendas, papers produced to a good standard and
high-quality discussions. There was acknowledgment of the
challenges faced by the Committee in 2023 in respect of its work
relating to the new Directors' Remuneration Policy, in needing
remuneration arrangements that act as an attraction, retention,
and incentivisation tool for global talent (particularly in the US
where North America represents the majority of our business),
whilst being sensitive to the views of our diverse shareholder
base. The Committee was deemed to have managed these
issues with a high level of rigour and balance, including extensive
engagement with shareholders, and ensuring an appropriate
level of focus on the metrics and KPIs that would incentivise the
delivery of the Company’s strategy.
In 2024, the Committee will continue to focus on ensuring
remuneration arrangements for senior management and the
wider workforce continue to support the attraction and retention
of key talent as well as the delivery of Pearson’s strategy. The
Committee continually assesses how its activities support and
enable Pearson’s progress.
The Directors’ remuneration report has been approved by the
Board on 13 March 2024 and signed on its behalf by:
Sherry Coutu, CBE
Chair of Remuneration Committee
Voting on remuneration resolutions
The following table summarises votes cast for remuneration resolutions:
Directors’ Remuneration Policy (2023 AGM)
Annual report on Remuneration (2023 AGM)
Votes cast for
299,899,081
484,017,430
% of votes
cast for
53.63%
86.85%
Votes cast against
259,251,476
73,300,461
% of votes
cast against
46.37%
13.15%
Votes
withheld
223,851
2,056,516
Annual report and accounts 2023 Pearson plc 130
Governance Additional disclosures
Pages 66-136 of this document comprise the Directors’ report for
the year ended 31 December 2023.
Set out below is other statutory and regulatory information that
Pearson is required to disclose in its Directors’ report.
Going Concern
The Directors have confirmed that there are no material
uncertainties that cast doubt on the Group’s going concern
status and that they have a reasonable expectation that the
Group has adequate resources to continue in operational
existence beyond 30 June 2025. The consolidated financial
statements have therefore been prepared on a going
concern basis.
Further details on the procedures undertaken may be found on
page 160.
Viability statement
The Board assessed the prospects of the company using the
company’s long-range plan. Viability was assessed by considering
downside scenarios. Based on the result of these procedures
and considering the company’s strong balance sheet, the
Directors have a reasonable expectation that Pearson will be
able to continue in operation and to meet its liabilities as they fall
due over the five-year period ending 31 December 2028. Further
details may be found on page 65.
Share capital
Details of share issues and cancellations are given in note 27 to
the financial statements on page 198. The company has a single
class of shares which is divided into ordinary shares of 25p each.
The ordinary shares are in registered form. As at 31 December
2023, 697,298,680 ordinary shares were in issue. At the AGM
held on 28 April 2023, the company was authorised, subject to
certain conditions, to acquire up to 71,612,324 ordinary shares
by market purchase and to issue up to 477,415,494 ordinary
shares. Shareholders will be asked to renew these authorities,
subject to revised caps, at the AGM on 26 April 2024.
As at 8 March 2024, 2,381 record holders with registered
addresses in the United States held 29,631,529 ADRs which
represented 4.32% of the company’s outstanding ordinary
shares. Some of these ADRs are held by nominees and so these
numbers may not accurately represent the number of shares
beneficially owned in the United States.
Share buyback
On 28 April 2023, the company announced its intention to
commence a share buyback programme during 2023, which was
subsequently launched on 21 September 2023 and completed
on 7 March 2024. Under the programme, approximately 32m
shares were bought back and cancelled at a cost of £300m.
The nominal value of these shares, approximately £8m, was
transferred to the capital redemption reserve.
On 1 March 2024, the company announced its intention to
launch a £200m share buyback programme during 2024, which
commenced on 8 March 2024 and is anticipated to end on or
before 8 August 2024. The repurchased shares will be cancelled
and the nominal value of the shares will be transferred to the
capital redemption reserve.
The Board believes that the company’s strategic priorities,
combined with the disciplined approach to capital allocation,
will enable Pearson to create sustainable, long-term value for
every stakeholder.
We have set out clear capital allocation priorities as follows:
— Maintaining a strong balance sheet and solid investment-
grade credit ratings through an appropriate capital structure
— Focused and disciplined approach to investing in the business
to accelerate growth opportunities
— Delivering shareholder returns through a progressive and
sustainable dividend policy
— Returning surplus cash to shareholders as and when
appropriate through buybacks or special dividends
Major shareholders
Information provided to the company pursuant to the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules
(DTR) is published on a Regulatory Information Service and on
the company’s website.
As at 31 December 2023, the company had been notified under
DTR 5 of the following holders of significant voting rights in its
shares.
Cevian Capital II GP Limited
BlackRock, Inc.1
Ameriprise Financial, Inc. and
its group
Silchester International Investors
LLP2
Artemis Investment
Management LLP
Libyan Investment Authority3
Number
of voting rights
85,202,977
69,580,016
Percentage
as at date of
notification
12.02%
9.69%
41,236,375
5.02%
36,341,993
<5%
35,207,368
24,431,000
5%
3.01%
1. Includes 10,034,738 (1.38%) qualifying financial instruments to which voting rights
are attached.
2. Investor has dropped below the reportable threshold, therefore they are no longer
required to disclose their holding under DTR 5.
3. Based on notification to the company dated 7 June 2010. We have not been notified
of any change to this holding since that date. Assets belonging to, or owned, held or
controlled on 16 September 2011 by the Libyan Investment Authority and located
outside Libya on that date, are frozen in accordance with The Libya (Sanctions) (EU
Exit) Regulations 2020.
Annual report and accounts 2023 Pearson plc 131
Governance Additional disclosures continued
Annual general meeting
The notice convening the AGM, to be held at 10:30am on Friday,
26 April 2024 at 80 Strand, London WC2R 0RL, is contained in a
circular to shareholders to be dated 22 March 2024.
shareholders, or by any shareholders (or their representatives)
present in person holding ordinary shares on which an aggregate
sum has been paid up of at least 10% of the total sum paid up
on all ordinary shares. At this year’s AGM, voting will again be
conducted on a poll, consistent with best practice.
notice under section 793 of the Act (which confers upon public
companies the power to require information with respect to
interests in their voting shares) and they or any interested
person failed to supply the company with the information
requested within 14 days after delivery of that notice.
Registered auditors
In accordance with section 489 of the Companies Act 2006 (the
Act), a resolution proposing the re-appointment of Ernst & Young
LLP as auditors to the company will be proposed at the AGM, at a
level of remuneration to be agreed by the Audit Committee.
Amendment to Articles of Association
Any amendments to the Articles of Association of the company
(the Articles) may be made in accordance with the provisions of
the Act by way of a special resolution.
Rights attaching to shares
The rights attaching to the ordinary shares are defined in the
Articles. A shareholder whose name appears on the company’s
register of members can choose whether his/her shares are
evidenced by share certificates (i.e. in certificated form) or held
electronically (i.e. uncertificated form) in CREST (the electronic
settlement system in the UK).
Subject to any restrictions below, shareholders may attend
any general meeting of the company and, on a show of hands,
every shareholder (or his/her representative) who is present at
a general meeting has one vote on each resolution and, on a
poll, every shareholder (whether an individual or a corporation)
present in person or by proxy shall have one vote for every
25p of nominal share capital held. A resolution put to the vote
at a general meeting held partly by means of electronic facility
or facilities shall, unless the chair of the meeting determines
that it shall be decided on a show of hands, be decided on a
poll. Subject to this, at any general meeting, a resolution put to
the vote at the meeting shall be decided on a show of hands,
unless before, or on the declaration of the result of, a vote on a
show of hands, a poll is demanded. A poll can be demanded by
the chair of the meeting, or by at least three shareholders (or
their representatives) present in person and having the right to
vote, or by any shareholders (or their representatives) present
in person having at least 10% of the total voting rights of all
Shareholders can declare a final dividend by passing an ordinary
resolution but the amount of the dividend cannot exceed
the amount recommended by the Board. The Board can pay
interim dividends on any class of shares of the amounts and
on the dates and for the periods they decide. In all cases, the
distributable profits of the company must be sufficient to justify
the payment of the relevant dividend.
The Board may, if authorised by an ordinary resolution of the
shareholders, offer any shareholder the right to elect to receive
new ordinary shares, which will be credited as fully paid, instead
of their cash dividend.
Any dividend which has not been claimed for eight years after it
became due for payment will be forfeited and will then belong to
the company, unless the Directors decide otherwise.
If the company is wound up, the liquidator can, with the sanction
of a special resolution passed by the shareholders, divide among
the shareholders in specie all or any part of the assets of the
company and can value assets and determine how the division
shall be carried out as between the shareholders or different
classes of shareholders.
The liquidator can also, with the same sanction, transfer the
whole or any part of the assets to trustees upon such trusts for
the benefit of the shareholders.
Voting at general meetings
Any form of proxy sent by the shareholders to the company
in relation to any general meeting must be delivered to the
company (via its registrars), whether in written or electronic form,
not less than 48 hours before the time appointed for holding the
meeting or adjourned meeting at which the person named in the
appointment proposes to vote.
The Board may decide that a shareholder is not entitled to
attend or vote either personally or by proxy at a general meeting
or to exercise any other right conferred by being a shareholder
if they or any person with an interest in shares has been sent a
The Board may also decide, where the relevant shareholding
comprises at least 0.25% of the nominal value of the issued
shares of that class, that no dividend is payable in respect of
those default shares and that no transfer of any default shares
shall be registered unless the shareholder is not themself in
default as regards supplying the information requested and the
transfer, when presented for registration, is accompanied by a
certificate from the shareholder in such form as the Board of
Directors may require to the effect that after due and careful
inquiry, the shareholder is satisfied that no person in default
is interested in any of the ordinary shares which are being
transferred, or the transfer is an approved transfer as defined in
the Articles, or the registration of the transfer is required by the
Uncertificated Securities Regulations 2001.
Pearson operates an employee benefit trust to hold shares,
pending employees becoming entitled to them under the
company’s employee share plans. There were 2,160,045 shares
held as at 31 December 2023. The trust has an independent
trustee which has full discretion in relation to the voting of
such shares. A dividend waiver operates on the shares held
in the trust.
Pearson also operates nominee shareholding arrangements
which hold shares on behalf of employees. As at 31 December
2023, there were 2,214,425 shares held in the Sharestore
account administered by Equiniti Limited (Equiniti). The beneficial
owners of shares held in Sharestore are invited to submit voting
instructions online at www.shareview.co.uk. If no instructions are
given by the beneficial owner by the date specified, the trustees
holding these shares will not exercise the voting rights.
As at 31 December 2023, there were 2,949,951 shares held
in the Computershare Share Plan Account (SPA), which
is administered by Computershare Investor Services plc
(Computershare). Beneficial holders of shares held in the
Computershare Share Plan Account (SPA) are invited to
submit voting instructions online at www.equateplus.com. If
no instructions are given by the beneficial owner by the date
specified, the nominee holding these shares will not exercise the
voting rights.
Annual report and accounts 2023 Pearson plc 132
Governance Transfer of shares
The Board may refuse to register a transfer of a certificated
share which is not fully paid, provided that the refusal does not
prevent dealings in shares in the company from taking place on
an open and proper basis. The Board may also refuse to register
a transfer of a certificated share unless: (i) the instrument of
transfer is lodged, duly stamped (if stampable) or duly certified or
otherwise shown to the satisfaction of the Board to be exempt
from stamp duty, at the registered office of the company or
any other place decided by the Board, and is accompanied by
the certificate for the share to which it relates and such other
evidence as the Board may reasonably require to show the right
of the transferor to make the transfer; (ii) it is in respect of only
one class of shares; and (iii) it is in favour of not more than
four transferees.
Transfers of uncertificated shares must be carried out using
CREST and the Board can refuse to register a transfer of an
uncertificated share in accordance with the regulations governing
the operation of CREST.
Variation of rights
If at any time the capital of the company is divided into different
classes of shares, the special rights attaching to any class may be
varied or revoked either:
(i) with the written consent of the holders of at least 75% in
nominal value of the issued shares of the relevant class or
(ii) with the sanction of a special resolution passed at a
separate general meeting of the holders of the shares of the
relevant class.
Without prejudice to any special rights previously conferred on
the holders of any existing shares or class of shares, any share
may be issued with such preferred, deferred or other special
rights, or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise as the company may from time to
time by ordinary resolution determine.
Appointment and replacement
of Directors
The Articles contain the following provisions in relation
to Directors.
Directors shall be no less than two in number. Directors may be
appointed by the company by ordinary resolution or by
the Board.
A Director appointed by the Board shall hold office only until the
next AGM and shall then be eligible for re-appointment.
The Board may from time to time appoint one or more Directors
to hold Executive office with the company for such period
(subject to the provisions of the Act) and upon such terms as the
Board may decide and may revoke or terminate any appointment
so made.
The Articles provide that, at every AGM of the company, every
Director shall retire from office and, unless not willing to act, be
eligible for re-appointment.
If a Director is not re-appointed, they shall, subject to the Articles,
retain office until the meeting appoints someone in their place,
or, if it does not do so, until the end of the meeting, or, if the
meeting is adjourned, the end of the adjourned meeting. Where
a Director has been appointed after notice of the annual general
meeting has been given, that Director shall retire at the next
annual general meeting of which notice is first given after his or
her appointment as Director.
If there is an insufficient number of appointed or re-appointed
Directors at any of the company’s annual general meetings
thus rendering the Board inquorate, all Directors shall be
automatically re-appointed only for the purposes of filling
vacancies and convening general meetings of the company
and to perform such duties as are appropriate to maintain the
company as a going concern and to enable it to comply with its
legal and regulatory obligations. The Directors are required to
convene a further general meeting of the company as soon as
reasonably practicable to allow new Directors to be appointed,
and such Directors who were not appointed at the original
general meeting shall subsequently retire.
The company may by ordinary resolution remove any Director
before the expiration of their term of office. In addition, the
Board may terminate an agreement or arrangement with any
Director for the provision of their services to the company.
Powers of the Directors
Subject to the Articles, the Act and any directions given by special
resolution, the business of the company will be managed by the
Board who may exercise all the powers of the company, including
powers relating to the issue and/or buying back of shares by the
company (subject to authorisation, and any statutory restrictions
or restrictions imposed by shareholders in a general meeting).
Directors’ indemnities
A qualifying third-party indemnity (QTPI), as permitted by the
Articles and sections 232 and 234 of the Act, has been granted
by the company to each of its Directors. Under the provisions of
the QTPI, the company undertakes to indemnify each Director
against liability to third parties (excluding criminal and regulatory
penalties) and to pay Directors’ costs as incurred, provided that
they are reimbursed to the company if the Director is found
guilty, the court refuses to grant the relief sought or, in an action
brought by the company, judgement is given against the Director.
The indemnity has been in force for the financial year ended
31 December 2023 and is currently in force. The company has
purchased and maintains Directors’ and Officers’ insurance cover
against certain legal liabilities and costs for claims in connection
with any act or omission by such Directors and Officers in the
execution of their duties.
Annual report and accounts 2023 Pearson plc 133
Governance Additional disclosures continued
Significant agreements
Other statutory information
The following significant agreements contain provisions entitling
the counterparties to exercise termination or other rights in the
event of a change of control of the company.
As at 31 December 2023, the Group’s principal bank facility, the
$1bn Revolving Credit Facility (RCF) agreement, allowed that upon
a change of control of the company, any participating bank may
require its outstanding advances, together with accrued interest
and any other amounts payable in respect of such facility,
and its commitments, to be cancelled, each within 60 days of
notification to the banks by the agent. The facility was undrawn
at year end. The Group’s outstanding fixed rate notes (see note
18 Borrowings for more information) also contain a provision
requiring that, in the event of a change of control which leads to
a downgrade in credit rating below Baa3 (Moody’s) or BBB- (Fitch
Ratings), the company is required to make an offer to investors to
repurchase outstanding instruments at par plus accrued interest,
which investors are not obliged to accept.
For these purposes, a ‘change of control’ occurs if the company
becomes a subsidiary of any other company, or one or more
persons acting either individually or in concert obtains control (as
defined in section 1124 of the Corporation Tax Act 2010) of the
company.
Shares acquired through the company’s employee share plans
rank pari passu with shares in issue and have no special rights.
For legal and practical reasons, the rules of these plans set out
the consequences of a change of control of the company.
Other information that is required by the Act and by the Large
and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended) to be included in the
Directors’ report, and which is incorporated by reference, can be
located as follows:
Summary disclosures index
See more
Dividend recommendation
Financial instruments and financial risk
management
Important events since year end
Future development of the business
Research and development activities
Employment of disabled persons
Employee involvement
Greenhouse gas emissions and energy
consumption data
Statement describing employee engagement
Statement describing regard to suppliers,
customers and other stakeholders’ interests
Page 33
Page 186
Page 206
Pages 6-7
Page 22
Page 41
Page 39
Page 52
Page 20
Page 21
With the exception of the dividend waiver described on page 132
there is no information to be disclosed in accordance with Listing
Rule 9.8.4.
No political donations or contributions were made or
expenditure incurred by the company or its subsidiaries during
the year.
Our disclosures are consistent with the recommendations of the
Task Force on Climate-related Financial Disclosures (TCFD) and
are set out on pages 44-48.
Fair, balanced and understandable
reporting and disclosure of information
As required by the UK Corporate Governance Code, we have
established arrangements to ensure that all information
we report to investors and regulators is fair, balanced and
understandable. In making its assessment, the Board pays
particular attention to a set of criteria recommended by the
Financial Reporting Council, including the use of straightforward
language, focus on content that is important to investors, and
exclusion of irrelevant information.
A process and timetable for the production and approval of
this year’s annual report and accounts was agreed by the
Board at its meeting in December 2023. The full Board then
had the opportunity to review and comment on the report as it
progressed.
The Audit Committee is available to advise the Board on certain
aspects of the annual report and accounts, to enable the
Directors to fulfil their responsibility in this regard. In particular,
for 2023, the Audit Committee considered a report evidencing
how the fair, balanced and understandable criteria were satisfied
throughout the annual report and accounts.
Following their review, and taking into account a recommendation
by the Audit Committee, the Directors consider that the annual
report and accounts, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the company’s position, performance,
business model and strategy.
Representatives from Financial Reporting, Strategy, Investor
Relations, Corporate Affairs, Sustainability, Company Secretarial,
Legal, Internal Audit, Risk, HR and Reward teams are involved
in the preparation and review of the annual report to ensure a
cohesive and balanced approach and, as with all of our financial
reporting, a thorough verification of narrative and financial
statements is conducted. We also have procedures in place to
ensure the timely release of inside information, through our
Market Disclosure Committee.
Annual report and accounts 2023 Pearson plc 134
Governance Directors in office
The following Directors were in office during the year and up to
the date of approval of these financial statements:
O P Abbosh – appointed on 8
January 2024
A P Bird – resigned on 7 January
2024
S L Coutu
A Dolan – appointed on 1 June
2023
A Hardiman – appointed on 1
June 2023
S K M Johnson
O Kordestani
E S Lee
LK Lorimer – retired on 28
April 2023
G D Pitkethly
T Score
A C Thomas
L A Wallen
The Directors’ report has been approved by the Board on
13 March 2024 and signed on its behalf by:
Graeme Baldwin Company Secretary
The Directors also confirm that, for each Director in office at the
date of this report:
— so far as the Director is aware, there is no relevant audit
information of which the Group and company’s auditors
are unaware
— they have taken all the steps that they ought to have taken
as Directors to make themselves aware of any relevant
audit information and to establish that the Group and the
company’s auditors are aware of that information
Streamlined Energy and Carbon
Reporting (SECR)
In line with the requirements set out in the UK Government’s
guidance on Streamlined Energy and Carbon Reporting, the
following data points representing Pearson’s energy use and
associated GHG emissions from electricity and fuel, can be found
on page 52 in the Sustainability section of this report:
— Annual global GHG emissions from activities for which the
company is responsible, including combustion of fuel and
operation of any facility, and the annual emissions from the
purchase of electricity, heat, steam or cooling by the company
for its own use
— Underlying global energy use
— Energy use and GHG emissions figures from previous year
— Emissions intensity ratio
— Energy efficiency measures taken throughout the year
Our performance metrics have been calculated with reference
to the Greenhouse Gas Protocol, and externally verified. The
external verification statement can be found here: https://plc.
pearson.com/en-GB/sustainability/our-esg-reporting.
Annual report and accounts 2023 Pearson plc 135
Governance Statement of Directors’ responsibilities in respect of the financial statements
The Directors are responsible for the maintenance and integrity
of the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed
in the Governance report, confirms that, to the best of
their knowledge:
— The Group and company financial statements, which have
been prepared in accordance with UK-adopted international
accounting standards and IFRS Accounting Standards as
issued by IASB, give a true and fair view of the assets, liabilities
and financial position of the Group and company, and of the
profit of the Group.
— The Strategic report includes a fair review of the development
and performance of the business and the position of the
Group and company, together with a description of the
principal risks and uncertainties that it faces.
This responsibility statement has been approved by the Board on
13 March 2024 and signed on its behalf by:
Sally Johnson Chief Financial Officer
Statement of Directors’ responsibilities
The Directors are responsible for preparing the annual report
and accounts and the financial statements in accordance with
applicable law and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the Group and company financial statements in
accordance with UK-adopted international accounting standards.
In preparing the Group and company financial statements, the
Directors have also elected to comply with IFRS Accounting
Standards as issued by the International Accounting Standards
Board (IFRS Accounting Standards as issued by IASB).
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and company and of
the profit or loss of the Group for that period. In preparing the
financial statements, the Directors are required to:
— Select suitable accounting policies and then apply
them consistently.
— State whether applicable UK-adopted international accounting
standards and IFRS Accounting Standards as issued by IASB
have been followed, subject to any material departures
disclosed and explained in the financial statements.
— Make judgements and accounting estimates that are
reasonable and prudent.
— Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
company will continue in business.
The Directors are responsible for safeguarding the assets of the
Group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
company’s transactions, and disclose with reasonable accuracy
at any time the financial position of the Group and company and
enable them to ensure that the financial statements and the
Directors’ remuneration report comply with the Companies
Act 2006.
Annual report and accounts 2023 Pearson plc 136
Financial statements Independent Auditor’s Report to the members of Pearson plc
Opinion
In our opinion:
— Pearson plc’s group financial statements and parent company
financial statements (the “financial statements”) give a true
and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2023 and of the group’s
profit for the year then ended;
— the group financial statements have been properly prepared
in accordance with UK adopted international accounting
standards and IFRS accounting standards as issued by the
International Accounting Standards Board (IASB);
— the parent company financial statements have been properly
prepared in accordance with UK adopted international
accounting standards and IFRS accounting standards as
issued by the International Accounting Standards Board (IASB)
as applied in accordance with section 408 of the Companies
Act 2006; and
— the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Pearson plc (the
‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2023 which comprise:
Parent company
Balance sheet as at 31
December 2023
Statement of changes in
equity for the year ended 31
December 2023
Cash flow statement for the
year ended 31 December 2023
Related notes 1 to 11 to the
financial statements, including
material accounting policy
information
Group
Consolidated income
statement for the year ended
31 December 2023
Consolidated statement of
comprehensive income for the
year ended 31 December 2023
Consolidated balance sheet as
at 31 December 2023
Consolidated statement of
changes in equity for the year
ended 31 December 2023
Consolidated cash flow
statement for the year ended
31 December 2023
Related notes 1 to 38 to
the financial statements,
including material accounting
policy information
The financial reporting framework that has been applied in
their preparation is applicable law, UK adopted international
accounting standards and IFRS accounting standards as issued
by the IASB and as regards the parent company financial
statements, as applied in accordance with section 408 of the
Companies Act 2006.
— We assessed the appropriateness of the duration of the
going concern assessment period to 30 June 2025 and
considered the existence of any significant events or
conditions beyond this period based on our procedures
on the Group’s long-range plan and knowledge arising from
other areas of the audit.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We are independent of the group and parent in accordance
with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the group or the parent company and we
remain independent of the group and the parent company in
conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the group and parent
company’s ability to continue to adopt the going concern basis of
accounting included:
— In conjunction with our walkthrough of the Group’s financial
statement close process, we confirmed our understanding
of management’s going concern assessment process to
understand and challenge the key assumptions made
in their assessment.
— We agreed the 31 December 2023 cash and debt balances
included in the going concern assessment to the Group’s year
end balances.
— We read the group’s debt agreements to confirm availability
and to understand the covenant requirements and
reperformed management’s covenant compliance test to
check that no covenants have been breached during the year
to 31 December 2023. We have also tested management’s
forecast covenant compliance test to check that there is no
forecast covenant breach in either the base or severe but
plausible downside case scenarios during the going concern
assessment period covering the period to 30 June 2025.
— For debt amounts that are repayable within the going concern
assessment period we have understood the assumptions that
management has made in respect of refinancing.
— We checked the logic and arithmetical integrity of
management’s going concern model that includes the cash
forecasts for the going concern assessment period to
30 June 2025.
— We challenged the appropriateness of the assumptions used
to calculate the cash forecasts under base and plausible
downside case scenarios, including whether the downside
scenarios were sufficiently severe, by reference to historical
forecasting accuracy and comparison to sector benchmarks
and other evidence obtained during the audit, such as
audit procedures on the long range plans which underpin
management’s goodwill impairment assessments.
— We evaluated the key assumptions by searching for contrary
evidence to challenge these assumptions, including third
party sector forecasts and analyst expectations. Further, we
validated that these assumptions were consistent with the
budget approved by Pearson’s Board.
— We considered the mitigating actions that are within the
control of the Group and evaluated the Group’s ability to
control these outflows if required.
Annual report and accounts 2023 Pearson plc 137
Financial statements Independent Auditor’s Report continued
— We considered the Group’s reverse stress testing to identify
the magnitude of decline in revenue and operating profit that
would lead to the Group utilising all liquidity or breaching a
covenant during the going concern assessment period and
we have challenged the likelihood of such a decline.
— We reviewed the Group’s going concern disclosures included
in the Annual Report, in note 1(b) to the financial statements,
to assess that they were accurate and in conformity with the
reporting standards.
We observe that in management’s base case and severe but
plausible downside scenarios, there is headroom without taking
the benefit of any identified mitigations.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on
the group and parent company’s ability to continue as a going
concern for a period to 30 June 2025.
In relation to the group and parent company’s reporting on how
they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
directors’ statement in the financial statements about whether
the directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the group’s ability to continue as a going concern.
Overview of our audit approach
Audit scope
— We performed an audit of the
complete financial information of 5
components and audit procedures
on specific balances for a further 6
components. We also performed
specified audit procedures on specific
balances for a further 2 components.
— The components where we performed
full or specific audit procedures
accounted for 82% of adjusted Profit
before tax, 83% of Revenue and 89%
of Total assets.
Key audit matters
— Fraud risks in revenue recognition
— Valuation of acquired intangible assets
— Uncertain tax provision for EU State
Aid case
Materiality
— Overall group materiality of £24.6m
which represents 5% of adjusted Profit
before tax.
An overview of the scope of the parent
company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope for each company within the Group. Taken together,
this enables us to form an opinion on the consolidated
financial statements. We take into account size, risk profile,
the organisation of the group and effectiveness of group-wide
controls, changes in the business environment, the potential
impact of climate change and other factors such as recent
Internal Audit results when assessing the level of work to be
performed at each company.
The Group operates finance shared service centres in Belfast
and Manila, the outputs of which are included in the financial
information of the reporting components they service and
therefore they are not separate reporting components. Each
of the service centres is subject to specified risk-focused audit
procedures, predominantly the testing of transaction processing
and controls testing.
Additional procedures are performed at the scoped components
to address the audit risks not covered by the work performed
over the shared service centres, or where the scoped
components are not served by the shared service centres.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial
statements, of the 497 reporting components of the Group, we
selected 13 components covering entities within the UK, US and
Australia, which represent the principal business units within
the Group.
Of the 13 components selected, we performed an audit of the
complete financial information of 5 components (“full scope
components”) which were selected based on their size or risk
characteristics, including the parent company; Pearson plc. For 6
components (“specific scope components”), we performed audit
procedures on specific accounts within that component that
we considered had the potential for the greatest impact on the
significant accounts in the financial statements either because of
the size of these accounts or their risk profile.
For an additional 2 components (“specified procedures
components”), we performed certain audit procedures on
specific accounts within that component that we considered had
the potential for the greatest impact on the significant accounts
in the financial statements, either because of the size of these
accounts or their risk profile. These procedures were undertaken
by separate component audit teams under the primary audit
team’s direction.
The reporting components where we performed audit
procedures accounted for 82% (2022: 85%) of the Group’s
adjusted Profit before tax, 83% (2022: 89%) of the Group’s
Revenue and 89% (2022: 95%) of the Group’s Total assets. For
the current year, the full scope components contributed 56%
(2022: 71%) of the Group’s adjusted Profit before tax, 72%
(2022: 73%) of the Group’s Revenue and 83% (2022: 88%) of the
Group’s Total assets. The specific scope components contributed
25% (2022: 14%) of the Group’s adjusted Profit before tax, 11%
(2022:16%) of the Group’s Revenue and 6% (2022: 7%) of the
Group’s Total assets. The audit scope of these components
may not have included testing of all significant accounts of
the component but will have contributed to the coverage of
significant accounts tested for the Group. We also instructed 2
locations to perform specified procedures over certain balances,
including aspects of revenue recognition.
Annual report and accounts 2023 Pearson plc 138
Financial statements Our audit effort in considering the impact of climate change
on the financial statements was focused on evaluating
management’s assessment of the impact of physical and
transition climate risk, their climate commitments, the
effects of material climate risks disclosed on pages 45-46
and whether these have been appropriately reflected in
asset values where these are impacted by future cash flows
and associated sensitivity disclosures, this primarily being
impairment assessments following the requirements of UK-
adopted international accounting standards and IFRS accounting
standards as issued by the International Accounting Standards
Board (IASB). As part of this evaluation, we performed our own
risk assessment, supported by our climate change internal
specialists, to determine the risks of material misstatement in the
financial statements from climate change which needed to be
considered in our audit.
We also challenged the Directors’ considerations of climate
change risks in their assessment of going concern and viability
and associated disclosures. Where considerations of climate
change were relevant to our assessment of going concern, these
are described above.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or to
impact a key audit matter.
Of the remaining 484 components that together represent 18%
of the Group’s adjusted Profit before tax, none are individually
greater than 3% of the Group’s adjusted Profit before tax. For
these components, we performed other procedures, including
testing certain management review controls, analytical review,
testing of consolidation journals and intercompany eliminations
to respond to any potential risks of material misstatement to the
Group financial statements.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken
at each of the components by us, as the primary audit
engagement team, or by component auditors from other EY
global network firms operating under our instruction. The audit
procedures performed at the finance shared service centres
were performed by the primary team with assistance from the
Philippines member firm. Due to the financial shared service
environment described earlier, of the 5 full scope components,
audit procedures were performed on all of these directly by the
primary audit team, with assistance from our US component
team. Of the 6 specific scope components, audit procedures
were performed on 5 of these directly by the primary audit
team, with assistance from our US component team. For the
1 specific scope component, where the work was performed
by component auditors, we determined the appropriate level
of involvement to enable us to determine that sufficient audit
evidence had been obtained as a basis for our opinion on the
Group as a whole.
The Group audit team continued to follow a programme of
planned visits that has been designed to ensure that each full
or specific scope component was visited by either the Senior
Statutory Auditor, or other senior members of the Group
audit team. During the current year’s audit cycle, visits were
undertaken by the primary audit team to the component team in
the US and the Manila shared service centre team. These visits
involved discussing the audit approach with the component
team and any issues arising from their work, meeting with local
management, attending planning and progress meetings and
reviewing relevant audit working papers on risk areas.
The primary team interacted regularly with the component
teams where appropriate during various stages of the audit,
reviewed relevant working papers and were responsible for the
scope and direction of the audit process. Close meetings for
full, specific, and specified procedures components (excluding
those performed by the primary audit team) were held via video
conference in January and February 2024 and were attended
by the Senior Statutory Auditor and/or other members of the
primary audit team. This, together with the additional procedures
performed at Group level, gave us appropriate evidence for our
opinion on the Group financial statements.
Climate change
Stakeholders are increasingly interested in how climate change
will impact Pearson. The Group has determined that the
most significant future impacts from climate change on their
operations will be from physical risks in the medium and long
term. These are explained on pages 44-48 in the required Task
Force for Climate related Financial Disclosures. They have also
explained their climate commitments on pages 42-43. All of
these disclosures form part of the “Other information,” rather
than the audited financial statements. Our procedures on these
unaudited disclosures therefore consisted solely of considering
whether they are materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit
or otherwise appear to be materially misstated, in line with our
responsibilities on “Other information”.
In planning and performing our audit we assessed the potential
impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in the Basis of Preparation note the
key areas of the financial statements that may be impacted
by climate change and the Group concluded there is no
material financial statement impact from climate change.
These disclosures also explain where governmental and
societal responses to climate change risks are still developing,
and where the degree of certainty of these changes means
that they cannot be taken into account when determining
impairment assessments under the requirements of UK-
adopted International accounting standards and IFRS accounting
standards as issued by the International Accounting Standards
Board (IASB).
Annual report and accounts 2023 Pearson plc 139
Financial statements Independent Auditor’s Report continued
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks
of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate
opinion on these matters.
Risk
Our response to the risk
Fraud risk in revenue recognition (revenues
of £3,674 million, 2022 £3,841 million)
We obtained an understanding of and evaluated the design and tested the operating effectiveness of controls over
the Group’s material revenue processes.
Refer to the Audit Committee’s Report (page 105);
Accounting policies (page 158; and note 3 of the
Consolidated Financial Statements (page 163)
Given revenue is a key performance indicator, both
in communication of the Group’s results and for
management incentives, we have identified a risk of
management override of controls through topside
manual journal entries to revenue.
We performed testing over revenue recognition in 5 full scope components, 6 specific scope components and 2
specified procedures components.
The audit of topside manual journals included central testing of the consolidation and close-process adjustments,
testing any that had an entry against revenue and obtaining supporting evidence.
Where relevant, we have understood each significant revenue stream in each full, specific and specified procedure
location. Where a process is automated, we have performed testing over all manual journals recorded against
revenue. Where a process has more manual intervention, we performed testing during the year and placed
increased focus over testing manual adjustments at year end and obtained supporting evidence.
The testing was performed in combination by the component teams and the Group audit team.
Key observations
communicated to the
Audit Committee
Revenue for the year to 31
December 2023 has been
recognised appropriately and
based on our procedures
performed, we have not identified
any inappropriate revenue
journal entries.
Annual report and accounts 2023 Pearson plc 140
Financial statements Risk
Our response to the risk
Our audit of the fair values of the acquired intangible assets was performed by the Group audit team, with
specified procedures performed by a non-EY audit team over certain Prospective Financial Information (“PFI”) used
in the valuation model.
We reviewed the underlying sale and purchase agreements and tested the consideration for the acquisition.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the
Group’s process to identify and value intangible assets, including their use of an external valuation specialist.
We assessed the independence and expertise of management’s external valuation specialist.
We assessed the valuation methodologies applied by management, with the assistance of EY valuation specialists,
to validate that they were appropriate.
We focused our testing of the PFI included in the valuation calculation on the significant assumption that is most
sensitive to the valuation, namely revenue growth rates.
We challenged these assumptions by comparison to historical performance, underlying contractual terms and
corroborating the rationale for any future growth. We instructed a non-EY audit team to test details of revenue for
FY23 to underlying contracts and related approved funding by US governmental agencies for 2024.
We evaluated the adequacy of the business combination disclosures to the requirements in IFRS 3.
Valuation of acquired intangible assets
(£117 million, 2022 £110 million)
Refer to the Audit Committee Report (page 105);
Accounting policies (page153); and Note 30 of the
Consolidated Financial Statements (page 201).
During the year, Pearson made one significant
acquisition: Personnel Decisions Research
Institutes, LLC (‘PDRI’) for cash consideration of
£152 million.
The valuation of acquired intangible assets
requires specialised skills since it involves
complex judgement due to the estimation
uncertainty and the application of valuation
techniques built, in part, on assumptions around
the future performance of the acquired business.
Changes in certain of these assumptions can have
a material effect on the valuation of acquired
intangible assets.
We focused our procedures on the most significant
elements of the valuation, namely the software as a
service (‘SaaS’) customer contracts and technology
intangible assets, with an aggregate value of £97
million. The most significant assumption that is
most sensitive for the valuation of these assets was
revenue growth rates.
Key observations
communicated to the
Audit Committee
Based on our procedures
performed the valuation of
the acquired PDRI intangibles
is acceptable and the methodology
used is in accordance with
IFRS 3 Business Combinations.
We agree that the disclosures
in Note 30 of the consolidated
financial statements provide
the detail required by IFRS 3
and appropriately reflect the
level of estimation.
Annual report and accounts 2023 Pearson plc 141
Financial statements Independent Auditor’s Report continued
Risk
Our response to the risk
Uncertain tax position for EU State Aid case
(£63 million, 2022 £63 million)
Refer to the Audit Committee Report (page 106);
Accounting policies (page 157); and Notes 7 and 34
of the Consolidated Financial Statements (pages 171
and 204).
Pearson has recorded a provision for the uncertain
tax position related to the EU State Aid case. The
provision was recorded as a tax expense in 2022
against a non-current receivable in respect of a
payment on account made to the UK tax authority.
Auditing the Group’s recorded £63 million
provision at 31 December 2023 required significant
auditor judgement in assessing management’s
expectations of the outcome of matters as there is
a significant range of possible outcomes between
£nil and the maximum exposure of £105 million
and therefore a risk of material misstatement.
Our audit of the uncertain tax position was performed by the Group audit team.
We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over
the Group’s tax process over uncertain tax positions.
We reviewed management’s analysis of developments, including recent decisions in other EU case law, which they
prepared with support from third party advisors.
We challenged whether an update to the provision was required by involving EY tax specialists to assess these
developments and any potential impact on the amount recorded by the Group at 31 December 2023.
We reviewed correspondence with management’s specialist, assessed their independence and expertise, and held
a virtual meeting with them to discuss the scope of their work and their considerations on the matter.
We tested management’s calculation of the provision as part of our prior year audit procedures and assessed
the appropriateness of the methodology used against the requirements of IFRIC 23. We considered the
appropriateness of the potential outcomes included in the calculation and the probabilities assigned to each
outcome.
We challenged the probabilities by seeking the input of an EY specialist in State Aid matters.
We assessed the adequacy of the disclosures in notes 7 and 34 of the Annual Report.
Key observations
communicated to the
Audit Committee
Based on our procedures
performed, the current status of
proceedings and the opinion of
the Group’s external legal counsel,
we conclude that management’s
provision is acceptable and the
methodology used is in line with the
requirements of IFRIC 23.
We agree that disclosures set out in
Notes 7 and 34 of the consolidated
financial statements provides
adequate explanation of the nature
of the liability and the level of
uncertainty in the amount provided.
In our prior year auditor’s report, the ‘Fraud risk in revenue recognition’ key audit matter also included a fraud risk in respect of manipulation of the rate of completion for contracts that span the year end.
Based on the knowledge gained in our first year audit and the updated risk assessment as part of the 2023 audit, we no longer consider that this risk area of the audit constitutes a key audit matter.
Annual report and accounts 2023 Pearson plc 142
Financial statements Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could
reasonably be expected to influence the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £24.6 million (2022: £20.9 million), which is 5% (2022:
5%) of adjusted Profit before tax. We believe that adjusted Profit before tax is the appropriate basis
since it is earnings-based and excludes certain non-recurring items.
We determined materiality for the Parent Company to be £44 million (2022: £44 million), which is 1%
(2022: 1%) of net assets.
Starting basis
— Profit before tax - £493 million
— Add: £11 million property charges and £16 million
other net gains and losses
Adjustments
— Less: £28 million other net finance income
— Adjusted profit before tax £492 million (materiality basis)
Materiality
— Materiality of £24.6 million (5% of materiality basis)
During the course of our audit, we reassessed initial materiality and updated it for actual 2023 results,
which resulted in a small increase to £24.6m.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 50% (2022: 50%) of our planning
materiality, namely £12.3 million (2022: £10.5 million). We have set performance materiality at this
percentage to reduce to an appropriately low level the probability that the aggregate of uncorrected
and corrected misstatements exceeds materiality.
Audit work at component locations for the purpose of obtaining audit coverage over significant
financial statement accounts is undertaken based on a percentage of total performance materiality.
The performance materiality set for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components was
£2.4 million to £6.3 million (2022: £1.8 million to £5.0 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences
in excess of £1.2 million (2022: £1.05 million), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages
1 to 135, other than the financial statements and our auditor’s report thereon. The directors are
responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in this report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in
the course of the audit, or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work
we have performed, we conclude that there is a material misstatement of the other information, we
are required to report that fact.
We have nothing to report in this regard.
Annual report and accounts 2023 Pearson plc 143
Financial statements Independent Auditor’s Report continued
Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion, the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
— the information given in the strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
— the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to
report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
— the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
— certain disclosures of directors’ remuneration specified by law
are not made; or
— we have not received all the information and explanations we
require for our audit
Corporate Governance Statement
Responsibilities of directors
We have reviewed the directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group and company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
— Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 160;
— Directors’ explanation as to its assessment of the company’s
prospects, the period this assessment covers and why the
period is appropriate set out on page 65;
— Director’s statement on whether it has a reasonable
expectation that the group will be able to continue in
operation and meets its liabilities set out on page 65;
— Directors’ statement on fair, balanced and understandable set
out on page 134;
— Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 57;
— The section of the annual report that describes the review
of effectiveness of risk management and internal control
systems set out on page 102; and;
— The section describing the work of the audit committee set
out on page 100.
As explained more fully in the directors’ responsibilities
statement set out on page 136, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group and parent company’s ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on
the basis of these financial statements.
Annual report and accounts 2023 Pearson plc 144
Financial statements Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due
to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance
of the company and management.
— We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how
fraud might occur and met with finance and operational
management from various parts of the business to
understand where they considered there was susceptibility
to fraud. We also considered performance targets and their
potential to influence management to manage earnings or
influence the perception of analysts. We have determined
that there is a fraud risk with aspects of revenue recognition.
We considered the policies, processes and controls that
the Group has established to address the risks identified,
including the design of controls over each significant revenue
stream. We also considered the controls that the Group has
that otherwise prevent, deter and detect fraud, and how
senior management monitors those controls.
— We obtained an understanding of the legal and regulatory
— Based on this understanding we designed our audit
frameworks that are applicable to the group and determined
that the most significant frameworks which are directly
relevant to specific assertions in the financial statements are
those that relate to the reporting framework (UK-adopted
International Accounting Standards, IFRS accounting
standards as issued by the International Accounting
Standards Board (IASB), the Companies Act 2006 and the UK
Corporate Governance Code) and the relevant tax laws and
regulations in the countries in which the Group operates.
— We understood how Pearson plc is complying with those
frameworks by making enquiries of management, Internal
Audit, those responsible for legal and compliance procedures
and the Company Secretary. We corroborated our enquiries
through reading of Board minutes and papers provided to
the Audit Committee and observation in Audit Committee
meetings, as well as consideration of the results of our audit
procedures across the Group.
procedures to identify non-compliance with such laws and
regulations including providing specific instructions to full
scope and specific scope component teams and where
necessary, using our forensic and other relevant specialists.
Our procedures included reading any correspondence with
regulators, making enquiries of management's specialists,
and journal entry testing, with a focus on manual journal
entries, consolidation journals and journal entries indicating
large or unusual transactions using data analytics. We based
this testing on our understanding of the business, enquiries
of management, including internal audit and other advisors,
the company secretary and reading relevant reports.
We performed specific searches derived from forensic
investigations experience and leveraged our data analytics
platform in performing our testing. We have also reviewed
the whistleblowing reports issued during the year. We also
used EY’s Document Authenticity Tool to analyse certain
electronic documents used as audit evidence to identify
characteristics of documents that can be indicators of
alteration or inauthenticity.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of
our auditor’s report.
Other matters we are required to address
— Following the recommendation from the Audit Committee,
we were appointed by the company at its Annual General
Meeting on 29 April 2022 to audit the financial statements
for the year ending 31 December 2022 and subsequent
financial periods.
— The period of total uninterrupted engagement including
previous renewals and reappointments is two years, covering
the years ended 31 December 2022 to 31 December 2023.
— The audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and
the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Ben Marles (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
13 March 2024
Annual report and accounts 2023 Pearson plc 145
Financial statements Consolidated income statement
Year ended 31 December 2023
All figures in £ millions
Continuing operations
Sales
Cost of goods sold
Gross profit
Operating expenses
Other net gains and losses
Share of results of joint ventures and associates
Operating profit
Finance costs
Finance income
Profit before tax
Income tax
Profit for the year
Attributable to:
Equity holders of the company
Non-controlling interest
Earnings per share attributable to equity holders of the company during the year
(expressed in pence per share)
—basic
—diluted
Notes
2023
2022
2021
2,3
4
4
4
12
2
6
6
7
8
8
3,674
(1,839)
1,835
(1,322)
3,841
(2,046)
1,795
(1,549)
3,428
(1,747)
1,681
(1,562)
(16)
1
498
(81)
76
493
(113)
380
378
2
24
1
271
(71)
123
323
(79)
244
242
2
63
1
183
(68)
62
177
1
178
177
1
53.1p
52.7p
32.8p
32.6p
23.5p
23.3p
Annual report and accounts 2023 Pearson plc 146
Financial statements Consolidated statement of comprehensive income
Year ended 31 December 2023
All figures in £ millions
Profit for the year
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations
Currency translation adjustment disposed
Attributable tax
Items that are not reclassified to the income statement
Fair value gains on other financial assets
Attributable tax
Remeasurement of retirement benefit obligations
Attributable tax
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the company
Non-controlling interest
Notes
31
7
7
25
7
29
2023
380
(177)
(122)
–
1
–
(85)
20
(363)
17
16
1
2022
244
330
(5)
4
18
1
54
(12)
390
634
630
4
2021
178
(6)
4
10
4
(1)
149
(61)
99
277
276
1
Annual report and accounts 2023 Pearson plc 147
Financial statements Consolidated balance sheet
As at 31 December 2023
All figures in £ millions
Assets
Non-current assets
Property, plant and equipment
Investment property
Intangible assets
Investments in joint ventures and associates
Deferred income tax assets
Financial assets – derivative financial instruments
Retirement benefit assets
Other financial assets
Income tax assets
Trade and other receivables
Current assets
Intangible assets – product development
Inventories
Trade and other receivables
Financial assets – derivative financial instruments
Income tax assets
Cash and cash equivalents (excluding overdrafts)
Assets classified as held for sale
Total assets
Liabilities
Non-current liabilities
Financial liabilities – borrowings
Financial liabilities – derivative financial instruments
Deferred income tax liabilities
Retirement benefit obligations
Provisions for other liabilities and charges
Other liabilities
Notes
2023
2022
All figures in £ millions
Notes
2023
2022
217
79
250
60
Current liabilities
Trade and other liabilities
Financial liabilities – borrowings
Financial liabilities – derivative financial instruments
3,091
3,177
Income tax liabilities
22
35
32
499
143
41
135
25
57
43
581
133
41
139
Provisions for other liabilities and charges
Liabilities classified as held for sale
Total liabilities
Net assets
4,294
4,506
Equity
947
91
975
105
Share capital
Share premium
Treasury shares
1,050
1,139
Capital redemption reserve
16
15
312
2,431
16
9
558
2,802
Fair value reserve
Translation reserve
Retained earnings
Total equity attributable to equity holders of the company
Non-controlling interest
2
16
Total equity
24
18
16
7
23
32
27
27
28
(1,275)
(1,254)
(67)
(5)
(32)
(25)
(86)
(11)
(43)
(85)
(1,404)
(1,479)
–
–
(2,739)
3,988
(2,909)
4,415
174
2,642
(19)
33
(12)
411
745
3,974
14
3,988
179
2,633
(15)
28
(13)
709
881
4,402
13
4,415
6,727
7,324
These financial statements have been approved for issue by the Board of Directors on
13 March 2024 and signed on its behalf by
Sally Johnson
Chief Financial Officer
Pearson plc
Registered number: 00053723
(1,094)
(1,144)
(38)
(46)
(44)
(15)
(98)
(1,335)
(54)
(37)
(61)
(14)
(120)
(1,430)
10
10
11
12
13
16
25
15
7
22
20
21
22
16
17
32
18
16
13
25
23
24
Annual report and accounts 2023 Pearson plc 148
Financial statements Consolidated statement of changes in equity
Year ended 31 December 2023
All figures in £ millions
At 1 January 2023
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Equity-settled transactions
Taxation on equity-settled transactions
Issue of ordinary shares under share option schemes
Buyback of equity
Purchase of treasury shares
Release of treasury shares
Transfer of gain on disposal of FVOCI investment
Dividends
At 31 December 2023
All figures in £ millions
At 1 January 2022
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Equity-settled transactions
Taxation on equity-settled transactions
Issue of ordinary shares under share option schemes
Buyback of equity
Purchase of treasury shares
Release of treasury shares
Transfer of gain on disposal of FVOCI investment
Dividends
At 31 December 2022
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair
value
reserve
Translation
reserve
Retained
earnings
Total
Non-
controlling
interest
Total
equity
179
–
–
–
–
–
–
(5)
–
–
–
–
174
2,633
–
–
–
–
–
9
–
–
–
–
–
2,642
(15)
–
–
–
–
–
–
–
(35)
31
–
–
(19)
28
–
–
–
–
–
–
5
–
–
–
–
33
(13)
–
1
1
–
–
–
–
–
–
–
–
(12)
709
–
(298)
(298)
–
–
–
–
–
–
–
–
411
881 4,402
378
378
(362)
(65)
16
313
40
40
1
1
9
–
(304)
(304)
(35)
–
–
(31)
–
–
(155)
(155)
745 3,974
Equity attributable to equity holders of the company
13 4,415
380
(363)
17
40
1
9
(304)
(35)
–
–
(155)
14 3,988
2
(1)
1
–
–
–
–
–
–
–
–
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair value
reserve
Translation
reserve
Retained
earnings
Total
Non-
controlling
interest
Total
equity
189
–
–
–
–
–
–
(10)
–
–
–
–
179
2,626
–
–
–
–
–
7
–
–
–
–
–
2,633
(12)
–
–
–
–
–
–
–
(37)
34
–
–
(15)
18
–
–
–
–
–
–
10
–
–
–
–
28
(4)
–
18
18
–
–
–
–
–
–
(27)
–
(13)
386
–
323
323
–
–
–
–
–
–
–
–
709
1,067 4,270
242
242
388
47
630
289
38
38
3
3
7
–
(353)
(353)
(37)
–
–
(34)
–
27
(156)
(156)
881 4,402
10 4,280
244
2
390
2
634
4
38
–
3
–
7
–
(353)
–
(37)
–
–
–
–
–
(1)
(157)
13 4,415
Annual report and accounts 2023 Pearson plc 149
Financial statements Consolidated statement of changes in equity continued
Year ended 31 December 2023
All figures in £ millions
At 1 January 2021
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Equity-settled transactions
Issue of ordinary shares under share option schemes
Buyback of equity
Purchase of treasury shares
Release of treasury shares
Transfer of gain on disposal of FVOCI investment
Dividends
At 31 December 2021
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair value
reserve
Translation
reserve
Retained
earnings
Total
Non-
controlling
interest
188
–
–
–
–
1
–
–
–
–
–
189
2,620
–
–
–
–
6
–
–
–
–
–
2,626
(7)
–
–
–
–
(1)
–
(16)
12
–
–
(12)
18
–
–
–
–
–
–
–
–
–
–
18
(4)
–
4
4
–
–
–
–
–
(4)
–
(4)
388
–
(2)
(2)
–
–
–
–
–
–
–
386
922 4,125
177
177
99
97
276
274
28
28
6
–
–
–
(16)
–
–
(12)
–
4
(149)
(149)
1,067 4,270
9
1
–
1
–
–
–
–
–
–
–
10
Total
equity
4,134
178
99
277
28
6
–
(16)
–
–
(149)
4,280
Annual report and accounts 2023 Pearson plc 150
Financial statements Consolidated cash flow statement
Year ended 31 December 2023
All figures in £ millions
Notes
2023
2022
2021
All figures in £ millions
Notes
2023
2022
2021
Cash flows from financing activities
Proceeds from issue of ordinary shares
Buyback of equity
Purchase of treasury shares
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Dividends paid to company’s shareholders
Dividends paid to non-controlling interest
Net cash used in financing activities
Effects of exchange rate changes on cash and
cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
27
27
28
9
17
9
(186)
(35)
285
(285)
(84)
(154)
–
(450)
(8)
(234)
543
309
7
(353)
(37)
–
(171)
(93)
(156)
(1)
(804)
36
(394)
937
543
6
–
(16)
–
(167)
(88)
(149)
–
(414)
(8)
(176)
1,113
937
Cash flows from operating activities
Profit before tax
Net finance costs/(income)
Depreciation and impairment – PPE, investment
property and assets held for sale
Amortisation and impairment – software
Amortisation and impairment – acquired
intangible assets
Other net gains and losses
Product development capital expenditure
Amortisation and impairment – product development
Share-based payment costs
Change in inventories
Change in trade and other receivables
Change in trade and other liabilities
Change in provisions for other liabilities and charges
Other movements
Net cash generated from operations
Interest paid
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Acquisition of joint ventures and associates
Purchase of investments
Purchase of property, plant and equipment and
investment property
Purchase of intangible assets
Disposal of subsidiaries, net of cash disposed
Proceeds from disposal of investments
Proceeds from disposal of property, plant
and equipment
Lease receivables repaid including disposals
Interest received
Dividends from joint ventures and associates
Net cash (used in)/generated from
investing activities
30
31
493
5
90
123
46
13
(300)
284
40
9
(24)
(20)
(61)
(16)
682
(60)
(97)
525
(171)
(5)
(8)
(30)
(96)
(38)
7
5
15
20
–
(301)
323
(52)
136
125
54
(24)
(357)
303
35
(34)
33
(84)
50
19
527
(57)
(109)
361
(228)
(5)
(12)
(57)
(90)
333
17
14
18
22
1
13
177
6
241
117
50
(63)
(287)
279
28
22
(71)
37
14
20
570
(67)
(177)
326
(55)
(10)
(4)
(64)
(112)
83
48
–
21
13
–
(80)
Annual report and accounts 2023 Pearson plc 151
Financial statements Notes to the consolidated financial statements
General information
Pearson plc (‘the company’), its subsidiaries and associates (together ‘the Group’) are international
businesses covering educational courseware, assessments and services.
The company is a public limited company incorporated in England and Wales and domiciled in the
United Kingdom. The address of its registered office is 80 Strand, London WC2R 0RL.
The company has its primary listing on the London Stock Exchange and is also listed on the New
York Stock Exchange.
These consolidated financial statements were approved for issue by the Board of Directors on
13 March 2024.
1a. Accounting policies
The material accounting policies applied in the preparation of these consolidated financial
statements are set out below.
Basis of preparation
These consolidated financial statements have been prepared on the going concern basis (see
note 1b) and in accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006. On 31 December 2020, IFRS Accounting Standards as
adopted by the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards (IASs), with future changes being subject to endorsement by the
UK Endorsement Board. The Group transitioned to UK-adopted IASs on 1 January 2021. This change
constituted a change in accounting framework. However, there was no impact on recognition,
measurement or disclosure as a result of the change in framework. The consolidated financial
statements have also been prepared in accordance with IFRS Accounting Standards as issued by the
International Accounting Standards Board (IASB).
These consolidated financial statements have been prepared under the historical cost convention
as modified by the revaluation of financial assets and liabilities (including derivative financial
instruments) at fair value.
2. Standards, interpretations and amendments to published standards that are not yet
effective – The following new accounting standards and amendments to new accounting standards
have been issued but are not yet effective and unless otherwise indicated, have been endorsed:
— Amendments to IAS 1 ‘Classification of liabilities as current or non-current’;
— Amendments to IAS 1 ‘Non-current liabilities with covenants’;
— Amendments to IFRS 16 ’Lease liability in a sale and leaseback’;
— Amendments to IAS 7 and IFRS 7 ‘Supplier finance arrangements’; and
— Amendments to IAS 21 ’Lack of exchangeability’ (not yet endorsed).
The Group is currently assessing the impact of the above changes, but they are not expected to
have a material impact. The Group does not plan to early adopt any of the above new accounting
standards or amendments. The Group has not adopted any other standard, amendment or
interpretation that has been issued but is not yet effective.
3. Critical accounting assumptions and judgements – The preparation of financial statements
in conformity with IFRS requires the use of certain critical accounting assumptions and estimates.
It also requires management to exercise its judgement in the process of applying the Group’s
accounting policies.
All assumptions and estimates constitute management’s best judgement at the date of the financial
statements, however, in the future, actual experience may deviate from these estimates and
assumptions.
The areas requiring a higher degree of judgement or complexity, or areas where assumptions and
estimates have a significant risk of resulting in material adjustments to the carrying value of assets
and liabilities within the consolidated financial statements are:
— Intangible assets: acquired intangible assets
— Taxation
— Employee benefits: pensions
— Property, plant and equipment: right-of-use assets
— Classification as discontinued operations
These accounting policies have been consistently applied to all years presented, unless
otherwise stated.
The key judgements and key areas of estimation are set out below, as well as in the relevant
accounting policies and in the notes to the accounts where appropriate.
1. Interpretations and amendments to published standards effective 2023 – The Group
adopted IFRS 17 ‘Insurance Contracts’ for the first time in 2023, but it has not had a material impact
on the consolidated financial statements. No other new standards were adopted in 2023.
A number of other new pronouncements are effective from 1 January 2023 but they do not have
a material impact on the consolidated financial statements. Additional disclosure has been given
where relevant.
Annual report and accounts 2023 Pearson plc 152
Financial statements KJ Key judgements
— The application of tax legislation in relation to provisions for uncertain tax positions. See
notes 7 and 34.
— The Group is eligible to receive the surplus associated with the UK Group Pension Plan in
recognising a pension asset. See note 25.
— The results and cash flows of businesses disposed do not meet the criteria to be classified
and presented as discontinued operations. See note 31.
KE Key areas of estimation
— The valuation of acquired intangible assets recognised on the acquisition of a business. The
valuation is based on a number of assumptions, including estimations of future business
performance. See notes 11 and 30.
— The level of provisions required in relation to uncertain tax positions is complex and each
matter is separately assessed. The estimation of future settlement amounts is based on a
number of factors including the status of the unresolved matter, clarity of legislation, range
of possible outcomes and the statute of limitations. See notes 7 and 34.
— The determination of the pension cost and defined benefit obligation of the Group’s
defined benefit pension schemes depends on the selection of certain assumptions, which
include the discount rate, inflation rate, salary growth and longevity. See note 25.
— The recoverability of right-of-use assets and in particular assumptions related to the ability
to sublease vacant leased assets in the future. See note 10.
The Group has assessed the impact of the uncertainty presented by the volatile macro-economic
and geo-political environment on the financial statements, specifically considering the impact on key
judgements and significant estimates along with other areas of increased risk as follows:
— Financial instruments and hedge accounting; and
— Translation methodologies.
No material accounting impacts relating to the areas assessed above were recognised in the year.
The Group will continue to monitor these areas of increased judgement, estimation and risk.
Consolidation
1. Business combinations – The acquisition method of accounting is used to account for
business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets
transferred, the liabilities incurred and the equity interest issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred in the operating expenses line of
the income statement. Identifiable assets acquired and identifiable liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date.
The determination of fair values often requires significant judgements and the use of estimates,
and, for material acquisitions, the fair value of the acquired intangible assets is determined by an
independent valuer. The excess of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the acquisition date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill (note 30).
See the ‘Intangible assets’ policy for the accounting policy on goodwill. If this is less than the fair
value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is
recognised directly in the income statement.
On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the
acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s
net assets.
IFRS 3 ‘Business Combinations’ has not been applied retrospectively to business combinations
before the date of transition to IFRS.
Management exercises judgement in determining the classification of its investments in its
businesses, in line with the following:
2. Subsidiaries – Subsidiaries are entities over which the Group has control. The Group controls
an entity when the Group is exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
3. Transactions with non-controlling interests – Transactions with non-controlling interests
that do not result in loss of control are accounted for as equity transactions, that is, as transactions
with the owners in their capacity as owners. Any surplus or deficit arising from disposals to a
non-controlling interest is recorded in equity. For purchases from a non-controlling interest, the
difference between consideration paid and the relevant share acquired of the carrying value of the
subsidiary is recorded in equity.
Annual report and accounts 2023 Pearson plc 153
Financial statements Notes to the consolidated financial statements continued
1a. Accounting policies continued
Consolidation continued
4. Joint ventures and associates – Joint ventures are entities in which the Group holds an interest
on a long-term basis and has rights to the net assets through contractually agreed sharing of
control. Associates are entities over which the Group has significant influence but not the power to
control the financial and operating policies, generally accompanying a shareholding of between 20%
and 50% of the voting rights. Ownership percentage is likely to be the key indicator of investment
classification; however, other factors, such as Board representation, may also affect the accounting
classification. Judgement is required to assess all of the qualitative and quantitative factors which
may indicate that the Group does, or does not, have significant influence over an investment.
Investments in joint ventures and associates are accounted for by the equity method and are initially
recognised at the fair value of consideration transferred.
3. Group companies – The results and financial position of all Group companies that have a
functional currency different from the presentation currency are translated into the presentation
currency as follows:
— Assets and liabilities are translated at the closing rate at the date of the balance sheet;
— Income and expenses are translated at average exchange rates; and
— All resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in
foreign entities, and of borrowings and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. The Group treats specific inter-company loan
balances, which are not intended to be repaid in the foreseeable future, as part of its net investment.
When a foreign operation is sold, such exchange differences are recognised in the income statement
as part of the gain or loss on sale.
The Group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised
in the income statement and its share of post-acquisition movements in reserves is recognised
in reserves.
The principal overseas currency for the Group is the US dollar. The average rate for the year
against sterling was $1.25 (2022: $1.24; 2021: $1.38) and the year-end rate was $1.27 (2022: $1.21;
2021: $1.35).
The Group’s share of its joint ventures’ and associates’ results is recognised as a component of
operating profit as these operations form part of the core business of the Group and are an integral
part of existing wholly-owned businesses. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. When the Group’s share of losses in a joint venture
or associate equals or exceeds its interest in the joint venture or associate, the Group does not
recognise further losses unless the Group has incurred obligations or made payments on behalf of
the joint venture or associate.
Unrealised gains and losses on transactions between the Group and its joint ventures and associates
are eliminated to the extent of the Group’s interest in these entities.
5. Contribution of a subsidiary to an associate or joint venture – The gain or loss resulting
from the contribution or sale of a subsidiary to an associate or a joint venture is recognised in full.
Where such transactions do not involve cash consideration, significant judgements and estimates
are used in determining the fair values of the consideration received.
Foreign currency translation
1. Functional and presentation currency – Items included in the financial statements of each of
the Group’s entities are measured using the currency of the primary economic environment in which
the entity operates (the functional currency). The consolidated financial statements are presented in
sterling, which is the company’s functional and presentation currency.
2. Transactions and balances – Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the income statement, except when deferred in equity as qualifying net
investment hedges.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Cost includes the
original purchase price of the asset and the costs attributable to bringing the asset to its working
condition for intended use. Land is not depreciated. Depreciation on other assets is calculated using
the straight-line method to allocate their cost less their residual values over their estimated useful
lives as follows:
Buildings (freehold):
Buildings (leasehold):
Plant and equipment:
20–50 years
over the period of the lease
3–10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
The carrying value of an asset is written down to its recoverable amount if the carrying value of the
asset is greater than its estimated recoverable amount.
Investment property
Properties that are no longer occupied by the Group and which are held for operating lease
rental are classified as investment property. Investment property assets are carried at cost less
accumulated depreciation and any recognised impairment in value. The depreciation policies for
investment property are consistent with those described for property, plant and equipment.
Annual report and accounts 2023 Pearson plc 154
Financial statements Intangible assets
1. Goodwill – For the acquisition of subsidiaries made on or after 1 January 2010, goodwill
represents the excess of the consideration transferred, the amount of any non-controlling interest in
the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over
the fair value of the identifiable net assets acquired. For the acquisition of subsidiaries made from
the date of transition to IFRS to 31 December 2009, goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the net identifiable assets acquired. Goodwill
on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates
and joint ventures represents the excess of the cost of an acquisition over the fair value of the
Group’s share of the net identifiable assets acquired.
Goodwill on acquisitions of associates and joint ventures is included in investments in associates and
joint ventures.
Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment
losses. An impairment loss is recognised to the extent that the carrying value of goodwill exceeds
the recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and
value in use. These calculations require the use of estimates in respect of forecast cash flows and
discount rates and management judgement in respect of cash-generating unit (CGU) and
cost allocation.
Goodwill is allocated to aggregated CGUs for the purpose of impairment testing. The allocation is
made to those aggregated CGUs that are expected to benefit from the business combination in
which the goodwill arose. Where there are changes to CGUs, goodwill is reallocated to the new CGUs
and aggregation of CGUs using a relative value method.
4. Acquired intangible assets – Acquired intangible assets include customer lists, contracts and
relationships, trademarks and brands, publishing rights, content, technology and software rights.
These assets are capitalised on acquisition at cost and included in intangible assets. Intangible assets
acquired in material business combinations are capitalised at their fair value as determined with
the support of a third-party specialist. The valuation of these assets are a key source of estimation
uncertainty. Intangible assets are amortised over their estimated useful lives of between two and
twenty years, using an amortisation method that reflects the pattern of their consumption. The
assets are assessed for impairment triggers on an annual basis or when triggering events occur.
5. Product development assets – Product development assets represent direct costs incurred
in the development of educational programmes and titles prior to their publication. These costs
are recognised as current intangible assets where the title will generate probable future economic
benefits and costs can be measured reliably.
Product development assets relating to content are amortised upon publication of the title over
estimated economic lives of seven years or less, being an estimate of the expected operating
lifecycle of the title, with a higher proportion of the amortisation taken in the earlier years. Product
development assets relating to product platforms are amortised over ten years or less, being an
estimate of the expected useful life.
The assessment of the useful economic life and the recoverability of product development assets
involves judgement and is based on historical trends and management estimation of future
potential sales.
Product development assets are assessed for impairment triggers on an annual basis or when
triggering events occur. The carrying amount of product development assets is set out in note 20.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
The investment in product development assets has been disclosed as part of net cash generated
from operating activities in the cash flow statement.
2. Acquired software – Software separately acquired for internal use is capitalised at cost. Software
acquired in material business combinations is capitalised at its fair value, with the valuation being
determined with the support of a third-party specialist. The assets are assessed for impairment
triggers on an annual basis or when triggering events occur. Acquired software is amortised on a
straight-line basis over its estimated useful life of between three and eight years.
3. Internally developed software – Internal and external costs incurred during the preliminary
stage of developing computer software for internal use are expensed as incurred. Internal and
external costs incurred to develop computer software for internal use during the application
development stage are capitalised if the Group expects economic benefits from the development.
Capitalisation in the application development stage begins once the Group can reliably measure
the expenditure attributable to the software development and has demonstrated its intention to
complete and use the software. Internally developed software is amortised on a straight-line basis
over its estimated useful life of between three and ten years. The assets are assessed for impairment
triggers on an annual basis or when triggering events occur.
Other financial assets
Other financial assets are non-derivative financial assets classified and measured at estimated
fair value.
Marketable securities and cash deposits with maturities of greater than three months are classified
and subsequently measured at fair value through profit and loss (FVTPL). They are remeasured at
each balance sheet date by using market data and the use of established valuation techniques.
Any movement in the fair value is immediately recognised in finance income or finance costs in
the income statement.
Annual report and accounts 2023 Pearson plc 155
Financial statements Notes to the consolidated financial statements continued
1a. Accounting policies continued
Other financial assets continued
Investments in the equity instruments of other entities are classified and subsequently measured at
fair value through other comprehensive income (FVOCI) where the investment meets the definition
of equity from the perspective of the issuer. Changes in fair value are recorded in equity in the fair
value reserve via other comprehensive income. On subsequent disposal of the asset, the net fair
value gains or losses are reclassified from the fair value reserve to retained earnings. Any dividends
received from equity investments classified as FVOCI are recognised in the income statement unless
they represent a return of capital.
Investments in funds which have a limited life and those investment which do not meet the criteria
to be classified as FVOCI are classified and subsequently measured at fair value through profit and
loss (FVTPL). Changes in fair value are included within finance income or finance costs within the
income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the
weighted average method or an approximation thereof, such as the first in first out (FIFO) method.
The cost of finished goods and work in progress comprises raw materials, direct labour, other direct
costs and related production overheads. Net realisable value is the estimated selling price in the
ordinary course of business, less estimated costs necessary to make the sale. Provisions are made
for slow-moving and obsolete stock.
Royalty advances
Advances of royalties to authors are included within trade and other receivables when the advance is
paid less any provision required to adjust the advance to its net realisable value. The realisable value
of royalty advances relies on a degree of management estimation in determining the profitability of
individual author contracts. If the estimated realisable value of author contracts is overstated, this
will have an adverse effect on operating profits as these excess amounts will be written off.
The recoverability of royalty advances is based upon an annual detailed management review
of the age of the advance, the future sales projections for new authors and prior sales history of
repeat authors.
The royalty advance is expensed at the contracted or effective royalty rate as the related revenues
are earned. Royalty advances which will be consumed within one year are held in current assets.
Royalty advances which will be consumed after one year are held in non-current assets.
Short-term deposits and marketable securities with maturities of greater than three months do
not qualify as cash and cash equivalents and are reported as financial assets. Movements on these
financial assets are classified as cash flows from financing activities in the cash flow statement where
these amounts are used to offset the borrowings of the Group or as cash flows from investing
activities where these amounts are held to generate an investment return.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Where any Group company purchases the company’s equity share capital (treasury shares), the
consideration paid, including any directly attributable incremental costs, net of income taxes, is
deducted from equity attributable to the company’s equity holders until the shares are cancelled,
reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable transaction costs and the related income tax effects, is
included in equity attributable to the company’s equity holders.
Ordinary shares purchased under a buyback programme are cancelled and the nominal value of the
shares is transferred to a capital redemption reserve.
Borrowings
Borrowings are recognised initially at fair value, which is proceeds received net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost with any difference between the
proceeds (net of transaction costs) and the redemption value being recognised in the income
statement over the period of the borrowings using the effective interest method. Accrued interest is
included as part of borrowings.
Where a debt instrument is in a fair value hedging relationship, an adjustment is made to its carrying
value in the income statement to reflect the hedged risk.
Where a debt instrument is in a net investment hedge relationship, gains and losses on the effective
portion of the hedge are recognised in other comprehensive income.
Derivative financial instruments
Derivatives are recognised at fair value and remeasured at each balance sheet date. The fair value
of derivatives is determined by using market data and the use of established estimation techniques
such as discounted cash flow and option valuation models.
Cash and cash equivalents
Cash and cash equivalents in the cash flow statement include cash in hand, deposits held on call with
banks, other short-term highly liquid investments with original maturities of three months or less,
and bank overdrafts. Bank overdrafts are included in borrowings in current liabilities in the
balance sheet.
For derivatives in a hedge relationship, the currency basis spread is excluded from the designation
as a hedging instrument.
Changes in the fair value of derivatives are recognised immediately in finance income or costs.
However, derivatives relating to borrowings and certain foreign exchange contracts are designated
as part of a hedging transaction.
Annual report and accounts 2023 Pearson plc 156
Financial statements The accounting treatment is summarised as follows:
Reporting of gains
and losses on effective
portion of the hedge
Recognised in other
comprehensive income.
Typical reason for designation
Net investment hedge
The derivative creates a foreign
currency liability which is used
to hedge changes in the value of
a subsidiary which transacts in
that currency.
Fair value hedges
The derivative transforms the
interest profile on debt from
fixed rate to floating rate.
Changes in the value of the debt
as a result of changes in interest
rates and foreign exchange
rates are offset by equal and
opposite changes in the value of
the derivative. When the Group’s
debt is swapped to floating
rates, the contracts used are
designated as fair value hedges.
Non-hedge accounted contracts
These are not designated as
hedging instruments. Typically,
these are short-term contracts
to convert debt back to fixed
rates or foreign exchange
contracts where a natural
offset exists.
Gains and losses on the
derivative are reported in
finance income or finance
costs. However, an equal and
opposite change is made to
the carrying value of the debt
(a ‘fair value adjustment’) with
the benefit/cost reported in
finance income or finance
costs. The net result should be
a zero charge on a perfectly
effective hedge.
Recognised in the income
statement. No hedge
accounting applies.
Reporting of gains and losses on
disposal
On the disposal of foreign
operations or subsidiaries,
the accumulated value of
gains and losses reported
in other comprehensive
income is transferred to the
income statement.
If the debt and derivative are
disposed of, the value of the
derivative and the debt (including
the fair value adjustment) are
reset to zero. Any resultant gain
or loss is recognised in finance
income or finance costs.
Taxation
Current tax is recognised at the amounts expected to be paid or recovered under the tax rates and
laws that have been enacted or substantively enacted at the balance sheet date.
Deferred income tax is provided, using the balance sheet liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income
tax is determined using tax rates and laws that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax asset is realised or the
deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax is provided in respect of the undistributed earnings of subsidiaries, associates
and joint ventures other than where it is intended that those undistributed earnings will not be
remitted in the foreseeable future.
Current and deferred tax are recognised in the income statement, except when the tax relates to
items charged or credited directly to equity or other comprehensive income, in which case the tax
is also recognised in equity or other comprehensive income. 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 is subject to income taxes in numerous jurisdictions. Significant judgement is required
in determining the estimates in relation to the worldwide provision for income taxes. There are
many transactions and calculations for which the ultimate tax determination is uncertain during
the ordinary course of business. The Group recognises tax provisions when it is considered
probable that there will be a future outflow of funds to a tax authority. The provisions are based
on management’s best judgement of the application of tax legislation and best estimates of future
settlement amounts (see note 7). Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
Deferred tax assets and liabilities require management judgement and estimation in determining
the amounts to be recognised. In particular, when assessing the extent to which deferred tax assets
should be recognised, significant judgement is used when considering the timing of the recognition
and estimation is used to determine the level of future taxable income together with any future tax
planning strategies (see note 13).
Annual report and accounts 2023 Pearson plc 157
Financial statements Notes to the consolidated financial statements continued
1a. Accounting policies continued
Employee benefits
1. Pensions – The retirement benefit asset and obligation recognised in the balance sheet represent
the net of the present value of the defined benefit obligation and the fair value of plan assets at the
balance sheet date. The defined benefit obligation is calculated annually by independent actuaries
using the projected unit credit method. The present value of the defined benefit obligation is
determined by discounting estimated future cash flows using yields on high-quality corporate bonds
which have terms to maturity approximating the terms of the related liability.
When the calculation results in a potential asset, the recognition of that asset is limited to the asset
ceiling – that is the present value of any economic benefits available in the form of refunds from the
plan or a reduction in future contributions. Management uses judgement to determine the level of
refunds available from the plan in recognising an asset.
The determination of the pension cost and defined benefit obligation of the Group’s defined benefit
pension schemes depends on the selection of certain assumptions, which include the discount rate,
inflation rate, salary growth and longevity (see note 25).
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to equity in other comprehensive income in the period in
which they arise. The service cost, representing benefits accruing over the year, is included in the
income statement as an operating cost. Net interest is calculated by applying the discount rate to the
net defined benefit obligation and is presented as finance costs or finance income.
Obligations for contributions to defined contribution pension plans are recognised as an operating
expense in the income statement as incurred.
2. Other post-retirement obligations – The expected costs of post-retirement medical and
life assurance benefits are accrued over the period of employment, using a similar accounting
methodology as for defined benefit pension obligations. The liabilities and costs relating to significant
other post-retirement obligations are assessed annually by independent qualified actuaries.
3. Share-based payments – The fair value of options or shares granted under the Group’s share
and option plans is recognised as an employee expense after taking into account the Group’s best
estimate of the number of awards expected to vest. Fair value is measured at the date of grant
and is spread over the vesting period of the option or share. The fair value of the options granted
is measured using an option model that is most appropriate to the award. The fair value of shares
awarded is measured using the share price at the date of grant unless another method is more
appropriate. Any proceeds received are credited to share capital and share premium when the
options are exercised.
Provisions
Provisions are recognised if the Group has a present legal or constructive obligation as a result
of past events; it is more likely than not that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated. Provisions are discounted to present value
where the effect is material.
Revenue recognition
The Group’s revenue streams are courseware, assessments and services. Courseware includes
curriculum materials provided in book form and/or via access to digital content. Assessments
includes test development, processing and scoring services provided to governments, educational
institutions, corporations and professional bodies. Services includes the operation of schools,
colleges and universities, as well as the provision of online learning services in partnership with
universities and other academic institutions.
Revenue is recognised in order to depict the transfer of control of promised goods and services
to customers in an amount that reflects the consideration to which we expect to be entitled in
exchange for those goods and services. This process begins with the identification of our contract
with a customer, which is generally through a master services agreement, customer purchase order,
or a combination thereof. Within each contract, judgement is applied to determine the extent to
which activities within the contract represent distinct performance obligations to be delivered and
the total amount of transaction price to which we expect to be entitled.
The transaction price determined is net of sales taxes, rebates and discounts, and after eliminating
sales within the Group. Where a contract contains multiple performance obligations such as the
provision of supplementary materials or online access with textbooks, revenue is allocated on
the basis of relative standalone selling prices. Where a contract contains variable consideration,
significant estimation is required to determine the amount to which the Group is expected to
be entitled.
Revenue is recognised on contracts with customers when or as performance obligations are
satisfied, which is the period or the point in time where control of goods or services transfers to
the customer. Judgement is applied to determine first whether control passes over time and if not,
then the point in time at which control passes. Where revenue is recognised over time, judgement
is used to determine the method which best depicts the transfer of control. Where an input
method is used, significant estimation is required to determine the progress towards delivering
the performance obligation.
If a contract with a customer is modified (change of scope, price or both), management uses
judgement to determine whether changes to existing rights and obligations should be accounted
for as a separate contract or as an adjustment to the existing contracts. Adjustments to existing
contracts are either accounted for prospectively or through a cumulative catch up adjustment.
Revenue from the sale of books is recognised net of a provision for anticipated returns. This
provision is based primarily on historical return rates, customer buying patterns and retailer
behaviours including stock levels. If these estimates do not reflect actual returns in future periods
then revenue could be understated or overstated for a particular period. When the provision for
returns is remeasured at each reporting date to reflect changes in estimates, a corresponding
adjustment is also recorded to revenue.
Annual report and accounts 2023 Pearson plc 158
Financial statements The Group may enter into contracts with another party in addition to our customer. In making the
determination as to whether revenue should be recognised on a gross or net basis, the contract
with the customer is analysed to understand which party controls the relevant good or service
prior to transferring to the customer. This judgement is informed by facts and circumstances of the
contract in determining whether the Group has promised to provide the specified good or service
or whether the Group is arranging for the transfer of the specified good or service, including which
party is responsible for fulfilment, has discretion to set the price to the customer and is responsible
for inventory risk. On certain contracts, where the Group acts as an agent, only commissions and
fees receivable for services rendered are recognised as revenue. Any third-party costs incurred on
behalf of the principal that are rechargeable under the contractual arrangement are not included
in revenue.
Income from recharges of freight and other activities which are incidental to the normal revenue-
generating activities is included in other income.
Additional details on the Group’s revenue streams are also included in note 3.
Leases
1. The Group as a lessee – The Group assesses whether a contract is or contains a lease at the
inception of the contract. A contract is, or contains, a lease, if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. The Group
recognises a right-of-use asset and a lease liability at the lease commencement date with respect to
all lease arrangements except for short-term leases (leases with a lease term of 12 months or less)
and leases of low-value assets. For these leases, the lease payments are recognised as an operating
expense on a straight-line basis over the term of the lease.
The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability
plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less
any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-
line method from the commencement date to the earlier of the end of the useful life of the asset
or the end of the lease term. The Group applies IAS 36 to determine whether a right-of-use asset is
impaired. The lease liability is initially measured at the present value of the lease payments that are
not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the incremental borrowing rate. The lease liability is measured at
amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or a rate or a change in the Group’s assessment of
whether it will exercise an extension or termination option. When the lease liability is remeasured, a
corresponding adjustment is made to the right-of-use asset.
Management uses judgement to determine the lease term where extension and termination options
are available within the lease.
2. The Group as a lessor – When the Group is an intermediate lessor, the head lease and sublease
are accounted for as two separate contracts. The head lease is accounted for as per the lessee policy
above. The sublease is classified as a finance lease or operating lease by reference to the right-of-use
asset arising from the head lease. Where the lease transfers substantially all the risks and rewards
of ownership to the lessee, the contract is classified as a finance lease; all other leases are classified
as operating leases. Rental income from operating leases is recognised on a straight-line basis over
the term of the relevant lease. Amounts due from lessees under finance subleases are recognised as
receivables at the amount of the Group’s net investment in the leases discounted using the interest
rate implicit in the lease or, if that rate cannot be readily determined, the discount rate used in the
head lease.
Dividends
Final dividends are recorded in the Group’s financial statements in the period in which they are
approved by the company’s shareholders. Interim dividends are recorded when paid.
Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major
line of business or geographical area of operations that has been disposed of or meets the criteria to
be classified as held for sale.
When applicable, discontinued operations are presented in the income statement as a separate line
and are shown net of tax.
Assets and liabilities held for sale
Assets and liabilities are classified as held for sale and stated at the lower of carrying amount and fair
value less costs to sell if it is highly probable that the carrying amount will be recovered principally
through a sale transaction rather than through continuing use. No depreciation is charged in respect
of non-current assets classified as held for sale. Amounts relating to non-current assets and liabilities
held for sale are classified as discontinued operations in the income statement where appropriate.
Trade receivables
Trade receivables are stated at fair value after provision for bad and doubtful debts. Provisions for
bad and doubtful debts are based on the expected credit loss model. The ‘simplified approach’ is
used with the expected loss allowance measured at an amount equal to the lifetime expected credit
losses. A provision for anticipated future sales returns is included within trade and other liabilities
(also see Revenue recognition policy).
Annual report and accounts 2023 Pearson plc 159
Financial statements Notes to the consolidated financial statements continued
1b. Going concern
In assessing the Group’s ability to continue as a going concern for the period to 30 June 2025, the
Board reviewed management’s five-year plan, which was used as the base case. The review included
available liquidity throughout the period and headroom against the Group’s two main covenants,
which require net debt to EBITDA to be a maximum of four times and interest cover to be at least
three times.
At 31 December 2023, the Group had available liquidity of c.£1bn, comprising central cash balances
and its undrawn $1bn Revolving Credit Facility (RCF). The company's subsidiary Pearson Funding plc
has a debt maturity of €300m due within the going concern assessment period and it is assumed
that this is refinanced ahead of time with a £250m bond or bank facility. In both the base case and
severe but plausible scenario, the business has sufficient liquidity to repay this amount and does
not rely on this refinancing in order to remain a going concern. Significant liquidity and covenant
headroom was observed throughout the assessment period in this base model.
A severe but plausible scenario was analysed, where the Group is impacted by all principal risks
in both 2024 and 2025, adjusted for probability weighting as well as other significant risks. For this
and other downside scenarios tested, the net impact of the risks modelled was to reduce adjusted
operating profit by around 40% in each year. Even under a severe downside case, the company
would maintain comfortable liquidity headroom and sufficient headroom against covenant
requirements during the period under assessment. That is, even before modelling the mitigating
effect of actions that management would take if these downside risks were to crystalise.
A reverse stress test was performed to identify the reduction in profit required to exhaust liquidity
at 30 June 2025. The model showed that operating losses were required in both 2024 and 2025 to
exhaust liquidity.
The Directors have confirmed that there are no material uncertainties that cast doubt on the Group’s
going concern status and that they have a reasonable expectation that the Group has adequate
resources to continue in operational existence beyond 30 June 2025. The consolidated financial
statements have therefore been prepared on a going concern basis.
1c. Climate change
The Group has assessed the impacts of climate change on the Group’s financial statements,
including our commitment to reducing our absolute scope 1, 2 and 3 carbon emissions by 50% by
2030, and the actions the Group intends to take to achieve those targets. The assessment did not
identify any material impact on the Group’s significant judgements or estimates at 31 December
2023, or the assessment of going concern for the period to June 2025 and the Group’s viability over
the next five years. Specifically, we have considered the following areas:
— The physical and transition risks associated with climate change; and
— The actions the Group is taking to meet its carbon reduction and net zero targets.
As a result, the Group has assessed the impacts of climate change on the financial statements, and
in particular, on the following areas:
— The impact on the Group’s future cash flows, and the resulting impact that such adjustments
to our future cash flows would have on the outcome of the annual impairment testing of our
goodwill balances (see note 11 for further details), the recognition of deferred tax assets and our
assessment of going concern;
— The carrying value of the Group’s assets, in particular the recoverable amounts of inventories,
product development assets, intangible assets and property, plant and equipment; and
— Any changes to our estimates of the useful economic lives of product development assets,
intangible assets and property, plant and equipment.
2. Segment information
There are five main global business divisions, which are each considered separate operating
segments for management and reporting purposes, as these are reported separately to the Group’s
chief operating decision-maker, the Pearson Executive Management team. These five divisions are
Assessment & Qualifications, Virtual Learning, English Language Learning, Higher Education and
Workforce Skills. In addition, the International Courseware local publishing businesses, which were
under strategic review, were being managed as a separate division, known as Strategic Review. In
2022, some of the businesses from the Strategic Review division were disposed of (see note 31).
The following describes the principal activities of the five main operating segments:
— Assessment & 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, TalentLens, Faethm, Credly, Pearson College and Apprenticeships;
and
— Higher Education – US, Canadian and International Higher Education Courseware businesses.
The Pearson Executive Management team evaluates and allocates resources to operating segments,
and evaluates the performance of each of its operating segments on the basis of adjusted operating
profit, which is considered to be the segment measure.
Annual report and accounts 2023 Pearson plc 160
Financial statements All figures in £ millions
Sales
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
Strategic Review
Total sales
All figures in £ millions
Adjusted operating profit
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
Strategic Review
Total adjusted operating profit
A reconciliation of the operating segments’ measure of profit to profit for the year is provided below:
Adjusted operating profit
Cost of major restructuring
Property charges
Intangible charges
UK pension discretionary increases
Other net gains and losses
Operating profit
Finance costs
Finance income
Profit before tax
Income tax
Profit for the year
2023
1,559
616
415
220
855
9
3,674
2023
350
76
47
(8)
110
(2)
573
2023
573
–
(11)
(48)
–
(16)
498
(81)
76
493
(113)
380
2022
1,444
820
321
204
898
154
3,841
2022
258
70
25
(3)
91
15
456
2022
456
(150)
–
(56)
(3)
24
271
(71)
123
323
(79)
244
2021
1,238
713
238
172
849
218
3,428
2021
219
32
15
27
73
19
385
2021
385
(214)
–
(51)
–
63
183
(68)
62
177
1
178
6
6
7
There were no material inter-segment sales in either 2023, 2022 or 2021.
Corporate costs are allocated to business segments on an appropriate basis depending on the nature of the cost and therefore the total segment result is equal to the Group operating profit.
Annual report and accounts 2023 Pearson plc 161
Financial statements Notes to the consolidated financial statements continued
2. Segment information continued
Adjusted operating profit is shown in the above tables as it is the key financial measure used by management to evaluate the performance of the Group. The measure also enables 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, certain property charges, major restructuring programmes and certain other items that are also not representative of underlying performance, which are explained below and reconciled within
this note.
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. In 2021, restructuring costs of £214m mainly related to the impairment of right-
of-use property assets, the write-down of product development assets and staff redundancies. The costs of these restructuring programmes are significant enough to exclude from the adjusted operating
profit measure so as to better highlight the underlying performance (see note 4).
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 disposals partially offset by
additional amortisation from recent acquisitions. In 2021, intangible charges were £51m. In all three years, there were no impairment charges.
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 to the
gain on the disposal of the POLS business and gains related to the release of accruals and a provision related to historical acquisitions, offset by losses on the disposal of Pearson College and costs related to
current and prior year disposals and acquisitions. 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. Other net gains and losses in 2021 largely related to the disposal of PIHE and the disposal of the K12
Sistemas business in Brazil offset by costs related to the acquisition of Faethm and the wind down of certain strategic review businesses.
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.
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 revenue. The Group’s definition of adjusted operating profit may not be comparable to other similarly titled measures reported by other companies.
The Group operates in the following main geographic areas:
All figures in £ millions
UK
Other European countries
US
Canada
Asia Pacific
Other countries
Total
2023
450
130
2022
424
192
Sales
2021
355
249
Non-current assets
2023
518
179
2022
527
192
2,504
2,668
2,182
2,320
2,333
83
386
121
110
290
157
111
359
172
186
186
20
243
200
17
3,674
3,841
3,428
3,409
3,512
Sales are allocated based on the country in which the customer is located. This does not differ materially from the location where the order is received. The geographical split of non-current assets is based
on the subsidiary’s country of domicile. This is not materially different to the location of the assets. Non-current assets comprise investment property, property, plant and equipment, intangible assets and
investments in joint ventures and associates.
Annual report and accounts 2023 Pearson plc 162
Financial statements 3. Revenue from contracts with customers
The following tables analyse the Group’s revenue streams. Courseware includes curriculum materials provided in book form and/or via access to digital content. Assessments includes integrated test
development, processing and scoring services provided to governments, educational institutions, corporations and professional bodies. Services includes the operation of schools, colleges and universities, as
well as the provision of online learning services in partnership with universities and other academic institutions.
The Group derived revenue from the transfer of goods and services over time and at a point in time in the following major product lines:
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time
Total
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time
Total
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review
57
20
77
198
1,284
1,482
–
–
–
1,559
–
–
–
–
–
–
–
616
616
616
135
15
150
5
204
209
35
21
56
415
2
–
2
5
170
175
–
43
43
220
254
595
849
–
–
–
–
6
6
855
9
–
9
–
–
–
–
–
–
9
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review
64
21
85
169
1,190
1,359
–
–
–
1,444
–
–
–
–
–
–
–
820
820
820
110
25
135
5
138
143
29
14
43
321
2
–
2
14
142
156
–
46
46
204
302
588
890
–
–
–
–
8
8
898
148
6
154
–
–
–
–
–
–
154
2023
Total
457
630
1,087
208
1,658
1,866
35
686
721
3,674
2022
Total
626
640
1,266
188
1,470
1,658
29
888
917
3,841
Annual report and accounts 2023 Pearson plc 163
Financial statements Notes to the consolidated financial statements continued
3. Revenue from contracts with customers continued
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time
Total
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review
62
30
92
173
973
1,146
–
–
–
1,238
–
–
–
–
–
–
–
713
713
713
109
26
135
6
72
78
22
3
25
238
–
–
–
16
119
135
–
37
37
172
283
558
841
–
–
–
–
8
8
180
17
197
–
–
–
14
7
21
849
218
3,428
2021
Total
634
631
1,265
195
1,164
1,359
36
768
804
a. Nature of goods and services
The following is a description of the nature of the Group’s performance obligations within contracts
with customers broken down by revenue stream, along with significant judgements and estimates
made within each of those revenue streams.
Courseware
Revenue is generated from customers through the sales of print and digital courseware materials to
schools, bookstores and direct to individual learners. Goods and services may be sold separately or
purchased together in bundled packages. The goods and services included in bundled arrangements
are considered distinct performance obligations, except for where Pearson provides both a licence
of intellectual property and an ongoing hosting service. As the licence of intellectual property is only
available with the concurrent hosting service, the licence is not treated as a distinct performance
obligation separate from the hosting service.
The transaction price is allocated between distinct performance obligations on the basis of their
relative standalone selling prices.
In determining the transaction price, variable consideration exists in the form of discounts and
anticipated returns. Discounts reduce the transaction price on a given transaction. A provision for
anticipated returns is made based primarily on historical return rates, customer buying patterns
and retailer behaviours including stock levels. If these estimates do not reflect actual returns in
future periods then revenue could be understated or overstated for a particular period. Variable
consideration as described above is determined using the expected value approach. The sales
return liability at the end of 2023 was £31m (2022: £53m; 2021: £83m).
While payment for these goods and services generally occurs at the start of these arrangements,
the length of time between payment and delivery of the performance obligations is generally short-
term in nature or the reason for early payment relates to reasons other than financing, including
customers securing a vendor in a longer-term arrangement or the transfer of goods or services is at
the discretion of the customer. For these reasons and the use of the practical expedient on short-
term financing, significant financing components are not recognised within Courseware transactions.
Annual report and accounts 2023 Pearson plc 164
Financial statements Revenue from the sale of physical books is recognised at a point in time when control passes. This is
generally at the point of shipment when title passes to the customer, when the Group has a present
right to payment and the significant risks and rewards of ownership have passed to the customer.
Revenue from physical books sold through the direct print rental method is recognised over the
rental period, as the customer is simultaneously receiving and consuming the benefits of this rental
service through the passage of time.
Customer payments are generally defined in the contract through a payment schedule, which may
require customer acceptance for services rendered. Pearson has a history of providing satisfactory
services which are accepted by the customer. While a delay between rendering of services and
payment may exist, payment terms are within 12 months and the Group has elected to use the
practical expedient available in IFRS 15 ‘Revenue from Contracts with Customers’ and not identify a
significant financing component on these transactions.
Revenue from the sale of digital courseware products is recognised on a straight-line basis over the
subscription period, unless hosted by a third party or representative of a downloadable product, in
which case Pearson has no ongoing obligation and recognises revenue when control transfers as the
customer is granted access to the digital product.
Revenue from the sale of ‘off-the-shelf’ software is recognised on delivery or on installation of the
software where that is a condition of the contract. In certain circumstances, where installation is
complex, revenue is recognised when the customer has completed their acceptance procedures.
Assessments
Revenue is primarily generated from multi-year contractual arrangements related to large-scale
assessment delivery, such as contracts to process qualifying tests for individual professions and
government departments, and is recognised as performance occurs. Under these arrangements,
while the agreement spans multiple years, the contract duration has been determined to be each
testing cycle based on contract structure, including clauses regarding termination.
Revenue is recognised for Assessment contracts over time as the customer is benefiting as
performance takes place through a continuous transfer of control to the customer. This continuous
transfer of control to the customer is supported by clauses in the contracts which may allow the
customer to terminate for convenience, compensate us for work performed to date, and take
possession of work in process.
As control transfers over time, revenue is recognised based on the extent of progress towards
completion of the performance obligation. The selection of the method to measure progress
towards completion requires judgement and is based on the nature of the services provided.
Revenue is recognised on a percentage of costs basis, calculated using the proportion of the total
estimated costs incurred to date. The proportion of estimated costs incurred to date is primarily
based on historical cost analysis for similar groups of contracts, with regular true-ups to contract
costs throughout the contract period. Percentage of completion is used to recognise the transfer of
control of services provided as these services are not provided evenly throughout the testing cycle
and involve varying degrees of effort during the contract term.
While in some cases the customer may have the ability to terminate during the term for convenience,
significant financial or qualitative barriers exist limiting the potential for such terminations in the
middle of a testing cycle.
Losses on contracts are recognised in the period in which the loss first becomes foreseeable.
Contract losses are determined to be the amount by which estimated total costs of the contract
exceed the estimated total revenue that will be generated.
Within each testing cycle, a variety of service activities are performed such as test administration,
delivery, scoring, reporting, item development, operational services and programme management.
These services are not treated as distinct in the context of the customer contract as Pearson
provides an integrated managed service offering and these activities are accounted for together as
one comprehensive performance obligation.
Within each testing cycle, the transaction price may contain both fixed and variable amounts.
Variable consideration within these transactions primarily relates to expected testing volumes to
be delivered in the cycle. The assumptions, risks and uncertainties inherent to long-term contract
accounting can affect the amounts and timing of revenue and related expenses reported. Variable
consideration is measured using the expected value method, except where amounts are contingent
upon a future event’s occurrence, such as performance bonuses. Such event-driven contingency
payments are measured using the most likely amount approach. In estimating and constraining
variable consideration, historical experience, current trends and local market conditions are
considered. To the extent that a higher degree of uncertainty exists regarding variable consideration,
these amounts are excluded from the transaction price and recognised when the uncertainty is
reasonably removed.
In Assessments contracts driven primarily by transactions directly to end users, Pearson’s main
obligation to the customer involves test delivery and scoring. Test delivery and scoring are defined
as a single performance obligation delivered over time whether the test is subsequently manually
scored or digitally scored on the day of the assessment. Customers may also purchase print and
digital supplemental materials. Print products in this revenue stream are recognised at a point in
time when control passes to the customer upon shipment. Recognition of digital revenue will occur
based on the extent of Pearson’s ongoing hosting obligation.
Annual report and accounts 2023 Pearson plc 165
Financial statements Notes to the consolidated financial statements continued
3. Revenue from contracts with customers continued
Services
Revenue is primarily generated from multi-year contractual arrangements related to large-scale
educational service delivery to academic institutions, such as schools and higher education
universities. Under these arrangements, while an agreement may span multiple years, the contract
duration has been determined to be each academic period based on the structure of contracts,
including clauses regarding termination. While in some cases the customer may have the ability
to terminate during the term for convenience, significant financial or qualitative barriers exist
limiting the potential for such terminations in the middle of an academic period. The academic
period for this customer base is normally an academic year for schools and a semester for higher
education universities.
Within each academic period, a variety of services are provided such as programme development,
student acquisition, education technology and student support services. These services are not
distinct in the context of the customer contract as Pearson provides an integrated managed service
offering and these activities are accounted for together as a comprehensive performance obligation.
Where Services are provided to university customers, volume and transaction price are fixed at the
start of the semester. Where Services are provided to school customers, the transaction price may
contain both fixed and variable amounts which require estimation during the academic period.
Estimation is required where consideration is based upon average enrolments or other metrics
which are not known at the start of the academic year. Variable consideration is measured using
the expected value method. Historical experience, current trends, local circumstances and customer-
specific funding formulas are considered in estimating and constraining variable consideration.
To the extent that a higher degree of uncertainty exists regarding variable consideration, these
amounts are excluded from the transaction price and recognised when the uncertainty is
reasonably removed.
Customer payments are generally defined in the contract as occurring shortly after invoicing. Where
there is a longer payment term offered to a customer through a payment schedule, payment terms
are within 12 months and the Group has elected to use the practical expedient available in IFRS 15
and not identify a significant financing component on these transactions.
Revenue is recognised for Service contracts over time as the customer is benefiting as performance
takes place through a continuous transfer of control to the customer. This continuous transfer of
control to the customer is supported by clauses in the contracts which may allow the customer to
terminate for convenience, compensate for work performed to date, and take possession of work
in process.
As control transfers over time, revenue is recognised based on the extent of progress towards
completion of the performance obligation. The selection of the method to measure progress
towards completion requires judgement and is based on the nature of the products or services
provided. Within the comprehensive service obligation, the timing of services occurs relatively evenly
over each academic period and, as such, time elapsed is used to recognise the transfer of control to
the customer on a straight-line basis.
Losses on contracts are recognised in the period in which the loss first becomes foreseeable.
Contract losses are determined to be the amount by which estimated total costs of the contract
exceed the estimated total revenue that will be generated.
In cases of optional or add-on purchases, institutions may purchase physical goods priced at their
standalone value, which are accounted for separately and recognised at the point in time when
control passes to the customer upon shipment.
b. Disaggregation of revenue
The tables in notes 2 and 3 show revenue from contracts with customers disaggregated by operating
segment, geography and revenue stream. These disaggregation categories are appropriate as they
represent the key groupings used in managing and evaluating underlying performance of each of the
businesses. The categories also reflect groups of similar types of transactional characteristics, among
similar customers, with similar accounting conclusions.
c. Contract balances
Transactions within the Courseware revenue stream generally entail customer billings at or near the
contract’s inception and accordingly Courseware deferred income balances are primarily related to
subscription performance obligations to be delivered over time.
Transactions within the Assessments and Services revenue streams generally entail customer billings
over time based on periodic intervals, progress towards milestones or enrolment census dates.
As the performance obligations within these arrangements are delivered over time, the extent of
accrued income or deferred income will ultimately depend upon the difference between revenue
recognised and billings to date.
Refer to note 22 for opening and closing balances of accrued income. Refer to note 24 for opening
and closing balances of deferred income. Revenue recognised during the period from changes in
deferred income was driven primarily by the release of revenue over time from digital subscriptions.
d. Contract costs
The Group capitalises incremental costs to obtain contracts with customers where it is expected
these costs will be recoverable. Incremental costs to obtain contracts with customers are considered
those which would not have been incurred if the contract had not been obtained. For the Group,
these costs relate primarily to sales commissions. The Group has elected to use the practical
expedient as allowable by IFRS 15 whereby such costs will be expensed as incurred where the
expected amortisation period is one year or less. Where the amortisation period is greater than one
year, these costs are amortised over the contract term on a systematic basis consistent with the
transfer of the underlying goods and services within the contract to which these costs relate, which
will generally be on a rateable basis.
The Group does not recognise any material costs to fulfil contracts with customers as these types of
activities are governed by other accounting standards.
Annual report and accounts 2023 Pearson plc 166
Financial statements e. Remaining transaction price
The below table depicts the remaining transaction price on unsatisfied or partially unsatisfied performance obligations from contracts with customers.
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time – subscriptions
Products and services transferred over time – other
Total
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time – subscriptions
Products and services transferred over time – other
Total
Sales
Deferred
income
Committed
sales
Total
remaining
transaction
price
2023
2026
2024
2025
and later
457
630
208
1,658
35
660
26
3,674
Sales
626
640
188
1,470
29
351
537
3,841
–
78
1
261
–
12
16
368
–
–
–
332
–
–
234
566
–
78
1
593
–
12
250
934
–
38
1
496
–
11
250
796
–
15
–
94
–
1
–
110
–
25
–
3
–
–
–
28
2022
Deferred
income
Committed
sales
Total
remaining
transaction
price
2023
2024
2025
and later
1
95
–
262
–
20
22
400
–
–
–
472
–
7
225
704
1
95
–
734
–
27
247
1,104
1
56
–
524
–
27
247
855
–
14
–
206
–
–
–
–
25
–
4
–
–
–
220
29
Annual report and accounts 2023 Pearson plc 167
Financial statements Notes to the consolidated financial statements continued
3. Revenue from contracts with customers continued
e. Remaining transaction price continued
All figures in £ millions
Courseware
Products transferred at a point in time
Products and services transferred over time
Assessments
Products transferred at a point in time
Products and services transferred over time
Services
Products transferred at a point in time
Products and services transferred over time – subscriptions
Products and services transferred over time – other
Total
Deferred
income
Committed
sales
Total
remaining
transaction
price
2022
2023
2024
and later
2021
1
93
–
255
–
13
24
386
–
–
–
442
–
10
220
672
1
93
–
697
–
23
244
1,058
1
60
–
503
–
23
244
831
–
11
–
191
–
–
–
–
22
–
3
–
–
–
202
25
Sales
634
631
195
1,164
36
290
478
3,428
Committed sales amounts are equal to the transaction price from contracts with customers, excluding those amounts previously recognised as revenue and amounts currently recognised in deferred
income. The total of committed sales and deferred income is equal to the remaining transaction price. Time bands stated above represent the expected timing of when the remaining transaction price will be
recognised as revenue.
Annual report and accounts 2023 Pearson plc 168
Financial statements 4. Operating expenses
All figures in £ millions
2023
2022
2021
By function:
Cost of goods sold
Operating expenses
Distribution costs
Selling, marketing and product development costs
Administrative and other expenses
Restructuring costs
Other income
Total net operating expenses
Other net gains and losses
Total
1,839
2,046
1,747
47
549
767
–
(41)
1,322
16
3,177
61
564
823
150
(49)
1,549
(24)
3,571
62
521
802
214
(37)
1,562
(63)
3,246
Other income includes freight income and sublet income. Included in administrative and other
expenses are research and efficacy costs of £8m (2022: £10m; 2021: £12m). In 2023, other net gains
and losses relate to the gain on the disposal of the POLS business and gains related to the release of
accruals and a provision related to historical acquisitions, offset by losses on the disposal of Pearson
College and costs related to current and prior year disposals and acquisitions. Other net gains in
2022, largely relate to the gain on the sales of certain businesses (see note 31) and a gain arising on
a decrease in the deferred consideration payable on prior year acquisitions, offset by costs related to
disposals and acquisitions. In 2021, other net gains and losses largely relate to the sale of interests in
PIHE in South Africa and the school business in Brazil.
In 2023, there are no costs of major restructuring. In 2022, the restructuring costs of £150m mainly
related to staff redundancies and impairment of right-of-use property assets. The 2022 charge
includes the impact of updated assumptions related to the recoverability of right-of-use assets made
in 2021. In 2023, charges of £11m relating to impairments of property assets arising from the impact
of updates to assumptions made during the 2022 and 2021 restructuring programmes are included
within administrative and other expenses.
All figures in £ millions
By nature:
Royalties expensed
Other product costs
Employee benefit expense
Contract labour
Employee-related expense
Promotional costs
Depreciation and impairment of property, plant
and equipment and investment property and
assets held for sale
Amortisation and impairment of intangible
assets – product development
Amortisation and impairment of intangible
assets – software
Amortisation and impairment of intangible
assets – other
Property and facilities
Technology and communications
Professional and outsourced services
Other general and administrative costs
Costs capitalised
Other net gains and losses
Other income
Total
Notes
2023
2022
2021
164
393
194
412
185
353
5
1,467
1,605
1,365
10
20
11
11
70
60
146
90
284
123
46
82
215
443
43
(424)
16
(41)
73
52
268
136
303
125
54
102
221
501
76
(478)
(24)
(49)
69
21
239
241
279
117
50
124
215
477
58
(447)
(63)
(37)
3,177
3,571
3,246
Annual report and accounts 2023 Pearson plc 169
Financial statements Notes to the consolidated financial statements continued
4. Operating expenses continued
5. Employee information
During the year the Group obtained the following services from the Group’s auditors, which changed
to EY in 2022 and was PwC in 2021:
All figures in £ millions
Notes
2023
2022
2021
Employee benefit expense
All figures in £ millions
2023
2022
2021
Wages and salaries (including termination costs)
The audit of parent company and consolidated financial
statements
The audit of the company’s subsidiaries
Total audit fees*
Audit-related and other assurance services
Other non-audit services
Total other services
Total non-audit services
Total
8
2
10
–
–
–
–
10
6
1
7
–
–
–
–
7
5
2
7
–
–
–
–
7
Reconciliation between audit and non-audit service fees is shown below:
Social security costs
Share-based payment costs
Retirement benefits – defined contribution plans
Retirement benefits – defined benefit plans
Total
1,252
107
37
45
26
1,382
113
35
46
29
1,180
95
28
37
25
1,467
1,605
1,365
26
25
25
An additional £3m of share-based payment costs (2022: £3m; 2021: £nil) in respect of remuneration
for post-acquisition services for recent acquisitions is included in other net gains and losses in the
income statement.
The details of the emoluments of the Directors of Pearson plc are shown in the report on Directors’
remuneration.
All figures in £ millions
2023
2022
2021
Average number employed
2023
2022
2021
Group audit fees including fees for attestation under section
404 of the Sarbanes-Oxley Act
Non-audit fees
Total
10
–
10
7
–
7
7
–
7
* Includes fees in connection with the interim review, preliminary announcement and controls audit required under Section 404 of
the Sarbanes Oxley Act. In total this amounted to £1m in each of the years presented.
Employee numbers
UK
Other European countries
US
Canada
Asia Pacific
Other countries
Total
3,045
633
3,244
809
3,395
878
10,125
11,357
11,757
398
3,257
902
522
3,369
1,137
593
2,738
1,383
18,360
20,438
20,744
Annual report and accounts 2023 Pearson plc 170
Financial statements 6. Net finance costs
7. Income tax
All figures in £ millions
Notes
2023
2022
2021
All figures in £ millions
Notes
2023
2022
2021
Current tax
Charge in respect of current year
Adjustments in respect of prior years
Total current tax charge
Deferred tax
In respect of temporary differences
Other adjustments in respect of prior years
Total deferred tax (charge)/credit
13
Total tax (charge)/credit
(105)
20
(85)
(11)
(17)
(28)
(113)
(127)
18
(109)
29
1
30
(79)
(103)
(12)
(115)
103
13
116
1
Interest payable on financial liabilities at
amortised cost and associated derivatives
Interest on lease liabilities
Interest on deferred and contingent
consideration
Interest on provisions for uncertain tax positions
Fair value movement on derivatives
Finance costs
Interest receivable on financial assets at
amortised cost
Interest on lease receivables
Net finance income in respect of retirement
benefits
Fair value remeasurement of disposal proceeds
Fair value movements on investments held at
fair value
Net foreign exchange gains
Interest on provisions for uncertain tax positions
Fair value movement on derivatives
Finance income
Net finance (costs)/income
35
35
25
15
(34)
(23)
(4)
–
(20)
(81)
16
4
26
–
13
3
4
10
76
(5)
(32)
(25)
(5)
(7)
(2)
(71)
18
5
9
–
28
1
35
27
123
52
(30)
(27)
–
(11)
–
(68)
5
6
4
6
20
1
–
20
62
(6)
Net movement in the fair value of hedges is further explained in note 16. Derivatives not in a hedge
relationship include fair value movements in the interest rate and cross-currency interest rate swaps.
Annual report and accounts 2023 Pearson plc 171
Financial statements Notes to the consolidated financial statements continued
7. Income tax continued
The adjustments in respect of prior years in 2023 and 2021 primarily arise from revising the previous
year’s reported tax provision to reflect the tax returns subsequently filed, whilst in 2022, the
difference is primarily due to movements in provisions for tax uncertainties. This results in a change
between deferred and current tax as well as an absolute benefit to the total tax charge. The tax on
the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax
rate as follows:
All figures in £ millions
Profit before tax
Tax calculated at UK rate (2023: 23.5%; 2022: 19%; 2021:
19%)
Effect of overseas tax rates
Effect of UK rate change
Intra-group financing benefit
Net expense not subject to tax
Gains and losses on sale of businesses not subject to tax
Unrecognised tax losses
Benefit from changes in local tax law
Benefit from US accounting method changes
Movement in provisions for tax uncertainties – current year
Adjustments in respect of prior years – movement in
provisions for tax uncertainties
Adjustments in respect of prior years – other
Total tax (charge)/credit
UK
Overseas
Total tax (charge)/credit
Tax rate reflected in earnings
KJ Key judgements
2023
493
(116)
(1)
(1)
–
(3)
5
1
–
–
(2)
1
3
(113)
(54)
(59)
(113)
2022
323
(62)
(12)
3
–
(9)
2
3
–
–
(23)
13
6
(79)
(41)
(38)
(79)
2021
177
(34)
(24)
25
7
(9)
4
9
11
11
–
–
1
1
27
(26)
1
— The application of tax legislation in relation to provisions for uncertain tax positions.
KE Key areas of estimation
— The level of provisions required in relation to uncertain tax positions is complex and each
matter is separately assessed. The estimation of future settlement amounts is based on a
number of factors including the status of the unresolved matter, clarity of legislation, range
of possible outcomes and the statute of limitations.
Included in net expense not subject to tax are foreign taxes not creditable, the tax impact of share-
based payments and other expenses not deductible.
Factors which may affect future tax charges include changes in tax legislation, transfer
pricing regulations, the level and mix of profitability in different countries, and settlements
with tax authorities.
UK legislation in relation to Pillar Two was substantively enacted on 20 June 2023 and was 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.
The movement in provisions for tax uncertainties primarily reflects releases due to the expiry of
relevant statutes of limitation, settlement of certain audits and reassessment of existing exposures
based on currently available information and tax authority correspondence. The current tax liability
of £32m (2022: £43m; 2021: £125m) includes £27m (2022: £28m; 2021: £104m) of provisions for tax
uncertainties principally in respect of several matters in the US and the UK.
The Group is currently under audit in several countries, and the timing of any resolution of these
audits is uncertain. In most countries, tax years up to and including 2018 are now statute barred
from examination by tax authorities, however, a balance of £1m relates to certain remaining open
issues. Of the remaining £26m balance, £12m relates to 2019, £4m to 2020, £4m to 2021, £3m to
2022 and £3m to 2023. The tax authorities may take a different view from management and the final
liability may be greater or lower than provided.
The matters provided for include a provision of £63m related to the potential EU State Aid exposure
and the potential disallowance of intra-group charges. In relation to the potential EU State Aid
exposure, a payment was made in 2022 in relation to the maximum potential exposure with the
provision of £63m offset against this resulting in a £41m non-current tax debtor.
Refer to note 34 for details of other uncertain tax positions.
Net exchange differences on translation of
foreign operations
Fair value gains on other financial assets
Remeasurement of retirement benefit obligations
–
–
20
20
4
1
(12)
(7)
10
(1)
(61)
(52)
Annual report and accounts 2023 Pearson plc 172
23.0%
24.5%
(0.6)%
The tax benefit/(charge) recognised in other comprehensive income is as follows:
All figures in £ millions
2023
2022
2021
Financial statements 8. Earnings per share
10. Property, plant and equipment and investment property
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.
Certain contingently issuable shares vested on 31 December 2023 and 31 December 2022 but have
not yet been issued, these shares are considered dilutive but do not materially impact basic EPS.
All figures in £ millions
Earnings for the year
Non-controlling interest
Earnings attributable to equity shareholders
Weighted average number of shares (millions)
Effect of dilutive share options (millions)
Weighted average number of shares (millions) for diluted
earnings
Earnings per share (in pence per share)
Basic
Diluted
9. Dividends
All figures in £ millions
Final paid in respect of prior year 14.9p (2022: 14.2p; 2021:
13.5p)
Interim paid in respect of current year 7.0p (2022: 6.6p;
2021: 6.3p)
2023
380
(2)
378
711.5
5.8
2022
244
(2)
242
738.1
3.9
2021
178
(1)
177
754.1
5.0
717.3
742.0
759.1
53.1p
52.7p
32.8p
32.6p
23.5p
23.3p
2023
2022
2021
106
49
155
107
49
156
102
47
149
The Directors are proposing a final dividend in respect of the financial year ended 31 December
2023 of 15.7p per equity share which will absorb an estimated £107m of shareholders’ funds. It will
be paid on 3 May 2024 to shareholders who are on the register of members on 22 March 2024.
These financial statements do not reflect this dividend as a liability.
Right-of-use assets
Investment
property
Land and
buildings
Plant and
equipment
Land and
buildings
Plant and
equipment
Owned assets
Assets in
the course of
construction
All figures in £ millions
Cost
At 1 January 2022
Exchange differences
Additions
Transfers to
investment property
Disposals of businesses
(see note 31)
Disposals and retirements
Reclassifications and
transfers
Transfer to assets
classified as held for sale
At 31 December 2022
Exchange differences
Additions
Transfers to
investment property
Disposals of businesses
(note 31)
Disposals and retirements
Reclassifications and
transfers
Transfer to assets
classified as held for sale
–
–
22
465
30
33
174
(141)
–
(6)
–
–
190
–
24
–
–
–
–
–
(10)
(23)
–
–
354
(14)
26
–
–
–
–
At 31 December 2023
214
337
5
–
1
–
–
(1)
–
–
5
–
1
–
–
226
18
4
250
23
8
(32)
(1)
(1)
(5)
13
(45)
178
(9)
–
–
(4)
(10)
(8)
(39)
27
(3)
257
(11)
6
–
(3)
(36)
(40)
–
29
–
33
–
–
–
–
22
(1)
24
–
(2)
–
Total
975
71
101
–
(19)
(74)
(48)
1,006
(35)
81
–
(9)
(76)
–
–
967
(29)
(1)
–
–
5
10
24
(34)
–
165
–
237
–
9
Annual report and accounts 2023 Pearson plc 173
Financial statements Notes to the consolidated financial statements continued
10. Property, plant and equipment and investment property
continued
KE Key areas of estimation
All figures in £ millions
Depreciation and
impairment
At 1 January 2022
Exchange differences
Transfers to
investment property
Charge for the year
Disposals of businesses
(note 31)
Disposals and retirements
Reclassifications
and transfers
Impairment
Transfer to assets
classified as held for sale
At 31 December 2022
Exchange differences
Charge for the year
Disposals of businesses
(note 31)
Disposals and retirements
Reclassifications
and transfers
Impairment
Transfer to assets
classified as held for sale
At 31 December 2023
Carrying amounts
At 1 January 2022
At 31 December 2022
At 31 December 2023
Right-of-use assets
Investment
property
Land and
buildings
Plant and
equipment
Land and
buildings
Plant and
equipment
Owned assets
Assets in
the course of
construction
–
–
(105)
(6)
–
–
–
(19)
–
(130)
–
(5)
–
–
–
–
(269)
(17)
101
(44)
2
13
–
(15)
–
(229)
12
(38)
–
28
–
(2)
–
(135)
–
(229)
–
60
79
196
125
108
(5)
–
–
(1)
–
1
–
–
–
(5)
–
(1)
–
1
–
–
–
(5)
–
–
–
(136)
(14)
3
(13)
1
5
–
(9)
30
(133)
6
(10)
2
10
–
–
(199)
(18)
1
(26)
5
39
–
(3)
2
(199)
10
(25)
2
35
–
–
–
(125)
–
(177)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
45
40
51
58
60
29
22
9
Total
(609)
(49)
–
(90)
8
58
–
(46)
32
(696)
28
(79)
4
74
–
(2)
–
(671)
366
310
296
— The recoverability of right-of-use assets and in particular assumptions related to the ability
to sublease vacant leased assets in the future.
Depreciation expense of £40m (2022: £45m; 2021: £40m) has been included in the income
statement in cost of goods sold and £39m (2022: £45m; 2021: £55m) in operating expenses. The
impairment charge of £2m (2022: £46m; 2021: £146m) has been included within operating expenses
within the income statement.
Property, plant and equipment (including investment property) assets are assessed for impairment
triggers annually or when triggering events occur. In 2022 and 2021, as part of a major restructuring
programme, the Group continued to simplify its property portfolio, reducing the overall office space
required. All property related assets were assessed for impairment as a result of this triggering event
and impairment charges of £46m in 2022 and £141m in 2021 recognised within costs of major
restructuring (see note 4 for details). In 2023, there were impairment charges of £11m in respect of
property assets including £9m in relation to property assets which are classified as assets held for
sale. The recoverability of certain of the Group’s right-of-use assets is now based on the Group’s ability
to sublease vacant space. This involves the use of assumptions related to future subleases including
the achievable rent, lease start dates, lease incentives such as rent free periods and the discount rate
applied. Should the future sublease outcomes be more or less favourable than the assumptions used
by management this could result in additional impairment charges or reversals of impairment charges.
In 2023, total additions to right-of-use-assets are £42m (2022: £49m) including £15m (2022: £15m)
in respect of investment property.
Investment property
Buildings, or portions of buildings, that are no longer occupied by the Group and are held for
operating lease rental are classified as investment property. Investment property includes both,
right-of-use assets and owned assets. The Group recognised rental income of £6m (2022: £3m; 2021
£nil) in relation to properties classified as investment property. Investment property is measured
using the cost model. As a result of recent impairments, the fair value of investment property is
equal to the carrying value. The fair value of investment property has been determined using a
discounted cash flow model. The valuation model is internally generated but uses inputs from
external, independent property valuers, having appropriate recognised professional qualifications
and recent experience in the location and category of the property being valued. The valuations
require the application of judgement and involve the use of known inputs for existing contracted
subleases as well as assumptions related to future potential subleases including the achievable
rent, lease start dates, lease incentives such as rent free periods and the discount rate applied.
The fair value measurement of investment properties has been classified as level 3 within the fair
value hierarchy based on the inputs and valuation technique used. Should the future sublease
outcomes be more or less favourable than the assumptions used by management this could result
in additional impairment charges or reversals of impairment charges.
Annual report and accounts 2023 Pearson plc 174
Financial statements 11. Intangible assets
All figures in £ millions
Goodwill
Software
Acquired
customer lists,
contracts and
relationships
Acquired
trademarks
and brands
Acquired
publishing
rights
Other
intangibles
acquired
Total
741
80
168
20
97
5
321
4,559
44
438
Cost
At 1 January 2022
Exchange differences
Additions – internal
development
Additions – purchased
Disposals and
retirements
Acquisition of
subsidiary (note 30)
Disposal of businesses
(note 31)
Transfers
2,145
206
–
–
–
204
(75)
–
1,087
83
86
4
(131)
–
(9)
(5)
At 31 December 2022
2,480
1,115
(107)
(40)
Exchange differences
Additions – internal
development
Additions – purchased
Disposals and
retirements
Acquisition of
subsidiary (note 30)
Disposal of businesses
(note 31)
Transfers
–
–
–
61
–
–
96
–
(18)
(15)
(1)
–
82
–
–
–
37
(20)
–
838
(42)
–
–
–
(298)
–
580
–
–
–
6
(8)
–
186
(5)
–
–
(1)
6
(2)
–
–
–
–
1
–
–
103
(3)
–
–
–
–
–
–
Amortisation and
impairment
At 1 January 2022
Exchange differences
Charge for the year
Disposals and
retirements
Disposal of businesses
(note 31)
–
–
–
86
4
(131)
66
314
Transfers
(1)
–
(113)
(5)
430
5,152
(12)
(209)
–
–
96
–
(3)
(22)
29
178
–
–
(315)
(1)
At 31 December 2022
Exchange differences
Charge for the year
Disposals and
retirements
Disposal of businesses
(note 31)
Transfers
At 31 December 2023
Carrying amounts
At 1 January 2022
At 31 December 2022
At 31 December 2023
At 31 December 2023
2,434
1,137
184
100
444
4,879
All figures in £ millions
Goodwill
Software
Acquired
customer lists,
contracts and
relationships
Acquired
trademarks
and brands
Acquired
publishing
rights
Other
intangibles
acquired
Total
(657)
(620)
(138)
(65)
(33)
–
20
–
(16)
(8)
–
7
–
(96)
(5)
–
–
–
–
(279)
(1,790)
(37)
(172)
(13)
(179)
–
1
–
130
36
–
(698)
(155)
(101)
(328)
(1,975)
31
(19)
–
252
–
4
(7)
1
2
–
3
(1)
–
–
–
9
71
(19)
(169)
3
–
–
22
262
1
(49)
(125)
130
8
–
(693)
24
(123)
18
8
1
–
–
–
–
–
–
–
–
–
–
–
–
–
(765)
(434)
(155)
(99)
(335)
(1,788)
2,145
2,480
2,434
430
422
372
121
140
146
30
31
29
1
2
1
42
102
109
2,769
3,177
3,091
Annual report and accounts 2023 Pearson plc 175
Financial statements Notes to the consolidated financial statements continued
11. Intangible assets continued
The expected amortisation profile of acquired intangible assets is shown below:
Goodwill
The goodwill carrying value of £2,434m (2022: £2,480m) relates to acquisitions completed after
1 January 1998. Prior to 1 January 1998, all goodwill was written off to reserves on the date
of acquisition. For acquisitions completed between 1 January 1998 and 31 December 2002,
no value was ascribed to intangibles other than goodwill which was amortised over a period
of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the
goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill
had been restated, then a significant value would have been ascribed to other intangible assets,
which would be subject to amortisation, and the carrying value of goodwill would be significantly
lower. For acquisitions completed after 1 January 2003, value has been ascribed to other intangible
assets which are amortised.
Software and acquired intangible assets
Acquired intangible assets are valued separately for each acquisition. For material business
combinations, the valuation is determined with the support of a third-party specialist. The primary
method of valuation used is the discounted cash flow method. Acquired intangibles are amortised
either on a straight line basis or using an amortisation profile based on the projected cash flows
underlying the acquisition date valuation of the intangible asset, which generally results in a larger
proportion of amortisation being recognised in the early years of the asset’s life, depending
on the individual asset. The Group keeps the expected pattern of consumption under review. Other
intangibles acquired includes technology.
Amortisation of £37m (2022: £32m; 2021: £25m) is included in the income statement in cost of
goods sold and £132m (2022: £147m; 2021: £138m) in operating expenses. Impairment charges of
£nil (2022: nil; 2021: £4m) are included in operating expenses within the income statement.
The range of useful economic lives for each major class of intangible asset (excluding goodwill and
software) is shown below:
Class of intangible asset
Acquired customer lists, contracts and relationships
Acquired trademarks and brands
Acquired publishing rights
Other intangibles acquired
At 31 December 2023
Useful economic life
3-20 years
2-20 years
5-20 years
2-20 years
All figures in £ millions
Class of intangible asset
Acquired customer lists, contracts
and relationships
Acquired trademarks and brands
Acquired publishing rights
Other intangibles acquired
One to
five years
Six to
ten years
Eleven to
fifteen years
Sixteen to
twenty years
Total
At 31 December 2023
71
22
1
84
41
7
–
17
28
–
–
8
6
–
–
–
146
29
1
109
Impairment tests for cash-generating units (CGUs) containing goodwill
Impairment tests have been carried out where appropriate as described below. Goodwill was
allocated to CGUs, or an aggregation of CGUs, where goodwill could not be reasonably allocated to
individual business units. Impairment reviews were conducted on these CGUs as summarised below:
All figures in £ millions
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
Total
2023
Goodwill
2022
Goodwill
1,355
1,361
419
255
337
68
443
259
348
69
2,434
2,480
Goodwill is tested at least annually for impairment. The recoverable amount of each aggregated
CGU is based on the higher of value in use and fair value less costs of disposal. The impairment
assessment is based on value in use. Other than goodwill there are no intangible assets with
indefinite lives. No impairments of goodwill were recorded in 2023 or 2022.
Annual report and accounts 2023 Pearson plc 176
Financial statements KE Key areas of estimation
— The valuation of acquired intangible assets recognised on the acquisition of a business.
The valuation is based on a number of assumptions, including estimations of future
business performance. See note 30.
Determination of CGUs and reallocation of goodwill
Pearson identifies its CGUs based on its operating model and how data is collected and
reviewed for management reporting and strategic planning purposes in accordance with IAS
36 ‘Impairment of Assets’. The CGUs and CGU aggregations reflect the level at which goodwill is
monitored by management.
In 2022, the separate CGUs of China, South Africa and Canada were disposed. The goodwill related
to the Strategic Review CGU was reallocated between businesses disposed and businesses retained.
All of the goodwill related to businesses retained was transferred to the Assessment & Qualifications
CGU aggregation.
In 2023, business disposals resulted in the disposal of £53m of intangible assets (see note 31 for
further details). A relative value method was used to allocate goodwill to the disposed business in
the Virtual Learning CGU aggregation. The result of this was that no goodwill was allocated to the
disposed business.
Perpetuity growth rates – The perpetuity growth rates are based on inflation trends. A perpetuity
growth rate of 2% (2022: 2%) was used for cash flows subsequent to the approved budget period for
CGUs operating primarily in mature markets. This perpetuity growth rate is a conservative rate and
is considered to be lower than the long-term historical growth rates of the underlying territories in
which the CGU operates and the long-term growth rate prospects of the sectors in which the CGU
operates. A blended growth rate of 3.5% (2022: 3.5%) was used for cash flows subsequent to the
approved budget period for English Language Learning which has a higher exposure to emerging
markets with higher inflation. This geographically blended growth rate is generally in line with the
long-term historical growth rates in those markets.
The key assumptions used by management in setting the financial budgets were as follows:
Forecast sales growth rates – Forecast sales growth rates are based on past experience adjusted
for the strategic direction and near-term investment priorities within each CGU. Key assumptions
include growth in English Language Learning and Workforce Skills – due to product-led share
gains and contribution from new acquisitions, recovery in Higher Education, growth in Virtual
Learning – albeit impacted by school churn in Virtual Schools in the short term, and steady growth
in Assessments and Qualifications. The sales forecasts use average nominal growth rates of low-mid
single digits for mature businesses in mature markets and double digit growth where there has been
significant organic and/or inorganic investment.
Operating profits – Operating profits are forecast based on historical experience of operating
margins, adjusted for the impact of changes to product costs, strategic developments and new
business cases to the extent they have been formally approved prior to the balance sheet date.
Management applies judgement in allocating corporate costs on a reasonable and consistent basis
in order to determine operating profit at a CGU level.
Key assumptions
For the purpose of estimating the value in use of the CGUs, management has used an income
approach based on present value techniques. The calculations for all CGUs use cash flow projections
based on financial budgets approved by management covering a five-year period.
Management have considered the impact of climate change risks (including physical and transition
risks and the costs associated with achieving the Group's net zero commitment) and are satisfied
that any related costs will not materially impact the Group’s profit forecasts or impairment
judgements at 31 December 2023.
The key assumptions used by management in the value in use calculations were:
Discount rates – The discount rates are based on the Group’s weighted average cost of capital,
where the cost of equity is calculated based on the risk-free rate of government bonds, adjusted
for a risk premium to reflect the increased risk in investing in equities. Where CGUs cover multiple
territories, a blended risk-free rate is used. Base discount rates were assessed as reflecting
underlying economic conditions, and so no further risk premiums were considered necessary. The
average pre-tax discount rates range from 10.4% to 13.0% (2022: pre-tax 11.6% to 12.0%).
Annual report and accounts 2023 Pearson plc 177
Financial statements Notes to the consolidated financial statements continued
11. Intangible assets continued
13. Deferred income tax
Key assumptions continued
The table below shows the key assumptions used by management in the value in use calculations.
All figures in £ millions
Deferred income tax assets
2023
2022
Deferred income tax liabilities
Discount rate
Perpetuity
growth rate
Discount rate
Perpetuity
growth rate
Net deferred income tax (liability)/asset
2023
2022
35
(46)
(11)
57
(37)
20
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
10.8%
11.0%
13.0%
10.4%
10.7%
2.0%
2.0%
3.5%
2.0%
2.0%
12.0%
11.9%
11.8%
11.6%
12.0%
2.0%
2.0%
3.5%
2.0%
2.0%
Sensitivities
Impairment testing for the year ended 31 December 2023 did not find any of the CGUs to be
sensitive to reasonably possible changes in key assumptions.
12. Investments in joint ventures and associates
The amounts recognised in the balance sheet are as follows:
All figures in £ millions
Associates
Total
The amounts recognised in the income statement are as follows:
All figures in £ millions
Associates
Total
2023
22
22
2022
25
25
2023
2022
1
1
1
1
The Group has no material associates or joint ventures. The largest associate is a 49% interest in The
Egyptian International Publishing Company-Longman, which had a carrying value of £13m as at 31
December 2023 (2022: £9m).
Other than the £5m payment in respect of Academy of Pop disclosed in note 36, there were no
material transactions with associates or joint ventures during 2023 or 2022.
Substantially all of the deferred income tax assets are expected to be recovered after more
than one year. The net deferred income tax liability of £11m (2022: deferred tax asset of £20m;
2021: deferred tax asset of £17m) includes £23m (2022: £19m; 2021: £nil) of provisions for tax
uncertainties principally in respect of several matters in the US and the UK.
Deferred income tax assets and liabilities shall be offset when there is a legally enforceable right to
offset current income tax assets with current income tax liabilities and where the deferred income
taxes relate to the same fiscal authority.
At 31 December 2023, the Group has gross tax losses for which no deferred tax asset is recognised
of £1,029m (2022: £547m). The expiry date and key geographic split of these losses is set out in the
following table.
Year ended
31 December 2023
Tax losses expiring:
Within 10 years
Within 10-20 years
Available indefinitely
Total
Year ended
31 December 2022
Tax losses expiring:
Within 10 years
Within 10-20 years
Available indefinitely
Total
Gross
Tax effected
UK
US
Other
Total
UK
US
Other
Total
–
–
168
168
437
143
48
628
34
–
199
233
471
143
415
1,029
–
–
42
42
91
7
2
100
9
–
65
74
100
7
109
216
Gross
Tax effected
UK
US
Other
Total
UK
US
Other
Total
–
–
166
166
3
30
33
104
30
137
–
104
214
244
410
547
–
–
41
41
–
5
2
7
10
–
68
78
10
5
111
126
Annual report and accounts 2023 Pearson plc 178
Financial statements
The increase in unrecognised tax losses in the US is principally due to the crystallisation of
a capital loss on disposal during the year which has not been recognised for tax purposes.
Other unrecognised tax losses includes £155m gross (2022: £140m) and £53m tax effected
(2022: £48m) relating to Brazil.
Other gross deductible temporary differences for which no deferred tax asset is recognised total
£201m (2022: £218m). This includes £196m (2022: £193m) in respect of interest limitations. The
amount of temporary differences associated with subsidiaries for which no deferred tax has been
provided totals £268m (2022: £275m).
Deferred income tax assets of £18m (2022: £14m) have been recognised in countries that reported
a tax loss in either the current or preceding year. This primarily arises in respect of tax losses in
Brazil, India and Australia. It is considered more likely than not that there will be sufficient future
taxable profits to realise these assets.
The recognition of the deferred income tax assets is supported by management’s forecasts of the
future profitability of the relevant countries. In some cases deferred income tax assets are forecast
to be recovered through taxable profits over a period that exceeds five years. Management consider
these forecasts are sufficiently reliable to support the recovery of the assets. Where there are
insufficient forecasts of future profits, deferred income tax assets have not been recognised.
The movement in deferred income tax assets and liabilities during the year is as follows:
All figures in £ millions
Deferred income tax
assets/(liabilities)
At 1 January 2022
Exchange differences
Acquisitions
and disposals of
subsidiaries
Income statement
benefit/(charge)
Tax charge in OCI/
equity
At 31 December 2022
Exchange differences
Acquisitions
and disposals of
subsidiaries
Income statement
benefit/(charge)
Tax charge in OCI/
equity
At 31 December 2023
Trading
losses
Accruals
and other
provisions
Retirement
benefit
obligations
Deferred
revenue
Goodwill
and
intangibles
Interest
limitations
Other
Total
82
–
7
37
64
7
–
(108)
2
–
(4)
(9)
4
130
(1)
–
67
(3)
(12)
(127)
(1)
52
6
–
5
–
63
(3)
(178)
(21)
55
6
50
4
17
4
(21)
–
(12)
(26)
14
(6)
(7)
30
–
(206)
9
–
55
(2)
3
38
1
(5)
20
–
(3)
6
–
–
(26)
–
–
(23)
(25)
(11)
(6)
(17)
71
(19)
(21)
(28)
–
101
–
59
20
(114)
–
43
–
(152)
–
34
–
18
20
(11)
Other deferred income tax items include temporary differences in respect of right-of-use assets
(deferred tax asset of £54m, with an offsetting deferred tax liability of £42m), and accelerated capital
allowances of £11m.
Annual report and accounts 2023 Pearson plc 179
Financial statements Notes to the consolidated financial statements continued
14. Classification of financial instruments
The accounting classification of each class of the Group’s financial assets, and their carrying values, is as follows:
All figures in £ millions
Investments in unlisted securities
Cash and cash equivalents
Derivative financial instruments
Trade receivables
Investment in finance lease receivable
Other receivable
Total financial assets
Fair value
Amortised cost
Fair value
Amortised cost
2023
2022
Fair value
through other
comprehensive
income
Notes
Fair value
through profit
and loss
Fair value
– hedging
instrument
Financial
assets
Total
carrying
value
Fair value
through other
comprehensive
income
Fair value
through profit
and loss
Fair value
– hedging
instrument
Financial assets
Total
carrying
value
15
17
16
22
22
23
–
–
–
–
–
120
31
1
–
–
–
23
152
–
–
47
–
–
–
47
–
281
–
695
100
12
143
312
48
695
100
12
24
–
–
–
–
–
109
40
5
–
–
–
1,088
1,310
24
154
–
–
54
–
–
–
54
–
518
–
825
121
3
133
558
59
825
121
3
1,467
1,699
The carrying value of the Group’s financial assets is equal to, or approximately equal to, the market value. The other receivable relates to the deferred consideration receivable on the disposal of POLS.
The accounting classification of each class of the Group’s financial liabilities, together with their carrying values and market values, is as follows:
All figures in £ millions
Derivative financial instruments
Trade payables
Deferred and contingent consideration
Borrowings due within one year
Borrowings due after more than one year
Total financial liabilities
Fair value
Amortised
cost
Fair value
Amortised cost
2023
Fair value
through profit
and loss
Fair value
– hedging
instrument
Other
financial
liabilities
Total
carrying value
Total
market
value
Fair value
through profit
and loss
Fair value
– hedging
instrument
Notes
Other
financial
liabilities
16
24
24
18
18
(7)
–
(57)
–
–
(64)
(36)
–
–
–
–
(36)
–
(317)
–
(67)
(1,094)
(1,478)
(43)
(317)
(57)
(67)
(1,094)
(1,578)
(43)
(317)
(57)
(67)
(1,062)
(1,546)
(2)
–
(79)
–
–
(81)
(63)
–
–
–
–
(63)
–
(348)
–
(86)
(1,144)
(1,578)
2022
Total
market
value
(65)
(348)
(79)
(86)
(1,096)
(1,674)
Total
carrying
value
(65)
(348)
(79)
(86)
(1,144)
(1,722)
The market value of leases approximates their book value.
Annual report and accounts 2023 Pearson plc 180
Financial statements The key inputs into the discounted cash flow model are the estimates of adjusted EBITDA for the
next 6 years and the estimate of the valuation of the business thereafter. Reasonably possible
changes in assumptions for the inputs into the model would not have a material impact on the
carrying value of the contingent consideration, and therefore sensitivities have not been disclosed.
The deferred consideration payable in respect of prior year acquisitions is measured as the
net present value of the expected cash flows. The movement in the fair value of the deferred
consideration payable is shown in the table below:
The movements in fair values of level 3 financial assets measured at fair value, are shown in the
table below:
All figures in £ millions
At 1 January
2023
2022
Exchange differences
Fair value measurement
As shown above, the Group’s derivative assets and liabilities, unlisted securities, marketable
securities and deferred and contingent consideration are held at fair value. Financial instruments
that are measured subsequently to initial recognition at fair value are grouped into levels 1 to 3,
based on the degree to which the fair value is observable, as follows:
Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets
for identical assets or liabilities. The Group’s bonds valued at £611m (2022: £610m) and money
market funds of £31m (2022: £40m) included within cash and cash equivalents are classified as
level 1.
Level 2 fair value measurements are those derived from inputs, other than quoted prices included
within level 1, that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices). The Group’s derivative assets valued at £48m (2022: £59m) and derivative
liabilities valued at £43m (2022: £65m) are classified as level 2.
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs). The
Group’s investments in unlisted securities are valued at £143m (2022: £133m), deferred and
contingent consideration of £57m (2022: £79m) and the other receivable of £12m (2022: £3m) are
classified as level 3.
All figures in £ millions
At 1 January
Exchange differences
Acquisition of investments and other receivable
Repayments
Disposal of investments
Fair value movements – OCI
Fair value movements – income statement
At 31 December
Other
receivable
Investments
in unlisted
securities
133
(5)
8
–
(7)
1
13
Total
136
(5)
20
(3)
(7)
1
13
Total
200
10
19
(92)
(48)
18
29
143
155
136
3
–
12
(3)
–
–
–
12
The fair value of the investments in unlisted securities is determined by reference to the financial
performance of the underlying asset, recent funding rounds and amounts realised on the sale of
similar assets.
The other receivable relates to £12m (2022: £nil) in respect of the contingent consideration
receivable for the sale of the POLS business, which comprises a 27.5% share of positive adjusted
EBITDA in each calendar year for six years and 27.5% of the proceeds received by the purchaser
in relation to any future monetisation event. The valuation of the deferred consideration has been
determined on the basis of a discounted cash flow model, and valued by a third-party specialist.
All figures in £ millions
At 1 January
Exchange differences
Acquisitions
Fair value movements – income statement
Repayments
At 31 December
15. Other financial assets
Acquisition of investments
Disposal of investments
Fair value movements – OCI
Fair value movements – income statement
At 31 December
Other financial assets are unlisted securities of £143m (2022: £133m), of which £23m (2022:
£24m) are classified at fair value through other comprehensive income (FVOCI), with the remaining
£120m (2022: £109m) mainly relating to investments in funds, being required to be held at fair
value through profit and loss (FVTPL). The assets, which are not held for trading, relate to the
Group’s interests in new and innovative educational ventures across the world. These are strategic
investments and where permitted, the Group made the election to classify such investments as
FVOCI on initial recognition of the assets. None of the investments are individually significant to the
financial statements and therefore sensitivities have not been provided.
During the year, the Group disposed of investments that were classified as FVOCI for £3m (2022:
£31m). In 2022, these disposals predominantly related to the Group’s investment in Credly, where
the Group acquired the remainder of the share capital and so the investment was treated as
disposed as the company is now fully consolidated. The cumulative loss on disposal was £2m (2022:
£23m gain).
Annual report and accounts 2023 Pearson plc 181
2023
(79)
3
–
(4)
23
(57)
2023
133
(5)
8
(7)
1
13
143
2022
(44)
(7)
(42)
4
10
(79)
2022
113
9
12
(48)
18
29
133
Financial statements Notes to the consolidated financial statements continued
16. Derivative financial instruments and hedge accounting
The Group’s approach to the management of financial risks is set out in note 19. The Group’s
outstanding derivative financial instruments are as follows:
2023
2022
The Group’s treasury policies only allow derivatives to be traded where the objective is risk
mitigation. These are then designated for hedge accounting using the following criteria:
— Where interest rate and cross-currency interest rate swaps are used to convert fixed rate debt to
floating and we expect to receive inflows equal to the fixed rate debt interest, these are classified
as fair value hedges;
— Where derivatives are used to create a future foreign currency exposure to provide protection
Gross
notional
amounts
Assets
Liabilities
All figures in £ millions
Interest rate derivatives – in a
fair value hedge relationship
Interest rate derivatives – not in
a hedge relationship
Cross-currency rate derivatives
– in a hedge relationship
Cross-currency rate derivatives
– not in a hedge relationship
FX derivatives – in a hedge
relationship
FX derivatives – not in a hedge
relationship
Total
Analysed as expiring:
In less than one year
Later than one year and not
later than five years
Total
174
356
352
87
420
526
1,915
1,047
868
1,915
–
14
26
–
7
1
48
16
32
48
Gross
notional
amounts
177
260
83
–
355
573
1,448
(5)
(1)
(31)
(1)
–
(5)
(43)
(5)
1,028
(38)
(43)
420
1,448
Assets
Liabilities
against currency movements affecting the foreign currency movements of an overseas
investment, these are designated as a net investment hedge;
–
19
34
–
1
5
59
16
43
59
(11)
–
(43)
–
(9)
(2)
(65)
(11)
(54)
(65)
— All other derivatives are not designated in a hedge relationship.
The Group’s fixed rate GBP debt is held as fixed rate instruments at amortised cost.
The Group uses a combination of interest rate and cross-currency swaps to convert its €300m debt.
Receive Notional
Receive coupon
FX rate
€100m
€181m
1.375% GBPEUR: 1.1295
GBPUSD: 1.206
1.375%
€19m
1.375%
GBPUSD: 1.206
Notional
£87m
£157m
£16m
Pay coupon
3.51%
3.402%
USD Libor
+1.36%
To create the synthetic debt positions outlined above, the Group converts €100m to £87m at a rate
of 3.51% this is not in a hedge relationship. The remaining €200m of its EUR fixed debt is swapped to
EUR floating debt via interest rate swap contracts that are in a designated fair value hedge. The EUR
floating debt is then converted to GBP floating debt via cross-currency swap contracts that are in a
designated fair value hedge. The GBP floating debt is then converted to USD floating debt through
cross-currency swap contracts that are in a designated net investment hedging relationship. £157m
of the EUR debt is finally converted to USD fixed debt via interest rate swap contracts that are not in
a hedge relationship.
Annual report and accounts 2023 Pearson plc 182
Financial statements Additionally, the Group uses FX derivatives including forwards, collars, cross-currency swaps and
swaptions to create synthetic USD debt as a hedge of its USD assets and to achieve reasonable
certainty of USD currency conversion rates, in line with the Group’s FX hedging policy. As at
31 December 2023, the Group held FX outrights with a notional of $280m at an average rate of
GBP:USD rate of 1.25.
A foreign currency exposure arises from foreign exchange fluctuations on translation of the Group’s
euro debt into GBP. The hedged risk is the risk of changes in the GBP:EUR spot rate that will result
in changes in the value of the euro debt when translated into GBP. The hedged items are a portion
of the Group’s euro bonds. The hedging instruments are floating to floating cross-currency swaps
which mitigates an exposure to the effect of euro strengthening against GBP within the hedge item.
The Group’s portfolio of derivatives is diversified by maturity, counterparty and type. Natural offsets
between transactions within the portfolio and the designation of certain derivatives as hedges
significantly reduce the risk of income statement volatility. The sensitivity of the portfolio to changes
in market rates is set out in note 19.
In 2021, the Group transitioned GBP exposures from GBP LIBOR to SONIA. In 2022, for USD
exposures the Group transitioned its RCF from USD LIBOR to SOFR. The Group’s risk management
strategy has not changed as a result of IBOR Reform and it is considered to be immaterial to the
financial statements.
Fair value hedges
The Group uses interest rate swaps and cross-currency swaps as fair value hedges of the Group’s
euro issued debt.
Interest rate exposure arises from movements in the fair value of the Group’s euro debt attributable
to movements in euro interest rates. The hedged risk is the change in the euro bonds fair value
attributable to interest rate movements. The hedged items are the Group’s euro bonds which are
issued at a fixed rate. The hedging instruments are fixed to floating euro interest rate swaps where
the Group receives fixed interest payments and pays three-month Euribor.
As the critical terms of the interest rate swaps match the bonds, there is an expectation that the
value of the hedging instrument and the value of the hedged item will move equally in the opposite
direction as a result of movements in the zero coupon Euribor curve. Potential sources of hedge
ineffectiveness would be material changes in the credit risk of swap counterparties or a reduction or
modification in the hedge item.
As the critical terms of the cross-currency swap match the bonds, there is an expectation that
the value of the hedging instrument and the value of the hedged item move in the opposite
direction as a result of movements in the EUR:GBP exchange rate. Potential sources of hedge
ineffectiveness are a reduction or modification in the hedged item or a material change in the credit
risk of swap counterparties.
The Group held the following instruments to hedge exposures to changes in interest rates and
foreign currency risk associated with borrowings:
All figures in £ millions
2023
Carrying
amount of
hedging
instruments
Change in fair
value of hedging
instrument used to
determine hedge
ineffectiveness
Nominal
amounts
of hedging
instruments
Derivative financial instruments for interest rate risk
Derivative financial instruments for currency risk
(6)
26
5
(7)
174
174
2022
All figures in £ millions
Carrying
amount of
hedging
instruments
Change in fair
value of hedging
instrument used to
determine hedge
ineffectiveness
Nominal
amounts
of hedging
instruments
Derivative financial instruments for interest rate risk
Derivative financial instruments for currency risk
(11)
33
(16)
9
177
266
Annual report and accounts 2023 Pearson plc 183
Financial statements Notes to the consolidated financial statements continued
16. Derivative financial instruments and hedge accounting
continued
The amounts at the reporting date relating to items designated as hedge items were as follows:
Hedge ineffectiveness would arise if the value of the hedged items fell below the value of the hedging
instruments; however, this is unlikely as the value of the Group’s assets denominated in USD is
significantly greater than the proposed net investment programme.
The amounts related to items designated as hedging instruments were as follows:
2023
Accumulated
amount of fair
value hedge
adjustments
on the hedged
item included
in the carrying
amount
Change in
fair value
of hedged
item used to
determine
hedge
ineffectiveness
Carrying
amount of
hedged items
Line item
in profit or
loss that
includes hedge
ineffectiveness
Hedge
ineffectiveness
All figures in £ millions
Interest rate risk
Financial liabilities – borrowings
(169)
6
Currency risk
Financial liabilities – borrowings
(169)
n/a
5
5
1
–
Finance
costs
n/a
2022
All figures in £ millions
Derivative financial
instruments
Financial liabilities –
borrowings
Accumulated
amount of fair
value hedge
adjustments
on
the hedged
item included
in the carrying
amount
Change in
fair value
of hedged
item used to
determine
hedge
ineffectiveness
Carrying
amount of
hedged items
Line item
in profit or
loss that
includes hedge
ineffectiveness
Hedge
ineffectiveness
All figures in £ millions
Derivative financial
instruments
Financial liabilities –
borrowings
All figures in £ millions
Interest rate risk
Financial liabilities – borrowings
Currency risk
Financial liabilities – borrowings
(167)
(167)
11
n/a
15
(14)
Finance
costs
n/a
(1)
–
Hedge of net investment in a foreign operation
A foreign currency exposure arises from the translation of the Group’s net investments in its
subsidiaries. The hedged risk is the risk of changes in the currency spot rate (eg GBP:USD) that
will result in changes in the value of the Group's net investment in its overseas subsidiaries when
translated into GBP. The hedged items are a portion of the Group's assets which are denominated
in USD. The hedging instruments are debt and derivative financial instruments, including cross-
currency swaps, FX forwards and FX collars, which mitigates an exposure to the effect of a weakening
USD on the hedged item against GBP. It is expected that the change in value of each of these items
will mirror each other as there is a clear and direct economic relationship between the hedging
instrument and the hedged item in the hedge relationship.
Carrying
amount of
hedging
instruments
Change in
value of hedging
instrument used to
determine hedge
ineffectiveness
Nominal
amounts
of hedging
instruments
Hedging
gains/(losses)
recognised
in OCI
Hedge
ineffectiveness
recognised in
profit or loss
2023
(24)
–
26
–
599
–
26
–
–
–
2022
Carrying
amount of
hedging
instruments
Change in
value of hedging
instrument used to
determine hedge
ineffectiveness
Nominal
amounts
of hedging
instruments
Hedging
gains/(losses)
recognised
in OCI
Hedge
ineffectiveness
recognised in
profit or loss
(50)
(89)
(31)
(5)
172
(88)
(31)
(5)
–
–
Included in the translation reserve is a cost of hedging reserve relating to the time value of FX
collars which is not separately disclosed due to materiality. The value of that reserve will decrease
over the life of the hedge transaction. The balance as at 1 January and 31 December 2023 was £nil
(2022: £1m). During the year £nil (2022: £2m) of hedging gains were recycled to the profit and loss.
Annual report and accounts 2023 Pearson plc 184
Financial statements Offsetting arrangements with derivative counterparties
All of the Group’s derivative financial instruments are subject to enforceable netting arrangements
with individual counterparties, allowing net settlement in the event of default of either party.
Derivative financial assets and liabilities subject to offsetting arrangements are as follows:
Short-term bank deposits are invested with banks and earn interest at the prevailing short-term
deposit rates.
At the end of 2023, the currency split of cash and cash equivalents was US dollar 16% (2022: 31%),
sterling 11% (2022: 6%), and other 73% (2022: 63%).
Gross
derivative
assets
Gross
derivative
liabilities
2023
Net
derivative
assets/
liabilities
Gross
derivative
assets
Gross
derivative
liabilities
2022
Net
derivative
assets/
liabilities
26
22
48
(14)
(29)
12
(7)
(43)
5
30
29
59
(17)
(48)
13
(19)
(65)
(6)
All figures in £ millions
Counterparties in an
asset position
Counterparties in a
liability position
Total as presented
in the balance
sheet
Offset arrangements in respect of cash balances are described in note 17.
Counterparty exposure from all derivatives is managed, together with that from deposits and bank
account balances, within credit limits that reflect published credit ratings and by reference to other
market measures (e.g. market prices for credit default swaps) to ensure that there is no significant
exposure to any one counterparty’s credit risk.
The Group has no material embedded derivatives that are required to be separately accounted for
in accordance with IFRS 9 ‘Financial Instruments’.
17. Cash and cash equivalents (excluding overdrafts)
All figures in £ millions
Cash at bank and in hand
Short-term bank deposits
Cash and cash equivalents
All figures in £ millions
Cash and cash equivalents
Bank overdrafts
Cash and cash equivalents in the cash flow statement
2023
312
–
312
2023
312
(3)
309
2022
269
289
558
2022
558
(15)
543
Cash and cash equivalents have fair values that approximate to their carrying value due to their
short-term nature.
The Group has certain cash pooling arrangements in US dollars, sterling and Canadian dollars where
both the company and the bank have a legal right of offset. The company presents these amounts
net in the balance sheet where legal right of offset exists and the company has the intention to settle
net if required. As at 31 December 2023, £23m (2022: £5m) of financial liabilities were presented net
within financial assets.
18. Financial liabilities – borrowings
The Group’s current and non-current borrowings are as follows:
All figures in £ millions
Non-current
1.375% Euro notes 2025 (nominal amount €300m)
3.75% GBP notes 2030 (nominal amount £350m)
Lease liabilities (see note 35)
Current (due within one year or on demand)
Lease liabilities (see note 35)
Overdrafts
Total borrowings
2023
2022
257
354
483
257
353
534
1,094
1,144
64
3
67
71
15
86
1,161
1,230
Included in the non-current borrowings above is £10m of accrued interest (2022: £10m). No accrued
interest is included in the current borrowings above (2022: £nil). The maturities of the Group’s non-
current borrowings are as follows:
All figures in £ millions
Between one and two years
Between two and five years
Over five years
2023
70
419
605
2022
72
442
630
1,094
1,144
Annual report and accounts 2023 Pearson plc 185
Financial statements Notes to the consolidated financial statements continued
18. Financial liabilities – borrowings continued
19. Financial risk management
The carrying amounts and market values of borrowings are as follows:
All figures in £ millions
1.375% Euro notes
2025
3.75% GBP notes
2030
Overdrafts
2023
Effective
Carrying
interest rate
value
Market
value
Effective
interest rate
Carrying
value
1.44%
3.93%
n/a
257
354
3
614
252
327
3
582
1.44%
3.93%
n/a
257
353
15
625
2022
Market
value
252
310
15
577
The Group’s approach to the management of financial risks together with sensitivity analyses of its
financial instruments is set out below.
Treasury policy
Pearson’s treasury policies set out the Group’s principles for addressing key financial risks including
capital risk, liquidity risk, foreign exchange risk and interest rate risk, and sets out measurable targets
for each. The Audit Committee receives quarterly reports incorporating compliance with measurable
targets and reviews and approves any changes to treasury policies annually.
The treasury function is permitted to use derivatives where their use reduces a risk or allows a
transaction to be undertaken more cost effectively. Derivatives permitted include swaps, forwards
and collars to manage foreign exchange and interest rate risk, with foreign exchange swap and
forward contracts the most commonly executed. Speculative transactions are not permitted.
The market values stated above are based on clean market prices at the year end or, where these
are not available, on the quoted market prices of comparable debt issued by other companies. The
effective interest rates above relate to the underlying debt instruments.
Capital risk
The Group’s objectives when managing capital are:
The carrying amounts of the Group’s borrowings before the effect of derivatives (see notes 16 and
19 for further information on the impact of derivatives) are denominated in the following currencies:
— To maintain a strong balance sheet and a solid investment grade rating;
— To continue to invest in the business organically and through acquisitions; and
All figures in £ millions
US dollar
Sterling
Euro
Other
2023
217
667
261
16
2022
276
672
262
20
— To have a sustainable and progressive dividend policy.
At 31 December 2023 the Group and its bonds were rated BBB- (stable outlook) with Fitch Ratings
Limited and Baa3 (stable outlook) with Moody’s Investor Services.
Net debt
The Group’s net debt position is set out below:
The Group had $1bn (£0.8bn) of undrawn capacity on its committed borrowing facilities as at
31 December 2023 (2022: $1.19bn (£0.9bn) undrawn). In addition, there are a number of short-
term facilities that are utilised in the normal course of business. All of the Group’s borrowings are
unsecured. In respect of lease obligations, the rights to the leased asset revert to the lessor in the
event of default.
Cash and cash equivalents
Overdrafts
Derivative financial instruments
Bonds
1,161
1,230
All figures in £ millions
Investment in finance lease receivable
Lease liabilities
Net debt
2023
312
(3)
5
(611)
100
(547)
(744)
2022
558
(15)
(6)
(610)
121
(605)
(557)
Annual report and accounts 2023 Pearson plc 186
Financial statements Interest and foreign exchange rate management
The Group’s principal currency exposure is to the US dollar which represents 68% of the
Group’s sales.
The Group’s long-term debt is primarily held in US dollars to provide a natural hedge of this
exposure, which is achieved through issued US dollar debt or converting euro debt to US dollars
using cross-currency swaps, forwards and collars. As at 31 December 2023 and 2022, the Group’s
debt of £1,161m (2022: £1,230m) is all held at fixed rates.
See note 16 for details of the Group’s hedging programme which addresses interest rate risk and
foreign currency risk.
Overseas profits are converted to sterling to satisfy sterling cash outflows such as dividends at the
prevailing spot rate at the time of the transaction. To the extent the Group has sufficient sterling,
US dollars may be held as dollar cash to provide a natural offset to the Group’s debt or to satisfy
future US dollar cash outflows.
The Group does not have significant cross-border foreign exchange transactional exposures.
As at 31 December 2023, the sensitivity of the carrying value of the Group’s financial instruments to
fluctuations in interest rates and exchange rates is as follows:
All figures in £ millions
Investments in unlisted securities
Other receivable
Cash and cash equivalents
Derivative financial instruments
Bonds
Other borrowings
Investment in finance lease
receivable
Deferred and contingent
consideration
Other net financial assets
Total
Carrying
value
Impact of 1%
increase in
interest rates
Impact of 1%
decrease in
interest rates
Impact of 10%
strengthening
in sterling
Impact of 10%
weakening in
sterling
2022
133
3
558
(6)
(610)
(620)
121
(79)
477
(23)
–
–
–
7
4
–
–
–
–
11
–
–
–
(6)
(4)
–
–
–
–
(10)
(10)
–
(25)
(10)
24
26
(11)
4
(38)
(40)
12
–
31
12
(30)
(32)
13
(5)
47
48
All figures in £ millions
Investments in unlisted securities
Other receivable
Cash and cash equivalents
Derivative financial instruments
Bonds
Other borrowings
Investment in finance lease
receivable
Deferred and contingent
consideration
Other net financial assets
Total
Impact of
1% increase
in interest
rates
Impact of
1% decrease
in interest
rates
Impact of 10%
strengthening
in sterling
Impact
of 10%
weakening in
sterling
Carrying
value
2023
The table above shows the sensitivities of the fair values of each class of financial instrument to
an isolated change in either interest rates or foreign exchange rates. Other net financial assets
comprise trade receivables less trade payables. A significant proportion of the movements shown
above would impact equity rather than the income statement due to the location and functional
currency of the entities in which they arise and the availability of net investment hedging.
143
12
312
5
(611)
(550)
100
(57)
378
(268)
–
–
–
15
2
–
–
–
–
17
–
–
–
(15)
(2)
–
–
–
–
(17)
(10)
(1)
(24)
(5)
24
21
(9)
3
(31)
(32)
12
1
30
19
(29)
(26)
11
(4)
38
52
Liquidity and refinancing risk management
The Group regularly reviews the level of cash and debt facilities required to fund its activities. This
involves preparing a prudent cash flow forecast for the next three to five years, determining the level
of debt facilities required to fund the business, planning for shareholder returns and repayments
of maturing debt, and identifying an appropriate amount of headroom to provide a reserve against
unexpected outflows.
At 31 December 2023, the Group had cash of £0.3bn (2022: £0.5bn) and no outstanding drawings
(2022: £nil) on the US dollar denominated revolving credit facility due 2026 of $1bn (2022: $1.19bn).
The $1bn facility contains interest cover and leverage covenants which the Group has complied with
for the year ended 31 December 2023. The maturity of the carrying values of the Group’s borrowings
and trade payables are set out in notes 18 and 24 respectively.
At the end of 2023, the currency split of the Group’s trade payables was US dollar £228m (2022:
£234m), sterling £64m (2022: £71m) and other currencies £25m (2022: £43m). Trade payables are all
due within one year (2022: all due within one year).
Annual report and accounts 2023 Pearson plc 187
Financial statements Notes to the consolidated financial statements continued
19. Financial risk management continued
The table below analyses the Group’s bonds and derivative assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.
Short dated derivative instruments have not been included in this table. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest) and as such may differ from the
amounts disclosed on the balance sheet.
Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not possible, floating rates are based on interest rates prevailing at 31 December
in the relevant year.
Financial counterparty and credit risk management
Financial counterparty and credit risk arises from cash and cash equivalents, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to
customers, including outstanding receivables. Counterparty credit limits, which take published credit rating and other factors into account, are set to cover the Group’s total aggregate exposure to a single
financial institution. The limits applicable to published credit rating bands are approved by the Chief Financial Officer within guidelines approved by the Board. Exposures and limits applicable to each financial
institution are reviewed on a regular basis.
All figures in £ millions
At 31 December 2023
Bonds
Rate derivatives – inflows
Rate derivatives – outflows
FX forwards – inflows
FX forwards – outflows
Total
At 31 December 2022
Bonds
Rate derivatives – inflows
Rate derivatives – outflows
FX forwards – inflows
FX forwards – outflows
Total
Analysed by maturity
Analysed by currency
Greater than one
month and less
than one year
Later than one
year but less
than five years
Five years
or more
Total
USD
GBP
Other
Total
–
(13)
5
(428)
421
(15)
–
(11)
1
(304)
313
(1)
257
(262)
268
–
–
263
342
(471)
490
–
–
361
354
–
–
–
–
354
389
–
–
–
–
389
611
(275)
273
(428)
421
602
731
(482)
491
(304)
313
749
–
(6)
178
–
421
593
–
(24)
224
–
–
200
354
(9)
89
(428)
–
6
455
(170)
255
(304)
313
549
257
(260)
6
–
–
3
276
(288)
12
–
–
–
611
(275)
273
(428)
421
602
731
(482)
491
(304)
313
749
Cash deposits and derivative transactions are made with approved counterparties up to pre-agreed limits. To manage counterparty risk associated with cash and cash equivalents, the Group uses a mixture
of money market funds as well as bank deposits. As at 31 December 2023, 75% (2022: 77%) of cash and cash equivalents was held with investment grade bank counterparties, 10% (2022: 8%) with AAA money
market funds and 15% (2022: 15%) with non-investment grade bank counterparties.
Annual report and accounts 2023 Pearson plc 188
Financial statements For trade receivables and contract assets, the Group’s exposure to credit risk is influenced mainly
by the individual characteristics of each customer. However, risk associated with the industry
and country in which customers operate may also influence the credit risk. The credit quality of
customers is assessed by taking into account financial position, past experience and other relevant
factors. Individual credit limits are set for each customer based on internal ratings. The compliance
with credit limits is regularly monitored by the Group. A default on a trade receivable is when the
counterparty fails to make contractual payments within the stated payment terms. Trade receivables
and contract assets are written off when there is no reasonable expectation of recovery.
The carrying amounts of financial assets, trade receivables and contract assets represent the
maximum credit exposure.
Trade receivables and contract assets are subject to impairment using the expected credit loss
model. The Group applies the IFRS 9 simplified approach to measuring expected credit losses
which uses a lifetime expected credit loss allowance for all trade receivables and contract assets. To
measure the expected credit losses, trade receivables and contract assets have been grouped based
on shared credit risk characteristics and the days past due. See note 22 for further details about
trade receivables and contract assets including movements in provisions for bad and doubtful debts.
20. Intangible assets – product development
All figures in £ millions
Cost
At 1 January
Exchange differences
Additions
Disposals and retirements
Disposal of businesses (note 31)
Transfers
At 31 December
Amortisation
At 1 January
Exchange differences
Charge for the year
Impairment
Disposals and retirements
Disposal of businesses (note 31)
Transfers
At 31 December
Carrying amounts at 31 December
2023
2022
2,918
(121)
300
(550)
(29)
(1)
2,517
(1,943)
92
(280)
(4)
550
14
1
(1,570)
947
2,698
235
357
(191)
(186)
5
2,918
(1,804)
(174)
(288)
(15)
191
147
–
(1,943)
975
Product development assets are amortised over their estimated useful economic lives. Product
development assets relating to content are amortised over seven years or less, being an estimate of
the expected operating lifecycle of the title, with a higher proportion of the amortisation taken in the
earlier years. Product development assets relating to product platforms are amortised over ten years
or less. Amortisation is included in the income statement in cost of goods sold.
Product development assets are assessed for impairment triggers on an annual basis or when
triggering events occur. In 2023, of the £4m (2022: £15m) impairment charges, £nil (2022: £13m;
2021: £14m) have been recognised as a result of asset write-offs related to the major restructuring
programme. The full annual impairment test showed that there is adequate headroom across all
product development assets and accordingly no further impairment charges were recognised in
2023 (2022: £nil; 2021: £nil).
21. Inventories
All figures in £ millions
Raw materials
Work in progress
Finished goods
Returns asset
2023
4
1
81
5
91
2022
5
2
93
5
105
The cost of inventories recognised as an expense and included in the income statement in cost of
goods sold amounted to £155m (2022: £166m; 2021: £171m) including £19m (2022: £16m; 2021:
£22m) of inventory provisions. None of the inventory is pledged as security. Included within the
inventory balance is the estimation of the right to receive goods from contracts with customers via
returns. The value of the returns asset is measured at the carrying amount of the assets at the time
of sale aligned to the Group’s normal inventory valuation methodology less any expected costs to
recover the asset and any expected reduction in value. Impairment charges against the inventory
returns asset are £nil in 2023 (2022: £nil; 2021: £nil). The returns asset all relates to finished goods.
The obsolescence provision takes account of the Group’s digital-first strategy and the increasing shift
towards print on demand. The year-on-year reduction in inventories is due to increased provisions
for obsolescence and a reduction in the production of inventory due to the Group’s digital-first
strategy and the increasing shift towards print on demand.
Annual report and accounts 2023 Pearson plc 189
Financial statements Notes to the consolidated financial statements continued
22. Trade and other receivables
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large
number of customers, who are internationally dispersed.
All figures in £ millions
Current
Trade receivables
Royalty advances
Prepayments
Investment in finance lease receivable
Accrued income
Other receivables
Non-current
Trade receivables
Royalty advances
Prepayments
Investment in finance lease receivable
Accrued income
Interest receivable
Other receivables
2023
2022
The ageing of the Group’s gross trade receivables is as follows:
All figures in £ millions
Within due date and one month past due date
One to three months past due date
Three to six months past due date
Six to nine months past due date
Nine to 12 months past due date
More than 12 months past due date
Gross trade receivables
2023
564
83
25
12
8
54
746
2022
663
118
25
14
14
60
894
The Group reviews its bad debt provision at least twice a year following a detailed review of
receivable balances, historical payment profiles, and assessment of relevant forward-looking risk
factors including macroeconomic trends. Management believes all the remaining receivable balances
are fully recoverable.
The decrease in trade receivables held by the Group is driven by current year disposals.
694
1
233
18
13
91
1,050
1
4
8
82
2
3
35
135
824
1
200
17
15
82
1,139
1
5
12
104
2
3
12
139
Accrued income represents contract assets which are unbilled amounts generally resulting from
assessments and services revenue streams where revenue to be recognised over time has been
recognised in excess of customer billings to date. Impairment charges on accrued income assets are
£nil (2022: £nil). The carrying value of the Group’s trade and other receivables approximates its fair
value. Trade receivables are stated net of provisions for bad and doubtful debts.
The movements in the provision for bad and doubtful debts are as follows:
All figures in £ millions
At 1 January
Exchange differences
Income statement movements
Utilised
Disposal of businesses
At 31 December
2023
2022
(69)
2
3
9
4
(51)
(63)
(3)
(18)
12
3
(69)
Annual report and accounts 2023 Pearson plc 190
Financial statements 23. Provisions for other liabilities and charges
24. Trade and other liabilities
All figures in £ millions
At 1 January 2023
Exchange differences
Provisions made during the year
Provisions reversed during the year
Provisions used during the year
At 31 December 2023
Analysis of provisions:
All figures in £ millions
Current
Non-current
Current
Non-current
Property
and other
Total
Legal
All figures in £ millions
22
–
6
(4)
–
24
77
(4)
12
(9)
(60)
16
99
(4)
18
(13)
(60)
40
2023
Current
Trade payables
Sales return liability
Deferred income
Interest payable
Accruals and other liabilities
Non-current
Deferred income
Accruals and other liabilities
Property
and other
Total
Legal
11
13
24
9
13
22
14
2
16
76
1
77
25
15
40
2022
85
14
99
Property provisions made in 2023 and 2022 relate to the simplification of the Group’s property
portfolio (see note 4) and dilapidations.
Legal and other includes legal claims, contract disputes and potential contract losses with the
provisions utilised as the cases are settled. Also included in legal and other are other restructuring
provisions that are generally utilised within one year.
The year on year decrease in provisions is mainly due to the utilisation of restructuring provisions in
the year.
2023
2022
317
31
295
4
628
348
53
340
10
503
1,275
1,254
73
25
98
60
60
120
The carrying value of the Group’s trade and other liabilities approximates its fair value. The deferred
income balance comprises contract liabilities in respect of advance payments in assessment, testing
and training businesses; subscription income in school and college businesses; and obligations to
deliver digital content in future periods. The increase in trade and other liabilities held by the Group
is driven by the liability recorded for the remainder of the Share buyback scheme offset against
disposals, differences in deferred income due to timing, and utilisation of accruals from the 2022
restructuring programme.
Annual report and accounts 2023 Pearson plc 191
Financial statements Notes to the consolidated financial statements continued
25. Retirement benefit and other post-retirement obligations
Background
The Group operates a number of defined benefit and defined contribution retirement plans
throughout the world.
The largest plan is the Pearson Pension Plan (UK Group plan) in the UK, which is sectionalised to
provide both defined benefit and defined contribution pension benefits. The defined benefit section
was largely closed to new members from 1 November 2006. The defined contribution section,
opened in 2003, is open to new and existing employees. Finally, there is a separate section within the
UK Group plan set up for auto-enrolment.
The defined benefit section of the UK Group plan is a final salary pension plan which provides
benefits to members in the form of a guaranteed level of pension payable for life. The level of
benefits depends on the length of service and final pensionable pay.
The defined contribution section of the UK Group plan operates a Reference Scheme Test (RST)
pension underpin for its members. Where a member’s fund value is insufficient to purchase the RST
pension upon retirement, the UK Group plan is liable for the shortfall to cover the member’s RST
pension. In addition, in recent years, the scheme rules were amended to enable members who have
sufficient funds to purchase an RST pension the ability to convert their fund value into a pension in
the UK Group plan as an alternative to purchasing an annuity with an insurer. The Group recognises
any assets and liabilities relating to these features of the defined contribution section as part of
the overall UK Group plan obligation. The Group also recognises the assets and liabilities for all
members of the defined contribution section of the UK Group plan, accounting for the whole defined
contribution section as a defined benefit scheme under IAS 19 ‘Employee Benefits’ as there is a risk
the underpin will require the Group to pay further contributions to the scheme.
The UK Group plan is funded with benefit payments from trustee-administered funds. The UK Group
plan is administered in accordance with the Trust Deed and Rules in the interests of its beneficiaries
by Pearson Pension Trustee Limited.
At 31 December 2023, the UK Group plan had approximately 26,300 members, analysed in the
following table:
All figures in %
Defined benefit
Defined contribution
Total
Active
Deferred
Pensioners
–
10
10
15
42
57
33
–
33
Total
48
52
100
The other major defined benefit plans are based in the US. These are also final salary pension plans
which provide benefits to members in the form of a guaranteed pension payable for life, with the
level of benefits dependent on length of service and final pensionable pay. The majority of the US
plans are fully funded.
The Group also has several post-retirement medical benefit plans (PRMBs), principally in the US.
PRMBs are unfunded but are accounted for and valued similarly to defined benefit pension plans.
The defined benefit schemes expose the Group to actuarial risks, such as life expectancy, inflation
risks and investment risk including asset volatility and changes in bond yields. The Group is not
exposed to any unusual, entity-specific or plan-specific risks.
KJ Key judgements
— Whether the Group will be eligible to receive the surplus associated with the UK Group
Pension Plan in recognising a pension asset.
KE Key areas of estimation
— The determination of the pension cost and defined benefit obligation of the Group’s
defined benefit pension schemes depends on the selection of certain assumptions, which
include the discount rate, inflation rate, salary growth and longevity.
Annual report and accounts 2023 Pearson plc 192
Financial statements Assumptions
The principal assumptions used for the UK Group plan and the US PRMB are shown below.
Weighted average assumptions have been shown for the other plans, which primarily relate to
US pension plans.
2023
2022
2021
UK
Group
plan
Other
plans
PRMB
UK Group
plan
Other
plans
PRMB
UK Group
plan
Other
plans
PRMB
3.0
2.0
–
3.4
2.0
–
3.3
1.4
–
4.6
4.9
5.0
4.9
5.3
5.3
1.9
2.8
2.6
3.5
2.5
–
3.9
2.9
–
3.8
2.7
1.75 to
5.10
–
–
1.95 to
5.20
–
6.5
5.0
–
–
–
–
–
2.35 to
5.10
–
6.5
5.0
–
–
–
–
–
–
–
–
–
–
6.3
5.0
All figures in %
Inflation
Rate used to
discount plan
liabilities
Expected rate
of increase in
salaries
Expected rate
of increase
for pensions
in payment
and deferred
pensions
Initial rate of
increase in
healthcare rate
Ultimate rate
of increase in
healthcare rate
The UK discount rate is based on corporate bond yields adjusted to reflect the duration of liabilities.
The inflation rate for the UK Group plan of 3.0% (2022: 3.4%) reflects the RPI rate. In line with
changes to legislation in 2010, certain benefits have been calculated with reference to CPI as the
inflationary measure and in these instances a rate of 2.3% (2022: 2.7%) has been used. The CPI
rate is determined as a weighted average deduction from the RPI rate, and allows for the expected
change to the formula for calculating RPI to be in line with CPIH from 2030 onwards.
For the UK Group plan, the mortality base table assumptions are derived from the SAPS S3 for males
and females, adjusted to reflect the observed experience of the plan, with CMI model improvement
factors. A 1.5% long-term rate improvement on the CMI 2022 model is applied for both males and
females, with a weighting to 2022 mortality experience in the CMI model of 40% to reflect current
trends in life expectancy. Life expectancy remains uncertain following the COVID-19 pandemic which
had wide-ranging direct and indirect impacts.
For the US plans, a mortality table (Pri – 2012) and 2021 improvement scale (MP – 2021) with
generational projection for male and female annuitants has been adopted.
Using the above tables, the remaining average life expectancy in years of a pensioner retiring at age
65 on the balance sheet date for the UK Group plan and US plans is as follows:
All figures in years
Male
Female
2023
21.8
24.1
2022
22.5
24.7
UK
2021
22.6
24.8
2023
20.7
22.6
2022
20.6
22.6
US
2021
20.5
22.5
The remaining average life expectancy in years of a pensioner retiring at age 65, 20 years after the
balance sheet date, for the UK and US Group plans is as follows:
All figures in years
Male
Female
UK
2022
24.1
26.4
2023
23.4
25.8
2021
24.2
26.5
2023
22.2
24.1
US
2022
22.1
24.0
2021
22.0
23.9
Although the Group anticipates that plan surpluses will be utilised during the life of the plan to
address member benefits, the Group recognises its pension surplus in full in respect of the UK
Group plan on the basis that it is management’s judgement that there are no substantive restrictions
on the return of residual plan assets in the event of a winding up of the plan after all member
obligations have been met.
Annual report and accounts 2023 Pearson plc 193
Financial statements Notes to the consolidated financial statements continued
25. Retirement benefit and other post-retirement obligations
continued
Financial statement information
The amounts recognised in the income statement are as follows:
All figures in £ millions
Current service cost
Past service cost
Settlements
Administration expenses
Total operating expense
Interest on plan assets
Interest on plan liabilities
Net finance (income)/
expense
Net income statement
charge
All figures in £ millions
Current service cost
Past service cost
Settlements
Administration expenses
Total operating expense
Interest on plan assets
Interest on plan liabilities
Net finance (income)/
expense
Net income statement
charge
UK Group
plan
Defined
benefit
other
Sub-total
Defined
contribution
PRMB
Total
2023
16
–
–
8
24
(148)
121
(27)
(3)
2
–
–
–
2
(5)
6
1
3
18
–
–
8
26
(153)
127
(26)
–
45
–
–
–
45
–
–
–
45
–
–
–
–
–
–
–
–
–
63
–
–
8
71
(153)
127
(26)
45
2022
UK Group
plan
Defined
benefit
other
Sub-total
Defined
contribution
PRMB
Total
17
3
–
7
27
(77)
67
(10)
17
2
–
–
–
2
(3)
3
–
2
19
3
–
7
29
(80)
70
(10)
19
46
–
–
–
46
–
–
–
46
–
–
–
–
–
–
1
1
1
65
3
–
7
75
(80)
71
(9)
66
56
–
–
6
62
(57)
53
(4)
58
2022
Total
UK Group
plan
Defined
benefit
other
Sub-total
Defined
contribution
PRMB
Total
2021
All figures in £ millions
Current service cost
Past service cost
Settlements
Administration expenses
Total operating
expense
Interest on plan assets
Interest on plan liabilities
Net finance (income)/
expense
Net income statement
charge
17
–
–
6
23
(55)
49
(6)
17
2
–
–
–
2
(2)
3
1
3
19
–
–
6
25
(57)
52
(5)
20
37
–
–
–
37
–
–
–
37
–
–
–
–
–
–
1
1
1
The amounts recognised in the balance sheet are as follows:
2023
All figures in £ millions
UK Group
plan
Other
funded
plans
Other
unfunded
plans
Total
UK Group
plan
Other
funded
plans
Other
unfunded
plans
Fair value of plan assets
3,060
107
–
3,167
3,088
104
–
3,192
Present value of defined
benefit obligation
Net pension asset/
(liability)
Other post-retirement
medical benefit obligation
Other pension accruals
Net retirement benefit
asset
Analysed as:
Retirement benefit assets
Retirement benefit
obligations
(2,569)
(99)
(15)
(2,683)
(2,514)
(106)
(17)
(2,637)
491
8
(15)
484
574
(2)
(17)
555
(21)
(8)
455
499
(44)
(25)
(10)
520
581
(61)
Annual report and accounts 2023 Pearson plc 194
Financial statements The following gains/(losses) have been recognised in other comprehensive income:
All figures in £ millions
Amounts recognised for defined benefit plans
Amounts recognised for post-retirement medical benefit
plans
Total recognised in year
The fair value of plan assets comprises the following:
2023
(86)
1
(85)
2022
44
10
54
All figures in %
Insurance
Equities
Fixed interest
securities
Property
Pooled asset
investment funds
(including LDI)
Infrastructure
Cash and cash
equivalents
Other
2023
UK Group
Other
plan
funded plans
Total
UK Group
Other
plan
funded plans
33
15
6
5
24
11
1
2
–
1
2
–
–
–
–
–
33
16
8
5
24
11
1
2
33
14
5
6
23
11
3
2
–
1
2
–
–
–
–
–
2021
145
4
149
2022
Total
33
15
7
6
23
11
3
2
The plan assets do not include any of the Group’s own financial instruments, or any property
occupied by the Group. The table below further disaggregates the plan assets into those assets
which have a quoted market price in an active market and those that do not:
2023
2022
Quoted
market price
No quoted
market price
Quoted
market price
No quoted
market price
All figures in %
Insurance
Equities
Fixed-interest securities
Property
Pooled asset investment funds (including LDI)
Infrastructure
Cash and cash equivalents
Other
Total
–
16
8
–
24
–
–
–
48
33
–
–
5
–
11
1
2
52
The liquidity profile of the UK Group plan assets is as follows:
All figures in %
Liquid – call <1 month
Less liquid – call 1–3 months
Illiquid – call >3 months
–
15
7
–
23
–
–
–
45
33
–
–
6
–
11
3
2
55
2023
2022
48
2
50
47
2
51
Annual report and accounts 2023 Pearson plc 195
Financial statements Notes to the consolidated financial statements continued
25. Retirement benefit and other post-retirement obligations
continued
Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:
The weighted average duration of the defined benefit obligation is 12 years for the UK and six years
for the US.
Changes in the value of the US PRMB are as follows:
UK Group
plan
Other
plans
2022
All figures in £ millions
UK Group
plan
Other
plans
Opening defined benefit obligation
Total
Exchange differences
Interest on plan liabilities
Actuarial gains – experience
Actuarial (losses)/gains – financial
Benefits paid
Closing defined benefit obligation
2023
(25)
1
–
2
(1)
2
(21)
2022
(34)
(3)
(1)
5
5
3
(25)
All figures in £ millions
Fair value of plan assets
Opening fair value of plan assets
Recognition of Money Purchase assets
Exchange differences
Interest on plan assets
Return on plan assets excluding interest
Contributions by employer
Contributions by employees
Benefits paid
Settlements
Closing fair value of plan assets
Present value of defined benefit
obligation
Opening defined benefit obligation
Recognition of Money Purchase liabilities
Exchange differences
Disposals
Current service cost
Past service cost
Administration expenses
Interest on plan liabilities
Actuarial losses – experience
Actuarial gains – demographic
Actuarial (losses)/gains – financial
Contributions by employees
Benefits paid
Settlements
3,088
–
–
148
(48)
–
7
(135)
–
3,060
(2,514)
–
–
–
(16)
–
(8)
(121)
(61)
52
(29)
(7)
135
–
2023
Total
3,192
–
(6)
153
(43)
15
7
(149)
(2)
3,167
104
–
(6)
5
5
15
–
(14)
(2)
107
(123)
–
6
–
(2,637)
–
6
–
(2)
(18)
–
–
(6)
(2)
–
(3)
–
14
2
–
(8)
(127)
(63)
52
(32)
(7)
149
2
4,125
–
–
77
(1,000)
15
7
(136)
–
3,088
(3,588)
–
–
–
(17)
(3)
(7)
(67)
(25)
14
–
12
3
120 4,245
–
12
80
(18) (1,018)
17
7
(151)
–
104 3,192
2
–
(15)
–
(143) (3,731)
–
(14)
1
–
(14)
1
(2)
(19)
–
–
(3)
(2)
–
(3)
(7)
(70)
(27)
14
1,050
25 1,075
(7)
136
–
–
15
–
(7)
151
–
Closing defined benefit obligation
(2,569)
(114)
(2,683)
(2,514)
(123) (2,637)
Funding
The UK Group plan is self-administered with the plan’s assets being held independently of the
Group in trust. The trustee of the UK Group plan is required to act in the best interest of the plan’s
beneficiaries. The most recent triennial actuarial valuation for funding purposes was completed as at
1 January 2021 and this valuation revealed a technical provision funding surplus of £160m. The UK
Group plan expects to be able to provide benefits (in accordance with the plan rules) with a very low
level of reliance on future funding from the Group.
Assets of the final salary section of the UK Group plan are divided into two main elements: liability
matching assets and return seeking assets. The UK Group plan’s investment strategy for the final
salary section allocates approximately 95% to matching assets and 5% to return-seeking assets.
Liability matching assets are assets that produce cash flows that can be expected to match the cash
flows for a proportion of the membership, and include a liability-driven investment mandate (LDI)
for which a Qualifying Investor Alternative Investment Fund (QIAIF) was established, managed by
a subsidiary of Legal & General Investment Management. The QIAIF invests in UK bonds, interest
rate/inflation swaps and other derivative instruments in order to reduce interest rate and inflation
risks using accurate cash flow matching and risk control. Other liability matching assets include
pensioner buy-in insurance policies, bonds and inflation-linked property and infrastructure.
Following the purchase of buy-in policies with Legal & General and Aviva in 2017 and 2019, 95% of
the UK Group plan’s pensioner liabilities were matched with buy-in policies. These transfer significant
longevity risk to Aviva and Legal & General, reducing the pension risks being underwritten by the
Group and providing additional security for members.
Return-seeking assets are assets invested with a longer-term horizon to generate the returns
needed to provide the remaining expected cash flows for the beneficiaries, and include diversified
growth funds, property and alternative asset classes.
Annual report and accounts 2023 Pearson plc 196
Financial statements Recent economic and geopolitical uncertainty has increased volatility in the valuation of certain
assets, in particular the LDI and insurance contracts. However, these movements are offset by
equivalent movements in the defined benefit obligation. The UK Group plan divides its assets
between a number of investment managers and across different types of assets, as such there is no
significant concentration of risk.
Regular employer contributions to the UK Group plan in respect of the defined benefit sections are
estimated to be £nil for 2024.
Sensitivities
The effect of a one percentage point increase and decrease in the discount rate on the defined
benefit obligation and the total pension expense is as follows:
All figures in £ millions
Effect:
2023
1% increase
1% decrease
(Decrease)/increase in defined benefit obligation – UK Group plan
(Decrease)/increase in defined benefit obligation – US plan
(203)
(5)
251
5
The effect of members living one year more or one year less on the defined benefit obligation is as
follows:
All figures in £ millions
Effect:
2023
One year
increase
One year
decrease
Increase/(decrease) in defined benefit obligation – UK Group plan
Increase/(decrease) in defined benefit obligation – US plan
58
2
The effect of a half percentage point increase and decrease in the inflation rate is as follows:
(58)
(2)
2023
All figures in £ millions
Effect:
0.5% increase 0.5% decrease
Increase/(decrease) in defined benefit obligation – UK Group plan
Increase/(decrease) in defined benefit obligation – US plan
61
–
(58)
–
The above sensitivity analyses are based on a change in an assumption while holding all other
assumptions constant, although in practice this is unlikely to occur and changes in some
assumptions may be correlated. When calculating these sensitivities, the same method has been
applied to calculate the defined benefit obligation as has been applied when calculating the liability
recognised in the balance sheet. This methodology is the same as prior periods.
26. Share-based payments
The Group recognised the following charges in the income statement in respect of its equity-settled
share-based payment plans:
All figures in £ millions
Pearson plans
2023
40
2022
38
2021
28
The Group operates the following equity-settled employee option and share plans:
Worldwide Save for Shares Plan – The Group has a Worldwide Save for Shares Plan. Under this plan,
employees can save a portion of their monthly salary over a period of three years. At the end of this
period, the employee has the option to purchase ordinary shares with the accumulated funds at a
purchase price equal to 80% of the market price prevailing at the time of the commencement of the
employee’s participation in the plan. Options that are not exercised within six months of the end of
the savings period lapse unconditionally.
Employee Stock Purchase Plan – In 2000, the Group established an Employee Stock Purchase
Plan which allows all employees in the US to save a portion of their monthly salary over six-month
periods. At the end of the period, the employee has the option to purchase American Depositary
Receipts (ADRs) with their accumulated funds at a purchase price equal to 85% of the lower of the
market prices prevailing at the beginning or end of the period.
Long-Term Incentive Plan – The plan was first introduced in 2001 and from time to time the plan
rules are renewed. The plan consists of restricted shares. The vesting of restricted shares is normally
dependent on continuing service over a three to five-year period, and in the case of Executive
Directors and senior management upon the satisfaction of corporate performance targets over a
three-year period. These targets may be based on market and/or non-market performance criteria.
Restricted shares awarded to Executive Directors in May 2022 and May 2021 vest dependent on
relative total shareholder return (FTSE 100), net return on invested capital and adjusted earnings per
share, and the May 2023 awards vest based on relative total shareholder return (FTSE 100 and S&P
500, excluding certain sectors), return on capital, adjusted earnings per share and an ESG measure.
These awards are in addition to the 2020 co-investment award for Andy Bird, vesting in three equal
tranches based on market and non-market performance underpins. The applicable market condition
for the vesting of the final tranche is on relative total shareholder return (FTSE 100). Other restricted
shares awarded in 2023, 2022 and 2021 generally vest depending on continuing service over periods
of up to five years. Included within the total share-based payments charge in 2023 was £3m (2022:
£3m; 2021: £nil) in respect of remuneration for post-acquisition services for recent acquisitions,
which was included within other net gains and losses in the income statement.
Annual report and accounts 2023 Pearson plc 197
Financial statements Notes to the consolidated financial statements continued
26. Share-based payments continued
27. Share capital and share premium
Management Incentive Plan – The plan was introduced in 2017 combining the Group’s Annual
Incentive Plan and Long-Term Incentive Plan for senior management. The number of shares to be
granted to participants is dependent on Group performance in the calendar year preceding the date
of grant (on the same basis as the Annual Incentive Plan). Subsequently, the shares vest dependent
on continuing service over a three-year period, and additionally, in the case of the Pearson Executive
Management team, upon satisfaction of non-market based performance criteria as determined by
the Remuneration Committee. In 2021 this scheme was replaced by the Long-Term Incentive Plan
for senior management.
The following shares were granted under restricted share arrangements:
At 31 December 2021
Issue of ordinary shares – share option schemes
Buyback of equity
At 31 December 2022
Issue of ordinary shares – share option schemes
Buyback of equity
2023
2022
At 31 December 2023
Number of
shares
000s
756,802
1,199
(42,268)
715,733
1,809
(20,243)
697,299
Share
capital
£m
Share
premium
£m
189
–
(10)
179
–
(5)
174
2,626
7
–
2,633
9
–
2,642
Number of
shares
000s
Weighted average
fair value
£
Number of
shares
000s
Weighted average
fair value
£
Long-Term
Incentive Plan
5,572
6.99
7,584
7.61
In 2023, £23m (2022: £26m) of shares vested across the Worldwide Save for Shares Plan, the Long-
Term Incentive Plan and the Management Incentive Plan.
The fair value of shares granted under the Long-Term Incentive Plan and the Management Incentive
Plan that vest unconditionally is determined using the share price at the date of grant. Participants
under the plans are entitled to dividends during the vesting period and therefore the share price is
not discounted.
Restricted shares with a market performance condition were valued by an independent actuary
using a Monte Carlo model. Restricted shares with a non-market performance condition were fair
valued based on the share price at the date of grant. Non-market performance conditions are taken
into consideration by adjusting the number of shares expected to vest based on the most likely
outcome of the relevant performance criteria.
The ordinary shares have a par value of 25p per share (2022: 25p per share). All issued shares are
fully paid. All shareholders are entitled to receive dividends and vote at general meetings of the
company. All shares have the same rights.
On 20 September 2023, the Board approved a £300m share buyback programme in order to
return capital to shareholders. During the year, approximately 20m shares were bought back and
cancelled at a cost of £186m. The nominal value of these shares, £5m, was transferred to the capital
redemption reserve, and the remainder of the purchase price is recorded within retained earnings.
At 31 December 2023, a liability of £118m remained for those shares contracted to be repurchased
but where the repurchases were still outstanding and associated costs.
On 24 February 2022, the Board approved a £350m share buyback programme in order to
return capital to shareholders. During 2022, approximately 42m shares were bought back and
cancelled at a cost of £353m. The nominal value of these shares, £10m, was transferred to the
capital redemption reserve, and the remainder of the purchase price was recorded within
retained earnings.
The Group manages its capital to ensure that entities in the Group will be able to continue as a going
concern while maximising the return to shareholders through the optimisation of the debt and
equity balance.
The capital structure of the Group consists of debt (see note 18), cash and cash equivalents (see
note 17) and equity attributable to equity holders of the parent, comprising issued capital, reserves
and retained earnings.
The Group reviews its capital structure on a regular basis and will balance its overall capital structure
through payments of dividends, new share issues as well as the issue of new debt or the redemption
of existing debt in line with the financial risk policies outlined in note 19.
Annual report and accounts 2023 Pearson plc 198
Financial statements 28. Treasury shares
At 31 December 2021
Purchase of treasury shares
Release of treasury shares
At 31 December 2022
Purchase of treasury shares
Release of treasury shares
At 31 December 2023
Number of
shares
000s
1,571
4,513
(4,220)
1,864
3,991
(3,695)
2,160
The Group holds Pearson plc shares in trust to satisfy its obligations under its restricted share plans (see note 26). These shares, representing 0.3% (2022: 0.3%) of called-up share capital, are treated as
treasury shares for accounting purposes and have a par value of 25p per share.
The nominal value of Pearson plc treasury shares amounts to £0.5m (2022: £0.5m). Dividends on treasury shares are waived.
At 31 December 2023, the market value of Pearson plc treasury shares was £21m (2022: £18m). The gross book value of the shares at 31 December 2023 amounts to £19m (2022: £15m).
29. Other comprehensive income
All figures in £ millions
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations
Currency translation adjustment disposed
Attributable tax
Items that are not reclassified to the income statement
Fair value gain on other financial assets
Attributable tax
Remeasurement of retirement benefit obligations
Attributable tax
Other comprehensive income/(expense) for the year
Attributable to equity holders of the company
Fair value
reserve
Translation
reserve
Retained
earnings
Total
(176)
(122)
–
1
–
Non-
controlling
interest
(1)
–
–
–
–
–
–
(1)
(85)
20
(65)
(85)
20
(362)
–
–
–
–
–
–
–
–
1
–
–
–
1
(176)
(122)
–
–
–
–
–
(298)
£m
12
37
(34)
15
35
(31)
19
2023
Total
(177)
(122)
–
1
–
(85)
20
(363)
Annual report and accounts 2023 Pearson plc 199
Financial statements Notes to the consolidated financial statements continued
29. Other comprehensive income continued
All figures in £ millions
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations
Currency translation adjustment disposed
Attributable tax
Items that are not reclassified to the income statement
Fair value gain on other financial assets
Attributable tax
Remeasurement of retirement benefit obligations
Attributable tax
Other comprehensive income/(expense) for the year
All figures in £ millions
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations
Currency translation adjustment disposed
Attributable tax
Items that are not reclassified to the income statement
Fair value gain/(loss) on other financial assets
Attributable tax
Remeasurement of retirement benefit obligations
Attributable tax
Other comprehensive income/(expense) for the year
Attributable to equity holders of the company
Fair value
reserve
Translation
reserve
Retained
earnings
–
–
–
18
–
–
–
18
328
(5)
–
–
–
–
–
323
–
–
4
–
1
54
(12)
47
Total
328
(5)
4
18
1
54
(12)
388
Attributable to equity holders of the company
Fair value
reserve
Translation
reserve
Retained
earnings
–
–
–
4
–
–
–
4
(6)
4
–
–
–
–
–
(2)
–
–
10
–
(1)
149
(61)
97
Total
(6)
4
10
4
(1)
149
(61)
99
Non-
controlling
interest
2
–
–
–
–
–
–
2
Non-
controlling
interest
–
–
–
–
–
–
–
–
2022
Total
330
(5)
4
18
1
54
(12)
390
2021
Total
(6)
4
10
4
(1)
149
(61)
99
The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The fair value reserve arises on revaluation of other financial assets. The translation
reserve includes exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments.
Annual report and accounts 2023 Pearson plc 200
Financial statements
30. Business combinations
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.
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.
Intangible assets of £117m have been recognised in respect of PDRI, the majority of which relates
to SAAS customer contracts and technology, which will be amortised over periods of up to 15 years.
The valuations of these assets were carried out with the support of a third-party specialist, and were
based on discounted cash flow models. The key assumptions that feed into the valuations are the
cash flow forecasts, revenue projections from existing customers, forecasted profit margins and
discount rates.
On 28 January 2022, the Group acquired 100% of the share capital in Credly Inc (Credly), having
previously held a 19.9% interest in the company. Credly is a digital credential service provider whose
platform enables customers to design, create, issue and manage digital credentials. It forms part of
the Workforce Skills division. 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.
On 28 April 2022, the Group acquired 100% of the share capital of ATI STUDIOS A.P.P.S S.R.L
(Mondly), a global online learning platform offering customers learning in English and 40 other
languages via its app, website, virtual reality and augmented reality products. It 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 four years from the
acquisition date, dependent on continuing employment, and therefore these additional amounts are
being expensed over the period and are not treated as consideration.
In 2022, these transactions resulted in the recognition of £202m of goodwill, which represented
the expected growth through new products and customers, 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.
Intangible assets of £99m were recognised in respect of Credly and Mondly. The valuations of these
assets were carried out with the support of third-party specialists, and were based on discounted
cash flow models. The key assumptions that feed into the valuations were the cash flow forecasts,
revenue projections from existing customers, forecasted profit margins and discount rates.
For Credly, £49m of intangible assets were recognised, mainly relating to the existing customer
relationships that are being amortised over 20 years, and technology which are being amortised over
five years. For Mondly, £50m of intangible assets were recognised, the majority of which relates to
acquired technology, and are being amortised over periods up to seven years.
In 2022, the Group also made three smaller acquisitions in the period for total consideration
of £11m.
In September 2021, Pearson completed the acquisition of 100% of the share capital of Faethm
Holdings Pty Limited (Faethm), having already held 9% of the share capital previously. Faethm uses
artificial intelligence and analytics services to help governments, companies and workers understand
the dynamic forces shaping the labour market. Faethm forms part of the Workforce Skills division.
The total consideration for the transaction was £65m, which included £10m of contingent
consideration, which has since been settled in 2022.
In addition, in 2021, the Group made two additional acquisitions of subsidiaries for total
consideration of £11m. In both cases, the Group acquired 100% of the share capital of the
respective entities. Opinion Interactive LLC (also known as Spotlight Education) was acquired in
February 2021. MZ Development Inc. was acquired in July 2021. Both form part of the Assessment &
Qualifications division.
The Group also made additional investments in associates, which are detailed in note 12, and are
not included below.
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.
KE Key areas of estimation
The valuation of acquired intangible assets recognised on the acquisition of a business.
The valuation is based on a number of assumptions, including estimations of future
business performance.
Annual report and accounts 2023 Pearson plc 201
Financial statements Notes to the consolidated financial statements continued
30. Business combinations continued
31. Disposals and business closures
All figures in £ millions
Intangible assets
Deferred tax asset
Trade and other receivables
Cash and cash equivalents
Trade and other liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Total
Satisfied by:
Cash consideration
Contingent or deferred consideration
Fair value of existing investment
Total consideration
2023
Total
117
–
8
4
(7)
(31)
91
61
152
152
–
–
152
2022
Total
110
8
8
13
(26)
(22)
91
204
295
223
41
31
295
2021
Total
27
11
2
4
(5)
(6)
33
43
76
54
16
6
76
PDRI generated revenue of £24m and a profit after tax of £4m for the period from the acquisition
date to 31 December 2023. If the acquisitions 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.
The net cash outflows related to the acquisitions are set out in the table below. In addition to
the current year acquisitions, the other net cash outflows on acquisition of subsidiaries relate to
deferred payments for prior year acquisitions.
2023
Total
2022
Total
2021
Total
All figures in £ millions
Cash flow on acquisitions
Cash – current year acquisitions
Cash and cash equivalents acquired
Deferred payments for prior year acquisitions and other
items
Net cash outflow
On 30 June 2023, the Group disposed of its interests in its POLS businesses in the US, UK, Australia
and India. The businesses 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 six 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.
Whether the associated results and cash flows of the POLS 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 cash flows related to one of the
large contracts within the business are being retained.
KJ Key judgements
— The results and cash flows of businesses disposed do not meet the criteria to be classified
and presented as discontinued operations.
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.
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.
(152)
4
(23)
(171)
(223)
13
(18)
(228)
(54)
4
(5)
(55)
In February 2021, the Group completed the sale of its interests in the Pearson Institute of Higher
Education (PIHE) in South Africa resulting in a pre-tax loss of £5m. In October 2021, the sale of the
Group’s interests in K12 Sistemas in Brazil was also completed for consideration of £108m, resulting
in a gain on sale of £84m. There were no other business disposals in 2021 and additional losses of
£14m relate to other disposal costs including costs related to the wind-down of certain businesses
under strategic review.
Annual report and accounts 2023 Pearson plc 202
Financial statements Deferred proceeds relating to the K12 sale were received in 2022 and 2021 (see note 14). None of
the 2022 or 2021 disposals met the criteria to be considered a discontinued operation on the basis
that they did not represent major lines of business or geographical areas of operations.
The table below shows a summary of the assets and liabilities disposed of:
32. Held for sale
At 31 December 2023, the Group has classified two properties (2022: three), with a total carrying
value of £2m (2022: £16m), as held for sale.
All figures in £ millions
2023
2022
2021
33. Additional cash flow information
In the cash flow statement, proceeds from sale of property, plant and equipment comprise:
Disposal of subsidiaries and associates
Intangible assets, including goodwill
Property, plant and equipment
Intangible assets – product development
Inventories
Trade and other receivables
Deferred tax
Current tax (receivable)/payable
Cash and cash equivalents (excluding overdrafts)
Provisions for other liabilities and charges
Retirement benefit obligations
Trade and other liabilities
Financial liabilities – borrowings
Net assets disposed
Cumulative currency translation adjustment
Cash proceeds
Deferred proceeds
Costs of disposal
(Loss)/gain on disposal
(53)
(5)
(15)
(1)
(65)
8
(2)
(12)
–
–
31
–
(114)
122
1
12
(30)
(9)
(77)
(11)
(39)
(33)
(106)
(12)
–
(21)
1
2
52
8
(236)
5
291
2
(25)
37
(3)
(48)
(6)
(2)
(6)
–
–
(24)
3
–
4
67
(15)
(4)
108
–
(24)
65
All figures in £ millions
2023
2022
2021
Cash flow from disposals
Proceeds – current year disposals
Proceeds – prior year disposals
Cash and cash equivalents disposed
Costs and other disposal liabilities paid
Net cash (outflow)/inflow
1
–
(12)
(27)
(38)
291
86
(21)
(23)
333
108
16
(24)
(17)
83
2023
2022
6
(1)
5
9
5
14
2023
All figures in £ millions
Net book amount
(Loss)/profit on sale of property, plant and equipment
Proceeds from sale of property, plant and equipment
The movements in the Group’s current and non-current borrowings are as follows:
All figures in £ millions
2022
Fair value
and other
movements
Foreign
exchange
movements
Financing
cash flows
Transfer
from non-
current to
current
New leases/
disposal of
leases
Financial liabilities
Non-current
borrowings
Current borrowings
Total
1,155
66
1,221
(2)
10
8
(15)
(18)
(33)
–
(84)
(84)
(80)
80
–
42
(1)
41
1,100
53
1,153
All figures in £ millions
2021
Fair value
and other
movements
Foreign
exchange
movements
Financing
cash flows
Transfer
from non-
current to
current
New leases/
disposal of
leases
2022
Financial liabilities
Non-current
borrowings
Current borrowings
Total
1,245
157
1,402
(14)
(10)
(24)
61
16
77
(76)
(188)
(264)
(92)
92
–
31
(1)
30
1,155
66
1,221
Non-current borrowings include bonds, derivative financial instruments and leases. Current
borrowings include loans repayable within one year, derivative financial instruments and leases, but
exclude overdrafts classified within cash and cash equivalents.
Annual report and accounts 2023 Pearson plc 203
Financial statements Notes to the consolidated financial statements continued
34. Contingencies, tax uncertainties and commitments
KJ Key judgements
— The application of tax legislation in relation to provisions for uncertain tax positions.
KE Key areas of estimation
— The level of provisions required in relation to uncertain tax positions is complex and each
matter is separately assessed. The estimation of future settlement amounts is based on a
number of factors including the status of the unresolved matter, clarity of legislation, range
of possible outcomes and the statute of limitations.
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 is 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 relation to 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.
At the balance sheet date there were no commitments for capital expenditure contracted for but not
yet incurred. Commitments in respect of leases are shown in note 35.
35. Leases
The Group’s lease portfolio consists of approximately 710 property leases, mainly offices and test
centres, together with a number of vehicle and equipment leases. The Group has elected not to
recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12
months or less and leases of low-value assets. The Group recognises the lease payments associated
with these leases as an expense on a straight-line basis over the lease term.
As a lessee:
The amounts recognised in the income statement are as follows:
All figures in £ millions
Note
2023
2022
Interest on lease liabilities
Expenses relating to short-term leases
Depreciation of right-of-use assets
Impairment of right-of-use assets
(23)
–
(39)
(2)
(25)
–
(45)
(34)
10
10
2021
(27)
–
(49)
(119)
Lease liabilities are included within financial liabilities – borrowings in the balance sheet, see note 18.
The maturities of the Group’s lease liabilities are as follows:
All figures in £ millions
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities
Lease liabilities included in the balance sheet
Analysed as:
Current
Non-current
2023
84
286
301
671
547
64
483
2022
94
320
332
746
605
71
534
Annual report and accounts 2023 Pearson plc 204
Financial statements All figures in £ millions
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease
payments receivable
Unearned finance income
Net investment in finance
lease receivable
Operating
leases
Finance
leases
2023
Total
2022
Total
2021
Total
31
33
34
34
27
54
24
28
28
28
29
44
21
18
20
21
20
41
213
181
141
10
10
11
11
11
48
101
21
23
23
23
16
6
112
(12)
100
The amounts recognised in the cash flow statement are as follows:
All figures in £ millions
Total cash outflow for leases as a lessee
2023
107
2022
118
2021
115
At the balance sheet date commitments for capital leases contracted for but not yet incurred were
£8m (2022: £5m). Extension and termination options and variable lease payments are not significant
within the lease portfolio. Short-term leases to which the Group is committed at the balance sheet
date are similar to the portfolio of short-term leases to which the short-term lease expense is
disclosed above.
As a lessor:
In the event that the Group has excess capacity in its leased offices and warehouses, the Group
subleases some of its properties under operating and finance leases.
The amounts recognised in the income statement are as follows:
All figures in £ millions
2023
2022
2021
Interest on lease receivables
Income from subleasing right-of-use assets
(within other income)
The amounts recognised in the cash flow statement are as follows:
All figures in £ millions
Total cash inflow for leases as a lessor
4
6
2023
19
5
4
2022
23
6
2
2021
27
The following table sets out the maturity analysis of lease payments receivable for subleases
classified as operating leases, showing the undiscounted lease payments to be received after the
reporting date, and subleases classified as finance leases showing the undiscounted lease payments
to be received after the reporting date and the net investment in the finance lease receivable. During
the year, the investment in finance lease receivable decreased by £21m (2022: increased £6m),
primarily due to payments received.
Annual report and accounts 2023 Pearson plc 205
Financial statements Notes to the consolidated financial statements continued
36. Related party transactions
37. Events after the balance sheet date
On 29 February 2024, the Board approved an extension to the share buyback programme of £200m.
Joint ventures and associates
At 31 December 2022, the Group had a current liability payable to Academy of Pop of £5m (2021:
£7m), which related to the Group’s initial capital contribution that had not yet been paid as at 31
December 2022. This balance was paid in early 2023.
Key management personnel
Key management personnel are deemed to be the members of the Pearson Executive Management
team (see pages 72-73). It is this Committee which had responsibility for planning, directing and
controlling the activities of the Group in 2023. Key management personnel compensation is
disclosed below:
All figures in £ millions
Short-term employee benefits
Retirement benefits
Share-based payment costs
Total
2023
2022
2021
9
1
11
21
7
1
9
17
6
1
8
15
Short-term employee benefits and retirement benefits exclude Executive Directors which are shown
on page 119 of the Directors Remuneration Report.
There were no other material related party transactions. No guarantees have been provided to
related parties.
Annual report and accounts 2023 Pearson plc 206
Financial statements 38. Accounts and audit exemptions
The Pearson plc subsidiary companies listed below are exempt from the requirements of the Companies Act 2006 relating to the audit of individual financial statements by virtue of section 479A.
Company number
Company number
Aldwych Finance Limited
Education Development International plc
Faethm Limited
04720439
Pearson Loan Finance No. 6 Limited
03914767
Pearson Loan Finance Unlimited
11842984
Pearson Management Services Limited
Longman Group (Overseas Holdings) Limited
00690236
Pearson Nominees Limited
Pearson Australia Finance Unlimited
Pearson Canada Finance Unlimited
Pearson Dollar Finance Limited
Pearson Dollar Finance Two Limited
Pearson Education Holdings Limited
Pearson Education Investments Limited
Pearson Education Limited
Pearson International Finance Limited
Pearson Loan Finance No. 3 Limited
Pearson Loan Finance No. 5 Limited
05578463
Pearson Overseas Holdings Limited
05578491
Pearson Pension Nominees Limited
05111013
Pearson Pension Trustee Services Limited
06507766
Pearson Professional Assessments Limited
00210859
Pearson Strand Limited
08444933
Pearson Services Limited
00872828
Pearson Shared Services Limited
02496206
Pearson Strand Finance Limited
05052661
PVNT Limited
12017252
TQ Global Limited
12030662
05144467
00096263
00672908
00145205
10809680
10803853
04904325
08561316
01341060
04623186
11091691
08038068
07802458
Annual report and accounts 2023 Pearson plc 207
Financial statements Company balance sheet
As at 31 December 2023
All figures in £ millions
Assets
Non-current assets
Investments in subsidiaries
Amounts due from subsidiaries
Deferred income tax assets
Financial assets – derivative financial instruments
Current assets
Amounts due from subsidiaries
Current income tax assets
Cash and cash equivalents (excluding overdrafts)
Financial assets – derivative financial instruments
Other assets
Total assets
Liabilities
Non-current liabilities
Amounts due to subsidiaries
Financial liabilities – derivative financial instruments
Current liabilities
Amounts due to subsidiaries
Other liabilities
Financial liabilities – derivative financial instruments
Total liabilities
Net assets
Notes
2023
2022
All figures in £ millions
Notes
2023
2022
Equity
Share capital
Share premium
Treasury shares
Capital redemption reserve
Special reserve
Retained earnings – including profit for the year of £467m
(2022: £499m)
Total equity attributable to equity holders of the
company
6
6
7
174
2,642
(19)
33
447
179
2,633
(15)
28
447
1,195
1,178
4,472
4,450
These financial statements have been approved for issue by the Board of Directors on 13 March
2024 and signed on its behalf by
Sally Johnson
Chief Financial Officer
2
5
4
5
5
5
6,702
2,074
35
32
6,738
1,667
44
43
8,843
8,492
277
22
5
15
1
320
9,163
526
4
240
16
1
787
9,279
(3,287)
(3,380)
(38)
(54)
(3,325)
(3,434)
(1,240)
(1,383)
(121)
(5)
(1,366)
(4,691)
4,472
(1)
(11)
(1,395)
(4,829)
4,450
Annual report and accounts 2023 Pearson plc 208
Financial statements Company statement of changes in equity
Year ended 31 December 2023
All figures in £ millions
At 1 January 2023
Profit for the year
Equity-settled transactions1
Issue of ordinary shares under share option schemes1
Purchase of treasury shares
Release of treasury shares
Buyback of equity
Dividends
At 31 December 2023
All figures in £ millions
At 1 January 2022
Profit for the year
Equity-settled transactions1
Issue of ordinary shares under share option schemes1
Purchase of treasury shares
Release of treasury shares
Buyback of equity
Dividends
At 31 December 2022
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Special
reserve
Retained
earnings
179
2,633
(15)
28
447
1,178
–
–
–
–
–
(5)
–
–
–
9
–
–
–
–
–
–
–
(35)
31
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
467
40
–
–
(31)
(304)
(155)
Total
4,450
467
40
9
(35)
–
(304)
(155)
174
2,642
(19)
33
447
1,195
4,472
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Special
reserve
Retained
earnings
189
2,626
(12)
18
447
1,184
–
–
–
–
–
(10)
–
179
–
–
7
–
–
–
–
2,633
–
–
–
(37)
34
–
–
(15)
–
–
–
–
–
10
–
28
Total
4,452
499
38
7
(37)
–
(353)
(156)
–
–
–
–
–
–
–
499
38
–
–
(34)
(353)
(156)
447
1,178
4,450
The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The special reserve represents the cumulative effect of cancellation of the company’s
share premium account.
1. Full details of the share-based payment plans are disclosed in note 26 to the consolidated financial statements.
Annual report and accounts 2023 Pearson plc 209
Financial statements Company cash flow statement
Year ended 31 December 2023
All figures in £ millions
Cash flows from operating activities
Net profit
Adjustments for:
Income tax
Net finance costs
Share-based payment costs
Impairment (reversals)/charges
Amounts due to subsidiaries
Net cash generated from operations
Interest paid
Tax (paid)/received
Net cash generated from operating activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Buyback of equity
Purchase of treasury shares
Proceeds from borrowings
Repayment of borrowings
Dividends paid to company’s shareholders
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
2023
2022
467
499
6
(10)
40
(40)
(301)
162
(14)
(15)
133
9
(186)
(35)
285
(285)
(154)
(366)
(2)
(235)
240
5
(15)
48
38
5
(97)
478
(44)
4
438
7
(353)
(37)
–
–
(156)
(539)
31
(70)
310
240
6
4
Annual report and accounts 2023 Pearson plc 210
Financial statements Notes to the company financial statements
1. Accounting policies
The financial statements on pages 208-218 comprise the separate financial statements of Pearson plc.
These company financial statements have been prepared on the going concern basis and in accordance with
UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006. The
company financial statements have also been prepared in accordance with IFRS Accounting Standards as
issued by the International Accounting Standards Board (IASB).
The company financial statements have been prepared under the historical cost convention as modified by
the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value.
As permitted by section 408 of the Companies Act 2006, the company income statement and statement of
comprehensive income have not been presented.
The company has no employees (2022: nil).
The basis of preparation and accounting policies applied in the preparation of these company financial
statements are the same as those set out in note 1a to the consolidated financial statements with the addition
of the following:
Investments
Investments in subsidiaries are stated at cost less provision for impairment, with the exception of certain
hedged investments that are held in a foreign currency and revalued at each balance sheet date.
Lending to/from subsidiaries is considered to be an operating activity and any movements are classified as
cash flows from operating activities in the cash flow statement.
Amounts owed by subsidiaries
Amounts owed by subsidiaries generally mature within five years, but can be called upon on short notice, or
are repayable on demand. Amounts owed by subsidiaries are classified as current if they mature within one
year of the balance sheet date or if the company intends to call the loan within one year of the balance sheet
date. All other amounts are classified as non-current. The company has assessed and concluded that these
loans will be fully recovered. Therefore credit losses are considered to be immaterial.
Parent company guarantees
The Company has guaranteed the repayment of bonds and certain other liabilities due by subsidiary
undertakings primarily to third parties. Such guarantees are accounted for by the Company under IFRS 9.
They are initially measured at fair value. Subsequently, they are measured at the higher of (i) the amount
initially recognised less the cumulative amount of revenue recognised in accordance with IFRS 15, and (ii) the
expected credit losses under IFRS 9. The Company has also entered into performance guarantees whereby
in respect of contracts entered into by subsidiary undertakings, the Company will settle any claims for non-
performance under the contract in the event that the subsidiary does not perform its responsibilities under
the contract, and it does not pay out any amounts due to the third party in the event of non-performance.
Such performance guarantees are accounted for as loan commitments under IFRS 9.
New accounting standards
The Group adopted IFRS 17 ‘Insurance Contracts’ for the first time in 2023. No other new standards were
adopted in 2023. A number of other new pronouncements are effective from 1 January 2023 but they do not
have a material impact on the company financial statements.
Going concern
In assessing the Company’s ability to continue as a going concern for the period to 30 June 2025, the Board
reviewed management’s five-year plan, which was used as the base case.
The review included available liquidity throughout the period and headroom against the Group’s two main
covenants, which require net debt to EBITDA to be a maximum of four times and interest cover to be at least
three times.
At 31 December 2023, the Group had available liquidity of c.£1bn, comprising central cash balances and
its undrawn $1bn Revolving Credit Facility (RCF). The company's subsidiary Pearson Funding plc has a debt
maturity of €300m due within the going concern assessment period and it is assumed that this is refinanced
ahead of time with a £250m bond or bank facility. In both the base case and severe but plausible scenario, the
business has sufficient liquidity to repay this amount and does not rely on this refinancing in order to remain a
going concern. Significant liquidity and covenant headroom was observed throughout the assessment period
in this base model.
A severe but plausible scenario was analysed, where the Group is impacted by all principal risks in both 2024
and 2025, adjusted for probability weighting as well as other significant risks. For this and other downside
scenarios tested, the net impact of the risks modelled was to reduce adjusted operating profit by around
40% in each year. Even under a severe downside case, the company would maintain comfortable liquidity
headroom and sufficient headroom against covenant requirements during the period under assessment.
That is, even before modelling the mitigating effect of actions that management would take if these downside
risks were to crystalise.
A reverse stress test was performed to identify the reduction in profit required to cease to be a going concern
at or before 30 June 2025. The model showed that operating losses were required in both 2024 and 2025
to breach covenants and in turn to exhaust liquidity. This significantly exceeded the severe but plausible
downside scenario. The Directors consider this reverse stress test scenario to be remote.
The Directors have confirmed that there are no material uncertainties that cast doubt on the Company’s going
concern status and that they have a reasonable expectation that the Company has adequate resources to
continue in operational existence beyond 30 June 2025. The Company financial statements have therefore
been prepared on a going concern basis.
2. Investments in subsidiaries
All figures in £ millions
At beginning of year
Distributions
Impairment reversal
Currency revaluations
At end of year
2023
2022
6,738
–
40
(76)
6,702
6,632
(49)
–
155
6,738
Annual report and accounts 2023 Pearson plc 211
Financial statements Notes to the company financial statements continued
2. Investments in subsidiaries continued
There were no impairments in 2023 or 2022. The recoverability of investments is tested annually for impairment in accordance with IAS 36 ‘Impairment of Assets’. The carrying value is compared to the asset’s recoverable amount
which is generally assessed on a value in use basis. Significant estimation is required to determine the recoverable amount. The value in use of the assets is calculated using a discounted cash flow methodology using financial
information related to the subsidiaries including cash flow projections in conjunction with the goodwill impairment analysis performed by the Group. The key assumptions used in the cash flow projections are discount rates,
perpetuity growth rates, forecast sales growth rates and forecast operating profits. See note 11 of the consolidated financial statements for further details.
3. Financial risk management
The company’s financial instruments comprise amounts due to/from subsidiary undertakings, cash and cash equivalents, derivative financial instruments and current borrowings. Derivative financial
instruments are held at fair value, with all other financial instruments held at amortised cost, which approximates fair value. The company’s approach to the management of financial risks is consistent with the
Group’s treasury policy, as discussed in note 19 to the consolidated financial statements. The company believes the value of its financial assets to be fully recoverable.
The carrying value of the company’s financial instruments is exposed to movements in interest rates and foreign currency exchange rates (primarily US dollars). The company estimates that a 1% increase in
interest rates would result in a £11m increase (2022: £7m increase) in the carrying value of its financial instruments, with a 1% decrease in interest rates resulting in a £10m decrease (2022: £6m decrease)
in their carrying value. The company also estimates that a 10% strengthening in sterling would decrease the carrying value of its financial instruments by £40m (2022: £136m), while a 10% weakening in the
value of sterling would increase the carrying value by £48m (2022: £153m). These increases and decreases in carrying value would be recorded through the income statement. Sensitivities are calculated
using estimation techniques such as discounted cash flow and option valuation models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were
adjusted to 0%.
The following table analyses the company’s derivative assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.
The amounts disclosed in the table are the contractual undiscounted cash flows (including interest) and as such may differ from the amounts disclosed on the balance sheet.
All figures in £ millions
At 31 December 2023
Rate derivatives – inflows
Rate derivatives – outflows
FX forwards – inflows
FX forwards – outflows
Total
At 31 December 2022
Rate derivatives – inflows
Rate derivatives – outflows
FX forwards – inflows
FX forwards – outflows
Total
Analysed by maturity
Analysed by currency
Greater than
one month
and less than
one year
Later than
one year but
less than
five years
Five years
or more
Total
USD
GBP
Other
Total
(13)
5
(428)
421
(15)
(11)
1
(304)
313
(1)
(262)
268
–
–
6
(471)
490
–
–
19
–
–
–
–
–
–
–
–
–
–
(275)
273
(428)
421
(9)
(482)
491
(304)
313
18
(6)
178
–
421
593
(24)
224
–
–
200
(9)
89
(428)
–
(348)
(170)
255
(304)
313
94
(260)
6
–
–
(254)
(288)
12
–
–
(276)
(275)
273
(428)
421
(9)
(482)
491
(304)
313
18
All cash flow projections shown above are on an undiscounted basis. Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not
possible, floating rates are based on interest rates prevailing at 31 December in the relevant year. All derivative amounts are shown gross, although the company net settles these amounts wherever possible.
Annual report and accounts 2023 Pearson plc 212
Financial statements Fair value hedge accounting
A foreign currency exposure arises from foreign exchange fluctuations on translation of the
company’s investments in subsidiaries denominated in USD into GBP. The hedged risk is the risk of
changes in the GBP:USD spot rate that will result in changes in the value of the USD investments
when translated into GBP. The hedged items are a portion of the company’s equity investment
in subsidiaries denominated in USD. The hedging instruments are a portion of the company’s
intercompany loans due from subsidiaries which are denominated in USD.
It is expected that the change in value of each of these items will offset each other as there is a clear
and direct economic relationship between the hedge and the hedged item in the hedge relationship.
Hedge ineffectiveness would arise if the value of the hedged items fell below the value of the hedging
instruments; however, this is unlikely as the value of the company’s investments denominated in USD
is significantly greater than the proposed fair value hedge programme.
The value of the hedged items and the hedging instruments is £1.4bn (2022: £1.4bn) and the change
in value during the year which was used to assess hedge ineffectiveness was £77m (2022: £155m).
There was no hedge ineffectiveness.
Cash flows from the €300m EUR 2025 bond are received by the company from its subsidiary
creating a foreign currency exposure upon the translation from EUR to GBP. Changes in the
GBP:EUR spot rate will result in changes to the value of amounts due from subsidiaries when
translated into GBP. The hedged item is €100m of this amount due from subsidiaries denominated
in EUR. The hedging instrument is a €100m 2025 cross-currency swap. It is expected that the change
in value of these items will move in the opposite directions as a result of movements in the EUR:GBP
exchange rate.
Credit risk management
The company’s main exposure to credit risk relates to lending to subsidiaries. Amounts due
from subsidiaries are stated net of provisions for bad and doubtful debts. The credit risk of each
subsidiary is influenced by the industry and country in which they operate; however, the company
considers the credit risk of subsidiaries to be low as it has visibility of, and the ability to influence,
their cash flows.
4. Cash and cash equivalents (excluding overdrafts)
All figures in £ millions
Cash at bank and in hand
2023
5
5
2022
240
240
5. Derivative financial instruments
The company’s outstanding derivative financial instruments are as follows:
2023
2022
All figures in £ millions
Interest rate derivatives
Cross-currency rate derivatives
FX derivatives
Total
Analysed as expiring:
In less than one year
Later than one year and not
later than five years
Total
Gross
notional
amounts
430
439
894
1,763
995
768
1,763
Assets
Liabilities
Gross
notional
amounts
437
83
916
1,436
(6)
(32)
(5)
(43)
(5)
1,016
(38)
(43)
420
1,436
Assets
Liabilities
19
34
6
59
16
43
59
(11)
(43)
(11)
(65)
(11)
(54)
(65)
14
26
7
47
15
32
47
The carrying value of the above derivative financial instruments equals their fair value. Derivatives
are categorised as level 2 on the fair value hierarchy. Fair values are determined by using
market data and the use of established estimation techniques such as discounted cash flow and
option valuation models.
6. Share capital and share premium
At 31 December 2021
Issue of ordinary shares – share option schemes
Buyback of equity
At 31 December 2022
Issue of ordinary shares – share option schemes
Buyback of equity
At 31 December 2023
Number of
shares
000s
756,802
1,199
(42,268)
715,733
1,809
(20,243)
697,299
Share
capital
£m
Share
premium
£m
189
–
(10)
179
–
(5)
174
2,626
7
–
2,633
9
–
2,642
At the end of 2023, the currency split of cash and cash equivalents was US dollar 0% (2022: 79%),
sterling 44% (2022: 18%) and other 56% (2022: 3%). Cash and cash equivalents have fair values that
approximate their carrying amounts due to their short-term nature.
The ordinary shares have a par value of 25p per share (2022: 25p per share). All issued shares are
fully paid. All shareholders are entitled to receive dividends and vote at general meetings of the
company. All shares have the same rights.
Annual report and accounts 2023 Pearson plc 213
Financial statements Notes to the company financial statements continued
6. Share capital and share premium continued
8. Contingencies
On 20 September 2023, the Board approved a £300m share buyback programme in order to
return capital to shareholders. During the year, approximately 20m shares were bought back and
cancelled at a cost of £186m. The nominal value of these shares, £5m, was transferred to the capital
redemption reserve, and the remainder of the purchase price is recorded within retained earnings.
At 31 December 2023, a liability of £118m remained for those shares contracted to be repurchased
but where the repurchases were still outstanding and associated costs.
On 24 February 2022, the Board approved a £350m share buyback programme in order to
return capital to shareholders. During 2022, approximately 42m shares were bought back and
cancelled at a cost of £353m. The nominal value of these shares, £10m, was transferred to the
capital redemption reserve, and the remainder of the purchase price was recorded within
retained earnings.
7. Treasury shares
At 31 December 2021
Purchase of treasury shares
Release of treasury shares
At 31 December 2022
Purchase of treasury shares
Release of treasury shares
At 31 December 2023
Number of
shares
000s
1,571
4,513
(4,220)
1,864
3,991
(3,695)
2,160
£m
12
37
(34)
15
35
(31)
19
The company holds its own shares in trust to satisfy its obligations under its restricted share plans.
These shares are treated as treasury shares for accounting purposes and have a par value of 25p
per share.
The nominal value of the company’s treasury shares amounts to £0.5m (2022: £0.5m). Dividends on
treasury shares are waived.
At 31 December 2023, the market value of the company’s treasury shares was £21m (2022: £18m).
The gross book value of the shares at 31 December 2023 amounts to £19m (2022: £15m).
There are contingent 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. The total value of guarantees made by the company in relation to its subsidiaries
is £912m (2022: £889m). In addition, there are contingent liabilities in respect of legal claims. None
of these claims is expected to result in a material gain or loss to the company.
9. Audit fees
Statutory audit fees relating to the company were £40,700 (2022: £38,037).
10. Related party transactions
Subsidiaries
The company transacts and has outstanding balances with its subsidiaries. Amounts due
from subsidiaries and amounts due to subsidiaries are disclosed on the face of the company
balance sheet.
These loans are generally unsecured and interest is calculated based on market rates. The
company has interest payable to subsidiaries for the year of £188m (2022: £137m) and interest and
guarantee fees receivable from subsidiaries for the year of £189m (2022: £105m). Management fees
payable to subsidiaries in respect of centrally provided services amounted to £17m (2022: £16m).
Management fees receivable from subsidiaries in respect of centrally provided services amounted
to £31m (2022: £34m). Dividends received from subsidiaries were £448m (2022: £605m), which
includes £nil (2022: £49m) of returns of capital distributed by subsidiaries.
Associates
There were no related party transactions with associates in 2023 or 2022.
Key management personnel
Key management personnel are deemed to be the members of the Pearson Executive
Management team.
It is this Committee which had responsibility for planning, directing and controlling the activities
of the company in 2023. Key management personnel compensation is disclosed in note 36 to the
consolidated financial statements.
Annual report and accounts 2023 Pearson plc 214
Financial statements 11. Group companies
In accordance with section 409 of the Companies Act 2006, a full list of subsidiaries, partnerships, associates, joint ventures and joint arrangements, the country of incorporation, the registered address and
the effective percentage of equity owned, as at 31 December 2023, is disclosed below. Unless otherwise stated, the shares are all indirectly held by Pearson plc. Unless otherwise stated, all wholly-owned and
partly-owned subsidiaries are included in the consolidation and all associated undertakings are included in the Group’s financial statements using the equity method of accounting. Principal Group companies
are identified in bold.
Wholly-owned subsidiaries
Registered company name
Addison Wesley Longman, Inc.
Addison-Wesley Educational Publishers Inc.
AEL (S) PTE Limited
Aldwych Finance Limited
ATI Professional Development LLC
ATI Studios A.P.P.S. SRL
Atkey Finance Limited*
Camsaw, Inc.
CAMSAWUSA, Inc.
Centro Cultural Americano Franquias e Comércio Ltda.
Century Consultants Ltd.
Certiport China Holding, LLC
Certiport, Inc.
Clutch Learning, Inc.
Cogmed Systems AB
Connections Academy of Florida, LLC
Connections Academy of Iowa, LLC
Connections Academy of Maine, LLC
Connections Academy of Maryland, LLC
Connections Academy of Nevada, LLC
Connections Academy of New Mexico, LLC
Connections Academy of Oregon, LLC
Connections Academy of Pennsylvania LLC
Connections Academy of Tennessee, LLC
Connections Academy of Texas LLC
Connections Education LLC
Connections Education of Florida, LLC
Connections Education, Inc.
Credly, Inc.
Dominie Press, Inc.
Dorian Finance Limited
Country
of Incorp.
Reg
office
Registered company name
Country
of Incorp.
Reg
office
US
US
SG
UK
US
RO
IE
US
US
BR
US
US
US
US
SE
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
IE
3
4
73
1
4
78
7
4
11
15
13
4
4
4
14
20
24
28
29
31
32
37
38
40
41
4
20
4
4
17
7
eCollege.com
Edexcel Limited†*
Education Development International Plc†
Education Resources (Cyprus) Limited
Educational Management Group, Inc.
English Language Learning and Instruction System, Inc.
Faethm Holdings Pty. Limited
Faethm IP Pty. Limited
Faethm Ltd
Faethm Pty. Limited
Faethm USA LLC
Falstaff Holdco Inc.
Falstaff Inc.
FBH, Inc.
George (Shanghai) Commercial Information Consulting Co., Ltd
Globe Fearon Inc.
Heinemann Educational Botswana (Publishers) Proprietary Limited
IndiaCan Education Private Limited
Integral 7, Inc.
INTELLIPRO, INC.
Knowledge Analysis Technologies, LLC
LCCIEB Training Consultancy., Ltd
LessonLab, Inc.
Lignum Oil Company
LION SG PTE. LTD.*
Longman (Malawi) Limited
Longman Group(Overseas Holdings) Limited
Longman Indochina Acquisition, L.L.C.
Longman Tanzania Limited*
Longman Zambia Educational Publishers Pty Ltd
Longman Zimbabwe (Private) Ltd
Longmaned Ecuador S.A.
US
UK
UK
CY
US
US
AU
AU
UK
AU
US
US
US
US
CN
US
BW
IN
US
US
US
CN
US
US
SG
MW
UK
US
TZ
ZM
ZW
EC
4
50
1
51
52
54
48
48
1
48
6
4
55
4
21
17
8
2
4
13
18
64
17
4
23
65
1
4
68
69
47
71
Registered company name
Lumerit Education, LLC
Major123 Limited*
MeasureUp of Delaware, LLC
Modern Curriculum Inc.
Multi Treinamento e Editora Ltda
MZ Development Inc.
National Computer Systems Japan Co. Ltd
Navvy Education, LLC
NCS Information Technology Services (Beijing) Co Ltd
NCS Pearson Pty Ltd
NCS Pearson Puerto Rico, Inc.
NCS Pearson, Inc.
Opinion Interactive LLC
Ordinate Corporation
Pearson (Beijing) Management Consulting Co., Ltd.
Pearson America LLC
Pearson Amsterdam B.V.
Pearson Australia Finance Unlimited
Pearson Australia Group Pty Ltd
Pearson Australia Holdings Pty Ltd
Pearson Benelux B.V.
Pearson Books Limited†*
Pearson Brazil Finance Limited*
Pearson Business Services Inc.
Pearson Canada Assessment Inc.
Pearson Canada Finance Unlimited
Pearson Canada Holdings Inc.
Pearson Canada Inc.
Pearson Central Europe Spółka z ograniczoną odpowiedzialnością
Pearson DBC Holdings Inc.
Pearson Desarrollo y Capacitación Profesional Chile Limitada
Pearson Deutschland GmbH
Country
of Incorp.
Reg
office
US
UK
US
US
BR
US
JP
US
CN
AU
PR
US
US
US
CN
US
NL
UK
AU
AU
NL
UK
UK
US
CA
UK
CA
CA
PL
US
CL
DE
41
50
4
17
60
4
74
22
75
48
76
30
16
17
77
4
79
1
48
48
79
50
50
4
80
1
80
80
39
4
81
82
Annual report and accounts 2023 Pearson plc 215
Financial statements Notes to the company financial statements continued
11. Group companies continued
Registered company name
Pearson Digital Learning Puerto Rico, Inc.
Pearson Dollar Finance Limited†
Pearson Dollar Finance Two Limited
Pearson Educacion de Chile Limitada
Pearson Educacion de Colombia S.A.S.
Pearson Educacion de Mexico, S.A. de C.V.
Pearson Educacion de Panama SA
Pearson Educacion de Peru S.A.
Pearson Educacion SA
Pearson Education Africa (Pty) Ltd
Pearson Education Asia Limited
Pearson Education Botswana (Proprietary) Limited
Pearson Education do Brasil Ltda
Pearson Education Hellas SA
Pearson Education Holdings Limited†
Pearson Education Indochina Limited
Pearson Education Investments Limited
Pearson Education Korea Limited
Pearson Education Limited
Pearson Education Namibia (Pty) Limited
Pearson Education Publishing Limited
Pearson Education S.A.
Pearson Education SA
Pearson Education South Africa (Pty) Ltd
Pearson Education South Asia Pte. Ltd.
Pearson Education Taiwan Ltd
Pearson Education, Inc.
Pearson Educational Measurement Canada, Inc.
Pearson Educational Publishers, LLC
Pearson Egitim Cozumleri Tikaret Limited Sirketi
Pearson Falstaff (Holdings) Inc.
Pearson Falstaff Holdco LLC
Pearson Federal Holding Company, LLC
Pearson France
Pearson Funding Four Limited†*
Pearson Funding plc†
Pearson Holdings Inc.
Country
of Incorp.
Reg
office
Registered company name
Country
of Incorp.
Reg
office
Registered company name
Country
of Incorp.
Reg
office
PR
UK
UK
CL
CO
MX
PA
PE
ES
ZA
HK
BW
BR
GR
UK
TH
UK
KR
UK
NA
NG
UY
AR
ZA
SG
TW
US
CA
US
TR
US
US
US
FR
UK
UK
US
76
1
1
81
84
85
86
87
88
47
53
8
60
26
1
89
1
90
1
58
44
5
67
47
73
9
4
36
4
61
4
4
4
70
50
1
4
Pearson Holdings Southern Africa (Pty) Limited
Pearson Hungary LLC*
Pearson India Education Services Private Limited
Pearson International Finance Limited†
Pearson Investment Holdings, Inc.
Pearson Israel (P.I.) Ltd
Pearson Japan KK
Pearson Lanka (Private) Limited
Pearson Lanka Support Services (Private) Limited
Pearson Lesotho (Pty) Ltd
Pearson Loan Finance No. 3 Limited
Pearson Loan Finance No. 4 Limited*
Pearson Loan Finance No. 5 Limited
Pearson Loan Finance No. 6 Limited
Pearson Loan Finance Unlimited
Pearson Longman Uganda Limited
Pearson Malaysia Sdn. Bhd.
Pearson Management Services Limited†
Pearson Management Services Philippines Inc.
Pearson Maryland, Inc.
Pearson Moçambique, Limitada
Pearson Netherlands B.V.
Pearson Netherlands Holdings B.V.
Pearson Nominees Limited†
Pearson Online Tutoring LLC
Pearson Overseas Holdings Limited†
Pearson PEM P.R., Inc.
Pearson Phoenix Pty Ltd
Pearson Professional Assessments Limited
Pearson Real Estate Holdings Inc.
Pearson Real Estate Holdings Limited†*
Pearson Regional Headquarters Arabia
Pearson Schweiz AG
Pearson Services Limited†
Pearson Shared Services Limited†
Pearson Strand Finance Limited†
Pearson Strand Limited
Pearson Sweden AB
Pearson VUE Europe B.V.
Pearson VUE Philippines, Inc.
Penguin Capital, LLC
Personnel Decisions Research Institutes, LLC
PN Holdings Inc.
ProctorCam, Inc.
PT Efficient English Services
PVNT Limited
Reading Property Holdings LLC
Rebus Planning Associates, Inc.
Reston Publishing Company, Inc.
Rycade Capital Corporation
Shanghai AWL Education Software Ltd*
Silver Burdett Ginn Inc.
Skylight Training and Publishing Inc.
Smarthinking, Inc.
Sound Holdings Inc.
Sparrow Phoenix Pty Ltd
Spear Insurance Company Limited†
The Waite Group, Inc.
TQ Catalis Limited*
TQ Clapham Limited*
TQ Education and Training Limited
TQ Education and Training Limited
TQ Global Limited
TQ Group Limited
TQ Holdings Limited
VUE Testing Services Israel Ltd
VUE Testing Services Korea Limited
Williams Education GmbH
* In liquidation.
† Directly owned by Pearson plc.
ZA
HU
IN
UK
US
IL
JP
LK
LK
LS
UK
UK
UK
UK
UK
UG
MY
UK
PH
US
MZ
NL
NL
UK
US
UK
PR
AU
UK
US
UK
SA
CH
UK
UK
UK
UK
47
25
2
1
4
66
49
63
12
62
1
50
1
1
1
43
59
1
33
11
42
79
79
1
4
1
19
48
1
4
50
57
34
1
1
1
1
SE
NL
PH
US
US
US
US
ID
UK
US
US
US
US
CN
US
US
US
US
AU
BM
US
UK
UK
UK
SA
UK
UK
UK
IL
KR
DE
14
79
27
4
30
4
4
83
1
3
10
4
4
72
4
52
4
4
48
45
17
50
50
1
56
1
1
1
46
35
82
Annual report and accounts 2023 Pearson plc 216
Financial statements Subsidiary addresses
The following list includes all Pearson registered offices worldwide.
Registered office address
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
80 Strand, London, WC2R 0RL, England
Featherlite, ‘The Address’, 5th Floor, Survey No 203/10B, 200 Ft MMRD Road, Zamin,
Pallavaram, Chennai, TN 600044, India
C T Corporation System, 155 Federal St., Suite 700, Boston, MA, 02110, United States
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle, DE, 19801, United States
Juan Benito Blanco 780 – Plaza Business Center, Montevideo, Uruguay
340 Halsa Dr, Chattahoochee Hills, GA, GA 30268, United States
1st Floor The Liffey Trust Centre, 117-126 Sheriff Street Upper, Dublin 1, Ireland
Dps Consulting Services Proprietary Limited, Plot 54513, Unit 6a, Courtyard, Village,
Gaborone, Botswana
10F, No 209, Sec. 1, Civic Blvd., Datong District, Taipei City, 10351, Taiwan
(Province of China)
The Corporation Company, 40600 Ann Arbor Rd, E Suite 201, Plymouth, MI, 48170,
United States
The Corporation Trust Incorporated, Suite 201, 2405 York Road, Lutherville Timonium,
MD, 21093, United States
#1, 3, 5th Floor, East Tower, World Trade Centre, Echelon Square, Colombo, O1,
Sri Lanka
820, Bear Tavern Road, West Trenton, Mercer, NJ, 08628, United States
Gustavslundsvägen 137, 167 51 Bromma, Stockholm, Sweden
Avenida Francisco Matarazzo nº 1400 Edifício Milano – 7º andar, Conjunto 72 – Sala 25
de Março – Agua Branca, São Paulo, 05001 903, Brazil
105 E Street #2A, Davis, CA, CA 95616, United States
C T Corporation System, 330 N Brand Blvd., Glendale, CA, 91203-2336
The Corporation Company, 7700 E Arapahoe Rd, Suite 220, Centennial, CO, 80112-
1268, United States
500, 401, Calle de la Tanca Edificio Ochoa, San Juan, 00901-1969, Puerto Rico
C T Corporation System, 1200, South Pine Island Road, Plantation, FL, 33324,
United States
Suite A7b, 3/F, No. 586 Longchang Road, Yangpu District, Shanghai, China
CT Corportion System, 289 S Culver St, Lawrenceville, GA, 30046-4805, United States
Kroll Pte. Limited, One Raffles Place, Tower 2, #10-62, Singapore, 048616, Singapore
C T Corporation System, 400 E Court Ave, Des Moines, IA, 50309, United States
22 B, 13 em, Népfürdő utca, Budapest, 1138, Hungary
4 Zalogou Str., 15343 Agia Paraskevi, Athens, Greece
27/F Trident Tower, 312 Sen. Gil Puyat Avenue, Makati City, Metro Manila, Philippines
C T Corporation System, 100 Second Avenue, Augusta, ME, 04330, United States
CSC - Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore,
MD, 21202, United States
C T Corporation System Inc., 1010 Dale Street North, St Paul, MN, 55117-5603,
United States
The Corporation Trust Company of Nevada, 701 S Carson St, Suite 200, Carson City,
NV, 89701, United States
Registered office address
Registered office address
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
C T Corporation System, 206 S Coronado Ave, Espanola, NM, 87532-2792,
United States
7/F North Tower, Rockwell Business Center COR. Sheridan & United Street, Brgy.
Highway Hills, Mandaluyong, Philippines
10 Gewerbestrasse, Cham, 6330, Switzerland
21, Mugyo-ro Jung-gu, Seoul, Republic of Korea
199 Bay Street, Commerce Court West, Suite 2800, Toronto, ON, M5L1A9, Canada
C T Corporation System, 780 Commercial Street SE, STE 100, Salem, OR, OR 97301,
United States
C T Corporation System, 600 N. 2nd Street, Suite 401, Harrisburg, PA, 17101-1071,
United States
Ulica Szamocka 8 01-748, Warszawa, Poland
C T Corporation System, 300 Montvue Rd, Knoxville, TN, 37919-5546, United States
CT Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX, 75201, United States
Numero 776, Avenida 24 de Julho, Maputo, Mozambique
Plot 8, Berkley Road, Old Kampala, Uganda
8, Secretariat Road, Obafemi Awolowo Way, Alausa, Ikeja, Lagos State, Nigeria
Power House, 7 Par-la-ville Road, PO Box 1826, Hamilton, HM 11, Bermuda
Derech Ben Gurion 2, BSR Building 9th Floor, Ramat Gan, 52573, Israel
Auto Atlantic, 4th Floor, Corner Hertzog Boulevard and Heerengracht, Cape Town, 8001,
South Africa
459-471 Church Street, Richmond, Melbourne, VIC, 3121, Australia
11F Kanda Square, 2-2-1 Kanda-Nishikicho, Chiyoda-ku, Tokyo, 101-0054, Japan
Kroll Advisory Ltd., The Shard, 32 London Bridge Street, London, SE1 9SG, England
195, Archbishop Makarios III Avenue, Neocleous House, Limassol, 3030, Cyprus
Illinois Corporation Service Company, 700 S 2nd Street, Springfield, IL, 62703,
United States
18/F, 1063 King’s Road, Quarry Bay, Hong Kong
251, Little Falls Drive, Corporation Service Company, Wilmington, DE, 19808,
United States
C T Corporation System, 28 Liberty Street, New York, NY, 10005, United States
King Fayad Road, Olaya, Riyadh, 58774, 11515, Saudi Arabia
Al Tawuniyya Towers, King Fahd Road, North Block, 2nd floor, Riyadh, Saudi Arabia
Unit 7 Kingland Park, 98 Nickel Street, Prosperita, Windhoek, Namibia
Unit 30-01, Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No 8,
Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia
Avenida José Luiz Mazzali, nº 450, Sala H, Setor Módulo 03B, GLP Louveira I, Santo
Antônio, Louveira, SP, CEP 13.290-000, Brazil
Nida Kule Kozyatagi, Kozyatagi Mahallesi, Degirmen Sokak No:18 Kat:6 D:15, Kadikoy,
Istanbul, 34742, Turkey
62
1st Floor Christie House, Orpen Road, Maseru, Lesotho
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
MAGA ONE-Level 22, No. 200, Nawala Road, Narahenpita, Colombo 05, 11222,
Sri Lanka
Room 305, Building 2, 6555 Shangchuan Road, Pudong District, Shanghai, China
AMG Global, Global House, Kristwick, Masauko Chipembere Highway, Blantyre, Malawi
Meitar Law Offices, 16 Abba Hillel Rd., Ramat Gan, 5250608, Israel
498, Libertador Ave, City of Buenos Aires, 3rd floor, Buenos Aires, Argentina
P O Box 45, IPS Building, Maktaba Street, Dar es Salaam, Tanzania
Plot 1281, Lungwebungu Road, Rhodes Park, Lusaka, Zambia
8 Rue des Pirogues de Bercy, 75012 Paris, France
Andalucía y cordero E12-35. Edificio CYEDE piso 1, Oficina 11, Sector “La Floresta”,
Quito, Pichincha, Ecuador
Suite 302-9,Block 3, No. 333 Weining Road, Changning District, Shanghai, China
3 Temasek Avenue, #21-23 Centennial Tower, 039190, Singapore
Shiodome City Center 18F, 1-5-2, Higashi Shimbashi, Minato-Ku, Tokyo,
105-7118, Japan
Suite 1201, Tower 2, No. 36 North Third Ring East Road, Dongcheng District,
Beijing, China
268 Munoz Rivera Avenue, Suite 1400, San Juan, 00918, Puerto Rico
Room 902, Tower W2, Oriental Plaza, No. 1 East Chang’an Street, Dongcheng District,
Beijing, 11, 100738, China
Str. Politehnicii 3, Braşov, 500019, Romania
Kabelweg 37, Amsterdam, 1014 BA, Netherlands
357 Bay Street, 3rd Floor, Toronto, ON, M5H 4A6, Canada
Oficina N°117, edificio Casa Colorada, calle Merced N°838-A Santiago Centro,
Santiago, Chile
c/o Pearson Deutschland GmbH, St.-Martin-Str. 82, Munich, 81541, Germany
30th Floor, Ratu Plaza Office Tower, Jl. Jend. Sudirman Kav 9, Jakarta, 10270, Indonesia
Carrera 7 Nro 156 – 68, Piso 26, Bogota, Colombia
Calle Antonio Dovali jaime #70, Torre B, Piso 6, Col. Zedec ed Plaza Santa Fe, del. Álvaro
Obregon, Ciudad de Mexico, CP 01210, Mexico
Punta Pacifica, Torres de las Americas, Torre A Piso 15 Ofic. 1517, Panama,
0832-0588, Panama
Cal. Los Halcones, no. 275, Urb. Limatombo, Lima, Perú
85, Paseo de la Castellana, Planta 8, Madrid, 28046, Spain
87/1 Capital Tower Building, All Seasons Place unit 1604 – 6 16th floor, Wireless Road,
Lumpini, Pathumwan, Bangkok, Thailand
90
#512, 5th Floor, 12, Mapo-daero 10-gil, Mapo-gu, Seoul, Republic of Korea
Annual report and accounts 2023 Pearson plc 217
Financial statements Notes to the company financial statements continued
Partly-owned subsidiaries and associated undertakings company
addresses
Registered office address
1
2
3
4
5
6
7
8
9
Suite 1804, No.99 Huichuan Road, Changning District, Shanghai City, China
80 Strand, London, WC2R 0RL, England
C T Corporation System, 4701 Cox Road, Suite 285, Glen Allen, Henrico, VA, 23060-0000, United States
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle, DE, 19801, United States
Auto Atlantic, 4th Floor, Corner Hertzog Boulevard and Heerengracht, Cape Town, 8001, South Africa
251, Little Falls Drive, Corporation Service Company, Wilmington, DE, 19808, United States
SIS 1107A1112, 35 Rua Pedro Lessa, Centro, Rio de Janeiro, RJ, 20030-030, Brazil
Incorporating Services, Ltd. 3500 S Dupont Way, Dover, Kent, DE, United States
Campbells Corporate Services Limited, Floor 4, Willow House, Cricket Square, Grand Cayman, KY1-9010, Cayman Islands
10 Suite 216, No. 127-1 Zhongguancun North Street, Haidian District, Beijing, China
11 Rua de Pequim No. 230–246 17-L, Macau Finance Centre, Macau
12 C/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808, United States
13 9 Rashdan St., Messaha Square, Dokki, Giza City, Egypt
11. Group companies continued
Partly-owned subsidiaries
Registered company Name
Certiport China Co Ltd
Educational Publishers LLP
GED Domains LLC
GED Testing Service LLC
Pearson Education Achievement Solutions (RF) (Pty) Limited
Pearson Pension Nominees Limited
Pearson Pension Property Fund Limited
Pearson Pension Trustee Limited
Pearson Pension Trustee Services Limited
Associated undertakings
Registered company Name
Academy of Pop LLC
Learn Capital Special Opportunities Fund I, L.P.‡
Learn Capital Venture Partners II, L.P.‡
Learn Capital Venture Partners IIIA, L.P.‡
Learn Capital Venture Partners, L.P.‡
Peking University Pearson (Beijing) Cultural Development Co., Ltd
Prepona Sistemas de Testagem e Avaliação S.A.
Pui Man Publishing Limited
Smashcut, Inc.
The Egyptian International Publishing Company-Longman
* In liquidation.
‡ Accounted for as an ‘Other financial asset’ within non-current assets.
Country
of Incorp.
% Owned
Reg office
CN
UK
US
US
ZA
UK
UK
UK
UK
50.69
85
70
70
97.3
50
50
50
50
1
2
3
4
5
2
2
2
2
Country
of Incorp.
% Owned
Reg office
US
US
US
KY
US
CN
BR
CN
US
EG
40
99.59
72.93
99
99.15
45
22.2
49
25.93
49
6
8
8
9
8
10
7
11
12
13
Annual report and accounts 2023 Pearson plc 218
Financial statements Five-year summary
All figures in £ millions
Sales: By operating segment
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
Strategic review
Total sales
Adjusted operating profit: By operating segment
Assessment & Qualifications
Virtual Learning
English Language Learning
Workforce Skills
Higher Education
Strategic review
Penguin Random House
Total adjusted operating profit
Operating margin – continuing
Adjusted earnings
Total adjusted operating profit
Net finance costs
Income tax
Non-controlling interest
Adjusted earnings
Weighted average number of shares (millions)
Adjusted earnings per share
2023
2022
2021
2020
2019
1,559
1,444
1,238
1,118
616
415
220
855
9
820
321
204
898
154
713
238
172
849
218
692
218
163
956
250
3,674
3,841
3,428
3,397
3,869
350
76
47
(8)
110
(2)
–
258
219
147
70
25
(3)
91
15
–
32
15
27
73
19
–
29
1
26
93
16
1
573
456
385
15.6%
11.9%
11.2%
313
9.2%
581
15.0%
573
(33)
(124)
(2)
414
711.5
58.2p
456
(1)
(71)
(2)
382
738.1
51.8p
385
(57)
(64)
(1)
263
754.1
34.9p
313
(61)
(35)
–
217
755.4
28.7p
581
(41)
(89)
(2)
449
777.0
57.8p
Sales and adjusted operating profit for periods prior to 2020 have not been restated to reflect the new organisational structure including the transfer of retained English-speaking Canadian and Australian K12
Courseware businesses from Strategic review to the Assessment & Qualifications division.
Annual report and accounts 2023 Pearson plc 219
Other information (unaudited) Five-year summary continued
All figures in £ millions
Cash flow
Operating cash flow
Operating cash conversion
Free cash flow
Free cash flow per share
Net assets
Net debt
Return on invested capital
Total adjusted operating profit
Operating tax paid
Return
Gross basis:
Average invested capital
Return on invested capital
Net basis:
Average invested capital
Return on invested capital
Return on capital*
Total adjusted operating profit
Adjusted income tax charge
Return
Capital
Return on capital
Dividend per share
* Return on capital was not a metric in 2019 and therefore has not been presented.
2023
2022
2021
2020
2019
587
102%
387
54.4p
3,988
744
573
(96)
477
401
88%
222
30.0p
4,415
557
456
(95)
361
10,546
10,896
4.5%
3.3%
7,711
6.2%
7,896
4.6%
573
(124)
449
4,380
10.3%
22.7p
456
(71)
385
4,439
8.7%
21.5p
388
101%
133
17.6p
4,280
350
385
(60)
325
9,857
3.3%
7,161
4.5%
385
(64)
321
4,086
7.9%
20.5p
315
101%
229
30.3p
4,134
463
313
(10)
303
418
72%
213
27.4p
4,323
1,016
581
(9)
572
10,625
11,096
2.9%
5.2%
7,708
3.9%
8,097
7.1%
313
(35)
278
4,196
6.6%
19.5p
19.5p
Annual report and accounts 2023 Pearson plc 220
Other information (unaudited) Financial key performance indicators
The following tables and narrative provide further analysis of the financial key performance
indicators which are described in the financial review of the annual report on pages 26-33, shown
within the key performance indicators on page 25 of the annual report and shown in note 2 of the
notes to the consolidated financial statements.
Adjusted performance measures
The annual report and accounts reports results and performance on a headline basis which
compares the reported results both on a statutory and on a non-GAAP (non-statutory) basis.
The Group’s adjusted performance measures are non-GAAP (non-statutory) financial measures
and are also included in the annual report as they are key financial measures used by management
to evaluate performance. The measures also enable investors to more easily, and consistently,
track the underlying operational performance of the Group and its business segments 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.
The Group’s definition of adjusted performance measures 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 within this section.
Sales
Underlying sales movements exclude the effect of exchange, the impact of portfolio changes arising
from acquisitions and disposals and the impact of adopting new accounting standards that are not
retrospectively applied. Portfolio changes are calculated by taking account of the additional sales
(at constant exchange rates) from acquisitions made in both the current year and the prior year. For
acquisitions made in the prior year, the additional sales excluded is calculated as the sales made in
the period of the current year that corresponds to the pre-acquisition period in the prior year. Sales
made by businesses disposed in either the current year or the prior year are also excluded. Constant
exchange rates are calculated by assuming the average exchange rates in the prior year prevailed
throughout the current year. These non-GAAP measures enable management and investors to track
more easily, and consistently, the underlying sales performance of the Group.
All figures in £ millions
Statutory sales 2023
Statutory sales 2022
Statutory sales
increase/(decrease)
Comprising:
Exchange differences
Portfolio changes
Underlying increase/
(decrease)
Remove OPM and
Strategic Review from
underlying
Underlying increase/
(decrease) excluding
OPM and Strategic
Review
Statutory sales
increase/(decrease)
Constant exchange rate
increase/(decrease)
Underlying increase/
(decrease)
Underlying increase/
(decrease) excluding
OPM and Strategic
Review
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review
1,559
1,444
616
820
415
321
220
204
855
898
9
154
Total
3,674
3,841
115
(204)
94
16
(43)
(145)
(167)
(11)
24
(4)
(65)
(10)
7
(1)
(5)
(7)
(5)
–
(131)
(33)
(175)
102
(135)
97
22
(31)
(14)
41
–
124
–
–
–
14
138
102
(11)
97
8%
(25)%
29%
22
8%
(31)
–
179
(5)%
(94)%
(4)%
9%
(24)%
32%
8%
(4)%
(94)%
(3)%
7%
(20)%
30%
11%
(3)%
(74)%
1%
7%
(2)%
30%
11%
(3)%
–
5%
Adjusted operating profit
Adjusted operating profit excludes the cost of major restructuring, certain property charges, other
net gains and losses on the sale or closure of subsidiaries, joint ventures, associates and other
financial assets, and intangible charges, including impairment, relating only to goodwill and intangible
assets acquired through business combinations or relating to associates. Other net gains and losses
also includes costs related to business closures and acquisitions. Further details are given below
under ‘Adjusted earnings per share’. Underlying adjusted operating profit movements exclude the
effect of exchange, the impact of portfolio changes arising from acquisitions and disposals and the
impact of adopting new accounting standards that are not retrospectively applied. Portfolio changes
are calculated by taking account of the additional contribution (at constant exchange rates) from
acquisitions made in both the current year and the prior year.
Annual report and accounts 2023 Pearson plc 221
Other information (unaudited) Financial key performance indicators continued
Adjusted operating profit continued
Adjusted earnings
For acquisitions made in the prior year the additional contribution excluded is calculated as the
operating profit made in the period of the current year that corresponds to the pre-acquisition
period in the prior year. Operating profit made by businesses disposed in either the current year
or the prior year is also excluded. Constant exchange rates are calculated by assuming the average
exchange rates in the prior year prevailed throughout the current year. This non-GAAP measure
enables management and investors to track more easily, and consistently, the underlying operating
profit performance of the Group.
Adjusted earnings includes adjusted operating profit and adjusted finance and tax charges. Adjusted
earnings is included as a non-GAAP measure as it is used by management to evaluate performance
and by investors to more easily, and consistently, track the underlying operational performance of
the Group over time.
All figures in £ millions
Profit for the year
Non-controlling interest
Cost of major restructuring
Property charges
Other net gains and losses
Intangible charges
UK pension discretionary increase
Other net finance income
Income tax
Adjusted earnings
2023
380
(2)
–
11
16
48
–
(28)
(11)
414
2022
244
(2)
150
–
(24)
56
3
(53)
8
382
2021
178
(1)
214
–
(63)
51
–
(51)
(65)
263
2023
498
–
11
16
48
–
2022
271
150
–
(24)
56
3
2021
183
214
–
(63)
51
–
All figures in £ millions
Operating profit
Cost of major restructuring
Property charges
Other net gains and losses
Intangible charges
UK pension discretionary increase
Adjusted operating profit
573
456
385
The following items are excluded from adjusted earnings:
All figures in £ millions
Adjusted operating
profit increase/
(decrease)
Comprising:
Exchange differences
Portfolio changes
Underlying
increase/(decrease)
Constant exchange
rate increase/
(decrease)
Underlying
increase/(decrease)
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review
Total
92
(1)
8
6
–
22
22
(5)
19
(17)
117
(7)
1
–
3
(1)
3
(1)
(45)
(10)
(8)
85
(16)
28
(8)
17
29
135
36%
9%
116%
(167)%
22%
(107)%
28%
33%
(17)%
112%
(400)%
20%
94%
31%
Adjusted operating profit translated at year-end closing rates would be £10m lower (2022: £9m
higher) than the reported figure of £573m (2022: £456m) at £563m (2022: £465m).
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. In 2021, restructuring costs of £214m mainly
related to the impairment of right-of-use property assets, the write-down of product development
assets and staff redundancies. The costs of these restructuring programmes are significant enough
to exclude from the adjusted operating profit measure so as to better highlight the underlying
performance (see note 4).
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.
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.
Annual report and accounts 2023 Pearson plc 222
Other information (unaudited) Tax – Tax on the above items is excluded from adjusted earnings. Where relevant the Group also
excludes the benefit from recognising previously unrecognised pre-acquisition and capital losses.
The 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.
The tax rate reflected in adjusted earnings is calculated as follows:
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. Other net gains and
losses in 2021 largely related to the disposal of PIHE and the disposal of the K12 Sistemas business
in Brazil offset by costs related to the acquisition of Faethm and the wind down of certain strategic
review businesses.
Intangible charges – These represent charges in respect of intangible assets acquired through
business combinations or relating to associates. 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. In 2021, intangible charges were £51m. In all three years, there were no
impairment charges.
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 finance income/costs – These include finance costs in respect of retirement benefits,
finance costs of deferred consideration, fair value movements in relation to financial assets held at
fair value through profit and loss and foreign exchange and other gains and losses. Finance income
relating to retirement benefits is excluded as management does not believe that the consolidated
income statement presentation under IAS 19 reflects the economic substance of the underlying
assets and liabilities. Finance costs relating to acquisition transactions are excluded as these relate
to future earn-outs or acquisition expenses and are not part of the underlying financing. Foreign
exchange and other gains and losses are excluded 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.
All figures in £ millions
Net finance (costs)/income
Net finance income in respect of retirement benefits
Fair value remeasurement of disposal proceeds
Interest on deferred and contingent consideration
Fair value movements on investments
Net foreign exchange gains
Fair value movement on derivatives
Interest on provisions for uncertain tax positions
Net interest payable in adjusted earnings
2023
(5)
(26)
–
4
(13)
(3)
10
–
(33)
52
(9)
–
5
(28)
(1)
(25)
5
(1)
(6)
(4)
(6)
–
(20)
(1)
(20)
–
(57)
All figures in £ millions
Profit before tax
Adjustments:
Cost of major restructuring
Property charges
Other net gains and losses
Intangible charges
UK Pension discretionary increases
Other net finance income
Adjusted profit before tax
Total tax (charge)/credit
Adjustments:
Tax on cost of major restructuring
Tax on property charges
Tax on other net gains and losses
Tax on intangible charges
Tax on other net finance costs
Tax on goodwill and intangibles
Benefit from changes in local tax law
Tax benefit on UK tax rate change
Other tax items
Adjusted tax charge
2022
2021
Tax on UK pensions discretionary increases
2023
493
–
11
16
48
–
(28)
540
(113)
–
(3)
(10)
(11)
–
7
4
–
1
1
(124)
2022
323
150
–
(24)
56
3
(53)
455
(79)
(37)
–
10
(11)
(1)
13
16
–
(1)
19
(71)
2021
177
214
–
(63)
51
–
(51)
328
1
(47)
–
14
(12)
–
8
8
(11)
(25)
–
(64)
Tax rate reflected in adjusted earnings
23.0%
15.6%
19.5%
Annual report and accounts 2023 Pearson plc 223
Other information (unaudited) Financial key performance indicators continued
Adjusted earnings per share
Adjusted earnings per share is calculated as adjusted earnings divided by the weighted average number of shares in issue on an undiluted basis.
all figures in £ millions
Adjusted operating profit
Adjusted net finance costs
Adjusted profit before tax
Adjusted income tax
Adjusted profit for the year
Non-controlling interest
Adjusted earnings
Weighted average number of shares (millions)
Weighted average number of shares (millions) for diluted earnings
Adjusted earnings per share (basic)
Adjusted earnings per share (diluted)
2023
573
(33)
540
(124)
416
(2)
414
711.5
717.3
58.2p
57.7p
2022
456
(1)
455
(71)
384
(2)
382
738.1
742.0
51.8p
51.5p
2021
385
(57)
328
(64)
264
(1)
263
754.1
759.1
34.9p
34.6p
Annual report and accounts 2023 Pearson plc 224
Other information (unaudited) Return on invested capital
Return on invested capital (ROIC) is included as a non-GAAP measure as it is used by management to
help inform capital allocation decisions within the business. ROIC is calculated as adjusted operating
profit less operating cash tax paid expressed as a percentage of average invested capital. Invested
capital includes the original unamortised goodwill and intangibles. Average values for total invested
capital are calculated as the average monthly balance for the year. ROIC is also presented on a net
basis after removing impaired goodwill from the invested capital balance. The net approach assumes
that goodwill which has been impaired is treated consistently to goodwill disposed as it is no longer
being used to generate returns.
All figures in £ millions
Adjusted operating profit
Operating tax paid
Return
Average goodwill
Average other non-current intangibles
Average intangible assets – product development
Average tangible fixed assets and working capital
Average invested capital
Return on invested capital
Return on capital
2023
Gross
573
(96)
477
6,365
1,826
967
1,388
2022
Gross
456
(95)
361
6,490
2,012
948
1,446
10,546
10,896
4.5%
3.3%
2023
Net
573
(96)
477
3,530
1,826
967
1,388
7,711
6.2%
2022
Net
456
(95)
361
3,490
2,012
948
1,446
7,896
4.6%
Return on capital (ROC) is included as a non-GAAP measure of how efficiently we are generating
returns from our asset base. ROC is calculated as adjusted operating profit less adjusted income
tax as a proportion of capital, where capital adjusts net statutory assets for net debt, retirement
benefit assets, other post-retirement medical obligations and other non-operating items. The other
non-operating items in 2023 include the liability recorded for the remainder of the share buyback
scheme. These adjustments to net statutory assets have been made to better reflect the asset base
that generates returns.
All figures in £ millions
Adjusted operating profit
Adjusted income tax charge
Return
Net statutory assets
Adjustments for:
Net debt
Retirement benefit assets
Other post-retirement medical benefit obligation
Other non-operating assets
Capital
Return on capital
Operating cash flow
2023
573
(124)
449
2022
456
(71)
385
3,988
4,415
744
(499)
21
126
4,380
10.3%
557
(581)
25
23
4,439
8.7%
Operating cash flow is calculated as net cash generated from operations before the impact of items
excluded from the adjusted income statement plus dividends from joint ventures and associates
(less the re-capitalisation dividends from Penguin Random House); less capital expenditure on
property, plant and equipment (including additions to right-of-use assets) and intangible software
assets; plus proceeds from the sale of property, plant and equipment (including the impacts of
transfers to/from investment in finance lease receivable) and intangible software assets; plus special
pension contributions paid; and plus costs of major restructuring paid. Operating cash flow is
included as a non-GAAP measure in order to align the cash flows with the corresponding adjusted
operating profit measures.
All figures in £ millions
Net cash generated from operations
Dividends from joint ventures and associates
Purchase/disposal of PPE and software
Net addition of right-of-use assets
Net costs paid for major restructuring
Other net gains and losses
Operating cash flow
2023
682
–
(121)
(41)
63
4
587
2022
527
1
(133)
(29)
35
–
401
Annual report and accounts 2023 Pearson plc 225
Other information (unaudited) Financial key performance indicators continued
Operating cash flow continued
Cash conversion, calculated as operating cash flow as a percentage of adjusted operating profit, is
also shown as a non-GAAP measure as this is used by management and investors to measure cash
generation by the Group.
All figures in £ millions
Adjusted operating profit
Operating cash flow
Cash conversion
2023
573
587
102%
Operating cash flow, operating free cash flow and total free cash flow, which are non-GAAP
measures, are commonly used by investors to measure the cash performance of the Group.
The table below reconciles operating cash flow to net debt:
All figures in £ millions
Operating cash flow
Tax paid
Net finance costs paid
Net costs paid for major restructuring
Free cash flow
Dividends paid (including to non-controlling interests)
Net movement of funds from operations
Acquisitions and disposals
Disposal of lease liabilities
Net equity transactions
Other movements on financial instruments
Movement in net debt
Opening net debt
Closing net debt
2023
587
(97)
(40)
(63)
387
(154)
233
(219)
–
(212)
11
(187)
(557)
(744)
2022
401
(109)
(35)
(35)
222
(157)
65
105
8
(383)
(2)
(207)
(350)
(557)
2022
456
401
88%
2021
388
(177)
(54)
(24)
133
(149)
(16)
62
67
(10)
10
113
(463)
(350)
Net cash generated from operations is translated at an exchange rate approximating the rate at
the date of cash flow. The difference between this rate and the average rate used to translate profit
gives rise to a currency adjustment in the reconciliation between net profit and net cash generated
from operations. This adjustment reflects the timing difference between recognition of profit and the
related cash receipts or payments.
Net debt and adjusted earnings before interest, tax, depreciation
and amortisation (EBITDA)
For information, the net debt/adjusted EBITDA ratio is shown as a non-GAAP measure as it is
commonly used by investors to measure balance sheet strength. Adjusted EBITDA is calculated as
adjusted operating profit less depreciation on property, plant and equipment, and amortisation on
intangible software assets.
All figures in £ millions
Adjusted operating profit
Depreciation (excluding items included in ‘cost of major restructuring’ and
‘property charges’)
Amortisation on intangible software assets (excluding items included in
‘cost of major restructuring’)
Adjusted EBITDA
Cash and cash equivalents
Overdrafts
Investment in finance lease receivable
Derivative financial instruments
Bonds
Lease liabilities
Net debt
Net debt/adjusted EBITDA ratio
2023
573
79
123
775
312
(3)
100
5
(611)
(547)
(744)
1.0x
2022
456
88
123
667
558
(15)
121
(6)
(610)
(605)
(557)
0.8x
Adjusted EBITDA translated at year-end closing rates would be £13m lower (2022: £12m higher) than
the reported figure of £775m (2022: £667m) at £762m (2022: £679m).
Annual report and accounts 2023 Pearson plc 226
Other information (unaudited) Additional information for US listing purposes
Cross Reference Table:
Item
Form 20-F Caption
Location in this Document
Item 1
Item 2
Item 3
Not applicable
Not applicable
Identity of Directors, Senior
Management and Advisers
Offer Statistics and Expected
Timetable
Key Information
B. Capitalisation and indebtedness Not applicable
Not applicable
C. Reasons for the offer and use
of proceeds
D. Risk factors
Additional Information: Risk factors
Strategic Report: Risk management
Item 4
Information on the Company
A. History and development
of the Company
B. Business overview
Strategic Report: At a Glance
History of the Company
Shareholder Information
Strategic Review: Financial Review
Note 18: Borrowings
Note 19: Financial Risk Management
Note 30: Business Combinations
Note 31: Disposals and
Business Closures
Note 35: Leases
Strategic Report
Note 2: Segmental Information
Additional Information: Certain
additional information on the Company
Parent Company Note 11
C. Organisational structure
D. Property, plant and equipment Note 10: Property, plant and
Equipment and Investment Property
Additional Information: Property, plant
and equipment
Strategic Report: Sustainability
Additional Information: Risk Factors
None
Item 4A
Item 5
Unresolved staff comments
Operating and Financial
Review and Prospects
Page
Reference
n/a
n/a
n/a
n/a
229-235
56-65
2
235
247-248
26-33
185-186
186-189
201-202
202-203
204-205
2-65
160-162
235-237
215-218
173-174
236-237
34-48
229-235
n/a
Item
Form 20-F Caption
Location in this Document
A. Operating results
B. Liquidity and capital resources
C. Research and development,
patents and licenses etc
D. Trend information
Item 6
E. Critical Accounting Estimates
Directors, Senior Management
and Employees
A. Directors and senior
management
B. Compensation
C. Board practices
D. Employees
E. Share ownership
F. Disclosure of a registrant’s
action to search erroneously
awarded compensation
Major Shareholders and
Related Party Transactions
Item 7
Additional Information: Operating and
Financial Review
Strategic Report: Key performance
indicators
Strategic Report: Financial review
Strategic Report: Risk (including
Viability Statement)
Financial Statements
Strategic Report: Financial review
Note 16: Derivatives and
Hedge Accounting
Note 18: Borrowings
Note 19: Financial Risk Management
Note 35: Leases
Not applicable
Strategic Report: Key performance
indicators
Strategic Report: Financial review
Note 1: Accounting Policies
Corporate Governance: Board
of Directors
Corporate Governance: Pearson
Executive Management
Directors’ Remuneration Report
Corporate Governance: Board
of Directors
Directors’ Remuneration Report
Corporate Governance: Audit
Committee report
Note 5: Employee Information
Directors’ Remuneration Report
Note 26: Share Based Payments
None
Page
Reference
237
24-25
26-33
56-65
146-218
26-33
182-185
185-186
186-189
204-205
n/a
24-25
26-33
152-160
68-71
72-73
107-130
68-71
107-130
97-106
170
107-130
197-198
n/a
Annual report and accounts 2023 Pearson plc 227
Annual report and accounts 2023 Pearson plc 227
Other information (unaudited) Additional information for US listing purposes continued
Item
Form 20-F Caption
Location in this Document
Page
Reference
Item
Form 20-F Caption
Location in this Document
Additional Disclosures
Note 12: Investments in Joint Ventures
and Associates
Note 36: Related Party Transactions
Not applicable
131
178
206
n/a
Item 11
Quantitative and Qualitative
Disclosures about Market Risk
Note 19: Financial Risk Management
Note 14: Classification of
Financial Instruments
Note 16: Derivative Financial
Instruments and Hedge Accounting
A. Major shareholders
B. Related party transactions
Item 8
Item 9
C. Interests of experts
and counsel
Financial Information
A. Consolidated statements and
other financial information
B. Significant changes
C. Interests of experts
and counsel
The Offer and Listing
A. Offer and listing details
Item 10
B. Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F. Expenses of the issue
Additional Information
A. Share capital
B. Articles of association
C. Material contracts
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary information
J. Annual report to
Security Holders
Item 12
Item 13
Item 14
Item 15
Item 16
Financial Statements
146-218
None
Not applicable
Additional Information: The Offer
and Listing
Not applicable
Additional Information: The Offer
and Listing
Not applicable
Not applicable
Not applicable
Not applicable
Additional Information: Articles
of Association
Additional Information:
Material Contracts
Additional Information:
Exchange Controls
Additional Information: Tax
Considerations
Not applicable
Not applicable
Additional Information: Documents
on Display
Parent company Note 11:
Group Companies
Not applicable
n/a
n/a
237
n/a
237
n/a
n/a
n/a
n/a
237-243
241
241
241-243
n/a
n/a
243
215-218
n/a
Page
Reference
186-189
180-181
182-185
n/a
n/a
n/a
243-244
n/a
n/a
243-244
243-244
n/a
n/a
Description of Securities other
than Equity Securities
A. Description of debt securities
B. Description of warrants
and rights
C. Description of other securities Not applicable
D. American Depository Shares
Not applicable
Not applicable
Additional Information: Description of
Securities Other than Equity Securities
Not applicable
D.1 Name of depositary
and address of principal
executive office
D.2 Title of ADRs and brief
description of provisions
D. 3 Depositary fees and charges Additional Information: Description of
Securities Other than Equity Securities
Additional Information: Description of
Securities Other than Equity Securities
Not applicable
D. 4 Depositary payments
Not applicable
Not applicable
Defaults, Dividend Arrearages
and Delinquencies
Material Modifications to the
Rights of Security Holders and
Use of Proceeds
Controls and Procedures
Reserved
A. Audit Committee Financial
Expert
B. Code of Ethics
C. Principal Accountant Fees
and Services
D. Exemptions from The Listing
Standards for Audit Committees
Additional Information: Controls and
Procedures
244-245
244
Additional Information: Audit
Committee Financial Expert
Additional Information: Code of Ethics 244
Additional Information: Principal
Accountant Fees and Services
Note 4: Operating Expenses
Not applicable
n/a
169-170
Annual report and accounts 2023 Pearson plc 228
Annual report and accounts 2023 Pearson plc 228
Other information (unaudited) Item
Form 20-F Caption
Location in this Document
Page
Reference
E. Purchases of Equity
Securities by the Issuer
and Affiliated Purchasers
F. Change in Registrants
Certifying Accountant
G. Corporate Governance
H. Mine Safety Disclosures
I. Disclosure regarding foreign
jurisdiction that prevent
inspections
J. Insider Trading Policies
K. Cybersecurity
Item 17
Item 18
Item 19
Financial Statements
Financial Statements
Exhibits
Additional Information: Purchases of
Equity Securities by the Issuer and
Affiliated Purchases
Not applicable
245
n/a
Additional Information: Corporate
Governance
Not applicable
Not applicable
66-135
n/a
n/a
Not applicable
Additional Information: Cybersecurity;
Strategic Report: Data privacy and
cyber security
Not applicable
Financial Statements
Refer to Exhibits list immediately
following the signature page for this
document as filed with the SEC
n/a
245-246
38, 50
n/a
146-218
n/a
Risk Factors
You should carefully consider the risk factors described below, as well as the other information
included in the rest of this document. The Group’s business, financial condition or results from
operations could be materially adversely affected by any or all of these risks, or by other risks that it
presently cannot identify. Any forward-looking statements are made subject to the Forward-Looking
Statement section located on page 249.
Risks relating to accreditation
Changes in government policy and/or regulations have the potential to affect the Group’s business model
and/or decisions across all markets.
The Group’s educational services and assessment businesses may be adversely affected by
changes in government funding resulting from trends that are beyond the Group’s direct control,
such as general economic conditions, changes in government educational funding, programs,
policy decisions, legislation and/or changes in the procurement process, or the Group’s failure
to successfully deliver previous contracts. These may also include decisions to suspend, require
amendments to or permanently cancel high stakes testing impacting our assessments or Pearson
Test of English businesses.
During 2023, Pearson Test of English won recognition for Canadian Student Direct Stream and
economic migration visa applications and acquired PDRI which provides recruitment assessment
for Federal employees.
During 2024, the Group faces an above average value of contracts due for renewal, which the
Group’s financial plan assumes will be successful. These are particularly concentrated in US School
Assessments, with any loss reducing the value of sales and profits.
The results and potential growth of the Group’s US educational services and assessment businesses
are dependent on the level of federal and state educational funding, which in turn is dependent on
the robustness of state finances and the level of funding allocated to educational programmes. State,
local and municipal education funding pressures remain, competition from low price and disruptive
new business models continues and open source is promoted to keep costs down for customers.
The current challenging environment could impact the Group’s ability to collect customer-related
debt. State and local government leadership changes and resultant shifts in education policy can
also affect the funding available for educational expenditure, which include the impact of educational
reform. Similarly, changes in the government procurement process for textbooks, learning material
and student tests, and vocational training programmes can also affect the Group’s markets. Political
pressure on testing, changes in curricula, delays in the timing of the adoptions and changes in the
student testing process can all affect these programmes and therefore the size of the market in
any given year. Any of the foregoing could adversely impact the results and potential growth of
the Group’s US educational services and assessment businesses.
Annual report and accounts 2023 Pearson plc 229
Annual report and accounts 2023 Pearson plc 229
Other information (unaudited) Additional information for US listing purposes continued
The Group has businesses in a variety of geographies globally and faces uncertain international
environments and regulatory changes.
If the Group fails to successfully invest in and deliver the right products and services and to respond
to government concerns and/or competitive threats, its sales and profits could be adversely impacted.
The Group faces risks of government limiting the ability of non-local companies to compete and/or
limiting repatriation of profits. Operating in a variety of geographies also exposes the Group to tariffs
or other regulatory restrictions. Political, regulatory, economic, currency, reputational, corporate
governance and compliance risks (including fraud, sanctions, bribery and corruption) as well as
unmanaged expansion are all factors which could limit returns on investments made in these
markets and limit the ability to reinvest funds or distribute them to shareholders.
Sanctions against certain economies, entities and/or individuals may be levied which could result in
the Group needing to withdraw from a market. Any regulatory inquiry or investigations in relation
to sanctions could be costly, require a significant amount of management’s time and attention,
adversely impact the Group’s reputation, or lead to litigation and financial impacts.
A common trend facing all the Group’s businesses is the digitisation of content and proliferation of
distribution channels, either over the internet, or via other electronic means, replacing traditional
print formats. The digital migration has led to changes in consumers’ perception of value and the
publisher’s position between consumers, retailers and authors, and has required the Group to
make changes in product and content distribution.
A proliferation of available supply routes for content in addition to buying or subscribing to Pearson
content, means that the Group is not guaranteed to be rewarded for its investment in developing
and distributing this content. Alternatives such as second hand and rental copies, open educational
resources, online discounters, file sharing and use of pirated copies all offer either lower or no
financial returns to the Group.
Risks relating to Artificial Intelligence, Content & Channel
The Group could face additional cost and diversion of personnel (i) to meet any new regulation or law
applicable to its use of Artificial Intelligence (AI) in its products and services and/or (ii) to protect any of
its intellectual property developed using AI.
The Group has a history of utilising AI in its products and services and incorporation will only
increase as AI technologies (including, generative AI) continue to develop. For example, 2023 saw
the successful beta launch of AI study tools in Higher Education and use of large language models
in English Language Learning. Our ability to do this successfully depends in part on the public
willingness to use AI in the learning sector. If the content that AI applications assist us in producing
are or are perceived or alleged to be deficient or inaccurate, our reputation may be adversely
affected, and/or the effectiveness of the Group’s products may be undermined.
2023 also saw the deployment of new curriculum materials in Virtual Schools and launch of
Connections Academy Career Pathways programme. In Pearson VUE new offerings were launched to
aid test preparation and in Higher Education, a trial of Channels video content as a separate product
began. Each of these have shown promising signs in testing and so have anticipated revenue but
failure to maintain the positive momentum would result in lower revenue and profit.
In addition, if our competitors incorporate AI into their products more quickly or more successfully
than us, our ability to compete effectively could be impaired.
This increasing interest in AI globally by governments and regulators brings a level of regulatory
uncertainty which may increase costs and liabilities in a manner that is beyond the Group’s control
and could result in conflicting legal requirements, potentially further increasing costs and/or
adversely impacting the Group’s ability to operate.
In addition, the Group faces uncertainty with regard to protection under law or regulation afforded
to its intellectual property developed (in whole or in part) with the use of AI (or software including
any AI).
Where the purchaser is a school or institution, they will typically use educational funding to purchase
our materials or assessments. However, there are multiple competing demands for educational funds
and there is no guarantee that new courseware or testing or training programs will be funded, or
that the Group will win or retain this business.
If the Group does not adapt rapidly to these changes, it may lose business to ‘faster’ and more ‘agile’
competitors, who increasingly are non-traditional competitors, making their identification all the
more difficult. The Group may be required to invest significant resources to further adapt to the
changing competitive environment, which requires continued development of both content and
the method of delivery to be able to provide differentiated products and services, and can result
in competitive disadvantage and missed opportunity for revenue and growth.
An example of this is where the Group’s products and services may potentially face competition from
those developed by non-traditional competitors using advanced Generative AI tools. Generative AI
in particular offers new ways of creating content which could disrupt the sectors in which the Group
focuses and failure to adapt could in future lead to adverse impact for its businesses.
Failure to use the Group’s data effectively to enhance the quality and scope of current products and
services in order to improve learning outcomes could adversely affect the Group’s business.
The Group seeks to maximise data to enhance the quality and scope of current products and
services to improve learning outcomes while managing associated risks. The Group’s ability to
continue to do so may be subject to factors beyond the Group’s control. In addition, the lack of
availability of timely, complete and accurate data limits informed decision-making and increases
the risk of non-compliance with legal, regulatory and reporting requirements. Business change
and transformation success is dependent on migration of a significant number of datasets and
our inability to effectively accomplish this could adversely affect the Group’s results.
Annual report and accounts 2023 Pearson plc 230
Annual report and accounts 2023 Pearson plc 230
Other information (unaudited) If the Group does not adequately protect its intellectual property and proprietary rights, its competitive
position and results may be adversely affected and its ability to grow restricted.
Some of the Group’s products and services comprise intellectual property delivered through a
variety of print and digital media, online software applications and platforms. The Group relies
on trademark, patent, copyright and other intellectual property laws to establish and protect its
proprietary rights in these products and services. Reference is made to the section above regarding
the risk of the evolving AI regulatory framework globally and the applicability and interpretation of
the existing legal protection of intellectual property. The Group also faces uncertainty on its ability
to adequately protect its content from its unauthorised use in training Large Language Models.
Failure, or an inability, to adequately manage, procure, register or protect intellectual property
rights (including trademarks, patents, trade secrets and copyright) in the Group’s brands, content
and technology, may (1) prevent the Group from enforcing its rights, and (2) increase the risk that
bad actors will infringe the Group’s content rights (print and digital counterfeit, digital piracy), which
may reduce sales and/or erode sales.
The Group’s intellectual property rights (IPR) in brands and content — historically its core assets
— are generally well established in key markets. As technology and digital delivery of content
have become an increasingly critical component of the Group’s business strategy, the Group has
grown its patent portfolio to expand its protection of high value technology in the US and key
international markets.
Online copying and security circumvention have become increasingly sophisticated and resistant
to available countermeasures. Advancements in technology, including advancements in generative
AI technology, have made unauthorised copying and wide dissemination of unlicensed content
more accessible. At the same time, detection of unauthorised use of our intellectual property and
enforcement of our intellectual property rights has become more challenging, in part due to the
increasing volume and sophistication of attempts at unauthorised use of our intellectual property
through the use of generative AI. Notably, in recent years ‘digital counterfeit’ websites have offered
or attempted to offer unprotected PDF files of many of Pearson’s titles, at scale, using modern and
sophisticated ecommerce methods, with a professional or legitimate appearance. From an IPR
perspective, increasing the Group’s digital business continues to expose it to evolving trademark,
copyright and patent infringement risks.
The Group’s forward-looking IPR strategy includes efforts to maintain a broad footprint of intellectual
property rights in key markets outside the US. However, the Group also conducts business in other
countries where its intellectual property protection efforts have been limited or where legal protection
for intellectual property may be uncertain and these limitations could affect future growth.
Where the Group has registered or otherwise established its IPR, it cannot guarantee that such
rights will provide competitive advantages due to: the challenges and costs of monitoring and
enforcement in jurisdictions where competition may be intense; the limited and/or ineffective IPR
protection and enforcement mechanisms available to it in many countries; the potential that its IPR
may lapse, be invalidated, circumvented, challenged, or abandoned, or that it may otherwise lose the
ability to assert its intellectual property rights against others. The loss or diminution in value of these
proprietary rights or the Group’s intellectual property could have a material adverse effect on the
Group’s business and financial performance.
Risks relating to Capability
The Group’s strategy involves significant change, including moving into new markets. This increases the
risk of failure to realise anticipated benefits or of costs being higher than anticipated, or that the Group’s
business as usual activities are adversely impacted.
The Group’s strategy aims, among other things, to achieve significant growth in markets in which
Pearson has less experience, including enterprise sales of content, direct-to-consumer language
learning and increasing direct-to-consumer sales. During the year, the Group has successfully
executed its cost efficiency programme resulting in a lower cost base, albeit ongoing maintenance of
cost levels needs constant and rigorous monitoring and control. The Group’s financial plan assumes
that costs will be successfully managed in all divisions, despite the lower cost base but should this
not be possible, the Group is likely to report lower than anticipated profits.
Challenges were also experienced in the Workforce division in successful delivery of products and
sales capability on time during the year and similar challenges in the future would result in lower
than anticipated sales and profits.
If the Group fails to attract, retain and develop appropriately skilled employees, it may limit its ability to
achieve its strategic and operational goals and its business may be harmed.
The Group’s success depends on the skill, experience and engagement of its employees. Their
expertise has allowed the Group to demonstrate agility, notably in how the Group has been able to
develop and deploy beta tests of products using large language models (including, in the areas of AI
and machine learning). Training and development of staff is a focus area for managers throughout
the organisation, but there is no guarantee that workers will continue to have the required skills
prospectively.
The Group has a key dependency on the Chief Executive and certain other key employees. If it
is unable to attract, retain and develop sufficiently experienced and capable staff, especially in
technology, product development, sales and leadership, its business and financial results may suffer.
When talented employees leave, the Group may have difficulty replacing those skills, and its business
may suffer. There can be no assurance that the Group will be able to successfully attract and retain
the skills that it needs.
All the Group’s businesses depend on Information Technology (IT) systems and technological change.
Failure to maintain and support customer facing services, systems, and platforms, including addressing
quality issues and execution on time of new products and enhancements, could negatively impact the
Group’s sales and reputation.
Annual report and accounts 2023 Pearson plc 231
Annual report and accounts 2023 Pearson plc 231
Other information (unaudited) Additional information for US listing purposes continued
All the Group’s businesses, to a greater or lesser extent, are dependent on IT. It either provides
software and/or internet services to its customers or uses complex IT systems and products to
support its business activities, including customer-facing systems, back-office processing and
infrastructure. The Group migrated several key data centres to the cloud during the year, increasing
resilience. Nevertheless, the Group faces several technological risks associated with software
product development (including risks associated with the use of AI in the Group’s products and
services) and service delivery, information technology security (including viruses and cyber-attacks),
e-commerce, enterprise resource planning system implementation and upgrades. Although plans
and procedures are in place to reduce such risks, and further progress was made during 2023 in this
area, from time to time the Group has experienced verifiable attacks on its systems by unauthorised
parties. To date, such attacks have not resulted in any material damage, but the Group’s businesses
could be adversely affected if its systems and infrastructure experience a significant failure or
interruption.
Operational disruption to its business, including that caused by third-party providers, a major disaster
and/or external threats, could restrict the Group’s ability to supply products and services to its customers.
Across all its businesses, the Group manages complex operational and logistical arrangements
including distribution centres, data centres, and educational and office facilities, as well as
relationships with third-party print sites. It has also outsourced some support functions, including
elements of information technology, warehousing and logistics to third-party providers. The failure
of third parties to whom it has outsourced business functions could adversely affect its reputation or
financial condition. Failure to recover from a major disaster, (e.g., fire, flood, etc.) at a key facility and/
or a major failure of a key facility, such as a data centre outage or the disruption of supply from a key
third-party vendor or partner (e.g. due to bankruptcy) could restrict the Group’s ability to service its
customers and meet the terms of its contractual relationships with both government agencies and
commercial customers. Penalty clauses and/or the failure to retain these contracts at the end of
the contract term could adversely impact future revenues and/or operations.
Risks Related to the Competitive Marketplace
Global economy and cyclical market factors may adversely impact the Group’s financial performance.
With continued pressure and uncertainty in worldwide economies, particularly in Pearson’s major
markets in the US and UK, there is a risk of a weakening in trading conditions, which could adversely
impact the Group’s future financial performance. The effect of continued deterioration or lack of
recovery in the global economy will vary across different businesses and will depend on the depth,
length and severity of any economic downturn. The education market can be affected by cyclical
factors which, although they can have a positive impact for some of the Group’s businesses, could
for others lead to a reduction in demand for the Group’s products and services.
Increased competitive pressure or reduced demand due to changing consumer learning preferences
may adversely impact the Group’s financial performance and reduce the expected return on investment.
The Group faces a number of large value contract renewals, each representing up to 5% of Group
revenue, during 2024 and the long-range plan assumes that these are successfully retained. The loss
of any of these contracts would lead to lower sales and profits in the future unless replaced by other
contract wins.
The Group competes in a highly competitive market that is subject to rapid change in some areas.
The Group faces competitive threats both from large media players and from smaller businesses,
online and mobile portals and operators in the digital arena that provide alternative sources of
content. Alternative distribution channels, such as digital format, the internet, online retailers and
growing delivery platforms, pose both threats and opportunities to traditional publishing business
models, potentially impacting both sales volumes and pricing. In addition, new competitive entrants,
increased price competition or shifts in learners away from educational institutions (as seen
previously in reduced Higher Education enrolments) may lead to lower profitability and cash flow
performance. The level of competition is placing financial strain on some of Higher Education’s
channel partners and the failure of one of these companies would risk the loss of any outstanding
debtor balances.
Enhanced product offerings and improvements in sales capability have led to a stabilisation of
market share in the Higher Education market, but there is no guarantee that these measures will
be sufficient in the future to prevent loss of revenue and profit.
Pearson Virtual School faces revenue headwinds following the termination of one of its major
customers and with another due to terminate in the fall of 2024. Both have decided to operate
services in-house. Consequently, there are risks to achieving the profit plan and further contract
losses would increase this risk.
The Group’s investment in new markets may deliver returns that are lower than anticipated.
The Group has invested in and has plans to continue to invest in new markets such as workforce and
direct-to-consumer learning experiences of which the Group has less experience and faces a variety
of competition to be successful. Failure to achieve our planned outcomes may lead to lower than
expected sales and profitability.
A significant deterioration in the Group’s profitability and/or cash flows caused by prolonged economic
instability or recession could reduce its liquidity and/or impair its financial ratios and trigger a need to
raise additional funds from the capital markets and/or renegotiate its banking covenants.
To the extent that worldwide economic conditions materially deteriorate, the Group’s sales,
profitability and cash flows could be significantly reduced as customers could be unable to purchase
products and services in the expected quantities and/or pay for them within normal agreed terms.
Disruption in capital markets or potential concerns about the Group’s credit rating, for instance
manifested in downgrades or negative outlooks by the credit rating agencies, may mean that this
capital may not be available on favourable terms or may not be available at all.
Risks Related to Customer Expectations
Failure to meet our customers’ rapidly changing expectations in our products and services and not
being able to anticipate new customer demands could result in reduced market share, profitability and
brand erosion.
Annual report and accounts 2023 Pearson plc 232
Annual report and accounts 2023 Pearson plc 232
Other information (unaudited) We continue to adjust our business model to keep a pace with the increasing end user demands.
The Group may not be able to adapt, change and succeed in a rapidly changing and uncertain
environment resulting in competitive disadvantage, higher cost and brand erosion. This could result
from failing to identify changes in learner preferences or in failing to create products and services
which meet these revised expectations.
With the direct-to-consumer strategic focus and the launch of new products we risk that the
customer experience expectations are not met with regard to how the products and services
are delivered e.g. quality and timeliness, impacting the customer’s brand loyalty and propensity
to purchase; resulting in customer complaints, less favourable social media sentiment, bad reviews,
low recommendations, and/or customer attrition.
Evidence of higher customer expectations has been observed in the direct to consumer market,
particularly for Mondly, where the cost of acquiring and retaining new learners is high, leading
to some re-balancing towards offering language tuition for enterprises. In Workforce, feedback
from customers led to a re-focus on modular solutions rather than a fully integrated platform as
previously envisaged. Should customer acquisition or the cost of acquiring and retaining customers
continue to be elevated, this could lead to lower profitability than anticipated if it is not possible
to mitigate.
There is also the risk that our technology and data dependent products and services do not meet
accessibility requirements in respect of customers’ and prospective customers’ ability to access
the products and services, and this could result in increased costs, restrictions and/or fines.
Risks Related to the Group’s Portfolio of Businesses
The Group’s failure to generate anticipated sales growth, synergies and/or cost savings from acquisitions,
mergers and other business combinations, could lead to goodwill and intangible asset impairments.
The Group periodically acquires and disposes of businesses to achieve its strategic objectives and
will continue to consider both as means to pursue its strategic priorities. During the year, the Group
completed the disposal of Pearson Online Services and acquired PDRI, which expanded the Group’s
services to the US federal government.
Acquisitions may involve significant risks and uncertainties, including difficulties in integrating
acquired businesses to realise anticipated sales growth, synergies and/or cost savings; diversion of
management attention from other business concerns or resources; and diversion of resources that
are needed in other parts of our business. If these risks are not managed, acquisitions could result
in goodwill and intangible asset impairments.
Divestitures also involve risks and uncertainties that could adversely affect our business, results of
operations and financial condition including, among others, the inability to find potential buyers on
favourable terms, disruption to our business and/or diversion of management attention from other
business concerns, loss of key employees and possible retention of certain liabilities related to the
divested business.
Risks Related to the Group’s Responsibility & Reputation
The Group’s business depends on a strong brand, and any failure to maintain, protect and enhance its
brand would hurt its ability to retain or expand its business.
Protecting the Pearson brand is critical to maintaining and expanding the Group’s business and
will depend largely on its ability to maintain its customers’ trust in its solutions and in the quality
and integrity of its products and services, including how it protects the data and privacy of customers
and users. If the Group does not successfully maintain a strong brand, its business could be harmed.
Beyond protection, strengthening the Pearson brand will enable the Group to more effectively
engage with governments, administrators, teachers, learners and influencers.
Security breaches involving our information technology systems could harm our ability to run our business
and expose us to potential liability and loss of revenue.
Failure to prevent or detect a malicious attack on the Group’s systems has in the past and could
in future result in loss of system availability, breach of confidentiality, integrity and/or availability
of sensitive information. Such incidents have in the past resulted, and could in future result, in
damage to the customer experience and the Group’s reputation and in financial loss. In particular,
the Group has experienced, and may continue to experience in the future, an unauthorised
disclosure of personal information despite best efforts to prevent it. This has also occurred and
may again in the future as a result of a failure of IT controls to protect such data, principally due
to software malfunctions.
Information security and cyber risk are continually evolving and comprise many complex external
drivers: increasing customer demand to demonstrate a strong security posture, external compliance
requirements, ongoing digital revolution, increasing use of the cloud, greater volumes of data and
increasingly sophisticated attack strategies. Across its businesses, the Group holds large volumes
of personal data including that of employees, customers, students and citizens, and other highly
sensitive business critical data such as financial data, internal sensitive information, and intellectual
property. Despite its implementation of security measures, threat actors of all types, including
individuals, criminal organisations and state sponsored operatives, have from time to time gained
access, and may in the future gain access to the Group’s data through unauthorised means in
order to misappropriate such information for fraudulent or other purposes.
Any perceived or actual unauthorised disclosure of personal data or confidential information, whether
through a breach of the Group’s network or a third-party partner with whom we share data or access
to our network by an unauthorised party, employee theft, misuse or error or otherwise, could harm
the Group’s reputation, impair its ability to attract and retain its customers, impair business and
operations, or subject the Group to regulatory investigations and/or to claims or litigation arising
from damages suffered by individuals and customers, and thereby harm its business and operational
results. Failure to adequately protect personal data and confidential information has in the past
led, or could potentially lead to, respectively, regulatory penalties, litigation costs and damages,
significant remediation costs, reputational damage, cancellation of some existing contracts and/or
difficulty in competing for future business, among other things. In addition, the Group could incur
significant costs in complying with the relevant laws and regulations regarding the protection of
personal data and confidential information against unauthorised disclosure, payments due to
cyber extortion or to responding to regulatory investigations into such matters.
Annual report and accounts 2023 Pearson plc 233
Annual report and accounts 2023 Pearson plc 233
Other information (unaudited) Additional information for US listing purposes continued
Changes to data privacy legislation must also be monitored and acted upon to ensure the Group
remains in compliance across different markets.
Data protection legislation continues to be adopted by countries in which the Group has a presence
and/or customers and enforcement is focusing upon transparency and customer choice in addition to
data breaches, which reflects the increased sophistication of customers on data protection matters.
Failure to provide the appropriate level of transparency and control in the Group’s products could
increase the regulatory, commercial and/or reputational risks that the Group faces with any or all
of its various stakeholders.
A control breakdown or service failure in the Group’s testing businesses could result in financial loss and
reputational damage.
The Group’s testing businesses, including those in Assessment & Qualifications, Workforce and
English Language Learning involve complex contractual relationships with both government agencies
and commercial customers for the provision of various testing services. The Group’s financial results,
growth prospects and/or reputation may be adversely affected if these contracts and relationships
are poorly managed or face increased competitive pressures.
There are inherent risks associated with the Group’s testing businesses, both in the US and the
UK. A service failure caused by a breakdown in testing and assessment processes could lead to a
mis-grading of student tests and/or late delivery of test results to students and their schools. During
2022, the Group suffered negative publicity because of failures to deliver certain BTEC qualification
results in a timely manner. Performance was improved in 2023, but failures to meet expected service
standards have in the past and/or could in future leave the Group subject to regulatory sanctions
(including fines), legal claims, penalty charges under contracts, non-renewal of contracts and/or the
suspension or withdrawal of its accreditation to conduct tests. A late delivery of qualification results
could result in a potentially significant regulatory fine in addition to the contractual penalties. It is
also possible that any such events described above would result in adverse publicity, which may
affect the Group’s ability to retain existing contracts and/or obtain new customers.
Risks associated with identity verification could lead to financial losses.
The Group is required to take measures to validate the identity of learners, especially those
completing assessments. In certain jurisdictions, companies have faced legal claims for the collection
of or use of information obtained, particularly in relation to biometric information. The Group takes
reasonable steps to protect learners and obey legal requirements but there is no guarantee that
these will be sufficient to protect the Group from any and all potential issues, which could result in
potential fines and penalties for the Group, especially if not covered by the Group’s insurance cover.
Failure to adequately protect learners could result in significant harm to one or more learners.
Incidents have occurred and may in future occur where learners may not have been, or may not be,
adequately protected. For example, where the Group has direct learner contact via online learning,
or in its test centres. While the Group has made further progress during the year, the range and
frequency of threats remains high. These incidents can cause harm to learners, which is something
the Group takes extremely seriously, and could also have a negative financial, legal and reputational
impact to the business.
Failure to effectively manage risks associated with compliance with global and local anti-bribery and
corruption (ABC) legislation could result in costly legal investigations and/or adversely impact the
Group’s reputation.
The Group is committed to an effective compliance programme in keeping with changing regulatory
expectations, and it is also committed to conducting business in a legal and ethical manner in
compliance with local and international statutory requirements and standards applicable to its
business. Despite those commitments, there is a risk that the Group’s management, employees or
representatives may take actions that violate applicable laws and regulations including regarding
accurate keeping of books and records or prohibiting the making of improper payments for the
purposes of obtaining or keeping business, including laws such as the US Foreign Corrupt Practices
Act or the UK Bribery Act. Any regulatory inquiry or investigations could be costly, require a significant
amount of management’s time and attention, adversely impact the Group’s reputation, or lead to
litigation and financial impacts.
Failure to comply with antitrust and competition legislation and/or legal or regulatory proceedings could
result in substantial financial cost and/or adversely impact the Group’s reputation.
The Group is subject to global and local antitrust and competition law and although it is
committed to conducting business in compliance with local and international laws, there is a risk
that management, employees or representatives may act in a way that violates applicable antitrust
or competition laws. Further, the Group and its subsidiaries are and may be in the future subject to
legal and regulatory proceedings in the countries in which the Group operates. These proceedings
could result in greater scrutiny of the Group’s operations in other countries for anti-competitive
behaviour and, in the worst case, incur a substantial financial cost. This would also have an adverse
impact on the Group’s reputation.
Failure to adequately protect the health, safety and well-being of the Group’s employees, learners and other
stakeholders could adversely impact the Group’s reputation, profitability and future growth.
Although the Group has invested in global health and safety procedures and controls to safeguard
the health, safety and wellbeing of its employees and other stakeholders, accidents or incidents could
still occur due to unforeseen risks, causing injury or harm to individuals and impacting the Group’s
business operations. This has the potential to lead to criminal and civil litigation, business disruption
leading to operational loss, reduction in profitability and impact on the Group’s reputation.
Failure to ensure security for the Group’s staff, learners, assets and reputation, due to increasing numbers
of and variety of local and global threats.
Pearson is a global business with locations in diverse, sometimes high-risk, locations worldwide.
Although it has protective measures in place to secure its staff, learners and assets, the Group could
still be impacted by external threats, such as localised incidents, terrorist attacks, strikes or extreme
weather. Future occurrences could cause harm to individuals and/or disrupt business operations.
These have the potential to lead to operational loss, a reduction in profitability and impact on the
Group’s global reputation.
Annual report and accounts 2023 Pearson plc 234
Annual report and accounts 2023 Pearson plc 234
Other information (unaudited) Other Significant Near-term and Emerging Risks
Operating cycles
Environmental, social and governance risks including Climate Transition may adversely impact the
Group’s business.
The Group considers environmental, social and governance (ESG) risks no differently to the way it
manages any other business risk. Expectations around climate commitments and measurements
change on a regular basis. A failure to comply with relevant standards, or other ESG-related laws
or regulations, whether in the UK or elsewhere, could adversely affect the Group’s reputation and
have a negative impact on its relations with employees, customers and/or business partners. Costs
associated with climate-transition which cannot be fully managed by decarbonisation activities may
lead to decreased margins. However, the Group has assessed the impact of climate change on
the Group’s financial statements, including our long-term net zero commitment, and the actions
the Group intends to take to achieve those targets. The assessment did not identify any material
impact on the Group’s significant judgments or estimates at 31 December 2023, or the assessment
of going concern for the period to June 2025 and the Group’s viability over the next five years.
Financial markets disruption – A lack of sufficient capital resources could adversely impact the Group’s
ability to operate.
Financial crises impact financial markets periodically, which could result in bank failures and loss
of capital for the Group, or an inability to access debt capital markets as planned. The Group has a
€300m bond maturity in 2025 and if it were unable to raise finance to replace it, it may be required
to delay investment, negatively impacting the Group’s growth prospects.
Inflation – High levels of global inflation could increase costs and adversely impact the Group’s profits and
financial performance.
High ongoing global inflation factors have increased and could further increase the cost of
production for Pearson, particularly through wage inflation. There is no guarantee that we can
increase prices or reduce cost for products and services that can mitigate the effects of inflation,
which could lead to reduced earnings and ability to invest in future growth.
Geopolitical conflict – Conflict could affect Pearson’s operations.
Pearson has staff and offices globally, which could be impacted by conflict or blockades as a result of
geopolitical issues. Notably, Pearson has offices in Israel which support Pearson’s digital products, which
if affected by conflict could negatively impact the pace of innovation or the quality of Pearson’s products.
Certain additional information on the Company
Information on the Company
Pearson was incorporated and registered in 1897 under the laws of England and Wales as a
limited company and re-registered under the UK Companies Act as a public limited company in
1981. The Group conducts its operations primarily through its subsidiaries and other affiliates. Its
principal executive offices are located at 80 Strand, London WC2R 0RL, United Kingdom (telephone:
+44 20 7010 2000) and its website address is https://plc.pearson.com/. The Company is registered in
England and Wales under the company number 00053723. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The Group determines a normal operating cycle separately for each entity/cash generating unit with
distinct economic characteristics. The ‘normal operating cycle’ for each of the Group’s businesses
is primarily based on the expected period over which content or services will generate cash flows.
The Higher Education courseware market is primarily driven by an adoption cycle, with colleges and
professors typically refreshing their courses and selecting revised programs on a regular basis, often
in line with the release of new content or new technology offerings. The Company renews its product
development assets to reflect new content and capabilities which enhance the attractiveness of its
offering to both educators and learners.
Analysis of historical data shows that the typical life cycle of Higher Education content is up to five
years but varies by product. In addition to content, the Group also develops technology platforms
for products and the life cycle for these platforms can be in excess of the five years cycle for content.
Again, the operating cycle for content and platforms mirrors the market cycle.
Historically for a major content refresh a development phase of typically 12 to 18 months for Higher
Education precedes the period during which the Company receives and delivers against orders for
the products it has developed for the programme.
The operating cycles in respect of the Group’s professional and clinical content are more specialised
in nature as they relate to educational or heavy reference products released into smaller markets
(e.g. the financial training and IT sectors). Nevertheless, in these markets, there is still a regular
cycle of product renewal, in line with demand which management monitor. Typically, the life cycle
is five years for Professional content and seven years for Clinical content. Elsewhere in the Group,
operating cycles are typically less than one year.
Competition
The Group’s businesses operate in highly competitive markets. The Group faces competitive
threats both from large media players and from smaller businesses, online and mobile portals and
operators in the digital arena that provide alternative sources of content. Alternative distribution
channels, e.g. digital format, the internet, online retailers, growing delivery platforms (e.g. e-readers
or tablets), pose both threats and opportunities to traditional publishing business models, potentially
impacting both sales volumes and pricing.
In Assessment & Qualifications, the Group competes with other companies offering test development
and administration including Cambium, Data Recognition Corp (DRC), Educational Testing Service
(ETS), and NWEA, and others. The Professional Certification business competes with Prometric
globally and a number of other smaller players in local markets. The Clinical Assessment business
competes with MHS and WPS. The UK and International qualifications business competes with AQA,
Cambridge Assessment and OCR in general qualifications, as well as a number of smaller players.
In Virtual Learning, the Group competes with companies such as Stride in virtual schools and 2U
Inc. in Online Program Management until the point of disposal, alongside smaller niche players that
specialise in a particular academic discipline or focus on a learning technology.
Annual report and accounts 2023 Pearson plc 235
Annual report and accounts 2023 Pearson plc 235
Other information (unaudited) Additional information for US listing purposes continued
In Institutional English Language Learning, the Group competes with Oxford University Press,
Macmillan and other publishers. In High Stakes Assessments, Pearson Test of English Academic
competes with alternative tests including iELTS and TOEFL. In the online language learning market,
the Group competes with Duolingo, Babbel and Busuu, as well as a number of smaller players.
In Workforce Skills, the vocational qualifications business competes with City and Guilds globally
alongside smaller niche and local market providers, our assessments businesses compete with HiSET
in high school equivalency and SHL in skills and ability testing, and our enterprise data, technology
and learning businesses compete with Learning platforms such as Guild, credential platforms such
as Accredible, talent management platforms such as Eightfold.ai, and data services such as Emsi.
In Higher Education, the Group competes with other publishers and creators of educational
materials and services. These companies include publishers such as Cengage Learning and
McGraw-Hill Education, as well as non-mainstream publishers.
Competition is based on the ability to deliver quality products and services that address the specified
curriculum needs and appeal to the student, organisations, school boards, educators, employers
and government officials making purchasing decisions.
available from numerous suppliers. While local prices fluctuate depending upon local market
conditions, the Group has not experienced extensive volatility in fulfilling paper requirements. In the
event of a sharp increase in paper prices, the Group has a number of alternatives to minimise the
impact on its operating margins, including modifying the grades of paper used in production and
price adjustments.
Government regulation
The manufacture of certain products in various markets is subject to governmental regulation
relating to the discharge of materials into the environment. Operations are also subject to the
risks and uncertainties attendant to doing business in numerous countries. Some of the countries
in which the Group conducts these operations maintain controls on the repatriation of earnings
and capital and restrict the means available for hedging potential currency fluctuation risks.
The operations that are affected by these controls, however, are not material. Accordingly, these
controls have not significantly affected the Group’s international operations. Regulatory authorities
may have enforcement powers that could have an impact. The Group believes, however, that in light
of the nature of its business the risk of these sanctions does not represent a material threat.
Intellectual property
The Group’s principal intellectual property assets consist of its:
— trademarks and other rights via its brands (including corporate and business unit brands and
imprints, as well as product and service brands);
— copyrights for its textbook and related educational content and software code; and
— patents and trade secrets related to the innovative methods deployed in its key technologies.
The Group believes it has taken reasonable legal steps to protect its key brands in its major markets
and copyright in its content and has taken appropriate steps to develop a comprehensive patent
programme to ensure appropriate protection of emerging inventions that are critical to its new
business strategies.
Licenses, patents and contracts
The Group is not dependent upon any particular licenses, patents or new manufacturing processes
that are material to its business or profitability. Notwithstanding the foregoing, the Group’s
education business is dependent upon licensed rights since most textbooks and digital learning
tools include content and/or software that is licensed to it by third parties (or assigned subject to
royalty arrangements). In addition, some software products in various business lines rely upon
patents licensed from third parties.
The Group is not materially dependent upon any particular contracts with suppliers or customers,
including contracts of an industrial, commercial or financial nature. The Group’s revenue is
diversified, no individual customer comprised more than 5% of revenue in 2023.
Legal proceedings
The Group and its subsidiaries are from time to time the subject of legal proceedings incidental
to the nature of its and their operations. These may include private litigation or arbitrations,
governmental proceedings and investigations by regulatory bodies.
Property, plant and equipment
The Group’s headquarters are located at leasehold premises in London, England. As at 31 December
2023, it owned or leased approximately 700 properties, including approximately 527 testing/teaching
centres in over 57 countries worldwide, the majority of which are located in the United Kingdom and
the United States. The other properties owned and leased by the Group consist mainly of offices and
distribution centres. In some cases properties leased by the Group are then sublet to third parties.
The vast majority of printing is carried out by third-party suppliers. The Group operates a small digital
print operation as part of its Pearson Assessment & Testing businesses which provides short-run
and print-on-demand products, typically custom client applications.
The Group owns the following principal properties at 31 December 2023:
General use of property
Office
Warehouse/office
Testing
Warehouse/office
Location
Area in square feet
Iowa City, Iowa, USA*
Cedar Rapids, Iowa, USA
Owatonna, Minnesota, USA
Hadley, Massachusetts, USA*
312,760
205,000
128,000
85,570
Raw materials
* Properties are recorded as held for sale at 31 December 2023.
Paper remains the principal raw material used by the Group although its use is declining given
the shift to digital products. The Group purchases most of its paper through its global outsourcing
partner LSC Communications located in the United States. The Group has not experienced and does
not anticipate difficulty in obtaining adequate supplies of paper for its operations, with sourcing
Annual report and accounts 2023 Pearson plc 236
Annual report and accounts 2023 Pearson plc 236
Other information (unaudited) The Group leased the following principal properties at 31 December 2023:
Employees
General use of property
Location
Area in square feet
Office
Office
Office
Office
Warehouse/office
Hudson, New York, USA*
Westminster, London, UK*
Hoboken, New Jersey, USA*
Bloomington, Minnesota, USA*
Cedar Rapids, Iowa, USA*
313,285
289,355
216,273
147,159
119,682
* Properties have either been fully or partially sublet or are being marketed for sublet.
Off-balance sheet arrangements
The Group does not have any off-balance sheet arrangements, as defined by the SEC for the
purposes of the Form 20-F, that have or are reasonably likely to have a material current or future
effect on the Group’s financial position or results of operations.
Operating and financial review
The financial review for the year ended 31 December 2023 compared to the year ended
31 December 2022 can be found on pages 26-33 of the Strategic Report. The financial review for
the year ended 31 December 2022 compared to the year ended 31 December 2021 can be found
on pages 20-25 of our 2022 Annual Report and Accounts on Form 20-F filed with the United States
Securities and Exchange Commission on 31 March 2023.
Through its subsidiaries, the Group has entered into collective bargaining agreements with
employees in various locations. The Group’s management has no reason to believe that it would
not be able to renegotiate any such agreements on satisfactory terms. The Group encourages
employees to contribute actively to the business in the context of their particular job roles and
believes that the relations with its employees are generally good.
Significant changes
Other than those events described in note 37 in the consolidated financial statements, and seasonal
fluctuations in borrowings, there has been no significant change to the Group’s financial condition or
results of operations since 31 December 2023. The Group’s borrowings fluctuate by season due to
the effect of the school year on working capital requirements. Assuming no acquisitions or disposals,
the maximum level of net debt normally occurs in the third quarter, and the minimum level of net
debt normally occurs in December.
The offer and listing
The principal trading market for the Group’s ordinary shares is the London Stock Exchange which
trade under the symbol ‘PSON’. Its ordinary shares also trade in the United States in the form of
ADSs evidenced by ADRs under a sponsored ADR facility with The Bank of New York Mellon, as
depositary. The Group established this facility in March 1995 and most recently amended it in
August 2014 in connection with its New York Stock Exchange listing. Each ADS represents one
ordinary share.
Directors, senior management and employees
The ADSs trade on the New York Stock Exchange under the symbol ‘PSO’.
Board Practices
Articles of association
As at 28 February 2024, the Group’s Board comprises the Chair, two Executive Directors and eight
Non-Executive Directors. The Articles of Association (as defined below) provide that all the Directors
at the date of the notice convening the Annual General Meeting (‘AGM’) shall retire from office at
the meeting. A retiring Director shall, if willing to act, be eligible for re-appointment. If they are not
re-appointed, they shall retain office until the meeting appoints someone in their place, or if it does
not do so, until the end of the meeting or, if the meeting is adjourned, the end of the adjourned
meeting. The Articles of Association also provide that every Director appointed by the Board be
subject to re-appointment by shareholders at the next AGM following their appointment.
Tim Score will be retiring from the Board upon the conclusion of the Company’s AGM on 26 April
2024. Upon Tim Score’s retirement, Graeme Pitkethly will be appointed as Deputy Chair and Senior
Independent Director. All of the Directors, save Tim Score, will offer themselves for re-election at the
forthcoming AGM on 26 April 2024.
Pearson is listed on the New York Stock Exchange (‘NYSE’). As a listed non-US issuer, the Group is
not required to comply with some of the NYSE’s corporate governance rules, but must disclose on its
website any significant ways in which its corporate governance practices differ from those followed
by US companies under the NYSE listing standards. At this time, the Group believes that it is in
compliance in all material respects with all the NYSE rules except that the Nomination & Governance
Committee is not composed entirely of independent Directors as the Chair, who is not considered
independent under NYSE rules, is a member of this Committee in addition to independent Directors.
The Group summarises below the material provisions of its articles of association, as amended (the
‘Articles of Association’), which have been filed as an exhibit to its annual report on Form 20-F for the
year ended 31 December 2023. The summary below is qualified entirely by reference to the Articles
of Association. In conformity with the UK Companies Act 2006 (the Act), the Group has multiple
business objectives and purposes and is authorised to do such things as the Board may consider
fit to further its interests or incidental or conducive to the attainment of its objectives and purposes.
Directors’ powers
The Group’s business shall be managed by the Board of Directors and the Board may exercise all
such of its powers as are not required by law or by the Articles of Association or by any directions
given by the Company by special resolution, to be exercised in a general meeting.
Annual report and accounts 2023 Pearson plc 237
Annual report and accounts 2023 Pearson plc 237
Other information (unaudited) Additional information for US listing purposes continued
Interested Directors
For the purposes of section 175 of the Act, the Board may authorise any matter proposed to it which
would, if not so authorised, involve a breach of duty by a Director under that section, including,
without limitation, any matter which relates to a situation in which a Director has, or can have,
an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such
authorisation will be effective only if:
a.
b.
any requirement as to quorum at the meeting at which the matter is considered is met without
counting the Director in question or any other interested Director; and
the matter was agreed to without their voting or would have been agreed to if their votes had
not been counted.
The Board may (whether at the time of the giving of the authorisation or subsequently) make any
such authorisation subject to any limits or conditions it expressly imposes but such authorisation
is otherwise given to the fullest extent permitted. The Board may vary or terminate any such
authorisation at any time.
Provided that he or she has disclosed to the Board the nature and extent of his or her interest (or
else that the Director is not aware of the interest or not aware of the transaction or arrangement in
question, or else that the interest cannot be reasonably regarded to give rise to a conflict of interest),
a Director notwithstanding his or her office:
a. may be a party to, or otherwise interested in, any transaction or arrangement with the Company
or in which the Company is otherwise (directly or indirectly) interested;
b.
(may act by himself or herself or his or her firm in a professional capacity for the Company
(otherwise than as auditor) and he or she or his or her firm shall be entitled to remuneration
for professional services as if he or she were not a Director;
a.
b.
to disclose any such information to the Board or to any Director or other officer or employee of
the Company; and/or
to use or apply any such information in performing his or her duties as a Director of
the Company.
Where the existence of a Director’s relationship with another person has been approved by the
Board and his or her relationship with that person gives rise to a conflict of interest or possible
conflict of interest, the Director shall not be in breach of the general duties he or she owes to the
Company by virtue of sections 171 to 177 of the Act because he or she:
a.
absents himself or herself from meetings of the Board at which any matter relating to the
conflict of interest or possible conflict of interest will or may be discussed or from the discussion
of any such matter at a meeting or otherwise; and/or
b. makes arrangements not to receive documents and information relating to any matter which
gives rise to the conflict of interest or possible conflict of interest sent or supplied by the
Company and/or for such documents and information to be received and read by a professional
adviser, for so long as he or she reasonably believes such conflict of interest or possible conflict
of interest subsists.
Except as stated below, a Director shall not vote in respect of any contract or arrangement or any
other proposal whatsoever in which he or she has an interest which is, to his or her knowledge, a
material interest, otherwise than by virtue of his or her interests in shares or debentures or other
securities of or otherwise in or through the Company. A Director shall not be counted in the quorum
at a meeting of the Board in relation to any resolution on which he or she is debarred from voting.
Notwithstanding the foregoing, a Director will be entitled to vote, and be counted in the quorum, on
any resolution concerning any of the following matters:
c. may be a Director or other officer of, or employed by, or a party to a transaction or arrangement
with, or otherwise interested in, any body corporate in which the Company is otherwise (directly
or indirectly) interested.
— the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred
by him or her or by any other person at the request of or for the benefit of the Company or any
of its subsidiaries;
A Director shall not, by reason of his or her office, be accountable to the Company for any
remuneration or other benefit which he or she derives from any office or employment or from
any transaction or arrangement or from any interest in any body corporate:
a.
the acceptance, entry into or existence of which has been approved by the Board
(subject, in any such case, to any limits or conditions to which such approval was subject); or
b. which he or she is permitted to hold or enter into by virtue of paragraph (a), (b) or (c) above;
nor shall the receipt of any such remuneration or other benefit constitute a breach of his or her
duty under section 176 of the Act.
A Director shall be under no duty to the Company with respect to any information which he or
she obtains or has obtained otherwise than as a Director of the Company and in respect of which
he or she owes a duty of confidentiality to another person. However, to the extent that his or her
relationship with that other person gives rise to a conflict of interest or possible conflict of interest,
the preceding sentence only applies if the existence of such relationship has been approved by the
Board. In such circumstances, the Director shall not be in breach of the general duties he or she
owes to the Company by virtue of sections 171 to 177 of the Act because he or she fails:
— the giving of any guarantee, security or indemnity to a third party in respect of a debt or
obligation of the Company or any of its subsidiaries for which he himself or she herself has
assumed responsibility in whole or in part and whether alone or jointly with others under a
guarantee or indemnity or by the giving of security;
— any proposal relating to the Company or any of its subsidiary undertakings where it is offering
securities in which offer a Director is or may be entitled to participate as a holder of securities
or in the underwriting or sub-underwriting of which a Director is to participate;
— any proposal relating to another Company in which he or she and any persons connected with
him or her do not to his or her knowledge hold an interest in shares (as that term is used in
sections 820 to 825 of the Act) representing one percent or more of either any class of the
equity share capital, or the voting rights, in such Company;
— any proposal relating to an arrangement for the benefit of the employees of the Company or
any of its subsidiary undertakings which does not award him or her any privilege or benefit not
generally awarded to the employees to whom such arrangement relates; and
— any proposal concerning insurance that the Company proposes to maintain or purchase for
the benefit of Directors or for the benefit of persons, including Directors.
Annual report and accounts 2023 Pearson plc 238
Annual report and accounts 2023 Pearson plc 238
Other information (unaudited) Where proposals are under consideration concerning the appointment of two or more Directors to
offices or employment with us or any Company in which the Group is interested, these proposals
may be divided and considered separately and each of these Directors, if not prohibited from voting
under the provisions of the eighth paragraph before this one, will be entitled to vote and be counted
in the quorum with respect to each resolution except that concerning his or her own appointment.
Retirement and re-appointment of Directors
At every AGM, all the Directors at the date of the notice convening the AGM shall retire from
office. A retiring Director shall, if willing to act, be eligible for re-appointment. If he or she is not
re-appointed, he or she shall retain office until the meeting appoints someone in his or her place,
or if it does not do so, until of the end of the meeting, or until the end of the adjourned meeting if
the meeting is adjourned.
Where a Director has been reappointed after notice of the AGM has been given, that Director
shall retire at the next AGM of which notice is first given after his or her appointment as Director.
If there is an insufficient number of appointed or re-appointed Directors at any of the Company’s
AGM thus rendering the Board inquorate, all Directors shall be automatically re-appointed only for
the purposes of filling vacancies and convening general meetings of the Company and to perform
such duties as are appropriate to maintain the Company as a going concern and to enable it to
comply with its legal and regulatory obligations. The Directors are required to convene a further
general meeting of the Company as soon as reasonably practicable to allow new Directors to
be appointed, and such Directors who were not appointed at the original general meeting shall
subsequently retire.
Borrowing powers
The Board of Directors may exercise all powers to borrow money and to mortgage or charge the
Group’s undertaking, property and uncalled capital and to issue debentures and other securities,
whether outright or as collateral security for any of its or any third party’s debts, liabilities or
obligations. The Board of Directors must restrict the borrowings in order to secure that the
aggregate amount of undischarged monies borrowed by the Group (and any of its subsidiaries),
but excluding any intra-group debts, shall not at any time (without the previous sanction of the
Company in the form of an ordinary resolution) exceed a sum equal to twice the aggregate of
the adjusted capital and reserves.
Other provisions relating to Directors
Under the Articles of Association, Directors are paid out of the Group’s funds for their services as it
may from time to time determine by ordinary resolution and, in the case of Non-Executive Directors,
up to an aggregate of £1,000,000 per year or such other amounts as resolved by the shareholders
at a general meeting. Any Director who is not an Executive Director and who performs special
services which in the opinion of the Board are outside the scope of the ordinary duties of a Director,
may be paid such extra remuneration by way of additional fee, salary, commission or otherwise as
the Board may determine in accordance with the Group’s remuneration policy. Under the Articles
of Association, Directors currently are not required to hold any share qualification. However, the
remuneration policy mandates a shareholding guideline for Executive Directors which they are
expected to build towards over a specified period.
General meetings
Pursuant to the Act, the Company must hold an AGM (within six months beginning with the day
following its accounting reference date) at a place and time determined by the Board. The following
matters are usually considered at an AGM:
— approval of final dividend;
— consideration of the Company’s annual accounts together with associated reports of the Board of
Directors and auditors;
— appointment or re-appointment of Directors;
— appointment or re-appointment of the auditors, and authorisation for the Audit Committee to
determine and fix the remuneration of the auditors; and
— renewal, limitation, extension, variation or grant of any authority to the Board in relation to the
allotment and repurchase of securities.
The Board may call a general meeting whenever it thinks fit. If at any time there are not within the
United Kingdom sufficient Directors capable of acting to form a quorum, any Director or any two
members may convene a general meeting in the same manner as nearly as possible as that in
which meetings may be convened by the Board.
No business shall be dealt with at any general meeting unless a quorum is present when the meeting
proceeds to business. Three members present in person or by proxy and entitled to vote shall be a
quorum for all purposes. A corporation being a member shall be deemed to be personally present
if represented by its duly authorised representative.
If a quorum for a meeting convened at the request of shareholders is not present within 15 minutes
of the appointed time (or if during a meeting such a quorum ceases to be present), the meeting
will be dissolved. In any other case, the general meeting will be adjourned to such time and with
such means of attendance and participation as the Chair of the meeting may determine. If at that
rescheduled meeting a quorum is not present within fifteen minutes from the time appointed for
holding the meeting, the shareholders present in person or by proxy will be a quorum. The Chair or,
in his or her absence, the Deputy Chair or any other Director nominated by the Board, will preside
as Chair at every general meeting. If no Director is present at the general meeting or no Director
consents to act as Chair, the shareholders present shall elect one of their number to be Chair of
the meeting.
The Board may resolve to enable persons entitled to attend and participate in a general meeting
to do so by simultaneous attendance and participation by means of electronic facility or facilities
and determine the means, or all different means, of attendance and participation used in relation
to a general meeting. The members present in person or by proxy by means of electronic facility
or facilities shall be counted in the quorum for, and entitled to participate in the general meeting in
question. That meeting shall be duly constituted and its proceedings valid if the Chair of the meeting
is satisfied that adequate facilities are available throughout the meeting to ensure that members
attending the meeting by all means (including by means of electronic facility or facilities) are able to:
a. participate in the business for which the meeting has been convened;
b. hear all persons who speak at the meeting; and
c. be heard by all persons present at the meeting.
Annual report and accounts 2023 Pearson plc 239
Annual report and accounts 2023 Pearson plc 239
Other information (unaudited) Additional information for US listing purposes continued
A member seeking to be present in person or by proxy at a general meeting by means of electronic
facility or facilities is responsible for ensuring they have access to and can use the facility or facilities.
The meeting shall be duly constituted and its proceedings valid notwithstanding the inability of the
member to gain access to use the facility or facilities, or the loss of access to or use of the facility or
facilities during the meeting.
Share certificates
Every person whose name is entered as a member in the Company’s Register of Members shall
be entitled to one certificate in respect of each class of shares held (the law regarding this does
not apply to stock exchange nominees). Subject to the terms of issue of the shares, certificates
are issued following allotment or receipt of the relevant transfer by the Group’s registrar, Equiniti,
Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom.
Share capital
Any share may be issued with such preferred, deferred or other special rights or other restrictions
as may be determined by way of a shareholders’ vote in a general meeting. Subject to the Act, any
shares may be issued which are to be redeemed or are liable to be redeemed at the option of the
Company or the shareholders.
Voting rights
Every holder of ordinary shares present in person or by proxy at a meeting of shareholders has one
vote on a vote taken by a show of hands. On a poll, every holder of ordinary shares who is present
in person or by proxy has one vote for every 25 pence of nominal share capital (being one ordinary
share) of which he or she is the holder. Voting at any meeting of shareholders is usually on a poll
rather than by show of hands. Voting on a poll is more transparent and equitable because it includes
the votes of all shareholders, including those cast by proxies, rather than just the votes of those
shareholders who attend the meeting. A poll may be also demanded by:
— the Chair of the meeting;
— at least three shareholders present in person or by proxy and entitled to vote;
— any shareholder or shareholders present in person or by proxy representing not less than
one-tenth of the total voting rights of all shareholders having the right to vote at the meeting; or
— any shareholder or shareholders present in person or by proxy holding shares conferring a right
to vote at the meeting being shares on which the aggregate sum paid up is equal to not less than
one-tenth of the total sum paid up on all shares conferring that right.
Dividends
There are no provisions in the Articles of Association which discriminate against any existing or
prospective shareholder as a result of such shareholder owning a substantial number of shares.
Holders of ordinary shares are entitled to receive dividends out of Group profits that are available by law
for distribution, as the Group may declare by ordinary resolution, subject to the terms of issue thereof.
Subject to the terms of the shares which have been issued, the Directors may from time to time
make calls upon the shareholders in respect of any moneys unpaid on their shares, provided that
(subject to the terms of the shares so issued) no call on any share shall be payable at less than 14
clear days from the last call. The Directors may, if they see fit, receive from any shareholder willing
to advance the same, all and any part of the moneys uncalled and unpaid upon any shares held by
him or her.
Changes in capital
The Group may, from time to time by ordinary resolution subject to the Act:
— consolidate and divide all or any of its share capital into shares of a larger nominal amount
than its existing shares; or
— sub-divide all of or any of its existing shares into shares of smaller nominal amounts.
The Group may, from time to time, increase its share capital by allotting new shares in accordance
with the prescribed threshold authorised by shareholders at the last AGM and subject to the
consents and procedures required by the Act. The Group may also, by special resolution, reduce
its share capital.
However, no dividends may be declared in excess of an amount recommended by the Board of
Directors. The Board may pay interim dividends on the shares of any class as it deems fit. It may
invest or otherwise use all dividends left unclaimed for six months after having been declared
for its benefit, until claimed. All dividends unclaimed for a period of eight years after having been
declared will be forfeited and revert to the Group.
The Directors may, with the sanction of an ordinary resolution of the shareholders, offer any holders
of ordinary shares the right to elect to receive ordinary shares credited as fully paid, in whole or in
part, instead of cash in respect of such dividend.
The Directors may deduct from any dividend payable to any shareholder all sums of money (if any) presently
payable by that shareholder to the Group on account of calls or otherwise in relation to its shares.
Dividends may be paid by such method or combination of methods as the Board, in its absolute discretion,
may decide. Different methods of payment may apply to different holders or groups of holders.
Liquidation rights
In the event of the Group’s liquidation, after payment of all liabilities, its remaining assets would
be used to repay the holders of ordinary shares the amount they paid for their ordinary shares.
Any balance would be divided among the holders of ordinary shares in proportion to the nominal
amount of the ordinary shares held by them.
Annual report and accounts 2023 Pearson plc 240
Annual report and accounts 2023 Pearson plc 240
Other information (unaudited) Other provisions of the Articles of Association
Executive employment contracts
Whenever the Group’s capital is divided into different classes of shares, the special rights attached
to any class may, unless otherwise provided by the terms of the issue of the shares of that class, be
varied or abrogated, either with the written consent of the holders of 75% of the issued shares of the
class (excluding any issued as treasury shares) or with the sanction of a special resolution passed at
a separate meeting of these holders. Conditions set out in the Articles of Association with respect
to the variation of rights are subject to the provisions of the Act. In the event that a shareholder or
other person appearing to the Board of Directors to be interested in ordinary shares fails to comply
with a notice requiring him or her to provide information with respect to their interest in voting
shares pursuant to section 793 of the Act, the Board may serve that shareholder with a notice of
default. After service of a default notice, that shareholder shall not be entitled to attend or vote at
any general meeting or at a separate meeting of holders of a class of shares or on a poll until he or
she has complied in full with the Group’s information request.
If the shares described in the default notice represent at least 25% of 1% in nominal value of the issued
ordinary shares, then the default notice may additionally direct that in respect of those shares:
The Group has entered into agreements with each of its Executive Directors pursuant to which
such Executive Director is employed by the Group. These agreements describe the duties of such
Executive Director and the compensation to be paid by us.
It is the Group’s policy that it may terminate the Executive Directors’ service agreements by giving
no more than 12 months’ notice. As an alternative, the Group may at its discretion pay in lieu of
that notice. Payment-in-lieu of notice may be made in equal monthly installments from the date of
termination to the end of any unexpired notice period. In the case of Executive Directors, payment-
in-lieu of notice in installments may also be subject to mitigation and reduced taking into account
earnings from alternative employment. For Executive Directors, pay in lieu of notice comprises 100%
of the annual salary at the date of termination and the annual cost to the Company of providing
pension and all other benefits. The Group may, depending on the circumstances of the termination,
determine that it will not pay the Director in lieu of notice and may instead terminate a Director’s
contract in breach and make a damages payment, taking into account as appropriate the Director’s
ability to mitigate their loss.
— the Group will not pay dividends (or issue shares in lieu of dividends); and
Exchange controls
— the Group will not register transfers of shares unless (i) the shareholder is not themself in default
as regards supplying the information requested and the transfer, when presented for registration,
is accompanied by a certificate from the shareholder in such form as the Board of Directors may
require to the effect that after due and careful inquiry, the shareholder is satisfied that no person
in default is interested in any of the ordinary shares which are being transferred; (ii) the transfer
is an approved transfer, as defined in the Articles of Association; or (iii) the registration of the
transfer is required by the Uncertificated Securities Regulations 2001.
No provision of the Articles of Association expressly governs the ordinary share ownership
threshold above which shareholder ownership must be disclosed. Under the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority, any person who acquires, either alone
or, in specified circumstances, with others an interest in the Company’s voting share capital equal
to or in excess of 3% comes under an obligation to disclose prescribed particulars to the Company
in respect of those ordinary shares. A disclosure obligation also arises where a person’s notifiable
interests fall below 3%, or where, at or above 3%, the percentage of the Company’s voting share
capital in which a person has a notifiable interest reaches, exceeds or falls below 3%, 4%, 5%, 6%,
7%, 8%, 9%, 10%, and each 1% threshold thereafter up to 100%.
Limitations affecting holders of ordinary shares or ADSs
Under English law and Articles of Association, persons who are neither UK residents nor UK nationals
may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.
With respect to the items discussed above, applicable UK law is not materially different from
applicable US law.
Material contracts
The Group is not currently party to any contracts outside the ordinary course of business, other
than the Trust Deed entered into in 2020 with respect to £350.0 million aggregate principal amount
of 3.750% guaranteed notes due 2030, in each case, issued by a subsidiary and guaranteed by
Pearson, which is filed as Exhibit 2.2 of this report.
There are no UK Government laws, decrees, regulations or other legislation which restrict or which
may affect the import or export of capital, including the availability of cash and cash equivalents for
use by us or the remittance of dividends, interest or other payments to non-resident holders of the
Group’s securities, except as otherwise described under ‘Tax Considerations’ below.
Tax considerations
The following is a discussion of the material US federal income tax considerations and UK tax
considerations arising from the acquisition, ownership and disposition of ordinary shares and
ADSs by a US holder. A US holder is:
— an individual citizen or resident of the US, or
— a corporation created or organised in or under the laws of the US or any of its political
subdivisions, or
— an estate or trust the income of which is subject to US federal income taxation regardless of
its source.
This discussion deals only with ordinary shares and ADSs that are held as capital assets by a US
holder, and does not address tax considerations applicable to US holders that may be subject to
special tax rules, such as:
— dealers or traders in securities or currencies,
— financial institutions or other US holders that treat income in respect of the ordinary shares or
ADSs as financial services income,
— insurance companies,
— tax-exempt entities,
— persons acquiring shares or ADSs in connection with employment,
— US holders that hold the ordinary shares or ADSs as a part of a straddle or conversion transaction
or other arrangement involving more than one position,
Annual report and accounts 2023 Pearson plc 241
Annual report and accounts 2023 Pearson plc 241
Other information (unaudited) Additional information for US listing purposes continued
— US holders that own, or are deemed for US tax purposes to own, 10% or more of the total
combined voting power of all classes of the Group’s voting stock,
— US holders that have a principal place of business or ‘tax home’ outside the United States, or
— US holders whose ‘functional currency’ is not the US dollar.
For US federal income tax purposes, holders of ADSs will be treated as the owners of the ordinary
shares represented by those ADSs. In practice, HM Revenue & Customs (HMRC) will also regard
holders of ADSs as the beneficial owners of the ordinary shares represented by those ADSs,
although case law has cast some doubt on this. The discussion below assumes that HMRC’s
position is followed.
In addition, the following discussion assumes that The Bank of New York Mellon will perform its
obligations as depositary in accordance with the terms of the depositary agreement and any
related agreements.
Because US and UK tax consequences may differ from one holder to the next, the discussion set
out below does not purport to describe all of the tax considerations that may be relevant to you
and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the
US federal, state and local, UK and other, including foreign, tax consequences of investing in the
ordinary shares or ADSs. Except where otherwise indicated, the statements of US and UK tax law
set out below are based on the laws, interpretations and tax authority practice in force or applicable
as of 28 February 2024 and are subject to any changes occurring after that date, possibly with
retroactive effect.
UK income taxation of distributions
The UK does not impose dividend withholding tax on dividends paid by the Company.
A US holder that is not resident in the UK for UK tax purposes and does not carry on a trade,
profession or vocation in the UK through a branch or agency (or in the case of a company a
permanent establishment) to which the ordinary shares or ADSs are attributable will not generally
be liable to pay UK tax on dividends paid by the Company.
US income taxation of distributions
Distributions that the Group makes with respect to the ordinary shares or ADSs, other than
distributions in liquidation and distributions in redemption of stock that are treated as exchanges,
will be taxed to US holders as ordinary dividend income to the extent that the distributions do not
exceed the Group’s current and accumulated earnings and profits. The amount of any distribution
will equal the amount of the cash distribution. Distributions, if any, in excess of the Group’s current
and accumulated earnings and profits will constitute a non-taxable return of capital to a US holder
and will be applied against and reduce the US holder’s tax basis in its ordinary shares or ADSs. To
the extent that these distributions exceed the tax basis of the US holder in its ordinary shares or
ADSs, the excess generally will be treated as capital gain.
Dividends that the Group pays will not be eligible for the dividends received deduction generally
allowed to US corporations under Section 243 of the Code.
In the case of distributions in pounds sterling, the amount of the distributions generally will equal
the US dollar value of the pounds sterling distributed, determined by reference to the spot currency
exchange rate on the date of receipt of the distribution by the US holder in the case of shares or
by The Bank of New York Mellon in the case of ADSs, regardless of whether the US holder reports
income on a cash basis or an accrual basis. The US holder will realise separate foreign currency gain
or loss only to the extent that this gain or loss arises on the actual disposition of pounds sterling
received. For US holders claiming tax credits on a cash basis, taxes withheld from the distribution are
translated into US dollars at the spot rate on the date of the distribution; for US holders claiming tax
credits on an accrual basis, taxes withheld from the distribution are translated into US dollars at the
average rate for the taxable year.
A distribution by the Company to non-corporate shareholders will be taxed as net capital gain at a
maximum rate of 20%, provided certain holding periods are met, to the extent such distribution is
treated as a dividend under US federal income tax principles. In addition, a 3.8% Medicare tax will
generally be imposed on the net investment income, which generally would include distributions
treated as dividends under US federal income tax principles, of non-corporate taxpayers whose
adjusted gross income exceeds a threshold amount.
UK taxation of capital gains
A US holder that is not resident in the UK for UK tax purposes and does not carry on a trade,
profession or vocation in the UK through a branch or agency (or in the case of a company a
permanent establishment) to which the ordinary shares or ADSs are attributable will not generally
be liable for UK taxation on capital gains or eligible for relief for allowable losses, realised on the
sale or other disposal of the ordinary shares or ADSs.
A US holder who is an individual who has been resident for tax purposes in the UK but who ceases
to be so resident or becomes regarded as resident outside the UK for the purposes of any double
tax treaty (‘Treaty Non-resident’) and continues to not be resident in the UK, or continues to be
Treaty Non-resident, for a period of five years or less and who disposes of his ordinary shares or
ADSs during that period may also be liable on his return to the UK to UK tax on capital gains, subject
to any available exemption or relief, even though he or she is not resident in the UK, or is Treaty
Non-resident, at the time of the disposal.
US income taxation of capital gains
Upon a sale or exchange of ordinary shares or ADSs to a person other than Pearson, a US holder will
recognise gain or loss in an amount equal to the difference between the amount realised on the sale
or exchange and the US holder’s adjusted tax basis in the ordinary shares or ADSs. Any gain or loss
recognised will be capital gain or loss and will be long-term capital gain or loss if the US holder has
held the ordinary shares or ADSs for more than one year. Long-term capital gain of a non-corporate
US holder is generally taxed at a maximum rate of 20%. In addition, a 3.8% Medicare tax will generally
be imposed on the net investment income, which generally would include capital gains, of non-
corporate taxpayers whose adjusted gross income exceeds a threshold amount.
Gain or loss realised by a US holder on the sale or exchange of ordinary shares or ADSs generally will
be treated as US-source gain or loss for US foreign tax credit purposes.
Annual report and accounts 2023 Pearson plc 242
Annual report and accounts 2023 Pearson plc 242
Other information (unaudited) Estate and gift tax
The current Estate and Gift Tax Convention (referred to in this paragraph as the ‘Convention’),
between the US and the UK generally relieves from UK inheritance tax (the equivalent of US estate
and gift tax) the transfer of ordinary shares or of ADSs where the transferor is domiciled in the US
for the purposes of the Convention. This relief will not apply if the ordinary shares or ADSs are part
of the business property of an individual’s permanent establishment in the UK or pertain to the fixed
base in the UK of a person providing independent personal services. If no relief is given under the
Convention, inheritance tax may be charged on death and also on the amount by which the value of
an individual’s estate is reduced as a result of any transfer made by way of gift or other gratuitous
or undervalue transfer, in general within seven years of death, and in certain other circumstances.
In the unusual case where ordinary shares or ADSs are subject to both UK inheritance tax and US
estate or gift tax, the Convention generally provides for tax paid in the UK to be credited against tax
payable in the US or for tax paid in the US to be credited against tax payable in the UK based on
priority rules set forth in the Convention.
Stamp duty
No stamp duty or stamp duty reserve tax (SDRT) will generally be payable in the UK on the purchase
or transfer of an ADS, provided that the ADS, and any separate instrument or written agreement
of transfer, remain at all times outside the UK and that the instrument or written agreement of
transfer is not executed in the UK. Subject to the following paragraph, UK legislation does however
provide for SDRT or (in the case of transfers) stamp duty to be chargeable at the rate of 1.5% of the
amount or value of the consideration or, in some circumstances, the value of the ordinary shares
(rounded up to the next multiple of £5 in the case of stamp duty), where ordinary shares are issued
or transferred to a person whose business is or includes issuing depositary receipts, or to a nominee
or agent for such a person, or issued or transferred to a person whose business is or includes the
provision of clearance services or to a nominee or agent for such a person.
Following certain EU litigation, HM Revenue & Customs (HMRC) accepted that it would no longer
seek to apply the 1.5% SDRT charge when new shares are issued to a clearance service or depositary
receipt system (or transferred into a clearance service or depositary receipt system, where such
transfer is integral to the raising of capital by the company concerned) on the basis that the charge
was not compatible with EU law. Following the UK’s departure from the EU, such pre-existing EU
law rights, recognised in litigation, were preserved as a domestic law matter following the end of
the implementation period on 31 December 2020 pursuant to provisions of the UK European Union
(Withdrawal) Act 2018. In addition, however, on 29 June 2023 the Retained EU Law (Revocation
and Reform) Act was enacted which had the effect that such pre-existing EU law rights, recognised
in litigation, would by default (that is, absent the exercise of a regulation-making power to restate
or reproduce such rights in domestic law) cease to be recognised after 31 December 2023. The
Finance Act 2024, which received Royal Assent on 22 February 2024, makes provision to ensure
it continues to be the case, notwithstanding the effect of the Retained EU Law (Revocation and
Reform) Act 2023, that stamp duty or SDRT of 1.5% is not payable in relation to (i) issues of shares
into depositary receipt systems and clearance services and (ii) transfers of shares into a depositary
receipt system or clearance service, where such transfer is integral to the raising of new capital by
the company concerned.
The Finance Act 2024 also includes an additional exemption for ‘qualifying listing arrangements’
where shares are transferred (without a change in beneficial ownership) in connection with the
listing of such shares on a ‘recognised stock exchange’. Specific professional advice should be
sought before paying the 1.5% SDRT or stamp duty charge in any circumstances.
A transfer for value of the underlying ordinary shares will generally be subject to either stamp duty
or SDRT, normally at the rate of 0.5% of the amount or value of the consideration (rounded up to
the next multiple of £5 in the case of stamp duty). A transfer of ordinary shares from a nominee to
its beneficial owner, including the transfer of underlying ordinary shares from the Depositary to an
ADS holder, under which no beneficial interest passes will not be subject to stamp duty or SDRT.
Close company status
The Group believes that the close company provisions of the UK Corporation Tax Act 2010 do not
apply to it.
Documents on display
Copies of the Group’s Memorandum and Articles of Association are filed as exhibits to its Annual
Report on Form 20-F for the year ended 31 December 2023. We also file reports and other
information with the SEC. These materials, including this Annual Report and the accompanying
exhibits are available on the Investors page of the Company’s website (pearsonplc.com). In addition,
shareholders may request a copy of certain documents referred to in this Annual Report by writing
to us at the following address: Pearson plc, c/o the Company Secretary, 80 Strand, London WC2R 0RL.
Description of Securities Other than Equity Securities
American Depository Shares
The Group’s ordinary shares trade in the form of ADSs evidenced by ADRs under a sponsored ADR
facility with The Bank of New York Mellon, as depositary. Each ADS represents one ordinary share.
The principal executive office of The Bank of New York Mellon is located at 240 Greenwich Street,
New York, NY 10286.
Fees paid by ADR holders
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing
shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them.
The depositary collects fees for making distributions to investors by deducting those fees from the
amounts distributed or by selling a portion of distributable property to pay the fees. The depositary
may collect its annual fee for depositary services by deductions from cash distributions or by directly
billing investors or by charging the book-entry system accounts of participants acting for them. The
depositary may generally refuse to provide fee-attracting services until its fees for those services
are paid.
Annual report and accounts 2023 Pearson plc 243
Annual report and accounts 2023 Pearson plc 243
Other information (unaudited) Additional information for US listing purposes continued
The following table summarises various fees currently charged by The Bank of New York Mellon:
Person depositing or withdrawing shares must pay to
the depositary:
For:
$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
— Issuance of ADSs, including issuances
resulting from a distribution of shares or rights
or other property
$.05 (or less) per ADS
A fee equivalent to the fee that would be
payable if securities distributed had been
shares and the shares had been deposited
for issuance of ADSs
$.05 (or less) per ADS per calendar year
Registration of transfer fees
Expenses of the depositary
Taxes and other governmental charges the
depositary or the custodian have to pay on
any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty
or withholding taxes
Any charges incurred by the depositary or its
agents for servicing the deposited securities
— Cancelation of ADSs for the purpose
of withdrawal, including if the deposit
agreement terminates
— Any cash distribution to ADS
registered holders
— Distribution of securities by the
depositary to ADS registered holders
of deposited securities
— Depositary services
— Transfer and registration of shares on the
share register to or from the name of the
depositary or its agent when shares are
deposited or withdrawn
— Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
— Converting foreign currency to US dollars
— As necessary
— As necessary
Fees incurred in past annual period and fees to be paid in the future
The Depositary reimburses the Company for certain expenses it incurs in relation to the ADS
programme. The Depositary also pays the standard out-of-pocket maintenance costs for the
registered ADSs, which consist of the expenses for the mailing and printing of proxy materials,
distributing dividend checks, electronic filing of US federal tax information, mailing required tax
forms, stationery, postage, facsimile and telephone calls. It also reimburses the Company for certain
investor relationship programs or special investor relations promotional activities. There are limits
on the amount of expenses for which the Depositary will reimburse the Company, but the amount of
reimbursement is not necessarily tied to the amount of fees the Depositary collects from investors.
The Company received $50,000 as reimbursement from the Depositary for 2023.
Controls and Procedures
Disclosure controls and procedures
An evaluation of the effectiveness of the Group’s disclosure controls and procedures as
of 31 December 2023 was carried out by management, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) were effective as at 31 December 2023 at a reasonable assurance level.
A controls system, no matter how well designed and operated, cannot provide absolute assurance
to achieve its objectives.
Management’s annual report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting is a process designed
by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer, or persons
performing similar functions, and effected by the Company’s board of directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Management has assessed the effectiveness of internal control
over financial reporting as of 31 December 2023 based on the framework in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (‘COSO’). Based on this evaluation, management has concluded that the Company’s
internal control over financial reporting was effective as of 31 December 2023 based on criteria
in Internal Control — Integrated Framework (2013) issued by the COSO.
Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness
of the Company’s internal control over financial reporting as of 31 December 2023, as stated in
their report.
Change in internal control over financial reporting
During the period covered by this Annual Report on Form 20-F, there have been no significant
changes in our internal control over financial reporting during the year ended 31 December 2023
that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Audit Committee financial expert
The members of the Board of Directors of Pearson plc have determined that Graeme Pitkethly
is an Audit Committee financial expert within the meaning of the applicable rules and regulations
of the SEC.
Code of Ethics
Pearson has adopted a code of ethics (the Pearson code of conduct) which applies to all
employees including the Chief Executive Officer and Chief Financial Officer and other senior financial
management. This code of ethics is available on the Group’s website (www.pearson.com/corporate/
code-of-conduct.html). The information on this website is not incorporated by reference into
this report.
Annual report and accounts 2023 Pearson plc 244
Annual report and accounts 2023 Pearson plc 244
Other information (unaudited) Principal accountant fees and services
In line with best practice, the Group’s relationship with Ernst & Young LLP (EY) is governed by its
external auditor policy, which is reviewed and approved annually by the Audit Committee. The policy
establishes procedures to ensure the auditors’ independence is not compromised as well as defining
those non-audit services that EY may or may not provide to Pearson. These allowable services are in
accordance with relevant UK and US legislation.
The Audit Committee approves all audit and non-audit services provided by EY, unless clearly trivial.
Where appropriate, services will be tendered prior to awarding this work to the auditor.
On 24 February 2022, the Board approved a £350m share buyback programme in order to return
capital to shareholders. During the year, all of the shares were bought back and cancelled at a cost
of £353m. The nominal value of these shares, £10m, was transferred to the capital redemption
reserve, and the remainder of the cost is recorded within retained earnings. In 2021, no shares
were bought back.
All purchases were made in open-market transactions in London in accordance with applicable law.
Pearson did not structure such purchases to fall within the safe harbor provisions of the U.S. SEC’s
Rule 10b-18.
No fees were incurred in relation to taxation, including tax compliance, tax advice and tax planning.
Change in registrants certifying accountant
Purchases of equity securities by the issuer and affiliated purchases
Not applicable.
Period
1 April 2022 – 30 April 2022
1 May 2022 – 31 May 2022
1 June 2022 – 30 June 2022
1 July 2022 – 31 July 2022
1 August 2022 – 31 August 2022
1 September 2022 – 30 September 2022
1 October 2022 – 31 October 2022
1 November 2022 – 30 November 2022
1 December 2022 – 31 December 2022
1 March 2023 – 31 March 2023
1 May 2023 – 31 May 2023
1 September 2023 – 30 September 2023
1 October 2023 – 31 October 2023
1 November 2023 – 30 November 2023
1 December 2023 – 31 December 2023
Total number
of shares
purchased
Average price
paid per share
Total number
of units
purchased
as part of publicly
announced plans
or programs
Approximate
maximum value
of shares that
may yet be
purchased under
the plans or
programs
11,176,349
4,518,993
7,203,444
2,897,074
2,567,366
5,496,817
6,315,733
3,017,726
3,587,362
1,757,098
1,191,462
2,459,066
11,239,824
3,108,579
4,479,186
£ 7.77
£ 7.55
£ 7.52
£ 7.57
£ 8.75
£ 8.91
£ 9.03
£ 9.72
£ 9.46
£8.54
£8.39
£8.69
£9.03
£9.48
£9.44
9,885,524
4,518,993
5,363,132
2,897,074
2,567,366
5,496,817
6,315,733
3,017,726
2,205,695
–
–
2,459,066
11,239,824
3,108,579
3,436,047
£ 275m
£ 241m
£ 201m
£ 179m
£ 156m
£ 107m
£ 50m
£ 21m
n/a
£301m
£301m
£280m
£178m
£149m
£117m
On 20 September 2023, the Board approved a £300m share buyback programme in order to
return capital to shareholders. During the year, approximately 20m shares were bought back and
cancelled at a cost of £185m. The nominal value of these shares, £5m, was transferred to the capital
redemption reserve, and the remainder of the purchase price is recorded within retained earnings.
A further £117m was accrued for those amounts committed but not yet repurchased.
Cybersecurity
We believe cybersecurity is of critical importance to our success. We are susceptible to a number
of significant, persistent and evolving cybersecurity threats, including those common to most
industries as well as those we face as a worldwide learning company with principal operations in
the education, assessment and certifications markets. The Group holds large volumes of personal
data on individuals worldwide, including that of employees, customers, students, teachers and
learners in the workforce, as well as other highly sensitive business critical data such as financial
data, internal sensitive information, and intellectual property. Despite our implementation of security
measures, threat actors of all types, including individuals, criminal organisations and state sponsored
operatives, have from time to time gained access, and may in the future gain access to the Group’s
data through unauthorised means in order to misappropriate such information for fraudulent or
other purposes. Failure to prevent or detect a malicious attack on the Group’s systems has in the
past and could in future result in loss of system availability, breach of confidentiality, integrity and/
or availability of sensitive information, and damage to the customer experience and the Group’s
reputation and financial loss. Accordingly, we continuously evaluate the impact of cybersecurity
threats, and are committed to the highest standards of data management and these will naturally
evolve with our business as we continue our digital transformation.
Annual report and accounts 2023 Pearson plc 245
Annual report and accounts 2023 Pearson plc 245
Other information (unaudited) Additional information for US listing purposes continued
In addition, our third-party vendors and service providers play a role in our cybersecurity. These
third parties are integral to our operations but pose cybersecurity challenges due to their access
to our data and our reliance for various aspects of our operations, including our supply chain.
We have developed a third-party vendor risk management programme to assess and manage
the risks associated with third-party partnerships, particularly in data security and cybersecurity.
We conduct due diligence before onboarding new vendors and maintain ongoing evaluations to
ensure compliance with our security standards.
As of the date of this report, no cybersecurity incidents have had, either individually or in the
aggregate, a material adverse effect on our business, financial condition or results of operations.
Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in
preventing or mitigating a cybersecurity incident that could have a material adverse effect on us.
While we maintain cyber risk insurance, the costs relating to certain kinds of security incidents could
be substantial, and our insurance may not be sufficient to cover all losses related to any future
incidents involving our data or systems.
See ‘Risk Factors’ on pages 229-235 for a discussion of cybersecurity risks that may materially
impact us.
Pearson’s Executive team has overall responsibility for data privacy and security. Our reporting and
risk management structure feeds upwards from individual businesses to Board level. Under the
oversight of our Board of Directors, and the Audit Committee, our management has established
comprehensive processes for identifying, assessing and managing material risks from cybersecurity
threats, and these processes are integrated into our overall enterprise risk management programme.
We have established lines of accountability and reporting procedures designed to enable senior
management executives and divisional privacy owners to have greater visibility over managing
data privacy and security risks. Our approach is proactive and adaptive, featuring regular security
assessments, third-party audits and continuous improvement of our cybersecurity infrastructure.
We also provide all colleagues with training on our updated and strengthened data privacy and cyber
security principles and processes. We work to align our practices with industry best practices and
regulatory standards. Our processes include detailed response procedures to be followed in the
event of a cybersecurity incident, which outline steps to be followed from detection to assessment
and escalation to notification and recovery, including internal notifications to management, the
Audit Committee and the Board, as appropriate.
The Audit Committee of our Board is primarily responsible for oversight of risks, including those from
cybersecurity threats, and is currently chaired by a Director with functional expertise in cybersecurity
matters. Members of management, including our Chief Information Officer provide the Executive
Team and the Trust & Safety committees that have been established with updates on cybersecurity
risk matters on a quarterly basis and more frequently if circumstances dictate. In these updates,
members of the committees are apprised of cybersecurity incidents that are deemed to have had a
moderate or higher impact even if immaterial to us. In addition, the committees review and actively
discusses with management and among themselves the risks related to cybersecurity and critical
systems in order to provide input on the appropriate level of risk for our Company and reviews
management’s strategies for adequately mitigating and managing the identified risks.
The Audit Committee and management regularly update our full Board with respect to
cybersecurity matters.
Our Chief Information Officer is primarily responsible for managing material risks from cybersecurity
threats, and is supported by a dedicated team of internal cybersecurity specialists. Our current
Chief Information Officer has been in that position for eight years and has extensive information
technology experience from that role and past work experience, and many of our internal team hold
cybersecurity certifications such as Certified Information Systems Security Professional or Certified
Information Security Manager. We also engage specialised cybersecurity consultants and leverage
third-party expertise to bolster our cybersecurity defences.
Annual report and accounts 2023 Pearson plc 246
Annual report and accounts 2023 Pearson plc 246
Other information (unaudited) Shareholder Information
Shareholder information
Payment of dividends to mandated accounts
Pearson ordinary shares are listed on the London Stock Exchange and on the New York Stock
Exchange in the form of American Depositary Receipts.
Corporate website
The investors’ section of our corporate website www.pearsonplc.com/investors provides a wealth
of information for shareholders. It is also possible to sign up to receive email alerts for reports and
press releases relating to Pearson at www.pearsonplc.com.
Should you elect to have your dividends paid through BACS, this can be done directly into a bank or
building society account, with the dividend confirmation voucher sent to the shareholder’s registered
address. Equiniti can be contacted for information on 0371 384 2043*.
Dividend reinvestment plan (DRIP)
The DRIP gives shareholders the right to buy the company’s shares on the London stock market with
their cash dividend. For further information, please contact Equiniti on 0371 384 2268*.
Shareholder information online
Individual Savings Accounts (ISAs)
Shareholder information can be found on our website at www.pearsonplc.com/investors.
Our registrar, Equiniti, also provides a range of shareholder information online. You can
check your holding and find practical help on transferring shares or updating your details at
www.shareview.co.uk. For more information, please contact our registrar, Equiniti, Aspect House,
Spencer Road, Lancing, West Sussex, BN99 6DA. Telephone 0371 384 2043* or, for those
shareholders with hearing difficulties, text phone number 0371 384 2255*.
Information about the Pearson share price
Equiniti offers a Flexible Stocks and Shares ISA. For more information, please visit www.eqi.co.uk
or call customer services on 0345 070 0720*.
Share dealing facilities
Equiniti offers telephone and internet services for dealing in Pearson shares. For further information,
please contact their telephone dealing helpline on 0345 603 7037* or, for online dealing, log on
to www.shareview.co.uk/dealing. You will need your shareholder reference number as shown on
your share certificate.
The company’s share price can be found on our website at www.pearsonplc.com/investors/
performance/share-price-dividend. It also appears in the financial columns of the national press.
A postal dealing service is also available through Equiniti. Please telephone 0371 384 2248* for
details or log on to www.shareview.co.uk to download a form.
2023 dividends
Interim
Final1
Payment Date
Amount per share
18 September 2023
3 May 2024
7.0 pence
15.7 pence
Shareholders with small holdings of shares, whose value makes them uneconomic to sell, may wish
to donate them to ShareGift, the share donation charity (registered charity number 1052686).
Further information about ShareGift and the charities it has supported may be obtained from their
website, www.ShareGift.org, or by contacting them at ShareGift, PO Box 72253, London, SW1P 9LQ.
ShareGift
1. Subject to approval by shareholders at the 2024 Annual General Meeting.
2024 financial calendar
Ex-dividend date
Record date
Last date for dividend reinvestment election
Annual General Meeting
American Depositary Receipts (ADRs)
21 March 2024
22 March 2024
12 April 2024
26 April 2024
Pearson’s ADRs are listed on the New York Stock Exchange and traded under the symbol PSO.
Each ADR represents one ordinary share. For enquiries regarding registered ADR holder accounts
and dividends, please contact BNY Mellon Shareowner Services, PO Box 43006, Providence, RI
02940-3078, telephone 1 (866) 259 2289 (toll free within the US) or 001 201 680 6825 (outside the
US). Alternatively, you may email shrrelations@cpushareownerservices.com.
Payment date for dividend and share purchase date for dividend reinvestment
3 May 2024
Voting rights for registered ADR holders can be exercised through Bank of New York Mellon, and for
beneficial ADR holders (and/or nominee accounts) through your US brokerage institution. Pearson
will file with the Securities and Exchange Commission a Form 20-F.
*Lines open 8.30 am to 5.30 pm Monday to Friday (excluding UK public holidays).
Annual report and accounts 2023 Pearson plc 247
Other information (unaudited) Shareholder Information continued
Share register fraud: protecting your investment
Pearson does not contact its shareholders directly to provide recommendations or investment
advice and neither does it appoint third parties to do so. As required by law, our shareholder
register is available for public inspection, but we cannot control the use of information obtained by
persons inspecting the register. Please treat any approaches purporting to originate from Pearson
with caution.
For more information, please log on to our website at www.pearsonplc.com/en-GB/investors/
shareholders/shares-shareholding
Tips on protecting your shares
— Keep any documentation that contains your shareholder reference number in a safe place and
shred any unwanted documentation
— Inform our registrar, Equiniti, promptly when you change address
— Be aware of dividend payment dates and contact the registrar if you do not receive your dividend
cheque or, better still, make arrangements to have the dividend paid directly into your
bank account
— Consider holding your shares electronically in a CREST account via a nominee.
Annual report and accounts 2023 Pearson plc 248
Other information (unaudited) Reliance on this document
The intention of this document is to provide information to shareholders and is not designed to be
relied upon by any other party or for any other purpose.
Forward-looking statements
This document includes forward-looking statements concerning Pearson’s financial condition,
business and operations and its strategy, plans and objectives. Readers are cautioned not to
place undue reliance on such forward-looking statements. In some cases, you can identify
forward-looking statements by terms such as “may”, “will”, “should”, “expect”, “intend”, “plan”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or
other comparable terminology.
By their nature, forward-looking statements involve known and unknown risks and uncertainties and
other factors that may cause Pearson or its industry’s actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking statements. This is because they relate
to events and depend on circumstances that may occur in the future. They are based on numerous
expectations, assumptions and beliefs regarding Pearson’s present and future business strategies
and the environment in which it will operate in the future. Pearson believes that the expectations
reflected in the forward-looking statements are reasonable, although it cannot guarantee future
results, levels of activity, performance or achievements.
There are various factors which could cause Pearson’s actual financial condition, results and
development to differ materially from the plans, goals, objectives and expectations expressed or
implied by these forward-looking statements, many of which are outside Pearson’s control.
These include international, national and local conditions, as well as the impact of competition.
Such risks and other risks and uncertainties are detailed from time to time in Pearson’s
publicly-filed documents and, in particular, the risk factors set out in this document, which
you are advised to read.
Any forward-looking statements speak only as of the date they are made and, except as
required by law, Pearson gives no undertaking to update any forward-looking statements in
this document whether as a result of new information, future developments, changes in its
expectations or otherwise.
Finally, as an example, all statements that express forecasts, expectations and projections, including
trends in results of operations, margins, growth rates, overall market trends, the impact of interest
or exchange rates, the availability of financing, anticipated cost savings and synergies and the
execution of Pearson’s strategy, are forward-looking statements. The forward-looking statements,
specifically the margin target, financial expectations, 2024 outlook and 2025 ambition information,
included on page 27 of this document have been prepared by, and is the responsibility of, Pearson’s
management. Ernst & Young LLP has not audited, reviewed, examined, compiled nor applied agreed-
upon procedures with respect to these forward-looking statements and, accordingly, Ernst & Young
LLP does not express an opinion or any other form of assurance with respect thereto.
Annual report and accounts 2023 Pearson plc 249
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certified according to the rules of the Forest Stewardship Council® (FSC®).
Printed in the UK by Pureprint, a CarbonNeutral® company.
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Principal offices
80 Strand,
London WC2R 0RL, UK
T +44 (0)20 7010 2000
221 River Street,
Hoboken, NJ 07030, USA
T +1 201 236 7000
Pearson plc
Registered number 53723 (England)